Business context and reporting period
The supplied filing is Brown Shoe Company, Inc.’s Form 10-K for the 52-week fiscal year ended January 28, 2012—not a filing identified as Caleres Inc. The company operated footwear retail, e-commerce and wholesale businesses, with Famous Footwear, Wholesale Operations and Specialty Retail as its principal segments. Results are reported in U.S. dollars.
Financial results
| Metric | FY2011 | FY2010 |
|---|---|---|
| Net sales | $2,582.8 million | $2,504.1 million |
| Gross profit / margin | $996.6 million / 38.6% | $1,003.6 million / 40.1% |
| Operating earnings / margin | $35.6 million / 1.4% | $72.7 million / 2.9% |
| Net earnings attributable to Brown Shoe | $24.6 million | $37.2 million |
| Diluted EPS | $0.56 | $0.85 |
| Cash from operating activities | $48.1 million | $(2.3) million |
| Cash and cash equivalents at year-end | $47.7 million | $126.5 million |
| Total debt | $399.6 million | $348.0 million |
| Working capital / current ratio | $290.6 million / 1.55 | $296.4 million / 1.58 |
Net sales rose 3.1%, while gross profit fell 0.7% and operating earnings declined 51.1%. The continuing-operations effective tax rate was 3.6%, versus 30.4% in FY2010. Cash used in investing was $136.7 million, including the ASG acquisition; financing provided $9.9 million. Capital expenditures were $27.9 million and capitalized software was $10.7 million. Inventory increased to $561.8 million from $524.3 million, largely reflecting ASG.
Material changes versus the prior period
- Wholesale sales increased 15.4% to $870.9 million, primarily reflecting ASG, acquired in February 2011. Famous Footwear sales fell 2.0% to $1,456.3 million, with same-store sales down 1.2%; Specialty Retail sales fell 2.9% to $255.6 million.
- Gross margin contracted 1.5 percentage points, principally due to lower toning-shoe sales and increased promotions in retail, plus product costs, markdowns and ERP-related fulfillment costs in wholesale.
- Famous Footwear operating earnings decreased to $62.5 million from $90.4 million; Wholesale Operations earnings fell to $16.7 million from $32.2 million; Specialty Retail reported an operating loss of $7.6 million, compared with a $6.0 million loss.
- Fiscal fourth-quarter 2011 net sales were $628.9 million and net loss attributable to Brown Shoe was $8.2 million, versus fourth-quarter 2010 sales of $604.5 million and earnings of $3.4 million.
Outlook, commentary, risks and unusual items
Management expected 2012 Famous Footwear same-store sales to be flat to low-single-digit growth and wholesale net sales to decline by a low-single-digit percentage. It described the consumer environment as challenging and said it would prioritize profitability, brand investment and portfolio simplification. Planned actions included store and distribution-center closures, exiting certain brands and children’s wholesale, and closing a China factory. Management estimated first-phase realignment costs of $31–$34 million in total; $19.2 million had been recognized in 2011.
- ASG cost $156.6 million; its FY2011 contribution included $135.5 million of sales and $14.5 million of net earnings, including the AND 1 divestiture gain. TBMC/AND 1 was sold for $55.4 million, producing a $20.6 million pretax gain ($14.0 million after tax).
- Other significant 2011 items included $23.7 million of restructuring and special charges, $6.5 million of ASG acquisition/integration costs, $4.2 million of acquired-inventory fair-value costs, a $1.0 million debt-extinguishment loss, and estimated $12.8 million pretax adverse ERP stabilization effects.
- Debt comprised $201.0 million drawn under a revolving facility and approximately $198.6 million carrying value of 7.125% senior notes due 2019. Revolver availability was $296.7 million; the company reported compliance with debt covenants at year-end. Debt-to-capital increased to 49.1% from 45.6%.
- Key risks include dependence on China for approximately 98% of sourced footwear, volatile consumer and fashion demand, inventory forecasting, customer and supplier concentration, currency and sourcing-cost pressures, ERP disruption, acquisition integration, debt and covenant constraints, and litigation/environmental exposure. Environmental remediation liabilities were $9.3 million; management cautioned that ultimate costs could exceed reserves.
- The company reported effective disclosure controls and internal control over financial reporting; however, the assessment excluded acquired ASG operations, which were to be included in the following year’s evaluation. The independent auditor issued unqualified opinions on the financial statements and internal controls.
Important facts for investors to verify
- Confirm the issuer and period: the provided document names Brown Shoe Company, Inc. and covers the year ended January 28, 2012, despite request metadata naming Caleres Inc. and “2010 Q4.”
- Reconcile FY2011 earnings and EPS excluding the $14.0 million after-tax divestiture gain and other restructuring, ERP and acquisition-related items.
- Track whether the stated 2012 sales outlook and $31–$34 million realignment-cost estimate were achieved, and whether the actions improved segment profitability.
- Monitor operating cash generation, inventory and receivables, cash levels, revolver availability, debt and covenant headroom.
- Assess China sourcing concentration, ERP stabilization, ASG integration, environmental remediation exposure and the sustainability of the quarterly dividend.