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St. Louis, Missouri-based Brown Shoe Company, Inc (NYSE:BWS) recently posted fourth quarter 2010 adjusted earnings of 11 cents, missing the Zacks Consensus Estimate of 15 cents as well as the year-ago quarter earnings of 19 cents. The lower-than-expected results were attributed to the disappointing performance of wholesale division and margin contraction.

Footwear retailer and wholesaler, Brown Shoe reported that net sales in the quarter climbed 6.8% from the prior-year quarter to $604.5 million. The upside in revenue was attributable to growth across all segments.

The company’s full-year adjusted earnings per share were 97 cents versus 40 cents in fiscal 2009. Revenues were $2.5 billion in fiscal 2010, up 11.7% year over year.

Segment wise, Famous Footwear sales climbed 3.7% to $355.5 million in the fourth quarter, driven by higher same-store sales (up 4.9%). Revenue at Wholesale division rose 15.1% to $173.9 million and Specialty Retail leaped 4.0%. Sales at Specialty Retail were driven by higher same-store sales and company-wide ecommerce net sales, both increasing 3.2% and 21.1%, respectively.

During the quarter, gross margin plunged 220 basis points (bps) to 38.9% as benefit from Famous Footwear (up 50 bps) and Specialty Retail divisions (up 30 bps) was offset by cost inflation and under performance by wholesale division (dipped 800 bps). The gross profit at Wholesale division dropped primarily due to sourcing and supply chain inefficiencies as well as new information technology system at the division disrupted delivery timing.

In February 2011, the company acquired American Sporting Goods Corporation for $145 million in cash plus assumed net debt.

Financial Position

At the end of 2010, the company had cash and cash equivalent of $126.5 million and shareholder’s equity of $415.9 million. At the end of the quarter, Brown Shoe had $171.6 million available under its current revolving credit facility.

Outlook

For fiscal 2011, the company anticipates revenue to increase in the low double-digit range and earnings per share to be approximately $1.25 to $1.32. In the first quarter of 2011, Brown Shoe expects net sales to be in the high-single digit range.

Our Take

Though Brown Shoe is facing challenges at Wholesale business, we remain positive on the stock based on the company’s effort to enhance its brand awareness and attract more customers through marketing and product styling. Additionally, we views the recent acquisition of American Sporting promising, which will boost up the market share of the company. The Zacks Consensus Estimate for 2011 is pegged at $1.42 for 2011.

Brown Shoe has a Zacks #1 Rank, implying a Strong Buy rating over the short term. We also reiterate our long-term Outperform rating on the stock.

One of Brown Shoe’s primary competitors, LaCrosse Footwear Inc (NASDAQ:BOOT) reported fourth quarter 2010 earnings of 60 cents, which surpassed the Zacks Consensus Estimate of 55 cents and 36 cents reported in the prior-year quarter.

Source: Brown Shoe Misses Estimates