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Item 7. Management’s Discussion and Analysis

2023-03-28 compared with 2022-03-28 · 210 added, 228 removed, 211 unchanged (67% of the section changed)

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Our mission is to inspire people to feel great...feet first.

We offer the consumer a powerful portfolio of footwear brands built on deep consumer insights generating unwavering consumer loyalty and trust.

We offer the consumer a diversified portfolio of leading footwear brands built on deep consumer insights generating unwavering consumer loyalty and trust.

As both a retailer and a wholesaler, we have a perspective on the marketplace that enables us to serve consumers from different vantage points.

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A combination of thoughtful planning and rigorous execution is key to our success in optimizing our business and portfolio of brands.

Our business strategy is focused on continued market share gains, investments in technology, and sustainability, while remaining focused on meeting changing consumer demand.

strategy is focused on continued market share gains, investments in technology, and sustainability, while remaining focused on meeting changing consumer demand.

Famous Footwear

Our Famous Footwear segment includes our Famous Footwear stores, famousfootwear.com and famousfootwear.ca in Canada.

Famous Footwear is one of America’s leading family – branded footwear retailers with 894 stores at the end of 2021 and net sales of $1.7 billion in 2021.

Our Famous Footwear segment includes nearly 900 Famous Footwear stores, famousfootwear.com and famousfootwear.ca in Canada.

Famous Footwear, which is one of America’s leading family – branded footwear retailers, was founded on a simple idea:

that everyone deserves to feel the joy that comes from a new pair of shoes.

Our focus for the Famous Footwear segment is on meeting the needs of a well-defined consumer by providing an assortment of trend-right, brand-name fashion, casual and athletic footwear at a great price.

During 2022, we continued to execute on our three-pronged strategy, which concentrates on merchandising, marketing and consumer experience.

We continue to focus on increasing the opportunity between Famous Footwear and the brands within our Brand Portfolio segment, such as LifeStride, Blowfish Malibu, Dr.

Scholl’s and Vionic Beach.

We also have focused on offering the consumer a balanced assortment of athletic, sport and seasonal styles from well-known brands.

We remained focused on increasing the opportunity between Famous Footwear and the brands within our Brand Portfolio segment, such as LifeStride, Dr.

Scholl’s Shoes, Blowfish Malibu and Naturalizer, among others.

We also have focused on offering the consumer a balanced assortment of athletic, sport and fashion styles from well-known brands.

We tightly managed our inventory levels in 2022, reducing SKU counts and amplifying key product trends and items to drive sales volume.

As we work to evolve our product offerings, we are testing and adding new and emerging brands across various categories to meet the shifting preferences and behaviors of the consumer, which we believe may attract new Famous Footwear consumers while providing the current consumer with additional options.

We believe our children’s business is a key competitive differentiator, and we view this offering as a future growth opportunity.

We are also optimizing our media investment to acquire new consumers, reactivate previous consumers and retain existing Famous Footwear consumers.

While we understand that consumers are still navigating an uncertain macro environment, we continue to believe that Famous Footwear is exceptionally well-positioned to compete and excel, despite these headwinds, due to its leadership position with the family, leading assortment of national brands, nationwide retail locations in key markets and enhanced consumer experience in stores and online.

Brand Portfolio

Our Brand Portfolio segment is consumer-focused and we believe our success is dependent upon our ability to strengthen consumers’ preference for our brands by offering compelling style, quality, differentiated brand promises and innovative marketing campaigns.

The segment is comprised of the Sam Edelman, Vionic, Naturalizer, Blowfish Malibu, Dr.

Scholl’s Shoes, Allen Edmonds, LifeStride, Franco Sarto, Rykä, Vince, Bzees, Zodiac and Veronica Beard brands.

The segment is comprised of the Sam Edelman, Vionic, Naturalizer, Allen Edmonds, LifeStride, Dr.

Scholl’s Shoes, Blowfish Malibu, Franco Sarto, Rykä, Vince, Bzees, Veronica Beard and Zodiac brands.

Through these brands, we offer our customers a diversified selection of footwear, each designed and targeted to a specific consumer segment within the marketplace.

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This segment also includes our e-commerce businesses that sell our branded footwear.

We also operate a joint venture, which expands our international presence by distributing our Sam Edelman and Naturalizer brands through 16 retail stores in China.

Supply Chain Disruptions and Inflationary Pressures

During 2021, our business operations continued to be impacted by the COVID-19 pandemic, including the delayed receipt of inventory attributable to temporary factory shutdowns, border closures, port congestion and shipping vessel and container availability.

Our inventory levels at January 29, 2022 were $108.9 million higher than the prior year-end, inclusive of an $83.5 million increase in-transit inventory, reflecting the ongoing supply chain disruptions.

While we have experienced an improvement in inventory receipts at the beginning of 2022, we expect supply chain disruptions to continue through the first half of 2022.

Due to lower shipping vessel and container availability, we experienced higher transportation costs throughout 2021, with approximately $23 million of incremental transportation costs incurred during the second half of 2021.

We expect to continue to experience inflationary pressures for freight and other product costs during 2022.

If we are unable to recover the impact of these costs through price increases to our customers, or if consumer spending decreases as a result of inflation, our business, results of operations, financial condition and cash flows may be adversely affected.

In addition, ongoing inflation in product costs may result in lower gross margins due to a higher inventory reserve requirement for the inventory valued using the last-in, first-out (“LIFO”) costing methodology, which is used to value approximately 89% of our consolidated inventories.

We also operate a joint venture, which expands our international presence by distributing our Sam Edelman and Naturalizer brands through e-commerce sites and 29 retail stores in China.

Known Trends Impacting Our Business

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

The price increases we began implementing in the second half of 2021 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 2023.

Financial Highlights

The following is a summary of the financial highlights for 2022:

● Consolidated net sales increased $660.5 million, or 31.2%, to $2,777.6 million in 2021, compared to $2,117.1 million last year, driven primarily by record-setting sales at our Famous Footwear segment which benefited from strong consumer demand as COVID-19 vaccines became widely available and government restrictions eased.

Our Brand Portfolio segment’s net sales also rebounded compared to last year, despite being adversely impacted by the delayed receipt of inventory due to supply chain disruptions.

● Consolidated net sales increased $190.5 million, or 6.9%, to $2,968.1 million in 2022, compared to $2,777.6 million last year.

Net sales of our Brand Portfolio segment increased $241.8 million, or 22.4%, compared to

2021, driven by strong sales from nearly all of our brands.

Our Famous Footwear segment continued its strong performance with net sales of $1,705.1 million.

● Consolidated gross profit increased $57.6 million, or 4.7%, to $1,284.9 million in 2022, compared to $1,227.3 million last year.

Our gross profit margin increased to 44.2% in 2021, compared to 37.2% in 2020, reflecting

a decline in promotional activity driven by strong consumer demand, partially offset by higher inbound freight costs.

● Consolidated operating earnings increased to $205.8 million in 2021, compared to an operating loss of $485.7 million last year.

