Caleres, Inc. President and CEO Jay Schmidt said he was pleased to report that Caleres delivered another strong performance during the fourth quarter 2023, capping off the third straight year of adjusted earnings per share above the company’s $4.00 baseline as the company delivered $4.80 per diluted share for the fiscal 2023 full year, down from the $4.92 posting in fiscal 2022. Those comments and much more came during a quarterly conference call with analysts and the parent company of Famous Footwear and the Naturalizer, Vionic, Allen Edmonds, Blowfish Malibu, and Sam Edelman brands.
“These results continue to underscore the power of our portfolio of brands, the focus of our talented team, and the magnitude of our structural financial transformation,” Schmidt asserted.
Schmidt said 2023 was marked by “significant accomplishment and disciplined financial execution” as the company delivered annual sales of $2.82 billion, which was said to be in line with expectations.
Gross profit was $305.7 million for the fourth quarter, compared to $281.2 million in the prior-year quarter. Consolidated gross margin was 43.9 percent of sales, a 310 basis-point improvement from the 2022 fourth quarter.
Adjusted operating earnings were $201 million for the year, which Schmidt said generated a strong consolidated adjusted operating margin of more than 7 percent.
“Our adjusted earnings per share of $4.18 was in line with the outlook we reaffirmed in January and we generated approximately $260 million in adjusted EBITDA,” he shared. “We are particularly proud of these results, which were achieved while navigating a dynamic demand environment and making prudent investments in support of our future growth.”
Schmidt reported that the company had gained market share in both the Brand Portfolio in women’s fashion footwear and in Shoe Chains for Famous Footwear, as well as in Kids.
“We leaned into our Edit to Win initiative and leading SPEED capabilities, which facilitated a nearly 7 percent reduction in inventory,” he added.”
In taking a look at the fourth quarter ended February 3, which was a 14-week period on the NRF 4-5-4 calendar, Caleres delivered sales of $697.1 million, up 0.1 percent compared to the 13-week fourth quarter ended January 28, 2023. The 14th week in fiscal 2023 added $25.0 million in sales.
Direct-to-consumer (DTC) sales represented approximately 74 percent of total net sales.
“We generated strong margins, and we achieved fourth-quarter adjusted earnings per share of 86 cents, which represented a 32 percent increase over the fourth quarter of 2022,” he said.
Brand Portfolio Segment
The Brand Portfolio reportedly delivered its best-ever annual adjusted operating earnings, which topped $148 million, eclipsing its previous record of $112 million. Schmidt said this was accompanied by a nearly 12 percent adjusted return on sales. Of particular note, the CEO said the Brand Portfolio segment led the financial performance of the company for the first time in nearly two decades.
He said strong demand for the segment’s Lead Brands and largest portfolio brands drove the company’s performance.
“Notably, sales in this segment were 4.5 percent higher than the fourth quarter of 2022, and segment gross margin increased significantly,” Schmidt detailed. “And while we invested in key capabilities like our marketing network and international expansion, most of the margin strength flowed through to the bottom line, leading to a 570 basis point improvement in adjusted quarterly operating margin. This strong upward momentum was broad-based, with increases across both our wholesale and direct channels, primarily our owned e-commerce, which increased 5 percent year-over-year.”
He said the consumer continues prioritizing newness, including loafers, ballets, Mary Janes, slingbacks, and fashion sneakers.
“Our brands were well-positioned to meet the diversified needs and preferences of our consumers,” he noted.
“We saw particular strength across our Lead Brands during the last quarter of the year with positive trends in year-over-year sales, operating earnings and market share,” he said. “In total, these four brands, which include Sam Edelman, Allen Edmonds, Naturalizer, and Vionic, represented about 55 percent of the Brand Portfolio sales and more than half the segment’s operating earnings during the fourth quarter.”
Sam Edelman reportedly had a solid quarter with improving financial metrics. Schmidt noted that Sam Edelman announced big news last week, unveiling Kylie Jenner as the face of its spring marketing campaign.
“This is an exciting time for the Sam Edelman brand and team, which is celebrating its 20th anniversary this year,” he said. “The brand also continued to expand internationally, opening ten new stores in 2023, with plans to grow that number significantly in 2024.”
He also said the company expected the 20th-anniversary marketing plans and events, international expansion with its joint venture partner in Asia, and the Sam and Libby brand relaunch would significantly drive sales in 2024 and beyond.
