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Excrept from filing document 2024-02-03

This Annual Report on Form 10 K is a document that U S public companies file with the Securities and Exchange Commission SEC on an annual basis Part II of the Form 10 K contains the business information and financial statements that many companies include in the financial sections of their annual reports The other sections of this Form 10 K include further information about our business that we believe will be of interest to investors We hope investors will find it useful to have all of this information in a single document
The SEC allows us to report information in the Form 10 K by incorporating by reference from another part of the Form 10 K or from the proxy statement You will see that information is incorporated by reference in various parts of our Form 10 K The proxy statement will be available on our website after it is filed with the SEC in April 2024
In this report and from time to time throughout the year we share our expectations for the Company s future performance These forward looking statements include statements about our business plans the potential development regulatory approval and public acceptance of our products our expected financial performance including sales performance and the anticipated effect of our strategic actions the anticipated benefits of acquisitions the outcome of contingencies such as litigation domestic or international economic political and market conditions and other factors that could affect our future results of operations or financial position including without limitation statements under the captions Business Legal Proceedings and Management s Discussion and Analysis of Financial Condition and Results of Operations Any statements we make that are not matters of current disclosures or historical fact should be considered forward looking Such statements often include words such as believe expect anticipate intend plan estimate will and similar expressions By their nature these types of statements are uncertain and are not guarantees of our future performance
Our forward looking statements represent our estimates and expectations at the time that we make them However circumstances change constantly often unpredictably and investors should not place undue reliance on these statements Many events beyond our control will determine whether our expectations will be realized We disclaim any current intention or obligation to revise or update any forward looking statements or the factors that may affect their realization whether in light of new information future events or otherwise and investors should not rely on us to do so In the interests of our investors and in accordance with the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 Part I Item 1A Risk Factors explains some of the important reasons that actual results may be materially different from those that we anticipate
Caleres Inc the Company originally founded as Brown Shoe Company in 1878 and incorporated in 1913 is a global footwear company that operates retail shoe stores and e commerce websites and designs develops sources manufactures and distributes footwear for people of all ages Our mission is to inspire people to feel great feet first We meet consumers where they want to shop whether in store or online We employ our One Caleres capabilities design sourcing speed and marketing working in unison to accelerate growth
The Company s business operations are organized into two reportable segments Famous Footwear and Brand Portfolio The Famous Footwear segment is comprised of our Famous Footwear retail stores famousfootwear com and famousfootwear ca The Famous Footwear segment operated 860 stores at the end of 2023 selling primarily branded footwear for the entire family The Brand Portfolio segment offers retailers and consumers a carefully cultivated portfolio of leading brands This segment is comprised of wholesale operations that designs develops sources manufactures markets and distributes branded licensed and private label footwear primarily to online retailers national chains department stores independent retailers and mass merchandisers as well as Company owned Famous Footwear Sam Edelman Naturalizer and Allen Edmonds stores and e commerce businesses It also includes the Sam Edelman Naturalizer and Allen Edmonds retail stores including 62 stores in the United States and 36 stores in East Asia at the end of 2023 and the e commerce businesses for our Company owned brands
Our Famous Footwear segment which is one of America s leading family branded footwear retailers was founded on a simple idea that everyone deserves to feel the joy that comes from a new pair of shoes Famous Footwear employs an omni channel approach to reach consumers wherever they want to shop including our e commerce channel through famousfootwear com and famousfootwear ca as well as 860 Famous Footwear retail store locations
We seek to meet the needs of the millennial family and others by providing an assortment of trend right brand name fashion casual and athletic footwear at a great price Brands carried at Famous Footwear include Nike Skechers Crocs adidas Converse Vans HeyDude Puma Birkenstock New Balance Bearpaw Under Armour Dr Martens Asics and Timberland among others as well as company owned and licensed brands including Dr Scholl s Shoes LifeStride Naturalizer and Blowfish Malibu Our Company owned and licensed products are sold to our Famous Footwear segment by our Brand Portfolio segment at a profit and represent approximately 5 of the Famous Footwear segment s net sales We work closely with our vendors to provide consumers with fresh product and in some cases product exclusively designed for and available only at Famous Footwear Famous Footwear s retail price points typically range from 20 for shoes to 300 for boots We believe we have strong relationships with our significant branded footwear suppliers but the loss of any one or more key suppliers could have a material impact on our Famous Footwear segment and the Company
Famousfootwear com and famousfootwear ca offer an expansive product assortment beyond what is sold in our retail stores Accessible via desktop tablet and mobile devices these e commerce websites help consumers explore product assortments including items available in local stores and make purchases Many of our consumers buy online and pick up product in their local store through Famously Fast Pickup or curbside Orders are typically ready within an hour through this convenient service Our retail store locations also fulfill approximately two thirds of all e commerce orders not picked up in the store Leveraging our brick and mortar store inventory reduces delivery times driving an enhanced consumer experience We continue to enhance our digital technology and e commerce platform as well as add new features to the
Famous Footwear also has an extensive customer loyalty program Famously You Rewards Rewards which informs and rewards members with free shipping and bonus points for purchases product previews incentives based upon purchase continuity and other periodic promotional offers Our Famous Footwear websites allow members of Rewards to view their points status and purchase history manage profile settings and engage further with the brand Famous Footwear s mobile app also serves as a hub for Rewards members to shop find local stores redeem Rewards certificates and learn about the newest products latest trends and hottest deals
We anticipate that our retail store count in 2024 will be approximately flat to the ending store count for 2023 New stores typically experience an initial start up period characterized by lower sales and operating earnings than what is generally achieved by more mature stores While the duration of this start up period may vary by type of store economic environment and geographic location new stores typically reach a normal level of profitability within approximately four years
Famous Footwear relies on merchandise allocation systems and processes that use allocation criteria consumer segmentation and inventory data in an effort to ensure stores are adequately stocked with product and to differentiate the needs of each store based on location consumer segmentation and other factors Famous Footwear s distribution systems allow for merchandise to be delivered to each store weekly or on a more frequent basis as needed Famous Footwear also uses regional third party pooled distribution sites across the country
Famous Footwear s marketing programs include e commerce advertising television advertising digital marketing and social media direct mail and in store advertisements all of which are designed to further develop and reinforce the Famous Footwear brand and strengthen our connection with consumers We believe the success of our marketing campaigns is attributable to highlighting key categories and tailoring the timing of such messaging to adapt to seasonal shopping patterns In 2023 we spent approximately 59 0 million to advertise and market Famous Footwear to our target consumers a portion of which was recovered from suppliers
Our Brand Portfolio segment offers consumers and retailers a portfolio of leading footwear brands We design develop source manufacture market and distribute our branded footwear for women men and kids at a variety of price points Certain of our branded footwear products are sold under brand names that are owned by the Company and others are developed pursuant to licensing agreements Our Brand Portfolio segment also sells footwear on a direct to consumer basis through our branded retail stores and e commerce businesses including our brand websites
Sam Edelman The Sam Edelman brand which is celebrating its 20th anniversary in 2024 has been synonymous with aspirational luxury and on trend style since 2004 Inspired by timeless American elegance designer Sam Edelman s innate understanding of the consumer translates conceptually into a modern lifestyle informed by rich heritage creativity and innovation Beyond its iconic footwear Sam Edelman offers an ever expanding range of product categories to fit the customer s lifestyle including dresses ready to wear outerwear denim handbags belts hosiery and children s shoes The full range of Sam Edelman products is sold through Sam Edelman retail stores and online at samedelman com and
samedelman ca in addition to department stores national chains and independent retailers around the world with suggested retail prices ranging from 100 to 300 Beyond the Sam Edelman brand designer Sam Edelman created contemporary lifestyle brand Circus NY Circus by Sam Edelman Circus offers a growing assortment of product categories including denim and sunglasses primarily sold online at circusny com and in top contemporary wholesale and e commerce retailers at suggested retail price points from 60 to 150 Sam Edelman relaunched Sam Libby for the spring of 2024 with a fresh take on the namesake brand Sam Libby will be available in department stores and specialty retailers across the United States at suggested retail prices from 50 to 110
Naturalizer Since 1927 Naturalizer has put women first As the first brand ever to design shoes to the contours of a woman s foot the brand is known for crafting beautiful modern styles that look and feel exceptional inside and out Naturalizer s legendary emphasis on fit and elegant simplicity launched a brand that became known as the shoe with the beautiful fit The brand s mission of inclusivity supports the vision to have every woman in Naturalizer shoes The Naturalizer brand is sold primarily at national chains online retailers online at naturalizer com and naturalizer ca department stores independent retailers and its flagship retail store Naturalizer footwear is also distributed through wholesale partners in 34 countries around the world and approximately 45 retail stores In 2024 Naturalizer plans to re enter China with its newly created global flagship store design as well as a digital relaunch Suggested retail price points range from 79 for shoes to 265 for boots
Vionic In 2018 we acquired Vionic to expand our access to the growing contemporary comfort footwear category Vionic is dedicated to harnessing science ingenuity and input from medical professionals and athletes to make shoes that bring balance to our lives The fusion between dynamic movement and grounded stability is how our exclusive Vio Motion Technology solves whole body balance Featuring a wide range of silhouettes premium materials and thoughtful design for women and men Vionic offers the style you want with the comfort you crave across a vast selection of fashion sneakers casual and dress options all weather boots sandals and slippers The brand is sold online through independent retailers television department stores national chains and specialty retailers for suggested retail price points from 40 for shoes to 250 for boots
Allen Edmonds In 2016 we acquired Allen Edmonds to increase our penetration in men s footwear Allen Edmonds founded in 1922 is a brand of premium men s footwear apparel leather goods and accessories built on its United States manufacturing heritage Allen Edmonds products are available at our 57 Allen Edmonds stores in the United States including eight Port Washington Studio stores online at allenedmonds com and allenedmonds ca and at select retailers worldwide Suggested retail price points range from 245 for shoes to 950 for boots
Dr Scholl s Shoes Inspired by its founder Dr William Scholl Dr Scholl s Shoes remains forever passionate about creating iconic effortless footwear for a healthy life In 2024 the brand is celebrating its 100th anniversary marked by when Dr William Scholl opened his first comfort foot shop in 1924 The brand became a fashion icon in 1959 with the debut of the Original Wooden Exercise Sandal worn by fashion icons across decades Dr Scholl s Shoes continues its legacy of iconic fashion and innovative comfort today This footwear reaches consumers at a wide range of distribution channels including national chains department stores mass merchandisers online including drschollshoes com our Famous Footwear retail stores and independent retailers Suggested price points range from 50 for shoes to 190 for boots We have a long term license agreement to sell Dr Scholl s Shoes in the United States Canada and Latin America
LifeStride For more than 70 years LifeStride has created quality footwear for women who value both style and all day comfort LifeStride is made for the woman on the go with SoftSystem comfort in every shoe so she does not have to sacrifice comfort or style for the price The brand is sold in national chains our Famous Footwear retail stores online including lifestride com and department stores at suggested retail price points ranging from 60 for shoes to 130 for boots
Franco Sarto Since 1990 Franco Sarto has embodied timeless wearable styles inspired by the craft and design of Italian footwear Today designed in Italy by Creative Director Gionata Pagni this still holds true The brand is sold in major national chains online including francosarto com department stores specialty retailers our Famous Footwear retail stores and independent retailers at suggested retail price points from 99 for shoes to 290 for boots
Blowfish Malibu In 2018 we acquired a controlling interest in Blowfish Malibu and in November 2021 we acquired the remaining interest Blowfish Malibu which was founded in 2005 designs and sells women s and children s footwear that captures the fresh youthful spirit and casual living that is distinctively Southern California The brand is sold at national chains our Famous Footwear stores and independent retailers Suggested retail price points range from 30 for shoes to 90 for boots
Rykä For over 30 years Rykä has been innovating athletic footwear exclusively for a woman s foot Rykä offers footwear to serve her needs for walking running and hiking along with lifestyle trends The brand is distributed through national chains online retailers including ryka com independent retailers department stores specialty retailers and our Famous Footwear retail stores at suggested retail price points from 80 to 145
Vince The Vince women s shoe collection launched in 2012 and was expanded in 2014 to include the Vince men s footwear collection Vince creates elevated yet understated pieces for every day The brand is primarily sold in premier department stores online national chains and specialty retailers at suggested price points from 330 for shoes to 595 for tall boots We have a license agreement with Vince LLC to sell Vince footwear through January 2025
Bzees Bzees is a comfort brand of machine washable women s footwear designed to make you feel weightless energized and free Beginning in mid 2024 Bzees will be sold under the LifeStride brand as Bzees for LifeStride The brand is distributed through national chains department stores online retailers including bzees com independent retailers specialty retailers and our Famous Footwear retail stores at suggested retail price points from 80 for shoes to 130 for boots
Veronica Beard In 2020 we began an exclusive partnership with the American ready to wear brand Veronica Beard to produce the women s footwear collection The Veronica Beard collection includes styles that strike the balance between cool and classic taking the consumer from day to night and work to weekend The brand is distributed through domestic wholesale partners carrying Veronica Beard ready to wear and independent footwear retailers at suggested retail price points ranging from 295 for shoes to 695 for boots We have a license agreement to sell footwear through December 2024
Within our Brand Portfolio segment our brands are designed sourced and distributed on a wholesale basis to approximately 3 600 retailers including online retailers national chains department stores independent retailers and mass merchandisers throughout the United States and Canada as well as approximately 65 other countries including sales to our retail operations Our most significant customers include Famous Footwear and many of the nation s largest retailers including online retailers such as Amazon com Nordstrom com Macys com and Zappos com national chains such as Nordstrom Rack DSW TJX Corporation including TJ Maxx and Marshalls Kohl s and Ross Stores department stores such as Nordstrom Macy s and Dillard s mass merchandisers such as Walmart and independent retailers such as Qurate Retail Group which operates QVC and Home Shopping Network Many of these wholesale customers also sell our products through their own websites In these arrangements orders are typically fulfilled on a drop ship basis from our logistics network We also sell product to a variety of international retail customers and distributors
Our Brand Portfolio segment sold approximately 35 2 million pairs of shoes on a wholesale basis during 2023 Products sold under license agreements accounted for approximately 13 of the sales of the Brand Portfolio segment in both 2023 and 2021 and 12 of the segment s sales in 2022 Caleres also receives license revenue from third parties related to certain owned brands for use in connection with other brand enhancing non footwear product categories
The strategic initiatives we have implemented in recent years continue to drive profitable growth Our Edit to Win initiative drives more volume through fewer SKUs In addition our speed program allows us to reduce both inventory risks and markdowns by aligning inventory with consumer demand to drive sales productivity Approximately 20 of our inventory receipts were sourced through speed programs during 2023 and we anticipate continued growth for 2024
allenedmonds com allenedmonds ca drschollsshoes com lifestride com francosarto com ryka com bzees com and zodiacshoes com which offer substantially the same product selection to consumers as we sell to our wholesale customers Vince com blowfishshoes com and veronicabeard com complement our distribution of those brands References to our website addresses do not constitute incorporation by reference of the information contained on the websites and the information contained on the websites is not part of this report
At the end of 2023 we operated 57 Allen Edmonds stores in the United States each averaging approximately 1 530 square feet We expect to open approximately six new Allen Edmonds stores and close approximately four stores in 2024 as we continue to align our real estate and e commerce strategies At the end of 2023 we operated four Sam Edelman stores in the United States each averaging approximately 2 300 square feet and 35 stores in East Asia We anticipate expanding our Sam Edelman presence in East and Southeast Asia in 2024 with the opening of approximately 25 new stores After closing the majority of our Naturalizer retail stores at the beginning of 2021 we ended the year with one flagship Naturalizer store in the United States and one store in China We anticipate expanding our Naturalizer presence in East Asia in 2024 with the opening of approximately 10 new stores In addition to our owned Brand Portfolio retail stores there are 100 branded stores that are owned by third parties and are operated internationally through distributor licensed or franchise agreements
Over the last few years we ve been building a One Caleres marketing ecosystem We believe that robust consumer data is the source of our competitive advantage and have invested in our marketing strategy with digital marketing loyalty data and analytics consumer insight and brand marketing We believe that our investment in these areas particularly digital marketing and loyalty have resulted in significant growth in our direct to consumer business In addition we continue to leverage consumer insights and data to inform marketing initiatives to capture a greater share of our target consumers spend as well as reach new audiences with a high propensity to purchase our products
Our marketing teams are responsible for the development and implementation of innovative marketing programs that serve the consumer facing needs of our portfolio of brands as well as that of our retail partners and brand websites Our marketing teams are instrumental in continuing to drive growth in e commerce sales producing relevant and purpose driven brand positioning and creating meaningful connections with consumers that have increased awareness and loyalty across our portfolio In 2023 we spent approximately 74 3 million in advertising and marketing support for our Brand Portfolio segment including digital marketing and social media consumer media advertising in store displays product placement production trade shows and print
We maintain design and product development teams for our brands in Clayton Missouri Dongguan China Putian China Novato California New York New York and Port Washington Wisconsin as well as other select fashion locations including Florence Italy These teams which include independent designers are responsible for the creation and development of new product styles Our designers monitor trends in fashion footwear and apparel and work closely with retailers to identify consumer footwear preferences Our design teams create collections of footwear and our sourcing and product development offices convert those designs into new footwear styles We operate a sample making facility in Dongguan China that allows us to have greater control over our product development in terms of accuracy execution and speed to market
In 2023 the sourcing operations sourced approximately 34 9 million pairs of shoes through a global network of third party independent footwear manufacturers The majority of our footwear sourced is provided by approximately 62 manufacturers operating approximately 118 manufacturing facilities In certain countries we use agents to facilitate and manage the development production and shipment of product We attribute our ability to achieve consistent quality competitive prices and on time delivery to the breadth of these established relationships as well as steps we have taken to digitize many aspects of our end to end supply chain processes to enable mutually beneficial workload efficiency visibility and agility While we generally do not have significant contractual commitments with our suppliers we do enter into sourcing agreements with certain independent sourcing agents Prior to production we monitor the quality of all of our footwear components and also inspect the prototypes of each footwear style
While we source the majority of our footwear from independent footwear manufacturers we also operate manufacturing facilities in Port Washington Wisconsin and Santiago Dominican Republic These facilities manufacture footwear and certain accessories for our Allen Edmonds brand We believe operating our own manufacturing facilities in North America provides us with greater control over the quality and craftsmanship that are essential to the iconic Allen Edmonds brand In addition our Port Washington facility serves our recrafting operations which supports our commitment to sustainability Our recrafting operations allow the Allen Edmonds consumer to extend the life of their footwear restoring their shoes to nearly their original state Most styles can be recrafted twice and some can be recrafted three times
