Caleres, Inc. — Form 10-Q summary
Business context and reporting period
The filing covers the 13 weeks and 26 weeks ended July 29, 2023. Although the request metadata says “2022 Q2,” the filing is for the second quarter of fiscal 2023; comparative periods ended July 30, 2022. Caleres operates Famous Footwear and Brand Portfolio footwear businesses, through retail, e-commerce, and wholesale channels. Results are seasonal and interim results may not indicate full-year performance.
Financial performance and liquidity
| Metric | Q2 2023 | Q2 2022 | First half 2023 | First half 2022 |
|---|---|---|---|---|
| Net sales | $695.5m | $738.3m | $1,358.3m | $1,473.4m |
| Gross profit / margin | $314.2m / 45.2% | $336.8m / 45.6% | $616.9m / 45.4% | $663.8m / 45.1% |
| Operating earnings / margin | $49.7m / 7.1% | $68.4m / 9.3% | $99.3m / 7.3% | $134.6m / 9.1% |
| Net earnings attributable to Caleres | $33.9m | $51.2m | $68.7m | $101.7m |
| Diluted EPS | $0.95 | $1.38 | $1.91 | $2.70 |
| Operating cash flow | — | $125.2m | $27.3m |
Q2 sales fell 5.8% year over year; first-half sales fell 7.8%. Famous Footwear sales declined 5.1% in Q2 and comparable sales fell 4.3%; Brand Portfolio sales declined 7.2%. First-half segment sales declined 7.0% and 9.2%, respectively. Direct-to-consumer sales were 74% of consolidated Q2 sales, versus 72% a year earlier.
At July 29, cash was $47.1m, inventory $660.7m, and total assets $1.904bn. Revolver borrowings were $244.0m, down $104.5m from July 2022 and $63.5m from January 2023; letters of credit were $10.7m and additional borrowing availability was $245.3m. The company reported covenant compliance. Working capital was negative $41.5m; current ratio was 0.96 and debt-to-capital was 34.1%.
First-half operating cash flow increased to $125.2m from $27.3m, helped by a smaller inventory increase and higher accounts payable, partly offset by lower earnings. Investing cash outflow was $16.9m; financing cash outflow was $95.0m, including net revolver repayments. Cash increased $13.4m to $47.1m. First-half capital expenditure and capitalized software spending are not separately totaled in the narrative; the company expects combined 2023 spending of $50m–$60m.
Material changes and management commentary
- Q2 gross margin contracted 45 basis points, mainly because Famous Footwear had more markdowns and clearance sales than in the unusually strong, low-inventory prior-year quarter. Brand Portfolio margin improved with lower freight costs and markdowns.
- Operating margin fell to 7.1% from 9.3%, as lower sales and gross profit outweighed reduced selling and administrative expenses. S&A declined in dollars but rose as a share of sales, reflecting deleveraging.
- Interest expense nearly doubled in Q2 to $5.1m; first-half expense rose to $10.8m. Management attributed the increase to higher variable interest rates, partly offset by lower average borrowings, and expects elevated rates to continue affecting second-half results.
- Wholesale customers moderated orders and managed inventory more tightly. Brand Portfolio unfilled orders were $246.8m, down 31.5% from $360.4m a year earlier. Owned Brand Portfolio e-commerce sales grew about 8% in Q2 and 4.8% in the first half.
- Management cited cautious consumer spending, lower store traffic, inflation, higher interest rates, real estate costs, consumer debt, and the end of the student-loan pause as pressures. Lower freight costs were expected to continue for the rest of fiscal 2023.
Outlook, unusual items, and risks
- Expense-reduction actions include eliminating open corporate roles, lowering non-merchandise procurement costs, and integrating Blowfish Malibu office and systems into the St. Louis infrastructure. The company recorded $1.7m of Q2 charges, primarily severance, and expected approximately $2.3m of additional costs in the second half; further savings were also expected.
- No full-year sales or earnings guidance is provided in the supplied filing text. Management said operating cash flows should be sufficient for material cash needs for at least the next 12 months and presently expects to continue paying dividends, subject to Board discretion.
- The nine-acre Missouri headquarters campus remained classified as held for sale. The company was discussing a sale with multiple potential buyers and expected a completed sale within a year; no impairment indicators were identified.
- Environmental remediation reserve for the Redfield site was $9.5m ($8.5m noncurrent and $1.0m current). Costs may exceed the reserve because future work is subject to regulatory oversight. Ordinary-course litigation was not expected by management to have a material adverse effect.
- Key disclosed risks include discretionary consumer demand, inflation, competition, inventory forecasting, supply-chain and distribution disruptions, reliance on overseas manufacturing, foreign exchange, cybersecurity, and lease and supplier relationships. The revolving facility has variable-rate exposure and covenant triggers tied to availability and fixed-charge coverage.
- Disclosure controls were concluded effective at the reasonable-assurance level; no material change in internal control over financial reporting was reported. The company repurchased 763,000 shares under its 2022 program during the quarter. Executive Chair Diane M. Sullivan adopted a Rule 10b5-1 plan allowing sales of up to 286,960 shares through June 28, 2024.
Important facts for investors to verify
- Confirm the intended reporting period: the supplied filing is fiscal Q2 2023, not Q2 2022.
- Track whether sales, store traffic, Famous Footwear markdowns, and Brand Portfolio wholesale orders stabilize; monitor the $246.8m order backlog.
- Assess inventory levels, cash conversion, and the extent to which first-half operating cash flow benefited from accounts-payable timing.
- Monitor revolver balances, borrowing availability, variable-rate interest costs, and compliance with facility covenants.
- Compare actual restructuring charges and savings, capital spending, and any headquarters-campus sale progress with management’s stated expectations.
- Review developments in Redfield remediation costs and the executive chair’s trading plan disclosures.