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ITEM 1
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FINANCIAL STATEMENTS
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CALERES, INC.
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CONDENSED CONSOLIDATED BALANCE SHEETS
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(Unaudited)
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($ thousands)
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October 28, 2017
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October 29, 2016
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January 28, 2017
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Assets
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Current assets:
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Cash and cash equivalents
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$
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31,379
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$
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173,435
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$
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55,332
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Receivables, net
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132,942
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139,475
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153,121
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Inventories, net
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598,365
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524,823
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585,764
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Prepaid expenses and other current assets
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40,982
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31,716
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49,528
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Total current assets
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803,668
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869,449
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843,745
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Other assets
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68,316
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114,851
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68,574
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Goodwill
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127,081
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13,954
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127,098
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Intangible assets, net
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213,101
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114,187
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216,660
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Property and equipment
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535,149
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497,486
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531,104
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Allowance for depreciation
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(320,167
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)
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(305,732
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)
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(311,908
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)
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Property and equipment, net
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214,982
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191,754
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219,196
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Total assets
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$
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1,427,148
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$
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1,304,195
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$
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1,475,273
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Liabilities and Equity
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Current liabilities:
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Borrowings under revolving credit agreement
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$
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20,000
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$
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—
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$
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110,000
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Trade accounts payable
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223,832
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212,088
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266,370
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Other accrued expenses
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173,487
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141,886
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151,225
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Total current liabilities
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417,319
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353,974
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527,595
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Other liabilities:
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Long-term debt
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197,348
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196,888
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197,003
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Deferred rent
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50,814
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48,696
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51,124
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Other liabilities
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86,580
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57,574
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85,065
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Total other liabilities
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334,742
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303,158
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333,192
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Equity:
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Common stock
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430
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429
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430
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Additional paid-in capital
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127,454
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120,775
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121,537
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Accumulated other comprehensive loss
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(28,122
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)
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(6,310
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)
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(30,434
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)
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Retained earnings
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573,883
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531,216
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521,584
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Total Caleres, Inc. shareholders’ equity
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673,645
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646,110
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613,117
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Noncontrolling interests
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1,442
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953
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1,369
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Total equity
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675,087
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647,063
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614,486
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Total liabilities and equity
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$
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1,427,148
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$
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1,304,195
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$
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1,475,273
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See notes to
condensed
consolidated financial statements.
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CALERES, INC.
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CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
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(Unaudited)
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Thirteen Weeks Ended
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Thirty-Nine Weeks Ended
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($ thousands, except per share amounts)
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October 28, 2017
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October 29, 2016
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October 28, 2017
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October 29, 2016
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Net sales
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$
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774,656
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$
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732,230
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$
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2,083,119
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$
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1,939,900
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Cost of goods sold
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457,771
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438,459
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1,207,865
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1,138,781
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Gross profit
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316,885
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293,771
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875,254
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801,119
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Selling and administrative expenses
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264,015
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238,319
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761,590
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684,666
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Restructuring and other special charges, net
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—
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—
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3,973
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—
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Operating earnings
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52,870
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55,452
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109,691
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116,453
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Interest expense
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(4,141
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)
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(3,475
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)
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(13,822
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)
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(10,564
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)
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Interest income
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95
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350
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592
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907
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Earnings before income taxes
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48,824
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52,327
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96,461
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106,796
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Income tax provision
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(14,451
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)
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(17,601
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)
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(29,530
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)
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(34,514
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)
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Net earnings
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34,373
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34,726
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66,931
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72,282
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Net (loss) earnings attributable to noncontrolling interests
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(14
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)
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(4
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)
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47
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2
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Net earnings attributable to Caleres, Inc.
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$
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34,387
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$
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34,730
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$
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66,884
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$
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72,280
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Basic earnings per common share attributable to Caleres, Inc. shareholders
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$
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0.80
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$
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0.81
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$
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1.56
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$
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1.67
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Diluted earnings per common share attributable to Caleres, Inc. shareholders
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$
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0.80
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$
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0.81
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$
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1.55
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$
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1.67
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Dividends per common share
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$
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0.07
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$
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0.07
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$
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0.21
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$
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0.21
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See notes to
condensed
consolidated financial statements.
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CALERES, INC.
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CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
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(Unaudited)
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Thirteen Weeks Ended
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Thirty-Nine Weeks Ended
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($ thousands)
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October 28, 2017
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October 29, 2016
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October 28, 2017
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October 29, 2016
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Net earnings
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$
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34,373
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$
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34,726
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$
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66,931
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$
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72,282
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Other comprehensive (loss) income, net of tax:
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Foreign currency translation adjustment
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(633
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)
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(545
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)
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647
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961
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Pension and other postretirement benefits adjustments
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379
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(289
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)
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1,106
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(865
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)
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Derivative financial instruments
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183
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(101
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)
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559
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(542
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)
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Other comprehensive (loss) income, net of tax
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(71
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)
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(935
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)
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2,312
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(446
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)
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Comprehensive income
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34,302
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33,791
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69,243
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71,836
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Comprehensive (loss) income attributable to noncontrolling interests
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(3
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)
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(25
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)
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73
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(35
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)
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Comprehensive income attributable to Caleres, Inc.
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$
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34,305
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$
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33,816
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$
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69,170
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$
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71,871
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See notes to
condensed
consolidated financial statements.
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CALERES, INC.
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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
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(Unaudited)
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Thirty-nine Weeks Ended
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($ thousands)
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October 28, 2017
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October 29, 2016
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Operating Activities
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Net earnings
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$
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66,931
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$
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72,282
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Adjustments to reconcile net earnings to net cash provided by operating activities:
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Depreciation
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34,354
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28,131
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Amortization of capitalized software
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10,786
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9,589
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Amortization of intangible assets
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3,059
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2,758
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Amortization of debt issuance costs and debt discount
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1,296
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1,295
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Share-based compensation expense
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8,394
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5,966
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Excess tax benefit related to share-based plans
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—
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(3,264
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)
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Loss on disposal of property and equipment
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1,004
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|
872
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Impairment charges for property and equipment
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2,995
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913
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Deferred rent
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(310
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)
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2,190
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Provision for doubtful accounts
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352
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|
564
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Changes in operating assets and liabilities:
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Receivables
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19,826
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13,626
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Inventories
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(11,541
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)
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22,587
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Prepaid expenses and other current and noncurrent assets
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890
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22,119
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Trade accounts payable
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(42,702
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)
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(25,870
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)
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Accrued expenses and other liabilities
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26,588
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(17,419
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)
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Other, net
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339
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|
664
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Net cash provided by operating activities
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122,261
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137,003
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Investing Activities
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Purchases of property and equipment
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(34,364
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)
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(43,019
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)
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Capitalized software
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(4,531
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)
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(5,672
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)
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Net cash used for investing activities
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(38,895
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)
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(48,691
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)
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Financing Activities
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Borrowings under revolving credit agreement
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450,000
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103,000
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Repayments under revolving credit agreement
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(540,000
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)
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(103,000
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)
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Dividends paid
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(9,033
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)
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(9,094
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)
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Acquisition of treasury stock
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(5,993
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)
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(23,139
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)
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Issuance of common stock under share-based plans, net
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(2,477
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)
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(4,205
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)
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Excess tax benefit related to share-based plans
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—
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|
3,264
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Net cash used for financing activities
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(107,503
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)
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(33,174
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)
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Effect of exchange rate changes on cash and cash equivalents
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184
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|
146
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(Decrease) increase in cash and cash equivalents
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(23,953
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)
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55,284
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Cash and cash equivalents at beginning of period
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55,332
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|
118,151
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Cash and cash equivalents at end of period
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$
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31,379
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$
|
173,435
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|
See notes to
condensed
consolidated financial statements.
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CALERES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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Note 1
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Basis of Presentation
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The accompanying condensed consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q of the United States Securities and Exchange Commission (“SEC”) and reflect all adjustments and accruals of a normal recurring nature, which management believes are necessary to present fairly the financial position, results of operations, comprehensive income and cash flows of Caleres, Inc. ("the Company"). These statements, however, do not include all information and footnotes necessary for a complete presentation of the Company's consolidated financial position, results of operations, comprehensive income and cash flows in conformity with accounting principles generally accepted in the United States. The condensed consolidated financial statements include the accounts of the Company and its wholly-owned and majority-owned subsidiaries, after the elimination of intercompany accounts and transactions.
The Company’s business is seasonal in nature due to consumer spending patterns, with higher back-to-school and Christmas holiday season sales. Traditionally, the third fiscal quarter accounts for a substantial portion of the Company’s earnings for the year. Interim results may not necessarily be indicative of results which may be expected for any other interim period or for the year as a whole.
Certain prior period amounts in the condensed consolidated financial statements have been reclassified to conform to the current period presentation. These reclassifications did not affect net earnings attributable to Caleres, Inc.
For further information, refer to the consolidated financial statements and footnotes included in the Company's Annual Report on Form 10-K for the year ended
January 28, 2017
.
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Note 2
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Impact of New Accounting Pronouncements
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In May 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2014-09,
Revenue from Contracts with Customers (Topic 606),
and subsequently issued ASU 2015-14 to defer the effective date. Several ASUs to clarify the implementation guidance in ASU 2014-09 have also been issued
.
Topic 606 provides a five-step analysis of transactions to determine when and how revenue is recognized, based upon the core principle that revenue is recognized to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. ASU 2014-09 also requires additional disclosures regarding the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. The ASUs are effective for fiscal years, and interim periods within those years, beginning after December 15, 2017. The Company plans to adopt the ASUs in the first quarter of 2018 using the modified retrospective method.
The Company has completed its assessment of the policy changes required for each of the revenue streams and is finalizing its assessment of the financial statement impacts of the ASUs, as well as drafting the financial statement disclosures. The area most significantly impacted by the ASUs will be the value assigned to loyalty points issued under the Company's loyalty program for the Famous Footwear segment. The new standards will require a deferral of revenue associated with loyalty points using a relative stand-alone selling price method rather than the incremental cost approach the Company uses under the current standard. The standards allow entities to elect various practical expedients. The Company expects to elect the practical expedient to disregard the effect of the time value of money in a significant financing component when its payment terms are less than one year. The Company will also elect the practical expedient to exclude sales and similar taxes collected from consumers from the measurement of the transaction price for its retail sales. Although adoption of the ASUs will result in a significant initial adjustment to deferred revenue related to loyalty points and require certain changes in presentation to the Company's consolidated balance sheets, it is not anticipated to significantly impact the Company's condensed consolidated statements of earnings on an ongoing basis.
In July 2015, the FASB issued ASU 2015-11,
Simplifying the Measurement of Inventory (Topic 330),
which requires entities to measure inventory at "the lower of cost and net realizable value", simplifying the current guidance under which entities must measure inventory at the lower of cost or market. Net realizable value is the estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal and transportation. Subsequent measurement is unchanged for inventory measured using the last-in, first-out (LIFO) method. The Company adopted the ASU during the first quarter of 2017, which did not have a material impact on the condensed consolidated financial statements.
In February 2016, the FASB issued ASU 2016-02,
Leases (Topic 842),
which requires lessees to recognize most leases on the balance sheet. The ASU is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018 using a modified retrospective approach, with early adoption permitted. The Company's implementation team is developing and executing the plan to adopt the ASU. The Company has upgraded its accounting systems to comply with the requirements of the new standard and the Company is in the process of evaluating the impact of the standard on its leases and processes. The Company anticipates electing the package of practical expedients permitted within the ASU, as well as the hindsight practical expedient. Due to the large number of retail operating leases to which the Company is a party, the Company anticipates that the impact to its condensed consolidated financial statements upon adoption in the first quarter of 2019 will be material. However, the adoption of the ASU is not expected to trigger non-compliance with any covenant or other restrictions under the provisions of any of the Company’s debt obligations.
In March 2016, the FASB issued ASU 2016-09,
Improvements to Employee Share-Based Payment Accounting (Topic 718)
, which simplifies accounting for certain aspects of share-based payments to employees, including income taxes, forfeitures and statutory income tax withholding requirements, as well as classification in the statement of cash flows. The Company adopted the ASU during the first quarter of 2017, which had the following impact to the condensed consolidated financial statements:
|
|
•
|
The Company recognized excess tax benefits of
$1.2 million
related to share-based plans during the
thirty-nine weeks ended October 28, 2017
, which are required to be recognized in the statements of earnings on a prospective basis. Prior to the adoption of the ASU, the excess tax benefit related to share-based plans was recorded in additional paid-in-capital.
|
|
|
•
|
The Company elected to adopt the provision of the ASU to account for forfeitures as they occur. This election was applied on a modified retrospective basis, resulting in a net increase to Caleres, Inc. shareholders' equity of
$0.4 million
.
|
|
|
•
|
The ASU requires cash flows from excess tax benefits related to share-based payments to be reported as operating activities in the condensed consolidated statements of cash flows. The Company elected to adopt this provision on a prospective basis and as a result, the excess tax benefit related to share-based plans for the
thirty-nine weeks ended October 29, 2016
is presented as a financing activity, while the benefit for the
thirty-nine weeks ended October 28, 2017
is presented as an operating activity.
|
In October 2016, the FASB issued ASU 2016-16,
Intra-Entity Transfers of Assets Other Than Inventory,
which requires the recognition of the income tax effects of intercompany sales and intra-entity transfers of assets, other than inventory, when the transfer occurs. The ASU is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017. The ASU will be adopted during the first quarter of 2018 using a modified retrospective approach. While the Company is finalizing its assessment of the impact of this ASU on its condensed consolidated financial statements, the adoption of the ASU is expected to result in a cumulative adjustment to deferred taxes and retained earnings related to intra-entity transfers of intangible assets that occurred prior to adoption.
In January 2017, the FASB issued ASU 2017-04,
Simplifying the Test for Goodwill Impairment,
which simplifies the accounting for goodwill impairment by eliminating the requirement to calculate the implied fair value of goodwill. Under the ASU, goodwill impairment will be measured as the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying value of goodwill. The ASU is effective prospectively for annual and interim impairment tests beginning after December 15, 2019, with early adoption permitted. The Company adopted the ASU during the third quarter of 2017, which had no impact on the condensed consolidated financial statements, as the Company performs its goodwill impairment test during the fourth quarter.
In March 2017, the FASB issued ASU 2017-07,
Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost.
The ASU amends ASC 715,
Compensation — Retirement Benefits
, to require employers that present a measure of operating income in their statements of earnings to include only the service cost component of net periodic pension cost and net periodic postretirement benefit cost in operating expenses (together with other employee compensation costs). The other components of net benefit cost, including amortization of prior service cost/credit, and settlement and curtailment effects, are to be included in non-operating expenses. The ASU is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017. Upon adoption of the ASU during the first quarter of 2018, the Company will separately present the components of net periodic benefit cost or income, excluding the service cost component, in non-operating expenses on a retrospective basis. Net periodic benefit income, excluding the service cost component, was
$2.5 million
and
$7.6 million
for the thirteen and
thirty-nine weeks ended October 28, 2017
, respectively.
In May 2017, the FASB issued ASU 2017-09,
Compensation — Stock Compensation (Topic 718), Scope of Modification Accounting.
The ASU clarifies when changes to the terms or conditions of a share-based payment award must be accounted for as a modification. Entities will apply modification accounting if the value, vesting conditions or classification of the award changes. The ASU is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017, with early adoption
permitted. The guidance will be applied prospectively to awards modified after the Company adopts the ASU in the first quarter of 2018.
In August 2017, the FASB issued ASU 2017-12,
Derivatives and Hedging (Topic 815), Targeted Improvements to Accounting
for Hedging Activities
, which amends the hedge accounting model in ASC 815 to better portray the economic results of an entity's risk management activities in its financial statements and simplifies the application of hedge accounting in certain situations. The ASU eliminates the requirement to separately measure and report hedge ineffectiveness. ASU 2017-12 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018, with early adoption permitted. The Company plans to adopt the ASU in the first quarter of 2018. The ASU is not expected to have a material impact on the Company's consolidated financial statements.
On
December 13, 2016
, the Company entered into a Stock Purchase Agreement (the "Purchase Agreement") with Apollo Investors, LLC (the "Seller") and Apollo Buyer Holding Company, Inc. (the "Holding Company"), pursuant to which the Company acquired all outstanding capital stock of
Allen Edmonds
("Allen Edmonds"). The aggregate purchase price for the Allen Edmonds stock was
$259.9 million
, net of cash received of
$0.7 million
. The purchase was funded with cash and funds available under the Company's revolving credit agreement. The operating results of Allen Edmonds have been included in the Company’s condensed consolidated financial statements within the Brand Portfolio segment since
December 13, 2016
. The assets and liabilities of Allen Edmonds were recorded at their estimated fair values and the excess of the purchase price over the fair value of the assets acquired and liabilities assumed, including identified intangible assets, was recorded as goodwill during the fourth quarter of 2016.
The Company’s purchase price allocation contains uncertainties because it required management to make assumptions and to apply judgment to estimate the fair value of the acquired assets and liabilities. A single estimate of fair value results from a complex series of judgments about future events and uncertainties and relies heavily on estimates and assumptions. The judgments the Company used in estimating the fair values assigned to each class of the acquired assets and assumed liabilities could materially affect the results of its operations. Management estimated the fair value of the assets and liabilities based upon quoted market prices, the carrying value of the acquired assets and widely accepted valuation techniques, including discounted cash flows. Unanticipated events or circumstances may occur, which could affect the accuracy of the Company’s fair value estimates, including assumptions regarding industry economic factors and business strategies. As of
October 28, 2017
, the purchase price allocation is complete.
