Brown Shoe Company, Inc., founded in 1878 and incorporated in 1913, is a global footwear retailer and wholesaler with annual net sales of $2.6 billion. Current activities include the operation of retail shoe stores and e-commerce websites as well as the design, sourcing and marketing of footwear for women and men. Our business is seasonal in nature due to consumer spending patterns, with higher back-to-school and Christmas season sales. Traditionally, the third fiscal quarter accounts for a substantial portion of our earnings for the year.

Our accounting period is based upon a traditional retail calendar, which ends on the Saturday nearest January 31. Periodically, this results in a fiscal year that includes 53 weeks. Both our 2014 and 2013 fiscal years had 52 weeks, while our 2012 fiscal year included 53 weeks. The difference in the number of weeks included in our fiscal years can affect annual comparisons.

During 2014, categories of our consolidated net sales were approximately 64% women’s footwear, 22% men’s footwear, 9% children’s footwear and 5% accessories. This composition has remained relatively constant over the past few years. Approximately 67% of footwear sales in 2014 represented retail sales, including sales through our e-commerce websites, compared to 70% in 2013 and 71% in 2012, while the remaining 33%, 30% and 29% in the respective years represented wholesale sales.

Employees

We had approximately 11,000 full-time and part-time employees as of January 31, 2015. In the United States, there are no employees subject to union contracts. In Canada, we employ approximately 20 warehouse employees under a union contract, which expires in October 2017.

Competition

With many companies operating retail shoe stores and shoe departments, we compete in a highly fragmented market. Competitors include local, regional and national shoe store chains, department stores, discount stores, mass merchandisers, numerous independent retail operators of various sizes and e-commerce businesses. Quality of products and services, store location, trend-right merchandise selection and availability of brands, pricing, advertising and consumer service are all factors that impact retail competition.

In addition, the vast majority of our wholesale customers also sell shoes purchased from competing footwear suppliers. Those competing footwear suppliers own and license brands, many of which are well-known and marketed aggressively. Many retailers, who are our wholesale customers, source directly from factories or through agents. The wholesale footwear business has low barriers to entry, which further intensifies competition. Some competitors have also successfully branded their trademarks as lifestyle brands, resulting in a greater competitive advantage to those companies.

Segments

During the fourth quarter of 2014, we reorganized our operations into two reportable segments, Famous Footwear and Brand Portfolio. The Company’s reportable segments are described in more detail below. Historical financial results have been restated to reflect the segment reorganization. Refer to Note 7 to the consolidated financial statements for additional information regarding our business segments and financial information by geographic area.

Our Famous Footwear segment includes our Famous Footwear stores, as well as Famous.com and Shoes.com. Our Shoes.com subsidiary was sold in December 2014 as further discussed in Note 2 to the consolidated financial statements. Famous Footwear is one of America’s leading family branded footwear retailers with 1,038 stores at the end of 2014 and net sales for the segment of $1.6 billion in 2014. Our target consumers are women who buy brand-name fashionable shoes at a value for themselves and their families.

Famous Footwear stores feature a wide selection of brand-name athletic, casual and dress shoes for the entire family. Brands carried include, among others, Nike, Skechers, Bearpaw, Converse, Vans, New Balance, adidas, Asics, Sperry and Sof Sole, as well as company-owned and licensed brands including, among others, LifeStride, Dr. Scholl’s, Fergalicious, Naturalizer and Carlos. Our company-owned and licensed products are sold to our Famous Footwear segment by our Brand Portfolio segment at a profit and represent approximately 12% of the Famous Footwear segment's net sales. We work closely with our vendors to provide our consumers with fresh product and, in some cases, product exclusively designed for and available only in our stores. Famous Footwear’s average retail price is approximately $40 for footwear with retail price points typically ranging from $25 for shoes up to $335 for boots.

