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
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) | |
| |
8300 Maryland Avenue | 63105 |
St. Louis, Missouri | (Zip Code) |
(Address of principal executive offices) | |
| |
(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 AugustMay 26, 2022, 36,464,1802023, 36,272,442 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) | | | | | (Unaudited) | |||||||||||
($ thousands) |
| July 30, 2022 |
| July 31, 2021 |
| January 29, 2022 |
| April 29, 2023 |
| April 30, 2022 |
| January 28, 2023 | ||||||
Assets |
| |
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| |
|
| |
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|
| |
|
| |
|
Current assets: | | |
|
| |
|
| |
| | |
|
| |
|
| |
|
Cash and cash equivalents | | $ | 45,955 | | $ | 54,684 | | $ | 30,115 | | $ | 36,151 | | $ | 33,717 | | $ | 33,700 |
Receivables, net | |
| 127,580 | |
| 110,522 | |
| 122,236 | |
| 148,068 | |
| 181,551 | |
| 132,802 |
Inventories, net | |
| 770,652 | |
| 565,512 | |
| 596,807 | |
| 559,467 | |
| 643,527 | |
| 580,215 |
Income taxes | |
| 12,129 | |
| 35,026 | |
| 33,073 | |
| 11,882 | |
| 11,815 | |
| 17,527 |
Property and equipment, held for sale | | | 16,777 | | | — | | | 5,455 | | | 16,777 | | | 16,777 | | | 16,777 |
Prepaid expenses and other current assets | |
| 45,698 | |
| 41,619 | |
| 48,790 | |
| 48,535 | |
| 46,254 | |
| 50,434 |
Total current assets | |
| 1,018,791 | |
| 807,363 | |
| 836,476 | |
| 820,880 | |
| 933,641 | |
| 831,455 |
| | | | | | | | | | | | | | | | | | |
Prepaid pension costs | |
| 104,214 | |
| 94,083 | |
| 99,139 | |
| 84,782 | |
| 101,609 | |
| 83,396 |
Lease right-of-use assets | |
| 516,486 | |
| 508,597 | |
| 503,430 | |
| 513,817 | |
| 503,393 | |
| 518,196 |
Property and equipment, net | |
| 137,007 | |
| 161,066 | |
| 150,238 | |
| 157,730 | |
| 137,600 | |
| 160,883 |
Goodwill and intangible assets, net | |
| 221,447 | |
| 233,777 | |
| 227,503 | |
| 212,353 | |
| 224,475 | |
| 215,392 |
Other assets | |
| 27,263 | |
| 28,012 | |
| 27,140 | |
| 28,521 | |
| 27,580 | |
| 27,150 |
Total assets | | $ | 2,025,208 | | $ | 1,832,898 | | $ | 1,843,926 | | $ | 1,818,083 | | $ | 1,928,298 | | $ | 1,836,472 |
| | | | | | | | | | | | | | | | | | |
Liabilities and Equity | |
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| |
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Current liabilities: | |
|
| |
|
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| |
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Borrowings under revolving credit agreement | | $ | 348,500 | | $ | 100,000 | | $ | 290,000 | | $ | 291,500 | | $ | 305,000 | | $ | 307,500 |
Current portion of long-term debt | | | — | | | 99,540 | | | — | |||||||||
Mandatory purchase obligation - Blowfish Malibu | | | — | | | 52,639 | | | — | |||||||||
Trade accounts payable | |
| 399,265 | |
| 348,795 | |
| 331,470 | |
| 261,753 | |
| 386,821 | |
| 229,908 |
Income taxes | |
| 20,139 | |
| 17,311 | |
| 22,622 | |
| 11,953 | |
| 39,418 | |
| 7,650 |
Lease obligations | |
| 131,601 | |
| 126,820 | |
| 128,495 | |
| 136,297 | |
| 118,692 | |
| 136,051 |
Other accrued expenses | |
| 240,295 | |
| 233,564 | |
| 253,026 | |
| 177,774 | |
| 219,956 | |
| 230,087 |
Total current liabilities | |
| 1,139,800 | |
| 978,669 | |
| 1,025,613 | |
| 879,277 | |
| 1,069,887 | |
| 911,196 |
| | | | | | | | | | | | | | | | | | |
Other liabilities: | |
|
| |
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|
| |
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Noncurrent lease obligations | |
| 451,657 | |
| 463,746 | |
| 452,909 | |
| 437,171 | |
| 452,742 | |
| 444,074 |
Long-term debt | |
| — | |
| 99,540 | |
| — | |||||||||
Income taxes | |
| 7,786 | |
| 2,464 | |
| 2,464 | |
| 6,940 | |
| 7,786 | |
| 7,786 |
Deferred income taxes | |
| 14,939 | |
| 13,574 | |
| 14,731 | |
| 19,185 | |
| 14,811 | |
| 19,001 |
Other liabilities | |
| 26,149 | |
| 29,614 | |
| 24,822 | |
| 23,629 | |
| 25,044 | |
| 28,302 |
Total other liabilities | |
| 500,531 | |
| 608,938 | |
| 494,926 | |
| 486,925 | |
| 500,383 | |
| 499,163 |
| | | | | | | | | | | | | | | | | | |
Equity: | |
|
| |
|
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|
| |
|
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|
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Common stock | |
| 364 | |
| 383 | |
| 376 | |
| 363 | |
| 374 | |
| 357 |
Additional paid-in capital | |
| 173,246 | |
| 162,122 | |
| 168,830 | |
| 173,640 | |
| 169,025 | |
| 180,747 |
Accumulated other comprehensive loss | |
| (7,280) | |
| (8,572) | |
| (8,606) | |
| (26,260) | |
| (8,328) | |
| (26,750) |
Retained earnings | |
| 212,803 | |
| 86,764 | |
| 157,970 | |
| 298,574 | |
| 191,165 | |
| 266,329 |
Total Caleres, Inc. shareholders’ equity | |
| 379,133 | |
| 240,697 | |
| 318,570 | |
| 446,317 | |
| 352,236 | |
| 420,683 |
Noncontrolling interests | |
| 5,744 | |
| 4,594 | |
| 4,817 | |
| 5,564 | |
| 5,792 | |
| 5,430 |
Total equity | |
| 384,877 | |
| 245,291 | |
| 323,387 | |
| 451,881 | |
| 358,028 | |
| 426,113 |
Total liabilities and equity | | $ | 2,025,208 | | $ | 1,832,898 | | $ | 1,843,926 | | $ | 1,818,083 | | $ | 1,928,298 | | $ | 1,836,472 |
See notes to condensed consolidated financial statements.
3
CALERES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
| | | | | | | | | | | | | | | | | | |
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| (Unaudited) |
| (Unaudited) | ||||||||||||||
| | Thirteen Weeks Ended |
| Twenty-Six Weeks Ended | | Thirteen Weeks Ended | ||||||||||||
($ thousands, except per share amounts) |
| July 30, 2022 | | July 31, 2021 | | July 30, 2022 |
| July 31, 2021 |
| April 29, 2023 | | April 30, 2022 | ||||||
Net sales | | $ | 738,330 | | $ | 675,531 | | $ | 1,473,445 | | $ | 1,314,167 | | $ | 662,734 | | $ | 735,116 |
Cost of goods sold | |
| 401,515 | |
| 353,238 | |
| 809,636 | |
| 716,987 | |
| 360,052 | |
| 408,122 |
Gross profit | |
| 336,815 | |
| 322,293 | |
| 663,809 | |
| 597,180 | |
| 302,682 | |
| 326,994 |
Selling and administrative expenses | |
| 268,395 | |
| 259,501 | |
| 529,194 | |
| 503,036 | |
| 253,095 | |
| 260,799 |
Restructuring and other special charges, net | |
| — | |
| — | |
| — | |
| 13,482 | ||||||
Operating earnings | |
| 68,420 | |
| 62,792 | |
| 134,615 | |
| 80,662 | |
| 49,587 | |
| 66,195 |
Interest expense, net | |
| (2,584) | |
| (11,941) | |
| (4,883) | |
| (23,734) | |
| (5,623) | |
| (2,299) |
Other income, net | |
| 3,217 | |
| 3,860 | |
| 6,639 | |
| 7,688 | |
| 1,492 | |
| 3,422 |
Earnings before income taxes | |
| 69,053 | |
| 54,711 | |
| 136,371 | |
| 64,616 | |
| 45,456 | |
| 67,318 |
Income tax provision | |
| (17,500) | |
| (16,559) | |
| (34,833) | |
| (20,080) | |
| (10,664) | |
| (17,333) |
Net earnings | |
| 51,553 | |
| 38,152 | |
| 101,538 | |
| 44,536 | |
| 34,792 | |
| 49,985 |
Net earnings (loss) attributable to noncontrolling interests | |
| 375 | |
| 756 | |
| (149) | |
| 993 | |
| 65 | |
| (524) |
Net earnings attributable to Caleres, Inc. | | $ | 51,178 | | $ | 37,396 | | $ | 101,687 | | $ | 43,543 | | $ | 34,727 | | $ | 50,509 |
| | | | | | | | | | | | | | | | | | |
Basic earnings per common share attributable to Caleres, Inc. shareholders | | $ | 1.40 | | $ | 0.98 | | $ | 2.74 | | $ | 1.14 | | $ | 0.97 | | $ | 1.34 |
| | | | | | | | | | | | | | | | | | |
Diluted earnings per common share attributable to Caleres, Inc. shareholders | | $ | 1.38 | | $ | 0.97 | | $ | 2.70 | | $ | 1.13 | | $ | 0.97 | | $ | 1.32 |
See notes to condensed consolidated financial statements.
4
CALERES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
| | | | | | | | | | | | | | | | |
| (Unaudited) | (Unaudited) | ||||||||||||||
| Thirteen Weeks Ended |
| Twenty-Six Weeks Ended | Thirteen Weeks Ended | ||||||||||||
($ thousands) | July 30, 2022 |
| July 31, 2021 | | July 30, 2022 |
| July 31, 2021 | April 29, 2023 |
| April 30, 2022 | ||||||
Net earnings | $ | 51,553 | | $ | 38,152 | | $ | 101,538 | | $ | 44,536 | $ | 34,792 | | $ | 49,985 |
Other comprehensive income (loss) ("OCI"), net of tax: |
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| | |
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Foreign currency translation adjustment |
| 42 | |
| 68 | |
| (121) | |
| (155) |
| (151) | |
| (163) |
Pension and other postretirement benefits adjustments |
| 583 | |
| 347 | |
| 1,023 | |
| 713 |
| 710 | |
| 440 |
Other comprehensive income, net of tax |
| 625 | |
| 415 | |
| 902 | |
| 558 |
| 559 | |
| 277 |
Comprehensive income |
| 52,178 | |
| 38,567 | |
| 102,440 | |
| 45,094 |
| 35,351 | |
| 50,262 |
Comprehensive (loss) income attributable to noncontrolling interests |
| (48) | |
| 807 | |
| (573) | |
| 987 | |||||
Comprehensive income (loss) attributable to noncontrolling interests |
| 134 | |
| (525) | |||||||||||
Comprehensive income attributable to Caleres, Inc. | $ | 52,226 | | $ | 37,760 | | $ | 103,013 | | $ | 44,107 | $ | 35,217 | | $ | 50,787 |
See notes to condensed consolidated financial statements.
5
CALERES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
| | | | | | | | | | | | |
|
| (Unaudited) | (Unaudited) |
| ||||||||
| | Twenty-Six Weeks Ended | Thirteen Weeks Ended | | ||||||||
($ thousands) |
| July 30, 2022 |
| July 31, 2021 | April 29, 2023 |
| April 30, 2022 |
| ||||
Operating Activities |
| |
|
| |
| |
|
| |
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|
Net earnings | | $ | 101,538 | | $ | 44,536 | $ | 34,792 | | $ | 49,985 | |
Adjustments to reconcile net earnings to net cash provided by operating activities: | |
| | |
|
|
| | |
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| |
Depreciation | |
| 15,882 | |
| 17,341 |
| 8,481 | |
| 8,064 | |
Amortization of capitalized software | |
| 2,420 | |
| 2,984 |
| 1,194 | |
| 1,265 | |
Amortization of intangible assets | |
| 6,052 | |
| 6,294 |
| 3,039 | |
| 3,028 | |
Amortization of debt issuance costs and debt discount | |
| 204 | |
| 682 |
| 102 | |
| 102 | |
Fair value adjustments to Blowfish mandatory purchase obligation | | | — | | | 13,505 | ||||||
Share-based compensation expense | |
| 8,236 | |
| 5,431 |
| 2,905 | |
| 3,799 | |
Loss on disposal of property and equipment | |
| 1,023 | |
| 551 |
| 245 | |
| 933 | |
Impairment charges for property, equipment, and lease right-of-use assets | |
| 1,979 | |
| 2,288 |
| 39 | |
| 1,777 | |
Adjustment to expected credit losses | | | (1,004) | | | (2,543) | | (264) | | | (617) | |
Deferred income taxes | |
| 208 | |
| 5,330 |
| 184 | |
| 80 | |
Changes in operating assets and liabilities: | |
| | |
| |
| | |
| | |
Receivables | |
| (4,340) | |
| 19,014 |
| (15,028) | |
| (58,698) | |
Inventories | |
| (173,484) | |
| (77,278) |
| 20,656 | |
| (46,775) | |
Prepaid expenses and other current and noncurrent assets | |
| 204 | |
| (1,045) |
| (648) | |
| 1,044 | |
Trade accounts payable | |
| 67,805 | |
| 68,197 |
| 31,885 | |
| 55,372 | |
Accrued expenses and other liabilities | |
| (22,619) | |
| 22,121 |
| (59,624) | |
| (43,126) | |
Income taxes, net | |
| 23,783 | |
| 8,567 |
| 9,102 | |
| 43,376 | |
Other, net | |
| (636) | |
| (428) |
| 437 | |
| 77 | |
Net cash provided by operating activities | |
| 27,251 | |
| 135,547 |
| 37,497 | |
| 19,686 | |
| | | | | | | | | | | | |
Investing Activities | |
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Purchases of property and equipment | |
| (16,820) | |
| (6,816) |
| (5,750) | |
| (9,305) | |
Capitalized software | |
| (3,906) | |
| (2,581) |
| (798) | |
| (2,345) | |
Net cash used for investing activities | |
| (20,726) | |
| (9,397) |
| (6,548) | |
| (11,650) | |
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Financing Activities | |
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Borrowings under revolving credit agreement | |
| 437,500 | |
| 164,500 |
| 126,000 | |
| 205,000 | |
Repayments under revolving credit agreement | |
| (379,000) | |
| (314,500) |
| (142,000) | |
| (190,000) | |
Dividends paid | |
| (5,200) | |
| (5,336) |
| (2,482) | |
| (2,648) | |
Acquisition of treasury stock | |
| (41,672) | |
| — |
| — | |
| (14,673) | |
Issuance of common stock under share-based plans, net | |
| (3,814) | |
| (3,752) |
| (10,006) | |
| (3,599) | |
Contributions by noncontrolling interests | |
| 1,500 | |
| — |
| — | |
| 1,500 | |
Other | |
| — | |
| (677) | ||||||
Net cash provided by (used for) financing activities | |
| 9,314 | |
| (159,765) | ||||||
Net cash used for financing activities |
| (28,488) | |
| (4,420) | | ||||||
Effect of exchange rate changes on cash and cash equivalents | |
| 1 | |
| 4 |
| (10) | |
| (14) | |
Increase (decrease) in cash and cash equivalents | |
| 15,840 | |
| (33,611) | ||||||
Increase in cash and cash equivalents |
| 2,451 | |
| 3,602 | | ||||||
Cash and cash equivalents at beginning of period | |
| 30,115 | |
| 88,295 |
| 33,700 | |
| 30,115 | |
Cash and cash equivalents at end of period | | $ | 45,955 | | $ | 54,684 | $ | 36,151 | | $ | 33,717 | |
See notes to condensed consolidated financial statements.
6
CALERES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
| | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | Accumulated | | | | | Total | | | | | | | ||
| | | | | | | | | | Other | | | | | Caleres, Inc. | | Non- | | | | |||
(Unaudited) | | Common Stock | | Additional | | Comprehensive | | Retained | | Shareholders’ | | controlling | | | | ||||||||
($ thousands, except number of shares and per share amounts) |
| Shares |
| Dollars |
| Paid-In Capital |
| Loss |
| Earnings |
| Equity |
| Interests |
| Total Equity | |||||||
BALANCE APRIL 30, 2022 |
| 37,446,329 | | $ | 374 | | $ | 169,025 | | $ | (8,328) | | $ | 191,165 | | $ | 352,236 | | $ | 5,792 | | $ | 358,028 |
Net earnings |
| | |
| | |
| | |
| | |
| 51,178 | |
| 51,178 | |
| 375 | |
| 51,553 |
Foreign currency translation adjustment |
| | |
| | |
| | |
| 465 | |
|
| |
| 465 | |
| (423) | |
| 42 |
Pension and other postretirement benefits adjustments, net of tax of $190 |
| | |
| | |
| | |
| 583 | |
|
| |
| 583 | |
|
| |
| 583 |
Comprehensive income (loss) |
| | |
| | |
| | |
| 1,048 | |
| 51,178 | |
| 52,226 | |
| (48) | |
| 52,178 |
Dividends ($0.07 per share) |
| | |
| | |
| | |
|
| |
| (2,552) | |
| (2,552) | |
|
| |
| (2,552) |
Acquisition of treasury stock |
| (1,083,496) | |
| (11) | |
| | |
| | |
| (26,988) | |
| (26,999) | |
|
| |
| (26,999) |
Issuance of common stock under share-based plans, net |
| 87,947 | |
| 1 | |
| (216) | |
| | |
| | |
| (215) | |
|
| |
| (215) |
Share-based compensation expense |
| | |
| | |
| 4,437 | |
|
| |
|
| |
| 4,437 | |
|
| |
| 4,437 |
BALANCE JULY 30, 2022 |
| 36,450,780 | | $ | 364 | | $ | 173,246 | | $ | (7,280) | | $ | 212,803 | | $ | 379,133 | | $ | 5,744 | | $ | 384,877 |
| | | | | | | | | | | | | | | | | | | | | | | |
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 |
| | |
| | |
| | |
| 17 | |
|
| |
| 17 | |
| 51 | |
| 68 |
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) |
| | |
| | |
| | |
|
| |
| (2,673) | |
| (2,673) | |
| | |
| (2,673) |
Issuance of common stock under share-based plans, net |
| (25,408) | |
| (0) | |
| (251) | |
| | |
|
| |
| (251) | |
|
| |
| (251) |
Share-based compensation expense |
| | |
| | |
| 2,992 | |
|
| |
|
| |
| 2,992 | |
|
| |
| 2,992 |
BALANCE JULY 31, 2021 |
| 38,268,064 | | $ | 383 | | $ | 162,122 | | $ | (8,572) | | $ | 86,764 | | $ | 240,697 | | $ | 4,594 | | $ | 245,291 |
| | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | Accumulated | | | | | Total | | | | | | | ||
| | | | | | | | | | Other | | | | | Caleres, Inc. | | Non- | | | | |||
(Unaudited) | | Common Stock | | Additional | | Comprehensive | | Retained | | Shareholders’ | | controlling | | | | ||||||||
($ thousands, except number of shares and per share amounts) |
| Shares |
| Dollars |
| Paid-In Capital |
| Loss |
| Earnings |
| Equity |
| Interests |
| Total Equity | |||||||
BALANCE JANUARY 28, 2023 |
| 35,715,752 | | $ | 357 | | $ | 180,747 | | $ | (26,750) | | $ | 266,329 | | $ | 420,683 | | $ | 5,430 | | $ | 426,113 |
Net earnings |
| | |
| | |
| | |
| | |
| 34,727 | |
| 34,727 | |
| 65 | |
| 34,792 |
Foreign currency translation adjustment |
| | |
| | |
| | |
| (220) | |
|
| |
| (220) | |
| 69 | |
| (151) |
Pension and other postretirement benefits adjustments, net of tax of $245 |
| | |
| | |
| | |
| 710 | |
|
| |
| 710 | |
|
| |
| 710 |
Comprehensive income (loss) |
| | |
| | |
| | |
| 490 | |
| 34,727 | |
| 35,217 | |
| 134 | |
| 35,351 |
Dividends ($0.07 per share) |
| | |
| | |
| | |
|
| |
| (2,482) | |
| (2,482) | |
|
| |
| (2,482) |
Issuance of common stock under share-based plans, net |
| 558,847 | |
| 6 | |
| (10,012) | |
| | |
| | |
| (10,006) | |
|
| |
| (10,006) |
Share-based compensation expense |
| | |
| | |
| 2,905 | |
|
| |
|
| |
| 2,905 | |
|
| |
| 2,905 |
BALANCE APRIL 29, 2023 |
| 36,274,599 | | $ | 363 | | $ | 173,640 | | $ | (26,260) | | $ | 298,574 | | $ | 446,317 | | $ | 5,564 | | $ | 451,881 |
| | | | | | | | | | | | | | | | | | | | | | | |
BALANCE JANUARY 29, 2022 |
| 37,635,145 | | $ | 376 | | $ | 168,830 | | $ | (8,606) | | $ | 157,970 | | $ | 318,570 | | $ | 4,817 | | $ | 323,387 |
Net earnings (loss) |
| | |
| | |
| | |
| | |
| 50,509 | |
| 50,509 | |
| (524) | |
| 49,985 |
Foreign currency translation adjustment |
| | |
| | |
| | |
| (162) | |
|
| |
| (162) | |
| (1) | |
| (163) |
Pension and other postretirement benefits adjustments, net of tax of $141 |
| | |
| | |
| | |
| 440 | |
| | |
| 440 | |
| — | |
| 440 |
Comprehensive income |
| | | | | | | | | | 278 | | | 50,509 | | | 50,787 | | | (525) | |
| 50,262 |
Contributions by noncontrolling interests | | | | | | | | | | | | | | | | | | | | 1,500 | | | 1,500 |
Dividends ($0.07 per share) |
| | |
| | |
| | |
| | |
| (2,648) | |
| (2,648) | |
|
| |
| (2,648) |
Acquisition of treasury stock |
| (701,324) | | | (7) | | | | | | | | | (14,666) | | | (14,673) | | |
| |
| (14,673) |
Issuance of common stock under share-based plans, net |
| 512,508 | |
| 5 | |
| (3,604) | |
| | |
| | |
| (3,599) | |
|
| |
| (3,599) |
Share-based compensation expense |
| | |
| | |
| 3,799 | |
|
| |
|
| |
| 3,799 | |
|
| |
| 3,799 |
BALANCE APRIL 30, 2022 |
| 37,446,329 | | $ | 374 | | $ | 169,025 | | $ | (8,328) | | $ | 191,165 | | $ | 352,236 | | $ | 5,792 | | $ | 358,028 |
| | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | Accumulated | | | | | | | | | | | | ||
| | | | | | | | | | Other | | | | | Total Caleres, Inc. | | Non- | | | | |||
(Unaudited) | | Common Stock | | Additional | | Comprehensive | | Retained | | Shareholders’ | | controlling | | | | ||||||||
($ thousands, except number of shares and per share amounts) |
| Shares |
| Dollars |
| Paid-In Capital |
| Loss |
| Earnings |
| Equity |
| Interests |
| Total Equity | |||||||
BALANCE JANUARY 29, 2022 |
| 37,635,145 | | $ | 376 | | $ | 168,830 | | $ | (8,606) | | $ | 157,970 | | $ | 318,570 | | $ | 4,817 | | $ | 323,387 |
Net earnings (loss) |
|
| |
|
| |
|
| |
| | |
| 101,687 | |
| 101,687 | |
| (149) | |
| 101,538 |
Foreign currency translation adjustment |
|
| |
|
| |
|
| |
| 303 | |
|
| |
| 303 | |
| (424) | |
| (121) |
Pension and other postretirement benefits adjustments, net of tax of $331 |
|
| |
|
| |
|
| |
| 1,023 | |
|
| |
| 1,023 | |
| — | |
| 1,023 |
Comprehensive income (loss) |
|
| |
|
| |
|
| |
| 1,326 | |
| 101,687 | |
| 103,013 | |
| (573) | |
| 102,440 |
Contributions by noncontrolling interests | | | | | | | | | | | | | | | | | — | | | 1,500 | | | 1,500 |
Dividends ($0.14 per share) |
|
| |
|
| |
|
| |
|
| |
| (5,200) | |
| (5,200) | |
|
| |
| (5,200) |
Acquisition of treasury stock |
| (1,784,820) | |
| (18) | |
|
| |
|
| |
| (41,654) | |
| (41,672) | |
|
| |
| (41,672) |
Issuance of common stock under share-based plans, net |
| 600,455 | |
| 6 | |
| (3,820) | |
|
| |
|
| |
| (3,814) | |
|
| |
| (3,814) |
Share-based compensation expense |
|
| |
|
| |
| 8,236 | |
|
| |
|
| |
| 8,236 | |
|
| |
| 8,236 |
BALANCE JULY 30, 2022 |
| 36,450,780 | | $ | 364 | | $ | 173,246 | | $ | (7,280) | | $ | 212,803 | | $ | 379,133 | | $ | 5,744 | | $ | 384,877 |
| | | | | | | | | | | | | | | | | | | | | | | |
BALANCE JANUARY 30, 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 |
See notes to condensed consolidated financial statements.
