What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2024-06-11 compared with 2023-12-05 · 126 added, 226 removed, 145 unchanged (71% of the section changed)

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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.

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Macroeconomic Environment

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

We continued to experience lighter consumer traffic in our retail stores during the third quarter, 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, 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 for the remainder of 2023 and into 2024.

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 the first quarter of 2024.

We continued to experience lighter consumer traffic in our retail stores during the first quarter, resulting in lower net sales.

While we believe that the structural changes we have 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.

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 for the third quarter of 2023 and 2022 are as follows:

Highlights of our consolidated and segment results for the first quarter of 2024 and 2023 are as follows:

Thirteen Weeks Ended

($ millions, except per share amounts)

October 28, 2023

October 29, 2022

April 29, 2023

Consolidated net sales

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(1) n/m – not meaningful

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

● Expense reduction initiatives – As further discussed in Note 5 to the condensed consolidated financial statements, during the third quarter of 2023, we incurred costs of approximately $2.3 million ($1.7 million on an after-tax basis, or $0.05 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 fourth quarter of 2023 and are expected to result in additional costs of approximately $3 million, or $0.06 per diluted share.

● Organizational changes – During the third quarter of 2022, we incurred costs of $2.9 million ($2.7 million on an after-tax basis, or $0.07 per diluted share) related to a CFO transition at our corporate headquarters.

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

Metrics Used in the Evaluation of Our Business

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

In fiscal years with 53 weeks, the 53 rd week of comparable sales is included in the calculation.

In the following year, the prior fiscal year period is shifted by one week to compare similar calendar weeks.

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

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Thirteen Weeks Ended

Thirty-Nine Weeks Ended

October 28, 2023

October 29, 2022

October 28, 2023

October 29, 2022

April 29, 2023

Cost of goods sold

Selling and administrative expenses

Restructuring and other special charges, net

Operating earnings

3 unchanged sentences

Income tax provision

Net earnings (loss) attributable to noncontrolling interests

Net (loss) earnings attributable to noncontrolling interests

Net earnings attributable to Caleres, Inc.

Net sales decreased $36.4 million, or 4.6%, to $761.9 million for the third quarter of 2023, compared to $798.3 million for the third quarter of 2022, driven by a $32.2 million, or 6.7%, decline in net sales for our Famous Footwear segment, reflecting lower consumer traffic in our retail stores and the challenging macroeconomic environment.

Comparable sales for Famous Footwear were down 6.9%.

Despite softening consumer demand trends, our kids category, which is a key differentiator for Famous Footwear, remained strong during the third quarter of 2023, as families prioritized purchases of kids’ footwear during the back-to-school selling season.

We experienced weakness in the athletics and boots categories during the quarter.

Net sales of our Brand Portfolio segment decreased $2.4 million, or 0.8%, during the third quarter of 2023, compared to the third quarter of 2022.

Our e-commerce sales increased during the quarter, while wholesale shipments were lower.

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.

On a consolidated basis, our direct-to-consumer sales represented approximately 73% of total net sales for the third quarter of 2023, compared to 74% in the third quarter of 2022.

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

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

Net sales decreased $151.5 million, or 6.7%, to $2,120.2 million for the nine months ended October 28, 2023, compared to $2,271.7 million for the nine months ended October 29, 2022.

Net sales for our Famous Footwear segment decreased $89.6 million, or 6.9%, in the first nine months of 2023, compared to the first nine months of 2022, due in part to a decline in consumer traffic in our retail stores driven by cautious consumer spending.

Comparable sales declined 6.5% in the nine months ended October 28, 2023.

Net sales for our Brand Portfolio segment

decreased $65.8 million, or 6.5% during the first nine months of 2023, compared to the first nine months of 2022, reflecting the challenging macroeconomic environment.

Despite the competitive retail landscape, we leveraged our leading speed capabilities in certain brands to drive sales of selected trending product, including casual flats, loafers, moccasins, ballerina flats and fashion sneakers.

On a consolidated basis, our direct-to-consumer sales grew to approximately 72% of total net sales for the nine months ended October 28, 2023, compared to 71% for the nine months ended October 29, 2022.

Gross profit increased $0.5 million, or 0.1%, to $340.4 million for the third quarter of 2023, compared to $339.9 million for the third quarter of 2022.

As a percentage of net sales, gross profit increased to 44.7% for the third quarter of 2023, compared to 42.6% for the third quarter of 2022, driven by an increase in the Brand Portfolio segment gross margin reflecting lower inbound freight costs, lower inventory markdown requirements reflecting our improved inventory position, and higher merchandise margins.

We anticipate the trend of lower freight costs to continue for the remainder of fiscal 2023.

Gross profit decreased $46.5 million, or 4.6%, to $957.2 million for the nine months ended October 28, 2023, compared to $1,003.7 million for the nine months ended October 29, 2022, primarily reflecting lower net sales.

