CALERES INC - Annual Report: 2021 (Form 10-K)

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UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark One)

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OR

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Commission file number 1-2191

CALERES, INC.

(Exact name of registrant as specified in its charter)

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(314) 854-4000

(Registrant’s telephone number, including area code)

Securities Registered Pursuant to Section 12(b) of the Act:

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Securities Registered Pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☑    No ☐

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐    No ☑

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☑    No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes  ☑     No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act:

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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☑

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐    No ☑

The aggregate market value of the stock held by non-affiliates of the registrant as of August 1, 2020, the last business day of the registrant’s most recently completed second fiscal quarter, was approximately $224.4 million.

As of February 27, 2021, 37,947,704 common shares were outstanding.

Documents Incorporated by Reference

Portions of the Proxy Statement for the 2021 Annual Meeting of Shareholders are incorporated by reference into Part III.

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INTRODUCTION

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 2021.

Unless the context otherwise requires, “we,” “us,” “our,” “the Company” or “Caleres” refers to Caleres, Inc. and its subsidiaries.

Information in this Form 10-K is current as of March 30, 2021, unless otherwise specified.

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CAUTION REGARDING FORWARD-LOOKING STATEMENTS

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.  For example, we experienced an adverse impact on our financial results in 2020 as a result of the coronavirus pandemic and may experience further deterioration depending on actions taken by government officials to address the spread of the virus, the pace of vaccination efforts and the introduction or spread of any variants of the coronavirus.  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.

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INDEX

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PART I

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ITEM 1BUSINESS

Caleres, Inc. (the "Company"), originally founded as Brown Shoe Company in 1878 and incorporated in 1913, is a global footwear company.  Current activities include the operation of retail shoe stores and e-commerce websites, as well as the design, development, sourcing, manufacturing, marketing and wholesale distribution of footwear for women, men and children.  Our business is seasonal in nature due to consumer spending patterns, with higher back-to-school and holiday season sales. Traditionally, the third fiscal quarter accounts for a substantial portion of our earnings for the year.

Our net sales are comprised of four major categories: women’s footwear, men’s footwear, children’s footwear and clothing and accessories. The percentage of net sales attributable to each category is as follows:

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Impacts of the COVID-19 Pandemic on our Business

The United States and global economies continue to be adversely affected by the coronavirus (“COVID-19”) pandemic, which was declared a global pandemic by the World Health Organization in March 2020.  During the first half of 2020 our retail stores were temporarily closed as a result of the COVID-19 pandemic. We took decisive actions to mitigate the adverse impact of the pandemic, including the following:

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In addition, as a precautionary measure to preserve financial flexibility given the uncertainty in the United States and global markets resulting from the COVID-19 pandemic, we increased the borrowing capacity on our revolving credit facility to $600.0 million in April 2020.  Although we have reopened all of our retail stores from the temporary store closures in the first half of 2020, our business results were negatively impacted in 2020 by the COVID-19 pandemic and continue to be impacted.  Many of our stores have reduced operating hours and have experienced declines in foot traffic with stay-at-home orders and other government mandates, which resulted in lower sales in 2020, despite our e-commerce business experiencing robust growth during this time.  In addition, a small number of stores have temporarily closed again, due to local government mandates or illness.  

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We believe we are better positioned and prepared to manage through this period as a result of the actions we have taken.  However, the depth and duration of the pandemic and its impact on overall consumer confidence and spending is not known.  While vaccination efforts are currently underway, we continue to experience disruption to our business, and expect an adverse impact on our financial results in 2021.  The extent and duration of COVID-19 on our financial performance depends on factors outside of our control, including actions taken by government officials, the pace of vaccination efforts

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and the introduction or spread of any COVID-19 variants.  For a further discussion on the risks, uncertainties and actions we have taken in response to COVID-19, refer to Item 1A, Risk Factors, and Part II, Item 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations.

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Human Capital Management

As of January 30, 2021, we had approximately 8,400 employees, including 4,900 full-time and 3,500 part-time.  In the United States, there were no employees subject to union contracts.  In Canada, we employ approximately 20 warehouse employees under a union contract, which expires in October 2022.  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.

Compensation Programs and Employee Benefits

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 employees that provides, among other benefits, competitive salaries and wages; comprehensive health insurance coverage to eligible employees; retirement plans; education assistance; paid time off; and charitable giving opportunities through the Caleres Cares Charitable Trust, including volunteer opportunities and our matching gift program.

Diversity, Equity and Inclusion

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 our customers.  We seek and engage talented individuals from all backgrounds, ethnicities, genders, lifestyles and belief systems.  

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During 2020, we made a commitment to our employees, partners and customers to recharge our diversity, equity and inclusion initiatives, including refining our diversity strategy, creating a Diversity, Equity and Inclusion Council, and providing mandatory unconscious bias training for all employees.  In October 2020, we hired a senior-level executive to drive these initiatives, as well as oversee the Company’s affirmative action plans and monitor employee engagement.

ESG Initiative

We made significant progress on our environmental, social and governance (“ESG”) initiative during 2020.  We remain focused on using sustainable materials in the footwear we source and sell.  During the first quarter of 2021, we plan to publish our inaugural corporate ESG report, which will detail our ESG strategy, highlight our accomplishments, provide key disclosures and discuss both our short and long-term goals for sustainable products and practices.  

Competition

With many companies operating e-commerce and traditional brick and mortar retail shoe stores and shoe departments, 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.

FAMOUS FOOTWEAR

Our Famous Footwear segment is one of America’s leading family-branded footwear retailers, with $1.3 billion in net sales for 2020. Famous Footwear employs an omni-channel approach to reach consumers wherever they want to shop, including our growing e-commerce channel through famousfootwear.com and famousfootwear.ca, as well as over 900

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Famous Footwear retail locations.  Our core consumers are those who seek leading national brands of athletic, casual and fashionable footwear at a value for themselves and their families.

Famous Footwear features a wide selection of brand name athletic, casual and dress shoes for the entire family.  Brands carried include, among others, Nike, Skechers, adidas, Vans, Converse, Crocs, Puma, Birkenstock, Asics, New Balance, Under Armour, Bearpaw, Timberland and Sperry, as well as company-owned and licensed brands including, among others, Dr. Scholl’s Shoes, Blowfish Malibu, LifeStride, Naturalizer, Circus by Sam Edelman, Franco Sarto and Ryka.  Our company-owned and licensed products are sold to our Famous Footwear segment by our Brand Portfolio segment at a profit and represent approximately 6% 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 up to $260 for boots.

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 also enjoy the convenience of buying online and picking up product in their local store.  We continue to enhance our digital technology and e-commerce platform, recently adding features such as consumer-specific offers and advanced search capabilities. We have also launched a new version of the Famous Footwear Rewards mobile application to deliver a superior experience for the 80% of our online shoppers who visit our site on a mobile device.