During the
thirty-nine weeks ended October 28, 2017
, the Company recognized
$4.9 million
in cost of goods sold (
$3.0 million
on an after-tax basis, or
$0.07
per diluted share) related to the amortization of the inventory fair value adjustment required for purchase accounting. The inventory fair value adjustment was fully amortized as of July 29, 2017. As further discussed in Note 5 to the condensed consolidated financial statements, the Company also incurred integration costs during the
thirty-nine weeks ended October 28, 2017
.
|
|
|
Note 4
|
Earnings Per Share
|
The Company uses the two-class method to compute basic and diluted earnings per common share attributable to Caleres, Inc. shareholders. In periods of net loss, no effect is given to the Company’s participating securities since they do not contractually participate in the losses of the Company. The following table sets forth the computation of basic and diluted earnings per common share attributable to Caleres, Inc. shareholders for the periods ended
October 28, 2017
and
October 29, 2016
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thirteen Weeks Ended
|
Thirty-Nine Weeks Ended
|
($ thousands, except per share amounts)
|
October 28, 2017
|
|
October 29, 2016
|
|
October 28, 2017
|
|
October 29, 2016
|
|
NUMERATOR
|
|
|
|
|
|
|
|
|
Net earnings
|
$
|
34,373
|
|
$
|
34,726
|
|
$
|
66,931
|
|
$
|
72,282
|
|
Net loss (earnings) attributable to noncontrolling interests
|
14
|
|
4
|
|
(47
|
)
|
(2
|
)
|
Net earnings allocated to participating securities
|
(949
|
)
|
(910
|
)
|
(1,841
|
)
|
(1,933
|
)
|
Net earnings attributable to Caleres, Inc. after allocation of earnings to participating securities
|
$
|
33,438
|
|
$
|
33,820
|
|
$
|
65,043
|
|
$
|
70,347
|
|
|
|
|
|
|
DENOMINATOR
|
|
|
|
|
|
|
|
|
Denominator for basic earnings per common share attributable to Caleres, Inc. shareholders
|
41,788
|
|
41,802
|
|
41,801
|
|
42,093
|
|
Dilutive effect of share-based awards
|
182
|
|
137
|
|
173
|
|
144
|
|
Denominator for diluted earnings per common share attributable to Caleres, Inc. shareholders
|
41,970
|
|
41,939
|
|
41,974
|
|
42,237
|
|
|
|
|
|
|
Basic earnings per common share attributable to Caleres, Inc. shareholders
|
$
|
0.80
|
|
$
|
0.81
|
|
$
|
1.56
|
|
$
|
1.67
|
|
|
|
|
|
|
Diluted earnings per common share attributable to Caleres, Inc. shareholders
|
$
|
0.80
|
|
$
|
0.81
|
|
$
|
1.55
|
|
$
|
1.67
|
|
Options to purchase
16,667
shares of common stock for the thirteen and
thirty-nine weeks ended
October 28, 2017
and
63,915
shares of common stock for the thirteen and
thirty-nine weeks ended
October 29, 2016
were not included in the denominator for diluted earnings per common share attributable to Caleres, Inc. shareholders because the effect would be anti-dilutive.
During the thirteen and
thirty-nine weeks ended
October 28, 2017
, the Company repurchased
zero
and
225,000
shares, respectively, under the publicly announced share repurchase program, which permits repurchases of up to
2.5 million
shares. The Company repurchased
zero
and
900,000
shares during the thirteen and
thirty-nine weeks ended
October 29, 2016
, respectively. As of
October 28, 2017
, the Company has repurchased a total of
1.3 million
shares under this program.
|
|
|
Note
5
|
Restructuring and Other Initiatives
|
During the
thirty-nine weeks ended October 28, 2017
, the Company incurred integration and reorganization costs, primarily for professional fees and severance expense, totaling
$4.0 million
(
$2.6 million
on an after-tax basis, or
$0.06
per diluted share), related to the men's business. Of the
$4.0 million
in costs presented as restructuring and other special charges, net in the condensed consolidated statements of earnings for the
thirty-nine weeks ended October 28, 2017
,
$2.5 million
is reflected within the Other category and
$1.5 million
is reflected within the Brand Portfolio segment. There were no restructuring charges incurred during the
thirteen weeks ended October 28, 2017
or the
thirty-nine weeks ended October 29, 2016
.
|
|
|
Note 6
|
Business Segment Information
|
Following is a summary of certain key financial measures for the Company’s business segments for the periods ended
October 28, 2017
and
October 29, 2016
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Famous Footwear
|
Brand Portfolio
|
|
|
($ thousands)
|
Other
|
Total
|
Thirteen Weeks Ended October 28, 2017
|
External sales
|
$
|
473,118
|
|
$
|
301,538
|
|
$
|
—
|
|
$
|
774,656
|
|
Intersegment sales
|
—
|
|
15,218
|
|
—
|
|
15,218
|
|
Operating earnings (loss)
|
33,747
|
|
24,281
|
|
(5,158
|
)
|
52,870
|
|
Segment assets
|
544,280
|
|
781,421
|
|
101,447
|
|
1,427,148
|
|
|
|
|
|
|
Thirteen Weeks Ended October 29, 2016
|
External sales
|
$
|
467,816
|
|
$
|
264,414
|
|
$
|
—
|
|
$
|
732,230
|
|
Intersegment sales
|
—
|
|
20,234
|
|
—
|
|
20,234
|
|
Operating earnings (loss)
|
32,709
|
|
30,454
|
|
(7,711
|
)
|
55,452
|
|
Segment assets
|
555,934
|
|
471,329
|
|
276,932
|
|
1,304,195
|
|
|
|
|
|
|
Thirty-Nine Weeks Ended October 28, 2017
|
External sales
|
$
|
1,244,542
|
|
$
|
838,577
|
|
$
|
—
|
|
$
|
2,083,119
|
|
Intersegment sales
|
—
|
|
59,768
|
|
—
|
|
59,768
|
|
Operating earnings (loss)
|
79,137
|
|
53,511
|
|
(22,957
|
)
|
109,691
|
|
|
|
|
|
|
Thirty-Nine Weeks Ended October 29, 2016
|
External sales
|
$
|
1,222,535
|
|
$
|
717,365
|
|
$
|
—
|
|
$
|
1,939,900
|
|
Intersegment sales
|
—
|
|
66,386
|
|
—
|
|
66,386
|
|
Operating earnings (loss)
|
81,067
|
|
57,539
|
|
(22,153
|
)
|
116,453
|
|
The Other category includes corporate assets, administrative expenses and other costs and recoveries, which are not allocated to the operating segments.
Following is a reconciliation of operating earnings to earnings before income taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thirteen Weeks Ended
|
Thirty-nine Weeks Ended
|
($ thousands)
|
October 28, 2017
|
|
October 29, 2016
|
|
October 28, 2017
|
|
October 29, 2016
|
|
Operating earnings
|
$
|
52,870
|
|
$
|
55,452
|
|
$
|
109,691
|
|
$
|
116,453
|
|
Interest expense
|
(4,141
|
)
|
(3,475
|
)
|
(13,822
|
)
|
(10,564
|
)
|
Interest income
|
95
|
|
350
|
|
592
|
|
907
|
|
Earnings before income taxes
|
$
|
48,824
|
|
$
|
52,327
|
|
$
|
96,461
|
|
$
|
106,796
|
|
The Company's net inventory balance was comprised of the following:
|
|
|
|
|
|
|
|
|
|
|
($ thousands)
|
October 28, 2017
|
|
October 29, 2016
|
|
January 28, 2017
|
|
Raw materials
|
$
|
19,091
|
|
$
|
942
|
|
$
|
15,378
|
|
Work-in-process
|
897
|
|
—
|
|
1,093
|
|
Finished goods
|
578,377
|
|
523,881
|
|
569,293
|
|
Inventories, net
|
$
|
598,365
|
|
$
|
524,823
|
|
$
|
585,764
|
|
|
|
|
Note
8
|
Goodwill and Intangible Assets
|
Goodwill and intangible assets were as follows:
|
|
|
|
|
|
|
|
|
|
|
($ thousands)
|
October 28, 2017
|
|
October 29, 2016
|
|
January 28, 2017
|
|
Intangible Assets
|
|
|
|
|
|
|
Famous Footwear
|
$
|
2,800
|
|
$
|
2,800
|
|
$
|
2,800
|
|
Brand Portfolio
|
285,988
|
|
183,068
|
|
286,488
|
|
Total intangible assets
|
288,788
|
|
185,868
|
|
289,288
|
|
Accumulated amortization
|
(75,687
|
)
|
(71,681
|
)
|
(72,628
|
)
|
Total intangible assets, net
|
213,101
|
|
114,187
|
|
216,660
|
|
Goodwill
|
|
|
|
|
|
|
Brand Portfolio
|
127,081
|
|
13,954
|
|
127,098
|
|
Total goodwill
|
127,081
|
|
13,954
|
|
127,098
|
|
Goodwill and intangible assets, net
|
$
|
340,182
|
|
$
|
128,141
|
|
$
|
343,758
|
|
As further described in Note 3 to the condensed consolidated financial statements, the Company acquired Allen Edmonds on
December 13, 2016
. The allocation of the purchase price resulted in incremental intangible assets of
$102.9 million
, consisting of trademarks and customer relationships of
$97.5 million
and
$5.4 million
, respectively, and incremental goodwill of
$113.1 million
.
The Company's intangible assets as of
October 28, 2017
,
October 29, 2016
and
January 28, 2017
were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
($ thousands)
|
|
|
|
October 28, 2017
|
|
|
Estimated Useful Lives
|
|
Original Cost
|
|
|
Accumulated Amortization
|
|
|
Net Carrying Value
|
|
Trademarks
|
|
15-40 years
|
|
$
|
165,288
|
|
|
$
|
75,372
|
|
|
$
|
89,916
|
|
Trademarks
|
|
Indefinite
|
|
118,100
|
|
(1)
|
—
|
|
|
118,100
|
|
Customer relationships
|
|
15 years
|
|
5,400
|
|
(1)
|
315
|
|
|
5,085
|
|
|
|
|
|
$
|
288,788
|
|
|
$
|
75,687
|
|
|
$
|
213,101
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
October 29, 2016
|
|
|
Estimated Useful Lives
|
|
Original Cost
|
|
|
Accumulated Amortization
|
|
|
Net Carrying Value
|
|
Trademarks
|
|
15-40 years
|
|
$
|
165,068
|
|
|
$
|
71,681
|
|
|
$
|
93,387
|
|
Trademarks
|
|
Indefinite
|
|
20,800
|
|
|
—
|
|
|
20,800
|
|
|
|
|
|
$
|
185,868
|
|
|
$
|
71,681
|
|
|
$
|
114,187
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 28, 2017
|
|
|
Estimated Useful Lives
|
|
Original Cost
|
|
|
Accumulated Amortization
|
|
|
Net Carrying Value
|
|
Trademarks
|
|
15-40 years
|
|
$
|
165,288
|
|
|
$
|
72,604
|
|
|
$
|
92,684
|
|
Trademarks
|
|
Indefinite
|
|
117,900
|
|
(1)
|
—
|
|
|
117,900
|
|
Customer relationships
|
|
15 years
|
|
6,100
|
|
(1)
|
24
|
|
|
6,076
|
|
|
|
|
|
$
|
289,288
|
|
|
$
|
72,628
|
|
|
$
|
216,660
|
|
(1) The Allen Edmonds trademark and customer relationships intangible assets were acquired in the Allen Edmonds acquisition, as further discussed in Note 3 to the condensed consolidated financial statements. Immaterial adjustments attributable to the purchase price allocation were recorded during the thirty-nine weeks ended October 28, 2017, resulting in an adjustment to the original cost.
|
Amortization expense related to intangible assets was
$1.0 million
and
$0.9 million
for the
thirteen weeks ended October 28, 2017
and
October 29, 2016
, respectively, and
$3.1 million
and
$2.8 million
for the
thirty-nine weeks ended
October 28, 2017
and
October 29, 2016
, respectively.
|
|
|
Note
9
|
Shareholders’ Equity
|
The following tables set forth the changes in Caleres, Inc. shareholders’ equity and noncontrolling interests for the
thirty-nine weeks ended October 28, 2017
and
October 29, 2016
:
|
|
|
|
|
|
|
|
|
|
|
($ thousands)
|
Caleres, Inc. Shareholders’ Equity
|
|
Noncontrolling Interests
|
|
Total Equity
|
|
Equity at January 28, 2017
|
$
|
613,117
|
|
$
|
1,369
|
|
$
|
614,486
|
|
Net earnings
|
66,884
|
|
47
|
|
66,931
|
|
Other comprehensive income
|
2,312
|
|
26
|
|
2,338
|
|
Dividends paid
|
(9,033
|
)
|
—
|
|
(9,033
|
)
|
Acquisition of treasury stock
|
(5,993
|
)
|
—
|
|
(5,993
|
)
|
Issuance of common stock under share-based plans, net
|
(2,477
|
)
|
—
|
|
(2,477
|
)
|
Cumulative-effect adjustment from adoption of ASU 2016-09
|
441
|
|
—
|
|
441
|
|
Share-based compensation expense
|
8,394
|
|
—
|
|
8,394
|
|
Equity at October 28, 2017
|
$
|
673,645
|
|
$
|
1,442
|
|
$
|
675,087
|
|
|
|
|
|
|
|
|
|
|
|
|
($ thousands)
|
Caleres, Inc. Shareholders’ Equity
|
|
Noncontrolling Interests
|
|
Total Equity
|
|
Equity at January 30, 2016
|
$
|
601,484
|
|
$
|
988
|
|
$
|
602,472
|
|
Net earnings
|
72,280
|
|
2
|
|
72,282
|
|
Other comprehensive income (loss)
|
(446
|
)
|
(37
|
)
|
(483
|
)
|
Dividends paid
|
(9,094
|
)
|
—
|
|
(9,094
|
)
|
Acquisition of treasury stock
|
(23,139
|
)
|
—
|
|
(23,139
|
)
|
Issuance of common stock under share-based plans, net
|
(4,205
|
)
|
—
|
|
(4,205
|
)
|
Excess tax benefit related to share-based plans
|
3,264
|
|
—
|
|
3,264
|
|
Share-based compensation expense
|
5,966
|
|
—
|
|
5,966
|
|
Equity at October 29, 2016
|
$
|
646,110
|
|
$
|
953
|
|
$
|
647,063
|
|
Accumulated Other Comprehensive Loss
The following table sets forth the changes in accumulated other comprehensive loss (OCL) by component for the periods ended
October 28, 2017
and
October 29, 2016
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
($ thousands)
|
Foreign Currency Translation
|
|
Pension and Other Postretirement Transactions
(1)
|
|
Derivative Financial Instrument Transactions
(2)
|
|
Accumulated Other Comprehensive (Loss) Income
|
|
Balance July 29, 2017
|
$
|
1,472
|
|
$
|
(29,357
|
)
|
$
|
(166
|
)
|
$
|
(28,051
|
)
|
Other comprehensive (loss) income before reclassifications
|
(633
|
)
|
—
|
|
258
|
|
(375
|
)
|
Reclassifications:
|
|
|
|
|
|
Amounts reclassified from accumulated other comprehensive loss
|
—
|
|
615
|
|
(118
|
)
|
497
|
|
Tax (benefit) provision
|
—
|
|
(236
|
)
|
43
|
|
(193
|
)
|
Net reclassifications
|
—
|
|
379
|
|
(75
|
)
|
304
|
|
Other comprehensive (loss) income
|
(633
|
)
|
379
|
|
183
|
|
(71
|
)
|
Balance October 28, 2017
|
$
|
839
|
|
$
|
(28,978
|
)
|
$
|
17
|
|
$
|
(28,122
|
)
|
|
|
|
|
|
Balance July 30, 2016
|
$
|
606
|
|
$
|
(5,932
|
)
|
$
|
(49
|
)
|
$
|
(5,375
|
)
|
Other comprehensive loss before reclassifications
|
(545
|
)
|
—
|
|
(150
|
)
|
(695
|
)
|
Reclassifications:
|
|
|
|
|
Amounts reclassified from accumulated other comprehensive loss
|
—
|
|
(478
|
)
|
79
|
|
(399
|
)
|
Tax provision (benefit)
|
—
|
|
189
|
|
(30
|
)
|
159
|
|
Net reclassifications
|
—
|
|
(289
|
)
|
49
|
|
(240
|
)
|
Other comprehensive loss
|
(545
|
)
|
(289
|
)
|
(101
|
)
|
(935
|
)
|
Balance October 29, 2016
|
$
|
61
|
|
$
|
(6,221
|
)
|
$
|
(150
|
)
|
$
|
(6,310
|
)
|
|
|
|
|
|
Balance January 28, 2017
|
$
|
192
|
|
$
|
(30,084
|
)
|
$
|
(542
|
)
|
(30,434
|
)
|
Other comprehensive income before reclassifications
|
647
|
|
—
|
|
716
|
|
1,363
|
|
Reclassifications:
|
|
|
|
|
|
Amounts reclassified from accumulated other comprehensive loss
|
—
|
|
1,794
|
|
(235
|
)
|
1,559
|
|
Tax (benefit) provision
|
—
|
|
(688
|
)
|
78
|
|
(610
|
)
|
Net reclassifications
|
—
|
|
1,106
|
|
(157
|
)
|
949
|
|
Other comprehensive income
|
647
|
|
1,106
|
|
559
|
|
2,312
|
|
Balance October 28, 2017
|
$
|
839
|
|
$
|
(28,978
|
)
|
$
|
17
|
|
$
|
(28,122
|
)
|
|
|
|
|
|
|
Balance January 30, 2016
|
$
|
(900
|
)
|
$
|
(5,356
|
)
|
$
|
392
|
|
$
|
(5,864
|
)
|
Other comprehensive income (loss) before reclassifications
|
961
|
|
—
|
|
(789
|
)
|
172
|
|
Reclassifications:
|
|
|
|
|
|
Amounts reclassified from accumulated other comprehensive loss
|
—
|
|
(1,432
|
)
|
392
|
|
(1,040
|
)
|
Tax provision (benefit)
|
—
|
|
567
|
|
(145
|
)
|
422
|
|
Net reclassifications
|
—
|
|
(865
|
)
|
247
|
|
(618
|
)
|
Other comprehensive income (loss)
|
961
|
|
(865
|
)
|
(542
|
)
|
(446
|
)
|
Balance October 29, 2016
|
$
|
61
|
|
$
|
(6,221
|
)
|
$
|
(150
|
)
|
$
|
(6,310
|
)
|
|
|
(1)
|
Amounts reclassified are included in selling and administrative expenses. See Note 11 to the condensed consolidated financial statements for additional information related to pension and other postretirement benefits.
|
|
|
(2)
|
Amounts reclassified are included in net sales, costs of goods sold, selling and administrative expenses and interest expense. See Notes 12 and 13 to the condensed consolidated financial statements for additional information related to derivative financial instruments.
|
|
|
|
Note 10
|
Share-Based Compensation
|
The Company recognized share-based compensation expense of
$2.6 million
and
$1.6 million
during the
thirteen weeks
and
$8.4 million
and
$6.0 million
during the
thirty-nine weeks ended October 28, 2017
and
October 29, 2016
, respectively. In addition to share-based compensation expense, the Company recognized cash-based expense related to performance share units and cash awards granted under the performance share plans of
zero
and
$0.4 million
during the
thirteen weeks
and
$0.1 million
and
$1.9 million
during the
thirty-nine weeks ended October 28, 2017
and
October 29, 2016
, respectively.
