What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-12-06 compared with 2022-09-06 · 208 added, 196 removed, 175 unchanged (70% of the section changed)

ITEM 2 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

We delivered strong financial and operational results for the second quarter, with record net sales and earnings.

We leveraged our lead brands to capitalize on robust demand in trending footwear categories to meet the needs of our core consumer and drive strong gross profit and operating margins.

We also strategically augmented our inventory levels in advance of the fall buying and back-to-school seasons.

We continued to execute on our capital return program and repurchased 1.1 million shares of our common stock during the second quarter of 2022.

We delivered another period of strong financial and operational results for the third quarter, with record quarterly net sales and solid earnings.

Our results underscore the strength and versatility of our portfolio of brands, highlight the significant progress we’ve made on our enterprise-wide strategic initiatives and demonstrate the portfolio’s enhanced resilience during periods of macroeconomic uncertainty.

We are particularly pleased with the performance of our Brand Portfolio segment, which utilized our diverse portfolio of brands to meet the robust consumer demand and deliver year-over-year improvement in nearly all key financial metrics.

During the third quarter of 2022, we also continued to execute on our capital return program and returned $24.1 million to shareholders through dividends and share repurchases.

Financial Highlights

Following is a summary of the financial highlights for the second quarter of 2022:

● Consolidated net sales increased $62.8 million, or 9.3%, to $738.3 million in the second quarter of 2022, compared to $675.5 million in the second quarter of 2021.

Following is a summary of the financial highlights for the third quarter of 2022:

● Consolidated net sales increased $14.1 million, or 1.8%, to $798.3 million in the third quarter of 2022, compared to $784.2 million in the third quarter of 2021.

Our Famous Footwear segment continued its strong performance with net sales of $482.0 million.

Net sales of our Brand Portfolio segment increased $85.1 million, or 35.6%, compared to the second quarter of 2021.

On a consolidated basis, our direct-to-consumer sales represented approximately 72% of consolidated net sales for the second quarter of 2022, compared to 79% in the second quarter of 2021.

● Consolidated gross profit increased $14.5 million, or 4.5%, to $336.8 million in the second quarter of 2022, compared to $322.3 million in the second quarter of 2021.

Our gross profit margin decreased to 45.6% in the second quarter of 2022, compared to 47.7% in the second quarter of 2021, reflecting a higher mix of wholesale versus retail sales combined with higher markdowns and an increase in freight costs associated with e-commerce sales.

● Consolidated operating earnings increased $5.6 million to $68.4 million in the second quarter of 2022, compared to $62.8 million in the second quarter of 2021.

Net sales of our Brand Portfolio segment increased $22.7 million, or 7.6%, compared to the third quarter of 2021.

On a consolidated basis, our direct-to-consumer sales represented approximately 74% of consolidated net sales for the third quarter of 2022, compared to 73% in the third quarter of 2021.

● Consolidated gross profit increased $4.5 million, or 1.3%, to $339.9 million in the third quarter of 2022, compared to $335.4 million in the third quarter of 2021.

Our gross profit margin decreased slightly to 42.6% in the third quarter of 2022, compared to 42.8% in the third quarter of 2021.

● Consolidated operating earnings decreased $27.5 million to $53.8 million in the third quarter of 2022, compared to $81.3 million in the third quarter of 2021.

● Consolidated net earnings attributable to Caleres, Inc.

were $51.2 million, or $1.38 per diluted share, in the second quarter of 2022, compared to $37.4 million, or $0.97 per diluted share, in the second quarter of 2021.

The following items should be considered in evaluating the comparability of our second quarter results in 2022 and 2021:

● Inflationary Pressures – We continued to experience inflationary pressures on product costs and inbound freight during the second quarter of 2022.

The price increases we began implementing in the second half of 2021 have mitigated the majority of these inflationary pressures related to product costs.

We believe our ability to limit promotional activity and align inventory to demand will continue to mitigate the impact of these inflationary pressures on our financial results.

However, ongoing general inflation continues to impact consumer sentiment and may result in lower consumer spending in the second half of 2022 and beyond.

were $39.2 million, or $1.08 per diluted share, in the third quarter of 2022, compared to $59.6 million, or $1.54 per diluted share, in the third quarter of 2021.

The following items should be considered in evaluating the comparability of our third quarter results in 2022 and 2021:

● Organizational changes – During the third quarter of 2022, we incurred costs of $2.9 million ($2.7 million on an after-tax basis, or $0.07 per diluted share) related to a CFO transition at our corporate headquarters, with no corresponding costs for the third quarter of 2021.

Refer to Note 5 to the condensed consolidated financial statements for further discussion of these charges.

● Blowfish Malibu mandatory purchase obligation – As further discussed in Note 5 and Note 14 to the condensed consolidated financial statements, the remaining interest in Blowfish Malibu was subject to a mandatory purchase obligation after a three-year period following the 2018 acquisition, based on an earnings multiple formula.

During the second quarter of 2021, we recorded a fair value adjustment of $7.1 million ($5.3 million on an after-tax basis, or $0.14 per diluted share).

During the third quarter of 2021, we recorded a fair value adjustment of $1.9 million ($1.4 million on an after-tax basis, or $0.04 per diluted share).

The fair value adjustment was recorded as interest expense, net in the condensed consolidated statement of earnings.

There were no corresponding charges in the second quarter of 2022.

There were no corresponding charges in the third quarter of 2022.

The purchase obligation was settled for $54.6 million on November 4, 2021.

Known Trends Impacting Our Business

Inflationary pressures, including higher product costs, higher parcel freight costs, wage inflation and the rising interest rate environment, continued to impact our financial results during the third quarter of 2022.

The price increases we began implementing in the second half of 2021 have mitigated the majority of the inflationary pressures related to product costs.

Macroeconomic factors, such as inflationary pressures and volatility in interest rates, also impact a number of accounting estimates, including impairment calculations, the value of inventory measured using the LIFO method, and other estimates that utilize fair value.

These macroeconomic factors could result in incremental volatility in certain valuations and provisions required in the Company’s financial statements.

In addition, ongoing general inflation and macroeconomic challenges continue to impact consumer sentiment and may result in lower consumer spending and a more promotional environment in the fourth quarter of 2022 and beyond.

Metrics Used in the Evaluation of Our Business

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Management uses the same-store sales metric as a measure of an individual store’s success to determine whether it is performing in line with expectations.

Our same-store sales metric is a daily-

weighted calculation for the period, which includes sales for stores that have been open for at least 13 months.

Our same-store sales metric is a daily-weighted calculation for the period, which includes sales for stores that have been open for at least 13 months.

In addition, in order to be included in the same-store sales metric, a store must be open in the current period as well as the corresponding day(s) of the comparable retail calendar in the prior year.

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The sales per square foot metric is calculated by dividing total retail store sales, excluding e-commerce sales, by the total square footage of the retail store base at the end of each month of the respective period.

Even with ongoing inflationary pressures and uncertainties around consumer sentiment, we believe we are well-positioned to capitalize on opportunities across a broad spectrum of consumer segments by leveraging our diverse portfolio of brands.

We will continue to utilize our core competencies in brand building, merchandising, marketing and logistics to further our strategic priorities and execute on our capital return program in an effort to enhance value for our shareholders.

We are sharply focused on the rapidly evolving market landscape and recognize that the uncertainty about the macro environment and the mounting threat of recessionary pressures could begin to dampen consumer spending habits.

