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ITEM 1
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FINANCIAL STATEMENTS
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CALERES, INC.
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CONDENSED CONSOLIDATED BALANCE SHEETS
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(Unaudited)
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($ thousands)
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May 4, 2019
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May 5, 2018
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February 2, 2019
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Assets
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Current assets:
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Cash and cash equivalents
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$
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35,778
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$
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96,481
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$
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30,200
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Receivables, net
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148,487
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125,559
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191,722
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Inventories, net
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648,145
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579,902
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683,171
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Prepaid expenses and other current assets
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54,902
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62,385
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71,354
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Total current assets
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887,312
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864,327
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976,447
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Other assets
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85,711
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88,941
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81,440
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Goodwill
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244,407
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127,081
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242,531
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Intangible assets, net
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304,101
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212,819
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307,366
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Lease right-of-use assets
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735,282
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—
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—
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Property and equipment
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592,670
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542,927
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579,087
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Allowance for depreciation
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(356,413
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)
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(334,029
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)
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(348,303
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)
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Property and equipment, net
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236,257
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208,898
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230,784
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Total assets
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$
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2,493,070
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$
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1,502,066
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$
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1,838,568
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Liabilities and Equity
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Current liabilities:
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Borrowings under revolving credit agreement
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$
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318,000
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$
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—
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$
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335,000
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Trade accounts payable
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289,071
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268,917
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316,298
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Lease obligations
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136,005
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—
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—
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Other accrued expenses
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168,224
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168,746
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202,038
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Total current liabilities
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911,300
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437,663
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853,336
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Other liabilities:
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Noncurrent lease obligations
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662,750
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—
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—
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Long-term debt
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198,046
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197,587
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197,932
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Deferred rent
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—
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53,027
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54,850
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Other liabilities
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92,342
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99,651
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97,015
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Total other liabilities
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953,138
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350,265
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349,797
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Equity:
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Common stock
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422
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432
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419
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Additional paid-in capital
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146,641
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136,909
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145,889
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Accumulated other comprehensive loss
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(31,873
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)
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(16,065
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)
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(31,601
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)
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Retained earnings
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512,046
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591,429
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519,346
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Total Caleres, Inc. shareholders’ equity
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627,236
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712,705
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634,053
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Noncontrolling interests
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1,396
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1,433
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1,382
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Total equity
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628,632
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714,138
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635,435
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Total liabilities and equity
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$
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2,493,070
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$
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1,502,066
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$
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1,838,568
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See notes to
condensed
consolidated financial statements.
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CALERES, INC.
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CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
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(Unaudited)
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Thirteen Weeks Ended
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($ thousands, except per share amounts)
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May 4, 2019
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May 5, 2018
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Net sales
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$
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677,754
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$
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632,142
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Cost of goods sold
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397,918
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357,221
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Gross profit
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279,836
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274,921
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Selling and administrative expenses
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262,111
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250,197
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Restructuring and other special charges, net
|
856
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1,778
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Operating earnings
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16,869
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22,946
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Interest expense, net
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(7,340
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)
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(3,683
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)
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Other income, net
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2,619
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3,091
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Earnings before income taxes
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12,148
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22,354
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Income tax provision
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(3,063
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)
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(5,174
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)
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Net earnings
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9,085
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17,180
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Net earnings (loss) attributable to noncontrolling interests
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2
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(32
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)
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Net earnings attributable to Caleres, Inc.
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$
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9,083
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$
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17,212
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Basic earnings per common share attributable to Caleres, Inc. shareholders
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$
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0.22
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$
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0.40
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Diluted earnings per common share attributable to Caleres, Inc. shareholders
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$
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0.22
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$
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0.40
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See notes to
condensed
consolidated financial statements.
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CALERES, INC.
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CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
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(Unaudited)
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Thirteen Weeks Ended
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($ thousands)
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May 4, 2019
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May 5, 2018
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Net earnings
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$
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9,085
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$
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17,180
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Other comprehensive (loss) income, net of tax:
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Foreign currency translation adjustment
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(958
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)
|
(808
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)
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Pension and other postretirement benefits adjustments
|
395
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|
434
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Derivative financial instruments
|
303
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(521
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)
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Other comprehensive loss, net of tax
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(260
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)
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(895
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)
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Comprehensive income
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8,825
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16,285
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Comprehensive income (loss) attributable to noncontrolling interests
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14
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(40
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)
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Comprehensive income attributable to Caleres, Inc.
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$
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8,811
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$
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16,325
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See notes to
condensed
consolidated financial statements.
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CALERES, INC.
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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
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(Unaudited)
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Thirteen Weeks Ended
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($ thousands)
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May 4, 2019
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May 5, 2018
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Operating Activities
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Net earnings
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$
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9,085
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$
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17,180
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Adjustments to reconcile net earnings to net cash provided by operating activities:
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Depreciation
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11,434
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|
11,064
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Amortization of capitalized software
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1,733
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2,684
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Amortization of intangible assets
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3,265
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|
1,037
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Amortization of debt issuance costs and debt discount
|
791
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|
432
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Share-based compensation expense
|
3,314
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|
3,575
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Loss on disposal of property and equipment
|
136
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|
284
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Impairment charges for property, equipment and lease right-of-use assets
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1,194
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|
468
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Provision for doubtful accounts
|
117
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|
342
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Deferred rent
|
—
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(44
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)
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Changes in operating assets and liabilities, net of acquired amounts:
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Receivables
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43,117
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26,652
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Inventories
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38,492
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(11,264
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)
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Prepaid expenses and other current and noncurrent assets
|
(6,935
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)
|
(3,407
|
)
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Trade accounts payable
|
(27,315
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)
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(3,774
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)
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Accrued expenses and other liabilities
|
(27,836
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)
|
6,443
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Other, net
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(682
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)
|
(325
|
)
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Net cash provided by operating activities
|
49,910
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|
51,347
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|
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Investing Activities
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|
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|
|
|
Purchases of property and equipment
|
(18,443
|
)
|
(7,929
|
)
|
|
Capitalized software
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(2,917
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)
|
(1,434
|
)
|
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Net cash used for investing activities
|
(21,360
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)
|
(9,363
|
)
|
|
|
|
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Financing Activities
|
|
|
|
|
|
Borrowings under revolving credit agreement
|
84,000
|
|
—
|
|
|
Repayments under revolving credit agreement
|
(101,000
|
)
|
—
|
|
|
Dividends paid
|
(2,947
|
)
|
(3,023
|
)
|
|
Acquisition of treasury stock
|
—
|
|
(3,288
|
)
|
|
Issuance of common stock under share-based plans, net
|
(2,559
|
)
|
(3,122
|
)
|
|
Other
|
(394
|
)
|
—
|
|
|
Net cash used for financing activities
|
(22,900
|
)
|
(9,433
|
)
|
|
Effect of exchange rate changes on cash and cash equivalents
|
(72
|
)
|
(117
|
)
|
|
Increase in cash and cash equivalents
|
5,578
|
|
32,434
|
|
|
Cash and cash equivalents at beginning of period
|
30,200
|
|
64,047
|
|
|
Cash and cash equivalents at end of period
|
$
|
35,778
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|
$
|
96,481
|
|
See notes to
condensed
consolidated financial statements.
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CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
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(Unaudited)
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Common Stock
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Additional Paid-In Capital
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|
Accumulated Other Comprehensive (Loss) Income
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|
Retained Earnings
|
|
Total Caleres, Inc. Shareholders’ Equity
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|
Non-controlling Interests
|
|
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($ thousands, except number of shares and per share amounts)
|
Shares
|
Dollars
|
Total Equity
|
|
|
BALANCE FEBRUARY 2, 2019
|
41,886,562
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|
$
|
419
|
|
$
|
145,889
|
|
$
|
(31,601
|
)
|
$
|
519,346
|
|
$
|
634,053
|
|
$
|
1,382
|
|
$
|
635,435
|
|
|
Net earnings
|
|
|
|
|
9,083
|
|
9,083
|
|
2
|
|
9,085
|
|
|
Foreign currency translation adjustment
|
|
|
|
(970
|
)
|
|
(970
|
)
|
12
|
|
(958
|
)
|
|
Unrealized gain on derivative financial instruments, net of tax of $96
|
|
|
|
303
|
|
|
303
|
|
|
303
|
|
|
Pension and other postretirement benefits adjustments, net of tax of $138
|
|
|
|
395
|
|
|
395
|
|
|
395
|
|
|
Comprehensive (loss) income
|
|
|
|
(272
|
)
|
9,083
|
|
8,811
|
|
14
|
|
8,825
|
|
|
Dividends ($0.07 per share)
|
|
|
|
|
(2,947
|
)
|
(2,947
|
)
|
|
(2,947
|
)
|
|
Issuance of common stock under share-based plans, net
|
347,283
|
|
3
|
|
(2,562
|
)
|
|
|
(2,559
|
)
|
|
(2,559
|
)
|
|
Cumulative-effect adjustment from adoption of ASC 842
|
|
|
|
|
(13,436
|
)
|
(13,436
|
)
|
|
(13,436
|
)
|
|
Share-based compensation expense
|
|
|
3,314
|
|
|
|
3,314
|
|
|
3,314
|
|
|
BALANCE MAY 4, 2019
|
42,233,845
|
|
$
|
422
|
|
$
|
146,641
|
|
$
|
(31,873
|
)
|
$
|
512,046
|
|
$
|
627,236
|
|
$
|
1,396
|
|
$
|
628,632
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE FEBRUARY 3, 2018
|
43,031,689
|
|
$
|
430
|
|
$
|
136,460
|
|
$
|
(15,170
|
)
|
$
|
595,769
|
|
$
|
717,489
|
|
$
|
1,473
|
|
$
|
718,962
|
|
|
Net earnings (loss)
|
|
|
|
|
17,212
|
|
17,212
|
|
(32
|
)
|
17,180
|
|
|
Foreign currency translation adjustment
|
|
|
|
(808
|
)
|
|
(808
|
)
|
(8
|
)
|
(816
|
)
|
|
Unrealized loss on derivative financial instruments, net of tax of $122
|
|
|
|
(521
|
)
|
|
(521
|
)
|
|
(521
|
)
|
|
Pension and other postretirement benefits adjustments, net of tax of $151
|
|
|
|
434
|
|
|
434
|
|
|
434
|
|
|
Comprehensive (loss) income
|
|
|
|
(895
|
)
|
17,212
|
|
16,317
|
|
(40
|
)
|
16,277
|
|
|
Dividends ($0.07 per share)
|
|
|
|
|
(3,023
|
)
|
(3,023
|
)
|
|
(3,023
|
)
|
|
Acquisition of treasury stock
|
(100,000
|
)
|
(2
|
)
|
|
|
(3,286
|
)
|
(3,288
|
)
|
|
(3,288
|
)
|
|
Issuance of common stock under share-based plans, net
|
256,005
|
|
4
|
|
(3,126
|
)
|
|
|
(3,122
|
)
|
|
(3,122
|
)
|
|
Cumulative-effect adjustment from adoption of ASU 2016-16
|
|
|
|
|
(10,468
|
)
|
(10,468
|
)
|
|
(10,468
|
)
|
|
Cumulative-effect adjustment from adoption of ASU 2014-09 (Topic 606)
|
|
|
|
|
(4,775
|
)
|
(4,775
|
)
|
|
(4,775
|
)
|
|
Share-based compensation expense
|
|
|
3,575
|
|
|
|
3,575
|
|
|
3,575
|
|
|
BALANCE MAY 5, 2018
|
43,187,694
|
|
$
|
432
|
|
$
|
136,909
|
|
$
|
(16,065
|
)
|
$
|
591,429
|
|
$
|
712,705
|
|
$
|
1,433
|
|
$
|
714,138
|
|
See notes to
condensed
consolidated financial statements.
|
|
|
|
|
CALERES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
|
|
|
|
|
|
|
Note 1
|
Basis of Presentation
|
The accompanying condensed consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q of the United States Securities and Exchange Commission (“SEC”) and reflect all adjustments and accruals of a normal recurring nature, which management believes are necessary to present fairly the interim financial information of Caleres, Inc. ("the Company"). These statements, however, do not include all information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. The condensed consolidated financial statements include the accounts of the Company and its wholly-owned and majority-owned subsidiaries, after the elimination of intercompany accounts and transactions.
The Company’s business is seasonal in nature due to consumer spending patterns, with higher back-to-school and holiday season sales. Traditionally, the third fiscal quarter accounts for a substantial portion of the Company’s earnings for the year. Interim results may not necessarily be indicative of results which may be expected for any other interim period or for the year as a whole.
Certain prior period amounts in the condensed consolidated financial statements have been reclassified to conform to the current period presentation. These reclassifications did not affect net earnings attributable to Caleres, Inc.
For further information, refer to the consolidated financial statements and footnotes included in the Company's Annual Report on Form 10-K for the year ended
February 2, 2019
.
|
|
|
|
|
|
Note 2
|
Impact of New Accounting Pronouncements
|
Impact of Recently Adopted Accounting Pronouncements
In February 2016, the FASB issued Accounting Standards Update ("ASU") 2016-02,
Leases (Topic 842)
, which requires lessees to recognize most leases on the balance sheet. The FASB has subsequently issued ASUs with improvements to the guidance, including ASU 2018-11,
Leases (Topic 842): Targeted Improvements
, which provides entities with an additional transition method to adopt the new standard. The Company adopted Accounting Standards Codification ("ASC") Topic 842 ("ASC 842") in the first quarter of 2019 using the modified retrospective approach and the optional transition method permitted by ASU 2018-11. Upon adoption, the Company recorded an operating lease right-of-use asset of
$729.2 million
and lease liabilities of
$791.7 million
as of February 3, 2019. In addition, a cumulative-effect adjustment to retained earnings of
$13.4 million
, net of
$4.7 million
in deferred taxes, was recorded upon adoption. Prior period financial information in the condensed consolidated financial statements has not been adjusted and is presented under the guidance in ASC 840,
Leases
. The Company elected the package of practical expedients and the expedient to group lease and non-lease components as permitted within the ASU. The hindsight practical expedient was not elected. Refer to Note 10 to the condensed consolidated financial statements for additional information regarding ASC 842.
Impact of Prospective Accounting Pronouncements
In June 2016, the FASB issued ASU 2016-13,
Financial Instruments - Credit Losses (Topic 326)
, which significantly changes how entities will measure credit losses for most financial assets and certain other instruments that are not measured at fair value through net income. The ASU replaces today's "incurred loss" model with an "expected credit loss" model that requires entities to estimate an expected lifetime credit loss on financial assets, including trade accounts receivable. The ASU is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019, with early adoption permitted beginning after December 15, 2018. The ASU's provisions will be applied as a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which it is adopted. As credit losses from the Company's trade receivables have not historically been significant, the Company anticipates that the adoption of the ASU in the first quarter of 2020 will not have a material impact on the consolidated financial statements.
In August 2018, the FASB issued ASU 2018-13,
Fair Value Measurement (Topic 820): Disclosure Framework — Changes to the Disclosure Requirements for Fair Value Measurement
. ASU 2018-13 modifies disclosure requirements on fair value measurements, removing and modifying certain disclosures, while adding other disclosures. The ASU is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019, with early adoption permitted. The adoption of ASU 2018-13 is not expected to have a material impact on the Company's financial statement disclosures.
In August 2018, the FASB issued ASU 2018-14,
Compensation — Retirement Benefits — Defined Benefit Plans — General (Subtopic 715-20), Disclosure Framework — Changes to the Disclosure Requirements for Defined Benefit Plans
. The guidance changes the disclosure requirements for employers that sponsor defined benefit pension or other postretirement benefit plans, eliminating the requirements for certain disclosures that are no longer considered cost beneficial and requiring new disclosures that the FASB considers pertinent. The ASU is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020, with early adoption permitted. The adoption of ASU 2018-14 is not expected to have a material impact on the Company's financial statement disclosures.
Acquisition of Blowfish, LLC
On
July 6, 2018
, the Company entered into a Membership Interest Purchase Agreement ("Purchase Agreement") with Blowfish, LLC ("Blowfish", or "
Blowfish Malibu
"), pursuant to which the Company acquired a controlling interest in Blowfish. The noncontrolling interest is subject to a mandatory purchase obligation after a three-year period based upon an earnings multiple formula, as specified in the Purchase Agreement. The aggregate purchase price is estimated to be
$28.0 million
, including approximately
$9.0 million
assigned to the mandatory purchase obligation, which will be paid upon settlement in
2021
. The remaining
$19.0 million
(or
$16.8 million
, net of
$2.2 million
of cash received) was funded with cash. The estimate of the mandatory purchase obligation, which is recorded within other liabilities on the condensed consolidated balance sheets, is presented on a discounted basis and is subject to remeasurement based on the earnings formula specified in the Purchase Agreement. Accretion of the mandatory purchase obligation and any remeasurement adjustments will be recorded as interest expense. The operating results of Blowfish Malibu since July 6, 2018 have been included in the Company's condensed consolidated financial statements within the Brand Portfolio segment, with the elimination of sales and profit for sales to the Famous Footwear segment reflected in the Eliminations and Other category.
