UNITED STATES
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 |
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☐ | Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from _____________ to _____________ |
Commission file number: 1-2191-2191
CALERES, INC. | |
(Exact name of registrant as specified in its charter) | |
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New York | 43-0197190 |
(State or other jurisdiction | (IRS Employer Identification Number) |
of incorporation or organization) | |
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8300 Maryland Avenue | 63105 |
St. Louis, Missouri | (Zip Code) |
(Address of principal executive offices) | |
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(314) 854-4000 | |
(Registrant’s telephone number, including area code) |
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
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 ☑ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☑ No ☐
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 ☐ No ☑
As of NovemberAugust 27, 2020, 37,906,7602021, 38,268,064 common shares were outstanding.
INDEX | ||
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3 | ||
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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2
PART IFINANCIAL INFORMATION
ITEM 1FINANCIAL STATEMENTS
CALERES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
| | | | | | | | | |
| | (Unaudited) | | | | ||||
($thousands) |
| October 31, 2020 |
| November 2, 2019 |
| February 1, 2020 | |||
Assets |
| |
|
| |
|
| |
|
Current assets: | | |
|
| |
|
| |
|
Cash and cash equivalents | | $ | 124,330 | | $ | 52,502 | | $ | 45,218 |
Receivables, net | |
| 141,059 | |
| 156,253 | |
| 162,181 |
Inventories, net | |
| 507,365 | |
| 644,646 | |
| 618,406 |
Income taxes | |
| 53,888 | |
| 2,271 | |
| 6,189 |
Prepaid expenses and other current assets | |
| 45,513 | |
| 45,974 | |
| 50,305 |
Total current assets | |
| 872,155 | |
| 901,646 | |
| 882,299 |
| | | | | | | | | |
Other assets | | | 97,050 | | | 92,214 | | | 89,389 |
Goodwill | |
| 4,956 | |
| 245,275 | |
| 245,275 |
Intangible assets, net | |
| 262,118 | |
| 297,570 | |
| 294,304 |
Lease right-of-use assets | | | 601,574 | | | 704,244 | | | 695,594 |
Property and equipment | | | 562,003 | | | 591,370 | | | 593,979 |
Allowance for depreciation | | | (372,796) | | | (361,109) | | | (369,133) |
Property and equipment, net | | | 189,207 | | | 230,261 | | | 224,846 |
Total assets | | $ | 2,027,060 | | $ | 2,471,210 | | $ | 2,431,707 |
| | | | | | | | | |
Liabilities and Equity | |
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Current liabilities: | |
|
| |
|
| |
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|
Borrowings under revolving credit agreement | | $ | 300,000 | | $ | 295,000 | | $ | 275,000 |
Mandatory purchase obligation | | | 30,146 | | | 0 | | | 0 |
Trade accounts payable | |
| 285,582 | |
| 275,699 | |
| 267,018 |
Income taxes | |
| 7,053 | |
| 13,979 | |
| 7,186 |
Lease obligations | |
| 156,200 | |
| 144,501 | |
| 127,869 |
Other accrued expenses | |
| 180,927 | |
| 165,051 | |
| 173,877 |
Total current liabilities | |
| 959,908 | |
| 894,230 | |
| 850,950 |
| | | | | | | | | |
Other liabilities: | |
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| |
|
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Noncurrent lease obligations | |
| 556,343 | |
| 629,731 | |
| 629,032 |
Long-term debt | |
| 198,736 | |
| 198,276 | |
| 198,391 |
Income taxes | |
| 7,786 | |
| 7,786 | |
| 7,786 |
Other liabilities | |
| 42,632 | |
| 87,837 | |
| 96,418 |
Total other liabilities | |
| 805,497 | |
| 923,630 | |
| 931,627 |
| | | | | | | | | |
Equity: | |
|
| |
|
| |
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|
Common stock | |
| 379 | |
| 406 | |
| 404 |
Additional paid-in capital | |
| 159,327 | |
| 152,214 | |
| 153,489 |
Accumulated other comprehensive loss | |
| (31,184) | |
| (30,318) | |
| (31,843) |
Retained earnings | |
| 128,149 | |
| 528,538 | |
| 523,900 |
Total Caleres, Inc. shareholders’ equity | |
| 256,671 | |
| 650,840 | |
| 645,950 |
Noncontrolling interests | |
| 4,984 | |
| 2,510 | |
| 3,180 |
Total equity | |
| 261,655 | |
| 653,350 | |
| 649,130 |
Total liabilities and equity | | $ | 2,027,060 | | $ | 2,471,210 | | $ | 2,431,707 |
| | | | | | | | | |
| | | | | | | |||
| | (Unaudited) | | | | ||||
($ thousands) |
| July 31, 2021 |
| August 1, 2020 |
| January 30, 2021 | |||
Assets |
| |
|
| |
|
| |
|
Current assets: | | |
|
| |
|
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|
Cash and cash equivalents | | $ | 54,684 | | $ | 148,544 | | $ | 88,295 |
Receivables, net | |
| 110,522 | |
| 110,249 | |
| 126,994 |
Inventories, net | |
| 565,512 | |
| 574,830 | |
| 487,955 |
Income taxes | |
| 35,026 | |
| 52,658 | |
| 33,925 |
Prepaid expenses and other current assets | |
| 41,619 | |
| 43,768 | |
| 45,387 |
Total current assets | |
| 807,363 | |
| 930,049 | |
| 782,556 |
| | | | | | | | | |
Prepaid pension costs | |
| 94,083 | |
| 55,431 | |
| 88,833 |
Lease right-of-use assets | |
| 508,597 | |
| 624,881 | |
| 554,303 |
Property and equipment, net | |
| 161,066 | |
| 193,593 | |
| 172,437 |
Deferred income taxes | |
| 0 | |
| 9,456 | |
| 0 |
Goodwill and intangible assets, net | |
| 233,777 | |
| 270,361 | |
| 240,071 |
Other assets | |
| 28,012 | |
| 28,623 | |
| 28,850 |
Total assets | | $ | 1,832,898 | | $ | 2,112,394 | | $ | 1,867,050 |
| | | | | | | | | |
Liabilities and Equity | |
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Current liabilities: | |
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Borrowings under revolving credit agreement | | $ | 100,000 | | $ | 350,000 | | $ | 250,000 |
Current portion of long-term debt | | | 99,540 | | | 0 | | | 0 |
Mandatory purchase obligation - Blowfish Malibu | | | 52,639 | | | 0 | | | 39,134 |
Trade accounts payable | |
| 348,795 | |
| 280,319 | |
| 280,501 |
Income taxes | |
| 17,311 | |
| 8,310 | |
| 5,069 |
Lease obligations | |
| 126,820 | |
| 171,247 | |
| 153,060 |
Other accrued expenses | |
| 233,564 | |
| 208,024 | |
| 177,745 |
Total current liabilities | |
| 978,669 | |
| 1,017,900 | |
| 905,509 |
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Other liabilities: | |
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Noncurrent lease obligations | |
| 463,746 | |
| 579,399 | |
| 518,942 |
Long-term debt | |
| 99,540 | |
| 198,621 | |
| 198,851 |
Income taxes | |
| 2,464 | |
| 7,786 | |
| 5,038 |
Deferred income taxes | |
| 13,574 | |
| 13,051 | |
| 8,244 |
Other liabilities | |
| 29,614 | |
| 50,503 | |
| 26,612 |
Total other liabilities | |
| 608,938 | |
| 849,360 | |
| 757,687 |
| | | | | | | | | |
Equity: | |
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Common stock | |
| 383 | |
| 379 | |
| 380 |
Additional paid-in capital | |
| 162,122 | |
| 156,913 | |
| 160,446 |
Accumulated other comprehensive loss | |
| (8,572) | |
| (31,437) | |
| (9,136) |
Retained earnings | |
| 86,764 | |
| 116,385 | |
| 48,557 |
Total Caleres, Inc. shareholders’ equity | |
| 240,697 | |
| 242,240 | |
| 200,247 |
Noncontrolling interests | |
| 4,594 | |
| 2,894 | |
| 3,607 |
Total equity | |
| 245,291 | |
| 245,134 | |
| 203,854 |
Total liabilities and equity | | $ | 1,832,898 | | $ | 2,112,394 | | $ | 1,867,050 |
See notes to condensed consolidated financial statements.
3
CALERES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS (LOSS)
| | | | | | | | | | | | | | | | | | | | | | | | | |
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| (Unaudited) |
| (Unaudited) |
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| | Thirteen Weeks Ended |
| Thirty-Nine Weeks Ended | | Thirteen Weeks Ended |
| Twenty-Six Weeks Ended | | ||||||||||||||||
($thousands, except per share amounts) |
| October 31, 2020 | | November 2, 2019 | | October 31, 2020 | | November 2, 2019 | |||||||||||||||||
($ thousands, except per share amounts) |
| July 31,2021 | | August 1,2020 | | July 31, 2021 |
| August 1, 2020 |
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Net sales | | $ | 647,480 | | $ | 792,375 | | $ | 1,546,111 | | $ | 2,222,614 | | $ | 675,531 | | $ | 501,448 | | $ | 1,314,167 | | $ | 898,632 | |
Cost of goods sold | |
| 390,508 | |
| 472,605 | |
| 984,621 | |
| 1,317,064 | |
| 353,238 | |
| 318,828 | |
| 716,987 | |
| 594,114 | |
Gross profit | |
| 256,972 | |
| 319,770 | |
| 561,490 | |
| 905,550 | |
| 322,293 | |
| 182,620 | |
| 597,180 | |
| 304,518 | |
Selling and administrative expenses | |
| 236,901 | |
| 275,330 | |
| 663,425 | |
| 804,972 | |
| 259,501 | |
| 201,331 | |
| 503,036 | |
| 426,524 | |
Impairment of goodwill and intangible assets | |
| 0 | |
| 0 | |
| 262,719 | |
| 0 | |
| 0 | |
| 0 | |
| 0 | |
| 262,719 | |
Restructuring and other special charges, net | |
| 0 | |
| 969 | |
| 65,625 | |
| 2,434 | |
| 0 | |
| 5,429 | |
| 13,482 | |
| 65,625 | |
Operating earnings (loss) | |
| 20,071 | |
| 43,471 | |
| (430,279) | |
| 98,144 | |
| 62,792 | |
| (24,140) | |
| 80,662 | |
| (450,350) | |
Interest expense, net | |
| (10,881) | |
| (10,559) | |
| (33,747) | |
| (25,288) | |
| (11,941) | |
| (13,387) | |
| (23,734) | |
| (22,866) | |
Other income, net | |
| 5,461 | |
| 2,633 | |
| 12,718 | |
| 7,902 | |
| 3,860 | |
| 3,672 | |
| 7,688 | |
| 7,257 | |
Earnings (loss) before income taxes | |
| 14,651 | |
| 35,545 | |
| (451,308) | |
| 80,758 | |
| 54,711 | |
| (33,855) | |
| 64,616 | |
| (465,959) | |
Income tax benefit (provision) | |
| 275 | |
| (7,784) | |
| 89,393 | |
| (18,685) | |||||||||||||
Income tax (provision) benefit | |
| (16,559) | |
| 3,186 | |
| (20,080) | |
| 89,118 | | ||||||||||||
Net earnings (loss) | |
| 14,926 | |
| 27,761 | |
| (361,915) | |
| 62,073 | |
| 38,152 | |
| (30,669) | |
| 44,536 | |
| (376,841) | |
Net earnings (loss) attributable to noncontrolling interests | |
| 509 | |
| (226) | |
| 223 | |
| (338) | |
| 756 | |
| 48 | |
| 993 | |
| (286) | |
Net earnings (loss) attributable to Caleres, Inc. | | $ | 14,417 | | $ | 27,987 | | $ | (362,138) | | $ | 62,411 | | $ | 37,396 | | $ | (30,717) | | $ | 43,543 | | $ | (376,555) | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
Basic earnings (loss) per common share attributable to Caleres, Inc. shareholders | | $ | 0.38 | | $ | 0.69 | | $ | (9.67) | | $ | 1.51 | | $ | 0.98 | | $ | (0.83) | | $ | 1.14 | | $ | (9.94) | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
Diluted earnings (loss) per common share attributable to Caleres, Inc. shareholders | | $ | 0.38 | | $ | 0.69 | | $ | (9.67) | | $ | 1.51 | | $ | 0.97 | | $ | (0.83) | | $ | 1.13 | | $ | (9.94) | |
See notes to condensed consolidated financial statements.
4
CALERES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
| | | | | | | | | | | | | | | | | | | | | | | | |
| | (Unaudited) | | (Unaudited) | ||||||||||||||||||||
| | Thirteen Weeks Ended |
| Thirty-Nine Weeks Ended | | Thirteen Weeks Ended |
| Twenty-Six Weeks Ended | ||||||||||||||||
($thousands) |
| October 31, 2020 | | November 2, 2019 | | October 31, 2020 | | November 2, 2019 | ||||||||||||||||
($ thousands) |
| July 31, 2021 |
| August 1, 2020 | | July 31, 2021 |
| August 1, 2020 | ||||||||||||||||
Net earnings (loss) | | $ | 14,926 | | $ | 27,761 | | $ | (361,915) | | $ | 62,073 | | $ | 38,152 | | $ | (30,669) | | $ | 44,536 | | $ | (376,841) |
Other comprehensive income (loss), net of tax: | |
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Other comprehensive income (loss) ("OCI"), net of tax: | |
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Foreign currency translation adjustment | |
| 401 | |
| 582 | |
| (409) | |
| (397) | |
| 68 | |
| 740 | |
| (155) | |
| (810) |
Pension and other postretirement benefits adjustments | |
| (67) | |
| 429 | |
| 1,057 | |
| 1,285 | |
| 347 | |
| 1,058 | |
| 713 | |
| 1,124 |
Derivative financial instruments | |
| 0 | |
| 63 | |
| 92 | |
| 361 | |
| 0 | |
| 0 | |
| 0 | |
| 92 |
Other comprehensive income, net of tax | |
| 334 | |
| 1,074 | |
| 740 | |
| 1,249 | |
| 415 | |
| 1,798 | |
| 558 | |
| 406 |
Comprehensive income (loss) | |
| 15,260 | |
| 28,835 | |
| (361,175) | |
| 63,322 | |
| 38,567 | |
| (28,871) | |
| 45,094 | |
| (376,435) |
Comprehensive income (loss) attributable to noncontrolling interests | |
| 590 | |
| (239) | |
| 304 | |
| (372) | |
| 807 | |
| 67 | |
| 987 | |
| (286) |
Comprehensive income (loss) attributable to Caleres, Inc. | | $ | 14,670 | | $ | 29,074 | | $ | (361,479) | | $ | 63,694 | | $ | 37,760 | | $ | (28,938) | | $ | 44,107 | | $ | (376,149) |
See notes to condensed consolidated financial statements.
5
CALERES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
| | | | | | | | | | | | |
|
| (Unaudited) | | Twenty-Six Weeks Ended | ||||||||
| | Thirty-Nine Weeks Ended | ||||||||||
($thousands) |
| October 31, 2020 |
| November 2, 2019 | ||||||||
($ thousands) |
| July 31, 2021 |
| August 1, 2020 | ||||||||
Operating Activities |
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Net (loss) earnings | | $ | (361,915) | | $ | 62,073 | ||||||
Adjustments to reconcile net (loss) earnings to net cash provided by operating activities: | |
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Net earnings (loss) | | $ | 44,536 | | $ | (376,841) | ||||||
Adjustments to reconcile net earnings (loss) to net cash provided by operating activities: | |
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Depreciation | |
| 31,923 | |
| 34,312 | |
| 17,341 | |
| 21,875 |
Amortization of capitalized software | |
| 4,410 | |
| 4,910 | |
| 2,984 | |
| 2,939 |
Amortization of intangible assets | |
| 9,786 | |
| 9,790 | |
| 6,294 | |
| 6,499 |
Amortization of debt issuance costs and debt discount | |
| 1,016 | |
| 979 | |
| 682 | |
| 673 |
Fair value adjustments to mandatory purchase obligation | | | 14,946 | | | 4,410 | ||||||
Fair value adjustments to Blowfish mandatory purchase obligation | | | 13,505 | | | 9,822 | ||||||
Share-based compensation expense | |
| 6,920 | |
| 8,933 | |
| 5,431 | |
| 4,401 |
Loss on disposal of property and equipment | |
| 848 | |
| 874 | |
| 551 | |
| 684 |
Impairment charges for property, equipment, and lease right-of-use assets | |
| 35,620 | |
| 5,105 | |
| 2,288 | |
| 35,222 |
Impairment of goodwill and intangible assets | | | 262,719 | | | 0 | | | 0 | | | 262,719 |
Provision for expected credit losses | | | 10,663 | | | 728 | ||||||
Provision/adjustment for expected credit losses | | | (2,543) | | | 8,525 | ||||||
Deferred income taxes | |
| 5,330 | |
| (41,683) | ||||||
Changes in operating assets and liabilities: | |
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Receivables | |
| 8,313 | |
| 34,740 | |
| 19,014 | |
| 41,275 |
Inventories | |
| 110,954 | |
| 37,482 | |
| (77,278) | |
| 43,372 |
Prepaid expenses and other current and noncurrent assets | |
| (60,300) | |
| (7,819) | |
| (1,045) | |
| (7,640) |
Trade accounts payable | |
| 18,592 | |
| (37,537) | |
| 68,197 | |
| 13,399 |
Accrued expenses and other liabilities | |
| 55,345 | |
| (25,627) | |
| 22,121 | |
| 88,218 |
Income taxes, net | |
| (47,833) | |
| 12,470 | |
| 8,567 | |
| (45,347) |
Other, net | |
| (241) | |
| (86) | |
| (428) | |
| (592) |
Net cash provided by operating activities | |
| 101,766 | |
| 145,737 | |
| 135,547 | |
| 67,520 |
| | | | | | | | | | | | |
Investing Activities | |
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Purchases of property and equipment | |
| (12,016) | |
| (37,354) | |
| (6,816) | |
| (6,394) |
Disposals of property and equipment | |
| 0 | |
| 636 | ||||||
Capitalized software | |
| (3,525) | |
| (4,893) | |
| (2,581) | |
| (2,220) |
Net cash used for investing activities | |
| (15,541) | |
| (41,611) | |
| (9,397) | |
| (8,614) |
| | | | | | | | | | | | |
Financing Activities | |
|
| |
|
| |
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|
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Borrowings under revolving credit agreement | |
| 340,500 | |
| 237,000 | |
| 164,500 | |
| 250,500 |
Repayments under revolving credit agreement | |
| (315,500) | |
| (277,000) | |
| (314,500) | |
| (175,500) |
Dividends paid | |
| (8,148) | |
| (8,631) | |
| (5,336) | |
| (5,495) |
Acquisition of treasury stock | |
| (23,348) | |
| (31,168) | |
| 0 | |
| (23,348) |
Issuance of common stock under share-based plans, net | |
| (1,078) | |
| (2,605) | |
| (3,752) | |
| (973) |
Contributions by noncontrolling interests | |
| 1,500 | |
| 1,500 | ||||||
Other | |
| (980) | |
| (1,022) | |
| (677) | |
| (649) |
Net cash used for financing activities | |
| (7,054) | |
| (81,926) | ||||||
Net cash (used for) provided by financing activities | |
| (159,765) | |
| 44,535 | ||||||
Effect of exchange rate changes on cash and cash equivalents | |
| (59) | |
| 102 | |
| 4 | |
| (115) |
Increase in cash and cash equivalents | |
| 79,112 | |
| 22,302 | ||||||
(Decrease) increase in cash and cash equivalents | |
| (33,611) | |
| 103,326 | ||||||
Cash and cash equivalents at beginning of period | |
| 45,218 | |
| 30,200 | |
| 88,295 | |
| 45,218 |
Cash and cash equivalents at end of period | | $ | 124,330 | | $ | 52,502 | | $ | 54,684 | | $ | 148,544 |
See notes to condensed consolidated financial statements.
6
CALERES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | Accumulated | | | | | Total | | | | | | | | | | | | | | | | Accumulated | | | | | Total | | | | | | | ||||
| | | | | | | | | | Other | | | | | Caleres, Inc. | | Non- | | | | | | | | | | | | | Other | | | | | Caleres, Inc. | | Non- | | | | ||||||
(Unaudited) | | Common Stock | | Additional | | Comprehensive | | Retained | | Shareholders’ | | controlling | | | | | Common Stock | | Additional | | Comprehensive | | Retained | | Shareholders’ | | controlling | | | | ||||||||||||||||
($ thousands, except number of shares and per share amounts) |
| Shares |
| Dollars |
| Paid-In Capital |
| (Loss) Income |
| Earnings |
| Equity |
| Interests |
| Total Equity |
| Shares |
| Dollars |
| Paid-In Capital |
| (Loss) Income |
| Earnings |
| Equity |
| Interests |
| Total Equity | ||||||||||||||
BALANCE AUGUST 1, 2020 |
| 37,912,156 | | $ | 379 | | $ | 156,913 | | $ | (31,437) | | $ | 116,385 | | $ | 242,240 | | $ | 2,894 | | $ | 245,134 | |||||||||||||||||||||||
Net (loss) earnings |
| | |
| | |
| | |
| | |
| 14,417 | |
| 14,417 | |
| 509 | |
| 14,926 | |||||||||||||||||||||||
BALANCE MAY 1, 2021 |
| 38,293,472 | | $ | 383 | | $ | 159,381 | | $ | (8,936) | | $ | 52,041 | | $ | 202,869 | | $ | 3,787 | | $ | 206,656 | |||||||||||||||||||||||
Net earnings |
| | |
| | |
| | |
| | |
| 37,396 | |
| 37,396 | |
| 756 | |
| 38,152 | |||||||||||||||||||||||
Foreign currency translation adjustment |
| | |
| | |
| | |
| 320 | |
|
| |
| 320 | |
| 81 | |
| 401 |
| | |
| | |
| | |
| 17 | |
|
| |
| 17 | |
| 51 | |
| 68 |
Pension and other postretirement benefits adjustments, net of tax of $44 |
| | |
| | |
| | |
| (67) | |
|
| |
| (67) | |
|
| |
| (67) | |||||||||||||||||||||||
Comprehensive income (loss) |
| | |
| | |
| | |
| 253 | |
| 14,417 | |
| 14,670 | |
| 590 | |
| 15,260 | |||||||||||||||||||||||
Contributions by noncontrolling interests | | | | | | | | | | | | | | | | | 0 | | | 1,500 | | | 1,500 | |||||||||||||||||||||||
Pension and other postretirement benefits adjustments, net of tax of $85 |
| | |
| | |
| | |
| 347 | |
|
| |
| 347 | |
|
| |
| 347 | |||||||||||||||||||||||
Comprehensive income |
| | |
| | |
| | |
| 364 | |
| 37,396 | |
| 37,760 | |
| 807 | |
| 38,567 | |||||||||||||||||||||||
Dividends ($0.07 per share) |
| | |
| | |
| | |
|
| |
| (2,653) | |
| (2,653) | |
|
| |
| (2,653) |
| | |
| | |
| | |
|
| |
| (2,673) | |
| (2,673) | |
|
| |
| (2,673) |
Issuance of common stock under share-based plans, net |
| 32,018 | |
| 0 | |
| (104) | |
| | |
| | |
| (104) | |
|
| |
| (104) |
| (25,408) | |
| (0) | |
| (251) | |
| | |
| | |
| (251) | |
|
| |
| (251) |
Share-based compensation expense |
| | |
| | |
| 2,518 | |
|
| |
|
| |
| 2,518 | |
|
| |
| 2,518 |
| | |
| | |
| 2,992 | |
|
| |
|
| |
| 2,992 | |
|
| |
| 2,992 |
BALANCE OCTOBER 31, 2020 |
| 37,944,174 | | $ | 379 | | $ | 159,327 | | $ | (31,184) | | $ | 128,149 | | $ | 256,671 | | $ | 4,984 | | $ | 261,655 | |||||||||||||||||||||||
BALANCE JULY 31, 2021 |
| 38,268,064 | | $ | 383 | | $ | 162,122 | | $ | (8,572) | | $ | 86,764 | | $ | 240,697 | | $ | 4,594 | | $ | 245,291 | |||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
BALANCE AUGUST 3, 2019 |
| 40,720,927 | | $ | 407 | | $ | 149,881 | | $ | (31,405) | | $ | 504,546 | | $ | 623,429 | | $ | 1,249 | | $ | 624,678 | |||||||||||||||||||||||
Net earnings (loss) |
| | |
| | |
| | |
| | |
| 27,987 | |
| 27,987 | |
| (226) | |
| 27,761 | |||||||||||||||||||||||
BALANCE MAY 2, 2020 |
| 39,299,990 | | $ | 393 | | $ | 154,930 | | $ | (33,216) | | $ | 160,189 | | $ | 282,296 | | $ | 2,827 | | $ | 285,123 | |||||||||||||||||||||||
Net (loss) earnings |
| | |
| | |
| | |
| | |
| (30,717) | |
| (30,717) | |
| 48 | |
| (30,669) | |||||||||||||||||||||||
Foreign currency translation adjustment |
| | |
| | |
| | |
| 595 | |
|
| |
| 595 | |
| (13) | |
| 582 |
| | |
| | |
| | |
| 721 | |
|
| |
| 721 | |
| 19 | |
| 740 |
Unrealized gain on derivative financial instruments, net of tax of $4 |
| | |
| | |
| | |
| 63 | |
|
| |
| 63 | |
| | |
| 63 | |||||||||||||||||||||||
Pension and other postretirement benefits adjustments, net of tax of $149 |
| | |
| | |
| | |
| 429 | |
|
| |
| 429 | |
| | |
| 429 | |||||||||||||||||||||||
Pension and other postretirement benefits adjustments, net of tax of $248 |
| | |
| | |
| | |
| 1,058 | |
|
| |
| 1,058 | |
| | |
| 1,058 | |||||||||||||||||||||||
Comprehensive income (loss) |
| | | | | | | | | | 1,087 | |
| 27,987 | |
| 29,074 | |
| (239) | |
| 28,835 |
| | | | | | | | | | 1,779 | |
| (30,717) | |
| (28,938) | |
| 67 | |
| (28,871) |
Contributions by noncontrolling interests | | | | | | | | | | | | | | | | | | | | 1,500 | | | 1,500 | |||||||||||||||||||||||
Dividends ($0.07 per share) |
| | |
| | |
| | |
|
| |
| (2,823) | |
| (2,823) | |
| | |
| (2,823) |
| | |
| | |
| | |
|
| |
| (2,685) | |
| (2,685) | |
| | |
| (2,685) |
Acquisition of treasury stock |
| (58,263) | |
| (1) | |
| | |
| | |
| (1,172) | |
| (1,173) | |
|
| |
| (1,173) |
| (1,391,234) | |
| (14) | |
| | |
| | |
| (10,402) | |
| (10,416) | |
|
| |
| (10,416) |
Issuance of common stock under share-based plans, net |
| (69,377) | |
| (0) | |
| (58) | |
| | |
|
| |
| (58) | |
|
| |
| (58) |
| 3,400 | |
| 0 | |
| (67) | |
| | |
|
| |
| (67) | |
|
| |
| (67) |
Share-based compensation expense |
| | |
| | |
| 2,391 | |
|
| |
|
| |
| 2,391 | |
|
| |
| 2,391 |
| | |
| | |
| 2,050 | |
|
| |
|
| |
| 2,050 | |
|
| |
| 2,050 |
BALANCE NOVEMBER 2, 2019 |
| 40,593,287 | | $ | 406 | | $ | 152,214 | | $ | (30,318) | | $ | 528,538 | | $ | 650,840 | | $ | 2,510 | | $ | 653,350 | |||||||||||||||||||||||
BALANCE AUGUST 1, 2020 |
| 37,912,156 | | $ | 379 | | $ | 156,913 | | $ | (31,437) | | $ | 116,385 | | $ | 242,240 | | $ | 2,894 | | $ | 245,134 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | Accumulated | | | | | | | | | | | | | | | | | | | | | Accumulated | | | | | | | | | | | | ||||
| | | | | | | | | | Other | | | | | Total Caleres, Inc. | | Non- | | | | | | | | | | | | | Other | | | | | Total Caleres, Inc. | | Non- | | | | ||||||
(Unaudited) | | Common Stock | | Additional | | Comprehensive | | Retained | | Shareholders’ | | controlling | | | | | Common Stock | | Additional | | Comprehensive | | Retained | | Shareholders’ | | controlling | | | | ||||||||||||||||
($ thousands, except number of shares and per share amounts) |
| Shares |
| Dollars |
| Paid-In Capital |
| (Loss) Income |
| Earnings |
| Equity |
| Interests |
| Total Equity |
| Shares |
| Dollars |
| Paid-In Capital |
| (Loss) Income |
| Earnings |
| Equity |
| Interests |
| Total Equity | ||||||||||||||
BALANCE AS OF FEBRUARY 1, 2020 |
| 40,396,757 | | $ | 404 | | $ | 153,489 | | $ | (31,843) | | $ | 523,900 | | $ | 645,950 | | $ | 3,180 | | $ | 649,130 | |||||||||||||||||||||||
BALANCE AS OF JANUARY 31, 2021 |
| 37,966,204 | | $ | 380 | | $ | 160,446 | | $ | (9,136) | | $ | 48,557 | | $ | 200,247 | | $ | 3,607 | | $ | 203,854 | |||||||||||||||||||||||
Net earnings |
|
| |
|
| |
|
| |
|
| |
| 43,543 | |
| 43,543 | |
| 993 | |
| 44,536 | |||||||||||||||||||||||
Foreign currency translation adjustment |
|
| |
|
| |
|
| |
| (149) | |
|
| |
| (149) | |
| (6) | |
| (155) | |||||||||||||||||||||||
Pension and other postretirement benefits adjustments, net of tax of $182 |
|
| |
|
| |
|
| |
| 713 | |
|
| |
| 713 | |
|
| |
| 713 | |||||||||||||||||||||||
Comprehensive income |
|
| |
|
| |
|
| |
| 564 | |
| 43,543 | |
| 44,107 | |
| 987 | |
| 45,094 | |||||||||||||||||||||||
Dividends ($0.14 per share) |
|
| |
|
| |
|
| |
|
| |
| (5,336) | |
| (5,336) | |
|
| |
| (5,336) | |||||||||||||||||||||||
Issuance of common stock under share-based plans, net |
| 301,860 | |
| 3 | |
| (3,755) | |
|
| |
|
| |
| (3,752) | |
|
| |
| (3,752) | |||||||||||||||||||||||
Share-based compensation expense |
|
| |
|
| |
| 5,431 | |
|
| |
|
| |
| 5,431 | |
|
| |
| 5,431 | |||||||||||||||||||||||
BALANCE JULY 31, 2021 |
| 38,268,064 | | $ | 383 | | $ | 162,122 | | $ | (8,572) | | $ | 86,764 | | $ | 240,697 | | $ | 4,594 | | $ | 245,291 | |||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | |||||||||||||||||||||||
BALANCE FEBRUARY 1, 2020 |
| 40,396,757 | | $ | 404 | | $ | 153,489 | | $ | (31,843) | | $ | 523,900 | | $ | 645,950 | | $ | 3,180 | | $ | 649,130 | |||||||||||||||||||||||
Net loss |
|
| |
|
| |
|
| |
|
| |
| (362,138) | |
| (362,138) | |
| 223 | |
| (361,915) |
|
| |
|
| |
|
| |
|
| |
| (376,555) | |
| (376,555) | |
| (286) | |
| (376,841) |
Foreign currency translation adjustment |
|
| |
|
| |
|
| |
| (490) | |
|
| |
| (490) | |
| 81 | |
| (409) |
|
| |
|
| |
|
| |
| (810) | |
|
| |
| (810) | |
| — | |
| (810) |
Unrealized gain on derivative financial instruments, net of tax of $31 |
|
| |
|
| |
|
| |
| 92 | |
|
| |
| 92 | |
|
| |
| 92 | |||||||||||||||||||||||
Pension and other postretirement benefits adjustments, net of tax of $336 |
|
| |
|
| |
|
| |
| 1,057 | |
|
| |
| 1,057 | |
|
| |
| 1,057 | |||||||||||||||||||||||
Unrealized loss on derivative financial instruments, net of tax of $31 |
|
| |
|
| |
|
| |
| 92 | |
|
| |
| 92 | |
|
| |
| 92 | |||||||||||||||||||||||
Pension and other postretirement benefits adjustments, net of tax of $380 |
|
| |
|
| |
|
| |
| 1,124 | |
|
| |
| 1,124 | |
|
| |
| 1,124 | |||||||||||||||||||||||
Comprehensive income (loss) |
|
| |
|
| |
|
| |
| 659 | |
| (362,138) | |
| (361,479) | |
| 304 | |
| (361,175) |
|
| |
|
| |
|
| |
| 406 | |
| (376,555) | |
| (376,149) | |
| (286) | |
| (376,435) |
Contributions by noncontrolling interests | | | | | | | | | | | | | | | | | 0 | | | 1,500 | | | 1,500 | |||||||||||||||||||||||
Dividends ($0.21 per share) |
|
| |
|
| |
|
| |
|
| |
| (8,148) | |
| (8,148) | |
|
| |
| (8,148) | |||||||||||||||||||||||
Dividends ($0.14 per share) |
|
| |
|
| |
|
| |
|
| |
| (5,495) | |
| (5,495) | |
|
| |
| (5,495) | |||||||||||||||||||||||
Acquisition of treasury stock |
| (2,902,122) | |
| (29) | |
|
| |
|
| |
| (23,319) | |
| (23,348) | |
|
| |
| (23,348) |
| (2,902,122) | |
| (29) | |
|
| |
|
| |
| (23,319) | |
| (23,348) | |
|
| |
| (23,348) |
Issuance of common stock under share-based plans, net |
| 449,539 | |
| 4 | |
| (1,082) | |
|
| |
|
| |
| (1,078) | |
|
| |
| (1,078) |
| 417,521 | |
| 4 | |
| (977) | |
|
| |
|
| |
| (973) | |
|
| |
| (973) |
Cumulative-effect adjustment from adoption of ASC 326 |
|
| |
|
| |
|
| |
|
| |
| (2,146) | |
| (2,146) | |
|
| |
| (2,146) |
|
| |
|
| |
|
| |
|
| |
| (2,146) | |
| (2,146) | |
|
| |
| (2,146) |
Share-based compensation expense |
|
| |
|
| |
| 6,920 | |
|
| |
|
| |
| 6,920 | |
|
| |
| 6,920 |
|
| |
|
| |
| 4,401 | |
|
| |
|
| |
| 4,401 | |
|
| |
| 4,401 |
BALANCE OCTOBER 31, 2020 |
| 37,944,174 | | $ | 379 | | $ | 159,327 | | $ | (31,184) | | $ | 128,149 | | $ | 256,671 | | $ | 4,984 | | $ | 261,655 | |||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | |||||||||||||||||||||||
BALANCE FEBRUARY 2, 2019 |
| 41,886,562 | | $ | 419 | | $ | 145,889 | | $ | (31,601) | | $ | 519,346 | | $ | 634,053 | | $ | 1,382 | | $ | 635,435 | |||||||||||||||||||||||
Net earnings (loss) |
|
| |
|
| |
|
| |
|
| |
| 62,411 | |
| 62,411 | |
| (338) | |
| 62,073 | |||||||||||||||||||||||
Foreign currency translation adjustment |
|
| |
|
| |
|
| |
| (363) | |
|
| |
| (363) | |
| (34) | |
| (397) | |||||||||||||||||||||||
Unrealized loss on derivative financial instruments, net of tax of $83 |
|
| |
|
| |
|
| |
| 361 | |
|
| |
| 361 | |
|
| |
| 361 | |||||||||||||||||||||||
Pension and other postretirement benefits adjustments, net of tax of $448 |
|
| |
|
| |
|
| |
| 1,285 | |
|
| |
| 1,285 | |
|
| |
| 1,285 | |||||||||||||||||||||||
Comprehensive income (loss) |
|
| |
|
| |
|
| |
| 1,283 | |
| 62,411 | |
| 63,694 | |
| (372) | |
| 63,322 | |||||||||||||||||||||||
Contributions by noncontrolling interests | | | | | | | | | | | | | | | | | 0 | | | 1,500 | | | 1,500 | |||||||||||||||||||||||
Dividends ($0.21 per share) |
|
| |
|
| |
|
| |
|
| |
| (8,631) | |
| (8,631) | |
|
| |
| (8,631) | |||||||||||||||||||||||
Acquisition of treasury stock |
| (1,588,741) | |
| (16) | |
|
| |
|
| |
| (31,152) | |
| (31,168) | |
|
| |
| (31,168) | |||||||||||||||||||||||
Issuance of common stock under share-based plans, net |
| 295,466 | |
| 3 | |
| (2,608) | |
|
| |
|
| |
| (2,605) | |
|
| |
| (2,605) | |||||||||||||||||||||||
Cumulative-effect adjustment from adoption of ASC 842 |
|
| |
|
| |
|
| |
|
| |
| (13,436) | |
| (13,436) | |
|
| |
| (13,436) | |||||||||||||||||||||||
Share-based compensation expense |
|
| |
|
| |
| 8,933 | |
|
| |
|
| |
| 8,933 | |
|
| |
| 8,933 | |||||||||||||||||||||||
BALANCE NOVEMBER 2, 2019 |
| 40,593,287 | | $ | 406 | | $ | 152,214 | | $ | (30,318) | | $ | 528,538 | | $ | 650,840 | | $ | 2,510 | | $ | 653,350 | |||||||||||||||||||||||
BALANCE AUGUST 1, 2020 |
| 37,912,156 | | $ | 379 | | $ | 156,913 | | $ | (31,437) | | $ | 116,385 | | $ | 242,240 | | $ | 2,894 | | $ | 245,134 |
7
CALERES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 1 Basis of Presentation and General
Basis of Presentation
The accompanying condensed consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q of the United States Securities and Exchange Commission (“SEC”) and reflect all adjustments and accruals of a normal recurring nature, which management believes are necessary to present fairly the financial position, results of operations, comprehensive income and cash flows of Caleres, Inc. ("the Company"). These statements, however, do not include all information and footnotes necessary for a complete presentation of the Company’s consolidated financial position, results of operations, comprehensive income and cash flows in conformity with accounting principles generally accepted in the United States. The condensed consolidated financial statements include the accounts of the Company and its wholly-owned and majority-owned subsidiaries, after the elimination of intercompany accounts and transactions.
