What changed in this filing

/stocks — the workspaceLOADING

Item 7. Management’s Discussion and Analysis

2024-04-02 compared with 2023-03-28 · 182 added, 224 removed, 197 unchanged (67% of the section changed)

3 unchanged sentences

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

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

We offer retailers and consumers a diversified portfolio of leading footwear brands.

Outfitted in our brands, customers can step confidently into every aspect of their lives.

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

1 unchanged sentence

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

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

Our business strategy is focused on accelerating growth in our Brand Portfolio segment, gaining market share and deepening connections with the millennial family in our Famous Footwear segment, leveraging our “One Caleres” capabilities to increase profitability, and delivering value for our shareholders.

Famous Footwear

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.

Our Famous Footwear segment includes 860 Famous Footwear stores, famousfootwear.com and famousfootwear.ca in Canada.

This national footprint of mostly off-mall store locations is convenient for Famous Footwear’s target consumer, the millennial family.

We seek to meet the needs of that millennial family and others by providing an assortment of trend-right, brand-name fashion, casual and athletic footwear at a great price.

During 2023, we continued to execute on our three-pronged strategy, which concentrates on merchandising, marketing and consumer experience.

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.

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

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

Vertical integration provides Famous Footwear with greater access to fashion products from brands that resonate with its consumer, as well as greater ability to be flexible with trends and offer better profit potential.

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

We continued to tightly manage our inventory levels in 2023, 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.

We believe our kids category, which continues to grow, is a key competitive differentiator.

We view this offering as a future growth opportunity and have plans to build on the strength of this category.

With the millennial mom as our target consumer, we believe her primary purchase motivation is her kids and will prioritize these purchases, even with macroeconomic pressures.

As a result, we are making the kids business a critical component of how our associates connect with our consumers, including ensuring every child finds the perfect fit.

Our investments in new and remodeled stores over the last few years have prioritized an elevated experience within our kids department.

We are leaning into our best brands from an inventory, marketing and store presence perspective.

In addition, we continue to invest in enhancing our in-store shopping experience to deliver a more engaging and inspiring experience across the omnichannel.

Our new FLAIR (Famous Localized and Immersive Retail) store concept has been successful at driving sales growth and we plan to continue to transform stores to this enhanced consumer shopping experience in 2024.

The FLAIR store concept highlights our leading assortment of trending brands and elevates those brands in an energetic and exciting manner.

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, Allen Edmonds, LifeStride, Dr.

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

marketing campaigns.

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

Scholl’s Shoes, LifeStride, Franco Sarto, Blowfish Malibu, 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.

2 unchanged sentences

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 e-commerce sites and 29 retail stores in China.

We also operate a joint venture, which expands our international presence by distributing our Sam Edelman and Naturalizer brands through e-commerce sites and 36 retail stores in East Asia.

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.

Macroeconomic factors, including, among others, inflation, elevated interest rates, increased real estate costs, higher consumer debt levels, the end to the student loan repayment pause, and lingering fears of a recession, continued to impact consumer discretionary spending and our financial results during 2023.

We experienced lighter consumer traffic in our retail stores during 2023, resulting in lower 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.

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 2024.

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.

During 2023, we focused on reducing debt to maintain liquidity and reduce interest expense.

Given the continued elevated interest rate environment, our capital allocation priority during 2024 will be to reduce debt levels further.

In addition, given our debt reduction progress and strong operating cash flows during 2023, we used excess capital to repurchase shares.

We will continue to evaluate our capital allocation priorities in light of business performance and market conditions.

Financial Highlights

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

● 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 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 $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 is a summary of the financial highlights for 2023 and 2022:

($ millions, except per share amounts)

Consolidated net sales

Famous Footwear segment net sales

Famous Footwear comparable sales % change

Brand Portfolio segment net sales

Operating earnings

Diluted earnings per share

(1) n/m – not meaningful

The following items should be considered in evaluating the comparability of our 2023 and 2022 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.

● Impact of the 53 rd week – Our accounting period is based upon a traditional retail calendar, which ends on the Saturday nearest January 31.

Periodically, this results in a fiscal year that includes 53 weeks.

