Shares of Caleres Inc., the parent of Famous Footwear, fell 7.9 percent on Wednesday after the company reported earnings and sales that both grew but just missed Wall Street’s targets. The report comes as competitors, DSW and Shoe Carnival, both sharply raised their guidance following robust Q2 results.
Shares closed the day at $37.16, down $3.20.
In the quarter, adjusted earnings rose 24.1 percent to $25.6 million, or 59 cents a share, short of Wall Street’s consensus target of 60 cents.
Net earnings came to $23.6 million, or 55 cents a share, against $17.6 million, or 41 cents. Adjusted earnings excluded a charge of 4 cents a share for the previously announced transition of Allen Edmonds’ consumer-facing activities to St. Louis and for the July acquisition of Blowfish Malibu.
Consolidated sales reached $706.6 million, up 4.4 percent but below analysts’ average target of $709 million.
On a conference call with analysts, Diane Sullivan, CEO, said the results were in line with expectations and consistent with the company’s 2018 guidance.
“We remain on track to deliver our seventh consecutive year of positive back-to-school comp sales, and we continue to grow the top brands in our brand portfolio and take consumer share in the market,” said Sullivan. “We also maintained our strong balance sheet, cash flow and return on invested capital. And as always, we have continued to execute our strategy and invest in the business.
Famous Footwear’s total sales of $429.5 million were up 6.1 percent and driven by lifestyle athletic styles and sandals. Same-store-sales grew 2.6 percent with improvements in traffic, conversions and pairs per transaction.
E-commerce sales at Famous Footwear were up 15 percent and represented 10 percent of total sales.
By category, women’s was the highlight of the quarter with comp sales at mid-single digits. Women’s sandals also comped at mid-single digits with strong consumer interest in footbed styles.
“Women’s lifestyle athletic category performed even better with comp sales up more than 20 percent,” said Sullivan. In total, adult athletic segment comped at mid-single digits with lifestyle athletic again up more than 10 percent. Added Sullivan, “In fact, retro styles were so strong this quarter that we couldn’t keep pace with consumer demand.”
Kids was soft, down low-single digits as growth in athletic could not offset declines in non-athletic. Said Sullivan, “We have work to do in this area, and the team is focused on turning around our performance and better aligning the assortment with consumer demand.”
Famous delivered record second quarter operating profit, up 32.4 percent, and an operating margin of 7.7 percent, up more than 150 basis points. Said Sullivan, “This improvement really reflects the changes that we made in the field operations late last year as we reduced the number of regions down to four from eight and eliminated 11 districts to better align with shifting consumer shopping trends. It also demonstrates our ability to manage our retail door portfolio and still profitably grow sales, while operating 47 fewer doors year-over-year.”
Sullivan also noted that Famous hired Molly Adams as president, replacing the retired Rick Ausick. She said. “She is fully integrated into the business, visiting stores, meeting with vendors and working with the team. Together they remain committed to being best-in-class in consumer engagement as they continue to drive consistent growth at both the top- and bottom-line at Famous Footwear.”
Brand Portfolio sales of $277.1 million were up 1.9 percent, led by Sam Edelman and Naturalizer. Vince was challenged by channel shifts. Said Sullivan, “From a product perspective, sport inspired styles helped fuel the improvement in the brand portfolio with the majority of our brands growing sales in this key category double-digit and even triple digits. Sandals had an outstanding quarter with sales at more than 20 percent.”
Companywide gross margins eroded to 41.5 percent for the quarter, down nearly 100 basis points on a reported basis, driven by 170 point decline at Famous Footwear due in part to the additional week of BOGO sales in the quarter and continued strength in the company’s e-commerce business. For brand portfolio, second quarter gross margin of 38.2 percent was down 4 basis points year-over-year, driven by Vince, as this brand continues to be impacted by changes to sales and channel mix.
SG&A expense represented 36.6 percent of sales, a 121 basis point improvement
Caleres maintained the company’s guidance for the year, including adjusted earnings per diluted share $2.40 to $2.50. Consolidated net sales are expected to reach $2.8 billion. Famous Footwear’s same-store-sales are expected to expand low-single digits, while brand portfolio sales are expected to rise low-single digits.
Photo courtesy Famous Footwear
