CALERES, INC. OVERVIEW
We achieved record-setting financial results in the first quarter of 2022, maintaining our momentum from 2021, with strong sales and operating earnings contribution from both our Famous Footwear and Brand Portfolio segments. We utilized our robust cash generation to augment our inventory levels to better align with the strong consumer demand and position us for the upcoming season. We have also taken the opportunity to repurchase over 700,000 shares of common stock, and expect to continue to do so.
Financial Highlights
Following is a summary of the financial highlights for the first quarter of 2022:
Consolidated net sales increased
the first quarter of 2022, compared to
2021. Our Famous Footwear segment continued its strong performance with net
? sales of
consolidated basis, our direct-to-consumer sales represented approximately 65%
of consolidated net sales for the first quarter of 2022, compared to 74.5% in
the first quarter of 2021.
Consolidated gross profit increased
in the first quarter of 2022, compared to
? of 2021. Our gross profit margin increased to 44.5% in the first quarter of
2022, compared to 43.0% in the first quarter of 2021, reflecting a decline in
promotional activity driven by strong consumer demand and an improved sales mix
of higher margin product.
Consolidated operating earnings increased
? first quarter of 2022, compared to
Consolidated net earnings attributable to
?
million, or
The following items should be considered in evaluating the comparability of our first quarter results in 2022 and 2021:
Supply Chain Disruptions and Inflationary Pressures - During the first quarter
of 2022, we continued to experience global supply chain disruptions, including
a delay in the receipt of inventory due to port congestion and reduced shipping
vessel and container availability. We have also experienced inflationary
pressures on product costs and inbound freight. In order to mitigate these
inflationary pressures, we began implementing price increases in the second
? half of 2021. We believe our ability to continue full price selling and our
disciplined approach to inventory management will continue to mitigate the
impact of these supply chain disruptions and inflationary pressures on our
financial results. As of
inventory in transit that is not yet available to sell, an increase of 105%
compared to our in-transit inventory levels at
45% fromJanuary 29, 2022 . Brand Portfolio - business exits - During the first quarter of 2021, we
incurred costs totaling
?
retail store operations. There were no corresponding charges recorded during
the first quarter of 2022.
Blowfish Malibu mandatory purchase obligation - As further discussed in Note 5
and Note 14 to the condensed consolidated financial statements, the remaining
interest in Blowfish Malibu was subject to a mandatory purchase obligation
after a three-year period following the 2018 acquisition, based on an earnings
? multiple formula. During the first quarter of 2021, we recorded a fair value
adjustment of
diluted share). The fair value adjustment was recorded as interest expense,
net in the condensed consolidated statement of earnings. There were no
corresponding charges in the first quarter of 2022. The purchase obligation
was settled for$54.6 million onNovember 4, 2021 . 25 Table of Contents
Metrics Used in the Evaluation of Our Business
The following are a couple of key metrics by which we evaluate our business and make strategic decisions:
Same-store sales
The same-store sales metric is a metric commonly used in the retail industry to evaluate the revenue generated for stores that have been open for more than a year, though other retailers may calculate the metric differently. Management uses the same-store sales metric as a measure of an individual store's success to determine whether it is performing in line with expectations. Our same-store sales metric is a daily-weighted calculation for the period, which includes sales for stores that have been open for at least 13 months. In addition, in order to be included in the same-store sales metric, a store must be open in the current period as well as the corresponding day(s) of the comparable retail calendar in the prior year. Accordingly, closed stores are excluded from the same-store sales metric for each day of the closure. Relocated stores are treated as new stores and therefore excluded from the calculation. E-commerce sales for those websites that function as an extension of a retail chain are included in the same-store sales calculation. We believe the same-store sales metric is useful to shareholders and investors in assessing our retail sales performance of existing locations with comparable prior year sales, separate from the impact of store openings or store closures.
Sales per square foot
The sales per square foot metric is commonly used in the retail industry to calculate the efficiency of sales based upon the square footage in a store.