The Company’s business is seasonal in nature due to consumer spending patterns, with higher back-to-school and holiday season sales. Traditionally, the third fiscal quarter accounts for a substantial portion of the Company’s earnings for the year. 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, particularly given the impact of the coronavirus pandemic on the results of operations for the thirteen and thirty-nine weeks ended October 31, 2020, as further discussed below.whole.
Certain prior period amounts in the condensed consolidated financial statements and footnotes have been reclassified to conform to the current period presentation. These reclassifications did not affect net earnings (loss) earnings attributable to Caleres, Inc.
The accompanying condensed consolidated financial statements and footnotes should be read in conjunction with the consolidated financial statements and footnotes included in the Company’s Annual Report on Form 10-K for the year ended FebruaryJanuary 30, 2021.
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. The Company and Brand Investment Holding are each 50% owners of the joint venture, which is named CLT Brand Solutions (“CLT”). Net sales and operating earnings were not significant during the thirteen or twenty-six weeks ended July 31, 2021 and August 1, 2020.
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 anticipates the liquidation to be completed during 2021.
The Company consolidates CLT and B&H Footwear into its condensed consolidated financial statements. Net earnings (loss) attributable to noncontrolling interests represents the share of net earnings or losses that are attributable to Brand Investment Holding equity. 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 financial statements and accompanying notes. Actual results could differ from those estimates.
Derivative Financial Instruments
The Company’s hedging policy permits the use of forward contracts as cash flow hedging instruments to manage its currency exposures in foreign currency-denominated assets, liabilities and cash flows. These derivative financial instruments are viewed as risk management tools and are not used for trading or speculative purposes. The Company recognizes all derivative financial instruments as either assets or liabilities in the condensed consolidated balance sheets and measures those instruments at fair value.
COVID-19 Pandemic
The United States economy and global economies continuethe retail industry have begun to be adversely affected byrecover from the adverse impact of the coronavirus (“COVID-19”) pandemic. AlthoughThe Company’s financial results were negatively impacted during the Company has reopenedfirst half of 2020 as a result of the temporary closure of all retail stores frombeginning in mid-March. The Company experienced sequential improvement in sales in the temporary store closuressecond half of 2020, driven by the reopening of the retail stores, and continued solid growth of the e-commerce business. During the first half of 2021, as the vaccines became
8
widely distributed and governments continued to ease restrictions, consumer sentiment and spending began to improve. In addition, the additional stimulus measures approved by the federal government provided a boost in consumer spending. These factors strengthened demand for our products in the first half of 2020,2021, which contributed to higher store traffic and strong growth in the Company’s financial results continue to be negatively impacted by COVID-19. Many of the retail stores have reducednet sales and operating hours and have experienced declines in foot traffic with stay-at-home orders and other government mandates, which has resulted in lower sales, despite the e-commerce business experiencing robust growth during this time. In addition, a small number of stores have temporarily closed again due to local government mandates.
The Company has taken decisive actions to manage its resources conservatively to mitigate the adverse impact of the pandemic. These actions included reductions in the workforce, associate furloughs for a significant portion of the workforce, and reductions in salary for most remaining associates through the end of the second quarter, as well as a reduction in the cash retainers for the Board of Directors through the end of the fiscal year; reducing inventory purchases; reducing marketing expenses; and minimizing costs associated with the closed retail facilities. In addition, as a precautionary measure to increase its cash position and preserve financial flexibility given the uncertainty in the United States and global markets resulting from COVID-19, the Company increased the borrowings on its revolving credit facility in March 2020 to $440.0 million. In April, the Company entered into an amendment to its Fourth Amended and Restated Credit Agreement to increase its borrowing capacity, as further discussed in Note 10 to the condensed consolidated financial statements. During the third quarter of 2020, the Company continued to repay the incremental borrowings from March, with total net repayments of $138.5 million since the end of the first quarter of 2020.earnings.
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. As of October 31,During 2020, the Company has deferred approximately $7.0$9.4 million of employer social security payroll taxes, which aretaxes. As of July 31, 2021, approximately $4.7 million is recorded in other accrued expenses and $4.7 million is recorded in other liabilities on the condensed consolidated balance sheets.
Corporate Headquarters Campus
In April 2021, the Company announced that it would begin marketing for sale its nine-acre corporate headquarters campus (“campus”) located in Clayton, Missouri. The Company is in the process of evaluating offers as well as exploring relocation options. The Company does not anticipate the campus to qualify as a completed sale within the next twelve months. Accordingly, as of July 31, 2021, the campus is considered held and used and classified within property and equipment, net on the condensed consolidated balance sheets. In addition, the CARES Act permitsCompany evaluated the carryback of certain current operating losses to prior years. As discussed in Note 16 to the condensed consolidated financial statements, this carryback provision resulted in approximately $6.6 million of incremental tax benefit, as current year losses are expected to be carried back to years with a higher federal corporate tax rate.
8
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. The Companycampus asset group for impairment indicators and Brand Investment Holding are each 50% owners of the joint venture, which is named CLT Brand Solutions (“CLT”). The Company consolidates CLT into its consolidated financial statements. Net earnings (loss) attributable to noncontrolling interests represents the share of net earnings or lossesdetermined that are attributable to Brand Investment Holding equity. Transactions between the Company and the joint venture have been eliminated in the consolidated financial statements. During both the thirty-nine weeks ended October 31, 2020 and November 2, 2019, CLT was funded with $3.0 million in capital contributions, including $1.5 million from the Company and $1.5 million from Brand Investment Holding. Net sales and operating earningsno indicators were immaterial during the thirty-nine weeks ended October 31, 2020 and November 2, 2019. present.
Note 2 Impact of New Accounting Pronouncements
Impact of Recently Adopted Accounting Pronouncements
In June 2016,August 2018, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2016-13, Financial Instruments - Credit Losses (Topic 326), which significantly changes how entities measure credit losses for most financial assets and certain other instruments that are not measured at fair value through net income. The ASU replaces the "incurred loss" model with an "expected credit loss" model that requires entities to estimate an expected lifetime credit loss on financial assets, including trade accounts receivable. The Company adopted the ASU in the first quarter of 2020 on a modified retrospective basis. Upon adoption, the Company recorded a cumulative-effect adjustment to retained earnings of $2.1 million, net of $0.4 million in deferred taxes. The Company recorded a provision for expected credit losses of $10.7 million during the thirty-nine weeks ended October 31, 2020, primarily as a result of the COVID-19 pandemic and deteriorating financial conditions at several of the Company’s wholesale customers.
The following table summarizes the activity in the Company’s allowance for expected credit losses during the thirty-nine weeks ended October 31, 2020:
| | | |
($ thousands) |
| | |
Balance at February 1, 2020 | | $ | 1,813 |
Adjustment upon adoption of ASU 2016-13 | | | 2,521 |
Provision for expected credit losses | | | 10,663 |
Uncollectible accounts written off, net of recoveries | | | 221 |
Balance at October 31, 2020 | | $ | 15,218 |
In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework — Changes to the Disclosure Requirements for Fair Value Measurement. ASU 2018-13 modifies disclosure requirements on fair value measurements, removing and modifying certain disclosures, while adding other disclosures. The Company adopted the ASU during the first quarter of 2020, which did not have a material impact on the Company’s financial statement disclosures. Refer to Note 15 to the condensed consolidated financial statements for detail regarding the Company’s fair value measurements.
In March 2020, the SEC issued SEC Release No. 33-10762, Financial Disclosures about Guarantors and Issuers of Guaranteed Securities and Affiliates Whose Securities Collateralize a Registrant’s Securities, which is effective for filings on or after January 4, 2021, with early application permitted. The final rule amends the disclosure requirements in SEC Regulation S-X, Rule 3-10, which required entities to separately present financial statements for subsidiary issuers and guarantors of registered debt securities unless certain exceptions are met. The rule permits entities to provide summarized financial information of the parent company and its issuers and guarantors on a combined basis in either a note to the financial statements or in management’s discussion and analysis. The Company adopted the rule during the second quarter of 2020 and elected to provide the summarized financial information in Management’s Discussion and Analysis of Financial Condition and Results of Operations. In October 2020, the FASB issued ASU 2020-09, Debt (Topic 470): Amendments to SEC Paragraphs Pursuant to SEC Release No. 33-10762, to reflect the new disclosure requirements in the FASB Accounting Standards Codification.
In April 2020, the FASB issued interpretive guidance indicating that entities may elect not to evaluate whether a concession provided by lessors is a lease modification. Under existing lease guidance, an entity would be required to determine if a lease concession was the result of a new arrangement reached with the landlord, which would be accounted for under the lease modification framework, or if the concession was under the enforceable rights and obligations that existed in the original lease, which would be accounted for outside the lease modification framework. The FASB guidance provides entities with the option to elect to account for lease concessions as though the enforceable rights and obligations existed in the original lease. The Company has elected to treat lease concessions as variable rent. Accordingly, $1.7 million and $3.7 million in lease concessions for the thirteen and thirty-nine weeks ended, respectively, were recorded as
9
a reduction of rent expense within selling and administrative expenses in the condensed consolidated statements of earnings (loss). Refer to Note 9 to the condensed consolidated financial statements for further discussion regarding the Company’s leases.
Impact of Prospective Accounting Pronouncements
In August 2018, the FASB issued ASU 2018-14, Compensation — Retirement Benefits — Defined Benefit Plans — General (Subtopic 715-20), Disclosure Framework — Changes to the Disclosure Requirements for Defined Benefit Plans. The guidance changes the disclosure requirements for employers that sponsor defined benefit pension or other postretirement benefit plans, eliminating the requirements for certain disclosures that are no longer considered cost beneficial and requiring new disclosures that the FASB considers pertinent. The Company adopted the ASU is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020, with early adoption permitted. The adoptionduring the first quarter of ASU 2018-14 is2021, which did not expected to have a material impact on the Company’s financial statement disclosures.
In December 2019, the FASB issued ASU 2019-12, Simplifying the Accounting for Income Taxes. ASU 2019-12 eliminates certain exceptions in Accounting Standards Codification (“ASC”) 740 related to intraperiod tax allocation, simplifies certain elements of accounting for basis differences and deferred tax liabilities during a business combination, and standardizes the classification of franchise taxes. The ASU is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020, with early adoption permitted. The adoption ofCompany adopted ASU 2019-12 isduring the first quarter of 2021, which did not expected to have a material impact on the Company’s condensed consolidated financial statements.
Impact of Prospective Accounting Pronouncements
The Company has evaluated all recently issued accounting pronouncements. There are no prospective accounting pronouncements that are expected to have a material impact on the Company’s condensed consolidated financial statements or disclosures.
9
Note 3 Revenues
Disaggregation of Revenues
The following table disaggregates revenue by segment and major source for the periods ended OctoberJuly 31, 20202021 and November 2, 2019:August 1, 2020:
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Thirteen Weeks Ended October 31, 2020 | | Thirteen Weeks Ended July 31,2021 | ||||||||||||||||||||
| | | | | | | | Eliminations and | | | | | | | | | | | Eliminations and | | | | ||
($ thousands) |
| Famous Footwear |
| Brand Portfolio |
| Other |
| Total |
| Famous Footwear |
| Brand Portfolio |
| Other |
| Total | ||||||||
| | | | | | | | | | | | | | | | | | | | | | | | |
Retail stores | | $ | 325,501 | | $ | 14,291 | | $ | 0 | | $ | 339,792 | | $ | 402,178 | | $ | 12,003 | | $ | 0 | | $ | 414,181 |
Landed wholesale - e-commerce - drop ship (1) | |
| 0 | |
| 19,661 | |
| (439) | |
| 19,222 | ||||||||||||
E-commerce - Company websites (1) | |
| 51,281 | |
| 49,619 | |
| 0 | |
| 100,900 | ||||||||||||
Total direct-to-consumer sales | | | 453,459 | | | 81,283 | | | (439) | | | 534,303 | ||||||||||||
First-cost wholesale - e-commerce (1) | |
| 0 | |
| 869 | |
| 0 | |
| 869 | ||||||||||||
Landed wholesale - e-commerce (1) | | | 0 | | | 42,001 | | | 0 | | | 42,001 | | | 0 | | | 31,190 | | | 0 | | | 31,190 |
Landed wholesale - e-commerce - drop ship (1) (2) | |
| 0 | |
| 21,256 | |
| 0 | |
| 21,256 | ||||||||||||
Landed wholesale - other | |
| 0 | |
| 136,627 | |
| (11,813) | |
| 124,814 | |
| 0 | |
| 99,437 | |
| (16,692) | |
| 82,745 |
First-cost wholesale | |
| 0 | |
| 15,368 | |
| 0 | |
| 15,368 | |
| 0 | |
| 23,618 | |
| 0 | |
| 23,618 |
First-cost wholesale - e-commerce (1) (2) | |
| 0 | |
| 99 | |
| 0 | |
| 99 | ||||||||||||
E-commerce - Company websites (1) (2) | |
| 66,058 | |
| 35,100 | |
| 0 | |
| 101,158 | ||||||||||||
Licensing and royalty | |
| 0 | |
| 2,809 | |
| 0 | |
| 2,809 | |
| 0 | |
| 2,602 | |
| 0 | |
| 2,602 |
Other (3) | |
| 147 | |
| 36 | |
| 0 | |
| 183 | ||||||||||||
Other (2) | |
| 190 | |
| 14 | |
| 0 | |
| 204 | ||||||||||||
Net sales | | $ | 391,706 | | $ | 267,587 | | $ | (11,813) | | $ | 647,480 | | $ | 453,649 | | $ | 239,013 | | $ | (17,131) | | $ | 675,531 |
| | | | | | | | | | | | | | | | | | | | | | | | |
|
| Thirteen Weeks Ended November 2, 2019 |
| Thirteen Weeks Ended August 1, 2020 | ||||||||||||||||||||
| | | | | | | | Eliminations and | | | | | | | | | | | Eliminations and | | | | ||
($ thousands) |
| Famous Footwear |
| Brand Portfolio |
| Other |
| Total |
| Famous Footwear |
| Brand Portfolio |
| Other |
| Total | ||||||||
| | | | | | | | | | | | | | | | | | | | | | | | |
Retail stores | | $ | 401,943 | | $ | 40,621 | | $ | 0 | | $ | 442,564 | | $ | 250,143 | | $ | 7,060 | | $ | 0 | | $ | 257,203 |
Landed wholesale - e-commerce - drop ship (1) | | | 0 | | | 20,748 | | | 0 | | | 20,748 | ||||||||||||
E-commerce - Company websites (1) | |
| 83,652 | |
| 40,836 | |
| 0 | |
| 124,488 | ||||||||||||
Total direct-to-consumer sales | | | 333,795 | | | 68,644 | | | 0 | | | 402,439 | ||||||||||||
First-cost wholesale - e-commerce (1) | |
| 0 | |
| 256 | |
| 0 | |
| 256 | ||||||||||||
Landed wholesale - e-commerce (1) | |
| 0 | |
| 27,304 | |
| 0 | |
| 27,304 | |
| 0 | |
| 23,234 | |
| 0 | |
| 23,234 |
Landed wholesale - e-commerce - drop ship (1) (2) | | | 0 | | | 58,653 | | | 0 | | | 58,653 | ||||||||||||
Landed wholesale - other | |
| 0 | |
| 177,146 | |
| (14,071) | |
| 163,075 | |
| 0 | |
| 78,127 | |
| (16,109) | |
| 62,018 |
First-cost wholesale | |
| 0 | |
| 16,124 | |
| 0 | |
| 16,124 | |
| 0 | |
| 11,850 | |
| 0 | |
| 11,850 |
First-cost wholesale - e-commerce (1) (2) | |
| 0 | |
| 354 | |
| 0 | |
| 354 | ||||||||||||
E-commerce - Company websites (1) (2) | |
| 44,489 | |
| 36,692 | |
| 0 | |
| 81,181 | ||||||||||||
Licensing and royalty | |
| 0 | |
| 2,908 | |
| 0 | |
| 2,908 | |
| 0 | |
| 1,469 | |
| 0 | |
| 1,469 |
Other (3) | |
| 151 | |
| 61 | |
| 0 | |
| 212 | ||||||||||||
Other (2) | |
| 140 | |
| 42 | |
| 0 | |
| 182 | ||||||||||||
Net sales | | $ | 446,583 | | $ | 359,863 | | $ | (14,071) | | $ | 792,375 | | $ | 333,935 | | $ | 183,622 | | $ | (16,109) | | $ | 501,448 |
10
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Thirty-Nine Weeks Ended October 31, 2020 | | Twenty-Six Weeks Ended July 31, 2021 | ||||||||||||||||||||
| | | | | | | | Eliminations and | | | | | | | | | | | Eliminations and | | | | ||
($ thousands) |
| Famous Footwear |
| Brand Portfolio |
| Other |
| Total |
| Famous Footwear |
| Brand Portfolio |
| Other |
| Total | ||||||||
| | | | | | | | | | | | | | | | | | | | | | | | |
Retail stores | | $ | 712,761 | | $ | 33,173 | | $ | 0 | | $ | 745,934 | | $ | 736,923 | | $ | 27,011 | | $ | 0 | | $ | 763,934 |
Landed wholesale - e-commerce - drop ship (1) | |
| 0 | |
| 40,475 | |
| (833) | |
| 39,642 | ||||||||||||
E-commerce - Company websites (1) | |
| 114,403 | |
| 92,357 | |
| 0 | |
| 206,760 | ||||||||||||
Total direct-to-consumer sales | | $ | 851,326 | | $ | 159,843 | | $ | (833) | | $ | 1,010,336 | ||||||||||||
First-cost wholesale - e-commerce (1) | |
| 0 | |
| 1,773 | |
| 0 | |
| 1,773 | ||||||||||||
Landed wholesale - e-commerce (1) | | | 0 | | | 91,477 | | | 0 | | | 91,477 | | | 0 | | | 67,766 | | | 0 | | | 67,766 |
Landed wholesale - e-commerce - drop ship (1) (2) | |
| 0 | |
| 61,235 | |
| 0 | |
| 61,235 | ||||||||||||
Landed wholesale - other | |
| 0 | |
| 327,322 | |
| (39,229) | |
| 288,093 | |
| 0 | |
| 214,784 | |
| (26,072) | |
| 188,712 |
First-cost wholesale | |
| 0 | |
| 39,139 | |
| 0 | |
| 39,139 | |
| 0 | |
| 40,336 | |
| 0 | |
| 40,336 |
First-cost wholesale - e-commerce (1) (2) | |
| 0 | |
| 601 | |
| 0 | |
| 601 | ||||||||||||
E-commerce - Company websites (1) (2) | |
| 203,888 | |
| 108,926 | |
| 0 | |
| 312,814 | ||||||||||||
Licensing and royalty | |
| 0 | |
| 6,463 | |
| 0 | |
| 6,463 | |
| 0 | |
| 4,766 | |
| 0 | |
| 4,766 |
Other (3) | |
| 244 | |
| 111 | |
| 0 | |
| 355 | ||||||||||||
Net sales | | $ | 916,893 | | $ | 668,447 | | $ | (39,229) | | $ | 1,546,111 | ||||||||||||
Other (2) | |
| 428 | |
| 50 | |
| 0 | |
| 478 | ||||||||||||
Total net sales | | $ | 851,754 | | $ | 489,318 | | $ | (26,905) | | $ | 1,314,167 |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Thirty-Nine Weeks Ended November 2, 2019 | | Twenty-Six Weeks Ended August 1, 2020 | ||||||||||||||||||||
| | | | | | | | Eliminations and | | | | | | | | | | | Eliminations and | | | | ||
($ thousands) |
| Famous Footwear |
| Brand Portfolio |
| Other |
| Total |
| Famous Footwear |
| Brand Portfolio |
| Other |
| Total | ||||||||
| | | | | | | | | | | | | | | | | | | | | | | | |
Retail stores | | $ | 1,108,200 | | $ | 115,819 | | $ | 0 | | $ | 1,224,019 | | $ | 387,260 | | $ | 18,881 | | $ | 0 | | $ | 406,141 |
Landed wholesale - e-commerce - drop ship (1) | | | 0 | | | 39,979 | | | 0 | | | 39,979 | ||||||||||||
E-commerce - Company websites (1) | |
| 137,830 | |
| 73,826 | |
| 0 | |
| 211,656 | ||||||||||||
Total direct-to-consumer sales | | $ | 525,090 | | $ | 132,686 | | $ | 0 | | $ | 657,776 | ||||||||||||
First-cost wholesale - e-commerce (1) | |
| 0 | |
| 502 | |
| 0 | |
| 502 | ||||||||||||
Landed wholesale - e-commerce (1) | | | 0 | | | 64,182 | | | 0 | | | 64,182 | | | 0 | | | 49,476 | | | 0 | | | 49,476 |
Landed wholesale - e-commerce - drop ship (1) (2) | | | 0 | | | 148,745 | | | 0 | | | 148,745 | ||||||||||||
Landed wholesale - other | |
| 0 | |
| 549,321 | |
| (56,463) | |
| 492,858 | |
| 0 | |
| 190,695 | |
| (27,415) | |
| 163,280 |
First-cost wholesale | |
| 0 | |
| 66,826 | |
| 0 | |
| 66,826 | |
| 0 | |
| 23,771 | |
| 0 | |
| 23,771 |
First-cost wholesale - e-commerce (1) (2) | |
| 0 | |
| 1,528 | |
| 0 | |
| 1,528 | ||||||||||||
E-commerce - Company websites (1) (2) | |
| 109,954 | |
| 102,637 | |
| 0 | |
| 212,591 | ||||||||||||
Licensing and royalty | |
| 0 | |
| 11,234 | |
| 0 | |
| 11,234 | |
| 0 | |
| 3,655 | |
| 0 | |
| 3,655 |
Other (3) | |
| 435 | |
| 196 | |
| 0 | |
| 631 | ||||||||||||
Other (2) | |
| 97 | |
| 75 | |
| 0 | |
| 172 | ||||||||||||
Net sales | | $ | 1,218,589 | | $ | 1,060,488 | | $ | (56,463) | | $ | 2,222,614 | | $ | 525,187 | | $ | 400,860 | | $ | (27,415) | | $ | 898,632 |
(1) | Collectively referred to as "e-commerce" below |
(2) |
Includes breakage revenue from unredeemed gift cards |
Retail stores
Traditionally, the majority of the Company’s revenue is generated from retail sales where control is transferred and revenue is recognized at the point of sale. Retail sales are recorded net of estimated returns and exclude sales tax. The Company records a returns reserve and a corresponding return asset for expected returns of merchandise.
