What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-09-05 compared with 2023-06-06 · 195 added, 122 removed, 165 unchanged (66% of the section changed)

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Macroeconomic Environment

Macroeconomic factors, including, among others, inflation, the rising interest rate environment, increasing real estate costs and higher consumer debt levels, continued to impact consumer discretionary spending and our financial results during the first quarter of 2023.

We experienced a decline in consumer traffic in our retail stores during the first quarter of 2023, contributing to a decrease in our net sales.

While we believe that the structural changes we’ve implemented in the last few years enables the Company to be successful in a variety of different operating environments, changes in macro-level consumer spending trends may continue to adversely impact our financial results in the future.

As a result of these macroeconomic factors, we began initiating expense reduction initiatives in the first quarter of 2023, that are expected to result in savings in fiscal 2023.

These actions, which will continue in the second quarter, include eliminating open corporate positions, reducing non-merchandise procurement costs and realizing synergies in the Brand Portfolio segment.

We have also experienced lower freight costs in the first quarter of 2023, and expect that trend to continue for the remainder of fiscal 2023.

Macroeconomic factors, including, among others, inflation, the rising interest rate environment, increasing real estate costs, higher consumer debt levels and the upcoming end to the student loan pause, continued to impact consumer discretionary spending and our financial results during the second quarter of 2023.

We experienced a decline in consumer traffic in our retail stores during the second quarter and six months ended July 29, 2023, contributing to a decrease in our net sales.

While we believe that the structural changes we’ve implemented in the last few years, as well as our diversified model and operational discipline, enable the Company to drive value in a variety of market conditions, changes in macro-level consumer spending trends may continue to adversely impact our financial results in the future.

To mitigate the impact of these macroeconomic factors, we began initiating expense reduction initiatives in the first quarter of 2023, which resulted in savings beginning in the second quarter.

These actions, which included eliminating open corporate positions, reducing non-merchandise procurement costs and integrating our Blowfish Malibu office and information systems into the St.

Louis infrastructure, are expected to result in additional savings in the second half of 2023.

We have also experienced lower freight costs in the first half of 2023, and expect that trend to continue for the remainder of fiscal 2023.

We believe our focus on cost control and our commitment to execute our clearly defined strategic initiatives have positioned us for sustainable, long-term growth.

Financial Highlights

Highlights of our consolidated and segment results are as follows:

Highlights of our consolidated and segment results for the second quarter of 2023 and 2022 are as follows:

Thirteen Weeks Ended

($ millions, except per share amounts)

April 29, 2023

April 30, 2022

July 29, 2023

July 30, 2022

Consolidated net sales

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(1) n/m – not meaningful

The following item should be considered in evaluating the comparability of our second quarter results in 2023 and 2022:

● Expense reduction initiatives – As further discussed in Note 5 to the condensed consolidated financial statements, during the second quarter of 2023, we incurred costs of approximately $1.7 million ($1.2 million on an after-tax basis, or $0.03 per diluted share) associated with the expense reduction initiatives we began initiating at the end of the first quarter of 2023.

These expense reduction initiatives will continue in the second half of 2023 and are expected to result in additional costs of approximately $2.3 million, or $0.05 per diluted share.

Metrics Used in the Evaluation of Our Business

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

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

Dire ct-to-consumer sales

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Cost of goods sold

Selling and administrative expenses

Restructuring and other special charges, net

Operating earnings

5 unchanged sentences

Net earnings attributable to Caleres, Inc.

Net sales decreased $72.4 million, or 9.8%, to $662.7 million for the first quarter of 2023, compared to $735.1 million for the first quarter of 2022.

Net sales of our Brand Portfolio segment decreased $40.2 million, or 11.0% during the first quarter of 2023, compared to the first quarter of 2022.

We experienced strong demand during the first quarter of 2022, as our wholesale customers aggressively replenished their inventory levels following improvements to the supply chain delays that were experienced throughout 2021.

For the first quarter of 2023, the challenging macroeconomic environment resulted in many of our wholesale customers more tightly managing inventory levels and moderating purchases, which contributed to the decrease in wholesale net sales compared to the prior year.

In addition, while our fashion brands trended better, and casual and dress were our top performing categories, brands with a larger assortment of canvas sneakers experienced larger sales declines.

Net sales for Famous Footwear decreased $35.3 million, or 9.2%, in the first quarter of 2023 compared to the first quarter of 2022, with comparable sales down 8.5%.

Macroeconomic factors continued to impact consumer sentiment, resulting in declines in customer traffic in our retail stores, contributing to the net sales decrease.

Due to the late arrival of warmer spring weather in certain parts of the country, we experienced a slower start to our sandal business this year.

On a consolidated basis, our direct-to-consumer sales represented approximately 68% of total net sales for the first quarter of 2023, compared to 65% in the first quarter of 2022.

