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Caleres Focuses on ‘What it Can Control’ In Shift Out of China

It was a big day for Caleres stock on Tuesday—the footwear brand’s share price jumped by more than 22 percent to a valuation of $18.65 after reporting positive same-store sales at Famous Footwear and rapid revenue growth among its burgeoning brand portfolio.

In a Nutshell: As the Caleres CEO, president and Chairman, Diane Sullivan, reviewed what was a very productive quarter for Caleres and its various brands, conversation turned quickly to the transition of its footwear production out of China as a result of the ongoing trade war.

“With everything going on right now, we must focus on what we can control,” Sullivan said. “This has included moving quickly to adapt our supply chain to mitigate the impact of increasing tariffs for footwear produced in China. We have actively diversified production away from China and now source approximately 40 percent of our products outside of China, up from less than 15 percent five years ago.”

Sullivan said the group would continue to leverage its advantageous sourcing position to reduce costs in the region while “selectively exploring price increases” that would be the least likely to cause disruption among its retail partners. According to Sullivan, Caleres should be able to minimize the impact tariffs have on the business through 2020.

Additionally, Sullivan praised the way the group has begun to incorporate its recent acquisitions—Vionic in 2018 and Veronica Beard in 2019—and said recent investments in its design process and speed-to-market capabilities have enabled it to effectively respond to trends throughout the year.

Sales: Caleres reported revenue in line with estimates generated by Wall Street analysts in the second quarter, with sales of $752.5 million, up 6.5 percent over the comparable period last year. Same-store sales at Famous Footwear were up 1.5 percent in the quarter, good news for the retailer considering the struggles seen at Foot Locker in its most recent financial report.

Notably, brand portfolio sales, including Allen Edmonds, Sam Edelman, Dr. Scholl’s, Vionic, Naturalizer and others, were up by 17.9 percent on the quarter with a combined total of $359.6 million in sales. In the first half, total sales for the group are up 19 percent at $700.6 million.

Caleres reiterated its full-year guidance of $3 billion in combined revenue, with low-to-mid double-digit growth for its brand portfolio and flat-to-low single-digit growth at Famous Footwear.

Earnings: On net earnings of $25.3 million, Caleres reported adjusted earnings per share of 61 cents, 4 cents higher than the average analyst projection and up 10.9 percent, year-over-year. Gross profit was $305.9 million for the group, a 4.4 percent increase over the comparable period.

Caleres said it expects $2.35 to $2.45 EPS by year-end, a 9 percent growth over the previous year—although it noted that this projection only takes into account the current tariff situation, which the company acknowledged is “changing daily.”

CEO’s Take: Outside of larger industry issues, Sullivan maintained that Caleres was headed in the right direction after two quarters of encouraging results.

“During the quarter we successfully executed on our strategies to strengthen the emotional connections we have with our consumers. Our deep insights, combined with our industry-leading footwear capabilities, allowed us to deliver relevant product, supporting growth in the Brand Portfolio and positive same-store-sales growth at Famous Footwear,” Sullivan said in a statement. “A continued focus on expense discipline improved profitability for the quarter. As a company, we remain focused on creating consistent, profitable and sustainable growth over the long term.”

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