OVERVIEW
We delivered strong financial and operational results for the second quarter, with record net sales and earnings. We leveraged our lead brands to capitalize on robust demand in trending footwear categories to meet the needs of our core consumer and drive strong gross profit and operating margins. We also strategically augmented our inventory levels in advance of the fall buying and back-to-school seasons. We continued to execute on our capital return program and repurchased 1.1 million shares of our common stock during the second quarter of 2022. Financial Highlights
Following is a summary of the financial highlights for the second quarter of 2022:
Consolidated net sales increased
the second quarter of 2022, compared to
of 2021. Our Famous Footwear segment continued its strong performance with net
? sales of
consolidated basis, our direct-to-consumer sales represented approximately 72%
of consolidated net sales for the second quarter of 2022, compared to 79% in
the second quarter of 2021.
Consolidated gross profit increased
in the second quarter of 2022, compared to
? of 2021. Our gross profit margin decreased to 45.6% in the second quarter of
2022, compared to 47.7% in the second quarter of 2021, reflecting a higher mix
of wholesale versus retail sales combined with higher markdowns and an increase
in freight costs associated with e-commerce sales.
Consolidated operating earnings increased
? second quarter of 2022, compared to
2021.
Consolidated net earnings attributable to
?
million, or
The following items should be considered in evaluating the comparability of our second quarter results in 2022 and 2021:
Inflationary Pressures - We continued to experience inflationary pressures on
product costs and inbound freight during the second quarter of 2022. The price
increases we began implementing in the second half of 2021 have mitigated the
majority of these inflationary pressures related to product costs. We believe
? our ability to limit promotional activity and align inventory to demand will
continue to mitigate the impact of these inflationary pressures on our
financial results. However, ongoing general inflation continues to impact
consumer sentiment and may result in lower consumer spending in the second half
of 2022 and beyond.
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 second 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 second quarter of 2022. The purchase obligation
was settled for
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- 27 Table of Contents 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
Even with ongoing inflationary pressures and uncertainties around consumer sentiment, we believe we are well-positioned to capitalize on opportunities across a broad spectrum of consumer segments by leveraging our diverse portfolio of brands. We will continue to utilize our core competencies in brand building, merchandising, marketing and logistics to further our strategic priorities and execute on our capital return program in an effort to enhance value for our shareholders.
Following are the consolidated results and the results by segment:
CONSOLIDATED RESULTS Thirteen Weeks Ended Twenty-Six Weeks Ended July 30, 2022 July 31, 2021 July 30, 2022 July 31, 2021 % of % of % of % of ($ millions) Net Sales Net Sales Net Sales Net Sales Net sales$ 738.3 100.0 %$ 675.5 100.0 %$ 1,473.4 100.0 %$ 1,314.2 100.0 % Cost of goods sold 401.5 54.4 % 353.2 52.3 % 809.6 54.9 % 717.0 54.6 % Gross profit 336.8
45.6 % 322.3 47.7 % 663.8 45.1 % 597.2 45.4 % Selling and administrative expenses
268.4
36.3 % 259.5 38.4 % 529.2 36.0 % 503.0 38.3 % Restructuring and other special charges, net
- - % - - % - - % 13.5 1.0 % Operating earnings 68.4 9.3 % 62.8 9.3 % 134.6 9.1 % 80.7 6.1 % Interest expense, net (2.5) (0.3) % (12.0) (1.7) % (4.8) (0.3) % (23.8) (1.8) % Other income, net 3.2 0.4 % 3.9 0.5 % 6.6 0.5 % 7.7 0.6 % Earnings before income taxes 69.1 9.4 % 54.7 8.1 % 136.4 9.3 % 64.6 4.9 % Income tax provision (17.5) (2.4) % (16.5) (2.5) % (34.9) (2.4) % (20.1) (1.5) % Net earnings 51.6
7.0 % 38.2 5.6 % 101.5 6.9 % 44.5 3.4 % Net earnings (loss) attributable to noncontrolling interests 0.4
0.1 % 0.8 0.1 % (0.2) (0.0) % 1.0 0.1 %
Net earnings attributable to
$ 51.2 6.9 %$ 37.4 5.5 %$ 101.7 6.9 %$ 43.5 3.3 % Net Sales
Net sales increased
Net