Famous Footwear stores are located in strip shopping centers as well as outlet and regional malls in all 50 states, Guam and Canada. The breakdown by venue at the end of each of the last three fiscal years is as follows:

Stores open at the end of 2014 averaged approximately 6,700 square feet compared to 6,800 square feet in 2013. Total square footage at the end of 2014 decreased 1.4% to 7.0 million square feet compared to 7.1 million at the end of 2013. We expect to open approximately 50 new stores and close approximately 50 stores in 2015. New stores typically experience an initial start-up period characterized by lower sales and operating earnings than what is generally achieved by more mature stores or the division as a whole. While the duration of this start-up period may vary by type of store, economic environment and geographic location, new stores typically reach a normal level of profitability within approximately four years.

Sales per square foot were $215 in 2014, up from $207 in 2013. Same-store sales increased 1.5% during 2014. Same-store sales changes are calculated by comparing the sales in stores that have been open at least 13 months. Relocated stores are treated as new stores and closed stores are excluded from the calculation. Sales change from new and closed stores, net, reflects the change in net sales due to stores that have been opened or closed during the period and are thereby excluded from the same-store sales calculation. E-commerce sales for those e-commerce websites that function as an extension of a retail chain are included in the same-store sales calculation. 

Famous Footwear relies on merchandise allocation systems and processes that use allocation criteria, consumer segmentation and inventory data in an effort to ensure stores are adequately stocked with product and to differentiate the needs of each store based on location, consumer segmentation and other factors. Famous Footwear’s distribution systems allow for merchandise to be delivered to each store weekly, or on a more frequent basis, as needed. Famous Footwear also uses regional third-party pooled distribution sites across the country. Famous Footwear’s in-store point-of-sale systems provide detailed sales transaction data to our corporate office for daily update and analysis in the perpetual inventory and merchandise allocation systems. Certain of these systems also are used for training employees and communication between the stores and the corporate office.

Famous Footwear’s marketing programs include national television, digital marketing and social networking, print, cinema, in-store advertisements and radio, all of which are designed to further develop and reinforce the Famous Footwear concept and strengthen our connection with consumers. We believe the success of our campaigns is attributable to highlighting key categories and tailoring the timing of such messaging to adapt to seasonal shopping patterns. In 2014, we spent approximately $54.5 million to advertise and market Famous Footwear to our target consumers, a portion of which was recovered from suppliers. Famous Footwear has a robust loyalty program (“Rewards”), which informs and rewards frequent consumers with product previews, earned incentives based upon purchase continuity, and other periodic promotional offers. In 2014, approximately 73% of our Famous Footwear net sales were generated by our Rewards members. During the year, we expanded our efforts to connect with and engage our consumers to build a strong brand preference for Famous Footwear through our loyalty program. In 2014, we grew our mobile application and had more than 710,000 members enrolled by the end of the year. In 2015, we will continue to seek new and expand existing channels for consumers to connect with Famous Footwear to drive our fans from the digital world into profitable and loyal consumers in our omni-channel selling environments.

As part of our omni-channel approach to reach consumers, we also operate Famous.com. Famous.com offers an expanded product assortment beyond what is sold in Famous Footwear stores with a variety of delivery options.

Until December 2014, we owned and operated Shoes.com, Inc., a pure-play Internet retailing company. Shoes.com offered a diverse selection of footwear and accessories for women, men and children, including footwear purchased from third-party suppliers and Brown Shoe Company. As further discussed in Note 2 to the consolidated financial statements, we sold Shoes.com in December 2014 and recognized a gain on sale of $4.7 million.

Our Brand Portfolio segment offers retailers and consumers a portfolio of leading brands from our healthy living and contemporary fashion platforms by designing, sourcing and marketing branded footwear for women and men at a variety of price points. Certain of our branded footwear products are sold under brand names that are owned by the Company, and others are developed pursuant to licensing agreements.

Our Brand Portfolio segment sells footwear on a wholesale basis to retailers. The segment also sells footwear through our branded retail stores and e-commerce businesses.