Blowfish Malibu, which was founded in 2005, designs and sells women's and children's footwear that captures the fresh youthful spirit and casual living that is distinctively Southern California. The footwear is marketed under the "Blowfish" and Blowfish Malibu" tradenames. The acquisition allows for continued expansion of the Company's overall business and provides additional exposure to the growing sneaker and casual lifestyle segment of the market.
The Company’s purchase price allocation contains uncertainties because it required management to make assumptions and to apply judgment to estimate the fair value of the acquired assets and liabilities. A single estimate of fair value results from a complex series of judgments about future events and uncertainties and relies heavily on estimates and assumptions. The judgments the Company used in estimating the fair values assigned to each class of the acquired assets and assumed liabilities could materially affect the results of its operations. Management estimated the fair value of the assets and liabilities based upon quoted market prices, the carrying value of the acquired assets and widely accepted valuation techniques, including discounted cash flows (Level 3 fair value measurements). Unanticipated events or circumstances may occur, which could affect the accuracy of the Company’s fair value estimates, including assumptions regarding industry economic factors and business strategies. As of May 4, 2019, the purchase price allocation is complete.
During the thirteen weeks ended
May 4, 2019
, Blowfish Malibu contributed net sales of
$19.3 million
to the Brand Portfolio segment (
$16.2 million
on a consolidated basis, net of eliminations), and net earnings of
$0.6 million
.
Acquisition of Vionic
On
October 18, 2018
, the Company entered into an Equity and Asset Purchase Agreement (the "Agreement") with the equity holders of Vionic Group LLC and Vionic International LLC, and VCG Holdings Ltd., a Cayman Islands corporation (collectively, "
Vionic
"), pursuant to which the Company acquired all of the outstanding equity interests of Vionic Group LLC and Vionic International LLC and certain related intellectual property from VCG Holdings Ltd for
$360.0 million
plus adjustments for cash and indebtedness, as defined in the Agreement. The aggregate purchase price was
$360.7 million
(or
$352.7 million
, net of
$8.0 million
of cash received). The purchase was funded with borrowings from the Company's revolving credit agreement. The operating results of Vionic since October 18, 2018 have been included in the Company's condensed consolidated financial statements within the Brand Portfolio segment, with the elimination of sales and profit for sales to the Famous Footwear segment reflected in the Eliminations and Other category.
Vionic, which was founded in 1979, brings together style and science, combining innovative biomechanics with the most coveted trends. As pioneers in foot health with a global team of experts behind the dual gender brand, Vionic brings a fresh perspective to stylish, supportive footwear, offering a vast selection of active, casual and dress styles, sandals and slippers. The acquisition of Vionic allows the Company to continue to expand its portfolio of brands and gives it additional access to the growing contemporary comfort footwear category.
The Brand Portfolio segment recognized
$5.8 million
(
$4.3 million
on an after-tax basis, or
$0.10
per diluted share) in incremental cost of goods sold in the
thirteen
weeks ended May 4, 2019 related to the amortization of the inventory fair value adjustment required for purchase accounting. In addition, the Company incurred integration-related costs of
$0.3 million
(
$0.2 million
on an after-tax basis, or
$0.01
per diluted share) in the
thirteen
weeks ended May 4, 2019, which were recorded as a component of restructuring and other special charges, net. Of the
$0.3 million
,
$0.2 million
is presented within the Eliminations and Other category and
$0.1 million
is presented in the Brand Portfolio segment.
Vionic contributed net sales of
$54.8 million
to the Brand Portfolio segment (
$53.1 million
on a consolidated basis, net of eliminations), and reported a net loss of approximately
$1.3 million
, primarily associated with the incremental cost of goods sold of
$5.8 million
related to the amortization of the inventory fair value adjustment required for purchase accounting. The net loss excludes the incremental interest expense associated with the acquisition.
Purchase Price Allocation
The assets and liabilities of Vionic were recorded at their estimated fair values, and the excess of the purchase price over the fair value of the assets acquired and liabilities assumed, including identified intangible assets, was recorded as goodwill. The Company has allocated the purchase price as of the acquisition date, October 18, 2018, as follows:
|
|
|
|
|
|
|
|
|
($ thousands)
|
|
October 18, 2018
|
|
|
ASSETS
|
|
|
|
Current assets:
|
|
|
|
Cash and cash equivalents
|
|
$
|
8,024
|
|
|
Receivables
|
|
32,319
|
|
|
Inventories
|
|
58,740
|
|
|
Prepaid expense and other current assets
|
|
3,618
|
|
|
Total current assets
|
|
102,701
|
|
|
Goodwill
|
|
150,413
|
|
|
Intangible assets
|
|
144,700
|
|
|
Property and equipment
|
|
6,864
|
|
|
Total assets
|
|
$
|
404,678
|
|
|
|
|
|
|
LIABILITIES AND EQUITY
|
|
|
|
Current liabilities:
|
|
|
|
Trade accounts payable
|
|
$
|
19,679
|
|
|
Other accrued expenses
|
|
20,768
|
|
|
Total current liabilities
|
|
40,447
|
|
|
Other liabilities
|
|
3,541
|
|
|
Total liabilities
|
|
43,988
|
|
|
Net assets
|
|
$
|
360,690
|
|
The allocation of the purchase price is based on certain preliminary valuations and analyses. Any subsequent changes in the estimated fair values assumed upon the finalization of more detailed analyses within the measurement period will change the allocation of the purchase price and will be adjusted during the period in which the amounts are determined. The Company’s purchase price allocation required management to make assumptions and to apply judgment to estimate the fair value of the acquired assets and liabilities. A single estimate of fair value results from a complex series of judgments about future events and uncertainties and relies heavily on estimates and assumptions. The judgments the Company used in estimating the fair values assigned to each class of the acquired assets and assumed liabilities could materially affect the results of its operations. Management estimated the fair value of the assets and liabilities based upon quoted market prices, the carrying value of the acquired assets and widely accepted valuation techniques, including discounted cash flows (Level 3 fair value measurements). Unanticipated events or circumstances may occur, which could affect the accuracy of the Company’s fair value estimates, including assumptions regarding industry economic factors and business strategies. A third-party valuation specialist assisted the Company with its preliminary fair value estimates for inventory and intangible assets other than goodwill. The Company used all available information to make its best estimate of fair values at the acquisition date. The Company continues to evaluate certain contingent liabilities, but the purchase price allocation is substantially complete as of May 4, 2019.
Goodwill and intangible assets reflected above were determined to meet the criteria for recognition apart from tangible assets acquired and liabilities assumed. The goodwill recognized, which is deductible for tax purposes, is primarily attributable to synergies and an assembled workforce. Refer to Note 9 to the consolidated financial statements for additional information regarding goodwill and intangible assets.
Accounting Policy
Revenue is recognized when obligations under the terms of a contract with the consumer are satisfied. This generally occurs at the time of transfer of control of merchandise. The Company considers several control indicators in its assessment of the timing of the transfer of control, including significant risks and rewards of ownership, physical possession and the Company's right to receive payment. Revenue is measured as the amount of consideration the Company expects to receive in exchange for transferring merchandise. The Company excludes sales and similar taxes collected from customers from the measurement of the transaction price for its retail sales.
Disaggregation of Revenues
The following table disaggregates revenue by segment and major source for the periods ended
May 4, 2019
and May 5, 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thirteen Weeks Ended May 4, 2019
|
|
($ thousands)
|
|
Famous Footwear
|
|
|
Brand Portfolio
|
|
|
Eliminations and Other
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail stores
|
|
$
|
320,242
|
|
|
$
|
36,650
|
|
|
$
|
—
|
|
|
$
|
356,892
|
|
|
Landed wholesale
|
|
—
|
|
|
233,370
|
|
|
(15,461
|
)
|
|
217,909
|
|
|
First-cost wholesale
|
|
—
|
|
|
14,771
|
|
|
—
|
|
|
14,771
|
|
|
E-commerce
|
|
31,781
|
|
|
53,046
|
|
|
—
|
|
|
84,827
|
|
|
Licensing and royalty
|
|
—
|
|
|
3,132
|
|
|
—
|
|
|
3,132
|
|
|
Other
(1)
|
|
142
|
|
|
81
|
|
|
—
|
|
|
223
|
|
|
Net sales
|
|
$
|
352,165
|
|
|
$
|
341,050
|
|
|
$
|
(15,461
|
)
|
|
$
|
677,754
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thirteen Weeks Ended May 5, 2018
|
|
($ thousands)
|
|
Famous Footwear
|
|
|
Brand Portfolio
|
|
|
Eliminations and Other
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail stores
|
|
$
|
338,256
|
|
|
$
|
42,784
|
|
|
$
|
—
|
|
|
$
|
381,040
|
|
|
Landed wholesale
|
|
—
|
|
|
182,576
|
|
|
(14,766
|
)
|
|
167,810
|
|
|
First-cost wholesale
|
|
—
|
|
|
13,405
|
|
|
—
|
|
|
13,405
|
|
|
E-commerce
|
|
25,014
|
|
|
40,950
|
|
|
—
|
|
|
65,964
|
|
|
Licensing and royalty
|
|
—
|
|
|
3,712
|
|
|
—
|
|
|
3,712
|
|
|
Other
(1)
|
|
141
|
|
|
70
|
|
|
—
|
|
|
211
|
|
|
Net sales
|
|
$
|
363,411
|
|
|
$
|
283,497
|
|
|
$
|
(14,766
|
)
|
|
$
|
632,142
|
|
|
(1)
Includes breakage revenue from unredeemed gift cards
|
Retail stores
The majority of the Company's revenue is generated from retail sales where control is transferred and revenue is recognized at the point of sale. Retail sales are recorded net of estimated returns and exclude sales tax. The Company carries a returns reserve and a corresponding return asset for expected returns of merchandise.
Retail sales to members of the Company's loyalty programs, including the Famously You Rewards program, include two performance obligations: the sale of merchandise and the delivery of points that may be redeemed for future purchases. The transaction price is allocated to the separate performance obligations based on the relative stand-alone selling price. The stand-
alone selling price for the points is estimated using the retail value of the merchandise earned, adjusted for estimated breakage based upon historical redemption patterns. The revenue associated with the initial merchandise purchased is recognized immediately and the value assigned to the points is deferred until the points are redeemed, forfeited or expired.
Landed wholesale
Landed sales are wholesale sales in which the merchandise is shipped directly to the customer from the Company’s warehouses. Many landed customers arrange their own transportation of merchandise and, with limited exceptions, control is transferred at the time of shipment.
First-cost wholesale
First-cost sales are wholesale sales in which the Company purchases merchandise from an international factory that manufactures the product. Revenue is recognized at the time the merchandise is delivered to the customer’s designated freight forwarder and control is transferred to the customer.
E-commerce
The Company also generates revenue from sales on websites maintained by the Company that are shipped from the Company's distribution centers or retail stores directly to the consumer, picked up directly by the consumer from the Company's stores and e-commerce sales from our wholesale customers' websites that are fulfilled on a drop-ship basis (collectively referred to as "e-commerce"). The Company transfers control and recognizes revenue for merchandise sold that is shipped directly to an individual consumer upon delivery to the consumer.
Licensing and royalty
The Company has license agreements with third parties allowing them to sell the Company’s branded product, or other merchandise that uses the Company’s owned or licensed brand names. These license agreements provide the licensee access to the Company's symbolic intellectual property, and revenue is therefore recognized over the license term. For royalty contracts that do not have guaranteed minimums, the Company recognizes revenue as the licensee's sales occur. For royalty contracts that have guaranteed minimums, revenue for the guaranteed minimum is recognized on a straight-line basis during the term, until such time that the cumulative royalties exceed the total minimum guarantee. Up-front payments are recognized over the contractual term to which the guaranteed minimum relates.
Contract Balances
Revenue is recorded at the transaction price, net of estimates for variable consideration for which reserves are established, including returns, allowances and discounts. Variable consideration is estimated using the expected value method and given the large number of contracts with similar characteristics, the portfolio approach is applied to determine the variable consideration for each revenue stream. Reserves for projected returns are based on historical patterns and current expectations.
Information about significant contract balances from contracts with customers is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
($ thousands)
|
May 4, 2019
|
|
May 5, 2018
|
|
February 2, 2019
|
|
|
Customer allowances and discounts
|
$
|
20,063
|
|
$
|
19,416
|
|
$
|
25,090
|
|
|
Loyalty programs liability
|
15,700
|
|
14,920
|
|
14,637
|
|
|
Returns reserve
|
16,621
|
|
12,606
|
|
13,841
|
|
|
Gift card liability
|
4,944
|
|
4,661
|
|
5,426
|
|
Changes in contract balances with customers generally reflect differences in relative sales volume for the periods presented. In addition, during the
thirteen weeks ended May 4, 2019
, the loyalty programs liability increased
$5.2 million
due to points accrued for purchases and decreased
$4.1 million
due to expirations and redemptions. During the thirteen weeks ended May 5, 2018, the loyalty programs liability increased
$6.4 million
due to the adoption of Topic 606 and
$5.9 million
due to points accrued for purchases and decreased
$5.5 million
due to expirations and redemptions.
|
|
|
|
|
|
Note 5
|
Earnings Per Share
|
The Company uses the two-class method to compute basic and diluted earnings per common share attributable to Caleres, Inc. shareholders. In periods of net loss, no effect is given to the Company’s participating securities since they do not contractually participate in the losses of the Company. The following table sets forth the computation of basic and diluted earnings per common share attributable to Caleres, Inc. shareholders for the periods ended
May 4, 2019
and
May 5, 2018
:
|
|
|
|
|
|
|
|
|
|
|
|
Thirteen Weeks Ended
|
|
($ thousands, except per share amounts)
|
May 4, 2019
|
|
May 5, 2018
|
|
|
NUMERATOR
|
|
|
|
|
|
Net earnings
|
$
|
9,085
|
|
$
|
17,180
|
|
|
Net (earnings) loss attributable to noncontrolling interests
|
(2
|
)
|
32
|
|
|
Net earnings allocated to participating securities
|
(283
|
)
|
(479
|
)
|
|
Net earnings attributable to Caleres, Inc. after allocation of earnings to participating securities
|
$
|
8,800
|
|
$
|
16,733
|
|
|
|
|
|
|
DENOMINATOR
|
|
|
|
|
|
Denominator for basic earnings per common share attributable to Caleres, Inc. shareholders
|
40,741
|
|
41,910
|
|
|
Dilutive effect of share-based awards
|
60
|
|
124
|
|
|
Denominator for diluted earnings per common share attributable to Caleres, Inc. shareholders
|
40,801
|
|
42,034
|
|
|
|
|
|
|
Basic earnings per common share attributable to Caleres, Inc. shareholders
|
$
|
0.22
|
|
$
|
0.40
|
|
|
|
|
|
|
Diluted earnings per common share attributable to Caleres, Inc. shareholders
|
$
|
0.22
|
|
$
|
0.40
|
|
Options to purchase
16,667
shares of common stock for the
thirteen weeks ended
May 4, 2019
were not included in the denominator for diluted earnings per common share attributable to Caleres, Inc. shareholders because the effect would be anti-dilutive. There were
no
options to purchase shares excluded from the denominator for the thirteen weeks ended May 5, 2018.
During the
thirteen weeks ended
May 4, 2019
and
May 5, 2018
, the Company repurchased
zero
and
100,000
shares, respectively, under the 2011 and 2018 publicly announced share repurchase programs, each of which permits repurchases of up to
2.5 million
shares. As of
May 4, 2019
, the Company has repurchased a total of
2.7 million
shares at an aggregate purchase price of
$77.8 million
.
|
|
|
|
|
|
Note
6
|
Restructuring and Other Initiatives
|
Vionic Integration-Related Costs
During the thirteen weeks ended May 4, 2019, the Company incurred integration-related costs associated with the acquisition of Vionic, primarily for severance, totaling
$0.3 million
(
$0.2 million
on an after-tax basis, or
$0.01
per diluted share). Of the
$0.3 million
in costs, which are presented as restructuring and other special charges, net in the condensed consolidated statements of earnings,
$0.2 million
are reflected within the Eliminations and Other category and
$0.1 million
are included in the Brand Portfolio segment. As of May 4, 2019 restructuring reserves of
$0.5 million
were included in other accrued expenses on the condensed consolidated balance sheets. Refer to further discussion of the acquisition in Note 3 to the condensed consolidated financial statements.
Carlos Brand Exit
The Company's license agreement to sell Carlos by Carlos Santana footwear expired in December 2018. In connection with the decision to exit the Carlos brand, the Company incurred restructuring-related costs of
$1.9 million
(
$1.4 million
on an after-tax basis, or
$0.03
per diluted share) during the first quarter of 2019. Of these charges included in the Brand Portfolio segment,
$1.3 million
(
$1.0 million
on an after-tax basis or
$0.02
per diluted share) primarily represents incremental inventory markdowns required to reduce the value of inventory to net realizable value and is presented in cost of goods sold on the statements of earnings and the remaining
$0.6
million (
$0.4
million on an after-tax basis, or
$0.01
per diluted share) for severance and other related costs is presented in restructuring and other special charges.
