CALERES, INC. OVERVIEW
Business Overview
We are a global footwear company that operates retail shoe stores and e-commerce
websites, and designs, develops, sources, manufactures and distributes footwear
for people of all ages. Our mission is to inspire people to feel great...feet
first. We offer the consumer a powerful portfolio of footwear brands built on
deep consumer insights generating unwavering consumer loyalty and trust. As
both a retailer and a wholesaler, we have a perspective on the marketplace that
enables us to serve consumers from different vantage points. We believe our
diversified business model provides us with synergies by spanning consumer
segments, categories and distribution channels. A combination of thoughtful
planning and rigorous execution is key to our success in optimizing our business
and portfolio of brands. Our business strategy is focused on continued market
share gains, investments in technology, and sustainability, while remaining
focused on meeting changing consumer demand.
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Famous Footwear
Our Famous Footwear segment includes our Famous Footwear stores,
famousfootwear.com and famousfootwear.ca in Canada . Famous Footwear is one of
America's leading family-branded footwear retailers with 894 stores at the end
of 2021 and net sales of $1.7 billion in 2021. Our focus for the Famous
Footwear segment is on meeting the needs of a well-defined consumer by providing
an assortment of trend-right, brand-name fashion, casual and athletic footwear
at a great price. During 2021, we continued to execute on our three-pronged
strategy, which concentrates on merchandising, marketing and consumer
experience. We continue to focus on increasing the opportunity between Famous
Footwear and the brands within our Brand Portfolio segment, such as LifeStride,
Blowfish Malibu, Dr. Scholl's and Vionic Beach. We also have focused on
offering the consumer a balanced assortment of athletic, sport and seasonal
styles from well-known brands. As we work to evolve our product offerings, we
are testing and adding new and emerging brands across various categories to meet
the shifting preferences and behaviors of the consumer, which we believe may
attract new Famous Footwear consumers while providing the current consumer with
additional options. We are also optimizing our media investment to acquire new
consumers, reactivate previous consumers and retain existing Famous Footwear
consumers.
Brand Portfolio
Our Brand Portfolio segment is consumer-focused and we believe our success is dependent upon our ability to strengthen consumers' preference for our brands by offering compelling style, quality, differentiated brand promises and innovative marketing campaigns. The segment is comprised of the Sam Edelman,Vionic , Naturalizer, Blowfish Malibu,Dr. Scholl's Shoes, Allen Edmonds, LifeStride,Franco Sarto , Rykä, Vince, Bzees, Zodiac and Veronica Beard brands. Through these brands, we offer our customers a diversified selection of footwear, each designed and targeted to a specific consumer segment within the marketplace. We are able to showcase many of our brands in our retail stores and online, leveraging our wholesale and retail platforms, sharing consumer insights across our businesses and testing new and innovative products. Our Brand Portfolio segment operates 70 retail stores inthe United States for our Allen Edmonds,Sam Edelman and Naturalizer brands. This segment also includes our e-commerce businesses that sell our branded footwear. We also operate a joint venture, which expands our international presence by distributing ourSam Edelman and Naturalizer brands through 16 retail stores inChina .
Supply Chain Disruptions and Inflationary Pressures
During 2021, our business operations continued to be impacted by the COVID-19 pandemic, including the delayed receipt of inventory attributable to temporary factory shutdowns, border closures, port congestion and shipping vessel and container availability. Our inventory levels atJanuary 29, 2022 were$108.9 million higher than the prior year-end, inclusive of an$83.5 million increase in-transit inventory, reflecting the ongoing supply chain disruptions. While we have experienced an improvement in inventory receipts at the beginning of 2022, we expect supply chain disruptions to continue through the first half of 2022. Due to lower shipping vessel and container availability, we experienced higher transportation costs throughout 2021, with approximately$23 million of incremental transportation costs incurred during the second half of 2021. We expect to continue to experience inflationary pressures for freight and other product costs during 2022. If we are unable to recover the impact of these costs through price increases to our customers, or if consumer spending decreases as a result of inflation, our business, results of operations, financial condition and cash flows may be adversely affected. In addition, ongoing inflation in product costs may result in lower gross margins due to a higher inventory reserve requirement for the inventory valued using the last-in, first-out ("LIFO") costing methodology, which is used to value approximately 89% of our consolidated inventories.
Financial Highlights
The following is a summary of the financial highlights for 2021:
Consolidated net sales increased
in 2021, compared to
record-setting sales at our Famous Footwear segment which benefited from strong
? consumer demand as COVID-19 vaccines became widely available and government
restrictions eased. Our Brand Portfolio segment's net sales also rebounded
compared to last year, despite being adversely impacted by the delayed receipt
of inventory due to supply chain disruptions.
Consolidated gross profit increased
? million in 2021, compared to
increased to 44.2% in 2021, compared to 37.2% in 2020, reflecting
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a decline in promotional activity driven by strong consumer demand, partially
offset by higher inbound freight costs.
? Consolidated operating earnings increased to
to an operating loss of
Consolidated net earnings attributable to
?
The following items should be considered in evaluating the comparability of our 2021 and 2020 results:
COVID-19 pandemic impact - During 2020, our business results were negatively
impacted by the COVID-19 pandemic. Our retail stores were temporarily closed
for a portion of the year and many of our stores experienced reduced operating
hours and additional closure days on a temporary basis as a result of local
government mandates or illness. We also experienced declines in retail store
traffic with stay-at-home orders and other government mandates, which resulted
in lower sales in 2020, despite the significant growth in our e-commerce
business. We incurred costs associated with the COVID-19 pandemic and related
? impacts on the Company's business totaling
after-tax basis, or
non-cash impairment charges associated with property and equipment and lease
right-of-use assets, inventory markdowns, employee severance and other
expenses. Of the
restructuring and other special charges, net and
represents inventory markdowns, is reflected as cost of goods sold. In 2021,
as the impacts of the pandemic began to recede, we experienced strong consumer
demand and robust growth in retail store traffic, contributing to our record-setting financial results.
