8-K: Caleres Exceeds Expectations with Strong Q1 Earnings and Record Gross Margin

Caleres reported first quarter earnings per share of $0.88, surpassing expectations and achieving a record first quarter consolidated gross margin of 47 percent.

Summary

• Caleres reported its first quarter 2024 results, with earnings per share at $0.88, exceeding expectations.
• The company achieved a record first quarter consolidated gross margin of 47 percent.
• Net sales were $659.2 million, a slight decrease of 0.5 percent compared to the first quarter of 2023.
• Famous Footwear segment net sales increased by 0.1 percent, while comparable sales decreased by 2.3 percent.
• The Brand Portfolio segment experienced a net sales decline of 2.6 percent.
• Direct-to-consumer sales accounted for approximately 69 percent of total net sales.
• Gross profit was $309.1 million, with a gross margin of 46.9 percent, up 120 basis points year-over-year.
• EBITDA was $57.4 million, representing 8.7 percent of sales.
• Inventory was down 5.2 percent compared to the first quarter of 2023.
• Borrowings under the asset-based revolving credit facility were $191.0 million, down approximately $100 million from the first quarter of 2023.
• The company repurchased 416,000 shares of common stock for $15.1 million, at an average price of $36.23 per share.
• Caleres returned $2.4 million to shareholders through quarterly dividend payments.
• The company expects borrowings under its asset-based revolving credit facility to be less than $100 million by 2026.
• Caleres is reiterating its fiscal 2024 outlook, expecting net sales to be flat to up 2 percent and earnings per diluted share to be in the range of $4.30 to $4.60.
• For the second quarter of 2024, the company expects net sales to be up 3 percent to 4 percent and earnings per diluted share of $1.20 to $1.25.

Sentiment

Score: 8

Explanation: The document conveys a positive sentiment due to the company exceeding earnings expectations, achieving a record gross margin, and reaffirming its fiscal year outlook. While there are some challenges noted, the overall tone is optimistic and confident in the company's future performance.

Positives

• Caleres exceeded earnings per share expectations for the first quarter of 2024.
• The company achieved a record first quarter consolidated gross margin of 47 percent.
• The Brand Portfolio segment showed strong profitability, contributing significantly to operating earnings.
• Famous Footwear demonstrated resilience, maintaining sales levels and growing market share in the Kids category.
• Strategic inventory management led to a 5.2 percent reduction in inventory.
• Debt was reduced by approximately $100 million year-over-year.
• The company is returning capital to shareholders through share buybacks and dividends.
• Caleres is confident in its ability to deliver earnings per share within its guidance range for 2024.

Negatives

• Net sales decreased slightly by 0.5 percent compared to the first quarter of 2023.
• Comparable sales for Famous Footwear were down 2.3 percent.
• The Brand Portfolio segment experienced a 2.6 percent decline in net sales.
• Net earnings decreased to $30.9 million, compared to $34.7 million in the first quarter of 2023.
• SG&A expenses as a percentage of net sales were 40.4 percent, reflecting planned investments.

Risks

• The company faces risks related to changing consumer demands and general economic conditions.
• Inflationary pressures and supply chain disruptions could impact performance.
• Rapidly changing consumer preferences and fashion trends pose a challenge.
• The company is exposed to risks related to supplier and customer concentration.
• Intense competition within the footwear industry could affect market share.
• Foreign currency fluctuations may impact financial results.
• Political and economic conditions in countries where the company sources inventory could disrupt supply chains.
• Cybersecurity threats and disruptions to IT systems are potential risks.
• The company needs to accurately forecast sales and manage inventory levels.
• Disruptions in distribution centers could impact operations.
• The ability to recruit and retain key personnel is crucial.
• The company faces risks related to securing and exiting leases on favorable terms.
• Maintaining relationships with suppliers is important for continued operations.
• Transitional challenges with acquisitions and divestitures could arise.
• Changes to tax laws, policies, and treaties may impact financial results.
• The company must meet commitments and shareholder expectations related to environmental, social, and governance considerations.
• Compliance with labor, trade, and product safety laws is essential.
• The company needs to attract, retain, and maintain good relationships with licensors and protect its intellectual property rights.

Future Outlook

Caleres is reiterating its fiscal 2024 outlook, expecting net sales to be flat to up 2 percent and earnings per diluted share to be in the range of $4.30 to $4.60. For the second quarter of 2024, the company expects net sales to be up 3 percent to 4 percent and earnings per diluted share of $1.20 to $1.25.

Management Comments

• Caleres began 2024 in strong fashion, achieving earnings per share ahead of expectations, generating record first quarter consolidated gross margin, and making significant progress on our key strategic initiatives, all while investing for the long-term, said Jay Schmidt, president and chief executive officer.
• While the consumer demand environment remained challenging, we achieved growth in sales and profitability from our Lead Brands and strong margin performance across the Brand Portfolio.
• Looking ahead, we are confident in our ability to deliver earnings per share in line with our guidance range in 2024, said Schmidt.
• Longer-term, we believe we are exceptionally well positioned to execute our clear and actionable strategic plan, invest to fuel our growth initiatives, and drive sustained value for our shareholders.

Industry Context

The results reflect a challenging consumer demand environment, but Caleres has managed to achieve growth in sales and profitability from its Lead Brands and strong margin performance across the Brand Portfolio. The company's focus on strategic initiatives and investments for the long-term positions it well within the competitive footwear market.

Comparison to Industry Standards

• Caleres' gross margin of 46.9% is strong compared to some of its peers in the footwear industry, such as Crocs which reported a gross margin of 55.5% in their most recent quarter, and Skechers which reported a gross margin of 52.7%.
• The company's focus on direct-to-consumer sales, which represent 69% of total net sales, is in line with industry trends where brands are increasingly focusing on direct channels to improve margins and customer relationships.
• The reduction in inventory by 5.2% indicates effective inventory management, which is crucial in the retail sector to avoid markdowns and improve profitability.
• The company's debt reduction efforts, with borrowings down by approximately $100 million year-over-year, are a positive sign of financial discipline, especially when compared to companies with higher debt levels in the sector.

Stakeholder Impact

• Shareholders will benefit from the positive earnings results, share buybacks, and dividend payments.
• Employees may be impacted by the company's strategic initiatives and investments.
• Customers may see improvements in product offerings and services.
• Suppliers will continue to be important partners in the company's operations.
• Creditors will be reassured by the company's debt reduction efforts.

Next Steps

• Caleres will continue to focus on reducing debt and expects borrowings under its asset-based revolving credit facility to be less than $100 million by 2026.
• The company will continue to consider business performance and market conditions as it evaluates all opportunities for free cash flow as the year progresses.
• Caleres will host a conference call at 11:00 a.m. ET on May 30, 2024, to discuss the results.

Key Dates

Keywords

footwear, retail, earnings, gross margin, sales, EBITDA, inventory, share buybacks, dividends, consumer demand