Famous Footwear’s fourth-quarter sales were up 15.9 percent year-over-year and grew 9 percent in the fourth quarter of 2019, despite entering a period with inventory down 24 percent. On a conference call with analysts, Diane Sullivan, Caleres’ chairman and CEO, said Famous’ athletic and sport categories continue strong with strength at Nike.
“The momentum that we ended the fourth quarter has continued into the first quarter, and we have not seen a slowdown in our athletic and our sport business,” said Sullivan. “It’s continued to be as strong as it has been, with new items becoming some of our top sellers, which has been nice to see. Our business with Nike continues to be great, and we don’t expect to see anything change with our performance there.”
The Nike question comes as the brand has consolidated wholesale accounts and shifted focus to direct-to-consumer (DTC) sales. Last year, Nike stopped selling to DSW, Shoe Show, Urban Outfitters, Big 5 Sporting Goods, Dunham’s Sports, and Olympia Sports.
Famous’ record quarter helped its parent, Caleres, Inc., to surpass Wall Street’s targets in the period.
Sullivan told analysts that Famous achieved its strongest holiday sales season and its best year on record “by a wide margin.” She further said the fourth quarter marked Famous’ fourth consecutive quarter of year-over-year margin improvement as full-priced selling continued.
She added, “Our targeted consumer marketing, coupled with merchandising, planning and allocation expertise and our unmatched local knowledge, enabled us to have the right product in the right places to meet the needs of the Famous consumer. While we are still experiencing disruptions due to the supply chain, we are confident that our disciplined approach to inventory and the structural shift in the industry’s promotional environment will enable Famous to sustain our margin level higher than our historical averages.”
In the quarter ended January 29, Famous’ sales advanced 15.9 percent to $401.9 million year-over-year. Gross margins improved to 48.9 percent from 40.9 percent a year ago. Operating earnings tripled to $55.7 million, or 13.9 of sales, from $14.8 million, or 4.3 percent, a year ago.
For the full year, Famous’ sales grew 38.4 percent to $1.75 billion from $1.26 billion in the prior year. Gross margins improved to 48.0 percent from 39.2 percent. Gross margins improved 548 basis points better than pre-pandemic fiscal 2019. Operating earnings in the year reached $276.4 million, or 15.8 percent of sales, from a loss of $23.8 million a year ago. On an adjusted basis, the operating loss was $1.3 million in fiscal 2019.
“We expect another strong earnings performance this year; we continue to execute with excellence on our merchandising, marketing and consumer experience strategies,” said Sullivan about Famous.
From a merchandising standpoint, she said Famous would continue to focus on offering a “balanced assortment” of athletic, sport and seasonal styles.
“We will continue to leverage our leadership position in athletic and sport and build upon our strong relationships with key partners in these categories to capitalize on the ongoing demand,” said Sullivan.” We expect consumers will still gravitate towards the most well-known brands in these categories and believe Famous remains exceptionally well situated to benefit, particularly as some of our competitors have been limited in their ability to distribute certain iconic brands.”
In addition, Famous is testing and adding new and emerging brands across genders and categories using its access to localized knowledge. She said, “We believe this could attract new Famous consumers, while at the same time providing the current customer with additional options.”
Famous’ Top 20 brands represented more than 80 percent of sales during the year, with the Top 11-to-20 brands growing in importance. Said Sullivan, “A great example of this would be Birkenstock, which has moved into the Top 10.”
Another focus for Famous emphasizes Caleres’ portfolio brands, including LifeStride, Blowfish, Dr. Scholl’s, and Vionic Beach, that support the trend toward athletic and sports styling. Sullivan said three of those brands currently rank in Famous’ Top 20 sales performers. She added that the recent uptick in demand for occasion and dress styles could provide another avenue for some of Caleres’ in-house, fashion-focused brands.
In marketing, an attribution study has informed Famous’ strategies to acquire and retain customers. Sullivan said Famous favorably saw a significant increase in average unit retailers (AUR) and margins due to inventory efficiencies and reduced promotions; however, the less-promotional climate requires a different marketing approach.