At February 3 2024 our Brand Portfolio segment had a backlog of unfilled wholesale orders of approximately 234 5 million compared to 284 6 million as of January 28 2023 Most orders are for delivery within the next 90 to 120 days Orders are subject to cancellation however with the exception of the cancellations we experienced in 2020 associated with the impact of the coronavirus pandemic on our wholesale partners we have not experienced significant cancellations of orders The decrease in our backlog order levels reflects more conservative buying by our wholesale customers as they more tightly manage their inventory levels as well as the dynamic nature of inventory buying which includes periodic replenishment orders and shipping directly to the end consumer purchasing from our wholesale customers websites
The backlog at any particular time is affected by a number of factors including supply chain disruptions seasonality and capacity shifts at international manufacturers Accordingly a comparison of backlog from period to period may not be indicative of eventual actual shipments or the growth rate of sales from one period to the next
As of February 3 2024 we had approximately 9 200 employees including 5 100 full time and 4 100 part time In the United States there were no employees subject to union contracts In Canada we employ approximately 17 warehouse employees under a union contract which will expire in October 2025 The Company s success depends on our ability to attract develop motivate and retain qualified management administrative product design and development and sales and marketing personnel to support existing operations and future growth Since our founding in 1878 we have been all about the right fit Our values Passion Accountability Curiosity Creativity and Caring inform how we work how we treat one another and how we live our mission
We believe that pay benefits and incentives make up the total rewards package and provide employees and their families with financial protection and security for the future Our compensation programs are designed to encourage and reward our executives and associates for superior performance and drive long term shareholder value We offer a comprehensive benefits package to our associates that provides among other benefits competitive salaries and wages comprehensive health insurance coverage to eligible employees retirement plans education assistance paid time off parental bonding leave adoption benefits and charitable giving opportunities through the Caleres Cares Charitable Trust including volunteer opportunities and our matching gift program
Our associates make health and safety a daily priority at our stores distribution centers offices and factories Newly hired associates are required to attend health and safety training as part of the onboarding process and they receive a variety of relevant training and information throughout the year Our guidelines cover many common elements such as physical safety and security workplace violence emergency procedures incident reporting protocols first aid and other general health and safety topics All of our retail associates receive training in accordance with our Occupational Health and Safety Program which provides for both their safety and that of our customers Our corporate offices support the well being of our associates with on site amenities such as a fitness center and a registered dietician that is available for consultations
Caleres was founded on the insight that people are unique and we are proud of our inclusive and collaborative environment where differences are celebrated We believe that Caleres should be as diverse as the people and communities we serve We are committed to recruiting talented individuals from all backgrounds ethnicities genders lifestyles and belief systems and developing diverse candidate slates for every open position Our Diversity Equity and Inclusion Council is focused on elevating awareness of diversity equity and inclusion through its educational communications and events as well as trainings provided to our associates throughout the year In addition our commitment to diversity equity and inclusion is reflected in our Board of Directors As of February 3 2024 we had 11 directors of which 55 are female and 18 are racially or ethnically diverse
Our ESG initiatives are an important component of our enterprise risk management program Our long standing pledge to quality craftmanship includes creating sustainable and lasting value for all of our stakeholders by governing and operating with integrity and transparency and by pursuing ambitious ESG targets Our ESG Steering Committee is responsible for developing programs goals and metrics to support our ESG initiatives We conducted an assessment to determine those areas of our operations that are most important to Caleres and our stakeholders which in turn guided the framework for our ESG initiatives
Many of our ESG goals focus on high impact areas of opportunity such as the materials that are used in our products their byproducts and supply chain labor standards We are striving to use environmentally preferred materials to produce our products and packaging and are working to ensure our strategic factories around the world comply with leading global work standards Our ESG reports which have been nationally recognized on Newsweek s Most Responsible Companies list detail our ESG strategy and provide our goals for sustainable products and practices and highlighted our progress toward our identified target goals which we seek to achieve by 2025 Our ESG reports may be accessed at www caleres com about esg The information contained on our website is not incorporated by reference into this Form 10 K and should not be considered part of this report We expect to publish another ESG report in the spring of 2024
With many companies operating traditional brick and mortar retail shoe stores and departments and e commerce businesses we compete in a highly fragmented market In addition the continuing consumer shift to online and mobile shopping has increased price competition and requires retailers to lower shipping costs charged to customers improve shipping speeds and optimize mobile platforms Our competitors include local regional and national shoe store chains department stores discount stores mass merchandisers numerous independent retail operators of various sizes and e commerce businesses Quality of products and services store location trend right merchandise selection and availability of brands pricing marketing advertising and consumer service are all factors that impact retail competition
In addition our wholesale customers sell shoes purchased from competing footwear suppliers Those competing footwear suppliers own and license brands many of which are well known and marketed aggressively Many retailers who are our wholesale customers source directly from factories or through agents The wholesale footwear business has low barriers to entry which further intensifies competition
Our business is seasonal in nature due to consumer spending patterns with higher back to school and holiday season sales Although the third fiscal quarter has historically accounted for a substantial portion of the Company s earnings for the year we have experienced more equal distribution among the quarters in recent years
Our Internet address is www caleres com Our Internet address is included in this annual report on Form 10 K as an inactive textual reference only The information contained on our website is not incorporated by reference into this annual report on Form 10 K and should not be considered part of this report We file annual quarterly and current reports proxy statements and other information with the SEC We make available free of charge our annual report on Form 10 K quarterly reports on Form 10 Q current reports on Form 8 K and amendments to those reports filed or furnished as required by Section 13 a or 15 d of the Securities Exchange Act of 1934 through our Internet website as soon as reasonably practicable after we electronically file such material with or furnish it to the SEC You may access these SEC filings via the hyperlink to a third party SEC filings website that we provide on our website
The following is a list of the names and ages of the executive officers of the Company and of the offices held by each person There is no family relationship between any of the named persons The terms of the following executive officers will expire in May 2024 or upon their respective successors being chosen and qualified
Diane M Sullivan Executive Chair since January 2023 Chief Executive Officer and Chairman of the Board of Directors from February 2014 to January 2023 President and Chief Executive Officer from May 2011 to November 2020 President and Chief Operating Officer from March 2006 to May 2011 President from January 2004 to March 2006
John W Schmidt President Chief Executive Officer and Director since January 2023 President from December 2020 to January 2023 Division President Brand Portfolio from October 2015 to December 2020 Division President Contemporary Fashion Brands from January 2011 to September 2015 Senior Vice President Better and Image Brands
Thomas C Burke Senior Vice President General Counsel and Secretary since August 2016 Vice President Legal from December 2015 to August 2016 Deputy General Counsel from March 2012 to December 2015 Various positions at the Company including Associate General Counsel and Director Talent Management from March 2001 to March 2012
Jack P Calandra Senior Vice President Chief Financial Officer since September 2022 Chief Financial Officer of a k a Brands in 2021 Executive Vice President Chief Financial Officer and Treasurer of Tailored Brands Inc from 2017 to 2020 Various executive finance positions including Senior Vice President Corporate Finance and Investor Relations with Gap Inc from 2005 to 2016
Michael R Edwards Division President Famous Footwear since November 2020 Senior Vice President Digital Commerce Planning Allocation and Stores from February 2018 to November 2020 Chief Customer Officer from September 2017 to February 2018 Senior Vice President Planning Allocation and Analytics from December 2016 to September 2017 Vice President Planning and Allocation from May 2015 to December 2016 Vice President Merchandising and Sales Operations from October 2011 to May 2015
Willis D Hill Senior Vice President Chief Information Officer since September 2018 Senior Vice President and Chief Technology Officer from August 2017 to September 2018 Senior Vice President Information Technology from January 2017 to August 2017 Vice President Retail Information Technology from July 2011 to January 2017 Director Retail Information Technology from July 2008 to July 2011
Douglas W Koch Senior Vice President Chief Human Resources Officer since April 2023 Senior Vice President Strategic Projects from September 2019 to April 2023 Senior Vice President and Chief Human Resources Officer from January 2016 to September 2019 Senior Vice President and Chief Talent and Strategy Officer from January 2011 to January 2016 Senior Vice President and Chief Talent Officer from May 2005 to January 2011 Senior Vice President Human Resources from March 2002 to May 2005
An investment in our common stock involves certain risks and uncertainties In addition to other information in this Form 10 K the following risk factors should be considered Additional risks and uncertainties of which we are currently unaware could also have a material adverse effect on our business and financial conditions
Worldwide economic conditions continue to be uncertain Consumer confidence and spending are strongly influenced by general economic conditions and other factors including inflation concerns of a recession elevated interest rates fiscal policy the changing tax and regulatory environment minimum wage rates and regulations consumer debt levels the availability of consumer credit the liquidity of consumers assets health care costs currency exchange rates taxation energy costs real estate values foreclosure rates unemployment trends weather conditions and the economic consequences of military action or terrorist activities such as the heightened geo political tensions between China and Taiwan and the potential impact of sanctions on the domestic and global economy Consumer sentiment including a
preference for products made in the United States may be impacted by the war in Eastern Europe which may impact demand for our products that are sourced internationally In addition with the majority of our supply originating in China any significant negative development related to relations between United States and China may adversely impact the demand for our products sourced from China Negative economic conditions generally decrease disposable income and consequently consumer purchases of discretionary items like our products As a result our customers may choose to purchase fewer of our products or purchase the lower priced products of our competitors and our business results of operations financial condition and cash flows could be adversely affected
Inflationary pressures in the United States and the global economy such as elevated interest rates higher product and transportation costs and wage inflation as well as fears of a recession are creating a complex and challenging retail environment that may impact discretionary spending The extent and duration of these pressures are uncertain and may limit our ability to meet incremental consumer demand potentially impacting our net sales In addition declines in consumer spending may result in reduced demand for our products increased inventories reduced orders from retailers for our products order cancellations lower revenues higher discounts pricing pressure and lower gross margins Macroeconomic factors including these inflationary pressures and volatility in interest rates also impact a number of accounting estimates such as impairment calculations the value of inventory measured using the last in first out LIFO method and other estimates that utilize fair value These macroeconomic factors could result in incremental volatility in certain valuations and provisions required in the Company s financial statements In addition a disruption within our logistics or supply chain network could adversely affect our ability to deliver inventory in a timely manner which could impair our ability to meet customer demand for products and result in lost sales and increased supply chain costs Vessel container and other transportation shortages labor shortages and port congestion have in the past delayed inventory orders and in turn deliveries to our wholesale customers and availability in our retail stores and e commerce sites In addition the vast majority of our products pass through the United States west coast ports and any slowdown or stoppage relating to labor agreement negotiations may further delay the receipt of inventory or increase costs
The footwear industry is subject to rapidly changing consumer shopping preferences and patterns and fashion trends Our products must appeal to a broad range of consumers whose preferences cannot be predicted with certainty and are subject to rapid change In addition as consumers increasingly embrace online and mobile shopping retailers have been required to lower shipping costs charged to customers improve shipping speeds and optimize mobile platforms The trend toward online and mobile shopping has also increased the volume of smaller shipments including single pair shipments from our warehouses The increased volume of smaller shipments has resulted in higher average distribution costs including both shipping and processing costs incurred at our distribution centers In addition an increase in the volume of e commerce sales which have higher return rates than in store sales may in turn lead to higher shipping and processing costs The success of both our wholesale and retail operations depends largely on our ability to anticipate understand and react to these changing consumer shopping patterns If we fail to respond to changes in consumer shopping patterns demands and fashion trends develop new products and designs and implement effective responsive merchandising and distribution strategies and programs we could experience lower sales excess inventories and lower gross margins any of which could have an adverse effect on our results of operations and financial condition
Our Famous Footwear segment purchases a substantial portion of its footwear products from major branded suppliers Products purchased from three key third party suppliers Nike Skechers and adidas represented approximately 24 of consolidated net sales in 2023 As is common in the industry we do not have any long term contracts with our suppliers In addition the success of our financial performance is dependent on the ability of our Famous Footwear segment to obtain products from our suppliers on a timely basis and on acceptable terms While we believe we have positive working relationships with our current suppliers the loss of any of our major suppliers or product developed exclusively for our Famous Footwear stores could have a material adverse effect on our business financial condition and results of operations In addition negative trends in global economic conditions including the impact of the wars in Israel and Eastern Europe and heightened tensions between China and Taiwan or global pandemics may adversely impact our suppliers If these
Our wholesale customers include e commerce retailers national chains department stores independent retailers and mass merchandisers Several of our customers operate multiple department store divisions Furthermore we often sell multiple types of branded licensed and private label footwear to these same customers While we believe purchasing decisions in many cases are made independently by the buyers and merchandisers of each of the customers a decision by a significant customer to decrease the amount of footwear products purchased from us could have a material adverse effect on our business financial condition or results of operations
In addition with the growing trend toward retail trade consolidation including store count reductions at major retail chains and consumers preference for online shopping we and our wholesale customers increasingly depend upon a reduced number of key retailers whose bargaining strength is growing This consolidation may result in the following adverse consequences
Competition is intense in the footwear industry There has also been consolidation of competitors in the industry resulting in certain competitors that are larger and have greater financial marketing and technological resources than we do In addition a move toward vertical integration by our competitors could create additional competitive pressures that may decrease our market share Other competitors are able to offer footwear on a lateral basis alongside their apparel products or have successfully branded their trademarks as lifestyle brands resulting in greater competitive advantages Low barriers to entry into this industry further intensify competition by allowing new companies to easily enter the markets in which we compete Some of our suppliers further compound these competitive pressures by allowing consumers to purchase their products directly through supplier maintained e commerce sites and retail stores The Internet facilitates price transparency and comparison shopping which increases the level of competition we face and puts competitive pressure on us to keep our prices low
We believe that our ability to compete successfully in the footwear industry depends on a number of factors including style price performance quality location and service as well as the strength of our brand names We remain competitive by increasing awareness of our brands improving the efficiency of our supply chain and enhancing the style comfort fashion and perceived value of our products However our competitors may implement more effective marketing campaigns adopt more aggressive pricing policies make more attractive offers to potential employees distribution
partners and manufacturers or respond more quickly to changes in consumer preferences than us As a result we may not be able to compete successfully in the future and increased competition may result in price reductions reduced gross margins loss of market share and an inability to generate cash flows that are sufficient to maintain or expand the development and marketing of our products which could adversely impact our financial results
As a result of these specific and other general factors our operating results will vary from quarter to quarter and the results for any particular quarter may not be indicative of results for the full year Any shortfall in sales or earnings from the levels expected by investors could cause a decrease in the trading price of our common stock
Although we purchase most of our products from international manufacturers in United States dollars and otherwise may engage in foreign currency hedging transactions from time to time we may experience cost variations with respect to exchange rate changes Currency exchange rate fluctuations may also adversely impact third parties who manufacture the Company s products by making their purchases of raw materials or other production costs more expensive and more difficult to finance resulting in higher prices and lower margins for the Company and its distributors
We rely primarily on international sourcing for our footwear products through third party manufacturing facilities located outside the United States As is common in the industry we do not have any long term contracts with our third party international manufacturers International sourcing is subject to numerous risks including trade relations work stoppages transportation delays including delays at international and domestic ports and costs including customs duties quotas tariffs anti dumping duties safeguard measures cargo restrictions or other trade restrictions domestic and international political instability foreign currency fluctuations variable economic conditions expropriation nationalization natural disasters terrorist acts and military conflict changes in governmental regulations including the U S Foreign Corrupt Practices Act and geo political events such as the current wars in Israel and Ukraine and increased tensions between China and Taiwan Supply chain disruptions and port congestion have in the past delayed receipt of inventory and this could occur again in the future Delayed inventory receipt could delay deliveries to our wholesale customers and reduce availability in our stores and e commerce websites which could adversely impact our financial results In addition the imposition of tariffs or other costs on imported products may result in an increase in product prices which may in turn adversely impact our gross margins if we are unable to mitigate the impact of the costs At the same time potential changes in manufacturing preferences including but not limited to the following pose additional risk and uncertainty
As a result of these risks there can be no assurance that we will not experience reductions in available production capacity increases in our product costs late deliveries or terminations of our supplier relationships Furthermore these sourcing risks are compounded by limited diversification in the geographic location of our international sourcing and manufacturing Approximately 60 of the footwear we sourced in 2023 was from China With the majority of our supply originating in China a substantial portion of our supply could be at risk in the event of any significant negative development related to relations between United States and China In addition international expansion in China may be hampered as a result of the adverse economic conditions that China is currently experiencing
Although we believe we could find alternative manufacturing sources for the products that we currently source from third party manufacturing facilities in China or other countries we may not be able to locate alternative manufacturers on terms as favorable as our current terms including pricing payment terms manufacturing capacity quality standards and lead times for delivery In addition there is substantial competition in the footwear industry for quality footwear manufacturers Accordingly our future results will partly depend on our ability to maintain positive working relationships with and offer competitive terms to our international manufacturers If supply issues cause us to be unable to provide products consistent with our standards or manufacture our footwear in an efficient and cost effective manner our customers may cancel orders refuse to accept deliveries or demand reductions in purchase prices any of which could have a material adverse effect on our business and results of operations
We also sell footwear in East Asia through our joint venture and plan to increase international sales efforts as part of our growth strategy Our joint venture partners may have objectives that are different than our own In addition we may be subject to increased legal risk associated with the joint venture if it fails to adhere to consistent levels of compliance standards as our fully owned operations
