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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
(Mark One)
Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended | |
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|
Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from _____________ to _____________ |
Commission file number:
(Exact name of registrant as specified in its charter) | |
|
|
(State or other jurisdiction | (IRS Employer Identification Number) |
of incorporation or organization) | |
(Zip Code) | |
(Address of principal executive offices) | |
( | |
(Registrant’s telephone number, including area code) | |
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company, and emerging growth company” in Rule 12b-2 of the Exchange Act:
Accelerated filer ☐ | |
Non-accelerated filer ☐ | Smaller reporting company |
| Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes
As of August 26, 2022,
INDEX | ||
Page | ||
3 | ||
Management’s Discussion and Analysis of Financial Condition and Results of Operations | 27 | |
37 | ||
37 | ||
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38 | ||
38 | ||
38 | ||
38 | ||
38 | ||
38 | ||
39 | ||
40 | ||
41 | ||
2
PART IFINANCIAL INFORMATION
ITEM 1FINANCIAL STATEMENTS
CALERES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited) | |||||||||
($ thousands) |
| July 30, 2022 |
| July 31, 2021 |
| January 29, 2022 | |||
Assets |
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| |||
Current assets: |
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| ||||
Cash and cash equivalents | $ | | $ | | $ | | |||
Receivables, net |
| |
| |
| | |||
Inventories, net |
| |
| |
| | |||
Income taxes |
| |
| |
| | |||
Property and equipment, held for sale | | | | ||||||
Prepaid expenses and other current assets |
| |
| |
| | |||
Total current assets |
| |
| |
| | |||
Prepaid pension costs |
| |
| |
| | |||
Lease right-of-use assets |
| |
| |
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Property and equipment, net |
| |
| |
| | |||
Goodwill and intangible assets, net |
| |
| |
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Other assets |
| |
| |
| | |||
Total assets | $ | | $ | | $ | | |||
Liabilities and Equity |
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| |||
Current liabilities: |
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| |||
Borrowings under revolving credit agreement | $ | | $ | | $ | | |||
Current portion of long-term debt | | | | ||||||
Mandatory purchase obligation - Blowfish Malibu | | | | ||||||
Trade accounts payable |
| |
| |
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Income taxes |
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Lease obligations |
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Other accrued expenses |
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Total current liabilities |
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Other liabilities: |
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Noncurrent lease obligations |
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Long-term debt |
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Income taxes |
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Deferred income taxes |
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Other liabilities |
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Total other liabilities |
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Equity: |
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| |||
Common stock |
| |
| |
| | |||
Additional paid-in capital |
| |
| |
| | |||
Accumulated other comprehensive loss |
| ( |
| ( |
| ( | |||
Retained earnings |
| |
| |
| | |||
Total Caleres, Inc. shareholders’ equity |
| |
| |
| | |||
Noncontrolling interests |
| |
| |
| | |||
Total equity |
| |
| |
| | |||
Total liabilities and equity | $ | | $ | | $ | | |||
See notes to condensed consolidated financial statements.
3
CALERES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
| (Unaudited) | |||||||||||
Thirteen Weeks Ended |
| Twenty-Six Weeks Ended | ||||||||||
($ thousands, except per share amounts) |
| July 30, 2022 | July 31, 2021 | July 30, 2022 |
| July 31, 2021 | ||||||
Net sales | $ | | $ | | $ | | $ | | ||||
Cost of goods sold |
| |
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Gross profit |
| |
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Selling and administrative expenses |
| |
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Restructuring and other special charges, net |
| — |
| — |
| |
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Operating earnings |
| |
| |
| |
| | ||||
Interest expense, net |
| ( |
| ( |
| ( |
| ( | ||||
Other income, net |
| |
| |
| |
| | ||||
Earnings before income taxes |
| |
| |
| |
| | ||||
Income tax provision |
| ( |
| ( |
| ( |
| ( | ||||
Net earnings |
| |
| |
| |
| | ||||
Net earnings (loss) attributable to noncontrolling interests |
| |
| |
| ( |
| | ||||
Net earnings attributable to Caleres, Inc. | $ | | $ | | $ | | $ | | ||||
Basic earnings per common share attributable to Caleres, Inc. shareholders | $ | | $ | | $ | | $ | | ||||
Diluted earnings per common share attributable to Caleres, Inc. shareholders | $ | | $ | | $ | | $ | | ||||
See notes to condensed consolidated financial statements.
4
CALERES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited) | |||||||||||
Thirteen Weeks Ended |
| Twenty-Six Weeks Ended | |||||||||
($ thousands) | July 30, 2022 |
| July 31, 2021 | July 30, 2022 |
| July 31, 2021 | |||||
Net earnings | $ | | $ | | $ | | $ | | |||
Other comprehensive income (loss) (OCI), net of tax: |
|
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|
|
| ||||
Foreign currency translation adjustment |
| |
| |
| ( |
| ( | |||
Pension and other postretirement benefits adjustments |
| |
| |
| |
| | |||
Other comprehensive income, net of tax |
| |
| |
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| | |||
Comprehensive income |
| |
| |
| |
| | |||
Comprehensive (loss) income attributable to noncontrolling interests |
| ( |
| |
| ( |
| | |||
Comprehensive income attributable to Caleres, Inc. | $ | | $ | | $ | | $ | | |||
See notes to condensed consolidated financial statements.
5
CALERES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
| (Unaudited) | |||||
Twenty-Six Weeks Ended | ||||||
($ thousands) |
| July 30, 2022 |
| July 31, 2021 | ||
Operating Activities |
|
|
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| ||
Net earnings | $ | | $ | | ||
Adjustments to reconcile net earnings to net cash provided by operating activities: |
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| |||
Depreciation |
| |
| | ||
Amortization of capitalized software |
| |
| | ||
Amortization of intangible assets |
| |
| | ||
Amortization of debt issuance costs and debt discount |
| |
| | ||
Fair value adjustments to Blowfish mandatory purchase obligation | | | ||||
Share-based compensation expense |
| |
| | ||
Loss on disposal of property and equipment |
| |
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Impairment charges for property, equipment, and lease right-of-use assets |
| |
| | ||
Adjustment to expected credit losses | ( | ( | ||||
Deferred income taxes |
| |
| | ||
Changes in operating assets and liabilities: |
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| ||||
Receivables |
| ( |
| | ||
Inventories |
| ( |
| ( | ||
Prepaid expenses and other current and noncurrent assets |
| |
| ( | ||
Trade accounts payable |
| |
| | ||
Accrued expenses and other liabilities |
| ( |
| | ||
Income taxes, net |
| |
| | ||
Other, net |
| ( |
| ( | ||
Net cash provided by operating activities |
| |
| | ||
Investing Activities |
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| ||
Purchases of property and equipment |
| ( |
| ( | ||
Capitalized software |
| ( |
| ( | ||
Net cash used for investing activities |
| ( |
| ( | ||
Financing Activities |
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| ||
Borrowings under revolving credit agreement |
| |
| | ||
Repayments under revolving credit agreement |
| ( |
| ( | ||
Dividends paid |
| ( |
| ( | ||
Acquisition of treasury stock |
| ( |
| | ||
Issuance of common stock under share-based plans, net |
| ( |
| ( | ||
Contributions by noncontrolling interests |
| |
| | ||
Other |
| |
| ( | ||
Net cash provided by (used for) financing activities |
| |
| ( | ||
Effect of exchange rate changes on cash and cash equivalents |
| |
| | ||
Increase (decrease) in cash and cash equivalents |
| |
| ( | ||
Cash and cash equivalents at beginning of period |
| |
| | ||
Cash and cash equivalents at end of period | $ | | $ | | ||
See notes to condensed consolidated financial statements.
6
CALERES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
Accumulated | Total | ||||||||||||||||||||||
Other | Caleres, Inc. | Non- | |||||||||||||||||||||
(Unaudited) | Common Stock | Additional | Comprehensive | Retained | Shareholders’ | controlling | |||||||||||||||||
($ thousands, except number of shares and per share amounts) |
| Shares |
| Dollars |
| Paid-In Capital |
| Loss |
| Earnings |
| Equity |
| Interests |
| Total Equity | |||||||
BALANCE APRIL 30, 2022 |
| | $ | | $ | | $ | ( | $ | | $ | | $ | | $ | | |||||||
Net earnings |
|
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| |
| |
| |
| | |||||||||||
Foreign currency translation adjustment |
|
|
|
| |
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|
| |
| ( |
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Pension and other postretirement benefits adjustments, net of tax of $ |
|
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| |
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| | ||||||||||
Comprehensive income (loss) |
|
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| |
| |
| |
| ( |
| | ||||||||||
Dividends ($ |
|
|
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|
| ( |
| ( |
|
|
| ( | ||||||||||
Acquisition of treasury stock |
| ( |
| ( |
|
|
| ( |
| ( |
|
|
| ( | |||||||||
Issuance of common stock under share-based plans, net |
| |
|
| ( |
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| ( |
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| ( | ||||||||||
Share-based compensation expense |
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BALANCE JULY 30, 2022 |
| | $ | | $ | | $ | ( | $ | | $ | | $ | | $ | | |||||||
BALANCE MAY 1, 2021 |
| | $ | | $ | | $ | ( | $ | | $ | | $ | | $ | | |||||||
Net earnings |
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Foreign currency translation adjustment |
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Pension and other postretirement benefits adjustments, net of tax of $ |
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Comprehensive income |
| |
| |
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| | |||||||||||||
Dividends ($ |
|
|
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| ( |
| ( |
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| ( | |||||||||||
Issuance of common stock under share-based plans, net |
| ( |
| ( |
| ( |
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| ( |
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| ( | ||||||||
Share-based compensation expense |
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BALANCE JULY 31, 2021 |
| | $ | | $ | | $ | ( | $ | | $ | | $ | | $ | | |||||||
Accumulated | |||||||||||||||||||||||
Other | Total Caleres, Inc. | Non- | |||||||||||||||||||||
(Unaudited) | Common Stock | Additional | Comprehensive | Retained | Shareholders’ | controlling | |||||||||||||||||
($ thousands, except number of shares and per share amounts) |
| Shares |
| Dollars |
| Paid-In Capital |
| Loss |
| Earnings |
| Equity |
| Interests |
| Total Equity | |||||||
BALANCE JANUARY 29, 2022 |
| | $ | | $ | | $ | ( | $ | | $ | | $ | | $ | | |||||||
Net earnings (loss) |
|
|
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|
| |
| |
| ( |
| | ||||||||
Foreign currency translation adjustment |
|
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| |
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| |
| ( |
| ( | |||||||
Pension and other postretirement benefits adjustments, net of tax of $ |
|
|
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|
| |
|
|
| |
| — |
| | |||||||
Comprehensive income (loss) |
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| |
| |
| |
| ( |
| | |||||||
Contributions by noncontrolling interests | — | | | ||||||||||||||||||||
Dividends ($ |
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|
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|
| ( |
| ( |
|
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| ( | |||||||
Acquisition of treasury stock |
| ( |
| ( |
|
|
|
|
| ( |
| ( |
|
|
| ( | |||||||
Issuance of common stock under share-based plans, net |
| |
| |
| ( |
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| ( |
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| ( | |||||||
Share-based compensation expense |
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BALANCE JULY 30, 2022 |
| | $ | | $ | | $ | ( | $ | | $ | | $ | | $ | | |||||||
BALANCE JANUARY 30, 2021 |
| | $ | | $ | | $ | ( | $ | | $ | | $ | | $ | | |||||||
Net earnings |
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Foreign currency translation adjustment |
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| ( |
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| ( |
| ( |
| ( | |||||||
Pension and other postretirement benefits adjustments, net of tax of $ |
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Comprehensive income |
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Dividends ($ |
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| ( |
| ( |
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| ( | |||||||
Issuance of common stock under share-based plans, net |
| |
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| ( |
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| ( |
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| ( | ||||||||
Share-based compensation expense |
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BALANCE JULY 31, 2021 |
| | $ | | $ | | $ | ( | $ | | $ | | $ | | $ | | |||||||
See notes to condensed consolidated financial statements.
7
CALERES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 1 Basis of Presentation and General
Basis of Presentation
The accompanying condensed consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q of the United States Securities and Exchange Commission (“SEC”) and reflect all adjustments and accruals of a normal recurring nature, which management believes are necessary to present fairly the financial position, results of operations, comprehensive income and cash flows of Caleres, Inc. (the Company). These statements, however, do not include all information and footnotes necessary for a complete presentation of the Company’s consolidated financial position, results of operations, comprehensive income and cash flows in conformity with accounting principles generally accepted in the United States. The condensed consolidated financial statements include the accounts of the Company and its wholly-owned and majority-owned subsidiaries, after the elimination of intercompany accounts and transactions.
The Company’s business is seasonal in nature due to consumer spending patterns, with higher back-to-school and holiday season sales. Although the third fiscal quarter has historically accounted for a substantial portion of the Company’s earnings for the year, the Company is beginning to experience more equal distribution among the quarters. Interim results may not necessarily be indicative of results which may be expected for any other interim period or for the year as a whole.
Certain prior period amounts in the notes to the condensed consolidated financial statements have been reclassified to conform to the current period presentation. These reclassifications did not affect net earnings attributable to Caleres, Inc.
