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Caleres Reports Second Quarter 2015 Results

08/27/2015

Adjusted earnings per share improves 22% year-over-year

Company reiterates full-year guidance

ST. LOUIS--(BUSINESS WIRE)--Caleres (NYSE: CAL) (caleres.com) today reported second quarter 2015 financial results, with net sales of $637.8 million versus second quarter 2014 net sales of $635.9 million. Second quarter 2015 net earnings were $16.8 million, or $0.38 per diluted share, and included $5.3 million of after-tax expense related to the company’s debt extinguishment. Excluding this expense, net earnings were $22.1 million, or $0.50 per diluted share, up 22.4% versus second quarter 2014 net earnings of $18.1 million, or $0.41 per diluted share. Gross margin was 41.2%, up approximately 40 basis points year-over-year, while operating margin was 5.6%.

“Today we reported a solid quarter, as expected, with improved sales, margins and adjusted earnings,” said Diane Sullivan, CEO, president and chairman of Caleres. “Total sales were up 2%, excluding Shoes.com, while gross and operating margin both expanded in the quarter. We also improved bottom-line performance by 22%, thanks to continued progress toward our long-term strategic initiatives.”

                                                                 
  US$M, except per share (unaudited)         2Q’15         2Q’14         2Q Chg        

1H’15

        1H’14         1H Chg  
  Consolidated net sales     $ 637.8       $ 635.9       0.3 %     $ 1,240.1       $ 1,227.0       1.1 %  
  Famous Footwear       395.9         404.1       (2.0 %)       755.9         770.8       (1.9 %)  
  Brand Portfolio       242.0         231.8       4.4 %       484.2         456.2       6.1 %  
  Gross profit       262.8         259.6       1.2 %       511.3         502.0       1.9 %  
  Margin       41.2 %       40.8 %     40 bps       41.2 %       40.9 %     30 bps  
  SG&A       227.1         228.3       (0.6 %)       445.2         442.0       0.7 %  
  % of net sales       35.6 %       35.9 %     -30 bps       35.9 %       36.0 %     -10 bps  
  Operating earnings       35.7         31.3       14.2 %       66.1         60.0       10.1 %  
  Margin       5.6 %       4.9 %     70 bps       5.3 %       4.9 %     40 bps  
  Net interest expense       4.1         5.0       (18.1 %)       8.3         10.2       (19.3 %)  
  Earnings before income taxes       22.9         26.3       (12.7 %)       49.1         49.8       (1.3 %)  
  Tax rate       26.5 %       31.4 %     -490 bps       26.2 %       32.7 %     -650 bps  
  Net earnings     $ 16.8       $ 18.1       (6.9 %)     $ 36.1       $ 33.5       7.7 %  
  Per diluted share     $ 0.38       $ 0.41       (7.3 %)     $ 0.82       $ 0.76       7.9 %  
  Adjusted net earnings     $ 22.1       $ 18.1       22.4 %     $ 41.4       $ 33.5       23.5 %  
  Per diluted share         $ 0.50           $ 0.41           22.0 %         $ 0.94           $ 0.76           23.7 %  
                         

Second Quarter Highlights

Famous Footwear second quarter 2015 sales of $395.9 million were up 0.6% year-over-year, excluding Shoes.com, which was sold in December of 2014. For the quarter, same-store-sales were up 0.1%, with strong growth in canvas outweighing weakness in performance athletic product and sandals. During the quarter, 10 new stores were opened and six stores were closed.

Brand Portfolio sales of $242.0 million were up 4.4% in the second quarter, with performance in the quarter driven by a 14.1% improvement in Contemporary Fashion. Healthy Living sales were down 1.5%, as increases in wholesale sales were unable to offset weakness on the retail side, where the company operated nine fewer stores year-over-year.

Consolidated gross profit of $262.8 million was up 1.2% in the second quarter, while gross margin of 41.2% was up approximately 40 basis points year-over-year. SG&A for the second quarter was $227.1 million, representing 35.6% of net sales – down approximately 30 basis points versus the prior year. For the quarter, operating margins improved approximately 70 basis points year-over-year to 5.6%.

Inventory at the end of the second quarter was $641.1 million, down 2.5% from $657.7 million in the prior year. Famous Footwear inventory was down 0.7% on a per store basis, while Brand Portfolio inventory was down 3.4%. At quarter-end, Caleres had no borrowings against its revolving credit facility and had $129.3 million of cash and equivalents.