Our 2023 fiscal year included 53 weeks, while both our 2022 and 2021 fiscal years had only 52 weeks.

The difference in the number of weeks included in our fiscal years can affect annual comparisons.

The inclusion of the 53 rd week in 2023 resulted in an increase to our consolidated net sales of approximately $25 million and had an immaterial impact on net earnings.

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 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.

There were no corresponding charges in 2022.

● 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.

Due to stronger earnings in 2022 and 2023, the Company is no longer in a cumulative three-year loss position.

Accordingly, the Company released valuation allowances on certain deferred tax assets totaling $17.4 million ($0.47 per diluted share) in 2022 and $26.7 million ($0.75 per diluted share) in 2023.

● Expense reduction initiatives –During 2023, we incurred costs of approximately $6.1 million ($4.5 million on an after-tax basis, or $0.13 per diluted share) associated with expense reduction initiatives.

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

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

Financial Outlook

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.

We believe the success of the structural changes we have made in recent years has enabled us to continue to deliver earnings per share in excess of our $4.00 baseline.

In October 2023, we announced a three-year strategic and financial plan that we believe will drive a higher level of growth and profitability.

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

We are confident in our ability to execute on our growth strategy and deliver on our long-term financial targets to create sustained value for our shareholders.

Metrics Used in the Evaluation of Our Business

5 unchanged sentences

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.

Accordingly, closed stores (including temporary store closures) 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.

3 unchanged sentences

The sales per square foot metric is commonly used in the retail industry to measure the efficiency of a store’s sales based upon the square footage in a store.

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

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

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

Comparison of Financial Results

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 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 "

in our Annual Report on Form 10-K for the year ended January 29, 2022.

The following sections discuss the consolidated and segment results of our operations for the year ended February 3, 2024 compared to the year ended January 28, 2023.

For a discussion of the results for the year ended January 28, 2023 compared to the year ended January 29, 2022, refer to Part II, Item 7 " Management’s Discussion and Analysis of Financial Condition and Results of Operations " in our Annual Report on Form 10-K for the year ended January 28, 2023.

CONSOLIDATED RESULTS

1 unchanged sentence

Selling and administrative expenses

Impairment of goodwill and intangible assets

Restructuring and other special charges, net

Operating earnings (loss)

Operating earnings

Interest expense, net

2 unchanged sentences

Earnings before income taxes

Income tax (provision) benefit

Net earnings (loss)

Net (loss) earnings attributable to noncontrolling interests

Net earnings (loss) attributable to Caleres, Inc.

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.

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.

Income tax provision

Net earnings (loss) attributable to noncontrolling interests

Net earnings attributable to Caleres, Inc.

Net sales decreased $150.8 million, or 5.1%, to $2,817.3 million in 2023, compared to $2,968.1 million last year, reflecting the challenging macroeconomic and retail environment.

Net sales for our Famous Footwear segment decreased $95.7 million, or 5.6%, compared to 2022 net sales.

Net sales for our Brand Portfolio segment decreased $51.9 million, or 3.9%, compared to 2022.

The 53 rd week in 2023 contributed approximately $25 million to our consolidated net sales, including $18.2 million in our Famous Footwear segment and $6.8 million in our Brand Portfolio segment.

On a consolidated basis, our direct-to-consumer sales represented approximately 72% of total net sales for both 2023 and 2022.

Gross profit decreased $21.9 million, or 1.7%, to $1,263.0 million in 2023, compared to $1,284.9 million in 2022, primarily driven by lower net sales.

As a percentage of net sales, our gross profit rate increased to 44.8% in 2023, compared to 43.3% in 2022, primarily due to a higher gross margin rate at our Brand Portfolio segment driven by lower inventory markdowns, lower inbound freight costs and higher merchandise margins.

These increases were partially offset by a decrease in the gross margin rate at our Famous Footwear segment.

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

1 unchanged sentence

Selling and Administrative Expenses

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, 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.

Selling and administrative expenses decreased $5.3 million, or 0.5%, to $1,062.4 million in 2023, compared to $1,067.7 million last year.

The decrease is primarily due to lower anticipated payments under our cash-based incentive compensation plans and lower warehouse costs, partially offset by higher facilities costs and incremental expenses associated with the 53 rd week in 2023 .