The accompanying condensed consolidated financial statements and footnotes should be read in conjunction with the consolidated financial statements and footnotes included in the Company’s Annual Report on Form 10-K for the year ended January 29, 2022.
Noncontrolling Interests
During 2019, the Company entered into a joint venture with Brand Investment Holding Limited (“Brand Investment Holding”), a member of the Gemkell Group, to sell Sam Edelman, Naturalizer and other branded footwear in China. The Company and Brand Investment Holding are each
The Company had a joint venture agreement with a subsidiary of C. banner International Holdings Limited (“CBI”) to market Naturalizer footwear in China. The Company was a
The Company consolidates CLT and BH Footwear into its condensed consolidated financial statements. Net earnings (loss) attributable to noncontrolling interests represents the share of net earnings or losses that is attributable to Brand Investment Holding and CBI. Transactions between the Company and the joint ventures have been eliminated in the condensed consolidated financial statements.
Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles (“GAAP”) requires management to make estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and accompanying notes. Actual results could differ from those estimates.
CARES Act
On March 27, 2020, the Coronavirus Aid, Relief and Economic Security (CARES) Act was enacted. The CARES Act includes a provision that allows the Company to defer the employer portion of social security payroll tax payments that would have been paid between the enactment date and December 31, 2020, with 50% payable by December 31, 2021 and 50% payable by December 31, 2022. During 2020, the Company deferred approximately $
8
consolidated balance sheet. As of July 31, 2021, approximately $
Property and Equipment, Held for Sale
In April 2021, the Company announced that it would begin marketing for sale its
Note 2 Impact of New Accounting Pronouncements
The Company has evaluated all recently issued, but not yet effective, accounting pronouncements and does not expect any of the pronouncements to have a material impact on the Company’s condensed consolidated financial statements or disclosures.
9
Note 3 Revenues
Disaggregation of Revenues
The following table disaggregates revenue by segment and major source for the periods ended July 30, 2022 and July 31, 2021:
Thirteen Weeks Ended July 30, 2022 | ||||||||||||
Eliminations and | ||||||||||||
($ thousands) |
| Famous Footwear |
| Brand Portfolio |
| Other |
| Total | ||||
Retail stores | $ | | $ | | $ | — | $ | | ||||
E-commerce - Company websites (1) |
| |
| |
| — |
| | ||||
E-commerce - wholesale drop ship (1) |
| |
| |
| ( |
| | ||||
Total direct-to-consumer sales | | | ( | | ||||||||
Wholesale - e-commerce (1) |
| |
| |
| — |
| | ||||
Wholesale - landed |
| |
| |
| ( |
| | ||||
Wholesale - first cost |
| |
| |
| — |
| | ||||
Licensing and royalty |
| |
| |
| — |
| | ||||
Other (2) |
| |
| |
| — |
| | ||||
Net sales | $ | | $ | | $ | ( | $ | | ||||
| Thirteen Weeks Ended July 31, 2021 | |||||||||||
Eliminations and | ||||||||||||
($ thousands) |
| Famous Footwear |
| Brand Portfolio |
| Other |
| Total | ||||
Retail stores | $ | | $ | | $ | | $ | | ||||
E-commerce - Company websites (1) |
| |
| |
| |
| | ||||
E-commerce - wholesale drop ship (1) | | | ( | | ||||||||
Total direct-to-consumer sales | | | ( | | ||||||||
Wholesale - e-commerce (1) |
| |
| |
| |
| | ||||
Wholesale - landed |
| |
| |
| ( |
| | ||||
Wholesale - first cost |
| |
| |
| |
| | ||||
Licensing and royalty |
| |
| |
| |
| | ||||
Other (2) |
| |
| |
| |
| | ||||
Net sales | $ | | $ | | $ | ( | $ | | ||||
Twenty-Six Weeks Ended July 30, 2022 | ||||||||||||
Eliminations and | ||||||||||||
($ thousands) |
| Famous Footwear |
| Brand Portfolio |
| Other |
| Total | ||||
Retail stores | $ | | $ | | $ | — | $ | | ||||
E-commerce - Company websites (1) |
| |
| |
| — |
| | ||||
E-commerce - wholesale drop ship (1) |
| — |
| |
| ( |
| | ||||
Total direct-to-consumer sales | $ | | $ | | $ | ( | $ | | ||||
Wholesale - e-commerce (1) |
| — |
| |
| — |
| | ||||
Wholesale - landed |
| — |
| |
| ( |
| | ||||
Wholesale - first cost |
| — |
| |
| — |
| | ||||
Licensing and royalty |
| |
| |
| — |
| | ||||
Other (2) |
| |
| |
| — |
| | ||||
Total net sales | $ | | $ | | $ | ( | $ | | ||||
10
Twenty-Six Weeks Ended July 31, 2021 | ||||||||||||
Eliminations and | ||||||||||||
($ thousands) |
| Famous Footwear |
| Brand Portfolio |
| Other |
| Total | ||||
Retail stores | $ | | $ | | $ | — | $ | | ||||
E-commerce - Company websites (1) |
| |
| |
| — |
| | ||||
E-commerce - wholesale drop ship (1) | — | | ( | | ||||||||
Total direct-to-consumer sales | $ | | $ | | $ | ( | $ | | ||||
Wholesale - e-commerce (1) |
| — |
| |
| — |
| | ||||
Wholesale - landed |
| — |
| |
| ( |
| | ||||
Wholesale - first cost |
| — |
| |
| — |
| | ||||
Licensing and royalty |
| — |
| |
| — |
| | ||||
Other (2) |
| |
| |
| — |
| | ||||
Net sales | $ | | $ | | $ | ( | $ | | ||||
| (1) | Collectively referred to as e-commerce in the narrative below |
| (2) | Includes breakage revenue from unredeemed gift cards |
Retail stores
Traditionally, the majority of the Company’s revenue is generated from retail sales where control is transferred and revenue is recognized at the point of sale. Retail sales are recorded net of estimated returns and exclude sales tax. The Company records a returns reserve and a corresponding return asset for expected returns of merchandise.
Retail sales to members of the Company’s loyalty programs, including the Famously You Rewards program, include
E-commerce
The Company generates revenue from sales on websites maintained by the Company that are shipped from the Company’s distribution centers or retail stores directly to the consumer, or picked up directly by the consumer from the Company’s stores (“e-commerce – Company websites”); sales from the Company’s wholesale customers’ websites that are fulfilled on a drop-ship basis (“e-commerce – wholesale drop ship”); and other e-commerce sales (“wholesale – e-commerce”), collectively referred to as e-commerce. The Company transfers control and recognizes revenue for merchandise sold that is shipped directly to an individual consumer upon delivery to the consumer.
Landed wholesale
Landed sales are wholesale sales in which the merchandise is shipped directly to the customer from the Company’s warehouses. Many customers purchasing footwear on a landed basis arrange their own transportation of merchandise and, with limited exceptions, control is transferred at the time of shipment.
First-cost wholesale
First-cost sales are wholesale sales in which the Company purchases merchandise from an international factory that manufactures the product and subsequently sells to a customer at an overseas port. Revenue is recognized at the time the merchandise is delivered to the customer’s designated freight forwarder and control is transferred to the customer.
Licensing and royalty
The Company has license agreements with third parties allowing them to sell the Company’s branded product, or other merchandise that uses the Company’s owned or licensed brand names. These license agreements provide the licensee access to the Company’s symbolic intellectual property, and revenue is therefore recognized over the license term. For royalty contracts that do not have guaranteed minimums, the Company recognizes revenue as the licensee’s sales occur. For royalty contracts that have guaranteed minimums, revenue for the guaranteed minimum is recognized on a straight-line basis during the term, until such time that the cumulative royalties exceed the total minimum guarantee. Up-front payments are recognized over the contractual term to which the guaranteed minimum relates.
11
The Company also licenses its Famous Footwear trade name and logo to a third-party financial institution to offer Famous Footwear-branded credit cards to its consumers. The Company receives royalties based upon cardholder spending, which is recognized as licensing revenue at the time when the credit card is used.
Contract Balances
Revenue is recorded at the transaction price, net of estimates for variable consideration for which reserves are established, including returns, allowances and discounts. Variable consideration is estimated using the expected value method and given the large number of contracts with similar characteristics, the portfolio approach is applied to determine the variable consideration for each revenue stream. Reserves for projected returns are based on historical patterns and current expectations.
Information about significant contract balances from contracts with customers is as follows:
($ thousands) |
| July 30, 2022 |
| July 31, 2021 |
| January 29, 2022 | |||
Customer allowances and discounts | $ | | $ | | $ | | |||
Loyalty programs liability |
| |
| |
| | |||
Returns reserve |
| |
| |
| | |||
Gift card liability |
| |
| |
| | |||
Changes in contract balances with customers generally reflect differences in relative sales volume for the periods presented. In addition, during the twenty-six weeks ended July 30, 2022, the loyalty programs liability increased $
The following table summarizes the activity in the Company’s allowance for expected credit losses during the twenty-six weeks ended July 30, 2022 and July 31, 2021:
Twenty-Six Weeks Ended | ||||||
($ thousands) |
| July 30, 2022 | July 31, 2021 | |||
Balance, beginning of period | $ | | $ | | ||
Adjustment to expected credit losses | ( | ( | ||||
Uncollectible accounts written off, net of recoveries | ( | ( | ||||
Balance, end of period | $ | | $ | | ||
Note 4 Earnings Per Share
The Company uses the two-class method to compute basic and diluted earnings per common share attributable to Caleres, Inc. shareholders. In periods of net loss, no effect is given to the Company’s participating securities since they do not contractually participate in the losses of
12
the Company. The following table sets forth the computation of basic and diluted earnings per common share attributable to Caleres, Inc. shareholders for the periods ended July 30, 2022 and July 31, 2021:
Thirteen Weeks Ended | Twenty-Six Weeks Ended | ||||||||||
($ thousands, except per share amounts) | July 30, 2022 |
| July 31, 2021 |
| July 30, 2022 |
| July 31, 2021 | ||||
NUMERATOR | |||||||||||
Net earnings | $ | | $ | | $ | | $ | | |||
Net (earnings) loss attributable to noncontrolling interests |
| ( |
| ( |
| |
| ( | |||
Net earnings attributable to Caleres, Inc. | $ | | $ | | $ | | $ | | |||
Net earnings allocated to participating securities |
| ( |
| ( |
| ( |
| ( | |||
Net earnings attributable to Caleres, Inc. after allocation of earnings to participating securities | $ | | $ | | $ | | $ | | |||
|
|
|
|
|
|
|
| ||||
DENOMINATOR |
|
|
|
|
|
|
|
| |||
Denominator for basic earnings per common share attributable to Caleres, Inc. shareholders |
| |
| |
| |
| | |||
Dilutive effect of share-based awards |
| |
| |
| |
| | |||
Denominator for diluted earnings per common share attributable to Caleres, Inc. shareholders |
| |
| |
| |
| | |||
|
|
|
|
|
|
|
| ||||
Basic earnings per common share attributable to Caleres, Inc. shareholders | $ | | $ | | $ | | $ | | |||
|
|
|
|
|
|
|
| ||||
Diluted earnings per common share attributable to Caleres, Inc. shareholders | $ | | $ | | $ | | $ | | |||
Options to purchase
During the thirteen and twenty-six weeks ended July 30, 2022, the Company repurchased
Note 5 Restructuring and Other Special Charges
Brand Portfolio – Business Exits
During the twenty-six weeks ended July 31, 2021, the Company incurred costs of $
Blowfish Mandatory Purchase Obligation
In 2018, the Company acquired a controlling interest in Blowfish Malibu. The remaining interest was subject to a mandatory purchase obligation after a
13
twenty-six weeks ended July 31, 2021. There were
Note 6 Business Segment Information
Following is a summary of certain key financial measures for the Company’s business segments for the periods ended July 30, 2022 and July 31, 2021:
Famous | Brand | Eliminations | ||||||||||
($ thousands) |
| Footwear |
| Portfolio |
| and Other |
| Total | ||||
Thirteen Weeks Ended July 30, 2022 |
|
|
|
| ||||||||
Net sales | $ | | $ | | $ | ( | $ | | ||||
Intersegment sales (1) |
| — | | — |
| | ||||||
Operating earnings (loss) |
| |
| |
| ( |
| | ||||
Segment assets |
| |
| |
| |
| | ||||
|
|
|
|
|
|
|
| |||||
Thirteen Weeks Ended July 31, 2021 |
|
|
|
|
|
|
|
| ||||
Net sales | $ | | $ | | $ | ( | $ | | ||||
Intersegment sales (1) |
| — |
| |
| — |
| | ||||
Operating earnings (loss) |
| |
| |
| ( |
| | ||||
Segment assets |
| |
| |
| |
| | ||||
|
|
|
|
|
|
|
| |||||
Twenty-Six Weeks Ended July 30, 2022 |
|
|
|
| ||||||||
Net sales | $ | | $ | | $ | ( | $ | | ||||
Intersegment sales (1) |
| — |
| |
| — |
| | ||||
Operating earnings (loss) |
| |
| |
| ( |
| | ||||
|
|
|
|
|
|
|
| |||||
Twenty-Six Weeks Ended July 31, 2021 |
|
|
|
|
|
|
|
| ||||
Net sales | $ | | $ | | $ | ( | $ | | ||||
Intersegment sales (1) |
| — |
| |
| — |
| | ||||
Operating earnings (loss) |
| |
| |
| ( |
| | ||||
| (1) | Included in net sales in the Brand Portfolio segment and eliminated in the Eliminations and Other category. |
The Eliminations and Other category includes corporate assets, administrative expenses and other costs and recoveries, which are not allocated to the operating segments, as well as the elimination of intersegment sales and profit.
