Business context and reporting period
Filing identity and period differ from the request metadata: the supplied filing is Brown Shoe Company, Inc. (NYSE: BWS), not Caleres, Inc. It is the Form 10-K for fiscal 2013, ended February 1, 2014 (52 weeks), and includes quarterly data; fiscal 2012 had 53 weeks. The company operated footwear retail, e-commerce and wholesale businesses, with Famous Footwear as its largest retail division.
Financial performance and liquidity
| Metric | FY2013 | FY2012 |
|---|---|---|
| Net sales | $2,513.1 million | $2,477.8 million |
| Gross profit / margin | $1,014.3 million / 40.4% | $988.6 million / 39.9% |
| Operating earnings / margin | $98.6 million / 3.9% | $74.5 million / 3.0% |
| Net earnings attributable to Brown Shoe | $38.1 million; $0.88 diluted EPS | $27.5 million; $0.64 diluted EPS |
| Operating cash flow | $104.0 million | $197.9 million |
| Cash and cash equivalents | $82.5 million | $68.2 million |
| Total debt | $206.0 million | $303.8 million |
| Working capital / current ratio | $405.7 million / 2.05:1 | $303.3 million / 1.64:1 |
Sales grew 1.4%; operating earnings rose 32.4%. Continuing-operations net earnings were $54.0 million versus $35.2 million. Reported net earnings were reduced by a $16.1 million loss from discontinued operations. Gross-margin improvement reflected lower markdowns and freight costs at Famous Footwear, more profitable wholesale brand mix, and improved Specialty Retail mix.
Operating cash flow fell $93.9 million, mainly as inventory and receivables absorbed cash and trade-payable growth was smaller. Investing activities provided $20.1 million, including proceeds from asset sales; capital expenditure was $44.0 million and capitalized software was $5.2 million. Debt declined primarily through lower revolver borrowings. Cash was mostly held by foreign subsidiaries.
Segment results and material comparisons
- Famous Footwear: sales of $1,527.5 million, up 0.9%; same-store sales grew 2.9%; operating earnings increased to $107.1 million from $94.1 million. The 2012 extra week added $18.1 million to the prior-year comparison. Fourth-quarter sales were below expectations, and year-end inventory increased.
- Wholesale Operations: sales of $763.7 million, up 5.3%; operating earnings rose to $43.1 million from $30.2 million. Order backlog was $273.9 million, slightly below $274.9 million.
- Specialty Retail: sales fell 7.0% to $221.9 million, primarily due to lower Shoes.com sales and fewer stores; operating loss narrowed to $5.0 million from $8.9 million. Same-store sales rose 1.6%.
Fiscal 2012 included an extra week that added about $21.2 million to retail sales, with an immaterial effect on net earnings; annual comparisons are therefore not fully like-for-like.
Outlook, commentary, risks and unusual items
For 2014, management expected Famous Footwear same-store sales growth in the low-single-digit range; Wholesale Operations and consolidated net sales growth in the low-to-mid-single-digit range; and Specialty Retail sales to decline in the low-single-digit range. Planned 2014 capital expenditures and capitalized software were approximately $53 million to $57 million. Management cited economic, consumer and weather uncertainty.
- Portfolio realignment initiatives were substantially complete. Related costs totaled $30.7 million in 2013, including discontinued-operation items. The company sold Avia and Nevados, exited or discontinued other businesses and brands, and continued reducing or repositioning store locations.
- A $4.7 million impairment charge related to supply-chain and sourcing assets held for sale was recorded in continuing operations. Discontinued operations included a $11.5 million net disposition/impairment charge; the year’s total discontinued-operations loss was $16.1 million.
- After year-end, on February 3, 2014, the company bought the Franco Sarto trademarks for $65.0 million in cash, terminating its license agreement.
- Debt included $199.0 million of 7.125% senior notes due 2019 and $7.0 million drawn under a $530 million asset-based revolving facility, with $503.2 million of additional availability. The revolver matures January 2016; the company reported covenant compliance.
- Key risks include reliance on China for approximately 91% of sourced footwear, fashion and demand forecasting, inventory markdowns, wholesale customer and supplier concentration, intense competition, leased-store obligations, foreign currency exposure, cybersecurity and information-system disruption.
- Environmental remediation liabilities were accrued at $11.0 million, including $9.5 million for the Redfield site. Management said ordinary-course litigation was not expected to have a material adverse effect, but remediation costs could exceed recorded amounts.
- Independent auditors gave unqualified opinions on the financial statements and internal control over financial reporting; management also concluded controls were effective.
Important facts for investors to verify
- Confirm the intended issuer and reporting period: this text is Brown Shoe’s FY2013 10-K, not a Caleres filing or a 2012 Q4-only filing.
- Review cash-flow sustainability: operating cash flow declined sharply while inventory rose to $547.5 million, partly due to early spring purchases and weaker-than-expected fourth-quarter Famous Footwear sales.
- Separate continuing results from discontinued operations and one-time restructuring, impairment and divestiture effects when assessing earnings growth.
- Assess whether 2014 segment guidance and the planned $65.0 million trademark purchase affect liquidity, returns and future amortization.
- Evaluate China sourcing concentration, environmental remediation exposure, and the terms and fixed obligations of leases, debt and purchase commitments.