“We see plenty of upside to full-year guidance,” said Scott Krasik, analyst at BB&T Capital Markets. “This quarter highlights the progress Brown Shoe has made on its goal of becoming a stronger company by focusing on improving profitability. Management is trying to restore credibility by setting the bar low while executing its long-term strategic initiatives.”
While Susquehanna Financial analyst Christopher Svezia said the firm’s wholesale business, which was down 3.1 percent in the second quarter, remains a mixed bag due to choppy execution, he added, “Trends continue to show improvement, particularly at Famous Footwear. We do see upside to back-half guidance and believe the company is being cautious given an uncertain macro outlook.”
Diane Sullivan, president and CEO of Brown Shoe, told Footwear News, “We’re executing well according to plan. We’re guiding very cautiously, but we’re optimistic that the trend will continue. With the election coming up there are some unknowns, so we’re trying to be very thoughtful about what our projections look like. If you’re going to surprise [market watchers], certainly you want it to be on the upside. They want to know how to count on you, and we’re trying to do that.”
Sullivan told FN it’s been a year of big changes where the portfolio is concerned.
“We’ve pretty much trimmed the portfolio the way we’d like. It doesn’t mean we don’t want to add or subtract going forward, but we’re really focused on owned brands more than licensed brands right now,” she said.
As part of its ongoing realignment, Brown Shoe terminated its license with Etienne Aigner in the second quarter due to a dispute with the licensee, but product will continue to ship through the third quarter.
“We think it [will have] minimal impact on the portfolio,” said Sullivan. “Over the long term, it’s the right thing to do to enhance shareholder value.”
Sullivan also shared updates on the Ryka and Avia brands, which she acknowledged may pose a challenge in 2013.
“Ryka is really an underdeveloped business, and we’re thinking about its heritage [in terms of] athletic and lightweight running — shoes that are appropriate for all sorts of different fitness activities. We believe there’s a more lifestyle and sport interpretation for that brand,” she said.
Meanwhile, Avia is “much more about really innovative and extremely well-detailed shoes that are perfect for the gym and fitness. You’ll see some new technology, more attitude and style, and color opportunities,” she added.
Brown Shoe reported a narrowed loss of 6 cents a share, due to one-time charges of about $14.7 million. Adjusted net income came in at 16 cents, while revenue slipped 3.4 percent to $599.3 million.
The firm now expects full-year earnings per share to come in between 85 cents and 95 cents.