Caleres Inc. (NYSE:CAL) reported Famous Footwear’s same-store sales rose 2.1 percent in the third quarter ended October 30, led by strength in athletic and sports-influenced styles.
Back-to-school comps were ahead 2.7 percent for the off-price footwear chain, rebounding from the slow start to the season and confirming retailers’ speculations that more consumers are buying closer to time-of-need.
Net sales at the Famous Footwear segment rose 2.6 percent to $467.8 million. Sixteen stores were opened in the quarter and the chain overall operated seven more stores year-over-year
On a November 22 conference call with analysts, Caleres CEO Diane Sullivan said that while the last two weeks of July and the first two weeks of August “got off to a slow start” for Famous Footwear, September was “much stronger” with a comp gain in the mid-single digits. For October, comps were down low-single digits due to “record breaking warm weather spread across the country, which undeniably delayed early boot and bootie sales.”
Sullivan said with the erratic weather and changing buying patterns, Caleres continues to look at Famous’ sales performance on a seasonal basis. “What I can say is Famous Footwear’s top styles and vendors continue to perform very well with lifestyle-athletic and sport-influenced product maintaining its strong consumer appeal,” she said. Overall, the athletic category for Famous Footwear was up mid-single digits. Lifestyle-driven product, including canvas, was up in the high-teens.
Operating earnings at Famous Footwear slid 17.5 percent to $32.7 million. Gross margins eroded to 41.6 percent from 42.7 percent due to the slowdown in boots and booties during October and additional freight expense to support growth in online sales. Inventory at Famous Footwear was down 0.4 percent per store on a dollar basis at the quarter’s end.
Sullivan said Famous Footwear’s Rewards consumers comprised 76 percent of sales at in the third quarter, up 100 basis points year over year. The retailer is also benefiting from greater efforts to target its “high-value customers” and is focusing its real estate strategy toward these shoppers to further capitalize on this strength.
E-commerce sales at Famous Footwear were up 180 basis points, including the benefit of the rollout of ship-to-store to 900 doors Online is benefiting from more “cohesive messaging,” Sullivan said. For example, its online Nike shop received a key focus around four key styles that included a video to explain features and saw a higher conversion rate and a significant increase in revenue per visitor. Added Sullivan, “The online shop also drove visitors to other pages at famous.com and increased the time our consumers spent online.”
Dr. Scholl’s Sales Up
At Caleres’ wholesale segment, Brand Portfolio, sales were down 3 percent to $264.4 million but operating earnings jumped 44.7 percent to $30.5 million. Gross margins improved to 37.5 percent of sales from 34.3 percent, benefitting from higher initial margin and better retail sell-through rates
In the Healthy Living sub-segment, sales were down 10.4 percent due to previously-announced repositioning efforts at Naturalizer and Dr. Scholl’s. Dr. Scholl’s sales were up approximately 3 percent excluding the planned reduction in the mass channel. All sports-influenced brands in the Healthy Living segment, including Ryka, grew in the period and all brands in the segment, including Naturalizer, reported improvement in gross and operating margin. The segment also includes Bzees and LifeStride.
In its Contemporary Fashion sub-segment of its wholesale business, sales were up 6.2 percent with good growth from key brands, particularly Sam Edelman. Its other brands include Franco Sarto, Diane von Furstenberg, Vince, Via Spiga, Fergie and Carlos Santana.
Companywide, Caleres’ net income inched up 2.2 percent in the third quarter, to $34.7 million, or 81 cents a share, exceeding Wall Street’s consensus estimate of 80 cents. Revenues inched up 0.5 percent in the period to $732.2 million.
Consolidated gross margin for the third quarter was $293.8 million or 40.1 percent of sales, up 53 basis points year-over-year and driven by its Brand Portfolio segment. Operating margin was up 41 basis points to 7.6 percent, with strong contribution from Brand Portfolio
No Slowdown For Athletic
Looking ahead, Caleres reiterated its outlook for the full year. It expects net sales to land in the range of $2.57 billion and $2.6 billion. Famous Footwear’s comps are expected to be flat or up low-single digits while Brand Portfolio revenues are projected to be flat to down low-single digits. Earnings are expected to range between $2.00 and $2.10.
In the Q&A session, Sullivan said the company is starting to see a pickup in non-seasonal categories in the dress and casual areas. But she said athletic isn’t slowing down. Elaborating on athletics’ momentum Famous Footwear President Rick Ausick said he expects strength in athletic to continue in the first and second quarter of next year on through to back-to-school.
“We do not see this trend slowing,” said Ausick. “We’re looking at making sure we have breath of product, making sure that we have the assortment, and the brands the consumer is looking for in a more meaningful way.”
Photo courtesy Famous Footwear
