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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 October 28, 2023 |
|
|
☐ |
Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from _____________ to _____________ |
Commission file number: 1-2191
CALERES, INC. | |
(Exact name of registrant as specified in its charter) | |
|
|
New York |
43-0197190 |
(State or other jurisdiction |
(IRS Employer Identification Number) |
of incorporation or organization) |
|
|
|
8300 Maryland Avenue |
63105 |
St. Louis, Missouri |
(Zip Code) |
(Address of principal executive offices) |
|
|
|
(314) 854-4000 | |
(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 November 24, 2023, 35,502,200 common shares were outstanding.
INDEX |
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Page |
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3 |
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3 |
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4 |
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5 |
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6 |
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7 |
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8 |
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Management’s Discussion and Analysis of Financial Condition and Results of Operations |
26 |
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37 |
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37 |
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38 |
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38 |
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38 |
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39 |
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39 |
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39 |
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39 |
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40 |
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41 |
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2
PART IFINANCIAL INFORMATION
ITEM 1FINANCIAL STATEMENTS
CALERES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
|
|
(Unaudited) |
|||||||
($ thousands) |
|
October 28, 2023 |
|
October 29, 2022 |
|
January 28, 2023 |
|||
Assets |
|
|
|
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
34,031 |
|
$ |
32,773 |
|
$ |
33,700 |
Receivables, net |
|
|
161,544 |
|
|
161,367 |
|
|
132,802 |
Inventories, net |
|
|
556,034 |
|
|
649,257 |
|
|
580,215 |
Income taxes |
|
|
5,065 |
|
|
12,046 |
|
|
17,527 |
Property and equipment, held for sale |
|
|
16,777 |
|
|
16,777 |
|
|
16,777 |
Prepaid expenses and other current assets |
|
|
49,422 |
|
|
48,864 |
|
|
50,434 |
Total current assets |
|
|
822,873 |
|
|
921,084 |
|
|
831,455 |
|
|
|
|
|
|
|
|
|
|
Prepaid pension costs |
|
|
87,541 |
|
|
106,781 |
|
|
83,396 |
Lease right-of-use assets |
|
|
508,736 |
|
|
523,011 |
|
|
518,196 |
Property and equipment, net |
|
|
167,681 |
|
|
151,798 |
|
|
160,883 |
Goodwill and intangible assets, net |
|
|
206,275 |
|
|
218,420 |
|
|
215,392 |
Other assets |
|
|
33,787 |
|
|
27,219 |
|
|
27,150 |
Total assets |
|
$ |
1,826,893 |
|
$ |
1,948,313 |
|
$ |
1,836,472 |
|
|
|
|
|
|
|
|
|
|
Liabilities and Equity |
|
|
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
|
|
Borrowings under revolving credit agreement |
|
$ |
222,000 |
|
$ |
364,500 |
|
$ |
307,500 |
Trade accounts payable |
|
|
257,224 |
|
|
279,704 |
|
|
229,908 |
Income taxes |
|
|
21,269 |
|
|
31,106 |
|
|
7,650 |
Lease obligations |
|
|
132,461 |
|
|
133,227 |
|
|
136,051 |
Other accrued expenses |
|
|
194,967 |
|
|
230,377 |
|
|
230,087 |
Total current liabilities |
|
|
827,921 |
|
|
1,038,914 |
|
|
911,196 |
|
|
|
|
|
|
|
|
|
|
Other liabilities: |
|
|
|
|
|
|
|
|
|
Noncurrent lease obligations |
|
|
431,474 |
|
|
453,718 |
|
|
444,074 |
Income taxes |
|
|
2,464 |
|
|
7,786 |
|
|
7,786 |
Deferred income taxes |
|
|
19,502 |
|
|
15,044 |
|
|
19,001 |
Other liabilities |
|
|
25,360 |
|
|
27,440 |
|
|
28,302 |
Total other liabilities |
|
|
478,800 |
|
|
503,988 |
|
|
499,163 |
|
|
|
|
|
|
|
|
|
|
Equity: |
|
|
|
|
|
|
|
|
|
Common stock |
|
|
355 |
|
|
356 |
|
|
357 |
Additional paid-in capital |
|
|
181,630 |
|
|
177,269 |
|
|
180,747 |
Accumulated other comprehensive loss |
|
|
(25,596) |
|
|
(7,187) |
|
|
(26,750) |
Retained earnings |
|
|
356,993 |
|
|
228,006 |
|
|
266,329 |
Total Caleres, Inc. shareholders’ equity |
|
|
513,382 |
|
|
398,444 |
|
|
420,683 |
Noncontrolling interests |
|
|
6,790 |
|
|
6,967 |
|
|
5,430 |
Total equity |
|
|
520,172 |
|
|
405,411 |
|
|
426,113 |
Total liabilities and equity |
|
$ |
1,826,893 |
|
$ |
1,948,313 |
|
$ |
1,836,472 |
See notes to condensed consolidated financial statements.
3
CALERES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
|
|
(Unaudited) |
||||||||||
|
|
Thirteen Weeks Ended |
|
Thirty-Nine Weeks Ended |
||||||||
($ thousands, except per share amounts) |
|
October 28, 2023 |
|
October 29, 2022 |
|
October 28, 2023 |
|
October 29, 2022 |
||||
Net sales |
|
$ |
761,904 |
|
$ |
798,258 |
|
$ |
2,120,171 |
|
$ |
2,271,704 |
Cost of goods sold |
|
|
421,530 |
|
|
458,382 |
|
|
1,162,942 |
|
|
1,268,019 |
Gross profit |
|
|
340,374 |
|
|
339,876 |
|
|
957,229 |
|
|
1,003,685 |
Selling and administrative expenses |
|
|
273,652 |
|
|
283,119 |
|
|
789,570 |
|
|
812,313 |
Restructuring and other special charges, net |
|
|
2,304 |
|
|
2,910 |
|
|
3,951 |
|
|
2,910 |
Operating earnings |
|
|
64,418 |
|
|
53,847 |
|
|
163,708 |
|
|
188,462 |
Interest expense, net |
|
|
(4,488) |
|
|
(4,003) |
|
|
(15,240) |
|
|
(8,886) |
Other income, net |
|
|
1,552 |
|
|
2,997 |
|
|
4,660 |
|
|
9,636 |
Earnings before income taxes |
|
|
61,482 |
|
|
52,841 |
|
|
153,128 |
|
|
189,212 |
Income tax provision |
|
|
(14,467) |
|
|
(13,849) |
|
|
(36,956) |
|
|
(48,683) |
Net earnings |
|
|
47,015 |
|
|
38,992 |
|
|
116,172 |
|
|
140,529 |
Net earnings (loss) attributable to noncontrolling interests |
|
|
101 |
|
|
(254) |
|
|
588 |
|
|
(404) |
Net earnings attributable to Caleres, Inc. |
|
$ |
46,914 |
|
$ |
39,246 |
|
$ |
115,584 |
|
$ |
140,933 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per common share attributable to Caleres, Inc. shareholders |
|
$ |
1.32 |
|
$ |
1.09 |
|
$ |
3.23 |
|
$ |
3.83 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per common share attributable to Caleres, Inc. shareholders |
|
$ |
1.32 |
|
$ |
1.08 |
|
$ |
3.23 |
|
$ |
3.79 |
See notes to condensed consolidated financial statements.
4
CALERES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
|
(Unaudited) |
||||||||||
|
Thirteen Weeks Ended |
|
Thirty-Nine Weeks Ended |
||||||||
($ thousands) |
October 28, 2023 |
|
October 29, 2022 |
|
October 28, 2023 |
|
October 29, 2022 |
||||
Net earnings |
$ |
47,015 |
|
$ |
38,992 |
|
$ |
116,172 |
|
$ |
140,529 |
Other comprehensive income (loss) ("OCI"), net of tax: |
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustment |
|
(626) |
|
|
(980) |
|
|
(1,054) |
|
|
(1,100) |
Pension and other postretirement benefits adjustments |
|
660 |
|
|
908 |
|
|
1,980 |
|
|
1,931 |
Other comprehensive income (loss), net of tax |
|
34 |
|
|
(72) |
|
|
926 |
|
|
831 |
Comprehensive income |
|
47,049 |
|
|
38,920 |
|
|
117,098 |
|
|
141,360 |
Comprehensive income (loss) attributable to noncontrolling interests |
|
201 |
|
|
(419) |
|
|
360 |
|
|
(992) |
Comprehensive income attributable to Caleres, Inc. |
$ |
46,848 |
|
$ |
39,339 |
|
$ |
116,738 |
|
$ |
142,352 |
See notes to condensed consolidated financial statements.
5
CALERES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
|
(Unaudited) |
|
||||
|
Thirty-Nine Weeks Ended |
|
||||
($ thousands) |
October 28, 2023 |
|
October 29, 2022 |
|
||
Operating Activities |
|
|
|
|
|
|
Net earnings |
$ |
116,172 |
|
$ |
140,529 |
|
Adjustments to reconcile net earnings to net cash provided by operating activities: |
|
|
|
|
|
|
Depreciation |
|
25,575 |
|
|
23,945 |
|
Amortization of capitalized software |
|
3,713 |
|
|
3,669 |
|
Amortization of intangible assets |
|
9,117 |
|
|
9,080 |
|
Amortization of debt issuance costs and debt discount |
|
305 |
|
|
305 |
|
Share-based compensation expense |
|
10,924 |
|
|
13,249 |
|
Loss on disposal of property and equipment |
|
1,121 |
|
|
1,167 |
|
Impairment charges for property, equipment, and lease right-of-use assets |
|
589 |
|
|
1,979 |
|
Adjustment to expected credit losses |
|
1,053 |
|
|
(303) |
|
Deferred income taxes |
|
501 |
|
|
313 |
|
Changes in operating assets and liabilities: |
|
|
|
|
|
|
Receivables |
|
(29,794) |
|
|
(38,826) |
|
Inventories |
|
23,769 |
|
|
(53,025) |
|
Prepaid expenses and other current and noncurrent assets |
|
(8,414) |
|
|
(4,496) |
|
Trade accounts payable |
|
27,491 |
|
|
(51,547) |
|
Accrued expenses and other liabilities |
|
(45,727) |
|
|
(33,667) |
|
Income taxes, net |
|
20,759 |
|
|
34,833 |
|
Other, net |
|
29 |
|
|
(939) |
|
Net cash provided by operating activities |
|
157,183 |
|
|
46,266 |
|
|
|
|
|
|
|
|
Investing Activities |
|
|
|
|
|
|
Purchases of property and equipment |
|
(33,976) |
|
|
(40,056) |
|
Capitalized software |
|
(3,404) |
|
|
(5,350) |
|
Net cash used for investing activities |
|
(37,380) |
|
|
(45,406) |
|
|
|
|
|
|
|
|
Financing Activities |
|
|
|
|
|
|
Borrowings under revolving credit agreement |
|
365,000 |
|
|
708,500 |
|
Repayments under revolving credit agreement |
|
(450,500) |
|
|
(634,000) |
|
Dividends paid |
|
(7,483) |
|
|
(7,698) |
|
Acquisition of treasury stock |
|
(17,445) |
|
|
(63,225) |
|
Issuance of common stock under share-based plans, net |
|
(10,035) |
|
|
(4,804) |
|
Contributions by noncontrolling interests |
|
1,000 |
|
|
3,142 |
|
Net cash (used for) provided by financing activities |
|
(119,463) |
|
|
1,915 |
|
Effect of exchange rate changes on cash and cash equivalents |
|
(9) |
|
|
(117) |
|
Increase in cash and cash equivalents |
|
331 |
|
|
2,658 |
|
Cash and cash equivalents at beginning of period |
|
33,700 |
|
|
30,115 |
|
Cash and cash equivalents at end of period |
$ |
34,031 |
|
$ |
32,773 |
|
See notes to condensed consolidated financial statements.
