Caleres, Inc. (CAL) on Q1 2021 Results - Earnings Call Transcript

Operator: Good morning. And welcome to the Caleres First Quarter Earnings Conference Call. My name is Glug and I will be your conference coordinator. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. As a reminder, this conference is being recorded. At this time, I will turn the call over to Logan Bonacorsi, Vice President of Investor Relations. Please go ahead ma'am. Logan Bonacorsi: Good morning. I would like to thank you for joining our first quarter 2021 earnings call and webcast. A press release with detailed financial tables, as well as our quarterly slide presentation is available at caleres.com. Diane Sullivan: Thanks Glug and good morning, everyone. We appreciate you joining us today at this new time and capping off what we know is a busy earnings week in the footwear space. Well, I think we've all begun to see that the consumer has emerged and are ready to spend on items and experiences across the board. They're reconnecting with family, spending time with friends, traveling, returning to office in some capacity, and are celebrating all of life's occasions, both large and small. I'm pleased to report that Caleres delivered strong results during the first quarter, making significant progress across a number of our strategic initiatives and is driving forward with our goals to take advantage of this new and exciting phase of the current market cycle. For the quarter just ended, Caleres exceeded first quarter 2019 earnings levels, drove sequential sales and operating earnings improvement, generated stronger growth margins and turned in an improved working capital and expense position. Overall, our consolidated revenue for the first quarter was $639 million, representing a nearly 12% improvement from the fourth quarter of 2020 and a modest 6% decline from the first quarter of '19. Our adjusted earnings per share for the period reach $0.60, up $0.57 sequentially, and surpassing first quarter 2019 levels by $0.24. Adjusted gross margins for the company also improved rising 70 basis points from the first quarter of 2019. Ken will provide further detail on these metrics in just a few moments. We also continue to generate significant levels of cash, particularly as our Famous Footwear business accelerated meaningfully in the quarter second half. And we put that test to good use paying down an additional $50 million of debt during the period. Ken Hannah: Thank you, Diane and good morning, everyone. I'm very encouraged by our first quarter results where the team's exceeded 2019 earnings levels, improved our gross margins, and maintained and improved working capital and expense position. I'm pleased to report that in addition to the strong performance on the operating side of the house, we also continue to advance our ongoing efforts to strengthen our financial foundation. As we've stated in previous periods, our top priority for cash remains debt reduction, and we've made excellent progress towards that objective in the quarter. In total, we paid down an additional $50 million in debt during the period, and believe we are well positioned for further reductions as the year progresses. We believe this ongoing effort to in effect swap debt for equity will drive greater value for our shareholders in future periods. I will remind you that our senior notes are callable at par in August of this year. As a result, it's important to note that the incremental reductions after the second quarter of 2021 will go to reduce our higher cost senior notes, which net-net over the course of the year will drive a further reduction in our interest expense. In addition, during the first quarter, we continue to return capital to shareholders through our recurring dividend, which as you all well know, we maintain through the depths of the pandemic. We believe this is emblematic of our firm commitment to rewarding our shareholders for their strong and ongoing support of our business and their confidence in our long-term prospects for value creation and growth. This morning, we announced that our Board of Directors approved our 393rd consecutive quarterly dividend, which will be paid on June 30 of 2021 to shareholders of record as of June 11. Now let's look at our financial performance in a bit more detail. For the most part, my comparisons are going to be the 2019. For the first quarter, we delivered $638.6 million in sales including a record first quarter sales performance in our Famous Footwear segment. And better than expected sales performance in our brand portfolio segment, as Diane mentioned, improved consumer confidence due to the ongoing successful rollout of the vaccine, and the government stimulus resulted in incremental sales at Famous Footwear. Additionally, brand portfolio sales of $250.3 million during the first quarter were $90.7 million lower than the 2019 comparison period, of which $25 million was attributed to the brand exits announced in late 2019 and early 2020, as well as the closing of our Naturalizer retail stores, which we completed in the first quarter. As a reminder, the brand portfolio sales in each quarter of 2019 were between $35 million and $40 million for these exited brands and retail stores. Our consolidated adjusted gross margin was 43%, up 70 basis points from the first quarter of 2019. Famous Footwear had a gross profit margin of approximately 45.2% in the first quarter. This 181 basis point improvement from 2019 was driven primarily by last promotional activity during the period and improvements in both brick-and-mortar and ecommerce margins. Brand portfolio first quarter gross margin of 37.6% was 171 basis points lower than the first quarter of 2019 reflecting the final liquidation and closing of the remaining Naturalizer stores where products were sold at prices lower than originally anticipated. As I mentioned earlier, all scheduled Naturalizer exits were completed in the first quarter. Our first quarter SG&A expense was $243.5 million during the period. This level included incremental expense related to additional performance based and share based compensation associated with our improved operating and stock price performance. The company generated a little over $70 million of cash from operations in the first quarter. And as we discussed use that cash to reduce our debt levels further. All told we ended the quarter with a solid liquidity position consisting of approximately $100 million of cash on hand and $400 million of capacity on our asset base revolving credit facility. As Diane outlined, Blowfish Malibu turned in another strong quarter and furthered its growth story. We will be finalizing the mandatory purchase obligation of Blowfish Malibu in the third quarter of 2021. And we expect to fund this final obligation from cash on hand. Our inventory at the quarter end was down 31% compared to the first quarter of 2019, and included a 25% decline in Famous Footwear, and a 41% decline for the brand portfolio, our brand portfolio inventory for their ongoing businesses was down approximately 32% from the first quarter of 2019. As we look to the rest of the year, and we continue to work to align our inventory levels with a stronger than expected consumer demand, we expect there will be ongoing delays as the global supply chain struggles to recover. To that end, we will be hyper focused on managing these challenges, optimizing and maximizing our current inventory, emphasizing our trending brands and brands with trending styles, and taking appropriate actions in order to drive ongoing improvement. While we remain highly confident in the direction of the business; the pace and consistency of the ongoing rebound is still uncertain. However, we do have some reasonable visibility around the second quarter, and we expect to deliver sales between $625 million and $650 million, were essentially flat to the first quarter of 2021 due to the pull forward of sales related to government stimulus actions, removal of certain government restrictions and improved consumer trends. Our SG&A expense is expected to be relatively consistent with the first quarter of 2021. And