Caleres Reports Third Quarter 2023 Results

• Delivers 22 percent year-over-year increase in earnings per share and 19 percent year-over-year increase in adjusted earnings per share, exceeding the top end of guidance
• Generates record third quarter operating margin in the Brand Portfolio
• Reduces revolver borrowings by $22 million compared to second quarter 2023 and reduced inventory 14 percent
• Updates full year 2023 sales outlook and tightens full year 2023 earnings per share range

Caleres (NYSE: CAL), a market-leading portfolio of consumer-driven footwear brands, today reported financial results for the third quarter of 2023, updated its full year 2023 sales outlook and tightened its earnings per share range.

“Caleres continued its strong operational and financial execution during the third quarter, delivering a 19-percent increase in adjusted earnings per share and exceeding the top end of the guidance range despite ongoing softness in the macroeconomic environment,” said Jay Schmidt, president and chief executive officer. “The Brand Portfolio once again led the way, achieving a sequential improvement in sales and generating record third quarter operating profit and operating margin. Most notably, the segment contributed more than half of total company operating profit through the first nine months of the fiscal year. At the same time, Famous Footwear continued to effectively navigate the challenging consumer demand landscape, delivering double-digit operating margin, demonstrating strength in its cornerstone Kids business, and achieving market share growth in shoe chains. Despite near-term macro challenges, we remain confident that Famous is well-situated to grow its leadership position with the Millennial family.

“In addition, we continued to strengthen our balance sheet and financial flexibility by executing on our expense reduction initiatives, reducing our revolver borrowings by more than $20 million, and investing in value-driving growth opportunities, including the omni-channel experience, marketing technologies and analytics, and international.”

Third Quarter 2023 Results

(13-weeks ended October 28, 2023, compared to 13-weeks ended October 29, 2022)

• Net sales were $761.9 million, down 4.6 percent from the third quarter of 2022;
  • Famous Footwear segment net sales declined 6.7 percent, with comparable sales down 6.9 percent
  • Brand Portfolio segment net sales decreased 0.8 percent
  • Direct-to-consumer sales represented approximately 73 percent of total net sales
• Gross profit was $340.4 million, while gross margin was 44.7 percent;
  • Famous Footwear segment gross margin of 44.2 percent
  • Brand Portfolio segment gross margin of 43.7 percent
• SG&A as a percentage of net sales was 35.9 percent;
• Net earnings of $46.9 million, or earnings per diluted share of $1.32, compared to net earnings of $39.2 million, or earnings per diluted share of $1.08 in the third quarter of 2022;
• Adjusted net earnings of $48.6 million, or adjusted earnings per diluted share of $1.37, which excludes $0.05 related to charges associated with expense reduction initiatives during the third quarter;
• Earnings before interest, taxes, depreciation, and amortization (EBITDA) of $78.8 million, or 10.3 percent of net sales;
• Inventory was down 14.4 percent compared to third quarter of 2022, due to strategic inventory management – primarily in the Brand Portfolio segment – and improved supply chain flow; and
• Borrowings under the asset-based revolving credit facility were $222.0 million at the end of the period.

Capital Allocation Update

Caleres continued to reduce the borrowings under its asset-based revolving credit facility, paying down $22.0 million during the third quarter. At the end of the fiscal third quarter, bank-defined leverage was approximately 0.9x on a debt/EBITDA trailing twelve-month basis and the company had in excess of $300 million in total liquidity. Caleres also invested $20.5 million in capital expenditures and returned $2.5 million to shareholders through its quarterly dividend. Given today’s higher interest rates and the current economic environment, the company believes it’s prudent to continue to reduce debt and maximize liquidity.

Full Year 2023 Outlook

“Looking ahead, we are confident that our leading brand assets, unique One Caleres capabilities and strong balance sheet have set the stage for a third consecutive year of adjusted earnings in excess of our $4.00-per-share baseline,” said Schmidt. “Longer term, we remain sharply focused on the strategies we outlined at our recent Investor Day, and the Caleres team is dedicated and poised to execute on this clear and actionable plan for long-term value creation and growth.”

