Caleres reports third quarter 2020 results
St. louis--(business wire)--caleres (nyse: cal, caleres.com) a diverse portfolio of consumer-driven footwear brands, today reported financial results for the third quarter ended october 31, 2020. caleres continued its steady progress – recording sequential top-line growth, a return to profitability, stronger gross margins and a further improved working capital position – despite the still uncertain economic environment. for the second straight quarter the company used free cash to markedly reduce its overall debt levels, paying down $50 million during the period and bringing total debt reduction since the end of the first quarter of 2020 to approximately $139 million. “caleres furthered its recovery during the third quarter delivering results significantly better than anticipated in nearly all major financial metrics,” said diane sullivan, chairman, president and chief executive officer. “at the same time, the team has continued to overcome the ongoing covid-related pressures in an impressive manner, further advancing the company’s key strategic objectives. during the quarter, we: maintained rigorous cost discipline leading to an approximately $38 million decline in expenses year-over-year – attributable to improved store productivity and prior actions to align our resources with the current market environment; adjusted effectively to and capitalized on the extended back-to-school season achieving a strong sequential increase in sales at famous footwear; gained momentum in the brand portfolio with an approximately 45 percent sequential increase in sales – led by positive consumer reaction to our casual, sport and athletic-inspired assortment across the portfolio; and used free cash to further strengthen the balance sheet and reduce overall indebtedness, which is now approaching pre-covid levels.” third quarter 2020 highlights (13-weeks ended october 31, 2020 compared to 13-weeks ended november 2, 2019) net sales were $647.5 million, down 18.3 percent from the third quarter of fiscal 2019 direct-to-consumer sales represented 71.4 percent of total net sales; a 12.3 percent sales decline in the famous footwear segment; a 25.6 percent sales decline in the brand portfolio segment; total company owned ecommerce website sales increased 24.6 percent, with ecommerce penetration rising to 25.4 percent of net sales; direct-to-consumer sales represented 71.4 percent of total net sales; a 12.3 percent sales decline in the famous footwear segment; a 25.6 percent sales decline in the brand portfolio segment; total company owned ecommerce website sales increased 24.6 percent, with ecommerce penetration rising to 25.4 percent of net sales; gross profit was $257.0 million, while gross margin was 39.7 percent; sg&a expense of $236.9 million, down $38.4 million compared to the third quarter of 2019; net income of $14.4 million, or earnings of $0.38 per diluted share, compared to net income of $28.0 million, or $0.69 per diluted share, in the third quarter of fiscal 2019. earnings of $0.38 per share includes $0.10 of adjustments related to the fair value adjustment to the blowfish purchase obligation; adjusted net income was $18.2 million, or adjusted earnings of $0.48 per diluted share compared to adjusted net income of $31.6 million, or adjusted earnings of $0.78 per diluted share, in the third quarter of fiscal 2019; generated $34.2 million in cash from operations and ended the third quarter with $124.3 million of cash on hand; reduced inventory levels approximately 21 percent year-over-year, reflecting ongoing actions taken to liquidate seasonal orders; reduced credit facility borrowings by $50 million from the second quarter of 2020 to end the third quarter at $300 million; returned $2.7 million to shareholders during the quarter through its long-standing quarterly dividend. strategic realignment to drive digital growth in an effort to continue to improve future profitability and allow greater focus on high-growth, digital channels, the company has commenced a strategic realignment of the naturalizer retail locations in the u.s. and canada. in addition to the store closures, caleres