Business Context and Reporting Period
This Form 10-Q covers the quarterly period ended November 3, 2001, and the thirty-nine weeks ended on that date for Brown Shoe Company, Inc. (operating under the Caleres Inc. name in the request metadata, though the filing identifies Brown Shoe Company, Inc.). The company operates in three primary segments: Famous Footwear (retail), Wholesale Operations, and Naturalizer Retail. The filing notes that the company's business is subject to seasonal influences.
Key Financial Metrics
| Metric | 13 Weeks Ended Nov 3, 2001 | 39 Weeks Ended Nov 3, 2001 |
|---|---|---|
| Net Sales | $462.4 million | $1,340.6 million |
| Gross Profit Margin | 39.3% | 39.2% |
| Net Earnings | $11.9 million | $24.1 million |
| Diluted EPS | $0.68 | $1.37 |
| Cash and Equivalents | $25.2 million | (Balance Sheet) |
| Operating Cash Flow | (Not provided for 13 weeks) | ($12.0) million (Used) |
| Total Debt | $237.0 million (Notes Payable + Current Maturities + Long-Term) | (Balance Sheet) |
| Working Capital | $253.0 million | (Balance Sheet) |
Material Changes vs. Prior Period
- Revenue: Net sales for the quarter were flat at $462.4 million compared to $463.3 million in the prior year. For the nine-month period, sales increased 5.0% to $1.341 billion.
- Profitability: Net earnings declined 24.1% for the quarter to $11.9 million (from $15.6 million) and 23.2% for the nine months to $24.1 million (from $31.4 million). Diluted EPS dropped from $0.88 to $0.68 for the quarter.
- Segment Performance:
- Famous Footwear: Sales decreased 4.1% in the quarter due to a 9.4% same-store sales decline. Operating earnings fell 36.3% to $14.2 million.
- Wholesale Operations: Sales increased 7.0% in the quarter to $128.9 million, driving operating earnings up to $12.3 million.
- Naturalizer Retail: Sales increased 4.3% to $52.2 million, reducing the operating loss to $1.4 million from $1.8 million.
- Margins: Gross profit margin decreased to 39.3% from 39.8% year-over-year, primarily due to lower margins in retail operations from a competitive promotional environment. Selling and administrative expenses as a percent of sales increased to 34.8% from 33.9%.
- Liquidity: Cash and cash equivalents decreased from $44.6 million to $25.2 million. Operating activities used $12.0 million in cash for the nine-month period, compared to $5.0 million usage in the prior year.
Outlook, Risks, and Unusual Items
- Restructuring Charge: Management announced an expected after-tax charge of $29 million to $32 million in the fourth quarter. This relates to restructuring the Naturalizer division, severance costs, inventory markdowns, management transition at Famous Footwear, and debt restructuring.
- Debt Restructuring: The company intends to call its $100 million 9.5% Senior Notes (maturing in 2006) in the fourth quarter. Associated costs are estimated at $5.0 million after-tax. A new $350 million Credit Agreement is expected to replace the current $165 million facility.
- Accounting Changes: The company adopted FAS 133 regarding derivative instruments. It also anticipates adopting FAS 142 (Goodwill) in fiscal 2002, which is expected to increase net income by approximately $1 million due to the cessation of goodwill amortization.
- Stock Repurchases: The company purchased 145,900 shares for $2.6 million in the first nine months of fiscal 2001 under an authorized program.
Investor Verification Checklist
- Verify the magnitude and specific components of the announced $29-$32 million fourth-quarter restructuring charge.
- Confirm the terms and closing date of the new $350 million Credit Agreement intended to replace the current facility.
- Monitor the execution of the $100 million Senior Notes call and the associated $5 million cost.
- Assess the impact of the 9.4% same-store sales decline at Famous Footwear on future revenue guidance.
- Review the effectiveness of the inventory clearance programs mentioned as a cause for margin compression.