Our gross profit margin decreased to 43.3% in 2022, compared to 44.2% in 2021.

● Consolidated operating earnings increased to $214.3 million in 2022, compared to $205.8 million last year.

● Consolidated net earnings attributable to Caleres, Inc.

were $137.0 million, or $3.56 per diluted share, in 2021, compared to a net loss of $439.1 million, or $11.80 per diluted share, last year.

were $181.7 million, or $4.92 per diluted share, in 2022, compared to $137.0 million, or $3.56 per diluted share, last year.

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

● COVID-19 pandemic impact – During 2020, our business results were negatively impacted by the COVID-19 pandemic.

Our retail stores were temporarily closed for a portion of the year and many of our stores experienced reduced operating hours and additional closure days on a temporary basis as a result of local government mandates or illness.

We also experienced declines in retail store traffic with stay-at-home orders and other government mandates, which resulted in lower sales in 2020, despite the significant growth in our e-commerce business.

We incurred costs associated with the COVID-19 pandemic and related impacts on the Company’s business totaling $114.3 million ($115.5 million on an after-tax basis, or $3.10 per diluted share) in 2020.

These costs included non-cash impairment charges associated with property and equipment and lease right-of-use assets, inventory markdowns, employee severance and other expenses.

Of the $114.3 million in charges, $80.9 million is presented in restructuring and other special charges, net and $33.4 million, which represents inventory markdowns, is reflected as cost of goods sold.

In 2021, as the impacts of the pandemic began to recede, we experienced strong consumer demand and robust growth in retail store traffic, contributing to our record-setting financial results.

● Deferred tax valuation allowances – As a result of the significant loss before income taxes in 2020 driven by the impairment of goodwill and intangible assets during the pandemic, we entered into a three-year cumulative loss position for federal, state and certain international jurisdictions.

At that time, we increased our valuation allowances on deferred tax assets to $50.0 million, reflecting the uncertainty regarding the utilization of our deferred tax assets in those jurisdictions.

During 2021, our net deferred tax asset increased, which required incremental valuation allowances of $4.0 million ($0.10 per diluted share).

The increase in the net deferred tax asset was primarily related to operating losses at our Canadian business division, which were driven by exit-related costs associated with the Naturalizer retail stores during the first quarter of 2021.

We have experienced strong earnings before income taxes in both 2021 and 2022, but remain in a cumulative loss position at the end of fiscal 2022.

During 2022, our net deferred tax asset position declined.

As a result, we released approximately $17.4 million ($0.47 per diluted share) of valuation allowances on deferred tax assets in 2022.

● Organizational changes – During 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 during 2021.

Refer to Note 4 to the consolidated financial statements for further discussion.

● Blowfish Malibu mandatory purchase obligation – In July 2018, we acquired a controlling interest in Blowfish Malibu.

As further discussed in Note 4 and 13 to the consolidated financial statements, the remaining interest in Blowfish Malibu was subject to a mandatory purchase obligation after a three-year period, based on an earnings multiple formula.

During 2021, we recorded fair value adjustments of $15.4 million ($11.5 million on an after-tax basis, or $0.30 per diluted share), compared to $23.9 million ($17.8 million on an after-tax basis, or $0.48 per diluted share) in 2020.

The fair value adjustments are presented as interest expense, net in the consolidated statements of earnings (loss).

As further discussed in Note 4 to the consolidated financial statements, the remaining interest in Blowfish Malibu was subject to a mandatory purchase obligation after a three-year period, based on an earnings multiple formula.

During 2021, we recorded fair value adjustments of $15.4 million ($11.5 million on an after-tax basis, or $0.30 per diluted share), which are presented as interest expense, net in the consolidated statements of earnings (loss).

The mandatory purchase obligation of $54.6 million was settled during the fourth quarter of 2021.

● Brand Portfolio—business exits – In 2021, the Company incurred costs of $13.5 million ($11.9 million on an after-tax basis, or $0.31 per diluted share) related to the strategic realignment of the Naturalizer retail store operations, which had been announced in late 2020.

These charges primarily represent lease termination and other store closure costs, including employee severance, for the Naturalizer stores closed in 2021 and are reflected as restructuring and other special charges.

In 2020, the Company incurred costs totaling $16.4 million ($14.9 million on an after-tax basis, or $0.40 per diluted share), including $14.8 million related to the decision to close all but a limited number of our Naturalizer retail stores and $1.6 million associated with the decision to exit the Fergie brand.

Refer to Note 4 to the consolidated financial statements for further discussion.

● Loss on early extinguishment of debt – During 2021, we incurred a loss of $1.0 million ($0.8 million on an after-tax basis, or $0.02 per diluted share) related to the redemption of our $200.0 million aggregate principal senior notes, prior to the maturity date, and the amendment to our revolving credit facility prior to its maturity.

There were no corresponding charges in 2022.

Refer to Note 11 to the consolidated financial statements for further discussion.

● Impairment of goodwill and intangible assets – During 2020, we recorded non-cash impairment charges totaling $286.5 million ($236.4 million on an after-tax basis, or $6.35 per diluted share).

We recorded $240.3 million of impairment associated with goodwill as a result of the unfavorable business climate and our lower stock price and market capitalization.

In addition, we recorded $46.2 million of impairment associated with

intangible assets, including the Allen Edmonds trade name and customer relationship intangible asset and Via Spiga trade name.

There were no corresponding impairment charges in 2021.

Refer to Note 1 and Note 10 to the consolidated financial statements for additional information related to these charges.

● Vionic integration-related costs – On October 18, 2018, we acquired the Vionic business for $360.7 million.

We incurred integration-related charges totaling $3.4 million ($2.6 million on an after-tax basis, $0.07 per diluted share) during 2020, which are presented as restructuring and other special charges in the consolidated statements of earnings (loss).

These costs primarily represents non-cash charges for impairment of assets, warehouse and logistics integration expenses and severance costs.

● Brand Portfolio – business exits – In 2021, the Company incurred costs of $13.5 million ($11.9 million on an after-tax basis, or $0.31 per diluted share) related to the strategic realignment of the Naturalizer retail store operations.

These charges primarily represented lease termination and other store closure costs, including employee severance, for the Naturalizer stores closed in 2021 and are reflected as restructuring and other special charges.

There were no corresponding charges in 2022.

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Financial Outlook

We delivered record-setting financial results in 2021, which will provide us with significant momentum going into 2022.

Our strong financial results demonstrate the strength of our portfolio of brands, the success of our advanced operating capabilities, the tremendous efforts and talents of our associates and the significant value-enhancing transformation of the organization.

In 2022, we will be focused on unlocking growth opportunities across the Company, while taking additional steps to mitigate supply chain and inflationary pressures.

We believe we are uniquely positioned to meet consumer needs and capture growth across trending footwear categories such as event, occasion and career, while continuing to capitalize on demand for the athletic and sport-inspired styles.

We are confident that the investments we have made, the strategic priorities we have set in motion, and our strengthened financial position and potential for ongoing strong cash generation will enable us to continue to return capital to shareholders, better align supply with consumer demand and invest in our long-term strategic initiatives.

