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| BWS > SEC Filings for BWS > Form 10-Q on 9-Jun-2009 | All Recent SEC Filings |
9-Jun-2009
Quarterly Report
OVERVIEW
Our retail and wholesale businesses continue to be affected by reductions in consumer spending and the challenging economic climate. We anticipate that business will remain difficult through the remainder of 2009; therefore, we remain focused on managing effectively the fundamentals that we control, including: managing our balance sheet, tightening control over expenses and continually evaluating our planned capital expenditures. We have taken advantage of this downturn to further certain strategic initiatives in an effort to better position our business for the time when the consumer returns, including the continued investment in brands and other portions of our business that are generating strong returns and driving our future growth. We continue to make significant progress on our information technology initiatives.
The following is a summary of the financial highlights for the first quarter of 2009:
· Consolidated net sales declined $15.8 million, or 2.8%, to $538.7 million for the first quarter of 2009, compared to $554.5 million for the first quarter of last year. Net sales of our Wholesale Operations, Specialty Retail and Famous Footwear segments decreased by $8.9 million, $5.6 million and $1.2 million, respectively.
· Our consolidated operating loss was $7.2 million in the first quarter of 2009, compared to operating earnings of $13.6 million in the first quarter of last year.
· Our consolidated net loss attributable to Brown Shoe Company, Inc. was $7.6 million, or $0.18 per diluted share, in the first quarter of 2009, compared to net earnings attributable to Brown Shoe Company, Inc. of $7.2 million, or $0.17 per diluted share, in the first quarter of last year.
There were several items that impacted our first quarter operating results in 2009 and 2008 that should be considered in evaluating the comparability of our results. These items include:
· Information technology initiatives - We incurred costs of $2.6 million ($1.7 million on an after-tax basis, or $0.04 per diluted share) during the first quarter of 2009, related to our integrated enterprise resource planning ("ERP") information technology system that will replace select existing internally developed and certain other third-party applications, with no corresponding costs during the first quarter of last year. See the Recent Developments section that follows and Note 5 to the condensed consolidated financial statements for additional information related to these costs.
· Environmental insurance recoveries and charges - During the first quarter of last year, we reached agreements with certain insurance carriers to recover costs associated with our facility in Denver, Colorado (the "Redfield" facility). As a result of these settlements, all claims among the parties were dismissed. We recorded income related to these recoveries, net of associated fees and costs, of $10.2 million ($6.2 million on an after-tax basis, or $0.15 per diluted share) in the first quarter of last year, with no corresponding recoveries during the first quarter of 2009. See Note 5 and Note 15 to the condensed consolidated financial statements for additional information related to these recoveries and our Redfield facility.
· Headquarters consolidation - We incurred charges of $1.8 million ($1.1 million on an after-tax basis, or $0.03 per diluted share) during the first quarter of last year, related to the relocation and transition of our Famous Footwear division headquarters, with no corresponding charges during the first quarter of 2009. These costs included employee-related costs for severance and relocation as well as facility and other costs. See Note 5 to the condensed consolidated financial statements for additional information related to these charges.
Following is a summary of our operating results in the first quarter of 2009 by segment and the status of our balance sheet. See Note 6 to the condensed consolidated financial statements for additional information regarding our business segments:
· Our Famous Footwear segment's net sales decreased 0.4% to $317.6 million in the first quarter of 2009, compared to $318.8 million in the first quarter of last year. Same-store sales decreased 4.9% during the first quarter of 2009, reflecting lower traffic levels and a lower conversion rate in our stores as a result of the weak consumer environment. An increase in store count partially offset the same-store sales decline. Operating earnings decreased to $3.0 million in the first quarter of 2009, compared to $7.6 million in the first quarter of last year, driven by lower net sales and higher retail facilities and direct selling costs related to an increase in store count. As a percent of net sales, operating earnings decreased to 1.0% in the first quarter of 2009, compared to 2.4% in the first quarter of last year.
· Our Wholesale Operations segment's net sales decreased 5.0% to $168.8 million in the first quarter of 2009, compared to $177.7 million in the first quarter of last year. The challenging retail environment continued to soften demand for many of our brands. Although we had strong sales growth in our Sam Edelman, Fergie/Fergalicious and Etienne Aigner divisions, this growth could not offset sales declines from our Women's Specialty, Franco Sarto, Children's and Specialty Athletic, Dr. Scholl's, Via Spiga and LifeStride divisions. A higher mix of lower-margin mid-tier sales and increased markdown and allowance provisions led to a lower gross profit rate. Operating earnings decreased to $5.9 million in the first quarter of 2009, compared to $8.7 million in the first quarter of last year, as a result of lower net sales and gross profit rate, partially offset by a decline in selling and administrative expenses. As a percent of net sales, operating earnings decreased to 3.5% in the first quarter of 2009, compared to 4.9% in the first quarter of last year.