Portfolio of Brands

The following is a listing of our principal brands and licensed products:

Healthy Living

Naturalizer:  Introduced in 1927, Naturalizer has become a global family of comfort lifestyle footwear brands meeting the needs of women across the marketplace with uncompromising comfort, fit and style. Our flagship Naturalizer brand is sold throughout the United States and Canada, primarily at Naturalizer retail stores, national chains, department stores, online retailers, catalog retailers and independent retailers. Naturalizer retail stores offer a selection of women’s footwear styles, including casual, dress, sandals and boots, primarily under the Naturalizer brand. At the end of 2014, we operated 80 Naturalizer stores in the United States (including a store in Guam) and 89 Naturalizer stores in Canada. Of the 169 Naturalizer stores, approximately 51% are concept stores located in regional malls, with a few stores having street locations, and average approximately 1,200 square feet in size. The other 49% of stores are located in outlet malls and average approximately 2,300 square feet in size. Total square footage at the end of 2014 was 297,000 compared to 308,000 in 2013. In 2014, we closed 11 stores in the United States and Canada, primarily in outlet malls, and we opened six stores, primarily in outlet malls. We expect to open one store and close 10 stores in 2015.

Naturalizer footwear is also distributed through approximately 40 retail and wholesale partners in 60 countries around the world. On an international basis, the brand is primarily distributed through branded concept stores and shop-in-shops. Naturalizer footwear is also distributed in China through stores operated by our joint venture partner, C. banner International Holdings Limited (“CBI”). CBI operated 107 stores at the end of 2014 and expects to add approximately 20 stores in 2015. Through our majority-owned subsidiary, B&H Footwear Company Limited (“B&H Footwear”), we sell footwear to CBI on a wholesale basis, as further discussed in Note 16 to the consolidated financial statements. Suggested retail price points range from $79 for shoes to $209 for boots.

Dr. Scholl’s:  Dr. Scholl’s is an authentic brand of innovative footwear designed with an uncomplicated, playful style for a healthier life. Dr. Scholl’s delivers proprietary comfort technology across all distribution tiers. Dr. Scholl’s crafts unique styles that offer men and women the freedom to live active lives. This footwear reaches consumers at a wide range of distribution channels: mass merchandisers, national chains, online and catalogs, specialty and independent retailers, department stores and our Famous Footwear retail stores. Suggested price points range from $25 to $200.  We have a long-term license agreement with MSD Consumer Care, Inc. to sell Dr. Scholl’s, which is renewable through December 2026 for the United States and Canada and December 2017 for Latin America. During 2014, we closed our remaining four Dr. Scholl's stores to focus on wholesale distribution and e-commerce sales for this brand.

LifeStride:  For more than 70 years, LifeStride has created quality footwear for women who value style and comfort. Offering work-to-weekend styles, LifeStride is both versatile and comfortable for all-day wear.  LifeStride offers comfortable footwear that dresses up or down at the right value.  The brand is sold in department stores, national chains, online and in our Famous Footwear retail stores. Suggested retail price points range from $50 to $100. 

Ryka: For over 25 years, Ryka has been innovating athletic footwear exclusively for women by providing women with more than just a downsized version of a men’s athletic shoe. The brand’s commitment goes beyond footwear design to include apparel and fitness products. The brand is distributed through department stores, national chains, online retailers and our Famous Footwear retail stores at suggested retail price points from $50 to $85.

Contemporary Fashion

Sam Edelman: Since its inception in 2004, designer Sam Edelman’s brand has quickly emerged as a favorite among celebrities and fashionistas around the globe. Sam Edelman captures the imagination of women with on-trend styling and unique materials. In 2012, the brand opened its flagship store in New York City, and in 2014, the brand expanded its retail presence to include a store in Beverly Hills. Additional stores are expected to open in 2015. Sam Edelman footwear is sold primarily through department stores, independent retailers, and online at suggested retail price points starting at $65 for sandals, $90 for flats, $100 for heels, and $200 for boots. In addition, we have license agreements to sell apparel and accessories under the Sam Edelman brand.

Franco Sarto:  The Franco Sarto brand has a loyal, career-focused consumer who is passionate about the brand’s modern Italian-inspired style, fit, and quality. The brand is sold in major national chains, department stores and independent retailers at suggested retail price points from $79 for shoes to $225 for boots. We had a license agreement to sell Franco Sarto footwear, which was to expire in 2019. In February 2014, we purchased the Franco Sarto trademarks for $65.0 million, terminating this license agreement, as further discussed in Note 9 to the consolidated financial statements.