Financial Review and 2015 Outlook

“In the second quarter, we made steady progress toward achieving our full year earnings guidance, as we continued to drive margin expansion and further strengthened our balance sheet,” said Ken Hannah, chief financial officer of Caleres. “This progress has enabled us to accelerate investment in our long-term strategic growth initiatives.”

                           
  Guidance Metric                     FY’15  
  Consolidated net sales                     $2.61 to $2.63 billion  
  Famous Footwear same-store sales                     Up low-single digits
  Famous Footwear reported sales                     Flat, due to sale of Shoes.com  
  Brand Portfolio sales                     Up mid-single digits  
  Gross margin                     Up approximately 15 bps  
  SG&A                     Less than or equal to 35.4% of sales  
  Net interest expense                     ~$18 million  
  Effective tax rate                     30% to 33%  
  Adjusted earnings per diluted share                     $1.84 to $1.94  
  Depreciation and amortization                     ~$53 million  
  Capital expenditures                     ~$75 million  
 

Quarterly Dividend

The company also declared a quarterly dividend of $0.07 per share, payable October 1, 2015, to shareholders of record as of September 17, 2015. This dividend will be the 371st consecutive quarterly dividend paid by the company.

Investor Conference Call: Caleres will host an investor conference call at 5 p.m. ET today, August 27, 2015. The webcast and slides will be available at investor.caleres.com/news/events. A live conference call will be available at (877) 217-9089 for analysts in North America or (706) 679-1723 for international analysts by using the conference ID 5950620. A replay will be available at investor.caleres.com/news/events/archive for a limited period. Investors may also access the replay by dialing (855) 859-2056 in North America or (404) 537-3406 internationally and using the conference ID 5950620 through September 10, 2015.

Definitions: All references in this press release, outside of the condensed consolidated financial statements that follow, unless otherwise noted, related to net earnings attributable to Caleres, Inc. and diluted earnings per common share attributable to Caleres, Inc. shareholders, are presented as net earnings and earnings per diluted share, respectively.

Non-GAAP Financial Measures: In this press release, the company’s financial results are provided both in accordance with generally accepted accounting principles (GAAP) and using certain non-GAAP financial measures. In particular, the company provides historic and estimated future gross profit, operating earnings, net earnings and earnings per diluted share adjusted to exclude certain gains, charges and recoveries, which are non-GAAP financial measures. These results are included as a complement to results provided in accordance with GAAP because management believes these non-GAAP financial measures help identify underlying trends in the company’s business and provide useful information to both management and investors by excluding certain items that may not be indicative of the company’s core operating results. These measures should not be considered a substitute for or superior to GAAP results. Reconciliations to the applicable GAAP financial measures have been included in the attached schedules.

Safe Harbor Statement Under the Private Securities Litigation Reform Act of 1995: This press release 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) customer concentration and increased consolidation in the retail industry; (viii) a disruption in the Company’s distribution centers; (ix) the ability to recruit and retain senior management and other key associates; (x) foreign currency fluctuations; (xi) compliance with applicable laws and standards with respect to labor, trade and product safety issues; (xii) the ability to secure/exit leases on favorable terms; (xiii) the ability to attract, retain, and maintain good relationships with licensors and protect intellectual property rights; and (xiv) the ability to maintain relationships with current suppliers. 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 Item 1A of the company’s Annual Report on Form 10-K for the year ended January 31, 2015, 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.

About Caleres: Caleres is a diverse portfolio of global brands, which fit people’s lives: Family, Healthy Living and Contemporary Fashion. Our products are available virtually everywhere - in the over 1,200 retail stores we operate, in hundreds of major department and specialty stores, on our branded ecommerce sites, and on many additional third-party retail websites. Famous Footwear and Famous.com serve as our Family brands. Our Contemporary Fashion brands include Sam Edelman, Franco Sarto, Vince, Via Spiga, Diane von Furstenberg, Fergie Footwear and Carlos Santana. Naturalizer, Dr. Scholl’s, LifeStride, Bzees and Ryka represent our Healthy Living brands. Combined, these brands help make Caleres a company with both a legacy and a mission. Our legacy is our more than 130 years of craftsmanship, our passion for fit and our business savvy, while our mission is to continue to inspire people to feel better feet first. Visit caleres.com to learn more about us.