Integration and Reorganization of Men's Brands
During the thirteen weeks ended May 5, 2018, the Company incurred integration and reorganization costs related to the men's business, primarily for severance and professional fees, totaling
$1.8 million
(
$1.3 million
on an after-tax basis, or
$0.03
per diluted share). Of the
$1.8 million
in costs presented as restructuring and other special charges, net in the condensed consolidated statements of earnings for the thirteen weeks ended May 5, 2018,
$1.6 million
was reflected within the Brand Portfolio segment and
$0.2 million
was reflected within the Eliminations and Other category. As of May 5, 2018, restructuring reserves of
$1.1 million
were included in other accrued expenses on the condensed consolidated balance sheets.
|
|
|
|
|
|
Note 7
|
Business Segment Information
|
During the first quarter of 2019, the Company changed its segment presentation to present net sales of the Brand Portfolio segment inclusive of both external and intersegment sales, with the elimination of intersegment sales and profit from Brand Portfolio to Famous Footwear reflected within the Eliminations and Other category. This presentation reflects the independent business models of both Brand Portfolio and Famous Footwear, as well as growth in intersegment activity driven by recent acquisitions. Following is a summary of certain key financial measures for the Company’s business segments for the periods ended
May 4, 2019
and
May 5, 2018
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Famous Footwear
|
Brand Portfolio
|
Eliminations and Other
|
|
|
($ thousands)
|
Total
|
|
Thirteen Weeks Ended May 4, 2019
|
|
Net sales
|
$
|
352,165
|
|
$
|
341,050
|
|
$
|
(15,461
|
)
|
$
|
677,754
|
|
|
Intersegment sales
(1)
|
—
|
|
15,461
|
|
—
|
|
15,461
|
|
|
Operating earnings (loss)
|
10,813
|
|
12,929
|
|
(6,873
|
)
|
16,869
|
|
|
Segment assets
|
998,606
|
|
1,355,842
|
|
138,622
|
|
2,493,070
|
|
|
|
|
|
|
|
|
Thirteen Weeks Ended May 5, 2018
|
|
Net sales
|
$
|
363,411
|
|
$
|
283,497
|
|
$
|
(14,766
|
)
|
$
|
632,142
|
|
|
Intersegment sales
(1)
|
—
|
|
14,766
|
|
—
|
|
14,766
|
|
|
Operating earnings (loss)
|
21,857
|
|
11,627
|
|
(10,538
|
)
|
22,946
|
|
|
Segment assets
|
555,448
|
|
745,460
|
|
201,158
|
|
1,502,066
|
|
|
|
|
|
|
|
|
(1) Included in net sales in the Brand Portfolio segment and eliminated in the Eliminations and Other category
|
The Eliminations and Other category includes corporate assets, administrative expenses and other costs and recoveries, which are not allocated to the operating segments, as well as the elimination of intersegment sales and profit.
Following is a reconciliation of operating earnings to earnings before income taxes:
|
|
|
|
|
|
|
|
|
|
|
|
Thirteen Weeks Ended
|
|
($ thousands)
|
May 4, 2019
|
|
May 5, 2018
|
|
|
Operating earnings
|
$
|
16,869
|
|
$
|
22,946
|
|
|
Interest expense, net
|
(7,340
|
)
|
(3,683
|
)
|
|
Other income, net
|
2,619
|
|
3,091
|
|
|
Earnings before income taxes
|
$
|
12,148
|
|
$
|
22,354
|
|
The Company's net inventory balance was comprised of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
($ thousands)
|
May 4, 2019
|
|
May 5, 2018
|
|
February 2, 2019
|
|
|
Raw materials
|
$
|
18,618
|
|
$
|
15,554
|
|
$
|
19,128
|
|
|
Work-in-process
|
478
|
|
708
|
|
745
|
|
|
Finished goods
|
629,049
|
|
563,640
|
|
663,298
|
|
|
Inventories, net
|
$
|
648,145
|
|
$
|
579,902
|
|
$
|
683,171
|
|
|
|
|
|
|
|
Note
9
|
Goodwill and Intangible Assets
|
Goodwill and intangible assets were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
($ thousands)
|
May 4, 2019
|
|
May 5, 2018
|
|
February 2, 2019
|
|
|
Intangible Assets
|
|
|
|
|
|
|
|
Famous Footwear
|
$
|
2,800
|
|
$
|
2,800
|
|
$
|
2,800
|
|
|
Brand Portfolio
|
388,288
|
|
285,988
|
|
388,288
|
|
|
Other
|
—
|
|
1,769
|
|
—
|
|
|
Total intangible assets
|
391,088
|
|
290,557
|
|
391,088
|
|
|
Accumulated amortization
|
(86,987
|
)
|
(77,738
|
)
|
(83,722
|
)
|
|
Total intangible assets, net
|
304,101
|
|
212,819
|
|
307,366
|
|
|
Goodwill
|
|
|
|
|
|
|
|
Brand Portfolio
|
244,407
|
|
127,081
|
|
242,531
|
|
|
Total goodwill
|
244,407
|
|
127,081
|
|
242,531
|
|
|
Goodwill and intangible assets, net
|
$
|
548,508
|
|
$
|
339,900
|
|
$
|
549,897
|
|
As further described in Note 3 to the condensed consolidated financial statements, the Company acquired Vionic on October 18, 2018. The allocation of the purchase price resulted in incremental intangible assets of
$144.7 million
, consisting of trademarks and customer relationships of
$112.4 million
and
$32.3 million
, respectively, and incremental goodwill of
$150.4 million
. In addition, the Company acquired Blowfish Malibu on July 6, 2018. The allocation of the purchase price resulted in incremental intangible assets of
$17.6 million
, consisting of trademarks and customer relationships of
$11.1 million
and
$6.5 million
, respectively, and incremental goodwill of
$5.0 million
.
The Company's intangible assets as of
May 4, 2019
,
May 5, 2018
and
February 2, 2019
were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
($ thousands)
|
|
|
|
May 4, 2019
|
|
|
|
Estimated Useful Lives
|
|
Cost Basis
|
|
|
Accumulated Amortization
|
|
|
Net Carrying Value
|
|
|
Trademarks
|
|
15-40 years
|
|
$
|
288,788
|
|
|
$
|
84,427
|
|
|
$
|
204,361
|
|
|
Trademarks
|
|
Indefinite
|
|
58,100
|
|
|
—
|
|
|
58,100
|
|
|
Customer relationships
|
|
15-16 years
|
|
44,200
|
|
|
2,560
|
|
|
41,640
|
|
|
|
|
|
|
$
|
391,088
|
|
|
$
|
86,987
|
|
|
$
|
304,101
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
May 5, 2018
|
|
|
|
Estimated Useful Lives
|
|
Cost Basis
|
|
|
Accumulated Amortization
|
|
|
Net Carrying Value
|
|
|
Trademarks
|
|
15-40 years
|
|
$
|
165,288
|
|
|
$
|
77,219
|
|
|
$
|
88,069
|
|
|
Trademarks
|
|
Indefinite
|
|
118,100
|
|
|
—
|
|
|
118,100
|
|
|
Customer relationships
|
|
15 years
|
|
5,400
|
|
|
495
|
|
|
4,905
|
|
|
Software licenses
|
|
5 years
|
|
1,769
|
|
|
24
|
|
|
1,745
|
|
|
|
|
|
|
$
|
290,557
|
|
|
$
|
77,738
|
|
|
$
|
212,819
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
February 2, 2019
|
|
|
|
Estimated Useful Lives
|
|
Cost Basis
|
|
|
Accumulated Amortization
|
|
|
Impairment
|
|
|
Net Carrying Value
|
|
|
Trademarks
|
|
15-40 years
|
|
$
|
288,788
|
|
|
$
|
81,961
|
|
|
$
|
—
|
|
|
$
|
206,827
|
|
|
Trademarks
|
|
Indefinite
|
|
118,100
|
|
|
—
|
|
|
60,000
|
|
|
58,100
|
|
|
Customer relationships
|
|
15-16 years
|
|
44,200
|
|
|
1,761
|
|
|
—
|
|
|
42,439
|
|
|
|
|
|
|
$
|
451,088
|
|
|
$
|
83,722
|
|
|
$
|
60,000
|
|
|
$
|
307,366
|
|
Amortization expense related to intangible assets was
$3.3 million
and
$1.0 million
for the
thirteen weeks ended May 4, 2019
and
May 5, 2018
, respectively. The Company estimates that amortization expense related to intangible assets will be approximately
$13.1 million
in 2019,
$12.8 million
in 2020,
$12.7 million
in 2021,
$12.5 million
in 2022 and
$12.2 million
in 2023.
As a result of its annual goodwill impairment testing in the fourth quarter of 2018, the Company determined that the carrying value of the Allen Edmonds reporting unit exceeded its fair value and recorded
$38.0 million
in impairment charges. The Company recorded no goodwill impairment charges in the thirteen weeks ended May 4, 2019 or May 5, 2018.
Indefinite-lived intangible assets are tested for impairment as of the first day of the fourth quarter of each fiscal year unless events or circumstances indicate an interim test is required. The indefinite-lived intangible asset impairment review in the fourth quarter of 2018 resulted in
$60.0 million
in impairment charges associated with the Allen Edmonds trademark. The Company recorded no impairment charges in the thirteen weeks ended May 4, 2019 or May 5, 2018.
The Company leases all of its retail locations, a manufacturing facility, and certain office locations, distribution centers and equipment. At contract inception, leases are evaluated and classified as either operating or finance leases. Leases with an initial term of 12 months or less are not recorded on the balance sheet. The Company's leases that are classified as operating leases have lease terms and renewal options as follows:
|
|
|
|
|
|
|
|
Lease Term
|
Renewal Options
|
|
Retail stores
|
5-10 years
|
Approximately 45% have options of varying periods
|
|
Manufacturing facility
|
8 years
|
None
|
|
Office facilities and distribution centers
|
10-15 years
|
5-20 years
|
|
Equipment
|
1 - 6 years
|
None
|
As further discussed in Note 2 to the condensed consolidated financial statements, during the first quarter of 2019, the Company adopted ASC 842 using the modified retrospective transition method. Prior period financial information in the condensed consolidated financial statements has not been adjusted and is presented in compliance with ASC 840. The Company elected the package of practical expedients and the expedient to account for lease and non-lease components as a single component for the entire population of operating lease assets. The Company did not elect the hindsight practical expedient to reevaluate the lease term of existing contracts.
Lease right-of-use assets and lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term. The majority of the Company’s leases do not provide an implicit rate and therefore, the Company uses an incremental borrowing rate based on information available at the commencement date to determine the present value of future payments. Lease expense for minimum lease payments is recognized on a straight-line basis over the lease term. Variable lease payments are expensed as incurred.
The following is a summary of lease assets and liabilities on the condensed consolidated balance sheet at May 4, 2019:
|
|
|
|
|
|
|
|
|
($ thousands)
|
|
May 4, 2019
|
|
|
Lease Classification
|
|
|
|
Lease right-of-use assets
|
|
$
|
735,282
|
|
|
Current lease obligations
|
|
(136,005
|
)
|
|
Noncurrent lease obligations
|
|
(662,750
|
)
|
|
Net balance sheet impact
|
|
$
|
(63,473
|
)
|
The weighted-average lease term and discount rate as of May 4, 2019 were as follows:
|
|
|
|
|
|
|
|
May 4, 2019
|
|
|
Weighted-average remaining lease term (in years)
|
7.1
|
|
|
Weighted-average discount rate
|
4.1
|
%
|
As of May 4, 2019, the Company has entered into lease commitments for seven retail locations for which the leases have not yet commenced. The Company anticipates that the leases for five retail locations will begin in the next two fiscal quarters. Upon commencement, right-of-use assets and lease liabilities of approximately
$4.1 million
will be recorded on the condensed consolidated balance sheets. Leases for two retail locations are expected to begin in the next fiscal year, resulting in right-of-use assets and lease liabilities of approximately
$2.9 million
.
The components of lease expense for the thirteen weeks ended May 4, 2019 were as follows:
|
|
|
|
|
|
|
|
|
|
|
Thirteen Weeks Ended
|
|
|
($ thousands)
|
|
May 4, 2019
|
|
|
Operating lease expense
|
|
$
|
46,461
|
|
|
Variable lease expense
|
|
12,184
|
|
|
Short-term lease expense
|
|
1,115
|
|
|
Sublease income
|
|
(73
|
)
|
|
Total lease expense
|
|
$
|
59,687
|
|
Future minimum rent payments under noncancelable leases with an initial term of one year or more at
May 4, 2019
were as follows:
|
|
|
|
|
|
|
|
($ thousands)
|
|
|
|
Remainder of 2019
|
$
|
135,036
|
|
|
2020
|
159,990
|
|
|
2021
|
135,705
|
|
|
2022
|
113,185
|
|
|
2023
|
94,496
|
|
|
2024
|
73,946
|
|
|
Thereafter
|
168,164
|
|
|
Total minimum lease payments
(1)
|
$
|
880,522
|
|
|
Less imputed interest
|
(81,767
|
)
|
|
Present value of lease obligations
|
$
|
798,755
|
|
(1) Minimum lease payments have not been reduced by minimum sublease rental income of
$0.5 million
due in the future under noncancelable sublease agreements.
Supplemental cash flow information related to leases is as follows:
|
|
|
|
|
|
|
|
|
Thirteen Weeks Ended
|
|
|
($ thousands)
|
May 4, 2019
|
|
|
Cash paid for lease liabilities
|
$
|
46,511
|
|
|
Cash received from sublease income
|
73
|
|
|
|
|
|
|
|
Note 11
|
Long-term and Short-term Financing Arrangements
|
Credit Agreement
The Company maintains a revolving credit facility for working capital needs. On
December 18, 2014
, the Company and certain of its subsidiaries (the “Loan Parties”) entered into a Fourth Amended and Restated Credit Agreement ("the Former Credit Agreement"), which was further amended on
July 20, 2015
to release all of the Company’s subsidiaries that were borrowers under or that guaranteed the Former Credit Agreement other than Sidney Rich Associates, Inc. and BG Retail, LLC. Allen Edmonds and Vionic were joined to the Agreement as guarantors on
December 13, 2016
and
October 31, 2018
, respectively. After giving effect to the joinders, the Company is the lead borrower, and Sidney Rich Associates, Inc., BG Retail, LLC, Allen Edmonds and Vionic are each co-borrowers and guarantors under the Former Credit Agreement. On
January 18, 2019
, the Loan Parties entered into a Third Amendment to Fourth Amended and Restated Credit Agreement (as so amended, the "Credit Agreement") to extend the maturity date to
January 18, 2024
and change the borrowing capacity under the Former Credit Agreement from an aggregate amount of up to
$600.0 million
to an aggregate amount of up to
$500.0 million
, with the option to increase by up to
$250.0 million
. The Credit Amendment also reduces upfront and unused borrowing fees, provides for less restrictive covenants and offers more flexibility.
Borrowing availability under the Credit Agreement is limited to the lesser of the total commitments and the borrowing base ("Loan Cap"), which is based on stated percentages of the sum of eligible accounts receivable, eligible inventory and eligible credit card receivables, as defined, less applicable reserves. Under the Credit Agreement, the Loan Parties’ obligations are secured by a first-priority security interest in all accounts receivable, inventory and certain other collateral.
Interest on borrowings is at variable rates based on the London Interbank Offered Rate (“LIBOR”) or the prime rate, as defined in the Credit Agreement, plus a spread. The interest rate and fees for letters of credit vary based upon the level of excess availability
under the Credit Agreement. There is an unused line fee payable on the unused portion under the facility and a letter of credit fee payable on the outstanding face amount under letters of credit.
The Credit Agreement limits the Company’s ability to create, incur, assume or permit to exist additional indebtedness and liens, make investments or specified payments, give guarantees, pay dividends, make capital expenditures and merge or acquire or sell assets. In addition, certain additional covenants would be triggered if excess availability were to fall below specified levels, including fixed charge coverage ratio requirements. Furthermore, if excess availability falls below the greater of
10.0%
of the lesser of the Loan Cap and
$40.0 million
for three consecutive business days or an event of default occurs, the collateral agent may assume dominion and control over the Company’s cash (a “cash dominion event”) until such event of default is cured or waived or the excess availability exceeds such amount for
30
consecutive days, provided that a cash dominion event shall be deemed continuing (even if an event of default is no longer continuing and/or excess availability exceeds the required amount for
30
consecutive business days) after a cash dominion event has occurred and been discontinued on two occasions in any
12-month
period.
The Credit Agreement contains customary events of default, including, without limitation, payment defaults, breaches of representations and warranties, covenant defaults, cross-defaults to similar obligations, certain events of bankruptcy and insolvency, judgment defaults and the failure of any guaranty or security document supporting the agreement to be in full force and effect. In addition, if the excess availability falls below the greater of (i)
10.0%
of the lesser of the Loan Cap and (ii)
$40.0 million
, and the fixed charge coverage ratio is less than
1.0
to
1.0
, the Company would be in default under the Credit Agreement. The Credit Agreement also contains certain other covenants and restrictions. The Company was in compliance with all covenants and restrictions under the Credit Agreement as of
May 4, 2019
.
