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As Of Filer Filing For·On·As Docs:Size Issuer Filing Agent 12/11/19 Caleres Inc 10-Q 11/02/19 96:16M RDG Filings/FA |
Document/Exhibit Description Pages Size
1: 10-Q Quarterly Report HTML 2.05M
2: EX-31.1 Certification -- §302 - SOA'02 HTML 36K
3: EX-31.2 Certification -- §302 - SOA'02 HTML 35K
4: EX-32.1 Certification -- §906 - SOA'02 HTML 30K
47: R1 Document And Entity Information HTML 82K
88: R2 Condensed Consolidated Balance Sheets (Unaudited) HTML 131K
72: R3 Condensed Consolidated Statements of Earnings HTML 76K
(Unaudited)
19: R4 Condensed Consolidated Statements of Comprehensive HTML 59K
Income (Unaudited)
45: R5 Condensed Consolidated Statements of Cash Flows HTML 127K
(Unaudited)
87: R6 Condensed Consolidated Statements of Shareholders' HTML 117K
Equity (Unaudited)
71: R7 Condensed Consolidated Statements of Shareholders' HTML 36K
Equity (Unaudited) (Parentheticals)
16: R8 Note 1 - Basis of Presentation HTML 35K
48: R9 Note 2 - Impact of New Accounting Pronouncements HTML 42K
70: R10 Note 3 - Acquisitions HTML 71K
82: R11 Note 4 - Revenues HTML 163K
52: R12 Note 5 - Earnings Per Share HTML 74K
22: R13 Note 6 - Restructuring and Other Initiatives HTML 40K
69: R14 Note 7 - Business Segment Information HTML 97K
81: R15 Note 8 - Inventories HTML 43K
51: R16 Note 9 - Goodwill and Intangible Assets HTML 110K
21: R17 Note 10 - Leases HTML 77K
67: R18 Note 11 - Long-term and Short-term Financing HTML 48K
Arrangements
83: R19 Note 12 - Shareholders' Equity HTML 126K
32: R20 Note 13 - Share-based Compensation HTML 134K
25: R21 Note 14 - Retirement and Other Benefit Plans HTML 82K
54: R22 Note 15 - Risk Management and Derivatives HTML 98K
91: R23 Note 16 - Fair Value Measurements HTML 155K
31: R24 Note 17 - Income Taxes HTML 36K
24: R25 Note 18 - Commitments and Contingencies HTML 40K
53: R26 Note 19 - Financial Information for the Company HTML 796K
and its Subsidiaries
90: R27 Note 3 - Acquisitions (Tables) HTML 49K
33: R28 Note 4 - Revenues (Tables) HTML 151K
23: R29 Note 5 - Earnings Per Share (Tables) HTML 69K
17: R30 Note 7 - Business Segment Information (Tables) HTML 98K
49: R31 Note 8 - Inventories (Tables) HTML 44K
85: R32 Note 9 - Goodwill and Intangible Assets (Tables) HTML 104K
73: R33 Note 10 - Leases (Tables) HTML 79K
18: R34 Note 11 - Long-term and Short-term Financing HTML 33K
Arrangements (Tables)
50: R35 Note 12 - Shareholders' Equity (Tables) HTML 123K
86: R36 Note 13 - Share-based Compensation (Tables) HTML 126K
74: R37 Note 14 - Retirement and Other Benefit Plans HTML 80K
(Tables)
20: R38 Note 15 - Risk Management and Derivatives (Tables) HTML 95K
46: R39 Note 16 - Fair Value Measurements (Tables) HTML 137K
28: R40 Note 19 - Financial Information for the Company HTML 785K
and its Subsidiaries (Tables)
37: R41 Note 2 - Impact of New Accounting Pronouncements HTML 38K
(Details Textual)
92: R42 Note 3 - Acquisitions (Details Textual) HTML 106K
56: R43 Note 3 - Acquisitions - Purchase Price Allocation HTML 69K
(Details)
29: R44 Note 4 - Revenues (Details Textual) HTML 34K
38: R45 Note 4 - Revenues - Disaggregation of Revenue HTML 75K
(Details)
93: R46 Note 4 - Revenues - Contract Balances (Details) HTML 37K
57: R47 Note 5 - Earnings Per Share (Details Textual) HTML 41K
30: R48 Note 5 - Earnings Per Share - Schedule of Basic HTML 58K
and Diluted Earnings Per Common Share (Details)
36: R49 Note 6 - Restructuring and Other Initiatives HTML 87K
(Details Textual)
43: R50 Note 7 - Business Segment Information - Key HTML 48K
Financial Measures (Details)
15: R51 Note 7 - Business Segment Information - HTML 35K
Reconciliation of Operating Earnings Before Income
Taxes (Details)
62: R52 Note 8 - Inventories - Schedule of Inventories HTML 37K
(Details)
76: R53 Note 9 - Goodwill and Intangible Assets (Details HTML 75K
Textual)
42: R54 Note 9 - Goodwill and Intangible Assets - Schedule HTML 42K
of Goodwill and Intangible Assets (Details)
14: R55 Note 9 - Goodwill and Intangible Assets - Finite HTML 59K
and Infinite-Lived Intangible Assets (Details)
61: R56 Note 10 - Leases (Details Textual) HTML 38K
75: R57 Note 10 - Leases - Operating Leases (Details) HTML 45K
44: R58 Note 10 - Leases - Summary of Lease Assets and HTML 35K
Liabilities (Details)
13: R59 Note 10 - Leases - Weighted-average Lease Term and HTML 31K
Discount Rate (Details)
60: R60 Note 10 - Leases - Components of Lease Expense HTML 38K
(Details)
95: R61 Note 10 - Leases - Future Minimum Rent Payments HTML 48K
(Details)
35: R62 Note 10 - Leases - Supplemental Cash Flow HTML 31K
Information (Details)
27: R63 Note 11 - Long-term and Short-term Financing HTML 58K
Arrangements (Details Textual)
59: R64 Note 11 - Long-term and Short-term Financing HTML 34K
Arrangements - Schedule of Redemption Price
Percentage (Details)
94: R65 Note 12 - Shareholders' Equity - Accumulated Other HTML 67K
Comprehensive Loss (Details)
34: R66 Note 13 - Share-based Compensation (Details HTML 64K
Textual)
26: R67 Note 13 - Share-Based Compensation - Restricted HTML 52K
Stock Activity (Details)
58: R68 Note 13 - Share-Based Compensation - Stock Option HTML 54K
Activity (Details)
96: R69 Note 14 - Retirement and Other Benefit Plans - HTML 51K
Components of Net Periodic Benefit Income
(Details)
78: R70 Note 15 - Risk Management and Derivatives - Net HTML 40K
Notional Amount of All Purchase and Sale Contracts
of a Foreign Currency (Details)
63: R71 Note 15 - Risk Management and Derivatives - HTML 39K
Schedule of Fair Values of Derivative Instruments
Designated as Hedging Instruments (Details)
10: R72 Note 15 - Risk Management and Derivatives - Effect HTML 41K
of Derivative Instruments in Cash Flow Hedging
Relationships (Details)
39: R73 Note 16 - Fair Value Measurements (Details HTML 34K
Textual)
80: R74 Note 16 - Fair Value Measurements - Assets and HTML 57K
Liabilities Measured on a Recurring Basis
(Details)
65: R75 Note 16 - Fair Value Measurements - Impairment HTML 35K
Charges (Details)
12: R76 Note 16 - Fair Value Measurements - Fair Value of HTML 39K
Financial Instruments (Details)
41: R77 Note 17 - Income Taxes (Details Textual) HTML 40K
77: R78 Note 18 - Commitments and Contingencies (Details HTML 60K
Textual)
66: R79 Note 19 - Financial Information for the Company HTML 28K
and its Subsidiaries (Details Textual)
79: R80 Note 19 - Financial Information for the Company HTML 173K
and its Subsidiaries - Schedule of Condensed
Consolidating Balance Sheet (Details)
64: R81 Note 19 - Financial Information for the Company HTML 121K
and its Subsidiaries - Schedule of Condensed
Consolidating Statement of Comprehensive Income
(Details)
11: R82 Note 19 - Financial Information for the Company HTML 129K
and its Subsidiaries - Schedule of Condensed
Consolidating Statement of Cash Flows (Details)
55: XML IDEA XML File -- Filing Summary XML 185K
40: XML XBRL Instance -- cal20191102_10q_htm XML 5.79M
68: EXCEL IDEA Workbook of Financial Reports XLSX 110K
6: EX-101.CAL XBRL Calculations -- cal-20191102_cal XML 137K
7: EX-101.DEF XBRL Definitions -- cal-20191102_def XML 1.52M
8: EX-101.LAB XBRL Labels -- cal-20191102_lab XML 1.20M
9: EX-101.PRE XBRL Presentations -- cal-20191102_pre XML 1.57M
5: EX-101.SCH XBRL Schema -- cal-20191102 XSD 233K
84: JSON XBRL Instance as JSON Data -- MetaLinks 379± 642K
89: ZIP XBRL Zipped Folder -- 0001437749-19-024236-xbrl Zip 274K
| cal20190722_10q.htm |
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM i 10-Q
(Mark One)
| i ☒ |
Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the quarterly period ended i November 2, 2019 |
|
|
|
|
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| i ☐ |
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: i 1-2191
| CALERES, INC. (Exact name of registrant as specified in its charter) |
|
|
|
|
| i New York (State or other jurisdiction of incorporation or organization) |
i 43-0197190 (IRS Employer Identification Number) |
|
|
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| i 8300 Maryland Avenue i St. Louis, i Missouri (Address of principal executive offices) |
i 63105 (Zip Code) |
| ( i 314) i 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 |
| i Common Stock - par value of $0.01 per share |
i CAL |
i 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. i 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). i 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:
| i Large accelerated filer ☑ |
Accelerated filer ☐ |
| Non-accelerated filer ☐ |
Smaller reporting company i ☐ |
|
|
Emerging growth company i ☐ |
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 i ☐ No ☑
As of November 29, 2019, i 40,534,862 common shares were outstanding.
|
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Page |
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| Item 1 |
3 |
|
| Item 2 |
Management's Discussion and Analysis of Financial Condition and Results of Operations |
32 |
| Item 3 |
41 |
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| Item 4 |
41 |
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| Item 1 |
42 |
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| Item 1A |
42 |
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| Item 2 |
42 |
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| Item 3 |
42 |
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| Item 4 |
42 |
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| Item 5 |
42 |
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| Item 6 |
43 |
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44 |
| FINANCIAL INFORMATION |
|
| FINANCIAL STATEMENTS |
| CALERES, INC. |
| CONDENSED CONSOLIDATED BALANCE SHEETS |
| (Unaudited) |
||||||||||||
| ($ thousands) |
||||||||||||
| Assets |
||||||||||||
| Current assets: |
||||||||||||
| Cash and cash equivalents | $ | i 52,502 | $ | i 90,491 | $ | i 30,200 | ||||||
| Receivables, net | i 156,253 | i 192,246 | i 191,722 | |||||||||
| Inventories, net | i 644,646 | i 698,265 | i 683,171 | |||||||||
| Prepaid expenses and other current assets | i 48,245 | i 63,166 | i 71,354 | |||||||||
| Total current assets |
i 901,646 | i 1,044,168 | i 976,447 | |||||||||
| Other assets | i 92,214 | i 92,279 | i 81,440 | |||||||||
| Goodwill | i 245,275 | i 283,345 | i 242,531 | |||||||||
| Intangible assets, net | i 297,570 | i 370,507 | i 307,366 | |||||||||
| Lease right-of-use assets | i 704,244 | i — | i — | |||||||||
| Property and equipment | i 591,370 | i 556,967 | i 579,087 | |||||||||
| Allowance for depreciation | ( i 361,109 | ) | ( i 338,864 | ) | ( i 348,303 | ) | ||||||
| Property and equipment, net |
i 230,261 | i 218,103 | i 230,784 | |||||||||
| Total assets |
$ | i 2,471,210 | $ | i 2,008,402 | $ | i 1,838,568 | ||||||
| Liabilities and Equity |
||||||||||||
| Current liabilities: |
||||||||||||
| Borrowings under revolving credit agreement | $ | i 295,000 | $ | i 350,000 | $ | i 335,000 | ||||||
| Trade accounts payable | i 275,699 | i 317,499 | i 316,298 | |||||||||
| Lease obligations | i 144,501 | i — | i — | |||||||||
| Other accrued expenses | i 179,030 | i 209,479 | i 202,038 | |||||||||
| Total current liabilities |
i 894,230 | i 876,978 | i 853,336 | |||||||||
| Other liabilities: |
||||||||||||
| Noncurrent lease obligations | i 629,731 | i — | i — | |||||||||
| Long-term debt | i 198,276 | i 197,817 | i 197,932 | |||||||||
| Deferred rent |
i — | i 51,930 | i 54,850 | |||||||||
| Other liabilities | i 95,623 | i 114,592 | i 97,015 | |||||||||
| Total other liabilities |
i 923,630 | i 364,339 | i 349,797 | |||||||||
| Equity: |
||||||||||||
| Common stock | i 406 | i 432 | i 419 | |||||||||
| Additional paid-in capital | i 152,214 | i 143,754 | i 145,889 | |||||||||
| Accumulated other comprehensive loss | ( i 30,318 | ) | ( i 16,624 | ) | ( i 31,601 | ) | ||||||
| Retained earnings | i 528,538 | i 638,191 | i 519,346 | |||||||||
| Total Caleres, Inc. shareholders’ equity |
i 650,840 | i 765,753 | i 634,053 | |||||||||
| Noncontrolling interests | i 2,510 | i 1,332 | i 1,382 | |||||||||
| Total equity |
i 653,350 | i 767,085 | i 635,435 | |||||||||
| Total liabilities and equity |
$ | i 2,471,210 | $ | i 2,008,402 | $ | i 1,838,568 | ||||||
See notes to condensed consolidated financial statements.
| CALERES, INC. |
| CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS |
| (Unaudited) |
||||||||||||||||
| Thirteen Weeks Ended |
Thirty-Nine Weeks Ended |
|||||||||||||||
| ($ thousands, except per share amounts) |
||||||||||||||||
| Net sales | $ | i 792,375 | $ | i 775,829 | $ | i 2,222,614 | $ | i 2,114,583 | ||||||||
| Cost of goods sold | i 472,605 | i 465,219 | i 1,317,064 | i 1,235,950 | ||||||||||||
| Gross profit |
i 319,770 | i 310,610 | i 905,550 | i 878,633 | ||||||||||||
| Selling and administrative expenses | i 275,330 | i 265,522 | i 804,972 | i 774,555 | ||||||||||||
| Restructuring and other special charges, net | i 969 | i 5,340 | i 2,434 | i 9,240 | ||||||||||||
| Operating earnings |
i 43,471 | i 39,748 | i 98,144 | i 94,838 | ||||||||||||
| Interest expense, net | ( i 10,559 | ) | ( i 4,210 | ) | ( i 25,288 | ) | ( i 11,495 | ) | ||||||||
| Other income, net | i 2,633 | i 3,085 | i 7,902 | i 9,254 | ||||||||||||
| Earnings before income taxes |
i 35,545 | i 38,623 | i 80,758 | i 92,597 | ||||||||||||
| Income tax provision | ( i 7,784 | ) | ( i 9,468 | ) | ( i 18,685 | ) | ( i 22,651 | ) | ||||||||
| Net earnings |
i 27,761 | i 29,155 | i 62,073 | i 69,946 | ||||||||||||
| Net (loss) earnings attributable to noncontrolling interests | ( i 226 | ) | i 2 | ( i 338 | ) | ( i 65 | ) | |||||||||
| Net earnings attributable to Caleres, Inc. |
$ | i 27,987 | $ | i 29,153 | $ | i 62,411 | $ | i 70,011 | ||||||||
| Basic earnings per common share attributable to Caleres, Inc. shareholders | $ | i 0.69 | $ | i 0.68 | $ | i 1.51 | $ | i 1.62 | ||||||||
| Diluted earnings per common share attributable to Caleres, Inc. shareholders | $ | i 0.69 | $ | i 0.67 | $ | i 1.51 | $ | i 1.62 | ||||||||
See notes to condensed consolidated financial statements.
| CALERES, INC. |
| CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME |
| (Unaudited) |
||||||||||||||||
| Thirteen Weeks Ended |
Thirty-Nine Weeks Ended |
|||||||||||||||
| ($ thousands) |
||||||||||||||||
| Net earnings |
$ | i 27,761 | $ | i 29,155 | $ | i 62,073 | $ | i 69,946 | ||||||||
| Other comprehensive income (loss), net of tax: |
||||||||||||||||
| Foreign currency translation adjustment | i 582 | i 14 | ( i 397 | ) | ( i 1,045 | ) | ||||||||||
| Pension and other postretirement benefits adjustments | i 429 | i 451 | i 1,285 | i 1,353 | ||||||||||||
| Derivative financial instruments | i 63 | ( i 320 | ) | i 361 | ( i 1,762 | ) | ||||||||||
| Other comprehensive income (loss), net of tax |
i 1,074 | i 145 | i 1,249 | ( i 1,454 | ) | |||||||||||
| Comprehensive income |
i 28,835 | i 29,300 | i 63,322 | i 68,492 | ||||||||||||
| Comprehensive loss attributable to noncontrolling interests | ( i 239 | ) | ( i 9 | ) | ( i 372 | ) | ( i 141 | ) | ||||||||
| Comprehensive income attributable to Caleres, Inc. |
$ | i 29,074 | $ | i 29,309 | $ | i 63,694 | $ | i 68,633 | ||||||||
See notes to condensed consolidated financial statements.
| CALERES, INC. |
| CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS |
| (Unaudited) |
||||||||
| Thirty-Nine Weeks Ended |
||||||||
| ($ thousands) |
||||||||
| Operating Activities |
||||||||
| Net earnings |
$ | i 62,073 | $ | i 69,946 | ||||
| Adjustments to reconcile net earnings to net cash provided by operating activities: |
||||||||
| Depreciation | i 34,312 | i 33,189 | ||||||
| Amortization of capitalized software | i 4,910 | i 8,282 | ||||||
| Amortization of intangible assets | i 9,790 | i 3,880 | ||||||
| Amortization and accretion of debt issuance costs, debt discount and mandatory purchase obligation | i 5,389 | i 1,610 | ||||||
| Share-based compensation expense | i 8,933 | i 11,615 | ||||||
| Loss on disposal of property and equipment | i 874 | i 1,772 | ||||||
| Impairment charges for property, equipment, and lease right-of-use assets | i 5,105 | i 2,040 | ||||||
| Provision for doubtful accounts | i 728 | i 426 | ||||||
| Deferred rent | i — | ( i 1,141 | ) | |||||
| Changes in operating assets and liabilities, net of acquired amounts: |
||||||||
| Receivables | i 34,740 | ( i 6,457 | ) | |||||
| Inventories | i 37,482 | ( i 57,138 | ) | |||||
| Prepaid expenses and other current and noncurrent assets | ( i 2,944 | ) | ( i 9,788 | ) | ||||
| Trade accounts payable | ( i 37,537 | ) | i 17,113 | |||||
| Accrued expenses and other liabilities | ( i 18,032 | ) | i 21,135 | |||||
| Other, net | ( i 86 | ) | ( i 2,074 | ) | ||||
| Net cash provided by operating activities |
i 145,737 | i 94,410 | ||||||
| Investing Activities |
||||||||
| Purchases of property and equipment | ( i 37,354 | ) | ( i 35,244 | ) | ||||
| Disposals of property and equipment | i 636 | i — | ||||||
| Capitalized software | ( i 4,893 | ) | ( i 3,505 | ) | ||||
| Acquisition of Blowfish Malibu, net of cash received | i — | ( i 17,284 | ) | |||||
| Acquisition of Vionic, net of cash received |
i — | ( i 344,942 | ) | |||||
| Net cash used for investing activities |
( i 41,611 | ) | ( i 400,975 | ) | ||||
| Financing Activities |
||||||||
| Borrowings under revolving credit agreement | i 237,000 | i 360,000 | ||||||
| Repayments under revolving credit agreement | ( i 277,000 | ) | ( i 10,000 | ) | ||||
| Dividends paid | ( i 8,631 | ) | ( i 9,059 | ) | ||||
| Acquisition of treasury stock | ( i 31,168 | ) | ( i 3,288 | ) | ||||
| Issuance of common stock under share-based plans, net | ( i 2,605 | ) | ( i 4,318 | ) | ||||
| Contributions by noncontrolling interests | i 1,500 | i — | ||||||
| Other | ( i 1,022 | ) | ( i 114 | ) | ||||
| Net cash (used for) provided by financing activities |
( i 81,926 | ) | i 333,221 | |||||
| Effect of exchange rate changes on cash and cash equivalents | i 102 | ( i 212 | ) | |||||
| Increase in cash and cash equivalents |
i 22,302 | i 26,444 | ||||||
| Cash and cash equivalents at beginning of period |
i 30,200 | i 64,047 | ||||||
| Cash and cash equivalents at end of period |
$ | i 52,502 | $ | i 90,491 | ||||
See notes to condensed consolidated financial statements.
