Caleres continued its strong performance throughout the third quarter, achieving record quarterly sales and another period of solid earnings, with delivering an operating margin of 12.3 percent. Though overall profits were down year-over-year, the company beat Wall Street estimates.
In a Nutshell: “For the third quarter and even with as the consumer navigates this challenging macroeconomic environment, we achieved record quarterly sales of $798 million, nearly 2 percent higher than the third quarter of 2021, with improvement once again driven by a 7.6% year-over-year increase from the brand portfolio segment and we delivered another strong return on sales, reaching more than 7 percent as the brand portfolio recorded robust third quarter earnings and Famous held its operating margin in the double digits, achieving 12.3 percent and all-in, this generated operating earnings of $57 million and earnings per share of a $1.15,” Diane Sullivan, chairman and CEO, said. “I will note that at $1.15, we’ve ended the first nine months of 2022 with $3.86 of earnings per share or a $1.66 above our pre-pandemic record.”
Sullivan will transition to executive chairman in mid-January.
During the third quarter, Caleres continued to strategically invest in value-driving growth opportunities while at the same time returning $24.1 million to shareholders through share repurchases and dividend payments. Specifically, Caleres repurchased 838,025 shares of common stock at $21.6 million and an average share price of $25.72. Year-to-date, the company has repurchased 2.6 million shares, representing approximately 7 percent of shares outstanding, at an average share price of $24.11. In addition to buybacks, Caleres returned $2.5 million to shareholders through its recurring quarterly cash dividend during the third quarter.
“We are encouraged by the recent market share gains from our brands and expect to build on this progress as we drive forward by enhancing the digital experience and elevating our product design and offerings,” Jay Schmidt, president and soon-to-be CEO, said. “As we move through the remaining months of 2022, and in light of the more challenging macroeconomic environment, we will be even more focused on controlling our spending, prioritizing inventory management and leaning into our competitive advantages in order to drive long-term shareholder value.”
Inventory was up approximately 19.5 percent, in line with expectations, and 15.8 percent below the second quarter of 2022.
Caleres also reported on its environmental, social and governance (ESG) policies. By 2025, 100 percent of the Dr. Scholl’s owner’s products will use environmentally preferred materials. As of last year, 100 percent of Caleres brands’ shoeboxes and 51 percent of its products have met this goal. Ninety-five percent of waste was recycled at its U.S. distribution centers, averaging approximately 4,000 tons of recyclables per facility in 2021. Six out of 10 of the board of directors members are women, and two self-identify as racially and/or ethically diverse.
Net Sales: Net sales rose 1.8 percent year-over-year to $798.3 million, driven by positive momentum in the brand portfolio segment reflecting strong consumer demand for its fashion brands and products. There was a 2.6 percent sales decline in the Famous Footwear segment, with comparable store sales down 0.8 percent. The brand portfolio segment saw a 7.6 percent increase, and direct-to-consumer sales represented approximately 74 percent of total net sales.
“In total, the brand portfolio site saw an increase of 24 percent in new customers versus 2021,” Schmidt said. “Clearly, these results demonstrate how we can leverage our powerful brands, our customer analytics and our growing expertise in this area to unlock more value from the total Caleres customer files going forward.”
Naturalizer sales increased nearly 60 percent over 2021, with reported gains in dress, casual and boots. Sales of Naturalizer.com grew more than 50 percent in the third quarter and new customers to the site grew by 19 percent, with over half of this increase in younger consumer demographics. Sam Edelman’s sales increased 26 percent year-over-year, and online business doubled during the quarter. A partnership with supermodel Naomi Campbell drove a 75 percent increase in web traffic and a 55 percent increase in new consumers, resulting in a new record of digital sales for September.
Schmidt said Famous Footwrar experienced strength in non-athletic products, “aligning with the demand we saw with the rest of our Caleres brands.”
Net Earnings: The company achieved net earnings of $39.2 million, or earnings per diluted share of $1.08, compared to net earnings of $59.6 million in the third quarter of fiscal 2021. Adjusted net earnings were $42 million, or adjusted earnings per diluted share of $1.15, compared to adjusted net earnings of $61.5 million in the third quarter of fiscal 2021. Wall Street analysts predicted the company to earn $1.12 percent per share.
Gross profit was $339.9 million, while gross margin was 42.6 percent. The Famous Footwear segment saw a 44.7 percent gross margin, while the brand portfolio segment saw a 37.9 percent gross margin.
CEO’s Take: “Looking ahead, we are confident that Caleres is well-positioned to close 2022 with record-setting earnings,” Sullivan said. “We believe our curated family of brands, powerful platform and robust capabilities in the areas of brand building, production creation, marketing, and logistics will enable us to navigate any market environment. In short, the Caleres team is enthusiastic about its prospects for long-term profitability and confident in our ability to generate strong levels of cash and unlock further value for our shareholders.”