As a result of the soft consumer demand environment in its Famous Footwear segment, Caleres now expects consolidated net sales to be down 4.5 percent to 5.5 percent, including the impact of the 53^rd week, for full year 2023.

In addition, the company is tightening its diluted earnings per share guidance range to $3.96 to $4.06, inclusive of $7 million of restructuring charges associated with expense reduction actions, and adjusted diluted earnings per share range to $4.10 to $4.20.

Caleres now expects:

• Consolidated operating margin of 7.3 percent to 7.5 percent;
• Interest expense of about $18 million;
• Effective tax rate of about 25 percent;
• Weighted average shares outstanding of 34.3 million; and
• Capital expenditures of about $50 million.

Investor Conference Call

Caleres will host a conference call at 10:00 a.m. ET today, Tuesday, November 21. The webcast and associated slides will be available at investor.caleres.com/news/events. A live conference call will be available at (877) 704-4453 for North America participants or (201) 389-0920 for international participants, no passcode necessary. A replay will be also available at investor.caleres.com/news/events/archive for a limited period. Investors may also access the replay by dialing (844) 512-2921 in North America or (412) 317-6671 internationally and using the conference pin 13742349.

Definitions

All references in this press release, outside of the condensed consolidated financial statements that follow, unless otherwise noted, related to net earnings attributable to Caleres, Inc. and diluted earnings per common share attributable to Caleres, Inc. shareholders, are presented as net earnings and earnings per diluted share, respectively.

Non-GAAP Financial Measures

In this press release, the company’s financial results are provided both in accordance with generally accepted accounting principles (GAAP) and using certain non-GAAP financial measures. In particular, the company provides earnings before interest, taxes, depreciation and amortization, and estimated and future operating earnings, net earnings and earnings per diluted share, adjusted to exclude certain gains, charges, and recoveries, which are non-GAAP financial measures. These results are included as a complement to results provided in accordance with GAAP because management believes these non-GAAP financial measures help identify underlying trends in the company’s business and provide useful information to both management and investors by excluding certain items that may not be indicative of the company’s core operating results. These measures should not be considered a substitute for or superior to GAAP results.

Safe Harbor Statement Under the Private Securities Litigation Reform Act of 1995

This press release contains certain forward-looking statements and expectations regarding the company’s future performance and the performance of its brands. Such statements are subject to various risks and uncertainties that could cause actual results to differ materially. These risks include (i) changing consumer demands, which may be influenced by general economic conditions and other factors; (ii) inflationary pressures (iii) supply chain disruptions (iv) rapidly changing consumer preferences and purchasing patterns and fashion trends; (v) customer concentration and increased consolidation in the retail industry; (vi) intense competition within the footwear industry; (vii) foreign currency fluctuations; (viii) political and economic conditions or other threats to the continued and uninterrupted flow of inventory from China and other countries, where the company relies heavily on third-party manufacturing facilities for a significant amount of its inventory; (ix) cybersecurity threats or other major disruption to the company’s information technology systems; (x) the ability to accurately forecast sales and manage inventory levels; (xi) a disruption in the company’s distribution centers; (xii) the ability to recruit and retain senior management and other key associates; (xiii) the ability to secure/exit leases on favorable terms; (xiv) the ability to maintain relationships with current suppliers; (xv) transitional challenges with acquisitions and divestitures; (xvi) changes to tax laws, policies and treaties; (xvii) our commitments and shareholder expectations related to environmental, social and governance considerations; (xviii) compliance with applicable laws and standards with respect to labor, trade and product safety issues; and (xix) the ability to attract, retain, and maintain good relationships with licensors and protect our intellectual property rights. The company's reports to the Securities and Exchange Commission contain detailed information relating to such factors, including, without limitation, the information under the caption Risk Factors in Item 1A of the company’s Annual Report on Form 10-K for the year ended January 28, 2023, which information is incorporated by reference herein and updated by the company’s Quarterly Reports on Form 10-Q. The company does not undertake any obligation or plan to update these forward-looking statements, even though its situation may change.