| 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) Income |
Earnings |
Equity |
Interests |
Total Equity |
||||||||||||||||||||||||
| BALANCE AUGUST 3, 2019 |
i 40,720,927 | $ | i 407 | $ | i 149,881 | $ | ( i 31,405 | ) | $ | i 504,546 | $ | i 623,429 | $ | i 1,249 | $ | i 624,678 | ||||||||||||||||
| Net earnings (loss) | i 27,987 | i 27,987 | ( i 226 | ) | i 27,761 | |||||||||||||||||||||||||||
| Foreign currency translation adjustment | i 595 | i 595 | ( i 13 | ) | i 582 | |||||||||||||||||||||||||||
| Unrealized gain on derivative financial instruments, net of tax of $4 | i 63 | i 63 | i 63 | |||||||||||||||||||||||||||||
| Pension and other postretirement benefits adjustments, net of tax of $149 | i 429 | i 429 | i 429 | |||||||||||||||||||||||||||||
| Comprehensive income (loss) | i 1,087 | i 29,074 | ( i 239 | ) | i 28,835 | |||||||||||||||||||||||||||
| Contributions by noncontrolling interests | i 1,500 | i 1,500 | ||||||||||||||||||||||||||||||
| Dividends ($0.07 per share) | ( i 2,823 | ) | ( i 2,823 | ) | ( i 2,823 | ) | ||||||||||||||||||||||||||
| Acquisition of treasury stock | ( i 58,263 | ) | ( i 1 | ) | ( i 1,172 | ) | ( i 1,173 | ) | ( i 1,173 | ) | ||||||||||||||||||||||
| Issuance of common stock under share-based plans, net | ( i 69,377 | ) | ( i 0 | ) | ( i 58 | ) | ( i 58 | ) | ( i 58 | ) | ||||||||||||||||||||||
| Share-based compensation expense | i 2,391 | i 2,391 | i 2,391 | |||||||||||||||||||||||||||||
| BALANCE NOVEMBER 2, 2019 |
i 40,593,287 | $ | i 406 | $ | i 152,214 | $ | ( i 30,318 | ) | $ | i 528,538 | $ | i 650,840 | $ | i 2,510 | $ | i 653,350 | ||||||||||||||||
| BALANCE AUGUST 4, 2018 |
i 43,205,220 | $ | i 432 | $ | i 140,146 | $ | ( i 16,769 | ) | $ | i 612,044 | $ | i 735,853 | $ | i 1,341 | $ | i 737,194 | ||||||||||||||||
| Net earnings | i 29,153 | i 29,153 | i 2 | i 29,155 | ||||||||||||||||||||||||||||
| Foreign currency translation adjustment | i 14 | i 14 | ( i 11 | ) | i 3 | |||||||||||||||||||||||||||
| Unrealized loss on derivative financial instruments, net of tax of $82 | ( i 320 | ) | ( i 320 | ) | ( i 320 | ) | ||||||||||||||||||||||||||
| Pension and other postretirement benefits adjustments, net of tax of $157 | i 451 | i 451 | i 451 | |||||||||||||||||||||||||||||
| Comprehensive income (loss) | i 145 | i 29,298 | ( i 9 | ) | i 29,289 | |||||||||||||||||||||||||||
| Dividends ($0.07 per share) | ( i 3,006 | ) | ( i 3,006 | ) | ( i 3,006 | ) | ||||||||||||||||||||||||||
| Issuance of common stock under share-based plans, net | i 17,225 | i 0 | i 47 | i 47 | i 47 | |||||||||||||||||||||||||||
| Share-based compensation expense | i 3,561 | i 3,561 | i 3,561 | |||||||||||||||||||||||||||||
| BALANCE NOVEMBER 3, 2018 |
i 43,222,445 | $ | i 432 | $ | i 143,754 | $ | ( i 16,624 | ) | $ | i 638,191 | $ | i 765,753 | $ | i 1,332 | $ | i 767,085 | ||||||||||||||||
| 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) Income |
Earnings |
Equity |
Interests |
Total Equity |
||||||||||||||||||||||||
| BALANCE FEBRUARY 2, 2019 |
i 41,886,562 | $ | i 419 | $ | i 145,889 | $ | ( i 31,601 | ) | $ | i 519,346 | $ | i 634,053 | $ | i 1,382 | $ | i 635,435 | ||||||||||||||||
| Net earnings (loss) | i 62,411 | i 62,411 | ( i 338 | ) | i 62,073 | |||||||||||||||||||||||||||
| Foreign currency translation adjustment | ( i 363 | ) | ( i 363 | ) | ( i 34 | ) | ( i 397 | ) | ||||||||||||||||||||||||
| Unrealized gain on derivative financial instruments, net of tax of $83 | i 361 | i 361 | i 361 | |||||||||||||||||||||||||||||
| Pension and other postretirement benefits adjustments, net of tax of $448 | i 1,285 | i 1,285 | i 1,285 | |||||||||||||||||||||||||||||
| Comprehensive income (loss) | i 1,283 | i 63,694 | ( i 372 | ) | i 63,322 | |||||||||||||||||||||||||||
| Contributions by noncontrolling interests | i 1,500 | i 1,500 | ||||||||||||||||||||||||||||||
| Dividends ($0.21 per share) | ( i 8,631 | ) | ( i 8,631 | ) | ( i 8,631 | ) | ||||||||||||||||||||||||||
| Acquisition of treasury stock | ( i 1,588,741 | ) | ( i 16 | ) | ( i 31,152 | ) | ( i 31,168 | ) | ( i 31,168 | ) | ||||||||||||||||||||||
| Issuance of common stock under share-based plans, net | i 295,466 | i 3 | ( i 2,608 | ) | ( i 2,605 | ) | ( i 2,605 | ) | ||||||||||||||||||||||||
| Cumulative-effect adjustment from adoption of ASC 842 | ( i 13,436 | ) | ( i 13,436 | ) | ( i 13,436 | ) | ||||||||||||||||||||||||||
| Share-based compensation expense | i 8,933 | i 8,933 | i 8,933 | |||||||||||||||||||||||||||||
| BALANCE NOVEMBER 2, 2019 |
i 40,593,287 | $ | i 406 | $ | i 152,214 | $ | ( i 30,318 | ) | $ | i 528,538 | $ | i 650,840 | $ | i 2,510 | $ | i 653,350 | ||||||||||||||||
| BALANCE FEBRUARY 3, 2018 |
i 43,031,689 | $ | i 430 | $ | i 136,460 | $ | ( i 15,170 | ) | $ | i 595,769 | $ | i 717,489 | $ | i 1,473 | $ | i 718,962 | ||||||||||||||||
| Net earnings (loss) |
i 70,011 | i 70,011 | ( i 65 | ) | i 69,946 | |||||||||||||||||||||||||||
| Foreign currency translation adjustment |
( i 1,045 | ) | ( i 1,045 | ) | ( i 76 | ) | ( i 1,121 | ) | ||||||||||||||||||||||||
| Unrealized loss on derivative financial instruments, net of tax of $436 |
( i 1,762 | ) | ( i 1,762 | ) | ( i 1,762 | ) | ||||||||||||||||||||||||||
| Pension and other postretirement benefits adjustments, net of tax of $470 |
i 1,353 | i 1,353 | i 1,353 | |||||||||||||||||||||||||||||
| Comprehensive (loss) income | ( i 1,454 | ) | i 68,557 | ( i 141 | ) | i 68,416 | ||||||||||||||||||||||||||
| Dividends ($0.21 per share) |
( i 9,059 | ) | ( i 9,059 | ) | ( i 9,059 | ) | ||||||||||||||||||||||||||
| Acquisition of treasury stock | ( i 100,000 | ) | ( i 1 | ) | ( i 3,287 | ) | ( i 3,288 | ) | ( i 3,288 | ) | ||||||||||||||||||||||
| Issuance of common stock under share-based plans, net | i 290,756 | i 3 | ( i 4,321 | ) | ( i 4,318 | ) | ( i 4,318 | ) | ||||||||||||||||||||||||
| Cumulative-effect adjustment from adoption of ASU 2016-16 |
( i 10,468 | ) | ( i 10,468 | ) | ( i 10,468 | ) | ||||||||||||||||||||||||||
| Cumulative-effect adjustment from adoption of ASU 2014-09 (Topic 606) |
( i 4,775 | ) | ( i 4,775 | ) | ( i 4,775 | ) | ||||||||||||||||||||||||||
| Share-based compensation expense |
i 11,615 | i 11,615 | i 11,615 | |||||||||||||||||||||||||||||
| BALANCE NOVEMBER 3, 2018 |
i 43,222,445 | $ | i 432 | $ | i 143,754 | $ | ( i 16,624 | ) | $ | i 638,191 | $ | i 765,753 | $ | i 1,332 | $ | i 767,085 | ||||||||||||||||
| NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS |
| Note 1 |
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. Traditionally, the third fiscal quarter accounts for a substantial portion of the Company’s earnings for the year. 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 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.
For further information, refer to the consolidated financial statements and footnotes included in the Company's Annual Report on Form 10-K for the year ended February 2, 2019.
| Note 2 |
Impact of New Accounting Pronouncements |
Impact of Recently Adopted Accounting Pronouncements
In February 2016, the FASB issued Accounting Standards Update ("ASU") 2016-02, Leases (Topic 842), which requires lessees to recognize most leases on the balance sheet. The FASB subsequently issued ASUs with improvements to the guidance, including ASU 2018-11, Leases (Topic 842): Targeted Improvements, which provides entities with an additional transition method to adopt the new standard. The Company adopted Accounting Standards Codification ("ASC") Topic 842 ("ASC 842") in the first quarter of 2019 using the modified retrospective approach and the optional transition method permitted by ASU 2018-11. Upon adoption, the Company recorded an operating lease right-of-use asset of $ i 729.2 million and lease liabilities of $ i 791.7 million as of February 3, 2019. In addition, a cumulative-effect adjustment to retained earnings of $ i 13.4 million, net of $ i 4.7 million in deferred taxes, was recorded upon adoption. Prior period financial information in the consolidated financial statements has not been adjusted and is presented under the guidance in ASC 840, Leases. The Company elected the package of practical expedients and the expedient to group lease and non-lease components as permitted within the ASU. The hindsight practical expedient was not elected. Refer to Note 10 to the condensed consolidated financial statements for additional information regarding ASC 842.
In August 2018, the SEC adopted the final rule under SEC Release No. 33-10532, Disclosure Update and Simplification, that amended certain disclosure requirements that were redundant or outdated. The rule expanded the disclosure requirements for the analysis of shareholders' equity for interim financial statements. The Company adopted the rule during the fourth quarter of 2018 and applied the revised interim disclosure requirements beginning in the Form 10-Q for the first quarter of 2019. In July 2019, the FASB issued ASU 2019-07, Amendments to SEC Paragraphs Pursuant to SEC Final Rule Releases No. 33-10532, Disclosure Update and Simplification, and Nos. 33-10231 and 33-10442, Investment Company Reporting Modernization, and Miscellaneous Updates. ASU 2019-07 codifies SEC Release No. 33-10532 and was effective upon issuance. The remaining elements of this ASU did not have a material impact on the Company's consolidated financial statements.
Impact of Prospective Accounting Pronouncements
In February 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326), which significantly changes how entities will measure credit losses for most financial assets and certain other instruments that are not measured at fair value through net income. The ASU replaces today's "incurred loss" model with an "expected credit loss" model that requires entities to estimate an expected lifetime credit loss on financial assets, including trade accounts receivable. The ASU is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. The ASU's provisions will be applied as a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which it is adopted. As credit losses from the Company's trade receivables have not historically been significant, the Company anticipates that the adoption of the ASU in the first quarter of 2020 will not have a material impact on the consolidated financial statements.
In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework — Changes to the Disclosure Requirements for Fair Value Measurement. ASU 2018-13 modifies disclosure requirements on fair value measurements, removing and modifying certain disclosures, while adding other disclosures. The ASU is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. The adoption of ASU 2018-13 is not expected to have a material impact on the Company's financial statement disclosures.
In August 2018, the FASB issued ASU 2018-14, Compensation — Retirement Benefits — Defined Benefit Plans — General (Subtopic 715-20), Disclosure Framework — Changes to the Disclosure Requirements for Defined Benefit Plans. The guidance changes the disclosure requirements for employers that sponsor defined benefit pension or other postretirement benefit plans, eliminating the requirements for certain disclosures that are no longer considered cost beneficial and requiring new disclosures that the FASB considers pertinent. The ASU is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020, with early adoption permitted. The adoption of ASU 2018-14 is not expected to have a material impact on the Company's financial statement disclosures.
/
| Note 3 |
Acquisitions |
Acquisition of Blowfish, LLC
On July 6, 2018, the Company entered into a Membership Interest Purchase Agreement ("Purchase Agreement") with Blowfish, LLC ("Blowfish", or "Blowfish Malibu"), pursuant to which the Company acquired a controlling interest in Blowfish. The noncontrolling interest is subject to a mandatory purchase obligation after a three-year period based upon an earnings multiple formula, as specified in the Purchase Agreement. The aggregate purchase price is estimated to be $ i 32.7 million, including approximately $ i 13.7 million assigned to the mandatory purchase obligation, which will be paid upon settlement in 2021. The remaining $ i 19.0 million (or $ i 16.8 million, net of $ i 2.2 million of cash received) was funded with cash. The estimate of the mandatory purchase obligation, which is recorded within other liabilities on the condensed consolidated balance sheets, was initially valued at $ i 9.0 million on a discounted basis and is subject to remeasurement based on the earnings formula specified in the Purchase Agreement. Accretion and remeasurement adjustments on the mandatory purchase obligation are being recorded as interest expense. During the thirteen and thirty-nine weeks ended November 2, 2019, the Company recorded interest expense of $ i 3.9 million and $ i 4.4 million, respectively, for accretion and remeasurement adjustments. The operating results of Blowfish Malibu since July 6, 2018 have been included in the Company's condensed consolidated financial statements within the Brand Portfolio segment, with the elimination of sales and profit for sales to the Famous Footwear segment reflected in the Eliminations and Other category.
Blowfish Malibu, which was founded in 2005, designs and sells women's and children's footwear that captures the fresh youthful spirit and casual living that is distinctively Southern California. The footwear is marketed under the "Blowfish" and "Blowfish Malibu" tradenames. The acquisition allows for continued expansion of the Company's overall business and provides additional exposure to the growing sneaker and casual lifestyle segment of the market.
The Company’s purchase price allocation contains uncertainties because it required management to make assumptions and to apply judgment to estimate the fair value of the acquired assets and liabilities. A single estimate of fair value results from a complex series of judgments about future events and uncertainties and relies heavily on estimates and assumptions. The judgments the Company used in estimating the fair values assigned to each class of the acquired assets and assumed liabilities could materially affect the results of its operations. Management estimated the fair value of the assets and liabilities based upon quoted market prices, the carrying value of the acquired assets and widely accepted valuation techniques, including discounted cash flows (Level 3 fair value measurements). Unanticipated events or circumstances may occur, which could affect the accuracy of the Company’s fair value estimates, including assumptions regarding industry economic factors and business strategies. The purchase price allocation was completed during the first quarter of 2019.
During the thirteen weeks ended November 2, 2019, Blowfish Malibu contributed net sales of $ i 13.5 million to the Brand Portfolio segment ($ i 11.7 million on a consolidated basis, net of eliminations), and net income of $ i 0.9 million on a consolidated basis. During the thirty-nine weeks ended November 2, 2019, Blowfish Malibu contributed net sales of $ i 48.6 million to the Brand Portfolio segment ($ i 42.1 million on a consolidated basis, net of eliminations), and net income of $ i 4.7 million on a consolidated basis. During the thirteen weeks ended November 3, 2018, Blowfish Malibu contributed net sales of $ i 7.0 million to the Brand Portfolio ($ i 6.4 million on a consolidated basis, net of eliminations), and a net loss of $ i 0.5 million on a consolidated basis. During the thirty-nine weeks ended November 3, 2018, Blowfish Malibu contributed net sales of $ i 10.1 million ($ i 8.9 million on a consolidated basis, net of eliminations), and a net loss of $ i 0.9 million. The net income or loss for the respective periods includes amortization expense on the acquired intangible assets.
Acquisition of Vionic
On October 18, 2018, the Company entered into an Equity and Asset Purchase Agreement (the "Agreement") with the equity holders of Vionic Group LLC and Vionic International LLC, and VCG Holdings Ltd., a Cayman Islands corporation (collectively, "Vionic"), pursuant to which the Company acquired all of the outstanding equity interests of Vionic Group LLC and Vionic International LLC and certain related intellectual property from VCG Holdings Ltd for $ i 360.0 million plus adjustments for cash and indebtedness, as defined in the Agreement. The aggregate purchase price was $ i 360.7 million (or $ i 352.7 million, net of $ i 8.0 million of cash received). The purchase was funded with borrowings from the Company's revolving credit agreement. The operating results of Vionic since October 18, 2018 have been included in the Company's condensed consolidated financial statements within the Brand Portfolio segment, with the elimination of sales and profit for sales to the Famous Footwear segment reflected in the Eliminations and Other category.
Vionic, which was founded in 1979, brings together style and science, combining innovative biomechanics with the most coveted trends. As pioneers in foot health with a global team of experts behind the dual gender brand, Vionic brings a fresh perspective to stylish, supportive footwear, offering a vast selection of active, casual and dress styles, sandals and slippers. The acquisition of Vionic allows the Company to continue to expand its portfolio of brands and gives it additional access to the growing contemporary comfort footwear category.
The Brand Portfolio segment recognized $ i 5.8 million ($ i 4.3 million on an after-tax basis, or $ i 0.10 per diluted share) in incremental cost of goods sold in the thirty-nine weeks ended November 2, 2019 related to the amortization of the inventory fair value adjustment required for purchase accounting. The fair value adjustment was fully amortized during the first quarter of 2019.
The Company incurred integration-related costs of $ i 1.0 million ($ i 0.7 million on an after-tax basis or $ i 0.02 per diluted share) in the thirteen weeks ended November 2, 2019, which were recorded as a component of restructuring and other special charges, net within the Eliminations and Other category. In the thirty-nine weeks ended November 2, 2019, the Company incurred integration-related costs of $ i 1.9 million ($ i 1.4 million on an after-tax basis, or $ i 0.03 per diluted share), which were recorded as a component of restructuring and other special charges, net. Of the $ i 1.9 million, $ i 1.8 million is presented within the Eliminations and Other category and $ i 0.1 million is presented in the Brand Portfolio segment. During the thirteen and thirty-nine weeks ended November 3, 2018, the Company incurred acquisition and integration-related costs primarily for professional fees associated with the acquisition, totaling $ i 4.1 million ($ i 3.5 million on an after-tax basis, or $ i 0.08 per diluted share), which is reflected within the Eliminations and Other category and is presented as restructuring and other special charges, net.
In the thirteen weeks ended November 2, 2019, Vionic contributed net sales of $ i 38.8 million to the Brand Portfolio segment ($ i 38.8 million on a consolidated basis, net of eliminations), and a net loss of $ i 0.6 million. In the thirty-nine weeks ended November 2, 2019, Vionic contributed net sales of $ i 140.7 million to the Brand Portfolio segment ($ i 138.8 million on a consolidated basis, net of eliminations), and net income of $ i 1.3 million. During the thirteen and thirty-nine weeks ended November 3, 2018, Vionic contributed net sales of $ i 6.0 million to the Brand Portfolio segment ($ i 5.8 million on a consolidated basis, net of eliminations), and a net loss of $ i 1.2 million. The net income or loss for the respective periods includes amortization expense on the acquired intangible assets but excludes the incremental interest expense associated with the transaction.
Purchase Price Allocation
The assets and liabilities of Vionic were recorded at their estimated fair values, and the excess of the purchase price over the fair value of the assets acquired and liabilities assumed, including identified intangible assets, was recorded as goodwill. The Company has allocated the purchase price as of the acquisition date, October 18, 2018, as follows:
i
| ($ thousands) |
||||
| ASSETS |
||||
| Current assets: |
||||
| Cash and cash equivalents |
$ | i 8,024 | ||
| Receivables |
i 32,319 | |||
| Inventories |
i 58,332 | |||
| Prepaid expense and other current assets |
i 3,618 | |||
| Total current assets |
i 102,293 | |||
| Goodwill |
i 151,281 | |||
| Intangible assets |
i 144,700 | |||
| Property and equipment |
i 6,864 | |||
| Total assets |
$ | i 405,138 | ||
| LIABILITIES AND EQUITY |
||||
| Current liabilities: |
||||
| Trade accounts payable |
$ | i 19,679 | ||
| Other accrued expenses |
i 21,228 | |||
| Total current liabilities |
i 40,907 | |||
| Other liabilities |
i 3,541 | |||
| Total liabilities |
i 44,448 | |||
| Net assets |
$ | i 360,690 | ||
The Company’s purchase price allocation required management to make assumptions and to apply judgment to estimate the fair value of the acquired assets and liabilities. A single estimate of fair value results from a complex series of judgments about future events and uncertainties and relies heavily on estimates and assumptions. The judgments the Company used in estimating the fair values assigned to each class of the acquired assets and assumed liabilities could materially affect the results of its operations. Management estimated the fair value of the assets and liabilities based upon quoted market prices, the carrying value of the acquired assets and widely accepted valuation techniques, including discounted cash flows (Level 3 fair value measurements). Unanticipated events or circumstances may occur, which could affect the accuracy of the Company’s fair value estimates, including assumptions regarding industry economic factors and business strategies. A third-party valuation specialist assisted the Company with its preliminary fair value estimates for inventory and intangible assets other than goodwill. The Company used all available information to make its best estimate of fair values at the acquisition date. As of November 2, 2019, the purchase price allocation is complete.
Goodwill and intangible assets reflected above were determined to meet the criteria for recognition apart from tangible assets acquired and liabilities assumed. The goodwill recognized, which is deductible for tax purposes, is primarily attributable to synergies and an assembled workforce. Refer to Note 9 to the condensed consolidated financial statements for additional information regarding goodwill and intangible assets.
Joint Venture With Brand Investment Holding
During the second quarter of 2019, the Company began operating a joint venture with Brand Investment Holding, a member of the Gemkell Group, to distribute Naturalizer and Sam Edelman branded footwear to greater China, including Hong Kong, Macau and Taiwan. The Company owns a i 50% interest in the joint venture, which is consolidated within the Company’s financial statements. To date, net sales and operating results have been immaterial. During the third quarter of 2019, the joint venture was funded with $ i 3.0 million in capital contributions, including $ i 1.5 million from the Company and $ i 1.5 million from Brand Investment Holding.
/
| Note 4 |
Revenues |
Accounting Policy
Revenue is recognized when obligations under the terms of a contract with the consumer are satisfied. This generally occurs at the time of transfer of control of merchandise. The Company considers several control indicators in its assessment of the timing of the transfer of control, including significant risks and rewards of ownership, physical possession and the Company's right to receive payment. Revenue is measured as the amount of consideration the Company expects to receive in exchange for transferring merchandise. The Company excludes sales and similar taxes collected from customers from the measurement of the transaction price for its retail sales.
