What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2024-09-12 compared with 2024-06-11 · 199 added, 101 removed, 170 unchanged (64% of the section changed)

9 unchanged sentences

Known Trends Impacting Our Business

Based on the current macroeconomic environment and our recent operating results, we believe the following trends may continue to impact our business and operating results:

ERP Implementation

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

The first phase of the implementation, including the wholesale and financial modules, went live in the second quarter of 2024.

The implementation brought operational challenges, as several key reports were delayed, resulting in a lack of visibility to the data and tools we rely on to manage our wholesale business.

As a result, net sales were unfavorably impacted during the quarter in our Brand Portfolio segment related to our wholesale business and our direct-to-consumer channels, including our e-commerce and drop-ship platforms.

While our business operations and financial results for the second quarter of 2024 were adversely impacted by the implementation, we believe we have taken the necessary steps to address the issues that temporarily impacted our visibility.

Macroeconomic Environment

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.

Macroeconomic factors, including, among others, inflation, elevated interest rates, increased real estate costs and higher consumer debt levels continued to impact consumer discretionary spending and our financial results during the first half of 2024.

We continued to experience lighter consumer traffic in our retail stores during the second 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.

Our liquidity position remains strong, with $51.8 million in cash and cash equivalents and excess availability on our revolving credit agreement of $344.1 million as of August 3, 2024.

Borrowings on our revolving credit agreement totaled $146.5 million as of August 3, 2024.

During the first half of 2024, we reduced the borrowings on our revolving credit agreement by $35.5 million.

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.

Financial Highlights

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

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

Thirteen Weeks Ended

($ millions, except per share amounts)

April 29, 2023

August 3, 2024

July 29, 2023

Consolidated net sales

15 unchanged sentences

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.

In fiscal years with 53 weeks (e.g.

2023), the 53 rd week of comparable sales is included in the calculation.

In the following year (e.g.

2024), 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.

12 unchanged sentences

Thirteen Weeks Ended

April 29, 2023

Twenty-Six Weeks Ended

August 3, 2024

July 29, 2023

August 3, 2024

July 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 (loss) earnings attributable to noncontrolling interests

Net earnings attributable to noncontrolling interests

Net earnings attributable to Caleres, Inc.

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.

Net sales decreased $12.2 million, or 1.8%, to $683.3 million for the second quarter of 2024, compared to $695.5 million for the second quarter of 2023, driven by a $15.4 million, or 5.1%, decline in net sales for our Brand Portfolio segment due primarily to lower wholesale sales.

Our net sales in the second quarter of 2024 were unfavorably impacted by operational disruptions related to the launch of our new cloud-based ERP system, primarily while our e-commerce and drop-ship platforms were either offline or ramping up after the launch.

As we progressed through the quarter, the development of several key operational reports was delayed, resulting in a lack of visibility to certain data and tools we rely on to manage the wholesale business.

In addition, during the second quarter of 2024, we continued to experience weakness in sandals and dress footwear, while our fashion sneakers and casual footwear categories both experienced gains compared to the second quarter of 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 $6.1 million, or 1.5% during the second quarter of 2024.

Our kids business continued to perform well during the second quarter, while certain adult footwear categories underperformed.

We also experienced growth in sales from our owned e-commerce businesses, which increased approximately 4.7% on a consolidated basis compared to the second quarter of 2023.

Our direct-to-consumer sales represented approximately 75% of consolidated net sales for the second quarter of 2024, compared to 74% in the second 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.

Net sales decreased $15.8 million, or 1.2%, to $1,342.5 million for the six months ended August 3, 2024, compared to $1,358.3 million for the six months ended July 29, 2023.

Net sales for our Brand Portfolio segment decreased $23.7 million, or 3.8% during the first six months of 2024, compared to the first six months of 2023.

This decrease was partially offset by an increase in net sales for Famous Footwear of

$6.4 million, or 0.8%, in the first six months of 2024, compared to the first six months of 2023, due in part to a decline in customer traffic in our retail stores.