Allen Edmonds turned in its 12th positive quarter of growth. Casual and sports styles continue to lead the way during the period, with the consumer responding to the newness and colorways of the brand’s iconic shoes and introducing new styles.
“During the quarter, we opened a new Port Washington Studio concept store in Birmingham, AL,” Schmidt offered. “We now have eight Port Washington Studio stores and continue to see the sales performance outpace the rest of the chain. We already have plans to introduce the Port Washington Studio into four stores during 2024 and continue to look for more opportunities to add this concept to new and existing locations.”
Naturalizer reportedly had a standout quarter from both a sales and margin perspective, Schmidt suggested. Sales were said to be up double digits and operating margin “improved substantially.” Schmidt said the Naturalizer brand gained 1 point of market share during the quarter with a significant increase in new consumers.
“We are pleased with the rollout of the Naturalizer loyalty program, named Naturalizer Insider, and are seeing positive spending trends with loyalty members,” he added. “We are also seeing an increase in younger consumers, driven by strong relevant fashion offerings and targeted marketing efforts, including new collaborations and partnerships.”
Vionic saw profitability improve significantly in the quarter, according to Schmidt’s review, saying that the upside came despite a modest decline in sales, with both the wholesale and e-commerce businesses making significant contributions.
“Loafers, flats and sneakers drove the brand’s fourth-quarter business, and the Uptown Moc remains Vionic’s number one item,” he detailed. “In addition, our Rejuvenate Recovery slide sold very well, as did new styles in the walking category, with more to come in 2024.”
Schmidt said the company’s largest portfolio brands also delivered outsized performances in the quarter. Dr. Scholl, Franco Sarto and LifeStride achieved year-over-year improvements in sales and earnings.
“As we’ve noted, these brands play an important role in our overall portfolio, reaching different customer segments while generating meaningful profit and cash flow,” he said. This year, Dr. Scholl’s celebrates its 100th anniversary, with sales driving collaborations and partnerships. The first will be a collaboration with apparel brand Free People, which is set to drop in early April.”
Brand Portfolio segment net sales increased 4.5 percent to $323.7 million. The 14th week in fiscal 2023 added $6.8 million in sales. Segment comparable store sales on a 13-week basis were down 3.8 percent in the fourth quarter, cycling a 20.4 percent comp sales increase in the prior-year quarter.
Brand Portfolio segment gross margin of 42.6 percent of net sales, a 660 basis-point increase year-over-year.
Overall, he said the Brand Portfolio performed at a high level during 2023, delivering its “best performance in portfolio history.”
Schmidt reminded everyone on the call that the company continues to expect the Brand Portfolio to contribute about half of total sales and 60 percent of operating profit within the three-year period.
“We are confident the Brand Portfolio, powered by its Lead Brands, is positioned to lead the financial performance of Caleres over the long term,” he declared.
Famous Footwear Segment
At Famous Footwear, total sales declined 1.5 percent to $396.2 million, and comp sales declined 5.9 percent for the quarter on a 13-week basis, representing a sequential improvement in trend from the third-quarter period, both in-store and online. The 14th week in fiscal 2023 added $18.2 million in sales. Schmidt said traffic was down, and seasonal products, namely boots, represented “much of the sales decline.”
“Famous, once again though, outperformed its competitive set, gaining market share in Shoe Chains,” he remarked.
Famous Footwear segment gross margin was 42.9 percent of sales, 50 basis points better than the prior-year quarter.
“During the holiday season, the consumer was motivated by highly demanded trend items instead of promotions,” Schmidt explained. “Robust selling on key athletic brands and styles and cozy products like slippers drove a modestly better sales trend during the seven-week holiday period. In addition, we were particularly pleased with the performance of our Kid’s business, where sales increased 2 percent year-over-year, and we gained 1.4 points of market share in Shoe Chains. As you know, we view Kids as our key differentiator and the entry point for the millennial family. Our Kid’s business has outpaced the rest of the chain for 12 consecutive quarters, and 2023 marked our highest level of annual Kids’ sales ever.”
He said they were also pleased with the relative outperformance of women’s fashion and sales of key vertical brands, such as Naturalizer and Dr. Scholl’s, which were up year-over-year at Famous Footwear.