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

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

Gross profit decreased $24.3 million, or 7.4%, to $302.7 million for the first quarter of 2023, compared to $327.0 million for the first quarter of 2022.

As a percentage of net sales, gross profit increased to 45.7% for the first quarter of 2023, compared to 44.5% for the first quarter of 2022, driven by an increase in the gross margin of our Brand Portfolio segment.

Our gross profit rate for Brand Portfolio reflected higher average prices, due in part to an increase in the mix of our higher margin brands and lower inbound freight costs as supply chain operations

have normalized.

This increase was partially offset by a decline in gross margin in our Famous Footwear segment.

Due to supply chain constraints and higher demand in 2021 and the first quarter of 2022, there were fewer product markdowns required and minimal clearance selling.

In the first quarter of 2023, our Famous Footwear segment experienced a higher mix of clearance product sold, in line with historical levels.

Net sales decreased $42.8 million, or 5.8%, to $695.5 million for the second quarter of 2023, compared to $738.3 million for the second quarter of 2022.

The challenging macroeconomic environment and competitive retail landscape persisted during the second quarter of 2023, impacting sales of both our Brand Portfolio and Famous Footwear segments.

Net sales of our Brand Portfolio segment decreased $23.2 million, or 7.2%, during the second quarter of 2023, compared to the second quarter of 2022.

As a result of economic conditions and

declines in consumer sentiment, many of our wholesale customers continued to tightly manage inventory levels and moderate purchases, which contributed to the decrease in wholesale net sales compared to the prior year.

Net sales for Famous Footwear decreased $22.2 million, or 5.1%, in the second quarter of 2023 compared to the second quarter of 2022, with comparable sales down 4.3%, due in part to a decline in customer traffic in our retail stores driven by cautious consumer spending.

On a consolidated basis, our direct-to-consumer sales represented approximately 74% of total net sales for the second quarter of 2023, compared to 72% in the second quarter of 2022.

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

Scholl’s, LifeStride, Naturalizer and Blowfish Malibu representing four of Famous Footwear’s top 20 best-selling footwear brands during the quarter.

Net sales decreased $115.1 million, or 7.8%, to $1,358.3 million for the six months ended July 29, 2023, compared to $1,473.4 million for the six months ended July 30, 2022.

Net sales for our Brand Portfolio segment decreased $63.4 million, or 9.2% during the first six months of 2023, compared to the first six months of 2022.

Net sales for Famous Footwear decreased $57.5 million, or 7.0%, in the first six months of 2023, compared to the first six months of 2022, due in part to a decline in customer traffic in our retail stores driven by cautious consumer spending.

Comparable sales declined 6.3% in the six months ended July 29, 2023.

On a consolidated basis, our direct-to-consumer sales grew to approximately 71% of total net sales for the six months ended July 29, 2023, compared to 69% for the six months ended July 30, 2022.

Gross profit decreased $22.6 million, or 6.7%, to $314.2 million for the second quarter of 2023, compared to $336.8 million for the second quarter of 2022.

As a percentage of net sales, gross profit decreased to 45.2% for the second quarter of 2023, compared to 45.6% for the second quarter of 2022, driven by a decrease in the Famous Footwear segment gross margin reflecting higher product markdowns in the current period.

In the second quarter of 2022, product markdowns and clearance selling were unusually low due to strong demand and lower inventory levels.

There was a higher mix of clearance selling at Famous Footwear in the second quarter of 2023, and an associated increase in product markdowns, though in line with historic levels.

This decrease was partially offset by an increase in the gross margin of our Brand Portfolio segment, reflecting lower inbound freight costs and lower inventory markdowns.

Gross profit decreased $46.9 million, or 7.1%, to $616.9 million for the six months ended July 29, 2023, compared to $663.8 million for the six months ended July 30, 2022, primarily reflecting lower net sales.

As a percentage of net sales, gross profit increased slightly to 45.4% for the six months ended July 29, 2023, compared to 45.1% for the six months ended July 30, 2022, driven by an increase in the gross margin of our Brand Portfolio segment, partially offset by a decrease in the gross margin of our Famous Footwear segment, due to the same factors described above.

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 decreased $7.7 million, or 3.0%, to $253.1 million for the first quarter of 2023, compared to $260.8 million for the first quarter of 2022.

The decrease was driven by lower cash and stock-based incentive costs and lower warehouse costs, partially offset by higher marketing expenses and retail facilities costs.

As a percentage of net sales, selling and administrative expenses increased to 38.2% for the first quarter of 2023, from 35.5% for the first quarter of 2022, reflecting deleveraging of expenses on lower net sales.

Selling and administrative expenses decreased $5.6 million, or 2.1%, to $262.8 million for the second quarter of 2023, compared to $268.4 million for the second quarter of 2022.

The decrease was driven by lower cash and share-based incentive costs and lower advertising expense, partially offset by higher retail facilities costs.