6
CALERES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
Total |
|
|
|
|
|
|
||
|
|
|
|
|
|
|
|
|
|
Other |
|
|
|
|
Caleres, Inc. |
|
|
|
|
|
|||
(Unaudited) |
|
Common Stock |
|
Additional |
|
Comprehensive |
|
Retained |
|
Shareholders’ |
|
Noncontrolling |
|
|
|
||||||||
($ thousands, except number of shares and per share amounts) |
|
Shares |
|
Dollars |
|
Paid-In Capital |
|
Loss |
|
Earnings |
|
Equity |
|
Interests |
|
Total Equity |
|||||||
BALANCE JULY 29, 2023 |
|
35,540,093 |
|
$ |
355 |
|
$ |
177,602 |
|
$ |
(25,530) |
|
$ |
312,565 |
|
$ |
464,992 |
|
$ |
6,589 |
|
$ |
471,581 |
Net earnings |
|
|
|
|
|
|
|
|
|
|
|
|
|
46,914 |
|
|
46,914 |
|
|
101 |
|
|
47,015 |
Foreign currency translation adjustment |
|
|
|
|
|
|
|
|
|
|
(726) |
|
|
|
|
|
(726) |
|
|
100 |
|
|
(626) |
Pension and other postretirement benefits adjustments, net of tax of $228 |
|
|
|
|
|
|
|
|
|
|
660 |
|
|
|
|
|
660 |
|
|
|
|
|
660 |
Comprehensive (loss) income |
|
|
|
|
|
|
|
|
|
|
(66) |
|
|
46,914 |
|
|
46,848 |
|
|
201 |
|
|
47,049 |
Dividends ($0.07 per share) |
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,486) |
|
|
(2,486) |
|
|
|
|
|
(2,486) |
Issuance of common stock under share-based plans, net |
|
3,365 |
|
|
0 |
|
|
(25) |
|
|
|
|
|
|
|
|
(25) |
|
|
|
|
|
(25) |
Share-based compensation expense |
|
|
|
|
|
|
|
4,053 |
|
|
|
|
|
|
|
|
4,053 |
|
|
|
|
|
4,053 |
BALANCE OCTOBER 28, 2023 |
|
35,543,458 |
|
$ |
355 |
|
$ |
181,630 |
|
$ |
(25,596) |
|
$ |
356,993 |
|
$ |
513,382 |
|
$ |
6,790 |
|
$ |
520,172 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE JULY 30, 2022 |
|
36,450,780 |
|
$ |
364 |
|
$ |
173,246 |
|
$ |
(7,280) |
|
$ |
212,803 |
|
$ |
379,133 |
|
$ |
5,744 |
|
$ |
384,877 |
Net earnings |
|
|
|
|
|
|
|
|
|
|
|
|
|
39,246 |
|
|
39,246 |
|
|
(254) |
|
|
38,992 |
Foreign currency translation adjustment |
|
|
|
|
|
|
|
|
|
|
(815) |
|
|
|
|
|
(815) |
|
|
(165) |
|
|
(980) |
Pension and other postretirement benefits adjustments, net of tax of $86 |
|
|
|
|
|
|
|
|
|
|
908 |
|
|
|
|
|
908 |
|
|
|
|
|
908 |
Comprehensive income (loss) |
|
|
|
|
|
|
|
|
|
|
93 |
|
|
39,246 |
|
|
39,339 |
|
|
(419) |
|
|
38,920 |
Contributions by noncontrolling interests |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
1,642 |
|
|
1,642 |
Dividends ($0.07 per share) |
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,498) |
|
|
(2,498) |
|
|
|
|
|
(2,498) |
Acquisition of treasury stock |
|
(838,025) |
|
|
(8) |
|
|
|
|
|
|
|
|
(21,545) |
|
|
(21,553) |
|
|
|
|
|
(21,553) |
Issuance of common stock under share-based plans, net |
|
20,699 |
|
|
0 |
|
|
(990) |
|
|
|
|
|
|
|
|
(990) |
|
|
|
|
|
(990) |
Share-based compensation expense |
|
|
|
|
|
|
|
5,013 |
|
|
|
|
|
|
|
|
5,013 |
|
|
|
|
|
5,013 |
BALANCE OCTOBER 29, 2022 |
|
35,633,454 |
|
$ |
356 |
|
$ |
177,269 |
|
$ |
(7,187) |
|
$ |
228,006 |
|
$ |
398,444 |
|
$ |
6,967 |
|
$ |
405,411 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
|
|
|
|
|
||
|
|
|
|
|
|
|
|
|
|
Other |
|
|
|
|
Total Caleres, Inc. |
|
|
|
|
|
|||
(Unaudited) |
|
Common Stock |
|
Additional |
|
Comprehensive |
|
Retained |
|
Shareholders’ |
|
Noncontrolling |
|
|
|
||||||||
($ 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 |
|
|
|
|
|
|
|
|
|
|
|
|
|
115,584 |
|
|
115,584 |
|
|
588 |
|
|
116,172 |
Foreign currency translation adjustment |
|
|
|
|
|
|
|
|
|
|
(826) |
|
|
|
|
|
(826) |
|
|
(228) |
|
|
(1,054) |
Pension and other postretirement benefits adjustments, net of tax of $684 |
|
|
|
|
|
|
|
|
|
|
1,980 |
|
|
|
|
|
1,980 |
|
|
|
|
|
1,980 |
Comprehensive income |
|
|
|
|
|
|
|
|
|
|
1,154 |
|
|
115,584 |
|
|
116,738 |
|
|
360 |
|
|
117,098 |
Contributions by noncontrolling interests |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
1,000 |
|
|
1,000 |
Dividends ($0.21 per share) |
|
|
|
|
|
|
|
|
|
|
|
|
|
(7,483) |
|
|
(7,483) |
|
|
|
|
|
(7,483) |
Acquisition of treasury stock |
|
(763,000) |
|
|
(8) |
|
|
|
|
|
|
|
|
(17,437) |
|
|
(17,445) |
|
|
|
|
|
(17,445) |
Issuance of common stock under share-based plans, net |
|
590,706 |
|
|
6 |
|
|
(10,041) |
|
|
|
|
|
|
|
|
(10,035) |
|
|
|
|
|
(10,035) |
Share-based compensation expense |
|
|
|
|
|
|
|
10,924 |
|
|
|
|
|
|
|
|
10,924 |
|
|
|
|
|
10,924 |
BALANCE OCTOBER 28, 2023 |
|
35,543,458 |
|
$ |
355 |
|
$ |
181,630 |
|
$ |
(25,596) |
|
$ |
356,993 |
|
$ |
513,382 |
|
$ |
6,790 |
|
$ |
520,172 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE JANUARY 29, 2022 |
|
37,635,145 |
|
$ |
376 |
|
$ |
168,830 |
|
$ |
(8,606) |
|
$ |
157,970 |
|
$ |
318,570 |
|
$ |
4,817 |
|
$ |
323,387 |
Net earnings (loss) |
|
|
|
|
|
|
|
|
|
|
|
|
|
140,933 |
|
|
140,933 |
|
|
(404) |
|
|
140,529 |
Foreign currency translation adjustment |
|
|
|
|
|
|
|
|
|
|
(512) |
|
|
|
|
|
(512) |
|
|
(588) |
|
|
(1,100) |
Pension and other postretirement benefits adjustments, net of tax of $417 |
|
|
|
|
|
|
|
|
|
|
1,931 |
|
|
|
|
|
1,931 |
|
|
|
|
|
1,931 |
Comprehensive income (loss) |
|
|
|
|
|
|
|
|
|
|
1,419 |
|
|
140,933 |
|
|
142,352 |
|
|
(992) |
|
|
141,360 |
Contributions by noncontrolling interests |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
3,142 |
|
|
3,142 |
Dividends ($0.21 per share) |
|
|
|
|
|
|
|
|
|
|
|
|
|
(7,698) |
|
|
(7,698) |
|
|
|
|
|
(7,698) |
Acquisition of treasury stock |
|
(2,622,845) |
|
|
(26) |
|
|
|
|
|
|
|
|
(63,199) |
|
|
(63,225) |
|
|
|
|
|
(63,225) |
Issuance of common stock under share-based plans, net |
|
621,154 |
|
|
6 |
|
|
(4,810) |
|
|
|
|
|
|
|
|
(4,804) |
|
|
|
|
|
(4,804) |
Share-based compensation expense |
|
|
|
|
|
|
|
13,249 |
|
|
|
|
|
|
|
|
13,249 |
|
|
|
|
|
13,249 |
BALANCE OCTOBER 29, 2022 |
|
35,633,454 |
|
$ |
356 |
|
$ |
177,269 |
|
$ |
(7,187) |
|
$ |
228,006 |
|
$ |
398,444 |
|
$ |
6,967 |
|
$ |
405,411 |
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 has experienced more equal distribution among the 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.
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 28, 2023.
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.
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 thirty-nine weeks ended October 28, 2023, capital contributions of $2.0 million were made to CLT, including $1.0 million received from Brand Investment Holding. During the thirty-nine weeks ended October 29, 2022, capital contributions of $6.3 million were made to CLT, including $3.1 million received from Brand Investment Holding.
Net sales and operating earnings (loss) of CLT for the periods ended October 28, 2023 and October 29, 2022 were as follows:
|
|
Thirteen Weeks Ended |
|
Thirty-Nine Weeks Ended |
||||||||
($ thousands) |
|
October 28, 2023 |
|
October 29, 2022 |
|
October 28, 2023 |
|
October 29, 2022 |
||||
Net sales |
|
$ |
6,810 |
|
$ |
5,418 |
|
$ |
19,675 |
|
$ |
13,167 |
Operating earnings (loss) |
|
|
229 |
|
|
(302) |
|
|
1,327 |
|
|
(631) |
The Company consolidates CLT 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. Transactions between the Company and the joint venture have been eliminated in the condensed consolidated financial statements.
Supplier Finance Program
The Company facilitates a voluntary supplier finance program (“the Program”) that provides certain of the Company’s suppliers the opportunity to sell receivables related to products that the Company 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 balance sheets, with changes reflected within cash flows from operating activities when settled.
8
As of October 28, 2023 and October 29, 2022, the Company had $25.0 million and $17.8 million, respectively, of accounts payable subject to the Program arrangements.
Property and Equipment, Held for Sale
The Company continues to actively market for sale its nine-acre corporate headquarters campus (the “Campus”) located in Clayton, Missouri and, as of October 28, 2023, was engaged in discussions with multiple potential buyers. The Company expects the Campus to qualify as a completed sale 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 sheets as of October 28, 2023 within the Eliminations and Other category. The Company evaluated the Campus asset group for impairment and determined that no indicators were present as of October 28, 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 guidance requires qualitative and 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 the Company in fiscal year 2023, 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 1 to the condensed consolidated financial statements for additional information regarding the Company’s supplier finance program.
Impact of Recently Issued Accounting Pronouncements
The Company has evaluated all recently issued ASUs and they were determined to be either not applicable or not expected to have a material impact on the consolidated financial statements.
9
Note 3 Revenues
Disaggregation of Revenues
The following table disaggregates revenue by segment and major source for the periods ended October 28, 2023 and October 29, 2022:
|
|
Thirteen Weeks Ended October 28, 2023 |
||||||||||
|
|
|
|
|
|
|
|
Eliminations and |
|
|
|
|
($ thousands) |
|
Famous Footwear |
|
Brand Portfolio |
|
Other |
|
Total |
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail stores |
|
$ |
388,764 |
|
$ |
17,126 |
|
$ |
— |
|
$ |
405,890 |
E-commerce - Company websites (1) |
|
|
60,276 |
|
|
56,204 |
|
|
— |
|
|
116,480 |
E-commerce - wholesale drop-ship (1) |
|
|
— |
|
|
34,151 |
|
|
(1,720) |
|
|
32,431 |
Total direct-to-consumer sales |
|
|
449,040 |
|
|
107,481 |
|
|
(1,720) |
|
|
554,801 |
Wholesale - e-commerce (1) |
|
|
— |
|
|
72,424 |
|
|
— |
|
|
72,424 |
Wholesale - landed |
|
|
— |
|
|
121,893 |
|
|
(6,924) |
|
|
114,969 |
Wholesale - first cost |
|
|
— |
|
|
16,332 |
|
|
— |
|
|
16,332 |
Licensing and royalty |
|
|
612 |
|
|
2,627 |
|
|
— |
|
|
3,239 |
Other (2) |
|
|
121 |
|
|
18 |
|
|
— |
|
|
139 |
Net sales |
|
$ |
449,773 |
|
$ |
320,775 |
|
$ |
(8,644) |
|
$ |
761,904 |
|
|
Thirteen Weeks Ended October 29, 2022 |
||||||||||
|
|
|
|
|
|
|
|
Eliminations and |
|
|
|
|
($ thousands) |
|
Famous Footwear |
|
Brand Portfolio |
|
Other |
|
Total |
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail stores |
|
$ |
415,678 |
|
$ |
14,810 |
|
$ |
— |
|
$ |
430,488 |
E-commerce - Company websites (1) |
|
|
65,549 |
|
|
53,673 |
|
|
— |
|
|
119,222 |
E-commerce - wholesale drop-ship (1) |
|
|
— |
|
|
40,672 |
|
|
(1,854) |
|
|
38,818 |
Total direct-to-consumer sales |
|
|
481,227 |
|
|
109,155 |
|
|
(1,854) |
|
|
588,528 |
Wholesale - e-commerce (1) |
|
|
— |
|
|
59,035 |
|
|
— |
|
|
59,035 |
Wholesale - landed |
|
|
— |
|
|
135,161 |
|
|
(5,081) |
|
|
130,080 |
Wholesale - first cost |
|
|
— |
|
|
16,424 |
|
|
— |
|
|
16,424 |
Licensing and royalty |
|
|
601 |
|
|
3,454 |
|
|
— |
|
|
4,055 |
Other (2) |
|
|
123 |
|
|
13 |
|
|
— |
|
|
136 |
Net sales |
|
$ |
481,951 |
|
$ |
323,242 |
|
$ |
(6,935) |
|
$ |
798,258 |
|
|
Thirty-Nine Weeks Ended October 28, 2023 |
||||||||||
|
|
|
|
|
|
|
|
Eliminations and |
|
|
|
|
($ thousands) |
|
Famous Footwear |
|
Brand Portfolio |
|
Other |
|
Total |
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail stores |
|
$ |
1,065,448 |
|
$ |
50,323 |
|
$ |
— |
|
$ |
1,115,771 |
E-commerce - Company websites (1) |
|
|
145,585 |
|
|
163,088 |
|
|
— |
|
|
308,673 |
E-commerce - wholesale drop-ship (1) |
|
|
— |
|
|
97,565 |
|
|
(4,119) |
|
|
93,446 |
Total direct-to-consumer sales |
|
|
1,211,033 |
|
|
310,976 |
|
|
(4,119) |
|
|
1,517,890 |
Wholesale - e-commerce (1) |
|
|
— |
|
|
181,980 |
|
|
— |
|
|
181,980 |
Wholesale - landed |
|
|
— |
|
|
377,033 |
|
|
(36,043) |
|
|
340,990 |
Wholesale - first cost |
|
|
— |
|
|
67,940 |
|
|
— |
|
|
67,940 |
Licensing and royalty |
|
|
1,775 |
|
|
9,193 |
|
|
— |
|
|
10,968 |
Other (2) |
|
|
361 |
|
|
42 |
|
|
— |
|
|
403 |
Net sales |
|
$ |
1,213,169 |
|
$ |
947,164 |
|
$ |
(40,162) |
|
$ |
2,120,171 |
10
|
|
Thirty-Nine Weeks Ended October 29, 2022 |
||||||||||
|
|
|
|
|
|
|
|
Eliminations and |
|
|
|
|
($ thousands) |
|
Famous Footwear |
|
Brand Portfolio |
|
Other |
|
Total |
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail stores |
|
$ |
1,133,276 |
|
$ |
43,371 |
|
$ |
— |
|
$ |
1,176,647 |
E-commerce - Company websites (1) |
|
|
167,604 |
|
|
155,698 |
|
|
— |
|
|
323,302 |
E-commerce - wholesale drop-ship (1) |
|
|
— |
|
|
106,348 |
|
|
(3,759) |
|
|
102,589 |
Total direct-to-consumer sales |
|
|
1,300,880 |
|
|
305,417 |
|
|
(3,759) |
|
|
1,602,538 |
Wholesale - e-commerce (1) |
|
|
— |
|
|
167,494 |
|
|
— |
|
|
167,494 |
Wholesale - landed |
|
|
— |
|
|
441,544 |
|
|
(40,408) |
|
|
401,136 |
Wholesale - first cost |
|
|
— |
|
|
88,205 |
|
|
— |
|
|
88,205 |
Licensing and royalty |
|
|
1,538 |
|
|
10,329 |
|
|
— |
|
|
11,867 |
Other (2) |
|
|
410 |
|
|
54 |
|
|
— |
|
|
464 |
Net sales |
|
$ |
1,302,828 |
|
$ |
1,013,043 |
|
$ |
(44,167) |
|
$ |
2,271,704 |
| (1) | Collectively referred to as "e-commerce" in the narrative below |
| (2) | Includes breakage revenue from unredeemed gift cards |
Retail stores
The Company generates revenue 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 converted to savings certificates and redeemed for future purchases. The transaction price is allocated to the separate performance obligations based on the relative stand-alone selling price. The stand-alone selling price for the points is estimated using the retail value of the merchandise earned, adjusted for estimated breakage based upon historical redemption patterns. The revenue associated with the initial merchandise purchased is recognized immediately and the value assigned to the points is deferred until the points are redeemed, forfeited or expired.
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.
11
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.
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 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) |
|
October 28, 2023 |
|
October 29, 2022 |
|
January 28, 2023 |
|
|||
Customer allowances and discounts |
|
$ |
23,849 |
|
$ |
23,164 |
|
$ |
21,917 |
|
Loyalty programs liability |
|
|
13,770 |
|
|
17,690 |
|
|
17,732 |
|
Returns reserve |
|
|
14,609 |
|
|
16,619 |
|
|
12,038 |
|
Gift card liability |
|
|
5,664 |
|
|
5,718 |
|
|
6,659 |
|
Changes in contract balances with customers generally reflect differences in relative sales volume for the periods presented. In addition, during the thirty-nine weeks ended October 28, 2023, the loyalty programs liability increased $41.9 million due to points and material rights earned on purchases and decreased $45.9 million due to expirations and redemptions. During the thirty-nine weeks ended October 29, 2022, the loyalty programs liability increased $32.5 million due to points and material rights earned on purchases and decreased $33.6 million due to expirations and redemptions. The liability for loyalty programs is presented within other accrued expenses when earned and is generally expected to be recognized as revenue within one year. The gift card liability is established upon the sale of a gift card and revenue is recognized either upon redemption of the gift card by the consumer or based upon the gift card breakage rate, which is generally within the 24-month period following the sale of the gift card.
