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01/11 16:18
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Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
The earnings call reveals a decline in key financial metrics, with EPS and sales down year-over-year, and gross margins under pressure due to tariffs and promotions. The Q&A section highlights uncertainties around the Stuart Weitzman acquisition and lack of guidance on its impact. While there are some positive signs, like improved traffic and conversion in Famous Footwear, the overall sentiment is negative due to financial declines and uncertainties, leading to a likely negative stock price reaction.
Adjusted Earnings Per Share (EPS) $0.35, a decrease from $0.85 last year, due to lower sales and gross margin pressures.
Second Quarter Sales $658.5 million, down 3.6% year-over-year, attributed to lower sales in both Brand Portfolio and Famous Footwear segments.
Brand Portfolio Sales Declined 3.5% year-over-year, with lead brands growing 1% in North America and 3.6% globally, but weighed down by declines in value-oriented brands and tariff-related impacts.
Famous Footwear Sales Down 4.9% year-over-year, with comparable sales declining 3.4%, due to deeper promotions and unfavorable channel mix.
Consolidated Gross Margin 43.4%, down 210 basis points year-over-year, driven by higher tariff-related costs, markdown reserves, and promotional activities.
Brand Portfolio Gross Margin 40.3%, down 240 basis points year-over-year, impacted by tariffs (250 basis points) and markdown reserves (120 basis points).
Famous Footwear Gross Margin 43.7%, down 130 basis points year-over-year, due to more promotional days and deeper discounts.
SG&A Expenses $269.7 million, up $1.4 million year-over-year, representing 41% of sales and deleveraging by 170 basis points, driven by investments in international business and higher depreciation.
Net Interest Expense $4.5 million, up $1.2 million year-over-year, due to higher average borrowings.
Inventory $693 million, up 4.9% year-over-year, with a 2% increase in Famous Footwear and an 8.6% increase in Brand Portfolio.
Stuart Weitzman Acquisition: Completed acquisition of Stuart Weitzman, adding a new lead brand to the portfolio. The brand aligns with strategic focus areas, including premium contemporary positioning, strong direct-to-consumer penetration, and an established international footprint. Immediate expense savings expected in distribution, logistics, and media buying post-integration.
Sam Edelman Performance: Delivered strong sales growth domestically and internationally, with double-digit growth internationally. Expanded global footprint through new marketplace partnerships and growth in the Middle East.
Famous Footwear Back-to-School Launch: Launched Jordan brand exclusively in its channel for back-to-school, quickly becoming a top 10 brand.
International Sales Growth: International sales increased by double digits, with notable improvement in China trends and expansion in the Middle East.
Market Share Gains: Gained market share in women's fashion footwear and shoe chains. Famous Footwear gained 0.1 points in total market share and 0.6 points in the kids' category.
Tariff Mitigation Efforts: Worked with factory partners to mitigate tariff impacts through supply chain agility and moderate price increases. Tariffs negatively impacted Q2 sales by $10 million.
Cost Savings Initiatives: Completed structural cost savings initiatives, delivering annualized savings of $15 million, with half realized this year. Additional savings expected in 2026 and beyond.
Focus on Lead Brands: Lead brands, including Sam Edelman, Allen Edmonds, Naturalizer, and Vionic, represented over 50% of sales and operating earnings. Focused on international and direct-to-consumer growth.
FLAIR Format Expansion: Expanded FLAIR locations to 55, generating a 3-point sales lift overall and a 6-point lift for stores converted in the last year. Plan to expand to 57 locations by year-end.
Market Uncertainty: The company experienced headwinds due to market uncertainty, which impacted sales trends negatively in both business segments.
Tariff Disruptions: Tariff changes have caused disruptions, including order cancellations and delayed receipts, negatively impacting sales by $10 million in Q2. The new tariffs enacted in August are expected to continue pressuring gross margins.
Inventory Reserves and Clearance Promotions: Higher inventory reserves and increased clearance promotions at Famous Footwear have put pressure on gross margins.
Value-Priced Brands Performance: Value-priced brands experienced ongoing pressure, exacerbated by cancellations related to China manufacturing.
Sourcing Shifts: Naturalizer faced challenges due to sourcing shifts in their wholesale business segment.
Economic Uncertainty: The company refrained from providing annual guidance due to continued economic uncertainty and tariff-related challenges.
Integration of Stuart Weitzman: The integration of Stuart Weitzman is expected to result in immediate expense savings, but the transition period may pose operational challenges.
Gross Margin Pressure: Gross margins were under pressure due to tariff-related costs, markdown reserves, and promotional changes.
Tariff Mitigation and Gross Margin Pressure: The company is employing strategies to mitigate the impact of tariffs on gross margin, including sourcing country mix, factory concessions, selective price increases, and other strategies. However, there is a lag between tariff implementation and mitigation effectiveness. Gross margin pressure is expected to continue into the second half of the year, with improvement anticipated in Q4 as mitigation strategies take effect.
Famous Footwear Sales Outlook: Comparable sales for August were up 1%, driven by back-to-school performance. However, September and October comparable sales are expected to decline low single digits, reflecting a largely non-promotional period.
Brand Portfolio Sales and Margin Expectations: Brand Portfolio sales in August, excluding Stuart Weitzman, were up low single digits. Gross margin for Q3 is expected to decline similarly to Q2, with improvement anticipated in Q4 as mitigation strategies are realized.
Stuart Weitzman Integration: The company completed the acquisition of Stuart Weitzman and expects immediate expense savings in areas such as distribution, logistics, and media buying after a transition period. Further structural cost savings are anticipated in 2026 and beyond.
Long-Term Strategic Priorities: The company is focusing on international growth, direct-to-consumer growth for the Brand Portfolio, and expanding FLAIR stores and new brand additions at Famous Footwear to drive sustained value for shareholders.
The selected topic was not discussed during the call.
The earnings call highlights strong financial performance, with significant growth in membership and co-brand accounts, and a healthy franchise. Investment in tech transformation and optimism for RevPAR growth, especially in international markets, are positive indicators. Despite some uncertainties in credit card negotiations and competition, the overall outlook, including strong shareholder returns and strategic expansions, suggests a positive market reaction.
The earnings call reveals a decline in key financial metrics, with EPS and sales down year-over-year, and gross margins under pressure due to tariffs and promotions. The Q&A section highlights uncertainties around the Stuart Weitzman acquisition and lack of guidance on its impact. While there are some positive signs, like improved traffic and conversion in Famous Footwear, the overall sentiment is negative due to financial declines and uncertainties, leading to a likely negative stock price reaction.
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