As a percentage of net sales, selling and administrative expenses increased to 37.8% for the second quarter of 2023, from 36.3% for the second quarter of 2022, reflecting deleveraging of expenses on lower net sales.

Selling and administrative expenses decreased $13.3 million, or 2.5%, to $515.9 million for the six months ended July 29, 2023, compared to $529.2 million for the six months ended July 30, 2022.

The decrease was primarily due to lower cash and share-based incentive costs and lower warehouse costs, partially offset by an increase in facilities costs.

As a percentage of net sales, selling and administrative expenses increased to 38.0% for the six months ended July 29, 2023, from 36.0% for the six months ended July 30, 2022, reflecting deleveraging of expenses on lower net sales.

Restructuring and Other Special Charges, Net

Restructuring and other special charges of approximately $1.7 million for the three and six months ended July 29, 2023 were associated with expense reduction initiatives, primarily severance.

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

There were no corresponding charges for the six months ended July 30, 2022.

Operating Earnings

Operating earnings decreased $16.6 million to $49.6 million for the first quarter of 2023, compared to $66.2 million for the first quarter of 2022, reflecting the factors described above.

As a percentage of net sales, operating earnings were 7.5% for the first quarter of 2023, compared to 9.0% for the first quarter of 2022.

Operating earnings decreased $18.7 million to $49.7 million for the second quarter of 2023, compared to $68.4 million for the second quarter of 2022, reflecting the factors described above.

As a percentage of net sales, operating earnings were 7.1% for the second quarter of 2023, compared to 9.3% for the second quarter of 2022.

Operating earnings decreased $35.3 million to $99.3 million for the six months ended July 29, 2023, compared to $134.6 million for the six months ended July 30, 2022, primarily reflecting lower net sales and gross profit.

As a percentage of net sales, operating earnings were 7.3% for the six months ended July 29, 2023, compared to 9.1% for the six months ended July 30, 2022.

Interest Expense, Net

Interest expense, net increased $3.3 million, or 145.0%, to $5.6 million for the first quarter of 2023, compared to $2.3 million for the first quarter of 2022, reflecting higher interest expense on the revolving credit facility attributable to higher interest rates, partially offset by slightly lower average borrowings.

Interest expense, net increased $2.6 million, or 98.5%, to $5.1 million for the second quarter of 2023, compared to $2.5 million for the second quarter of 2022.

Interest expense, net increased $5.9 million, or 120.2%, to $10.8 million for the six months ended July 29, 2023, compared to $4.8 million for the six months ended July 30, 2022.

The increases reflect higher interest expense on the revolving credit facility attributable to higher interest rates, partially offset by lower average borrowings.

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 in 2023 will continue to be impacted by higher interest rates.

Our interest expense in the second half of 2023 will continue to be impacted by higher interest rates.

Other Income, Net

Other income, net decreased $1.9 million, or 56.4%, to $1.5 million for the first quarter of 2023, compared to $3.4 million for the first quarter of 2022, which reflects a reduction of certain components of net periodic benefit income associated with our pension plans.

Refer to Note 13 to the condensed consolidated financial statements for additional information regarding our retirement plans.

Other income, net decreased $1.6 million, or 49.8%, to $1.6 million for the second quarter of 2023, compared to $3.2 million for the second quarter of 2022, primarily attributable to lower expected return on assets and higher interest costs for our pension plans.

Other income, net decreased $3.5 million, or 53.2%, to $3.1 million for the six months ended July 29, 2023, compared to $6.6 million for the six months ended July 30, 2022, primarily attributable to lower expected return on assets and higher interest costs for the pension plans.

Refer to Note 13 of the condensed consolidated financial statements for additional information regarding our retirement plans.

Income Tax Provision

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

Our consolidated effective tax rate was 23.5% for the first quarter of 2023, compared to 25.7% for the first quarter of 2022.

The lower effective tax rate for the first quarter of 2023 was driven by discrete tax benefits of approximately $0.6 million in the first quarter of 2023 related to our stock-based compensation.

Our consolidated effective tax rate was 25.6% for the second quarter of 2023, compared to 25.3% for the second quarter of 2022.

Our consolidated effective tax rate was 24.5% for the six months ended July 29, 2023, compared to 25.5% for the six months ended July 30, 2022.

The lower effective tax rate was driven by discrete tax benefits of approximately $0.6 million in the six months ended July 29, 2023, primarily related to share-based compensation.

Net Earnings Attributable to Caleres, Inc.

Net earnings attributable to Caleres, Inc.

were $34.7 million for the first quarter of 2023, compared to $50.5 million for the first quarter of 2022, as a result of the factors described above.

were $33.9 million and $68.7 million for the second quarter and six months ended July 29, 2023, respectively, compared to $51.2 million and $101.7 million for the second quarter and six months ended July 30, 2022, respectively, as a result of the factors described above.