As a percentage of net sales, gross profit increased to 45.1% for the nine months ended October 28, 2023, compared to 44.2% for the nine months ended October 29, 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.

Net sales decreased $3.5 million, or 0.5%, to $659.2 million for the first quarter of 2024, compared to $662.7 million for the first quarter of 2023, driven by an $8.3 million, or 2.6%, decline in net sales for our Brand Portfolio segment due primarily to lower wholesale sales.

While we continue to experience weakness in dress footwear and seasonal fashion categories, including sandals and boots, our fashion sneakers and casual footwear categories both experienced gains in the first quarter of 2024 compared to 2023.

The decrease in the Brand Portfolio segment net sales was partially offset by an increase in net sales in the Famous Footwear segment of $0.4 million, or 0.1% during the first quarter of 2024.

Our kids business continued to perform well during the first quarter, while seasonal sandals and boots underperformed.

We also experienced growth in sales from our owned e-commerce businesses, which increased approximately 9.4% on a consolidated basis compared to the first quarter of 2023.

Our direct-to-consumer sales represented approximately 69% of consolidated net sales for the first quarter of 2024, compared to 68% in the first quarter of 2023.

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.

Gross profit increased $6.4 million, or 2.1%, to $309.1 million for the first quarter of 2024, compared to $302.7 million for the first quarter of 2023.

As a percentage of net sales, gross profit increased to 46.9% for the first quarter of 2024, compared to 45.7% for the first quarter of 2023, driven by significant improvement in the Brand Portfolio segment gross margin.

The increase reflects higher merchandise margins, growth in e-commerce sales from our owned brands and lower sales allowances and discounts.

The gross margin in the Famous Footwear

segment also improved in the quarter, driven by lower inbound freight costs for our inventory, lower outbound shipping costs, due in part to growth in store fulfillment of e-commerce orders (buy online, pick up in store), and lower inventory shrinkage.

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 $9.5 million, or 3.3%, to $273.7 million for the third quarter of 2023, compared to $283.2 million for the third quarter of 2022.

The decrease was driven by lower anticipated payments under our cash and share-based incentive compensation plans, partially offset by higher advertising expense and higher retail facilities costs.

As a percentage of net sales, selling and administrative expenses increased to 35.9% for the third quarter of 2023, from 35.5% for the third quarter of 2022, reflecting deleveraging of expenses on lower net sales.

Selling and administrative expenses decreased $22.7 million, or 2.8%, to $789.6 million for the nine months ended October 28, 2023, compared to $812.3 million for the nine months ended October 29, 2022.

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

As a percentage of net sales, selling and administrative expenses increased to 37.2% for the nine months ended October 28, 2023, from 35.8% for the nine months ended October 29, 2022, reflecting deleveraging of expenses on lower net sales.

Restructuring and Other Special Charges, Net

Restructuring and other special charges of approximately $2.3 million ($1.7 million on an after-tax basis, or $0.05 per diluted share) and $3.9 million ($2.9 million on an after-tax basis, or $0.08 per diluted share) for the three and nine months ended October 28, 2023, respectively, were associated with expense reduction initiatives, primarily severance.

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

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

Selling and administrative expenses increased $13.2 million, or 5.2%, to $266.3 million for the first quarter of 2024, compared to $253.1 million for the first quarter of 2023.

The increase was driven by higher marketing expenses for certain brands, including Sam Edelman and Naturalizer, higher expenses associated with the expansion of our international business and higher information technology and consulting expense associated with the implementation of our cloud-based enterprise resource planning platform.

As a percentage of net sales, selling and administrative expenses increased to 40.4% for the first quarter of 2024, from 38.2% for the first quarter of 2023.

Operating Earnings

Operating earnings increased $10.6 million to $64.4 million for the third quarter of 2023, compared to $53.8 million for the third quarter of 2022, reflecting the factors described above.

As a percentage of net sales, operating earnings were 8.5% for the third quarter of 2023, compared to 6.7% for the third quarter of 2022.

Operating earnings decreased $24.8 million to $163.7 million for the nine months ended October 28, 2023, compared to $188.5 million for the nine months ended October 29, 2022, primarily reflecting lower net sales and gross profit.

As a percentage of net sales, operating earnings were 7.7% for the nine months ended October 28, 2023, compared to 8.3% for the nine months ended October 29, 2022.

Operating earnings decreased $6.8 million to $42.8 million for the first quarter of 2024, compared to $49.6 million for the first quarter of 2023, reflecting the factors described above.

As a percentage of net sales, operating earnings were 6.5% for the first quarter of 2024, compared to 7.5% for the first quarter of 2023.

Interest Expense, Net

Interest expense, net increased $0.5 million, or 12.1%, to $4.5 million for the third quarter of 2023, compared to $4.0 million for the third quarter of 2022.