We have experienced a slower start to our holiday season sales trends, which may continue through the remainder of the fourth quarter of 2022.

However, we believe our core competencies in brand building, product creation, marketing and logistics will enable us to navigate the challenging market environment.

In addition, we believe we are well-positioned to capitalize on opportunities across a broad spectrum of consumer segments by leveraging our diverse portfolio of brands.

In addition to maintaining our quarterly dividend, we plan to prioritize using available cash to reduce our revolver borrowings and increase overall liquidity.

Following are the consolidated results and the results by segment:

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July 31, 2021

Thirty-Nine Weeks Ended

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Cost of goods sold

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Interest expense, net

Loss on early extinguishment of debt

Other income, net

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Income tax provision

Net earnings (loss) attributable to noncontrolling interests

Net (loss) earnings attributable to noncontrolling interests

Net earnings attributable to Caleres, Inc.

Net sales increased $62.8 million, or 9.3%, to $738.3 million for the second quarter of 2022, compared to $675.5 million for the second quarter of 2021.

Net sales for our Brand Portfolio segment increased $85.1 million, or 35.6% during the second quarter of 2022, compared to the second quarter of 2021, led by strong performances by our lead brands.

Net sales for our Famous Footwear segment remained strong, but decreased $17.3 million, or 3.8%, in the second quarter of 2022 compared to the second quarter of 2021, primarily reflecting a lower store count and a slower start to the back-to-school season.

On a consolidated basis, our direct-to-consumer sales represented approximately 72% of total net sales for the second quarter of 2022.

We continued to experience robust growth in our dress, casual and occasion-based styles during the quarter.

While demand for our athletics footwear slowed during the quarter, it continues to be one of our top-selling categories.

We remain focused on maximizing the vertical opportunity between the Famous Footwear and Brand Portfolio segments, with Dr.

Scholl’s, LifeStride and Blowfish Malibu representing three of Famous Footwear’s top 15 best-selling footwear brands during the quarter.

Net sales increased $159.2 million, or 12.1%, to $1,473.4 million for the six months ended July 30, 2022, compared to $1,314.2 million for the six months ended July 31, 2021.

Net sales for our Brand Portfolio segment increased $200.5 million, or 41.0% during the first six months of 2022, compared to the first six months of 2021.

Net sales increased $14.1 million, or 1.8%, to $798.3 million for the third quarter of 2022, compared to $784.2 million for the third quarter of 2021.

Net sales for our Brand Portfolio segment increased $22.7 million, or 7.6% during the third quarter of 2022, compared to the third quarter of 2021, led by strong performances by our Naturalizer, Sam Edelman, Franco Sarto and LifeStride brands.

Net sales for our Famous Footwear segment remained strong, but decreased $12.7 million, or 2.6%, in the third quarter of 2022 compared to the record-setting third

quarter of 2021, with same-store sales down 0.8%.

On a consolidated basis, our direct-to-consumer sales represented approximately 74% of total net sales for the third quarter of 2022.

We remain focused on maximizing the vertical opportunity between the Famous Footwear and Brand Portfolio segments, with LifeStride and Dr.

Scholl’s representing two of Famous Footwear’s top 15 best-selling footwear brands during the quarter.

Net sales increased $173.4 million, or 8.3%, to $2,271.7 million for the nine months ended October 29, 2022, compared to $2,098.3 million for the nine months ended October 30, 2021.

Net sales for our Brand Portfolio segment increased $223.2 million, or 28.3% during the first nine months of 2022, compared to the first nine months of 2021, driven by strong sales growth from nearly all of our brands.

Our Famous Footwear segment’s sales momentum continued.

However, net sales for Famous Footwear decreased $30.9 million, or 3.6%, in the first six months of 2022 compared to the first six months of 2021, primarily

reflecting a lower store count and a slower start to the back-to-school season.

On a consolidated basis, our direct-to-consumer sales represented approximately 69% of total net sales for the six months ended July 30, 2022.

Gross profit increased $14.5 million, or 4.5%, to $336.8 million for the second quarter of 2022, compared to $322.3 million for the second quarter of 2021, reflecting higher net sales.

As a percentage of net sales, gross profit decreased to 45.6% for the second quarter of 2022, compared to 47.7% for the second quarter of 2021, reflecting a higher mix of wholesale versus retail sales combined with higher markdowns and an increase in freight costs associated with e-commerce sales.

Gross profit increased $66.6 million, or 11.2%, to $663.8 million for the six months ended July 30, 2022, compared to $597.2 million for the six months ended July 31, 2021, reflecting higher net sales.

As a percentage of net sales, gross profit decreased slightly to 45.1% for the first half of 2022, compared to 45.4% for the first half of 2021.

However, net sales for Famous Footwear decreased $43.6 million, or 3.2%, in the first nine months of 2022 compared to the exceptionally strong first nine months of 2021, with same stores sales decreasing 2.5%.

On a consolidated basis, our direct-to-consumer sales represented approximately 71% of total net sales for the nine months ended October 29, 2022.

Gross profit increased $4.5 million, or 1.3%, to $339.9 million for the third quarter of 2022, compared to $335.4 million for the third quarter of 2021, reflecting higher net sales.

As a percentage of net sales, gross profit decreased slightly to 42.6% for the third quarter of 2022, compared to 42.8% for the third quarter of 2021, reflecting a decrease in the gross profit margin of our Famous Footwear segment, an increase in the gross profit margin of our Brand Portfolio segment and a higher mix of retail compared to wholesale sales.

The decline in the Famous Footwear segment’s gross profit margin was driven by more normalized pricing and an increase in promotional activity.

The improvement in the gross profit margin of our Brand Portfolio segment reflects higher average wholesale prices, growth in higher margin sales from the direct-to-consumer channel and a favorable brand mix.

Gross profit increased $71.2 million, or 7.6%, to $1,003.7 million for the nine months ended October 29, 2022, compared to $932.5 million for the nine months ended October 30, 2021, reflecting higher net sales.

As a percentage of net sales, gross profit decreased slightly to 44.2% for the nine months ended October 29, 2022, compared to 44.4% for the nine months ended October 30, 2021.

We classify certain warehousing, distribution, sourcing and other inventory procurement costs in selling and administrative expenses.

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Selling and Administrative Expenses

Selling and administrative expenses increased $8.9 million, or 3.4%, to $268.4 million for the second quarter of 2022, compared to $259.5 million for the second quarter of 2021.

The increase was driven by higher marketing expenses as a result of our strategic investment in consumer marketing to drive deeper connections with our consumers, and higher salary and benefits expenses, partially offset by lower expenses associated with our cash-based incentive compensation plans.

In 2021, our first half financial results exceeded the targets established for our annual incentive plans, which resulted in a larger portion of the anticipated plan payouts recorded as expense in the second quarter of 2021.

For 2022, anticipated plan payouts are being recognized more ratably during the year.

As a percentage of net sales, selling and administrative expenses decreased to 36.4% for the second quarter of 2022, from 38.4% for the second quarter of 2021, reflecting leveraging of expenses on higher net sales.

Selling and administrative expenses increased $26.2 million, or 5.2%, to $529.2 million for the six months ended July 30, 2022, compared to $503.0 million for the six months ended July 31, 2021.

The increase primarily reflects the factors described above.

As a percentage of net sales, selling and administrative expenses decreased to 36.0% for the six months ended July 30, 2022, from 38.3% for the six months ended July 31, 2021, reflecting leveraging of expenses on higher net sales.

