Famous Footwear 2014 Annual Report Download - page 24

2014 BROWN SHOE COMPANY, INC. FORM 10-K 23
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 whose shoes are worn by people of all ages, from
all walks of life. 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 portfolio of
brands. Our business strategy is focused on continuing to evolve our portfolio of brands, driving profit growth to achieve
our financial targets, investing in avenues of growth while refocusing our resources, and remaining consumer centric.
Famous Footwear
Our Famous Footwear segment includes our Famous Footwear stores as well as Famous.com and Shoes.com. As further
discussed in Note 2 to the consolidated financial statements, Shoes.com was sold on December 12, 2014. Famous Footwear
is one of America’s leading family branded footwear retailers with 1,038 stores at the end of 2014 and net sales for the
segment of $1.6 billion in 2014. Our focus for the Famous Footwear segment 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.
Brand Portfolio
Our Brand Portfolio segment 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. The segment is comprised of the Naturalizer, Sam Edelman, Dr. Scholl’s, Franco Sarto, LifeStride,
Vince, Via Spiga, Fergie, Ryka and Carlos brands. Through these brands, and brand families, we oer our customers a
diversified selection of footwear, 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. Our Brand Portfolio segment
operates 171 retail stores in the United States and Canada, primarily for our Naturalizer brand. This segment also includes
our e-commerce businesses that sell our branded footwear.
Financial Highlights
We delivered another successful year in 2014, with operating earnings of $125.9 million, as we continued to execute our
strategic initiatives. The net sales increase of 2.3% was primarily driven by our Brand Portfolio segment, but we also achieved
record-breaking net sales at our Famous Footwear segment of $1,589.3 million.
The following is a summary of the financial highlights for 2014:
• Consolidated net sales increased $58.6 million, or 2.3%, to $2,571.7 million in 2014, compared to $2,513.1 million
last year. The growth was primarily driven by our Brand Portfolio segment, which reported a net sales increase
of $57.9 million and, to a lesser extent, growth in our Famous Footwear segment net sales of $0.7 million, as
these sales were impacted by the disposition of Shoes.com in December 2014.
• Consolidated operating earnings were $125.9 million in 2014, compared to $98.6 million last year.
• Consolidated net earnings attributable to Brown Shoe Company, Inc. were $82.9 million, or $1.89 per diluted
share, in 2014, compared to $38.1 million, or $0.88 per diluted share, last year.
The following items should be considered in evaluating the comparability of our 2014 and 2013 results:
• Sale of Shoes.com and related restructuring – During 2014, we sold our e-commerce subsidiary, Shoes.com, for a
pre-tax gain of $4.7 million. In addition, we incurred related severance and other restructuring charges of $1.5 million.
We also recognized tax benefits of $6.6 million associated with the disposition of Shoes.com. These tax benefits were
driven in part by the utilization of operating and capital loss carryforwards that previously were not anticipated to
be utilized, and therefore, fully reserved on our consolidated balance sheet. In total, the disposition of Shoes.com,
inclusive of the related severance and other restructuring charges, improved net earnings by $9.8 million
(or $0.23 per diluted share). Refer to Note 2 to the consolidated financial statements for further discussion.
• Portfolio realignment – Our portfolio realignment initiatives included the sale of the Avia and Nevados brands acquired
with American Sporting Goods Corporation; 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) related to our portfolio realignment initiatives during 2013, with
no corresponding costs in 2014. Refer to Notes 2 and 4 to the consolidated financial statements for additional information.
• Incentive plans – Our selling and administrative expenses increased $4.4 million during 2014, compared to last year,
due to higher anticipated payments under our cash and stock-based incentive plans.