Interest expense, net increased $6.4 million, or 71.5%, to $15.3 million for the nine months ended October 28, 2023,

compared to $8.9 million for the nine months ended October 29, 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.

While our interest expense in the fourth quarter 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.

Interest expense, net decreased $1.8 million, or 32.8%, to $3.8 million for the first quarter of 2024, compared to $5.6 million for the first quarter of 2023.

The decrease reflects lower average borrowings on the revolving credit facility, partially offset by higher weighted-average interest rates.

The interest on our revolving credit facility is based on a variable rate, which adversely impacts our interest expense in the current elevated interest rate environment.

While our interest expense for the remainder of 2024 will continue to be negatively impacted 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.

Other Income, Net

Other income, net decreased $1.4 million, or 48.2%, to $1.6 million for the third quarter of 2023, compared to $3.0 million for the third quarter of 2022, primarily attributable to lower expected return on assets and higher interest costs for our pension plans.

Other income, net decreased $4.9 million, or 51.6%, to $4.7 million for the nine months ended October 28, 2023, compared to $9.6 million for the nine months ended October 29, 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.

Other income, net decreased $0.5 million, or 33.5%, to $1.0 million for the first quarter of 2024, compared to $1.5 million for the first quarter of 2023, primarily attributable to higher amortization of the actuarial loss related to our pension plans.

Refer to Note 12 of the condensed consolidated financial statements for further information.

These decreases were partially offset by non-operating income associated with logistics services, which the Company began providing in the second half of 2023.

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 third quarter of 2023, compared to 26.2% for the third quarter of 2022.

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

Our consolidated effective tax rate was 24.1% for the nine months ended October 28, 2023, compared to 25.7% for the nine months ended October 29, 2022.

The lower effective tax rate was driven by discrete tax benefits of approximately $0.9 million in the nine months ended October 28, 2023, primarily related to share-based compensation.

Our consolidated effective tax rate was 23.0% for the first quarter of 2024, compared to 23.5% for the first quarter of 2023.

In 2021, the Organization for Economic Cooperation and Development (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, which are expected to become effective on January 1, 2024.

The OECD continues to release guidance and countries are implementing legislation to adopt the rules, which became effective on January 1, 2024.

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

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Net earnings attributable to Caleres, Inc.

were $46.9 million and $115.6 million for the third quarter and nine months ended October 28, 2023, respectively, compared to $39.2 million and $140.9 million for the third quarter and nine months ended October 29, 2022, respectively, as a result of the factors described above.

was $30.9 million for the first quarter of 2024, compared to $34.7 million for the first quarter of 2023, as a result of the factors described above.

FAMOUS FOOTWEAR

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October 29, 2022

October 28, 2023

October 29, 2022

April 29, 2023

($ millions, except sales per square foot)

1 unchanged sentence

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 and thirty-nine weeks ended)

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

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

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Ending stores

Net sales of $449.8 million in the third quarter 2023 decreased $32.2 million, or 6.7%, compared to the third quarter of 2022.

Comparable sales decreased 6.9% compared to the third quarter of 2022.

The challenging macroeconomic environment continued to impact sales as traffic in our retail stores was down in the third quarter of 2023, compared to the third quarter of 2022.

We achieved record-setting sales of product in this category during the back-to-school season and have made investments in the kids category to drive future growth.

We experienced lower sales of seasonal categories, particularly boots, during the quarter.

We opened three stores and closed two stores during the third quarter of 2023, resulting in 862 stores and total square footage of 5.7 million at the end of the quarter, compared to 876 stores and total square footage of 5.8 million at the end of the third 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 third quarter of 2023 and 2022.

Net sales of $1,213.2 million in the nine months ended October 28, 2023 decreased $89.6 million, or 6.9%, compared to the nine months ended October 29, 2022, primarily due to the factors described above.

Comparable sales declined 6.5% in the nine months ended October 28, 2023, driven by a decline in consumer 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 nine months ended October 28, 2023.

We opened five stores and closed 16 stores during the nine months ended October 28, 2023.

Although we anticipate the soft consumer demand and challenging macroeconomic landscape to persist in the fourth quarter of 2023, we believe that Famous Footwear is well-situated to grow its leadership position with the Millennial family.

Gross profit decreased $16.8 million, or 7.8%, to $198.8 million for the third quarter of 2023, compared to $215.6 million for the third quarter of 2022, reflecting lower net sales.

As a percentage of net sales, our gross profit decreased to 44.2% for the third quarter of 2023, from 44.7% for the third quarter of 2022.

Gross profit decreased $69.0 million, or 11.2%, to $549.4 million for the nine months ended October 28, 2023, compared to $618.4 million for the nine months ended October 29, 2022, primarily due to the decrease in net sales.

