Famous Footwear 2013 Annual Report Download - page 26

24 2013 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 $2.5 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 1,044 stores. Our Specialty Retail segment operates 179 retail stores in the United States and Canada, primarily under
the Naturalizer name. 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, Naturalizer,
Sam Edelman, Franco Sarto, LifeStride, Via Spiga, Ryka, Fergie, Carlos, 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 and online, leveraging our wholesale and retail platforms,
sharing consumer insights across our businesses, and testing new and innovative products.
Financial Highlights
Brown Shoe Company delivered a successful 2013. Our portfolio realignment initiatives over the past couple of
years helped drive our strong performance in 2013. We reported year-over-year operating earnings growth of 32.4%,
while delivering a 2.9% increase in Famous Footwear same-store sales. We achieved record-breaking sales and
operating profit at Famous Footwear and Wholesale Operations continued to build momentum with sales growth
of 5.3%. We also strengthened our balance sheet during the year by reducing short-term borrowings by $98.0 million.
The following is a summary of the financial highlights for 2013:
• Consolidated net sales increased $35.3 million, or 1.4%, to $2,513.1 million in 2013, compared to $2,477.8 million
last year. Net sales of our Wholesale Operations and Famous Footwear segments increased $38.8 million and
$13.2 million, respectively, while we experienced a decrease in our Specialty Retail segment of $16.6 million.
• Consolidated operating earnings were $98.6 million in 2013, compared to $74.5 million last year.
• Consolidated net earnings attributable to Brown Shoe Company, Inc. were $38.1 million, or $0.88 per diluted share,
in 2013, compared to $27.5 million, or $0.64 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 2013 and 2011 fiscal years included 52 weeks,
while our 2012 fiscal year had 53 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 in 2012 with an immaterial impact on net earnings.
The following items should be considered in evaluating the comparability of our results:
• Portfolio realignment – Our portfolio realignment initiatives included the sale of the Avia, Nevados, and AND 1 brands
acquired with American Sporting Goods Corporation; exiting certain women’s specialty and private label brands; exiting
the children’s wholesale business; the sale and closure of certain sourcing and supply chain assets; closing or relocating
numerous underperforming or poorly aligned retail stores; the termination of the Etienne Aigner license agreement;
the election not to renew the Vera Wang license; and other infrastructure changes. We incurred costs of $30.7 million
($23.4 million after-tax, or $0.53 per diluted share) during 2013 compared to $29.9 million ($19.3 million after-tax, or
$0.45 per diluted share) related to our portfolio realignment initiatives during 2012 and $19.2 million ($12.0 million after-tax,
or $0.28 per diluted share) during 2011. Also in 2011, we sold The Basketball Marketing Company, Inc. (“TBMC”) for a gain of
$20.6 million ($14.0 million after-tax, or $0.32 per diluted share). A portion of these charges were recorded as a component
of discontinued operations. See Notes 2 and 4 to the consolidated financial statements for additional information.
• Incentive plans – Our selling and administrative expenses increased $5.1 million during 2013, compared to last year,
due to higher anticipated payments under our cash and stock-based incentive plans. Our selling and administrative
expenses were $17.6 million higher during 2012 compared to 2011 due to higher anticipated payments under our cash
and stock-based incentive plans.