“Over the last year, we’ve worked to drive a more balanced athletic versus fashion assortment, and we are making progress on that front,” he outlined. “Our vertical integration provides Famous with greater access to fashion products, a key growth driver for the business, as well as a greater ability to flex with trends and differentiate versus competitors. And vertical integration allows our own brands to reach new audiences. Our newest vertical brand, Sam and Libby, launched in Famous for Spring with solid early reads.”
Lastly, Schmidt said the company continues to enhance the consumer experience at Famous Footwear.
“We had 21 Flair stores open at the end of the quarter,” he shared. “The second wave of Flair stores have proven highly successful and are outperforming the chain and delivered positive year-over-year comps in the fourth quarter. We plan to continue to refine our approach to improving consumer experience to ensure we are realizing the highest return on this investment. We will transform an additional 23 stores to the Flair concept in 2024 and will have 44 Flair stores by year-end.”
Schmidt wrapped up on Famous Footwear, saying the family footwear chain “performed well” in 2023.
“The structural changes we’ve made across the business have enabled the Famous segment to maintain operating earnings and operating margin well above pre-pandemic levels, and we expect this to continue,” he said. “Looking ahead, we believe Famous Footwear is exceptionally well-positioned to compete and solidify its leadership position in the family channel.”
Balance Sheet
Inventory at year-end was $541 million, down 6.8 percent versus the prior year-end, primarily in Brand Portfolio, reflecting a more normalized supply chain and disciplined inventory management across the business. By segment, inventory at Famous was up 2.5 percent versus the prior year, but down 4 percent when adjusted for the 53rd week. Brand Portfolio inventory was down 13.6 percent versus the prior year-end.
“We feel good about the amount and composition of inventory with aged inventory down in both businesses in dollars and as a percent of the total,” said CFO Jack Calandra.
“We generated $200 million of cash from operations and strategically used that cash to invest in and accelerate value-driving capabilities essential for our future growth,” added Schmidt. “This included enhancements to our marketing ecosystem, the expansion of our international presence, particularly at Sam Edelman, the involvement in consumer experience at Famous Footwear, and the upcoming go-live of our financial and operating system into a new integrated SAP platform. We also deployed cash to further strengthen our balance sheet and enhance our financial flexibility by reducing borrowings by $126 million from 2022. Finally, we returned more than $27 million to our shareholders through share repurchases and dividends.”
Looking ahead, our capital allocation priorities remain consistent with what we’ve communicated previously. First, invest for organic growth, focusing on our Lead Brands and key capabilities. Second, maintain the dividend. Third, given the still elevated interest rates, we will continue to focus on reducing debt in the near term.
“As we said in Investor Day, by 2026, we expect borrowings to be less than $100 million and less than 0.5 turn of EBITDA. Fourth, share repurchases. Given our debt reduction progress and expectation for free cash flow in 2024, we have the opportunity to both reduce leverage and buy back shares. We will evaluate these alternatives in light of business performance and market conditions as we proceed through the year. We had 5.6 million shares remaining under our current Board authorization at year-end.
“As we mentioned when we outlined our three-year plan last October, we don’t expect our growth to be linear, and embedded in that outlook was more modest growth in year one. In addition, our plan assumed that the overall footwear market would grow at 1 percent in 2024. Circana now expects a decline of 1 percent,” said Calandra.
Including this adjustment and balancing the strong momentum in the company’s Brand Portfolio against anticipated headwinds, like inflationary pressures and higher freight costs, Caleres now expects sales to be flat to up 2 percent for 2024, which includes the impact of the 53rd week in 2023.
Excluding the 53rd week, the company expects sales to be up 1 percent to 3 percent and earnings per diluted share in the $4.30 to $4.60 range.
“We anticipate earnings to be up more in the first half than in the second half,” Calandra shared. “However, due to the timing of expenditures, including marketing for the Sam Edelman campaign and expense for the common platform implementation, we expect EPS to be down in Q1 and up in Q2.”
Additionally, the company provided guidance on the following metrics for the full year: a consolidated operating margin of 7.3 percent to 7.5 percent, an effective tax rate of about 24 percent, and capital expenditures of $60 million to $70 million.
For the first quarter Calandra said the company expects consolidated net sales to be flat to up 1 percent and earnings per diluted share in line with Q4 2023 on an adjusted basis.
Image courtesy Allen Edmonds