The Company estimates and records an expected lifetime credit loss on accounts receivable by utilizing credit ratings and other customer-related information, as well as historical loss experience. The following table summarizes the activity in the Company’s allowance for expected credit losses during the thirty-nine weeks ended October 28, 2023 and October 29, 2022:
|
|
Thirty-Nine Weeks Ended |
||||
($ thousands) |
|
October 28, 2023 |
|
October 29, 2022 |
||
Balance, beginning of period |
|
$ |
8,903 |
|
$ |
9,601 |
Adjustment to expected credit losses |
|
|
1,053 |
|
|
(303) |
Uncollectible accounts written off, net of recoveries |
|
|
18 |
|
|
(300) |
Balance, end of period |
|
$ |
9,974 |
|
$ |
8,998 |
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 the Company.
12
The following table sets forth the computation of basic and diluted earnings per common share attributable to Caleres, Inc. shareholders for the periods ended October 28, 2023 and October 29, 2022:
|
|
Thirteen Weeks Ended |
|
Thirty-Nine Weeks Ended |
||||||||
($ thousands, except per share amounts) |
|
October 28, 2023 |
|
October 29, 2022 |
|
October 28, 2023 |
|
October 29, 2022 |
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
NUMERATOR |
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings |
|
$ |
47,015 |
|
$ |
38,992 |
|
$ |
116,172 |
|
$ |
140,529 |
Net (earnings) loss attributable to noncontrolling interests |
|
|
(101) |
|
|
254 |
|
|
(588) |
|
|
404 |
Net earnings attributable to Caleres, Inc. |
|
$ |
46,914 |
|
$ |
39,246 |
|
$ |
115,584 |
|
$ |
140,933 |
Net earnings allocated to participating securities |
|
|
(2,121) |
|
|
(1,723) |
|
|
(5,103) |
|
|
(5,951) |
Net earnings attributable to Caleres, Inc. after allocation of earnings to participating securities |
|
$ |
44,793 |
|
$ |
37,523 |
|
$ |
110,481 |
|
$ |
134,982 |
|
|
|
|
|
|
|
|
|
|
|
|
|
DENOMINATOR |
|
|
|
|
|
|
|
|
|
|
|
|
Denominator for basic earnings per common share attributable to Caleres, Inc. shareholders |
|
|
33,933 |
|
|
34,379 |
|
|
34,206 |
|
|
35,207 |
Dilutive effect of share-based awards |
|
|
— |
|
|
507 |
|
|
— |
|
|
450 |
Denominator for diluted earnings per common share attributable to Caleres, Inc. shareholders |
|
|
33,933 |
|
|
34,886 |
|
|
34,206 |
|
|
35,657 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per common share attributable to Caleres, Inc. shareholders |
|
$ |
1.32 |
|
$ |
1.09 |
|
$ |
3.23 |
|
$ |
3.83 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per common share attributable to Caleres, Inc. shareholders |
|
$ |
1.32 |
|
$ |
1.08 |
|
$ |
3.23 |
|
$ |
3.79 |
There were no outstanding options to purchase shares of common stock for the thirty-nine weeks ended October 28, 2023. Options to purchase 16,667 shares of common stock for both the thirteen and thirty-nine weeks ended October 29, 2022 were not included in the denominator for diluted earnings per common share attributable to Caleres, Inc. shareholders because the effect would be anti-dilutive.
As further discussed in Item 2, Unregistered Sales of Equity Securities and Use of Proceeds, the Company has two publicly announced share repurchase programs. The Company did not repurchase any shares under these programs during the thirteen weeks ended October 28, 2023 and repurchased 763,000 shares during the thirty-nine weeks ended October 28, 2023. During the thirteen and thirty-nine weeks ended October 29, 2022, the Company repurchased 838,025 and 2,622,845 shares, respectively, under the share repurchase programs. No excise taxes were due on the Company’s share repurchases during the thirty-nine weeks ended October 28, 2023 under the provisions of the Inflation Reduction Act of 2022.
13
Note 5 Restructuring and Other Special Charges
The Company incurred costs of $2.3 million ($1.7 million on an after-tax basis, or $0.05 per diluted share) and $3.9 million ($2.9 million on an after-tax basis, or $0.08 per diluted share) during the thirteen and thirty-nine weeks ended October 28, 2023, respectively, associated with its expense reduction initiatives. The costs were primarily severance related to organizational changes in the Famous Footwear segment and the Company’s corporate office, as well as severance and other costs to integrate the Blowfish Malibu office and information systems into the St. Louis infrastructure. Of the $2.3 million in charges presented in restructuring and other special charges on the condensed consolidated statements of earnings for the thirteen weeks ended October 28, 2023, $1.2 million is reflected in the Famous Footwear segment, $0.8 million is reflected in the Brand Portfolio segment and $0.3 million is reflected within the Eliminations and Other category. Of the $3.9 million in charges presented in restructuring and other special charges on the condensed consolidated statements of earnings for the thirty-nine weeks ended October 28, 2023, $1.7 million is reflected in the Brand Portfolio segment, $1.3 million is reflected in the Famous Footwear segment and $0.9 million is reflected within the Eliminations and Other category. As of October 28, 2023, restructuring reserves of $2.6 million were included in other accrued expenses on the condensed consolidated balance sheet.
During the thirteen and thirty-nine weeks ended October 29, 2022, the Company incurred costs of $2.9 million ($2.7 million on an after-tax basis, or $0.07 per diluted share) related to the CFO transition at the corporate headquarters. These costs were recognized as restructuring and other special charges in the condensed consolidated statement of earnings within the Eliminations and Other category.
Note 6 Business Segment Information
Following is a summary of certain key financial measures for the Company’s business segments for the periods ended October 28, 2023 and October 29, 2022:
|
|
Famous |
|
Brand |
|
Eliminations |
|
|
|
|||
($ thousands) |
|
Footwear |
|
Portfolio |
|
and Other |
|
Total |
||||
Thirteen Weeks Ended October 28, 2023 |
|
|
|
|
|
|
|
|
|
|
|
|
Net sales |
|
$ |
449,773 |
|
$ |
320,775 |
|
$ |
(8,644) |
|
$ |
761,904 |
Intersegment sales (1) |
|
|
— |
|
|
8,644 |
|
|
— |
|
|
8,644 |
Operating earnings (loss) |
|
|
46,600 |
|
|
38,211 |
|
|
(20,393) |
|
|
64,418 |
Segment assets |
|
|
828,691 |
|
|
834,645 |
|
|
163,557 |
|
|
1,826,893 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Thirteen Weeks Ended October 29, 2022 |
|
|
|
|
|
|
|
|
|
|
|
|
Net sales |
|
$ |
481,951 |
|
$ |
323,242 |
|
$ |
(6,935) |
|
$ |
798,258 |
Intersegment sales (1) |
|
|
— |
|
|
6,935 |
|
|
— |
|
|
6,935 |
Operating earnings (loss) |
|
|
59,267 |
|
|
22,304 |
|
|
(27,724) |
|
|
53,847 |
Segment assets |
|
|
833,268 |
|
|
955,712 |
|
|
159,333 |
|
|
1,948,313 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Thirty-Nine Weeks Ended October 28, 2023 |
|
|
|
|
|
|
|
|
|
|
|
|
Net sales |
|
$ |
1,213,169 |
|
$ |
947,164 |
|
$ |
(40,162) |
|
$ |
2,120,171 |
Intersegment sales (1) |
|
|
— |
|
|
40,162 |
|
|
— |
|
|
40,162 |
Operating earnings (loss) |
|
|
104,286 |
|
|
107,708 |
|
|
(48,286) |
|
|
163,708 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Thirty-Nine Weeks Ended October 29, 2022 |
|
|
|
|
|
|
|
|
|
|
|
|
Net sales |
|
$ |
1,302,828 |
|
$ |
1,013,043 |
|
$ |
(44,167) |
|
$ |
2,271,704 |
Intersegment sales (1) |
|
|
— |
|
|
44,167 |
|
|
— |
|
|
44,167 |
Operating earnings (loss) |
|
|
171,451 |
|
|
93,063 |
|
|
(76,052) |
|
|
188,462 |
| (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.
14
Following is a reconciliation of operating earnings to earnings before income taxes:
|
|
Thirteen Weeks Ended |
|
Thirty-Nine Weeks Ended |
||||||||
($ thousands) |
|
October 28, 2023 |
|
October 29, 2022 |
|
October 28, 2023 |
|
October 29, 2022 |
||||
Operating earnings |
|
$ |
64,418 |
|
$ |
53,847 |
|
$ |
163,708 |
|
$ |
188,462 |
Interest expense, net |
|
|
(4,488) |
|
|
(4,003) |
|
|
(15,240) |
|
|
(8,886) |
Other income, net |
|
|
1,552 |
|
|
2,997 |
|
|
4,660 |
|
|
9,636 |
Earnings before income taxes |
|
$ |
61,482 |
|
$ |
52,841 |
|
$ |
153,128 |
|
$ |
189,212 |
Note 7 Inventories
The Company’s net inventory balance was comprised of the following:
($ thousands) |
|
October 28, 2023 |
|
October 29, 2022 |
|
January 28, 2023 |
|||
Raw materials |
|
$ |
14,381 |
|
$ |
21,044 |
|
$ |
21,172 |
Work-in-process |
|
|
628 |
|
|
629 |
|
|
569 |
Finished goods |
|
|
541,025 |
|
|
627,584 |
|
|
558,474 |
Inventories, net |
|
$ |
556,034 |
|
$ |
649,257 |
|
$ |
580,215 |
Note 8 Goodwill and Intangible Assets
Goodwill and intangible assets were as follows:
($ thousands) |
|
October 28, 2023 |
|
October 29, 2022 |
|
January 28, 2023 |
|||
Intangible Assets |
|
|
|
|
|
|
|
|
|
Famous Footwear |
|
$ |
2,800 |
|
$ |
2,800 |
|
$ |
2,800 |
Brand Portfolio (1) |
|
|
342,083 |
|
|
342,083 |
|
|
342,083 |
Total intangible assets |
|
|
344,883 |
|
|
344,883 |
|
|
344,883 |
Accumulated amortization |
|
|
(143,564) |
|
|
(131,419) |
|
|
(134,447) |
Total intangible assets, net |
|
|
201,319 |
|
|
213,464 |
|
|
210,436 |
Goodwill |
|
|
|
|
|
|
|
|
|
Brand Portfolio (2) |
|
|
4,956 |
|
|
4,956 |
|
|
4,956 |
Total goodwill |
|
|
4,956 |
|
|
4,956 |
|
|
4,956 |
Goodwill and intangible assets, net |
|
$ |
206,275 |
|
$ |
218,420 |
|
$ |
215,392 |
| (1) | The carrying amount of intangible assets as of October 28, 2023, October 29, 2022 and January 28, 2023 is presented net of accumulated impairment charges of $106.2 million. |
| (2) | The carrying amount of goodwill as of October 28, 2023, October 29, 2022 and January 28, 2023 is presented net of accumulated impairment charges of $415.7 million. |
15
The Company’s intangible assets as of October 28, 2023, October 29, 2022 and January 28, 2023 were as follows:
($ thousands) |
|
October 28, 2023 |
||||||||||||
|
|
Estimated Useful Lives |
|
|
|
|
Accumulated |
|
Accumulated |
|
|
|
||
|
|
(In Years) |
|
Cost Basis |
|
Amortization |
|
Impairment |
|
Net Carrying Value |
||||
Trade names |
|
2 - 40 |
|
$ |
299,488 |
|
$ |
128,592 |
|
$ |
10,200 |
|
$ |
160,696 |
Trade names |
|
Indefinite |
|
|
107,400 |
|
|
— |
|
|
92,000 |
|
|
15,400 |
Customer relationships |
|
15 - 16 |
|
|
44,200 |
|
|
14,972 |
|
|
4,005 |
|
|
25,223 |
|
|
|
|
$ |
451,088 |
|
$ |
143,564 |
|
$ |
106,205 |
|
$ |
201,319 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
October 29, 2022 |
||||||||||||
|
|
Estimated Useful Lives |
|
|
|
|
Accumulated |
|
Accumulated |
|
|
|
||
|
|
(In Years) |
|
Cost Basis |
|
Amortization |
|
Impairment |
|
Net Carrying Value |
||||
Trade names |
|
2 - 40 |
|
$ |
299,488 |
|
$ |
119,461 |
|
$ |
10,200 |
|
$ |
169,827 |
Trade names |
|
Indefinite |
|
|
107,400 |
|
|
— |
|
|
92,000 |
|
|
15,400 |
Customer relationships |
|
15 - 16 |
|
|
44,200 |
|
|
11,958 |
|
|
4,005 |
|
|
28,237 |
|
|
|
|
$ |
451,088 |
|
$ |
131,419 |
|
$ |
106,205 |
|
$ |
213,464 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 28, 2023 |
||||||||||||
|
|
Estimated Useful Lives |
|
|
|
|
Accumulated |
|
Accumulated |
|
|
|
||
|
|
(In Years) |
|
Cost Basis |
|
Amortization |
|
Impairment |
|
Net Carrying Value |
||||
Trade names |
|
2 - 40 |
|
$ |
299,488 |
|
$ |
121,928 |
|
$ |
10,200 |
|
$ |
167,360 |
Trade names |
|
Indefinite |
|
|
107,400 |
|
|
— |
|
|
92,000 |
|
|
15,400 |
Customer relationships |
|
15 - 16 |
|
|
44,200 |
|
|
12,519 |
|
|
4,005 |
|
|
27,676 |
|
|
|
|
$ |
451,088 |
|
$ |
134,447 |
|
$ |
106,205 |
|
$ |
210,436 |
Amortization expense related to intangible assets was $3.0 million for both the thirteen weeks ended October 28, 2023 and October 29, 2022, and $9.1 million for both the thirty-nine weeks ended October 28, 2023 and October 29, 2022. The Company estimates that amortization expense related to intangible assets will be approximately $11.9 million in 2023, $11.0 million in 2024, 2025 and 2026, and $10.9 million in 2027.
Goodwill is tested for impairment as of the first day of the fourth quarter of each fiscal year, 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 thirty-nine weeks ended October 28, 2023 or October 29, 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 thirty-nine weeks ended October 28, 2023 or October 29, 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.
The Company regularly analyzes the results of all of its stores and assesses the viability of underperforming stores to determine whether events or circumstances exist that indicate the stores should be closed or whether the carrying amount of their long-lived assets may not be recoverable. After allowing for an appropriate start-up period and consideration of any unusual nonrecurring events, property and equipment at stores and the lease right-of-use assets indicated as impaired are written down to fair value as calculated using a discounted cash flow method.
16
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. Refer to Note 14 to the condensed consolidated financial statements for further discussion of impairment charges on the Company’s operating lease right-of-use assets and property and equipment in retail stores.
