DSW & Caleres’ Q3: What Their Results Mean For The Holidays

When it comes to their holiday outlook, management at DSW Inc. and Caleres sang a similar tune during their Q3 earnings calls Tuesday — this year will be a highly promotional one.

While Caleres received a decent boost in the third quarter from its family-footwear-retail chain, Famous Footwear, the company had to double down on its inventory management to counter a tougher macroeconomic backdrop which included unseasonably warm weather and a stronger U.S. dollar.

With a continuation of warm weather through the third quarter, we saw sandal sales up 2.4 percent, driven by women’s sandals which were up more than 7 percent,” Caleres CEO Diane Sullivan said. “For tall-shaft boots we made adjustments where necessary and ended the quarter with sales and inventory in line with our expectations.”

Analysts said they were encouraged by 4.4 percent comp growth at Famous Footwear which offset some of the pressures evidenced across the company’s Brand Portfolio, which saw sales slip 2.8 percent. Growth at both Naturalizer international and U.S. outlet stores, located in tourist markets, were impacted by the strong U.S. dollar, Sullivan said. Despite those headwinds, the brand saw a modest 0.3 percent comp improvement.

Given the well-documented issues across the consumer soft goods sector, and in footwear in particular, we view [Caleres’] results and commentary as positive,” CL King & Associates analyst Steven Marotta wrote. “… Unseasonably moderate fall-to-date temperatures disproportionally affected the Brand Portfolio and, more specifically, the tall shaft boot selection.”

DSW CEO Mike MacDonald said the off-price retailer faced similar macro pressures which led to a 3.9 percent year-over-year decline in comps and a profit slip of 21 percent in Q3. DSW also closed the quarter with inventory up 1.8 percent against revenue declines of nearly 1 percent.

Susquehanna Financial LLLP analyst Christopher Svezia said “several cross currents in DSW’s business” keep him sidelined.

“We believe that meaningful margin recapture may take a bit longer than anticipated given the confluence of a very competitive environment, potential for some rising costs next year (marketing and incentive) and a bigger focus on passing value to the consumer to defend or enhance market share,” Svezia wrote.

As market watchers turn their focus to the holiday season, DSW and Caleres are both looking to the e-commerce channel to boost margins.

Sullivan noted accelerated growth in digital in Q3 — sales at Famous.com advanced more than 50 percent, representing more than 4 percent of Famous Footwear total sales — while MacDonald said DSW’s introduction of Buy Online Pick-Up In Store and Buy Online Ship To Store programs could boost momentum during the holidays.

With the expansion of our omnichannel capabilities, we will provide customers with additional ways to make holiday shopping incredibly convenient at DSW,” MacDonald said, adding, however, that omnichannel expansion and holiday marketing would weigh on profits in the near term. “These actions are designed to improve our sales trend, but they will create some near-term margin pressure and require additional marketing expenditures.”

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