Caleres Inc., parent company to Famous Footwear, Sam Edelman, Allen Edmunds, Naturalizer, and other footwear brands, reported Thursday that following a strong start to the year, first-quarter 2020 results were significantly impacted by COVID-19 and subsequent closures of the company’s retail stores along with the closure of its wholesale partners’ store operations. Despite this, actions taken by Caleres to preserve cash, protect liquidity and capitalize on its enhanced capabilities enabled the Company to finish the first quarter with cash levels consistent with when the stores closed in mid-March and the financial flexibility necessary to operate in this dynamic environment.

Operating Results (13-weeks ended May 2, 2020):

  • Net Sales were $397.2 million compared to $677.8 million in the first quarter of fiscal 2019;
    • Famous Footwear total sales of $191.3 million, down 45.7 percent, with same-store sales up 12.8 percent through mid-March, and up 12.6 percent for the entire quarter; and
    • Brand Portfolio sales of $217.2 million, down 36.3 percent.
  • Gross profit was $121.9 million, while gross margin was 30.7 percent and adjusted gross margin was 39.5 percent, excluding additional markdowns associated with COVID-19;
  • SG&A expense of $225.2 million, down $36.9 million compared to first quarter 2019;
  • Net loss of $345.8 million or a loss of $8.95 per diluted share compared to net income of $9.1 million, or 22 cents per diluted share in the first quarter of fiscal 2019. The loss of $8.95 per share includes $7.56 of adjustments related to COVID-19, consisting primarily of non-cash impairments; and
  • Adjusted net loss was $50.4 million, or an adjusted loss of $1.30 per diluted share compared to adjusted net income of $15.0 million, or adjusted earnings of 36 cents per diluted share in the first quarter of fiscal 2019.

Liquidity and Capital Allocation:

  • Ended the quarter with $187.7 million of cash and $438.5 million of revolving credit facility borrowings;
  • Increased the available borrowing capacity of the revolving credit facility from $500 million to $600 million with no significant debt maturities until 2023;
  • Reduced inventory by 9.7 percent at quarter-end from the same period last year, reflecting actions to cancel seasonal orders and delay on-order receipts; and
  • Returned $15.7 million to shareholders during the quarter through its long-standing quarterly dividend and share repurchases.

“This past quarter represented a period of tremendous uncertainty and challenge for the global community, our consumers and our company,” said Diane Sullivan, chief executive officer, president and chairman. “After a strong start – with year-over-year sales at Famous Footwear up nearly 13 percent through mid-March – Caleres pivoted sharply to address the rapidly escalating global health crisis. We temporarily closed our entire network of Famous Footwear and branded retail stores; instituted work from home capabilities for the vast majority of our Associates; shifted our focus to e-commerce; and repurposed our Allen Edmonds factory to assist in the production of personal protective equipment to support frontline healthcare workers.”

“The Caleres team has risen to the occasion during the current crisis – adapting to the quickly moving market environment, serving our consumers consistently, providing security of supply to our retail partners and showing compassion to our communities. While we are taking a realistic view of the broader economic recovery, we are encouraged by the reception we have seen in the regions where our stores are now open. Looking ahead, as consumers move to their next version of normal, we expect they will gravitate to trusted and well-known brands that stand for value and continuity – and we have a powerful suite of them. At the same time, we plan to manage our brand portfolio as intensely as ever and will be adjusting our offerings to ensure we are anticipating and addressing evolving consumer preferences and needs,” said Sullivan.

COVID-19 Mitigation Efforts
Caleres took swift and decisive actions to manage through the economic shutdown. Early in the quarter, the company established a leadership response team tasked with addressing the challenges of operating in an environment of significantly reduced economic activity. By March 19, the company had temporarily shuttered its entire brick and mortar fleet. Subsequently, the company:

  • Aligned its workforce and related expenses to meet the needs of a lower demand environment;
  • Managed inventory levels – continuously balancing supply and demand; Leveraged strong partnerships to reduce product receipts and extend payment terms;
  • Began negotiations to modify leases, including the deferral and abatement of certain lease payments;
  • Eliminated or deferred all non-essential capital projects;
  • Expanded e-commerce sales by capitalizing on the significant enhancements in its omnichannel capabilities;
  • Utilized an expansive network of temporarily closed brick and mortar stores as distribution centers to support increased e-commerce business;
  • Adapted buy online/ pick-up-in-store capability to include a contactless curbside pickup option; and
  • Implemented health and safety measures to ensure a comfortable work environment and shopping experience for returning Associates and customers.

Operations Update
On May 11, Caleres initiated a careful and systematic reopening of its Famous Footwear and branded retail stores. To date, the company has successfully resumed in-store operations at approximately 625 locations, including 555 Famous Footwear stores, or approximately 60 percent of the store fleet. Caleres expects nearly 90 percent of its Famous Footwear stores to be open by late-June with the remaining locations – primarily in regions heavily impacted by the virus and still under state and local closure restrictions – reopening when it is safe to do so.

In recent weeks, the company has seen continued strength in its e-commerce-related businesses and sales at the stores that have reopened are running ahead of expectations with the Famous Footwear stores running ahead of last year. Importantly, Caleres was successful in maintaining its skilled Associate base through the course of the shutdown and has achieved a nearly 95 percent retention rate among store managers at stores reopened so far. Caleres views this continuity as instrumental in maintaining the high level of service and quality of experience its customers have come to expect.

“We shifted quickly taking a series of deliberate steps to reduce costs and preserve cash while working to maximize eCommerce sales during the period of store closures,” said Ken Hannah, senior vice president and chief financial officer. “We reduced capital spending – cutting 40 percent from the planned 2020 budget – exercised the accordion feature of our revolving credit facility in order to boost liquidity; implemented a disciplined cash management process; tightly managed our inventory position to ensure our inventory balance was in line with demand; and leveraged our prior investments to expand e-commerce-related sales at Famous Footwear and across our branded portfolio sites.”

2020 Guidance
Given the evolving nature of today’s retail marketplace, we continue to plan for multiple scenarios while remaining intensely focused on the disciplined management of inventory and expense. However, due to the ongoing business disruption and substantial uncertainty surrounding the impact of COVID-19, the company is not providing formal financial guidance for fiscal year 2020.

Photo courtesy Famous Footwear