Famous Footwear 2004 Annual Report Download - page 27

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Table of Contents
BROWN SHOE COMPANY, INC. 2003 FORM 10-K
The 2002 sales gain was attributable to higher unit sales and was spread among almost all of the Wholesale branded, licensed and private-
label divisions, including a 17.8% increase by the Naturalizer brand, which followed a 28.6% increase in 2001. The Naturalizer brand
increased its market share among U.S. department stores and moved up to the third position in 2002 from the fourth position at the end of
2001 based on NPD Group, Inc. data. Sales gains also were achieved by LifeStride, Dr.Scholl’s-licensed, Children’s-licensed and Women’s
private-label footwear. We also continued to build sales and broaden distribution of our Carlos by Carlos Santana and HOT KISS-licensed
footwear.
Gross Profit
Gross profit as a percent of sales increased to 32.8% in 2003 from 32.0% in 2002, or a difference of 0.8%. The Wholesale division achieved
a gross profit improvement of $2.7 million despite the slight decrease in sales. This increase is attributable to a higher mix of branded product
sales and higher gross profits in both the branded and discount channels, partially offset by a lower gross profit percentage in the Canadian
wholesale division and the charge of $1.6 million to write down unusable raw materials from the closing of our last Canadian factory in
Perth, Ontario.
Gross profit as a percent of sales decreased to 32.0% in 2002 from 32.5% in 2001, or a difference of 0.5%. This decline principally reflects a
lower gross profit percentage at our Canadian wholesale operations.
Selling and Administrative Expenses
Selling and administrative expenses increased $1.5 million, or 1.1%, to $128.5 million during 2003 compared to $127.0 million in 2002. As
a percent of sales, these costs increased to 22.9% in 2003 compared to 22.4% in 2002, or an increase of 0.5%. The increase was principally
due to a special charge of $2.7 million to close the division’s last Canadian footwear manufacturing facility and additional investment in
product development and sales talent, partially offset by a $1.4 million reduction in marketing costs, a $0.4 million reduction in warehousing
and distribution costs and lower incentive plan costs.
Selling and administrative expenses increased $14.8 million, or 13.2%, to $127.0 million during 2002 compared to $112.2 million in 2001.
As a percent of sales, these costs increased to 22.4% in 2002 compared to 22.3% in 2001, or an increase of 0.1%. The increase was
principally due to higher incentive plan costs of $9.5 million, $0.9 million of costs to close a Canadian footwear manufacturing facility in
Stirling, Ontario, $0.7 million of higher marketing costs and $0.9 million of higher warehousing and distribution costs.
Operating Earnings
Operating earnings for the Wholesale segment increased $1.2 million, or 2.3%, to $55.6 million for 2003 compared to $54.4 million for
2002. Operating earnings increased slightly despite a modest decline in sales as a result of improved gross profit percentages due to the
greater mix of branded product sales and higher gross profit percentages in both the branded and discount channels, partially offset by the
lower Canadian results.
Operating earnings for the Wholesale segment increased $3.2 million, or 6.3%, to $54.4 million for 2002 compared to $51.2 million for
2001. The increase in operating earnings was less than the 12.5% increase in sales due to higher incentive plan costs and lower results in
the Canadian wholesale operations, which included the cost of closing one of its two footwear manufacturing facilities.
OTHER SEGMENT
The Other segment includes our majority-owned subsidiary, Shoes.com, Inc., a footwear e-commerce company, and unallocated corporate
administrative and other costs.
Net Sales
Net sales of Shoes.com increased $3.6 million, or 81.8%, to $8.0 million in fiscal year 2003 and increased $3.3 million, or 300.0%, to
$4.4 million in fiscal year 2002. The 2003 increase in net sales reflects strong sales growth due to increased Web site traffic and improved
conversion rates. The 2002 increase in net sales reflects only a partial year of operation for 2001 and continued growth in 2002 due to
increased Web site traffic.
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