Disaggregation of Revenues
The following table disaggregates revenue by segment and major source for the periods ended November 2, 2019 and November 3, 2018:
i
| Thirteen Weeks Ended November 2, 2019 |
|||||||||||||||||
| ($ thousands) |
Famous Footwear |
Brand Portfolio |
Eliminations and Other |
Total |
|||||||||||||
| Retail stores |
$ | i 401,943 | $ | i 40,621 | $ | i — | $ | i 442,564 | |||||||||
| Landed wholesale-e-commerce/drop ship (1) | i — | i 85,957 | i — | i 85,957 | |||||||||||||
| Landed wholesale - other |
i — | i 177,146 | ( i 14,071 | ) | i 163,075 | ||||||||||||
| First-cost wholesale |
i — | i 16,124 | i — | i 16,124 | |||||||||||||
| First-cost wholesale - e-commerce (1) | i — | i 354 | i — | i 354 | |||||||||||||
| E-commerce - Company websites (1) |
i 44,489 | i 36,692 | i — | i 81,181 | |||||||||||||
| Licensing and royalty |
i — | i 2,908 | i — | i 2,908 | |||||||||||||
| Other (2) |
i 151 | i 61 | i — | i 212 | |||||||||||||
| Net sales |
$ | i 446,583 | $ | i 359,863 | $ | ( i 14,071 | ) | $ | i 792,375 | ||||||||
| Thirteen Weeks Ended November 3, 2018 |
||||||||||||||||
| ($ thousands) |
Famous Footwear |
Brand Portfolio |
Eliminations and Other |
Total |
||||||||||||
| Retail stores | $ | i 408,248 | $ | i 43,186 | $ | i — | $ | i 451,434 | ||||||||
| Landed wholesale-e-commerce/drop ship (1) | i — | i 66,698 | i — | i 66,698 | ||||||||||||
| Landed wholesale - other | i — | i 175,509 | ( i 15,968 | ) | i 159,541 | |||||||||||
| First-cost wholesale | i — | i 21,345 | i — | i 21,345 | ||||||||||||
| First-cost wholesale - e-commerce (1) | i — | i 422 | i — | i 422 | ||||||||||||
| E-commerce - Company websites (1) | i 40,383 | i 32,000 | i — | i 72,383 | ||||||||||||
| Licensing and royalty | i — | i 3,810 | i — | i 3,810 | ||||||||||||
| Other (2) |
i 134 | i 62 | i — | i 196 | ||||||||||||
| Net sales |
$ | i 448,765 | $ | i 343,032 | $ | ( i 15,968 | ) | $ | i 775,829 | |||||||
| Thirty-Nine Weeks Ended November 2, 2019 |
||||||||||||||||
| ($ thousands) |
Famous Footwear |
Brand Portfolio |
Eliminations and Other |
Total |
||||||||||||
| Retail stores |
$ | i 1,108,200 | $ | i 115,819 | $ | i — | $ | i 1,224,019 | ||||||||
| Landed wholesale-e-commerce/drop ship (1) | i — | i 212,927 | i — | i 212,927 | ||||||||||||
| Landed wholesale - other |
i — | i 549,321 | ( i 56,463 | ) | i 492,858 | |||||||||||
| First-cost wholesale |
i — | i 66,826 | i — | i 66,826 | ||||||||||||
| First-cost wholesale - e-commerce (1) | i — | i 1,528 | i — | i 1,528 | ||||||||||||
| E-commerce - Company websites (1) |
i 109,954 | i 102,637 | i — | i 212,591 | ||||||||||||
| Licensing and royalty |
i — | i 11,234 | i — | i 11,234 | ||||||||||||
| Other (2) |
i 435 | i 196 | i — | i 631 | ||||||||||||
| Net sales |
$ | i 1,218,589 | $ | i 1,060,488 | $ | ( i 56,463 | ) | $ | i 2,222,614 | |||||||
| Thirty-Nine Weeks Ended November 3, 2018 |
||||||||||||||||
| ($ thousands) |
Famous Footwear |
Brand Portfolio |
Eliminations and Other |
Total |
||||||||||||
| Retail stores | $ | i 1,147,512 | $ | i 129,557 | $ | i — | $ | i 1,277,069 | ||||||||
| Landed wholesale-e-commerce/drop ship (1) | i — | i 160,617 | i — | i 160,617 | ||||||||||||
| Landed wholesale - other | i — | i 479,173 | ( i 58,615 | ) | i 420,558 | |||||||||||
| First-cost wholesale | i — | i 61,910 | i — | i 61,910 | ||||||||||||
| First-cost wholesale - e-commerce (1) | i — | i 583 | i — | i 583 | ||||||||||||
| E-commerce - Company websites (1) | i 93,729 | i 87,390 | i — | i 181,119 | ||||||||||||
| Licensing and royalty | i — | i 12,104 | i — | i 12,104 | ||||||||||||
| Other (2) | i 407 | i 216 | i — | i 623 | ||||||||||||
| Net sales |
$ | i 1,241,648 | $ | i 931,550 | $ | ( i 58,615 | ) | $ | i 2,114,583 | |||||||
(1) Collectively referred to as "e-commerce" below
(2) Includes breakage revenue from unredeemed gift cards
Retail stores
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 carries 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.
Landed wholesale
Landed sales are wholesale sales in which the merchandise is shipped directly to the customer from the Company’s warehouses. Many landed customers 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.
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.
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.
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:
i
| ($ thousands) |
||||||||||||
| Customer allowances and discounts | $ | i 25,762 | $ | i 23,835 | $ | i 25,090 | ||||||
| Loyalty programs liability | i 17,274 | i 16,299 | i 14,637 | |||||||||
| Returns reserve | i 15,040 | i 15,373 | i 13,841 | |||||||||
| Gift card liability | i 4,794 | i 4,169 | i 5,426 | |||||||||
Changes in contract balances with customers generally reflect differences in relative sales volume for the period presented. In addition, during the thirty-nine weeks ended November 2, 2019, the loyalty programs liability increased $ i 24.2 million due to points and material rights accrued for purchases and decreased $ i 21.6 million due to expirations and redemptions. During the thirty-nine weeks ended November 3, 2018, the loyalty programs liability increased $ i 13.8 million due to purchases and $ i 6.4 million due to the adoption of Topic 606 and decreased $ i 12.0 million due to expirations and redemptions.
/
| Note 5 |
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 November 2, 2019 and November 3, 2018:
i
| Thirteen Weeks Ended |
Thirty-Nine Weeks Ended |
|||||||||||||||
| ($ thousands, except per share amounts) |
||||||||||||||||
| NUMERATOR |
||||||||||||||||
| Net earnings |
$ | i 27,761 | $ | i 29,155 | $ | i 62,073 | $ | i 69,946 | ||||||||
| Net loss (earnings) attributable to noncontrolling interests |
i 226 | ( i 2 | ) | i 338 | i 65 | |||||||||||
| Net earnings allocated to participating securities | ( i 946 | ) | ( i 800 | ) | ( i 2,042 | ) | ( i 1,950 | ) | ||||||||
| Net earnings attributable to Caleres, Inc. after allocation of earnings to participating securities |
$ | i 27,041 | $ | i 28,353 | $ | i 60,369 | $ | i 68,061 | ||||||||
| DENOMINATOR |
||||||||||||||||
| Denominator for basic earnings per common share attributable to Caleres, Inc. shareholders | i 39,258 | i 41,999 | i 39,983 | i 41,958 | ||||||||||||
| Dilutive effect of share-based awards | i 55 | i 107 | i 57 | i 116 | ||||||||||||
| Denominator for diluted earnings per common share attributable to Caleres, Inc. shareholders |
i 39,313 | i 42,106 | i 40,040 | i 42,074 | ||||||||||||
| Basic earnings per common share attributable to Caleres, Inc. shareholders |
$ | i 0.69 | $ | i 0.68 | $ | i 1.51 | $ | i 1.62 | ||||||||
| Diluted earnings per common share attributable to Caleres, Inc. shareholders |
$ | i 0.69 | $ | i 0.67 | $ | i 1.51 | $ | i 1.62 | ||||||||
Options to purchase i 16,667 shares of common stock for the thirteen and thirty-nine weeks ended November 2, 2019 were not included in the denominator for diluted earnings per common share attributable to Caleres, Inc. shareholders because the effect would be anti-dilutive. There were i no options to purchase shares excluded from the denominator for the thirteen and thirty-nine weeks ended November 3, 2018.
During the thirteen weeks ended November 2, 2019 and November 3, 2018, the Company repurchased i 58,263 and i zero shares, respectively, under the 2011 and 2018 publicly announced share repurchase programs, each of which permits repurchases of up to i 2.5 million shares. The Company repurchased i 1,588,741 and i 100,000 shares during the thirty-nine weeks ended November 2, 2019 and November 3, 2018, respectively. As of November 2, 2019, the Company has repurchased a total of i 4.3 million shares under the publicly announced share repurchase programs at an aggregate purchase price of $ i 109.0 million.
/
| Note 6 |
Restructuring and Other Initiatives |
Vionic Acquisition and Integration-Related Costs
During the thirteen weeks ended November 2, 2019, the Company incurred integration-related costs associated with the acquisition of Vionic, primarily for severance, totaling $ i 1.0 million ($ i 0.7 million on an after-tax basis, or $ i 0.02 per diluted share). The costs are presented as restructuring and other special charges, net in the condensed consolidated statements of earnings within the Eliminations and Other category. During the thirty-nine weeks ended November 2, 2019, the Company incurred integration-related costs, primarily for severance, totaling $ i 1.9 million ($ i 1.4 million on an after-tax basis, or $ i 0.03 per diluted share). Of the $1.9 million in costs, which are presented as restructuring and other special charges, net in the condensed consolidated statements of earnings, $ i 1.8 million is reflected within the Eliminations and Other category and $ i 0.1 million is included in the Brand Portfolio segment. During the thirteen and thirty-nine weeks ended November 3, 2018, the Company incurred acquisition and integration-related costs associated with Vionic, primarily for professional fees, totaling $ i 4.1 million ($ i 3.5 million on an after-tax basis, or $ i 0.08 per diluted share), which are reflected within the Eliminations and Other category and is presented as restructuring and other special charges, net in the condensed consolidated statements of earnings. As of November 2, 2019 and November 3, 2018 restructuring reserves of $ i 1.1 million and $ i 1.8 million, respectively, were included in other accrued expenses on the condensed consolidated balance sheets. Refer to further discussion of the acquisition in Note 3 to the condensed consolidated financial statements.
Blowfish Malibu Acquisition and Integration-Related Costs
The Company incurred acquisition costs associated with the acquisition of Blowfish Malibu of $ i 0.1 million ($ i 0.1 million on an after-tax basis) and $ i 0.3 million ($ i 0.2 million on an after-tax basis, or $ i 0.01 per diluted share) during the thirteen and thirty-nine weeks ended November 3, 2018, which are presented as restructuring and other special charges, net in the condensed consolidated statements of earnings and reflected within the Eliminations and Other category. There were i no acquisition or integration-related costs associated with Blowfish during the thirteen or thirty-nine weeks ended November 2, 2019. Refer to further discussion of the acquisition of Blowfish Malibu in Note 3 to the condensed consolidated financial statements.
Carlos Brand Exit
The Company's license agreement to sell Carlos by Carlos Santana footwear expired in December 2018. In connection with the decision to exit the Carlos brand, the Company incurred restructuring-related costs of $ i 1.9 million ($ i 1.4 million on an after-tax basis, or $ i 0.03 per diluted share) during the thirty-nine weeks ended November 2, 2019. Of these charges included in the Brand Portfolio segment, $ i 1.3 million ($ i 1.0 million on an after-tax basis or $ i 0.02 per diluted share) primarily represents incremental inventory markdowns required to reduce the value of inventory to net realizable value and is presented in cost of goods sold on the statements of earnings and the remaining $ i 0.6 million ($ i 0.4 million on an after-tax basis, or $ i 0.01 per diluted share) for severance and other related costs is presented in restructuring and other special charges. There were i no corresponding costs in the thirteen weeks ended November 2, 2019 or the thirty-nine weeks ended November 3, 2018.
Integration and Reorganization of Men's Brands
During the thirteen and thirty-nine weeks ended November 3, 2018, the Company incurred integration and reorganization costs, primarily for severance and professional fees, related to the men's business totaling $ i 1.2 million ($ i 0.9 million on an after-tax basis, or $ i 0.02 per diluted share) and $ i 4.8 million ($ i 3.6 million on an after-tax basis, or $ i 0.08 per diluted share), respectively. Of the $1.2 million in costs presented as restructuring and other special charges, net in the condensed consolidated statements of earnings for the thirteen weeks ended November 3, 2018, $ i 1.1 million was reflected within the Brand Portfolio segment and $ i 0.1 million was reflected within the Eliminations and Other category. Of the $4.8 million in costs for the thirty-nine weeks ended November 3, 2018, $ i 4.4 million was reflected within the Brand Portfolio segment and $ i 0.4 million was reflected within the Eliminations and Other category. There were i no integration and reorganization costs related to the men's business in the thirteen and thirty-nine weeks ended November 2, 2019.
/
| Note 7 |
Business Segment Information |
During the first quarter of 2019, the Company changed its segment presentation to disclose net sales of the Brand Portfolio segment inclusive of both external and intersegment sales, with the elimination of intersegment sales and profit from Brand Portfolio to Famous Footwear reflected within the Eliminations and Other category. This presentation reflects the independent business models of both Brand Portfolio and Famous Footwear, as well as growth in intersegment activity driven by recent acquisitions. Following is a summary of certain key financial measures for the Company’s business segments for the periods ended November 2, 2019 and November 3, 2018:
i
| ($ thousands) |
Famous Footwear |
Brand Portfolio |
Eliminations and Other |
Total |
||||||||||||
| Thirteen Weeks Ended November 2, 2019 |
||||||||||||||||
| Net sales | $ | i 446,583 | $ | i 359,863 | $ | ( i 14,071 | ) | $ | i 792,375 | |||||||
| Intersegment sales (1) | i — | i 14,071 | i — | i 14,071 | ||||||||||||
| Operating earnings (loss) | i 27,681 | i 19,398 | ( i 3,608 | ) | i 43,471 | |||||||||||
| Segment assets | i 973,272 | i 1,360,445 | i 137,493 | i 2,471,210 | ||||||||||||
| Thirteen Weeks Ended November 3, 2018 |
||||||||||||||||
| Net sales |
$ | i 448,765 | $ | i 343,032 | $ | ( i 15,968 | ) | $ | i 775,829 | |||||||
| Intersegment sales (1) |
i — | i 15,968 | i — | i 15,968 | ||||||||||||
| Operating earnings (loss) |
i 24,414 | i 25,114 | ( i 9,780 | ) | i 39,748 | |||||||||||
| Segment assets |
i 548,609 | i 1,272,576 | i 187,217 | i 2,008,402 | ||||||||||||
| Thirty-Nine Weeks Ended November 2, 2019 |
||||||||||||||||
| Net sales | $ | i 1,218,589 | $ | i 1,060,488 | $ | ( i 56,463 | ) | $ | i 2,222,614 | |||||||
| Intersegment sales (1) | i — | i 56,463 | i — | i 56,463 | ||||||||||||
| Operating earnings (loss) | i 70,036 | i 46,225 | ( i 18,117 | ) | i 98,144 | |||||||||||
| Thirty-Nine Weeks Ended November 3, 2018 |
||||||||||||||||
| Net sales |
$ | i 1,241,648 | $ | i 931,550 | $ | ( i 58,615 | ) | $ | i 2,114,583 | |||||||
| Intersegment sales (1) |
i — | i 58,615 | i — | i 58,615 | ||||||||||||
| Operating earnings (loss) |
i 79,511 | i 52,650 | ( i 37,323 | ) | i 94,838 | |||||||||||
(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:
i
| Thirteen Weeks Ended |
Thirty-Nine Weeks Ended |
|||||||||||||||
| ($ thousands) |
||||||||||||||||
| Operating earnings | $ | i 43,471 | $ | i 39,748 | $ | i 98,144 | $ | i 94,838 | ||||||||
| Interest expense, net | ( i 10,559 | ) | ( i 4,210 | ) | ( i 25,288 | ) | ( i 11,495 | ) | ||||||||
| Other income, net | i 2,633 | i 3,085 | i 7,902 | i 9,254 | ||||||||||||
| Earnings before income taxes |
$ | i 35,545 | $ | i 38,623 | $ | i 80,758 | $ | i 92,597 | ||||||||
/
| Note 8 |
Inventories |
The Company's net inventory balance was comprised of the following:
i
| ($ thousands) |
||||||||||||
| Raw materials | $ | i 19,005 | $ | i 18,002 | $ | i 19,128 | ||||||
| Work-in-process | i 422 | i 496 | i 745 | |||||||||
| Finished goods | i 625,219 | i 679,767 | i 663,298 | |||||||||
| Inventories, net |
$ | i 644,646 | $ | i 698,265 | $ | i 683,171 | ||||||
/
| Note 9 |
Goodwill and Intangible Assets |
Goodwill and intangible assets were as follows:
i
| ($ thousands) |
||||||||||||
| Intangible Assets |
||||||||||||
| Famous Footwear |
$ | i 2,800 | $ | i 2,800 | $ | i 2,800 | ||||||
| Brand Portfolio | i 388,288 | i 448,288 | i 388,288 | |||||||||
| Total intangible assets |
i 391,088 | i 451,088 | i 391,088 | |||||||||
| Accumulated amortization | ( i 93,518 | ) | ( i 80,581 | ) | ( i 83,722 | ) | ||||||
| Total intangible assets, net |
i 297,570 | i 370,507 | i 307,366 | |||||||||
| Goodwill |
||||||||||||
| Brand Portfolio | i 245,275 | i 283,345 | i 242,531 | |||||||||
| Total goodwill |
i 245,275 | i 283,345 | i 242,531 | |||||||||
| Goodwill and intangible assets, net |
$ | i 542,845 | $ | i 653,852 | $ | i 549,897 | ||||||
As further described in Note 3 to the condensed consolidated financial statements, the Company acquired Vionic on October 18, 2018. The allocation of the purchase price resulted in incremental intangible assets of $ i 144.7 million, consisting of trademarks and customer relationships of $ i 112.4 million and $ i 32.3 million, respectively, and incremental goodwill of $ i 151.3 million. In addition, the Company acquired Blowfish Malibu on July 6, 2018. The allocation of the purchase price resulted in incremental intangible assets of $ i 17.6 million, consisting of trademarks and customer relationships of $ i 11.1 million and $ i 6.5 million, respectively, and incremental goodwill of $ i 5.0 million.
The Company's intangible assets as of November 2, 2019, November 3, 2018 and February 2, 2019 were as follows:
i
| ($ thousands) |
|||||||||||||
| Estimated Useful Lives |
Cost Basis |
Accumulated Amortization |
Net Carrying Value |
||||||||||
| Trademarks |
i 15- i 40 years |
$ | i 288,788 | $ | i 89,360 | $ | i 199,428 | ||||||
| Trademarks |
Indefinite |
i 58,100 | — | i 58,100 | |||||||||
| Customer relationships |
i 15- i 16 years |
i 44,200 | i 4,158 | i 40,042 | |||||||||
| $ | i 391,088 | $ | i 93,518 | $ | i 297,570 | ||||||||
| Estimated Useful Lives |
Cost Basis |
Accumulated Amortization |
Net Carrying Value |
||||||||||
| Trademarks |
i 15- i 40 years |
$ | i 288,788 | $ | i 79,686 | $ | i 209,102 | ||||||
| Trademarks |
Indefinite |
i 118,100 | — | i 118,100 | |||||||||
| Customer relationships |
i 15- i 20 years |
i 44,200 | i 895 | i 43,305 | |||||||||
| $ | i 451,088 | $ | i 80,581 | $ | i 370,507 | ||||||||
| Estimated Useful Lives |
Cost Basis |
Accumulated Amortization |
Impairment |
Net Carrying Value |
|||||||||||||
| Trademarks |
i 15- i 40 years |
$ | i 288,788 | $ | i 81,961 | $ | — | $ | i 206,827 | ||||||||
| Trademarks |
Indefinite |
i 118,100 | — | i 60,000 | i 58,100 | ||||||||||||
| Customer relationships |
i 15- i 16 years |
i 44,200 | i 1,761 | — | i 42,439 | ||||||||||||
| $ | i 451,088 | $ | i 83,722 | $ | i 60,000 | $ | i 307,366 | ||||||||||
Amortization expense related to intangible assets was $ i 3.3 million and $ i 1.8 million for the thirteen weeks ended November 2, 2019 and November 3, 2018, respectively, and $ i 9.8 million and $ i 3.9 million for the thirty-nine weeks ended November 2, 2019 and November 3, 2018, respectively. The Company estimates that amortization expense related to intangible assets will be approximately $ i 13.1 million in 2019, $ i 12.8 million in 2020, $ i 12.7 million in 2021, $ i 12.5 million in 2022 and $ i 12.2 million in 2023.
As a result of its annual goodwill impairment testing in the fourth quarter of 2018, the Company determined that the carrying value of the Allen Edmonds reporting unit exceeded its fair value and recorded $ i 38.0 million in impairment charges. The Company recorded i no goodwill impairment charges in the thirteen or thirty-nine weeks ended November 2, 2019.
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 indefinite-lived intangible asset impairment review in the fourth quarter of 2018 resulted in $ i 60.0 million in impairment charges associated with the Allen Edmonds trademark. The Company recorded i no impairment charges in the thirteen or thirty-nine weeks ended November 2, 2019.
/
| Note 10 |
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. The Company's leases that are classified as operating leases have lease terms and renewal options as follows:
i
| Lease Term (years) |
Renewal Options |
|
| Retail stores |
i 5- i 10 |
i Approximately 45% have options of varying periods |
| Manufacturing facility |
i 8 |
i None |
| Office facilities and distribution centers |
i 10- i 15 |
i 5- i 20 years |
| Equipment |
i 1- i 6 |
i None |
As further discussed in Note 2 to the condensed consolidated financial statements, during the first quarter of 2019, the Company adopted ASC 842 using the modified retrospective transition method. Prior period financial information in the condensed consolidated financial statements has not been adjusted and is presented in compliance with ASC 840. The Company elected the package of practical expedients and the expedient to account for lease and non-lease components as a single component for the entire population of operating lease assets. The Company did not elect the hindsight practical expedient to reevaluate the lease term of existing contracts.
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 following is a summary of lease assets and liabilities on the condensed consolidated balance sheet at November 2, 2019:
i
| ($ thousands) |
||||
| Lease Classification |
||||
| Lease right-of-use assets |
$ | i 704,244 | ||
| Current lease obligations |
( i 144,501 | ) | ||
| Noncurrent lease obligations |
( i 629,731 | ) | ||
| Net balance sheet impact |
$ | ( i 69,988 | ) | |
The weighted-average lease term and discount rate as of November 2, 2019 were as follows:
i
| Weighted-average remaining lease term (in years) |
i 6.8 | |||
| Weighted-average discount rate |
i 4.1 | % | ||
During the thirty-nine weeks ended November 2, 2019, the Company entered into new or amended leases that resulted in the recognition of right-of-use assets and lease obligations of $ i 124.7 million on the condensed consolidated balance sheets. As of November 2, 2019, the Company has entered into lease commitments for four retail locations for which the leases have not yet commenced. The Company anticipates that the leases for all four new retail locations will begin in the next fiscal year. Upon commencement, right-of-use assets and lease liabilities of approximately $ i 4.6 million will be recorded on the condensed consolidated balance sheets.
