Caleres(CAL) - 2021 Q2 - Quarterly Report

PART I FINANCIAL INFORMATION Item 1. Financial Statements Q2 2020 financial statements reflect significant pandemic impact, showing decreased assets, equity, and a $30.7 million net loss Condensed Consolidated Balance Sheet Highlights ($ thousands) | Account | August 1, 2020 | August 3, 2019 | February 1, 2020 | | :--- | :--- | :--- | :--- | | Total Assets | $2,112,394 | $2,644,393 | $2,431,707 | | Cash and cash equivalents | $148,544 | $42,601 | $45,218 | | Inventories, net | $574,830 | $792,064 | $618,406 | | Goodwill | $4,956 | $245,275 | $245,275 | | Total Liabilities | $1,867,260 | $2,019,715 | $1,782,577 | | Borrowings under revolving credit | $350,000 | $300,000 | $275,000 | | Total Equity | $245,134 | $624,678 | $649,130 | Condensed Consolidated Statements of Earnings (Loss) Highlights ($ thousands) | Metric | Thirteen Weeks Ended Aug 1, 2020 | Thirteen Weeks Ended Aug 3, 2019 | Twenty-Six Weeks Ended Aug 1, 2020 | Twenty-Six Weeks Ended Aug 3, 2019 | | :--- | :--- | :--- | :--- | :--- | | Net sales | $501,448 | $752,485 | $898,632 | $1,430,239 | | Gross profit | $182,620 | $305,944 | $304,518 | $585,780 | | Operating (loss) earnings | $(24,140) | $37,804 | $(450,350) | $54,673 | | Net (loss) earnings attributable to Caleres, Inc. | $(30,717) | $25,341 | $(376,555) | $34,424 | | Diluted (loss) earnings per share | $(0.83) | $0.61 | $(9.94) | $0.82 | Condensed Consolidated Statements of Cash Flows Highlights ($ thousands) | Activity | Twenty-Six Weeks Ended Aug 1, 2020 | Twenty-Six Weeks Ended Aug 3, 2019 | | :--- | :--- | :--- | | Net cash provided by operating activities | $67,520 | $116,578 | | Net cash used for investing activities | $(8,614) | $(30,189) | | Net cash provided by (used for) financing activities | $44,535 | $(74,044) | | Increase in cash and cash equivalents | $103,326 | $12,401 | Note 1: Basis of Presentation The financial statements reflect significant COVID-19 pandemic impact, leading to store closures and mitigation efforts - The company experienced a significant loss in sales and earnings due to the temporary closure of all retail stores in mid-March 2020 because of the COVID-19 pandemic[18] - Mitigation actions included workforce reductions, salary cuts, reduced inventory purchases, and minimizing costs. The company also increased borrowings on its revolving credit facility to enhance its cash position[19] - Under the CARES Act, the company deferred approximately $2.9 million of employer social security payroll taxes and recognized an incremental tax benefit of about $5.2 million from carrying back operating losses[20] Note 3: Revenues Q2 2020 net sales sharply declined to $501.4 million due to pandemic-related store closures, despite significant e-commerce growth Net Sales by Segment (Thirteen Weeks Ended, $ thousands) | Segment | August 1, 2020 | August 3, 2019 | Change (%) | | :--- | :--- | :--- | :--- | | Famous Footwear | $333,935 | $419,841 | -20.5% | | Brand Portfolio | $183,622 | $359,575 | -48.9% | | Total Net Sales | $501,448 | $752,485 | -33.4% | E-commerce Related Sales by Segment (Thirteen Weeks Ended, $ thousands) | Segment | E-commerce Sales (Aug 1, 2020) | E-commerce Sales (Aug 3, 2019) | Change (%) | | :--- | :--- | :--- | :--- | | Famous Footwear | $83,652 | $33,685 | +148.3% | | Brand Portfolio | $86,124 | $98,892 | -12.9% | | Total E-commerce | $169,776 | $132,577 | +28.1% | Note 5: Restructuring and Other Special Charges H1 2020 saw significant special charges, including $99.0 million in COVID-19 costs and a $262.7 million non-cash impairment - In the twenty-six weeks ended August 1, 2020, the company incurred $99.0 million in costs associated with the COVID-19 pandemic, including impairment of assets, inventory markdowns, and severance[51] - During the first quarter of 2020, the company recorded non-cash impairment charges of $262.7 million, comprising $240.3 million for goodwill