Caleres(CAL) - 2022 Q3 - Quarterly Report

PART I FINANCIAL INFORMATION ITEM 1 FINANCIAL STATEMENTS This section presents the company's condensed consolidated financial statements, including balance sheets, statements of earnings, comprehensive income, cash flows, and shareholders' equity, along with detailed notes explaining the basis of presentation, accounting policies, and specific financial items CONDENSED CONSOLIDATED BALANCE SHEETS The balance sheet presents the company's financial position as of October 30, 2021, October 31, 2020, and January 30, 2021, showing assets, liabilities, and equity Key Balance Sheet Data ($ thousands): | Metric | Oct 30, 2021 | Oct 31, 2020 | Jan 30, 2021 | | :---------------------------------- | :----------- | :----------- | :----------- | | Total Assets | 1,874,558 | 2,027,060 | 1,867,050 | | Total Liabilities | 1,568,813 | 1,765,405 | 1,663,196 | | Total Equity | 305,745 | 261,655 | 203,854 | - Cash and cash equivalents decreased from $124,330k (Oct 31, 2020) to $74,772k (Oct 30, 2021)[7] - Borrowings under revolving credit agreement decreased from $300,000k (Oct 31, 2020) to $175,000k (Oct 30, 2021), while the mandatory purchase obligation for Blowfish Malibu increased from $30,146k to $54,558k[7] CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS (LOSS) The income statement shows a significant turnaround from a net loss in the prior year to net earnings for both the thirteen and thirty-nine weeks ended October 30, 2021, driven by increased net sales and gross profit Thirteen Weeks Ended October 30, 2021 vs October 31, 2020 ($ thousands): | Metric | Oct 30, 2021 | Oct 31, 2020 | Change ($k) | Change (%) | | :---------------------------------------- | :----------- | :----------- | :---------- | :--------- | | Net sales | 784,156 | 647,480 | 136,676 | 21.1% | | Gross profit | 335,351 | 256,972 | 78,379 | 30.5% | | Operating earnings (loss) | 81,318 | 20,071 | 61,247 | 305.1% | | Net earnings (loss) attributable to Caleres, Inc. | 59,622 | 14,417 | 45,205 | 313.6% | | Basic earnings (loss) per common share | 1.56 | 0.38 | 1.18 | 310.5% | | Diluted earnings (loss) per common share | 1.54 | 0.38 | 1.16 | 305.3% | Thirty-Nine Weeks Ended October 30, 2021 vs October 31, 2020 ($ thousands): | Metric | Oct 30, 2021 | Oct 31, 2020 | Change ($k) | Change (%) | | :---------------------------------------- | :----------- | :----------- | :---------- | :--------- | | Net sales | 2,098,323 | 1,546,111 | 552,212 | 35.7% | | Gross profit | 932,531 | 561,490 | 371,041 | 66.1% | | Operating earnings (loss) | 161,979 | (430,279) | 592,258 | N/A | | Net earnings (loss) attributable to Caleres, Inc. | 103,165 | (362,138) | 465,303 | N/A | | Basic earnings (loss) per common share | 2.70 | (9.67) | 12.37 | N/A | | Diluted earnings (loss) per common share | 2.68 | (9.67) | 12.35 | N/A | - A loss on early extinguishment of debt of $649k was recorded for both the thirteen and thirty-nine weeks ended October 30, 2021[11] CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) The comprehensive income statement shows a significant improvement in comprehensive income for both the thirteen and thirty-nine weeks ended October 30, 2021, compared to the prior year's losses, primarily driven by the increase in net earnings Comprehensive Income (Loss) Attributable to Caleres, Inc. ($ thousands): | Period | Oct 30, 2021 | Oct 31, 2020 | | :---------------------------------------- | :----------- | :----------- | | Thirteen Weeks Ended | 59,723 | 14,670 | | Thirty-Nine Weeks Ended | 103,830 | (361,479) | - Pension and other postretirement benefits adjustments contributed positively to Other Comprehensive Income (OCI) in 2021 ($358k for thirteen weeks, $1,071k for thirty-nine weeks), while foreign currency translation adjustment was negative[12] CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS The company experienced a significant increase in cash provided by operating activities for the thirty-nine weeks ended October 30, 2021, compared to the prior year, while cash used in financing activities increased substantially due to debt repayments Cash Flow Summary (Thirty-Nine Weeks Ended, $ thousands): | Activity | Oct 30, 2021 | Oct 31, 2020 | Change ($k) | Change (%) | | :----------------------------------------------- | :----------- | :----------- | :---------- | :--------- | | Net cash provided by operating activities | 189,728 | 101,766 | 87,962 | 86.4% | | Net cash used for investing activities | (14,559) | (15,541) | 982 | -6.3% | | Net cash used for financing activities | (188,656) | (7,054) | (181,602) | 2574.4% | | (Decrease) increase in cash and cash equivalents | (13,523) | 79,112 | (92,635) | -117.1% | - The increase in operating cash flow was driven by higher net earnings and a larger increase in accounts payable, partially offset by an increase in inventory[205] - The substantial increase in cash used for financing activities was primarily due to the redemption of $100 million of senior notes and $75 million of net repayments on the revolving credit agreement, compared to net borrowings in the prior year. No share repurchases were made in 2021, versus $23.3 million in 2020[209] CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY The statement details changes in shareholders' equity, showing an increase in total equity from $203.8 million at January 30, 2021, to $305.7 million at October 30, 2021, primarily due to net earnings and share-based compensation - Total equity increased from $203,854k (Jan 30, 2021) to $305,745k (Oct 30, 2021)[7] - Retained earnings increased from $48,557k (Jan 30, 2021) to $143,711k (Oct 30, 2021)[7] - Net earnings contributed $103,165k to equity for the thirty-nine weeks ended October 30, 2021, and share-based compensation expense added $8,811k to additional paid-in capital[18] Note 1 Basis of Presentation and General This note outlines the basis for preparing the condensed consolidated financial statements, highlighting the seasonal nature of the business, reclassifications, and the impact of COVID-19 on financial results, as well as details on joint ventures and accounting estimates - The company's business is seasonal, with the third fiscal quarter traditionally accounting for a substantial portion of annual earnings due to back-to-school and holiday sales[20] - COVID-19 negatively impacted H1 2020, but consumer sentiment and spending improved in H2 2020 and H1 2021 due to vaccine distribution and stimulus, strengthening demand and contributing to higher net sales and operating earnings for the thirty-nine weeks ended October 30, 2021[29] - The company deferred approximately $9.4 million in employer social security payroll taxes in 2020 under the CARES Act, with $4.7 million recorded in other accrued expenses and $4.7 million in other liabilities as of October 30, 2021[30] Note 2 Impact of New Accounting Pronouncements The company adopted ASU 2018-14 and ASU 2019-12 in Q1 2021, neither of which had a material impact on financial statements. Amendments from SEC Release No. 33-10890 were partially adopted in 2020, with remaining provisions to be reflected in the FY2022 10-K, not expected to have a material impact - Adopted ASU 2018-14 (Defined Benefit Plans) and ASU 2019-12 (Income Taxes) during the first quarter of 2021, with no material impact on financial statement disclosures or condensed consolidated financial statements[32][33] - Amendments associated with Items 301 and 302 of SEC Release No. 33-10890 were adopted in 2020; remaining provisions for the fiscal year ended January 29, 2022, are not expected to have a material impact[34] Note 3 Revenues This note disaggregates revenue by segment and source, detailing recognition policies for retail, wholesale, e-commerce, and licensing sales. It also provides information on contract balances, including loyalty programs and returns reserves Net Sales by Segment (Thirteen Weeks Ended, $ thousands): | Segment | Oct 30, 2021 | Oct 31, 2020 | Change ($k) | Change (%) | | :-------------- | :----------- | :----------- | :---------- | :--------- | | Famous Footwear | 494,660 | 391,706 | 102,954 | 26.3% | | Brand Portfolio | 300,513 | 267,587 | 32,926 | 12.3% | | Total Net Sales | 784,156 | 647,480 | 136,676 | 21.1% | Net Sales by Segment (Thirty-Nine Weeks Ended, $ thousands): | Segment | Oct 30, 2021 | Oct 31, 2020 | Change ($k) | Change (%) | | :-------------- | :----------- | :----------- | :---------- | :--------- | | Famous Footwear | 1,346,413 | 916,893 | 429,520 | 46.8% | | Brand Portfolio | 789,832 | 668,447 | 121,385 | 18.2% | | Total Net Sales | 2,098,323 | 1,546,111 | 552,212 | 35.7% | - Direct-to-consumer sales represented approximately 73% of consolidated net sales for the third quarter of 2021, up from 71% in the third quarter of 2020[132] Note 4 Earnings (Loss) Per Share This note details the computation of basic and diluted earnings per share using the two-class method, showing a significant increase in EPS for 2021 compared to the prior year's loss. It also mentions share repurchase activities Basic and Diluted EPS Attributable to Caleres, Inc. Shareholders: | Period | Oct 30, 2021 | Oct 31, 2020 | | :----------------------- | :----------- | :----------- | | Thirteen Weeks Ended: | | | | Basic EPS | $1.56 | $0.38 | | Diluted EPS | $1.54 | $0.38 | | Thirty-Nine Weeks Ended: | | | | Basic EPS | $2.70 | $(9.67) | | Diluted EPS | $2.68 | $(9.67) | - No shares were repurchased under the publicly announced share repurchase programs during the thirty-nine weeks ended October 30, 2021. In contrast, 2,902,122 shares were repurchased during the thirty-nine weeks ended October 31, 2020[51][52] Note 5 Restructuring and Other Special Charges This note details special charges related to the Blowfish Malibu mandatory purchase obligation, brand exits (Naturalizer, Fergie), and COVID-19-related expenses, highlighting the significant impact of these items on financial results - A final fair value adjustment of $1.9 million ($1.4 million after-tax, $0.04 diluted EPS) was recorded for the Blowfish Malibu mandatory purchase obligation in Q3 2021, compared to $5.1 million ($3.8 million after-tax, $0.10 diluted EPS) in Q3 2020. The obligation was settled for $54.6 million on November 4, 2021[53] - Incurred $13.5 million ($11.9 million after-tax, $0.31 diluted EPS) in 2021 for strategic realignment of Naturalizer retail store operations, primarily lease termination and store closure costs for 73 stores[54] - Incurred $99.0 million ($78.0 million after-tax, $2.08 diluted EPS) in COVID-19-related expenses during the thirty-nine weeks ended October 31, 2020, including non-cash impairment, inventory markdowns, and severance. No corresponding charges in 2021[56] Note 6 Business Segment Information This note provides a summary of key financial measures for the Famous Footwear and Brand Portfolio segments, showing significant growth in net sales and operating earnings for both segments in 2021 compared to 2020 Segment Performance (Thirteen Weeks Ended, $ thousands): | Segment | Net Sales (2021) | Net Sales (2020) | Operating Earnings (2021) | Operating Earnings (2020) | | :-------------- | :--------------- | :--------------- | :------------------------ | :------------------------ | | Famous Footwear | 494,660 | 391,706 | 87,375 | 27,845 | | Brand Portfolio | 300,513 | 267,587 | 11,383 | 7,304 | | Total | 784,156 | 647,480 | 81,318 | 20,071 | Segment Performance (Thirty-Nine Weeks Ended, $ thousands): | Segment | Net Sales (2021) | Net Sales (2020) | Operating Earnings (2021) | Operating Loss (2020) | | :-------------- | :--------------- | :--------------- | :------------------------ | :-------------------- | | Famous Footwear | 1,346,413 | 916,893 | 220,746 | (38,651) | | Brand Portfolio | 789,832 | 668,447 | 25,116 | (352,556) | | Total | 2,098,323 | 1,546,111 | 161,979 | (430,279) | Note 7 Inventories This note details the composition of the company's net inventory balance, showing an increase in finished goods from October 2020 to October 2021 Net Inventory Balance ($ thousands): | Category | Oct 30, 2021 | Oct 31, 2020 | Jan 30, 2021 | | :---------------- | :----------- | :----------- | :----------- | | Raw materials | 14,951 | 14,907 | 14,592 | | Work-in-process | 581 | 293 | 349 | | Finished goods | 527,686 | 492,165 | 473,014 | | Inventories, net | 543,218 | 507,365 | 487,955 | Note 8 Goodwill and Intangible Assets This note provides details on goodwill and intangible assets, including their carrying values, amortization expense, and impairment charges. It highlights significant impairment charges recorded in 2020 due to COVID-19 impacts Goodwill and Intangible Assets, Net ($ thousands): | Metric | Oct 30, 2021 | Oct 31, 2020 | Jan 30, 2021 | | :-------------------------- | :----------- | :----------- | :----------- | | Total intangible assets, net | 225,669 | 262,118 | 235,115 | | Total goodwill | 4,956 | 4,956 | 4,956 | | Goodwill and intangible assets, net | 230,625 | 267,074 | 240,071 | - Amortization expense related to intangible assets was $3.1 million for the thirteen weeks and $9.4 million for the thirty-nine weeks ended October 30, 2021, compared to $3.3 million and $9.8 million for the comparable periods