Famous Footwear, Shoe Carnival and DSW all saw profits shrink in the second quarter as same-store sales declined in the mid-single digits. However, comps turned positive for each retailer in August, driven by a back-to-school (BTS) boost, providing confidence that their respective growth strategies are gaining traction.

Shoe Carnival Sees Rebanner Strategy Gain Traction
Shoe Carnival, Inc. raised its earnings guidance for the year after delivering its strongest Q2 margin and seeing its strategy to rebanner its Shoe Carnival stores to Shoe Station exceed targets.

Sales for the quarter ended August 2 declined 7.9 percent to $306.4 million, falling short of the consensus estimate of $318.3 million. Comparable sales declined 7.5 percent, primarily due to a high-single digit decline at Shoe Carnival. Break-even results were seen at Shoe Station.

Earnings declined 15.0 percent to $19.2 million, or $0.70 per share, due to a $0.21 per share impact from the conversion of Shoe Carnival banners to Shoe Station. Earnings handily topped analysts’ consensus target of 62 cents.

Mark Worden, president and CEO, on an analyst call, said the rebanner strategy contribution “was significant” as Shoe Station outperformed Shoe Carnival by over 10 percent on merchandise sales during Q2 and back-to-school.

Worden noted that, beyond stronger sales, the retailer is seeing a shift in demographics from Carnival’s sub-$30,000 households towards Shoe Station’s over $50,000 range, which is helping drive improved economics across the portfolio and reducing the company’s exposure to economic downturns.

He also noted that new Shoe Station households shop differently, purchasing premium brands and building higher-priced baskets. As a result, product margins expanded 280 basis points at Shoe Station in Q2 plus fiscal August versus the prior year. He added, “Carnival and Rogan both expanded margins too. But the new customer buying higher-priced premium brands at Shoe Station is the big strategic win to highlight.”

Shoe Carnival also achieved a “significant milestone” with a return to positive comparable sales growth in August to support the “must-win” back-to-school selling period. Worden noted that August represents less than 8 percent of the retailer’s days but accounts for approximately 25 percent of the annual profits.

“Three strategic decisions shaped our quarter in back-to-school success,” said Worden. “First, we prioritized margin dollars over pursuing lower-quality, lower-profit sales. Second, we invested in inventory depth to improve availability for back-to-school. Third, we continued investing in our rebanner program despite market uncertainty. These choices are paying off.”

Q2 gross margins reached 38.8 percent, up 270 basis points, reflecting “disciplined pricing, improved mix and better inventory availability, not from deep discounting.”

In August, Shoe Station achieved comparable sales growth in the high single digits overall, driven by the kids’ category, which saw sales increase in the high single digits, along with margin expansion. Additionally, the adult athletics category experienced sales growth in the low 20s, accompanied by margin growth. The Shoe Carnival banner delivered positive children’s comp sales and margin growth for the fiscal August back-to-school year, despite a challenging environment for its lower-income customers.

Across the company, comps in August grew in the mid-single digits in children’s and in the low single digits in athletics. Total company men’s and women’s nonathletics declined low singles, reflecting the strong athletic cycle, with Station also in the low singles, outperforming Carnival.

“Shoe Station’s back-to-school taught us valuable lessons,” Worden said. “We won in athletics. We expanded margins across categories. We sharply grew our children’s category penetration. But despite the growth achieved, we left sales on the table in the children’s category, too conservative on depth, not prominent enough in key store areas. Valuable insights captured, now we know how to grow the children’s category even higher next back-to-school.”

Providing an update on the progress of its rebanner rollout, Worden noted that Shoe Station rebanner sales are up 8 percent year-to-date through August, while Carnival’s comps declined by high single digits. The Shoe Station rebanners are generating product margins 270 basis points above the prior year through August year-to-date.

Currently, the retailer operates 87 Shoe Station stores, which account for approximately 20 percent of the company’s total. By the end of fiscal 2025, the retailer expects to have 145, and then reach 215, or approximately 51 percent of its fleet, by BTS 2026. Said Worden, “That’s the tipping point where growth begins to overtake the climb, and we become a different company.”

Addressing its other banners, Worden said Rogan’s rebanners continue to exceed expectations with August sales and product margin growth surpassing metrics set.

The flagship banner Shoe Carnivals’ Q2 comps declined by high single digits, though sequential improvement was seen from Q1, and a “sharp improvement” was noted at quarter end as back-to-school sales began. August showed further progress, delivering low single-digit declines, with growth in children’s categories and solid athletic performance.

