Market Overview

Caleres Reports First Quarter 2019 Results

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Caleres (NYSE:CAL) (caleres.com), a diverse portfolio of global
footwear brands, today reported first quarter 2019 financial results.

"Despite a soft marketplace, Brand Portfolio performed extremely well
and continued to grow – with sales up more than 20% year-over-year – and
to take share. Once again, we owned six of the top 25 women's fashion
footwear brands and grew sales ahead of market rate while gaining
share," said Diane Sullivan, CEO, president and chairman of Caleres. "At
Famous Footwear, while the quarter ended on an encouraging note – with
positive same-store-sales for both March and April – the slow start in
February was tough to overcome. Going forward, we expect to see softness
at Famous Footwear through at least the second quarter, as we continue
to prepare for back-to-school by aggressively clearing underperforming
inventory. While new additions to our elevated and refreshed product
assortment are gaining traction, we expect to see more evidence of this
during back-to-school, as we've previously discussed.

"Rather than maintaining the mid-point of our adjusted EPS guidance
range at a 13% growth rate, we are prudently bringing the mid-point for
earnings growth down to 9%," continued Sullivan. "While we still expect
to see year-over-year gains, we believe this new rate more accurately
reflects industry challenges to date and gradual improvement over the
balance of the year."

First Quarter 2019 Results Versus 2018

  • Consolidated sales of $677.8 million, up 7.2%.
    • Brand Portfolio sales of $341.1 million were up 20.3%.
    • Famous Footwear total sales were $352.2 million, while
      same-store-sales were down 1.0%.
  • Gross profit was $279.8 million, up 1.8%, while gross margin was 41.3%
    and adjusted gross margin was 42.3% and excluded $7.2 million related
    to Vionic inventory adjustment amortization and for Brand Portfolio
    business exit expense.
  • SG&A expense of $262.1 million represented 38.7% of sales, an
    improvement of more than 90 basis points.
  • Operating earnings of $16.9 million and adjusted operating earnings of
    $24.9 million.
  • Net earnings were $9.1 million, resulting in earnings per diluted
    share of $0.22.
  • Adjusted net earnings were $15.0 million, while adjusted earnings per
    diluted share were $0.36.

Balance Sheet and Cash Flow

  • Cash and equivalents of $35.8 million and cash from operations of
    $49.9 million.
  • There were $318.0 million of outstanding borrowings under the
    revolving credit facility, following the October 18, 2018, acquisition
    of Vionic.
  • Inventory of $648.1 million was up 11.8% year-over-year and included
    $49.6 million of Vionic and Blowfish Malibu inventory.
  • Capital expenditures of $21.4 million were up approximately $12
    million year-over-year, due to the investment in automation at the new
    Brand Portfolio fulfillment center.
  • Returned $2.9 million to shareholders, via dividends.

Impact of New Lease Accounting Rules

  • On February 3, 2019, Caleres adopted the new accounting standard for
    leases (ASC 842), which resulted in a significant increase in reported
    assets and liabilities associated with leases. The company does not
    expect any material differences in lease expense, lease payments,
    operating earnings or cash flows, as compared to the previous
    accounting rules. However, due to the incremental asset value required
    for operating leases under the new standard, ongoing impairment
    charges for underperforming retail stores are expected to be higher.
    The adoption of ASC 842 will not impact the company's credit facility
    covenants.
 

2019 Outlook

 
Consolidated net sales ~$3.0 billion
Brand Portfolio sales Up low- to mid-teens, including acquisitions
Famous Footwear same-store-sales Flat to up low-single digits
Adjusted earnings per diluted share* $2.35 to $2.45

* Excludes ~$0.14 of expenses related to brand
acquisitions and exits

 

Investor Conference Call

Caleres will host an investor conference call at 4:30 p.m. ET today,
Monday, June 3. 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 8758845.
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 8758845 through Saturday, June 8.

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.