The components of lease expense for the thirteen and thirty-nine weeks ended November 2, 2019 were as follows:
i
| Thirteen Weeks Ended |
Thirty-Nine Weeks Ended |
|||||||
| ($ thousands) |
||||||||
| Operating lease expense | $ | i 47,068 | $ | i 139,380 | ||||
| Variable lease expense | i 11,794 | i 35,277 | ||||||
| Short-term lease expense | i 577 | i 2,654 | ||||||
| Sublease income | ( i 73 | ) | ( i 220 | ) | ||||
| Total lease expense |
$ | i 59,366 | $ | i 177,091 | ||||
Future minimum rent payments under noncancelable leases with an initial term of one year or more at November 2, 2019 were as follows:
i
| ($ thousands) |
||||
| Remainder of 2019 | $ | i 48,312 | ||
| 2020 | i 173,074 | |||
| 2021 | i 146,124 | |||
| 2022 | i 121,234 | |||
| 2023 | i 101,674 | |||
| 2024 | i 79,038 | |||
| Thereafter | i 174,913 | |||
| Total minimum lease payments (1) |
$ | i 844,369 | ||
| Less imputed interest | ( i 70,137 | ) | ||
| Present value of lease obligations |
$ | i 774,232 |
(1) Minimum lease payments have not been reduced by minimum sublease rental income of $ i 0.2 million due in the future under noncancelable sublease agreements.
Supplemental cash flow information related to leases is as follows:
i
| Thirty-Nine Weeks Ended |
||||
| ($ thousands) |
||||
| Cash paid for lease liabilities | $ | i 136,497 | ||
| Cash received from sublease income | i 220 | |||
/
| Note 11 |
Long-term and Short-term Financing Arrangements |
Credit Agreement
The Company maintains a revolving credit facility for working capital needs. On December 18, 2014, the Company and certain of its subsidiaries (the “Loan Parties”) entered into a Fourth Amended and Restated Credit Agreement ("the Former Credit Agreement"), which was further amended on July 20, 2015 to release all of the Company’s subsidiaries that were borrowers under or that guaranteed the Former Credit Agreement other than Sidney Rich Associates, Inc. and BG Retail, LLC. Allen Edmonds and Vionic were joined to the Agreement as guarantors on December 13, 2016 and October 31, 2018, respectively. After giving effect to the joinders, the Company is the lead borrower, and Sidney Rich Associates, Inc., BG Retail, LLC, Allen Edmonds and Vionic are each co-borrowers and guarantors under the Former Credit Agreement. On January 18, 2019, the Loan Parties entered into a Third Amendment to Fourth Amended and Restated Credit Agreement (as so amended, the "Credit Agreement") to extend the maturity date to January 18, 2024 and change the borrowing capacity under the Former Credit Agreement from an aggregate amount of up to $ i 600.0 million to an aggregate amount of up to $ i 500.0 million, with the option to increase by up to $ i 250.0 million. The Credit Amendment also reduces upfront and unused borrowing fees, provides for less restrictive covenants and offers more flexibility.
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 the London Interbank Offered Rate (“LIBOR”) 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, certain additional covenants would be triggered if excess availability were to fall below specified levels, including fixed charge coverage ratio requirements. Furthermore, if excess availability falls below the greater of i 10.0% of the lesser of the Loan Cap and $ i 40.0 million for three consecutive business days or 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 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. In addition, if the excess availability falls below the greater of (i) i 10.0% of the lesser of the Loan Cap and (ii) $ i 40.0 million, and the fixed charge coverage ratio is less than i 1.0 to 1.0, the Company would be in default under the Credit Agreement. 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 November 2, 2019.
At November 2, 2019, the Company had $ i 295.0 million borrowings outstanding and $ i 10.5 million in letters of credit outstanding under the Credit Agreement. Total additional borrowing availability was $ i 194.5 million at November 2, 2019.
$200 Million Senior Notes
On July 27, 2015, the Company issued $ i 200.0 million aggregate principal amount of i 6.25% Senior Notes due 2023 (the "Senior Notes"). The Senior Notes are guaranteed on a senior unsecured basis by each of the Company's subsidiaries that is a borrower or guarantor under the Credit Agreement. Interest on the Senior Notes is payable on February 15 and August 15 of each year. The Senior Notes will mature on August 15, 2023. The Company may redeem all or a part of the Senior Notes at the redemption prices (expressed as a percentage of principal amount) set forth below plus accrued and unpaid interest, and Additional Interest (as defined in the Senior Notes indenture), if redeemed during the 12-month period beginning on August 15 of the years indicated below:
i
| Year |
Percentage |
|||
| 2019 |
i 103.125 | % | ||
| 2020 |
i 101.563 | % | ||
| 2021 and thereafter |
i 100.000 | % | ||
If the Company experiences specific kinds of changes of control, it would be required to offer to purchase the Senior Notes at a purchase price equal to i 101% of the principal amount, plus accrued and unpaid interest and Additional Interest, if any, to, but not including, the date of repurchase.
The Senior Notes also contain certain other covenants and restrictions that limit certain activities including, among other things, levels of indebtedness, payments of dividends, the guarantee or pledge of assets, certain investments, common stock repurchases, mergers and acquisitions and sales of assets. As of November 2, 2019, the Company was in compliance with all covenants and restrictions relating to the Senior Notes.
/
| Note 12 |
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 November 2, 2019 and November 3, 2018:
i
| ($ thousands) |
Foreign Currency Translation |
Pension and Other Postretirement Transactions (1) |
Derivative Financial Instrument Transactions (2) | Accumulated Other Comprehensive (Loss) Income |
||||||||||||
| Balance at August 3, 2019 |
$ | ( i 896 | ) | $ | ( i 30,199 | ) | $ | ( i 310 | ) | $ | ( i 31,405 | ) | ||||
| Other comprehensive income before reclassifications |
i 595 | i — | i 66 | i 661 | ||||||||||||
| Reclassifications: |
||||||||||||||||
| Amounts reclassified from accumulated other comprehensive loss | i — | i 578 | ( i 4 | ) | i 574 | |||||||||||
| Tax (benefit) provision | i — | ( i 149 | ) | i 1 | ( i 148 | ) | ||||||||||
| Net reclassifications |
i — | i 429 | ( i 3 | ) | i 426 | |||||||||||
| Other comprehensive income |
i 595 | i 429 | i 63 | i 1,087 | ||||||||||||
| Balance at November 2, 2019 |
$ | ( i 301 | ) | $ | ( i 29,770 | ) | $ | ( i 247 | ) | $ | ( i 30,318 | ) | ||||
| Balance at August 4, 2018 |
$ | i 176 | $ | ( i 16,270 | ) | $ | ( i 675 | ) | $ | ( i 16,769 | ) | |||||
| Other comprehensive income (loss) before reclassifications |
i 14 | i — | ( i 415 | ) | ( i 401 | ) | ||||||||||
| Reclassifications: |
||||||||||||||||
| Amounts reclassified from accumulated other comprehensive loss |
i — | i 607 | i 120 | i 727 | ||||||||||||
| Tax benefit |
i — | ( i 156 | ) | ( i 25 | ) | ( i 181 | ) | |||||||||
| Net reclassifications |
i — | i 451 | i 95 | i 546 | ||||||||||||
| Other comprehensive income (loss) |
i 14 | i 451 | ( i 320 | ) | i 145 | |||||||||||
| Balance at November 3, 2018 |
$ | i 190 | $ | ( i 15,819 | ) | $ | ( i 995 | ) | $ | ( i 16,624 | ) | |||||
| Balance at February 2, 2019 |
$ | i 62 | $ | ( i 31,055 | ) | $ | ( i 608 | ) | $ | ( i 31,601 | ) | |||||
| Other comprehensive (loss) income before reclassifications | ( i 363 | ) | i — | i 160 | ( i 203 | ) | ||||||||||
| Reclassifications: |
||||||||||||||||
| Amounts reclassified from accumulated other comprehensive loss | i — | i 1,733 | i 254 | i 1,987 | ||||||||||||
| Tax benefit | i — | ( i 448 | ) | ( i 53 | ) | ( i 501 | ) | |||||||||
| Net reclassifications |
i — | i 1,285 | i 201 | i 1,486 | ||||||||||||
| Other comprehensive (loss) income |
( i 363 | ) | i 1,285 | i 361 | i 1,283 | |||||||||||
| Balance at November 2, 2019 |
$ | ( i 301 | ) | $ | ( i 29,770 | ) | $ | ( i 247 | ) | $ | ( i 30,318 | ) | ||||
| Balance at February 3, 2018 |
$ | i 1,235 | $ | ( i 17,172 | ) | $ | i 767 | $ | ( i 15,170 | ) | ||||||
| Other comprehensive loss before reclassifications | ( i 1,045 | ) | i — | ( i 1,648 | ) | ( i 2,693 | ) | |||||||||
| Reclassifications: |
||||||||||||||||
| Amounts reclassified from accumulated other comprehensive loss |
i — | i 1,823 | ( i 147 | ) | i 1,676 | |||||||||||
| Tax (benefit) provision |
i — | ( i 470 | ) | i 33 | ( i 437 | ) | ||||||||||
| Net reclassifications |
i — | i 1,353 | ( i 114 | ) | i 1,239 | |||||||||||
| Other comprehensive (loss) income |
( i 1,045 | ) | i 1,353 | ( i 1,762 | ) | ( i 1,454 | ) | |||||||||
| Balance at November 3, 2018 |
$ | i 190 | $ | ( i 15,819 | ) | $ | ( i 995 | ) | $ | ( i 16,624 | ) | |||||
| (1) |
Amounts reclassified are included in other income, net. Refer to Note 14 to the condensed consolidated financial statements for additional information related to pension and other postretirement benefits. |
| (2) |
Amounts reclassified are included in net sales, costs of goods sold and selling and administrative expenses. Refer to Note 15 and Note 16 to the condensed consolidated financial statements for additional information related to derivative financial instruments. |
/
| Note 13 |
Share-Based Compensation |
The Company recognized share-based compensation expense of $ i 2.4 million and $ i 3.6 million during the thirteen weeks and $ i 8.9 million and $ i 11.6 million during the thirty-nine weeks ended November 2, 2019 and November 3, 2018, respectively.
The Company had net (repurchases) issuances of ( i 69,377) and i 17,225 shares of common stock during the thirteen weeks ended November 2, 2019 and November 3, 2018, respectively, for restricted stock grants, stock performance awards issued to employees, stock options exercised and common and restricted stock grants issued to non-employee directors, net of forfeitures and shares withheld to satisfy the tax withholding requirement. During the thirty-nine weeks ended November 2, 2019 and November 3, 2018, the Company issued i 295,466 and i 290,756 shares of common stock, respectively, related to these share-based plans.
Restricted Stock
The following table summarizes restricted stock activity for the periods ended November 2, 2019 and November 3, 2018:
i
| Thirteen Weeks Ended |
Thirteen Weeks Ended |
||||||||||||||||
| Total Number of Restricted Shares | Weighted- Average Grant Date Fair Value |
Total Number of Restricted Shares | Weighted- Average Grant Date Fair Value |
||||||||||||||
| i 1,433,470 | $ | i 27.09 | i 1,205,898 | $ | i 29.04 | ||||||||||||
| Granted | i 11,000 | i 22.44 | Granted | i 45,000 | i 33.52 | ||||||||||||
| Forfeited | ( i 78,000 | ) | i 30.75 | Forfeited | ( i 27,650 | ) | i 29.24 | ||||||||||
| Vested | ( i 10,000 | ) | i 32.85 | Vested | i — | i — | |||||||||||
| November 2, 2019 | i 1,356,470 | $ | i 26.80 | November 3, 2018 | i 1,223,248 | $ | i 29.20 | ||||||||||
| Thirty-Nine Weeks Ended |
Thirty-Nine Weeks Ended |
||||||||||||||||
| Total Number of Restricted Shares | Weighted- Average Grant Date Fair Value |
Total Number of Restricted Shares | Weighted- Average Grant Date Fair Value |
||||||||||||||
| i 1,249,223 | $ | i 29.17 | i 1,174,801 | $ | i 27.92 | ||||||||||||
| Granted | i 461,234 | i 22.94 | Granted | i 378,833 | i 32.24 | ||||||||||||
| Forfeited | ( i 135,425 | ) | i 29.91 | Forfeited | ( i 44,950 | ) | i 28.69 | ||||||||||
| Vested | ( i 218,562 | ) | i 30.25 | Vested | ( i 285,436 | ) | i 28.06 | ||||||||||
| November 2, 2019 | i 1,356,470 | $ | i 26.80 | November 3, 2018 | i 1,223,248 | $ | i 29.20 | ||||||||||
All of the restricted shares granted during the thirteen weeks ended November 2, 2019, have a graded-vesting term of three years. Of the i 461,234 restricted shares granted during the thirty-nine weeks ended November 2, 2019, i 12,914 shares have a cliff-vesting term of one year and i 448,320 shares have a graded-vesting term of three years. All of the restricted shares granted during the thirteen weeks ended November 3, 2018, have a graded-vesting term of three years. Of the i 378,833 restricted shares granted during the thirty-nine weeks ended November 3, 2018, i 3,642 shares have a cliff-vesting term of one year, i 9,500 shares have a cliff-vesting term of four years, and i 365,691 shares have a graded-vesting term of three years.
Performance Share Awards
During the thirteen weeks ended November 2, 2019 and November 3, 2018, the Company granted i no performance share awards. During the thirty-nine weeks ended November 2, 2019 and November 3, 2018, the Company granted performance share awards for a targeted i 180,000 and i 155,000 shares, respectively, with a weighted-average grant date fair value of $ i 23.42 and $ i 31.84, respectively. Vesting of performance-based awards is 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 i 0% and i 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.
Stock Options
The following table summarizes stock option activity for the periods ended November 2, 2019 and November 3, 2018:
i
| Thirteen Weeks Ended |
Thirteen Weeks Ended |
||||||||||||||||
| Total Number of Stock Options | Weighted- Average Grant Date Fair Value |
Total Number of Stock Options | Weighted- Average Grant Date Fair Value |
||||||||||||||
| i 39,667 | $ | i 8.84 | i 44,667 | $ | i 8.32 | ||||||||||||
| Granted |
i — | i — | Granted |
i — | i — | ||||||||||||
| Exercised |
( i 2,000 | ) | i 4.64 | Exercised |
i — | i — | |||||||||||
| Forfeited |
i — | i — | Forfeited |
i — | i — | ||||||||||||
| Expired |
i — | i — | Expired |
i — | i — | ||||||||||||
| i 37,667 | $ | i 9.06 | i 44,667 | $ | i 8.32 | ||||||||||||
| Thirty-Nine Weeks Ended |
Thirty-Nine Weeks Ended |
||||||||||||||||
| Total Number of Stock Options | Weighted- Average Grant Date Fair Value |
Total Number of Stock Options | Weighted- Average Grant Date Fair Value |
||||||||||||||
| i 42,667 | $ | i 8.64 | i 81,042 | $ | i 6.28 | ||||||||||||
| Granted |
i — | i — | Granted |
i — | i — | ||||||||||||
| Exercised |
( i 3,000 | ) | i 6.00 | Exercised |
( i 32,375 | ) | i 3.52 | ||||||||||
| Forfeited |
( i 2,000 | ) | i 4.57 | Forfeited |
i — | i — | |||||||||||
| Expired |
i — | i — | Expired |
( i 4,000 | ) | i 5.80 | |||||||||||
| i 37,667 | $ | i 9.06 | i 44,667 | $ | i 8.32 | ||||||||||||
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 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. The Company granted i 1,350 and i 780 RSUs to non-employee directors for dividend equivalents, during the thirteen weeks ended November 2, 2019 and November 3, 2018, respectively, with weighted-average grant date fair values of $ i 23.27 and $ i 35.66, respectively. The Company granted i 55,679 and i 38,728 RSUs to non-employee directors, including i 4,023 and i 2,308 RSUs for dividend equivalents, during the thirty-nine weeks ended November 2, 2019 and November 3, 2018, respectively, with weighted-average grant date fair values of $ i 19.59 and $ i 34.33, respectively.
/
| Note 14 |
Retirement and Other Benefit Plans |
The following table sets forth the components of net periodic benefit income for the Company, including domestic and Canadian plans:
i
| Pension Benefits |
Other Postretirement Benefits |
|||||||||||||||
| Thirteen Weeks Ended |
Thirteen Weeks Ended |
|||||||||||||||
| ($ thousands) |
||||||||||||||||
| Service cost | $ | i 1,805 | $ | i 2,240 | $ | i — | $ | i — | ||||||||
| Interest cost | i 3,707 | i 3,546 | i 15 | i 15 | ||||||||||||
| Expected return on assets | ( i 6,933 | ) | ( i 7,253 | ) | i — | i — | ||||||||||
| Amortization of: |
||||||||||||||||
| Actuarial loss (gain) | i 977 | i 1,030 | ( i 27 | ) | ( i 31 | ) | ||||||||||
| Prior service income | ( i 372 | ) | ( i 392 | ) | i — | i — | ||||||||||
| Total net periodic benefit income |
$ | ( i 816 | ) | $ | ( i 829 | ) | $ | ( i 12 | ) | $ | ( i 16 | ) | ||||
| Pension Benefits |
Other Postretirement Benefits |
|||||||||||||||
| Thirty-Nine Weeks Ended |
Thirty-Nine Weeks Ended |
|||||||||||||||
| ($ thousands) |
||||||||||||||||
| Service cost | $ | i 5,414 | $ | i 6,717 | $ | i — | $ | i — | ||||||||
| Interest cost | i 11,112 | i 10,636 | i 45 | i 44 | ||||||||||||
| Expected return on assets | ( i 20,792 | ) | ( i 21,757 | ) | i — | i — | ||||||||||
| Amortization of: |
||||||||||||||||
| Actuarial loss (gain) | i 2,929 | i 3,092 | ( i 81 | ) | ( i 93 | ) | ||||||||||
| Prior service income | ( i 1,115 | ) | ( i 1,176 | ) | i — | i — | ||||||||||
| Total net periodic benefit income |
$ | ( i 2,452 | ) | $ | ( i 2,488 | ) | $ | ( i 36 | ) | $ | ( i 49 | ) | ||||
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 15 |
Risk Management and Derivatives |
In the normal course of business, the Company’s financial results are impacted by currency rate movements in foreign currency denominated assets, liabilities and cash flows as it makes a portion of its purchases and sales in local currencies. The Company has established policies and business practices that are intended to mitigate a portion of the effect of these exposures. The Company uses derivative financial instruments, primarily forward contracts, to manage its currency exposures. These derivative financial instruments are viewed as risk management tools and are not used for trading or speculative purposes. Derivatives entered into by the Company are designated as cash flow hedges of forecasted foreign currency transactions.
Derivative financial instruments expose the Company to credit and market risk. The market risk associated with these instruments resulting from currency exchange movements is expected to offset the market risk of the underlying transactions being hedged. The Company does not believe there is a significant risk of loss in the event of non-performance by the counterparties associated with these instruments because these transactions are executed with major international financial institutions and have varying maturities through May 2020. Credit risk is managed through the continuous monitoring of exposures to such counterparties.
The Company’s hedging strategy uses forward contracts as cash flow hedging instruments, which are recorded in the Company's condensed consolidated balance sheets at fair value. The effective portion of gains and losses resulting from changes in the fair value of these hedge instruments are deferred in accumulated other comprehensive loss and reclassified to earnings in the period that the hedged transaction is recognized in earnings.
As of November 2, 2019, November 3, 2018 and February 2, 2019, the Company had forward contracts maturing at various dates through May 2020, November 2019, and January 2020, respectively. The contract amounts in the following table represent the net notional amount of all purchase and sale contracts of a foreign currency.
i
| (U.S. $ equivalent in thousands) |
||||||||||||
| Financial Instruments |
||||||||||||
| Euro |
$ | i 3,235 | $ | i 13,480 | $ | i 13,383 | ||||||
| U.S. dollars (purchased by the Company’s Canadian division with Canadian dollars) |
i 5,763 | i 13,877 | i 15,196 | |||||||||
| Chinese yuan |
i 2,905 | i 6,570 | i 4,507 | |||||||||
| New Taiwanese dollars |
i — | i 530 | i 461 | |||||||||
| Other currencies |
i 139 | i 388 | i 382 | |||||||||
| Total financial instruments |
$ | i 12,042 | $ | i 34,845 | $ | i 33,929 | ||||||
The classification and fair values of derivative instruments designated as hedging instruments included within the condensed consolidated balance sheets as of November 2, 2019, November 3, 2018 and February 2, 2019 are as follows:
i
| Asset Derivatives |
Liability Derivatives |
|||||||||
| ($ thousands) |
Balance Sheet Location |
Fair Value |
Balance Sheet Location |
Fair Value |
||||||
| Foreign Exchange Forward Contracts |
||||||||||
| November 2, 2019 | Prepaid expenses and other current assets | i 17 | Other accrued expenses | i 325 | ||||||
| November 3, 2018 | Prepaid expenses and other current assets | i 203 | Other accrued expenses | i 1,414 | ||||||
| Prepaid expenses and other current assets |
i 159 | Other accrued expenses |
i 745 | |||||||
For the thirteen and thirty-nine weeks ended November 2, 2019 and November 3, 2018, the effect of derivative instruments in cash flow hedging relationships on the condensed consolidated statements of earnings was as follows:
i
| Thirteen Weeks Ended |
Thirteen Weeks Ended |
|||||||||||||||
| ($ thousands) |
||||||||||||||||
| Foreign Exchange Forward Contracts: Income Statement Classification Gains (Losses) - Realized |
Gain (Loss) Recognized in OCL on Derivatives |
Gain Reclassified from Accumulated OCL into Earnings |
Loss Recognized in OCL on Derivatives |
Gain (Loss) Reclassified from Accumulated OCL into Earnings |
||||||||||||
| Net sales |
$ | i 69 | $ | i 2 | $ | ( i 78 | ) | $ | i — | |||||||
| Cost of goods sold |
i 38 | i — | ( i 286 | ) | i 26 | |||||||||||
| Selling and administrative expenses |
( i 33 | ) | i 2 | ( i 152 | ) | ( i 146 | ) | |||||||||
| Thirty-Nine Weeks Ended |
Thirty-Nine Weeks Ended |
|||||||||||||||
| ($ thousands) |
||||||||||||||||
| Foreign Exchange Forward Contracts: Income Statement Classification (Losses) Gains - Realized |
(Loss) Gain Recognized in OCL on Derivatives |
Loss Reclassified from Accumulated OCL into Earnings |
Loss Recognized in OCL on Derivatives |
(Loss) Gain Reclassified from Accumulated OCL into Earnings |
||||||||||||
| Net sales |
$ | ( i 51 | ) | $ | ( i 3 | ) | $ | ( i 120 | ) | $ | ( i 4 | ) | ||||
| Cost of goods sold |
i 390 | ( i 38 | ) | ( i 970 | ) | ( i 37 | ) | |||||||||
| Selling and administrative expenses |
( i 147 | ) | ( i 213 | ) | ( i 955 | ) | i 188 | |||||||||
All gains and losses currently included within accumulated other comprehensive loss associated with the Company’s foreign exchange forward contracts are expected to be reclassified into net earnings within the next 12 months. Additional information related to the Company’s derivative financial instruments are disclosed within Note 16 to the condensed consolidated financial statements.