As a percentage of net sales, selling and administrative expenses increased to 37.7% in 2023, from 36.0% last year, reflecting deleveraging of expenses on lower net sales.

Restructuring and Other Special Charges, Net

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.

During 2023, we incurred restructuring costs of $6.1 million ($4.5 million on an after-tax basis, or $0.13 per diluted share), associated with our expense reduction initiatives.

During 2022, 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) associated with a CFO transition at our corporate headquarters.

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.

Operating earnings decreased $19.8 million to $194.5 million in 2023, compared to $214.3 million last year, reflecting the factors described above.

As a percentage of net sales, operating earnings were 6.9% in 2023, compared 7.2% in 2022.

Interest Expense, Net

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.

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.

Interest expense, net increased $5.1 million, or 35.6%, to $19.4 million in 2023, compared to $14.3 million last year, primarily attributable to higher interest rates on our revolving credit agreement, partially offset by lower average borrowings.

Refer to Note 11 to the consolidated financial statements for additional information related to our borrowings.

Other Income, Net

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.

Other income, net decreased $6.8 million, or 52.1%, to $6.2 million in 2023, compared to $13.0 million in 2022, which is attributable to certain components of net periodic benefit income associated with our pension plans, including interest cost and expected return on assets.

Refer to Note 5 to the consolidated financial statements for additional information related to our retirement plans.

1 unchanged sentence

Our consolidated effective tax rate was 5.2% in 2023, compared to 15.7% in 2022.

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.

Our lower tax rates for 2023 and 2022 primarily reflect the release of $26.7 million and $17.4 million, respectively, of valuation allowances recorded for certain deferred tax assets.

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.

Due to stronger earnings in 2022 and 2023, the Company is no longer in a cumulative three-year loss position.

Accordingly, the Company released valuation allowances on certain deferred tax assets totaling $17.4 million ($0.47 per diluted share) in 2022 and $26.7 million ($0.75 per diluted share) in 2023.

In 2021, the OECD released Pillar Two Global Anti-Base Erosion model rules, designed to ensure large corporations are taxed at a minimum rate of 15% in all countries of operation.

The OECD continues to release guidance and countries are implementing legislation to adopt the rules for tax years beginning in 2024.

The United States has not yet enacted legislation implementing Pillar Two.

We are continuing to evaluate the Pillar Two rules and their potential impact on future periods, but we do not expect the rules to have a material impact on our effective tax rate.

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

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.

3 unchanged sentences

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.

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.

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 East Asia, Canada and Europe, retail operations in Canada and East Asia and the operation of our international e-commerce websites.

In addition, we license certain of our trade names to third parties who distribute and/or operate retail locations internationally.

The operations in Eastern Asia include first-cost transactions, where footwear is sold at international ports to customers who then import the footwear into the United States and other countries.

The breakdown of domestic and international net sales and earnings (loss) before income taxes is as follows:

The operations in East Asia include first-cost transactions, where footwear is sold at international ports to customers who then import the footwear into the United States and other countries.

The breakdown of domestic and international net sales and earnings before income taxes is as follows:

Earnings Before

International

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.

FAMOUS FOOTWEAR

3 unchanged sentences

Restructuring and other special charges, net

Operating earnings (loss)

Operating earnings

Comparable sales % change

Comparable sales $ change

Sales change from 53rd week

Sales change from new and closed stores, net

Impact of changes in Canadian exchange rate on sales

Sales per square foot, excluding e-commerce

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

Square footage (thousand sq.

2 unchanged sentences

Ending stores

(1) This metric includes the impact of temporary store closures.

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 decreased $95.7 million, or 5.6%, to $1,609.4 million in 2023, compared to $1,705.1 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.

Comparable sales decreased 6.3% in 2023 driven by a decline in consumer traffic in our retail stores as the challenging macroeconomic environment continued to impact sales.

Despite the challenging retail environment, we experienced strong demand for key athletic brands and casual product, such as slippers.

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

Scholl’s Shoes, LifeStride, Naturalizer and Blowfish Malibu representing four of Famous Footwear’s top 20 best-selling footwear brands in 2023.