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 online purchases, product previews, earned incentives based upon purchase continuity and other periodic promotional offers. Our e-commerce 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. 

Our Famous Footwear stores are located in strip shopping centers as well as outlet and regional malls in 49 states, Canada and Guam.  The breakdown by venue at the end of each of the last three fiscal years is as follows:

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We expect to open approximately 10 new stores and close approximately 60 stores in 2021, as we continue to align our real estate and e-commerce strategies.  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, digital marketing and social media, direct mail and in-store advertisements, all of which are designed to further develop and reinforce the Famous Footwear concept 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 2020, we spent approximately $40.2 million to advertise and market Famous Footwear to our target consumers, a portion of which was recovered from suppliers.

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BRAND PORTFOLIO

Our Brand Portfolio segment offers retailers and consumers a portfolio of leading brands by designing, developing, sourcing, manufacturing, marketing and distributing branded footwear for women, men and children 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 sells footwear on a wholesale basis to retailers. The segment also sells footwear on a direct-to-consumer basis through our branded retail stores and e-commerce businesses.  

Portfolio of Brands

The following is a listing of our principal brands and licensed products:

Naturalizer:  Since 1927, we’ve crafted beautiful and modern styles that look and feel exceptional, inside and out. In fact, Naturalizer is the first to construct shoes to withstand the test of time.  Our legendary emphasis on fit and elegant simplicity launched a brand that became known as “the shoe with the beautiful fit.”

Our Naturalizer brand is sold primarily at Naturalizer retail stores, national chains, online retailers, online at naturalizer.com and naturalizer.ca, department stores and independent retailers. Naturalizer footwear is also distributed through wholesale partners in 37 countries around the world and approximately 47 retail stores.  Suggested retail price points range from $69 for shoes to $240 for boots.  In November 2020, we announced that, with the exception of a limited number of flagship locations, we planned to close all Naturalizer retail stores in the United States and Canada.  We expect all planned retail store closures to be completed in the first quarter of 2021.  We continue to view the Naturalizer brand as a strong and value-driving component of our portfolio of brands.  Therefore, we will be focusing on growing the brand’s e-commerce through naturalizer.com, our retail partners and their websites, and the flagship stores.

Vionic: In October 2018, we acquired Vionic to expand our access to the growing contemporary comfort footwear category. Vionic brings together style and science, combining innovative biomechanics with the most coveted trends.  Vionic designs its Three-Zone Comfort technology into every shoe it makes, resulting in unparalleled stability, ultimate arch support, and cushioning.  As pioneers in foot health with a global team of experts behind the brand, Vionic brings a fresh perspective to fashionable, supportive footwear.  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 sneakers, active, casual & dress options, sandals, boots, 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.

Sam Edelman: Designer Sam Edelman’s lifestyle brand is inspired by timeless American elegance that bridges the gap between aspiration and attainability to define modern luxury. Sam Edelman footwear is sold primarily through e-commerce retailers, national chains, department stores, Sam Edelman retail stores, online at samedelman.com, catalogs and independent retailers at suggested retail price points from $50 for shoes to $300 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. 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, which is renewable through December 2026 for sales in the United States, Canada and Latin America.

Blowfish Malibu: In July 2018, we acquired a controlling interest in Blowfish Malibu. 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 $20 for shoes to $90 for boots.

Allen Edmonds: In December 2016, we acquired Allen Edmonds to increase our penetration in men’s footwear. Allen Edmonds, founded in 1922, is a U.S.-based direct-to-consumer and wholesaler of premium men’s footwear, apparel, leather goods and accessories with a strong manufacturing heritage.  Allen Edmonds products are available at our 69 Allen

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Edmonds stores in the United States, online at allenedmonds.com and at select retailers worldwide at suggested retail price points from $245 for shoes to $495 for boots.

LifeStride:  For more than 70 years, LifeStride has created quality footwear for women who value both style and all-day comfort. 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 $110 for boots.

Franco Sarto:  The Franco Sarto brand embodies timeless, wearable style inspired by the craft and design of Italian footwear. The brand is sold in major national chains, online, including francosarto.com, department stores, specialty retailers, our Famous Footwear stores and independent retailers at suggested retail price points from $89 for shoes to $280 for boots.

Rykä: For over 30 years, Rykä has been innovating athletic footwear exclusively for women. 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 $60 to $100.

Vince: The Vince women’s shoe collection launched in 2012 and was expanded in 2014 to include the Vince men’s footwear collection. The brand is primarily sold in premier department stores, online, national chains and specialty retailers at suggested price points from $195 for shoes to $695 for boots. We have a license agreement with Vince, LLC to sell Vince footwear through December 2021.

Bzees: Bzees is a brand of machine washable women’s footwear designed to make you feel weightless, energized and free.   The brand is distributed through national chains, department stores, online retailers including bzees.com, independent retailers, specialty retailers and our retail stores at suggested retail price points from $59 for shoes to $179 for boots.

Zodiac: The Zodiac brand was launched in the late 1970s and acquired by us in 2005. In July 2019, we initiated a brand refresh by blending the past with the present to provide authentic, quality footwear that is supremely relevant for today’s modern and expressive consumer lifestyles.  The brand relaunched in 2020 and Zodiac is now available at major national chains, at online retailers, including zodiacshoes.com, and through our Famous Footwear business at suggested retail price points ranging from $69 for sandals to $149 for boots.

Veronica Beard: In 2019, we announced an exclusive partnership with the American ready-to-wear brand, Veronica Beard, to produce their women’s footwear collection, beginning with the spring 2020 season. 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 $450 for boots.

Wholesale

Within our Brand Portfolio segment, our brands are distributed on a wholesale basis to approximately 4,200 retailers, including online retailers, national chains, department stores, mass merchandisers and independent retailers throughout the United States and Canada, as well as approximately 66 other countries (including sales to our retail operations). Our most significant wholesale 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 DSW, Nordstrom Rack, TJX Corporation (including TJ Maxx and Marshalls), Ross Stores and Kohl’s; department stores such as Dillard’s, Nordstrom and Macy’s, mass merchandisers such as Walmart; and independent retailers such as Qurate Retail Group, which operates QVC, Home Shopping Network and Zulily.  We also sell product to a variety of international retail customers and distributors.  The loss of any one or more of our significant customers could have a material impact on our Brand Portfolio segment and the Company.