We believe the success of the structural changes we have made in recent years will enable us to deliver a new baseline of earnings per share in the future.

In 2023, we will focus on several key areas that we believe will enable us to win in the marketplace, despite inflationary pressures, higher interest rates and the ongoing uncertainty in the macro environment.

● We will work to align our product assortment, store experience, digital presence and marketing approach to the needs of the “millennial family” at Famous Footwear.

● We will continue to balance the product mix at Famous Footwear to align the athletic versus non-athletic offerings to consumer demand.

● We intend to capitalize on the strength of our lead brands within our Brand Portfolio segment, including Sam Edelman, Vionic, Allen Edmonds and Naturalizer.

● We plan to leverage our shared centers of knowledge around design and innovation, digital, marketing, analytics, and sourcing and logistics, which we believe will unlock growth opportunities and increase operating margin.

We believe we are uniquely positioned to meet consumer needs and capture growth across trending footwear categories.

We are confident that the investments we have made, the strategic priorities we have set in motion, and our strengthened financial position and potential for ongoing strong cash generation will enable us to reduce our revolver borrowings and create long-term value for our shareholders.

Metrics Used in the Evaluation of Our Business

The following are a couple of key metrics by which we evaluate our business and make strategic decisions:

Same-store sales

The same-store sales metric is a metric commonly used in the retail industry to evaluate the revenue generated for stores that have been open for more than a year, though many retailers may calculate the metric differently.

Management uses the same-store sales metric as a measure of an individual store’s success to determine whether its sales performance is consistent with expectations.

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

Accordingly, closed stores (including temporary store closures related to the pandemic) are excluded from the same-store sales metric for each day of the closure.

Comparable sales

The comparable sales metric is a metric commonly used in the retail industry to evaluate the revenue generated for stores that have been open for more than a year, though many retailers may calculate the metric differently.

Management uses the comparable sales metric as a measure of an individual store’s success to determine whether its sales performance is consistent with expectations.

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

In addition, in order to be included in the comparable 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.

Accordingly, closed stores (including temporary store closures related to the pandemic) are excluded from the comparable sales metric for each day of the closure.

Relocated stores are treated as new stores and therefore excluded from the calculation.

E-commerce sales for those websites that function as an extension of a retail chain are included in the same-store sales calculation.

We believe the same-store sales metric is useful to shareholders and investors in assessing the performance of our existing retail store locations with comparable prior year sales, separate from the impact of store openings or closures.

E-commerce sales for those websites that function as an extension of a retail chain are included in the comparable sales calculation.

We believe the comparable sales metric is useful to shareholders and investors in assessing the performance of our existing retail store locations with comparable prior year sales, separate from the impact of store openings or closures.

Sales per square foot

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The following sections discuss the consolidated and segment results of our operations for the year ended January 28, 2023 compared to the year ended January 29, 2022.

For a discussion of the year ended January 30, 2021 compared to the year ended February 1, 2020, refer to Part II, Item 7 "

For a discussion of the results for the year ended January 29, 2022 compared to the year ended January 30, 2021, refer to Part II, Item 7 "

Management’s Discussion and Analysis of Financial Condition and Results of Operations "

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Other income, net

Earnings (loss) before income taxes

Earnings before income taxes

Income tax (provision) benefit

Net earnings (loss)

Net earnings (loss) attributable to noncontrolling interests

Net (loss) earnings attributable to noncontrolling interests

Net earnings (loss) attributable to Caleres, Inc.

Net sales increased $660.5 million, or 31.2%, to $2,777.6 million in 2021, compared to $2,117.1 million last year.

In 2021, we experienced an increase in retail store traffic once the impacts of the pandemic began to recede and government restrictions eased.

In addition, consumer demand for our on-trend assortment supported a reduction in promotional activity, resulting in significant full-price selling.

These factors resulted in record-setting net sales for our Famous Footwear segment, which increased $484.7 million, or 38.4%, compared to last year.

Net sales for our Brand Portfolio segment increased $178.5 million, or 19.8%, compared to last year.

While Brand Portfolio net sales improved over last year, they remain below sales in 2019, due in part to the brand exits announced in late 2019 and early 2020 and the related closure of all but two Naturalizer retail stores in North America.

Net sales increased $190.5 million, or 6.9%, to $2,968.1 million in 2022, compared to $2,777.6 million last year, led by a $241.8 million, or 22.4%, increase in net sales at our Brand Portfolio segment.

Consumer demand was strong in 2022 across all of our key brands and channels.

Our strong net sales were also driven by more timely receipt of inventory compared to last year, as the global supply chain returned to pre-pandemic efficiency.

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

Net sales for our Famous Footwear segment decreased $43.2 million, or 2.5%, compared to our record-setting 2021 net sales.

On a consolidated basis, our direct-to-consumer sales represented approximately 72% of total net sales for 2022, compared to 75% last year.

Our casual, athletic and sport footwear categories continued to perform well and our sandals category experienced strong growth.

In addition, demand for the dress category continued to improve as more people are returning to the workplace and attending social gatherings.

Gross profit increased $440.3 million, or 55.9%, to $1,227.3 million in 2021, compared to $787.0 million in 2020 driven by higher net sales, more full-price selling and a significant decrease in promotional activity at Famous Footwear due to our strong product assortment and inventory management, partially offset by higher inbound freight costs.

In addition, during 2020 our gross profit was impacted by incremental inventory markdowns reflecting the difficult retail environment and our business exits described earlier.

As a percentage of net sales, our gross profit rate increased to 44.2% in 2021, compared to 37.2% in 2020.

The higher gross profit rate reflects more full-price selling and a decline in promotional activity driven by strong consumer demand, partially offset by higher inbound freight costs.

Gross profit increased $57.6 million, or 4.7%, to $1,284.9 million in 2022, compared to $1,227.3 million in 2021, driven by higher net sales.

As a percentage of net sales, our gross profit rate decreased to 43.3% in 2022, compared to 44.2% in 2021, reflecting more normalized pricing and promotional activity in our Famous Footwear segment and a higher mix of wholesale compared to retail net sales.

These decreases were partially offset by an increase in the gross profit margin of our Brand Portfolio segment, reflecting strong consumer demand for many of our key brands.

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

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Selling and administrative expenses increased $59.7 million, or 5.9%, to $1,067.7 million in 2022, compared to $1,008.0 million last year.

The increase reflects higher salary and benefits expenses, higher marketing expenses and an increase in stock and deferred compensation expense, partially offset by lower rent and facilities costs.

During 2020, we managed controllable expenses in response to the difficult business environment and lower sales volume resulting from the pandemic.

The strategic actions taken in 2020 resulted in lower salaries and benefits expense;

lower variable expenses associated with the temporary store closures, including the impact of certain rent concessions received from landlords;

and lower marketing, travel and logistics expenses.

As a percentage of net sales, selling and administrative expenses decreased to 36.3% in 2021 from 42.0% last year, reflecting better leveraging of expenses over a higher sales base.

