Caleres, Inc. — Form 10-Q Summary
Reporting period: Quarter ended October 30, 2021; year-to-date period covers 39 weeks. The filing period differs from the “2020 Q3” period in the request metadata.
Business context: Caleres operates Famous Footwear and Brand Portfolio. Management attributed the strong quarter to back-to-school demand, store traffic and lower promotional activity. Results for the prior-year period were affected by COVID-19 store closures and related charges. The company notes that its business is seasonal and third-quarter results may not indicate full-year results.
Financial highlights
Amounts below are in millions of dollars except per-share data and ratios.
| Metric | Q3 2021 | Q3 2020 | 39 weeks 2021 | 39 weeks 2020 |
|---|---|---|---|---|
| Net sales | $784.2 | $647.5 | $2,098.3 | $1,546.1 |
| Gross profit / margin | $335.4 / 42.8% | $257.0 / 39.7% | $932.5 / 44.4% | $561.5 / 36.3% |
| Operating earnings (loss) / margin | $81.3 / 10.4% | $20.1 / 3.1% | $162.0 / 7.7% | ($430.3) / (27.8%) |
| Net earnings (loss) attributable to Caleres | $59.6 | $14.4 | $103.2 | ($362.1) |
| Diluted earnings (loss) per share | $1.54 | $0.38 | $2.68 | ($9.67) |
| Operating cash flow | Not provided separately | Not provided separately | $189.7 | $101.8 |
- Segment results, Q3: Famous Footwear sales were $494.7 million, up 26.3%, with operating earnings of $87.4 million and a 17.7% margin. Same-store sales increased 26.5%. Brand Portfolio sales were $300.5 million, up 12.3%, with operating earnings of $11.4 million and a 3.8% margin.
- Cash and investment: Cash was $74.8 million at quarter-end, versus $124.3 million a year earlier. Year-to-date investing cash outflow was $14.6 million, primarily reflecting property and equipment purchases and capitalized software.
- Debt and liquidity: Total debt was approximately $274.6 million, compared with $498.7 million a year earlier. Revolver borrowings were $175.0 million; reported additional availability was $312.5 million. The current ratio was 0.81, operating working capital $120.6 million, and debt-to-capital 47.3%. Lease obligations were $580.9 million in total, including current and noncurrent amounts.
Material changes versus the prior comparable period
- Q3 sales rose 21.1% and operating earnings rose to $81.3 million from $20.1 million. Year-to-date sales increased 35.7%, and results swung from a $430.3 million operating loss to $162.0 million of operating earnings.
- Gross margin improved in both periods, principally from reduced promotions and stronger demand at Famous Footwear. Brand Portfolio’s Q3 margin declined to 32.9% from 35.2%, in part due to higher freight costs.
- The 2020 year-to-date comparison included $262.7 million of goodwill and intangible-asset impairments and $65.6 million of restructuring and special charges. No corresponding impairment was recorded in 2021; 2021 year-to-date restructuring charges were $13.5 million, primarily for Naturalizer store closures.
- Year-to-date cash from operations increased by $87.9 million. Higher earnings and accounts payable were partly offset by inventory investment; inventory was $543.2 million at quarter-end, up from $507.4 million a year earlier.
Outlook, commentary and risks
- Management did not provide a specific earnings or sales forecast in the supplied filing text. It expects inflation and higher inbound freight costs to affect Q4 2021 results and anticipates freight pressures continuing into 2022. Price increases are intended to offset some cost increases.
- Brand Portfolio had more than $100 million of inventory in transit at October 30. Late receipts could lead to order cancellations, price concessions or liquidation through less profitable channels. The filing also cites possible limits on meeting incremental demand.
- The company amended its revolving facility in October: maturity extended to October 2026, facility reduced by $100 million to up to $500 million (subject to borrowing-base limits), and borrowing-rate spreads reduced by 75 basis points. It expects the debt redemptions to reduce annual interest expense by approximately $12 million.
- Caleres redeemed $100 million of 6.25% Senior Notes in August 2021 and, after quarter-end, notified holders that the remaining $100 million would be redeemed in January 2022. It paid the $54.6 million Blowfish Malibu mandatory purchase obligation on November 4, 2021.
- Other risks include reliance on international suppliers, particularly China; port and shipping disruption; inflation, tariffs and foreign exchange; changing consumer demand and fashion trends; inventory forecasting; competition; and store, distribution and technology disruptions. The company reported compliance with debt covenants and effective disclosure controls; ordinary-course litigation was not expected by management to have a material adverse effect.
- Environmental remediation remains a contingency: the recorded reserve for the Redfield site was $9.9 million. Management cautions that ultimate costs may differ and could exceed recorded amounts.
Most important facts for investors to verify
- Whether delayed Brand Portfolio inventory arrives in time to fulfill orders, and the realized effect of freight, inflation and pricing actions on margins.
- Whether demand and Famous Footwear’s elevated same-store sales and margins are sustainable beyond the seasonal quarter and COVID-affected comparison periods.
- Completion and funding of the planned January 2022 redemption of the remaining Senior Notes, and the expected interest savings.
- Liquidity after payment of the Blowfish obligation, including revolver availability, working capital, inventory levels and supplier-financing payables ($64.0 million at quarter-end).
- Potential environmental remediation costs and any changes to the $9.9 million Redfield reserve.