CAL 10-Q
Caleres Inc (CAL)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
(Mark One)
Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended | |
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Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from _____________ to _____________ |
Commission file number:
(Exact name of registrant as specified in its charter) | |
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(State or other jurisdiction | (IRS Employer Identification Number) |
of incorporation or organization) | |
(Zip Code) | |
(Address of principal executive offices) | |
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(Registrant’s telephone number, including area code) | |
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company," and "emerging growth company” in Rule 12b-2 of the Exchange Act:
Accelerated filer ☐ | |
Non-accelerated filer ☐ | Smaller reporting company |
| Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes
As of May 26, 2023,
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Management’s Discussion and Analysis of Financial Condition and Results of Operations | 23 | |
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PART IFINANCIAL INFORMATION
ITEM 1FINANCIAL STATEMENTS
CALERES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited) | |||||||||
($ thousands) |
| April 29, 2023 |
| April 30, 2022 |
| January 28, 2023 | |||
Assets |
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Current assets: |
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Cash and cash equivalents | $ | | $ | | $ | | |||
Receivables, net |
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Inventories, net |
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Income taxes |
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Property and equipment, held for sale | | | | ||||||
Prepaid expenses and other current assets |
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Total current assets |
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Prepaid pension costs |
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Lease right-of-use assets |
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Property and equipment, net |
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Goodwill and intangible assets, net |
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Other assets |
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Total assets | $ | | $ | | $ | | |||
Liabilities and Equity |
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Current liabilities: |
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Borrowings under revolving credit agreement | $ | | $ | | $ | | |||
Trade accounts payable |
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Income taxes |
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Lease obligations |
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Other accrued expenses |
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Total current liabilities |
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Other liabilities: |
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Noncurrent lease obligations |
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Income taxes |
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Deferred income taxes |
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Other liabilities |
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Total other liabilities |
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Equity: |
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Common stock |
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Additional paid-in capital |
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Accumulated other comprehensive loss |
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Retained earnings |
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Total Caleres, Inc. shareholders’ equity |
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Noncontrolling interests |
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Total equity |
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Total liabilities and equity | $ | | $ | | $ | | |||
See notes to condensed consolidated financial statements.
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CALERES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
| (Unaudited) | |||||
Thirteen Weeks Ended | ||||||
($ thousands, except per share amounts) |
| April 29, 2023 | April 30, 2022 | |||
Net sales | $ | | $ | | ||
Cost of goods sold |
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Gross profit |
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Selling and administrative expenses |
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Operating earnings |
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Interest expense, net |
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Other income, net |
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Earnings before income taxes |
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Income tax provision |
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Net earnings |
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Net earnings (loss) attributable to noncontrolling interests |
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Net earnings attributable to Caleres, Inc. | $ | | $ | | ||
Basic earnings per common share attributable to Caleres, Inc. shareholders | $ | | $ | | ||
Diluted earnings per common share attributable to Caleres, Inc. shareholders | $ | | $ | | ||
See notes to condensed consolidated financial statements.
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CALERES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited) | |||||
Thirteen Weeks Ended | |||||
($ thousands) | April 29, 2023 |
| April 30, 2022 | ||
Net earnings | $ | | $ | | |
Other comprehensive income (loss) ("OCI"), net of tax: |
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Foreign currency translation adjustment |
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Pension and other postretirement benefits adjustments |
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Other comprehensive income, net of tax |
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Comprehensive income |
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Comprehensive income (loss) attributable to noncontrolling interests |
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Comprehensive income attributable to Caleres, Inc. | $ | | $ | | |
See notes to condensed consolidated financial statements.
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CALERES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited) |
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Thirteen Weeks Ended | ||||||
($ thousands) | April 29, 2023 |
| April 30, 2022 |
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Operating Activities |
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Net earnings | $ | | $ | | ||
Adjustments to reconcile net earnings to net cash provided by operating activities: |
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Depreciation |
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Amortization of capitalized software |
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Amortization of intangible assets |
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Amortization of debt issuance costs and debt discount |
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Share-based compensation expense |
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Loss on disposal of property and equipment |
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Impairment charges for property, equipment, and lease right-of-use assets |
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Adjustment to expected credit losses | ( | ( | ||||
Deferred income taxes |
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Changes in operating assets and liabilities: |
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Receivables |
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Inventories |
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Prepaid expenses and other current and noncurrent assets |
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Trade accounts payable |
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Accrued expenses and other liabilities |
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Income taxes, net |
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Other, net |
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Net cash provided by operating activities |
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Investing Activities |
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Purchases of property and equipment |
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Capitalized software |
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Net cash used for investing activities |
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Financing Activities |
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Borrowings under revolving credit agreement |
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Repayments under revolving credit agreement |
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Dividends paid |
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Acquisition of treasury stock |
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Issuance of common stock under share-based plans, net |
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Contributions by noncontrolling interests |
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Net cash used for financing activities |
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Effect of exchange rate changes on cash and cash equivalents |
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Increase in cash and cash equivalents |
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Cash and cash equivalents at beginning of period |
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Cash and cash equivalents at end of period | $ | | $ | | ||
See notes to condensed consolidated financial statements.
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CALERES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
Accumulated | Total | ||||||||||||||||||||||
Other | Caleres, Inc. | Non- | |||||||||||||||||||||
(Unaudited) | Common Stock | Additional | Comprehensive | Retained | Shareholders’ | controlling | |||||||||||||||||
($ thousands, except number of shares and per share amounts) |
| Shares |
| Dollars |
| Paid-In Capital |
| Loss |
| Earnings |
| Equity |
| Interests |
| Total Equity | |||||||
BALANCE JANUARY 28, 2023 |
| | $ | | $ | | $ | ( | $ | | $ | | $ | | $ | | |||||||
Net earnings |
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Foreign currency translation adjustment |
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Pension and other postretirement benefits adjustments, net of tax of $ |
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Comprehensive income (loss) |
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Dividends ($ |
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Issuance of common stock under share-based plans, net |
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Share-based compensation expense |
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BALANCE APRIL 29, 2023 |
| | $ | | $ | | $ | ( | $ | | $ | | $ | | $ | | |||||||
BALANCE JANUARY 29, 2022 |
| | $ | | $ | | $ | ( | $ | | $ | | $ | | $ | | |||||||
Net earnings (loss) |
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Foreign currency translation adjustment |
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Pension and other postretirement benefits adjustments, net of tax of $ |
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Comprehensive income |
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Contributions by noncontrolling interests | | | |||||||||||||||||||||
Dividends ($ |
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Acquisition of treasury stock |
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Issuance of common stock under share-based plans, net |
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Share-based compensation expense |
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BALANCE APRIL 30, 2022 |
| | $ | | $ | | $ | ( | $ | | $ | | $ | | $ | | |||||||
See notes to condensed consolidated financial statements.
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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.
Noncontrolling Interests
During 2019, the Company entered into a joint venture with Brand Investment Holding Limited (“Brand Investment Holding”), a member of the Gemkell Group, to sell Sam Edelman, Naturalizer and other branded footwear in China. The Company and Brand Investment Holding are each
The Company 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.
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.
Property and Equipment, Held for Sale
During 2021, the Company began actively marketing for sale its
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
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quantitative disclosures about supplier finance programs in annual financial statements, including key terms of the programs, amounts outstanding, balance sheet presentation and a rollforward of amounts outstanding during the year. For interim periods, the ASU requires disclosure of total obligations outstanding that have been confirmed as valid. The ASU is effective for years beginning after December 15, 2022, except for the rollforward requirement, which is effective in fiscal year 2024. The Company adopted the amendments on a retrospective basis during the first quarter of 2023, with the exception of the annual rollforward requirement, which will be adopted on a prospective basis by the effective date. Refer to Note 5 to the condensed consolidated financial statements for additional information regarding the Company’s supplier finance program.
