Momentum Continues for Brown Shoe

The strong performance of Famous Footwear amid the tough retail environment and continued improvement in Brown Shoe Co. Inc.’s wholesale business drove a better-than-expected result in the first quarter.

Analysts praised the St. Louis-based company – which is in the midst of a three-year overhaul – for its decision to temper the amount of promotional activity following a harsh winter marred by heavy discounting.

Danielle McCoy, an analyst at Brean Capital, said, “They have done a great job in reducing and shortening promotions and I think they made a strong option of preventing their core consumer getting used to promotional activity.”

Russ Hammer, Brown Shoe CFO, said on a conference call with analysts and investors that Brown Shoe had recently rejigged its markdown strategy.  “We’ve been judicious in our promotional activity where we had actually less days of couponing in the first quarter than we had a year ago,” he said on the call.  

“We’re looking at every single promotion and deciding whether we can either shorten them or change them, he added.
Diane Sullivan, Brown Shoe CEO, president and chairman, said on the call that the better-than-expected quarter was helped by the improvement in operating margins and stronger sales at Famous Footwear.

Breaking down the improvement in sales by category, Sullivan said, “Not surprisingly boots did well in the quarter, but more importantly canvas continued its strong streak. Three of our top selling styles were canvas and we see demand for these styles continuing through the second quarter and well into back-to-school,” she said.

Sullivan said she is optimistic about the company’s second-quarter performance and the potential benefit from pent-up spring shoe demand.

The company lifted its earnings outlook for the year on the back of the result. It expects to post EPS of between $1.47 and $1.57 a share, from its earlier guidance of between $1.45 and $1.55.

On the guidance upgrade, McCoy said, “I was a little surprised this early in the game, but can understand it given performance of Famous compared to peers.”

McCoy lifted her full-year EPS estimate to $1.62, from $1.57, following the result beat.  Sam Poser, an analyst at Sterne Agee, said a pullback in the performance of Famous Footwear could weigh on the company’s full year results. Still, the chain is hanging tough in a difficult climate.

“We believe that Famous Footwear is performing as well as expected in a difficult weather [and] macro environment [and] we contend that Famous is likely taking share from competitors such as Shoe Carnival,” Poser said.

For the first quarter, wholesale sales rose 5.6 percent to $191.8 million for the period, helped by the strong improvement in the Via Spiga brand.

Meanwhile Famous Footwear sales for the quarter rose 0.7 percent to $354.6 million, driven by the robust performance of athletic shoes, specifically canvas footwear.

While management stated on the call that they wouldn’t rule out making an acquisition on the contemporary wholesale side of the business, Poser said he didn’t think the company would make a purchase in the near term.

“We do not believe a meaningful brand acquisition is in the cards in the near future, as management is focused on investing in and growing the Sam Edelman and Franco Sarto brands,” he said.

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