As a percentage of net sales, our gross profit

decreased to 45.3% for the nine months ended October 28, 2023, compared to 47.5% for the nine months ended October 29, 2022.

During the nine-months ended October 29, 2022, there were fewer markdowns and minimal clearance selling due to higher demand and a higher mix of current inventory.

During the nine-months ended October 28, 2023, we experienced a more historical mix of clearance product sold and margins on those clearance sales were in line with historical levels.

Net sales of $349.6 million in the first quarter of 2024 increased $0.4 million, or 0.1%, compared to the first quarter of 2023.

Comparable sales, which reflects the calendar shift due to the 53 rd week in 2023, decreased 2.3% driven by a decline in consumer traffic in our retail stores.

Despite the continued challenging retail environment, our e-commerce sales improved in the first quarter of 2024.

E-commerce penetration was approximately 13% of net sales in the first quarter of 2024 compared to 12% in the first quarter of 2023.

Our kids category, which is a key differentiator for Famous Footwear, continued to perform well by once again exceeding last year’s volume, while sales of seasonal footwear categories, including sandals and boots, were challenged.

We opened three stores and closed eight stores during the first quarter of 2024, resulting in 855 stores and total square footage of 5.6 million at the end of the quarter, compared to 866 stores and total square footage of 5.7 million at the end of the first quarter of 2023.

During the quarter, we also converted 10 stores to the new FLAIR (Famous Localized and Immersive Retail) concept, which has been successful in driving sales growth.

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 78% of our net sales made to program members in the first quarter of 2024, compared to 79% in the first quarter of 2023.

Gross profit increased $1.9 million, or 1.2%, to $161.0 million for the first quarter of 2024, compared to $159.1 million for the first quarter of 2023, driven by lower inbound freight costs for our inventory, lower outbound shipping costs, due in part to growth in our store fulfillment of e-commerce orders (buy online, pick up in store), and lower inventory shrinkage.

As a percentage of net sales, our gross profit increased to 46.1% for the first quarter of 2024, from 45.6% for the first quarter of 2023.

Selling and Administrative Expenses

Selling and administrative expenses decreased $5.3 million, or 3.4%, to $151.0 million for the third quarter of 2023, compared to $156.3 million for the third quarter of 2022.

The decrease was driven by lower salary and benefit expenses and distribution expense.

As a result of the softer demand, we managed most of our expense categories lower than the prior year.

As a percentage of net sales, selling and administrative expenses increased to 33.6% for the third quarter of 2023, compared to 32.4% for the third quarter of 2022, reflecting deleveraging of expenses on lower net sales.

Selling and administrative expenses decreased $3.1 million, or 0.7%, to $443.8 million for the nine months ended October 28, 2023, compared to $446.9 million for the nine months ended October 29, 2022.

The decrease was driven by lower salary and benefits expenses, lower distribution expenses and lower advertising expenses.

These decreases were partially offset by higher facilities costs, including depreciation expense, as we continued to invest in store remodels.

As a percentage of net sales, selling and administrative expenses increased to 36.6% for the nine months ended October 28, 2023, compared to 34.3% for the nine months ended October 29, 2022, reflecting deleveraging of expenses on lower net sales.

Restructuring and Other Special Charges, Net

Restructuring and other special charges of $1.2 million and $1.3 million for the three and nine months ended October 28, 2023, respectively, 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 nine months ended October 29, 2022.

Selling and administrative expenses increased $2.1 million, or 1.5%, to $144.1 million for the first quarter of 2024, compared to $142.0 million for the first quarter of 2023.

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

As a percentage of net sales, selling and administrative expenses increased to 41.3% for the first quarter of 2024, compared to 40.7% for the first quarter of 2023.

Operating Earnings

Operating earnings decreased $12.7 million to $46.6 million for the third quarter of 2023, compared to $59.3 million for the third quarter of 2022, primarily reflecting lower sales and gross profit, as described above.

As a percentage of net sales, operating earnings were 10.4% for the third quarter of 2023, compared to 12.3% for the third quarter of 2022.

Operating earnings decreased $67.2 million to $104.3 million for the nine months ended October 28, 2023, compared to $171.5 million for the nine months ended October 29, 2022.

As a percentage of net sales, operating earnings were 8.6% for the nine months ended October 28, 2023, compared to 13.2% for the nine months ended October 29, 2022.

Operating earnings decreased slightly to $16.9 million for the first quarter of 2024, compared to $17.1 million for the first quarter of 2023, primarily reflecting the factors described above.

As a percentage of net sales, operating earnings declined slightly to 4.8% for the first quarter of 2024, compared to 4.9% for the first quarter of 2023.