Our computer network and systems are essential to all aspects of our operations including design pricing production accounting reporting forecasting ordering manufacturing transportation marketing sales and distribution Our ability to manage and maintain our inventory and to deliver products in a timely manner depends on these systems With the continued growth in e commerce direct to consumer sales any system disruption may result in an adverse impact to our operations If any of these systems fails to operate as expected we experience problems with transitioning to upgraded or replacement systems we fail to realize the expected return on our technology investment a breach in security occurs or a natural disaster interrupts system functions we may experience delays in product fulfillment reduced efficiency in our operations or delays in reporting our financial results to investors or we may be required to expend significant capital to correct the problem which may have an adverse effect on our results of operations and financial condition
We are undergoing a multi year enterprise resource planning ERP implementation which will require significant financial and human capital resources The implementation of the new ERP system may be more difficult costly or time consuming than anticipated and it is possible that the system will not yield the expected benefits Any disruptions delays or deficiencies related to the new ERP system may materially and adversely impact our business operations including our ability to process orders manage our inventory ship products to our customers maintain our financial records maintain effective internal control over financial reporting or perform other business functions
We routinely possess sensitive consumer and associate information and periodically provide it to third parties for analysis benefit distribution or compliance purposes Consumers are also increasingly using mobile devices and applications to shop online and do comparison shopping Additionally a large portion of our Corporate employees are working remotely which may result in heightened cybersecurity risk Remote working environments may be less secure and more susceptible to hacking attacks including phishing and social engineering attempts From time to time we have experienced and may continue to experience attacks on our systems or those of our vendors While we believe we have taken reasonable and
appropriate steps to protect sensitive information hackers and data thieves operate sophisticated large scale attacks that could breach our information systems despite ongoing security measures In addition we are required to comply with increasingly complex regulations designed to protect our business and personal data Any breach of our network security a third party s network security or failure to comply with applicable regulations may result in a the loss of valuable business data and or our consumers or associates personal information b increased costs associated with implementing additional protections and processes c a disruption of our business and a loss of sales d negative media attention e damage to our consumer and associate relationships and reputation and f fines or lawsuits
Using sales forecasts we place orders with manufacturers for some of our products prior to the time we receive all of our customers orders to minimize purchasing costs the time necessary to fill customer orders and the risk of non delivery We also maintain an inventory of certain products that we anticipate will be in greater demand At the retail level we place orders for products many months in advance of our key selling seasons Adverse economic conditions and rapidly changing consumer preferences can make it difficult for us and our retail customers to accurately forecast product trends in order to match production with demand If we fail to accurately assess consumer fashion tastes and the impact of economic factors on consumer spending or to effectively differentiate our retail and wholesale offerings our inventory levels may exceed customer demand resulting in inventory write downs higher carrying costs lower gross margins or the sale of excess inventory at discounted prices which could significantly impact our financial results Conversely if we underestimate consumer demand for our products or if our manufacturers fail to supply the quality products that we require in a timely manner we may experience inventory shortages Inventory shortages may delay shipments to customers and possibly require us to offer discounts or costly expedited shipping negatively impact retailer and distributor relationships adversely impact our sales results and diminish brand awareness and loyalty
In addition our retail stores are inherently subject to the risk of inventory loss and theft In recent years the retail industry has experienced an increase in inventory shrinkage and although we have taken steps to reduce inventory shrinkage higher rates of shrinkage or increased costs associated with addressing inventory theft including maintaining a safe store environment for our customers and associates may have a material adverse impact on our results of operations
We currently use several leased distribution centers which serve as the source of replenishment of inventory for our footwear stores and e commerce websites operated by our Famous Footwear and Brand Portfolio segments and serve the wholesale operations of our Brand Portfolio segment Our success depends on our ability to handle the high volume of e commerce sales and single pair shipments which requires significant capital to operate with a greater level of sophistication and automation as well as higher processing and distribution costs We may be unable to successfully manage negotiate or renew our distribution center leases or we may experience complications with respect to our distribution centers such as substantial damage to or destruction of such facilities due to natural disasters In such an event our other distribution centers may not be able to support the resulting additional distribution demands and we may be unable to locate alternative persons or entities capable of fulfilling our distribution needs resulting in an adverse effect on our ability to deliver inventory on a timely basis The effective operation of our distribution centers may also be impacted by wage inflation labor shortages and disruptions to the supply chain
Our success depends on our ability to attract retain and motivate qualified management administrative product development marketing and sales personnel to support existing operations and future growth In addition our ability to successfully integrate acquired businesses often depends on our ability to retain incumbent personnel many of whom possess valuable institutional knowledge and operating experience Competition for qualified personnel in the footwear industry is intense and we compete for these individuals with other companies that in many cases have superior financial and other resources The loss of the services of any member of our senior management or key associates the inability to attract and retain other qualified personnel or the inability to effectively transition positions could adversely affect the sales design and production of our products as well as the implementation of our strategic initiatives Also we have recently experienced changes in key senior management personnel including our chief executive officer and chief financial officer Management transitions may create uncertainty and if we do not successfully manage the transition it
The success of the retail business within our Famous Footwear and Brand Portfolio segments depends in part on our ability to secure affordable long term leases in desirable locations for our leased retail footwear stores and to secure renewals of such leases As consumer shopping preferences have evolved we continue to focus on opening stores in locations with a greater penetration of high value consumers No assurance can be given that we will be able to successfully negotiate lease renewals for existing stores or obtain acceptable terms for new stores in desirable locations In addition opening new stores in our existing markets may result in reduced net sales in existing stores as our stores become more concentrated in the markets we serve As a result the number of consumers and financial performance of individual stores may decline and the average sales per square foot at our stores may be reduced Due to the changing retail landscape we may want to reduce the number of retail store locations but may be unable to successfully exit lease agreements This may result in impairments or lease termination charges that adversely impact our financial results
Our ability to maintain our reputation is integral to the success of our business Failure to maintain quality merchandise and quality customer service may damage our reputation The consumer s perception of us our stores and our brands whether justified or not could harm our reputation Our success depends in part on our ability to keep existing consumers while also attracting new consumers and a damaged reputation will hinder that ability
In addition the increased use of social media by us and by our consumer has also increased the risk to our reputation Negative commentary regarding us or the products we sell may be posted on social media at any time Consumers value readily available information and may rely on negative commentary without regard to its accuracy If we are unable to effectively manage social media our reputation and consumer s perception of our brands may be negatively impacted
Our ESG initiatives may result in increased scrutiny from stakeholders or regulators with respect to our ESG goals and objectives We may not be able to achieve our ESG goals within the timelines established or at all Failure to successfully achieve our established goals may damage our reputation or the reputation of our brands Our reputation may also be damaged if we do not act or are perceived by our consumers to not act responsibly with respect to our impact on the environment or other social or governance matters Damage to our brands and reputation could have a material adverse effect on our business results of operations financial position and cash flow
Rewards is a customer loyalty program that drives sales and traffic for the Famous Footwear segment Rewards members earn points toward certificates for qualifying purchases Upon reaching specified point values members are issued a Rewards certificate which may be redeemed for purchases at Famous Footwear Approximately 77 of our 2023 sales within the Famous Footwear segment were generated by our Rewards members If our Rewards members do not continue to shop at Famous Footwear our sales may be adversely affected
As part of our business strategy we periodically pursue acquisitions of other companies or businesses as well as divestitures of our businesses Although we review the financial results and records of acquisition candidates the review may not reveal all existing or potential problems As a result we may not accurately assess the value of the business and may accordingly ultimately assume unknown adverse operating conditions and or unanticipated expenses and liabilities related to the acquisition Acquisitions may also cause us to incur debt write offs of goodwill or intangible assets if the business does not perform as well as expected and substantial amortization expenses associated with other intangible assets We face the risk that the returns on acquisitions will not support the expenditures or indebtedness incurred to acquire such businesses We also face the risk that we will not be able to integrate acquisitions into our existing operations or divest our businesses effectively without substantial expense delay or other operational or financial
problems Integration may be hindered by among other things differing procedures including internal controls business practices and technology systems We may need to allocate more management resources to integration than we planned which may adversely affect our ability to pursue other profitable activities
Our financial results are significantly impacted by the effective tax rates of both our domestic and international operations Future changes in tax laws could materially impact our effective tax rate Other factors such as changes in the mix of earnings in countries with differing statutory tax rates changes in permitted deductions interpretations policies and treaties and the outcome of income tax audits in various jurisdictions may result in higher taxes lower profitability and increased volatility in our financial results
In addition changes in the tax laws of foreign jurisdictions may arise as a result of the Pillar Two Pillar Two Global Anti Base Erosion model rules that were released by the Organization for Economic Cooperation and Development OECD in 2021 The OECD continues to release guidance and many countries are implementing legislation to adopt the rules for tax years beginning in 2024 Although the United States has not yet enacted legislation implementing Pillar Two there can be no assurance that our effective tax rate or tax payments will not be adversely affected as countries independently amend their tax laws to adopt Pillar Two
We are increasingly focused on ESG considerations relating to our business including greenhouse gas emissions human and civil rights and diversity equity and inclusion New laws and regulations in these areas including those passed by the State of California and the SEC will be required to be adopted and may be passed by other states or regulatory agencies The criteria used by regulators and other relevant stakeholders to evaluate our ESG practices capabilities and performance may change rapidly which in each case could require us to undertake costly initiatives or operational changes In addition the requirements may not be uniform across jurisdictions which may result in increased complexity and cost to become or remain compliant Non compliance with these rules or standards or a failure to address regulator stakeholder and societal expectations may result in potential cost increases litigation fines penalties production and sales restrictions brand or reputational damage loss of customers suppliers and commercial partners failure to retain and attract talent lower valuation and higher investor activism activities Managing these considerations and implementing these goals and initiatives involves risks and uncertainties including increased costs and often depends on third party performance or data that is outside our control We cannot guarantee that we will achieve our announced ESG goals and initiatives satisfy all stakeholder expectations or that the benefits of implementing or achieving these goals and initiatives will not surpass their projected costs Any failure or perceived failure to achieve ESG goals and initiatives as well as to manage ESG risks adhere to public statements comply with federal state or international ESG laws and regulations or meet evolving and varied stakeholder expectations and standards could result in legal and regulatory proceedings against us and materially adversely affect our business reputation results of operations financial condition and stock price
We focus on doing business with those suppliers who share our commitment to responsible business practices and the principles set forth in our Production Code of Conduct the PCOC By requiring our suppliers to comply with the PCOC we encourage our suppliers to promote best practices and work toward continual improvement throughout their production operations The PCOC sets forth standards for working conditions and other matters including compliance with applicable labor practices workplace environment and compliance with laws Although we promote ethical business practices we do not control our suppliers or their labor practices A failure by any of our suppliers to adhere to these standards or laws could cause us to incur additional costs for our products or cause negative publicity and harm our business and reputation We also require our suppliers to meet our standards for product safety including compliance with applicable laws and standards with respect to safety issues including lead content in paint Failure by any of our suppliers to adhere to product safety standards could lead to a product recall which may result in critical media coverage harm our business and reputation and cause us to incur additional costs
In addition if we or our suppliers or international manufacturers violate United States or international trade laws or regulations we may be subject to additional duties significant monetary penalties the seizure and forfeiture of the products we are attempting to import or the loss of our import privileges Possible violations of United States or international laws or regulations could include inadequate recordkeeping of our imported products misstatements or errors as to the origin classification marketing or valuation of our imported products fraudulent visas or labor violations The effects of these factors could render our conduct of business in a particular country undesirable or impractical and have a negative impact on our operating results
Although we own most of our wholesale brands we also rely on our ability to attract retain and maintain good relationships with licensors that have strong well recognized brands and trade names Our license agreements are generally for an initial term of two to four years subject to renewal and there can be no assurance that we will be able to renew these licenses Even our longer term or renewable licenses are typically dependent upon our ability to market and sell the licensed products at specified levels and the failure to meet such levels may result in the termination or non renewal of such licenses Furthermore many of our license agreements require minimum royalty payments and if we are unable to generate sufficient sales and profitability to cover these minimum royalty requirements we may be required to make additional payments to the licensors that could have a material adverse effect on our business and results of operations In addition because certain of our license agreements are non exclusive new or existing competitors may obtain licenses with overlapping product or geographic terms resulting in increased competition for a particular market
We have entered into numerous license agreements with respect to the brands and trade names that we own While we have significant control over our licensees products and advertising we generally cannot control their operational and financial issues If our licensees are not able to meet annual sales and royalty goals obtain financing manage their supply chain control quality and maintain positive relationships with their customers our business results of operations and financial position may be adversely affected While we would likely have the ability to terminate an underperforming license it may be difficult and costly to locate an acceptable substitute distributor or licensee and we may experience a disruption in our sales and brand visibility In addition although many of our license agreements prohibit the licensees from entering into licensing arrangements with certain of our competitors they are generally not prohibited from offering under other brands the types of products covered by their license agreements with us
We believe that our trademarks and trade names are important to our success and competitive position because they create a market for our products and distinguish our products from other products We cannot however guarantee that we will be able to secure protection for our intellectual property in the future or that such protection will be adequate for future operations Furthermore we face the risk of ineffective protection of intellectual property rights in jurisdictions where we source and distribute our products some of which do not protect intellectual property rights to the same extent as the United States If we are unsuccessful in challenging a party s products on the basis of infringement of our intellectual property rights continued sales of these products could adversely affect our sales devalue our brands and result in a shift in consumer preference away from our products We may face significant expenses and liability in connection with the protection of our intellectual property rights and if we are unable to successfully protect our rights or resolve intellectual property conflicts with others our business or financial condition could be adversely affected
We are a defendant from time to time in lawsuits and regulatory actions including environmental matters relating to our business and to our past operations Due to the inherent uncertainties of litigation and regulatory proceedings we cannot accurately predict the ultimate outcome of any such proceedings An unfavorable outcome could have a material adverse impact on our business financial condition and results of operations In addition regardless of the outcome of any litigation or regulatory proceedings such proceedings are expensive and will require that we devote substantial resources and executive time to defend thereby diverting management s attention and resources that are needed to successfully run our business See Item 3 Legal Proceedings for further discussion of pending matters
The Fifth Amendment to our Fourth Amended and Restated Credit Agreement the Credit Agreement which matures on October 5 2026 is provided by a syndicate of financial institutions with each institution agreeing severally and not jointly to make revolving credit loans to us in an aggregate amount of up to 500 0 million in accordance with the terms of the Credit Agreement In addition the Credit Agreement provides for an increase at the Company s option by up to 250 0 million If one or more of the financial institutions participating in the Credit Agreement were to default on its obligation to fund its commitment the portion of the facility provided by such defaulting financial institution may not be available to us In addition as of February 3 2024 total borrowing availability under the Credit Agreement was 308 5 million Failure to meet our debt covenants under the Credit Agreement may require the Company to seek waivers or amendments of the debt covenants alternative or additional sources of financing or reduce expenditures In addition borrowings under our Credit Agreement bear interest at variable rates As a result increases in interest rates such as those we have recently experienced could require a greater portion of our cash flow to be used to pay interest which will negatively impact our net income and cash flow from operations
We are committed to protecting our customer and employee data We employ a defense in depth cybersecurity strategy leveraging industry frameworks that feature a prioritized set of robust controls that encompass people processes and technologies Our Chief Information Officer CIO is responsible for the execution of our cybersecurity strategy Our CIO has over 25 years of retail industry experience developing and implementing information technology strategies and leading cybersecurity programs The CIO is supported by a team of highly qualified professionals many of which hold cybersecurity certifications
The Company s cybersecurity policies standards and processes are integrated into the Company s overall risk management program and cybersecurity risks are regularly evaluated in the context of material risks to the Company We regularly engage with outside experts to assess the maturity of our organizational security program and to inform our short and long term cybersecurity strategy
The Audit Committee of our Board of Directors is responsible for oversight of our cybersecurity program In addition the Technology and Digital Commerce Committee which was established in 2022 assists the Board of Directors with its oversight responsibilities regarding the role of technology data digital commerce and the Company s ability to understand and connect with its consumers in executing the Company s strategies business plans and operational requirements
We continue to invest in cybersecurity and adapt our internal controls and processes to respond to cybersecurity risks Cybersecurity threats including those as a result of any previous cybersecurity incidents have not materially affected our business strategy results of operations or financial condition For a discussion of how cybersecurity risks have affected or are reasonably likely to materially affect the Company refer to Item 1A Risk Factors
Our retail operations included in both our Famous Footwear and Brand Portfolio segments are conducted throughout the United States Canada China and Guam and involve the operation of 958 retail stores All store locations excluding our Perth Ontario outlet center are leased with approximately 33 of them having renewal options The footwear sold through our domestic wholesale business is primarily processed through our leased distribution centers in Chino California and Lebanon Tennessee
We are involved in legal proceedings and litigation arising in the ordinary course of business In the opinion of management the outcome of such ordinary course business proceedings and litigation currently pending will not have a material adverse effect on our results of operations or financial position
