UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
☒ | Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended April 30, 2022 |
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☐ | Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from _____________ to _____________ |
Commission file number: 1-2191
CALERES, INC. | |
(Exact name of registrant as specified in its charter) | |
|
|
New York | 43-0197190 |
(State or other jurisdiction | (IRS Employer Identification Number) |
of incorporation or organization) | |
8300 Maryland Avenue | 63105 |
St. Louis, Missouri | (Zip Code) |
(Address of principal executive offices) | |
(314) 854-4000 | |
(Registrant’s telephone number, including area code) | |
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
Common Stock - par value of $0.01 per share | CAL | New York Stock Exchange |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☑ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☑ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company," and "emerging growth company” in Rule 12b-2 of the Exchange Act:
Large accelerated filer ☑ | Accelerated filer ☐ |
Non-accelerated filer ☐ | Smaller reporting company ☐ |
| Emerging growth company ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ☐ No ☑
As of May 27, 2022, 36,737,534 common shares were outstanding.
INDEX | ||
Page | ||
3 | ||
Management’s Discussion and Analysis of Financial Condition and Results of Operations | 25 | |
33 | ||
34 | ||
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34 | ||
34 | ||
34 | ||
35 | ||
35 | ||
35 | ||
35 | ||
36 | ||
37 | ||
2
PART IFINANCIAL INFORMATION
ITEM 1FINANCIAL STATEMENTS
CALERES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited) | |||||||||
($ thousands) |
| April 30, 2022 |
| May 1, 2021 |
| January 29, 2022 | |||
Assets |
|
|
|
|
|
| |||
Current assets: |
|
|
|
|
| ||||
Cash and cash equivalents | $ | 33,717 | $ | 98,244 | $ | 30,115 | |||
Receivables, net |
| 181,551 |
| 132,698 |
| 122,236 | |||
Inventories, net |
| 643,527 |
| 445,299 |
| 596,807 | |||
Income taxes |
| 11,815 |
| 35,850 |
| 33,073 | |||
Property and equipment, held for sale | 16,777 | — | 5,455 | ||||||
Prepaid expenses and other current assets |
| 46,254 |
| 45,027 |
| 48,790 | |||
Total current assets |
| 933,641 |
| 757,118 |
| 836,476 | |||
Prepaid pension costs |
| 101,609 |
| 91,397 |
| 99,139 | |||
Lease right-of-use assets |
| 503,393 |
| 526,011 |
| 503,430 | |||
Property and equipment, net |
| 137,600 |
| 165,118 |
| 150,238 | |||
Goodwill and intangible assets, net |
| 224,475 |
| 236,924 |
| 227,503 | |||
Other assets |
| 27,580 |
| 26,255 |
| 27,140 | |||
Total assets | $ | 1,928,298 | $ | 1,802,823 | $ | 1,843,926 | |||
Liabilities and Equity |
|
|
|
|
|
| |||
Current liabilities: |
|
|
|
|
|
| |||
Borrowings under revolving credit agreement | $ | 305,000 | $ | 200,000 | $ | 290,000 | |||
Mandatory purchase obligation - Blowfish Malibu | — | 45,523 | — | ||||||
Trade accounts payable |
| 386,821 |
| 293,309 |
| 331,470 | |||
Income taxes |
| 39,418 |
| 11,359 |
| 22,622 | |||
Lease obligations |
| 118,692 |
| 133,327 |
| 128,495 | |||
Other accrued expenses |
| 219,956 |
| 182,419 |
| 253,026 | |||
Total current liabilities |
| 1,069,887 |
| 865,937 |
| 1,025,613 | |||
Other liabilities: |
|
|
|
|
|
| |||
Noncurrent lease obligations |
| 452,742 |
| 490,355 |
| 452,909 | |||
Long-term debt |
| — |
| 198,966 |
| — | |||
Income taxes |
| 7,786 |
| 2,464 |
| 2,464 | |||
Deferred income taxes |
| 14,811 |
| 10,256 |
| 14,731 | |||
Other liabilities |
| 25,044 |
| 28,189 |
| 24,822 | |||
Total other liabilities |
| 500,383 |
| 730,230 |
| 494,926 | |||
Equity: |
|
|
|
|
|
| |||
Common stock |
| 374 |
| 383 |
| 376 | |||
Additional paid-in capital |
| 169,025 |
| 159,381 |
| 168,830 | |||
Accumulated other comprehensive loss |
| (8,328) |
| (8,936) |
| (8,606) | |||
Retained earnings |
| 191,165 |
| 52,041 |
| 157,970 | |||
Total Caleres, Inc. shareholders’ equity |
| 352,236 |
| 202,869 |
| 318,570 | |||
Noncontrolling interests |
| 5,792 |
| 3,787 |
| 4,817 | |||
Total equity |
| 358,028 |
| 206,656 |
| 323,387 | |||
Total liabilities and equity | $ | 1,928,298 | $ | 1,802,823 | $ | 1,843,926 | |||
See notes to condensed consolidated financial statements.
3
CALERES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
| Thirteen Weeks Ended | |||||
($ thousands, except per share amounts) | April 30, 2022 |
| May 1, 2021 | |||
Net sales | $ | 735,116 | $ | 638,636 | ||
Cost of goods sold |
| 408,122 |
| 363,749 | ||
Gross profit |
| 326,994 |
| 274,887 | ||
Selling and administrative expenses |
| 260,799 |
| 243,535 | ||
Restructuring and other special charges, net |
| — |
| 13,482 | ||
Operating earnings |
| 66,195 |
| 17,870 | ||
Interest expense, net |
| (2,299) |
| (11,792) | ||
Other income, net |
| 3,422 |
| 3,828 | ||
Earnings before income taxes |
| 67,318 |
| 9,906 | ||
Income tax provision |
| (17,333) |
| (3,521) | ||
Net earnings |
| 49,985 |
| 6,385 | ||
Net (loss) earnings attributable to noncontrolling interests |
| (524) |
| 238 | ||
Net earnings attributable to Caleres, Inc. | $ | 50,509 | $ | 6,147 | ||
Basic earnings per common share attributable to Caleres, Inc. shareholders | $ | 1.34 | $ | 0.16 | ||
Diluted earnings per common share attributable to Caleres, Inc. shareholders | $ | 1.32 | $ | 0.16 | ||
See notes to condensed consolidated financial statements.
4
CALERES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
| Thirteen Weeks Ended | |||||
($ thousands) | April 30, 2022 |
| May 1, 2021 | |||
Net earnings | $ | 49,985 | $ | 6,385 | ||
Other comprehensive income (loss) ("OCI"), net of tax: |
|
|
| |||
Foreign currency translation adjustment |
| (163) |
| (224) | ||
Pension and other postretirement benefits adjustments |
| 440 |
| 366 | ||
Other comprehensive income, net of tax |
| 277 |
| 142 | ||
Comprehensive income |
| 50,262 |
| 6,527 | ||
Comprehensive (loss) income attributable to noncontrolling interests |
| (525) |
| 180 | ||
Comprehensive income attributable to Caleres, Inc. | $ | 50,787 | $ | 6,347 | ||
See notes to condensed consolidated financial statements.
5
CALERES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
| (Unaudited) | |||||
Thirteen Weeks Ended | ||||||
($ thousands) |
| April 30, 2022 |
| May 1, 2021 | ||
Operating Activities |
|
|
|
| ||
Net earnings | $ | 49,985 | $ | 6,385 | ||
Adjustments to reconcile net earnings to net cash provided by operating activities: |
|
|
| |||
Depreciation |
| 8,064 |
| 8,945 | ||
Amortization of capitalized software |
| 1,265 |
| 1,518 | ||
Amortization of intangible assets |
| 3,028 |
| 3,147 | ||
Amortization of debt issuance costs and debt discount |
| 102 |
| 343 | ||
Fair value adjustments to Blowfish mandatory purchase obligation | — | 6,389 | ||||
Share-based compensation expense |
| 3,799 |
| 2,439 | ||
Loss on disposal of property and equipment |
| 933 |
| 811 | ||
Impairment charges for property, equipment, and lease right-of-use assets |
| 1,777 |
| 1,888 | ||
Provision/adjustment for expected credit losses | (617) | (152) | ||||
Deferred income taxes |
| 80 |
| 2,012 | ||
Changes in operating assets and liabilities: |
|
|
| |||
Receivables |
| (58,698) |
| (5,553) | ||
Inventories |
| (46,775) |
| 43,062 | ||
Prepaid expenses and other current and noncurrent assets |
| 1,044 |
| (10) | ||
Trade accounts payable |
| 55,372 |
| 12,665 | ||
Accrued expenses and other liabilities |
| (43,126) |
| (14,730) | ||
Income taxes, net |
| 43,376 |
| 1,791 | ||
Other, net |
| 77 |
| (572) | ||
Net cash provided by operating activities |
| 19,686 |
| 70,378 | ||
Investing Activities |
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|
|
| ||
Purchases of property and equipment |
| (9,305) |
| (2,659) | ||
Capitalized software |
| (2,345) |
| (1,218) | ||
Net cash used for investing activities |
| (11,650) |
| (3,877) | ||
Financing Activities |
|
|
|
| ||
Borrowings under revolving credit agreement |
| 205,000 |
| 110,500 | ||
Repayments under revolving credit agreement |
| (190,000) |
| (160,500) | ||
Dividends paid |
| (2,648) |
| (2,663) | ||
Acquisition of treasury stock |
| (14,673) |
| — | ||
Issuance of common stock under share-based plans, net |
| (3,599) |
| (3,501) | ||
Contributions by noncontrolling interests |
| 1,500 |
| — | ||
Other |
| — |
| (450) | ||
Net cash used for financing activities |
| (4,420) |
| (56,614) | ||
Effect of exchange rate changes on cash and cash equivalents |
| (14) |
| 62 | ||
Increase in cash and cash equivalents |
| 3,602 |
| 9,949 | ||
Cash and cash equivalents at beginning of period |
| 30,115 |
| 88,295 | ||
Cash and cash equivalents at end of period | $ | 33,717 | $ | 98,244 | ||
See notes to condensed consolidated financial statements.
6
CALERES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
Accumulated | |||||||||||||||||||||||
Other | Total Caleres, Inc. | Non- | |||||||||||||||||||||
(Unaudited) | Common Stock | Additional | Comprehensive | Retained | Shareholders’ | controlling | |||||||||||||||||
($ thousands, except number of shares and per share amounts) |
| Shares |
| Dollars |
| Paid-In Capital |
| Loss |
| Earnings |
| Equity |
| Interests |
| Total Equity | |||||||
BALANCE AS OF JANUARY 29, 2022 |
| 37,635,145 | $ | 376 | $ | 168,830 | $ | (8,606) | $ | 157,970 | $ | 318,570 | $ | 4,817 | $ | 323,387 | |||||||
Net earnings (loss) |
|
|
|
|
|
|
|
|
| 50,509 |
| 50,509 |
| (524) |
| 49,985 | |||||||
Foreign currency translation adjustment |
|
|
|
|
|
|
| (162) |
|
|
| (162) |
| (1) |
| (163) | |||||||
Pension and other postretirement benefits adjustments, net of tax of $141 |
|
|
|
|
|
|
| 440 |
|
|
| 440 |
| — |
| 440 | |||||||
Comprehensive income (loss) |
|
|
|
|
|
|
| 278 |
| 50,509 |
| 50,787 |
| (525) |
| 50,262 | |||||||
Contributions by noncontrolling interests | — | 1,500 | 1,500 | ||||||||||||||||||||
Dividends ($0.07 per share) |
|
|
|
|
|
|
|
|
| (2,648) |
| (2,648) |
|
|
| (2,648) | |||||||
Acquisition of treasury stock |
| (701,324) |
| (7) |
|
|
|
|
| (14,666) |
| (14,673) |
|
|
| (14,673) | |||||||
Issuance of common stock under share-based plans, net |
| 512,508 |
| 5 |
| (3,604) |
|
|
|
|
| (3,599) |
|
|
| (3,599) | |||||||
Share-based compensation expense |
|
|
|
|
| 3,799 |
|
|
|
|
| 3,799 |
|
|
| 3,799 | |||||||
BALANCE APRIL 30, 2022 |
| 37,446,329 | $ | 374 | $ | 169,025 | $ | (8,328) | $ | 191,165 | $ | 352,236 | $ | 5,792 | $ | 358,028 | |||||||
BALANCE JANUARY 30, 2021 |
| 37,966,204 | $ | 380 | $ | 160,446 | $ | (9,136) | $ | 48,557 | $ | 200,247 | $ | 3,607 | $ | 203,854 | |||||||
Net earnings |
|
|
|
|
|
|
|
|
| 6,147 |
| 6,147 |
| 238 |
| 6,385 | |||||||
Foreign currency translation adjustment |
|
|
|
|
|
|
| (166) |
|
|
| (166) |
| (58) |
| (224) | |||||||
Pension and other postretirement benefits adjustments, net of tax of $97 |
|
|
|
|
|
|
| 366 |
|
|
| 366 |
|
|
| 366 | |||||||
Comprehensive income |
|
|
|
|
|
|
| 200 |
| 6,147 |
| 6,347 |
| 180 |
| 6,527 | |||||||
Dividends ($0.07 per share) |
|
|
|
|
|
|
|
|
| (2,663) |
| (2,663) |
|
|
| (2,663) | |||||||
Issuance of common stock under share-based plans, net |
| 327,268 |
| 3 |
| (3,504) |
|
|
|
|
| (3,501) |
|
|
| (3,501) | |||||||
Share-based compensation expense |
|
|
|
|
| 2,439 |
|
|
|
|
| 2,439 |
|
|
| 2,439 | |||||||
BALANCE MAY 1, 2021 |
| 38,293,472 | $ | 383 | $ | 159,381 | $ | (8,936) | $ | 52,041 | $ | 202,869 | $ | 3,787 | $ | 206,656 | |||||||
See notes to condensed consolidated financial statements.
7
CALERES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 1 Basis of Presentation and General
Basis of Presentation
The accompanying condensed consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q of the United States Securities and Exchange Commission (“SEC”) and reflect all adjustments and accruals of a normal recurring nature, which management believes are necessary to present fairly the financial position, results of operations, comprehensive income and cash flows of Caleres, Inc. ("the Company"). These statements, however, do not include all information and footnotes necessary for a complete presentation of the Company’s consolidated financial position, results of operations, comprehensive income and cash flows in conformity with accounting principles generally accepted in the United States. The condensed consolidated financial statements include the accounts of the Company and its wholly-owned and majority-owned subsidiaries, after the elimination of intercompany accounts and transactions.
The Company’s business is seasonal in nature due to consumer spending patterns, with higher back-to-school and holiday season sales. Although the third fiscal quarter has historically accounted for a substantial portion of the Company’s earnings for the year, the Company is beginning to experience more equal distribution among the quarters. Interim results may not necessarily be indicative of results which may be expected for any other interim period or for the year as a whole.
Certain prior period amounts in the notes to the condensed consolidated financial statements have been reclassified to conform to the current period presentation. These reclassifications did not affect net earnings attributable to Caleres, Inc.
The accompanying condensed consolidated financial statements and footnotes should be read in conjunction with the consolidated financial statements and footnotes included in the Company’s Annual Report on Form 10-K for the year ended January 29, 2022.
Noncontrolling Interests
During 2019, the Company entered into a joint venture with Brand Investment Holding Limited (“Brand Investment Holding”), a member of the Gemkell Group, to sell Sam Edelman, Naturalizer and other branded footwear in China. The Company and Brand Investment Holding are each 50% owners of the joint venture, which is named CLT Brand Solutions (“CLT”). During the first quarter of 2022, CLT accrued capital contributions of $3.0 million, including $1.5 million of funding received from Brand Investment Holding. Net sales and operating losses were $2.9 million and $0.9 million, respectively, for the thirteen weeks ended April 30, 2022. Net sales and operating earnings (loss) were not significant during the thirteen weeks ended May 1, 2021.
