SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
☒ | Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended |
☐ | 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: 1-2191
CALERES, INC. | |
(Exact name of registrant as specified in its charter) | |
New York | 43-0197190 |
(State or other jurisdiction | (IRS Employer Identification Number) |
of incorporation or organization) | |
| |
8300 Maryland Avenue | 63105 |
St. Louis, Missouri | (Zip Code) |
(Address of principal executive offices) | |
| |
(314) 854-4000 | |
( |
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
Common Stock - par value of $0.01 per share | CAL | New York Stock Exchange |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company," and "emerging growth company” in Rule 12b-2 of the Exchange Act:
Large accelerated filer | Accelerated filer |
Non-accelerated filer | Smaller reporting company |
Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes
As of
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2
CALERES, INC. | |||||||||||
CONDENSED CONSOLIDATED BALANCE SHEETS | |||||||||||
(Unaudited) | |||||||||||
($ thousands) | October 28, 2017 | October 29, 2016 | January 28, 2017 | ||||||||
Assets | |||||||||||
Current assets: | |||||||||||
Cash and cash equivalents | $ | 31,379 | $ | 173,435 | $ | 55,332 | |||||
Receivables, net | 132,942 | 139,475 | 153,121 | ||||||||
Inventories, net | 598,365 | 524,823 | 585,764 | ||||||||
Prepaid expenses and other current assets | 40,982 | 31,716 | 49,528 | ||||||||
Total current assets | 803,668 | 869,449 | 843,745 | ||||||||
Other assets | 68,316 | 114,851 | 68,574 | ||||||||
Goodwill | 127,081 | 13,954 | 127,098 | ||||||||
Intangible assets, net | 213,101 | 114,187 | 216,660 | ||||||||
Property and equipment | 535,149 | 497,486 | 531,104 | ||||||||
Allowance for depreciation | (320,167 | ) | (305,732 | ) | (311,908 | ) | |||||
Property and equipment, net | 214,982 | 191,754 | 219,196 | ||||||||
Total assets | $ | 1,427,148 | $ | 1,304,195 | $ | 1,475,273 | |||||
Liabilities and Equity | |||||||||||
Current liabilities: | |||||||||||
Borrowings under revolving credit agreement | $ | 20,000 | $ | — | $ | 110,000 | |||||
Trade accounts payable | 223,832 | 212,088 | 266,370 | ||||||||
Other accrued expenses | 173,487 | 141,886 | 151,225 | ||||||||
Total current liabilities | 417,319 | 353,974 | 527,595 | ||||||||
Other liabilities: | |||||||||||
Long-term debt | 197,348 | 196,888 | 197,003 | ||||||||
Deferred rent | 50,814 | 48,696 | 51,124 | ||||||||
Other liabilities | 86,580 | 57,574 | 85,065 | ||||||||
Total other liabilities | 334,742 | 303,158 | 333,192 | ||||||||
Equity: | |||||||||||
Common stock | 430 | 429 | 430 | ||||||||
Additional paid-in capital | 127,454 | 120,775 | 121,537 | ||||||||
Accumulated other comprehensive loss | (28,122 | ) | (6,310 | ) | (30,434 | ) | |||||
Retained earnings | 573,883 | 531,216 | 521,584 | ||||||||
Total Caleres, Inc. shareholders’ equity | 673,645 | 646,110 | 613,117 | ||||||||
Noncontrolling interests | 1,442 | 953 | 1,369 | ||||||||
Total equity | 675,087 | 647,063 | 614,486 | ||||||||
Total liabilities and equity | $ | 1,427,148 | $ | 1,304,195 | $ | 1,475,273 |
| | | | | | | | | |
| | | | | | | |||
| | (Unaudited) | | | | ||||
($ thousands) |
| April 30, 2022 |
| May 1, 2021 |
| January 29, 2022 | |||
Assets |
| |
|
| |
|
| |
|
Current assets: | | |
|
| |
|
| |
|
Cash and cash equivalents | | $ | 33,717 | | $ | 98,244 | | $ | 30,115 |
Receivables, net | |
| 181,551 | |
| 132,698 | |
| 122,236 |
Inventories, net | |
| 643,527 | |
| 445,299 | |
| 596,807 |
Income taxes | |
| 11,815 | |
| 35,850 | |
| 33,073 |
Property and equipment, held for sale | | | 16,777 | | | 0 | | | 5,455 |
Prepaid expenses and other current assets | |
| 46,254 | |
| 45,027 | |
| 48,790 |
Total current assets | |
| 933,641 | |
| 757,118 | |
| 836,476 |
| | | | | | | | | |
Prepaid pension costs | |
| 101,609 | |
| 91,397 | |
| 99,139 |
Lease right-of-use assets | |
| 503,393 | |
| 526,011 | |
| 503,430 |
Property and equipment, net | |
| 137,600 | |
| 165,118 | |
| 150,238 |
Goodwill and intangible assets, net | |
| 224,475 | |
| 236,924 | |
| 227,503 |
Other assets | |
| 27,580 | |
| 26,255 | |
| 27,140 |
Total assets | | $ | 1,928,298 | | $ | 1,802,823 | | $ | 1,843,926 |
| | | | | | | | | |
Liabilities and Equity | |
|
| |
|
| |
|
|
Current liabilities: | |
|
| |
|
| |
|
|
Borrowings under revolving credit agreement | | $ | 305,000 | | $ | 200,000 | | $ | 290,000 |
Mandatory purchase obligation - Blowfish Malibu | | | 0 | | | 45,523 | | | 0 |
Trade accounts payable | |
| 386,821 | |
| 293,309 | |
| 331,470 |
Income taxes | |
| 39,418 | |
| 11,359 | |
| 22,622 |
Lease obligations | |
| 118,692 | |
| 133,327 | |
| 128,495 |
Other accrued expenses | |
| 219,956 | |
| 182,419 | |
| 253,026 |
Total current liabilities | |
| 1,069,887 | |
| 865,937 | |
| 1,025,613 |
| | | | | | | | | |
Other liabilities: | |
|
| |
|
| |
|
|
Noncurrent lease obligations | |
| 452,742 | |
| 490,355 | |
| 452,909 |
Long-term debt | |
| 0 | |
| 198,966 | |
| 0 |
Income taxes | |
| 7,786 | |
| 2,464 | |
| 2,464 |
Deferred income taxes | |
| 14,811 | |
| 10,256 | |
| 14,731 |
Other liabilities | |
| 25,044 | |
| 28,189 | |
| 24,822 |
Total other liabilities | |
| 500,383 | |
| 730,230 | |
| 494,926 |
| | | | | | | | | |
Equity: | |
|
| |
|
| |
|
|
Common stock | |
| 374 | |
| 383 | |
| 376 |
Additional paid-in capital | |
| 169,025 | |
| 159,381 | |
| 168,830 |
Accumulated other comprehensive loss | |
| (8,328) | |
| (8,936) | |
| (8,606) |
Retained earnings | |
| 191,165 | |
| 52,041 | |
| 157,970 |
Total Caleres, Inc. shareholders’ equity | |
| 352,236 | |
| 202,869 | |
| 318,570 |
Noncontrolling interests | |
| 5,792 | |
| 3,787 | |
| 4,817 |
Total equity | |
| 358,028 | |
| 206,656 | |
| 323,387 |
Total liabilities and equity | | $ | 1,928,298 | | $ | 1,802,823 | | $ | 1,843,926 |
See notes to
condensedconsolidated financial statements.
3
CALERES, INC. | ||||||||||||
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS | ||||||||||||
(Unaudited) | ||||||||||||
Thirteen Weeks Ended | Thirty-Nine Weeks Ended | |||||||||||
($ thousands, except per share amounts) | October 28, 2017 | October 29, 2016 | October 28, 2017 | October 29, 2016 | ||||||||
Net sales | $ | 774,656 | $ | 732,230 | $ | 2,083,119 | $ | 1,939,900 | ||||
Cost of goods sold | 457,771 | 438,459 | 1,207,865 | 1,138,781 | ||||||||
Gross profit | 316,885 | 293,771 | 875,254 | 801,119 | ||||||||
Selling and administrative expenses | 264,015 | 238,319 | 761,590 | 684,666 | ||||||||
Restructuring and other special charges, net | — | — | 3,973 | — | ||||||||
Operating earnings | 52,870 | 55,452 | 109,691 | 116,453 | ||||||||
Interest expense | (4,141 | ) | (3,475 | ) | (13,822 | ) | (10,564 | ) | ||||
Interest income | 95 | 350 | 592 | 907 | ||||||||
Earnings before income taxes | 48,824 | 52,327 | 96,461 | 106,796 | ||||||||
Income tax provision | (14,451 | ) | (17,601 | ) | (29,530 | ) | (34,514 | ) | ||||
Net earnings | 34,373 | 34,726 | 66,931 | 72,282 | ||||||||
Net (loss) earnings attributable to noncontrolling interests | (14 | ) | (4 | ) | 47 | 2 | ||||||
Net earnings attributable to Caleres, Inc. | $ | 34,387 | $ | 34,730 | $ | 66,884 | $ | 72,280 | ||||
Basic earnings per common share attributable to Caleres, Inc. shareholders | $ | 0.80 | $ | 0.81 | $ | 1.56 | $ | 1.67 | ||||
Diluted earnings per common share attributable to Caleres, Inc. shareholders | $ | 0.80 | $ | 0.81 | $ | 1.55 | $ | 1.67 | ||||
Dividends per common share | $ | 0.07 | $ | 0.07 | $ | 0.21 | $ | 0.21 |
CALERES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
| | | | | | |
| | | | | | |
|
| Thirteen Weeks Ended | ||||
($ thousands, except per share amounts) | | April 30, 2022 |
| May 1, 2021 | ||
Net sales | | $ | 735,116 | | $ | 638,636 |
Cost of goods sold | |
| 408,122 | |
| 363,749 |
Gross profit | |
| 326,994 | |
| 274,887 |
Selling and administrative expenses | |
| 260,799 | |
| 243,535 |
Restructuring and other special charges, net | |
| 0 | |
| 13,482 |
Operating earnings | |
| 66,195 | |
| 17,870 |
Interest expense, net | |
| (2,299) | |
| (11,792) |
Other income, net | |
| 3,422 | |
| 3,828 |
Earnings before income taxes | |
| 67,318 | |
| 9,906 |
Income tax provision | |
| (17,333) | |
| (3,521) |
Net earnings | |
| 49,985 | |
| 6,385 |
Net (loss) earnings attributable to noncontrolling interests | |
| (524) | |
| 238 |
Net earnings attributable to Caleres, Inc. | | $ | 50,509 | | $ | 6,147 |
| | | | | | |
Basic earnings per common share attributable to Caleres, Inc. shareholders | | $ | 1.34 | | $ | 0.16 |
| | | | | | |
Diluted earnings per common share attributable to Caleres, Inc. shareholders | | $ | 1.32 | | $ | 0.16 |
See notes to
condensedconsolidated financial statements.
4
CALERES, INC. | ||||||||||||
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME | ||||||||||||
(Unaudited) | ||||||||||||
Thirteen Weeks Ended | Thirty-Nine Weeks Ended | |||||||||||
($ thousands) | October 28, 2017 | October 29, 2016 | October 28, 2017 | October 29, 2016 | ||||||||
Net earnings | $ | 34,373 | $ | 34,726 | $ | 66,931 | $ | 72,282 | ||||
Other comprehensive (loss) income, net of tax: | ||||||||||||
Foreign currency translation adjustment | (633 | ) | (545 | ) | 647 | 961 | ||||||
Pension and other postretirement benefits adjustments | 379 | (289 | ) | 1,106 | (865 | ) | ||||||
Derivative financial instruments | 183 | (101 | ) | 559 | (542 | ) | ||||||
Other comprehensive (loss) income, net of tax | (71 | ) | (935 | ) | 2,312 | (446 | ) | |||||
Comprehensive income | 34,302 | 33,791 | 69,243 | 71,836 | ||||||||
Comprehensive (loss) income attributable to noncontrolling interests | (3 | ) | (25 | ) | 73 | (35 | ) | |||||
Comprehensive income attributable to Caleres, Inc. | $ | 34,305 | $ | 33,816 | $ | 69,170 | $ | 71,871 |
CALERES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
| | | | | | |
| | | | | | |
|
| Thirteen Weeks Ended | ||||
($ thousands) | | April 30, 2022 |
| May 1, 2021 | ||
Net earnings | | $ | 49,985 | | $ | 6,385 |
Other comprehensive income (loss) ("OCI"), net of tax: | |
| | |
|
|
Foreign currency translation adjustment | |
| (163) | |
| (224) |
Pension and other postretirement benefits adjustments | |
| 440 | |
| 366 |
Other comprehensive income, net of tax | |
| 277 | |
| 142 |
Comprehensive income | |
| 50,262 | |
| 6,527 |
Comprehensive (loss) income attributable to noncontrolling interests | |
| (525) | |
| 180 |
Comprehensive income attributable to Caleres, Inc. | | $ | 50,787 | | $ | 6,347 |
See notes to
condensedconsolidated financial statements.
5
CALERES, INC. | ||||||
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS | ||||||
(Unaudited) | ||||||
Thirty-nine Weeks Ended | ||||||
($ thousands) | October 28, 2017 | October 29, 2016 | ||||
Operating Activities | ||||||
Net earnings | $ | 66,931 | $ | 72,282 | ||
Adjustments to reconcile net earnings to net cash provided by operating activities: | ||||||
Depreciation | 34,354 | 28,131 | ||||
Amortization of capitalized software | 10,786 | 9,589 | ||||
Amortization of intangible assets | 3,059 | 2,758 | ||||
Amortization of debt issuance costs and debt discount | 1,296 | 1,295 | ||||
Share-based compensation expense | 8,394 | 5,966 | ||||
Excess tax benefit related to share-based plans | — | (3,264 | ) | |||
Loss on disposal of property and equipment | 1,004 | 872 | ||||
Impairment charges for property and equipment | 2,995 | 913 | ||||
Deferred rent | (310 | ) | 2,190 | |||
Provision for doubtful accounts | 352 | 564 | ||||
Changes in operating assets and liabilities: | ||||||
Receivables | 19,826 | 13,626 | ||||
Inventories | (11,541 | ) | 22,587 | |||
Prepaid expenses and other current and noncurrent assets | 890 | 22,119 | ||||
Trade accounts payable | (42,702 | ) | (25,870 | ) | ||
Accrued expenses and other liabilities | 26,588 | (17,419 | ) | |||
Other, net | 339 | 664 | ||||
Net cash provided by operating activities | 122,261 | 137,003 | ||||
Investing Activities | ||||||
Purchases of property and equipment | (34,364 | ) | (43,019 | ) | ||
Capitalized software | (4,531 | ) | (5,672 | ) | ||
Net cash used for investing activities | (38,895 | ) | (48,691 | ) | ||
Financing Activities | ||||||
Borrowings under revolving credit agreement | 450,000 | 103,000 | ||||
Repayments under revolving credit agreement | (540,000 | ) | (103,000 | ) | ||
Dividends paid | (9,033 | ) | (9,094 | ) | ||
Acquisition of treasury stock | (5,993 | ) | (23,139 | ) | ||
Issuance of common stock under share-based plans, net | (2,477 | ) | (4,205 | ) | ||
Excess tax benefit related to share-based plans | — | 3,264 | ||||
Net cash used for financing activities | (107,503 | ) | (33,174 | ) | ||
Effect of exchange rate changes on cash and cash equivalents | 184 | 146 | ||||
(Decrease) increase in cash and cash equivalents | (23,953 | ) | 55,284 | |||
Cash and cash equivalents at beginning of period | 55,332 | 118,151 | ||||
Cash and cash equivalents at end of period | $ | 31,379 | $ | 173,435 |
CALERES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
| | | | | | |
|
| (Unaudited) | ||||
| | Thirteen Weeks Ended | ||||
($ thousands) |
| April 30, 2022 |
| May 1, 2021 | ||
Operating Activities |
| |
|
| |
|
Net earnings | | $ | 49,985 | | $ | 6,385 |
Adjustments to reconcile net earnings to net cash provided by operating activities: | |
| | |
|
|
Depreciation | |
| 8,064 | |
| 8,945 |
Amortization of capitalized software | |
| 1,265 | |
| 1,518 |
Amortization of intangible assets | |
| 3,028 | |
| 3,147 |
Amortization of debt issuance costs and debt discount | |
| 102 | |
| 343 |
Fair value adjustments to Blowfish mandatory purchase obligation | | | 0 | | | 6,389 |
Share-based compensation expense | |
| 3,799 | |
| 2,439 |
Loss on disposal of property and equipment | |
| 933 | |
| 811 |
Impairment charges for property, equipment, and lease right-of-use assets | |
| 1,777 | |
| 1,888 |
Provision/adjustment for expected credit losses | | | (617) | | | (152) |
Deferred income taxes | |
| 80 | |
| 2,012 |
Changes in operating assets and liabilities: | |
| | |
|
|
Receivables | |
| (58,698) | |
| (5,553) |
Inventories | |
| (46,775) | |
| 43,062 |
Prepaid expenses and other current and noncurrent assets | |
| 1,044 | |
| (10) |
Trade accounts payable | |
| 55,372 | |
| 12,665 |
Accrued expenses and other liabilities | |
| (43,126) | |
| (14,730) |
Income taxes, net | |
| 43,376 | |
| 1,791 |
Other, net | |
| 77 | |
| (572) |
Net cash provided by operating activities | |
| 19,686 | |
| 70,378 |
| | | | | | |
Investing Activities | |
|
| |
|
|
Purchases of property and equipment | |
| (9,305) | |
| (2,659) |
Capitalized software | |
| (2,345) | |
| (1,218) |
Net cash used for investing activities | |
| (11,650) | |
| (3,877) |
| | | | | | |
Financing Activities | |
|
| |
|
|
Borrowings under revolving credit agreement | |
| 205,000 | |
| 110,500 |
Repayments under revolving credit agreement | |
| (190,000) | |
| (160,500) |
Dividends paid | |
| (2,648) | |
| (2,663) |
Acquisition of treasury stock | |
| (14,673) | |
| 0 |
Issuance of common stock under share-based plans, net | |
| (3,599) | |
| (3,501) |
Contributions by noncontrolling interests | |
| 1,500 | |
| 0 |
Other | |
| 0 | |
| (450) |
Net cash used for financing activities | |
| (4,420) | |
| (56,614) |
Effect of exchange rate changes on cash and cash equivalents | |
| (14) | |
| 62 |
Increase in cash and cash equivalents | |
| 3,602 | |
| 9,949 |
Cash and cash equivalents at beginning of period | |
| 30,115 | |
| 88,295 |
Cash and cash equivalents at end of period | | $ | 33,717 | | $ | 98,244 |
See notes to
condensedconsolidated financial statements.