Our prior operations included numerous manufacturing and other facilities for which we may have responsibility under various environmental laws to address conditions that may be identified in the future We are involved in environmental remediation and ongoing compliance activities at several sites and have been notified that we are or may be a potentially responsible party at several other sites We are remediating under the oversight of Colorado authorities contamination at and beneath our owned facility in Colorado also known as the Redfield site and groundwater and indoor air in residential neighborhoods adjacent to and near the property which have been affected by solvents previously used at the site and surrounding facilities
The following performance graph compares the cumulative total return on our common stock with the cumulative total return of the following indices i the S P SmallCap 600 Stock Index and ii a peer group of companies believed to be engaged in similar businesses Our peer group consists of Designer Brands Inc Genesco Inc Shoe Carnival Inc Skechers U S A Inc Steven Madden Ltd and Wolverine World Wide Inc
Our fiscal year ends on the Saturday nearest to each January 31 Accordingly share prices are as of the last business day in each fiscal year The graph assumes that the value of the investment in our common stock and each index was 100 at February 2 2019 The graph also assumes that all dividends were reinvested and that investments were held through February 3 2024 These indices are included for comparative purposes only and do not necessarily reflect management s opinion that such indices are an appropriate measure of the relative performance of the stock involved and are not intended to forecast or be indicative of possible future performance of the common stock
We are a global footwear company that operates retail shoe stores and e commerce websites and designs develops sources manufactures and distributes footwear for people of all ages Our mission is to inspire people to feel great feet first We offer retailers and consumers a diversified portfolio of leading footwear brands Outfitted in our brands customers can step confidently into every aspect of their lives As both a retailer and a wholesaler we have a perspective on the marketplace that enables us to serve consumers from different vantage points We believe our diversified business model provides us with synergies by spanning consumer segments categories and distribution channels A combination of thoughtful planning and rigorous execution is key to our success in optimizing our business and portfolio of brands Our business strategy is focused on accelerating growth in our Brand Portfolio segment gaining market share and deepening connections with the millennial family in our Famous Footwear segment leveraging our One Caleres capabilities to increase profitability and delivering value for our shareholders
Famous Footwear which is one of America s leading family branded footwear retailers was founded on a simple idea that everyone deserves to feel the joy that comes from a new pair of shoes Our Famous Footwear segment includes 860 Famous Footwear stores famousfootwear com and famousfootwear ca in Canada This national footprint of mostly off mall store locations is convenient for Famous Footwear s target consumer the millennial family We seek to meet the needs of that millennial family and others by providing an assortment of trend right brand name fashion casual and athletic footwear at a great price
During 2023 we continued to execute on our three pronged strategy which concentrates on merchandising marketing and consumer experience We remained focused on increasing the opportunity between Famous Footwear and the brands within our Brand Portfolio segment such as Dr Scholl s Shoes LifeStride Naturalizer and Blowfish Malibu among others Vertical integration provides Famous Footwear with greater access to fashion products from brands that resonate with its consumer as well as greater ability to be flexible with trends and offer better profit potential We also have focused on offering the consumer a balanced assortment of fashion and athletic styles from well known brands We continued to tightly manage our inventory levels in 2023 reducing SKU counts and amplifying key product trends and items to drive sales volume As we work to evolve our product offerings we are testing and adding new and emerging brands across various categories to meet the shifting preferences and behaviors of the consumer which we believe may attract new Famous Footwear consumers while providing the current consumer with additional options We believe our kids category which continues to grow is a key competitive differentiator We view this offering as a future growth opportunity and have plans to build on the strength of this category With the millennial mom as our target consumer we believe her primary purchase motivation is her kids and will prioritize these purchases even with macroeconomic pressures As a result we are making the kids business a critical component of how our associates connect with our consumers including ensuring every child finds the perfect fit Our investments in new and remodeled stores over the last few years have prioritized an elevated experience within our kids department
We are leaning into our best brands from an inventory marketing and store presence perspective In addition we continue to invest in enhancing our in store shopping experience to deliver a more engaging and inspiring experience across the omnichannel Our new FLAIR Famous Localized and Immersive Retail store concept has been successful at driving sales growth and we plan to continue to transform stores to this enhanced consumer shopping experience in 2024 The FLAIR store concept highlights our leading assortment of trending brands and elevates those brands in an energetic and exciting manner
marketing campaigns The segment is comprised of the Sam Edelman Vionic Naturalizer Allen Edmonds Dr Scholl s Shoes LifeStride Franco Sarto Blowfish Malibu Rykä Vince Bzees Veronica Beard and Zodiac brands Through these brands we offer our customers a diversified selection of footwear each designed and targeted to a specific consumer segment within the marketplace We are able to showcase many of our brands in our retail stores and online leveraging our wholesale and retail platforms sharing consumer insights across our businesses and testing new and innovative products Our Brand Portfolio segment operates 62 retail stores in the United States for our Allen Edmonds Sam Edelman and Naturalizer brands This segment also includes our e commerce businesses that sell our branded footwear We also operate a joint venture which expands our international presence by distributing our Sam Edelman and Naturalizer brands through e commerce sites and 36 retail stores in East Asia
Macroeconomic factors including among others inflation elevated interest rates increased real estate costs higher consumer debt levels the end to the student loan repayment pause and lingering fears of a recession continued to impact consumer discretionary spending and our financial results during 2023 We experienced lighter consumer traffic in our retail stores during 2023 resulting in lower net sales While we believe that the structural changes we ve implemented in the last few years as well as our diversified model and operational discipline enable the Company to drive value in a variety of market conditions changes in macro level consumer spending trends may continue to adversely impact our financial results in the future To mitigate the impact of these macroeconomic factors we began initiating expense reduction initiatives in the first quarter of 2023 These actions which included eliminating open corporate positions reducing non merchandise procurement costs and integrating our Blowfish Malibu office and information systems into the St Louis infrastructure are expected to result in additional savings in 2024 We believe our focus on cost control and our commitment to execute our clearly defined strategic initiatives have positioned us for sustainable long term growth
During 2023 we focused on reducing debt to maintain liquidity and reduce interest expense Given the continued elevated interest rate environment our capital allocation priority during 2024 will be to reduce debt levels further In addition given our debt reduction progress and strong operating cash flows during 2023 we used excess capital to repurchase shares We will continue to evaluate our capital allocation priorities in light of business performance and market conditions
We believe the success of the structural changes we have made in recent years has enabled us to continue to deliver earnings per share in excess of our 4 00 baseline In October 2023 we announced a three year strategic and financial plan that we believe will drive a higher level of growth and profitability We believe that we are uniquely positioned to meet consumer needs and capture growth across trending footwear categories We are confident in our ability to execute on our growth strategy and deliver on our long term financial targets to create sustained value for our shareholders
The comparable sales metric is a metric commonly used in the retail industry to evaluate the revenue generated for stores that have been open for more than a year though many retailers may calculate the metric differently Management uses the comparable sales metric as a measure of an individual store s success to determine whether its sales performance is consistent with expectations Our comparable sales metric is a daily weighted calculation for the period which includes sales for stores that have been open at least 13 months In addition in order to be included in the comparable sales metric a store must be open in the current period as well as the corresponding day s of the comparable retail calendar in the prior year Accordingly closed stores including temporary store closures are excluded from the comparable sales metric for each day of the closure Relocated stores are treated as new stores and therefore excluded from the calculation E commerce sales for those websites that function as an extension of a retail chain are included in the comparable sales calculation We believe the comparable sales metric is useful to shareholders and investors in assessing the performance of our existing retail store locations with comparable prior year sales separate from the impact of store openings or closures
The sales per square foot metric is commonly used in the retail industry to measure the efficiency of a store s sales based upon the square footage in a store Management uses the sales per square foot metric in our Famous Footwear segment as a measure of an individual store s success to determine whether it is performing consistent with expectations The sales per square foot metric is calculated by dividing total retail store sales excluding e commerce sales by the total square footage of the retail store base at the end of each month of the respective period
The following sections discuss the consolidated and segment results of our operations for the year ended February 3 2024 compared to the year ended January 28 2023 For a discussion of the results for the year ended January 28 2023 compared to the year ended January 29 2022 refer to Part II Item 7 Management s Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10 K for the year ended January 28 2023
Net sales decreased 150 8 million or 5 1 to 2 817 3 million in 2023 compared to 2 968 1 million last year reflecting the challenging macroeconomic and retail environment Net sales for our Famous Footwear segment decreased 95 7 million or 5 6 compared to 2022 net sales Net sales for our Brand Portfolio segment decreased 51 9 million or 3 9 compared to 2022 The 53rd week in 2023 contributed approximately 25 million to our consolidated net sales including 18 2 million in our Famous Footwear segment and 6 8 million in our Brand Portfolio segment On a consolidated basis our direct to consumer sales represented approximately 72 of total net sales for both 2023 and 2022
Gross profit decreased 21 9 million or 1 7 to 1 263 0 million in 2023 compared to 1 284 9 million in 2022 primarily driven by lower net sales As a percentage of net sales our gross profit rate increased to 44 8 in 2023 compared to 43 3 in 2022 primarily due to a higher gross margin rate at our Brand Portfolio segment driven by lower inventory markdowns lower inbound freight costs and higher merchandise margins These increases were partially offset by a decrease in the gross margin rate at our Famous Footwear segment
Selling and administrative expenses decreased 5 3 million or 0 5 to 1 062 4 million in 2023 compared to 1 067 7 million last year The decrease is primarily due to lower anticipated payments under our cash based incentive compensation plans and lower warehouse costs partially offset by higher facilities costs and incremental expenses associated with the 53rd week in 2023 As a percentage of net sales selling and administrative expenses increased to 37 7 in 2023 from 36 0 last year reflecting deleveraging of expenses on lower net sales
During 2023 we incurred restructuring costs of 6 1 million 4 5 million on an after tax basis or 0 13 per diluted share associated with our expense reduction initiatives During 2022 we incurred restructuring and other special charges of 2 9 million 2 7 million on an after tax basis or 0 07 per diluted share associated with a CFO transition at our corporate headquarters Refer to further discussion of these charges in the Financial Highlights section above and Note 4 to the consolidated financial statements
Interest expense net increased 5 1 million or 35 6 to 19 4 million in 2023 compared to 14 3 million last year primarily attributable to higher interest rates on our revolving credit agreement partially offset by lower average borrowings Refer to Note 11 to the consolidated financial statements for additional information related to our borrowings
Other income net decreased 6 8 million or 52 1 to 6 2 million in 2023 compared to 13 0 million in 2022 which is attributable to certain components of net periodic benefit income associated with our pension plans including interest cost and expected return on assets Refer to Note 5 to the consolidated financial statements for additional information related to our retirement plans
Our consolidated effective tax rate was 5 2 in 2023 compared to 15 7 in 2022 Our lower tax rates for 2023 and 2022 primarily reflect the release of 26 7 million and 17 4 million respectively of valuation allowances recorded for certain deferred tax assets As a result of the significant loss before income taxes in 2020 driven by the impairment of goodwill and intangible assets during the pandemic we entered into a three year cumulative loss position for federal state and certain international jurisdictions At that time we increased our valuation allowances on deferred tax assets to 50 0 million reflecting the uncertainty regarding the utilization of our deferred tax assets in those jurisdictions Due to stronger earnings in 2022 and 2023 the Company is no longer in a cumulative three year loss position Accordingly the Company released valuation allowances on certain deferred tax assets totaling 17 4 million 0 47 per diluted share in 2022 and 26 7 million 0 75 per diluted share in 2023
In 2021 the OECD released Pillar Two Global Anti Base Erosion model rules designed to ensure large corporations are taxed at a minimum rate of 15 in all countries of operation The OECD continues to release guidance and countries are implementing legislation to adopt the rules for tax years beginning in 2024 The United States has not yet enacted legislation implementing Pillar Two We are continuing to evaluate the Pillar Two rules and their potential impact on future periods but we do not expect the rules to have a material impact on our effective tax rate
We have both domestic and international operations Domestic operations include the nationwide operation of our Famous Footwear and other branded retail footwear stores the wholesale distribution of footwear to numerous retail consumers and the operation of our e commerce websites International operations primarily consist of wholesale operations in East Asia Canada and Europe retail operations in Canada and East Asia and the operation of our international e commerce websites In addition we license certain of our trade names to third parties who distribute and or operate retail locations internationally The operations in East Asia include first cost transactions where footwear is sold at international ports to customers who then import the footwear into the United States and other countries The breakdown of domestic and international net sales and earnings before income taxes is as follows
Net sales decreased 95 7 million or 5 6 to 1 609 4 million in 2023 compared to 1 705 1 million last year Comparable sales decreased 6 3 in 2023 driven by a decline in consumer traffic in our retail stores as the challenging macroeconomic environment continued to impact sales Despite the challenging retail environment we experienced strong demand for key athletic brands and casual product such as slippers We remain focused on maximizing the vertical integration opportunity between the Brand Portfolio and Famous Footwear segments with Dr Scholl s Shoes LifeStride Naturalizer and Blowfish Malibu representing four of Famous Footwear s top 20 best selling footwear brands in 2023 Our e commerce penetration in 2023 was approximately 13 of net sales a slight decline from 14 last year During 2023 we closed 13 stores on a net basis as we continued to focus on optimizing our store base
Gross profit decreased 69 5 million or 8 8 to 719 5 million in 2023 compared to 789 0 million last year primarily driven by lower net sales As a percentage of net sales our gross profit rate decreased to 44 7 in 2023 compared to 46 3 in 2022 During 2022 strong demand and a higher mix of current inventory resulted in fewer markdowns and minimal clearance selling During 2023 we experienced a more normalized mix of clearance product sold and margins on those sales were in line with historical levels
Selling and administrative expenses increased 1 1 million or 0 2 to 594 3 million during 2023 compared to 593 2 million last year The increase primarily reflects higher facilities costs partially offset by lower salary and benefits expenses lower advertising expenses and lower distribution costs As a percentage of net sales selling and administrative expenses increased to 36 9 in 2023 from 34 8 last year reflecting the deleveraging of expenses on lower net sales
Restructuring and other special charges of 1 4 million were recorded during 2023 for expenses associated with expense reduction initiatives primarily severance Refer to Note 4 to the consolidated financial statements for additional information related to these charges There were no corresponding charges in 2022
Net sales decreased 51 9 million or 3 9 to 1 270 9 million in 2023 compared to 1 322 8 million last year Despite the challenging consumer environment we have been able to leverage our leading speed capabilities and edit to win initiative to drive sales of selected trending product Speed is a key differentiator for the Brand Portfolio segment as we are generally able to restock product that is part of the speed program within three months or less to align with consumer demand As the consumer continued to prioritize newness in flats and casuals including loafers ballet Mary Janes slingbacks and fashion sneakers our brands were well positioned to meet the diversified needs and preferences of our consumers This was particularly evident in our Allen Edmonds Dr Scholl s Shoes and Franco Sarto brands which experienced strong growth during 2023 Growth in these brands was offset by declines in our Blowfish Malibu brand as well as our Sam Edelman and Vionic brands in 2023 due in part to the strong performance of these brands in 2022 when we benefitted from retailers aggressively restocking their wholesale inventory levels Our owned e commerce business also continues to grow increasing 5 1 in 2023 compared to 2022
We closed five stores and opened four stores in the United States and expanded our retail store presence in East Asia by opening 10 stores and closing three stores resulting in a total of 62 stores in the United States and 36 stores in East Asia at the end of 2023 During 2024 we expect to continue to expand our international retail presence by opening approximately 35 stores in East and Southeast Asia
The unfilled order position for our wholesale business decreased 50 1 million to 234 5 million at the end of 2023 compared to 284 6 million at the end of last year The decrease in our backlog order levels reflects more conservative buying by our wholesale customers as they more tightly manage their inventory levels and the dynamic nature of inventory buying which includes periodic replenishment orders and shipping directly to the end consumer purchasing from our wholesale customers websites
Gross profit increased 48 7 million or 9 8 to 546 0 million in 2023 compared to 497 3 million last year As a percentage of sales our gross profit rate increased significantly to 43 0 in 2023 compared to 37 6 last year reflecting lower inventory markdowns higher merchandise margins and lower inbound freight costs
Selling and administrative expenses increased 12 9 million or 3 4 to 397 9 during 2023 compared to 385 0 million last year The increase was driven by higher marketing expenses and higher facilities costs partially offset by lower logistics costs and salary and benefit expenses In addition 2022 included a gain recognized upon the modification of an international licensing contract As a percentage of net sales selling and administrative expenses increased to 31 4 in 2023 from 29 1 last year reflecting deleveraging of expenses over a lower net sales base
Restructuring and other special charges of 2 6 million were recorded during 2023 for expenses associated with our expense reduction initiatives primarily severance and other costs to integrate the Blowfish Malibu office showroom and information systems into the St Louis infrastructure Refer to Note 4 to the consolidated financial statements for additional information related to these charges There were no corresponding charges in 2022
We achieved another year of record operating earnings and operating margin Operating earnings increased 33 1 million to 145 5 million in 2023 compared to 112 3 million last year as a result of the factors described above As a percentage of net sales operating earnings were 11 4 in 2023 compared to 8 5 last year
Restructuring and other special charges of 2 1 million in 2023 were associated with expense reduction initiatives primarily severance at our corporate headquarters Restructuring and other special charges of 2 9 million in 2022 were associated with a CFO transition at our corporate headquarters Refer to Note 4 to the consolidated financial statements for additional information related to these charges
Our borrowings under the revolving credit agreement decreased 125 5 million to 182 0 million at the end of 2023 compared to 307 5 million at the end of last year The decrease reflects strong cash generation in 2023 and our priority to reduce borrowings under the revolving credit agreement to mitigate the high interest rate environment Net interest expense in 2023 was 19 4 million compared to 14 3 million in 2022 The increase in net interest expense in 2023 was primarily due to higher interest rates partially offset by lower average borrowings on our revolving credit agreement The interest on our revolving credit facility is based on a variable interest rate which has resulted in higher interest expense in the current rising interest rate environment Our interest expense will continue to be adversely affected by elevated interest rates in 2024
As further discussed in Note 11 to the consolidated financial statements the Company maintains a revolving credit facility the Credit Agreement for working capital needs The Credit Agreement which provides borrowing availability of up to 500 0 million subject to borrowing base restrictions that may be further increased by up to 250 0 million matures on October 5 2026 Interest on the borrowings was previously calculated using variable rates based on the London Interbank Offered Rate LIBOR with a floor of 0 0 or the prime rate as defined in the Fifth Amendment plus a spread On April 27 2023 the Company entered into a Sixth Amendment to Fourth Amended and Restated Credit agreement as so amended the Credit Agreement to transition the borrowings on the revolving credit facility from bearing interest based on LIBOR to a term secured overnight financing rate SOFR
At February 3 2024 we had 182 0 million of borrowings and 9 5 million in letters of credit outstanding under the Credit Agreement Total borrowing availability was 308 5 million at February 3 2024 We were in compliance with all covenants and restrictions under the Credit Agreement as of February 3 2024
Working capital at February 3 2024 was 46 0 million which was 125 7 million higher than at January 28 2023 The increase in working capital from 2022 primarily reflects lower borrowings under our revolving credit agreement other accrued expenses and lease obligations partially offset by lower inventory Our current ratio was 1 06 to 1 at February 3 2024 compared to 0 91 to 1 at January 28 2023 Our debt to capital ratio was 24 3 as of February 3 2024 compared to 41 9 at January 28 2023 reflecting higher shareholders equity attributable to our strong financial results in 2023