The Company had a joint venture agreement with a subsidiary of C. banner International Holdings Limited (“CBI”) to market Naturalizer footwear in China. The Company was a 51% owner of the joint venture (“B&H Footwear”), with CBI owning the other 49%. The license enabling the joint venture to market the footwear expired in August 2017 and the parties are in the process of dissolving their joint venture agreements.
The Company consolidates CLT and B&H Footwear into its condensed consolidated financial statements. Net (loss) earnings attributable to noncontrolling interests represents the share of net earnings or losses that is attributable to Brand Investment Holding and CBI. Transactions between the Company and the joint ventures have been eliminated in the condensed consolidated financial statements.
Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles (“GAAP”) requires management to make estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and accompanying notes. Actual results could differ from those estimates.
COVID-19, Supply Chain Disruptions and Inflationary Pressures
The coronavirus (“COVID-19”) continues to adversely impact the United States and global economies. During 2021, our business operations were impacted by the delayed receipt of inventory attributable to temporary factory shutdowns, border closures, port congestion and shipping vessel and container availability. While inventory receipts improved during the first quarter of 2022, supply chain disruptions continue to impact our business operations and financial results. We experienced higher transportation costs throughout 2021 and continue to experience inflationary pressures for freight and other product costs.
8
On March 27, 2020, the Coronavirus Aid, Relief and Economic Security ("CARES") Act was enacted. The CARES Act includes a provision that allows the Company to defer the employer portion of social security payroll tax payments that would have been paid between the enactment date and December 31, 2020, with 50% payable by December 31, 2021 and 50% payable by December 31, 2022. During 2020, the Company deferred approximately $9.4 million of employer social security payroll taxes. As of April 30, 2022, employer social security payroll taxes totaling $5.0 million, which are payable by December 31, 2022, are presented in other accrued expenses on the condensed consolidated balance sheet. As of May 1, 2021, approximately $4.7 million of deferred employer social security payroll taxes was recorded in other accrued expenses and $4.7 million was recorded in other liabilities on the condensed consolidated balance sheet.
Property and Equipment, Held for Sale
In April 2021, the Company announced that it would begin marketing for sale its nine-acre corporate headquarters campus (the “Campus”) located in Clayton, Missouri. In January 2022, the Company classified a portion of the Campus as property and equipment, held for sale on the consolidated balance sheet as of January 29, 2022. During the first quarter of 2022, the Company continued its negotiations and an agreement for the sale of the Campus was signed on April 27, 2022, subject to certain closing conditions. The sale of the Campus is expected to close and qualify as a completed sale during the second quarter of 2022. Accordingly, the Campus has been classified as property and equipment, held for sale on the condensed consolidated balance sheet as of April 30, 2022 and is reflected within the Eliminations and Other category. The Company evaluated the Campus asset group for impairment indicators and determined that no indicators were present. The Company intends to execute a lease agreement for a portion of a new office building to be built on a parcel of the headquarters campus, as well as a lease agreement for the existing headquarters building during the period of construction. These lease agreements are expected to be finalized during the second quarter of 2022.
Note 2 Impact of New Accounting Pronouncements
The Company has evaluated all recently issued, but not yet effective, accounting pronouncements and does not expect any of the pronouncements to have a material impact on the Company’s condensed consolidated financial statements or disclosures.
9
Note 3 Revenues
Disaggregation of Revenues
The following table disaggregates revenue by segment and major source for the periods ended April 30, 2022 and May 1, 2021:
Thirteen Weeks Ended April 30, 2022 | ||||||||||||
Eliminations and | ||||||||||||
($ thousands) |
| Famous Footwear |
| Brand Portfolio |
| Other |
| Total | ||||
Retail stores | $ | 331,988 | $ | 14,217 | $ | — | $ | 346,205 | ||||
Landed wholesale - e-commerce - drop ship (1) |
| — |
| 31,773 |
| (998) |
| 30,775 | ||||
E-commerce - Company websites (1) |
| 51,938 |
| 50,702 |
| — |
| 102,640 | ||||
Total direct-to-consumer sales | 383,926 | 96,692 | (998) | 479,620 | ||||||||
Wholesale - e-commerce (1) |
| — |
| 60,716 |
| — |
| 60,716 | ||||
Landed wholesale |
| — |
| 175,327 |
| (14,128) |
| 161,199 | ||||
First-cost wholesale |
| — |
| 30,076 |
| — |
| 30,076 | ||||
Licensing and royalty |
| 422 |
| 2,906 |
| — |
| 3,328 | ||||
Other (2) |
| 154 |
| 23 |
| — |
| 177 | ||||
Net sales | $ | 384,502 | $ | 365,740 | $ | (15,126) | $ | 735,116 | ||||
| Thirteen Weeks Ended May 1, 2021 | |||||||||||
Eliminations and | ||||||||||||
($ thousands) |
| Famous Footwear |
| Brand Portfolio |
| Other |
| Total | ||||
Retail stores | $ | 334,745 | $ | 15,008 | $ | — | $ | 349,753 | ||||
Landed wholesale - e-commerce - drop ship (1) | — | 20,814 | (394) | 20,420 | ||||||||
E-commerce - Company websites (1) |
| 63,122 |
| 42,738 |
| — |
| 105,860 | ||||
Total direct-to-consumer sales | 397,867 | 78,560 | (394) | 476,033 | ||||||||
Wholesale - e-commerce (1) |
| — |
| 37,480 |
| — |
| 37,480 | ||||
Landed wholesale |
| — |
| 115,347 |
| (9,379) |
| 105,968 | ||||
First-cost wholesale |
| — |
| 16,718 |
| — |
| 16,718 | ||||
Licensing and royalty |
| — |
| 2,164 |
| — |
| 2,164 | ||||
Other (2) |
| 237 |
| 36 |
| — |
| 273 | ||||
Net sales | $ | 398,104 | $ | 250,305 | $ | (9,773) | $ | 638,636 | ||||
| (1) | Collectively referred to as "e-commerce" in the narrative below |
| (2) | Includes breakage revenue from unredeemed gift cards |
Retail stores
Traditionally, the majority of the Company’s revenue is generated from retail sales where control is transferred and revenue is recognized at the point of sale. Retail sales are recorded net of estimated returns and exclude sales tax. The Company records a returns reserve and a corresponding return asset for expected returns of merchandise.
Retail sales to members of the Company’s loyalty programs, including the Famously You Rewards program, include two performance obligations: the sale of merchandise and the delivery of points that may be redeemed for future purchases. The transaction price is allocated to the separate performance obligations based on the relative stand-alone selling price. The stand-alone selling price for the points is estimated using the retail value of the merchandise earned, adjusted for estimated breakage based upon historical redemption patterns. The revenue associated with the initial merchandise purchased is recognized immediately and the value assigned to the points is deferred until the points are redeemed, forfeited or expired.
10
E-commerce
The Company also generates revenue from sales on websites maintained by the Company that are shipped from the Company’s distribution centers or retail stores directly to the consumer, picked up directly by the consumer from the Company’s stores and e-commerce sales from the Company’s wholesale customers’ websites that are fulfilled on a drop-ship or first-cost basis (collectively referred to as "e-commerce"). The Company transfers control and recognizes revenue for merchandise sold that is shipped directly to an individual consumer upon delivery to the consumer.
Landed wholesale
Landed sales are wholesale sales in which the merchandise is shipped directly to the customer from the Company’s warehouses. Many customers purchasing footwear on a landed basis arrange their own transportation of merchandise and, with limited exceptions, control is transferred at the time of shipment.
First-cost wholesale
First-cost sales are wholesale sales in which the Company purchases merchandise from an international factory that manufactures the product and subsequently sells to a customer at an overseas port. Revenue is recognized at the time the merchandise is delivered to the customer’s designated freight forwarder and control is transferred to the customer.
Licensing and royalty
The Company has license agreements with third parties allowing them to sell the Company’s branded product, or other merchandise that uses the Company’s owned or licensed brand names. These license agreements provide the licensee access to the Company’s symbolic intellectual property, and revenue is therefore recognized over the license term. For royalty contracts that do not have guaranteed minimums, the Company recognizes revenue as the licensee’s sales occur. For royalty contracts that have guaranteed minimums, revenue for the guaranteed minimum is recognized on a straight-line basis during the term, until such time that the cumulative royalties exceed the total minimum guarantee. Up-front payments are recognized over the contractual term to which the guaranteed minimum relates.
The Company also licenses its Famous Footwear trade name and logo to a third-party financial institution to offer Famous Footwear-branded credit cards to its consumers. The Company receives royalties based upon cardholder spending, which is recognized as licensing revenue at the time when the credit card is used.
Contract Balances
Revenue is recorded at the transaction price, net of estimates for variable consideration for which reserves are established, including returns, allowances and discounts. Variable consideration is estimated using the expected value method and given the large number of contracts with similar characteristics, the portfolio approach is applied to determine the variable consideration for each revenue stream. Reserves for projected returns are based on historical patterns and current expectations.
Information about significant contract balances from contracts with customers is as follows:
Changes in contract balances with customers generally reflect differences in relative sales volume for the periods presented. In addition, during the thirteen weeks ended April 30, 2022, the loyalty programs liability increased $7.6 million due to points and material rights earned on purchases and decreased $8.2 million due to expirations and redemptions. During the thirteen weeks ended May 1, 2021, the loyalty programs liability increased $9.3 million due to points and material rights earned on purchases and decreased $7.1 million due to expirations and redemptions.
11
The following table summarizes the activity in the Company’s allowance for expected credit losses during the thirteen weeks ended April 30, 2022 and May 1, 2021:
Note 4 Earnings Per Share
The Company uses the two-class method to compute basic and diluted earnings per common share attributable to Caleres, Inc. shareholders. In periods of net loss, no effect is given to the Company’s participating securities since they do not contractually participate in the losses of the Company. The following table sets forth the computation of basic and diluted earnings per common share attributable to Caleres, Inc. shareholders for the periods ended April 30, 2022 and May 1, 2021:
Thirteen Weeks Ended | ||||||
($ thousands, except per share amounts) |
| April 30, 2022 |
| May 1, 2021 | ||
NUMERATOR | ||||||
Net earnings | $ | 49,985 | $ | 6,385 | ||
Net loss (earnings) attributable to noncontrolling interests |
| 524 |
| (238) | ||
Net earnings attributable to Caleres, Inc. | $ | 50,509 | $ | 6,147 | ||
Net earnings allocated to participating securities |
| (2,017) |
| (210) | ||
Net earnings attributable to Caleres, Inc. after allocation of earnings to participating securities | $ | 48,492 | $ | 5,937 | ||
|
|
|
| |||
DENOMINATOR |
|
|
|
| ||
Denominator for basic earnings per common share attributable to Caleres, Inc. shareholders |
| 36,209 |
| 36,707 | ||
Dilutive effect of share-based awards |
| 467 |
| 158 | ||
Denominator for diluted earnings per common share attributable to Caleres, Inc. shareholders |
| 36,676 |
| 36,865 | ||
|
|
|
| |||
Basic earnings per common share attributable to Caleres, Inc. shareholders | $ | 1.34 | $ | 0.16 | ||
|
|
|
| |||
Diluted earnings per common share attributable to Caleres, Inc. shareholders | $ | 1.32 | $ | 0.16 | ||
Options to purchase 16,667 shares of common stock for both the thirteen weeks ended April 30, 2022 and May 1, 2021 were not included in the denominator for diluted earnings per common share attributable to Caleres, Inc. shareholders because the effect would be anti-dilutive.
During the thirteen weeks ended April 30, 2022, the Company repurchased 701,324 shares under the 2019 publicly announced share repurchase program, which permits repurchases of up to 5.0 million shares. The Company did not repurchase any shares under share repurchase programs during the thirteen weeks ended May 1, 2021. Refer to further discussion in Item 2, Unregistered Sales of Equity Securities and Use of Proceeds. Subsequent to quarter-end, the Company has repurchased approximately 905,000 shares at an aggregate price of $22.0 million, bringing our fiscal year-to-date total to approximately 1,606,000 shares at an aggregate price of $36.7 million.
12
Note 5 Restructuring and Other Special Charges
Brand Portfolio – Business Exits
During the thirteen weeks ended May 1, 2021, the Company incurred costs of $13.5 million ($11.9 million on an after-tax basis, or $0.31 per diluted share) related to the strategic realignment of the Naturalizer retail store operations. These costs primarily represented lease termination and other store closure costs, including employee severance, for the 73 stores that were closed during the first quarter of 2021. These charges are presented in restructuring and special charges on the condensed consolidated statement of earnings within the Brand Portfolio segment for the thirteen weeks ended May 1, 2021. There were no corresponding charges during the thirteen weeks ended April 30, 2022. As of April 30, 2022 and May 1, 2021, reserves of $0.1 million and $5.2 million, respectively, were included on the condensed consolidated balance sheets.
Blowfish Mandatory Purchase Obligation
In 2018, the Company acquired a controlling interest in Blowfish Malibu. The remaining interest was subject to a mandatory purchase obligation after a three-year period, which ended on July 31, 2021, based upon an earnings multiple formula as specified in the purchase agreement. Approximately $9.0 million was initially assigned to the mandatory purchase obligation and fair value adjustments were recorded as interest expense. The fair value adjustments on the mandatory purchase obligation totaled $6.4 million ($4.7 million on an after-tax basis, or $0.13 per diluted share) for the thirteen weeks ended May 1, 2021. There were no corresponding charges during the thirteen weeks ended April 30, 2022. The mandatory purchase obligation was settled for $54.6 million on November 4, 2021. Refer to further discussion regarding the mandatory purchase obligation in Note 14 to the condensed consolidated financial statements.
Note 6 Business Segment Information
Following is a summary of certain key financial measures for the Company’s business segments for the periods ended April 30, 2022 and May 1, 2021:
Famous | Brand | Eliminations | ||||||||||
($ thousands) |
| Footwear |
| Portfolio |
| and Other |
| Total | ||||
Thirteen Weeks Ended April 30, 2022 |
|
|
|
| ||||||||
Net sales | $ | 384,502 | $ | 365,740 | $ | (15,126) | $ | 735,116 | ||||
Intersegment sales (1) |
| — | 15,126 | — |
| 15,126 | ||||||
Operating earnings (loss) |
| 49,688 |
| 41,349 |
| (24,842) |
| 66,195 | ||||
Segment assets |
| 790,778 |
| 987,397 |
| 150,123 |
| 1,928,298 | ||||
|
|
|
|
|
|
|
| |||||
Thirteen Weeks Ended May 1, 2021 |
|
|
|
|
|
|
|
| ||||
Net sales | $ | 398,104 | $ | 250,305 | $ | (9,773) | $ | 638,636 | ||||
Intersegment sales (1) |
| — |
| 9,773 |
| — |
| 9,773 | ||||
Operating earnings (loss) |
| 47,873 |
| (2,821) |
| (27,182) |
| 17,870 | ||||
Segment assets |
| 758,823 |
| 794,430 |
| 249,570 |
| 1,802,823 | ||||
|
|
|
|
|
|
|
| |||||
| (1) | Included in net sales in the Brand Portfolio segment and eliminated in the Eliminations and Other category. |
The Eliminations and Other category includes corporate assets, administrative expenses and other costs and recoveries, which are not allocated to the operating segments, as well as the elimination of intersegment sales and profit.
