Caleres, Inc. — Form 10-Q Summary
Period: Quarter and six months ended July 31, 2021. The request metadata says “2020 Q2,” but the filing is for the second quarter of 2021; comparisons below are to the periods ended August 1, 2020. Dollar amounts are in millions unless otherwise noted.
Business context and reporting period
Caleres operates Famous Footwear and Brand Portfolio. Results reflect recovery in consumer demand and store traffic as pandemic restrictions eased, compared with the prior-year period when retail stores were temporarily closed. The company says its business is seasonal, with the third fiscal quarter traditionally contributing substantially to annual earnings.
Financial results and liquidity
| Metric | 13 weeks ended July 31, 2021 | 13 weeks ended August 1, 2020 | 26 weeks ended July 31, 2021 | 26 weeks ended August 1, 2020 |
|---|---|---|---|---|
| Net sales | $675.5 | $501.4 | $1,314.2 | $898.6 |
| Gross profit / margin | $322.3 / 47.7% | $182.6 / 36.4% | $597.2 / 45.4% | $304.5 / 33.9% |
| Operating earnings (loss) / margin | $62.8 / 9.3% | $(24.1) / (4.8)% | $80.7 / 6.1% | $(450.4) / (50.1)% |
| Net earnings (loss) attributable to Caleres | $37.4 | $(30.7) | $43.5 | $(376.6) |
| Diluted EPS | $0.97 | $(0.83) | $1.13 | $(9.94) |
Quarterly sales rose 34.7% year over year. Famous Footwear sales increased 35.8% to $453.6 million; Brand Portfolio sales increased 30.2% to $239.0 million. Direct-to-consumer sales were 79% of consolidated quarterly sales. Gross margin expansion reflected stronger demand and reduced promotional activity.
For the six months, operating cash flow was $135.5 million, versus $67.5 million a year earlier. Investing cash outflow was $9.4 million and financing cash outflow was $159.8 million; cash declined $33.6 million to $54.7 million. Inventory was $565.5 million, up from $488.0 million at January 30, 2021.
At July 31, cash was $54.7 million, current assets $807.4 million, and current liabilities $978.7 million; the current ratio was 0.82. Total debt was approximately $299 million, excluding the $52.6 million Blowfish Malibu mandatory purchase obligation. Revolver borrowings were $100 million, with $364.5 million of additional availability; the company reported compliance with debt covenants. On August 16, 2021, it redeemed $100 million of Senior Notes using revolver borrowings. This shifted debt from 6.25% notes to variable-rate revolver borrowings.
Material changes versus the prior comparable period
- Results rebounded from the pandemic-affected 2020 period, when store closures, $262.7 million of goodwill and intangible-asset impairment, and $65.6 million of restructuring and other special charges weighed on first-half results.
- First-half 2021 included $13.5 million of Naturalizer store-exit charges for closure of 73 stores. Only two Naturalizer flagship stores remained in North America.
- Brand Portfolio’s quarterly sales grew but remained below pre-pandemic levels, partly due to brand exits and Naturalizer closures. Its unfilled wholesale order position increased to $328.7 million from $195.2 million.
- The Blowfish Malibu purchase obligation was remeasured to $52.6 million, with a $13.5 million first-half fair-value adjustment recorded in interest expense. Settlement was expected in the third quarter.
Outlook, commentary, risks and contingencies
Management reported better-than-anticipated demand, sequential sales growth, and quarterly operating earnings above pre-pandemic levels. It provided no quantified earnings or sales guidance. Priorities include building on Famous Footwear’s performance, improving inventory efficiency, and strengthening Brand Portfolio results.
Management expects supply-chain disruption and higher inbound freight costs to affect results in the second half of 2021 and beyond. Disruptions include port congestion, limited vessel and container availability, and factory shutdowns amid renewed COVID-19 infections. Inflation may also pressure costs, and the company may not be able to offset future increases through pricing, supplier negotiations, or other measures. The filing identifies consumer demand, fashion trends, competition, inventory forecasting, sourcing, distribution, leases, cybersecurity, and other matters as risks.
Other items to monitor include the $9.9 million reserve for environmental remediation (management notes ultimate costs could exceed the reserve), the proposed sale of the headquarters campus (no completed sale anticipated within 12 months), and a full valuation allowance position for federal, state, and certain international deferred tax assets. Management says ordinary-course litigation is not expected to have a material adverse effect. Disclosure controls were assessed as effective; no material change in internal control over financial reporting was reported.
Important facts for investors to verify
- Confirm the reporting period: this is a 2021 second-quarter filing, notwithstanding the “2020 Q2” request metadata.
- Track whether supply-chain delays and freight inflation affect Brand Portfolio orders, sales conversion, margins, and inventory.
- Verify settlement of the $52.6 million Blowfish Malibu obligation and assess the effect of the August 2021 note redemption and associated variable-rate revolver debt.
- Monitor liquidity and working capital: the current ratio was 0.82, while inventory and accounts payable were elevated; $48.0 million of accounts payable was subject to supply-chain financing arrangements.
- Distinguish the 2021 operating recovery from prior-year impairment and pandemic charges when assessing comparable earnings and margins.
- Follow Naturalizer store-exit costs, environmental remediation, tax valuation allowances, and any progress on the headquarters campus sale.