/
| Note 16 |
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 has cash equivalents consisting of short-term money market funds backed by U.S. Treasury securities. The primary objective of these investing activities is to preserve the Company’s capital for the purpose of funding operations and 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 i 50% of base salary and i 100% of compensation received under the Company’s annual incentive plan. The deferrals are held 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 13 to the condensed consolidated financial statements.
Derivative Financial Instruments
The Company uses derivative financial instruments, primarily foreign exchange contracts, to reduce its exposure to market risks from changes in foreign exchange rates. These foreign exchange contracts are measured at fair value using quoted forward foreign exchange prices from counterparties corroborated by market-based pricing (Level 2). Additional information related to the Company’s derivative financial instruments is disclosed in Note 15 to the condensed consolidated financial statements.
Mandatory Purchase Obligation
The Company recorded a mandatory purchase obligation of the noncontrolling interest in conjunction with the acquisition of Blowfish Malibu in July of 2018. The fair value of the mandatory purchase obligation is based on the earnings formula specified in the Purchase Agreement (Level 3). Accretion of the mandatory purchase obligation and any fair value adjustments are recorded as interest expense. During the thirteen and thirty-nine weeks ended November 2, 2019, the Company recorded accretion and remeasurement adjustments of $ i 3.9 million and $ i 4.4 million, respectively. An immaterial amount of accretion was recorded during the thirteen and thirty-nine weeks ended November 3, 2018. The earnings projections and discount rate utilized in the estimate of the fair value of the mandatory purchase obligation require management judgment and are the assumptions to which the fair value calculation is the most sensitive. Refer to further discussion of the mandatory purchase obligation in Note 3 to the condensed consolidated financial statements.
The following table presents the Company’s assets and liabilities that are measured at fair value on a recurring basis at November 2, 2019, November 3, 2018 and February 2, 2019. The Company did not have any transfers between Level 1, Level 2 or Level 3 during the thirty-nine weeks ended November 2, 2019 or November 3, 2018.
i
| Fair Value Measurements |
||||||||||||||||
| ($ thousands) |
Total |
Level 1 |
Level 2 |
Level 3 |
||||||||||||
| Asset (Liability) |
||||||||||||||||
| Non-qualified deferred compensation plan assets |
$ | i 8,117 | $ | i 8,117 | $ | i — | $ | i — | ||||||||
| Non-qualified deferred compensation plan liabilities |
( i 8,117 | ) | ( i 8,117 | ) | i — | i — | ||||||||||
| Deferred compensation plan liabilities for non-employee directors |
( i 1,879 | ) | ( i 1,879 | ) | i — | i — | ||||||||||
| Restricted stock units for non-employee directors |
( i 3,282 | ) | ( i 3,282 | ) | i — | i — | ||||||||||
| Derivative financial instruments, net |
( i 308 | ) | i — | ( i 308 | ) | i — | ||||||||||
| Mandatory purchase obligation - Blowfish Malibu | ( i 13,655 | ) | i — | i — | ( i 13,655 | ) | ||||||||||
| Cash equivalents – money market funds |
$ | i 56,668 | $ | i 56,668 | $ | i — | $ | i — | ||||||||
| Non-qualified deferred compensation plan assets |
i 7,723 | i 7,223 | i — | i — | ||||||||||||
| Non-qualified deferred compensation plan liabilities |
( i 7,723 | ) | ( i 7,223 | ) | i — | i — | ||||||||||
| Deferred compensation plan liabilities for non-employee directors |
( i 2,772 | ) | ( i 2,772 | ) | i — | i — | ||||||||||
| Restricted stock units for non-employee directors |
( i 5,395 | ) | ( i 5,395 | ) | i — | i — | ||||||||||
| Derivative financial instruments, net |
( i 1,211 | ) | i — | ( i 1,211 | ) | i — | ||||||||||
| Mandatory purchase obligation - Blowfish Malibu |
( i 9,138 | ) | i — | i — | ( i 9,138 | ) | ||||||||||
| Cash equivalents – money market funds |
$ | i 4,582 | $ | i 4,582 | $ | i — | $ | i — | ||||||||
| Non-qualified deferred compensation plan assets |
i 7,270 | i 7,270 | i — | i — | ||||||||||||
| Non-qualified deferred compensation plan liabilities |
( i 7,270 | ) | ( i 7,270 | ) | i — | i — | ||||||||||
| Deferred compensation plan liabilities for non-employee directors |
( i 2,364 | ) | ( i 2,364 | ) | i — | i — | ||||||||||
| Restricted stock units for non-employee directors |
( i 4,419 | ) | ( i 4,419 | ) | i — | i — | ||||||||||
| Derivative financial instruments, net |
( i 586 | ) | i — | ( i 586 | ) | i — | ||||||||||
| Mandatory purchase obligation - Blowfish Malibu |
( i 9,245 | ) | i — | i — | ( i 9,245 | ) | ||||||||||
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 $ i 658.1 million and $ i 102.8 million at November 2, 2019 and November 3, 2018, respectively, were assessed for indicators of impairment and written down to their fair value. This assessment resulted in the following impairment charges, primarily for operating lease right-of-use assets, leasehold improvements and furniture and fixtures in the Company's retail stores, which were included in selling and administrative expenses for the respective periods.
i
| Thirteen Weeks Ended |
Thirty-Nine Weeks Ended |
|||||||||||||||
| ($ thousands) |
||||||||||||||||
| Impairment Charges |
||||||||||||||||
| Famous Footwear |
$ | i 769 | $ | i 150 | $ | i 1,509 | $ | i 450 | ||||||||
| Brand Portfolio | i 1,382 | i 957 | i 3,596 | i 1,590 | ||||||||||||
| Total impairment charges |
$ | i 2,151 | $ | i 1,107 | $ | i 5,105 | $ | i 2,040 | ||||||||
Adoption of ASC 842 has resulted in higher impairment charges for under-performing retail stores as a direct result of including the right-of use-asset in the asset group that is evaluated for impairment.
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.
The carrying amounts and fair values of the Company's other financial instruments subject to fair value disclosures are as follows:
i
| Carrying |
Fair |
Carrying |
Fair |
Carrying |
Fair |
|||||||||||||||||||
| ($ thousands) |
Value(1) |
Value |
Value(1) |
Value |
Value(1) |
Value |
||||||||||||||||||
| Borrowings under revolving credit agreement |
$ | i 295,000 | $ | i 295,000 | $ | i 350,000 | $ | i 350,000 | $ | i 335,000 | $ | i 335,000 | ||||||||||||
| Long-term debt |
i 200,000 | i 206,200 | i 200,000 | i 203,500 | i 200,000 | i 205,500 | ||||||||||||||||||
| Total debt |
$ | i 495,000 | $ | i 501,200 | $ | i 550,000 | $ | i 553,500 | $ | i 535,000 | $ | i 540,500 | ||||||||||||
(1) Excludes unamortized debt issuance costs and debt discount
The fair value of borrowings under the 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 the end of the respective periods (Level 2).
/
| Note 17 |
Income Taxes |
The Company’s consolidated effective tax rates were i 21.9% and i 24.5% for the thirteen weeks ended November 2, 2019 and November 3, 2018, respectively. During the thirteen weeks ended November 2, 2019 and November 3, 2018, the Company recognized an immaterial amount of discrete tax benefits.
For the thirty-nine weeks ended November 2, 2019 and November 3, 2018, the Company's consolidated effective tax rates were i 23.1% and i 24.5%, respectively. The Company's effective tax rate was impacted by discrete tax benefits of $ i 0.7 million for the thirty-nine weeks ended November 3, 2018, reflecting greater deductibility of certain 2017 expenses than originally estimated and share-based compensation. If these discrete taxes had not been recognized during the thirty-nine weeks ended November 3, 2018, the Company's effective tax rate would have been i 25.4%.
As of November 2, 2019, i 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 foreign investment opportunities and plans, as well as its foreign working capital needs, to determine the level of investment required and, accordingly, determines the level of foreign earnings that is considered indefinitely reinvested. Based upon that evaluation, earnings of the Company’s foreign 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 foreign earnings. Due to the complexity of the hypothetical calculation, it is not practicable to estimate the amount of the deferred tax liability associated with these unremitted foreign earnings.
/
| Note 18 |
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 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 has submitted a request to the oversight authorities for permission to convert the perimeter pump and treat active remediation system to a passive one.
The cumulative expenditures for both on-site and off-site remediation through November 2, 2019 were $ i 30.9 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 November 2, 2019 is $ i 9.7 million, of which $ i 9.0 million is recorded within other liabilities and $ i 0.7 million is recorded within other accrued expenses. Of the total $9.7 million reserve, $ i 5.1 million is for off-site remediation and $ i 4.6 million is for on-site remediation. The liability for the on-site remediation was discounted at i 4.8%. On an undiscounted basis, the on-site remediation liability would be $ i 14.0 million as of November 2, 2019. The Company expects to spend approximately $ i 0.5 million in 2019, $ i 0.1 million in each of the following four years and $ i 13.1 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 generally expensed as incurred.
/
| Note 19 |
Financial Information for the Company and its Subsidiaries |
The Company issued senior notes, which are fully and unconditionally and jointly and severally guaranteed by all of its existing and future subsidiaries that are guarantors under the Company's revolving credit facility ("Credit Agreement"). The following tables present the condensed consolidating financial information for each of Caleres, Inc. (“Parent”), the Guarantors, and subsidiaries of the Parent that are not Guarantors (the “Non-Guarantors”), together with consolidating eliminations, as of and for the periods indicated. Guarantors are i 100% owned by the Parent. On October 31, 2018, Vionic was joined to the Credit Agreement as a guarantor. After giving effect to the joinder, the Company is the lead borrower, and Sidney Rich Associates, Inc., BG Retail, LLC, Allen Edmonds and Vionic are each co-borrowers and guarantors under the Credit Agreement.
The condensed consolidating financial statements have been prepared using the equity method of accounting in accordance with the requirements for presentation of such information. Management believes that the information, presented in lieu of complete financial statements for each of the Guarantors, provides meaningful information to allow investors to determine the nature of the assets held by, and operations and cash flows of, each of the consolidated groups.
| UNAUDITED CONDENSED CONSOLIDATING BALANCE SHEET |
|||||||||||||||
|
|
| Non- |
||||||||||||||||||||
| ($ thousands) |
Parent |
Guarantors |
Guarantors |
Eliminations |
Total |
|||||||||||||||
| Assets |
||||||||||||||||||||
| Current assets |
||||||||||||||||||||
| Cash and cash equivalents |
$ | i 2,487 | $ | i 20,040 | $ | i 29,975 | $ | i — | $ | i 52,502 | ||||||||||
| Receivables, net |
i 108,118 | i 30,427 | i 17,708 | i — | i 156,253 | |||||||||||||||
| Inventories, net |
i 133,258 | i 476,687 | i 34,701 | i — | i 644,646 | |||||||||||||||
| Prepaid expenses and other current assets | i 28,534 | i 14,494 | i 5,217 | i — | i 48,245 | |||||||||||||||
| Intercompany receivable – current |
i 144 | i 96 | i 10,611 | ( i 10,851 | ) | i — | ||||||||||||||
| Total current assets |
i 272,541 | i 541,744 | i 98,212 | ( i 10,851 | ) | i 901,646 | ||||||||||||||
| Other assets |
i 79,868 | i 11,131 | i 1,215 | i — | i 92,214 | |||||||||||||||
| Goodwill and intangible assets, net |
i 107,217 | i 328,562 | i 107,066 | i — | i 542,845 | |||||||||||||||
| Lease right-of-use assets |
i 123,490 | i 548,639 | i 32,115 | i — | i 704,244 | |||||||||||||||
| Property and equipment, net |
i 76,550 | i 143,402 | i 10,309 | i — | i 230,261 | |||||||||||||||
| Investment in subsidiaries | i 1,560,733 | i — | ( i 25,950 | ) | ( i 1,534,783 | ) | i — | |||||||||||||
| Intercompany receivable – noncurrent |
i 602,934 | i 640,835 | i 800,327 | ( i 2,044,096 | ) | i — | ||||||||||||||
| Total assets |
$ | i 2,823,333 | $ | i 2,214,313 | $ | i 1,023,294 | $ | ( i 3,589,730 | ) | $ | i 2,471,210 | |||||||||
| Liabilities and Equity |
||||||||||||||||||||
| Current liabilities |
||||||||||||||||||||
| Borrowings under revolving credit agreement |
$ | i 295,000 | $ | i — | $ | i — | $ | i — | $ | i 295,000 | ||||||||||
| Trade accounts payable |
i 115,407 | i 128,490 | i 31,802 | i — | i 275,699 | |||||||||||||||
| Lease obligations |
i 11,450 | i 126,438 | i 6,613 | i — | i 144,501 | |||||||||||||||
| Other accrued expenses |
i 65,810 | i 91,013 | i 22,207 | i — | i 179,030 | |||||||||||||||
| Intercompany payable – current | i 5,343 | i — | i 5,508 | ( i 10,851 | ) | i — | ||||||||||||||
| Total current liabilities |
i 493,010 | i 345,941 | i 66,130 | ( i 10,851 | ) | i 894,230 | ||||||||||||||
| Other liabilities |
||||||||||||||||||||
| Noncurrent lease obligations |
i 126,347 | i 472,579 | i 30,805 | i — | i 629,731 | |||||||||||||||
| Long-term debt | i 198,276 | i — | i — | i — | i 198,276 | |||||||||||||||
| Other liabilities |
i 92,293 | i 2,399 | i 931 | i — | i 95,623 | |||||||||||||||
| Intercompany payable – noncurrent |
i 1,262,567 | i 114,458 | i 667,071 | ( i 2,044,096 | ) | i — | ||||||||||||||
| Total other liabilities |
i 1,679,483 | i 589,436 | i 698,807 | ( i 2,044,096 | ) | i 923,630 | ||||||||||||||
| Equity |
||||||||||||||||||||
| Caleres, Inc. shareholders’ equity |
i 650,840 | i 1,278,936 | i 255,847 | ( i 1,534,783 | ) | i 650,840 | ||||||||||||||
| Noncontrolling interests | i — | i — | i 2,510 | i — | i 2,510 | |||||||||||||||
| Total equity |
i 650,840 | i 1,278,936 | i 258,357 | ( i 1,534,783 | ) | i 653,350 | ||||||||||||||
| Total liabilities and equity |
$ | i 2,823,333 | $ | i 2,214,313 | $ | i 1,023,294 | $ | ( i 3,589,730 | ) | $ | i 2,471,210 | |||||||||
| UNAUDITED CONDENSED CONSOLIDATING STATEMENT OF COMPREHENSIVE INCOME |
|||||||||||||||
| FOR THE thirteen weeks ended November 2, 2019 |
| Non- |
||||||||||||||||||||
| ($ thousands) |
Parent |
Guarantors |
Guarantors |
Eliminations |
Total |
|||||||||||||||
| Net sales |
$ | i 223,640 | $ | i 563,398 | $ | i 59,062 | $ | ( i 53,725 | ) | $ | i 792,375 | |||||||||
| Cost of goods sold |
i 148,245 | i 340,009 | i 30,127 | ( i 45,776 | ) | i 472,605 | ||||||||||||||
| Gross profit |
i 75,395 | i 223,389 | i 28,935 | ( i 7,949 | ) | i 319,770 | ||||||||||||||
| Selling and administrative expenses |
i 61,728 | i 204,612 | i 16,939 | ( i 7,949 | ) | i 275,330 | ||||||||||||||
| Restructuring and other special charges, net |
i 969 | i - | i - | i - | i 969 | |||||||||||||||
| Operating (loss) earnings |
i 12,698 | i 18,777 | i 11,996 | i - | i 43,471 | |||||||||||||||
| Interest (expense) income |
( i 10,564 | ) | ( i 25 | ) | i 30 | i - | ( i 10,559 | ) | ||||||||||||
| Other income (expense) |
i 2,653 | i - | ( i 20 | ) | i - | i 2,633 | ||||||||||||||
| Intercompany interest income (expense) |
i 2,660 | ( i 2,709 | ) | i 49 | i - | i - | ||||||||||||||
| (Loss) earnings before income taxes |
i 7,447 | i 16,043 | i 12,055 | i - | i 35,545 | |||||||||||||||
| Income tax benefit (provision) |
( i 2,776 | ) | ( i 3,651 | ) | ( i 1,357 | ) | i - | ( i 7,784 | ) | |||||||||||
| Equity in earnings (loss) of subsidiaries, net of tax |
i 23,316 | i - | ( i 488 | ) | ( i 22,828 | ) | i - | |||||||||||||
| Net earnings |
i 27,987 | i 12,392 | i 10,210 | ( i 22,828 | ) | i 27,761 | ||||||||||||||
| Less: Net loss attributable to noncontrolling interests |
i - | i - | ( i 226 | ) | i - | ( i 226 | ) | |||||||||||||
| Net earnings attributable to Caleres, Inc. |
$ | i 27,987 | $ | i 12,392 | $ | i 10,436 | $ | ( i 22,828 | ) | $ | i 27,987 | |||||||||
| Comprehensive income |
$ | i 29,074 | $ | i 12,445 | $ | i 10,718 | $ | ( i 23,402 | ) | $ | i 28,835 | |||||||||
| Less: Comprehensive loss attributable to noncontrolling interests |
i - | i - | ( i 239 | ) | i - | ( i 239 | ) | |||||||||||||
| Comprehensive income attributable to Caleres, Inc. |
$ | i 29,074 | $ | i 12,445 | $ | i 10,957 | $ | ( i 23,402 | ) | $ | i 29,074 | |||||||||
| UNAUDITED CONDENSED CONSOLIDATING STATEMENT OF COMPREHENSIVE INCOME |
|||||||||||||||
| FOR THE thirty-nine weeks ended November 2, 2019 |
| Non- |
||||||||||||||||||||
| ($ thousands) |
Parent |
Guarantors |
Guarantors |
Eliminations |
Total |
|||||||||||||||
| Net sales |
$ | i 623,292 | $ | i 1,584,601 | $ | i 194,233 | $ | ( i 179,512 | ) | $ | i 2,222,614 | |||||||||
| Cost of goods sold |
i 426,872 | i 940,140 | i 101,464 | ( i 151,412 | ) | i 1,317,064 | ||||||||||||||
| Gross profit |
i 196,420 | i 644,461 | i 92,769 | ( i 28,100 | ) | i 905,550 | ||||||||||||||
| Selling and administrative expenses |
i 181,662 | i 600,020 | i 51,390 | ( i 28,100 | ) | i 804,972 | ||||||||||||||
| Restructuring and other special charges, net |
i 2,434 | i — | i — | i — | i 2,434 | |||||||||||||||
| Operating earnings |
i 12,324 | i 44,441 | i 41,379 | i — | i 98,144 | |||||||||||||||
| Interest (expense) income |
( i 25,294 | ) | ( i 77 | ) | i 83 | i — | ( i 25,288 | ) | ||||||||||||
| Other income (expense) |
i 7,960 | i — | ( i 58 | ) | i — | i 7,902 | ||||||||||||||
| Intercompany interest income (expense) |
i 8,231 | ( i 8,292 | ) | i 61 | i — | i - | ||||||||||||||
| Earnings before income taxes |
i 3,221 | i 36,072 | i 41,465 | i — | i 80,758 | |||||||||||||||
| Income tax provision |
( i 3,159 | ) | ( i 9,393 | ) | ( i 6,133 | ) | i — | ( i 18,685 | ) | |||||||||||
| Equity in earnings (loss) of subsidiaries, net of tax |
i 62,349 | i — | ( i 1,111 | ) | ( i 61,238 | ) | i - | |||||||||||||
| Net earnings |
i 62,411 | i 26,679 | i 34,221 | ( i 61,238 | ) | i 62,073 | ||||||||||||||
| Less: Net loss attributable to noncontrolling interests |
i — | i — | ( i 338 | ) | i — | ( i 338 | ) | |||||||||||||
| Net earnings attributable to Caleres, Inc. |
$ | i 62,411 | $ | i 26,679 | $ | i 34,559 | $ | ( i 61,238 | ) | $ | i 62,411 | |||||||||
| Comprehensive income |
$ | i 63,694 | $ | i 26,641 | $ | i 33,772 | $ | ( i 60,785 | ) | $ | i 63,322 | |||||||||
| Less: Comprehensive loss attributable to noncontrolling interests |
i — | i — | ( i 372 | ) | i — | ( i 372 | ) | |||||||||||||
| Comprehensive income attributable to Caleres, Inc. |
$ | i 63,694 | $ | i 26,641 | $ | i 34,144 | $ | ( i 60,785 | ) | $ | i 63,694 | |||||||||
| UNAUDITED CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS |
|||||||||||||||
| FOR THE thirty-nine weeks ended November 2, 2019 |
i
| Non- |
||||||||||||||||||||
| ($ thousands) |
Parent |
Guarantors |
Guarantors |
Eliminations |
Total |
|||||||||||||||
| Net cash provided by operating activities |
$ | i 15,776 | $ | i 79,884 | $ | i 50,077 | $ | i — | $ | i 145,737 | ||||||||||
| Investing activities |
||||||||||||||||||||
| Purchases of property and equipment |
( i 20,965 | ) | ( i 14,365 | ) | ( i 2,024 | ) | i — | ( i 37,354 | ) | |||||||||||
| Disposals of property and equipment |
i 636 | i — | i — | i — | i 636 | |||||||||||||||
| Capitalized software |
( i 4,696 | ) | ( i 197 | ) | i — | i — | ( i 4,893 | ) | ||||||||||||
| Intercompany investing |
( i 337 | ) | i 337 | i — | i — | i — | ||||||||||||||
| Net cash used for investing activities |
( i 25,362 | ) | ( i 14,225 | ) | ( i 2,024 | ) | i — | ( i 41,611 | ) | |||||||||||
| Financing activities |
||||||||||||||||||||
| Borrowings under revolving credit agreement |
i 237,000 | i — | i — | i — | i 237,000 | |||||||||||||||
| Repayments under revolving credit agreement |
( i 277,000 | ) | i — | i — | i — | ( i 277,000 | ) | |||||||||||||
| Dividends paid |
( i 8,631 | ) | i — | i — | i — | ( i 8,631 | ) | |||||||||||||
| Acquisition of treasury stock |
( i 31,168 | ) | i — | i — | i — | ( i 31,168 | ) | |||||||||||||
| Issuance of common stock under share-based plans, net |
( i 2,605 | ) | i — | i — | i — | ( i 2,605 | ) | |||||||||||||
| Contributions by noncontrolling interests | i 1,500 | i 1,500 | ||||||||||||||||||
| Other |
( i 84 | ) | ( i 938 | ) | i — | i — | ( i 1,022 | ) | ||||||||||||
| Intercompany financing |
i 94,559 | ( i 53,829 | ) | ( i 40,730 | ) | i — | i — | |||||||||||||
| Net cash used for financing activities |
i 12,071 | ( i 54,767 | ) | ( i 39,230 | ) | i — | ( i 81,926 | ) | ||||||||||||
| Effect of exchange rate changes on cash and cash equivalents |
i — | i — | i 102 | i — | i 102 | |||||||||||||||
| Increase in cash and cash equivalents |
i 2,485 | i 10,892 | i 8,925 | i — | i 22,302 | |||||||||||||||
| Cash and cash equivalents at beginning of period |
i 2 | i 9,148 | i 21,050 | i — | i 30,200 | |||||||||||||||
| Cash and cash equivalents at end of period |
$ | i 2,487 | $ | i 20,040 | $ | i 29,975 | $ | i — | $ | i 52,502 | ||||||||||
| UNAUDITED CONDENSED CONSOLIDATING BALANCE SHEET |
|||||||||||||||
| Non- |
||||||||||||||||||||
| ($ thousands) |
Parent |
Guarantors |
Guarantors |
Eliminations |
Total |
|||||||||||||||
| Assets |
||||||||||||||||||||
| Current assets |
||||||||||||||||||||
| Cash and cash equivalents |
$ | i 4,012 | $ | i 11,817 | $ | i 74,662 | $ | i — | $ | i 90,491 | ||||||||||
| Receivables, net |
i 145,363 | i 30,040 | i 16,843 | i — | i 192,246 | |||||||||||||||
| Inventories, net |
i 154,706 | i 513,448 | i 30,111 | i — | i 698,265 | |||||||||||||||
| Prepaid expenses and other current assets |
i 34,621 | i 33,869 | i 6,020 | ( i 11,344 | ) | i 63,166 | ||||||||||||||
| Intercompany receivable – current |