Following is a reconciliation of operating earnings to earnings before income taxes:
13
Note 7 Inventories
The Company’s net inventory balance was comprised of the following:
($ thousands) |
| April 30, 2022 |
| May 1, 2021 |
| January 29, 2022 | |||
Raw materials | $ | 16,112 | $ | 13,010 | $ | 16,764 | |||
Work-in-process |
| 666 |
| 365 |
| 614 | |||
Finished goods |
| 626,749 |
| 431,924 |
| 579,429 | |||
Inventories, net | $ | 643,527 | $ | 445,299 | $ | 596,807 | |||
Note 8 Goodwill and Intangible Assets
Goodwill and intangible assets were as follows:
($ thousands) |
| April 30, 2022 |
| May 1, 2021 |
| January 29, 2022 | |||
Intangible Assets |
|
|
|
|
|
| |||
Famous Footwear | $ | 2,800 | $ | 2,800 | $ | 2,800 | |||
Brand Portfolio |
| 342,083 |
| 342,083 |
| 342,083 | |||
Total intangible assets |
| 344,883 |
| 344,883 |
| 344,883 | |||
Accumulated amortization |
| (125,364) |
| (112,915) |
| (122,336) | |||
Total intangible assets, net |
| 219,519 |
| 231,968 |
| 222,547 | |||
Goodwill |
|
|
|
|
|
| |||
Brand Portfolio (1) |
| 4,956 |
| 4,956 |
| 4,956 | |||
Total goodwill |
| 4,956 |
| 4,956 |
| 4,956 | |||
Goodwill and intangible assets, net | $ | 224,475 | $ | 236,924 | $ | 227,503 | |||
| (1) | The carrying amount of goodwill as of April 30, 2022, May 1, 2021 and January 29, 2022 is presented net of accumulated impairment charges of $415.7 million. |
14
The Company’s intangible assets as of April 30, 2022, May 1, 2021 and January 29, 2022 were as follows:
Amortization expense related to intangible assets was $3.0 million and $3.1 million for the thirteen weeks ended April 30, 2022 and May 1, 2021, respectively. The Company estimates that amortization expense related to intangible assets will be approximately $12.1 million in 2022, $11.9 million in 2023 and $11.0 million in each of the fiscal years 2024, and .
Goodwill is tested for impairment at least annually, or more frequently if events or circumstances indicate it might be impaired, using either the qualitative assessment or a quantitative fair value-based test. The Company recorded no goodwill impairment charges during the thirteen weeks ended April 30, 2022 or May 1, 2021.
Indefinite-lived intangible assets are tested for impairment as of the first day of the fourth quarter of each fiscal year unless events or circumstances indicate an interim test is required. The Company recorded no impairment charges for indefinite-lived intangible assets during the thirteen weeks ended April 30, 2022 or May 1, 2021.
Note 9 Leases
The Company leases all of its retail locations, a manufacturing facility, and certain office locations, distribution centers and equipment. At contract inception, leases are evaluated and classified as either operating or finance leases. Leases with an initial term of 12 months or less are not recorded on the balance sheet.
Lease right-of-use assets and lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term. The majority of the Company’s leases do not provide an implicit rate and therefore, the Company uses an incremental borrowing rate based on information available at the commencement date to determine the present value of future payments. Lease expense for minimum lease payments is recognized on a straight-line basis over the lease term. Variable lease payments are expensed as incurred.
The Company regularly analyzes the results of all of its stores and assesses the viability of underperforming stores to determine whether events or circumstances exist that indicate the stores should be closed or whether the carrying amount of their long-lived assets may not be recoverable. After allowing for an appropriate start-up period and consideration of any unusual nonrecurring events, property and equipment at stores and the lease right-of-use assets indicated as impaired are written down to fair value as calculated using a discounted cash flow
15
method. The fair value of the lease right-of-use assets is determined utilizing projected cash flows for each store location, discounted using a risk-adjusted discount rate, subject to a market floor based on current market lease rates. The Company recorded asset impairment charges of $1.8 million and $1.9 million during the thirteen weeks ended April 30, 2022 and May 1, 2021, respectively. The impairment charges are primarily related to software and underperforming retail stores. Refer to Note 14 to the condensed consolidated financial statements for further discussion on these impairment charges.
As a result of the temporary store closures during the first half of 2020 associated with the pandemic, certain leases were amended to provide rent abatements and/or deferral of lease payments. Deferred payments continue to be reflected in lease obligations on the condensed consolidated balance sheets. Under relief provided by the FASB, entities could make a policy election to account for COVID-19-related lease concessions as if the enforceable rights existed under the original contract, accounting for them as variable rent rather than lease modifications. The Company made a policy election to account for rent abatements as variable rent. Accordingly, during the thirteen weeks ended May 1, 2021, the Company recorded $1.3 million in lease concessions as a reduction of rent expense within selling and administrative expenses in the condensed consolidated statements of earnings. Rent concessions for leases that were extended were recognized as a lease modification.
During the thirteen weeks ended April 30, 2022, the Company entered into new or amended leases that resulted in the recognition of right-of-use assets and lease obligations of $37.0 million on the condensed consolidated balance sheets. As of April 30, 2022, the Company has entered into lease commitments for four retail locations for which the leases have not yet commenced. The Company anticipates that two leases will begin in the current fiscal year and two leases will begin in the next fiscal year. Upon commencement, and of approximately $2.0 million will be recorded in the current fiscal year and $2.0 million will be recorded in the next fiscal year on the condensed consolidated balance sheets. In addition, as further discussed in Note 1 to the condensed consolidated financial statements, the Company intends to execute a lease agreement during the second quarter of 2022 for a portion of a new office building to be built on a parcel of the headquarters campus, as well as a lease agreement for the existing headquarters building during the period of construction.
The components of lease expense for the thirteen weeks ended April 30, 2022 and May 1, 2021 were as follows:
Supplemental cash flow information related to leases is as follows:
Thirteen Weeks Ended | ||||||
($ thousands) |
| April 30, 2022 |
| May 1, 2021 | ||
Cash paid for lease liabilities (1) | $ | 48,793 | $ | 56,453 | ||
Cash received from sublease income |
| 59 |
| 29 | ||
| (1) | Cash paid for lease liabilities for the thirteen weeks ended May 1, 2021 includes payment of certain lease payments deferred in 2020, as described above, as well as lease termination costs associated with the Naturalizer retail store closings, as further discussed in Note 5 to the condensed consolidated financial statements. |
Note 10 Financing Arrangements
Credit Agreement
The Company maintains a revolving credit facility for working capital needs. The Company is the lead borrower, and Sidney Rich Associates, Inc., BG Retail, LLC, Allen Edmonds LLC, Vionic Group LLC and Vionic International LLC are each co-borrowers and guarantors. On April 8, 2022, Blowfish, LLC was joined to the Credit Agreement as a co-borrower and guarantor.
16
On October 5, 2021, the Company entered into a Fifth Amendment to Fourth Amended and Restated Credit Agreement (as so amended, the "Credit Agreement") which, among other modifications, decreased the amount available under the revolving credit facility by $100.0 million to an aggregate amount of up to $500.0 million, subject to borrowing base restrictions, and may be further increased by up to $250.0 million. The Credit Agreement also decreased the spread applied to the London Interbank Offered Rate (“LIBOR”) or prime rate by a total of 75 basis points.
Borrowing availability under the Credit Agreement is limited to the lesser of the total commitments and the borrowing base ("Loan Cap"), which is based on stated percentages of the sum of eligible accounts receivable, eligible inventory and eligible credit card receivables, as defined, less applicable reserves. Under the Credit Agreement, the Loan Parties’ obligations are secured by a first-priority security interest in all accounts receivable, inventory and certain other collateral.
Interest on borrowings is at variable rates based on LIBOR (with a floor of 0.0%), or the prime rate (as defined in the Credit Agreement), plus a spread. The interest rate and fees for letters of credit vary based upon the level of excess availability under the Credit Agreement. There is an unused line fee payable on the unused portion under the facility and a letter of credit fee payable on the outstanding face amount under letters of credit.
The Credit Agreement limits the Company’s ability to create, incur, assume or permit to exist additional indebtedness and liens, make investments or specified payments, give guarantees, pay dividends, make capital expenditures and merge or acquire or sell assets. In addition, if excess availability falls below the greater of 10.0% of the Loan Cap and $40.0 million for three consecutive business days, and the fixed charge coverage ratio is less than 1.25 to 1.0, the Company would be in default under the Credit Agreement and certain additional covenants would be triggered.
The Credit Agreement contains customary events of default, including, without limitation, payment defaults, breaches of representations and warranties, covenant defaults, cross-defaults to similar obligations, certain events of bankruptcy and insolvency, judgment defaults and the failure of any guaranty or security document supporting the agreement to be in full force and effect. If an event of default occurs, the collateral agent may assume dominion and control over the Company’s cash (a “cash dominion event”) until such event of default is cured or waived or the excess availability exceeds such amount for 30 consecutive days, provided that a cash dominion event shall be deemed continuing (even if an event of default is no longer continuing and/or excess availability exceeds the required amount for 30 consecutive business days) after a cash dominion event has occurred and been discontinued on two occasions in any 12-month period. The Credit Agreement also contains certain other covenants and restrictions. The Company was in compliance with all covenants and restrictions under the Credit Agreement as of April 30, 2022.
At April 30, 2022, the Company had $305.0 million of borrowings outstanding and $10.8 million in letters of credit outstanding under the Credit Agreement. Total additional borrowing availability was $184.2 million at April 30, 2022.
Senior Notes
On July 27, 2015, the Company issued $200.0 million aggregate principal amount of senior notes due on August 15, 2023 (the "Senior Notes"). The Senior Notes bore interest at 6.25%, which was payable on February 15 and August 15 of each year. The Senior Notes were guaranteed on a senior unsecured basis by each of the Company’s subsidiaries that is a borrower or guarantor under the Credit Agreement. On August 16, 2021, the Company redeemed $100.0 million of Senior Notes at 100.0%. In addition, on January 3, 2022, the remaining $100.0 million of Senior Notes were redeemed at 100.0%, extinguishing the Company’s long-term debt.
17
Note 11 Shareholders’ Equity
Accumulated Other Comprehensive Loss
The following table sets forth the changes in accumulated other comprehensive loss (OCL) by component for the periods ended April 30, 2022 and May 1, 2021:
|
| Pension and |
| ||||||
Other | Accumulated | ||||||||
Foreign | Postretirement | Other | |||||||
Currency | Transactions | Comprehensive | |||||||
($ thousands) | Translation | (1) | (Loss) Income | ||||||
Balance at January 29, 2022 | $ | (788) | $ | (7,818) | $ | (8,606) | |||
Other comprehensive loss before reclassifications | (162) | — | (162) | ||||||
Reclassifications: |
|
|
| ||||||
Amounts reclassified from accumulated other comprehensive loss | — | 581 | 581 | ||||||
Tax benefit |
| — |
| (141) |
| (141) | |||
Net reclassifications |
| — |
| 440 |
| 440 | |||
Other comprehensive (loss) income |
| (162) |
| 440 |
| 278 | |||
Balance at April 30, 2022 | $ | (950) | $ | (7,378) | $ | (8,328) | |||
Balance at January 30, 2021 | $ | (111) | $ | (9,025) | $ | (9,136) | |||
Other comprehensive loss before reclassifications |
| (166) |
| — |
| (166) | |||
Reclassifications: |
|
|
|
|
|
| |||
Amounts reclassified from accumulated other comprehensive loss |
| — |
| 463 |
| 463 | |||
Tax benefit |
| — |
| (97) |
| (97) | |||
Net reclassifications |
| — |
| 366 |
| 366 | |||
Other comprehensive (loss) income |
| (166) |
| 366 |
| 200 | |||
Balance at May 1, 2021 | $ | (277) | $ | (8,659) | $ | (8,936) | |||
| (1) | Amounts reclassified are included in other income, net. Refer to Note 13 to the condensed consolidated financial statements for additional information related to pension and other postretirement benefits. |
Note 12 Share-Based Compensation
The Company recognized share-based compensation expense of $3.8 million and $2.4 million during the thirteen weeks ended April 30, 2022 and May 1, 2021, respectively.
The Company had net issuances of 512,508 and 327,268 shares of common stock during the thirteen weeks ended April 30, 2022 and May 1, 2021, respectively, for restricted stock grants, stock performance awards issued to employees and common and restricted stock grants issued to non-employee directors, net of forfeitures and shares withheld to satisfy the tax withholding requirement.
18
Restricted Stock
The following table summarizes restricted stock activity for the periods ended April 30, 2022 and May 1, 2021:
Thirteen Weeks Ended | Thirteen Weeks Ended | |||||||||||
April 30, 2022 | May 1, 2021 | |||||||||||
Weighted- | Weighted- | |||||||||||
Total Number | Average | Total Number | Average | |||||||||
of Restricted | Grant Date | of Restricted | Grant Date | |||||||||
| Shares |
| Fair Value |
|
| Shares |
| Fair Value | ||||
January 29, 2022 | 1,390,397 | $ | 14.24 | January 30, 2021 | 1,397,227 | $ | 16.74 | |||||
Granted | 671,200 | 21.00 | Granted | 562,506 | 18.63 | |||||||
Forfeited | (50,966) | 12.63 | Forfeited | (46,500) | 16.08 | |||||||
Vested |
| (387,854) |
| 12.48 |
| Vested |
| (484,389) |
| 26.96 | ||
April 30, 2022 |
| 1,622,777 | $ | 17.51 | May 1, 2021 |
| 1,428,844 | $ | 14.04 | |||
The Company granted 671,200 restricted shares during the thirteen weeks ended April 30, 2022, which have a graded-vesting term of three years, with 50% vesting after two years and 50% after three years. Of the 562,506 restricted shares granted during the thirteen weeks ended May 1, 2021, 542,506 shares have a graded-vesting term of three years, with 50% vesting after two years and 50% after three years and 20,000 shares have a cliff-vesting term of two years. Share-based compensation expense for graded-vesting grants is recognized ratably over the respective vesting periods.
Performance Awards
During the thirteen weeks ended April 30, 2022, the Company granted performance share awards for a targeted 87,750 shares, with a weighted-average grant date fair value of $20.99 in connection with the 2020 performance award. During the thirteen weeks ended May 1, 2021, the Company granted performance share awards for a targeted 175,500 shares, with a weighted-average grant date fair value of $18.63. Vesting of performance-based awards is generally dependent upon the financial performance of the Company and the attainment of certain financial goals during the three-year period following the grant. At the end of the vesting period, the employee will have earned an amount of shares or units between 0% and 200% of the targeted award, depending on the achievement of the specified financial goals for the service period. Compensation expense is recognized based on the fair value of the award and the anticipated number of shares or units to be awarded for each tranche in accordance with the vesting schedule of the units over the three-year service period.
During the thirteen weeks ended April 30, 2022, the Company granted long-term incentive awards payable in cash for the 2022-2024 performance period, with a target value of $8.3 million and a maximum value of $16.6 million. During the thirteen weeks ended May 1, 2021, the Company granted long-term incentive awards payable in cash for the 2021-2023 performance period, with a target value of $6.5 million and a maximum value of $13.0 million. These awards, which vest after a three-year period, are dependent upon the attainment of certain financial goals of the Company for each of the three years and individual achievement of strategic initiatives over the cumulative period of the award. The estimated values of the awards, which are reflected within other liabilities on the condensed consolidated balance sheets, are being expensed ratably over the three-year performance period.
Restricted Stock Units for Non-Employee Directors
Equity-based grants may be made to non-employee directors in the form of restricted stock units ("RSUs") payable in cash or common stock at no cost to the non-employee director. The RSUs are subject to a vesting requirement (usually one year) and earn dividend equivalents at the same rate as dividends on the Company’s common stock. The dividend equivalents, which vest immediately, are automatically re-invested in additional RSUs. Expense related to the initial grant of RSUs is recognized ratably over the vesting period based upon the fair value of the RSUs. The RSUs payable in cash are remeasured at the end of each period. Expense for the dividend equivalents is recognized at fair value when the dividend equivalents are granted. Gains and losses resulting from changes in the fair value of the RSUs payable in cash subsequent to the vesting period and through the settlement date are recognized in the Company’s condensed consolidated statements of earnings. The Company granted 1,907 and 1,712 for dividend equivalents during the thirteen weeks ended April 30, 2022 and May 1, 2021, respectively, with weighted-average grant date fair values of $20.64 and $20.91, respectively.
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Note 13 Retirement and Other Benefit Plans
The following table sets forth the components of net periodic benefit income for the Company, including the domestic and Canadian plans:
Pension Benefits | Other Postretirement Benefits | |||||||||||
| Thirteen Weeks Ended |
| Thirteen Weeks Ended | |||||||||
($ thousands) | April 30, 2022 |
| May 1, 2021 |
| April 30, 2022 |
| May 1, 2021 | |||||
Service cost | $ | 1,762 | $ | 1,942 | $ | — | $ | — | ||||
Interest cost |
| 2,971 |
| 2,813 |
| 10 |
| 10 | ||||
Expected return on assets |
| (6,984) |
| (7,114) |
| — |
| — | ||||
Amortization of: |
|
|
|
|
|
| ||||||
Actuarial loss (gain) |
| 681 |
| 615 |
| (25) |
| (27) | ||||
Prior service income |
| (75) |
| (125) |
| — |
| — | ||||
Total net periodic benefit income | $ | (1,645) | $ | (1,869) | $ | (15) | $ | (17) | ||||
The non-service cost components of net periodic benefit income are included in other income, net in the condensed consolidated statements of earnings. Service cost is included in selling and administrative expenses.
Note 14 Fair Value Measurements
Fair Value Hierarchy
Fair value measurement disclosure requirements specify a hierarchy of valuation techniques based upon whether the inputs to those valuation techniques reflect assumptions other market participants would use based upon market data obtained from independent sources (“observable inputs”) or reflect the Company’s own assumptions of market participant valuation (“unobservable inputs”). In accordance with the fair value guidance, the inputs to valuation techniques used to measure fair value are categorized into three levels based on the reliability of the inputs as follows:
| ● | Level 1 – Quoted prices in active markets that are unadjusted and accessible at the measurement date for identical, unrestricted assets or liabilities; |
| ● | Level 2 – Quoted prices for identical assets and liabilities in markets that are not active, quoted prices for similar assets and liabilities in active markets or financial instruments for which significant inputs are observable, either directly or indirectly; and |
| ● | Level 3 – Prices or valuations that require inputs that are both significant to the fair value measurement and unobservable. |
In determining fair value, the Company uses valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible. The Company also considers counterparty credit risk in its assessment of fair value. Classification of the financial or non-financial asset or liability within the hierarchy is determined based on the lowest level input that is significant to the fair value measurement.
Measurement of Fair Value
The Company measures fair value as an exit price, the price to sell an asset or transfer a liability in an orderly transaction between market participants at the measurement date, using the procedures described below for all financial and non-financial assets and liabilities measured at fair value.
Money Market Funds
The Company periodically invests in cash equivalents consisting of short-term money market funds backed by U.S. Treasury securities to preserve the Company’s capital for the purpose of funding operations. It does not enter into money market funds for trading or speculative purposes. The fair value is based on unadjusted quoted market prices for the funds in active markets with sufficient volume and frequency (Level 1).
Non-Qualified Deferred Compensation Plan Assets and Liabilities
The Company maintains a non-qualified deferred compensation plan (the “Deferred Compensation Plan”) for the benefit of certain management employees. The investment funds offered to the participants generally correspond to the funds offered in the Company’s 401(k) plan, and the account balance fluctuates with the investment returns on those funds. The Deferred Compensation Plan permits the deferral of up to 50% of base salary and 100% of compensation received under the Company’s annual incentive plan. The deferrals are held
20
in a separate trust, which has been established by the Company to administer the Deferred Compensation Plan. The assets of the trust are subject to the claims of the Company’s creditors in the event that the Company becomes insolvent. Consequently, the trust qualifies as a grantor trust for income tax purposes (i.e., a “Rabbi Trust”). The liabilities of the Deferred Compensation Plan are presented in other accrued expenses and the assets held by the trust are classified within prepaid expenses and other current assets in the accompanying condensed consolidated balance sheets. Changes in deferred compensation plan assets and liabilities are charged to selling and administrative expenses. The fair value is based on unadjusted quoted market prices for the funds in active markets with sufficient volume and frequency (Level 1).
Deferred Compensation Plan for Non-Employee Directors
Non-employee directors are eligible to participate in a deferred compensation plan with deferred amounts valued as if invested in the Company’s common stock through the use of phantom stock units (“PSUs”). Under the plan, each participating director’s account is credited with the number of PSUs equal to the number of shares of the Company’s common stock that the participant could purchase or receive with the amount of the deferred compensation, based upon the average of the high and low prices of the Company’s common stock on the last trading day of the fiscal quarter when the cash compensation was earned. Dividend equivalents are paid on PSUs at the same rate as dividends on the Company’s common stock and are re-invested in additional PSUs at the next fiscal quarter-end. The liabilities of the plan are based on the fair value of the outstanding PSUs and are presented in other accrued expenses (current portion) or other liabilities in the accompanying condensed consolidated balance sheets. Gains and losses resulting from changes in the fair value of the PSUs are presented in selling and administrative expenses in the Company’s condensed consolidated statements of earnings. The fair value of each PSU is based on an unadjusted quoted market price for the Company’s common stock in an active market with sufficient volume and frequency on each measurement date (Level 1).
Restricted Stock Units for Non-Employee Directors
Under the Company’s incentive compensation plans, cash-equivalent restricted stock units (“RSUs”) of the Company were previously granted at no cost to non-employee directors. These cash-equivalent RSUs are subject to a vesting requirement (usually one year), earn dividend-equivalent units, and are settled in cash on the date the director terminates service or such earlier date as a director may elect, subject to restrictions, based on the then current fair value of the Company’s common stock. The fair value of each cash-equivalent RSU is based on an unadjusted quoted market price for the Company’s common stock in an active market with sufficient volume and frequency on each measurement date (Level 1). Additional information related to RSUs for non-employee directors is disclosed in Note 12 to the condensed consolidated financial statements.
Mandatory Purchase Obligation
The Company recorded a mandatory purchase obligation of the remaining interest in conjunction with the acquisition of Blowfish Malibu in July 2018. The fair value of the mandatory purchase obligation was based on the earnings formula specified in the purchase agreement (Level 3). Fair value adjustments on the mandatory purchase obligation were recorded as interest expense. During the thirteen weeks ended May 1, 2021, the Company recorded fair value adjustments of $6.4 million. The mandatory purchase obligation of $54.6 million was paid on November 4, 2021 and therefore, there were no corresponding fair value adjustments during the thirteen weeks ended April 30, 2022. Refer to further discussion of the mandatory purchase obligation in Note 5 to the condensed consolidated financial statements.
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The following table presents the Company’s assets and liabilities that are measured at fair value on a recurring basis at April 30, 2022, May 1, 2021 and January 29, 2022. During the thirteen weeks ended April 30, 2022 and May 1, 2021, there were no transfers into or out of Level 3.
Impairment Charges
The Company assesses the impairment of long-lived assets whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Factors the Company considers important that could trigger an impairment review include underperformance relative to historical or projected future operating results, a significant change in the manner of the use of the asset, or a negative industry or economic trend. When the Company determines that the carrying value of long-lived assets may not be recoverable based upon the existence of one or more of the aforementioned factors, impairment is measured based on a projected discounted cash flow method. Certain factors, such as estimated store sales and expenses, used for this nonrecurring fair value measurement are considered Level 3 inputs as defined by FASB ASC Topic 820, Fair Value Measurement. Long-lived assets held and used with a carrying amount of $503.6 million and $571.5 million at April 30, 2022 and May 1, 2021, respectively, were assessed for indicators of impairment. This assessment resulted in the following impairment charges, primarily for software and operating lease right-of-use assets, leasehold improvements and furniture and fixtures in the Company’s retail stores.
Fair Value of the Company’s Other Financial Instruments
The fair values of cash and cash equivalents (excluding money market funds discussed above), receivables and trade accounts payable approximate their carrying values due to the short-term nature of these instruments.
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The carrying amounts and fair values of the Company’s other financial instruments subject to fair value disclosures are as follows:
| (1) | Excludes unamortized debt issuance costs and debt discount |
The fair value of the borrowings under revolving credit agreement approximates its carrying value due to its short-term nature (Level 1). The fair value of the Company’s long-term debt was based upon quoted prices in an inactive market as of May 1, 2021 (Level 2).
Note 15 Income Taxes
The Company’s consolidated effective tax rate can vary considerably from period to period, depending on a number of factors. The Company’s consolidated effective tax rates were 25.7% and 35.5% for the thirteen weeks ended April 30, 2022 and May 1, 2021, respectively. The higher effective tax rate for the first quarter of 2021 primarily reflects the non-deductibility of losses at the Company’s Canadian division, which were driven by exit-related costs associated with Naturalizer retail stores. This impact was partially offset by discrete tax benefits totaling $1.2 million in the first quarter of 2021.
As of April 30, 2022, no deferred taxes have been provided on the accumulated unremitted earnings of the Company’s foreign subsidiaries that are not subject to United States income tax, beyond the amounts recorded for the one-time transition tax for the mandatory deemed repatriation of cumulative foreign earnings, as required by the Tax Cuts and Jobs Act. The Company periodically evaluates its international investment opportunities and plans, as well as its international working capital needs, to determine the level of investment required and, accordingly, determines the level of international earnings that is considered indefinitely reinvested. Based upon that evaluation, earnings of the Company’s international subsidiaries that are not otherwise subject to United States taxation are considered to be indefinitely reinvested, and accordingly, deferred taxes have not been provided. If changes occur in future investment opportunities and plans, those changes will be reflected when known and may result in providing residual United States deferred taxes on unremitted international earnings.
Note 16 Commitments and Contingencies
Environmental Remediation
Prior operations included numerous manufacturing and other facilities for which the Company may have responsibility under various environmental laws for the remediation of conditions that may be identified in the future. The Company is involved in environmental remediation and ongoing compliance activities at several sites and has been notified that it is or may be a potentially responsible party at several other sites.
Redfield
The Company is remediating, under the oversight of Colorado authorities, the groundwater and indoor air at its owned facility in Colorado (the “Redfield site” or, when referring to remediation activities at or under the facility, the “on-site remediation”) and residential neighborhoods adjacent to and near the property (the “off-site remediation”) that have been affected by solvents previously used at the facility. The on-site remediation calls for the operation of a pump and treat system (which prevents migration of contaminated groundwater off the property) as the final remedy for the site, subject to monitoring and periodic review of the on-site conditions and other remedial technologies that may be developed in the future. In 2016, the Company submitted a revised plan to address on-site conditions, including direct treatment of source areas, and received approval from the oversight authorities to begin implementing the revised plan.
As the treatment of the on-site source areas progresses, the Company expects to convert the pump and treat system to a passive treatment barrier system. Off-site groundwater concentrations have been reducing over time since installation of the pump and treat system in 2000 and injection of clean water beginning in 2003. However, localized areas of contaminated bedrock just beyond the property line continue to impact off-site groundwater. The modified work plan for addressing this condition includes converting the off-site bioremediation system into a monitoring well network and employing different remediation methods in these recalcitrant areas. In accordance with the work plan, a pilot test was conducted of certain groundwater remediation methods and the results of that test were used to develop more detailed plans
23
for remedial activities in the off-site areas, which were approved by the authorities and are being implemented in a phased manner. The results of groundwater monitoring are being used to evaluate the effectiveness of these activities. The Company continues to implement the expanded remedy work plan that was approved by the oversight authorities in 2015. Based on the progress of the direct remedial action of on-site conditions, the Company submitted a request to the oversight authorities for permission to convert the perimeter pump and treat active remediation system to a passive one. In 2019, a final response was received from the oversight authorities, which is allowing the Company to proceed with implementation of the revised plan on a portion of the treatment system. The Company continues to pursue approval from the oversight authorities for the full conversion of the perimeter pump and treat active remediation system to a passive one. The Company also continues to work with the oversight authorities on the off-site work plan.
The cumulative expenditures for both on-site and off-site remediation through April 30, 2022 were $32.6 million. The Company has recovered a portion of these expenditures from insurers and other third parties. The reserve for the anticipated future remediation activities at April 30, 2022 is $9.8 million, of which $8.8 million is recorded within other liabilities and $1.0 million is recorded within other accrued expenses. Of the total $9.8 million reserve, $5.0 million is for off-site remediation and $4.8 million is for on-site remediation. The liability for the on-site remediation was discounted at 4.8%. On an undiscounted basis, the on-site remediation liability would be $13.4 million as of April 30, 2022. The Company expects to spend approximately $0.6 million in 2022, $0.1 million in of the following and $12.4 million in the aggregate thereafter related to the on-site remediation.
Other
Various federal and state authorities have identified the Company as a potentially responsible party for remediation at certain other sites. However, the Company does not currently believe that its liability for such sites, if any, would be material.
The Company continues to evaluate its remediation plans in conjunction with its environmental consultants and records its best estimate of remediation liabilities. However, future actions and the associated costs are subject to oversight and approval of various governmental authorities. Accordingly, the ultimate costs may vary, and it is possible costs may exceed the recorded amounts.
Litigation
The Company is involved in legal proceedings and litigation arising in the ordinary course of business. In the opinion of management, the outcome of such ordinary course of business proceedings and litigation currently pending is not expected to have a material adverse effect on the Company’s results of operations or financial position. Legal costs associated with litigation are expensed as incurred.
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ITEM 2 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
We achieved record-setting financial results in the first quarter of 2022, maintaining our momentum from 2021, with strong sales and operating earnings contribution from both our Famous Footwear and Brand Portfolio segments. We utilized our robust cash generation to augment our inventory levels to better align with the strong consumer demand and position us for the upcoming season. We have also taken the opportunity to repurchase over 700,000 shares of common stock, and expect to continue to do so.