“The sub-$30,000 income consumer faces ongoing pressure,” said Worden. “While we could pursue more aggressive promotions to drive traffic, we believe maintaining margin discipline is the right long-term decision versus propping up this customer segment, which we are strategically shifting away from. We’re managing the Carnival banner as a cash generator during our transition to Shoe Station.”

Under its updated guidance, sales are now expected to be in the range of $1.12 billion to $1.15 billion, down from the previous guidance of between $1.15 billion and $1.23 billion. GAAP EPS is expected in the range of $1.70 to $2.10, an increase in the lower end of the range of 10 cents share.

Famous Footwear Sees Jordan Launch Boost BTS Selling
Famous Footwear’s sales declined 4.9 percent in the second quarter, to $399.6 million, partly reflecting a reduction in store count to 830 at the quarter’s close from 855 a year ago. Comparable-store sales fell 3.4 percent against a 2.9 percent decline a year ago.

Operating earnings at Famous dropped 46.0 percent to $18.6 million. Gross margins declined 130 basis points to 43.7 percent due to more days on promotion, a deeper promotional offer, and an unfavorable channel mix. The heightened promotions reflect a continued emphasis on BOGO (buy one, get one) deals as well as more BOGO clearance year over year. The promotional change will become less of a headwind in the third quarter as Famous anniversaries the move to BOGO.

On an analyst call, Jay Schmidt, CEO of Caleres, said the company “did experience headwinds due to market uncertainty” that impacted both its Famous and Brand Portfolio wholesale segments, but sales trends improved sequentially in both segments. Famous’ comps were down 6.3 percent in the first quarter.

In the latest quarter, Famous’ comps improved notably in July, down 1 percent, and turned positive, up 1 percent, in August, against a high-single-digit comp in August of last year. Schmidt noted that, as has been a recent trend, the Famous consumer continues to shift their spending toward peak shopping periods, such as back-to-school. Said Schmidt, “We had a nice back-to-school, and that was on top of a very, very successful back-to-school a year ago.”

BTS selling benefited from the launch of Jordan, which Famous has exclusively in the family footwear channel this fall across all stores and online. Schmidt said Jordan “quickly” became a Top 10 brand at Famous. He added, “This performance reinforces Famous’ ability to launch leading brands successfully and deliver powerful results, and we will continue to drive Jordan and other trending and highly demanded brands as we move forward into fall.”

In addition to Jordan, Famous added expanded or new assortments from Nike, Adidas, Birkenstock, New Balance, Brooks, Timberland, and Frye to help support BTS gains. Schmidt said, “We’re continuing to see our consumers want those highly demanded national brands that really have great meaning to them, and they are purchasing those over others.”

During the second quarter, men’s performed best at Famous, kids were about in line with the overall trend, and women’s underperformed. By category, athletics was nearly flat on a comp basis while fashion declined. Jordan, Adidas, Birkenstock, New Balance, Asics, Reef, and Brooks were top growth brands in the quarter. Caleres brands, including Sam Edelman, Allen Edmonds, Naturalizer, and Vionic, experienced flat comparable sales at Famous. Kids’ penetration increased to 21 percent in the quarter. According to Circana, Famous gained 0.3 points of kids’ market share among shoe chains, while the total Famous brand gained 0.1 point overall.

Famous expanded its Flair format to 55 locations, which generated a three-point sales lift overall and a six-point sales lift for stores converted in the last year. It plans to have 57 57 Flair locations by year-end. Said Schmidt, “This success underscores Famous’ ability to amplify elevated brands and products.”

Looking ahead, comparable sales in the largely non-promotional months of September and October are expected to decline in the low single digits at Famous. Supported by BTS sales, August is the largest month of the third quarter for Famous.

Companywide, Caleres adjusted EPS in the quarter reached $0.35, down from $0.85 a year ago and below analysts’ consensus target of $0.51. Sales of $658.5 million topped the consensus mark of $651 million. Caleres continues to suspend annual guidance due to tariff-related uncertainties in the marketplace.

DSW Benefits from Increased Inventory Depth, Focus on Top Brands
Designer Brands, Inc. reported sales at its U.S. Retail operations, which consist of 493 DSW locations, declined 4.8 percent to $610.9 million in the second quarter ended August 2. Comps dropped 4.9 percent, improving sequentially from a 7.3 percent decline in the first quarter. Operating profits fell 22.4 percent to $60.2 million.