7
CALERES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 1 Basis of Presentation and General
Basis of Presentation
The accompanying condensed consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q of the United States Securities and Exchange Commission (“SEC”) and reflect all adjustments and accruals of a normal recurring nature, which management believes are necessary to present fairly the financial position, results of operations, comprehensive income and cash flows of Caleres, Inc. ("the Company"). These statements, however, do not include all information and footnotes necessary for a complete presentation of the Company’s consolidated financial position, results of operations, comprehensive income and cash flows in conformity with accounting principles generally accepted in the United States. The condensed consolidated financial statements include the accounts of the Company and its wholly-owned and majority-owned subsidiaries, after the elimination of intercompany accounts and transactions.
The Company’s business is seasonal in nature due to consumer spending patterns, with higher back-to-school and holiday season sales. Although the third fiscal quarter has historically accounted for a substantial portion of the Company’s earnings for the year, the Company is beginning to experiencehas experienced more equal distribution among the quarters.quarters in recent years. Interim results may not necessarily be indicative of results which may be expected for any other interim period or for the year as a whole.
Certain prior period amounts in the notes to the condensed consolidated financial statements have been reclassified to conform to the current period presentation. These reclassifications did not affect net earnings attributable to Caleres, Inc.
The accompanying condensed consolidated financial statements and footnotes should be read in conjunction with the consolidated financial statements and footnotes included in the Company’s Annual Report on Form 10-K for the year ended January 29, 2022.28, 2023.
Noncontrolling Interests
During 2019, the Company entered into a joint venture with Brand Investment Holding Limited (“Brand Investment Holding”), a member of the Gemkell Group, to sell Sam Edelman, Naturalizer and other branded footwear in China. The Company and Brand Investment Holding are each 50% owners of the joint venture, which is named CLT Brand Solutions (“CLT”). During the twenty-sixthirteen weeks ended JulyApril 30, 2022, capital contributions of $3.0 million were made to CLT, including $1.5 million received from Brand Investment Holding. Net salesThere were $4.8 million and $7.7 million forno capital contributions during the thirteen and twenty-six weeks ended July 30, 2022, respectively. Operating earnings were $0.5 million and operating losses were $0.3 million for the thirteen and twenty-six weeks ended July 30, 2022, respectively.April 29, 2023. Net sales and operating earnings were not significant during$5.2 million and $0.1 million, respectively, for the thirteen or twenty-six weeks ended July 31, 2021.
The Company had a joint venture agreement with a subsidiary of C. banner International Holdings Limited (“CBI”) to market Naturalizer footwear in China. The Company was a 51% owner ofApril 29, 2023. Net sales and operating losses were $2.9 million and $0.9 million, respectively, for 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.thirteen weeks ended April 30, 2022.
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 is attributable to Brand Investment Holding and CBI.Holding. Transactions between the Company and the joint venturesventure have been eliminated in the condensed consolidated financial statements.
Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles (“GAAP”) requires management to make estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and accompanying notes. Actual results could differ from those estimates.
CARES Act
On March 27, 2020, the Coronavirus Aid, Relief and Economic Security ("CARES") Act was enacted. The CARES Act includes a provision that allows the Company to defer the employer portion of social security payroll tax payments that would have been paid between the enactment date and December 31, 2020, with 50% payable by December 31, 2021 and 50% payable by December 31, 2022. During 2020, the Company deferred approximately $9.4 million of employer social security payroll taxes. As of July 30, 2022, employer social security payroll taxes totaling $5.0 million, which are payable by December 31, 2022, are presented in other accrued expenses on the condensed
8
consolidated balance sheet. As of July 31, 2021, approximately $4.7 million of deferred employer social security payroll taxes was recorded in other accrued expenses and $4.7 million was recorded in other liabilities on the condensed consolidated balance sheet.
Property and Equipment, Held for Sale
In AprilDuring 2021, the Company announced that it would beginbegan actively marketing for sale its nine-acre corporate headquarters campus (the “Campus”) located in Clayton, Missouri. In JanuaryApril 2022, the Company classified a portion of the Campus as property and equipment, held for sale on the consolidated balance sheet as of January 29, 2022. During the first quarter of 2022, the Company continued its negotiations andentered into an agreement for the sale of the Campus. Although the Company expected the Campus to qualify as a completed sale within a year, the agreement was signed on April 27, 2022,terminated in the fourth quarter of 2022. The Company continued to actively market the Campus for sale and in February 2023, the Company entered into an agreement to sell the Campus, subject to certain closing conditions. The sale ofCompany expects the Campus is expected to close and qualify as a completed sale during fiscal 2022.within the next year. Accordingly, the Campus, primarily consisting of land and buildings, has been classified as property and equipment, held for sale on the condensed consolidated balance sheetsheets as of July 30, 2022 and is reflectedApril 29, 2023 within the Eliminations and Other category. The Company evaluated the Campus asset group for impairment indicators and determined that no indicators were present. The Company intends to execute a lease agreement for a portionpresent as of a new office building to be built on a parcel of the headquarters campus, as well as a lease agreement for the existing headquarters building during the period of construction. These lease agreements are expected to be finalized during fiscal 2022. April 29, 2023.
Note 2 Impact of New Accounting Pronouncements
Impact of Recently Adopted Accounting Pronouncements
In September 2022, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2022-04, Liabilities – Supplier Finance Programs (Topic 405-50): Disclosure of Supplier Finance Program Obligations. The Company has evaluated all recently issued, but not yet effective, accounting pronouncementsguidance requires qualitative and does not expect any of the pronouncements to have a material impact on the Company’s condensed consolidated financial statements or disclosures.
98
quantitative disclosures about supplier finance programs in annual financial statements, including key terms of the programs, amounts outstanding, balance sheet presentation and a rollforward of amounts outstanding during the year. For interim periods, the ASU requires disclosure of total obligations outstanding that have been confirmed as valid. The ASU is effective for years beginning after December 15, 2022, except for the rollforward requirement, which is effective in fiscal year 2024. The Company adopted the amendments on a retrospective basis during the first quarter of 2023, with the exception of the annual rollforward requirement, which will be adopted on a prospective basis by the effective date. Refer to Note 5 to the condensed consolidated financial statements for additional information regarding the Company’s supplier finance program.
Note 3 Revenues
Disaggregation of Revenues
The following table disaggregates revenue by segment and major source for the periods ended JulyApril 29, 2023 and April 30, 2022 and July 31, 2021:2022:
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Thirteen Weeks Ended July 30, 2022 | | Thirteen Weeks Ended April 29, 2023 | ||||||||||||||||||||
| | | | | | | | Eliminations and | | | | | | | | | | | Eliminations and | | | | ||
($ thousands) |
| Famous Footwear |
| Brand Portfolio |
| Other |
| Total |
| Famous Footwear |
| Brand Portfolio |
| Other |
| Total | ||||||||
| | | | | | | | | | | | | | | | | | | | | | | | |
Retail stores | | $ | 385,610 | | $ | 14,344 | | $ | — | | $ | 399,954 | | $ | 308,239 | | $ | 16,438 | | $ | — | | $ | 324,677 |
E-commerce - Company websites (1) | |
| 50,116 | |
| 49,527 | |
| — | |
| 99,643 | |
| 40,206 | |
| 53,431 | |
| — | |
| 93,637 |
E-commerce - wholesale drop ship (1) | |
| — | |
| 33,903 | |
| (907) | |
| 32,996 | ||||||||||||
E-commerce - wholesale drop-ship (1) | |
| — | |
| 34,798 | |
| (1,268) | |
| 33,530 | ||||||||||||
Total direct-to-consumer sales | | | 435,726 | | | 97,774 | | | (907) | | | 532,593 | | | 348,445 | | | 104,667 | | | (1,268) | | | 451,844 |
Wholesale - e-commerce (1) | |
| — | |
| 49,539 | |
| — | |
| 49,539 | |
| — | |
| 54,979 | |
| — | |
| 54,979 |
Wholesale - landed | |
| — | |
| 131,056 | |
| (21,198) | |
| 109,858 | |
| — | |
| 142,896 | |
| (10,672) | |
| 132,224 |
Wholesale - first cost | |
| — | |
| 41,705 | |
| — | |
| 41,705 | |
| — | |
| 19,949 | |
| — | |
| 19,949 |
Licensing and royalty | |
| 515 | |
| 3,969 | |
| — | |
| 4,484 | |
| 585 | |
| 3,015 | |
| — | |
| 3,600 |
Other (2) | |
| 134 | |
| 17 | |
| — | |
| 151 | |
| 128 | |
| 10 | |
| — | |
| 138 |
Net sales | | $ | 436,375 | | $ | 324,060 | | $ | (22,105) | | $ | 738,330 | | $ | 349,158 | | $ | 325,516 | | $ | (11,940) | | $ | 662,734 |
| | | | | | | | | | | | |
|
| Thirteen Weeks Ended July 31, 2021 | ||||||||||
| | | | | | | | Eliminations and | | | | |
($ thousands) |
| Famous Footwear |
| Brand Portfolio |
| Other |
| Total | ||||
| | | | | | | | | | | | |
Retail stores | | $ | 402,178 | | $ | 12,003 | | $ | — | | $ | 414,181 |
E-commerce - Company websites (1) | |
| 51,281 | |
| 49,619 | |
| — | |
| 100,900 |
E-commerce - wholesale drop ship (1) | | | — | | | 19,661 | | | (439) | | | 19,222 |
Total direct-to-consumer sales | | | 453,459 | | | 81,283 | | | (439) | | | 534,303 |
Wholesale - e-commerce (1) | |
| — | |
| 32,059 | |
| — | |
| 32,059 |
Wholesale - landed | |
| — | |
| 99,437 | |
| (16,692) | |
| 82,745 |
Wholesale - first cost | |
| — | |
| 23,618 | |
| — | |
| 23,618 |
Licensing and royalty | |
| — | |
| 2,602 | |
| — | |
| 2,602 |
Other (2) | |
| 190 | |
| 14 | |
| — | |
| 204 |
Net sales | | $ | 453,649 | | $ | 239,013 | | $ | (17,131) | | $ | 675,531 |
| | | | | | | | | | | | |
| | Twenty-Six Weeks Ended July 30, 2022 | ||||||||||
| | | | | | | | Eliminations and | | | | |
($ thousands) |
| Famous Footwear |
| Brand Portfolio |
| Other |
| Total | ||||
| | | | | | | | | | | | |
Retail stores | | $ | 717,598 | | $ | 28,561 | | $ | — | | $ | 746,159 |
E-commerce - Company websites (1) | |
| 102,054 | |
| 102,025 | |
| — | |
| 204,079 |
E-commerce - wholesale drop ship (1) | |
| — | |
| 65,676 | |
| (1,905) | |
| 63,771 |
Total direct-to-consumer sales | | $ | 819,652 | | $ | 196,262 | | $ | (1,905) | | $ | 1,014,009 |
Wholesale - e-commerce (1) | |
| — | |
| 108,459 | |
| — | |
| 108,459 |
Wholesale - landed | |
| — | |
| 306,383 | |
| (35,327) | |
| 271,056 |
Wholesale - first cost | |
| — | |
| 71,781 | |
| — | |
| 71,781 |
Licensing and royalty | |
| 937 | |
| 6,875 | |
| — | |
| 7,812 |
Other (2) | |
| 288 | |
| 40 | |
| — | |
| 328 |
Total net sales | | $ | 820,877 | | $ | 689,800 | | $ | (37,232) | | $ | 1,473,445 |
10
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Twenty-Six Weeks Ended July 31, 2021 |
| Thirteen Weeks Ended April 30, 2022 | ||||||||||||||||||||
| | | | | | | | Eliminations and | | | | | | | | | | | Eliminations and | | | | ||
($ thousands) |
| Famous Footwear |
| Brand Portfolio |
| Other |
| Total |
| Famous Footwear |
| Brand Portfolio |
| Other |
| Total | ||||||||
| | | | | | | | | | | | | | | | | | | | | | | | |
Retail stores | | $ | 736,923 | | $ | 27,011 | | $ | — | | $ | 763,934 | | $ | 331,988 | | $ | 14,217 | | $ | — | | $ | 346,205 |
E-commerce - Company websites (1) | |
| 114,403 | |
| 92,357 | |
| — | |
| 206,760 | |
| 51,938 | |
| 50,702 | |
| — | |
| 102,640 |
E-commerce - wholesale drop ship (1) | | | — | | | 40,475 | | | (833) | | | 39,642 | ||||||||||||
E-commerce - wholesale drop-ship (1) | | | — | | | 31,773 | | | (998) | | | 30,775 | ||||||||||||
Total direct-to-consumer sales | | $ | 851,326 | | $ | 159,843 | | $ | (833) | | $ | 1,010,336 | | | 383,926 | | | 96,692 | | | (998) | | | 479,620 |
Wholesale - e-commerce (1) | |
| — | |
| 69,539 | |
| — | |
| 69,539 | |
| — | |
| 60,716 | |
| — | |
| 60,716 |
Wholesale - landed | |
| — | |
| 214,784 | |
| (26,072) | |
| 188,712 | |
| — | |
| 175,327 | |
| (14,128) | |
| 161,199 |
Wholesale - first cost | |
| — | |
| 40,336 | |
| — | |
| 40,336 | |
| — | |
| 30,076 | |
| — | |
| 30,076 |
Licensing and royalty | |
| — | |
| 4,766 | |
| — | |
| 4,766 | |
| 422 | |
| 2,906 | |
| — | |
| 3,328 |
Other (2) | |
| 428 | |
| 50 | |
| — | |
| 478 | |
| 154 | |
| 23 | |
| — | |
| 177 |
Net sales | | $ | 851,754 | | $ | 489,318 | | $ | (26,905) | | $ | 1,314,167 | | $ | 384,502 | | $ | 365,740 | | $ | (15,126) | | $ | 735,116 |
(1) | Collectively referred to as "e-commerce" in the narrative below |
(2) | Includes breakage revenue from unredeemed gift cards |
Retail stores
Traditionally, the majority of the Company’sThe Company generates 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
9
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.
E-commerce
The Company generates revenue from sales on websites maintained by the Company that are shipped from the Company’s distribution centers or retail stores directly to the consumer, or picked up directly by the consumer from the Company’s stores (“e-commerce – Company websites”); sales from the Company’s wholesale customers’ websites that are fulfilled on a drop-ship basis (“e-commerce – wholesale drop ship”); and other e-commerce sales (“wholesale – e-commerce”), collectively referred to as "e-commerce". The Company transfers control and recognizes revenue for merchandise sold that is shipped directly to an individual consumer upon delivery to the consumer.
Landed wholesale
Landed sales are wholesale sales in which the Company obtains title to the footwear from the overseas suppliers and maintains title until the merchandise clears United States customs. The merchandise is shipped directly to the customer from the Company’s warehouses. Many customers purchasing footwear on a landed basis arrange their own transportation of merchandise and, with limited exceptions, control is transferred at the time of shipment. Landed sales generally carry a higher profit rate than first-cost wholesale sales as a result of the brand equity associated with the product along with the additional customs, warehousing and logistics services provided to customers and the risks associated with inventory ownership.
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. Many of the customers then import this product into the United States. Revenue is recognized at the time the merchandise is delivered to the customer’s designated freight forwarder and control is transferred to the customer.
Licensing and royalty
The Company has license agreements with third parties allowing them to sell the Company’s branded product, or other merchandise that uses the Company’s owned or licensed brand names. These license agreements provide the licensee access to the Company’s symbolic intellectual property, and revenue is therefore recognized over the license term. For royalty contracts that do not have guaranteed minimums, the Company recognizes revenue as the licensee’s sales occur. For royalty contracts that have guaranteed minimums, revenue for the guaranteed minimum is recognized on a straight-line basis during the term, until such time that the cumulative royalties exceed the total minimum guarantee. Up-front payments are recognized over the contractual term to which the guaranteed minimum relates.
11
The Company also licenses its Famous Footwear trade name and logo to a third-party financial institution to offer Famous Footwear-branded credit cards to its consumers. The Company receives royalties based upon cardholder spending, which is recognized as licensing revenue at the time when the credit card is used.
Contract Balances
Revenue is recorded at the transaction price, net of estimates for variable consideration for which reserves are established, including returns, allowances and discounts. Variable consideration is estimated using the expected value method and given the large number of contracts with similar characteristics, the portfolio approach is applied to determine the variable consideration for each revenue stream. Reserves for projected returns are based on historical patterns and current expectations.