During the thirty-nine weeks ended October 28, 2023, the Company entered into new or amended leases that resulted in the recognition of right-of-use assets and lease obligations of $94.3 million on the condensed consolidated balance sheets. As of October 28, 2023, the Company has entered into lease commitments for 11 retail locations for which the leases have not yet commenced. The Company anticipates that six leases will begin in the current fiscal year, four leases will begin in fiscal 2024 and one lease will begin in fiscal 2025. Upon commencement, right-of-use assets and lease liabilities of approximately $5.2 million, $3.1 million and $0.3 million will be recorded on the condensed consolidated balance sheets in 2023, 2024 and 2025, respectively.
The components of lease expense for the thirteen and thirty-nine weeks ended October 28, 2023 and October 29, 2022 were as follows:
|
|
Thirteen Weeks Ended |
||||
($ thousands) |
|
October 28, 2023 |
|
October 29, 2022 |
||
Operating lease expense |
|
$ |
39,308 |
|
$ |
38,116 |
Variable lease expense |
|
|
10,404 |
|
|
10,679 |
Short-term lease expense |
|
|
727 |
|
|
970 |
Total lease expense |
|
$ |
50,439 |
|
$ |
49,765 |
|
|
Thirty-Nine Weeks Ended |
||||
($ thousands) |
|
October 28, 2023 |
|
October 29, 2022 |
||
Operating lease expense |
|
$ |
117,241 |
|
$ |
109,810 |
Variable lease expense |
|
|
32,154 |
|
|
29,567 |
Short-term lease expense |
|
|
2,157 |
|
|
3,340 |
Sublease income |
|
|
— |
|
|
(59) |
Total lease expense |
|
$ |
151,552 |
|
$ |
142,658 |
Supplemental cash flow information related to leases is as follows:
|
|
Thirty-Nine Weeks Ended |
||||
($ thousands) |
|
October 28, 2023 |
|
October 29, 2022 |
||
Cash paid for lease liabilities |
|
$ |
124,691 |
|
$ |
125,967 |
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, Vionic International LLC and Blowfish, LLC are each co-borrowers and guarantors.
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.
17
Under the Credit Agreement, the Loan Parties’ obligations are secured by a first-priority security interest in all accounts receivable, inventory and certain other collateral.
Interest on borrowings is at variable rates based on 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 October 28, 2023.
At October 28, 2023, the Company had $222.0 million of borrowings outstanding and $10.6 million in letters of credit outstanding under the Credit Agreement. Total additional borrowing availability was $267.4 million at October 28, 2023.
18
Note 11 Shareholders’ Equity
Accumulated Other Comprehensive Loss
The following table sets forth the changes in accumulated other comprehensive loss (OCL) by component for the periods ended October 28, 2023 and October 29, 2022:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension and |
|
Accumulated |
||
|
|
Foreign |
|
Other |
|
Other |
|||
|
|
Currency |
|
Postretirement |
|
Comprehensive |
|||
($ thousands) |
|
Translation |
|
Transactions (1) |
|
(Loss) Income |
|||
Balance at July 29, 2023 |
|
$ |
(1,313) |
|
$ |
(24,217) |
|
$ |
(25,530) |
Other comprehensive loss before reclassifications |
|
|
(726) |
|
|
— |
|
|
(726) |
Reclassifications: |
|
|
|
|
|
|
|
|
|
Amounts reclassified from accumulated other comprehensive loss |
|
|
— |
|
|
888 |
|
|
888 |
Tax benefit |
|
|
— |
|
|
(228) |
|
|
(228) |
Net reclassifications |
|
|
— |
|
|
660 |
|
|
660 |
Other comprehensive (loss) income |
|
|
(726) |
|
|
660 |
|
|
(66) |
Balance at October 28, 2023 |
|
$ |
(2,039) |
|
$ |
(23,557) |
|
$ |
(25,596) |
|
|
|
|
|
|
|
|
|
|
Balance at July 30, 2022 |
|
$ |
(485) |
|
$ |
(6,795) |
|
$ |
(7,280) |
Other comprehensive loss before reclassifications |
|
|
(815) |
|
|
— |
|
|
(815) |
Reclassifications: |
|
|
|
|
|
|
|
|
|
Amounts reclassified from accumulated other comprehensive loss |
|
|
— |
|
|
994 |
|
|
994 |
Tax benefit |
|
|
— |
|
|
(86) |
|
|
(86) |
Net reclassifications |
|
|
— |
|
|
908 |
|
|
908 |
Other comprehensive (loss) income |
|
|
(815) |
|
|
908 |
|
|
93 |
Balance at October 29, 2022 |
|
$ |
(1,300) |
|
$ |
(5,887) |
|
$ |
(7,187) |
|
|
|
|
|
|
|
|
|
|
Balance at January 28, 2023 |
|
$ |
(1,213) |
|
$ |
(25,537) |
|
$ |
(26,750) |
Other comprehensive loss before reclassifications |
|
|
(826) |
|
|
— |
|
|
(826) |
Reclassifications: |
|
|
|
|
|
|
|
|
|
Amounts reclassified from accumulated other comprehensive loss |
|
|
— |
|
|
2,664 |
|
|
2,664 |
Tax benefit |
|
|
— |
|
|
(684) |
|
|
(684) |
Net reclassifications |
|
|
— |
|
|
1,980 |
|
|
1,980 |
Other comprehensive (loss) income |
|
|
(826) |
|
|
1,980 |
|
|
1,154 |
Balance at October 28, 2023 |
|
$ |
(2,039) |
|
$ |
(23,557) |
|
$ |
(25,596) |
|
|
|
|
|
|
|
|
|
|
Balance at January 29, 2022 |
|
$ |
(788) |
|
$ |
(7,818) |
|
$ |
(8,606) |
Other loss income before reclassifications |
|
|
(512) |
|
|
— |
|
|
(512) |
Reclassifications: |
|
|
|
|
|
|
|
|
|
Amounts reclassified from accumulated other comprehensive loss |
|
|
— |
|
|
2,348 |
|
|
2,348 |
Tax benefit |
|
|
— |
|
|
(417) |
|
|
(417) |
Net reclassifications |
|
|
— |
|
|
1,931 |
|
|
1,931 |
Other comprehensive (loss) income |
|
|
(512) |
|
|
1,931 |
|
|
1,419 |
Balance at October 29, 2022 |
|
$ |
(1,300) |
|
$ |
(5,887) |
|
$ |
(7,187) |
| (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 $4.1 million and $5.0 million during the thirteen weeks and $10.9 million and $13.2 million during the thirty-nine weeks ended October 28, 2023 and October 29, 2022, respectively.
19
The Company had net issuances of 3,365 and 20,699 shares of common stock during the thirteen weeks ended October 28, 2023 and October 29, 2022, 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 thirty-nine weeks ended October 28, 2023 and October 29, 2022, the Company had net issuances of 590,706 and 621,154 shares of common stock, respectively, related to share-based plans.
Restricted Stock
The following table summarizes restricted stock activity for the periods ended October 28, 2023 and October 29, 2022:
|
|
Thirteen Weeks Ended |
|
|
|
Thirteen Weeks Ended |
||||||
|
|
October 28, 2023 |
|
|
|
October 29, 2022 |
||||||
|
|
|
|
|
Weighted- |
|
|
|
|
|
|
Weighted- |
|
|
Total Number |
|
|
Average |
|
|
|
Total Number |
|
|
Average |
|
|
of Restricted |
|
|
Grant Date |
|
|
|
of Restricted |
|
|
Grant Date |
|
|
Shares |
|
|
Fair Value |
|
|
|
Shares |
|
|
Fair Value |
July 29, 2023 |
|
1,608,057 |
|
$ |
21.55 |
|
July 30, 2022 |
|
1,579,202 |
|
$ |
17.53 |
Granted |
|
10,906 |
|
|
28.35 |
|
Granted |
|
45,050 |
|
|
26.65 |
Forfeited |
|
(6,650) |
|
|
21.48 |
|
Forfeited |
|
(15,500) |
|
|
21.00 |
Vested |
|
(3,000) |
|
|
9.76 |
|
Vested |
|
(58,000) |
|
|
13.16 |
October 28, 2023 |
|
1,609,313 |
|
$ |
21.62 |
|
October 29, 2022 |
|
1,550,752 |
|
$ |
17.92 |
|
|
Thirty-Nine Weeks Ended |
|
|
|
Thirty-Nine Weeks Ended |
||||||
|
|
October 28, 2023 |
|
|
|
October 29, 2022 |
||||||
|
|
|
|
Weighted- |
|
|
|
|
|
Weighted- |
||
|
|
Total Number |
|
Average |
|
|
|
Total Number |
|
Average |
||
|
|
of Restricted |
|
Grant Date |
|
|
|
of Restricted |
|
Grant Date |
||
|
|
Shares |
|
|
Fair Value |
|
|
|
Shares |
|
Fair Value |
|
January 28, 2023 |
|
1,603,960 |
|
$ |
18.57 |
|
January 29, 2022 |
|
1,390,397 |
|
$ |
14.24 |
Granted |
|
590,900 |
|
|
22.97 |
|
Granted |
|
726,720 |
|
|
21.45 |
Forfeited |
|
(150,823) |
|
|
18.68 |
|
Forfeited |
|
(95,716) |
|
|
15.35 |
Vested |
|
(434,724) |
|
|
13.24 |
|
Vested |
|
(470,649) |
|
|
13.02 |
October 28, 2023 |
|
1,609,313 |
|
$ |
21.62 |
|
October 29, 2022 |
|
1,550,752 |
|
$ |
17.92 |
The Company granted 10,906 restricted shares during the thirteen weeks ended October 28, 2023, which have a graded vesting term of three years, with 50% vesting after two years and 50% after three years. Of the 590,900 restricted shares granted during the thirty-nine weeks ended October 28, 2023, 554,832 shares have a graded vesting term of three years, with 50% vesting after two years and 50% after three years, 23,268 shares have a cliff-vesting term of one year, 7,000 shares have a graded vesting term of three years, with 50% vesting after eighteen months and 50% after three years, and 5,800 shares have a cliff-vesting term of two years. The Company granted 45,050 restricted shares during the thirteen weeks ended October 29, 2022, which have a graded-vesting term of three years, with 50% vesting after two years and 50% after three years. Of the 726,720 restricted shares the Company granted during the thirty-nine weeks ended October 29, 2022, 716,250 shares have a graded-vesting term of three years, with 50% vesting after two years and 50% after three years and 10,470 shares have a cliff-vesting term of one year.
Performance Awards
During the thirty-nine weeks ended October 28, 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 thirty-nine weeks ended October 29, 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. 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 attainment of certain financial goals for the service 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.
20
In connection with the Company’s CFO transition during the thirteen weeks ended October 29, 2022, the Company approved the accelerated vesting of 30,000 performance-based share awards, representing two of the four award tranches from the 2020 performance award. The performance conditions had been satisfied for the two award tranches based on the achievement of financial goals for the 2020 and 2021 fiscal periods. The modification to accelerate vesting eliminated the remaining service requirement. These awards had a weighted-average grant date fair value of $13.05 per share, but were revalued using a fair value on the date of modification of $24.31 per share. The modification of these awards resulted in incremental compensation expense of $0.4 million, which is presented in restructuring and other special charges on the condensed consolidated statements of earnings for the thirteen and thirty-nine weeks ended October 29, 2022.
During the thirty-nine weeks ended October 29, 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. This award, which vests after a three-year period, is dependent upon the attainment of certain financial goals of the Company for each of the three years and individual achievement of strategic initiatives over the cumulative period of the award. The estimated value of the award, which is reflected within other liabilities on the condensed consolidated balance sheets, is being 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 reinvested 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 1,081 and 1,314 RSUs for dividend equivalents, during the thirteen weeks ended October 28, 2023 and October 29, 2022, respectively, with weighted-average grant date fair values of $28.80 and $24.30, respectively. The Company granted 50,376 and 41,325 RSUs to non-employee directors, including 3,840 and 4,680 and for dividend equivalents, during the thirty-nine weeks ended October 28, 2023 and October 29, 2022, respectively, with weighted-average grant date fair values of $19.72 and $27.23, respectively.
Note 13 Retirement and Other Benefit Plans
The following table sets forth the components of net periodic benefit income for the Company, including the domestic and Canadian plans:
|
|
Pension Benefits |
|
Other Postretirement Benefits |
||||||||
|
|
Thirteen Weeks Ended |
|
Thirteen Weeks Ended |
||||||||
($ thousands) |
|
October 28, 2023 |
|
October 29, 2022 |
|
October 28, 2023 |
|
October 29, 2022 |
||||
Service cost |
|
$ |
1,256 |
|
$ |
1,786 |
|
$ |
— |
|
$ |
— |
Interest cost |
|
|
3,635 |
|
|
2,997 |
|
|
12 |
|
|
9 |
Expected return on assets |
|
|
(6,087) |
|
|
(6,997) |
|
|
— |
|
|
— |
Amortization of: |
|
|
|
|
|
|
|
|
|
|
|
|
Actuarial loss (gain) |
|
|
946 |
|
|
779 |
|
|
(27) |
|
|
(26) |
Prior service income |
|
|
(31) |
|
|
(79) |
|
|
— |
|
|
— |
Settlement cost |
|
|
— |
|
|
320 |
|
|
— |
|
|
— |
Total net periodic benefit income |
|
$ |
(281) |
|
$ |
(1,194) |
|
$ |
(15) |
|
$ |
(17) |
|
|
Pension Benefits |
|
Other Postretirement Benefits |
||||||||
|
|
Thirty-Nine Weeks Ended |
|
Thirty-Nine Weeks Ended |
||||||||
($ thousands) |
|
October 28, 2023 |
|
October 29, 2022 |
|
October 28, 2023 |
|
October 29, 2022 |
||||
Service cost |
|
$ |
3,767 |
|
$ |
5,358 |
|
$ |
— |
|
$ |
— |
Interest cost |
|
|
10,905 |
|
|
8,994 |
|
|
36 |
|
|
27 |
Expected return on assets |
|
|
(18,265) |
|
|
(21,005) |
|
|
— |
|
|
— |
Amortization of: |
|
|
|
|
|
|
|
|
|
|
|
|
Actuarial loss (gain) |
|
|
2,840 |
|
|
2,343 |
|
|
(82) |
|
|
(78) |
Prior service income |
|
|
(94) |
|
|
(237) |
|
|
— |
|
|
— |
Settlement cost |
|
|
— |
|
|
320 |
|
|
— |
|
|
— |
Total net periodic benefit income |
|
$ |
(847) |
|
$ |
(4,227) |
|
$ |
(46) |
|
$ |
(51) |
21
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.
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.
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 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).
Non-Qualified Restoration Plan Liabilities
In 2023, the Company adopted a non-qualified restoration deferred compensation plan (the “Restoration Plan”) for the benefit of certain members of executive management. The Restoration Plan provides an incremental retirement benefit to key executives whose contributions to qualified retirement plans are limited by Internal Revenue Service annual compensation maximums. The investment funds offered to the participants generally correspond to the funds offered in the Company’s 401(k) plan. Upon the initial contribution to the Restoration Plan, which is expected to be in January 2024, the plan assets and liabilities will fluctuate with the returns on the investment funds. The deferrals will be held in a separate trust, which will be established by the Company to administer the Restoration Plan. The assets of the trust will be subject to the claims of the Company’s creditors in the event that the Company becomes insolvent. The liabilities of the Restoration Plan are presented in other accrued expenses in the condensed consolidated balance sheet as of October 28, 2023.
