The Covid-19 pandemic has led to a dramatic surge in the importance of e-commerce in Caleres’ sales, representing about a third of the company’s revenues in its fiscal first quarter, and prompting it to accelerate the closure of some 160 stores by the end of 2021.
In the first quarter ended May 2, the St. Louis-based company posted a 41.4 percent drop in revenues to $397.2 million from $677.8 million a year earlier, driven by a 45.7 percent decline to $191.3 million at its Famous Footwear retail chain and a 36.3 percent contraction to $217.2 million for its brand portfolio, which includes labels such as Sam Edelman, Vionic, Via Spiga, Dr. Scholl’s and Franco Sarto among others.
The top line was affected by temporary store closures resulting from the pandemic. As of March 19, the company had closed its entire fleet of shops and focused on further developing e-commerce for its direct-to-consumer business. Meanwhile, its wholesale clients halted deliveries and delayed or cancelled orders to tackle their own issues.
To boost the online business, Caleres used its shuttered stores as delivery points and modified its digital business to include curbside pickup services. As of June 4, the curbside option was available at 375 Famous Footwear locations with the objective of reaching more than 600 stores in about two weeks.
Simultaneously, the company is reopening stores, with in-store shopping resumed at 553 Famous Footwear locations, totaling around 60 percent of the chain, 33 Allen Edmonds and 36 Naturalizer shops. Caleres is aiming to have nearly 85 percent of its stores reopened by late June, the remaining stores being in regions heavily hit by the pandemic such as New York and California.
Trading at reopened Famous Footwear stores is “coming in well above” last year’s levels, according to Caleres, noting that the majority of shops are not in malls, thus making it easier to respect social distancing. It added that stores of its brand portfolio were experiencing sales trends above its projections and that wholesale clients are starting to place new orders.
The company is also liquidating “very aggressively” the spring/summer inventory to be ready for the autumn/winter season. At the end of the first quarter, the inventory was down by 9.7 percent year-on-year thanks to order cancellations and delayed product receipts. The inventory decrease was most evident for the brand portfolio, where it reached about 18 percent year-over-year compared with a 3.8 percent contraction for Famous Footwear.
Caleres expects that the industry will seek to extend the spring/summer collections, resulting in a delay in shipments for the autumn/winter collections. The company normally starts shipping the collections of its brand portfolio towards the end of July and currently believes that there could be a month postponement.
E-commerce rises to 28% of Famous Footwear’s business in the first quarter
During a conference call with analysts, Caleres’ chairman and chief executive Diane Sullivan disclosed that in the first quarter, e-commerce represented around 28 percent of Famous Footwear’s business compared with about 10 percent in the full year ended on Feb. 1. For the brand portfolio online sales were about 36 percent, which included the labels’ websites and sales through third-party platforms such as Amazon.
Possibly the most remarkable phenomenon was that nearly half the people that shopped on Famous Footwear’s e-commerce platform were new clients. Caleres also pointed out that the health crisis was an opportunity to innovate and rethink how to access customers and liquidate goods.
It added that e-commerce continued to outpace its expectations with the reopening of stores, both at Famous Footwear and brand sites. In May, online sales for Famous Footwear surged by more than 200 percent year-on-year. In the first quarter, e-commerce was up about 70 percent at the chain, while its proprietary brand sales grew by nearly 40 percent.
The company has improved traffic and conversion rates over the period.”We have the capabilities to capitalize on consumers’ increasing preference to transact digitally,” said Sullivan. She stressed that with the reopening of stores the company will monitor the evolution between in-store buying, curbside pickups and home delivery. It is interesting to point out that if e-commerce underpinned revenues it actually put pressure on operating profits. In the first quarter, Caleres’ adjusted gross margin narrowed to 39.5 percent from 42.3 percent a year earlier due to the larger mix of e-commerce at Famous Footwear and the subsequent increase in shipping costs. At Famous Footwear the margin dropped to 39.2 percent from 43.4 percent. Meanwhile, it fell to 38.0 percent from 39.3 percent for the brand portfolio due to promotional activity to compensate for the store closures.
Caleres managed to cut its selling, general & administrative expenses by $36.9 million to $225.2 million compared with the previous year, largely thanks to lower payroll expenses due job and wage cuts as well as the furloughing of staff.
But, the expense reductions did not prevent the company from booking an adjusted operating loss of $68.3 million compared to a $24.9 million profit a year earlier. Famous Footwear posted a loss of $45.6 million and the brand portfolio activity a $10.1 million loss.
Caleres reported an attributable net loss of $345.8 million, against a $9.1 million profit in the first quarter of 2019, after booking $361.2 million in pre-tax charges, largely non-cash impairments, or $295.4 million at a net level.
On an adjusted basis, the bottom line showed a loss of $50.4 million against a profit of $15.0 million a year earlier.
Due to the uncertainty surrounding its business environment, Caleres did not release a full-year guidance. However, it announced a 40 percent cut in planned capital expenditure for the current fiscal year and greater focus on debt reduction, while continuing to pay a quarterly dividend and buying back shares. As of May 2, the company had $187.7 million in cash and $438.5 million of revolving credit facility borrowings and no significant debt maturities until 2023.
The company continued to trim its store network, that fell to 934 at the end of the quarter from 949 three months earlier and 985 the previous year. During the lockdown, it closely examined the performance of its stores and decided to accelerate permanent closures with about 160 location set to be dropped by the end of 2021. Part of those stores closed with the pandemic and will not reopen. It says that it could take further action to ensure that the fleet is “right-sized” due to an increased “shift to digital” caused by the pandemic.
Caleres has decided to exit the house brand Fergie, several private brands and other lower-margin businesses as it narrows its assortment. During the lockdown, Famous Footwear sales were lifted by demand for casual and sports styles, especially among the chain’s top and premium brands, as well as children’s shoes. The trend helped lift same-store sales at the chain by 12.6 percent in the first quarter, including e-commerce. Among the categories under pressure, Sullivan indicated that men’s dress shoes are really “ripe” for a “little bit more of an edit.”