Note 3 Revenues
Disaggregation of Revenues
The following table disaggregates revenue by segment and major source for the periods ended April 29, 2023 and April 30, 2022:
Thirteen Weeks Ended April 29, 2023 | ||||||||||||
Eliminations and | ||||||||||||
($ thousands) |
| Famous Footwear |
| Brand Portfolio |
| Other |
| Total | ||||
Retail stores | $ | | $ | | $ | | $ | | ||||
E-commerce - Company websites (1) |
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E-commerce - wholesale drop-ship (1) |
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Total direct-to-consumer sales | | | ( | | ||||||||
Wholesale - e-commerce (1) |
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Wholesale - landed |
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Wholesale - first cost |
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Licensing and royalty |
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Other (2) |
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Net sales | $ | | $ | | $ | ( | $ | | ||||
| Thirteen Weeks Ended April 30, 2022 | |||||||||||
Eliminations and | ||||||||||||
($ thousands) |
| Famous Footwear |
| Brand Portfolio |
| Other |
| Total | ||||
Retail stores | $ | | $ | | $ | | $ | | ||||
E-commerce - Company websites (1) |
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E-commerce - wholesale drop-ship (1) | | | ( | | ||||||||
Total direct-to-consumer sales | | | ( | | ||||||||
Wholesale - e-commerce (1) |
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Wholesale - landed |
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Wholesale - first cost |
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Licensing and royalty |
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Other (2) |
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Net sales | $ | | $ | | $ | ( | $ | | ||||
| (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
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using the retail value of the merchandise earned, adjusted for estimated breakage based upon historical redemption patterns. The revenue associated with the initial merchandise purchased is recognized immediately and the value assigned to the points is deferred until the points are redeemed, forfeited or expired.
E-commerce
The Company generates revenue from sales on websites maintained by the Company that are shipped from the Company’s distribution centers or retail stores directly to the consumer, or picked up directly by the consumer from the Company’s stores (“e-commerce – Company websites”); sales from the Company’s wholesale customers’ websites that are fulfilled on a drop-ship basis (“e-commerce – wholesale drop ship”); and other e-commerce sales (“wholesale – e-commerce”), collectively referred to as "e-commerce". The Company transfers control and recognizes revenue for merchandise sold that is shipped directly to an individual consumer upon delivery to the consumer.
Landed wholesale
Landed sales are wholesale sales in which the Company obtains title to the footwear from the overseas suppliers and maintains title until the merchandise clears United States customs. The merchandise is shipped directly to the customer from the Company’s warehouses. Many customers purchasing footwear on a landed basis arrange their own transportation of merchandise and, with limited exceptions, control is transferred at the time of shipment. Landed sales generally carry a higher profit rate than first-cost wholesale sales as a result of the brand equity associated with the product along with the additional customs, warehousing and logistics services provided to customers and the risks associated with inventory ownership.
First-cost wholesale
First-cost sales are wholesale sales in which the Company purchases merchandise from an international factory that manufactures the product and subsequently sells to a customer at an overseas port. Many of the customers then import this product into the United States. Revenue is recognized at the time the merchandise is delivered to the customer’s designated freight forwarder and control is transferred to the customer.
Licensing and royalty
The Company has license agreements with third parties allowing them to sell the Company’s branded product, or other merchandise that uses the Company’s owned or licensed brand names. These license agreements provide the licensee access to the Company’s symbolic intellectual property, and revenue is therefore recognized over the license term. For royalty contracts that do not have guaranteed minimums, the Company recognizes revenue as the licensee’s sales occur. For royalty contracts that have guaranteed minimums, revenue for the guaranteed minimum is recognized on a straight-line basis during the term, until such time that the cumulative royalties exceed the total minimum guarantee. Up-front payments are recognized over the contractual term to which the guaranteed minimum relates.
The Company also licenses its Famous Footwear trade name and logo to a third-party financial institution to offer Famous Footwear-branded credit cards to its consumers. The Company receives royalties based upon cardholder spending, which is recognized as licensing revenue at the time when the credit card is used.
Contract Balances
Revenue is recorded at the transaction price, net of estimates for variable consideration for which reserves are established, including returns, allowances and discounts. Variable consideration is estimated using the expected value method and given the large number of contracts with similar characteristics, the portfolio approach is applied to determine the variable consideration for each revenue stream. Reserves for projected returns are based on historical patterns and current expectations.
Information about significant contract balances from contracts with customers is as follows:
($ thousands) |
| April 29, 2023 |
| April 30, 2022 |
| January 28, 2023 |
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Customer allowances and discounts | $ | | $ | | $ | | ||||
Loyalty programs liability |
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Returns reserve |
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Gift card liability |
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Changes in contract balances with customers generally reflect differences in relative sales volume for the periods presented. In addition, during the thirteen weeks ended April 29, 2023, the loyalty programs liability increased $
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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
The following table summarizes the activity in the Company’s allowance for expected credit losses during the thirteen weeks ended April 29, 2023 and April 30, 2022:
Thirteen Weeks Ended | ||||||
($ thousands) |
| April 29, 2023 | April 30, 2022 | |||
Balance, beginning of period | $ | | $ | | ||
Adjustment to expected credit losses | ( | ( | ||||
Uncollectible accounts written off, net of recoveries | ( | ( | ||||
Balance, end of period | $ | | $ | | ||
Note 4 Earnings Per Share
The Company uses the two-class method to compute basic and diluted earnings per common share attributable to Caleres, Inc. shareholders. In periods of net loss, no effect is given to the Company’s participating securities since they do not contractually participate in the losses of the Company. The following table sets forth the computation of basic and diluted earnings per common share attributable to Caleres, Inc. shareholders for the periods ended April 29, 2023 and April 30, 2022:
Thirteen Weeks Ended | ||||||
($ thousands, except per share amounts) |
| April 29, 2023 |
| April 30, 2022 | ||
NUMERATOR | ||||||
Net earnings | $ | | $ | | ||
Net (earnings) loss attributable to noncontrolling interests |
| ( |
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Net earnings attributable to Caleres, Inc. | $ | | $ | | ||
Net earnings allocated to participating securities |
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Net earnings attributable to Caleres, Inc. after allocation of earnings to participating securities | $ | | $ | | ||
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DENOMINATOR |
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Denominator for basic earnings per common share attributable to Caleres, Inc. shareholders |
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Dilutive effect of share-based awards |
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Denominator for diluted earnings per common share attributable to Caleres, Inc. shareholders |
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Basic earnings per common share attributable to Caleres, Inc. shareholders | $ | | $ | | ||
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Diluted earnings per common share attributable to Caleres, Inc. shareholders | $ | | $ | | ||
There were
The Company did
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Note 5 Supply Chain Financing
The Company facilitates a voluntary supply chain 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. As of April 29, 2023 and April 30, 2022, the Company had $
Note 6 Business Segment Information
Following is a summary of certain key financial measures for the Company’s business segments for the periods ended April 29, 2023 and April 30, 2022:
Famous | Brand | Eliminations | ||||||||||
($ thousands) |
| Footwear |
| Portfolio |
| and Other |
| Total | ||||
Thirteen Weeks Ended April 29, 2023 |
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Net sales | $ | | $ | | $ | ( | $ | | ||||
Intersegment sales (1) |
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Operating earnings (loss) |
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Segment assets |
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Thirteen Weeks Ended April 30, 2022 |
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Net sales | $ | | $ | | $ | ( | $ | | ||||
Intersegment sales (1) |
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Operating earnings (loss) |
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Segment assets |
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| (1) | Included in net sales in the Brand Portfolio segment and eliminated in the Eliminations and Other category. |
The Eliminations and Other category includes corporate assets, administrative expenses and other costs and recoveries, which are not allocated to the operating segments, as well as the elimination of intersegment sales and profit.