Management uses the sales per square foot metric as a measure of an individual store's success to determine whether it is performing in line with expectations. The sales per square foot metric is calculated by dividing total retail store sales, excluding e-commerce sales, by the total square footage of the retail store base at the end of each month of the respective period.
Outlook
During the first quarter of 2022, we made significant progress against our key strategic initiatives. We believe we are well-positioned to capitalize on favorable market dynamics, despite the geopolitical concerns, inflationary pressures and ongoing supply chain disruptions. As we progress throughout 2022, we will maintain our focus on aligning inventory with consumer demand, which we believe will capture demand for our brands and products. We will continue to leverage our core competencies and execute on our short and long-term strategic priorities in an effort to enhance long-term value for our shareholders.
Following are the consolidated results and the results by segment:
CONSOLIDATED RESULTS
Thirteen Weeks Ended
April 30, 2022 May 1, 2021
% of % of
($ millions) Net Sales Net Sales
Net sales $ 735.1 100.0 % $ 638.6 100.0 %
Cost of goods sold 408.1 55.5 % 363.7 57.0 %
Gross profit 327.0 44.5 % 274.9 43.0 %Selling and administrative expenses 260.8 35.5 % 243.5 38.1 % Restructuring and other special charges, net -
- % 13.5 2.1 %
Operating earnings 66.2 9.0 % 17.9 2.8 %
Interest expense, net (2.3) (0.3) % (11.8) (1.8) %
Other income, net 3.4 0.5 % 3.8 0.6 %
Earnings before income taxes 67.3 9.2 % 9.9 1.6 %
Income tax provision (17.3) (2.4) % (3.5) (0.6) %
Net earnings 50.0 6.8 % 6.4 1.0 %Net (loss) earnings attributable to noncontrolling interests (0.5) (0.1) % 0.2 0.0 % Net earnings attributable to Caleres, Inc.$ 50.5
6.9 %$ 6.2 1.0 % Net Sales Net sales increased$96.5 million , or 15.1%, to$735.1 million for the first quarter of 2022, compared to$638.6 million for the first quarter of 2021. Net sales for our Brand Portfolio segment increased$115.4 million , or 46.1% during the first quarter of 2022, compared to the first quarter of 2021, and the segment surpassed its pre-pandemic sales levels. Our Famous Footwear segment's strong sales performance from 2021 carried over to the first quarter of 2022. However, net sales for Famous Footwear decreased$13.6 million , or 3.4%, in the first quarter of 2022 compared to the first quarter of 2021, primarily reflecting a lower store count. On a consolidated basis, our direct-to-consumer sales represented approximately 65% of total net sales for the first quarter of 2022. Our casual, athletic and sport footwear categories continue to resonate with consumers and demand for the dress, occasion and wear-to-work product categories continues to improve with the rebound in 26
Table of Contents
social events and celebrations and the return-to-office trending higher. During the first quarter of 2022, we remained focused on maximizing the vertical opportunity between the Famous Footwear and Brand Portfolio segments, with LifeStride,Dr. Scholl's and Blowfish Malibu representing three of our top 15 best-selling brands during the quarter.
Gross Profit
Gross profit increased$52.1 million , or 19.0%, to$327.0 million for the first quarter of 2022, compared to$274.9 million for the first quarter of 2021, reflecting higher net sales and a higher gross profit rate. As a percentage of net sales, gross profit increased to 44.5% for the first quarter of 2022, compared to 43.0% for the first quarter of 2021, as strong consumer demand enabled more full-price selling and minimal promotional activity. The greater sales mix of higher margin brands and product categories within our Brand Portfolio segment also contributed to the gross margin improvement.
We classify certain warehousing, distribution, sourcing and other inventory procurement costs in selling and administrative expenses. Accordingly, our gross profit and selling and administrative expense rates, as a percentage of net sales, may not be comparable to other companies.