FAMOUS FOOTWEAR

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($ millions, except sales per square foot)

% of Net Sales

Cost of goods sold

Selling and administrative expenses

Restructuring and other special charges, net

Operating earnings

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Impact of changes in Canadian exchange rate on sales

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

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

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

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Ending stores

Net sales of $349.2 million in the first quarter of 2023 decreased $35.3 million, or 9.2% compared to the first quarter of 2022.

Comparable sales decreased 8.5% compared to the first quarter of 2022.

A challenging macroeconomic environment led to sales declines in both our retail stores and e-commerce business.

In addition, a late start to spring weather in many parts of the country led to a soft start to the sandal season.

Our kids category, which is a key differentiator for Famous Footwear, outperformed the rest of our categories as families prioritized purchases of children’s footwear.

During the first quarter of 2023, we opened two stores and closed nine stores, resulting in 866 stores and total square footage of 5.7 million at the end of the first quarter of 2023, compared to 887 stores and total square footage of 5.9 million at the end of the first quarter of 2022.

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 79% of our net sales made to program members in both the first quarter of 2023 and 2022.

Gross profit decreased $30.1 million, or 15.9%, to $159.1 million for the first quarter of 2023, compared to $189.2 million for the first quarter of 2022.

As a percentage of net sales, our gross profit decreased to 45.6% for the first quarter of 2023, compared to 49.2% for the first quarter of 2022.

Due to supply chain constraints and higher demand in 2021 and the first quarter of 2022, there were fewer product markdowns required and minimal clearance selling.

In the first quarter of 2023, our Famous Footwear segment experienced a higher mix of clearance product sold, in line with historical levels.

Net sales of $414.2 million in the second quarter of 2023 decreased $22.2 million, or 5.1% compared to the second quarter of 2022.

Comparable sales decreased 4.3% compared to the second quarter of 2022.

Cautious consumer spending driven by the challenging macroeconomic environment continued to impact sales in both our retail stores and e-commerce business in the second quarter of 2023.

Our kids category, which is a key differentiator for Famous Footwear, was our strongest gender category in the quarter, reporting solid net sales growth.

Our focus on this essential and growing category was particularly important as we headed into the back-to-school season, as families continued to prioritize purchases of kids’ footwear.

We closed five stores during the second quarter of 2023, resulting in 861 stores and total square footage of 5.7 million at the end of the quarter, compared to 881 stores and total square footage of 5.8 million at the end of the second quarter of 2022.

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 both the second quarter of 2023 and 2022.

Net sales of $763.4 million in the six months ended July 29, 2023 decreased $57.5 million, or 7.0%, compared to the six months ended July 30, 2022, primarily due to the factors described above.

Comparable sales declined 6.3% in the six months ended July 29, 2023, driven by a decline in customer traffic in our retail stores.

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 Dr.

Scholl’s, LifeStride, Naturalizer and Blowfish Malibu representing four of Famous Footwear’s top 20 best-selling footwear brands for the six months ended July 29, 2023.

During the first half of 2023, we opened two stores and closed 14 stores.

Gross profit decreased $22.1 million, or 10.4%, to $191.5 million for the second quarter of 2023, compared to $213.6 million for the second quarter of 2022, primarily due to the decrease in net sales.

As a percentage of net sales, our gross profit decreased to 46.2% for the second quarter of 2023, from 48.9% for the second quarter of 2022.

During the second quarter of 2022, there were fewer product markdowns and minimal clearance selling due to higher demand and less inventory due to ongoing supply chain constraints.

In the second quarter of 2023, our Famous Footwear segment experienced a more historical mix of clearance product sold.

Gross profit decreased $52.2 million, or 13.0%, to $350.6 million for the six months ended July 29, 2023, compared to $402.8 million for the six months ended July 30, 2022, primarily due to the decrease in net sales.

As a percentage of net sales, our gross profit decreased to 45.9% for the six months ended July 29, 2023, compared to 49.1% for the six months ended July 30, 2022, driven by the same factors discussed above.

Selling and Administrative Expenses

Selling and administrative expenses increased $2.5 million, or 1.8%, to $142.0 million for the first quarter of 2023, compared to $139.5 million for the first quarter of 2022.

The increase was driven by higher retail facilities costs, primarily attributable to higher rent expense resulting from inflationary pressures and higher depreciation expense driven by our investment in prototype stores and store renovations during 2022 and the first quarter of 2023.

We also experienced higher marketing expense, primarily associated with initiatives to enhance consumer experience.

These increases were partially offset by lower warehouse costs and cash-based incentive compensation.

As a percentage of net sales, selling and administrative expenses increased to 40.7% for the first quarter of 2023, compared to 36.3% for the first quarter of 2022.

Selling and administrative expenses decreased $0.4 million, or 0.3%, to $150.7 million for the second quarter of 2023, compared to $151.1 million for the second quarter of 2022.