Our Brand Portfolio segment sold approximately 33 million pairs of shoes on a wholesale basis during 2020.  We sell footwear to wholesale customers on both a landed and a first-cost basis.  Landed sales are those in which we obtain title to the footwear from our overseas suppliers and maintain title until the footwear clears United States customs and is shipped to our wholesale customers.  Landed sales generally carry a higher profit rate than first-cost sales as a result of the brand equity associated with the product along with the additional customs, warehousing and logistics services provided

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to customers and the risks associated with inventory ownership.  To allow for the prompt shipment of reorders and to satisfy our growing e-commerce demand, we carry inventories of certain styles.  First-cost sales are those in which we obtain title to footwear from our overseas suppliers and typically relinquish title to customers at a designated overseas port.  Many of these customers then import this product into the United States.

Products sold under license agreements accounted for approximately 15% of the sales of the Brand Portfolio segment in 2020, 16% of the segment’s sales in 2019 and 20% of the segment’s sales in 2018.  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.

Direct-to-Consumer

Our Brand Portfolio segment includes the operations of several e-commerce websites, including naturalizer.com, naturalizer.ca, vionicshoes.com, samedelman.com, allenedmonds.com, 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.

We also operate retail stores for certain brands, including Naturalizer, Allen Edmonds and Sam Edelman. The number of our Brand Portfolio retail stores at the end of the last three fiscal years was as follows:

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At the end of 2020, we operated 50 Naturalizer stores in Canada, 25 in the United States and five in China.  In November 2020, we announced that, with the exception of a limited number of flagship locations, we planned to close all Naturalizer retail stores in the United States and Canada. During 2020, we operated 69 Allen Edmonds stores in the United States, each averaging approximately 1,600 square feet.  We operated 13 Sam Edelman stores in the United States and eight in China at the end of 2020, each averaging approximately 2,400 square feet.

Marketing

We continue to build on the recognition of our portfolio of brands to create differentiation and consumer loyalty.  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.  In 2020, we spent approximately $33.0 million in advertising and marketing support for our Brand Portfolio segment, including digital marketing and social media, consumer media advertising, product placement, production, print, trade shows and in-store displays.  The marketing teams are also responsible for driving the development of branding and content for our brand websites.  We continually focus on enhancing the effectiveness of these marketing efforts through consumer insights, market research, product development and marketing communications that collectively address the ever-changing lives and needs of our consumers.  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.  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.

Product Development, Sourcing and Manufacturing Operations

We develop and source footwear for our Brand Portfolio segment and also a portion of the footwear sold by our Famous Footwear segment.  We have sourcing and product development offices in Clayton, Missouri; Dongguan, China; Putian, China; San Rafael and Culver City, California; New York, New York; Port Washington, Wisconsin; Florence, Italy; Macau; Ho Chi Minh City, Vietnam; Hong Kong and Addis Ababa, Ethiopia.  In addition, we have manufacturing facilities in Port Washington, Wisconsin and Santiago, Dominican Republic that manufacture our Allen Edmonds footwear.

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Product Development Operations

We maintain design and product development teams for our brands in Clayton, Missouri; Dongguan, China; Putian, China; San Rafael, California; New York, New York; Port Washington, Wisconsin and Culver City, California, 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 product development and sourcing 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.  Our long-range plans include further expansion into new markets outside of China, growing our use of 3D design technology in developing new product, and continuing to drive excellence in product value and execution in a rapidly changing manufacturing landscape.  Our distribution center campus in Chino, California, which opened in 2018, provides additional shipping flexibility, operational efficiencies and an expansion of our logistics infrastructure capacity.

Sourcing Operations

In 2020, the sourcing operations sourced approximately 28 million pairs of shoes through a global network of third-party independent footwear manufacturers.  The majority of our footwear sourced is provided by approximately 75 manufacturers operating approximately 115 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.  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.

The following table provides an overview of our sourcing by country in 2020:

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Manufacturing

While we source the majority of our footwear from independent footwear manufacturers as discussed above, we also maintain and 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 allows the Allen Edmonds consumer to extend the life of their footwear, restoring their shoes to nearly their original state.

Backlog

At January 30, 2021, our Brand Portfolio segment had a backlog of unfilled wholesale orders of approximately $218.2 million, compared to $295.4 million on February 1, 2020.  Most orders are for delivery within the next 90 to 120 days.  Orders are subject to cancellation, and many of our wholesale partners canceled orders during the first half of 2020 due to the business impact of COVID-19 resulting in the temporary closure of their retail stores.  However, prior to 2020, we have not experienced significant cancellations of orders.  The decrease in our backlog order levels reflects fewer orders as our wholesale customers shift to responding to consumer demand in-season, resulting in fewer upfront orders, as well as the ongoing economic impact of the COVID-19 pandemic.

The backlog at any particular time is affected by a number of factors, including seasonality, the continuing trend among customers to reduce the lead time on their orders, capacity shifts at international manufacturers, and the volume of retail

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replenishment and e-commerce drop ship orders that are received immediately rather than in advance.  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.  

AVAILABLE INFORMATION

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.

INFORMATION ABOUT OUR EXECUTIVE OFFICERS

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 2021 or upon their respective successors being chosen and qualified.

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The period of service of each officer in the positions listed and other business experience are set forth below.

Diane M. Sullivan, Chief Executive Officer and Chairman of the Board of Directors since February 2014.  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 since December 2020.  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 from January 2010 to January 2011. Senior Vice President and General Manager, Better and Image Brands from March 2008 until January 2010. Various positions, including Vice President, President, Group President of Wholesale Footwear for Nine West Group from September 1998 to February 2008.

Angela A. Bass, Senior Vice President, Chief Human Resources Officer since September 2019. Owner and Principal Consultant, Angela A. Bass Consulting, LLC from August 2017 to August 2019. Executive Vice President of Global Human Resources, Performance Sports Group Ltd from January 2012 to July 2017.

Thomas C. Burke, 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.

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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.

Daniel R. Friedman, Division President – Global Supply Chain since January 2010. Senior Vice President, Product Development and Sourcing from July 2006 to January 2010. Managing Director at Camuto Group, Inc. from 2002 to July 2006.

Kenneth H. Hannah, Senior Vice President, Chief Financial Officer since February 2015. Executive Vice President and Chief Financial Officer of JC Penney Company, Inc. from May 2012 to March 2014. Executive Vice President and President–Solar Energy of MEMC Electronic Materials, Inc. and had previously served as Executive Vice President and President–Solar Materials from 2009 to 2012. Senior Vice President and Chief Financial Officer of MEMC Electronic Materials, Inc. from 2006 to 2009.

Todd E. Hasty, Senior Vice President, Chief Accounting Officer since January 2020. Vice President, Chief Accounting Officer from March 2019 to January 2020. Vice President, Controller from March 2016 to March 2019. Vice President, Assistant Controller from October 2007 to March 2016.

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, Strategic Projects since September 2019. 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.