22
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 reinvested 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).
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.
The following table presents the Company’s assets and liabilities that are measured at fair value on a recurring basis at October 28, 2023, October 29, 2022 and January 28, 2023. During the thirty-nine weeks ended October 28, 2023 and October 29, 2022, there were no transfers into or out of Level 3.
|
|
Fair Value Measurements |
||||||||||
($ thousands) |
|
Total |
|
Level 1 |
|
Level 2 |
|
Level 3 |
||||
Asset (Liability) |
|
|
|
|
|
|
|
|
|
|
|
|
October 28, 2023: |
|
|
|
|
|
|
|
|
|
|
|
|
Non-qualified deferred compensation plan assets |
|
$ |
8,908 |
|
$ |
8,908 |
|
$ |
— |
|
$ |
— |
Non-qualified deferred compensation plan liabilities |
|
|
(8,908) |
|
|
(8,908) |
|
|
— |
|
|
— |
Non-qualified restoration plan liabilities |
|
|
(173) |
|
|
(173) |
|
|
— |
|
|
— |
Deferred compensation plan liabilities for non-employee directors |
|
|
(1,547) |
|
|
(1,547) |
|
|
— |
|
|
— |
Restricted stock units for non-employee directors |
|
|
(2,057) |
|
|
(2,057) |
|
|
— |
|
|
— |
October 29, 2022: |
|
|
|
|
|
|
|
|
|
|
|
|
Non-qualified deferred compensation plan assets |
|
|
7,769 |
|
|
7,769 |
|
|
— |
|
|
— |
Non-qualified deferred compensation plan liabilities |
|
|
(7,769) |
|
|
(7,769) |
|
|
— |
|
|
— |
Deferred compensation plan liabilities for non-employee directors |
|
|
(1,805) |
|
|
(1,805) |
|
|
— |
|
|
— |
Restricted stock units for non-employee directors |
|
|
(2,220) |
|
|
(2,220) |
|
|
— |
|
|
— |
January 28, 2023: |
|
|
|
|
|
|
|
|
|
|
|
|
Non-qualified deferred compensation plan assets |
|
|
7,890 |
|
|
7,890 |
|
|
— |
|
|
— |
Non-qualified deferred compensation plan liabilities |
|
|
(7,890) |
|
|
(7,890) |
|
|
— |
|
|
— |
Deferred compensation plan liabilities for non-employee directors |
|
|
(1,662) |
|
|
(1,662) |
|
|
— |
|
|
— |
Restricted stock units for non-employee directors |
|
|
(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, 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 $559.0 million and $564.6 million at October 28, 2023 and October 29, 2022, respectively, were assessed for indicators of impairment. This assessment resulted in impairment charges for operating lease right-of-use assets, leasehold improvements and furniture and fixtures in the Company’s retail stores, and in the thirty-nine weeks ended October 29, 2022, capitalized software.
23
|
|
Thirteen Weeks Ended |
|
Thirty-Nine Weeks Ended |
||||||||
($ thousands) |
|
October 28, 2023 |
|
October 29, 2022 |
|
October 28, 2023 |
|
October 29, 2022 |
||||
Long-Lived Asset Impairment Charges |
|
|
|
|
|
|
|
|
|
|
|
|
Famous Footwear |
|
$ |
175 |
|
$ |
— |
|
$ |
589 |
|
$ |
419 |
Brand Portfolio |
|
|
— |
|
|
— |
|
|
— |
|
|
1,560 |
Total long-lived asset impairment charges |
|
$ |
175 |
|
$ |
— |
|
$ |
589 |
|
$ |
1,979 |
Fair Value of the Company’s Other Financial Instruments
The fair values of cash and cash equivalents, receivables and trade accounts payable approximate their carrying values due to the short-term nature of these instruments.
The fair values of the borrowings under revolving credit agreement of $222.0 million and $364.5 million as of October 28, 2023 and October 29, 2022, respectively, approximate their carrying values due to the short-term nature of the borrowings (Level 1).
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 23.5% and 26.2% for the thirteen weeks ended October 28, 2023 and October 29, 2022, respectively. The higher effective tax rate for the third quarter of 2022 was driven by an increase in permanent adjustments, primarily the non-deductible portion of executive compensation.
The Company’s consolidated effective tax rates were 24.1% and 25.7% for the thirty-nine weeks ended October 28, 2023 and October 29, 2022, respectively. The lower effective tax rate for the thirty-nine weeks ended October 28, 2023 was driven by discrete tax benefits of $0.9 million, primarily related to the Company’s share-based compensation.
As of October 28, 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 international 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.
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. The Company received permission from the oversight authorities to convert the pump and treat system to a passive treatment barrier system and completed the conversion during the second quarter of 2023.
24
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 and to work with the oversight authorities on the off-site work plan.
The cumulative expenditures for both on-site and off-site remediation through October 28, 2023 were $34.0 million. The Company has recovered a portion of these expenditures from insurers and other third parties. The reserve for the anticipated future remediation activities at October 28, 2023 is $9.4 million, of which $8.4 million is recorded within other liabilities and $1.0 million is recorded within other accrued expenses. Of the total $9.4 million reserve, $4.8 million is for off-site remediation and $4.6 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 $13.2 million as of October 28, 2023. The Company expects to spend approximately $0.6 million in 2023, $0.1 million in each of the following four years and $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.
25
ITEM 2 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
Business Overview
We are 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, higher consumer debt levels, the end to the student loan repayment pause, and fears of a recession continued to impact consumer discretionary spending and our financial results during the third quarter of 2023. We continued to experience lighter consumer traffic in our retail stores during the third quarter, resulting in lower net sales. While we believe that the structural changes we’ve implemented in the last few years, as well as our diversified model and operational discipline, enable the Company to drive value in a variety of market conditions, changes in macro-level consumer spending trends may continue to adversely impact our financial results in the future. To mitigate the impact of these macroeconomic factors, we began initiating expense reduction initiatives in the first quarter of 2023, which resulted in savings beginning in the second quarter. These actions, which included eliminating open corporate positions, reducing non-merchandise procurement costs and integrating our Blowfish Malibu office and information systems into the St. Louis infrastructure, are expected to result in additional savings for the remainder of 2023 and into 2024. We believe our focus on cost control and our commitment to execute our clearly defined strategic initiatives have positioned us for sustainable, long-term growth.
Financial Highlights
Highlights of our consolidated and segment results for the third quarter of 2023 and 2022 are as follows:
|
|
Thirteen Weeks Ended |
|
|
|
|
|
||||
($ millions, except per share amounts) |
|
October 28, 2023 |
|
October 29, 2022 |
|
Change (1) |
|||||
Consolidated net sales |
|
$761.9 |
|
|
$798.3 |
|
|
($36.4) |
|
(4.6) |
% |
Famous Footwear segment net sales |
|
$449.8 |
|
|
$482.0 |
|
|
($32.2) |
|
(6.7) |
% |
Famous Footwear comparable sales % change |
|
(6.9) |
% |
|
(0.8) |
% |
|
n/m |
|
n/m |
|
Brand Portfolio segment net sales |
|
$320.8 |
|
|
$323.2 |
|
|
($2.4) |
|
(0.8) |
% |
Gross profit |
|
$340.4 |
|
|
$339.9 |
|
|
$0.5 |
|
0.1 |
% |
Gross margin |
|
44.7 |
% |
|
42.6 |
% |
|
n/m |
|
210 bps |
|
Operating earnings |
|
$64.4 |
|
|
$53.8 |
|
|
$10.6 |
|
19.6 |
% |
Diluted earnings per share |
|
$1.32 |
|
|
$1.08 |
|
|
$0.24 |
|
22.2 |
% |
| (1) | n/m – not meaningful |
The following items should be considered in evaluating the comparability of our third quarter results in 2023 and 2022:
| ● | Expense reduction initiatives – As further discussed in Note 5 to the condensed consolidated financial statements, during the third quarter of 2023, we incurred costs of approximately $2.3 million ($1.7 million on an after-tax basis, or $0.05 per diluted share) associated with the expense reduction initiatives we began initiating at the end of the first quarter of 2023. These expense reduction initiatives will continue in the fourth quarter of 2023 and are expected to result in additional costs of approximately $3 million, or $0.06 per diluted share. |
26
| ● | Organizational changes – During the third quarter of 2022, we incurred costs of $2.9 million ($2.7 million on an after-tax basis, or $0.07 per diluted share) related to a CFO transition at our corporate headquarters. Refer to Note 5 to the condensed consolidated financial statements for further discussion of these charges. |
Metrics Used in the Evaluation of Our Business
The following are a few key metrics by which we evaluate our business, identify trends and make strategic decisions:
Comparable sales
The comparable 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 comparable sales metric as a measure of an individual store’s success to determine whether it is performing in line with expectations. Our comparable sales metric is a daily-weighted calculation for the period, which includes sales for stores that have been open for at least 13 months. In addition, in order to be included in the comparable 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 comparable 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 comparable sales calculation. We believe the comparable sales metric is useful to shareholders and investors in assessing our retail sales performance of existing locations with comparable prior year sales, separate from the impact of store openings or store closures.
Sales per square foot
The sales per square foot metric is commonly used in the retail industry to calculate the efficiency of sales based upon the square footage in a store. Management uses the sales per square foot metric as a measure of an individual store’s success to determine whether it is performing in line with expectations. The sales per square foot metric is calculated by dividing total retail store sales, excluding e-commerce sales and the retail operations of our joint venture in China, by the total square footage of the retail store base in North America at the end of each month of the respective period.
Direct-to-consumer sales
Direct-to-consumer sales includes sales from our retail stores, our company-owned websites and 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 that 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 wholesale sales. As a result, management monitors trends in direct-to-consumer sales as a percentage of our Brand Portfolio segment and total consolidated net sales.
27
RESULTS OF OPERATIONS
Following are the consolidated results and the results by segment:
CONSOLIDATED RESULTS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thirteen Weeks Ended |
|
|
Thirty-Nine Weeks Ended |
|
||||||||||||||||
|
|
October 28, 2023 |
|
October 29, 2022 |
|
|
October 28, 2023 |
|
October 29, 2022 |
|
||||||||||||
|
|
|
|
|
% of |
|
|
|
|
% of |
|
|
|
|
|
% of |
|
|
|
|
% of |
|
($ millions) |
|
|
|
|
Net Sales |
|
|
|
|
Net Sales |
|
|
|
|
|
Net Sales |
|
|
|
|
Net Sales |
|
Net sales |
|
$ |
761.9 |
|
100.0 |
% |
$ |
798.3 |
|
100.0 |
% |
|
$ |
2,120.2 |
|
100.0 |
% |
$ |
2,271.7 |
|
100.0 |
% |
Cost of goods sold |
|
|
421.5 |
|
55.3 |
% |
|
458.4 |
|
57.4 |
% |
|
|
1,163.0 |
|
54.9 |
% |
|
1,268.0 |
|
55.8 |
% |
Gross profit |
|
|
340.4 |
|
44.7 |
% |
|
339.9 |
|
42.6 |
% |
|
|
957.2 |
|
45.1 |
% |
|
1,003.7 |
|
44.2 |
% |
Selling and administrative expenses |
|
|
273.7 |
|
35.9 |
% |
|
283.2 |
|
35.5 |
% |
|
|
789.6 |
|
37.2 |
% |
|
812.3 |
|
35.8 |
% |
Restructuring and other special charges, net |
|
|
2.3 |
|
0.3 |
% |
|
2.9 |
|
0.4 |
% |
|
|
3.9 |
|
0.2 |
% |
|
2.9 |
|
0.1 |
% |
Operating earnings |
|
|
64.4 |
|
8.5 |
% |
|
53.8 |
|
6.7 |
% |
|
|
163.7 |
|
7.7 |
% |
|
188.5 |
|
8.3 |
% |
Interest expense, net |
|
|
(4.5) |
|
(0.6) |
% |
|
(4.0) |
|
(0.5) |
% |
|
|
(15.3) |
|
(0.7) |
% |
|
(8.9) |
|
(0.4) |
% |
Other income, net |
|
|
1.6 |
|
0.2 |
% |
|
3.0 |
|
0.4 |
% |
|
|
4.7 |
|
0.2 |
% |
|
9.6 |
|
0.4 |
% |
Earnings before income taxes |
|
|
61.5 |
|
8.1 |
% |
|
52.8 |
|
6.6 |
% |
|
|
153.1 |
|
7.2 |
% |
|
189.2 |
|
8.3 |
% |
Income tax provision |
|
|
(14.5) |
|
(1.9) |
% |
|
(13.8) |
|
(1.7) |
% |
|
|
(36.9) |
|
(1.7) |
% |
|
(48.7) |
|
(2.1) |
% |
Net earnings |
|
|
47.0 |
|
6.2 |
% |
|
39.0 |
|
4.9 |
% |
|
|
116.2 |
|
5.5 |
% |
|
140.5 |
|
6.2 |
% |
Net earnings (loss) attributable to noncontrolling interests |
|
|
0.1 |
|
0.0 |
% |
|
(0.2) |
|
(0.0) |
% |
|
|
0.6 |
|
0.0 |
% |
|
(0.4) |
|
(0.0) |
% |
Net earnings attributable to Caleres, Inc. |
|
$ |
46.9 |
|
6.2 |
% |
$ |
39.2 |
|
4.9 |
% |
|
$ |
115.6 |
|
5.5 |
% |
$ |
140.9 |
|
6.2 |
% |
Net Sales
Net sales decreased $36.4 million, or 4.6%, to $761.9 million for the third quarter of 2023, compared to $798.3 million for the third quarter of 2022, driven by a $32.2 million, or 6.7%, decline in net sales for our Famous Footwear segment, reflecting lower consumer traffic in our retail stores and the challenging macroeconomic environment. Comparable sales for Famous Footwear were down 6.9%. Despite softening consumer demand trends, our kids category, which is a key differentiator for Famous Footwear, remained strong during the third quarter of 2023, as families prioritized purchases of kids’ footwear during the back-to-school selling season. We experienced weakness in the athletics and boots categories during the quarter. Net sales of our Brand Portfolio segment decreased $2.4 million, or 0.8%, during the third quarter of 2023, compared to the third quarter of 2022. Our e-commerce sales increased during the quarter, while wholesale shipments were lower. Many of our wholesale customers continued to tightly manage inventory levels and moderate purchases, which contributed to the decrease in wholesale net sales compared to the prior year. On a consolidated basis, our direct-to-consumer sales represented approximately 73% of total net sales for the third quarter of 2023, compared to 74% in the third quarter of 2022. We remain focused on maximizing the vertical opportunity between the Famous Footwear and Brand Portfolio segments, with LifeStride, Dr. Scholl’s, Naturalizer and Blowfish Malibu representing four of Famous Footwear’s top 20 best-selling footwear brands during the quarter.
Net sales decreased $151.5 million, or 6.7%, to $2,120.2 million for the nine months ended October 28, 2023, compared to $2,271.7 million for the nine months ended October 29, 2022. Net sales for our Famous Footwear segment decreased $89.6 million, or 6.9%, in the first nine months of 2023, compared to the first nine months of 2022, due in part to a decline in consumer traffic in our retail stores driven by cautious consumer spending. Comparable sales declined 6.5% in the nine months ended October 28, 2023. Net sales for our Brand Portfolio segment decreased $65.8 million, or 6.5% during the first nine months of 2023, compared to the first nine months of 2022, reflecting the challenging macroeconomic environment.