At
May 4, 2019
, the Company had
$318.0 million
borrowings outstanding and
$10.5 million
in letters of credit outstanding under the Credit Agreement. Total additional borrowing availability was
$171.5 million
at
May 4, 2019
.
$200 Million Senior Notes
On
July 27, 2015
, the Company issued
$200.0 million
aggregate principal amount of
6.25%
Senior Notes due 2023 (the "Senior Notes"). The Senior Notes are guaranteed on a senior unsecured basis by each of the Company's subsidiaries that is a borrower or guarantor under the Credit Agreement. Interest on the Senior Notes is payable on
February 15
and
August 15
of each year. The Senior Notes will mature on
August 15, 2023
. The Company may redeem all or a part of the Senior Notes at the redemption prices (expressed as a percentage of principal amount) set forth below plus accrued and unpaid interest, and Additional Interest (as defined in the Senior Notes indenture), if redeemed during the 12-month period beginning on
August 15
of the years indicated below:
|
|
|
|
|
|
|
|
|
|
|
|
|
Year
|
Percentage
|
|
|
2019
|
103.125
|
%
|
|
2020
|
101.563
|
%
|
|
2021 and thereafter
|
100.000
|
%
|
If the Company experiences specific kinds of changes of control, it would be required to offer to purchase the Senior Notes at a purchase price equal to
101%
of the principal amount, plus accrued and unpaid interest and Additional Interest, if any, to, but not including, the date of repurchase.
The Senior Notes also contain certain other covenants and restrictions that limit certain activities including, among other things, levels of indebtedness, payments of dividends, the guarantee or pledge of assets, certain investments, common stock repurchases, mergers and acquisitions and sales of assets. As of May 4, 2019, the Company was in compliance with all covenants and restrictions relating to the Senior Notes.
|
|
|
|
|
|
Note
12
|
Shareholders’ Equity
|
Accumulated Other Comprehensive Loss
The following table sets forth the changes in accumulated other comprehensive loss (OCL) by component for the periods ended
May 4, 2019
and
May 5, 2018
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
($ thousands)
|
Foreign Currency Translation
|
|
Pension and Other Postretirement Transactions
(1)
|
|
Derivative Financial Instrument Transactions
(2)
|
|
Accumulated Other Comprehensive (Loss) Income
|
|
|
Balance at February 2, 2019
|
$
|
62
|
|
$
|
(31,055
|
)
|
$
|
(608
|
)
|
$
|
(31,601
|
)
|
|
Other comprehensive (loss) income before reclassifications
|
(970
|
)
|
—
|
|
169
|
|
(801
|
)
|
|
Reclassifications:
|
|
|
|
|
|
|
Amounts reclassified from accumulated other comprehensive loss
|
—
|
|
533
|
|
171
|
|
704
|
|
|
Tax benefit
|
—
|
|
(138
|
)
|
(37
|
)
|
(175
|
)
|
|
Net reclassifications
|
—
|
|
395
|
|
134
|
|
529
|
|
|
Other comprehensive (loss) income
|
(970
|
)
|
395
|
|
303
|
|
(272
|
)
|
|
Balance at May 4, 2019
|
$
|
(908
|
)
|
$
|
(30,660
|
)
|
$
|
(305
|
)
|
$
|
(31,873
|
)
|
|
|
|
|
|
|
|
Balance at February 3, 2018
|
$
|
1,235
|
|
$
|
(17,172
|
)
|
$
|
767
|
|
$
|
(15,170
|
)
|
|
Other comprehensive loss before reclassifications
|
(808
|
)
|
—
|
|
(408
|
)
|
(1,216
|
)
|
|
Reclassifications:
|
|
|
|
|
|
Amounts reclassified from accumulated other comprehensive loss
|
—
|
|
585
|
|
(145
|
)
|
440
|
|
|
Tax (benefit) provision
|
—
|
|
(151
|
)
|
32
|
|
(119
|
)
|
|
Net reclassifications
|
—
|
|
434
|
|
(113
|
)
|
321
|
|
|
Other comprehensive (loss) income
|
(808
|
)
|
434
|
|
(521
|
)
|
(895
|
)
|
|
Balance at May 5, 2018
|
$
|
427
|
|
$
|
(16,738
|
)
|
$
|
246
|
|
$
|
(16,065
|
)
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Amounts reclassified are included in other income, net. Refer to Note 14 to the condensed consolidated financial statements for additional information related to pension and other postretirement benefits.
|
|
|
|
|
(2)
|
Amounts reclassified are included in net sales, costs of goods sold, selling and administrative expenses and interest expense, net. Refer to Note 15 and Note 16 to the condensed consolidated financial statements for additional information related to derivative financial instruments.
|
|
|
|
|
|
|
Note 13
|
Share-Based Compensation
|
The Company recognized share-based compensation expense of
$3.3 million
and
$3.6 million
during the
thirteen weeks ended May 4, 2019
and
May 5, 2018
, respectively. The Company issued
347,283
and
256,005
shares of common stock during the
thirteen weeks ended May 4, 2019
and
May 5, 2018
, respectively, for restricted stock grants, stock performance awards issued to employees, stock options exercised and common and restricted stock grants issued to non-employee directors, net of forfeitures and shares withheld to satisfy the tax withholding requirement.
Restricted Stock
The following table summarizes restricted stock activity for the periods ended
May 4, 2019
and
May 5, 2018
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thirteen Weeks Ended
|
|
|
Thirteen Weeks Ended
|
|
|
May 4, 2019
|
|
|
May 5, 2018
|
|
|
|
|
Weighted- Average Grant Date Fair Value
|
|
|
|
|
Weighted- Average Grant Date Fair Value
|
|
|
Total Number of Restricted Shares
|
|
|
|
Total Number of Restricted Shares
|
|
|
|
|
|
|
|
|
February 2, 2019
|
1,249,223
|
|
|
$
|
29.17
|
|
|
February 3, 2018
|
1,174,801
|
|
|
$
|
27.92
|
|
|
Granted
|
397,550
|
|
|
23.42
|
|
|
Granted
|
294,691
|
|
|
31.77
|
|
|
Forfeited
|
(21,425
|
)
|
|
29.51
|
|
|
Forfeited
|
(16,550
|
)
|
|
27.47
|
|
|
Vested
|
(204,920
|
)
|
|
30.06
|
|
|
Vested
|
(208,610
|
)
|
|
28.15
|
|
|
May 4, 2019
|
1,420,428
|
|
|
$
|
27.43
|
|
|
May 5, 2018
|
1,244,332
|
|
|
$
|
28.80
|
|
All
397,550
restricted shares granted during the
thirteen weeks ended May 4, 2019
, have a graded-vesting term of three years. Of the
294,691
restricted shares granted during the
thirteen weeks ended May 5, 2018
,
285,191
shares have a graded-vesting term of three years and
9,500
shares have a cliff-vesting term of four years. Share-based compensation expense for cliff-vesting grants is recognized on a straight-line basis over the vesting period and expense for graded-vesting grants is recognized ratably over the respective vesting periods.
Performance Share Awards
During the
thirteen weeks ended May 4, 2019
and
May 5, 2018
, the Company granted performance share awards for a targeted
180,000
and
155,000
shares, respectively, with a weighted-average grant date fair value of
$23.42
and
$31.84
, respectively. Vesting of performance-based awards is dependent upon the financial performance of the Company and the attainment of certain financial goals during the
three
-year period following the grant. At the end of the vesting period, the employee will have earned an amount of shares or units between
0%
and
200%
of the targeted award, depending on the achievement of the specified financial goals for the service period. Compensation expense is recognized based on the fair value of the award and the anticipated number of shares or units to be awarded for each tranche in accordance with the vesting schedule of the units over the
three
-year service period.
Stock Options
The following table summarizes stock option activity for the periods ended
May 4, 2019
and
May 5, 2018
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thirteen Weeks Ended
|
|
|
Thirteen Weeks Ended
|
|
|
May 4, 2019
|
|
|
May 5, 2018
|
|
|
|
|
Weighted- Average Grant Date Fair Value
|
|
|
|
|
Weighted- Average Grant Date Fair Value
|
|
|
Total Number of Stock Options
|
|
|
|
Total Number of Stock Options
|
|
|
|
|
|
|
|
|
February 2, 2019
|
42,667
|
|
|
$
|
8.64
|
|
|
February 3, 2018
|
81,042
|
|
|
$
|
6.28
|
|
|
Granted
|
—
|
|
|
—
|
|
|
Granted
|
—
|
|
|
—
|
|
|
Exercised
|
—
|
|
|
—
|
|
|
Exercised
|
(16,500
|
)
|
|
4.02
|
|
|
Forfeited
|
—
|
|
|
—
|
|
|
Forfeited
|
—
|
|
|
—
|
|
|
Expired
|
—
|
|
|
—
|
|
|
Expired
|
(2,500
|
)
|
|
5.71
|
|
|
May 4, 2019
|
42,667
|
|
|
$
|
8.64
|
|
|
May 5, 2018
|
62,042
|
|
|
$
|
6.90
|
|
Restricted Stock Units for Non-Employee Directors
Equity-based grants may be made to non-employee directors in the form of restricted stock units ("RSUs") payable in cash or common stock at no cost to the non-employee director. The RSUs earn dividend equivalents at the same rate as dividends on the Company's common stock. The dividend equivalents, which vest immediately, are automatically re-invested in additional RSUs. Expense related to the initial grant of RSUs is recognized ratably over the vesting period based upon the fair value of the RSUs. The RSUs payable in cash are remeasured at the end of each period. Expense for the dividend equivalents is recognized at fair value when the dividend equivalents are granted. The Company granted
1,114
and
781
RSUs for dividend equivalents during the
thirteen weeks ended May 4, 2019
and
May 5, 2018
, respectively, with weighted-average grant date fair values of
$25.08
and
$33.10
, respectively.
|
|
|
|
|
|
Note
14
|
Retirement and Other Benefit Plans
|
The following table sets forth the components of net periodic benefit income for the Company, including domestic and Canadian plans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits
|
Other Postretirement Benefits
|
|
|
Thirteen Weeks Ended
|
Thirteen Weeks Ended
|
|
($ thousands)
|
May 4, 2019
|
|
May 5, 2018
|
|
May 4, 2019
|
|
May 5, 2018
|
|
|
Service cost
|
$
|
1,854
|
|
$
|
2,382
|
|
$
|
—
|
|
$
|
—
|
|
|
Interest cost
|
3,725
|
|
3,541
|
|
15
|
|
15
|
|
|
Expected return on assets
|
(6,892
|
)
|
(7,232
|
)
|
—
|
|
—
|
|
|
Amortization of:
|
|
|
|
|
|
|
|
|
|
Actuarial loss (gain)
|
928
|
|
1,013
|
|
(30
|
)
|
(30
|
)
|
|
Prior service income
|
(365
|
)
|
(398
|
)
|
—
|
|
—
|
|
|
Total net periodic benefit income
|
$
|
(750
|
)
|
$
|
(694
|
)
|
$
|
(15
|
)
|
$
|
(15
|
)
|
The non-service cost components of net periodic benefit income are included in other income, net in the condensed consolidated statements of earnings. Service cost is included in selling and administrative expenses.
|
|
|
|
|
|
Note 15
|
Risk Management and Derivatives
|
In the normal course of business, the Company’s financial results are impacted by currency rate movements in foreign currency denominated assets, liabilities and cash flows as it makes a portion of its purchases and sales in local currencies. The Company has established policies and business practices that are intended to mitigate a portion of the effect of these exposures. The Company uses derivative financial instruments, primarily forward contracts, to manage its currency exposures. These derivative financial instruments are viewed as risk management tools and are not used for trading or speculative purposes. Derivatives entered into by the Company are designated as cash flow hedges of forecasted foreign currency transactions.
Derivative financial instruments expose the Company to credit and market risk. The market risk associated with these instruments resulting from currency exchange movements is expected to offset the market risk of the underlying transactions being hedged. The Company does not believe there is a significant risk of loss in the event of non-performance by the counterparties associated with these instruments because these transactions are executed with major international financial institutions and have varying maturities through
May 2020
. Credit risk is managed through the continuous monitoring of exposures to such counterparties.
The Company’s hedging strategy uses forward contracts as cash flow hedging instruments, which are recorded in the Company's condensed consolidated balance sheets at fair value. The effective portion of gains and losses resulting from changes in the fair value of these hedge instruments are deferred in accumulated other comprehensive loss and reclassified to earnings in the period that the hedged transaction is recognized in earnings.
As of
May 4, 2019
,
May 5, 2018
and
February 2, 2019
, the Company had forward contracts maturing at various dates through
May 2020
,
May 2019
and
January 2020
, respectively. The contract amounts in the following table represent the net notional amount of all purchase and sale contracts of a foreign currency.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(U.S. $ equivalent in thousands)
|
May 4, 2019
|
|
May 5, 2018
|
|
February 2, 2019
|
|
|
Financial Instruments
|
|
|
|
|
Euro
|
$
|
12,134
|
|
$
|
17,180
|
|
$
|
13,383
|
|
|
U.S. dollars (purchased by the Company’s Canadian division with Canadian dollars)
|
13,230
|
|
14,828
|
|
15,196
|
|
|
Chinese yuan
|
2,858
|
|
12,520
|
|
4,507
|
|
|
New Taiwanese dollars
|
469
|
|
514
|
|
461
|
|
|
Other currencies
|
376
|
|
422
|
|
382
|
|
|
Total financial instruments
|
$
|
29,067
|
|
$
|
45,464
|
|
$
|
33,929
|
|
The classification and fair values of derivative instruments designated as hedging instruments included within the condensed consolidated balance sheets as of
May 4, 2019
,
May 5, 2018
and
February 2, 2019
are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset Derivatives
|
|
Liability Derivatives
|
|
($ thousands)
|
Balance Sheet Location
|
Fair Value
|
|
|
Balance Sheet Location
|
Fair Value
|
|
|
Foreign Exchange Forward Contracts
|
|
|
|
|
|
|
|
May 4, 2019
|
Prepaid expenses and other current assets
|
$
|
183
|
|
|
Other accrued expenses
|
$
|
459
|
|
|
May 5, 2018
|
Prepaid expenses and other current assets
|
591
|
|
|
Other accrued expenses
|
392
|
|
|
February 2, 2019
|
Prepaid expenses and other current assets
|
159
|
|
|
Other accrued expenses
|
745
|
|
For the
thirteen weeks ended May 4, 2019
and
May 5, 2018
, the effect of derivative instruments in cash flow hedging relationships on the condensed consolidated statements of earnings was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thirteen Weeks Ended
|
Thirteen Weeks Ended
|
|
($ thousands)
|
May 4, 2019
|
May 5, 2018
|
|
Foreign Exchange Forward Contracts:
Income Statement Classification (Losses) Gains - Realized
|
(Loss) Gain Recognized in OCL on Derivatives
|
|
Loss Reclassified from Accumulated OCL into Earnings
|
|
Loss
Recognized in OCL on Derivatives
|
|
(Loss) Gain Reclassified from Accumulated OCL into Earnings
|
|
|
|
|
|
|
|
|
Net sales
|
$
|
(99
|
)
|
$
|
—
|
|
$
|
(25
|
)
|
$
|
—
|
|
|
Cost of goods sold
|
289
|
|
(22
|
)
|
(402
|
)
|
(92
|
)
|
|
Selling and administrative expenses
|
35
|
|
(149
|
)
|
(72
|
)
|
237
|
|
|
Interest expense, net
|
—
|
|
—
|
|
—
|
|
—
|
|
All gains and losses currently included within accumulated other comprehensive loss associated with the Company’s foreign exchange forward contracts are expected to be reclassified into net earnings within the next 12 months. Additional information related to the Company’s derivative financial instruments are disclosed within Note 16 to the condensed consolidated financial statements.
|
|
|
|
|
|
Note 16
|
Fair Value Measurements
|
Fair Value Hierarchy
Fair value measurement disclosure requirements specify a hierarchy of valuation techniques based upon whether the inputs to those valuation techniques reflect assumptions other market participants would use based upon market data obtained from independent sources (“observable inputs”) or reflect the Company’s own assumptions of market participant valuation (“unobservable inputs”). In accordance with the fair value guidance, the inputs to valuation techniques used to measure fair value are categorized into three levels based on the reliability of the inputs as follows:
|
|
|
|
•
|
Level 1 – Quoted prices in active markets that are unadjusted and accessible at the measurement date for identical, unrestricted assets or liabilities;
|
|
|
|
|
•
|
Level 2 – Quoted prices for identical assets and liabilities in markets that are not active, quoted prices for similar assets and liabilities in active markets or financial instruments for which significant inputs are observable, either directly or indirectly; and
|
|
|
|
|
•
|
Level 3 – Prices or valuations that require inputs that are both significant to the fair value measurement and unobservable.
|
In determining fair value, the Company uses valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible. The Company also considers counterparty credit risk in its assessment of fair value. Classification of the financial or non-financial asset or liability within the hierarchy is determined based on the lowest level input that is significant to the fair value measurement.
Measurement of Fair Value
The Company measures fair value as an exit price, the price to sell an asset or transfer a liability in an orderly transaction between market participants at the measurement date, using the procedures described below for all financial and non-financial assets and liabilities measured at fair value.
