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Famous Footwear Owner to Raise Prices Next Year

Caleres’ record third quarter delivered the highest quarterly earnings in company history on net profit of $59.6 million and a 21.1 percent sales increase to $784.2 million. With the momentum continuing in its underlying business, the footwear operator now expects record adjusted earnings per share between $3.80 and $3.90 for fiscal year 2021.

In a Nutshell: Across Caleres’ Famous Footwear retail banner, the kids’ business was particularly strong, increasing sales 26 percent over 2019, with Caleres chairman and CEO Diane Sullivan highlighting the widespread return to in-classroom learning in an earnings call. Athletics, casual and sandals all recorded increases over 2019, while boot styles were down modestly.

Highlights across the company’s Brand Portfolio segment including 12 percent growth over 2019 for the Vionic brand, alongside a 90 percent e-commerce sales jump in the period. The Sam Edelman brand saw a 77 percent online sales boost over the two-year stretch.

During the quarter, factory closures increased delivery lead times and port delays hindered the company’s ability to capitalize fully on the significant uptick in consumer demand, Sullivan said.

“While there just isn’t a one size fits all solution, our teams are working to pull every lever,” Sullivan said. “This includes taking price increases, working with our factories to manage input costs, obviously placing future buys earlier, renegotiating container contracts, evaluating freight options, looking at everything we can do to help fix the ocean transit times and minimizing our country exposure risks through deal sourcing wherever we can.”

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However, operations were running “very nicely” within Caleres’ own internal supply chain, Sullivan said.

“Fortunately, in our DCs and even as we’re getting our products to Famous Footwear stores, we’ve been fortunate that we haven’t had any delays at all,” she said. “Once we get goods in, we’re getting them out in a week to our Famous stores.”

Inventory levels were up 7.1 percent to $543.2 million from $507.4 million in the third quarter of 2020, and down 15.7 percent percent from two years ago. On a two-year basis, inventory declined 24 percent at Famous Footwear and 6.7 percent across the Brand Portfolio.

The Brand Portfolio total included more than $100 million of inventory in transit, reflecting the increased shipping times of product not yet available to sell. In-transit inventory was 3.1 times higher than the third quarter of 2020, reflecting the ongoing disruptions in the global supply chain.

“Inventory in our top 10 brands was down only 9 percent from the third quarter of 2019. At the same time, we experienced meaningful improvement in sales, margin and AURs (average units retail) over the comparable time for from these brands,” Sullivan said. “We’ve leveraged our allocation expertise to ensure that we are maximizing our inventory with the right product in the right places to meet demand at the local level.”

Consolidated gross margin was 42.8 percent, a 308-basis-point (3.08-percentage-point) improvement over last year and a 241-basis-point (2.41-percentage-point) increase from 2019.

When broken out in segments, Famous Footwear delivered gross margin of approximately 47.6 percent in the third quarter, a 657-basis-point (6.57-percentage-point) improvement from 2019 driven primarily by the continuation of more full-price selling and another quarter of minimal promotional activity. The Brand Portfolio segment has been most significantly hampered by the supply chain crisis, recorded third quarter gross margin of 32.9, which is actually 426 basis points (4.26 percentage points lower than totals from two years ago. The lower margin largely reflects the incremental $11.5 million in ocean freight costs.

Caleres wiped out its remaining long-term debt in the quarter and renegotiated and renewed the terms of its asset-based credit facility. The terms of the new facility, which was restored to pre-Covid terms, includes a five-year extension on the maturity date and reduces annual interest by $12 million.

In total, the brand owner of Allen Edmonds, Blowfish Malibu and Ryka still has $274.6 million of short-term debt, which it expects to eliminate over the next five quarters.

As of Oct. 30, Caleres has $74.8 million in cash and cash equivalents, with the company generating $54.2 million in cash from operations.

Net Sales: Net sales were $784.2 million, up 21.1 percent from the $647.5 million third quarter of fiscal 2020 and down 1 percent from 2019 totals. Famous Footwear generated $494.7 million, representing a 26.3 percent sales increase over the $391.6 million taken in a year ago. The Brand Portfolio segment boosted sales 12.3 percent to $300.5 million from $267.6 million in the 2020 period.

Direct-to-consumer sales represented 73.5 percent of total net sales.

Net Earnings: Net income for Caleres was $59.6 million, or earnings of $1.54 per diluted share, compared to net income of $14.4 million, or earnings of 38 cents per diluted share, in the third quarter of fiscal 2020.

Adjusted net income was approximately $61.5 million, or adjusted earnings of $1.59 per diluted share, well ahead of last year’s adjusted net income of $18.2 million, or 48 cents per diluted share.

Operating earnings totaled $81.3 million, ahead of the $20.1 million in operating earnings in the year prior.

CEO’s Take: Sullivan said prices increases would average 15 percent when implemented in spring 2022.

“We’re very confident we can manage through those input cost issues,” she said. “The transportation costs and the ocean freight costs have been the, you know, the biggest impact. We don’t expect that they’re going to stay at the current rates where they’re at. They’re going to moderate at some point in time during 2022. As we work through our plans and our guidance for 2022, we’ll take that into account, but we don’t really [the costs] will remain at the current level.