Caleres, Inc. — Form 10-Q Summary
Reporting period: The filing covers the 13 weeks ended April 30, 2022, Caleres’ fiscal first quarter of 2022, compared with the 13 weeks ended May 1, 2021. This differs from the “2021 Q1” period in the request metadata. Amounts below are in U.S. dollars; financial statement amounts are shown in millions unless noted.
Business context and results
Caleres operates Famous Footwear and Brand Portfolio. Management described the quarter as record-setting, citing strong consumer demand and contributions from both segments. Consolidated net sales rose 15.1% to $735.1 million. Direct-to-consumer sales were approximately 65% of consolidated sales, down from 74.5% a year earlier.
| Metric | Q1 2022 | Q1 2021 |
|---|---|---|
| Net sales | $735.1 million | $638.6 million |
| Gross profit / margin | $327.0 million / 44.5% | $274.9 million / 43.0% |
| Operating earnings / margin | $66.2 million / 9.0% | $17.9 million / 2.8% |
| Net earnings attributable to Caleres | $50.5 million | $6.1 million |
| Diluted earnings per share | $1.32 | $0.16 |
| Net cash from operating activities | $19.7 million | $70.4 million |
Gross margin improvement reflected less promotional activity, full-price selling and a richer mix of higher-margin products. Selling and administrative expenses increased 7.1% to $260.8 million, but declined as a share of sales to 35.5% from 38.1%. The effective tax rate was 25.7%, compared with 35.5%.
Segments and material changes
- Famous Footwear: Sales declined 3.4% to $384.5 million, primarily due to a lower store count; same-store sales fell 4.0%. Operating earnings increased to $49.7 million from $47.9 million, and operating margin rose to 12.9% from 12.0%.
- Brand Portfolio: Sales increased 46.1% to $365.7 million, with growth across brands and wholesale replenishment. Operating earnings were $41.3 million versus an operating loss of $2.8 million. Wholesale unfilled orders were $401.5 million, up 51.8% year over year.
- Prior-year results included $13.5 million of Naturalizer store-exit charges and a $6.4 million fair-value adjustment to the Blowfish Malibu purchase obligation; neither recurred in Q1 2022. The obligation was settled for $54.6 million in November 2021.
- Interest expense declined to $2.3 million from $11.8 million, reflecting the absence of the Blowfish adjustment and redemption of $200 million of senior notes during 2021. Higher average revolving borrowings partly offset the benefit.
Cash flow, debt and liquidity
Operating cash flow was $19.7 million, down from $70.4 million. Management attributed the decline mainly to inventory investment, increased receivables from higher wholesale sales and higher incentive compensation payments, partly offset by stronger earnings and higher accounts payable. Cash and equivalents were $33.7 million at quarter-end, versus $98.2 million a year earlier.
Inventory was $643.5 million, up 44.5% year over year. Caleres reported nearly $98 million of inventory in transit, up 105% year over year, though down 45% from fiscal year-end. Total debt was $305.0 million, all under the revolving credit facility, compared with $399.0 million a year earlier. The facility had $184.2 million of additional borrowing availability, and the company reported compliance with its covenants. The current ratio was 0.87:1; the debt-to-capital ratio was 46.0%.
Capital expenditures and capitalized software spending were $11.7 million. Management expected full-year 2022 spending of $35 million to $45 million and stated that operating cash flows should cover material cash requirements for at least the next 12 months. The company paid a $0.07-per-share dividend and repurchased 701,324 shares for $14.7 million during the quarter. Subsequent to quarter-end, it repurchased approximately 905,000 additional shares for $22.0 million.
Outlook, risks and contingencies
No specific full-year earnings or sales guidance is provided in the supplied filing text. Management said it expected wholesale inventory-replenishment benefits to moderate as customers return to more normal buying patterns. It planned to align inventory with consumer demand and continue store refreshes and prototype investments.
Management cited ongoing supply-chain disruption, freight and product-cost inflation, geopolitical concerns and changing consumer demand. Price increases, full-price selling and inventory discipline were identified as mitigants, but inflationary pressures were expected to continue through 2022. The filing also identifies risks including reliance on overseas manufacturing, consumer and fashion trends, competition, foreign currency, inventory forecasting, distribution disruptions, cybersecurity and lease conditions.
A contract to sell the company’s headquarters campus was signed April 27, 2022, subject to closing conditions; the sale was expected to close in Q2 2022. Caleres intended to lease part of a future office building and the existing headquarters during construction. Environmental remediation reserves were $9.8 million, including $5.0 million for off-site and $4.8 million for on-site work; the undiscounted on-site liability was $13.4 million. Management said ordinary-course litigation was not expected to have a material adverse effect. Results are seasonal, and interim performance may not indicate full-year results.
Important facts for investors to verify
- Whether the elevated inventory and in-transit goods convert to sales without margin erosion, markdowns or further working-capital pressure.
- Whether Brand Portfolio wholesale demand and its $401.5 million order position persist as customer replenishment normalizes.
- How freight, product-cost inflation and supply-chain delays affect margins and the timing and availability of merchandise.
- Actual proceeds and closing of the headquarters-campus sale, and the terms and financial effects of planned lease arrangements.
- Revolving-facility availability, variable-rate borrowing costs, covenant headroom and the company’s cash needs while funding inventory, capital spending, dividends and repurchases.
- Whether environmental remediation costs remain within recorded reserves and management’s projected spending estimates.