What changed in this filing

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Item 7. Management’s Discussion and Analysis

2025-04-01 compared with 2024-04-02 · 110 added, 105 removed, 274 unchanged (44% of the section changed)

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We are a global footwear company that operates retail shoe stores and e-commerce websites, and designs, develops, sources, manufactures and distributes footwear for people of all ages.

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

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

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

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

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

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

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Brand Portfolio

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

marketing campaigns.

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

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

Scholl’s Shoes, LifeStride, Franco Sarto, Blowfish Malibu, Rykä, Vince and Veronica Beard.

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

We are able to showcase many of our brands in our retail stores and online, leveraging our wholesale and retail platforms, sharing consumer insights across our businesses and testing new and innovative products.

Our Brand Portfolio segment operates 62 retail stores in the United States for our Allen Edmonds, Sam Edelman and Naturalizer brands.

Our Brand Portfolio segment operates 60 retail stores in the United States for our Allen Edmonds and Sam Edelman brands.

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

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

We also operate a joint venture, which expands our international presence by distributing our Sam Edelman and Naturalizer brands through e-commerce sites, 54 retail stores in East Asia and 120 branded stores owned and operated by third parties through franchise agreements.

Known Trends Impacting Our Business

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

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

Macroeconomic Environment

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

In addition, the geopolitical landscape remains uncertain, with potential changes to international trade relations, tariffs and import regulations.

We continued to experience lighter consumer traffic in our retail stores during 2024, resulting in lower net sales.

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

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

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

Louis infrastructure, are expected to result in additional savings in 2024.

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

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

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

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

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

Our liquidity position remains strong, with $29.6 million in cash and cash equivalents and excess availability on our revolving credit agreement of $272.3 million as of February 1, 2025.

During 2024, borrowings on our revolving credit agreement increased by $37.5 million to $219.5 million, primarily driven by $65.0 million of common stock repurchases under our share repurchase programs.

During 2025, we will continue to evaluate our capital allocation priorities in light of business performance and market conditions.

Recent Development

In February 2025, we signed a definitive agreement to acquire Stuart Weitzman from Tapestry, Inc.

for $105 million, subject to customary adjustments.

Stuart Weitzman has been an iconic global luxury women’s footwear brand for over 35 years.

The acquisition of Stuart Weitzman advances our strategic agenda to grow our Brand Portfolio segment with more global and direct-to-consumer reach.

The acquisition, which is expected to close in the summer of 2025, will be funded through our revolving credit agreement.

Financial Highlights

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The following items should be considered in evaluating the comparability of our 2024 and 2023 results:

● Restructuring costs - During 2024, we incurred costs of $9.9 million ($7.3 million on an after-tax basis, or $0.21 per diluted share) for restructuring.

The costs were primarily for the exit of our Naturalizer domestic retail store operations, severance and pension settlement costs associated with the acceptance of a lump sum buyout offer for the domestic pension plan.

Of the $7.2 million in charges presented in restructuring and other special charges on the consolidated statements of earnings in 2024, $6.4 million is reflected in the Brand Portfolio segment, $0.6 million is reflected in the Famous Footwear segment and $0.2 million is reflected within the Eliminations and Other category.

The remaining $2.7 million of restructuring costs related to the pension settlement are presented in other (expense) income, net, and reflected in the Eliminations and Other category.

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

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

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

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

loss position for federal, state and certain international jurisdictions.

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

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

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

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

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

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

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

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

Financial Outlook

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

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

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

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

While 2024 was a disappointing year relative to our initial expectations, we made meaningful progress in advancing our strategic priorities and positioning our brands for sustainable growth.

During 2025, we will focus on improving sales trends and delivering on our financial targets.

We will continue our strategic investment spending while staying disciplined on overall expense levels, and we will remain nimble with product strategies and sourcing to maximize our wins and minimize the impact of tariffs.

We believe we are well-positioned to manage additional tariffs through a combination of factory negotiations, selective price increases and modest gross margin pressure.

Our acquisition of Stuart Weitzman is expected to close in the summer of 2025 and will be a pivotal milestone for us as we have expanded our exposure in contemporary footwear and premium price points.