Our e-commerce penetration in 2023 was approximately 13% of net sales, a slight decline from 14% last year.

During 2023, we closed 13 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 decreased $69.5 million, or 8.8%, to $719.5 million in 2023, compared to $789.0 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.

As a percentage of net sales, our gross profit rate decreased to 44.7% in 2023, compared to 46.3% in 2022.

During 2022, strong demand and a higher mix of current inventory resulted in fewer markdowns and minimal clearance selling.

During 2023, we experienced a more normalized mix of clearance product sold and margins on those sales were in line with historical levels.

Selling and Administrative Expenses

Selling and administrative expenses increased $1.1 million, or 0.2%, to $594.3 million during 2023, compared to $593.2 million 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.

The increase primarily reflects higher facilities costs, partially offset by lower salary and benefits expenses, lower advertising expenses and lower distribution costs.

As a percentage of net sales, selling and administrative expenses increased to 36.9% in 2023 from 34.8% last year, reflecting the deleveraging of expenses on lower net sales.

Restructuring and Other Special Charges, Net

Restructuring and other special charges of $1.4 million were recorded during 2023 for expenses associated with expense reduction initiatives, primarily severance .

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

There were no corresponding charges in 2022.

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.

Operating earnings decreased $72.0 million to $123.8 million for 2023, compared to $195.8 million last year, primarily reflecting lower net sales and gross profit, as described above.

As a percentage of net sales, operating earnings were 7.7% for 2023, compared to 11.5% last year.

BRAND PORTFOLIO

($ millions, except sales per square foot)

Cost of goods sold

Selling and administrative expenses

Impairment of goodwill and intangible assets

Restructuring and other special charges, net

Operating earnings (loss)

Operating earnings

Direct-to-consumer (% of net sales) (1)

Change in wholesale net sales ($)

Change in retail net sales ($)

Sales change from 53rd week

Unfilled order position at end of period

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 (2)

Square footage (thousands sq.

North America stores:

2 unchanged sentences

Ending stores - North America

Ending stores - China

Ending stores - East Asia

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.

(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 .

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.

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.

Net sales decreased $51.9 million, or 3.9%, to $1,270.9 million in 2023, compared to $1,322.8 million last year.

Despite the challenging consumer environment, we have been able to leverage our leading speed capabilities and edit-to-win initiative to drive sales of selected trending product.

Speed is a key differentiator for the Brand Portfolio segment, as we are generally able to restock product that is part of the speed program within three months or less to align with consumer demand.

As the consumer continued to prioritize newness in flats and casuals, including loafers, ballet, Mary Janes, slingbacks and fashion sneakers, our brands were well-positioned to meet the diversified needs and preferences of our consumers.

This was particularly evident in our Allen Edmonds, Dr.

Scholl’s Shoes and Franco Sarto brands, which experienced strong growth during 2023.

Growth in these brands was offset by declines in our Blowfish Malibu brand, as well as our Sam Edelman and Vionic brands in 2023, due in part to the strong performance of these brands in 2022, when we benefitted from retailers aggressively restocking their wholesale inventory levels.

Our owned e-commerce business also continues to grow, increasing 5.1% in 2023, compared to 2022.

We closed five stores and opened four stores in the United States, and expanded our retail store presence in East Asia by opening 10 stores and closing three stores, resulting in a total of 62 stores in the United States and 36 stores in East Asia at the end of 2023.

During 2024, we expect to continue to expand our international retail presence by opening approximately 35 stores in East and Southeast Asia.

The unfilled order position for our wholesale business decreased $50.1 million to $234.5 million at the end of 2023, compared to $284.6 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.

The decrease in our backlog order levels reflects more conservative buying by our wholesale customers as they more tightly manage their inventory levels and the dynamic nature of inventory buying, which includes periodic replenishment orders and shipping directly to the end consumer purchasing from our wholesale customers’ websites.

Gross profit increased $48.7 million, or 9.8%, to $546.0 million in 2023, compared to $497.3 million last year.

As a percentage of sales, our gross profit rate increased significantly to 43.0% in 2023, compared to 37.6% last year, reflecting lower inventory markdowns, higher merchandise margins and lower inbound freight costs.

