CALERES, INC. OVERVIEW
We delivered another period of strong financial and operational results for the third quarter, with record quarterly net sales and solid earnings. Our results underscore the strength and versatility of our portfolio of brands, highlight the significant progress we've made on our enterprise-wide strategic initiatives and demonstrate the portfolio's enhanced resilience during periods of macroeconomic uncertainty. We are particularly pleased with the performance of our Brand Portfolio segment, which utilized our diverse portfolio of brands to meet the robust consumer demand and deliver year-over-year improvement in nearly all key financial metrics. During the third quarter of 2022, we also continued to execute on our capital return program and returned$24.1 million to shareholders through dividends and share repurchases.
Financial Highlights
Following is a summary of the financial highlights for the third quarter of 2022:
Consolidated net sales increased
the third 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 74%
of consolidated net sales for the third quarter of 2022, compared to 73% in the
third quarter of 2021.
Consolidated gross profit increased
? the third quarter of 2022, compared to
2021. Our gross profit margin decreased slightly to 42.6% in the third quarter
of 2022, compared to 42.8% in the third quarter of 2021.
Consolidated operating earnings decreased
? third quarter of 2022, compared to
Consolidated net earnings attributable to
?
million, or
The following items should be considered in evaluating the comparability of our third quarter results in 2022 and 2021:
Organizational changes - During the third quarter of 2022, we incurred costs of
? related to a CFO transition at our corporate headquarters, with no
corresponding costs for the third quarter of 2021. Refer to Note 5 to the
condensed consolidated financial statements for further discussion of these
charges.
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 third 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 third quarter of 2022. The purchase obligation
was settled for
Known Trends Impacting Our Business
Inflationary pressures, including higher product costs, higher parcel freight costs, wage inflation and the rising interest rate environment, continued to impact our financial results during the third quarter of 2022. The price increases we began implementing in the second half of 2021 have mitigated the majority of the inflationary pressures related to product costs. Macroeconomic factors, such as inflationary pressures and volatility in interest rates, also impact a number of accounting estimates, including impairment calculations, the value of inventory measured using the LIFO method, and other estimates that utilize fair value. These macroeconomic factors could result in incremental volatility in certain valuations and provisions required in the Company's financial statements. In addition, ongoing general inflation and macroeconomic challenges continue to impact consumer sentiment and may result in lower consumer spending and a more promotional environment in the fourth quarter
of
2022 and beyond.
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Metrics Used in the Evaluation of Our Business
The following are a couple of key metrics by which we evaluate our business and make strategic decisions:
Same-store sales
The same-store sales metric is a metric commonly used in the retail industry to evaluate the revenue generated for stores that have been open for more than a year, though other retailers may calculate the metric differently. Management uses the same-store sales metric as a measure of an individual store's success to determine whether it is performing in line with expectations. Our same-store sales metric is a daily-weighted calculation for the period, which includes sales for stores that have been open for at least 13 months. In addition, in order to be included in the same-store sales metric, a store must be open in the current period as well as the corresponding day(s) of the comparable retail calendar in the prior year. Accordingly, closed stores are excluded from the same-store sales metric for each day of the closure. Relocated stores are treated as new stores and therefore excluded from the calculation. E-commerce sales for those websites that function as an extension of a retail chain are included in the same-store sales calculation. We believe the same-store sales metric is useful to shareholders and investors in assessing our retail sales performance of existing locations with comparable prior year sales, separate from the impact of store openings or store closures.
Sales per square foot
The sales per square foot metric is commonly used in the retail industry to calculate the efficiency of sales based upon the square footage in a store.
Management uses the sales per square foot metric as a measure of an individual store's success to determine whether it is performing in line with expectations. The sales per square foot metric is calculated by dividing total retail store sales, excluding e-commerce sales, by the total square footage of the retail store base at the end of each month of the respective period.
Outlook
We are sharply focused on the rapidly evolving market landscape and recognize that the uncertainty about the macro environment and the mounting threat of recessionary pressures could begin to dampen consumer spending habits. We have experienced a slower start to our holiday season sales trends, which may continue through the remainder of the fourth quarter of 2022. However, we believe our core competencies in brand building, product creation, marketing and logistics will enable us to navigate the challenging market environment. In addition, we believe we are well-positioned to capitalize on opportunities across a broad spectrum of consumer segments by leveraging our diverse portfolio of brands. In addition to maintaining our quarterly dividend, we plan to prioritize using available cash to reduce our revolver borrowings and increase overall liquidity.
