Famous Footwear’s same-store sales slipped 0.8 percent in the third quarter ended October 29. Results topped expectations with the family footwear chain facing a 26.5 percent same-store gain in the 2019 third quarter.

“Famous continued to perform at a high level during the third quarter up against the blockbuster period last year,” said Jay Schmidt, president of Caleres, the parent of Famous, on a conference call with analysts. “However, by limiting promotional activity, the business generated margins higher than pre-pandemic levels, which were also in line with our plan.”

Gross margins at Famous eroded to 44.7 percent from 47.6 percent a year ago. Operating earnings declined 32.2 percent to $59.3 million from $87.4 million a year ago. The operating margin declined to 12.3 percent from 17.7 percent in the record year-ago quarter.

Schmidt, who will succeed Diane Sullivan as CEO at the start of the 2023 fiscal year, said Famous was helped by strong sales in the kids category, which saw sales increase 3 percent in the 10-week, back-to-school period versus 2021 and expand 6 percent overall in the third quarter.

“We positioned the right inventory behind the right brands and styles,” said Schmidt. “Clearly the kids; category is a strategic differentiator and a long-term growth driver for Famous and its recent performance further solidifies our position as the destination for back-to-school footwear.”

Schmidt also attributed Famous’ momentum to its focus on national brands that resonate with its target Millennial family. He said Famous’ top-25 brands made up 89 percent of sales during the period. Famous also saw strength in non-athletic brands, aligning with demand across Caleres’ Brand Portfolio brands.

Among Caleres’ brands in the Brand Portfolio segment, Life Stride saw particular strength at Famous, breaking into the top-10 sellers at the chain. Dr. Scholl’s posted a double-digit increase at Famous across both men’s and women’s segments. Naturalizer also had an “impressive year-over-year sales performance, increasing our fashion component for the Famous consumer while offering a strong comfort proposition.”

Added Schmidt, “All of these improvements demonstrate our ability to take our extensive understanding of our consumer and deliver the right brands and styles in the right quantities and locations to drive highly profitable incremental sales. This is all in addition to the core athletic and sports business that Famous is known for.”

Lastly, investments in the customer experience are paying dividends for Famous, including in recent quarters the re-platforming of famous.com, updates to high-potential and high-performing stores, and the launch of a new store concept featuring enhanced visuals and communication.

“Our digital performance improved 2 percent in the quarter and the early read from our new store concept shows a significant uplift in financial performance,” said Schmidt. “We are encouraged by these developments and look forward to providing more updates at year-end.”

Famous’ sales in the nine months reached $820.9 million, down 3.6 percent year over year. Same-store sales were down 3.5 percent against a 0.5 percent gain last year. Operating profits were down 15.9 percent to $112.2 million from $133.4 million a year ago.

Looking ahead, Schmidt said Famous will look to build on its “strong performance” seen during the first nine months, which included maintaining its double-digit operating margin despite inflationary pressures. He added, “While we recognize that there’s uncertainty for consumers given the threats of mounting inflationary pressures, Famous is well positioned to compete and win even in a challenging market due to its leadership position with a family, an advantageous assortment of national brands, retail locations in key markets across the country with exceptional service by our team, and enhanced consumer experience in stores and online supported by customer insights.”

Companywide, sales grew 1.8 percent in the third quarter to $798.3 million, surpassing Wall Street’s consensus estimate of $783.98 million.

At its Brands Portfolio segment, sales increased 7.6 percent to $323.2 million. Brands include Allen Edmonds, Blowfish Malibu, Bzees, Circus NY, Dr. Scholl’s, Franco Sarto, LifeStride, Naturalizer, Rykä, Sam Edelman, Veronica Beard, Vince, Vionic, and Zodiac.

Net earnings of $39.2 million, or $1.08 per share, were down 34.2 percent from $59.6 million, or $1.54, a year ago. Adjusted net earnings declined 31.7 percent to $42.0 million, or $1.15, from $61.5 million, or $1.59, a year ago, but were ahead of Wall Street’s consensus target of $1.12.

Inventory was up approximately 19.5 percent, in line with expectations, and 15.8 percent below the second quarter of 2022.

Given the strong performance to date and expectations for the fourth quarter, Caleres tightened its fiscal year 2022 earnings outlook at the upper end of its previous guidance range. EPS is now expected in the range of $4.30 and $4.40 ($4.20 to $4.40 previously), representing another year of record earnings. The full-year sales outlook was reiterated, calling for growth between 4 percent and 6 percent.

Caleres anticipates continued improvement in its inventory position and expects to end FY22 with inventory up mid-single digit percent as compared to FY21.