Selling and Administrative Expenses

Selling and administrative expenses increased $12.9 million, or 3.4%, to $397.9 during 2023, compared to $385.0 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.

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

In addition, 2022 included a gain recognized upon the modification of an international licensing contract.

As a percentage of net sales, selling and administrative expenses increased to 31.4% in 2023 from 29.1% last year, reflecting deleveraging of expenses over a lower net sales base.

Restructuring and Other Special Charges, Net

Restructuring and other special charges of $13.5 million were recorded during 2021 for expenses associated with the s trategic realignment of the Naturalizer retail store operations.

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

Restructuring and other special charges of $2.6 million were recorded during 2023 for expenses associated with our expense reduction initiatives, primarily severance and other costs to integrate the Blowfish Malibu office, showroom and information systems into the St.

Louis infrastructure.

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

1 unchanged sentence

Operating Earnings

We achieved record operating earnings and operating margin in 2022.

We achieved another year of record operating earnings and operating margin.

Operating earnings increased $33.1 million to $145.5 million in 2023, compared to $112.3 million last year, as a result of the factors described above.

8 unchanged sentences

Selling and administrative expenses decreased $19.5 million, or 21.7%, to $70.1 million in 2023, compared to $89.6 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.

The decrease primarily reflects lower anticipated payments under our cash and share-based incentive compensation plans and other employee benefits.

Restructuring and other special charges of $2.1 million in 2023 were associated with expense reduction initiatives, primarily severance, at our corporate headquarters.

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

1 unchanged sentence

LIQUIDITY AND CAPITAL RESOURCES

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.

Our borrowings under the revolving credit agreement decreased $125.5 million to $182.0 million at the end of 2023, compared to $307.5 million at the end of last year.

The decrease reflects strong cash generation in 2023 and our priority to reduce borrowings under the revolving credit agreement to mitigate the high interest rate environment.

Net interest expense in 2023 was $19.4 million, compared to $14.3 million in 2022.

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.

The increase in net interest expense in 2023 was primarily due to higher interest rates, partially offset by lower average borrowings on our revolving credit agreement.

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 elevated interest rates in 2024.

Credit Agreement

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

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.

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

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

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

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

The Senior Notes were guaranteed on a senior unsecured basis by each of the subsidiaries of Caleres, Inc.

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 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%.

In conjunction with the redemption of the Senior Notes prior to maturity, we incurred a loss on early extinguishment of debt of $1.0 million.

Refer to further discussion regarding the Senior Notes in Note 11 to the consolidated financial statements.

As further discussed in Note 11 to the consolidated financial statements, the Company maintains a revolving credit facility (the “Credit Agreement”) for working capital needs.

The Credit Agreement, which provides borrowing availability of up to $500.0 million, subject to borrowing base restrictions, that may be further increased by up to $250.0 million, matures on October 5, 2026.

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.

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 February 3, 2024, we had $182.0 million of borrowings and $9.5 million in letters of credit outstanding under the Credit Agreement.

Total borrowing availability was $308.5 million at February 3, 2024.

We were in compliance with all covenants and restrictions under the Credit Agreement as of February 3, 2024.

Working Capital and Cash Flow

January 28, 2023

February 3, 2024

January 28, 2023

6 unchanged sentences

Total capitalization is defined as total debt and total equity.

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 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

Working capital at February 3, 2024 was $46.0 million, which was $125.7 million higher than at January 28, 2023.

The increase in working capital from 2022 primarily reflects lower borrowings under our revolving credit agreement, other accrued expenses and lease obligations, partially offset by lower inventory.

Our current ratio was 1.06 to 1 at February 3, 2024, compared to 0.91 to 1 at January 28, 2023.

Our debt-to-capital ratio was 24.3% as of February 3, 2024, compared to 41.9% at January 28, 2023, reflecting higher shareholders’ equity attributable to our strong financial results in 2023.