Following are the consolidated results and the results by segment:
CONSOLIDATED RESULTS
Thirteen Weeks Ended Thirty-Nine Weeks Ended
October 29, 2022 October 30, 2021 October 29, 2022 October 30, 2021
% of % of % of % of
($ millions) Net Sales Net Sales Net Sales Net Sales
Net sales $ 798.3 100.0 % $ 784.2 100.0 % $ 2,271.7 100.0 % $ 2,098.3 100.0 %
Cost of goods sold 458.4 57.4 % 448.8 57.2 % 1,268.0 55.8 % 1,165.8 55.6 %
Gross profit 339.9 42.6 % 335.4 42.8 % 1,003.7 44.2 % 932.5 44.4 % Selling and administrative expenses
283.2 35.5 % 254.1 32.4 % 812.3 35.8 % 757.0 36.1 % Restructuring and other special charges, net
2.9 0.4 % - - % 2.9 0.1 % 13.5 0.6 %
Operating earnings 53.8 6.7 % 81.3 10.4 % 188.5 8.3 % 162.0 7.7 %
Interest expense, net (4.0) (0.5) % (5.1) (0.7) % (8.9) (0.4) % (28.8) (1.4) % Loss on early extinguishment of debt
- - % (0.6) (0.1) % - - % (0.6) (0.0) %
Other income, net 3.0 0.4 % 3.8 0.5 % 9.6 0.4 % 11.5 0.6 %Earnings before income taxes 52.8
6.6 % 79.4 10.1 % 189.2 8.3 % 144.1 6.9 %
Income tax provision (13.8) (1.7) % (19.7) (2.5) % (48.7) (2.1) % (39.9) (1.9) %
Net earnings 39.0 4.9 % 59.7 7.6 % 140.5 6.2 % 104.2 5.0 % Net (loss) earnings attributable to noncontrolling interests (0.2)
(0.0) % 0.1 0.0 % (0.4) (0.0) % 1.0 0.1 %
Net earnings attributable to
$ 39.2 4.9 %$ 59.6 7.6 %$ 140.9 6.2 %$ 103.2 4.9 % Net Sales
Net sales increased$14.1 million , or 1.8%, to$798.3 million for the third quarter of 2022, compared to$784.2 million for the third quarter of 2021. Net sales for our Brand Portfolio segment increased$22.7 million , or 7.6% during the third quarter of 2022, compared to the third quarter of 2021, led by strong performances by our Naturalizer,Sam Edelman ,Franco Sarto and LifeStride brands. Net sales for our Famous Footwear segment remained strong, but decreased$12.7 million , or 2.6%, in the third quarter of 2022 compared to
the
record-setting third
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quarter of 2021, with same-store sales down 0.8%. On a consolidated basis, our direct-to-consumer sales represented approximately 74% of total net sales for the third quarter of 2022. We remain focused on maximizing the vertical opportunity between the Famous Footwear and Brand Portfolio segments, with LifeStride andDr. Scholl's representing two of Famous Footwear's top 15 best-selling footwear brands during the quarter. Net sales increased$173.4 million , or 8.3%, to$2,271.7 million for the nine months endedOctober 29, 2022 , compared to$2,098.3 million for the nine months endedOctober 30, 2021 . Net sales for our Brand Portfolio segment increased$223.2 million , or 28.3% during the first nine months of 2022, compared to the first nine months of 2021, driven by strong sales growth from nearly all of our brands. Our Famous Footwear segment's sales momentum continued. However, net sales for Famous Footwear decreased$43.6 million , or 3.2%, in the first nine months of 2022 compared to the exceptionally strong first nine months of 2021, with same stores sales decreasing 2.5%. On a consolidated basis, our direct-to-consumer sales represented approximately 71% of total net sales for the nine months endedOctober 29, 2022 .
