Caleres reported first-quarter earnings declined but reached the upper end of guidance. Sales dropped 9.8 percent, below guidance, and Caleres reduced its revenue outlook for the year due to softening sales at Famous Footwear.

Highlights of the quarter ended April 19:

  • EPS of 97 cents a share compared with company guidance in the range of 92 cents to 97 cents. Consolidated sales declined 9.8 percent, below guidance in the range of 4 percent to 6 percent;
  • Generates record quarterly operating earnings and operating margin in the Brand Portfolio segment;
  • Reiterates full year fiscal 2023 adjusted earnings per share guidance;
  • Reduces revolving credit facility borrowings by $16 million from fiscal year-end 2022; and
  • Announces strategic expense reduction initiatives.

“The Caleres team delivered a solid financial performance at the upper end of our earnings per share guidance driven by record quarterly profit from the Brand Portfolio and despite a challenging operating environment at Famous Footwear,” said Jay Schmidt, president and chief executive officer. “These first quarter results underscore the value of our diversified structure, the strength of our omnichannel capabilities and the power of our portfolio.”

First Quarter 2023 Results
(13 weeks ended April 29, 2023, compared to 13 weeks ended April 30, 2022)

  • .Net sales were $662.7 million, down 9.8 percent from the first quarter of 2022
    • Famous Footwear segment sales declined 9.2 percent, with comparable sales down 8.5 percent, due to soft consumer demand in shoe chains;
    • Brand Portfolio segment sales decreased 11.0 percent, in line with expectations and primarily due to the timing of wholesale shipments in the Brand Portfolio in the first quarter of 2022 to satisfy customer restocking efforts; and
    • Direct-to-consumer sales represented approximately 68 percent of total net sales.
  • Gross profit was $302.7 million, while gross margin was 45.7 percent.
    • Famous Footwear segment gross margin of 45.6 percent; and
    • Brand Portfolio segment gross margin of 44.2 percent.
  • SG&A as a percentage of net sales was 38.2 percent;
  • Net earnings of $34.7 million, or earnings per diluted share of $0.97, compared to net earnings of $50.5 million, or earnings per diluted share of $1.32 in the first quarter of 2022;
  • Earnings before interest, taxes, depreciation, and amortization (EBITDA) of $63.7 million, or 9.6 percent of sales;
  • Inventory was down 13.1 percent compared to first quarter of 2022, reflecting the company’s disciplined approach to inventory management and lower in-transit inventory; and
  • Borrowings under the asset-based revolving credit facility were $291.5 million at the end of the quarter.

Capital Allocation Update
In line with its capital allocation priorities, Caleres continued to reduce the borrowings under its asset-based revolving credit facility, paying down $16 million during the first quarter of 2023. The company also invested $6.5 million in capital expenditures and returned $2.5 million to shareholders through its quarterly dividend. The Caleres board of directors recently approved its next quarterly dividend, which will be paid on June 28, 2023, to shareholders of record as of June 9, 2023.

Fiscal 2023 Outlook
“Looking ahead, we are encouraged by the increased financial contribution from the Brand Portfolio and the strong momentum in our lead brands—Sam Edelman, Vionic, Naturalizer, and Allen Edmonds,” said Schmidt. “While we expect near-term pressure to persist at Famous Footwear, we are highly confident in our ability to remain the leader in footwear for the family, which we believe plays an essential role in the footwear sector overall.”

As a result of the more challenging operating environment, Caleres has taken several steps to reduce expenses across its business. These actions include eliminating open corporate positions, reducing non-merchandise procurement costs, realizing additional Brand Portfolio synergies, and lowering depreciation expense and are expected to result in $20 million of in-year savings. The company also anticipates better-than-expected freight costs, which is expected to be an additional $10 million in savings. These cost savings are versus prior guidance assumptions, some of which were realized in the first quarter. Caleres anticipates a one-time cash charge of approximately $4 million in the second quarter of 2023 associated with these actions. Additionally, the company anticipates gross margin strength in the Brand Portfolio segment for the balance of the year.

For fiscal 2023, the company is expecting full-year diluted earnings per share of $4.02 to $4.22, inclusive of the $4 million one-time charge associated with expense reduction actions in the second quarter. The company is reiterating its full-year diluted adjusted earnings per share range of $4.10 to $4.30 and updating its consolidated net sales range to be down 3 percent to down 5 percent. Previously, Caleres expected consolidated net sales to be flat to up 2 percent. This topline adjustment reflects the company’s revised sales expectations at Famous Footwear.

Caleres now expects Consolidated operating margin of 7.3 percent to 7.5 percent, versus previous guidance of 7.1 percent to 7.3 percent; Interest expense of $17 million to $19 million, versus previous guidance of $18 million to $20 million; and Capital expenditures of $55 million to $65 million, versus previous guidance of $60 million to $70 million.

The company still expects an effective tax rate of about 25 percent and weighted average shares outstanding of 34.3 million.

For the second quarter of 2023, the company expects Consolidated net sales down 4 percent to 5 percent; Diluted earnings per share of $0.79 to $0.84; and Adjusted diluted earnings per share of $0.87 to $0.92.

“As we progress through 2023, we are focused on tightly managing our expenses, investing in value-enhancing opportunities, and maximizing our capabilities to position the organization for growth,” said Schmidt. “We believe we have the right foundation and strategic initiatives in place to consistently deliver annual earnings per share of more than $4.00 as we generate strong levels of free cash flow and create value for our shareholders.”

Famous Footwear operated 866 stores at the quarter’s end. The Branded Portfolio wholesale segment includes Allen Edmonds, Blowfish Malibu, Bzees, Circus NY, Dr. Scholl’s Shoes, Famous Footwear, Franco Sarto, LifeStride, Naturalizer, Rykä, Sam Edelman, Veronica Beard, Vince, Vionic and Zodiac.

Photo courtesy Famous Footwear