Money Market Funds
The Company has cash equivalents consisting of short-term money market funds backed by U.S. Treasury securities. The primary objective of these investing activities is to preserve the Company’s capital for the purpose of funding operations and it does not enter into money market funds for trading or speculative purposes. The fair value is based on unadjusted quoted market prices for the funds in active markets with sufficient volume and frequency (Level 1).
Non-Qualified Deferred Compensation Plan Assets and Liabilities
The Company maintains a non-qualified deferred compensation plan (the “Deferred Compensation Plan”) for the benefit of certain management employees. The investment funds offered to the participants generally correspond to the funds offered in the Company’s 401(k) plan, and the account balance fluctuates with the investment returns on those funds. The Deferred Compensation Plan permits the deferral of up to
50%
of base salary and
100%
of compensation received under the Company’s annual incentive plan. The deferrals are held in a separate trust, which has been established by the Company to administer the Deferred Compensation Plan. The assets of the trust are subject to the claims of the Company’s creditors in the event that the Company becomes insolvent. Consequently, the trust qualifies as a grantor trust for income tax purposes (i.e., a “Rabbi Trust”). The liabilities of the Deferred Compensation Plan are presented in other accrued expenses and the assets held by the trust are classified within prepaid expenses and other current assets in the accompanying condensed consolidated balance sheets. Changes in deferred compensation plan assets and liabilities are charged to selling and administrative expenses. The fair value is based on unadjusted quoted market prices for the funds in active markets with sufficient volume and frequency (Level 1).
Deferred Compensation Plan for Non-Employee Directors
Non-employee directors are eligible to participate in a deferred compensation plan with deferred amounts valued as if invested in the Company’s common stock through the use of phantom stock units (“PSUs”). Under the plan, each participating director’s account is credited with the number of PSUs equal to the number of shares of the Company’s common stock that the participant could purchase or receive with the amount of the deferred compensation, based upon the average of the high and low prices of the Company’s common stock on the last trading day of the fiscal quarter when the cash compensation was earned. Dividend equivalents are paid on PSUs at the same rate as dividends on the Company’s common stock and are re-invested in additional PSUs at the next fiscal quarter-end. The liabilities of the plan are based on the fair value of the outstanding PSUs and are presented in other accrued expenses (current portion) or other liabilities in the accompanying condensed consolidated balance sheets. Gains and losses resulting from changes in the fair value of the PSUs are presented in selling and administrative expenses in the Company’s condensed consolidated statements of earnings. The fair value of each PSU is based on an unadjusted quoted market price for the Company’s common stock in an active market with sufficient volume and frequency on each measurement date (Level 1).
Restricted Stock Units for Non-Employee Directors
Under the Company’s incentive compensation plans, cash-equivalent restricted stock units (“RSUs”) of the Company were previously granted at no cost to non-employee directors. These cash-equivalent RSUs are subject to a vesting requirement (usually one year), earn dividend-equivalent units, and are settled in cash on the date the director terminates service or such earlier date as a director may elect, subject to restrictions, based on the then current fair value of the Company’s common stock. The fair value of each cash-equivalent RSU is based on an unadjusted quoted market price for the Company’s common stock in an active market with sufficient volume and frequency on each measurement date (Level 1). Additional information related to RSUs for non-employee directors is disclosed in Note 13 to the condensed consolidated financial statements.
Derivative Financial Instruments
The Company uses derivative financial instruments, primarily foreign exchange contracts, to reduce its exposure to market risks from changes in foreign exchange rates. These foreign exchange contracts are measured at fair value using quoted forward foreign exchange prices from counterparties corroborated by market-based pricing (Level 2). Additional information related to the Company’s derivative financial instruments is disclosed in Note 15 to the condensed consolidated financial statements.
Mandatory Purchase Obligation
The Company recorded a mandatory purchase obligation of the noncontrolling interest in conjunction with the acquisition of Blowfish Malibu in July of 2018. The fair value of the mandatory purchase obligation is based on the earnings formula specified in the Purchase Agreement (Level 3). Accretion of the mandatory purchase obligation and any fair value adjustments are recorded as interest expense. During the
thirteen weeks ended May 4, 2019
, accretion of
$0.1 million
was recorded. The earnings projections and discount rate utilized in the estimate of the fair value of the mandatory purchase obligation require management judgment and are the assumptions to which the fair value calculation is the most sensitive. Refer to further discussion of the mandatory purchase obligation in Note 3 to the condensed consolidated financial statements.
The following table presents the Company’s assets and liabilities that are measured at fair value on a recurring basis at
May 4, 2019
,
May 5, 2018
and
February 2, 2019
. The Company did not have any transfers between Level 1, Level 2 or Level 3 during the thirteen weeks ended May 4, 2019 or May 5, 2018.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements
|
|
($ thousands)
|
Total
|
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
|
Asset (Liability)
|
|
|
|
|
|
|
|
|
|
|
May 4, 2019:
|
|
|
|
|
|
|
Cash equivalents – money market funds
|
$
|
4,500
|
|
|
$
|
4,500
|
|
$
|
—
|
|
$
|
—
|
|
|
Non-qualified deferred compensation plan assets
|
7,865
|
|
|
7,865
|
|
—
|
|
—
|
|
|
Non-qualified deferred compensation plan liabilities
|
(7,865
|
)
|
|
(7,865
|
)
|
—
|
|
—
|
|
|
Deferred compensation plan liabilities for non-employee directors
|
(2,173
|
)
|
|
(2,173
|
)
|
—
|
|
—
|
|
|
Restricted stock units for non-employee directors
|
(4,013
|
)
|
|
(4,013
|
)
|
—
|
|
—
|
|
|
Derivative financial instruments, net
|
(276
|
)
|
|
—
|
|
(276
|
)
|
—
|
|
|
Mandatory purchase obligation - Blowfish Malibu
|
(9,353
|
)
|
|
—
|
|
—
|
|
(9,353
|
)
|
|
May 5, 2018:
|
|
|
|
|
|
|
Cash equivalents – money market funds
|
$
|
76,335
|
|
|
$
|
76,335
|
|
$
|
—
|
|
$
|
—
|
|
|
Non-qualified deferred compensation plan assets
|
6,898
|
|
|
6,898
|
|
—
|
|
—
|
|
|
Non-qualified deferred compensation plan liabilities
|
(6,898
|
)
|
|
(6,898
|
)
|
—
|
|
—
|
|
|
Deferred compensation plan liabilities for non-employee directors
|
(2,563
|
)
|
|
(2,563
|
)
|
—
|
|
—
|
|
|
Restricted stock units for non-employee directors
|
(5,011
|
)
|
|
(5,011
|
)
|
—
|
|
—
|
|
|
Derivative financial instruments, net
|
199
|
|
|
—
|
|
199
|
|
—
|
|
|
February 2, 2019:
|
|
|
|
|
|
|
Cash equivalents – money market funds
|
$
|
4,582
|
|
|
$
|
4,582
|
|
$
|
—
|
|
$
|
—
|
|
|
Non-qualified deferred compensation plan assets
|
7,270
|
|
|
7,270
|
|
—
|
|
—
|
|
|
Non-qualified deferred compensation plan liabilities
|
(7,270
|
)
|
|
(7,270
|
)
|
—
|
|
—
|
|
|
Deferred compensation plan liabilities for non-employee directors
|
(2,364
|
)
|
|
(2,364
|
)
|
—
|
|
—
|
|
|
Restricted stock units for non-employee directors
|
(4,419
|
)
|
|
(4,419
|
)
|
—
|
|
—
|
|
|
Derivative financial instruments, net
|
(586
|
)
|
|
—
|
|
(586
|
)
|
—
|
|
|
Mandatory purchase obligation - Blowfish Malibu
|
(9,245
|
)
|
|
—
|
|
—
|
|
(9,245
|
)
|
Impairment Charges
The Company assesses the impairment of long-lived assets whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Factors the Company considers important that could trigger an impairment review include underperformance relative to historical or projected future operating results, a significant change in the manner of the use of the asset, or a negative industry or economic trend. When the Company determines that the carrying value of long-lived assets may not be recoverable based upon the existence of one or more of the aforementioned factors, impairment is measured based on a projected discounted cash flow method. Certain factors, such as estimated store sales and expenses, used for this nonrecurring fair value measurement are considered Level 3 inputs as defined by FASB ASC Topic 820,
Fair Value Measurement
. Long-lived assets held and used with a carrying amount of
$685.0 million
and
$105.4 million
at
May 4, 2019
and
May 5, 2018
, respectively, were assessed for indicators of impairment and written down to their fair value. This assessment resulted in the following impairment charges, primarily for leasehold improvements, furniture and fixtures in the Company's retail stores and operating lease right-of-use assets, which were included in selling and administrative expenses for the respective periods.
|
|
|
|
|
|
|
|
|
|
|
|
Thirteen Weeks Ended
|
|
($ thousands)
|
May 4, 2019
|
|
May 5, 2018
|
|
|
Impairment Charges
|
|
|
|
Famous Footwear
|
$
|
400
|
|
$
|
150
|
|
|
Brand Portfolio
|
794
|
|
318
|
|
|
Total impairment charges
|
$
|
1,194
|
|
$
|
468
|
|
Fair Value of the Company’s Other Financial Instruments
The fair values of cash and cash equivalents (excluding money market funds discussed above), receivables and trade accounts payable approximate their carrying values due to the short-term nature of these instruments.
The carrying amounts and fair values of the Company's other financial instruments subject to fair value disclosures are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
May 4, 2019
|
|
May 5, 2018
|
|
February 2, 2019
|
|
|
Carrying
|
|
|
Fair
|
|
|
Carrying
|
|
|
Fair
|
|
|
Carrying
|
|
|
Fair
|
|
|
($ thousands)
|
Value
|
|
|
Value
|
|
|
Value
|
|
|
Value
|
|
|
Value
|
|
|
Value
|
|
|
Borrowings under revolving credit agreement
|
$
|
318,000
|
|
|
$
|
318,000
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
335,000
|
|
|
$
|
335,000
|
|
|
Long-term debt
|
198,046
|
|
|
208,000
|
|
|
197,587
|
|
|
209,500
|
|
|
197,932
|
|
|
205,500
|
|
|
Total debt
|
$
|
516,046
|
|
|
$
|
526,000
|
|
|
$
|
197,587
|
|
|
$
|
209,500
|
|
|
$
|
532,932
|
|
|
$
|
540,500
|
|
The fair value of borrowings under the revolving credit agreement approximates its carrying value due to its short-term nature (Level 1). The fair value of the Company’s long-term debt was based upon quoted prices in an inactive market as of the end of the respective periods (Level 2).
The Company’s consolidated effective tax rates were
25.2%
and
23.1%
for the
thirteen weeks
ended
May 4, 2019
and
May 5, 2018
, respectively. The Company's effective tax rate was impacted by a discrete tax provision of
$0.1 million
in the thirteen weeks ended May 4, 2019 related to share-based compensation, compared to discrete tax benefits of
$0.5 million
in the thirteen weeks ended May 5, 2018. If these discrete taxes had not been recognized during the thirteen weeks ended May 4, 2019 and May 5, 2018, the Company's effective tax rate would have been
24.3%
and
25.4%
, respectively.
As of May 4, 2019, no deferred taxes have been provided on the accumulated unremitted earnings of the Company’s foreign subsidiaries that are not subject to United States income tax, beyond the amounts recorded for the one-time transition tax for the mandatory deemed repatriation of cumulative foreign earnings, as required by the Tax Cuts and Jobs Act. The Company periodically evaluates its foreign investment opportunities and plans, as well as its foreign working capital needs, to determine the level of investment required and, accordingly, determines the level of foreign earnings that is considered indefinitely reinvested. Based upon that evaluation, earnings of the Company’s foreign subsidiaries that are not otherwise subject to United States taxation are considered to be indefinitely reinvested, and accordingly, deferred taxes have not been provided. If changes occur in future investment opportunities and plans, those changes will be reflected when known and may result in providing residual United States
deferred taxes on unremitted foreign earnings. Due to the complexity of the hypothetical calculation, it is not practicable to estimate the amount of the deferred tax liability associated with these unremitted foreign earnings.
|
|
|
|
|
|
Note 18
|
Commitments and Contingencies
|
Environmental Remediation
Prior operations included numerous manufacturing and other facilities for which the Company may have responsibility under various environmental laws for the remediation of conditions that may be identified in the future. The Company is involved in environmental remediation and ongoing compliance activities at several sites and has been notified that it is or may be a potentially responsible party at several other sites.
Redfield
The Company is remediating, under the oversight of Colorado authorities, the groundwater and indoor air at its owned facility in Colorado (the “Redfield site” or, when referring to remediation activities at or under the facility, the “on-site remediation”) and residential neighborhoods adjacent to and near the property (the “off-site remediation”) that have been affected by solvents previously used at the facility. The on-site remediation calls for the operation of a pump and treat system (which prevents migration of contaminated groundwater off the property) as the final remedy for the site, subject to monitoring and periodic review of the on-site conditions and other remedial technologies that may be developed in the future. In 2016, the Company submitted a revised plan to address on-site conditions, including direct treatment of source areas, and received approval from the oversight authorities to begin implementing the revised plan.
As the treatment of the on-site source areas progresses, the Company expects to convert the pump and treat system to a passive treatment barrier system. Off-site groundwater concentrations have been reducing over time since installation of the pump and treat system in 2000 and injection of clean water beginning in 2003. However, localized areas of contaminated bedrock just beyond the property line continue to impact off-site groundwater. The modified work plan for addressing this condition includes converting the off-site bioremediation system into a monitoring well network and employing different remediation methods in these recalcitrant areas. In accordance with the work plan, a pilot test was conducted of certain groundwater remediation methods and the results of that test were used to develop more detailed plans for remedial activities in the off-site areas, which were approved by the authorities and are being implemented in a phased manner. The results of groundwater monitoring are being used to evaluate the effectiveness of these activities. The Company continues to implement the expanded remedy work plan that was approved by the oversight authorities in 2015. Based on the progress of the direct remedial action of on-site conditions, the Company has submitted a request to the oversight authorities for permission to convert the perimeter pump and treat active remediation system to a passive one.
The cumulative expenditures for both on-site and off-site remediation through
May 4, 2019
were
$30.6 million
. The Company has recovered a portion of these expenditures from insurers and other third parties. The reserve for the anticipated future remediation activities at
May 4, 2019
is
$9.7 million
, of which
$9.0 million
is recorded within other liabilities and
$0.7 million
is recorded within other accrued expenses. Of the total $
9.7 million
reserve,
$5.1 million
is for off-site remediation and
$4.6 million
is for on-site remediation. The liability for the on-site remediation was discounted at
4.8%
. On an undiscounted basis, the on-site remediation liability would be
$14.0 million
as of
May 4, 2019
. The Company expects to spend approximately $
0.5 million
in the next fiscal year,
$0.1 million
in each of the following four years and
$13.1 million
in the aggregate thereafter related to the on-site remediation.
Other
Various federal and state authorities have identified the Company as a potentially responsible party for remediation at certain other sites. However, the Company does not currently believe that its liability for such sites, if any, would be material.
The Company continues to evaluate its remediation plans in conjunction with its environmental consultants and records its best estimate of remediation liabilities. However, future actions and the associated costs are subject to oversight and approval of various governmental authorities. Accordingly, the ultimate costs may vary, and it is possible costs may exceed the recorded amounts.
Litigation
The Company is involved in legal proceedings and litigation arising in the ordinary course of business. In the opinion of management, the outcome of such ordinary course of business proceedings and litigation currently pending is not expected to have a material adverse effect on the Company’s results of operations or financial position. Legal costs associated with litigation are generally expensed as incurred.
|
|
|
|
|
|
Note 19
|
Financial Information for the Company and its Subsidiaries
|
The Company issued senior notes, which are fully and unconditionally and jointly and severally guaranteed by all of its existing and future subsidiaries that are guarantors under the Company's revolving credit facility ("Credit Agreement"). The following tables present the condensed consolidating financial information for each of Caleres, Inc. (“Parent”), the Guarantors, and subsidiaries of the Parent that are not Guarantors (the “Non-Guarantors”), together with consolidating eliminations, as of and for the periods indicated. Guarantors are
100%
owned by the Parent. On
October 31, 2018
,
Vionic
was joined to the Credit Agreement as a guarantor. After giving effect to the joinder, the Company is the lead borrower, and Sidney Rich Associates, Inc., BG Retail, LLC, Allen Edmonds and Vionic are each co-borrowers and guarantors under the Credit Agreement.