The Company had net issuances (repurchases) of
9,832
and
(22,233)
shares of common stock during the
thirteen weeks ended October 28, 2017
and
October 29, 2016
, respectively, for restricted stock grants, stock performance awards issued to employees, stock options exercised and common and restricted stock grants issued to directors, net of forfeitures and shares withheld to satisfy the minimum tax withholding requirement. During the
thirty-nine weeks ended October 28, 2017
and
October 29, 2016
, the Company issued
251,718
and
158,592
shares of common stock, respectively, related to these share-based plans.
Restricted Stock
The following table summarizes restricted stock activity for the periods ended
October 28, 2017
and
October 29, 2016
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thirteen Weeks Ended
|
|
|
Thirteen Weeks Ended
|
|
October 28, 2017
|
|
|
October 29, 2016
|
|
|
|
Weighted- Average Grant Date Fair Value
|
|
|
|
|
Weighted- Average Grant Date Fair Value
|
|
Total Number of Restricted Shares
|
|
|
|
Total Number of Restricted Shares
|
|
|
|
|
|
|
July 29, 2017
|
1,194,326
|
|
|
$
|
28.03
|
|
|
July 30, 2016
|
1,139,299
|
|
|
$
|
25.42
|
|
Granted
|
25,000
|
|
|
27.13
|
|
|
Granted
|
6,500
|
|
|
25.18
|
|
Forfeited
|
(19,050
|
)
|
|
31.86
|
|
|
Forfeited
|
(29,500
|
)
|
|
24.87
|
|
Vested
|
(800
|
)
|
|
22.90
|
|
|
Vested
|
—
|
|
|
—
|
|
October 28, 2017
|
1,199,476
|
|
|
$
|
27.95
|
|
|
October 29, 2016
|
1,116,299
|
|
|
$
|
25.43
|
|
|
|
|
|
|
|
|
|
|
|
Thirty-Nine Weeks Ended
|
|
|
Thirty-Nine Weeks Ended
|
|
October 28, 2017
|
|
|
October 29, 2016
|
|
|
|
Weighted- Average Grant Date Fair Value
|
|
|
|
|
Weighted- Average Grant Date Fair Value
|
|
Total Number of Restricted Shares
|
|
|
|
Total Number of Restricted Shares
|
|
|
|
|
|
|
January 28, 2017
|
1,128,049
|
|
|
$
|
25.85
|
|
|
January 30, 2016
|
1,262,449
|
|
|
$
|
19.55
|
|
Granted
|
381,312
|
|
|
26.92
|
|
|
Granted
|
357,100
|
|
|
26.54
|
|
Forfeited
|
(49,050
|
)
|
|
29.35
|
|
|
Forfeited
|
(78,000
|
)
|
|
23.67
|
|
Vested
|
(260,835
|
)
|
|
17.09
|
|
|
Vested
|
(425,250
|
)
|
|
9.22
|
|
October 28, 2017
|
1,199,476
|
|
|
$
|
27.95
|
|
|
October 29, 2016
|
1,116,299
|
|
|
$
|
25.43
|
|
All of the restricted shares granted during the
thirteen weeks ended October 28, 2017
have a cliff-vesting term of
four
years. Of the
381,312
restricted shares granted during the
thirty-nine weeks ended October 28, 2017
,
4,492
shares have a cliff-vesting term of
one
year,
12,000
shares have a graded-vesting term of
four
years and
364,820
shares have a cliff-vesting term of
four years
. All of the restricted shares granted during the thirteen and
thirty-nine weeks ended
October 29, 2016
have a cliff-vesting term of
four years
. Share-based compensation expense for cliff-vesting grants is recognized on a straight-line basis over the respective vesting periods and expense for graded-vesting grants is recognized ratably over the vesting period.
Performance Share Awards
During the
thirteen weeks ended October 28, 2017
and
October 29, 2016
, the Company granted no performance share awards. During the
thirty-nine weeks ended October 28, 2017
and
October 29, 2016
, the Company granted performance share awards for a targeted
169,500
and
159,000
shares, respectively, with a weighted-average grant date fair value of
$26.90
and
$26.64
, respectively. Vesting of performance-based awards is dependent upon the financial performance of the Company and the attainment of certain financial goals during the
three
-year period following the grant. At the end of the vesting period, the employee will
have earned an amount of shares or units between
0%
and
200%
of the targeted award, depending on the achievement of the specified financial goals for the service period. Compensation expense is recognized based on the fair value of the award and the anticipated number of shares or units to be awarded for each tranche in accordance with the vesting schedule of the units over the
three
-year service period. During the first quarter of 2017, the Company's remaining performance share awards granted in units vested and were settled in cash at fair value. Refer to Note 13 to the condensed consolidated financial statements for further discussion regarding performance share units.
Stock Options
The following table summarizes stock option activity for the periods ended
October 28, 2017
and
October 29, 2016
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thirteen Weeks Ended
|
|
|
Thirteen Weeks Ended
|
|
October 28, 2017
|
|
|
October 29, 2016
|
|
|
|
Weighted- Average Grant Date Fair Value
|
|
|
|
|
Weighted- Average Grant Date Fair Value
|
|
Total Number of Stock Options
|
|
|
|
Total Number of Stock Options
|
|
|
|
|
|
|
July 29, 2017
|
92,042
|
|
|
$
|
6.42
|
|
|
July 30, 2016
|
222,790
|
|
|
$
|
8.98
|
|
Granted
|
—
|
|
|
—
|
|
|
Granted
|
—
|
|
|
—
|
|
Exercised
|
(6,000
|
)
|
|
6.41
|
|
|
Exercised
|
—
|
|
|
—
|
|
Forfeited
|
—
|
|
|
—
|
|
|
Forfeited
|
(2,250
|
)
|
|
15.94
|
|
Expired
|
(1,000
|
)
|
|
8.33
|
|
|
Expired
|
(15,000
|
)
|
|
9.82
|
|
October 28, 2017
|
85,042
|
|
|
$
|
6.39
|
|
|
October 29, 2016
|
205,540
|
|
|
$
|
8.85
|
|
|
|
|
|
|
|
|
|
|
|
Thirty-Nine Weeks Ended
|
|
|
Thirty-Nine Weeks Ended
|
|
October 28, 2017
|
|
|
October 29, 2016
|
|
|
|
Weighted- Average Grant Date Fair Value
|
|
|
|
|
Weighted- Average Grant Date Fair Value
|
|
Total Number of Stock Options
|
|
|
|
Total Number of Stock Options
|
|
|
|
|
|
|
January 28, 2017
|
150,540
|
|
|
$
|
9.36
|
|
|
January 30, 2016
|
301,295
|
|
|
$
|
8.95
|
|
Granted
|
—
|
|
|
—
|
|
|
Granted
|
—
|
|
|
—
|
|
Exercised
|
(17,250
|
)
|
|
5.97
|
|
|
Exercised
|
(56,381
|
)
|
|
7.41
|
|
Forfeited
|
—
|
|
|
—
|
|
|
Forfeited
|
(9,749
|
)
|
|
15.94
|
|
Expired
|
(48,248
|
)
|
|
15.79
|
|
|
Expired
|
(29,625
|
)
|
|
10.27
|
|
October 28, 2017
|
85,042
|
|
|
$
|
6.39
|
|
|
October 29, 2016
|
205,540
|
|
|
$
|
8.85
|
|
Restricted Stock Units for Non-Employee Directors
Equity-based grants may be made to non-employee directors in the form of cash-equivalent restricted stock units ("RSUs"). The RSUs earn dividend equivalents at the same rate as dividends on the Company's common stock. The dividend equivalents, which vest immediately, are automatically re-invested in additional RSUs. Expense is recognized at fair value when the dividend equivalents are granted. The Company granted
838
and
1,086
RSUs to non-employee directors for dividend equivalents during the
thirteen weeks ended October 28, 2017
and
October 29, 2016
, respectively, with weighted-average grant date fair values of
$30.68
and
$24.98
, respectively. The Company granted
47,550
and
55,250
RSUs, including
2,630
and
3,050
RSUs for dividend equivalents, during the
thirty-nine weeks ended October 28, 2017
and
October 29, 2016
, respectively, with weighted-average grant date fair values of
$27.86
and
$21.78
, respectively.
|
|
|
Note
11
|
Retirement and Other Benefit Plans
|
The following table sets forth the components of net periodic benefit income for the Company, including domestic and Canadian plans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits
|
Other Postretirement Benefits
|
|
Thirteen Weeks Ended
|
Thirteen Weeks Ended
|
($ thousands)
|
October 28, 2017
|
|
October 29, 2016
|
|
October 28, 2017
|
|
October 29, 2016
|
|
Service cost
|
$
|
2,426
|
|
$
|
2,084
|
|
$
|
—
|
|
$
|
—
|
|
Interest cost
|
3,736
|
|
3,835
|
|
17
|
|
15
|
|
Expected return on assets
|
(6,896
|
)
|
(7,237
|
)
|
—
|
|
—
|
|
Amortization of:
|
|
|
|
|
|
|
|
|
Actuarial loss (gain)
|
1,090
|
|
38
|
|
(36
|
)
|
(55
|
)
|
Prior service income
|
(439
|
)
|
(461
|
)
|
—
|
|
—
|
|
Curtailment cost
|
36
|
|
—
|
|
—
|
|
—
|
|
Total net periodic benefit income
|
$
|
(47
|
)
|
$
|
(1,741
|
)
|
$
|
(19
|
)
|
$
|
(40
|
)
|
|
|
|
|
|
|
Pension Benefits
|
Other Postretirement Benefits
|
|
Thirty-nine Weeks Ended
|
Thirty-nine Weeks Ended
|
($ thousands)
|
October 28, 2017
|
|
October 29, 2016
|
|
October 28, 2017
|
|
October 29, 2016
|
|
Service cost
|
$
|
7,276
|
|
$
|
6,251
|
|
$
|
—
|
|
$
|
—
|
|
Interest cost
|
11,210
|
|
11,506
|
|
51
|
|
45
|
|
Expected return on assets
|
(20,689
|
)
|
(21,712
|
)
|
—
|
|
—
|
|
Amortization of:
|
|
|
|
|
Actuarial loss (gain)
|
3,238
|
|
115
|
|
(109
|
)
|
(165
|
)
|
Prior service income
|
(1,335
|
)
|
(1,382
|
)
|
—
|
|
—
|
|
Settlement cost
|
—
|
|
250
|
|
—
|
|
—
|
|
Curtailment cost
|
36
|
|
—
|
|
—
|
|
—
|
|
Total net periodic benefit income
|
$
|
(264
|
)
|
$
|
(4,972
|
)
|
$
|
(58
|
)
|
$
|
(120
|
)
|
|
|
|
Note 12
|
Risk Management and Derivatives
|
In the normal course of business, the Company’s financial results are impacted by currency rate movements in foreign currency denominated assets, liabilities and cash flows as it makes a portion of its purchases and sales in local currencies. The Company has established policies and business practices that are intended to mitigate a portion of the effect of these exposures. The Company uses derivative financial instruments, primarily forward contracts, to manage its currency exposures. These derivative financial instruments are viewed as risk management tools and are not used for trading or speculative purposes. Derivatives entered into by the Company are designated as cash flow hedges of forecasted foreign currency transactions.
Derivative financial instruments expose the Company to credit and market risk. The market risk associated with these instruments resulting from currency exchange movements is expected to offset the market risk of the underlying transactions being hedged. The Company does not believe there is a significant risk of loss in the event of non-performance by the counterparties associated with these instruments because these transactions are executed with major international financial institutions and have varying maturities through
November 2018
. Credit risk is managed through the continuous monitoring of exposures to such counterparties.
The Company’s hedging strategy uses forward contracts as cash flow hedging instruments, which are recorded in the Company's condensed consolidated balance sheets at fair value. The effective portion of gains and losses resulting from changes in the fair value of these hedge instruments are deferred in accumulated other comprehensive loss and reclassified to earnings in the period that the hedged transaction is recognized in earnings.
Hedge ineffectiveness is evaluated using the hypothetical derivative method. The amount of hedge ineffectiveness for the thirteen and
thirty-nine weeks ended October 28, 2017
and
October 29, 2016
was not material.
As of
October 28, 2017
,
October 29, 2016
and
January 28, 2017
, the Company had forward contracts maturing at various dates through
November 2018
,
October 2017
and
February 2018
, respectively. The contract amounts in the following table represent the net notional amount of all purchase and sale contracts of a foreign currency.
|
|
|
|
|
|
|
|
|
|
|
(U.S. $ equivalent in thousands)
|
October 28, 2017
|
|
October 29, 2016
|
|
January 28, 2017
|
|
Financial Instruments
|
|
|
|
U.S. dollars (purchased by the Company’s Canadian division with Canadian dollars)
|
$
|
18,242
|
|
$
|
17,229
|
|
$
|
18,826
|
|
Euro
|
18,815
|
|
10,854
|
|
13,297
|
|
Chinese yuan
|
12,613
|
|
13,038
|
|
7,723
|
|
New Taiwanese dollars
|
580
|
|
538
|
|
526
|
|
United Arab Emirates dirham
|
—
|
|
1,143
|
|
823
|
|
Japanese yen
|
—
|
|
1,145
|
|
769
|
|
Other currencies
|
—
|
|
206
|
|
124
|
|
Total financial instruments
|
$
|
50,250
|
|
$
|
44,153
|
|
$
|
42,088
|
|
The classification and fair values of derivative instruments designated as hedging instruments included within the condensed consolidated balance sheets as of
October 28, 2017
,
October 29, 2016
and
January 28, 2017
are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
Asset Derivatives
|
|
Liability Derivatives
|
($ thousands)
|
Balance Sheet Location
|
Fair Value
|
|
|
Balance Sheet Location
|
Fair Value
|
|
Foreign Exchange Forward Contracts
|
|
|
|
|
|
|
October 28, 2017
|
Prepaid expenses and other current assets
|
$
|
760
|
|
|
Other accrued expenses
|
$
|
564
|
|
October 29, 2016
|
Prepaid expenses and other current assets
|
362
|
|
|
Other accrued expenses
|
570
|
|
January 28, 2017
|
Prepaid expenses and other current assets
|
234
|
|
|
Other accrued expenses
|
874
|
|
For the periods ended
October 28, 2017
and
October 29, 2016
, the effect of derivative instruments in cash flow hedging relationships on the condensed consolidated statements of earnings was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thirteen Weeks Ended
|
Thirteen Weeks Ended
|
($ thousands)
|
October 28, 2017
|
October 29, 2016
|
Foreign Exchange Forward Contracts:
Income Statement Classification (Losses) Gains - Realized
|
(Loss) Gain Recognized in OCL on Derivatives
|
|
Gain Reclassified from Accumulated OCL into Earnings
|
|
Gain (Loss) Recognized in OCL on Derivatives
|
|
Loss Reclassified from Accumulated OCL into Earnings
|
|
|
|
|
|
|
Net sales
|
$
|
(4
|
)
|
$
|
6
|
|
$
|
16
|
|
$
|
(55
|
)
|
Cost of goods sold
|
(42
|
)
|
3
|
|
(181
|
)
|
(8
|
)
|
Selling and administrative expenses
|
364
|
|
109
|
|
(97
|
)
|
(15
|
)
|
Interest expense
|
6
|
|
—
|
|
5
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thirty-Nine Weeks Ended
|
Thirty-Nine Weeks Ended
|
($ thousands)
|
October 28, 2017
|
October 29, 2016
|
Foreign Exchange Forward Contracts:
Income Statement Classification (Losses) Gains - Realized
|
(Loss) Gain Recognized in OCL on Derivatives
|
|
Gain (Loss) Reclassified from Accumulated OCL into Earnings
|
|
Loss Recognized in OCL on Derivatives
|
|
(Loss) Gain Reclassified from Accumulated OCL into Earnings
|
|
|
|
|
|
|
Net sales
|
$
|
(44
|
)
|
$
|
30
|
|
$
|
(173
|
)
|
$
|
(127
|
)
|
Cost of goods sold
|
695
|
|
164
|
|
(766
|
)
|
109
|
|
Selling and administrative expenses
|
480
|
|
42
|
|
(121
|
)
|
(373
|
)
|
Interest expense
|
(4
|
)
|
(1
|
)
|
(19
|
)
|
(1
|
)
|
All gains and losses currently included within accumulated other comprehensive loss associated with the Company’s foreign exchange forward contracts are expected to be reclassified into net earnings within the next 12 months. Additional information related to the Company’s derivative financial instruments are disclosed within Note 13 to the condensed consolidated financial statements.
|
|
|
Note 13
|
Fair Value Measurements
|
Fair Value Hierarchy
Fair value measurement disclosure requirements specify a hierarchy of valuation techniques based upon whether the inputs to those valuation techniques reflect assumptions other market participants would use based upon market data obtained from independent sources (“observable inputs”) or reflect the Company’s own assumptions of market participant valuation (“unobservable inputs”). In accordance with the fair value guidance, the inputs to valuation techniques used to measure fair value are categorized into three levels based on the reliability of the inputs as follows:
|
|
•
|
Level 1 – Quoted prices in active markets that are unadjusted and accessible at the measurement date for identical, unrestricted assets or liabilities;
|
|
|
•
|
Level 2 – Quoted prices for identical assets and liabilities in markets that are not active, quoted prices for similar assets and liabilities in active markets or financial instruments for which significant inputs are observable, either directly or indirectly; and
|
|
|
•
|
Level 3 – Prices or valuations that require inputs that are both significant to the fair value measurement and unobservable.
|
In determining fair value, the Company uses valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible as well as considers counterparty credit risk in its assessment of fair value. Classification of the financial or non-financial asset or liability within the hierarchy is determined based on the lowest level input that is significant to the fair value measurement.
Measurement of Fair Value
The Company measures fair value as an exit price, the price to sell an asset or transfer a liability in an orderly transaction between market participants at the measurement date, using the procedures described below for all financial and non-financial assets and liabilities measured at fair value.
Money Market Funds
The Company has cash equivalents consisting of short-term money market funds backed by U.S. Treasury securities. The primary objective of these investing activities is to preserve the Company’s capital for the purpose of funding operations and it does not enter into money market funds for trading or speculative purposes. The fair value is based on unadjusted quoted market prices for the funds in active markets with sufficient volume and frequency (Level 1).