Following is a reconciliation of operating earnings to earnings before income taxes:
| Thirteen Weeks Ended | Twenty-Six Weeks Ended | ||||||||||
($ thousands) |
| July 30, 2022 |
| July 31, 2021 |
| July 30, 2022 |
| July 31, 2021 | ||||
Operating earnings | $ | | $ | | $ | | $ | | ||||
Interest expense, net |
| ( |
| ( |
| ( |
| ( | ||||
Other income, net |
| |
| |
| |
| | ||||
Earnings before income taxes | $ | | $ | | $ | | $ | | ||||
14
Note 7 Inventories
The Company’s net inventory balance was comprised of the following:
($ thousands) |
| July 30, 2022 |
| July 31, 2021 |
| January 29, 2022 | |||
Raw materials | $ | | $ | | $ | | |||
Work-in-process |
| |
| |
| | |||
Finished goods |
| |
| |
| | |||
Inventories, net | $ | | $ | | $ | | |||
Note 8 Goodwill and Intangible Assets
Goodwill and intangible assets were as follows:
($ thousands) |
| July 30, 2022 |
| July 31, 2021 |
| January 29, 2022 | |||
Intangible Assets |
|
|
|
|
|
| |||
Famous Footwear | $ | | $ | | $ | | |||
Brand Portfolio |
| |
| |
| | |||
Total intangible assets |
| |
| |
| | |||
Accumulated amortization |
| ( |
| ( |
| ( | |||
Total intangible assets, net |
| |
| |
| | |||
Goodwill |
|
|
|
|
|
| |||
Brand Portfolio (1) |
| |
| |
| | |||
Total goodwill |
| |
| |
| | |||
Goodwill and intangible assets, net | $ | | $ | | $ | | |||
| (1) | The carrying amount of goodwill as of July 30, 2022, July 31, 2021 and January 29, 2022 is presented net of accumulated impairment charges of $ |
15
The Company’s intangible assets as of July 30, 2022, July 31, 2021 and January 29, 2022 were as follows:
($ thousands) |
| July 30, 2022 | ||||||||||||
| Estimated Useful Lives |
|
| Accumulated |
| Accumulated |
| |||||||
(In Years) | Cost Basis | Amortization | Impairment | Net Carrying Value | ||||||||||
Trade names |
| $ | | $ | | $ | | $ | | |||||
Trade names |
| Indefinite |
| |
| — |
| |
| | ||||
Customer relationships |
|
|
| |
|
| |
|
| |
|
| | |
$ | | $ | | $ | | $ | | |||||||
| July 31, 2021 | |||||||||||||
| Estimated Useful Lives |
|
| Accumulated |
| Accumulated |
| |||||||
(In Years) | Cost Basis | Amortization | Impairment | Net Carrying Value | ||||||||||
Trade names |
| $ | | $ | | $ | | $ | | |||||
Trade names |
| Indefinite |
| |
| — |
| |
| | ||||
Customer relationships |
|
|
| |
|
| |
|
| |
|
| | |
$ | | $ | | $ | | $ | | |||||||
| January 29, 2022 | |||||||||||||
| Estimated Useful Lives |
|
| Accumulated |
| Accumulated |
| |||||||
(In Years) | Cost Basis | Amortization | Impairment | Net Carrying Value | ||||||||||
Trade names |
| $ | | $ | | $ | | $ | | |||||
Trade names |
| Indefinite |
| |
| — |
| |
| | ||||
Customer relationships |
|
|
| |
|
| |
|
| |
|
| | |
$ | | $ | | $ | | $ | | |||||||
Amortization expense related to intangible assets was $
Goodwill is tested for impairment at least annually, or more frequently if events or circumstances indicate it might be impaired, using either the qualitative assessment or a quantitative fair value-based test. The Company recorded
Indefinite-lived intangible assets are tested for impairment as of the first day of the fourth quarter of each fiscal year unless events or circumstances indicate an interim test is required. The Company recorded
Note 9 Leases
The Company leases all of its retail locations, a manufacturing facility, and certain office locations, distribution centers and equipment. At contract inception, leases are evaluated and classified as either operating or finance leases. Leases with an initial term of 12 months or less are not recorded on the balance sheet.
Lease right-of-use assets and lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term. The majority of the Company’s leases do not provide an implicit rate and therefore, the Company uses an incremental borrowing rate based on information available at the commencement date to determine the present value of future payments. For operating leases, lease expense for minimum lease payments is recognized on a straight-line basis over the lease term. Variable lease payments are expensed as incurred.
The Company regularly analyzes the results of all of its stores and assesses the viability of underperforming stores to determine whether events or circumstances exist that indicate the stores should be closed or whether the carrying amount of their long-lived assets may not be
16
recoverable. After allowing for an appropriate start-up period and consideration of any unusual nonrecurring events, property and equipment at stores and the lease right-of-use assets indicated as impaired are written down to fair value as calculated using a discounted cash flow method. The fair value of the lease right-of-use assets is determined utilizing projected cash flows for each store location, discounted using a risk-adjusted discount rate, subject to a market floor based on current market lease rates. The Company recorded asset impairment charges of $
As a result of the temporary store closures during the first half of 2020 associated with the pandemic, certain leases were amended to provide rent abatements and/or deferral of lease payments. Deferred payments continue to be reflected in lease obligations on the condensed consolidated balance sheets. Under relief provided by the FASB, entities could make a policy election to account for COVID-19-related lease concessions as if the enforceable rights existed under the original contract, accounting for them as variable rent rather than lease modifications. The Company made a policy election to account for rent abatements as variable rent. Accordingly, during the thirteen and twenty-six weeks ended July 31, 2021, the Company recorded $
During the twenty-six weeks ended July 30, 2022, the Company entered into new or amended leases that resulted in the recognition of right-of-use assets and lease obligations of $
The components of lease expense for the thirteen and twenty-six weeks ended July 30, 2022 and July 31, 2021 were as follows:
Thirteen Weeks Ended | ||||||
($ thousands) | July 30, 2022 |
| July 31, 2021 | |||
Operating lease expense |
| $ | |
| $ | |
Variable lease expense |
| |
| | ||
Short-term lease expense |
| |
| | ||
Sublease income |
| — |
| ( | ||
Total lease expense | $ | | $ | | ||
Twenty-Six Weeks Ended | ||||||
($ thousands) | July 30, 2022 |
| July 31, 2021 | |||
Operating lease expense |
| $ | |
| $ | |
Variable lease expense |
| |
| | ||
Short-term lease expense |
| |
| | ||
Sublease income |
| ( |
| ( | ||
Total lease expense | $ | | $ | | ||
17
Supplemental cash flow information related to leases is as follows:
Twenty-Six Weeks Ended | ||||||
($ thousands) |
| July 30, 2022 |
| July 31, 2021 | ||
Cash paid for lease liabilities (1) | $ | | $ | | ||
Cash received from sublease income |
| |
| | ||
| (1) | Cash paid for lease liabilities for the twenty-six weeks ended July 31, 2021 includes payment of certain lease payments deferred in 2020, as described above, as well as lease termination costs associated with the Naturalizer retail store closings, as further discussed in Note 5 to the condensed consolidated financial statements. |
Note 10 Financing Arrangements
Credit Agreement
The Company maintains a revolving credit facility for working capital needs. The Company is the lead borrower, and Sidney Rich Associates, Inc., BG Retail, LLC, Allen Edmonds LLC, Vionic Group LLC and Vionic International LLC are each co-borrowers and guarantors. On April 8, 2022, Blowfish, LLC was joined to the Credit Agreement as a co-borrower and guarantor.
On October 5, 2021, the Company entered into a Fifth Amendment to Fourth Amended and Restated Credit Agreement (as so amended, the Credit Agreement) which, among other modifications, decreased the amount available under the revolving credit facility by $
Borrowing availability under the Credit Agreement is limited to the lesser of the total commitments and the borrowing base (Loan Cap), which is based on stated percentages of the sum of eligible accounts receivable, eligible inventory and eligible credit card receivables, as defined, less applicable reserves. Under the Credit Agreement, the Loan Parties’ obligations are secured by a first-priority security interest in all accounts receivable, inventory and certain other collateral.
Interest on borrowings is at variable rates based on LIBOR (with a floor of
The Credit Agreement limits the Company’s ability to create, incur, assume or permit to exist additional indebtedness and liens, make investments or specified payments, give guarantees, pay dividends, make capital expenditures and merge or acquire or sell assets. In addition, if excess availability falls below the greater of
The Credit Agreement contains customary events of default, including, without limitation, payment defaults, breaches of representations and warranties, covenant defaults, cross-defaults to similar obligations, certain events of bankruptcy and insolvency, judgment defaults and the failure of any guaranty or security document supporting the agreement to be in full force and effect. If an event of default occurs, the collateral agent may assume dominion and control over the Company’s cash (a “cash dominion event”) until such event of default is cured or waived or the excess availability exceeds such amount for 30 consecutive days, provided that a cash dominion event shall be deemed continuing (even if an event of default is no longer continuing and/or excess availability exceeds the required amount for 30 consecutive business days) after a cash dominion event has occurred and been discontinued on two occasions in any 12-month period. The Credit Agreement also contains certain other covenants and restrictions. The Company was in compliance with all covenants and restrictions under the Credit Agreement as of July 30, 2022.