Following is a reconciliation of operating earnings to earnings before income taxes:
| Thirteen Weeks Ended | |||||
($ thousands) |
| April 29, 2023 |
| April 30, 2022 | ||
Operating earnings | $ | | $ | | ||
Interest expense, net |
| ( |
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Other income, net |
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Earnings before income taxes | $ | | $ | | ||
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Note 7 Inventories
The Company’s net inventory balance was comprised of the following:
($ thousands) |
| April 29, 2023 |
| April 30, 2022 |
| January 28, 2023 | |||
Raw materials | $ | | $ | | $ | | |||
Work-in-process |
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Finished goods |
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| | |||
Inventories, net | $ | | $ | | $ | | |||
Note 8 Goodwill and Intangible Assets
Goodwill and intangible assets were as follows:
($ thousands) |
| April 29, 2023 |
| April 30, 2022 |
| January 28, 2023 | |||
Intangible Assets |
|
|
|
|
|
| |||
Famous Footwear | $ | | $ | | $ | | |||
Brand Portfolio (1) |
| |
| |
| | |||
Total intangible assets |
| |
| |
| | |||
Accumulated amortization |
| ( |
| ( |
| ( | |||
Total intangible assets, net |
| |
| |
| | |||
Goodwill |
|
|
|
|
|
| |||
Brand Portfolio (2) |
| |
| |
| | |||
Total goodwill |
| |
| |
| | |||
Goodwill and intangible assets, net | $ | | $ | | $ | | |||
| (1) | The carrying amount of intangible assets as of April 29, 2023, April 30, 2022 and January 28, 2023 is presented net of accumulated impairment charges of $ |
| (2) | The carrying amount of goodwill as of April 29, 2023, April 30, 2022 and January 28, 2023 is presented net of accumulated impairment charges of $ |
13
The Company’s intangible assets as of April 29, 2023, April 30, 2022 and January 28, 2023 were as follows:
($ thousands) |
| April 29, 2023 | ||||||||||||
| Estimated Useful Lives |
|
| Accumulated |
| Accumulated |
| |||||||
(In Years) | Cost Basis | Amortization | Impairment | Net Carrying Value | ||||||||||
Trade names |
| $ | | $ | | $ | | $ | | |||||
Trade names |
| Indefinite |
| |
| — |
| |
| | ||||
Customer relationships |
|
|
| |
|
| |
|
| |
|
| | |
$ | | $ | | $ | | $ | | |||||||
| April 30, 2022 | |||||||||||||
| Estimated Useful Lives |
|
| Accumulated |
| Accumulated |
| |||||||
(In Years) | Cost Basis | Amortization | Impairment | Net Carrying Value | ||||||||||
Trade names |
| $ | | $ | | $ | | $ | | |||||
Trade names |
| Indefinite |
| |
| — |
| |
| | ||||
Customer relationships |
|
|
| |
|
| |
|
| |
|
| | |
$ | | $ | | $ | | $ | | |||||||
| January 28, 2023 | |||||||||||||
| Estimated Useful Lives |
|
| Accumulated |
| Accumulated |
| |||||||
(In Years) | Cost Basis | Amortization | Impairment | Net Carrying Value | ||||||||||
Trade names |
| $ | | $ | | $ | | $ | | |||||
Trade names |
| Indefinite |
| |
| — |
| |
| | ||||
Customer relationships |
|
|
| |
|
| |
|
| |
|
| | |
$ | | $ | | $ | | $ | | |||||||
Amortization expense related to intangible assets was $
Goodwill is tested for impairment at least annually, or more frequently if events or circumstances indicate it might be impaired, using either the qualitative assessment or a quantitative fair value-based test. The Company recorded
Indefinite-lived intangible assets are tested for impairment as of the first day of the fourth quarter of each fiscal year unless events or circumstances indicate an interim test is required. The Company recorded
Note 9 Leases
The Company leases all of its retail locations, a manufacturing facility, and certain office locations, distribution centers and equipment. At contract inception, leases are evaluated and classified as either operating or finance leases. Leases with an initial term of 12 months or less are not recorded on the balance sheet.
Lease right-of-use assets and lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term. The majority of the Company’s leases do not provide an implicit rate and therefore, the Company uses an incremental borrowing rate based on information available at the commencement date to determine the present value of future payments. For operating leases, lease expense for minimum lease payments is recognized on a straight-line basis over the lease term. Variable lease payments are expensed as incurred.
14
The Company regularly analyzes the results of all of its stores and assesses the viability of underperforming stores to determine whether events or circumstances exist that indicate the stores should be closed or whether the carrying amount of their long-lived assets may not be recoverable. After allowing for an appropriate start-up period and consideration of any unusual nonrecurring events, property and equipment at stores and the lease right-of-use assets indicated as impaired are written down to fair value as calculated using a discounted cash flow method. The fair value of the lease right-of-use assets is determined utilizing projected cash flows for each store location, discounted using a risk-adjusted discount rate, subject to a market floor based on current market lease rates. The Company recorded an immaterial amount of asset impairment charges in the thirteen weeks ended April 29, 2023. During the thirteen weeks ended April 30, 2022, the Company recorded asset impairment charges of $
During the thirteen weeks ended April 29, 2023, the Company entered into new or amended leases that resulted in the recognition of right-of-use assets and lease obligations of $
The components of lease expense for the thirteen weeks ended April 29, 2023 and April 30, 2022 were as follows:
Thirteen Weeks Ended | ||||||
($ thousands) | April 29, 2023 |
| April 30, 2022 | |||
Operating lease expense |
| $ | |
| $ | |
Variable lease expense |
| |
| | ||
Short-term lease expense |
| |
| | ||
Sublease income |
| — |
| ( | ||
Total lease expense | $ | | $ | | ||
Supplemental cash flow information related to leases is as follows: | ||||||
Thirteen Weeks Ended | ||||||
($ thousands) |
| April 29, 2023 |
| April 30, 2022 | ||
Cash paid for lease liabilities | $ | | $ | | ||
Cash received from sublease income |
| — |
| | ||
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 $
Borrowing availability under the Credit Agreement is limited to the lesser of the total commitments and the borrowing base ("Loan Cap"), which is based on stated percentages of the sum of eligible accounts receivable, eligible inventory and eligible credit card receivables, as defined, less applicable reserves. Under the Credit Agreement, the Loan Parties’ obligations are secured by a first-priority security interest in all accounts receivable, inventory and certain other collateral.
15
Interest on borrowings is at variable rates based on 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
The Credit Agreement contains customary events of default, including, without limitation, payment defaults, breaches of representations and warranties, covenant defaults, cross-defaults to similar obligations, certain events of bankruptcy and insolvency, judgment defaults and the failure of any guaranty or security document supporting the agreement to be in full force and effect. If an event of default occurs, the collateral agent may assume dominion and control over the Company’s cash (a “cash dominion event”) until such event of default is cured or waived or the excess availability exceeds such amount for 30 consecutive days, provided that a cash dominion event shall be deemed continuing (even if an event of default is no longer continuing and/or excess availability exceeds the required amount for 30 consecutive business days) after a cash dominion event has occurred and been discontinued on two occasions in any 12-month period. The Credit Agreement also contains certain other covenants and restrictions. The Company was in compliance with all covenants and restrictions under the Credit Agreement as of April 29, 2023.