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 and other factors; (ii)
rapidly changing fashion trends and consumer preferences 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) imposition of tariffs; (vi) the
ability to accurately forecast sales and manage inventory levels; (vii)
cybersecurity threats or other major disruption to the Company's
information technology systems; (viii) customer concentration and
increased consolidation in the retail industry; (ix) transitional
challenges with acquisitions; (x) a disruption in the Company's
distribution centers; (xi) foreign currency fluctuations; (xii) changes
to tax laws, policies and treaties; (xiii) the ability to recruit and
retain senior management and other key associates; (xiv) compliance with
applicable laws and standards with respect to labor, trade and product
safety issues; (xv) the ability to secure/exit leases on favorable
terms; (xvi) the ability to maintain relationships with current
suppliers; and (xvii) the ability to attract, retain, and maintain good
relationships with licensors and protect our intellectual property
rights. 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
February 2, 2019, 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 footwear brands. 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 e-commerce sites, and on many additional third-party retail
websites. Famous Footwear offers great brands for the entire family with
convenient, curated, affordable collections. Sam Edelman keeps
expressive women in step with the latest trends in a playful, whimsical
way. Naturalizer shoes are beautiful from the inside out, with elegant
simplicity and legendary fit re-imagined for today's consumer. Allen
Edmonds combines old world craft with new world technology to create
luxe footwear for the discerning man who wants sophisticated, modern
classics. Rounding out our family of brands are Vionic, Dr. Scholl's
Shoes, Vince, Franco Sarto, LifeStride, Via Spiga, Blowfish Malibu,
Bzees, Circus by Sam Edelman, Fergie and Ryka. Combined, these brands
make Caleres a company with both a legacy and a mission. Our legacy is
our more than 140 years of craftsmanship and our passion for fit, while
our mission is to continue to inspire people to feel great… feet first.
Visit caleres.com to learn more about us.

 
SCHEDULE 1
       
CALERES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
 
(Unaudited)
Thirteen Weeks Ended
(Thousands, except per share data) May 4, 2019 May 5, 2018
Net sales $ 677,754 $ 632,142
Cost of goods sold 397,918   357,221  
Gross profit 279,836   274,921  
Selling and administrative expenses 262,111 250,197
Restructuring and other special charges, net 856   1,778  
Operating earnings 16,869   22,946  
Interest expense, net (7,340 ) (3,683 )
Other income, net 2,619   3,091  
Earnings before income taxes 12,148   22,354  
Income tax provision (3,063 ) (5,174 )
Net earnings 9,085   17,180  
Net earnings (loss) attributable to noncontrolling interests 2   (32 )
Net earnings attributable to Caleres, Inc. $ 9,083   $ 17,212  
 
Basic earnings per common share attributable to Caleres, Inc.
shareholders
$ 0.22   $ 0.40  
 
Diluted earnings per common share attributable to Caleres, Inc.
shareholders
$ 0.22   $ 0.40  
   
SCHEDULE 2
   
CALERES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
   
(Unaudited)
May 4, 2019 May 5, 2018 February 2, 2019
(Thousands)
ASSETS
Cash and cash equivalents $ 35,778 $ 96,481 $ 30,200
Receivables, net 148,487 125,559 191,722
Inventories, net 648,145 579,902 683,171
Prepaid expenses and other current assets 54,902   62,385   71,354
Total current assets 887,312   864,327   976,447
 
Lease right-of-use assets 735,282
Property and equipment, net 236,257 208,898 230,784
Goodwill and intangible assets, net 548,508 339,900 549,897
Other assets 85,711   88,941   81,440
Total assets $ 2,493,070   $ 1,502,066   $ 1,838,568
 
LIABILITIES AND EQUITY
Borrowings under revolving credit agreement $ 318,000 $ $ 335,000
Trade accounts payable 289,071 268,917 316,298
Lease obligations 136,005
Other accrued expenses 168,224   168,746   202,038
Total current liabilities 911,300   437,663   853,336
 
Noncurrent lease obligations 662,750
Long-term debt 198,046 197,587 197,932
Deferred rent 53,027 54,850
Other liabilities 92,342   99,651   97,015
Total other liabilities 953,138   350,265   349,797
 
Total Caleres, Inc. shareholders' equity 627,236 712,705 634,053
Noncontrolling interests 1,396   1,433   1,382
Total equity 628,632   714,138   635,435
Total liabilities and equity $ 2,493,070   $ 1,502,066   $ 1,838,568
 
SCHEDULE 3
       
CALERES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Thirteen Weeks Ended
(Thousands) May 4, 2019 May 5, 2018
OPERATING ACTIVITIES:    
Net cash provided by operating activities $ 49,910   $ 51,347  
 
INVESTING ACTIVITIES:
Purchases of property and equipment (18,443 ) (7,929 )
Capitalized software (2,917 ) (1,434 )
Net cash used for investing activities (21,360 ) (9,363 )
 