6
CALERES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
| | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | 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 AS OF JANUARY 29, 2022 |
| 37,635,145 | | $ | 376 | | $ | 168,830 | | $ | (8,606) | | $ | 157,970 | | $ | 318,570 | | $ | 4,817 | | $ | 323,387 |
Net earnings (loss) |
|
| |
|
| |
|
| |
|
| |
| 50,509 | |
| 50,509 | |
| (524) | |
| 49,985 |
Foreign currency translation adjustment |
|
| |
|
| |
|
| |
| (162) | |
|
| |
| (162) | |
| (1) | |
| (163) |
Pension and other postretirement benefits adjustments, net of tax of $141 |
|
| |
|
| |
|
| |
| 440 | |
|
| |
| 440 | |
| — | |
| 440 |
Comprehensive income (loss) |
|
| |
|
| |
|
| |
| 278 | |
| 50,509 | |
| 50,787 | |
| (525) | |
| 50,262 |
Contributions by noncontrolling interests | | | | | | | | | | | | | | | | | — | | | 1,500 | | | 1,500 |
Dividends ($0.07 per share) |
|
| |
|
| |
|
| |
|
| |
| (2,648) | |
| (2,648) | |
|
| |
| (2,648) |
Acquisition of treasury stock |
| (701,324) | |
| (7) | |
|
| |
|
| |
| (14,666) | |
| (14,673) | |
|
| |
| (14,673) |
Issuance of common stock under share-based plans, net |
| 512,508 | |
| 5 | |
| (3,604) | |
|
| |
|
| |
| (3,599) | |
|
| |
| (3,599) |
Share-based compensation expense |
|
| |
|
| |
| 3,799 | |
|
| |
|
| |
| 3,799 | |
|
| |
| 3,799 |
BALANCE APRIL 30, 2022 |
| 37,446,329 | | $ | 374 | | $ | 169,025 | | $ | (8,328) | | $ | 191,165 | | $ | 352,236 | | $ | 5,792 | | $ | 358,028 |
| | | | | | | | | | | | | | | | | | | | | | | |
BALANCE JANUARY 30, 2021 |
| 37,966,204 | | $ | 380 | | $ | 160,446 | | $ | (9,136) | | $ | 48,557 | | $ | 200,247 | | $ | 3,607 | | $ | 203,854 |
Net earnings |
|
| |
|
| |
|
| |
|
| |
| 6,147 | |
| 6,147 | |
| 238 | |
| 6,385 |
Foreign currency translation adjustment |
|
| |
|
| |
|
| |
| (166) | |
|
| |
| (166) | |
| (58) | |
| (224) |
Pension and other postretirement benefits adjustments, net of tax of $97 |
|
| |
|
| |
|
| |
| 366 | |
|
| |
| 366 | |
|
| |
| 366 |
Comprehensive income |
|
| |
|
| |
|
| |
| 200 | |
| 6,147 | |
| 6,347 | |
| 180 | |
| 6,527 |
Dividends ($0.07 per share) |
|
| |
|
| |
|
| |
|
| |
| (2,663) | |
| (2,663) | |
|
| |
| (2,663) |
Issuance of common stock under share-based plans, net |
| 327,268 | |
| 3 | |
| (3,504) | |
|
| |
|
| |
| (3,501) | |
|
| |
| (3,501) |
Share-based compensation expense |
|
| |
|
| |
| 2,439 | |
|
| |
|
| |
| 2,439 | |
|
| |
| 2,439 |
BALANCE MAY 1, 2021 |
| 38,293,472 | | $ | 383 | | $ | 159,381 | | $ | (8,936) | | $ | 52,041 | | $ | 202,869 | | $ | 3,787 | | $ | 206,656 |
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'sCompany’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 Christmas holiday season sales. Traditionally,Although the third fiscal quarter accountshas historically accounted for a substantial portion of the Company’s earnings for the year.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'sCompany’s Annual Report on Form 10-K for the year ended January 28, 2017.29, 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 50% owners of the joint venture, which is named CLT Brand Solutions (“CLT”). During the first quarter of 2022, CLT accrued capital contributions of $3.0 million, including $1.5 million of funding received from Brand Investment Holding. Net sales and operating losses were $2.9 million and $0.9 million, respectively, for the thirteen weeks ended April 30, 2022. Net sales and operating earnings (loss) were not significant during the thirteen weeks ended May 1, 2021.
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 51% owner of the joint venture (“B&H Footwear”), with CBI owning the other 49%. The license enabling the joint venture to market the footwear expired in August 2017 and the parties are in the process of dissolving their joint venture agreements.
The Company consolidates CLT and B&H Footwear into its condensed consolidated financial statements. Net (loss) earnings 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.
COVID-19, Supply Chain Disruptions and Inflationary Pressures
The coronavirus (“COVID-19”) continues to adversely impact the United States and global economies. During 2021, our business operations were impacted by the delayed receipt of inventory attributable to temporary factory shutdowns, border closures, port congestion and shipping vessel and container availability. While inventory receipts improved during the first quarter of 2022, supply chain disruptions continue to impact our business operations and financial results. We experienced higher transportation costs throughout 2021 and continue to experience inflationary pressures for freight and other product costs.
8
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 $9.4 million of employer social security payroll taxes. As of April 30, 2022, employer social security payroll taxes totaling $5.0 million, which are payable by December 31, 2022, are presented in other accrued expenses on the condensed consolidated balance sheet. As of May 1, 2021, approximately $4.7 million of deferred employer social security payroll taxes was recorded in other accrued expenses and $4.7 million was recorded in other liabilities on the condensed consolidated balance sheet.
Property and Equipment, Held for Sale
In April 2021, the Company announced that it would begin marketing for sale its 9-acre corporate headquarters campus (the “Campus”) located in Clayton, Missouri. In January 2022, the Company classified a portion of the Campus as property and equipment, held for sale on the consolidated balance sheet as of January 29, 2022. During the first quarter of 2022, the Company continued its negotiations and an agreement for the sale of the Campus was signed on April 27, 2022, subject to certain closing conditions. The sale of the Campus is expected to close and qualify as a completed sale during the second quarter of 2022. Accordingly, the Campus has been classified as property and equipment, held for sale on the condensed consolidated balance sheet as of April 30, 2022 and is reflected within the Eliminations and Other category. The Company evaluated the Campus asset group for impairment indicators and determined that no indicators were present. The Company intends to execute a lease agreement for a portion of a new office building to be built on a parcel of the headquarters campus, as well as a lease agreement for the existing headquarters building during the period of construction. These lease agreements are expected to be finalized during the second quarter of 2022.
Note 2 Impact of New |
The Company has completed its assessment of the policy changes required for each of the revenue streamsevaluated all recently issued, but not yet effective, accounting pronouncements and is finalizing its assessment of the financial statement impacts of the ASUs, as well as drafting the financial statement disclosures. The area most significantly impacted by the ASUs will be the value assigned to loyalty points issued under the Company's loyalty program for the Famous Footwear segment. The new standards will require a deferral of revenue associated with loyalty points using a relative stand-alone selling price method rather than the incremental cost approach the Company uses under the current standard. The standards allow entities to elect various practical expedients. The Company expects to elect the practical expedient to disregard the effect of the time value of money in a significant financing component when its payment terms are less than one year. The Company will also elect the practical expedient to exclude sales and similar taxes collected from consumers from the measurement of the transaction price for its retail sales. Although adoption of the ASUs will result in a significant initial adjustment to deferred revenue related to loyalty points and require certain changes in presentation to the Company's consolidated balance sheets, it isdoes not anticipated to significantly impact the Company's condensed consolidated statements of earnings on an ongoing basis.
9
Note 3 Revenues
Disaggregation of Revenues
The following table disaggregates revenue by segment and major source for the Brand Portfolio segment since December 13, 2016.periods ended April 30, 2022 and May 1, 2021:
| | | | | | | | | | | | |
| | Thirteen Weeks Ended April 30, 2022 | ||||||||||
| | | | | | | | Eliminations and | | | | |
($ thousands) |
| Famous Footwear |
| Brand Portfolio |
| Other |
| Total | ||||
| | | | | | | | | | | | |
Retail stores | | $ | 331,988 | | $ | 14,217 | | $ | 0 | | $ | 346,205 |
Landed wholesale - e-commerce - drop ship (1) | |
| 0 | |
| 31,773 | |
| (998) | |
| 30,775 |
E-commerce - Company websites (1) | |
| 51,938 | |
| 50,702 | |
| 0 | |
| 102,640 |
Total direct-to-consumer sales | | | 383,926 | | | 96,692 | | | (998) | | | 479,620 |
Wholesale - e-commerce (1) | |
| 0 | |
| 60,716 | |
| 0 | |
| 60,716 |
Landed wholesale | |
| 0 | |
| 175,327 | |
| (14,128) | |
| 161,199 |
First-cost wholesale | |
| 0 | |
| 30,076 | |
| 0 | |
| 30,076 |
Licensing and royalty | |
| 422 | |
| 2,906 | |
| 0 | |
| 3,328 |
Other (2) | |
| 154 | |
| 23 | |
| 0 | |
| 177 |
Net sales | | $ | 384,502 | | $ | 365,740 | | $ | (15,126) | | $ | 735,116 |
| | | | | | | | | | | | |
|
| Thirteen Weeks Ended May 1, 2021 | ||||||||||
| | | | | | | | Eliminations and | | | | |
($ thousands) |
| Famous Footwear |
| Brand Portfolio |
| Other |
| Total | ||||
| | | | | | | | | | | | |
Retail stores | | $ | 334,745 | | $ | 15,008 | | $ | 0 | | $ | 349,753 |
Landed wholesale - e-commerce - drop ship (1) | | | 0 | | | 20,814 | | | (394) | | | 20,420 |
E-commerce - Company websites (1) | |
| 63,122 | |
| 42,738 | |
| 0 | |
| 105,860 |
Total direct-to-consumer sales | | | 397,867 | | | 78,560 | | | (394) | | | 476,033 |
Wholesale - e-commerce (1) | |
| 0 | |
| 37,480 | |
| 0 | |
| 37,480 |
Landed wholesale | |
| 0 | |
| 115,347 | |
| (9,379) | |
| 105,968 |
First-cost wholesale | |
| 0 | |
| 16,718 | |
| 0 | |
| 16,718 |
Licensing and royalty | |
| 0 | |
| 2,164 | |
| 0 | |
| 2,164 |
Other (2) | |
| 237 | |
| 36 | |
| 0 | |
| 273 |
Net sales | | $ | 398,104 | | $ | 250,305 | | $ | (9,773) | | $ | 638,636 |
(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 assetsCompany records a returns reserve and liabilitiesa corresponding return asset for expected returns of Allen Edmonds were recorded at their estimated fair valuesmerchandise.
Retail sales to members of the Company’s loyalty programs, including the Famously You Rewards program, include 2 performance obligations: the sale of merchandise and the excessdelivery of points that may be redeemed for future purchases. The transaction price is allocated to the purchaseseparate performance obligations based on the relative stand-alone selling price. The stand-alone selling price overfor the fairpoints is estimated using the retail value of the assets acquiredmerchandise earned, adjusted for estimated breakage based upon historical redemption patterns. The revenue associated with the initial merchandise purchased is recognized immediately and liabilities assumed, including identified intangible assets, was recordedthe value assigned to the points is deferred until the points are redeemed, forfeited or expired.
10
E-commerce
The Company also 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, picked up directly by the consumer from the Company’s stores and e-commerce sales from the Company’s wholesale customers’ websites that are fulfilled on a drop-ship or first-cost basis (collectively referred to as goodwill"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 fourth quarter of 2016.
The Company’s purchase price allocation contains uncertainties because it required managementCompany also licenses its Famous Footwear trade name and logo to make assumptions anda third-party financial institution to apply judgmentoffer Famous Footwear-branded credit cards to estimate the fair value of the acquired assets and liabilities. A single estimate of fair value results from a complex series of judgments about future events and uncertainties and relies heavily on estimates and assumptions.its consumers. The judgments the Company used in estimating the fair values assigned to each class of the acquired assets and assumed liabilities could materially affect the results of its operations. Management estimated the fair value of the assets and liabilitiesreceives royalties based upon quoted market prices,cardholder spending, which is recognized as licensing revenue at the carryingtime 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 acquired assetsportfolio approach is applied to determine the variable consideration for each revenue stream. Reserves for projected returns are based on historical patterns and widely accepted valuation techniques, including discounted cash flows. Unanticipated events or circumstances may occur, which could affectcurrent expectations.
Information about significant contract balances from contracts with customers is as follows:
| | | | | | | | | |
($ thousands) |
| April 30, 2022 |
| May 1, 2021 |
| January 29, 2022 | |||
Customer allowances and discounts | | $ | 22,896 | | $ | 19,260 | | $ | 20,328 |
Loyalty programs liability | |
| 18,152 | |
| 16,177 | |
| 18,814 |
Returns reserve | |
| 16,376 | |
| 14,469 | |
| 12,468 |
Gift card liability | |
| 6,130 | |
| 5,423 | |
| 6,804 |
Changes in contract balances with customers generally reflect differences in relative sales volume for the accuracyperiods presented. In addition, during the thirteen weeks ended April 30, 2022, the loyalty programs liability increased $7.6 million due to points and material rights earned on purchases and decreased $8.2 million due to expirations and redemptions. During the thirteen weeks ended May 1, 2021, the loyalty programs liability increased $9.3 million due to points and material rights earned on purchases and decreased $7.1 million due to expirations and redemptions.
11
The following table summarizes the activity in the Company’s fair value estimates, including assumptions regarding industry economic factors and business strategies. As of October 28, 2017,allowance for expected credit losses during the purchase price allocation is complete.
| | | | | | |
| | Thirteen Weeks Ended | ||||
($ thousands) |
| April 30, 2022 | | May 1, 2021 | ||
Balance, beginning of period | | $ | 9,601 | | $ | 14,928 |
Provision/adjustment for expected credit losses | | | (617) | | | (152) |
Uncollectible accounts written off, net of recoveries | | | (526) | | | (3,404) |
Balance, end of period | | $ | 8,458 | | $ | 11,372 |
Note 5 to the condensed consolidated financial statements, the Company also incurred integration costs during the thirty-nine weeks ended October 28, 2017.
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 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 October 28, 2017April 30, 2022 and October 29, 2016:
Thirteen Weeks Ended | Thirty-Nine Weeks Ended | |||||||||||
($ thousands, except per share amounts) | October 28, 2017 | October 29, 2016 | October 28, 2017 | October 29, 2016 | ||||||||
NUMERATOR | ||||||||||||
Net earnings | $ | 34,373 | $ | 34,726 | $ | 66,931 | $ | 72,282 | ||||
Net loss (earnings) attributable to noncontrolling interests | 14 | 4 | (47 | ) | (2 | ) | ||||||
Net earnings allocated to participating securities | (949 | ) | (910 | ) | (1,841 | ) | (1,933 | ) | ||||
Net earnings attributable to Caleres, Inc. after allocation of earnings to participating securities | $ | 33,438 | $ | 33,820 | $ | 65,043 | $ | 70,347 | ||||
DENOMINATOR | ||||||||||||
Denominator for basic earnings per common share attributable to Caleres, Inc. shareholders | 41,788 | 41,802 | 41,801 | 42,093 | ||||||||
Dilutive effect of share-based awards | 182 | 137 | 173 | 144 | ||||||||
Denominator for diluted earnings per common share attributable to Caleres, Inc. shareholders | 41,970 | 41,939 | 41,974 | 42,237 | ||||||||
Basic earnings per common share attributable to Caleres, Inc. shareholders | $ | 0.80 | $ | 0.81 | $ | 1.56 | $ | 1.67 | ||||
Diluted earnings per common share attributable to Caleres, Inc. shareholders | $ | 0.80 | $ | 0.81 | $ | 1.55 | $ | 1.67 |
| | | | | | |
| | Thirteen Weeks Ended | ||||
($ thousands, except per share amounts) |
| April 30, 2022 |
| May 1, 2021 | ||
| | | | | | |
NUMERATOR | | | | | | |
Net earnings | | $ | 49,985 | | $ | 6,385 |
Net loss (earnings) attributable to noncontrolling interests | |
| 524 | |
| (238) |
Net earnings attributable to Caleres, Inc. | | $ | 50,509 | | $ | 6,147 |
Net earnings allocated to participating securities | |
| (2,017) | |
| (210) |
Net earnings attributable to Caleres, Inc. after allocation of earnings to participating securities | | $ | 48,492 | | $ | 5,937 |
| |
|
| |
|
|
DENOMINATOR | |
|
| |
|
|
Denominator for basic earnings per common share attributable to Caleres, Inc. shareholders | |
| 36,209 | |
| 36,707 |
Dilutive effect of share-based awards | |
| 467 | |
| 158 |
Denominator for diluted earnings per common share attributable to Caleres, Inc. shareholders | |
| 36,676 | |
| 36,865 |
| |
|
| |
|
|
Basic earnings per common share attributable to Caleres, Inc. shareholders | | $ | 1.34 | | $ | 0.16 |
| |
|
| |
|
|
Diluted earnings per common share attributable to Caleres, Inc. shareholders | | $ | 1.32 | | $ | 0.16 |
Options to purchase 16,667 shares of common stock for both the thirteen and thirty-nine weeks ended October 28, 2017April 30, 2022 and 63,915 shares of common stock for the thirteen and thirty-nine weeks ended October 29, 2016May 1, 2021 were not included in the denominator for diluted earnings per common share attributable to Caleres, Inc. shareholders because the effect would be anti-dilutive.
During the thirteen and thirty-nine weeks ended October 28, 2017,April 30, 2022, the Company repurchased zero and 225,000701,324 shares respectively, under the 2019 publicly announced share repurchase program, which permits repurchases of up to 2.55.0 million shares. The Company repurchased zero and 900,000did 0t repurchase any shares under share repurchase programs during the thirteen and thirty-nine weeks ended October 29, 2016, respectively. AsMay 1, 2021. Refer to further discussion in Item 2, Unregistered Sales of October 28, 2017,Equity Securities and Use of Proceeds. Subsequent to quarter-end, the Company has repurchased aapproximately 905,000 shares at an aggregate price of $22.0 million, bringing our fiscal year-to-date total to approximately 1,606,000 shares at an aggregate price of 1.3 million shares under this program.$36.7 million.
12
Note 5 Restructuring and Other Special Charges
Brand Portfolio – Business Exits
During the thirty-ninethirteen weeks ended October 28, 2017,May 1, 2021, the Company incurred integration and reorganization costs primarily for professional fees and severance expense, totaling $4.0of $13.5 million ($2.611.9 million on an after-tax basis, or $0.06$0.31 per diluted share), related to the men's business. Ofstrategic realignment of the $4.0 millionNaturalizer 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. These charges are presented in costs presented as restructuring and other special charges net inon the condensed consolidated statementsstatement of earnings for the thirty-nine weeks ended October 28, 2017, $2.5 million is reflected within the Other category and $1.5 million is reflected within the Brand Portfolio segment.segment for the thirteen weeks ended May 1, 2021. There were no restructuring0 corresponding charges incurred during the thirteen weeks ended October 28, 2017April 30, 2022. As of April 30, 2022 and May 1, 2021, reserves of $0.1 million and $5.2 million, respectively, were included on the condensed consolidated balance sheets.
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 three-year period, which ended on July 31, 2021, based upon an earnings multiple formula as specified in the purchase agreement. Approximately $9.0 million was initially assigned to the mandatory purchase obligation and fair value adjustments were recorded as interest expense. The fair value adjustments on the mandatory purchase obligation totaled $6.4 million ($4.7 million on an after-tax basis, or $0.13 per diluted share) for the thirty-ninethirteen weeks ended October 29, 2016.