Information about significant contract balances from contracts with customers is as follows:
| | | | | | | | | | | | | | | | | | | |
($ thousands) |
| July 30, 2022 |
| July 31, 2021 |
| January 29, 2022 |
| April 29, 2023 |
| April 30, 2022 |
| January 28, 2023 |
| ||||||
Customer allowances and discounts | | $ | 19,357 | | $ | 15,867 | | $ | 20,328 | | $ | 19,076 | | $ | 22,896 | | $ | 21,917 | |
Loyalty programs liability | |
| 17,492 | |
| 17,782 | |
| 18,814 | |
| 16,993 | |
| 18,152 | |
| 17,732 | |
Returns reserve | |
| 13,172 | |
| 11,858 | |
| 12,468 | |
| 13,915 | |
| 16,376 | |
| 12,038 | |
Gift card liability | |
| 5,987 | |
| 5,372 | |
| 6,804 | |
| 5,920 | |
| 6,130 | |
| 6,659 | |
Changes in contract balances with customers generally reflect differences in relative sales volume for the periods presented. In addition, during the twenty-sixthirteen weeks ended July 30, 2022,April 29, 2023, the loyalty programs liability increased $24.5$8.8 million due to points and material rights earned on purchases and decreased $25.8$9.5 million due to expirations and redemptions. During the twenty-sixthirteen weeks ended July 31, 2021,April 30, 2022, the loyalty programs liability increased $17.1$7.6 million due to points and material rights earned on purchases and decreased $13.3$8.2 million due to expirations and redemptions. The liability for loyalty programs is presented within other accrued expenses when earned and is generally
10
expected to be recognized as revenue within one year. The gift card liability is established upon the sale of a gift card and revenue is recognized either upon redemption of the gift card by the consumer or based upon the gift card breakage rate, which is generally within the 24-month period following the sale of the gift card.
The following table summarizes the activity in the Company’s allowance for expected credit losses during the twenty-sixthirteen weeks ended JulyApril 29, 2023 and April 30, 2022 and July 31, 2021:2022:
| | | | | | | | | | | | |
| | Twenty-Six Weeks Ended | | Thirteen Weeks Ended | ||||||||
($ thousands) |
| July 30, 2022 | | July 31, 2021 |
| April 29, 2023 | | April 30, 2022 | ||||
Balance, beginning of period | | $ | 9,601 | | $ | 14,928 | | $ | 8,903 | | $ | 9,601 |
Adjustment to expected credit losses | | | (1,004) | | | (2,543) | | | (264) | | | (617) |
Uncollectible accounts written off, net of recoveries | | | (209) | | | (2,500) | | | (20) | | | (526) |
Balance, end of period | | $ | 8,388 | | $ | 9,885 | | $ | 8,619 | | $ | 8,458 |
Note 4 Earnings Per Share
The Company uses the two-class method to compute basic and diluted earnings per common share attributable to Caleres, Inc. shareholders. In periods of net loss, no effect is given to the Company’s participating securities since they do not contractually participate in the losses of
12
the Company. The following table sets forth the computation of basic and diluted earnings per common share attributable to Caleres, Inc. shareholders for the periods ended JulyApril 29, 2023 and April 30, 2022 and July 31, 2021:2022:
| | | | | | | | | | | | | | | | | |
| Thirteen Weeks Ended | | Twenty-Six Weeks Ended | | Thirteen Weeks Ended | ||||||||||||
($ thousands, except per share amounts) | July 30, 2022 |
| July 31, 2021 |
| July 30, 2022 |
| July 31, 2021 |
| April 29, 2023 |
| April 30, 2022 | ||||||
| | | | | | | | | | | | | | | | | |
NUMERATOR | | | | | | | | | | | | | | | | | |
Net earnings | $ | 51,553 | | $ | 38,152 | | $ | 101,538 | | $ | 44,536 | | $ | 34,792 | | $ | 49,985 |
Net (earnings) loss attributable to noncontrolling interests |
| (375) | |
| (756) | |
| 149 | |
| (993) | |
| (65) | |
| 524 |
Net earnings attributable to Caleres, Inc. | $ | 51,178 | | $ | 37,396 | | $ | 101,687 | | $ | 43,543 | | $ | 34,727 | | $ | 50,509 |
Net earnings allocated to participating securities |
| (2,226) | |
| (1,360) | |
| (4,216) | |
| (1,575) | |
| (1,478) | |
| (2,017) |
Net earnings attributable to Caleres, Inc. after allocation of earnings to participating securities | $ | 48,952 | | $ | 36,036 | | $ | 97,471 | | $ | 41,968 | | $ | 33,249 | | $ | 48,492 |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
DENOMINATOR |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Denominator for basic earnings per common share attributable to Caleres, Inc. shareholders |
| 35,031 | |
| 36,880 | |
| 35,620 | |
| 36,794 | |
| 34,407 | |
| 36,209 |
Dilutive effect of share-based awards |
| 467 | |
| 267 | |
| 467 | |
| 212 | |
| — | |
| 467 |
Denominator for diluted earnings per common share attributable to Caleres, Inc. shareholders |
| 35,498 | |
| 37,147 | |
| 36,087 | |
| 37,006 | |
| 34,407 | |
| 36,676 |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Basic earnings per common share attributable to Caleres, Inc. shareholders | $ | 1.40 | | $ | 0.98 | | $ | 2.74 | | $ | 1.14 | | $ | 0.97 | | $ | 1.34 |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Diluted earnings per common share attributable to Caleres, Inc. shareholders | $ | 1.38 | | $ | 0.97 | | $ | 2.70 | | $ | 1.13 | | $ | 0.97 | | $ | 1.32 |
There were no outstanding options to purchase shares of common stock for the thirteen weeks ended April 29, 2023. Options to purchase 16,667 shares of common stock for both the thirteen and twenty-six weeks ended JulyApril 30, 2022 and July 31, 2021 were not included in the denominator for diluted earnings per common share attributable to Caleres, Inc. shareholders because the effect would be anti-dilutive.
During the thirteen and twenty-six weeks ended July 30, 2022, the Company repurchased 1,083,496 and 1,784,820 shares, respectively, under the 2019 and 2022 publicly announced share repurchase programs, which permit repurchases of up to 5.0 million and 7.0 million shares, respectively. The Company did not repurchase any shares under the share repurchase programs during the twenty-sixthirteen weeks ended July 31, 2021.April 29, 2023. During the thirteen weeks ended April 30, 2022, the Company repurchased 701,324 shares under the 2019 publicly announced share repurchase program, which permits repurchases of up to 5.0 million shares. Refer to further discussion in Item 2, Unregistered Sales of Equity Securities and Use of Proceeds. Subsequent to quarter-end, the Company has repurchased approximately 538,000 shares of shares at an aggregate price of $13.9 million, bringing our fiscal year-to-date total to approximately 2.3 million shares at an aggregate price of $55.6 million.
Note 5 Restructuring and Other Special Charges
Brand Portfolio – Business Exits
During the twenty-six weeks ended July 31, 2021, the Company incurred costs of $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 statement of earnings within the Brand Portfolio segment for the twenty-six weeks ended July 31, 2021. There were no corresponding charges during the twenty-six weeks ended July 30, 2022. As of July 30, 2022 and July 31, 2021, reserves of $0.0 million and $3.3 million, respectively, were included on the condensed consolidated balance sheets.
Blowfish Mandatory Purchase Obligation
In 2018, the Company acquired a controlling interest in Blowfish Malibu. The remaining interest was subject to a mandatory purchase obligation after a three-year period, which ended on July 31, 2021, based upon an earnings multiple formula as specified in the purchase agreement. Approximately $9.0 million was initially assigned to the mandatory purchase obligation and fair value adjustments were recorded as interest expense. The fair value adjustments on the mandatory purchase obligation totaled $7.1 million ($5.3 million on an after-tax basis, or $0.14 per diluted share) and $13.5 million ($10.0 million on an after-tax basis, or $0.26 per diluted share) for the thirteen and
1311
twenty-six weeks ended July 31, 2021. There were no corresponding charges during Note 5 Supply Chain Financing
The Company facilitates a voluntary supply chain finance program (“the twenty-six weeks ended July 30, 2022. The mandatory purchase obligation was settled for $54.6 million on November 4, 2021. ReferProgram”) that provides certain of the Company’s suppliers the opportunity to further discussion regardingsell receivables related to products that the mandatory purchase obligation in Note 14Company has purchased to participating financial institutions at a rate that leverages the Company’s credit rating, which may be more beneficial to the suppliers than the rate they can obtain based upon their own credit rating. The Company negotiates payment and other terms directly with the suppliers, regardless of whether the supplier participates in the Program, and the Company’s responsibility is limited to making payment based on the terms originally negotiated with the supplier. The suppliers that participate in the Program have discretion to determine which invoices, if any, are sold to the participating financing institutions. The liabilities to the suppliers that participate in the Program are presented as accounts payable in the Company’s condensed consolidated financial statements.balance sheets, with changes reflected within cash flows from operating activities when settled. As of April 29, 2023 and April 30, 2022, the Company had $16.8 million and $45.0 million, respectively, of accounts payable subject to supply chain financing arrangements.
Note 6 Business Segment Information
Following is a summary of certain key financial measures for the Company’s business segments for the periods ended JulyApril 29, 2023 and April 30, 2022 and July 31, 2021:2022:
| | | | | | | | | | | | |
| | Famous | | Brand | | Eliminations | | | | |||
($ thousands) |
| Footwear |
| Portfolio |
| and Other |
| Total | ||||
Thirteen Weeks Ended July 30, 2022 | |
| | |
| | |
| | |
| |
Net sales | | $ | 436,375 | | $ | 324,060 | | $ | (22,105) | | $ | 738,330 |
Intersegment sales (1) | |
| — | | | 22,105 | | | — | |
| 22,105 |
Operating earnings (loss) | |
| 62,496 | |
| 29,410 | |
| (23,486) | |
| 68,420 |
Segment assets | |
| 882,303 | |
| 992,238 | |
| 150,667 | |
| 2,025,208 |
| |
|
| |
|
| |
|
| |
|
|
Thirteen Weeks Ended July 31, 2021 | |
|
| |
|
| |
|
| |
|
|
Net sales | | $ | 453,649 | | $ | 239,013 | | $ | (17,131) | | $ | 675,531 |
Intersegment sales (1) | |
| — | |
| 17,131 | |
| — | |
| 17,131 |
Operating earnings (loss) | |
| 85,498 | |
| 16,554 | |
| (39,260) | |
| 62,792 |
Segment assets | |
| 799,324 | |
| 838,236 | |
| 195,338 | |
| 1,832,898 |
| |
|
| |
|
| |
|
| |
|
|
Twenty-Six Weeks Ended July 30, 2022 | |
| | |
| | |
| | |
| |
Net sales | | $ | 820,877 | | $ | 689,800 | | $ | (37,232) | | $ | 1,473,445 |
Intersegment sales (1) | |
| — | |
| 37,232 | |
| — | |
| 37,232 |
Operating earnings (loss) | |
| 112,184 | |
| 70,760 | |
| (48,329) | |
| 134,615 |
| |
|
| |
|
| |
|
| |
|
|
Twenty-Six Weeks Ended July 31, 2021 | |
|
| |
|
| |
|
| |
|
|
Net sales | | $ | 851,754 | | $ | 489,318 | | $ | (26,905) | | $ | 1,314,167 |
Intersegment sales (1) | |
| — | |
| 26,905 | |
| — | |
| 26,905 |
Operating earnings (loss) | |
| 133,371 | |
| 13,733 | |
| (66,442) | |
| 80,662 |
| | | | | | | | | | | | |
| | Famous | | Brand | | Eliminations | | | | |||
($ thousands) |
| Footwear |
| Portfolio |
| and Other |
| Total | ||||
Thirteen Weeks Ended April 29, 2023 | |
| | |
| | |
| | |
| |
Net sales | | $ | 349,158 | | $ | 325,516 | | $ | (11,940) | | $ | 662,734 |
Intersegment sales (1) | |
| — | | | 11,940 | | | — | |
| 11,940 |
Operating earnings (loss) | |
| 17,056 | |
| 42,669 | |
| (10,138) | |
| 49,587 |
Segment assets | |
| 830,994 | |
| 844,263 | |
| 142,826 | |
| 1,818,083 |
| |
|
| |
|
| |
|
| |
|
|
Thirteen Weeks Ended April 30, 2022 | |
|
| |
|
| |
|
| |
|
|
Net sales | | $ | 384,502 | | $ | 365,740 | | $ | (15,126) | | $ | 735,116 |
Intersegment sales (1) | |
| — | | | 15,126 | | | — | |
| 15,126 |
Operating earnings (loss) | |
| 49,688 | |
| 41,349 | |
| (24,842) | |
| 66,195 |
Segment assets | |
| 790,778 | |
| 987,397 | |
| 150,123 | |
| 1,928,298 |
|
|
| |
|
| |
|
| |
|
|
(1) | Included in net sales in the Brand Portfolio segment and eliminated in the Eliminations and Other category. |
The Eliminations and Other category includes corporate assets, administrative expenses and other costs and recoveries, which are not allocated to the operating segments, as well as the elimination of intersegment sales and profit.
Following is a reconciliation of operating earnings to earnings before income taxes:
| | | | | | | | | | | | | | | | | | |
|
| Thirteen Weeks Ended | | Twenty-Six Weeks Ended |
| Thirteen Weeks Ended | ||||||||||||
($ thousands) |
| July 30, 2022 |
| July 31, 2021 |
| July 30, 2022 |
| July 31, 2021 |
| April 29, 2023 |
| April 30, 2022 | ||||||
Operating earnings | | $ | 68,420 | | $ | 62,792 | | $ | 134,615 | | $ | 80,662 | | $ | 49,587 | | $ | 66,195 |
Interest expense, net | |
| (2,584) | |
| (11,941) | |
| (4,883) | |
| (23,734) | |
| (5,623) | |
| (2,299) |
Other income, net | |
| 3,217 | |
| 3,860 | |
| 6,639 | |
| 7,688 | |
| 1,492 | |
| 3,422 |
Earnings before income taxes | | $ | 69,053 | | $ | 54,711 | | $ | 136,371 | | $ | 64,616 | | $ | 45,456 | | $ | 67,318 |
1412
Note 7 Inventories
The Company’s net inventory balance was comprised of the following:
| | | | | | | | | | | | | | | | | | |
($ thousands) |
| July 30, 2022 |
| July 31, 2021 |
| January 29, 2022 |
| April 29, 2023 |
| April 30, 2022 |
| January 28, 2023 | ||||||
Raw materials | | $ | 18,159 | | $ | 14,886 | | $ | 16,764 | | $ | 18,367 | | $ | 16,112 | | $ | 21,172 |
Work-in-process | |
| 714 | |
| 394 | |
| 614 | |
| 563 | |
| 666 | |
| 569 |
Finished goods | |
| 751,779 | |
| 550,232 | |
| 579,429 | |
| 540,537 | |
| 626,749 | |
| 558,474 |
Inventories, net | | $ | 770,652 | | $ | 565,512 | | $ | 596,807 | | $ | 559,467 | | $ | 643,527 | | $ | 580,215 |
Note 8 Goodwill and Intangible Assets
Goodwill and intangible assets were as follows:
| | | | | | | | | | | | | | | | | | |
($ thousands) |
| July 30, 2022 |
| July 31, 2021 |
| January 29, 2022 |
| April 29, 2023 |
| April 30, 2022 |
| January 28, 2023 | ||||||
Intangible Assets |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
Famous Footwear | | $ | 2,800 | | $ | 2,800 | | $ | 2,800 | | $ | 2,800 | | $ | 2,800 | | $ | 2,800 |
Brand Portfolio | |
| 342,083 | |
| 342,083 | |
| 342,083 | |
| 342,083 | |
| 342,083 | |
| 342,083 |
Total intangible assets | |
| 344,883 | |
| 344,883 | |
| 344,883 | |
| 344,883 | |
| 344,883 | |
| 344,883 |
Accumulated amortization | |
| (128,392) | |
| (116,062) | |
| (122,336) | |
| (137,486) | |
| (125,364) | |
| (134,447) |
Total intangible assets, net | |
| 216,491 | |
| 228,821 | |
| 222,547 | |
| 207,397 | |
| 219,519 | |
| 210,436 |
Goodwill | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Brand Portfolio | |
| 4,956 | |
| 4,956 | |
| 4,956 | |
| 4,956 | |
| 4,956 | |
| 4,956 |
Total goodwill | |
| 4,956 | |
| 4,956 | |
| 4,956 | |
| 4,956 | |
| 4,956 | |
| 4,956 |
Goodwill and intangible assets, net | | $ | 221,447 | | $ | 233,777 | | $ | 227,503 | | $ | 212,353 | | $ | 224,475 | | $ | 215,392 |
(1) | The carrying amount of intangible assets as of April 29, 2023, April 30, 2022 and January 28, 2023 is presented net of accumulated impairment charges of $106.2 million. |
(2) | The carrying amount of goodwill as of |
1513
The Company’s intangible assets as of JulyApril 29, 2023, April 30, 2022 July 31, 2021 and January 29, 202228, 2023 were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
($ thousands) |
| July 30, 2022 |
| April 29, 2023 | ||||||||||||||||||||||||
|
| Estimated Useful Lives |
| | |
| Accumulated |
| Accumulated |
| | |
| Estimated Useful Lives |
| | |
| Accumulated |
| Accumulated |
| | | ||||
| | (In Years) | | Cost Basis | | Amortization | | Impairment | | Net Carrying Value | | (In Years) | | Cost Basis | | Amortization | | Impairment | | Net Carrying Value | ||||||||
Trade names |
| 2 - 40 | | $ | 299,488 | | $ | 116,995 | | $ | 10,200 | | $ | 172,293 |
| 2 - 40 | | $ | 299,488 | | $ | 123,755 | | $ | 10,200 | | $ | 165,533 |
Trade names |
| Indefinite | |
| 107,400 | |
| — | |
| 92,000 | |
| 15,400 |
| Indefinite | |
| 107,400 | |
| — | |
| 92,000 | |
| 15,400 |
Customer relationships |
| 15 - 16 |
|
| 44,200 |
|
| 11,397 |
|
| 4,005 |
|
| 28,798 |
| 15 - 16 |
|
| 44,200 |
|
| 13,731 |
|
| 4,005 |
|
| 26,464 |
| | | | $ | 451,088 | | $ | 128,392 | | $ | 106,205 | | $ | 216,491 | ||||||||||||||
| | | | | | | | | | | | | | | | | | $ | 451,088 | | $ | 137,486 | | $ | 106,205 | | $ | 207,397 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
|
| July 31, 2021 |
| April 30, 2022 | ||||||||||||||||||||||||
|
| Estimated Useful Lives |
| | |
| Accumulated |
| Accumulated |
| | |
| Estimated Useful Lives |
| | |
| Accumulated |
| Accumulated |
| | | ||||
| | (In Years) | | Cost Basis | | Amortization | | Impairment | | Net Carrying Value | | (In Years) | | Cost Basis | | Amortization | | Impairment | | Net Carrying Value | ||||||||
Trade names |
| 2 - 40 | | $ | 299,488 | | $ | 107,000 | | $ | 10,200 | | $ | 182,288 |
| 2 - 40 | | $ | 299,488 | | $ | 114,528 | | $ | 10,200 | | $ | 174,760 |
Trade names |
| Indefinite | |
| 107,400 | |
| — | |
| 92,000 | |
| 15,400 |
| Indefinite | |
| 107,400 | |
| — | |
| 92,000 | |
| 15,400 |
Customer relationships |
| 15 - 16 |
|
| 44,200 |
|
| 9,062 |
|
| 4,005 |
|
| 31,133 |
| 15 - 16 |
|
| 44,200 |
|
| 10,836 |
|
| 4,005 |
|
| 29,359 |
| | | | $ | 451,088 | | $ | 116,062 | | $ | 106,205 | | $ | 228,821 | | | | $ | 451,088 | | $ | 125,364 | | $ | 106,205 | | $ | 219,519 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
|
| January 29, 2022 |
| January 28, 2023 | ||||||||||||||||||||||||
|
| Estimated Useful Lives |
| | |
| Accumulated |
| Accumulated |
| | |
| Estimated Useful Lives |
| | |
| Accumulated |
| Accumulated |
| | | ||||
| | (In Years) | | Cost Basis | | Amortization | | Impairment | | Net Carrying Value | | (In Years) | | Cost Basis | | Amortization | | Impairment | | Net Carrying Value | ||||||||
Trade names |
| 2 - 40 | | $ | 299,488 | | $ | 112,061 | | $ | 10,200 | | $ | 177,227 |
| 2 - 40 | | $ | 299,488 | | $ | 121,928 | | $ | 10,200 | | $ | 167,360 |
Trade names |
| Indefinite | |
| 107,400 | |
| — | |
| 92,000 | |
| 15,400 |
| Indefinite | |
| 107,400 | |
| — | |
| 92,000 | |
| 15,400 |
Customer relationships |
| 15 - 16 |
|
| 44,200 |
|
| 10,275 |
|
| 4,005 |
|
| 29,920 |
| 15 - 16 |
|
| 44,200 |
|
| 12,519 |
|
| 4,005 |
|
| 27,676 |
| | | | $ | 451,088 | | $ | 122,336 | | $ | 106,205 | | $ | 222,547 | | | | $ | 451,088 | | $ | 134,447 | | $ | 106,205 | | $ | 210,436 |
Amortization expense related to intangible assets was $3.0 million and $3.1 million for both the thirteen weeks ended JulyApril 29, 2023 and April 30, 2022 and July 31, 2021, respectively, and $6.1 million and $6.3 million for the twenty-six weeks ended July 30, 2022 and July 31, 2021, respectively.2022. The Company estimates that amortization expense related to intangible assets will be approximately $12.1 million in 2022, $11.9 million in 2023, and $11.0 million in each of the fiscal years 2024, 2025 and 2026., and $10.9 million in 2027.