Mark A. Schmitt, Senior Vice President, Chief Logistics Officer since September 2018. Senior Vice President, Chief Information Officer and Logistics from February 2013 to September 2018. Senior Vice President and Chief Information Officer from January 2012 through February 2013. Senior Director of Management Information Systems for Express Scripts from 2010 through 2011. Various management information systems positions including Group Director with Anheuser-Busch InBev from 1996 to 2009.

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ITEM 1ARISK FACTORS

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MACROECONOMIC AND INDUSTRY RISKS

The coronavirus pandemic has adversely affected and continues to impact our business operations, store traffic and financial condition.

The coronavirus pandemic both in the U.S. and globally, and related government and private sector responsive actions, has adversely affected and continues to impact our business operations.  Retail store traffic was significantly lower in 2020 as a result of COVID-19.  It is impossible to predict the effect and ultimate impact of COVID-19 and the impact on the economy, the retail industry and the Company.  The extent to which COVID-19 will continue to impact our results will depend on future developments, which are highly uncertain and cannot be predicted, including the actions taken to contain it or treat its impact.  A delay in widespread distribution of a vaccine, or a lack of public acceptance of a vaccine could hamper consumer demand.  Further, there is no assurance that the vaccine will ultimately be successful in limiting or stopping the spread of COVID-19.  A continuation of the health crisis may have a material impact on the retail sector, consumer demand, and the Company’s results of operations and liquidity.

Consumer demand for our products may be adversely impacted by economic conditions and other factors.

Worldwide economic conditions continue to be uncertain. Consumer confidence and spending are strongly influenced by general economic conditions and other factors, including the COVID-19 pandemic, fiscal policy, the changing tax and regulatory environment, interest rates, minimum wage rates and regulations, inflation, 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.  We experienced a decline in sales of dress footwear during 2020 due to limited social gatherings and the shift towards working from home as a result of the COVID-19 pandemic.  Negative economic conditions generally decrease disposable income and, consequently, consumer purchases of discretionary items like our products.  Negative trends in economic conditions could also drive up the cost of our products, which may require us to increase our product prices.  These increases in our product costs, and possibly prices, may not be offset by comparable increases in consumer disposable income.  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.  The long-term economic impact of the COVID-19 pandemic and resulting global economic decline on consumer demand for our products cannot be reasonably predicted.

If we are unable to anticipate and respond to consumer preferences and fashion trends and successfully apply new technology, we may not be able to maintain or increase our net sales and earnings.

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, the rapid consumer shift to online and mobile shopping, which was further accelerated by the COVID-19 pandemic, is requiring retailers to lower shipping costs charged to customers, improve shipping speeds and optimize mobile platforms.  The trend toward online and mobile shopping increases the volume of smaller shipments, including single-pair shipments, from our warehouses.  The increased volume of smaller shipments may result in higher average distribution costs, including both shipping and processing costs incurred at our distribution centers.  In addition, an increase in e-commerce sales volume, 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.

We operate in a highly competitive industry.

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

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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.

Customer concentration and other trends in customer behavior may lead to a reduction in or loss of sales.

Our wholesale customers include e-commerce retailers, national chains, department stores, mass merchandisers and independent retailers.  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’ continued shift to 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:

We also face the following risks with respect to our customers:

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Our quarterly sales and earnings may fluctuate, which may result in volatility in, or a decline in, our stock price.

Our quarterly sales and earnings can vary due to a number of factors, many of which are beyond our control, including the following:

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.

Foreign currency fluctuations may result in higher costs and decreased gross profits.

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, its distributors and licensees.

A long-term decline in our stock price may result in impairment charges.

As a result of the impact of the COVID-19 pandemic on the economy and volatility in global stock prices, including the Company’s stock price, we recognized material impairment charges during 2020.  If there are additional periods of lower stock market valuations or an adverse impact to cash flow projections as a result of the impact of COVID-19 or other economic conditions, we may be required to perform additional impairment tests for intangible assets and long-lived assets, which may result in additional material impairment charges.

OPERATIONAL RISKS

We rely primarily on international sources of production, which subjects our business to risks associated with international trade.

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.  We have recently experienced supply chain disruptions and port congestion, leading to delayed receipt of inventory in 2021.  If supply chain disruptions continue, our financial results could be adversely impacted.  In addition, the imposition of tariffs or other costs on imported products may result in an increase in

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product prices, which may in turn adversely impact our gross margins if we are unable to mitigate the impact of the costs.  There is also uncertainty surrounding the impact of any changes to trade legislation as a result of the shift in the U.S. presidential administration and control of the U.S. Congress.  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 the lack of diversification in the geographic location of our international sourcing and manufacturing.  Approximately 65% of the footwear we sourced in 2020 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.

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 are reliant upon our information technology systems, and any major disruption of these systems could adversely impact our ability to effectively operate our business.

Our computer network and systems are essential to all aspects of our operations, including design, pricing, production, accounting, reporting, forecasting, ordering, manufacturing, transportation, 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 direct-to-consumer sales on our e-commerce sites, 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, 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.

A cybersecurity breach may adversely affect our sales and reputation.

We routinely possess sensitive consumer and associate information and periodically provide it to third parties for analysis, benefit distribution or compliance purposes.  Additionally, as a result of the COVID-19 pandemic, 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 that seek to exploit the COVID-19 pandemic.  While we believe we have taken reasonable and appropriate steps to protect that 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.

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Our operating results depend on preparing accurate sales forecasts and properly managing our inventory levels.

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.  The COVID-19 pandemic resulted in lower sales during 2020, and lower sales projections.  The full impact of the pandemic and its impact on consumer sentiment is difficult to estimate.

A disruption in the effective functioning of our distribution centers could adversely affect our ability to deliver inventory on a timely basis.

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 rapid consumer shift to online shopping 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 or ineffective information technology systems.  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 COVID-19 pandemic has also adversely impacted the effective operation of our distribution centers as a result of temporary retail store closures, labor shortages as a result of government mandates to stop the spread of the virus, and disruptions to the supply chain.

Our success depends on our ability to retain senior management and recruit and retain other key associates.

Our success depends on our ability to attract, retain and motivate qualified management, administrative, product development 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.

If we are unable to maintain working relationships with our major branded suppliers, our business, results of operations, financial condition and cash flows may be adversely impacted.

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 25% of consolidated net sales.  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 our relationships with our current suppliers are good, 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 may adversely impact our suppliers.  If these third parties do not perform their

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obligations or are unable to provide us with the materials and services we need at prices and terms that are acceptable to us, our ability to meet our consumers’ demand could be adversely affected.

Our retail business depends on our ability to secure affordable and desirable leased locations without creating a competitive concentration of stores.

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.

Damage to our reputation or brands may negatively impact our business

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.        

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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.  Damage to our brands and reputation could have a material adverse effect on our business, results of operations, financial position and cash flow.