Comparable sales declined 2.6% in the six months ended August 3, 2024.

On a consolidated basis, our direct-to-consumer sales grew to approximately 72% of total net sales for the six months ended August 3, 2024, compared to 71% for the six months ended July 29, 2023.

Gross profit decreased $3.3 million, or 1.0%, to $310.9 million for the second quarter of 2024, compared to $314.2 million for the second quarter of 2023.

As a percentage of net sales, gross profit increased to 45.5% for the second quarter of 2024, compared to 45.2% for the second quarter of 2023, driven by improvement in the Brand Portfolio segment gross margin.

The increase primarily reflects 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.

These increases were partially offset by a decrease in the gross margin in the Famous Footwear segment, driven by higher levels of promotional activity.

Gross profit decreased $3.1 million, or 0.5%, to $620.0 million for the six months ended August 3, 2024, compared to $616.9 million for the six months ended July 29, 2023.

As a percentage of net sales, gross profit increased to 46.2% for the six months ended August 3, 2024, compared to 45.4% for the six months ended July 29, 2023, driven by an increase in the gross margin of our Brand Portfolio segment, partially offset by a decrease in the gross margin of our Famous Footwear segment, due to the same factors described above.

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

1 unchanged sentence

Selling and Administrative Expenses

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.

Selling and administrative expenses increased $5.6 million, or 2.1%, to $268.4 million for the second quarter of 2024, compared to $262.8 million for the second quarter of 2023.

The increase was driven by a number of factors, including higher salary and benefit expenses, higher facilities costs, reflecting an increase in depreciation expense associated with the investment in Famous Footwear store renovations and upgrades to the FLAIR (Famous Localized and Immersive Retail) store concept and higher store rent expense as leases are renewed, higher marketing expenses driven by marketing investments for our Sam Edelman and Vionic brands, and higher information technology and consulting expense associated with the implementation of our cloud-based ERP platform.

These increases were partially offset by lower expenses for our cash and share-based incentive compensation.

As a percentage of net sales, selling and administrative expenses increased to 39.3% for the second quarter of 2024, from 37.8% for the second quarter of 2023.

Selling and administrative expenses increased $18.8 million, or 3.6%, to $534.7 million for the six months ended August 3, 2024, compared to $515.9 million for the six months ended July 29, 2023.

The increase was primarily due to higher salary and benefit expenses, higher marketing expenses driven by marketing investments for our Sam Edelman and Vionic brands and higher information technology and consulting expense associated with the implementation of our cloud-based ERP platform, partially offset by lower expenses for our cash and share-based incentive compensation.

As a percentage of net sales, selling and administrative expenses increased to 39.8% for the six months ended August 3, 2024, from 38.0% for the six months ended July 29, 2023.

Restructuring and Other Special Charges, Net

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

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

There were no corresponding charges for the six months ended A ugust 3, 2024.

Operating Earnings

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.

Operating earnings decreased $7.2 million to $42.5 million for the second quarter of 2024, compared to $49.7 million for the second quarter of 2023, reflecting the factors described above.

As a percentage of net sales, operating earnings were 6.2% for the second quarter of 2024, compared to 7.1% for the second quarter of 2023.

Operating earnings decreased $14.0 million to $85.3 million for the six months ended August 3, 2024, compared to $99.3 million for the six months ended July 29, 2023, primarily reflecting lower net sales.

As a percentage of net sales, operating earnings were 6.4% for the six months ended August 3, 2024, compared to 7.3% for the six months ended July 29, 2023.

Interest Expense, Net

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.

Interest expense, net decreased $1.8 million, or 35.0%, to $3.3 million for the second quarter of 2024, compared to $5.1 million for the second quarter of 2023.

Interest expense, net decreased $3.7 million, or 33.9%, to $7.1 million for the six months ended August 3, 2024, compared to $10.8 million for the six months ended July 29, 2023.

The decreases reflect 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.

1 unchanged sentence

Other Income, Net

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.

