Famous Footwear 2011 Annual Report Download - page 26

24 2011 BROWN SHOE COMPANY, INC. FORM 10-K
ITEM 7 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
Business Overview
We are a global footwear company with annual net sales of $2.6 billion that puts consumers and their needs fi rst, by
targeting family, healthy living and contemporary fashion platforms. Our mission is to inspire people to feel good and live
better... feet fi rst! We o er the consumer a powerful portfolio of footwear stores and global footwear brands. As both a
retailer and a wholesaler, we have a perspective on the marketplace that enables us to serve consumers from di erent
vantage points. We believe our diversifi ed business model provides us with synergies by spanning consumer segments,
categories and distribution channels. A combination of talent acquisition, thoughtful planning and rigorous execution is key
to our success in optimizing our business and brand portfolio.
Retail
In our retail business, our focus is on meeting the needs of a well-defi ned consumer by providing an assortment of trend-right,
brand-name fashion and athletic footwear at a great price coupled with engaging marketing programs and exclusive products.
Our family platform includes Famous Footwear, which is one of America’s leading family branded footwear retailers with
over 1,000 stores. Our Specialty Retail segment operates 234 retail stores in the United States and Canada, primarily under
the Naturalizer name, as well as several stores in China. Our Specialty Retail segment also includes Shoes.com and our other
e-commerce businesses, with the exception of FamousFootwear.com, which is included in our Famous Footwear segment.
Wholesale
Our wholesale business is consumer focused and we believe our success is dependent upon our ability to strengthen
consumers’ preference for our brands by o ering compelling style, quality, di erentiated brand promises and innovative
marketing campaigns. Our healthy living and contemporary fashion platforms are comprised of the Naturalizer, Dr. Scholl’s
Shoes, Avia, Franco Sarto, Sam Edelman, LifeStride, Via Spiga, RYKÄ and Vera Wang brands. Through these brands we o er
our customers a diversifi ed portfolio, each designed and targeted to a specifi c consumer segment within the marketplace.
We are able to showcase many of our brands in our retail stores, leveraging our wholesale and retail platforms, sharing
consumer insights across our businesses and testing new and innovative products.
Financial Highlights
Overall, 2011 was a year of transition for us. We experienced an increase in our Wholesale Operations net sales as a result of
the acquisition of ASG, which was partially o set by declines in net sales at both our Famous Footwear and Specialty Retail
segments. Despite the overall increase in net sales, we experienced a decline in gross profi t and operating earnings due
to several factors, including: (a) a signifi cant decline in the sale of toning footwear, (b) signifi cant restructuring and other
charges related to our portfolio realignment, (c) continued e orts to stabilize our ERP system that went live in December
2010 and (d) costs related to the acquisition and integration of ASG. While our portfolio realignment initiatives will continue
into 2012, we believe the challenges and costs incurred in 2011 related to these items and the stabilization of our ERP
system have helped us in building a stronger foundation for 2012.
The following is a summary of the fi nancial highlights for 2011:
• Consolidated net sales increased $78.7 million, or 3.1%, to $2.6 billion in 2011, compared to $2.5 billion last year.
Net sales of our Wholesale Operations segment increased $116.5 million while our Famous Footwear and Specialty
Retail segments decreased $30.2 million and $7.6 million, respectively.
• Consolidated operating earnings were $35.6 million in 2011, compared to $72.7 million last year.
• Consolidated net earnings attributable to Brown Shoe Company, Inc. were $24.6 million, or $0.56 per diluted share,
in 2011, compared to $37.2 million, or $0.85 per diluted share, last year.
The following items should be considered in evaluating the comparability of our 2011 results:
• Gain on sale of The Basketball Marketing Company, Inc. (“TBMC”) – We recorded a gain on the sale of TBMC, a company
that markets and sells footwear bearing the AND 1 brand-name, totaling $20.6 million ($14.0 million on an after-tax basis,
or $0.32 per diluted share) during 2011. We acquired TBMC in conjunction with the acquisition of ASG in February 2011.
• Incentive plans – Our selling and administrative expenses were lower by $20.6 million during 2011, compared to last
year, due to lower anticipated payments under our cash and stock-based incentive plans.
• Portfolio realignment – During 2011, we began our portfolio realignment, including certain wholesale brand exits, retail
store closures and other infrastructure changes, that resulted in expenses of $19.2 million ($12.0 million on an after-tax
basis, or $0.28 per diluted share). The portfolio realignment expenses are refl ected in both restructuring and other
special charges, net, ($17.2 million) and cost of goods sold ($2.0 million). There were no corresponding charges in 2010.
See Note 5 to the consolidated fi nancial statements for additional information.
• ERP stabilization – During 2011, we continued to make progress in the stabilization of our new ERP system (which we
implemented in late 2010, as discussed more fully below). However, our 2011 results were negatively impacted by increases
in allowances and customer charge backs, margin related to lost sales and incremental stabilization costs related to our ERP
platform. We estimate that the impact of these items reduced earnings before income taxes by $12.8 million ($7.8 million
on an after-tax basis, or $0.18 per diluted share), net of a $3.3 million recovery from a third-party service provider, in 2011.