During an analyst call, Doug Howe, Designer Brands’ CEO, noted that the smaller comp decline compared to the first quarter reflects “slightly improved” consumer sentiment and a sequential improvement in store traffic during each month of the quarter. DSW’s comps likewise improved sequentially each month of the quarter and turned positive in August.

Howe said, “While broader macroeconomic pressures persist, these trends offer encouraging signs that some headwinds may be starting to ease. Additionally, we know that the largest number of signups for our VIP rewards program happened in stores. As store traffic improves, it should have a positive impact on the program, whose members drive over 90 percent of our transactions.”

Factors cited for improving the comp performance include a continued emphasis on DSW’s top eight brands, which collectively continued to outperform the balance of the chain with a positive 1 percent comp for the quarter. Penetration of its top eight brands grew 300 basis points over last year, accounting for 45 percent of total sales in the quarter.

The eight brands include Nike, which returned to DSW’s selling floors in October 2024 after exiting the chain in 2021. Howe said, “We’re fortunate to have great partnerships with those key brands. We’re maintaining better in-stock levels with them, getting more access to product, and continue to be very encouraged by those top eight brands, of which Nike is obviously one of them.”

Also supporting the August comp gain is an emphasis on reducing SKU count while increasing depth in key styles to improve inventory productivity. DSW’s choice count for the back half of 2025 is planned to be down 25 percent compared to last year, and its depth is planned to be up 15 percent. Store conversion in the quarter increased by 1 percent compared to last year, driven by improved in-stock levels and a focus on top brands. Howe said, “Looking ahead, we are adding depth in our core styles, including our top eight brands, ensuring we are focusing on the areas of highest demand.”

The positive conversion comps also reflect efforts to prioritize in-store inventory over online. In-store stock levels of regular-priced products materially improved to approximately 70 percent.

By category in the quarter, Adult Athletic comps were slightly negative, down 2 percent, but improved from a 4 percent decline seen in the first quarter. Kids’ Athletic posted a flat comp, representing a 500-basis point improvement over the prior quarter, underpinned by a strong start to the back-to-school season.

The strongest-performing category was Women’s Dress, which delivered a positive 5 percent comparable sales (comps) for the quarter, representing a 900-basis-point improvement from the first quarter. The Women’s Dress category represents almost 12 percent of DSW’s sales.

Howe said the DSW is seeing “positive signs” in sell-throughs of regularly priced boot sales, “which we believe may signal potential strength in our seasonal merchandise this fall.”

In marketing, the DSW chain benefited from a stronger focus on its BTS proposition. Howe said, “We have been leaning more overtly into our back-to-school marketing to reinforce our position as a true destination and see this resonating as we continue to see positive momentum in August with further sequential improvement in comps.”

At the store level, he highlighted the success of a Birkenstock front-of-store takeover across all locations, which was fully integrated across all channels and reinforced by a revitalized digital storefront and VIP program integration.DSW also underwent a brand repositioning, including an updated DSW logo, a refreshed fall marketing campaign, and a new tagline, “Let Us Surprise You.”

“This marks a pivotal step in reinvigorating our DSW brand identity and leans back into what truly differentiates the DSW shoe buying experience,” said Howe. “We are actively bringing the campaign to life with an optimized marketing approach, which will help to balance spend between top-of-funnel and personalized activations, raise brand awareness, and deepen customer engagement.”

Companywide, Designer Brands’ EPS on an adjusted basis in the quarter was $0.34, up from $0.29 a year ago and topping analysts’ consensus target of $0.14. Revenue came in at $739.8 million, ahead of the $730.6 million consensus.

Looking ahead, persistent macroeconomic headwinds and uncertainties related to tariffs led Designer Brands to continue withholding its full-year guidance.

Howe said he’s concerned about the impact of higher prices on its retail business. He said some brand partners have “strategically, very selectively” raised prices, and DSW has largely subsequently lifted prices to maintain IMUs (initial mark-ups).

“But the majority of those are just now coming customer-facing in the last couple of weeks,” added Howe. “So, we’re cautiously optimistic, but that’s why we have concern. But it’s always been more around that indirect impact that it would have on overall consumer sentiment as opposed to the direct impact. We’ve selectively taken price increases in some of our private label products and haven’t had a negative reaction to that. But again, it’s early days, and we are kind of cautiously optimistic as we move through the balance of the back half.”

Images courtesy Shoe Carnival/Nike