Impairment of Goodwill and Intangible Assets

During 2020, we recorded non-cash impairment charges totaling $286.5 million ($236.4 million on an after-tax basis, or $6.35 per diluted share).

We recorded $240.3 million of impairment associated with goodwill as a result of the unfavorable business climate and our lower market capitalization.

In addition, we recorded $46.2 million of impairment associated with intangible assets, including $36.0 million associated with the Allen Edmonds trade name and customer relationship intangible asset and $10.2 million associated with the Via Spiga trade name.

There were no corresponding impairment charges in 2021.

Refer to Note 10 to the consolidated financial statements for additional information related to these charges.

The increase reflects higher salary and benefits expenses, marketing expense, travel expense and higher retail facilities costs, due in part to rising real estate costs associated with our retail store base.

As a percentage of net sales, selling and administrative expenses decreased slightly to 36.0% in 2022 from 36.3% last year.

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 2021, compared to $96.7 million in 2020 as follows:

● Brand Portfolio business exit costs of $13.5 million and $12.4 million in 2021 and 2020, respectively, reflecting expenses associated with the strategic realignment of the Naturalizer retail store operations;

● Costs associated with the economic impact of the COVID-19 pandemic of $80.9 million in 2020, primarily consisting of impairment charges associated with lease right-of-use assets and retail store furniture and fixtures, liabilities associated with wholesale factory order cancellations and severance;

● Integration-related costs for Vionic of $3.4 million in 2020.

The nature of the above charges are more fully described in the Financial Highlights section above and Note 4 to the consolidated financial statements.

Operating Earnings (Loss)

Operating earnings increased $691.5 million to $205.8 million in 2021, compared to an operating loss of $485.7 million last year, reflecting the factors described above.

As a percentage of net sales, operating earnings were 7.4% in 2021, compared to an operating loss of 22.9% in 2020.

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 2022 associated with a CFO transition at our corporate headquarters.

In 2021, we incurred restructuring costs of $13.5 million, reflecting expenses associated with the strategic realignment of the Naturalizer retail store operations.

Refer to further discussion of these charges in the Financial Highlights section above and Note 4 to the consolidated financial statements.

Operating Earnings

Operating earnings increased $8.5 million to $214.3 million in 2022, compared to $205.8 million last year, reflecting the factors described above.

As a percentage of net sales, operating earnings were 7.2% in 2022, compared 7.4% in 2021.

Interest Expense, Net

Interest expense, net decreased $17.3 million, or 35.9%, to $30.9 million in 2021, compared to $48.2 million last year, which is attributable to various factors.

The fair value adjustments on the mandatory purchase obligation associated with the Blowfish Malibu acquisition totaled $15.4 million in 2021, compared to $23.9 million in 2020.

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

In addition, we continued to use our strong cash generation to reduce the borrowings under our revolving credit agreement from $440.0 million at March 2020 to $290.0 million at January 29, 2022.

As a result, the average borrowings under our revolving credit agreement were lower in 2021, decreasing our interest expense.

Interest expense, net decreased $16.6 million, or 53.9%, to $14.3 million in 2022, compared to $30.9 million last year, primarily due to the non-recurrence of the fair value adjustments to the Blowfish Malibu mandatory purchase obligation that totaled $15.4 million in 2021.

The mandatory purchase obligation was settled for $54.6 million in November 2021.

In addition, we redeemed our $200.0 million aggregate principal of senior notes during 2021, prior to maturity, shifting this higher interest rate debt to borrowings under our revolving credit agreement.

We expect our net interest expense to be lower going forward as a result of the redemption of the senior notes.

Refer to Note 11 to the consolidated financial statements for additional information related to our borrowings and Note 4 and Note 13 for further discussion regarding the mandatory purchase obligation.

These decreases were partially offset by an increase in interest expense on our revolving credit agreement in 2022, attributable to higher average borrowings and higher interest rates associated with the rising interest rate environment.

Refer to Note 11 to the consolidated financial statements for additional information related to our borrowings and Note 4 for further discussion regarding the mandatory purchase obligation.

Loss on Early Extinguishment of Debt

The loss on early extinguishment of debt was $1.0 million in 2021, reflecting the redemption of our $200.0 million aggregate principal senior notes prior to maturity, as well as the amendment of our revolving credit facility.

There were no corresponding charges in 2022.

Refer to Note 11 to the consolidated financial statements for further discussion.

Other Income, Net

Other income, net decreased $1.5 million, or 8.7%, to $15.3 million in 2021, compared to $16.8 million in 2020, reflecting a reduction in certain components of net periodic benefit income associated with our pension plans.

Other income, net decreased $2.3 million, or 15.7%, to $13.0 million in 2022, compared to $15.3 million in 2021, which is 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 5 to the consolidated financial statements for additional information related to our retirement plans.

Income Tax (Provision) Benefit

Income Tax Provision

Our consolidated effective tax rate was 15.7% in 2022, compared to 27.0% in 2021.

Our higher tax rate for 2021 primarily reflects strong domestic earnings and incremental valuation allowances recorded for our deferred tax assets for certain

jurisdictions.

The rate also reflects incremental valuation allowances related to operating losses at our Canadian business division, which were driven by exit-related costs associated with the Naturalizer retail stores during the first quarter of 2021.

In 2020, our effective tax rate was impacted by several discrete tax items, including the non-deductibility of a portion of our goodwill impairment charges and the incremental tax provision related to the vesting of stock awards.

Our tax benefit for 2020 also includes the favorable impact of approximately $8.2 million related to the CARES Act, which permits us to carry back a significant portion of our 2020 losses to years with a higher federal tax rate.

In addition, due to the significance of our 2020 loss before income taxes, the Company entered into a three-year cumulative loss position for federal, state and certain international jurisdictions.

We increased our valuation allowances on deferred tax assets to $50.0 million during 2020, reflecting the uncertainty regarding the utilization of our deferred tax assets in these jurisdictions.

The requirement for valuation allowances on our deferred tax assets may result in ongoing volatility in our effective tax rate until the Company is no longer in a three-year cumulative loss position.

Our lower tax rate for 2022 primarily reflects the release of $17.4 million of valuation allowances recorded for our deferred tax assets for certain jurisdictions.

Our effective tax rate for 2021 primarily reflects strong domestic earnings and incremental valuation allowances recorded for our deferred tax assets for certain jurisdictions.

As a result of the significant loss before income taxes in 2020 driven by the impairment of goodwill and intangible assets during the pandemic, we entered into a three-year cumulative loss position for federal, state and certain international jurisdictions.

At that time, we increased our valuation allowances on deferred tax assets to $50.0 million, reflecting the uncertainty regarding the utilization of our deferred tax assets in those jurisdictions.

During 2021, our net deferred tax asset increased, which required incremental valuation allowances of $4.0 million.

The increase in the net deferred tax asset primarily related to operating losses at our Canadian business division, which were driven by exit-related costs associated with the Naturalizer retail stores during the first quarter of 2021.

