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Caleres Reports Third Quarter 2015 Results

11/24/2015

Consolidated inventory declined 4.1%

Famous Footwear same-store-sales increased 4.4%

ST. LOUIS--(BUSINESS WIRE)--Caleres (NYSE: CAL) (caleres.com) today reported third quarter 2015 financial results, with net sales of $728.6 million versus third quarter 2014 net sales of $729.3 million. Excluding sales from Shoes.com, which was sold in December of 2014, sales were up 1.8%. Third quarter 2015 net earnings were $34.0 million, or $0.78 per diluted share, and included $1.2 million of after-tax expense related to the company’s debt extinguishment in the second quarter. Excluding this expense, net earnings were $35.2 million, or $0.80 per diluted share, up 6.2% versus third quarter 2014 net earnings of $33.1 million, or $0.75 per diluted share. Gross margin was 39.6%, while operating margin was 7.2%.

“With solid inventory planning and careful expense management, we delivered good performance in the third quarter, despite a challenging retail environment,” said Diane Sullivan, CEO, president and chairman of Caleres. “Famous Footwear delivered same-store-sales growth of 4.4%, capping another successful back-to-school season, as athletic footwear continued to resonate with consumers.”

                                                                 
  US$M, except per share (unaudited)         3Q’15         3Q’14         3Q Chg         YTD’15         YTD’14        

YTD Chg

 
  Consolidated net sales     $728.6     $729.3     (0.1%)     $1,968.8     $1,956.3     0.6%  
  Famous Footwear     456.2     449.1     1.6%     1,212.1     1,219.9     (0.6%)  
  Brand Portfolio     272.5     280.2     (2.8%)     756.7     736.4     2.7%  
  Gross profit     288.4     290.7     (0.8%)     799.8     792.7     0.9%  
  Margin     39.6%     39.9%     -30 bps     40.6%     40.5%     +10 bps  
  SG&A     236.2     237.5     (0.5%)     681.5     679.5     0.3%  
  % of net sales     32.4%     32.6%     -20 bps     34.6%     34.7%     -10 bps  
  Operating earnings     52.2     53.2     (1.9%)     118.3     113.2     4.5%  
  Margin     7.2%     7.3%     -10 bps     6.0%     5.8%     +20 bps  
  Net interest expense     3.9     5.1     (23.3%)     12.2     15.3     (20.6%)  
  Earnings before income taxes     46.3     48.1     (3.7%)     95.5     97.9     (2.5%)  
  Tax rate     26.7%     30.9%     -420 bps     26.4%     31.8%     -540 bps  
  Net earnings     $34.0     $33.1     2.6%     $70.1     $66.6     5.2%  
  Per diluted share     $0.78     $0.75     4.0%     $1.59     $1.52     4.6%  
  Adjusted net earnings     $35.2     $33.1     6.2%     $76.5     $66.6     14.9%  
  Per diluted share         $0.80         $0.75         6.7%         $1.74         $1.52         14.5%  
                         

Third Quarter and Year-to-Date Highlights
Famous Footwear third quarter 2015 sales of $456.2 million were up 4.8% year-over-year, excluding Shoes.com, which was sold in December of 2014. For the quarter, same-store-sales were up 4.4%, with strong performance in athletic product, continued solid improvement in e-commerce sales, and good growth in women’s footwear. During the quarter, 13 new stores were opened and 13 stores were closed.

For the first nine months of 2015, Famous Footwear sales were up 2.4%, excluding Shoes.com, while same-store-sales were up 2.6%. Year-to-date, the company has opened 38 new stores, including one in Canada, and closed 32 stores.

Brand Portfolio sales of $272.5 million were down 2.8% and reflect the unseasonably warm weather in the third quarter, which led to slower tall-shaft boot sales. The company’s Contemporary Fashion sales were down 2.5%, while Healthy Living sales declined 2.8%.

Brand Portfolio sales were up 2.7% for the first nine months of 2015. Contemporary Fashion sales were up 4.5%, with good growth from Sam Edelman and Vince. Healthy Living sales were up 1.4%, year-to-date, with contribution from Naturalizer wholesale, Dr. Scholl’s and LifeStride.

Consolidated gross profit of $288.4 million was down 0.8% in the third quarter, while gross margin of 39.6% was down approximately 30 basis points year-over-year. SG&A for the third quarter was $236.2 million, representing 32.4% of net sales – down approximately 20 basis points versus the prior year. For the quarter, operating margins declined by approximately 10 basis points year-over-year to 7.2%.

