Business context and reporting period
The supplied filing is Brown Shoe Company, Inc.’s unaudited Form 10-Q for the 13 and 26 weeks ended August 2, 2014—not a filing under the name CALERES INC. The company operated Famous Footwear, Wholesale Operations and Specialty Retail. Management describes the business as seasonal, with the third fiscal quarter traditionally contributing a substantial share of annual earnings.
Key financial metrics
Amounts below are in millions of dollars, except per-share data and ratios.
| Metric | Second quarter 2014 | Second quarter 2013 | First half 2014 | First half 2013 |
|---|---|---|---|---|
| Net sales | $635.9 | $621.7 | $1,227.0 | $1,210.4 |
| Gross profit / margin | $259.6 / 40.8% | $254.6 / 41.0% | $502.0 / 40.9% | $494.6 / 40.9% |
| Operating earnings / margin | $31.3 / 4.9% | $22.8 / 3.7% | $60.0 / 4.9% | $43.8 / 3.6% |
| Net earnings attributable to Brown Shoe | $18.1 | $15.4 | $33.5 | $4.6 |
| Diluted EPS attributable to shareholders | $0.41 | $0.35 | $0.76 | $0.10 |
- First-half net cash provided by operating activities was $66.5, versus $35.5 a year earlier. Cash used for investing was $91.3, including the $65.0 Franco Sarto trademark acquisition; the prior-year period included $69.3 of proceeds from subsidiary sales. Cash used for financing was $11.5. Cash declined $35.7 to $46.9.
- At August 2, 2014, total debt was $199.1, all in long-term senior notes; revolving-credit borrowings were zero, with $523.6 of borrowing availability. The 7.125% senior notes mature in 2019. The debt-to-capital ratio was 28.1%, versus 34.2% a year earlier.
- Working capital was $368.3 and the current ratio 1.74:1, compared with $362.5 and 1.76:1 a year earlier. Inventory was $657.7, up from $615.9 at August 3, 2013; accounts payable was $341.7, up from $309.8.
Material changes and segment performance
- Second-quarter sales rose 2.3%; operating earnings increased 37.2%. Higher sales and lower consolidated selling and administrative expenses supported earnings. Gross margin edged down 0.2 percentage points; management cited segment mix and lower Famous Footwear margin.
- Famous Footwear sales rose 1.4% in Q2, with same-store sales up 1.6%; operating earnings fell to $26.6 from $29.0 as margin declined to 45.1% from 45.6% and selling and administrative costs increased. Management cited markdowns and weaker product margins in boots and running.
- Wholesale Operations sales increased 7.7% in Q2 and operating earnings rose to $19.2 from $8.2. Margin improved to 32.6% from 31.0%, aided in part by lower Franco Sarto royalties following the trademark acquisition. Unfilled orders rose 22.1% year over year to $314.5.
- Specialty Retail sales declined 9.5% in Q2 and the operating loss widened to $2.8 from $1.9. The first-half loss widened to $6.5 from $3.2. Management cited fewer stores, lower e-commerce sales, currency effects, and weaker gross margin; Q2 same-store sales nevertheless increased 2.3%.
- First-half earnings comparisons are affected by prior-year discontinued-operation losses, including a $12.6 impairment associated with the Avia and Nevados sale and other disposition-related items. There were no discontinued-operation earnings or losses in the 2014 periods presented.
Outlook, risks and contingencies
- Management forecast fiscal 2014 sales of $2.58–$2.60 billion and diluted EPS of $1.50–$1.60. It noted declining industry traffic and a difficult retail environment. The company expected 2014 property, equipment and capitalized software spending of approximately $55–$60 million.
- The $65.0 Franco Sarto trademark purchase closed February 3, 2014; management said eliminating related royalties reduces cost of goods sold and supports wholesale gross profit. Portfolio realignment efforts were described as complete, with no related expenses in the 2014 quarter or half-year; $1.4 of related reserves remained at August 2, 2014.
- Environmental remediation liabilities totaled $11.2, including $9.8 for the Redfield site. Management said ultimate costs may vary and may exceed recorded amounts. Ordinary-course litigation was not expected by management to have a material adverse effect.
- Disclosed risks include consumer demand and fashion changes, competition, inventory forecasting, reliance on China-based sourcing, IT and distribution disruptions, foreign exchange, trade restrictions, product safety, customer and supplier concentration, and licensing and lease matters. Credit-facility and senior-note covenants were reported in material compliance.
Most important facts for investors to verify
- Confirm the issuer identity: the filing names Brown Shoe Company, Inc., while the request metadata names CALERES INC.
- Check the stated fiscal-year sales and EPS outlook against subsequent company results and any later guidance.
- Assess whether higher inventory and accounts payable reflect planned seasonal sales or create markdown, liquidity, or working-capital risk.
- Track Famous Footwear margin pressure and Specialty Retail losses against Wholesale Operations’ growth and improved margins.
- Review cash availability and the timing and ultimate cost of environmental remediation, alongside the $199.1 of senior-note debt.