The decrease was driven by lower salary and benefit expenses and lower advertising expense, partially offset by higher retail facilities costs.

As a percentage of net sales, selling and administrative expenses increased to 36.4% for the second quarter of 2023, compared to 34.6% for the second quarter of 2022.

Selling and administrative expenses increased $2.1 million, or 0.7%, to $292.7 million for the six months ended July 29, 2023, compared to $290.6 million for the six months ended July 30, 2022.

The increase was driven by higher facilities costs, including depreciation expense, as we continued to invest in prototype stores and store renovations.

This trend is expected to continue, as we remain committed to investing in our stores to enhance, energize and modernize the store experience.

These increases were partially offset by lower salary and benefits expenses and lower advertising expenses.

As a percentage of net sales, selling and administrative expenses increased to 38.3% for the six months ended July 29, 2023, compared to 35.4% for the six months ended July 30, 2022

Restructuring and Other Special Charges, Net

Restructuring and other special charges of $0.2 million for the three and six months ended July 29, 2023 were associated with expense reduction initiatives, primarily severance.

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

There were no corresponding charges for the six months ended July 30, 2022.

Operating Earnings

Operating earnings decreased $32.6 million to $17.1 million for the first quarter of 2023, compared to $49.7 million for the first quarter of 2022, reflecting lower sales and gross profit and higher operating expenses, as described above.

As a percentage of net sales, operating earnings were 4.9% for the first quarter of 2023, compared to 12.9% for the first quarter of 2022.

Operating earnings decreased $21.9 million to $40.6 million for the second quarter of 2023, compared to $62.5 million for the second quarter of 2022, primarily reflecting lower sales and gross profit, as described above.

As a percentage of net sales, operating earnings were 9.8% for the second quarter of 2023, compared to 14.3% for the second quarter of 2022.

Operating earnings decreased $54.5 million to $57.7 million for the six months ended July 29, 2023, compared to $112.2 million for the six months ended July 30, 2022.

As a percentage of net sales, operating earnings were 7.6% for the six months ended July 29, 2023, compared to 13.7% for the six months ended July 30, 2022.

BRAND PORTFOLIO

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($ millions, except sales per square foot)

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Selling and administrative expenses

Restructuring and other special charges, net

Operating earnings

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Unfilled order position at end of period

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

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

Square footage (thousands sq.

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

Net sales of $325.5 million in the first quarter of 2023 decreased $40.2 million, or 11.0%, compared to the record-setting first quarter of 2022.

In addition, while our fashion brands trended better, and casual and dress were our top performing categories, brands with a larger assortment of casual sneakers experienced larger sales declines.

During the first quarter of 2023, we opened one store and closed two stores in the United States resulting in a total of 62 stores and total square footage of 0.1 million, compared to 66 stores and total square footage of 0.1 million at the end of the first quarter of 2022.

In addition, we continued to expand our retail store presence in China by opening two new stores, resulting in a total of 31 stores compared to 17 stores at the end of the first quarter of 2022.

Our unfilled order position for our wholesale sales decreased $128.6 million, or 32.0%, to $272.9 million at April 29, 2023, compared to $401.5 million at April 30, 2022.

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 $4.6 million, or 3.3%, to $143.9 million for the first quarter of 2023, compared to $139.3 million for the first quarter of 2022, primarily reflecting a higher gross margin rate.

As a percentage of net sales, our gross profit increased significantly to 44.2% for the first quarter of 2023, compared to 38.1% for the first quarter of 2022, reflecting higher average prices and lower inbound freight costs as our supply chain normalized.

Net sales of $300.9 million in the second quarter of 2023 decreased $23.2 million, or 7.2%, compared to the second quarter of 2022.

The challenging macroeconomic environment and competitive retail landscape persisted during the second quarter of 2023, resulting in many of our wholesale customers more tightly managing inventory levels and moderating purchases, which contributed to the decrease in wholesale net sales compared to the prior year.

Even with these challenges, net sales from our owned e-commerce business increased approximately 8% during the second quarter of 2023.

Despite cautious consumer spending, consumers are reacting positively to newness, comfort and versatility.

We are strategically coordinating our marketing efforts and diversified brand offerings to capitalize on opportunities we see in the marketplace.

Our casual, flats and fashion sneaker categories resonated with consumers during the quarter, while demand for our sandals category was weaker than anticipated.

We opened one store and closed two stores in the United States during the second quarter of 2023, resulting in a total of 61 stores and total square footage of 0.1 million, compared to 66 stores and total square footage of 0.1 million at the end of the second quarter of 2022.

In addition, we continued to expand our retail store presence in China by opening three new stores and closing one store, resulting in a total of 33 stores, compared to 19 stores at the end of the second quarter of 2022.