Via Spiga:  Via Spiga is named after the main street in one of the most famed shopping districts in Milan, Italy. For over 25 years, Via Spiga has maintained its rich Italian heritage through its use of luxurious materials and beautiful detailing, providing chic, sophisticated footwear for the cosmopolitan woman who wants to make a fashion statement every day. The brand is primarily sold in premier department stores, upscale boutiques and online. This brand sells at suggested retail price points from $155 for shoes to $425 for boots.

Fergie and Fergalicious by Fergie: We have created two namesake footwear lines in collaboration with entertainment superstar Fergie (Fergie Duhamel, formerly Stacy Ferguson) to fully capture the artist’s confident, individual style in a line of sophisticated, sexy footwear with a glam rock influence. The Fergie brand is currently being sold at department stores, boutiques, independent retailers and online at suggested retail price points of $69 for shoes to $225 for boots. Fergalicious by Fergie is available at Famous Footwear and other national chains at suggested retail price points of $40 for shoes to $100 for boots. We have a license agreement with Krystal Ball Productions to sell Fergie/Fergalicious footwear that expires in December 2016.

Carlos by Carlos Santana: The Carlos by Carlos Santana collection of women’s footwear is sold at major department stores, national chains, our Famous Footwear stores and online. Marketed under a license agreement with legendary musician Carlos Santana, this brand targets trend-conscious consumers with hot, fashionable shoes inspired by the passion and energy of Santana’s music. Suggested retail price points range from $89 for shoes to $225 for boots. We have a license from Santana Tesoro, LLC to sell Carlos by Carlos Santana footwear that expires in December 2017 with extension options through December 2020.

Vince: The Vince shoe collection launched in the fall of 2012 at premier department stores and upscale boutiques. Vince delivers contemporary casual footwear that a sophisticated, modern woman wears effortlessly, serving as a functional luxury basic for all of her lifestyle needs. Suggested price points range from $150 for shoes to $595 for boots. We have a license agreement with Vince, LLC to sell Vince footwear that expires in December 2015, with an extension option through 2020. To expand the Vince shoe collection beyond women’s footwear, Vince men’s footwear was launched to consumers in 2014 and will be expanding into new categories in 2015.

Wholesale

Our footwear is distributed to over 2,500 retailers, including national chains, department stores, mass merchandisers, independent retailers, online retailers and catalogs throughout the United States and Canada, as well as approximately 60 other countries (including sales to our retail operations). The most significant wholesale customers include Famous Footwear and many of the nation’s largest retailers including national chains such as TJX Corporation (including TJ Maxx and Marshalls), DSW, Nordstrom Rack and Ross; department stores such as Nordstrom, Macy’s, Bloomingdales and Belk; mass merchandisers such as Walmart and Target; independent retailers such as QVC and Home Shopping Network; and online retailers, such as Amazon and Zappos.com. We also sell product to a variety of international retail customers and distributors. The loss of any one or more of our significant customers could have a material negative impact on our Brand Portfolio segment and the Company.

Our Brand Portfolio segment sold approximately 47 million pairs of shoes on a wholesale basis during 2014. We sell footwear to wholesale customers on both a landed and a first-cost basis. Landed sales are those in which we obtain title to the footwear from our overseas suppliers and maintain title until the footwear clears United States customs and is shipped to our wholesale customers. Landed sales generally carry a higher profit rate than first-cost sales as a result of the brand equity associated with the product along with the additional customs, warehousing and logistics services provided to customers and the risks associated with inventory ownership. To allow for the prompt shipment on reorders, we carry inventories of certain styles. First-cost sales are those in which we obtain title to footwear from our overseas suppliers and typically relinquish title to customers at a designated overseas port. Many of these customers then import this product into the United States.