Deferred Compensation Plan Assets and Liabilities
The Company maintains a non-qualified deferred compensation plan (the “Deferred Compensation Plan”) for the benefit of certain management employees. The investment funds offered to the participants generally correspond to the funds offered in the Company’s 401(k) plan, and the account balance fluctuates with the investment returns on those funds. The Deferred Compensation Plan permits the deferral of up to
50%
of base salary and
100%
of compensation received under the Company’s annual incentive plan. The deferrals are held in a separate trust, which has been established by the Company to administer the Deferred Compensation Plan. The assets of the trust are subject to the claims of the Company’s creditors in the event that the Company becomes insolvent. Consequently, the trust qualifies as a grantor trust for income tax purposes (i.e., a “Rabbi Trust”). The liabilities of the Deferred Compensation Plan are presented in other accrued expenses and the assets held by the trust are classified as trading securities within prepaid expenses and other current assets in the accompanying condensed consolidated balance sheets. Changes in deferred compensation plan assets and liabilities are charged to selling and administrative expenses. The fair value is based on unadjusted quoted market prices for the funds in active markets with sufficient volume and frequency (Level 1).
Deferred Compensation Plan for Non-Employee Directors
Non-employee directors are eligible to participate in a deferred compensation plan with deferred amounts valued as if invested in the Company’s common stock through the use of phantom stock units (“PSUs”). Under the plan, each participating director’s account is credited with the number of PSUs equal to the number of shares of the Company’s common stock that the participant could purchase or receive with the amount of the deferred compensation, based upon the average of the high and low prices of the Company’s common stock on the last trading day of the fiscal quarter when the cash compensation was earned. Dividend equivalents are paid on PSUs at the same rate as dividends on the Company’s common stock and are re-invested in additional PSUs at the next fiscal quarter-end. The liabilities of the plan are based on the fair value of the outstanding PSUs and are presented in other accrued expenses (current portion) or other liabilities in the accompanying condensed consolidated balance sheets. Gains and losses resulting from changes in the fair value of the PSUs are presented in selling and administrative expenses in the Company’s condensed consolidated statements of earnings. The fair value of each PSU is based on an unadjusted quoted market price for the Company’s common stock in an active market with sufficient volume and frequency on each measurement date (Level 1).
Restricted Stock Units for Non-Employee Directors
Under the Company’s incentive compensation plans, cash-equivalent restricted stock units (“RSUs”) of the Company may be granted at no cost to non-employee directors. The RSUs are subject to a vesting requirement (usually one year), earn dividend-equivalent units, and are settled in cash on the date the director terminates service or such earlier date as a director may elect, subject to restrictions, based on the then current fair value of the Company’s common stock. The fair value of each RSU is based on an unadjusted quoted market price for the Company’s common stock in an active market with sufficient volume and frequency on each measurement date (Level 1). Additional information related to RSUs for non-employee directors is disclosed in Note 10 to the condensed consolidated financial statements.
Performance Share Units
Under the Company’s incentive compensation plans, common stock or cash may be awarded at the end of the performance period at no cost to certain officers and key employees if certain financial goals are met. Under the plan, employees are granted performance share awards at a target number of shares or units, which generally vest over a
three
-year service period. At the end of the vesting period, the employee will have earned an amount of shares or units between
0%
and
200%
of the targeted award, depending on the achievement of specified financial goals for the service period. The fair value of each performance share unit is based on an unadjusted quoted market price of the Company’s common stock in an active market with sufficient volume and frequency on each measurement date (Level 1). During the first quarter of 2017, the Company's remaining performance share awards granted in units vested and were settled in cash at fair value. Additional information related to the Company's performance share awards is disclosed in Note 10 to the condensed consolidated financial statements.
Derivative Financial Instruments
The Company uses derivative financial instruments, primarily foreign exchange contracts, to reduce its exposure to market risks from changes in foreign exchange rates. These foreign exchange contracts are measured at fair value using quoted forward foreign exchange prices from counterparties corroborated by market-based pricing (Level 2). Additional information related to the Company’s derivative financial instruments is disclosed in Note 12 to the condensed consolidated financial statements.
Secured Convertible Note
The Company
received a secured convertible note as partial consideration for the 2014 disposition of Shoes.com, and the convertible note was measured at fair value using unobservable inputs (Level 3). During the fourth quarter of 2016, the convertible note was fully impaired.
The following table presents the Company’s assets and liabilities that are measured at fair value on a recurring basis at
October 28, 2017
,
October 29, 2016
and
January 28, 2017
. The Company did not have any transfers between Level 1, Level 2 or Level 3 during the
thirty-nine weeks ended October 28, 2017
or
October 29, 2016
.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements
|
($ thousands)
|
Total
|
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Asset (Liability)
|
|
|
|
|
|
|
|
|
|
October 28, 2017:
|
|
|
|
|
|
Cash equivalents – money market funds
|
$
|
14,967
|
|
|
$
|
14,967
|
|
$
|
—
|
|
$
|
—
|
|
Non-qualified deferred compensation plan assets
|
6,000
|
|
|
6,000
|
|
—
|
|
—
|
|
Non-qualified deferred compensation plan liabilities
|
(6,000
|
)
|
|
(6,000
|
)
|
—
|
|
—
|
|
Deferred compensation plan liabilities for non-employee directors
|
(2,350
|
)
|
|
(2,350
|
)
|
—
|
|
—
|
|
Restricted stock units for non-employee directors
|
(10,118
|
)
|
|
(10,118
|
)
|
—
|
|
—
|
|
Derivative financial instruments, net
|
196
|
|
|
—
|
|
196
|
|
—
|
|
October 29, 2016:
|
|
|
|
|
|
Cash equivalents – money market funds
|
$
|
152,700
|
|
|
$
|
152,700
|
|
$
|
—
|
|
$
|
—
|
|
Non-qualified deferred compensation plan assets
|
4,747
|
|
|
4,747
|
|
—
|
|
—
|
|
Non-qualified deferred compensation plan liabilities
|
(4,747
|
)
|
|
(4,747
|
)
|
—
|
|
—
|
|
Deferred compensation plan liabilities for non-employee directors
|
(1,596
|
)
|
|
(1,596
|
)
|
—
|
|
—
|
|
Restricted stock units for non-employee directors
|
(8,726
|
)
|
|
(8,726
|
)
|
—
|
|
—
|
|
Performance share units
|
(2,446
|
)
|
|
(2,446
|
)
|
—
|
|
—
|
|
Derivative financial instruments, net
|
(208
|
)
|
|
—
|
|
(208
|
)
|
—
|
|
Secured convertible note
|
7,227
|
|
|
—
|
|
—
|
|
7,227
|
|
January 28, 2017:
|
|
|
|
|
|
Cash equivalents – money market funds
|
$
|
27,530
|
|
|
$
|
27,530
|
|
$
|
—
|
|
$
|
—
|
|
Non-qualified deferred compensation plan assets
|
5,051
|
|
|
5,051
|
|
—
|
|
—
|
|
Non-qualified deferred compensation plan liabilities
|
(5,051
|
)
|
|
(5,051
|
)
|
—
|
|
—
|
|
Deferred compensation plan liabilities for non-employee directors
|
(1,909
|
)
|
|
(1,909
|
)
|
—
|
|
—
|
|
Restricted stock units for non-employee directors
|
(9,390
|
)
|
|
(9,390
|
)
|
—
|
|
—
|
|
Performance share units
|
(3,352
|
)
|
|
(3,352
|
)
|
—
|
|
—
|
|
Derivative financial instruments, net
|
(640
|
)
|
|
—
|
|
(640
|
)
|
—
|
|
Impairment Charges
The Company assesses the impairment of long-lived assets whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Factors the Company considers important that could trigger an impairment review include underperformance relative to expected historical or projected future operating results, a significant change in the manner of the use of the asset, or a negative industry or economic trend. When the Company determines that the carrying value of long-lived assets may not be recoverable based upon the existence of one or more of the aforementioned factors, impairment is measured based on a projected discounted cash flow method. Certain factors, such as estimated store sales and expenses, used for this nonrecurring fair value measurement are considered Level 3 inputs as defined by FASB ASC 820,
Fair Value Measurement
. Long-lived assets held and used with a carrying amount of
$115.8 million
and
$100.4 million
at
October 28, 2017
and
October 29, 2016
, respectively, were assessed for indicators of impairment and written down to their fair value. This assessment resulted in the following impairment charges, primarily for leasehold improvements and furniture and fixtures in the Company's retail stores, which were included in selling and administrative expenses for the respective periods.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thirteen Weeks Ended
|
Thirty-Nine Weeks Ended
|
($ thousands)
|
October 28, 2017
|
|
October 29, 2016
|
|
October 28, 2017
|
|
October 29, 2016
|
|
Impairment Charges
|
|
|
|
|
Famous Footwear
|
$
|
150
|
|
$
|
128
|
|
$
|
450
|
|
$
|
262
|
|
Brand Portfolio
|
726
|
|
248
|
|
2,545
|
|
651
|
|
Total impairment charges
|
$
|
876
|
|
$
|
376
|
|
$
|
2,995
|
|
$
|
913
|
|
Fair Value of the Company’s Other Financial Instruments
The fair values of cash and cash equivalents (excluding money market funds discussed above), receivables and trade accounts payable approximate their carrying values due to the short-term nature of these instruments.
The carrying amounts and fair values of the Company's other financial instruments subject to fair value disclosures are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
October 28, 2017
|
|
October 29, 2016
|
|
January 28, 2017
|
|
Carrying
|
|
|
Fair
|
|
|
Carrying
|
|
|
Fair
|
|
|
Carrying
|
|
|
Fair
|
|
($ thousands)
|
Value
|
|
|
Value
|
|
|
Value
|
|
|
Value
|
|
|
Value
|
|
|
Value
|
|
Borrowings under revolving credit agreement
|
$
|
20,000
|
|
|
$
|
20,000
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
110,000
|
|
|
$
|
110,000
|
|
Long-term debt
|
197,348
|
|
|
209,000
|
|
|
196,888
|
|
|
209,000
|
|
|
197,003
|
|
|
209,000
|
|
Total debt
|
$
|
217,348
|
|
|
$
|
229,000
|
|
|
$
|
196,888
|
|
|
$
|
209,000
|
|
|
$
|
307,003
|
|
|
$
|
319,000
|
|
The fair value of borrowings under the revolving credit agreement approximates its carrying value due to its short-term nature (Level 1). The fair value of the Company’s long-term debt was based upon quoted prices in an inactive market as of the end of the respective periods (Level 2).
The Company’s effective tax rate can vary considerably from period to period, depending on a number of factors. The Company’s consolidated effective tax rates were
29.6%
and
33.6%
for the
thirteen weeks
ended
October 28, 2017
and
October 29, 2016
, respectively. During the
thirteen weeks ended October 28, 2017
, the Company recognized discrete tax benefits of
$0.9 million
, reflecting greater deductibility of certain 2016 expenses than originally estimated. During the
thirteen weeks ended October 29, 2016
, the Company recognized a discrete tax benefit of
$0.3 million
, reflecting the settlement of a federal tax audit issue. If these discrete tax benefits had not been recognized during the
thirteen weeks ended October 28, 2017
and
October 29, 2016
, the Company's effective tax rates would have been
31.5%
and
34.1%
, respectively. Excluding the discrete tax items, the Company's tax rate is lower for the thirteen weeks ended
October 28, 2017
, reflecting a higher mix of international earnings in the Company's lowest tax rate jurisdictions.
For the
thirty-nine weeks ended October 28, 2017
and
October 29, 2016
, the Company's consolidated effective tax rates were
30.6%
and
32.3%
, respectively. Discrete tax benefits of
$2.0 million
were recognized during the
thirty-nine weeks ended October 28, 2017
, including a discrete tax benefit of
$1.2 million
related to share-based compensation as a result of the adoption of ASU 2016-09 during the first quarter of 2017, which requires prospective recognition of excess tax benefits and deficiencies in the statement of earnings. Discrete tax benefits of
$1.1 million
were recognized during the
thirty-nine weeks ended October 29, 2016
, reflecting the settlement of a federal tax audit issue. If these discrete tax benefits had not been recognized during the
thirty-nine weeks ended October 28, 2017
and
October 29, 2016
, the Company's effective tax rates would have been
32.7%
and
33.4%
, respectively. Excluding the discrete tax items, the Company's tax rate is lower for the
thirty-nine weeks ended October 28, 2017
, reflecting a higher mix of international earnings in the Company's lowest tax rate jurisdictions.
|
|
|
Note 15
|
Related Party Transactions
|
C. banner International Holdings Limited
The Company has a joint venture agreement with a subsidiary of C. banner International Holdings Limited (“CBI”) to market Naturalizer footwear in China. The Company is a
51%
owner of the joint venture (“B&H Footwear”), with CBI owning the other
49%
. The license enabling the joint venture to market the footwear expired in August 2017 and the parties are in the process of dissolving their joint venture arrangements. B&H Footwear sold Naturalizer footwear to a retail affiliate of CBI on a wholesale basis, which in turn sold the Naturalizer products through department store shops and free-standing stores in China. The Company, through its consolidated subsidiary, B&H Footwear, sold Naturalizer footwear on a wholesale basis to CBI totaling
$1.3 million
and
$5.1 million
for the
thirteen
and
thirty-nine weeks ended October 29, 2016
, respectively, with
no
corresponding sales during 2017.
|
|
|
Note 16
|
Commitments and Contingencies
|
Environmental Remediation
Prior operations included numerous manufacturing and other facilities for which the Company may have responsibility under various environmental laws for the remediation of conditions that may be identified in the future. The Company is involved in environmental remediation and ongoing compliance activities at several sites and has been notified that it is or may be a potentially responsible party at several other sites.
Redfield
The Company is remediating, under the oversight of Colorado authorities, the groundwater and indoor air at its owned facility in Colorado (the “Redfield site” or, when referring to remediation activities at or under the facility, the “on-site remediation”) and residential neighborhoods adjacent to and near the property (the “off-site remediation”) that have been affected by solvents previously used at the facility. The on-site remediation calls for the operation of a pump and treat system (which prevents migration of contaminated groundwater off the property) as the final remedy for the site, subject to monitoring and periodic review of the on-site conditions and other remedial technologies that may be developed in the future. In May 2016, the Company submitted a revised plan to address on-site conditions, including direct treatment of source areas, and received approval from the oversight authorities to begin implementing the revised plan.
As the treatment of the on-site source areas progresses, the Company expects to convert the pump and treat system to a passive treatment barrier system. Off-site groundwater concentrations have been reducing over time since installation of the pump and treat system in 2000 and injection of clean water beginning in 2003. However, localized areas of contaminated bedrock just beyond the property line continue to impact off-site groundwater. The modified work plan for addressing this condition includes converting the off-site bioremediation system into a monitoring well network and employing different remediation methods in these recalcitrant areas. In accordance with the work plan, a pilot test was conducted of certain groundwater remediation methods and the results of that test were used to develop more detailed plans for remedial activities in the off-site areas, which were approved by the authorities and are being implemented in a phased manner. The results of groundwater monitoring are being used to evaluate the effectiveness of these activities. In 2014, the Company submitted a proposed expanded remedy work plan that was accepted by the oversight authorities during 2015. The Company continues to implement the expanded remedy work plan.
The cumulative expenditures for both on-site and off-site remediation through
October 28, 2017
were
$29.7 million
. The Company has recovered a portion of these expenditures from insurers and other third parties. The reserve for the anticipated future remediation activities at
October 28, 2017
is
$9.6 million
, of which
$8.7 million
is recorded within other liabilities and
$0.9 million
is recorded within other accrued expenses. Of the total $
9.6 million
reserve,
$4.6 million
is for on-site remediation and
$5.0 million
is for off-site remediation. The liability for the on-site remediation was discounted at
4.8%
. On an undiscounted basis, the on-site remediation liability would be
$14.1 million
as of
October 28, 2017
. The Company expects to spend approximately $
0.1 million
in each of the following four years,
$0.2 million
in the fifth year and
$13.5 million
in the aggregate thereafter related to the on-site remediation.
Other
Various federal and state authorities have identified the Company as a potentially responsible party for remediation at certain other sites. However, the Company does not currently believe that its liability for such sites, if any, would be material.
The Company continues to evaluate its estimated costs in conjunction with its environmental consultants and records its best estimate of such liabilities. However, future actions and the associated costs are subject to oversight and approval of various governmental authorities. Accordingly, the ultimate costs may vary, and it is possible costs may exceed the recorded amounts.
Litigation
The Company is involved in legal proceedings and litigation arising in the ordinary course of business. In the opinion of management, the outcome of such ordinary course of business proceedings and litigation currently pending is not expected to have a material adverse effect on the Company’s results of operations or financial position. Legal costs associated with litigation are generally expensed as incurred.
|
|
|
Note 17
|
Financial Information for the Company and its Subsidiaries
|
The Company issued senior notes, which are fully and unconditionally and jointly and severally guaranteed by all of its existing and future subsidiaries that are guarantors under our revolving credit facility ("Credit Agreement"). The following tables present the condensed consolidating financial information for each of Caleres, Inc. (“Parent”), the Guarantors, and subsidiaries of the Parent that are not Guarantors (the “Non-Guarantors”), together with consolidating eliminations, as of and for the periods indicated. Guarantors are
100%
owned by the Parent. On
December 13, 2016
,
Allen Edmonds
was joined to the Credit Agreement as a guarantor. After giving effect to the joinder, the Company is the lead borrower, and Sidney Rich Associates, Inc., BG Retail, LLC and Allen Edmonds are each co-borrowers and guarantors under the Credit Agreement.