Increase (Decrease)

in Cash Equivalents

1 unchanged sentence

Net cash used for investing activities

Net cash (used for) provided by financing activities

Net cash used for financing activities

Effect of exchange rate changes on cash and cash equivalents

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;

(Decrease) increase in cash and cash equivalents

Cash provided by operating activities was $74.3 million higher in 2023 than last year, reflecting the following factors:

● An increase in trade accounts payable in 2023 compared to a decrease last year;

● A larger decrease in inventory in 2023 compared to 2022 due to more typical inventory receipt flow after supply chain operations normalized;

partially offset by

● 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 :

Certain of our suppliers are given the opportunity to sell receivables from us related to products we’ve purchased to participating financial institutions at a rate that leverages our credit rating, which may be more beneficial to the suppliers than the rate they can obtain based upon their own credit rating.

We negotiate payment and other terms with our suppliers, regardless of whether the supplier participates in the program, and our responsibility is limited to making payment based on the terms originally negotiated with the supplier.

These liabilities continue to be presented as accounts payable in our consolidated balance sheets and reflected as cash flows from operating activities when settled.

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.

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.

● A larger increase in prepaid expenses and other current and noncurrent assets in 2023 compared to 2022;

● A larger decrease in accrued expenses and other liabilities in 2023 compared to 2022 , due in part to lower anticipated payments under our incentive plans.

We are in the process of undergoing a multi-year cloud-based enterprise resource planning (“ERP”) implementation.

We expect to fund the first phase of the implementation in 2024 with cash provided by operating activities.

Cash used for investing activities was $14.4 million lower in 2023 than last year, reflecting lower capital expenditures.

In 2024, 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 $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.

Cash used for financing activities was $104.8 million higher in 2023 than last year, primarily due to net repayments on our revolving credit agreement of $125.5 million in 2023, compared to net borrowings of $17.5 million in 2022.

In addition, the issuance of common stock under share-based plans was $5.7 million higher in 2023 compared to 2022.

These increases were partially offset by a $45.8 million decrease in repurchases of common stock under our share repurchase programs during 2023 compared to 2022.

We paid dividends of $0.28 per share in each of 2023, 2022 and 2021.

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

The 2023 dividends marked the 101st year of consecutive quarterly dividends.

On March 14, 2024, the Board of Directors declared a quarterly dividend of $0.07 per share, payable on April 12, 2024, to shareholders of record on March 28, 2024.

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.

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

As of February 3, 2024, we had various contractual or other obligations, including the following:

Payments Due by Period

37 unchanged sentences

We regularly analyze the results of all stores and assess the viability of underperforming stores to determine whether events or circumstances exist that indicate the stores should be closed or whether the carrying amount of their long-lived assets may not be recoverable.

After allowing for an appropriate start-up period, unusual nonrecurring events or favorable trends, property and equipment at stores and the lease right-of-use assets indicated as impaired are written down to fair value as calculated using a discounted cash flow method.

The fair value of the lease right-of-use assets is determined utilizing projected cash flows for each store location, discounted using a risk-adjusted discount rate, subject to a market floor based on current market lease rates.

After allowing for an appropriate start-up period, and consideration of any unusual nonrecurring events, property and equipment at stores and the lease right-of-use assets indicated as impaired are written down to fair value as calculated using a discounted cash flow method.

The fair value of the lease right-of-use assets and property and equipment is determined utilizing projected cash flows for each store location, discounted using a risk-adjusted discount rate, subject to a market floor based on current market lease rates.

The projected cash flows of the stores (including net sales projections), discount rates and current market lease rates for the remaining lease term of the related stores used to determine fair value require significant management judgment and are the assumptions to which the fair value calculations are most sensitive.

4 unchanged sentences

Such estimates are subject to inherent uncertainties and subjectivity.

As of January 28, 2023, we are in a three-year cumulative loss position for federal, state and certain international jurisdictions.

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.

During 2020, we entered into a three-year cumulative loss position driven by the significant loss before income taxes.

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.

Due to stronger earnings in 2022 and 2023, the Company is no longer in a cumulative three-year loss position as of February 3, 2024.

Accordingly, we released valuation allowances on certain deferred tax assets totaling $17.4 million in 2022 and $26.7 million in 2023.

As of February 3, 2024, we have valuation allowances totaling $7.2 million, reflecting the uncertainty regarding the utilization of net operating loss carryforwards.

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