Retail sales to members of the Company’s loyalty programs, including the Famously You Rewards program, include two performance obligations: the sale of merchandise and the delivery of points that may be redeemed for future purchases. The transaction price is allocated to the separate performance obligations based on the relative stand-alone selling price. The stand-alone selling price for the points is estimated using the retail value of the merchandise earned, adjusted for estimated breakage based upon historical redemption patterns. The revenue associated with the initial merchandise purchased is recognized immediately and the value assigned to the points is deferred until the points are redeemed, forfeited or expired.
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 customersbasis arrange their own transportation of merchandise and, with limited exceptions, control is transferred at the time of shipment.
11
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.
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 "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.
Licensing and royalty
The Company has license agreements with third parties allowing them to sell the Company’s branded product, or other merchandise that uses the Company’s owned or licensed brand names. These license agreements provide the licensee access to the Company’s symbolic intellectual property, and revenue is therefore recognized over the license term. For royalty contracts that do not have guaranteed minimums, the Company recognizes revenue as the licensee’s sales occur. For royalty contracts that have guaranteed minimums, revenue for the guaranteed minimum is recognized on a straight-line basis during the term, until such time that the cumulative royalties exceed the total minimum guarantee. Up-front payments are recognized over the contractual term to which the guaranteed minimum relates.
Contract Balances
Revenue is recorded at the transaction price, net of estimates for variable consideration for which reserves are established, including returns, allowances and discounts. Variable consideration is estimated using the expected value method and given the large number of contracts with similar characteristics, the portfolio approach is applied to determine the variable consideration for each revenue stream. Reserves for projected returns are based on historical patterns and current expectations.
Information about significant contract balances from contracts with customers is as follows:
| | | | | | | | | | | | | | | | | | |
($ thousands) |
| October 31, 2020 |
| November 2, 2019 |
| February 1, 2020 |
| July 31, 2021 |
| August 1, 2020 |
| January 30, 2021 | ||||||
Customer allowances and discounts | | $ | 22,182 | | $ | 25,762 | | $ | 26,200 | | $ | 15,867 | | $ | 18,464 | | $ | 17,043 |
Loyalty programs liability | |
| 14,634 | |
| 17,274 | |
| 16,405 | |
| 17,782 | |
| 16,450 | |
| 13,986 |
Returns reserve | |
| 14,889 | |
| 15,040 | |
| 14,033 | |
| 11,858 | |
| 14,453 | |
| 11,040 |
Gift card liability | |
| 4,909 | |
| 4,794 | |
| 5,742 | |
| 5,372 | |
| 5,332 | |
| 6,091 |
Changes in contract balances with customers generally reflect differences in relative sales volume for the periods presented. In addition, during the thirty-ninetwenty-six weeks ended OctoberJuly 31, 2020,2021, the loyalty programs liability increased $20.7$17.1 million due to points and material rights accrued forearned on purchases and decreased $22.5$13.3 million due to expirations and redemptions. During the thirty-ninetwenty-six weeks ended November 2, 2019,August 1, 2020, the loyalty programs liability increased $24.2$14.1 million due to points and material rights accrued forearned on purchases and decreased $21.6$14.0 million due to expirations and redemptions.
The following table summarizes the activity in the Company’s allowance for expected credit losses during the twenty-six weeks ended July 31, 2021 and August 1, 2020:
| | | | | | |
| | Twenty-Six Weeks Ended | ||||
($ thousands) |
| July 31, 2021 | | August 1, 2020 | ||
Balance, beginning of period | | $ | 14,928 | | $ | 1,813 |
Adjustment upon adoption of ASU 2016-13 | | | — | | | 2,521 |
Provision/adjustment for expected credit losses (1) | | | (2,543) | | | 8,525 |
Uncollectible accounts written off, net of recoveries | | | (2,500) | | | 215 |
Balance, end of period | | $ | 9,885 | | $ | 13,074 |
(1) | The Company’s provision/adjustment for expected credit losses for the twenty-six weeks ended August 1, 2020 was higher than the comparable period in 2021 as a result of the COVID-19 pandemic and its impact on the financial condition of several of the Company’s wholesale customers. |
12
Note 4 Earnings (Loss) Per Share
The Company uses the two-class method to compute basic and diluted earnings (loss) 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
12
the losses of the Company. The following table sets forth the computation of basic and diluted earnings (loss) per common share attributable to Caleres, Inc. shareholders for the periods ended OctoberJuly 31, 20202021 and November 2, 2019:August 1, 2020:
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Thirteen Weeks Ended | | Thirty-Nine Weeks Ended | | Thirteen Weeks Ended | | Twenty-Six Weeks Ended | ||||||||||||||||
($ thousands, except per share amounts) |
| October 31, 2020 |
| November 2, 2019 |
| October 31, 2020 |
| November 2, 2019 |
| July 31, 2021 |
| August 1, 2020 |
| July 31, 2021 |
| August 1, 2020 | ||||||||
| | | | | | | | | | | | | | | | | | | | | | | | |
NUMERATOR | | | | | | | | | | | | | | | | | | | | | | | | |
Net earnings (loss) | | $ | 14,926 | | $ | 27,761 | | $ | (361,915) | | $ | 62,073 | | $ | 38,152 | | $ | (30,669) | | $ | 44,536 | | $ | (376,841) |
Net (earnings) loss attributable to noncontrolling interests | |
| (509) | |
| 226 | |
| (223) | |
| 338 | |
| (756) | |
| (48) | |
| (993) | |
| 286 |
Net earnings (loss) attributable to Caleres, Inc. | | $ | 37,396 | | $ | (30,717) | | $ | 43,543 | | $ | (376,555) | ||||||||||||
Net earnings allocated to participating securities | |
| (512) | |
| (946) | |
| 0 | |
| (2,042) | |
| (1,360) | |
| — | |
| (1,575) | |
| — |
Net earnings (loss) attributable to Caleres, Inc. after allocation of earnings to participating securities | | $ | 13,905 | | $ | 27,041 | | $ | (362,138) | | $ | 60,369 | | $ | 36,036 | | $ | (30,717) | | $ | 41,968 | | $ | (376,555) |
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DENOMINATOR | |
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Denominator for basic earnings (loss) per common share attributable to Caleres, Inc. shareholders | |
| 36,554 | |
| 39,258 | |
| 37,439 | |
| 39,983 | |
| 36,880 | |
| 37,113 | |
| 36,794 | |
| 37,881 |
Dilutive effect of share-based awards | |
| 176 | |
| 55 | |
| 0 | |
| 57 | |
| 267 | |
| — | |
| 212 | |
| — |
Denominator for diluted earnings (loss) per common share attributable to Caleres, Inc. shareholders | |
| 36,730 | |
| 39,313 | |
| 37,439 | |
| 40,040 | |
| 37,147 | |
| 37,113 | |
| 37,006 | |
| 37,881 |
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Basic earnings (loss) per common share attributable to Caleres, Inc. shareholders | | $ | 0.38 | | $ | 0.69 | | $ | (9.67) | | $ | 1.51 | | $ | 0.98 | | $ | (0.83) | | $ | 1.14 | | $ | (9.94) |
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Diluted earnings (loss) per common share attributable to Caleres, Inc. shareholders | | $ | 0.38 | | $ | 0.69 | | $ | (9.67) | | $ | 1.51 | | $ | 0.97 | | $ | (0.83) | | $ | 1.13 | | $ | (9.94) |
Options to purchase 24,66716,667 shares of common stock for both the thirteen and thirty-ninetwenty-six weeks ended OctoberJuly 31, 2020,2021 were not included in the denominator for diluted earnings (loss) per common share attributable to Caleres, Inc. shareholders because the effect would be anti-dilutive. Options to purchase 16,66724,667 shares of common stock were excluded from the denominator for both the thirteen and thirty-ninetwenty-six weeks ended November 2, 2019.August 1, 2020.
During the thirteen and twenty-six weeks ended October 31,August 1, 2020, and November 2, 2019, the Company repurchased 01,391,234 and 58,2632,902,122 shares, respectively, under the 2018 and 2019 publicly announced share repurchase programs, which permits repurchases of up to 2.5 million and 5.0 million shares, respectively. The Company repurchased 2,902,122 and 1,588,741did not repurchase any shares under the share repurchase programs during the thirty-ninetwenty-six weeks ended OctoberJuly 31, 2020 and November 2, 2019, respectively.2021. Refer to further discussion in Item 2, Unregistered Sales of Equity Securities and Use of Proceeds.
Note 5 Restructuring and Other Special Charges
Blowfish Mandatory Purchase Obligation
In 2018, the Company acquired a controlling interest in Blowfish Malibu. The noncontrolling interest is 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 which will be paid upon settlement during the third quarter of 2021. Accretion and remeasurement adjustments on the mandatory purchase obligation are being recorded as interest expense. The fair value adjustments on the mandatory purchase obligation totaled $5.1$7.1 million ($3.85.3 million on an after-tax basis, or $0.10$0.14 per diluted share) and $14.9$13.5 million ($11.110.0 million on an after-tax basis, or $0.30$0.26 per diluted share) for the thirteen and thirty-ninetwenty-six weeks ended OctoberJuly 31, 2020,2021, respectively. The fair value adjustmentadjustments totaled $3.9$6.6 million ($2.94.9 million on an after-tax basis, or $0.07$0.13 per diluted share) inand $9.8 million ($7.3 million on an after-tax basis, or $0.19 per diluted share) for the thirteen and thirty-ninetwenty-six weeks ended November 2, 2019.and August 1, 2020, respectively. As of July 31, 2021, the mandatory purchase obligation was valued at $52.6 million. The mandatory
13
purchase obligation is expected to be settled during the third quarter of 2021. Refer to further discussion regarding the mandatory purchase obligation in Note 1514 to the condensed consolidated financial statements.
Brand Exits
During the twenty-six weeks ended July 31, 2021, the Company incurred costs of $13.5 million ($11.9 million on an after-tax basis, or $0.31 per diluted share) related to the strategic realignment of the Naturalizer retail store operations. These costs primarily represented lease termination and other store closure costs, including employee severance, for the 73 stores that were closed during the first quarter of 2021. These charges are presented in restructuring and special charges on the condensed consolidated statements of earnings (loss) within the Brand Portfolio segment for the twenty-six weeks ended July 31, 2021. As of July 31, 2021, reserves of $3.3 million were included on the condensed consolidated balance sheets.
During the twenty-six weeks ended August 1, 2020, the Company incurred costs of $1.6 million ($1.2 million on an after-tax basis, or $0.03 per diluted share) related to the decision to exit the Fergie brand. These charges, which represented inventory markdowns required to reduce the value of inventory to net realizable value, are presented in cost of goods sold on the condensed consolidated statements of earnings (loss) within the Brand Portfolio segment for the twenty-six weeks ended August 1, 2020.
COVID-19-Related Expenses
TheDuring the thirteen weeks ended August 1, 2020, the Company incurred costs associated with the COVID-19 pandemic and related impacts on the Company’s business, totaling $5.4 million ($4.7 million on an after-tax basis, or $0.13 per diluted share). These costs were primarily for employee severance and related costs, as well as the cost of supplies and deep cleaning of the Company’s facilities. Of the $5.4 million reflected as restructuring and other special charges, $4.5 million is reflected in the Brand Portfolio segment, $0.6 million is reflected in the Famous Footwear segment and $0.3 million is reflected within the Eliminations and Other category.
During the twenty-six weeks ended August 1, 2020, the Company incurred costs associated with the COVID-19 pandemic and related impacts on the Company’s business totaling $99.0 million ($78.0 million on an after-tax basis, or $2.08$2.17 per diluted share) during the thirty-nine weeks ended October 31, 2020.. These costs included
13
non-cash impairment of property and equipment and lease right-of-use assets, incremental inventory markdowns, employee severance and other identifieddirect expenses that were specific to the impact of COVID-19 on the Company’s operations. Of the $99.0 million in charges, $65.6 million is presented as restructuring and other special charges, net and $33.4 million is reflected as cost of goods sold in the condensed consolidated statements of earnings (loss). Of the $65.6 million reflected as restructuring and other special charges, $48.4 million is reflected in the Brand Portfolio segment, $16.6 million is reflected in the Famous Footwear segment and $0.6 million is reflected within the Eliminations and Other category. The $33.4 million reflected as cost of goods sold represents incremental inventory markdowns, of which $27.4 million is reflected in the Brand Portfolio segment and $6.0 million is reflected in the Famous Footwear segment. There were 0 corresponding special charges for the thirteentwenty-six weeks ended OctoberJuly 31, 2020.2021. Refer to Note 9 to the condensed consolidated financial statements for additional information regarding the impact of COVID-19 on the Company’s leases.
Impairment of Goodwill and Intangible Assets
During the first quarter of 2020, the Company recorded non-cash impairment charges totaling $262.7 million ($218.5 million on an after-tax basis, or $5.84 per diluted share), including $240.3 million of impairment associated with the Company’s goodwill and $22.4 million associated with indefinite-lived trademarks. All of the charges are reflected in the Brand Portfolio segment. Refer to further discussion in Note 8 to the condensed consolidated financial statements.
Brand Exits
During the first quarter of 2020, the Company incurred costs of $1.6 million ($1.2 million on an after-tax basis, or $0.03 per diluted share) related to the decision to exit the Fergie brand. These charges represent inventory markdowns required to reduce the value of inventory to net realizable value and are presented in cost of goods sold on the condensed consolidated statements of earnings (loss) within the Brand Portfolio segment for the thirty-nine weeks ended October 31, 2020. There were 0 corresponding costs in the thirteen weeks ended October 31, 2020.
The Company’s license agreement to sell Carlos by Carlos Santana footwear expired in December 2018. In connection with the decision to exit the Carlos brand, the Company incurred restructuring-related costs of $1.9 million ($1.4 million on an after-tax basis, or $0.03 per diluted share) during the thirty-nine weeks ended November 2, 2019. Of these charges included in the Brand Portfolio segment, $1.3 million ($1.0 million on an after-tax basis or $0.02 per diluted share) primarily represents incremental inventory markdowns required to reduce the value of inventory to net realizable value and is presented in cost of goods sold on the condensed consolidated statements of earnings (loss) and the remaining $0.6 million ($0.4 million on an after-tax basis, or $0.01 per diluted share) for severance and other related costs is presented in restructuring and other special charges. There were 0 corresponding costs in the thirty-nine weeks ended October 31, 2020 or the thirteen weeks ended November 2, 2019.
Vionic Integration-Related Costs
During the thirteen weeks ended November 2, 2019, the Company incurred integration-related costs associated with the acquisition of Vionic in October 2018, primarily for severance, totaling $1.0 million ($0.7 million on an after-tax basis, or $0.02 per diluted share). The costs are presented as restructuring and other special charges, net in the condensed consolidated statements of earnings (loss) within the Eliminations and Other category. During the thirty-nine weeks ended November 2, 2019, the Company incurred integration-related costs, primarily for severance, totaling $1.9 million ($1.4 million on an after-tax basis, or $0.03 per diluted share). Of the $1.9 million in costs, which are presented as restructuring and other special charges, net in the condensed consolidated statements of earnings (loss), $1.8 million are reflected within the Eliminations and Other category and $0.1 million are included in the Brand Portfolio segment. There were 0 corresponding costs in the thirty-nine weeks ended October 31, 2020. The integration of Vionic is ongoing and the Company anticipates additional integration-related costs as it completes this initiative in the fourth quarter of 2020.
14
Note 6 Business Segment Information
Following is a summary of certain key financial measures for the Company’s business segments for the periods ended OctoberJuly 31, 20202021 and November 2, 2019:August 1, 2020:
| | | | | | | | | | | | |
| | Famous | | Brand | | Eliminations | | | | |||
($ thousands) |
| Footwear |
| Portfolio |
| and Other |
| Total | ||||
Thirteen Weeks Ended October 31, 2020 | |
| | |
| | |
| | |
| |
Net sales | | $ | 391,706 | | $ | 267,587 | | $ | (11,813) | | $ | 647,480 |
Intersegment sales (1) | |
| — | | | 11,813 | | | — | |
| 11,813 |
Operating earnings (loss) | |
| 27,845 | |
| 7,304 | |
| (15,078) | |
| 20,071 |
Segment assets | |
| 837,228 | |
| 924,976 | |
| 264,856 | |
| 2,027,060 |
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Thirteen Weeks Ended November 2, 2019 | |
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Net sales | | $ | 446,583 | | $ | 359,863 | | $ | (14,071) | | $ | 792,375 |
Intersegment sales (1) | |
| — | |
| 14,071 | |
| — | |
| 14,071 |
Operating earnings (loss) | |
| 27,681 | |
| 19,398 | |
| (3,608) | |
| 43,471 |
Segment assets | |
| 973,272 | |
| 1,360,445 | |
| 137,493 | |
| 2,471,210 |
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Thirty-Nine Weeks Ended October 31, 2020 | |
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| | |
| |
Net sales | | $ | 916,893 | | $ | 668,447 | | $ | (39,229) | | $ | 1,546,111 |
Intersegment sales (1) | |
| — | |
| 39,229 | |
| — | |
| 39,229 |
Operating loss | |
| (38,651) | |
| (352,556) | |
| (39,072) | |
| (430,279) |
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Thirty-Nine Weeks Ended November 2, 2019 | |
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Net sales | | $ | 1,218,589 | | $ | 1,060,488 | | $ | (56,463) | | $ | 2,222,614 |
Intersegment sales (1) | |
| — | |
| 56,463 | |
| — | |
| 56,463 |
Operating earnings (loss) | |
| 70,036 | |
| 46,225 | |
| (18,117) | |
| 98,144 |
| | | | | | | | | | | | |
| | Famous | | Brand | | Eliminations | | | | |||
($ thousands) |
| Footwear |
| Portfolio |
| and Other |
| Total | ||||
Thirteen Weeks Ended July 31, 2021 | |
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| | |
| | |
| |
Net sales | | $ | 453,649 | | $ | 239,013 | | $ | (17,131) | | $ | 675,531 |
Intersegment sales (1) | |
| — | | | 17,131 | | | — | |
| 17,131 |
Operating earnings | |
| 85,498 | |
| 16,554 | |
| (39,260) | |
| 62,792 |
Segment assets | |
| 799,324 | |
| 838,236 | |
| 195,338 | |
| 1,832,898 |
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Thirteen Weeks Ended August 1, 2020 | |
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Net sales | | $ | 333,935 | | $ | 183,622 | | $ | (16,109) | | $ | 501,448 |
Intersegment sales (1) | |
| — | |
| 16,109 | |
| — | |
| 16,109 |
Operating earnings (loss) | |
| 1,045 | |
| (14,111) | |
| (11,074) | |
| (24,140) |
Segment assets | |
| 885,168 | |
| 952,028 | |
| 275,198 | |
| 2,112,394 |
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Twenty-Six Weeks Ended July 31, 2021 | |
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Net sales | | $ | 851,754 | | $ | 489,318 | | $ | (26,905) | | $ | 1,314,167 |
Intersegment sales (1) | |
| — | |
| 26,905 | |
| — | |
| 26,905 |
Operating earnings | |
| 133,371 | |
| 13,733 | |
| (66,442) | |
| 80,662 |
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Twenty-Six Weeks Ended August 1, 2020 | |
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Net sales | | $ | 525,187 | | $ | 400,860 | | $ | (27,415) | | $ | 898,632 |
Intersegment sales (1) | |
| — | |
| 27,415 | |
| — | |
| 27,415 |
Operating loss | |
| (66,495) | |
| (359,860) | |
| (23,995) | |
| (450,350) |
(1) | Included in net sales in the Brand Portfolio segment and eliminated in the Eliminations and Other |
The Eliminations and Other category includes corporate assets, administrative expenses and other costs and recoveries, which are not allocated to the operating segments, as well as the elimination of intersegment sales and profit.
Following is a reconciliation of operating earnings (loss) to earnings (loss) before income taxes:
| | | | | | | | | | | | | ||||||||||||
|
| Thirteen Weeks Ended | | Thirty-Nine Weeks Ended | | | | | | | | | | | | | ||||||||
| | October 31, | | November 2, | | October 31, | | November 2, |
| Thirteen Weeks Ended | | Twenty-Six Weeks Ended | ||||||||||||
($ thousands) |
| 2020 |
| 2019 |
| 2020 |
| 2019 |
| July 31, 2021 |
| August 1, 2020 |
| July 31, 2021 |
| August 1, 2020 | ||||||||
Operating earnings (loss) | | $ | 20,071 | | $ | 43,471 | | $ | (430,279) | | $ | 98,144 | | $ | 62,792 | | $ | (24,140) | | $ | 80,662 | | $ | (450,350) |
Interest expense, net | |
| (10,881) | |
| (10,559) | |
| (33,747) | |
| (25,288) | |
| (11,941) | |
| (13,387) | |
| (23,734) | |
| (22,866) |
Other income, net | |
| 5,461 | |
| 2,633 | |
| 12,718 | |
| 7,902 | |
| 3,860 | |
| 3,672 | |
| 7,688 | |
| 7,257 |
Earnings (loss) before income taxes | | $ | 14,651 | | $ | 35,545 | | $ | (451,308) | | $ | 80,758 | | $ | 54,711 | | $ | (33,855) | | $ | 64,616 | | $ | (465,959) |
Note 7 Inventories
The Company’s net inventory balance was comprised of the following:
| | | | | | | | | | | | | | | | | | |
($thousands) |
| October 31, 2020 |
| November 2, 2019 |
| February 1, 2020 | ||||||||||||
($ thousands) |
| July 31, 2021 |
| August 1, 2020 |
| January 30, 2021 | ||||||||||||
Raw materials | | $ | 14,907 | | $ | 19,005 | | $ | 18,455 | | $ | 14,886 | | $ | 16,494 | | $ | 14,592 |
Work-in-process | |
| 293 | |
| 422 | |
| 454 | |
| 394 | |
| 158 | |
| 349 |
Finished goods | |
| 492,165 | |
| 625,219 | |
| 599,497 | |
| 550,232 | |
| 558,178 | |
| 473,014 |
Inventories, net | | $ | 507,365 | | $ | 644,646 | | $ | 618,406 | | $ | 565,512 | | $ | 574,830 | | $ | 487,955 |
15
Note 8 Goodwill and Intangible Assets
Goodwill and intangible assets were as follows:
| | | | | | | | | | | | | | | | | | |
($thousands) |
| October 31, 2020 |
| November 2, 2019 |
| February 1, 2020 | ||||||||||||
($ thousands) |
| July 31, 2021 |
| August 1, 2020 |
| January 30, 2021 | ||||||||||||
Intangible Assets |
| |
|
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|
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|
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|
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|
Famous Footwear | | $ | 2,800 | | $ | 2,800 | | $ | 2,800 | | $ | 2,800 | | $ | 2,800 | | $ | 2,800 |
Brand Portfolio | |
| 365,888 | |
| 388,288 | |
| 388,288 | |
| 342,083 | |
| 365,888 | |
| 342,083 |
Total intangible assets | |
| 368,688 | |
| 391,088 | |
| 391,088 | |
| 344,883 | |
| 368,688 | |
| 344,883 |
Accumulated amortization | |
| (106,570) | |
| (93,518) | |
| (96,784) | |
| (116,062) | |
| (103,283) | |
| (109,768) |
Total intangible assets, net | |
| 262,118 | |
| 297,570 | |
| 294,304 | |
| 228,821 | |
| 265,405 | |
| 235,115 |
Goodwill | |
|
| |
|
| |
|
| |
|
| |
|
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Brand Portfolio | |
| 4,956 | |
| 245,275 | |
| 245,275 | |
| 4,956 | |
| 4,956 | |
| 4,956 |
Total goodwill | |
| 4,956 | |
| 245,275 | |
| 245,275 | |
| 4,956 | |
| 4,956 | |
| 4,956 |
Goodwill and intangible assets, net | | $ | 267,074 | | $ | 542,845 | | $ | 539,579 | | $ | 233,777 | | $ | 270,361 | | $ | 240,071 |
(1) | The carrying amount of goodwill as of July 31, 2021, August 1, 2020 and January 30, 2021 is presented net of accumulated impairment charges of $415.7 million. |
The Company’s intangible assets as of OctoberJuly 31, 2020, November 2, 2019 and February2021, August 1, 2020 and January 30, 2021 were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
($thousands) |
| October 31, 2020 | ||||||||||||||||||||||||||
($ thousands) |
| July 31, 2021 | ||||||||||||||||||||||||||
|
| Estimated Useful Lives |
| | |
| Accumulated |
| |
| | |
| Estimated Useful Lives |
| | |
| Accumulated |
| Accumulated |
| | | ||||
| | (In Years) | | Cost Basis | | Amortization | | Impairment | | Net Carrying Value | | (In Years) | | Cost Basis (2) | | Amortization | | Impairment | | Net Carrying Value | ||||||||
Trademarks |
| 15 - 40 | | $ | 288,788 | | $ | 99,376 | | $ | — | | $ | 189,412 | ||||||||||||||
Trademarks |
| Indefinite | |
| 58,100 | (1) |
| — | |
| 22,400 | |
| 35,700 | ||||||||||||||
Trade names |
| 2 - 40 | | $ | 299,488 | | $ | 107,000 | | $ | 10,200 | | $ | 182,288 | ||||||||||||||
Trade names |
| Indefinite | |
| 107,400 | |
| — | |
| 92,000 | |
| 15,400 | ||||||||||||||
Customer relationships |
| 15 - 16 |
|
| 44,200 |
|
| 7,194 |
|
| — |
|
| 37,006 |
| 15 - 16 |
|
| 44,200 |
|
| 9,062 |
|
| 4,005 |
|
| 31,133 |
| | | | $ | 391,088 | | $ | 106,570 | | $ | 22,400 | | $ | 262,118 | | | | $ | 451,088 | | $ | 116,062 | | $ | 106,205 | | $ | 228,821 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
|
| November 2, 2019 |
| August 1, 2020 | ||||||||||||||||||||||||
|
| Estimated Useful Lives |
| | |
| Accumulated |
| |
| | |
| Estimated Useful Lives |
| | |
| Accumulated |
| Accumulated |
| | | ||||
| | (In Years) | | Cost Basis | | Amortization | | Impairment | | Net Carrying Value | | (In Years) | | Cost Basis (2) | | Amortization | | Impairment | | Net Carrying Value | ||||||||
Trademarks |
| 15 - 40 | | $ | 288,788 | | $ | 89,360 | | $ | — | | $ | 199,428 | ||||||||||||||
Trademarks |
| Indefinite | |
| 58,100 | (1) |
| — | |
| 0 | |
| 58,100 | ||||||||||||||
Trade names |
| 2 - 40 | | $ | 299,488 | | $ | 96,835 | | $ | 10,200 | | $ | 192,453 | ||||||||||||||
Trade names |
| Indefinite | |
| 107,400 | |
| — | |
| 72,200 | |
| 35,200 | ||||||||||||||
Customer relationships |
| 15 - 16 |
|
| 44,200 |
|
| 4,158 |
|
| — |
|
| 40,042 |
| 15 - 16 |
|
| 44,200 |
|
| 6,448 |
|
| — |
|
| 37,752 |
| | | | $ | 391,088 | | $ | 93,518 | | $ | 0 | | $ | 297,570 | | | | $ | 451,088 | | $ | 103,283 | | $ | 82,400 | | $ | 265,405 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
|
| February 1, 2020 |
| January 30, 2021 | ||||||||||||||||||||||||
|
| Estimated Useful Lives |
| | |
| Accumulated |
| |
| | |
| Estimated Useful Lives |
| | |
| Accumulated |
| Accumulated |
| | | ||||
| | (In Years) | | Cost Basis | | Amortization | | Impairment | | Net Carrying Value | | (In Years) | | Cost Basis (2) | | Amortization | | Impairment | | Net Carrying Value | ||||||||
Trademarks |
| 15 - 40 | | $ | 288,788 | | $ | 91,827 | | $ | — | | $ | 196,961 | ||||||||||||||
Trademarks |
| Indefinite | |
| 58,100 | (1) |
| — | |
| 0 | |
| 58,100 | ||||||||||||||
Trade names |
| 2 - 40 | | $ | 299,488 | | $ | 101,919 | | $ | 10,200 | | $ | 187,369 | ||||||||||||||
Trade names |
| Indefinite | |
| 107,400 | |
| — | |
| 92,000 | |
| 15,400 | ||||||||||||||
Customer relationships |
| 15 - 16 |
|
| 44,200 |
|
| 4,957 |
|
| — |
|
| 39,243 |
| 15 - 16 |
|
| 44,200 |
|
| 7,849 |
|
| 4,005 |
|
| 32,346 |
| | | | $ | 391,088 | | $ | 96,784 | | $ | 0 | | $ | 294,304 | | | | $ | 451,088 | | $ | 109,768 | | $ | 106,205 | | $ | 235,115 |
Amortization expense related to intangible assets was $3.1 million and $3.3 million for both the thirteen weeks ended OctoberJuly 31, 2021 and August 1, 2020, respectively, and November 2, 2019$6.3 and $9.8$6.5 million for both the thirty-ninetwenty-six weeks ended OctoberJuly 31, 2021 and August 1, 2020, and November 2, 2019.respectively. The Company estimates that amortization expense related to intangible assets will be approximately $13.1 million in 2020, $12.9$12.6 million in 2021, $12.5$12.1 million in 2022, $12.2$11.9 million in 2023, and $11.4$11.0 million in 2024.2024 and 2025.
