Brown Shoe Stepping Lively

When I first heard Brown Shoe (NYSE: BWS  ) executives say that this is a "great time to be in the footwear business," I was a little worried that they'd started the holiday celebrations a bit early. After all, haven't we been hearing lately how tough the footwear business is? Results from the likes of Deckers (Nasdaq: DECK  ) , Reebok, and Stride Rite (NYSE: SRR  ) certainly make you wonder.

But not so with Brown Shoe. While the company's athletic footwear sales were somewhat weak relative to the non-athletic categories, the company put together a very solid third quarter.

Sales rose 20%, with about two-thirds of that growth seemingly having come from the inclusion of the Bennett Footwear business, which Brown Shoe acquired this year. Sales at Famous Footwear were up more than 5% (with positive comps of better than 2%), while specialty sales rose 16%, and as-reported wholesale sales climbed more than 52% (again boosted by Bennett).

Though margins were softer in this quarter, the company incurred more than $3 million in after-tax costs pertaining to its efforts (principally store-closing expenses) to restructure the Naturalizer business. Net income was still up over last year when these charges are included, and stripping them out suggests bottom-line growth of better than 20%.

Backing up the notion that things are getting better, operating and free cash flow are both much stronger on a comparative basis with last year. Inventories appear to be well under control, and the company saw good growth in its wholesale backlog.

Management has done all right here over the years, and the stock certainly reflects that. The biggest lingering issue in my mind is that the shares look fairly valued. Paying fair value for a stock like Nike (NYSE: NKE  ) may be OK in the long run, but Brown Shoe has been a bit more volatile over the years and has a bit more risk to its business model than SwooshCo does. Accordingly, I'd be interested in owning these shares again at a discount to fair value, but I don't see that happening any time soon.

Slip into some more Foolish footwear fribbles:

Deckers Outdoor is aMotley Fool Hidden Gemsrecommendation.

Fool contributor Stephen Simpson has no financial interest in any stocks mentioned (that means he's neither long nor short the shares).

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