Famous Footwear 2012 Annual Report Download - page 27

2012 BROWN SHOE COMPANY, INC. FORM 10-K 25
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 first, by
targeting family, healthy living and contemporary fashion platforms. Our mission is to inspire people to feel good and live
better... feet first! 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 diversified 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-defined 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 1,055 stores. Our Specialty Retail segment operates 222 retail stores in the United States and Canada, primarily under
the Naturalizer name, including 26 stores in China. Our Specialty Retail segment also includes Shoes.com and our other
e-commerce businesses, with the exception of Famous.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 Dr. Scholl’s Shoes,
Naturalizer, Sam Edelman, Franco Sarto, LifeStride, Avia, Via Spiga, Ryka, Fergie, Carlos, Vera Wang, Nevados and Vince
brands. Through these brands we oer our customers a diversified portfolio, each designed and targeted to a specific
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
2012 was a year of solid performance. We continue to successfully execute and deliver, due in part to our portfolio
realignment initiatives. In 2012 we hit several milestones at Famous Footwear, by achieving record-breaking sales as well
as our highest annual operating profit, both on a 52-week basis. We also strengthened our balance sheet, by reducing
short-term borrowings by $96.0 million and reduced our selling and administrative expenses by $18.3 million. We
continued to successfully execute and deliver under our portfolio realignment initiatives.
The following is a summary of the financial highlights for 2012:
• Consolidated net sales increased $15.3 million, or 0.6%, to $2,598.1 million in 2012, compared to $2,582.8 million last
year. Net sales of our Famous Footwear segment increased $58.0 million, while we experienced decreases at our
Wholesale Operations and Specialty Retail segments of $25.7 million and $17.1 million, respectively.
• Consolidated operating earnings were $61.6 million in 2012, compared to $35.6 million last year.
• Consolidated net earnings attributable to Brown Shoe Company, Inc. were $27.5 million, or $0.64 per diluted share,
in 2012, compared to $24.6 million, or $0.56 per diluted share, last year.
• Our accounting period is based upon a traditional retail calendar, which ends on the Saturday nearest January 31.
Periodically, this results in a fiscal year that includes 53 weeks. Our 2012 fiscal year included 53 weeks, while both our
2011 and 2010 fiscal years had only 52 weeks. The dierence in the number of weeks included in our fiscal years can
aect annual comparisons. The inclusion of the 53rd week resulted in an increase to net sales in our retail divisions of
$21.2 million with an immaterial impact on net earnings in 2012.
The following items should be considered in evaluating the comparability of our results:
• Portfolio realignment – Our portfolio realignment initiatives include selling The Basketball Marketing Company, Inc.
(“TBMC”) (markets and sells footwear bearing the AND 1 brand name, which was acquired with American Sporting
Goods Corporation (“ASG”)); exiting certain women’s specialty and private label brands; exiting the children’s wholesale
business; closing two U.S. distribution centers; closing or relocating numerous underperforming or poorly aligned
retail stores; closing facilities in China; and other infrastructure changes. The termination of the Etienne Aigner license
agreement is also considered part of the Company’s portfolio realignment initiatives. We incurred costs of $29.9 million
($19.3 million after-tax, or $0.45 per diluted share) related to our portfolio realignment initiatives during 2012. In 2011,
we sold TBMC for a gain of $20.6 million ($14.0 million after-tax, or $0.32 per diluted share). Also in 2011, we incurred
costs related to portfolio realignment initiatives of $19.2 million ($12.0 million after-tax, or $0.28 per diluted share). There
were no corresponding charges in 2010. See Note 4 to the consolidated financial statements for additional information.
• Incentive plans – Our selling and administrative expenses were higher by $17.6 million during 2012, compared to last
year, due to higher anticipated payments under our cash and stock-based incentive plans. Our selling and administrative
expenses were lower by $20.6 million during 2011, compared to 2010, due to lower anticipated payments under our cash
and stock-based incentive plans.