At April 29, 2023, the Company had $
16
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 April 29, 2023 and April 30, 2022:
|
|
| |||||||
Pension and | Accumulated | ||||||||
Foreign | Other | Other | |||||||
Currency | Postretirement | Comprehensive | |||||||
($ thousands) | Translation | Transactions (1) | (Loss) Income | ||||||
Balance at January 28, 2023 | $ | ( | $ | ( | $ | ( | |||
Other comprehensive loss before reclassifications | ( | — | ( | ||||||
Reclassifications: |
|
|
| ||||||
Amounts reclassified from accumulated other comprehensive loss | — | | | ||||||
Tax benefit |
| — |
| ( |
| ( | |||
Net reclassifications |
| — |
| |
| | |||
Other comprehensive (loss) income |
| ( |
| |
| | |||
Balance at April 29, 2023 | $ | ( | $ | ( | $ | ( | |||
Balance at January 29, 2022 | $ | ( | $ | ( | $ | ( | |||
Other comprehensive loss before reclassifications |
| ( |
| — |
| ( | |||
Reclassifications: |
|
|
|
|
|
| |||
Amounts reclassified from accumulated other comprehensive loss |
| — |
| |
| | |||
Tax benefit |
| — |
| ( |
| ( | |||
Net reclassifications |
| — |
| |
| | |||
Other comprehensive (loss) income |
| ( |
| |
| | |||
Balance at April 30, 2022 | $ | ( | $ | ( | $ | ( | |||
| (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 $
The Company had net issuances of
17
Restricted Stock
The following table summarizes restricted stock activity for the periods ended April 29, 2023 and April 30, 2022:
Thirteen Weeks Ended | Thirteen Weeks Ended | |||||||||||
April 29, 2023 | April 30, 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 | | $ | | January 29, 2022 | | $ | | |||||
Granted | | | Granted | | | |||||||
Forfeited | ( | | Forfeited | ( | | |||||||
Vested |
| ( |
| |
| Vested |
| ( |
| | ||
April 29, 2023 |
| | $ | | April 30, 2022 |
| | $ | | |||
Of the
Performance Awards
During the thirteen weeks ended April 29, 2023, the Company granted performance share awards for a targeted
During the thirteen weeks ended April 30, 2022, the Company granted long-term incentive awards payable in cash for the 2022-2024 performance period, with a target value of $
Restricted Stock Units for Non-Employee Directors
Equity-based grants may be made to non-employee directors in the form of restricted stock units ("RSUs") payable in cash or common stock at no cost to the non-employee director. The RSUs are subject to a vesting requirement (usually one year) and earn dividend equivalents at the same rate as dividends on the Company’s common stock. The dividend equivalents, which vest immediately, are automatically re-invested in additional RSUs. Expense related to the initial grant of RSUs is recognized ratably over the vesting period based upon the fair value of the RSUs. The RSUs payable in cash are remeasured at the end of each period. Expense for the dividend equivalents is recognized at fair value when the dividend equivalents are granted. Gains and losses resulting from changes in the fair value of the RSUs payable in cash subsequent to the vesting period and through the settlement date are recognized in the Company’s condensed consolidated statements of earnings. The Company granted
18
Note 13 Retirement and Other Benefit Plans
The following table sets forth the components of net periodic benefit income for the Company, including the domestic and Canadian plans:
Pension Benefits |
| Other Postretirement Benefits | ||||||||||
| Thirteen Weeks Ended | Thirteen Weeks Ended | ||||||||||
($ thousands) | April 29, 2023 |
| April 30, 2022 |
| April 29, 2023 |
| April 30, 2022 | |||||
Service cost | $ | | $ | | $ | | $ | | ||||
| |
| |
| |
| | |||||
| ( |
| ( |
| |
| | |||||
Amortization of: |
|
|
|
|
|
| ||||||
| |
| |
| ( |
| ( | |||||
| ( |
| ( |
| |
| | |||||
Total net periodic benefit income | $ | ( | $ | ( | $ | ( | $ | ( | ||||
The non-service cost components of net periodic benefit income are included in other income, net in the condensed consolidated statements of earnings. Service cost is included in selling and administrative expenses.
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
19
sheets. Changes in deferred compensation plan assets and liabilities are charged to selling and administrative expenses. The fair value is based on unadjusted quoted market prices for the funds in active markets with sufficient volume and frequency (Level 1).
Deferred Compensation Plan for Non-Employee Directors
Non-employee directors are eligible to participate in a deferred compensation plan with deferred amounts valued as if invested in the Company’s common stock through the use of phantom stock units (“PSUs”). Under the plan, each participating director’s account is credited with the number of PSUs equal to the number of shares of the Company’s common stock that the participant could purchase or receive with the amount of the deferred compensation, based upon the average of the high and low prices of the Company’s common stock on the last trading day of the fiscal quarter when the cash compensation was earned. Dividend equivalents are paid on PSUs at the same rate as dividends on the Company’s common stock and are re-invested in additional PSUs at the next fiscal quarter-end. The liabilities of the plan are based on the fair value of the outstanding PSUs and are presented in other accrued expenses (current portion) or other liabilities in the condensed consolidated balance sheets. Gains and losses resulting from changes in the fair value of the PSUs are presented in selling and administrative expenses in the Company’s condensed consolidated statements of earnings. The fair value of each PSU is based on an unadjusted quoted market price for the Company’s common stock in an active market with sufficient volume and frequency on each measurement date (Level 1).
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
The following table presents the Company’s assets and liabilities that are measured at fair value on a recurring basis at April 29, 2023, April 30, 2022 and January 28, 2023. During the thirteen weeks ended April 29, 2023 and April 30, 2022, there were
| Fair Value Measurements | |||||||||||
($ thousands) |
| Total |
| Level 1 |
| Level 2 |
| Level 3 | ||||
Asset (Liability) |
|
|
|
| ||||||||
April 29, 2023: |
|
|
|
| ||||||||
Non-qualified deferred compensation plan assets | $ | | $ | | $ | | $ | | ||||
Non-qualified deferred compensation plan liabilities |
| ( |
| ( |
| | | |||||
Deferred compensation plan liabilities for non-employee directors |
| ( |
| ( |
| | | |||||
Restricted stock units for non-employee directors |
| ( |
| ( |
| | | |||||
April 30, 2022: |
|
|
|
| ||||||||
Non-qualified deferred compensation plan assets | | | | | ||||||||
Non-qualified deferred compensation plan liabilities |
| ( |
| ( |
| | | |||||
Deferred compensation plan liabilities for non-employee directors |
| ( |
| ( |
| | | |||||
Restricted stock units for non-employee directors |
| ( |
| ( |
| | | |||||
January 28, 2023: |
|
|
|
| ||||||||
Non-qualified deferred compensation plan assets |
| |
| |
| | | |||||
Non-qualified deferred compensation plan liabilities |
| ( |
| ( |
| | | |||||
Deferred compensation plan liabilities for non-employee directors |
| ( |
| ( |
| | | |||||
Restricted stock units for non-employee directors |
| ( |
| ( |
| | | |||||
Impairment Charges
The Company assesses the impairment of long-lived assets whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Factors the Company considers important that could trigger an impairment review include underperformance relative to historical or projected future operating results, a significant change in the manner of the use of the asset, or a negative industry or economic trend. When the Company determines that the carrying value of long-lived assets may not be recoverable based upon the existence of one or more of the aforementioned factors, impairment is measured based on a projected discounted cash flow method. Certain factors,
20
such as estimated store sales and expenses, used for this nonrecurring fair value measurement are considered Level 3 inputs as defined by FASB ASC Topic 820, Fair Value Measurement. Long-lived assets held and used with a carrying amount of $
Thirteen Weeks Ended | ||||||
($ thousands) |
| April 29, 2023 |
| April 30, 2022 | ||
Long-Lived Asset Impairment Charges |
|
|
|
| ||
Famous Footwear | $ | | $ | | ||
Brand Portfolio |
| — |
| | ||
Total long-lived asset impairment charges | $ | | $ | | ||
Fair Value of the Company’s Other Financial Instruments
The fair values of cash and cash equivalents, 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 $
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
As of April 29, 2023,
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 has received permission from the oversight authorities to convert the pump and treat system to a passive treatment barrier system and began implementing the conversion during the first quarter of 2023.
