Brown Encouraged by Quarter, Cautious on Year

After Brown Shoe Co. handily topped estimates in its fourth quarter last Friday, its president and CEO, Diane Sullivan, was hopeful the firm would continue its turnaround.

Addressing investor concern that the company was guiding conservatively for the rest of the year, Sullivan said, “We’re going to call it the way we see it.  A combination of things make the first quarter read really hard: uncertain consumer confidence [mixed with] what really has been terribly cold weather relative to last year and an earlier Easter. We can see in our warm-weather markets that traffic is up and conversion is great, but in cold markets it’s tough.”

Sullivan added: “It’s hard to separate the pieces, but we will have a very good read [on trends] after the Easter weekend.”

Although Brown Shoe’s fourth-quarter revenue improved 1.8 percent, it was impacted by some consumer softness due to delays in tax refunds and an increase in the payroll tax.

“It would be easy to be carried away with the enthusiasm. We feel compelled to maintain our realistic stance toward future results, especially since we’re seeing many of the same issues our footwear peers and other retailers have been calling out,” said Brown CFO Russ Hammer.

The company expects full-year 2013 revenue to come in between $2.55 billion and $2.58 billion, versus the consensus of $2.64 billion. Earnings per share are expected to be $1.18 to $1.25, versus the analysts’ consensus of $1.31. Brown Shoe’s shares on Friday closed down 4.9 percent, at $17.50.

Analysts were mixed on the company’s prospects.

“A full turnaround for the business remains a work in progress,” said Christopher Svezia, analyst at Susquehanna Financial. “Wholesale continues to be slow to improve, with another year of down sales expected. The focus has clearly turned to profitability for the segment, but it appears most of the opportunity is in the second half.”

Scott Krasik, analyst at BB&T Capital Markets, agreed, noting that earnings growth in fiscal 2013 rests on the success of a wholesale turnaround and further strength at Famous Footwear, which remains the primary driver of profitability and the best part of the portfolio.

Analyst Steven Marotta of CL King & Associates was more optimistic: “The conservativeness surrounding initial full-year guidance centers on a weak start to the first quarter and a goal to exceed expectations. There is still gas in the tank.”

For the fourth quarter ended Feb. 2, the St. Louis-based firm dramatically reversed its loss from a year ago, earning a net income of $4 million, or 9 cents a share. It had lost $8.2 million, or 21 cents, in the same quarter in 2011.

Revenue advanced 1.8 percent to $640.2 million, on the back of a same-store sales increase of 4.4 percent in the fourth quarter. Excluding exited brands, year-over-year net sales were up 4.8 percent.

Famous Footwear’s revenue improved 7.9 percent to $380.1 million, with good growth in athletic shoes, boat shoes and women’s boots. Average revenue per square foot also improved 6.9 percent year-over-year.

In the Healthy Living portfolio, wholesale sales advanced 1.8 percent, driven by the LifeStride, Ryka and Dr. Scholl’s brands.

Wholesale sales for its Contemporary Fashion division were up slightly in the fourth quarter. The Sam Edelman and Franco Sarto labels both delivered a strong performance.

For the full year 2012, net income was $27.5 million, or 64 cents a share, versus $24.6 million, or 56 cents, in 2011. Net sales totaled $2.6 billion, compared with $2.58 billion in 2011.

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