Gross Profit
Gross profit increased$4.5 million , or 1.3%, to$339.9 million for the third quarter of 2022, compared to$335.4 million for the third quarter of 2021, reflecting higher net sales. As a percentage of net sales, gross profit decreased slightly to 42.6% for the third quarter of 2022, compared to 42.8% for the third quarter of 2021, reflecting a decrease in the gross profit margin of our Famous Footwear segment, an increase in the gross profit margin of our Brand Portfolio segment and a higher mix of retail compared to wholesale sales. The decline in the Famous Footwear segment's gross profit margin was driven by more normalized pricing and an increase in promotional activity. The improvement in the gross profit margin of our Brand Portfolio segment reflects higher average wholesale prices, growth in higher margin sales from the direct-to-consumer channel and a favorable brand mix. Gross profit increased$71.2 million , or 7.6%, to$1,003.7 million for the nine months endedOctober 29, 2022 , compared to$932.5 million for the nine months endedOctober 30, 2021 , reflecting higher net sales. As a percentage of net sales, gross profit decreased slightly to 44.2% for the nine months endedOctober 29, 2022 , compared to 44.4% for the nine months endedOctober 30, 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$29.1 million , or 11.4%, to$283.2 million for the third quarter of 2022, compared to$254.1 million for the third quarter of 2021. The increase was driven by higher salary and benefits expenses, higher expenses associated with our cash-based incentive compensation plans and higher retail facilities costs. As a percentage of net sales, selling and administrative expenses increased to 35.5% for the third quarter of 2022, from 32.4% for the third quarter of 2021, reflecting leveraging of expenses on higher net sales. Selling and administrative expenses increased$55.3 million , or 7.3%, to$812.3 million for the nine months endedOctober 29, 2022 , compared to$757.0 million for the nine months endedOctober 30, 2021 . The increase primarily reflects higher salary and benefits expenses and higher marketing expenses. As a percentage of net sales, selling and administrative expenses decreased to 35.8% for the nine months endedOctober 29, 2022 , from 36.1% for the nine months endedOctober 30, 2021 , reflecting leveraging of expenses on higher net sales.
Restructuring and Other Special Charges, Net
We incurred restructuring and other special charges of$2.9 million ($2.7 million on an after-tax basis, or$0.07 per diluted share) during the third quarter and nine months endedOctober 29, 2022 , related to a CFO transition at our corporate headquarters. 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 nine months endedOctober 30, 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 decreased$27.5 million to$53.8 million for the third quarter of 2022, compared to$81.3 million for the third quarter of 2021, primarily reflecting higher selling and administrative expenses and restructuring and other special charges, as described above. As a percentage of net sales, operating earnings were 6.7% for the third quarter of 2022, compared to 10.4% for the third quarter of 2021. 29
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Operating earnings increased$26.5 million to$188.5 million for the nine months endedOctober 29, 2022 , compared to$162.0 million for the nine months endedOctober 30, 2021 , primarily reflecting higher net sales and gross profit. As a percentage of net sales, operating earnings were 8.3% for the nine months endedOctober 29, 2022 , compared to 7.7% for the nine months ended October
30, 2021. Interest Expense, Net
Interest expense, net decreased$1.1 million , or 21.0%, to$4.0 million for the third quarter of 2022, compared to$5.1 million for the third quarter of 2021, primarily due to the non-recurrence of the$1.9 million fair value adjustment to the Blowfish Malibu mandatory purchase obligation recorded in the third quarter of 2021, partially offset by higher interest expense on the revolving credit facility. 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 debt to our revolving credit agreement, which reduced our interest expense by approximately$1.8 million compared to the third quarter of 2021. These decreases were partially offset by an increase in interest expense under our revolving credit agreement attributable to higher average borrowings and higher interest rates. While the reduction in our total interest expense is expected to continue, the interest on our revolving credit facility is based on a variable interest rate. Therefore, our interest expense will continue to be adversely affected by rising interest rates. Interest expense, net decreased$19.9 million , or 69.1%, to$8.9 million for the nine months endedOctober 29, 2022 , compared to$28.8 million for the nine months endedOctober 30, 2021 , primarily due to the non-recurrence of the$15.4 million fair value adjustment to the Blowfish Malibu mandatory purchase obligation in the nine months endedOctober 30, 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$8.1 million compared to the nine months endedOctober 30, 2021 . These decreases were partially offset by an increase in interest expense our revolving credit agreement attributable to higher average borrowings and higher interest rates.