in 2020[63] - No goodwill impairment charges were recorded during the thirty-nine weeks ended October 30, 2021, or the thirteen weeks ended October 31, 2020. In Q1 2020, $240.3 million in goodwill impairment and $22.4 million in indefinite-lived intangible asset impairment were recorded due to COVID-19 impacts[65][66] Note 9 Leases This note describes the company's lease accounting policies, including the recognition of right-of-use assets and liabilities, and details lease expenses and cash flows. It also highlights the impact of COVID-19 related lease concessions and impairment charges on underperforming stores - Asset impairment charges were $1.1 million for the thirteen weeks and $3.4 million for the thirty-nine weeks ended October 30, 2021, related to underperforming retail stores. This compares to $0.4 million and $35.6 million for the comparable periods in 2020, with higher 2020 charges reflecting COVID-19 impact[69] - Lease concessions (rent abatements) of $0.1 million for the thirteen weeks and $1.7 million for the thirty-nine weeks ended October 30, 2021, were recorded as a reduction of rent expense. This compares to $1.7 million and $3.7 million for the comparable periods in 2020[70] Total Lease Expense ($ thousands): | Period | Oct 30, 2021 | Oct 31, 2020 | | :----------------------- | :----------- | :----------- | | Thirteen Weeks Ended | 46,440 | 53,053 | | Thirty-Nine Weeks Ended | 145,357 | 164,792 | Note 10 Long-term and Short-term Financing Arrangements This note details the company's credit agreement and senior notes, including recent amendments to the revolving credit facility, the redemption of senior notes, and compliance with debt covenants - The revolving credit facility was amended on October 5, 2021, decreasing the available amount by $100 million to $500 million, extending maturity to October 5, 2026, and decreasing the LIBOR/prime rate spread by 75 basis points[74] - As of October 30, 2021, the company had $175.0 million of borrowings outstanding and $12.5 million in letters of credit under the Credit Agreement, with total additional borrowing availability of $312.5 million[80] - The company redeemed $100.0 million of its Senior Notes on August 16, 2021, and classified the remaining $100.0 million as a current liability for redemption in January 2022[83] Note 11 Shareholders' Equity This note provides a detailed breakdown of changes in accumulated other comprehensive income (loss), including foreign currency translation adjustments and pension/postretirement benefits adjustments Accumulated Other Comprehensive (Loss) Income ($ thousands): | Date | Amount | | :----------------------- | :------- | | October 30, 2021 | (8,471) | | October 31, 2020 | (31,184) | | January 30, 2021 | (9,136) | - For the thirteen weeks ended October 30, 2021, foreign currency translation adjustment was $(257)k, and pension and other postretirement benefits adjustments were $358k[85] Note 12 Share-Based Compensation This note details the company's share-based compensation plans, including restricted stock, performance share awards, and restricted stock units for non-employee directors, outlining the expense recognized and share activity Share-Based Compensation Expense ($ millions): | Period | Oct 30, 2021 | Oct 31, 2020 | | :----------------------- | :----------- | :----------- | | Thirteen Weeks Ended | 3.4 | 2.5 | | Thirty-Nine Weeks Ended | 8.8 | 6.9 | - Net (repurchases) issuances of common stock for share-based plans were (10,554) shares for the thirteen weeks ended October 30, 2021, compared to 32,018 shares for the comparable period in 2020[88] - During the thirty-nine weeks ended October 30, 2021, the company granted performance share awards for a targeted 175,500 shares and long-term cash incentive awards with a target value of $6.5 million[91][94] Note 13 Retirement and Other Benefit Plans This note outlines the components of net periodic benefit income for the company's pension and other postretirement benefit plans, with non-service costs included in other income, net Total Net Periodic Benefit Income (Pension, $ thousands): | Period | Oct 30, 2021 | Oct 31, 2020 | | :----------------------- | :----------- | :----------- | | Thirteen Weeks Ended | (1,953) | (3,439) | | Thirty-Nine Weeks Ended | (5,864) | (6,033) | - The non-service cost components of net periodic benefit income are included in other income, net, while