16
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. During the first quarter of 2020, as a result of the significant decline in the Company’s share price and market capitalization and the impact of COVID-19 on the Company’s business operations, the Company determined that an interim assessment of goodwill was required. A quantitative assessment was performed for all reporting units as of May 2, 2020. The assessment indicated that the carrying value of the goodwill associated with the Brand Portfolio and Vionic reporting units was
16
impaired, resulting in total goodwill impairment charges of $240.3 million. The Company recorded 0 goodwill impairment charges during the twenty-six weeks ended July 31, 2021 or the thirteen weeks ended October 31, 2020 or the thirty-nine weeks ended November 2, 2019.August 1, 2020.
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. As a result of the triggering event from the economic impacts of COVID-19, an interim assessment was performed as of May 2, 2020. The indefinite-lived intangible asset impairment review resulted in total impairment charges of $22.4 million forduring the thirteen weeks ended May 2,first quarter of 2020, including $12.2 million associated with the indefinite-lived Allen Edmonds trademarktrade name and $10.2 million of impairment associated with the indefinite-lived Via Spiga trademark.trade name. The carrying value of the Via Spiga trademarktrade name of $0.5 million will beis being amortized over approximately two years. In addition to the interim assessment, the Company tested the indefinite-lived intangible assets as of the first day of the fourth fiscal quarter. As a result of the impairment indicator for Allen Edmonds, the Company also tested the definite-lived Allen Edmonds customer relationships intangible asset. Those assessments resulted in additional impairment totaling $23.8 million, consisting of $19.8 million associated with the Allen Edmonds trade name and $4.0 million associated with the Allen Edmonds customer relationships intangible asset. The Company recorded 0 impairment charges during the twenty-six weeks ended July 31, 2021 or the thirteen weeks ended October 31, 2020 or the thirty-nine weeks ended November 2, 2019.August 1, 2020.
Note 9 Leases
The Company leases all of its retail locations, a manufacturing facility, and certain manufacturing facilities, 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, or favorable trends, property and equipment at stores and the lease right-of-use assets indicated as impaired are written down to fair value as calculated using a discounted cash flow method. The fair value of the lease right-of-use assets is determined utilizing projected cash flows for each store location, discounted using a risk-adjusted discount rate, subject to a market floor based on current market lease rates. The Company recorded asset impairment charges of $0.4 million and $2.2 million during the thirteen weeks ended OctoberJuly 31, 2020 and November 2, 2019, respectively.2021. The Company did 0t record any impairment charges during the thirteen weeks ended August 1, 2020. The Company recorded asset impairment charges primarily related to underperforming retail stores, of $35.6$2.3 million and $5.1$35.2 million induring the thirty-ninetwenty-six weeks ended OctoberJuly 31, 20202021 and November 2, 2019,August 1, 2020, respectively. The impairment charges recorded in the thirty-ninethirteen and twenty-six weeks ended OctoberJuly 31, 2021 are related to underperforming retail stores. The impairment charges recorded in the twenty-six weeks ended August 1, 2020, including $21.1$20.4 million associated with operating lease right-of-use assets and $14.5$14.8 million associated with property and equipment, reflect the impact of the COVID-19 pandemic on the Company’s retail operations and estimates of remaining cash flows for each store. Refer to Note 5 and Note 1514 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 COVID-19 pandemic, the Company is negotiating with landlordscertain leases were amended to modify payment terms for certain leases.provide rent abatements and/or deferral of lease payments. Deferred payments for these leases arecontinue to be reflected in lease obligations on the condensed consolidated balance sheets. As further discussed in Note 2 to the condensed consolidated financial statements, underUnder relief provided by the FASB, entities maycould make a policy election to account for theCOVID-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 has made a policy election to account for rent abatements as variable rent. Accordingly, during the thirteen and twenty-six weeks ended July 31, 2021, the Company recorded $1.7$0.3 million and $3.7$1.6 million, in the thirteen and thirty-nine weeks ended October 31, 2020, respectively, in lease concessions as a reduction of rent expense within selling and administrative expenses in the condensed consolidated statements of earnings (loss). The Company recorded $2.0 million in lease concessions during the thirteen and twenty-six weeks ended August 1, 2020. Rent deferralsconcessions for leases that were extended in connection with the rent concession will continue to bewere recognized consistent with the originalas a lease agreement.
During the thirty-nine weeks ended October 31, 2020, the Company entered into new or amended leases that resulted in the recognition of right-of-use assets and lease obligations of $63.1 million on the condensed consolidated balance sheets. As of October 31, 2020, the Company has entered into lease commitments for 4 retail locations for which the leases have not yet commenced. The Company anticipates that 1 lease will begin in the current fiscal year and 3 leases will begin in the next fiscal year. Upon commencement, right-of-use assets and lease liabilities of approximately $0.9 million will be recorded in the current fiscal year and $3.9 million in the next fiscal year on the condensed consolidated balance sheets.modification.
17
During the twenty-six weeks ended July 31, 2021, the Company entered into new or amended leases that resulted in the recognition of right-of-use assets and lease obligations of $45.5 million on the condensed consolidated balance sheets. As of July 31, 2021, the Company has entered into lease commitments for 2 retail locations for which the leases have not yet commenced. The Company anticipates that both leases will begin in the next fiscal year. Upon commencement, right-of-use assets and lease liabilities of approximately $1.3 million will be recorded in the next fiscal year on the condensed consolidated balance sheets.
The components of lease expense for the thirteen and thirty-ninetwenty-six weeks ended OctoberJuly 31, 20202021 and November 2, 2019August 1, 2020 were as follows:
| | | | | | | | | | | | |
| | Thirteen Weeks Ended | | Thirteen Weeks Ended | ||||||||
($thousands) | | October 31, 2020 | | November 2, 2019 | ||||||||
($ thousands) | | July 31, 2021 |
| August 1, 2020 | ||||||||
Operating lease expense |
| $ | 38,568 |
| $ | 47,068 |
| $ | 37,121 |
| $ | 41,088 |
Variable lease expense | |
| 12,739 | |
| 11,794 | |
| 8,513 | |
| 12,007 |
Short-term lease expense | |
| 1,775 | |
| 577 | |
| 708 | |
| 1,385 |
Sublease income | |
| (29) | |
| (73) | |
| (29) | |
| (28) |
Total lease expense | | $ | 53,053 | | $ | 59,366 | | $ | 46,313 | | $ | 54,452 |
| | | | | | | | | | | | |
| | Thirty-Nine Weeks Ended | | Twenty-Six Weeks Ended | ||||||||
($thousands) | | October 31, 2020 | | November 2, 2019 | ||||||||
($ thousands) | | July 31, 2021 |
| August 1, 2020 | ||||||||
Operating lease expense |
| $ | 124,906 |
| $ | 139,380 |
| $ | 77,698 |
| $ | 86,338 |
Variable lease expense | |
| 36,090 | |
| 35,277 | |
| 20,003 | |
| 23,331 |
Short-term lease expense | |
| 3,872 | |
| 2,654 | |
| 1,273 | |
| 2,097 |
Sublease income | |
| (76) | |
| (220) | |
| (58) | |
| (47) |
Total lease expense | | $ | 164,792 | | $ | 177,091 | | $ | 98,916 | | $ | 111,719 |
Supplemental cash flow information related to leases is as follows:
| | | | | | | | | | | | |
| Thirty-Nine Weeks Ended | | Twenty-Six Weeks Ended | |||||||||
($thousands) |
| October 31, 2020 |
| November 2, 2019 | ||||||||
($ thousands) |
| July 31, 2021 |
| August 1, 2020 | ||||||||
Cash paid for lease liabilities | | $ | 99,517 | | $ | 136,497 | | $ | 104,384 | | $ | 43,150 |
Cash received from sublease income | |
| 76 | |
| 220 | |
| 58 | |
| 47 |
(1) | Cash paid for lease liabilities for the twenty-six weeks ended July 31, 2021 includes payment of certain lease payments deferred in 2020, as described above, as well as lease termination costs associated with the Naturalizer retail store closings, as further discussed in Note 5 to the condensed consolidated financial statements. In addition, cash paid for lease liabilities during the twenty-six weeks ended August 1, 2020 was significantly lower than comparable periods, reflecting the deferral of lease payments during the onset of the pandemic. |
Note 10 Long-term and Short-term Financing Arrangements
Credit Agreement
The Company maintains a revolving credit facility for working capital needs. On December 18, 2014, the Company and certain of its subsidiaries (the “Loan Parties”) entered into a Fourth Amended and Restated Credit Agreement ("the Former Credit Agreement"), which was further amended on July 20, 2015 to release all of the Company’s subsidiaries that were borrowers under or that guaranteed the Former Credit Agreement other than Sidney Rich Associates, Inc. and BG Retail, LLC. Allen Edmonds and Vionic were joined to the Former Credit Agreement as guarantors on December 13, 2016 and October 31, 2018, respectively. After giving effect to the joinders, theThe 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 under the Former Credit Agreement. On January 18, 2019, the Loan Parties entered into a Third Amendment to Fourth Amended and Restated Credit Agreement to extend the maturity date to January 18, 2024 and change the borrowing capacity under the Former Credit Agreement from an aggregate amount of up to $600.0 million to an aggregate amount of up to $500.0 million, with the option to increase by up to $250.0 million.guarantors. On April 14, 2020, the Company entered into a Fourth Amendment to Fourth Amended and Restated Credit Agreement (as so amended, the "Credit Agreement") which, among other modifications, increased the amount available under the revolving credit facility by $100.0 million to an aggregate amount of up to $600.0 million, subject to borrowing base restrictions, and may be further increased by up to $150.0 million. The Credit Agreement increased the spread applied to the LIBOR or prime rate by a total of 75 basis points and increased the unused line fee by 5 basis points.
Borrowing availability under the Credit Agreement is limited to the lesser of the total commitments and the borrowing base ("Loan Cap"), which is based on stated percentages of the sum of eligible accounts receivable, eligible inventory and eligible credit card receivables, as defined, less applicable reserves. Under the Credit Agreement, the Loan Parties’ obligations are secured by a first-priority security interest in all accounts receivable, inventory and certain other collateral.
18
Interest on borrowings is at variable rates based on the London Interbank Offered Rate (“LIBOR”) (with a floor of 1.0% imposed by the Credit Agreement) 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.
18
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 lesser of the Loan Cap and $40.0 million for three consecutive business days, and the fixed charge coverage ratio is less than 1.0 to 1.0, the Company would be in default under the Credit Agreement and certain additional covenants would be triggered.
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 OctoberJuly 31, 2020.2021.
At OctoberJuly 31, 2020,2021, the Company had $300.0$100.0 million of borrowings outstanding and $11.2$12.5 million in letters of credit outstanding under the Credit Agreement. Total additional borrowing availability was $170.6$364.5 million at OctoberJuly 31, 2020.2021.
$200 Million Senior Notes
On July 27, 2015, the Company issued $200.0 million aggregate principal amount of 6.25% Senior Notes due on August 15, 2023 (the "Senior Notes"). The Senior Notes bear interest at 6.25%, which is payable on February 15 and August 15 of each year. The Senior Notes are guaranteed on a senior unsecured basis by each of the Company’s subsidiaries that is a borrower or guarantor under the Credit Agreement. Interest on
The Company may redeem some or all of the Senior Notes is payable on February 15 andat a redemption price (expressed as a percentage of principal amount) of 101.563% if redeemed prior to August 15, of each year. The2021 and 100.000% if redeemed after August 15, 2021, plus accrued and unpaid interest and Additional Interest (as defined in the Senior Notes will matureindenture). During the thirteen weeks ended July 31, 2021, the Company determined that it would redeem a portion of its Senior Notes on August 15, 2023.16, 2021. Accordingly, the Company classified $100.0 million aggregate principal amount of its Senior Notes as a current liability. On August 16, 2021, the Company redeemed $100.0 million of Senior Notes at 100.000% using borrowings under the revolving credit agreement.
If the Company experiences specific kinds of changes of control, it would be required to offer to purchase the Senior Notes at a purchase price equal to 101% of the principal amount, plus accrued and unpaid interest and Additional Interest, if any, to, but not including, the date of repurchase. The Senior Notes also contain certain other covenants and restrictions that limit certain activities including, among other things, levels of indebtedness, payments of dividends, the guarantee or pledge of assets, certain investments, common stock repurchases, mergers and acquisitions and sales of assets. As of OctoberJuly 31, 2020,2021, the Company was in compliance with all covenants and restrictions relating to the Senior Notes.
19
Note 11 Shareholders’ Equity
Accumulated Other Comprehensive Loss
The following table sets forth the changes in accumulated other comprehensive loss (OCL) by component for the periods ended OctoberJuly 31, 20202021 and November 2, 2019:August 1, 2020:
| | | | | | | | | | | | | | | | | | | | | | | | |
|
| | |
| Pension and |
| Derivative |
| | |
| | |
| Pension and |
| Derivative |
| | | ||||
| | | | | Other | | Financial | | Accumulated | | | | | Other | | Financial | | Accumulated | ||||||
| | Foreign | | Postretirement | | Instrument | | Other | | Foreign | | Postretirement | | Instrument | | Other | ||||||||
| | Currency | | Transactions | | Transactions | | Comprehensive | | Currency | | Transactions | | Transactions | | Comprehensive | ||||||||
($thousands) | | Translation | | (1) | | (2) | | (Loss) Income | ||||||||||||||||
Balance at August 1, 2020 | | $ | (1,390) | | $ | (30,047) | | $ | 0 | | $ | (31,437) | ||||||||||||
($ thousands) | | Translation | | (1) | | (2) | | (Loss) Income | ||||||||||||||||
Balance at May 1, 2021 | | $ | (277) | | $ | (8,659) | | $ | — | | $ | (8,936) | ||||||||||||
Other comprehensive income before reclassifications | | | 17 | | | — | | | — | | | 17 | ||||||||||||
Reclassifications: | |
| | |
| | |
| | |
| | ||||||||||||
Amounts reclassified from accumulated other comprehensive loss | | | — | | | 432 | | | — | | | 432 | ||||||||||||
Tax benefit |
| | — |
| | (85) |
| | — |
| | (85) | ||||||||||||
Net reclassifications |
| | — |
| | 347 |
| | — |
| | 347 | ||||||||||||
Other comprehensive income |
| | 17 |
| | 347 |
| | — |
| | 364 | ||||||||||||
Balance at July 31, 2021 | | $ | (260) | | $ | (8,312) | | $ | — | | $ | (8,572) | ||||||||||||
| | | | | | | | | | | | | ||||||||||||
Balance at May 2, 2020 | | $ | (2,111) | | $ | (31,105) | | $ | — | | $ | (33,216) | ||||||||||||
Other comprehensive income before reclassifications | | | 320 | | | 0 | | | 0 | | | 320 | |
| 721 | |
| — | |
| — | |
| 721 |
Reclassifications: | |
| | |
| | |
| | |
| | |
|
| |
|
| |
|
| |
|
|
Amounts reclassified from accumulated other comprehensive loss | | | 0 | | | (111) | | | 0 | | | (111) | |
| — | |
| 810 | |
| — | |
| 810 |
Tax provision (3) |
| | 0 |
| | 44 |
| | 0 |
| | 44 | |
| — | |
| 248 | |
| — | |
| 248 |
Net reclassifications |
| | 0 |
| | (67) |
| | 0 |
| | (67) | |
| — | |
| 1,058 | |
| — | |
| 1,058 |
Other comprehensive income |
| | 320 |
| | (67) |
| | 0 |
| | 253 | |
| 721 | |
| 1,058 | |
| — | |
| 1,779 |
Balance at October 31, 2020 | | $ | (1,070) | | $ | (30,114) | | $ | 0 | | $ | (31,184) | ||||||||||||
Balance at August 1, 2020 | | $ | (1,390) | | $ | (30,047) | | $ | — | | $ | (31,437) | ||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | |
Balance at August 3, 2019 | | $ | (896) | | $ | (30,199) | | $ | (310) | | $ | (31,405) | ||||||||||||
Other comprehensive income before reclassifications | |
| 595 | |
| 0 | |
| 66 | |
| 661 | ||||||||||||
Balance at January 30, 2021 | | $ | (111) | | $ | (9,025) | | $ | — | | $ | (9,136) | ||||||||||||
Other comprehensive loss before reclassifications | |
| (149) | |
| — | |
| — | |
| (149) | ||||||||||||
Reclassifications: | |
|
| |
|
| |
|
| |
|
| |
| | |
|
| |
|
| |
|
|
Amounts reclassified from accumulated other comprehensive loss | |
| 0 | |
| 578 | |
| (4) | |
| 574 | |
| — | |
| 895 | |
| — | |
| 895 |
Tax (benefit) provision | |
| 0 | |
| (149) | |
| 1 | |
| (148) | ||||||||||||
Tax benefit | |
| — | |
| (182) | |
| — | |
| (182) | ||||||||||||
Net reclassifications | |
| 0 | |
| 429 | |
| (3) | |
| 426 | |
| — | |
| 713 | |
| — | |
| 713 |
Other comprehensive income | |
| 595 | |
| 429 | |
| 63 | |
| 1,087 | ||||||||||||
Balance at November 2, 2019 | | $ | (301) | | $ | (29,770) | | $ | (247) | | $ | (30,318) | ||||||||||||
Other comprehensive (loss) income | |
| (149) | |
| 713 | |
| — | |
| 564 | ||||||||||||
Balance at July 31, 2021 | | $ | (260) | | $ | (8,312) | | $ | — | | $ | (8,572) | ||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | |
Balance at February 1, 2020 | | $ | (580) | | $ | (31,171) | | $ | (92) | | $ | (31,843) | | $ | (580) | | $ | (31,171) | | $ | (92) | | $ | (31,843) |
Other comprehensive (loss) income before reclassifications | |
| (490) | |
| 0 | |
| 87 | |
| (403) | |
| (810) | |
| — | |
| 87 | |
| (723) |
Reclassifications: | |
| — | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Amounts reclassified from accumulated other comprehensive loss | |
| 0 | |
| 1,393 | |
| 6 | |
| 1,399 | |
| — | |
| 1,504 | |
| 6 | |
| 1,510 |
Tax benefit (3) | |
| 0 | |
| (336) | |
| (1) | |
| (337) | |
| — | |
| (380) | |
| (1) | |
| (381) |
Net reclassifications | |
| 0 | |
| 1,057 | |
| 5 | |
| 1,062 | |
| — | |
| 1,124 | |
| 5 | |
| 1,129 |
Other comprehensive (loss) income | |
| (490) | |
| 1,057 | |
| 92 | |
| 659 | |
| (810) | |
| 1,124 | |
| 92 | |
| 406 |
Balance at October 31, 2020 | | $ | (1,070) | | $ | (30,114) | | $ | 0 | | $ | (31,184) | ||||||||||||
| | | | | | | | | | | | | ||||||||||||
Balance at February 2, 2019 | | $ | 62 | | $ | (31,055) | | $ | (608) | | $ | (31,601) | ||||||||||||
Other comprehensive (loss) income before reclassifications | |
| (363) | |
| 0 | |
| 160 | |
| (203) | ||||||||||||
Reclassifications: | |
|
| |
|
| |
|
| |
|
| ||||||||||||
Amounts reclassified from accumulated other comprehensive loss | |
| 0 | |
| 1,733 | |
| 254 | |
| 1,987 | ||||||||||||
Tax benefit | |
| 0 | |
| (448) | |
| (53) | |
| (501) | ||||||||||||
Net reclassifications | |
| 0 | |
| 1,285 | |
| 201 | |
| 1,486 | ||||||||||||
Other comprehensive (loss) income | |
| (363) | |
| 1,285 | |
| 361 | |
| 1,283 | ||||||||||||
Balance at November 2, 2019 | | $ | (301) | | $ | (29,770) | | $ | (247) | | $ | (30,318) | ||||||||||||
Balance at August 1, 2020 | | $ | (1,390) | | $ | (30,047) | | $ | — | | $ | (31,437) |
(1) | Amounts reclassified are included in other income, net. Refer to Note 13 to the condensed consolidated financial statements for additional information related to pension and other postretirement benefits. |
(2) | Amounts reclassified are included in net sales, costs of goods sold and selling and administrative expenses. Refer to Note |
(3) | Includes approximately $0.5 million of expenserelated to a valuation allowance on net deferred taxes, including those related to other comprehensive income, for the Company’s Canadian subsidiary. |
20
Note 12 Share-Based Compensation
The Company recognized share-based compensation expense of $2.5 million$3.0 and $2.4$2.1 million during the thirteen weeks and $6.9$5.4 million and $8.9$4.4 million during the thirty-ninetwenty-six weeks ended OctoberJuly 31, 20202021 and November 2, 2019,August 1, 2020, respectively.
The Company had net (repurchases) issuances (repurchases) of 32,018(25,408) and (69,377)3,400 shares of common stock during the thirteen weeks ended OctoberJuly 31, 20202021 and November 2, 2019,August 1, 2020, 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 tax withholding requirement. During the thirty-ninetwenty-six weeks ended OctoberJuly 31, 20202021 and November 2, 2019,August 1, 2020, the Company issued 449,539had net issuances of 301,860 and 295,466417,521 shares of common stock, respectively, related to the share-based plans.
Restricted Stock
The following table summarizes restricted stock activity for the periods ended OctoberJuly 31, 20202021 and November 2, 2019:August 1, 2020:
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Thirteen Weeks Ended | | | | Thirteen Weeks Ended | | Thirteen Weeks Ended | | | | Thirteen Weeks Ended | ||||||||||||
| | October 31, 2020 | | | | November 2, 2019 | | July 31, 2021 | | | | August 1, 2020 | ||||||||||||
| | | | | Weighted- | | | | | | | Weighted- | | | | | Weighted- | | | | | | | Weighted- |
| | Total Number | | | Average | | | | Total Number | | | Average | | Total Number | | | Average | | | | Total Number | | | Average |
| | of Restricted | | | Grant Date | | | | of Restricted | | | Grant Date | | of Restricted | | | Grant Date | | | | of Restricted | | | Grant Date |
|
| Shares |
| | Fair Value |
| |
| Shares |
| | Fair Value |
| Shares |
| | Fair Value |
| |
| Shares |
| | Fair Value |
August 1, 2020 | | 1,360,602 | | $ | 17.81 | | August 3, 2019 | | 1,433,470 | | $ | 27.09 | ||||||||||||
May 1, 2021 | | 1,428,844 | | $ | 14.04 | | May 2, 2020 | | 1,421,743 | | $ | 18.20 | ||||||||||||
Granted | | 35,000 | | | 9.73 | | Granted | | 11,000 | | | 22.44 | | 6,410 | | | 27.50 | | Granted | | 12,748 | | | 10.59 |
Forfeited | | (875) | | | 14.51 | | Forfeited | | (78,000) | | | 30.75 | | (22,375) | | | 13.51 | | Forfeited | | (35,225) | | | 20.73 |
Vested |
| (6,500) |
| | 25.18 |
| Vested |
| (10,000) |
| | 32.85 |
| (32,633) |
| | 15.95 |
| Vested |
| (38,664) |
| | 27.37 |
October 31, 2020 |
| 1,388,227 | | $ | 17.57 | | November 2, 2019 |
| 1,356,470 | | $ | 26.80 | ||||||||||||
July 31, 2021 |
| 1,380,246 | | $ | 14.05 | | August 1, 2020 |
| 1,360,602 | | $ | 17.81 |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Thirty-Nine Weeks Ended | | | | Thirty-Nine Weeks Ended | | Twenty-Six Weeks Ended | | | | Twenty-Six Weeks Ended | ||||||||||||
|
| October 31, 2020 |
| |
| November 2, 2019 |
| July 31, 2021 |
| |
| August 1, 2020 | ||||||||||||
| | | | Weighted- | | | | | | Weighted- | | | | Weighted- | | | | | | Weighted- | ||||
| | Total Number | | Average | | | | Total Number | | Average | | Total Number | | Average | | | | Total Number | | Average | ||||
| | of Restricted | | Grant Date | | | | of Restricted | | Grant Date | | of Restricted | | Grant Date | | | | of Restricted | | Grant Date | ||||
| | Shares |
| | Fair Value | | | | Shares | | Fair Value | | Shares |
| | Fair Value | | | | Shares | | Fair Value | ||
February 1, 2020 |
| 1,271,795 | | $ | 26.77 | | February 2, 2019 |
| 1,249,223 | | $ | 29.17 | ||||||||||||
January 30, 2021 |
| 1,397,227 | | $ | 16.74 | | February 1, 2020 |
| 1,271,795 | | $ | 26.77 | ||||||||||||
Granted |
| 598,431 | |
| 6.14 | | Granted |
| 461,234 | |
| 22.94 |
| 568,916 | |
| 18.73 | | Granted |
| 563,431 | |
| 5.92 |
Forfeited |
| (68,787) | |
| 23.11 | | Forfeited |
| (135,425) | |
| 29.91 |
| (68,875) | |
| 15.45 | | Forfeited |
| (67,912) | |
| 23.21 |
Vested |
| (413,212) | |
| 28.23 | | Vested |
| (218,562) | |
| 30.25 |
| (517,022) | |
| 26.26 | | Vested |
| (406,712) | |
| 28.28 |
October 31, 2020 |
| 1,388,227 | | $ | 17.57 | | November 2, 2019 |
| 1,356,470 | | $ | 26.80 | ||||||||||||
July 31, 2021 |
| 1,380,246 | | $ | 14.05 | | August 1, 2020 |
| 1,360,602 | | $ | 17.81 |
Of the 6,410 restricted shares granted during the thirteen weeks ended July 31, 2021, 4,910 shares have a cliff-vesting term of one year and 1,500 shares have a graded-vesting term of three years, with 50% vesting after two years and 50% after three years. Of the 568,916 restricted shares granted during the twenty-six weeks ended July 31, 2021, 4,910 shares have a cliff-vesting term of one year, 20,000 shares have a cliff-vesting term of two years and 544,006 shares have a graded-vesting term of three years, with 50% vesting after two years and 50% after three years. All of the restricted shares granted during the thirteen weeks ended October 31,August 1, 2020 have a graded-vestingcliff-vesting term of three years.one year. Of the 598,431563,431 restricted shares granted during the thirty-ninetwenty-six weeks ended October 31,August 1, 2020, 585,68312,748 shares have a cliff-vesting term of one year and 550,683 shares have a graded-vesting term of three years, with 50% vesting after two years and 12,748 shares have a cliff-vesting term of one year. All of the restricted shares granted during the thirteen weeks ended November 2, 2019 have a graded-vesting term of50% after three years. Of the 461,234 restricted shares granted during the thirty-nine weeks ended November 2, 2019, 448,320 shares have a graded-vesting term of three years and 12,914 shares have a cliff-vesting term of one year. Share-based compensation expense for graded-vesting grants is recognized ratably over the respective vesting periods.
Performance Share Awards
During the thirteen and thirty-ninetwenty-six weeks ended OctoberJuly 31, 2020,2021, the Company granted performance share awards for a targeted 87,750175,500 shares, with a weighted-average grant date fair value of $7.47. During$18.63 in connection with the thirty-nine weeks ended November 2, 2019, the Company granted2020 performance share awards for a targeted 180,000 shares, with a weighted-average grant date fair value of $23.42.award. There were 0 performance-based share awards granted by the Company during the thirteen weeks ended November 2, 2019.July 31, 2021 or for the twenty-six weeks ended August 1, 2020. 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. Vesting of performance-based awards for the performance share award granted during the thirteen weeks ended October 31, 2020 is dependent upon the attainment of certain financial goals during the second half of 2020. At the end of the vesting period, the employee will have earned an amount of shares or units between 0% and 200% of the targeted award, depending on the achievement of the specified financial goals for the service period.
21
achievement of the specified financial goals for the service period. Compensation expense is recognized based on the fair value of the award and the anticipated number of shares or units to be awarded for each tranche in accordance with the vesting schedule of the units over the three-year service period.
During the twenty-six weeks ended July 31, 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 value of the award, which is reflected within other liabilities on the condensed consolidated balance sheets, is being accrued over the three-year performance period. There were 0 long-term incentive awards granted by the Company during the thirteen weeks ended July 31, 2021 or during the twenty-six weeks ended August 1, 2020.
Restricted Stock Units for Non-Employee Directors
Equity-based grants may be made to non-employee directors in the form of restricted stock units ("RSUs") payable in cash or common stock at no cost to the non-employee director. The RSUs earn dividend equivalents at the same rate as dividends on the Company’s common stock. The dividend equivalents, which vest immediately, are automatically re-invested in additional RSUs. Expense related to the initial grant of RSUs is recognized ratably over the vesting period based upon the fair value of the RSUs. The RSUs payable in cash are remeasured at the end of each period. Expense for the dividend equivalents is recognized at fair value when the dividend equivalents are granted. The Company granted 3,61840,729 and 1,350106,222 RSUs to non-employee directors, including 1,449 and 4,238 for dividend equivalents, during the thirteen weeks ended OctoberJuly 31, 20202021 and November 2, 2019,August 1, 2020, respectively, with weighted-average grant date fair values of $9.78$27.48 and $23.27,$10.50, respectively. The Company granted 118,15042,441 and 55,679114,531 RSUs to non-employee directors, including 16,1663,161 and 4,02312,548 for dividend equivalents, during the thirty-ninetwenty-six weeks ended OctoberJuly 31, 20202021 and November 2, 2019,August 1, 2020, respectively, with weighted-average grant date fair values of $10.01$27.21 and $19.59,$10.02, respectively.