and $22.4 million for indefinite-lived trademarks, all within the Brand Portfolio segment[53] - Fair value adjustments for the Blowfish mandatory purchase obligation resulted in a charge of $9.8 million for the twenty-six weeks ended August 1, 2020, recorded as interest expense[52] Note 8: Goodwill and Intangible Assets Q1 2020 interim impairment tests resulted in a $240.3 million goodwill impairment and $22.4 million for indefinite-lived trademarks - A quantitative assessment as of May 2, 2020, resulted in total goodwill impairment charges of $240.3 million for the Brand Portfolio and Vionic reporting units[64] - An interim assessment of indefinite-lived intangible assets resulted in impairment charges of $22.4 million, including $12.2 million for the Allen Edmonds trademark and $10.2 million for the Via Spiga trademark[65] Goodwill and Intangible Assets, Net ($ thousands) | Account | August 1, 2020 | February 1, 2020 | | :--- | :--- | :--- | | Goodwill | $4,956 | $245,275 | | Intangible assets, net | $265,405 | $294,304 | | Total | $270,361 | $539,579 | Note 10: Long-term and Short-term Financing Arrangements The company increased its revolving credit facility to $600 million with $166.6 million availability, and holds $200 million in Senior Notes - On April 14, 2020, the company amended its credit agreement, increasing the revolving credit facility by $100.0 million to an aggregate of up to $600.0 million[74] - As of August 1, 2020, the company had $350.0 million in borrowings outstanding under the credit agreement and $11.1 million in letters of credit, with total additional borrowing availability of $166.6 million[79] - The company has $200.0 million in aggregate principal amount of 6.25% Senior Notes due 2023[80] Note 16: Income Taxes Q2 2020 effective tax rate was a 9.4% benefit due to the CARES Act, contrasting with a 23.7% provision in Q2 2019 - The effective tax rate for Q2 2020 was a 9.4% benefit, compared to a 23.7% provision in Q2 2019[123] - The Q2 2020 rate includes a tax benefit of approximately $5.2 million from the CARES Act provision allowing net operating loss carrybacks to years with higher federal corporate tax rates[123] - The effective tax rate for the first six months of 2020 was a 19.1% benefit, compared to a 24.1% provision for the same period in 2019[124] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses severe COVID-19 impact, leading to store closures, sales decline, and a $30.7 million net loss, despite liquidity preservation Overview COVID-19 forced temporary store closures, leading to sales and earnings decline, prompting decisive mitigation actions and increased e-commerce focus - All Famous Footwear and Brand Portfolio retail stores in North America were temporarily closed starting March 19, 2020, for an average of 10 weeks, leading to a significant decline in sales and earnings[134] - Decisive actions to mitigate the impact included aligning workforce expenses, reducing marketing, managing inventory, negotiating lease modifications, and deferring non-essential capital projects[135] - As a precautionary measure, borrowings on the revolving credit facility were increased to $440.0 million in March 2020, and the facility's capacity was increased in April. By the end of Q2, $88.5 million of these borrowings had been repaid[136] Results of Operations Q2 2020 consolidated net sales decreased 33.4% to $501.4 million, resulting in a $24.1 million operating loss, impacted by a $262.7 million impairment Consolidated Results Summary (Q2 2020 vs Q2 2019, $ millions) | Metric | Q2 2020 | Q2 2019 | Change | | :--- | :--- | :--- | :--- | | Net Sales | $501.4 | $752.5 | -33.4% | | Gross Profit | $182.6 | $305.9 | -40.3% | | Gross Margin | 36.4% | 40.7% | -430 bps | | Operating (Loss) Earnings | $(24.1) | $37.8 | -$61.9M | | Net (Loss) Earnings | $(30.7) | $25.3 | -$56.0M | - Famous Footwear Q2 net sales decreased 20.5% to $333.9 million, but e-commerce