St. Louis, Missouri-based Brown Shoe Company, Inc (BWS) recently posted a second quarter 2011 adjusted loss of 6 cents per share, significantly worse than the Zacks Consensus Estimate of earnings of 6 cents per share and the year-ago quarter earnings of 15 cents per share. The disappointing results were due to weak sales of toning footwear, lower gross margin and tough year-over-year footwear comp comparison.
Footwear retailer and wholesaler, Brown Shoe reported that net sales in the quarter climbed 7.2% from the prior-year quarter to $628.1 million. The upside in sales was attributable to the acquisition of American Sporting Goods Corporation in February. However, the company’s reported revenue was lower than the Zacks Consensus Estimate of $642.0 million.
Segment wise, Famous Footwear sales inched down 0.7% to $344.9 million in the second quarter, due to the continuous decline in toning sales, partially offset by higher sales of running shoes and sandals. Revenues at the Wholesale division rose 24.6% to $222.7 million while the same at Specialty Retail increased 1.2% to $60.5 million.
Same-store sales at Famous Footwear inched up 0.2%, but were down from the year-ago quarter rise of 11.8%. Same-store sales at Specialty Retail leaped 5.2% during the quarter but fell 160 basis points (bps) year over year.
During the quarter, gross margin plunged 300 bps to 37.7%, due to sluggish performance by the Famous Footwear division (down 280 bps), Wholesale division (down 180 bps) and Specialty Retail division (down 140 bps) and unfavorable mix shift as compared with the previous year.
Brown Shoe also announced the sale of its AND1 brand for $55 million to a New York-based brand management company, Galaxy International. The company acquired the brand at the time it took over the American Sporting Goods company in February. Brown Shoe intends to use the fund generated from the transaction to reduce debt.
Store Update
During the quarter, Brown Shoe opened 12 new Famous Footwear stores and closed 8 underperforming stores. At the end of the quarter, the company had 1116 Famous Footwear stores and 245 Specialty Retail stores.
Financial Position
At the end of the quarter, the company had cash and cash equivalent of $62.6 million and shareholders’ equity of $390.7 million. At the end of the quarter, Brown Shoe had $270.7 million available under its current revolving credit facility.
The company also repurchased 2.2 million shares during the quarter for $22.4 million. The company continues to enhance shareholder value as the board approved a new share repurchase program of 2.5 million shares.
Outlook
Based on the second quarter results, the company expects adjusted earnings guidance for fiscal 2011 in the range of 89 to 97 cents per share and sales in the range of $2.68 to $2.71 billion. The company also expects gross margin to plunge 60 to 90 basis points for 2011 due to commodity cost pressure.
Our Take
We expect estimates to go down in the coming days as Brown Shoe has reported second quarter results much below expectations and also remain cautious regarding its outlook. The Zacks Consensus Estimates for 2011 and 2012 are pegged at $1.22 and $1.42 per share, respectively.
Brown Shoe has a Zacks #5 Rank, implying a Strong Sell rating over the short term. We also reiterate our long-term Underperform recommendation on the stock.
One of Brown Shoe’s primary competitors, Deckers Outdoor Corporation (DECK) posted a quarterly loss per share of 19 cents. However, it was lower than the Zacks Consensus Estimate of a loss of 24 cents. The loss is attributable to higher costs associated with the transition to a wholesale business model from a distributor business model, and opening of new stores.
BROWN SHOE CO (BWS): Free Stock Analysis Report
DECKERS OUTDOOR (DECK): Free Stock Analysis Report
Get all Zacks Research Reports and be alerted to fast-breaking buy and sell opportunities every trading day.
Be the first to comment