· Our Specialty Retail segment's net sales decreased 9.7% to $52.4 million in the first quarter of 2009, compared to $58.0 million in the first quarter of last year. In addition to experiencing a decline in sales due to changes in the Canadian dollar exchange rate, our same-store sales decreased 6.1% in our retail stores and our Shoes.com net sales declined as a result of the challenging consumer environment. We incurred an operating loss of $6.2 million in the first quarter of 2009, compared to an operating loss of $4.7 million in the first quarter of last year. The higher operating loss was primarily a result of lower net sales and a decline in the gross profit rate in our retail stores due to increased promotional activity.
Our debt-to-capital ratio, the ratio of our debt obligations to the sum of our debt obligations and equity, increased to 32.5% at May 2, 2009, compared to 21.1% at May 3, 2008, primarily due to a decline in total Brown Shoe Company, Inc. shareholders' equity as a result of the net loss attributable to Brown Shoe Company, Inc. in 2008 and the first quarter of 2009 and our $39.0 million increase in borrowings under our revolving credit agreement. Our debt-to-capital ratio decreased from 39.5% at January 31, 2009 primarily due to the $73.5 million decline in borrowings under our revolving credit agreement. Our current ratio, the relationship of current assets to current liabilities, was 1.91 to 1 at May 2, 2009, compared to 1.69 to 1 at January 31, 2009 and 2.32 to 1 at May 3, 2008. Inventories at May 2, 2009 were $408.5 million, up from $403.6 million at the end of the first quarter last year, primarily due to an increase in our Wholesale Operations inventories as a result of the initial consolidation of Edelman Shoe, Inc. in the fourth quarter of 2008. Our Famous Footwear division also experienced a slight increase in inventories as a result of the increase in store count from May 3, 2008 to May 2, 2009, although the Famous Footwear inventories are down on a per store basis.
Recent Developments
Information Technology Initiatives
During 2008, we announced plans to implement an integrated ERP information
technology system provided by third-party vendors. The ERP information
technology system will replace select existing internally developed and certain
other third-party applications, and is expected to support our growth strategy
while streamlining and transforming day-to-day operations for our integrated
business model. We anticipate the implementation will enhance our profitability
and deliver increased shareholder value through improved management and
execution of our business operations, financial systems, supply chain efficiency
and planning and employee productivity. The phased implementation began during
the second quarter of 2008 and is expected to continue through 2011. We incurred
costs of $2.6 million ($1.7 million on an after-tax basis, or $0.04 per diluted
share) during the first quarter of 2009 and no costs in the first quarter of
2008. We incurred $3.7 million ($2.4 million on an after-tax basis, or $0.06 per
diluted share) during the full year of 2008 related to our implementation of
these initiatives.
Outlook for the Remainder of 2009
Looking ahead, we expect that the economic environment will remain difficult for
the remainder of 2009. Accordingly, we expect that our retail business will
experience negative same-store sales during 2009. For the full year of 2009, we
are currently planning to open 55 new Famous Footwear stores, while closing 55
to 70 stores. For our wholesale business, we expect a decline in sales of our
existing brands and continued decline in sales from our private label business,
partially offset by growth in our new brands and channels of distribution. We
believe that our brands are well positioned in the marketplace and we will
continue to focus on our liquidity and capital management, balance sheet
management, expense disciplines and investment in brands and other portions of
our business that are expected to drive our future growth and provide the
foundation for future success.