Other income, net decreased $0.4 million, or 27.2%, to $1.2 million for the second quarter of 2024, compared to $1.6 million for the second quarter of 2023, and decreased $0.9 million, or 30.2%, to $2.2 million for the six months ended August 3, 2024, compared to $3.1 million for the six months ended July 29, 2023.

The decreases are primarily attributable to higher amortization of the actuarial loss related to our pension plans.

Refer to Note 13 of the condensed consolidated financial statements for further information.

2 unchanged sentences

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

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

Our consolidated effective tax rate was 25.0% for the second quarter of 2024, compared to 25.6% for the second quarter of 2023.

Our consolidated effective tax rate was 24.0% for the six months ended August 3, 2024, compared to 24.5% for the six months ended July 29, 2023.

The lower effective tax rate was driven by discrete tax benefits related to share-based compensation of approximately $1.0 million in the six months ended August 3, 2024 compared to $0.6 million in the six months ended July 29, 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.

1 unchanged sentence

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.

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 tax provision or effective tax rate.

Net Earnings Attributable to Caleres, Inc.

Net earnings attributable to Caleres, Inc.

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.

were $30.0 million and $60.9 million for the second quarter and six months ended August 3, 2024, respectively, compared to $33.9 million and $68.7 million for the second quarter and six months ended July 29, 2023, respectively, as a result of the factors described above.

FAMOUS FOOTWEAR

Thirteen Weeks Ended

April 29, 2023

Twenty-Six Weeks Ended

August 3, 2024

July 29, 2023

August 3, 2024

July 29, 2023

($ millions, except sales per square foot)

1 unchanged sentence

Selling and administrative expenses

Restructuring and other special charges, net

Operating earnings

3 unchanged sentences

Impact of changes in Canadian exchange rate on sales

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

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

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

3 unchanged sentences

Ending stores

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.

Net sales of $420.3 million in the second quarter of 2024 increased $6.1 million, or 1.5%, compared to the second quarter of 2023.

Comparable sales, which reflects the calendar shift due to the 53 rd week in 2023, decreased 2.9% driven primarily by a decrease in traffic in our retail stores.

Despite the continued challenging retail environment, we experienced growth in our e-commerce sales in the second quarter of 2024, and penetration increased to approximately 12% of net sales in the second quarter of 2024 compared to 11% in the second quarter of 2023.

While our kids category, which is a key differentiator for Famous Footwear, performed well by once again exceeding last year’s volume, we experienced a decline in our adult footwear categories.

We opened three stores and closed three stores during the second quarter of 2024, resulting in 855 stores and total square footage of 5.6 million at the end of the quarter, compared to 861 stores and total square footage of 5.7 million at the end of the second quarter of 2023.

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 75% of our net sales made to program members in the second quarter of 2024, compared to 77% in the second quarter of 2023.

Net sales of $769.8 million in the six months ended August 3, 2024 increased $6.4 million, or 0.8%, compared to the six months ended July 29, 2023, primarily due to the factors described above.

Comparable sales declined 2.6% in the six months ended August 3, 2024, driven by a decline in customer traffic in our retail stores.

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

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

Scholl’s, LifeStride, Naturalizer and Blowfish Malibu representing four of Famous Footwear’s top 20 best-selling footwear brands for the six months ended August 3, 2024.

During the first half of 2024, we opened six stores and closed 11 stores.

During the six months ended August 3, 2024, we also converted 10 stores to the new FLAIR concept, which has been successful in driving sales growth.

We expect additional FLAIR store conversions in the second half of 2024.

Gross profit decreased $2.2 million, or 1.1%, to $189.3 million for the second quarter of 2024, compared to $191.5 million for the second quarter of 2023.

As a percentage of net sales, our gross profit decreased to 45.0% for the second quarter of 2024, from 46.2% for the second quarter of 2023 as a result of higher levels of promotional activity.

Gross profit decreased $0.3 million, or 0.1%, to $350.3 million for the six months ended August 3, 2024, compared to $350.6 million for the six months ended July 29, 2023.