Metrics Used in the Evaluation of Our Business

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Comparison of Financial Results

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

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

The following sections discuss the consolidated and segment results of our operations for the year ended February 1, 2025 compared to the year ended February 3, 2024.

For a discussion of the results for the year ended February 3, 2024 compared to the year ended January 28, 2023, refer to Part II, Item 7 " Management’s Discussion and Analysis of Financial Condition and Results of Operations " in our Annual Report on Form 10-K for the year ended February 3, 2024.

CONSOLIDATED RESULTS

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Interest expense, net

Loss on early extinguishment of debt

Other income, net

Other (expense) income, net

Earnings before income taxes

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

Net sales decreased $94.6 million, or 3.4%, to $2,722.7 million in 2024, compared to $2,817.3 million last year, reflecting soft consumer demand and the impact of the 53 rd week in 2023.

Net sales for our Famous Footwear segment decreased $52.9 million, or 3.3%, compared to 2023 net sales.

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Gross profit decreased $41.0 million, or 3.2%, to $1,222.0 million in 2024, compared to $1,263.0 million in 2023, primarily driven by lower net sales.

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

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

As a percentage of net sales, our gross profit rate increased slightly to 44.9% in 2024, compared to 44.8% in 2023, primarily due to a higher gross margin rate at our Brand Portfolio segment.

The gross margin at Brand Portfolio benefitted from 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 rate at our Famous Footwear segment driven by higher levels of promotional activity and clearance sales.

We classify 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 $5.3 million, or 0.5%, to $1,062.4 million in 2023, compared to $1,067.7 million last year.

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

Selling and administrative expenses increased $2.6 million, or 0.2%, to $1,065.0 million in 2024, compared to $1,062.4 million last year.

The increase is primarily due to higher salary and benefit expenses, marketing expenses, information technology and consulting expense associated with the implementation of our cloud-based ERP platform, and facilities costs, partially offset by lower expenses for our cash and share-based incentive compensation and incremental expenses associated with the 53 rd week in 2023 .

As a percentage of net sales, selling and administrative expenses increased to 39.1% in 2024, from 37.7% last year, reflecting deleveraging of expenses on lower net sales.

Restructuring and Other Special Charges, Net

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

During 2022, we incurred restructuring and other special charges of $2.9 million ($2.7 million on an after-tax basis, or $0.07 per diluted share) associated with a CFO transition at our corporate headquarters.

During 2024, we incurred restructuring costs of $7.1 million ($5.3 million on an after-tax basis, or $0.15 per diluted share).

The costs were primarily for the exit of the Naturalizer retail store operations and other restructuring costs, mainly severance.

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

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

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Interest Expense, Net

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

Interest expense, net decreased $5.4 million, or 27.8%, to $14.0 million in 2024, compared to $19.4 million last year, reflecting lower average borrowings and a lower weighted-average interest rate on our revolving credit facility.

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

Other Income, Net

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

Other (Expense) Income, Net

Other expense was $0.7 million in 2024, compared to other income of $6.2 million in 2023.

During the fourth quarter of 2024, we incurred a pension settlement charge of $2.7 million associated with a lump sum buyout for certain participants in the domestic pension plan.

In addition, we incurred higher amortization of the actuarial loss related to our pension plans in 2024.

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

The net pension income in 2024 was offset by non-operating expenses associated with logistics services provided to a third party, which the Company began providing in the second half of 2023.

Income Tax Provision

Our consolidated effective tax rate was 21.5% in 2024, compared to 5.2% in 2023.

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

Our lower tax rate for 2023 primarily reflected the release of $26.7 million of valuation allowances recorded for certain deferred tax assets.

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

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

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

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

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

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

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

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

The 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.

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.

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

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We have both domestic and international operations.

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

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

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

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

The operations in East Asia include first-cost transactions, where footwear is sold at international

ports to customers who then import the footwear into the United States and other countries.

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

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Ending stores

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

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

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

Net sales decreased $52.9 million, or 3.3%, to $1,556.5 million in 2024, compared to $1,609.4 million last year, reflecting soft consumer demand and the impact of the 53 rd week in 2023, which contributed $18.2 million to our 2023 net sales.

Comparable sales decreased 1.3% in 2024 driven by a decline in consumer traffic in our retail stores.