Goodwill is tested for impairment at least annually, or more frequently if events or circumstances indicate it might be impaired, using either the qualitative assessment or a quantitative fair value-based test. The Company recorded no goodwill impairment charges during the twenty-sixthirteen weeks ended JulyApril 29, 2023 or April 30, 2022 or July 31, 2021.2022.
Indefinite-lived intangible assets are tested for impairment as of the first day of the fourth quarter of each fiscal year unless events or circumstances indicate an interim test is required. The Company recorded no impairment charges for indefinite-lived intangible assets during the twenty-sixthirteen weeks ended JulyApril 29, 2023 or April 30, 2022 or July 31, 2021.2022.
Note 9 Leases
The Company leases all of its retail locations, a manufacturing facility, and certain office locations, distribution centers and equipment. At contract inception, leases are evaluated and classified as either operating or finance leases. Leases with an initial term of 12 months or less are not recorded on the balance sheet.
Lease right-of-use assets and lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term. The majority of the Company’s leases do not provide an implicit rate and therefore, the Company uses an incremental borrowing rate based on information available at the commencement date to determine the present value of future payments. For operating leases, lease expense for minimum lease payments is recognized on a straight-line basis over the lease term. Variable lease payments are expensed as incurred.
14
The Company regularly analyzes the results of all of its stores and assesses the viability of underperforming stores to determine whether events or circumstances exist that indicate the stores should be closed or whether the carrying amount of their long-lived assets may not be
16
recoverable. After allowing for an appropriate start-up period and consideration of any unusual nonrecurring events, property and equipment at stores and the lease right-of-use assets indicated as impaired are written down to fair value as calculated using a discounted cash flow method. The fair value of the lease right-of-use assets is determined utilizing projected cash flows for each store location, discounted using a risk-adjusted discount rate, subject to a market floor based on current market lease rates. The Company recorded an immaterial amount of asset impairment charges in the thirteen weeks ended April 29, 2023. During the thirteen weeks ended April 30, 2022, the Company recorded asset impairment charges of $0.2$1.8 million, and $0.4 million during the thirteen weeks and $2.0 million and $2.3 million during the twenty-six weeks ended July 30, 2022 and July 31, 2021, respectively. The impairment charges are primarily related to capitalized software and underperforming retail stores.software. Refer to Note 14 to the condensed consolidated financial statements for further discussion on these impairment charges.
As a result of the temporary store closures during the first half of 2020 associated with the pandemic, certain leases were amended to provide rent abatements and/or deferral of lease payments. Deferred payments continue to be reflected in lease obligations on the condensed consolidated balance sheets. Under relief provided by the FASB, entities could make a policy election to account for COVID-19-related lease concessions as if the enforceable rights existed under the original contract, accounting for them as variable rent rather than lease modifications. The Company made a policy election to account for rent abatements as variable rent. Accordingly, duringDuring the thirteen and twenty-six weeks ended July 31, 2021, the Company recorded $0.3 million and $1.6 million, respectively, in lease concessions as a reduction of rent expense within selling and administrative expenses in the condensed consolidated statements of earnings. Rent concessions for leases that were extended were recognized as a lease modification.
During the twenty-six weeks ended July 30, 2022,April 29, 2023, the Company entered into new or amended leases that resulted in the recognition of right-of-use assets and lease obligations of $87.8$29.6 million on the condensed consolidated balance sheets. As of July 30, 2022,April 29, 2023, the Company has entered into lease commitments for fivesix retail locations for which the leases have not yet commenced. The Company anticipates that threetwo leases will begin in the current fiscal year, and twothree leases will begin in the next fiscal year.2024 and one lease will begin in fiscal 2025. Upon commencement, right-of-use assets and lease liabilities of approximately $2.7$1.4 million, $2.2 million and $0.4 million will be recorded in the current fiscal year and $2.0 million will be recorded in the next fiscal year on the condensed consolidated balance sheets. In addition, as further discussedsheets in Note 1 to the condensed consolidated financial statements, the Company intends to execute a lease agreement during the second half of 2022 for a portion of a new office building to be built on a parcel of the headquarters campus, as well as a lease agreement for the existing headquarters building during the period of construction.2023, 2024 and 2025, respectively.
The components of lease expense for the thirteen and twenty-six weeks ended JulyApril 29, 2023 and April 30, 2022 and July 31, 2021 were as follows:
| | | | | | | | | | | | |
| | Thirteen Weeks Ended | | Thirteen Weeks Ended | ||||||||
($ thousands) | | July 30, 2022 |
| July 31, 2021 | | April 29, 2023 |
| April 30, 2022 | ||||
Operating lease expense |
| $ | 33,630 |
| $ | 37,121 |
| $ | 39,142 |
| $ | 38,064 |
Variable lease expense | |
| 9,872 | |
| 8,513 | |
| 10,465 | |
| 9,016 |
Short-term lease expense | |
| 1,176 | |
| 708 | |
| 687 | |
| 1,195 |
Sublease income | |
| — | |
| (29) | |
| — | |
| (59) |
Total lease expense | | $ | 44,678 | | $ | 46,313 | | $ | 50,294 | | $ | 48,216 |
| | | | | | |
| | Twenty-Six Weeks Ended | ||||
($ thousands) | | July 30, 2022 |
| July 31, 2021 | ||
Operating lease expense |
| $ | 71,694 |
| $ | 77,698 |
Variable lease expense | |
| 18,888 | |
| 20,003 |
Short-term lease expense | |
| 2,371 | |
| 1,273 |
Sublease income | |
| (59) | |
| (58) |
Total lease expense | | $ | 92,894 | | $ | 98,916 |
17
Supplemental cash flow information related to leases is as follows:
| | | | | | |
| Twenty-Six Weeks Ended | |||||
($ thousands) |
| July 30, 2022 |
| July 31, 2021 | ||
Cash paid for lease liabilities (1) | | $ | 84,310 | | $ | 104,384 |
Cash received from sublease income | |
| 59 | |
| 58 |
Supplemental cash flow information related to leases is as follows: | | | | | | |
| | Thirteen Weeks Ended | ||||
($ thousands) |
| April 29, 2023 |
| April 30, 2022 | ||
Cash paid for lease liabilities | | $ | 41,163 | | $ | 48,793 |
Cash received from sublease income | |
| — | |
| 59 |
| | | | | | |
Note 10 Financing Arrangements
Credit Agreement
The Company maintains a revolving credit facility for working capital needs. The Company is the lead borrower, and Sidney Rich Associates, Inc., BG Retail, LLC, Allen Edmonds LLC, Vionic Group LLC, and Vionic International LLC and Blowfish, LLC are each co-borrowers and guarantors. On April 8, 2022, Blowfish, LLC was joined to the Credit Agreement as a co-borrower and guarantor.
On October 5, 2021, the Company entered into a Fifth Amendment to Fourth Amended and Restated Credit Agreement (as so amended, the "Credit Agreement") which, among other modifications, decreased the amount available under the revolving credit facility by $100.0 million to an aggregate amount of up to $500.0 million, subject to borrowing base restrictions, and may be increased by up to $250.0 million. The Credit Agreement also decreased the spread applied to the London Interbank Offered Rate (“LIBOR”) or prime rate by a total of 75 basis points. On April 27, 2023, the Company entered into a Sixth Amendment to Fourth Amended and Restated Credit agreement to transition the borrowings on the revolving credit facility from bearing interest based on LIBOR to a term secured overnight financing rate (“SOFR”).
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.
15
Interest on borrowings is at variable rates based on LIBOR (with a floor of 0.0%),the SOFR, or the prime rate (as defined in the Credit Agreement), plus a spread. The interest rate and fees for letters of credit vary based upon the level of excess availability under the Credit Agreement. There is an unused line fee payable on the unused portion under the facility and a letter of credit fee payable on the outstanding face amount under letters of credit.
The Credit Agreement limits the Company’s ability to create, incur, assume or permit to exist additional indebtedness and liens, make investments or specified payments, give guarantees, pay dividends, make capital expenditures and merge or acquire or sell assets. In addition, if excess availability falls below the greater of 10.0% of the Loan Cap and $40.0 million for three consecutive business days, and the fixed charge coverage ratio is less than 1.25 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 July 30, 2022.April 29, 2023.
At July 30, 2022,April 29, 2023, the Company had $348.5$291.5 million of borrowings outstanding and $10.8$10.6 million in letters of credit outstanding under the Credit Agreement. Total additional borrowing availability was $140.7$197.9 million at July 30, 2022.
18
Senior Notes
On July 27, 2015, the Company issued $200.0 million aggregate principal amount of senior notes due on August 15, 2023 (the "Senior Notes"). The Senior Notes bore interest at 6.25%, which was payable on February 15 and August 15 of each year. The Senior Notes were guaranteed on a senior unsecured basis by each of the Company’s subsidiaries that is a borrower or guarantor under the Credit Agreement. On August 16, 2021, the Company redeemed $100.0 million of Senior Notes at 100.0%. In addition, on January 3, 2022, the remaining $100.0 million of Senior Notes were redeemed at 100.0%, extinguishing the Company’s long-term debt.April 29, 2023.
1916
Note 11 Shareholders’ Equity
Accumulated Other Comprehensive Loss
The following table sets forth the changes in accumulated other comprehensive loss (OCL) by component for the periods ended JulyApril 29, 2023 and April 30, 2022 and July 31, 2021:2022:
| | | | | | | | | | | | | | | | | | |
|
| | |
| |
| | |
| | |
| |
| | | ||
| | | | | Pension and | | Accumulated | | | | | Pension and | | Accumulated | ||||
| | Foreign | | Other | | Other | | Foreign | | Other | | Other | ||||||
| | Currency | | Postretirement | | Comprehensive | | Currency | | Postretirement | | Comprehensive | ||||||
($ thousands) | | Translation | | Transactions (1) | | (Loss) Income | | Translation | | Transactions (1) | | (Loss) Income | ||||||
Balance at April 30, 2022 | | $ | (950) | | $ | (7,378) | | $ | (8,328) | |||||||||
Other comprehensive income before reclassifications | | | 465 | | | — | | | 465 | |||||||||
Reclassifications: | |
| | |
| | |
| | |||||||||
Amounts reclassified from accumulated other comprehensive loss | | | — | | | 773 | | | 773 | |||||||||
Tax benefit |
| | — |
| | (190) |
| | (190) | |||||||||
Net reclassifications |
| | — |
| | 583 |
| | 583 | |||||||||
Other comprehensive income |
| | 465 |
| | 583 |
| | 1,048 | |||||||||
Balance at July 30, 2022 | | $ | (485) | | $ | (6,795) | | $ | (7,280) | |||||||||
| | | | | | | | | | |||||||||
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 January 29, 2022 | | $ | (788) | | $ | (7,818) | | $ | (8,606) | |||||||||
Other comprehensive income before reclassifications | |
| 303 | |
| — | |
| 303 | |||||||||
Reclassifications: | |
| | |
|
| |
|
| |||||||||
Amounts reclassified from accumulated other comprehensive loss | |
| — | |
| 1,354 | |
| 1,354 | |||||||||
Tax benefit | |
| — | |
| (331) | |
| (331) | |||||||||
Net reclassifications | |
| — | |
| 1,023 | |
| 1,023 | |||||||||
Other comprehensive income | |
| 303 | |
| 1,023 | |
| 1,326 | |||||||||
Balance at July 30, 2022 | | $ | (485) | | $ | (6,795) | | $ | (7,280) | |||||||||
| | | | | | | | | | |||||||||
Balance at January 30, 2021 | | $ | (111) | | $ | (9,025) | | $ | (9,136) | |||||||||
Balance at January 28, 2023 | | $ | (1,213) | | $ | (25,537) | | $ | (26,750) | |||||||||
Other comprehensive loss before reclassifications | |
| (149) | |
| — | |
| (149) | | | (220) | | | — | | | (220) |
Reclassifications: | |
|
| |
| | |
|
| |
| | |
| | |
| |
Amounts reclassified from accumulated other comprehensive loss | |
| — | |
| 895 | |
| 895 | | | — | | | 955 | | | 955 |
Tax benefit | |
| — | |
| (182) | |
| (182) |
| | — |
| | (245) |
| | (245) |
Net reclassifications | |
| — | |
| 713 | |
| 713 |
| | — |
| | 710 |
| | 710 |
Other comprehensive (loss) income | |
| (149) | |
| 713 | |
| 564 |
| | (220) |
| | 710 |
| | 490 |
Balance at July 31, 2021 | | $ | (260) | | $ | (8,312) | | $ | (8,572) | |||||||||
Balance at April 29, 2023 | | $ | (1,433) | | $ | (24,827) | | $ | (26,260) | |||||||||
| | | | | | | | | | |||||||||
Balance at January 29, 2022 | | $ | (788) | | $ | (7,818) | | $ | (8,606) | |||||||||
Other comprehensive loss before reclassifications | |
| (162) | |
| — | |
| (162) | |||||||||
Reclassifications: | |
|
| |
|
| |
|
| |||||||||
Amounts reclassified from accumulated other comprehensive loss | |
| — | |
| 581 | |
| 581 | |||||||||
Tax benefit | |
| — | |
| (141) | |
| (141) | |||||||||
Net reclassifications | |
| — | |
| 440 | |
| 440 | |||||||||
Other comprehensive (loss) income | |
| (162) | |
| 440 | |
| 278 | |||||||||
Balance at April 30, 2022 | | $ | (950) | | $ | (7,378) | | $ | (8,328) |
(1) | Amounts reclassified are included in other income, net. Refer to Note 13 to the condensed consolidated financial statements for additional information related to pension and other postretirement benefits. |
Note 12 Share-Based Compensation
The Company recognized share-based compensation expense of $4.4$2.9 million and $3.0$3.8 million during the thirteen weeks ended April 29, 2023 and $8.2 millionApril 30, 2022, respectively.
The Company had net issuances of 558,847 and $5.4 million512,508 shares of common stock during the twenty-sixthirteen weeks ended JulyApril 29, 2023 and April 30, 2022, respectively, for restricted stock grants, stock performance awards issued to employees and July 31, 2021, respectively.common and restricted stock grants issued to non-employee directors, net of forfeitures and shares withheld to satisfy the tax withholding requirement.
2017
The Company had net issuances (repurchases) of 87,947 and (25,408) shares of common stock during the thirteen weeks ended July 30, 2022 and July 31, 2021, respectively, for restricted stock grants, stock performance awards issued to employees 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 twenty-six weeks ended July 30, 2022 and July 31, 2021, the Company had net issuances of 600,455 and 301,860 shares of common stock, respectively, related to share-based plans.
Restricted Stock
The following table summarizes restricted stock activity for the periods ended JulyApril 29, 2023 and April 30, 2022 and July 31, 2021:2022:
| | | | | | | | | | | | |
| | Thirteen Weeks Ended | | | | Thirteen Weeks Ended | ||||||
| | July 30, 2022 | | | | July 31, 2021 | ||||||
| | | | | Weighted- | | | | | | | Weighted- |
| | Total Number | | | Average | | | | Total Number | | | Average |
| | of Restricted | | | Grant Date | | | | of Restricted | | | Grant Date |
|
| Shares |
| | Fair Value |
| |
| Shares |
| | Fair Value |
April 30, 2022 | | 1,622,777 | | $ | 17.51 | | May 1, 2021 | | 1,428,844 | | $ | 14.04 |
Granted | | 10,470 | | | 27.70 | | Granted | | 6,410 | | | 27.50 |
Forfeited | | (29,250) | | | 17.10 | | Forfeited | | (22,375) | | | 13.51 |
Vested |
| (24,795) |
| | 21.00 |
| Vested |
| (32,633) |
| | 15.95 |
July 30, 2022 |
| 1,579,202 | | $ | 17.53 | | July 31, 2021 |
| 1,380,246 | | $ | 14.05 |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Twenty-Six Weeks Ended | | | | Twenty-Six Weeks Ended | | Thirteen Weeks Ended | | | | Thirteen Weeks Ended | ||||||||||||
|
| July 30, 2022 |
| |
| July 31, 2021 | | April 29, 2023 | | | | April 30, 2022 | ||||||||||||
| | | | 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 | |
January 29, 2022 |
| 1,390,397 | | $ | 14.24 | | January 30, 2021 |
| 1,397,227 | | $ | 16.74 | ||||||||||||
January 28, 2023 | | 1,603,960 | | $ | 18.57 | | January 29, 2022 | | 1,390,397 | | $ | 14.24 | ||||||||||||
Granted |
| 681,670 | |
| 21.10 | | Granted |
| 568,916 | |
| 18.73 | | 546,384 | | | 23.09 | | Granted | | 671,200 | | | 21.00 |
Forfeited |
| (80,216) | |
| 14.26 | | Forfeited |
| (68,875) | |
| 15.45 | | (122,245) | | | 17.96 | | Forfeited | | (50,966) | | | 12.63 |
Vested |
| (412,649) | |
| 12.99 | | Vested |
| (517,022) | |
| 26.26 |
| (420,504) |
| | 12.88 |
| Vested |
| (387,854) |
| | 12.48 |
July 30, 2022 |
| 1,579,202 | | $ | 17.53 | | July 31, 2021 |
| 1,380,246 | | $ | 14.05 | ||||||||||||
April 29, 2023 |
| 1,607,595 | | $ | 21.64 | | April 30, 2022 |
| 1,622,777 | | $ | 17.51 |
The Company granted 10,470
Of the 546,384 restricted shares granted during the thirteen weeks ended July 30, 2022, which have a cliff-vesting term of one year. Of the 681,670 restricted shares granted during the twenty-six weeks ended July 30, 2022, 671,200 restrictedApril 29, 2023, 533,584 shares have a graded-vestinggraded vesting term of three years, with 50% vesting after two years and 50% after three years, 7,000 shares have a graded vesting term of three years, with 50% vesting after eighteen months and 10,47050% after three years, and 5,800 shares have a cliff-vesting term of one year. Of the 6,410two years. The Company granted 671,200 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 sharesApril 30, 2022, which 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, 544,006 shares have a graded-vesting term of three years, with 50% vesting after two years and 50% after three years, 20,000 shares have a cliff-vesting term of two years and 4,910 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 Awards
During the twenty-sixthirteen weeks ended JulyApril 29, 2023, the Company granted performance share awards for a targeted 276,434 shares, with a weighted-average grant date fair value of $23.12 in connection with the 2023 performance award (2023 – 2025 performance period). During the thirteen weeks ended April 30, 2022, the Company granted performance share awards for a targeted 87,750 shares, with a weighted-average grant date fair value of $20.99 in connection with the 2020 performance award. During the twenty-six weeks ended July 31, 2021, the Company grantedaward (2020 – 2022 performance share awards for a targeted 175,500 shares, with a weighted-average grant date fair value of $18.63. There were no performance-based share awards granted by the Company during the thirteen weeks ended July 30, 2022 or July 31, 2021. 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.period). 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 achievementattainment of the specifiedcertain financial goals for the service period.period and individual achievement of strategic initiatives over the cumulative period of the award. The 2023 performance award is payable in common stock for up to 100% of the targeted award and the remainder in cash if any portion exceeds the targeted award. 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.
21
During the twenty-sixthirteen weeks ended JulyApril 30, 2022, the Company granted long-term incentive awards payable in cash for the 2022-2024 performance period, with a target value of $8.3 million and a maximum value of $16.6 million. 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. There were no performance-based share awards granted by the Company during the thirteen weeks ended July 30, 2022 or July 31, 2021. These awards,This award, which vestvests after a three-year period, areis 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 valuesvalue of the awards,award, which areis reflected within other liabilities on the condensed consolidated balance sheets, areis being expensed ratably over the three-year performance period.
Restricted Stock Units for Non-Employee Directors
Equity-based grants may be made to non-employee directors in the form of restricted stock units ("RSUs") payable in cash or common stock at no cost to the non-employee director. The RSUs are subject to a vesting requirement (usually one year) and earn dividend equivalents at the same rate as dividends on the Company’s common stock. The dividend equivalents, which vest immediately, are automatically re-invested in additional RSUs. Expense related to the initial grant of RSUs is recognized ratably over the vesting period based upon the fair value of the RSUs. The RSUs payable in cash are remeasured at the end of each period. Expense for the dividend equivalents is recognized at fair value when the dividend equivalents are granted. Gains and losses resulting from changes in the fair value of the RSUs payable in cash subsequent to the vesting period and through the settlement date are recognized in the Company’s condensed consolidated statements of earnings. The Company granted 38,1041,423 and 40,7291,907 RSUs to non-employee directors including 1,459 and 1,449 for dividend equivalents, during the thirteen weeks ended JulyApril 29, 2023 and April 30, 2022, and July 31, 2021, respectively, with weighted-average grant date fair values of $27.66$21.47 and $27.48, respectively. The Company granted 40,011 and 42,441 RSUs to non-employee directors, including 3,366 and 3,161 for dividend equivalents, during the twenty-six weeks ended July 30, 2022 and July 31, 2021, respectively, with weighted-average grant date fair values of $27.33 and $27.21,$20.64, respectively.
