8-K: Caleres Reports Mixed Q3 Results, Lowers Full-Year Guidance

Caleres reported a decrease in third-quarter sales and lowered its full-year outlook due to softer demand and other challenges.

Summary

• Caleres reported third-quarter 2024 sales of $740.9 million, a 2.8% decrease year-over-year.
• Famous Footwear sales declined by 4.8%, although comparable store sales increased by 2.5%.
• The Brand Portfolio segment saw a sales increase of 0.7%.
• The company's gross margin was 44.1%, down 55 basis points year-over-year.
• Reported earnings per diluted share were $1.19, and adjusted earnings per diluted share were $1.23, both below expectations.
• Caleres generated $71.4 million in EBITDA for the third quarter.
• The company has revised its fiscal 2024 net sales outlook to a decrease of 2.5% to 3%, compared to previous guidance of a low-single-digit percentage decrease.
• Fiscal 2024 earnings per diluted share are now expected to be between $3.35 and $3.45, down from the prior guidance of $3.94 to $4.09.
• Adjusted earnings per diluted share are projected to be between $3.45 and $3.55, compared to the previous guidance of $4.00 to $4.15.

Sentiment

Score: 4

Explanation: The sentiment is negative due to the lowered guidance, missed earnings expectations, and sales decline. However, there are some positives such as the comparable store sales increase at Famous Footwear and the share repurchase program, which prevent the sentiment from being extremely negative.

Positives

• Famous Footwear achieved a 2.5% increase in comparable store sales.
• The Brand Portfolio segment saw a 0.7% increase in sales.
• Caleres repurchased approximately 1.5 million shares for a total of $50 million during the quarter.
• The company is focusing on reducing debt and expects borrowings under its asset-based revolving credit facility to be less than $100 million by the end of 2026.

Negatives

• Total sales decreased by 2.8% year-over-year to $740.9 million.
• Famous Footwear segment sales declined by 4.8%.
• The company's gross margin decreased by 55 basis points to 44.1%.
• Reported earnings per diluted share of $1.19 and adjusted earnings per diluted share of $1.23 were below expectations.
• The company has lowered its full-year net sales outlook to a decrease of 2.5% to 3%.
• Fiscal 2024 earnings per diluted share guidance was revised down to $3.35 to $3.45.
• Adjusted earnings per diluted share guidance was revised down to $3.45 to $3.55.
• Inventory was up 5% to the third quarter 2023 in total, but up 2.7% when accounting for the shift in the retail calendar.
• Borrowings under the asset-based revolving credit facility were $238.5 million at the end of the period, up $16.5 million from the third quarter of 2023.

Risks

• The company experienced softer seasonal demand in the boot category.
• There were late receipts of key athletic product at Famous Footwear.
• A discrete customer credit issue impacted shipments.
• The business in China was weaker than planned.
• The company anticipates pressure on gross margin as it takes action to move through excess inventory.
• The company faces risks related to changing consumer demands, inflationary pressures, supply chain disruptions, and intense competition within the footwear industry.
• There are risks associated with foreign currency fluctuations and political and economic conditions that could disrupt the flow of inventory from China and other countries.
• Cybersecurity threats and disruptions to information technology systems, including the ERP upgrade, pose a risk.
• The company faces risks related to forecasting sales, managing inventory levels, and maintaining relationships with suppliers.

Future Outlook

Caleres has reduced its full-year outlook due to expected continued sales trends and pressure on gross margin as they move through excess inventory. The company believes it is well-positioned to execute its strategic plan and drive sustained value for shareholders in the longer term.

Management Comments

• Performance was below our expectations reflecting softer seasonal demand in the boot category, late receipts of key athletic product at Famous Footwear, and a discrete customer credit issue that impacted shipments.
• Our business in China was also weaker than planned.
• As we begin the fourth quarter, our strategies are working to drive market share and we are aligning our expenses with expected sales, while appropriately investing behind areas of the business that are expected to deliver a strong ROI.
• We have reduced our outlook as we expect our season-to-date sales trend to continue in the final quarter of the year and anticipate pressure on our gross margin as we take action to move through excess inventory and position ourselves well for 2025.
• Longer term, we believe we are well-positioned to execute our strategic plan, invest to fuel our ambition, and drive sustained value for our shareholders.

Industry Context

The results reflect challenges in the broader retail sector, including softer consumer demand and supply chain issues. The company's focus on aligning expenses and managing inventory is a common response to these industry-wide pressures. The performance of the Brand Portfolio segment, which saw growth, suggests that some areas of the business are more resilient than others.

Comparison to Industry Standards

• Caleres' performance is mixed when compared to industry standards.
• While Famous Footwear's comparable store sales increased by 2.5%, this is offset by a 4.8% decrease in overall segment sales, indicating potential challenges in converting store traffic into overall revenue.
• Companies like Foot Locker and DSW have also reported mixed results recently, with some facing similar challenges in sales and inventory management.
• Caleres' gross margin of 44.1% is lower than some of its competitors, such as Nike, which typically maintains higher margins due to its brand strength and direct-to-consumer focus.
• The revised full-year guidance suggests that Caleres is facing more significant headwinds than initially anticipated, which could be a concern for investors compared to peers who have maintained or slightly lowered their guidance.

Stakeholder Impact

• Shareholders will be impacted by the lowered guidance and missed earnings expectations.
• Employees may be affected by the company's efforts to align expenses with expected sales.
• Customers may experience changes in product availability due to late receipts and inventory management.
• Suppliers may be impacted by the company's efforts to manage inventory levels and reduce debt.
• Creditors may be impacted by the company's focus on reducing debt.

Next Steps

• Caleres will continue to focus on reducing debt.
• The company will align expenses with expected sales.
• Caleres will invest behind areas of the business that are expected to deliver a strong ROI.
• The company will take action to move through excess inventory and position itself well for 2025.

Key Dates

Keywords

footwear, retail, sales, earnings, EBITDA, gross margin, guidance, inventory, Caleres, Famous Footwear, Brand Portfolio