i 291 | i 137 | i 8,038 | ( i 8,466 | ) | i — | ||||||||||||||
| Total current assets |
i 338,993 | i 589,311 | i 135,674 | ( i 19,810 | ) | i 1,044,168 | ||||||||||||||
| Other assets |
i 78,640 | i 12,330 | i 1,309 | i — | i 92,279 | |||||||||||||||
| Goodwill and intangible assets, net |
i 109,441 | i 335,419 | i 208,992 | i — | i 653,852 | |||||||||||||||
| Property and equipment, net |
i 43,761 | i 163,019 | i 11,323 | i — | i 218,103 | |||||||||||||||
| Investment in subsidiaries |
i 1,576,825 | i — | ( i 24,821 | ) | ( i 1,552,004 | ) | i — | |||||||||||||
| Intercompany receivable – noncurrent |
i 583,048 | i 560,563 | i 745,589 | ( i 1,889,200 | ) | i — | ||||||||||||||
| Total assets |
$ | i 2,730,708 | $ | i 1,660,642 | $ | i 1,078,066 | $ | ( i 3,461,014 | ) | $ | i 2,008,402 | |||||||||
| Liabilities and Equity |
||||||||||||||||||||
| Current liabilities |
||||||||||||||||||||
| Borrowings under revolving credit agreement | $ | i 350,000 | $ | i — | $ | i — | $ | i — | $ | i 350,000 | ||||||||||
| Trade accounts payable | i 141,012 | i 151,127 | i 25,360 | i — | i 317,499 | |||||||||||||||
| Other accrued expenses |
i 85,253 | i 111,490 | i 24,080 | ( i 11,344 | ) | i 209,479 | ||||||||||||||
| Intercompany payable – current |
i 3,363 | i — | i 5,103 | ( i 8,466 | ) | i — | ||||||||||||||
| Total current liabilities |
i 579,628 | i 262,617 | i 54,543 | ( i 19,810 | ) | i 876,978 | ||||||||||||||
| Other liabilities |
||||||||||||||||||||
| Long-term debt |
i 197,817 | i — | i — | i — | i 197,817 | |||||||||||||||
| Other liabilities |
i 119,291 | i 42,185 | i 5,046 | i — | i 166,522 | |||||||||||||||
| Intercompany payable – noncurrent |
i 1,068,219 | i 95,440 | i 725,541 | ( i 1,889,200 | ) | i — | ||||||||||||||
| Total other liabilities |
i 1,385,327 | i 137,625 | i 730,587 | ( i 1,889,200 | ) | i 364,339 | ||||||||||||||
| Equity |
||||||||||||||||||||
| Caleres, Inc. shareholders’ equity |
i 765,753 | i 1,260,400 | i 291,604 | ( i 1,552,004 | ) | i 765,753 | ||||||||||||||
| Noncontrolling interests |
i — | i — | i 1,332 | i — | i 1,332 | |||||||||||||||
| Total equity |
i 765,753 | i 1,260,400 | i 292,936 | ( i 1,552,004 | ) | i 767,085 | ||||||||||||||
| Total liabilities and equity |
$ | i 2,730,708 | $ | i 1,660,642 | $ | i 1,078,066 | $ | ( i 3,461,014 | ) | $ | i 2,008,402 | |||||||||
| UNAUDITED CONDENSED CONSOLIDATING STATEMENT OF COMPREHENSIVE INCOME |
|||||||||||||||
| FOR THE thirteen weeks ended November 3, 2018 |
| Non- |
||||||||||||||||||||
| ($ thousands) |
Parent |
Guarantors |
Guarantors |
Eliminations |
Total |
|||||||||||||||
| Net sales |
$ | i 240,295 | $ | i 540,379 | $ | i 62,672 | $ | ( i 67,517 | ) | $ | i 775,829 | |||||||||
| Cost of goods sold |
i 163,609 | i 325,966 | i 32,262 | ( i 56,618 | ) | i 465,219 | ||||||||||||||
| Gross profit |
i 76,686 | i 214,413 | i 30,410 | ( i 10,899 | ) | i 310,610 | ||||||||||||||
| Selling and administrative expenses |
i 64,766 | i 195,318 | i 16,337 | ( i 10,899 | ) | i 265,522 | ||||||||||||||
| Restructuring and other special charges, net |
i 4,831 | i 509 | i — | i — | i 5,340 | |||||||||||||||
| Operating earnings |
i 7,089 | i 18,586 | i 14,073 | i — | i 39,748 | |||||||||||||||
| Interest (expense) income |
( i 4,484 | ) | i — | i 274 | i — | ( i 4,210 | ) | |||||||||||||
| Other income (expense) |
i 3,101 | i — | ( i 16 | ) | i — | i 3,085 | ||||||||||||||
| Intercompany interest income (expense) |
i 2,976 | ( i 2,951 | ) | ( i 25 | ) | i — | i — | |||||||||||||
| Earnings before income taxes |
i 8,682 | i 15,635 | i 14,306 | i — | i 38,623 | |||||||||||||||
| Income tax provision |
( i 3,012 | ) | ( i 4,122 | ) | ( i 2,334 | ) | i — | ( i 9,468 | ) | |||||||||||
| Equity in earnings (loss) of subsidiaries, net of tax |
i 23,483 | i — | ( i 662 | ) | ( i 22,821 | ) | i — | |||||||||||||
| Net earnings |
i 29,153 | i 11,513 | i 11,310 | ( i 22,821 | ) | i 29,155 | ||||||||||||||
| Less: Net earnings attributable to noncontrolling interests |
i — | i — | i 2 | i — | i 2 | |||||||||||||||
| Net earnings attributable to Caleres, Inc. |
$ | i 29,153 | $ | i 11,513 | $ | i 11,308 | $ | ( i 22,821 | ) | $ | i 29,153 | |||||||||
| Comprehensive income |
$ | i 29,309 | $ | i 11,451 | $ | i 11,362 | $ | ( i 22,822 | ) | $ | i 29,300 | |||||||||
| Less: Comprehensive loss attributable to noncontrolling interests |
i — | i — | ( i 9 | ) | i — | ( i 9 | ) | |||||||||||||
| Comprehensive income attributable to Caleres, Inc. |
$ | i 29,309 | $ | i 11,451 | $ | i 11,371 | $ | ( i 22,822 | ) | $ | i 29,309 | |||||||||
| UNAUDITED CONDENSED CONSOLIDATING STATEMENT OF COMPREHENSIVE INCOME |
|||||||||||||||
| FOR THE thirty-nine weeks ended November 3, 2018 |
| Non- |
||||||||||||||||||||
| ($ thousands) |
Parent |
Guarantors |
Guarantors |
Eliminations |
Total |
|||||||||||||||
| Net sales |
$ | i 651,807 | $ | i 1,487,877 | $ | i 164,829 | $ | ( i 189,930 | ) | $ | i 2,114,583 | |||||||||
| Cost of goods sold |
i 448,832 | i 862,345 | i 83,538 | ( i 158,765 | ) | i 1,235,950 | ||||||||||||||
| Gross profit |
i 202,975 | i 625,532 | i 81,291 | ( i 31,165 | ) | i 878,633 | ||||||||||||||
| Selling and administrative expenses |
i 204,696 | i 558,714 | i 42,310 | ( i 31,165 | ) | i 774,555 | ||||||||||||||
| Restructuring and other special charges, net |
i 5,679 | i 3,561 | i — | i — | i 9,240 | |||||||||||||||
| Operating (loss) earnings |
( i 7,400 | ) | i 63,257 | i 38,981 | i — | i 94,838 | ||||||||||||||
| Interest (expense) income |
( i 12,108 | ) | ( i 25 | ) | i 638 | i — | ( i 11,495 | ) | ||||||||||||
| Other income (expense) |
i 9,305 | i — | ( i 51 | ) | i — | i 9,254 | ||||||||||||||
| Intercompany interest income (expense) |
i 8,617 | ( i 8,650 | ) | i 33 | i — | i — | ||||||||||||||
| (Loss) earnings before income taxes |
( i 1,586 | ) | i 54,582 | i 39,601 | i — | i 92,597 | ||||||||||||||
| Income tax provision |
( i 2,065 | ) | ( i 14,257 | ) | ( i 6,329 | ) | i — | ( i 22,651 | ) | |||||||||||
| Equity in earnings (loss) of subsidiaries, net of tax |
i 73,662 | i — | ( i 1,256 | ) | ( i 72,406 | ) | i — | |||||||||||||
| Net earnings |
i 70,011 | i 40,325 | i 32,016 | ( i 72,406 | ) | i 69,946 | ||||||||||||||
| Less: Net loss attributable to noncontrolling interests |
i — | i — | ( i 65 | ) | i — | ( i 65 | ) | |||||||||||||
| Net earnings attributable to Caleres, Inc. |
$ | i 70,011 | $ | i 40,325 | $ | i 32,081 | $ | ( i 72,406 | ) | $ | i 70,011 | |||||||||
| Comprehensive income |
$ | i 68,633 | $ | i 40,235 | $ | i 31,824 | $ | ( i 72,200 | ) | $ | i 68,492 | |||||||||
| Less: Comprehensive loss attributable to noncontrolling interests |
i — | i — | ( i 141 | ) | i — | ( i 141 | ) | |||||||||||||
| Comprehensive income attributable to Caleres, Inc. |
$ | i 68,633 | $ | i 40,235 | $ | i 31,965 | $ | ( i 72,200 | ) | $ | i 68,633 | |||||||||
| UNAUDITED CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS |
|||||||||||||||
| FOR THE thirty-nine weeks ended November 3, 2018 |
| Non- |
||||||||||||||||||||
| ($ thousands) |
Parent |
Guarantors |
Guarantors |
Eliminations |
Total |
|||||||||||||||
| Net cash provided by operating activities |
$ | i 2,739 | $ | i 76,601 | $ | i 15,070 | $ | i — | $ | i 94,410 | ||||||||||
| Investing activities |
||||||||||||||||||||
| Purchases of property and equipment |
( i 14,094 | ) | ( i 19,571 | ) | ( i 1,579 | ) | i — | ( i 35,244 | ) | |||||||||||
| Capitalized software |
( i 3,077 | ) | ( i 428 | ) | i — | i — | ( i 3,505 | ) | ||||||||||||
| Acquisition of Blowfish Malibu, net of cash received | ( i 17,284 | ) | i — | i — | i — | ( i 17,284 | ) | |||||||||||||
| Acquisition of Vionic, net of cash received |
( i 344,942 | ) | i — | i — | i — | ( i 344,942 | ) | |||||||||||||
| Intercompany investing |
i 2 | ( i 2 | ) | i — | i — | i — | ||||||||||||||
| Net cash used for investing activities |
( i 379,395 | ) | ( i 20,001 | ) | ( i 1,579 | ) | i — | ( i 400,975 | ) | |||||||||||
| Financing activities |
||||||||||||||||||||
| Borrowings under revolving credit agreement | i 360,000 | i — | i — | i — | i 360,000 | |||||||||||||||
| Repayments under revolving credit agreement | ( i 10,000 | ) | i — | i — | i — | ( i 10,000 | ) | |||||||||||||
| Repayments under capital lease obligations | i — | ( i 114 | ) | i — | i — | ( i 114 | ) | |||||||||||||
| Dividends paid |
( i 9,059 | ) | i — | i — | i — | ( i 9,059 | ) | |||||||||||||
| Acquisition of treasury stock |
( i 3,288 | ) | i — | i — | i — | ( i 3,288 | ) | |||||||||||||
| Issuance of common stock under share-based plans, net |
( i 4,318 | ) | i — | i — | i — | ( i 4,318 | ) | |||||||||||||
| Intercompany financing |
i 21,244 | ( i 44,669 | ) | i 23,425 | i — | i — | ||||||||||||||
| Net cash provided by (used for) financing activities |
i 354,579 | ( i 44,783 | ) | i 23,425 | i — | i 333,221 | ||||||||||||||
| Effect of exchange rate changes on cash and cash equivalents |
i — | i — | ( i 212 | ) | i — | ( i 212 | ) | |||||||||||||
| (Decrease) increase in cash and cash equivalents |
( i 22,077 | ) | i 11,817 | i 36,704 | i — | i 26,444 | ||||||||||||||
| Cash and cash equivalents at beginning of period |
i 26,089 | i — | i 37,958 | i — | i 64,047 | |||||||||||||||
| Cash and cash equivalents at end of period | $ | i 4,012 | $ | i 11,817 | $ | i 74,662 | $ | i — | $ | i 90,491 | ||||||||||
| CONDENSED CONSOLIDATING BALANCE SHEET |
|||||||||||||||
| Non- |
||||||||||||||||||||
| ($ thousands) |
Parent |
Guarantors |
Guarantors |
Eliminations |
Total |
|||||||||||||||
| Assets |
||||||||||||||||||||
| Current assets |
||||||||||||||||||||
| Cash and cash equivalents |
$ | i 2 | $ | i 9,148 | $ | i 21,050 | $ | i — | $ | i 30,200 | ||||||||||
| Receivables, net |
i 130,684 | i 32,319 | i 28,719 | i — | i 191,722 | |||||||||||||||
| Inventories, net |
i 175,697 | i 470,610 | i 36,864 | i — | i 683,171 | |||||||||||||||
| Prepaid expenses and other current assets |
i 31,195 | i 32,556 | i 7,603 | i — | i 71,354 | |||||||||||||||
| Intercompany receivable – current |
i 190 | i 42 | i 15,279 | ( i 15,511 | ) | i — | ||||||||||||||
| Total current assets |
i 337,768 | i 544,675 | i 109,515 | ( i 15,511 | ) | i 976,447 | ||||||||||||||
| Other assets |
i 68,707 | i 11,824 | i 909 | i — | i 81,440 | |||||||||||||||
| Goodwill and intangible assets, net |
i 108,884 | i 331,810 | i 109,203 | i — | i 549,897 | |||||||||||||||
| Property and equipment, net |
i 62,608 | i 157,270 | i 10,906 | i — | i 230,784 | |||||||||||||||
| Investment in subsidiaries |
i 1,499,209 | i — | ( i 24,838 | ) | ( i 1,474,371 | ) | i — | |||||||||||||
| Intercompany receivable – noncurrent |
i 597,515 | i 578,821 | i 762,281 | ( i 1,938,617 | ) | i — | ||||||||||||||
| Total assets |
$ | i 2,674,691 | $ | i 1,624,400 | $ | i 967,976 | $ | ( i 3,428,499 | ) | $ | i 1,838,568 | |||||||||
| Liabilities and Equity |
||||||||||||||||||||
| Current liabilities |
||||||||||||||||||||
| Borrowings under revolving credit agreement |
$ | i 335,000 | $ | i — | $ | i — | $ | i — | $ | i 335,000 | ||||||||||
| Trade accounts payable |
i 146,400 | i 130,670 | i 39,228 | i — | i 316,298 | |||||||||||||||
| Other accrued expenses |
i 95,498 | i 86,015 | i 20,525 | i — | i 202,038 | |||||||||||||||
| Intercompany payable – current |
i 10,781 | i — | i 4,730 | ( i 15,511 | ) | i — | ||||||||||||||
| Total current liabilities |
i 587,679 | i 216,685 | i 64,483 | ( i 15,511 | ) | i 853,336 | ||||||||||||||
| Other liabilities |
||||||||||||||||||||
| Long-term debt |
i 197,932 | i — | i — | i — | i 197,932 | |||||||||||||||
| Other liabilities |
i 105,689 | i 41,149 | i 5,027 | i — | i 151,865 | |||||||||||||||
| Intercompany payable – noncurrent |
i 1,149,338 | i 115,114 | i 674,165 | ( i 1,938,617 | ) | i — | ||||||||||||||
| Total other liabilities |
i 1,452,959 | i 156,263 | i 679,192 | ( i 1,938,617 | ) | i 349,797 | ||||||||||||||
| Equity |
||||||||||||||||||||
| Caleres, Inc. shareholders’ equity |
i 634,053 | i 1,251,452 | i 222,919 | ( i 1,474,371 | ) | i 634,053 | ||||||||||||||
| Noncontrolling interests |
i — | i — | i 1,382 | i — | i 1,382 | |||||||||||||||
| Total equity |
i 634,053 | i 1,251,452 | i 224,301 | ( i 1,474,371 | ) | i 635,435 | ||||||||||||||
| Total liabilities and equity |
$ | i 2,674,691 | $ | i 1,624,400 | $ | i 967,976 | $ | ( i 3,428,499 | ) | $ | i 1,838,568 | |||||||||
/
| MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
| OVERVIEW |
Financial Highlights
The following is a summary of the financial highlights for the third quarter of 2019:
| • |
Consolidated net sales increased $16.6 million, or 2.1%, to $792.4 million in the third quarter of 2019, driven by our 2018 acquisition of Vionic, which contributed net sales growth of $33.0 million on a consolidated basis, net of eliminations ($32.8 million to the Brand Portfolio segment). Excluding Vionic, our net sales were lower by $16.5 million, driven by the challenging selling environment during the quarter, particularly in our Brand Portfolio segment. Our Famous Footwear segment reported a $2.2 million, or 0.5% decline in sales, while same-store sales improved by 2.5% in the third quarter. We also delivered our eighth consecutive year of positive back-to-school same-store sales. |
| • |
Consolidated gross profit increased $9.2 million, or 3.0%, to $319.8 million in the third quarter of 2019, compared to $310.6 million in the third quarter of 2018. Our gross profit margin increased to 40.4% in the third quarter of 2019, compared to 40.0% in the third quarter of 2018. |
| • |
Consolidated operating earnings increased $3.8 million, or 9.4%, to $43.5 million in the third quarter of 2019, compared to $39.7 million in the third quarter of 2018. |
| • |
Consolidated net earnings attributable to Caleres, Inc. were $28.0 million, or $0.69 per diluted share, in the third quarter of 2019, compared to $29.2 million, or $0.67 per diluted share, in the third quarter of 2018. |
The following items should be considered in evaluating the comparability of our third quarter results in 2019 and 2018:
| • |
Acquisition of Vionic – In October 2018, we acquired Vionic, a growing brand with strong consumer loyalty and a complementary fit to the other brands within our Brand Portfolio segment. Vionic contributed $38.8 million to our net sales (both on a Brand Portfolio basis and a consolidated basis, net of eliminations) for the third quarter of 2019 compared to $6.0 million ($5.8 million on a consolidated basis, net of eliminations) for the third quarter of 2018. We incurred integration-related charges of $1.0 million during the third quarter of 2019, which are presented as restructuring and other special charges, net. Refer to Note 3 and Note 6 to the condensed consolidated financial statements for additional information related to these costs. |
| • |
Blowfish Malibu – In July 2018, we acquired a controlling interest in Blowfish Malibu, which gives us additional access to the growing sneaker and casual lifestyle segment of the market. As further discussed in Note 3 and Note 16 to the condensed consolidated financial statements, the noncontrolling interest is subject to a mandatory purchase obligation after a three-year period, based upon an earnings multiple formula. During the third quarter of 2019, we recorded accretion and remeasurement adjustments of $3.9 million ($2.9 million on an after-tax basis, or $0.07 per diluted share), which is recorded as interest expense, net in the condensed consolidated statements of earnings. |
| • |
Incentive and Share-Based Compensation Plans – During the third quarter of 2019, our incentive and share-based compensation expenses decreased by approximately $5.0 million compared to the third quarter of 2018, due to lower anticipated payments associated with these plans and lower expenses for our cash-equivalent restricted stock units granted to directors, reflecting the Company's lower stock price. |
| •
|
Tariffs – In August 2019, the U.S. Administration announced plans to implement a tariff of 15% on approximately $300 billion of products imported into the U.S. from China. On August 13, 2019, the list of goods subject to the tariff, referred to as List 4, was divided into two parts. The tariffs for products on List 4a became effective as of September 1, 2019, while the tariffs for imported goods on List 4b are subject to a delay until December 15, 2019. Approximately 60% of our branded products within our Brand Portfolio segment are sourced from China, the majority of which are product categories included on List 4a. We continue to seek to mitigate the impacts of the tariffs in a number of ways, including diversifying production away from China. We now source approximately 40% of our branded products outside of China. We are also working with our factory partners to reduce cost, while selectively exploring price increases where they will be least disruptive to our customers. Through these actions, we believe we have mitigated a significant portion of the increased tariffs on our third quarter of 2019 financial results. We also expect an adverse impact from the tariffs on our fourth quarter of 2019 financial results. As more fully described in Risk Factors in Part II, Item 1A, a prolonged trade war and further escalation of tariffs may result in lower gross margins in the future on products that we source from China. |
|
|
• |
Lease Accounting – We adopted ASU 2016-02, Leases (Topic 842), during the first quarter of 2019 using the modified retrospective transition method. Therefore, prior period financial information in the condensed consolidated financial statements has not been adjusted and is presented under the guidance in ASC 840. As a result of the adoption of the ASU, we recorded an operating lease right-of-use asset of $729.2 million and lease liabilities of $791.7 million as of February 2, 2019. In addition, adoption of the standard has resulted in higher impairment charges for under-performing retail stores as a direct result of including the right-of use-asset in the asset group that is evaluated for impairment. We recognized right-of-use impairment charges of $1.6 million and $4.1 million in the third quarter and nine months ended November 2, 2019, respectively, with no corresponding impairment charges in the comparable periods in 2018. Refer to Note 10 to the condensed consolidated financial statements for additional information on the adoption of this ASU. |
| • |
Segment Presentation – During the first quarter of 2019, we changed our segment presentation to present net sales of the Brand Portfolio segment inclusive of both external and intersegment sales, with the elimination of intersegment sales and profit from Brand Portfolio to Famous Footwear reflected within the Eliminations and Other category. This presentation reflects the independent business models of both Brand Portfolio and Famous Footwear, as well as growth in intersegment activity driven by the acquisitions of Vionic and Blowfish Malibu. Prior period information has been recast to conform to the current presentation. |
Following are the consolidated results and the results by segment:
CONSOLIDATED RESULTS
| Thirteen Weeks Ended |
Thirty-Nine Weeks Ended |
|||||||||||||||||||||||||||||||
| ($ millions) |
% of Net Sales |
% of Net Sales |
% of Net Sales |
% of Net Sales |
||||||||||||||||||||||||||||
| Net sales |
$ | 792.4 | 100.0 | % | $ | 775.8 | 100.0 | % | $ | 2,222.6 | 100.0 | % | $ | 2,114.6 | 100.0 | % | ||||||||||||||||
| Cost of goods sold |
472.6 | 59.6 | % | 465.2 | 60.0 | % | 1,317.0 | 59.3 | % | 1,236.0 | 58.4 | % | ||||||||||||||||||||
| Gross profit |
319.8 | 40.4 | % | 310.6 | 40.0 | % | 905.6 | 40.7 | % | 878.6 | 41.6 | % | ||||||||||||||||||||
| Selling and administrative expenses |
275.3 | 34.8 | % | 265.6 | 34.2 | % | 805.0 | 36.2 | % | 774.6 | 36.7 | % | ||||||||||||||||||||
| Restructuring and other special charges, net |
1.0 | 0.1 | % | 5.3 | 0.7 | % | 2.5 | 0.1 | % | 9.2 | 0.4 | % | ||||||||||||||||||||
| Operating earnings |
43.5 | 5.5 | % | 39.7 | 5.1 | % | 98.1 | 4.4 | % | 94.8 | 4.5 | % | ||||||||||||||||||||
| Interest expense, net |
(10.5 | ) | (1.3 | )% | (4.2 | ) | (0.5 | )% | (25.2 | ) | (1.2 | )% | (11.5 | ) | (0.5 | )% | ||||||||||||||||
| Other income, net |
2.6 | 0.3 | % | 3.1 | 0.4 | % | 7.9 | 0.4 | % | 9.3 | 0.4 | % | ||||||||||||||||||||
| Earnings before income taxes |
35.6 | 4.5 | % | 38.6 | 5.0 | % | 80.8 | 3.6 | % | 92.6 | 4.4 | % | ||||||||||||||||||||
| Income tax provision |
(7.8 | ) | 1.0 | % | (9.4 | ) | (1.2 | )% | (18.7 | ) | (0.8 | )% | (22.7 | ) | (1.1 | )% | ||||||||||||||||
| Net earnings |
27.8 | 3.5 | % | 29.2 | 3.8 | % | 62.1 | 2.8 | % | 69.9 | 3.3 | % | ||||||||||||||||||||
| Net (loss) earnings attributable to noncontrolling interests |
(0.2 | ) | 0.0 | % | 0.0 | 0.0 | % | (0.3 | ) | (0.0 | )% | (0.1 | ) | (0.0 | )% | |||||||||||||||||
| Net earnings attributable to Caleres, Inc. |
$ | 28.0 | 3.5 | % | $ | 29.2 | 3.8 | % | $ | 62.4 | 2.8 | % | $ | 70.0 | 3.3 | % | ||||||||||||||||
Net Sales
Net sales increased $16.6 million, or 2.1% to $792.4 million for the third quarter of 2019, compared to $775.8 million for the third quarter of 2018. Our Brand Portfolio segment reported a $16.9 million, or 4.9%, increase in net sales, driven by net sales of our Vionic brand, which was acquired in October 2018. The sales growth from the Vionic acquisition was partially offset by lower net sales of our Sam Edelman and Fergie brands. Our Famous Footwear segment reported a $2.2 million, or 0.5% decrease in net sales, driven by a decrease in our store base, which resulted in a $12.6 million decrease in sales from new and closed stores, while same-store sales improved by 2.5%. We also experienced a strong back-to-school selling season, delivering our eighth consecutive year of positive same-store sales.
