Caleres posted strong results for the quarter ended Oct. 31, 2016, with improvements to revenues, margins and earnings. The parent company of Famous Footwear and various footwear brands, previously called Brown Shoe Co., saw sales increase by 0.5 percent to $732.2 million over the year-ago quarter, or by 2.1 percent on a comparable store basis.
The management said the results were achieved despite a “choppy” environment, but noted no increase in promotional activity in the U.S. footwear market. It confirmed that Caleres' portfolio strategy - which consists in diversifying across platforms, brands, channels and products - is working as intended. Caleres' stock price rose more than 14.0 percent following the release of its results.
The American group's Famous Footwear retail chain recorded a 2.1 percent increase in same-store sales, with the back-to-school season up by 2.7 percent and total sales up 2.6 percent. Sales rebounded after the slow start of the season, confirming that American customers are buying shoes closer to the time when they need them. September was strong, but the month of October saw a decline because of record-breaking warm weather all over the U.S.
While they were driven by continued strength in athletic and sports-inspired styles, sales began to pick up in non-seasonal categories such as dress and casual shoes.
Famous Footwear's online shop benefited from the roll-out of a ship-to-store function at 900 doors and from what the management described as more cohesive messaging.
However, the retail chain's gross margin inched down by 1.1 percentage points to 41.6 percent, reflecting a shift in the product mix, and the operating margin dropped by 1.7 percentage points to 7.0 percent. The chain opened 16 new stores in the quarter, bringing the total door count up by seven units as compared to a year ago.
In the Brand Portfolio segment - which comprises the group's wholesale business - sales dipped by 3.0 percent due to planned reductions in the Healthy Living sub-segment, with the company dropping out of low-margin sales under the Naturalizer and Dr. Scholl brand names. Ryka performed well in this sub-segment. Other brands in this segment are Bzees and Lifestride.
The drop in the wholesale segment occurred in spite of strength in Contemporary Fashion, with good growth for key brands such as Sam Edelman and Vince. Retailers continued to place orders cautiously, and the trend was expected to continue. Other brands in this segment are Franco Sarto, Diane von Furstenberg, Via Spiga, Fergie and Carlos Santana.
On the other hand, the gross margin of the segment gained 3.0 percentage points to 37.5 percent, benefiting from higher initial margins and better retail sell-through rates. The operating margin gained 3.8 percentage points, reaching 11.5 percent.
Overall, the group's gross margin went up by 0.5 percentage points to 40.1 percent, while the operating margin inched up by 0.4 percentage points to 7.6 percent. Net income improved by 2.2 percent to $34.7 million.
For the nine months through October, Caleres reported a 0.7 percent sales increase on a same-store basis for Famous Footwear, with the gross margin declining by 0.6 percentage points from the year-ago period to 44.2 percent because of higher shipping costs related to higher sales at www.famous.com and a successful ship-from-store program. The group opened 37 new stores during the period and closed 32.
In the Brand Portfolio segment, sales were down by 5.2 percent in the nine-month period, but the gross margin went up by 2.3 percentage points to 36.3 percent, largely due the company's exit from some lower-margin categories.
The management said it is maintaining its targets for the year, with consolidated net sales expected to be in the range of $2,600 million to $2,630 million, with flat sales or low single-digit growth at retail and flat sales or a low single-digit drop at wholes. It also anticipates that the gross margin will be up by 0.25 to 0.35 percentage points for the year.