service cost is included in selling and administrative expenses[97] Note 14 Fair Value Measurements This note describes the company's fair value measurement hierarchy (Level 1, 2, 3) and the valuation techniques used for various financial instruments and non-financial assets, including cash equivalents, deferred compensation plans, mandatory purchase obligations, and long-lived asset impairment charges - The mandatory purchase obligation for Blowfish Malibu was valued at $54,558k as of October 30, 2021, using Level 3 inputs (earnings formula). Fair value adjustments are recorded as interest expense[108][111] Long-Lived Asset Impairment Charges ($ thousands): | Period | Oct 30, 2021 | Oct 31, 2020 | | :----------------------- | :----------- | :----------- | | Thirteen Weeks Ended | 1,111 | 398 | | Thirty-Nine Weeks Ended | 3,399 | 35,620 | - Higher impairment charges in the thirty-nine weeks ended October 31, 2020, reflect deteriorating economic conditions driven by the COVID-19 pandemic[113] Note 15 Income Taxes This note discusses the company's consolidated effective tax rates, highlighting significant variations due to factors like the CARES Act, domestic earnings, valuation allowances, and non-deductibility of losses - The consolidated effective tax rate was a provision of 24.9% for the thirteen weeks ended October 30, 2021, compared to a benefit of 1.9% for the comparable period in 2020[116] - For the thirty-nine weeks ended October 30, 2021, the effective tax rate was a provision of 27.7%, compared to a benefit of 19.8% for the comparable period in 2020[117] - The higher 2021 tax rate primarily reflects strong domestic earnings, incremental valuation allowances for deferred tax assets, and the non-deductibility of losses from the Canadian business division's Naturalizer retail store exit costs[117] Note 16 Commitments and Contingencies This note outlines the company's environmental remediation commitments, specifically for the Redfield site, and general legal proceedings, stating that the outcome of current litigation is not expected to have a material adverse effect - Cumulative expenditures for environmental remediation at the Redfield site were $32.3 million through October 30, 2021[124] - The reserve for anticipated future remediation activities at Redfield is $9.9 million as of October 30, 2021, with $5.1 million for off-site and $4.8 million for on-site remediation[124] - The company is involved in legal proceedings and litigation arising in the ordinary course of business, but management does not expect the outcome to have a material adverse effect on the company's results of operations or financial position[128] ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This section provides management's perspective on the company's financial performance, condition, and results of operations, highlighting key financial achievements, segment-specific performance, liquidity, and capital resources, as well as the impact of supply chain disruptions and strategic initiatives OVERVIEW The company achieved exceptional financial results in Q3 2021, driven by strong consumer demand and a successful back-to-school season, particularly in the Famous Footwear segment. Despite global supply chain disruptions, the company is mitigating impacts through sourcing diversification and price increases, and expects reduced annual interest expense from debt management - Achieved highest third quarter operating earnings in company history, driven by Famous Footwear's 26.5% increase in same-store sales and 17.7% operating margin[130] - Consolidated net sales increased 21.1% to $784.2 million in Q3 2021, with Famous Footwear achieving its highest quarterly net sales ever[132] - Global supply chain disruptions, including port congestion and factory closures, resulted in approximately $11.5 million in incremental freight expenses and lower gross profit for the Brand Portfolio segment in Q3 2021. The company anticipates higher inbound freight costs into 2022 but expects price increases to mitigate the impact[138][141] CONSOLIDATED RESULTS Consolidated results show significant improvements in net sales, gross profit, and operating earnings for both the third quarter and year-to-date periods of 2021 compared to 2020, largely due to strong consumer demand, reduced promotional activity, and lower impairment charges Consolidated Financial Performance (Thirteen