By Zacks Equity Research

Brown Shoe Co. (BWS) announced a first-quarter earnings surprise of 155.6% in May, bolstering shares of the footwear retailer since then. Currently, this Zacks No. 1 Rank ("strong buy") stock is trading close to its 52-week high and has enough potential to attain new highs. 

Brown Shoe is shielding itself from this uneven economy through consumer-oriented strategies, portfolio realignment initiatives, product innovation and cost-containment efforts.

Stellar Q1, upbeat guidance

Brown Shoe reported better-than-expected​ first-quarter results on May 18, thanks to top-line growth and effective cost management. Quarterly earnings of 23 cents per share stormed past the Zacks consensus estimate of 9 cents and jumped 43.8% from last year's 16 cents.

Total sales of $626.4 million handily beat the Zacks consensus estimate of $601 million and rose 1.1% year over year, mirroring sales increases across Famous Footwear (up 1.3%) and Wholesale Operations (up 2.8%). However, sales at Specialty Retail dropped 6.1%. Operating income surged 29.8% to $21.5 million, whereas operating margin expanded 70 basis points to 3.4%.

Management now expects fiscal 2012 sales in the range of $2.57 billion to $2.59 billion and earnings between 83 cents and 95 cents per share.

Earnings estimate revisions

The Zacks consensus estimate for fiscal 2012 rose 5.8% to 91 cents in the last 90 days, while fiscal 2013 saw an advance of 3.5% to $1.18. The fiscal 2012 estimate is close to the high end of the company's guidance range and implies year-over-year growth of 29.3%. The fiscal 2013 estimate suggests a yearly increase of 30.6%.

Attractive valuation

Currently, Brown Shoe is trading at a discount to its peers at a forward price-to-earnings ratio of 15.47, reflecting a 4.3% discount to the peer group average of 16.17. Also, price to book, shares trade at 1.45 times, implying a substantial discount of 36.1% to the peer group average of 2.27. The company is trading at a price-to-sales ratio of 0.23, compared with the peer group average of 1.02.

Shares of Brown Shoe gained momentum on stronger-than-antici​pated first quarter results and surged roughly 25.4% to close at $10.92 on May 18. Since then, shares have been showing an uptrend and is now hovering close to its 52-week high of $14.47. The stock has been consistently trading above its 200-day moving average since May 15. It has also remained above the 50-day moving average since May 18.

Volume is fairly strong, averaging roughly 634,000 daily. Brown Shoe, which competes with Collective Brands (PSS) and Wal-Mart (WMT), has outperformed the S&P 500 since May 18. The year-to-date return for the stock is 61.7%, compared with the S&P 500's return of 9.8%.

Founded in 1878 and based in St. Louis, Mo., Brown Shoe is a wholesaler as well as a retailer of footwear, with businesses in the United States, Canada and China. It operates approximately 1,300 retail stores under the Famous Footwear and Naturalizer names. Famous Footwear retail stores feature products under brands such as Nike, Skechers, New Balance, Converse, Puma, adidas, DC, Asics, LifeStride, Dr. Scholl's Shoes, Reebok, Vans, K-Swiss, BOC by Born and Bearpaw. Naturalizer retail stores offers footwear products related to women. The company has a current market cap of $600 million.

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