Products sold under license agreements accounted for Brand Portfolio’s net sales of approximately 26% in 2014, 38% in 2013 and 45% in 2012. Brown Shoe Company also receives royalty revenues for licensing owned brands, including certain brands listed above, to third parties.

During 2015, we expect to open one Naturalizer store and close 11 stores. We also plan to open six Sam Edelman stores, as we expand our retail presence for this brand. Our remaining four Dr. Scholl’s stores were closed in 2014, as we shifted our brand focus toward wholesale distribution and e-commerce sales.

In connection with our omni-channel approach to reach consumers, we also operate Naturalizer.com, Naturalizer.ca, SamEdelman.com, and DrSchollsShoes.com, which offer substantially the same product selection to consumers as is sold in their respective retail stores. Additional websites such as Ryka.com, LifeStride.com, ViaSpiga.com, Vince.com, CarlosShoes.com and FergieShoes.com serve as additional brand-building channels for us.

References to our website addresses do not constitute incorporation by reference of the information contained on the websites and the information contained on the websites is not part of this report.

Marketing

We continue to build on the recognition of our portfolio of brands to create differentiation and consumer loyalty. Marketing teams are responsible for the development and implementation of marketing programs for each brand, both for us and for our retail partners. In 2014, we spent approximately $22.3 million in advertising and marketing support for our Brand Portfolio segment, including print, consumer media advertising, production, tradeshows, digital marketing and social media, public relations and in-store displays and fixtures. The marketing teams are also responsible for driving the development of branding and content for our brand websites. We continually focus on enhancing the effectiveness of these marketing efforts through market research, product development and marketing communications that collectively address the ever-changing lives and needs of our consumers. In 2014, the marketing teams were instrumental in the development and execution of new product launches, including branding, positioning and marketing to both the consumer and trade audiences.

Sourcing and Product Development Operations

Our sourcing and product development operations source and develop footwear for our Brand Portfolio segment and also a portion of the footwear sold by our Famous Footwear segment. We have sourcing and product development offices in China, Hong Kong, Vietnam, Italy, Macau, Ethiopia, St. Louis and New York.

Sourcing Operations

In 2014, the sourcing operations sourced approximately 48 million pairs of shoes through a global network of third-party independent footwear manufacturers. The majority of our footwear sourced is provided by approximately 35 manufacturers operating approximately 56 manufacturing facilities. In certain countries, we use agents to facilitate and manage the development, production and shipment of product. We attribute our ability to achieve consistent quality, competitive prices and on-time delivery to the breadth of these established relationships. While we generally do not have significant contractual commitments with our suppliers, we do enter into sourcing agreements with certain independent sourcing agents. Prior to production, we monitor the quality of all of our footwear components and also inspect the prototypes of each footwear style. We have leading lab testing facilities in our Dongguan and Putian, China offices, and we also perform random quality control checks during production and before any footwear leaves the manufacturing facilities.

In 2014, approximately 85% of the footwear we sourced was from manufacturing facilities in China. The following table provides an overview of our foreign sourcing in 2014:

Product Development Operations

In our Dongguan, China office, we operate a sample-making facility that allows us to have greater control over our product development in terms of accuracy, execution and time to market. We maintain design teams for our brands in St. Louis, New York and China as well as

other select fashion locations, including Italy. These teams, which include independent designers, are responsible for the creation and development of new product styles. Our designers monitor trends in apparel and footwear fashion and work closely with retailers to identify consumer footwear preferences. Our design teams create collections of footwear and work closely with our product development and sourcing offices to convert our designs into new footwear styles.

Our long range plans include further expansion into new markets outside of China, developing more progressive processes to improve factory capacity and material planning, and continuing to understand ways to drive excellence in product value and execution in a rapidly changing manufacturing landscape.

Backlog

At January 31, 2015 , our Brand Portfolio segment had a backlog of unfilled wholesale orders of approximately $284.6 million compared to $273.9 million on February 1, 2014 . Most orders are for delivery within the next 90 to 120 days, and although orders are subject to cancellation, we have not experienced significant cancellations in the past. The backlog at any particular time is affected by a number of factors, including seasonality, the continuing trend among customers to reduce the lead time on their orders and capacity shifts in China. Accordingly, a comparison of backlog from period to period is not necessarily meaningful and may not be indicative of eventual actual shipments or the growth rate of sales from one period to the next.