will right-size the back-office infrastructure to better align with the reduced store footprint, shift talent to amplify our digital presence, capture consumers where they want to shop and reallocate capital to further enhance our ecommerce platform and capabilities. “like the rest of the industry we have seen a structural shift in the shopping behavior of the consumer – a change that has been further accelerated by the global health crisis,” said sullivan. “with a larger percentage of naturalizer’s sales originating online, now is the opportune time to shed the legacy stores and evolve it to be more profitable. we are confident this step will better align the brand with the naturalizer consumer of the future and position the brand for growth and further success.” the company plans to close approximately 133 naturalizer stores by the end of fiscal year 2020. the company expects pre-tax charges in the fourth quarter of 2020 of between $20 million and $25 million. once complete, caleres expects an annual pre-tax benefit of between $10 million and $12 million. “caleres is adjusting rapidly to the current and evolving market environment and i am excited about the value-creating potential of the business going forward,” said sullivan. “the actions we have taken in recent months to fortify our financial position; leverage our digital investments to capitalize on shifting consumer behaviors; further align our merchandise mix to reflect ever-changing consumer desires; and right-size our cost structure and capital budget provide a strong and durable foundation upon which to build and grow. moving forward, we plan to drive innovation in our brands, lean into our consumer insights, enhance our already significant digital capabilities still further, and continuously strengthen and hone our portfolio to expand greater cash generation and value creation in the future.” investor conference call caleres will host an investor conference call at 5:00 p.m. et today, thursday, november 19. the webcast and associated slides will be available at investor.caleres.com/news/events. a live conference call will be available at (877) 217-9089 for analysts in north america or (706) 679-1723 for international analysts by using the conference id 7391019. a replay will be available at investor.caleres.com/news/events/archive for a limited period. investors may also access the replay by dialing (855) 859-2056 in north america or (404) 537-3406 internationally and using the conference id 7391019 through wednesday, december 2. definitions all references in this press release, outside of the condensed consolidated financial statements that follow, unless otherwise noted, related to net earnings (loss) attributable to caleres, inc. and diluted earnings (loss) per common share attributable to caleres, inc. shareholders, are presented as net earnings (loss) and earnings (loss) per diluted share, respectively. non-gaap financial measures in this press release, the company’s financial results are provided both in accordance with generally accepted accounting principles (gaap) and using certain non-gaap financial measures. in particular, the company provides historic and estimated future gross profit, operating earnings (loss), net earnings (loss) and earnings (loss) per diluted share adjusted to exclude certain gains, charges and recoveries, which are non-gaap financial measures. these results are included as a complement to results provided in accordance with gaap because management believes these non-gaap financial measures help identify underlying trends in the company’s business and provide useful information to both management and investors by excluding certain items that may not be indicative of the company’s core operating results. these measures should not be considered a substitute for or superior to gaap results. safe harbor statement under the private securities litigation reform act of 1995 this press release contains certain forward-looking statements and expectations regarding the company’s future performance and the performance of its brands. such statements are subject to various risks and uncertainties that could cause