By Thomas J. Ryan

<span style="color: #a19f9f;">Caleres Inc., the parent of Famous Footwear, reported fourth-quarter earnings came in below internal plans due to weakness in fashion footwear and slower growth in sport-inspired product.

“Specifically, we experienced a shortfall in sales to the value channel as those customers pulled back in reaction to a poor retail footwear business and shifted toward lower-priced offerings,” said Diane Sullivan, CEO, president and chairman, on a conference call with analysts. This resulted in a decline in demand for both close-out product and new orders.

Furthermore, Caleres’ overall boot grew double-digits through the mid-fourth quarter, but unfavorable weather in the second half of the quarter stalled cold-weather products resulting in some sales to fall short of the company’s strong expectations for the business.

Specifically, Sullivan said the Sam Edelman brand experienced a softening of cold weather product sales, lower demand for tall-shaft boots and a decline in replenishment and reorders for core products. Additionally, the brand experienced a difficult selling environment within the mid-tier channel business.

Sullivan said, “And as you would expect, Sam pivoted in the season to inject newness into the product line, namely adding multiple new sneakers and new silhouettes and sandals and dress, with all of these new products showing signs of early success at retail.”

Beyond Sam Edelman, Caleres’ wholesale brand segment, Brand Portfolio, includes Naturalizer, Allen Edmonds, Vionic, Vince, Franco Sarto, Dr. Scholl’s Shoes, LifeStride, Blowfish Malibu, Bzees, Circus by Sam Edelman, Fergie, and Ryka.

Offsetting some of the fourth quarter sales pressure was a solid performance from Famous Footwear, which saw a 5.1 percent improvement in same-store sales year-over-year.

Sullivan said, “While 2019 started slowly for Famous, we delivered sequential quarterly improvements as we progress throughout the year. This progression was driven by strong broad-based improvement across all of our channels, categories, genders, geographies, and formats.”

She added, “Specifically, fourth-quarter sales results were lifted by the strong performance from top brands, including Nike, a 9.5 percent year-over-year improvement in Kids, a 60 percent year-over-year increase in premium brands, improved consumer engagement and retention with the chain’s Rewards program, and higher e-commerce and brick & mortar sales. Sullivan said, “Overall, we are pleased with the performance of Famous, and the team has just done an exceptional job of analyzing the consumer identifying opportunities and then executing upon clear and very well-defined strategies.”

In the quarter, consolidated sales of $698.9 million were down approximately 3.0 percent.

Net earnings in the quarter were $408,000 or 1 cent a share. Non-recurring items included cost containment initiatives of 27 cents a share, including the voluntary early retirement program and other restructuring actions; Brand Portfolio expense of 3 cents per share related to brand exit costs; and fair value adjustment of 3 cents associated with the mandatory purchase obligation for Blowfish Malibu.

Adjusted net earnings came to $13.94 million, or 34 cents, which was below Wall Street’s consensus estimate of 40 cents. The year-ago net loss came to $75.5 million, or $1.83, after charges.

For the fourth quarter, consolidated gross margins were 39.9 percent, up 133 basis points year-over-year. The adjusted gross margin was 35.5 percent in the fourth quarter, up 60 basis points over last year and includes the impact of higher tariffs on product coming out of China.

Consolidated SG&A expense for the quarter represented 37.3 percent of sales, up 27 basis points from 2018. Fourth-quarter reported operating earnings were $5.7 million and adjusted operating earnings were $19.6 million.

For the full-year, consolidated sales of $2,921.6 million were up 3.1 percent. Net earnings were $62.8 million, or $1.53. Adjusted net earnings of $86.4 million, or $2.10 a share, were down approximately 9 percent, including approximately 22 cents per share of dilution primarily related to Vionic interest and amortization expense.

Famous Footwear delivered a strong fourth quarter, reflecting increased brick & mortar and e-commerce growth and continued progress with its Rewards program. Famous Footwear total sales of $369.5 million, were up 1.2 percent, with same-store sales up 5.1 percent.

For Famous Footwear, fourth-quarter gross margin of 42.5 percent was down 20 basis points year-over-year, reflecting the growth in its e-commerce business. Operating income was $6.9 million, up from $5.8 million.

For full-year 2019, total sales at Famous Footwear were approximately $1.59 billion, down approximately 1 percent as the chain operated 43 fewer doors versus the prior year, with same-store sales up 2 percent for the full-year. Famous ended the year with 949 doors. Operating income in the year was $76.9 million against $85.3 million.

Brand Portfolio sales reached $346.0 million in the quarter, down 9.4 percent due to the decline in women’s fashion footwear and a slowing of the growth in sport-inspired products. The decline was also driven by challenging selling conditions in the value channel, reductions in reordering and replenishment and softness in cold weather product sales. A shift in order patterns also continued from upfront to at-once via dropship, resulting in a delay in the timing of its recognition of revenue from period to period.

The Brand Portfolio segment showed an operating profit of $11.9 million against an operating loss of $93.5 million a year ago. Brand Portfolio reported gross margin of 35 percent in the fourth quarter, up 275 basis points from the prior year, including the impact associated with purchase accounting year-over-year.

For the full-year, Brand Portfolio sales were $1.4 billion, up 7.1 percent year-over-year, driven primarily by 2018 acquisitions and market share gains. The operating profit came to $58.2 million against an operating loss of $40.8 million a year ago.

Looking ahead, Sullivan said in the short-term, Caleres anticipates disruptions related to the coronavirus and are expecting headwinds between 15 cents to 20 cents a share in the first quarter of 2020. The CEO added, “While potential impacts on full-year 2020 results are difficult to quantify at this early stage, we will continue to actively assess the situation. We are approaching 2020 with a laser focus on managing the variables within our control and leveraging the capabilities of our operations and the investments we’ve made for the future. We are confident in the strength of our portfolio and firmly believe we have the right team and the right strategy in place to manage through this dynamic marketplace.”

For 2020, Caleres expects consolidated net sales to be flat at $2.95 billion. Brand Portfolio sales are expected to see flat growth or be up low-single-digits; Famous Footwear same-store-sales are expected to be up low-single-digits. EPS is expected in the range of $1.95 to $2.15, which compares to $2.10.

Photo courtesy Sam Edelman/Evan Sandal