Loss on Early Extinguishment of Debt
The loss on early extinguishment of debt was$0.6 million for the three and nine months endedOctober 30, 2021 , reflecting the redemption of$100 million of senior notes prior to its maturity and the amendment of our revolving credit facility. Refer to Note 10 to the condensed consolidated financial statements for further discussion. There were no corresponding charges for the nine months endedOctober 29, 2022 . Other Income, Net
Other income, net decreased$0.8 million , or 22.0%, to$3.0 million for the third quarter of 2022, compared to$3.8 million for the third quarter of 2021, which reflects a reduction of certain components of net periodic benefit income associated with our pension plans. Other income, net decreased$1.9 million , or 16.4%, to$9.6 million for the nine months endedOctober 29, 2022 , compared to$11.5 million for the nine months endedOctober 30, 2021 , primarily attributable to certain components of net periodic benefit income associated with our pension plans, including interest cost, amortization of actuarial loss and settlement cost. 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 26.2% for the third quarter of 2022, compared to 24.9% for the third quarter of 2021. The higher effective tax rate for the third quarter of 2022 was driven by an increase in permanent adjustments, primarily due to the non-deductible portion of executive compensation. Our consolidated effective tax rate was 25.7% for the nine months endedOctober 29, 2022 , compared to 27.7% for the nine months endedOctober 30, 2021 . The higher effective tax rate for the nine months endedOctober 30, 2021 primarily reflects the incremental valuation allowances for our deferred tax assets for certain jurisdictions, as well as 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$39.2 million and$140.9 million for the three and nine months endedOctober 29, 2022 , respectively, compared to net earnings of$59.6 million and$103.2 million for the three and nine months endedOctober 30, 2021 , respectively, as a result of the factors described
above.
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FAMOUS FOOTWEAR
Thirteen Weeks Ended Thirty-Nine Weeks Ended
October 29, 2022 October 30, 2021 October 29, 2022 October 30, 2021
% of % of % of % of($ millions, except sales per square foot)Net Sales
Net Sales Net Sales Net Sales Net sales$ 482.0 100.0 %$ 494.7 100.0 %$ 1,302.8 100.0 %$ 1,346.4 100.0 % Cost of goods sold 266.4 55.3 % 259.2 52.4 % 684.4 52.5 % 703.7 52.3 % Gross profit 215.6 44.7 % $
235.5 47.6 % 618.4 47.5 %
156.3 32.4 % 148.1 29.9 % 446.9 34.3 % 422.0 31.3 %
Operating earnings $ 59.3 12.3 % $ 87.4 17.7 % $ 171.5 13.2 % $ 220.7 16.4 %
Key MetricsSame-store sales % change (0.8) % 26.5 % (2.5) % 11.5 % Same-store sales $ change$ (3.7) $ 100.1 $ (32.8) $ 102.7 Sales change from new and closed stores, net$ (8.5) $ 2.3 $ (9.9) $ 325.1 Impact of changes in Canadian exchange rate on sales$ (0.5) $ 0.6 $ (0.9) $ 1.7 Sales per square foot, excluding e-commerce (thirteen and thirty-nine weeks ended)$ 72 $ 72 $ 194 $ 194 Sales per square foot, excluding e-commerce (trailing twelve months)$ 250 $ 238 $ 250 $ 238 Square footage (thousand sq. ft.) 5,787
5,977 5,787 5,977 Stores opened 4 1 4 9 Stores closed 9 8 22 20 Ending stores 876 905 876 905 Net Sales
Net sales of
Despite the decrease in net sales, we continued to perform at a high level during the third quarter of 2022, led by a solid back-to-school season.
Although the back-to-school season started slowly in the second quarter, we experienced strong consumer demand in August and September, especially in children's footwear. 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. Our sales decline was more pronounced in the northernUnited States due in part to unseasonably warm weather. Same-store sales decreased 0.8% compared to the third quarter of 2021. During the third quarter of 2022, we opened four stores and closed nine stores, resulting in 876 stores and total square footage of 5.8 million at the end of the third quarter of 2022, compared to 905 stores and total square footage of 6.0 million at the end of the third 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 third quarter of 2022, compared to 78% in the third quarter of 2021. Net sales of$1,302.8 million in the nine months endedOctober 29, 2022 decreased$43.6 million , or 3.2%, compared to the nine months endedOctober 30, 2021 , as our same-store sales declined 2.5%. 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 andDr. Scholl's representing two of Famous Footwear's top 15 best-selling footwear brands for the nine months endedOctober 29, 2022 .