We have experienced strong earnings before income taxes in both 2021 and 2022 but remain in a cumulative loss position at the end of fiscal 2022.

During 2022, our net deferred tax position declined.

As a result, we released approximately $17.4 million of the valuation allowances on deferred tax assets in 2022.

Refer to Note 6 to the consolidated financial statements for additional information regarding income taxes.

Net Earnings (Loss) Attributable to Caleres, Inc.

Consolidated net income attributable to Caleres, Inc.

was $137.0 million in 2021, compared to a net loss of $439.1 million last year, reflecting the factors described above.

In August 2022, the Inflation Reduction Act of 2022 (“IRA”) was signed into law.

The IRA contains certain revisions to the Internal Revenue Code, including a 15% corporate minimum income tax for tax years beginning after December 31, 2022.

The IRA also assesses a 1% excise tax on repurchases of corporate stock, which will impact any of our stock repurchases in 2023.

We do not expect this provision of the IRA to have a material impact on our financial results in 2023.

Net Earnings Attributable to Caleres, Inc.

Consolidated net earnings attributable to Caleres, Inc.

were $181.7 million in 2022, compared to $137.0 million last year, reflecting the factors described above.

Geographic Results

We have both domestic and international operations.

Domestic operations include the nationwide operation of our Famous Footwear and other branded retail footwear stores, the wholesale distribution of footwear to numerous retail consumers and the operation of our e-commerce websites.

Domestic operations include the nationwide operation of our Famous Footwear and other branded retail footwear stores, the wholesale distribution of footwear to numerous retail consumers

and the operation of our e-commerce websites.

International operations primarily consist of wholesale operations in Eastern Asia, Canada and Europe, retail operations in Canada and China and the operation of our international e-commerce websites.

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As a percentage of sales, the pre-tax profitability on international sales is higher than on domestic sales because of a lower cost structure and the inclusion of the unallocated corporate administrative and other costs in domestic earnings.

In 2020, both our domestic and international earnings were impacted by the goodwill and intangible asset impairment charges described earlier.

FAMOUS FOOTWEAR

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Operating earnings (loss)

Same-store sales % change

Same-store sales $ change

Comparable sales % change

Comparable sales $ change

Sales change from new and closed stores, net (1)

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Fiscal 2020 was impacted significantly by store closure days during the pandemic, while 2021 reflects a significantly lower number of store closure days.

Net sales increased $484.7 million, or 38.4%, to $1,748.3 million in 2021, compared to $1,263.6 million last year.

Our record-setting results in 2021 were attributable to a number of factors.

As the effects of the pandemic began to recede, we experienced a significant increase in retail store traffic in 2021.

The consumer demand for our on-trend assortment supported a reduction in promotional activity, resulting in more full-price selling.

Our e-commerce penetration in 2021 was approximately 14% of net sales, compared to approximately 22% last year when our retail stores were temporarily closed beginning in mid-March at the onset of the pandemic, with a phased reopening beginning in May.

While supply chain disruptions have resulted in shipping delays, our well-positioned inventory drove our strong performance.

Seasonal product, particularly sandals, performed well, and we experienced robust growth in our casual and athletic categories.

Our children’s business also continued to grow significantly, outpacing total company performance.

During 2021, we had net closures of 22 stores as we continue to focus on optimizing our store base and eliminating underperforming locations.

Net sales decreased $43.2 million, or 2.5%, to $1,705.1 million in 2022, compared to $1,748.3 million last year.

Despite the decrease in net sales from our record-setting 2021 results, we continued to perform at a high level in 2022.

Our well-positioned inventory drove our strong performance, with our casual, athletic and children’s categories being the largest contributors.

Our e-commerce penetration in 2022 was approximately 14% of net sales, consistent with last year.

During 2022, we closed 21 stores on a net basis as we continued to focus on optimizing our store base.

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 net sales to loyalty program members in 2022, compared to 78% in 2021.

Gross profit increased $349.5 million, or 71.3%, to $839.4 million in 2021, compared to $489.9 million last year, driven by the net sales increase and a higher gross profit rate.

As a percentage of net sales, our gross profit rate increased to 48.0% in 2021, compared to 38.8% in 2020, reflecting a significant reduction in promotional activity driven by growth in consumer demand as well as our strong product assortment and inventory management.

In addition, our gross profit margin in 2020 was adversely impacted by $6.0 million in incremental inventory markdowns, reflecting the difficult retail environment driven by the pandemic.

Gross profit decreased $50.4 million, or 6.0%, to $789.0 million in 2022, compared to $839.4 million last year, primarily driven by lower net sales.

As a percentage of net sales, our gross profit rate decreased to 46.3% in 2022, compared to 48.0% in 2021, reflecting more normalized pricing and promotional activity in 2022.

Selling and Administrative Expenses

Selling and administrative expenses increased $30.2 million, or 5.4%, to $593.2 million during 2022, compared to $563.0 million last year.

The increase reflects higher variable expenses, including payroll associated with our retail store associates and logistics, associated with the increase in sales volume, as well as higher marketing expenses.

Salary expenses were lower in 2020 driven by the temporary closure of all Famous Footwear stores for a portion of the first half

of 2020 due to the pandemic.

As a percentage of net sales, selling and administrative expenses decreased to 32.2% in 2021 from 39.4% last year, reflecting better leveraging of expenses over a higher net sales base.

Restructuring and Other Special Charges, Net

Restructuring and other special charges were $16.6 million during 2020, consisting primarily of impairment charges on furniture and fixtures in our retail stores and lease right-of-use assets.

Refer to Note 4 to the consolidated financial statements for additional information related to these charges.

There were no corresponding charges during 2021.

Operating Earnings (Loss)

Operating earnings increased $300.2 million to $276.4 million for 2021, compared to an operating loss of $23.8 million last year, reflecting higher net sales, an increase in gross profit rate and the other factors described above.

As a percentage of net sales, operating earnings were 15.8% for 2021, compared to an operating loss of 1.9% last year.

The increase primarily reflects higher salary and benefits expenses, higher logistics and facilities costs and higher advertising expenses.

During 2022, we experienced inflation in both wages and real estate costs.

As a percentage of net sales, selling and administrative expenses increased to 34.8% in 2022 from 32.2% last year.

Operating Earnings

Operating earnings decreased $80.6 million to $195.8 million for 2022, compared to $276.4 million last year, primarily reflecting lower net sales and higher operating expenses, as described above.

As a percentage of net sales, operating earnings were 11.5% for 2022, compared to 15.8% last year.

BRAND PORTFOLIO

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Unfilled order position at end of period

Same-store sales % change

Same-store sales $ change

Comparable sales % change (2)

Comparable sales $ change (2)

Sales change from new and closed stores, net

Impact of changes in Canadian exchange rate on retail sales

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

Sales per square foot, excluding e-commerce (2)

Square footage (thousands sq.