Cash used for financing activities was 104 8 million higher in 2023 than last year primarily due to net repayments on our revolving credit agreement of 125 5 million in 2023 compared to net borrowings of 17 5 million in 2022 In addition the issuance of common stock under share based plans was 5 7 million higher in 2023 compared to 2022 These increases were partially offset by a 45 8 million decrease in repurchases of common stock under our share repurchase programs during 2023 compared to 2022
We paid dividends of 0 28 per share in each of 2023 2022 and 2021 The 2023 dividends marked the 101st year of consecutive quarterly dividends On March 14 2024 the Board of Directors declared a quarterly dividend of 0 07 per share payable on April 12 2024 to shareholders of record on March 28 2024 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
Inventories are one of our most significant assets representing approximately 30 of total assets at the end of 2023 We value our inventories at the lower of cost or market for approximately 86 of our consolidated inventories which represents the divisions using the LIFO cost method For the remaining portion our inventories are valued at the lower of cost or net realizable value For inventory valued at LIFO we regularly review the inventory for excess obsolete or impaired inventory and write it down to the lower of cost or market We apply judgment in determining the market value of inventory which requires an estimate of net realizable value including current and expected selling prices costs to sell and normal gross profit rates The method used to determine market value varies by business division based on the unique operating models At our Famous Footwear segment and certain operations within our Brand Portfolio segment market value is determined based on net realizable value less an estimate of expected costs to be incurred to sell the product Accordingly we record markdowns when it becomes evident that inventory items will be sold at prices below cost As a result gross profit rates at our Famous Footwear segment and to a lesser extent our Brand Portfolio segment are lower than the initial markup during periods when permanent price reductions are taken to clear product For the majority of our Brand Portfolio segment we determine market value based upon the net realizable value of inventory less a normal gross profit rate We believe these policies reflect the difference in operating models between our Famous Footwear segment and our Brand Portfolio segment Famous Footwear periodically runs promotional events to drive sales to clear seasonal inventories The Brand Portfolio segment generally relies on permanent price reductions to clear slower moving inventory
management considers recent and forecasted sales prices historical gross profit rates the length of time the product is held in inventory and quantities of various product styles contained in inventory as well as demand among other factors The ultimate amount realized from the sale of certain products could differ from management estimates
We perform physical inventory counts or cycle counts on merchandise inventory on hand throughout the year and adjust the recorded balance to reflect the results We record estimated shrinkage between physical inventory counts based on historical results Inventory shrinkage is included as a component of cost of goods sold
We regularly analyze the results of all stores and assess the viability of underperforming stores to determine whether events or circumstances exist that indicate the stores should be closed or whether the carrying amount of their long lived assets may not be recoverable After allowing for an appropriate start up period and consideration of any unusual nonrecurring events property and equipment at stores and the lease right of use assets indicated as impaired are written down to fair value as calculated using a discounted cash flow method The fair value of the lease right of use assets and property and equipment is determined utilizing projected cash flows for each store location discounted using a risk adjusted discount rate subject to a market floor based on current market lease rates The projected cash flows of the stores including net sales projections discount rates and current market lease rates for the remaining lease term of the related stores used to determine fair value require significant management judgment and are the assumptions to which the fair value calculations are most sensitive
We recognize deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the consolidated financial statement carrying amounts and the tax bases of assets and liabilities Valuation allowances are established if we believe that it is more likely than not that some or all of our deferred tax assets will not be realized The evaluation of the realizability of deferred tax assets requires significant assumptions estimates and judgment by management including estimates of future taxable income by jurisdiction Such estimates are subject to inherent uncertainties and subjectivity
During 2020 we entered into a three year cumulative loss position driven by the significant loss before income taxes At that time we increased our valuation allowances on deferred tax assets to 50 0 million reflecting the uncertainty regarding the utilization of our deferred tax assets in those jurisdictions Due to stronger earnings in 2022 and 2023 the Company is no longer in a cumulative three year loss position as of February 3 2024 Accordingly we released valuation allowances on certain deferred tax assets totaling 17 4 million in 2022 and 26 7 million in 2023 As of February 3 2024 we have valuation allowances totaling 7 2 million reflecting the uncertainty regarding the utilization of net operating loss carryforwards
This Management s Discussion and Analysis of Financial Condition and Results of Operations contains forward looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 Actual results could differ materially from those projected as they are subject to various risks and uncertainties These risks and uncertainties include without limitation the risks detailed in Item 1A Risk Factors and those described in other documents and reports filed from time to time with the SEC press releases and other communications We do not undertake any obligation or plan to update these forward looking statements even though our situation may change
The market risk inherent in our financial instruments and positions represents the potential loss arising from adverse changes in foreign currency exchange rates and interest rates To address these risks we may enter into various hedging transactions All decisions on hedging transactions are authorized and executed pursuant to our policies and procedures which do not allow the use of financial instruments for trading purposes We also are exposed to credit related losses in the event of nonperformance by counterparties to these financial instruments Counterparties to these agreements however are major international financial institutions and we believe the risk of loss due to nonperformance is minimal
In addition we are exposed to translation risk because certain of our international operations use the local currency as their functional currency and those financial results must be translated into United States dollars As currency exchange rates fluctuate translation of our financial statements of international businesses into United States dollars affects the comparability of financial results between years
Our financing arrangements as of February 3 2024 include outstanding variable rate debt under the Credit Agreement Changes in interest rates impact fixed and variable rate debt differently For fixed rate debt a change in interest rates will only impact the fair value of the debt whereas a change in the interest rates on variable rate debt will impact interest expense and cash flows Refer to Note 11 to the consolidated financial statements for further discussion of our Credit Agreement
Our management is responsible for establishing and maintaining adequate internal control over financial reporting as such term is defined in Exchange Act Rules 13a 15 f and 15d 15 f Under the supervision and with the participation of our management including our principal executive officer and principal financial officer we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission 2013 Framework
Based on our evaluation our principal executive officer and principal financial officer have concluded that the Company s internal control over financial reporting was effective as of February 3 2024 The effectiveness of our internal control over financial reporting as of February 3 2024 has been audited by Ernst Young LLP an independent registered public accounting firm as stated in its report which is included herein
We have audited Caleres Inc s internal control over financial reporting as of February 3 2024 based on criteria established in Internal Control Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission 2013 framework the COSO criteria In our opinion Caleres Inc the Company maintained in all material respects effective internal control over financial reporting as of February 3 2024 based on the COSO criteria
We also have audited in accordance with the standards of the Public Company Accounting Oversight Board United States PCAOB the consolidated balance sheets of the Company as of February 3 2024 and January 28 2023 the related consolidated statements of earnings comprehensive income shareholders equity and cash flows for each of the three years in the period ended February 3 2024 and the related notes and financial statement schedule listed in the Index at Item 15 a and our report dated April 2 2024 expressed an unqualified opinion thereon
The Company s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management s Report on Internal Control Over Financial Reporting Our responsibility is to express an opinion on the Company s internal control over financial reporting based on our audit We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U S federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB
Our audit included obtaining an understanding of internal control over financial reporting assessing the risk that a material weakness exists testing and evaluating the design and operating effectiveness of internal control based on the assessed risk and performing such other procedures as we considered necessary in the circumstances We believe that our audit provides a reasonable basis for our opinion
A company s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles A company s internal control over financial reporting includes those policies and procedures that 1 pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the company 2 provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company and 3 provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition use or disposition of the company s assets that could have a material effect on the financial statements
Because of its inherent limitations internal control over financial reporting may not prevent or detect misstatements Also projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate
We have audited the accompanying consolidated balance sheets of Caleres Inc the Company as of February 3 2024 and January 28 2023 the related consolidated statements of earnings comprehensive income shareholders equity and cash flows for each of the three years in the period ended February 3 2024 and the related notes and financial statement schedule listed in the Index at Item 15 a collectively referred to as the consolidated financial statements In our opinion the consolidated financial statements present fairly in all material respects the financial position of the Company at February 3 2024 and January 28 2023 and the results of its operations and its cash flows for each of the three years in the period ended February 3 2024 in conformity with U S generally accepted accounting principles
We also have audited in accordance with the standards of the Public Company Accounting Oversight Board United States PCAOB the Company s internal control over financial reporting as of February 3 2024 based on criteria established in Internal Control Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission 2013 framework and our report dated April 2 2024 expressed an unqualified opinion thereon
These financial statements are the responsibility of the Company s management Our responsibility is to express an opinion on the Company s financial statements based on our audits We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U S federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB
We conducted our audits in accordance with the standards of the PCAOB Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement whether due to error or fraud Our audits included performing procedures to assess the risks of material misstatement of the financial statements whether due to error or fraud and performing procedures that respond to those risks Such procedures included examining on a test basis evidence regarding the amounts and disclosures in the financial statements Our audits also included evaluating the accounting principles used and significant estimates made by management as well as evaluating the overall presentation of the financial statements We believe that our audits provide a reasonable basis for our opinion
The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that 1 relates to accounts or disclosures that are material to the financial statements and 2 involved our especially challenging subjective or complex judgments The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements taken as a whole and we are not by communicating the critical audit matter below providing a separate opinion on the critical audit matter or on the account or disclosure to which it relates
As described in Note 1 and Note 8 the Company had inventories of 540 7 million as of February 3 2024 which included finished goods of 525 8 million net of related markdown reserves of 20 9 million The Company provides markdown reserves to reduce the carrying values of inventories In determining markdown reserves the Company considers recent and forecasted sales prices the length of time the product is held in inventory quantities of various product styles contained in inventory as well as demand among other factors
Auditing the Company s Brand Portfolio markdown reserves was complex and involved a high degree of subjectivity as it included assessing the significant assumptions including forecasted sales prices and demand considering the length of time the product is held in inventory and quantities of various product styles contained in inventory
We performed audit procedures which included among other procedures testing the accuracy and completeness of the underlying data used in the estimation calculations and evaluating significant assumptions including forecasted sales prices and demand considering the length of time the product is held in inventory and quantities of various product styles contained in inventory For example we compared recent sales of inventory items on hand at year end performed a retrospective review analysis comparing sales activity in the current year to the inventory markdown reserves estimated by the Company in the prior year to evaluate management s ability to accurately estimate the markdown reserves and developed an independent expectation of the markdown reserves using historical activity and compared our independent expectation to the markdown reserves recorded In addition we performed inquiries of the Company s management to evaluate the Company s estimate of the markdown reserves
The Company provides a broad offering of branded licensed and private label athletic casual and dress footwear products to women men and children The footwear is sold at a variety of price points through multiple distribution channels both domestically and internationally The Company currently operates 958 retail shoe stores in the United States Canada East Asia and Guam under the Famous Footwear Sam Edelman Naturalizer and Allen Edmonds names In addition through its Brand Portfolio segment the Company designs sources manufactures and markets footwear to retail stores domestically and internationally including online retailers national chains department stores independent retailers and mass merchandisers Refer to Note 2 to the consolidated financial statements for additional information regarding the Company s revenue by category and Note 7 for discussion of the Company s business segments
The Company s business is seasonal in nature due to consumer spending patterns with higher back to school and holiday season sales Although the third fiscal quarter has historically accounted for a substantial portion of the Company s earnings for the year the Company has experienced more equal distribution among the quarters in recent years
Noncontrolling interests in the Company s consolidated financial statements result from the accounting for noncontrolling interests in partially owned consolidated subsidiaries or affiliates In 2019 the Company entered into a joint venture with Brand Investment Holding Limited Brand Investment Holding a member of the Gemkell Group to sell branded footwear in China including Sam Edelman Naturalizer and other brands The Company and Brand Investment Holding are each 50 owners of the joint venture which is named CLT Brand Solutions CLT In 2023 capital contributions of 2 0 million were made to CLT including 1 0 million received from Brand Investment Holding As of February 3 2024 and January 28 2023 assets of CLT were 23 2 million and 19 8 million respectively and liabilities were 9 3 million and 9 1 million respectively Net sales of CLT were 26 8 million and 16 9 million in 2023 and 2022 respectively Operating earnings of CLT were 0 5 million for 2023 compared to an operating loss of 2 7 million in 2022
The Company consolidates CLT into its consolidated financial statements on a one month lag Net earnings loss attributable to noncontrolling interests represents the share of net earnings or losses that are attributable to Brand Investment Holding Transactions between the Company and the joint venture have been eliminated in the consolidated financial statements
The preparation of financial statements in conformity with generally accepted accounting principles GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes Actual results could differ from those estimates
The Company considers all highly liquid investments with maturities of three months or less when purchased to be cash equivalents Cash equivalents also include amounts due from third party financial institutions for credit and debit card transactions These receivables typically settle in five days or less Amounts due from the financial institutions for these transactions totaled 9 3 million and 8 6 million as of February 3 2024 and January 28 2023 respectively The Company had an immaterial amount of restricted cash as of February 3 2024 and January 28 2023
In accordance with Accounting Standards Codification ASC Topic 326 Financial Instruments Credit Losses the Company estimates and records an expected lifetime credit loss on accounts receivable by utilizing credit ratings and other customer related information as well as historical loss experience The allowance for expected credit losses is adjusted for current conditions and reasonable and supportable forecasts The Company recognized a provision for expected credit losses of 1 0 million in 2023 and adjustments to the provision of 0 3 million and 2 2 million in 2022 and 2021 respectively
Customer allowances represent reserves against the Company s wholesale customers accounts receivable for margin assistance product returns customer deductions and co op advertising allowances The Company estimates the reserves needed for margin assistance by reviewing inventory levels on the retail floors sell through rates historical dilution current gross margin levels and other performance indicators of the Company s major retail customers Product returns and customer deductions are estimated using historical experience and anticipated future trends Co op advertising allowances are estimated based on customer agreements The Company recognized provisions for customer allowances of 28 5 million 27 6 million and 26 1 million in 2023 2022 and 2021 respectively
Customer discounts represent reserves against the Company s accounts receivable for discounts that wholesale customers may take based on meeting certain order payment or return guidelines The Company estimates the reserves needed for customer discounts based upon customer net sales and terms of the respective agreements The Company recognized provisions for customer discounts of 9 9 million 11 4 million and 7 5 million in 2023 2022 and 2021 respectively
The Company values inventories at the lower of cost or market for approximately 86 of consolidated inventories which represents divisions using the last in first out LIFO method For the remaining portion the Company s inventories are valued at the lower of cost or net realizable value For inventory valued at LIFO the Company regularly reviews the inventory for excess obsolete or impaired inventory and writes it down to the lower of cost or market An actual valuation of inventory under the LIFO method can be made only at the end of each year based on the inventory levels and costs at that time If the first in first out FIFO method had been used consolidated inventories would have been 10 3 million and 6 3 million higher at February 3 2024 and January 28 2023 respectively In 2023 and 2022 the Company recorded LIFO provisions of 4 9 million and 4 7 million respectively on certain inventories at the Famous Footwear segment as a result of product cost inflation Refer to Note 8 to the consolidated financial statements for additional information related to inventories
The Company applies judgment in determining the market value of inventory which requires an estimate of net realizable value including current and expected selling prices costs to sell and normal gross profit rates The method used to determine market value varies by business division based on the unique operating models At the Famous Footwear segment and certain operations within the Brand Portfolio segment market value is determined based on net realizable value less an estimate of expected costs to be incurred to sell the product Accordingly the Company records markdowns when it becomes evident that inventory items will be sold at prices below cost As a result gross profit rates at the Famous Footwear segment and to a lesser extent the Brand Portfolio segment are lower than the initial markup during periods when permanent price reductions are taken to clear product For the majority of the Brand Portfolio segment the Company determines market value based upon the net realizable value of inventory less a normal gross profit rate The Company believes these policies reflect the difference in operating models between the Famous Footwear and Brand Portfolio segments Famous Footwear periodically runs promotional events to drive sales to clear seasonal inventories The Brand Portfolio segment generally relies on permanent price reductions to clear slower moving inventory
The determination of markdown reserves for the Brand Portfolio segment requires significant assumptions estimates and judgments by management and is subject to inherent uncertainties and subjectivity In determining markdown reserves management considers recent and forecasted sales prices historical gross profit rates the length of time the product is held in inventory and quantities of various product styles contained in inventory as well as demand among other factors The ultimate amount realized from the sale of certain products could differ from management estimates Markdown reserves were 20 9 million and 43 9 million as of February 3 2024 and January 28 2023 respectively
The costs of inventory inbound freight and duties markdowns shrinkage and royalty expense are classified in cost of goods sold Costs of warehousing and distribution are classified in selling and administrative expenses and are expensed as incurred Such warehousing and distribution costs totaled 117 0 million 121 0 million and 99 5 million in 2023 2022 and 2021 respectively Costs of overseas sourcing offices and other inventory procurement costs are reflected in selling and administrative expenses and are expensed as incurred Such sourcing and procurement costs totaled 22 0 million 21 4 million and 22 2 million in 2023 2022 and 2021 respectively
The Company capitalizes certain costs in other assets including internal payroll costs incurred in connection with the development or acquisition of software for internal use Other assets on the consolidated balance sheets include 16 3 million and 16 0 million of computer software costs as of February 3 2024 and January 28 2023 respectively which are net of accumulated amortization of 88 1 million and 88 5 million as of the end of the respective periods In addition other assets on the consolidated balance sheets include 16 4 million and 5 6 million for cloud computing arrangements software as a service contracts and related implementation costs as of February 3 2024 and January 28 2023 respectively which are net of accumulated amortization of 6 7 million and 4 7 million as of the end of the respective periods The balance as of February 3 2024 includes capitalized costs associated with the Company s multi year implementation of a cloud based ERP