Gross Profit
Gross profit decreased$19.9 million , or 8.4%, to$215.6 million for the third quarter of 2022, compared to$235.5 million for the third quarter of 2021. As a percentage of net sales, our gross profit decreased to 44.7% for the third quarter of 2022, compared to 47.6% for the third quarter of 2021, reflecting more normalized retail pricing and an increase in promotional activity compared to the third quarter of 2021, when inventories were low due to supply chain constraints. Our gross profit margin continues to exceed pre-pandemic levels. Gross profit decreased$24.3 million , or 3.8%, to$618.4 million for the nine months endedOctober 29, 2022 , compared to$642.7 million for the nine months endedOctober 30, 2021 , primarily due to the decrease in net sales. As a percentage of net sales, our gross profit decreased slightly to 47.5% for the nine months endedOctober 29, 2022 , compared to 47.7% for the nine months endedOctober 30, 2021 .
Selling and Administrative Expenses
Selling and administrative expenses increased$8.2 million , or 5.6%, to$156.3 million for the third quarter of 2022, compared to$148.1 million for the third quarter of 2021. The increase was driven by higher salary and benefits expenses due in part to wage inflation and higher 31
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facilities costs. As a percentage of net sales, selling and administrative expenses increased to 32.4% for the third quarter of 2022, compared to 29.9% for the third quarter of 2021.
Selling and administrative expenses increased$24.9 million , or 5.9%, to$446.9 million for the nine months endedOctober 29, 2022 , compared to$422.0 million for the nine months endedOctober 30, 2021 . The increase was primarily due to higher salary and benefits expenses, higher logistics and facilities costs and higher advertising expense. As a percentage of net sales, selling and administrative expenses increased to 34.3% for the nine months endedOctober 29, 2022 , compared to 31.3% for the nine months endedOctober 30, 2021 .
Operating Earnings
Operating earnings decreased$28.1 million to$59.3 million for the third quarter of 2022, compared to$87.4 million for the third quarter of 2021, reflecting both lower sales and gross margins and higher operating expenses, as described above. As a percentage of net sales, operating earnings were 12.3% for the third quarter of 2022, compared to 17.7% for the third quarter of 2021. Operating earnings decreased$49.2 million to$171.5 million for the nine months endedOctober 29, 2022 , compared to$220.7 million for the nine months endedOctober 30, 2021 , primarily reflecting lower sales and higher operating expenses, as described above. As a percentage of net sales, operating earnings were 13.2% for the nine months endedOctober 29, 2022 , compared to 16.4% for the nine months endedOctober 30, 2021 . BRAND PORTFOLIO Thirteen Weeks Ended Thirty-Nine Weeks Ended October 29, 2022 October 30, 2021 October 29, 2022 October 30, 2021 % of % of % of % of ($ millions, except sales per square foot) Net Sales Net Sales Net Sales Net Sales Net sales$ 323.2 100.0 %$ 300.5 100.0 %$ 1,013.0 100.0 %$ 789.8 100.0 % Cost of goods sold 200.8 62.1 % 201.6 67.1 % 627.2 61.9 % 502.0 63.6 % Gross profit 122.4 37.9 % 98.9 32.9 % 385.8 38.1 % 287.8 36.4 % Selling and administrative expenses 100.1 31.0 % 87.5 29.1 % 292.7 28.9 % 249.2 31.5 % Restructuring and other special charges, net - - % - - % - - % 13.5 1.7 % Operating earnings$ 22.3 6.9 %$ 11.4 3.8 %$ 93.1 9.2 %$ 25.1 3.2 % Key Metrics Direct-to-consumer (% of net sales) (1) 34 % 28 % 30 % 31 % Change in wholesale net sales ($)$ 13.0 $ 16.5 $ 197.2 $ 66.2 Unfilled order position at end of period$ 286.8 $ 380.7 Same-store sales % change 26.0 % 45.8 % 36.4 % 24.3 % Same-store sales $ change$ 10.6 $ 13.8 $ 35.4 $ 18.6 Sales change from new and closed stores, net$ (1.1) $ 2.5 $ (9.7) $ 36.0 Impact of changes in Canadian exchange rate on retail sales$ 0.2 $ 0.1 $ 0.3 $ 0.6 Sales per square foot, excluding e-commerce (thirteen and thirty-nine weeks ended)$ 265 $ 236 $ 810 $ 669 Sales per square foot, excluding e-commerce (trailing twelve months)$ 1,047 $ 756 $ 1,047 $ 756 Square footage (thousands sq. ft.) 104 124 104 124 Stores opened 7 4 11 6 Stores closed 3 1 8 86 Ending stores 89 90 89 90
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 $323.2 million in the third quarter of 2022 increased
$22.7 million , or 7.6%, compared to the third quarter of 2021, reflecting strong
consumer demand for many of our brands. The net sales increase was broad-based
across nearly all of our brands, with our Naturalizer, Sam Edelman , Franco Sarto
and LifeStride brands being the most significant contributors. In addition to
sales increases in our wholesale business, our digital business also experienced
significant growth during the quarter. The lead times required on inventory
purchases have significantly improved compared to 2021, which has enabled
earlier inventory receipts and a more efficient flow of product to our
customers.