North America stores:

Stores opened

Stores closed

Ending stores

Ending stores - North America

Ending stores - China

Ending stores - Total Brand Portfolio

(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 increased $178.5 million, or 19.8%, to $1,081.0 million in 2021, compared to $902.5 million last year, reflecting strong sales growth from our Sam Edelman, Vionic, Allen Edmonds and Blowfish Malibu brands.

Both Sam Edelman and Allen Edmonds have experienced renewed interest and growth in the dress shoe category, as more people returned to the workplace and began to attend special occasion events.

(2) These metrics exclude the retail stores of our joint venture in China.

Refer to Note 1 to the consolidated financial statements for further discussion of the joint venture.

Net sales increased $241.8 million, or 22.4%, to $1,322.8 million in 2022, compared to $1,081.0 million last year.

While the net sales increase was broad-based across nearly all of our brands, our brands with a high-fashion element, including Sam Edelman, Naturalizer, LifeStride, Franco Sarto and Allen Edmonds, were the most significant contributors.

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

especially dress and casual shoes.

Our robust sales growth in 2022 was driven by our wholesale business, due in part to the improvement in the supply chain.

Our net sales in 2021 were adversely impacted by the delayed receipt of inventory due to supply chain disruptions, including factory shutdowns, border closures, port congestion and shipping vessel and container availability .

In addition, sales were adversely impacted during 2020, as many of our wholesale customers canceled orders and those customers and the Company temporarily closed retail stores for several weeks during 2020.

In the first quarter of 2021, we permanently closed the remaining 73 Naturalizer stores in North America that were scheduled for closure as part of our strategic realignment of the Naturalizer retail store operations.

While net sales

improved over last year, they remain below pre-pandemic levels, due in part to these retail store closures.

We remain focused on growing the Naturalizer brand’s e-commerce business through naturalizer.com, our retail partners and their websites, and the two flagship stores in the United States.

Including the Naturalizer closures, we closed 93 stores and opened nine stores during 2021, resulting in a total of 86 stores at the end of 2021.

The lead times required on inventory purchases improved significantly during 2022, which enabled earlier inventory receipts and a more efficient flow of product to our customers.

Our supply chain has now returned to pre-pandemic efficiency.

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

We remain focused on growing the Naturalizer brand’s e-commerce business through naturalizer.com, as well as our retail partners and their websites.

In our Brand Portfolio segment during 2022, we closed nine stores and opened two stores in the United States, and expanded our retail store presence in China by opening 13 stores, resulting in a total of 63 stores in the United States and 29 stores in China at the end of 2022.

Sales per square foot, excluding e-commerce sales, increased to $1,100, compared to $906 last year.

The sales per square foot metric in 2020 was adversely impacted by the temporary retail store closures and therefore, it is not comparable to 2021.

In addition, with the closure of nearly all of our Naturalizer retail stores in 2021, the majority of our Brand Portfolio segment stores are for our Allen Edmonds brand, which have higher retail price points than the Naturalizer brand.

The unfilled order position for our wholesale business increased $234.2 million to $452.4 million at the end of 2021, compared to $218.2 million at the end of last year.

The increase in our backlog order levels reflects the delayed receipt of inventory due to global supply chain disruptions and higher demand.

We are actively working to diversify and leverage our sourcing model to help offset the impact of these supply chain challenges, but expect the disruptions to continue into 2022.

Gross profit increased $92.0 million, or 31.2%, to $386.8 million in 2021, compared to $294.8 million last year, due to higher net sales and an improved gross profit rate.

Our gross profit in 2020 was negatively impacted by higher incremental cost of goods sold primarily due to $27.5 million in inventory markdowns reflecting the difficult retail environment driven by the pandemic, as well as $4.0 million in inventory markdowns related to the decision to close all but a limited number of our Naturalizer retail stores and exit our Fergie brand.

As a percentage of sales, our gross profit rate increased to 35.8% in 2021, compared to 32.7% last year.

In connection with the supply chain disruptions described earlier, our freight costs have risen significantly.

We anticipate inbound freight costs to remain high in 2022, which may continue to impact our gross profit if we are unable to mitigate or fully recover these additional costs through price increases.

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.

The unfilled order position for our wholesale business decreased $167.8 million to $284.6 million at the end of 2022, compared to $452.4 million at the end of last year.

The decrease in our backlog order levels reflects the return of the global supply chain back to pre-pandemic efficiency, as well as more conservative buying by our wholesale customers as they manage their inventory levels more tightly.

In addition, due to supply chain constraints during 2021, retailer inventory was lower and backlog levels were higher at January 29, 2022.

Gross profit increased $110.5 million, or 28.6%, to $497.3 million in 2022, compared to $386.8 million last year, reflecting both higher net sales and a higher gross margin.

As a percentage of sales, our gross profit rate increased to 37.6% in 2022, compared to 35.8% last year, primarily reflecting higher average wholesale prices across all of our brands and growth in higher margin sales from the direct-to-consumer channel, partially offset by a higher provision for inventory markdowns.

While we continued to experience inflationary pressures in 2022 related to product costs and inbound freight, we were able to successfully offset the majority of these impacts through price increases.

We anticipate inflationary pressures to continue into 2023 and will continue to focus on mitigating the impact.

Selling and Administrative Expenses

Selling and administrative expenses were $337.4 million in 2021, consistent with last year.

H igher marketing and salaries expenses were offset by lower rent and facilities expenses, primarily due to the lower store count.

Selling and administrative expenses increased $47.6 million, or 14.1%, to $385.0 during 2022, compared to $337.4 million last year.

The increase represents a number of factors, including higher salary expenses, reflecting both growth in sales volume and wage inflation;

higher marketing expenses to drive sales growth, particularly in our digital business;

and severance expenses related to management changes at our Vionic division, partially offset by a gain recognized upon the modification of an international licensing contract.

As a percentage of net sales, selling and administrative expenses decreased to 29.1% in 2022 from 31.2% last year, reflecting better leveraging of expenses over a higher net sales base.

Impairment of Goodwill and Intangible Assets

We incurred impairment charges of $286.5 million during 2020, including $240.3 million associated with goodwill and $46.2 million associated with intangible assets, including $32.0 for the Allen Edmonds trade name, $10.2 million for the Via Spiga trade name and $4.0 million associated with other Allen Edmonds intangible assets.

The goodwill impairment charges were a result of the unfavorable business climate and our lower market capitalization, due in part to the economic impacts of the pandemic.

There were no corresponding impairment charges in 2021.

Refer to Note 10 to the consolidated financial statements for additional information related to the impairments.

Restructuring and Other Special Charges, Net

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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.

During 2020, $79.3 million of restructuring and other special charges were recorded, primarily comprised of $63.6 million for impairment charges on store furniture and fixtures and lease right-of-use assets, liabilities due to our factories for order cancellations and severance expense.

In addition, our 2020 expenses included $12.4 million associated with the closure of our Naturalizer retail stores and $3.3 million in integration-related costs for Vionic.

Refer to Note 4 to the consolidated financial statements for additional information related to these charges.

Operating Earnings (Loss)

Operating earnings increased $444.3 million to $35.9 million in 2021, compared to an operating loss of $408.4 million last year, as a result of the factors described above.