28
Despite the competitive retail landscape, we leveraged our leading speed capabilities in certain brands to drive sales of selected trending product, including casual flats, loafers, moccasins, ballerina flats and fashion sneakers. On a consolidated basis, our direct-to-consumer sales grew to approximately 72% of total net sales for the nine months ended October 28, 2023, compared to 71% for the nine months ended October 29, 2022.
Gross Profit
Gross profit increased $0.5 million, or 0.1%, to $340.4 million for the third quarter of 2023, compared to $339.9 million for the third quarter of 2022. As a percentage of net sales, gross profit increased to 44.7% for the third quarter of 2023, compared to 42.6% for the third quarter of 2022, driven by an increase in the Brand Portfolio segment gross margin reflecting lower inbound freight costs, lower inventory markdown requirements reflecting our improved inventory position, and higher merchandise margins. We anticipate the trend of lower freight costs to continue for the remainder of fiscal 2023.
Gross profit decreased $46.5 million, or 4.6%, to $957.2 million for the nine months ended October 28, 2023, compared to $1,003.7 million for the nine months ended October 29, 2022, primarily reflecting lower net sales. As a percentage of net sales, gross profit increased to 45.1% for the nine months ended October 28, 2023, compared to 44.2% for the nine months ended October 29, 2022, driven by an increase in the gross margin of our Brand Portfolio segment, partially offset by a decrease in the gross margin of our Famous Footwear segment.
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 decreased $9.5 million, or 3.3%, to $273.7 million for the third quarter of 2023, compared to $283.2 million for the third quarter of 2022. The decrease was driven by lower anticipated payments under our cash and share-based incentive compensation plans, partially offset by higher advertising expense and higher retail facilities costs. As a percentage of net sales, selling and administrative expenses increased to 35.9% for the third quarter of 2023, from 35.5% for the third quarter of 2022, reflecting deleveraging of expenses on lower net sales.
Selling and administrative expenses decreased $22.7 million, or 2.8%, to $789.6 million for the nine months ended October 28, 2023, compared to $812.3 million for the nine months ended October 29, 2022. The decrease was primarily due to lower anticipated payments under our cash and share-based incentive compensation plans and lower warehouse costs, partially offset by an increase in facilities costs. As a percentage of net sales, selling and administrative expenses increased to 37.2% for the nine months ended October 28, 2023, from 35.8% for the nine months ended October 29, 2022, reflecting deleveraging of expenses on lower net sales.
Restructuring and Other Special Charges, Net
Restructuring and other special charges of approximately $2.3 million ($1.7 million on an after-tax basis, or $0.05 per diluted share) and $3.9 million ($2.9 million on an after-tax basis, or $0.08 per diluted share) for the three and nine months ended October 28, 2023, respectively, were associated with expense reduction initiatives, primarily severance. Restructuring and other special charges of $2.9 million ($2.7 million on an after-tax basis, or $0.07 per diluted share) during the third quarter and nine months ended October 29, 2022, related to a CFO transition at our corporate headquarters. Refer to Note 5 to the condensed consolidated financial statements for additional information related to these charges.
Operating Earnings
Operating earnings increased $10.6 million to $64.4 million for the third quarter of 2023, compared to $53.8 million for the third quarter of 2022, reflecting the factors described above. As a percentage of net sales, operating earnings were 8.5% for the third quarter of 2023, compared to 6.7% for the third quarter of 2022.
Operating earnings decreased $24.8 million to $163.7 million for the nine months ended October 28, 2023, compared to $188.5 million for the nine months ended October 29, 2022, primarily reflecting lower net sales and gross profit. As a percentage of net sales, operating earnings were 7.7% for the nine months ended October 28, 2023, compared to 8.3% for the nine months ended October 29, 2022.
Interest Expense, Net
Interest expense, net increased $0.5 million, or 12.1%, to $4.5 million for the third quarter of 2023, compared to $4.0 million for the third quarter of 2022. Interest expense, net increased $6.4 million, or 71.5%, to $15.3 million for the nine months ended October 28, 2023, compared to $8.9 million for the nine months ended October 29, 2022.
29
The increases reflect higher interest expense on the revolving credit facility attributable to higher interest rates, partially offset by lower average borrowings. The interest on our revolving credit facility is based on a variable interest rate, which has resulted in higher interest expense in the current rising interest rate environment. While our interest expense in the fourth quarter of 2023 will continue to be adversely affected by the elevated interest rates, we expect to continue to reduce the borrowings under our revolving credit agreement to mitigate the impact of the high interest rate environment.
Other Income, Net
Other income, net decreased $1.4 million, or 48.2%, to $1.6 million for the third quarter of 2023, compared to $3.0 million for the third quarter of 2022, primarily attributable to lower expected return on assets and higher interest costs for our pension plans.
Other income, net decreased $4.9 million, or 51.6%, to $4.7 million for the nine months ended October 28, 2023, compared to $9.6 million for the nine months ended October 29, 2022, primarily attributable to lower expected return on assets and higher interest costs for the pension plans. Refer to Note 13 of the condensed consolidated financial statements for additional information regarding 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 23.5% for the third quarter of 2023, compared to 26.2% for the third quarter of 2022. The higher effective tax rate for the third quarter of 2022 was driven by an increase in permanent adjustments, primarily due to the non-deductible portion of executive compensation.
Our consolidated effective tax rate was 24.1% for the nine months ended October 28, 2023, compared to 25.7% for the nine months ended October 29, 2022. The lower effective tax rate was driven by discrete tax benefits of approximately $0.9 million in the nine months ended October 28, 2023, primarily related to share-based compensation.
In 2021, the Organization for Economic Cooperation and Development (OECD) released Pillar Two Global Anti-Base Erosion model rules, designed to ensure large corporations are taxed at a minimum rate of 15% in all countries of operation. The OECD continues to release guidance and countries are implementing legislation to adopt the rules, which are expected to become effective on January 1, 2024. The United States has not yet enacted legislation implementing Pillar Two. We are continuing to evaluate the Pillar Two rules and their potential impact on future periods, but we do not expect the rules to have a material impact on our effective tax rate.
Net Earnings Attributable to Caleres, Inc.
Net earnings attributable to Caleres, Inc. were $46.9 million and $115.6 million for the third quarter and nine months ended October 28, 2023, respectively, compared to $39.2 million and $140.9 million for the third quarter and nine months ended October 29, 2022, respectively, as a result of the factors described above.
30
FAMOUS FOOTWEAR
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|
|
|
|
|
|
|
|
|
|
Thirteen Weeks Ended |
|
|
Thirty-Nine Weeks Ended |
|
||||||||||||||||||
|
|
October 28, 2023 |
|
|
October 29, 2022 |
|
|
October 28, 2023 |
|
|
October 29, 2022 |
|
||||||||||||
|
|
|
|
|
% of |
|
|
|
|
|
% of |
|
|
|
|
|
% of |
|
|
|
|
|
% of |
|
($ millions, except sales per square foot) |
|
|
|
|
Net Sales |
|
|
|
|
|
Net Sales |
|
|
|
|
|
Net Sales |
|
|
|
|
|
Net Sales |
|
Net sales |
|
$ |
449.8 |
|
100.0 |
% |
|
$ |
482.0 |
|
100.0 |
% |
|
$ |
1,213.2 |
|
100.0 |
% |
|
$ |
1,302.8 |
|
100.0 |
% |
Cost of goods sold |
|
|
251.0 |
|
55.8 |
% |
|
|
266.4 |
|
55.3 |
% |
|
|
663.8 |
|
54.7 |
% |
|
|
684.4 |
|
52.5 |
% |
Gross profit |
|
|
198.8 |
|
44.2 |
% |
|
$ |
215.6 |
|
44.7 |
% |
|
|
549.4 |
|
45.3 |
% |
|
$ |
618.4 |
|
47.5 |
% |
Selling and administrative expenses |
|
|
151.0 |
|
33.6 |
% |
|
|
156.3 |
|
32.4 |
% |
|
|
443.8 |
|
36.6 |
% |
|
|
446.9 |
|
34.3 |
% |
Restructuring and other special charges, net |
|
|
1.2 |
|
0.2 |
% |
|
|
— |
|
— |
|
|
|
1.3 |
|
0.1 |
% |
|
|
— |
|
— |
% |
Operating earnings |
|
$ |
46.6 |
|
10.4 |
% |
|
$ |
59.3 |
|
12.3 |
% |
|
$ |
104.3 |
|
8.6 |
% |
|
$ |
171.5 |
|
13.2 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Key Metrics |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comparable sales % change |
|
|
(6.9) |
% |
|
|
|
|
(0.8) |
% |
|
|
|
|
(6.5) |
% |
|
|
|
|
(2.5) |
% |
|
|
Comparable sales $ change |
|
$ |
(32.4) |
|
|
|
|
$ |
(3.7) |
|
|
|
|
$ |
(82.4) |
|
|
|
|
$ |
(32.8) |
|
|
|
Sales change from new and closed stores, net |
|
$ |
0.4 |
|
|
|
|
$ |
(8.5) |
|
|
|
|
$ |
(6.1) |
|
|
|
|
$ |
(9.9) |
|
|
|
Impact of changes in Canadian exchange rate on sales |
|
$ |
(0.2) |
|
|
|
|
$ |
(0.5) |
|
|
|
|
$ |
(1.1) |
|
|
|
|
$ |
(0.9) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales per square foot, excluding e-commerce (thirteen and thirty-nine weeks ended) |
|
$ |
69 |
|
|
|
|
$ |
72 |
|
|
|
|
$ |
188 |
|
|
|
|
$ |
194 |
|
|
|
Sales per square foot, excluding e-commerce (trailing twelve months) |
|
$ |
246 |
|
|
|
|
$ |
250 |
|
|
|
|
$ |
246 |
|
|
|
|
$ |
250 |
|
|
|
Square footage (thousand sq. ft.) |
|
|
5,677 |
|
|
|
|
|
5,787 |
|
|
|
|
|
5,677 |
|
|
|
|
|
5,787 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stores opened |
|
|
3 |
|
|
|
|
|
4 |
|
|
|
|
|
5 |
|
|
|
|
|
4 |
|
|
|
Stores closed |
|
|
2 |
|
|
|
|
|
9 |
|
|
|
|
|
16 |
|
|
|
|
|
22 |
|
|
|
Ending stores |
|
|
862 |
|
|
|
|
|
876 |
|
|
|
|
|
862 |
|
|
|
|
|
876 |
|
|
|
Net Sales
Net sales of $449.8 million in the third quarter 2023 decreased $32.2 million, or 6.7%, compared to the third quarter of 2022. Comparable sales decreased 6.9% compared to the third quarter of 2022. The challenging macroeconomic environment continued to impact sales as traffic in our retail stores was down in the third quarter of 2023, compared to the third quarter of 2022. Despite softening consumer demand trends, our kids category, which is a key differentiator for Famous Footwear, remained strong during the third quarter of 2023, as families prioritized purchases of kids’ footwear during the back-to-school selling season. We achieved record-setting sales of product in this category during the back-to-school season and have made investments in the kids category to drive future growth. We experienced lower sales of seasonal categories, particularly boots, during the quarter. We opened three stores and closed two stores during the third quarter of 2023, resulting in 862 stores and total square footage of 5.7 million at the end of the quarter, compared to 876 stores and total square footage of 5.8 million at the end of the third quarter of 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% of our net sales made to program members in both the third quarter of 2023 and 2022.
Net sales of $1,213.2 million in the nine months ended October 28, 2023 decreased $89.6 million, or 6.9%, compared to the nine months ended October 29, 2022, primarily due to the factors described above. Comparable sales declined 6.5% in the nine months ended October 28, 2023, driven by a decline in consumer traffic in our retail stores. Athletics and casual continue to be our top-selling categories. We remain focused on maximizing the vertical opportunity between the Famous Footwear and Brand Portfolio segments, with Dr. Scholl’s, LifeStride, Naturalizer and Blowfish Malibu representing four of Famous Footwear’s top 20 best-selling footwear brands for the nine months ended October 28, 2023. We opened five stores and closed 16 stores during the nine months ended October 28, 2023. Although we anticipate the soft consumer demand and challenging macroeconomic landscape to persist in the fourth quarter of 2023, we believe that Famous Footwear is well-situated to grow its leadership position with the Millennial family.
Gross Profit
Gross profit decreased $16.8 million, or 7.8%, to $198.8 million for the third quarter of 2023, compared to $215.6 million for the third quarter of 2022, reflecting lower net sales. As a percentage of net sales, our gross profit decreased to 44.2% for the third quarter of 2023, from 44.7% for the third quarter of 2022.
Gross profit decreased $69.0 million, or 11.2%, to $549.4 million for the nine months ended October 28, 2023, compared to $618.4 million for the nine months ended October 29, 2022, primarily due to the decrease in net sales. As a percentage of net sales, our gross profit decreased to 45.3% for the nine months ended October 28, 2023, compared to 47.5% for the nine months ended October 29, 2022.
31
During the nine-months ended October 29, 2022, there were fewer markdowns and minimal clearance selling due to higher demand and a higher mix of current inventory. During the nine-months ended October 28, 2023, we experienced a more historical mix of clearance product sold and margins on those clearance sales were in line with historical levels.
Selling and Administrative Expenses
Selling and administrative expenses decreased $5.3 million, or 3.4%, to $151.0 million for the third quarter of 2023, compared to $156.3 million for the third quarter of 2022. The decrease was driven by lower salary and benefit expenses and distribution expense. As a result of the softer demand, we managed most of our expense categories lower than the prior year. As a percentage of net sales, selling and administrative expenses increased to 33.6% for the third quarter of 2023, compared to 32.4% for the third quarter of 2022, reflecting deleveraging of expenses on lower net sales.
Selling and administrative expenses decreased $3.1 million, or 0.7%, to $443.8 million for the nine months ended October 28, 2023, compared to $446.9 million for the nine months ended October 29, 2022. The decrease was driven by lower salary and benefits expenses, lower distribution expenses and lower advertising expenses. These decreases were partially offset by higher facilities costs, including depreciation expense, as we continued to invest in store remodels. As a percentage of net sales, selling and administrative expenses increased to 36.6% for the nine months ended October 28, 2023, compared to 34.3% for the nine months ended October 29, 2022, reflecting deleveraging of expenses on lower net sales.
Restructuring and Other Special Charges, Net
Restructuring and other special charges of $1.2 million and $1.3 million for the three and nine months ended October 28, 2023, respectively, were associated with expense reduction initiatives, primarily severance. Refer to Note 5 to the condensed consolidated financial statements for additional information related to these charges. There were no corresponding charges for the nine months ended October 29, 2022.
Operating Earnings
Operating earnings decreased $12.7 million to $46.6 million for the third quarter of 2023, compared to $59.3 million for the third quarter of 2022, primarily reflecting lower sales and gross profit, as described above. As a percentage of net sales, operating earnings were 10.4% for the third quarter of 2023, compared to 12.3% for the third quarter of 2022.
