Buster Brown Still Kicking Out Growth In Shoes

Buster Brown Still Kicking Out Growth In Shoes

Brown Shoe Company (BWS) recently delivered a coveted triple play, which includes a positive sales surprise, a positive earnings surprise and increased guidance from management.

This prompted analysts to revise their estimates significantly higher for both 2013 and 2014. The valuation picture looks attractive too with shares trading at a significant discount to the industry median on both a forward P/E and P/TBV basis.

Brown Shoe is a footwear retailer and wholesaler. It operates more than 1,000 Famous Footwear stores and over 200 specialty retail stores. Its products are also sold in department stores around the globe and through various online retailers. The company was founded in 1878 and incorporated in 1913.

BWS delivered solid second quarter results on August 27. Net sales rose 10% to $621.7 million, ahead of the consensus of $598.0 million. This was driven in large part by a 6.8% jump in same-store sales at Famous Footwear. Sales in the wholesale segment were strong too, rising 12% year-over-year.

Gross profit as a percentage of net sales improved 70 basis points to 41.0%. Meanwhile, selling, general and administration expenses improved 30 basis points to 37.2% of net sales. Adjusted earnings per share more than doubled to 33 cents. This beat the Zacks Consensus Estimate of 27 cents. It was the company’s 6th consecutive positive earnings surprise.

Following better-than-expected second quarter results, management at Brown Shoe Company raised its earnings guidance for 2013 to a range of $1.27-$1.32. This prompted analysts to revise their estimates higher for both 2013 and 2014, which sent the stock to a Zacks Rank #1 (Strong Buy).

The Zacks Consensus Estimate for 2013 is now $1.38, up from $1.33 before the Q2 report. This represents 22% growth over 2012 EPS. The 2014 consensus is currently $1.70, up from $1.58 over the same period. This corresponds with 23% EPS growth.

You can see in the ‘Price & Consensus’ chart below that consensus estimates for both 2013 and 2014 have been trending higher over the last several months:

The valuation picture for Brown Shoe Company looks very reasonable. Shares trade at less than 14x 12-month forward earnings, well below the industry median of 20x.

Its price to tangible book ratio of 2.6 is also well below the industry multiple of 5.0.

With strong earnings momentum, solid growth projections and reasonable valuation, Brown Shoe Company offers a lot to like.