21
Off-site groundwater concentrations have been reducing over time since installation of the pump and treat system in 2000 and injection of clean water beginning in 2003. However, localized areas of contaminated bedrock just beyond the property line continue to impact off-site groundwater. The modified work plan for addressing this condition includes converting the off-site bioremediation system into a monitoring well network and employing different remediation methods in these recalcitrant areas. In accordance with the work plan, a pilot test was conducted of certain groundwater remediation methods and the results of that test were used to develop more detailed plans for remedial activities in the off-site areas, which were approved by the authorities and are being implemented in a phased manner. The results of groundwater monitoring are being used to evaluate the effectiveness of these activities. The Company continues to implement the expanded remedy work plan that was approved by the oversight authorities in 2015 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 April 29, 2023 were $
Other
Various federal and state authorities have identified the Company as a potentially responsible party for remediation at certain other sites. However, the Company does not currently believe that its liability for such sites, if any, would be material.
The Company continues to evaluate its remediation plans in conjunction with its environmental consultants and records its best estimate of remediation liabilities. However, future actions and the associated costs are subject to oversight and approval of various governmental authorities. Accordingly, the ultimate costs may vary, and it is possible costs may exceed the recorded amounts.
Litigation
The Company is involved in legal proceedings and litigation arising in the ordinary course of business. In the opinion of management, the outcome of such ordinary course of business proceedings and litigation currently pending is not expected to have a material adverse effect on the Company’s results of operations or financial position. Legal costs associated with litigation are expensed as incurred.
22
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 and higher consumer debt levels, continued to impact consumer discretionary spending and our financial results during the first quarter of 2023. We experienced a decline in consumer traffic in our retail stores during the first quarter of 2023, contributing to a decrease in our net sales. While we believe that the structural changes we’ve implemented in the last few years enables the Company to be successful in a variety of different operating environments, changes in macro-level consumer spending trends may continue to adversely impact our financial results in the future. As a result of these macroeconomic factors, we began initiating expense reduction initiatives in the first quarter of 2023, that are expected to result in savings in fiscal 2023. These actions, which will continue in the second quarter, include eliminating open corporate positions, reducing non-merchandise procurement costs and realizing synergies in the Brand Portfolio segment. We have also experienced lower freight costs in the first quarter of 2023, and expect that trend to continue for the remainder of fiscal 2023.
Financial Highlights
Highlights of our consolidated and segment results are as follows:
Thirteen Weeks Ended | |||||||||||
($ millions, except per share amounts) | April 29, 2023 |
| April 30, 2022 | Change (1) | |||||||
Consolidated net sales | $662.7 | $735.1 | ($72.4) | (9.8) | % | ||||||
Famous Footwear segment net sales | $349.2 | $384.5 | ($35.3) | (9.2) | % | ||||||
Famous Footwear comparable sales % change | (8.5) | % | (4.0) | % | n/m | n/m | |||||
Brand Portfolio segment net sales | $325.5 | $365.7 | ($40.2) | (11.0) | % | ||||||
Gross profit | $302.7 | $327.0 | ($24.3) | (7.4) | % | ||||||
Gross margin | 45.7 | % | 44.5 | % | n/m | 119 bps | |||||
Operating earnings | $49.6 | $66.2 | ($16.6) | (25.1) | % | ||||||
Diluted earnings per share | $0.97 | $1.32 | ($0.35) | (26.5) | % | ||||||
| (1) | n/m – not meaningful |
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.
23
Sales per square foot
The sales per square foot metric is commonly used in the retail industry to calculate the efficiency of sales based upon the square footage in a store. Management uses the sales per square foot metric as a measure of an individual store’s success to determine whether it is performing in line with expectations. The sales per square foot metric is calculated by dividing total retail store sales, excluding e-commerce sales and the retail operations of our joint venture in China, by the total square footage of the retail store base at the end of each month of the respective period.
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.
RESULTS OF OPERATIONS
Following are the consolidated results and the results by segment:
CONSOLIDATED RESULTS
| Thirteen Weeks Ended | ||||||||||
| April 29, 2023 |
| April 30, 2022 |
| |||||||
% of | % of | ||||||||||
($ millions) |
|
|
| Net Sales |
|
|
| Net Sales |
| ||
Net sales | $ | 662.7 |
| 100.0 | % | $ | 735.1 |
| 100.0 | % | |
Cost of goods sold |
| 360.0 |
| 54.3 | % |
| 408.1 |
| 55.5 | % | |
Gross profit |
| 302.7 |
| 45.7 | % |
| 327.0 |
| 44.5 | % | |
Selling and administrative expenses |
| 253.1 |
| 38.2 | % |
| 260.8 |
| 35.5 | % | |
Operating earnings |
| 49.6 |
| 7.5 | % |
| 66.2 |
| 9.0 | % | |
Interest expense, net |
| (5.6) |
| (0.8) | % |
| (2.3) |
| (0.3) | % | |
Other income, net |
| 1.5 |
| 0.2 | % |
| 3.4 |
| 0.5 | % | |
Earnings before income taxes |
| 45.5 |
| 6.9 | % |
| 67.3 |
| 9.2 | % | |
Income tax provision |
| (10.7) |
| (1.7) | % |
| (17.3) |
| (2.4) | % | |
Net earnings |
| 34.8 |
| 5.2 | % |
| 50.0 | 6.8 | % | ||
Net earnings (loss) attributable to noncontrolling interests |
| 0.1 |
| 0.0 | % |
| (0.5) |
| (0.1) | % | |
Net earnings attributable to Caleres, Inc. | $ | 34.7 |
| 5.2 | % | $ | 50.5 |
| 6.9 | % | |
Net Sales
Net sales decreased $72.4 million, or 9.8%, to $662.7 million for the first quarter of 2023, compared to $735.1 million for the first quarter of 2022. Net sales of our Brand Portfolio segment decreased $40.2 million, or 11.0% during the first quarter of 2023, compared to the first quarter of 2022. We experienced strong demand during the first quarter of 2022, as our wholesale customers aggressively replenished their inventory levels following improvements to the supply chain delays that were experienced throughout 2021. For the first quarter of 2023, the challenging macroeconomic environment resulted in many of our wholesale customers more tightly managing inventory levels and moderating purchases, which contributed to the decrease in wholesale net sales compared to the prior year. In addition, while our fashion brands trended better, and casual and dress were our top performing categories, brands with a larger assortment of canvas sneakers experienced larger sales declines. Net sales for Famous Footwear decreased $35.3 million, or 9.2%, in the first quarter of 2023 compared to the first quarter of 2022, with comparable sales down 8.5%. Macroeconomic factors continued to impact consumer sentiment, resulting in declines in customer traffic in our retail stores, contributing to the net sales decrease. Due to the late arrival of warmer spring weather in certain parts of the country, we experienced a slower start to our sandal business this year. On a consolidated basis, our direct-to-consumer sales represented approximately 68% of total net sales for the first quarter of 2023, compared to 65% in the first quarter of 2022. We remain focused on maximizing the vertical opportunity between the Famous Footwear and Brand Portfolio segments, with LifeStride, Dr. Scholl’s and Naturalizer representing three of Famous Footwear’s top 15 best-selling footwear brands during the quarter.
