Caleres, Inc. — Form 10-Q Summary
Period clarification: Although the request metadata says 2022 Q3, this filing reports the thirteen and thirty-nine weeks ended October 28, 2023, with comparisons to periods ended October 29, 2022. Amounts below are in U.S. dollars; financial statement amounts are in millions unless stated otherwise.
Business context and reporting period
Caleres is a footwear company operating retail stores and e-commerce channels and designing, sourcing, manufacturing, and distributing footwear. Its two reportable segments are Famous Footwear and Brand Portfolio. The business is seasonal, with historically strong back-to-school and holiday periods; interim results may not indicate full-year results.
Financial results and key metrics
| Metric | Q3 2023 | Q3 2022 | 39 weeks 2023 | 39 weeks 2022 |
|---|---|---|---|---|
| Net sales | $761.9 | $798.3 | $2,120.2 | $2,271.7 |
| Gross profit / margin | $340.4 / 44.7% | $339.9 / 42.6% | $957.2 / 45.1% | $1,003.7 / 44.2% |
| Operating earnings / margin | $64.4 / 8.5% | $53.8 / 6.7% | $163.7 / 7.7% | $188.5 / 8.3% |
| Net earnings attributable to Caleres | $46.9 | $39.2 | $115.6 | $140.9 |
| Diluted EPS | $1.32 | $1.08 | $3.23 | $3.79 |
| Net interest expense | $4.5 | $4.0 | $15.2 | $8.9 |
- Cash flow: For the first 39 weeks, operating cash flow was $157.2 million, investing cash outflow was $37.4 million, and financing cash outflow was $119.5 million. Cash increased $0.3 million to $34.0 million.
- Liquidity and debt: Revolver borrowings were $222.0 million, with $10.6 million of letters of credit and $267.4 million of additional borrowing availability. Working capital was negative $5.0 million; current ratio was 0.99:1. Debt-to-capital was 29.9%. Caleres reported compliance with credit agreement covenants.
- Other balance-sheet items: Inventory was $556.0 million, down from $649.3 million a year earlier. Current and noncurrent lease obligations totaled approximately $563.9 million.
Material changes versus the prior comparable period
- Q3 sales declined 4.6%; first-nine-month sales declined 6.7%. Famous Footwear Q3 sales fell 6.7% and comparable sales fell 6.9%. Brand Portfolio sales declined 0.8% in Q3.
- Despite lower sales, Q3 gross margin rose 210 basis points, supported by lower inbound freight costs, fewer markdowns, and higher merchandise margins, particularly in Brand Portfolio. Famous Footwear’s Q3 gross margin decreased to 44.2% from 44.7%.
- Q3 operating earnings increased 19.6% and diluted EPS increased 22.2%. For the first 39 weeks, operating earnings fell 13.1% and diluted EPS fell from $3.79 to $3.23.
- First-nine-month operating cash flow improved by $110.9 million year over year, largely reflecting inventory reduction and higher accounts payable versus the prior-year period. This improvement was partly offset by lower net earnings and lower accrued liabilities.
- Revolver borrowings were $142.5 million below the prior-year balance. First-nine-month interest expense nevertheless rose, primarily due to higher variable interest rates.
Outlook, management commentary, risks, and unusual items
- Management cited inflation, higher interest rates, consumer debt, recession concerns, and softer store traffic as pressures on discretionary spending. Wholesale customers continued to manage inventory conservatively; Brand Portfolio’s unfilled order position declined 15.0% to $243.9 million.
- Management expected soft consumer demand and a challenging macroeconomic environment to persist into Q4 2023. It expected additional expense-reduction costs of approximately $3 million in Q4 and further savings into 2024. Lower freight costs were expected to continue for the remainder of fiscal 2023.
- No full-year earnings or sales guidance is stated in the provided filing text. Management said operating cash flows should cover material cash needs for at least the next 12 months; expected 2023 property, equipment, and software spending was approximately $50 million. The company presently expected dividends to continue, subject to Board discretion.
- Q3 2023 restructuring charges were $2.3 million, mainly severance and integration costs; first-nine-month charges were $3.9 million. Management also noted approximately $3 million of additional Q4 expense-reduction costs were expected. The comparable 2022 quarter included $2.9 million related to the CFO transition.
- Environmental remediation: the Redfield site reserve was $9.4 million. The company cautioned that ultimate remediation costs may exceed recorded amounts. Ordinary-course litigation was not expected by management to have a material adverse effect.
- The company was marketing its nine-acre headquarters campus and was in discussions with potential buyers; it expected a completed sale within the next year. No impairment indicators were identified at quarter-end.
- Key stated risks include changing consumer demand, inflation, supply-chain disruption, competition, inventory forecasting, reliance on third-party manufacturing, cybersecurity, leases, and foreign currency movements. Management reported disclosure controls effective at the reasonable-assurance level and no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Confirm the reporting-period mismatch in the request metadata: this is the 2023 Q3 filing, not a 2022 Q3 filing.
- Assess whether improved gross margins can persist if freight savings ease or markdowns increase, while sales and Famous Footwear comparable sales remain pressured.
- Review the quality and repeatability of operating cash flow, given the contribution from inventory and payable movements.
- Monitor variable-rate borrowing costs, revolver availability, covenant thresholds, and the company’s plan to reduce borrowings.
- Track execution and costs of expense reductions, the headquarters campus sale, and Redfield remediation; confirm whether actual costs or timing differ from estimates.
- Note that the CEO adopted a Rule 10b5-1 plan on October 11, 2023, providing for sales of up to 76,000 shares through July 12, 2024, subject to the plan’s terms.