Despite the challenging retail environment, we experienced growth in our e-commerce business and higher penetration of this channel in 2024.

Our e-commerce penetration in 2024 grew to 14% of net sales, from 13% last year.

Our kids category, which is a key differentiator for Famous Footwear, continued to outperform our other categories, while our boots category was weaker.

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

Scholl’s Shoes, LifeStride, Naturalizer and Blowfish Malibu representing four of Famous Footwear’s top 20 best-selling footwear brands in 2024.

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

During 2024, we closed 14 stores on a net basis as we continued to focus on optimizing our store base.

Sales to members of our customer loyalty program, Famously You Rewards ("Rewards"), continue to account for a majority of the segment’s sales, with approximately 77% of net sales to loyalty program members in both 2023 and 2022.

During 2024, we converted 12 stores to the new FLAIR (Famous Localized and Immersive Retail) concept, and these stores continue to outperform our traditionally designed retail stores.

In addition, we opened our first new store with the FLAIR concept in the fourth quarter of 2024.

We ended the year with a total of 34 FLAIR stores and anticipate investing in more store conversions in 2025.

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 net sales to loyalty program members in 2024, compared to 77% in 2023.

Gross profit decreased $32.9 million, or 4.6%, to $686.6 million in 2024, compared to $719.5 million last year, primarily driven by lower net sales.

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

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

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

As a percentage of net sales, our gross profit rate decreased to 44.1% in 2024, compared to 44.7% in 2023 as a result of higher levels of promotional activity and clearance sales.

Selling and Administrative Expenses

Selling and administrative expenses increased $4.6 million, or 0.8%, to $598.9 million during 2024, compared to $594.3 million last year.

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

The increase primarily reflects higher facilities costs, including depreciation expense associated with the investments in the FLAIR store concept, and higher salary and benefits expenses, partially offset by lower marketing expenses.

As a percentage of net sales, selling and administrative expenses increased to 38.5% in 2024 from 36.9% last year, reflecting the deleveraging of expenses on lower net sales.

Restructuring and Other Special Charges, Net

Restructuring and other special charges of $0.6 million were incurred for severance costs during 2024 .

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

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

There were no corresponding charges in 2022.

Operating Earnings

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Unfilled order position at end of period

North America stores:

Company-Operated Stores:

North America

Stores opened

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

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

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

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

This was particularly evident in our Allen Edmonds, Dr.

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

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

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

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

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

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

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

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

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

Net sales decreased $44.9 million, or 3.5%, to $1,226.0 million in 2024, compared to $1,270.9 million last year, driven by lower wholesale sales.

The decrease in sales reflects softer demand associated with the challenging macroeconomic environment, as well as the impact of operational disruptions in the second quarter of 2024 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.

In addition, the 53 rd week in 2023 contributed $6.8 million to net sales last year.

We closed six stores and opened four stores in the United States and expanded our retail store presence in East Asia by opening 20 stores and closing two stores, resulting in a total of 60 stores in the United States and 54 stores in East Asia at the end of 2024.

There were also 120 international branded stores owned and operated by third parties through franchise agreements at the end of 2024, compared to 107 international branded stores at the end of 2023.

The unfilled order position for our wholesale business increased $25.7 million to $260.2 million at the end of 2024, compared to $234.5 million at the end of last year.

Gross profit decreased $9.7 million, or 1.8%, to $536.3 million in 2024, compared to $546.0 million last year.

As a percentage of sales, our gross profit rate increased to 43.7% in 2024, compared to 43.0% last year, 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 $10.0 million, or 2.5%, to $407.9 during 2024, compared to $397.9 million last year.

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

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

The increase was driven by higher salary and benefits, higher marketing expenses and higher distribution expenses.

As a percentage of net sales, selling and administrative expenses increased to 33.2% in 2024 from 31.4% last year, reflecting deleveraging of expenses over a lower net sales base.

Restructuring and Other Special Charges, Net

Restructuring and other special charges of $6.3 million were incurred during 2024.

The costs were primarily associated with the exit of our Naturalizer retail store operations and severance.

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

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

There were no corresponding charges in 2022.

Operating Earnings

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

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

Operating earnings decreased $23.4 million to $122.1 million in 2024, compared to $145.5 million last year, as a result of the factors described above.