Note 6 Business Segment Information
Following is a summary of certain key financial measures for the Company’s business segments for the periods ended October 28, 2017April 30, 2022 and October 29, 2016:
| | | | | | | | | | | | |
| | Famous | | Brand | | Eliminations | | | | |||
($ thousands) |
| Footwear |
| Portfolio |
| and Other |
| Total | ||||
Thirteen Weeks Ended April 30, 2022 | |
| | |
| | |
| | |
| |
Net sales | | $ | 384,502 | | $ | 365,740 | | $ | (15,126) | | $ | 735,116 |
Intersegment sales (1) | |
| — | | | 15,126 | | | — | |
| 15,126 |
Operating earnings (loss) | |
| 49,688 | |
| 41,349 | |
| (24,842) | |
| 66,195 |
Segment assets | |
| 790,778 | |
| 987,397 | |
| 150,123 | |
| 1,928,298 |
| |
|
| |
|
| |
|
| |
|
|
Thirteen Weeks Ended May 1, 2021 | |
|
| |
|
| |
|
| |
|
|
Net sales | | $ | 398,104 | | $ | 250,305 | | $ | (9,773) | | $ | 638,636 |
Intersegment sales (1) | |
| — | |
| 9,773 | |
| — | |
| 9,773 |
Operating earnings (loss) | |
| 47,873 | |
| (2,821) | |
| (27,182) | |
| 17,870 |
Segment assets | |
| 758,823 | |
| 794,430 | |
| 249,570 | |
| 1,802,823 |
| |
|
| |
|
| |
|
| |
|
|
(1) | Included in net sales in the Brand Portfolio segment and eliminated in the Eliminations and Other category. |
Famous Footwear | Brand Portfolio | |||||||||||
($ thousands) | Other | Total | ||||||||||
Thirteen Weeks Ended October 28, 2017 | ||||||||||||
External sales | $ | 473,118 | $ | 301,538 | $ | — | $ | 774,656 | ||||
Intersegment sales | — | 15,218 | — | 15,218 | ||||||||
Operating earnings (loss) | 33,747 | 24,281 | (5,158 | ) | 52,870 | |||||||
Segment assets | 544,280 | 781,421 | 101,447 | 1,427,148 | ||||||||
Thirteen Weeks Ended October 29, 2016 | ||||||||||||
External sales | $ | 467,816 | $ | 264,414 | $ | — | $ | 732,230 | ||||
Intersegment sales | — | 20,234 | — | 20,234 | ||||||||
Operating earnings (loss) | 32,709 | 30,454 | (7,711 | ) | 55,452 | |||||||
Segment assets | 555,934 | 471,329 | 276,932 | 1,304,195 | ||||||||
Thirty-Nine Weeks Ended October 28, 2017 | ||||||||||||
External sales | $ | 1,244,542 | $ | 838,577 | $ | — | $ | 2,083,119 | ||||
Intersegment sales | — | 59,768 | — | 59,768 | ||||||||
Operating earnings (loss) | 79,137 | 53,511 | (22,957 | ) | 109,691 | |||||||
Thirty-Nine Weeks Ended October 29, 2016 | ||||||||||||
External sales | $ | 1,222,535 | $ | 717,365 | $ | — | $ | 1,939,900 | ||||
Intersegment sales | — | 66,386 | — | 66,386 | ||||||||
Operating earnings (loss) | 81,067 | 57,539 | (22,153 | ) | 116,453 |
The Eliminations and Other category includes corporate assets, administrative expenses and other costs and recoveries, which are not allocated to the operating segments.
Following is a reconciliation of operating earnings to earnings before income taxes:
| | | | | | |
| | Thirteen Weeks Ended | ||||
($ thousands) |
| April 30, 2022 |
| May 1, 2021 | ||
Operating earnings | | $ | 66,195 | | $ | 17,870 |
Interest expense, net | |
| (2,299) | |
| (11,792) |
Other income, net | |
| 3,422 | |
| 3,828 |
Earnings before income taxes | | $ | 67,318 | | $ | 9,906 |
13
Thirteen Weeks Ended | Thirty-nine Weeks Ended | |||||||||||
($ thousands) | October 28, 2017 | October 29, 2016 | October 28, 2017 | October 29, 2016 | ||||||||
Operating earnings | $ | 52,870 | $ | 55,452 | $ | 109,691 | $ | 116,453 | ||||
Interest expense | (4,141 | ) | (3,475 | ) | (13,822 | ) | (10,564 | ) | ||||
Interest income | 95 | 350 | 592 | 907 | ||||||||
Earnings before income taxes | $ | 48,824 | $ | 52,327 | $ | 96,461 | $ | 106,796 |
($ thousands) | October 28, 2017 | October 29, 2016 | January 28, 2017 | ||||||
Raw materials | $ | 19,091 | $ | 942 | $ | 15,378 | |||
Work-in-process | 897 | — | 1,093 | ||||||
Finished goods | 578,377 | 523,881 | 569,293 | ||||||
Inventories, net | $ | 598,365 | $ | 524,823 | $ | 585,764 |
| | | | | | | | | |
($ thousands) |
| April 30, 2022 |
| May 1, 2021 |
| January 29, 2022 | |||
Raw materials | | $ | 16,112 | | $ | 13,010 | | $ | 16,764 |
Work-in-process | |
| 666 | |
| 365 | |
| 614 |
Finished goods | |
| 626,749 | |
| 431,924 | |
| 579,429 |
Inventories, net | | $ | 643,527 | | $ | 445,299 | | $ | 596,807 |
| | | | | | | | | |
($ thousands) |
| April 30, 2022 |
| May 1, 2021 |
| January 29, 2022 | |||
Intangible Assets |
| |
|
| |
|
| |
|
Famous Footwear | | $ | 2,800 | | $ | 2,800 | | $ | 2,800 |
Brand Portfolio | |
| 342,083 | |
| 342,083 | |
| 342,083 |
Total intangible assets | |
| 344,883 | |
| 344,883 | |
| 344,883 |
Accumulated amortization | |
| (125,364) | |
| (112,915) | |
| (122,336) |
Total intangible assets, net | |
| 219,519 | |
| 231,968 | |
| 222,547 |
Goodwill | |
|
| |
|
| |
|
|
Brand Portfolio (1) | |
| 4,956 | |
| 4,956 | |
| 4,956 |
Total goodwill | |
| 4,956 | |
| 4,956 | |
| 4,956 |
Goodwill and intangible assets, net | | $ | 224,475 | | $ | 236,924 | | $ | 227,503 |
(1) | The carrying amount of goodwill as of April 30, 2022, May 1, 2021 and January 29, 2022 is presented net of accumulated impairment charges of $415.7 million. |
($ thousands) | October 28, 2017 | October 29, 2016 | January 28, 2017 | ||||||
Intangible Assets | |||||||||
Famous Footwear | $ | 2,800 | $ | 2,800 | $ | 2,800 | |||
Brand Portfolio | 285,988 | 183,068 | 286,488 | ||||||
Total intangible assets | 288,788 | 185,868 | 289,288 | ||||||
Accumulated amortization | (75,687 | ) | (71,681 | ) | (72,628 | ) | |||
Total intangible assets, net | 213,101 | 114,187 | 216,660 | ||||||
Goodwill | |||||||||
Brand Portfolio | 127,081 | 13,954 | 127,098 | ||||||
Total goodwill | 127,081 | 13,954 | 127,098 | ||||||
Goodwill and intangible assets, net | $ | 340,182 | $ | 128,141 | $ | 343,758 |
14
The Company’s intangible assets as of April 30, 2022, May 1, 2021 and January 29, 2022 were as follows:
| | | | | | | | | | | | | | |
($ thousands) |
| April 30, 2022 | ||||||||||||
|
| Estimated Useful Lives |
| | |
| Accumulated |
| Accumulated |
| | | ||
| | (In Years) | | Cost Basis | | Amortization | | Impairment | | Net Carrying Value | ||||
Trade names |
| 2 - 40 | | $ | 299,488 | | $ | 114,528 | | $ | 10,200 | | $ | 174,760 |
Trade names |
| Indefinite | |
| 107,400 | |
| — | |
| 92,000 | |
| 15,400 |
Customer relationships |
| 15 - 16 |
|
| 44,200 |
|
| 10,836 |
|
| 4,005 |
|
| 29,359 |
| | | | $ | 451,088 | | $ | 125,364 | | $ | 106,205 | | $ | 219,519 |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
|
| May 1, 2021 | ||||||||||||
|
| Estimated Useful Lives |
| | |
| Accumulated |
| Accumulated |
| | | ||
| | (In Years) | | Cost Basis | | Amortization | | Impairment | | Net Carrying Value | ||||
Trade names |
| 2 - 40 | | $ | 299,488 | | $ | 104,459 | | $ | 10,200 | | $ | 184,829 |
Trade names |
| Indefinite | |
| 107,400 | |
| — | |
| 92,000 | |
| 15,400 |
Customer relationships |
| 15 - 16 |
|
| 44,200 |
|
| 8,456 |
|
| 4,005 |
|
| 31,739 |
| | | | $ | 451,088 | | $ | 112,915 | | $ | 106,205 | | $ | 231,968 |
| | | | | | | | | | | | | | |
|
| January 29, 2022 | ||||||||||||
|
| Estimated Useful Lives |
| | |
| Accumulated |
| Accumulated |
| | | ||
| | (In Years) | | Cost Basis | | Amortization | | Impairment | | Net Carrying Value | ||||
Trade names |
| 2 - 40 | | $ | 299,488 | | $ | 112,061 | | $ | 10,200 | | $ | 177,227 |
Trade names |
| Indefinite | |
| 107,400 | |
| — | |
| 92,000 | |
| 15,400 |
Customer relationships |
| 15 - 16 |
|
| 44,200 |
|
| 10,275 |
|
| 4,005 |
|
| 29,920 |
| | | | $ | 451,088 | | $ | 122,336 | | $ | 106,205 | | $ | 222,547 |
Amortization expense related to intangible assets was $3.0 million and $3.1 million for the thirteen weeks ended April 30, 2022 and May 1, 2021, respectively. The Company estimates that amortization expense related to intangible assets will be approximately $12.1 million in 2022, $11.9 million in 2023 and $11.0 million in each of the fiscal years 2024, 2025 and 2026.
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 0 goodwill impairment charges during the thirteen weeks ended April 30, 2022 or May 1, 2021.
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 0 impairment charges for indefinite-lived intangible assets during the thirteen weeks ended April 30, 2022 or May 1, 2021.
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. 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 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
15
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 $1.8 million and $1.9 million during the thirteen weeks ended April 30, 2022 and May 1, 2021, respectively. The impairment charges are primarily related to software and underperforming retail stores. Refer to Note 14 to the condensed consolidated financial statements for further discussion on these impairment charges.
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 weeks ended May 1, 2021, the Company recorded $1.3 million in lease concessions as a reduction of rent expense within selling and administrative expenses in the condensed consolidated statements of earnings. Rent concessions for leases that were extended were recognized as a lease modification.
During the thirteen weeks ended April 30, 2022, the Company entered into new or amended leases that resulted in the recognition of right-of-use assets and lease obligations of $37.0 million on the condensed consolidated balance sheets. As of April 30, 2022, the Company has entered into lease commitments for 4 retail locations for which the leases have not yet commenced. The Company anticipates that 2 leases will begin in the current fiscal year and 2 leases will begin in the next fiscal year. Upon commencement, right-of-use assets and lease liabilities of approximately $2.0 million will be recorded in the current fiscal year and $2.0 million will be recorded in the next fiscal year on the condensed consolidated balance sheets. In addition, as further describeddiscussed in Note 31 to the condensed consolidated financial statements, the Company acquired Allen Edmondsintends to execute a lease agreement during the second quarter of 2022 for a portion of a new office building to be built on December 13, 2016. The allocationa parcel of the purchase price resulted in incremental intangible assetsheadquarters campus, as well as a lease agreement for the existing headquarters building during the period of $102.9 million, consistingconstruction.
The components of trademarks and customer relationships of $97.5 million and $5.4 million, respectively, and incremental goodwill of $113.1 million.
($ thousands) | October 28, 2017 | |||||||||||||
Estimated Useful Lives | Original Cost | Accumulated Amortization | Net Carrying Value | |||||||||||
Trademarks | 15-40 years | $ | 165,288 | $ | 75,372 | $ | 89,916 | |||||||
Trademarks | Indefinite | 118,100 | (1) | — | 118,100 | |||||||||
Customer relationships | 15 years | 5,400 | (1) | 315 | 5,085 | |||||||||
$ | 288,788 | $ | 75,687 | $ | 213,101 |
October 29, 2016 | ||||||||||||||
Estimated Useful Lives | Original Cost | Accumulated Amortization | Net Carrying Value | |||||||||||
Trademarks | 15-40 years | $ | 165,068 | $ | 71,681 | $ | 93,387 | |||||||
Trademarks | Indefinite | 20,800 | — | 20,800 | ||||||||||
$ | 185,868 | $ | 71,681 | $ | 114,187 |
January 28, 2017 | ||||||||||||||
Estimated Useful Lives | Original Cost | Accumulated Amortization | Net Carrying Value | |||||||||||
Trademarks | 15-40 years | $ | 165,288 | $ | 72,604 | $ | 92,684 | |||||||
Trademarks | Indefinite | 117,900 | (1) | — | 117,900 | |||||||||
Customer relationships | 15 years | 6,100 | (1) | 24 | 6,076 | |||||||||
$ | 289,288 | $ | 72,628 | $ | 216,660 | |||||||||
(1) The Allen Edmonds trademark and customer relationships intangible assets were acquired in the Allen Edmonds acquisition, as further discussed in Note 3 to the condensed consolidated financial statements. Immaterial adjustments attributable to the purchase price allocation were recorded during the thirty-nine weeks ended October 28, 2017, resulting in an adjustment to the original cost. |
| | | | | | |
| | Thirteen Weeks Ended | ||||
($ thousands) | | April 30, 2022 |
| May 1, 2021 | ||
Operating lease expense |
| $ | 38,064 |
| $ | 40,577 |
Variable lease expense | |
| 9,016 | |
| 11,490 |
Short-term lease expense | |
| 1,195 | |
| 565 |
Sublease income | |
| (59) | |
| (29) |
Total lease expense | | $ | 48,216 | | $ | 52,603 |
Supplemental cash flow information related to leases is as follows:
| | | | | | |
| Thirteen Weeks Ended | |||||
($ thousands) |
| April 30, 2022 |
| May 1, 2021 | ||
Cash paid for lease liabilities (1) | | $ | 48,793 | | $ | 56,453 |
Cash received from sublease income | |
| 59 | |
| 29 |
(1) | Cash paid for lease liabilities for the thirteen weeks ended May 1, 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.
16
On October 28, 20175, 2021, the Company entered into a Fifth Amendment to Fourth Amended and October 29, 2016, respectively,Restated Credit Agreement (as so amended, the "Credit Agreement") which, among other modifications, 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 $3.1 millionmay be further increased by up to $250.0 million. The Credit Agreement also decreased the spread applied to the London Interbank Offered Rate (“LIBOR”) or prime rate by a total of 75 basis points.
Borrowing availability under the Credit Agreement is limited to the lesser of the total commitments and $2.8the 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 0.0%), or the prime rate (as defined in the Credit Agreement), plus a spread. The interest rate and fees for letters of credit vary based upon the level of excess availability under the Credit Agreement. There is an unused line fee payable on the unused portion under the facility and a letter of credit fee payable on the outstanding face amount under letters of credit.
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 10.0% of the Loan Cap and $40.0 million for three consecutive business days, and the thirty-nine weeks ended October 28, 2017fixed charge coverage ratio is less than 1.25 to 1.0, the Company would be in default under the Credit Agreement and October 29, 2016, respectively.
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 April 30, 2022.
At April 30, 2022, the Company had $305.0 million of borrowings outstanding and $10.8 million in letters of credit outstanding under the Credit Agreement. Total additional borrowing availability was $184.2 million at April 30, 2022.
Senior Notes
On July 27, 2015, the Company issued $200.0 million aggregate principal amount of senior notes due on August 15, 2023 (the "Senior Notes"). The Senior Notes bore interest at 6.25%, which was payable on February 15 and August 15 of each year. The Senior Notes were guaranteed on a senior unsecured basis by each of the Company’s subsidiaries that is a borrower or guarantor under the Credit Agreement. On August 16, 2021, the Company redeemed $100.0 million of Senior Notes at 100.0%. In addition, on January 3, 2022, the remaining $100.0 million of Senior Notes were redeemed at 100.0%, extinguishing the Company’s long-term debt.
17
($ thousands) | Caleres, Inc. Shareholders’ Equity | Noncontrolling Interests | Total Equity | ||||||
Equity at January 28, 2017 | $ | 613,117 | $ | 1,369 | $ | 614,486 | |||
Net earnings | 66,884 | 47 | 66,931 | ||||||
Other comprehensive income | 2,312 | 26 | 2,338 | ||||||
Dividends paid | (9,033 | ) | — | (9,033 | ) | ||||
Acquisition of treasury stock | (5,993 | ) | — | (5,993 | ) | ||||
Issuance of common stock under share-based plans, net | (2,477 | ) | — | (2,477 | ) | ||||
Cumulative-effect adjustment from adoption of ASU 2016-09 | 441 | — | 441 | ||||||
Share-based compensation expense | 8,394 | — | 8,394 | ||||||
Equity at October 28, 2017 | $ | 673,645 | $ | 1,442 | $ | 675,087 |
($ thousands) | Caleres, Inc. Shareholders’ Equity | Noncontrolling Interests | Total Equity | ||||||
Equity at January 30, 2016 | $ | 601,484 | $ | 988 | $ | 602,472 | |||
Net earnings | 72,280 | 2 | 72,282 | ||||||
Other comprehensive income (loss) | (446 | ) | (37 | ) | (483 | ) | |||
Dividends paid | (9,094 | ) | — | (9,094 | ) | ||||
Acquisition of treasury stock | (23,139 | ) | — | (23,139 | ) | ||||
Issuance of common stock under share-based plans, net | (4,205 | ) | — | (4,205 | ) | ||||
Excess tax benefit related to share-based plans | 3,264 | — | 3,264 | ||||||
Share-based compensation expense | 5,966 | — | 5,966 | ||||||
Equity at October 29, 2016 | $ | 646,110 | $ | 953 | $ | 647,063 |
The following table sets forth the changes in accumulated other comprehensive loss (OCL) by component for the periods ended October 28, 2017April 30, 2022 and October 29, 2016:
| | | | | | | | | |
|
| | |
| Pension and |
| | | |
| | | | | Other | | Accumulated | ||
| | Foreign | | Postretirement | | Other | |||
| | Currency | | Transactions | | Comprehensive | |||
($ thousands) | | Translation | | (1) | | (Loss) Income | |||
Balance at January 29, 2022 | | $ | (788) | | $ | (7,818) | | $ | (8,606) |
Other comprehensive loss before reclassifications | | | (162) | | | — | | | (162) |
Reclassifications: | |
| | |
| | |
| |
Amounts reclassified from accumulated other comprehensive loss | | | — | | | 581 | | | 581 |
Tax benefit |
| | — |
| | (141) |
| | (141) |
Net reclassifications |
| | — |
| | 440 |
| | 440 |
Other comprehensive (loss) income |
| | (162) |
| | 440 |
| | 278 |
Balance at April 30, 2022 | | $ | (950) | | $ | (7,378) | | $ | (8,328) |
| | | | | | | | | |
Balance at January 30, 2021 | | $ | (111) | | $ | (9,025) | | $ | (9,136) |
Other comprehensive loss before reclassifications | |
| (166) | |
| — | |
| (166) |
Reclassifications: | |
|
| |
|
| |
|
|
Amounts reclassified from accumulated other comprehensive loss | |
| — | |
| 463 | |
| 463 |
Tax benefit | |
| — | |
| (97) | |
| (97) |
Net reclassifications | |
| — | |
| 366 | |
| 366 |
Other comprehensive (loss) income | |
| (166) | |
| 366 | |
| 200 |
Balance at May 1, 2021 | | $ | (277) | | $ | (8,659) | | $ | (8,936) |
($ thousands) | Foreign Currency Translation | Pension and Other Postretirement Transactions (1) | Derivative Financial Instrument Transactions (2) | Accumulated Other Comprehensive (Loss) Income | ||||||||
Balance July 29, 2017 | $ | 1,472 | $ | (29,357 | ) | $ | (166 | ) | $ | (28,051 | ) | |
Other comprehensive (loss) income before reclassifications | (633 | ) | — | 258 | (375 | ) | ||||||
Reclassifications: | ||||||||||||
Amounts reclassified from accumulated other comprehensive loss | — | 615 | (118 | ) | 497 | |||||||
Tax (benefit) provision | — | (236 | ) | 43 | (193 | ) | ||||||
Net reclassifications | — | 379 | (75 | ) | 304 | |||||||
Other comprehensive (loss) income | (633 | ) | 379 | 183 | (71 | ) | ||||||
Balance October 28, 2017 | $ | 839 | $ | (28,978 | ) | $ | 17 | $ | (28,122 | ) | ||
Balance July 30, 2016 | $ | 606 | $ | (5,932 | ) | $ | (49 | ) | $ | (5,375 | ) | |
Other comprehensive loss before reclassifications | (545 | ) | — | (150 | ) | (695 | ) | |||||
Reclassifications: | ||||||||||||
Amounts reclassified from accumulated other comprehensive loss | — | (478 | ) | 79 | (399 | ) | ||||||
Tax provision (benefit) | — | 189 | (30 | ) | 159 | |||||||
Net reclassifications | — | (289 | ) | 49 | (240 | ) | ||||||
Other comprehensive loss | (545 | ) | (289 | ) | (101 | ) | (935 | ) | ||||
Balance October 29, 2016 | $ | 61 | $ | (6,221 | ) | $ | (150 | ) | $ | (6,310 | ) | |
Balance January 28, 2017 | $ | 192 | $ | (30,084 | ) | $ | (542 | ) | (30,434 | ) | ||
Other comprehensive income before reclassifications | 647 | — | 716 | 1,363 | ||||||||
Reclassifications: | ||||||||||||
Amounts reclassified from accumulated other comprehensive loss | — | 1,794 | (235 | ) | 1,559 | |||||||
Tax (benefit) provision | — | (688 | ) | 78 | (610 | ) | ||||||
Net reclassifications | — | 1,106 | (157 | ) | 949 | |||||||
Other comprehensive income | 647 | 1,106 | 559 | 2,312 | ||||||||
Balance October 28, 2017 | $ | 839 | $ | (28,978 | ) | $ | 17 | $ | (28,122 | ) | ||
Balance January 30, 2016 | $ | (900 | ) | $ | (5,356 | ) | $ | 392 | $ | (5,864 | ) | |
Other comprehensive income (loss) before reclassifications | 961 | — | (789 | ) | 172 | |||||||
Reclassifications: | ||||||||||||
Amounts reclassified from accumulated other comprehensive loss | — | (1,432 | ) | 392 | (1,040 | ) | ||||||
Tax provision (benefit) | — | 567 | (145 | ) | 422 | |||||||
Net reclassifications | — | (865 | ) | 247 | (618 | ) | ||||||
Other comprehensive income (loss) | 961 | (865 | ) | (542 | ) | (446 | ) | |||||
Balance October 29, 2016 | $ | 61 | $ | (6,221 | ) | $ | (150 | ) | $ | (6,310 | ) |
(1) | Amounts reclassified are included in |
Note 12 Share-Based Compensation
The Company recognized share-based compensation expense of $2.6$3.8 million and $1.6$2.4 million during the thirteen weeks ended April 30, 2022 and $8.4 million and $6.0 million during the thirty-nine weeks ended October 28, 2017 and October 29, 2016,May 1, 2021, respectively. In addition to share-based compensation expense, the Company recognized cash-based expense related to performance share units and cash awards granted under the performance share plans of zero and $0.4 million during the thirteen weeks and $0.1 million and $1.9 million during the thirty-nine weeks ended October 28, 2017 and October 29, 2016, respectively.