Following are the consolidated results and the results by segment for the thirteen weeks ended May 2, 2009 and May 3, 2008:
CONSOLIDATED RESULTS
Thirteen Weeks Ended
May 2, 2009 May 3, 2008
% of % of
Net Net
($ millions) Sales Sales
Net sales $ 538.7 100.0% $ 554.5 100.0%
Cost of goods sold 330.5 61.4% 338.0 61.0%
Gross profit 208.2 38.6% 216.5 39.0%
Selling and administrative expenses 212.8 39.4% 211.2 38.1%
Restructuring and other special charges
(recoveries), net 2.6 0.5% (8.4 ) (1.5)%
Equity in net loss of nonconsolidated
affiliate - - 0.1 0.0%
Operating (loss) earnings (7.2 ) (1.3)% 13.6 2.4%
Interest expense (5.2 ) (1.0)% (4.3 ) (0.7)%
Interest income 0.1 0.0% 0.5 0.1%
(Loss) earnings before income taxes (12.3 ) (2.3)% 9.8 1.8%
Income tax benefit (provision) 5.2 1.0% (3.0 ) (0.5)%
Net (loss) earnings $ (7.1 ) (1.3)% $ 6.8 1.3%
Less: Net earnings (loss) attributable to
noncontrolling interests 0.5 0.1% (0.4 ) (0.0)%
Net (loss) earnings attributable to Brown Shoe
Company, Inc. $ (7.6 ) (1.4)% $ 7.2 1.3%
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Net Sales
Net sales decreased $15.8 million, or 2.8%, to $538.7 million in the first
quarter of 2009, compared to $554.5 million in the first quarter of last year.
All segments were impacted by the challenging consumer environment. The largest
decline came from our Wholesale Operations segment, which reported an $8.9
million decline, as our retail partners experienced the same business
environment and sought to manage their inventories and open to buy more tightly.
The net sales of our Specialty Retail segment declined by $5.6 million, due to a
decline in the Canadian dollar exchange rate, a same-store sales decline of 6.1%
in our retail stores and lower net sales at Shoes.com, partially offset by a
higher store count. Our Famous Footwear segment reported a $1.2 million decline
in net sales, reflecting a 4.9% same-store sales decrease, partially offset by a
higher store count in the current period.
Gross Profit
Gross profit decreased $8.3 million, or 3.8%, to $208.2 million for the first
quarter of 2009, compared to $216.5 million in the first quarter of last year as
a result of lower net sales and a decline in our gross profit rate. As a percent
of net sales, our gross profit decreased to 38.6% in the first quarter of 2009
from 39.0% in the first quarter of last year. The decrease in gross profit of
our Wholesale Operations segment was primarily due to higher markdowns and
allowances. The Wholesale Operations segment also experienced a change in sales
mix from department store to lower-margin mid-tier channel. Increased
promotional activity in our Specialty Retail stores also contributed to the
decline in gross profit.
We record warehousing, distribution, sourcing and other inventory procurement costs in selling and administrative expenses. Accordingly, our gross profit and selling and administrative expense rates, as a percentage of net sales, may not be comparable to other companies.
Selling and Administrative Expenses
Selling and administrative expenses increased $1.6 million, or 0.7%, to $212.8
million for the first quarter of 2009, compared to $211.2 million in the first
quarter of last year, driven primarily by an increase in retail facilities and
direct selling costs due to a higher store count, partially offset by our
expense and capital containment initiatives implemented during the fourth
quarter of 2008. As a percent of net sales, selling and administrative expenses
increased to 39.4% in the first quarter of 2009 from 38.1% in the first quarter
of last year, reflecting the de-leveraging of the expense base over lower net
sales volume.
Restructuring and Other Special Charges (Recoveries), Net We recorded restructuring and other special charges, net of $2.6 million for the first quarter of 2009, compared to restructuring and other special recoveries, net of $8.4 million in the first quarter of last year as a result of several factors, as follows (see Note 5 to the condensed consolidated financial statements for additional information related to these charges and recoveries):
· Information technology initiatives - We incurred costs of $2.6 million during the first quarter of 2009, related to our integrated ERP information technology system, with no corresponding costs during the first quarter of last year.
· Environmental insurance recoveries and charges - During the first quarter of last year, we recorded income related to environmental insurance recoveries, net of associated fees and costs, of $10.2 million, with no corresponding recoveries during the first quarter of 2009.
· Headquarters consolidation - We incurred charges of $1.8 million during the first quarter of last year, related to the relocation and transition of our Famous Footwear division headquarters, with no corresponding charges during the first quarter of 2009.
Equity in Net Loss of Nonconsolidated Affiliate
Since the time of our initial investment in Edelman Shoe, Inc. ("Edelman Shoe")
during 2007, we recorded our portion of Edelman Shoe's operating results into
our financial statements based upon the equity method of accounting, as equity
in net loss of nonconsolidated affiliate. We continued to record the results of
Edelman Shoe using the equity method until November 3, 2008, when we purchased
additional shares of Edelman Shoe. Since that date, the results of Edelman Shoe
are fully consolidated into our financial statements, with any net earnings or
loss related to the noncontrolling interests reflected in the line titled Less:
Net earnings (loss) attributable to noncontrolling interests on our condensed
consolidated statement of earnings.
