Caleres, Inc. — Form 10-K Summary
Reporting period: Fiscal 2020, ended January 30, 2021; comparative period ended February 1, 2020. Although the request metadata refers to 2019 Q4, the supplied filing is the annual report for fiscal 2020, not a 2019 quarterly filing.
Business context
Caleres is a footwear retailer and wholesaler operating through Famous Footwear and Brand Portfolio, which includes brands such as Naturalizer, Vionic, Sam Edelman and Allen Edmonds. COVID-19 temporarily closed North American retail stores during the first half of 2020 and disrupted wholesale demand. The company reported strong e-commerce growth, with online sales reaching approximately 30% of consolidated net sales, versus 20% in 2019.
Key financial results
| Metric | FY2020 | FY2019 |
|---|---|---|
| Net sales | $2,117.1 million | $2,921.6 million |
| Gross profit / margin | $787.0 million / 37.2% | $1,184.4 million / 40.5% |
| Operating earnings (loss) | $(485.7) million / (22.9%) | $103.8 million / 3.6% |
| Net earnings (loss) attributable to Caleres | $(439.1) million | $62.8 million |
| Diluted EPS | $(11.80) | $1.53 |
| Cash from operations | $126.4 million | $170.8 million |
| Cash and cash equivalents at year-end | $88.3 million | $45.2 million |
- Sales fell 27.5%. Famous Footwear sales declined 20.4% to $1,263.6 million; Brand Portfolio sales declined 35.8% to $902.5 million.
- Gross margin contracted 3.3 percentage points, reflecting markdowns, a more promotional environment, higher freight costs and the greater e-commerce mix.
- Operating results included $286.5 million of non-cash goodwill and intangible-asset impairment charges and $96.7 million of restructuring and other special charges. Selling and administrative expenses fell 16.5% in dollars but rose to 42.0% of sales.
- Cash used for investing was $22.1 million, including $16.8 million of property and equipment purchases and $5.3 million of capitalized software. Cash used for financing was $61.3 million. Cash increased by $43.1 million during the year.
Debt, liquidity and capital
- Total debt was $448.9 million at year-end: $250.0 million under the revolving credit agreement and $198.9 million of long-term debt. The separate Blowfish Malibu mandatory purchase obligation was valued at $39.1 million and classified as current.
- Revolver borrowing availability was $136.0 million; the facility commitment is up to $600 million, subject to borrowing-base limits. The company was in compliance with credit-facility and Senior Notes covenants at year-end.
- Working capital was a deficit of $123.0 million, versus positive working capital of $31.3 million a year earlier; the current ratio was 0.86 versus 1.04. The debt-to-capital ratio rose to 68.8% from 42.2%, primarily reflecting the year’s loss and lower equity.
- The company paid $0.28 per share in dividends during 2020 and declared a further $0.07 quarterly dividend in March 2021. It repurchased $23.3 million of shares during 2020.
Material changes, outlook and risks
- Management expects COVID-19 to continue adversely affecting 2021 results, while noting signs of market stabilization. Priorities include supporting Famous Footwear, improving Brand Portfolio performance, controlling costs and capital spending, reducing debt and returning excess cash to shareholders. No specific 2021 sales or earnings guidance is provided.
- Naturalizer planned to close all but a limited number of flagship stores in the U.S. and Canada; the remaining planned closures were expected in the first quarter of 2021. Famous Footwear expected approximately 10 openings and 60 closures in 2021.
- Management expected 2021 capital spending of $20 million to $30 million. It anticipated settling the Blowfish Malibu purchase obligation in the third quarter of 2021, using the revolving credit facility.
- Supply-chain exposure is notable: approximately 65% of footwear sourced in 2020 came from China. The filing also cites port congestion and delayed inventory receipts in 2021, competition, customer concentration, demand and fashion uncertainty, and potential higher freight, tariff and sourcing costs.
- Environmental remediation remains a contingency. The company recorded a $9.8 million reserve for the Redfield site remediation; management says ordinary-course litigation is not expected to have a material adverse effect.
- Ernst & Young issued unqualified opinions on the financial statements and internal control over financial reporting. The filing identifies impairment testing for the Allen Edmonds trade name and store assets as critical audit matters.
Investor facts to verify
- Whether sales, margins and cash generation recover as store traffic normalizes, and whether e-commerce growth offsets its lower margins and higher fulfillment costs.
- Whether the $136.0 million of reported revolver availability and covenant compliance remain adequate given the working-capital deficit and upcoming $39.1 million Blowfish obligation.
- Whether delayed supply receipts, China sourcing concentration and freight costs affect inventory availability, pricing or margins in 2021.
- Whether Naturalizer store exits and other restructuring deliver the expected savings, and whether additional impairment charges arise from revised forecasts or market conditions.
- How the Redfield remediation cost estimate develops and whether other environmental or legal contingencies become material.