At July 30, 2022, the Company had $
18
Senior Notes
On July 27, 2015, the Company issued $
19
Note 11 Shareholders’ Equity
Accumulated Other Comprehensive Loss
The following table sets forth the changes in accumulated other comprehensive loss (OCL) by component for the periods ended July 30, 2022 and July 31, 2021:
|
|
| |||||||
Pension and | Accumulated | ||||||||
Foreign | Other | Other | |||||||
Currency | Postretirement | Comprehensive | |||||||
($ thousands) | Translation | Transactions (1) | (Loss) Income | ||||||
Balance at April 30, 2022 | $ | ( | $ | ( | $ | ( | |||
Other comprehensive income before reclassifications | | — | | ||||||
Reclassifications: |
|
|
| ||||||
Amounts reclassified from accumulated other comprehensive loss | — | | | ||||||
Tax benefit |
| — |
| ( |
| ( | |||
Net reclassifications |
| — |
| |
| | |||
Other comprehensive income |
| |
| |
| | |||
Balance at July 30, 2022 | $ | ( | $ | ( | $ | ( | |||
Balance at May 1, 2021 | $ | ( | $ | ( | $ | ( | |||
Other comprehensive income before reclassifications |
| |
| — |
| | |||
Reclassifications: |
|
|
|
|
|
| |||
Amounts reclassified from accumulated other comprehensive loss |
| — |
| |
| | |||
Tax benefit |
| — |
| ( |
| ( | |||
Net reclassifications |
| — |
| |
| | |||
Other comprehensive income |
| |
| |
| | |||
Balance at July 31, 2021 | $ | ( | $ | ( | $ | ( | |||
Balance at January 29, 2022 | $ | ( | $ | ( | $ | ( | |||
Other comprehensive income before reclassifications |
| |
| — |
| | |||
Reclassifications: |
|
|
|
|
| ||||
Amounts reclassified from accumulated other comprehensive loss |
| — |
| |
| | |||
Tax benefit |
| — |
| ( |
| ( | |||
Net reclassifications |
| — |
| |
| | |||
Other comprehensive income |
| |
| |
| | |||
Balance at July 30, 2022 | $ | ( | $ | ( | $ | ( | |||
Balance at January 30, 2021 | $ | ( | $ | ( | $ | ( | |||
Other comprehensive loss before reclassifications |
| ( |
| — |
| ( | |||
Reclassifications: |
|
|
|
|
| ||||
Amounts reclassified from accumulated other comprehensive loss |
| — |
| |
| | |||
Tax benefit |
| — |
| ( |
| ( | |||
Net reclassifications |
| — |
| |
| | |||
Other comprehensive (loss) income |
| ( |
| |
| | |||
Balance at July 31, 2021 | $ | ( | $ | ( | $ | ( | |||
| (1) | Amounts reclassified are included in other income, net. Refer to Note 13 to the condensed consolidated financial statements for additional information related to pension and other postretirement benefits. |
Note 12 Share-Based Compensation
The Company recognized share-based compensation expense of $
20
The Company had net issuances (repurchases) of
Restricted Stock
The following table summarizes restricted stock activity for the periods ended July 30, 2022 and July 31, 2021:
Thirteen Weeks Ended | Thirteen Weeks Ended | |||||||||||
July 30, 2022 | July 31, 2021 | |||||||||||
Weighted- | Weighted- | |||||||||||
Total Number | Average | Total Number | Average | |||||||||
of Restricted | Grant Date | of Restricted | Grant Date | |||||||||
| Shares |
| Fair Value |
|
| Shares |
| Fair Value | ||||
April 30, 2022 | | $ | | May 1, 2021 | | $ | | |||||
Granted | | | Granted | | | |||||||
Forfeited | ( | | Forfeited | ( | | |||||||
Vested |
| ( |
| |
| Vested |
| ( |
| | ||
July 30, 2022 |
| | $ | | July 31, 2021 |
| | $ | | |||
Twenty-Six Weeks Ended | Twenty-Six Weeks Ended | |||||||||||
| July 30, 2022 |
|
| July 31, 2021 | ||||||||
Weighted- | Weighted- | |||||||||||
Total Number | Average | Total Number | Average | |||||||||
of Restricted | Grant Date | of Restricted | Grant Date | |||||||||
Shares |
| Fair Value | Shares | Fair Value | ||||||||
January 29, 2022 |
| | $ | | January 30, 2021 |
| | $ | | |||
Granted |
| |
| | Granted |
| |
| | |||
Forfeited |
| ( |
| | Forfeited |
| ( |
| | |||
Vested |
| ( |
| | Vested |
| ( |
| | |||
July 30, 2022 |
| | $ | | July 31, 2021 |
| | $ | | |||
The Company granted
Performance Awards
During the twenty-six weeks ended July 30, 2022, the Company granted performance share awards for a targeted
21
During the twenty-six weeks ended July 30, 2022, the Company granted long-term incentive awards payable in cash for the 2022-2024 performance period, with a target value of $
Restricted Stock Units for Non-Employee Directors
Equity-based grants may be made to non-employee directors in the form of restricted stock units (RSUs) payable in cash or common stock at no cost to the non-employee director. The RSUs are subject to a vesting requirement (usually one year) and earn dividend equivalents at the same rate as dividends on the Company’s common stock. The dividend equivalents, which vest immediately, are automatically re-invested in additional RSUs. Expense related to the initial grant of RSUs is recognized ratably over the vesting period based upon the fair value of the RSUs. The RSUs payable in cash are remeasured at the end of each period. Expense for the dividend equivalents is recognized at fair value when the dividend equivalents are granted. Gains and losses resulting from changes in the fair value of the RSUs payable in cash subsequent to the vesting period and through the settlement date are recognized in the Company’s condensed consolidated statements of earnings. The Company granted
Note 13 Retirement and Other Benefit Plans
The following table sets forth the components of net periodic benefit income for the Company, including the domestic and Canadian plans:
Pension Benefits | Other Postretirement Benefits | |||||||||||
| Thirteen Weeks Ended |
| Thirteen Weeks Ended | |||||||||
($ thousands) | July 30, 2022 |
| July 31, 2021 |
| July 30, 2022 |
| July 31, 2021 | |||||
Service cost | $ | | $ | | $ | | $ | | ||||
Interest cost |
| |
| |
| |
| | ||||
Expected return on assets |
| ( |
| ( |
| |
| | ||||
Amortization of: |
|
|
|
|
|
| ||||||
Actuarial loss (gain) |
| |
| |
| ( |
| ( | ||||
Prior service income |
| ( |
| ( |
| |
| | ||||
Total net periodic benefit income | $ | ( | $ | ( | $ | ( | $ | ( | ||||
Pension Benefits | Other Postretirement Benefits | |||||||||||
| Twenty-Six Weeks Ended |
| Twenty-Six Weeks Ended | |||||||||
($ thousands) |
| July 30, 2022 |
| July 31, 2021 |
| July 30, 2022 |
| July 31, 2021 | ||||
Service cost | $ | | $ | | $ | | $ | | ||||
Interest cost |
| |
| |
| |
| | ||||
Expected return on assets |
| ( |
| ( |
| |
| | ||||
Amortization of: |
|
| ||||||||||
Actuarial loss (gain) |
| |
| |
| ( |
| ( | ||||
Prior service income |
| ( |
| ( |
| |
| | ||||
Total net periodic benefit income | $ | ( | $ | ( | $ | ( | $ | ( | ||||
The non-service cost components of net periodic benefit income are included in other income, net in the condensed consolidated statements of earnings. Service cost is included in selling and administrative expenses.
22
Note 14 Fair Value Measurements
Fair Value Hierarchy
Fair value measurement disclosure requirements specify a hierarchy of valuation techniques based upon whether the inputs to those valuation techniques reflect assumptions other market participants would use based upon market data obtained from independent sources (“observable inputs”) or reflect the Company’s own assumptions of market participant valuation (“unobservable inputs”). In accordance with the fair value guidance, the inputs to valuation techniques used to measure fair value are categorized into three levels based on the reliability of the inputs as follows:
| ● | Level 1 – Quoted prices in active markets that are unadjusted and accessible at the measurement date for identical, unrestricted assets or liabilities; |
| ● | Level 2 – Quoted prices for identical assets and liabilities in markets that are not active, quoted prices for similar assets and liabilities in active markets or financial instruments for which significant inputs are observable, either directly or indirectly; and |
| ● | Level 3 – Prices or valuations that require inputs that are both significant to the fair value measurement and unobservable. |
In determining fair value, the Company uses valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible. The Company also considers counterparty credit risk in its assessment of fair value. Classification of the financial or non-financial asset or liability within the hierarchy is determined based on the lowest level input that is significant to the fair value measurement.
Measurement of Fair Value
The Company measures fair value as an exit price, the price to sell an asset or transfer a liability in an orderly transaction between market participants at the measurement date, using the procedures described below for all financial and non-financial assets and liabilities measured at fair value.
Money Market Funds
The Company periodically invests in cash equivalents consisting of short-term money market funds backed by U.S. Treasury securities to preserve the Company’s capital for the purpose of funding operations. It does not enter into money market funds for trading or speculative purposes. The fair value is based on unadjusted quoted market prices for the funds in active markets with sufficient volume and frequency (Level 1).
Non-Qualified Deferred Compensation Plan Assets and Liabilities
The Company maintains a non-qualified deferred compensation plan (the “Deferred Compensation Plan”) for the benefit of certain management employees. The investment funds offered to the participants generally correspond to the funds offered in the Company’s 401(k) plan, and the account balance fluctuates with the investment returns on those funds. The Deferred Compensation Plan permits the deferral of up to
Deferred Compensation Plan for Non-Employee Directors
Non-employee directors are eligible to participate in a deferred compensation plan with deferred amounts valued as if invested in the Company’s common stock through the use of phantom stock units (“PSUs”). Under the plan, each participating director’s account is credited with the number of PSUs equal to the number of shares of the Company’s common stock that the participant could purchase or receive with the amount of the deferred compensation, based upon the average of the high and low prices of the Company’s common stock on the last trading day of the fiscal quarter when the cash compensation was earned. Dividend equivalents are paid on PSUs at the same rate as dividends on the Company’s common stock and are re-invested in additional PSUs at the next fiscal quarter-end. The liabilities of the plan are based on the fair value of the outstanding PSUs and are presented in other accrued expenses (current portion) or other liabilities in the condensed consolidated balance sheets. Gains and losses resulting from changes in the fair value of the PSUs are presented in selling and administrative expenses in the Company’s condensed consolidated statements of earnings. The fair value of each PSU is based on an unadjusted quoted market price for the Company’s common stock in an active market with sufficient volume and frequency on each measurement date (Level 1).
23
Restricted Stock Units for Non-Employee Directors
Under the Company’s incentive compensation plans, cash-equivalent restricted stock units (“RSUs”) of the Company were previously granted at no cost to non-employee directors. These cash-equivalent RSUs are subject to a vesting requirement (usually
Mandatory Purchase Obligation
The Company recorded a mandatory purchase obligation of the remaining interest in conjunction with the acquisition of Blowfish Malibu in July 2018. The fair value of the mandatory purchase obligation was based on the earnings formula specified in the purchase agreement (Level 3). Fair value adjustments on the mandatory purchase obligation were recorded as interest expense. During the thirteen and twenty-six weeks ended July 31, 2021, the Company recorded fair value adjustments of $
The following table presents the Company’s assets and liabilities that are measured at fair value on a recurring basis at July 30, 2022, July 31, 2021 and January 29, 2022. During the twenty-six weeks ended July 30, 2022 and July 31, 2021, there were
| Fair Value Measurements | |||||||||||
($ thousands) |
| Total |
| Level 1 |
| Level 2 |
| Level 3 | ||||
Asset (Liability) |
|
|
|
| ||||||||
July 30, 2022: |
|
|
|
| ||||||||
Non-qualified deferred compensation plan assets | $ | | $ | | $ | | $ | | ||||
Non-qualified deferred compensation plan liabilities |
| ( |
| ( |
| | | |||||
Deferred compensation plan liabilities for non-employee directors |
| ( |
| ( |
| | | |||||
Restricted stock units for non-employee directors |
| ( |
| ( |
| | | |||||
July 31, 2021: |
|
|
|
| ||||||||
Cash equivalents – money market funds | $ | | $ | | $ | | $ | | ||||
Non-qualified deferred compensation plan assets | | | | | ||||||||
Non-qualified deferred compensation plan liabilities |
| ( |
| ( |
| | | |||||
Deferred compensation plan liabilities for non-employee directors |
| ( |
| ( |
| | | |||||
Restricted stock units for non-employee directors |
| ( |
| ( |
| | | |||||
Mandatory purchase obligation - Blowfish Malibu |
| ( |
| |
| | ( | |||||
January 29, 2022: |
|
|
|
| ||||||||
Non-qualified deferred compensation plan assets |
| |
| |
| | | |||||
Non-qualified deferred compensation plan liabilities |
| ( |
| ( |
| | | |||||
Deferred compensation plan liabilities for non-employee directors |
| ( |
| ( |
| | | |||||
Restricted stock units for non-employee directors |
| ( |
| ( |
| | | |||||
Impairment Charges
The Company assesses the impairment of long-lived assets whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Factors the Company considers important that could trigger an impairment review include underperformance relative to historical or projected future operating results, a significant change in the manner of the use of the asset, or a negative industry or economic trend. When the Company determines that the carrying value of long-lived assets may not be recoverable based upon the existence of one or more of the aforementioned factors, impairment is measured based on a projected discounted cash flow method. Certain factors, such as estimated store sales and expenses, used for this nonrecurring fair value measurement are considered Level 3 inputs as defined by FASB ASC Topic 820, Fair Value Measurement. Long-lived assets held and used with a carrying amount of $
24
following impairment charges, primarily for capitalized software and operating lease right-of-use assets, leasehold improvements and furniture and fixtures in the Company’s retail stores.
Thirteen Weeks Ended | Twenty-Six Weeks Ended | |||||||||||
($ thousands) |
| July 30, 2022 |
| July 31, 2021 |
| July 30, 2022 |
| July 31, 2021 | ||||
Long-Lived Asset Impairment Charges |
|
|
|
|
|
|
|
| ||||
Famous Footwear | $ | | $ | | $ | | $ | | ||||
Brand Portfolio |
| |
| — |
| |
| | ||||
Total long-lived asset impairment charges | $ | | $ | | $ | | $ | | ||||
Fair Value of the Company’s Other Financial Instruments
The fair values of cash and cash equivalents (excluding money market funds discussed above), receivables and trade accounts payable approximate their carrying values due to the short-term nature of these instruments.
The carrying amounts and fair values of the Company’s other financial instruments subject to fair value disclosures are as follows:
| July 30, 2022 |
| July 31, 2021 |
| January 29, 2022 | |||||||||||||
($ thousands) |
| Carrying Value (1) |
| Fair Value |
| Carrying Value (1) |
| Fair Value |
| Carrying Value (1) |
| Fair Value | ||||||
Borrowings under revolving credit agreement | $ | | $ | | $ | | $ | | $ | | $ | | ||||||
Current portion of long-term debt | — | — | | | — | — | ||||||||||||
Long-term debt |
| — |
| — |
| |
| |
| — |
| — | ||||||
Total debt | $ | | $ | | $ | | $ | | $ | | $ | | ||||||
| (1) | Excludes unamortized debt issuance costs and debt discount |
The fair values of borrowings under revolving credit agreement and current portion of long-term debt approximate their carrying values due to the short-term nature of these borrowings (Level 1). The fair value of the Company’s long-term debt was based upon quoted prices in an inactive market as of July 31, 2021 (Level 2).
Note 15 Income Taxes
The Company’s consolidated effective tax rate can vary considerably from period to period, depending on a number of factors. The Company’s consolidated effective tax rates were
The Company’s consolidated effective tax rate was
As of July 30, 2022,
25
Note 16 Commitments and Contingencies
Environmental Remediation
Prior operations included numerous manufacturing and other facilities for which the Company may have responsibility under various environmental laws for the remediation of conditions that may be identified in the future. The Company is involved in environmental remediation and ongoing compliance activities at several sites and has been notified that it is or may be a potentially responsible party at several other sites.
Redfield
The Company is remediating, under the oversight of Colorado authorities, the groundwater and indoor air at its owned facility in Colorado (the “Redfield site” or, when referring to remediation activities at or under the facility, the “on-site remediation”) and residential neighborhoods adjacent to and near the property (the “off-site remediation”) that have been affected by solvents previously used at the facility. The on-site remediation calls for the operation of a pump and treat system (which prevents migration of contaminated groundwater off the property) as the final remedy for the site, subject to monitoring and periodic review of the on-site conditions and other remedial technologies that may be developed in the future. In 2016, the Company submitted a revised plan to address on-site conditions, including direct treatment of source areas, and received approval from the oversight authorities to begin implementing the revised plan.
