Caleres Inc. reported a healthy profit gain in the fourth quarter on an adjusted basis, but those earnings still reached the low end of guidance. With a significant drop in profits at Famous Footwear, its net results were dragged down by a number of impairment charges, and a soft near-term outlook was given for the current year.
Said Diane Sullivan, CEO, president and chairman, on a conference call with analysts, “While we are confident about the long-term outlook for our diversified portfolio, we are taking a cautious view of the near-term as we expect to see continued pressure in retail based on the current environment.”
In the fourth quarter, the net loss came to $6.6 million, or 16 cents a share, against a profit of $11.4 million, or 26 cents, a year ago.
The loss includes a charge of $12.7 million, or 29 cents a share, related to its December acquisition of the Allen Edmonds men’s footwear brand and a reorganization of its men’s brands, including the impairment of its investment in Jack Erwin. A charge of $3.3 million, or 8 cents, was taken as part of a realignment of its branded portfolio to “reallocate our resources against our top strategic initiatives,” said Ken Hannah, CFO.
Finally, a charge of $4.9 million, or 12 cents a share, was due to the liquidation of shoes.com. Caleres has sold shoes.com to Canadian e-commerce company SHOEme.ca in December 2014. The charge relates to the book value of convertible notes related to the sale and for a small amount of accounts receivable for recent product sales.
Excluding non-recurring charges, EPS reached 33 cents a share, up 26.9 percent over the same period a year ago but at the low end of guidance calling for earnings in the range of 33 to 43 cents. Consolidated sales reached $639.5 million, up 5.1 percent.
In mid-day trading on Friday, shares of Caleres were trading down about 13 percent.
By segment, Famous Footwear’s operating earnings in the quarter tumbled 80.6 percent to $2.7 million due to higher operating expenses. Officials attributed the higher expenses in part to operating nine additional stores in the latest period versus a year ago as well as $3 million in extra media spend versus the prior year.
Revenues in the quarter at Famous Footwear increased 1.9 percent to $367.5 million. Same-stores sales inched up 0.3 percent versus a gain of 0.8 percent a year ago. Gross margins eased slightly to 44 percent from 45.5 percent in the same period a year ago.
Famous.com sales increased nearly 40 percent to comprise 8.2 percent of total Famous Footwear fourth quarter sales. For the full year, total sales at Famous Footwear reached $1.59 billion, or up 1.1 percent while same-store sales for the year were up 0.6 percent. Operating earnings slid to $83.7 million from $109 million a year ago.
“Throughout 2016, we delivered steady performance at Famous Footwear despite the overall promotional environment and shifting consumer demand patterns of retail,” said Hannah. “Lifestyle athletic product continued to resonate with consumers and our top vendors maintained their strong performance.”
In its Branded Portfolio division, operating earnings in the quarter was up slightly to $18.7 million from $18.5 million. Sales rose 9.6 percent to $272 million. Its brands include Naturalizer, Dr. Scholl’s, LifeStride, Bzees and Rykä in its Healthy Living segment and Sam Edelman, Allen Edmonds, Franco Sarto, Via Spiga, Vince, Diane von Furstenberg (DVF), George Brown Bilt, Carlos by Carlos Santana and Fergie Footwear in its Contemporary Fashion segment.
For the full-year, brand portfolio sales of $989.3 million were down 1.5 percent year-over-year reflecting a significant and planned shift away from the mass channel throughout 2016 and an industry-wide overall reduction in initial orders.
For the full year, consolidated sales were flat at $2.58 billion. Net earnings after charges were $65.7 million, or $1.52, down from $81.5 million, or $1.85. On an adjusted basis, net earnings were $86.5 million, or $2, down 1.6 percent.
On the call, Sullivan said that beyond integrating Allen Edmonds, key priorities for 2017 including continuing to invest in speed-to-market initiatives. While last year focused on rapid replenishment logistically, this year the focus in its Branded Portfolio segment will also be on speeding design modifications and fast tracking ideas to market that includes testing in small quantities. At Famous Footwear, the speed focus centers on the expansion and modernization of its Lebanon distribution center that will also support e-commerce sales with two-day delivery.
In its Branded Portfolio, Caleres is centralizing marketing efforts, creating a new digital team and realigning its resources to better position Naturalizer, Allen Edmonds and Sam Edelman for international growth.
At Famous Footwear, Karlyn Mattson, most recently VP merchandise manager of shoes, accessories and intimate apparel at Target, was appointed chief merchant, a new role within the chain. Sullivan said Mattson “will help us to take a more strategic approach in our stores and online, and drive growth amidst this challenging and changing retail landscape.”
At the same time, Chris Cavalline, previously chief merchandising officer of Vitacost.com, a leading online retailer of healthy living products, was appointed SVP, e-commerce, at Famous Footwear. Sullivan noted that since 2013, Caleres has invested $15 million into famous.com and that’s helped drive sales ahead 50 percent in 2016.
For the current year, companywide sales are expected to range between $2.7 billion to $2.8 billion. Same-store sales at Famous Footwear are expected to be up low-single digits. Net sales for the brand portfolio segment are projected to increase in the high teens, including the benefit of Allen Edmonds. Gross margins are expected to be up 45 to 55 basis points. Adjusted EPS is projected between $2.10 and $2.20.
The guidance includes the closing of 70 Famous Footwear stores and the opening of 40 new doors as part of its normal lease renewal process. Famous Footwear closed the year with 1,055 locations.
Photo courtesy Famous Footwear