As a percentage of net sales, operating earnings were 10.0% in 2024, compared to 11.4% last year.

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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 $63.0 million for 2023 is $3.3 million, or 5.4%, higher than in 2022, reflecting an increase in product sold from our Brand Portfolio segment to Famous Footwear.

The net sales elimination of $59.7 million for 2024 is $3.3 million, or 5.1%, lower than in 2023, reflecting a decrease in product sold from our Brand Portfolio segment to Famous Footwear.

Selling and administrative expenses decreased $11.9 million, or 16.9%, to $58.2 million in 2024, compared to $70.1 million last year.

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

Restructuring and other special charges of $0.2 million in 2024 were associated with severance.

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

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

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

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LIQUIDITY AND CAPITAL RESOURCES

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

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

Our borrowings under the revolving credit agreement increased $37.5 million to $219.5 million at the end of 2024, compared to $182.0 million at the end of last year.

We used our revolving credit facility to repurchase $65.5 million of shares of our common stock under our share repurchase program.

This increase was partially offset by cash generated from our operations in 2024.

Net interest expense in 2024 was $14.0 million, compared to $19.4 million in 2023.

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

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

Our interest expense will continue to be adversely affected by elevated interest rates in 2024.

The decrease in net interest expense in 2024 reflects lower average borrowings and a lower weighted-average interest rate on our revolving credit facility.

Credit Agreement

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February 1, 2025

January 28, 2023

February 3, 2024

Working capital ($ millions) (1)

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Total capitalization is defined as total debt and total equity.

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

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

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

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

Increase (Decrease)

Working capital at February 1, 2025 was $78.6 million, which was $32.6 million higher than at February 3, 2024.

The increase in working capital from 2023 primarily reflects higher inventory and trade accounts receivable and lower trade accounts payable, partially offset by higher borrowings under our revolving credit agreement and higher lease obligations.

Our current ratio was 1.10 to 1 at February 1, 2025, compared to 1.06 to 1 at February 3, 2024.

Our debt-to-capital ratio was 26.6% as of February 1, 2025, compared to 24.3% at February 3, 2024, primarily reflecting higher borrowings under our revolving credit agreement in 2024.

(Decrease) Increase

in Cash Equivalents

3 unchanged sentences

Effect of exchange rate changes on cash and cash equivalents

(Decrease) increase in cash and cash equivalents

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

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

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

Increase (decrease) in cash and cash equivalents

Cash provided by operating activities was $95.6 million lower in 2024 than last year, reflecting the following factors:

● Lower earnings in 2024 compared to last year, primarily driven by lower consumer demand;

● An increase in inventory in 2024 compared to a decrease in 2023;

● A decrease in trade accounts payable in 2024 compared to an increase last year;

partially offset by

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

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

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

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

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

● A smaller decrease in accrued expenses and other liabilities in 2024 compared to 2023;

● A n increase in deferred income taxes in 2024, compared to a decrease last year.

Cash used for investing activities was $2.1 million higher in 2024 than last year, reflecting higher capital expenditures.

In 2025, we expect our purchases of property and equipment and capitalized software to be between $50 million and $55 million.

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

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

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

Cash used for financing activities was $118.5 million higher in 2024 than last year, primarily due to net borrowings on our revolving credit agreement of $37.5 million in 2024, compared to net repayments on our revolving credit agreement of $125.5 million in 2023.

This increase was partially offset by a $48.1 million increase in repurchases of common stock under our share repurchase programs during 2024.

We paid dividends of $0.28 per share in each of 2024, 2023 and 2022.

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

The 2024 dividends marked the 102nd year of consecutive quarterly dividends.

On March 14, 2025, the Board of Directors declared a quarterly dividend of $0.07 per share, payable on April 11, 2025, to shareholders of record on March 27, 2025.

50 unchanged sentences

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

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

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

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

During 2024, we released valuation allowances totaling $3.7 million.

As of February 1, 2025, we have valuation allowances totaling $3.4 million, reflecting the uncertainty regarding the utilization of net operating loss carryforwards.

7 unchanged sentences

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

What changed 10-K

Item 7. Management’s Discussion and Analysis