Year-to-date, consolidated gross profit of $799.8 million was up 0.9%, with gross margin of 40.6% up 10 basis points. SG&A of $681.5 million represented 34.6% of sales – down 10 basis points for the first nine months of the year. For the same timeframe, operating margin of 6.0% was up 20 basis points.

Inventory at the end of the third quarter was $544.3 million, down 4.1% from $567.8 million in the prior year. Famous Footwear inventory was down 5.6%, while Brand Portfolio inventory was down 0.6%. At quarter-end, Caleres had $86.3 million of cash and equivalents and no borrowings against its revolving credit facility.

Financial Review and 2015 Outlook
“Our performance at both Famous Footwear and our Brand Portfolio is a reflection of the work we’ve done to manage inventory and expenses – while investing to grow our businesses – during a challenging third quarter,” said Ken Hannah, chief financial officer of Caleres. “While we expect the retail environment will be promotional during the fourth quarter, we remain focused on delivering consistent, profitable and sustainable growth.”

                       
  Guidance Metric                 FY’15  
  Consolidated net sales                 ~$2.61B  
 

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 15 to 20 bps  
  SG&A                 Less than or equal to 35.4% of sales  
  Net interest expense                 ~$16M  
  Effective tax rate                 28% to 30%  
  Adjusted earnings per diluted share                 $1.95 to $2.00  
  Depreciation and amortization                 ~$53M  
  Capital expenditures                 ~$75M  
 

Investor Conference Call
Caleres will host an investor conference call at 4:30 p.m. ET today, November 24, 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 77126121. 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 77126121 through Tuesday, December 8, 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)  
  Thirteen Weeks Ended         Thirty-nine Weeks Ended  
  (Thousands, except per share data)         October 31, 2015         November 1, 2014         October 31, 2015         November 1, 2014  
Net sales $ 728,639 $ 729,277 $ 1,968,756 $ 1,956,316
  Cost of goods sold           440,205             438,547             1,169,001             1,163,603    
  Gross profit           288,434             290,730             799,755             792,713    
  Selling and administrative expenses           236,211             237,517             681,462             679,472    
  Operating earnings           52,223             53,213             118,293             113,241    
Interest expense (4,136 ) (5,207 ) (12,944 ) (15,637 )
Loss on early extinguishment of debt (1,961 ) (10,651 )
  Interest income           224             109             766             294    
  Earnings before income taxes           46,350             48,115             95,464             97,898    
  Income tax provision           (12,358 )           (14,878 )           (25,218 )           (31,146 )  
  Net earnings           33,992             33,237             70,246             66,752    
  Net earnings attributable to noncontrolling interests           9             124             177             146    
  Net earnings attributable to Caleres, Inc.         $ 33,983           $ 33,113           $ 70,069           $ 66,606    
  Basic earnings per common share attributable to Caleres, Inc. shareholders         $ 0.78           $ 0.76           $ 1.60           $ 1.53    
  Diluted earnings per common share attributable to Caleres, Inc. shareholders         $ 0.78           $ 0.75           $ 1.59           $ 1.52    
                                             
  Basic number of shares         $ 42,345           $ 42,144           $ 42,483           $ 42,035    
  Diluted number of shares         $ 42,465           $ 42,328           $ 42,615           $ 42,245    
 
                         
SCHEDULE 2
 
CALERES, INC.
  CONDENSED CONSOLIDATED BALANCE SHEETS  
  (Unaudited)  
  October 31, 2015         November 1, 2014         January 31, 2015  
(Thousands)
ASSETS
 
Cash and cash equivalents $ 86,298 $ 39,080 $ 67,403
Receivables, net 148,192 138,217 136,646
Inventories, net 544,341 567,777 543,103
Prepaid expenses and other current assets     40,815           37,845           43,744  
Total current assets     819,646           782,919           790,896  
 
Property and equipment, net 163,442 151,289 149,743
Goodwill and intangible assets, net 131,818 135,774 134,587
Other assets     145,377           139,878           141,586  
Total assets   $ 1,260,283         $ 1,209,860         $ 1,216,812  
 
LIABILITIES AND EQUITY
 
Borrowings under revolving credit agreement $ $ 14,000 $
Trade accounts payable 200,251 203,062 215,921
Other accrued expenses     175,649           172,077           181,162  
Total current liabilities     375,900           389,139           397,083  
 