Interest expense generally includes interest for borrowings under the Company s revolving credit agreement fees paid for the unused portion of the line of credit and amortization of the deferred debt issuance costs Interest expense for 2021 included interest for the Company s long term debt and related amortization of deferred debt issuance costs and debt discount as well as fair value adjustments on the mandatory purchase obligation from the acquisition of Blowfish Malibu as further described in Note 4 to the consolidated financial statements
Interest costs for major asset additions are capitalized during the construction or development period and amortized over the lives of the related assets The Company capitalized interest of 0 3 million in 2023 related to its multi year implementation of a cloud based ERP with no corresponding interest capitalized in 2022
Goodwill and intangible assets deemed to have indefinite lives are not amortized but are subject to annual impairment tests In accordance with ASC 350 Intangibles Goodwill and Other the Company is permitted but not required to qualitatively assess indicators of a reporting unit s fair value when it is unlikely that a reporting unit is impaired If a quantitative test is deemed necessary a discounted cash flow analysis is prepared to estimate fair value A fair value based test is applied at the reporting unit level which is generally at or one level below the operating segment level The test compares the fair value of the Company s reporting units to the carrying value of those reporting units This test
The Company performs its goodwill impairment assessment and impairment tests on its indefinite lived intangible assets as of the first day of the fourth quarter of each fiscal year unless events indicate an interim test is required Definite lived intangible assets are amortized over their useful lives and are reviewed for impairment if and when impairment indicators are present Refer to Note 10 to the consolidated financial statements for further discussion of goodwill and intangible assets
The Company is self insured and or retains high deductibles for a significant portion of its workers compensation health disability cyber risk general liability automobile and property programs among others Liabilities associated with the risks that are retained by the Company are estimated by considering historical claims experience trends of the Company and the industry and other actuarial assumptions The estimated accruals for these liabilities could be affected if development of costs on claims differ from these assumptions and historical trends Based on available information as of February 3 2024 the Company believes it has provided adequate reserves for its self insurance exposure As of February 3 2024 and January 28 2023 self insurance reserves were 10 4 million and 9 7 million respectively
The Company facilitates a voluntary supplier finance program the Program that provides certain of the Company s suppliers the opportunity to sell receivables related to products that the Company has purchased to participating financial institutions at a rate that leverages the Company s credit rating which may be more beneficial to the suppliers than the rate they can obtain based upon their own credit rating The Company negotiates payment and other terms directly with the suppliers regardless of whether the supplier participates in the Program and the Company s responsibility is limited to making payment based on the terms originally negotiated with the supplier The suppliers that participate in the Program have discretion to determine which invoices if any are sold to the participating financing institutions The liabilities for the suppliers that participate in the Program are presented within accounts payable in the Company s consolidated balance sheets with changes reflected within cash flows from operating activities when settled As of February 3 2024 and January 28 2023 the Company had 13 0 million and 26 0 million respectively of accounts payable subject to the Program arrangements
Retail sales recognized at the point of sale are recorded net of returns and exclude sales tax Wholesale sales are recorded net of returns allowances and discounts when obligations under the terms of a contract with the consumer are satisfied This generally occurs at the time of transfer of control of merchandise The Company considers several control indicators in its assessment of the timing of the transfer of control including significant risks and rewards of ownership physical possession and the Company s right to receive payment Revenue is measured as the amount of consideration the Company expects to receive in exchange for transferring merchandise Reserves for projected merchandise returns discounts and allowances are determined based on historical experience and current expectations Revenue is recognized on license fees related to Company owned brand names where the Company is the licensor when the related sales of the licensee are made The Company applies the guidance using the portfolio approach in ASC 606 Revenue from Contracts with Customers because this methodology would not differ materially from applying the guidance to the individual contracts within the portfolio The Company excludes sales and similar taxes collected from customers from the measurement of the transaction price for its retail sales Refer to Note 2 for further discussion of revenue
The Company sells gift cards to its customers in its retail stores through its e commerce sites and at other retailers The Company s gift cards do not have expiration dates or inactivity fees The Company recognizes revenue from gift cards when i the gift card is redeemed by the consumer or ii the likelihood of the gift card being redeemed by the consumer is remote gift card breakage and the Company determines that it does not have a legal obligation to remit the value of unredeemed gift cards to the relevant jurisdictions The gift card breakage rate is determined based upon historical redemption patterns Gift card breakage is recognized during the 24 month period following the sale of the gift card according to the Company s historical redemption pattern Gift card breakage income is included in net sales in the consolidated statements of earnings and the liability established upon the sale of a gift card is included in other accrued
The Company maintains a loyalty program at Famous Footwear through which consumers earn points toward savings certificates for qualifying purchases Upon reaching specified point values consumers are issued a savings certificate that may be redeemed for purchases at Famous Footwear Savings certificates earned must be redeemed within stated expiration dates In addition to the savings certificates the Company also offers exclusive member discounts The value of points and rewards earned by Famous Footwear s loyalty program members are recorded as a reduction of net sales and a liability is established within other accrued expenses at the time the points are earned based on historical conversion and redemption rates Approximately 77 of net sales in the Famous Footwear segment were made to its loyalty program members in both 2023 and 2022 In addition loyalty programs have recently been launched for the Allen Edmonds and Naturalizer brands As of February 3 2024 and January 28 2023 the Company had loyalty program liabilities totaling 11 5 million and 17 7 million respectively which are included in other accrued expenses on the consolidated balance sheets Of the 11 5 million loyalty program liability as of February 3 2024 10 0 million is reflected in the Famous Footwear segment and 1 5 million is reflected in the Brand Portfolio segment Of the 17 7 million loyalty program liability as of January 28 2023 16 0 million is reflected in the Famous Footwear segment and 1 7 million is reflected in the Brand Portfolio segment
The Company regularly analyzes the results of all of its stores and assesses the viability of underperforming stores to determine whether events or circumstances exist that indicate the stores should be closed or whether the carrying amount of their long lived assets may not be recoverable After allowing for an appropriate start up period and consideration of any unusual nonrecurring events property and equipment at stores and the lease right of use asset indicated as impaired are written down to fair value as calculated using a discounted cash flow method The Company recorded asset impairment charges primarily for operating lease right of use assets leasehold improvements and furniture and fixtures in the Company s retail stores of 0 7 million 1 8 million and 4 1 million in 2023 2022 and 2021 respectively
Advertising and marketing costs are expensed as incurred except for the costs of direct response advertising that relate primarily to the production and distribution of the Company s catalogs and coupon mailers Direct response advertising costs are capitalized and amortized over the expected future revenue stream which is generally one to three months from the date the materials are mailed External production costs of advertising are expensed when the advertising first appears in the media or in the store
In addition the Company participates in co op advertising programs with certain of its wholesale customers For those co op advertising programs where the Company has validated the fair value of the advertising received co op advertising costs are reflected as advertising expense within selling and administrative expenses Otherwise co op advertising costs are reflected as a reduction of net sales
Total advertising and marketing expense was 145 7 million 138 0 million and 118 1 million in 2023 2022 and 2021 respectively These costs were offset by co op advertising allowances recovered by the Company s retail business of 6 2 million 6 0 million and 5 4 million in 2023 2022 and 2021 respectively Total co op advertising costs reflected as a reduction of net sales were 17 0 million in 2023 18 5 million in 2022 and 10 8 million in 2021 Total advertising costs attributable to future periods that are deferred and recognized as a component of prepaid expenses and other current assets were 7 0 million and 4 6 million at February 3 2024 and January 28 2023 respectively
The Company recognizes deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the consolidated financial statement carrying amounts and the tax bases of its assets and liabilities The Company establishes valuation allowances if it believes that it is more likely than not that some or all of its deferred tax assets will not be realized The Company does not recognize a tax benefit unless it concludes that it is more likely than not that the benefit will be sustained on audit by the taxing authority based solely on the technical merits of the associated tax position If the recognition threshold is met the Company recognizes a tax benefit measured at the largest
The Company leases all of its retail locations a manufacturing facility and certain office locations distribution centers and equipment under operating leases Approximately 33 of the leases entered into by the Company include options that allow the Company to extend the lease term beyond the initial commitment period subject to terms agreed to at lease inception Some leases also include early termination options that can be exercised under specific conditions In accordance with ASC Topic 842 Leases ASC 842 lease right of use assets and lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term The majority of the Company s leases do not provide an implicit rate and therefore the Company uses an incremental borrowing rate based on the information available at the commencement date including implied traded debt yield and seniority adjustments to determine the present value of future payments Lease expense for the minimum lease payments is recognized on a straight line basis over the lease term Variable lease payments are expensed as incurred
Many of the leases covering retail stores require contingent rental payments in addition to the minimum monthly rental charge based on retail sales volume The Company excludes from lease payments any variable payments that are not based on an index or market If payment for a lease is fully contingent on sales such as a percentage of sales gross rent lease none of the lease payments are included in the lease right of use asset or the lease liability
At the time its retail facilities are initially leased the Company often receives consideration from landlords to be applied against the cost of leasehold improvements necessary to open the store The Company treats these construction allowances as a lease incentive In accordance with ASC 842 the allowances are recorded within the lease right of use asset and amortized to income over the lease term as a reduction of rent expense
The Company records rent expense on a straight line basis over the lease term for all of its leased facilities For leases that have predetermined fixed escalations of the minimum rentals the Company recognizes the related rental expense on a straight line basis and records the difference between the recognized rental expense and amounts payable under the lease as the lease right of use asset At the time its retail facilities are leased the Company is frequently not charged rent for a specified period of time typically 30 to 60 days while the store is being prepared for opening This rent free period is referred to as a rent holiday The Company recognizes rent expense over the lease term including any rent holiday within selling and administrative expenses on the consolidated statements of earnings
The Company uses the two class method to calculate basic and diluted earnings per common share attributable to Caleres Inc shareholders Unvested restricted stock awards are considered participating units because they entitle holders to non forfeitable rights to dividends or dividend equivalents during the vesting term Under the two class method basic earnings per common share attributable to Caleres Inc shareholders is computed by dividing the net earnings attributable to Caleres Inc after allocation of earnings to participating securities by the weighted average number of common shares outstanding during the year Diluted earnings per common share attributable to Caleres Inc shareholders is computed by dividing the net earnings attributable to Caleres Inc after allocation of earnings to participating securities by the weighted average number of common shares and potential dilutive securities outstanding during the year Potential dilutive securities consist of outstanding stock options and contingently issuable shares for the Company s performance share awards Refer to Note 3 to the consolidated financial statements for additional information related to the calculation of earnings per common share attributable to Caleres Inc shareholders
For certain of the Company s international subsidiaries the local currency is the functional currency Assets and liabilities of these subsidiaries are translated into United States dollars at the period end exchange rate or historical rates as appropriate Consolidated statements of earnings amounts are translated at average exchange rates for the period The cumulative translation adjustments resulting from changes in exchange rates are included in the consolidated balance sheets as a component of accumulated other comprehensive loss in total Caleres Inc shareholders equity Transaction gains and losses are included in the consolidated statements of earnings
The Company determines the expense and obligations for retirement and other benefit plans using assumptions related to discount rates expected long term rates of return on invested plan assets expected salary increases and certain employee related factors The Company determines the fair value of plan assets and benefit obligations as of the January 31 measurement date The unrecognized portion of the gain or loss on plan assets is included in the consolidated balance sheets as a component of accumulated other comprehensive loss in total Caleres Inc shareholders equity and is recognized into expense over time Refer to additional information related to pension and other postretirement benefits in Note 5 and Note 14 to the consolidated financial statements
The Company is the defendant in several claims and lawsuits arising in the ordinary course of business The Company believes the outcome of such proceedings and litigation currently pending will not have a material adverse effect on the consolidated financial position or results of operations The Company accrues its best estimate of the cost of resolution of these claims Legal defense costs of such claims are recognized in the period in which the costs are incurred Refer to Note 16 to the consolidated financial statements for further discussion of commitments and contingencies
The Company is involved in environmental remediation and ongoing compliance activities at several sites The Company is remediating under the oversight of Colorado authorities the groundwater and indoor air at its owned facility and residential neighborhoods adjacent to and near the property which have been affected by solvents previously used at the facility In addition various federal and state authorities have identified the Company as a potentially responsible party for remediation at certain other sites The Company s prior operations included numerous manufacturing and other facilities for which the Company may have responsibility under various environmental laws to address conditions that may be identified in the future Refer to Note 16 to the consolidated financial statements for additional information
Environmental expenditures relating to an existing condition caused by past operations and that do not contribute to current or future revenue generation are expensed Based upon independent environmental assessments liabilities are recorded when remedial action is considered probable and the costs can be reasonably estimated and are evaluated independently of any future claims recovery Generally the timing of these accruals coincides with completion of a feasibility study or the Company s commitment to a formal plan of action and the cost estimates are subject to change as new information becomes available Costs of future expenditures for environmental remediation obligations are discounted to their present value in those situations requiring only continuing maintenance and monitoring based upon a schedule of fixed payments
The Company has share based incentive compensation plans under which certain officers employees and members of the Board of Directors are participants and may be granted restricted stock stock performance awards and stock options Additionally share based grants may be made to non employee members of the Board of Directors in the form of restricted stock units RSUs payable in cash or the Company s common stock The Company accounts for share based compensation in accordance with the fair value recognition provisions of ASC 718 Compensation Stock Compensation and ASC 505 Equity which require all share based payments to employees and members of the Board of Directors to be recognized as expense in the consolidated financial statements based on their fair values Expense for restricted stock is based on the fair value of the restricted stock on the date of grant Expense for graded vesting grants is recognized ratably
over the respective vesting periods which is generally 50 over two years and 50 over three years and expense for cliff vesting grants is recognized on a straight line basis over the vesting period which is generally one year Expense for stock performance awards is recognized based upon the fair value of the awards on the date of grant and the anticipated number of shares or units to be awarded on a straight line basis over the respective term of the award or individual vesting portion of an award Expense for the initial grant of RSUs is recognized ratably over the one year vesting period based upon the fair value of the RSUs and for cash equivalent RSUs is remeasured at the end of each period The Company accounts for forfeitures of share based grants as they occur If the anticipated number of shares to be awarded or the share value of the Company s common stock changes significantly share based compensation expense may differ materially in the future from that recorded in the current period Refer to additional information related to share based compensation in Note 15 to the consolidated financial statements
The Company made payments for federal state and international taxes net of refunds of 19 8 million including 9 2 million for international taxes and 5 3 million each for federal and state taxes in 2023 The Company made payments for federal state and international taxes net of refunds of 17 4 million including 8 4 million for state taxes 4 7 million for federal taxes and 4 3 million for international taxes in 2022 During 2021 the Company made payments for federal state and international taxes net of refunds of 29 3 million including 22 6 million for federal taxes 3 5 million for state taxes and 3 2 million for international taxes Refer to Note 6 to the consolidated financial statements for further information regarding income taxes
Cash payments of interest for the Company s borrowings under the revolving credit agreement and long term debt during 2023 2022 and 2021 were 19 7 million 12 5 million and 20 4 million respectively Refer to Note 11 to the consolidated financial statements for further discussion regarding the Company s financing arrangements
In September 2022 the Financial Accounting Standards Board FASB issued Accounting Standards Update ASU 2022 04 Liabilities Supplier Finance Programs Topic 405 50 Disclosure of Supplier Finance Program Obligations The guidance requires qualitative and quantitative disclosures about supplier finance programs in annual financial statements including key terms of the programs amounts outstanding balance sheet presentation and a rollforward of amounts outstanding during the year For interim periods the ASU requires disclosure of total obligations outstanding that have been confirmed as valid The ASU is effective for the Company in fiscal year 2023 except for the rollforward requirement which is effective in fiscal year 2024 The Company adopted the amendments on a retrospective basis during the first quarter of 2023 with the exception of the annual rollforward requirement which will be adopted on a prospective basis by the effective date Refer to the Supply Chain Financing section earlier in this footnote for additional information regarding the Company s supplier finance program
In November 2023 the FASB issued ASU 2023 07 Segment Reporting Topic 280 Improvements to Reportable Segment Disclosures which is intended to improve reportable segment disclosures by disclosing significant segment expenses that are regularly provided to the chief operating decision maker The ASU is effective for the Company s annual disclosures for fiscal year 2024 and for interim periods in the Company s fiscal year 2025 The adoption of the ASU is not expected to have a material impact on the Company s financial statement disclosures
In December 2023 the FASB issued ASU 2023 09 Income Taxes Topic 740 Improvements to Income Tax Disclosures The ASU expands the income tax disclosure requirements principally related to the rate reconciliation table and income taxes paid by jurisdiction ASU 2023 09 is effective for the Company on a prospective basis in fiscal 2025 with the option to apply the standard retrospectively and early adoption is permitted The adoption of the ASU is not expected to have a material impact on the Company s financial statement disclosures
The Company generates revenue from retail sales where control is transferred and revenue is recognized at the point of sale Retail sales are recorded net of estimated returns and exclude sales tax The Company records a returns reserve and a corresponding return asset for expected returns of merchandise
Retail sales to members of the Company s loyalty programs including the Famously You Rewards program include two performance obligations the sale of merchandise and the delivery of points that may be converted to savings certificates and redeemed for future purchases The transaction price is allocated to the separate performance obligations based on the relative stand alone selling price The stand alone selling price for the points is estimated using the retail value of the merchandise earned adjusted for estimated breakage based upon historical redemption patterns The revenue associated with the initial merchandise purchased is recognized immediately and the value assigned to the points is deferred until the points are redeemed forfeited or expired