with that, we expect to deliver adjusted earnings per share of between $0.50 and $0.55 per share. In closing, the progress we have made is significant. Our business is nimble, our team is committed and our foundation is strong. In the near term, as we move through this rebuilding year, we will continue to fine tune our approach to adjust to and to capitalize on this ever changing marketplace. At the same time, we will prioritize cash flow and liquidity, plays a high degree of focus on our long-term strategic objectives, continue to invest for future growth and create long term and sustainable value for our shareholders. With that, I'd like to turn the call over to the operator for questions. Operator? Operator: Our first question comes from Laura Champine from Loop Capital. LauraChampine: Thanks for taking my question. Great result and margins, the one area that picked up more than we thought it would was the unallocated expense line. Is that just corporate expense? And what drove the significant increase on that line? KenHannah: Yes, Laura. So our record setting performance and the timing of that as a much larger percentage of our earnings in the first quarter. And so as we mentioned, we've exceeded our plans and expectations. So that's incremental, stock based performance and share base plan expense. LauraChampine: Okay, got it. Is there any update you can provide on the potential sale of your headquarter's building? KenHannah: We've -- we went through a process; it's been formerly put on the market. I guess that all went out about a week ago. Diane Sullivan: A week and half ago, yes. Ken Hannah: Officially and we are going through the process of providing folks tours of the property and providing information. Laura Champine: Got it and any sense you can give on what the asking price might be there? Diane Sullivan: No, I think we'll see what the bids come in, we should have an idea by the end of the second quarter, kind of what that might be, and then we'll qualify the appropriate buyers and try to move forward at the same time where Diane and I are looking at opportunities here in the market for a new headquarters. So there's lots of work going on, obviously we're hoping to take advantage of what is a highly desirable piece of property right here in the heart of Clayton. Diane Sullivan: It'll be the best of both worlds, Laura, if we can, if we -- when we get it all complete, because it'll be --- will enhance our ability to sort of reduce our footprint here where we don't really need all the space and at the same time, create a new workspace of the future somewhere else. So I think it's very exciting on so many fronts on that. So keep your fingers crossed. Laura Champine: Got it. And then if I could just go back to the stock-based comp on the unallocated, is that a level that we should continue to see throughout the year? Or is this just a one quarter step up? Diane Sullivan: No, I mean, if you go back and again, we're comparing to 2019 levels, which there was very little of that accrued. And so it's a little bit of timing throughout the year, obviously, with $0.60 of earnings in the first quarter, when you compare that to prior years, that's quite a bit higher. So that's a little bit of just timing in terms of how that expense would hit throughout the year. And then the incremental is the part that for the year, that would be above our baseline plans. Laura Champine: Got it and if it's basically gone up by $50 million on that one line year-on-year. Is that all bonus accrual or are there some other -- Ken Hannah: That all add is bonus accrual, both stock and deferred comp as well as profit sharing accrual. Operator: Our next question comes from Steven Marotta with CL King & Associates. Steven Marotta: Good morning, Diane and Ken, congrats on a great first quarter. Diane I can't resist the urge to ask, as far as quarter to date goes, hat are you seeing during the month of May? How did that differ, say from the last few weeks of April? Diane Sullivan: Well, we fully expect that Famous' sales to be very close to 2019 levels. And we honestly haven't seen that much of a shift in the last couple of weeks. So right now all continues to look encouraging. Steven Marotta: That's great. And maybe comment a little bit on the branded, I can take a guess. But the branded portfolio's order book, obviously there's a bit of a lag between what would be realized, say at Famous on a retail unit basis and then what would be realized at branded portfolio but on the other hand, maybe there's a tad bit more optimism on the part of wholesale accounts over the last four to six weeks. Diane Sullivan: Right, I'll give you a little perspective, and then I'll ask Jay to comment too. Obviously, going into this year, most of our retail partners did not plan to see the kind of consumer demand levels is where they're at today. And most were planning in the down kind of 15% to 20%. And as we've seen consumer come back with a vengeance, particularly in the month of late March and April, we've seen most of our retail partners looking for additional inventory, we planned as you could tell with our inventory levels to turn be as productive as possible and make sure we were still chasing demand. But our order book, and for our second quarter right now looks about like where we had expected it to be. We still have the supply chain challenges with late goods here and there. But believe that again, back it as we turn the corner, the back half of the year, our expectation is that we're going to return to 2019 operating earnings levels. But, Jay, maybe a little bit on what you're seeing on the demand side. Jay Schmidt: Yes, for sure. As Diane mentioned, we are seeing a lot more optimism for it. And we are chasing goods within that timeframe for them. But certainly we've seen sales continue strongly, particularly in the sandal category, which is great to see. Steven Marotta: And Jay, Hello, thank you for that. Ken, I think Ken mentioned as far as the supply chain goes and forgive me I missed the timing of it. You alluded to when you thought it would be a little bit more freed up more, not that kind of backlog. Did you say by the end of summer, or by the end of the third quarter? I didn't get that. Ken Hannah: Yes, we didn't say specifically. We just -- we're just highlighting that it continues to be delayed. And certainly as we go through the -- probably the most uncertain thing around the second quarter is really when will everyone actually go back-to-school, and then from a Famous perspective well we have enough of the goods come in to really support what we believe is going to be a great back-to-school season and obviously in the second quarter the last couple of weeks in historical years has been a big piece of that. So obviously, we're waiting to see when everyone will actually go back-to-school and start and how that will impact Q2 versus Q3. Where -- I think with everything that we've seen that the delays do not get resolved in the second quarter, they likely go into the third quarter. And the teams have done a great job managing through that but certainly we're trying to take the inventory we have and do the best we can with it and Jay's working with the teams to try to move things around to support the demand, but it's really about an opportunity is to get back-to-school is as good as it could be how far will the supply chain be caught up to be able to support it. And that's really the uncertain aspect of kind of our view on Q2. Steven Marotta: Yes, no, I completely get that. That is a huge timing issue across the industry. And I'll take the balance of my questions offline. Thank you all Operator: There are no further questions in queue. At this time, I'll turn the call over to Diane Sullivan for closing comments. Diane Sullivan: Thanks everybody for joining us and have a wonderful Memorial Day weekend and we will see you in August, if not before. Take care. Operator: This concludes today's conference call. Thank you for participating. You may now disconnect.
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Caleres Inc. (NYSE:CAL) Earnings Report Highlights

