Caleres reduced its sales outlook and narrowed its annual EPS guidance to the lower end of its previous range due to weaker-than-expected sales at its Famous Footwear chain. Caleres reported earnings in the third quarter came in slightly ahead of guidance while sales underperformed.
Sales in the third quarter ended October 28 were down 4.6 percent compared to guidance calling for sales to be down low-single digits. Reported EPS was $1.32 compared with guidance in the range of $1.25 to $1.30 while adjusted EPS was $1.37 topped guidance in the range of $1.30 to $1.35.
Besides Famous Footwear, Caleres operates a Brand Portfolio segment that includes the footwear brands: Sam Edelman, Allen Edmonds, Naturalizer, Vionic, Blowfish Malibu, Dr. Scholl’s Shoes, Franco Sarto, LifeStride, Rykä, Veronica Beard and Vince.
“Caleres continued its strong operational and financial execution during the third quarter, delivering a 19-percent increase in adjusted earnings per share and exceeding the top end of the guidance range despite ongoing softness in the macroeconomic environment,” said Jay Schmidt, president and chief executive officer. “The Brand Portfolio once again led the way, achieving a sequential improvement in sales and generating record third-quarter operating profit and operating margin. Most notably, the segment contributed more than half of the total company operating profit through the first nine months of the fiscal year. At the same time, Famous Footwear continued to effectively navigate the challenging consumer demand landscape, delivering double-digit operating margins, demonstrating strength in its cornerstone Kids business, and achieving market share growth in shoe chains. Despite near-term macro challenges, we remain confident that Famous is well-situated to grow its leadership position with the Millennial family.
“In addition, we continued to strengthen our balance sheet and financial flexibility by executing on our expense reduction initiatives, reducing our revolver borrowings by more than $20 million, and investing in value-driving growth opportunities, including the omnichannel experience, marketing technologies and analytics, and international.”
Third Quarter 2023 Results
(13-weeks ended October 28, 2023, compared to 13-weeks ended October 29, 2022)
- Net sales were $761.9 million, down 4.6 percent from the third quarter of 2022;
- Famous Footwear segment net sales declined 6.7 percent, with comparable sales down 6.9 percent
- Brand Portfolio segment net sales decreased 0.8 percent
- Direct-to-consumer sales represented approximately 73 percent of total net sales
- Gross profit was $340.4 million, while gross margin was 44.7 percent;
- Famous Footwear segment gross margin of 44.2 percent
- Brand Portfolio segment gross margin of 43.7 percent
- SG&A as a percentage of net sales was 35.9 percent;
- Net earnings of $46.9 million, or earnings per diluted share of $1.32, compared to net earnings of $39.2 million, or earnings per diluted share of $1.08 in the third quarter of 2022;
- Adjusted net earnings of $48.6 million, or adjusted earnings per diluted share of $1.37, which excludes $0.05 related to charges associated with expense reduction initiatives during the third quarter;
- Earnings before interest, taxes, depreciation, and amortization (EBITDA) of $78.8 million, or 10.3 percent of net sales;
- Inventory was down 14.4 percent compared to the third quarter of 2022, due to strategic inventory management, primarily in the Brand Portfolio segment, and improved supply chain flow; and
- Borrowings under the asset-based revolving credit facility were $222.0 million at the end of the period.
Capital Allocation Update
Caleres continued to reduce the borrowings under its asset-based revolving credit facility, paying down $22.0 million during the third quarter. At the end of the fiscal third quarter, bank-defined leverage was approximately 0.9x on a debt/EBITDA trailing twelve-month basis and the company had in excess of $300 million in total liquidity. Caleres also invested $20.5 million in capital expenditures and returned $2.5 million to shareholders through its quarterly dividend. Given today’s higher interest rates and the current economic environment, the company believes it’s prudent to continue to reduce debt and maximize liquidity.
Full Year 2023 Outlook
“Looking ahead, we are confident that our leading brand assets, unique One Caleres capabilities and strong balance sheet have set the stage for a third consecutive year of adjusted earnings in excess of our $4.00-per-share baseline,” said Schmidt. “Longer term, we remain sharply focused on the strategies we outlined at our recent Investor Day and the Caleres team is dedicated and poised to execute on this clear and actionable plan for long-term value creation and growth.”
As a result of the soft consumer demand environment in its Famous Footwear segment, Caleres now expects consolidated net sales to be down 4.5 percent to 5.5 percent, including the impact of the 53rd week, for full year 2023. Previous guidance called for consolidated sales to be down 3 percent to down 5 percent.
In addition, the company is tightening its diluted earnings per share guidance range to $3.96 to $4.06, inclusive of $7 million of restructuring charges associated with expense reduction actions, and adjusted diluted earnings per share range to $4.10 to $4.20. Previous guidance called for reported EPS to be in the range of $4.02 to $4.22 and adjusted EPS to be in the range of $4.10 to $4.30.
Caleres now expects:
- Consolidated operating margin of 7.3 percent to 7.5 percent (same as previous guidance);
- Interest expense of about $18 million (previously, $17 million to $19 million);
- Effective tax rate of about 25 percent (same as previous guidance);
- Weighted average shares outstanding of 34.3 million (same as previous guidance); and
- Capital expenditures of about $50 million (previously, $50 million to $60 million).
Photo courtesy Famous Footwear