As a percentage of net sales, our gross profit decreased to 45.5% for the six months ended August 3, 2024, compared to 45.9% for the six months ended July 29, 2023, driven by higher levels of promotional activity, partially offset by lower freight costs.

Selling and Administrative Expenses

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.

Selling and administrative expenses increased $4.2 million, or 2.9%, to $154.9 million for the second quarter of 2024, compared to $150.7 million for the second quarter of 2023.

The increase was primarily driven by higher salary and benefits expenses and higher facilities costs, including depreciation expense, as we continued to invest in store renovations and upgrades to the FLAIR store concept.

As a percentage of net sales, selling and administrative expenses increased to 36.8% for the second quarter of 2024, compared to 36.4% for the second quarter of 2023.

Selling and administrative expenses increased $6.4 million, or 2.2%, to $299.1 million for the six months ended August 3, 2024, compared to $292.7 million for the six months ended July 29, 2023.

The increase was driven by the same factors as above.

As a percentage of net sales, selling and administrative expenses increased to 38.8% for the six months ended August 3, 2024, compared to 38.3% for the six months ended July 29, 2023.

Restructuring and Other Special Charges, Net

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

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

There were no corresponding charges for the six months ended August 3, 2024.

Operating Earnings

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.

Operating earnings decreased $6.2 million to $34.4 million for the second quarter of 2024, compared to $40.6 million for the second quarter of 2023, primarily reflecting the factors described above.

As a percentage of net sales, operating earnings declined to 8.2% for the second quarter of 2024, compared to 9.8% for the second quarter of 2023.

Operating earnings decreased $6.5 million to $51.2 million for the six months ended August 3, 2024, compared to $57.7 million for the six months ended July 29, 2023.

As a percentage of net sales, operating earnings were 6.7% for the six months ended August 3, 2024, compared to 7.6% for the six months ended July 29, 2023.

BRAND PORTFOLIO

Thirteen Weeks Ended

April 29, 2023

Twenty-Six Weeks Ended

August 3, 2024

July 29, 2023

August 3, 2024

July 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

North America stores:

Company-Operated Stores:

North America

Stores opened

2 unchanged sentences

Ending stores - East Asia

Ending stores - Total Brand Portfolio

Total Company-Operated Stores

International franchise locations

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

Net sales of $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.

Net sales of $285.5 million in the second quarter of 2024 decreased $15.4 million, or 5.1%, compared to the second quarter of 2023 primarily driven by lower wholesale sales in the second quarter of 2024.

Our net sales in the second quarter were unfavorably impacted by operational disruptions related to the launch of our new cloud-based ERP system, primarily while our e-commerce and drop-ship platforms were either offline or ramping up after the launch.

During the second quarter of 2024, we opened three stores and closed three stores in the United States, resulting in a total of 61 stores, consistent with the second quarter of 2023.

In addition, we continued to expand our retail store presence in East Asia by opening six new Sam Edelman stores and closing one in the second quarter of 2024, resulting in a total of 43 stores, compared to 33 stores at the end of the second quarter of 2023.

There were also 106 international branded stores owned and operated by third parties through franchise agreements at August 3, 2024, compared to 97 international branded stores at July 29, 2023.

Net sales decreased $23.7 million, or 3.8%, to $602.7 million for the six months ended August 3, 2024, compared to $626.4 million for the six months ended July 29, 2023, reflecting softer demand associated with the challenging macroeconomic environment and competitive retail landscape.

The sales decline was driven by lower wholesale sales, partially offset by solid growth in the e-commerce business.

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

Scholl’s and Vionic, performed better in the first half of 2024 than brands with a higher mix of sandals and dress footwear.

Our unfilled order position for our wholesale sales increased $4.8 million, or 1.9%, to $251.6 million at August 3, 2024, compared to $246.8 million at July 29, 2023.

Gross profit decreased $2.2 million, or 1.8%, to $121.9 million for the second quarter of 2024, compared to $124.1 million for the second quarter of 2023, driven by lower net sales.

