Barron’s Analyst DImitra Defotis Recommended Brown’s Shoe in the 7/21 issue:

a. LIKE SENSIBLE SHOES, BROWN SHOE LACKS GLAMOUR but compensates in other ways.

a. Shares of the footwear wholesaler and operator of the Famous Footwear retail chain have been trampled in the past year amid fears of a consumer-led recession, falling 41% to a recent 14.93.

b. boasts a healthy balance sheet and a 1.88% dividend yield, a rarity among footwear companies. The company looks poised to capitalize on a pick-up in consumer spending, beginning with back-to-school sales.

c. CEO Ron Fromm, 57, says sales and profits could double in the next five years, based on more store openings in the U.S., greater operating efficiencies and the expansion of the Naturalizer brand in China and Japan.

d.  Brands are Naturalizer, Nickel’s, Buster Brown children’s shoes and Dr. Scholl’s; also, Via Spiga and Etienne Aigner, and has been building a line of celebrity shoe brands, including Carlos Santana, Reba McEntire and Fergie.

e. The wholesale division, which rang up a third of last year’s $2.4 billion in total revenue, is the No. 2 U.S. player in sales of women’s shoes. Macy’s (M), Wal-Mart Stores (WMT), Target (TGT) and DSW (DSW), the discount shoe outlet, are its biggest customers; the Famous Footwear division, purchased in 1981, now numbers 1,100 stores, and competes with companies such as DSW and Collective Brands’ Payless Shoe Source.

f.  Brown Shoe has suffered from “the misperception by investors that [it] remains primarily a private-label wholesaler and low-margin, value-priced retailer; the average Famous Footwear shopper has a household income of about $80,000, and the company has increased its reliance on branded footwear through the years.

g. 85-year history of paying dividends

CONCLUSION:

Brown Shoe’s stock has fallen about 40% in the past 12 months to a recent 14.93, or just 10.7 times future earnings. Renewed growth in profits could help lift the stock to 20.

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