Net sales decreased $63.4 million, or 9.2%, to $626.4 million for the six months ended July 29, 2023, compared to $689.8 million for the six months ended July 30, 2022, reflecting the challenging macroeconomic environment and competitive retail landscape described above.

We continue to experience growth in our owned e-commerce business, which increased 4.8% in the six months ended July 29, 2023, compared to the six months ended July 30, 2022.

Our unfilled order position for our wholesale sales decreased $113.6 million, or 31.5%, to $246.8 million at July 29, 2023, compared to $360.4 million at July 30, 2022.

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

Gross profit was $124.1 million for the second quarter of 2023, consistent with the second quarter of 2022.

As a percentage of net sales, our gross profit increased to 41.3% for the second quarter of 2023, compared to 38.3% for the second quarter of 2022, reflecting lower inbound freight costs and lower inventory markdowns.

Gross profit increased $4.6 million, or 1.7%, to $268.0 million for the six months ended July 29, 2023, compared to $263.4 million for the six months ended July 30, 2022, reflecting lower inbound freight costs as our supply chain normalized, lower inventory markdowns and higher average prices in our retail operations.

As a percentage of net sales, our gross profit increased significantly to 42.8% for the six months ended July 29, 2023, compared to 38.2% for the six months ended July 30, 2022.

Selling and Administrative Expenses

Selling and administrative expenses increased $3.2 million, or 3.3%, to $101.2 million for the first quarter of 2023, compared to $98.0 million for the first quarter of 2022.

The increase was primarily due to higher marketing expenses to drive sales growth and higher warehouse costs, partially offset by lower salary and benefits expenses.

As a percentage of net sales, selling and administrative expenses increased to 31.1% for the first quarter of 2023, compared to 26.8% for the first quarter of 2022.

Selling and administrative expenses increased $1.7 million, or 1.8%, to $96.4 million for the second quarter of 2023, compared to $94.7 million for the second quarter of 2022.

The increase was primarily due to higher facilities costs, partially offset by lower salary and benefits expenses.

As a percentage of net sales, selling and administrative expenses increased to 32.0% for the second quarter of 2023, compared to 29.2% for the second quarter of 2022.

Selling and administrative expenses increased $5.0 million, or 2.6%, to $197.6 million for the six months ended July 29, 2023, compared to $192.6 million for the six months ended July 30, 2022.

The increase was driven by higher marketing expenses and higher facilities costs, partially offset by lower salary and benefits expenses.

As a percentage of net sales, selling and administrative expenses increased to 31.6% for the six months ended July 29, 2023, compared to 27.9% for the six months ended July 30, 2022, reflecting deleveraging of expenses over lower net sales.

Restructuring and Other Special Charges, Net

Restructuring and other special charges of $0.9 million for the three and six months ended July 29, 2023 were associated with expense reduction initiatives, primarily severance.

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

There were no corresponding charges for the six months ended July 30, 2022.

Operating Earnings

Operating earnings increased to $42.7 million for the first quarter of 2023, from $41.3 million for the first quarter of 2022, as a result of the factors described above.

As a percentage of net sales, operating earnings were 13.1% for the first quarter of 2023, compared to 11.3% in the first quarter of 2022.

Operating earnings decreased to $26.8 million for the second quarter of 2023, from $29.4 million for the second quarter of 2022, as a result of the factors described above.

As a percentage of net sales, operating earnings were 8.9% for the second quarter of 2023, compared to 9.1% in the second quarter of 2022.

Operating earnings decreased to $69.5 million for the six months ended July 29, 2023, compared to $70.8 million for the six months ended July 30, 2022, as a result of the factors described above.

As a percentage of net sales, operating earnings were 11.1% for the six months ended July 29, 2023, compared to 10.3% in the six months ended July 30, 2022.

ELIMINATIONS AND OTHER

Thirteen Weeks Ended

April 29, 2023

April 30, 2022

Twenty-Six Weeks Ended

July 29, 2023

July 30, 2022

July 29, 2023

July 30, 2022

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 $11.9 million for the first quarter of 2023 is $3.2 million, or 21.1%, lower than the first quarter of 2022, reflecting a decrease in product sold from our Brand Portfolio segment to Famous Footwear.

Selling and administrative expenses decreased $13.5 million, to $9.8 million in the first quarter of 2023, compared to $23.3 million for the first quarter of 2022.

The decrease primarily reflects lower expenses related to our cash and stock-based incentive compensation plans.

The net sales elimination of $19.6 million for the second quarter of 2023 is $2.5 million, or 11.4%, lower than the second quarter of 2022.

The net sales elimination of $31.5 million for the six months ended July 29, 2023 is $5.7 million, or 15.3%, lower than the six months ended July 30, 2022.

The decreases for both periods reflect a decrease in product sold from our Brand Portfolio segment to Famous Footwear.

Selling and administrative expenses decreased $6.8 million, to $15.8 million in the second quarter of 2023, compared to $22.6 million for the second quarter of 2022.

