Caleres, Inc. — Form 10-Q Summary
Reporting period: The filing covers the thirteen weeks ended May 1, 2021, compared with the thirteen weeks ended May 2, 2020. Although the request metadata identifies 2020 Q1, the filing itself is for 2021 Q1. Unless otherwise noted, financial figures below are in millions of dollars.
Business context and results
Caleres operates Famous Footwear and Brand Portfolio. Management described a strong recovery as stores reopened, consumer sentiment improved, and federal stimulus supported spending. The prior-year quarter was heavily affected by pandemic-related store closures and exceptional impairment and restructuring charges.
- Net sales rose 60.8% to $638.6 million. Direct-to-consumer sales were 74.5% of sales, versus 64.3% a year earlier; sales on company-owned e-commerce websites increased 21.4%.
- Famous Footwear sales increased 108.2% to $398.1 million, exceeding its pre-pandemic first-quarter 2019 level. Brand Portfolio sales rose 15.2% to $250.3 million but remained below pre-pandemic levels.
- Gross profit increased to $274.9 million from $121.9 million; gross margin expanded to 43.0% from 30.7%.
- Operating earnings were $17.9 million (2.8% of sales), versus an operating loss of $426.2 million. Net earnings attributable to Caleres were $6.1 million, or $0.16 per diluted share, versus a loss of $345.8 million, or $8.95 per diluted share.
- Selling and administrative expenses were $243.5 million, or 38.1% of sales, compared with $225.2 million, or 56.7%. Interest expense, net, increased to $11.8 million from $9.5 million.
Cash flow, debt and liquidity
- Operating cash flow was $70.4 million, compared with $0.7 million; investing cash outflow was $3.9 million and financing cash outflow was $56.6 million. Cash increased $9.9 million to $98.2 million.
- Total debt, excluding the Blowfish Malibu purchase obligation, was $399.0 million, down from $637.0 million a year earlier and $448.9 million at January 30, 2021. The company repaid $50.0 million net on its revolving facility during the quarter.
- Revolver borrowings were $200.0 million, with $12.5 million of letters of credit and $211.3 million of additional borrowing availability. The $200 million senior notes bear interest at 6.25% and mature in August 2023.
- Current assets were $757.1 million and current liabilities $865.9 million; the current ratio was 0.87. Debt-to-capital was 65.9%. Management said operating cash flow and revolver availability should provide ample liquidity for foreseeable working-capital needs.
- Inventory was $445.3 million, down from $585.3 million a year earlier. Accounts payable included $55.0 million subject to supplier supply-chain financing arrangements.
Material changes and unusual items
- The year-over-year turnaround reflects both higher sales and the absence of prior-year charges: the 2020 quarter included $262.7 million of goodwill and intangible-asset impairments and $93.6 million of COVID-related expenses. These comparisons materially affect reported earnings and margins.
- In 2021, Caleres recorded $13.5 million of Naturalizer store-exit costs, primarily lease termination, store closure and severance costs, for 73 stores closed during the quarter. Two U.S. flagship stores and four stores in China remained in operation.
- The Blowfish Malibu mandatory purchase obligation was valued at $45.5 million, including a $6.4 million quarterly fair-value adjustment recorded as interest expense. Settlement was expected in Q3 2021.
- Famous Footwear recorded $47.9 million of operating earnings (12.0% margin); Brand Portfolio recorded a $2.8 million operating loss (negative 1.1% margin).
Outlook, risks and contingencies
- Management expected continued strength at Famous Footwear and improving Brand Portfolio performance, while prioritizing e-commerce, consumer engagement, cost discipline and inventory alignment. No specific earnings or sales guidance was provided.
- Management expected global supply-chain disruption, including port congestion and limited vessel and container availability, to continue into Q3 2021. It noted that Brand Portfolio wholesale backlog was $264.5 million, up 40.5% year over year.
- Planned 2021 purchases of property, equipment and capitalized software were $20 million to $30 million. Management presently expected dividends to continue, subject to board discretion and applicable factors.
- Risks highlighted include pandemic effects, shifts in consumer demand and fashion trends, competition, reliance on foreign manufacturing and uninterrupted inventory flows, supply-chain and distribution disruption, inventory forecasting, foreign exchange, cybersecurity, and lease and supplier relationships.
- Environmental remediation reserve for the Redfield site was $9.9 million; the filing cautions that ultimate costs may exceed recorded amounts. Management did not expect ordinary-course litigation to materially adversely affect results or financial position.
- The company reported compliance with credit-agreement and senior-note covenants at May 1, 2021. Disclosure controls were assessed as effective at a reasonable-assurance level.
Important facts for investors to verify
- Whether sales, margins and cash generation remain strong after the unusually pandemic-affected comparison quarter, particularly as stimulus effects and reopening trends change.
- Progress in Brand Portfolio performance following Naturalizer store closures, and whether the $264.5 million wholesale backlog converts to sales despite supply-chain constraints.
- Cash needs and funding for the $45.5 million Blowfish Malibu obligation expected to settle in Q3 2021, alongside debt repayment and liquidity.
- Inventory availability, markdown exposure, and the implications of $55.0 million of payables under supply-chain financing arrangements.
- Future costs and timing of environmental remediation, and any changes in litigation or other contingencies.