Brown Shoe reduces store expansion plans

Brown Shoe reduces store expansion plans Brown Shoe Company Inc., reported results for the third quarter of 2008 ended November 1.



The Company reported that net sales in the third quarter decreased 2.2 percent to $631.7 million compared to $645.5 million in the year-ago quarter. Net earnings decreased to $10.4 million, or $0.25 per diluted share, which included $0.24 per diluted share of costs related to the Company\'s headquarters consolidation and its information technology initiatives.



This compares to net earnings of $27.0 million, or $0.61 per diluted share, in the year-ago quarter, which included $0.06 per diluted share of costs related to the Company\'s Earnings Enhancement Plan. Excluding these items, adjusted earnings in the quarter totaled $20.5 million, or $0.49 per diluted share, a decrease on a per share basis of 26.9 percent, versus $29.9 million, or $0.67 per diluted share, in the same period last year. (See Schedule 4 attached for a reconciliation to GAAP net earnings and the discussion of \"Non-GAAP Financial Measures\" below). Same-store sales at Famous Footwear declined by 5.0 percent during the third quarter versus a decrease of 2.6 percent in the comparable 2007 period.



Ron Fromm, Brown Shoe Chairman and CEO, stated: \"While the third quarter began as anticipated, as we delivered to our Back-to-School expectations, our results for the quarter were subsequently impacted by the sudden and rapid decline in consumer spending that followed the onset of the economic crisis in which we find ourselves. We are confident that Brown Shoe\'s financial strength and portfolio of brands position us well to weather these turbulent times. Nonetheless, we have taken a proactive approach to managing our business in this downturn,as we do not expect an improvement in the near- term.\"



\"We will maintain the brand integrity we possess with consumers and retailers alike, while directing our resources more judiciously to ensure that the dollars spent are achieving an appropriate return. As such, we have reduced our store expansion plans for the 2009 to 2011 period, indefinitely paused our headquarters redevelopment initiative, and will continue to monitor the pace of expenditures for our new ERP platform. In total, we have lowered our planned capital expenditures for the 2009 to 2011 period by an aggregate of $72.0 million. We will seek to align our costs to this new sales environment and have instituted more stringent expense management disciplines. In the near-term, our goal is to maximize profit outcomes and cash flows while maintaining the strength of our balance sheet. We believe this strategy has us poised to come out of this downturn even stronger and better able to maximize the many opportunities we see for our brands and company.\"



Consolidated Results for Third Quarter of 2008:

* Net sales were $631.7 million, a 2.2 percent decrease, compared to $645.5 million in 2007;

* Gross margins in the third quarter of 2008 decreased 100 basis points to 39.3 percent of net sales from 40.3 percent of net sales in 2007. This decrease was driven primarily by the increased promotional cadence at the Company\'s retail divisions as well as an increased sales mix of licensed brands versus owned brands, an increased mix of mid-tier channel sales, and higher markdowns and allowances in its wholesale division;





Selling and administrative expenses in the third quarter of 2008 increased by 8.6 percent to $235.8 million, or 37.3 percent of net sales, versus $217.0 million, or 33.7 percent of net sales, in the same period last year. The year-over-year change primarily consisted of two components, with 190 basis points of the change resulting from non-recurring costs of $16.5 million related to the Company\'s headquarters consolidation and its information technology initiatives, versus $4.5 million in the prior year related to Earnings Enhancement Plan costs. The remaining 170 basis point change resulted from the impact of operating 78 more Famous Footwear stores, expense deleverage from negative same-store sales performance, and lower wholesale sales;

* The factors above resulted in a decrease in operating earnings as a percent of net sales to 2.0 percent, or $12.9 million, in the third quarter of 2008, versus 6.6 percent of net sales, or $42.8 million in 2007;

* The Company recognized a $0.9 million tax benefit in the quarter resulting from a higher relative mix of foreign earnings, which are subject to lower statutory rates, and state tax incentives related to job creation and training, resulting from the Company\'s headquarters consolidation;

* Net earnings in the third quarter were $10.4 million, or $0.25 per diluted share, versus net earnings of $27.0 million, or $0.61 per diluted share, in the prior year. Third quarter of 2008 net earnings included charges of $10.1 million, or $0.24 per diluted share, primarily related to the Company\'s headquarters consolidation and its information technology initiatives. Third quarter of 2007 net earnings included charges of $2.9 million, or $0.06 per diluted share, related to the Company\'s Earnings Enhancement Plan.





Brown Shoe Company Inc (Nov27,2008)