The decrease primarily reflects lower expenses related to our cash and share-based incentive compensation and other employee benefits.

Selling and administrative expenses decreased $20.2 million, to $25.6 million for the six months ended July 29, 2023, compared to $45.8 million for the six months ended July 30, 2022.

The decrease primarily reflects lower expenses related to our cash and share-based incentive compensation and other employee benefits.

Restructuring and other special charges of $0.6 million for the three and six months ended July 29, 2023 were associated with expense reduction initiatives 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 six months ended July 30, 2022.

LIQUIDITY AND CAPITAL RESOURCES

Total debt obligations of $291.5 million at April 29, 2023 decreased $13.5 million, from $305.0 million at April 30, 2022, and decreased $16.0 million, from $307.5 million at January 28, 2023.

Net interest expense for the first quarter of 2023 increased $3.3 million to $5.6 million, compared to $2.3 million for the first quarter of 2022, due to higher interest rates.

This increase was partially offset by slightly lower average borrowings under our revolving credit agreement.

Total debt obligations of $244.0 million at July 29, 2023 decreased $104.5 million, from $348.5 million at July 30, 2022, and decreased $63.5 million, from $307.5 million at January 28, 2023.

Net interest expense for the second quarter of 2023 increased $2.5 million to $5.1 million, compared to $2.6 million for the second quarter of 2022, due to higher interest rates.

This increase was partially offset by lower average borrowings under our revolving credit agreement.

The interest on our revolving credit facility is based on a variable rate, which has resulted in higher interest expense in the current rising interest rate environment.

Our interest expense in 2023 will continue to be adversely affected by the elevated interest rates.

While our interest expense in the second half of 2023 will continue to be adversely affected by the elevated interest rates, we expect to continue to reduce the borrowings under our revolving credit agreement to mitigate the impact of the high interest rate environment.

Credit Agreement

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On October 5, 2021, we entered into a Fifth Amendment to Fourth Amended and Restated Credit Agreement (“Fifth Amendment”) that, 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 was 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 Fifth Amendment), plus a spread.

Interest on the borrowings was previously calculated using variable rates based on the London Interbank Offered Rate ("LIBOR") (with a floor of 0.0%), or the prime rate (as defined in the Fifth Amendment), plus a spread.

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

On April 27, 2023, the Company entered into a Sixth Amendment to Fourth Amended and Restated Credit agreement (as so amended, the “Credit Agreement”) to transition the borrowings on the revolving credit facility from bearing interest based on LIBOR to a term secured overnight financing rate (“SOFR”).

At April 29, 2023, we had $291.5 million in borrowings and $10.6 million in letters of credit outstanding under the Credit Agreement.

Total borrowing availability was $197.9 million at April 29, 2023.

We were in compliance with all covenants and restrictions under the Credit Agreement as of April 29, 2023.

At July 29, 2023, we had $244.0 million in borrowings and $10.7 million in letters of credit outstanding under the Credit Agreement.

Total borrowing availability was $245.3 million at July 29, 2023.

We were in compliance with all covenants and restrictions under the Credit Agreement as of July 29, 2023.

Working Capital and Cash Flow

Thirteen Weeks Ended

April 29, 2023

April 30, 2022

Twenty-Six Weeks Ended

July 29, 2023

July 30, 2022

Net cash provided by operating activities

Net cash used for investing activities

Net cash used for financing activities

Net cash (used for) provided by 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 $17.8 million higher in the thirteen weeks ended April 29, 2023 as compared to the thirteen weeks ended April 30, 2022, primarily reflecting the following factors:

● A decrease in inventory during the thirteen weeks ended April 29, 2023, compared to an increase during the thirteen weeks ended April 30, 2022, due in part to lower in-transit inventory levels as the supply chain has normalized;

● A smaller increase in accounts receivable during the thirteen weeks ended April 29, 2023 primarily attributable to lower wholesale sales, compared to the thirteen weeks ended April 30, 2022;

Cash provided by operating activities was $98.0 million higher in the six months ended July 29, 2023 as compared to the six months ended July 30, 2022, primarily reflecting the following factors:

● A smaller increase in inventory during the twenty-six weeks ended July 29, 2023, compared to the twenty-six weeks ended July 30, 2022, due in part to lower wholesale inventory attributable to strong inventory management and lower in-transit inventory levels as the supply chain delays were mitigated;

● A larger increase in trade accounts payable during the twenty-six weeks ended July 29, 2023, reflecting higher inventory purchases compared to the twenty-six weeks ended July 30, 2022;

partially offset by

● A smaller increase in net income taxes payable during the thirteen weeks ended April 29, 2023, compared to the thirteen weeks ended April 20, 2022;

● A smaller increase in trade accounts payable during the thirteen weeks ended April 29, 2023, reflecting lower inventory purchases compared to the thirteen weeks ended April 30, 2022,

● A larger decrease in accrued expenses and other liabilities during the thirteen weeks ended April 29, 2023, compared to the thirteen weeks ended April 30, 2022;

● Lower net earnings in the thirteen weeks ended April 29, 2023, compared to the thirteen weeks ended April 30, 2022.

