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Is Brown Shoe Company on Good Footing?

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The Brown Shoe Company (NYSE: CAL  ) has a favorable operating model compared to many corporate footwear businesses. For one thing, the company is not solely reliant on its brand names, which include Naturalizer, Dr. Scholl's, and Sam Edelman, because it also operates retail shoe stores (called Famous Footwear) that sell all of the top lines. The company has a strong retail footprint (ha!) in North America, with more than 1,500 stores and counting. Still, the company is yet another retail business that hasn't fared well amid extreme weather conditions and a tepid consumer spending environment. Where should investors stand on the Brown Shoe Company?

Recent results
Brown Shoe showed a mixed bag of earnings, though ultimately things looked a bit flat. The bottom line showed tremendous growth -- up more than 55% in the fiscal fourth quarter to $0.14 per share -- but other metrics didn't do so well. Companywide top-line and Famous Footwear store-level sales fell, 3% and 1.8%, respectively. Investors should note that while Famous Footwear is the largest component of the company's sales profile, the wholesale segment continues to gain ground and deliver attractive year-over-year growth (13.5% in the most recent quarter).

Famous Footwear had a net store closure of four locations, including relocations.

While many retailers can hang on the winter weather as cause for poor sales, a diversified shoe company has less of an excuse considering that many people buy boots during heavy snow periods. Management mentioned the strength in boots, but noted a strong drop in running shoes.

Contemporary fashion, which includes Sam Edelman, is the strongest segment right now, as sales grew well into the double digits.

If the past quarter's results were a bit uninteresting, the current quarter's and year's could be considered unsettling. For the full year 2014, same-store sales are expected to grow in the low-single digits, while specialty retail is expected to decline and Brown Shoe's bottom line should grow at a maximum of 10%. Even the healthy-looking wholesale segment is showing slower growth this year -- up in the low-mid single digits. For a company that trades at 15 times earnings and a largely mature retail footprint, this isn't very appealing guidance.

Best foot forward?
While the "right now" isn't great, there is some good data behind Brown Shoe Company. For one thing, the company looks better than peers, valuation-wise, on an EV/EBITDA basis (less than 8 times trailing EBITDA). Compared to some high-flying shoe wholesalers such as Deckers Outdoor and Wolverine Worldwide, which trade at 9.24 times and 12.33 times trailing EBITDA, respectively, Brown Shoe looks downright cheap. Remember, though, that Brown Shoe does not have the red-hot brands that the others have acquired in recent periods.

Famous Footwear has a tremendous footprint on the U.S. shoe-seller landscape. When things improve, and they should, the strength of this segment should be able to shine through. Still, this is not a fast-growing part of the business, no matter what the retail environment holds.

Because of Brown Shoe's superiority on the balance sheet, the company appears better valued. But looking at the pure operating performance of the company, there doesn't appear to be much reason to get behind the stock at these levels. The wholesale segment needs to represent a greater part of sales to wield greater influence over companywide results. Until then, investors are better off walking down to the next shop.

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Michael Lewis

Michael is a value-oriented investment analyst with a specific interest in retail and media businesses. Before coming to the Fool, Michael worked with private investment funds focusing on deep value and special situations. Currently living in the media capital of the world--Los Angeles, California.

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