Famous-Footwear’s Parent Sees Q4 Miss Plan

Caleres Inc., the parent of Famous Footwear, reported fourth-quarter earnings came in below plan and said it expects headwinds between 15 cents to 20 cents in the first quarter tied to the coronavirus outbreak.

“Despite a challenging footwear market that resulted in our earnings to be less than expected, Caleres made excellent progress on a range of value-creating strategic objectives during 2019,” said Diane Sullivan, CEO, president and chairman of Caleres. “These accomplishments include:

• Strengthening the connections with our consumers with a 23 percent year-over-year growth in our e-commerce-related direct-to-consumer business and the successful launch and execution of the Famous Footwear rewards program;
• Broadening the reach and power of our brands by strategically managing the portfolio to include our exclusive partnership with Veronica Beard and the relaunch of the legacy Zodiac brand while at the same time shifting away from DvF and Carlos Santana and repositioning Via Spiga; and
• Aggressively managing the variables within our control with a year-over-year reduction of capital expenditures and inventory levels and the implementation of further cost-containment initiatives that will carry into 2020.

“Furthermore, we generated $170.8 million of cash flow from operations and put that cash to good use by investing wisely in our businesses, returning approximately $45 million to shareholders through our share repurchase program and long-standing dividend and reducing the borrowing under our credit facility by $60 million.”

Coronavirus
Caleres is actively monitoring the coronavirus, focusing first and foremost on the health and well-being of its global workforce. The executive management team is meeting regularly to rigorously evaluate the potential impact of the virus on the supply chain and broader consumer sentiment and is taking prudent steps to protect the business and adjust its short term strategy in response to this dynamic health crisis.

Fourth Quarter 2019 Results Versus Fourth Quarter 2018

• Consolidated sales of $698.9 million were down approximately 3.0 percent;
• Famous Footwear total sales of $369.5 million, up 1.2 percent, with same-store sales up 5.1 percent;
• Brand Portfolio sales of $346.0 million, down 9.4 percent;
• Gross profit was $278.8 million, while gross margin was 39.9 percent and adjusted gross margin was 40.1 percent;
• SG&A expense of $260.8 million represented 37.3 percent of sales;
• Operating earnings were $5.7 million and adjusted operating earnings were $19.6 million;
• Net earnings for the quarter were $0.4 million, resulting in an earnings per diluted share of $0.01, including $0.33 for the below items:
  • Cost containment initiatives of $0.27, including the voluntary early retirement program and other restructuring actions;
  •  Brand Portfolio expense of $0.03 related to brand exit costs; and
  • Fair value adjustment of $0.03 associated with the mandatory purchase obligation for Blowfish Malibu.
• Adjusted net earnings were $13.94 million, while adjusted diluted net earnings per share were 34 cents and included approximately 7 cents of dilution related to Vionic interest and amortization expense.

Adjusted EPS of 34 cents came in below Wall Street’s consensus estimate of 40 cents.

Fiscal 2019 Results Versus 2018

• Consolidated sales of $2,921.6 million were up 3.1 percent;
• Brand Portfolio sales of $1,406.5 million, up 7.1 percent, driven by the company’s 2018 acquisitions;
• Famous Footwear total sales of $1,588.1 million, down 1.2 percent, with same-store sales up 2.0 percent;
• Gross profit was $1,184.4 million, while gross margin was 40.5 percent and adjusted gross margin was 40.8 percent
• SG&A expense of $1,065.8 million represented 36.5 percent of sales;
• Operating earnings were $103.8 million and adjusted operating earnings were $127.4 million;
• Net earnings for the year were $62.8 million, resulting in an earnings per diluted share of $1.53, including $0.57 for the below items:
  • Cost containment initiatives of $0.27, including the voluntary early retirement program and other restructuring actions;
  • Vionic acquisition and integration-related costs of $0.14;
  • Brand Portfolio expense of $0.06 related to brand exits;
  • Fair value adjustment of $0.10 associated with the mandatory purchase obligation for Blowfish Malibu.
• Adjusted net earnings of $86.4 million were down approximately 9 percent, while adjusted diluted net earnings per share were down approximately 5 percent to $2.10 per share, including approximately $0.22 of dilution primarily related to Vionic interest and amortization expense.

Balance Sheet and Cash Flow

• Cash and equivalents were $45.2 million and cash from operations was $170.8 million;
• Outstanding borrowings under the revolving credit facility totaled $275.0 million, down $60 million for the year;
• Inventory of $618.4 million was down 9.5 percent year-over-year;
• Capital expenditures were $50.2 million, a decline of $16.7 million year-over-year; and
• Share repurchases and dividends totaled $45 million in 2019.

Full-Year 2020 Outlook
“Looking ahead, in the short-term, we do anticipate disruptions related to the Coronavirus and are expecting headwinds between $0.15 and $0.20 per share in the first quarter of 2020. While potential impacts on full-year 2020 results are difficult to quantify at this early stage, we will continue to actively assess the situation. We are approaching 2020 with a laser focus on managing the variables within our control and leveraging the capabilities of our operations and the investments we’ve made for the future. We are confident in the strength of our portfolio and firmly believe we have the right team and right strategy in place to manage through this dynamic marketplace,” Sullivan said.

2020 Guidance

• Consolidated net sales — Flat at $2.95 billion;
• Brand Portfolio sales — Flat- to low-single-digits;
• Famous Footwear same-store-sales — Up low-single-digits; and
• Earnings per diluted share — $1.95 to $2.15.

Photo courtesy Caleres/Famous Footwear