Caleres, Inc. — Form 10-Q Summary
Period clarification: The filing is for the 13 and 39 weeks ended October 29, 2022, with comparisons to October 30, 2021. This differs from the request metadata, which identifies 2021 Q3.
Business context and reporting period
Caleres operates Famous Footwear and Brand Portfolio. Its business is seasonal, with sales traditionally stronger around back-to-school and the holidays. The filing cautions that interim results may not indicate full-year results.
Financial results
| Metric | 13 weeks ended Oct. 29, 2022 | Prior-year quarter | 39 weeks ended Oct. 29, 2022 | Prior-year period |
|---|---|---|---|---|
| Net sales | $798.3 million | $784.2 million | $2,271.7 million | $2,098.3 million |
| Gross profit / margin | $339.9 million / 42.6% | $335.4 million / 42.8% | $1,003.7 million / 44.2% | $932.5 million / 44.4% |
| Operating earnings / margin | $53.8 million / 6.7% | $81.3 million / 10.4% | $188.5 million / 8.3% | $162.0 million / 7.7% |
| Net earnings attributable to Caleres | $39.2 million | $59.6 million | $140.9 million | $103.2 million |
| Diluted EPS | $1.08 | $1.54 | $3.79 | $2.68 |
Third-quarter sales grew 1.8%, but operating earnings fell as selling and administrative expenses rose 11.4%, including higher compensation and facilities costs, and the company recorded $2.9 million of CFO-transition charges. For the first nine months, sales rose 8.3% and operating earnings rose 16.4%.
- Segments: Third-quarter Famous Footwear sales fell 2.6% to $482.0 million; same-store sales declined 0.8%. Brand Portfolio sales increased 7.6% to $323.2 million. For the nine-month period, Famous Footwear sales declined 3.2%, while Brand Portfolio sales increased 28.3%.
- Cash flow: Operating cash flow was $46.3 million versus $189.7 million in the prior-year nine-month period. Investing cash use was $45.4 million, mainly reflecting higher capital spending; financing provided $1.9 million. Cash increased $2.7 million to $32.8 million.
- Liquidity and debt: Revolver borrowings were $364.5 million, with $10.1 million of letters of credit and $125.4 million of additional borrowing availability. The company had no senior notes outstanding and was in compliance with credit-facility covenants. Working capital was negative $117.8 million; the current ratio was 0.89 and debt-to-capital was 47.3%.
- Balance sheet items: Inventory was $649.3 million, up from $543.2 million a year earlier. Total assets were $1,948.3 million and total equity was $405.4 million.
Changes, outlook, and risks
Management cited inflation in product, parcel freight, wages, and interest rates. Price increases offset most product-cost inflation, but Famous Footwear faced more normalized pricing and increased promotions, contributing to margin pressure. Brand Portfolio benefited from higher average wholesale prices, direct-to-consumer growth, and favorable brand mix. Direct-to-consumer sales were about 74% of consolidated third-quarter sales.
Management reported a slower start to holiday sales and said weaker consumer sentiment, recessionary pressure, or a more promotional environment could weigh on fourth-quarter and subsequent demand. No specific earnings or revenue guidance is provided in the supplied filing text. The company expects 2022 capital expenditures and capitalized software spending of $50–$60 million, expects to maintain its quarterly dividend, and plans to prioritize reducing revolver borrowings and increasing liquidity. Management believes operating cash flows can meet material cash requirements for at least 12 months.
- Third-quarter CFO-transition costs were $2.9 million; the comparable prior-year period included a $1.9 million Blowfish Malibu obligation fair-value charge. The prior-year nine-month comparison also included $13.5 million of Naturalizer store-exit costs and $15.4 million of Blowfish obligation fair-value adjustments.
- The Brand Portfolio wholesale unfilled order position declined 24.7% year over year to $286.8 million, which management attributed primarily to more conservative customer purchasing and inventory management.
- The company is marketing its headquarters campus, classified as held for sale at $16.8 million, and expects a completed sale within one year.
- Environmental remediation reserves totaled $9.7 million, including $5.0 million for off-site work and $4.7 million for on-site work. Management said ordinary-course litigation is not expected to have a material adverse effect; remediation costs could exceed recorded amounts.
- Other stated risks include supply-chain disruption, inflation, changing consumer preferences, inventory forecasting, foreign exchange, cybersecurity, and variable-rate borrowing costs. The revolver’s interest rate is variable, and management expects rising rates to continue pressuring interest expense.
Important facts for investors to verify
- Whether holiday demand and the weaker start to the season affected subsequent sales, promotions, and margins.
- Whether elevated inventory converts to sales without heavier markdowns, particularly given the lower wholesale order backlog.
- How operating cash flow and working capital develop, and whether revolver borrowings decline as management intends.
- Whether planned capital spending, dividends, and repurchases remain consistent with liquidity and covenant capacity; the company repurchased $63.2 million of stock in the first nine months.
- Progress and ultimate cost of environmental remediation, and timing and proceeds of the planned headquarters-campus sale.