Long-term debt 200,000 199,150 199,197
Deferred rent 43,231 37,571 39,742
Other liabilities     39,297           42,983           39,168  
Total other liabilities     282,528           279,704           278,107  
 
Total Caleres, Inc. shareholders’ equity 601,003 540,254 540,910
Noncontrolling interests     852           763           712  
Total equity     601,855           541,017           541,622  
Total liabilities and equity   $ 1,260,283         $ 1,209,860         $ 1,216,812  
 
                 
SCHEDULE 3
 
CALERES, INC.
  CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS  
  (Unaudited)  
  Thirty-nine Weeks Ended  
(Thousands)   October 31, 2015         November 1, 2014  
OPERATING ACTIVITIES:                
Net cash provided by operating activities   $ 84,050           $ 68,502    
 
INVESTING ACTIVITIES:
Capital expenditures (52,766 ) (40,380 )
Proceeds from disposal of property and equipment 7,433
Acquisition of trademarks (65,065 )
Investment in nonconsolidated affiliate                 (7,000 )  
Net cash used for investing activities     (45,333 )           (112,445 )  
 
FINANCING ACTIVITIES:
Borrowings under revolving credit agreement 117,000 741,000
Repayments under revolving credit agreement (117,000 ) (734,000 )
Proceeds from issuance of 2023 senior notes 200,000
Redemption of 2019 senior notes (200,000 )
Debt issuance costs (3,650 )
Dividends paid (9,195 ) (9,173 )
Acquisition of treasury stock (4,921 )
Issuance of common stock under share-based plans, net (4,606 ) 237
Tax benefit related to share-based plans     3,049             2,482    
Net cash (used for) provided by financing activities     (19,323 )           546    
Effect of exchange rate changes on cash and cash equivalents     (499 )           (69 )  
Increase (decrease) in cash and cash equivalents 18,895 (43,466 )
Cash and cash equivalents at beginning of period     67,403             82,546    
Cash and cash equivalents at end of period   $ 86,298           $ 39,080    
 
 
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)  
  Thirteen Weeks Ended October 31, 2015         Thirteen Weeks Ended November 1, 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 $ 33,983 $ 0.78 $ 33,113 $ 0.75
 

Charges/Other Items

Loss on early extinguishment of debt   $ 1,961           1,191           0.02         $                      
Total charges/other items   $ 1,961         $ 1,191         $ 0.02         $         $         $  
Adjusted earnings   $ 35,174         $ 0.80     $ 33,113         $ 0.75  
 
  (Unaudited)  
  Thirty-nine Weeks Ended October 31, 2015         Thirty-nine Weeks Ended November 1, 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 $ 70,069 $ 1.59 $ 66,606 $ 1.52
 

Charges/Other Items

Loss on early extinguishment of debt   $ 10,651           6,472           0.15         $                      
Total charges/other items   $ 10,651           6,472           0.15         $                      
Adjusted earnings   $ 76,541         $ 1.74     $ 66,606         $ 1.52  
 
 
SCHEDULE 5
                                                               
CALERES, INC.
SUMMARY FINANCIAL RESULTS BY SEGMENT
  (Unaudited)  
                                   
  SUMMARY FINANCIAL RESULTS  
                                                                           
  Thirteen Weeks Ended  
  Famous Footwear         Brand Portfolio         Other         Consolidated  
(Thousands)  

October 31,
2015

       

November 1,
2014

       

October 31,
2015

       

November 1,
2014

       

October 31,
2015

       

November 1,
2014

       

October 31,
2015

       

November 1,
2014

 
Net sales $ 456,177 $449,085 $ 272,462 $ 280,192 $ $ $ 728,639 $ 729,277
Gross profit $ 194,877 $193,783 $ 93,557 $ 96,947 $ $ $ 288,434 $ 290,730
Gross profit rate 42.7 % 43.2 % 34.3 % 34.6 % % % 39.6 % 39.9 %
Operating earnings (loss) $ 39,638 $37,405 $ 21,042 $ 27,642 $ (8,457 ) $ (11,834 ) $ 52,223 $ 53,213
Operating earnings % 8.7 % 8.3 % 7.7 % 9.9 % % % 7.2 % 7.3 %
Same-store sales % (on a 13-week basis) 4.4 % (0.2 )% 2.5 % (6.9 )% % % % %
Number of stores 1,044 1,041 164 172 1,208 1,213
 