sales for our Brand Portfolio segment increased$85.1 million , or 35.6% during the second quarter of 2022, compared to the second quarter of 2021, led by strong performances by our lead brands. Net sales for our Famous Footwear segment remained strong, but decreased$17.3 million , or 3.8%, in the second quarter of 2022 compared to the second quarter of 2021, primarily reflecting a lower store count and a slower start to the back-to-school season. On a consolidated basis, our direct-to-consumer sales represented approximately 72% of total net sales for the second quarter of 2022. We continued to experience robust growth in our dress, casual and occasion-based styles during the quarter. While demand for our athletics footwear slowed during the quarter, it continues to be one of our top-selling categories. We remain focused on maximizing the vertical opportunity between the Famous Footwear and Brand Portfolio segments, withDr. Scholl's , LifeStride and Blowfish Malibu representing three of Famous Footwear's top 15 best-selling footwear brands during the quarter. Net sales increased$159.2 million , or 12.1%, to$1,473.4 million for the six months endedJuly 30, 2022 , compared to$1,314.2 million for the six months endedJuly 31, 2021 . Net sales for our Brand Portfolio segment increased$200.5 million , or 41.0% during the first six months of 2022, compared to the first six months of 2021. Our Famous Footwear segment's sales momentum continued.
However, net sales for Famous Footwear decreased
28 Table of Contents
reflecting a lower store count and a slower start to the back-to-school season.
On a consolidated basis, our direct-to-consumer sales represented approximately
69% of total net sales for the six months ended
Gross Profit
Gross profit increased$14.5 million , or 4.5%, to$336.8 million for the second quarter of 2022, compared to$322.3 million for the second quarter of 2021, reflecting higher net sales. As a percentage of net sales, gross profit decreased to 45.6% for the second quarter of 2022, compared to 47.7% for the second quarter of 2021, reflecting a higher mix of wholesale versus retail sales combined with higher markdowns and an increase in freight costs associated with e-commerce sales. Gross profit increased$66.6 million , or 11.2%, to$663.8 million for the six months endedJuly 30, 2022 , compared to$597.2 million for the six months endedJuly 31, 2021 , reflecting higher net sales. As a percentage of net sales, gross profit decreased slightly to 45.1% for the first half of 2022, compared to 45.4% for the first half of 2021.
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$8.9 million , or 3.4%, to$268.4 million for the second quarter of 2022, compared to$259.5 million for the second quarter of 2021. The increase was driven by higher marketing expenses as a result of our strategic investment in consumer marketing to drive deeper connections with our consumers, and higher salary and benefits expenses, partially offset by lower expenses associated with our cash-based incentive compensation plans. In 2021, our first half financial results exceeded the targets established for our annual incentive plans, which resulted in a larger portion of the anticipated plan payouts recorded as expense in the second quarter of 2021. For 2022, anticipated plan payouts are being recognized more ratably during the year. As a percentage of net sales, selling and administrative expenses decreased to 36.4% for the second quarter of 2022, from 38.4% for the second quarter of 2021, reflecting leveraging of expenses on higher net sales. Selling and administrative expenses increased$26.2 million , or 5.2%, to$529.2 million for the six months endedJuly 30, 2022 , compared to$503.0 million for the six months endedJuly 31, 2021 . The increase primarily reflects the factors described above. As a percentage of net sales, selling and administrative expenses decreased to 36.0% for the six months endedJuly 30, 2022 , from 38.3% for the six months endedJuly 31, 2021 , reflecting leveraging of expenses on 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 six months endedJuly 31, 2021 , reflecting expenses associated with the strategic realignment of the Naturalizer retail store operations. There were no corresponding charges during the six months endedJuly 30, 2022 or the second quarter of 2021. Refer to Note 5 to the condensed consolidated financial statements for further discussion of these charges.