 
SCHEDULE 1
 
CALERES, INC.
  CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS  
         
  (Unaudited)     (Unaudited)  
  Thirteen Weeks Ended     Twenty-six Weeks Ended  
  (Thousands, except per share data)       August 1, 2015     August 2, 2014     August 1, 2015     August 2, 2014  
Net sales $ 637,834     $ 635,877 $ 1,240,117     $ 1,227,039
  Cost of goods sold       375,039       376,235       728,796       725,056    
  Gross profit       262,795       259,642       511,321       501,983    
  Selling and administrative expenses       227,061       228,340       445,251       441,955    
  Operating earnings       35,734       31,302       66,070       60,028    
Interest expense (4,345 ) (5,125 ) (8,808 ) (10,431 )
Loss on early extinguishment of debt (8,690 ) (8,690 )
  Interest income       238       109       542       185    
  Earnings before income taxes       22,937       26,286       49,114       49,782    
  Income tax provision       (6,074 )     (8,247 )     (12,860 )     (16,267 )  
  Net earnings       16,863       18,039       36,254       33,515    
  Net earnings (loss) attributable to noncontrolling interests       38       (25 )     168       22    
  Net earnings attributable to Caleres, Inc.       $ 16,825       $ 18,064       $ 36,086       $ 33,493    
  Basic earnings per common share attributable to Caleres, Inc. shareholders       $ 0.38       $ 0.41       $ 0.82       $ 0.77    
  Diluted earnings per common share attributable to Caleres, Inc. shareholders       $ 0.38       $ 0.41       $ 0.82       $ 0.76    
                               
  Basic number of shares       $ 42,325       $ 42,074       $ 42,319       $ 41,980    
  Diluted number of shares       $ 42,448       $ 42,276       $ 42,455       $ 42,198    
 
 
SCHEDULE 2
         
CALERES, INC.
  CONDENSED CONSOLIDATED BALANCE SHEETS  
      (Unaudited)  
  August 1, 2015     August 2, 2014       January 31, 2015  
(Thousands)  
ASSETS
 
Cash and cash equivalents $ 129,345 $ 46,876 $ 67,403
Restricted cash 41,482
Receivables, net 144,213 125,484 136,646
Inventories, net 641,128 657,656 543,103
Prepaid expenses and other current assets     41,002       39,167         43,744  
Total current assets     997,170       869,183         790,896  
 
Property and equipment, net 150,839 148,358 149,743
Goodwill and intangible assets, net 132,737 136,762 134,587
Other assets     146,727       134,779         141,586  
Total assets   $ 1,427,473     $ 1,289,082       $ 1,216,812  
 
LIABILITIES AND EQUITY
 
Current portion of long-term debt $ 39,157 $ $
Trade accounts payable 382,626 341,694 215,921
Other accrued expenses     156,106       159,152         181,162  
Total current liabilities     577,889       500,846         397,083  
 
Long-term debt 200,000 199,104 199,197
Deferred rent 40,981 36,560 39,742
Other liabilities     39,375       43,320         39,168  
Total other liabilities     280,356       278,984         278,107  
 
Total Caleres, Inc. shareholders’ equity 568,345 508,582 540,910
Noncontrolling interests     883       670         712  
Total equity     569,228       509,252         541,622  
Total liabilities and equity   $ 1,427,473     $ 1,289,082       $ 1,216,812  
 
 
SCHEDULE 3
         
CALERES, INC.
  CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS  
  (Unaudited)  
  Twenty-six Weeks Ended  
(Thousands)   August 1, 2015     August 2, 2014  
OPERATING ACTIVITIES:            
Net cash provided by operating activities   $ 101,255       $ 66,491    
 
INVESTING ACTIVITIES:
Capital expenditures (27,570 ) (26,225 )
Disposals of property and equipment 7,111
Acquisition of trademarks             (65,065 )  
Net cash used for investing activities     (20,459 )       (91,290 )  
 