Operating earnings decreased $67.2 million to $104.3 million for the nine months ended October 28, 2023, compared to $171.5 million for the nine months ended October 29, 2022. As a percentage of net sales, operating earnings were 8.6% for the nine months ended October 28, 2023, compared to 13.2% for the nine months ended October 29, 2022.
32
BRAND PORTFOLIO
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thirteen Weeks Ended |
|
|
Thirty-Nine Weeks Ended |
|
||||||||||||||||||
|
October 28, 2023 |
|
|
October 29, 2022 |
|
|
October 28, 2023 |
|
|
October 29, 2022 |
|
||||||||||||
|
|
|
|
% of |
|
|
|
|
|
% of |
|
|
|
|
|
% of |
|
|
|
|
|
% of |
|
($ millions, except sales per square foot) |
|
|
|
Net Sales |
|
|
|
|
|
Net Sales |
|
|
|
|
|
Net Sales |
|
|
|
|
|
Net Sales |
|
Net sales |
$ |
320.8 |
|
100.0 |
% |
|
$ |
323.2 |
|
100.0 |
% |
|
$ |
947.2 |
|
100.0 |
% |
|
$ |
1,013.0 |
|
100.0 |
% |
Cost of goods sold |
|
180.6 |
|
56.3 |
% |
|
|
200.8 |
|
62.1 |
% |
|
|
539.1 |
|
56.9 |
% |
|
|
627.2 |
|
61.9 |
% |
Gross profit |
|
140.2 |
|
43.7 |
% |
|
|
122.4 |
|
37.9 |
% |
|
|
408.1 |
|
43.1 |
% |
|
|
385.8 |
|
38.1 |
% |
Selling and administrative expenses |
|
101.1 |
|
31.5 |
% |
|
|
100.1 |
|
31.0 |
% |
|
|
298.7 |
|
31.5 |
% |
|
|
292.7 |
|
28.9 |
% |
Restructuring and other special charges, net |
|
0.9 |
|
0.3 |
% |
|
|
— |
|
— |
% |
|
|
1.7 |
|
0.2 |
% |
|
|
— |
|
— |
% |
Operating earnings |
$ |
38.2 |
|
11.9 |
% |
|
$ |
22.3 |
|
6.9 |
% |
|
$ |
107.7 |
|
11.4 |
% |
|
$ |
93.1 |
|
9.2 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Key Metrics |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct-to-consumer (% of net sales) (1) |
|
34 |
% |
|
|
|
|
34 |
% |
|
|
|
|
33 |
% |
|
|
|
|
30 |
% |
|
|
Change in wholesale net sales ($) |
$ |
(4.9) |
|
|
|
|
$ |
13.0 |
|
|
|
|
$ |
(74.5) |
|
|
|
|
$ |
197.2 |
|
|
|
Change in retail net sales ($) |
$ |
2.5 |
|
|
|
|
$ |
9.7 |
|
|
|
|
$ |
8.7 |
|
|
|
|
$ |
26.0 |
|
|
|
Unfilled order position at end of period |
$ |
243.9 |
|
|
|
|
$ |
286.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales per square foot, excluding e-commerce (trailing twelve months) (2) |
$ |
1,191 |
|
|
|
|
$ |
1,047 |
|
|
|
|
$ |
1,191 |
|
|
|
|
$ |
1,047 |
|
|
|
Square footage (thousands sq. ft.) (2) |
|
99 |
|
|
|
|
|
104 |
|
|
|
|
|
99 |
|
|
|
|
|
104 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America stores: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stores opened |
|
1 |
|
|
|
|
|
— |
|
|
|
|
|
3 |
|
|
|
|
|
1 |
|
|
|
Stores closed |
|
— |
|
|
|
|
|
3 |
|
|
|
|
|
4 |
|
|
|
|
|
8 |
|
|
|
Ending stores - North America |
|
62 |
|
|
|
|
|
63 |
|
|
|
|
|
62 |
|
|
|
|
|
63 |
|
|
|
Ending stores - China |
|
34 |
|
|
|
|
|
26 |
|
|
|
|
|
34 |
|
|
|
|
|
26 |
|
|
|
Ending stores - Total Brand Portfolio |
|
96 |
|
|
|
|
|
89 |
|
|
|
|
|
96 |
|
|
|
|
|
89 |
|
|
|
| (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 $320.8 million in the third quarter of 2023 decreased $2.4 million, or 0.8%, compared to the third quarter of 2022. The modest decrease in our net sales was a result of the challenging consumer environment that we are currently experiencing. Our e-commerce sales increased during the quarter, while wholesale shipments were lower. Net sales from our owned e-commerce business increased approximately 4.7% during the third quarter of 2023. Our key categories of casual shoes and sneakers both experienced gains in the third quarter of 2023 compared to the third quarter of 2022, as the consumer continued to navigate toward newness in non-seasonal categories, including casual flats, loafers, moccasins, ballerina flats and fashion sneakers. The gains in these categories were offset by sales weakness in our boots category. We opened one store in the United States during the third quarter of 2023, resulting in a total of 62 stores and total square footage of 0.1 million, compared to 63 stores and total square footage of 0.1 million at the end of the third quarter of 2022. In addition, we continued to expand our retail store presence in China by opening one new store, resulting in a total of 34 stores, compared to 26 stores at the end of the third quarter of 2022.
Net sales decreased $65.8 million, or 6.5%, to $947.2 million for the nine months ended October 28, 2023, compared to $1,013.0 million for the nine months ended October 29, 2022, reflecting the challenging macroeconomic environment and competitive retail landscape described above. Despite the competitive retail landscape, we have leveraged our leading speed capabilities to drive sales of selected trending product. Speed is a key differentiator for the Brand Portfolio segment, as we are generally able to restock product that is part of the speed program within three months or less to align with consumer demand. We continue to experience growth in our owned e-commerce business, which increased 4.7% in the nine months ended October 28, 2023, compared to the nine months ended October 29, 2022.
33
Our unfilled order position for our wholesale sales decreased $42.9 million, or 15.0%, to $243.9 million at October 28, 2023, compared to $286.8 million at October 29, 2022. The decrease in our backlog order levels compared to last year reflects more conservative ordering patterns by our wholesale customers as they manage their inventory levels in response to soft consumer demand and consumers buying closer to need.
Gross Profit
Gross profit increased $17.8 million, or 14.5%, to $140.2 million for the third quarter of 2023, compared to $122.4 million for the third quarter of 2022. As a percentage of net sales, our gross profit increased to 43.7% for the third quarter of 2023, compared to 37.9% for the third quarter of 2022, reflecting lower inbound freight costs, lower inventory markdown requirements reflecting our improved inventory position, and higher merchandise margins.
Gross profit increased $22.3 million, or 5.8%, to $408.1 million for the nine months ended October 28, 2023, compared to $385.8 million for the nine months ended October 29, 2022, reflecting lower inventory markdowns, lower inbound freight costs, higher merchandise margins and higher average prices in our retail operations. As a percentage of net sales, our gross profit increased significantly to 43.1% for the nine months ended October 28, 2023, compared to 38.1% for the nine months ended October 29, 2022.
Selling and Administrative Expenses
Selling and administrative expenses increased $1.0 million, or 1.0%, to $101.1 million for the third quarter of 2023, compared to $100.1 million for the third quarter of 2022. The increase was primarily due to higher marketing expenses, partially offset by lower salary and benefits expenses. As a percentage of net sales, selling and administrative expenses increased to 31.5% for the third quarter of 2023, compared to 31.0% for the third quarter of 2022.
Selling and administrative expenses increased $6.0 million, or 2.0%, to $298.7 million for the nine months ended October 28, 2023, compared to $292.7 million for the nine months ended October 29, 2022. The increase was driven by higher marketing expenses and higher facilities costs, partially offset by lower salary and benefits expenses and lower logistics costs. As a percentage of net sales, selling and administrative expenses increased to 31.5% for the nine months ended October 28, 2023, compared to 28.9% for the nine months ended October 29, 2022, reflecting deleveraging of expenses over lower net sales.
Restructuring and Other Special Charges, Net
Restructuring and other special charges of $0.9 million and $1.7 million for the three and nine months ended October 28, 2023, respectively, were associated with expense reduction initiatives, primarily severance. Refer to Note 5 to the condensed consolidated financial statements for additional information related to these charges. There were no corresponding charges for the nine months ended October 29, 2022.
Operating Earnings
Operating earnings increased to $38.2 million for the third quarter of 2023, from $22.3 million for the third quarter of 2022, as a result of the factors described above. As a percentage of net sales, operating earnings were 11.9% for the third quarter of 2023, compared to 6.9% in the third quarter of 2022.
Operating earnings increased to $107.7 million for the nine months ended October 28, 2023, compared to $93.1 million for the nine months ended October 29, 2022, as a result of the factors described above. As a percentage of net sales, operating earnings were 11.4% for the nine months ended October 28, 2023, compared to 9.2% in the nine months ended October 29, 2022.
ELIMINATIONS AND OTHER
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thirteen Weeks Ended |
|
|
Thirty-Nine Weeks Ended |
|
|||||||||||||||||||
|
October 28, 2023 |
|
|
|
October 29, 2022 |
|
|
October 28, 2023 |
|
|
October 29, 2022 |
|
||||||||||||
|
|
|
|
% of |
|
|
|
|
|
% of |
|
|
|
|
% of |
|
|
|
|
% of |
||||
($ millions) |
|
|
|
Net Sales |
|
|
|
|
|
Net Sales |
|
|
|
|
Net Sales |
|
|
|
|
Net Sales |
||||
Net sales |
$ |
(8.6) |
|
100.0 |
% |
|
|
$ |
(6.9) |
|
100.0 |
% |
|
$ |
(40.2) |
|
100.0 |
% |
|
$ |
(44.2) |
|
100.0 |
% |
Cost of goods sold |
|
(10.0) |
|
116.3 |
% |
|
|
|
(8.8) |
|
127.6 |
% |
|
|
(39.9) |
|
99.2 |
% |
|
|
(43.6) |
|
98.7 |
% |
Gross profit |
|
1.4 |
|
(16.3) |
% |
|
|
|
1.9 |
|
(27.6) |
% |
|
|
(0.3) |
|
0.8 |
% |
|
|
(0.6) |
|
1.3 |
% |
Selling and administrative expenses |
|
21.5 |
|
(248.9) |
% |
|
|
|
26.7 |
|
(385.4) |
% |
|
|
47.1 |
|
(117.3) |
% |
|
|
72.6 |
|
(164.3) |
% |
Restructuring and other special charges, net |
|
0.3 |
|
(3.3) |
% |
|
|
|
2.9 |
|
(42.0) |
% |
|
|
0.9 |
|
(2.1) |
% |
|
|
2.9 |
|
(6.6) |
% |
Operating loss |
$ |
(20.4) |
|
235.9 |
% |
|
|
$ |
(27.7) |
|
399.8 |
% |
|
$ |
(48.3) |
|
120.2 |
% |
|
$ |
(76.1) |
|
172.2 |
% |
34
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 $8.6 million for the third quarter of 2023 is $1.7 million, or 24.7%, higher than the third quarter of 2022 reflecting an increase in product sold from our Brand Portfolio segment to Famous Footwear. The net sales elimination of $40.2 million for the nine months ended October 28, 2023 is $4.0 million, or 9.1%, lower than the nine months ended October 29, 2022 reflecting a decrease in product sold from our Brand Portfolio segment to Famous Footwear.
Selling and administrative expenses decreased $5.2 million, to $21.5 million in the third quarter of 2023, compared to $26.7 million for the third quarter of 2022. Selling and administrative expenses decreased $25.5 million, to $47.1 million for the nine months ended October 28, 2023, compared to $72.6 million for the nine months ended October 29, 2022. These decreases primarily reflect lower anticipated payments under our cash and share-based incentive compensation and other employee benefits.
Restructuring and other special charges of $0.3 million and $0.9 million for the three and nine months ended October 28, 2023, respectively, were associated with expense reduction initiatives at our corporate headquarters. Refer to Note 5 to the condensed consolidated financial statements for additional information related to these charges. Restructuring and other special charges of $2.9 million for the nine months ended October 29, 2022 were associated with a CFO transition at our corporate headquarters.
LIQUIDITY AND CAPITAL RESOURCES
Borrowings
Total debt obligations of $222.0 million at October 28, 2023 decreased $142.5 million, from $364.5 million at October 29, 2022, and decreased $85.5 million, from $307.5 million at January 28, 2023. Net interest expense for the third quarter of 2023 increased $0.5 million to $4.5 million, compared to $4.0 million for the third quarter of 2022, primarily due to higher interest rates. This increase was partially offset by lower average borrowings under our revolving credit agreement. The interest on our revolving credit facility is based on a variable rate, which has resulted in higher interest expense in the current rising interest rate environment. While our interest expense in the fourth quarter of 2023 will continue to be adversely affected by the elevated interest rates, we expect to continue to reduce the borrowings under our revolving credit agreement to mitigate the impact of the high interest rate environment.
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 (“Fifth Amendment”) 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 was previously calculated using variable rates based on the London Interbank Offered Rate ("LIBOR") (with a floor of 0.0%), or the prime rate (as defined in the Fifth Amendment), plus a spread. The Fifth 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 October 28, 2023, we had $222.0 million in borrowings and $10.6 million in letters of credit outstanding under the Credit Agreement. Total borrowing availability was $267.4 million at October 28, 2023. We were in compliance with all covenants and restrictions under the Credit Agreement as of October 28, 2023.
35
Working Capital and Cash Flow
|
|
Thirty-Nine Weeks Ended |
|
|
|
|||||
($ millions) |
|
October 28, 2023 |
|
October 29, 2022 |
|
Change |
|
|||
Net cash provided by operating activities |
|
$ |
157.2 |
|
$ |
46.3 |
|
$ |
110.9 |
|
Net cash used for investing activities |
|
|
(37.4) |
|
|
(45.4) |
|
|
8.0 |
|
Net cash (used for) provided by financing activities |
|
|
(119.5) |
|
|
1.9 |
|
|
(121.4) |
|
Effect of exchange rate changes on cash and cash equivalents |
|
|
(0.0) |
|
|
(0.1) |
|
|
0.1 |
|
Increase in cash and cash equivalents |
|
$ |
0.3 |
|
$ |
2.7 |
|
$ |
(2.4) |
|
Reasons for the major variances in cash provided (used) in the table above are as follows:
Cash provided by operating activities was $110.9 million higher in the nine months ended October 28, 2023 as compared to the nine months ended October 29, 2022, primarily reflecting the following factors:
| ● | An increase in trade accounts payable during the thirty-nine weeks ended October 28, 2023, compared to a decrease during the thirty-nine weeks ended October 29, 2022, reflecting higher inventory purchases; |
| ● | A decrease in inventory during the thirty-nine weeks ended October 28, 2023, compared to an increase during the thirty-nine weeks ended October 29, 2022, due in part to lower inventory primarily within our Brand Portfolio segment, as we aggressively managed product receipts in the current year; partially offset by |
| ● | Lower net earnings in the thirty-nine weeks ended October 28, 2023, compared to the thirty-nine weeks ended October 29, 2022, |
| ● | A smaller increase in net income taxes payable during the thirty-nine weeks ended October 28, 2023, compared to the thirty-nine weeks ended October 29, 2022; and |
| ● | A larger decrease in accrued expenses and other liabilities during the thirty-nine weeks ended October 28, 2023, compared to the thirty-nine weeks ended October 29, 2022, due in part to lower anticipated payments under our cash-based incentive compensation plans. |
Cash used for investing activities was $8.0 million lower for the thirty-nine weeks ended October 28, 2023 as compared to the thirty-nine weeks ended October 29, 2022, reflecting lower capital expenditures. Our expected purchases of property and equipment and capitalized software to be approximately $50 million in 2023, compared to $64.0 million in 2022.
