Brown Shoe Co. Q3 results below estimates, guides below the Street's consensus
Brown Shoe Company, Inc. (NYSE: BWS) reported third-quarter earnings and sales below analysts’ estimates, and provided guidance below expectations, painting a lackluster investment prospect for investors.
For the three months ended Nov. 3, the St Louis, Mo.-based company recorded net earnings of $27 million, or $0.61 per share, compared with $26.9 million, or $0.62 per share.
Brown Shoe noted that earnings include charges related to the company's “Earnings Enhancement Plan” of $0.06 per diluted share. Third quarter fiscal 2006 earnings included a charge of $0.03 per diluted share related to the exit of the Bass business.
Excluding such charges, earnings were $29.9 million, or $0.67 per diluted share.
Seven analysts polled by Thomson Financial were on average forecasting $0.64 per share.
“The Earnings Enhancement Plan is a long-term plan that’s not something that will generate positive results until it’s fully implemented, which is about three years from now,” said Susquehanna Financial analyst John Shanley.
Consolidated net sales were $645.5 million, below the consensus of five analysts polled by Thomson Financial of $677.01 million. The current quarter’s sales represent a decrease of 4.6% over the $676.8 million earned in the third quarter of fiscal 2006.
Same-store sales at Famous Footwear declined by 6.2%, or a decrease of 2.6% on a comparable calendar, compared with last year's 8.2% increase.
Brown Shoe noted that the sales trend in the first half of the quarter was significantly better, generating a same-store sales decline of 4.1% (or an increase of 1.2 % on a comparable calendar) than the back-half of the quarter, when same-store sales declined 9.7% (or a decrease of 8.8% on a comparable calendar).
Wholesale sales declined 11.8% in the quarter to $213.7 million, compared with $242.3 million in the previous year.
Shaley says the problem in the wholesale business during the third quarter was on the private business side sold through the value channel to retailers like Payless. The analyst says the private segment, which comprises 20% of the company’s wholesale operations, will remain a challenging segment for Brown Shoe.
The company also issued guidance for its fourth quarter and full year. For the fourth quarter of 2007, Brown Shoes said it expects sales of $595 million to $605 million, compared with $693.3 million in the same period last year. Net earnings per diluted share in the quarter are estimated to be $0.36 to $0.41, compared with $0.31 per diluted share in the fourth quarter of 2006.
The company noted that the fourth-quarter guidance range is based on a same-store sales range at Famous Footwear of flat to -2%, and a decline in wholesale sales of 16% to 17%. Additionally, the fourth quarter will include estimated charges and implementation costs of the company's “Earnings Enhancement Plan” of $0.03. Absent the charge the company expects net earnings per diluted share of $0.39 to $0.44, compared with $0.47 per diluted share in the fourth quarter of 2006.
For the fourth quarter, seven analysts polled by Thomson are on average forecasting earnings of $0.50 per share, while five analysts polled by Thomson are on average projecting sales of $625.29 million.
For fiscal 2007, Brown Shoe now estimates that sales will range from $2.38 billion to $2.39 billion and expects net earnings per diluted share of $1.40 to $1.45. The company said its guidance includes estimated costs related to the company's “Earnings Enhancement Plan” of $0.25 per diluted share.
On an adjusted basis, net earnings per diluted share are now estimated to be $1.65 to $1.70. Brown Shoes said its estimate is based on same-store-sales at Famous Footwear of flat to -1% for the full year and a decline in wholesale division sales of 14% to 15% in 2007.
For the full year, six analysts polled by Thomson are on average forecasting earnings of $1.56, while seven analysts polled by Thomson are on average projecting sales of $2.45 billion.
The company noted it continues to expect that sales will grow in its wholesale division in 2008 by mid-single digits, as it continues to execute its growth initiatives.
“The portion of the business sold through mid-tier stores remains the most challenging, as shopper traffic level is down dramatically in its Famous Footwear stores, Shoe Carnival and DSW Shoes” said Shanley. “This is due in part to the overall economy, but also to a lack of styling, which has failed to draw in the female shopper—the most profitable portion of the business.” Shanley says he expects the downward trend to progress through the spring of 2008.
While sales through mid-tier stores remain a challenge for the company, Shanley says continued growth in athletic footwear sold through Famous Footwear could present an opportunity for the company. This segment took off in the third quarter of 2006 as a relationship with Nike took off, according to the analyst. “If the company can garner more deals with Nike, it could present a great opportunity,” said Shanley.
Shares of Brown Shoe (BWS) edged down 0.55%, or $0.09, to $16.17 at 12:20 p.m. ET. Shares of Brown Shoe have been trading in the range of $15.51 to $37.68 for the past 52 weeks.
