Caleres, Inc. Form 10-Q Summary
Period clarification: The supplied filing is for the thirteen weeks ended April 29, 2023 (first quarter of fiscal 2023), not 2022 Q1 as indicated in the request metadata. Comparisons below are with the thirteen weeks ended April 30, 2022. Amounts are U.S. dollars; financial statement amounts are generally in millions unless noted.
Business context and reporting period
Caleres operates footwear retail stores and e-commerce sites and designs, sources, manufactures, and distributes footwear. Its reportable segments are Famous Footwear and Brand Portfolio. The business is seasonal, with historically higher sales around back-to-school and the holidays. Management cautions that interim results may not indicate full-year performance.
Financial performance
| Metric | Q1 2023 | Q1 2022 | Change |
|---|---|---|---|
| Net sales | $662.7 | $735.1 | Down 9.8% |
| Gross profit / margin | $302.7 / 45.7% | $327.0 / 44.5% | Profit down 7.4%; margin up 119 bps |
| Selling and administrative expenses | $253.1 | $260.8 | Down 3.0%; 38.2% of sales versus 35.5% |
| Operating earnings / margin | $49.6 / 7.5% | $66.2 / 9.0% | Down 25.1% |
| Net earnings attributable to Caleres | $34.7 | $50.5 | Down 31.2% |
| Diluted EPS | $0.97 | $1.32 | Down 26.5% |
| Net cash from operating activities | $37.5 | $19.7 | Up $17.8 |
| Capital expenditures and capitalized software | $6.5 | $11.7 | Cash use down $5.2 |
Gross margin improved mainly on Brand Portfolio’s higher average prices, mix of higher-margin brands, and lower inbound freight costs; this was partly offset by lower Famous Footwear margin as clearance sales returned toward historical levels. Interest expense rose to $5.6 million from $2.3 million amid higher variable interest rates, partly offset by slightly lower average borrowings. The effective tax rate was 23.5%, versus 25.7%, including approximately $0.6 million of stock-based compensation tax benefits.
Segments and material changes
- Famous Footwear: Sales fell 9.2% to $349.2 million, with comparable sales down 8.5%. Operating earnings fell to $17.1 million from $49.7 million, and operating margin was 4.9% versus 12.9%. Management cited weaker store traffic amid macroeconomic pressure, late spring weather and a slow sandal start. The segment ended the quarter with 866 stores, after opening two and closing nine.
- Brand Portfolio: Sales fell 11.0% to $325.5 million, while operating earnings increased to $42.7 million from $41.3 million. Operating margin rose to 13.1% from 11.3%, reflecting gross margin improvement to 44.2% from 38.1%. Wholesale customers moderated purchases and managed inventory more tightly; the unfilled wholesale order position declined 32.0% to $272.9 million.
- Direct-to-consumer sales were approximately 68% of consolidated sales, up from 65%. Sales declines reflected lower consumer traffic and more cautious wholesale buying, following unusually strong customer replenishment in the prior-year quarter.
Cash, debt, and liquidity
Cash was $36.2 million at April 29, 2023. Revolver borrowings were $291.5 million, down $13.5 million year over year and $16.0 million from January 28, 2023; letters of credit were $10.6 million and additional borrowing availability was $197.9 million. The company was in compliance with credit agreement covenants. Its revolving facility was amended to transition from LIBOR to term SOFR.
Current assets were $820.9 million and current liabilities were $879.3 million, resulting in negative working capital of $58.4 million and a 0.93:1 current ratio. The debt-to-capital ratio was 39.2%, compared with 46.0% a year earlier. Inventory was $559.5 million, down from $643.5 million a year earlier. Operating cash flow benefited from inventory reduction and a smaller increase in receivables, though lower earnings and decreases in accrued liabilities were offsets. Management believes operating cash flows will meet material cash requirements for at least the next 12 months.
Outlook, risks, and contingencies
- Management expects 2023 capital expenditures and capitalized software spending of $55 million to $65 million, compared with $64.0 million in 2022.
- Expense-reduction initiatives begun in Q1, and continuing into Q2, are expected to generate fiscal 2023 savings. Actions include eliminating open corporate positions, reducing non-merchandise procurement costs, and capturing Brand Portfolio synergies. Management also expects lower freight costs to continue for the remainder of fiscal 2023.
- Management expects higher interest rates to continue adversely affecting 2023 interest expense. It presently expects dividends to continue, but future declarations remain at the Board’s discretion. The company paid $0.07 per share in Q1.
- Risks identified include inflation, interest rates and consumer debt, changing consumer preferences, supply-chain or distribution disruption, inventory forecasting, competition, foreign currency, reliance on overseas manufacturing, cybersecurity, lease conditions, and supplier and licensing relationships. Management reported no material changes to the risk factors since its most recent Form 10-K.
- The company has a $9.6 million reserve for environmental remediation at its Redfield site; ultimate costs may exceed recorded amounts. Management does not expect pending ordinary-course litigation to materially affect results or financial position.
- The company continued marketing its headquarters campus and entered into a sale agreement in February 2023, subject to closing conditions; it expects the sale to qualify as completed within the next year. No impairment indicators were identified at quarter-end.
Important facts for investors to verify
- Confirm the intended reporting period: this filing covers Q1 2023, despite the request metadata saying 2022 Q1.
- Track whether Famous Footwear sales, comparable sales, and operating margin stabilize, and whether Brand Portfolio’s improved margin persists as wholesale orders and backlog remain lower.
- Monitor variable-rate borrowing costs, revolver availability, and covenant headroom; reported working capital remains negative.
- Assess whether announced cost reductions, lower freight costs, and the $55–$65 million investment plan are realized as expected.
- Follow the headquarters campus sale conditions and the timing and potential costs of Redfield remediation. Verify future disclosures for changes to the $9.6 million reserve.