Operating (Loss) Earnings
We reported an operating loss of $7.2 million in the first quarter of 2009,
compared to operating earnings of $13.6 million during the first quarter of last
year due primarily to the decline in net sales, a lower gross profit rate and an
increase in selling and administrative expenses, as described above. In
addition, we incurred restructuring and other special charges, net of $2.6
million during the first quarter of 2009, compared to restructuring and other
special recoveries, net of $8.4 million during the first quarter of last year.
Interest Expense
Interest expense increased $0.9 million to $5.2 million in the first quarter of
2009, compared to $4.3 million in the first quarter of last year, reflecting
higher average borrowings under our revolving credit agreement.
Income Tax Benefit (Provision)
Our consolidated effective tax rate was 42.4% in the first quarter of 2009,
compared to 30.4% in the first quarter of last year. During the first quarter of
2009, we incurred a pre-tax loss in our domestic operations, which are generally
subject to a combined tax rate of 35% to 39%. However, we recorded pre-tax
earnings in foreign jurisdictions, which generally have lower tax rates. The mix
of a domestic loss and foreign earnings resulted in an overall effective tax
benefit rate of 42.4% in the first quarter of 2009.
Net (Loss) Earnings Attributable to Brown Shoe Company, Inc. We reported a net loss attributable to Brown Shoe Company, Inc. of $7.6 million during the first quarter of 2009, compared to net earnings attributable to Brown Shoe Company, Inc. of $7.2 million during the first quarter of last year as a result of the factors described above.
FAMOUS FOOTWEAR
Thirteen Weeks Ended
May 2, 2009 May 3, 2008
% of % of
Net Net
($ millions, except sales per square foot) Sales Sales
Operating Results
Net sales $ 317.6 100.0% $ 318.8 100.0%
Cost of goods sold 181.1 57.0% 181.8 57.0%
Gross profit 136.5 43.0% 137.0 43.0%
Selling and administrative expenses 133.5 42.0% 129.4 40.6%
Operating earnings $ 3.0 1.0% $ 7.6 2.4%
Key Metrics
Same-store sales % change (4.9)% (7.3)%
Same-store sales $ change $ (15.4 ) $ (23.0 )
Sales change from new and closed stores, net $ 14.2 $ 16.5
Sales per square foot, excluding e-commerce $ 39 $ 42
Square footage (thousand sq. ft.) 8,096 7,642
Stores opened 39 37
Stores closed 11 11
Ending stores 1,166 1,100
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Net Sales
Net sales decreased $1.2 million, or 0.4%, to $317.6 million in the first
quarter of 2009, compared to $318.8 million in the first quarter of last year.
Same-store sales decreased 4.9% during the first quarter of 2009, reflecting
lower traffic levels and a lower conversion rate in our stores as a result of
the weak consumer environment. A higher store count partially offset the
same-store sales decline. During the first quarter of 2009, we opened 39 new
stores and closed 11 stores, resulting in 1,166 stores and total square footage
of 8.1 million at the end of the first quarter of 2009 compared to 1,100 stores
and total square footage of 7.6 million at the end of the first quarter of last
year. As a result of the same-store sales decline and lower sales per square
foot in our newer stores compared to our mature stores, sales per square foot
decreased 6.3% to $39, compared to $42 in the first quarter last year. Our
customer loyalty program, Rewards, continues to gain momentum, as approximately
63% of our net sales were made to our Rewards members in the first quarter of
2009, compared to 58% in the first quarter of last year.
Same-store sales changes are calculated by comparing the sales in stores that have been open at least 13 months. This method avoids the distorting effect that grand opening sales have in the first month of operation. Relocated stores are treated as new stores, and closed stores are excluded from the calculation. Sales change from new and closed stores, net, reflects the change in net sales due to stores that have been opened or closed during the period and are thereby excluded from the same-store sales calculation.
Gross Profit
Gross profit decreased $0.5 million, or 0.4%, to $136.5 million in the first
quarter of 2009, compared to $137.0 million in the first quarter of last year.
The decrease primarily reflects the decline in net sales. As a percent of net
sales, our gross profit was 43.0% in the first quarter of 2009, consistent with
the first quarter of last year.
Selling and Administrative Expenses
Selling and administrative expenses increased $4.1 million, or 3.1%, to $133.5
million for the first quarter of 2009, compared to $129.4 million in the first
quarter of last year. The increase was primarily attributable to the higher
store count, which led to higher retail facilities and direct selling costs as
well as an increase in impairment charges related to underperforming retail
stores. These increases were partially offset by a decline in various expenses
as a result of our expense and capital containment initiatives. As a percent of
net sales, selling and administrative expenses have increased to 42.0% in the
first quarter of 2009, compared to 40.6% in the first quarter of last year,
reflecting the above named factors and the de-leveraging of our expense base
over lower net sales volume.