The Company had net issuances (repurchases) of 9,832512,508 and (22,233)327,268 shares of common stock during the thirteen weeks ended October 28, 2017April 30, 2022 and October 29, 2016,May 1, 2021, respectively, for restricted stock grants, stock performance awards issued to employees stock options exercised and common and restricted stock grants issued to non-employee directors, net of forfeitures and shares withheld to satisfy the minimum tax withholding requirement. During the thirty-nine weeks ended October 28, 2017 and October 29, 2016, the Company issued 251,718 and 158,592 shares
18
The following table summarizes restricted stock activity for the periods ended October 28, 2017April 30, 2022 and October 29, 2016:
Thirteen Weeks Ended | Thirteen Weeks Ended | |||||||||||||
October 28, 2017 | October 29, 2016 | |||||||||||||
Weighted- Average Grant Date Fair Value | Weighted- Average Grant Date Fair Value | |||||||||||||
Total Number of Restricted Shares | Total Number of Restricted Shares | |||||||||||||
July 29, 2017 | 1,194,326 | $ | 28.03 | July 30, 2016 | 1,139,299 | $ | 25.42 | |||||||
Granted | 25,000 | 27.13 | Granted | 6,500 | 25.18 | |||||||||
Forfeited | (19,050 | ) | 31.86 | Forfeited | (29,500 | ) | 24.87 | |||||||
Vested | (800 | ) | 22.90 | Vested | — | — | ||||||||
October 28, 2017 | 1,199,476 | $ | 27.95 | October 29, 2016 | 1,116,299 | $ | 25.43 | |||||||
Thirty-Nine Weeks Ended | Thirty-Nine Weeks Ended | |||||||||||||
October 28, 2017 | October 29, 2016 | |||||||||||||
Weighted- Average Grant Date Fair Value | Weighted- Average Grant Date Fair Value | |||||||||||||
Total Number of Restricted Shares | Total Number of Restricted Shares | |||||||||||||
January 28, 2017 | 1,128,049 | $ | 25.85 | January 30, 2016 | 1,262,449 | $ | 19.55 | |||||||
Granted | 381,312 | 26.92 | Granted | 357,100 | 26.54 | |||||||||
Forfeited | (49,050 | ) | 29.35 | Forfeited | (78,000 | ) | 23.67 | |||||||
Vested | (260,835 | ) | 17.09 | Vested | (425,250 | ) | 9.22 | |||||||
October 28, 2017 | 1,199,476 | $ | 27.95 | October 29, 2016 | 1,116,299 | $ | 25.43 |
| | | | | | | | | | | | |
| | Thirteen Weeks Ended | | | | Thirteen Weeks Ended | ||||||
| | April 30, 2022 | | | | May 1, 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 | | 1,390,397 | | $ | 14.24 | | January 30, 2021 | | 1,397,227 | | $ | 16.74 |
Granted | | 671,200 | | | 21.00 | | Granted | | 562,506 | | | 18.63 |
Forfeited | | (50,966) | | | 12.63 | | Forfeited | | (46,500) | | | 16.08 |
Vested |
| (387,854) |
| | 12.48 |
| Vested |
| (484,389) |
| | 26.96 |
April 30, 2022 |
| 1,622,777 | | $ | 17.51 | | May 1, 2021 |
| 1,428,844 | | $ | 14.04 |
The Company granted 671,200 restricted shares during the thirteen weeks ended April 30, 2022, which have a graded-vesting term of three years, with 50% vesting after two years and 50% after three years. Of the 562,506 restricted shares granted during the thirteen weeks ended October 28, 2017May 1, 2021, 542,506 shares have a cliff-vestinggraded-vesting term of four years. Of the 381,312 restricted shares granted during the thirty-nine weeks ended October 28, 2017, 4,492three years, with 50% vesting after two years and 50% after three years and 20,000 shares have a cliff-vesting term of one year, 12,000 shares have a graded-vesting term of four years and 364,820 shares have a cliff-vesting term of four years. All of the restricted shares granted during the thirteen and thirty-nine weeks ended October 29, 2016 have a cliff-vesting term of fourtwo years. Share-based compensation expense for cliff-vesting grants is recognized on a straight-line basis over the respective vesting periods and expense for graded-vesting grants is recognized ratably over the respective vesting period.
Performance Share Awards
During the thirteen weeks ended October 28, 2017 and October 29, 2016, the Company granted no performance share awards. During the thirty-nine weeks ended October 28, 2017 and October 29, 2016,April 30, 2022, the Company granted performance share awards for a targeted 169,500 and 159,00087,750 shares, respectively, with a weighted-average grant date fair value of $26.90 and $26.64, respectively.$20.99 in connection with the 2020 performance award. During the thirteen weeks ended May 1, 2021, the Company granted performance share awards for a targeted 175,500 shares, with a weighted-average grant date fair value of $18.63. Vesting of performance-based awards is generally dependent upon the financial performance of the Company and the attainment of certain financial goals during the three-year period following the grant. At the end of the vesting period, the employee will
During the first quarter of 2017,thirteen weeks ended April 30, 2022, the Company's remaining performance shareCompany granted long-term incentive awards granted in units vested and were settledpayable in cash at fair value. Refer to Note 13 tofor the 2022-2024 performance period, with a target value of $8.3 million and a maximum value of $16.6 million. During the thirteen weeks ended May 1, 2021, the Company granted long-term incentive awards payable in cash for the 2021-2023 performance period, with a target value of $6.5 million and a maximum value of $13.0 million. These awards, which vest after a three-year period, are dependent upon the attainment of certain financial goals of the Company for each of the three years and individual achievement of strategic initiatives over the cumulative period of the award. The estimated values of the awards, which are reflected within other liabilities on the condensed consolidated financial statements for further discussion regardingbalance sheets, are being expensed ratably over the three-year performance share units.
Thirteen Weeks Ended | Thirteen Weeks Ended | |||||||||||||
October 28, 2017 | October 29, 2016 | |||||||||||||
Weighted- Average Grant Date Fair Value | Weighted- Average Grant Date Fair Value | |||||||||||||
Total Number of Stock Options | Total Number of Stock Options | |||||||||||||
July 29, 2017 | 92,042 | $ | 6.42 | July 30, 2016 | 222,790 | $ | 8.98 | |||||||
Granted | — | — | Granted | — | — | |||||||||
Exercised | (6,000 | ) | 6.41 | Exercised | — | — | ||||||||
Forfeited | — | — | Forfeited | (2,250 | ) | 15.94 | ||||||||
Expired | (1,000 | ) | 8.33 | Expired | (15,000 | ) | 9.82 | |||||||
October 28, 2017 | 85,042 | $ | 6.39 | October 29, 2016 | 205,540 | $ | 8.85 | |||||||
Thirty-Nine Weeks Ended | Thirty-Nine Weeks Ended | |||||||||||||
October 28, 2017 | October 29, 2016 | |||||||||||||
Weighted- Average Grant Date Fair Value | Weighted- Average Grant Date Fair Value | |||||||||||||
Total Number of Stock Options | Total Number of Stock Options | |||||||||||||
January 28, 2017 | 150,540 | $ | 9.36 | January 30, 2016 | 301,295 | $ | 8.95 | |||||||
Granted | — | — | Granted | — | — | |||||||||
Exercised | (17,250 | ) | 5.97 | Exercised | (56,381 | ) | 7.41 | |||||||
Forfeited | — | — | Forfeited | (9,749 | ) | 15.94 | ||||||||
Expired | (48,248 | ) | 15.79 | Expired | (29,625 | ) | 10.27 | |||||||
October 28, 2017 | 85,042 | $ | 6.39 | October 29, 2016 | 205,540 | $ | 8.85 |
Restricted Stock Units for Non-Employee Directors
Equity-based grants may be made to non-employee directors in the form of cash-equivalent 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'sCompany’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 8381,907 and 1,086 RSUs to non-employee directors1,712 for dividend equivalents during the thirteen weeks ended October 28, 2017April 30, 2022 and October 29, 2016,May 1, 2021, respectively, with weighted-average grant date fair values of $30.68$20.64 and $24.98,$20.91, respectively. The Company granted 47,550
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Note 13 Retirement and 55,250 RSUs, including 2,630 and 3,050 RSUs for dividend equivalents, during the thirty-nine weeks ended October 28, 2017 and October 29, 2016, respectively, with weighted-average grant date fair values of $27.86 and $21.78, respectively.
The following table sets forth the components of net periodic benefit income for the Company, including the domestic and Canadian plans:
Pension Benefits | Other Postretirement Benefits | |||||||||||
Thirteen Weeks Ended | Thirteen Weeks Ended | |||||||||||
($ thousands) | October 28, 2017 | October 29, 2016 | October 28, 2017 | October 29, 2016 | ||||||||
Service cost | $ | 2,426 | $ | 2,084 | $ | — | $ | — | ||||
Interest cost | 3,736 | 3,835 | 17 | 15 | ||||||||
Expected return on assets | (6,896 | ) | (7,237 | ) | — | — | ||||||
Amortization of: | ||||||||||||
Actuarial loss (gain) | 1,090 | 38 | (36 | ) | (55 | ) | ||||||
Prior service income | (439 | ) | (461 | ) | — | — | ||||||
Curtailment cost | 36 | — | — | — | ||||||||
Total net periodic benefit income | $ | (47 | ) | $ | (1,741 | ) | $ | (19 | ) | $ | (40 | ) |
Pension Benefits | Other Postretirement Benefits | |||||||||||
Thirty-nine Weeks Ended | Thirty-nine Weeks Ended | |||||||||||
($ thousands) | October 28, 2017 | October 29, 2016 | October 28, 2017 | October 29, 2016 | ||||||||
Service cost | $ | 7,276 | $ | 6,251 | $ | — | $ | — | ||||
Interest cost | 11,210 | 11,506 | 51 | 45 | ||||||||
Expected return on assets | (20,689 | ) | (21,712 | ) | — | — | ||||||
Amortization of: | ||||||||||||
Actuarial loss (gain) | 3,238 | 115 | (109 | ) | (165 | ) | ||||||
Prior service income | (1,335 | ) | (1,382 | ) | — | — | ||||||
Settlement cost | — | 250 | — | — | ||||||||
Curtailment cost | 36 | — | — | — | ||||||||
Total net periodic benefit income | $ | (264 | ) | $ | (4,972 | ) | $ | (58 | ) | $ | (120 | ) |
| | | | | | | | | | | | |
| | Pension Benefits | | Other Postretirement Benefits | ||||||||
|
| Thirteen Weeks Ended |
| Thirteen Weeks Ended | ||||||||
($ thousands) | | April 30, 2022 |
| May 1, 2021 |
| April 30, 2022 |
| May 1, 2021 | ||||
Service cost | | $ | 1,762 | | $ | 1,942 | | $ | 0 | | $ | 0 |
Interest cost | |
| 2,971 | |
| 2,813 | |
| 10 | |
| 10 |
Expected return on assets | |
| (6,984) | |
| (7,114) | |
| 0 | |
| 0 |
Amortization of: | |
| | |
|
| |
| | |
|
|
Actuarial loss (gain) | |
| 681 | |
| 615 | |
| (25) | |
| (27) |
Prior service income | |
| (75) | |
| (125) | |
| 0 | |
| 0 |
Total net periodic benefit income | | $ | (1,645) | | $ | (1,869) | | $ | (15) | | $ | (17) |
The non-service cost components of business, the Company’s financial resultsnet periodic benefit income are impacted by currency rate movementsincluded in foreign currency denominated assets, liabilities and cash flows as it makes a portion of its purchases and salesother income, net in local currencies. The Company has established policies and business practices that are intended to mitigate a portion of the effect of these exposures. The Company uses derivative financial instruments, primarily forward contracts, to manage its currency exposures. These derivative financial instruments are viewed as risk management tools and are not used for trading or speculative purposes. Derivatives entered into by the Company are designated as cash flow hedges of forecasted foreign currency transactions.
(U.S. $ equivalent in thousands) | October 28, 2017 | October 29, 2016 | January 28, 2017 | ||||||
Financial Instruments | |||||||||
U.S. dollars (purchased by the Company’s Canadian division with Canadian dollars) | $ | 18,242 | $ | 17,229 | $ | 18,826 | |||
Euro | 18,815 | 10,854 | 13,297 | ||||||
Chinese yuan | 12,613 | 13,038 | 7,723 | ||||||
New Taiwanese dollars | 580 | 538 | 526 | ||||||
United Arab Emirates dirham | — | 1,143 | 823 | ||||||
Japanese yen | — | 1,145 | 769 | ||||||
Other currencies | — | 206 | 124 | ||||||
Total financial instruments | $ | 50,250 | $ | 44,153 | $ | 42,088 |
Asset Derivatives | Liability Derivatives | ||||||||
($ thousands) | Balance Sheet Location | Fair Value | Balance Sheet Location | Fair Value | |||||
Foreign Exchange Forward Contracts | |||||||||
October 28, 2017 | Prepaid expenses and other current assets | $ | 760 | Other accrued expenses | $ | 564 | |||
October 29, 2016 | Prepaid expenses and other current assets | 362 | Other accrued expenses | 570 | |||||
January 28, 2017 | Prepaid expenses and other current assets | 234 | Other accrued expenses | 874 |
Thirteen Weeks Ended | Thirteen Weeks Ended | |||||||||||
($ thousands) | October 28, 2017 | October 29, 2016 | ||||||||||
Foreign Exchange Forward Contracts: Income Statement Classification (Losses) Gains - Realized | (Loss) Gain Recognized in OCL on Derivatives | Gain Reclassified from Accumulated OCL into Earnings | Gain (Loss) Recognized in OCL on Derivatives | Loss Reclassified from Accumulated OCL into Earnings | ||||||||
Net sales | $ | (4 | ) | $ | 6 | $ | 16 | $ | (55 | ) | ||
Cost of goods sold | (42 | ) | 3 | (181 | ) | (8 | ) | |||||
Selling and administrative expenses | 364 | 109 | (97 | ) | (15 | ) | ||||||
Interest expense | 6 | — | 5 | (1 | ) |
Thirty-Nine Weeks Ended | Thirty-Nine Weeks Ended | |||||||||||
($ thousands) | October 28, 2017 | October 29, 2016 | ||||||||||
Foreign Exchange Forward Contracts: Income Statement Classification (Losses) Gains - Realized | (Loss) Gain Recognized in OCL on Derivatives | Gain (Loss) Reclassified from Accumulated OCL into Earnings | Loss Recognized in OCL on Derivatives | (Loss) Gain Reclassified from Accumulated OCL into Earnings | ||||||||
Net sales | $ | (44 | ) | $ | 30 | $ | (173 | ) | $ | (127 | ) | |
Cost of goods sold | 695 | 164 | (766 | ) | 109 | |||||||
Selling and administrative expenses | 480 | 42 | (121 | ) | (373 | ) | ||||||
Interest expense | (4 | ) | (1 | ) | (19 | ) | (1 | ) |
Note 13 to the condensed consolidated financial statements.
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 as well aspossible. 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 hasperiodically invests in cash equivalents consisting of short-term money market funds backed by U.S. Treasury securities. The primary objective of these investing activities issecurities to preserve the Company’s capital for the purpose of funding operations and itoperations. 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 50% of base salary and 100% of compensation received under the Company’s annual incentive plan. The deferrals are held
20
in a separate trust, which has been established by the Company to administer the Deferred Compensation Plan. The assets of the trust are subject to the claims of the Company’s creditors in the event that the Company becomes insolvent. Consequently, the trust qualifies as a grantor trust for income tax purposes (i.e., a “Rabbi Trust”). The liabilities of the Deferred Compensation Plan are presented in other accrued expenses and the assets held by the trust are classified as trading securities within prepaid expenses and other current assets in the accompanying condensed consolidated balance sheets. Changes in deferred compensation plan assets and liabilities are charged to selling and administrative expenses. The fair value is based on unadjusted quoted market prices for the funds in active markets with sufficient volume and frequency (Level 1).
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 accompanying 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).
Restricted Stock Units for Non-Employee Directors
Under the Company’s incentive compensation plans, cash-equivalent restricted stock units (“RSUs”) of the Company may bewere previously granted at no cost to non-employee directors. TheThese cash-equivalent RSUs are subject to a vesting requirement (usually one year), earn dividend-equivalent units, and are settled in cash on the date the director terminates service or such earlier date as a director may elect, subject to restrictions, based on the then current fair value of the Company’s common stock. The fair value of each cash-equivalent RSU 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). Additional information related to RSUs for non-employee directors is disclosed in Note 10 to the condensed consolidated financial statements.
Mandatory Purchase Obligation
The Company
21
The following table presents the Company’s assets and liabilities that are measured at fair value on a recurring basis at October 28, 2017, October 29, 2016April 30, 2022, May 1, 2021 and January 28, 2017. The Company did not have any transfers between Level 1, Level 2 or Level 3 during29, 2022. During the thirty-ninethirteen weeks ended October 28, 2017April 30, 2022 and May 1, 2021, there were 0 transfers into or October 29, 2016.