As a percentage of net sales, our gross profit increased to 42.7% for the second quarter of 2024,

compared to 41.3% for the second quarter of 2023, primarily 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.

Gross profit increased $1.7 million, or 0.6%, to $269.7 million for the six months ended August 3, 2024, compared to $268.0 million for the six months ended July 29, 2023.

As a percentage of net sales, our gross profit increased to 44.7% for the six months ended August 3, 2024, compared to 42.8% for the six months ended July 29, 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.

Selling and Administrative Expenses

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.

Selling and administrative expenses increased $1.9 million, or 1.9%, to $98.3 million for the second quarter of 2024, compared to $96.4 million for the second quarter of 2023.

The increase was primarily due to higher marketing expenses for certain brands, including Sam Edelman and Vionic.

As a percentage of net sales, selling and administrative expenses increased to 34.4% for the second quarter of 2024, compared to 32.1% for the second quarter of 2023.

Selling and administrative expenses increased $7.1 million, or 3.6%, to $204.7 million for the six months ended August 3, 2024, compared to $197.6 million for the six months ended July 29, 2023.

The increase was primarily due to higher marketing expenses for certain brands, including Sam Edelman and Vionic, higher salary and benefits expense and higher distribution expenses.

As a percentage of net sales, selling and administrative expenses increased to 33.9% for the six months ended August 3, 2024, compared to 31.6% for the six months ended July 29, 2023, reflecting deleveraging of expenses over lower net sales.

Restructuring and Other Special Charges, Net

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

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

There were no corresponding charges for the six months ended August 3, 2024.

Operating Earnings

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.

Operating earnings decreased to $23.6 million for the second quarter of 2024, from $26.8 million for the second quarter of 2023, as a result of the factors described above.

As a percentage of net sales, operating earnings were 8.3% for the second quarter of 2024, compared to 8.9% for the second quarter of 2023.

Operating earnings decreased to $65.0 million for the six months ended August 3, 2024, compared to $69.5 million for the six months ended July 29, 2023, as a result of the factors described above.

As a percentage of net sales, operating earnings were 10.8% for the six months ended August 3, 2024, compared to 11.1% in the six months ended July 29, 2023.

ELIMINATIONS AND OTHER

Thirteen Weeks Ended

April 29, 2023

Twenty-Six Weeks Ended

August 3, 2024

July 29, 2023

August 3, 2024

July 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 $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.

The net sales elimination of $22.5 million for the second quarter of 2024 is $2.9 million, or 14.8%, higher than the second quarter of 2023, reflecting an increase in product sold from our Brand Portfolio segment to Famous Footwear.

The net sales elimination of $30.0 million for the six months ended August 3, 2024 is $1.5 million, or 4.7%, lower than the six months ended July 29, 2023, reflecting a decrease in product sold from our Brand Portfolio segment to Famous Footwear.

Selling and administrative expenses decreased $0.6 million, to $15.2 million in the second quarter of 2024, compared to $15.8 million for the second quarter of 2023.

The decrease primarily reflects lower expenses for our cash and share-based incentive compensation, partially offset by higher information technology and consulting expenses associated with the implementation of our cloud-based ERP platform compared to the second quarter of 2023.

Selling and administrative expenses increased $5.3 million, to $30.9 million for the six months ended August 3, 2024, compared to $25.6 million for the six months ended July 29, 2023.

The increase primarily reflects higher information technology and consulting expenses associated with the implementation of our cloud-based ERP platform, partially offset by lower expenses related to our cash and share-based incentive compensation.

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

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

There were no corresponding charges for the six months ended August 3, 2024.

LIQUIDITY AND CAPITAL RESOURCES

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.

Total debt obligations of $146.5 million at August 3, 2024 decreased $97.5 million, from $244.0 million at July 29, 2023, and $35.5 million, from $182.0 million at February 3, 2024.

Net interest expense for the second quarter of 2024 decreased $1.8 million to $3.3 million, compared to $5.1 million for the second 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.