Blowfish Malibu mandatory purchase obligation - In
controlling interest in Blowfish Malibu. As further discussed in Note 4 and 13
to the consolidated financial statements, the remaining interest in Blowfish
Malibu was subject to a mandatory purchase obligation after a three-year
period, based on an earnings multiple formula. During 2021, we recorded fair
? value adjustments of
after-tax basis, or
adjustments are presented as interest expense, net in the consolidated
statements of earnings (loss). The mandatory purchase obligation of
million was settled during the fourth quarter of 2021.
Brand Portfolio-business exits - In 2021, the Company incurred costs of
million (
related to the strategic realignment of the Naturalizer retail store
operations, which had been announced in late 2020. These charges primarily
represent lease termination and other store closure costs, including employee
? severance, for the Naturalizer stores closed in 2021 and are reflected as
restructuring and other special charges. In 2020, the Company incurred costs
totaling
diluted share), including
but a limited number of our Naturalizer retail stores and
associated with the decision to exit the Fergie brand. Refer to Note 4 to the
consolidated financial statements for further discussion.
Loss on early extinguishment of debt - During 2021, we incurred a loss of
million (
related to the redemption of our
? notes, prior to the maturity date, and the amendment to our revolving credit
facility prior to its maturity. There were no corresponding charges in 2020.
Refer to Note 11 to the consolidated financial statements for further
discussion.
Impairment of goodwill and intangible assets - During 2020, we recorded
non-cash impairment charges totaling
? after-tax basis, or
impairment associated with goodwill as a result of the unfavorable business
climate and our lower stock price and market capitalization. In addition, we
recorded$46.2 million of impairment associated with 25 Table of Contents intangible assets, including the Allen Edmonds trade name and customer relationship intangible asset and Via Spiga trade name. There were no
corresponding impairment charges in 2021. Refer to Note 1 and Note 10 to the
consolidated financial statements for additional information related to these
charges.
business for
during 2020, which are presented as restructuring and other special charges in
? the consolidated statements of earnings (loss). These costs primarily
represents non-cash charges for impairment of assets, warehouse and logistics
integration expenses and severance costs. There were no corresponding charges
in 2021. Refer to Note 4 to the consolidated financial statements for further
discussion. Financial Outlook We delivered record-setting financial results in 2021, which will provide us with significant momentum going into 2022. Our strong financial results demonstrate the strength of our portfolio of brands, the success of our advanced operating capabilities, the tremendous efforts and talents of our associates and the significant value-enhancing transformation of the organization. In 2022, we will be focused on unlocking growth opportunities across the Company, while taking additional steps to mitigate supply chain and inflationary pressures. We believe we are uniquely positioned to meet consumer needs and capture growth across trending footwear categories such as event, occasion and career, while continuing to capitalize on demand for the athletic and sport-inspired styles. We are confident that the investments we have made, the strategic priorities we have set in motion, and our strengthened financial position and potential for ongoing strong cash generation will enable us to continue to return capital to shareholders, better align supply with consumer demand and invest in our long-term strategic initiatives.
Metrics Used in the Evaluation of Our Business
The following are a couple of key metrics by which we evaluate our business and make strategic decisions:
Same-store sales
The same-store sales metric is a metric commonly used in the retail industry to evaluate the revenue generated for stores that have been open for more than a year, though many retailers may calculate the metric differently. Management uses the same-store sales metric as a measure of an individual store's success to determine whether its sales performance is consistent with expectations.
Our
same-store sales metric is a daily-weighted calculation for the period, which includes sales for stores that have been open at least 13 months. In addition, in order to be included in the same-store sales metric, a store must be open in the current period as well as the corresponding day(s) of the comparable retail calendar in the prior year. Accordingly, closed stores (including temporary store closures related to the pandemic) are excluded from the same-store sales metric for each day of the closure. Relocated stores are treated as new stores and therefore excluded from the calculation. E-commerce sales for those websites that function as an extension of a retail chain are included in the same-store sales calculation. We believe the same-store sales metric is useful to shareholders and investors in assessing the performance of our existing retail store locations with comparable prior year sales, separate from the impact of store openings or closures.
Sales per square foot
The sales per square foot metric is commonly used in the retail industry to measure the efficiency of a store's sales based upon the square footage in a store. Management uses the sales per square foot metric as a measure of an individual store's success to determine whether it is performing consistent with expectations. The sales per square foot metric is calculated by dividing total retail store sales, excluding e-commerce sales, by the total square footage of the retail store base at the end of each month of the respective period.