BRAND PORTFOLIO

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($ millions, except sales per square foot)

April 29, 2023

Cost of goods sold

Selling and administrative expenses

Restructuring and other special charges, net

Operating earnings

3 unchanged sentences

Unfilled order position at end of period

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

Square footage (thousands sq.

North America stores:

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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 operations of our joint venture in China.

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

Net sales of $320.8 million in the third quarter of 2023 decreased $2.4 million, or 0.8%, compared to the third quarter of 2022.

The modest decrease in our net sales was a result of the challenging consumer environment that we are currently experiencing.

Our e-commerce sales increased during the quarter, while wholesale shipments were lower.

Net sales from our owned e-commerce business increased approximately 4.7% during the third quarter of 2023.

Our key categories of casual shoes and sneakers both experienced gains in the third quarter of 2023 compared to the third quarter of 2022, as the consumer continued to navigate toward newness in non-seasonal categories, including casual flats, loafers, moccasins, ballerina flats and fashion sneakers.

The gains in these categories were offset by sales weakness in our boots category.

We opened one store in the United States during the third quarter of 2023, resulting in a total of 62 stores and total square footage of 0.1 million, compared to 63 stores and total square footage of 0.1 million at the end of the third quarter of 2022.

In addition, we continued to expand our retail store presence in China by opening one new store, resulting in a total of 34 stores, compared to 26 stores at the end of the third quarter of 2022.

Net sales decreased $65.8 million, or 6.5%, to $947.2 million for the nine months ended October 28, 2023, compared to $1,013.0 million for the nine months ended October 29, 2022, reflecting the challenging macroeconomic environment and competitive retail landscape described above.

Despite the competitive retail landscape, we have leveraged our leading speed capabilities 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.

We continue to experience growth in our owned e-commerce business, which increased 4.7% in the nine months ended October 28, 2023, compared to the nine months ended October 29, 2022.

Our unfilled order position for our wholesale sales decreased $42.9 million, or 15.0%, to $243.9 million at October 28, 2023, compared to $286.8 million at October 29, 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 soft consumer demand and consumers buying closer to need.

Gross profit increased $17.8 million, or 14.5%, to $140.2 million for the third quarter of 2023, compared to $122.4 million for the third quarter of 2022.

As a percentage of net sales, our gross profit increased to 43.7% for the third quarter of 2023, compared to 37.9% for the third quarter of 2022, reflecting lower inbound freight costs, lower inventory markdown requirements reflecting our improved inventory position, and higher merchandise margins.

Gross profit increased $22.3 million, or 5.8%, to $408.1 million for the nine months ended October 28, 2023, compared to $385.8 million for the nine months ended October 29, 2022, reflecting lower inventory markdowns, lower inbound freight costs, higher merchandise margins and higher average prices in our retail operations.

As a percentage of net sales, our gross profit increased significantly to 43.1% for the nine months ended October 28, 2023, compared to 38.1% for the nine months ended October 29, 2022.

Net sales of $317.2 million in the first quarter of 2024 decreased $8.3 million, or 2.6%, compared to the first quarter of 2023.

Lower wholesale sales were partially offset by growth in sales from our owned e-commerce business, which increased approximately 8.6% compared to the first quarter of 2023.

We have increased the penetration of the fashion sneakers and casual footwear categories to our total product assortment to align our inventory with consumer demand and we believe we are currently well-positioned in these categories.

Our brands with a heavy sneaker concentration, such as Vionic, Dr.

Scholl’s and Vince, performed better in the first quarter than brands with a higher mix of dress footwear.

During the first quarter of 2024, we closed one store in the United States, resulting in a total of 61 stores, compared to 62 stores at the end of the first quarter of 2023.

In addition, we continued to expand our retail store presence in East Asia by opening two new Sam Edelman stores in the first quarter of 2024, resulting in a total of 38 stores, compared to 31 stores at the end of the first quarter of 2023.

Our unfilled order position for our wholesale sales decreased $15.9 million, or 5.8%, to $257.0 million at May 4, 2024, compared to $272.9 million at April 29, 2023.

The decrease in our backlog order levels compared to last year reflects more conservative buying by our wholesale customers as they 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 $3.9 million, or 2.7%, to $147.8 million for the first quarter of 2024, compared to $143.9 million for the first quarter of 2023.

As a percentage of net sales, our gross profit increased to 46.6% for the first quarter of 2024, compared to 44.2% for the first quarter of 2023, reflecting higher merchandise margins and a higher mix of retail sales, including e-commerce sales from our owned brands and sales from our branded retail stores, both of which have higher gross margins than our wholesale sales.

In addition, our wholesale margins benefited from lower sales allowances and discounts in the quarter.

Selling and Administrative Expenses

Selling and administrative expenses increased $1.0 million, or 1.0%, to $101.1 million for the third quarter of 2023, compared to $100.1 million for the third quarter of 2022.