As the treatment of the on-site source areas progresses, the Company expects to convert the pump and treat system to a passive treatment barrier system. Off-site groundwater concentrations have been reducing over time since installation of the pump and treat system in 2000 and injection of clean water beginning in 2003. However, localized areas of contaminated bedrock just beyond the property line continue to impact off-site groundwater. The modified work plan for addressing this condition includes converting the off-site bioremediation system into a monitoring well network and employing different remediation methods in these recalcitrant areas. In accordance with the work plan, a pilot test was conducted of certain groundwater remediation methods and the results of that test were used to develop more detailed plans for remedial activities in the off-site areas, which were approved by the authorities and are being implemented in a phased manner. The results of groundwater monitoring are being used to evaluate the effectiveness of these activities. The Company continues to implement the expanded remedy work plan that was approved by the oversight authorities in 2015. Based on the progress of the direct remedial action of on-site conditions, the Company submitted a request to the oversight authorities for permission to convert the perimeter pump and treat active remediation system to a passive one. In 2019, a final response was received from the oversight authorities, which is allowing the Company to proceed with implementation of the revised plan on a portion of the treatment system. The Company continues to pursue approval from the oversight authorities for the full conversion of the perimeter pump and treat active remediation system to a passive one. The Company also continues to work with the oversight authorities on the off-site work plan.
The cumulative expenditures for both on-site and off-site remediation through July 30, 2022 were $
Other
Various federal and state authorities have identified the Company as a potentially responsible party for remediation at certain other sites. However, the Company does not currently believe that its liability for such sites, if any, would be material.
The Company continues to evaluate its remediation plans in conjunction with its environmental consultants and records its best estimate of remediation liabilities. However, future actions and the associated costs are subject to oversight and approval of various governmental authorities. Accordingly, the ultimate costs may vary, and it is possible costs may exceed the recorded amounts.
Litigation
The Company is involved in legal proceedings and litigation arising in the ordinary course of business. In the opinion of management, the outcome of such ordinary course of business proceedings and litigation currently pending is not expected to have a material adverse effect on the Company’s results of operations or financial position. Legal costs associated with litigation are expensed as incurred.
26
ITEM 2 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
We delivered strong financial and operational results for the second quarter, with record net sales and earnings. We leveraged our lead brands to capitalize on robust demand in trending footwear categories to meet the needs of our core consumer and drive strong gross profit and operating margins. We also strategically augmented our inventory levels in advance of the fall buying and back-to-school seasons. We continued to execute on our capital return program and repurchased 1.1 million shares of our common stock during the second quarter of 2022.
Financial Highlights
Following is a summary of the financial highlights for the second quarter of 2022:
| ● | Consolidated net sales increased $62.8 million, or 9.3%, to $738.3 million in the second quarter of 2022, compared to $675.5 million in the second quarter of 2021. Our Famous Footwear segment continued its strong performance with net sales of $436.4 million. Net sales of our Brand Portfolio segment increased $85.1 million, or 35.6%, compared to the second quarter of 2021. On a consolidated basis, our direct-to-consumer sales represented approximately 72% of consolidated net sales for the second quarter of 2022, compared to 79% in the second quarter of 2021. |
| ● | Consolidated gross profit increased $14.5 million, or 4.5%, to $336.8 million in the second quarter of 2022, compared to $322.3 million in the second quarter of 2021. Our gross profit margin decreased to 45.6% in the second quarter of 2022, compared to 47.7% in the second quarter of 2021, reflecting a higher mix of wholesale versus retail sales combined with higher markdowns and an increase in freight costs associated with e-commerce sales. |
| ● | Consolidated operating earnings increased $5.6 million to $68.4 million in the second quarter of 2022, compared to $62.8 million in the second quarter of 2021. |
| ● | Consolidated net earnings attributable to Caleres, Inc. were $51.2 million, or $1.38 per diluted share, in the second quarter of 2022, compared to $37.4 million, or $0.97 per diluted share, in the second quarter of 2021. |
The following items should be considered in evaluating the comparability of our second quarter results in 2022 and 2021:
| ● | Inflationary Pressures – We continued to experience inflationary pressures on product costs and inbound freight during the second quarter of 2022. The price increases we began implementing in the second half of 2021 have mitigated the majority of these inflationary pressures related to product costs. We believe our ability to limit promotional activity and align inventory to demand will continue to mitigate the impact of these inflationary pressures on our financial results. However, ongoing general inflation continues to impact consumer sentiment and may result in lower consumer spending in the second half of 2022 and beyond. |
| ● | Blowfish Malibu mandatory purchase obligation – As further discussed in Note 5 and Note 14 to the condensed consolidated financial statements, the remaining interest in Blowfish Malibu was subject to a mandatory purchase obligation after a three-year period following the 2018 acquisition, based on an earnings multiple formula. During the second quarter of 2021, we recorded a fair value adjustment of $7.1 million ($5.3 million on an after-tax basis, or $0.14 per diluted share). The fair value adjustment was recorded as interest expense, net in the condensed consolidated statement of earnings. There were no corresponding charges in the second quarter of 2022. The purchase obligation was settled for $54.6 million on November 4, 2021. |
Metrics Used in the Evaluation of Our Business
The following are a couple of key metrics by which we evaluate our business and make strategic decisions:
Same-store sales
The same-store sales metric is a metric commonly used in the retail industry to evaluate the revenue generated for stores that have been open for more than a year, though other retailers may calculate the metric differently. Management uses the same-store sales metric as a measure of an individual store’s success to determine whether it is performing in line with expectations. Our same-store sales metric is a daily-
27
weighted calculation for the period, which includes sales for stores that have been open for at least 13 months. In addition, in order to be included in the same-store sales metric, a store must be open in the current period as well as the corresponding day(s) of the comparable retail calendar in the prior year. Accordingly, closed stores are excluded from the same-store sales metric for each day of the closure. Relocated stores are treated as new stores and therefore excluded from the calculation. E-commerce sales for those websites that function as an extension of a retail chain are included in the same-store sales calculation. We believe the same-store sales metric is useful to shareholders and investors in assessing our retail sales performance of existing locations with comparable prior year sales, separate from the impact of store openings or store closures.
Sales per square foot
The sales per square foot metric is commonly used in the retail industry to calculate the efficiency of sales based upon the square footage in a store. Management uses the sales per square foot metric as a measure of an individual store’s success to determine whether it is performing in line with expectations. The sales per square foot metric is calculated by dividing total retail store sales, excluding e-commerce sales, by the total square footage of the retail store base at the end of each month of the respective period.
Outlook
Even with ongoing inflationary pressures and uncertainties around consumer sentiment, we believe we are well-positioned to capitalize on opportunities across a broad spectrum of consumer segments by leveraging our diverse portfolio of brands. We will continue to utilize our core competencies in brand building, merchandising, marketing and logistics to further our strategic priorities and execute on our capital return program in an effort to enhance value for our shareholders.
Following are the consolidated results and the results by segment:
CONSOLIDATED RESULTS
| Thirteen Weeks Ended | Twenty-Six Weeks Ended |
| |||||||||||||||||||
| July 30, 2022 |
| July 31, 2021 |
|
| July 30, 2022 |
| July 31, 2021 |
| |||||||||||||
% of | % of | % of | % of | |||||||||||||||||||
($ millions) |
|
|
| Net Sales |
|
|
| Net Sales |
|
|
|
| Net Sales |
|
|
| Net Sales |
| ||||
Net sales | $ | 738.3 |
| 100.0 | % | $ | 675.5 |
| 100.0 | % | $ | 1,473.4 |
| 100.0 | % | $ | 1,314.2 |
| 100.0 | % | ||
Cost of goods sold |
| 401.5 |
| 54.4 | % |
| 353.2 |
| 52.3 | % |
| 809.6 |
| 54.9 | % |
| 717.0 |
| 54.6 | % | ||
Gross profit |
| 336.8 |
| 45.6 | % |
| 322.3 |
| 47.7 | % |
| 663.8 |
| 45.1 | % |
| 597.2 |
| 45.4 | % | ||
Selling and administrative expenses |
| 268.4 |
| 36.3 | % |
| 259.5 |
| 38.4 | % |
| 529.2 |
| 36.0 | % |
| 503.0 |
| 38.3 | % | ||
Restructuring and other special charges, net |
| — |
| — | % |
| — |
| — | % |
| — |
| — | % |
| 13.5 |
| 1.0 | % | ||
Operating earnings |
| 68.4 |
| 9.3 | % |
| 62.8 |
| 9.3 | % |
| 134.6 |
| 9.1 | % |
| 80.7 |
| 6.1 | % | ||
Interest expense, net |
| (2.5) |
| (0.3) | % |
| (12.0) |
| (1.7) | % |
| (4.8) | (0.3) | % |
| (23.8) |
| (1.8) | % | |||
Other income, net |
| 3.2 |
| 0.4 | % |
| 3.9 |
| 0.5 | % |
| 6.6 | 0.5 | % |
| 7.7 |
| 0.6 | % | |||
Earnings before income taxes |
| 69.1 |
| 9.4 | % |
| 54.7 |
| 8.1 | % |
| 136.4 |
| 9.3 | % |
| 64.6 |
| 4.9 | % | ||
Income tax provision |
| (17.5) |
| (2.4) | % |
| (16.5) |
| (2.5) | % |
| (34.9) |
| (2.4) | % |
| (20.1) |
| (1.5) | % | ||
Net earnings |
| 51.6 |
| 7.0 | % |
| 38.2 | 5.6 | % |
| 101.5 |
| 6.9 | % |
| 44.5 | 3.4 | % | ||||
Net earnings (loss) attributable to noncontrolling interests |
| 0.4 |
| 0.1 | % |
| 0.8 |
| 0.1 | % |
| (0.2) |
| (0.0) | % |
| 1.0 |
| 0.1 | % | ||
Net earnings attributable to Caleres, Inc. | $ | 51.2 |
| 6.9 | % | $ | 37.4 |
| 5.5 | % | $ | 101.7 |
| 6.9 | % | $ | 43.5 |
| 3.3 | % | ||
Net Sales
Net sales increased $62.8 million, or 9.3%, to $738.3 million for the second quarter of 2022, compared to $675.5 million for the second quarter of 2021. Net sales for our Brand Portfolio segment increased $85.1 million, or 35.6% during the second quarter of 2022, compared to the second quarter of 2021, led by strong performances by our lead brands. Net sales for our Famous Footwear segment remained strong, but decreased $17.3 million, or 3.8%, in the second quarter of 2022 compared to the second quarter of 2021, primarily reflecting a lower store count and a slower start to the back-to-school season. On a consolidated basis, our direct-to-consumer sales represented approximately 72% of total net sales for the second quarter of 2022. We continued to experience robust growth in our dress, casual and occasion-based styles during the quarter. While demand for our athletics footwear slowed during the quarter, it continues to be one of our top-selling categories. We remain focused on maximizing the vertical opportunity between the Famous Footwear and Brand Portfolio segments, with Dr. Scholl’s, LifeStride and Blowfish Malibu representing three of Famous Footwear’s top 15 best-selling footwear brands during the quarter.
Net sales increased $159.2 million, or 12.1%, to $1,473.4 million for the six months ended July 30, 2022, compared to $1,314.2 million for the six months ended July 31, 2021. Net sales for our Brand Portfolio segment increased $200.5 million, or 41.0% during the first six months of 2022, compared to the first six months of 2021. Our Famous Footwear segment’s sales momentum continued. However, net sales for Famous Footwear decreased $30.9 million, or 3.6%, in the first six months of 2022 compared to the first six months of 2021, primarily
28
reflecting a lower store count and a slower start to the back-to-school season. On a consolidated basis, our direct-to-consumer sales represented approximately 69% of total net sales for the six months ended July 30, 2022.
Gross Profit
Gross profit increased $14.5 million, or 4.5%, to $336.8 million for the second quarter of 2022, compared to $322.3 million for the second quarter of 2021, reflecting higher net sales. As a percentage of net sales, gross profit decreased to 45.6% for the second quarter of 2022, compared to 47.7% for the second quarter of 2021, reflecting a higher mix of wholesale versus retail sales combined with higher markdowns and an increase in freight costs associated with e-commerce sales.
Gross profit increased $66.6 million, or 11.2%, to $663.8 million for the six months ended July 30, 2022, compared to $597.2 million for the six months ended July 31, 2021, reflecting higher net sales. As a percentage of net sales, gross profit decreased slightly to 45.1% for the first half of 2022, compared to 45.4% for the first half of 2021.
We classify certain warehousing, distribution, sourcing and other inventory procurement costs in selling and administrative expenses. Accordingly, our gross profit and selling and administrative expense rates, as a percentage of net sales, may not be comparable to other companies.
Selling and Administrative Expenses
Selling and administrative expenses increased $8.9 million, or 3.4%, to $268.4 million for the second quarter of 2022, compared to $259.5 million for the second quarter of 2021. The increase was driven by higher marketing expenses as a result of our strategic investment in consumer marketing to drive deeper connections with our consumers, and higher salary and benefits expenses, partially offset by lower expenses associated with our cash-based incentive compensation plans. In 2021, our first half financial results exceeded the targets established for our annual incentive plans, which resulted in a larger portion of the anticipated plan payouts recorded as expense in the second quarter of 2021. For 2022, anticipated plan payouts are being recognized more ratably during the year. As a percentage of net sales, selling and administrative expenses decreased to 36.4% for the second quarter of 2022, from 38.4% for the second quarter of 2021, reflecting leveraging of expenses on higher net sales.
