Greetings, and welcome to the Caleres, Inc. Fourth Quarter 2024 Earnings Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Liz Dunn, Senior Vice President, Corporate Development and Strategic Communications. Thank you. You may begin.

Good morning, and thank you for joining our fourth quarter and full year 2024 earnings call and webcast. A press release with detailed financial tables as well as our quarterly slide presentation are available at caleres.com. Please be aware today's discussion contains forward-looking statements, which are subject to several risks and uncertainties. Actual results may differ materially due to various risk factors, including those disclosed in the company's Form 10-K and other filings with the US Securities and Exchange Commission. Please refer to today's press release and our SEC filings for more information on risk factors and other factors which could impact forward-looking statements. Copies of these reports are available online. In discussing our operational results today, we will be providing and referring to certain non-GAAP financial measures. Additional details on these measures as well as others featured in today's earnings release and presentation are available at caleres.com. The company undertakes no obligation to update any information discussed on this call at any time. Joining me today are Jay Schmidt, President and CEO; and Jack Calandra, Senior Vice President and CFO. Our call will begin with prepared remarks, followed by a Q&A session to address any questions you have. With that, I will now turn the call over to Jay. Jay?

Good morning, and thank you for joining us today. I've just returned from Seattle where Caleres was honored with the Nordstrom Vendor Partner and Excellence Award for Footwear in 2024. I'm proud of this recognition and it underscores the powerful brands and innovative products all fueled by our Caleres capabilities, and our talented team members that led to this win. Our fourth quarter earnings were at the high end of our recent guidance. We gained market share in women's fashion footwear according to Circana. Our Lead Brands, including Sam Edelman, Allen Edmonds, Naturalizer, and Vionic outperformed. We grew our sneaker penetration and we invested to support our long-term growth while reducing expense elsewhere to align with our areas of strategic focus. And while business in the shoe chain segment softened overall in the quarter, Famous Footwear was able to maximize key selling periods. Also in the quarter, we accelerated the evolution of our supply chain and further mitigated the impact of additional tariffs. By the end of second quarter in 2025, we now expect about 75% of our direct product sourcing to be outside of China with our Lead Brands even further along in this transition. This is higher than the goal we communicated last quarter. For the remaining portion of our business still sourced from China, we are well-positioned to manage additional tariffs through a combination of factory negotiations, selective price increases, and modest gross margin pressure, which has been incorporated into our forward outlook. While 2024 overall was disappointing relative to our initial expectations, we made meaningful progress in advancing our strategic priorities and positioning our brands for sustainable growth. We also laid the foundation for new brands and strategies that support future growth, while returning approximately $75 million to shareholders through buybacks and our longstanding dividend. Now…

Thanks, Jay, and good morning, everyone. During today's call, I'll review both our fourth quarter and full-year 2024 results and share our outlook for 2025, including how we factored recent tariff increases into our guidance. Please note my comments will be on an adjusted basis and comparisons to 2023 will include the impact of the 53rd week unless otherwise indicated. We've included a table in the release outlining the sales impact of the extra week for each segment and total company. Turning to the results. Fourth quarter consolidated sales were $639.2 million, down 8.3%. On a dollar basis, sales were down $57.9 million, which included an unfavorable $30.3 million impact related to the 53rd week and one less back-to-school week in the quarter. Brand Portfolio sales were down 7.2%. Famous sales were down 9.6% in total and down 2.9% on a comparable basis. Full-year consolidated sales were $2.72 billion, down 3.4% to last year, and in line with our latest guidance. Fourth quarter consolidated gross margin was 43%, an 80 basis point decrease to last year, with declines of 40 basis points at Famous and 100 basis points at Brand Portfolio. The decrease at Famous was primarily due to an increase in BOGO days and lower clearance margins. Brand Portfolio's decrease was due to higher discounts and markdown allowances as well as higher freight expense. Full-year consolidated gross margin was 44.9%, up approximately 10 basis points to last year. This was driven by an 80 basis point increase in Brand Portfolio, offset by a 60 basis point decline at Famous. SG&A for the fourth quarter was $261.7 million and 40.9% of sales. SG&A dollars declined $11.2 million versus last year as a result of the restructuring actions we took earlier in the year, and lower variable expenses. Full-year SG&A was…

Thank you. [Operator Instructions] Our first question comes from the line of Ashley Owens with KeyBanc Capital Markets. Please proceed with your question.

Hey, good morning. Thanks for taking the question. So I want to start by touching on the EPS guide a little bit. I guess, could you elaborate on some of the assumptions you're making within that guide for the balance of the year as we look to 2Q, 3Q, and 4Q? I believe each quarter last year also had some headwinds that were at the time considered one-time. So are those embedded at all in your assumptions? And then additionally, how do you think about the path and timeline back to that $4 threshold from here without any of the store contributions being baked in? Is that something that can be achieved in the near term? Thanks.