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During the third quarter of 2022, we opened seven stores and closed three stores, resulting in a total of 89 stores and total square footage of 0.1 million at the end of the third quarter of 2022, compared to 90 stores and total square footage of 0.1 million at the end of the third quarter of 2021.
Net sales increased$223.2 million , or 28.3%, to$1,013.0 million for the nine months endedOctober 29, 2022 , compared to$789.8 million for the nine months endedOctober 30, 2021 , reflecting strong sales growth from nearly all of our brands, with ourSam Edelman , Naturalizer, LifeStride,Franco Sarto and Allen Edmonds brands being the most significant contributors. During 2022, we have experienced a shift in consumer preference from sport and casual products to the fashion and lifestyle categories. 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, as well as our retail partners and their websites. On a trailing twelve-month basis, sales per square foot, excluding e-commerce sales, increased to$1,047 for the twelve months endedOctober 29, 2022 , compared to$756 for the twelve months endedOctober 30, 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. Our unfilled order position for our wholesale sales decreased$93.9 million , or 24.7%, to$286.8 million atOctober 29, 2022 , compared to$380.7 million atOctober 30, 2021 . The decrease in our backlog order levels compared to last year primarily reflects more conservative buying by our wholesale customers as they manage their inventory levels in response to consumer sentiment.
Gross Profit
Gross profit increased$23.5 million , or 23.7%, to$122.4 million for the third quarter of 2022, compared to$98.9 million for the third quarter of 2021, primarily reflecting higher net sales and a higher gross margin rate. As a percentage of net sales, our gross profit increased to 37.9% for the third quarter of 2022, compared to 32.9% for the third quarter of 2021, primarily reflecting higher average wholesale prices, growth in higher margin sales from the direct-to-consumer channel and a favorable brand mix, partially offset by a higher provision for inventory markdowns. Gross profit increased$98.0 million , or 34.1%, to$385.8 million for the nine months endedOctober 29, 2022 , compared to$287.8 million for the nine months endedOctober 30, 2021 , reflecting higher net sales. As a percentage of net sales, our gross profit increased to 38.1% for the nine months endedOctober 29, 2022 , compared to 36.4% for the nine months endedOctober 30, 2021 . While we have experienced inflationary pressures related to product costs and inbound freight through the nine months endedOctober 29, 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$12.6 million , or 14.3%, to$100.1 million for the third quarter of 2022, compared to$87.5 million for the third quarter of 2021. The increase was primarily due to higher variable salary expenses and wage inflation, higher marketing expenses and higher facilities costs. As a percentage of net sales, selling and administrative expenses increased to 31.0% for the third quarter of 2022, compared to 29.1% for the third quarter of 2021. Selling and administrative expenses increased$43.5 million , or 17.5%, to$292.7 million for the nine months endedOctober 29, 2022 , compared to$249.2 million for the nine months endedOctober 30, 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 28.9% for the nine months endedOctober 29, 2022 , compared to 31.5% for the nine months endedOctober 30, 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 nine months endedOctober 30, 2021 for expenses associated with the strategic realignment of our Naturalizer retail store operations. Refer to Note 5 to the condensed consolidated financial statements for additional information related to these charges. There were no corresponding charges during the three or nine months endedOctober 29, 2022 . 33 Table of Contents Operating Earnings Operating earnings increased to$22.3 million for the third quarter of 2022, from$11.4 million for the third quarter of 2021, as a result of the factors described above. As a percentage of net sales, operating earnings were 6.9% for the third quarter of 2022, compared to 3.8% in the third quarter of 2021. Operating earnings increased to$93.1 million for the nine months endedOctober 29, 2022 , from$25.1 million for the nine months endedOctober 30, 2021 , as a result of the factors described above. As a percentage of net sales, operating earnings were 9.2% for the nine months endedOctober 29, 2022 , compared to 3.2% in the nine months endedOctober 30, 2021 .
ELIMINATIONS AND OTHER
Thirteen Weeks Ended Thirty-Nine Weeks Ended
October 29, 2022 October 30, 2021 October 29, 2022 October 30, 2021
% of % of % of % of
($ millions) Net Sales Net Sales Net Sales Net Sales
Net sales $ (6.9) 100.0 % $ (11.0) 100.0 % $ (44.2) 100.0 % $ (37.9) 100.0 %
Cost of goods sold (8.8) 127.6 % (12.0) 108.8 % (43.6) 98.7 % (39.9) 105.3 %
Gross profit 1.9 (27.6) % 1.0 (8.8) % (0.6) 1.3 % 2.0 (5.3) %
Selling and administrative
expenses 26.7 (385.4) % 18.4 (167.1) % 72.6 (164.3) % 85.9 (226.5) %
Restructuring and other
special charges, net 2.9 (42.0) % - - % 2.9 (6.6) % - - %
Operating loss $ (27.7) 399.8 % $ (17.4) 158.3 % $ (76.1) 172.2 % $ (83.9) 221.2 %
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 $6.9 million for the third quarter of 2022 is $4.1
million , or 37.1%, lower than the third quarter of 2021 reflecting a decrease in
product sold from our Brand Portfolio segment to Famous Footwear. The net sales
elimination of $44.2 million for the nine months ended October 29, 2022 is $6.3
million , or 16.5%, higher than the nine months ended October 30, 2022 reflecting
an increase in product sold from our Brand Portfolio segment to Famous Footwear.
Selling and administrative expenses increased $8.3 million , to $26.7 million in
the third quarter of 2022, compared to $18.4 million for the third quarter of
2021. The increase primarily reflects higher expenses for our cash-based
incentive compensation plans. In 2021, our financial results exceeded the
targets established for our annual incentive plans earlier in the year, which
resulted in a larger portion of the anticipated plan payouts recorded as expense
in the first half of 2021 rather than in the third quarter. For 2022,
anticipated incentive plan payouts are being recognized more ratably during the
year.
Selling and administrative expenses decreased $13.3 million , to $72.6 million
for the nine months ended October 29, 2022 , compared to $85.9 million for the
nine months ended October 30, 2021 . The decrease primarily reflects lower
expenses for our cash-based incentive compensation plans reflecting the shift in
timing of the achievement of our financial performance targets, as described
above, as well as lower expenses associated with certain other employee
benefits.
Restructuring and other special charges of $2.9 million for the three and nine
months ended October 29, 2022 were associated with a CFO transition at our
corporate headquarters. Refer to Note 5 to the condensed consolidated financial
statements for additional information related to these charges. There were no
corresponding charges for the nine months ended October 30, 2021 .
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LIQUIDITY AND CAPITAL RESOURCES
Borrowings
($ millions) October 29, 2022 October 30, 2021 (1) January 29, 2022 Borrowings under revolving credit agreement $ 364.5 $ 175.0 $ 290.0 Current portion of long-term debt -
99.6 -
Total debt $ 364.5 $ 274.6 $ 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$364.5 million atOctober 29, 2022 increased$89.9 million , from$274.6 million atOctober 30, 2021 , and increased$74.5 million , from$290.0 million atJanuary 29, 2022 . The increase in total debt fromOctober 30, 2021 andJanuary 29, 2022 is due primarily to$63.2 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 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 has resulted in higher interest expense in the current rising interest rate environment. Our interest expense will continue to be adversely affected by rising interest rates. Net interest expense for the third quarter of 2022 decreased$1.1 million to$4.0 million , compared to$5.1 million for the third quarter of 2021. The decrease is primarily attributable to the non-recurrence of the$1.9 million fair value adjustment to the Blowfish Malibu mandatory purchase obligation recorded in the third 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 third 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 Agreement), plus a spread. The Credit Agreement decreased the spread applied to the LIBOR or prime rate by a total of 75 basis points. AtOctober 29, 2022 , we had$364.5 million in borrowings and$10.1 million in letters of credit outstanding under the Credit Agreement. Total borrowing availability was$125.4 million atOctober 29, 2022 .
We were in compliance with all covenants and restrictions under the Credit
Agreement as of
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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