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A significant portion of our Famous Footwear sales are dependent on our Famous Footwear loyalty program, Famously You Rewards ("Rewards"), and any decrease in sales from Rewards could have a material adverse impact on our sales.

Rewards is a customer loyalty program that drives sales and traffic for the Famous Footwear segment.  Rewards members earn points toward savings certificates for qualifying purchases. Upon reaching specified point values, members are issued a savings certificate, which may be redeemed for purchases at Famous Footwear.  Approximately 79% of our 2020 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.

Transitional challenges with acquisitions and divestitures could result in unexpected expenditures of time and resources.

As part of our business strategy, we periodically pursue acquisitions of other companies or businesses, such as our 2018 acquisitions of Blowfish Malibu and Vionic, as further discussed in Note 2 to the consolidated financial statements, as well as divestitures of our businesses, such as the exit of the vast majority of our Naturalizer retail locations.  Although we review the 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 or launch 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.

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TAX, LEGAL, AND REGULATORY RISKS

Changes in tax laws may result in increased volatility in our effective tax rates.

Our financial results are significantly impacted by the effective tax rates of both our domestic and international operations.  Future changes in tax laws, including income tax changes proposed by the new presidential administration, combined with the current political environment created by a change of control in Congress, could materially impact our effective tax rate.  Our effective income tax rate could also be adversely affected by certain provisions of Tax Cuts and Jobs Act (the "Act"), which was enacted in December 2017, that directly affect international earnings, such as the global intangible low-taxed income tax ("GILTI") and base-erosion and anti-abuse tax provisions ("BEAT").  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.

Our business, sales and brand value could be harmed by violations of labor, trade or other laws.

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 record keeping 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.

Our reputation and competitive position are dependent on our ability to license well-recognized brands, license our own brands under successful licensing arrangements and protect our intellectual property rights.

Licenses - Company as Licensee

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.

Licenses - Company as Licensor

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

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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.

Trademarks

We believe that our trademarks and trade names are important to our success and competitive position because our distinctive marks 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 subject to periodic litigation and other regulatory proceedings, which could result in the unexpected expenditure of time and resources.

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.

LIQUIDITY RISKS

Our business, results of operations, financial condition and cash flows could be adversely affected by the failure of financial institutions to fulfill their commitments under our Credit Agreement.

The Fourth Amendment to our Fourth Amended and Restated Credit Agreement (the “Credit Agreement”), which matures on January 18, 2024, 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 $600.0 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 $150.0 million.  As a result of the COVID-19 pandemic, many companies are relying on bank funding for working capital needs.  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.

If we are unable to maintain our credit rating, our ability to access capital and interest rates may be negatively impacted.

The credit rating agencies periodically review our capital structure and the quality and stability of our earnings.  Any negative ratings actions, such as the downgrades of our credit rating by Moody’s and S&P in 2020, could constrain the capital available to us or our industry and could limit our access to long-term funding or cause such access to be available at a higher borrowing cost for our operations.  We are dependent upon our ability to access capital at rates and on terms we determine to be attractive.  If our ability to access capital becomes constrained, our interest expense will likely increase, which could adversely affect our financial condition and results of operations.  In addition, as of January 30, 2021, total borrowing availability under the Credit Agreement was $136.0 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.

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ITEM 1BUNRESOLVED STAFF COMMENTS

There are no unresolved written comments that were received from the SEC staff 180 days or more before the end of our fiscal year relating to our periodic or current reports under the Securities Exchange Act of 1934, as amended.

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ITEM 2PROPERTIES

We own our principal executive, sales and administrative offices located in Clayton (“St. Louis”), Missouri.

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 1,086 shoe stores, including 72 in Canada.  All store locations, excluding our Perth, Ontario outlet store, are leased, with approximately 40% 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.

The following table summarizes the location and general use of the Company’s primary properties:

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We also own a building in Denver, Colorado, which is leased to a third party, and undeveloped land in Colorado and New York. See Item 3, Legal Proceedings, for further discussion of certain of these properties.

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ITEM 3LEGAL PROCEEDINGS

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

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residential neighborhoods adjacent to and near the property, which have been affected by solvents previously used at the site and surrounding facilities.

Refer to Note 18 to the consolidated financial statements for additional information related to the Redfield matter and other legal proceedings.

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ITEM 4MINE SAFETY DISCLOSURES

Not applicable.

PART II

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ITEM 5MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Our common stock is listed on the New York Stock Exchange (“NYSE”) under the trading symbol “CAL.”  As of January 30, 2021, we had 3,330 shareholders of record.

Issuer Purchases of Equity Securities

The following table provides information relating to our repurchases of common stock during the fourth quarter of 2020:

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Stock Performance Graph

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 January 30, 2016.  The graph also assumes that all dividends were reinvested and that investments were held through January 30, 2021.  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.

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*$100 invested on January 30, 2016 in stock or index, including reinvestment of dividends. Index calculated on daily basis.

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ITEM 6SELECTED FINANCIAL DATA

The selected financial data previously required by Item 301 of Regulation S-K has been omitted in reliance on SEC Release No. 33-10890.

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ITEM 7MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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OVERVIEW

Business Overview

We are a global footwear company that operates retail shoe stores and e-commerce websites, and designs, develops, sources, and distributes footwear for people of all ages.  Our mission is to inspire people to feel great...feet first.  We offer the consumer a powerful portfolio of footwear brands built on deep consumer insights generating unwavering consumer loyalty and trust.  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

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continued market share gains, investments in technology, and sustainability, while remaining focused on meeting changing consumer demand.

Famous Footwear

Our Famous Footwear segment includes our Famous Footwear stores, famousfootwear.com and famousfootwear.ca in Canada.  Famous Footwear is one of America’s leading family–branded footwear retailers with 916 stores at the end of 2020 and net sales of $1.3 billion in 2020.  Our focus for the Famous Footwear segment is on meeting the needs of a well-defined consumer by providing an assortment of trend-right, brand-name fashion, casual and athletic footwear at a great price.

Brand Portfolio

Our Brand Portfolio segment is consumer-focused and we believe our success is dependent upon our ability to strengthen consumers’ preference for our brands by offering compelling style, quality, differentiated brand promises and innovative marketing campaigns.  The segment is comprised of the Naturalizer, Vionic, Sam Edelman, Dr. Scholl’s Shoes, Blowfish Malibu, Allen Edmonds, LifeStride, Franco Sarto, Rykä, Vince, Bzees, Zodiac, Via Spiga and Veronica Beard 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 170 retail stores in the United States, Canada, China and Guam for our Naturalizer, Allen Edmonds and Sam Edelman 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 Naturalizer and Sam Edelman brands in China.

