Business Overview: A Diversified Footwear Powerhouse
Caleres, formerly Brown Shoe Company, is a diversified portfolio of consumer-driven footwear brands with a rich history dating back to 1878. The company has transformed itself over the decades, expanding its brand portfolio and distribution channels to cater to the ever-changing preferences of the modern consumer.
Caleres operates two primary business segments: Famous Footwear and Brand Portfolio. The Famous Footwear segment encompasses the company's company-owned retail chain, offering a wide range of branded footwear to consumers. The Brand Portfolio segment houses Caleres' portfolio of owned and licensed footwear brands, including well-known names such as Sam Edelman, Allen Edmonds, Naturalizer, and Vionic.
The company's journey began in 1878 as a small shoe wholesaler in St. Louis, Missouri. Caleres expanded its operations in the early 20th century, opening its first retail store in 1904 and launching its first branded shoe, the Natural Bridge, in 1912. Throughout the mid-20th century, the company continued to grow its portfolio of owned and licensed brands, acquiring Naturalizer in 1930 and Famous Footwear in 1963.
Despite facing challenges such as the Great Depression and increasing competition from larger national retail chains, Caleres demonstrated resilience by adapting its business model and investing in innovation. The company's ability to weather these storms solidified its position in the industry and set the stage for future growth.
In 2015, the company rebranded itself as Caleres, reflecting its evolution from a predominantly wholesale-focused organization to a diversified consumer-driven footwear business. This transformation was further emphasized by strategic acquisitions, such as the purchase of Vionic Group in 2018, which strengthened its brand portfolio and expanded its market reach.
Throughout its history, Caleres has maintained a strong focus on its core competencies, leveraging its design, sourcing, and distribution capabilities to serve a range of consumer segments through its diverse brand mix. This approach has enabled the company to establish itself as a market-leading player in the global footwear industry, known for delivering high-quality, on-trend products to its customers.
Financial Performance: Weathering Macroeconomic Headwinds
Caleres' financial performance has been mixed in recent years, as the company navigates the evolving retail landscape and macroeconomic challenges. In the fiscal year 2023, the company reported revenue of $2.82 billion, with a net income of $171.39 million. Operating cash flow for the year was $200.15 million, while free cash flow reached $150.53 million.
In the most recent quarter (Q3 2024), Caleres reported revenue of $740.94 million, a decrease of 2.8% compared to the prior year period. Net income for the quarter was $41.43 million. The revenue decline was primarily attributed to weaker seasonal demand in the boot category across both segments and operational disruptions related to the launch of the company's new cloud-based ERP system in the second quarter.
Financials
The company's balance sheet remains healthy, with a current ratio of 1.00 and a debt-to-equity ratio of 0.8463 as of the most recent quarter. Caleres maintains a strong liquidity position, with a revolving credit facility providing an aggregate amount of up to $500 million, subject to borrowing base restrictions. This facility may be increased by up to $250 million. As of the most recent quarter, the company had $238.5 million in borrowings and $9.4 million in letters of credit outstanding under the credit facility, with total additional borrowing availability of $252.1 million.
Liquidity
Caleres' liquidity position ensures its ability to meet short-term obligations and invest in growth opportunities. The company's quick ratio stands at 0.35, indicating its capacity to cover immediate liabilities. This financial flexibility allows Caleres to navigate market uncertainties and pursue strategic initiatives.
Segment Performance: Navigating Shifting Consumer Preferences
The Famous Footwear segment, which accounts for a significant portion of Caleres' revenue, has faced some challenges in recent years. In the third quarter of fiscal 2024, Famous Footwear reported net sales of $428.3 million, a decrease of 4.8% compared to the prior year period. However, comparable sales increased 2.5% in the quarter, driven by strong performance in the kids and athletics categories, though the boots category experienced soft demand. Direct-to-consumer sales, including retail store and e-commerce sales, represented 86% of Famous Footwear's net sales in the quarter. The segment's gross profit margin decreased to 42.9% from 44.2% in the prior year period, due to higher promotional activity and increased freight costs. Famous Footwear operated 851 stores at the end of the third quarter, a decrease of 11 stores from the same period last year.
The Brand Portfolio segment has demonstrated more resilience. In the third quarter of fiscal 2024, the segment's net sales were $322.9 million, an increase of 0.7% compared to the prior year period. The segment's direct-to-consumer sales, including branded retail stores and e-commerce, represented 34% of its net sales. Gross profit margin for the Brand Portfolio segment increased slightly to 43.8% from 43.7% in the prior year period, driven by higher merchandise margins and a greater mix of retail sales. The Brand Portfolio segment operated 111 company-owned stores globally at the end of the third quarter, up from 96 stores a year ago, and had 113 international franchise locations.
Caleres has made strategic investments to enhance its omnichannel capabilities and strengthen its brand portfolio. The company's FLAIR (Famous Localized and Immersive Retail) store concept, which has been rolled out to 32 Famous Footwear locations, has been well-received by consumers, driving a mid-single-digit sales lift compared to the rest of the chain.
Outlook and Guidance: Navigating Challenges and Opportunities
For the full fiscal year 2024, Caleres has revised its guidance, now expecting sales to decline 2.5% to 3% year-over-year (including the impact of the 53rd week in 2023). Excluding the 53rd week, sales are expected to be down 1.5% to 2%. Consolidated operating margin is expected to be in the range of 6.1% to 6.3%. Earnings per diluted share are projected to be $3.35 to $3.45, with adjusted earnings per diluted share expected to be $3.45 to $3.55. The company anticipates an effective tax rate of around 24% and capital expenditures of $50 million to $55 million.
The company cites several factors contributing to the revised outlook, including continued softness in the boot category across both segments, discrete issues with late receipts of trending athletic product at Famous Footwear, a credit issue associated with one customer in the Brand Portfolio, and softer demand in China. Additionally, the fashion segment of footwear has been softer than anticipated, and the seasonal business has been particularly challenging.
Despite these near-term challenges, Caleres remains committed to its long-term strategy of strengthening its brand portfolio and enhancing its omnichannel capabilities. The company is actively working to mitigate the impact of potential tariffs by diversifying its sourcing footprint, with plans to have approximately 70% of its Brand Portfolio segment's dollar volume manufactured outside of China by the back half of 2025.
Risks and Uncertainties: Navigating a Rapidly Evolving Landscape
Caleres faces several risks and uncertainties that could impact its future performance. The company operates in a highly competitive footwear industry, where consumer preferences can shift rapidly, and it must continually adapt its product offerings and marketing strategies to stay relevant. Additionally, the company is exposed to macroeconomic factors, such as inflation and supply chain disruptions, which can affect its profitability.
The company's ongoing ERP system implementation also poses operational risks, as any disruptions or delays could adversely impact its financial and operational performance. Caleres must also navigate the evolving retail landscape, including the growing importance of e-commerce and the need to provide a seamless omnichannel experience for its customers.
Conclusion: A Resilient Footwear Powerhouse Poised for the Future
Caleres' transformation from a traditional shoe company to a diversified consumer-driven footwear powerhouse has been a testament to its adaptability and strategic vision. The company's diverse brand portfolio, enhanced omnichannel capabilities, and focus on innovation position it well to navigate the evolving footwear landscape.
While the company faces near-term challenges, Caleres' long-term strategy, financial discipline, and commitment to its customers suggest it is well-equipped to overcome these obstacles and continue its journey as a leading player in the footwear industry. The company's ability to adapt to changing consumer preferences, invest in digital capabilities, and optimize its store network will be crucial in driving future growth and maintaining its competitive edge in the dynamic footwear market.