Caleres(CAL) - 2024 Q3 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Total sales for Q3 2024 were $741 million, down 2.8% year-over-year, with a decline of$ 21 million, including an unfavorable calendar shift of about $29 million at Famous Footwear [36][37] - Adjusted earnings per diluted share were$ 1.23, compared to $1.37 in the previous year [42] - Consolidated gross margin was 44.1%, a decrease of 55 basis points, driven by lower margins in Famous Footwear [39] - SG&A expenses were$ 269 million, or 36.3% of sales, up 30 basis points [41] - Operating earnings were $58 million, with an operating margin of 7.9% [41] Business Segment Data and Key Metrics Changes - Brand portfolio sales increased approximately 1%, with lead brands outperforming portfolio brands [10][11] - Famous Footwear total sales declined 5%, while comparable sales increased 2.5% [21][37] - The brand portfolio gross margin was 43.8%, up 15 basis points, while Famous Footwear's gross margin was 42.9%, down 130 basis points [39] - The Sam Edelman brand saw strength driven by positive responses to fashion newness, particularly in sneakers and tall shaft boots [15] Market Data and Key Metrics Changes - The footwear industry overall was down about 1%, with the fashion segment experiencing a decline greater than that [98] - Famous Footwear's market share gained 0.5 percentage points in shoe chains according to Circana data [24] - The kids category at Famous Footwear has outperformed the rest of the chain for 15 consecutive quarters, with a penetration of 25% in the total business [23] Company Strategy and Development Direction - The company is focusing on international expansion, particularly in China and other markets like the Middle East and EU [57] - A tactical decision was made to delay additional remodels until Q1 2025 to prevent lost holiday sales [27] - The company plans to take aggressive action on poor-performing items to end the year with a clean inventory position [30] Management Comments on Operating Environment and Future Outlook - Management expressed cautious optimism for the future, noting that brands and products are resonating with consumers and gaining market share [9] - The company expects lower sales and earnings than previous guidance due to several negative trends impacting top-line performance [28][29] - Management acknowledged that the fashion segment of footwear has been softer than anticipated, impacting overall performance [52] Other Important Information - The company ended Q3 with$ 239 million in borrowings, up about $17 million from last year [43] - Inventory at quarter-end was$ 586 million, up 5.4% year-over-year [44] - The company expects to source about 70% of its products outside of China by the back half of 2025 [48] Q&A Session Summary Question: Can you provide thoughts around the confidence levels for top-line growth and scaling to that in next year and beyond? - Management believes they have the brand, strategies, capabilities, and people to return to previous earnings power, despite this year being a setback [52][54] Question: What is contributing to the softness in China? - Management is cautious on China in the near term but sees it as an important market with significant long-term opportunity [57][58] Question: How much of the guidance shift is due to markdowns to clear inventory in Q4? - Management expects a gross margin decline driven by markdowns to address slow-moving inventory [60][61] Question: How large is China as a percentage of total sales? - International sales, including China, are less than 5% of total sales, with China being the largest part of that [70][71] Question: What are the expectations for Famous Footwear's comp in Q4? - Management expects a marginally positive comp of about 1 to 1.5% for Q4 [77] Question: How significant was the impact of boots on the third quarter? - Boots accounted for about two-thirds of the sales drop in Q3, and similar declines are expected in Q4 [84]