The condensed consolidating financial statements have been prepared using the equity method of accounting in accordance with the requirements for presentation of such information. Management believes that the information, presented in lieu of complete financial statements for each of the Guarantors, provides meaningful information to allow investors to determine the nature of the assets held by, and operations and cash flows of, each of the consolidated groups.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
UNAUDITED CONDENSED CONSOLIDATING BALANCE SHEET
|
OCTOBER 28, 2017
|
|
|
|
Non-
|
|
|
|
($ thousands)
|
Parent
|
|
Guarantors
|
|
Guarantors
|
|
Eliminations
|
|
Total
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
Current assets
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
$
|
8,155
|
|
$
|
7,947
|
|
$
|
15,277
|
|
$
|
—
|
|
$
|
31,379
|
|
Receivables, net
|
116,974
|
|
3,987
|
|
11,981
|
|
—
|
|
132,942
|
|
Inventories, net
|
127,142
|
|
441,683
|
|
29,540
|
|
—
|
|
598,365
|
|
Prepaid expenses and other current assets
|
20,642
|
|
17,872
|
|
7,263
|
|
(4,795
|
)
|
40,982
|
|
Intercompany receivable – current
|
1,597
|
|
123
|
|
20,677
|
|
(22,397
|
)
|
—
|
|
Total current assets
|
274,510
|
|
471,612
|
|
84,738
|
|
(27,192
|
)
|
803,668
|
|
Other assets
|
50,565
|
|
16,877
|
|
874
|
|
—
|
|
68,316
|
|
Goodwill and intangible assets, net
|
111,665
|
|
40,937
|
|
187,580
|
|
—
|
|
340,182
|
|
Property and equipment, net
|
32,684
|
|
169,604
|
|
12,694
|
|
—
|
|
214,982
|
|
Investment in subsidiaries
|
1,288,128
|
|
—
|
|
(23,180
|
)
|
(1,264,948
|
)
|
—
|
|
Intercompany receivable – noncurrent
|
744,127
|
|
527,670
|
|
677,419
|
|
(1,949,216
|
)
|
—
|
|
Total assets
|
$
|
2,501,679
|
|
$
|
1,226,700
|
|
$
|
940,125
|
|
$
|
(3,241,356
|
)
|
$
|
1,427,148
|
|
|
|
|
|
|
|
Liabilities and Equity
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
|
|
|
|
|
|
|
|
|
Borrowings under revolving credit agreement
|
$
|
20,000
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
$
|
20,000
|
|
Trade accounts payable
|
65,604
|
|
139,219
|
|
19,009
|
|
—
|
|
223,832
|
|
Other accrued expenses
|
64,525
|
|
95,817
|
|
17,940
|
|
(4,795
|
)
|
173,487
|
|
Intercompany payable – current
|
12,833
|
|
—
|
|
9,564
|
|
(22,397
|
)
|
—
|
|
Total current liabilities
|
162,962
|
|
235,036
|
|
46,513
|
|
(27,192
|
)
|
417,319
|
|
Other liabilities
|
|
|
|
|
|
|
|
|
|
|
Long-term debt
|
197,348
|
|
—
|
|
—
|
|
—
|
|
197,348
|
|
Other liabilities
|
93,029
|
|
39,150
|
|
5,215
|
|
—
|
|
137,394
|
|
Intercompany payable – noncurrent
|
1,374,695
|
|
121,683
|
|
452,838
|
|
(1,949,216
|
)
|
—
|
|
Total other liabilities
|
1,665,072
|
|
160,833
|
|
458,053
|
|
(1,949,216
|
)
|
334,742
|
|
Equity
|
|
|
|
|
|
|
|
|
|
|
Caleres, Inc. shareholders’ equity
|
673,645
|
|
830,831
|
|
434,117
|
|
(1,264,948
|
)
|
673,645
|
|
Noncontrolling interests
|
—
|
|
—
|
|
1,442
|
|
—
|
|
1,442
|
|
Total equity
|
673,645
|
|
830,831
|
|
435,559
|
|
(1,264,948
|
)
|
675,087
|
|
Total liabilities and equity
|
$
|
2,501,679
|
|
$
|
1,226,700
|
|
$
|
940,125
|
|
$
|
(3,241,356
|
)
|
$
|
1,427,148
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
UNAUDITED CONDENSED CONSOLIDATING STATEMENT OF COMPREHENSIVE INCOME
|
FOR THE THIRTEEN WEEKS ENDED OCTOBER 28, 2017
|
|
|
|
Non-
|
|
|
|
($ thousands)
|
Parent
|
|
Guarantors
|
|
Guarantors
|
|
Eliminations
|
|
Total
|
|
Net sales
|
$
|
226,019
|
|
$
|
541,007
|
|
$
|
47,765
|
|
$
|
(40,135
|
)
|
$
|
774,656
|
|
Cost of goods sold
|
152,714
|
|
313,646
|
|
23,351
|
|
(31,940
|
)
|
457,771
|
|
Gross profit
|
73,305
|
|
227,361
|
|
24,414
|
|
(8,195
|
)
|
316,885
|
|
Selling and administrative expenses
|
59,335
|
|
197,481
|
|
15,394
|
|
(8,195
|
)
|
264,015
|
|
Operating earnings
|
13,970
|
|
29,880
|
|
9,020
|
|
—
|
|
52,870
|
|
Interest expense
|
(4,140
|
)
|
(1
|
)
|
—
|
|
—
|
|
(4,141
|
)
|
Interest income
|
47
|
|
—
|
|
48
|
|
—
|
|
95
|
|
Intercompany interest income (expense)
|
1,981
|
|
(2,003
|
)
|
22
|
|
—
|
|
—
|
|
Earnings before income taxes
|
11,858
|
|
27,876
|
|
9,090
|
|
—
|
|
48,824
|
|
Income tax provision
|
(3,963
|
)
|
(9,479
|
)
|
(1,009
|
)
|
—
|
|
(14,451
|
)
|
Equity in earnings (loss) of subsidiaries, net of tax
|
26,492
|
|
—
|
|
(457
|
)
|
(26,035
|
)
|
—
|
|
Net earnings
|
34,387
|
|
18,397
|
|
7,624
|
|
(26,035
|
)
|
34,373
|
|
Less: Net loss attributable to noncontrolling interests
|
—
|
|
—
|
|
(14
|
)
|
—
|
|
(14
|
)
|
Net earnings attributable to Caleres, Inc.
|
$
|
34,387
|
|
$
|
18,397
|
|
$
|
7,638
|
|
$
|
(26,035
|
)
|
$
|
34,387
|
|
|
|
|
|
|
|
Comprehensive income
|
$
|
34,305
|
|
$
|
18,397
|
|
$
|
7,457
|
|
$
|
(25,857
|
)
|
$
|
34,302
|
|
Less: Comprehensive loss attributable to noncontrolling interests
|
—
|
|
—
|
|
(3
|
)
|
—
|
|
(3
|
)
|
Comprehensive income attributable to Caleres, Inc.
|
$
|
34,305
|
|
$
|
18,397
|
|
$
|
7,460
|
|
$
|
(25,857
|
)
|
$
|
34,305
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
UNAUDITED CONDENSED CONSOLIDATING STATEMENT OF COMPREHENSIVE INCOME
|
FOR THE THIRTY-NINE WEEKS ENDED OCTOBER 28, 2017
|
|
|
|
Non-
|
|
|
|
($ thousands)
|
Parent
|
|
Guarantors
|
|
Guarantors
|
|
Eliminations
|
|
Total
|
|
Net sales
|
$
|
614,764
|
|
$
|
1,451,191
|
|
$
|
148,985
|
|
$
|
(131,821
|
)
|
$
|
2,083,119
|
|
Cost of goods sold
|
423,224
|
|
815,980
|
|
74,424
|
|
(105,763
|
)
|
1,207,865
|
|
Gross profit
|
191,540
|
|
635,211
|
|
74,561
|
|
(26,058
|
)
|
875,254
|
|
Selling and administrative expenses
|
172,122
|
|
570,272
|
|
45,254
|
|
(26,058
|
)
|
761,590
|
|
Restructuring and other special charges, net
|
3,769
|
|
37
|
|
167
|
|
—
|
|
3,973
|
|
Operating earnings
|
15,649
|
|
64,902
|
|
29,140
|
|
—
|
|
109,691
|
|
Interest expense
|
(13,809
|
)
|
(13
|
)
|
—
|
|
—
|
|
(13,822
|
)
|
Interest income
|
220
|
|
—
|
|
372
|
|
—
|
|
592
|
|
Intercompany interest income (expense)
|
6,085
|
|
(6,516
|
)
|
431
|
|
—
|
|
—
|
|
Earnings before income taxes
|
8,145
|
|
58,373
|
|
29,943
|
|
—
|
|
96,461
|
|
Income tax provision
|
(2,124
|
)
|
(21,407
|
)
|
(5,999
|
)
|
—
|
|
(29,530
|
)
|
Equity in earnings (loss) of subsidiaries, net of tax
|
60,863
|
|
—
|
|
(1,234
|
)
|
(59,629
|
)
|
—
|
|
Net earnings
|
66,884
|
|
36,966
|
|
22,710
|
|
(59,629
|
)
|
66,931
|
|
Less: Net earnings attributable to noncontrolling interests
|
—
|
|
—
|
|
47
|
|
—
|
|
47
|
|
Net earnings attributable to Caleres, Inc.
|
$
|
66,884
|
|
$
|
36,966
|
|
$
|
22,663
|
|
$
|
(59,629
|
)
|
$
|
66,884
|
|
|
|
|
|
|
|
Comprehensive income
|
$
|
69,170
|
|
$
|
36,966
|
|
$
|
23,212
|
|
$
|
(60,105
|
)
|
$
|
69,243
|
|
Less: Comprehensive income attributable to noncontrolling interests
|
—
|
|
—
|
|
73
|
|
—
|
|
73
|
|
Comprehensive income attributable to Caleres, Inc.
|
$
|
69,170
|
|
$
|
36,966
|
|
$
|
23,139
|
|
$
|
(60,105
|
)
|
$
|
69,170
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
UNAUDITED CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
|
FOR THE THIRTY-NINE WEEKS ENDED OCTOBER 28, 2017
|
|
|
|
Non-
|
|
|
|
($ thousands)
|
Parent
|
|
Guarantors
|
|
Guarantors
|
|
Eliminations
|
|
Total
|
|
Net cash (used for) provided by operating activities
|
$
|
(13,179
|
)
|
$
|
97,443
|
|
$
|
37,997
|
|
$
|
—
|
|
$
|
122,261
|
|
|
|
|
|
|
|
Investing activities
|
|
|
|
|
|
|
|
|
|
|
Purchases of property and equipment
|
(5,340
|
)
|
(25,377
|
)
|
(3,647
|
)
|
—
|
|
(34,364
|
)
|
Capitalized software
|
(4,079
|
)
|
(452
|
)
|
—
|
|
—
|
|
(4,531
|
)
|
Intercompany investing
|
(20,058
|
)
|
197,763
|
|
(177,705
|
)
|
—
|
|
—
|
|
Net cash (used for) provided by investing activities
|
(29,477
|
)
|
171,934
|
|
(181,352
|
)
|
—
|
|
(38,895
|
)
|
|
|
|
|
|
|
Financing activities
|
|
|
|
|
|
|
|
|
|
|
Borrowings under revolving credit agreement
|
450,000
|
|
—
|
|
—
|
|
—
|
|
450,000
|
|
Repayments under revolving credit agreement
|
(540,000
|
)
|
—
|
|
—
|
|
—
|
|
(540,000
|
)
|
Dividends paid
|
(9,033
|
)
|
—
|
|
—
|
|
—
|
|
(9,033
|
)
|
Acquisition of treasury stock
|
(5,993
|
)
|
—
|
|
—
|
|
—
|
|
(5,993
|
)
|
Issuance of common stock under share-based plans, net
|
(2,477
|
)
|
—
|
|
—
|
|
—
|
|
(2,477
|
)
|
Intercompany financing
|
134,315
|
|
(270,459
|
)
|
136,144
|
|
—
|
|
—
|
|
Net cash provided by (used for) financing activities
|
26,812
|
|
(270,459
|
)
|
136,144
|
|
—
|
|
(107,503
|
)
|
Effect of exchange rate changes on cash and cash equivalents
|
—
|
|
—
|
|
184
|
|
—
|
|
184
|
|
Decrease in cash and cash equivalents
|
(15,844
|
)
|
(1,082
|
)
|
(7,027
|
)
|
—
|
|
(23,953
|
)
|
Cash and cash equivalents at beginning of period
|
23,999
|
|
9,029
|
|
22,304
|
|
—
|
|
55,332
|
|
Cash and cash equivalents at end of period
|
$
|
8,155
|
|
$
|
7,947
|
|
$
|
15,277
|
|
$
|
—
|
|
$
|
31,379
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
UNAUDITED CONDENSED CONSOLIDATING BALANCE SHEET
|
OCTOBER 29, 2016
|
|
|
|
Non-
|
|
|
|
($ thousands)
|
Parent
|
|
Guarantors
|
|
Guarantors
|
|
Eliminations
|
|
Total
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
Current assets
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
$
|
50,463
|
|
$
|
5,897
|
|
$
|
117,075
|
|
$
|
—
|
|
$
|
173,435
|
|
Receivables, net
|
123,345
|
|
856
|
|
15,274
|
|
—
|
|
139,475
|
|
Inventories, net
|
114,180
|
|
387,688
|
|
22,955
|
|
—
|
|
524,823
|
|
Prepaid expenses and other current assets
|
12,766
|
|
13,649
|
|
5,301
|
|
—
|
|
31,716
|
|
Intercompany receivable – current
|
823
|
|
327
|
|
15,766
|
|
(16,916
|
)
|
—
|
|
Total current assets
|
301,577
|
|
408,417
|
|
176,371
|
|
(16,916
|
)
|
869,449
|
|
Other assets
|
92,895
|
|
14,106
|
|
7,850
|
|
—
|
|
114,851
|
|
Goodwill and intangible assets, net
|
113,889
|
|
2,800
|
|
11,452
|
|
—
|
|
128,141
|
|
Property and equipment, net
|
30,902
|
|
149,680
|
|
11,172
|
|
—
|
|
191,754
|
|
Investment in subsidiaries
|
1,076,592
|
|
—
|
|
(21,068
|
)
|
(1,055,524
|
)
|
—
|
|
Intercompany receivable – noncurrent
|
485,403
|
|
384,452
|
|
573,308
|
|
(1,443,163
|
)
|
—
|
|
Total assets
|
$
|
2,101,258
|
|
$
|
959,455
|
|
$
|
759,085
|
|
$
|
(2,515,603
|
)
|
$
|
1,304,195
|
|
|
|
|
|
|
|
Liabilities and Equity
|
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
|
|
|
|
|
|
|
|
|
Trade accounts payable
|
$
|
70,501
|
|
$
|
123,003
|
|
$
|
18,584
|
|
$
|
—
|
|
$
|
212,088
|
|
Other accrued expenses
|
48,614
|
|
75,797
|
|
17,475
|
|
—
|
|
141,886
|
|
Intercompany payable – current
|
5,145
|
|
—
|
|
11,771
|
|
(16,916
|
)
|
—
|
|
Total current liabilities
|
124,260
|
|
198,800
|
|
47,830
|
|
(16,916
|
)
|
353,974
|
|
Other liabilities
|
|
|
|
|
|
|
|
|
|
|
Long-term debt
|
196,888
|
|
—
|
|
—
|
|
—
|
|
196,888
|
|
Other liabilities
|
34,463
|
|
68,146
|
|
3,661
|
|
—
|
|
106,270
|
|
Intercompany payable – noncurrent
|
1,099,537
|
|
41,933
|
|
301,693
|
|
(1,443,163
|
)
|
—
|
|
Total other liabilities
|
1,330,888
|
|
110,079
|
|
305,354
|
|
(1,443,163
|
)
|
303,158
|
|
Equity
|
|
|
|
|
|
|
|
|
|
|
Caleres, Inc. shareholders’ equity
|
646,110
|
|
650,576
|
|
404,948
|
|
(1,055,524
|
)
|
646,110
|
|
Noncontrolling interests
|
—
|
|
—
|
|
953
|
|
—
|
|
953
|
|
Total equity
|
646,110
|
|
650,576
|
|
405,901
|
|
(1,055,524
|
)
|
647,063
|
|
Total liabilities and equity
|
$
|
2,101,258
|
|
$
|
959,455
|
|
$
|
759,085
|
|
$
|
(2,515,603
|
)
|
$
|
1,304,195
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
UNAUDITED CONDENSED CONSOLIDATING STATEMENT OF COMPREHENSIVE INCOME
|
FOR THE THIRTEEN WEEKS ENDED OCTOBER 29, 2016
|
|
|
|
Non-
|
|
|
|
($ thousands)
|
Parent
|
|
Guarantors
|
|
Guarantors
|
|
Eliminations
|
|
Total
|
|
Net sales
|
$
|
235,094
|
|
$
|
487,558
|
|
$
|
48,055
|
|
$
|
(38,477
|
)
|
$
|
732,230
|
|
Cost of goods sold
|
162,629
|
|
281,926
|
|
25,669
|
|
(31,765
|
)
|
438,459
|
|
Gross profit
|
72,465
|
|
205,632
|
|
22,386
|
|
(6,712
|
)
|
293,771
|
|
Selling and administrative expenses
|
53,225
|
|
177,466
|
|
14,340
|
|
(6,712
|
)
|
238,319
|
|
Operating earnings
|
19,240
|
|
28,166
|
|
8,046
|
|
—
|
|
55,452
|
|
Interest expense
|
(3,472
|
)
|
(3
|
)
|
—
|
|
—
|
|
(3,475
|
)
|
Interest income
|
200
|
|
—
|
|
150
|
|
—
|
|
350
|
|
Intercompany interest income (expense)
|
2,083
|
|
(2,107
|
)
|
24
|
|
—
|
|
—
|
|
Earnings before income taxes
|
18,051
|
|
26,056
|
|
8,220
|
|
—
|
|
52,327
|
|
Income tax provision
|
(6,193
|
)
|
(9,743
|
)
|
(1,665
|
)
|
—
|
|
(17,601
|
)
|
Equity in earnings (loss) of subsidiaries, net of tax
|
22,872
|
|
—
|
|
(499
|
)
|
(22,373
|
)
|
—
|
|
Net earnings
|
34,730
|
|
16,313
|
|
6,056
|
|
(22,373
|
)
|
34,726
|
|
Less: Net loss attributable to noncontrolling interests
|
—
|
|
—
|
|
(4
|
)
|
—
|
|
(4
|
)
|
Net earnings attributable to Caleres, Inc.
|
$
|
34,730
|
|
$
|
16,313
|
|
$
|
6,060
|
|
$
|
(22,373
|
)
|
$
|
34,730
|
|
|
|
|
|
|
|
Comprehensive income
|
$
|
33,816
|
|
$
|
16,313
|
|
$
|
5,661
|
|
$
|
(21,999
|
)
|
$
|
33,791
|
|
Less: Comprehensive loss attributable to noncontrolling interests
|
—
|
|
—
|
|
(25
|
)
|
—
|
|
(25
|
)
|
Comprehensive income attributable to Caleres, Inc.