As a percentage of net sales, operating earnings were 3.3% in 2021, compared to an operating loss of 45.3% last year.

There were no corresponding charges in 2022.

Operating Earnings

We achieved record operating earnings and operating margin in 2022.

Operating earnings increased $76.4 million to $112.3 million in 2022, compared to $35.9 million last year, as a result of the factors described above.

As a percentage of net sales, operating earnings were 8.5% in 2022, compared to 3.3% last year.

ELIMINATIONS AND OTHER

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The net sales elimination of $59.7 million for 2022 is $8.0 million, or 15.5%, higher than in 2021, reflecting an increase in product sold from our Brand Portfolio segment to Famous Footwear.

Selling and administrative expenses increased $52.7 million, or 96.0%, to $107.6 million in 2021, compared to $54.9 million last year, primarily driven by higher anticipated payments under our cash and stock-based incentive compensation plans due to our strong financial performance, higher expenses associated with certain cash-based director compensation plans that are variable based on our stock price and an increase in salaries expense.

Salaries expense was lower in 2020 as a result of the strategic actions we took to mitigate the impact of the pandemic, including salary reductions and associate furloughs for a portion of the year.

Restructuring and other special charges of $0.8 million in 2020 were comprised primarily of costs associated with workforce reductions as we sought to align our expense structure with the lower sales performance, combined with incremental expenses associated with deep cleaning our facilities and related supplies.

Selling and administrative expenses decreased $18.0 million, or 16.8%, to $89.6 million in 2022, compared to $107.6 million last year.

The decrease primarily reflects lower expenses for our cash-based incentive compensation plans and medical and other employee benefits, partially offset by higher share-based compensation.

Restructuring and other special charges of $2.9 million in 2022 were associated with a CFO transition at our corporate headquarters.

Refer to Note 4 to the consolidated financial statements for additional information related to these charges.

There were no corresponding charges in 2021.

RESTRUCTURING AND OTHER INITIATIVES

During 2021, we incurred restructuring and other special charges of $13.5 million, reflecting expenses associated with the decision to close all Naturalizer retail stores in North America with the exception of two Naturalizer flagship retail stores in the United States.

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

During 2020, we incurred restructuring and other special charges of $96.7 million, including approximately $80.9 million in costs primarily associated with the economic impact of the COVID-19 pandemic, including impairment charges associated with lease right-of-use assets and retail store furniture and fixtures, liabilities associated with factory order cancellations and severance.

In addition, we incurred $12.4 million related to the decision to close all but a limited number of Naturalizer retail stores, as described above, and $3.4 million of integration-related costs for Vionic.

Refer to the Financial Highlights section above and Note 4 to the consolidated financial statements for additional information related to these charges.

LIQUIDITY AND CAPITAL RESOURCES

January 29, 2022

January 30, 2021

Increase (Decrease)

Borrowings under revolving credit agreement

Long-term debt

(1) Total debt as of January 30, 2021 excludes the Blowfish Malibu mandatory purchase obligation, which was valued at $39.1 million.

Total debt obligations decreased $158.9 million to $290.0 million at the end of 2021, compared to $448.9 million at the end of last year, as we continued to use our strong cash generation to reduce our debt levels.

In August 2021, we redeemed $100.0 million 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 our revolving credit facility, which is expected to result in net interest expense savings on an ongoing basis.

Our borrowings under the revolving credit agreement increased $17.5 million to $307.5 million at the end of 2022, compared to $290.0 million at the end of last year.

The increase from 2021 to 2022 reflects $63.2 million of repurchases of our common stock, partially offset by strong cash generation in 2022.

Net interest expense in 2022 was $14.3 million, compared to $30.9 million in 2021.

The decrease in net interest expense in 2021 was primarily attributable to a decrease in the fair value adjustments to the mandatory purchase obligation associated with the Blowfish Malibu acquisition, as further discussed in Note 13 to the consolidated financial statements, and lower average borrowings under the revolving credit facility.

The decrease in net interest expense in 2022 was primarily attributable to the non-recurrence of the $15.4 million fair value adjustment to the Blowfish Malibu mandatory purchase obligation recorded in 2021, as further discussed in Note 4 to the consolidated financial statements.

In addition, we redeemed our $200.0 million of senior notes in the second half of 2021 and shifted the debt to borrowings under the revolving credit facility, which resulted in interest expense savings for the Company in 2022.

However, 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 and is expected to increase in 2023.

Credit Agreement

As further discussed in Note 11 to the consolidated financial statements, the Company maintains a revolving credit facility for working capital needs.

The Company is the lead borrower, and Sidney Rich Associates, Inc., BG Retail, LLC, Allen Edmonds LLC, Vionic Group LLC and Vionic International LLC are each co-borrowers and guarantors under the revolving credit facility.

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, extends the maturity date of the credit facility from January 18, 2024 to October 5, 2026, and decreases the borrowing availability 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 further increased by up to $250.0 million.

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The interest rate and fees for letters of credit vary based upon the level of excess availability under the Credit Agreement.

There is an unused line fee payable on the unused portion under the facility and a letter of credit fee payable on the outstanding face amount under letters of credit.

Borrowing availability under the Credit Agreement is limited to the lesser of the total commitments and the borrowing base ("Loan Cap"), which is based on stated percentages of the sum of eligible accounts receivable, eligible inventory and eligible credit card receivables, as defined, less applicable reserves.

Under the Credit Agreement, the Loan Parties’ obligations are secured by a first-priority security interest in all accounts receivable, inventory and certain other collateral.

Refer to further discussion regarding the Credit Agreement in Note 11 to the consolidated financial statements.

At January 29, 2022, we had $290.0 million borrowings and $10.8 million in letters of credit outstanding under the Credit Agreement.

There is a fee payable on the unused portion under the facility and a letter of credit fee payable on the outstanding face amount under letters of credit.

At January 28, 2023, we had $307.5 million of borrowings and $10.6 million in letters of credit outstanding under the Credit Agreement.

Total borrowing availability was $181.9 million at January 28, 2023.

We were in compliance with all covenants and restrictions under the Credit Agreement as of January 28, 2023.

$200 Million Senior Notes

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

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that is an obligor under the Credit Agreement, and bore interest at 6.25%, which was payable on February 15 and August 15 of each year.

On August 16, 2021, we redeemed $100.0 million of Senior Notes at 100.0%.

On August 16, 2021, we redeemed $100.0 million of the Senior Notes at 100.0%.

In addition, on January 3, 2022, we redeemed the remaining $100.0 million of Senior Notes at 100.0%.

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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 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) Debt-to-capital has been computed by dividing total debt by total capitalization.

Total debt is defined as long-term debt and borrowings under the Credit Agreement.

(3) Debt-to-capital has been computed by dividing the borrowings under our revolving credit agreement by total capitalization.

Total capitalization is defined as total debt and total equity.

Operating working capital at January 29, 2022, was $193.8 million, which was $2.0 million higher than at January 30, 2021.