Gross Profit
Gross profit decreased $24.3 million, or 7.4%, to $302.7 million for the first quarter of 2023, compared to $327.0 million for the first quarter of 2022. As a percentage of net sales, gross profit increased to 45.7% for the first quarter of 2023, compared to 44.5% for the first quarter of 2022, driven by an increase in the gross margin of our Brand Portfolio segment. Our gross profit rate for Brand Portfolio reflected higher average prices, due in part to an increase in the mix of our higher margin brands and lower inbound freight costs as supply chain operations
24
have normalized. This increase was partially offset by a decline in gross margin in our Famous Footwear segment. Due to supply chain constraints and higher demand in 2021 and the first quarter of 2022, there were fewer product markdowns required and minimal clearance selling. In the first quarter of 2023, our Famous Footwear segment experienced a higher mix of clearance product sold, in line with historical levels.
We classify certain warehousing, distribution, sourcing and other inventory procurement costs in selling and administrative expenses. Accordingly, our gross profit and selling and administrative expense rates, as a percentage of net sales, may not be comparable to other companies.
Selling and Administrative Expenses
Selling and administrative expenses decreased $7.7 million, or 3.0%, to $253.1 million for the first quarter of 2023, compared to $260.8 million for the first quarter of 2022. The decrease was driven by lower cash and stock-based incentive costs and lower warehouse costs, partially offset by higher marketing expenses and retail facilities costs. As a percentage of net sales, selling and administrative expenses increased to 38.2% for the first quarter of 2023, from 35.5% for the first quarter of 2022, reflecting deleveraging of expenses on lower net sales.
Operating Earnings
Operating earnings decreased $16.6 million to $49.6 million for the first quarter of 2023, compared to $66.2 million for the first quarter of 2022, reflecting the factors described above. As a percentage of net sales, operating earnings were 7.5% for the first quarter of 2023, compared to 9.0% for the first quarter of 2022.
Interest Expense, Net
Interest expense, net increased $3.3 million, or 145.0%, to $5.6 million for the first quarter of 2023, compared to $2.3 million for the first quarter of 2022, reflecting higher interest expense on the revolving credit facility attributable to higher interest rates, partially offset by slightly 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. Our interest expense in 2023 will continue to be impacted by higher interest rates.
Other Income, Net
Other income, net decreased $1.9 million, or 56.4%, to $1.5 million for the first quarter of 2023, compared to $3.4 million for the first quarter of 2022, which reflects a reduction of certain components of net periodic benefit income associated with our pension plans. Refer to Note 13 to 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 first quarter of 2023, compared to 25.7% for the first quarter of 2022. The lower effective tax rate for the first quarter of 2023 was driven by discrete tax benefits of approximately $0.6 million in the first quarter of 2023 related to our stock-based compensation.
Net Earnings Attributable to Caleres, Inc.
Net earnings attributable to Caleres, Inc. were $34.7 million for the first quarter of 2023, compared to $50.5 million for the first quarter of 2022, as a result of the factors described above.
25
FAMOUS FOOTWEAR
Thirteen Weeks Ended | ||||||||||||
April 29, 2023 |
| April 30, 2022 |
| |||||||||
($ millions, except sales per square foot) |
|
| % of Net Sales |
|
| % of Net Sales |
| |||||
Net sales | $ | 349.2 | 100.0 | % | $ | 384.5 | 100.0 | % | ||||
Cost of goods sold | 190.1 | 54.4 | % | 195.3 | 50.8 | % | ||||||
Gross profit | 159.1 | 45.6 | % | $ | 189.2 | 49.2 | % | |||||
Selling and administrative expenses | 142.0 | 40.7 | % | 139.5 | 36.3 | % | ||||||
Operating earnings | $ | 17.1 | 4.9 | % | $ | 49.7 | 12.9 | % | ||||
|
|
|
| |||||||||
Key Metrics |
|
|
|
| ||||||||
Comparable sales % change | (8.5) | % |
| (4.0) | % |
| ||||||
Comparable sales $ change | $ | (31.8) |
| $ | (15.6) |
| ||||||
Sales change from new and closed stores, net (1) | $ | (3.0) |
| $ | 2.0 |
| ||||||
Impact of changes in Canadian exchange rate on sales | $ | (0.5) |
| $ | (0.0) |
| ||||||
Sales per square foot, excluding e-commerce (thirteen weeks ended) | $ | 54 |
| $ | 57 |
| ||||||
Sales per square foot, excluding e-commerce (trailing twelve months) | $ | 250 |
| $ | 251 |
| ||||||
Square footage (thousand sq. ft.) |
| 5,702 |
| 5,870 |
| |||||||
|
|
|
| |||||||||
Stores opened |
| 2 |
| — |
| |||||||
Stores closed |
| 9 |
| 7 |
| |||||||
Ending stores |
| 866 |
| 887 |
| |||||||
Net Sales
Net sales of $349.2 million in the first quarter of 2023 decreased $35.3 million, or 9.2% compared to the first quarter of 2022. Comparable sales decreased 8.5% compared to the first quarter of 2022. A challenging macroeconomic environment led to sales declines in both our retail stores and e-commerce business. In addition, a late start to spring weather in many parts of the country led to a soft start to the sandal season. Our kids category, which is a key differentiator for Famous Footwear, outperformed the rest of our categories as families prioritized purchases of children’s footwear. During the first quarter of 2023, we opened two stores and closed nine stores, resulting in 866 stores and total square footage of 5.7 million at the end of the first quarter of 2023, compared to 887 stores and total square footage of 5.9 million at the end of the first 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 79% of our net sales made to program members in both the first quarter of 2023 and 2022.
Gross Profit
Gross profit decreased $30.1 million, or 15.9%, to $159.1 million for the first quarter of 2023, compared to $189.2 million for the first quarter of 2022. As a percentage of net sales, our gross profit decreased to 45.6% for the first quarter of 2023, compared to 49.2% for the first quarter of 2022. Due to supply chain constraints and higher demand in 2021 and the first quarter of 2022, there were fewer product markdowns required and minimal clearance selling. In the first quarter of 2023, our Famous Footwear segment experienced a higher mix of clearance product sold, in line with historical levels.
Selling and Administrative Expenses
Selling and administrative expenses increased $2.5 million, or 1.8%, to $142.0 million for the first quarter of 2023, compared to $139.5 million for the first quarter of 2022. The increase was driven by higher retail facilities costs, primarily attributable to higher rent expense resulting from inflationary pressures and higher depreciation expense driven by our investment in prototype stores and store renovations during 2022 and the first quarter of 2023. We also experienced higher marketing expense, primarily associated with initiatives to enhance consumer experience. These increases were partially offset by lower warehouse costs and cash-based incentive compensation. As a percentage of net sales, selling and administrative expenses increased to 40.7% for the first quarter of 2023, compared to 36.3% for the first quarter of 2022.
Operating Earnings
Operating earnings decreased $32.6 million to $17.1 million for the first quarter of 2023, compared to $49.7 million for the first quarter of 2022, reflecting lower sales and gross profit and higher operating expenses, as described above. As a percentage of net sales, operating earnings were 4.9% for the first quarter of 2023, compared to 12.9% for the first quarter of 2022.
