Every once in a while, I find myself really hoping that Wall Street gets it wrong and reacts foolishly (the lower-case type -- the bad type) to a piece of news. After all, those are the times when you can really boost your returns by buying good merchandise on sale.
Alas, Wall Street actually paid attention to what Brown Shoe (NYSE:BWS) management had to say on its conference call, and the stock was up about 7% in early Thursday trading.
Brown Shoe's results for the first quarter were pretty solid. Sales growth in all segments led to total revenue climbing more than 6% to over $523 million. Earnings-per-share comparisons are a bit tricky, though.
The reported figure of $0.20 really isn't the number to use, because it includes charges of $0.51 in taxes related to repatriated foreign earnings, and $0.03 in costs tied to bridge loan financing for a recent acquisition. Even though I'd argue that the $0.03 of financing costs should not be added back, whether you use an adjusted EPS figure of $0.74 or $0.71, the company still beat the estimate and posted solid growth over the year-ago adjusted figure of $0.56.
While gross margin dropped a bit due to some markdowns in the Naturalizer business, overall control over expenses was tight, and the year-over-year operating margin improved by 1.4%. True, that doesn't sound so special, but when your operating margins are in the single digits, it makes a big difference.
I was hoping that Wall Street might overreact to the company's forward guidance. Brown Shoe management is looking at a tough second quarter; unseasonably cool weather in the spring has hurt the sandals category, and there will almost surely be clearance sales.
The guidance for the full year was also a bit confusing. On the surface, management seemed to be lowering guidance. But when you factor in delayed expenses for options, the positive impact of a recent acquisition, and the tax impact of earnings repatriation, earnings guidance is actually going meaningfully higher.
In my view, Brown Shoe is still a basically good company in the midst of a turnaround. Now, the shoe retailing business (particularly in the markets Brown Shoe targets) is never going to be a blockbuster growth opportunity, but that doesn't mean that patient investors won't see a little more polish to their shares if the company keeps the positive momentum going.
For more Foolish footwear fancies:
- Polo Ready to Run With Footwear
- This Shoe Fits Just Right
- Saucony's Shoelaces Untied
- K-Swiss in Racing Form
Fool contributor Stephen Simpson has no financial interest in any stocks mentioned (that means he's neither long nor short the shares).