Fair Value Measurements | |||||||||||||
($ thousands) | Total | Level 1 | Level 2 | Level 3 | |||||||||
Asset (Liability) | |||||||||||||
October 28, 2017: | |||||||||||||
Cash equivalents – money market funds | $ | 14,967 | $ | 14,967 | $ | — | $ | — | |||||
Non-qualified deferred compensation plan assets | 6,000 | 6,000 | — | — | |||||||||
Non-qualified deferred compensation plan liabilities | (6,000 | ) | (6,000 | ) | — | — | |||||||
Deferred compensation plan liabilities for non-employee directors | (2,350 | ) | (2,350 | ) | — | — | |||||||
Restricted stock units for non-employee directors | (10,118 | ) | (10,118 | ) | — | — | |||||||
Derivative financial instruments, net | 196 | — | 196 | — | |||||||||
October 29, 2016: | |||||||||||||
Cash equivalents – money market funds | $ | 152,700 | $ | 152,700 | $ | — | $ | — | |||||
Non-qualified deferred compensation plan assets | 4,747 | 4,747 | — | — | |||||||||
Non-qualified deferred compensation plan liabilities | (4,747 | ) | (4,747 | ) | — | — | |||||||
Deferred compensation plan liabilities for non-employee directors | (1,596 | ) | (1,596 | ) | — | — | |||||||
Restricted stock units for non-employee directors | (8,726 | ) | (8,726 | ) | — | — | |||||||
Performance share units | (2,446 | ) | (2,446 | ) | — | — | |||||||
Derivative financial instruments, net | (208 | ) | — | (208 | ) | — | |||||||
Secured convertible note | 7,227 | — | — | 7,227 | |||||||||
January 28, 2017: | |||||||||||||
Cash equivalents – money market funds | $ | 27,530 | $ | 27,530 | $ | — | $ | — | |||||
Non-qualified deferred compensation plan assets | 5,051 | 5,051 | — | — | |||||||||
Non-qualified deferred compensation plan liabilities | (5,051 | ) | (5,051 | ) | — | — | |||||||
Deferred compensation plan liabilities for non-employee directors | (1,909 | ) | (1,909 | ) | — | — | |||||||
Restricted stock units for non-employee directors | (9,390 | ) | (9,390 | ) | — | — | |||||||
Performance share units | (3,352 | ) | (3,352 | ) | — | — | |||||||
Derivative financial instruments, net | (640 | ) | — | (640 | ) | — |
| | | | | | | | | | | | |
|
| Fair Value Measurements | ||||||||||
($ thousands) |
| Total |
| Level 1 |
| Level 2 |
| Level 3 | ||||
Asset (Liability) | | |
| | |
| | |
| | |
|
April 30, 2022: | | |
| | |
| | |
| | |
|
Non-qualified deferred compensation plan assets | | $ | 7,567 | | $ | 7,567 | | $ | 0 | | $ | 0 |
Non-qualified deferred compensation plan liabilities | |
| (7,567) | |
| (7,567) | |
| 0 | | | 0 |
Deferred compensation plan liabilities for non-employee directors | |
| (1,765) | |
| (1,765) | |
| 0 | | | 0 |
Restricted stock units for non-employee directors | |
| (2,559) | |
| (2,559) | |
| 0 | | | 0 |
May 1, 2021: | | |
| | |
| | |
| | |
|
Cash equivalents – money market funds | | $ | 57,000 | | $ | 57,000 | | $ | 0 | | $ | 0 |
Non-qualified deferred compensation plan assets | | | 8,169 | | | 8,169 | | | 0 | | | 0 |
Non-qualified deferred compensation plan liabilities | |
| (8,169) | |
| (8,169) | |
| 0 | | | 0 |
Deferred compensation plan liabilities for non-employee directors | |
| (1,185) | |
| (1,185) | |
| 0 | | | 0 |
Restricted stock units for non-employee directors | |
| (2,571) | |
| (2,571) | |
| 0 | | | 0 |
Mandatory purchase obligation - Blowfish Malibu | |
| (45,523) | |
| 0 | |
| 0 | | | (45,523) |
January 29, 2022: | | |
| | |
| | |
| | |
|
Non-qualified deferred compensation plan assets | |
| 7,463 | |
| 7,463 | |
| 0 | | | 0 |
Non-qualified deferred compensation plan liabilities | |
| (7,463) | |
| (7,463) | |
| 0 | | | 0 |
Deferred compensation plan liabilities for non-employee directors | |
| (1,770) | |
| (1,770) | |
| 0 | | | 0 |
Restricted stock units for non-employee directors | |
| (2,568) | |
| (2,568) | |
| 0 | | | 0 |
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 expected 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,
Thirteen Weeks Ended | Thirty-Nine Weeks Ended | |||||||||||
($ thousands) | October 28, 2017 | October 29, 2016 | October 28, 2017 | October 29, 2016 | ||||||||
Impairment Charges | ||||||||||||
Famous Footwear | $ | 150 | $ | 128 | $ | 450 | $ | 262 | ||||
Brand Portfolio | 726 | 248 | 2,545 | 651 | ||||||||
Total impairment charges | $ | 876 | $ | 376 | $ | 2,995 | $ | 913 |
| | | | | | |
| | Thirteen Weeks Ended | ||||
($ thousands) |
| April 30, 2022 |
| May 1, 2021 | ||
Long-Lived Asset Impairment Charges |
| |
|
| |
|
Famous Footwear | | $ | 370 | | $ | 400 |
Brand Portfolio | |
| 1,407 | |
| 1,488 |
Total long-lived asset impairment charges | | $ | 1,777 | | $ | 1,888 |
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.
22
The carrying amounts and fair values of the Company'sCompany’s other financial instruments subject to fair value disclosures are as follows:
| | | | | | | | | | | | | | | | | | |
|
| April 30, 2022 |
| May 1, 2021 |
| January 29, 2022 | ||||||||||||
| | Carrying | | | | | Carrying | | | | | Carrying | | | | |||
($ thousands) |
| Value (1) |
| Fair Value |
| Value (1) |
| Fair Value |
| Value (1) |
| Fair Value | ||||||
Borrowings under revolving credit agreement | | $ | 305,000 | | $ | 305,000 | | $ | 200,000 | | $ | 200,000 | | $ | 290,000 | | $ | 290,000 |
Long-term debt | |
| — | |
| — | |
| 200,000 | |
| 200,500 | |
| — | |
| — |
Total debt | | $ | 305,000 | | $ | 305,000 | | $ | 400,000 | | $ | 400,500 | | $ | 290,000 | | $ | 290,000 |
(1) | Excludes unamortized debt issuance costs and debt discount |
October 28, 2017 | October 29, 2016 | January 28, 2017 | |||||||||||||||||||||
Carrying | Fair | Carrying | Fair | Carrying | Fair | ||||||||||||||||||
($ thousands) | Value | Value | Value | Value | Value | Value | |||||||||||||||||
Borrowings under revolving credit agreement | $ | 20,000 | $ | 20,000 | $ | — | $ | — | $ | 110,000 | $ | 110,000 | |||||||||||
Long-term debt | 197,348 | 209,000 | 196,888 | 209,000 | 197,003 | 209,000 | |||||||||||||||||
Total debt | $ | 217,348 | $ | 229,000 | $ | 196,888 | $ | 209,000 | $ | 307,003 | $ | 319,000 |
The fair value of the borrowings under the revolving credit agreement approximates its carrying value due to its short-term nature (Level 1). The fair value of the Company’s long-term debt was based upon quoted prices in an inactive market as of the end of the respective periodsMay 1, 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 29.6%25.7% and 33.6%35.5% for the thirteen weeks ended October 28, 2017April 30, 2022 and October 29, 2016,May 1, 2021, respectively. During the thirteen weeks ended October 28, 2017, the Company recognized discrete tax benefits of $0.9 million, reflecting greater deductibility of certain 2016 expenses than originally estimated. During the thirteen weeks ended October 29, 2016, the Company recognized a discrete tax benefit of $0.3 million, reflecting the settlement of a federal tax audit issue. If these discrete tax benefits had not been recognized during the thirteen weeks ended October 28, 2017 and October 29, 2016, the Company'sThe higher effective tax rates would have been 31.5% and 34.1%, respectively. Excluding the discrete tax items, the Company's tax rate is lower for the thirteen weeks ended October 28, 2017, reflecting a higher mix of international earnings in the Company's lowest tax rate jurisdictions.
As of April 30, 2022, 0 deferred taxes have been 32.7% and 33.4%, respectively. Excludingprovided on the discreteaccumulated unremitted earnings of the Company’s foreign subsidiaries that are not subject to United States income tax, items,beyond the Company's tax rate is loweramounts recorded for the thirty-nine weeks ended October 28, 2017, reflecting a higher mixone-time transition tax for the mandatory deemed repatriation of cumulative foreign earnings, as required by the Tax Cuts and Jobs Act. The Company periodically evaluates its international investment opportunities and plans, as well as its international working capital needs, to determine the level of investment required and, accordingly, determines the level of international earnings in the Company's lowest tax rate jurisdictions.
Note 16 Commitments and free-standing stores in China. The Company, through its consolidated subsidiary, B&H Footwear, sold Naturalizer footwear on a wholesale basis to CBI totaling $1.3 million and $5.1 million for the thirteen and thirty-nine weeks ended October 29, 2016, respectively, with no corresponding sales during 2017.
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 May 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
23
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. In 2014, the Company submitted a proposed expanded remedy work plan that was accepted by the oversight authorities during 2015. 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 October 28, 2017April 30, 2022 were $29.7$32.6 million. The Company has recovered a portion of these expenditures from insurers and other third parties. The reserve for the anticipated future remediation activities at October 28, 2017April 30, 2022 is $9.6$9.8 million, of which $8.7$8.8 million is recorded within other liabilities and $0.9$1.0 million is recorded within other accrued expenses. Of the total $9.6$9.8 million reserve, $4.6 million is for on-site remediation and $5.0 million is for off-site remediation and $4.8 million is for on-site remediation. The liability for the on-site remediation was discounted at 4.8%. On an undiscounted basis, the on-site remediation liability would be $14.1$13.4 million as of October 28, 2017.April 30, 2022. The Company expects to spend approximately $0.6 million in 2022, $0.1 million in each of the following fouryears $0.2 million in the fifth year and $13.5$12.4 million in the aggregate thereafter related to the on-site remediation.
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 estimated costsremediation plans in conjunction with its environmental consultants and records its best estimate of suchremediation 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 generally expensed as incurred.
24
ITEM 2 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
We achieved record-setting financial results in the first quarter of 2022, maintaining our momentum from 2021, with strong sales and unconditionallyoperating earnings contribution from both our Famous Footwear and jointlyBrand Portfolio segments. We utilized our robust cash generation to augment our inventory levels to better align with the strong consumer demand and severally guaranteed by all of its existing and future subsidiaries that are guarantors under our revolving credit facility ("Credit Agreement"). The following tables present the condensed consolidating financial information for each of Caleres, Inc. (“Parent”), the Guarantors, and subsidiaries of the Parent that are not Guarantors (the “Non-Guarantors”), together with consolidating eliminations, as of andposition us for the periods indicated. Guarantors are 100% owned byupcoming season.We have also taken the Parent. On December 13, 2016, Allen Edmonds was joinedopportunity to the Credit Agreement as a guarantor. After giving effectrepurchase over 700,000 shares of common stock, and expect to the joinder, the Company is the lead borrower, and Sidney Rich Associates, Inc., BG Retail, LLC and Allen Edmonds are each co-borrowers and guarantors under the Credit Agreement.
UNAUDITED CONDENSED CONSOLIDATING BALANCE SHEET | |||||||||||||||
OCTOBER 28, 2017 | |||||||||||||||
Non- | |||||||||||||||
($ thousands) | Parent | Guarantors | Guarantors | Eliminations | Total | ||||||||||
Assets | |||||||||||||||
Current assets | |||||||||||||||
Cash and cash equivalents | $ | 8,155 | $ | 7,947 | $ | 15,277 | $ | — | $ | 31,379 | |||||
Receivables, net | 116,974 | 3,987 | 11,981 | — | 132,942 | ||||||||||
Inventories, net | 127,142 | 441,683 | 29,540 | — | 598,365 | ||||||||||
Prepaid expenses and other current assets | 20,642 | 17,872 | 7,263 | (4,795 | ) | 40,982 | |||||||||
Intercompany receivable – current | 1,597 | 123 | 20,677 | (22,397 | ) | — | |||||||||
Total current assets | 274,510 | 471,612 | 84,738 | (27,192 | ) | 803,668 | |||||||||
Other assets | 50,565 | 16,877 | 874 | — | 68,316 | ||||||||||
Goodwill and intangible assets, net | 111,665 | 40,937 | 187,580 | — | 340,182 | ||||||||||
Property and equipment, net | 32,684 | 169,604 | 12,694 | — | 214,982 | ||||||||||
Investment in subsidiaries | 1,288,128 | — | (23,180 | ) | (1,264,948 | ) | — | ||||||||
Intercompany receivable – noncurrent | 744,127 | 527,670 | 677,419 | (1,949,216 | ) | — | |||||||||
Total assets | $ | 2,501,679 | $ | 1,226,700 | $ | 940,125 | $ | (3,241,356 | ) | $ | 1,427,148 | ||||
Liabilities and Equity | |||||||||||||||
Current liabilities | |||||||||||||||
Borrowings under revolving credit agreement | $ | 20,000 | $ | — | $ | — | $ | — | $ | 20,000 | |||||
Trade accounts payable | 65,604 | 139,219 | 19,009 | — | 223,832 | ||||||||||
Other accrued expenses | 64,525 | 95,817 | 17,940 | (4,795 | ) | 173,487 | |||||||||
Intercompany payable – current | 12,833 | — | 9,564 | (22,397 | ) | — | |||||||||
Total current liabilities | 162,962 | 235,036 | 46,513 | (27,192 | ) | 417,319 | |||||||||
Other liabilities | |||||||||||||||
Long-term debt | 197,348 | — | — | — | 197,348 | ||||||||||
Other liabilities | 93,029 | 39,150 | 5,215 | — | 137,394 | ||||||||||
Intercompany payable – noncurrent | 1,374,695 | 121,683 | 452,838 | (1,949,216 | ) | — | |||||||||
Total other liabilities | 1,665,072 | 160,833 | 458,053 | (1,949,216 | ) | 334,742 | |||||||||
Equity | |||||||||||||||
Caleres, Inc. shareholders’ equity | 673,645 | 830,831 | 434,117 | (1,264,948 | ) | 673,645 | |||||||||
Noncontrolling interests | — | — | 1,442 | — | 1,442 | ||||||||||
Total equity | 673,645 | 830,831 | 435,559 | (1,264,948 | ) | 675,087 | |||||||||
Total liabilities and equity | $ | 2,501,679 | $ | 1,226,700 | $ | 940,125 | $ | (3,241,356 | ) | $ | 1,427,148 |
UNAUDITED CONDENSED CONSOLIDATING STATEMENT OF COMPREHENSIVE INCOME | |||||||||||||||
FOR THE THIRTEEN WEEKS ENDED OCTOBER 28, 2017 | |||||||||||||||
Non- | |||||||||||||||
($ thousands) | Parent | Guarantors | Guarantors | Eliminations | Total | ||||||||||
Net sales | $ | 226,019 | $ | 541,007 | $ | 47,765 | $ | (40,135 | ) | $ | 774,656 | ||||
Cost of goods sold | 152,714 | 313,646 | 23,351 | (31,940 | ) | 457,771 | |||||||||
Gross profit | 73,305 | 227,361 | 24,414 | (8,195 | ) | 316,885 | |||||||||
Selling and administrative expenses | 59,335 | 197,481 | 15,394 | (8,195 | ) | 264,015 | |||||||||
Operating earnings | 13,970 | 29,880 | 9,020 | — | 52,870 | ||||||||||
Interest expense | (4,140 | ) | (1 | ) | — | — | (4,141 | ) | |||||||
Interest income | 47 | — | 48 | — | 95 | ||||||||||
Intercompany interest income (expense) | 1,981 | (2,003 | ) | 22 | — | — | |||||||||
Earnings before income taxes | 11,858 | 27,876 | 9,090 | — | 48,824 | ||||||||||
Income tax provision | (3,963 | ) | (9,479 | ) | (1,009 | ) | — | (14,451 | ) | ||||||
Equity in earnings (loss) of subsidiaries, net of tax | 26,492 | — | (457 | ) | (26,035 | ) | — | ||||||||
Net earnings | 34,387 | 18,397 | 7,624 | (26,035 | ) | 34,373 | |||||||||
Less: Net loss attributable to noncontrolling interests | — | — | (14 | ) | — | (14 | ) | ||||||||
Net earnings attributable to Caleres, Inc. | $ | 34,387 | $ | 18,397 | $ | 7,638 | $ | (26,035 | ) | $ | 34,387 | ||||
Comprehensive income | $ | 34,305 | $ | 18,397 | $ | 7,457 | $ | (25,857 | ) | $ | 34,302 | ||||
Less: Comprehensive loss attributable to noncontrolling interests | — | — | (3 | ) | — | (3 | ) | ||||||||
Comprehensive income attributable to Caleres, Inc. | $ | 34,305 | $ | 18,397 | $ | 7,460 | $ | (25,857 | ) | $ | 34,305 |
UNAUDITED CONDENSED CONSOLIDATING STATEMENT OF COMPREHENSIVE INCOME | |||||||||||||||
FOR THE THIRTY-NINE WEEKS ENDED OCTOBER 28, 2017 | |||||||||||||||
Non- | |||||||||||||||
($ thousands) | Parent | Guarantors | Guarantors | Eliminations | Total | ||||||||||
Net sales | $ | 614,764 | $ | 1,451,191 | $ | 148,985 | $ | (131,821 | ) | $ | 2,083,119 | ||||
Cost of goods sold | 423,224 | 815,980 | 74,424 | (105,763 | ) | 1,207,865 | |||||||||
Gross profit | 191,540 | 635,211 | 74,561 | (26,058 | ) | 875,254 | |||||||||
Selling and administrative expenses | 172,122 | 570,272 | 45,254 | (26,058 | ) | 761,590 | |||||||||
Restructuring and other special charges, net | 3,769 | 37 | 167 | — | 3,973 | ||||||||||
Operating earnings | 15,649 | 64,902 | 29,140 | — | 109,691 | ||||||||||
Interest expense | (13,809 | ) | (13 | ) | — | — | (13,822 | ) | |||||||
Interest income | 220 | — | 372 | — | 592 | ||||||||||
Intercompany interest income (expense) | 6,085 | (6,516 | ) | 431 | — | — | |||||||||
Earnings before income taxes | 8,145 | 58,373 | 29,943 | — | 96,461 | ||||||||||
Income tax provision | (2,124 | ) | (21,407 | ) | (5,999 | ) | — | (29,530 | ) | ||||||
