A "more challenging than expected" retail environment has seen both sales and earnings fall in the first quarter at Brown Shoe Company Inc.

For the three months to 3 May, profit fell 25.3% to $7.2m, or $0.17 per share, including costs of $0.03 per share for relocating the company's Madison office to its St Louis headquarters. This compares to a profit of $9.6m, or $0.22 per share, in the year ago quarter.

Net sales were down 2.1% to $554.5m from $566.3m in the prior year.

Gross margins fell 160 basis points to 39.0% of net sales from 40.6% last time, driven by increased retail promotions and higher wholesale costs.

Ron Fromm, Brown Shoe's chairman and CEO, said: "During the quarter we managed our business well maintaining stringent control of inventory and expenses while achieving several noteworthy goals."

Net sales at the Famous Footwear division fell 2.0% to $318.8m, with same-store sales down 7.3%.

The Specialty Retail segment, which primarily consists of Naturalizer stores and the Shoes.com e-commerce business, saw net sales fall 3.8% to $58.0m and same-store sales down 5.8%.

Wholesale sales dropped 1.7% in the quarter to $177.7m as retail customers tightly managed their inventory levels.

Stronger sales in the Dr. Scholl's, Franco Sarto, Etienne Aigner, and Children's groups failed to offset a lower performance at Naturalizer and LifeStride.

In its outlook for the second quarter and full year, management said it is "prudent to plan the remainder of the year cautiously."

Brown Shoe expects net sales of $2.43bn to $2.48bn for the year, and $585m to $600m for the second quarter.

Full-year earnings per share are likely to be in the range of $1.29 to $1.53 and second quarter earnings from $0.05 to $0.10 per share.

Relocation of the company's offices to St Louis will be substantially complete by the end of the third quarter.

It also expects to open 25 to 30 new Specialty Retail stores, including 15 to 20 in China during the year.