Cash used for investing activities was $5.2 million lower for the thirteen weeks ended April 29, 2023 as compared to the thirteen weeks ended April 30, 2022, reflecting lower capital expenditures.

● Lower net earnings in the twenty-six weeks ended July 29, 2023, compared to the twenty-six weeks ended July 30, 2022,

● A smaller increase in net income taxes payable during the twenty-six weeks ended July 29, 2023, compared to the twenty-six weeks ended July 30, 2022;

● A larger decrease in accrued expenses and other liabilities during the twenty-six weeks ended July 29, 2023, compared to the twenty-six weeks ended July 30, 2022, due in part to lower balances attributable to our cash-based incentive compensation plans.

Cash used for investing activities was $3.8 million lower for the twenty-six weeks ended July 29, 2023 as compared to the twenty-six weeks ended July 30, 2022, reflecting lower capital expenditures.

In 2023, we expect our purchases of property and equipment and capitalized software to be between $50 million and $60 million, as compared to $64.0 million in 2022.

Cash used for financing activities was $24.1 million higher for the thirteen weeks ended April 29, 2023 as compared to the thirteen weeks ended April 30, 2022, primarily due to net repayments on our revolving credit agreement of $16.0 million in the thirteen weeks ended April 29, 2023, compared to net borrowings of $15.0 million in the comparable period in 2022.

In addition, the issuance of common stock under share-based plans was $6.4 million higher in the thirteen weeks ended April 29, 2023, compared to the thirteen weeks ended April 30, 2022.

These increases were partially offset by $14.7 million of repurchases of our common stock under our share repurchase programs during the thirteen weeks ended April 30, 2022, with no corresponding share repurchases during the thirteen weeks ended April 29, 2023.

Cash used for financing activities was $104.3 million higher for the six months ended July 29, 2023 as compared to the six months ended July 30, 2022, primarily due to net repayments on our revolving credit agreement of $63.5 million in the six months ended July 29, 2023, compared to net borrowings of $58.5 million in the comparable period in 2022.

In addition, the issuance of common stock under share-based plans was $6.2 million higher in the six months ended July 29, 2023, compared to the six months ended July 30, 2022.

These increases were partially offset by a $24.2 million decrease in repurchases of our common stock under our share repurchase programs during the six months ended July 29, 2023, compared to the six months ended July 30, 2022.

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

April 29, 2023

April 30, 2022

July 29, 2023

July 30, 2022

January 28, 2023

6 unchanged sentences

Total capitalization is defined as total debt and total equity .

Working capital at April 29, 2023 was ($58.4) million, which was $77.8 million and $21.3 million higher than at April 30, 2022 and January 28, 2023, respectively.

The increase in working capital from April 30, 2022 primarily reflects lower trade accounts payable and accrued expenses, partially offset by lower inventory.

The increase in working capital from January 28, 2023 primarily reflects lower accrued expenses, partially offset by higher trade accounts payable.

Our current ratio was 0.93:1 as of April 29, 2023, compared to 0.87:1 at April 30, 2022 and 0.91:1 at January 28, 2023.

Our debt-to-capital ratio was 39.2% as of April 29, 2023, compared to 46.0% as of April 30, 2022 and 41.9% at January 28, 2023.

We declared and paid dividends of $0.07 per share in the first quarter of both 2023 and 2022.

Working capital at July 29, 2023 was a deficit of $41.5 million, which was an improvement of $79.5 million and $38.2 million from July 30, 2022 and January 28, 2023, respectively.

The increase in working capital from July 30, 2022 primarily reflects lower trade accounts payable and accrued expenses, partially offset by lower inventory.

The increase in working capital from January 28, 2023 primarily reflects higher inventory and lower accrued expenses, partially offset by higher trade accounts payable.

Our current ratio was 0.96:1 as of July 29, 2023, compared to 0.89:1 at July 30, 2022 and 0.91:1 at January 28, 2023.

Our debt-to-capital ratio was 34.1% as of July 29, 2023, compared to 47.5% as of July 30, 2022 and 41.9% at January 28, 2023.

We declared and paid dividends of $0.07 per share in the second quarter of both 2023 and 2022.

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.

11 unchanged sentences

Such statements are subject to various risks and uncertainties that could cause actual results to differ materially.

These risks include (i) inflationary pressures;

(ii) supply chain disruptions;

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

These risks include (i) changing consumer demands, which may be influenced by general economic conditions and other factors;

(ii) inflationary pressures;

(iii) supply chain disruptions;

(iv) rapidly changing consumer preferences and purchasing patterns and fashion trends;

19 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