Brown Shoe Company Earnings Call INSIGHTS: Famous Footwear, EPS Progression

On Tuesday, Brown Shoe Company, Inc. (NYSE:BWS) reported its second quarter earnings and discussed the following topics in its earnings conference call. Take a look.

Famous Footwear

Scott Krasik – BB&T Capital Markets: Couple of questions. August in general seems to be a better retail month given the back-to-school is happening later. So are you seeing an acceleration in your Famous Footwear comps in August relative to the trend we have last quarter?

Diane M. Sullivan – President and CEO: Well I would tell you that we are universally happy with our overall business. Customer counts and conversion rates are up across all of our timing groups and we still are – got a number of weeks to go but I would tell you, Scott, we are really happy.

Scott Krasik – BB&T Capital Markets: Relative to the second quarter can you say what the headwind from toning in terms of the comps are – will be in Q3?

Richard M. Ausick – Division President, Retail: Q3 will be less than 2%. I think it’s like 1.5 to 1.8 something like that.

Scott Krasik – BB&T Capital Markets: So, we should be done at that point?

Richard M. Ausick – Division President, Retail: We certainly hope so.

Scott Krasik – BB&T Capital Markets: Then there is obviously some moving parts Rick in terms of the profitability in Famous in the back half of year. So, maybe talk about your expectations relative to what we’ve seen so far in gross margin at Famous in the back half, fourth quarter looks easy because of the markdown in boots you had to take third quarter. I think athletic probably carry’s slightly lower gross margin, but you probably get better leverage. So, how should we think about gross margins relative to what we’ve seen so far?

Richard M. Ausick – Division President, Retail: The gross margin is relative to what we’ve seen so far will probably be a little less. Again, I think you’ve said the same – you have hit on a couple of things. First of all, athletic, which is driving some of our business right now has a less margin than some of our other categories versus last year, we think, we should be able to maintain or do a little better than last year, so that’s the issue in the fourth quarter from some of the boot issues that we had a year ago. So, I think that’s puts a frame on a little bit. It might be a little less than it’s been because of athletic driving right now. It should get better than last year basically because the boots are getting better.

Scott Krasik – BB&T Capital Markets: Then Russ, just a couple of questions, in terms of the 53rd week, thank you for the SG&A clarification, how does it work on your overall profitability, what’s your expectation?

Russ Hammer – SVP and CFO: So, what we see on the 53rd week is approximately $29 million of sales and we generate a margin of about $10 million on those sales.

Scott Krasik – BB&T Capital Markets: Then again thanks for the bridge on the SG&A, but I mean I guess by my calculation to get to the midpoint of the SG&A guidance even with these additional costs, you’re looking for about $10 million in savings from some of your initiatives. It certainly seems like some of the stuff kicks in the second half of the year and you should get the benefit from almost everything in the second half you’ve gotten in the first half. So, is this just conservatism or is there something else there?

Russ Hammer – SVP and CFO: Well, I think as we bridged on the shift of marketing costs, so I mentioned the $6 million shift of marketing costs in the back half, $4 million of that is in the third quarter, shift from second to third. Then we have those other incremental expenses and then with the new store openings that we mentioned we feel that the guidance range that we gave on the SG&A is appropriate.

EPS Progression

Steven Marotta – CL King & Associates: Let me offer my congratulations on the quarter and the half as well. As it relates to the EPS progression for the year, there is an assumption that’s built in that there will be negative EPS comparisons in either the third or in the fourth quarter. I haven’t plugged in specifics of the SG&A guidance that’s been offered on the call, but maybe Russ you could talk a little bit about how you see those EPS progression and I know you don’t guide on a quarterly basis, but one or both are going to be negative on a year-over-year basis?

Russ Hammer – SVP and CFO: Well, I think as I said, we’re highly encouraged by the results we’ve seen. As Diane mentioned, we do want to just do this quarter-by-quarter. There is a lot of uncertainty in the economy, a lot of macro issues facing us; the election, the issues all coming up. So, we’re cautious about how we’re guiding here from both SG&A and our earnings perspective to make sure that, as Rick was mentioning, our Famous stores were guiding to up low single-digits, and so we’ll see how that pans out.

Steven Marotta – CL King & Associates: Okay, because even at low single-digits it would seem to me to at least generate positive EPS on a year-over-year basis, but you don’t want to go into any more detail and I completely understand. As it relates to – I’m sorry?

Russ Hammer – SVP and CFO: The only thing I was going to add to that is we do have the impact of reflecting our business exits on the wholesale side, so you have keep that in mind.

Steven Marotta – CL King & Associates: You guys spoke about being extremely happy as it relates to the third quarter. Can you just speak a little more specifically on the early back-to-school markets maybe? And I know there are a few of those, but at least – I’m sure you’re probably seeing a difference geographically on how your comps are performing in those early back-to-school markets. Can you add a little bit of color on – and again, I don’t mean specific markets, you don’t have to call out a market in Texas, but just generally on early back-to-school, how those are trending in comparison to the balance of the portfolio?

Richard M. Ausick – Division President, Retail: We break our stores in the five different timing groups, so we have – and based on the school starts, so we have – we track them daily on how that works. I’ll tell you the one universal thing that we’re seeing, and I think it’s been written up several times in the last week or so as this whole shift to the customer spending later. So the peak weeks, one that we would call a week before back-to-school still is a peak week in almost any market that we look at. The thing that’s happening is the post peak weeks are much higher than they had been historically. So there is this shift to where whether it’s the customers waiting, whether it’s the kids wanting to see what people are wearing, whether its mom and dad budgeting differently so that they have the ability to afford the spend. It’s been moving in this direction for several years probably five years or more we have been seeing this trend. It’s much – it seems more pronounced this year than we’ve ever seen it, which is one of the reasons why we are hesitant to talk about what the results are. Because we still have a lot of our – most of our – I would believe at least about a third to 40% of our stores are still experiencing either peak or will have post peak business to do. So I don’t really – we will be honest – we have got to see how all that rolls out, but that’s what we have seen so far from our early markets.

Steven Marotta – CL King & Associates: Is it safe to say that those early markets and even sort of post back-to-school but in general the early markets are comping better than the latter markets, quarter-to-date?

Richard M. Ausick – Division President, Retail: I would not say that.

Steven Marotta – CL King & Associates: You would not say that?

Richard M. Ausick – Division President, Retail: It’s pretty – it’s actually – again, early markets make up a little bit – the markets themselves when we talk about the time goods can be from coast-to-coast, north to south. It has really nothing to do with geography. It has more to do with the schools systems. So there is a lot of differences in those things. So California goes to school at a certain time and there is – it has its own issues. The business in Florida has been pretty good for several years. So when they go back to school. So it’s hard to look at it when you put – combine some of those things as to why that time and group is better. So I wouldn’t necessarily characterize it that way.