18
Note 13 Retirement and Other Benefit Plans
The following table sets forth the components of net periodic benefit income for the Company, including the domestic and Canadian plans:
| | | | | | | | | | | | |
| | Pension Benefits | | Other Postretirement Benefits | ||||||||
|
| Thirteen Weeks Ended |
| Thirteen Weeks Ended | ||||||||
($ thousands) | | July 30, 2022 |
| July 31, 2021 |
| July 30, 2022 |
| July 31, 2021 | ||||
Service cost | | $ | 1,810 | | $ | 1,801 | | $ | — | | $ | — |
Interest cost | |
| 3,026 | |
| 2,806 | |
| 8 | |
| 10 |
Expected return on assets | |
| (7,024) | |
| (7,108) | |
| — | |
| — |
Amortization of: | |
| | |
|
| |
| | |
|
|
Actuarial loss (gain) | |
| 883 | |
| 592 | |
| (27) | |
| (28) |
Prior service income | |
| (83) | |
| (132) | |
| — | |
| — |
Total net periodic benefit income | | $ | (1,388) | | $ | (2,041) | | $ | (19) | | $ | (18) |
| | | | | | | | | | | | |
| | Pension Benefits | | Other Postretirement Benefits | ||||||||
|
| Twenty-Six Weeks Ended |
| Twenty-Six Weeks Ended | ||||||||
($ thousands) |
| July 30, 2022 |
| July 31, 2021 |
| July 30, 2022 |
| July 31, 2021 | ||||
Service cost | | $ | 3,572 | | $ | 3,743 | | $ | — | | $ | — |
Interest cost | |
| 5,997 | |
| 5,619 | |
| 18 | |
| 20 |
Expected return on assets | |
| (14,008) | |
| (14,222) | |
| — | |
| — |
Amortization of: | | | | | |
| | | | | |
|
Actuarial loss (gain) | |
| 1,564 | |
| 1,207 | |
| (52) | |
| (55) |
Prior service income | |
| (158) | |
| (257) | |
| — | |
| — |
Total net periodic benefit income | | $ | (3,033) | | $ | (3,910) | | $ | (34) | | $ | (35) |
| | | | | | | | | | | | |
| | Pension Benefits |
| Other Postretirement Benefits | ||||||||
|
| Thirteen Weeks Ended | | Thirteen Weeks Ended | ||||||||
($ thousands) | | April 29, 2023 |
| April 30, 2022 |
| April 29, 2023 |
| April 30, 2022 | ||||
Service cost | | $ | 1,258 | | $ | 1,762 | | $ | — | | $ | — |
Interest cost | |
| 3,615 | |
| 2,971 | |
| 13 | |
| 10 |
Expected return on assets | |
| (6,075) | |
| (6,984) | |
| — | |
| — |
Amortization of: | |
| | |
|
| |
| | |
|
|
Actuarial loss (gain) | |
| 1,011 | |
| 681 | |
| (28) | |
| (25) |
Prior service income | |
| (28) | |
| (75) | |
| — | |
| — |
Total net periodic benefit income | | $ | (219) | | $ | (1,645) | | $ | (15) | | $ | (15) |
The non-service cost components of net periodic benefit income are included in other income, net in the condensed consolidated statements of earnings. Service cost is included in selling and administrative expenses.
22
Note 14 Fair Value Measurements
Fair Value Hierarchy
Fair value measurement disclosure requirements specify a hierarchy of valuation techniques based upon whether the inputs to those valuation techniques reflect assumptions other market participants would use based upon market data obtained from independent sources (“observable inputs”) or reflect the Company’s own assumptions of market participant valuation (“unobservable inputs”). In accordance with the fair value guidance, the inputs to valuation techniques used to measure fair value are categorized into three levels based on the reliability of the inputs as follows:
● | Level 1 – Quoted prices in active markets that are unadjusted and accessible at the measurement date for identical, unrestricted assets or liabilities; |
● | Level 2 – Quoted prices for identical assets and liabilities in markets that are not active, quoted prices for similar assets and liabilities in active markets or financial instruments for which significant inputs are observable, either directly or indirectly; and |
● | Level 3 – Prices or valuations that require inputs that are both significant to the fair value measurement and unobservable. |
In determining fair value, the Company uses valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible. The Company also considers counterparty credit risk in its assessment of fair value. Classification of the financial or non-financial asset or liability within the hierarchy is determined based on the lowest level input that is significant to the fair value measurement.
Measurement of Fair Value
The Company measures fair value as an exit price, the price to sell an asset or transfer a liability in an orderly transaction between market participants at the measurement date, using the procedures described below for all financial and non-financial assets and liabilities measured at fair value.
Money Market Funds
The Company periodically invests in cash equivalents consisting of short-term money market funds backed by U.S. Treasury securities to preserve the Company’s capital for the purpose of funding operations. It does not enter into money market funds for trading or speculative purposes. The fair value is based on unadjusted quoted market prices for the funds in active markets with sufficient volume and frequency (Level 1).
Non-Qualified Deferred Compensation Plan Assets and Liabilities
The Company maintains a non-qualified deferred compensation plan (the “Deferred Compensation Plan”) for the benefit of certain management employees. The investment funds offered to the participants generally correspond to the funds offered in the Company’s 401(k) plan, and the account balance fluctuates with the investment returns on those funds. The Deferred Compensation Plan permits the deferral of up to 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 condensed consolidated balance
19
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 condensed consolidated balance sheets. Gains and losses resulting from changes in the fair value of the PSUs are presented in selling and administrative expenses in the Company’s condensed consolidated statements of earnings. The fair value of each PSU is based on an unadjusted quoted market price for the Company’s common stock in an active market with sufficient volume and frequency on each measurement date (Level 1).
23
Restricted Stock Units for Non-Employee Directors
Under the Company’s incentive compensation plans, cash-equivalent restricted stock units (“RSUs”) of the Company were previously granted at no cost to non-employee directors. These cash-equivalent RSUs are subject to a vesting requirement (usually 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.
Mandatory Purchase Obligation
The Company recorded a mandatory purchase obligation of the remaining interest in conjunction with the acquisition of Blowfish Malibu in July 2018. The fair value of the mandatory purchase obligation was based on the earnings formula specified in the purchase agreement (Level 3). Fair value adjustments on the mandatory purchase obligation were recorded as interest expense. During the thirteen and twenty-six weeks ended July 31, 2021, the Company recorded fair value adjustments of $7.1 million and $13.5 million, respectively. The mandatory purchase obligation of $54.6 million was paid on November 4, 2021 and therefore, there were no corresponding fair value adjustments during the twenty-six weeks ended July 30, 2022. Refer to further discussion of the mandatory purchase obligation in Note 5 to the condensed consolidated financial statements.
The following table presents the Company’s assets and liabilities that are measured at fair value on a recurring basis at July 30, 2022, July 31, 2021 and JanuaryApril 29, 2022. During the twenty-six weeks ended July2023, April 30, 2022 and July 31, 2021,January 28, 2023. During the thirteen weeks ended April 29, 2023 and April 30, 2022, there were no transfers into or out of Level 3.
| | | | | | | | | | | | | | | | | | | | | | | | |
|
| Fair Value Measurements |
| Fair Value Measurements | ||||||||||||||||||||
($ thousands) |
| Total |
| Level 1 |
| Level 2 |
| Level 3 |
| Total |
| Level 1 |
| Level 2 |
| Level 3 | ||||||||
Asset (Liability) | | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
|
July 30, 2022: | | |
| | |
| | |
| | |
| ||||||||||||
April 29, 2023: | | |
| | |
| | |
| | |
| ||||||||||||
Non-qualified deferred compensation plan assets | | $ | 7,793 | | $ | 7,793 | | $ | — | | $ | — | | $ | 8,841 | | $ | 8,841 | | $ | — | | $ | — |
Non-qualified deferred compensation plan liabilities | |
| (7,793) | |
| (7,793) | |
| — | | | — | |
| (8,841) | |
| (8,841) | |
| — | | | — |
Deferred compensation plan liabilities for non-employee directors | |
| (1,756) | |
| (1,756) | |
| — | | | — | |
| (1,527) | |
| (1,527) | |
| — | | | — |
Restricted stock units for non-employee directors | |
| (1,991) | |
| (1,991) | |
| — | | | — | |
| (1,846) | |
| (1,846) | |
| — | | | — |
July 31, 2021: | | |
| | |
| | |
| | |
| ||||||||||||
Cash equivalents – money market funds | | $ | 4,000 | | $ | 4,000 | | $ | — | | $ | — | ||||||||||||
April 30, 2022: | | |
| | |
| | |
| | |
| ||||||||||||
Non-qualified deferred compensation plan assets | | | 8,361 | | | 8,361 | | | — | | | — | | | 7,567 | | | 7,567 | | | — | | | — |
Non-qualified deferred compensation plan liabilities | |
| (8,361) | |
| (8,361) | |
| — | | | — | |
| (7,567) | |
| (7,567) | |
| — | | | — |
Deferred compensation plan liabilities for non-employee directors | |
| (1,991) | |
| (1,991) | |
| — | | | — | |
| (1,765) | |
| (1,765) | |
| — | | | — |
Restricted stock units for non-employee directors | |
| (2,735) | |
| (2,735) | |
| — | | | — | |
| (2,559) | |
| (2,559) | |
| — | | | — |
Mandatory purchase obligation - Blowfish Malibu | |
| (52,639) | |
| — | |
| — | | | (52,639) | ||||||||||||
January 29, 2022: | | |
| | |
| | |
| | |
| ||||||||||||
January 28, 2023: | | |
| | |
| | |
| | |
| ||||||||||||
Non-qualified deferred compensation plan assets | |
| 7,463 | |
| 7,463 | |
| — | | | — | |
| 7,890 | |
| 7,890 | |
| — | | | — |
Non-qualified deferred compensation plan liabilities | |
| (7,463) | |
| (7,463) | |
| — | | | — | |
| (7,890) | |
| (7,890) | |
| — | | | — |
Deferred compensation plan liabilities for non-employee directors | |
| (1,770) | |
| (1,770) | |
| — | | | — | |
| (1,662) | |
| (1,662) | |
| — | | | — |
Restricted stock units for non-employee directors | |
| (2,568) | |
| (2,568) | |
| — | | | — | |
| (2,028) | |
| (2,028) | |
| — | | | — |
Impairment Charges
The Company assesses the impairment of long-lived assets whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Factors the Company considers important that could trigger an impairment review include underperformance relative to historical or projected future operating results, a significant change in the manner of the use of the asset, or a negative industry or economic trend. When the Company determines that the carrying value of long-lived assets may not be recoverable based upon the existence of one or more of the aforementioned factors, impairment is measured based on a projected discounted cash flow method. Certain factors,
20
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 $555.0$559.5 million and $551.8$503.6 million at JulyApril 29, 2023 and April 30, 2022, and July 31, 2021, respectively, were assessed for indicators of impairment. This assessment resulted in the
24
following impairment charges primarily for capitalized software and operating lease right-of-use assets, leasehold improvements and furniture and fixtures in the Company’s retail stores.stores, and in the thirteen weeks ended April 30, 2022, capitalized software.
| | | | | | | | | | | | | | | | | | |
| | Thirteen Weeks Ended | | Twenty-Six Weeks Ended | | Thirteen Weeks Ended | ||||||||||||
($ thousands) |
| July 30, 2022 |
| July 31, 2021 |
| July 30, 2022 |
| July 31, 2021 |
| April 29, 2023 |
| April 30, 2022 | ||||||
Long-Lived Asset Impairment Charges |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
Famous Footwear | | $ | 50 | | $ | 400 | | $ | 419 | | $ | 800 | | $ | 39 | | $ | 370 |
Brand Portfolio | |
| 153 | |
| — | |
| 1,560 | |
| 1,488 | |
| — | |
| 1,407 |
Total long-lived asset impairment charges | | $ | 203 | | $ | 400 | | $ | 1,979 | | $ | 2,288 | | $ | 39 | | $ | 1,777 |
Fair Value of the Company’s Other Financial Instruments
The fair values of cash and cash equivalents, (excluding money market funds discussed above), receivables and trade accounts payable approximate their carrying values due to the short-term nature of these instruments.
The carrying amounts and fair values of the Company’s other financial instruments subject to fair value disclosures are as follows:
| | | | | | | | | | | | | | | | | | |
|
| July 30, 2022 |
| July 31, 2021 |
| January 29, 2022 | ||||||||||||
($ thousands) |
| Carrying Value (1) |
| Fair Value |
| Carrying Value (1) |
| Fair Value |
| Carrying Value (1) |
| Fair Value | ||||||
Borrowings under revolving credit agreement | | $ | 348,500 | | $ | 348,500 | | $ | 100,000 | | $ | 100,000 | | $ | 290,000 | | $ | 290,000 |
Current portion of long-term debt | | | — | | | — | | | 100,000 | | | 100,000 | | | — | | | — |
Long-term debt | |
| — | |
| — | |
| 100,000 | |
| 100,000 | |
| — | |
| — |
Total debt | | $ | 348,500 | | $ | 348,500 | | $ | 300,000 | | $ | 300,000 | | $ | 290,000 | | $ | 290,000 |
The fair values of borrowings under revolving credit agreement of $291.5 million and current portion$305.0 million as of long-term debtApril 29, 2023 and April 30, 2022, respectively, approximate their carrying values due to the short-term nature of thesethe borrowings (Level 1). The fair value of the Company’s long-term debt was based upon quoted prices in an inactive market as of July 31, 2021 (Level 2).
Note 15 Income Taxes
The Company’s consolidated effective tax rate can vary considerably from period to period, depending on a number of factors. The Company’s consolidated effective tax rates were 25.3%23.5% and 30.3%25.7% for the thirteen weeks ended JulyApril 29, 2023 and April 30, 2022, and July 31, 2021, respectively. The higherlower effective tax rate for the thirteen weeks ended July 31, 2021April 29, 2023 was driven by discrete tax adjustmentsbenefits of $2.9approximately $0.6 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.
The Company’s consolidated effective tax rate was 25.5% for the twenty-six weeks ended July 30, 2022, compared to 31.1% for the six months ended July 31, 2021. The higher effective tax rate for the twenty-six weeks ended July 31, 2021 primarily reflects the incremental valuation allowances recorded in the thirteen weeks ended July 31, 2021, as described above, and the non-deductibilityfirst quarter of losses at2023 related to the Company’s Canadian division, which were driven by exit-related costs associated with Naturalizer retail stores. stock-based compensation.
As of July 30, 2022,April 29, 2023, no 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 foreigninternational earnings, as required by the Tax Cuts and Jobs Act. The Company periodically evaluates its international investment opportunities and plans, as well as its international working capital needs, to determine the level of investment required and, accordingly, determines the level of international earnings that is considered indefinitely reinvested. Based upon that evaluation, earnings of the Company’s international 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 international earnings.
25
Note 16 Commitments and Contingencies
Environmental Remediation
Prior operations included numerous manufacturing and other facilities for which the Company may have responsibility under various environmental laws for the remediation of conditions that may be identified in the future. The Company is involved in environmental remediation and ongoing compliance activities at several sites and has been notified that it is or may be a potentially responsible party at several other sites.
Redfield
The Company is remediating, under the oversight of Colorado authorities, the groundwater and indoor air at its owned facility in Colorado (the “Redfield site” or, when referring to remediation activities at or under the facility, the “on-site remediation”) and residential neighborhoods adjacent to and near the property (the “off-site remediation”) that have been affected by solvents previously used at the facility. The on-site remediation calls for the operation of a pump and treat system (which prevents migration of contaminated groundwater off the property) as the final remedy for the site, subject to monitoring and periodic review of the on-site conditions and other remedial technologies that may be developed in the future. In 2016, the Company submitted a revised plan to address on-site conditions, including direct treatment of source areas, and received approval from the oversight authorities to begin implementing the revised plan.
As The Company has received permission from the treatment of the on-site source areas progresses, the Company expectsoversight authorities to convert the pump and treat system to a passive treatment barrier system. system and began implementing the conversion during the first quarter of 2023.
21
Off-site groundwater concentrations have been reducing over time since installation of the pump and treat system in 2000 and injection of clean water beginning in 2003. However, localized areas of contaminated bedrock just beyond the property line continue to impact off-site groundwater. The modified work plan for addressing this condition includes converting the off-site bioremediation system into a monitoring well network and employing different remediation methods in these recalcitrant areas. In accordance with the work plan, a pilot test was conducted of certain groundwater remediation methods and the results of that test were used to develop more detailed plans for remedial activities in the off-site areas, which were approved by the authorities and are being implemented in a phased manner. The results of groundwater monitoring are being used to evaluate the effectiveness of these activities. The Company continues to implement the expanded remedy work plan that was approved by the oversight authorities in 2015. Based on the progress of the direct remedial action of on-site conditions, the Company submitted a request to the oversight authorities for permission to convert the perimeter pump2015 and treat active remediation system to a passive one. In 2019, a final response was received from the oversight authorities, which is allowing the Company to proceed with implementation of the revised plan on a portion of the treatment system. The Company continues to pursue approval from the oversight authorities for the full conversion of the perimeter pump and treat active remediation system to a passive one. The Company also continues to work with the oversight authorities on the off-site work plan.
The cumulative expenditures for both on-site and off-site remediation through July 30, 2022April 29, 2023 were $32.7$33.4 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 July 30, 2022April 29, 2023 is $9.9$9.6 million, of which $8.9$8.7 million is recorded within other liabilities and $1.0$0.9 million is recorded within other accrued expenses. Of the total $9.9$9.6 million reserve, $5.1$4.8 million is for off-site remediation and $4.8 million is for on-site remediation. The liability for the on-site remediation was discounted at 4.8%. On an undiscounted basis, the on-site remediation liability would be $13.4$13.2 million as of July 30, 2022.April 29, 2023. The Company expects to spend approximately $0.6 million in 2022,2023, $0.1 million in each of the following four years and $12.4$12.2 million in the aggregate thereafter related to the on-site remediation.
Other
Various federal and state authorities have identified the Company as a potentially responsible party for remediation at certain other sites. However, the Company does not currently believe that its liability for such sites, if any, would be material.
The Company continues to evaluate its remediation plans in conjunction with its environmental consultants and records its best estimate of remediation liabilities. However, future actions and the associated costs are subject to oversight and approval of various governmental authorities. Accordingly, the ultimate costs may vary, and it is possible costs may exceed the recorded amounts.
Litigation
The Company is involved in legal proceedings and litigation arising in the ordinary course of business. In the opinion of management, the outcome of such ordinary course of business proceedings and litigation currently pending is not expected to have a material adverse effect on the Company’s results of operations or financial position. Legal costs associated with litigation are expensed as incurred.
2622
ITEM 2 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
Business Overview
We delivered strongare a global footwear company that operates retail stores and e-commerce websites, and designs, develops, sources, manufactures and distributes footwear for people of all ages. Our mission is to inspire people to feel great...feet first. We offer the consumer a diversified portfolio of leading footwear brands built on deep consumer insights, generating unwavering consumer loyalty and trust. As both a retailer and a wholesaler, we have a perspective on the marketplace that enables us to serve consumers from different vantage points. We believe our diversified business model provides us with synergies by spanning consumer segments, categories and distribution channels. A combination of thoughtful planning and rigorous execution is key to our success in optimizing our business and portfolio of brands.
Known Trends Impacting Our Business
Macroeconomic Environment
Macroeconomic factors, including, among others, inflation, the rising interest rate environment, increasing real estate costs and higher consumer debt levels, continued to impact consumer discretionary spending and our financial and operational results forduring the first quarter of 2023. We experienced a decline in consumer traffic in our retail stores during the first quarter of 2023, contributing to a decrease in our net sales. While we believe that the structural changes we’ve implemented in the last few years enables the Company to be successful in a variety of different operating environments, changes in macro-level consumer spending trends may continue to adversely impact our financial results in the future. As a result of these macroeconomic factors, we began initiating expense reduction initiatives in the first quarter of 2023, that are expected to result in savings in fiscal 2023. These actions, which will continue in the second quarter, with record net salesinclude eliminating open corporate positions, reducing non-merchandise procurement costs and earnings.realizing synergies in the Brand Portfolio segment. We leveraged our lead brands to capitalize on robust demandhave also experienced lower freight costs in trending footwear categories to meet the needs of our core consumer and drive strong gross profit and operating margins.We also strategically augmented our inventory levels in advance of the fall buying and back-to-school seasons. We continued to execute on our capital return program and repurchased 1.1 million shares of our common stock during the secondfirst quarter of 2022.2023, and expect that trend to continue for the remainder of fiscal 2023.
Financial Highlights
Following is a summaryHighlights of the financial highlights for the second quarter of 2022:our consolidated and segment results are as follows:
| | | | | | | | | | | |
| | Thirteen Weeks Ended | | | | | | ||||
($ millions, except per share amounts) | | April 29, 2023 |
| April 30, 2022 | | Change (1) | |||||
Consolidated net sales | | $662.7 | | | $735.1 | | | ($72.4) | | (9.8) | % |
Famous Footwear segment net sales | | $349.2 | | | $384.5 | | | ($35.3) | | (9.2) | % |
Famous Footwear comparable sales % change | | (8.5) | % | | (4.0) | % | | n/m | | n/m | |
Brand Portfolio segment net sales | | $325.5 | | | $365.7 | | | ($40.2) | | (11.0) | % |
Gross profit | | $302.7 | | | $327.0 | | | ($24.3) | | (7.4) | % |
Gross margin | | 45.7 | % | | 44.5 | % | | n/m | | 119 bps | |
Operating earnings | | $49.6 | | | $66.2 | | | ($16.6) | | (25.1) | % |
Diluted earnings per share | | $0.97 | | | $1.32 | | | ($0.35) | | (26.5) | % |
The following items should be considered in evaluating the comparability of our second quarter results in 2022 and 2021:
Metrics Used in the Evaluation of Our Business
The following are a couple offew key metrics by which we evaluate our business, identify trends and make strategic decisions:
Same-storeComparable sales
The same-storecomparable 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-storecomparable sales metric as a measure of an individual store’s success to determine whether it is performing in line with expectations. Our same-storecomparable sales metric is a daily-
27
weighteddaily-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-storecomparable sales metric, a store must be open in the current period as well as the corresponding day(s) of the comparable retail calendar in the prior year. Accordingly, closed stores are excluded from the same-storecomparable 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-storecomparable sales calculation. We believe the same-storecomparable 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.
23
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 and the retail operations of our joint venture in China, by the total square footage of the retail store base at the end of each month of the respective period.
OutlookDirect-to-consumer sales
Even with ongoing inflationary pressuresDirect-to-consumer sales includes sales from our retail stores, our company-owned websites and uncertainties around consumer sentiment,sales through our customers’ websites that we fulfill on a drop-ship basis. While we take an omni-channel approach to reach consumers, we believe we are well-positionedthat our direct-to-consumer channels reinforce the image of our brands and strengthens our connection with the end consumer. In addition, direct-to-consumer sales generally result in a higher gross margin for the Company as compared to capitalize on opportunities acrosswholesale sales. As a broad spectrumresult, management monitors trends in direct-to-consumer sales as a percentage of consumer segments by leveraging our diverse portfolio of brands. We will continue to utilize our core competencies in brand building, merchandising, marketingBrand Portfolio segment and logistics to further our strategic priorities and execute on our capital return program in an effort to enhance value for our shareholders.total consolidated net sales.
RESULTS OF OPERATIONS
Following are the consolidated results and the results by segment:
CONSOLIDATED RESULTS
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
|
| Thirteen Weeks Ended | | | Twenty-Six Weeks Ended |
|
| Thirteen Weeks Ended | | ||||||||||||||||||||||||
|
| July 30, 2022 |
| July 31, 2021 |
|
| July 30, 2022 |
| July 31, 2021 |
|
| April 29, 2023 |
| April 30, 2022 |
| ||||||||||||||||||
| | | | | % of | | | | | % of | | | | | | % of | | | | | % of | | | | | | % of | | | | | % of | |
($ millions) |
|
| |
| Net Sales |
|
| |
| Net Sales |
|
|
| |
| Net Sales |
|
| |
| Net Sales |
|
|
| |
| Net Sales |
|
| |
| Net Sales |
|
Net sales | | $ | 738.3 |
| 100.0 | % | $ | 675.5 |
| 100.0 | % | | $ | 1,473.4 |
| 100.0 | % | $ | 1,314.2 |
| 100.0 | % | | $ | 662.7 |
| 100.0 | % | $ | 735.1 |
| 100.0 | % |
Cost of goods sold | |
| 401.5 |
| 54.4 | % |
| 353.2 |
| 52.3 | % | |
| 809.6 |
| 54.9 | % |
| 717.0 |
| 54.6 | % | |
| 360.0 |
| 54.3 | % |
| 408.1 |
| 55.5 | % |
Gross profit | |
| 336.8 |
| 45.6 | % |
| 322.3 |
| 47.7 | % | |
| 663.8 |
| 45.1 | % |
| 597.2 |
| 45.4 | % | |
| 302.7 |
| 45.7 | % |
| 327.0 |
| 44.5 | % |
Selling and administrative expenses | |
| 268.4 |
| 36.3 | % |
| 259.5 |
| 38.4 | % | |
| 529.2 |
| 36.0 | % |
| 503.0 |
| 38.3 | % | |
| 253.1 |
| 38.2 | % |
| 260.8 |
| 35.5 | % |
Restructuring and other special charges, net | |
| — |
| — | % |
| — |
| — | % | |
| — |
| — | % |
| 13.5 |
| 1.0 | % | |||||||||||
Operating earnings | |
| 68.4 |
| 9.3 | % |
| 62.8 |
| 9.3 | % | |
| 134.6 |
| 9.1 | % |
| 80.7 |
| 6.1 | % | |
| 49.6 |
| 7.5 | % |
| 66.2 |
| 9.0 | % |
Interest expense, net | |
| (2.5) |
| (0.3) | % |
| (12.0) |
| (1.7) | % | |
| (4.8) | | (0.3) | % |
| (23.8) |
| (1.8) | % | |
| (5.6) |
| (0.8) | % |
| (2.3) |
| (0.3) | % |
Other income, net | |
| 3.2 |
| 0.4 | % |
| 3.9 |
| 0.5 | % | |
| 6.6 | | 0.5 | % |
| 7.7 |
| 0.6 | % | |
| 1.5 |
| 0.2 | % |
| 3.4 |
| 0.5 | % |
Earnings before income taxes | |
| 69.1 |
| 9.4 | % |
| 54.7 |
| 8.1 | % | |
| 136.4 |
| 9.3 | % |
| 64.6 |
| 4.9 | % | |
| 45.5 |
| 6.9 | % |
| 67.3 |
| 9.2 | % |
Income tax provision | |
| (17.5) |
| (2.4) | % |
| (16.5) |
| (2.5) | % | |
| (34.9) |
| (2.4) | % |
| (20.1) |
| (1.5) | % | |
| (10.7) |
| (1.7) | % |
| (17.3) |
| (2.4) | % |
Net earnings | |
| 51.6 |
| 7.0 | % |
| 38.2 | | 5.6 | % | |
| 101.5 |
| 6.9 | % |
| 44.5 | | 3.4 | % | |
| 34.8 |
| 5.2 | % |
| 50.0 | | 6.8 | % |
Net earnings (loss) attributable to noncontrolling interests | |
| 0.4 |
| 0.1 | % |
| 0.8 |
| 0.1 | % | |
| (0.2) |
| (0.0) | % |
| 1.0 |
| 0.1 | % | |
| 0.1 |
| 0.0 | % |
| (0.5) |
| (0.1) | % |
Net earnings attributable to Caleres, Inc. | | $ | 51.2 |
| 6.9 | % | $ | 37.4 |
| 5.5 | % | | $ | 101.7 |
| 6.9 | % | $ | 43.5 |
| 3.3 | % | | $ | 34.7 |
| 5.2 | % | $ | 50.5 |
| 6.9 | % |
Net Sales
Net sales increased $62.8decreased $72.4 million, or 9.3%9.8%, to $738.3$662.7 million for the secondfirst quarter of 2022,2023, compared to $675.5$735.1 million for the secondfirst quarter of 2021.2022. Net sales forof our Brand Portfolio segment increased $85.1decreased $40.2 million, or 35.6%11.0% during the secondfirst quarter of 2023, compared to the first quarter of 2022. We experienced strong demand during the first quarter of 2022, as our wholesale customers aggressively replenished their inventory levels following improvements to the supply chain delays that were experienced throughout 2021. For the first quarter of 2023, the challenging macroeconomic environment resulted in many of our wholesale customers more tightly managing inventory levels and moderating purchases, which contributed to the decrease in wholesale net sales compared to the second quarterprior year. In addition, while our fashion brands trended better, and casual and dress were our top performing categories, brands with a larger assortment of 2021, led by strong performances by our lead brands.canvas sneakers experienced larger sales declines. Net sales for our Famous Footwear segment remained strong, but decreased $17.3$35.3 million, or 3.8%9.2%, in the secondfirst quarter of 2023 compared to the first quarter of 2022, comparedwith comparable sales down 8.5%. Macroeconomic factors continued to impact consumer sentiment, resulting in declines in customer traffic in our retail stores, contributing to the second quarternet sales decrease. Due to the late arrival of 2021, primarily reflecting a lower store count andwarmer spring weather in certain parts of the country, we experienced a slower start to the back-to-school season.our sandal business this year. On a consolidated basis, our direct-to-consumer sales represented approximately 72%68% of total net sales for the secondfirst quarter of 2022. We continued2023, compared to experience robust growth65% in our dress, casual and occasion-based styles during the quarter. While demand for our athletics footwear slowed during thefirst quarter it continues to be one of our top-selling categories.2022. We remain focused on maximizing the vertical opportunity between the Famous Footwear and Brand Portfolio segments, with LifeStride, Dr. Scholl’s LifeStride and Blowfish MalibuNaturalizer representing three of Famous Footwear’s top 15 best-selling footwear brands during the quarter.
Net sales increased $159.2Gross Profit
Gross profit decreased $24.3 million, or 12.1%7.4%, to $1,473.4$302.7 million for the six months ended July 30, 2022,first quarter of 2023, compared to $1,314.2$327.0 million for the six months ended July 31, 2021. Netfirst quarter of 2022. As a percentage of net sales, gross profit increased to 45.7% for the first quarter of 2023, compared to 44.5% for the first quarter of 2022, driven by an increase in the gross margin of our Brand Portfolio segment increased $200.5 million, or 41.0% during the first six months of 2022, comparedsegment. Our gross profit rate for Brand Portfolio reflected higher average prices, due in part to the first six months of 2021. Our Famous Footwear segment’s sales momentum continued. However, net sales for Famous Footwear decreased $30.9 million, or 3.6%,an increase in the first six monthsmix of 2022 compared to the first six months of 2021, primarilyour higher margin brands and lower inbound freight costs as supply chain operations
2824
reflectinghave normalized. This increase was partially offset by a lower store countdecline in gross margin in our Famous Footwear segment. Due to supply chain constraints and a slower start tohigher demand in 2021 and the back-to-school season. On a consolidated basis, our direct-to-consumer sales represented approximately 69% of total net sales for the six months ended July 30, 2022.
Gross Profit
Gross profit increased $14.5 million, or 4.5%, to $336.8 million for the secondfirst quarter of 2022, compared to $322.3 million forthere were fewer product markdowns required and minimal clearance selling. In the secondfirst quarter of 2021, reflecting higher net sales. As a percentage of net sales, gross profit decreased to 45.6% for the second quarter of 2022, compared to 47.7% for the second quarter of 2021, reflecting2023, our Famous Footwear segment experienced a higher mix of wholesale versus retail sales combinedclearance product sold, in line with higher markdowns and an increase in freight costs associated with e-commerce sales.
Gross profit increased $66.6 million, or 11.2%, to $663.8 million for the six months ended July 30, 2022, compared to $597.2 million for the six months ended July 31, 2021, reflecting higher net sales. As a percentage of net sales, gross profit decreased slightly to 45.1% for the first half of 2022, compared to 45.4% for the first half of 2021.historical levels.
We classify certain warehousing, distribution, sourcing and other inventory procurement costs in selling and administrative expenses. Accordingly, our gross profit and selling and administrative expense rates, as a percentage of net sales, may not be comparable to other companies.
Selling and Administrative Expenses
Selling and administrative expenses increased $8.9decreased $7.7 million, or 3.4%3.0%, to $268.4$253.1 million for the secondfirst quarter of 2022,2023, compared to $259.5$260.8 million for the secondfirst quarter of 2021.2022. The increasedecrease was driven by lower cash and stock-based incentive costs and lower warehouse costs, partially offset by higher marketing expenses as a result of our strategic investment in consumer marketing to drive deeper connections with our consumers, and higher salary and benefits expenses, partially offset by lower expenses associated with our cash-based incentive compensation plans. In 2021, our first half financial results exceeded the targets established for our annual incentive plans, which resulted in a larger portion of the anticipated plan payouts recorded as expense in the second quarter of 2021. For 2022, anticipated plan payouts are being recognized more ratably during the year.retail facilities costs. As a percentage of net sales, selling and administrative expenses decreasedincreased to 36.4%38.2% for the secondfirst quarter of 2023, from 35.5% for the first quarter of 2022, from 38.4% for the second quarter of 2021, reflecting leveragingdeleveraging of expenses on higherlower net sales.
Selling and administrative expenses increased $26.2Operating Earnings
Operating earnings decreased $16.6 million or 5.2%, to $529.2$49.6 million for the six months ended July 30, 2022,first quarter of 2023, compared to $503.0$66.2 million for the six months ended July 31, 2021. The increase primarily reflectsfirst quarter of 2022, reflecting the factors described above. As a percentage of net sales, selling and administrative expenses decreased to 36.0% for the six months ended July 30, 2022, from 38.3% for the six months ended July 31, 2021, reflecting leveraging of expenses on higher net sales.
Restructuring and Other Special Charges, Net
We incurred restructuring and other special charges of $13.5 million ($11.9 million on an after-tax basis, or $0.31 per diluted share) during the six months ended July 31, 2021, reflecting expenses associated with the strategic realignment of the Naturalizer retail store operations. There were no corresponding charges during the six months ended July 30, 2022 or the second quarter of 2021. Refer to Note 5 to the condensed consolidated financial statements for further discussion of these charges.
Operating Earnings
Operating earnings increased $5.6 million to $68.4 million for the second quarter of 2022, compared to $62.8 million for the second quarter of 2021, primarily reflecting higher net sales and gross profit. As a percentage of net sales, operating earnings were 9.3%7.5% for the secondfirst quarter of 2022, consistent with2023, compared to 9.0% for the secondfirst quarter of 2021.
Operating earnings increased $53.9 million to $134.6 million for the six months ended July 30, 2022, compared to $80.7 million for the six months ended July 31, 2021, primarily reflecting higher net sales and gross profit. As a percentage of net sales, operating earnings were 9.1% for the six months ended July 30, 2022, compared to 6.1% for the six months ended July 31, 2021.2022.
Interest Expense, Net
Interest expense, net decreased $9.5increased $3.3 million, or 78.4%145.0%, to $2.5$5.6 million for the secondfirst quarter of 2023, compared to $2.3 million for the first quarter of 2022, comparedreflecting higher interest expense on the revolving credit facility attributable to $12.0 million for the second quarter of 2021, primarily due to the non-recurrence of the $7.1 million fair value adjustment to the Blowfish Malibu mandatory purchase obligation in the second quarter of 2021.higher interest rates, partially offset by slightly lower average borrowings. The purchase obligation was settled for $54.6 millioninterest on November 4, 2021. In addition, we redeemed our $200 million aggregate principal of senior notes in the second half of 2021. By retiring our senior notes, we shifted our higher-rate debt to the lower-rate borrowings under our revolving credit agreement,facility is based on a variable interest rate, which reduced ourhas resulted in higher interest expense by approximately $3.1 million compared toin the second quarter of 2021. These decreases were partially offset by an increase incurrent rising interest rate environment. Our interest expense attributablein 2023 will continue to be impacted by higher average borrowings under our revolving credit agreement.
29
Interest expense, net decreased $19.0 million, or 79.4%, to $4.8 million for the six months ended July 30, 2022, compared to $23.8 million for the six months ended July 31, 2021, primarily due to the non-recurrence of the $13.5 million fair value adjustment to the Blowfish Malibu mandatory purchase obligation in the six months ended July 31, 2021. In addition, after retiring our senior notes, the shift of our higher-rate debt to the lower-rate borrowings under our revolving credit agreement reduced our interest expense by approximately $6.3 million compared to the six months ended July 31, 2021. These decreases were partially offset by an increase in interest expense attributable to higher average borrowings under our revolving credit agreement. rates.
Other Income, Net
Other income, net decreased $0.7$1.9 million, or 16.7%56.4%, to $3.2$1.5 million for the secondfirst quarter of 2022,2023, compared to $3.9$3.4 million for the secondfirst quarter of 2021,2022, which reflects a reduction of certain components of net periodic benefit income.
Other income net decreased $1.1 million, or 13.6%, to $6.6 million for the six months ended July 30, 2022, compared to $7.7 million for the six months ended July 31, 2021, which reflects a reduction of certain components of net periodic benefit income.associated with our pension plans. Refer to Note 13 ofto the condensed consolidated financial statements for further detailadditional information regarding the components of net periodic benefit income.our retirement plans.
Income Tax Provision
Our effective tax rate can vary considerably from period to period, depending on a number of factors. Our consolidated effective tax rate was 25.3%23.5% for the secondfirst quarter of 2022,2023, compared to 30.3%25.7% for the secondfirst quarter of 2021.2022. The higher effective tax rate for the second quarter of 2021 was driven by discrete tax adjustments of $2.9 million, inclusive of $3.3 million of incremental valuation allowances for our deferred tax assets, as we were in a full valuation allowance position for federal, state and certain international jurisdictions.
Our consolidated effective tax rate was 25.5% for the six months ended July 30, 2022, compared to 31.1% for the six months ended July 31, 2021. The higherlower effective tax rate for the first halfquarter of 2021 primarily reflects the incremental valuation allowances recorded in the second quarter, as described above, and the non-deductibility of losses at our Canadian division, which were2023 was driven by exit-related costs associated with our Naturalizer retail storesdiscrete tax benefits of approximately $0.6 million in the first quarter of 2021.2023 related to our stock-based compensation.
Net Earnings Attributable to Caleres, Inc.
Net earnings attributable to Caleres, Inc. were $51.2 million and $101.7$34.7 million for the secondfirst quarter and six months ended July 30, 2022, respectively,of 2023, compared to net earnings of $37.4 million and $43.5$50.5 million for the secondfirst quarter and six months ended July 31, 2021, respectively,of 2022, as a result of the factors described above.