COVID-19 Pandemic

The United States and global economies continue to be adversely affected by the coronavirus (“COVID-19”), which was declared a global pandemic by the World Health Organization in March 2020.  During the first half of 2020, our retail stores were temporarily closed as a result of the COVID-19 pandemic.  We took decisive actions to mitigate the adverse impact of the pandemic, including the following:

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In addition, as a precautionary measure to increase our cash position and preserve financial flexibility given the uncertainty in the United States and global markets resulting from the COVID-19 pandemic, we increased the borrowings on our revolving credit facility from $275.0 million at February 1, 2020 to $440.0 million in March 2020.  We have made significant progress repaying the incremental borrowings from March, with total net repayments of $188.5 million since the end of the first quarter of 2020, reducing overall indebtedness to a level lower than the onset of the pandemic.

Although we have reopened all of our retail stores from the temporary store closures in the first half of 2020, our business results were negatively impacted in 2020 by the COVID-19 pandemic and continue to be impacted.  Many of our stores have reduced operating hours and have experienced declines in foot traffic with stay-at-home orders and other government

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mandates, which resulted in lower sales in 2020, despite the robust growth of our e-commerce business.  In addition, a small number of stores have experienced additional closure days on a temporary basis, due to local government mandates or illness.

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We believe we are better positioned and prepared to manage through this period as a result of the actions we took during 2020.  However, the depth and duration of the pandemic and its impact on overall consumer confidence and spending is uncertain.  While vaccination efforts are currently underway, we continue to experience disruption to our business, and expect that our 2021 financial results will continue to be adversely affected.  The extent and duration of COVID-19 on our financial performance depends on many factors outside of our control, including actions taken by government officials, the pace of vaccination efforts and the introduction or spread of any COVID-19 variants.  

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Recent Developments – Brand Portfolio Retail Store Closings

During the fourth quarter of 2020, we announced the decision to close all but a limited number of our Naturalizer retail stores.  During 2020, we closed 60 Naturalizer retail stores and anticipate the remaining 73 scheduled store closures to be completed by the end of the first quarter of 2021.  Refer to further discussion below regarding the costs we incurred in 2020 associated with the store closures.  

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Financial Highlights

The following is a summary of the financial highlights for 2020:

The following items should be considered in evaluating the comparability of our 2020 and 2019 results:

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Financial Outlook

While the pace of recovery is still uncertain, there are signs of stabilization in the marketplace.  We believe we are well-positioned to capitalize as the market resumes its upward trajectory and the world returns to a greater degree of normalcy.  As we plan for future success, we will focus on maintaining our strong momentum at Famous Footwear; driving enhanced consumer alignment and improved performance in the Brand Portfolio segment; taking a careful and disciplined approach to cost control and capital spending; reducing debt levels still further; and returning excess cash to shareholders.  We are a more agile and focused organization than we were at the start of 2020, with an even more vigorous commitment to connecting with our consumers and providing them with compelling and fresh product. We are confident that we can leverage our talented and dedicated workforce, strong operating platform, powerful portfolio and improved financial position to capitalize on the opportunities we see ahead in order to drive long-term value for our shareholders.

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Metrics Used in the Evaluation of Our Business

The following are a couple of key metrics by which we evaluate our business and make strategic decisions:

Same-store sales

The same-store 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 same-store sales metric as a measure of an individual store’s success to determine whether it is performing consistent with expectations.  Our same-store 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 same-store 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 (whether temporary or permanent closures) are excluded from the same-store 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 same-store sales calculation.  We believe the same-store sales metric is useful to shareholders and investors in assessing our retail stores performance of existing locations with comparable prior year sales, separate from the impact of store openings or closures.

Beginning in mid-March 2020, all of our Famous Footwear and Brand Portfolio stores in North America were temporarily closed and we began a phased reopening of retail stores in mid-May.  As discussed above, our same-store sales calculation excludes the impact of both permanent and temporary store closures.  In addition to the temporary store closures during the first half of 2020, we experienced temporary closures of certain stores during the second half of 2020 related to illness, weather, fires, civil unrest and local government mandates.  Accordingly, our same-store sales calculation is impacted more heavily by our e-commerce sales penetration, which was higher than in prior periods, reflecting strong growth in that channel and that our e-commerce sites operated continuously throughout 2020.

Sales per square foot

The sales per square foot metric is commonly used in the retail industry to calculate the efficiency of sales based upon the square footage in a store.  Management uses the sales per square foot metric 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.  This metric was adversely impacted by the temporary retail store closures during 2020 and therefore, the metric is not comparable to 2019.

Comparison of Financial Results

The following sections discuss the consolidated and segment results of our operations for the year ended January 30, 2021 compared to the year ended February 1, 2020.  For a discussion of the year ended February 1, 2020 compared to the year ended February 2, 2019, 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 February 1, 2020.

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CONSOLIDATED RESULTS

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Net Sales

Net sales decreased $804.5 million, or 27.5%, to $2,117.1 million in 2020, compared to $2,921.6 million last year.  We experienced lower sales across both of our segments, as the COVID-19 pandemic drove the temporary closure of all of our retail stores in North America and softened demand for dress footwear categories.  In addition, many of our wholesale customers were adversely affected by the pandemic and canceled orders as a result of the temporary closure of their retail stores.  These factors resulted in a $504.0 million, or 35.8% decrease in net sales for our Brand Portfolio segment and a $324.5 million, or 20.4% decrease in net sales for our Famous Footwear segment.  Despite the closure of our retail stores and ongoing impact of the pandemic throughout 2020, we experienced strong growth in our e-commerce business.  Our Famous Footwear e-commerce net sales increased approximately 75% in 2020.  The investments we made in our e-commerce and logistics capabilities positioned us to capitalize on the accelerating shift to online purchasing, driving consolidated e-commerce penetration to approximately 30% of net sales, compared to 20% last year.  

Gross Profit

Gross profit decreased $397.4 million, or 33.5%, to $787.0 million in 2020, compared to $1,184.4 million in 2019 driven by lower net sales, higher freight expenses and incremental inventory markdowns reflecting the difficult retail environment in 2020, and our business exits described earlier.  Cost of goods sold in 2019 includes $5.8 million related to the amortization of the inventory fair value adjustment required by purchase accounting from our Vionic acquisition and $3.0 million of incremental cost of goods sold associated with the decision to exit our Carlos brand and reposition our Via Spiga brand.  As a percentage of net sales, our gross profit rate decreased to 37.2% in 2020, compared to 40.5% in 2019.  The lower gross profit rate reflects declines at both the Brand Portfolio and Famous Footwear segments as a result of the incremental inventory markdowns, a more promotional retail environment and higher e-commerce sales volume.  Our e-commerce sales generally result in lower margins than traditional retail sales as a result of the incremental freight expenses.

We classify warehousing, distribution, sourcing and other inventory procurement costs in selling and administrative expenses. Accordingly, our gross profit and selling and administrative expenses, as a percentage of net sales, may not be comparable to other companies.