Selling and Administrative Expenses
Selling and administrative expenses increased$17.3 million , or 7.1%, to$260.8 million for the first quarter of 2022, compared to$243.5 million for the first quarter of 2021. The increase primarily reflects higher salary and benefits expenses and cash and stock-based incentive compensation plan expenses driven by our strong financial results in the quarter as well as our expectations for the full year. Our marketing expenses also increased as a result of tailoring our e-commerce marketing to the individual consumer in an effort to drive repeat purchases. As a percentage of net sales, selling and administrative expenses decreased to 35.5% for the first quarter of 2022, from 38.1% for the first quarter of 2021, reflecting better leveraging of expenses over higher net sales.
Restructuring and Other Special Charges, Net
We incurred restructuring and other special charges of$13.5 million ($11.9 million on an after-tax basis, or$0.31 per diluted share) during the first quarter of 2021, reflecting expenses associated with the strategic realignment of the Naturalizer retail store operations. Refer to Note 5 to the condensed consolidated financial statements for further discussion of these charges.
Operating Earnings
Operating earnings increased$48.3 million to$66.2 million for the first quarter of 2022, compared to$17.9 million for the first quarter of 2021, primarily reflecting higher net sales and gross profit. As a percentage of net sales, operating earnings were 9.0% for the first quarter of 2022, compared to 2.8% for the first quarter of 2021.
Interest Expense, Net
Interest expense, net decreased$9.5 million , or 80.5%, to$2.3 million for the first quarter of 2022, compared to$11.8 million for the first quarter of 2021, primarily due to the non-recurrence of the$6.4 million fair value adjustment to the Blowfish Malibu mandatory purchase obligation in the first quarter of 2021.
The purchase obligation was settled for
In
addition, we redeemed our$200 million aggregate principal of senior notes in the second half of 2021. By retiring our senior notes, we shifted our higher-rate debt to the lower-rate borrowings under our revolving credit agreement, which reduced our interest expense by approximately$3.1 million compared to the first quarter of 2021. These decreases were partially offset by an increase in interest expense attributable to higher average borrowings under our revolving credit agreement.
Other Income, Net
Other income, net decreased
Refer to Note 13 of the condensed consolidated financial statements for further detail regarding the components of net periodic benefit income.
Income Tax Provision
Our effective tax rate can vary considerably from period to period, depending on a number of factors. Our consolidated effective tax rate was 25.7% for the first quarter of 2022, compared to 35.5% for the first quarter of 2021. The higher effective tax rate for the first quarter of 2021 primarily reflects the non-deductibility of losses at our Canadian division, which were driven by exit-related costs associated with Naturalizer retail stores. This impact on the tax rate was partially offset by discrete tax benefits totaling$1.2 million in the first quarter of 2021. 27 Table of Contents
Net Earnings Attributable to
Net earnings attributable to
FAMOUS FOOTWEAR
Thirteen Weeks Ended
April 30, 2022 May 1, 2021
% of % of($ millions, except sales per square foot)Net Sales
Net Sales Net sales$ 384.5 100.0 %$ 398.1 100.0 % Cost of goods sold 195.3 50.8 % 218.3 54.8 % Gross profit 189.2 49.2 %$ 179.8 45.2 %
Selling and administrative expenses 139.5 36.3 %
131.9 33.2 % Operating earnings$ 49.7 12.9 %$ 47.9 12.0 % Key Metrics Same-store sales % change (4.0) % 3.3 % Same-store sales $ change$ (15.6) $ 6.2 Sales change from new and closed stores, net$ 2.0 $
200.2
Impact of changes in Canadian exchange rate on sales$ (0.0) $
0.4
Sales per square foot, excluding e-commerce (thirteen weeks ended)$ 57 $
55
Sales per square foot, excluding e-commerce (trailing twelve months)$ 251 $
193
Square footage (thousand sq. ft.) 5,870
6,043 Stores opened - 4 Stores closed 7 7 Ending stores 887 913 Net Sales Net sales of$384.5 million in the first quarter of 2022 decreased$13.6 million , or 3.4%, compared to the first quarter of 2021, primarily reflecting a lower store count. Consumer demand remained strong and the sales momentum from 2021 continued into 2022, despite the impact of lower government stimulus in the current period. Athletics and casual continue to be our top selling categories while the Caleres brands of LifeStride,Dr. Scholl's and Blowfish Malibu were all in our top 15 best-selling brands. During the first quarter of 2022, we closed seven stores, resulting in 887 stores and total square footage of 5.9 million at the end of the first quarter of 2022, compared to 913 stores and total square footage of 6.0 million at the end of the first quarter of 2021. Sales to members of our customer loyalty program, Famously You Rewards ("Rewards"), continue to account for a majority of the segment's sales, with approximately 79% of our net sales made to program members in the first quarter of 2022, compared to 81% in the first quarter of 2021.