Cash used for financing activities was $121.4 million higher for the nine months ended October 28, 2023 as compared to the nine months ended October 29, 2022, primarily due to net repayments on our revolving credit agreement of $85.5 million in the nine months ended October 28, 2023, compared to net borrowings of $74.5 million in the comparable period in 2022. In addition, the issuance of common stock under share-based plans was $5.2 million higher in the nine months ended October 28, 2023, compared to the nine months ended October 29, 2022. These increases were partially offset by a $45.8 million decrease in repurchases of our common stock under our share repurchase programs during the nine months ended October 28, 2023, compared to the nine months ended October 29, 2022.
A summary of key financial data and ratios at the dates indicated is as follows:
|
October 28, 2023 |
|
October 29, 2022 |
|
|
January 28, 2023 |
|
|||
Working capital ($ millions) (1) |
$ |
(5.0) |
|
$ |
(117.8) |
|
|
$ |
(79.7) |
|
Current ratio (2) |
|
0.99:1 |
|
|
0.89:1 |
|
|
|
0.91:1 |
|
Debt-to-capital ratio (3) |
|
29.9 |
% |
|
47.3 |
% |
|
|
41.9 |
% |
| (1) | Working capital has been computed as total current assets less total current liabilities. |
| (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 the borrowings under our revolving credit agreement by total capitalization. Total capitalization is defined as total debt and total equity. |
Working capital at October 28, 2023 was a deficit of $5.0 million, which was an improvement of $112.8 million and $74.7 million from October 29, 2022 and January 28, 2023, respectively. The increase in working capital from October 29, 2022 primarily reflects lower accrued expenses and trade accounts payable, partially offset by lower inventory. The increase in working capital from January 28, 2023 primarily reflects lower accrued expenses and higher accounts receivable, partially offset by higher trade accounts payable and lower inventory.
36
Our current ratio was 0.99:1 as of October 28, 2023, compared to 0.89:1 at October 29, 2022 and 0.91:1 at January 28, 2023. Our debt-to-capital ratio was 29.9% as of October 28, 2023, compared to 47.3% as of October 29, 2022 and 41.9% at January 28, 2023.
We declared and paid dividends of $0.07 per share in the third quarter of both 2023 and 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 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) changing consumer demands, which may be influenced by general economic conditions and other factors; (ii) inflationary pressures; (iii) supply chain disruptions; (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 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 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.
37
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 October 28, 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 October 28, 2023 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
PART II OTHER INFORMATION
ITEM 1 LEGAL PROCEEDINGS
We are involved in legal proceedings and litigation arising in the ordinary course of business. In the opinion of management, the outcome of such ordinary course of business proceedings and litigation currently pending will not have a material adverse effect on our results of operations or financial position. All legal costs associated with litigation are expensed as incurred.
Information regarding Legal Proceedings is set forth within Note 16 to the condensed consolidated financial statements and incorporated by reference herein.
ITEM 1A RISK FACTORS
There have been no material changes that have occurred related to our risk factors since the end of the most recent fiscal year. For further information, see Part I, Item 1A of our Annual Report on Form 10-K for the year ended January 28, 2023.
38
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 third quarter of 2023:
|
|
|
|
|
|
|
Total Number |
|
Maximum Number |
|
|
|
|
|
|
|
Purchased as Part |
|
of Shares that May |
|
|
Total Number of |
|
|
|
|
of Publicly |
|
Yet be Purchased |
|
|
Shares |
|
Average Price Paid |
|
Announced |
|
Under the |
|
Fiscal Period |
|
Purchased (1) |
|
|
per Share (1) |
|
Program (2) |
|
Program (2) |
July 30, 2023 - August 26, 2023 |
|
— |
|
$ |
— |
|
— |
|
5,604,379 |
|
|
|
|
|
|
|
|
|
|
August 27, 2023 - September 30, 2023 |
|
818 |
|
|
28.88 |
|
— |
|
5,604,379 |
|
|
|
|
|
|
|
|
|
|
October 1, 2023 - October 28, 2023 |
|
73 |
|
|
27.34 |
|
— |
|
5,604,379 |
Total |
|
891 |
|
$ |
28.75 |
|
— |
|
5,604,379 |
| (1) | Includes shares that are tendered by employees related to certain share-based awards to satisfy tax withholding amounts for restricted stock awards. |
| (2) | On September 2, 2019, the Board of Directors approved a stock repurchase program ("2019 Program") authorizing the repurchase of 5,000,000 shares of our outstanding common stock. In addition, on March 10, 2022, the Board of Directors approved a stock repurchase program ("2022 Program") authorizing the repurchase of an additional 7,000,000 shares of our outstanding common stock. We can use the repurchase programs to repurchase shares on the open market or in private transactions. During the thirteen and thirty-nine weeks ended October 28, 2023, the Company repurchased zero and 763,000 shares, respectively, under the 2022 Program. During the thirteen and thirty-nine weeks ended October 29, 2022, the Company repurchased 838,025 and 2,622,845 shares, respectively, under these programs. As of October 28, 2023, there were 5,604,379 shares authorized to be repurchased under the 2022 Program. Our repurchases of common stock are limited under our revolving credit agreement. |
ITEM 3 DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4 MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5 OTHER INFORMATION
Director and Section 16 Officer Trading Arrangements
On October 11, 2023, John W. Schmidt, President, Chief Executive Officer and Director, adopted a Rule 10b5-1 plan (“Rule 10b5-1 Plan”) intended to satisfy the affirmative defense conditions of Rule 10b5-1(c) under the Exchange Act of 1934. Mr. Schmidt’s Rule 10b5-1 Plan provides for the sale of up to 76,000 shares of the Company’s common stock, pursuant to the terms of the Rule 10b5-1 Plan. The Rule 10b5-1 Plan expires on July 12, 2024, or upon the earlier completion of all authorized transactions under such Rule 10b5-1 Plan.
No other director or Section 16 officer adopted or terminated any “Rule 10b5-1 trading arrangement” or “non-Rule 10b5-1 trading arrangement”, as each term is defined in Item 408(a) of Regulation S-K, during the thirteen weeks ended October 28, 2023.
39
ITEM 6 EXHIBITS
Exhibit |
|
|
3.1 |
|
|
3.2 |
|
|
10.1* |
† |
Caleres, Inc. Nonqualified Restoration Plan, filed herewith. |
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.
40
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: December 5, 2023 |
/s/ Jack P. Calandra |
|
|
Jack P. Calandra Senior Vice President and Chief Financial Officer on behalf of the Registrant and as the Principal Financial Officer |
41
THE CALERES, INC. NONQUALIFIED RESTORATION PLAN
PLAN DOCUMENT
THE CALERES, INC. NONQUALIFIED RESTORATION PLAN
Section 1. Purpose
By execution of the Adoption Agreement, the Company has adopted the Plan set forth herein, and in the Adoption Agreement, to provide a means by which certain management Employees or Independent Contractors of the Employer may elect to defer receipt of current Compensation from the Employer in order to provide retirement and other benefits on behalf of such Employees or Independent Contractors of the Employer, as selected in the Adoption Agreement. The Plan is intended to be a nonqualified deferred compensation plan that complies with the provisions of Section 409A of the Internal Revenue Code (the "Code"). The Plan is also intended to be an unfunded plan maintained primarily for the purpose of providing deferred compensation benefits for a select group of management or highly compensated employees under Sections 201(2), 301(a)(3) and 401(a)(l) of the Employee Retirement Income Security Act of 1974 (“ERISA”) or independent contractors. Notwithstanding any other provision of this Plan, this Plan shall be interpreted, operated and administered in a manner consistent with these intentions.
Section 2. Definitions
failures in the qualified plan. The 401(k) refund itself shall be paid to the Participant from the 401(k) plan and reported on Form 1099-R. This deferral shall not apply to Roth 401(k) refunds or any other refund not generated due to failed testing.
(i) immediately upon a determination by the Committee that the Participant has ceased to be an Employee or Independent Contractor, or (ii) at the end of the Plan Year that the committee determines the Participant no longer meets the eligibility requirements of the Plan.
2
| 2.7 | "Company" means the company designated in the Adoption Agreement. |
| 2.8 | "Compensation" shall have the meaning designated in the Adoption Agreement. |
3
4
| 2.26 | "Plan" means the name of the Plan as designated in the Adoption Agreement. |
| 2.27.5 | Meets such other requirements established by the Committee. |
5
the time specified by the Participant for an In-Service Distribution, (v) a Change in Control Event, or (vi) an Unforeseeable Emergency, each to the extent provided in Section 5.
6
| 2.37 | "Years of Service" means each Plan Year of Service completed by the Participant. |
For vesting purposes, Years of Service shall be calculated from the date designated in the Adoption Agreement and Service shall be based on service with the Company and all Participating Employers.
Section 3. Participation
The Committee in its discretion shall designate each Employee or Independent Contractor who is eligible to participate in the Plan. A Participant who Separates from Service
with the Employer and who later returns to Service may be eligible consistent with Section 409A of the Code and upon satisfaction of such terms and conditions as the Committee shall establish.
Section 4. Credits to Deferred Compensation Account
7
8
9
4.3. Deferred Compensation Account. All Participant Deferral Credits and Employer Credits shall be credited to the Deferred Compensation Account of the Participant as provided in Section 8.
Section 5. Qualifying Distribution Events
10
11
Section 6. Vesting
A Participant shall be fully vested in the portion of the Deferred Compensation Account attributable to Participant Deferral Credits, and all income, gains and losses attributable thereto. A Participant shall become fully vested in the portion of the Deferred Compensation Account attributable to Employer Credits, and income, gains and losses attributable thereto, in accordance with the vesting schedule and provisions designated by the Employer in the Adoption Agreement. Once a Participant achieves vesting on an Employer Credit, it cannot be reduced or eliminated. If Change in Control was elected as a vesting event in the Adoption Agreement participants accounts shall be fully vested upon a Change in Control, however new vesting schedules may be applied to future Employer Credits. If a Participant's Deferred Compensation Account is not fully vested upon Separation from Service, the portion of the Deferred Compensation Account that is not fully vested shall be forfeited.
12
Section 7. Distribution Rules
Notwithstanding the foregoing, if certain Qualifying Distribution Events occur prior to the date on which the vested balance of a Participant's Deferred Compensation Account is completely paid pursuant to this Section 7.1 following the occurrence of certain Qualifying Distribution Events, the following rules apply:
13
For purposes of this Section 7.5 and Section 7.6, a payment is each separately identified amount to which the Participant is entitled under the Plan; provided, that entitlement to a series of installment payments is treated as the entitlement to a single payment.
14
Section 8. Accounts; Deemed Investment; Adjustments to Account
8.1Accounts. The Committee shall establish a book reserve account, entitled the "Deferred Compensation Account," on behalf of each Participant. The Committee shall also establish an In-Service Account as a part of the Deferred Compensation Account of each Participant, if applicable. The amount credited to the Deferred Compensation Account shall be adjusted pursuant to the provisions of Section
15
8.3.
Section 9. Administration by Committee
16
Section 10. Contractual Liability, Trust
17
Section 11. Allocation of Responsibilities
The persons responsible for the Plan and the duties and responsibilities allocated to each are as follows:
| 11.1 | Board. |
| 11.2 | Committee. |
Section 12. Benefits Not Assignable; Facility of Payments
18
Section 13. Beneficiary
The Participant's Beneficiary shall be the person, persons, entity or entities designated by the Participant on the Beneficiary designation form provided by and filed with the Committee or its designee. If the Participant does not designate a Beneficiary, the Beneficiary shall be the Surviving Spouse. If the Participant does not designate a Beneficiary and has no Surviving Spouse, the Beneficiary shall be the Participant's estate. The designation of a Beneficiary may be changed or revoked only by filing a new Beneficiary designation form with the Committee or its designee. If a Beneficiary (the "primary Beneficiary") is receiving or is entitled to receive payments under the Plan and dies before receiving all of the payments due, the balance to which he is entitledshall be paid to the contingent Beneficiary, if any, named in the Participant's current Beneficiary designation form. If there is no contingent Beneficiary, the balance shall be paid to the estate of the primary Beneficiary. Any Beneficiary may disclaim all or any part of any benefit to which such Beneficiary shall be entitled hereunder by filing a written disclaimer with the Committee before payment of such benefit is to be made. Such a disclaimer shall be made in a form satisfactory to the Committee and shall be irrevocable when filed. Any benefit disclaimed shall be payable from the Plan in the same manner as if the Beneficiary who filed the disclaimer had predeceased the Participant.
Section 14. Amendment and Termination of Plan
19
The Employer may amend any provision of the Plan or terminate the Plan at any time; provided, that in no event shall such amendment or termination reduce the balance in any Participant's Deferred Compensation Account, including reduction in vesting percentage, as of the date of such amendment or termination, nor shall any such amendment materially adversely affect the Participant relating to the payment of such Deferred Compensation Account. Notwithstanding the foregoing, the following special provisions shall apply:
Distribution of benefits shall occur in the same tax year for all Participants.
Section 15. Communication to Participants
The Employer shall make a copy of the Plan available for inspection by Participants and their beneficiaries during reasonable hours at the principal office of the Employer.
Section 16. Claims Procedure
20
The following claims procedure shall apply with respect to the Plan:
21
22
23
24
25
26
27
Section 17. Miscellaneous Provisions
28
29
30
Exhibit 31.1
CERTIFICATIONS
I, John W. Schmidt, certify that:
1. I have reviewed this report on Form 10-Q of Caleres, Inc. (the “registrant”);
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
/s/ John W. Schmidt |
John W. Schmidt |
President, Chief Executive Officer and Director |
|
Caleres, Inc. |
December 5, 2023 |
Exhibit 31.2
CERTIFICATIONS
I, Jack P. Calandra, certify that:
1. I have reviewed this report on Form 10-Q of Caleres, Inc. (the “registrant”);
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
/s/ Jack P. Calandra |
Jack P. Calandra |
Senior Vice President and Chief Financial Officer |
Caleres, Inc. |
December 5, 2023 |
Exhibit 32.1
Certification Pursuant to
18 U.S.C. §1350,
As Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
In connection with the Quarterly Report of Caleres, Inc. (the “Registrant”) on Form 10-Q for the quarter ended October 28, 2023, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), we, John W. Schmidt, President, Chief Executive Officer and Director of the Registrant, and Jack P. Calandra, Senior Vice President and Chief Financial Officer of the Registrant, certify, to the best of our knowledge, pursuant to 18 U.S.C. §1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Registrant.
/s/ John W. Schmidt |
John W. Schmidt |
President, Chief Executive Officer and Director |
Caleres, Inc. |
|
December 5, 2023 |
|
/s/ Jack P. Calandra |
Jack P. Calandra |
Senior Vice President and Chief Financial Officer |
Caleres, Inc. |
December 5, 2023 |