Operating Earnings
Operating earnings increased$5.6 million to$68.4 million for the second quarter of 2022, compared to$62.8 million for the second quarter of 2021, primarily reflecting higher net sales and gross profit. As a percentage of net sales, operating earnings were 9.3% for the second quarter of 2022, consistent with the second quarter of 2021. Operating earnings increased$53.9 million to$134.6 million for the six months endedJuly 30, 2022 , compared to$80.7 million for the six months endedJuly 31, 2021 , primarily reflecting higher net sales and gross profit. As a percentage of net sales, operating earnings were 9.1% for the six months endedJuly 30, 2022 , compared to 6.1% for the six months endedJuly 31, 2021 .
Interest Expense, Net
Interest expense, net decreased$9.5 million , or 78.4%, to$2.5 million for the second quarter of 2022, compared to$12.0 million for the second quarter of 2021, primarily due to the non-recurrence of the$7.1 million fair value adjustment to the Blowfish Malibu mandatory purchase obligation in the second quarter of 2021. The purchase obligation was settled for$54.6 million onNovember 4, 2021 . In addition, we redeemed our$200 million aggregate principal of senior notes in the second half of 2021. By retiring our senior notes, we shifted our higher-rate debt to the lower-rate borrowings under our revolving credit agreement, which reduced our interest expense by approximately$3.1 million compared to the second quarter of 2021. These decreases were partially offset by an increase in interest expense attributable to higher average borrowings under our revolving credit agreement. 29
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Interest expense, net decreased$19.0 million , or 79.4%, to$4.8 million for the six months endedJuly 30, 2022 , compared to$23.8 million for the six months endedJuly 31, 2021 , primarily due to the non-recurrence of the$13.5 million fair value adjustment to the Blowfish Malibu mandatory purchase obligation in the six months endedJuly 31, 2021 . In addition, after retiring our senior notes, the shift of our higher-rate debt to the lower-rate borrowings under our revolving credit agreement reduced our interest expense by approximately$6.3 million compared to the six months endedJuly 31, 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
Other income, net decreased$1.1 million , or 13.6%, to$6.6 million for the six months endedJuly 30, 2022 , compared to$7.7 million for the six months endedJuly 31, 2021 , which reflects a reduction of certain components of net periodic benefit income. Refer to Note 13 of the condensed consolidated financial statements for further detail regarding the components of net periodic benefit income. Income Tax Provision Our effective tax rate can vary considerably from period to period, depending on a number of factors. Our consolidated effective tax rate was 25.3% for the second quarter of 2022, compared to 30.3% for the second quarter of 2021. The higher effective tax rate for the second quarter of 2021 was driven by discrete tax adjustments of$2.9 million , inclusive of$3.3 million of incremental valuation allowances for our deferred tax assets, as we were in a full valuation allowance position for federal, state and certain international jurisdictions. Our consolidated effective tax rate was 25.5% for the six months endedJuly 30, 2022 , compared to 31.1% for the six months endedJuly 31, 2021 . The higher effective tax rate for the first half of 2021 primarily reflects the incremental valuation allowances recorded in the second quarter, as described above, and the non-deductibility of losses at our Canadian division, which were driven by exit-related costs associated with our Naturalizer retail stores in the first quarter of 2021.
