Brown Shoe Company Earnings Call Insights: Guidance Analysis and Famous Footwear

Brown Shoe Company (NYSE:BWS) recently reported its first quarter earnings and discussed the following topics in its earnings conference call.

Guidance Analysis

Scott Krasik – BB&T Capital Markets: So I guess I was – if you said it I might have missed it. So of the dollar – the new guidance of $1.22 to $1.29 what contribution from the discontinued ops is in that?

Russ Hammer – SVP and CFO: Scott, we have not broken that out specifically. I think, when you look at Schedule 8, it will help you see what that impact is year-over-year. Then you can apply your math on that. But we have not specifically broken that out.

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Scott Krasik – BB&T Capital Markets: Would the math then just use the loss from a year ago, or was there some other extra component of it I guess?

Russ Hammer – SVP and CFO: I think when you think about our guidance it stays in line with the strategy that we talked about last summer at our Investor Day. That we are streamlining the portfolio, and then on a go forward basis towards our long-term financial goals, which puts us in a better – our infrastructure, our cost structure, the profitability of our portfolio in a better situation to achieve that.

Scott Krasik – BB&T Capital Markets: Then in your comments around the benefit to the second quarter, but you’re offsetting that with marketing costs, I mean should we still assume some benefit to EPS in the second quarter, even though you have other investments?

Russ Hammer – SVP and CFO: Scott, I’m not sure, how to answer your question. Yes. We’re going to see benefits because the second quarter is a good quarter for us, not as strong as our third. But because we are seeing as Diane said, we are confident in our businesses on a go forward basis and we raised our annual guidance. We saw an opportunity in Famous to sponsor the Good Morning America concert series, which gives us a significant amount of impressions to the marketplace. So, we feel pretty confident about that…

Scott Krasik – BB&T Capital Markets: So, I guess just in terms of the leverage on the extra sales, even though you are spending a little more on marketing. You’ll still get additional leverage on those sales based on the timing?

Russ Hammer – SVP and CFO: Absolutely.

Scott Krasik – BB&T Capital Markets: Then, can you say what the productivity or the average productivity is from the 60 stores that you’re closing in 2013, sales per square foot?

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Russ Hammer – SVP and CFO: They’re mixed, because they’re in different regions. Maybe to give you a flavor, they’re significantly lower than the 200 we’re running. If you remember that when we showed you at the investor day, that we started around the $1, 180 and now we’re up to 200 on average and we have some that are significantly below that and we have some that are slightly above that 180, but most of them are below it.

Scott Krasik – BB&T Capital Markets: So maybe in the 150, 160 range or something?

Diane M. Sullivan – President and CEO: Yeah.

Russ Hammer – SVP and CFO: Exactly.

Diane M. Sullivan – President and CEO: Yeah. It’ll be in the 150 range.

Scott Krasik – BB&T Capital Markets: Then, in terms of 2014, are you comfortable with the existing portfolio at that point or is there still a class of stores or group of stores?

Diane M. Sullivan – President and CEO: With regard to the store base, we’re always going to manage the store base like a portfolio and exit locations that we feel that we need to, but I don’t expect it to be at the pace that we have done this last year. As it relates to the wholesale brand portfolio, I would say that we’re very comfortable today with the brands now that are in our portfolio. So, we don’t see additional changes going forward…

Scott Krasik – BB&T Capital Markets: Then, I missed some of the commentary at the beginning, I don’t know if Rick’s on the call or not, but I assume, the nautical boat shoe category is very strong and you definitely call that athletic, maybe talk about some of the other categories was molded footwear a strong category, how are you looking at maybe boots and booties for the beginning of back-to-school in Q3?

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Diane M. Sullivan – President and CEO: Yeah, well I did say that boat shoes were up more than 15% in the quarter. Athletic sales were up 19%. Boot, yes, right, really all in April, right exactly, Rick. Boot sales were up as well 21%. That impacted sandal sales, but they rebounded a little over 4%, so it was a little better than 4% in April. But, Rick, molded footwear and other categories, how would you say?

Richard M. Ausick – Division President, Famous Footwear: I mean, I think (Simeon tagged) on the molded business as the saddle business. I think it’s a little more of a summer and better weather business. So we were up, but we weren’t up significantly, and we had a huge, big increase in that category last year. So we were pretty happy to have an increase in the first quarter, but it wasn’t what we had planned. We think it will be better in the second quarter just because the weather gets better. We have seen that happen already in the first three or four weeks.

Scott Krasik – BB&T Capital Markets: Then do you ride the fashion shift so far into early back-to-school? Do you make any changes? Do you bring in booties earlier?

Richard M. Ausick – Division President, Famous Footwear: Yes. We have a strategy to bring in some lace-up boots. The causal boot category, we think, is going to be important. But when I say important in our sense it will have a presence in our stores. But again, we are more committed to canvas footwear and the athletic business than we are to junior casual boots. But we will have a bigger presence of that category in our stores for back-to-school than we have had in the past.

Famous Footwear

Danielle McCoy – Brean Capital: I guess if we look at Famous Footwear, you guys have been making a lot of great progress there. How should we look at more like the longer term store build out? I know you guys are looking to close and open similar amount of stores over the next two years. Is there potential for that stores to get higher than l,050-ish range or are you guys just comfortable with that level?

Richard M. Ausick – Division President, Famous Footwear: Well, I think there is always opportunity, if we get the right locations. I mean, we really look at it from where our customers are, where the opportunities lie from a retail operating space, is there a center we can go into, is there other retail we can be adjacent to. I don’t think we’ve been limited by any of our own constraints. I think it’s been about making sure we open the stores in the right place where we get the return we’re looking for from that. So, to answer your question, it could be higher. But it’s an individual basis based on the availability of retail space.

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Danielle McCoy – Brean Capital: Do you guys have a more detailed open/close plan for the remainder of this year, for Famous Footwear?

Richard M. Ausick – Division President, Famous Footwear: Yes.

Russ Hammer – SVP and CFO: Yes. We do very much so.

Richard M. Ausick – Division President, Famous Footwear: So, I mean again, I don’t have with me, but we could provide that. There is nothing – we have sort of – we opened basically in three places. We have opened most of our stores in spring in March, April. We opened again – we have another opening wave come at the end of June through August 1st. We open stores then and whatever is leftover we try open end of October and early November, and some of that depends Danielle on center opening and center being ready to – if it’s a new center and the space being available. But those are the three times we open – the closings come based again on lease expiration pretty much. So, those things could be very along the way. A lot of those will come. Some of those will come at the end of the year, because leases end at the end of January…

Russ Hammer – SVP and CFO: If possible we would want to get them open before back-to-school.

Richard M. Ausick – Division President, Famous Footwear: Right. We try to open as much before back-to-school, but sometimes just not able to do that because the center is not ready. We can provide you more of the details if you’d like.

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Danielle McCoy – Brean Capital: Then looking at this Specialty segment, how should we look at that going further? Are you guys using the same sort of optimization of that real estate portfolio as you were on Famous Footwear?

Richard M. Ausick – Division President, Famous Footwear: We are. So, from a specialty standpoint, we go through the same process with our real estate committee and put the same level of rigor into the stores, and the locations that we’re opening and closing.

Danielle McCoy – Brean Capital: Then, do you have a number on how many you might be opening or closing this year?

Richard M. Ausick – Division President, Famous Footwear: I believe it’s like ’13, in that ballpark, but I’ll double check that for you, Danielle.

A Closer Look: Brown Shoe Company Earnings Cheat Sheet>>

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