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Caleres Pins Hopes on Famous Footwear for Q3 and Beyond

Caleres, the footwear giant behind Famous Footwear and brands such as Allen Edmonds, Sam Edelman, Vince and Vionic, is still trying to climb back from the difficulties brought on by the coronavirus pandemic, with the company seeing second-quarter net sales dip 33.4 percent from a year ago to $501.4 million.

In a Nutshell: At the beginning of the pandemic, when the company shuttered its more than 960 Famous Footwear and approximately 200 brand stores, it worked to reallocate inventory appropriately to its own channels and those of its wholesale partners. But in the second quarter, the company got serious about cutting excess merchandise, aggressively reducing inventory levels at approximately 27 percent year-over-year to $574.8 million, reflecting the actions taken to liquidate seasonal spring orders.

Famous Footwear saw inventory totals decrease 23 percent year over year, while Caleres’ “brand portfolio,” which encompasses the firm’s branded offerings, cut inventory levels by 33 percent to position the business for fall.

Casual, athletic and sport-inspired styles represented 86 percent of total Caleres sales over the past 12 months, illustrating the continued shift away from dress shoes.

This percentage jumps all the way up to 96 percent at Famous Footwear, which traditionally floats around 90 percent for those styles.

Assortment concentrated in casual, athletic and sport-inspired styles represented 75 percent of the brand portfolio in the second quarter, up from 70 percent last year.

In 2020, e-commerce penetration has reached 27 percent of total sales, ahead of the 18 percent in 2019. Famous Footwear has seen a 94 percent increase in online customers year over year.

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Given the ongoing uncertainty and limited visibility, Caleres will not be providing fiscal year 2020 guidance. But the company did provide select insights into its upcoming third quarter.

Caleres currently expects net sales to improve sequentially and decline between 20 percent and 25 percent year-over-year, with Famous Footwear dipping 15 percent to 20 percent and the company’s brand portfolio dropping even further at approximately 30 percent.

Additionally, the company expects to return to positive adjusted earnings per share and focus more on debt reduction.

In an earnings call, Diane Sullivan, CEO, president and chairman at Caleres, set the expectation that Famous Footwear will be the company’s bedrock for at least “the next quarter or two.”

“I think Famous Footwear is definitely going to be the leading segment out of this pandemic for the company, primarily because it…is a direct-to-consumer business. And we have complete control over what products we present in front of those consumers and they were already in the sweet spot of where consumers are today,” Sullivan said. “The brand portfolio has to work through a number of things as more of our partners continue to open up their stores as they look at their business and how they develop their assortments and their plans. We’re seeing many of our brand partners planning down in that 30 percent range, which is kind of where we’re making sure we’re planning as well.”

Caleres ended the second quarter with $148.5 million in cash on hand, generating $67 million of cash from operations. The company paid down $88.5 million in debt, or approximately 20 percent of its remaining credit facility borrowing, which now totals $350 million; and does not have any significant debt maturities until 2023. The debt payment effectively cut in half the Covid-related borrowing increase that the company incurred during the first quarter of 2020.

Caleres says its back-to-school sales peak was lower than last year, with mixed regional demand that has been heavily dependent on the timing of school openings. Like footwear competitor Shoe Carnival, which also reported its earnings Tuesday, the company expects back-to-school purchasing activity to be more evenly spread over an extended period of time.

Net Sales: Net sales were $501.4 million, down 33.4 percent from the second quarter of fiscal 2019, with direct-to-consumer sales representing 80 percent of total net sales due to fewer wholesale orders amid store closures at its retail partners.

Total company e-commerce sales across Caleres and its retailer partners increased more than 30 percent, while e-commerce sales at Caleres-owned sites and its drop ship business increased 80 percent. Total company e-commerce penetration rose to nearly 34 percent of net sales.

The Famous Footwear segment saw a 20.5 percent sales decline to $333.9 million, but an approximately 75 percent increase on a sequential quarter-over-quarter basis. Excluding stores that were permanently closed during the period, Famous Footwear sales would have been down 17.5 percent.

Comparable stores at Famous Footwear were up 14.7 percent during the quarter, while e-commerce sales jumped nearly 150 percent. The retailer was carried by its top 10 brands throughout the quarter, which represented 70 percent of sales.

Caleres saw a 48.9 percent sales decline to $183.6 million in its brand portfolio segment. E-commerce sales for owned-brand sites increased 35 percent year-over-year, with Vionic posting a “significant” year-over-year improvement. E-commerce penetration of total sales within the entire brand portfolio reached 46 percent, up from 26 percent last year.

Net Earnings: Caleres saw net losses of $30.7 million in the quarter, or a loss of 83 cents per diluted share, compared to net income of $25.3 million, or 61 cents per diluted share, in the second quarter of fiscal 2019.

The net loss includes 13 cents per share of adjustments for Covid-19-related expenses and another 13 cents per share related to a “fair value adjustment” from its Blowfish acquisition in 2018.

Adjusted net loss was $21.1 million, or an adjusted loss of 57 cents per diluted share compared to adjusted net income of $25.8 million, or adjusted earnings of 62 cents per diluted share in the year-ago period. The adjusted loss comes out to be ahead of Wall Street estimates from Zacks, which anticipated an adjusted loss of 80 cents per share.

Gross profit was $182.6 million, while gross margin was 36.4 percent reflecting the aggressive spring liquidation of spring inventory, which included a “buy one, get one” promotion, as well as higher penetration of e-commerce sales.

CEO’s Take: “Looking ahead, while we expect the second half of 2020 to continue to be unpredictable, we are managing our business for the long term while at the same time remaining nimble to adapt to unanticipated challenges that may arise during this unusual year,” Sullivan said in a statement. “We believe our diverse portfolio of brands that are well-aligned with consumer trends, advanced capabilities and improving capital structure will lead us through the recovery and position Caleres to embrace rapidly changing consumer behaviors and capitalize on the increasingly dynamic marketplace.”