FINANCING ACTIVITIES:
Borrowings under revolving credit agreement 86,000 456,000
Repayments under revolving credit agreement (86,000 ) (463,000 )
Proceeds from issuance of 2023 senior notes 200,000
Redemption of 2019 senior notes (160,700 )
Restricted cash (41,482 )
Debt issuance costs (3,650 )
Dividends paid (6,135 ) (6,110 )
Acquisition of treasury stock (4,921 )
Issuance of common stock under share-based plans, net (4,428 ) (523 )
Tax benefit related to share-based plans     2,838         2,097    
Net cash used for financing activities     (18,478 )       (11,536 )  
Effect of exchange rate changes on cash and cash equivalents     (376 )       665    
Increase (decrease) in cash and cash equivalents 61,942 (35,670 )
Cash and cash equivalents at beginning of period     67,403         82,546    
Cash and cash equivalents at end of period   $ 129,345       $ 46,876    
 
 
SCHEDULE 4
                               
CALERES, INC.
  RECONCILIATION OF NET EARNINGS AND DILUTED EARNINGS PER SHARE (GAAP BASIS) TO ADJUSTED NET EARNINGS AND ADJUSTED DILUTED EARNINGS PER SHARE (NON-GAAP BASIS)  
 
  (Unaudited)       (Unaudited)  
  Thirteen Weeks Ended August 1, 2015       Thirteen Weeks Ended August 2, 2014  
(Thousands, except per share data)  

Pre-Tax Impact
of
Charges/Other
Items

     

Net Earnings
Attributable to
Caleres, Inc.

   

Diluted
Earnings Per
Share

     

Pre-Tax Impact
of
Charges/Other
Items

     

Net Earnings
Attributable to
Caleres, Inc.

   

Diluted Earnings
Per Share

 
 
GAAP earnings $ 16,825 $ 0.38 $ 18,064 $ 0.41
 

Charges/Other Items

Loss on early extinguishment of debt   $ 8,690         5,281       0.12                        
Total charges/other items   $ 8,690       $ 5,281     $ 0.12       $       $     $  
Adjusted earnings   $ 22,106     $ 0.50     $ 18,064     $ 0.41  
 
  (Unaudited)       (Unaudited)  
  Twenty-six Weeks Ended August 1, 2015       Twenty-six Weeks Ended August 2, 2014  
(Thousands, except per share data)  

Pre-Tax Impact
of
Charges/Other
Items

     

Net Earnings
Attributable to
Caleres, Inc.

   

Diluted
Earnings Per
Share

     

Pre-Tax Impact
of
Charges/Other
Items

     

Net Earnings
Attributable to
Caleres, Inc.

   

Diluted Earnings
Per Share

 
GAAP earnings $ 36,086 $ 0.82 $ 33,493 $ 0.76
 

Charges/Other Items

Loss on early extinguishment of debt   $ 8,690         5,281       0.12       $                
Total charges/other items   $ 8,690         5,281       0.12       $                
Adjusted earnings   $ 41,367     $ 0.94     $ 33,493     $ 0.76  
 
 
SCHEDULE 5
 
CALERES, INC.
SUMMARY FINANCIAL RESULTS BY SEGMENT
  (Unaudited)  
     
SUMMARY FINANCIAL RESULTS
                                                   
  Thirteen Weeks Ended  
  Famous Footwear     Brand Portfolio     Other     Consolidated  
(Thousands)  

August 1,
2015

   

August 2,
2014

   

August 1,
2015

   

August 2,
2014

   

August 1,
2015

   

August 2,
2014

   

August 1,
2015

   

August 2,
2014

 
Net sales   $ 395,873     $ 404,069     $ 241,961 $ 231,808     $     $     $ 637,834     $ 635,877
Gross profit $ 179,510 $ 180,974 $ 83,285 $ 78,668 $ $ $ 262,795 $ 259,642
Gross profit rate 45.3 % 44.8 % 34.4 % 33.9 % % % 41.2 % 40.8 %
Operating earnings (loss) $ 27,672 $ 25,524 $ 16,005 $ 17,497 $ (7,943 ) $ (11,719 ) $ 35,734 $ 31,302
Operating earnings % 7.0 % 6.3 % 6.6 % 7.5 % % % 5.6 % 4.9 %
Same-store sales % (on a 13-week basis) 0.1 % 1.6 % (5.2 )% 2.3 % % % % %
Number of stores 1,044 1,035 163 170 1,207 1,205
 
 
                                               
