Famous Footwear’s comparable store sales increased 0.7 percent in the fourth quarter, better than initial expectations, due to a strong second half in driven by athletic footwear.
On a call with analysts, Jay Schmidt, recently-appointed CEO of Caleres, Inc., the parent of Famous, the family shoe chain’s sales slowed, down high-single-digits, in November, before rebounding sharply in mid-December.
“Sales exceeded our expectations in the last six weeks of the period, resulting in record fourth-quarter sales and a positive sales comp,” said Schmidt. “This late quarter performance was driven by robust demand for key athletic brands, which the Famous team was able to capitalize on due to a stronger in-stock position compared to last year.”
Kids’ sales increased by 9 percent over the fourth quarter of 2021 and by 23 percent in the last six weeks of the year. Schmidt described kids as “a key differentiator and one we view as a future growth opportunity.”
Schmidt said Famous’ performance “was a continuation of the strong results we achieved during the back-to-school period and further solidifies Famous’ position as the footwear destination for kids and the millennial family.”
The same-store gains of 0.7 percent came on top of a 15.2 percent gain year ago. Overall sales at Famous in the quarter were essentially flat, up 0.1 percent to $402.3 million against $401.9 million.
Famous’ gross margin of 42.4 percent in the quarter was down from 48.9 percent a year ago. Schmidt said, “During the quarter, Famous did experience gross margin declines due to more normalized inventory levels, especially in seasonal product. Going forward, we do expect to maintain gross margins above pre-pandemic levels due to the structural changes we’ve made to our promotional strategies.”
Operating earnings at Famous declined 56.2 percent to $24.4 million from $55.7 million with operating margins eroding to 6.1 percent from 13.9 percent.
For the year, Famous’ sales declined 2.5 percent to $1.71 billion from $1.75 billion. Comparable sales were down 1.8 percent against a 12.5 percent gain a year ago.
Gross margins eroded to 46.3 percent from 48.0 percent. Operating earnings were down 29.2 percent to $195.8 million from $276.4 million. Operating margins in the year were reduced to 11.5 percent from 15.8 percent in 2021 but marked the second consecutive year of double-digit operating margins. Caleres officials also said they expect Famous’ operating margin to remain above 10 percent for the current year.
Inventory at Famous was up 5 percent at the year’s end versus last year, primarily a reflection of supply chain constraints, which limited last year’s inventory availability. Notably, Famous’ inventory was $59 million or 18 percent lower than at year-end 2019.
“All in, Famous performed again at a high level during 2022. And while results didn’t quite reach the record-setting number achieved in 2021, this segment contributed $196 million of operating earnings and an 11.5 percent operating margin. In other words, the second-best performance in Famous history,” said Schmidt. “And while we understand that consumers are still navigating an uncertain macro environment, we continue to believe Famous is exceptionally well positioned to compete and excel due to its leadership position with the family, its leading assortment of national brands, its retail locations across the country in key markets and its enhanced consumer experience, both in-store and online.”
Looking to 2023, Schmidt said Famous plans to sharpen its focus on its millennial family target customer. He elaborated, “Our objective is to align our product assortment, store experience, digital presence and marketing approach with the Millennial families’ footwear needs.”
As previously discussed, Famous rolled out a new prototype store in early 2022 and now has an additional 10 stores using the same format. Schmidt said, “This new format has proven highly successful in highlighting our top national brands creating a localized assortment and facilitating direct engagement with the family in a convenient manner. So far on average, these stores have significantly outpaced their market areas in both sales and traffic.”
From a merchandising standpoint, Famous will continue to emphasize a more balanced athletic and fashion mix. Said Schmidt, “As outlined last quarter, we are seeing meaningful progress on the fashion side of the business. We know that when she buys for her family and for herself, she is spending more, connecting more and returning more often. In fact, we continue to see growth in our top fashion brands from the market, as well as a 9 percent improvement in sales in our own Caleres brands. We believe we can take our extensive consumer knowledge to deliver the right brands and styles in the right quantities and locations to deliver highly profitable incremental sales at Famous.”
Companywide, Caleres’ sales were $696.4 million in the quarter, up 2.5 percent from the fourth quarter of 2021. Caleres’ Brand Portfolio wholesale segment, which includes Sam Edelman, Vionic, Allen Edmonds, and Naturalizer, saw sales increase 6.4 percent in the quarter.
Adjusted net earnings of $23.4 million, or 65 cents a share, down 33.0 percent compared to adjusted net earnings of $34.9 million, 91 cents, in the fourth quarter of fiscal 2021. Results were in line with a pre-announcement given on February 15.
For the year, sales were $2.97 billion, up 6.9 percent from fiscal 2021. Adjusted net earnings of $167.1 million, or $4.52 a share, slightly ahead of $165.2 million, or $4.29, in fiscal 2021.
For the current year, Caleres expects consolidated net sales to be flat to up 2 percent, including the 53rd week this year, compared to 2022 and EPS to be in the range of $4.10 to $4.30.
For first quarter 2023, Caleres expects sales to decline in the range of 4 percent to 6 percent, due to the timing of wholesale shipments in the Brand Portfolio segment in the first quarter of 2022 to satisfy wholesale partner restocking efforts. EPS is expected in the range of 92 cents to 97 cents.
Photo courtesy Famous