Selling and administrative expenses increased $29.1 million, or 11.4%, to $283.2 million for the third quarter of 2022, compared to $254.1 million for the third quarter of 2021.

The increase was driven by higher salary and benefits expenses, higher expenses associated with our cash-based incentive compensation plans and higher retail facilities costs.

As a percentage of net sales, selling and administrative expenses increased to 35.5% for the third quarter of 2022, from 32.4% for the third quarter of 2021, reflecting leveraging of expenses on higher net sales.

Selling and administrative expenses increased $55.3 million, or 7.3%, to $812.3 million for the nine months ended October 29, 2022, compared to $757.0 million for the nine months ended October 30, 2021.

The increase primarily reflects higher salary and benefits expenses and higher marketing expenses.

As a percentage of net sales, selling and administrative expenses decreased to 35.8% for the nine months ended October 29, 2022, from 36.1% for the nine months ended October 30, 2021, reflecting leveraging of expenses on higher net sales.

Restructuring and Other Special Charges, Net

We incurred restructuring and other special charges of $13.5 million ($11.9 million on an after-tax basis, or $0.31 per diluted share) during the six months ended July 31, 2021, reflecting expenses associated with the strategic realignment of the Naturalizer retail store operations.

There were no corresponding charges during the six months ended July 30, 2022 or the second quarter of 2021.

We incurred restructuring and other special charges of $2.9 million ($2.7 million on an after-tax basis, or $0.07 per diluted share) during the third quarter and nine months ended October 29, 2022, related to a CFO transition at our corporate headquarters.

We incurred restructuring and other special charges of $13.5 million ($11.9 million on an after-tax basis, or $0.31 per diluted share) during the nine months ended October 30, 2021, reflecting expenses associated with the strategic realignment of the Naturalizer retail store operations.

Refer to Note 5 to the condensed consolidated financial statements for further discussion of these charges.

Operating Earnings

Operating earnings increased $5.6 million to $68.4 million for the second quarter of 2022, compared to $62.8 million for the second quarter of 2021, primarily reflecting higher net sales and gross profit.

As a percentage of net sales, operating earnings were 9.3% for the second quarter of 2022, consistent with the second quarter of 2021.

Operating earnings increased $53.9 million to $134.6 million for the six months ended July 30, 2022, compared to $80.7 million for the six months ended July 31, 2021, primarily reflecting higher net sales and gross profit.

As a percentage of net sales, operating earnings were 9.1% for the six months ended July 30, 2022, compared to 6.1% for the six months ended July 31, 2021.

Operating earnings decreased $27.5 million to $53.8 million for the third quarter of 2022, compared to $81.3 million for the third quarter of 2021, primarily reflecting higher selling and administrative expenses and restructuring and other special charges, as described above.

As a percentage of net sales, operating earnings were 6.7% for the third quarter of 2022, compared to 10.4% for the third quarter of 2021.

Operating earnings increased $26.5 million to $188.5 million for the nine months ended October 29, 2022, compared to $162.0 million for the nine months ended October 30, 2021, primarily reflecting higher net sales and gross profit.

As a percentage of net sales, operating earnings were 8.3% for the nine months ended October 29, 2022, compared to 7.7% for the nine months ended October 30, 2021.

Interest Expense, Net

Interest expense, net decreased $9.5 million, or 78.4%, to $2.5 million for the second quarter of 2022, compared to $12.0 million for the second quarter of 2021, primarily due to the non-recurrence of the $7.1 million fair value adjustment to the Blowfish Malibu mandatory purchase obligation in the second quarter of 2021.

Interest expense, net decreased $1.1 million, or 21.0%, to $4.0 million for the third quarter of 2022, compared to $5.1 million for the third quarter of 2021, primarily due to the non-recurrence of the $1.9 million fair value adjustment to the Blowfish Malibu mandatory purchase obligation recorded in the third quarter of 2021, partially offset by higher interest expense on the revolving credit facility.

The purchase obligation was settled for $54.6 million on November 4, 2021.

In addition, we redeemed our $200 million aggregate principal of senior notes in the second half of 2021.

By retiring our senior notes, we shifted our higher-rate debt to the lower-rate borrowings under our revolving credit agreement, which reduced our interest expense by approximately $3.1 million compared to the second quarter of 2021.

These decreases were partially offset by an increase in interest expense attributable to higher average borrowings under our revolving credit agreement.

Interest expense, net decreased $19.0 million, or 79.4%, to $4.8 million for the six months ended July 30, 2022, compared to $23.8 million for the six months ended July 31, 2021, primarily due to the non-recurrence of the $13.5 million fair value adjustment to the Blowfish Malibu mandatory purchase obligation in the six months ended July 31, 2021.

In addition, after retiring our senior notes, the shift of our higher-rate debt to the lower-rate borrowings under our revolving credit agreement reduced our interest expense by approximately $6.3 million compared to the six months ended July 31, 2021.

These decreases were partially offset by an increase in interest expense attributable to higher average borrowings under our revolving credit agreement.

By retiring our senior notes, we shifted debt to our revolving credit agreement, which reduced our interest expense by approximately $1.8 million compared to the third quarter of 2021.

These decreases were partially offset by an increase in interest expense under our revolving credit agreement attributable to higher average borrowings and higher interest rates.

While the reduction in our total interest expense is expected to continue, the interest on our revolving credit facility is based on a variable interest rate.

Therefore, our interest expense will continue to be adversely affected by rising interest rates.

Interest expense, net decreased $19.9 million, or 69.1%, to $8.9 million for the nine months ended October 29, 2022, compared to $28.8 million for the nine months ended October 30, 2021, primarily due to the non-recurrence of the $15.4 million fair value adjustment to the Blowfish Malibu mandatory purchase obligation in the nine months ended October 30, 2021.

In addition, after retiring our senior notes, the shift of our higher-rate debt to the lower-rate borrowings under our revolving credit agreement reduced our interest expense by approximately $8.1 million compared to the nine months ended October 30, 2021.

These decreases were partially offset by an increase in interest expense our revolving credit agreement attributable to higher average borrowings and higher interest rates.

Loss on Early Extinguishment of Debt

The loss on early extinguishment of debt was $0.6 million for the three and nine months ended October 30, 2021, reflecting the redemption of $100 million of senior notes prior to its maturity and the amendment of our revolving credit facility.

Refer to Note 10 to the condensed consolidated financial statements for further discussion.

There were no corresponding charges for the nine months ended October 29, 2022.

Other Income, Net

Other income, net decreased $0.7 million, or 16.7%, to $3.2 million for the second quarter of 2022, compared to $3.9 million for the second quarter of 2021, which reflects a reduction of certain components of net periodic benefit income.

Other income, net decreased $1.1 million, or 13.6%, to $6.6 million for the six months ended July 30, 2022, compared to $7.7 million for the six months ended July 31, 2021, which reflects a reduction of certain components of net periodic benefit income.

Other income, net decreased $0.8 million, or 22.0%, to $3.0 million for the third quarter of 2022, compared to $3.8 million for the third quarter of 2021, which reflects a reduction of certain components of net periodic benefit income associated with our pension plans.

Other income, net decreased $1.9 million, or 16.4%, to $9.6 million for the nine months ended October 29, 2022, compared to $11.5 million for the nine months ended October 30, 2021, primarily attributable to certain components of net periodic benefit income associated with our pension plans, including interest cost, amortization of actuarial loss and settlement cost.