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

As a percentage of net sales, selling and administrative expenses increased to 31.5% for the third quarter of 2023, compared to 31.0% for the third quarter of 2022.

Selling and administrative expenses increased $6.0 million, or 2.0%, to $298.7 million for the nine months ended October 28, 2023, compared to $292.7 million for the nine months ended October 29, 2022.

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

As a percentage of net sales, selling and administrative expenses increased to 31.5% for the nine months ended October 28, 2023, compared to 28.9% for the nine months ended October 29, 2022, reflecting deleveraging of expenses over lower net sales.

Restructuring and Other Special Charges, Net

Restructuring and other special charges of $0.9 million and $1.7 million for the three and nine months ended October 28, 2023, respectively, 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 nine months ended October 29, 2022.

Selling and administrative expenses increased $5.2 million, or 5.1%, to $106.4 million for the first quarter of 2024, compared to $101.2 million for the first quarter of 2023.

The increase was primarily due to higher marketing expenses for certain brands, including Sam Edelman and Naturalizer, higher expenses associated with the expansion of our international business and higher distribution expenses.

As a percentage of net sales, selling and administrative expenses increased to 33.5% for the first quarter of 2024, compared to 31.1% for the first quarter of 2023.

Operating Earnings

Operating earnings increased to $38.2 million for the third quarter of 2023, from $22.3 million for the third quarter of 2022, as a result of the factors described above.

As a percentage of net sales, operating earnings were 11.9% for the third quarter of 2023, compared to 6.9% in the third quarter of 2022.

Operating earnings increased to $107.7 million for the nine months ended October 28, 2023, compared to $93.1 million for the nine months ended October 29, 2022, as a result of the factors described above.

As a percentage of net sales, operating earnings were 11.4% for the nine months ended October 28, 2023, compared to 9.2% in the nine months ended October 29, 2022.

Operating earnings decreased to $41.4 million for the first quarter of 2024, from $42.7 million for the first quarter of 2023, as a result of the factors described above.

As a percentage of net sales, operating earnings were 13.1% for both the first quarter of 2024 and 2023.

ELIMINATIONS AND OTHER

Thirteen Weeks Ended

Thirty-Nine Weeks Ended

October 28, 2023

October 29, 2022

October 28, 2023

October 29, 2022

April 29, 2023

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 $8.6 million for the third quarter of 2023 is $1.7 million, or 24.7%, higher than the third quarter of 2022 reflecting an increase in product sold from our Brand Portfolio segment to Famous Footwear.

The net sales elimination of $40.2 million for the nine months ended October 28, 2023 is $4.0 million, or 9.1%, lower than the nine months ended October 29, 2022 reflecting a decrease in product sold from our Brand Portfolio segment to Famous Footwear.

Selling and administrative expenses decreased $5.2 million, to $21.5 million in the third quarter of 2023, compared to $26.7 million for the third quarter of 2022.

Selling and administrative expenses decreased $25.5 million, to $47.1 million for the nine months ended October 28, 2023, compared to $72.6 million for the nine months ended October 29, 2022.

These decreases primarily reflect lower anticipated payments under our cash and share-based incentive compensation and other employee benefits.

Restructuring and other special charges of $0.3 million and $0.9 million for the three and nine months ended October 28, 2023, respectively, 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.

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

The net sales elimination of $7.6 million for the first quarter of 2024 is $4.3 million, or 36.6%, lower than the first quarter of 2023 reflecting a decrease in product sold from our Brand Portfolio segment to Famous Footwear.

Selling and administrative expenses increased $6.0 million, to $15.8 million in the first quarter of 2024, compared to $9.8 million for the first quarter of 2023.

The increase primarily reflects higher information technology and consulting expenses associated with the implementation of our cloud-based enterprise resource planning platform and higher expenses for our restricted stock units granted to non-employee directors, reflecting a larger increase in our stock price compared to the first quarter of 2023.

LIQUIDITY AND CAPITAL RESOURCES

Total debt obligations of $222.0 million at October 28, 2023 decreased $142.5 million, from $364.5 million at October 29, 2022, and decreased $85.5 million, from $307.5 million at January 28, 2023.

Net interest expense for the third quarter of 2023 increased $0.5 million to $4.5 million, compared to $4.0 million for the third quarter of 2022, primarily 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.

Total debt obligations of $191.0 million at May 4, 2024 decreased $100.5 million, from $291.5 million at April 29, 2023, and increased $9.0 million, from $182.0 million at February 3, 2024.

Net interest expense for the first quarter of 2024 decreased $1.8 million to $3.8 million, compared to $5.6 million for the first quarter of 2023, primarily due to lower average borrowings on our revolving credit facility.

This decrease was partially offset by higher weighted-average interest rates.

The interest on our revolving credit facility is based on a variable rate, which adversely impacts our interest expense in the current elevated interest rate environment.