The condensed consolidating financial statements have been prepared using the equity method of accounting in accordance with the requirements for presentation of such information. Management believes that the information, presented in lieu of complete financial statements for each of the Guarantors, provides meaningful information to allow investors to determine the nature of the assets held by, and operations and cash flows of, each of the consolidated groups.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
UNAUDITED CONDENSED CONSOLIDATING BALANCE SHEET
|
|
MAY 4, 2019
|
|
|
|
|
Non-
|
|
|
|
|
($ thousands)
|
Parent
|
|
Guarantors
|
|
Guarantors
|
|
Eliminations
|
|
Total
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
Current assets
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
$
|
6,812
|
|
$
|
14,703
|
|
$
|
14,263
|
|
$
|
—
|
|
$
|
35,778
|
|
|
Receivables, net
|
91,170
|
|
39,619
|
|
17,698
|
|
—
|
|
148,487
|
|
|
Inventories, net
|
124,703
|
|
492,630
|
|
30,812
|
|
—
|
|
648,145
|
|
|
Prepaid expenses and other current assets
|
31,046
|
|
18,077
|
|
6,586
|
|
(807
|
)
|
54,902
|
|
|
Intercompany receivable – current
|
314
|
|
76
|
|
8,800
|
|
(9,190
|
)
|
—
|
|
|
Total current assets
|
254,045
|
|
565,105
|
|
78,159
|
|
(9,997
|
)
|
887,312
|
|
|
Other assets
|
73,066
|
|
11,793
|
|
852
|
|
—
|
|
85,711
|
|
|
Goodwill and intangible assets, net
|
108,328
|
|
331,689
|
|
108,491
|
|
—
|
|
548,508
|
|
|
Lease right-of-use assets
|
130,006
|
|
572,551
|
|
32,725
|
|
—
|
|
735,282
|
|
|
Property and equipment, net
|
75,763
|
|
149,955
|
|
10,539
|
|
—
|
|
236,257
|
|
|
Investment in subsidiaries
|
1,503,973
|
|
—
|
|
(25,376
|
)
|
(1,478,597
|
)
|
—
|
|
|
Intercompany receivable – noncurrent
|
586,453
|
|
620,752
|
|
775,061
|
|
(1,982,266
|
)
|
—
|
|
|
Total assets
|
$
|
2,731,634
|
|
$
|
2,251,845
|
|
$
|
980,451
|
|
$
|
(3,470,860
|
)
|
$
|
2,493,070
|
|
|
|
|
|
|
|
|
|
Liabilities and Equity
|
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
|
|
|
|
|
|
|
|
|
|
Borrowings under revolving credit agreement
|
$
|
318,000
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
$
|
318,000
|
|
|
Trade accounts payable
|
83,559
|
|
183,057
|
|
22,455
|
|
—
|
|
289,071
|
|
|
Lease obligations
|
11,096
|
|
118,041
|
|
6,868
|
|
—
|
|
136,005
|
|
|
Other accrued expenses
|
65,845
|
|
83,503
|
|
19,683
|
|
(807
|
)
|
168,224
|
|
|
Intercompany payable – current
|
4,669
|
|
—
|
|
4,521
|
|
(9,190
|
)
|
—
|
|
|
Total current liabilities
|
483,169
|
|
384,601
|
|
53,527
|
|
(9,997
|
)
|
911,300
|
|
|
Other liabilities
|
|
|
|
|
|
|
|
|
|
|
|
Noncurrent lease obligations
|
$
|
132,565
|
|
$
|
497,527
|
|
$
|
32,658
|
|
$
|
—
|
|
$
|
662,750
|
|
|
Long-term debt
|
198,046
|
|
—
|
|
—
|
|
—
|
|
198,046
|
|
|
Other liabilities
|
88,358
|
|
2,848
|
|
1,136
|
|
—
|
|
92,342
|
|
|
Intercompany payable – noncurrent
|
1,202,260
|
|
113,338
|
|
666,668
|
|
(1,982,266
|
)
|
—
|
|
|
Total other liabilities
|
1,621,229
|
|
613,713
|
|
700,462
|
|
(1,982,266
|
)
|
953,138
|
|
|
Equity
|
|
|
|
|
|
|
|
|
|
|
|
Caleres, Inc. shareholders’ equity
|
627,236
|
|
1,253,531
|
|
225,066
|
|
(1,478,597
|
)
|
627,236
|
|
|
Noncontrolling interests
|
—
|
|
—
|
|
1,396
|
|
—
|
|
1,396
|
|
|
Total equity
|
627,236
|
|
1,253,531
|
|
226,462
|
|
(1,478,597
|
)
|
628,632
|
|
|
Total liabilities and equity
|
$
|
2,731,634
|
|
$
|
2,251,845
|
|
$
|
980,451
|
|
$
|
(3,470,860
|
)
|
$
|
2,493,070
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
UNAUDITED CONDENSED CONSOLIDATING STATEMENT OF COMPREHENSIVE INCOME
|
|
FOR THE THIRTEEN WEEKS ENDED MAY 4, 2019
|
|
|
|
|
Non-
|
|
|
|
|
($ thousands)
|
Parent
|
|
Guarantors
|
|
Guarantors
|
|
Eliminations
|
|
Total
|
|
|
Net sales
|
$
|
191,404
|
|
$
|
488,321
|
|
$
|
52,426
|
|
$
|
(54,397
|
)
|
$
|
677,754
|
|
|
Cost of goods sold
|
129,259
|
|
289,541
|
|
27,095
|
|
(47,977
|
)
|
397,918
|
|
|
Gross profit
|
62,145
|
|
198,780
|
|
25,331
|
|
(6,420
|
)
|
279,836
|
|
|
Selling and administrative expenses
|
55,941
|
|
194,585
|
|
18,005
|
|
(6,420
|
)
|
262,111
|
|
|
Restructuring and other special charges, net
|
856
|
|
—
|
|
—
|
|
—
|
|
856
|
|
|
Operating earnings
|
5,348
|
|
4,195
|
|
7,326
|
|
—
|
|
16,869
|
|
|
Interest (expense) income
|
(7,339
|
)
|
(22
|
)
|
21
|
|
—
|
|
(7,340
|
)
|
|
Other income (expense)
|
2,637
|
|
—
|
|
(18
|
)
|
—
|
|
2,619
|
|
|
Intercompany interest income (expense)
|
2,841
|
|
(2,817
|
)
|
(24
|
)
|
—
|
|
—
|
|
|
Earnings before income taxes
|
3,487
|
|
1,356
|
|
7,305
|
|
—
|
|
12,148
|
|
|
Income tax provision
|
(1,312
|
)
|
(355
|
)
|
(1,396
|
)
|
—
|
|
(3,063
|
)
|
|
Equity in earnings (loss) of subsidiaries, net of tax
|
6,908
|
|
—
|
|
(538
|
)
|
(6,370
|
)
|
—
|
|
|
Net earnings
|
9,083
|
|
1,001
|
|
5,371
|
|
(6,370
|
)
|
9,085
|
|
|
Less: Net earnings attributable to noncontrolling interests
|
—
|
|
—
|
|
2
|
|
—
|
|
2
|
|
|
Net earnings attributable to Caleres, Inc.
|
$
|
9,083
|
|
$
|
1,001
|
|
$
|
5,369
|
|
$
|
(6,370
|
)
|
$
|
9,083
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
$
|
8,811
|
|
$
|
923
|
|
$
|
4,570
|
|
$
|
(5,479
|
)
|
$
|
8,825
|
|
|
Less: Comprehensive income attributable to noncontrolling interests
|
—
|
|
—
|
|
14
|
|
—
|
|
14
|
|
|
Comprehensive income attributable to Caleres, Inc.
|
$
|
8,811
|
|
$
|
923
|
|
$
|
4,556
|
|
$
|
(5,479
|
)
|
$
|
8,811
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
UNAUDITED CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
|
|
FOR THE THIRTEEN WEEKS ENDED MAY 4, 2019
|
|
|
|
|
Non-
|
|
|
|
|
($ thousands)
|
Parent
|
|
Guarantors
|
|
Guarantors
|
|
Eliminations
|
|
Total
|
|
|
Net cash (used for) provided by operating activities
|
$
|
(5,419
|
)
|
$
|
47,435
|
|
$
|
7,894
|
|
$
|
—
|
|
$
|
49,910
|
|
|
|
|
|
|
|
|
|
Investing activities
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of property and equipment
|
(14,787
|
)
|
(2,833
|
)
|
(823
|
)
|
—
|
|
(18,443
|
)
|
|
Capitalized software
|
(2,911
|
)
|
(6
|
)
|
—
|
|
—
|
|
(2,917
|
)
|
|
Intercompany investing
|
(120
|
)
|
120
|
|
—
|
|
—
|
|
—
|
|
|
Net cash used for investing activities
|
(17,818
|
)
|
(2,719
|
)
|
(823
|
)
|
—
|
|
(21,360
|
)
|
|
|
|
|
|
|
|
|
Financing activities
|
|
|
|
|
|
|
|
|
|
|
|
Borrowings under revolving credit agreement
|
84,000
|
|
—
|
|
—
|
|
—
|
|
84,000
|
|
|
Repayments under revolving credit agreement
|
(101,000
|
)
|
—
|
|
—
|
|
—
|
|
(101,000
|
)
|
|
Dividends paid
|
(2,947
|
)
|
—
|
|
—
|
|
—
|
|
(2,947
|
)
|
|
Issuance of common stock under share-based plans, net
|
(2,559
|
)
|
—
|
|
—
|
|
—
|
|
(2,559
|
)
|
|
Other
|
(394
|
)
|
—
|
|
—
|
|
—
|
|
(394
|
)
|
|
Intercompany financing
|
52,947
|
|
(39,161
|
)
|
(13,786
|
)
|
—
|
|
—
|
|
|
Net cash provided by (used for) financing activities
|
30,047
|
|
(39,161
|
)
|
(13,786
|
)
|
—
|
|
(22,900
|
)
|
|
Effect of exchange rate changes on cash and cash equivalents
|
—
|
|
—
|
|
(72
|
)
|
—
|
|
(72
|
)
|
|
Increase (decrease) in cash and cash equivalents
|
6,810
|
|
5,555
|
|
(6,787
|
)
|
—
|
|
5,578
|
|
|
Cash and cash equivalents at beginning of period
|
2
|
|
9,148
|
|
21,050
|
|
—
|
|
30,200
|
|
|
Cash and cash equivalents at end of period
|
$
|
6,812
|
|
$
|
14,703
|
|
$
|
14,263
|
|
$
|
—
|
|
$
|
35,778
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
UNAUDITED CONDENSED CONSOLIDATING BALANCE SHEET
|
|
MAY 5, 2018
|
|
|
|
|
Non-
|
|
|
|
|
($ thousands)
|
Parent
|
|
Guarantors
|
|
Guarantors
|
|
Eliminations
|
|
Total
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
Current assets
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
$
|
41,795
|
|
$
|
10,011
|
|
$
|
44,675
|
|
$
|
—
|
|
$
|
96,481
|
|
|
Receivables, net
|
113,763
|
|
2,721
|
|
9,075
|
|
—
|
|
125,559
|
|
|
Inventories, net
|
110,242
|
|
441,144
|
|
28,516
|
|
—
|
|
579,902
|
|
|
Prepaid expenses and other current assets
|
28,677
|
|
31,669
|
|
6,632
|
|
(4,593
|
)
|
62,385
|
|
|
Intercompany receivable – current
|
919
|
|
339
|
|
14,444
|
|
(15,702
|
)
|
—
|
|
|
Total current assets
|
295,396
|
|
485,884
|
|
103,342
|
|
(20,295
|
)
|
864,327
|
|
|
Other assets
|
75,242
|
|
12,937
|
|
762
|
|
—
|
|
88,941
|
|
|
Goodwill and intangible assets, net
|
112,298
|
|
40,937
|
|
186,665
|
|
—
|
|
339,900
|
|
|
Property and equipment, net
|
36,178
|
|
160,903
|
|
11,817
|
|
—
|
|
208,898
|
|
|
Investment in subsidiaries
|
1,341,505
|
|
—
|
|
(24,043
|
)
|
(1,317,462
|
)
|
—
|
|
|
Intercompany receivable – noncurrent
|
783,315
|
|
536,213
|
|
708,992
|
|
(2,028,520
|
)
|
—
|
|
|
Total assets
|
$
|
2,643,934
|
|
$
|
1,236,874
|
|
$
|
987,535
|
|
$
|
(3,366,277
|
)
|
$
|
1,502,066
|
|
|
|
|
|
|
|
|
|
Liabilities and Equity
|
|
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
|
|
|
|
|
|
|
|
|
|
Trade accounts payable
|
$
|
99,013
|
|
$
|
150,288
|
|
$
|
19,616
|
|
$
|
—
|
|
$
|
268,917
|
|
|
Other accrued expenses
|
67,588
|
|
85,180
|
|
20,571
|
|
(4,593
|
)
|
168,746
|
|
|
Intercompany payable – current
|
5,467
|
|
—
|
|
10,235
|
|
(15,702
|
)
|
—
|
|
|
Total current liabilities
|
172,068
|
|
235,468
|
|
50,422
|
|
(20,295
|
)
|
437,663
|
|
|
Other liabilities
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt
|
197,587
|
|
—
|
|
—
|
|
—
|
|
197,587
|
|
|
Other liabilities
|
102,303
|
|
40,200
|
|
10,175
|
|
—
|
|
152,678
|
|
|
Intercompany payable – noncurrent
|
1,459,271
|
|
91,100
|
|
478,149
|
|
(2,028,520
|
)
|
—
|
|
|
Total other liabilities
|
1,759,161
|
|
131,300
|
|
488,324
|
|
(2,028,520
|
)
|
350,265
|
|
|
Equity
|
|
|
|
|
|
|
|
|
|
|
|
Caleres, Inc. shareholders’ equity
|
712,705
|
|
870,106
|
|
447,356
|
|
(1,317,462
|
)
|
712,705
|
|
|
Noncontrolling interests
|
—
|
|
—
|
|
1,433
|
|
—
|
|
1,433
|
|
|
Total equity
|
712,705
|
|
870,106
|
|
448,789
|
|
(1,317,462
|
)
|
714,138
|
|
|
Total liabilities and equity
|
$
|
2,643,934
|
|
$
|
1,236,874
|
|
$
|
987,535
|
|
$
|
(3,366,277
|
)
|
$
|
1,502,066
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
UNAUDITED CONDENSED CONSOLIDATING STATEMENT OF COMPREHENSIVE INCOME
|
|
FOR THE THIRTEEN WEEKS ENDED MAY 5, 2018
|
|
|
|
|
Non-
|
|
|
|
|
($ thousands)
|
Parent
|
|
Guarantors
|
|
Guarantors
|
|
Eliminations
|
|
Total
|
|
|
Net sales
|
$
|
199,260
|
|
$
|
445,695
|
|
$
|
37,392
|
|
$
|
(50,205
|
)
|
$
|
632,142
|
|
|
Cost of goods sold
|
134,594
|
|
247,799
|
|
17,867
|
|
(43,039
|
)
|
357,221
|
|
|
Gross profit
|
64,666
|
|
197,896
|
|
19,525
|
|
(7,166
|
)
|
274,921
|
|
|
Selling and administrative expenses
|
66,342
|
|
177,886
|
|
13,135
|
|
(7,166
|
)
|
250,197
|
|
|
Restructuring and other special charges, net
|
525
|
|
1,253
|
|
—
|
|
—
|
|
1,778
|
|
|
Operating (loss) earnings
|
(2,201
|
)
|
18,757
|
|
6,390
|
|
—
|
|
22,946
|
|
|
Interest (expense) income
|
(3,819
|
)
|
(12
|
)
|
148
|
|
—
|
|
(3,683
|
)
|
|
Other income (expense)
|
3,120
|
|
—
|
|
(29
|
)
|
—
|
|
3,091
|
|
|
Intercompany interest income (expense)
|
2,768
|
|
(2,799
|
)
|
31
|
|
—
|
|
—
|
|
|
(Loss) earnings before income taxes
|
(132
|
)
|
15,946
|
|
6,540
|
|
—
|
|
22,354
|
|
|
Income tax provision
|
(952
|
)
|
(3,302
|
)
|
(920
|
)
|
—
|
|
(5,174
|
)
|
|
Equity in earnings (loss) of subsidiaries, net of tax
|
18,296
|
|
—
|
|
(478
|
)
|
(17,818
|
)
|
—
|
|
|
Net earnings
|
17,212
|
|
12,644
|
|
5,142
|
|
(17,818
|
)
|
17,180
|
|
|
Less: Net loss attributable to noncontrolling interests
|
—
|
|
—
|
|
(32
|
)
|
—
|
|
(32
|
)
|
|
Net earnings attributable to Caleres, Inc.
|
$
|
17,212
|
|
$
|
12,644
|
|
$
|
5,174
|
|
$
|
(17,818
|
)
|
$
|
17,212
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
$
|
16,325
|
|
$
|
12,626
|
|
$
|
4,995
|
|
$
|
(17,661
|
)
|
$
|
16,285
|
|
|
Less: Comprehensive loss attributable to noncontrolling interests
|
—
|
|
—
|
|
(40
|
)
|
—
|
|
(40
|
)
|
|
Comprehensive income attributable to Caleres, Inc.