Comparison of Financial Results
The following sections discuss the consolidated and segment results of our operations for the year endedJanuary 29, 2022 compared to the year endedJanuary 30, 2021 . For a discussion of the year endedJanuary 30, 2021 compared to the year endedFebruary 1, 2020 , refer to Part II, Item 7 "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our Annual Report on Form 10-K for the year endedJanuary 30, 2021 . 26 Table of Contents CONSOLIDATED RESULTS 2021 2020 2019 % of % of % of ($ millions) Net Sales Net Sales Net Sales Net sales$ 2,777.6 100.0 %$ 2,117.1 100.0 %$ 2,921.6 100.0 % Cost of goods sold 1,550.3 55.8 % 1,330.1 62.8 % 1,737.2 59.5 % Gross profit 1,227.3
44.2 % 787.0 37.2 % 1,184.4 40.5 % Selling and administrative expenses
1,008.0 36.3 % 889.5 42.0 % 1,065.8 36.5 % Impairment of goodwill and intangible assets
- - % 286.5 13.5 % - - %
Restructuring and other special charges, net 13.5
0.5 % 96.7 4.6 % 14.8 0.4 %
Operating earnings (loss) 205.8 7.4 % (485.7) (22.9) % 103.8 3.6 %
Interest expense, net (30.9) (1.1) % (48.2) (2.3) % (33.1) (1.2) % Loss on early extinguishment of debt
(1.0) (0.1) % - - % - - %
Other income, net 15.3 0.6 % 16.8 0.8 % 7.9 0.3 % Earnings (loss) before income taxes
189.2 6.8 % (517.1) (24.4) % 78.6 2.7 % Income tax (provision) benefit
(51.1) (1.8) % 78.1 3.7 % (16.5) (0.6) % Net earnings (loss)
138.1 5.0 % (439.0) (20.7) % 62.1 2.1 % Net earnings (loss) attributable to noncontrolling interests 1.1
0.1 % 0.1 0.0 % (0.7) (0.0) %
Net earnings (loss) attributable to
$ 137.0 4.9 %$ (439.1) (20.7) %$ 62.8 2.1 % Net Sales
Net sales increased$660.5 million , or 31.2%, to$2,777.6 million in 2021, compared to$2,117.1 million last year. In 2021, we experienced an increase in retail store traffic once the impacts of the pandemic began to recede and government restrictions eased. In addition, consumer demand for our on-trend assortment supported a reduction in promotional activity, resulting in significant full-price selling. These factors resulted in record-setting net sales for our Famous Footwear segment, which increased$484.7 million , or 38.4%, compared to last year. Net sales for our Brand Portfolio segment increased$178.5 million , or 19.8%, compared to last year. While Brand Portfolio net sales improved over last year, they remain below sales in 2019, due in part to the brand exits announced in late 2019 and early 2020 and the related closure of all but two Naturalizer retail stores inNorth America . On a consolidated basis, our direct-to-consumer sales represented approximately 75% of total net sales for 2021, compared to 73% last year. Our casual, athletic and sport footwear categories continued to perform well and our sandals category experienced strong growth. In addition, demand for the dress category continued to improve as more people are returning to the workplace and attending social gatherings.
Gross Profit
Gross profit increased$440.3 million , or 55.9%, to$1,227.3 million in 2021, compared to$787.0 million in 2020 driven by higher net sales, more full-price selling and a significant decrease in promotional activity at Famous Footwear due to our strong product assortment and inventory management, partially offset by higher inbound freight costs. In addition, during 2020 our gross profit was impacted by incremental inventory markdowns reflecting the difficult retail environment and our business exits described earlier. As a percentage of net sales, our gross profit rate increased to 44.2% in 2021, compared to 37.2% in 2020. The higher gross profit rate reflects more full-price selling and a decline in promotional activity driven by strong consumer demand, partially offset by higher inbound freight costs. We classify warehousing, distribution, sourcing and other inventory procurement costs in selling and administrative expenses. Accordingly, our gross profit and selling and administrative expenses, as a percentage of net sales, may not be comparable to other companies.
Selling and Administrative Expenses
Selling and administrative expenses increased$118.5 million , or 13.3%, to$1,008.0 million in 2021, compared to$889.5 million last year. The increase reflects higher salary and benefits expenses, higher marketing expenses and an increase in stock and deferred compensation expense, partially offset by lower rent and facilities costs. During 2020, we managed controllable expenses in response to the difficult business environment and lower sales volume resulting from the pandemic. The strategic actions taken in 2020 resulted in lower salaries and benefits expense; lower variable expenses associated with the temporary store closures, including the impact of certain rent concessions received from landlords; and lower marketing, travel and logistics expenses. As a percentage of net sales, selling and administrative expenses decreased to 36.3% in 2021 from 42.0% last year, reflecting better leveraging of expenses over a higher sales base. 27 Table of Contents
Impairment of
During 2020, we recorded non-cash impairment charges totaling$286.5 million ($236.4 million on an after-tax basis, or$6.35 per diluted share). We recorded$240.3 million of impairment associated with goodwill as a result of the unfavorable business climate and our lower market capitalization. In addition, we recorded$46.2 million of impairment associated with intangible assets, including$36.0 million associated with the Allen Edmonds trade name and customer relationship intangible asset and$10.2 million associated with the Via Spiga trade name. There were no corresponding impairment charges in 2021.
Refer to Note 10 to the consolidated financial statements for additional information related to these charges.
Restructuring and Other Special Charges, Net
We incurred restructuring and other special charges of
Brand Portfolio business exit costs of
? and 2020, respectively, reflecting expenses associated with the strategic
realignment of the Naturalizer retail store operations;
Costs associated with the economic impact of the COVID-19 pandemic of
? million in 2020, primarily consisting of impairment charges associated with
lease right-of-use assets and retail store furniture and fixtures, liabilities
associated with wholesale factory order cancellations and severance; and
? Integration-related costs for
The nature of the above charges are more fully described in the Financial Highlights section above and Note 4 to the consolidated financial statements.
Operating Earnings (Loss)
Operating earnings increased$691.5 million to$205.8 million in 2021, compared to an operating loss of$485.7 million last year, reflecting the factors described above. As a percentage of net sales, operating earnings were 7.4% in 2021, compared to an operating loss of 22.9% in 2020.
Interest Expense, Net
Interest expense, net decreased$17.3 million , or 35.9%, to$30.9 million in 2021, compared to$48.2 million last year, which is attributable to various factors. The fair value adjustments on the mandatory purchase obligation associated with the Blowfish Malibu acquisition totaled$15.4 million in 2021, compared to$23.9 million in 2020. The mandatory purchase obligation was settled for$54.6 million onNovember 4, 2021 . In addition, we continued to use our strong cash generation to reduce the borrowings under our revolving credit agreement from$440.0 million atMarch 2020 to$290.0 million atJanuary 29, 2022 . As a result, the average borrowings under our revolving credit agreement were lower in 2021, decreasing our interest expense. In addition, we redeemed our$200 million aggregate principal of senior notes during 2021, prior to maturity, shifting this higher interest rate debt to borrowings under our revolving credit agreement. We expect our net interest expense to be lower going forward as a result of the redemption of the senior notes. Refer to Note 11 to the consolidated financial statements for additional information related to our borrowings and Note 4 and Note 13 for further discussion regarding the mandatory purchase obligation.
Loss on Early Extinguishment of Debt
The loss on early extinguishment of debt was$1.0 million in 2021, reflecting the redemption of our$200.0 million aggregate principal senior notes prior to maturity, as well as the amendment of our revolving credit facility. Refer to Note 11 to the consolidated financial statements for further discussion.
Other Income, Net
Other income, net decreased$1.5 million , or 8.7%, to$15.3 million in 2021, compared to$16.8 million in 2020, reflecting a reduction in certain components of net periodic benefit income associated with our pension plans. Refer to Note 5 to the consolidated financial statements for additional information related to our retirement plans.
Income Tax (Provision) Benefit
Our consolidated effective tax rate was 27.0% in 2021, compared to 15.1% in
2020. Our higher tax rate for 2021 primarily reflects strong domestic earnings
and incremental valuation allowances recorded for our deferred tax assets for
certain
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jurisdictions. The rate also reflects incremental valuation allowances related
to operating losses at our Canadian business division, which were driven by
exit-related costs associated with the Naturalizer retail stores during the
first quarter of 2021. In 2020, our effective tax rate was impacted by several
discrete tax items, including the non-deductibility of a portion of our goodwill
impairment charges and the incremental tax provision related to the vesting of
stock awards. Our tax benefit for 2020 also includes the favorable impact of
approximately $8.2 million related to the CARES Act, which permits us to carry
back a significant portion of our 2020 losses to years with a higher federal tax
rate. In addition, due to the significance of our 2020 loss before income
taxes, the Company entered into a three-year cumulative loss position for
federal, state and certain international jurisdictions. We increased our
valuation allowances on deferred tax assets to $50.0 million during 2020,
reflecting the uncertainty regarding the utilization of our deferred tax assets
in these jurisdictions. The requirement for valuation allowances on our
deferred tax assets may result in ongoing volatility in our effective tax rate
until the Company is no longer in a three-year cumulative loss position. Refer
to Note 6 to the consolidated financial statements for additional information
regarding income taxes.
Net Earnings (Loss) Attributable to
Consolidated net income attributable to
Geographic Results We have both domestic and international operations. Domestic operations include the nationwide operation of our Famous Footwear and other branded retail footwear stores, the wholesale distribution of footwear to numerous retail consumers and the operation of our e-commerce websites. International operations primarily consist of wholesale operations inEastern Asia ,Canada andEurope , retail operations inCanada andChina and the operation of our international e-commerce websites. In addition, we license certain of our trade names to third parties who distribute and/or operate retail locations internationally. The operations inEastern Asia include first-cost transactions, where footwear is sold at international ports to customers who then import the footwear intothe United States and other countries. The breakdown of domestic and international net sales and earnings (loss) before income taxes is as follows: 2021 2020 2019 Earnings Before Loss Before Earnings Before ($ millions) Net Sales Income Taxes Net Sales Income Taxes Net Sales Income Taxes Domestic$ 2,600.8 $ 152.5$ 1,981.1 $ (441.5) $ 2,727.1 $ 37.3 International 176.8 36.7 136.0 (75.6) 194.5 41.3$ 2,777.6 $ 189.2$ 2,117.1 $ (517.1) $ 2,921.6 $ 78.6
As a percentage of sales, the pre-tax profitability on international sales is higher than on domestic sales because of a lower cost structure and the inclusion of the unallocated corporate administrative and other costs in domestic earnings. In 2020, both our domestic and international earnings were impacted by the goodwill and intangible asset impairment charges described
earlier.
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FAMOUS FOOTWEAR
2021 2020 2019
% of % of % of($ millions, except sales per square foot)Net Sales
Net Sales Net Sales Net sales$ 1,748.3 100.0 %$ 1,263.6 100.0 %$ 1,588.1 100.0 % Cost of goods sold 908.9 52.0 % 773.7 61.2 % 912.7 57.5 % Gross profit 839.4 48.0 % 489.9 38.8 % 675.4 42.5 %
Selling and administrative expenses 563.0 32.2 % 497.1 39.4 % 595.0 37.5 % Restructuring and other special charges, net - - % 16.6 1.3 % 3.5 0.2 % Operating earnings (loss)$ 276.4 15.8 % $
(23.8) (1.9) %
Key Metrics Same-store sales % change 12.5 % 1.6 % 2.0 % Same-store sales $ change$ 153.6 $ 20.0 $ 31.1 Sales change from new and closed stores, net (1)$ 329.3 $ (344.4) $ (49.3) Impact of changes in Canadian exchange rate on sales$ 1.8 $ (0.1) $ (0.5) Sales per square foot, excluding e-commerce$ 249 $ 159 $ 223 Square footage (thousand sq. ft.) 5,912
6,074 6,281 Stores opened 10 6 12 Stores closed 32 39 55 Ending stores 894 916 949
(1) This metric includes the impact of temporary store closures. Fiscal 2020 was
impacted significantly by store closure days during the pandemic, while 2021
reflects a significantly lower number of store closure days.