The Company generates revenue from sales on websites maintained by the Company that are shipped from the Company s distribution centers or retail stores directly to the consumer or picked up directly by the consumer from the Company s stores e commerce Company websites sales from the Company s wholesale customers websites that are fulfilled on a drop ship basis e commerce wholesale drop ship and other e commerce sales wholesale e commerce collectively referred to as e commerce The Company transfers control and recognizes revenue for merchandise sold that is shipped directly to an individual consumer upon delivery to the consumer
Landed sales are wholesale sales in which the Company obtains title to the footwear from the overseas suppliers and maintains title until the merchandise clears United States customs The merchandise is shipped directly to the customer from the Company s warehouses Many customers that purchase footwear on a landed basis arrange their own transportation of merchandise and with limited exceptions control is transferred at the time of shipment Landed sales generally carry a higher profit rate than first cost wholesale sales as a result of the brand equity associated with the product along with the additional customs warehousing and logistics services provided to customers and the risks associated with inventory ownership
First cost sales are wholesale sales in which the Company purchases merchandise from an international factory that manufactures the product and subsequently sells to a customer at an overseas port Many of the customers then import this product into the United States Revenue is recognized at the time the merchandise is delivered to the customer s designated freight forwarder and control is transferred to the customer
The Company has license agreements with third parties allowing them to sell the Company s branded product or other merchandise that uses the Company s owned or licensed brand names These license agreements provide the licensee access to the Company s symbolic intellectual property and revenue is therefore recognized over the license term For royalty contracts that do not have guaranteed minimums the Company recognizes revenue as the licensee s sales occur For royalty contracts that have guaranteed minimums revenue for the guaranteed minimum is recognized on a straight line basis during the term until such time that the cumulative royalties exceed the total minimum guarantee Up front payments are recognized over the contractual term to which the guaranteed minimum relates
The Company also licenses its Famous Footwear trade name and logo to a third party financial institution to offer Famous Footwear branded credit cards to its consumers The Company receives royalties based upon cardholder spending which is recognized as licensing revenue at the time when the credit card is used
Revenue is recorded at the transaction price net of estimates for variable consideration for which reserves are established including returns allowances and discounts Variable consideration is estimated using the expected value method and given the large number of contracts with similar characteristics the portfolio approach is applied to determine the variable
Changes in contract balances with customers generally reflect differences in relative sales volume for the period presented In addition during 2023 the loyalty programs liability increased 44 1 million due to points and material rights earned on purchases and decreased 50 4 million due to expirations and redemptions During 2022 the loyalty programs liability increased 36 6 million due to points and material rights earned on purchases and decreased 37 7 million due to expirations and redemptions
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
As further discussed in Item 5 Market for Registrant s Common Equity Related Stockholder Matters and Issuer Purchases of Equity Securities the Company has two publicly announced share repurchase programs The Company repurchased 763 000 2 622 845 and 661 265 shares at a cost of 17 4 million 63 2 million and 17 0 million during the years ended February 3 2024 January 28 2023 and January 29 2022 respectively under these programs No excise taxes were due on the Company s share repurchases during 2023 under the provisions of the Inflation Reduction Act of 2022
During 2023 the Company incurred costs of 6 1 million 4 5 million on an after tax basis or 0 13 per diluted share associated with its expense reduction initiatives The costs were primarily for severance and other costs to integrate the Blowfish Malibu office showroom and information systems into the St Louis infrastructure Of the 6 1 million in charges presented in restructuring and other special charges on the consolidated statements of earnings for 2023 2 6 million is reflected in the Brand Portfolio segment 2 1 million is reflected in the Eliminations and Other category and 1 4 million is reflected in the Famous Footwear segment As of February 3 2024 restructuring reserves of 3 2 million were included in other accrued expenses on the consolidated balance sheet
During 2022 the Company incurred costs of 2 9 million 2 7 million on an after tax basis or 0 07 per diluted share related to a CFO transition at the corporate headquarters These costs were recognized as restructuring and other special charges in the consolidated statement of earnings within the Eliminations and Other category
On July 6 2018 the Company acquired a controlling interest in Blowfish Malibu The remaining interest was subject to a mandatory purchase obligation after a three year period which ended on July 31 2021 based upon an earnings multiple formula as specified in the purchase agreement Approximately 9 0 million was initially assigned to the mandatory purchase obligation and fair value adjustments on the mandatory purchase obligation were recorded as interest expense The fair value adjustments on the mandatory purchase obligation totaled 15 4 million 11 5 million on an after tax basis or 0 30 per diluted share in 2021 The mandatory purchase obligation was settled for 54 6 million on November 4 2021 The settlement of the 9 0 million initially assigned to the mandatory purchase obligation is presented within financing activities on the consolidated statements of cash flows and the remaining 45 6 million is presented within operating activities in accordance with ASC 230 Statement of Cash Flows There were no corresponding charges during 2023 or 2022
During 2021 the Company incurred costs of 13 5 million 11 9 million on an after tax basis or 0 31 per diluted share related to the strategic realignment of the Naturalizer retail store operations These costs primarily represented lease termination and other stores closure costs including employee severance for the 73 stores that were closed during the first quarter of 2022 These charges are presented in restructuring and special charges on the consolidated statement of earnings within the Brand Portfolio segment
The Company sponsors pension plans in both the United States and Canada Under the domestic plans salaried management and certain hourly employees pension benefits are based on a two rate formula applied to each year of service Participants receive the larger of the accrued benefit as of December 31 2015 based on service commencing at the date of hire and a 35 year service cap and an average annual salary for the five highest consecutive years during the last 10 year period and the benefit calculated under the current plan provisions from the date of hire Generally under the current plan provisions a participant receives credit for one year of service for each 365 days of employment as an eligible employee with the Company commencing after the employee s date of participation in the plan up to 30 years Except for grandfathered employees and certain hourly associates in the Company s retail divisions final average compensation taxable covered compensation and credited service for purposes of determining accrued pension benefits were frozen as of December 31 2018
The Company s Canadian pension plans cover certain employees based on plan specifications Under the Canadian plans employees pension benefits are based on the employee s highest consecutive five years of compensation during the 10 years before retirement The Company s funding policy for all plans is to make the minimum annual contributions required by applicable regulations The Company also maintains an unfunded Supplemental Executive Retirement Plan SERP In addition to providing pension benefits the Company sponsors unfunded postretirement life insurance plans that cover both salaried and hourly employees who became eligible for benefits by January 1 1995 The life insurance plans provide coverage of up to 20 000 for qualifying retired employees
The accumulated benefit obligation for the United States pension plans was 277 1 million and 280 5 million as of February 3 2024 and January 28 2023 respectively The accumulated benefit obligation for the Canadian pension plans was 3 2 million and 3 3 million as of February 3 2024 and January 28 2023 respectively
Pension assets are managed in accordance with the prudent investor standards of the Employee Retirement Income Security Act ERISA The plan s investment objective is to earn a competitive total return on assets while also ensuring plan assets are adequately managed to provide for future pension obligations This results in the protection of plan surplus and is accomplished by matching the duration of the projected benefit obligation using leveraged fixed income instruments and while maintaining an equity commitment managing an equity overlay strategy The overlay strategy is intended to protect the managed equity portfolios against adverse stock market environments The Company delegates investment management of the plan assets to specialists in each asset class and regularly monitors manager performance and compliance with investment guidelines The Company s overall investment strategy is to achieve a mix of approximately 97 of investments for long term growth and 3 for near term benefit payments with a wide diversification of asset types fund strategies and fund managers The target allocations for plan assets for 2023 were equities of between 65 and 75 and debt securities of between 25 and 35 Allocations may change periodically based upon changing market conditions Corporate stocks common did not include any Company stock at February 3 2024 or January 28 2023
The projected benefit obligation the accumulated benefit obligation and the fair value of plan assets for pension plans with a projected benefit obligation in excess of plan assets and for pension plans with an accumulated benefit obligation in excess of plan assets which includes only the Company s SERP were as follows
The net actuarial loss gain subject to amortization is amortized on a straight line basis over the average future service of active plan participants as of the measurement date The prior service credit is amortized on a straight line basis over the average future service of active plan participants benefiting under the plan at the time of each plan amendment
The expected long term rate of return on plan assets is based on historical and projected rates of return for current and planned asset classes in the plan s investment portfolio Assumed projected rates of return for each asset class were selected after analyzing experience and future expectations of the returns The overall expected rate of return for the portfolio was developed based on the target allocation for each asset class
The Company s domestic defined contribution 401 k plan covers certain salaried employees For eligible salaried employees the Company makes a core contribution of 1 5 and a matching contribution of up to 50 of the first 6 of the employees contributions The Company s expense for this plan was 5 0 million in 2023 4 6 million in 2022 and 5 5 million in 2021 In addition to the core and matching contributions the Company has the discretion to contribute up to an additional 2 profit sharing benefit based on the Company s performance The Company s expense for the profit sharing contribution was zero for 2023 and 2 6 million for 2022 Beginning in January 2024 the Company also offers a 401 k plan to certain hourly employees providing the option to contribute from 2 to 30 of pre tax wages to the 401 k plan The hourly 401 k plan does not offer matching contributions and therefore the Company incurred no expense during 2023
The Company has 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 of 9 5 million and 7 9 million as of February 3 2024 and January 28 2023 respectively are presented in employee compensation and benefits in the accompanying consolidated balance sheets The assets held by the trust of 9 5 million and 7 9 million as of February 3 2024 and January 28 2023 respectively are presented within prepaid expenses and other current assets in the accompanying consolidated balance sheets with changes in the deferred compensation charged to selling and administrative expenses in the accompanying consolidated statements of earnings
In 2023 the Company adopted a non qualified restoration deferred compensation restoration plan the Restoration Plan for the benefit of certain members of executive management The Restoration Plan provides an incremental retirement benefit to key executives whose contributions to qualified retirement plans are limited by Internal Revenue Service annual compensation maximums The investment funds offered to the participants generally correspond to the funds offered in the Company s 401 k plan The initial contribution to the Restoration Plan was funded in January 2024 and will occur annually thereafter The plan assets and liabilities will fluctuate with the returns on the investment funds The deferrals are held in a separate trust which has been established by the Company to administer the Restoration 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 Restoration Plan of 0 3 million are presented in employee compensation and benefits and the assets held by the trust of 0 3 million are classified within prepaid and other current assets in the accompanying consolidated balance sheet as of February 3 2024 Changes in deferred compensation plan assets and liabilities are charged to selling and administrative expense in the accompanying consolidated statement of earnings for 2023
Non employee directors are eligible to participate in a deferred compensation plan whereby deferred compensation amounts are 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 fair value as determined based on 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 PSUs are payable in cash based on the number of PSUs credited to the participating director s account valued on the basis of the fair value at fiscal quarter end on or following termination of the director s service The liabilities of the plan of 2 0 million and 1 8 million as of February 3 2024 and January 28 2023 respectively are based on 55 516 and 60 067 outstanding PSUs respectively and are presented in other liabilities in the accompanying consolidated balance sheets Gains and losses resulting from changes in the fair value of the PSUs are charged to selling and administrative expenses in the accompanying consolidated statements of earnings
The components of earnings before income taxes consisted of domestic earnings before income taxes of 132 5 million 168 0 million and 152 5 million in 2023 2022 and 2021 respectively The Company s international earnings before incomes taxes were 48 8 million 45 0 million and 36 7 million in 2023 2022 and 2021 respectively
As of February 3 2024 the Company had various federal state and international net operating loss NOL carryforwards with tax values totaling 10 1 million The state NOLs totaling 3 4 million have carryforward periods ranging from one to 20 years The Company has NOLs in Canada and the United Kingdom of 4 1 million and 2 6 million respectively The Canada NOLs have a carryforward period of 18 years while the United Kingdom NOLs have no expiration
During 2020 as a result of the significant loss before income taxes driven by the impairment of goodwill and intangible assets during the pandemic the Company entered into a three year cumulative loss position for federal state and certain international jurisdictions During 2021 the Company also experienced operating losses at its Canadian business division which were driven by exit related costs associated with the Naturalizer retail stores As a result of the strong earnings before income taxes in both 2021 and 2022 the Company s net deferred tax asset position declined As a result in 2022 the Company released approximately 17 4 million of its valuation allowances on deferred tax assets Due to continued strong earnings in 2023 the Company is no longer in a cumulative three year loss position as of February 3 2024 Accordingly the Company released valuation allowances on certain deferred tax assets totaling 26 7 million in the fourth quarter of 2023
As of February 3 2024 no deferred taxes have been provided on the accumulated unremitted earnings of the Company s international subsidiaries that are not subject to United States income tax beyond the amounts recorded for the one time transition tax for the mandatory deemed repatriation of cumulative international earnings as required by the Tax Cuts and Jobs Act The Company periodically evaluates its international investment opportunities and plans as well as its international working capital needs to determine the level of investment required and accordingly determines the level of international earnings that is considered indefinitely reinvested Based upon that evaluation earnings of the Company s international subsidiaries that are not otherwise subject to United States taxation are considered to be indefinitely reinvested and accordingly deferred taxes have not been provided If changes occur in future investment opportunities and plans those changes will be reflected when known and may result in providing residual United States deferred taxes
ASC 740 Income Taxes establishes a single model to address accounting for uncertain tax positions The standard clarifies the accounting for income taxes by prescribing a minimum recognition threshold a tax position is required to meet before being recognized in the financial statements The standard also provides guidance on derecognition measurement classification interest and penalties accounting in interim periods disclosure and transition As of February 3 2024 and January 28 2023 the Company had no unrecognized tax benefits
For federal purposes the Company s tax filings for fiscal years 2020 to 2022 remain open to examination but are not currently being examined The Company also files tax returns in various international jurisdictions and numerous states for which various tax years are subject to examination and currently involved in audits While the Company is involved in examinations in certain jurisdictions it does not expect any significant changes in its liability for uncertain tax positions during the next 12 months
The Brand Portfolio segment is comprised of wholesale operations selling the Company s branded footwear and the retail stores and e commerce sites associated with those brands This segment sources manufactures and markets branded licensed and private label footwear primarily to online retailers national chains department stores independent retailers and mass merchandisers as well as Company owned Famous Footwear Sam Edelman Naturalizer and Allen Edmonds stores and e commerce businesses The Brand Portfolio segment included 62 branded retail stores in the United States and 36 branded retail stores in East Asia at the end of 2023
The Company s Famous Footwear and Brand Portfolio reportable segments are operating units that are managed separately These reportable segments reflect the level at which the chief operating decision maker the Company s President and Chief Executive Officer evaluates financial performance and allocates resources Operating earnings loss for the reportable segments represents gross profit less selling and administrative expenses and restructuring and other special charges net The accounting policies of the reportable segments are the same as those described in Note 1 to the consolidated financial statements Intersegment sales are generally recorded at a profit and intersegment earnings related to inventory on hand at the purchasing segment are eliminated against the earnings
For geographic purposes the domestic operations include the Company s domestic retail operations the wholesale distribution of licensed branded and private label footwear to a variety of retail customers including the Famous Footwear and Brand Portfolio stores as well as the Company s e commerce businesses
The Company s international operations consist of wholesale and retail operations primarily in East Asia Canada and Europe The East Asia operations primarily include first cost transactions where footwear is sold at international ports to customers who then import the footwear into the United States and other countries
After allowing for an appropriate start up period property and equipment at stores and any lease right of use assets indicated as impaired are written down to fair value as calculated using a discounted cash flow method The Company recorded charges for impairment of 0 7 million 1 8 million and 4 1 million in 2023 2022 and 2021 respectively primarily for operating lease right of use assets leasehold improvements and furniture and fixtures in the Company s retail stores and capitalized software which are presented in selling and administrative expenses Fair value was based on estimated future cash flows to be generated by retail stores discounted at a market rate of interest Refer to Note 12 and Note 13 to the consolidated financial statements for further discussion of these impairment charges
The Company continues to actively market for sale its nine acre corporate headquarters campus the Campus located in Clayton Missouri and as of February 3 2024 was engaged in discussions with multiple potential buyers The Company expects the Campus to qualify as a completed sale within the next year Accordingly the Campus primarily consisting of land and buildings has been classified as property and equipment held for sale category on the consolidated balance sheet as of February 3 2024 within the Eliminations and Other category The Company evaluated the Campus asset group for impairment and determined that no indicators were present as of February 3 2024
Goodwill is tested for impairment at least annually or more frequently if events or circumstances indicate it might be impaired using either the qualitative assessment or a quantitative fair value based test During 2023 and 2022 the goodwill impairment testing was performed as of the first day of the fourth fiscal quarter which resulted in no impairment charges
The Company maintains a revolving credit facility for working capital needs The Company is the lead borrower and certain wholly owned subsidiaries including Sidney Rich Associates Inc BG Retail LLC Allen Edmonds LLC Vionic Group LLC Vionic International LLC and Blowfish LLC are each co borrowers and guarantors
On October 5 2021 the Company entered into a Fifth Amendment to Fourth Amended and Restated Credit Agreement as so amended the Credit Agreement which among other modifications decreased the amount available under the revolving credit facility by 100 0 million to an aggregate amount of up to 500 0 million subject to borrowing base restrictions and may be increased by up to 250 0 million The Credit Agreement also decreased the spread applied to the London Interbank Offered Rate LIBOR or prime rate by a total of 75 basis points On April 27 2023 the Company entered into a Sixth Amendment to Fourth Amended and Restated Credit agreement to transition the borrowings on the revolving credit facility from bearing interest based on LIBOR to a team secured overnight financing rate SOFR
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 SOFR 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 a 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
The Credit Agreement limits the Company s ability to create incur assume or permit to exist additional indebtedness and liens make investments or specified payments give guarantees pay dividends make capital expenditures and merge or acquire or sell assets In addition if excess availability falls below the greater of 10 0 of the Loan Cap and 40 0 million for three consecutive business days and the fixed charge coverage ratio is less than 1 25 to 1 0 the Company would be in default under the Credit Agreement and certain additional covenants would be triggered
The Credit Agreement contains customary events of default including without limitation payment defaults breaches of representations and warranties covenant defaults cross defaults to similar obligations certain events of bankruptcy and insolvency judgment defaults and the failure of any guaranty or security document supporting the agreement to be in full force and effect If an event of default occurs the collateral agent may assume dominion and control over the Company s cash a cash dominion event until such event of default is cured or waived or the excess availability exceeds an amount as defined in the Credit Agreement for 30 consecutive days provided that a cash dominion event shall be deemed continuing even if an event of default is no longer continuing and or excess availability exceeds the required amount for 30 consecutive business days after a cash dominion event has occurred and been discontinued on two occasions in any 12 month period The Credit Agreement also contains certain other covenants and restrictions The Company was in compliance with all covenants and restrictions under the Credit Agreement as of February 3 2024