Refer to Note 13 of the condensed consolidated financial statements for further detail regarding the components of net periodic benefit income.

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Our effective tax rate can vary considerably from period to period, depending on a number of factors.

Our consolidated effective tax rate was 25.3% for the second quarter of 2022, compared to 30.3% for the second quarter of 2021.

The higher effective tax rate for the second quarter of 2021 was driven by discrete tax adjustments of $2.9 million, inclusive of $3.3 million of incremental valuation allowances for our deferred tax assets, as we were in a full valuation allowance position for federal, state and certain international jurisdictions.

Our consolidated effective tax rate was 25.5% for the six months ended July 30, 2022, compared to 31.1% for the six months ended July 31, 2021.

The higher effective tax rate for the first half of 2021 primarily reflects the incremental valuation allowances recorded in the second quarter, as described above, and the non-deductibility of losses at our Canadian division, which were driven by exit-related costs associated with our Naturalizer retail stores in the first quarter of 2021.

Our consolidated effective tax rate was 26.2% for the third quarter of 2022, compared to 24.9% for the third quarter of 2021.

The higher effective tax rate for the third quarter of 2022 was driven by an increase in permanent adjustments, primarily due to the non-deductible portion of executive compensation.

Our consolidated effective tax rate was 25.7% for the nine months ended October 29, 2022, compared to 27.7% for the nine months ended October 30, 2021.

The higher effective tax rate for the nine months ended October 30, 2021 primarily reflects the incremental valuation allowances for our deferred tax assets for certain jurisdictions, as well as the non-deductibility of losses at our Canadian division, which were driven by exit-related costs associated with our Naturalizer retail stores in the first quarter of 2021.

Net Earnings Attributable to Caleres, Inc.

Net earnings attributable to Caleres, Inc.

were $51.2 million and $101.7 million for the second quarter and six months ended July 30, 2022, respectively, compared to net earnings of $37.4 million and $43.5 million for the second quarter and six months ended July 31, 2021, respectively, as a result of the factors described above.

were $39.2 million and $140.9 million for the three and nine months ended October 29, 2022, respectively, compared to net earnings of $59.6 million and $103.2 million for the three and nine months ended October 30, 2021, respectively, as a result of the factors described above.

FAMOUS FOOTWEAR

Thirteen Weeks Ended

Twenty-Six Weeks Ended

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July 31, 2021

July 30, 2022

July 31, 2021

Thirty-Nine Weeks Ended

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October 30, 2021

October 29, 2022

October 30, 2021

($ millions, except sales per square foot)

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Impact of changes in Canadian exchange rate on sales

Sales per square foot, excluding e-commerce (thirteen and twenty-six weeks ended)

Sales per square foot, excluding e-commerce (thirteen and thirty-nine weeks ended)

Sales per square foot, excluding e-commerce (trailing twelve months)

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Ending stores

Net sales of $436.4 million in the second quarter of 2022 decreased $17.3 million, or 3.8%, compared to the second quarter of 2021.

The elevated consumer demand we experienced in 2021 and the first quarter of 2022 continued for much of the second quarter of 2022.

However, we began to see consumer demand, store and e-commerce traffic and conversion moderate somewhat later in the quarter, reflecting cautious consumer sentiment due to inflation and other economic concerns.

That trend has continued into the third quarter of 2022.

Net sales of $482.0 million in the third quarter of 2022 decreased $12.7 million, or 2.6%, compared to the record setting third quarter of 2021.

Despite the decrease in net sales, we continued to perform at a high level during the third quarter of 2022, led by a solid back-to-school season.

Although the back-to-school season started slowly in the second quarter, we experienced strong consumer demand in August and September, especially in children’s footwear.

We experienced improvement in our non-athletic footwear categories, and while demand slowed for our athletics footwear, it continues to be one of our top-selling categories.

During the second quarter of 2022, we closed six stores, resulting in 881 stores and total square footage of 5.8 million at the end of the second quarter of 2022, compared to 912 stores and total square footage of 6.0 million at the end of the second quarter of 2021.

Sales to members of our customer loyalty program, Famously You Rewards ("Rewards"), continue to account for a majority of the segment’s sales, with approximately 77% of our net sales made to program members in the second quarter of 2022, compared to 78% in the second quarter of 2021.

Net sales of $820.9 million in the six months ended July 30, 2022 decreased $30.9 million, or 3.6%, compared to the six months ended July 31, 2021, primarily due to the factors described above.

Our sales decline was more pronounced in the northern United States due in part to unseasonably warm weather.

Same-store sales decreased 0.8% compared to the third quarter of 2021.

During the third quarter of 2022, we opened four stores and closed nine stores, resulting in 876 stores and total square footage of 5.8 million at the end of the third quarter of 2022, compared to 905 stores and total square footage of 6.0 million at the end of the third quarter of 2021.

Sales to members of our customer loyalty program, Famously You Rewards ("Rewards"), continue to account for a majority of the segment’s sales, with approximately 77% of our net sales made to program members in the third quarter of 2022, compared to 78% in the third quarter of 2021.

Net sales of $1,302.8 million in the nine months ended October 29, 2022 decreased $43.6 million, or 3.2%, compared to the nine months ended October 30, 2021, as our same-store sales declined 2.5%.

Athletics and casual continue to be our top-selling categories.

We remain focused on maximizing the vertical opportunity between the Famous Footwear and Brand Portfolio segments, with LifeStride, Dr.

Scholl’s and Blowfish Malibu representing three of Famous Footwear’s top 15 best-selling footwear brands for the six months ended July 30, 2022.

During the first half of 2022, we closed 13 stores.

Gross profit decreased $13.8 million, or 6.1%, to $213.6 million for the second quarter of 2022, compared to $227.4 million for the second quarter of 2021.

As a percentage of net sales, our gross profit decreased to 48.9% for the second quarter of 2022, compared to 50.1% for the second quarter of 2021.

Although the gross profit rate for the second quarter of 2022 was slightly lower than the comparable period of 2021, it remained strong with limited promotional activity for much of the second quarter of 2022.

Gross profit decreased $4.4 million, or 1.1%, to $402.8 million for the six months ended July 30, 2022, compared to $407.2 million for the six months ended July 31, 2021, primarily due to the decrease in net sales.

As a percentage of net sales, our gross profit increased to 49.1% for the six months ended July 30, 2022, compared to 47.8% for the six months ended July 31, 2021.

Our higher gross profit for the first half of 2022 was primarily due to less promotional activity.

We remain focused on maximizing the vertical opportunity between the Famous Footwear and Brand Portfolio segments, with LifeStride and Dr.

Scholl’s representing two of Famous Footwear’s top 15 best-selling footwear brands for the nine months ended October 29, 2022.

Gross profit decreased $19.9 million, or 8.4%, to $215.6 million for the third quarter of 2022, compared to $235.5 million for the third quarter of 2021.

As a percentage of net sales, our gross profit decreased to 44.7% for the third quarter of 2022, compared to 47.6% for the third quarter of 2021, reflecting more normalized retail pricing and an increase in promotional activity compared to the third quarter of 2021, when inventories were low due to supply chain constraints.

Our gross profit margin continues to exceed pre-pandemic levels.

Gross profit decreased $24.3 million, or 3.8%, to $618.4 million for the nine months ended October 29, 2022, compared to $642.7 million for the nine months ended October 30, 2021, primarily due to the decrease in net sales.

As a percentage of net sales, our gross profit decreased slightly to 47.5% for the nine months ended October 29, 2022, compared to 47.7% for the nine months ended October 30, 2021.