Net sales increased$484.7 million , or 38.4%, to$1,748.3 million in 2021, compared to$1,263.6 million last year. Our record-setting results in 2021 were attributable to a number of factors. As the effects of the pandemic began to recede, we experienced a significant increase in retail store traffic in 2021. The consumer demand for our on-trend assortment supported a reduction in promotional activity, resulting in more full-price selling. Our e-commerce penetration in 2021 was approximately 14% of net sales, compared to approximately 22% last year when our retail stores were temporarily closed beginning in mid-March at the onset of the pandemic, with a phased reopening beginning in May. While supply chain disruptions have resulted in shipping delays, our well-positioned inventory drove our strong performance. Seasonal product, particularly sandals, performed well, and we experienced robust growth in our casual and athletic categories. Our children's business also continued to grow significantly, outpacing total company performance. During 2021, we had net closures of 22 stores as we continue to focus on optimizing our store base and eliminating underperforming locations. 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 78% of net sales to loyalty program members in 2021, compared
to 79% in 2020. Gross Profit
Gross profit increased$349.5 million , or 71.3%, to$839.4 million in 2021, compared to$489.9 million last year, driven by the net sales increase and a higher gross profit rate. As a percentage of net sales, our gross profit rate increased to 48.0% in 2021, compared to 38.8% in 2020, reflecting a significant reduction in promotional activity driven by growth in consumer demand as well as our strong product assortment and inventory management. In addition, our gross profit margin in 2020 was adversely impacted by$6.0 million in incremental inventory markdowns, reflecting the difficult retail environment driven by the pandemic.
Selling and Administrative Expenses
Selling and administrative expenses increased$65.9 million , or 13.3%, to$563.0 million during 2021 compared to$497.1 million last year. The increase reflects higher variable expenses, including payroll associated with our retail store associates and logistics, associated with the increase in sales volume, as well as higher marketing expenses. Salary expenses were lower in 2020 driven by the temporary closure of all Famous Footwear stores for a portion of the first
half
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of 2020 due to the pandemic. As a percentage of net sales, selling and administrative expenses decreased to 32.2% in 2021 from 39.4% last year, reflecting better leveraging of expenses over a higher net sales base.
Restructuring and Other Special Charges, Net
Restructuring and other special charges were
Operating Earnings (Loss)
Operating earnings increased$300.2 million to$276.4 million for 2021, compared to an operating loss of$23.8 million last year, reflecting higher net sales, an increase in gross profit rate and the other factors described above. As a percentage of net sales, operating earnings were 15.8% for 2021, compared to an operating loss of 1.9% last year. BRAND PORTFOLIO 2021 2020 2019 % of % of % of ($ millions, except sales per square foot) Net Sales Net Sales Net Sales Net sales$ 1,081.0 100.0 %$ 902.5 100.0 %$ 1,406.5 100.0 % Cost of goods sold 694.2 64.2 % 607.7 67.3 % 899.9 64.0 % Gross profit$ 386.8 35.8 %$ 294.8 32.7 %$ 506.6 36.0 % Selling and administrative expenses 337.4 31.2 % 337.4 37.4 % 442.7 31.5 % Impairment of goodwill and intangible assets - - % 286.5 31.8 % - - % Restructuring and other special charges, net 13.5 1.3 % 79.3 8.8 % 5.7 0.4 % Operating earnings (loss)$ 35.9 3.3 %$ (408.4) (45.3) %$ 58.2 4.1 % Key Metrics Direct-to-consumer (% of net sales) (1) 32 % 32 % 28 % Change in wholesale net sales ($)$ 114.6 $ (396.4) $ 107.6 Unfilled order position at end of period$ 452.4 $ 218.2 $ 295.4 Same-store sales % change 30.6 % (31.0) % (5.8) % Same-store sales $ change$ 32.9 $ (59.7) $ (15.5) Sales change from new and closed stores, net$ 30.4 $ (47.9) $ 1.5 Impact of changes in Canadian exchange rate on retail sales$ 0.6 $ 0.0 $ (0.7) Sales per square foot, excluding e-commerce (trailing twelve months)$ 906 $ 179 $ 390 Square footage (thousands sq. ft.) 116 269 387 Stores opened 9 7 11 Stores closed 93 65 12 Ending stores 86 170 228
Direct-to-consumer includes sales of our retail stores and e-commerce sites, (1) and sales through our customers' websites that we fulfill on a drop-ship
basis.
Net Sales
Net sales increased $178.5 million , or 19.8%, to $1,081.0 million in 2021,
compared to $902.5 million last year, reflecting strong sales growth from our
Sam Edelman , Vionic , Allen Edmonds and Blowfish Malibu brands. Both Sam Edelman
and Allen Edmonds have experienced renewed interest and growth in the dress shoe
category, as more people returned to the workplace and began to attend special
occasion events. Our net sales in 2021 were adversely impacted by the delayed
receipt of inventory due to supply chain disruptions, including factory
shutdowns, border closures, port congestion and shipping vessel and container
availability. In addition, sales were adversely impacted during 2020, as many
of our wholesale customers canceled orders and those customers and the Company
temporarily closed retail stores for several weeks during 2020.