26
BRAND PORTFOLIO
Thirteen Weeks Ended | |||||||||||
April 29, 2023 |
| April 30, 2022 |
| ||||||||
% of |
| % of | |||||||||
($ millions, except sales per square foot) |
| Net Sales |
|
|
| Net Sales |
| ||||
Net sales | $ | 325.5 | 100.0 | % | $ | 365.7 | 100.0 | % | |||
Cost of goods sold | 181.6 | 55.8 | % | 226.4 | 61.9 | % | |||||
Gross profit | 143.9 | 44.2 | % | 139.3 | 38.1 | % | |||||
Selling and administrative expenses | 101.2 | 31.1 | % | 98.0 | 26.8 | % | |||||
Operating earnings | $ | 42.7 | 13.1 | % | $ | 41.3 | 11.3 | % | |||
|
|
|
| ||||||||
Key Metrics |
|
|
|
| |||||||
Direct-to-consumer (% of net sales) (1) | 32 | % |
| 26 | % |
| |||||
Change in wholesale net sales ($) | $ | (42.2) |
| $ | 104.2 |
| |||||
Change in retail net sales ($) | $ | 2.0 |
| $ | 11.2 |
| |||||
Unfilled order position at end of period | $ | 272.9 |
| $ | 401.5 |
| |||||
|
|
|
| ||||||||
Sales per square foot, excluding e-commerce (2) | $ | 280 |
| $ | 269 |
| |||||
Square footage (thousands sq. ft.) (2) | 101 |
| 108 |
| |||||||
|
|
| |||||||||
North America stores: | |||||||||||
Stores opened | 1 |
| — |
| |||||||
Stores closed | 2 |
| 4 |
| |||||||
Ending stores - North America | 62 | 66 | |||||||||
Ending stores - China | 31 | 17 | |||||||||
Ending stores - Total Brand Portfolio | 93 |
| 83 |
| |||||||
| (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 $325.5 million in the first quarter of 2023 decreased $40.2 million, or 11.0%, compared to the record-setting first quarter of 2022. We experienced strong demand during the first quarter of 2022, as our wholesale customers aggressively replenished their inventory levels following improvements to the supply chain delays that were experienced throughout 2021. For the first quarter of 2023, the challenging macroeconomic environment resulted in many of our wholesale customers more tightly managing inventory levels and moderating purchases, which contributed to the decrease in wholesale net sales compared to the prior year. In addition, while our fashion brands trended better, and casual and dress were our top performing categories, brands with a larger assortment of casual sneakers experienced larger sales declines. During the first quarter of 2023, we opened one store and closed two stores in the United States resulting in a total of 62 stores and total square footage of 0.1 million, compared to 66 stores and total square footage of 0.1 million at the end of the first quarter of 2022. In addition, we continued to expand our retail store presence in China by opening two new stores, resulting in a total of 31 stores compared to 17 stores at the end of the first quarter of 2022.
Our unfilled order position for our wholesale sales decreased $128.6 million, or 32.0%, to $272.9 million at April 29, 2023, compared to $401.5 million at April 30, 2022. The decrease in our backlog order levels compared to last year primarily reflects more conservative buying by our wholesale customers as they manage their inventory levels in response to consumer sentiment.
Gross Profit
Gross profit increased $4.6 million, or 3.3%, to $143.9 million for the first quarter of 2023, compared to $139.3 million for the first quarter of 2022, primarily reflecting a higher gross margin rate. As a percentage of net sales, our gross profit increased significantly to 44.2% for the first quarter of 2023, compared to 38.1% for the first quarter of 2022, reflecting higher average prices and lower inbound freight costs as our supply chain normalized.
27
Selling and Administrative Expenses
Selling and administrative expenses increased $3.2 million, or 3.3%, to $101.2 million for the first quarter of 2023, compared to $98.0 million for the first quarter of 2022. The increase was primarily due to higher marketing expenses to drive sales growth and higher warehouse costs, partially offset by lower salary and benefits expenses. As a percentage of net sales, selling and administrative expenses increased to 31.1% for the first quarter of 2023, compared to 26.8% for the first quarter of 2022.
Operating Earnings
Operating earnings increased to $42.7 million for the first quarter of 2023, from $41.3 million for the first quarter of 2022, as a result of the factors described above. As a percentage of net sales, operating earnings were 13.1% for the first quarter of 2023, compared to 11.3% in the first quarter of 2022.
ELIMINATIONS AND OTHER
Thirteen Weeks Ended | ||||||||||||
April 29, 2023 |
| April 30, 2022 |
| |||||||||
% of | % of | |||||||||||
($ millions) |
| Net Sales |
|
| Net Sales |
| ||||||
Net sales | $ | (11.9) | 100.0 | % | $ | (15.1) | 100.0 | % | ||||
Cost of goods sold | (11.6) | 97.5 | % | (13.6) | 89.8 | % | ||||||
Gross profit | (0.3) | 2.5 | % | (1.5) | 10.2 | % | ||||||
Selling and administrative expenses | 9.8 | (82.4) | % | 23.3 | (154.0) | % | ||||||
Operating loss | $ | (10.1) | 84.9 | % | $ | (24.8) | 164.2 | % | ||||
The Eliminations and Other category includes the elimination of intersegment sales and profit, unallocated corporate administrative expenses, and other costs and recoveries.
The net sales elimination of $11.9 million for the first quarter of 2023 is $3.2 million, or 21.1%, lower than the first quarter of 2022, reflecting a decrease in product sold from our Brand Portfolio segment to Famous Footwear.
Selling and administrative expenses decreased $13.5 million, to $9.8 million in the first quarter of 2023, compared to $23.3 million for the first quarter of 2022. The decrease primarily reflects lower expenses related to our cash and stock-based incentive compensation plans.
28
LIQUIDITY AND CAPITAL RESOURCES
Borrowings
Total debt obligations of $291.5 million at April 29, 2023 decreased $13.5 million, from $305.0 million at April 30, 2022, and decreased $16.0 million, from $307.5 million at January 28, 2023. Net interest expense for the first quarter of 2023 increased $3.3 million to $5.6 million, compared to $2.3 million for the first quarter of 2022, due to higher interest rates. This increase was partially offset by slightly 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. Our interest expense in 2023 will continue to be adversely affected by the elevated interest rates.
Credit Agreement
As further discussed in Note 10 to the condensed consolidated financial statements, the Company maintains a revolving credit facility for working capital needs. On October 5, 2021, we entered into a Fifth Amendment to Fourth Amended and Restated Credit Agreement (“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 at variable rates based on the London Interbank Offered Rate ("LIBOR") (with a floor of 0.0%), or the prime rate (as defined in the 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 April 29, 2023, we had $291.5 million in borrowings and $10.6 million in letters of credit outstanding under the Credit Agreement. Total borrowing availability was $197.9 million at April 29, 2023. We were in compliance with all covenants and restrictions under the Credit Agreement as of April 29, 2023.