|
$
|
16,325
|
|
$
|
12,626
|
|
$
|
5,035
|
|
$
|
(17,661
|
)
|
$
|
16,325
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
UNAUDITED CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
|
|
FOR THE THIRTEEN WEEKS ENDED MAY 5, 2018
|
|
|
|
|
Non-
|
|
|
|
|
($ thousands)
|
Parent
|
|
Guarantors
|
|
Guarantors
|
|
Eliminations
|
|
Total
|
|
|
Net cash provided by operating activities
|
$
|
5,799
|
|
$
|
38,599
|
|
$
|
6,949
|
|
$
|
—
|
|
$
|
51,347
|
|
|
|
|
|
|
|
|
|
Investing activities
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of property and equipment
|
(3,095
|
)
|
(4,334
|
)
|
(500
|
)
|
—
|
|
(7,929
|
)
|
|
Capitalized software
|
(1,248
|
)
|
(186
|
)
|
—
|
|
—
|
|
(1,434
|
)
|
|
Intercompany investing
|
286
|
|
(286
|
)
|
—
|
|
—
|
|
—
|
|
|
Net cash used for investing activities
|
(4,057
|
)
|
(4,806
|
)
|
(500
|
)
|
—
|
|
(9,363
|
)
|
|
|
|
|
|
|
|
|
Financing activities
|
|
|
|
|
|
|
|
|
|
|
|
Dividends paid
|
(3,023
|
)
|
—
|
|
—
|
|
—
|
|
(3,023
|
)
|
|
Acquisition of treasury stock
|
(3,288
|
)
|
—
|
|
—
|
|
—
|
|
(3,288
|
)
|
|
Issuance of common stock under share-based plans, net
|
(3,122
|
)
|
—
|
|
—
|
|
—
|
|
(3,122
|
)
|
|
Intercompany financing
|
23,397
|
|
(23,782
|
)
|
385
|
|
—
|
|
—
|
|
|
Net cash provided by (used for) financing activities
|
13,964
|
|
(23,782
|
)
|
385
|
|
—
|
|
(9,433
|
)
|
|
Effect of exchange rate changes on cash and cash equivalents
|
—
|
|
—
|
|
(117
|
)
|
—
|
|
(117
|
)
|
|
Increase in cash and cash equivalents
|
15,706
|
|
10,011
|
|
6,717
|
|
—
|
|
32,434
|
|
|
Cash and cash equivalents at beginning of period
|
26,089
|
|
—
|
|
37,958
|
|
—
|
|
64,047
|
|
|
Cash and cash equivalents at end of period
|
$
|
41,795
|
|
$
|
10,011
|
|
$
|
44,675
|
|
$
|
—
|
|
$
|
96,481
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CONDENSED CONSOLIDATING BALANCE SHEET
|
|
FEBRUARY 2, 2019
|
|
|
|
|
Non-
|
|
|
|
|
($ thousands)
|
Parent
|
|
Guarantors
|
|
Guarantors
|
|
Eliminations
|
|
Total
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
Current assets
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
$
|
2
|
|
$
|
9,148
|
|
$
|
21,050
|
|
$
|
—
|
|
$
|
30,200
|
|
|
Receivables, net
|
130,684
|
|
32,319
|
|
28,719
|
|
—
|
|
191,722
|
|
|
Inventories, net
|
175,697
|
|
470,610
|
|
36,864
|
|
—
|
|
683,171
|
|
|
Prepaid expenses and other current assets
|
31,195
|
|
32,556
|
|
7,603
|
|
—
|
|
71,354
|
|
|
Intercompany receivable – current
|
190
|
|
42
|
|
15,279
|
|
(15,511
|
)
|
—
|
|
|
Total current assets
|
337,768
|
|
544,675
|
|
109,515
|
|
(15,511
|
)
|
976,447
|
|
|
Other assets
|
68,707
|
|
11,824
|
|
909
|
|
—
|
|
81,440
|
|
|
Goodwill and intangible assets, net
|
108,884
|
|
331,810
|
|
109,203
|
|
—
|
|
549,897
|
|
|
Property and equipment, net
|
62,608
|
|
157,270
|
|
10,906
|
|
—
|
|
230,784
|
|
|
Investment in subsidiaries
|
1,499,209
|
|
—
|
|
(24,838
|
)
|
(1,474,371
|
)
|
—
|
|
|
Intercompany receivable – noncurrent
|
597,515
|
|
578,821
|
|
762,281
|
|
(1,938,617
|
)
|
—
|
|
|
Total assets
|
$
|
2,674,691
|
|
$
|
1,624,400
|
|
$
|
967,976
|
|
$
|
(3,428,499
|
)
|
$
|
1,838,568
|
|
|
|
|
|
|
|
|
|
Liabilities and Equity
|
|
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
|
|
|
|
|
|
|
|
|
|
Borrowings under revolving credit agreement
|
$
|
335,000
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
$
|
335,000
|
|
|
Trade accounts payable
|
146,400
|
|
130,670
|
|
39,228
|
|
—
|
|
316,298
|
|
|
Other accrued expenses
|
95,498
|
|
86,015
|
|
20,525
|
|
—
|
|
202,038
|
|
|
Intercompany payable – current
|
10,781
|
|
—
|
|
4,730
|
|
(15,511
|
)
|
—
|
|
|
Total current liabilities
|
587,679
|
|
216,685
|
|
64,483
|
|
(15,511
|
)
|
$
|
853,336
|
|
|
Other liabilities
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt
|
197,932
|
|
—
|
|
—
|
|
—
|
|
197,932
|
|
|
Other liabilities
|
105,689
|
|
41,149
|
|
5,027
|
|
—
|
|
151,865
|
|
|
Intercompany payable – noncurrent
|
1,149,338
|
|
115,114
|
|
674,165
|
|
(1,938,617
|
)
|
—
|
|
|
Total other liabilities
|
1,452,959
|
|
156,263
|
|
679,192
|
|
(1,938,617
|
)
|
349,797
|
|
|
Equity
|
|
|
|
|
|
|
|
|
|
|
|
Caleres, Inc. shareholders’ equity
|
634,053
|
|
1,251,452
|
|
222,919
|
|
(1,474,371
|
)
|
634,053
|
|
|
Noncontrolling interests
|
—
|
|
—
|
|
1,382
|
|
—
|
|
1,382
|
|
|
Total equity
|
634,053
|
|
1,251,452
|
|
224,301
|
|
(1,474,371
|
)
|
635,435
|
|
|
Total liabilities and equity
|
$
|
2,674,691
|
|
$
|
1,624,400
|
|
$
|
967,976
|
|
$
|
(3,428,499
|
)
|
$
|
1,838,568
|
|
|
|
|
|
|
|
ITEM 2
|
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|
Financial Highlights
The following is a summary of the financial highlights for the
first quarter of 2019
:
|
|
|
|
•
|
Consolidated net sales increased
$45.7 million
in the
first quarter of 2019
, driven by our 2018 acquisitions of Vionic and Blowfish Malibu, which contributed net sales of $54.8 million and $19.3 million to the Brand Portfolio segment ($53.1 million and $16.2 million on a consolidated basis, net of eliminations), respectively, for the first quarter of 2019. Our Famous Footwear segment experienced an
$11.2 million
, or
3.1%
, decline in sales.
|
|
|
|
|
•
|
Consolidated gross profit increased
$4.9 million
, or
1.8%
, to
$279.8 million
for the
first quarter of 2019
, compared to
$274.9 million
for the
first quarter of 2018
.
|
|
|
|
|
•
|
Consolidated operating earnings decreased
$6.0 million
, or
26.5%
, to
$16.9 million
in the
first quarter of 2019
, compared to
$22.9 million
in the
first quarter of 2018
.
|
|
|
|
|
•
|
Consolidated net earnings attributable to Caleres, Inc. were
$9.1 million
, or
$0.22
per diluted share, in the
first quarter of 2019
, compared to
$17.2 million
, or
$0.40
per diluted share, in the
first quarter of 2018
.
|
The following items should be considered in evaluating the comparability of our
first quarter
results in 2019 and 2018:
|
|
|
|
•
|
Acquisition of Vionic – In October 2018, we acquired Vionic, a growing brand with strong consumer loyalty and a complementary fit to the other brands within our Brand Portfolio segment. Vionic contributed $54.8 million to our Brand Portfolio net sales ($53.1 million on a consolidated basis, net of eliminations) for the first quarter of 2019. We incurred acquisition and integration-related charges of $6.1 million during the first quarter of 2019, including incremental cost of goods sold of $5.8 million ($4.3 million on an after-tax basis, or $0.10 per diluted share) related to the amortization of the inventory adjustment required for purchase accounting and integration-related costs of $0.3 million ($0.2 million on an after-tax basis, or $0.01 per diluted share) during the
first quarter
of 2019, which are presented as restructuring and other special charges, net. Refer to Notes 3 and 6 to the condensed consolidated financial statements for additional information related to these costs.
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|
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•
|
Acquisition of Blowfish Malibu – In July 2018, we acquired a controlling interest in Blowfish Malibu, which gives us additional access to the growing sneaker and casual lifestyle segment of the market. Blowfish contributed $19.3 million to our Brand Portfolio net sales ($16.2 million on a consolidated basis, net of eliminations) for the first quarter of 2019.
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|
|
|
|
•
|
Carlos brand exit – In connection with the decision to exit our Carlos brand, we incurred restructuring-related costs of $1.9 million ($1.4 million on an after-tax basis, or $0.03 per diluted share) during the first quarter of 2019. Of these charges, $1.3 million primarily represents incremental inventory markdowns required to reduce the value of inventory to net realizable value and is presented in cost of goods sold on the statements of earnings and the remaining $0.6 million for severance and other related costs is presented in restructuring and other special charges. Refer to Note 6 to the consolidated financial statements for further discussion.
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|
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•
|
We adopted ASU 2016-02,
Leases (Topic 842),
during the first quarter of 2019 using the modified retrospective transition method. Therefore, prior period financial information in the condensed consolidated financial statements has not been adjusted and is presented under the guidance in ASC 840. As a result of the adoption of the ASU, we recorded an operating lease right-of-use asset of $729.2 million and lease liabilities of $791.7 million as of February 3, 2019. Refer to Note 10 to the condensed consolidated financial statements for additional information on the adoption of this ASU.
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|
|
|
|
•
|
During the first quarter of 2019, we changed our segment presentation to present net sales of the Brand Portfolio segment inclusive of both external and intersegment sales, with the elimination of intersegment sales and profit from Brand Portfolio to Famous Footwear reflected within the Eliminations and Other category. This presentation reflects the independent business models of both Brand Portfolio and Famous Footwear, as well as growth in intersegment activity driven by the acquisitions of Vionic and Blowfish Malibu. Prior period information has been recast to conform to the current presentation.
|
Recent Developments
On May 10, 2019, tariffs of up to 25% were proposed on various categories of U.S. imports from China, including footwear. Although we have increased the sourcing of our footwear from other countries in recent years, a significant amount of our footwear is sourced from China. If the proposed tariffs are ultimately imposed on footwear, our product costs will increase, which may in turn adversely impact our gross margins if we are unable to pass along the higher costs to the consumer.
Following are the consolidated results and the results by segment:
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|
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|
|
|
|
|
|
|
|
|
|
|
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|
CONSOLIDATED RESULTS
|
|
|
Thirteen Weeks Ended
|
|
|
May 4, 2019
|
|
May 5, 2018
|
|
|
|
|
% of
Net Sales
|
|
|
|
|
% of
Net Sales
|
|
|
($ millions)
|
|
|
|
|
|
|
Net sales
|
$
|
677.8
|
|
|
100.0
|
%
|
|
$
|
632.1
|
|
|
100.0
|
%
|
|
Cost of goods sold
|
398.0
|
|
|
58.7
|
%
|
|
357.2
|
|
|
56.5
|
%
|
|
Gross profit
|
279.8
|
|
|
41.3
|
%
|
|
274.9
|
|
|
43.5
|
%
|
|
Selling and administrative expenses
|
262.1
|
|
|
38.7
|
%
|
|
250.2
|
|
|
39.6
|
%
|
|
Restructuring and other special charges, net
|
0.8
|
|
|
0.1
|
%
|
|
1.8
|
|
|
0.3
|
%
|
|
Operating earnings
|
16.9
|
|
|
2.5
|
%
|
|
22.9
|
|
|
3.6
|
%
|
|
Interest expense, net
|
(7.4
|
)
|
|
(1.1
|
)%
|
|
(3.6
|
)
|
|
(0.6
|
)%
|
|
Other income, net
|
2.6
|
|
|
0.4
|
%
|
|
3.1
|
|
|
0.5
|
%
|
|
Earnings before income taxes
|
12.1
|
|
|
1.8
|
%
|
|
22.4
|
|
|
3.5
|
%
|
|
Income tax provision
|
(3.0
|
)
|
|
(0.5
|
)%
|
|
(5.2
|
)
|
|
(0.8
|
)%
|
|
Net earnings
|
9.1
|
|
|
1.3
|
%
|
|
17.2
|
|
|
2.7
|
%
|
|
Net earnings (loss) attributable to noncontrolling interests
|
0.0
|
|
|
0.0
|
%
|
|
(0.0)
|
|
(0.0
|
)%
|
|
Net earnings attributable to Caleres, Inc.
|
$
|
9.1
|
|
|
1.3
|
%
|
|
$
|
17.2
|
|
|
2.7
|
%
|
Net Sales
Net sales increased
$45.7 million
, or
7.2%
, to
$677.8 million
for the
first quarter of 2019
, compared to
$632.1 million
for the
first quarter of 2018
. Our Brand Portfolio segment reported a
$57.6 million
, or
20.3%
, increase in net sales driven by net sales of our Vionic and Blowfish Malibu brands, which were acquired in October and July 2018, respectively. We also experienced higher net sales of our Franco Sarto brand, partially offset by lower sales of our Allen Edmonds and Dr. Scholl's brands. Our Famous Footwear segment reported an
$11.2 million
, or
3.1%
, decrease in net sales, driven by a decrease in our store base, which resulted in a
$7.5 million
decrease in sales from new and closed stores, and a 1.0% decline in same-store sales. Net sales at Famous Footwear were impacted by a difficult retail environment, especially early in the quarter. We experienced a slower start to the sandal selling season, despite increased promotional activity.
Same-store sales changes are calculated by comparing the sales in stores that have been open at least 13 months to the comparable retail calendar weeks in the prior year. Relocated stores are treated as new stores, and closed stores are excluded from the calculation. Sales change from new and closed stores, net reflects the change in net sales due to stores that have been opened or closed during the period and are therefore excluded from the same-store sales calculation. E-commerce sales on websites that function as an extension of a retail chain are included in the same-store sales calculation.
Gross Profit
Gross profit increased
$4.9 million
, or
1.8%
, to
$279.8 million
for the
first quarter of 2019
, compared to
$274.9 million
for the
first quarter of 2018
, driven by sales growth from our recent acquisitions.
As a percentage of net sales, gross profit decreased to
41.3%
for the
first quarter of 2019
, compared to
43.5%
for the
first quarter of 2018
, reflecting the promotional retail environment and a higher mix of e-commerce sales. Our e-commerce sales generally result in lower margins than traditional retail sales as a result of the incremental shipping and handling required. We also launched a new loyalty program at Famous Footwear during the first quarter of 2019, which resulted in an increase of net sales but at a lower margin rate. Cost of goods sold for the
first quarter of 2019
also includes $5.8 million related to the amortization of the inventory adjustment required by purchase accounting for our acquisition of Vionic in October 2018. Retail and wholesale net sales were 59% and 41%, respectively, in the
first quarter of 2019
compared to 69% and 31% in the
first quarter of 2018
.
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
$11.9 million
, or 4.8%, to
$262.1 million
for the
first quarter of 2019
, compared to
$250.2 million
for the
first quarter of 2018
. The increase was driven by additional costs associated with our recently acquired Vionic and Blowfish Malibu brands, including higher amortization expense on the intangible assets, partially offset by lower expenses associated with cash and stock-based incentive compensation plans and lower store rent and facilities expenses associated with a smaller store base. As a percentage of net sales, selling and administrative expenses decreased to
38.7%
for the
first quarter of 2019
, from
39.6%
for the
first quarter of 2018
, reflecting better leveraging of our expense base over higher net sales.
Restructuring and Other Special Charges, Net
Restructuring and other special charges of
$0.8 million
($0.6 million on an after-tax basis, or $0.02 per diluted share) were incurred in the
first quarter of 2019
associated with the exit of our Carlos brand and integration-related costs for Vionic. For the first quarter of 2018, we incurred restructuring and other special charges of
$1.8
million ($1.3 million on an after-tax basis, or $0.03 per diluted share) for the integration and reorganization of our men's brands. Refer to Note 6 to the condensed consolidated financial statements for additional information related to these charges.
Operating Earnings
Operating earnings decreased
$6.0 million
, or
26.5%
, to
$16.9 million
for the
first quarter of 2019
, compared to
$22.9 million
for the
first quarter of 2018
, primarily reflecting lower sales and gross margins at Famous Footwear and higher selling and administrative expenses, partially offset by the earnings contribution associated with our newly acquired brands. As a percentage of net sales, operating earnings decreased to
2.5%
for the
first quarter of 2019
, compared to
3.6%
for the
first quarter of 2018
.
Interest Expense, Net
Interest expense, net increased
$3.8 million
, or
105.6%
, to
$7.4 million
for the
first quarter of 2019
, compared to
$3.6 million
for the
first quarter of 2018
, primarily due to higher average borrowings under our revolving credit agreement, which was used to fund the acquisition of Vionic in October 2018.