Net Earnings Attributable to
Net earnings attributable toCaleres, Inc. were$51.2 million and$101.7 million for the second quarter and six months endedJuly 30, 2022 , respectively, compared to net earnings of$37.4 million and$43.5 million for the second quarter and six months endedJuly 31, 2021 , respectively, as a result of the factors described above. FAMOUS FOOTWEAR Thirteen Weeks Ended Twenty-Six Weeks Ended July 30, 2022 July 31, 2021 July 30, 2022 July 31, 2021 % of % of % of % of
($ millions, except sales per square foot)Net Sales
Net Sales Net Sales Net Sales Net sales$ 436.4 100.0 %$ 453.6 100.0 %$ 820.9 100.0 %$ 851.8 100.0 % Cost of goods sold 222.8 51.1 % 226.2 49.9 % 418.1 50.9 % 444.6 52.2 % Gross profit 213.6 48.9 % $
227.4 50.1 % 402.8 49.1 %
151.1 34.6 % 141.9 31.3 % 290.6 35.4 % 273.8 32.1 % Operating earnings$ 62.5 14.3 %$ 85.5 18.8 %$ 112.2 13.7 %$ 133.4 15.7 % Key Metrics
Same-store sales % change (3.1) % (1.1) % (3.5) % 0.5 % Same-store sales $ change$ (13.5) $ (3.6) $ (29.1) $ 2.6 Sales change from new and closed stores, net$ (3.3) $ 122.6 $ (1.4) $ 322.8 Impact of changes in Canadian exchange rate on sales$ (0.4) $ 0.7 $ (0.4) $ 1.2 Sales per square foot, excluding e-commerce (thirteen and twenty-six weeks ended)$ 66 $ 67 $ 123 $ 122 Sales per square foot, excluding e-commerce (trailing twelve months)$ 250 $ 219 $ 250 $ 219 Square footage (thousand sq. ft.) 5,832
6,022 5,832 6,022 Stores opened - 4 - 8 Stores closed 6 5 13 12 Ending stores 881 912 881 912 30 Table of Contents Net Sales Net sales of$436.4 million in the second quarter of 2022 decreased$17.3 million , or 3.8%, compared to the second quarter of 2021. The elevated consumer demand we experienced in 2021 and the first quarter of 2022 continued for much of the second quarter of 2022. However, we began to see consumer demand, store and e-commerce traffic and conversion moderate somewhat later in the quarter, reflecting cautious consumer sentiment due to inflation and other economic concerns. That trend has continued into the third quarter of 2022. We experienced improvement in our non-athletic footwear categories, and while demand slowed for our athletics footwear, it continues to be one of our top-selling categories. During the second quarter of 2022, we closed six stores, resulting in 881 stores and total square footage of 5.8 million at the end of the second quarter of 2022, compared to 912 stores and total square footage of 6.0 million at the end of the second 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 77% of our net sales made to program members in the second quarter of 2022, compared to 78% in the second quarter of 2021. Net sales of$820.9 million in the six months endedJuly 30, 2022 decreased$30.9 million , or 3.6%, compared to the six months endedJuly 31, 2021 , primarily due to the factors described above. Athletics and casual continue to be our top-selling categories. We remain 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 Famous Footwear's top 15 best-selling footwear brands for the six months ended July 30, 2022. During the first half of 2022, we closed 13 stores.
Gross Profit
Gross profit decreased
As
a percentage of net sales, our gross profit decreased to 48.9% for the second quarter of 2022, compared to 50.1% for the second quarter of 2021. Although the gross profit rate for the second quarter of 2022 was slightly lower than the comparable period of 2021, it remained strong with limited promotional activity for much of the second quarter of 2022. Gross profit decreased$4.4 million , or 1.1%, to$402.8 million for the six months endedJuly 30, 2022 , compared to$407.2 million for the six months endedJuly 31, 2021 , primarily due to the decrease in net sales. As a percentage of net sales, our gross profit increased to 49.1% for the six months endedJuly 30, 2022 , compared to 47.8% for the six months endedJuly 31, 2021 . Our higher gross profit for the first half of 2022 was primarily due to less promotional activity.