Note 13 Retirement and Other Benefit Plans
The following table sets forth the components of net periodic benefit income for the Company, including domestic and Canadian plans:
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Pension Benefits | | Other Postretirement Benefits | | Pension Benefits | | Other Postretirement Benefits | ||||||||||||||||
|
| Thirteen Weeks Ended |
| Thirteen Weeks Ended |
| Thirteen Weeks Ended |
| Thirteen Weeks Ended | ||||||||||||||||
($ thousands) | | October 31, 2020 |
| November 2, 2019 |
| October 31, 2020 |
| November 2, 2019 | | July 31, 2021 |
| August 1, 2020 |
| July 31, 2021 |
| August 1, 2020 | ||||||||
Service cost | | $ | 2,005 | | $ | 1,805 | | $ | 0 | | $ | 0 | | $ | 1,801 | | $ | 2,247 | | $ | 0 | | $ | 0 |
Interest cost | |
| 2,970 | |
| 3,707 | |
| 10 | |
| 15 | |
| 2,806 | |
| 3,128 | |
| 10 | |
| 11 |
Expected return on assets | |
| (8,330) | |
| (6,933) | |
| 0 | |
| 0 | |
| (7,108) | |
| (7,432) | |
| 0 | |
| 0 |
Amortization of: | |
| | |
|
| |
| | |
|
| |
| | |
|
| |
| | |
|
|
Actuarial loss (gain) | |
| 240 | |
| 977 | |
| (27) | |
| (27) | |
| 592 | |
| 1,183 | |
| (28) | |
| (16) |
Prior service income | |
| (324) | |
| (372) | |
| 0 | |
| 0 | |
| (132) | |
| (357) | |
| 0 | |
| 0 |
Settlement cost | |
| — | |
| 222 | |
| 0 | |
| 0 | ||||||||||||
Curtailment gain | |
| — | |
| (189) | |
| 0 | |
| 0 | ||||||||||||
Total net periodic benefit income | | $ | (3,439) | | $ | (816) | | $ | (17) | | $ | (12) | | $ | (2,041) | | $ | (1,198) | | $ | (18) | | $ | (5) |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Pension Benefits | | Other Postretirement Benefits | | Pension Benefits | | Other Postretirement Benefits | ||||||||||||||||
|
| Thirty-Nine Weeks Ended |
| Thirty-Nine Weeks Ended |
| Twenty-Six Weeks Ended |
| Twenty-Six Weeks Ended | ||||||||||||||||
($ thousands) |
| October 31, 2020 | | November 2, 2019 |
| October 31, 2020 |
| November 2, 2019 |
| July 31, 2021 |
| August 1, 2020 |
| July 31, 2021 |
| August 1, 2020 | ||||||||
Service cost | | $ | 6,412 | | $ | 5,414 | | $ | 0 | | $ | 0 | | $ | 3,743 | | $ | 4,407 | | $ | — | | $ | — |
Interest cost | |
| 9,252 | |
| 11,112 | |
| 31 | |
| 45 | |
| 5,619 | |
| 6,282 | |
| 20 | |
| 30 |
Expected return on assets | |
| (23,205) | |
| (20,792) | |
| 0 | |
| 0 | |
| (14,222) | |
| (14,875) | |
| — | |
| — |
Amortization of: | | | | | |
| | | | | |
| | | | | |
| | | | | |
|
Actuarial loss (gain) | |
| 2,506 | |
| 2,929 | |
| (82) | |
| (81) | |
| 1,207 | |
| 2,266 | |
| (55) | |
| (54) |
Prior service income | |
| (1,031) | |
| (1,115) | |
| 0 | |
| 0 | |
| (257) | |
| (707) | |
| — | |
| — |
Settlement cost | |
| 222 | |
| 0 | |
| 0 | |
| 0 | |
| — | |
| 222 | |
| — | |
| — |
Curtailment gain | |
| (189) | |
| 0 | |
| 0 | |
| 0 | |
| — | |
| (189) | |
| — | |
| — |
Total net periodic benefit income | | $ | (6,033) | | $ | (2,452) | | $ | (51) | | $ | (36) | | $ | (3,910) | | $ | (2,594) | | $ | (35) | | $ | (24) |
The non-service cost components of net periodic benefit income are included in other income, net in the condensed consolidated statements of earnings (loss). Service cost is included in selling and administrative expenses.
Note 14 Risk Management and Derivatives
In the normal course of business, the Company’s financial results are impacted by currency rate movements in foreign currency denominated assets, liabilities and cash flows as it makes a portion of its purchases and sales 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
22
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.
Derivative financial instruments expose the Company to credit and market risk. The market risk associated with these instruments resulting from currency exchange movements is expected to offset the market risk of the underlying transactions being hedged. The Company does not believe there is a significant risk of loss in the event of non-performance by the counterparties associated with these instruments because these transactions are executed with major international financial institutions. Credit risk is managed through the continuous monitoring of exposures to such counterparties.
The Company’s hedging strategy allows for the use of forward contracts as cash flow hedging instruments, which are recorded in the Company’s condensed consolidated balance sheets at fair value. The effective portion of gains and losses resulting from changes in the fair value of these hedge instruments are deferred in accumulated other comprehensive loss and reclassified to earnings in the period that the hedged transaction is recognized in earnings.
The Company had no forward contracts as of October 31, 2020. As of November 2, 2019, and February 1, 2020, the Company had forward contracts maturing through May 2020. The contract amounts in the following table represent the net notional amount of all purchase and sale contracts of a foreign currency.
| | | | | | | | | |
(U.S. $equivalent in thousands) |
| October 31, 2020 |
| November 2, 2019 |
| February 1, 2020 | |||
Financial Instruments | | |
| | |
|
| |
|
U.S. dollars (purchased by the Company’s Canadian division with Canadian dollars) | | $ | 0 | | $ | 3,235 | | $ | 3,963 |
Euro | |
| 0 | |
| 5,763 | |
| 1,251 |
Chinese yuan | |
| 0 | |
| 2,905 | |
| 2,355 |
New Taiwanese dollars | |
| 0 | |
| — | |
| 0 |
Other currencies | |
| 0 | |
| 139 | |
| 69 |
Total financial instruments | | $ | 0 | | $ | 12,042 | | $ | 7,638 |
The classification and fair values of derivative instruments designated as hedging instruments included within the condensed consolidated balance sheets as of October 31, 2020, November 2, 2019 and February 1, 2020 are as follows:
| | | | | | | | |
|
| Asset Derivatives |
| Liability Derivatives | ||||
($ thousands) |
| Balance Sheet Location |
| Fair Value |
| Balance Sheet Location |
| Fair Value |
Foreign Exchange Forward Contracts |
|
|
|
|
|
|
|
|
October 31, 2020 | | Prepaid expenses and other current assets | | 0 | | Other accrued expenses | | 0 |
November 2, 2019 | | Prepaid expenses and other current assets | | 17 | | Other accrued expenses | | 325 |
February 1, 2020 |
| Prepaid expenses and other current assets | | 0 |
| Other accrued expenses | | 103 |
23
For the thirteen and thirty-nine weeks ended October 31, 2020 and November 2, 2019, the effect of derivative instruments in cash flow hedging relationships on the condensed consolidated statements of earnings (loss) was as follows:
| | | | | | | | | | | | |
|
| Thirteen Weeks Ended | ||||||||||
($ thousands) | | October 31, 2020 | | November 2, 2019 | ||||||||
|
| |
| Gain (Loss) |
| |
| | | |||
| | | | Reclassified | | | | | Loss Reclassified | |||
| | Gain (Loss) | | from | | (Loss) Gain | | from | ||||
| | Recognized | | Accumulated | | Recognized | | Accumulated | ||||
Foreign Exchange Forward Contracts: Income Statement | | in OCL on | | OCL into | | in OCL on | | OCL into | ||||
Classification Gains (Losses) – Realized |
| Derivatives |
| Earnings |
| Derivatives |
| Earnings | ||||
Net sales | | $ | 0 | | $ | 0 | | $ | 69 | | $ | 2 |
Cost of goods sold | |
| 0 | |
| 0 | |
| 38 | |
| — |
Selling and administrative expenses | |
| 0 | |
| 0 | |
| (33) | |
| 2 |
| | | | | | | | | | | | |
|
| Thirty-Nine Weeks Ended | ||||||||||
($ thousands) | | October 31, 2020 | | November 2, 2019 | ||||||||
| | |
| Loss |
| |
| Loss | ||||
| | | | | Reclassified | | | | | Reclassified | ||
| | Gain | | from | | (Loss) Gain | | from | ||||
| | Recognized | | Accumulated | | Recognized | | Accumulated | ||||
Foreign Exchange Forward Contracts: Income Statement | | in OCL on | | OCL into | | in OCL on | | OCL into | ||||
Classification Gains (Losses) – Realized |
| Derivatives |
| Earnings |
| Derivatives |
| Earnings | ||||
Net sales | | $ | 23 | | $ | 0 | | $ | (51) | | $ | (3) |
Cost of goods sold | |
| 60 | |
| 0 | |
| 390 | |
| (38) |
Selling and administrative expenses | |
| 33 | |
| (6) | |
| (147) | |
| (213) |
Additional information related to the Company’s derivative financial instruments are disclosed within Note 15 to the condensed consolidated financial statements.
Note 1514 Fair Value Measurements
Fair Value Hierarchy
Fair value measurement disclosure requirements specify a hierarchy of valuation techniques based upon whether the inputs to those valuation techniques reflect assumptions other market participants would use based upon market data obtained from independent sources (“observable inputs”) or reflect the Company’s own assumptions of market participant valuation (“unobservable inputs”). In accordance with the fair value guidance, the inputs to valuation techniques used to measure fair value are categorized into three levels based on the reliability of the inputs as follows:
● | Level 1 – Quoted prices in active markets that are unadjusted and accessible at the measurement date for identical, unrestricted assets or liabilities; |
● | Level 2 – Quoted prices for identical assets and liabilities in markets that are not active, quoted prices for similar assets and liabilities in active markets or financial instruments for which significant inputs are observable, either directly or indirectly; and |
● | Level 3 – Prices or valuations that require inputs that are both significant to the fair value measurement and unobservable. |
In determining fair value, the Company uses valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible. The Company also considers counterparty credit risk in its assessment of fair value. Classification of the financial or non-financial asset or liability within the hierarchy is determined based on the lowest level input that is significant to the fair value measurement.
Measurement of Fair Value
The Company measures fair value as an exit price, the price to sell an asset or transfer a liability in an orderly transaction between market participants at the measurement date, using the procedures described below for all financial and non-financial assets and liabilities measured at fair value.
24
Money Market Funds
The Company has cash equivalents consisting of short-term money market funds backed by U.S. Treasury securities. The primary objective of these investing activities is to preserve the Company’s capital for the purpose of funding operations, and 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 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 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 (loss). The fair value of each PSU
23
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 were previously granted at no cost to non-employee directors. These 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 12 to the condensed consolidated financial statements.
Derivative Financial Instruments
The Company uses derivative financial instruments, primarily foreign exchange contracts, to reduce its exposure to market risks from changes in foreign exchange rates. These foreign exchange contracts are measured at fair value using quoted forward foreign exchange prices from counterparties corroborated by market-based pricing (Level 2). Additional information related to the Company’s derivative financial instruments is disclosed in Note 14 to the condensed consolidated financial statements.
Mandatory Purchase Obligation
The Company recorded a mandatory purchase obligation of the noncontrolling interest in conjunction with the acquisition of Blowfish Malibu in July of 2018. The fair value of the mandatory purchase obligation is based on the earnings formula specified in the purchase agreement (Level 3). Accretion ofFair value adjustments on the mandatory purchase obligation and fair value adjustments are recorded as interest expense. During the thirteen and thirty-nine weeks ended OctoberJuly 31, 2021 and August 1, 2020, the Company recorded fair value adjustments of $5.1$7.1 million and $14.9$6.6 million, respectively. AccretionDuring the twenty-six weeks ended July 31, 2021 and remeasurementAugust 1, 2020, the Company recorded fair value adjustments of $3.9$13.5 million and $4.4$9.8 million, were recorded during the thirteen and thirty-nine weeks ended November 2, 2019, respectively. The earnings projections and discount rate utilized in the estimate of the fair value of the mandatory purchase obligation require management judgment and are the assumptions to which the fair value calculation is the most sensitive. Refer to further discussion of the mandatory purchase obligation in Note 5 to the condensed consolidated financial statements.
25
The following table presents the Company’s assets and liabilities that are measured at fair value on a recurring basis at OctoberJuly 31, 2021, August 1, 2020 November 2, 2019 and FebruaryJanuary 30, 2021. During the twenty-six weeks ended July 31, 2021 and August 1, 2020.2020, there were 0 transfers into or out of Level 3.
| | | | | | | | | | | | | | | | | | | | | | | | |
|
| Fair Value Measurements |
| Fair Value Measurements | ||||||||||||||||||||
($thousands) |
| Total |
| Level 1 |
| Level 2 |
| Level 3 | ||||||||||||||||
($ thousands) |
| Total |
| Level 1 |
| Level 2 |
| Level 3 | ||||||||||||||||
Asset (Liability) | | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
|
October 31, 2020: | | |
| | |
| | |
| | |
| ||||||||||||
July 31, 2021: | | |
| | |
| | |
| | |
| ||||||||||||
Cash equivalents – money market funds | | $ | 82,500 | | $ | 82,500 | | $ | 0 | | $ | 0 | | $ | 4,000 | | $ | 4,000 | | $ | 0 | | $ | 0 |
Non-qualified deferred compensation plan assets | |
| 7,741 | |
| 7,741 | |
| 0 | | | 0 | |
| 8,361 | |
| 8,361 | |
| 0 | | | 0 |
Non-qualified deferred compensation plan liabilities | |
| (7,741) | |
| (7,741) | |
| 0 | | | 0 | |
| (8,361) | |
| (8,361) | |
| 0 | | | 0 |
Deferred compensation plan liabilities for non-employee directors | |
| (813) | |
| (813) | |
| 0 | | | 0 | |
| (1,991) | |
| (1,991) | |
| 0 | | | 0 |
Restricted stock units for non-employee directors | |
| (840) | |
| (840) | |
| 0 | | | 0 | |
| (2,735) | |
| (2,735) | |
| 0 | | | 0 |
Mandatory purchase obligation - Blowfish Malibu | |
| (30,146) | |
| — | |
| 0 | | | (30,146) | |
| (52,639) | |
| 0 | |
| 0 | | | (52,639) |
November 2, 2019: | | |
| | |
| | |
| | |
| ||||||||||||
Non-qualified deferred compensation plan assets | | $ | 8,117 | | $ | 8,117 | | $ | 0 | | $ | 0 | ||||||||||||
Non-qualified deferred compensation plan liabilities | |
| (8,117) | |
| (8,117) | |
| 0 | | | 0 | ||||||||||||
Deferred compensation plan liabilities for non-employee directors | |
| (1,879) | |
| (1,879) | |
| 0 | | | 0 | ||||||||||||
Restricted stock units for non-employee directors | |
| (3,282) | |
| (3,282) | |
| 0 | | | 0 | ||||||||||||
Derivative financial instruments, net | |
| (308) | |
| 0 | |
| (308) | | | 0 | ||||||||||||
Mandatory purchase obligation - Blowfish Malibu | |
| (13,655) | |
| 0 | |
| 0 | | | (13,655) | ||||||||||||
February 1, 2020: | | |
| | |
| | |
| | |
| ||||||||||||
August 1, 2020: | | |
| | |
| | |
| | |
| ||||||||||||
Cash equivalents – money market funds | | $ | 18,001 | | $ | 18,001 | | $ | 0 | | $ | 0 | | $ | 99,001 | | $ | 99,001 | | $ | 0 | | $ | 0 |
Non-qualified deferred compensation plan assets | |
| 8,004 | |
| 8,004 | |
| 0 | | | 0 | | | 7,690 | | | 7,690 | | | 0 | | | 0 |
Non-qualified deferred compensation plan liabilities | |
| (8,004) | |
| (8,004) | |
| 0 | | | 0 | |
| (7,690) | |
| (7,690) | |
| 0 | | | 0 |
Deferred compensation plan liabilities for non-employee directors | |
| (1,536) | |
| (1,536) | |
| 0 | | | 0 | |
| (780) | |
| (780) | |
| 0 | | | 0 |
Restricted stock units for non-employee directors | |
| (2,572) | |
| (2,572) | |
| 0 | | | 0 | |
| (686) | |
| (686) | |
| 0 | | | 0 |
Derivative financial instruments, net | |
| (103) | |
| 0 | |
| (103) | | | 0 | ||||||||||||
Mandatory purchase obligation - Blowfish Malibu | |
| (15,200) | |
| 0 | |
| 0 | | | (15,200) | |
| (25,022) | |
| 0 | |
| 0 | | | (25,022) |
| | | | | | | | | | | | | ||||||||||||
January 30, 2021: | | |
| | |
| | |
| | |
| ||||||||||||
Cash equivalents – money market funds | | $ | 45,000 | | $ | 45,000 | | $ | 0 | | $ | 0 | ||||||||||||
Non-qualified deferred compensation plan assets | |
| 7,918 | |
| 7,918 | |
| 0 | | | 0 | ||||||||||||
Non-qualified deferred compensation plan liabilities | |
| (7,918) | |
| (7,918) | |
| 0 | | | 0 | ||||||||||||
Deferred compensation plan liabilities for non-employee directors | |
| (989) | |
| (989) | |
| 0 | | | 0 | ||||||||||||
Restricted stock units for non-employee directors | |
| (1,661) | |
| (1,661) | |
| 0 | | | 0 | ||||||||||||
Mandatory purchase obligation - Blowfish Malibu | |
| (39,134) | |
| 0 | |
| 0 | | | (39,134) |
Impairment Charges
The Company assesses the impairment of long-lived assets whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Factors the Company considers important that could trigger an impairment review include underperformance relative to historical or projected future operating results, a significant change in the manner of the use of the asset, or a negative industry or economic trend. When the Company determines that the carrying value of long-lived assets may not be recoverable based upon the existence
24
of one or more of the aforementioned factors, impairment is measured based on a projected discounted cash flow method. Certain factors, such as estimated store sales and expenses, used for this nonrecurring fair value measurement are considered Level 3 inputs as defined by FASB ASC Topic 820, Fair Value Measurement. Long-lived assets held and used with a carrying amount of $657.6$551.8 million and $658.1$684.9 million at OctoberJuly 31, 20202021 and November 2, 2019,August 1, 2020, respectively, were assessed for indicators of impairment and written down to their fair value. This assessment resulted in the following impairment charges, primarily for operating lease right-of-use assets, leasehold improvements and furniture and fixtures in the Company’s retail stores. Higher impairment charges were recorded in the thirty-ninetwenty-six weeks ended October 31,August 1, 2020, reflecting the deteriorating economic conditions driven in part by the COVID-19 pandemic, as further discussed in Note 5 and Note 9 to the condensed consolidated financial statements.
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Thirteen Weeks Ended | | Thirty-Nine Weeks Ended | | Thirteen Weeks Ended | | Twenty-Six Weeks Ended | ||||||||||||||||
($thousands) |
| October 31, 2020 |
| November 2, 2019 |
| October 31, 2020 |
| November 2, 2019 | ||||||||||||||||
Impairment Charges |
| |
|
| |
|
| |
|
| |
| ||||||||||||
($ thousands) |
| July 31, 2021 |
| August 1, 2020 |
| July 31, 2021 |
| August 1, 2020 | ||||||||||||||||
Long-Lived Asset Impairment Charges |
| |
|
| |
|
| |
|
| |
| ||||||||||||
Famous Footwear | | $ | 0 | | $ | 769 | | $ | 14,896 | | $ | 1,509 | | $ | 400 | | $ | — | | $ | 800 | | $ | 14,896 |
Brand Portfolio | |
| 398 | |
| 1,382 | |
| 20,724 | |
| 3,596 | |
| — | |
| — | |
| 1,488 | |
| 20,326 |
Total impairment charges | | $ | 398 | | $ | 2,151 | | $ | 35,620 | | $ | 5,105 | ||||||||||||
Total long-lived asset impairment charges | | $ | 400 | | $ | — | | $ | 2,288 | | $ | 35,222 |
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.
26
The carrying amounts and fair values of the Company’s other financial instruments subject to fair value disclosures are as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
|
| October 31, 2020 |
| November 2, 2019 |
| February 1, 2020 |
| July 31, 2021 |
| August 1, 2020 |
| January 30, 2021 | ||||||||||||||||||||||||
| | Carrying | | | | | Carrying | | | | | Carrying | | | | | Carrying | | | | | Carrying | | | | | Carrying | | | | ||||||
($thousands) |
| Value (1) |
| Fair Value |
| Value (1) |
| Fair Value |
| Value (1) |
| Fair Value | ||||||||||||||||||||||||
($ thousands) |
| Value (1) |
| Fair Value |
| Value (1) |
| Fair Value |
| Value (1) |
| Fair Value | ||||||||||||||||||||||||
Borrowings under revolving credit agreement | | $ | 300,000 | | $ | 300,000 | | $ | 295,000 | | $ | 295,000 | | $ | 275,000 | | $ | 275,000 | | $ | 100,000 | | $ | 100,000 | | $ | 350,000 | | $ | 350,000 | | $ | 250,000 | | $ | 250,000 |
Current portion of long-term debt | | | 100,000 | | | 100,000 | | | — | | | — | | | — | | | — | ||||||||||||||||||
Long-term debt | |
| 200,000 | |
| 188,750 | |
| 200,000 | |
| 206,200 | |
| 200,000 | |
| 205,000 | |
| 100,000 | |
| 100,000 | |
| 200,000 | |
| 174,000 | |
| 200,000 | |
| 201,000 |
Total debt | | $ | 500,000 | | $ | 488,750 | | $ | 495,000 | | $ | 501,200 | | $ | 475,000 | | $ | 480,000 | | $ | 300,000 | | $ | 300,000 | | $ | 550,000 | | $ | 524,000 | | $ | 450,000 | | $ | 451,000 |
(1) | Excludes unamortized debt issuance costs and debt discount |
The fair valuevalues of borrowings under the revolving credit agreement approximates itsand current portion of long-term debt approximate their carrying valuevalues due to itsthe short-term nature of these borrowings (Level 1). The fair value of the Company’s long-term debt was based upon quoted prices in an inactive market as of the end of the respective periods (Level 2).
Note 1615 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 rate was (1.9%)effective tax rates were a provision of 30.3% and a benefit of 9.4% for the thirteen weeks ended OctoberJuly 31, 2021 and August 1, 2020, compared to 21.9% for the thirteen weeks ended November 2, 2019.respectively. The lowerhigher tax rate for the thirteen weeks ended OctoberJuly 31, 2020, primarily reflects the impact of a higher anticipated full year tax benefit,2021 was driven by discrete tax adjustments totaling $2.9 million, inclusive of $3.3 million of incremental valuation allowances on the CARES Act, which permitsCompany’s deferred tax assets, as the Company to carry back 2020 losses to years withis in a higherfull valuation allowance position for federal, tax rate,state and certain international jurisdictions. During the mix of projected earnings between international and domestic jurisdictions.
For the thirty-ninethirteen weeks ended October 31,August 1, 2020, the Company’s consolidated effective tax rate was 19.8%, compared to 23.1% for thirty-nine weeks ended November 2, 2019. The Company’sCompany's effective tax rate was impacted by several discrete tax items for the thirty-nine weeks ended October 31, 2020,totaling $2.7 million, including the non-deductibility of a portion oflosses at the Company’s intangible asset impairment charges, the provision ofCanadian business division. Offsetting this impact was a valuation allowance related to certain state and Canada deferred tax assets and the incremental tax provision related to share-based compensation. As discussed above, the Company’s tax benefit also includes the favorable impact ofassociated with the CARES Act, which permits the Company to carry back 2020 losses to years with a higher federal tax rate. If these discrete taxes had not been recognized during the thirty-nine weeks ended October 31, 2020, the
The Company’s consolidated effective tax rate would have been 23.5%. Duringwas a provision of 31.1% for the nine monthstwenty-six weeks ended November 2, 2019,July 31, 2021, compared to a benefit of 19.1% for the twenty-six weeks ended August 1, 2020. The higher tax rate for the twenty-six weeks ended July 31, 2021 primarily reflects the incremental valuation allowances recorded in the second quarter, as described above, and the non-deductibility of losses at the Company’s Canadian business division, which were driven by exit-related costs associated with Naturalizer retail stores during the first quarter. The Company's effective tax rate for the twenty-six weeks ended August 1, 2020 was impacted by several discrete tax items, including the non-deductibility of a portion of the Company's intangible asset impairment charges, the provision of a valuation allowance related to certain
25
state and Canada deferred tax assets, and the incremental tax provision related to the vesting of stock awards. Offsetting these impacts was a benefit associated with the CARES ACT, which permits the Company recognized an immaterial amount of discreteto carry back 2020 losses to years with a higher federal tax items.rate.
As of OctoberJuly 31, 2020,2021, 0 deferred taxes have been provided on the accumulated unremitted earnings of the Company’s foreign subsidiaries that are not subject to United States income tax, beyond the amounts recorded for the one-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 foreign investment opportunities and plans, as well as its foreign working capital needs, to determine the level of investment required and, accordingly, determines the level of foreign earnings that is considered indefinitely reinvested. Based upon that evaluation, earnings of the Company’s foreign subsidiaries that are not otherwise subject to United States taxation are considered to be indefinitely reinvested, and accordingly, deferred taxes have not been provided. If changes occur in future investment opportunities and plans, those changes will be reflected when known and may result in providing residual United States deferred taxes on unremitted foreign earnings.
Note 1716 Commitments and Contingencies
Environmental Remediation
Prior operations included numerous manufacturing and other facilities for which the Company may have responsibility under various environmental laws for the remediation of conditions that may be identified in the future. The Company is involved in environmental remediation and ongoing compliance activities at several sites and has been notified that it is or may be a potentially responsible party at several other sites.
Redfield
The Company is remediating, under the oversight of Colorado authorities, the groundwater and indoor air at its owned facility in Colorado (the “Redfield site” or, when referring to remediation activities at or under the facility, the “on-site remediation”) and residential neighborhoods adjacent to and near the property (the “off-site remediation”) that have been affected by solvents previously used at the facility. The on-site remediation calls for the operation of a pump and treat system (which prevents migration of contaminated groundwater
27
off the property) as the final remedy for the site, subject to monitoring and periodic review of the on-site conditions and other remedial technologies that may be developed in the future. In 2016, the Company submitted a revised plan to address on-site conditions, including direct treatment of source areas, and received approval from the oversight authorities to begin implementing the revised plan.
As the treatment of the on-site source areas progresses, the Company expects to convert the pump and treat system to a passive treatment barrier system. Off-site groundwater concentrations have been reducing over time since installation of the pump and treat system in 2000 and injection of clean water beginning in 2003. However, localized areas of contaminated bedrock just beyond the property line continue to impact off-site groundwater. The modified work plan for addressing this condition includes converting the off-site bioremediation system into a monitoring well network and employing different remediation methods in these recalcitrant areas. In accordance with the work plan, a pilot test was conducted of certain groundwater remediation methods and the results of that test were used to develop more detailed plans for remedial activities in the off-site areas, which were approved by the authorities and are being implemented in a phased manner. The results of groundwater monitoring are being used to evaluate the effectiveness of these activities. The Company continues to implement the expanded remedy work plan that was approved by the oversight authorities in 2015. Based on the progress of the direct remedial action of on-site conditions, the Company has submitted a request to the oversight authorities for permission to convert the perimeter pump and treat active remediation system to a passive one. During the fourth quarter ofIn 2019, a final response was received from the oversight authorities, which allowsis allowing the Company to proceed with implementation of the revised plan. The Company continues to work with outside experts and the oversight authorities on the off-site work plan.
The cumulative expenditures for both on-site and off-site remediation through OctoberJuly 31, 20202021 were $31.8$32.1 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 OctoberJuly 31, 20202021 is $9.7$9.9 million, of which $8.9$9.0 million is recorded within other liabilities and $0.8$0.9 million is recorded within other accrued expenses. Of the total $9.7$9.9 million reserve, $5.0$5.1 million is for off-site remediation and $4.7$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 $13.9$13.6 million as of OctoberJuly 31, 2020.2021. The Company expects to spend approximately $0.6$0.5 million in 202021, $0.1 million in each of the following four years and $12.9$12.7 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.
26
The Company continues to evaluate its remediation plans in conjunction with its environmental consultants and records its best estimate of remediation liabilities. However, future actions and the associated costs are subject to oversight and approval of various governmental authorities. Accordingly, the ultimate costs may vary, and it is possible costs may exceed the recorded amounts.
Litigation
The Company is involved in legal proceedings and litigation arising in the ordinary course of business. In the opinion of management, the outcome of such ordinary course of business proceedings and litigation currently pending is not expected to have a material adverse effect on the Company’s results of operations or financial position. Legal costs associated with litigation are generally expensed as incurred.
Note 18 Subsequent Event
On November 19, 2020, the Company announced that, with the exception of a limited number of flagship locations, it plans to close all Naturalizer retail stores in the United States and Canada by the end of fiscal 2020. In addition to the store closures, the Company anticipates aligning the back-office infrastructure to the reduced store footprint, shifting talent to amplify the digital presence, and reallocating capital to further enhance the Company’s ecommerce platform and capabilities. The Company expects pre-tax charges in the fourth quarter of 2020 of between $20 million and $25 million. When the realignment is complete, an annual pre-tax benefit of between $10 million and $12 million is expected.
2827
ITEM 2 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The United StatesWe experienced better-than-anticipated consumer demand in the second quarter of 2021, recording sequential net sales growth and global economies continuesignificant gross margin improvement. We also achieved the highest second quarter operating earnings in our history. We experienced consistently strong sales performance throughout the quarter at Famous Footwear, which contributed to be adversely affectedthe segment’s highest second quarter net sales in its history.
