Brown Shoe Divests And1 With Q2 Loss

Brown Shoe Divests And1 With Q2
Diane Sullivan

Brown Shoe Co. announced it will sell And1 to help pay down its debt, as the firm slipped into the red in the second quarter.

And1, a global men’s performance basketball and lifestyle brand acquired as part of American Sporting Goods in February, will be sold for $55 million to Galaxy International, a newly formed brand management firm.  

Brown Shoe said the cash sale will help diffuse its long-term debt obligation, which grew 32 percent year-over-year to $198.5 million at the end of the second quarter. Cash and cash equivalents totaled $62.6 million.
 
On a conference call with analysts Thursday, Diane Sullivan, president and CEO of Brown Shoe, said, “There is still much work to be done,” as the company continues to work on right-sizing inventory and streamlining operations.
 
“We will continue to review our brands and businesses over the next six months and we’re also taking a hard-nosed look at cost as we begin our planning process for 2012. We will continue with our review of each branded business using return on operating capital as a key metric. I would expect that there’ll be some additional [portfolio realigning] activity through the end of this year,” she added.
 
Analysts said it’s possible Brown Shoe is looking to let go of more brands.
 
“It’s surprising how quickly they flipped [And1]. There’s still some low-hanging fruit at the company that I’m sure might not be strategic or hitting certain return [targets],” said Christopher Svezia, analyst at Susquehanna Financial. “But it won’t be anything game changing.”
 
For the period ended July 30, the St. Louis-based firm registered a net loss of $4.6 million, or 11 cents a share, compared with net earnings of $5.3 million, or 12 cents, the same period a year ago.  

Although net sales rose 7 percent to $628.1 million, the firm missed estimates, as analysts were expecting earnings of 4 cents a share, as polled by Yahoo Finance.  

Wholesale operations saw strong growth of 25 percent to $222.7 million, and specialty retail advanced 1 percent to $60.5 million, while Famous Footwear’s revenue slipped almost 1 percent to $344.9 million.  

The firm said it was up against record Famous Footwear comps in the second quarter, and toning declined more rapidly than expected, resulting in the firm reducing the carrying value of its entire toning inventory and leading to a write-down of 6 cents per share.
 
Bright spots were the running category, up nearly 30 percent, and sandals, up 6 percent. Contemporary fashion brands such as Vera Wang, Via Spiga, Sam Edelman and Franco Sarto also contributed to top-line growth, the firm said.
 
Gross profit margin declined 300 basis points to 37.7 percent, versus 40.7 percent a year ago.  

Sullivan said Brown Shoe is keeping a close watch on the macroeconomic challenges still present in the back half of the year.
 
“I’m almost more concerned about the unknown, such as the global unrest and the unstable U.S. fiscal policy, versus the known which we’ve been battling for a while now: the increases in labor cost, freight and leather and petroleum costs,” she said.
 
“We can certainly see at the designer and luxury end that the consumer continues to be robust at the middle part of the market. Consumers who are really faced with unemployment and are shopping in the mass channels are clearly struggling,” she added.
 
The ASG acquisition, completed for $145 million earlier this year, was meant to complement Brown Shoe’s fitness and comfort offerings with athletic and outdoor brands, including Avia, Ryka and Nevados. For its most recently completed fiscal year, ASG achieved net sales of $232 million.

But And1 “did not cleanly align with our strategy to focus on the key consumer platforms of healthy living, contemporary fashion and family,” said Sullivan.  

A spokesperson for Galaxy International said in a statement, “And1 is currently distributed in 68 countries worldwide, and we look forward to tremendous global expansion opportunities to further cultivate the And1 brand. The acquisition of the And1 brand is part of Galaxy’s strategic growth plan.”

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