In the first quarter of 2021, we permanently closed the remaining 73 Naturalizer
stores in North America that were scheduled for closure as part of our strategic
realignment of the Naturalizer retail store operations. While net sales
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improved over last year, they remain below pre-pandemic levels, due in part to these retail store closures. We remain focused on growing the Naturalizer brand's e-commerce business through naturalizer.com, our retail partners and their websites, and the two flagship stores inthe United States . Including the Naturalizer closures, we closed 93 stores and opened nine stores during 2021, resulting in a total of 86 stores at the end of 2021. Sales per square foot, excluding e-commerce sales, increased to$906 , compared to$179 last year. The sales per square foot metric in 2020 was adversely impacted by the temporary retail store closures and therefore, it is not comparable to 2021. In addition, with the closure of nearly all of our Naturalizer retail stores in 2021, the majority of our Brand Portfolio segment stores are for our Allen Edmonds brand, which have higher retail price points than the Naturalizer brand. The unfilled order position for our wholesale business increased$234.2 million to$452.4 million at the end of 2021, compared to$218.2 million at the end of last year. The increase in our backlog order levels reflects the delayed receipt of inventory due to global supply chain disruptions and higher demand. We are actively working to diversify and leverage our sourcing model to help offset the impact of these supply chain challenges, but expect the disruptions to continue into 2022. Gross Profit
Gross profit increased$92.0 million , or 31.2%, to$386.8 million in 2021, compared to$294.8 million last year, due to higher net sales and an improved gross profit rate. Our gross profit in 2020 was negatively impacted by higher incremental cost of goods sold primarily due to$27.5 million in inventory markdowns reflecting the difficult retail environment driven by the pandemic, as well as$4.0 million in inventory markdowns related to the decision to close all but a limited number of our Naturalizer retail stores and exit our Fergie brand. As a percentage of sales, our gross profit rate increased to 35.8% in 2021, compared to 32.7% last year. In connection with the supply chain disruptions described earlier, our freight costs have risen significantly. We anticipate inbound freight costs to remain high in 2022, which may continue to impact our gross profit if we are unable to mitigate or fully recover these additional costs through price increases.
Selling and Administrative Expenses
Selling and administrative expenses were$337.4 million in 2021, consistent with last year. Higher marketing and salaries expenses were offset by lower rent and facilities expenses, primarily due to the lower store count. As a percentage of net sales, selling and administrative expenses decreased to 31.2% in 2021 from 37.4% last year, reflecting better leveraging of expenses over a higher net sales base.
Impairment of
We incurred impairment charges of$286.5 million during 2020, including$240.3 million associated with goodwill and$46.2 million associated with intangible assets, including$32.0 for the Allen Edmonds trade name,$10.2 million for the Via Spiga trade name and$4.0 million associated with other Allen Edmonds intangible assets. The goodwill impairment charges were a result of the unfavorable business climate and our lower market capitalization, due in part to the economic impacts of the pandemic. There were no corresponding impairment charges in 2021. Refer to Note 10 to the consolidated financial statements for additional information related to the impairments.
Restructuring and Other Special Charges, Net
Restructuring and other special charges of$13.5 million were recorded during 2021 for expenses associated with the strategic realignment of the Naturalizer retail store operations. These costs primarily represented lease termination and other store closure costs, including employee severance, for the 73 stores that were closed during the first quarter of 2021. During 2020,$79.3 million of restructuring and other special charges were recorded, primarily comprised of$63.6 million for impairment charges on store furniture and fixtures and lease right-of-use assets, liabilities due to our factories for order cancellations and severance expense. In addition, our 2020 expenses included$12.4 million associated with the closure of our Naturalizer retail stores and$3.3 million in integration-related costs forVionic . Refer to Note 4 to the consolidated financial statements for additional information related to these charges.
Operating Earnings (Loss)
Operating earnings increased$444.3 million to$35.9 million in 2021, compared to an operating loss of$408.4 million last year, as a result of the factors described above. As a percentage of net sales, operating earnings were 3.3% in 2021, compared to an operating loss of 45.3% last year. 32 Table of Contents ELIMINATIONS AND OTHER 2021 2020 2019 % of % of % of ($ millions) Net Sales Net Sales Net Sales Net sales$ (51.7) 100.0 %$ (49.0) 100.0 %$ (73.0) 100.0 % Cost of goods sold (52.8) 102.2 % (51.3) 104.8 % (75.4) 103.3 % Gross profit$ 1.1 (2.2) %$ 2.3 (4.8) %$ 2.4 (3.3) % Selling and administrative expenses 107.6 (208.3) % 54.9 (112.2) % 28.0 (38.4) % Restructuring and other special charges, net - - % 0.8 (1.6) % 5.6 (7.7) % Operating loss$ (106.5) 206.1 %$ (53.4) 109.0 %$ (31.2) 42.7 % The Eliminations and Other category includes the elimination of intersegment sales and profit, unallocated corporate administrative expenses, and other costs and recoveries.
The net sales elimination of
Selling and administrative expenses increased$52.7 million , or 96.0%, to$107.6 million in 2021, compared to$54.9 million last year, primarily driven by higher anticipated payments under our cash and stock-based incentive compensation plans due to our strong financial performance, higher expenses associated with certain cash-based director compensation plans that are variable based on our stock price and an increase in salaries expense. Salaries expense was lower in 2020 as a result of the strategic actions we took to mitigate the impact of the pandemic, including salary reductions and associate furloughs for a portion of the year. Restructuring and other special charges of$0.8 million in 2020 were comprised primarily of costs associated with workforce reductions as we sought to align our expense structure with the lower sales performance, combined with incremental expenses associated with deep cleaning our facilities and related supplies. There were no corresponding charges in 2021.
RESTRUCTURING AND OTHER INITIATIVES
During 2021, we incurred restructuring and other special charges of$13.5 million , reflecting expenses associated with the decision to close all Naturalizer retail stores inNorth America with the exception of two Naturalizer flagship retail stores inthe United States . These costs primarily represented lease termination and other store closure costs, including employee severance, for the 73 stores that were closed in 2021. During 2020, we incurred restructuring and other special charges of$96.7 million , including approximately$80.9 million in costs primarily associated with the economic impact of the COVID-19 pandemic, including impairment charges associated with lease right-of-use assets and retail store furniture and fixtures, liabilities associated with factory order cancellations and severance. In addition, we incurred$12.4 million related to the decision to close all but a limited number of Naturalizer retail stores, as described above, and$3.4 million of integration-related costs forVionic .