Equity in earnings (loss) of subsidiaries, net of tax | 60,863 | — | (1,234 | ) | (59,629 | ) | — | ||||||||
Net earnings | 66,884 | 36,966 | 22,710 | (59,629 | ) | 66,931 | |||||||||
Less: Net earnings attributable to noncontrolling interests | — | — | 47 | — | 47 | ||||||||||
Net earnings attributable to Caleres, Inc. | $ | 66,884 | $ | 36,966 | $ | 22,663 | $ | (59,629 | ) | $ | 66,884 | ||||
Comprehensive income | $ | 69,170 | $ | 36,966 | $ | 23,212 | $ | (60,105 | ) | $ | 69,243 | ||||
Less: Comprehensive income attributable to noncontrolling interests | — | — | 73 | — | 73 | ||||||||||
Comprehensive income attributable to Caleres, Inc. | $ | 69,170 | $ | 36,966 | $ | 23,139 | $ | (60,105 | ) | $ | 69,170 |
UNAUDITED CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS | |||||||||||||||
FOR THE THIRTY-NINE WEEKS ENDED OCTOBER 28, 2017 | |||||||||||||||
Non- | |||||||||||||||
($ thousands) | Parent | Guarantors | Guarantors | Eliminations | Total | ||||||||||
Net cash (used for) provided by operating activities | $ | (13,179 | ) | $ | 97,443 | $ | 37,997 | $ | — | $ | 122,261 | ||||
Investing activities | |||||||||||||||
Purchases of property and equipment | (5,340 | ) | (25,377 | ) | (3,647 | ) | — | (34,364 | ) | ||||||
Capitalized software | (4,079 | ) | (452 | ) | — | — | (4,531 | ) | |||||||
Intercompany investing | (20,058 | ) | 197,763 | (177,705 | ) | — | — | ||||||||
Net cash (used for) provided by investing activities | (29,477 | ) | 171,934 | (181,352 | ) | — | (38,895 | ) | |||||||
Financing activities | |||||||||||||||
Borrowings under revolving credit agreement | 450,000 | — | — | — | 450,000 | ||||||||||
Repayments under revolving credit agreement | (540,000 | ) | — | — | — | (540,000 | ) | ||||||||
Dividends paid | (9,033 | ) | — | — | — | (9,033 | ) | ||||||||
Acquisition of treasury stock | (5,993 | ) | — | — | — | (5,993 | ) | ||||||||
Issuance of common stock under share-based plans, net | (2,477 | ) | — | — | — | (2,477 | ) | ||||||||
Intercompany financing | 134,315 | (270,459 | ) | 136,144 | — | — | |||||||||
Net cash provided by (used for) financing activities | 26,812 | (270,459 | ) | 136,144 | — | (107,503 | ) | ||||||||
Effect of exchange rate changes on cash and cash equivalents | — | — | 184 | — | 184 | ||||||||||
Decrease in cash and cash equivalents | (15,844 | ) | (1,082 | ) | (7,027 | ) | — | (23,953 | ) | ||||||
Cash and cash equivalents at beginning of period | 23,999 | 9,029 | 22,304 | — | 55,332 | ||||||||||
Cash and cash equivalents at end of period | $ | 8,155 | $ | 7,947 | $ | 15,277 | $ | — | $ | 31,379 |
UNAUDITED CONDENSED CONSOLIDATING BALANCE SHEET | |||||||||||||||
OCTOBER 29, 2016 | |||||||||||||||
Non- | |||||||||||||||
($ thousands) | Parent | Guarantors | Guarantors | Eliminations | Total | ||||||||||
Assets | |||||||||||||||
Current assets | |||||||||||||||
Cash and cash equivalents | $ | 50,463 | $ | 5,897 | $ | 117,075 | $ | — | $ | 173,435 | |||||
Receivables, net | 123,345 | 856 | 15,274 | — | 139,475 | ||||||||||
Inventories, net | 114,180 | 387,688 | 22,955 | — | 524,823 | ||||||||||
Prepaid expenses and other current assets | 12,766 | 13,649 | 5,301 | — | 31,716 | ||||||||||
Intercompany receivable – current | 823 | 327 | 15,766 | (16,916 | ) | — | |||||||||
Total current assets | 301,577 | 408,417 | 176,371 | (16,916 | ) | 869,449 | |||||||||
Other assets | 92,895 | 14,106 | 7,850 | — | 114,851 | ||||||||||
Goodwill and intangible assets, net | 113,889 | 2,800 | 11,452 | — | 128,141 | ||||||||||
Property and equipment, net | 30,902 | 149,680 | 11,172 | — | 191,754 | ||||||||||
Investment in subsidiaries | 1,076,592 | — | (21,068 | ) | (1,055,524 | ) | — | ||||||||
Intercompany receivable – noncurrent | 485,403 | 384,452 | 573,308 | (1,443,163 | ) | — | |||||||||
Total assets | $ | 2,101,258 | $ | 959,455 | $ | 759,085 | $ | (2,515,603 | ) | $ | 1,304,195 | ||||
Liabilities and Equity | |||||||||||||||
Current liabilities | |||||||||||||||
Trade accounts payable | $ | 70,501 | $ | 123,003 | $ | 18,584 | $ | — | $ | 212,088 | |||||
Other accrued expenses | 48,614 | 75,797 | 17,475 | — | 141,886 | ||||||||||
Intercompany payable – current | 5,145 | — | 11,771 | (16,916 | ) | — | |||||||||
Total current liabilities | 124,260 | 198,800 | 47,830 | (16,916 | ) | 353,974 | |||||||||
Other liabilities | |||||||||||||||
Long-term debt | 196,888 | — | — | — | 196,888 | ||||||||||
Other liabilities | 34,463 | 68,146 | 3,661 | — | 106,270 | ||||||||||
Intercompany payable – noncurrent | 1,099,537 | 41,933 | 301,693 | (1,443,163 | ) | — | |||||||||
Total other liabilities | 1,330,888 | 110,079 | 305,354 | (1,443,163 | ) | 303,158 | |||||||||
Equity | |||||||||||||||
Caleres, Inc. shareholders’ equity | 646,110 | 650,576 | 404,948 | (1,055,524 | ) | 646,110 | |||||||||
Noncontrolling interests | — | — | 953 | — | 953 | ||||||||||
Total equity | 646,110 | 650,576 | 405,901 | (1,055,524 | ) | 647,063 | |||||||||
Total liabilities and equity | $ | 2,101,258 | $ | 959,455 | $ | 759,085 | $ | (2,515,603 | ) | $ | 1,304,195 |
UNAUDITED CONDENSED CONSOLIDATING STATEMENT OF COMPREHENSIVE INCOME | |||||||||||||||
FOR THE THIRTEEN WEEKS ENDED OCTOBER 29, 2016 | |||||||||||||||
Non- | |||||||||||||||
($ thousands) | Parent | Guarantors | Guarantors | Eliminations | Total | ||||||||||
Net sales | $ | 235,094 | $ | 487,558 | $ | 48,055 | $ | (38,477 | ) | $ | 732,230 | ||||
Cost of goods sold | 162,629 | 281,926 | 25,669 | (31,765 | ) | 438,459 | |||||||||
Gross profit | 72,465 | 205,632 | 22,386 | (6,712 | ) | 293,771 | |||||||||
Selling and administrative expenses | 53,225 | 177,466 | 14,340 | (6,712 | ) | 238,319 | |||||||||
Operating earnings | 19,240 | 28,166 | 8,046 | — | 55,452 | ||||||||||
Interest expense | (3,472 | ) | (3 | ) | — | — | (3,475 | ) | |||||||
Interest income | 200 | — | 150 | — | 350 | ||||||||||
Intercompany interest income (expense) | 2,083 | (2,107 | ) | 24 | — | — | |||||||||
Earnings before income taxes | 18,051 | 26,056 | 8,220 | — | 52,327 | ||||||||||
Income tax provision | (6,193 | ) | (9,743 | ) | (1,665 | ) | — | (17,601 | ) | ||||||
Equity in earnings (loss) of subsidiaries, net of tax | 22,872 | — | (499 | ) | (22,373 | ) | — | ||||||||
Net earnings | 34,730 | 16,313 | 6,056 | (22,373 | ) | 34,726 | |||||||||
Less: Net loss attributable to noncontrolling interests | — | — | (4 | ) | — | (4 | ) | ||||||||
Net earnings attributable to Caleres, Inc. | $ | 34,730 | $ | 16,313 | $ | 6,060 | $ | (22,373 | ) | $ | 34,730 | ||||
Comprehensive income | $ | 33,816 | $ | 16,313 | $ | 5,661 | $ | (21,999 | ) | $ | 33,791 | ||||
Less: Comprehensive loss attributable to noncontrolling interests | — | — | (25 | ) | — | (25 | ) | ||||||||
Comprehensive income attributable to Caleres, Inc. | $ | 33,816 | $ | 16,313 | $ | 5,686 | $ | (21,999 | ) | $ | 33,816 |
UNAUDITED CONDENSED CONSOLIDATING STATEMENT OF COMPREHENSIVE INCOME | |||||||||||||||
FOR THE THIRTY-NINE WEEKS ENDED OCTOBER 29, 2016 | |||||||||||||||
Non- | |||||||||||||||
($ thousands) | Parent | Guarantors | Guarantors | Eliminations | Total | ||||||||||
Net sales | $ | 617,177 | $ | 1,279,080 | $ | 156,649 | $ | (113,006 | ) | $ | 1,939,900 | ||||
Cost of goods sold | 434,833 | 707,584 | 87,688 | (91,324 | ) | 1,138,781 | |||||||||
Gross profit | 182,344 | 571,496 | 68,961 | (21,682 | ) | 801,119 | |||||||||
Selling and administrative expenses | 155,608 | 505,032 | 45,708 | (21,682 | ) | 684,666 | |||||||||
Operating earnings | 26,736 | 66,464 | 23,253 | — | 116,453 | ||||||||||
Interest expense | (10,561 | ) | (3 | ) | — | — | (10,564 | ) | |||||||
Interest income | 531 | — | 376 | — | 907 | ||||||||||
Intercompany interest income (expense) | 6,590 | (6,685 | ) | 95 | — | — | |||||||||
Earnings before income taxes | 23,296 | 59,776 | 23,724 | — | 106,796 | ||||||||||
Income tax provision | (7,369 | ) | (22,483 | ) | (4,662 | ) | — | (34,514 | ) | ||||||
Equity in earnings (loss) of subsidiaries, net of tax | 56,353 | — | (1,545 | ) | (54,808 | ) | — | ||||||||
Net earnings | 72,280 | 37,293 | 17,517 | (54,808 | ) | 72,282 | |||||||||
Less: Net earnings attributable to noncontrolling interests | — | — | 2 | — | 2 | ||||||||||
Net earnings attributable to Caleres, Inc. | $ | 72,280 | $ | 37,293 | $ | 17,515 | $ | (54,808 | ) | $ | 72,280 | ||||
Comprehensive income | $ | 71,871 | $ | 37,293 | $ | 17,692 | $ | (55,020 | ) | $ | 71,836 | ||||
Less: Comprehensive loss attributable to noncontrolling interests | — | — | (35 | ) | — | (35 | ) | ||||||||
Comprehensive income attributable to Caleres, Inc. | $ | 71,871 | $ | 37,293 | $ | 17,727 | $ | (55,020 | ) | $ | 71,871 |
UNAUDITED CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS | |||||||||||||||
FOR THE THIRTY-NINE WEEKS ENDED OCTOBER 29, 2016 | |||||||||||||||
Non- | |||||||||||||||
($ thousands) | Parent | Guarantors | Guarantors | Eliminations | Total | ||||||||||
Net cash provided by operating activities | $ | 23,770 | $ | 83,584 | $ | 29,649 | $ | — | $ | 137,003 | |||||
Investing activities | |||||||||||||||
Purchases of property and equipment | (2,748 | ) | (37,154 | ) | (3,117 | ) | — | (43,019 | ) | ||||||
Capitalized software | (3,859 | ) | (1,783 | ) | (30 | ) | — | (5,672 | ) | ||||||
Intercompany investing | (3,129 | ) | 3,129 | — | — | — | |||||||||
Net cash used for investing activities | (9,736 | ) | (35,808 | ) | (3,147 | ) | — | (48,691 | ) | ||||||
Financing activities | |||||||||||||||
Borrowings under revolving credit agreement | 103,000 | — | — | — | 103,000 | ||||||||||
Repayments under revolving credit agreement | (103,000 | ) | — | — | — | (103,000 | ) | ||||||||
Dividends paid | (9,094 | ) | — | — | — | (9,094 | ) | ||||||||
Acquisition of treasury stock | (23,139 | ) | — | — | — | (23,139 | ) | ||||||||
Issuance of common stock under share-based plans, net | (4,205 | ) | — | — | — | (4,205 | ) | ||||||||
Excess tax benefit related to share-based plans | 3,264 | — | — | — | 3,264 | ||||||||||
Intercompany financing | 38,603 | (41,879 | ) | 3,276 | — | — | |||||||||
Net cash provided by (used for) financing activities | 5,429 | (41,879 | ) | 3,276 | — | (33,174 | ) | ||||||||
Effect of exchange rate changes on cash and cash equivalents | — | — | 146 | — | 146 | ||||||||||
Increase in cash and cash equivalents | 19,463 | 5,897 | 29,924 | — | 55,284 | ||||||||||
Cash and cash equivalents at beginning of period | 31,000 | — | 87,151 | — | 118,151 | ||||||||||
Cash and cash equivalents at end of period | $ | 50,463 | $ | 5,897 | $ | 117,075 | $ | — | $ | 173,435 |
CONDENSED CONSOLIDATING BALANCE SHEET | |||||||||||||||
JANUARY 28, 2017 | |||||||||||||||
Non- | |||||||||||||||
($ thousands) | Parent | Guarantors | Guarantors | Eliminations | Total | ||||||||||
Assets | |||||||||||||||
Current assets | |||||||||||||||
Cash and cash equivalents | $ | 23,999 | $ | 9,029 | $ | 22,304 | $ | — | $ | 55,332 | |||||
Receivables, net | 118,746 | 5,414 | 28,961 | — | 153,121 | ||||||||||
Inventories, net | 150,098 | 410,867 | 24,799 | — | 585,764 | ||||||||||
Prepaid expenses and other current assets | 24,293 | 23,040 | 8,058 | (5,863 | ) | 49,528 | |||||||||
Intercompany receivable – current | 695 | 263 | 22,091 | (23,049 | ) | — | |||||||||
Total current assets | 317,831 | 448,613 | 106,213 | (28,912 | ) | 843,745 | |||||||||
Other assets | 51,181 | 16,567 | 826 | — | 68,574 | ||||||||||
Goodwill and intangible assets, net | 113,333 | 219,337 | 11,088 | — | 343,758 | ||||||||||
Property and equipment, net | 31,424 | 176,358 | 11,414 | — | 219,196 | ||||||||||
Investment in subsidiaries | 1,343,954 | — | (21,946 | ) | (1,322,008 | ) | — | ||||||||
Intercompany receivable – noncurrent | 568,541 | 366,902 | 581,624 | (1,517,067 | ) | — | |||||||||
Total assets | $ | 2,426,264 | $ | 1,227,777 | $ | 689,219 | $ | (2,867,987 | ) | $ | 1,475,273 | ||||
Liabilities and Equity | |||||||||||||||
Current liabilities | |||||||||||||||
Borrowings under revolving credit agreement | $ | 110,000 | $ | — | $ | — | $ | — | $ | 110,000 | |||||
Trade accounts payable | 116,783 | 112,434 | 37,153 | — | 266,370 | ||||||||||
Other accrued expenses | 74,941 | 65,228 | 16,919 | (5,863 | ) | 151,225 | |||||||||
Intercompany payable – current | 12,794 | — | 10,255 | (23,049 | ) | — | |||||||||
Total current liabilities | 314,518 | 177,662 | 64,327 | (28,912 | ) | 527,595 | |||||||||
Other liabilities | |||||||||||||||
Long-term debt | 197,003 | — | — | — | 197,003 | ||||||||||
Other liabilities | 91,683 | 40,507 | 3,999 | — | 136,189 | ||||||||||
Intercompany payable – noncurrent | 1,209,943 | 98,982 | 208,142 | (1,517,067 | ) | — | |||||||||
Total other liabilities | 1,498,629 | 139,489 | 212,141 | (1,517,067 | ) | 333,192 | |||||||||
Equity | |||||||||||||||
Caleres, Inc. shareholders’ equity | 613,117 | 910,626 | 411,382 | (1,322,008 | ) | 613,117 | |||||||||
Noncontrolling interests | — | — | 1,369 | — | 1,369 | ||||||||||
Total equity | 613,117 | 910,626 | 412,751 | (1,322,008 | ) | 614,486 | |||||||||
Total liabilities and equity | $ | 2,426,264 | $ | 1,227,777 | $ | 689,219 | $ | (2,867,987 | ) | $ | 1,475,273 |
Financial Highlights
Following is a summary of the financial highlights for the thirdfirst quarter of 2017: 2022:
● | Consolidated net sales increased $96.5 million, or 15.1%, to $735.1 million in the first quarter of 2022, compared to $638.6 million in the first quarter of 2021. Our Famous Footwear segment continued its strong performance with net sales of $384.5 million. Net sales of our Brand Portfolio segment increased $115.4 million, or 46.1%, compared to the first quarter of 2021. On a consolidated basis, our direct-to-consumer sales represented approximately 65% of consolidated net sales for the first quarter of 2022, compared to 74.5% in the first quarter of 2021. |
● | Consolidated gross profit increased $52.1 million, or 19.0%, to $327.0 million in the first quarter of 2022, compared to $274.9 million in the first quarter of 2021. Our gross profit margin increased to 44.5% in the first quarter of 2022, compared to 43.0% in the first quarter of 2021, reflecting a decline in promotional activity driven by strong consumer demand and an improved sales mix of higher margin product. |
● | Consolidated operating earnings increased $48.3 million to $66.2 million in the first quarter of 2022, compared to $17.9 million in the first quarter of 2021. |
● | Consolidated net earnings attributable to Caleres, Inc. were $50.5 million, or $1.32 per diluted share, in the first quarter of 2022, compared to $6.2 million, or $0.16 per diluted share, in the first quarter of 2021. |
The following items should be considered in evaluating the comparability of our first quarter results in 2022 and 2021:
● | Supply Chain Disruptions and Inflationary Pressures – During the first quarter of 2022, we continued to experience global supply chain disruptions, including a delay in the receipt of inventory due to port congestion and reduced shipping vessel and container availability. We have also experienced inflationary pressures on product costs and inbound freight. In order to mitigate these inflationary pressures, we began implementing price increases in the second half of 2021. We believe our ability to continue full price selling and our disciplined approach to inventory management will continue to mitigate the impact of these supply chain disruptions and inflationary pressures on our financial results. As of April 30, 2022, we have nearly $98 million of inventory in transit that is not yet available to sell, an increase of 105% compared to our in-transit inventory levels at May 1, 2021, but a reduction of 45% from January 29, 2022. |
● | Brand Portfolio – business exits – During the first quarter of 2021, we incurred costs totaling $13.5 million ($11.9 million on an after-tax basis, or $0.31 per diluted share), related to the strategic realignment of Naturalizer retail store operations. There were no corresponding charges recorded during the first quarter of 2022. |
● | 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 first quarter of 2021, we recorded a fair value adjustment of $6.4 million ($4.7 million on an after-tax basis, or $0.13 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 first quarter of 2022. The purchase obligation was settled for $54.6 million on November 4, 2021. |
25
Metrics Used in the third quarterEvaluation of 2017, drivenOur Business
The following are a couple of key metrics by our Allen Edmonds business, which we acquired late last year. evaluate our business and make strategic decisions:
Same-store sales at our Famous Footwear segment were up 0.9% for the third quarter of 2017 and 2.6% for the back-to-school season. Boot
The same-store sales in both our Brand Portfolio and Famous Footwear segments were lower asmetric is a result of unseasonably warm weather across the United States.
