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Caleres Anticipates Supply Chain Delays Could Cost $30M in Q3

Caleres proved no exception to the disruptions rocking supply chains throughout the industry.

According to chairman and CEO Diane Sullivan, these headwinds resulted in approximately 28 percent less inventory across the company in the second quarter compared to two years ago. Looking ahead, she said the company anticipates continued supply chain and logistics challenges, including long lead times and “significant increases” in ocean freight, will put downward pressure on third-quarter sales “to the tune of approximately $30 million.”

“That said, we are actively working with our partners to minimize these disruptions and believe we are well equipped to partially offset some of these cost headwinds,” Sullivan said Tuesday in a call with investors.

These efforts have included diversifying the company’s supplier base and building in longer lead times “to everything,” both on the brand portfolio side and at Famous Footwear, Sullivan said. Within the brand portfolio, she added, Caleres has also been working to narrow assortments and “go deeper” on big items.

“We’re not going to be able to be build a business on that kind of breadth,” Sullivan continued. “We’ve got to get much narrower and deeper.”

In a Nutshell: The company’s Famous Footwear segment continued to lead the way at Caleres, with the business pulling in record second-quarter net sales of $454 million—an 8 percent increase over two years ago—and record quarterly operating earnings of $85.5 million—up $54 million against 2019. Other highlights included a more than 100 percent increase in return on sales and a 670-basis-point increase in gross margin versus the same period of 2019. Both its brick-and-mortar and online channels improved, as well, with sales up more than 10 percent and more than 50 percent, respectively, compared to two years ago.

“Our second-quarter success at Famous [Footwear] was broad-based as we saw sales growth and/or gross margin rate improvement across women’s and men’s and kids’ and accessories, and across style categories, including athletics, casual, sandals and boots,” Sullivan said.

Caleres’ brand portfolio, meanwhile, recorded $239 million in sales, down 33 percent from $360 million two years ago as supply chain disruptions resulted in a roughly 30 percent decline in inventory levels. Gross margin, however, improved 498 basis points compared to 2019, rising to 39.7 percent, and operating earnings totaled $16.6 million, a 306-basis-point bump. Sullivan specifically highlighted the performances of Caleres’ Vionic and Sam Edelman brands, both of which she said “turned in strong sales levels” primarily driven by e-commerce growth.

Net Sales: Revenue totaled $675.5 million in the quarter ended July 31, a 6 percent improvement from the first quarter and a 35 percent bump compared to 2020, but still down 10 percent versus 2019.

Gross margins also increased “significantly,” Sullivan said, rising 705 basis points from two years ago to 47.7 percent as Caleres “drove more full-price selling as a result of tighter inventory levels due to disruptions and delays across the supply chain.”

Caleres achieved all-time record quarterly operating earnings of $62.8 million in the second quarter, Sullivan added.

Net Earnings: Net income totaled $37.4 million, or 97 cents per share, compared to a net loss of $30.7 million, or 83 cents per diluted share, a year ago. The 97 cents in earnings per share included fair value adjustment of 14 cents associated with mandatory purchase obligations for Blowfish Malibu and deferred tax valuation allowances of 8 cents

Adjusted net income totaled $46 million, or $1.19 per share, compared to an adjusted net loss of $21.1. million, or 57 cents per diluted share, in the second quarter of fiscal 2020. Caleres’ earnings per share represented a 59-cent improvement from the first quarter and a 57-cent increase compared to the second quarter of 2019, Sullivan said.

Looking ahead, Kenneth Hannah, Caleres’ chief financial officer, said the company expects to deliver adjusted earnings per share of between $1.10 and $1.25 in the third quarter and between $3.25 and $3.50 for the full year. Famous Footwear sales, he added, are expected to be “at or slightly above” 2019 levels in the back half of the year, while Caleres’ brand portfolio sales are expected to be down approximately 20 percent versus two years ago.

CEO’s Take: “Although the macro environment remains volatile, we see a strong consumer who knows what they want and is ready to engage further with our diversified set of brands,” Sullivan said. “So, clearly, we began the second half of the year very aware of these ongoing dynamics playing out in the marketplace, but are really strengthened by our recent performance. From this point and position, I’m really highly confident in our ability to control the variables within our control, build upon our recent strong results at Famous, continue to improve our sales performance in the brand portfolio and, of course, enhance long-term value for our shareholders.”

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