Brown Turnaround on Track

NEW YORK — Brown Shoe Co.’s portfolio realignment keeps paying dividends, and analysts are upbeat on the firm’s long-term growth.

Steve Marotta, analyst at C.L. King & Associates, said, “While they’ve divested themselves of underperforming businesses, which is helpful to the bottom line, the remaining businesses are performing better as well. They have the right product in the stores, and they continue to execute against their strategic plan. It sounds simple, but keeping inventory growth in line with sales growth is incredibly important.”

Scott Krasik, analyst at BB&T Capital Markets, agreed that the firm is benefiting from the new corporate structure, because “since Diane [Sullivan]’s been CEO, she’s made a lot of good decisions.”

He added, “We’re more optimistic for the fourth quarter. It’s still a margin-expansion story, though, not a top-line-growth story. Relative to their peers, the margins are low, and hopefully there’s an opportunity to expand them.”

Still, Brown’s third-quarter revenue advanced 2.6 percent. Excluding brands and businesses the firm exited, however, the top line actually improved 4.2 percent.

Diane Sullivan, president and CEO of Brown, said in a call to analysts that she was pleased with the company’s progress and is continuing to closely watch costs and expenses.

“There’s still more work to be done to reach our long-term operating margin and return-on-invested-capital targets. It’s hard to believe that it’s only been a year since we first talked about our portfolio realignment strategy, but I think you’ll agree we’ve seen good success with our efforts today,” she said.

Sullivan added, “I’m looking forward to … new opportunities in 2013. For sure there’s a lot going on out there in the macroeconomic environment, but we’re staying focused on playing our game. We’re differentiating our brands, making sure we’re building great product and merchandising it well, operating as efficiently as we possibly can and maintaining a strong hand on our financial management overall.”

Famous Footwear continues to be the leading indicator of Brown’s turnaround, delivering third-quarter sales of $436.8 million and a back-to-school same-store sales increase of 5.5 percent. New stores are averaging higher-than-expected sales per square foot, too.

In terms of products, boat shoes surged 118 percent in the third quarter, according to Sullivan. Running sneakers and women’s boots each improved 13.4 percent, and the firm is looking to casual-boot sales to help drive overall revenue in the fourth quarter, which is expected to take a hit of about $2.5 million due to the aftermath of Hurricane Sandy.

Encouraged by its performance year-to-date, Brown Shoe increased its adjusted full-year earnings per share guidance to a range of $1.06 to $1.10.

Shares of Brown Shoe jumped nearly 7 percent last Tuesday as the firm topped analysts’ estimates in its third quarter. Net income, adjusted for the impact of the ongoing portfolio realignment, rose 18.3 percent to $25.9 million, or 60 cents a share, from $21.9 million, or 51 cents.

Net sales advanced to $732.2 million, from $713.8 million.

Analysts were expecting earnings of 46 cents a share on revenue of $703.3 million, as polled by Yahoo Finance.

At quarter-end, Brown Shoe had $40.9 million in cash and cash equivalents, while debt-to-capital ratio declined to 41.7 percent, from 50.1 percent.

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