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Famous Footwear Owner Has $100 Million of Inventory Stuck in Transit

Caleres is raising its full-year outlook after a first quarter that generated a 15.1 percent year-over-year sales improvement to a record $735.1 million on $50.5 million in net income.

The parent of Famous Footwear and brands like Allen Edmonds, Vionic and Naturalizer now expects consolidated sales levels to be up between 2 percent and 5 percent this year, up from the previous estimates of flat sales to a 3 percent jump.

The footwear company also projects earnings per diluted share of $4.20 to $4.40, well ahead of the prior range between $3.75 and $4.00.

Company stock soared more than 28 percent in morning trading after the earnings report.

In a Nutshell: In a first-quarter earnings call, chairman and CEO Diane Sullivan said Caleres was successful in offsetting the impacts of higher freight rates in the period because of the company’s recent price increases. The price hikes, which averaged close to 13 percent since taking effect in the spring, are expected to stay in place at least through the fall.

Supply chain expenses including input and transportation costs are not expected to improve until 2023, she added.

Inventory levels were up approximately 45 percent, year-over-year, to $642.5 million, from the $445.3 million in merchandise in the 2021 first quarter. The inventory totals reflect ongoing efforts to align inventory with robust consumer demand and includes in-transit inventory resulting from port delays and lengthier shipping times.

In total, $100 million worth in-transit inventory isn’t yet available to sell, which is down on a quarterly basis from the $177 million at the 2021 fiscal year end.

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Famous Footwear’s inventory is down approximately 16 percent from the year-ago quarter, the company said.

“While we are still experiencing delayed receipts due to supply chain disruptions, we believe our ability to continue full-price selling and our disciplined approach to inventory buys will enable Famous to sustain a margin level higher than our historical averages,” Sullivan said.

On the other hand, the Brand Inventory segment doubled its inventory totals 99 percent, which includes $50 million worth of goods to refill wholesale partners’ inventory pipelines.

Caleres president Jay Schmidt addressed the third-quarter ordering cadence.

“I would say that the Q3 order book is shaping up nicely versus 2021 position, and we are encouraged by our fill rate to date,” Schmidt said. “We have adjusted our buying to account for higher transportation lead times, so that is resulting in a little of a higher fill rate. And while there are still a lot of uncertainties with port delays and Covid shutdowns, so far, we haven’t experienced any significant cancellations and do not anticipate that being the case going forward.”

Caleres’ gross margin was 44.5 percent on gross profit of $327 million. This marked a 144-basis-point (1.44-percentage-point) improvement over the 43.1 percent margin in the 2021 first quarter. By segment, Famous Footwear’s margin jumped 405 basis points to 49.2 percent, while the Brand Portfolio margin increased 53 basis points to 38.1 percent.

Sullivan said Famous Footwear has seen year-over-year margin improvement for five straight quarters.

For the second quarter, Caleres expects sales and earnings to be “very similar” to Q1, according to chief financial officer Kenneth Hannah.

Caleres still has $305 million left in its current credit facility borrowing, but has no long-term debt and approximately $10 million in interest expenses in 2022.

In March, the board of directors increased the company’s buyback authorization by 7 million shares, returning approximately $15 million to shareholders by repurchasing roughly 701,000 shares, or about 2 percent of Caleres’ outstanding shares. 

Net Sales: Caleres’ net sales were $735.1 million, up 15.1 percent from the first quarter of fiscal 2021 when sales were $638.6 million.

The Famous Footwear retail banner saw a 3.4 percent sales decline to $384.5 million in the quarter, down from last year’s $398.1 million. Same store-sales declined 4 percent. The company attributed the dip to the retailer’s current store count—which dipped from 913 to 887 stores for the year through April 30—as well as stimulus-driven spending in 2021’s first quarter.

But the company’s Brand Portfolio segment carried the load for Caleres, with sales increasing 46.1 percent to $365.7 million, up from $250.3 million in the prior-year period. Same-store sales soared 66 percent.

Caleres said all brands in the segment grew by double digits, while some brands recorded triple-digit sales increases.

Direct-to-consumer sales represented approximately 65 percent of total net sales at Caleres, jumping approximately 23 percent year over year. This boost included nearly 19 percent growth from the footwear seller’s owned e-commerce sites.

Net Earnings: The footwear seller, licensor and manufacturer had net earnings of $50.5 million, or earnings of $1.32 per diluted share, compared to net earnings of $6.1 million, or earnings of 16 cents per diluted share in the 2021 first quarter.

Operating income came in at $66.2 million during the first quarter, an increase from the $17.9 million brought in during the year-ago period.

Trailing 12-month adjusted EBITDA was $319.8 million, up significantly from last year’s $108.3 million.

CEO’s Take: “Consumer demand, particularly for dress, occasion and wear-to-work products, accelerated during the period and as key retail partners rebuilt their inventory position,” Sullivan said. It’s important to note this wholesale partner post-pandemic restock [will] likely moderate as we move through the year as they return to more normal buying and replenishment patterns.”