Operating Earnings
Operating earnings decreased $4.6 million, or 60.0%, to $3.0 million for the
first quarter of 2009, compared to $7.6 million for the first quarter of last
year. Lower net sales and higher retail facilities and direct selling expenses
resulted in a decline in operating earnings. As a percent of net sales,
operating earnings declined to 1.0% in the first quarter of 2009, compared to
2.4% in the first quarter of last year.
WHOLESALE OPERATIONS
Thirteen Weeks Ended
May 2, 2009 May 3, 2008
% of % of
Net Net
($ millions) Sales Sales
Operating Results
Net sales $ 168.8 100.0% $ 177.7 100.0%
Cost of goods sold 119.4 70.7% 123.6 69.5%
Gross profit 49.4 29.3% 54.1 30.5%
Selling and administrative expenses 43.4 25.8% 45.3 25.5%
Restructuring and other special
charges, net 0.1 0.0% - -
Equity in net loss of nonconsolidated
affiliate - - 0.1 0.1%
Operating earnings $ 5.9 3.5% $ 8.7 4.9%
Key Metrics
Unfilled order position at end of
period $ 227.4 $ 315.8
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Net Sales
Net sales decreased $8.9 million, or 5.0%, to $168.8 million in the first
quarter of 2009, compared to $177.7 million in the first quarter of last year.
The challenging retail environment softened demand for many of our brands as our
retail partners sought to manage their inventories and open to buy more tightly.
We experienced sales declines from many of our brands, including primarily our
Women's Specialty (composed of private brands and private label business),
Franco Sarto, Children's and Specialty Athletic, Dr. Scholl's, Via Spiga and
LifeStride divisions. These declines were partially offset by sales growth in
our Sam Edelman (first consolidated in the fourth quarter of 2008),
Fergie/Fergalicious and Etienne Aigner divisions. By channel of distribution, we
experienced sales declines from mass merchandisers and department stores,
partially offset by an increase in sales to independent and mid-tier.
Gross Profit
Gross profit decreased $4.7 million, or 8.6%, to $49.4 million in the first
quarter of 2009, compared to $54.1 million in the first quarter of last year due
to a decline in net sales and gross profit rate. As a percent of net sales, our
gross profit decreased to 29.3% in the first quarter of 2009 from 30.5% in the
first quarter of last year. The segment experienced a lower gross profit rate as
a result of higher markdowns and allowances. The segment also experienced a
change in sales mix from department store to the lower-margin mid-tier channel.
Selling and Administrative Expenses
Selling and administrative expenses decreased $1.9 million, or 4.1%, to $43.4
million for the first quarter of 2009, compared to $45.3 million in the first
quarter of last year, due primarily to a decline in general and administrative
expenses as a result of a decrease in salaries and benefits resulting from our
expense and capital containment initiatives as well as a decline in our sourcing
costs. As a percent of net sales, selling and administrative expenses increased
to 25.8% in the first quarter of 2009, compared to 25.5% in the first quarter of
last year, reflecting the de-leveraging of our expense base over lower net sales
volume.
Restructuring and Other Special Charges, Net We incurred restructuring and other special charges, net of $0.1 million during the first quarter of 2009, related to our integrated ERP information technology system that will replace select existing internally developed and certain other third-party applications, with no corresponding charges during the first quarter of last year.
Equity in Net Loss of Nonconsolidated Affiliate Since the time of our initial investment in Edelman Shoe during 2007, we recorded our portion of Edelman Shoe's operating results into our financial statements based upon the equity method of accounting, as equity in net loss of nonconsolidated affiliate. We continued to record the results of Edelman Shoe using the equity method until November 3, 2008, when we purchased additional shares of Edelman Shoe. Since that date, the results of Edelman Shoe are fully consolidated into our financial statements, with any net earnings or loss related to the noncontrolling interests reflected in the line titled Less: Net earnings (loss) attributable to noncontrolling interests on our condensed consolidated statement of earnings.
Operating Earnings
Operating earnings decreased $2.8 million, or 32.0%, to $5.9 million for the
first quarter of 2009, compared to $8.7 million in the first quarter of last
year, reflecting lower net sales and a lower gross profit rate, partially offset
by lower selling and administrative expenses. As a percent of net sales,
. . .
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