Financial Highlights
Following is a summary of the financial highlights for the first quarter of 2022:
| ● | Consolidated net sales increased $96.5 million, or 15.1%, to $735.1 million in the first quarter of 2022, compared to $638.6 million in the first quarter of 2021. Our Famous Footwear segment continued its strong performance with net sales of $384.5 million. Net sales of our Brand Portfolio segment increased $115.4 million, or 46.1%, compared to the first quarter of 2021. On a consolidated basis, our direct-to-consumer sales represented approximately 65% of consolidated net sales for the first quarter of 2022, compared to 74.5% in the first quarter of 2021. |
| ● | Consolidated gross profit increased $52.1 million, or 19.0%, to $327.0 million in the first quarter of 2022, compared to $274.9 million in the first quarter of 2021. Our gross profit margin increased to 44.5% in the first quarter of 2022, compared to 43.0% in the first quarter of 2021, reflecting a decline in promotional activity driven by strong consumer demand and an improved sales mix of higher margin product. |
| ● | Consolidated operating earnings increased $48.3 million to $66.2 million in the first quarter of 2022, compared to $17.9 million in the first quarter of 2021. |
| ● | Consolidated net earnings attributable to Caleres, Inc. were $50.5 million, or $1.32 per diluted share, in the first quarter of 2022, compared to $6.2 million, or $0.16 per diluted share, in the first quarter of 2021. |
The following items should be considered in evaluating the comparability of our first quarter results in 2022 and 2021:
| ● | Supply Chain Disruptions and Inflationary Pressures – During the first quarter of 2022, we continued to experience global supply chain disruptions, including a delay in the receipt of inventory due to port congestion and reduced shipping vessel and container availability. We have also experienced inflationary pressures on product costs and inbound freight. In order to mitigate these inflationary pressures, we began implementing price increases in the second half of 2021. We believe our ability to continue full price selling and our disciplined approach to inventory management will continue to mitigate the impact of these supply chain disruptions and inflationary pressures on our financial results. As of April 30, 2022, we have nearly $98 million of inventory in transit that is not yet available to sell, an increase of 105% compared to our in-transit inventory levels at May 1, 2021, but a reduction of 45% from January 29, 2022. |
| ● | Brand Portfolio – business exits – During the first quarter of 2021, we incurred costs totaling $13.5 million ($11.9 million on an after-tax basis, or $0.31 per diluted share), related to the strategic realignment of Naturalizer retail store operations. There were no corresponding charges recorded during the first quarter of 2022. |
| ● | Blowfish Malibu mandatory purchase obligation – As further discussed in Note 5 and Note 14 to the condensed consolidated financial statements, the remaining interest in Blowfish Malibu was subject to a mandatory purchase obligation after a three-year period following the 2018 acquisition, based on an earnings multiple formula. During the first quarter of 2021, we recorded a fair value adjustment of $6.4 million ($4.7 million on an after-tax basis, or $0.13 per diluted share). The fair value adjustment was recorded as interest expense, net in the condensed consolidated statement of earnings. There were no corresponding charges in the first quarter of 2022. The purchase obligation was settled for $54.6 million on November 4, 2021. |
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Metrics Used in the Evaluation of Our Business
The following are a couple of key metrics by which we evaluate our business and make strategic decisions:
Same-store sales
The same-store sales metric is a metric commonly used in the retail industry to evaluate the revenue generated for stores that have been open for more than a year, though other retailers may calculate the metric differently. Management uses the same-store sales metric as a measure of an individual store’s success to determine whether it is performing in line with expectations. Our same-store sales metric is a daily-weighted calculation for the period, which includes sales for stores that have been open for at least 13 months. In addition, in order to be included in the same-store sales metric, a store must be open in the current period as well as the corresponding day(s) of the comparable retail calendar in the prior year. Accordingly, closed stores are excluded from the same-store sales metric for each day of the closure. Relocated stores are treated as new stores and therefore excluded from the calculation. E-commerce sales for those websites that function as an extension of a retail chain are included in the same-store sales calculation. We believe the same-store sales metric is useful to shareholders and investors in assessing our retail sales performance of existing locations with comparable prior year sales, separate from the impact of store openings or store closures.
Sales per square foot
The sales per square foot metric is commonly used in the retail industry to calculate the efficiency of sales based upon the square footage in a store. Management uses the sales per square foot metric as a measure of an individual store’s success to determine whether it is performing in line with expectations. The sales per square foot metric is calculated by dividing total retail store sales, excluding e-commerce sales, by the total square footage of the retail store base at the end of each month of the respective period.
Outlook
During the first quarter of 2022, we made significant progress against our key strategic initiatives. We believe we are well-positioned to capitalize on favorable market dynamics, despite the geopolitical concerns, inflationary pressures and ongoing supply chain disruptions. As we progress throughout 2022, we will maintain our focus on aligning inventory with consumer demand, which we believe will capture demand for our brands and products. We will continue to leverage our core competencies and execute on our short and long-term strategic priorities in an effort to enhance long-term value for our shareholders.
Following are the consolidated results and the results by segment:
CONSOLIDATED RESULTS
Thirteen Weeks Ended |
| ||||||||||
| April 30, 2022 |
| May 1, 2021 |
| |||||||
% of | % of | ||||||||||
($ millions) |
|
|
| Net Sales |
|
|
| Net Sales |
| ||
Net sales | $ | 735.1 |
| 100.0 | % | $ | 638.6 |
| 100.0 | % | |
Cost of goods sold |
| 408.1 |
| 55.5 | % |
| 363.7 |
| 57.0 | % | |
Gross profit |
| 327.0 |
| 44.5 | % |
| 274.9 |
| 43.0 | % | |
Selling and administrative expenses |
| 260.8 |
| 35.5 | % |
| 243.5 |
| 38.1 | % | |
Restructuring and other special charges, net |
| — |
| — | % |
| 13.5 |
| 2.1 | % | |
Operating earnings |
| 66.2 |
| 9.0 | % |
| 17.9 |
| 2.8 | % | |
Interest expense, net |
| (2.3) |
| (0.3) | % |
| (11.8) |
| (1.8) | % | |
Other income, net |
| 3.4 |
| 0.5 | % |
| 3.8 |
| 0.6 | % | |
Earnings before income taxes |
| 67.3 |
| 9.2 | % |
| 9.9 |
| 1.6 | % | |
Income tax provision |
| (17.3) |
| (2.4) | % |
| (3.5) |
| (0.6) | % | |
Net earnings |
| 50.0 |
| 6.8 | % |
| 6.4 | 1.0 | % | ||
Net (loss) earnings attributable to noncontrolling interests |
| (0.5) |
| (0.1) | % |
| 0.2 |
| 0.0 | % | |
Net earnings attributable to Caleres, Inc. | $ | 50.5 |
| 6.9 | % | $ | 6.2 |
| 1.0 | % | |
Net Sales
Net sales increased $96.5 million, or 15.1%, to $735.1 million for the first quarter of 2022, compared to $638.6 million for the first quarter of 2021. Net sales for our Brand Portfolio segment increased $115.4 million, or 46.1% during the first quarter of 2022, compared to the first quarter of 2021, and the segment surpassed its pre-pandemic sales levels. Our Famous Footwear segment’s strong sales performance from 2021 carried over to the first quarter of 2022. However, net sales for Famous Footwear decreased $13.6 million, or 3.4%, in the first quarter of 2022 compared to the first quarter of 2021, primarily reflecting a lower store count. On a consolidated basis, our direct-to-consumer sales represented approximately 65% of total net sales for the first quarter of 2022. Our casual, athletic and sport footwear categories continue to resonate with consumers and demand for the dress, occasion and wear-to-work product categories continues to improve with the rebound in
26
social events and celebrations and the return-to-office trending higher. During the first quarter of 2022, we remained focused on maximizing the vertical opportunity between the Famous Footwear and Brand Portfolio segments, with LifeStride, Dr. Scholl’s and Blowfish Malibu representing three of our top 15 best-selling brands during the quarter.
Gross Profit
Gross profit increased $52.1 million, or 19.0%, to $327.0 million for the first quarter of 2022, compared to $274.9 million for the first quarter of 2021, reflecting higher net sales and a higher gross profit rate. As a percentage of net sales, gross profit increased to 44.5% for the first quarter of 2022, compared to 43.0% for the first quarter of 2021, as strong consumer demand enabled more full-price selling and minimal promotional activity. The greater sales mix of higher margin brands and product categories within our Brand Portfolio segment also contributed to the gross margin improvement.
We classify certain warehousing, distribution, sourcing and other inventory procurement costs in selling and administrative expenses. Accordingly, our gross profit and selling and administrative expense rates, as a percentage of net sales, may not be comparable to other companies.
Selling and Administrative Expenses
Selling and administrative expenses increased $17.3 million, or 7.1%, to $260.8 million for the first quarter of 2022, compared to $243.5 million for the first quarter of 2021. The increase primarily reflects higher salary and benefits expenses and cash and stock-based incentive compensation plan expenses driven by our strong financial results in the quarter as well as our expectations for the full year. Our marketing expenses also increased as a result of tailoring our e-commerce marketing to the individual consumer in an effort to drive repeat purchases. As a percentage of net sales, selling and administrative expenses decreased to 35.5% for the first quarter of 2022, from 38.1% for the first quarter of 2021, reflecting better leveraging of expenses over higher net sales.
Restructuring and Other Special Charges, Net
We incurred restructuring and other special charges of $13.5 million ($11.9 million on an after-tax basis, or $0.31 per diluted share) during the first quarter of 2021, reflecting expenses associated with the strategic realignment of the Naturalizer retail store operations. Refer to Note 5 to the condensed consolidated financial statements for further discussion of these charges.
Operating Earnings
Operating earnings increased $48.3 million to $66.2 million for the first quarter of 2022, compared to $17.9 million for the first quarter of 2021, primarily reflecting higher net sales and gross profit. As a percentage of net sales, operating earnings were 9.0% for the first quarter of 2022, compared to 2.8% for the first quarter of 2021.
Interest Expense, Net
Interest expense, net decreased $9.5 million, or 80.5%, to $2.3 million for the first quarter of 2022, compared to $11.8 million for the first quarter of 2021, primarily due to the non-recurrence of the $6.4 million fair value adjustment to the Blowfish Malibu mandatory purchase obligation in the first quarter of 2021. The purchase obligation was settled for $54.6 million on November 4, 2021. In addition, we redeemed our $200 million aggregate principal of senior notes in the second half of 2021. By retiring our senior notes, we shifted our higher-rate debt to the lower-rate borrowings under our revolving credit agreement, which reduced our interest expense by approximately $3.1 million compared to the first quarter of 2021. These decreases were partially offset by an increase in interest expense attributable to higher average borrowings under our revolving credit agreement.
Other Income, Net
Other income, net decreased $0.4 million, or 10.6%, to $3.4 million for the first quarter of 2022, compared to $3.8 million for the first quarter of 2021, which reflects a reduction of certain components of net periodic benefit income. Refer to Note 13 of the condensed consolidated financial statements for further detail regarding the components of net periodic benefit income.
Income Tax Provision
Our effective tax rate can vary considerably from period to period, depending on a number of factors. Our consolidated effective tax rate was 25.7% for the first quarter of 2022, compared to 35.5% for the first quarter of 2021. The higher effective tax rate for the first quarter of 2021 primarily reflects the non-deductibility of losses at our Canadian division, which were driven by exit-related costs associated with Naturalizer retail stores. This impact on the tax rate was partially offset by discrete tax benefits totaling $1.2 million in the first quarter of 2021.
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Net Earnings Attributable to Caleres, Inc.
Net earnings attributable to Caleres, Inc. were $50.5 million for the first quarter of April 30, 2022, compared to net earnings of $6.2 million for the first quarter of 2021, as a result of the factors described above.
FAMOUS FOOTWEAR
Thirteen Weeks Ended | |||||||||||
| April 30, 2022 |
| May 1, 2021 | ||||||||
% of | % of | ||||||||||
($ millions, except sales per square foot) |
|
| Net Sales |
|
| Net Sales |
| ||||
Net sales | $ | 384.5 | 100.0 | % | $ | 398.1 | 100.0 | % | |||
Cost of goods sold | 195.3 | 50.8 | % | 218.3 | 54.8 | % | |||||
Gross profit | 189.2 | 49.2 | % | $ | 179.8 | 45.2 | % | ||||
Selling and administrative expenses | 139.5 | 36.3 | % | 131.9 | 33.2 | % | |||||
Operating earnings | $ | 49.7 | 12.9 | % | $ | 47.9 | 12.0 | % | |||
|
|
|
| ||||||||
Key Metrics |
|
|
|
| |||||||
Same-store sales % change | (4.0) | % |
| 3.3 | % |
| |||||
Same-store sales $ change | $ | (15.6) |
| $ | 6.2 |
| |||||
Sales change from new and closed stores, net | $ | 2.0 |
| $ | 200.2 |
| |||||
Impact of changes in Canadian exchange rate on sales | $ | (0.0) |
| $ | 0.4 |
| |||||
Sales per square foot, excluding e-commerce (thirteen weeks ended) | $ | 57 |
| $ | 55 |
| |||||
Sales per square foot, excluding e-commerce (trailing twelve months) | $ | 251 |
| $ | 193 |
| |||||
Square footage (thousand sq. ft.) |
| 5,870 |
| 6,043 |
| ||||||
|
|
|
| ||||||||
Stores opened |
| — |
| 4 |
| ||||||
Stores closed |
| 7 |
| 7 |
| ||||||
Ending stores |
| 887 |
| 913 |
| ||||||
Net Sales
Net sales of $384.5 million in the first quarter of 2022 decreased $13.6 million, or 3.4%, compared to the first quarter of 2021, primarily reflecting a lower store count. Consumer demand remained strong and the sales momentum from 2021 continued into 2022, despite the impact of lower government stimulus in the current period. Athletics and casual continue to be our top selling categories while the Caleres brands of LifeStride, Dr. Scholl’s and Blowfish Malibu were all in our top 15 best-selling brands. During the first quarter of 2022, we closed seven stores, resulting in 887 stores and total square footage of 5.9 million at the end of the first quarter of 2022, compared to 913 stores and total square footage of 6.0 million at the end of the first quarter of 2021. Sales to members of our customer loyalty program, Famously You Rewards ("Rewards"), continue to account for a majority of the segment’s sales, with approximately 79% of our net sales made to program members in the first quarter of 2022, compared to 81% in the first quarter of 2021.
Gross Profit
Gross profit increased $9.4 million, or 5.2%, to $189.2 million for the first quarter of 2022, compared to $179.8 million for the first quarter of 2021, driven by a higher gross profit rate. As a percentage of net sales, our gross profit increased to 49.2% for the first quarter of 2022, compared to 45.2% for the first quarter of 2021. Our higher gross profit margin in the first quarter of 2022 was primarily due to more full price selling and a reduction in promotional activity driven by strong demand for our product assortment and disciplined inventory management.
Selling and Administrative Expenses
Selling and administrative expenses increased $7.6 million, or 5.8%, to $139.5 million for the first quarter of 2022, compared to $131.9 million for the first quarter of 2021. The increase was primarily due to higher salaries and benefits expenses and higher logistics costs. As a percentage of net sales, selling and administrative expenses increased to 36.3% for the first quarter of 2022, compared to 33.2% for the first quarter of 2021.
Operating Earnings
Operating earnings increased $1.8 million to $49.7 million for the first quarter of 2022, compared to $47.9 million for the first quarter of 2021. As a percentage of net sales, operating earnings were 12.9% for the first quarter of 2022, compared to 12.0% for the first quarter of 2021.