actual results to differ materially. these risks include (i) the coronavirus outbreak and its adverse impact on our business operations, store traffic and financial condition (ii) changing consumer demands, which may be influenced by consumers' disposable income, which in turn can be influenced by general economic conditions and other factors; (iii) impairment charges resulting from a long-term decline in our stock price; (iv) rapidly changing fashion trends and consumer preferences and purchasing patterns; (v) intense competition within the footwear industry; (vi) political and economic conditions or other threats to the continued and uninterrupted flow of inventory from china and other countries, where the company relies heavily on third-party manufacturing facilities for a significant amount of its inventory; (vii) imposition of tariffs; (viii) the ability to accurately forecast sales and manage inventory levels; (ix) cybersecurity threats or other major disruption to the company’s information technology systems; (x) customer concentration and increased consolidation in the retail industry; (xi) transitional challenges with acquisitions; (xii) a disruption in the company’s distribution centers; (xiii) foreign currency fluctuations; (xiv) changes to tax laws, policies and treaties; (xv) the ability to recruit and retain senior management and other key associates; (xvi) compliance with applicable laws and standards with respect to labor, trade and product safety issues; (xvii) the ability to maintain relationships with current suppliers; (xviii) the ability to attract, retain, and maintain good relationships with licensors and protect our intellectual property rights; and (xix) the ability to secure/exit leases on favorable terms. the company's reports to the securities and exchange commission contain detailed information relating to such factors, including, without limitation, the information under the caption risk factors in item 1a of the company’s annual report on form 10-k for the year ended february 1, 2020, which information is incorporated by reference herein and updated by the company’s quarterly reports on form 10-q. the company does not undertake any obligation or plan to update these forward-looking statements, even though its situation may change. about caleres caleres is a diverse portfolio of global footwear brands. our products are available virtually everywhere - in the more than 1,100 retail stores we operate, in hundreds of major department and specialty stores, on our branded e-commerce sites, and on many additional third-party retail websites. famous footwear offers great casual and athletic brands for the entire family with convenient, curated, affordable collections. sam edelman keeps expressive women in step with the latest trends in a playful, whimsical way. naturalizer shoes are beautiful from the inside out, with elegant simplicity and legendary fit re-imagined for today’s consumer. allen edmonds combines old world craft with new world technology to create luxe footwear for the discerning man who wants sophisticated, modern classics. rounding out our family of brands are vionic, vince, franco sarto, dr. scholl’s shoes, lifestride, blowfish malibu, bzees, circus by sam edelman and ryka. combined, these brands make caleres a company with both a legacy and a mission. our legacy is our more than 140 years of craftsmanship and our passion for fit, while our mission is to continue to inspire people to feel great… feet first. visit caleres.com to learn more about us. schedule 1 caleres, inc. condensed consolidated statements of earnings (loss) (unaudited) thirteen weeks ended thirty-nine weeks ended (thousands, except per share data) october 31, 2020 november 2, 2019 october 31, 2020 november 2, 2019 net sales $ 647,480 $ 792,375 $ 1,546,111 $ 2,222,614 cost of goods sold 390,508 472,605 984,621 1,317,064 gross profit 256,972 319,770 561,490 905,550 selling and administrative expenses 236,901 275,330 663,425 804,972 impairment of goodwill and intangible assets — — 262,719 — restructuring and other special charges, net — 969 65,625 2,434 operating earnings (loss) 20,071 43,471 (430,279 ) 98,144 interest expense, net (10,881 ) (10,559 ) (33,747 ) (25,288 ) other income, net 5,461 2,633 12,718 7,902 earnings (loss) before income taxes 14,651 35,545 (451,308 ) 80,758 income tax benefit (provision) 275 (7,784 ) 89,393 (18,685 ) net earnings (loss) 14,926 27,761 (361,915 ) 62,073 net earnings (loss) attributable to noncontrolling interests 509 (226 ) 223 (338 ) net earnings (loss) attributable to caleres, inc. $ 14,417 $ 27,987 $ (362,138 ) $ 62,411 basic earnings (loss) per common share attributable to caleres, inc. shareholders $ 0.38 $ 0.69 $ (9.67 ) $ 1.51 diluted earnings (loss) per common share attributable to caleres, inc. shareholders $ 0.38 $ 0.69 $ (9.67 ) $ 1.51 caleres, inc. condensed consolidated balance sheets (unaudited) october 31, 2020 november 2, 2019 february 1, 2020 (thousands) assets cash and cash equivalents $ 124,330 $ 52,502 $ 45,218 receivables, net 141,059 156,253 162,181 inventories, net 507,365 644,646 618,406 prepaid expenses and other current assets 99,401 48,245 56,494 total current assets 872,155 901,646 882,299 lease right-of-use assets 601,574 704,244 695,594 property and equipment, net 189,207 230,261 224,846 goodwill and intangible assets, net 267,074 542,845 539,579 other assets 97,050 92,214 89,389 total assets $ 2,027,060 $ 2,471,210 $ 2,431,707 liabilities and equity borrowings under revolving credit agreement $ 300,000 $ 295,000 $ 275,000 mandatory purchase obligation 30,146 — — trade accounts payable 285,582 275,699 267,018 lease obligations 156,200 144,501 127,869 other accrued expenses 187,980 179,030 181,063 total current liabilities 959,908 894,230 850,950 noncurrent lease obligations 556,343 629,731 629,032 long-term debt 198,736 198,276 198,391 other liabilities 50,418 95,623 104,204 total other liabilities 805,497 923,630 931,627 total caleres, inc. shareholders’ equity 256,671 650,840 645,950 noncontrolling interests 4,984 2,510 3,180 total equity 261,655 653,350 649,130 total liabilities and equity $ 2,027,060 $ 2,471,210 $ 2,431,707 schedule 3 caleres, inc. condensed consolidated statements of cash flows (unaudited) thirty-nine weeks ended (thousands) october 31, 2020 november 2, 2019 operating activities: net cash provided by operating activities $ 101,766 $ 145,737 investing activities: purchases of property and equipment (12,016 ) (37,354 ) disposals of property and equipment — 636 capitalized software (3,525 ) (4,893 ) net cash used for investing activities (15,541 ) (41,611 ) financing activities: borrowings under revolving credit agreement 340,500 237,000 repayments under revolving credit agreement (315,500 ) (277,000 ) dividends paid (8,148 ) (8,631 ) acquisition of treasury stock (23,348 ) (31,168 ) issuance of common stock under share-based plans, net (1,078 ) (2,605 ) contributions by noncontrolling interests 1,500 1,500 other (980 ) (1,022 ) net cash used for financing activities (7,054 ) (81,926 ) effect of exchange rate changes on cash and cash equivalents (59 ) 102 increase in cash and cash equivalents 79,112 22,302 cash and cash equivalents at beginning of period 45,218 30,200 cash and cash equivalents at end of period $ 124,330 $ 52,502 schedule 4 caleres, inc. reconciliation of net earnings (loss) and diluted earnings (loss) per share (gaap basis) to adjusted net earnings (loss) and adjusted diluted earnings (loss) per share (non-gaap basis) (unaudited) thirteen weeks ended october 31, 2020 november 2, 2019 net net pre-tax earnings pre-tax earnings impact of attributable diluted impact of attributable diluted charges/other to caleres, earnings charges/other to caleres, earnings (thousands, except per share data) items inc. per share items inc. per share gaap earnings $ 14,417 $ 0.38 $ 27,987 $ 0.69 charges/other items: fair value adjustment to blowfish purchase obligation $ 5,124 3,805 0.10 3,883 $ 2,884 0.07 vionic integration-related costs — — — 969 719 0.02 total charges/other items $ 5,124 $ 3,805 $ 0.10 $ 4,852 $ 3,603 $ 0.09 adjusted earnings $ 18,222 $ 0.48 $ 31,590 $ 0.78 (unaudited) thirty-nine weeks ended october 31, 2020 november 2, 2019 net (loss) net pre-tax earnings diluted pre-tax earnings impact of