Famous Footwear, the main retail unit of the Brown Shoe Company, increasec sales by 1.3 percent to $347.1 million in the first quarter ended April 28 despite a decline in the number of stores. Famous Footwear had 1,066 stores at the end of the quarter, 46 fewer than a year earlier as the group undergoes a thorough restructuring to boost profitability. Brown Shoe plans to close or relocate a total of 90 Famous Footwear stores this year. The chain closed 34 stores in the first quarter, and 27 closures are scheduled in the second quarter.

Famous Footwear benefited from a 2.5 percent increase in same-store sales in the first three months of the fiscal year, while average revenue per square foot improved by 4.5 percent. The chain's revenues were boosted by a 15.0 percent increase in sales of sandals and an 18.0 percent surge in running shoes. A similar pattern could be seen at other American shoe retail chains such as Shoe Carnival (see the news briefs). On the downside, the mild winter affected the sales of boots, and demand for toning shoes remained weak.

Overall, Brown Shoe booked a 1.1 percent increase in sales to $626.4 million, with its wholesale operations rising by 2.8 percent to $223.2 million and the specialty retail business dropping by 6.1 percent to $56.1 million as it is closing down Brown Shoe Closet and F.X. LaSalle stores. Same-store sales for specialty stores were up by 2.6 percent year-on-year in the quarter.

The group is undergoing drastic streamlining involving the exit of some license agreements and businesses, closing down of two American distribution centers and of a factory in China, and downsizing its retail network. The process, which started in 2011 and is scheduled to continue this year, will shave off about $210 million in annual revenues.

At the group's wholesale unit, the growth of the group's ongoing protfolio of brands more than offset the shortfall generated by the termination of some businesses. Fashion brands boosted sales by 20.8 percent led by Franco Sarto and Sam Edelman. The group expects investments made in the Via Spiga and Vince brands to pay off toward the end of 2012 or early 2013. Last year, Brown Shoe added Vince to its license portfolio and will start distributing the brand this autumn. With Vince it aims to strengthen its presence in the premium department store channel, where it is present with Via Spiga, Vera Wang and Sam Edelman. In September 2011, Brown Shoe hired Edmundo Castillo as creative director for Via Spiga and his influence will be visible with the fall/winter collection.

Wholesale revenues from the “Healthy Living” cluster of brands were supported by a 12.4 percent increase booked by Dr. Scholl's Shoes, for which Brown Shoe has a territorial license. Benefiting from its repositioning, the brand has launched new product styles and diversified its distribution network, which had previously relied significantly on Walmart stores. The company said that Dr. Scholl's was performing well at the retailers Famous Footwear, DSW and Belk.

The recently acquired Avia and Rykä brands are also undergoing a repositioning, which is expected to come to fruition in 2013. In the meantime, the two labels booked higher-than-expected first-quarter results thanks to mild weather and strong demand for athletic shoes. Retail and wholesale revenues for the Naturalizer label were down by 6.6 percent in the quarter.

Brown Shoe's direct-to-consumer sales rose by 6.7 percent thanks to an 18.0 percent increase at Famous Footwear's website and a 31.4 percent surge of Naturalizer's online revenues.

The group's gross margin dropped by 1.8 percentage points to 38.2 percent in the first quarter due to higher markdowns for both the wholesale and retail businesses. The gross margin slipped to 44.7 percent from 45.7 percent at Famous Footwear. It fell to 27.2 percent from 30.4 percent for the wholesale business, and narrowed to 41.3 percent from 42.5 percent for specialty retail.

Nevertheless, the operating margin shrank by only 0.5 percentage points to 1.4 percent thanks to a 6.5 percent cut in selling, general and administrative expenses. However, the group booked an $11.5 million restructuring charge largely due to the closure of Famous Footwear stores and the Sun Prairie distribution center, located in Wisconsin. The operating margin narrowed to 5.3 percent from 5.5 percent at Famous Footwear, dropped to 0.9 percent from 2.8 percent for wholesale, and remained negative at 6.3 percent for specialty retail.

The group's net profit dropped by 54.0 percent to $1.7 million, but on an adjusted basis the bottom line rose by 29.8 percent to $21.5 million. The inventory was down by 4.1 percent to $512.8 million and the company had funds of $354.3 million available under a revolving credit facility and $39.8 million in cash and cash equivalents.

Brown Shoe slightly lifted its full-year sales guidance to $2.57-2.59 billion from a previous estimate of $2.55-2.58 billion. It expects Famous Footwear's constant store sales to be flat or to rise by a low-single-digit rate. Wholesale revenues are seen falling by a low-single-digit rate due to the ending of license agreements.The full-year gross margin is expected to widen by 0.2-0.4 percentage points.