sales grew 148%. Operating earnings fell to $1.0 million from $31.5 million[174][175][184] - Brand Portfolio Q2 net sales decreased 48.9% to $183.6 million due to reduced wholesale shipments. The segment posted an operating loss of $14.1 million compared to operating earnings of $13.9 million in the prior year[186][188][199] - For the six months ended August 1, 2020, the company recorded non-cash impairment charges of $262.7 million for goodwill and intangible assets[161] Liquidity and Capital Resources Total debt increased to $548.6 million, with a $87.9 million working capital deficit, but management believes liquidity is ample Key Financial Ratios | Ratio | August 1, 2020 | February 1, 2020 | | :--- | :--- | :--- | | Working Capital ($M) | $(87.9) | $31.3 | | Current Ratio | 0.91:1 | 1.04:1 | | Debt-to-Capital Ratio | 69.1% | 42.2% | - Total debt increased by $75.2 million from February 1, 2020, reflecting net borrowings under the Credit Agreement as a precautionary measure during the pandemic[206] - The company believes its current cash flows from operations and over $166 million in borrowing availability provide ample liquidity to meet its needs for the foreseeable future[217] Item 3. Quantitative and Qualitative Disclosures About Market Risk No material changes occurred in the company's market risk disclosures since the fiscal year ended February 1, 2020 - No material changes have occurred in the company's market risk disclosures since the fiscal year ended February 1, 2020[226] Item 4. Controls and Procedures Management concluded that disclosure controls and procedures were effective, with no material changes to internal controls over financial reporting - The Chief Executive Officer and Chief Financial Officer concluded that as of August 1, 2020, the company's disclosure controls and procedures were effective at the reasonable assurance level[228] - There have been no changes in the company's internal controls over financial reporting during the quarter ended August 1, 2020, that have materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting[229] PART II OTHER INFORMATION Item 1. Legal Proceedings Ordinary course legal proceedings are not expected to materially affect the company's financial results or position - In the opinion of management, the outcome of ordinary course legal proceedings and litigation is not expected to have a material adverse effect on the company's financial results or position[230] Item 1A. Risk Factors No material changes to risk factors have occurred since the fiscal year ended February 1, 2020 - There have been no material changes to the risk factors disclosed in the company's Annual Report on Form 10-K for the year ended February 1, 2020[232] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds During Q2 2020, the company repurchased 1,399,295 shares at an average price of $7.49 per share Share Repurchases (Q2 2020) | Period | Total Shares Purchased | Average Price Paid | Shares Purchased Under Program | | :--- | :--- | :--- | :--- | | May 3 - May 30, 2020 | 561,709 | $6.76 | 561,709 | | May 31 - July 4, 2020 | 537,586 | $8.27 | 529,525 | | July 5 - Aug 1, 2020 | 300,000 | $7.46 | 300,000 | | Total | 1,399,295 | $7.49 | 1,391,234 | - As of August 1, 2020, there were 2,651,489 shares authorized to be repurchased under the company's stock repurchase programs[234] Item 3. Defaults Upon Senior Securities No defaults upon senior securities were reported - None[235] Item 4. Mine Safety Disclosures Mine safety disclosures are not applicable to the company's operations - Not applicable[237] Item 5. Other Information No other material information is reported in this section - None[239] Item 6. Exhibits This section lists exhibits filed with the Form 10-Q, including corporate governance documents and certifications - Exhibits filed include corporate governance documents, CEO/CFO certifications, and interactive data files (iXBRL)[238][240]