The maximum amount of borrowings under the Credit Agreement at the end of any month was 366 5 million and 380 5 million in 2023 and 2022 respectively As of February 3 2024 the Company had 182 0 million of borrowings outstanding and 9 5 million in letters of credit outstanding under the Credit Agreement with total additional borrowing availability of 308 5 million Average daily borrowings were 267 9 million and 356 4 million in 2023 and 2022 respectively and the weighted average interest rates approximated 6 7 and 3 6 for the respective periods
In conjunction with the redemptions of the Company s 200 0 million aggregate principal amount of Senior Notes in August 2021 and January 2022 prior to the maturity in August 2023 the Company incurred losses on early extinguishment of debt totaling 0 8 million In addition the Company incurred a loss on early extinguishment of debt of 0 2 million in October 2021 associated with the amendment of the revolving credit facility prior to its maturity
The Company leases all of its retail locations a manufacturing facility and certain office locations distribution centers and equipment At contract inception leases are evaluated and classified as either operating or finance leases Leases with an initial term of 12 months or less are not recorded on the balance sheet
Lease right of use assets and lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term The majority of the Company s leases do not provide an implicit rate and therefore the Company uses an incremental borrowing rate based on the information available at the commencement date to determine the present value of future payments For operating leases lease expense for the minimum lease payments is recognized on a straight line basis over the lease term Variable lease payments are expensed as incurred
The Company regularly analyzes the results of all of its stores and assesses the viability of underperforming stores to determine whether events or circumstances exist that indicate the stores should be closed or whether the carrying amount of their long lived assets may not be recoverable After allowing for an appropriate start up period and consideration of any unusual nonrecurring events property and equipment at stores and the lease right of use assets indicated as impaired are written down to fair value as calculated using a discounted cash flow method The fair value of the lease right of use assets and property and equipment is determined utilizing projected cash flows for each store location discounted using a risk adjusted discount rate subject to a market floor based on current market lease rates Refer to Note 13 to the consolidated financial statements for further discussion of impairment charges on the Company s operating lease right of use assets and property and equipment in its retail stores
During 2023 the Company entered into new or amended leases that resulted in the recognition of right of use assets and lease obligations of 151 2 million on the consolidated balance sheets As of February 3 2024 the Company has entered into lease commitments for 11 retail locations for which the leases have not yet commenced The Company anticipates that the leases for 10 of the new retail locations will begin in the next fiscal year and one will begin in fiscal year 2025 Upon commencement right of use assets and lease liabilities of approximately 10 1 million and 0 3 million will be recorded on the consolidated balance sheets in 2024 and 2025 respectively
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
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 The Company also 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
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 within prepaid expenses and other current assets in the accompanying 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
In 2023 the Company adopted a non qualified restoration deferred compensation plan the Restoration Plan for the benefit of certain members of executive management The Restoration Plan provides an incremental retirement benefit to key executives whose contributions to qualified retirement plans are limited by Internal Revenue Service annual compensation maximums The investment funds offered to the participants generally correspond to the funds offered in the Company s 401 k plan The initial contribution to the Restoration Plan was funded in January 2024 and will occur annually thereafter The plan assets and liabilities will fluctuate with the returns on the investment funds The deferrals are held in a separate trust which has been established by the Company to administer the Restoration 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 Restoration Plan are presented in employee compensation and benefits and the assets held by the trust are classified within prepaid and other current assets in the accompanying consolidated balance sheet as of February 3 2024 Changes in deferred compensation plan assets and liabilities are charged to selling and administrative expense The fair value is based on unadjusted quote market prices for the funds in active markets with sufficient volume and frequency Level 1
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 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 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
Under the Company s incentive compensation plans cash equivalent restricted stock units RSUs of the Company were previously granted at no cost to non employee directors These cash equivalent 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 cash equivalent RSU payable 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 15 to the consolidated financial statements
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 579 1 million 562 2 million and 545 1 million in 2023 2022 and 2021 respectively were assessed for indicators of impairment This assessment resulted in the impairment charges presented in the table below primarily for operating lease right of use assets leasehold improvements and furniture and fixtures in the Company s retail stores as well as capitalized software
During 2023 the Company performed a quantitative assessment of goodwill as of the first day of the fourth fiscal quarter and during 2022 and 2021 the Company performed qualitative assessments of goodwill The reviews indicated no impairment Refer to Note 1 and Note 10 to the consolidated financial statements for additional information related to the goodwill impairment tests
On September 2 2019 and March 10 2022 the Board of Directors approved stock repurchase programs 2019 Program and 2022 Program respectively authorizing the repurchase of the Company s outstanding common stock of up to 5 0 million shares in the 2019 Program and 7 0 million shares in the 2022 Program The Company can use the repurchase programs to repurchase shares on the open market or in private transactions from time to time depending on market conditions The repurchase programs do not have an expiration date Repurchases of common stock are limited under the Company s debt agreements During 2023 the Company repurchased 763 000 shares under the share repurchase programs In total 5 0 million shares have been repurchased under the 2019 Program and there are no additional shares authorized to be repurchased There are 5 604 379 additional shares authorized to be repurchased under the 2022 Program as of February 3 2024
During 2023 2022 and 2021 employees tendered 449 285 246 688 and 205 213 shares respectively related to certain share based awards These shares were tendered in satisfaction of the exercise price of stock options and or to satisfy tax withholding amounts for restricted stock stock performance awards and non qualified stock options Accordingly these share repurchases are not considered a part of the Company s publicly announced stock repurchase programs
ASC 718 Compensation Stock Compensation and ASC 505 Equity require companies to recognize compensation expense in an amount equal to the fair value of all share based payments granted to employees over the requisite service period for each award In certain limited circumstances the Company s incentive compensation plan provides for accelerated vesting of the awards such as in the event of a change in control qualified retirement death or disability The Company has a policy of issuing treasury shares in satisfaction of share based awards
The Company issued 537 267 703 452 and 330 206 shares of common stock in 2023 2022 and 2021 respectively for restricted stock grants stock performance awards issued to employees stock options exercised and common and restricted stock issued to non employee directors net of forfeitures and shares withheld to satisfy the tax withholding requirement
The Company recognized an excess tax benefit of 3 1 million and 0 6 million in 2023 and 2022 respectively and an excess tax provision of 0 1 million in 2021 related to restricted stock vestings and dividends performance share award vestings and stock options exercised The excess tax benefit or provision for the respective periods were recorded in income tax provision on the Company s consolidated statements of earnings
Under the Company s incentive compensation plans restricted stock of the Company may be granted at no cost to certain officers key employees and directors Plan participants are entitled to cash dividends and voting rights for their respective shares The restricted stock awards limit the sale or transfer of these shares during the requisite service period Expense for restricted stock grants is recognized on a straight line basis separately for each vesting portion of the stock award based upon the fair value of the award on the date of grant The fair value of the restricted stock grants is the quoted market price for the Company s common stock on the date of grant
Of the 603 121 restricted shares granted during 2023 23 268 shares have a cliff vesting term of one year 7 000 shares have a graded vesting term of three years with 50 vesting after eighteen months and 50 after three years 5 800 shares have a cliff vesting term of two years and 567 053 shares have a graded vesting term of three years with 50 vesting after two years and 50 after three years Of the 848 678 restricted shares granted during 2022 10 470 shares have a cliff vesting term of one year 63 614 shares have a graded vesting term of two years and 774 594 shares have a graded vesting term of three years Of the 616 442 restricted shares granted during 2021 4 910 shares have a cliff vesting term
of one year 20 000 shares have a cliff vesting term of two years and 591 532 shares have a graded vesting term of three years The shares that have a graded vesting term of two years vest 50 after one year and 50 after two years and shares that have a graded vesting term of three years vest 50 after two years and 50 after three years
The total grant date fair value of restricted stock awards vested during the years ended February 3 2024 January 28 2023 and January 29 2022 was 7 0 million 6 8 million and 14 3 million respectively The total fair value of restricted stock awards that vested during the years ended February 3 2024 January 28 2023 and January 29 2022 was 12 2 million 11 5 million and 10 4 million respectively As of February 3 2024 the total remaining unrecognized compensation cost related to nonvested restricted stock grants was 12 8 million which will be amortized over the weighted average remaining requisite service period of 1 5 years
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 between 0 and 200 of the targeted award depending on the attainment of certain financial goals for the service period and individual achievement of strategic initiatives over the cumulative period of the award If the awards are granted in units the employee will be given an amount of cash ranging from 0 to 200 of the equivalent market value of the targeted award Expense for performance share awards is recognized based upon the fair value of the awards on the date of grant and the anticipated number of shares or cash to be awarded on a straight line basis for each performance period of the share award
During 2023 the Company granted performance share awards for a targeted 276 434 shares with a weighted average grant date fair value of 23 12 in connection with the 2023 performance award 2023 2025 performance period The 2023 performance award is payable in common stock for up to 100 of the targeted award and the remainder in cash if any portion exceeds the targeted award 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
In connection with the Company s CFO transition during 2022 the Company approved the accelerated vesting of 30 000 performance based share awards representing the maximum payout of two of the four award tranches from the 2020 performance award The performance conditions had been satisfied for the two award tranches based on the achievement of financial goals for the 2020 and 2021 fiscal periods The modification to accelerate vesting eliminated the remaining service requirement These awards had a weighted average grant date fair value of 13 05 per share but were revalued using a fair value on the date of modification of 24 31 per share The modification of these awards resulted in incremental compensation expense of 0 4 million which is presented in restructuring and other special charges on the consolidated statements of earnings for 2022
The total fair value of performance share awards that vested during the years ended February 3 2024 January 28 2023 and January 29 2022 was 13 8 million 2 1 million and zero respectively As of February 3 2024 the remaining unrecognized compensation cost related to nonvested performance share awards for the 2023 performance award was 1 8 million which will be recognized over the remaining service period of 25 months
During 2022 the Company granted long term incentive awards payable in cash for the 2022 2024 performance period with a target value of 8 3 million and a maximum value of 16 6 million During 2021 the Company granted long term incentive awards payable in cash for the 2021 2023 performance period with a target value of 7 3 million and a maximum value of 14 6 million These awards which vest after a three year period are dependent upon the attainment of certain financial goals of the Company for each of the three years and individual achievement of strategic initiatives over the cumulative period of the award The estimated value of the award which is reflected within other liabilities on the consolidated balance sheets is being accrued over the three year performance period
Equity based grants may be made to non employee directors in the form of restricted stock units RSUs payable in cash or common stock at no cost to the non employee director The RSUs are subject to a vesting requirement usually one year earn dividend equivalent units and are payable in cash or common stock 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 Dividend equivalents are paid on outstanding RSUs at the same rate as dividends on the Company s common stock are automatically re invested in additional RSUs and vest immediately as of the payment date for the dividend Expense related to the initial grant of RSUs is recognized ratably over the vesting period based upon the fair value of the RSUs The RSUs payable in cash are remeasured at the end of each period Expense for the dividend equivalents is recognized at fair value immediately Gains and losses resulting from changes in the fair value of the RSUs payable in cash subsequent to the vesting period and through the settlement date are recognized in the Company s consolidated statements of earnings Refer to Note 5 and Note 13 to the consolidated financial statements for information regarding the deferred compensation plan for non employee directors
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
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 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 The Company received permission from the oversight authorities to convert the pump and treat system to a passive treatment barrier system and completed the conversion during 2023
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 workplan 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 workplan 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 The Company continues to implement the expanded remedy workplan that was approved by the oversight authorities in 2015 and to work with the oversight authorities on the off site work plan
The cumulative expenditures for both on site and off site remediation through February 3 2024 were 34 3 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 February 3 2024 is 9 2 million of which 8 3 million is recorded within other liabilities and 0 9 million is recorded within other accrued expenses Of the total 9 2 million reserve 4 8 million is for off site remediation and 4 4 million is for on 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 12 5 million as of February 3 2024 The Company expects to spend approximately 0 2 million in the next year 0 1 million in each of the following four years and 11 9 million in the aggregate thereafter related to the on site remediation
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
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
It is the Chief Executive Officer s and Chief Financial Officer s ultimate responsibility to ensure we maintain disclosure controls and procedures designed to provide reasonable assurance that information required to be disclosed in the reports that we file or submit under the Securities Exchange Act of 1934 is recorded processed summarized and reported within the time periods specified in the Commission s rules and forms and is accumulated and communicated to our management including our principal executive and principal financial officers or persons performing similar functions as appropriate to allow timely decisions regarding required disclosure Our disclosure controls and procedures include mandatory communication of material events automated accounting processing and reporting management review of monthly quarterly and annual results an established system of internal controls and internal control reviews by our internal auditors
A control system no matter how well conceived or operated can provide only reasonable not absolute assurance that the objectives of the control system are met Furthermore the design of a control system must reflect the fact there are resource constraints and the benefits of controls must be considered relative to their costs Because of the inherent limitations in
all control systems no evaluation of controls can provide absolute assurance that all control issues and instances of fraud if any have been detected These inherent limitations include the realities that judgments in decision making can be faulty and breakdowns can occur because of simple error or mistake Additionally controls can be circumvented by the individual acts of some persons by collusion of two or more people or by management override of the controls The design of any system of controls is based in part upon certain assumptions about the likelihood of future events and there can be no assurance any design will succeed in achieving its stated goals under all potential future conditions over time controls may become inadequate because of changes in conditions or the degree of compliance with the policies or procedures may deteriorate Because of the inherent limitations in a cost effective control system misstatements due to errors or fraud may occur and not be detected Our disclosure controls and procedures are designed to provide a reasonable level of assurance that their objectives are achieved As of February 3 2024 management of the Company including the Chief Executive Officer and Chief Financial Officer conducted an evaluation of the effectiveness of our disclosure controls and procedures as defined in Rule 13a 15 e under the Securities Exchange Act of 1934 Based upon and as of the date of that evaluation the Chief Executive Officer and Chief Financial Officer have concluded our disclosure controls and procedures were effective at the reasonable assurance level
Based on the evaluation of internal control over financial reporting the Chief Executive Officer and Chief Financial Officer have concluded that there have been no changes in the Company s internal controls over financial reporting or in other factors during the quarter ended February 3 2024 that have materially affected or are reasonably likely to materially affect the Company s internal control over financial reporting
Information regarding Executive Compensation is set forth under the captions Compensation Discussion and Analysis Executive Compensation and Compensation of Non Employee Directors in the Proxy Statement for the Annual Meeting of Shareholders to be held May 23 2024 which information other than the information set forth under Pay Versus Performance is incorporated herein by reference
Information regarding Compensation Committee Interlocks and Insider Participation is set forth under the caption Culture Compensation and People Committee Interlocks and Insider Participation in the Proxy Statement for the Annual Meeting of Shareholders to be held May 23 2024 which information is incorporated herein by reference
Information regarding Company Stock Ownership by Directors Officers and Principal Holders of Our Stock is set forth under the caption Stock Ownership by Directors Executive Officers and 5 Shareholders in the Proxy Statement for the Annual Meeting of Shareholders to be held May 23 2024 which information is incorporated herein by reference
1 and 2 The list of financial statements and Financial Statement Schedules required by this item is included in the Index under Financial Statements and Supplementary Data All other schedules specified under Regulation S X have been omitted because they are not applicable because they are not required or because the information required is included in the financial statements or notes thereto
First Amendment to Fourth Amended and Restated Credit Agreement dated as of July 20 2015 the Credit Agreement among the Company as lead borrower for itself and on behalf of certain of its subsidiaries and Bank of America N A as lead issuing bank administrative agent and collateral agent Wells Fargo Bank National Association as an issuing bank Wells Fargo Bank National Association as syndication agent JPMorgan Chase Bank N A and SunTrust Bank as co documentation agents and the other financial institutions party thereto as lenders incorporated herein by reference to Exhibit 10 1 to the Company s Form 8 K dated and filed July 20 2015
Third Amendment to Fourth Amended and Restated Credit Agreement dated January 18 2019 among the Company as lead borrower for itself and on behalf of certain of its subsidiaries and the financial institutions party thereto incorporated herein by reference to Exhibit 10 1 to the Company s Form 8 K dated and filed January 23 2019
Fourth Amendment to Fourth Amended and Restated Credit Agreement dated April 14 2020 among the Company as lead borrower for itself and on behalf of certain of its subsidiaries and the financial institutions party thereto incorporated herein by reference to Exhibit 10 1 to the Company s 8 K dated and filed April 20 2020
Fifth Amendment to Fourth Amended and Restated Credit Agreement dated October 5 2021 among the Company as lead borrower for itself and on behalf of certain of its subsidiaries and the financial institutions party thereto incorporated herein by reference to Exhibit 10 1 to the Company s 8 K dated and filed October 7 2021
Sixth Amendment to Fourth Amended and Restated Credit Agreement dated April 27 2023 among the Company as lead borrower for itself and on behalf of certain of its subsidiaries and the financial institutions party thereto incorporated herein by reference to Exhibit 10 1 to the Company s Form 10 Q for the quarterly period ended April 29 2023 and filed June 6 2023
Know all men by these presents that each person whose signature appears below constitutes and appoints John W Schmidt and Jack P Calandra his or her true and lawful attorney in fact and agent with full power of substitution and resubstitution for him or her and in his or her name place and stead in any and all capacities to sign any and all amendments to this Annual Report on Form 10 K and to file the same with all exhibits thereto and other documents in connection therewith with the Securities and Exchange Commission granting unto said attorney in fact and agent full power and authority to do and perform each and every act and thing requisite and necessary to be done as fully to all intents and purposes as he or she might or could do in person hereby ratifying and confirming all that said attorney in fact and agent or his substitute or substitutes may lawfully do or cause to be done by virtue hereof

Company Name	CALERES INC Vist SEC web-site
Category	FOOTWEAR, (NO RUBBER)
Trading Symbol	CAL