Selling and administrative expenses increased $26.2 million, or 5.2%, to $529.2 million for the six months ended July 30, 2022, compared to $503.0 million for the six months ended July 31, 2021. The increase primarily reflects the factors described above. As a percentage of net sales, selling and administrative expenses decreased to 36.0% for the six months ended July 30, 2022, from 38.3% for the six months ended July 31, 2021, reflecting leveraging of expenses on higher net sales.
Restructuring and Other Special Charges, Net
We incurred restructuring and other special charges of $13.5 million ($11.9 million on an after-tax basis, or $0.31 per diluted share) during the six months ended July 31, 2021, reflecting expenses associated with the strategic realignment of the Naturalizer retail store operations. There were no corresponding charges during the six months ended July 30, 2022 or the second quarter of 2021. Refer to Note 5 to the condensed consolidated financial statements for further discussion of these charges.
Operating Earnings
Operating earnings increased $5.6 million to $68.4 million for the second quarter of 2022, compared to $62.8 million for the second quarter of 2021, primarily reflecting higher net sales and gross profit. As a percentage of net sales, operating earnings were 9.3% for the second quarter of 2022, consistent with the second quarter of 2021.
Operating earnings increased $53.9 million to $134.6 million for the six months ended July 30, 2022, compared to $80.7 million for the six months ended July 31, 2021, primarily reflecting higher net sales and gross profit. As a percentage of net sales, operating earnings were 9.1% for the six months ended July 30, 2022, compared to 6.1% for the six months ended July 31, 2021.
Interest Expense, Net
Interest expense, net decreased $9.5 million, or 78.4%, to $2.5 million for the second quarter of 2022, compared to $12.0 million for the second quarter of 2021, primarily due to the non-recurrence of the $7.1 million fair value adjustment to the Blowfish Malibu mandatory purchase obligation in the second quarter of 2021. The purchase obligation was settled for $54.6 million on November 4, 2021. In addition, we redeemed our $200 million aggregate principal of senior notes in the second half of 2021. By retiring our senior notes, we shifted our higher-rate debt to the lower-rate borrowings under our revolving credit agreement, which reduced our interest expense by approximately $3.1 million compared to the second quarter of 2021. These decreases were partially offset by an increase in interest expense attributable to higher average borrowings under our revolving credit agreement.
29
Interest expense, net decreased $19.0 million, or 79.4%, to $4.8 million for the six months ended July 30, 2022, compared to $23.8 million for the six months ended July 31, 2021, primarily due to the non-recurrence of the $13.5 million fair value adjustment to the Blowfish Malibu mandatory purchase obligation in the six months ended July 31, 2021. In addition, after retiring our senior notes, the shift of our higher-rate debt to the lower-rate borrowings under our revolving credit agreement reduced our interest expense by approximately $6.3 million compared to the six months ended July 31, 2021. These decreases were partially offset by an increase in interest expense attributable to higher average borrowings under our revolving credit agreement.
Other Income, Net
Other income, net decreased $0.7 million, or 16.7%, to $3.2 million for the second quarter of 2022, compared to $3.9 million for the second quarter of 2021, which reflects a reduction of certain components of net periodic benefit income.
Other income, net decreased $1.1 million, or 13.6%, to $6.6 million for the six months ended July 30, 2022, compared to $7.7 million for the six months ended July 31, 2021, which reflects a reduction of certain components of net periodic benefit income. Refer to Note 13 of the condensed consolidated financial statements for further detail regarding the components of net periodic benefit income.
Income Tax Provision
Our effective tax rate can vary considerably from period to period, depending on a number of factors. Our consolidated effective tax rate was 25.3% for the second quarter of 2022, compared to 30.3% for the second quarter of 2021. The higher effective tax rate for the second quarter of 2021 was driven by discrete tax adjustments of $2.9 million, inclusive of $3.3 million of incremental valuation allowances for our deferred tax assets, as we were in a full valuation allowance position for federal, state and certain international jurisdictions.
Our consolidated effective tax rate was 25.5% for the six months ended July 30, 2022, compared to 31.1% for the six months ended July 31, 2021. The higher effective tax rate for the first half of 2021 primarily reflects the incremental valuation allowances recorded in the second quarter, as described above, and the non-deductibility of losses at our Canadian division, which were driven by exit-related costs associated with our Naturalizer retail stores in the first quarter of 2021.
Net Earnings Attributable to Caleres, Inc.
Net earnings attributable to Caleres, Inc. were $51.2 million and $101.7 million for the second quarter and six months ended July 30, 2022, respectively, compared to net earnings of $37.4 million and $43.5 million for the second quarter and six months ended July 31, 2021, respectively, as a result of the factors described above.
FAMOUS FOOTWEAR
Thirteen Weeks Ended | Twenty-Six Weeks Ended | |||||||||||||||||||||
July 30, 2022 |
| July 31, 2021 |
|
| July 30, 2022 |
| July 31, 2021 | |||||||||||||||
% of | % of | % of | % of | |||||||||||||||||||
($ millions, except sales per square foot) |
|
| Net Sales |
|
| Net Sales |
|
|
| Net Sales |
|
| Net Sales |
| ||||||||
Net sales | $ | 436.4 | 100.0 | % | $ | 453.6 | 100.0 | % | $ | 820.9 | 100.0 | % | $ | 851.8 | 100.0 | % | ||||||
Cost of goods sold | 222.8 | 51.1 | % | 226.2 | 49.9 | % | 418.1 | 50.9 | % | 444.6 | 52.2 | % | ||||||||||
Gross profit | 213.6 | 48.9 | % | $ | 227.4 | 50.1 | % | 402.8 | 49.1 | % | $ | 407.2 | 47.8 | % | ||||||||
Selling and administrative expenses | 151.1 | 34.6 | % | 141.9 | 31.3 | % | 290.6 | 35.4 | % | 273.8 | 32.1 | % | ||||||||||
Operating earnings | $ | 62.5 | 14.3 | % | $ | 85.5 | 18.8 | % | $ | 112.2 | 13.7 | % | $ | 133.4 | 15.7 | % | ||||||
|
|
|
|
|
|
|
| |||||||||||||||
Key Metrics |
|
|
|
|
|
|
|
| ||||||||||||||
Same-store sales % change | (3.1) | % |
| (1.1) | % |
| (3.5) | % |
| 0.5 | % |
| ||||||||||
Same-store sales $ change | $ | (13.5) |
| $ | (3.6) |
| $ | (29.1) |
| $ | 2.6 |
| ||||||||||
Sales change from new and closed stores, net | $ | (3.3) |
| $ | 122.6 |
| $ | (1.4) |
| $ | 322.8 |
| ||||||||||
Impact of changes in Canadian exchange rate on sales | $ | (0.4) |
| $ | 0.7 |
| $ | (0.4) |
| $ | 1.2 |
| ||||||||||
Sales per square foot, excluding e-commerce (thirteen and twenty-six weeks ended) | $ | 66 |
| $ | 67 |
| $ | 123 |
| $ | 122 |
| ||||||||||
Sales per square foot, excluding e-commerce (trailing twelve months) | $ | 250 |
| $ | 219 |
| $ | 250 |
| $ | 219 |
| ||||||||||
Square footage (thousand sq. ft.) |
| 5,832 |
| 6,022 |
|
| 5,832 |
| 6,022 |
| ||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||
Stores opened |
| — |
| 4 |
|
| — |
| 8 |
| ||||||||||||
Stores closed |
| 6 |
| 5 |
|
| 13 |
| 12 |
| ||||||||||||
Ending stores |
| 881 |
| 912 |
|
| 881 |
| 912 |
| ||||||||||||
30
Net Sales
Net sales of $436.4 million in the second quarter of 2022 decreased $17.3 million, or 3.8%, compared to the second quarter of 2021. The elevated consumer demand we experienced in 2021 and the first quarter of 2022 continued for much of the second quarter of 2022. However, we began to see consumer demand, store and e-commerce traffic and conversion moderate somewhat later in the quarter, reflecting cautious consumer sentiment due to inflation and other economic concerns. That trend has continued into the third quarter of 2022. We experienced improvement in our non-athletic footwear categories, and while demand slowed for our athletics footwear, it continues to be one of our top-selling categories. During the second quarter of 2022, we closed six stores, resulting in 881 stores and total square footage of 5.8 million at the end of the second quarter of 2022, compared to 912 stores and total square footage of 6.0 million at the end of the second quarter of 2021. Sales to members of our customer loyalty program, Famously You Rewards (Rewards), continue to account for a majority of the segment’s sales, with approximately 77% of our net sales made to program members in the second quarter of 2022, compared to 78% in the second quarter of 2021.
Net sales of $820.9 million in the six months ended July 30, 2022 decreased $30.9 million, or 3.6%, compared to the six months ended July 31, 2021, primarily due to the factors described above. Athletics and casual continue to be our top-selling categories. We remain focused on maximizing the vertical opportunity between the Famous Footwear and Brand Portfolio segments, with LifeStride, Dr. Scholl’s and Blowfish Malibu representing three of Famous Footwear’s top 15 best-selling footwear brands for the six months ended July 30, 2022. During the first half of 2022, we closed 13 stores.
Gross Profit
Gross profit decreased $13.8 million, or 6.1%, to $213.6 million for the second quarter of 2022, compared to $227.4 million for the second quarter of 2021. As a percentage of net sales, our gross profit decreased to 48.9% for the second quarter of 2022, compared to 50.1% for the second quarter of 2021. Although the gross profit rate for the second quarter of 2022 was slightly lower than the comparable period of 2021, it remained strong with limited promotional activity for much of the second quarter of 2022.
Gross profit decreased $4.4 million, or 1.1%, to $402.8 million for the six months ended July 30, 2022, compared to $407.2 million for the six months ended July 31, 2021, primarily due to the decrease in net sales. As a percentage of net sales, our gross profit increased to 49.1% for the six months ended July 30, 2022, compared to 47.8% for the six months ended July 31, 2021. Our higher gross profit for the first half of 2022 was primarily due to less promotional activity.
Selling and Administrative Expenses
Selling and administrative expenses increased $9.2 million, or 6.5%, to $151.1 million for the second quarter of 2022, compared to $141.9 million for the second quarter of 2021. The increase was driven by higher advertising expense primarily associated with our back-to-school marketing campaign and higher salary and benefits expenses due in part to wage inflation. As a percentage of net sales, selling and administrative expenses increased to 34.6% for the second quarter of 2022, compared to 31.3% for the second quarter of 2021.
Selling and administrative expenses increased $16.8 million, or 6.1%, to $290.6 million for the six months ended July 30, 2022, compared to $273.8 million for the six months ended July 31, 2021. The increase was primarily due to higher salary and benefits expenses, higher logistics costs and higher advertising expense associated with our strategic investment in consumer marketing. As a percentage of net sales, selling and administrative expenses increased to 35.4% for the six months ended July 30, 2022, compared to 32.1% for the six months ended July 31, 2021.
Operating Earnings
Operating earnings decreased $23.0 million to $62.5 million for the second quarter of 2022, compared to $85.5 million for the second quarter of 2021. As a percentage of net sales, operating earnings were 14.3% for the second quarter of 2022, compared to 18.8% for the second quarter of 2021.
Operating earnings decreased $21.2 million to $112.2 million for the six months ended July 30, 2022, compared to $133.4 million for the six months ended July 31, 2021. As a percentage of net sales, operating earnings were 13.7% for the six months ended July 30, 2022, compared to 15.7% for the six months ended July 31, 2021.