  • Caleres Inc. reported Q2 2024 earnings with revenue of approximately $683.3 million, missing the expected $723.8 million.
  • The company experienced a significant drop in earnings per share (EPS) to 85 cents, more than 30% below the consensus estimate.
  • Financial metrics reveal a P/E ratio of approximately 6.31 and a P/S ratio of around 0.38, suggesting the stock might be undervalued.

On Thursday, September 12, 2024, Caleres Inc. (NYSE:CAL), a prominent footwear company known for owning brands like Famous Footwear and Allen Edmonds, reported its earnings before the market opened. The company's revenue for the quarter was approximately $683.3 million, which did not meet the expected $723.8 million. This shortfall in revenue reflects the challenges Caleres faced during the quarter, including weak demand and operational issues.

During its Q2 2024 Earnings Conference Call, Caleres' executives, including CEO Jay Schmidt, discussed the factors contributing to the company's disappointing financial performance. Notably, the company experienced a 1.8% year-over-year decrease in revenue and a significant drop in earnings per share (EPS) to 85 cents, which was more than 30% below the consensus estimate of analysts. This decline in performance was attributed to a delayed back-to-school sales period and challenges with a new enterprise resource planning system, among other issues.

Despite a modest 1.5% increase in unit sales at Famous Footwear, the company's overall sales were negatively impacted by a 2.9% decline in comparable-store sales and a 5.1% drop in sales within its Brand Portfolio segment. These figures highlight the struggles Caleres faced in attracting customers and managing its operations efficiently during the quarter.

In response to these challenges, Caleres has adjusted its full-year outlook downwards, indicating a cautious stance on its future performance. The company's executives, including CEO Jay Schmidt, have acknowledged the impact of weak seasonal demand and operational difficulties on Caleres' financial health. This adjustment in guidance reflects the company's realistic assessment of the obstacles it faces and its efforts to navigate through them.

Financial metrics such as the price-to-earnings (P/E) ratio of approximately 6.31 and the price-to-sales (P/S) ratio of around 0.38 suggest that Caleres' stock might be undervalued, presenting a potentially attractive opportunity for investors. However, the company's moderate level of debt, as indicated by a debt-to-equity (D/E) ratio of roughly 0.84, and its reasonable ability to meet short-term obligations, with a current ratio of about 1.09, are important factors for investors to consider when evaluating Caleres' financial stability and growth prospects.