Gross Profit
Gross profit increased$9.4 million , or 5.2%, to$189.2 million for the first quarter of 2022, compared to$179.8 million for the first quarter of 2021, driven by a higher gross profit rate. As a percentage of net sales, our gross profit increased to 49.2% for the first quarter of 2022, compared to 45.2% for the first quarter of 2021. Our higher gross profit margin in the first quarter of 2022 was primarily due to more full price selling and a reduction in promotional activity driven by strong demand for our product assortment and disciplined inventory management.
Selling and Administrative Expenses
Selling and administrative expenses increased$7.6 million , or 5.8%, to$139.5 million for the first quarter of 2022, compared to$131.9 million for the first quarter of 2021. The increase was primarily due to higher salaries and benefits expenses and higher logistics costs. As a percentage of net sales, selling and administrative expenses increased to 36.3% for the first quarter of 2022, compared to 33.2% for the first quarter of 2021.
Operating Earnings
Operating earnings increased$1.8 million to$49.7 million for the first quarter of 2022, compared to$47.9 million for the first quarter of 2021. As a percentage of net sales, operating earnings were 12.9% for the first quarter of 2022, compared to 12.0% for the first quarter of 2021. 28 Table of Contents BRAND PORTFOLIO Thirteen Weeks Ended April 30, 2022 May 1, 2021 % of % of ($ millions, except sales per square foot) Net Sales Net Sales Net sales$ 365.7 100.0 %$ 250.3 100.0 % Cost of goods sold 226.4 61.9 % 156.3 62.4 % Gross profit 139.3 38.1 % 94.0 37.6 % Selling and administrative expenses 98.0 26.8 % 83.3 33.3 % Restructuring and other special charges, net - - % 13.5 5.4 % Operating earnings (loss)$ 41.3 11.3 %$ (2.8) (1.1) % Key Metrics
Direct-to-consumer (% of net sales) (1) 26 % 31 % Change in wholesale net sales ($)$ 104.2 $
14.9
Unfilled order position at end of period$ 401.5 $ 264.5 Same-store sales % change 66.0 % 5.1 % Same-store sales $ change$ 17.9 $ 1.3 Sales change from new and closed stores, net$ (6.7) $
16.5
Impact of changes in Canadian exchange rate on retail sales$ (0.0) $
0.4
Sales per square foot, excluding e-commerce (thirteen weeks ended)$ 269 $
188
Sales per square foot, excluding e-commerce (trailing twelve months)$ 987 $
336
Square footage (thousands sq. ft.) 108
138 Stores opened 1 1 Stores closed 4 76 Ending stores 83 95
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
Our Brand Portfolio segment achieved record-setting first quarter net sales of
$365.7 million in the first quarter of 2022, driven by our strong product
design, diverse and targeted assortments, and our strategic approach to
inventory management. While the net sales increase of $115.4 million , or 46.1%,
compared to the first quarter of 2021, was broad-based across all of our brands,
our Sam Edelman , LifeStride, Naturalizer, Blowfish Malibu, Allen Edmonds and
Vionic brands were the most significant contributors. We experienced strong
growth in the dress, occasion and wear-to-work footwear categories for many of
our brands, including Sam Edelman , Naturalizer, LifeStride and Allen Edmonds.
