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Article Excerpt
PARTICIPANTS
. Ken Golden, Brown Shoe Company, Director, IR . Ron Fromm, Brown Shoe Company, Chairman and CEO . Mark Hood, Brown Shoe Company, CFO . Diane Sullivan, Brown Shoe Company, Pres. COO . Joe Wood, Brown Shoe Company, Pres. Brown Shoe Retail . Heather Boksen, Sidoti & Co., Analyst . Sam Poser, Sterne, Agee, Analyst . Jill Caruthers, Johnson Rice, Analsyt . Scott Krisig, CL King, Analyst . Christina Chen, Susquehanna Financial Group, Analyst
OVERVIEW
BWS reported 4Q08 consolidated net sales of $521m and net loss of $153m or $3.68 per diluted share. Co. expects FY09 net sales to be $2.2-2.3b.
FINANCIAL DATA
A. Key Data From Call 1. 4Q08 consolidated net sales = $521m. 2. 4Q08 net loss = $153m. 3. 4Q08 net loss (excluding impairment, restructuring and other special charges) = $11.5m. 4. 4Q08 loss per diluted share = $3.68. 5. 4Q08 loss per diluted share (excluding impairment, restructuring and other special charges) = $0.28. 6. 4Q08 gross profit margin= 37.2%. 7. 4Q08 Capex = $15.6m. 8. 4Q08-end total inventory = $466m. 9. 4Q08-end cash and equivalents = $86.9m. 10. 4Q08-end long-term debt outstanding = $150m, 11. FY09 net sales guidance = $2.2-2.3b.
PRESENTATION SUMMARY
S1. Business Review (R.F.) 1. Highlights: 1. 4Q08 marked one of Co.'s most challenging periods in its 130-year history. 2. Continuation of economic uncertainties and credit crisis drove a dramatic increase in promotional activity of retailers throughout qtr., which had detrimental effect on sales and profitability. 3. Delivered results within adjusted guidance. 4. GAAP results were also negatively impacted by a number of non-recurring special costs, including: 1. Those related to initiatives that were previously announced. 2. Goodwill and intangible asset impairment of $119.2m after-tax that were not forecasted in guidance. 3. Total of these charges was $141.5m after-tax or $3.40 per diluted share. 4. Without impact of these items, 4Q08 adjusted loss was $11.5m or $0.28 per share. 1. At mid-point of $0.33 to $0.23 per diluted share range, provided on 3Q08 results call. 2. Actions: 1. Over last few months, taken actions to position Co. for operating profitably and positive cash flow in what it expects to be continuing challenging 2009. 1. Improved inventory positioning with aging well below prior year. 2. Increased financial flexibility with expansion of borrowing capacity under credit facility and lengthened term to five years. 3. Implemented actions that Co. expects will generate cost savings of $28-31m in 2009. 4. Continues to focus on managing real estate portfolio and working with landlords to align rents to traffic being generated in their centers. 5. Reduced Capex plans by lowering store openings, putting headquarters project indefinitely on hold and increasing financial expectations on investing capital. 2. 2009 Capex, which includes a full-year of expenditures related to IT initiatives are planned to be $60-65m. 1. Down from $77m in 2008. 3. Investment in West Coast distribution centers will provide transportation savings beginning in 2009. 1. IT initiatives will begin delivering cost savings in 2010. 2. Expects these projects to: 1. Increase speed to market. 2. Improve inventory turns. 3. Improve business intelligence capabilities, enhancing sales growth and profitability. 4. Completed move of Famous Footwear from Madison to St. Louis. 1. Benefiting from being a truly integrated wholesale, retail operation. 5. During the year, made investments to: 1. Broaden consumer reach with international expansion. 2. Growth in consolidation of Sam Edelman. 3. Enhancing D2C capabilities, with Shoes.com. 4. Introduction of new footwear brands: 1. Fergie. 2. Fergalicious. 3. Vera Wang Lavender Label. 4. Libby Edelman. 5. While small today, these brands offer Co. two vertical opportunities. 1. Expected to be drivers of future growth. 6. Operationally, year included solid progress toward achieving some long-term goals. 1. Increased diversification, aligning portfolio of wholesale brands to channels where Co.'s customers shop. 1. Expects this effort to enable Co. to expand growth opportunities and increase resiliency going forward. 2. Overall wholesale branded sales mix in national chain and shoe chain channels has increased while to continuing to lower Co.'s penetration of less profitable private label business [and demand]. 7. Added highly desirable brands to portfolio. 1. Libby Edelman, Vera Wang Lavender, Fergie, and Fergalicious were all introduced this year. 2. Sam Edelman has continued its solid growth. 1. While these businesses do not offset 10% decline in YoverY sales volume at wholesale, they are in line with Co.'s strategy to increase branded business. 2. These efforts offer vertical opportunities within Co.'s own retail distribution and channel opportunities through which it expects to build back wholesale volume. 8. Famous Footwear maintained market share in a year that was challenging. 3. Priorities: 1. Beginning 2009, priorities are focused on: 1. Improving profitability. 2. Maintaining liquidity. 3. Enhancing cash flow. 2. Believes brands and businesses are positioned well for this environment given affordable price points within wholesale brands and at Famous Footwear. 1. Intensifying efforts to offer greater value with initiatives targeted at stabilizing merchandise margins. 3. Has great brands, strong balance sheet, and tremendous partnerships with retailers and suppliers. 1. Expects this to translate into market share opportunities this year.
S2. Financial Performance (M.H.) 1. Results: 1. 4Q08 results included a number of charges. 2. In total, 4Q08 net loss, $153m or $3.68 per diluted share, included: 1. Total after-tax charges of $141.5m or $3.40 per diluted share. 2. Largest portion is non-cash charge related to impairment of goodwill and certain intangibles totaling $119.2m or $2.87 per diluted share. 1. Impairment resulted from deterioration of general economic conditions and resulting decline in share price and capitalization. 3. Remaining piece of non-recurring charges totaled $22.3m or $0.53 per diluted share and can be further broken down as: 1. $19.1m or $0.46 per diluted share in costs related to expense and capital containment initiatives, including workforce reduction program. 2. $1.7m or $0.04 per diluted share in costs for headquarters consolidation. 3. There will be no material carry over costs for either of these initiatives in 2009. 4. $1.5m or $0.03 per diluted share for start-up costs related to IT initiatives. 4. Adjusting to...
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