|
$
|
33,816
|
|
$
|
16,313
|
|
$
|
5,686
|
|
$
|
(21,999
|
)
|
$
|
33,816
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
UNAUDITED CONDENSED CONSOLIDATING STATEMENT OF COMPREHENSIVE INCOME
|
FOR THE THIRTY-NINE WEEKS ENDED OCTOBER 29, 2016
|
|
|
|
Non-
|
|
|
|
($ thousands)
|
Parent
|
|
Guarantors
|
|
Guarantors
|
|
Eliminations
|
|
Total
|
|
Net sales
|
$
|
617,177
|
|
$
|
1,279,080
|
|
$
|
156,649
|
|
$
|
(113,006
|
)
|
$
|
1,939,900
|
|
Cost of goods sold
|
434,833
|
|
707,584
|
|
87,688
|
|
(91,324
|
)
|
1,138,781
|
|
Gross profit
|
182,344
|
|
571,496
|
|
68,961
|
|
(21,682
|
)
|
801,119
|
|
Selling and administrative expenses
|
155,608
|
|
505,032
|
|
45,708
|
|
(21,682
|
)
|
684,666
|
|
Operating earnings
|
26,736
|
|
66,464
|
|
23,253
|
|
—
|
|
116,453
|
|
Interest expense
|
(10,561
|
)
|
(3
|
)
|
—
|
|
—
|
|
(10,564
|
)
|
Interest income
|
531
|
|
—
|
|
376
|
|
—
|
|
907
|
|
Intercompany interest income (expense)
|
6,590
|
|
(6,685
|
)
|
95
|
|
—
|
|
—
|
|
Earnings before income taxes
|
23,296
|
|
59,776
|
|
23,724
|
|
—
|
|
106,796
|
|
Income tax provision
|
(7,369
|
)
|
(22,483
|
)
|
(4,662
|
)
|
—
|
|
(34,514
|
)
|
Equity in earnings (loss) of subsidiaries, net of tax
|
56,353
|
|
—
|
|
(1,545
|
)
|
(54,808
|
)
|
—
|
|
Net earnings
|
72,280
|
|
37,293
|
|
17,517
|
|
(54,808
|
)
|
72,282
|
|
Less: Net earnings attributable to noncontrolling interests
|
—
|
|
—
|
|
2
|
|
—
|
|
2
|
|
Net earnings attributable to Caleres, Inc.
|
$
|
72,280
|
|
$
|
37,293
|
|
$
|
17,515
|
|
$
|
(54,808
|
)
|
$
|
72,280
|
|
|
|
|
|
|
|
Comprehensive income
|
$
|
71,871
|
|
$
|
37,293
|
|
$
|
17,692
|
|
$
|
(55,020
|
)
|
$
|
71,836
|
|
Less: Comprehensive loss attributable to noncontrolling interests
|
—
|
|
—
|
|
(35
|
)
|
—
|
|
(35
|
)
|
Comprehensive income attributable to Caleres, Inc.
|
$
|
71,871
|
|
$
|
37,293
|
|
$
|
17,727
|
|
$
|
(55,020
|
)
|
$
|
71,871
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
UNAUDITED CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
|
FOR THE THIRTY-NINE WEEKS ENDED OCTOBER 29, 2016
|
|
|
|
Non-
|
|
|
|
($ thousands)
|
Parent
|
|
Guarantors
|
|
Guarantors
|
|
Eliminations
|
|
Total
|
|
Net cash provided by operating activities
|
$
|
23,770
|
|
$
|
83,584
|
|
$
|
29,649
|
|
$
|
—
|
|
$
|
137,003
|
|
|
|
|
|
|
|
Investing activities
|
|
|
|
|
|
|
|
|
|
|
Purchases of property and equipment
|
(2,748
|
)
|
(37,154
|
)
|
(3,117
|
)
|
—
|
|
(43,019
|
)
|
Capitalized software
|
(3,859
|
)
|
(1,783
|
)
|
(30
|
)
|
—
|
|
(5,672
|
)
|
Intercompany investing
|
(3,129
|
)
|
3,129
|
|
—
|
|
—
|
|
—
|
|
Net cash used for investing activities
|
(9,736
|
)
|
(35,808
|
)
|
(3,147
|
)
|
—
|
|
(48,691
|
)
|
|
|
|
|
|
|
Financing activities
|
|
|
|
|
|
|
|
|
|
|
Borrowings under revolving credit agreement
|
103,000
|
|
—
|
|
—
|
|
—
|
|
103,000
|
|
Repayments under revolving credit agreement
|
(103,000
|
)
|
—
|
|
—
|
|
—
|
|
(103,000
|
)
|
Dividends paid
|
(9,094
|
)
|
—
|
|
—
|
|
—
|
|
(9,094
|
)
|
Acquisition of treasury stock
|
(23,139
|
)
|
—
|
|
—
|
|
—
|
|
(23,139
|
)
|
Issuance of common stock under share-based plans, net
|
(4,205
|
)
|
—
|
|
—
|
|
—
|
|
(4,205
|
)
|
Excess tax benefit related to share-based plans
|
3,264
|
|
—
|
|
—
|
|
—
|
|
3,264
|
|
Intercompany financing
|
38,603
|
|
(41,879
|
)
|
3,276
|
|
—
|
|
—
|
|
Net cash provided by (used for) financing activities
|
5,429
|
|
(41,879
|
)
|
3,276
|
|
—
|
|
(33,174
|
)
|
Effect of exchange rate changes on cash and cash equivalents
|
—
|
|
—
|
|
146
|
|
—
|
|
146
|
|
Increase in cash and cash equivalents
|
19,463
|
|
5,897
|
|
29,924
|
|
—
|
|
55,284
|
|
Cash and cash equivalents at beginning of period
|
31,000
|
|
—
|
|
87,151
|
|
—
|
|
118,151
|
|
Cash and cash equivalents at end of period
|
$
|
50,463
|
|
$
|
5,897
|
|
$
|
117,075
|
|
$
|
—
|
|
$
|
173,435
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CONDENSED CONSOLIDATING BALANCE SHEET
|
JANUARY 28, 2017
|
|
|
|
Non-
|
|
|
|
($ thousands)
|
Parent
|
|
Guarantors
|
|
Guarantors
|
|
Eliminations
|
|
Total
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
Current assets
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
$
|
23,999
|
|
$
|
9,029
|
|
$
|
22,304
|
|
$
|
—
|
|
$
|
55,332
|
|
Receivables, net
|
118,746
|
|
5,414
|
|
28,961
|
|
—
|
|
153,121
|
|
Inventories, net
|
150,098
|
|
410,867
|
|
24,799
|
|
—
|
|
585,764
|
|
Prepaid expenses and other current assets
|
24,293
|
|
23,040
|
|
8,058
|
|
(5,863
|
)
|
49,528
|
|
Intercompany receivable – current
|
695
|
|
263
|
|
22,091
|
|
(23,049
|
)
|
—
|
|
Total current assets
|
317,831
|
|
448,613
|
|
106,213
|
|
(28,912
|
)
|
843,745
|
|
Other assets
|
51,181
|
|
16,567
|
|
826
|
|
—
|
|
68,574
|
|
Goodwill and intangible assets, net
|
113,333
|
|
219,337
|
|
11,088
|
|
—
|
|
343,758
|
|
Property and equipment, net
|
31,424
|
|
176,358
|
|
11,414
|
|
—
|
|
219,196
|
|
Investment in subsidiaries
|
1,343,954
|
|
—
|
|
(21,946
|
)
|
(1,322,008
|
)
|
—
|
|
Intercompany receivable – noncurrent
|
568,541
|
|
366,902
|
|
581,624
|
|
(1,517,067
|
)
|
—
|
|
Total assets
|
$
|
2,426,264
|
|
$
|
1,227,777
|
|
$
|
689,219
|
|
$
|
(2,867,987
|
)
|
$
|
1,475,273
|
|
|
|
|
|
|
|
Liabilities and Equity
|
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
|
|
|
|
|
|
|
|
|
Borrowings under revolving credit agreement
|
$
|
110,000
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
$
|
110,000
|
|
Trade accounts payable
|
116,783
|
|
112,434
|
|
37,153
|
|
—
|
|
266,370
|
|
Other accrued expenses
|
74,941
|
|
65,228
|
|
16,919
|
|
(5,863
|
)
|
151,225
|
|
Intercompany payable – current
|
12,794
|
|
—
|
|
10,255
|
|
(23,049
|
)
|
—
|
|
Total current liabilities
|
314,518
|
|
177,662
|
|
64,327
|
|
(28,912
|
)
|
527,595
|
|
Other liabilities
|
|
|
|
|
|
|
|
|
|
|
Long-term debt
|
197,003
|
|
—
|
|
—
|
|
—
|
|
197,003
|
|
Other liabilities
|
91,683
|
|
40,507
|
|
3,999
|
|
—
|
|
136,189
|
|
Intercompany payable – noncurrent
|
1,209,943
|
|
98,982
|
|
208,142
|
|
(1,517,067
|
)
|
—
|
|
Total other liabilities
|
1,498,629
|
|
139,489
|
|
212,141
|
|
(1,517,067
|
)
|
333,192
|
|
Equity
|
|
|
|
|
|
|
|
|
|
|
Caleres, Inc. shareholders’ equity
|
613,117
|
|
910,626
|
|
411,382
|
|
(1,322,008
|
)
|
613,117
|
|
Noncontrolling interests
|
—
|
|
—
|
|
1,369
|
|
—
|
|
1,369
|
|
Total equity
|
613,117
|
|
910,626
|
|
412,751
|
|
(1,322,008
|
)
|
614,486
|
|
Total liabilities and equity
|
$
|
2,426,264
|
|
$
|
1,227,777
|
|
$
|
689,219
|
|
$
|
(2,867,987
|
)
|
$
|
1,475,273
|
|
|
|
|
ITEM 2
|
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|
Financial Highlights
The following is a summary of the financial highlights for the
third quarter of 2017
:
|
|
•
|
Consolidated net sales increased
$42.5 million
in the
third quarter of 2017
, driven by our Allen Edmonds business, which we acquired late last year. Same-store sales at our Famous Footwear segment were up
0.9%
for the
third quarter of 2017
and
2.6%
for the back-to-school season. Boot sales in both our Brand Portfolio and Famous Footwear segments were lower as a result of unseasonably warm weather across the United States.
|
|
|
•
|
During the
third quarter of 2017
, Hurricanes Harvey and Irma caused extensive damage in Texas and Florida. These are major markets for us and several of our stores were closed for a period of time. We estimate that the hurricanes negatively impacted our net sales for the third quarter of 2017 by approximately
$4 million
, with approximately a $3 million impact at our Famous Footwear segment and $1 million at our Brand Portfolio segment.
|
|
|
•
|
We continued to experience strong gross margins in the
third quarter of 2017
across both segments, primarily reflecting a higher consolidated mix of retail versus wholesale sales and an improved mix of higher margin brands. In addition, we continue to benefit from our sourcing initiatives, which have lowered our cost of merchandise.
|
|
|
•
|
Consolidated net earnings attributable to Caleres, Inc. were
$34.4 million
, or
$0.80
per diluted share, in the
third quarter of 2017
, compared to
$34.7 million
, or
$0.81
per diluted share, in the
third quarter of 2016
.
|
|
|
•
|
We continue to improve our balance sheet. In late 2016, we used approximately $260.0 million of proceeds from our revolving credit agreement to fund the Allen Edmonds acquisition. Since that time, we have paid down all but $20.0 million of our revolving credit agreement, driven by our strong operating cash flows. We expect to pay down the remaining $20.0 million during the fourth quarter of 2017. Our debt-to-capital ratio was
24.4%
as of
October 28, 2017
, compared to
23.3%
as of
October 29, 2016
and
33.3%
at
January 28, 2017
.
|
Outlook for the Remainder of
2017
Although boot sales were lower in the third quarter, we saw improvements in boot sales in November as more seasonal weather arrived. We also continue to benefit from our speed-to-market initiative, which has allowed us to react more rapidly to shifting trends and respond to consumer demand. We remain focused on day-to-day execution and managing the factors under our control, despite the challenges the retail industry is facing. We remain confident in our ability to drive results and believe we have the right strategy, plan and people in place to consistently deliver.
Following are the consolidated results and the results by segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CONSOLIDATED RESULTS
|
|
|
|
|
|
|
|
|
|
Thirteen Weeks Ended
|
|
Thirty-nine Weeks Ended
|
|
October 28, 2017
|
|
October 29, 2016
|
|
October 28, 2017
|
|
October 29, 2016
|
|
|
|
% of
Net Sales
|
|
|
|
|
% of
Net Sales
|
|
|
|
|
% of
Net Sales
|
|
|
|
|
% of
Net Sales
|
|
($ millions)
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
$
|
774.7
|
|
|
100.0
|
%
|
|
$
|
732.2
|
|
|
100.0
|
%
|
|
$
|
2,083.1
|
|
|
100.0
|
%
|
|
$
|
1,939.9
|
|
|
100.0
|
%
|
Cost of goods sold
|
457.8
|
|
|
59.1
|
%
|
|
438.4
|
|
|
59.9
|
%
|
|
1,207.8
|
|
|
58.0
|
%
|
|
1,138.8
|
|
|
58.7
|
%
|
Gross profit
|
316.9
|
|
|
40.9
|
%
|
|
293.8
|
|
|
40.1
|
%
|
|
875.3
|
|
|
42.0
|
%
|
|
801.1
|
|
|
41.3
|
%
|
Selling and administrative expenses
|
264.0
|
|
|
34.1
|
%
|
|
238.3
|
|
|
32.5
|
%
|
|
761.6
|
|
|
36.5
|
%
|
|
684.6
|
|
|
35.3
|
%
|
Restructuring and other special charges, net
|
—
|
|
|
—
|
%
|
|
—
|
|
|
—
|
%
|
|
4.0
|
|
|
0.2
|
%
|
|
—
|
|
|
—
|
%
|
Operating earnings
|
52.9
|
|
|
6.8
|
%
|
|
55.5
|
|
|
7.6
|
%
|
|
109.7
|
|
|
5.3
|
%
|
|
116.5
|
|
|
6.0
|
%
|
Interest expense
|
(4.2
|
)
|
|
(0.5
|
)%
|
|
(3.5
|
)
|
|
(0.5
|
)%
|
|
(13.8
|
)
|
|
(0.7
|
)%
|
|
(10.6
|
)
|
|
(0.5
|
)%
|
Interest income
|
0.1
|
|
|
0.0
|
%
|
|
0.3
|
|
|
0.0
|
%
|
|
0.6
|
|
|
0.0
|
%
|
|
0.9
|
|
|
0.0
|
%
|
Earnings before income taxes
|
48.8
|
|
|
6.3
|
%
|
|
52.3
|
|
|
7.1
|
%
|
|
96.5
|
|
|
4.6
|
%
|
|
106.8
|
|
|
5.5
|
%
|
Income tax provision
|
(14.4
|
)
|
|
(1.9
|
)%
|
|
(17.6
|
)
|
|
(2.4
|
)%
|
|
(29.6
|
)
|
|
(1.4
|
)%
|
|
(34.5
|
)
|
|
(1.8
|
)%
|
Net earnings
|
34.4
|
|
|
4.4
|
%
|
|
34.7
|
|
|
4.7
|
%
|
|
66.9
|
|
|
3.2
|
%
|
|
72.3
|
|
|
3.7
|
%
|
Net (loss) earnings attributable to noncontrolling interests
|
(0.0)
|
|
(0.0
|
%)
|
|
(0.0)
|
|
(0.0
|
%)
|
|
0.0
|
|
|
0.0
|
%
|
|
0.0
|
|
|
0.0
|
%
|
Net earnings attributable to Caleres, Inc.
|
$
|
34.4
|
|
|
4.4
|
%
|
|
$
|
34.7
|
|
|
4.7
|
%
|
|
$
|
66.9
|
|
|
3.2
|
%
|
|
$
|
72.3
|
|
|
3.7
|
%
|
Net Sales
Net sales increased
$42.5 million
, or
5.8%
, to
$774.7 million
for the
third quarter of 2017
, compared to
$732.2 million
for the
third quarter of 2016
. Our Brand Portfolio segment reported a
$37.1 million
, or
14.0%
, increase in net sales, reflecting
$44.1 million
of sales from our recently acquired Allen Edmonds business and higher net sales of our Sam Edelman and Naturalizer brands, partially offset by lower sales from our Franco Sarto and Via Spiga brands. Our Famous Footwear segment reported a
$5.3 million
, or
1.1%
, increase in net sales, primarily driven by a
0.9%
increase in same-store sales and a strong back-to-school selling season. As discussed in the
Overview
section, we estimate that our net sales were lower by approximately
$4 million
for the
third quarter of 2017
related to the impacts of Hurricanes Harvey and Irma. In addition, unseasonably warm weather resulted in a delayed start to the fall boot season, impacting boot sales in both our Famous Footwear and Brand Portfolio segments.
Net sales increased
$143.2 million
, or
7.4%
, to
$2,083.1 million
for the
nine months ended October 28, 2017
, compared to
$1,939.9 million
for the
nine months ended October 29, 2016
. Our Brand Portfolio segment reported a
$121.2 million
, or
16.9%
, increase in net sales, reflecting
$128.3 million
of sales from our recently acquired Allen Edmonds business and sales growth from our Sam Edelman and Vince brands, partially offset by lower sales from our Franco Sarto, Via Spiga and Dr. Scholl's brands. Net sales of our Famous Footwear segment increased
$22.0 million
, or
1.8%
, driven by a
1.0%
increase in same-store sales and a net increase in sales from new and closed stores.
Same-store sales changes are calculated by comparing the sales in stores that have been open at least 13 months. Relocated stores are treated as new stores, and closed stores are excluded from the calculation. Sales change from new and closed stores, net reflects the change in net sales due to stores that have been opened or closed during the period and are therefore excluded from the same-store sales calculation. E-commerce sales for those e-commerce websites that function as an extension of a retail chain are included in the same-store sales calculation.
Gross Profit
Gross profit increased
$23.1 million
, or
7.9%
, to
$316.9 million
for the
third quarter of 2017
, compared to
$293.8 million
for the
third quarter of 2016
, reflecting higher sales volume, as described above, and an improved gross profit rate.
As a percentage of net sales, gross profit increased to
40.9%
for the
third quarter of 2017
, compared to
40.1%
for the
third quarter of 2016
, primarily reflecting a higher consolidated mix of retail versus wholesale sales and an improved mix of our higher margin brands. Retail and wholesale net sales were 71% and 29%, respectively, in the
third quarter of 2017
, compared to 69% and 31% in the
third quarter of 2016
.
Gross profit increased
$74.2 million
, or
9.3%
, to
$875.3 million
for the
nine months ended October 28, 2017
, compared to
$801.1 million
for the
nine months ended October 29, 2016
, reflecting the above named factors. As a percentage of net sales, gross profit increased to
42.0%
for the
nine months ended October 28, 2017
, compared to
41.3%
for the
nine months ended October 29, 2016
, reflecting a higher consolidated mix of retail versus wholesale sales and growth in our higher margin brands, partially offset by amortization of the inventory fair value adjustment in conjunction with the acquisition of Allen Edmonds of $4.9 million ($3.0 million on an after-tax basis, or $0.07 per diluted share). Retail and wholesale net sales were 70% and 30%, respectively, in the
nine months ended October 28, 2017
, compared to 68% and 32% in the
nine months ended October 29, 2016
.