FINANCING ACTIVITIES:
Borrowings under revolving credit agreement 84,000
Repayments under revolving credit agreement (101,000 )
Dividends paid (2,947 ) (3,023 )
Acquisition of treasury stock (3,288 )
Issuance of common stock under share-based plans, net (2,559 ) (3,122 )
Other (394 )    
Net cash used for financing activities (22,900 )   (9,433 )
Effect of exchange rate changes on cash and cash equivalents (72 ) (117 )
Increase in cash and cash equivalents 5,578 32,434
Cash and cash equivalents at beginning of period 30,200   64,047  
Cash and cash equivalents at end of period $ 35,778   $ 96,481  
   
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
May 4, 2019 May 5, 2018
(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 $ 9,083 $ 0.22 $ 17,212 $ 0.40
 

Charges/other items:

Vionic acquisition and integration-related costs $ 6,118 4,544 0.11 $
Brand Portfolio - business exits 1,905 1,415 0.03
Integration and reorganization of men's brands               1,778       1,315       0.03
Total charges/other items $ 8,023       $ 5,959       $ 0.14   $ 1,778       $ 1,315       $ 0.03
Adjusted earnings $ 15,042       $ 0.36   $ 18,527       $ 0.43
   
SCHEDULE 5
                           
CALERES, INC.
SUMMARY FINANCIAL RESULTS BY SEGMENT
 
SUMMARY FINANCIAL RESULTS
 
(Unaudited)
Thirteen Weeks Ended
Famous Footwear     Brand Portfolio     Other     Consolidated
(Thousands) May 4, 2019     May 5, 2018     May 4, 2019     May 5, 2018     May 4, 2019     May 5, 2018     May 4, 2019     May 5, 2018
Net sales $ 352,165 $ 363,411 $ 341,050 $ 283,497 $ (15,461 ) $ (14,766 ) $ 677,754 $ 632,142
Gross profit $ 152,693 $ 165,201 $ 126,860 $ 108,861 $ 283 $ 859 $ 279,836 $ 274,921
Adjusted gross profit $ 152,693 $ 165,201 $ 134,027 $ 108,861 $ 283 $ 859 $ 287,003 $ 274,921
Gross profit rate 43.4 % 45.5 % 37.2 % 38.4 % (1.8 )% (5.8 )% 41.3 % 43.5 %
Adjusted gross profit rate 43.4 % 45.5 % 39.3 % 38.4 % (1.8 )% (5.8 )% 42.3 % 43.5 %
Operating earnings (loss) $ 10,813 $ 21,857 $ 12,929 $ 11,627 $ (6,873 ) $ (10,538 ) $ 16,869 $ 22,946
Adjusted operating earnings (loss) $ 10,813 $ 21,857 $ 20,705 $ 13,211 $ (6,626 ) $ (10,344 ) $ 24,892 $ 24,724
Operating earnings % 3.1 % 6.0 % 3.8 % 4.1 % 44.5 % 71.4 % 2.5 % 3.6 %
Adjusted operating earnings % 3.1 % 6.0 % 6.1 % 4.7 % 42.9 % 70.1 % 3.7 % 3.9 %
Same-store sales % (on a 13-week basis) (1) (1.0 )% (0.8 )% (8.6 )% (1.0 )% % % % %
Number of stores     985       1,013       230       235                   1,215       1,248  
                   
RECONCILIATION OF ADJUSTED RESULTS (NON-GAAP)
 
(Unaudited)
Thirteen Weeks Ended
Famous Footwear     Brand Portfolio     Other     Consolidated
(Thousands) May 4, 2019     May 5, 2018     May 4, 2019     May 5, 2018     May 4, 2019     May 5, 2018     May 4, 2019     May 5, 2018
Gross profit $ 152,693 $ 165,201 $ 126,860 $ 108,861 $ 283 $ 859 $ 279,836 $ 274,921

Charges/Other Items:

Vionic acquisition and integration-related costs 5,812 5,812
Brand Portfolio - business exits             1,355                         1,355        
Total charges/other items             7,167                         7,167        
Adjusted gross profit $ 152,693       $ 165,201       $ 134,027       $ 108,861       $ 283       $ 859       $ 287,003       $ 274,921  
Operating earnings (loss) $ 10,813 $ 21,857 $ 12,929 $ 11,627 $ (6,873 ) $ (10,538 ) $ 16,869 $ 22,946

Charges/Other Items:

Vionic acquisition and integration-related costs 5,871 247 6,118
Brand Portfolio - business exits 1,905 1,905
Integration and reorganization of men's brands                   1,584             194             1,778  
Total charges/other items             7,776       1,584       247       194       8,023       1,778  
Adjusted operating earnings (loss)     $ 10,813       $ 21,857       $ 20,705       $ 13,211       $ (6,626 )     $ (10,344 )     $ 24,892       $ 24,724  
 