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BRAND PORTFOLIO
Thirteen Weeks Ended | |||||||||||
| April 30, 2022 |
| May 1, 2021 | ||||||||
% of |
| % of | |||||||||
($ millions, except sales per square foot) |
|
| Net Sales |
|
|
| Net Sales |
| |||
Net sales | $ | 365.7 | 100.0 | % | $ | 250.3 | 100.0 | % | |||
Cost of goods sold | 226.4 | 61.9 | % | 156.3 | 62.4 | % | |||||
Gross profit | 139.3 | 38.1 | % | 94.0 | 37.6 | % | |||||
Selling and administrative expenses | 98.0 | 26.8 | % | 83.3 | 33.3 | % | |||||
Restructuring and other special charges, net | — | — | % | 13.5 | 5.4 | % | |||||
Operating earnings (loss) | $ | 41.3 | 11.3 | % | $ | (2.8) | (1.1) | % | |||
|
|
|
| ||||||||
Key Metrics |
|
|
|
| |||||||
Direct-to-consumer (% of net sales) (1) | 26 | % |
| 31 | % |
| |||||
Change in wholesale net sales ($) | $ | 104.2 |
| $ | 14.9 |
| |||||
Unfilled order position at end of period | $ | 401.5 |
| $ | 264.5 |
| |||||
|
|
| |||||||||
Same-store sales % change | 66.0 | % |
| 5.1 | % |
| |||||
Same-store sales $ change | $ | 17.9 |
| $ | 1.3 |
| |||||
Sales change from new and closed stores, net | $ | (6.7) |
| $ | 16.5 |
| |||||
Impact of changes in Canadian exchange rate on retail sales | $ | (0.0) |
| $ | 0.4 |
| |||||
|
|
|
| ||||||||
Sales per square foot, excluding e-commerce (thirteen weeks ended) | $ | 269 | $ | 188 | |||||||
Sales per square foot, excluding e-commerce (trailing twelve months) | $ | 987 |
| $ | 336 |
| |||||
Square footage (thousands sq. ft.) | 108 |
| 138 |
| |||||||
|
|
|
| ||||||||
Stores opened | 1 |
| 1 |
| |||||||
Stores closed | 4 |
| 76 |
| |||||||
Ending stores | 83 |
| 95 |
| |||||||
| (1) | Direct-to-consumer includes sales of our retail stores and e-commerce sites and sales through our customers’ websites that we fulfill on a drop-ship basis. |
Net Sales
Our Brand Portfolio segment achieved record-setting first quarter net sales of $365.7 million in the first quarter of 2022, driven by our strong product design, diverse and targeted assortments, and our strategic approach to inventory management. While the net sales increase of $115.4 million, or 46.1%, compared to the first quarter of 2021, was broad-based across all of our brands, our Sam Edelman, LifeStride, Naturalizer, Blowfish Malibu, Allen Edmonds and Vionic brands were the most significant contributors. We experienced strong growth in the dress, occasion and wear-to-work footwear categories for many of our brands, including Sam Edelman, Naturalizer, LifeStride and Allen Edmonds. Our sport-inspired and casual footwear categories also resonated strongly with our customers during the quarter. In addition, our net sales benefited as our retail partners sought to replenish their inventories during the first quarter of 2022. The incremental sales from inventory replenishment is expected to moderate as we move through fiscal 2022 as our partners return to more normal buying and replenishment patterns. During the first quarter of 2022, we closed four stores and opened one store, resulting in a total of 83 stores and total square footage of 0.1 million at the end of the first quarter of 2022, compared to 95 stores and total square footage of 0.1 million at the end of the first quarter of 2021.
In the first quarter of 2021, we permanently closed the remaining 73 Naturalizer stores in North America that were scheduled for closure as part of our strategic realignment of the Naturalizer retail store operations. We continue to focus on growing the brand’s e-commerce business through naturalizer.com, our retail partners and their websites, and the two flagship stores in the United States. On a trailing twelve-month basis, sales per square foot, excluding e-commerce sales, increased to $987 for the twelve months ended April 30, 2022, compared to $336 for the twelve months ended May 1, 2021. With the closure of nearly all of our Naturalizer retail stores, the majority of our Brand Portfolio segment stores are for our Allen Edmonds brand, which have higher retail price points than the Naturalizer brand.
Our unfilled order position for our wholesale sales increased $137.0 million, or 51.8 %, to $401.5 million at April 30, 2022, compared to $264.5 million at May 1, 2021. The increase in our backlog order levels primarily reflects higher consumer demand.
Gross Profit
Gross profit increased $45.3 million, or 48.2%, to $139.3 million for the first quarter of 2022, compared to $94.0 million for the first quarter of 2021, reflecting higher net sales and gross profit rate. As a percentage of net sales, our gross profit increased to 38.1% for the first quarter
29
of 2022, compared to 37.6% for the first quarter of 2021. The increase in our gross profit margin was driven by an improved mix of higher margin brands and product categories and a less promotional retail environment. While we have experienced inflationary pressures related to product costs and inbound freight through the first quarter, we have been able to successfully offset these impacts through price increases. We anticipate the inflationary pressures to continue throughout 2022 and will continue to focus on mitigating the impact of these costs.
Selling and Administrative Expenses
Selling and administrative expenses increased $14.7 million, or 17.5%, to $98.0 million for the first quarter of 2022, compared to $83.3 million for the first quarter of 2021. The increase was driven by higher salaries and benefits expenses and higher marketing expenses. As a percentage of net sales, selling and administrative expenses decreased to 26.8% for the first quarter of 2022, compared to 33.3% for the first quarter of 2021, reflecting better leveraging of expenses over a higher net sales base.
Restructuring and Other Special Charges, Net
We incurred restructuring and other special charges of $13.5 million during the first quarter of 2021 for expenses associated with the strategic realignment of our Naturalizer retail store operations. These costs primarily represented lease termination and other store closure costs, including employee severance, for the 73 stores that were closed during the first quarter of 2021. Refer to Note 5 to the condensed consolidated financial statements for additional information related to these charges. There were no corresponding charges during the first quarter of 2022.
Operating Earnings (Loss)
Operating earnings increased to $41.3 million for the first quarter of 2022, compared to an operating loss of $2.8 million for the first quarter of 2021, as a result of the factors described above. As a percentage of net sales, operating earnings were 11.3% for the first quarter of 2022, compared to an operating loss of 1.1% in the first quarter of 2021.
ELIMINATIONS AND OTHER
Thirteen Weeks Ended | ||||||||||||
| April 30, 2022 |
| May 1, 2021 | |||||||||
% of | % of | |||||||||||
($ millions) |
|
|
| Net Sales |
|
| Net Sales |
| ||||
Net sales | $ | (15.1) | 100.0 | % | $ | (9.8) | 100.0 | % | ||||
Cost of goods sold | (13.6) | 89.8 | % | (10.9) | 110.9 | % | ||||||
Gross profit | (1.5) | 10.2 | % | 1.1 | (10.9) | % | ||||||
Selling and administrative expenses | 23.3 | (154.0) | % | 28.3 | (289.0) | % | ||||||
Operating loss | $ | (24.8) | 164.2 | % | $ | (27.2) | 278.1 | % | ||||
The Eliminations and Other category includes the elimination of intersegment sales and profit, unallocated corporate administrative expenses, and other costs and recoveries.
The net sales elimination of $15.1 million for the first quarter of 2022 is $5.3 million, or 54.8%, higher than the first quarter of 2021, reflecting an increase in product sold from our Brand Portfolio segment to Famous Footwear.
Selling and administrative expenses decreased $5.0 million, to $23.3 million in the first quarter of 2022, compared to $28.3 million for the first quarter of 2021. The decrease primarily reflects lower expenses for certain employee benefits and lower expenses associated with our cash-based director compensation plans, reflecting a decrease in our stock price during the first quarter of 2022, compared to an increase in the first quarter of 2021.
LIQUIDITY AND CAPITAL RESOURCES
Borrowings
($ millions) |
| April 30, 2022 |
| May 1, 2021 | (1) | January 29, 2022 | |||
Borrowings under revolving credit agreement | $ | 305.0 | $ | 200.0 | $ | 290.0 | |||
Long-term debt | — | 199.0 | — | ||||||
Total debt | $ | 305.0 | $ | 399.0 | $ | 290.0 | |||
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| (1) | As presented here, total debt as of May 1, 2021 excludes the Blowfish Malibu mandatory purchase obligation, which was valued at $45.5 million. The mandatory purchase obligation of $54.6 million was paid on November 4, 2021, as further discussed in Note 14 to the condensed consolidated financial statements. |
Total debt obligations of $305.0 million at April 30, 2022 decreased $94.0 million, from $399.0 million at May 1, 2021, and increased $15.0 million, from $290.0 million at January 29, 2022. The decrease from May 1, 2021 reflects continued progress toward reducing our debt levels using our strong cash generation over the last twelve months. In August 2021, we redeemed $100.0 million aggregate principal amount of our senior notes and on January 3, 2022, we redeemed the remaining $100.0 million of senior notes. We shifted this higher interest rate debt to borrowings under the revolving credit facility, which is expected to result in net interest expense savings on an ongoing basis. The increase in total debt from January 29, 2022 is due primarily to higher inventory purchases during the quarter to satisfy the stronger consumer demand. Net interest expense for the first quarter of 2022 decreased $9.5 million to $2.3 million, compared to $11.8 million for the first quarter of 2021. The decrease is primarily attributable to the non-recurrence of the $6.4 million fair value adjustment to the Blowfish Malibu mandatory purchase obligation recorded in the first quarter of 2021. The Blowfish Malibu mandatory purchase obligation of $54.6 million was paid on November 4, 2021, as further discussed in Note 5 and Note 14 to the condensed consolidated financial statements. In addition, as discussed above, the redemption of all outstanding senior notes in 2021 also contributed to the decrease in interest expense in the first quarter of 2022. These decreases were partially offset by higher average borrowings under our revolving credit agreement.
Credit Agreement
As further discussed in Note 10 to the condensed consolidated financial statements, the Company maintains a revolving credit facility for working capital needs. On October 5, 2021, we entered into a Fifth Amendment to Fourth Amended and Restated Credit Agreement (as so amended, the “Credit Agreement”) which, among other modifications, extended the maturity date of the credit facility from January 18, 2024, to October 5, 2026 and decreased the amount available under the revolving credit facility by $100.0 million to an aggregate amount of up to $500.0 million, subject to borrowing base restrictions, and may be further increased by up to $250.0 million. Interest on the borrowings is at variable rates based on the London Interbank Offered Rate ("LIBOR") (with a floor of 0.0%), or the prime rate (as defined in the Credit Agreement), plus a spread. The Credit Agreement decreased the spread applied to the LIBOR or prime rate by a total of 75 basis points. At April 30, 2022, we had $305.0 million in borrowings and $10.8 million in letters of credit outstanding under the Credit Agreement. Total borrowing availability was $184.2 million at April 30, 2022. We were in compliance with all covenants and restrictions under the Credit Agreement as of April 30, 2022.
Senior Notes
On July 27, 2015, we issued $200.0 million aggregate principal amount of senior notes due in 2023 (the "Senior Notes"). The Senior Notes were guaranteed on a senior unsecured basis by each of the subsidiaries of Caleres, Inc. that is an obligor under the Credit Agreement, and bore interest of 6.25%, which was payable on February 15 and August 15 of each year. On August 16, 2021, we redeemed $100.0 million of the Senior Notes at 100.0%. In addition, on January 3, 2022, we redeemed the remaining $100.0 million of Senior Notes at 100.0%. Refer to further discussion regarding the Senior Notes in Note 10 to the condensed consolidated financial statements.
Working Capital and Cash Flow
Thirteen Weeks Ended | |||||||||
($ millions) |
| April 30, 2022 |
| May 1, 2021 |
| Change | |||
Net cash provided by operating activities | $ | 19.7 | $ | 70.3 | $ | (50.6) | |||
Net cash used for investing activities | (11.7) | (3.9) | (7.8) | ||||||
Net cash used for provided by financing activities | (4.4) | (56.6) | 52.2 | ||||||
Effect of exchange rate changes on cash and cash equivalents | (0.0) | 0.1 | (0.1) | ||||||
Increase in cash and cash equivalents | $ | 3.6 | $ | 9.9 | $ | (6.3) | |||
31
Reasons for the major variances in cash provided (used) in the table above are as follows:
Cash provided by operating activities was $50.6 million lower in the thirteen weeks ended April 30, 2022 as compared to the thirteen weeks ended May 1, 2021, primarily reflecting the following factors:
| ● | An increase in inventory during the thirteen weeks ended April 30, 2022, primarily reflecting higher inventory in response to consumer demand, as well as earlier purchasing of inventory for the Brand Portfolio segment to offset the increased transportation lead times, compared to a decrease during the thirteen weeks ended May 1, 2021; |
| ● | A larger increase in accounts receivable in the thirteen weeks ended April 30, 2022, compared to the thirteen weeks ended May 1, 2021, attributable to higher wholesale sales during the period; and |
| ● | A larger decrease in accrued expenses and other liabilities in the thirteen weeks ended April 30, 2022 due in part to higher incentive compensation payments in 2022 due to the strong 2021 financial results, compared to the thirteen weeks ended May 1, 2021; partially offset by |
| ● | A larger increase in accounts payable in the thirteen weeks ended April 30, 2022, compared to the thirteen weeks ended May 1, 2021, reflecting higher inventory purchases; and |
| ● | Higher net earnings in the thirteen weeks ended April 30, 2022, compared to the thirteen weeks ended May 1, 2021. |
Supply chain financing: Certain of our suppliers are given the opportunity to sell receivables from us related to products that we have purchased to participating financial institutions at a rate that leverages our credit rating, which may be more beneficial to the suppliers than the rate they can obtain based upon their own credit rating. We negotiate payment and other terms with our suppliers, regardless of whether the supplier participates in the program, and our responsibility is limited to making payment based on the terms originally negotiated with the supplier. These liabilities continue to be presented as accounts payable in our condensed consolidated balance sheets, with changes reflected within cash flows from operating activities when settled. As of April 30, 2022 and May 1, 2021, we had $45.0 million and $55.0 million, respectively, of accounts payable subject to supply chain financing arrangements.
Cash used for investing activities was $7.8 million higher for the thirteen weeks ended April 30, 2022 as compared to the thirteen weeks ended May 1, 2021, reflecting higher capital expenditures. In 2022, we expect our purchases of property and equipment and capitalized software to be between $35 million and $45 million, as compared to $24.1 million in 2021. We continue to invest in our Famous Footwear store refresh initiative. In addition, in the first quarter of 2022, we tested a new prototype Famous Footwear store that offers an enhanced shopping experience, highlights our leading assortment of trending brands and elevates those brands in an energetic and exciting manner. We plan to invest in additional prototype stores and store refreshes throughout 2022, which we believe will reinforce our national presence and further differentiate our store experience from that of our competitors.
Cash used for financing activities was $52.2 million lower for the thirteen weeks ended April 30, 2022 as compared to the thirteen weeks ended May 1, 2021, primarily due to net borrowings on our revolving credit agreement of $15.0 in the thirteen weeks ended April 30, 2022, compared to net repayments of $50.0 million in the comparable period in 2021. In addition, we repurchased $14.7 million of shares under our share repurchase programs during the thirteen weeks ended April 30, 2022, with no corresponding share repurchases during the thirteen weeks ended May 1, 2021.
A summary of key financial data and ratios at the dates indicated is as follows:
| April 30, 2022 |
| May 1, 2021 |
| January 29, 2022 |
| |||||
Operating working capital ($ millions) (1) | $ | 237.0 | $ | 126.3 | $ | 193.8 | |||||
Current ratio (2) | 0.87:1 | 0.87:1 | 0.82:1 | ||||||||
Debt-to-capital ratio (3) | 46.0 | % | 65.9 | % | 47.3 | % | |||||
| (1) | Operating working capital has been computed as total current assets, excluding cash and property and equipment, held for sale, less total current liabilities, excluding borrowings under revolving credit agreement and lease obligations. |
| (2) | The current ratio has been computed by dividing total current assets by total current liabilities. |
| (3) | The debt-to-capital ratio has been computed by dividing total debt by total capitalization. Total debt is defined as long-term debt and borrowings under revolving credit agreement. Total capitalization is defined as total debt and total equity. |
Operating working capital at April 30, 2022 was $237.0 million, which was $110.7 million and $43.2 million higher than at May 1, 2021 and January 29, 2022, respectively. The increase in operating working capital from May 1, 2021 primarily reflects higher receivables and
32
the settlement of the Blowfish Malibu mandatory purchase obligation in the fourth quarter of 2021. The increase in operating working capital from January 29, 2022 primarily reflects higher inventories, partially offset by higher trade payables. Our current ratio was 0.87 to 1 as of April 30, 2022, consistent with May 1, 2021, and 0.82:1 at January 29, 2022. Our debt-to-capital ratio was 46.0% as of April 30, 2022, compared to 65.9% as of May 1, 2021 and 47.3% at January 29, 2022. The decrease in our debt-to-capital ratio from May 1, 2021 and January 29, 2022 primarily reflects the extinguishment of our senior notes and higher equity attributable to our strong financial results.