Weeks Ended, $ millions): | Metric | Oct 30, 2021 | Oct 31, 2020 | Change ($M) | Change (%) | | :---------------------------------------- | :----------- | :----------- | :---------- | :--------- | | Net sales | 784.2 | 647.5 | 136.7 | 21.1% | | Gross profit | 335.4 | 257.0 | 78.4 | 30.5% | | Gross profit margin | 42.8% | 39.7% | 3.1 pp | | | Operating earnings | 81.3 | 20.1 | 61.2 | 305.1% | | Net earnings attributable to Caleres, Inc. | 59.6 | 14.4 | 45.2 | 313.9% | Consolidated Financial Performance (Thirty-Nine Weeks Ended, $ millions): | Metric | Oct 30, 2021 | Oct 31, 2020 | Change ($M) | Change (%) | | :---------------------------------------- | :----------- | :----------- | :---------- | :--------- | | Net sales | 2,098.3 | 1,546.1 | 552.2 | 35.7% | | Gross profit | 932.5 | 561.5 | 371.0 | 66.1% | | Gross profit margin | 44.4% | 36.3% | 8.1 pp | | | Operating earnings (loss) | 162.0 | (430.3) | 592.3 | N/A | | Net earnings attributable to Caleres, Inc. | 103.2 | (362.1) | 465.3 | N/A | - Selling and administrative expenses decreased as a percentage of net sales to 32.4% in Q3 2021 (from 36.6% in Q3 2020) and to 36.1% in YTD 2021 (from 42.9% in YTD 2020), reflecting better leveraging over higher net sales[150][151] FAMOUS FOOTWEAR The Famous Footwear segment achieved record quarterly net sales in Q3 2021, driven by a successful back-to-school season and strong consumer demand, leading to significant increases in gross profit and operating earnings due to reduced promotional activity and better expense leveraging Famous Footwear Net Sales ($ millions): | Period | Oct 30, 2021 | Oct 31, 2020 | Change ($M) | Change (%) | | :----------------------- | :----------- | :----------- | :---------- | :--------- | | Thirteen Weeks Ended | 494.7 | 391.7 | 103.0 | 26.3% | | Thirty-Nine Weeks Ended | 1,346.4 | 916.9 | 429.5 | 46.8% | Famous Footwear Operating Earnings ($ millions): | Period | Oct 30, 2021 | Oct 31, 2020 | Change ($M) | Change (%) | | :----------------------- | :----------- | :----------- | :---------- | :--------- | | Thirteen Weeks Ended | 87.4 | 27.8 | 59.6 | 214.9% | | Thirty-Nine Weeks Ended | 220.7 | (38.7) | 259.4 | N/A | - Gross profit margin increased to 47.6% in Q3 2021 (from 40.9% in Q3 2020) and to 47.7% in YTD 2021 (from 38.0% in YTD 2020), primarily due to significantly reduced promotional activity driven by strong consumer demand[169][170][171] BRAND PORTFOLIO The Brand Portfolio segment experienced strong sales growth from key brands like Blowfish Malibu, Sam Edelman, Allen Edmonds, and Vionic in 2021. Despite supply chain disruptions impacting inventory receipts and gross profit margins, operating earnings significantly improved compared to the prior year's loss, which was heavily affected by impairment charges and pandemic-related costs Brand Portfolio Net Sales ($ millions): | Period | Oct 30, 2021 | Oct 31, 2020 | Change ($M) | Change (%) | | :----------------------- | :----------- | :----------- | :---------- | :--------- | | Thirteen Weeks Ended | 300.5 | 267.6 | 32.9 | 12.3% | | Thirty-Nine Weeks Ended | 789.8 | 668.4 | 121.4 | 18.2% | Brand Portfolio Operating Earnings (Loss) ($ millions): | Period | Oct 30, 2021 | Oct 31, 2020 | Change ($M) | Change (%) | | :----------------------- | :----------- | :----------- | :---------- | :--------- | | Thirteen Weeks Ended | 11.4 | 7.3 | 4.1 | 56.2% | | Thirty-Nine Weeks Ended | 25.1 | (352.6) | 377.7 | N/A | - Gross profit margin decreased to 32.9% in Q3 2021 (from 35.2% in Q3 2020), reflecting higher inbound freight costs due to supply chain disruptions. The unfilled order position for wholesale sales increased 62.2% to $380.7 million at October 30, 2021[182][184] ELIMINATIONS AND OTHER This section details the financial impact of intersegment eliminations, unallocated corporate administrative expenses, and other costs. It shows a decrease in net sales eliminations and an increase in selling and administrative expenses, primarily due to higher incentive compensation and stock price-dependent director compensation - Net sales elimination of $(11.0) million for Q3 2021 was $0.8 million lower than Q3 2020, reflecting a decrease in product sold from the Brand Portfolio segment to Famous Footwear[194] Selling and Administrative Expenses ($ millions): | Period | Oct 30, 2021 | Oct 31, 2020 | | :----------------------- | :----------- | :----------- | | Thirteen Weeks Ended | 18.4 | 17.7 | | Thirty-Nine Weeks Ended | 85.9 | 40.0 | - The increase in selling and administrative expenses was primarily due to higher expenses for cash and stock-based incentive compensation plans for employees and cash-based director compensation plans, which are variable based on the company's stock price[195] LIQUIDITY AND CAPITAL RESOURCES The company significantly reduced its total debt obligations in 2021 through strong cash generation and strategic debt management, including the redemption of Senior Notes and amendments to its revolving credit facility. This improved liquidity and capital structure, with ample borrowing availability for future working capital needs Total Debt Obligations ($ millions): | Date | Amount | | :----------------------- | :----- | | October 30, 2021 | 274.6 | | October 31, 2020 | 498.7 | | January 30, 2021 | 448.9 | - The company redeemed $100.0 million of Senior Notes in August 2021 and plans to redeem the remaining $100.0 million in January 2022, which is expected to result in approximately a $12 million decline in annual interest expense[199][201] - The revolving credit facility was amended to extend its maturity to October 5, 2026, and reduce the interest rate spread. Total borrowing availability was $312.5 million at October 30, 2021[200] CONTRACTUAL OBLIGATIONS The company's contractual obligations primarily include purchase obligations, operating lease commitments, long-term debt, and the Blowfish Malibu mandatory purchase obligation, which was paid in November 2021. The remaining Senior Notes are classified as a current liability for redemption in January 2022 - The company redeemed $100.0 million of Senior Notes in Q3 2021 and classified the remaining $100.0 million as a current liability for redemption in Q4 2021 (January 2022)[216] - The mandatory purchase obligation totaling $54.6 million, associated with the acquisition of Blowfish Malibu, was paid on November 4, 2021[217] - Contractual obligations fluctuate throughout the year due to the seasonal nature of operations, changes in revolving credit agreement borrowings, and operating lease commitments[218] CRITICAL ACCOUNTING POLICIES AND ESTIMATES No material changes have occurred related to critical accounting policies and estimates since the end of the most recent fiscal year - No material changes have occurred related to critical accounting policies and estimates since the end of the most recent fiscal year (January 30, 2021)[219] RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS Information on recently issued accounting pronouncements and their impact is described in Note 2 to the condensed consolidated financial statements - Details on recently issued accounting pronouncements and their impact on the company are provided in Note 2 to the condensed consolidated financial statements[220] INFLATION The company has experienced inflationary pressures on product costs in 2021 but believes it has not had a significant effect on net sales or operating earnings for the three and nine months ended October 30, 2021. The company is actively working to mitigate these pressures through price increases - The company experienced inflationary pressures on product costs for most of 2021[223] - These inflationary rates have not had a significant effect on net sales or operating earnings for the three and nine months ended October 30, 2021[223] - The company is actively working to mitigate cost pressures and recover a portion of the increased costs through price increases[223] FORWARD-LOOKING STATEMENTS This section contains cautionary statements regarding forward-looking statements, outlining various risks and uncertainties that could cause actual results to differ materially, including economic conditions, supply chain disruptions, changing consumer demands, intense competition, and regulatory changes - Forward-looking statements are subject to various risks and uncertainties that could cause actual results to differ materially[222] - Key risks include economic conditions, supply chain disruptions (reliance on China, port congestion, freight costs), changing consumer demands, intense competition, customer concentration, foreign currency fluctuations, and cybersecurity threats[222] - The company does not undertake any obligation to update these forward-looking statements[222] ITEM 3 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK No material changes have occurred in the quantitative and qualitative information about market risk since the end of the most recent fiscal year - No material changes have taken place in the quantitative and qualitative information about market risk since the end of the most recent fiscal year (January 30, 2021)[225] ITEM 4 CONTROLS AND PROCEDURES The CEO and CFO concluded that the company's disclosure controls and procedures were effective at a reasonable assurance level as of October 30, 2021, and there were no material changes in internal controls over financial reporting during the quarter - The Chief Executive Officer and Chief Financial Officer concluded that the company's disclosure controls and procedures were effective at the reasonable assurance level as of October 30, 2021[227] - There have been no material changes in the company's internal controls over financial reporting during the quarter ended October 30, 2021[228] PART II OTHER INFORMATION ITEM 1 LEGAL PROCEEDINGS The company is involved in ordinary course legal proceedings and litigation, but management does not expect the outcome to have a material adverse effect on results of operations or financial position. Legal costs are expensed as incurred - The company is involved in legal proceedings and litigation arising in the ordinary course of business[229] - Management does not expect the outcome of such proceedings and litigation to have a material adverse effect on the company's results of operations or financial position[229] ITEM 1A RISK FACTORS This section updates risk factors, emphasizing the company's reliance on international production and the significant risks associated with global supply chain disruptions, including delays, higher freight costs, potential order cancellations, and the impact of trade relations, particularly with China - The company relies primarily on international sourcing for footwear products through third-party manufacturing facilities, subjecting its business to risks associated with international trade[233] - During 2021, the company experienced supply chain disruptions, port congestion, and inflationary pressures, leading to delays in inventory receipts and significantly higher freight costs[234] - The extent and duration of these supply chain disruptions and inflationary cost pressures are uncertain and may limit the company's ability to meet consumer demand, potentially impacting net sales and gross margins in Q4 2021 and into 2022[234] ITEM 2 UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS The company did not repurchase any shares under its publicly announced stock repurchase programs during the third quarter or the thirty-nine weeks ended October 30, 2021. A total of 1,054 shares were purchased in Q3 2021, primarily tendered by employees for share-based awards - A total of 1,054 shares were purchased during the third quarter of 2021 at an average price of $23.98 per share, primarily tendered by employees for share-based awards[238] - The company did not repurchase any shares under its publicly announced stock repurchase programs during the thirty-nine weeks ended October 30, 2021[238] - As of October 30, 2021, 2,651,489 shares remain authorized to be repurchased under the existing programs[238] ITEM 3 DEFAULTS UPON SENIOR SECURITIES No defaults upon senior securities were reported - No defaults upon senior securities were reported[239] ITEM 4 MINE SAFETY DISCLOSURES This item is not applicable to the company - This item is not applicable[240] ITEM 5 OTHER INFORMATION No other information was reported - No other information was reported[241] ITEM 6 EXHIBITS This section lists the exhibits filed with the Form 10-Q, including organizational documents, a list of guarantor subsidiaries, the Fifth Amendment to the Credit Agreement, certifications from the CEO and CFO, and iXBRL documents - Exhibits include the Restated Certificate of Incorporation, Bylaws, and a List of Guarantor Subsidiaries[243] - The Fifth Amendment to Fourth Amended and Restated Credit Agreement, dated October 5, 2021, is filed as Exhibit 10.1[243] - Certifications of the Chief Executive Officer and Chief Financial Officer pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act of 2002 are filed[243] SIGNATURE Signature Details The report was signed on December 7, 2021, by Kenneth H. Hannah, Senior Vice President and Chief Financial Officer of Caleres, Inc.[248]