Our sport-inspired and casual footwear categories also resonated strongly with
our customers during the quarter. In addition, our net sales benefited as our
retail partners sought to replenish their inventories during the first quarter
of 2022. The incremental sales from inventory replenishment is expected to
moderate as we move through fiscal 2022 as our partners return to more normal
buying and replenishment patterns. During the first quarter of 2022, we closed
four stores and opened one store, resulting in a total of 83 stores and total
square footage of 0.1 million at the end of the first quarter of 2022, compared
to 95 stores and total square footage of 0.1 million at the end of the first
quarter of 2021.
In the first quarter of 2021, we permanently closed the remaining 73 Naturalizer
stores in North America that were scheduled for closure as part of our strategic
realignment of the Naturalizer retail store operations. We continue to focus on
growing the brand's e-commerce business through naturalizer.com, our retail
partners and their websites, and the two flagship stores in the United States .
On a trailing twelve-month basis, sales per square foot, excluding e-commerce
sales, increased to $987 for the twelve months ended April 30, 2022 , compared to
$336 for the twelve months ended May 1, 2021 . With the closure of nearly all of
our Naturalizer retail stores, the majority of our Brand Portfolio segment
stores are for our Allen Edmonds brand, which have higher retail price points
than the Naturalizer brand.
Our unfilled order position for our wholesale sales increased $137.0 million , or
51.8 %, to $401.5 million at April 30, 2022 , compared to $264.5 million at May
1, 2021 . The increase in our backlog order levels primarily reflects higher
consumer demand.
Gross Profit
Gross profit increased
29
Table of Contents
of 2022, compared to 37.6% for the first quarter of 2021. The increase in our gross profit margin was driven by an improved mix of higher margin brands and product categories and a less promotional retail environment. While we have experienced inflationary pressures related to product costs and inbound freight through the first quarter, we have been able to successfully offset these impacts through price increases. We anticipate the inflationary pressures to continue throughout 2022 and will continue to focus on mitigating the impact of these costs.
Selling and Administrative Expenses
Selling and administrative expenses increased$14.7 million , or 17.5%, to$98.0 million for the first quarter of 2022, compared to$83.3 million for the first quarter of 2021. The increase was driven by higher salaries and benefits expenses and higher marketing expenses. As a percentage of net sales, selling and administrative expenses decreased to 26.8% for the first quarter of 2022, compared to 33.3% for the first quarter of 2021, reflecting better leveraging of expenses over a higher net sales base.
Restructuring and Other Special Charges, Net
We incurred restructuring and other special charges of$13.5 million during the first quarter of 2021 for expenses associated with the strategic realignment of our Naturalizer retail store operations. These costs primarily represented lease termination and other store closure costs, including employee severance, for the 73 stores that were closed during the first quarter of 2021. Refer to Note 5 to the condensed consolidated financial statements for additional information related to these charges. There were no corresponding charges during the first quarter of 2022.
Operating Earnings (Loss)
Operating earnings increased to$41.3 million for the first quarter of 2022, compared to an operating loss of$2.8 million for the first quarter of 2021, as a result of the factors described above. As a percentage of net sales, operating earnings were 11.3% for the first quarter of 2022, compared to an operating loss of 1.1% in the first quarter of 2021. ELIMINATIONS AND OTHER Thirteen Weeks Ended April 30, 2022 May 1, 2021 % of % of ($ millions) Net Sales Net Sales Net sales$ (15.1) 100.0 %$ (9.8) 100.0 % Cost of goods sold (13.6) 89.8 % (10.9) 110.9 % Gross profit (1.5) 10.2 % 1.1 (10.9) %
Selling and administrative expenses 23.3 (154.0) % 28.3
(289.0) %
Operating loss $ (24.8) 164.2 % $ (27.2) 278.1 %
The Eliminations and Other category includes the elimination of intersegment
sales and profit, unallocated corporate administrative expenses, and other costs
and recoveries.