Credit Agreement

As further discussed in Note 10 to the condensed 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 (“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 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 October 28, 2023, we had $222.0 million in borrowings and $10.6 million in letters of credit outstanding under the Credit Agreement.

Total borrowing availability was $267.4 million at October 28, 2023.

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

As further discussed in Note 9 to the condensed consolidated financial statements, the Company maintains a revolving credit facility for working capital needs that matures on October 5, 2026.

The aggregate amount available under the revolving credit facility is up to $500.0 million, subject to borrowing base restrictions, and may be increased by up to $250.0 million.

Interest on the borrowings is at variable rates based on the SOFR, or the prime rate (as defined in the Credit Agreement), plus a spread.

At May 4, 2024, we had $191.0 million in borrowings and $9.4 million in letters of credit outstanding under the Credit Agreement.

Total borrowing availability was $299.6 million at May 4, 2024.

We were in compliance with all covenants and restrictions under the Credit Agreement as of May 4, 2024.

Working Capital and Cash Flow

Thirty-Nine Weeks Ended

October 28, 2023

October 29, 2022

Thirteen Weeks Ended

April 29, 2023

Net cash provided by operating activities

Net cash used for investing activities

Net cash (used for) provided by financing activities

Effect of exchange rate changes on cash and cash equivalents

Net cash used for financing activities

Increase in cash and cash equivalents

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

Cash provided by operating activities was $110.9 million higher in the nine months ended October 28, 2023 as compared to the nine months ended October 29, 2022, primarily reflecting the following factors:

● An increase in trade accounts payable during the thirty-nine weeks ended October 28, 2023, compared to a decrease during the thirty-nine weeks ended October 29, 2022, reflecting higher inventory purchases;

● A decrease in inventory during the thirty-nine weeks ended October 28, 2023, compared to an increase during the thirty-nine weeks ended October 29, 2022, due in part to lower inventory primarily within our Brand Portfolio segment, as we aggressively managed product receipts in the current year;

partially offset by

● Lower net earnings in the thirty-nine weeks ended October 28, 2023, compared to the thirty-nine weeks ended October 29, 2022,

● A smaller increase in net income taxes payable during the thirty-nine weeks ended October 28, 2023, compared to the thirty-nine weeks ended October 29, 2022;

● A larger decrease in accrued expenses and other liabilities during the thirty-nine weeks ended October 28, 2023, compared to the thirty-nine weeks ended October 29, 2022, due in part to lower anticipated payments under our cash-based incentive compensation plans.

Cash used for investing activities was $8.0 million lower for the thirty-nine weeks ended October 28, 2023 as compared to the thirty-nine weeks ended October 29, 2022, reflecting lower capital expenditures.

Our expected purchases of property and equipment and capitalized software to be approximately $50 million in 2023, compared to $64.0 million in 2022.

Cash used for financing activities was $121.4 million higher for the nine months ended October 28, 2023 as compared to the nine months ended October 29, 2022, primarily due to net repayments on our revolving credit agreement of $85.5 million in the nine months ended October 28, 2023, compared to net borrowings of $74.5 million in the comparable period in 2022.

In addition, the issuance of common stock under share-based plans was $5.2 million higher in the nine months ended October 28, 2023, compared to the nine months ended October 29, 2022.

These increases were partially offset by a $45.8 million decrease in repurchases of our common stock under our share repurchase programs during the nine months ended October 28, 2023, compared to the nine months ended October 29, 2022.

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

Cash provided by operating activities was $1.4 million lower in the thirteen weeks ended May 4, 2024 as compared to the thirteen weeks ended April 29, 2023, primarily reflecting the following factors:

● A smaller increase in trade accounts payable during the thirteen weeks ended May 4, 2024, compared to the thirteen weeks ended April 29, 2023, reflecting lower inventory purchases,

● A smaller decrease in inventory during the thirteen weeks ended May 4, 2024, compared to the thirteen weeks ended April 29, 2023, reflecting more normalized inventory purchasing and receipt flow.

● A larger increase in accounts receivable during the thirteen weeks ended May 4, 2024, compared to the thirteen weeks ended April 29, 2023;

● Lower net earnings in the thirteen weeks ended May 4, 2024, compared to the thirteen weeks ended April 29, 2023, partially offset by

● A smaller decrease in accrued expenses and other liabilities during the thirteen weeks ended May 4, 2024, compared to the thirteen weeks ended April 29, 2023.

We are in the process of undergoing a multi-year cloud-based ERP implementation.

We are funding the first phase of the implementation, which is scheduled to go live in the second quarter of 2024, with cash provided by operating activities.

Cash used for investing activities was $3.8 million higher for the thirteen weeks ended May 4, 2024 as compared to the thirteen weeks ended April 29, 2023, reflecting higher capital expenditures, due in part to the Famous Footwear store remodels to the new FLAIR concept.