Working capital at January 28, 2023, was ($79.7) million, which was $109.4 million higher than at January 29, 2022.

The increase in working capital from 2021 primarily reflects lower trade accounts payable due to lower inventory receipts in the fourth quarter.

Our current ratio was 0.91 to 1 at January 28, 2023, compared to 0.82 to 1 at January 29, 2022.

Our debt-to-capital ratio was 47.3% as of January 29, 2022, compared to 68.8% at January 30, 2021, reflecting lower debt resulting from the redemption of our senior notes during 2021 as well as higher equity attributable to our strong financial results in 2021.

Increase (Decrease) in

Cash Equivalents

Our debt-to-capital ratio was 41.9% as of January 28, 2023, compared to 47.3% at January 29, 2022, reflecting higher shareholders’ equity attributable to our strong financial results in 2022.

(Decrease) Increase

in Cash Equivalents

Net cash provided by operating activities

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Effect of exchange rate changes on cash and cash equivalents

(Decrease) increase in cash and cash equivalents

Cash provided by operating activities was $42.0 million higher in 2021 than last year, reflecting the following factors:

● Higher earnings in 2021 compared to 2020, primarily driven by strong consumer demand and strong financial results by our Famous Footwear segment;

● A decrease in net income tax receivables in 2021 compared to an increase last year;

● A larger increase in accounts payable in 2021 compared to last year;

Increase (decrease) in cash and cash equivalents

Cash provided by operating activities was $42.5 million lower in 2022 than last year, reflecting the following factors:

● A decrease in trade accounts payable in 2022 compared to an increase last year;

● A decrease in accrued expenses and other liabilities in 2022 compared to an increase last year;

partially offset by

● An increase in inventory in 2021, compared to a decrease in 2020 due in part to a significant increase in in-transit inventory attributable to supply chain disruptions and port congestion;

● The settlement of the Blowfish mandatory purchase obligation.

● A decrease in inventory in 2022, compared to an increase in 2021, due in part to the significant in-transit levels at the end of 2021 that were attributable to supply chain disruptions and port congestion;

● The non-recurrence of the settlement of the Blowfish Malibu mandatory purchase obligation in 2021;

● Higher earnings in 2022 compared to last year, primarily driven by strong consumer demand and strong financial results by our Brand Portfolio segment.

Supply chain financing :

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As of January 28, 2023 and January 29, 2022, we had $26.0 million and $36.7 million, respectively, of accounts payable subject to supply chain financing arrangements.

We believe the impact of supply chain financing is not material to our overall liquidity position.

Cash used for investing activities was $2.0 million higher in 2021 than last year, reflecting slightly higher capital expenditures in 2021.

Cash used for investing activities was $39.9 million higher in 2022 than last year, reflecting higher capital expenditures.

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 also continued to invest in renovating certain Famous Footwear stores during 2022.

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

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

In 2022, we also purchased an aircraft that was previously leased by the Company.

In 2023, we expect our purchases of property and equipment and capitalized software to be between $60 million and $70 million.

Cash used for financing activities was $141.1 million higher in 2021 than last year, primarily due to the redemption of our $200.0 million aggregate principal Senior Notes and the settlement of the Blowfish Malibu mandatory purchase obligation, partially offset by net borrowings on our revolving credit agreement of $40.0 million in 2021 compared to net repayments

of $25.0 million in 2020.

Our strong financial results allowed us to significantly reduce our total debt obligations in 2021 and improve our balance sheet.

Cash used for financing activities was $144.2 million lower in 2022 than last year, primarily due to the redemption of our $200.0 million aggregate principal Senior Notes and the settlement of the Blowfish Malibu mandatory purchase obligation in 2021.

Our strong financial results allowed us to continue to return value to our shareholders through share repurchases and dividend payments.

We repurchased approximately 2.6 million shares of common stock for $63.2 million during 2022, a $46.3 million increase compared to 2021.

In addition, although our debt obligations grew by $17.5 million in 2022, this was a smaller increase than the $40.0 million in 2021.

We paid dividends of $0.28 per share in each of 2022, 2021 and 2020.

The 2022 dividends marked the 100th year of consecutive quarterly dividends.

On March 10, 2022, the Board of Directors declared a quarterly dividend of $0.07 per share, payable on April 8, 2022, to shareholders of record on March 24, 2022, marking the 396 th consecutive quarterly dividend to be paid by the Company.

On March 9, 2023, the Board of Directors declared a quarterly dividend of $0.07 per share, payable on April 6, 2023, to shareholders of record on March 23, 2023.

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.

We have various contractual or other obligations, including borrowings under our revolving credit facility, operating lease commitments and obligations for our supplemental executive retirement plan and other postretirement benefits.

Additional information on these commitments is provided in the notes to our consolidated financial statements.

We also have purchase obligations to purchase inventory, assets and other goods and services.

As of January 29, 2022, we had purchase obligations totaling approximately $802.1 million, of which $786.6 million are due in the next 12 months.

As of January 28, 2023, we had various contractual or other obligations, including the following:

Payments Due by Period

Borrowings under Credit Agreement (1)

Operating lease commitments, including imputed interest (2)

Purchase obligations (3)

Transition tax (4)

(1) Refer to further discussion in Note 11 to the consolidated financial statements.

(2) The majority of our retail operating leases contain provisions that allow us to modify amounts payable under the lease or terminate the lease in certain circumstances, such as experiencing actual sales volume below a defined threshold and/or co-tenancy provisions associated with the facility.

The contractual obligations presented in the table above reflect the minimum rent obligations, irrespective of our ability to reduce or terminate rental payments in the future.

Refer to Note 12 to the consolidated financial statements.

(3) Purchase obligations include agreements to purchase assets, goods or services that specify all significant terms, including quantity and price provision.

(4) One-time transition tax for the mandatory deemed repatriation of cumulative international earnings related to income tax reform.

(5) Includes obligations of our supplemental executive retirement plan and other postretirement benefits, as discussed in Note 5 to the consolidated financial statements.

We believe our operating cash flows are sufficient to meet our material cash requirements for at least the next 12 months.

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We have valuation allowances totaling $39.5 million as of January 28, 2023, reflecting the uncertainty regarding the utilization of net operating loss carryforwards and other deferred tax assets.

The primary cause of the three-year cumulative loss position is the significant loss before income taxes in 2020 driven by the impairment of goodwill and intangible assets during the pandemic.

At that time, we increased our valuation allowances on deferred tax assets to $50.0 million, reflecting the uncertainty regarding the utilization of our deferred tax assets in those jurisdictions.

During 2021, our net deferred tax asset increased, which required incremental valuation allowances of $4.0 million.

We have experienced strong earnings before income taxes in both 2021 and 2022 but remain in a cumulative loss position at the end of fiscal 2022.

During 2022, our net deferred tax asset position declined.

As a result, we released approximately $17.4 million of the valuation allowances on deferred tax assets in 2022.

Impact of Prospective Accounting Pronouncements

6 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-K

Item 7. Management’s Discussion and Analysis