Caleres, Inc. — Form 10-Q Summary
Period note: The request metadata says 2019 Q3, but the filing is for the 13 and 39 weeks ended October 31, 2020, with comparisons to November 2, 2019.
Business context and reporting period
Caleres operates Famous Footwear and Brand Portfolio. Results remained affected by COVID-19: stores had reopened after first-half temporary closures, but reduced hours and weaker foot traffic continued to pressure sales. E-commerce grew, and management reported sequential sales improvement and a return to quarterly profitability. The third quarter is seasonally significant; interim results may not indicate full-year performance.
Key financial metrics
| Metric | Q3 2020 | Q3 2019 | 39 weeks 2020 | 39 weeks 2019 |
|---|---|---|---|---|
| Net sales | $647.5 million | $792.4 million | $1,546.1 million | $2,222.6 million |
| Gross profit / margin | $257.0 million / 39.7% | $319.8 million / 40.4% | $561.5 million / 36.3% | $905.6 million / 40.7% |
| Operating earnings (loss) | $20.1 million | $43.5 million | $(430.3) million | $98.1 million |
| Net earnings (loss) attributable to Caleres | $14.4 million | $28.0 million | $(362.1) million | $62.4 million |
| Diluted earnings (loss) per share | $0.38 | $0.69 | $(9.67) | $1.51 |
| Operating cash flow | Not separately reported | Not separately reported | $101.8 million | $145.7 million |
At October 31, 2020, cash was $124.3 million, total assets were $2.03 billion, and inventory was $507.4 million. Total debt was $498.7 million, comprising $300.0 million drawn on the revolving facility and $198.7 million of long-term debt, net of discount and issuance costs. The company had $170.6 million of additional revolver availability and $11.2 million of letters of credit outstanding; it reported compliance with debt covenants. Working capital was negative $87.8 million and the current ratio was 0.91:1. Lease obligations totaled $712.5 million, current and noncurrent combined.
For the 39 weeks, investing cash use was $15.5 million and financing cash use was $7.1 million. Cash increased $79.1 million from the beginning of the period. Capital spending was reduced; management expected fiscal 2020 purchases of property and equipment and capitalized software of $20–$30 million, versus $50.2 million in 2019.
Material changes versus comparable periods
- Q3 sales fell 18.3% year over year. Famous Footwear sales declined 12.3%; Brand Portfolio declined 25.6%. Company-website e-commerce sales rose 24.6%, reaching 25.4% of consolidated sales; direct-to-consumer sales were 71.4%.
- Q3 gross margin decreased 0.7 percentage points, reflecting a higher e-commerce mix and promotional activity. Operating margin fell to 3.1% from 5.5%.
- Nine-month sales declined 30.4%, reflecting store closures and weaker wholesale demand. The company recorded $262.7 million of goodwill and intangible-asset impairment and $65.6 million of restructuring and other special charges; $33.4 million of COVID-related inventory markdowns was recorded in cost of goods sold.
- Nine-month operating results also included $10.7 million of expected-credit-loss provision, primarily associated with pandemic-related deterioration in some wholesale customers’ financial condition. The company’s allowance for expected credit losses was $15.2 million at October 31.
- Inventory was down from $644.6 million a year earlier. Cash from operations decreased $43.9 million year over year, while cash rose from $45.2 million at fiscal year-end to $124.3 million.
Outlook, management commentary, risks and unusual items
Management said pandemic duration and effects on consumer confidence and spending remained uncertain and offered no formal earnings or sales guidance. It expected to continue reducing debt and aimed to end fiscal 2020 with revolver borrowings in line with pre-pandemic levels. Management cited e-commerce growth, expense control, inventory discipline, and improved working capital as recovery supports.
After quarter-end, Caleres announced plans to close nearly all Naturalizer retail stores in the U.S. and Canada by fiscal year-end, retaining a limited number of flagship locations. It expected $20–$25 million of pretax fourth-quarter charges and, after realignment, annual pretax benefits of $10–$12 million. The company also planned to shift resources toward digital channels.
Other notable items include a $30.1 million Blowfish Malibu mandatory purchase obligation, expected to settle in Q3 2021, and $14.9 million of related fair-value adjustments recorded during the 39-week period. The CARES Act loss-carryback provision contributed to tax benefits; approximately $7.0 million of employer Social Security taxes had been deferred. Environmental remediation reserves were $9.7 million. Management stated ordinary-course litigation was not expected to materially affect results or financial position, while noting remediation costs may exceed recorded estimates.
Principal disclosed risks include further pandemic disruption or restrictions, weak consumer demand and store traffic, fashion and inventory forecasting risk, dependence on third-party manufacturing and supply flows, tariffs, customer concentration, cybersecurity and distribution interruptions, foreign exchange, and lease-related risks. Management reported disclosure controls were effective at the reasonable-assurance level and no material quarterly change in internal control over financial reporting.
Important facts for investors to verify
- Confirm the filing period: this is the October 31, 2020 10-Q, not a 2019 Q3 filing.
- Track comparable sales, e-commerce growth, wholesale demand and backlog; Brand Portfolio’s unfilled wholesale order position was $234.7 million, down 33.8% year over year.
- Assess liquidity and covenant headroom, including negative working capital, $170.6 million of revolver availability, and management’s debt-reduction target.
- Review the assumptions behind impairment charges, expected credit losses, and the Blowfish purchase-obligation valuation and settlement.
- Monitor execution, costs and expected savings from the Naturalizer store closures and digital realignment.