We declared and paid dividends of $0.07 per share in the first quarter of both 2022 and 2021. The declaration and payment of any future dividend is at the discretion of the Board of Directors and will depend on our results of operations, financial condition, business conditions and other factors deemed relevant by our Board of Directors. However, we presently expect that dividends will continue to be paid.
We have various contractual or other obligations, including borrowings under our revolving credit facility, operating lease commitments, one-time transition tax for the mandatory deemed repatriation of cumulative foreign earnings and obligations for our supplemental executive retirement plan and other postretirement benefits. We also have purchase obligations to purchase inventory, assets and other goods and services. We believe our operating cash flows are sufficient to meet our material cash requirements for at least the next 12 months.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
No material changes have occurred related to critical accounting policies and estimates since the end of the most recent fiscal year. For further information on the Company’s critical accounting policies and estimates, see Part II, Item 7 of our Annual Report on Form 10-K for the year ended January 29, 2022.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
Recently issued accounting pronouncements and their impact on the Company are described in Note 2 to the condensed consolidated financial statements.
FORWARD-LOOKING STATEMENTS
This Form 10-Q contains certain forward-looking statements and expectations regarding the Company’s future performance and the performance of its brands. Such statements are subject to various risks and uncertainties that could cause actual results to differ materially. These risks include (i) supply chain disruptions and inflationary pressures; (ii) the coronavirus pandemic and its adverse impact on our business operations and financial condition; (iii) changing consumer demands, which may be influenced by general economic conditions and other factors; (iv) rapidly changing consumer preferences and purchasing patterns and fashion trends; (v) customer concentration and increased consolidation in the retail industry; (vi) intense competition within the footwear industry; (vii) foreign currency fluctuations; (viii) political and economic conditions or other threats to the continued and uninterrupted flow of inventory from China and other countries, where the Company relies heavily on third-party manufacturing facilities for a significant amount of its inventory; (ix) cybersecurity threats or other major disruption to the Company’s information technology systems; (x) the ability to accurately forecast sales and manage inventory levels; (xi) a disruption in the Company’s distribution centers; (xii) the ability to recruit and retain senior management and other key associates; (xiii) the ability to secure/exit leases on favorable terms; (xiv) the ability to maintain relationships with current suppliers; (xv) transitional challenges with acquisitions and divestitures; (xvi) changes to tax laws, policies and treaties; (xvii) compliance with applicable laws and standards with respect to labor, trade and product safety issues; and (xviii) the ability to attract, retain, and maintain good relationships with licensors and protect our intellectual property rights. The Company’s reports to the Securities and Exchange Commission contain detailed information relating to such factors, including, without limitation, the information under the caption “Risk Factors” in Part I, Item 1A of the Company’s Annual Report on Form 10-K for the year ended January 29, 2022, which information is incorporated by reference herein and updated by the Company’s Quarterly Reports on Form 10-Q. The Company does not undertake any obligation or plan to update these forward-looking statements, even though its situation may change.
ITEM 3 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
No material changes have taken place in the quantitative and qualitative information about market risk since the end of the most recent fiscal year. For further information, see Part II, Item 7A of the Company’s Annual Report on Form 10-K for the year ended January 29, 2022.
33
ITEM 4 CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
It is the Chief Executive Officer’s and Chief Financial Officer’s ultimate responsibility to ensure we maintain disclosure controls and procedures designed to provide reasonable assurance that information required to be disclosed in the reports that we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the Commission’s rules and forms and is accumulated and communicated to our management, including our principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. Our disclosure controls and procedures include mandatory communication of material events, automated accounting processing and reporting, management review of monthly, quarterly and annual results, an established system of internal controls and ongoing monitoring by our internal auditors.
A control system, no matter how well conceived or operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Furthermore, the design of a control system must reflect the fact there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any system of controls is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance any design will succeed in achieving its stated goals under all potential future conditions; over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to errors or fraud may occur and not be detected. Our disclosure controls and procedures are designed to provide a reasonable level of assurance that their objectives are achieved. As of April 30, 2022, management of the Company, including the Chief Executive Officer and Chief Financial Officer, conducted an evaluation of the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934). Based upon and as of the date of that evaluation, the Chief Executive Officer and Chief Financial Officer have concluded our disclosure controls and procedures were effective at the reasonable assurance level.
Based on the evaluation of internal control over financial reporting, the Chief Executive Officer and Chief Financial Officer have concluded that there have been no changes in the Company’s internal controls over financial reporting during the quarter ended April 30, 2022 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
PART II OTHER INFORMATION
ITEM 1 LEGAL PROCEEDINGS
We are involved in legal proceedings and litigation arising in the ordinary course of business. In the opinion of management, the outcome of such ordinary course of business proceedings and litigation currently pending will not have a material adverse effect on our results of operations or financial position. All legal costs associated with litigation are expensed as incurred.
Information regarding Legal Proceedings is set forth within Note 16 to the condensed consolidated financial statements and incorporated by reference herein.
ITEM 1A RISK FACTORS
There have been no material changes that have occurred related to our risk factors since the end of the most recent fiscal year. For further information, see Part I, Item 1A of our Annual Report on Form 10-K for the year ended January 29, 2022.
34
ITEM 2 UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
The following table provides information relating to our repurchases of common stock during the first quarter of 2022:
Total Number | Maximum Number | ||||||||
Purchased as Part | of Shares that May | ||||||||
Total Number of | of Publicly | Yet be Purchased | |||||||
Shares | Average Price Paid | Announced | Under the | ||||||
Fiscal Period |
| Purchased (1) |
| per Share (1) |
| Program (2) |
| Program (2) | |
January 30, 2022 - February 26, 2022 |
| — | $ | — |
| — |
| 1,990,224 | |
|
|
|
| ||||||
February 27, 2022 - April 2, 2022 |
| 424,662 |
| 20.37 |
| 250,000 |
| 8,740,224 | |
|
|
|
|
|
|
|
| ||
April 3, 2022 - April 30, 2022 |
| 451,324 |
| 21.32 |
| 451,324 |
| 8,288,900 | |
|
|
|
|
|
|
|
| ||
Total |
| 875,986 | $ | 20.86 |
| 701,324 |
| 8,288,900 | |
| (1) | Includes shares purchased as part of our publicly announced stock repurchase programs and shares that were tendered by employees related to certain share-based awards. The employee shares were tendered in satisfaction of the exercise price of stock options and/or to satisfy tax withholding amounts for non-qualified stock options, restricted stock and stock performance awards. |
| (2) | On September 2, 2019, the Board of Directors approved a stock repurchase program ("2019 Program") authorizing the repurchase of 5,000,000 shares of our outstanding common stock. In addition, on March 10, 2022, the Board of Directors approved a stock repurchase program ("2022 Program") authorizing the repurchase of an additional 7,000,000 shares of our outstanding common stock. We can use the repurchase programs to repurchase shares on the open market or in private transactions from time to time, depending on market conditions. The repurchase programs do not have an expiration date. During the thirteen weeks ended April 30, 2022, the Company repurchased 701,324 shares under these programs. The Company did not repurchase any shares under these programs during the thirteen weeks ended May 1, 2021. As of April 30, 2022, there were 8,288,900 shares authorized to be repurchased under the repurchase programs. Our repurchases of common stock are limited under our debt agreements. |
ITEM 3 DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4 MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5 OTHER INFORMATION
None.
35
ITEM 6 EXHIBITS
* | Denotes management contract or compensatory plan arrangements. |
† | Denotes exhibit is filed with this Form 10-Q. |
36
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| CALERES, INC. | |
| ||
Date: June 7, 2022 | /s/ Kenneth H. Hannah | |
Kenneth H. Hannah Senior Vice President and Chief Financial Officer on behalf of the Registrant and as the Principal Financial Officer |
37
Exhibit 10.4a
CALERES, INC.
INCENTIVE AND STOCK COMPENSATION PLAN OF 2022
PERFORMANCE AWARD AGREEMENT
THIS AWARD AGREEMENT, effective _______, represents the grant of a long-term incentive cash award (“Award”) by Caleres, Inc. (“Company”) to the Participant named below, who has been selected by the Compensation Committee of the Company's Board of Directors (the "Committee") to receive the Award with respect to the Performance Periods set forth below under the Company’s Incentive and Stock Compensation Plan of 2022 (the "Plan"). Subject to the terms set forth below, all of which constitute part of this Agreement, this Award provides the following:
Participant:
Target Award: $ total; $ per Performance Period
Form of Payment: Cash
Performance Cycle: The Company’s Fiscal Years ___ through ___
Performance Periods:
Performance Measure(s):
Minimum Performance Level: As shown in Attachment A
Maximum Award Value: ____% of Target Award for each Performance Period
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed effective as of the last date written below.
CALERES, INC.
By:
Becky Helvey
Sr. Director, Total Rewards
Date: ______
Accepted: ___________________
Participant Signature
Date: ______________________
Caleres, Inc.
PERFORMANCE AWARD _____ to _____
General Terms and Conditions (as of May 26, 2022)
The parties hereto agree as follows:
3.Value of Award. The Award shall represent and have a Maximum Award Value as specified on the executed cover page of this Award.
4. Earning the Award; Certification of Performance and Percent Earned. The portion of the Award allocated to a Performance Period shall be “earned” following the end of such Performance Period, as of the date the Committee shall determine and certify: (a) whether the Minimum Performance Level (as set forth on Attachment A) has been satisfied; (b) and if so, the percent of the Award that has been earned in accordance with Attachment A (the “Percent Earned”), but in no event more than the Maximum Award Value; and provided that the determinations pursuant to (a) and (b) shall be subject to the Committee’s right to exercise its discretion to reduce the Company’s level of performance based on the quality of earnings pursuant to Article 9 of the Plan. All calculations as to the Performance Measures shall be adjusted (1) pursuant to Section 14.2 of the Plan and (2) in the Committee’s discretion to exclude all items of gain, loss or expense for the Performance Period which the Committee determines to be extraordinary or unusual in nature or infrequent in occurrence or related to the acquistion or disposal of a business (or portion thereof) or related to a change in accounting principle all as determined in accordance with applicable accounting standards established pursuant to generally accepted accounting principles.
5. Amount Payable and Payment of the Award.
(a)Unless this Award is sooner terminated in accordance with Section 6, an earned Award (as provided in Section 4) shall be payable within sixty (60) days following completion of the Performance Cycle. Subject to Section 6(b) and in accordance with Section 6(c), this Award shall not be payable and shall be forfeited if Participant terminates employment with the Company prior to the date that the Award payment is made to the Participant.
(b) The amount payable to the Participant shall be determined by multiplying the Percent Earned by the Target Award specified on Attachment A, subject to the Committee’s right to exercise discretion as provided in Section 4.
(c) Unless otherwise specified on the executed cover page of this Award, payment of the earned award shall be made in cash.
6. | Termination Provisions. |
(a) If, pursuant to Section 4, the Committee certifies that the Minimum Performance Level has not been achieved, this Award shall immediately terminate and no longer be of any effect.
(b) If Participant’s employment is terminated during the Performance Period by reason of death, Disability, retirement (as determined and approved by the Committee) or early retirement (as determined and approved by the Committee), the Committee, in its sole discretion, shall determine whether the Participant (or Participant’s beneficiary in the event of death) shall be eligible to receive any payment under this Award. If payment of this Award is approved by the Committee, such payment shall be pro-rated based on the number of full months of continued active employment by Participant during the Performance Cycle as a percent of the total number of months in the Performance Cycle; the amount payable shall be based on the Percent Earned; and payment shall be made pursuant to Section 5 at the same time as payment of other awards for the same Performance Cycle are made to other eligible participants who did not terminate employment during the Performance Cycle. Notwithstanding the foregoing, in the event of Participant’s termination due to death or Disability, if approved by the Committee, such pro-rated payment may be made prior to expiration of the Performance Cycle, with calculation of and timing of the payment amount to be determined by the Committee, to the extent such payment would not result in adverse tax consequences under Section 409A of the Code.
(c) Except as provided in subsection 6(b), a Participant shall be eligible for payment of the earned Award, as specified in Section 4, only if the Participant remains continuously employed by the Company from the date of this Agreement, through the end of the Performance Cycle and continuing thereafter until the date the Awards is actually paid.
7.Dividends. To the extent applicable, the Participant shall have no right to any dividends that may be paid with respect to Shares until any such shares are vested.
8. Change in Control. If a Participant is employed by the Company on the date of a Change in Control, subject to Article 13 of the Plan, unless otherwise specifically prohibited under applicable laws, or by the rules and regulations of any governing governmental agencies or national securities exchange, the Award shall be deemed to have been fully earned for the entire Performance Cycle and fully vested as of the effective date of the Change in Control; and based upon an assumed achievement of all relevant targeted performance goals, the Award shall be payable in the amounts or at the level provided by the above-referenced provisions of the Plan within thirty (30) days following the effective date of the Change in Control, to the extent meeting the requirements under Section 409A of the Code.
9. Recapitalization. To the extent applicable, subject to Section 4.2 of the Plan, in the event that there is any change in corporate capitalization, such as a stock split, or a corporate transaction, such as any merger, consolidation, separation including a spin-off, or other distribution of stock or property of the Company, any reorganization (whether or not such reorganization comes within the definition of such term in Code 368) or any partial or complete liquidation of the Company, such adjustment shall be made in the number and class and/or price of the Shares subject to this Award, as may be determined to be appropriate and equitable by the Committee, in its sole discretion, to prevent dilution or enlargement of rights; provided, however, that the number of Performance Shares subject to this Award shall always be a whole number.
10. Tax Withholding. The Company shall have the power and the right to deduct or withhold, or require the Participant or beneficiary to remit to the Company, an amount sufficient to satisfy Federal, state, and local taxes, domestic or foreign, required by law or regulation to be withheld with respect to any taxable event arising as a result of the Award.
11. Clawback. Any payouts will be subject to recovery if it is determined that the Participant personally and knowingly engaged in practices that materially contributed to the circumstances that led to the restatement of the Company’s financial statements.
12. Nontransferability. This Agreement, as well as the rights granted thereunder, may not be sold, transferred, pledged, assigned, or otherwise alienated or hypothecated, other than by will or by the laws of descent and distribution.
13. Administration.
(a) This Award and the rights of the Participant hereunder are subject to all terms and conditions of the Plan, as the same may be amended from time to time, as well as to such rules and regulations as the Committee may adopt for administration of the Plan. It is expressly understood that the Committee is authorized to administer, construe, and make all determinations necessary or appropriate to the administration of the Plan and this Agreement, all of which shall be binding upon the Participant.
(b)If there is any inconsistency between the terms of this Award and the terms of the Plan, the Plan’s terms shall completely supersede and replace the conflicting terms of this Agreement. All capitalized terms shall have the meanings ascribed to them in the Plan unless specifically set forth otherwise herein.
14. Miscellaneous
(a) | This Agreement shall not confer upon the Participant any right to continuation of employment by the Company, nor shall this Agreement interfere in any way with the Company’s right to terminate his or her employment at any time. |
(b) | The Committee and/or the Company’s Board of Directors may terminate, amend, or modify the Plan; provided, however, that no such termination, amendment, or modification of the Plan may in any way adversely affect the Participant’s rights under this Agreement without the Participant’s written consent. |
(c) | This Agreement shall be subject to all applicable laws, rules, and regulations, and to such approvals by any governmental agencies or national securities exchanges as may be required. |
| (d) | To the extent not preempted by Federal law, this Agreement shall be construed in accordance with and governed by the substantive laws of the State of Missouri without regard to conflicts of laws principles, which might otherwise apply. Any litigation arising out of, in connection with, or concerning any |
| aspect of the Plan or this Agreement shall be conducted exclusively in the State or Federal courts located in the City or County of St. Louis, Missouri. |
Exhibit 10.4b
RESTRICTED STOCK AWARD AGREEMENT - Employee
CALERES, INC.