We classify certain warehousing, distribution, sourcing and other inventory procurement costs in selling and administrative expenses. Accordingly, our gross profit and selling and administrative expense rates, as a percentage of net sales, may not be comparable to other companies.
Selling and Administrative Expenses
Selling and administrative expenses increased
$25.7 million
, or
10.8%
, to
$264.0 million
for the
third quarter of 2017
, compared to
$238.3 million
for the
third quarter of 2016
, primarily driven by the recently acquired Allen Edmonds business and higher anticipated payments under our cash-based incentive compensation plans. As a percentage of net sales, selling and administrative expenses increased to
34.1%
for the
third quarter of 2017
from
32.5%
for the
third quarter of 2016
.
Selling and administrative expenses increased
$77.0 million
, or
11.2%
, to
$761.6 million
for the
nine months ended October 28, 2017
, compared to
$684.6 million
for the
nine months ended October 29, 2016
, driven by the above named factors. As a percentage of net sales, selling and administrative expenses increased to
36.5%
for the
nine months ended October 28, 2017
from
35.3%
for the
nine months ended October 29, 2016
.
Restructuring and Other Special Charges, Net
Restructuring and other special charges of
$4.0 million
($2.6 million on an after-tax basis, or $0.06 per diluted share), primarily for professional fees and severance expense, were incurred in the
nine months ended October 28, 2017
related to the men's business. No restructuring charges were incurred in the
third quarter of 2017
or during the nine months ended October 29, 2016. Refer to Note 5 to the condensed consolidated financial statements for additional information related to these charges.
Operating Earnings
Operating earnings decreased
$2.6 million
, or
4.7%
, to
$52.9 million
for the
third quarter of 2017
, compared to
$55.5 million
for the
third quarter of 2016
. Although sales and gross profit were higher in the third quarter, higher selling and administrative expenses resulted in lower operating earnings. As a percentage of net sales, operating earnings decreased to
6.8%
for the
third quarter of 2017
, compared to
7.6%
for the
third quarter of 2016
.
Operating earnings decreased
$6.8 million
, or
5.8%
to
$109.7 million
for the
nine months ended October 28, 2017
, compared to
$116.5 million
for the
nine months ended October 29, 2016
, reflecting the factors described above for the third quarter, as well as restructuring and other special charges incurred earlier in 2017. As a percentage of net sales, operating earnings decreased to
5.3%
for the
nine months ended October 28, 2017
, compared to
6.0%
for the
nine months ended October 29, 2016
.
Interest Expense
Interest expense increased
$0.7 million
, or
19.2%
, to
$4.2 million
for the
third quarter of 2017
, compared to
$3.5 million
for the
third quarter of 2016
, reflecting higher interest expense on our revolving credit agreement, which was used to fund the acquisition of Allen Edmonds in the fourth quarter of 2016. In addition, during the
third quarter of 2016
, we capitalized interest of $0.4 million associated with the expansion and modernization of our Lebanon, Tennessee distribution center, which was completed in the fourth quarter of 2016.
Interest expense increased
$3.2 million
, or
30.8%
, to
$13.8 million
for the
nine months ended October 28, 2017
, compared to
$10.6 million
for the
nine months ended October 29, 2016
, reflecting the acquisition of Allen Edmonds. In addition, during the
nine months ended October 29, 2016
, we capitalized interest of $1.3 million associated with the expansion and modernization of our Lebanon, Tennessee distribution center.
Income Tax Provision
Our effective tax rate can vary considerably from period to period, depending on a number of factors. Our consolidated effective tax rate was
29.6%
for the
third quarter of 2017
, compared to
33.6%
for the
third quarter of 2016
. During the third quarter of 2017, we recognized discrete tax benefits of
$0.9 million
, reflecting greater deductibility of certain 2016 expenses than originally estimated. During the
third quarter of 2016
, we recognized a discrete tax benefit of
$0.3 million
reflecting the settlement of a federal tax audit issue. If these discrete tax benefits had not been recognized during the third quarter of 2017 and
2016
, our effective tax rates would have been 31.5% and
34.1%
, respectively. Excluding the discrete tax items, our tax rate is lower in the current period, reflecting a higher mix of international earnings in our lowest tax rate jurisdictions.
For the
nine months ended October 28, 2017
, our consolidated effective tax rate was
30.6%
, compared to
32.3%
for the
nine months ended October 29, 2016
. Discrete tax benefits of
$2.0 million
were recognized during the
thirty-nine weeks ended October 28, 2017
, including a discrete tax benefit of
$1.2 million
related to share-based compensation as a result of the adoption of ASU 2016-09 during the first quarter of 2017, which requires prospective recognition of excess tax benefits and deficiencies in the statement of earnings. We recognized a discrete tax benefit of
$1.1 million
during the nine months ended October 29, 2016, reflecting the settlement of a federal tax audit issue. If these discrete tax benefits had not been recognized during the
nine months ended October 28, 2017
and
October 29, 2016
, our effective tax rates would have been
32.7%
and
33.4%
, respectively. Excluding the discrete tax items, our tax rate is lower for the
nine months ended October 28, 2017
, reflecting a higher mix of international earnings in our lowest tax rate jurisdictions.
Both the U.S. House of Representatives and the Senate have proposed tax reform legislation that could significantly alter the tax landscape in the United States. We cannot predict the tax reform legislation that will ultimately be enacted. Therefore, the impact on our future effective tax rate and income tax provision is uncertain.
Net Earnings Attributable to Caleres, Inc.
Net earnings attributable to Caleres, Inc. were
$34.4 million
and
$66.9 million
for the third quarter and
nine months ended October 28, 2017
, compared to net earnings of
$34.7 million
and
$72.3 million
for the third quarter and
nine months ended October 29, 2016
, as a result of the factors described above.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FAMOUS FOOTWEAR
|
|
|
|
|
|
|
|
|
|
|
|
|
Thirteen Weeks Ended
|
|
Thirty-nine Weeks Ended
|
|
October 28, 2017
|
|
October 29, 2016
|
|
October 28, 2017
|
|
October 29, 2016
|
|
|
% of
Net Sales
|
|
|
|
% of
Net Sales
|
|
|
|
% of
Net Sales
|
|
|
|
% of
Net Sales
|
|
($ millions, except sales per square foot)
|
|
|
|
|
|
|
|
Operating Results
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
$
|
473.1
|
|
100.0
|
%
|
|
$
|
467.8
|
|
100.0
|
%
|
|
$
|
1,244.5
|
|
100.0
|
%
|
|
$
|
1,222.5
|
|
100.0
|
%
|
Cost of goods sold
|
275.0
|
|
58.1
|
%
|
|
273.1
|
|
58.4
|
%
|
|
695.4
|
|
55.9
|
%
|
|
681.7
|
|
55.8
|
%
|
Gross profit
|
198.1
|
|
41.9
|
%
|
|
194.7
|
|
41.6
|
%
|
|
549.1
|
|
44.1
|
%
|
|
540.8
|
|
44.2
|
%
|
Selling and administrative expenses
|
164.4
|
|
34.8
|
%
|
|
162.0
|
|
34.6
|
%
|
|
470.0
|
|
37.7
|
%
|
|
459.7
|
|
37.6
|
%
|
Operating earnings
|
$
|
33.7
|
|
7.1
|
%
|
|
$
|
32.7
|
|
7.0
|
%
|
|
$
|
79.1
|
|
6.4
|
%
|
|
$
|
81.1
|
|
6.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
Key Metrics
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Same-store sales % change
|
0.9
|
%
|
|
|
|
2.1
|
%
|
|
|
|
1.0
|
%
|
|
|
|
0.7
|
%
|
|
|
Same-store sales $ change
|
$
|
3.8
|
|
|
|
|
$
|
9.3
|
|
|
|
|
$
|
12.2
|
|
|
|
|
$
|
8.7
|
|
|
|
Sales change from new and closed stores, net
|
$
|
1.0
|
|
|
|
$
|
2.3
|
|
|
|
$
|
9.6
|
|
|
|
$
|
2.0
|
|
|
Impact of changes in Canadian exchange rate on sales
|
$
|
0.5
|
|
|
|
$
|
0.0
|
|
|
|
$
|
0.2
|
|
|
|
$
|
(0.3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales per square foot, excluding e-commerce (thirteen and thirty-nine weeks ended)
|
$
|
64
|
|
|
|
$
|
63
|
|
|
|
$
|
169
|
|
|
|
$
|
167
|
|
|
Sales per square foot, excluding e-commerce (trailing twelve months)
|
$
|
217
|
|
|
|
|
$
|
216
|
|
|
|
|
$
|
217
|
|
|
|
|
$
|
216
|
|
|
|
Square footage (thousand sq. ft.)
|
6,894
|
|
|
|
|
6,960
|
|
|
|
|
6,894
|
|
|
|
|
6,960
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stores opened
|
12
|
|
|
|
|
16
|
|
|
|
|
33
|
|
|
|
|
37
|
|
|
|
Stores closed
|
(25
|
)
|
|
|
|
9
|
|
|
|
|
(46
|
)
|
|
|
|
32
|
|
|
|
Ending stores
|
1,042
|
|
|
|
|
1,051
|
|
|
|
|
1,042
|
|
|
|
|
1,051
|
|
|
|
Net Sales
Net sales increased
$5.3 million
, or
1.1%
, to
$473.1 million
for the
third quarter of 2017
, compared to
$467.8 million
for the
third quarter of 2016
. The increase was primarily driven by a
0.9%
increase in same-store sales and a strong back-to-school selling season. Famous Footwear experienced growth in e-commerce sales and reported improvement in the online conversion rate, due in part to the successful implementation of our buy online, pick up in store initiative. The strong e-commerce sales were partially offset by a decline in customer traffic at our retail store locations, due in part to the impact of Hurricanes Harvey and Irma. As discussed in the
Overview
section, we estimate that these hurricanes negatively impacted our net sales for the third quarter of 2017 by approximately $3 million. The segment experienced sales growth in lifestyle athletic and sport-influenced product. Sales of boots were lower in the
third quarter of 2017
, which we believe is due in part to unseasonably warm weather. During the
third quarter of 2017
, we opened
12
new stores and closed
25
stores, resulting in
1,042
stores and total square footage of
6.9 million
at the end of the
third quarter of 2017
, compared to
1,051
stores and total square footage of
7.0 million
at the end of the
third quarter of 2016
. On a trailing twelve-month basis, sales per square foot, excluding e-commerce, increased
0.4%
to
$217
for the twelve months ended
October 28, 2017
, compared to
$216
for the twelve months ended
October 29, 2016
. Members of Rewards, our customer loyalty program, continue to account for a majority of the segment’s sales, with approximately 76% of our net sales made to Rewards program members in the
third quarter of 2017
, consistent with the
third quarter of 2016
. In addition, we continue to experience growth in the number of our Rewards members.
Net sales increased
$22.0 million
, or
1.8%
, to
$1,244.5 million
for the
nine months ended October 28, 2017
, compared to
$1,222.5 million
for the
nine months ended October 29, 2016
. The increase was primarily driven by a
1.0%
increase in same-store sales and a net increase in sales from new and closed stores. Famous Footwear experienced solid growth in e-commerce sales, and reported improvement in both conversion rate and online customer traffic. However, the strong e-commerce sales were offset by a decline in customer traffic at our retail store locations.
Gross Profit
Gross profit increased
$3.4 million
, or
1.8%
, to
$198.1 million
for the
third quarter of 2017
, compared to
$194.7 million
for the
third quarter of 2016
, reflecting both higher net sales and gross profit rate. As a percentage of net sales, our gross profit increased to
41.9%
for the
third quarter of 2017
, compared to
41.6%
for the
third quarter of 2016
.
Gross profit increased
$8.3 million
, or
1.5%
, to
$549.1 million
for the
nine months ended October 28, 2017
, compared to
$540.8 million
for the
nine months ended October 29, 2016
primarily driven by higher net sales. As a percentage of net sales, our gross profit was
44.1%
for the
nine months ended October 28, 2017
, compared to
44.2%
for the
nine months ended October 29, 2016
.
Selling and Administrative Expenses
Selling and administrative expenses increased
$2.4 million
, or
1.5%
, to
$164.4 million
for the
third quarter of 2017
, compared to
$162.0 million
for the
third quarter of 2016
. The increase was primarily driven by higher expenses related to cash-based incentive compensation and higher facilities costs. As a percentage of net sales, selling and administrative expenses increased to
34.8%
for the
third quarter of 2017
, compared to
34.6%
for the
third quarter of 2016
.
Selling and administrative expenses increased
$10.3 million
, or
2.2%
, to
$470.0 million
for the
nine months ended October 28, 2017
, compared to
$459.7 million
for the
nine months ended October 29, 2016
. The increase was primarily attributable to higher store rent and facilities costs and higher expenses related to cash-based incentive compensation. As a percentage of net sales, selling and administrative expenses increased to
37.7%
for the
nine months ended October 28, 2017
, compared to
37.6%
for the
nine months ended October 29, 2016
.
Operating Earnings
Operating earnings increased
$1.0 million
, or
3.2%
, to
$33.7 million
for the
third quarter of 2017
, compared to
$32.7 million
for the
third quarter of 2016
. The increase reflects our net sales growth and a higher gross profit rate, partially offset by higher selling and administrative expenses. As a percentage of net sales, operating earnings increased
to
7.1%
for the
third quarter of 2017
, compared
to
7.0%
for the
third quarter of 2016
.
Operating earnings decreased
$2.0 million
, or
2.4%
, to
$79.1 million
for the
nine months ended October 28, 2017
, compared to
$81.1 million
for the
nine months ended October 29, 2016
. The decrease reflects higher selling and administrative expenses and a slight decline in gross profit rate, partially offset by higher net sales. As a percentage of net sales, operating earnings decreased to
6.4%
for the
nine months ended October 28, 2017
, compared to
6.6%
for the
nine months ended October 29, 2016
.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BRAND PORTFOLIO
|
|
|
|
|
|
|
|
Thirteen Weeks Ended
|
|
Thirty-nine Weeks Ended
|
|
October 28, 2017
|
|
October 29, 2016
|
|
October 28, 2017
|
|
October 29, 2016
|
|
|
% of
Net Sales
|
|
|
|
% of
Net Sales
|
|
|
|
% of
Net Sales
|
|
|
|
|
% of
Net Sales
|
|
($ millions, except sales per square foot)
|
|
|
|
|
|
|
|
Operating Results
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
$
|
301.5
|
|
100.0
|
%
|
|
$
|
264.4
|
|
100.0
|
%
|
|
$
|
838.6
|
|
100.0
|
%
|
|
$
|
717.4
|
|
100.0
|
%
|
Cost of goods sold
|
182.7
|
|
60.6
|
%
|
|
165.3
|
|
62.5
|
%
|
|
512.4
|
|
61.1
|
%
|
|
457.1
|
|
63.7
|
%
|
Gross profit
|
118.8
|
|
39.4
|
%
|
|
99.1
|
|
37.5
|
%
|
|
326.2
|
|
38.9
|
%
|
|
260.3
|
|
36.3
|
%
|
Selling and administrative expenses
|
94.5
|
|
31.3
|
%
|
|
68.6
|
|
26.0
|
%
|
|
271.2
|
|
32.3
|
%
|
|
202.8
|
|
28.3
|
%
|
Restructuring and other special charges, net
|
—
|
|
—
|
%
|
|
—
|
|
—
|
%
|
|
1.5
|
|
0.2
|
%
|
|
—
|
|
—
|
%
|
Operating earnings
|
$
|
24.3
|
|
8.1
|
%
|
|
$
|
30.5
|
|
11.5
|
%
|
|
$
|
53.5
|
|
6.4
|
%
|
|
$
|
57.5
|
|
8.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
Key Metrics
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Wholesale/retail sales mix (%)
(1)
|
75%/25%
|
|
|
|
|
86%/14%
|
|
|
|
|
75%/25%
|
|
|
|
|
86%/14%
|
|
|
Change in wholesale net sales ($)
(1)
|
$
|
(0.6
|
)
|
|
|
$
|
(8.9
|
)
|
|
|
$
|
7.7
|
|
|
|
$
|
(39.3
|
)
|
|
Unfilled order position at end of period
(1)
|
$
|
302.4
|
|
|
|
$
|
315.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Same-store sales % change
(2)
|
2.4
|
%
|
|
|
(5.4
|
)%
|
|
|
6.7
|
%
|
|
|
(5.2
|
)%
|
|
Same-store sales $ change
(2)
|
$
|
0.8
|
|
|
|
$
|
(1.8
|
)
|
|
|
$
|
5.8
|
|
|
|
$
|
(4.6
|
)
|
|
Sales change from new and closed stores, net
(3)
|
$
|
36.3
|
|
|
|
$
|
2.6
|
|
|
|
$
|
107.4
|
|
|
|
$
|
5.6
|
|
|
Impact of changes in Canadian exchange rate on retail sales
|
$
|
0.6
|
|
|
|
$
|
0.0
|
|
|
|
$
|
0.3
|
|
|
|
$
|
(1.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales per square foot, excluding e-commerce (thirteen and thirty-nine weeks ended)
(2)
|
$
|
87
|
|
|
|
$
|
84
|
|
|
|
$
|
245
|
|
|
|
$
|
236
|
|
|
Sales per square foot, excluding e-commerce (trailing twelve months)
(2)
|
$
|
323
|
|
|
|
$
|
316
|
|
|
|
$
|
323
|
|
|
|
$
|
316
|
|
|
Square footage (thousands sq. ft.)