CONSOLIDATED RESULTS | |||||||||||||||||||||||||||
Thirteen Weeks Ended | Thirty-nine Weeks Ended | ||||||||||||||||||||||||||
October 28, 2017 | October 29, 2016 | October 28, 2017 | October 29, 2016 | ||||||||||||||||||||||||
% of Net Sales | % of Net Sales | % of Net Sales | % of Net Sales | ||||||||||||||||||||||||
($ millions) | |||||||||||||||||||||||||||
Net sales | $ | 774.7 | 100.0 | % | $ | 732.2 | 100.0 | % | $ | 2,083.1 | 100.0 | % | $ | 1,939.9 | 100.0 | % | |||||||||||
Cost of goods sold | 457.8 | 59.1 | % | 438.4 | 59.9 | % | 1,207.8 | 58.0 | % | 1,138.8 | 58.7 | % | |||||||||||||||
Gross profit | 316.9 | 40.9 | % | 293.8 | 40.1 | % | 875.3 | 42.0 | % | 801.1 | 41.3 | % | |||||||||||||||
Selling and administrative expenses | 264.0 | 34.1 | % | 238.3 | 32.5 | % | 761.6 | 36.5 | % | 684.6 | 35.3 | % | |||||||||||||||
Restructuring and other special charges, net | — | — | % | — | — | % | 4.0 | 0.2 | % | — | — | % | |||||||||||||||
Operating earnings | 52.9 | 6.8 | % | 55.5 | 7.6 | % | 109.7 | 5.3 | % | 116.5 | 6.0 | % | |||||||||||||||
Interest expense | (4.2 | ) | (0.5 | )% | (3.5 | ) | (0.5 | )% | (13.8 | ) | (0.7 | )% | (10.6 | ) | (0.5 | )% | |||||||||||
Interest income | 0.1 | 0.0 | % | 0.3 | 0.0 | % | 0.6 | 0.0 | % | 0.9 | 0.0 | % | |||||||||||||||
Earnings before income taxes | 48.8 | 6.3 | % | 52.3 | 7.1 | % | 96.5 | 4.6 | % | 106.8 | 5.5 | % | |||||||||||||||
Income tax provision | (14.4 | ) | (1.9 | )% | (17.6 | ) | (2.4 | )% | (29.6 | ) | (1.4 | )% | (34.5 | ) | (1.8 | )% | |||||||||||
Net earnings | 34.4 | 4.4 | % | 34.7 | 4.7 | % | 66.9 | 3.2 | % | 72.3 | 3.7 | % | |||||||||||||||
Net (loss) earnings attributable to noncontrolling interests | (0.0) | (0.0 | %) | (0.0) | (0.0 | %) | 0.0 | 0.0 | % | 0.0 | 0.0 | % | |||||||||||||||
Net earnings attributable to Caleres, Inc. | $ | 34.4 | 4.4 | % | $ | 34.7 | 4.7 | % | $ | 66.9 | 3.2 | % | $ | 72.3 | 3.7 | % |
Sales per square foot
The sales per square foot metric is commonly used in the retail industry tocalculate 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
During the first quarter of 2022, we made significant progress against our key strategic initiatives. We believe we are well-positioned to capitalize on favorable market dynamics, despite the geopolitical concerns, inflationary pressures and ongoing supply chain disruptions. As we progress throughout 2022, we will maintain our focus on aligning inventory with consumer demand, which we believe will capture demand for our brands and products. We will continue to leverage our core competencies and execute on our short and long-term strategic priorities in an effort to enhance long-term value for our shareholders.
Following are the consolidated results and the results by segment:
CONSOLIDATED RESULTS
| | | | | | | | | | | |
| | Thirteen Weeks Ended |
| ||||||||
|
| April 30, 2022 |
| May 1, 2021 |
| ||||||
| | | | | % of | | | | | % of | |
($ millions) |
|
| |
| Net Sales |
|
| |
| Net Sales |
|
Net sales | | $ | 735.1 |
| 100.0 | % | $ | 638.6 |
| 100.0 | % |
Cost of goods sold | |
| 408.1 |
| 55.5 | % |
| 363.7 |
| 57.0 | % |
Gross profit | |
| 327.0 |
| 44.5 | % |
| 274.9 |
| 43.0 | % |
Selling and administrative expenses | |
| 260.8 |
| 35.5 | % |
| 243.5 |
| 38.1 | % |
Restructuring and other special charges, net | |
| — |
| — | % |
| 13.5 |
| 2.1 | % |
Operating earnings | |
| 66.2 |
| 9.0 | % |
| 17.9 |
| 2.8 | % |
Interest expense, net | |
| (2.3) |
| (0.3) | % |
| (11.8) |
| (1.8) | % |
Other income, net | |
| 3.4 |
| 0.5 | % |
| 3.8 |
| 0.6 | % |
Earnings before income taxes | |
| 67.3 |
| 9.2 | % |
| 9.9 |
| 1.6 | % |
Income tax provision | |
| (17.3) |
| (2.4) | % |
| (3.5) |
| (0.6) | % |
Net earnings | |
| 50.0 |
| 6.8 | % |
| 6.4 | | 1.0 | % |
Net (loss) earnings attributable to noncontrolling interests | |
| (0.5) |
| (0.1) | % |
| 0.2 |
| 0.0 | % |
Net earnings attributable to Caleres, Inc. | | $ | 50.5 |
| 6.9 | % | $ | 6.2 |
| 1.0 | % |
Net Sales
Net sales increased $96.5 million, or 15.1%, to $735.1 million for the first quarter of 2022, compared to $638.6 million for the first quarter of 2021. Net sales for our Brand Portfolio segment increased $115.4 million, or 46.1% during the first quarter of 2022, compared to the first quarter of 2021, and the segment surpassed its pre-pandemic sales levels. Our Famous Footwear segment’s strong sales performance from 2021 carried over to the first quarter of 2022. However, net sales for Famous Footwear decreased $13.6 million, or 3.4%, in the first quarter of 2022 compared to the first quarter of 2021, primarily reflecting a lower store count. On a consolidated basis, our direct-to-consumer sales represented approximately 65% of total net sales for the first quarter of 2022. Our casual, athletic and sport footwear categories continue to resonate with consumers and demand for the dress, occasion and wear-to-work product categories continues to improve with the rebound in
26
social events and celebrations and the return-to-office trending higher. During the first quarter of 2022, we remained 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 our top 15 best-selling brands during the quarter.
Gross Profit
Gross profit increased $23.1$52.1 million, or 7.9%19.0%, to $316.9$327.0 million for the thirdfirst quarter of 2017,2022, compared to $293.8$274.9 million for the thirdfirst quarter of 2016,2021, reflecting higher net sales volume, as described above, and an improveda higher gross profit rate.
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 $25.7$17.3 million, or 10.8%7.1%, to $264.0$260.8 million for the thirdfirst quarter of 2017,2022, compared to $238.3$243.5 million for the thirdfirst quarter of 2016,2021. The increase primarily reflects higher salary and benefits expenses and cash and stock-based incentive compensation plan expenses driven by our strong financial results in the recently acquired Allen Edmonds business and higher anticipated payments underquarter as well as our cash-based incentive compensation plans.expectations for the full year. Our marketing expenses also increased as a result of tailoring our e-commerce marketing to the individual consumer in an effort to drive repeat purchases. As a percentage of net sales, selling and administrative expenses increaseddecreased to 34.1%35.5% for the thirdfirst quarter of 20172022, from 32.5%38.1% for the thirdfirst quarter of 2016.
Restructuring and Other Special Charges, Net
We incurred restructuring and other special charges of $4.0$13.5 million ($2.611.9 million on an after-tax basis, or $0.06$0.31 per diluted share), primarily for professional fees and severance expense, were incurred in during the nine months ended October 28, 2017 related to the men's business. No restructuring charges were incurred in the thirdfirst quarter of 2017 or during2021, reflecting expenses associated with the nine months ended October 29, 2016.strategic realignment of the Naturalizer retail store operations. Refer to Note 5 to the condensed consolidated financial statements for additional information related tofurther discussion of these charges.
Operating Earnings
Operating earnings decreased $2.6increased $48.3 million or
Interest Expense, Net
Interest expense, net decreased $6.8$9.5 million, or 5.8%80.5%, to $109.7$2.3 million for the nine months ended October 28, 2017,first quarter of 2022, compared to $116.5$11.8 million for the nine months ended October 29, 2016, reflecting the factors described above for the third quarter, as well as restructuring and other special charges incurred earlier in 2017. As a percentage of net sales, operating earnings decreased to 5.3% for the nine months ended October 28, 2017, compared to 6.0% for the nine months ended October 29, 2016.
Other Income, Net
Other income, net decreased $0.4 million, associated with the expansion and modernization of our Lebanon, Tennessee distribution center, which was completed in the fourth quarter of 2016.
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 29.6%25.7% for the third quarter of 2017, compared to 33.6% for the third quarter of 2016. During the third quarter of 2017, we recognized discrete tax benefits of $0.9 million, reflecting greater deductibility of certain 2016 expenses than originally estimated. During the third quarter of 2016, we recognized a discrete tax benefit of $0.3 million reflecting the settlement of a federal tax audit issue. If these discrete tax benefits had not been recognized during the third quarter of 2017 and 2016, our effective tax rates would have been 31.5% and 34.1%, respectively. Excluding the discrete tax items, our tax rate is lower in the current period, reflecting a higher mix of international earnings in our lowest tax rate jurisdictions.
27
Net Earnings Attributable to Caleres, Inc.
Net earnings attributable to Caleres, Inc. were $34.4 million and $66.9$50.5 million for the thirdfirst quarter and nine months ended October 28, 2017,of April 30, 2022, compared to net earnings of $34.7 million and $72.3$6.2 million for the thirdfirst quarter and nine months ended October 29, 2016,of 2021, as a result of the factors described above.
FAMOUS FOOTWEAR | |||||||||||||||||||||||
Thirteen Weeks Ended | Thirty-nine Weeks Ended | ||||||||||||||||||||||
October 28, 2017 | October 29, 2016 | October 28, 2017 | October 29, 2016 | ||||||||||||||||||||
% of Net Sales | % of Net Sales | % of Net Sales | % of Net Sales | ||||||||||||||||||||
($ millions, except sales per square foot) | |||||||||||||||||||||||
Operating Results | |||||||||||||||||||||||
Net sales | $ | 473.1 | 100.0 | % | $ | 467.8 | 100.0 | % | $ | 1,244.5 | 100.0 | % | $ | 1,222.5 | 100.0 | % | |||||||
Cost of goods sold | 275.0 | 58.1 | % | 273.1 | 58.4 | % | 695.4 | 55.9 | % | 681.7 | 55.8 | % | |||||||||||
Gross profit | 198.1 | 41.9 | % | 194.7 | 41.6 | % | 549.1 | 44.1 | % | 540.8 | 44.2 | % | |||||||||||
Selling and administrative expenses | 164.4 | 34.8 | % | 162.0 | 34.6 | % | 470.0 | 37.7 | % | 459.7 | 37.6 | % | |||||||||||
Operating earnings | $ | 33.7 | 7.1 | % | $ | 32.7 | 7.0 | % | $ | 79.1 | 6.4 | % | $ | 81.1 | 6.6 | % | |||||||
Key Metrics | |||||||||||||||||||||||
Same-store sales % change | 0.9 | % | 2.1 | % | 1.0 | % | 0.7 | % | |||||||||||||||
Same-store sales $ change | $ | 3.8 | $ | 9.3 | $ | 12.2 | $ | 8.7 | |||||||||||||||
Sales change from new and closed stores, net | $ | 1.0 | $ | 2.3 | $ | 9.6 | $ | 2.0 | |||||||||||||||
Impact of changes in Canadian exchange rate on sales | $ | 0.5 | $ | 0.0 | $ | 0.2 | $ | (0.3 | ) | ||||||||||||||
Sales per square foot, excluding e-commerce (thirteen and thirty-nine weeks ended) | $ | 64 | $ | 63 | $ | 169 | $ | 167 | |||||||||||||||
Sales per square foot, excluding e-commerce (trailing twelve months) | $ | 217 | $ | 216 | $ | 217 | $ | 216 | |||||||||||||||
Square footage (thousand sq. ft.) | 6,894 | 6,960 | 6,894 | 6,960 | |||||||||||||||||||
Stores opened | 12 | 16 | 33 | 37 | |||||||||||||||||||
Stores closed | (25 | ) | 9 | (46 | ) | 32 | |||||||||||||||||
Ending stores | 1,042 | 1,051 | 1,042 | 1,051 |
FAMOUS FOOTWEAR
| | | | | | | | | | | |
| | Thirteen Weeks Ended | | ||||||||
|
| April 30, 2022 |
| May 1, 2021 | | ||||||
| | | | | % of | | | | | % of | |
($ millions, except sales per square foot) |
| | |
| Net Sales |
| | |
| Net Sales |
|
Net sales | | $ | 384.5 | | 100.0 | % | $ | 398.1 | | 100.0 | % |
Cost of goods sold | | | 195.3 | | 50.8 | % | | 218.3 | | 54.8 | % |
Gross profit | | | 189.2 | | 49.2 | % | $ | 179.8 | | 45.2 | % |
Selling and administrative expenses | | | 139.5 | | 36.3 | % | | 131.9 | | 33.2 | % |
Operating earnings | | $ | 49.7 | | 12.9 | % | $ | 47.9 | | 12.0 | % |
| | |
| |
| | |
| |
| |
Key Metrics | | |
| |
| | |
| |
| |
Same-store sales % change | | | (4.0) | % |
| | | 3.3 | % |
| |
Same-store sales $ change | | $ | (15.6) | |
| | $ | 6.2 | |
| |
Sales change from new and closed stores, net | | $ | 2.0 | |
| | $ | 200.2 | |
| |
Impact of changes in Canadian exchange rate on sales | | $ | (0.0) | |
| | $ | 0.4 | |
| |
| | | | | | | | | | | |
Sales per square foot, excluding e-commerce (thirteen weeks ended) | | $ | 57 | |
| | $ | 55 | |
| |
Sales per square foot, excluding e-commerce (trailing twelve months) | | $ | 251 | |
| | $ | 193 | |
| |
Square footage (thousand sq. ft.) | |
| 5,870 | |
| | | 6,043 | |
| |
| |
|
| |
| | | | |
| |
Stores opened | |
| — | |
| | | 4 | |
| |
Stores closed | |
| 7 | |
| | | 7 | |
| |
Ending stores | |
| 887 | |
| | | 913 | |
| |
Net Sales
Net sales increased $5.3of $384.5 million in the first quarter of 2022 decreased $13.6 million, or 1.1%3.4%, compared to $473.1 million for the thirdfirst quarter of 2017, compared to $467.8 million for2021, primarily reflecting a lower store count. Consumer demand remained strong and the third quarter of 2016. The increase was primarily driven by a 0.9% increase in same-store sales and a strong back-to-school selling season. Famous Footwear experienced growth in e-commerce sales and reported improvement in the online conversion rate, due in part to the successful implementation of our buy online, pick up in store initiative. The strong e-commerce sales were partially offset by a decline in customer traffic at our retail store locations, due in part tomomentum from 2021 continued into 2022, despite the impact of Hurricanes Harvey and Irma. As discussedlower government stimulus in the
Gross Profit
Gross profit increased $22.0$9.4 million, or 1.8%5.2%, to $1,244.5$189.2 million for the nine months ended October 28, 2017,first quarter of 2022, compared to $1,222.5$179.8 million for the nine months ended October 29, 2016.first quarter of 2021, driven by a higher gross profit rate. As a percentage of net sales, our gross profit increased to 49.2% for the first quarter of 2022, compared to 45.2% for the first quarter of 2021. Our higher gross profit margin in the first quarter of 2022 was primarily due to more full price selling and a reduction in promotional activity driven by strong demand for our product assortment and disciplined inventory management.
Selling and Administrative Expenses
Selling and administrative expenses increased $7.6 million, or 5.8%, to $139.5 million for the first quarter of 2022, compared to $131.9 million for the first quarter of 2021. The increase was primarily due to higher salaries and benefits expenses and higher logistics costs. As a percentage of net sales, selling and administrative expenses increased to 36.3% for the first quarter of 2022, compared to 33.2% for the first quarter of 2021.
Operating Earnings
Operating earnings increased $1.8 million to $49.7 million for the first quarter of 2022, compared to $47.9 million for the first quarter of 2021. As a percentage of net sales, operating earnings were 12.9% for the first quarter of 2022, compared to 12.0% for the first quarter of 2021.
28
BRAND PORTFOLIO
| | | | | | | | | | | |
| | Thirteen Weeks Ended | | ||||||||
|
| April 30, 2022 |
| May 1, 2021 | | ||||||
| | | | | % of | | |
| | % of | |
($ millions, except sales per square foot) |
| | |
| Net Sales |
| |
|
| Net Sales |
|
Net sales | | $ | 365.7 | | 100.0 | % | $ | 250.3 | | 100.0 | % |
Cost of goods sold | | | 226.4 | | 61.9 | % | | 156.3 | | 62.4 | % |
Gross profit | | | 139.3 | | 38.1 | % | | 94.0 | | 37.6 | % |
Selling and administrative expenses | | | 98.0 | | 26.8 | % | | 83.3 | | 33.3 | % |
Restructuring and other special charges, net | | | — | | — | % | | 13.5 | | 5.4 | % |
Operating earnings (loss) | | $ | 41.3 | | 11.3 | % | $ | (2.8) | | (1.1) | % |
| | |
| |
| | |
| |
| |
Key Metrics | | |
| |
| | |
| |
| |
Direct-to-consumer (% of net sales) (1) | | | 26 | % |
| | | 31 | % |
| |
Change in wholesale net sales ($) | | $ | 104.2 | |
| | $ | 14.9 | |
| |
Unfilled order position at end of period | | $ | 401.5 | |
| | $ | 264.5 | |
| |
| | | | |
| | |
| |
| |
Same-store sales % change | | | 66.0 | % |
| | | 5.1 | % |
| |
Same-store sales $ change | | $ | 17.9 | |
| | $ | 1.3 | |
| |
Sales change from new and closed stores, net | | $ | (6.7) | |
| | $ | 16.5 | |
| |
Impact of changes in Canadian exchange rate on retail sales | | $ | (0.0) | |
| | $ | 0.4 | |
| |
| | |
| |
| | |
| |
| |
Sales per square foot, excluding e-commerce (thirteen weeks ended) | | $ | 269 | | | | $ | 188 | | | |
Sales per square foot, excluding e-commerce (trailing twelve months) | | $ | 987 | |
| | $ | 336 | |
| |
Square footage (thousands sq. ft.) | | | 108 | |
| | | 138 | |
| |
| | |
| |
| | |
| |
| |
Stores opened | | | 1 | |
| | | 1 | |
| |
Stores closed | | | 4 | |
| | | 76 | |
| |
Ending stores | | | 83 | |
| | | 95 | |
| |
(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
Our Brand Portfolio segment achieved record-setting first quarter net sales of $365.7 million in the first quarter of 2022, driven by our strong product design, diverse and targeted assortments, and our strategic approach to inventory management. While the net sales increase of $115.4 million, or 46.1%, compared to the first quarter of 2021, was broad-based across all of our brands, our Sam Edelman, LifeStride, Naturalizer, Blowfish Malibu, Allen Edmonds and Vionic brands were the most significant contributors. We experienced strong growth in the dress, occasion and wear-to-work footwear categories for many of our brands, including Sam Edelman, Naturalizer, LifeStride and Allen Edmonds. Our sport-inspired and casual footwear categories also resonated strongly with our customers during the quarter. In addition, our net sales benefited as our retail partners sought to replenish their inventories during the first quarter of 2022. The incremental sales from inventory replenishment is expected to moderate as we move through fiscal 2022 as our partners return to more normal buying and replenishment patterns. During the first quarter of 2022, we closed four stores and opened one store, resulting in a 1.0%total of 83 stores and total square footage of 0.1 million at the end of the first quarter of 2022, compared to 95 stores and total square footage of 0.1 million at the end of the first quarter of 2021.
In the first quarter of 2021, we permanently closed the remaining 73 Naturalizer stores in North America that were scheduled for closure as part of our strategic realignment of the Naturalizer retail store operations. We continue to focus on growing the brand’s e-commerce business through naturalizer.com, our retail partners and their websites, and the two flagship stores in the United States. On a trailing twelve-month basis, sales per square foot, excluding e-commerce sales, increased to $987 for the twelve months ended April 30, 2022, compared to $336 for the twelve months ended May 1, 2021. With the closure of nearly all of our Naturalizer retail stores, the majority of our Brand Portfolio segment stores are for our Allen Edmonds brand, which have higher retail price points than the Naturalizer brand.