“As we progress through 2022, we expect the competitive landscape to continue to support an environment of limited promotional activity, thus requiring a different approach in connecting with new consumers, engaging current ones and establishing a strong connection with the Famous brand overall,” said Sullivan. “As a result, we are being surgical in our marketing tactics using targeting and personalization to drive repeat purchases and shift traditional one-channel shoppers to omnichannel consumers. We are highly aware of the lifetime value omnichannel customers bring and believe this to be a long-term, value-creating opportunity for Famous.”
Finally, Sullivan noted that the year-over-year top-line growth was driven by increased sales at brick-and-mortar, “making it much more important that the consumer experience is consistent across the omni-channel.”
As a result, Famous is testing a new prototype store that better showcases its brand assortment while emphasizing its localized approach, convenience and digital offerings. Sullivan said, “So far, we like the results we see, making a few adjustments here and there, and we plan to open ten additional prototypes in key geographically diverse markets over the next several months.”
Famous is also exploring new locations in under-penetrated markets and plans to update 120 stores this year in addition to the nearly 70 completed in 2021. Famous closed the year with 894 locations against 916 at the close of 2020.
Sullivan said, “These upgrades should further enhance the consumer experience, elevate key brand stories and unlock still greater value from these already high performing locations. We already see positive trends in stores where we’ve previously completed refreshes and are optimistic that these efforts will create consumer excitement, further our differentiation, bolster our national presence, and generate solid returns.”
Companywide, net sales in the quarter were $679.3 million, up 19.0 percent from the fourth quarter of fiscal 2020. Sales were just ahead of Wall Street’s consensus of $677.21 million.
Gross margins improved in the quarter to 43.4 percent, a 389-basis point improvement over the fourth quarter of 2020. SG&A, as a percent of sales, was 36.9 percent, 265-basis points lower year-over-year.
Net earnings of $33.9 million, 88 cents a share, compared to a net loss of $77.0 million, or $2.11, a year ago. Excluding deferred tax valuation allowances and a loss on early extinguishment of debt, adjusted net income of $34.9 million, or 91 cents, compared to earnings of $1.3 million, or 3 cents, a year ago. Results came out well ahead of analysts’ consensus estimate was 67 cents.
At its Brand Portfolio segment, sales improved 24.4 percent to $291.2 million in the quarter. Operating income of $10.8 million compared with a reported loss of $55.9 million and adjusted income of $1.2 million a year ago.
In the year, companywide sales of $2,777.6 million were up 31.2 percent. Net earnings were $137.0 million, or $3.56. Adjusted net earnings reached a record $165.2 million, or $4.29, compared to an adjusted net loss of $52.0 million, or $1.40, in fiscal 2020.
At the year’s close, inventory levels were up 22.3 percent year-over-year, with in-transit inventory approximately 1.9x higher than the fourth quarter of 2020, reflecting efforts to align inventory with demand and ongoing supply chain disruptions.
Compared to fiscal 2019, inventory at year-end was down approximately 3.5 percent and included a 21.9 percent decline at Famous Footwear and a 17.1 percent increase for the Brand Portfolio. The Brand Portfolio inventory included more than $160 million of inventory in transit. Excluding this in-transit inventory, the Brand Portfolio inventory would be down approximately 20 percent.
Caleres expects the supply chain disruption to place challenges throughout 2022. Jay Schmidt, president, Caleres, cited this week’s closure of factories in China due to a surge in the Omicron variant as a harbor of the continued challenges.
Schmidt said, “We assume that it will be sticky through 2022. I don’t think there’s any reason right now to believe that we should expect anything different. I think it allows us to be proactive and work through what we have to do to ensure that we have the goods here to satisfy our partners and our consumers all the way through. So, we don’t expect it to change significantly.”
For the current year, annual consolidated sales are projected to be flat to up 3 percent in 2022 compared to fiscal 2021. EPS is expected to be between $3.75 and $4 per share, down from $4.29 in fiscal 2021.
Photos Nike; shown women’s Air Max Intrlk sneaker
