10-Q: Caleres Inc. Reports Third Quarter 2024 Results: Sales Dip Slightly Amidst Economic Headwinds

Caleres Inc. experienced a slight decrease in sales for the third quarter of 2024, with a 2.8% drop compared to the same period last year, primarily due to a retail calendar shift and softer demand in certain categories.

Summary

• Caleres Inc.'s net sales for the third quarter of 2024 were $740.9 million, a decrease of 2.8% compared to $761.9 million in the third quarter of 2023.
• The Famous Footwear segment saw a 4.8% decrease in net sales, while the Brand Portfolio segment experienced a slight increase of 0.7%.
• Gross profit for the quarter was $327.0 million, down from $340.4 million in the prior year, with a gross margin of 44.1% compared to 44.7%.
• Operating earnings decreased to $56.7 million from $64.4 million year-over-year.
• Diluted earnings per share were $1.19, compared to $1.32 in the third quarter of 2023.
• For the nine months ended November 2, 2024, net sales were $2,083.5 million, a 1.7% decrease from $2,120.2 million in the same period last year.
• The company's direct-to-consumer sales represented approximately 72% of consolidated net sales for both the third quarter and the nine-month period.
• Caleres repurchased approximately 1.5 million shares of common stock during the third quarter of 2024 at a cost of approximately $50 million, excluding broker commissions and excise taxes.
• The company's liquidity remains strong with $33.4 million in cash and cash equivalents and $252.1 million in excess availability on its revolving credit agreement as of November 2, 2024.

Sentiment

Score: 4

Explanation: The document presents a mixed picture with some positive aspects like strong liquidity and growth in e-commerce, but the overall tone is negative due to decreased sales, lower profitability, and operational challenges. The company is facing headwinds and is not performing as well as the previous year.

Positives

• The Brand Portfolio segment experienced a slight increase in net sales of 0.7% in the third quarter.
• E-commerce sales grew by approximately 2.1% on a consolidated basis compared to the third quarter of 2023.
• The company's direct-to-consumer channels continue to represent a significant portion of sales, at 72% of consolidated net sales.
• Caleres maintains a strong liquidity position with $33.4 million in cash and $252.1 million in borrowing availability.
• The company is focused on maximizing the vertical opportunity between the Famous Footwear and Brand Portfolio segments.
• Famous Footwear's comparable sales increased by 2.5% in the third quarter of 2024, reflecting a calendar shift.
• The company continues to expand its retail store presence in East Asia.

Negatives

• Consolidated net sales decreased by 2.8% in the third quarter of 2024.
• The Famous Footwear segment experienced a 4.8% decrease in net sales.
• Gross profit margin decreased to 44.1% from 44.7% in the prior year's third quarter.
• Operating earnings decreased by $7.7 million to $56.7 million in the third quarter.
• Diluted earnings per share decreased to $1.19 from $1.32 in the third quarter of 2023.
• The company experienced softer seasonal demand in the boots category.
• Late product receipts of certain athletic footwear impacted sales during the back-to-school season.
• The company experienced higher freight costs, due in part to the higher mix of e-commerce sales.
• The company's net sales were unfavorably impacted by operational disruptions related to the launch of its new cloud-based ERP system in the second quarter of 2024.

Risks

• Macroeconomic factors, including inflation and elevated interest rates, continue to impact consumer discretionary spending.
• The company is exposed to rapidly changing consumer preferences and fashion trends.
• There is intense competition within the footwear industry.
• The company is reliant on third-party manufacturing facilities in China and other countries, which could be disrupted by political or economic conditions.
• Cybersecurity threats or other disruptions to the company's information technology systems could adversely impact operations.
• The company faces challenges in accurately forecasting sales and managing inventory levels.
• The company is undergoing a multi-year ERP implementation, which could lead to disruptions and may not yield expected benefits.
• The company is subject to foreign currency fluctuations.
• The company is exposed to risks related to environmental remediation at certain sites.

Future Outlook

The company expects to reduce borrowings under its revolving credit agreement to mitigate the impact of the high interest rate environment. The company expects purchases of property and equipment and capitalized software to be between $50 million and $55 million in 2024.

Management Comments

• The company believes that the structural changes implemented in the last few years, as well as its diversified model and operational discipline, enable the company to drive value in a variety of market conditions.
• The company remains focused on cost control and executing its strategic initiatives for sustainable, long-term growth.
• The company is focused on maximizing the vertical opportunity between the Famous Footwear and Brand Portfolio segments.
• The company is continuing to evaluate the Pillar Two rules and their potential impact on future periods, but does not expect the rules to have a material impact on its tax provision or effective tax rate.

Industry Context

The footwear industry is experiencing intense competition and is subject to rapidly changing consumer preferences and fashion trends. The company's performance is also influenced by macroeconomic factors affecting consumer discretionary spending. The company's diversified business model and focus on direct-to-consumer channels are strategic responses to these industry trends.

Comparison to Industry Standards

• The company's comparable sales metric is a common industry practice, but other retailers may calculate it differently.
• The sales per square foot metric is a standard measure of retail efficiency, and the company uses it to assess individual store performance.
• The company's direct-to-consumer sales strategy aligns with the industry trend of brands strengthening their connection with end consumers.
• The company's gross margin of 44.1% for the third quarter of 2024 is within the range of other footwear retailers, but is lower than the previous year.
• The company's operating earnings of $56.7 million for the third quarter of 2024 is lower than the previous year, reflecting the impact of lower sales and higher expenses.
• The company's debt-to-capital ratio of 28.2% is within the range of other companies in the retail sector.

Legal Proceedings

• The company is involved in legal proceedings and litigation arising in the ordinary course of business, but management does not expect a material adverse effect on the company's results of operations or financial position.

Stakeholder Impact

• Shareholders may be concerned about the decrease in sales and profitability.
• Employees may be affected by restructuring and organizational changes.
• Customers may experience changes in product availability and promotional activity.
• Suppliers may be impacted by changes in the company's sourcing and inventory management.

Next Steps

• The company expects to reduce borrowings under its revolving credit agreement to mitigate the impact of the high interest rate environment.
• The company will continue to implement its multi-year ERP system.
• The company will continue to evaluate the Pillar Two rules and their potential impact on future periods.

Key Dates

Keywords

footwear, retail, e-commerce, sales, earnings, gross profit, operating earnings, Famous Footwear, Brand Portfolio, consumer spending, inventory, ERP, share repurchase, liquidity