Selling and Administrative Expenses
Selling and administrative expenses increased$9.2 million , or 6.5%, to$151.1 million for the second quarter of 2022, compared to$141.9 million for the second quarter of 2021. The increase was driven by higher advertising expense primarily associated with our back-to-school marketing campaign and higher salary and benefits expenses due in part to wage inflation. As a percentage of net sales, selling and administrative expenses increased to 34.6% for the second quarter of 2022, compared to 31.3% for the second quarter of 2021. Selling and administrative expenses increased$16.8 million , or 6.1%, to$290.6 million for the six months endedJuly 30, 2022 , compared to$273.8 million for the six months endedJuly 31, 2021 . The increase was primarily due to higher salary and benefits expenses, higher logistics costs and higher advertising expense associated with our strategic investment in consumer marketing. As a percentage of net sales, selling and administrative expenses increased to 35.4% for the six months endedJuly 30, 2022 , compared to 32.1% for the six months endedJuly 31, 2021 . Operating Earnings
Operating earnings decreased$23.0 million to$62.5 million for the second quarter of 2022, compared to$85.5 million for the second quarter of 2021. As a percentage of net sales, operating earnings were 14.3% for the second quarter of 2022, compared to 18.8% for the second quarter of 2021. Operating earnings decreased$21.2 million to$112.2 million for the six months endedJuly 30, 2022 , compared to$133.4 million for the six months endedJuly 31, 2021 . As a percentage of net sales, operating earnings were 13.7% for the six months endedJuly 30, 2022 , compared to 15.7% for the six months endedJuly 31, 2021 . 31 Table of Contents BRAND PORTFOLIO Thirteen Weeks Ended Twenty-Six Weeks Ended July 30, 2022 July 31, 2021 July 30, 2022 July 31, 2021 % of % of % of % of ($ millions, except sales per square foot) Net Sales Net Sales Net Sales Net Sales Net sales$ 324.1 100.0 %$ 239.0 100.0 %$ 689.8 100.0 %$ 489.3 100.0 % Cost of goods sold 200.0 61.7 % 144.1 60.3 % 426.4 61.8 % 300.4 61.4 % Gross profit 124.1 38.3 % 94.9
39.7 % 263.4 38.2 % 188.9 38.6 % Selling and administrative expenses
94.7 29.2 % 78.3
32.8 % 192.6 27.9 % 161.7 33.0 % Restructuring and other special charges, net
- - % - - % - - % 13.5 2.8 % Operating earnings$ 29.4 9.1 %$ 16.6
6.9 %
Key Metrics Direct-to-consumer (% of net sales) (1) 30 % 34 % 28 % 33 % Change in wholesale net sales ($)$ 80.1 $ 34.9 $ 184.3 $ 49.7 Unfilled order position at end of period$ 360.4 $ 328.7 Same-store sales % change 23.5 % 16.3 % 43.8 % 10.2 % Same-store sales $ change$ 7.0 $ 3.4 $ 24.9 $ 4.7 Sales change from new and closed stores, net$ (2.1) $ 17.0 $ (8.8) $ 33.5 Impact of changes in Canadian exchange rate on retail sales$ 0.1 $ 0.1 $ 0.1 $ 0.5 Sales per square foot, excluding e-commerce (thirteen and twenty-six weeks ended)$ 276 $ 244 $ 545 $ 433 Sales per square foot, excluding e-commerce (trailing twelve months)$ 1,018 $ 561 $ 1,018 $ 561 Square footage (thousands sq. ft.) 108 125 108 125 Stores opened 3 1 4 2 Stores closed 1 9 5 85 Ending stores 85 87 85 87
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 of$324.1 million in the second quarter of 2022 increased$85.1 million , or 35.6%, compared to the second quarter of 2021 driven by strong growth in our wholesale business. The net sales increase was broad-based across nearly all of our brands, with ourSam Edelman , Naturalizer and LifeStride brands being the most significant contributors. We continued to experience robust growth in our dress, casual and occasion-based styles for many of our brands, includingSam Edelman and LifeStride, and the sport-inspired category also continued to resonate with our customers. During the second quarter of 2022, we closed one store and opened three stores, resulting in a total of 85 stores and total square footage of 0.1 million at the end of the second quarter of 2022, compared to 87 stores and total square footage of 0.1 million at the end of the second quarter of 2021. Net sales increased$200.5 million , or 41.0%, to$689.8 million for the six months endedJuly 30, 2022 , compared to$489.3 million for the six months endedJuly 31, 2021 , reflecting strong sales growth from all of our brands, with ourSam Edelman , Naturalizer, LifeStride,Franco Sarto and Allen Edmonds brands being the most significant contributors. In the first quarter of 2021, we completed the strategic realignment of our Naturalizer retail business and permanently closed the remaining 73 Naturalizer stores inNorth America that were scheduled for closure. We have continued to focus on growing the brand's e-commerce business through naturalizer.com, our retail partners and their websites, and the two ongoing flagship stores inthe United States . On a trailing twelve-month basis, sales per square foot, excluding e-commerce sales, increased to$1,018 for the twelve months endedJuly 30, 2022 , compared to$561 for the twelve months endedJuly 31, 2021 . With the closure of nearly all of our Naturalizer retail stores, the majority of the retail stores in our Brand Portfolio segment are for our Allen Edmonds brand, which have higher retail price points than the Naturalizer brand. 32
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Our unfilled order position for our wholesale sales increased$31.7 million , or 9.6 %, to$360.4 million atJuly 30, 2022 , compared to$328.7 million atJuly 31, 2021 . The increase in our backlog order levels primarily reflects higher consumer demand compared to last year.
Gross Profit
Gross profit increased$29.2 million , or 30.8%, to$124.1 million for the second quarter of 2022, compared to$94.9 million for the second quarter of 2021, primarily reflecting higher net sales. As a percentage of net sales, our gross profit decreased to 38.3% for the second quarter of 2022, compared to 39.7% for the second quarter of 2021, primarily reflecting a higher mix of wholesale versus retail sales. Gross profit increased$74.5 million , or 39.5%, to$263.4 million for the six months endedJuly 30, 2022 , compared to$188.9 million for the six months endedJuly 31, 2021 , reflecting higher net sales. As a percentage of net sales, our gross profit decreased slightly to 38.2% for the six months endedJuly 30, 2022 , compared to 38.6% for the six months endedJuly 31, 2021 . While we have experienced inflationary pressures related to product costs and inbound freight through the six months endedJuly 30, 2022 , we have been able to successfully offset the majority of these impacts through price increases. We anticipate inflationary pressures to continue throughout 2022 and will continue to focus on mitigating the impact.
Selling and Administrative Expenses
Selling and administrative expenses increased$16.4 million , or 20.9%, to$94.7 million for the second quarter of 2022, compared to$78.3 million for the second quarter of 2021. The increase was primarily due to higher variable salary expenses and wage inflation, higher marketing expenses and higher warehouse and logistics costs. As a percentage of net sales, selling and administrative expenses decreased to 29.2% for the second quarter of 2022, compared to 32.8% for the second quarter of 2021, reflecting better leveraging of expenses over a higher net sales base. Selling and administrative expenses increased$30.9 million , or 19.2%, to$192.6 million for the six months endedJuly 30, 2022 , compared to$161.7 million for the six months endedJuly 31, 2021 . The increase was driven by higher variable salary expenses and higher marketing expenses. As a percentage of net sales, selling and administrative expenses decreased to 27.9% for the six months endedJuly 30, 2022 , compared to 33.0% for the six months endedJuly 31, 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 six months endedJuly 31, 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 second quarter of 2021 or the six months ended
Operating Earnings
Operating earnings increased to$29.4 million for the second quarter of 2022, compared to$16.6 million for the second quarter of 2021, as a result of the factors described above. As a percentage of net sales, operating earnings were 9.1% for the second quarter of 2022, compared to 6.9% in the second quarter of 2021. Operating earnings increased to$70.8 million for the six months endedJuly 30, 2022 , compared to$13.7 million for the six months endedJuly 31, 2021 , as a result of the factors described above. As a percentage of net sales, operating earnings were 10.3% for the six months endedJuly 30, 2022 , compared to 2.8% in the six months endedJuly 31, 2021 .