In the first half of last year, our financial results were negatively impacted by the coronavirus (“COVID-19”) pandemic. Although we have reopenedpandemic, including the temporary closure of all of our retail stores frombeginning in mid-March, with a phased re-opening beginning in mid-May. We did experience sequential improvement in sales in the temporary store closures insecond half of 2020, driven by the reopening of our retail stores, and continued solid growth of our e-commerce business. During the first half of 2020,2021, as the vaccines became widely distributed and governments continued to ease restrictions, consumer sentiment and spending improved, which contributed to higher store traffic and strong growth in our businessnet sales and operating earnings.
While we achieved strong financial results for the second quarter of 2021, we continue to be negatively impacted by COVID-19. Many of our stores have reduced operating hours and have experienced declines in foot traffic with stay-at-home orders and other government mandates, which has resulted in lower sales, despite our e-commerce business experiencing robust growth during this time. In addition, a small number of stores have temporarily closed again due to local government mandates. We believe we are better positioned and prepared to manage through this periodexperience global supply chain disruptions as a result of the actionspandemic. These disruptions have caused a delay in the receipt of inventory due to port congestion, reduced shipping vessel and container availability, and factory shutdowns as a result of the resurgence of COVID-19 infections, as well as an increase in inbound freight costs. We are actively working with our suppliers to minimize these disruptions, but we have taken. However,anticipate higher inbound freight costs in the depthsecond half of 2021 and beyond. The extent and duration of the pandemicthese supply chain disruptions and its impact on overall consumer confidence and spending is not known. Furthermore, if COVID-19 cases continue to rise or additional federal, state and local government restrictionshigher freight costs are implemented, we may continue to experience disruption to our business, results of operations and financial condition.uncertain.
Financial Highlights
We continued our steady upward momentum in the third quarter of 2020, overcoming the ongoing pressures from COVID-19, and we delivered better than expected financial results. We delivered sequential sales growth compared to the second quarter of 2020, a return to profitability and stronger gross margins, as well as a further improved working capital position, despite the still uncertain economic environment. We continued to advance a number of our key strategic objectives during the quarter that are helping to drive our recovery, including prudent management of working capital and operating expenses, effectively adjusting to the extended back-to-school season and further reducing our overall indebtedness. The followingFollowing is a summary of the financial highlights for the thirdsecond quarter of 2020:2021:
● |
● | Consolidated gross profit |
● | Consolidated operating earnings |
● | Consolidated net earnings attributable to Caleres, Inc. were |
The following items should be considered in evaluating the comparability of our thirdsecond quarter results in 20202021 and 2019:2020:
● | Blowfish Malibu mandatory purchase obligation – As further discussed in Note 5 and Note |
Recent Developments
In November 2020, we announced that, with the exception of a limited number of flagship locations, we plan to close all Naturalizer stores in the United States and Canada by the end of fiscal 2020. In addition to the store closures, we plan to right-size the back-office infrastructure to better align with the reduced store footprint, shift talent to amplify our digital presence, capture the consumer where they want to shop and reallocate capital to further enhance our ecommerce platform and capabilities.
2928
● | Deferred tax valuation allowances – During the second quarter of 2021, we recorded incremental net deferred tax valuation allowances totaling $3.3 million ($0.08 per diluted share), as we are in a full valuation allowance position for federal, state and certain international jurisdictions. Refer to Note 15 to the condensed consolidated financial statements for further discussion. |
● | COVID-19-related expenses – During the second quarter of 2020, we incurred $5.4 million ($4.7 million on an after-tax basis, or $0.13 per diluted share) in costs associated with the economic impacts of the COVID-19 pandemic, for severance and related costs, as well as the cost of supplies and deep cleaning our facilities. |
Metrics Used in the Evaluation of Our Business
The following are a couple of key metrics by which we evaluate our business and make strategic decisions:
Same-store sales
The same-store sales metric is a metric commonly used in the retail industry to evaluate the revenue generated for stores that have been open for more than a year, though other retailers may calculate the metric differently. Management uses the same-store sales metric as a measure of an individual store’s success to determine whether it is performing in line with expectations. Our same-store sales metric is a daily-weighted calculation for the period, which includes sales for stores that have been open for at least 13 months. In addition, in order to be included in the same-store sales metric, a store must be open in the current period as well as the corresponding day(s) of the comparable retail calendar in the prior year. Accordingly, closed stores (whether temporary or permanent closures) are excluded from the same-store sales metric for each day of the closure. Relocated stores are treated as new stores and therefore excluded from the calculation. E-commerce sales for those websites that function as an extension of a retail chain are included in the same-store sales calculation. We believe the same-store sales metric is useful to shareholders and investors in assessing our retail sales performance of existing locations with comparable prior year sales, separate from the impact of store openings or store closures.
Beginning in mid-March 2020, all of our Famous Footwear and Brand Portfolio stores in North America were temporarily closed and we began a phased reopening of retail stores in mid-May. Our same-store sales calculation excludes the impact of both permanent and temporary store closures. During the third quarter, we experienced approximately 1,700 days of retail store closure related to illness, weather, fires, civil unrest and government mandates. Accordingly, for both the thirteen and thirty-nine weeks ended October 31,second quarter of 2020, our same-store sales calculation iswas impacted more heavily by our e-commerce sales penetration, which was higher than in prior periods, given the strong growth in that channel and the fact that our e-commerce sites have continued to operate throughout the year.second quarter of 2020.
Sales per square foot
The sales per square foot metric is commonly used in the retail industry to calculate the efficiency of sales based upon the square footage in a store. Management uses the sales per square foot metric as a measure of an individual store’s success to determine whether it is performing in line with expectations. The sales per square foot metric is calculated by dividing total retail store sales, excluding e-commerce sales, by the total square footage of the retail store base at the end of each month of the respective period. This metric was adversely impacted by the temporary retail store closures during a portion of the first halfsecond quarter of 2020 and therefore, the metric is not comparable to the thirty-nine weeks ended November 2, 2019.second quarter of 2021.
Outlook
There is ongoing uncertaintyWe continued to execute at a high level during the second quarter of 2021, achieving another significant sequential increase in net sales and limited visibility todelivering operating earnings in excess of pre-pandemic levels. The new COVID-19 variants and the business and financial impactsimpact of the pandemic. Despitepandemic on the global supply chain have caused uncertainty in the macro environment. We are actively working with our suppliers to minimize these disruptions, but expect the inflationary economy and the increase in inbound freight costs to impact our financial results in the second half of 2021. Throughout the remainder of 2021, we will remain focused on building upon our strong performance at Famous Footwear, driving inventory efficiencies, and continuing to create a strong emotional connection with our consumers. We believe we are better positioned and preparedwell-positioned to managenavigate through this period with the many efficiency initiatives that have been implemented. We expect to further our debt reduction progress to end fiscal 2020 with borrowings under our revolving credit agreement in line with pre-COVID-19 levels. We are continuing to adjustsupply chain disruptions, responding to the currentvariables within our control, to improve financial results in the Brand Portfolio segment. We will continue to leverage our core competencies and evolving market environment by strengthening our financial position and furtheringexecute on our long-term strategic objectives, which we believe will enable uspriorities to drive innovation inenhance long-term value for our brands and create value as business conditions normalize. shareholders.
3029
Following are the consolidated results and the results by segment:
CONSOLIDATED RESULTS
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
|
| Thirteen Weeks Ended | | | Thirty-Nine Weeks Ended |
|
| Thirteen Weeks Ended | | | Twenty-Six Weeks Ended |
| ||||||||||||||||||||||||||||||||
|
| October 31, 2020 |
| November 2, 2019 |
|
| October 31, 2020 |
| November 2, 2019 |
|
| July 31, 2021 |
| August 1, 2020 |
|
| July 31, 2021 |
| August 1, 2020 |
| ||||||||||||||||||||||||
| | | | | % of | | | | | % of | | | | | | % of | | | | | % of | | | | | | % of | | | | | % of | | | | | | % of | | | | | % of | |
($ millions) |
|
| |
| Net Sales |
|
| |
| Net Sales |
|
|
| |
| Net Sales |
|
| |
| Net Sales |
|
|
| |
| Net Sales |
|
| |
| Net Sales |
|
|
| |
| Net Sales |
|
| |
| Net Sales |
|
Net sales | | $ | 647.5 |
| 100.0 | % | $ | 792.4 |
| 100.0 | % | | $ | 1,546.1 |
| 100.0 | % | $ | 2,222.6 |
| 100.0 | % | | $ | 675.5 |
| 100.0 | % | $ | 501.4 |
| 100.0 | % | | $ | 1,314.2 |
| 100.0 | % | $ | 898.6 |
| 100.0 | % |
Cost of goods sold | |
| 390.5 |
| 60.3 | % |
| 472.6 |
| 59.6 | % | |
| 984.6 |
| 63.7 | % |
| 1,317.0 |
| 59.3 | % | |
| 353.2 |
| 52.3 | % |
| 318.8 |
| 63.6 | % | |
| 717.0 |
| 54.6 | % |
| 594.1 |
| 66.1 | % |
Gross profit | |
| 257.0 |
| 39.7 | % |
| 319.8 |
| 40.4 | % | |
| 561.5 |
| 36.3 | % |
| 905.6 |
| 40.7 | % | |
| 322.3 |
| 47.7 | % |
| 182.6 |
| 36.4 | % | |
| 597.2 |
| 45.4 | % |
| 304.5 |
| 33.9 | % |
Selling and administrative expenses | |
| 236.9 |
| 36.6 | % |
| 275.3 |
| 34.8 | % | |
| 663.5 |
| 42.9 | % |
| 805.0 |
| 36.2 | % | |
| 259.5 |
| 38.4 | % |
| 201.3 |
| 40.1 | % | |
| 503.0 |
| 38.3 | % |
| 426.6 |
| 47.5 | % |
Impairment of goodwill and intangible assets | |
| — |
| — | |
| — |
| — | | |
| 262.7 |
| 17.0 | % |
| — |
| — | | |
| — |
| — | |
| — |
| — | | |
| — |
| — | % |
| 262.7 |
| 29.2 | % |
Restructuring and other special charges, net | |
| — |
| — | % |
| 1.0 |
| 0.1 | % | |
| 65.6 |
| 4.2 | % |
| 2.5 |
| 0.1 | % | |
| — |
| — | % |
| 5.4 |
| 1.1 | % | |
| 13.5 |
| 1.0 | % |
| 65.6 |
| 7.3 | % |
Operating earnings (loss) | |
| 20.1 |
| 3.1 | % |
| 43.5 |
| 5.5 | % | |
| (430.3) |
| (27.8) | % |
| 98.1 |
| 4.4 | % | |
| 62.8 |
| 9.3 | % |
| (24.1) |
| (4.8) | % | |
| 80.7 |
| 6.1 | % |
| (450.4) |
| (50.1) | % |
Interest expense, net | |
| (10.9) |
| (1.7) | % |
| (10.5) |
| (1.3) | % | |
| (33.7) |
| (2.2) | % |
| (25.2) |
| (1.2) | % | |
| (12.0) |
| (1.7) | % |
| (13.5) |
| (2.7) | % | |
| (23.8) |
| (1.8) | % |
| (22.9) |
| (2.6) | % |
Other income, net | |
| 5.5 |
| 0.9 | % |
| 2.6 |
| 0.3 | % | |
| 12.7 |
| 0.8 | % |
| 7.9 |
| 0.4 | % | |
| 3.9 |
| 0.5 | % |
| 3.7 |
| 0.7 | % | |
| 7.7 |
| 0.6 | % |
| 7.3 |
| 0.8 | % |
Earnings (loss) before income taxes | |
| 14.7 |
| 2.3 | % |
| 35.6 |
| 4.5 | % | |
| (451.3) |
| (29.2) | % |
| 80.8 |
| 3.6 | % | |
| 54.7 |
| 8.1 | % |
| (33.9) |
| (6.8) | % | |
| 64.6 |
| 4.9 | % |
| (466.0) |
| (51.9) | % |
Income tax benefit (provision) | |
| 0.2 |
| — | % |
| (7.8) |
| (1.0) | % | |
| 89.4 |
| 5.8 | % |
| (18.7) |
| (0.8) | % | ||||||||||||||||||||||
Income tax (provision) benefit | |
| (16.5) |
| (2.5) | % |
| 3.2 |
| 0.7 | % | |
| (20.1) |
| (1.5) | % |
| 89.1 |
| 10.0 | % | ||||||||||||||||||||||
Net earnings (loss) | |
| 14.9 |
| 2.3 | % |
| 27.8 | | 3.5 | % | |
| (361.9) |
| (23.4) | % |
| 62.1 | | 2.8 | % | |
| 38.2 |
| 5.6 | % |
| (30.7) | | (6.1) | % | |
| 44.5 |
| 3.4 | % |
| (376.9) | | (41.9) | % |
Net earnings (loss) attributable to noncontrolling interests | |
| 0.5 |
| 0.1 | % |
| (0.2) |
| — | % | |
| 0.2 |
| — | % |
| (0.3) |
| — | % | |
| 0.8 |
| 0.1 | % |
| 0.0 |
| 0.0 | % | |
| 1.0 |
| 0.1 | % |
| (0.3) |
| (0.0) | % |
Net earnings (loss) attributable to Caleres, Inc. | | $ | 14.4 |
| 2.2 | % | $ | 28.0 |
| 3.5 | % | | $ | (362.1) |
| (23.4) | % | $ | 62.4 |
| 2.8 | % | | $ | 37.4 |
| 5.5 | % | $ | (30.7) |
| (6.1) | % | | $ | 43.5 |
| 3.3 | % | $ | (376.6) |
| (41.9) | % |
Net Sales
Net sales decreased $144.9increased $174.1 million, or 18.3%34.7%, to $647.5$675.5 million for the thirdsecond quarter of 2020,2021, compared to $792.4$501.4 million for the thirdsecond quarter of 2019.2020. Our Famous Footwear segment continued to experience strong consumer demand, with net sales increasing $119.7 million, or 35.8%, compared to the second quarter of 2020. Famous Footwear’s net sales of $453.6 million were sequentially higher than the first quarter of 2021 and the highest second quarter net sales in our history. Net sales for our Brand Portfolio segment experienced a sales decline of $92.3increased $55.4 million, or 25.6%,30.2% during the thirdsecond quarter of 2021. While Brand Portfolio net sales improved over last year, they remain below pre-pandemic levels, due in part to the brand exits announced in late 2019 and early 2020 while sales at our Famous Footwear segment decreased $54.9 million, or 12.3%. Our e-commerce and logistics capabilities positioned us to capitalize on the accelerating shift to online purchasing, driving e-commerce sales on our owned websites to increase 24.6% during the third quarterclosure of 2020, with consolidated e-commerce penetration rising to approximately 25% of net sales.all but two Naturalizer retail stores in North America. On a consolidated basis, our direct-to-consumer sales represented 71.4%79% of total net sales for the thirdsecond quarter of 2020. Athletic2021. Our casual, athletic and sport footwear categories continued to resonate with consumers, and we experienced strong sales growth in sandals.
Net sales increased $415.6 million, or 46.2%, to $1,314.2 million for the six months ended July 31, 2021, compared to $898.6 million for the six months ended August 1, 2020. Our strong performance was attributable to a number of footwear werefactors, including positive consumer sentiment attributable to the strongest performers duringwidespread availability of the quarter,COVID-19 vaccines and easing of government restrictions, as well as additional government stimulus measures. We believe that these factors led to a significant improvement in retail store traffic. Our Famous Footwear segment experienced a net sales increase of $326.6 million, or 62.2%, for the six months ended July 31, 2021, with weakness in many dress footwear categories. Boots have also performed well in the quarter, with lug sole, casual booties and weatherproof leading the way.record-setting net sales of $851.8 million. Our Brand Portfolio segment experienced a 45% sequentialreported an $88.4 million, or 22.1%, increase in net sales, led by our casual, athletic, and sport-inspired assortment. Our Famous Footwear segment also experienced sequentialwith strong sales growth as we capitalized on the extended back-to-school seasonfrom our Sam Edelman, Blowfish, Vionic and growth in our product assortment for kids.
Net sales decreased $676.5 million, or 30.4%, to $1,546.1 million for the nine months ended October 31, 2020, compared to $2,222.6 million for the nine months ended November 2, 2019. The temporary closure of all of our retail stores for an average of 10 weeks in the first half of 2020 due to the COVID-19 pandemic, as well as the closure of stores operated by our wholesale customers, resulted in a $392.1 million, or 37.0%, decrease in net sales for our Brand Portfolio segment and a $301.7 million, or 24.8% decrease in net sales for our Famous Footwear segment. With the closure of our retail stores, our Famous Footwear e-commerce business delivered approximately an 85% increase in net sales for the nine months of 2020.Allen Edmonds brands.
Gross Profit
Gross profit decreased $62.8increased $139.7 million, or 19.6%76.5%, to $257.0$322.3 million for the thirdsecond quarter of 2021, compared to $182.6 million for the second quarter of 2020, compared to $319.8 million for the third quarter of 2019, primarily as a result of lowerreflecting higher net sales reflecting the continued difficult retail environment driven by the COVID-19 pandemic.and a higher gross profit rate. As a percentage of net sales, gross profit decreasedincreased to 39.7%47.7% for the thirdsecond quarter of 2021, compared to 36.4% for the second quarter of 2020, compared to 40.4% for the third quarter of 2019, primarily reflecting a higher mix of e-commerce sales and thedecline in promotional actions taken to drive sales volume and manage inventory levels in this uncertain environment. Our e-commerce sales generally result in lower margins than traditional retail sales as a result of the incremental shipping and handling required. Our direct-to-consumer sales represented 71.4% of consolidated net sales for the quarter.activity driven by strong consumer demand.
Gross profit decreased $344.1increased $292.7 million, or 38.0%96.1%, to $561.5$597.2 million for the ninesix months ended OctoberJuly 31, 2020,2021, compared to $905.6$304.5 million for the ninesix months ended November 2, 2019,August 1, 2020, primarily reflecting lowerdue to higher net sales and a reduction in promotional activity at Famous Footwear. For the six months ended August 1, 2020, our gross profit was impacted by higher incremental cost of goods sold in the first nine months of 2020 driven by an increaseprimarily due to $33.4 million in inventory markdowns reflecting the difficult retail environment driven by the COVID-19 pandemic, andas well as $1.6 million in inventory markdowns related to the decision during the first quarter of 2020 to exit theour Fergie brand. Cost of goods sold in the nine months ended November 2, 2019 included $7.2 million related to the amortization of the inventory adjustment required by purchase accounting for our acquisition of Vionic and incremental markdowns related to the Carlos brand exit. As a percentage of net sales, gross profit decreasedincreased to 36.3%45.4% for the ninesix months ended OctoberJuly 31, 2020,2021, compared to 40.7%33.9% for the ninesix months ended November 2, 2019. The gross profit rate primarily reflects a decline at the Famous Footwear segment due to the promotional environment and higher e-
31
commerce sales. The mix of retail versus wholesale net sales increased to 64% and 36% in the nine months ended October 31, 2020, compared to 61% and 39%, respectively, in the nine months ended November 2, 2019.August 1, 2020.
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.
30
Selling and Administrative Expenses
Selling and administrative expenses decreased $38.4increased $58.2 million, or 14.0%28.9%, to $236.9$259.5 million for the thirdsecond quarter of 2021, compared to $201.3 million for the second quarter of 2020. The increase was primarily due to higher expenses associated with our cash-based incentive compensation plan for certain employees and higher salary expenses in the second quarter of 2021. Salary expenses were lower during the second quarter of 2020 comparedas a result of the actions taken to $275.3 million formitigate the third quarterimpact of 2019. The decrease was driven by lower salaries expense primarily attributableCOVID-19 on our financial results. In response to reduced hours atthe temporary closure of our retail stores at the onset of the pandemic in the first quarter of 2020, we took steps to reduce expenses, including workforce reductions and furloughs for a significant portion of our retail store associates, as well as temporary salary reductions for most remaining employees, which continued through the end of the second quarter of 2020. Marketing and advertising expenses were also higher in the second quarter of 2021, which were partially offset by lower marketingrent and facilities expenses.expenses, primarily associated with the Naturalizer retail store closures. As a percentage of net sales, selling and administrative expenses increaseddecreased to 36.6%38.4% for the thirdsecond quarter of 2020,2021, from 34.8%40.1% for the thirdsecond quarter of 2019, reflecting the deleveraging of expenses over a smaller sales base.2020.
Selling and administrative expenses decreased $141.5increased $76.4 million, or 17.6%17.9%, to $663.5$503.0 million for the ninesix months ended OctoberJuly 31, 2020,2021, compared to $805.0$426.6 million for the ninesix months ended November 2, 2019.August 1, 2020. The decreaseincrease for the six months ended July 31, 2021 was primarily driven bydue to higher expenses for our cash-based incentive compensation plan for certain employees and higher salary expenses. As discussed above, salary expenses were lower salaries and benefits expense; lower variable expenses associated withduring the temporary retail store closures; and lower marketing, travel and logistics expenses.six months ended August 1, 2020 as a result of the actions taken to mitigate the impact of COVID-19 on our financial results. As a percentage of net sales, selling and administrative expenses increaseddecreased to 42.9%38.3% for the nine months ended October 31, 2020,second quarter of 2021, from 36.2%47.5% for the nine months ended November 2, 2019,second quarter of 2020, reflecting the deleveragingbetter leveraging of expenses over a smaller sales base.higher net sales.
Impairment of Goodwill and Intangible Assets
During the first quarter ofsix months ended August 1, 2020, as a result of the unfavorable business climate and our lower stock price and market capitalization, due in part to the economic impacts of the COVID-19 pandemic, we recorded non-cash impairment charges of $262.7 million ($218.5 million on an after-tax basis), including $240.3 million associated with goodwill and $22.4 million associated with the indefinite-lived Allen Edmonds and Via Spiga trademarks.trade names. There were no corresponding charges for the third quarter of 2020 or for the ninesix months ended November 2, 2019.July 31, 2021. Refer to Note 5 and Note 8 to the condensed consolidated financial statements for further discussion of these charges.
Restructuring and Other Special Charges, Net
RestructuringWe incurred restructuring and other special charges of $1.0$5.4 million ($0.74.7 million on an after-tax basis, or $0.02$0.13 per diluted share) were incurred in the thirdsecond quarter of 2019 associated with integration-related costs2020, primarily for Vionic.severance, as well as supplies and deep cleaning of our facilities, driven by the impact of the COVID-19 pandemic on our business operations. There were no corresponding charges in the thirdsecond quarter of 2020.2021. Refer to Note 5 to the condensed consolidated financial statements for further discussion of these charges.
We incurred restructuring and other special charges of $13.5 million ($11.9 million on an after-tax basis, or $0.31 per diluted share) during the six months ended July 31, 2021, reflecting expenses associated with the decision to close all Naturalizer retail stores in North America with the exception of two Naturalizer flagship retail stores in the United States. During the six months ended August 1, 2020, we incurred restructuring and other special charges of $65.6 million ($52.5 million on an after-tax basis) for the nine months ended October 31, 2020basis, or $1.46 per diluted share) related to the unfavorable business climate, driven by the impact of the COVID-19 pandemic on our business operations. These charges were primarily for impairment associated with lease right-of useright-of-use assets and retail store furniture and fixtures, liabilities associated with factory order cancellations and severance. Restructuring and other special charges of $2.5 million ($1.8 million on an after-tax basis, or $0.04 per diluted share) were incurred for the nine months ended November 2, 2019, associated with the exit of our Carlos brand and integration-related costs for Vionic. The integration is ongoing and we anticipate additional integration-related costs as we complete this initiative in the fourth quarter of 2020. Refer to Note 5 to the condensed consolidated financial statements for further discussion of these charges.
Operating Earnings (Loss)
Operating earnings decreased $23.4increased $86.9 million to $20.1$62.8 million for the thirdsecond quarter of 2021, compared to an operating loss of $24.1 million for the second quarter of 2020, compared to $43.5 million for the third quarter of 2019, primarily reflecting lowerhigher net sales and gross profit, partially offset by lower selling and administrative expenses as a result of the actions we took to mitigate the impact of COVID-19 on our financial results.profit. As a percentage of net sales, operating earnings were 3.1%9.3% for the thirdsecond quarter of 2020,2021, compared to 5.5% for the third quarter of 2019.
Operating (loss) earnings decreased $528.4 million to an operating loss of $430.34.8% for the second quarter of 2020.
Operating earnings increased $531.0 million to $80.7 million for the ninesix months ended OctoberJuly 31, 2020,2021, compared to an operating earningsloss of $98.1$450.4 million for the ninesix months ended November 2, 2019,August 1, 2020, primarily reflecting lowerhigher net sales and gross profit, lower impairment charges and better leveraging of expenses over a higher impairment and restructuring charges described above.net sales base. As a percentage of net sales, operating earnings were 6.1% for the six months ended July 31, 2021, compared to an operating loss was 27.8%of 50.1% for the ninesix months ended October 31, 2020, compared to operating earnings of4.4% for the nine months ended November 2, 2019.August 1, 2020.
Interest Expense, Net
Interest expense, net increased $0.4decreased $1.5 million, or 3.0%11.0%, to $10.9$12.0 million for the thirdsecond quarter of 2021, compared to $13.5 million for the second quarter of 2020, reflecting lower average borrowings under our revolving credit agreement. We continued to make debt reduction a priority during the second quarter of 2021, repaying $100.0 million of borrowings under our revolving credit facility, ending the quarter with $100.0 million of revolver borrowings. This decrease was partially offset by a $0.5 million increase in the fair value adjustment to the
31
Blowfish Malibu mandatory purchase obligation, to $7.1 million in the second quarter of 2021, compared to $10.5$6.6 million in the second quarter of 2020, reflecting continued sales and earnings growth of the Blowfish Malibu brand.
Interest expense, net increased $0.9 million, or 3.8%, to $23.8 million for the third quarter of 2019,six months ended July 31, 2021, compared to $22.9 million for the six months ended August 1, 2020, reflecting a $3.7 million increase in the fair value adjustment to the Blowfish Malibu mandatory purchase obligation, of $5.1to $13.5 million for the six months ended July 31, 2021, from $9.8 million in the third
32
quarter of 2020, compared to $3.9 million in the third quarter of 2019.six months ended August 1, 2020. The increase associated with the mandatory purchase obligation was partially offset by lower average borrowings under our revolving credit agreement. We made debt reduction the main priority in our capital allocation process during the third quarter of 2020 andhave continued to repayutilize our strong cash generation to reduce the incremental borrowings from March 2020 that were used to preserve financial flexibility at the onset of the pandemic. We had net repayments of $50.0 million duringpandemic, reducing the third quarter of 2020, ending the quarter with $300.0 million of borrowings under our revolving credit facility.
Interest expense, net increased $8.5 million, or 33.5%, to $33.7 million for the nine months ended October 31, 2020, compared to $25.2 million for the nine months ended November 2, 2019, reflecting the fair value adjustment to the Blowfish Malibu mandatory purchase obligation of $14.9agreement from $440.0 million in the nine months ended OctoberMarch 2020 to $100.0 million at July 31, 2020 compared to accretion and remeasurement adjustments of $4.4 million for the nine months ended November 2, 2019, partially offset by lower average borrowings under our revolving credit agreement. Refer to Note 15 to the condensed consolidated financial statements for further discussion regarding the mandatory purchase obligation.2021.
Other Income, Net
Other income, net increased $2.9$0.2 million, or 107.4%5.1%, to $5.5$3.9 million for the thirdsecond quarter of 2020,2021, compared to $2.6$3.7 million for the thirdsecond quarter of 2019, driven by a lower discount rate and a higher expected return on assets for our domestic pension plan.
Other income, net increased $4.8 million, or 60.9%, to $12.7 million for the nine months ended October 31, 2020, compared to $7.9 million for the nine months ended November 2, 2019 reflecting a higher expected return on assets and lower discount rate on our domestic pension plan.2020. Refer to Note 13 toof the condensed consolidated financial statements for additional information relatedfurther detail regarding the components of net periodic benefit income.
Other income, net increased $0.4 million, or 5.9%, to our retirement plans.$7.7 million for six months ended July 31, 2021, compared to $7.3 million for the six months ended August 1, 2020. Refer to Note 13 of the condensed consolidated financial statements for further detail regarding the components of net periodic benefit income.
Income Tax (Provision) Benefit (Provision)
Our effective tax rate can vary considerably from period to period, depending on a number of factors. Our consolidated effective tax rate was (1.9%)30.3% for the thirdsecond quarter of 2021, compared to 9.4% for the second quarter of 2020. Our higher tax rate for the second quarter of 2021 was driven by discrete tax adjustments of $2.9 million, inclusive of $3.3 million of incremental valuation allowances for our deferred tax assets, as we are in a full valuation allowance position for federal, state and certain international jurisdictions. During the second quarter of 2020, compared to 21.9% for the third quarter of 2019. Our lowerour effective tax rate inwas impacted by several discrete tax items totaling $2.7 million, including the quarter primarily reflects thenon-deductibility of losses at our Canadian business division. Offsetting this impact ofwas a higher anticipated full year tax benefit driven by the impact ofassociated with the CARES Act, which permits usthe Company to carry back 2020 losses to years with a higher federal tax rate, and the mix of projected earnings between international and domestic jurisdictions.rate.
For the ninesix months ended OctoberJuly 31, 2020,2021, our consolidated effective tax rate was 19.8%31.1%, compared to 23.1%19.1% for the ninesix months ended November 2, 2019.August 1, 2020. Our higher tax rate for the six months ended July 31, 2021 primarily reflects the incremental valuation allowances recorded in the second quarter, as described above, and the non-deductibility of losses at our Canadian business division, which were driven by exit-related costs associated with Naturalizer retail stores during the first quarter. Our effective tax rate for the six months ended August 1, 2020 was impacted by several discrete tax items, during the nine months ended October 31, 2020, including the non-deductibility of a portion of our intangible asset impairment charges, the provision of a valuation allowance related to certain state and Canada deferred tax assets, and the incremental tax provision related to the vesting of stock awards. IfOffsetting these discrete tax items had not been recognized, our effective tax rate would have been 23.5% for the nine months ended October 31, 2020. As discussed above, our taximpacts was a benefit also includes the favorable impact ofassociated with the CARES Act,ACT, which permits usthe Company to carry back 2020 losses to years with a higher federal tax rate. Discrete tax items recognized during the nine months ended November 2, 2019 were immaterial.