FAMOUS FOOTWEAR
| | | | | | | | | | | | | | | | | | | | | | |
| | Thirteen Weeks Ended | | | Twenty-Six Weeks Ended | | ||||||||||||||||
| | July 30, 2022 |
| July 31, 2021 |
|
| July 30, 2022 |
| July 31, 2021 | | ||||||||||||
| | | | | % of | | | | | % of | | | | | | % of | | | | | % of | |
($ millions, except sales per square foot) |
| | |
| Net Sales |
| | |
| Net Sales |
|
| | |
| Net Sales |
| | |
| Net Sales |
|
Net sales | | $ | 436.4 | | 100.0 | % | $ | 453.6 | | 100.0 | % | | $ | 820.9 | | 100.0 | % | $ | 851.8 | | 100.0 | % |
Cost of goods sold | | | 222.8 | | 51.1 | % | | 226.2 | | 49.9 | % | | | 418.1 | | 50.9 | % | | 444.6 | | 52.2 | % |
Gross profit | | | 213.6 | | 48.9 | % | $ | 227.4 | | 50.1 | % | | | 402.8 | | 49.1 | % | $ | 407.2 | | 47.8 | % |
Selling and administrative expenses | | | 151.1 | | 34.6 | % | | 141.9 | | 31.3 | % | | | 290.6 | | 35.4 | % | | 273.8 | | 32.1 | % |
Operating earnings | | $ | 62.5 | | 14.3 | % | $ | 85.5 | | 18.8 | % | | $ | 112.2 | | 13.7 | % | $ | 133.4 | | 15.7 | % |
| | |
| |
| | |
| |
| | | |
| |
| | |
| |
| |
Key Metrics | | |
| |
| | |
| |
| | | |
| |
| | |
| |
| |
Same-store sales % change | | | (3.1) | % |
| | | (1.1) | % |
| | | | (3.5) | % |
| | | 0.5 | % |
| |
Same-store sales $ change | | $ | (13.5) | |
| | $ | (3.6) | |
| | | $ | (29.1) | |
| | $ | 2.6 | |
| |
Sales change from new and closed stores, net | | $ | (3.3) | |
| | $ | 122.6 | |
| | | $ | (1.4) | |
| | $ | 322.8 | |
| |
Impact of changes in Canadian exchange rate on sales | | $ | (0.4) | |
| | $ | 0.7 | |
| | | $ | (0.4) | |
| | $ | 1.2 | |
| |
| | | | | | | | | | | | | | | | | | | | | | |
Sales per square foot, excluding e-commerce (thirteen and twenty-six weeks ended) | | $ | 66 | |
| | $ | 67 | |
| | | $ | 123 | |
| | $ | 122 | |
| |
Sales per square foot, excluding e-commerce (trailing twelve months) | | $ | 250 | |
| | $ | 219 | |
| | | $ | 250 | |
| | $ | 219 | |
| |
Square footage (thousand sq. ft.) | |
| 5,832 | |
| | | 6,022 | |
| | |
| 5,832 | |
| | | 6,022 | |
| |
| |
| | |
| | |
| |
| | |
|
| |
| | | | |
| |
Stores opened | |
| — | |
| | | 4 | |
| | |
| — | |
| | | 8 | |
| |
Stores closed | |
| 6 | |
| | | 5 | |
| | |
| 13 | |
| | | 12 | |
| |
Ending stores | |
| 881 | |
| | | 912 | |
| | |
| 881 | |
| | | 912 | |
| |
3025
FAMOUS FOOTWEAR
| | | | | | | | | | | | |
| | Thirteen Weeks Ended | | |||||||||
| | April 29, 2023 |
| | April 30, 2022 |
| ||||||
($ millions, except sales per square foot) |
| | |
| % of Net Sales |
| | | |
| % of Net Sales |
|
Net sales | | $ | 349.2 | | 100.0 | % | | $ | 384.5 | | 100.0 | % |
Cost of goods sold | | | 190.1 | | 54.4 | % | | | 195.3 | | 50.8 | % |
Gross profit | | | 159.1 | | 45.6 | % | | $ | 189.2 | | 49.2 | % |
Selling and administrative expenses | | | 142.0 | | 40.7 | % | | | 139.5 | | 36.3 | % |
Operating earnings | | $ | 17.1 | | 4.9 | % | | $ | 49.7 | | 12.9 | % |
| | |
| |
| | | |
| |
| |
Key Metrics | | |
| |
| | | |
| |
| |
Comparable sales % change | | | (8.5) | % |
| | | | (4.0) | % |
| |
Comparable sales $ change | | $ | (31.8) | |
| | | $ | (15.6) | |
| |
Sales change from new and closed stores, net (1) | | $ | (3.0) | |
| | | $ | 2.0 | |
| |
Impact of changes in Canadian exchange rate on sales | | $ | (0.5) | |
| | | $ | (0.0) | |
| |
| | | | | | | | | | | | |
Sales per square foot, excluding e-commerce (thirteen weeks ended) | | $ | 54 | |
| | | $ | 57 | |
| |
Sales per square foot, excluding e-commerce (trailing twelve months) | | $ | 250 | |
| | | $ | 251 | |
| |
Square footage (thousand sq. ft.) | |
| 5,702 | |
| | | | 5,870 | |
| |
| |
| | |
| | | |
| |
| |
Stores opened | |
| 2 | |
| | | | — | |
| |
Stores closed | |
| 9 | |
| | | | 7 | |
| |
Ending stores | |
| 866 | |
| | | | 887 | |
| |
Net Sales
Net sales of $436.4$349.2 million in the second quarter of 2022 decreased $17.3 million, or 3.8%, compared to the second quarter of 2021. The elevated consumer demand we experienced in 2021 and the first quarter of 2022 continued for much of2023 decreased $35.3 million, or 9.2% compared to the secondfirst quarter of 2022. However, we beganComparable sales decreased 8.5% compared to see consumer demand, store and e-commerce traffic and conversion moderate somewhat later in the quarter, reflecting cautious consumer sentiment due to inflation and other economic concerns. That trend has continued into the thirdfirst quarter of 2022. We experienced improvementA challenging macroeconomic environment led to sales declines in both our non-athletic footwear categories,retail stores and while demand slowede-commerce business. In addition, a late start to spring weather in many parts of the country led to a soft start to the sandal season. Our kids category, which is a key differentiator for our athletics footwear, it continues to be oneFamous Footwear, outperformed the rest of our top-selling categories.categories as families prioritized purchases of children’s footwear. During the secondfirst quarter of 2022,2023, we opened two stores and closed sixnine stores, resulting in 881866 stores and total square footage of 5.85.7 million at the end of the secondfirst quarter of 2022,2023, compared to 912887 stores and total square footage of 6.05.9 million at the end of the secondfirst quarter of 2021.2022. Sales to members of our customer loyalty program, Famously You Rewards ("Rewards"), continue to account for a majority of the segment’s sales, with approximately 77%79% of our net sales made to program members in both the secondfirst quarter of 2022, compared to 78% in the second quarter of 2021.
Net sales of $820.9 million in the six months ended July 30, 2022 decreased $30.9 million, or 3.6%, compared to the six months ended July 31, 2021, primarily due to the factors described above. Athletics2023 and casual continue to be our top-selling categories. We remain focused on maximizing the vertical opportunity between the Famous Footwear and Brand Portfolio segments, with LifeStride, Dr. Scholl’s and Blowfish Malibu representing three of Famous Footwear’s top 15 best-selling footwear brands for the six months ended July 30, 2022. During the first half of 2022, we closed 13 stores.
Gross Profit
Gross profit decreased $13.8$30.1 million, or 6.1%15.9%, to $213.6$159.1 million for the secondfirst quarter of 2022,2023, compared to $227.4$189.2 million for the secondfirst quarter of 2021.2022. As a percentage of net sales, our gross profit decreased to 48.9%45.6% for the secondfirst quarter of 2023, compared to 49.2% for the first quarter of 2022. Due to supply chain constraints and higher demand in 2021 and the first quarter of 2022, compared to 50.1% forthere were fewer product markdowns required and minimal clearance selling. In the secondfirst quarter of 2021. Although the gross profit rate for the second quarter2023, our Famous Footwear segment experienced a higher mix of 2022 was slightly lower than the comparable period of 2021, it remained strongclearance product sold, in line with limited promotional activity for much of the second quarter of 2022.
Gross profit decreased $4.4 million, or 1.1%, to $402.8 million for the six months ended July 30, 2022, compared to $407.2 million for the six months ended July 31, 2021, primarily due to the decrease in net sales. As a percentage of net sales, our gross profit increased to 49.1% for the six months ended July 30, 2022, compared to 47.8% for the six months ended July 31, 2021. Our higher gross profit for the first half of 2022 was primarily due to less promotional activity. historical levels.
Selling and Administrative Expenses
Selling and administrative expenses increased $9.2$2.5 million, or 6.5%1.8%, to $151.1$142.0 million for the secondfirst quarter of 2022,2023, compared to $141.9$139.5 million for the secondfirst quarter of 2021.2022. The increase was driven by higher advertisingretail facilities costs, primarily attributable to higher rent expense resulting from inflationary pressures and higher depreciation expense driven by our investment in prototype stores and store renovations during 2022 and the first quarter of 2023. We also experienced higher marketing expense, primarily associated with our back-to-school marketing campaigninitiatives to enhance consumer experience. These increases were partially offset by lower warehouse costs and higher salary and benefits expenses due in part to wage inflation.cash-based incentive compensation. As a percentage of net sales, selling and administrative expenses increased to 34.6%40.7% for the secondfirst quarter of 2022,2023, compared to 31.3%36.3% for the secondfirst quarter of 2021.
Selling and administrative expenses increased $16.8 million, or 6.1%, to $290.6 million for the six months ended July 30, 2022, compared to $273.8 million for the six months ended July 31, 2021. The increase was primarily due to higher salary and benefits expenses, higher logistics costs and higher advertising expense associated with our strategic investment in consumer marketing. As a percentage of net sales, selling and administrative expenses increased to 35.4% for the six months ended July 30, 2022, compared to 32.1% for the six months ended July 31, 2021.2022.
Operating Earnings
Operating earnings decreased $23.0$32.6 million to $62.5$17.1 million for the secondfirst quarter of 2023, compared to $49.7 million for the first quarter of 2022, compared to $85.5 million for the second quarter of 2021.reflecting lower sales and gross profit and higher operating expenses, as described above. As a percentage of net sales, operating earnings were 14.3%4.9% for the secondfirst quarter of 2022,2023, compared to 18.8%12.9% for the secondfirst quarter of 2021.
Operating earnings decreased $21.2 million to $112.2 million for the six months ended July 30, 2022, compared to $133.4 million for the six months ended July 31, 2021. As a percentage of net sales, operating earnings were 13.7% for the six months ended July 30, 2022, compared to 15.7% for the six months ended July 31, 2021.2022.
3126
BRAND PORTFOLIO
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Thirteen Weeks Ended | | Twenty-Six Weeks Ended | | Thirteen Weeks Ended | | ||||||||||||||||||||||||||
| | July 30, 2022 |
| July 31, 2021 |
| July 30, 2022 |
| July 31, 2021 | | April 29, 2023 |
| | April 30, 2022 |
| |||||||||||||||||||
| | | | | % of | | |
| | % of | | | | | % of | | |
| | % of | | | | | % of | | | |
| | % of | | |
($ millions, except sales per square foot) |
| | |
| Net Sales |
| |
|
| Net Sales |
| | |
| Net Sales |
| |
|
| Net Sales |
| | |
| Net Sales |
| | |
|
| Net Sales |
| |
Net sales | | $ | 324.1 | | 100.0 | % | $ | 239.0 | | 100.0 | % | | $ | 689.8 | | 100.0 | % | $ | 489.3 | | 100.0 | % | $ | 325.5 | | 100.0 | % | | $ | 365.7 | | 100.0 | % |
Cost of goods sold | | | 200.0 | | 61.7 | % | | 144.1 | | 60.3 | % | | | 426.4 | | 61.8 | % | | 300.4 | | 61.4 | % | | 181.6 | | 55.8 | % | | | 226.4 | | 61.9 | % |
Gross profit | | | 124.1 | | 38.3 | % | | 94.9 | | 39.7 | % | | | 263.4 | | 38.2 | % | | 188.9 | | 38.6 | % | | 143.9 | | 44.2 | % | | | 139.3 | | 38.1 | % |
Selling and administrative expenses | | | 94.7 | | 29.2 | % | | 78.3 | | 32.8 | % | | | 192.6 | | 27.9 | % | | 161.7 | | 33.0 | % | | 101.2 | | 31.1 | % | | | 98.0 | | 26.8 | % |
Restructuring and other special charges, net | | | — | | — | % | | — | | — | % | | | — | | — | % | | 13.5 | | 2.8 | % | |||||||||||
Operating earnings | | $ | 29.4 | | 9.1 | % | $ | 16.6 | | 6.9 | % | | $ | 70.8 | | 10.3 | % | $ | 13.7 | | 2.8 | % | $ | 42.7 | | 13.1 | % | | $ | 41.3 | | 11.3 | % |
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Key Metrics | | |
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Direct-to-consumer (% of net sales) (1) | | | 30 | % |
| | | 34 | % |
| | | | 28 | % |
| | | 33 | % |
| | | 32 | % |
| | | | 26 | % |
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Change in wholesale net sales ($) | | $ | 80.1 | |
| | $ | 34.9 | |
| | $ | 184.3 | |
| | $ | 49.7 | |
| | $ | (42.2) | |
| | | $ | 104.2 | |
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Change in retail net sales ($) | $ | 2.0 | |
| | | $ | 11.2 | |
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Unfilled order position at end of period | | $ | 360.4 | |
| | $ | 328.7 | |
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| | $ | 272.9 | |
| | | $ | 401.5 | |
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Same-store sales % change | | | 23.5 | % |
| | | 16.3 | % |
| | | | 43.8 | % |
| | | 10.2 | % |
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Same-store sales $ change | | $ | 7.0 | |
| | $ | 3.4 | |
| | $ | 24.9 | |
| | $ | 4.7 | |
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Sales change from new and closed stores, net | | $ | (2.1) | |
| | $ | 17.0 | |
| | $ | (8.8) | |
| | $ | 33.5 | |
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Impact of changes in Canadian exchange rate on retail sales | | $ | 0.1 | |
| | $ | 0.1 | |
| | $ | 0.1 | |
| | $ | 0.5 | |
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Sales per square foot, excluding e-commerce (2) | $ | 280 | |
| | | $ | 269 | |
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Square footage (thousands sq. ft.) (2) | | 101 | |
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Sales per square foot, excluding e-commerce (thirteen and twenty-six weeks ended) | | $ | 276 | | | | $ | 244 | | | | $ | 545 | | | | $ | 433 | | | | ||||||||||||
Sales per square foot, excluding e-commerce (trailing twelve months) | | $ | 1,018 | |
| | $ | 561 | |
| | $ | 1,018 | |
| | $ | 561 | |
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Square footage (thousands sq. ft.) | | | 108 | |
| | | 125 | |
| | | | 108 | |
| | | 125 | |
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North America stores: | | | | | | | | | | | | ||||||||||||||||||||||
Stores opened | | | 3 | |
| | | 1 | |
| | | | 4 | |
| | | 2 | |
| | | 1 | |
| | | | — | |
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Stores closed | | | 1 | |
| | | 9 | |
| | | | 5 | |
| | | 85 | |
| | | 2 | |
| | | | 4 | |
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Ending stores | | | 85 | |
| | | 87 | |
| | | | 85 | |
| | | 87 | |
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Ending stores - North America | | 62 | | | | | | 66 | | | | ||||||||||||||||||||||
Ending stores - China | | 31 | | | | | | 17 | | | | ||||||||||||||||||||||
Ending stores - Total Brand Portfolio | | 93 | |
| | | | 83 | |
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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. |
(2) | These metrics exclude the retail operations of our joint venture in China. Refer to Note 1 to the condensed consolidated financial statements for further discussion of the joint venture. |
Net Sales
Net sales of $324.1$325.5 million in the secondfirst quarter of 2022 increased $85.12023 decreased $40.2 million, or 35.6%11.0%, compared to the secondrecord-setting first quarter of 2021 driven by2022. We experienced strong growth indemand during the first quarter of 2022, as our wholesale business. The net sales increase was broad-based across nearly allcustomers aggressively replenished their inventory levels following improvements to the supply chain delays that were experienced throughout 2021. For the first quarter of our brands, with our Sam Edelman, Naturalizer and LifeStride brands being2023, the most significant contributors. We continued to experience robust growthchallenging macroeconomic environment resulted in our dress, casual and occasion-based styles for many of our wholesale customers more tightly managing inventory levels and moderating purchases, which contributed to the decrease in wholesale net sales compared to the prior year. In addition, while our fashion brands including Sam Edelmantrended better, and LifeStride,casual and the sport-inspired category also continued to resonatedress were our top performing categories, brands with our customers.a larger assortment of casual sneakers experienced larger sales declines. During the secondfirst quarter of 2022,2023, we closedopened one store and opened threeclosed two stores in the United States resulting in a total of 8562 stores and total square footage of 0.1 million, compared to 66 stores and total square footage of 0.1 million at the end of the secondfirst quarter of 2022,2022. In addition, we continued to expand our retail store presence in China by opening two new stores, resulting in a total of 31 stores compared to 8717 stores and total square footage of 0.1 million at the end of the secondfirst quarter of 2021.2022.
Net
Our unfilled order position for our wholesale sales increased $200.5decreased $128.6 million, or 41.0%32.0%, to $689.8$272.9 million for the six months ended July 30, 2022,at April 29, 2023, compared to $489.3$401.5 million for the six months ended July 31, 2021, reflecting strong sales growth from all ofat April 30, 2022. The decrease in our brands, withbacklog order levels compared to last year primarily reflects more conservative buying by our Sam Edelman, Naturalizer, LifeStride, Franco Sarto and Allen Edmonds brands being the most significant contributors.wholesale customers as they manage their inventory levels in response to consumer sentiment.
In
Gross Profit
Gross profit increased $4.6 million, or 3.3%, to $143.9 million for the first quarter of 2021, we completed the strategic realignment of our Naturalizer retail business and permanently closed the remaining 73 Naturalizer stores in North America that were scheduled for closure. We have continued2023, compared to focus on growing the brand’s e-commerce business through naturalizer.com, our retail partners and their websites, and the two ongoing flagship stores in the United States. On a trailing twelve-month basis, sales per square foot, excluding e-commerce sales, increased to $1,018$139.3 million for the twelve months ended July 30,first quarter of 2022, primarily reflecting a higher gross margin rate. As a percentage of net sales, our gross profit increased significantly to 44.2% for the first quarter of 2023, compared to $56138.1% for the twelve months ended July 31, 2021. With the closurefirst quarter of nearly all of2022, reflecting higher average prices and lower inbound freight costs as our Naturalizer retail stores, the majority of the retail stores in our Brand Portfolio segment are for our Allen Edmonds brand, which have higher retail price points than the Naturalizer brand.supply chain normalized.
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Our unfilled order position for our wholesale sales increased $31.7 million, or 9.6 %, to $360.4 million at July 30, 2022, compared to $328.7 million at July 31, 2021. The increase in our backlog order levels primarily reflects higher consumer demand compared to last year.
Gross Profit
Gross profit increased $29.2 million, or 30.8%, to $124.1 million for the second quarter of 2022, compared to $94.9 million for the second quarter of 2021, primarily reflecting higher net sales. As a percentage of net sales, our gross profit decreased to 38.3% for the second quarter of 2022, compared to 39.7% for the second quarter of 2021, primarily reflecting a higher mix of wholesale versus retail sales.
Gross profit increased $74.5 million, or 39.5%, to $263.4 million for the six months ended July 30, 2022, compared to $188.9 million for the six months ended July 31, 2021, reflecting higher net sales. As a percentage of net sales, our gross profit decreased slightly to 38.2% for the six months ended July 30, 2022, compared to 38.6% for the six months ended July 31, 2021. While we have experienced inflationary pressures related to product costs and inbound freight through the six months ended July 30, 2022, we have been able to successfully offset the majority of these impacts through price increases. We anticipate inflationary pressures to continue throughout 2022 and will continue to focus on mitigating the impact.
Selling and Administrative Expenses
Selling and administrative expenses increased $16.4$3.2 million, or 20.9%3.3%, to $94.7$101.2 million for the secondfirst quarter of 2022,2023, compared to $78.3$98.0 million for the secondfirst quarter of 2021.2022. The increase was primarily due to higher variable salarymarketing expenses and wage inflation, higher marketing expensesto drive sales growth and higher warehouse costs, partially offset by lower salary and logistics costs. As a percentage of net sales, selling and administrative expenses decreased to 29.2% for the second quarter of 2022, compared to 32.8% for the second quarter of 2021, reflecting better leveraging of expenses over a higher net sales base.
Selling and administrative expenses increased $30.9 million, or 19.2%, to $192.6 million for the six months ended July 30, 2022, compared to $161.7 million for the six months ended July 31, 2021. The increase was driven by higher variable salary expenses and higher marketingbenefits expenses. As a percentage of net sales, selling and administrative expenses decreasedincreased to 27.9%31.1% for the six months ended July 30, 2022, compared to 33.0% for the six months ended July 31, 2021, reflecting better leveraging of expenses over a higher net sales base.
Restructuring and Other Special Charges, Net
We incurred restructuring and other special charges of $13.5 million during the six months ended July 31, 2021 for expenses associated with the strategic realignment of our Naturalizer retail store operations. These costs primarily represented lease termination and other store closure costs, including employee severance, for the 73 stores that were closed during the first quarter of 2021. Refer2023, compared to Note 5 to26.8% for the condensed consolidated financial statements for additional information related to these charges. There were no corresponding charges during the secondfirst quarter of 2021 or the six months ended July 30, 2022.
Operating Earnings
Operating earnings increased to $29.4$42.7 million for the secondfirst quarter of 2022, compared to $16.62023, from $41.3 million for the secondfirst quarter of 2021,2022, as a result of the factors described above. As a percentage of net sales, operating earnings were 9.1%13.1% for the secondfirst quarter of 2022,2023, compared to 6.9%11.3% in the secondfirst quarter of 2021.
Operating earnings increased to $70.8 million for the six months ended July 30, 2022, compared to $13.7 million for the six months ended July 31, 2021, as a result of the factors described above. As a percentage of net sales, operating earnings were 10.3% for the six months ended July 30, 2022, compared to 2.8% in the six months ended July 31, 2021.2022.
ELIMINATIONS AND OTHER
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |||||
| | Thirteen Weeks Ended | | Twenty-Six Weeks Ended | | Thirteen Weeks Ended | | |||||||||||||||||||||||||||||||
| | July 30, 2022 |
| | July 31, 2021 |
| July 30, 2022 |
| | July 31, 2021 | | April 29, 2023 |
| | April 30, 2022 |
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| | | | | % of | | | | | | % of | | | | | % of | | | | | | % of | | | | | % of | | | | | % of | | |||||
($ millions) |
| | |
| 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 | | $ | (22.1) | | 100.0 | % | | $ | (17.1) | | 100.0 | % | | $ | (37.2) | | 100.0 | % | | $ | (26.9) | | 100.0 | % | $ | (11.9) | | 100.0 | % | | $ | (15.1) | | 100.0 | % | |||
Cost of goods sold | | | (21.2) | | 95.8 | % | | | (17.1) | | 100.0 | % | | | (34.7) | | 93.4 | % | | | (28.0) | | 103.9 | % | | (11.6) | | 97.5 | % | | | (13.6) | | 89.8 | % | |||
Gross profit | | | (0.9) | | 4.2 | % | | | — | | — | % | | | (2.5) | | 6.6 | % | | | 1.1 | | (3.9) | % | | (0.3) | | 2.5 | % | | | (1.5) | | 10.2 | % | |||
Selling and administrative expenses | | | 22.6 | | (102.0) | % | | | 39.3 | | (229.2) | % | | | 45.8 | | (123.2) | % | | | 67.5 | | (250.9) | % | | 9.8 | | (82.4) | % | | | 23.3 | | (154.0) | % | |||
Operating loss | | $ | (23.5) | | 106.2 | % | | $ | (39.3) | | 229.2 | % | | $ | (48.3) | | 129.8 | % | | $ | (66.4) | | 247.0 | % | $ | (10.1) | | 84.9 | % | | $ | (24.8) | | 164.2 | % |
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The Eliminations and Other category includes the elimination of intersegment sales and profit, unallocated corporate administrative expenses, and other costs and recoveries.