Our unfilled order position for our wholesale sales increased $137.0 million, or 51.8 %, to $401.5 million at April 30, 2022, compared to $264.5 million at May 1, 2021. The increase in same-store sales and a net increase in sales from new and closed stores. Famous Footwear experienced solid growth in e-commerce sales, and reported improvement in both conversion rate and online customer traffic. However, the strong e-commerce sales were offset by a decline in customer traffic at our retail store locations.
Gross Profit
Gross profit increased $3.4$45.3 million, or 1.8%48.2%, to $198.1$139.3 million for the thirdfirst quarter of 2017,2022, compared to $194.7$94.0 million for the thirdfirst quarter of 2016,2021, reflecting both higher net sales and gross profit rate. As a percentage of net sales, our gross profit increased to 41.9%38.1% for the thirdfirst quarter
29
of 2022, compared to 37.6% for the first quarter of 2017, compared to 41.6% for the third quarter of 2016.
Selling and Administrative Expenses
Selling and administrative expenses increased $2.4$14.7 million, or 1.5%17.5%, to $164.4$98.0 million for the thirdfirst quarter of 2017,2022, compared to $162.0$83.3 million for the thirdfirst quarter of 2016.2021. The increase was primarily driven by higher salaries and benefits expenses related to cash-based incentive compensation and higher facilities costs.marketing expenses. As a percentage of net sales, selling and administrative expenses increaseddecreased to 34.8%26.8% for the thirdfirst quarter of 2017,2022, compared to 34.6%33.3% for the thirdfirst quarter of 2016.
BRAND PORTFOLIO | |||||||||||||||||||||||
Thirteen Weeks Ended | Thirty-nine Weeks Ended | ||||||||||||||||||||||
October 28, 2017 | October 29, 2016 | October 28, 2017 | October 29, 2016 | ||||||||||||||||||||
% of Net Sales | % of Net Sales | % of Net Sales | % of Net Sales | ||||||||||||||||||||
($ millions, except sales per square foot) | |||||||||||||||||||||||
Operating Results | |||||||||||||||||||||||
Net sales | $ | 301.5 | 100.0 | % | $ | 264.4 | 100.0 | % | $ | 838.6 | 100.0 | % | $ | 717.4 | 100.0 | % | |||||||
Cost of goods sold | 182.7 | 60.6 | % | 165.3 | 62.5 | % | 512.4 | 61.1 | % | 457.1 | 63.7 | % | |||||||||||
Gross profit | 118.8 | 39.4 | % | 99.1 | 37.5 | % | 326.2 | 38.9 | % | 260.3 | 36.3 | % | |||||||||||
Selling and administrative expenses | 94.5 | 31.3 | % | 68.6 | 26.0 | % | 271.2 | 32.3 | % | 202.8 | 28.3 | % | |||||||||||
Restructuring and other special charges, net | — | — | % | — | — | % | 1.5 | 0.2 | % | — | — | % | |||||||||||
Operating earnings | $ | 24.3 | 8.1 | % | $ | 30.5 | 11.5 | % | $ | 53.5 | 6.4 | % | $ | 57.5 | 8.0 | % | |||||||
Key Metrics | |||||||||||||||||||||||
Wholesale/retail sales mix (%) (1) | 75%/25% | 86%/14% | 75%/25% | 86%/14% | |||||||||||||||||||
Change in wholesale net sales ($) (1) | $ | (0.6 | ) | $ | (8.9 | ) | $ | 7.7 | $ | (39.3 | ) | ||||||||||||
Unfilled order position at end of period (1) | $ | 302.4 | $ | 315.2 | |||||||||||||||||||
Same-store sales % change (2) | 2.4 | % | (5.4 | )% | 6.7 | % | (5.2 | )% | |||||||||||||||
Same-store sales $ change (2) | $ | 0.8 | $ | (1.8 | ) | $ | 5.8 | $ | (4.6 | ) | |||||||||||||
Sales change from new and closed stores, net (3) | $ | 36.3 | $ | 2.6 | $ | 107.4 | $ | 5.6 | |||||||||||||||
Impact of changes in Canadian exchange rate on retail sales | $ | 0.6 | $ | 0.0 | $ | 0.3 | $ | (1.0 | ) | ||||||||||||||
Sales per square foot, excluding e-commerce (thirteen and thirty-nine weeks ended) (2) | $ | 87 | $ | 84 | $ | 245 | $ | 236 | |||||||||||||||
Sales per square foot, excluding e-commerce (trailing twelve months) (2) | $ | 323 | $ | 316 | $ | 323 | $ | 316 | |||||||||||||||
Square footage (thousands sq. ft.) (3) | 403 | 306 | 403 | 306 | |||||||||||||||||||
Stores opened (3) | 3 | 2 | 11 | 7 | |||||||||||||||||||
Stores closed (3) | (6 | ) | 2 | (12 | ) | 5 | |||||||||||||||||
Ending stores (3) | 235 | 167 | 235 | 167 |
Restructuring and Other Special Charges, Net
We incurred restructuring and other special charges were incurred inof $13.5 million during the thirdfirst quarter of 2017 or2021 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 nine months ended October 29, 2016.first quarter of 2021. Refer to Note 5 to the condensed consolidated financial statements for additional information related to these charges.
Operating Earnings
Operating earnings decreased $6.2 million
ELIMINATIONS AND OTHER
| | | | | | | | | | | | |
| | | Thirteen Weeks Ended | | ||||||||
| |
| April 30, 2022 |
| May 1, 2021 | | ||||||
| | | | | | % of | | | | | % of | |
($ millions) |
|
| | |
| Net Sales |
| | |
| Net Sales |
|
Net sales | | | $ | (15.1) | | 100.0 | % | $ | (9.8) | | 100.0 | % |
Cost of goods sold | | | | (13.6) | | 89.8 | % | | (10.9) | | 110.9 | % |
Gross profit | | | | (1.5) | | 10.2 | % | | 1.1 | | (10.9) | % |
Selling and administrative expenses | | | | 23.3 | | (154.0) | % | | 28.3 | | (289.0) | % |
Operating loss | | | $ | (24.8) | | 164.2 | % | $ | (27.2) | | 278.1 | % |
The Eliminations and Other category includes the elimination of intersegment sales and profit, unallocated corporate administrative expenses, and other costs and recoveries. Costs
The net sales elimination of $5.2 million were incurred for the third quarter of 2017, compared to $7.7$15.1 million for the thirdfirst quarter of 2016, primarily2022 is $5.3 million, or 54.8%, higher than the first quarter of 2021, reflecting lower expenses relatedan increase in product sold from our Brand Portfolio segment to our cash-based incentive plans.
Selling and administrative expenses and other costs and recoveries were $23.0decreased $5.0 million, to $23.3 million in the first quarter of 2022, compared to $28.3 million for the nine months ended October 28, 2017,first quarter of 2021. The decrease primarily reflects lower expenses for certain employee benefits and lower expenses associated with our cash-based director compensation plans, reflecting a decrease in our stock price during the first quarter of 2022, compared to $22.1an increase in the first quarter of 2021.
LIQUIDITY AND CAPITAL RESOURCES
Borrowings
| | | | | | | | | |
($ millions) |
| April 30, 2022 |
| May 1, 2021 | (1) | January 29, 2022 | |||
Borrowings under revolving credit agreement | | $ | 305.0 | | $ | 200.0 | | $ | 290.0 |
Long-term debt | | | — | | | 199.0 | | | — |
Total debt | | $ | 305.0 | | $ | 399.0 | | $ | 290.0 |
30
(1) | As presented here, total debt as of May 1, 2021 excludes the Blowfish Malibu mandatory purchase obligation, which was valued at $45.5 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 $305.0 million at April 30, 2022 decreased $94.0 million, from $399.0 million at May 1, 2021, and increased $15.0 million, from $290.0 million at January 29, 2022. The decrease from May 1, 2021 reflects continued progress toward reducing our debt levels using our strong cash generation over the last twelve months. 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 is expected to result in net interest expense savings on an ongoing basis. The increase in total debt from January 29, 2022 is due primarily to higher inventory purchases during the quarter to satisfy the stronger consumer demand. Net interest expense for the first quarter of 2022 decreased $9.5 million to $2.3 million, compared to $11.8 million for the nine months ended October 29, 2016.first quarter of 2021. The increasedecrease is primarily reflects $2.5attributable to the non-recurrence of the $6.4 million fair value adjustment to the Blowfish Malibu mandatory purchase obligation recorded in the first quarter of restructuring costs for the integration and reorganization2021. The Blowfish Malibu mandatory purchase obligation of our men's brands,$54.6 million was paid on November 4, 2021, as further discussed in Note 5 and Note 14 to the condensed consolidated financial statements.
($ millions) | October 28, 2017 | October 29, 2016 | January 28, 2017 | ||||||
Borrowings under revolving credit agreement | $ | 20.0 | $ | — | $ | 110.0 | |||
Long-term debt | 197.3 | 196.9 | 197.0 | ||||||
Total debt | $ | 217.3 | $ | 196.9 | $ | 307.0 |
Credit Agreement
As further discussed in Note 10 to the acquisition of Allen Edmonds incondensed consolidated financial statements, the fourth quarter of 2016. In addition, during the third quarter and nine months ended October 29, 2016, we capitalized interest of $0.4 million and $1.3 million, respectively, associated with the expansion and modernization of our Lebanon, Tennessee distribution center that was completed in the fourth quarter of 2016.
Senior Notes
On July 27, 2015, we issued $200.0 million aggregate principal amount of Senior Notessenior notes due in 2023 (the "2023 Senior"Senior Notes") in a private placement. On October 22, 2015, we commenced an offer to exchange our 2023. The Senior Notes outstanding for substantially identical debt securities registered under the Securities Act of 1933. The exchange offer was completed on November 23, 2015 and did not affect the amount of our indebtedness outstanding.
Working Capital and Cash Flow
| | | | | | | | | |
| | Thirteen Weeks Ended | | | |||||
($ millions) |
| April 30, 2022 |
| May 1, 2021 |
| Change | |||
Net cash provided by operating activities | | $ | 19.7 | | $ | 70.3 | | $ | (50.6) |
Net cash used for investing activities | | | (11.7) | | | (3.9) | | | (7.8) |
Net cash used for provided by financing activities | | | (4.4) | | | (56.6) | | | 52.2 |
Effect of exchange rate changes on cash and cash equivalents | | | (0.0) | | | 0.1 | | | (0.1) |
Increase in cash and cash equivalents | | $ | 3.6 | | $ | 9.9 | | $ | (6.3) |
31
Thirty-nine Weeks Ended | |||||||||
($ millions) | October 28, 2017 | October 29, 2016 | Change | ||||||
Net cash provided by operating activities | $ | 122.2 | $ | 137.0 | $ | (14.8 | ) | ||
Net cash used for investing activities | (38.9 | ) | (48.7 | ) | 9.8 | ||||
Net cash used for financing activities | (107.5 | ) | (33.2 | ) | (74.3 | ) | |||
Effect of exchange rate changes on cash and cash equivalents | 0.2 | 0.2 | — | ||||||
(Decrease) increase in cash and cash equivalents | $ | (24.0 | ) | $ | 55.3 | $ | (79.3 | ) |
Reasons for the major variances in cash provided (used) in the table above are as follows:
Cash provided by operating activities was $14.8$50.6 million lower in the nine monthsthirteen weeks ended October 28, 2017April 30, 2022 as compared to the nine monthsthirteen weeks ended October 29, 2016,May 1, 2021, primarily reflecting the following factors:
● | An increase in inventory during the thirteen weeks ended April 30, 2022, primarily reflecting higher inventory in response to consumer demand, as well as earlier purchasing of inventory for the Brand Portfolio segment to offset the increased transportation lead times, compared to a decrease during the thirteen weeks ended May 1, 2021; |
● | A larger increase in accounts receivable in the thirteen weeks ended April 30, 2022, compared to the thirteen weeks ended May 1, 2021, attributable to higher wholesale sales during the period; and |
● | A larger decrease in accrued expenses and other liabilities in the thirteen weeks ended April 30, 2022 due in part to higher incentive compensation payments in 2022 due to the strong 2021 financial results, compared to the thirteen weeks ended May 1, 2021; partially offset by |
● | A larger increase in accounts payable in the thirteen weeks ended April 30, 2022, compared to the thirteen weeks ended May 1, 2021, reflecting higher inventory purchases; and |
● | Higher net earnings in the thirteen weeks ended April 30, 2022, compared to the thirteen weeks ended May 1, 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 the nine months ended October 28, 2017, comparedour condensed consolidated balance sheets, with changes reflected within cash flows from operating activities when settled. As of April 30, 2022 and May 1, 2021, we had $45.0 million and $55.0 million, respectively, of accounts payable subject to the comparable period in 2016; partially offset by
Cash used for investing activities was $9.8$7.8 million lower inhigher for the nine monthsthirteen weeks ended October 28, 2017April 30, 2022 as compared to the nine monthsthirteen weeks ended October 29, 2016, primarily due to lower purchases of property and equipment during the nine months ended October 28, 2017. During 2016, ourMay 1, 2021, reflecting higher capital expenditures included the expansion and modernization of our Lebanon, Tennessee distribution center, which was completed in the fourth quarter of 2016. For fiscal 2017,expenditures. In 2022, we expect our purchases of property and equipment and capitalized software to be between $35 million and $45 million, as compared to $24.1 million in 2021. We continue to invest in our Famous Footwear store refresh initiative. In addition, in the first quarter of approximately $55 million.
Cash used for financing activities was $74.3$52.2 million higherlower for the nine monthsthirteen weeks ended October 28, 2017April 30, 2022 as compared to the nine monthsthirteen weeks ended October 29, 2016, as we continueMay 1, 2021, primarily due to reduce thenet borrowings underon our revolving credit agreement which funded our Allen Edmonds acquisition.of $15.0 in the thirteen weeks ended April 30, 2022, compared to net repayments of $50.0 million in the comparable period in 2021. In addition, we repurchased fewer$14.7 million of shares under our stockshare repurchase programprograms during the nine monthsthirteen weeks ended October 28, 2017.
A summary of key financial data and ratios at the dates indicated is as follows:
| | | | | | | | | | | |
|
| April 30, 2022 |
| May 1, 2021 | |
| January 29, 2022 |
| |||
Operating working capital ($ millions) (1) | | $ | 237.0 | | $ | 126.3 | | | $ | 193.8 | |
Current ratio (2) | | | 0.87:1 | | | 0.87:1 | | | | 0.82:1 | |
Debt-to-capital ratio (3) | | | 46.0 | % | | 65.9 | % | | | 47.3 | % |
October 28, 2017 | October 29, 2016 | January 28, 2017 | |||||||
Working capital ($ millions) (1) | $ | 386.3 | $ | 515.5 | $ | 316.2 | |||
Current ratio (2) | 1.93:1 | 2.46:1 | 1.60:1 | ||||||
Debt-to-capital ratio (3) | 24.4 | % | 23.3 | % | 33.3 | % |
(1) |
(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 and borrowings under |
Operating working capital at October 28, 2017April 30, 2022 was $386.3$237.0 million, which was $129.2$110.7 million lower and $70.1$43.2 million higher than at October 29, 2016May 1, 2021 and January 28, 2017,29, 2022, respectively. Our current ratio was 1.93 to 1 as of October 28, 2017, compared to 2.46 to 1 at October 29, 2016 and 1.60 to 1 at January 28, 2017. The decreaseincrease in operating working capital and the current ratio from October 29, 2016May 1, 2021 primarily reflects higher receivables and
32
the impactsettlement of the Allen Edmonds acquisitionBlowfish Malibu mandatory purchase obligation in the fourth quarter of 2016, which was funded with borrowings under our revolving credit agreement. A significant portion of the Allen Edmonds purchase price was allocated to intangible assets, which are noncurrent, while the entire purchase price was funded using current liabilities.2021. The increase in operating working capital and the current ratio from January 28, 2017 was29, 2022 primarily due to lower borrowings under our revolving credit agreement and lower payables,reflects higher inventories, partially offset by lower cashhigher trade payables. Our current ratio was 0.87 to 1 as of April 30, 2022, consistent with May 1, 2021, and cash equivalents.0.82:1 at January 29, 2022. Our debt-to-capital ratio was 24.4%46.0% as of October 28, 2017,April 30, 2022, compared to 23.3%65.9% as of October 29, 2016May 1, 2021 and 33.3%47.3% at January 28, 2017. The increase in our debt-to-capital ratio from October 29, 2016 primarily reflects higher borrowings under our revolving credit agreement.2022. The decrease in our debt-to-capital ratio from May 1, 2021 and January 28, 201729, 2022 primarily reflects lower borrowings under our revolving credit agreement.
We declared and paid dividends of
We have various contractual or other obligations, primarily consist of purchase obligations, operating lease commitments, long-term debt, interest on long-term debt, minimum license commitments, financial instruments,including borrowings under our revolving credit agreement,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 and obligations.
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 28, 2017.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
Recently issued accounting pronouncements 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 business operations and financial condition; (iii) changing consumer demands, which may be influenced by consumers' disposable income, which in turn can be influenced by general economic conditions; (ii)conditions and other factors; (iv) rapidly changing fashion trendsconsumer preferences and purchasing patterns; (iii)patterns and fashion trends; (v) customer concentration and increased consolidation in the retail industry; (vi) intense competition within the footwear industry; (iv)(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; (v) the ability to accurately forecast sales and manage inventory levels; (vi)(ix) cybersecurity threats or other major disruption to the Company’s information technology systems; (vii) transitional challenges with acquisitions; (viii) customer concentration(x) the ability to accurately forecast sales and increased consolidation in the retail industry; (ix)manage inventory levels; (xi) a disruption in the Company’s distribution centers; (x)(xii) the ability to recruit and retain senior management and other key associates; (xi) foreign currency fluctuations; (xii) compliance with applicable laws and standards with respect to labor, trade and product safety issues; (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; and (xvi) changes to tax laws, policies and treaties.rights. The Company'sCompany’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 28, 2017,29, 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'sCompany’s Annual Report on Form 10-K for the year ended January 28, 2017. 29, 2022.
33
It is the Chief Executive Officer'sOfficer’s and Chief Financial Officer'sOfficer’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'sCommission’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 internal control reviewsongoing 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
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 significant changes toin the Company’s internal controlcontrols over financial reporting during the quarter ended October 28, 2017April 30, 2022 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
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 28, 2017. 29, 2022.
34
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 thirdfirst quarter of 2017:
| | | | | | | | | |
| | | | | | | 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) |
January 30, 2022 - February 26, 2022 |
| — | | $ | — |
| — |
| 1,990,224 |
|
| | |
| |
| |
| |
February 27, 2022 - April 2, 2022 |
| 424,662 | |
| 20.37 |
| 250,000 |
| 8,740,224 |
|
|
| |
|
|
|
|
|
|
April 3, 2022 - April 30, 2022 |
| 451,324 | |
| 21.32 |
| 451,324 |
| 8,288,900 |
|
|
| |
|
|
|
|
|
|
Total |
| 875,986 | | $ | 20.86 |
| 701,324 |
| 8,288,900 |
Maximum Number of Shares that May Yet be Purchased Under the Program (2) | |||||||||||
Total Number Purchased as Part of Publicly Announced Program (2) | |||||||||||
Total Number of Shares Purchased (1) | Average Price Paid per Share (1) | ||||||||||
Fiscal Period | |||||||||||
July 30, 2017 – August 26, 2017 | — | $ | — | — | 1,223,500 | ||||||
August 27, 2017 – September 30, 2017 | 2,118 | 30.65 | — | 1,223,500 | |||||||
October 1, 2017 – October 28, 2017 | — | — | — | 1,223,500 | |||||||
Total | 2,118 | $ | 30.65 | — | 1,223,500 |
(1) |
(2) | On |
ITEM 3 DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4 MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5 OTHER INFORMATION
None.
35
ITEM 6 EXHIBITS