31
BRAND PORTFOLIO
Thirteen Weeks Ended | Twenty-Six Weeks Ended | |||||||||||||||||||||
July 30, 2022 |
| July 31, 2021 |
|
| July 30, 2022 |
| July 31, 2021 | |||||||||||||||
% of |
| % of | % of |
| % of | |||||||||||||||||
($ millions, except sales per square foot) |
|
| Net Sales |
|
|
| Net Sales |
|
|
| Net Sales |
|
|
| Net Sales |
| ||||||
Net sales | $ | 324.1 | 100.0 | % | $ | 239.0 | 100.0 | % | $ | 689.8 | 100.0 | % | $ | 489.3 | 100.0 | % | ||||||
Cost of goods sold | 200.0 | 61.7 | % | 144.1 | 60.3 | % | 426.4 | 61.8 | % | 300.4 | 61.4 | % | ||||||||||
Gross profit | 124.1 | 38.3 | % | 94.9 | 39.7 | % | 263.4 | 38.2 | % | 188.9 | 38.6 | % | ||||||||||
Selling and administrative expenses | 94.7 | 29.2 | % | 78.3 | 32.8 | % | 192.6 | 27.9 | % | 161.7 | 33.0 | % | ||||||||||
Restructuring and other special charges, net | — | — | % | — | — | % | — | — | % | 13.5 | 2.8 | % | ||||||||||
Operating earnings | $ | 29.4 | 9.1 | % | $ | 16.6 | 6.9 | % | $ | 70.8 | 10.3 | % | $ | 13.7 | 2.8 | % | ||||||
|
|
|
|
|
|
|
| |||||||||||||||
Key Metrics |
|
|
|
|
|
|
|
| ||||||||||||||
Direct-to-consumer (% of net sales) (1) | 30 | % |
| 34 | % |
| 28 | % |
| 33 | % |
| ||||||||||
Change in wholesale net sales ($) | $ | 80.1 |
| $ | 34.9 |
| $ | 184.3 |
| $ | 49.7 |
| ||||||||||
Unfilled order position at end of period | $ | 360.4 |
| $ | 328.7 |
|
|
| ||||||||||||||
|
|
|
|
|
| |||||||||||||||||
Same-store sales % change | 23.5 | % |
| 16.3 | % |
| 43.8 | % |
| 10.2 | % |
| ||||||||||
Same-store sales $ change | $ | 7.0 |
| $ | 3.4 |
| $ | 24.9 |
| $ | 4.7 |
| ||||||||||
Sales change from new and closed stores, net | $ | (2.1) |
| $ | 17.0 |
| $ | (8.8) |
| $ | 33.5 |
| ||||||||||
Impact of changes in Canadian exchange rate on retail sales | $ | 0.1 |
| $ | 0.1 |
| $ | 0.1 |
| $ | 0.5 |
| ||||||||||
|
|
|
|
|
|
|
| |||||||||||||||
Sales per square foot, excluding e-commerce (thirteen and twenty-six weeks ended) | $ | 276 | $ | 244 | $ | 545 | $ | 433 | ||||||||||||||
Sales per square foot, excluding e-commerce (trailing twelve months) | $ | 1,018 |
| $ | 561 |
| $ | 1,018 |
| $ | 561 |
| ||||||||||
Square footage (thousands sq. ft.) | 108 |
| 125 |
| 108 |
| 125 |
| ||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||
Stores opened | 3 |
| 1 |
| 4 |
| 2 |
| ||||||||||||||
Stores closed | 1 |
| 9 |
| 5 |
| 85 |
| ||||||||||||||
Ending stores | 85 |
| 87 |
| 85 |
| 87 |
| ||||||||||||||
| (1) | Direct-to-consumer includes sales of our retail stores and e-commerce sites and sales through our customers’ websites that we fulfill on a drop-ship basis. |
Net Sales
Net sales of $324.1 million in the second quarter of 2022 increased $85.1 million, or 35.6%, compared to the second quarter of 2021 driven by strong growth in our wholesale business. The net sales increase was broad-based across nearly all of our brands, with our Sam Edelman, Naturalizer and LifeStride brands being the most significant contributors. We continued to experience robust growth in our dress, casual and occasion-based styles for many of our brands, including Sam Edelman and LifeStride, and the sport-inspired category also continued to resonate with our customers. During the second quarter of 2022, we closed one store and opened three stores, resulting in a total of 85 stores and total square footage of 0.1 million at the end of the second quarter of 2022, compared to 87 stores and total square footage of 0.1 million at the end of the second quarter of 2021.
Net sales increased $200.5 million, or 41.0%, to $689.8 million for the six months ended July 30, 2022, compared to $489.3 million for the six months ended July 31, 2021, reflecting strong sales growth from all of our brands, with our Sam Edelman, Naturalizer, LifeStride, Franco Sarto and Allen Edmonds brands being the most significant contributors.
In the first quarter of 2021, we completed the strategic realignment of our Naturalizer retail business and permanently closed the remaining 73 Naturalizer stores in North America that were scheduled for closure. We have continued to focus on growing the brand’s e-commerce business through naturalizer.com, our retail partners and their websites, and the two ongoing flagship stores in the United States. On a trailing twelve-month basis, sales per square foot, excluding e-commerce sales, increased to $1,018 for the twelve months ended July 30, 2022, compared to $561 for the twelve months ended July 31, 2021. With the closure of nearly all of our Naturalizer retail stores, the majority of the retail stores in our Brand Portfolio segment are for our Allen Edmonds brand, which have higher retail price points than the Naturalizer brand.
32
Our unfilled order position for our wholesale sales increased $31.7 million, or 9.6 %, to $360.4 million at July 30, 2022, compared to $328.7 million at July 31, 2021. The increase in our backlog order levels primarily reflects higher consumer demand compared to last year.
Gross Profit
Gross profit increased $29.2 million, or 30.8%, to $124.1 million for the second quarter of 2022, compared to $94.9 million for the second quarter of 2021, primarily reflecting higher net sales. As a percentage of net sales, our gross profit decreased to 38.3% for the second quarter of 2022, compared to 39.7% for the second quarter of 2021, primarily reflecting a higher mix of wholesale versus retail sales.
Gross profit increased $74.5 million, or 39.5%, to $263.4 million for the six months ended July 30, 2022, compared to $188.9 million for the six months ended July 31, 2021, reflecting higher net sales. As a percentage of net sales, our gross profit decreased slightly to 38.2% for the six months ended July 30, 2022, compared to 38.6% for the six months ended July 31, 2021. While we have experienced inflationary pressures related to product costs and inbound freight through the six months ended July 30, 2022, we have been able to successfully offset the majority of these impacts through price increases. We anticipate inflationary pressures to continue throughout 2022 and will continue to focus on mitigating the impact.
Selling and Administrative Expenses
Selling and administrative expenses increased $16.4 million, or 20.9%, to $94.7 million for the second quarter of 2022, compared to $78.3 million for the second quarter of 2021. The increase was primarily due to higher variable salary expenses and wage inflation, higher marketing expenses and higher warehouse and logistics costs. As a percentage of net sales, selling and administrative expenses decreased to 29.2% for the second quarter of 2022, compared to 32.8% for the second quarter of 2021, reflecting better leveraging of expenses over a higher net sales base.
Selling and administrative expenses increased $30.9 million, or 19.2%, to $192.6 million for the six months ended July 30, 2022, compared to $161.7 million for the six months ended July 31, 2021. The increase was driven by higher variable salary expenses and higher marketing expenses. As a percentage of net sales, selling and administrative expenses decreased to 27.9% for the six months ended July 30, 2022, compared to 33.0% for the six months ended July 31, 2021, reflecting better leveraging of expenses over a higher net sales base.
Restructuring and Other Special Charges, Net
We incurred restructuring and other special charges of $13.5 million during the six months ended July 31, 2021 for expenses associated with the strategic realignment of our Naturalizer retail store operations. These costs primarily represented lease termination and other store closure costs, including employee severance, for the 73 stores that were closed during the first quarter of 2021. Refer to Note 5 to the condensed consolidated financial statements for additional information related to these charges. There were no corresponding charges during the second quarter of 2021 or the six months ended July 30, 2022.
Operating Earnings
Operating earnings increased to $29.4 million for the second quarter of 2022, compared to $16.6 million for the second quarter of 2021, as a result of the factors described above. As a percentage of net sales, operating earnings were 9.1% for the second quarter of 2022, compared to 6.9% in the second quarter of 2021.
Operating earnings increased to $70.8 million for the six months ended July 30, 2022, compared to $13.7 million for the six months ended July 31, 2021, as a result of the factors described above. As a percentage of net sales, operating earnings were 10.3% for the six months ended July 30, 2022, compared to 2.8% in the six months ended July 31, 2021.
ELIMINATIONS AND OTHER
Thirteen Weeks Ended | Twenty-Six Weeks Ended | |||||||||||||||||||||||||
July 30, 2022 |
| July 31, 2021 |
|
| July 30, 2022 |
| July 31, 2021 | |||||||||||||||||||
% of | % of | % of | % of | |||||||||||||||||||||||
($ millions) |
|
| Net Sales |
|
| Net Sales |
|
|
| Net Sales |
|
| Net Sales |
| ||||||||||||
Net sales | $ | (22.1) | 100.0 | % | $ | (17.1) | 100.0 | % | $ | (37.2) | 100.0 | % | $ | (26.9) | 100.0 | % | ||||||||||
Cost of goods sold | (21.2) | 95.8 | % | (17.1) | 100.0 | % | (34.7) | 93.4 | % | (28.0) | 103.9 | % | ||||||||||||||
Gross profit | (0.9) | 4.2 | % | — | — | % | (2.5) | 6.6 | % | 1.1 | (3.9) | % | ||||||||||||||
Selling and administrative expenses | 22.6 | (102.0) | % | 39.3 | (229.2) | % | 45.8 | (123.2) | % | 67.5 | (250.9) | % | ||||||||||||||
Operating loss | $ | (23.5) | 106.2 | % | $ | (39.3) | 229.2 | % | $ | (48.3) | 129.8 | % | $ | (66.4) | 247.0 | % | ||||||||||
33
The Eliminations and Other category includes the elimination of intersegment sales and profit, unallocated corporate administrative expenses, and other costs and recoveries.
The net sales elimination of $22.1 million for the second quarter of 2022 is $5.0 million, or 29.0%, higher than the second quarter of 2021. The net sales elimination of $37.2 million for the six months ended July 30, 2022 is $10.3 million, or 38.4%, higher than the six months ended July 31, 2021. The increases for both periods reflect an increase in product sold from our Brand Portfolio segment to Famous Footwear, as we continue to focus on maximizing the vertical opportunity between our segments.
Selling and administrative expenses decreased $16.7 million, to $22.6 million in the second quarter of 2022, compared to $39.3 million for the second quarter of 2021. The decrease primarily reflects lower expenses for our cash-based incentive compensation plans and certain other employee benefits. In 2021, our first half financial results exceeded the targets established for our annual incentive plans, which resulted in a larger portion of the anticipated plan payouts recorded as expense in the second quarter of 2021. For 2022, anticipated incentive plan payouts are being recognized more ratably during the year.
Selling and administrative expenses decreased $21.6 million, to $45.8 million for the six months ended July 30, 2022, compared to $67.5 million for the six months ended July 31, 2021. The decrease primarily reflects lower expenses for our cash-based incentive compensation plans and certain other employee benefits and lower expenses associated with our cash-based director compensation plans reflecting lower growth in our stock price during the six months ended July 30, 2022 compared to the six months ended July 31, 2021.
LIQUIDITY AND CAPITAL RESOURCES
Borrowings
($ millions) |
| July 30, 2022 |
| July 31, 2021 | (1) | January 29, 2022 | |||
Borrowings under revolving credit agreement | $ | 348.5 | $ | 100.0 | $ | 290.0 | |||
Current portion of long-term debt | — | 99.5 | — | ||||||
Long-term debt | — | 99.5 | — | ||||||
Total debt | $ | 348.5 | $ | 299.0 | $ | 290.0 | |||
| (1) | As presented here, total debt as of July 31, 2021 excludes the Blowfish Malibu mandatory purchase obligation, which was valued at $52.6 million. The mandatory purchase obligation of $54.6 million was paid on November 4, 2021, as further discussed in Note 14 to the condensed consolidated financial statements. |
Total debt obligations of $348.5 million at July 30, 2022 increased $49.5 million, from $299.0 million at July 31, 2021, and increased $58.5 million, from $290.0 million at January 29, 2022. The increase in total debt from July 31, 2021 and January 29, 2022 is due primarily to higher inventory purchases during the quarter to prepare for our back-to-school selling season, as well as $41.7 million of repurchases of our common stock. In August 2021, we redeemed $100.0 million aggregate principal amount of our senior notes and on January 3, 2022, we redeemed the remaining $100.0 million of senior notes. We shifted this higher interest rate debt to borrowings under the revolving credit facility, which has resulted in significant interest expense savings for the Company. While this reduction in interest expense is expected to continue, the interest on our revolving credit facility is based on a variable interest rate, which may result in higher interest expense in a rising interest rate environment. Net interest expense for the second quarter of 2022 decreased $9.5 million to $2.5 million, compared to $12.0 million for the second quarter of 2021. The decrease is primarily attributable to the non-recurrence of the $7.1 million fair value adjustment to the Blowfish Malibu mandatory purchase obligation recorded in the second quarter of 2021. The Blowfish Malibu mandatory purchase obligation of $54.6 million was paid on November 4, 2021, as further discussed in Note 5 and Note 14 to the condensed consolidated financial statements. In addition, as discussed above, the redemption of all outstanding senior notes in 2021 also contributed to the decrease in interest expense in the second quarter of 2022. These decreases were partially offset by higher average borrowings under our revolving credit agreement.
Credit Agreement
As further discussed in Note 10 to the condensed consolidated financial statements, the Company maintains a revolving credit facility for working capital needs. On October 5, 2021, we entered into a Fifth Amendment to Fourth Amended and Restated Credit Agreement (as so amended, the “Credit Agreement”) which, among other modifications, extended the maturity date of the credit facility from January 18, 2024, to October 5, 2026 and decreased the amount available under the revolving credit facility by $100.0 million to an aggregate amount of up to $500.0 million, subject to borrowing base restrictions, and may be increased by up to $250.0 million. Interest on the borrowings is at variable rates based on the London Interbank Offered Rate (LIBOR) (with a floor of 0.0%), or the prime rate (as defined in the Credit
34
Agreement), plus a spread. The Credit Agreement decreased the spread applied to the LIBOR or prime rate by a total of 75 basis points. At July 30, 2022, we had $348.5 million in borrowings and $10.8 million in letters of credit outstanding under the Credit Agreement. Total borrowing availability was $140.7 million at July 30, 2022. We were in compliance with all covenants and restrictions under the Credit Agreement as of July 30, 2022.