Selling and Administrative Expenses

Selling and administrative expenses increased $9.2 million, or 6.5%, to $151.1 million for the second quarter of 2022, compared to $141.9 million for the second quarter of 2021.

The increase was driven by higher advertising expense primarily associated with our back-to-school marketing campaign and higher salary and benefits expenses due in part to wage inflation.

As a percentage of net sales, selling and administrative expenses increased to 34.6% for the second quarter of 2022, compared to 31.3% for the second quarter of 2021.

Selling and administrative expenses increased $16.8 million, or 6.1%, to $290.6 million for the six months ended July 30, 2022, compared to $273.8 million for the six months ended July 31, 2021.

The increase was primarily due to higher salary and benefits expenses, higher logistics costs and higher advertising expense associated with our strategic investment in consumer marketing.

As a percentage of net sales, selling and administrative expenses increased to 35.4% for the six months ended July 30, 2022, compared to 32.1% for the six months ended July 31, 2021.

Selling and administrative expenses increased $8.2 million, or 5.6%, to $156.3 million for the third quarter of 2022, compared to $148.1 million for the third quarter of 2021.

The increase was driven by higher salary and benefits expenses due in part to wage inflation and higher

facilities costs.

As a percentage of net sales, selling and administrative expenses increased to 32.4% for the third quarter of 2022, compared to 29.9% for the third quarter of 2021.

Selling and administrative expenses increased $24.9 million, or 5.9%, to $446.9 million for the nine months ended October 29, 2022, compared to $422.0 million for the nine months ended October 30, 2021.

The increase was primarily due to higher salary and benefits expenses, higher logistics and facilities costs and higher advertising expense.

As a percentage of net sales, selling and administrative expenses increased to 34.3% for the nine months ended October 29, 2022, compared to 31.3% for the nine months ended October 30, 2021.

Operating Earnings

Operating earnings decreased $23.0 million to $62.5 million for the second quarter of 2022, compared to $85.5 million for the second quarter of 2021.

As a percentage of net sales, operating earnings were 14.3% for the second quarter of 2022, compared to 18.8% for the second quarter of 2021.

Operating earnings decreased $21.2 million to $112.2 million for the six months ended July 30, 2022, compared to $133.4 million for the six months ended July 31, 2021.

As a percentage of net sales, operating earnings were 13.7% for the six months ended July 30, 2022, compared to 15.7% for the six months ended July 31, 2021.

Operating earnings decreased $28.1 million to $59.3 million for the third quarter of 2022, compared to $87.4 million for the third quarter of 2021, reflecting both lower sales and gross margins and higher operating expenses, as described above.

As a percentage of net sales, operating earnings were 12.3% for the third quarter of 2022, compared to 17.7% for the third quarter of 2021.

Operating earnings decreased $49.2 million to $171.5 million for the nine months ended October 29, 2022, compared to $220.7 million for the nine months ended October 30, 2021, primarily reflecting lower sales and higher operating expenses, as described above.

As a percentage of net sales, operating earnings were 13.2% for the nine months ended October 29, 2022, compared to 16.4% for the nine months ended October 30, 2021.

BRAND PORTFOLIO

Thirteen Weeks Ended

Twenty-Six Weeks Ended

July 30, 2022

July 31, 2021

July 30, 2022

July 31, 2021

Thirty-Nine Weeks Ended

October 29, 2022

October 30, 2021

October 29, 2022

October 30, 2021

($ millions, except sales per square foot)

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Impact of changes in Canadian exchange rate on retail sales

Sales per square foot, excluding e-commerce (thirteen and twenty-six weeks ended)

Sales per square foot, excluding e-commerce (thirteen and thirty-nine weeks ended)

Sales per square foot, excluding e-commerce (trailing twelve months)

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(1) Direct-to-consumer includes sales of our retail stores and e-commerce sites and sales through our customers’ websites that we fulfill on a drop-ship basis.

Net sales of $324.1 million in the second quarter of 2022 increased $85.1 million, or 35.6%, compared to the second quarter of 2021 driven by strong growth in our wholesale business.

The net sales increase was broad-based across nearly all of our brands, with our Sam Edelman, Naturalizer and LifeStride brands being the most significant contributors.

We continued to experience robust growth in our dress, casual and occasion-based styles for many of our brands, including Sam Edelman and LifeStride, and the sport-inspired category also continued to resonate with our customers.

During the second quarter of 2022, we closed one store and opened three stores, resulting in a total of 85 stores and total square footage of 0.1 million at the end of the second quarter of 2022, compared to 87 stores and total square footage of 0.1 million at the end of the second quarter of 2021.

Net sales increased $200.5 million, or 41.0%, to $689.8 million for the six months ended July 30, 2022, compared to $489.3 million for the six months ended July 31, 2021, reflecting strong sales growth from all of our brands, with our Sam Edelman, Naturalizer, LifeStride, Franco Sarto and Allen Edmonds brands being the most significant contributors.

Net sales of $323.2 million in the third quarter of 2022 increased $22.7 million, or 7.6%, compared to the third quarter of 2021, reflecting strong consumer demand for many of our brands.

The net sales increase was broad-based across nearly all of our brands, with our Naturalizer, Sam Edelman, Franco Sarto and LifeStride brands being the most significant contributors.

In addition to sales increases in our wholesale business, our digital business also experienced significant growth during the quarter.

The lead times required on inventory purchases have significantly improved compared to 2021, which has enabled earlier inventory receipts and a more efficient flow of product to our customers.

During the third quarter of 2022, we opened seven stores and closed three stores, resulting in a total of 89 stores and total square footage of 0.1 million at the end of the third quarter of 2022, compared to 90 stores and total square footage of 0.1 million at the end of the third quarter of 2021.

Net sales increased $223.2 million, or 28.3%, to $1,013.0 million for the nine months ended October 29, 2022, compared to $789.8 million for the nine months ended October 30, 2021, reflecting strong sales growth from nearly all of our brands, with our Sam Edelman, Naturalizer, LifeStride, Franco Sarto and Allen Edmonds brands being the most significant contributors.

During 2022, we have experienced a shift in consumer preference from sport and casual products to the fashion and lifestyle categories.

In the first quarter of 2021, we completed the strategic realignment of our Naturalizer retail business and permanently closed the remaining 73 Naturalizer stores in North America that were scheduled for closure.

We have continued to focus on growing the brand’s e-commerce business through naturalizer.com, our retail partners and their websites, and the two ongoing flagship stores in the United States.

On a trailing twelve-month basis, sales per square foot, excluding e-commerce sales, increased to $1,018 for the twelve months ended July 30, 2022, compared to $561 for the twelve months ended July 31, 2021.

We have continued to focus on growing the brand’s e-commerce business through naturalizer.com, as well as our retail partners and their websites.

On a trailing twelve-month basis, sales per square foot, excluding e-commerce sales, increased to $1,047 for the twelve months ended October 29, 2022, compared to $756 for the twelve months ended October 30, 2021.

With the closure of nearly all of our Naturalizer retail stores, the majority of the retail stores in our Brand Portfolio segment are for our Allen Edmonds brand, which have higher retail price points than the Naturalizer brand.

Our unfilled order position for our wholesale sales increased $31.7 million, or 9.6 %, to $360.4 million at July 30, 2022, compared to $328.7 million at July 31, 2021.

The increase in our backlog order levels primarily reflects higher consumer demand compared to last year.

