Famous Footwear became the latest chain to benefit from the current strong trend toward lifestyle athletic footwear to help offset the challenges from many other categories. But its parent Caleres Inc.’s (NYSE:CAL) overall earnings eased 7.7 percent in the first quarter due to planned investments and arrived below Wall Street’s targets.

On a conference call with analysts, Diane Sullivan, chairman, president and CEO, said that excluding investments to add two new retail stores and develop two new contemporary wholesale brands, earnings would have exceeded Street expectations and prior year’s results. In addition gross margins continued to improve, increasing 111 basis points in the period while the company maintained its “solid balance sheet” and reduced its inventory position by more than 2 percent.

Still, she noted that the momentum around lifestyle athletics footwear is being offset by a number of negative trends in the marketplace, including lackluster brick-and-mortar traffic, a shift to non-store channels such as online, and increasing demand for “buy now and wear now” merchandise.

“In the first quarter, these challenging opportunities were compounded by an industry-wide inventory hangover from the fourth quarter, and the unseasonably cold spring,” she added. “Thanks to our teams’ agility and their focus, we were able to deliver good performance, reduce inventory and gain market share in a difficult environment.”

Earnings reached $17.8 million, or 41 cents a share, versus Wall Street’s consensus estimate of 44 cents. Companywide sales were down 2.9 percent to $584.7 million, driven by a planned reduction in Healthy Living brands sales.

Gross margin lifted 111 basis points to 42.4 percent, benefiting from the exit of some lower-margin categories in its Brand Portfolio segment. SG&A grew to 37.4 percent of sales from 36.2 percent as the planned investments only partly offset reductions in corporate expense. Inventory was down 2.1 percent.

At the Famous Footwear segment, net revenues in the quarter expanded 1 percent to $364.6 million. Same-store sales were up 1 percent versus a gain of 1.8 percent a year ago.

Operating earnings at Famous Footwear were down 8.5 percent to $25.7 million as gross margins eroded to 46.3 percent of sales from 46.7 percent. Inventory decreased 1.7 percent on an average store basis at the quarter’s close.

Sullivan noted that February at Famous Footwear started “very strong” but was followed with a flat March and a decline in April.

“Predictably sandals sales felt the biggest impact from the unseasonably cold weather, but it’s going to come as no surprise to hear that lifestyle athletic was up double-digits, as we continue to see the benefit of our focus on this product trend and to take share in the market,” stated Sullivan. “We have a legacy position in this business that we’ve built over more than a decade and we realized this landscape is getting more competitive, but we have absolutely no plans to give up any well earned market share that we’ve gained.”

Meanwhile, online sales at famous.com were up 80 percent in the period due to an expansion of its ship-from-store program and the roll out of a new mobile site.

Sullivan added, “For brick-and-mortar, we’re using our consumer targeting efforts to open up additional stores this year in locations where more of our high value consumers living shop. Our improved real estate portfolio has resulted in revenue per square foot increasing to $217 in the quarter.”

At the Branded Portfolio segment, sales were off 9.1 percent to $220.1 million. Sales for its Healthy Living brands (Naturalizer, Dr. Scholl’s, LifeStride, Bzees and Ryka) were down 13 percent to $129.4 million. Excluding the expected declines at Naturalizer and Dr. Scholl’s, Healthy Living sales were down 1.6 percent. .

Revenues for its Contemporary Fashion brands (Sam Edelman, Franco Sarto, Vince, Via Spiga, Diane Von Furstenberg, Fergie Footwear and Carlos Santana) reached $91.2 million, down 1.2 percent. Spring sandals for both Health Living and Contemporary Fashion segments were impacted by the unseasonably cold weather.

Operating income in the Branded Portfolio segment fell 13 percent to $9.6 million due to the sales drop and despite gross margins improving to 35.9 percent from 33.2 percent. Inventory was down 4.1 percent.

Sullivan noted that given the cautious buying stance by retailers, the company now expects Brand Portfolio sales to be flat to down slightly in 2016 versus its original guidance of up mid-single digits. However, the company maintained its EPS guidance for the year. Famous Footwear also is still expected to show a comp gain for the year in the low-single digits.

EPS is expected to range between $2 and $2.10, which compares with $2 a year ago. Sales are expected to come in within the range of $2.6 billion to $2.63 million, which is down from previous guidance of $2.65 to $2.68 billion. In 2015, sales were $2.58 billion.

Photo Courtesy Famous Footwear