Senior Notes
On July 27, 2015, we issued $200.0 million aggregate principal amount of senior notes due in 2023 (the Senior Notes). The Senior Notes were guaranteed on a senior unsecured basis by each of the subsidiaries of Caleres, Inc. that is an obligor under the Credit Agreement, and bore interest of 6.25%, which was payable on February 15 and August 15 of each year. On August 16, 2021, we redeemed $100.0 million of the Senior Notes at 100.0%. In addition, on January 3, 2022, we redeemed the remaining $100.0 million of Senior Notes at 100.0%. Refer to further discussion regarding the Senior Notes in Note 10 to the condensed consolidated financial statements.
Working Capital and Cash Flow
Twenty-Six Weeks Ended | |||||||||
($ millions) |
| July 30, 2022 |
| July 31, 2021 |
| Change | |||
Net cash provided by operating activities | $ | 27.2 | $ | 135.5 | $ | (108.3) | |||
Net cash used for investing activities | (20.7) | (9.4) | (11.3) | ||||||
Net cash provided by (used for) provided by financing activities | 9.3 | (159.7) | 169.0 | ||||||
Effect of exchange rate changes on cash and cash equivalents | — | — | — | ||||||
Increase (decrease) in cash and cash equivalents | $ | 15.8 | $ | (33.6) | $ | 49.4 | |||
Reasons for the major variances in cash provided (used) in the table above are as follows:
Cash provided by operating activities was $108.3 million lower in the six months ended July 30, 2022 as compared to the six months ended July 31, 2021, primarily reflecting the following factors:
| ● | A larger increase in inventory during the six months ended July 30, 2022, compared to the six months ended July 31, 2021, primarily reflecting higher inventory in preparation for the back-to-school season as well as earlier arrival of inventory for the Brand Portfolio segment due to improved transportation lead times; |
| ● | A decrease in accrued expenses and other liabilities during the six months ended July 30, 2022, compared to an increase during the six months ended July 31, 2021 due in part to higher accruals for incentive compensation payments in 2021, reflecting operating results that exceeded the targets established for the annual incentive plan; and |
| ● | An increase in accounts receivable during the six months ended July 30, 2022, compared to a decrease in the six months ended July 31, 2021, attributable to higher wholesale sales during the period; partially offset by |
| ● | Higher net earnings in the six months ended July 30, 2022, compared to the six months ended July 31, 2021. |
Supply chain financing: Certain of our suppliers are given the opportunity to sell receivables from us related to products that we have purchased to participating financial institutions at a rate that leverages our credit rating, which may be more beneficial to the suppliers than the rate they can obtain based upon their own credit rating. We negotiate payment and other terms with our suppliers, regardless of whether the supplier participates in the program, and our responsibility is limited to making payment based on the terms originally negotiated with the supplier. These liabilities continue to be presented as accounts payable in our condensed consolidated balance sheets, with changes reflected within cash flows from operating activities when settled. As of July 30, 2022 and July 31, 2021, we had $39.9 million and $48.0 million, respectively, of accounts payable subject to supply chain financing arrangements.
Cash used for investing activities was $11.3 million higher for the six months ended July 30, 2022 as compared to the six months ended July 31, 2021, reflecting higher capital expenditures. In 2022, we expect our purchases of property and equipment and capitalized software to be between $45 million and $55 million, as compared to $24.1 million in 2021. In the first quarter of 2022, we tested a new prototype Famous Footwear store that offers an enhanced shopping experience, highlights our leading assortment of trending brands and elevates those brands in an energetic and exciting manner. We have also continued to invest in refreshing our Famous Footwear stores in the first half of 2022. We plan to invest in additional prototype stores and store renovations throughout 2022, which we believe will reinforce our national presence and further differentiate our store experience from that of our competitors.
35
Cash provided by financing activities was $169.0 million higher for the six months ended July 30, 2022 as compared to the six months ended July 31, 2021, primarily due to net borrowings on our revolving credit agreement of $58.5 in the six months ended July 30, 2022, compared to net repayments of $150.0 million in the comparable period in 2021. In addition, we repurchased $41.7 million of our common stock under our share repurchase programs during the six months ended July 30, 2022, with no corresponding share repurchases during the six months ended July 31, 2021.
A summary of key financial data and ratios at the dates indicated is as follows:
| July 30, 2022 |
| July 31, 2021 |
| January 29, 2022 |
| |||||
Operating working capital ($ millions) (1) | $ | 296.4 | $ | 100.4 | $ | 193.8 | |||||
Current ratio (2) | 0.89:1 | 0.82:1 | 0.82:1 | ||||||||
Debt-to-capital ratio (3) | 47.5 | % | 54.9 | % | 47.3 | % | |||||
| (1) | Operating working capital has been computed as total current assets, excluding cash and property and equipment, held for sale, less total current liabilities, excluding borrowings under revolving credit agreement, current portion of long-term debt and lease obligations. |
| (2) | The current ratio has been computed by dividing total current assets by total current liabilities. |
| (3) | The debt-to-capital ratio has been computed by dividing total debt by total capitalization. Total debt is defined as long-term debt (including the current portion) and borrowings under revolving credit agreement. Total capitalization is defined as total debt and total equity. |
Operating working capital at July 30, 2022 was $296.4 million, which was $196.0 million and $102.6 million higher than at July 31, 2021 and January 29, 2022, respectively. The increase in operating working capital from July 31, 2021 and January 29, 2022 primarily reflects higher inventories and the settlement of the Blowfish Malibu mandatory purchase obligation in the fourth quarter of 2021, partially offset by higher trade accounts payable. The increase in operating working capital from January 29, 2022 primarily reflects higher inventories, partially offset by higher trade payables. Our current ratio was 0.89 to 1 as of July 30, 2022, compared to 0.82:1 at July 31, 2021 and January 29, 2022. Our debt-to-capital ratio was 47.5% as of July 30, 2022, compared to 54.9% as of July 31, 2021 and 47.3% at January 29, 2022. The decrease in our debt-to-capital ratio from July 31, 2021 primarily reflects the extinguishment of our senior notes and higher equity attributable to our strong financial results.
We declared and paid dividends of $0.07 per share in the second quarter of both 2022 and 2021. The declaration and payment of any future dividend is at the discretion of the Board of Directors and will depend on our results of operations, financial condition, business conditions and other factors deemed relevant by our Board of Directors. However, we presently expect that dividends will continue to be paid.
We have various contractual or other obligations, including borrowings under our revolving credit facility, operating lease commitments, one-time transition tax for the mandatory deemed repatriation of cumulative foreign earnings and obligations for our supplemental executive retirement plan and other postretirement benefits. We also have purchase obligations to purchase inventory, assets and other goods and services. We believe our operating cash flows are sufficient to meet our material cash requirements for at least the next 12 months.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
No material changes have occurred related to critical accounting policies and estimates since the end of the most recent fiscal year. For further information on the Company’s critical accounting policies and estimates, see Part II, Item 7 of our Annual Report on Form 10-K for the year ended January 29, 2022.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
Recently issued accounting pronouncements, if any, and their impact on the Company are described in Note 2 to the condensed consolidated financial statements.
FORWARD-LOOKING STATEMENTS
This Form 10-Q 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) supply chain disruptions and inflationary pressures; (ii) the coronavirus pandemic and its adverse impact on our
36
business operations and financial condition; (iii) changing consumer demands, which may be influenced by general economic conditions and other factors; (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) compliance with applicable laws and standards with respect to labor, trade and product safety issues; and (xviii) 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 Part I, Item 1A of the Company’s Annual Report on Form 10-K for the year ended January 29, 2022, 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.
ITEM 3 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
No material changes have taken place in the quantitative and qualitative information about market risk since the end of the most recent fiscal year. For further information, see Part II, Item 7A of the Company’s Annual Report on Form 10-K for the year ended January 29, 2022.
ITEM 4 CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
It is the Chief Executive Officer’s and Chief Financial Officer’s ultimate responsibility to ensure we maintain disclosure controls and procedures designed to provide reasonable assurance that information required to be disclosed in the reports that we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the Commission’s rules and forms and is accumulated and communicated to our management, including our principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. Our disclosure controls and procedures include mandatory communication of material events, automated accounting processing and reporting, management review of monthly, quarterly and annual results, an established system of internal controls and ongoing monitoring by our internal auditors.
A control system, no matter how well conceived or operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Furthermore, the design of a control system must reflect the fact there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any system of controls is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance any design will succeed in achieving its stated goals under all potential future conditions; over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to errors or fraud may occur and not be detected. Our disclosure controls and procedures are designed to provide a reasonable level of assurance that their objectives are achieved. As of July 30, 2022, management of the Company, including the Chief Executive Officer and Chief Financial Officer, conducted an evaluation of the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934). Based upon and as of the date of that evaluation, the Chief Executive Officer and Chief Financial Officer have concluded our disclosure controls and procedures were effective at the reasonable assurance level.
Based on the evaluation of internal control over financial reporting, the Chief Executive Officer and Chief Financial Officer have concluded that there have been no changes in the Company’s internal controls over financial reporting during the quarter ended July 30, 2022 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
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PART II OTHER INFORMATION
ITEM 1 LEGAL PROCEEDINGS
We are involved in legal proceedings and litigation arising in the ordinary course of business. In the opinion of management, the outcome of such ordinary course of business proceedings and litigation currently pending will not have a material adverse effect on our results of operations or financial position. All legal costs associated with litigation are expensed as incurred.
Information regarding Legal Proceedings is set forth within Note 16 to the condensed consolidated financial statements and incorporated by reference herein.
ITEM 1A RISK FACTORS
There have been no material changes that have occurred related to our risk factors since the end of the most recent fiscal year. For further information, see Part I, Item 1A of our Annual Report on Form 10-K for the year ended January 29, 2022.
ITEM 2 UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
The following table provides information relating to our repurchases of common stock during the second quarter of 2022:
Total Number | Maximum Number | ||||||||
Purchased as Part | of Shares that May | ||||||||
Total Number of | of Publicly | Yet be Purchased | |||||||
Shares | Average Price Paid | Announced | Under the | ||||||
Fiscal Period |
| Purchased (1) |
| per Share (1) |
| Program (2) |
| Program (2) | |
May 1, 2022 - May 28, 2022 |
| 800,008 | $ | 23.75 |
| 800,008 |
| 7,488,892 | |
|
|
|
| ||||||
May 29, 2022 - July 2, 2022 |
| 291,003 |
| 28.22 |
| 283,488 |
| 7,205,404 | |
|
|
|
|
|
|
|
| ||
July 3, 2022 - July 30, 2022 |
| — |
| — |
| — |
| 7,205,404 | |
|
|
|
|
|
|
|
| ||
Total |
| 1,091,011 | $ | 24.94 |
| 1,083,496 |
| 7,205,404 | |
| (1) | Includes shares purchased as part of our publicly announced stock repurchase programs and shares that were tendered by employees related to certain share-based awards. The employee shares were tendered in satisfaction of the exercise price of stock options and/or to satisfy tax withholding amounts for non-qualified stock options, restricted stock and stock performance awards. |
| (2) | On September 2, 2019, the Board of Directors approved a stock repurchase program (2019 Program) authorizing the repurchase of 5,000,000 shares of our outstanding common stock. In addition, on March 10, 2022, the Board of Directors approved a stock repurchase program (2022 Program) authorizing the repurchase of an additional 7,000,000 shares of our outstanding common stock. We can use the repurchase programs to repurchase shares on the open market or in private transactions from time to time, depending on market conditions. The repurchase programs do not have an expiration date. During the thirteen and twenty-six weeks ended July 30, 2022, the Company repurchased 1,083,496 and 1,784,820 shares, respectively, under these programs. The Company did not repurchase any shares under these programs during the twenty-six weeks ended July 31, 2021. As of July 30, 2022, there were 7,205,404 shares authorized to be repurchased under the repurchase programs. Our repurchases of common stock are limited under our debt agreements. |
ITEM 3 DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4 MINE SAFETY DISCLOSURES
Not applicable.
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ITEM 6 EXHIBITS
Exhibit |
|
|
3.1 |
| |
3.2 |
| |
10.1 | ||
10.4a* | ||
10.4b* | ||
10.5a* | ||
10.5b* | ||
31.1 | † | |
31.2 | † | |
32.1 | † | |
101.INS | † | iXBRL Instance Document |
101.SCH | † | iXBRL Taxonomy Extension Schema Document |
101.CAL | † | iXBRL Taxonomy Extension Calculation Linkbase Document |
101.LAB | † | iXBRL Taxonomy Extension Label Linkbase Document |
101.PRE | † | iXBRL Taxonomy Presentation Linkbase Document |
101.DEF | † | iXBRL Taxonomy Definition Linkbase Document |
104 | † | Cover Page Interactive Data File, formatted in iXBRL and contained in Exhibit 101. |
* Denotes management contract or compensatory plan arrangements.
† Denotes exhibit is filed with this Form 10-Q.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| CALERES, INC. | |
| ||
Date: September 6, 2022 | /s/ Kenneth H. Hannah | |
Kenneth H. Hannah Senior Vice President and Chief Financial Officer on behalf of the Registrant and as the Principal Financial Officer |
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