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The Tide Begins to Turn for Footwear Brands With Consumer-Oriented Strategic Plans

Executives continue to gripe about the weather, but footwear conglomerates remain upbeat the first half of the year as they begin to see results from strategic plans, growth from e-commerce and positive consumer response to spring product.

DSW Inc.
DSW Inc. is reaping the rewards from several strategic initiatives. The company reported last week its second consecutive positive comp and fourth positive footwear comp in the DSW brand. First quarter earnings increased 2.9% to $712 million, with comparable sales up 2.2%. Net income increased 4 percent to $24.3 million, or $0.30 per diluted share.

“On a rolling 12-month basis, we’ve grown our top line by 4 percent and our bottom line even greater at 16 percent. Recent investments in inventory, marketing and payroll are beginning to move the needle and with the launch of our new loyalty program, a few weeks ago, we were intent on further driving this positive momentum,” DSW CEO Roger Rawlins said on the investor call.

DSW’s footwear comps were driven by women’s footwear. Athleisure continued to be a force, but the retailer saw an improving appetite for women’s fashion. Cooler than expected weather prolonged the boot season, however it delayed DSW’s sandal business. “Nevertheless, we were encouraged with women’s sandals, posting a positive low single digit comp in Q1 with a healthy snap back from the arrival of warmer conditions,” Jared Poff, DSW Inc. CFO, said.

Men’s footwear sales were on par with last year’s sales, but the company said it expects the category to return to growth in 2018. Meanwhile, children’s footwear appears to be a bright spot for the company, which continues to build momentum with its DSW Kids initiative. DSW Kids was rolled out to 109 locations during the first quarter. It will cap off this back-to-school season with an additional 94 locations. Rawlins said the it has “created an important vehicle for market share growth.” The company said it has begun to carry a higher end stock position and broaden it kids’ assortment.

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The company, which is celebrating the 10th anniversary for, said investments in digital marketing drove strong momentum in online demand, which increased 36 percent. Rawlins said the company is investing in consumer facing marketing to drive purchase frequency and new customer acquisition. “So far, results in digital engagement, rewards enrollment and new customer acquisition are all trending favorably. Research also shows that we are gaining traction among teens with DSW moving up the ranks as one of the top five retailers in Piper Jaffray’s annual teen survey,” he said.

Rawlins reaffirmed the company’s focus on improving its customer experience. Part of that plan entails the launch of DSW’s new loyalty program, which he said will “fuel more energy in the DSW brand and improve customer engagement.” The company overhauled the program last month to include a simplified point system, birthday rewards, shipping benefits and new ways to earn points through shoe donation or shoe repair. Rawlins reported that the rewards program accounts for over 90 percent of DSW sales. “Although it is early, our launch campaign is driving higher traffic, redemption activity and rewards enrollment,” he said.

Cold weather dampened competitor Caleres’ first quarter sales, which were essentially flat. The company, whose portfolio includes Famous Footwear, Allen Edmonds and more, reported last week that sales increased 0.1% to $632.1 million from $631.5 million in the same quarter a year ago. Net earnings were $17.2 million, while diluted earnings per share were $0.40, missing analysts’ estimates.

“At Famous, like most in the retail space, we battled unseasonably cold weather early in the quarter. But as expected, spring arrived and so did the customer,” Diane Sullivan, Caleres CEO, president and chairman, said. Famous Footwear total sales were down 0.8% to $363.4 million, as were same-store sales.

Two-thirds of the retailer’s sales are in cold or moderate climates. Cold weather not only impacted sandal sales in these areas, but also some of Famous Footwear’s athletic business as most of the shoes are mesh. By the end of April, however, only the retailer’s cold climate zone was still down slightly, a trend which has been reversed as weather improved significantly in May, the company said.

Caleres’ brand portfolio fared slightly better as sales increased 1.4% to $268.7 million. Sullivan reported that the shipments at the end of the fourth quarter are selling through at rates outpacing the market. “In fact, we posted significant market share gains in the first quarter. We expect these terrific trends to result in replenishment orders in the second quarter and we plan on leveraging our sourcing capabilities and existing speed-to-market programs to meet this demand,” she said.

Caleres continued to capitalize on consumers’ shift to shopping digital. For the brand portfolio, e-commerce related sales were up 12 percent with drop ship up 50 percent year-over-year. At Famous Footwear, e-commerce represented 10 percent of total sales. Sullivan said e-commerce is growing faster than expected, but the company’s strategic shift to in-house fulfillment for our brand portfolio will enable it to more efficiently process smaller order quantities on a more frequent basis.

Deckers Brands
Recent strategic moves helped Deckers Brands get on the right foot. The company—owner of the Ugg, Hoka One One, Teva and Sanuk brands—reported last month fourth-quarter net income of $29.7 million, or $0.66 per diluted share, up from last year’s Q4 loss of $12 million. For the year, the company delivered a record revenue of $1.9 billion.

Deckers Brands CEO Dave Powers said the brand is beginning to see results from “the operating profit improvement plan the we laid out a year ago, which included optimizing input costs, consolidating its factory base, improving corporate process efficiencies and indirect spend and transforming the marketplace to rationalizing our wholesale account base and optimizing our retail store fleet.”

“These initiatives are the fundamental drivers of our fiscal year 2020 targets, with sales reaching $2 billion, operating margin increasing to at least 13 percent, and returns on invested capital improving to north of 20 percent,” he added.

Cold weather worked to Ugg’s advantage. The brand’s sales increased 6 percent to $257 million, largely due to better-than-expected direct-to-consumer sales worldwide. Sales were a mix of full price cold-weather product and spring styles.

“Over the past several years, the Ugg team has made progress on deseasonalizing the business with a focus on the spring and summer product offering. As evidenced, the initial reaction to the spring-summer 2018 line has been positive, and sell-in is up high single digits to last year, while season to date sell-through at our top US wholesale partners is strong,” Powers said.

Sales for Deckers’ athletic performance brand, Hoka One One increased 34 percent in Q4, fueled by the popularity of its recent collaboration with Outdoor Voices and Engineered Garments. The collection focused on versatile styles that blend performance with lifestyle, which resonates with atheleisure-minded consumers.

Looking ahead, Powers said the company has several opportunities and strategic decisions to make for long-term success. “These actions include further rationalization of brick-and-mortar and online wholesale accounts, the implementation of a classics product segmentation and allocation strategy and continued optimization of our retail store footprint,” he said. “But we plan to overcome these near-term revenue headwinds by continuing to invest in Hoka, to drive growth in the U.S. through taking market share, gaining shelf space in premium distribution, and driving traffic to our own e-commerce sites.”