Caleres: A Diversified Footwear Giant Navigating Macroeconomic Headwinds

Published on September 24, 2024 | Ticker: CAL

Caleres, Inc. (NYSE:CAL) is a leading global footwear company that operates a diversified portfolio of well-known brands, including Famous Footwear, Sam Edelman, Allen Edmonds, Naturalizer, and Vionic. The company's unique business model, spanning both retail and wholesale channels, has enabled it to navigate the challenging macroeconomic environment and deliver solid financial results.

Financials

In the fiscal year 2023, Caleres reported annual net income of $171.4 million and annual revenue of $2.82 billion. The company's annual operating cash flow reached $200.2 million, while its free cash flow stood at $150.5 million. These robust financial metrics underscored Caleres' ability to generate consistent cash flows and invest in strategic initiatives to drive long-term growth.

During the first quarter of fiscal 2024, Caleres reported net sales of $659.2 million, a slight decline of less than 1% compared to the same period in the prior year. The company's consolidated gross margin expanded by 120 basis points to 46.9%, a first-quarter record, driven by improved performance in both the Brand Portfolio and Famous Footwear segments.

Brand Portfolio Segment

The Brand Portfolio segment, which includes the company's owned and licensed brands, saw net sales decline 2.6% year-over-year to $317.2 million. However, the segment's gross margin improved by 240 basis points to 46.6%, reflecting higher initial margins, a favorable channel mix, and a reduction in discounts and allowances. The segment's strong operating margin of 13.1% underscored the strength of Caleres' brand portfolio and its ability to navigate the challenging retail environment.

Famous Footwear Segment

The Famous Footwear segment, the company's retail chain, reported flat net sales of $349.6 million, with comparable sales declining 2.3%. While seasonal products, such as boots and sandals, underperformed, the segment's gross margin improved by 50 basis points to 46.1%, driven by lower freight costs and improved inventory management.

Business Overview

Caleres' management team remains focused on executing its strategic initiatives, including enhancing its marketing efforts, expanding its international presence, and improving the consumer experience at Famous Footwear. The company's investment in a new integrated SAP platform is expected to further streamline its operations and support its growth plans.

Outlook

Looking ahead, Caleres has reiterated its full-year 2024 guidance, expecting sales to be flat to up 2% compared to the prior year, with earnings per diluted share in the range of $4.30 to $4.60. For the second quarter of fiscal 2024, the company anticipates consolidated net sales to increase 3% to 4%, with earnings per diluted share of $1.20 to $1.25.

Caleres' diversified business model, strong brand portfolio, and focus on strategic initiatives position the company well to navigate the current macroeconomic challenges and capitalize on emerging opportunities. The company's robust financial performance, with healthy margins and cash flows, underscores its ability to deliver sustainable value for its shareholders.

Business Overview

Caleres' history dates back to 1878, when the company was founded as the Brown Shoe Company. Over the decades, the company has evolved, expanding its brand portfolio and distribution channels to become a leading global footwear player. Today, Caleres operates in the United States, Canada, China, and Guam, with a presence in both the retail and wholesale markets.

Risks and Challenges

One of the key risks facing Caleres is the ongoing macroeconomic uncertainty, including elevated inflation, rising interest rates, and potential recessionary pressures, which could impact consumer spending and demand for the company's products. Additionally, the company faces competition from other footwear brands and retailers, as well as potential supply chain disruptions and cost pressures.

Despite these challenges, Caleres' management team has demonstrated its ability to navigate turbulent market conditions. The company's diversified business model, with a mix of owned and licensed brands, as well as its retail and wholesale operations, provides a degree of resilience and flexibility.

Liquidity

Caleres' financial position remains strong, with a healthy balance sheet and ample liquidity. As of the end of the first quarter of fiscal 2024, the company had $191 million in borrowings under its revolving credit facility, down significantly from the prior-year period. This low debt level and the company's robust cash flow generation capabilities provide Caleres with the financial flexibility to invest in its strategic initiatives and weather any potential economic headwinds.

Recent Developments

Looking ahead, Caleres' management team is focused on several key priorities, including driving growth in its Brand Portfolio segment, enhancing the consumer experience at Famous Footwear, and expanding its international presence. The company's investments in marketing, product innovation, and digital capabilities are expected to support these initiatives and position Caleres for long-term success.

In the Brand Portfolio segment, Caleres is leveraging its speed-to-market capabilities and product innovation to capitalize on the growing demand for casual and athletic footwear. The company's lead brands, such as Sam Edelman, Allen Edmonds, Naturalizer, and Vionic, have demonstrated strong performance, contributing to the segment's robust profitability.

At Famous Footwear, Caleres is focused on enhancing the consumer experience through initiatives like the FLAIR store format, which has delivered a sales lift compared to the rest of the chain. The company is also leaning into its competitive advantage in the kids' category, which has consistently outperformed the overall business.

Internationally, Caleres is expanding its presence, particularly in Asia, with the opening of new Sam Edelman stores in the first quarter of fiscal 2024. The company sees significant growth potential in international markets, leveraging its strong brand portfolio and distribution capabilities.

Conclusion

Overall, Caleres' diversified business model, strong brand portfolio, and strategic initiatives position the company well to navigate the current macroeconomic environment and deliver long-term value for its shareholders. The company's robust financial performance, with healthy margins and cash flows, underscores its ability to invest in growth opportunities and weather any potential economic challenges.

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