23 Nov Famous Footwear’s Q3 Comps Gain 2.2 Percent
Caleres Inc. reported net income inched up 2.2 percent in the third quarter, to $34.7 million, or 81 cents a share.
Third Quarter
• Net sales of $732.2 million were up 0.5 percent, as Famous Footwear experienced a solid back-to-school season.
• Gross margin was up 53 basis points to 40.1 percent, driven by Brand Portfolio.
• Operating margin was up 41 basis points to 7.6 percent, with a strong contribution from Brand Portfolio.
• Reported diluted EPS was 81 cents compared to reported diluted EPS of 78 cents and adjusted diluted EPS of 80 cents in the prior year. Results exceeded Wall Street’s consensus estimate of 80 cents.
• Tax rate was 33.6 percent versus 26.7 percent in the prior year, including 3 cents of discrete tax benefit to EPS.
• Cash and equivalents were $173.4 million, up $87.1 million year over year.
• Inventory was down 3.6 percent, with solid inventory management across the company.
First Nine Months
• Net sales were $1.9399 billion, down 1.5 percent, due in part to planned reductions in Healthy Living.
• Gross margin were up 68 basis points to 41.3 percent, partially driven by the exit of some lower-margin categories in Healthy Living.
• SG&A spend was up less than 1 percent year over year, including operational investments.
• Operating margin remained flat year over year.
• Diluted EPS was $1.67.
• Cash from operations was $137 million versus $84 million in the prior year.
“Despite a somewhat choppy environment, our third-quarter performance – with improvement in sales, margins, earnings and cash from operations – further confirms our portfolio strategy is working as intended and delivering shareholder value,” said Diane Sullivan, CEO, president and chairman of Caleres. “By diversifying across platforms, brands, channels and products, we have been able to drive toward our long-term goal of consistent, profitable and sustainable growth, while minimizing our exposure to potential variability in the marketplace.”
Third Quarter Segment Results
Famous Footwear
• Same-store sales were up 2.1 percent, with the back-to-school season up 2.7 percent and total sales up 2.6 percent.
• Gross margin was 41.6 percent, reflecting product mix shift.
• Inventory was down 0.4 percent per store on a dollar basis.
• It opened 16 new stores and operated seven more stores year over year.
Brand Portfolio
• Sales down 3 percent, with growth at Contemporary Fashion offset by planned reductions in Healthy Living.
• Gross margin was up more than 300 basis points to 37.5 percent, benefitting from higher initial margin and better retail sell-through rates.
• Inventory was down low double digits, with continued focus on better inventory management.
First Nine Months Segment Results
Famous Footwear
• Same-store sales were up 0.7 percent, with total sales up 0.9 percent.
• Gross margin was 44.2 percent, reflecting higher shipping costs related to increased sales at famous.com and its successful ship-from-store program.
• It opened 37 new stores and closed 32.
Brand Portfolio
• Sales were down 5.2 percent, with growth at Contemporary Fashion offset by expected declines in Healthy Living.
• Gross margin was up approximately 230 basis points to 36.3 percent, partially benefitting from the exit of some lower-margin categories.
“Our teams did a fantastic job of continuing to adapt to changes in consumer shopping trends, and – as a result – delivered both improved sales and gross margin,” said Ken Hannah, chief financial officer, Caleres. “We continued to return value to shareholders and strengthen our balance sheet in the third quarter, as we increased cash and equivalents by more than 100 percent and reduced our inventory by 3.6 percent.”
Outlook for 2016
The company’s outlook calls for consolidated net sales of $2.57 billion to $2.6 billion. Famous Footwear same-store sales are predicted to be flat to up low single digits, with Brand Portfolio sales expected to be flat to down low single digits. The outlook for gross margin is up 25 to 35 basis points. SG&A as a percent of revenue is expected to be down 5 to 15 basis points.
Caleres Inc. expects that its effective tax rate will be 30 to 32 percent. Its guidance calls for earnings per diluted share to be in the range of $2 to $2.10. Capital expenditures are expected to be approximately $70 million.