Net Earnings (Loss) Attributable to Caleres, Inc.
Net earnings attributable to Caleres, Inc. were $14.4$37.4 million and $43.5 for the second quarter and six months ended July 31, 2021, respectively, compared to net losses of $30.7 million and $376.6 million for the thirdsecond quarter of 2020, with net losses of $362.1 million for the nineand six months ended October 31,August 1, 2020, compared to net earnings of $28.0 million and $62.4 million for the third quarter and nine months ended November 2, 2019, respectively, as a result of the factors described above.
3332
FAMOUS FOOTWEAR
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | ||
| | Thirteen Weeks Ended | | Thirty-Nine Weeks Ended | | | Thirteen Weeks Ended | | Twenty-Six Weeks Ended | | ||||||||||||||||||||||||||||||||||
| | October 31, 2020 |
| November 2, 2019 |
| October 31, 2020 |
| November 2, 2019 | | | July 31, 2021 |
| August 1, 2020 |
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| August 1, 2020 | | ||||||||||||||||||||||||||
| | | | | % of | | | | | % of | | | | | % of | | | | | % of | | | | | | % of | | | | | % of | | | | | % of | | | | | % of | | ||
($ millions, except sales per square foot) |
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| Net Sales |
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| Net Sales |
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| Net Sales |
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| Net Sales |
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| Net Sales |
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| Net Sales |
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| Net Sales |
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Operating Results | | | | | | | | | | | | | | | | | | | | | | |||||||||||||||||||||||
Net sales | | $ | 391.7 | | 100.0 | % | $ | 446.6 | | 100.0 | % | | $ | 916.9 | | 100.0 | % | $ | 1,218.6 | | 100.0 | % | | $ | 453.6 | | 100.0 | % | $ | 333.9 | | 100.0 | % | | $ | 851.8 | | 100.0 | % | $ | 525.2 | | 100.0 | % |
Cost of goods sold | | | 231.7 | | 59.1 | % | | 263.3 | | 59.0 | % | | | 568.6 | | 62.0 | % | | 700.3 | | 57.5 | % | | | 226.2 | | 49.9 | % | | 214.7 | | 64.3 | % | | | 444.6 | | 52.2 | % | | 337.0 | | 64.2 | % |
Gross profit | | | 160.0 | | 40.9 | % | $ | 183.3 | | 41.0 | % | | | 348.3 | | 38.0 | % | $ | 518.3 | | 42.5 | % | | | 227.4 | | 50.1 | % | $ | 119.2 | | 35.7 | % | | | 407.2 | | 47.8 | % | $ | 188.2 | | 35.8 | % |
Selling and administrative expenses | | | 132.2 | | 33.8 | % | | 155.6 | | 34.8 | % | | | 370.4 | | 40.4 | % | | 448.3 | | 36.8 | % | | | 141.9 | | 31.3 | % | | 117.6 | | 35.2 | % | | | 273.8 | | 32.1 | % | | 238.1 | | 45.3 | % |
Restructuring and other special charges, net | | | — | | — | % | | — | | — | | | | 16.6 | | 1.8 | % | | — | | — | | | | — | | — | % | | 0.6 | | 0.2 | % | | | — | | — | % | | 16.6 | | 3.2 | % |
Operating earnings (loss) | | $ | 27.8 | | 7.1 | % | $ | 27.7 | | 6.2 | % | | $ | (38.7) | | (4.2) | % | $ | 70.0 | | 5.7 | % | | $ | 85.5 | | 18.8 | % | $ | 1.0 | | 0.3 | % | | $ | 133.4 | | 15.7 | % | $ | (66.5) | | (12.7) | % |
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Key Metrics | | |
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Same-store sales % change | | | (9.1) | % |
| | | 2.5 | % |
| | | | 3.0 | % |
| | | 1.1 | % |
| | | | (1.1) | % |
| | | 14.7 | % |
| | | | 0.5 | % |
| | | 13.9 | % |
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Same-store sales $ change | | $ | (38.3) | |
| | $ | 10.6 | |
| | $ | 26.2 | |
| | $ | 13.6 | |
| | | $ | (3.6) | |
| | $ | 42.7 | |
| | $ | 2.6 | |
| | $ | 64.5 | |
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Impact of retail calendar shift | | | | | | | | — | | | | | | | | | | — | | | | |||||||||||||||||||||||
Sales change from new and closed stores, net | | $ | (16.6) | |
| | $ | (12.6) | |
| | $ | (327.7) | |
| | $ | (36.0) | |
| | | $ | 122.6 | |
| | $ | (128.5) | |
| | $ | 322.8 | |
| | $ | (311.2) | |
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Impact of changes in Canadian exchange rate on sales | | $ | — | |
| | $ | (0.2) | |
| | $ | (0.2) | |
| | $ | (0.6) | |
| | | $ | 0.7 | |
| | $ | (0.1) | |
| | $ | 1.2 | |
| | $ | (0.1) | |
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Sales per square foot, excluding e-commerce (thirteen and thirty-nine weeks ended) | | $ | 53 | |
| | $ | 63 | |
| | $ | 115 | |
| | $ | 172 | |
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Sales per square foot, excluding e-commerce (thirteen and twenty-six weeks ended) | | $ | 67 | |
| | $ | 40 | |
| | $ | 122 | |
| | $ | 62 | |
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Sales per square foot, excluding e-commerce (trailing twelve months) | | $ | 166 | |
| | $ | 221 | |
| | $ | 166 | |
| | $ | 221 | |
| | | $ | 219 | |
| | $ | 176 | |
| | $ | 219 | |
| | $ | 176 | |
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Square footage (thousand sq. ft.) | |
| 6,135 | |
| | | 6,349 | |
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| 6,135 | |
| | | 6,349 | |
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| 6,022 | |
| | | 6,210 | |
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| 6,022 | |
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Stores opened | |
| — | |
| | | 4 | |
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| 3 | |
| | | 11 | |
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| 4 | |
| | | 3 | |
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| 8 | |
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Stores closed | |
| 11 | |
| | | 17 | |
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| 27 | |
| | | 43 | |
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| 5 | |
| | | 1 | |
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| 12 | |
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Ending stores | |
| 925 | |
| | | 960 | |
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| 925 | |
| | | 960 | |
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| 912 | |
| | | 936 | |
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| 912 | |
| | | 936 | |
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Net Sales
Famous Footwear achieved net sales of $453.6 million, which was the highest second quarter net sales in our history. Net sales decreased $54.9increased $119.7 million, or 12.3%35.8%, compared to $391.7 million for the thirdsecond quarter of 2020. With the increase in COVID-19 vaccination rates, we have experienced strong growth in our retail store traffic and consistently strong sales performance throughout the quarter. This trend led to higher in-store sales but a decline in e-commerce penetration in the second quarter of 2021, to approximately 11% of net sales, compared to approximately 25% in the second quarter of 2020 comparedwhen our retail stores were closed for a portion of the quarter. Our casual, athletic and sport categories of footwear continue to $446.6 million for the third quarter of 2019. Despite ongoing challenges in the retail environment driven by the COVID-19 pandemic,resonate with customers, and we experienced strong sequential sales growth by adjusting to and capitalizing on the extended back-to-school season. We also experienced strong growth in our e-commerce business, which increased approximately 48% forsandals. During the thirdsecond quarter of 2020, with e-commerce penetration increasing to approximately 17% of net sales, from 10% in the third quarter of 2019. Our casual, athletic2021, we opened four stores and sport-inspired assortments continue to resonate with consumers in the work-from-home environment. We closed 11five stores, during the third quarter of 2020, resulting in 925912 stores and total square footage of 6.16.0 million at the end of the thirdsecond quarter of 2020,2021, compared to 960936 stores and total square footage of 6.36.2 million at the end of the thirdsecond quarter of 2019.2020. Sales to members of our customer loyalty program, Famously You Rewards ("Rewards"), continue to account for a majority of the segment’s sales, with approximately 80%78% of our net sales made to program members in the thirdsecond quarter of 2020,2021, compared to 79% in the thirdsecond quarter of 2019. 2020.
Net sales decreased $301.7increased $326.6 million, or 24.8%62.2%, to $916.9$851.8 million for the ninesix months ended OctoberJuly 31, 2020,2021, compared to $1,218.6$525.2 million for the ninesix months ended November 2, 2019. The sales decrease was driven by the temporary closure of all Famous Footwear stores for an average of 10 weeksAugust 1, 2020. Our strong performance during the first halfsix months ended July 31, 2021 was attributable to a number of 2020 due tofactors. Consumer confidence improved during the six months ended July 31, 2021 as a result of the widespread availability of the COVID-19 pandemic. Despitevaccines and the easing of government restrictions, which led to a significant increase in retail store closures, Famous Footweartraffic and conversion rates. Additional government stimulus measures also positively impacted net sales. E-commerce penetration was approximately 13% of net sales in the six months ended July 31, 2021, compared to approximately 26% in the six months ended August 1, 2020 when our retail stores were temporarily closed from mid-March, with a phased reopening beginning in May. Our casual, athletic and sport categories of footwear continued to serve customers through its e-commerce business, which generated an 85% increase in sales forbe the ninestrongest performers. During the six months ended OctoberJuly 31, 2020. We experienced strong sales of athletics and casual styles, as the consumer adjusted to their work-from-home environment and limited social gatherings. We2021, we opened threeeight stores and closed 27 stores during the nine months ended October 31, 2020.12 stores.
Gross Profit
Gross profit decreased $23.3increased $108.2 million, or 12.7%90.9%, to $160.0$227.4 million for the thirdsecond quarter of 2020,2021, compared to $183.3$119.2 million for the thirdsecond quarter of 2019,2020, driven by the sales decline. Both our retail storesincrease and e-commerce business reporteda higher margin rates than last year. However, the higher mix of e-commerce sales reduced the overall gross profit rate as a result of the higher associated freight expenses.rate. As a percentage of net sales, our gross profit decreased slightlyincreased to 40.9%50.1% for the thirdsecond quarter of 2020,2021, compared to 41.0%35.7% for the thirdsecond quarter of 2019.2020. Due to our well-positioned inventory and strong sell-throughs, we reduced promotional activity, resulting in higher gross margins in both our retail stores and e-commerce business during the second quarter of 2021.
Gross profit decreased $170.0increased $219.0 million, or 32.8%116.3%, to $348.3$407.2 million for the ninesix months ended OctoberJuly 31, 2020,2021, compared to $518.3$188.2 million for the ninesix months ended November 2, 2019August 1, 2020, reflecting lowerboth higher net sales and higher inventory markdowns as a result of the difficult retail environment driven by the COVID-19 pandemic.gross profit rate. As a percentage of net sales, our gross profit decreased to 38.0% for the nine months
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increased to 47.8% for the six months ended OctoberJuly 31, 2020,2021, compared to 42.5%35.8% for the ninesix months ended November 2, 2019,August 1, 2020, reflecting a reduction in promotional activity driven by our well-positioned inventory and strong consumer demand. In addition, our gross profit margin in the six months ended August 1, 2020 was adversely impacted by $6.0 million in incremental inventory markdowns, reflecting the difficult retail environment in 2020 driven by the impact of increased promotional activity to drive sales volume, higher freight expenses associated with the growth in e-commerce business and the incremental inventory markdowns.pandemic.
Selling and Administrative Expenses
Selling and administrative expenses decreased $23.4increased $24.3 million, or 15.0%20.8%, to $132.2$141.9 million for the thirdsecond quarter of 2021, compared to $117.6 million for the second quarter of 2020. The increase was primarily due to higher salaries in the second quarter of 2021, as well as an increase in marketing expenses. Salary expenses were lower in the second quarter of 2020, compared to $155.6 millionreflecting the actions taken at the onset of the pandemic, including workforce reductions, furloughs for the third quarter of 2019. The decrease was a resultsignificant portion of our strategic efforts to mitigate the impact of COVID-19, including lower salaries expense, primarily attributable to reduced hours at our retail stores during the third quarter of 2020. We also reduced expenses in the third quarter of 2020 related to our retail facilities, including certain rentstore associates and temporary salary reductions and abatements, as well as marketing and logistics.for most remaining employees. As a percentage of net sales, selling and administrative expenses decreased to 33.8%31.3% for the thirdsecond quarter of 2021, compared to 35.2% for the second quarter of 2020, compared to 34.8% for the third quarterreflecting better leveraging of 2019.expenses over a higher net sales base.
Selling and administrative expenses decreased $77.9increased $35.7 million, or 17.4%15.0%, to $370.4$273.8 million for the ninesix months ended OctoberJuly 31, 2020,2021, compared to $448.3$238.1 million for the ninesix months ended November 2, 2019.August 1, 2020. The decreaseincrease was primarily driven by lowerdue to higher salaries expense attributableand higher variable expenses, including logistics, to support the increase in sales volume in the six months ended July 31, 2021. In addition, strategic actions we took duringwere taken to reduce expenses in the first half of 2020 to mitigate the impact of COVID-19 during the period of retail store closures, as well as lower variable expenses associated with the temporary retail store closures, including certain rent reductions and abatements.closures. As a percentage of net sales, selling and administrative expenses increaseddecreased to 40.4%32.1% for the ninesix months ended OctoberJuly 31, 2020,2021, compared to 36.8%45.3% for the ninesix months ended November 2, 2019.August 1, 2020, reflecting better leveraging of our expenses over higher net sales.
Restructuring and Other Special Charges, Net
Restructuring and other special charges were $16.6$0.6 million for the ninesecond quarter of 2020, consisting primarily of severance. For the six months ended October 31,August 1, 2020, restructuring and other special charges were $16.6 million, consisting primarily of impairment charges on furniture and fixtures in our retail stores and lease right-of-useright-of use assets reflecting the impact of COVID-19 on our business operations. There were no corresponding charges for the three months ended October 31, 2020 or for the three or nine months ended November 2, 2019. Refer to Note 5 to the condensed consolidated financial statements for additional information related to these charges. There were no corresponding charges during the three or six months ended July 31, 2021.
Operating Earnings (Loss)
Despite the reduction in net sales, ourOperating earnings increased $84.5 million to operating earnings increased $0.1 million to $27.8of $85.5 million for the thirdsecond quarter of 2020,2021, compared to $27.7$1.0 million for the thirdsecond quarter of 2019, reflecting the actions taken to reduce our operating expenses and the other factors described above.2020. As a percentage of net sales, operating earnings increased to 7.1%were 18.8% for the thirdsecond quarter of 2020,2021, compared to 6.2%0.3% for the thirdsecond quarter of 2019.2020.
Operating earnings (loss) decreased $108.7increased $199.9 million to operating earnings of $133.4 million for the six months ended July 31, 2021, compared to an operating loss of $38.7$66.5 million for the ninesix months ended October 31, 2020, compared to operating earnings of $70.0 million for the nine months ended November 2, 2019, reflecting the factors described above.August 1, 2020. As a percentage of net sales, operating earnings were 15.7% for the second quarter of 2021, compared to an operating loss was 4.2%of 12.7% for the nine months ended October 31, 2020, compared to operating earningssecond quarter of 5.7% for the nine months ended November 2, 2019.2020.
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BRAND PORTFOLIO
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Net sales | | $ | 267.6 | | 100.0 | % | $ | 359.9 | | 100.0 | % | | $ | 668.4 | | 100.0 | % | $ | 1,060.5 | | 100.0 | % | | $ | 239.0 | | 100.0 | % | $ | 183.6 | | 100.0 | % | | $ | 489.3 | | 100.0 | % | $ | 400.9 | | 100.0 | % |
Cost of goods sold | | | 173.3 | | 64.8 | % | | 226.1 | | 62.8 | % | | | 456.7 | | 68.3 | % | | 675.0 | | 63.7 | % | | | 144.1 | | 60.3 | % | | 119.6 | | 65.1 | % | | | 300.4 | | 61.4 | % | | 283.5 | | 70.7 | % |
Gross profit | | | 94.3 | | 35.2 | % | | 133.8 | | 37.2 | % | | | 211.7 | | 31.7 | % | | 385.5 | | 36.3 | % | | | 94.9 | | 39.7 | % | | 64.0 | | 34.9 | % | | | 188.9 | | 38.6 | % | | 117.4 | | 29.3 | % |
Selling and administrative expenses | | | 87.0 | | 32.5 | % | | 114.4 | | 31.8 | % | | | 253.2 | | 37.9 | % | | 338.7 | | 31.9 | % | | | 78.3 | | 32.8 | % | | 73.5 | | 40.1 | % | | | 161.7 | | 33.0 | % | | 166.2 | | 41.5 | % |
Impairment of goodwill and intangible assets | | | — | | — | | | — | | — | | | | 262.7 | | 39.3 | % | | — | | — | | | | — | | — | | | — | | — | | | | — | | — | % | | 262.7 | | 65.5 | % |
Restructuring and other special charges, net | | | — | | — | % | | — | | — | % | | | 48.4 | | 7.2 | % | | 0.6 | | 0.0 | % | | | — | | — | % | | 4.6 | | 2.5 | % | | | 13.5 | | 2.8 | % | | 48.4 | | 12.1 | % |
Operating earnings (loss) | | $ | 7.3 | | 2.7 | % | $ | 19.4 | | 5.4 | % | | $ | (352.6) | | (52.7) | % | $ | 46.2 | | 4.4 | % | | $ | 16.6 | | 6.9 | % | $ | (14.1) | | (7.7) | % | | $ | 13.7 | | 2.8 | % | $ | (359.9) | | (89.8) | % |
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Direct-to-consumer (% of net sales) (1) | | | 26 | % |
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Wholesale/retail sales mix (%) | | | 85%/15 | % |
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Change in wholesale net sales ($) | | $ | (60.9) | |
| | $ | 20.2 | |
| | $ | (298.3) | |
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| | $ | (146.3) | |
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Unfilled order position at end of period | | $ | 234.7 | |
| | $ | 354.4 | |
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Same-store sales % change | | | (41.0) | % |
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Same-store sales $ change | | $ | (25.2) | |
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Sales change from new and closed stores, net | | $ | (6.2) | |
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Impact of changes in Canadian exchange rate on retail sales | | $ | 0.0 | |
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Sales per square foot, excluding e-commerce (thirteen and thirty-nine weeks ended) | | $ | 41 | | | | $ | 102 | | | | $ | 92 | | | | $ | 292 | | | | |||||||||||||||||||||||
Sales per square foot, excluding e-commerce (thirteen and twenty-six weeks ended) | | $ | 244 | | | | $ | 20 | | | | $ | 433 | | | | $ | 51 | | | | |||||||||||||||||||||||
Sales per square foot, excluding e-commerce (trailing twelve months) | | $ | 190 | |
| | $ | 394 | |
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| | $ | 251 | |
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Square footage (thousands sq. ft.) | | | 345 | |
| | | 400 | |
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| | | 355 | |
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Stores closed | | | 5 | |
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| | | | 25 | |
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| | | | 85 | |
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Ending stores | | | 197 | |
| | | 232 | |
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| | | | 87 | |
| | | 202 | |
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(1) | Direct-to-consumer includes sales of our retail stores and e-commerce sites and sales through our customers’ websites that we fulfill on a drop-ship basis. |
Net Sales
Net sales decreased $92.3increased $55.4 million, or 25.6%30.2%, to $267.6$239.0 million for the thirdsecond quarter of 2021, compared to $183.6 million for the second quarter of 2020. While net sales improved compared to the second quarter of 2020, comparedsales volume still remains below pre-pandemic levels, due in part to $359.9 million for the thirdbrand exits announced in late 2019 and early 2020 and the closure of all but two Naturalizer retail stores in North America. During the second quarter of 2019. The2021, we experienced strong sales decrease reflects the difficult retail environmentgrowth from our Sam Edelman, Vionic, Blowfish Malibu, and lower wholesale demand in the quarter driven by the ongoing COVID-19 pandemic, in particular for dress footwear categories. In response, we have augmented our product offerings with an increased mixRyka brands, which carry a large assortment of casual, athletic and sport-inspired styles, which were our strongest categories for the third quarter, as consumers reacted positively to our assortment that aligned with their current stay-at-home, work-from-home environment. We are also experiencing high demand for boots during the fall season, including lug soles, casual booties and our weatherproof styles. In addition, certainsales from our Allen Edmonds brand have strengthened, reflecting the increased assortment of our customers requested accelerated shipments, which shifted somecasual styles, as well as improving consumer demand for dress footwear. Net sales toin the third quarter that were originally planned for the fourth quarter, as those customers sought to align inventory levels with consumer demand. We closed five stores during the thirdsecond quarter of 2020,2021 were adversely impacted by the delayed receipt of inventory due to supply chain disruptions, including port congestion and reduced shipping vessel and container availability. During the second quarter of 2021, we closed nine stores and opened one store, resulting in a total of 19787 stores and total square footage of 0.30.1 million at the end of the thirdsecond quarter of 2020,2021, compared to 232202 stores and total square footage of 0.4 million at the end of the thirdsecond quarter of 2019.2020.
Net sales increased $88.4 million, or 22.1%, to $489.3 for the six months ended July 31, 2021, compared to $400.9 million for the six months ended August 1, 2020, reflecting the factors described above. During the six months ended July 31, 2021, we experienced strong sales growth from our Sam Edelman, Blowfish Malibu, Vionic and Allen Edmonds brands.
In the first quarter of 2021, we 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 remain focused 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 and two stores in China that we continue to operate. Including the Naturalizer closures, we closed 85 stores and opened two stores during the six months ended July 31, 2021. On a trailing twelve-month basis, sales per square foot, excluding e-commerce sales, decreasedincreased to $190$561 for the twelve months ended OctoberJuly 31, 2020,2021, compared to $394$251 for the twelve months ended November 2, 2019. E-commerce sales continued to grow as a percentage of the business during the third quarter, and we expect this trend to continue.
Net sales decreased $392.1 million, or 37.0%, to $668.4 million for the nine months ended October 31, 2020, compared to $1,060.5 million for the nine months ended November 2, 2019. The sales decrease is a result of the difficult retail environment driven by the COVID-19 pandemic, which led to a reduction in wholesale shipments as many of our wholesale customers canceled orders and temporarily closed their stores for several weeks during the first half of 2020 combined with the temporary closure of our retail stores for an average of 10 weeks during the first half of the year. E-commerce sales continue to grow as a percentage of the business, with strong growth in the first nine months ofAugust 1, 2020. During the nine months ended October 31, 2020, we closed 25 stores.
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Subsequent to quarter-end, we announced that we were commencing a strategic realignment related to our Naturalizer retail operations in the United States and Canada. In an effort to continue to improve future profitability and allow greater focus on high-growth, digital channels, we plan to close all Naturalizer stores, with the exception of a limited number of flagship locations, by the end of fiscal 2020. We continue to view the Naturalizer brand as a strong and value-driving component of our portfolio. Therefore, we will be focusing on growing the brand’s e-commerce through naturalizer.com, our retail partners and their websites, and the flagship stores.
Our unfilled order position for our wholesale sales decreased $119.7increased $133.5 million, or 33.8%68.4%, to $234.7$328.7 million at OctoberJuly 31, 2020,2021, compared to $354.4$195.2 million at November 2, 2019.August 1, 2020. The decreaseincrease in our backlog order levels reflect fewer ordersreflects increased demand for product as our wholesale customers shifthave placed more orders than last year due to responding to consumer demand in-season, resulting in fewer up-front orders, as well as the economic impact of the COVID-19 pandemic.pandemic in the second quarter of 2020. In addition, the global supply chain disruptions have caused a delay in the receipt of inventory due to port congestion, reduced shipping vessel and container availability, and factory shutdowns as a result of the resurgence of COVID-19 infections. We are actively working with our suppliers to minimize these disruptions, but expect the disruptions to continue in the second half of 2021.
Gross Profit
Gross profit decreased $39.5increased $30.9 million, or 29.5%48.3%, to $94.3$94.9 million for the thirdsecond quarter of 2021, compared to $64.0 million for the second quarter of 2020, compared to $133.8 million for the third quarter of 2019, reflecting the difficult retail environment driven by the COVID-19 pandemic.higher net sales and a higher gross profit rate. As a percentage of net sales, our gross profit decreasedincreased to 35.2%39.7% for the thirdsecond quarter of 2021, compared to 34.9% for the second quarter of 2020, comparedreflecting more full price selling across our portfolio of brands driven by strong consumer demand. In connection with the supply chain disruptions described earlier and the related capacity shortages, our freight costs are rising. Though the impact was not significant during the second quarter, we anticipate higher inbound freight costs in the second half of 2021, which may impact our gross profit if we are unable to 37.2% for the third quarter of 2019.mitigate or recover these additional costs.
Gross profit decreased $173.8increased $71.5 million, or 45.1%60.9%, to $211.7$188.9 million for the ninesix months ended OctoberJuly 31, 2020,2021, compared to $385.5$117.4 million for the ninesix months ended November 2, 2019, primarily reflecting lowerAugust 1, 2020, due to higher net sales and improved gross profit rate. Our gross profit in the six months ended August 1, 2020 was impacted by higher incremental cost of goods sold primarily due to $27.5 million in the nine months ended October 31, 2020, driven by higher inventory markdowns reflecting the difficult retail environment driven by the COVID-19COVID pandemic, as well as $1.6 million in inventory markdowns related to the decision during the first quarter of 2020 to exit our Fergie brand. As a percentage of net sales, our gross profit decreasedincreased to 31.7%38.6% for the ninesix months ended OctoberJuly 31, 2020,2021, compared to 36.3%29.3% for the ninesix months ended November 2, 2019, primarily reflecting the incremental markdowns described above.August 1, 2020.
Selling and Administrative Expenses
Selling and administrative expenses decreased $27.4increased $4.8 million, or 23.9%6.5%, to $87.0$78.3 million for the thirdsecond quarter of 2021, compared to $73.5 million for the second quarter of 2020. The increase was driven by higher salaries, due in part to the furloughs and temporary salary reductions in the second quarter of 2020 compared to $114.4 million formitigate the third quarterimpact of 2019. The decrease was primarily drivenCOVID-19 on our financial results, and higher marketing expenses, partially offset by lower salaries expense attributable torent and facilities expenses, primarily associated with the ongoing impact of the workforce reductions implemented in the first half of 2020, as well as lower marketing expense.store count. As a percentage of net sales, selling and administrative expenses increaseddecreased to 32.5%32.8% for the thirdsecond quarter of 2020,2021, compared to 31.8%40.1% for the thirdsecond quarter of 2019.2020.
Selling and administrative expenses decreased $85.5$4.5 million, or 25.2%2.7%, to $253.2$161.7 million for the ninesix months ended OctoberJuly 31, 2020,2021, compared to $338.7$166.2 million for the ninesix months ended November 2, 2019.August 1, 2020. The decrease was primarily driven by lower salaries expense reflecting the strategic actions taken during the first half of 2020 to mitigate the impact of COVID-19. The decrease also reflects lower logistics expenses and a reduction in variable expensesretail facilities costs, primarily associated with the retaillower store closures during a portion of the first half of 2020 and the declining store base.count, partially offset by higher marketing expenses. As a percentage of net sales, selling and administrative expenses increaseddecreased to 37.9%33.0% for the ninesix months ended OctoberJuly 31, 2020,2021, compared to 31.9%41.5% for the ninesix months ended November 2, 2019.August 1, 2020.
Impairment of Goodwill and Intangible Assets
As a resultDuring the first quarter of the deterioration of general economic conditions and the resulting decline in our share price and market capitalization,2020, we recordedincurred impairment charges of $262.7 million, during the first quarter of 2020, including $240.3 million associated with goodwill and $22.4 million associated with intangible assets, including $12.2 million for the indefinite-lived Allen Edmonds trade name and $10.2 million for the Via Spiga trademarks.trade name. There were no corresponding charges forin the thirdsecond quarter of 2020 or for the ninesix months ended November 2, 2019.July 31, 2021. Refer to Note 5 and Note 8 to the condensed consolidated financial statements for further discussion of these charges.
Restructuring and Other Special Charges, Net
Restructuring and other special charges of $4.6 million were recorded during the second quarter of 2020, primarily for severance expense, with no corresponding charges for the second quarter of 2021. Restructuring and other special charges of $13.5 million were recorded during the six months ended July 31, 2021, reflecting expenses associated with the decision to close all but two flagship Naturalizer retail stores in the United States. These costs primarily represented lease termination and other store closure costs, including employee severance. For the six months ended August 1, 2020, we recorded restructuring and other special charges of $48.4 million, for the nine months ended October 31, 2020, reflecting expenses associated with the impact of COVID-19 on our business operations, primarily impairment charges on store furniture and fixtures and lease right-of-use assets, liabilities due to our factories for order cancellations and severance expense. Restructuring and other special charges were $0.6 million for the nine months ended November 2, 2019, primarily related to the integration of Vionic. There were no restructuring and other special charges during the third quarter of 2020 or 2019.severance. Refer to Note 5 to the condensed consolidated financial statements for additional information related to these charges.
Operating Earnings (Loss)
Operating earnings decreased $12.1(loss) for the second quarter of 2021 exceeded pre-pandemic levels. Operating earnings increased $30.7 million to $7.3$16.6 million for the thirdsecond quarter of 2020,2021, compared to $19.4an operating loss of $14.1 million for the thirdsecond quarter of 20192020, as a result of the factors described above. As a percentage of net sales, operating earnings decreased to 2.7%were 6.9% for the thirdsecond quarter of 2020,2021, compared to 5.4%an operating loss of 7.7% in the thirdsecond quarter of 2019.2020.
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Operating earnings (loss) decreased $398.8increased $373.6 million to an operating loss of $352.6 million for the nine months ended October 31, 2020, compared to operating earnings of $46.2$13.7 million for the ninesix months ended November 2, 2019July 31, 2021, compared to a net loss of $359.9 million for the six months ended August 1, 2020, as a result of the factors described above. As a percentage of net sales, operating earnings were 2.8% for the six months ended July 31, 2021, compared to an operating loss was 52.7%of 89.8% for the ninesix months ended October 31, 2020, compared to operating earnings of4.4%in the nine months ended November 2, 2019.August 1, 2020.