Gross profit increased $29.2 million, or 30.8%, to $124.1 million for the second quarter of 2022, compared to $94.9 million for the second quarter of 2021, primarily reflecting higher net sales.

As a percentage of net sales, our gross profit decreased to 38.3% for the second quarter of 2022, compared to 39.7% for the second quarter of 2021, primarily reflecting a higher mix of wholesale versus retail sales.

Gross profit increased $74.5 million, or 39.5%, to $263.4 million for the six months ended July 30, 2022, compared to $188.9 million for the six months ended July 31, 2021, reflecting higher net sales.

As a percentage of net sales, our gross profit decreased slightly to 38.2% for the six months ended July 30, 2022, compared to 38.6% for the six months ended July 31, 2021.

While we have experienced inflationary pressures related to product costs and inbound freight through the six months ended July 30, 2022, we have been able to successfully offset the majority of these impacts through price increases.

Our unfilled order position for our wholesale sales decreased $93.9 million, or 24.7%, to $286.8 million at October 29, 2022, compared to $380.7 million at October 30, 2021.

The decrease in our backlog order levels compared to last year primarily reflects more conservative buying by our wholesale customers as they manage their inventory levels in response to consumer sentiment.

Gross profit increased $23.5 million, or 23.7%, to $122.4 million for the third quarter of 2022, compared to $98.9 million for the third quarter of 2021, primarily reflecting higher net sales and a higher gross margin rate.

As a percentage of net sales, our gross profit increased to 37.9% for the third quarter of 2022, compared to 32.9% for the third quarter of 2021, primarily reflecting higher average wholesale prices, growth in higher margin sales from the direct-to-consumer channel and a favorable brand mix, partially offset by a higher provision for inventory markdowns.

Gross profit increased $98.0 million, or 34.1%, to $385.8 million for the nine months ended October 29, 2022, compared to $287.8 million for the nine months ended October 30, 2021, reflecting higher net sales.

As a percentage of net sales, our gross profit increased to 38.1% for the nine months ended October 29, 2022, compared to 36.4% for the nine months ended October 30, 2021.

While we have experienced inflationary pressures related to product costs and inbound freight through the nine months ended October 29, 2022, we have been able to successfully offset the majority of these impacts through price increases.

We anticipate inflationary pressures to continue throughout 2022 and will continue to focus on mitigating the impact.

Selling and Administrative Expenses

Selling and administrative expenses increased $16.4 million, or 20.9%, to $94.7 million for the second quarter of 2022, compared to $78.3 million for the second quarter of 2021.

The increase was primarily due to higher variable salary expenses and wage inflation, higher marketing expenses and higher warehouse and logistics costs.

As a percentage of net sales, selling and administrative expenses decreased to 29.2% for the second quarter of 2022, compared to 32.8% for the second quarter of 2021, reflecting better leveraging of expenses over a higher net sales base.

Selling and administrative expenses increased $30.9 million, or 19.2%, to $192.6 million for the six months ended July 30, 2022, compared to $161.7 million for the six months ended July 31, 2021.

Selling and administrative expenses increased $12.6 million, or 14.3%, to $100.1 million for the third quarter of 2022, compared to $87.5 million for the third quarter of 2021.

The increase was primarily due to higher variable salary expenses and wage inflation, higher marketing expenses and higher facilities costs.

As a percentage of net sales, selling and administrative expenses increased to 31.0% for the third quarter of 2022, compared to 29.1% for the third quarter of 2021.

Selling and administrative expenses increased $43.5 million, or 17.5%, to $292.7 million for the nine months ended October 29, 2022, compared to $249.2 million for the nine months ended October 30, 2021.

The increase was driven by higher variable salary expenses and higher marketing expenses.

As a percentage of net sales, selling and administrative expenses decreased to 27.9% for the six months ended July 30, 2022, compared to 33.0% for the six months ended July 31, 2021, reflecting better leveraging of expenses over a higher net sales base.

As a percentage of net sales, selling and administrative expenses decreased to 28.9% for the nine months ended October 29, 2022, compared to 31.5% for the nine months ended October 30, 2021, reflecting better leveraging of expenses over a higher net sales base.

Restructuring and Other Special Charges, Net

We incurred restructuring and other special charges of $13.5 million during the six months ended July 31, 2021 for expenses associated with the strategic realignment of our Naturalizer retail store operations.

These costs primarily represented lease termination and other store closure costs, including employee severance, for the 73 stores that were closed during the first quarter of 2021.

We incurred restructuring and other special charges of $13.5 million during the nine months ended October 30, 2021 for expenses associated with the strategic realignment of our Naturalizer retail store operations.

Refer to Note 5 to the condensed consolidated financial statements for additional information related to these charges.

There were no corresponding charges during the second quarter of 2021 or the six months ended July 30, 2022.

There were no corresponding charges during the three or nine months ended October 29, 2022.

Operating Earnings

Operating earnings increased to $29.4 million for the second quarter of 2022, compared to $16.6 million for the second quarter of 2021, as a result of the factors described above.

As a percentage of net sales, operating earnings were 9.1% for the second quarter of 2022, compared to 6.9% in the second quarter of 2021.

Operating earnings increased to $70.8 million for the six months ended July 30, 2022, compared to $13.7 million for the six months ended July 31, 2021, as a result of the factors described above.

As a percentage of net sales, operating earnings were 10.3% for the six months ended July 30, 2022, compared to 2.8% in the six months ended July 31, 2021.

Operating earnings increased to $22.3 million for the third quarter of 2022, from $11.4 million for the third quarter of 2021, as a result of the factors described above.

As a percentage of net sales, operating earnings were 6.9% for the third quarter of 2022, compared to 3.8% in the third quarter of 2021.

Operating earnings increased to $93.1 million for the nine months ended October 29, 2022, from $25.1 million for the nine months ended October 30, 2021, as a result of the factors described above.

As a percentage of net sales, operating earnings were 9.2% for the nine months ended October 29, 2022, compared to 3.2% in the nine months ended October 30, 2021.

ELIMINATIONS AND OTHER

Thirteen Weeks Ended

Twenty-Six Weeks Ended

July 30, 2022

July 31, 2021

July 30, 2022

July 31, 2021

Thirty-Nine Weeks Ended

October 29, 2022

October 30, 2021

October 29, 2022

October 30, 2021

Cost of goods sold

Selling and administrative expenses

Restructuring and other special charges, net

Operating loss

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 elimination of $22.1 million for the second quarter of 2022 is $5.0 million, or 29.0%, higher than the second quarter of 2021.

The net sales elimination of $37.2 million for the six months ended July 30, 2022 is $10.3 million, or 38.4%, higher than the six months ended July 31, 2021.

The increases for both periods reflect an increase in product sold from our Brand Portfolio segment to Famous Footwear, as we continue to focus on maximizing the vertical opportunity between our segments.

Selling and administrative expenses decreased $16.7 million, to $22.6 million in the second quarter of 2022, compared to $39.3 million for the second quarter of 2021.

The decrease primarily reflects lower expenses for our cash-based incentive compensation plans and certain other employee benefits.

The net sales elimination of $6.9 million for the third quarter of 2022 is $4.1 million, or 37.1%, lower than the third quarter of 2021 reflecting a decrease in product sold from our Brand Portfolio segment to Famous Footwear.

The net sales elimination of $44.2 million for the nine months ended October 29, 2022 is $6.3 million, or 16.5%, higher than the nine months ended October 30, 2022 reflecting an increase in product sold from our Brand Portfolio segment to Famous Footwear.