Net sales increased $108.0 million, or 5.1% to $2,222.6 million for the nine months ended November 2, 2019 compared to $2,114.6 million for the nine months ended November 3, 2018. Our Brand Portfolio segment reported a $128.9 million, or 13.8%, increase in net sales driven by our recent acquisitions. Our Famous Footwear segment reported a $23.0 million, or 1.9%, decrease in net sales, driven by a decrease in our store base, which resulted in a $36.0 million decrease in sales from new and closed stores.
Same-store sales changes are calculated by comparing the sales in stores that have been open at least 13 months to the comparable retail calendar weeks in the prior year. Relocated stores are treated as new stores, and closed stores are excluded from the calculation. Sales change from new and closed stores, net reflects the change in net sales due to stores that have been opened or closed during the period and are therefore excluded from the same-store sales calculation. E-commerce sales for those e-commerce websites that function as an extension of a retail chain are included in the same-store sales calculation.
Gross Profit
Gross profit increased $9.2 million, or 3.0%, to $319.8 million for the third quarter of 2019, compared to $310.6 million for the third quarter of 2018, driven by sales growth from our recent acquisitions. As a percentage of net sales, gross profit increased to 40.4% for the third quarter of 2019, compared to 40.0% for the third quarter of 2018. Cost of goods sold in the third quarter of 2018 included $1.8 million related to the amortization of the inventory adjustment required by purchase accounting for Blowfish and Vionic. The mix of retail versus wholesale net sales declined to 64% and 36% in the third quarter of 2019, compared to 67% and 33%, respectively, in the third quarter of 2018, driven by our recent acquisitions.
Gross profit increased $27.0 million, or 3.1%, to $905.6 million for the nine months ended November 2, 2019, compared to $878.6 million for the nine months ended November 3, 2018, reflecting sales growth from our recent acquisitions, partially offset by a lower gross profit rate. As a percentage of net sales, gross profit decreased to 40.7% for the nine months ended November 2, 2019, compared to 41.6% for the nine months ended November 3, 2018, reflecting the promotional retail environment. In addition, cost of goods sold for the nine months ended November 2, 2019 includes $7.2 million related to the amortization of the inventory adjustment required by purchase accounting for Blowfish and Vionic and incremental markdowns related to the Carlos brand exit. Cost of goods sold for the nine months ended November 3, 2018 included $2.4 million related to the amortization of the inventory adjustment required by purchase accounting. The mix of retail and wholesale net sales were 61% and 39%, respectively, in the nine months ended November 2, 2019, compared to 69% and 31%, respectively, in the nine months ended November 3, 2018.
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 $9.7 million, or 3.8%, to $275.3 million for the third quarter of 2019, compared to $265.6 million for the third quarter of 2018. The increase was driven by additional costs associated with our Vionic brand, which was acquired late in the third quarter of 2018. Excluding the Vionic acquisition, our expenses would be lower by $4.0 million, which primarily represents lower expenses of approximately $5.0 million associated with cash and stock-based incentive compensation plans. As a percentage of net sales, selling and administrative expenses increased to 34.8% for the third quarter of 2019, from 34.2% for the third quarter of 2018.
Selling and administrative expenses increased $30.4 million, or 3.9%, to $805.0 million for the nine months ended November 2, 2019, compared to $774.6 million for the nine months ended November 3, 2018. The increase was driven by additional costs associated with our recently acquired Vionic and Blowfish Malibu brands, including higher amortization expense on the intangible assets, partially offset by lower expenses associated with cash and stock-based incentive compensation plans. As a percentage of net sales, selling and administrative expenses decreased to 36.2% for the nine months ended November 2, 2019, from 36.7% for the nine months ended November 3, 2018, reflecting better leveraging of our expenses over higher net sales.
Restructuring and Other Special Charges, Net
Restructuring and other special charges of $1.0 million ($0.7 million on an after-tax basis, or $0.02 per diluted share) and $2.5 million ($1.8 million on an after-tax basis, or $0.04 per diluted share) were incurred in the third quarter and nine months ended November 2, 2019, respectively, for integration-related costs for Vionic and costs associated with the exit of our Carlos brand. Restructuring and other special charges of $5.3 million ($4.4 million on an after-tax basis, or $0.10 per diluted share) and $9.2 million ($7.3 million on an after-tax basis, or $0.17 per diluted share) were incurred in the third quarter and nine months ended November 3, 2018, respectively, primarily for the transition of Allen Edmonds' consumer-facing activities to St. Louis and acquisition and integration-related costs for Vionic and Blowfish Malibu.
Operating Earnings
Operating earnings increased $3.8 million, or 9.4%, to $43.5 million for the third quarter of 2019, compared to $39.7 million for the third quarter of 2018, reflecting earnings contribution from our recently acquired brands and lower restructuring charges. As a percentage of net sales, operating earnings increased to 5.5% for the third quarter of 2019, compared to 5.1% for the third quarter of 2018.
Operating earnings increased $3.3 million, or 3.5% to $98.1 million for the nine months ended November 2, 2019, compared to $94.8 million for the nine months ended November 3, 2018, primarily reflecting earnings contribution from our recently acquired brands, partially offset by lower sales and gross margin at Famous Footwear and higher selling and administrative expenses. As a percentage of net sales, operating earnings decreased slightly to 4.4% for the nine months ended November 2, 2019, compared to 4.5% for the nine months ended November 3, 2018.
Interest Expense, Net
Interest expense, net increased $6.3 million, or 150.0%, to $10.5 million for the third quarter of 2019, compared to $4.2 million for the third quarter of 2018, reflecting the fair value adjustment to the Blowfish Malibu mandatory purchase obligation of $3.9 million in the third quarter of 2019, as well as higher average borrowings under our revolving credit agreement that was used to fund the acquisition of Vionic in October 2018. Refer to Note 16 to the condensed consolidated financial statements for further discussion regarding the mandatory purchase obligation.
Interest expense, net increased $13.7 million, or 119.1%, to $25.2 million for the nine months ended November 2, 2019, compared to $11.5 million for the nine months ended November 3, 2018, reflecting higher average borrowings under our revolving credit agreement during the nine months ended November 2, 2019 and the fair value adjustment to the mandatory purchase obligation associated with the Blowfish Malibu acquisition of $4.4 million.
Other Income, Net
Other income, net decreased $0.5 million, or 14.7%, to $2.6 million for the third quarter of 2019, compared to $3.1 million for the third quarter of 2018, driven by the lower expected return on assets for our domestic pension plan.
Other income, net decreased $1.4 million, or 14.6%, to $7.9 million for the nine months ended November 2, 2019, compared to $9.3 million for the nine months ended November 3, 2018. Refer to Note 14 to the condensed consolidated financial statements for additional information related to our retirement plans.
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 21.9% for the third quarter of 2019, compared to 24.5% for the third quarter of 2018. Discrete tax benefits recognized during the third quarter of 2019 and 2018 were immaterial.
For the nine months ended November 2, 2019, our consolidated effective tax rate was 23.1%, compared to 24.5% for the nine months ended November 3, 2018. We recognized discrete tax benefits of $0.7 million during the nine months ended November 3, 2018, reflecting greater deductibility of certain 2017 expenses than originally estimated and share-based compensation. If these discrete tax benefits had not been recognized, our effective tax rate would have been 25.4% for the nine months ended November 3, 2018.
Net Earnings Attributable to Caleres, Inc.
Net earnings attributable to Caleres, Inc. were $28.0 million and $62.4 million for the third quarter and nine months ended November 2, 2019, respectively, compared to net earnings of $29.2 million and $70.0 million for the third quarter and nine months ended November 3, 2018, respectively, as a result of the factors described above.
FAMOUS FOOTWEAR
| Thirteen Weeks Ended |
Thirty-Nine Weeks Ended |
|||||||||||||||||||||||||||||||
| ($ millions, except sales per square foot) |
% of Net Sales |
% of Net Sales |
% of Net Sales |
% of Net Sales |
||||||||||||||||||||||||||||
| Operating Results |
||||||||||||||||||||||||||||||||
| Net sales |
$ | 446.6 | 100.0 | % | $ | 448.8 | 100.0 | % | $ | 1,218.6 | 100.0 | % | $ | 1,241.6 | 100.0 | % | ||||||||||||||||
| Cost of goods sold |
263.3 | 59.0 | % | 266.3 | 59.3 | % | 700.3 | 57.5 | % | 706.8 | 56.9 | % | ||||||||||||||||||||
| Gross profit |
183.3 | 41.0 | % | $ | 182.5 | 40.7 | % | 518.3 | 42.5 | % | $ | 534.8 | 43.1 | % | ||||||||||||||||||
| Selling and administrative expenses |
155.6 | 34.8 | % | 158.1 | 35.3 | % | 448.3 | 36.8 | % | 455.3 | 36.7 | % | ||||||||||||||||||||
| Operating earnings |
$ | 27.7 | 6.2 | % | $ | 24.4 | 5.4 | % | $ | 70.0 | 5.7 | % | $ | 79.5 | 6.4 | % | ||||||||||||||||
| Key Metrics |
||||||||||||||||||||||||||||||||
| Same-store sales % change |
2.5 | % | 2.8 | % | 1.1 | % | 1.7 | % | ||||||||||||||||||||||||
| Same-store sales $ change |
$ | 10.6 | $ | 11.9 | $ | 13.6 | $ | 19.8 | ||||||||||||||||||||||||
| Impact of retail calendar shift | $ | — | $ | (27.9 | ) | $ | — | $ | (6.2 | ) | ||||||||||||||||||||||
| Sales change from new and closed stores, net |
$ | (12.6 | ) | $ | (7.9 | ) | $ | (36.0 | ) | $ | (16.4 | ) | ||||||||||||||||||||
| Impact of changes in Canadian exchange rate on sales |
$ | (0.2 | ) | $ | (0.4 | ) | $ | (0.6 | ) | $ | (0.1 | ) | ||||||||||||||||||||
| Sales per square foot, excluding e-commerce (thirteen and thirty-nine weeks ended) |
$ | 63 | $ | 61 | $ | 172 | $ | 172 | ||||||||||||||||||||||||
| Sales per square foot, excluding e-commerce (trailing twelve months) |
$ | 221 | $ | 224 | $ | 221 | $ | 224 | ||||||||||||||||||||||||
| Square footage (thousand sq. ft.) |
6,349 | 6,657 | 6,349 | 6,657 | ||||||||||||||||||||||||||||
| Stores opened |
4 | 9 | 11 | 15 | ||||||||||||||||||||||||||||
| Stores closed |
17 | 10 | 43 | 34 | ||||||||||||||||||||||||||||
| Ending stores |
960 | 1,007 | 960 | 1,007 | ||||||||||||||||||||||||||||
Net Sales
Net sales decreased $2.2 million, or 0.5%, to $446.6 million for the third quarter of 2019, compared to $448.8 million for the third quarter of 2018. The sales decrease was driven by a reduction in our store base, partially offset by a 2.5% increase in same-store sales. Famous Footwear continues to experience strong growth in e-commerce sales. During the third quarter of 2019, we experienced growth in sales of sandals and boots. We opened four stores and closed 17 stores during the third quarter of 2019, resulting in 960 stores and total square footage of 6.3 million at the end of the third quarter of 2019, compared to 1,007 stores and total square footage of 6.7 million at the end of the third quarter of 2018. Subsequent to quarter-end, we also announced the opening of a new store in New York City, which will enable us to broaden the reach of the brand featuring world-class, in-demand brands at a great value. 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 third quarter of 2019, compared to 77% in the third quarter of 2018. We believe the relaunch of Rewards in early 2019 has driven increased consumer engagement among existing members and has resulted in continued growth in our new and reactivated membership base.
Net sales decreased $23.0 million, or 1.9% to $1,218.6 million for the nine months ended November 2, 2019, compared to $1,241.6 million for the nine months ended November 3, 2018. The sales decrease was driven by a decrease in our store base, which resulted in a $36.0 million decrease in sales from new and closed stores, partially offset by a 1.1% increase in same-store sales in the nine months ended November 2, 2019. On a trailing twelve-month basis, sales per square foot, excluding e-commerce, decreased 1.3% to $221 for the twelve months ended November 2, 2019, compared to $224 for the twelve months ended November 3, 2018.
Gross Profit
Gross profit increased $0.8 million, or 0.4%, to $183.3 million for the third quarter of 2019, compared to $182.5 million for the third quarter of 2018 reflecting a higher gross profit rate, partially offset by lower net sales. As a percentage of net sales, our gross profit increased to 41.0% for the third quarter of 2019, compared to 40.7% for the third quarter of 2018, driven by an increased mix of higher margin product and lower freight expenses.
Gross profit decreased $16.5 million, or 3.1%, to $518.3 million for the nine months ended November 2, 2019, compared to $534.8 million for the nine months ended November 3, 2018. As a percentage of net sales, our gross profit decreased to 42.5% for the nine months ended November 2, 2019, compared to 43.1% for the nine months ended November 3, 2018, reflecting the promotional retail environment and higher freight expenses due to strong growth in e-commerce sales in the nine months ended November 2, 2019. We expect the trend toward a higher mix of e-commerce sales to continue.
Selling and Administrative Expenses
Selling and administrative expenses decreased $2.5 million, or 1.6%, to $155.6 million for the third quarter of 2019, compared to $158.1 million for the third quarter of 2018. The decrease was primarily driven by lower rent and facilities expense attributable to our smaller store base, partially offset by higher marketing expenses and higher right-of-use asset impairment charges. We also expanded our television marketing this quarter, contributing to the same-store sales improvement. As a percentage of net sales, selling and administrative expenses decreased to 34.8% for the third quarter of 2019, compared to 35.3% for the third quarter of 2018.
Selling and administrative expenses decreased $7.0 million, or 1.6%, to $448.3 million for the nine months ended November 2, 2019, compared to $455.3 million for the nine months ended November 3, 2018, reflecting lower rent and facilities expense attributable to our smaller store base, partially offset by higher marketing expenses, due in part to the launch of our new Rewards program in the first quarter of 2019, and higher right-of-use asset impairment charges. The adoption of ASC 842 has resulted in higher impairment charges for under-performing stores as a direct result of including the right-of-use asset in the asset group that is evaluated for impairment. We recognized $4.1 million of impairment charges in the nine months ended November 2, 2019, compared to zero in the prior year. As a percentage of net sales, selling and administrative expenses increased slightly to 36.8% for the nine months ended November 2, 2019, compared to 36.7% for the nine months ended November 3, 2018.
Operating Earnings
Operating earnings increased $3.3 million, or 13.4%, to $27.7 million for the third quarter of 2019, compared to $24.4 million for the third quarter of 2018, reflecting the factors described above. As a percentage of net sales, operating earnings increased to 6.2% for the third quarter of 2019, compared to 5.4% for the third quarter of 2018.
Operating earnings decreased $9.5 million, or 11.9%, to $70.0 million for the nine months ended November 2, 2019, compared to $79.5 million for the nine months ended November 3, 2018, reflecting the factors described above. As a percentage of net sales, operating earnings decreased to 5.7% for the nine months ended November 2, 2019, compared to 6.4% for the nine months ended November 3, 2018.
BRAND PORTFOLIO
| Thirteen Weeks Ended |
Thirty-Nine Weeks Ended |
|||||||||||||||||||||||||||
| ($ millions, except sales per square foot) |
% of Net Sales | % of Net Sales | % of Net Sales | % of Net Sales | ||||||||||||||||||||||||
| Operating Results |
||||||||||||||||||||||||||||
| Net sales |
$ | 359.9 | 100.0 | % | $ | 343.0 | 100.0 | % | $ | 1,060.5 | 100.0 | % | $ | 931.6 | 100.0 | % | ||||||||||||
| Cost of goods sold | 226.1 | 62.8 | % | 216.4 | 63.1 | % | 675.0 | 63.7 | % | 587.9 | 63.1 | % | ||||||||||||||||
| Gross profit | 133.8 | 37.2 | % | 126.6 | 36.9 | % | 385.5 | 36.3 | % | 343.7 | 36.9 | % | ||||||||||||||||
| Selling and administrative expenses | 114.4 | 31.8 | % | 100.4 | 29.3 | % | 338.7 | 31.9 | % | 286.6 | 30.8 | % | ||||||||||||||||
| Restructuring and other special charges, net | — | 0.0 | % | 1.1 | 0.3 | % | 0.6 | 0.0 | % | 4.4 | 0.4 | % | ||||||||||||||||
| Operating earnings | $ | 19.4 | 5.4 | % | $ | 25.1 | 7.3 | % | $ | 46.2 | 4.4 | % | $ | 52.7 | 5.7 | % | ||||||||||||
| Key Metrics |
||||||||||||||||||||||||||||
| Direct-to-consumer (% of net sales) (1) | 45 | % | 41 | % | 41 | % | 41 | % | ||||||||||||||||||||
| Wholesale/retail sales mix (%) |
80%/20% | 79%/21% | 81%/19% | 76%/24% | ||||||||||||||||||||||||
| Change in wholesale net sales ($) (2) |
$ | 20.2 | $ | 24.7 | $ | 143.7 | $ | 30.6 | ||||||||||||||||||||
| Unfilled order position at end of period |
$ | 354.4 | $ | 402.1 | ||||||||||||||||||||||||
| Same-store sales % change |
(5.1 | )% | 1.7 | % | (7.6 | )% | (0.2 | )% | ||||||||||||||||||||
| Same-store sales $ change |
$ | (3.5 | ) | $ | 0.9 | $ | (15.1 | ) | $ | (0.3 | ) | |||||||||||||||||
| Sales change from new and closed stores, net |
$ | 0.4 | $ | 0.6 | $ | 1.1 | $ | 4.0 | ||||||||||||||||||||
| Impact of changes in Canadian exchange rate on retail sales |
$ | (0.2 | ) | $ | (0.6 | ) | $ | (0.8 | ) | $ | - | |||||||||||||||||
| Sales per square foot, excluding e-commerce (thirteen and twenty-six weeks ended) |
$ | 102 | $ | 108 | $ | 292 | $ | 321 | ||||||||||||||||||||
| Sales per square foot, excluding e-commerce (trailing twelve months) |
$ | 394 | $ | 441 | $ | 394 | $ | 441 | ||||||||||||||||||||
| Square footage (thousands sq. ft.) |
400 | 400 | 400 | 400 | ||||||||||||||||||||||||
| Stores opened |
2 | 1 | 5 | 5 | ||||||||||||||||||||||||
| Stores closed |
1 | 2 | 2 | 9 | ||||||||||||||||||||||||
| Ending stores |
232 | 232 | 232 | 232 | ||||||||||||||||||||||||
| (1) |
Direct-to-consumer includes sales of our retail stores and e-commerce sites, sales to online-only retailers and sales through our customers' websites that we fulfill on a drop-ship basis. |
| (2) |
Includes sales from our acquired Vionic and Blowfish Malibu brands, which contributed net sales growth of $32.8 million and $6.5 million, respectively, for the third quarter of 2019, and $134.6 million and $38.4 million, respectively, for the first nine months of 2019. |
Net Sales
Net sales increased $16.9 million, or 4.9%, to $359.9 million for the third quarter of 2019, compared to $343.0 million for the third quarter of 2018 driven by net sales from the acquisition of Vionic in October 2018, which contributed $32.8 million to our net sales growth in the third quarter of 2019. Excluding Vionic, our net sales declined $16.2 million, due in part to the highly promotional retail environment. We experienced lower net sales of our Sam Edelman and Fergie brands, partially offset by higher net sales of our Blowfish and Franco Sarto brands. Sales were also impacted by a same-store-sales decline of 5.1% in our retail stores. However, e-commerce sales continue to grow as a percentage of the business. During the third quarter of 2019, we experienced strong domestic boot sales, despite the later start to fall weather. We opened two stores and closed one store during the third quarter of 2019, resulting in a total of 232 stores and total square footage of 0.4 million at the end of the third quarter of 2019, consistent with the third quarter of 2018. On a trailing twelve-month basis, sales per square foot, excluding e-commerce sales, decreased to $394 for the twelve months ended November 2, 2019, compared to $441 for the twelve months ended November 3, 2018.