(3)
|
403
|
|
|
|
306
|
|
|
|
403
|
|
|
|
306
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stores opened
(3)
|
3
|
|
|
|
2
|
|
|
|
11
|
|
|
|
7
|
|
|
Stores closed
(3)
|
(6
|
)
|
|
|
2
|
|
|
|
(12
|
)
|
|
|
5
|
|
|
Ending stores
(3)
|
235
|
|
|
|
167
|
|
|
|
235
|
|
|
|
167
|
|
|
|
|
(1)
|
These metrics include our recently acquired Allen Edmonds business. Refer to Note 3 to the condensed consolidated financial statements for additional information.
|
|
|
(2)
|
These metrics exclude our recently acquired Allen Edmonds business since the business was not included in our operations in the prior year comparative period.
|
|
|
(3)
|
These metrics for the third quarter and nine months ended October 28, 2017 include our recently acquired Allen Edmonds retail stores, which total approximately 121,000 square feet.
|
Net Sales
Net sales increased
$37.1 million
, or
14.0%
, to
$301.5 million
for the
third quarter of 2017
, compared to
$264.4 million
for
the
third quarter of 2016
, driven by
$44.1 million
in sales from our recently acquired Allen Edmonds business. In addition, we experienced higher net sales of our Sam Edelman and Naturalizer brands, partially offset by lower sales from our Franco Sarto and Via Spiga brands. Our sales were negatively impacted by unseasonably warm weather, which resulted in lower sales of boots during the
third quarter of 2017
. Our same-store sales, which exclude the impact of Allen Edmonds stores because they have not been part of the Company for 13 months, increased
2.4%
during the quarter. During the
third quarter of 2017
, we opened
three
stores and closed
six
stores, resulting in a total of
235
stores (of which 77 are Allen Edmonds) and total square footage of
0.4
million at the end of the
third quarter of 2017
, compared to
167
stores and total square footage of
0.3
million at the end of the
third quarter of 2016
. On a trailing twelve-month basis, sales per square foot, excluding e-commerce and sales from our Allen Edmonds stores, increased
2.1%
to
$323
for the twelve months ended
October 28, 2017
, compared to
$316
for the twelve months ended
October 29, 2016
.
Net sales increased
$121.2 million
, or
16.9%
, to
$838.6 million
for the
nine months ended October 28, 2017
, compared to
$717.4 million
for the
nine months ended October 29, 2016
, driven by
$128.3 million
in sales from our Allen Edmonds business and sales growth from our Sam Edelman and Vince brands, partially offset by lower sales from our Franco Sarto, Via Spiga and Dr. Scholl's brands. Our retail sales benefited from a net increase in sales from our acquisition of Allen Edmonds and an increase in same-store sales of
6.7%
. During the
nine months ended October 28, 2017
, we opened
11
stores and closed
12
stores.
Gross Profit
Gross profit increased
$19.7 million
, or
19.9%
, to
$118.8 million
for the
third quarter of 2017
, compared to
$99.1 million
for the
third quarter of 2016
, primarily as a result of the recently acquired Allen Edmonds business. As a percentage of net sales, our gross profit increased to
39.4%
for the
third quarter of 2017
, compared to
37.5%
for the
third quarter of 2016
. Our gross profit rate for the
third quarter of 2017
benefited from the higher mix of retail versus wholesale sales and growth in our higher margin brands.
Gross profit increased
$65.9 million
, or
25.3%
, to
$326.2 million
for the
nine months ended October 28, 2017
, compared to
$260.3 million
for the
nine months ended October 29, 2016
, primarily as a result of the recently acquired Allen Edmonds business. The Brand Portfolio segment recognized $4.9 million ($3.0 million on an after-tax basis, or $0.07 per diluted share) in cost of goods sold for the
nine months ended October 28, 2017
related to the amortization of the Allen Edmonds inventory fair value adjustment required for purchase accounting. As a percentage of net sales, our gross profit rate increased to
38.9%
for the
nine months ended October 28, 2017
, compared to
36.3%
for the
nine months ended October 29, 2016
, reflecting the above named factors.
Selling and Administrative Expenses
Selling and administrative expenses increased
$25.9 million
, or
37.7%
, to
$94.5 million
for the
third quarter of 2017
, compared to
$68.6 million
for the
third quarter of 2016
, primarily due to costs associated with the recently acquired Allen Edmonds business and additional costs associated with investments in our fulfillment program and distribution centers. As a percentage of net sales, selling and administrative expenses increased to
31.3%
for the
third quarter of 2017
, compared to
26.0%
for the
third quarter of 2016
.
Selling and administrative expenses increased
$68.4 million
, or
33.7%
, to
$271.2 million
for the
nine months ended October 28, 2017
, compared to
$202.8 million
for the
nine months ended October 29, 2016
, driven by costs associated with the recently acquired Allen Edmonds business, an increase in anticipated payments under our cash-based incentive compensation plans and additional costs associated with investments in our fulfillment program and distribution centers. As a percentage of net sales, selling and administrative expenses increased to
32.3%
for the
nine months ended October 28, 2017
, compared to
28.3%
for the
nine months ended October 29, 2016
.
Restructuring and Other Special Charges, Net
Restructuring and other special charges were
$1.5 million
in the
nine months ended October 28, 2017
related to the integration and reorganization of our men's business. No restructuring and other special charges were incurred in the
third quarter of 2017
or during the nine months ended October 29, 2016. Refer to Note 5 to the condensed consolidated financial statements for additional information related to these charges.
Operating Earnings
Operating earnings decreased
$6.2 million
,
or
20.3%
,
to
$24.3 million
for the
third quarter of 2017
, compared to
$30.5 million
for the
third quarter of 2016
. Despite net sales growth and expansion in our gross profit rate, higher selling and administrative expenses resulted in lower operating earnings. As a percentage of net sales, operating earnings decreased to
8.1%
for the
third quarter of 2017
, compared to
11.5%
in the
third quarter of 2016
.
Operating earnings decreased
$4.0 million
, or
7.0%
, to
$53.5 million
for the
nine months ended October 28, 2017
, compared to
$57.5 million
for
nine months ended October 29, 2016
, driven by the above named factors. As a percentage of net sales, operating earnings decreased to
6.4%
for the
nine months ended October 28, 2017
, compared to
8.0%
for the
nine months ended October 29, 2016
.
The Other category includes unallocated corporate administrative expenses and other costs and recoveries. Costs of $5.2 million were incurred for the
third quarter of 2017
, compared to $7.7 million for the
third quarter of 2016
, primarily reflecting lower expenses related to our cash-based incentive plans.
Unallocated corporate administrative expenses and other costs and recoveries were $23.0 million for the
nine months ended October 28, 2017
, compared to $22.1 million for the
nine months ended October 29, 2016
. The increase primarily reflects $2.5 million of restructuring costs for the integration and reorganization of our men's brands, as further discussed in Note 5 to the condensed consolidated financial statements.
|
|
LIQUIDITY AND CAPITAL RESOURCES
|
Borrowings
|
|
|
|
|
|
|
|
|
|
|
($ millions)
|
October 28, 2017
|
|
October 29, 2016
|
|
January 28, 2017
|
|
Borrowings under revolving credit agreement
|
$
|
20.0
|
|
$
|
—
|
|
$
|
110.0
|
|
Long-term debt
|
197.3
|
|
196.9
|
|
197.0
|
|
Total debt
|
$
|
217.3
|
|
$
|
196.9
|
|
$
|
307.0
|
|
Total debt obligations of
$217.3 million
at
October 28, 2017
increased
$20.4 million
, compared to
$196.9 million
at
October 29, 2016
, primarily due to higher borrowings under our revolving credit agreement, which we used to fund the acquisition of Allen Edmonds in the fourth quarter of 2016. Total debt obligations decreased
$89.7 million
, compared to
$307.0 million
at
January 28, 2017
, as we paid down an incremental $90.0 million of our borrowings during the
nine months ended October 28, 2017
. Interest expense for the
third quarter of 2017
increased
$0.7 million
to
$4.2 million
, compared to
$3.5 million
for the
third quarter of 2016
, and increased
$3.2 million
to
$13.8 million
for the
nine months ended October 28, 2017
, compared to
$10.6 million
for the
nine months ended October 29, 2016
. The increases were attributable to higher average borrowings under our revolving credit agreement due to the acquisition of Allen Edmonds in the fourth quarter of 2016. In addition, during the
third quarter
and
nine months ended October 29, 2016
, we capitalized interest of
$0.4 million
and
$1.3 million
, respectively, associated with the expansion and modernization of our Lebanon, Tennessee distribution center that was completed in the fourth quarter of 2016.
Credit Agreement
The Company maintains a revolving credit facility for working capital needs in an aggregate amount of up to
$600.0 million
, with the option to increase by up to
$150.0 million
. On December 18, 2014, the Company and certain of its subsidiaries (the “Loan Parties”) entered into a Fourth Amended and Restated Credit Agreement, which was further amended on July 20, 2015 to release all of the Company’s subsidiaries that were borrowers under or that guaranteed the Credit Agreement other than Sidney Rich Associates, Inc. and BG Retail, LLC (as so amended, the “Credit Agreement”). On December 13, 2016, Allen Edmonds was joined to the Credit Agreement as a guarantor. After giving effect to the joinder, the Company is the lead borrower, and Sidney Rich Associates, Inc., BG Retail, LLC and Allen Edmonds are each co-borrowers and guarantors under the Credit Agreement. The Credit Agreement matures on
December 18, 2019
.
Borrowing availability under the Credit Agreement is limited to the lesser of the total commitments and the borrowing base ("Loan Cap"), which is based on stated percentages of the sum of eligible accounts receivable, eligible inventory and eligible credit card receivables, as defined, less applicable reserves. Under the Credit Agreement, the Loan Parties’ obligations are secured by a first-priority security interest in all accounts receivable, inventory and certain other collateral.
Interest on borrowings is at variable rates based on the London Interbank Offered Rate (“LIBOR”) or the prime rate, as defined in the Credit Agreement, plus a spread. The interest rate and fees for letters of credit vary based upon the level of excess availability under the Credit Agreement. There is an unused line fee payable on the unused portion under the facility and a letter of credit fee payable on the outstanding face amount under letters of credit.
At
October 28, 2017
, we had
$20.0 million
in borrowings and
$8.9 million
in letters of credit outstanding under the Credit Agreement. Total borrowing availability was
$514.0 million
at
October 28, 2017
. We were in compliance with all covenants and restrictions under the Credit Agreement as of
October 28, 2017
.
$200 Million Senior Notes
On July 27, 2015, we issued $200.0 million aggregate principal amount of Senior Notes due in 2023 (the "2023 Senior Notes") in a private placement. On October 22, 2015, we commenced an offer to exchange our 2023 Senior Notes outstanding for substantially identical debt securities registered under the Securities Act of 1933. The exchange offer was completed on November 23, 2015 and did not affect the amount of our indebtedness outstanding.
The 2023 Senior Notes are guaranteed on a senior unsecured basis by each of the subsidiaries of Caleres, Inc. that is an obligor under the Credit Agreement, and bear interest at 6.25%, which is payable on February 15 and August 15 of each year beginning on February 15, 2016. The 2023 Senior Notes mature on August 15, 2023. Prior to August 15, 2018, we may redeem some or all of the 2023 Senior Notes at various redemption prices.
The 2023 Senior Notes also contain covenants and restrictions that limit certain activities including, among other things, levels of indebtedness, payments of dividends, the guarantee or pledge of assets, certain investments, common stock repurchases, mergers and acquisitions and sales of assets. As of
October 28, 2017
, we were in compliance with all covenants and restrictions relating to the 2023 Senior Notes.
Working Capital and Cash Flow
|
|
|
|
|
|
|
|
|
|
|
|
Thirty-nine Weeks Ended
|
|
|
($ millions)
|
October 28, 2017
|
|
October 29, 2016
|
|
Change
|
|
Net cash provided by operating activities
|
$
|
122.2
|
|
$
|
137.0
|
|
$
|
(14.8
|
)
|
Net cash used for investing activities
|
(38.9
|
)
|
(48.7
|
)
|
9.8
|
|
Net cash used for financing activities
|
(107.5
|
)
|
(33.2
|
)
|
(74.3
|
)
|
Effect of exchange rate changes on cash and cash equivalents
|
0.2
|
|
0.2
|
|
—
|
|
(Decrease) increase in cash and cash equivalents
|
$
|
(24.0
|
)
|
$
|
55.3
|
|
$
|
(79.3
|
)
|
Reasons for the major variances in cash provided (used) in the table above are as follows:
Cash provided by operating activities was
$14.8 million
lower in the
nine months ended October 28, 2017
as compared to the
nine months ended October 29, 2016
, reflecting the following factors:
|
|
•
|
An increase in inventory in the
nine months ended October 28, 2017
compared to a decrease in the comparable period in
2016
;
|
|
|
•
|
A smaller decrease in prepaid expenses and other current assets in the
nine months ended October 28, 2017
, compared to the comparable period in
2016
, reflecting lower current assets as of October 29, 2016 due to the timing of our rent payments; and
|
|
|
•
|
A larger decrease in accounts payable in the
nine months ended October 28, 2017
, compared to the comparable period in
2016
; partially offset by
|
|
|
•
|
An increase in accrued expenses and other liabilities in the
nine months ended October 28, 2017
as compared to a decrease in the comparable period in
2016
, driven by higher anticipated payments under our cash-based incentive compensation plans in 2017.
|
Cash used for investing activities was
$9.8 million
lower in the
nine months ended October 28, 2017
as compared to the
nine months ended October 29, 2016
, primarily due to lower purchases of property and equipment during the
nine months ended October 28, 2017
. During 2016, our capital expenditures included the expansion and modernization of our Lebanon, Tennessee distribution center, which was completed in the fourth quarter of 2016. For fiscal 2017, we expect purchases of property and equipment and capitalized software of approximately $55 million.
Cash used for financing activities was
$74.3 million
higher for the
nine months ended October 28, 2017
as compared to the
nine months ended October 29, 2016
, as we continue to reduce the borrowings under our revolving credit agreement, which funded our Allen Edmonds acquisition. In addition, we repurchased fewer shares under our stock repurchase program during the
nine months ended October 28, 2017
.
A summary of key financial data and ratios at the dates indicated is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
October 28, 2017
|
|
October 29, 2016
|
|
January 28, 2017
|
|
Working capital
($ millions
)
(1)
|
$
|
386.3
|
|
$
|
515.5
|
|
$
|
316.2
|
|
Current ratio
(2)
|
1.93:1
|
|
2.46:1
|
|
1.60:1
|
|
Debt-to-capital ratio
(3)
|
24.4
|
%
|
23.3
|
%
|
33.3
|
%
|
|
|
(1)
|
Working capital has been computed as total current assets less total current liabilities.
|
|
|
(2)
|
The current ratio has been computed by dividing total current assets by total current liabilities.
|
|
|
(3)
|
The debt-to-capital ratio has been computed by dividing total debt by total capitalization. Total debt is defined as long-term debt and borrowings under the Credit Agreement. Total capitalization is defined as total debt and total equity.
|
Working capital at
October 28, 2017
was
$386.3 million
, which was
$129.2 million
lower and
$70.1 million
higher than at
October 29, 2016
and
January 28, 2017
, respectively. Our current ratio was 1.93 to 1 as of
October 28, 2017
, compared to 2.46 to 1 at
October 29, 2016
and 1.60 to 1 at
January 28, 2017
. The decrease in working capital and the current ratio from
October 29, 2016
primarily reflects the impact of the Allen Edmonds acquisition in the fourth quarter of 2016, which was funded with borrowings under our revolving credit agreement. A significant portion of the Allen Edmonds purchase price was allocated to intangible assets, which are noncurrent, while the entire purchase price was funded using current liabilities. The increase in working capital and the current ratio from
January 28, 2017
was primarily due to lower borrowings under our revolving credit agreement and lower payables, partially offset by lower cash and cash equivalents. Our debt-to-capital ratio was
24.4%
as of
October 28, 2017
, compared to
23.3%
as of
October 29, 2016
and
33.3%
at
January 28, 2017
. The increase in our debt-to-capital ratio from
October 29, 2016
primarily reflects higher borrowings under our revolving credit agreement. The decrease in our debt-to-capital ratio from
January 28, 2017
primarily reflects lower borrowings under our revolving credit agreement.
At
October 28, 2017
, we had
$31.4 million
of cash and cash equivalents. Approximately half of this balance represents the accumulated unremitted earnings of our foreign subsidiaries, which are considered indefinitely reinvested.
We declared and paid dividends of
$0.07
per share in both the
third quarter of 2017
and 2016. 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. However, we presently expect that dividends will continue to be paid.
Our contractual obligations primarily consist of purchase obligations, operating lease commitments, long-term debt, interest on long-term debt, minimum license commitments, financial instruments, borrowings under our revolving credit agreement, obligations for our supplemental executive retirement plan and other postretirement benefits and obligations.
During the third quarter of 2017, the Company signed a lease for a new wholesale distribution center in California. The lease term is 10 years and requires aggregate minimum lease payments of approximately $3.4 million in 2018, $10.2 million in 2019-2020, $10.7 million in 2021-2022 and $28.6 million thereafter.
Except for changes within the normal course of business (primarily changes in purchase obligations, which fluctuate throughout the year as a result of the seasonal nature of our operations, borrowings under and repayments of our revolving credit agreement and changes in operating lease commitments as a result of new stores, store closures and lease renewals) and the lease described above, there have been no other significant changes to our contractual obligations identified in our Annual Report on Form 10-K for the year ended
January 28, 2017
.
|
|
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
|
No material changes have occurred related to critical accounting policies and estimates since the end of the most recent fiscal year. For further information, see Part II, Item 7 of our Annual Report on Form 10-K for the year ended
January 28, 2017
.
|
|
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
|
Recently issued accounting pronouncements and their impact on the Company are described in Note 2 to the condensed consolidated financial statements.
|
|
FORWARD-LOOKING STATEMENTS
|
This Form 10-Q contains certain forward-looking statements and expectations regarding the Company’s future performance and the performance of its brands. Such statements are subject to various risks and uncertainties that could cause actual results to differ materially. These risks include (i) changing consumer demands, which may be influenced by consumers' disposable income, which in turn can be influenced by general economic conditions; (ii) rapidly changing fashion trends and purchasing patterns; (iii) intense competition within the footwear industry; (iv) 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; (v) the ability to accurately forecast sales and manage inventory levels; (vi) cybersecurity threats or other major disruption to the Company’s information technology systems; (vii) transitional challenges with acquisitions; (viii) customer concentration and increased consolidation in the retail industry; (ix) a disruption in the Company’s distribution centers; (x) the ability to recruit and retain senior management and other key associates; (xi) foreign currency fluctuations; (xii) compliance with applicable laws and standards with respect to labor, trade and product safety issues; (xiii) the ability to secure/exit leases on favorable terms; (xiv) the ability to maintain relationships with current suppliers; (xv) the ability to attract, retain and maintain good relationships with licensors and protect intellectual property rights; and (xvi) changes to tax laws, policies and treaties. The Company's reports to the Securities and Exchange Commission contain detailed information relating to such factors, including, without limitation, the information under the caption “Risk Factors” in Part I, Item 1A of the Company’s Annual Report on Form 10-K for the year ended
January 28, 2017
, which information is incorporated by reference herein and updated by the Company’s Quarterly Reports on Form 10-Q. The Company does not undertake any obligation or plan to update these forward-looking statements, even though its situation may change.