 
                                                   

 

                     
  Thirty-nine Weeks Ended  
  Famous Footwear         Brand Portfolio         Other         Consolidated  
(Thousands)  

October 31,
2015

       

November 1,
2014

       

October 31,
2015

       

November 1,
2014

       

October 31,
2015

       

November 1,
2014

       

October 31,
2015

       

November 1,
2014

 
Net sales $ 1,212,069 $ 1,219,880 $ 756,687 $ 736,436 $ $ $ 1,968,756 $ 1,956,316
Gross profit $ 542,601 $ 540,119 $ 257,154 $ 252,594 $ $ $ 799,755 $ 792,713
Gross profit rate 44.8 % 44.3 % 34.0 % 34.3 % % % 40.6 % 40.5 %
Operating earnings (loss) $ 95,269 $ 89,659 $ 48,107 $ 56,342 $ (25,083 ) $ (32,760 ) $ 118,293 $ 113,241
Operating earnings % 7.9 % 7.3 % 6.4 % 7.7 % % % 6.0 % 5.8 %
Same-store sales % (on a 39-week basis) 2.6 % 0.8 % (1.7 )% (3.5 )% % % % %
Number of stores 1,044 1,041 164 172 1,208 1,213
 
 
SCHEDULE 6
                               
CALERES, INC.
  BASIC AND DILUTED EARNINGS PER SHARE RECONCILIATION  
 
  (Unaudited)  
  Thirteen Weeks Ended         Thirty-nine Weeks Ended  
(Thousands, except per share data)  

October 31,
2015

       

November 1,
2014

       

October 31,
2015

       

November 1,
2014

 
 
Net earnings attributable to Caleres, Inc.:
Net earnings $ 33,992 $ 33,237 $ 70,246 $ 66,752
Net earnings attributable to noncontrolling interests (9 ) (124 ) (177 ) (146 )
  Net earnings allocated to participating securities           (1,063 )           (1,208 )           (2,272 )           (2,486 )  
  Net earnings attributable to Caleres, Inc. after allocation of earnings to participating securities         $ 32,920           $ 31,905           $ 67,797           $ 64,120    
 
Basic and diluted common shares attributable to Caleres, Inc.:
Basic common shares 42,345 42,144 42,483 42,035
  Dilutive effect of share-based awards           120             184             132             210    
  Diluted common shares attributable to Caleres, Inc.           42,465             42,328             42,615             42,245    
 
  Basic earnings per common share attributable to Caleres, Inc. shareholders         $ 0.78           $ 0.76           $ 1.60           $ 1.53    
 
  Diluted earnings per common share attributable to Caleres, Inc. shareholders         $ 0.78           $ 0.75           $ 1.59           $ 1.52    
 
 
SCHEDULE 7
                               
CALERES, INC.
  BASIC AND DILUTED ADJUSTED EARNINGS PER SHARE RECONCILIATION  
 
  (Unaudited)  
  Thirteen Weeks Ended         Thirty-nine Weeks Ended  
(Thousands, except per share data)  

October 31,
2015

       

November 1,
2014

       

October 31,
2015

       

November 1,
2014

 
 
Adjusted net earnings attributable to Caleres, Inc.:
Adjusted net earnings $ 35,183 $ 33,237 $ 76,718 $ 66,752
Net earnings attributable to noncontrolling interests (9 ) (124 ) (177 ) (146 )
  Net earnings allocated to participating securities           (1,100 )           (1,208 )           (2,482 )           (2,486 )  
  Adjusted net earnings attributable to Caleres, Inc. after allocation of earnings to participating securities         $ 34,074           $ 31,905           $ 74,059           $ 64,120    
 
Basic and diluted common shares attributable to Caleres, Inc.:
Basic common shares 42,345 42,144 42,483 42,035
  Dilutive effect of share-based awards           120             184             132             210    
  Diluted common shares attributable to Caleres, Inc.           42,465             42,328             42,615             42,245    
 
  Basic adjusted earnings per common share attributable to Caleres, Inc. shareholders         $ 0.80           $ 0.76           $ 1.74           $ 1.53    
 
  Diluted adjusted earnings per common share attributable to Caleres, Inc. shareholders         $ 0.80           $ 0.75           $ 1.74           $ 1.52    
 

Contact:

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

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