Caleres, Inc., parent company to family footwear retailer Famous Footwear and a range of owned brands from Vionic, Allen Edmonds and Sam Edelman to Ryka and Malibu Blowfish, posted sales of $675.5 million in net sales in the fiscal second quarter ended July 31, up 34.7 percent from Q2 but down 4.4 percent from the 2019 comparable period.
“Notably, the results we delivered in the second quarter were accomplished despite the disruptions in the supply chain that resulted in approximately 28 percent less inventory across the company when compared to the second quarter of 2019,” explained company Chairman and CEO Diane Sullivan during a conference call with analysts.
The decline versus the 2019 period came entirely from the Brand Portfolio portion of the business, with a mix of new and divested brands affecting comparisons. The big news for Caleres was the performance of its Famous Footwear unit and its overall direct-to-consumer business, which represented nearly 80 percent of sales in the second quarter, that got a lift from a 58 percent increase in e-commerce sales versus Q2 2019 even as brick and mortar sales accelerated during the period.
Comparing the 2021 second quarter to the year-ago period, the Famous Footwear segment posted a 35.8 percent increase in sales, and the Brand Portfolio segment delivered a 30.2 percent increase in sales.
Famous Footwear saw net sales of approximately $454 million in the second quarter, an 8 percent improvement over the second quarter of 2019 and the highest level of second-quarter sales in the brand’s history. The retailer was able to pull off the sales gain, and a 671 basis point increase in gross margins to 50.1 percent of net sales, despite reducing inventory levels by 28 percent at quarter-end versus the end of the 2019 comp period.
Company Senior VP and CFO Ken Hannah said the increase in margins was primarily driven by “more full-price selling and a lower promotional environment.”
Return on sales was pegged at nearly 19 percent for the second quarter, which Sullivan said was 11 full percentage points higher than the comparable period in 2019. Operating earnings for the Famous Footwear unit were $85.5 million, up $54 million from the second quarter of 2019. Sullivan said its Q2 results “quite remarkably” exceeded operating earnings delivered for the entire year in 2019.
“I should mention that our second-quarter success at Famous was broad-based, as we saw sales growth and our gross margin rate improvement across women’s, men’s, kids, accessories, and across style categories including athletics, casual sandals and boots,” Sullivan detailed. “In addition, we saw improvement in conversion in AURs when compared to the second quarter of 2019, both in-store and online.” The Famous Footwear brick and mortar business reportedly increased more than 10 percent in Q2 versus the 2019 comp period, and the retailer’s Q2 online sales were up more than 50 percent compared to the second quarter of 2019.
Conversion on famousfootwear.com was said to be up 61 basis points, and the gross margin rate on e-commerce sales was up more than 1,200 basis points compared to the second quarter of 2019.
“It’s worth noting that momentum has continued as we have moved into the third quarter of 2021 with brick and mortar traffic up and store-for-store sales up high double-digits versus the comparable period of 2020,” said Sullivan. She also said the third quarter 2021 basis point improvement in gross margin is consistent with the year-over-year basis point improvement that occurred in the second quarter.
“From a product perspective, of course, trends in our iconic brands are continuing to work in the third quarter,” Sullivan noted. “And more specifically, seasonal products look good with boots up double-digits and kids’ off to a particularly good start.”
Turning to its Brand Portfolio, Sullivan said the second quarter “marked another solid period of progress” for the segment, which achieved expanded gross margins while “sales levels were still recovering.” She said the Sam Edelman, Vionic, Allen Edmonds, and Blowfish Malibu brands led the way for the quarter. Still, while highlighting some brands, the CEO focused more on the fact that the Brand Portfolio reported earnings from operations in excess of the 2019 comparable period, “marking a significant milestone and recovering ahead of our expectations,” rather than the sales numbers, which reflected a strong double-digit decline from the 2019 Q2 comparable period.
Sullivan said that Vionic and Sam Edelman turned in “strong sales levels” during the period, acquiring new customers in the process. “This revenue improvement was driven primarily by their dotcom sites, which were up 163 percent and 75 percent respectively when compared to the same period in 2019,” she noted. “Furthermore, both brands experienced significant gross margin improvement with Sam Edelman’s margins increasing more than 1,300 basis points over the second quarter of 2019, and, at the same time, Vionic’s gross margins increased more than 1,400 basis points.”