Selling and Administrative Expenses

Selling and administrative expenses decreased $176.3 million, or 16.5%, to $889.5 million in 2020, compared to $1,065.8 million last year.  Throughout 2020, we increased our focus on the management of our controllable expenses in response to the difficult business environment and lower sales volume.  The decrease reflects lower salaries and benefits expense; lower variable expenses associated with the temporary retail store closures, including the impact of certain rent concessions received from landlords; and lower marketing, travel and logistics expenses. As a percentage of net sales, selling and administrative expenses increased to 42.0% in 2020 from 36.5% last year.

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Impairment of Goodwill and Intangible Assets

During 2020, we recorded non-cash impairment charges totaling $286.5 million ($236.4 million on an after-tax basis, or $6.35 per diluted share).  We recorded $240.3 million of impairment associated with goodwill as a result of the unfavorable business climate and our lower market capitalization.  In addition, we recorded $46.2 million of impairment associated with intangible assets, including $36.0 million associated with the Allen Edmonds trade name and customer relationship intangible asset and $10.2 million associated with the Via Spiga trade name.  There were no corresponding impairment charges in 2019.  Refer to Note 1 and Note 11 to the consolidated financial statements for additional information related to these charges.

Restructuring and Other Special Charges, Net

Restructuring and other special charges of $96.7 million were incurred in 2020, compared to $14.8 million in 2019, as follows:

The nature of the above charges are more fully described in the Financial Highlights section above and Note 5 to the consolidated financial statements.

Operating (Loss) Earnings

Operating (loss) earnings decreased $589.5 million to an operating loss of $485.7 million in 2020, compared to operating earnings of $103.8 million last year, primarily reflecting the lower net sales and higher impairment and restructuring charges described above.  As a percentage of net sales, the operating loss was 22.9% in 2020, compared to operating earnings of 3.6% in 2019.

Interest Expense, Net

Interest expense, net increased $15.1 million, or 45.8%, to $48.2 million in 2020, compared to $33.1 million last year, which primarily reflects the higher fair value adjustment to the mandatory purchase obligation associated with the Blowfish Malibu acquisition of $23.9 million in 2020, compared to fair value adjustments and accretion totaling $6.0 million in 2019.  This increase was partially offset by lower average borrowings under our revolving credit agreement. We anticipate interest expense to remain higher in 2021 than historical levels as we continue to pay down the revolving credit agreement.  The Blowfish Malibu mandatory purchase obligation will be remeasured each quarter until the anticipated settlement in the third quarter of 2021.  Refer to Note 12 to the consolidated financial statements for additional information related to our borrowings and Note 15 for additional information related to the mandatory purchase obligation.

Other Income, Net

Other income, net increased $8.9 million, or 113.0%, to $16.8 million in 2020, compared to $7.9 million in 2019, reflecting an increase in income from our qualified pension plans.  This increase was primarily driven by a higher expected return on assets and lower discount rate for our domestic pension plans in 2020, as well as lower pension settlement costs.  Refer to Note 6 to the consolidated financial statements for additional information related to our retirement plans.

Income Tax Benefit (Provision)

Our consolidated effective tax rate was 15.1% in 2020, compared to 21.0% in 2019. In 2020, our effective tax rate was impacted by several discrete tax items, including the non-deductibility of a portion of our intangible asset impairment charges and the incremental tax provision related to the vesting of stock awards.  Our tax benefit also includes the favorable impact of approximately $8.2 million related to the CARES Act, which permits us to carry back a significant portion of

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our 2020 losses to years with a higher federal tax rate.  In addition, due to the significance of our 2020 loss before income taxes, the Company is in a three-year cumulative loss position for federal, state and certain international jurisdictions.  We increased our valuation allowances on deferred tax assets to $50.0 million during 2020, reflecting the uncertainty regarding the utilization of our deferred tax assets in these jurisdictions.  In 2019, our effective tax rate was impacted by discrete tax benefits totaling $1.4 million, primarily reflecting adjustments to tax rates in state and other international jurisdictions.  The effective tax rate in 2019 was also impacted by a higher mix of international earnings, as our international earnings are generally subject to lower tax rates.  Refer to Note 7 to the consolidated financial statements for additional information regarding income taxes.

Net (Loss) Earnings Attributable to Caleres, Inc.

Consolidated net loss attributable to Caleres, Inc. was $439.1 million in 2020, compared to net income of $62.8 million last year, reflecting the factors described above.

Geographic Results

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 Eastern Asia, Canada and Europe, retail operations in Canada and China 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 Eastern 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:

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As a percentage of sales, the pre-tax profitability on international sales is higher than on domestic sales because of a lower cost structure and the inclusion of the unallocated corporate administrative and other costs in domestic earnings.  In 2020, both our domestic and international earnings were impacted by the goodwill and trade name impairment charges described earlier.  Our international earnings were impacted in 2018 by the goodwill and trade name impairment charges for our Allen Edmonds business.

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FAMOUS FOOTWEAR

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Net Sales

Net sales decreased $324.5 million, or 20.4%, to $1,263.6 million in 2020, compared to $1,588.1 million last year.  The sales decrease was primarily driven by the temporary closure of all Famous Footwear stores during the first half of 2020 due to the COVID-19 pandemic, as well as the ongoing impact of the pandemic for the second half of 2020.  During the period of temporary store closures, Famous Footwear continued to serve customers through its e-commerce business.  Even as the retail stores began to open in the second quarter of 2020, our e-commerce business remained strong, generating a 75% increase in sales for 2020, with e-commerce penetration rising to approximately 22% of net sales, from 10% in 2019.  In both our brick and mortar and e-commerce channels, we experienced strong sales of athletics and casual styles, as the consumer adjusted to their work-from-home environment and limited social gatherings.  This sales trend was partially offset by weakness in demand for dress footwear.  Since the beginning of 2018, we have had net closures of 110 stores, or approximately 11%, as we continue to focus on optimizing our store base, and eliminating underperforming locations, particularly given the consumer shift to online shopping.  

Sales to members of our customer loyalty program, Famously You Rewards ("Rewards"), continue to account for a majority of the segment’s sales, with approximately 79% of net sales to loyalty program members in 2020, compared to 78% in 2019.  We continue to make improvements in digital technology in an effort to grow our Rewards program and drive increased engagement, conversion and retention.  In January 2021, we upgraded our famousfootwear.com e-commerce platform and launched a new version of the Famous Footwear Rewards mobile application.  The newly launched famousfootwear.com platform adds optimized mobile capabilities to deliver a superior experience for the 80% of our online shoppers who visit our site on a mobile device.  

