Famous Footwear 2004 Annual Report Download - page 24

Table of Contents
BROWN SHOE COMPANY, INC. 2003 FORM 10-K
by net new stores, which provided $22.7 million in sales during 2003. Famous Footwear opened 57 stores and closed 82 during 2003, yet
increased total square footage by 0.9%, to 6.2 million, reflecting the opening of larger-format stores. As a result of opening these larger stores
and lower store traffic, sales per square foot declined 2.8%, to $172. However, the conversion rate (the percentage of customers making
purchases) increased during 2003 compared to 2002, as a result of fresher inventory and an improved product mix.
Famous Footwear achieved record sales during fiscal 2002. The sales growth reflected sales from new stores of $43.5 million, partially offset
by a decrease in same-store sales of 1.3%, or $12.7 million. The decline in same-store sales reflects lower traffic counts throughout most of
the year, but the conversion rate increased over 2001. Sales per square foot were $177 in fiscal 2002, down 3.3% from $183 in 2001,
consistent with the same-store sales decline and lower productivity of newly opened stores. During 2002, Famous Footwear opened
53 stores and closed 55. Total square footage increased by 3.7%, from 5.9 million to 6.2 million as a result of opening larger-format stores.
Gross Profit
During 2003, Famous Footwear continued to generate improvements in its gross profit as a percent of sales, due to disciplined operating and
inventory management initiatives. Famous Footwear continued to benefit from initiatives to improve the freshness and velocity of inventory
that began during fiscal 2001. The gross profit percentage increased to 44.7% during 2003 from 43.0% in 2002, or a difference of 1.7%. This
gross profit improvement was driven by higher initial markups of 1.7% and a 0.2% improvement in inventory shrinkage, partially offset by
higher markdowns of 0.4%.
During 2002, gross profit as a percent of sales increased to 43.0% from 39.1% in 2001, or a difference of 3.9%. This improvement is
principally due to a 1.8% increase in initial markups, 0.4% lower shrinkage and 1.8% in reduced markdowns. In addition, 2001 gross profit
included a $16 million special markdown charge to write down inventory and accelerate the clearance of older merchandise as part of our
initiative to improve inventory turns and freshness. This initiative was successful, as inventories were substantially reduced in 2002 and
inventory turns improved, as did the aging of the inventory.
Selling and Administrative Expenses
Selling and administrative expenses increased $10.8 million, or 2.6%, to $427.0 million during 2003 compared to $416.2 million in 2002.
As a percent of sales, these costs increased to 39.8% in 2003 compared to 38.7% in 2002. This increase reflects a 0.8% increase in retail
facilities costs, consistent with the larger format stores, a 0.3% increase in marketing costs and a 0.1% increase in administrative costs,
reflecting increased costs of medical and other insurance, partially offset by a 0.1% reduction in warehousing and shipping costs and lower
incentive plan costs.
Selling and administrative expenses increased $17.1 million, or 4.3%, to $416.2 million during 2002 compared to $399.1 million in 2001.
As a percent of sales, these costs increased to 38.7% in 2002 compared to 38.3% in 2001. This increase is primarily due to a 0.5% increase
in retail facilities costs, reflecting lower productivity in newer, larger stores and a 0.3% increase in administrative costs, reflecting higher
incentive plan costs, offset by a decrease in warehousing and distribution costs of 0.4%, reflecting the effect of handling less inventory and
improved inventory flow processes.
Operating Earnings
During 2003, Famous Footwear achieved operating earnings of $53.0 million, compared to $46.3 million in 2002, an increase of 14.4%.
The improvement was driven by stronger gross profit as a percent of sales, partially offset by modest increases in operating costs.
During 2002, Famous Footwear achieved operating earnings of $46.3 million, compared to $8.8 million in 2001. The 2001 earnings include
a charge of $16.0 million to write down inventory to accelerate the clearance of older merchandise and a $0.5 million charge for costs
associated with transition to a new management team. The remaining improvement in operating earnings in 2002 reflected an improved
gross profit rate generated by a better and more current mix of inventory.
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