Brown Shoe (BWS), a footwear wholesaler and retailer, beat earnings and revenue estimates this morning.
Chariman and CEO Ron Fromm said:
“As we look to 2010, we will continue our strategies of driving profitable sales from our core brands, while focusing on improving the productivity of our store base. This requires continuously enhancing product styling and innovation in our brands and retail assortments, evolving impactful consumer engagement programs, and generating greater efficiencies from our operating platform. We are encouraged that the trends we saw in the fourth quarter have continued into the first quarter and, while there remains uncertainty as to the pace of economic recovery, we believe we will see a return to mid-single digit sales growth for Brown Shoe during the year coupled with a doubling of our earnings in the next 12 to 15 months.”While the company sees themselves doubling their earnings in the next 12-15months, investors are looking for a triple, 2010 earnings estimates are for EPS of 74cents per share, versus the 22cents earned in 2009. So a doubling of earnings leaves us well short of what people are looking for.
Shares are down 3% and the conference call just concluded. Despite the big guidance disappointment, the shares are already cheap.
Cash from operations for 2009 looks like it came in at about $85million, thanks to depreciation alone being 3times higher than net income...If they double earnings to $20million, then operating cash flow might be around $100million. We'll say $80million again in 2010 to be conservative, as deferred taxes might not be another boost to cash flow.
Despite this big operating cash flow number, the company - incredibly - will spend SIXTY million dollars on capital expenditures, of which about $25-30million might be capitalized software expense. This is a SHOE company, spending three times net income on software!!!!!!!!!!
Free Cash Flow Yield can be understandably low - maybe $15-25million on a $600million market value in this case - during company turnarounds. But Brown Shoe is simply not getting it. Costs are way out of control.
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