She also paid particular attention to the Allen Edmonds business and how it managed through COVID-19.
“AE was among our hardest hit brands during the worst of the pandemic but continues to execute a highly effective shift toward a more balanced assortment, reflecting the way that the consumer is changing,” she explained. “And as we’ve previously mentioned, we started to see signs of this improvement in April—a trend that accelerated as we progressed through the period. Notably, the brand’s e-commerce sales were in line with the second quarter 2019 levels. AURs increased as we raised prices and pulled back on promotions, and increased traffic in major metropolitan markets has led to improved brick and mortar sales. In addition, even as our newer sport and casual styles, which made up nearly 40 percent of our sales in the quarter, continue to resonate with our consumers, strong demand for our core heritage style actually accelerated.”
As a whole, the Brand Portfolio segment’s brand dotcom sites were up 64 percent when compared to the second quarter of 2019, with the number of sites experiencing increases in traffic, conversion and AURs.
Overall segment operating earnings reportedly improved 306 basis points over the second quarter of 2019 to reach approximately $16.6 million for the 2020 Q2 period. Hannah said its Brand Portfolio second-quarter gross margin reached 39.7 percent of sales, 498 basis points higher than the 2019 Q2 period, as “brands pulled back on promotional activity in the wake of the ongoing supply chain disruptions.”
“The Brand Portfolio sales revenues were down 33 percent from the second quarter of 2019 due, in large part, to ongoing challenges in the supply chain and limited the ability to quickly chase the product and fill reorders,” Sullivan explained. “As we look out, we do anticipate supply chain and logistics challenges, specifically ongoing long lead times and significant increases in ocean freight, that would likely put downward pressure on our third-quarter sales to the tune of approximately $30 million.”
Inventory levels declined 30 percent for its Brand Portfolio at quarter-end compared to the end of quarter levels in 2019, including “a much higher percentage of inventory in transit and not yet available to sell,” Hannah explained.
“As we look to the rest of the year, and as we continue to work to align our inventory levels with consumer demand, we expect constraints in the supply chain to persist,” he said while discussing the overall inventory situation for Caleres. “To that end, we will be hyper-focused on minimizing these challenges to the best of our ability, optimizing and maximizing our current inventory, emphasizing trending brands and brands with trending styles, and taking calculated risks to drive our ongoing improvements.”
Overall, Caleres’ gross margin was 47.7 percent of sales or an approximately 11 full percentage point improvement over the second quarter of 2020.
SG&A expense was $259.5 million for the second quarter, or 38.4 percent of total net sales, down from 40.1 percent of total net sales in the second quarter of fiscal 2020.
Net income came in at $37.4 million, or 97 cents per diluted share, compared to a net loss of $30.7 million, or a loss of 83 cents per diluted share, in the second quarter of fiscal 2020. Earnings of 97 cents per share include 22 cents for fair value adjustment of 14 cents associated with the mandatory purchase obligation for Blowfish Malibu and deferred tax valuation allowances of 8 cents.
Adjusted net income was approximately $46.0 million, or adjusted earnings of $1.19 per diluted share in Q2, compared to an adjusted net loss of $21.1 million, or adjusted loss of 57 cents per diluted share, in the second quarter of fiscal 2020.
Sullivan and Hannah both said they were encouraged by the momentum they see at Famous Footwear in the current quarter and the potential for ongoing sales improvement in its Brand Portfolio.
For the third quarter of 2021, CAL expects to deliver adjusted earnings per share of between $1.10 and $1.25 per share. For the full year, the company expects to deliver adjusted earnings per share of approximately $3.25 to $3.50 per share. Famous Footwear sales in the back half of 2021 are expected to be at, or slightly above, 2019 levels, and the Brand Portfolio sales are expected to improve from the Q2 decline to be down approximately 20 percent to the same period.
Photos courtesy Caleres/Famous Footwear, New York City