ELIMINATIONS AND OTHER
Thirteen Weeks Ended Twenty-Six Weeks Ended July 30, 2022 July 31, 2021 July 30, 2022 July 31, 2021 % of % of % of % of ($ millions) Net Sales Net Sales Net Sales Net Sales Net sales$ (22.1) 100.0 %$ (17.1) 100.0 %$ (37.2) 100.0 %$ (26.9) 100.0 % Cost of goods sold (21.2) 95.8 % (17.1) 100.0 % (34.7) 93.4 % (28.0) 103.9 % Gross profit (0.9) 4.2 % - - % (2.5) 6.6 % 1.1 (3.9) % Selling and administrative expenses 22.6 (102.0) % 39.3 (229.2) % 45.8 (123.2) % 67.5 (250.9) % Operating loss$ (23.5) 106.2 %$ (39.3) 229.2 %$ (48.3) 129.8 %$ (66.4) 247.0 % 33 Table of Contents 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
The
increases for both periods reflect an increase in product sold from our Brand Portfolio segment to Famous Footwear, as we continue to focus on maximizing the vertical opportunity between our segments. Selling and administrative expenses decreased$16.7 million , to$22.6 million in the second quarter of 2022, compared to$39.3 million for the second quarter of 2021. The decrease primarily reflects lower expenses for our cash-based incentive compensation plans and certain other employee benefits. In 2021, our first half financial results exceeded the targets established for our annual incentive plans, which resulted in a larger portion of the anticipated plan payouts recorded as expense in the second quarter of 2021. For 2022, anticipated incentive plan payouts are being recognized more ratably during the year. Selling and administrative expenses decreased$21.6 million , to$45.8 million for the six months endedJuly 30, 2022 , compared to$67.5 million for the six months endedJuly 31, 2021 . The decrease primarily reflects lower expenses for our cash-based incentive compensation plans and certain other employee benefits and lower expenses associated with our cash-based director compensation plans reflecting lower growth in our stock price during the six months endedJuly 30, 2022 compared to the six months endedJuly 31, 2021 .
LIQUIDITY AND CAPITAL RESOURCES
Borrowings
($ millions) July 30, 2022 July
31, 2021 (1)
290.0 Current portion of long-term debt -
99.5 - Long-term debt - 99.5 - Total debt $ 348.5 $ 299.0 $ 290.0
As presented here, total debt as of
Malibu mandatory purchase obligation, which was valued at
as further discussed in Note 14 to the condensed consolidated financial
statements.
Total debt obligations of$348.5 million atJuly 30, 2022 increased$49.5 million , from$299.0 million atJuly 31, 2021 , and increased$58.5 million , from$290.0 million atJanuary 29, 2022 . The increase in total debt fromJuly 31, 2021 andJanuary 29, 2022 is due primarily to higher inventory purchases during the quarter to prepare for our back-to-school selling season, as well as$41.7 million of repurchases of our common stock. 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 has resulted in significant interest expense savings for the Company. While this reduction in interest expense is expected to continue, the interest on our revolving credit facility is based on a variable interest rate, which may result in higher interest expense in a rising interest rate environment. Net interest expense for the second quarter of 2022 decreased$9.5 million to$2.5 million , compared to$12.0 million for the second quarter of 2021. The decrease is primarily attributable to the non-recurrence of the$7.1 million fair value adjustment to the Blowfish Malibu mandatory purchase obligation recorded in the second 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 second 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 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 34
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Agreement), plus a spread. The Credit Agreement decreased the spread applied to the LIBOR or prime rate by a total of 75 basis points. AtJuly 30, 2022 , we had$348.5 million in borrowings and$10.8 million in letters of credit outstanding under the Credit Agreement. Total borrowing availability was$140.7 million atJuly 30, 2022 . We were in compliance with all covenants and restrictions under the Credit Agreement as ofJuly 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.
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