Net sales increased $128.9 million, or 13.8%, to $1,060.5 million for the nine months ended November 2, 2019, compared to $931.6 million for the nine months ended November 3, 2018, driven by net sales from our acquisitions of Vionic in October 2018 and Blowfish Malibu in July 2018, which contributed $134.6 million and $38.4 million, respectively, to our net sales growth in the first nine months of 2019. The sales growth from acquisitions was partially offset by the planned reduction in Allen Edmonds sales and lower Sam Edelman sales and 7.6% decline in same-store sales in our retail stores. During the nine months ended November 2, 2019, we opened five stores and closed two stores.
Our unfilled order position for our wholesale sales decreased $47.7 million, or 11.9%, to $354.4 million at November 2, 2019, compared to $402.1 million at November 3, 2018. The decrease in our backlog order levels reflects an industry shift to a more dynamic and on-demand ordering pattern, with lower initial orders but higher replenishment later in the season.
Gross Profit
Gross profit increased $7.2 million, or 5.7%, to $133.8 million for the third quarter of 2019, compared to $126.6 million for the third quarter of 2018, primarily reflecting net sales growth from the Vionic acquisition late in the third quarter of 2018. As a percentage of net sales, our gross profit increased to 37.2% for the third quarter of 2019, compared to 36.9% for the third quarter of 2018. Cost of goods sold in the third quarter of 2018 included $1.8 million related to the amortization of the inventory adjustment required by purchase accounting for both Blowfish Malibu and Vionic. Excluding this adjustment, our gross profit as a percentage of net sales declined approximately 30 basis points due, in part, to the promotional retail environment and the impact of tariffs.
Gross profit increased $41.8 million, or 12.2%, to $385.5 million for the nine months ended November 2, 2019, compared to $343.7 million for the nine months ended November 3, 2018, reflecting our net sales growth, partially offset by higher incremental cost of goods sold in the nine months ended November 2, 2019 related to purchase accounting inventory adjustments and incremental markdowns related to the Carlos brand exit. As a percentage of net sales, our gross profit decreased to 36.3% for the nine months ended November 2, 2019, compared to 36.9% for the nine months ended November 3, 2018, due in part to a higher mix of wholesale versus retail sales.
As discussed in the Overview section, the U.S. Administration has implemented a tariff on many consumer products imported into the U.S. from China. Although we have increased the sourcing of our branded footwear within our Brand Portfolio segment from other countries in recent years to approximately 40%, the majority of our footwear is sourced from China. We believe we have mitigated a significant portion of the impact of the increased tariffs on our fiscal 2019 financial results. However, a prolonged trade war and further escalation of tariffs may result in lower gross margins in the future on products that we source from China.
Selling and Administrative Expenses
Selling and administrative expenses increased $14.0 million, or 13.9%, to $114.4 million for the third quarter of 2019, compared to $100.4 million for the third quarter of 2018, reflecting higher expenses from our Vionic acquisition late in the third quarter of 2018. As a percentage of net sales, selling and administrative expenses increased to 31.8% for the third quarter of 2019, compared to 29.3% for the third quarter of 2018.
Selling and administrative expenses increased $52.1 million, or 18.2%, to $338.7 million for the nine months ended November 2, 2019, compared to $286.6 million for the nine months ended November 3, 2018, driven by higher expenses from our Vionic and Blowfish Malibu acquisitions. As a percentage of net sales, selling and administrative expenses increased to 31.9% for the nine months ended November 2, 2019, compared to 30.8% for the nine months ended November 3, 2018.
Restructuring and Other Special Charges, Net
Restructuring and other special charges were $1.1 million in the third quarter of 2018 related to the integration and reorganization of our men's business and acquisition and integration-related costs associated with the acquisitions of Blowfish Malibu and Vionic in July and October 2018, respectively, with no corresponding charges in the third quarter of 2019.
Restructuring and other special charges were $0.6 million, primarily related to the acquisition of Vionic, in the nine months ended November 2, 2019, and $4.4 million, related to the integration and reorganization of our men's business and acquisition and integration-related costs associated with the acquisitions of Blowfish Malibu and Vionic in July and October 2018, respectively, in the nine months ended November 3, 2018. Refer to Note 6 to the condensed consolidated financial statements for additional information related to these charges.
Operating Earnings
Operating earnings decreased $5.7 million, or 22.8%, to $19.4 million for the third quarter of 2019, compared to $25.1 million for the third quarter of 2018 as a result of the factors described above. As a percentage of net sales, operating earnings decreased to 5.4% for the third quarter of 2019, compared to 7.3% in the third quarter of 2018.
Operating earnings decreased $6.5 million, or 12.2%, to $46.2 million for the nine months ended November 2, 2019, compared to $52.7 million for the nine months ended November 3, 2018. As a percentage of net sales, operating earnings decreased to 4.4% for the nine months ended November 2, 2019, compared to 5.7% in the nine months ended November 3, 2018.
| ELIMINATIONS AND OTHER |
| Thirteen Weeks Ended |
Thirty-Nine Weeks Ended |
|||||||||||||||||||||||||||||||
| ($ millions) |
% of Net Sales | % of Net Sales | % of Net Sales | % of Net Sales | ||||||||||||||||||||||||||||
| Operating Results |
||||||||||||||||||||||||||||||||
| Net sales |
$ | (14.1 | ) | 100.0 | % | $ | (16.0 | ) | 100.0 | % | $ | (56.5 | ) | 100.0 | % | $ | (58.6 | ) | 100.0 | % | ||||||||||||
| Cost of goods sold | (16.8 | ) | 119.1 | % | (17.6 | ) | 110.0 | % | (58.3 | ) | 103.2 | % | (58.8 | ) | 100.3 | % | ||||||||||||||||
| Gross profit | 2.7 | (19.1 | )% | 1.6 | (9.8 | )% | 1.8 | (3.2 | )% | 0.2 | (0.3) | % | ||||||||||||||||||||
| Selling and administrative expenses | 5.4 | (38.3 | )% | 7.1 | (44.4 | )% | 18.1 | (32.0 | )% | 32.6 | (55.6 | )% | ||||||||||||||||||||
| Restructuring and other special charges, net | 0.9 | (6.4 | )% | 4.3 | (26.9 | )% | 1.8 | (3.2 | )% | 4.8 | (8.2 | )% | ||||||||||||||||||||
| Operating loss | $ | (3.6 | ) | 25.5 | % | $ | (9.8 | ) | 61.3 | % | $ | (18.1 | ) | 32.0 | % | $ | (37.2 | ) | 63.5 | % | ||||||||||||
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 increase of $1.9 million and $2.1 for the third quarter and nine months ended November 2, 2019, respectively, reflects a lower sales elimination for product sold from our Brand Portfolio segment to Famous Footwear. Selling and administrative expenses of $5.4 million and $18.1 million were incurred in the third quarter and first nine months of 2019, respectively, compared to $7.1 million and $32.6 million for the third quarter and first nine months of 2018, respectively. The decrease for the respective periods was primarily driven by lower expenses for our cash and share-based incentive compensation plans.
LIQUIDITY AND CAPITAL RESOURCES
Borrowings
| ($ millions) |
||||||||||||
| Borrowings under revolving credit agreement |
$ | 295.0 | $ | 350.0 | $ | 335.0 | ||||||
| Long-term debt |
198.3 | 197.8 | 197.9 | |||||||||
| Total debt |
$ | 493.3 | $ | 547.8 | $ | 532.9 | ||||||
Total debt obligations of $493.3 million at November 2, 2019 decreased $54.5 million, from $547.8 million at November 3, 2018, and decreased $39.6 million, from $532.9 million at February 2, 2019. The decrease from November 3, 2018 includes $55.0 in repayments on our revolving credit agreement. The decrease from February 2, 2019 includes $40.0 million in repayments under our revolving credit agreement. Net interest expense for the third quarter of 2019 increased $6.4 million to $10.6 million, compared to $4.2 million for the third quarter of 2019. Net interest expense increased $13.7 million to $25.2 million for the nine months ended November 2, 2019, compared to $11.5 million for the nine months ended November 3, 2018. The increases in the respective periods are attributable to the fair value adjustment for the mandatory purchase obligation associated with the Blowfish Malibu acquisition, as further discussed in Note 3 and Note 16 to the condensed consolidated financial statements and higher average borrowings under our revolving credit agreement, which was used to fund the Vionic acquisition in the third quarter of 2018.
Credit Agreement
As further discussed in Note 11, the Company maintains a revolving credit facility for working capital needs in an aggregate amount of up to $500.0 million, with the option to increase by up to $250.0 million. At November 2, 2019, we had $295.0 million in borrowings and $10.5 million in letters of credit outstanding under the Credit Agreement. Total borrowing availability was $194.5 million at November 2, 2019. We were in compliance with all covenants and restrictions under the Credit Agreement as of November 2, 2019. We anticipate incremental interest expense going forward until the borrowings to fund the acquisition of Vionic have been repaid. Refer to further discussion regarding the Credit Agreement in Note 11 to the condensed consolidated financial statements.
$200 Million Senior Notes
On July 27, 2015, we issued $200.0 million aggregate principal amount of Senior Notes due on August 15, 2023 (the "Senior Notes"). Our Senior Notes are guaranteed on a senior unsecured basis by each of the subsidiaries of Caleres, Inc. that is an obligor under the Credit Agreement. The Senior Notes bear interest at 6.25%, which is payable on February 15 and August 15 of each year. We may redeem some or all of the Senior Notes at various redemption prices.
The Senior Notes also contain covenants and restrictions that limit certain activities including, among other things, levels of indebtedness, payments of dividends, the guarantee or pledge of assets, certain investments, common stock repurchases, mergers and acquisitions and sales of assets. As of November 2, 2019, we were in compliance with all covenants and restrictions relating to the Senior Notes.
Working Capital and Cash Flow
| Thirty-Nine Weeks Ended |
||||||||||||
| ($ millions) |
Change |
|||||||||||
| Net cash provided by operating activities |
$ | 145.7 | $ | 94.4 | $ | 51.3 | ||||||
| Net cash used for investing activities |
(41.6 | ) | (401.0 | ) | 359.4 | |||||||
| Net cash (used for) provided by financing activities |
(81.9 | ) | 333.2 | (415.1 | ) | |||||||
| Effect of exchange rate changes on cash and cash equivalents |
0.1 | (0.2 | ) | 0.3 | ||||||||
| Increase in cash and cash equivalents |
$ | 22.3 | $ | 26.4 | $ | (4.1 | ) | |||||
Reasons for the major variances in cash provided (used) in the table above are as follows:
Cash provided by operating activities was $51.3 million higher in the nine months ended November 2, 2019 as compared to the nine months ended November 3, 2018, primarily reflecting the following factors:
| • |
A decrease in inventories in the nine months ended November 2, 2019, compared to an increase in the comparable period in 2018; and |
| • |
A decrease in receivables in the nine months ended November 2, 2019, compared to an increase in the nine months ended November 3, 2018, partially offset by, |
|
| • | A decrease in trade accounts payable in the nine months ended November 2, 2019, compared to an increase in the comparable period in 2018, driven by lower purchases of inventory in the nine months ended November 2, 2019; and | |
| • | A decrease in accrued expenses and other liabilities in the nine months ended November 2, 2019, compared to an increase in the nine months ended November 3, 2018, due in part to lower anticipated payments of our cash-based incentive compensation plans in 2019 and higher accrued liabilities in 2018 associated with our new distribution center in Chino, California. |
Cash used for investing activities was $359.4 million lower in the nine months ended November 2, 2019 as compared to the nine months ended November 3, 2018, reflecting the acquisitions of Vionic and Blowfish Malibu in the nine months ended November 3, 2018.
Cash used for financing activities was $415.1 million higher for the nine months ended November 2, 2019 as compared to the nine months ended November 3, 2018, reflecting $40.0 million of net repayments under our revolving credit agreement in the nine months ended November 2, 2019, compared to net borrowings of $350.0 million in the comparable period in 2018 related to the Vionic acquisition, and more shares repurchased under our stock repurchase programs during the nine months ended November 2, 2019.
A summary of key financial data and ratios at the dates indicated is as follows:
| Working capital ($ millions) (1) |
$ | 7.4 | $ | 167.2 | $ | 123.1 | ||||||
| Current ratio (2) |
1.01:1 |
1.19:1 |
1.14:1 |
|||||||||
| Debt-to-capital ratio (3) |
43.8 | % | 41.7 | % | 45.6 | % | ||||||
| (1) |
Working capital has been computed as total current assets less total current liabilities. The working capital as of November 2, 2019 includes $144.5 million of operating lease obligations as a result of the adoption of ASC 842, as further discussed in Note 2 and Note 10 to the condensed consolidated financial statements. |
| (2) |
The current ratio has been computed by dividing total current assets by total current liabilities. The current ratio as of November 2, 2019 includes $144.5 million of operating lease obligations. |
| (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 the Credit Agreement. Total capitalization is defined as total debt and total equity. |
Working capital at November 2, 2019 was $7.4 million, which was $159.8 million and $115.7 million lower than at November 3, 2018 and February 2, 2019, respectively. Our current ratio was 1.01 to 1 as of November 2, 2019, compared to 1.19 to 1 at November 3, 2018 and 1.14:1 at February 2, 2019. The decrease in both working capital and the current ratio from November 3, 2018 and February 2, 2019 primarily reflects the impact of the adoption of ASC 842 on the balance sheet as further discussed in Note 2 to the condensed consolidated financial statements, including the addition of current operating lease obligations of $144.5 million. Our debt-to-capital ratio was 43.8% as of November 2, 2019, compared to 41.7% as of November 3, 2018 and 45.6% at February 2, 2019. The increase in our debt-to-capital ratio from November 3, 2018 primarily reflects lower shareholders' equity due to the impact of the net loss in fiscal 2018.
At November 2, 2019, we had $52.5 million of cash and cash equivalents. Approximately half of this balance represents the accumulated unremitted earnings of our foreign subsidiaries.
We declared and paid dividends of $0.07 per share in both the third quarter of 2019 and 2018. 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.
| CONTRACTUAL OBLIGATIONS |
Our contractual obligations primarily consist of purchase obligations, operating lease commitments, long-term debt, interest on long-term debt, minimum license commitments, financial instruments, mandatory purchase obligation associated with the acquisition of Blowfish Malibu, one-time transition tax for the mandatory deemed repatriation of cumulative foreign earnings, obligations for our supplemental executive retirement plan and other postretirement benefits and obligations.
Except for changes within the normal course of business (primarily changes in purchase obligations, which fluctuate throughout the year as a result of the seasonal nature of our operations, changes in borrowings under our revolving credit agreement, changes in the mandatory purchase obligation associated with the acquisition of Blowfish Malibu and changes in operating lease commitments as a result of new stores, store closures and lease renewals), there have been no other significant changes to the contractual obligations identified in our Annual Report on Form 10-K for the year ended February 2, 2019.
| 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 other than the adoption of ASC 842, as further described in Note 10 to the condensed consolidated financial statements. 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 February 2, 2019.
| 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) changing consumer demands, which may be influenced by consumers' disposable income, which in turn can be influenced by general economic conditions; (ii) rapidly changing fashion trends and purchasing patterns; (iii) intense competition within the footwear industry; (iv) 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; (v) imposition of tariffs; (vi) the ability to accurately forecast sales and manage inventory levels; (vii) cybersecurity threats or other major disruption to the Company’s information technology systems; (viii) customer concentration and increased consolidation in the retail industry; (ix) transitional challenges with acquisitions; (x) a disruption in the Company’s distribution centers; (xi) foreign currency fluctuations; (xii) changes to tax laws, policies and treaties; (xiii) the ability to recruit and retain senior management and other key associates; (xiv) compliance with applicable laws and standards with respect to labor, trade and product safety issues; (xv) the ability to secure/exit leases on favorable terms; (xvi) the ability to maintain relationships with current suppliers; and (xvii) the ability to attract, retain and maintain good relationships with licensors and protect 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 February 2, 2019, 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.
| 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 February 2, 2019.
| 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 November 2, 2019, 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 November 2, 2019 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
| OTHER INFORMATION |
| 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 18 to the condensed consolidated financial statements and incorporated by reference herein.
| RISK FACTORS |
Except as disclosed below, 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 February 2, 2019.
The imposition of tariffs on our products may result in higher costs and decreased gross profits.
Recent international events have introduced greater uncertainty with respect to trade wars and tariffs, which may affect trade between the United States and other countries, particularly with China. We rely primarily on foreign sourcing for our footwear through third-party manufacturing facilities located outside the United States, with approximately 60% of our footwear sourced from manufacturing facilities in China. In August 2019, the U.S. Administration announced plans to implement a tariff of 15% on approximately $300 billion of products imported into the U.S. from China, effective as of September 1, 2019. While the majority of our footwear sourced from China is subject to the tariff that became effective September 1, 2019, certain types of footwear are subject to a delay until December 15, 2019. While we continue to focus on mitigating the impact of the increasing tariffs, if we are unable to mitigate the impact of the enacted tariffs or if there is a prolonged trade war involving the further escalation of tariffs, our product costs may increase on a significant portion of our branded footwear that we source internationally. Higher product costs may in turn result in lower gross margins in the future for products that we source from China. In addition, while it is too early to predict how the trade wars may impact our business, our net sales may also be impacted by consumers’ fear of an economic slowdown or lower discretionary spending.
| UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS |
The following table provides information relating to our repurchases of common stock during the third quarter of 2019:
| Fiscal Period |
Total Number of Shares Purchased (1) |
Average Price Paid per Share (1) |
Total Number Purchased as Part of Publicly Announced Program (2) |
Maximum Number of Shares that May Yet be Purchased Under the Program (2) |
||||||||||||
| 2,869 | $ | 20.30 | — | 5,727,373 | ||||||||||||
| 49,377 | 19.94 | 49,377 | 5,677,996 | |||||||||||||
| 9,735 | 21.04 | 8,886 | 5,669,110 | |||||||||||||
| Total |
61,981 | $ | 20.13 | 58,263 | 5,669,110 | |||||||||||
| (1) |
Includes shares purchased as part of our publicly announced stock repurchase program 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 August 25, 2011, the Board of Directors approved a stock repurchase program ("2011 Program") authorizing the repurchase of up to 2,500,000 shares of our outstanding common stock and on December 14, 2018, the Board of Directors approved a stock repurchase program ("2018 Program") authorizing the repurchase of an additional 2,500,000 shares of our outstanding common stock. In addition, on September 2, 2019, the Board of Directors approved a stock repurchase program ("2019 Program") authorizing the repurchase of an additional 5,000,000 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. Under these plans, the Company repurchased 58,263 and 1,588,741 shares during the thirteen and thirty-nine weeks ended November 2, 2019, respectively. During the thirty-nine weeks ended November 3, 2018, the Company repurchased 100,000 shares. As of November 2, 2019, there were 5,669,110 shares authorized to be repurchased under the repurchase programs. Our repurchases of common stock are limited under our debt agreements. |
| DEFAULTS UPON SENIOR SECURITIES |
None.
| MINE SAFETY DISCLOSURES |
Not applicable.
| OTHER INFORMATION |
None.
| EXHIBITS |
| Exhibit No. |
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| 3.1 |
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| 3.2 |
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| 31.1 |
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| 31.2 |
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| 32.1 |
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| 101.INS |
† |
iXBRL Instance Document |
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| 101.SCH 101.CAL 101.LAB 101.PRE 101.DEF |
† † † † † |
iXBRL Taxonomy Extension Schema Document iXBRL Taxonomy Extension Calculation Linkbase Document iXBRL Taxonomy Extension Label Linkbase Document iXBRL Taxonomy Presentation Linkbase Document iXBRL Taxonomy Definition Linkbase Document |
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| 104 | † | Cover Page Interactive Data File, formatted in iXBRL and contained in Exhibit 101. | |
† Denotes exhibit is filed with this Form 10-Q.
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.
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CALERES, INC. |
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| Date: December 11, 2019 |
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Senior Vice President and Chief Financial Officer on behalf of the Registrant and as the Principal Financial Officer |
44
| This ‘10-Q’ Filing | Date | Other Filings | ||
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| 8/15/23 | ||||
| 12/15/20 | ||||
| 12/15/19 | ||||
| Filed on: | 12/11/19 | |||
| 11/29/19 | ||||
| For Period end: | 11/2/19 | |||
| 10/6/19 | ||||
| 10/5/19 | ||||
| 9/2/19 | ||||
| 9/1/19 | ||||
| 8/31/19 | ||||
| 8/13/19 | ||||
| 8/4/19 | ||||
| 8/3/19 | 10-Q | |||
| 2/3/19 | ||||
| 2/2/19 | 10-K | |||
| 1/18/19 | ||||
| 12/14/18 | ||||
| 11/3/18 | 10-Q | |||
| 10/31/18 | ||||
| 10/18/18 | 8-K, 8-K/A | |||
| 8/4/18 | 10-Q | |||
| 7/6/18 | ||||
| 2/3/18 | 10-K | |||
| 12/13/16 | 8-K | |||
| 7/27/15 | 8-K | |||
| 7/20/15 | 8-K | |||
| 12/18/14 | ||||
| 8/25/11 | 8-K | |||
| List all Filings | ||||