ELIMINATIONS AND OTHER
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | ||
| | Thirteen Weeks Ended | | Thirty-Nine Weeks Ended | | | Thirteen Weeks Ended | | Twenty-Six Weeks Ended | | ||||||||||||||||||||||||||||||||||||
| | October 31, 2020 |
| November 2, 2019 |
| October 31, 2020 |
| November 2, 2019 | | | July 31, 2021 |
| | August 1, 2020 |
| July 31, 2021 |
| | August 1, 2020 | | ||||||||||||||||||||||||||
| | | | | % of | | | | | % of | | | | | % of | | | | | % of | | | | | | % of | | | | | | % of | | | | | % of | | | | | | % of | | ||
($ millions) |
| | |
| Net Sales |
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| Net Sales |
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| Net Sales |
| | |
| Net Sales |
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| Net Sales |
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| Net Sales |
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| Net Sales |
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| Net Sales |
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Operating Results | | | | | | | | | | | | | | | | | | | | | | | ||||||||||||||||||||||||
Net sales | | $ | (11.8) | | 100.0 | % | $ | (14.1) | | 100.0 | % | | $ | (39.2) | | 100.0 | % | $ | (56.5) | | 100.0 | % | | $ | (17.1) | | 100.0 | % | | $ | (16.1) | | 100.0 | % | | $ | (26.9) | | 100.0 | % | | $ | (27.4) | | 100.0 | % |
Cost of goods sold | | | (14.4) | | 122.4 | % | | (16.8) | | 119.5 | % | | | (40.7) | | 103.9 | % | | (58.3) | | 103.2 | % | | | (17.1) | | 100.0 | % | | | (15.6) | | 96.7 | % | | | (28.0) | | 103.9 | % | | | (26.3) | | 95.9 | % |
Gross profit | | | 2.6 | | (22.4) | % | | 2.7 | | (19.5) | % | | | 1.5 | | (3.9) | % | | 1.8 | | (3.2) | % | | | — | | — | % | | | (0.5) | | 3.3 | % | | | 1.1 | | (3.9) | % | | | (1.1) | | 4.1 | % |
Selling and administrative expenses | | | 17.7 | | (150.0) | % | | 5.4 | | (38.2) | % | | | 40.0 | | (101.9) | % | | 18.1 | | (32.1) | % | | | 39.3 | | (229.2) | % | | | 10.3 | | (63.7) | % | | | 67.5 | | (250.9) | % | | | 22.3 | | (81.1) | % |
Restructuring and other special charges, net | | | — | | — | % | | 0.9 | | (6.9) | % | | | 0.6 | | (1.6) | % | | 1.8 | | (3.2) | % | | | — | | — | % | | | 0.3 | | (1.7) | % | | | — | | — | % | | | 0.6 | | (2.3) | % |
Operating loss | | $ | (15.1) | | 127.6 | % | $ | (3.6) | | 25.6 | % | | $ | (39.1) | | 99.6 | % | $ | (18.1) | | 32.1 | % | | $ | (39.3) | | 229.2 | % | | $ | (11.1) | | 68.7 | % | | $ | (66.4) | | 247.0 | % | | $ | (24.0) | | 87.5 | % |
The Eliminations and Other category includes the elimination of intersegment sales and profit, unallocated corporate administrative expenses, and other costs and recoveries.
The net sales elimination of $11.8$17.1 million for the thirdsecond quarter of 2021 is $1.0 million, or 6.3%, higher than the second quarter of 2020, is $2.3 million, or 16.0%, lower than the third quarter of 2019.reflecting an increase in product sold from our Brand Portfolio segment to Famous Footwear The net sales elimination of $39.2$26.9 million for the ninesix months ended OctoberJuly 31, 20202021 is $17.3$0.5 million, or 30.5%1.9%, lower than the ninesix months ended November 2, 2019. The net sales elimination decreases for both periods reflectAugust 1, 2020, reflecting a decrease in product sold from our Brand Portfolio segment to Famous Footwear.
Selling and administrative expenses increased $12.3$29.0 million, to $17.7$39.3 million in the thirdsecond quarter of 2020,2021, compared to $5.4$10.3 million for the thirdsecond quarter of 2019.2020. The increase was primarily driven by higher unallocated logistics and benefits expenses.expenses for our cash-based incentive compensation plan for certain employees. Selling and administrative expenses increased $21.9$45.2 million, to $40.0$67.5 million in the ninesix months ended OctoberJuly 31, 2020,2021, compared to $18.1$22.3 million for the ninesix months ended November 2, 2019. The increase was primarily driven byAugust 1, 2020, reflecting higher insuranceexpenses for our cash-based incentive compensation plan for certain employees and consulting expenses.higher expenses associated with our cash-based director compensation plans, reflecting growth in our stock price during the six months ended July 31, 2021, compared to a decline in the six months ended August 1, 2020.
Restructuring and other special charges wereof $0.3 million and $0.6 million for the ninethree and six months ended October 31,August 1, 2020, with no costs incurred during the third quarter of 2020. The expenses incurred during the nine months ended October 31, 2020respectively, were comprised primarily of costs associated with workforce reductions as we sought to minimize our expense structure during the COVID-19 pandemic, combined withas well as incremental expenses associated with deep cleaning our facilities and related supplies. DuringThere were no corresponding expenses for the three and ninesix months ended November 2, 2019, restructuring and other special charges of $0.9 million and $1.8 million, respectively, were incurred for Vionic integration-related costs.July 31, 2021. Refer to Note 5 to the condensed consolidated financial statements for additional information related to these charges.
LIQUIDITY AND CAPITAL RESOURCES
Borrowings
| | | | | | | | | |
($ millions) |
| October 31, 2020 |
| November 2, 2019 |
| February 1, 2020 | |||
Borrowings under revolving credit agreement | | $ | 300.0 | | $ | 295.0 | | $ | 275.0 |
Long-term debt | | | 198.7 | | | 198.3 | | | 198.4 |
Total debt | | $ | 498.7 | | $ | 493.3 | | $ | 473.4 |
Total debt obligations of $498.7 million at October 31, 2020 increased $5.4 million, from $493.3 million at November 2, 2019, and increased $25.3 million, from $473.4 million at February 1, 2020. The increases from both November 2, 2019 and February 1, 2020 reflect higher net borrowings under our Credit Agreement taken as a precautionary measure during the first quarter of 2020 to increase our cash position and preserve financial flexibility given the uncertainty of the impact of COVID-19 on our business. We have made significant progress reducing our borrowings from the first quarter of 2020, using cash from operations to reduce overall indebtedness to a level approximating levels prior to the onset of the pandemic. Net interest expense for the third quarter of 2020 increased $0.4 million to $10.9 million, compared to $10.5 million for the third quarter of 2019. The increase is primarily attributable to the fair value adjustment for
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LIQUIDITY AND CAPITAL RESOURCES
Borrowings
| | | | | | | | | |
($ millions) |
| July 31, 2021 |
| August 1, 2020 |
| January 30, 2021 | |||
Borrowings under revolving credit agreement | | $ | 100.0 | | $ | 350.0 | | $ | 250.0 |
Current portion of long-term debt | | | 99.5 | | | — | | | — |
Long-term debt | | | 99.5 | | | 198.6 | | | 198.9 |
Total debt (1) | | $ | 299.0 | | $ | 548.6 | | $ | 448.9 |
(1) | As presented here, total debt excludes the Blowfish Malibu mandatory purchase obligation, which was valued at $52.6 million, $25.0 million and $39.1 million as of July 31, 2021, August 1, 2020 and January 30, 2021, respectively. |
Total debt obligations of $299.1 million at July 31, 2021 decreased $249.5 million, from $548.6 million at August 1, 2020, and decreased $149.8 million, from $448.9 million at January 30, 2021. The decreases from both August 1, 2020 and January 30, 2021 reflect continued progress toward reducing the borrowings under our revolving credit agreement. We reduced the borrowings under our revolving credit facility by $100.0 million during the second quarter of 2021, ending the quarter with an outstanding balance of $100.0 million. We have continued to utilize our strong cash generation to reduce the incremental borrowings that were used to preserve financial flexibility at the onset of the pandemic, reducing the borrowings under our revolving credit agreement from $440.0 million in March 2020 to $100.0 million at July 31, 2021. Net interest expense for the second quarter of 2021 decreased $1.5 million to $12.0 million, compared to $13.5 million for the second quarter of 2020. The decrease is primarily attributable to lower average borrowings under our revolving credit agreement, partially offset by a $0.5 million increase in the fair value adjustment for the mandatory purchase obligation associated with the Blowfish Malibu acquisition, as further discussed in Note 155 and Note 14 to the condensed consolidated financial statements, partially offset by lower average borrowings under our revolving credit agreement.statements.
Credit Agreement
As further discussed in Note 10 to the condensed consolidated financial statements, the Company maintains a revolving credit facility for working capital needs. On April 14, 2020, we entered into a Fourth Amendment to Fourth Amended and Restated Credit Agreement (as so amended, the "Credit Agreement") which, among other modifications, increased the amount available under the revolving credit facility by $100.0 million to an aggregate amount of up to $600.0 million, subject to borrowing base restrictions, and may be further increased by up to $150.0 million. Interest on the borrowings is at variable rates based on the London Interbank Offered Rate ("LIBOR") (with a floor of 1.0% imposed by the Credit Agreement) or the prime rate, plus a spread. The Credit Agreement increased the spread applied to the LIBOR or prime rate by a total of 75 basis points and increased the unused line fee by 5 basis points. At OctoberJuly 31, 2020,2021, we had $300.0$100.0 million in borrowings and $11.2$12.5 million in letters of credit outstanding under the Credit Agreement. Total borrowing availability was $170.6$364.5 million at OctoberJuly 31, 2020.2021. We were in compliance with all covenants and restrictions under the Credit Agreement as of OctoberJuly 31, 2020.2021.
During the second half of 2021, we plan to continue to prioritize debt reduction. We are currently in the process of renegotiating and renewing the terms of our revolving credit facility to better reflect our improved capital structure.
$200 Million Senior Notes
On July 27, 2015, we issued $200.0 million aggregate principal amount of Senior Notes due on August 15, 2023 (the "Senior Notes"). The Senior Notes bear interest at 6.25%, which is payable on February 15 and August 15 of each year. We may redeem some or all of the Senior Notes at various redemption prices. The Senior Notes also contain covenants and restrictions that limit certain activities including, among other things, levels of indebtedness, payments of dividends, the guarantee or pledge of assets, certain investments, common stock repurchases, mergers and acquisitions and sales of assets. As of OctoberJuly 31, 2020,2021, we were in compliance with all covenants and restrictions relating to the Senior Notes.
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TableWe may redeem some or all of Contentsthe Senior Notes at a redemption price (expressed as a percentage of principal amount) of 101.563% if redeemed prior to August 15, 2021 and 100.000% if redeemed after August 15, 2021, plus any accrued and unpaid interest and Additional Interest (as defined in the Senior Notes indenture). During the second quarter of 2021, we determined that we would redeem a portion of our Senior Notes on August 16, 2021. Accordingly, we classified $100.0 million aggregate principal amount of Senior Notes as a current liability. On August 16, 2021, we redeemed $100.0 million of Senior Notes at 100.000%, shifting the higher interest debt to borrowings under the revolving credit agreement.
Supplemental Guarantor Financial Information
The Senior Notes are fully and unconditionally and jointly and severally guaranteed on a senior unsecured basis by all of its existing and future subsidiaries that are guarantors under the Company’s revolving credit facility ("Credit Agreement").Agreement. The guarantors are 100% owned by Caleres, Inc. ("Parent").
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On October 31, 2018, Vionic was joined to the Credit Agreement as a guarantor. After giving effect to the joinder, the Company is the lead borrower, and Sidney Rich Associates, Inc., BG Retail, LLC, Allen Edmonds, LLC, Vionic Group, LLC and Vionic International, LLC are each co-borrowers and guarantors under the Credit Agreement. During the second quarter of 2020, we adopted SEC Release No. 33-10762, Financial Disclosures About Guarantors and Issuers of Guaranteed Securities and Affiliates Whose Securities Collateralize a Registrant’s Securities, as further discussed in Note 2 to the condensed consolidated financial statements. The following tables present summarized financial information for the Parent and guarantors on a combined basis after elimination of intercompany transactions between entities and amounts related to investments in any subsidiary that is a non-guarantor:
| | | | | | | | | | | |
($ millions) |
| October 31, 2020 | | February 1, 2020 | | July 31, 2021 | | January 30, 2021 | |||
Current assets | $ | 789.7 | | $ | 783.6 | | $ | 724.0 | | $ | 686.3 |
Non-current assets |
| 1,067.1 |
| | 1,402.4 | |
| 974.3 |
| | 1,029.5 |
Current liabilities |
| 888.9 |
| | 781.8 | |
| 904.1 |
| | 818.4 |
Non-current liabilities |
| 780.9 |
| | 901.8 | |
| 594.1 |
| | 740.0 |
| | | | | | |
|
| Thirty-Nine Weeks |
| Twenty-Six Weeks | ||
| | Ended | | Ended | ||
($ millions) | | October 31, 2020 | | July 31, 2021 | ||
Net sales (1) | | $ | 1,426.5 | | $ | 1,253.6 |
Gross profit | |
| 519.0 | |
| 555.8 |
Operating loss | |
| (390.6) | |||
Net loss | |
| (315.4) | |||
Net loss attributable to Caleres, Inc. | |
| (315.4) | |||
Operating earnings | |
| 60.7 | |||
Net earnings | |
| 42.7 | |||
Net earnings attributable to Caleres, Inc. | |
| 42.7 |
(1) | Intercompany activity with the non-guarantor entities for the |
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Working Capital and Cash Flow
| | | | | | | | | | | | | | | | | | |
| | Thirty-Nine Weeks Ended | | | | Twenty-Six Weeks Ended | | | ||||||||||
($ millions) |
| October 31, 2020 |
| November 2, 2019 |
| Change |
| July 31, 2021 |
| August 1, 2020 |
| Change | ||||||
Net cash provided by operating activities | | $ | 101.8 | | $ | 145.7 | | $ | (43.9) | | $ | 135.5 | | $ | 67.5 | | $ | 68.0 |
Net cash used for investing activities | | | (15.5) | | | (41.6) | | | 26.1 | | | (9.4) | | | (8.6) | | | (0.8) |
Net cash used for financing activities | | | (7.1) | | | (81.9) | | | 74.8 | |||||||||
Net cash (used for) provided by financing activities | | | (159.7) | | | 44.5 | | | (204.2) | |||||||||
Effect of exchange rate changes on cash and cash equivalents | | | (0.1) | | | 0.1 | | | (0.2) | | | — | | ��� | (0.1) | | | 0.1 |
Increase in cash and cash equivalents | | $ | 79.1 | | $ | 22.3 | | $ | 56.8 | |||||||||
(Decrease) increase in cash and cash equivalents | | $ | (33.6) | | $ | 103.3 | | $ | (136.9) |
Reasons for the major variances in cash provided (used) in the table above are as follows:
Cash provided by operating activities was $43.9$68.0 million lowerhigher in the ninesix months ended OctoberJuly 31, 20202021 as compared to the ninesix months ended November 2, 2019,August 1, 2020, primarily reflecting the following factors:
● |
● |
● | An increase in |
● | A |
Supply chain financing: Certain of our suppliers are given the opportunity to sell receivables from us related to products that we’ve purchased to participating financial institutions at a rate that leverages our credit rating, which may be more beneficial to the suppliers than the rate they can obtain based upon their own credit rating. We negotiate payment and other terms with our suppliers, regardless of whether the supplier participates in the program, and our responsibility is limited to making payment based on the terms originally negotiated with the supplier. These liabilities continue to be presented as accounts payable in our condensed consolidated balance sheets, with changes reflected within cash flows from operating activities when settled. As of July 31, 2021, we had $48.0 million of accounts payable subject to supply
39
chain financing arrangements. There was an immaterial amount of accounts payable subject to supply chain financing arrangements at August 1, 2020.
Cash used for investing activities was $26.1$0.8 million lower inhigher for the ninesix months ended OctoberJuly 31, 20202021 as compared to the ninesix months ended November 2, 2019,August 1, 2020, reflecting lowerslightly higher capital expenditures in the ninesix months ended OctoberJuly 31, 2020 as a result of the steps taken to reduce and/or defer capital expenditures to preserve financial flexibility during the pandemic.2021. In 2020,2021, we expect to reduce our purchases of property and equipment and capitalized software to between $20 million and $30 million, as compared to $50.2$22.1 million in 2019.2020.
Cash used for financing activities was $74.8$204.2 million lowerhigher for the ninesix months ended OctoberJuly 31, 20202021 as compared to the ninesix months ended November 2, 2019,August 1, 2020, primarily due to $25.0$150.0 million of net borrowings underrepayments on our revolving credit agreement in the ninesix months ended OctoberJuly 31, 2020,2021, compared to net repaymentsborrowings of $40.0$75.0 million in the comparable period in 2019.2020. In addition, we did not repurchase any shares under our share repurchase programs during the three months ended July 31, 2021, compared to $23.3 million in the three months ended August 1, 2020.
A summary of key financial data and ratios at the dates indicated is as follows:
| | | | | | | | | | | | | | | | | | | | | | |
|
| October 31, 2020 |
| November 2, 2019 | |
| February 1, 2020 |
|
| July 31, 2021 |
| August 1, 2020 | |
| January 30, 2021 |
| ||||||
Working capital ($ millions) (1) | | $ | (87.8) | | $ | 7.4 | | | $ | 31.3 | | |||||||||||
Operating working capital ($ millions) (1) | | $ | 100.4 | | $ | 284.9 | | | $ | 191.8 | | |||||||||||
Current ratio (2) | | | 0.91:1 | | | 1.01:1 | | | | 1.04:1 | | | | 0.82:1 | | | 0.91:1 | | | | 0.86:1 | |
Debt-to-capital ratio (3) | | | 65.6 | % | | 43.8 | % | | | 42.2 | % | | | 54.9 | % | | 69.1 | % | | | 68.8 | % |
(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 (including the current portion) and borrowings under |
WorkingOperating working capital at OctoberJuly 31, 20202021 was a deficit of $87.8$100.4 million, which was $95.2 million and $119.1$184.5 million lower than at November 2, 2019 and FebruaryAugust 1, 2020 respectively.and $91.4 million lower than at January 30, 2021. Our current ratio was 0.910.82 to 1 as of OctoberJuly 31, 2020,2021, compared to 1.010.91 to 1 at November 2, 2019August 1, 2020 and 1.04:0.86:1 at February 1, 2020.January 30, 2021. The decrease in both operating working capital and the current ratio from November 2, 2019 and FebruaryAugust 1, 2020 primarily reflects lower inventories driven by disciplined inventory management during the first nine months of 2020,higher accounts payable at July 31, 2021, as well as the reclassification of the mandatory purchase obligation to current liabilities, reflecting the anticipated settlement in the third quarter of 2021. The decrease in operating working capital from January 30, 2021 primarily reflects higher trade accounts payable and accrued expenses combined with an increase in the mandatory purchase obligation, partially offset by higher inventory. Our debt-to-capital ratio was 65.6%54.9% as of OctoberJuly 31, 2020,2021, compared to 43.8%69.1% as of November 2, 2019August 1, 2020 and 42.2%68.8% at February 1, 2020.
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January 30, 2021. The increasedecrease in our debt-to-capital ratio from November 2, 2019August 1, 2020 and February 1, 2020January 30, 2021 primarily reflects lower shareholders’ equity due to the impact of the net loss recorded in the first nine months of 2020.borrowings on our revolving credit facility at July 31, 2021. We believe our current cash flows from operations, as well as more than $170$364.5 million in borrowing availability under the Credit Agreement, provide ample liquidity to meet the Company’s working capital needs for the foreseeable future.
We declared and paid dividends of $0.07 per share in both the thirdsecond quarter of 2020both 2021 and 2019.2020. The declaration and payment of any future dividend is at the discretion of the Board of Directors and will depend on our results of operations, financial condition, business conditions and other factors deemed relevant by our Board of Directors. However, we presently expect that dividends will continue to be paid.
As discussed above, as a precautionary measure to increase our cash position and preserve financial flexibility given the uncertainty of the COVID-19 pandemic on our operations, we expanded the borrowing capacity on our Credit Agreement in April 2020. We have also focused on managing costs, reducing both capital expenditures and inventory levels. During the third quarter of 2020, debt reduction was a priority in our capital allocation process. We reduced the borrowings under our revolving credit facility by $50.0 million, ending the third quarter with an outstanding balance of $300.0 million. We anticipate that our solid financial position will allow us to make continued progress towards repaying our outstanding borrowings under our Credit Agreement.
CONTRACTUAL OBLIGATIONS
Our contractual obligations primarily consist of purchase obligations, operating lease commitments, long-term debt (including the current portion), interest on long-term debt, minimum license commitments, financial instruments, mandatory purchase obligation associated with the acquisition of Blowfish Malibu, one-time transition tax for the mandatory deemed repatriation of cumulative foreign earnings, obligations for our supplemental executive retirement plan and other postretirement benefits and obligations.
During the first half of 2020, we deferred certain landlord payments, as discussed in Note 9 to the condensed consolidated financial statements, and as of October 31, 2020, we have accrued liabilities for factory order cancellations, as further described in Note 5 to the condensed consolidated financial statements. These obligations are expected to be settled within the next year. Except for these items and changes within the normal course of business (primarily changes in purchase obligations, which fluctuate throughout the year as a result of the seasonal nature of our operations, changes in borrowings under our revolving credit agreement, changes in the mandatory purchase obligation associated with the acquisition of Blowfish Malibu and changes in operating lease commitments as a result of new stores, store closures and lease renewals), there have been no other significant changes to the contractual obligations identified in our Annual Report on Form 10-K for the year ended February 1, 2020.January 30, 2021.
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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 other than the adoption of ASC 326, as further described in Note 2 to the condensed consolidated financial statements.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 February 1, 2020.January 30, 2021.
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.
INFLATION
We have recently experienced inflationary pressures on our product costs. We believe that the rates of inflation we have experienced have not had a significant effect on our net sales or operating earnings for the three and six months ended July 31, 2021. While we have historically been able to offset our product cost increases by increasing prices, negotiating costs, or changing suppliers, we may not be able to offset price increases in the future, which may have an adverse effect on our results of operations and financial condition.
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) the coronavirus outbreakpandemic and its adverse impact on our business operations, store traffic and financial condition;condition (ii) changing consumer demands, which may be influenced by consumers’consumers' disposable income, which in turn can be influenced by general economic conditions;conditions and other factors; (iii) rapidly changing consumer preferences and purchasing patterns and fashion trends; (iv) intense competition within the footwear industry; (v) customer concentration and increased consolidation in the retail industry; (vi) foreign currency fluctuations; (vii) impairment charges resulting from a long-term decline in our stock price; (iv) rapidly changing fashion trends and purchasing patterns; (v) intense competition within the footwear industry; (vi)(viii) political and economic conditions or other threats to the continued and uninterrupted flow of inventory from China and other countries, where the Companycompany relies heavily on third-party manufacturing facilities for a significant amount of its inventory; (vii) imposition of tariffs; (viii) the ability to accurately forecast sales and
42
manage inventory levels; (ix) cybersecurity threats or other major disruption to the Company’scompany’s information technology systems; (x) customer concentrationthe ability to accurately forecast sales and increased consolidation in the retail industry;manage inventory levels; (xi) transitional challenges with acquisitions; (xii) a disruption in the Company’scompany’s distribution centers; (xiii) foreign currency fluctuations; (xiv) changes to tax laws, policies and treaties; (xv)(xii) the ability to recruit and retain senior management and other key associates; (xiii) the ability to maintain relationships with current suppliers; (xiv) the ability to secure/exit leases on favorable terms; (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; (xvii) the ability to maintain relationships with current suppliers;and (xviii) the ability to attract, retain, and maintain good relationships with licensors and protect our intellectual property rights; and (xix) the ability to secure/exit leases on favorable terms.rights. The Company’s reports to the Securities and Exchange Commission contain detailed information relating to such factors, including, without limitation, the information under the caption “Risk Factors” in Part I, Item 1A of the Company’s Annual Report on Form 10-K for the year ended February 1, 2020,January 30, 2021, which information is incorporated by reference herein and updated by the Company’s Quarterly Reports on Form 10-Q. The Company does not undertake any obligation or plan to update these forward-looking statements, even though its situation may change.
ITEM 3 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
No material changes have taken place in the quantitative and qualitative information about market risk since the end of the most recent fiscal year. For further information, see Part II, Item 7A of the Company’s Annual Report on Form 10-K for the year ended February 1, 2020.January 30, 2021.
ITEM 4 CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
It is the Chief Executive Officer’s and Chief Financial Officer’s ultimate responsibility to ensure we maintain disclosure controls and procedures designed to provide reasonable assurance that information required to be disclosed in the reports that we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the Commission’s rules and forms and is accumulated and communicated to our management, including our principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. Our disclosure controls and
41
procedures include mandatory communication of material events, automated accounting processing and reporting, management review of monthly, quarterly and annual results, an established system of internal controls and ongoing monitoring by our internal auditors.
A control system, no matter how well conceived or operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Furthermore, the design of a control system must reflect the fact there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any system of controls is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance any design will succeed in achieving its stated goals under all potential future conditions; over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to errors or fraud may occur and not be detected. Our disclosure controls and procedures are designed to provide a reasonable level of assurance that their objectives are achieved. As of OctoberJuly 31, 2020,2021, management of the Company, including the Chief Executive Officer and Chief Financial Officer, conducted an evaluation of the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934). Based upon and as of the date of that evaluation, the Chief Executive Officer and Chief Financial Officer have concluded our disclosure controls and procedures were effective at the reasonable assurance level.
Based on the evaluation of internal control over financial reporting, the Chief Executive Officer and Chief Financial Officer have concluded that there have been no changes in the Company’s internal controls over financial reporting during the quarter ended OctoberJuly 31, 20202021 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
43
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 1716 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 February 1, 2020.January 30, 2021.
42
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 thirdsecond quarter of 2020:2021:
| | | | | | | | | | | | | | | | | | |
| | | | | | | Total Number | | Maximum Number | | | | | | | Total Number | | Maximum Number |
| | | | | | | Purchased as Part | | of Shares that May | | | | | | | Purchased as Part | | of Shares that May |
| | Total Number of | | | | | of Publicly | | Yet be Purchased | | Total Number of | | | | | of Publicly | | Yet be Purchased |
| | Shares | | Average Price Paid | | Announced | | Under the | | Shares | | Average Price Paid | | Announced | | Under the | ||
Fiscal Period |
| Purchased (1) |
| | per Share (1) |
| Program (2) |
| Program (2) |
| Purchased (1) |
| | per Share (1) |
| Program (2) |
| Program (2) |
August 2, 2020 - August 29, 2020 |
| — | | $ | — |
| — |
| 2,651,489 | |||||||||
May 2, 2021 - May 29, 2021 |
| — | | $ | — |
| — |
| 2,651,489 | |||||||||
|
| | |
| |
| |
| |
| | |
| |
| |
| |
August 30, 2020 - October 3, 2020 |
| 2,107 | |
| 8.18 |
| — |
| 2,651,489 | |||||||||
May 30, 2021 - July 3, 2021 |
| 9,443 | |
| 26.61 |
| — |
| 2,651,489 | |||||||||
|
|
| |
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
October 4, 2020 - October 31, 2020 |
| — | |
| — |
| — |
| 2,651,489 | |||||||||
July 4, 2021 - July 31, 2021 |
| — | |
| — |
| — |
| 2,651,489 | |||||||||
|
|
| |
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
Total |
| 2,107 | | $ | 8.18 |
| — |
| 2,651,489 |
| 9,443 | | $ | 26.61 |
| — |
| 2,651,489 |
(1) | Includes shares purchased as part of our publicly announced stock repurchase programs and shares that were tendered by employees related to certain share-based awards. The employee shares were tendered in satisfaction of the exercise price of stock options and/or to satisfy tax withholding amounts for non-qualified stock options, restricted stock and stock performance awards. |
(2) | On December 14, 2018, the Board of Directors approved a stock repurchase program ("2018 Program") authorizing the repurchase of 2,500,000 shares of our outstanding common stock. In addition, on September 2, 2019, the Board of Directors approved a stock repurchase program ("2019 Program") authorizing the repurchase of an additional 5,000,000 shares of our outstanding common stock. We can use the repurchase programs to repurchase shares on the open market or in private transactions from time to time, depending on market conditions. The repurchase programs do not have an expiration date. |
ITEM 3 DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4 MINE SAFETY DISCLOSURES
Not applicable.
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ITEM 6 EXHIBITS
| ||
Exhibit |
|
|
3.1 |
| |
3.2 |
| |
|
| |
22 |
| |
31.1 | † | |
31.2 | † | |
32.1 | † | |
101.INS | † | iXBRL Instance Document |
101.SCH | † | iXBRL Taxonomy Extension Schema Document |
101.CAL | † | iXBRL Taxonomy Extension Calculation Linkbase Document |
101.LAB | † | iXBRL Taxonomy Extension Label Linkbase Document |
101.PRE | † | iXBRL Taxonomy Presentation Linkbase Document |
101.DEF | † | iXBRL Taxonomy Definition Linkbase Document |
104 | † | Cover Page Interactive Data File, formatted in iXBRL and contained in Exhibit 101. |
* Denotes management contract or compensatory plan arrangements.
† | Denotes exhibit is filed with this Form 10-Q. |
4644
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| CALERES, INC. | |
| ||
Date: | /s/ Kenneth H. Hannah | |
Kenneth H. Hannah Senior Vice President and Chief Financial Officer on behalf of the Registrant and as the Principal Financial Officer |
4745