CALERES INC annual report, FY2017

Vollständiges Dokument

Caleres, Inc. — Form 10-K Summary

Period note: The request identifies “2016 Q4,” but the supplied filing is for fiscal 2017, the 53 weeks ended February 3, 2018, with comparisons to fiscal 2016 ended January 28, 2017. Fiscal 2017 included an extra week.

Business context

Caleres is a footwear retailer and wholesaler operating Famous Footwear and a Brand Portfolio of owned and licensed brands. It reported two segments: Famous Footwear and Brand Portfolio. The business is seasonal, with back-to-school and holiday demand; the third quarter traditionally contributes substantially to annual earnings. Allen Edmonds, acquired in December 2016, expanded the men’s business and materially affected year-over-year comparisons.

Financial results and liquidity

  • Sales: $2.786 billion, up 8.0% from $2.579 billion. Allen Edmonds contributed $154.3 million of the increase; the extra week added $23.4 million to consolidated sales.
  • Profit: Gross profit was $1.169 billion, with a 42.0% gross margin versus 41.2%. Operating earnings were $140.0 million, or 5.0% of sales, versus $111.0 million, or 4.3%. Net earnings attributable to Caleres were $87.2 million; diluted EPS was $2.02, versus $65.7 million and $1.52 in fiscal 2016. Net margin was 3.1%, versus 2.6%.
  • Segments: Famous Footwear sales rose 3.0% to $1.638 billion; same-store sales grew 1.4% on a 52-week basis and operating earnings increased to $92.2 million from $83.7 million. Brand Portfolio sales rose 16.0% to $1.148 billion, primarily including a full year of Allen Edmonds; operating earnings were $80.2 million versus $76.2 million, while operating margin declined to 7.0% from 7.7%.
  • Cash flow and investment: Operating cash flow was $191.4 million, compared with $183.6 million. Investing cash outflow was $51.2 million, including $44.7 million of property and equipment purchases and $6.5 million of capitalized software. The company expects approximately $50 million of property and equipment purchases and capitalized software in 2018.
  • Debt and liquidity: Total debt fell to $197.5 million from $307.0 million after repayment of the $110 million revolving-credit balance. Cash was $64.0 million; working capital was $416.6 million; current ratio was 1.97:1; debt-to-capital was 21.5%, down from 33.3%. The $600 million revolver had $535.2 million of availability and no borrowings at year-end; the $200 million senior notes bear 6.25% interest and mature in 2023. The company reported covenant compliance.
  • Shareholder returns: Dividends were $0.28 per share for the year. The board declared a further $0.07 quarterly dividend in March 2018.

Material changes and unusual items

  • Fiscal 2017 sales and earnings comparisons benefited from the extra week and Allen Edmonds’ full-year contribution. Management said the extra week added $23.4 million in sales and had an immaterial net-earnings effect.
  • Fiscal 2017 included $4.9 million of restructuring and special charges, including $4.0 million for men’s-business integration and reorganization and $0.9 million for retail restructuring. The company also recorded $4.9 million of cost-of-goods-sold amortization from Allen Edmonds purchase-accounting inventory adjustments.
  • Fiscal 2016 included $23.4 million of restructuring and other special charges, including impairments of the Shoes.com note receivable and an affiliate investment, Allen Edmonds integration costs, and business-exit costs. The non-recurrence of those impairments contributed to the improvement in 2017.
  • The Tax Cuts and Jobs Act produced a provisional $0.3 million tax benefit in 2017 after a $24.6 million deferred-tax benefit was partly offset by a $22.9 million deemed-repatriation tax and other charges. The company said its analysis was ongoing. The 2017 effective tax rate was 28.9%; management expected 25%–26% for 2018.
  • The company adopted revenue-recognition guidance in the first quarter of 2018 and expected an approximately $5 million reduction to opening retained earnings, primarily from changed accounting for Famous Footwear loyalty points. It expected lease accounting adoption in 2019 to materially increase reported balance-sheet amounts.

Outlook, commentary, and risks

For 2018, management expected Famous Footwear same-store sales and Brand Portfolio net sales to grow in the low-single-digit percentage range, and planned continued investment in consumer-direct channels, e-commerce, speed-to-market, and its brands. Famous Footwear planned approximately 25 store openings and 70 closures; Brand Portfolio planned four Naturalizer, one Allen Edmonds, and two Sam Edelman openings, alongside specified closures.

  • Supply-chain exposure is concentrated: approximately 68% of footwear sourced in 2017 came from China. Trade restrictions, tariffs, labor constraints, shipping disruption, or currency movements could raise costs or constrain supply.
  • Competition, changing fashion and shopping preferences, price pressure, and online fulfillment costs could affect sales, inventory levels, and margins. Retail traffic declined at Famous Footwear despite e-commerce growth.
  • Wholesale customer consolidation and customer or supplier dependence present risks. The filing identifies Nike and Skechers as major Famous Footwear suppliers and warns that loss of significant wholesale customers could materially affect results.
  • Environmental remediation at the Redfield site remained ongoing. The recorded reserve was $9.4 million; the filing cautions that ultimate costs may exceed recorded amounts. Management did not expect ordinary-course litigation to have a material adverse effect.
  • Goodwill and intangible-asset impairment tests recorded no charges, but Allen Edmonds’ reporting unit and trademark fair values were not substantially above carrying values. Results depend on management estimates and assumptions.

Most important facts for investors to verify

  • Separate underlying growth from Allen Edmonds acquisition effects and the 53rd week; assess the acquired business’s contribution to sustainable earnings and cash flow.
  • Track segment margins, especially Brand Portfolio’s decline despite higher sales, and Famous Footwear’s store traffic, e-commerce, and promotional trends.
  • Review the provisional tax accounting and the realized 2018 tax rate, including effects of the transition tax and other tax-law provisions.
  • Monitor Redfield remediation costs, Allen Edmonds impairment headroom, and the accounting and balance-sheet effects of revenue and lease standard adoption.
  • Assess China sourcing concentration, major supplier and wholesale-customer relationships, and the company’s ability to maintain liquidity and dividends through seasonal working-capital needs.