While our interest expense for the remainder of 2024 may continue to be 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.

Credit Agreement

2 unchanged sentences

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.

At August 3, 2024, we had $146.5 million in borrowings and $9.4 million in letters of credit outstanding under the Credit Agreement.

Total borrowing availability was $344.1 million at August 3, 2024.

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

Working Capital and Cash Flow

Thirteen Weeks Ended

April 29, 2023

Twenty-Six Weeks Ended

August 3, 2024

July 29, 2023

Net cash provided by operating activities

1 unchanged sentence

Net cash used for financing activities

Effect of exchange rate changes on cash and cash equivalents

Increase in cash and cash equivalents

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.

Cash provided by operating activities was $9.5 million lower in the twenty-six weeks ended August 3, 2024 as compared to the twenty-six weeks ended July 29, 2023, primarily reflecting the following factors:

● A larger increase in inventory during the twenty-six weeks ended August 3, 2024, compared to the twenty-six weeks ended July 29, 2023,

● Lower net earnings in the twenty-six weeks ended August 3, 2024, compared to the twenty-six weeks ended July 29, 2023, and

● A larger increase in accounts receivable during the twenty-six weeks ended August 3, 2024, compared to the twenty-six weeks ended July 29, 2023;

partially offset by

● A larger increase in trade accounts payable during the twenty-six weeks ended August 3, 2024, compared to the twenty-six weeks ended July 29, 2023, driven in part by an unplanned shift to the third quarter of 2024 of a significant payment to one of our largest vendors, and

● A smaller decrease in accrued expenses and other liabilities during the twenty-six weeks ended August 3, 2024, compared to the twenty-six weeks ended July 29, 2023.

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

We funded the first phase of the implementation, which went live in the second quarter of 2024, with cash provided by operating activities.

We anticipate the second phase of the implementation for the retail modules to also be funded with cash provided by operating activities.

Cash used for investing activities was $4.9 million higher for the twenty-six weeks ended August 3, 2024 as compared to the twenty-six weeks ended July 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 $50 million and $55 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.

Cash used for financing activities was $31.6 million lower for the twenty-six weeks ended August 3, 2024 as compared to the twenty-six weeks ended July 29, 2023, primarily due to net repayments on our revolving credit agreement of $35.5 million in the twenty-six weeks ended August 3, 2024, compared to net repayments of $63.5 million in the comparable period in 2023.

In addition, we repurchased $15.1 million of our common stock under our share repurchase programs during the six months ended August 3, 2024, compared to $17.4 million in repurchases during the six months ended July 29, 2023.

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

April 29, 2023

August 3, 2024

July 29, 2023

February 3, 2024

6 unchanged sentences

Total capitalization is defined as total debt and total equity .

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.

Working capital at August 3, 2024 was $79.3 million, which was an improvement of $120.8 million from July 29, 2023 and a $33.3 million increase from February 3, 2024.

The increase in working capital from July 29, 2023 primarily reflects lower borrowings under our revolving credit agreement.

The increase in working capital from February 3, 2024 primarily reflects higher inventory and lower borrowings under our revolving credit agreement, partially offset by higher trade accounts payable.

Our current ratio was 1.09:1 as of August 3, 2024, compared to 0.96:1 at July 29, 2023 and 1.06:1 at February 3, 2024.

Our debt-to-capital ratio was 19.3% as of August 3, 2024, compared to 34.1% as of July 29, 2023 and 24.3% at February 3, 2024.

We declared and paid dividends of $0.07 per share in the second 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.

19 unchanged sentences

(viii) political and economic conditions or other threats to the continued and uninterrupted flow of inventory from China and other countries, where the Company relies heavily on third-party manufacturing facilities for a significant amount of its inventory;

(ix) cybersecurity threats or other major disruption to the Company’s information technology systems;

(ix) cybersecurity threats or other major disruption to the Company’s information technology systems, including those related to our ERP upgrade;

(x) the ability to accurately forecast sales and manage inventory levels;

12 unchanged sentences

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis