Caleres(CAL) - 2020 Q1 - Quarterly Report

PART I FINANCIAL INFORMATION Item 1 Financial Statements Q1 2019 unaudited financials show increased assets and liabilities due to ASC 842 and acquisitions, with lower net earnings Condensed Consolidated Statements of Earnings (Unaudited) | ($ thousands, except per share amounts) | Thirteen Weeks Ended May 4, 2019 | Thirteen Weeks Ended May 5, 2018 | | :--- | :--- | :--- | | Net sales | $677,754 | $632,142 | | Gross profit | $279,836 | $274,921 | | Operating earnings | $16,869 | $22,946 | | Net earnings attributable to Caleres, Inc. | $9,083 | $17,212 | | Diluted earnings per common share | $0.22 | $0.40 | Condensed Consolidated Balance Sheets Highlights (Unaudited) | ($ thousands) | May 4, 2019 | May 5, 2018 | February 2, 2019 | | :--- | :--- | :--- | :--- | | Total current assets | $887,312 | $864,327 | $976,447 | | Lease right-of-use assets | $735,282 | — | — | | Goodwill | $244,407 | $127,081 | $242,531 | | Intangible assets, net | $304,101 | $212,819 | $307,366 | | Total assets | $2,493,070 | $1,502,066 | $1,838,568 | | Borrowings under revolving credit agreement | $318,000 | — | $335,000 | | Total current liabilities | $911,300 | $437,663 | $853,336 | | Noncurrent lease obligations | $662,750 | — | — | | Total liabilities and equity | $2,493,070 | $1,502,066 | $1,838,568 | - The company adopted the new lease accounting standard ASC 842 in Q1 2019, resulting in the recognition of operating lease right-of-use assets of $729.2 million and lease liabilities of $791.7 million as of February 3, 2019 A cumulative-effect adjustment to retained earnings of $13.4 million was also recorded[22] - The acquisition of Vionic in October 2018 for $360.7 million and a controlling interest in Blowfish Malibu in July 2018 significantly impacted the financials For Q1 2019, Vionic contributed $53.1 million and Blowfish contributed $16.2 million in consolidated net sales[30][31][35] Item 2 Management's Discussion and Analysis of Financial Condition and Results of Operations Q1 2019 sales increased from acquisitions, but operating earnings declined due to Famous Footwear issues and acquisition costs Q1 2019 vs Q1 2018 Consolidated Results Summary | ($ millions) | Q1 2019 | Q1 2018 | | :--- | :--- | :--- | | Net sales | $677.8 | $632.1 | | Gross profit | $279.8 | $274.9 | | Gross Margin | 41.3% | 43.5% | | Operating earnings | $16.9 | $22.9 | | Operating Margin | 2.5% | 3.6% | | Net earnings | $9.1 | $17.2 | - The acquisitions of Vionic and Blowfish Malibu were the primary drivers of sales growth, contributing $53.1 million and $16.2 million in consolidated net sales, respectively, in Q1 2019[147] - The Famous Footwear segment experienced a 3.1% decline in sales, driven by a 1.0% drop in same-store sales and a smaller store base, reflecting a difficult retail environment[158][174] - The Brand Portfolio segment's net sales grew 20.3%, primarily due to the Vionic and Blowfish acquisitions This was partially offset by lower sales from the Allen Edmonds and Dr Scholl's brands[181] - Total debt increased to $516.0 million from $197.6 million year-over-year, mainly due to borrowings under the revolving credit facility to fund the Vionic acquisition[189] - Working capital shifted to a deficit of $24.0 million, a decrease of $450.7 million from the prior year, primarily due to the adoption of ASC 842 which added $136.0 million of current operating lease obligations to liabilities[199][201] Item 3 Quantitative and Qualitative Disclosures About Market Risk No material changes in market risk disclosures have occurred since the last Annual Report on Form 10-K - No material changes have occurred in market risk disclosures since the last Annual Report on Form 10-K[210] Item 4 Controls and Procedures Disclosure controls were effective as of May 4, 2019, with ongoing review of newly acquired business controls - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of May 4, 2019[212] - The company is in the process of reviewing the internal controls of the recently acquired Blowfish Malibu and Vionic businesses[214] PART II OTHER INFORMATION Item 1 Legal Proceedings Ordinary course legal proceedings are not expected to materially impact the company's financial position or operations - Management believes that pending legal proceedings from the ordinary course of business will not have a material adverse effect on the company's financials[215] Item 1A Risk Factors A new risk factor highlights potential adverse impacts on gross margins from proposed tariffs on China-sourced footwear - A new risk factor was disclosed regarding proposed tariffs of up to 25% on U.S imports from China, including footwear[218] - Approximately 60% of the company's footwear is sourced from China, making it significantly exposed to this tariff risk, which could increase costs and harm gross margins[218] Item 2 Unregistered Sales of Equity Securities and Use of Proceeds No shares were repurchased under the program in Q1 2019, but shares were acquired for tax obligations - No shares were repurchased under the publicly announced program during Q1 2019[219][221] - The company acquired 93,871 shares from employees to satisfy tax withholding obligations for share-based awards[219] - As of May 4, 2019, 2,257,851 shares were still authorized for repurchase Subsequent to the quarter-end, the company repurchased 780,060 shares for $15.1 million[221] Item 3 Defaults Upon Senior Securities No defaults upon senior securities were reported - None[222] Item 4 Mine Safety Disclosures This item is not applicable - Not applicable[222] Item 5 Other Information No other information was reported for this item - None[222] Item 6 Exhibits This section lists exhibits filed with the Form 10-Q, including certifications and XBRL data - Lists exhibits filed with the report, including Sarbanes-Oxley certifications and XBRL data[223]