Citing strength across athletic-inspired styles, Caleres Inc. returned to profitability in its fourth quarter.

In the quarter ended February 3:

  • Consolidated sales of $702.5 million were up 9.8 percent, including Allen Edmonds.
  • Gross margin of 41.8 percent was up 97 basis points.
  • SG&A expense of $262.1 million was up 7.9 percent, including Allen Edmonds, which was acquired on December 13, 2016.
  • Operating earnings were $30.3 million and operating margin was 4.3 percent, while adjusted operating earnings were $31.3 million–up more than 50 percent–and adjusted operating margin of 4.5 percent was up 122 basis points.
  • Net earnings were $20.3 million, or 47 cents a share, including a 1-cent benefit related to the Tax Cuts and Jobs Act.
  • Adjusted net earnings of $20.6 million were up 44.5 percent, while adjusted EPS of 48 was up 45.5 percent.

Earnings of 47 cents topped Wall Street’s consensus estimate of 43 cents. The company had guided for earnings in the range of 43 cents to 53 cents.

At Famous Footwear, sales in the quarter reached $393.1 million, up 7.0 percent, while same-store-sales were up 2.8 percent on a 13-week basis. Gross margins at Famous improved to 44.6 percent of sales from 44.0 percent. Operating income jumped 37.1 percent to $3.7 million.

Brand Portfolio sales of $309.4 million were up 13.8 percent including contribution from Allen Edmonds, acquired on December 13, 2016. Gross margins lifted to 38.2 percent from 36.4 percent. Operating profits jumped 42.7 percent to $26.7 million. Contemporary brands include Sam Edelman, Allen Edmonds, Franco Sarto, Vince, Via Spiga, George Brown Bilt, Diane von Furstenberg, Fergie Footwear and Carlos Santana. Naturalizer, Dr. Scholl’s Shoes, LifeStride, Bzees and Ryka represent its healthy living brands.

For the full year, consolidated sales of $2.78 billion was up 8.0 percent, including Allen Edmonds. Famous Footwear total sales of $1.64 billion were up 3.0 percent, while same-store-sales were up 1.4 percent. Brand Portfolio sales of $1,148.0 million were up 16.0 percent.

Net earnings in the year were $87.2 million, while EPS was $2.02 and included 13 cents-per-share of charges related to the acquisition, integration and reorganization of men’s brands, a 2 cents charge for operations restructuring, and the benefit related to the Tax Cuts and Jobs Act. Year-ago earnings were $65.7 million, or $1.52 a share.

Adjusted net earnings of $93.1 million were up 7.5 percent, while adjusted EPS of $2.16 were up 8.0 percent.

On a conference call with analysts, CEO Diane Sullivan highlighted that strength is being seen “across the board with respect to athletic and sport and sneaker.” She added, “As you would expect, we’re seeing anything that’s sport-related continues to be very strong, not only in sneakers but also in trainers. And actually even sport sandals right now look to be very strong. Any footbed kind of product is great. Jute wraps are good. Hybrid concepts are great out there where they’re lightweight.”

Rick Ausick, president of Famous Footwear, added that Famous, while the underlying athletic trend remains strong, the chain continues to “refresh” assortments with different colors, materials and brands. Said Auskick, “I feel pretty good about how we are positioned at this moment in time in the quarter. Probably need a little less cold and snow weather in the Northeast to really see how much we can do. But outside of that, the other parts of the country are showing pretty good returns on those businesses today.”

Sullivan spent much of her presentation outlining The four key initiatives launched last year that helped drive the company’s outperformance and that management plans to build on:

  • Speed-to-market: The company’s speed-to-market program delivered against internal targets in 2017 “and helped us respond to consumer demand for newness and freshness throughout the year,” said Sullivan. Speed programs accounted for approximately 15 percent of its source pairs in 2017, and enabled the company to react to trends in the marketplace like sport-inspired styles, and to be proactive in testing new designs. Said Sullivan, “These efforts also allowed us to focus on the styles we believe in and then expand across the marketplace as needed to address consumer demand with additional colors, different materials, and other enhancements. Our work around simplifying and streamlining for speed will continue in 2018, and our efforts are expected to drive even greater visibility into the entire supply chain and allow us to have more productive inventory on the floor.”
  • Speed-to-consumer: This initiative focused around Famous Footwear in 2017 and enabled the chain to get approximately 70 percent of online orders to consumers within three days. Buy online, pick up in store was launched in the second quarter to also support the goal. The program helped offset some of the margin pressure related to Famous.com orders and helped drive fourth quarter gross margin up 58 basis points at Famous Footwear. For 2018, speed-to-consumer efforts will focus on its Brand Portfolio with a planned shift to in-house fulfillment to serve both its retail accounts and consumers.
  • Digital: Famous Footwear e-commerce sales were up 14 percent in the year and represented 10 percent  of total Famous’ sales. In its Brand Portfolio, e-commerce-related sales accounted for 28 percent of ’17 sales, and they were up 47 percent over last year. Overall, e-commerce-related sales were up 34 percent in 2017 and comprised 17 percent of total sales. A new e-commerce platform will be added in 2018 to better support content and drive customer acquisition and retention.
  • Diversification: The focus will continue to be on expanding Allen Edmonds, with plans to transition the brand’s consumer-facing activities to Caleres’ headquarters in St. Louis, as well as to invest in manufacturing, customer retention and customer acquisition.

The outlook for 2018 includes:

  • Consolidated net sales are expected to reach approximately $2.8 billion, up slightly from $2.78 billion.
  • Famous Footwear same-store-sales are expected to be up low-single digits.
  • Brand Portfolio sales are projected to be up low-single digits.
  • Gross margin are expected to be up five to 10 basis points.
  • SG&A as a percent of revenue are expected to be down five to 10 basis points.
  • Interest expense is expected to be about $16 million.
  • The effective tax rate is expected to be 25 percent to 26 percent
  • Adjusted earnings per diluted share are expected to land in the range of $2.40 to $2.50 against $2.16.

Photo courtesy Famous Footwear