SCHEDULE 6
       
CALERES, INC.
BASIC AND DILUTED EARNINGS PER SHARE RECONCILIATION
 
(Unaudited)
Thirteen Weeks Ended
(Thousands, except per share data) May 4, 2019     May 5, 2018
 
Net earnings attributable to Caleres, Inc.:
Net earnings $ 9,085 $ 17,180
Net (earnings) loss attributable to noncontrolling interests (2 )     32  
Net earnings attributable to Caleres, Inc. 9,083 17,212
Net earnings allocated to participating securities (283 )     (479 )
Net earnings attributable to Caleres, Inc. after allocation of
earnings to participating securities
$ 8,800       $ 16,733  
 
Basic and diluted common shares attributable to Caleres, Inc.:
Basic common shares 40,741 41,910
Dilutive effect of share-based awards 60       124  
Diluted common shares attributable to Caleres, Inc. 40,801       42,034  
 
Basic earnings per common share attributable to Caleres, Inc.
shareholders
$ 0.22       $ 0.40  
 
Diluted earnings per common share attributable to Caleres, Inc.
shareholders
$ 0.22       $ 0.40  
 
SCHEDULE 7
       
CALERES, INC.
BASIC AND DILUTED EARNINGS PER SHARE RECONCILIATION
 
(Unaudited)
Thirteen Weeks Ended
(Thousands, except per share data) May 4, 2019     May 5, 2018
 
Adjusted net earnings attributable to Caleres, Inc.:
Adjusted net earnings $ 15,044 $ 18,495
Net (earnings) loss attributable to noncontrolling interests (2 )     32  
Adjusted net earnings attributable to Caleres, Inc. 15,042 18,527
Net earnings allocated to participating securities (472 )     (516 )
Adjusted net earnings attributable to Caleres, Inc. after allocation
of earnings to participating securities
$ 14,570       $ 18,011  
 
Basic and diluted common shares attributable to Caleres, Inc.:
Basic common shares 40,741 41,910
Dilutive effect of share-based awards 60       124  
Diluted common shares attributable to Caleres, Inc. 40,801       42,034  
 
Basic adjusted earnings per common share attributable to Caleres,
Inc. shareholders
$ 0.36       $ 0.43  
 
Diluted adjusted earnings per common share attributable to Caleres,
Inc. shareholders
$ 0.36       $ 0.43  
       
SCHEDULE 8
   
CALERES, INC.
RECONCILIATION OF INCOME TAX PROVISION AND EFFECTIVE TAX RATE
(GAAP BASIS) TO ADJUSTED INCOME TAX PROVISION AND ADJUSTED EFFECTIVE
TAX RATE (NON-GAAP BASIS)
 
(Unaudited)
Thirteen Weeks Ended
May 4, 2019 May 5, 2018
(Thousands)

Earnings

Before

Income

Taxes

Income

Tax

Provision

Effective

Tax Rate

Earnings

Before

Income

Taxes

Income

Tax

Provision

Effective

Tax Rate

 
GAAP basis $ 12,148 $ (3,063 ) 25.2 % $ 22,354 $ (5,174 ) 23.1 %
 

Charges/other items:

Vionic acquisition and integration - related costs 6,118 (1,574 )
Brand Portfolio - business exits 1,905 (490 )
Integration and reorganization of men's brands       1,778   (463 )  
Adjusted basis $ 20,171   $ (5,127 ) 25.4 % $ 24,132   $ (5,637 ) 23.4 %
 
SCHEDULE 9
 
CALERES, INC.
CALCULATION OF RETURN ON AVERAGE INVESTED CAPITAL AND ADJUSTED
RETURN ON AVERAGE INVESTED CAPITAL (NON-GAAP METRICS)
       
(Unaudited)
May 4, 2019     May 5, 2018
(in 000's)
Return on Average Invested Capital
Net earnings (trailing twelve months) $ (13,569 ) $ 89,510
Average invested capital (1) 453,430 564,459
Return on average invested capital (3.0 )% 15.9 %
 
Adjusted Return on Average Invested Capital
Adjusted net earnings (trailing twelve months) $ 91,569 $ 94,168
Average invested capital (1) 453,430 564,459
Adjusted return on average invested capital 20.2 % 16.7 %
 
(1) Calculated as the 13-month average of each month-end
invested capital balance. Invested capital is defined as current
assets, excluding cash and cash equivalents, plus property and
equipment, net, less current liabilities, excluding borrowings under
revolving credit agreement and current lease obligations.

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