Our Internet address is www.brownshoe.com. Our Internet address is included in this annual report on Form 10-K as an inactive textual reference only. The information contained on our website is not incorporated by reference into this annual report on Form 10-K and should not be considered part of this report. We file annual, quarterly and current reports, proxy statements and other information with the SEC. We make available free of charge our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished, as required by Section 13(a) or 15(d) of the Securities Exchange Act of 1934, through our Internet website as soon as reasonably practicable after we electronically file such material with or furnish it to the SEC. You may access these SEC filings via the hyperlink to a third-party SEC filings website that we provide on our website.

The following is a list of the names and ages of the executive officers of the Company and of the offices held by each person. There is no family relationship between any of the named persons. The terms of the following executive officers will expire in May 2015 or upon their respective successors being chosen and qualified.

The period of service of each officer in the positions listed and other business experience are set forth below.

Diane M. Sullivan, Chairman of the Board of Directors since February 2014. Chief Executive Officer and President since May 2011. President and Chief Operating Officer from March 2006 to May 2011. President from January 2004 to March 2006.

Richard M. Ausick , Division President – Retail since January 2011. Division President – Famous Footwear from January 2010 to January 2011. Division President, Brown Shoe Wholesale from July 2006 to January 2010. Senior Vice President and Chief Merchandising Officer of Famous Footwear from January 2002 to July 2006.

Daniel R. Friedman , Division President – Global Supply Chain since January 2010. Senior Vice President, Product Development and Sourcing from July 2006 to January 2010. Managing Director at Camuto Group, Inc. from 2002 to July 2006.

Kenneth H. Hannah, Senior Vice President and Chief Financial Officer since February 2015. Executive Vice President and Chief Financial Officer of JC Penney Company, Inc. from May 2012 to March 2014.  Executive Vice President and President–Solar Energy of MEMC Electronic Materials, Inc. and had previously served as Executive Vice President and President–Solar Materials from 2009 to 2012. Senior Vice President and Chief Financial Officer of MEMC Electronic Materials, Inc. from 2006 to 2009.

Daniel L. Karpel, Senior Vice President and Chief Accounting Officer since September 2013. Senior Vice President, Finance from June 2008 to September 2013. Vice President and Controller of Kellwood Company from 2006 to June 2008.

Douglas W. Koch, Senior Vice President and Chief Talent and Strategy Officer since January 2011. Senior Vice President and Chief Talent Officer from May 2005 to January 2011. Senior Vice President, Human Resources from March 2002 to May 2005.

John R. Mazurk, Division President – Healthy Living Brands since May 2012. Senior Vice President, Consumer and Retail Business Development from January 2010 to May 2012. Senior Vice President and General Manager, Naturalizer from 2008 to 2010. Senior Vice President Specialty Retail from 2004 to 2008, and Senior Vice President, Stores for Famous Footwear from 2002 to 2004.

Michael I. Oberlander, Senior Vice President, General Counsel and Corporate Secretary since March 2006. Vice President, General Counsel and Corporate Secretary from July 2001 to March 2006. Vice President and General Counsel from September 2000 to July 2001.

John W. Schmidt , Division President – Contemporary Fashion Brands since January 2011. Senior Vice President, Better and Image Brands from January 2010 to January 2011. Senior Vice President and General Manager, Better and Image Brands from March 2008 until January 2010. Various positions, including Vice President, President, Group President of Wholesale Footwear for Nine West Group from September 1998 to February 2008.

Mark A. Schmitt, Senior Vice President, Chief Information Officer, Logistics and Customer Care since February 2013. Senior Vice President and Chief Information Officer from January 2012 through February 2013. Senior Director of Management Information Systems for Express Scripts from 2010 through 2011. Various management information systems positions including Group Director with Anheuser-Busch InBev from 1996 to 2009.