INCENTIVE AND STOCK COMPENSATION PLAN OF 2022
Caleres, Inc., a New York corporation (the “Company”), grants to the participant identified below an award of Restricted Stock (referred to herein as “Restricted Stock” or “Restricted Shares”), which shall be shares of the Company’s Common Stock, $.01 par value (“Common Stock”), pursuant to the provisions of the Incentive and Stock Compensation Plan of 2022 (the “Plan”), and subject to the key terms set forth below and the attached General Terms and Conditions (dated as of May 26, 2022), including restrictions applicable to the Restricted Shares, all of which constitute part of this Agreement (the “Restricted Stock Award”), as follows:
Participant:
Award Grant Date:
Number of Restricted Shares: Shares of Caleres, Inc. Common Stock,
subject to certain restrictions.
Vesting Schedule (Lapse of Restrictions):
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed effective as of the date written below.
CALERES, INC.
By:
Becky Helvey
Sr. Director, Total Rewards
Date: ________
Accepted:_________________________________
Participant
Date: ____________________________________
RESTRICTED STOCK AWARD
General Terms and Conditions (as of May 26, 2022)
Incentive and Stock Compensation Plan of 2022
1. Restrictions
The Restricted Shares are restricted as to disposition and may not be pledged and are subject to forfeiture unless certain conditions are met. The Company’s transfer agent has been advised that the Restricted Shares cannot be sold, transferred, re-registered or disposed of until the restrictions on the shares lapse. Restricted Shares shall vest, and the restrictions shall no longer apply, as to the number or percentage of Restricted Shares and on the dates specified above as the “Vesting Schedule.” A further restriction on the Restricted Shares is that you shall only be entitled to receive Shares free of restrictions if, at the time of the lapse of such restrictions, you are then in the employ of the Company and shall have been continuously so employed since the date of grant of the Restricted Shares. If you do not meet these conditions at any time, such Shares shall be forfeited.
2. Voting Rights and Dividend Rights
You will be entitled to full voting rights and dividend rights for all Restricted Shares, beginning with the date of grant, regardless of restriction periods. Dividends may be paid directly to you or may be credited to your dividend re-investment plan account. Dividend rights and voting rights will be cancelled in the event the Restricted Shares are forfeited.
3. Book Entry for Restricted Shares. You will not receive a certificate for the Restricted Shares; instead, the Restricted Shares will be credited as a book entry to an account in your name with the Company’s transfer agent. At such time as the restrictions lapse, those Shares that are no longer subject to restrictions shall be transferred to a non-restricted account in your name with the transfer agent or as otherwise directed by you and agreed by the Company.
4. Death, Disability or Retirement. In the event of termination of employment due to death, permanent Disability, or retirement (including but not limited to any early retirement) if approved by the Compensation Committee, all Restricted Shares shall vest immediately and be free of restrictions.
5.Change in Control. Subject to Article 13 of the Plan, unless otherwise specifically prohibited under applicable laws, or by the rules and regulations of any governing governmental agencies or national securities exchange, the Restricted Shares still subject to restrictions under this Agreement shall automatically vest and all restrictions shall lapse upon the occurrence of a Change in Control.
6.Adjustment Upon Changes in Capitalization. In accordance with Section 4.2 of the Plan, in the event that there is a change in the Common Stock of the Company by reason of stock dividends, split-ups, recapitalizations, mergers, consolidations, reorganizations, combinations or exchanges of
shares, then the Restricted Shares shall be adjusted in the same manner as other shares of Common Stock are adjusted.
7.Tax Withholding. The Board shall have the power and the right to deduct or withhold, cash or shares, or require the Participant to remit to the Company, an amount sufficient to satisfy Federal, state, and local taxes, domestic or foreign, required by law or regulation to be withheld with respect to any taxable event arising as a result of the Award.
8.Share Withholding. With respect to withholding upon the lapse of restrictions on the Restricted Shares, or upon any other taxable event arising as a result of this grant of Restricted Shares, the Participant may elect, subject to the approval of the Board, to satisfy the tax withholding requirement, in whole or in part, by having the Company withhold Shares having a Fair Market Value on the date the tax is to be determined equal to the minimum statutory total tax which could be imposed on the transaction, or at such other rate as will not result in adverse accounting treatment, as determined by the Board in its sole discretion. All such elections shall be irrevocable, made in writing, signed by the Participant, and shall be subject to any restrictions or limitations that the Board, in its sole discretion, deems appropriate. Notwithstanding the foregoing, in the event that the Participant has the opportunity to make an election but does not submit to the Company a properly completed election form at least five (5) business days prior to the date of Lapse of Restrictions; or the Participant does not tender cash consideration as elected or required, then Section 7 of these Terms and Conditions may be applied.
9. Nontransferability. This Agreement and the Restricted Shares granted hereunder, until such time as the restrictions on the Shares have lapsed, may not be sold, transferred, pledged, assigned, or otherwise alienated or hypothecated, other than by will or by the laws of descent and distribution.
10. Administration and Interpretation. This Award Agreement and the rights of the Participant hereunder are subject to all terms and conditions of the Plan, as the same may be amended from time to time, as well as to such rules and regulations as the Board may adopt for administration of the Plan. It is expressly understood that the Board is authorized to administer, construe, and make all determinations necessary or appropriate to the administration of the Plan and this Award Agreement, all of which shall be binding upon the Participant. The Board may delegate to the Compensation Committee all determinations with respect to the Plan and this Award Agreement. All capitalized terms used in this Award Agreement shall have the meanings ascribed to them in the Plan, unless specifically set forth otherwise herein. If there is any inconsistency between the terms of this Award Agreement and the terms of the Plan, the Plan’s terms shall completely supersede and replace the conflicting terms of this Award Agreement.
11. | Miscellaneous |
(a) | This Award Agreement shall not confer upon the Participant any right to continuation of employment by the Company, nor shall this Award Agreement interfere in any way with the Company’s right to terminate his or her employment at any time. |
(b) | The Board may terminate, amend, or modify the Plan; provided, however, that no such termination, amendment, or modification of the Plan may in any way adversely affect the Participant’s rights under this Award Agreement without the Participant’s written consent. |
(c) | This Award Agreement shall be subject to all applicable laws, rules, and regulations, and to such approvals by any governmental agencies or national securities exchanges as may be required. |
| (d) | To the extent not preempted by Federal law, this Award Agreement shall be construed in accordance with and governed by the substantive laws of the State of Missouri without regard to conflicts of laws principles, which might otherwise apply. Any litigation arising out of, in connection with, or concerning any aspect of the Plan or this Award Agreement shall be conducted exclusively in the State or Federal courts in Missouri. |
Exhibit 10.5a
CALERES, INC.
RESTRICTED STOCK UNIT AGREEMENT – Director
INCENTIVE AND STOCK COMPENSATION PLAN OF 2022
Caleres, Inc., a New York corporation (hereinafter referred to as the "Company"), grants to the participant (hereinafter referred to as the "Director") an award of Restricted Stock Units ("Award"), pursuant to the provisions of the Incentive and Stock Compensation Plan of 2022 (the “Plan”), and subject to the key terms set forth below and the attached General Terms and Conditions (as effective May 26, 2022).
Participant:_________
Award Grant Date: ________
Number of Restricted Stock Units: _____ subject to certain restrictions
Vesting Date: 100% of the Restricted Stock Units shall vest at 8:00 am CST on the date of the Company's next Annual Meeting of Shareholders.
IN WITNESS WHEREOF, the Company has caused this Agreement to be executed on its behalf and the Director has signed this Agreement to evidence the Director's acceptance of the terms hereof, all as of the effective date written below.
CALERES, INC.
By:
Becky Helvey
Sr. Director, Total Rewards
Date: ________
Accepted:
Director
Date:
Caleres, Inc.
RESTRICTED STOCK UNIT AWARD - Director
General Terms and Conditions (as effective May 26, 2022)
Incentive and Stock Compensation Plan of 2022
For purposes of this Agreement, "Fair Market Value" as of a given date means the mean between the high and low selling prices on the New York Stock Exchange of the Company's Common Stock on such given date; provided that in the absence of actual sales on a given date, "Fair Market Value" means the mean between the high and low selling prices on the New York Stock Exchange of Common Stock on the last day preceding such given date on which a sale of the Common Stock occurred.
appointment as a director, in the manner and to the extent permitted by Section 409A of the Internal Revenue Code). Any election or non-election shall be irrevocable after the election is made. In no event, however, will RSUs be settled as of a date after the Director's termination of service as a director.
Exhibit 10.5b
RESTRICTED STOCK AWARD AGREEMENT - Director
CALERES, INC.
INCENTIVE AND STOCK COMPENSATION PLAN OF 2022
Caleres, Inc., a New York corporation (the “Company”), grants to the participant identified below an award of Restricted Stock (referred to herein as “Restricted Stock” or “Restricted Shares”), which shall be shares of the Company’s Common Stock, $.01 par value (“Common Stock”), pursuant to the provisions of the Incentive and Stock Compensation Plan of 2022 (the “Plan”), and subject to the key terms set forth below and the attached General Terms and Conditions (as of May 26, 2022), including restrictions applicable to the Restricted Shares, all of which constitute part of this Agreement (the “Restricted Stock Award”), as follows:
Participant:__________
Award Grant Date:________
Number of Restricted Shares:
_____Shares of Caleres, Inc. Common Stock, subject to certain restrictions
Vesting Date:
100% of the Restricted Shares shall vest at 8:00 am CST on the date of the Company's next Annual Meeting of Shareholders.
IN WITNESS WHEREOF, the Company has caused this Agreement to be executed on its behalf and the Director has signed this Agreement to evidence the Director’s acceptance of the terms hereof, all as of the effective date written below.
CALERES, INC.
By:
__________
Becky Helvey
Sr. Director, Total Rewards
Date: ______
Accepted:
Director Signature
Date:
Caleres, Inc.
RESTRICTED STOCK AWARD – Director
General Terms and Conditions (as of May 26, 2022)
| 1. | Restrictions. The Restricted Shares are restricted as to disposition and may not be pledged and are subject to forfeiture unless certain conditions are met. The Company’s transfer agent has been advised that the Restricted Shares cannot be sold, transferred, re-registered or disposed of until the restrictions on the shares lapse. Restricted Shares shall vest, and the restrictions shall no longer apply, as to the number or percentage of Restricted Shares and on the dates specified above as the “Vesting Schedule.” A further restriction on the Restricted Shares is that you shall only be entitled to receive Shares free of restrictions if, at the time of the lapse of such restrictions, you are then serving as a member of the Board of Directors of the Company and shall have been continuously serving in that capacity since the date of grant of the Restricted Shares. If you do not meet these conditions at any time, such Restricted Shares shall be forfeited. |
| 2. | Voting Rights and Dividend Rights. You will be entitled to full voting rights and dividend rights for all Restricted Shares, beginning with the date of grant, regardless of restriction periods. Dividends may be paid directly to you or may be credited to your dividend re-investment plan account. Dividend rights and voting rights will be cancelled in the event the Restricted Shares are forfeited. |
| 3. | Book Entry for Restricted Shares. You will not receive a certificate for the Restricted Shares; instead, the Restricted Shares will be credited as a book entry to an account in your name with the Company’s transfer agent. At such time as the restrictions lapse, those Shares that are no longer subject to restrictions shall be transferred to a non-restricted account in your name with the transfer agent or as otherwise directed by you and agreed by the Company. |
| 4. | Death or Disability. In the event of termination of service as a director due to death or Disability, all Restricted Shares shall vest immediately and be free of restrictions. |
| 5. | Change in Control. Subject to Article 13 of the Plan, unless otherwise specifically prohibited under applicable laws, or by the rules and regulations of any governing governmental agencies or national securities exchange, the Restricted Shares still subject to restrictions under this Agreement shall automatically vest and all restrictions shall lapse upon the occurrence of a Change in Control (as defined in the Plan). |
| 7. | Tax Withholding. If the Participant is subject to withholding of taxes, the Board shall have the power and the right to deduct or withhold, or require the Participant to remit to the Company, an amount sufficient to satisfy Federal, state, and local taxes, domestic or foreign, required by law or regulation to be withheld with respect to any taxable event arising as a result of the Award, as provided in the Plan. |
| 8. | Transferability. This Agreement and the Restricted Shares granted hereunder, until such time as the restrictions on the Shares have lapsed, may not be sold, transferred, pledged, assigned, or otherwise alienated or hypothecated, other than by will or by the laws of descent and distribution. |
| 9. | Administration and Interpretation. This Award Agreement and the rights of the Participant hereunder are subject to all terms and conditions of the Plan, as the same may be amended from time to time, as well as to such rules and regulations as the Board may adopt for administration of the Plan. It is expressly understood that the Board is authorized to administer, construe, and make all determinations necessary or appropriate to the administration of the Plan and this Award Agreement, all of which shall be binding upon the Participant. All capitalized terms used in this Award Agreement shall have the meanings ascribed to them in the Plan, unless specifically set forth otherwise herein. If there is any inconsistency between the terms of this Award Agreement and the terms of the Plan, the Plan’s terms shall completely supersede and replace the conflicting terms of this Award Agreement. |
| 10. | Miscellaneous |
| a. | The Board may terminate, amend, or modify the Plan; provided, however, that no such termination, amendment, or modification of the Plan may in any way adversely affect the Participant’s rights under this Award Agreement without the Participant’s written consent. |
| b. | This Award Agreement shall be subject to all applicable laws, rules, and regulations, and to such approvals by any governmental agencies or national securities exchanges as may be required. |
| c. | To the extent not preempted by Federal law, this Award Agreement shall be construed in accordance with and governed by the substantive laws of the State of Missouri without regard to conflicts of laws principles, which might otherwise apply. Any litigation arising out of, in connection with, or concerning any aspect of the Plan or this Award Agreement shall be conducted exclusively in the State or Federal courts in Missouri. |
Exhibit 31.1
CERTIFICATIONS
I, Diane M. Sullivan, certify that:
1. I have reviewed this report on Form 10-Q of Caleres, Inc. (the “registrant”);
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
/s/ Diane M. Sullivan |
Diane M. Sullivan |
Chief Executive Officer and Chairman of the Board of Directors |
Caleres, Inc. |
June 7, 2022 |
Exhibit 31.2
CERTIFICATIONS
I, Kenneth H. Hannah, certify that:
1. I have reviewed this report on Form 10-Q of Caleres, Inc. (the “registrant”);
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
/s/ Kenneth H. Hannah |
Kenneth H. Hannah |
Senior Vice President and Chief Financial Officer |
Caleres, Inc. |
June 7, 2022 |
Exhibit 32.1
Certification Pursuant to
18 U.S.C. §1350,
As Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
In connection with the Quarterly Report of Caleres, Inc. (the “Registrant”) on Form 10-Q for the quarter ended April 30, 2022, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), we, Diane M. Sullivan, Chief Executive Officer and Chairman of the Board of Directors of the Registrant, and Kenneth H. Hannah, Senior Vice President and Chief Financial Officer of the Registrant, certify, to the best of our knowledge, pursuant to 18 U.S.C. §1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Registrant.
/s/ Diane M. Sullivan |
Diane M. Sullivan |
Chief Executive Officer and Chairman of the Board of Directors |
Caleres, Inc. |
June 7, 2022 |
|
/s/ Kenneth H. Hannah |
Kenneth H. Hannah |
Senior Vice President and Chief Financial Officer |
Caleres, Inc. |
June 7, 2022 |