Although Caleres operates a stable of footwear brands including Allen Edmonds, Sam Edelman, Vince and Rykä among others, its Famous Footwear retail operation remains the centerpiece of the company. While sales at Caleres jumped nearly 61 percent year over year to $638.6 million, the 913-store nameplate led the way with a 108 percent sales lift.
In a Nutshell: Famous Footwear gained market share across the women’s, men’s, and kids’ product categories, according to Diane Sullivan, chairman and CEO of Caleres. She said in the company’s earnings call, “we fully expect Famous sales to be very close to 2019 levels” in May.
Sullivan also noted that the kids’ business continues to be a growth driver for Famous Footwear. The category represented nearly 18 percent of total sales at the retailer during the first quarter, with sales growing approximately 39 percent from the period two years ago.
“We’re going to be placing a greater importance on the role of our kids’ business in stores,” said Sullivan in the call. “We know that our highest-value customers shop at Famous for their families and kids. When they do, those customers shop at Famous more frequently, have higher retention rates and drive more long-term net margin dollars. With that in mind. we are finalizing two separate shop-in-shop concepts—one that will further elevate our kids’ business leading into back to school, and the second focusing on strong on-trend women’s brands.”
The retailer also saw a gain of 13.2 percent in new rewards members, who represent nearly 81 percent of net sales at Famous Footwear.
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Although social events are kicking back into gear as more consumers are vaccinated and U.S. states ease Covid-19 restrictions, Caleres’ casual, athletic and sport-inspired categories are dominating its offering more than ever. Eighty-nine percent of total sales at Caleres came from these categories as of the end of the first quarter, up from the 81 percent of total sales in the first quarter of 2019.
Caleres cut inventory levels approximately 24 percent year over year to $445.3 million from $488 million at the end of the first quarter of 2020, reflecting the final liquidation of Naturalizer store inventory and global supply chain disruptions. Inventory at the quarter end was down 31 percent compared to the first quarter of 2019.
At Famous Footwear, inventory is down 25 percent on a two-year basis, while the Brand Portfolio, which consists of labels that include Vionic, Allen Edmonds, Sam Edelman, Naturalizer and others, saw its inventory decline 41 percent.
Despite the ongoing supply chain challenges, Sullivan said Caleres’ orders for the second quarter were “where we had expected it to be.”
“Going into this year, most of our retail partners did not plan to see the kind of consumer demand levels being where they’re at today, and most were planning in the down range of 15 percent to 20 percent,” Sullivan said. “As we’ve seen, consumers have come back with a vengeance, particularly in late March and April. We’ve seen almost of our retail partners looking for additional inventory. We planned to turn speed as productively as possible and make sure we were still chasing demand.”
Gross profit in the quarter was $274.9 million, while gross margin was 43 percent, up 1,230 basis points (12.3 percentage points) from the first quarter of 2020. Famous Footwear was the lead performer here, with gross margin being 45.2 percent of net sales, while the Brand Portfolio segment brought in 37.6 percent margins.
Famous Footwear’s 181-basis-point (1.81-percentage-point) improvement from 2019 was driven primarily by less promotional activity during the period and improvements in both brick-and-mortar and e-commerce margins, according to Kenneth Hannah, chief financial officer of Caleres.
Caleres generated $70.4 million in cash from operations and ended the first quarter with $98.2 million of cash on hand. The company reduced its credit facility borrowings, paying down $50 million in debt from the fourth quarter to the end the first quarter at $200 million. In total, the company has reduced its total debt levels by approximately $240 million since March 2020.
For the second quarter, Caleres expects sales levels to be between $625 million and $650 million, effectively flat to the first quarter, alongside adjusted earnings per share of between 50 and 55 cents.
The company isn’t providing fiscal 2021 guidance, but expects ongoing quarterly sales declines of $35 million to $40 million from 2019 levels related to its recent Fergie brand exit and the Naturalizer store closures.
Net Sales: Net sales at Caleres were $638.6 million, up 60.8 percent from the first quarter of fiscal 2020, when sales were $397.2 million. The net sales represent a 6 percent decline from the 2019 period.
Famous Footwear led the way with $398.1 million in sales, a 108.2 percent sales increase year over year and 13 percent over the 2019 first quarter.
Sales in the Brand Portfolio segment jumped 15.2 percent to $250.3 million over $217.2 million in the prior-year period. Brand Portfolio sales declined 26.6 percent on a two-year basis.
In total, direct-to-consumer sales at Caleres represented 74.5 percent of total net sales.
Total company-owned e-commerce website sales increased 21.4 percent, with e-commerce penetration of 25.6 percent of net sales. On a two-year basis, owned e-commerce sales have grown 57 percent. Vionic saw the best performance across brands, with two-year online sales improvement of 122 percent. Famous Footwear has seen a 98 percent e-commerce boost in the two-year stretch, while Sam Edelman’s online sales lifted 66 percent.
Net Earnings: Net income at Caleres totaled $6.1 million, or earnings of 16 cents per diluted share, compared to net loss of $345.8 million, or a loss of $8.95 per diluted share, in the first quarter of fiscal 2020.
The 16 cents per share includes 44 cents for expenses related to the Naturalizer retail store closures; and a “fair value adjustment” associated with its Blowfish Malibu acquisition in 2018.
Adjusted net income was $22.8 million, or adjusted earnings of 60 cents per diluted share compared to adjusted net loss of $50.4 million, or adjusted loss of $1.30 per diluted share, in last year’s quarter.
Operating earnings for Famous Footwear were $47.9 million, representing a $37.4 million increase over the first quarter of 2019. The Brand Portfolio generated $10.7 million in adjusted operating earnings.
CEO’s Take: Sullivan revealed some results from its conversion of Famous Footwear’s e-commerce site to a new platform earlier this year.
“Since that time, we have seen improved sales, traffic conversion and average unit rate compared to the first quarter of 2019. This all-encompassing system optimizes the cross-channel experience and leverages our BOPIS, curbside pickup and ship-from-store capabilities.”