Yes. Hi, Ashley, it's Jack. Thanks for your question. So just in terms of the assumption for the quarterly phasing for the year, we do expect sequential quarterly improvement throughout the year. And let me just break that down into the two segments. So for Famous, we expect this improvement to come from new product introductions that Jay referenced in his comments as well as the impact of new leadership. We also believe the very challenging February business was an outlier and this is supported by the significant improvement we've seen in the March month-to-date results. And then for Brand Portfolio, we expect this improvement throughout the year to come from a couple of those things that you sort of alluded to in your comments. One, you'll remember we will be anniversarying the SAP upgrade challenges we had in Q2 last year to which we attributed a $15 million sales impact. We have growth in international, which continues to ramp up as we go through the year. We have the launch of Favorite Daughter in the back half. We have the continued momentum in our contemporary brands, in particular, Vince and Veronica Beard and then we have wholesale door growth for Allen Edmonds. And so all of those items that was -- discrete items and initiatives give us confidence in the sequential improvement that we've built into our guidance for the balance of the year.

Okay, great. And maybe just to dial down on contemporary a little bit because it sounds like it's been a bright spot for you. If you could just discuss the trends you're seeing within that and maybe why or your thoughts as to why it's been holding given it is a higher price point? There's a couple of different things I think could be driving this, but do you think the consumer there isn't as at risk? Is there a shift down maybe from luxury to more affordable, but still elevated footwear, dress shoes kind of making a comeback at all, but just anything you could maybe comment on this, shed some light as to the resilience there would be helpful.

Hi, Ashley, it's Jay and you did hit many of them. So I'm going to just reinforce those. First off, we do believe fully and we've seen some data from Circana supporting this as designer has gotten weaker, key contemporary brands are trending and we happen to have two of them currently. So that is something that we believe is a consumer choice in how they're prioritizing their spend. In addition, we have seen a real movement, I think more toward fashion and it's really broad-based in those brands like we are seeing seasonal work well. We have great items within the flat and casual moment. Interestingly enough, the fashion sneaker business in both those brands has been outstanding and it's been running that way for a long time. So combination of our capabilities along with these great brands and working across several categories has been very, very strong. So we're excited about it. And again, now we're seeing more scale coming through there, which gives us a lot of confidence. It also seems that with this desire toward newness being very, very important, certainly, those contemporary brands lead in that way. We're also seeing similar trend lines coming through in our Sam Edelman business and others. So there's a lot to work with here, but it does seem all pointing into one direction, which is great, we plan to lean into it.

Okay, great. Thanks. I'll pass it along.

Thank you.

Thanks.

Thank you. Our next question comes from the line of Laura Champine with Loop Capital Markets. Please proceed with your question.

Thanks for taking my question. It's a follow-up on the expectation that the Brand Portfolio improves throughout the year. And Jack, I think you mentioned lots of sort of small things the international growth, the Allen Edmonds, and so forth. Can you hit your full-year guidance without seeing an improvement in trend in the sort of same-doors business or sort of same-store sales equivalent in the Brand Portfolio group?

Yes. Hi, Laura, it's Jack. Thanks for the question. So as we've modeled this, those initiatives we've talked about, I would say some of them are on the larger side. So the two larger ones are obviously, the SAP upgrade challenges we had last year was $15 million. The international sales growth we expect is also of a similar type of magnitude. And then there are those other things. And so, when we look at these initiatives and what we think they will add, we can, if you will accommodate a decline, if you will, and maybe the base business outside of those things and still hit our guidance. So we do feel comfortable with the quarterly cadence and the growth there.

Got it. And then the Q1, I know you don't guide to gross margin, but it does seem like perhaps the EPS are being impacted by not just the tariffs, but also markdowns. Can you comment on how you expect your markdowns to progress through the year from what seems like it's going to be pretty tough base in Q1?

Yes. I think, Laura, it's Jay. I think we have some of that behind us as we come out of Q1. But for -- as we mentioned in the commentary, our inventory in Brand Portfolio is more current than as a percentage to total and in Famous with more core coming through. So we think the future is better. We did take a lot of pressure and then we feel like we're adequately reserved for those periods coming out of the fourth quarter.

Yes. And Laura, I would just add, so we have contemplated some gross margin decline in the business in Q1. And with that sales forecast or guidance of down 5% to 6%, obviously, there's also some SG&A deleverage just on that lower sales.

Got it. Thank you.

Thank you.

Thank you. Our next question comes from the line of Mitch Kummetz with Seaport Research. Please proceed with your question.

Yes, thanks for taking my questions. I guess I just have a few around the guide. Maybe starting with Jack, you gave us the full-year outlook kind of by operating group, Famous versus BP in terms of the sales. Is there anything more you can say in terms of the split for 1Q?

No, Mitch. I guess what I would say is, within the guidance, of the down 5% to 6% in sales, I think Brand Portfolio will likely be a little bit on the better end of that range and Famous will likely be at the lower end of that range. Again, we are anticipating some gross margin pressure in both businesses in the first quarter. That's reflected in the guide as well as again some SG&A deleverage just on those lower sales.

Okay. And then also on [indiscernible] the first quarter, like on the year, you're giving us the op margin of 5.1% to 5.6%. Unless I missed it, you haven't said anything about op margin in the first quarter. You're just giving us sales and earnings. Is there anything you can say on the op margin for the first quarter?