Selling and administrative expenses increased $8.3 million, to $26.7 million in the third quarter of 2022, compared to $18.4 million for the third quarter of 2021.

The increase primarily reflects higher expenses for our cash-based incentive compensation plans.

In 2021, our financial results exceeded the targets established for our annual incentive plans earlier in the year, which resulted in a larger portion of the anticipated plan payouts recorded as expense in the first half of 2021 rather than in the third quarter.

For 2022, anticipated incentive plan payouts are being recognized more ratably during the year.

Selling and administrative expenses decreased $21.6 million, to $45.8 million for the six months ended July 30, 2022, compared to $67.5 million for the six months ended July 31, 2021.

The decrease primarily reflects lower expenses for our cash-based incentive compensation plans and certain other employee benefits and lower expenses associated with our cash-based director compensation plans reflecting lower growth in our stock price during the six months ended July 30, 2022 compared to the six months ended July 31, 2021.

Selling and administrative expenses decreased $13.3 million, to $72.6 million for the nine months ended October 29, 2022, compared to $85.9 million for the nine months ended October 30, 2021.

The decrease primarily reflects lower expenses for our cash-based incentive compensation plans reflecting the shift in timing of the achievement of our financial performance targets, as described above, as well as lower expenses associated with certain other employee benefits.

Restructuring and other special charges of $2.9 million for the three and nine months ended October 29, 2022 were associated with a CFO transition at our corporate headquarters.

Refer to Note 5 to the condensed consolidated financial statements for additional information related to these charges.

There were no corresponding charges for the nine months ended October 30, 2021.

LIQUIDITY AND CAPITAL RESOURCES

July 30, 2022

July 31, 2021

October 29, 2022

October 30, 2021

January 29, 2022

1 unchanged sentence

Current portion of long-term debt

Long-term debt

(1) As presented here, total debt as of July 31, 2021 excludes the Blowfish Malibu mandatory purchase obligation, which was valued at $52.6 million.

(1) As presented here, total debt as of October 30, 2021 excludes the Blowfish Malibu mandatory purchase obligation, which was valued at $54.6 million.

The mandatory purchase obligation of $54.6 million was paid on November 4, 2021, as further discussed in Note 14 to the condensed consolidated financial statements.

Total debt obligations of $348.5 million at July 30, 2022 increased $49.5 million, from $299.0 million at July 31, 2021, and increased $58.5 million, from $290.0 million at January 29, 2022.

The increase in total debt from July 31, 2021 and January 29, 2022 is due primarily to higher inventory purchases during the quarter to prepare for our back-to-school selling season, as well as $41.7 million of repurchases of our common stock.

Total debt obligations of $364.5 million at October 29, 2022 increased $89.9 million, from $274.6 million at October 30, 2021, and increased $74.5 million, from $290.0 million at January 29, 2022.

The increase in total debt from October 30, 2021 and January 29, 2022 is due primarily to $63.2 million of repurchases of our common stock.

In August 2021, we redeemed $100.0 million aggregate principal amount of our senior notes and on January 3, 2022, we redeemed the remaining $100.0 million of senior notes.

We shifted this higher interest rate debt to borrowings under the revolving credit facility, which has resulted in significant interest expense savings for the Company.

While this reduction in interest expense is expected to continue, the interest on our revolving credit facility is based on a variable interest rate, which may result in higher interest expense in a rising interest rate environment.

Net interest expense for the second quarter of 2022 decreased $9.5 million to $2.5 million, compared to $12.0 million for the second quarter of 2021.

The decrease is primarily attributable to the non-recurrence of the $7.1 million fair value adjustment to the Blowfish Malibu mandatory purchase obligation recorded in the second quarter of 2021.

We shifted this debt to borrowings under the revolving credit facility, which has resulted in significant interest expense savings for the Company.

While this reduction in interest expense is expected to continue, the interest on our revolving credit facility is based on a variable interest rate, which has resulted in higher interest expense in the current rising interest rate environment.

Our interest expense will continue to be adversely affected by rising interest rates.

Net interest expense for the third quarter of 2022 decreased $1.1 million to $4.0 million, compared to $5.1 million for the third quarter of 2021.

The decrease is primarily attributable to the non-recurrence of the $1.9 million fair value adjustment to the Blowfish Malibu mandatory purchase obligation recorded in the third quarter of 2021.

The Blowfish Malibu mandatory purchase obligation of $54.6 million was paid on November 4, 2021, as further discussed in Note 5 and Note 14 to the condensed consolidated financial statements.

In addition, as discussed above, the redemption of all outstanding senior notes in 2021 also contributed to the decrease in interest expense in the second quarter of 2022.

In addition, as discussed above, the redemption of all outstanding senior notes in 2021 also contributed to the decrease in interest expense in the third quarter of 2022.

These decreases were partially offset by higher average borrowings under our revolving credit agreement.

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On October 5, 2021, we entered into a Fifth Amendment to Fourth Amended and Restated Credit Agreement (as so amended, the “Credit Agreement”) which, among other modifications, extended the maturity date of the credit facility from January 18, 2024, to October 5, 2026 and decreased the amount available under the revolving credit facility by $100.0 million to an aggregate amount of up to $500.0 million, subject to borrowing base restrictions, and may be increased by up to $250.0 million.

Interest on the borrowings is at variable rates based on the London Interbank Offered Rate ("LIBOR") (with a floor of 0.0%), or the prime rate (as defined in the Credit

Agreement), plus a spread.

Interest on the borrowings is at variable rates based on the London Interbank Offered Rate ("LIBOR") (with a floor of 0.0%), or the prime rate (as defined in the Credit Agreement), plus a spread.

The Credit Agreement decreased the spread applied to the LIBOR or prime rate by a total of 75 basis points.

At July 30, 2022, we had $348.5 million in borrowings and $10.8 million in letters of credit outstanding under the Credit Agreement.

Total borrowing availability was $140.7 million at July 30, 2022.

We were in compliance with all covenants and restrictions under the Credit Agreement as of July 30, 2022.

At October 29, 2022, we had $364.5 million in borrowings and $10.1 million in letters of credit outstanding under the Credit Agreement.

Total borrowing availability was $125.4 million at October 29, 2022.

We were in compliance with all covenants and restrictions under the Credit Agreement as of October 29, 2022.

On July 27, 2015, we issued $200.0 million aggregate principal amount of senior notes due in 2023 (the "Senior Notes").

