Caleres, Inc. — Form 10-K Summary
Period note: The request identifies “2020 Q4,” but the supplied filing is Caleres’ annual report for fiscal 2021, the 52 weeks ended January 29, 2022, filed March 28, 2022. Comparisons below are primarily with fiscal 2020, ended January 30, 2021.
Business context
Caleres is a footwear company operating Famous Footwear retail stores and e-commerce, and Brand Portfolio wholesale, retail and e-commerce businesses. Fiscal 2021’s results reflected recovery in consumer demand as pandemic restrictions eased, while supply-chain disruption constrained product receipts. The company reported two segments: Famous Footwear and Brand Portfolio.
Key financial results
| Metric | Fiscal 2021 | Fiscal 2020 |
|---|---|---|
| Net sales | $2,777.6 million | $2,117.1 million |
| Gross profit / gross margin | $1,227.3 million / 44.2% | $787.0 million / 37.2% |
| Operating earnings (loss) / margin | $205.8 million / 7.4% | $(485.7) million / (22.9)% |
| Net earnings (loss) attributable to Caleres | $137.0 million | $(439.1) million |
| Diluted EPS | $3.56 | $(11.80) |
| Cash from operating activities | $168.4 million | $126.4 million |
| Cash and cash equivalents at year-end | $30.1 million | $88.3 million |
- Sales rose 31.2%. Famous Footwear sales increased 38.4% to $1,748.3 million and segment operating earnings were $276.4 million (15.8% margin), versus a $23.8 million operating loss in 2020.
- Brand Portfolio sales increased 19.8% to $1,081.0 million; segment operating earnings were $35.9 million (3.3% margin), versus a $408.4 million operating loss. Sales remained below 2019 levels.
- Gross margin improvement reflected strong demand, less promotional selling and better inventory management, partly offset by higher inbound freight. Selling and administrative expense increased 13.3% to $1,008.0 million, but declined to 36.3% of sales from 42.0%.
- Cash used for investing was $24.1 million and cash used for financing was $202.4 million. Inventory increased $108.9 million year over year, including an $83.5 million increase in in-transit inventory.
Debt, liquidity and capital allocation
- Year-end total debt was $290.0 million, compared with $448.9 million a year earlier. The company redeemed its $200 million, 6.25% senior notes during 2021 and shifted borrowing to its revolving facility.
- The revolving facility matures October 2026, has commitments of up to $500 million (with a possible $250 million increase), and had $290.0 million drawn, $10.8 million in letters of credit and $155.2 million of additional availability at year-end. Caleres reported compliance with its covenants.
- The current ratio was 0.82, versus 0.86; operating working capital was $193.8 million. Debt-to-capital improved to 47.3% from 68.8%. These figures should be considered alongside substantial lease obligations: $581.4 million present value at year-end.
- Operating cash flow exceeded capital spending and software investment, but cash declined by $58.2 million over the year. The company paid $0.28 per share in dividends and repurchased 661,265 shares for approximately $17.0 million. After year-end, the board authorized an additional 7 million shares for repurchase.
Material changes, outlook and risks
- Year-over-year recovery: 2020 results were severely affected by temporary store closures, lower demand, $114.3 million of pandemic-related costs, and $286.5 million of goodwill and intangible-asset impairments. No comparable goodwill or intangible impairment was recorded in 2021. Fiscal 2021 net sales were still below fiscal 2019’s $2,921.6 million.
- Other unusual items: Caleres settled the Blowfish Malibu mandatory purchase obligation for $54.6 million in November 2021; related fair-value adjustments were $15.4 million in 2021. It recorded $13.5 million of Naturalizer store-exit costs and a $1.0 million loss on early debt extinguishment.
- Supply chain and inflation: Management expected disruptions to continue through the first half of 2022 and freight and other product-cost inflation to persist. Incremental transportation costs were approximately $23 million in the second half of 2021. Delayed inventory could lead to order cancellations, price concessions or less-profitable liquidation. Approximately 76% of footwear sourced in 2021 came from China.
- Management outlook: The company cited growth opportunities in occasion, career, athletic and sport-inspired footwear, and planned further action to mitigate supply-chain and inflationary pressures. It expected 2022 capital expenditures and capitalized software purchases of $35 million to $45 million; it did not provide a clear numerical sales or EPS forecast in the supplied text.
- Commitments and contingencies: Purchase obligations totaled approximately $802.1 million, of which $786.6 million was due within 12 months. The Redfield environmental remediation reserve was $9.8 million; management said ordinary-course litigation was not expected to have a material adverse effect, but environmental costs may vary and could exceed recorded amounts.
- Other risks: COVID-19 and potential variants, inflation’s effect on consumer demand, concentrated wholesale customers and key branded suppliers, fashion and inventory forecasting, competition, cybersecurity, and variable-rate borrowing exposure. Three suppliers—Nike, Skechers and adidas—represented about 26% of consolidated sales.
The independent auditor issued an unqualified opinion on the financial statements and internal controls; management also concluded internal control over financial reporting was effective as of January 29, 2022.
Important facts for investors to verify
- Confirm the filing period: this is fiscal 2021, not a 2020 Q4 filing, and assess performance against the pre-pandemic 2019 baseline.
- Track whether delayed inventory arrives and sells as planned, and whether price increases offset freight, product and labor inflation without weakening demand or margins.
- Review liquidity against near-term purchase obligations, lease payments, covenant thresholds and the $155.2 million of reported revolver availability.
- Assess Brand Portfolio recovery, backlog conversion and the effects of store exits; the $452.4 million wholesale backlog was elevated by supply delays and is subject to cancellation.
- Monitor China sourcing concentration, key supplier and customer dependence, environmental remediation estimates, and the company’s capacity to fund dividends and any expanded repurchases.