Business context and reporting period
Filing identity differs from the request metadata: the filing is for Brown Shoe Company, Inc. (now Caleres), not a filing labeled Caleres Inc. It covers the 13 weeks ended May 4, 2013, compared with the 13 weeks ended April 28, 2012; it is not a 2012 first-quarter filing. Amounts below are in U.S. dollars.
The company operates Famous Footwear, Wholesale Operations and Specialty Retail. Management describes the business as seasonal, with the third fiscal quarter typically contributing substantially to annual earnings.
Key financial metrics
| Metric | Quarter ended May 4, 2013 | Prior comparable quarter |
|---|---|---|
| Net sales | $588.7 million | $598.2 million |
| Gross profit / margin | $240.0 million / 40.8% | $234.3 million / 39.2% |
| Operating earnings / margin | $21.0 million / 3.6% | $12.6 million / 2.1% |
| Continuing-operations net earnings | $7.4 million | $4.0 million |
| Net earnings (loss) attributable to Brown Shoe | $(10.8) million; diluted EPS $(0.26) | $1.7 million; diluted EPS $0.04 |
| Cash from operating activities | $26.0 million | $79.9 million |
| Cash and cash equivalents at period end | $44.7 million | $39.8 million |
| Total debt at period end | $264.9 million | $322.7 million |
At May 4, 2013, current assets were $722.1 million and current liabilities $395.1 million; working capital was $327.1 million and the current ratio was 1.83:1. Revolver borrowings were $66.0 million, with $413.8 million of additional borrowing availability and $8.9 million of letters of credit. The company reported compliance with its credit-agreement and senior-note covenants. The 2019 senior notes carried $198.9 million on the balance sheet and bear interest at 7.125%.
Capital expenditures and capitalized software totaled approximately $8.4 million. The quarterly dividend was $0.07 per share. Cash declined $23.6 million during the quarter.
Material changes versus the prior comparable period
- Sales declined 1.6%, while gross margin rose 1.6 percentage points and operating earnings increased 66.5%. Management attributed margin improvement to retail mix, Famous Footwear performance, better wholesale brand mix, higher initial margins and lower markdowns.
- Famous Footwear sales rose 1.5%, same-store sales increased 1.1%, and operating earnings increased to $29.0 million from $18.3 million. Management called this a record first-quarter operating result.
- Wholesale Operations sales fell 6.8%, largely due to exited children’s and women’s specialty businesses. Its operating earnings declined to $3.1 million from $5.9 million, including a $4.7 million impairment charge.
- Specialty Retail sales fell 2.5%; same-store sales declined 0.3%. The operating loss narrowed to $1.3 million from $3.5 million.
- Operating cash flow fell by $54.0 million, reflecting less favorable working-capital movements, including a smaller inventory reduction and a larger decline in accounts payable than in the prior-year quarter.
- Reported net loss included $18.2 million of losses from discontinued operations, including a $12.6 million impairment related to the planned sale of Avia and Nevados. Continuing-operations earnings improved despite the consolidated net loss.
Outlook, management commentary, risks and unusual items
- Management raised its fiscal 2013 diluted EPS outlook to $0.63–$0.70, including approximately $32–$34 million of pretax portfolio-realignment costs. It expected another $3–$5 million of such costs during 2013. Management noted the third quarter is typically the largest, reflecting back-to-school sales.
- On May 14, 2013, after quarter-end, the company completed the sale of American Sporting Goods Corporation’s Avia and Nevados businesses. Stated aggregate consideration was $74.0 million, subject to adjustments and reduction for a pre-closing cash dividend; the company reported receiving $60.3 million in cash and a $12.0 million note at closing. Proceeds were intended to reduce revolver borrowings. Ryka and certain other businesses were retained.
- The company agreed to sell certain supply-chain and sourcing assets for $9.0 million, subject to working-capital adjustments. In connection with that sale, it committed to source at least four million pairs of shoes annually for two years at market pricing; the filing estimates the purchase obligation at approximately $100 million.
- Portfolio realignment also includes brand and business exits, store closures or relocations, and infrastructure changes. The company recorded $28.8 million of related costs in the quarter, including $17.2 million of noncash impairment charges. The Etienne Aigner license dispute was settled for $6.5 million, recorded in discontinued operations; the company also elected not to renew its Vera Wang license.
- Environmental remediation liabilities totaled $9.4 million. Management said ultimate costs could exceed recorded amounts because future work is subject to governmental oversight and approval. Ordinary-course litigation was not expected by management to materially affect results or financial position.
- Disclosed risks include consumer demand and economic conditions, intense competition and fashion trends, customer and supplier concentration, reliance on sourcing in China, licensing and intellectual-property relationships, leases, product-safety compliance, and input-cost inflation. Management stated that disclosure controls were effective at the reasonable-assurance level and that no material changes in internal control occurred during the quarter.
Important facts for investors to verify
- Confirm the period and issuer: this is Brown Shoe Company’s quarter ended May 4, 2013, notwithstanding the request’s “CALERES INC” and “2012 Q1” metadata.
- Reconcile the continuing-operations improvement with the consolidated loss, particularly the $12.6 million Avia/Nevados impairment, other discontinued-operation losses and the $6.5 million Etienne Aigner settlement.
- Check the post-quarter ASG sale proceeds, working-capital adjustments, promissory-note collection and subsequent revolver paydown.
- Assess whether the $0.63–$0.70 fiscal 2013 EPS outlook and estimated portfolio-realignment costs were achieved, taking seasonality into account.
- Evaluate the $100 million estimated sourcing commitment, environmental remediation exposure and liquidity/covenant headroom as business conditions change.