attributable (loss) impact of attributable diluted charges/other to caleres, earnings charges/other to caleres, earnings (thousands, except per share data) items inc. per share items inc. per share gaap (loss) earnings $ (362,138 ) $ (9.67 ) $ 62,411 $ 1.51 charges/other items: goodwill and intangible asset impairment charges $ 262,719 218,506 5.84 $ — — — covid-19-related expenses (1) 99,040 78,047 2.08 — — — fair value adjustment to blowfish purchase obligation 14,946 11,098 0.30 3,883 2,884 0.07 brand portfolio - business exits 1,598 1,187 0.03 1,905 1,415 0.03 vionic acquisition and integration-related costs — — — 7,696 5,714 0.14 total charges/other items $ 378,303 $ 308,838 $ 8.25 $ 13,484 $ 10,013 $ 0.24 adjusted (loss) earnings $ (53,300 ) $ (1.42 ) $ 72,424 $ 1.75 (1) represents costs associated with the economic impact of the covid‑19 pandemic, primarily consisting of impairment charges associated with property and equipment and lease right of use assets, inventory markdowns, expenses associated with factory order cancellations, provision for expected credit losses and severance. schedule 5 caleres, inc. summary financial results by segment summary financial results (unaudited) thirteen weeks ended famous footwear brand portfolio eliminations and other consolidated october 31, november 2, october 31, november 2, october 31, november 2, october 31, november 2, (thousands) 2020 2019 2020 2019 2020 2019 2020 2019 net sales $ 391,706 $ 446,583 $ 267,587 $ 359,863 $ (11,813 ) $ (14,071 ) $ 647,480 $ 792,375 gross profit 160,019 183,267 94,312 133,761 2,641 2,742 256,972 319,770 adjusted gross profit 160,019 183,267 94,312 133,761 2,641 2,742 256,972 319,770 gross profit rate 40.9 % 41.0 % 35.2 % 37.2 % (22.4 )% (19.5 )% 39.7 % 40.4 % adjusted gross profit rate 40.9 % 41.0 % 35.2 % 37.2 % (22.4 )% (19.5 )% 39.7 % 40.4 % operating earnings (loss) 27,845 27,681 7,304 19,398 (15,078 ) (3,608 ) 20,071 43,471 adjusted operating earnings (loss) 27,845 27,681 7,304 19,398 (15,078 ) (2,639 ) 20,071 44,440 operating earnings % 7.1 % 6.2 % 2.7 % 5.4 % 127.6 % 25.6 % 3.1 % 5.5 % adjusted operating earnings % 7.1 % 6.2 % 2.7 % 5.4 % 127.6 % 18.8 % 3.1 % 5.6 % same-store sales % (on a 13-week basis) (9.1 )% 2.5 % (41.0 )% (5.1 )% — % — % — % — % number of stores 925 960 197 232 — — 1,122 1,192 reconciliation of adjusted results (non-gaap) (unaudited) thirteen weeks ended famous footwear brand portfolio eliminations and other consolidated october 31, november 2, october 31, november 2, october 31, november 2, october 31, november 2, (thousands) 2020 2019 2020 2019 2020 2019 2020 2019 gross profit $ 160,019 $ 183,267 $ 94,312 $ 133,761 $ 2,641 $ 2,742 $ 256,972 $ 319,770 charges/other items: vionic integration-related costs — — — — — — — — total charges/other items — — — — — — — — adjusted gross profit $ 160,019 $ 183,267 $ 94,312 $ 133,761 $ 2,641 $ 2,742 $ 256,972 $ 319,770 operating earnings (loss) $ 27,845 $ 27,681 $ 7,304 $ 19,398 $ (15,078 ) $ (3,608 ) $ 20,071 $ 43,471 charges/other items: vionic integration-related costs — — — — — 969 — 969 total charges/other items — — — — — 969 — 969 adjusted operating (loss) earnings $ 27,845 $ 27,681 $ 7,304 $ 19,398 $ (15,078 ) $ (2,639 ) $ 20,071 $ 44,440 schedule 5 caleres, inc. summary financial results by segment summary financial results (unaudited) thirty-nine weeks ended famous footwear brand portfolio eliminations and other consolidated october 31, november 2, october 31, november 2, october 31, november 2, october 31, november 2, (thousands) 2020 2019 2020 2019 2020 2019 2020 2019 net sales $ 916,893 $ 1,218,589 $ 668,447 $ 1,060,488 $ (39,229 ) $ (56,463 ) $ 1,546,111 $ 2,222,614 gross profit 348,267 518,261 211,707 385,461 1,516 1,828 561,490 905,550 adjusted gross profit 354,225 518,261 240,763 392,628 1,516 1,828 596,504 912,717 gross profit rate 38.0 % 42.5 % 31.7 % 36.3 % (3.9 )% (3.2 )% 36.3 % 40.7 % adjusted gross profit rate 38.6 % 42.5 % 36.0 % 37.0 % (3.9 )% (3.2 )% 38.6 % 41.1 % operating (loss) earnings (38,651 ) 70,036 (352,556 ) 46,225 (39,072 ) (18,117 ) (430,279 ) 98,144 adjusted (loss) operating earnings (16,100 ) 70,036 (12,386 ) 54,019 (38,436 ) (16,310 ) (66,922 ) 107,745 operating (loss) earnings% (4.2 )% 5.7 % (52.7 )% 4.4 % 99.6 % 32.1 % (27.8 )% 4.4 % adjusted (loss) operating earnings% (1.8 )% 5.7 % (1.9 )% 5.1 % 98.0 % 28.9 % (4.3 )% 4.8 % same-store sales % (on a 39-week basis) 3.0 % 1.1 % (32.3 )% (7.6 )% — % — % — % — % number of stores 925 960 197 232 — — 1,122 1,192 (unaudited) thirty-nine weeks ended famous footwear brand portfolio eliminations and other consolidated october 31, november 2, october 31, november 2, october 31, november 2, october 31, november 2, (thousands) 2020 2019 2020 2019 2020 2019 2020 2019 gross profit $ 348,267 $ 518,261 $ 211,707 $ 385,461 $ 1,516 $ 1,828 $ 561,490 $ 905,550 charges/other items: covid-19-related expenses 5,958 — 27,458 — — — 33,416 — brand portfolio - brand exits — — 1,598 1,355 — — 1,598 1,355 vionic integration-related costs — — — 5,812 — — — 5,812 brand portfolio - brand exits — — — — — — — — total charges/other items 5,958 — 29,056 7,167 — — 35,014 7,167 adjusted gross profit $ 354,225 $ 518,261 $ 240,763 $ 392,628 $ 1,516 $ 1,828 $ 596,504 $ 912,717 operating (loss) earnings $ (38,651 ) $ 70,036 $ (352,556 ) $ 46,225 $ (39,072 ) $ (18,117 ) $ (430,279 ) $ 98,144 charges/other items: goodwill and intangible asset impairment charges — — 262,719 — — — 262,719 — covid-19-related expenses 22,551 — 75,853 — 636 — 99,040 — brand portfolio - brand exits — — 1,598 1,905 — — 1,598 1,905 vionic acquisition and integration-related costs — — — 5,889 — 1,807 — 7,696 total charges/other items 22,551 — 340,170 7,794 636 1,807 363,357 9,601 adjusted operating (loss) earnings $ (16,100 ) $ 70,036 $ (12,386 ) $ 54,019 $ (38,436 ) $ (16,310 ) $ (66,922 ) $ 107,745 schedule 6 caleres, inc. basic and diluted earnings (loss) per share reconciliation (unaudited) thirteen weeks ended thirty-nine weeks ended october 31, november 2, october 31, november 2, (thousands, except per share data) 2020 2019 2020 2019 net earnings (loss) attributable to caleres, inc.: net earnings (loss) $ 14,926 $ 27,761 $ (361,915 ) $ 62,073 net (earnings) loss attributable to noncontrolling interests (509 ) 226 (223 ) 338 net earnings (loss) attributable to caleres, inc. 14,417 27,987 (362,138 ) 62,411 net earnings allocated to participating securities (512 ) (946 ) — (2,042 ) net earnings (loss) attributable to caleres, inc. after allocation of earnings to participating securities $ 13,905 $ 27,041 $ (362,138 ) $ 60,369 basic and diluted common shares attributable to caleres, inc.: basic common shares 36,554 39,258 37,439 39,983 dilutive effect of share-based awards 176 55 — 57 diluted common shares attributable to caleres, inc. 36,730 39,313 37,439 40,040 basic earnings (loss) per common share attributable to caleres, inc. shareholders $ 0.38 $ 0.69 $ (9.67 ) $ 1.51 diluted earnings (loss) per common share attributable to caleres, inc. shareholders $ 0.38 $ 0.69 $ (9.67 ) $ 1.51 schedule 7 caleres, inc. basic and diluted adjusted earnings (loss) per share reconciliation (unaudited) thirteen weeks ended thirty-nine weeks ended october 31, november 2, october 31, november 2, (thousands, except per share data) 2020 2019 2020 2019 adjusted net earnings (loss) attributable to caleres, inc.: adjusted net earnings (loss) $ 18,731 $ 31,364 $ (53,077 ) $ 72,086 net (earnings) loss attributable to noncontrolling interests (509 ) 226 (223 ) 338 adjusted net earnings (loss) attributable to caleres, inc. 18,222 31,590 (53,300 ) 72,424 net earnings allocated to participating securities (647 ) (1,070 ) — (2,376 ) adjusted net earnings (loss) attributable to caleres, inc. after allocation of earnings to participating securities $ 17,575 $ 30,520 $ (53,300 ) $ 70,048 basic and diluted common shares attributable to caleres, inc.: basic common shares 36,554 39,258 37,439 39,983 dilutive effect of share-based awards 176 55 — 57 diluted common shares attributable to caleres, inc. 36,730 39,313 37,439 40,040 basic adjusted earnings (loss) per common share attributable to caleres, inc. shareholders $ 0.48 $ 0.78 $ (1.42 ) $ 1.75 diluted adjusted earnings (loss) per common share attributable to caleres, inc. shareholders $ 0.48 $ 0.78 $ (1.42 ) $ 1.75