  Twenty-six Weeks Ended  
  Famous Footwear     Brand Portfolio     Other     Consolidated  
(Thousands)  

August 1,
2015

   

August 2,
2014

   

August 1,
2015

   

August 2,
2014

   

August 1,
2015

   

August 2,
2014

   

August 1,
2015

   

August 2,
2014

 
Net sales $ 755,893 $ 770,795 $ 484,224 $ 456,244 $ $ $ 1,240,117 $ 1,227,039
Gross profit $ 347,724 $ 346,336 $ 163,597 $ 155,647 $ $ $ 511,321 $ 501,983
Gross profit rate 46.0 % 44.9 % 33.8 % 34.1 % % % 41.2 % 40.9 %
Operating earnings (loss) $ 55,632 $ 52,254 $ 27,065 $ 28,700 $ (16,627 ) $ (20,926 ) $ 66,070 $ 60,028
Operating earnings % 7.4 % 6.8 % 5.6 % 6.3 % % % 5.3 % 4.9 %
Same-store sales % (on a 26-week basis) 1.5 % 1.5 % (3.9 )% (1.5 )% % % % %
Number of stores 1,044 1,035 163 170 1,207 1,205
 
 
SCHEDULE 6
                 
CALERES, INC.
  BASIC AND DILUTED EARNINGS PER SHARE RECONCILIATION  
 
  (Unaudited)     (Unaudited)  
  Thirteen Weeks Ended     Twenty-six Weeks Ended  
(Thousands, except per share data)  

August 1,
2015

   

August 2,
2014

   

August 1,
2015

   

August 2,
2014

 
 
Net earnings attributable to Caleres, Inc.:
Net earnings $ 16,863 $ 18,039 $ 36,254 $ 33,515
Net (earnings) loss attributable to noncontrolling interests (38 ) 25 (168 ) (22 )
  Net earnings allocated to participating securities         (544 )       (669 )       (1,195 )       (1,262 )  
  Net earnings attributable to Caleres, Inc. after allocation of earnings to participating securities       $ 16,281       $ 17,395       $ 34,891       $ 32,231    
 
Basic and diluted common shares attributable to Caleres, Inc.:
Basic common shares 42,325 42,074 42,319 41,980
  Dilutive effect of share-based awards         123         202         136         218    
  Diluted common shares attributable to Caleres, Inc.         42,448         42,276         42,455         42,198    
 
  Basic earnings per common share attributable to Caleres, Inc. shareholders       $ 0.38       $ 0.41       $ 0.82       $ 0.77    
 
  Diluted earnings per common share attributable to Caleres, Inc. shareholders       $ 0.38       $ 0.41       $ 0.82       $ 0.76    
 
 
SCHEDULE 7
                 
CALERES, INC.
  BASIC AND DILUTED ADJUSTED EARNINGS PER SHARE RECONCILIATION  
 
  (Unaudited)     (Unaudited)  
  Thirteen Weeks Ended     Twenty-six Weeks Ended  
(Thousands, except per share data)  

August 1,
2015

   

August 2,
2014

   

August 1,
2015

   

August 2,
2014

 
 
Adjusted net earnings attributable to Caleres, Inc.:
Adjusted net earnings $ 22,144 $ 18,039 $ 41,535 $ 33,515
Net (earnings) loss attributable to noncontrolling interests (38 ) 25 (168 ) (22 )
  Net earnings allocated to participating securities         (715 )       (669 )       (1,370 )       (1,262 )  
  Adjusted net earnings attributable to Caleres, Inc. after allocation of earnings to participating securities       $ 21,391       $ 17,395       $ 39,997       $ 32,231    
 
Basic and diluted common shares attributable to Caleres, Inc.:
Basic common shares 42,325 42,074 42,319 41,980
  Dilutive effect of share-based awards         123         202         136         218    
  Diluted common shares attributable to Caleres, Inc.         42,448         42,276         42,455         42,198    
 
  Basic adjusted earnings per common share attributable to Caleres, Inc. shareholders       $ 0.51       $ 0.41       $ 0.95       $ 0.77    
 
  Diluted adjusted earnings per common share attributable to Caleres, Inc. shareholders       $ 0.50       $ 0.41       $ 0.94       $ 0.76    
 

Contact:

Caleres
Peggy Reilly Tharp, 314-854-4134
ptharp@caleres.com

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