Yes. We generally, when we give quarterly guidance, Mitch, we usually don't comment on op margin. We usually just give the sales and EPS, but certainly the op margin in Q1 will be the lowest of the year. And again, we will be building back as we go through the year based on those other initiatives and things that we are lapping from last year that will provide benefit.

And then on the earnings guide for both the year and the full year, in the press release, it's characterized as GAAP, EPS, I don't recall if that's how you've done it in the past, but is there -- should pro-forma basically be the same? Is there anything happening in those numbers that would make your pro forma earnings different than your GAAP earnings?

No. The guidance that we've given at this point because we don't have any adjusting items that we are -- that we know about, so the GAAP guide and the adjusted guide are basically the same.

Okay. And then maybe one last one, just on the tariffs. Because you said and this is I think in the presentation that you're passing some of this to the consumer, but then you're also absorbing some of it yourself in terms of gross margin. Is there any way to maybe kind of parse that out a little bit? I mean, are you -- I mean thinking about sort of low-single-digit price increases? And can you say kind of what sort of hit you expect to take on gross margin? Is it 10 basis points, 20 basis points, 30 basis points?

Well, a couple of things. We think that the Mitch, it's Jay. The retail price increases will be, as you suggested on the lower side and they are select by certain opening price brands that remain in China. The -- remember, this is 25% we feel or less of our total as we look at that. So Jack will give you some of the -- I think the backup for that. But we do -- we on the first round of tariffs, we felt like we accomplished most of the coverage on it. And then on the second round, a little more difficult and we want to make sure that we don't price things so far out that they don't -- that we don't get it. You know, it's unattainable for the consumer.

Yes. And Mitch, on the gross margin impact to Brand Portfolio on the year, the strategy that we put forth would call for about 30 basis points to 40 basis points of gross margin hit from absorbing that share of the tariffs at the company.

All right. Thanks again and good luck.

Thank you. Our next question comes from the line of Dana Telsey with Telsey Advisory Group. Please proceed with your question.

Hi, good morning, everyone. Just following up on the gross margins, as you look at the other levers in gross margins like freight or discount, how you're planning for those as we go through the year, and what you're seeing? And then Jay, you mentioned the weakness in Sam Edelman with booties. What are you seeing from your -- the brands overall in terms of category performance going forward and how are you planning? And then just lastly on the wholesale -- two things, wholesale accounts, how are order trends going? And then in your remodeled stores with Famous Footwear, is there any performance differential versus the base and how many remodels will you do this year? Thank you.

Okay. So, I think starting off just to reference the Sam Edelman piece is that they had a lot of best sellers, but we did record a booty. We're just relating to the volume decrease for fourth quarter. How do I feel about that? I actually feel very good about it. I think that what we saw in the Sam Edelman brand is that they leaned strongly into fashion and that's where Sam and his team are all focused on in terms of driving that newness. So it was just really that moment that I would say we had there. And then in some cases, we did sell through some of the tall boots so strongly in Sam that we were out of them in fourth quarter. So those things are really there. But I do feel like that's actually coming back to us again more fashion, more newness and less of what I would say are core and that really responds to the whole company in their boot assortment for them.

And then yes, Dana, in terms of gross margin, so I'll just go back to -- in terms of the operating margin guidance that we gave, we are expecting the operating margin, obviously with the guidance we gave to be down a bit from where we finished 2024. Some of that is in gross margin and coming through the pressure on the tariffs in Brand Portfolio. And then the remainder is the SG&A pressure depending on where in that sales range that we fall. I would say in terms of the levers to to hopefully offset some of that is in Famous, we continue to sort of utilize an AI pricing tool on promotions, which we launched last year, saw some, I think some good results on and that's now more fully burning in. And then just in terms of the mix of the business in Brand Portfolio, direct-to-consumer is obviously margin accretive versus the wholesale business. So as that grows faster, we get some mix benefit. There's some benefit from international. And then some of our -- those contemporary brands that we talked about, Vince and Veronica Beard, we're able to get some really nice gross margins on as well. So those are some of the offsets, if you will.

Okay. And then to just pick-up on your FLAIR store comment, Dana, the -- we did finish with 34. We plan to upgrade 25 more to the format and open one additional new stores. So that will take the total to 60, which we think is a continuous solid number. And again, we're seeing really strong performance even in difficult selling periods as we really refine and improve that performance and we think there's opportunity to even that better as we continue to work with the merchandising assortments in there with the new team that's rallying around that.

Got it. Thank you.

Thank you.

Thank you. Ladies and gentlemen, that concludes our question-and-answer session. For final comments, I'll turn the floor back to Jay Schmidt.

Okay. Thank you, everyone. Before we close today, I -- wouldn't be right without thanking the entire Caleres team for their focus and dedication. Our team worked extremely hard during this 2024 that we had, while really spending a lot of time laying the groundwork for a stronger 2025. And I look forward to updating you on our progress along the way. Thank you all of us for joining us this morning, and thank you for your continued interest in Caleres. Have a good day.

Thank you. This concludes today's conference call. You may disconnect your lines at this time. Thank you for your participation.