The net sales elimination of $15.1 million for the first quarter of 2022 is $5.3
million , or 54.8%, higher than the first quarter of 2021, reflecting an increase
in product sold from our Brand Portfolio segment to Famous Footwear.
Selling and administrative expenses decreased $5.0 million , to $23.3 million in
the first quarter of 2022, compared to $28.3 million for the first quarter of
2021. The decrease primarily reflects lower expenses for certain employee
benefits and lower expenses associated with our cash-based director compensation
plans, reflecting a decrease in our stock price during the first quarter of
2022, compared to an increase in the first quarter of 2021.
LIQUIDITY AND CAPITAL RESOURCES
Borrowings
($ millions) April 30, 2022 May 1, 2021 (1) January 29, 2022 Borrowings under revolving credit agreement $ 305.0$ 200.0 $ 290.0 Long-term debt - 199.0 - Total debt $ 305.0$ 399.0 $ 290.0 30 Table of Contents
As presented here, total debt as of
mandatory purchase obligation, which was valued at
as further discussed in Note 14 to the condensed consolidated financial
statements.
Total debt obligations of$305.0 million atApril 30, 2022 decreased$94.0 million , from$399.0 million atMay 1, 2021 , and increased$15.0 million , from$290.0 million atJanuary 29, 2022 . The decrease fromMay 1, 2021 reflects continued progress toward reducing our debt levels using our strong cash generation over the last twelve months. InAugust 2021 , we redeemed$100.0 million aggregate principal amount 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 the revolving credit facility, which is expected to result in net interest expense savings on an ongoing basis.
The increase in total debt from
Net interest expense for the first quarter of 2022 decreased$9.5 million to$2.3 million , compared to$11.8 million for the first quarter of 2021. The decrease is primarily attributable to the non-recurrence of the$6.4 million fair value adjustment to the Blowfish Malibu mandatory purchase obligation recorded in the first quarter of 2021. The Blowfish Malibu mandatory purchase obligation of$54.6 million was paid onNovember 4, 2021 , as further discussed in Note 5 and Note 14 to the condensed consolidated financial statements. In addition, as discussed above, the redemption of all outstanding senior notes in 2021 also contributed to the decrease in interest expense in the first quarter of 2022. These decreases were partially offset by higher average borrowings under our revolving credit agreement.
Credit Agreement
As further discussed in Note 10 to the condensed consolidated financial statements, the Company maintains a revolving credit facility for working capital needs. 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, extended the maturity date of the credit facility fromJanuary 18, 2024 , toOctober 5, 2026 and decreased the amount available under the revolving credit facility by$100.0 million to an aggregate amount of up to$500.0 million , subject to borrowing base restrictions, and may be further increased by up to$250.0 million . Interest on the borrowings is at variable rates based on the London Interbank Offered Rate ("LIBOR") (with a floor of 0.0%), or the prime rate (as defined in the Credit Agreement), plus a spread. The Credit Agreement decreased the spread applied to the LIBOR or prime rate by a total of 75 basis points. AtApril 30, 2022 , we had$305.0 million in borrowings and$10.8 million in letters of credit outstanding under the Credit Agreement. Total borrowing availability was$184.2 million atApril 30, 2022 . We were in compliance with all covenants and restrictions under the Credit Agreement as ofApril 30, 2022 .
Senior Notes
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 of 6.25%, which was payable onFebruary 15 andAugust 15 of each year. OnAugust 16, 2021 , we redeemed$100.0 million of the Senior Notes at 100.0%. In addition, onJanuary 3, 2022 , we redeemed the remaining$100.0 million of Senior Notes at 100.0%.
Refer to further discussion regarding the Senior Notes in Note 10 to the condensed consolidated financial statements.
© Edgar Online, source