Working Capital and Cash Flow
Thirteen Weeks Ended | ||||||||||
($ millions) |
| April 29, 2023 |
| April 30, 2022 |
| Change |
| |||
Net cash provided by operating activities | $ | 37.5 | $ | 19.7 | $ | 17.8 | ||||
Net cash used for investing activities | (6.5) | (11.7) | 5.2 | |||||||
Net cash used for financing activities | (28.5) | (4.4) | (24.1) | |||||||
Effect of exchange rate changes on cash and cash equivalents | (0.0) | (0.0) | 0.0 | |||||||
Increase in cash and cash equivalents | $ | 2.5 | $ | 3.6 | $ | (1.1) | ||||
Reasons for the major variances in cash provided (used) in the table above are as follows:
Cash provided by operating activities was $17.8 million higher in the thirteen weeks ended April 29, 2023 as compared to the thirteen weeks ended April 30, 2022, primarily reflecting the following factors:
| ● | A decrease in inventory during the thirteen weeks ended April 29, 2023, compared to an increase during the thirteen weeks ended April 30, 2022, due in part to lower in-transit inventory levels as the supply chain has normalized; and |
| ● | A smaller increase in accounts receivable during the thirteen weeks ended April 29, 2023 primarily attributable to lower wholesale sales, compared to the thirteen weeks ended April 30, 2022; partially offset by |
| ● | A smaller increase in net income taxes payable during the thirteen weeks ended April 29, 2023, compared to the thirteen weeks ended April 20, 2022; |
| ● | A smaller increase in trade accounts payable during the thirteen weeks ended April 29, 2023, reflecting lower inventory purchases compared to the thirteen weeks ended April 30, 2022, |
| ● | A larger decrease in accrued expenses and other liabilities during the thirteen weeks ended April 29, 2023, compared to the thirteen weeks ended April 30, 2022; and |
| ● | Lower net earnings in the thirteen weeks ended April 29, 2023, compared to the thirteen weeks ended April 30, 2022. |
29
Cash used for investing activities was $5.2 million lower for the thirteen weeks ended April 29, 2023 as compared to the thirteen weeks ended April 30, 2022, reflecting lower capital expenditures. In 2023, we expect our purchases of property and equipment and capitalized software to be between $55 million and $65 million, as compared to $64.0 million in 2022.
Cash used for financing activities was $24.1 million higher for the thirteen weeks ended April 29, 2023 as compared to the thirteen weeks ended April 30, 2022, primarily due to net repayments on our revolving credit agreement of $16.0 million in the thirteen weeks ended April 29, 2023, compared to net borrowings of $15.0 million in the comparable period in 2022. In addition, the issuance of common stock under share-based plans was $6.4 million higher in the thirteen weeks ended April 29, 2023, compared to the thirteen weeks ended April 30, 2022. These increases were partially offset by $14.7 million of repurchases of our common stock under our share repurchase programs during the thirteen weeks ended April 30, 2022, with no corresponding share repurchases during the thirteen weeks ended April 29, 2023.
A summary of key financial data and ratios at the dates indicated is as follows:
April 29, 2023 |
| April 30, 2022 |
| January 28, 2023 |
| |||||
Working capital ($ millions) (1) | $ | (58.4) | $ | (136.2) | $ | (79.7) | ||||
Current ratio (2) | 0.93:1 | 0.87:1 | 0.91:1 | |||||||
Debt-to-capital ratio (3) | 39.2 | % | 46.0 | % | 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 April 29, 2023 was ($58.4) million, which was $77.8 million and $21.3 million higher than at April 30, 2022 and January 28, 2023, respectively. The increase in working capital from April 30, 2022 primarily reflects lower trade accounts payable and accrued expenses, partially offset by lower inventory. The increase in working capital from January 28, 2023 primarily reflects lower accrued expenses, partially offset by higher trade accounts payable. Our current ratio was 0.93:1 as of April 29, 2023, compared to 0.87:1 at April 30, 2022 and 0.91:1 at January 28, 2023. Our debt-to-capital ratio was 39.2% as of April 29, 2023, compared to 46.0% as of April 30, 2022 and 41.9% at January 28, 2023.
We declared and paid dividends of $0.07 per share in the first 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.
30
These risks include (i) inflationary pressures; (ii) supply chain disruptions; (iii) changing consumer demands, which may be influenced by general economic conditions and other factors; (iv) rapidly changing consumer preferences and purchasing patterns and fashion trends; (v) customer concentration and increased consolidation in the retail industry; (vi) intense competition within the footwear industry; (vii) foreign currency fluctuations; (viii) political and economic conditions or other threats to the continued and uninterrupted flow of inventory from China and other countries, where the Company relies heavily on third-party manufacturing facilities for a significant amount of its inventory; (ix) cybersecurity threats or other major disruption to the Company’s information technology systems; (x) the ability to accurately forecast sales and manage inventory levels; (xi) a disruption in the Company’s distribution centers; (xii) the ability to recruit and retain senior management and other key associates; (xiii) the ability to secure/exit leases on favorable terms; (xiv) the ability to maintain relationships with current suppliers; (xv) transitional challenges with acquisitions and divestitures; (xvi) changes to tax laws, policies and treaties; (xvii) compliance with applicable laws and standards with respect to labor, trade and product safety issues; and (xviii) the ability to attract, retain, and maintain good relationships with licensors and protect our intellectual property rights. The Company’s reports to the Securities and Exchange Commission contain detailed information relating to such factors, including, without limitation, the information under the caption “Risk Factors” in Part I, Item 1A of the Company’s Annual Report on Form 10-K for the year ended January 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. 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 April 29, 2023, management of the Company, including the Chief Executive Officer and Chief Financial Officer, conducted an evaluation of the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934). Based upon and as of the date of that evaluation, the Chief Executive Officer and Chief Financial Officer have concluded our disclosure controls and procedures were effective at the reasonable assurance level.
Based on the evaluation of internal control over financial reporting, the Chief Executive Officer and Chief Financial Officer have concluded that there have been no changes in the Company’s internal controls over financial reporting during the quarter ended April 29, 2023 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
31
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.
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 first 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) | |
January 29, 2023 - February 25, 2023 |
| — | $ | — |
| — |
| 6,367,379 | |
|
|
|
| ||||||
February 26, 2023 - April 1, 2023 |
| 413,128 |
| 24.22 |
| — |
| 6,367,379 | |
|
|
|
|
|
|
| |||
April 2, 2023 - April 29, 2023 |
| — |
| — |
| — |
| 6,367,379 | |
Total |
| 413,128 | $ | 24.22 |
| — |
| 6,367,379 | |
| (1) | Includes shares that are tendered by employees related to certain share-based awards to satisfy tax withholding amounts for restricted stock and stock performance awards. |
| (2) | On September 2, 2019, the Board of Directors approved a stock repurchase program ("2019 Program") authorizing the repurchase of 5,000,000 shares of our outstanding common stock. In addition, on March 10, 2022, the Board of Directors approved a stock repurchase program ("2022 Program") authorizing the repurchase of an additional 7,000,000 shares of our outstanding common stock. We can use the repurchase programs to repurchase shares on the open market or in private transactions. Under these programs, the Company did not repurchase any shares during the thirteen weeks ended April 29, 2023, and repurchased 701,324 shares during the thirteen weeks ended April 30, 2022. As of April 29, 2023, there were 6,367,379 shares authorized to be repurchased under the repurchase programs. 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.
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ITEM 6 EXHIBITS
Exhibit |
|
|
3.1 |
| |
3.2 |
| |
10.1 | † | |
31.1 | † | |
31.2 | † | |
32.1 | † | |
101.INS | † | iXBRL Instance Document |
101.SCH | † | iXBRL Taxonomy Extension Schema Document |
101.CAL | † | iXBRL Taxonomy Extension Calculation Linkbase Document |
101.LAB | † | iXBRL Taxonomy Extension Label Linkbase Document |
101.PRE | † | iXBRL Taxonomy Presentation Linkbase Document |
101.DEF | † | iXBRL Taxonomy Definition Linkbase Document |
104 | † | Cover Page Interactive Data File, formatted in iXBRL and contained in Exhibit 101. |
† Denotes exhibit is filed with this Form 10-Q.
34
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: June 6, 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 |
35