Refer to the Financial Highlights section above and Note 4 to the consolidated financial statements for additional information related to these charges.
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LIQUIDITY AND CAPITAL RESOURCES
Borrowings
($ millions) January 29, 2022 January 30, 2021 (1) Increase (Decrease) Borrowings under revolving credit agreement $ 290.0 $ 250.0 $ 40.0 Long-term debt - 198.9 (198.9) Total debt $ 290.0 $ 448.9 $ (158.9)
(1) Total debt as of
purchase obligation, which was valued at
Total debt obligations decreased$158.9 million to$290.0 million at the end of 2021, compared to$448.9 million at the end of last year, as we continued to use our strong cash generation to reduce our debt levels. InAugust 2021 , we redeemed$100.0 million of our senior notes and onJanuary 3, 2022 , we redeemed the remaining$100.0 million of senior notes. We shifted this higher interest rate debt to borrowings under our revolving credit facility, which is expected to result in net interest expense savings on an ongoing basis. Net interest expense in 2021 was$30.9 million , compared to$48.2 million in 2020. The decrease in net interest expense in 2021 was primarily attributable to a decrease in the fair value adjustments to the mandatory purchase obligation associated with the Blowfish Malibu acquisition, as further discussed in Note 13 to the consolidated financial statements, and lower average borrowings under the revolving credit facility. Credit Agreement As further discussed in Note 11 to the consolidated financial statements, the Company maintains a revolving credit facility for working capital needs. The Company is the lead borrower, andSidney Rich Associates, Inc. ,BG Retail, LLC, Allen Edmonds LLC, Vionic Group LLC andVionic International LLC are each co-borrowers and guarantors under the revolving credit facility. OnOctober 5, 2021 , we entered into a Fifth Amendment to Fourth Amended and Restated Credit Agreement (as so amended, the "Credit Agreement") which, among other modifications, extends the maturity date of the credit facility fromJanuary 18, 2024 toOctober 5, 2026 , and decreases the borrowing availability under the revolving credit facility by$100.0 million to an aggregate amount of up to$500.0 million , subject to borrowing base restrictions, and may be further increased by up to$250.0 million . Interest on the borrowings is at variable rates based on the London Interbank Offered Rate ("LIBOR") (with a floor of 0.0%), or the prime rate (as defined in the Credit Agreement), plus a spread. The Credit Agreement decreased the spread applied to the LIBOR or prime rate by a total of 75 basis points. 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. 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. Refer to further discussion regarding the Credit Agreement in Note 11 to the consolidated financial statements.
At
OnJuly 27, 2015 , we issued$200.0 million aggregate principal amount of Senior Notes due in 2023 (the "Senior Notes"). The Senior Notes were guaranteed on a senior unsecured basis by each of the subsidiaries ofCaleres, Inc. that is an obligor under the Credit Agreement, and bore interest at 6.25%, which was payable onFebruary 15 andAugust 15 of each year. OnAugust 16, 2021 , we redeemed$100.0 million of Senior Notes at 100.0%. In addition, onJanuary 3, 2022 , we redeemed the remaining$100.0 million of Senior Notes at 100.0%. In conjunction with the redemption of the Senior Notes prior to maturity, we incurred a loss on early extinguishment of debt of$1.0 million .
Refer to further discussion regarding the Senior Notes in Note 11 to the consolidated financial statements.
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Working Capital and Cash Flow
January 29, 2022 January 30, 2021 Operating working capital ($ millions) (1) $ 193.8
$ 191.8 Current ratio (2) 0.82:1 0.86:1 Debt-to-capital ratio (3) 47.3 % 68.8 %
Operating working capital has been computed as total current assets, (1) excluding cash and property and equipment, held for sale, less total current
liabilities, excluding borrowings under revolving credit agreement and lease
obligations.
(2) The current ratio has been computed by dividing total current assets by total
current liabilities.
Debt-to-capital has been computed by dividing total debt by total (3) 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.
Operating working capital atJanuary 29, 2022 , was$193.8 million , which was$2.0 million higher than atJanuary 30, 2021 . Our current ratio was 0.82 to 1 atJanuary 29, 2022 , compared to 0.86 to 1 atJanuary 30, 2021 . Our debt-to-capital ratio was 47.3% as ofJanuary 29, 2022 , compared to 68.8% atJanuary 30, 2021 , reflecting lower debt resulting from the redemption of our senior notes during 2021 as well as higher equity attributable to our strong financial results in 2021. Increase (Decrease) in ($ millions) 2021 2020
Cash Equivalents
Net cash provided by operating activities
42.0
Net cash used for investing activities (24.1) (22.1) (2.0)
Net cash used for provided by financing
activities (202.4) (61.3) (141.1)
Effect of exchange rate changes on cash and cash
equivalents (0.1) 0.1 (0.2)
(Decrease) increase in cash and cash equivalents
(101.3)
Cash provided by operating activities was
? Higher earnings in 2021 compared to 2020, primarily driven by strong consumer
demand and strong financial results by our Famous Footwear segment;
? A decrease in net income tax receivables in 2021 compared to an increase last
year; and
? A larger increase in accounts payable in 2021 compared to last year; partially
offset by
An increase in inventory in 2021, compared to a decrease in 2020 due in part to
? a significant increase in in-transit inventory attributable to supply chain
disruptions and port congestion; and
? The settlement of the Blowfish mandatory purchase obligation.