Other Income, Net
Other income, net decreased
$0.5 million
, or
15.3%
, to
$2.6 million
for the
first quarter of 2019
, compared to
$3.1 million
for the
first quarter of 2018
, driven by lower expected return on assets for our domestic pension plan. Refer to Note 14 to the condensed consolidated financial statements for additional information related to our retirement plans.
Income Tax Provision
Our effective tax rate can vary considerably from period to period, depending on a number of factors. Our consolidated effective tax rate was
25.2%
for the
first quarter of 2019
, compared to
23.1%
for the
first quarter of 2018
. Our effective tax rate was impacted by a discrete tax provision of $0.1 million in the first quarter of 2019 related to share-based compensation, compared to discrete tax benefits of
$0.5 million
in the first quarter of 2018. If these discrete taxes had not been recognized during the
first quarter
of 2019 and 2018, our effective tax rate would have been 24.3% and 25.4%, respectively.
Net Earnings Attributable to Caleres, Inc.
Net earnings attributable to Caleres, Inc. were
$9.1 million
in the
first quarter
2019 compared to net earnings of
$17.2 million
for the
first quarter
2018 as a result of the factors described above.
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FAMOUS FOOTWEAR
|
|
|
|
|
|
|
|
Thirteen Weeks Ended
|
|
|
May 4, 2019
|
|
May 5, 2018
|
|
|
|
% of
Net Sales
|
|
|
|
% of
Net Sales
|
|
|
($ millions, except sales per square foot)
|
|
|
|
|
Operating Results
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
$
|
352.2
|
|
100.0
|
%
|
|
$
|
363.4
|
|
100.0
|
%
|
|
Cost of goods sold
|
199.5
|
|
56.6
|
%
|
|
198.2
|
|
54.5
|
%
|
|
Gross profit
|
152.7
|
|
43.4
|
%
|
|
165.2
|
|
45.5
|
%
|
|
Selling and administrative expenses
|
141.9
|
|
40.3
|
%
|
|
143.3
|
|
39.5
|
%
|
|
Operating earnings
|
$
|
10.8
|
|
3.1
|
%
|
|
$
|
21.9
|
|
6.0
|
%
|
|
|
|
|
|
|
|
|
Key Metrics
|
|
|
|
|
|
|
|
|
Same-store sales % change
|
(1.0
|
)%
|
|
|
|
(0.8
|
)%
|
|
|
|
Same-store sales $ change
|
$
|
(3.4
|
)
|
|
|
|
$
|
(2.7
|
)
|
|
|
|
Sales change from new and closed stores, net
|
$
|
(7.5
|
)
|
|
|
$
|
(0.6
|
)
|
|
|
Impact of changes in Canadian exchange rate on sales
|
$
|
(0.3
|
)
|
|
|
$
|
0.2
|
|
|
|
|
|
|
|
|
|
|
Sales per square foot, excluding e-commerce (thirteen weeks ended)
|
$
|
49
|
|
|
|
$
|
50
|
|
|
|
Sales per square foot, excluding e-commerce (trailing twelve months)
|
$
|
219
|
|
|
|
|
$
|
222
|
|
|
|
|
Square footage (thousand sq. ft.)
|
6,503
|
|
|
|
|
6,712
|
|
|
|
|
|
|
|
|
|
|
|
Stores opened
|
4
|
|
|
|
|
2
|
|
|
|
|
Stores closed
|
11
|
|
|
|
|
15
|
|
|
|
|
Ending stores
|
985
|
|
|
|
|
1,013
|
|
|
|
Net Sales
Net sales decreased
$11.2 million
, or
3.1%
, to
$352.2 million
for the
first quarter of 2019
, compared to
$363.4 million
for the
first quarter of 2018
. The sales decrease was driven by a decrease in our store base, which resulted in a
$7.5 million
decrease in sales from new and closed stores, and a 1.0% decline in same-store sales. Sales at Famous Footwear were impacted by a difficult retail environment, especially early in the quarter. We experienced a slower start to the sandal selling season, despite increased promotional activity. During the
first quarter of 2019
, we opened
four
stores and closed
11
stores, resulting in
985
stores and total square footage of
6.5 million
at the end of the
first quarter of 2019
, compared to
1,013
stores and total square footage of
6.7 million
at the end of the
first quarter of 2018
. On a trailing twelve-month basis, sales per square foot, excluding e-commerce, decreased
1.0%
to
$219
for the twelve months ended
May 4, 2019
, compared to
$222
for the twelve months ended
May 5, 2018
. During the first quarter of 2019, we introduced our new customer loyalty program, "Famously You Rewards", which drove an increase in sales to members. Sales to our customer loyalty program members continue to account for a majority of the segment’s sales, with approximately 80% of our net sales made to program members in the
first quarter of 2019
, compared to 76% in the
first quarter of 2018
.
Gross Profit
Gross profit decreased
$12.5 million
, or
7.6%
, to
$152.7 million
for the
first quarter of 2019
, compared to
$165.2 million
for the
first quarter of 2018
, reflecting lower net sales and a lower gross profit rate. As a percentage of net sales, our gross profit decreased to
43.4%
for the
first quarter of 2019
, compared to
45.5%
for the
first quarter of 2018
, reflecting the promotional retail environment and higher freight expenses attributable to strong growth in e-commerce sales. We expect the trend toward a higher mix of e-commerce sales to continue. In addition, we launched our Famously You Rewards ("Rewards") program in the first quarter of 2019, which offers free shipping to members. The new Rewards program resulted in an increase in net sales to members but at a lower margin rate.
Selling and Administrative Expenses
Selling and administrative expenses decreased
$1.4 million
, or
1.0%
, to
$141.9 million
for the
first quarter of 2019
, compared to
$143.3 million
for the
first quarter of 2018
. The decrease was driven by lower rent and facilities expense attributable to our smaller store base, partially offset by the incremental expenses associated with the launch of our new Rewards program. As a percentage of net sales, selling and administrative expenses increased to
40.3%
for the
first quarter of 2019
, compared to
39.5%
for the
first quarter of 2018
.
Operating Earnings
Operating earnings decreased
$11.1 million
, or
51.0%
, to
$10.8 million
for the
first quarter of 2019
, compared to
$21.9 million
for the
first quarter of 2018
, reflecting the factors described above. As a percentage of net sales, operating earnings decreased
to
3.1%
for the
first quarter of 2019
, compared
to
6.0%
for the
first quarter of 2018
.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BRAND PORTFOLIO
|
|
|
Thirteen Weeks Ended
|
|
|
May 4, 2019
|
|
May 5, 2018
|
|
|
|
% of
Net Sales
|
|
|
|
% of
Net Sales
|
|
|
($ millions, except sales per square foot)
|
|
|
|
|
Operating Results
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
$
|
341.1
|
|
100.0
|
%
|
|
$
|
283.5
|
|
100.0
|
%
|
|
Cost of goods sold
|
214.2
|
|
62.8
|
%
|
|
174.6
|
|
61.6
|
%
|
|
Gross profit
|
126.9
|
|
37.2
|
%
|
|
108.9
|
|
38.4
|
%
|
|
Selling and administrative expenses
|
113.4
|
|
33.2
|
%
|
|
95.7
|
|
33.7
|
%
|
|
Restructuring and other special charges, net
|
0.6
|
|
0.2
|
%
|
|
1.6
|
|
0.6
|
%
|
|
Operating earnings
|
$
|
12.9
|
|
3.8
|
%
|
|
$
|
11.6
|
|
4.1
|
%
|
|
|
|
|
|
|
|
|
Key Metrics
|
|
|
|
|
|
|
|
|
|
|
Direct-to-consumer (% of net sales)
(1)
|
26%
|
|
|
|
30%
|
|
|
|
Wholesale/retail sales mix (%)
|
81%/19%
|
|
|
|
|
73%/27%
|
|
|
|
|
Change in wholesale net sales ($)
(2)
|
$
|
64.3
|
|
|
|
$
|
(0.1
|
)
|
|
|
Unfilled order position at end of period
|
$
|
376.4
|
|
|
|
$
|
311.0
|
|
|
|
|
|
|
|
|
|
|
Same-store sales % change
|
(8.6
|
)%
|
|
|
(1.0
|
)%
|
|
|
Same-store sales $ change
|
$
|
(5.5
|
)
|
|
|
$
|
(0.5
|
)
|
|
|
Sales change from new and closed stores, net
|
$
|
(0.8
|
)
|
|
|
$
|
3.9
|
|
|
|
Impact of changes in Canadian exchange rate on retail sales
|
$
|
(0.4
|
)
|
|
|
$
|
0.4
|
|
|
|
|
|
|
|
|
|
|
Sales per square foot, excluding e-commerce (thirteen weeks ended)
|
$
|
93
|
|
|
|
$
|
104
|
|
|
|
Sales per square foot, excluding e-commerce (trailing twelve months)
|
$
|
408
|
|
|
|
$
|
440
|
|
|
|
Square footage (thousands sq. ft.)
|
397
|
|
|
|
405
|
|
|
|
|
|
|
|
|
|
|
Stores opened
|
2
|
|
|
|
4
|
|
|
|
Stores closed
|
1
|
|
|
|
5
|
|
|
|
Ending stores
|
230
|
|
|
|
235
|
|
|
(1) Direct-to-consumer includes sales of our retail stores and e-commerce sites.
(2) The first quarter of 2019 wholesale net sales change includes sales from our acquired Vionic and Blowfish Malibu brands of $54.8 million and $19.3 million, respectively.
Net Sales
Net sales increased
$57.6 million
, or
20.3%
, to
$341.1 million
for the
first quarter of 2019
, compared to
$283.5 million
for
the
first quarter of 2018
driven by net sales from acquisitions of Vionic in October 2018 and Blowfish Malibu in July 2018, which contributed $54.8 million and $19.3 million, respectively, to our net sales growth in the
first quarter of 2019
. We experienced lower net sales of our Allen Edmonds brand, as planned, as well as lower Dr. Scholl's sales, partially offset by higher net sales of our Franco Sarto brand. Sales were negatively impacted by a slower start to the spring sandal season as well as a difficult retail environment. However, e-commerce sales continue to grow as a percentage of the business. During the
first quarter of 2019
, we opened
two
stores and closed
one
store, resulting in a total of
230
stores and total square footage of
0.4
million at the end of the
first quarter of 2019
, compared to
235
stores and total square footage of
0.4
million at the end of the
first quarter of 2018
. On a trailing twelve-month basis, sales per square foot, excluding e-commerce sales, decreased to
$408
for the twelve months ended
May 4, 2019
, compared to
$440
for the twelve months ended
May 5, 2018
.
Our unfilled order position for our wholesale sales increased
$65.4 million
, or
21.0%
, to
$376.4 million
at
May 4, 2019
, compared to
$311.0 million
at
May 5, 2018
. The increase in our backlog order levels reflects the acquisitions of Blowfish Malibu and Vionic in 2018.
Gross Profit
Gross profit increased
$18.0 million
, or
16.5%
, to
$126.9 million
for the
first quarter of 2019
, compared to
$108.9 million
for the
first quarter of 2018
, primarily reflecting net sales growth from the Vionic acquisition, partially offset by the incremental cost of goods sold related to purchase accounting inventory adjustments and incremental markdowns related to the Carlos brand exit. As a percentage of net sales, our gross profit decreased to
37.2%
for the
first quarter of 2019
, compared to
38.4%
for the
first quarter of 2018
, reflecting higher inventory markdowns and sales allowances.
Selling and Administrative Expenses
Selling and administrative expenses increased
$17.7 million
, or
18.5%
, to
$113.4 million
for the
first quarter of 2019
, compared to
$95.7 million
for the
first quarter of 2018
, reflecting increased expenses from our Vionic acquisition, primarily employee compensation. As a percentage of net sales, selling and administrative expenses decreased to
33.2%
for the
first quarter of 2019
, compared to
33.7%
for the
first quarter of 2018
, reflecting the leveraging of our expenses over higher net sales.
Restructuring and Other Special Charges, Net
Restructuring and other special charges of $0.6 million in the
first quarter
of 2019 were related to Vionic integration and business exits. In the first quarter of 2018, restructuring and other special charges of
$1.6 million
were incurred related to the integration and reorganization of our men's business. Refer to Note 6 to the condensed consolidated financial statements for additional information related to these charges.
Operating Earnings
Operating earnings increased
$1.3 million
,
or
11.2%
,
to
$12.9 million
for the
first quarter of 2019
, compared to
$11.6 million
for the
first quarter of 2018
, driven by higher sales volume, partially offset by an increase in selling and administrative expenses. As a percentage of net sales, operating earnings decreased to
3.8%
for the
first quarter of 2019
, compared to
4.1%
in the
first quarter of 2018
.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ELIMINATIONS AND OTHER
|
|
|
Thirteen Weeks Ended
|
|
|
May 4, 2019
|
|
May 5, 2018
|
|
|
|
% of
Net Sales
|
|
|
|
% of
Net Sales
|
|
|
($ millions)
|
|
|
|
|
Operating Results
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
$
|
(15.5
|
)
|
100.0
|
%
|
|
$
|
(14.8
|
)
|
100.0
|
%
|
|
Cost of goods sold
|
(15.8
|
)
|
101.8
|
%
|
|
(15.7
|
)
|
105.8
|
%
|
|
Gross profit
|
0.3
|
|
(1.8
|
)%
|
|
0.9
|
|
(5.8
|
)%
|
|
Selling and administrative expenses
|
6.9
|
|
(44.7
|
)%
|
|
11.2
|
|
(75.9
|
)%
|
|
Restructuring and other special charges, net
|
0.2
|
|
(1.6
|
)%
|
|
0.2
|
|
(1.3
|
)%
|
|
Operating loss
|
$
|
(6.8
|
)
|
44.5
|
%
|
|
$
|
(10.5
|
)
|
71.4
|
%
|
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 decrease of $0.7 million reflects a higher sales elimination for sales from Brand Portfolio to Famous Footwear, principally due to our recent acquisitions, both of which sell product to our Famous Footwear division. Selling and administrative expenses of $6.9 million were incurred for the first quarter 2019, compared to $11.2 million for the first quarter 2018. The decrease reflects lower warehouse costs attributable to duplicate costs incurred in the first quarter of last year associated with the transition to our new leased distribution center in Chino, California, as well as lower expenses for our cash and share-based incentive compensation plans.
|
|
|
|
|
LIQUIDITY AND CAPITAL RESOURCES
|
Borrowings
|
|
|
|
|
|
|
|
|
|
|
|
|
|
($ millions)
|
May 4, 2019
|
|
May 5, 2018
|
|
February 2, 2019
|
|
|
Borrowings under revolving credit agreement
|
$
|
318.0
|
|
$
|
—
|
|
$
|
335.0
|
|
|
Long-term debt
|
198.0
|
|
197.6
|
|
197.9
|
|
|
Total debt
|
$
|
516.0
|
|
$
|
197.6
|
|
$
|
532.9
|
|
Total debt obligations at
May 4, 2019
increased $318.4 to
$516.0 million
, compared to
$197.6 million
at
May 5, 2018
. The increase from
May 5, 2018
to May 4, 2019 reflects borrowings under our revolving credit agreement to fund the acquisition of Vionic in October 2018. The $16.9 million decrease in debt from February 2, 2019 includes $17.0 million of repayments under our revolving credit agreement. Net interest expense for the
first quarter of 2019
increased
$3.8 million
to
$7.4 million
, compared to
$3.6 million
for the
first quarter of 2018
as a result of higher average borrowings under our revolving credit agreement.
Credit Agreement
As further discussed in Note 11 to the condensed consolidated financial statements, the Company maintains a revolving credit facility for working capital needs that provides for borrowing capacity of up to $500.0 million, with an option to increase by up to $250.0 million.
At
May 4, 2019
, we had
$318.0 million
in borrowings and
$10.5 million
in letters of credit outstanding under the Credit Agreement. Total borrowing availability was
$171.5 million
at
May 4, 2019
. We were in compliance with all covenants and restrictions under the Credit Agreement as of
May 4, 2019
. We anticipate incremental interest expense going forward until the borrowings to fund the acquisition of Vionic have been paid off.
We were in compliance with all covenants and restrictions under the Credit Agreement as of May 4, 2019. Refer to further discussion regarding the Credit Agreement in Note 11 to the consolidated financial statements.
$200 Million Senior Notes
On July 27, 2015, we issued $200.0 million aggregate principal amount of Senior Notes due in 2023 (the "Senior Notes"). Our Senior Notes are guaranteed on a senior unsecured basis by each of the subsidiaries of Caleres, Inc. that is an obligor under the Credit Agreement and bear interest at 6.25%, which is payable on February 15 and August 15 of each year. The Senior Notes mature on August 15, 2023. We may redeem some or all of the Senior Notes at various redemption prices.
The Senior Notes also contain covenants and restrictions that limit certain activities including, among other things, levels of indebtedness, payments of dividends, the guarantee or pledge of assets, certain investments, common stock repurchases, mergers and acquisitions and sales of assets. As of
May 4, 2019
, we were in compliance with all covenants and restrictions relating to the Senior Notes.