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Working Capital and Cash Flow

Twenty-Six Weeks Ended

July 30, 2022

July 31, 2021

Thirty-Nine Weeks Ended

October 29, 2022

October 30, 2021

Net cash provided by operating activities

Net cash used for investing activities

Net cash provided by (used for) provided by financing activities

Net cash provided by (used for) financing activities

Effect of exchange rate changes on cash and cash equivalents

1 unchanged sentence

Reasons for the major variances in cash provided (used) in the table above are as follows:

Cash provided by operating activities was $108.3 million lower in the six months ended July 30, 2022 as compared to the six months ended July 31, 2021, primarily reflecting the following factors:

● A larger increase in inventory during the six months ended July 30, 2022, compared to the six months ended July 31, 2021, primarily reflecting higher inventory in preparation for the back-to-school season as well as earlier arrival of inventory for the Brand Portfolio segment due to improved transportation lead times;

● A decrease in accrued expenses and other liabilities during the six months ended July 30, 2022, compared to an increase during the six months ended July 31, 2021 due in part to higher accruals for incentive compensation payments in 2021, reflecting operating results that exceeded the targets established for the annual incentive plan;

● An increase in accounts receivable during the six months ended July 30, 2022, compared to a decrease in the six months ended July 31, 2021, attributable to higher wholesale sales during the period;

Cash provided by operating activities was $143.4 million lower in the nine months ended October 29, 2022 as compared to the nine months ended October 30, 2021, primarily reflecting the following factors:

● A decrease in trade accounts payable during the nine months ended October 29, 2022, compared to an increase during the nine months ended October 30, 2021, due in part to the earlier receipt of fall product in 2022 and the earlier settlement of the related accounts payable;

● A decrease in accrued expenses and other liabilities during the nine months ended October 29, 2022, compared to an increase during the nine months ended October 30, 2021 due in part to higher accruals for incentive compensation payments in 2021, reflecting operating results that exceeded the targets established for the annual incentive plan;

partially offset by

● Higher net earnings in the six months ended July 30, 2022, compared to the six months ended July 31, 2021.

● Higher net earnings in the nine months ended October 29, 2022, compared to the nine months ended October 30, 2021.

Supply chain financing :

2 unchanged sentences

These liabilities continue to be presented as accounts payable in our condensed consolidated balance sheets, with changes reflected within cash flows from operating activities when settled.

As of July 30, 2022 and July 31, 2021, we had $39.9 million and $48.0 million, respectively, of accounts payable subject to supply chain financing arrangements.

Cash used for investing activities was $11.3 million higher for the six months ended July 30, 2022 as compared to the six months ended July 31, 2021, reflecting higher capital expenditures.

As of October 29, 2022 and October 30, 2021, we had $17.8 million and $64.0 million, respectively, of accounts payable subject to supply chain financing arrangements.

Cash used for investing activities was $30.8 million higher for the nine months ended October 29, 2022 as compared to the nine months ended October 30, 2021, reflecting higher capital expenditures.

In 2022, we expect our purchases of property and equipment and capitalized software to be between $50 million and $60 million, as compared to $24.1 million in 2021.

In the first quarter of 2022, we tested a new prototype Famous Footwear store that offers an enhanced shopping experience, highlights our leading assortment of trending brands and elevates those brands in an energetic and exciting manner.

We have also continued to invest in refreshing our Famous Footwear stores in the first half of 2022.

We plan to invest in additional prototype stores and store renovations throughout 2022, which we believe will reinforce our national presence and further differentiate our store experience from that of our competitors.

Cash provided by financing activities was $169.0 million higher for the six months ended July 30, 2022 as compared to the six months ended July 31, 2021, primarily due to net borrowings on our revolving credit agreement of $58.5 in the six months ended July 30, 2022, compared to net repayments of $150.0 million in the comparable period in 2021.

In addition, we repurchased $41.7 million of our common stock under our share repurchase programs during the six months ended July 30, 2022, with no corresponding share repurchases during the six months ended July 31, 2021.

We have also continued to invest in refreshing our Famous Footwear stores in the first nine months of 2022.

We have experienced strong financial performance from the recently converted prototype stores.

Accordingly, we plan to invest in additional prototype stores and store renovations during the fourth quarter of 2022 and into 2023, which we believe will enhance our brand image and further differentiate our store experience from that of our competitors.

Cash provided by financing activities was $190.5 million higher for the nine months ended October 29, 2022 as compared to the nine months ended October 30, 2021, primarily due to net borrowings on our revolving credit agreement of $74.5 in the nine months ended October 29, 2022, compared to net repayments of $75.0 million in the comparable period in 2021.

In addition, we repurchased $63.2 million of our common stock under our share repurchase programs during the nine months ended October 29, 2022, with no corresponding share repurchases during the nine months ended October 30, 2021.

A summary of key financial data and ratios at the dates indicated is as follows:

July 30, 2022

July 31, 2021

October 29, 2022

October 30, 2021

January 29, 2022

Operating working capital ($ millions) (1)

Working capital ($ millions) (1)

Current ratio (2)

Debt-to-capital ratio (3)

(1) Operating working capital has been computed as total current assets, excluding cash and property and equipment, held for sale, less total current liabilities, excluding borrowings under revolving credit agreement, current portion of long-term debt and lease obligations.

(1) Working capital has been computed as total current assets less total current liabilities.

(2) The current ratio has been computed by dividing total current assets by total current liabilities.

(3) The debt-to-capital ratio has been computed by dividing total debt by total capitalization.

Total debt is defined as long-term debt (including the current portion) and borrowings under revolving credit agreement.

Total debt is defined as the current portion of long-term debt and borrowings under revolving credit agreement.

Total capitalization is defined as total debt and total equity .

Operating working capital at July 30, 2022 was $296.4 million, which was $196.0 million and $102.6 million higher than at July 31, 2021 and January 29, 2022, respectively.

The increase in operating working capital from July 31, 2021 and January 29, 2022 primarily reflects higher inventories and the settlement of the Blowfish Malibu mandatory purchase obligation in the fourth quarter of 2021, partially offset by higher trade accounts payable.

The increase in operating working capital from January 29, 2022 primarily reflects higher inventories, partially offset by higher trade payables.

Our current ratio was 0.89 to 1 as of July 30, 2022, compared to 0.82:1 at July 31, 2021 and January 29, 2022.

Our debt-to-capital ratio was 47.5% as of July 30, 2022, compared to 54.9% as of July 31, 2021 and 47.3% at January 29, 2022.

The decrease in our debt-to-capital ratio from July 31, 2021 primarily reflects the extinguishment of our senior notes and higher equity attributable to our strong financial results.

We declared and paid dividends of $0.07 per share in the second quarter of both 2022 and 2021.

Working capital at October 29, 2022 was ($117.8) million, which was $89.6 million and $71.3 million higher than at October 30, 2021 and January 29, 2022, respectively.

The increase in working capital from October 30, 2021 primarily reflects higher inventory, the redemption of our senior notes, lower trade accounts payable and the settlement of the Blowfish Malibu mandatory purchase obligation in the fourth quarter of 2021, partially offset by higher borrowings under the revolving credit agreement.

The increase in working capital from January 29, 2022 primarily reflects higher inventories and accounts receivable and lower trade accounts payable, partially offset by higher borrowings under the revolving credit agreement.

Our current ratio was 0.89 to 1 as of October 29, 2022, compared to 0.81:1 at October 30, 2021 and 0.82:1 at January 29, 2022.

Our debt-to-capital ratio was 47.3% as of October 29, 2022, consistent with October 30, 2021 and January 29, 2022.

We declared and paid dividends of $0.07 per share in the third quarter of both 2022 and 2021.

The declaration and payment of any future dividend is at the discretion of the Board of Directors and will depend on our results of operations, financial condition, business conditions and other factors deemed relevant by our Board of Directors.

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These risks include (i) supply chain disruptions and inflationary pressures;

(ii) the coronavirus pandemic and its adverse impact on our

business operations and financial condition;

(ii) the coronavirus pandemic and its adverse impact on our business operations and financial condition;

(iii) changing consumer demands, which may be influenced by general economic conditions and other factors;

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(xiv) the ability to maintain relationships with current suppliers;

(xv) transitional challenges with acquisitions and divestitures;

transitional challenges with acquisitions and divestitures;

(xvi) changes to tax laws, policies and treaties;

7 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis