Famous Footwear 2004 Annual Report Download - page 19

Table of Contents
BROWN SHOE COMPANY, INC. 2003 FORM 10-K
• Our Naturalizer Retail segment had a disappointing year, both domestically and in Canada. The Canadian stores had a particularly
difficult year as same-store sales declined 4.1%. In addition, significant markdowns were taken to clear Canadian-produced inventories
and to transition to more fashionable imports, including a substantial mix of the U.S. product line. The domestic stores achieved a same-
store sales gain of 1.1%, but results were still below expectations.
• We continued to make progress on improving our financial position. We reduced debt by $33 million in fiscal 2003 following a reduction
of $64 million in fiscal 2002, leaving a debt-to-total capital ratio of 25.2% at the end of fiscal 2003. This debt reduction provides the
liquidity to invest and grow the business as opportunities arise.
• The operating improvements of the last two years and the solid balance sheet have positioned us to grow. To that point, at the beginning
of fiscal 2004, we entered into a license agreement with Phillips-Van Heusen Corporation for the Bass footwear brand. We purchased the
on-hand inventory of this product for approximately $13 million and expect sales of approximately $60 million to $70 million in
fiscal 2004. Due to transition and assimilation costs, particularly in early fiscal 2004, we expect this business to operate at substantially a
breakeven level in fiscal 2004, but contribute positively to fiscal 2005 earnings.
Looking ahead, while much has been accomplished, we expect the retail environment will continue to be extremely competitive. We must
achieve sales gains at all of our divisions, but particularly at Famous Footwear, to further increase our profitability in 2004. We believe the
investments we have made and will continue to make in the business provide the foundation for a successful 2004 and beyond.
CONSOLIDATED RESULTS
2003 2002 2001
% of % of % of
($ millions) Sales Sales Sales
Net sales $1,832.1 100.0% $1,841.4 100.0% $1,755.8 100.0%
Cost of goods sold 1,073.4 58.6% 1,100.6 59.8% 1,089.5 62.1%
Gross profit 758.7 41.4% 740.8 40.2% 666.3 37.9%
Selling and administrative expenses 681.6 37.2% 667.5 36.2% 653.1 37.1%
Provision for environmental litigation costs 3.1 0.2% — 0.0% — 0.0%
Operating earnings 74.0 4.0% 73.3 4.0% 13.2 0.8%
Interest expense 9.8 0.5% 12.2 0.7% 20.2 1.2%
Interest income (0.5) 0.0% (0.4) 0.0% (1.3) 0.0%
Loss on early redemption of debt — 0.0% — 0.0% 7.5 0.4%
Earnings (loss) before income taxes 64.7 3.5% 61.5 3.3% (13.2) (0.8)%
Income tax (provision) benefit (17.8) (0.9)% (16.3) (0.8)% 9.2 0.6%
Net earnings (loss) $46.9 2.6% $45.2 2.5% $(4.0) (0.2)%
Net Sales
Net sales decreased $9.3 million, or 0.5%, to $1,832.1 million in fiscal year 2003 and increased $85.6 million, or 4.9%, to $1,841.4 million
in fiscal year 2002.
The decrease in net sales in 2003 compared to 2002 reflects lower sales of $1.6 million at Famous Footwear, $5.1 million at Wholesale and
$6.2 million at Naturalizer Retail, partially offset by an increase in the Shoes.com e-commerce business of $3.6 million. Same-store sales
declined 2.4% and 4.1% in the Famous Footwear and Canadian Naturalizer stores, respectively, and increased 1.1% in the domestic
Naturalizer stores. Same-store sales changes are calculated by comparing the sales in stores that have been open at least 13 months. This
method avoids the distorting effect that grand opening sales have in the first month of operation. Relocated stores are treated as new stores.
Closed stores are excluded from the calculation.
The increase in net sales in 2002 over 2001 reflects higher sales of $30.8 million at Famous Footwear, $63.1 million at Wholesale and
$3.2 million in the Shoes.com e-commerce business, partially offset by an $11.5 million decrease at the Naturalizer Retail stores. Same-
store sales declined 1.3% and 6.0% in the Famous Footwear and Canadian Naturalizer stores, respectively, and increased 4.3% in the
domestic Naturalizer stores.
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