The net sales elimination of $22.1$11.9 million for the secondfirst quarter of 2023 is $3.2 million, or 21.1%, lower than the first quarter of 2022, is $5.0 million, or 29.0%, higher than the second quarter of 2021. The net sales elimination of $37.2 million for the six months ended July 30, 2022 is $10.3 million, or 38.4%, higher than the six months ended July 31, 2021. The increases for both periods reflect an increasereflecting a decrease in product sold from our Brand Portfolio segment to Famous Footwear, as we continue to focus on maximizing the vertical opportunity between our segments. Footwear.
Selling and administrative expenses decreased $16.7$13.5 million, to $22.6$9.8 million in the secondfirst quarter of 2022,2023, compared to $39.3$23.3 million for the secondfirst quarter of 2021.2022. The decrease primarily reflects lower expenses forrelated to our cash-basedcash and stock-based incentive compensation plans and certain other employee benefits. In 2021, our first half financial results exceeded the targets established for our annual incentive plans, which resulted in a larger portionplans.
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Selling and administrative expenses decreased $21.6 million, to $45.8 million for the six months ended July 30, 2022, compared to $67.5 million for the six months ended July 31, 2021. The decrease primarily reflects lower expenses for our cash-based incentive compensation plans and certain other employee benefits and lower expenses associated with our cash-based director compensation plans reflecting lower growth in our stock price during the six months ended July 30, 2022 compared to the six months ended July 31, 2021.
LIQUIDITY AND CAPITAL RESOURCES
Borrowings
| | | | | | | | | |
($ millions) |
| July 30, 2022 |
| July 31, 2021 | (1) | January 29, 2022 | |||
Borrowings under revolving credit agreement | | $ | 348.5 | | $ | 100.0 | | $ | 290.0 |
Current portion of long-term debt | | | — | | | 99.5 | | | — |
Long-term debt | | | — | | | 99.5 | | | — |
Total debt | | $ | 348.5 | | $ | 299.0 | | $ | 290.0 |
Total debt obligations of $348.5$291.5 million at JulyApril 29, 2023 decreased $13.5 million, from $305.0 million at April 30, 2022, increased $49.5and decreased $16.0 million, from $299.0 million at July 31, 2021, and increased $58.5 million, from $290.0$307.5 million at January 29, 2022. The increase in total debt from July 31, 2021 and January 29,28, 2023. Net interest expense for the first quarter of 2023 increased $3.3 million to $5.6 million, compared to $2.3 million for the first quarter of 2022, is due primarily to higher inventory purchases during the quarter to prepare for our back-to-school selling season, as well as $41.7 million of repurchases of our common stock. In August 2021, we redeemed $100.0 million aggregate principal amount of our senior notes and on January 3, 2022, we redeemed the remaining $100.0 million of senior notes. We shifted this higher interest rate debt torates. This increase was partially offset by slightly lower average borrowings under theour revolving credit facility, which has resulted in significant interest expense savings for the Company. While this reduction in interest expense is expected to continue, theagreement. The interest on our revolving credit facility is based on a variable interest rate, which may resulthas resulted in higher interest expense in athe current rising interest rate environment. Net interest expense for the second quarter of 2022 decreased $9.5 million to $2.5 million, compared to $12.0 million for the second quarter of 2021. The decrease is primarily attributable to the non-recurrence of the $7.1 million fair value adjustment to the Blowfish Malibu mandatory purchase obligation recorded in the second quarter of 2021. The Blowfish Malibu mandatory purchase obligation of $54.6 million was paid on November 4, 2021, as further discussed in Note 5 and Note 14 to the condensed consolidated financial statements. In addition, as discussed above, the redemption of all outstanding senior notes in 2021 also contributed to the decrease inOur interest expense in 2023 will continue to be adversely affected by the second quarter of 2022. These decreases were partially offset by higher average borrowings under our revolving credit agreement.elevated interest rates.
Credit Agreement
As further discussed in Note 10 to the condensed consolidated financial statements, the Company maintains a revolving credit facility for working capital needs. On October 5, 2021, we entered into a Fifth Amendment to Fourth Amended and Restated Credit Agreement (as so amended, the “Credit Agreement”(“Fifth Amendment”) which,that, among other modifications, extended the maturity date of the credit facility from January 18, 2024, to October 5, 2026 and decreased the amount available under the revolving credit facility by $100.0 million to an aggregate amount of up to $500.0 million, subject to borrowing base restrictions, and may be increased by up to $250.0 million. Interest on the borrowings iswas at variable rates based on the London Interbank Offered Rate ("LIBOR") (with a floor of 0.0%), or the prime rate (as defined in the Credit
34
Agreement)Fifth Amendment), plus a spread. The Credit AgreementFifth Amendment decreased the spread applied to the LIBOR or prime rate by a total of 75 basis points. On April 27, 2023, the Company entered into a Sixth Amendment to Fourth Amended and Restated Credit agreement (as so amended, the “Credit Agreement”) to transition the borrowings on the revolving credit facility from bearing interest based on LIBOR to a term secured overnight financing rate (“SOFR”).
At July 30, 2022,April 29, 2023, we had $348.5$291.5 million in borrowings and $10.8$10.6 million in letters of credit outstanding under the Credit Agreement. Total borrowing availability was $140.7$197.9 million at July 30, 2022.April 29, 2023. We were in compliance with all covenants and restrictions under the Credit Agreement as of July 30, 2022.April 29, 2023.
Senior Notes
On July 27, 2015, we issued $200.0 million aggregate principal amount of senior notes due in 2023 (the "Senior Notes"). The Senior Notes were guaranteed on a senior unsecured basis by each of the subsidiaries of Caleres, Inc. that is an obligor under the Credit Agreement, and bore interest of 6.25%, which was payable on February 15 and August 15 of each year. On August 16, 2021, we redeemed $100.0 million of the Senior Notes at 100.0%. In addition, on January 3, 2022, we redeemed the remaining $100.0 million of Senior Notes at 100.0%. Refer to further discussion regarding the Senior Notes in Note 10 to the condensed consolidated financial statements.
Working Capital and Cash Flow
| | | | | | | | | | | | | | | | | | | |
| | Twenty-Six Weeks Ended | | | | Thirteen Weeks Ended | | | | ||||||||||
($ millions) |
| July 30, 2022 |
| July 31, 2021 |
| Change |
| April 29, 2023 |
| April 30, 2022 |
| Change |
| ||||||
Net cash provided by operating activities | | $ | 27.2 | | $ | 135.5 | | $ | (108.3) | | $ | 37.5 | | $ | 19.7 | | $ | 17.8 | |
Net cash used for investing activities | | | (20.7) | | | (9.4) | | | (11.3) | | | (6.5) | | | (11.7) | | | 5.2 | |
Net cash provided by (used for) provided by financing activities | | | 9.3 | | | (159.7) | | | 169.0 | ||||||||||
Net cash used for financing activities | | | (28.5) | | | (4.4) | | | (24.1) | | |||||||||
Effect of exchange rate changes on cash and cash equivalents | | | — | | | — | | | — | | | (0.0) | | | (0.0) | | | 0.0 | |
Increase (decrease) in cash and cash equivalents | | $ | 15.8 | | $ | (33.6) | | $ | 49.4 | ||||||||||
Increase in cash and cash equivalents | | $ | 2.5 | | $ | 3.6 | | $ | (1.1) | |
Reasons for the major variances in cash provided (used) in the table above are as follows:
Cash provided by operating activities was $108.3$17.8 million lowerhigher in the six monthsthirteen weeks ended July 30, 2022April 29, 2023 as compared to the six monthsthirteen weeks ended July 31, 2021,April 30, 2022, primarily reflecting the following factors:
● | A |
● | A smaller increase in accounts receivable during the thirteen weeks ended April 29, 2023 primarily attributable to lower wholesale sales, compared to the thirteen weeks ended April 30, 2022; partially offset by |
● | A smaller increase in net income taxes payable during the thirteen weeks ended April 29, 2023, compared to the thirteen weeks ended April 20, 2022; |
● | A smaller increase in trade accounts payable during the thirteen weeks ended April 29, 2023, reflecting lower inventory purchases compared to the thirteen weeks ended April 30, 2022, |
● | A larger decrease in accrued expenses and other liabilities during the |
● |
Supply chain financing: Certain
29
Cash used for investing activities was $11.3$5.2 million higherlower for the six monthsthirteen weeks ended July 30, 2022April 29, 2023 as compared to the six monthsthirteen weeks ended July 31, 2021,April 30, 2022, reflecting higherlower capital expenditures. In 2022,2023, we expect our purchases of property and equipment and capitalized software to be between $45$55 million and $55$65 million, as compared to $24.1$64.0 million in 2021. In the first quarter of 2022, we tested a new prototype Famous Footwear store that offers an enhanced shopping experience, highlights our leading assortment of trending brands and elevates those brands in an energetic and exciting manner. We have also continued to invest in refreshing our Famous Footwear stores in the first half of 2022. We plan to invest in additional prototype stores and store renovations throughout 2022, which we believe will reinforce our national presence and further differentiate our store experience from that of our competitors.
35
Cash provided byused for financing activities was $169.0$24.1 million higher for the six monthsthirteen weeks ended July 30, 2022April 29, 2023 as compared to the six monthsthirteen weeks ended July 31, 2021,April 30, 2022, primarily due to net borrowingsrepayments on our revolving credit agreement of $58.5$16.0 million in the six monthsthirteen weeks ended July 30, 2022,April 29, 2023, compared to net repaymentsborrowings of $150.0$15.0 million in the comparable period in 2021.2022. In addition, we repurchased $41.7the issuance of common stock under share-based plans was $6.4 million higher in the thirteen weeks ended April 29, 2023, compared to the thirteen weeks ended April 30, 2022. These increases were partially offset by $14.7 million of repurchases of our common stock under our share repurchase programs during the six monthsthirteen weeks ended JulyApril 30, 2022, with no corresponding share repurchases during the six monthsthirteen weeks ended July 31, 2021.April 29, 2023.
A summary of key financial data and ratios at the dates indicated is as follows:
| | | | | | | | | | | | | | | | | | | | | |
|
| July 30, 2022 |
| July 31, 2021 | |
| January 29, 2022 |
| April 29, 2023 |
| April 30, 2022 | |
| January 28, 2023 |
| ||||||
Operating working capital ($ millions) (1) | | $ | 296.4 | | $ | 100.4 | | | $ | 193.8 | | ||||||||||
Working capital ($ millions) (1) | $ | (58.4) | | $ | (136.2) | | | $ | (79.7) | | |||||||||||
Current ratio (2) | | | 0.89:1 | | | 0.82:1 | | | | 0.82:1 | | | 0.93:1 | | | 0.87:1 | | | | 0.91:1 | |
Debt-to-capital ratio (3) | | | 47.5 | % | | 54.9 | % | | | 47.3 | % | | 39.2 | % | | 46.0 | % | | | 41.9 | % |
(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 |
Operating workingWorking capital at July 30, 2022April 29, 2023 was $296.4($58.4) million, which was $196.0$77.8 million and $102.6$21.3 million higher than at July 31, 2021April 30, 2022 and January 29, 2022,28, 2023, respectively. The increase in operating working capital from July 31, 2021 and January 29,April 30, 2022 primarily reflects higher inventorieslower trade accounts payable and the settlement of the Blowfish Malibu mandatory purchase obligationaccrued expenses, partially offset by lower inventory. The increase in the fourth quarter of 2021,working capital from January 28, 2023 primarily reflects lower accrued expenses, partially offset by higher trade accounts payable. The increase in operating working capital from January 29, 2022 primarily reflects higher inventories, partially offset by higher trade payables. Our current ratio was 0.89 to 0.93:1 as of JulyApril 29, 2023, compared to 0.87:1 at April 30, 2022 compared to 0.82:and 0.91:1 at July 31, 2021 and January 29, 2022.28, 2023. Our debt-to-capital ratio was 47.5%39.2% as of JulyApril 29, 2023, compared to 46.0% as of April 30, 2022 compared to 54.9% as of July 31, 2021 and 47.3%41.9% at January 29, 2022. The decrease in our debt-to-capital ratio from July 31, 2021 primarily reflects the extinguishment of our senior notes and higher equity attributable to our strong financial results.28, 2023.
We declared and paid dividends of $0.07 per share in the secondfirst quarter of both 20222023 and 2021.2022. The declaration and payment of any future dividend is at the discretion of the Board of Directors and will depend on our results of operations, financial condition, business conditions and other factors deemed relevant by our Board of Directors. However, we presently expect that dividends will continue to be paid.
We have various contractual or other obligations, including borrowings under our revolving credit facility, operating lease commitments, one-time transition tax for the mandatory deemed repatriation of cumulative foreign earnings and obligations for our supplemental executive retirement plan and other postretirement benefits. We also have purchase obligations to purchase inventory, assets and other goods and services. We believe our operating cash flows are sufficient to meet our material cash requirements for at least the next 12 months.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
No material changes have occurred related to critical accounting policies and estimates since the end of the most recent fiscal year. For further information on the Company’s critical accounting policies and estimates, see Part II, Item 7 of our Annual Report on Form 10-K for the year ended January 29, 2022.28, 2023.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
Recently issued accounting pronouncements, if any, and their impact on the Company are described in Note 2 to the condensed consolidated financial statements.
FORWARD-LOOKING STATEMENTS
This Form 10-Q contains certain forward-looking statements and expectations regarding the Company’s future performance and the performance of its brands. Such statements are subject to various risks and uncertainties that could cause actual results to differ materially. These risks include (i) supply chain disruptions and inflationary pressures; (ii) the coronavirus pandemic and its adverse impact on our
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business operations and financial condition;These risks include (i) inflationary pressures; (ii) supply chain disruptions; (iii) changing consumer demands, which may be influenced by general economic conditions and other factors; (iv) rapidly changing consumer preferences and purchasing patterns and fashion trends; (v) customer concentration and increased consolidation in the retail industry; (vi) intense competition within the footwear industry; (vii) foreign currency fluctuations; (viii) political and economic conditions or other threats to the continued and uninterrupted flow of inventory from China and other countries, where the Company relies heavily on third-party manufacturing facilities for a significant amount of its inventory; (ix) cybersecurity threats or other major disruption to the Company’s information technology systems; (x) the ability to accurately forecast sales and manage inventory levels; (xi) a disruption in the Company’s distribution centers; (xii) the ability to recruit and retain senior management and other key associates; (xiii) the ability to secure/exit leases on favorable terms; (xiv) the ability to maintain relationships with current suppliers; (xv) transitional challenges with acquisitions and divestitures; (xvi) changes to tax laws, policies and treaties; (xvii) compliance with applicable laws and standards with respect to labor, trade and product safety issues; and (xviii) the ability to attract, retain, and maintain good relationships with licensors and protect our intellectual property rights. The Company’s reports to the Securities and Exchange Commission contain detailed information relating to such factors, including, without limitation, the information under the caption “Risk Factors” in Part I, Item 1A of the Company’s Annual Report on Form 10-K for the year ended January 29, 2022,28, 2023, which information is incorporated by reference herein and updated by the Company’s Quarterly Reports on Form 10-Q. The Company does not undertake any obligation or plan to update these forward-looking statements, even though its situation may change.
ITEM 3 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
No material changes have taken place in the quantitative and qualitative information about market risk since the end of the most recent fiscal year. For further information, see Part II, Item 7A of the Company’s Annual Report on Form 10-K for the year ended January 29, 2022.28, 2023.
ITEM 4 CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
It is the Chief Executive Officer’s and Chief Financial Officer’s ultimate responsibility to ensure we maintain disclosure controls and procedures designed to provide reasonable assurance that information required to be disclosed in the reports that we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the Commission’s rules and forms and is accumulated and communicated to our management, including our principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. Our disclosure controls and procedures include mandatory communication of material events, automated accounting processing and reporting, management review of monthly, quarterly and annual results, an established system of internal controls and ongoing monitoring by our internal auditors.
A control system, no matter how well conceived or operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Furthermore, the design of a control system must reflect the fact there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any system of controls is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance any design will succeed in achieving its stated goals under all potential future conditions; over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to errors or fraud may occur and not be detected. Our disclosure controls and procedures are designed to provide a reasonable level of assurance that their objectives are achieved. As of July 30, 2022,April 29, 2023, management of the Company, including the Chief Executive Officer and Chief Financial Officer, conducted an evaluation of the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934). Based upon and as of the date of that evaluation, the Chief Executive Officer and Chief Financial Officer have concluded our disclosure controls and procedures were effective at the reasonable assurance level.
Based on the evaluation of internal control over financial reporting, the Chief Executive Officer and Chief Financial Officer have concluded that there have been no changes in the Company’s internal controls over financial reporting during the quarter ended July 30, 2022April 29, 2023 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
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PART II OTHER INFORMATION
ITEM 1 LEGAL PROCEEDINGS
We are involved in legal proceedings and litigation arising in the ordinary course of business. In the opinion of management, the outcome of such ordinary course of business proceedings and litigation currently pending will not have a material adverse effect on our results of operations or financial position. All legal costs associated with litigation are expensed as incurred.
Information regarding Legal Proceedings is set forth within Note 16 to the condensed consolidated financial statements and incorporated by reference herein.
ITEM 1A RISK FACTORS
There have been no material changes that have occurred related to our risk factors since the end of the most recent fiscal year. For further information, see Part I, Item 1A of our Annual Report on Form 10-K for the year ended January 29, 2022.28, 2023.
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 secondfirst quarter of 2022:2023:
| | | | | | | | | | | | | | | | | | |
| | | | | | | 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) |
May 1, 2022 - May 28, 2022 |
| 800,008 | | $ | 23.75 |
| 800,008 |
| 7,488,892 | |||||||||
January 29, 2023 - February 25, 2023 |
| — | | $ | — |
| — |
| 6,367,379 | |||||||||
|
| | |
| |
| |
| |
| | |
| |
| |
| |
May 29, 2022 - July 2, 2022 |
| 291,003 | |
| 28.22 |
| 283,488 |
| 7,205,404 | |||||||||
February 26, 2023 - April 1, 2023 |
| 413,128 | |
| 24.22 |
| — |
| 6,367,379 | |||||||||
|
|
| |
|
|
|
|
|
|
|
| |
| |
|
|
|
|
July 3, 2022 - July 30, 2022 |
| — | |
| — |
| — |
| 7,205,404 | |||||||||
|
|
| |
|
|
|
|
|
| |||||||||
April 2, 2023 - April 29, 2023 |
| — | |
| — |
| — |
| 6,367,379 | |||||||||
Total |
| 1,091,011 | | $ | 24.94 |
| 1,083,496 |
| 7,205,404 |
| 413,128 | | $ | 24.22 |
| — |
| 6,367,379 |
(1) | Includes shares |
(2) | On September 2, 2019, the Board of Directors approved a stock repurchase program ("2019 Program") authorizing the repurchase of 5,000,000 shares of our outstanding common stock. In addition, on March 10, 2022, the Board of Directors approved a stock repurchase program ("2022 Program") authorizing the repurchase of an additional 7,000,000 shares of our outstanding common stock. We can use the repurchase programs to repurchase shares on the open market or in private |
ITEM 3 DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4 MINE SAFETY DISCLOSURES
Not applicable.
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ITEM 6 EXHIBITS
| ||
Exhibit |
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3.1 |
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3.2 |
| |
10.1 |
| |
|
| |
|
| |
|
| |
|
| |
31.1 | † | |
31.2 | † | |
32.1 | † | |
101.INS | † | iXBRL Instance Document |
101.SCH | † | iXBRL Taxonomy Extension Schema Document |
101.CAL | † | iXBRL Taxonomy Extension Calculation Linkbase Document |
101.LAB | † | iXBRL Taxonomy Extension Label Linkbase Document |
101.PRE | † | iXBRL Taxonomy Presentation Linkbase Document |
101.DEF | † | iXBRL Taxonomy Definition Linkbase Document |
104 | † | Cover Page Interactive Data File, formatted in iXBRL and contained in Exhibit 101. |
* Denotes management contract or compensatory plan arrangements.
† Denotes exhibit is filed with this Form 10-Q.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| CALERES, INC. | |
| ||
Date: | /s/ | |
Senior Vice President and Chief Financial Officer on behalf of the Registrant and as the Principal Financial Officer |
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