Supply chain financing: Certain of our suppliers are given the opportunity to sell receivables from us related to products we've purchased to participating financial institutions at a rate that leverages our credit rating, which may be more beneficial to the suppliers than the rate they can obtain based upon their own credit rating. We negotiate payment and other terms with our suppliers, regardless of whether the supplier participates in the program, and our responsibility is limited to making payment based on the terms originally negotiated with the supplier. These liabilities continue to be presented as accounts payable in our consolidated balance sheets and reflected as cash flows from operating activities when settled. As ofJanuary 29, 2022 andJanuary 30, 2021 , we had$36.7 million and$28.5 million , respectively, of accounts payable subject to supply chain financing arrangements. We believe the impact of supply chain financing is not material to our overall liquidity position. Cash used for investing activities was$2.0 million higher in 2021 than last year, reflecting slightly higher capital expenditures in 2021. In 2022, we expect our purchases of property and equipment and capitalized software to be between$35 million and$45 million .
Cash used for financing activities was
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of
We paid dividends of$0.28 per share in each of 2021, 2020 and 2019. The 2021 dividends marked the 99th year of consecutive quarterly dividends. OnMarch 10, 2022 , the Board of Directors declared a quarterly dividend of$0.07 per share, payable onApril 8, 2022 , to shareholders of record onMarch 24, 2022 , marking the 396th consecutive quarterly dividend to be paid by the Company. 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. We have various contractual or other obligations, including borrowings under our revolving credit facility, operating lease commitments and obligations for our supplemental executive retirement plan and other postretirement benefits. Additional information on these commitments is provided in the notes to our consolidated financial statements. We also have purchase obligations to purchase inventory, assets and other goods and services. As ofJanuary 29, 2022 , we had purchase obligations totaling approximately$802.1 million , of which$786.6 million are due in the next 12 months. We believe our operating cash flows are sufficient to meet our material cash requirements for at least the next 12 months.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Certain accounting issues require management estimates and judgments for the preparation of financial statements. Our most significant policies requiring the use of estimates and judgments are described below.
Inventories
Inventories are one of our most significant assets, representing approximately 32% of total assets at the end of 2021. We value our inventories at the lower of cost or market for approximately 89% of our consolidated inventories, which represents the divisions using the LIFO cost method. For the remaining portion, our inventories are valued at the lower of cost or net realizable value. For inventory valued at LIFO, we regularly review the inventory for excess, obsolete or impaired inventory and write it down to the lower of cost or market. We apply judgment in determining the market value of inventory, which requires an estimate of net realizable value, including current and expected selling prices, costs to sell and normal gross profit rates. The method used to determine market value varies by business division, based on the unique operating models. At our Famous Footwear segment and certain operations within our Brand Portfolio segment, market value is determined based on net realizable value less an estimate of expected costs to be incurred to sell the product. Accordingly, we record markdowns when it becomes evident that inventory items will be sold at prices below cost. As a result, gross profit rates at our Famous Footwear segment and, to a lesser extent, our Brand Portfolio segment are lower than the initial markup during periods when permanent price reductions are taken to clear product. For the majority of our Brand Portfolio segment, we determine market value based upon the net realizable value of inventory less a normal gross profit rate. We believe these policies reflect the difference in operating models between our Famous Footwear segment and our Brand Portfolio segment. Famous Footwear periodically runs promotional events to drive sales to clear seasonal inventories. The Brand Portfolio segment generally relies on permanent price reductions to clear slower-moving inventory.
The determination of markdown reserves for the Brand Portfolio segment requires significant assumptions, estimates and
judgments by management, and is subject to inherent uncertainties and subjectivity. In determining markdown reserves,
management considers recent and forecasted sales prices, historical gross profit rates, the length of time the product is held in inventory and quantities of various product styles contained in inventory, as well as demand, among other factors. The ultimate amount realized from the sale of certain products could differ from management estimates.
We perform physical inventory counts or cycle counts on merchandise inventory on hand throughout the year and adjust the recorded balance to reflect the results.
We record estimated shrinkage between physical inventory counts based on historical results. Inventory shrinkage is included as a component of cost of goods sold.
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Store Impairment Charges
We regularly analyze the results of all stores and assess the viability of
underperforming stores to determine whether events or circumstances exist that
indicate the stores should be closed or whether the carrying amount of their
long-lived assets may not be recoverable. After allowing for an appropriate
start-up period, unusual nonrecurring events or favorable trends, property and
equipment at stores and the lease right-of-use assets indicated as impaired are
written down to fair value as calculated using a discounted cash flow method.
The fair value of the lease right-of-use assets is determined utilizing projected cash flows for each store location, discounted using a risk-adjusted discount rate, subject to a market floor based on current market lease rates.
The projected cash flows of the stores (including net sales projections), discount rates and current market lease rates for the remaining lease term of the related stores used to determine fair value require significant management judgment and are the assumptions to which the fair value calculations are most sensitive.
Income Tax Valuation Allowances
We recognize deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the consolidated financial statement carrying amounts and the tax bases of assets and liabilities. Valuation allowances are established if we believe that it is more-likely-than-not that some or all of our deferred tax assets will not be realized. The evaluation of the realizability of deferred tax assets requires significant assumptions, estimates and judgment by management, including estimates of future taxable income by jurisdiction. Such estimates are subject to inherent uncertainties and subjectivity.
As of
Impact of Prospective Accounting Pronouncements
Recent accounting pronouncements and their impact on the Company are described in Note 1 to the consolidated financial statements.
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 AND FORWARD-LOOKING STATEMENTS
This Management's Discussion and Analysis of Financial Condition and Results of Operations contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Actual results could differ materially from those projected as they are subject to various risks and uncertainties. These risks and uncertainties include, without limitation, the risks detailed in Item 1A, Risk Factors, and those described in other documents and reports filed from time to time with theSEC , press releases and other communications. We do not undertake any obligation or plan to update these forward-looking statements, even though our situation may change.
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