We expect purchases of property and equipment and capitalized software to be between $60 million and $70 million in 2024, compared to $49.6 million in 2023.

Cash used for financing activities was $12.1 million lower for the thirteen weeks ended May 4, 2024 as compared to the thirteen weeks ended April 29, 2023, primarily due to net borrowings on our revolving credit agreement of $9.0 million in the thirteen weeks ended May 4, 2024, compared to net repayments of $16.0 million in the comparable period in 2023.

In addition, the issuance of common stock under share-based plans was $2.2 million lower in the thirteen weeks ended May 4, 2024, compared to the thirteen weeks ended April 29, 2023.

These decreases were partially offset by $15.1 million in repurchases of our common stock under our share repurchase programs during the three months ended May 4, 2024, compared to no repurchases during the three months ended April 29, 2023.

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

October 28, 2023

October 29, 2022

January 28, 2023

April 29, 2023

February 3, 2024

Working capital ($ millions) (1)

5 unchanged sentences

Total capitalization is defined as total debt and total equity .

Working capital at October 28, 2023 was a deficit of $5.0 million, which was an improvement of $112.8 million and $74.7 million from October 29, 2022 and January 28, 2023, respectively.

The increase in working capital from October 29, 2022 primarily reflects lower accrued expenses and trade accounts payable, partially offset by lower inventory.

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

Our current ratio was 0.99:1 as of October 28, 2023, compared to 0.89:1 at October 29, 2022 and 0.91:1 at January 28, 2023.

Our debt-to-capital ratio was 29.9% as of October 28, 2023, compared to 47.3% as of October 29, 2022 and 41.9% at January 28, 2023.

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

Working capital at May 4, 2024 was a $41.0 million, which was an improvement of $99.4 million from April 29, 2023 and a $5.0 million decrease from February 3, 2024.

The increase in working capital from April 29, 2023 primarily reflects lower borrowings under our

revolving credit agreement.

The decrease in working capital from February 3, 2024 primarily reflects higher trade accounts payable and lower inventory, partially offset by higher accounts receivable and lower accrued expenses.

Our current ratio was 1.05:1 as of May 4, 2024, compared to 0.93:1 at April 29, 2023 and 1.06:1 at February 3, 2024.

Our debt-to-capital ratio was 24.9% as of May 4, 2024, compared to 39.2% as of April 29, 2023 and 24.3% at February 3, 2024.

We declared and paid dividends of $0.07 per share in the first quarter of both 2024 and 2023.

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

5 unchanged sentences

No material changes have occurred related to critical accounting policies and estimates since the end of the most recent fiscal year.

For further information on the Company’s critical accounting policies and estimates, see Part II, Item 7 of our Annual Report on Form 10-K for the year ended January 28, 2023.

For further information on the Company’s critical accounting policies and estimates, see Part II, Item 7 of our Annual Report on Form 10-K for the year ended February 3, 2024.

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

4 unchanged sentences

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;

(ii) inflationary pressures and supply chain disruptions;

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

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

(v) customer concentration and increased consolidation in the retail industry;

7 unchanged sentences

(xiii) the ability to secure/exit leases on favorable terms;

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

(xv) transitional challenges with acquisitions and divestitures;

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

(xvii) compliance with applicable laws and standards with respect to labor, trade and product safety issues;

(xiv) transitional challenges with acquisitions and divestitures;

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

(xvi) commitments and shareholder expectations relating to environmental, social and governance ("ESG") considerations (xvii) compliance with applicable laws and standards with respect to labor, trade and product safety issues;

and (xviii) the ability to attract, retain, and maintain good relationships with licensors and protect our intellectual property rights.

The Company’s reports to the Securities and Exchange Commission contain detailed information relating to such factors, including, without limitation, the information under the caption “Risk Factors” in Part I, Item 1A of the Company’s Annual Report on Form 10-K for the year ended January 28, 2023, which information is incorporated by reference herein and updated by the Company’s Quarterly Reports on Form 10-Q.

The Company’s reports to the Securities and Exchange Commission contain detailed information relating to such factors, including, without limitation, the information under the caption “Risk Factors” in Part I, Item 1A of the Company’s Annual Report on Form 10-K for the year ended February 3, 2024, which information is incorporated by reference herein and updated by the Company’s Quarterly Reports on Form 10-Q.

The Company does not undertake any obligation or plan to update these forward-looking statements, even though its situation may change.

1 unchanged sentence

No material changes have taken place in the quantitative and qualitative information about market risk since the end of the most recent fiscal year.

For further information, see Part II, Item 7A of the Company’s Annual Report on Form 10-K for the year ended January 28, 2023.

For further information, see Part II, Item 7A of the Company’s Annual Report on Form 10-K for the year ended February 3, 2024.

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