Gross Profit

Gross profit decreased $185.5 million, or 27.5%, to $489.9 million in 2020, compared to $675.4 million in 2019, reflecting lower net sales, higher freight expenses associated with the growth in our e-commerce business and higher inventory markdowns as a result of the difficult retail environment.  As a percentage of net sales, our gross profit rate decreased to 38.8% in 2020, compared to 42.5% in 2019, driven by the impact of increased promotional activity to drive sales volume, higher freight expenses and the incremental inventory markdowns.  We expect the trend toward a higher mix of e-commerce sales to continue, further leveraging the investment we have made in our e-commerce platform.  

Selling and Administrative Expenses

Selling and administrative expenses decreased $97.9 million, or 16.5%, to $497.1 million during 2020 compared to $595.0 million last year. The decrease was driven primarily by lower salaries expense attributable to the actions taken to mitigate the impact of the COVID-19 pandemic during the period of temporary retail store closures, as well as lower

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variable expenses associated with the temporary retail store closures, including certain rent reductions and lease concessions.  As a percentage of net sales, selling and administrative expenses increased to 39.4% in 2020 from 37.5% last year.

Restructuring and Other Special Charges, Net

Restructuring and other special charges were $16.6 million during 2020, consisting primarily of impairment charges on furniture and fixtures in our retail stores and lease right-of-use assets.  In 2019, we incurred restructuring and other special charges of $3.5 million related to expense containment initiatives.  Refer to Note 5 to the consolidated financial statements for additional information related to these charges.

Operating (Loss) Earnings

Operating (loss) earnings decreased $100.7 million to an operating loss of $23.8 million for 2020, compared to operating earnings of $76.9 million last year, reflecting lower net sales, a decline in gross profit rate and the other factors described above.  As a percentage of net sales, the operating loss was 1.9% for 2020, compared to operating earnings of 4.8% in 2019.

BRAND PORTFOLIO

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Net Sales

Net sales decreased $504.0 million, or 35.8%, to $902.5 million in 2020, compared to $1,406.5 million last year.  The sales decrease reflects the difficult selling environment driven by the COVID-19 pandemic, particularly in brands with a heavier concentration of dress footwear, including Naturalizer, Sam Edelman, Allen Edmonds and Franco Sarto.  In addition, sales were adversely impacted during the first half of 2020, as many of our wholesale customers canceled orders and temporarily closed their stores for several weeks.  Our retail stores were also temporarily closed during the first half of the year.  Our direct-to-consumer sales continue to grow as a percentage of the business, increasing to 32% in 2020, driven by strong growth in our e-commerce business.  

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We continue to strategically manage our portfolio of brands.  In the first quarter of 2020, we announced our decision to exit the Fergie brand.  In the fourth quarter of 2020, we announced that we were commencing a strategic realignment related to our Naturalizer retail operations in the United States and Canada.  In an effort to continue to improve future profitability and allow greater focus on high-growth, digital channels, we are in the process of closing all Naturalizer stores, with the exception of a limited number of flagship locations.  During the fourth quarter of 2020, we closed 39 Naturalizer stores and anticipate the remaining planned store closures to occur in the first quarter of 2021.  We continue to view the Naturalizer brand as a strong and value-driving component of our portfolio.  Therefore, we will be focusing on growing the brand’s e-commerce business through naturalizer.com, our retail partners and their websites, and the flagship stores.  During 2019, we entered into a partnership with Veronica Beard and also transformed and relaunched the Zodiac brand, while making the decision to shift away from the Carlos Santana brand and reposition the Via Spiga brand.  

We opened 7 stores and closed 65 stores during 2020, resulting in a total of 170 stores at the end of 2020.  Sales per square foot, excluding e-commerce, decreased 54.1% to $179, compared to $390 last year.  Our unfilled order position for our wholesale business decreased $77.2 million, or 26.1%, to $218.2 million at the end of 2020, compared to $295.4 million at the end of last year.  The decrease in our backlog order levels reflects fewer orders as our wholesale customers shift to responding to consumer demand in-season, resulting in fewer upfront orders, as well as the ongoing economic impact of the COVID-19 pandemic.

Gross Profit

Gross profit decreased $211.8 million, or 41.8%, to $294.8 million in 2020, compared to $506.6 million last year, primarily reflecting lower net sales and an incremental $27.5 million in inventory markdowns reflecting the difficult retail environment and $4.0 million in inventory markdowns related to the decision in 2020 to close all but a limited number of our Naturalizer retail stores and exit our Fergie brand.  Cost of goods sold in 2019 includes $5.8 million of incremental cost of goods sold related to purchase accounting inventory adjustments and $3.0 million associated with the decision to exit the Carlos brand and reposition our Via Spiga brand, as further discussed in the Overview section above.  As a percentage of sales, our gross profit rate decreased to 32.7% in 2020, compared to 36.0% last year, reflecting the above factors.

Selling and Administrative Expenses

Selling and administrative expenses decreased $105.3 million, or 23.8%, to $337.4 million during 2020, compared to $442.7 million last year, driven by lower salaries expense reflecting the strategic actions taken during the first half of 2020 to mitigate the impact of the COVID-19 pandemic.  The decrease also reflects lower logistics expenses and a reduction of variable expenses, including certain rent concessions, associated with the retail store closures and the declining store base. As a percentage of net sales, selling and administrative expenses increased to 37.4% in 2020 from 31.5% last year, reflecting the above named factors.

Impairment of Goodwill and Intangible Assets

We incurred impairment charges of $286.5 million during 2020, including $240.3 million associated with goodwill and $46.2 million associated with intangible assets, including $32.0 for the Allen Edmonds trade name, $10.2 million for the Via Spiga trade name and $4.0 million associated with other Allen Edmonds intangible assets.  The goodwill impairment charges were a result of the unfavorable business climate and our lower market capitalization, due in part to the economic impacts of the COVID-19 pandemic. There were no corresponding impairment charges in 2019.  See Note 1 and Note 11 to the consolidated financial statements for additional information related to the impairment.

Restructuring and Other Special Charges, Net

Restructuring and other special charges of $79.3 million in 2020 were primarily comprised of $63.6 million for impairment charges on store furniture and fixtures and lease right-of-use assets, liabilities due to our factories for order cancellations and severance expense.  In addition, we incurred $12.4 million associated with the decision to close all but a limited number of Naturalizer retail stores and $3.3 million in integration-related costs for Vionic.  In 2019, restructuring and other special charges of $5.7 million in 2019 were comprised of $5.1 million for expense containment initiatives and $0.6 million of costs associated with the decision to exit the Carlos brand.  Refer to Note 2 and Note 5 to the consolidated financial statements for additional information related to these charges.

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Operating (Loss) Earnings

Operating (loss) earnings decreased $466.6 million to an operating loss of $408.4 million in 2020, compared to operating earnings of $58.2 million last year, as a result of the factors described above.  As a percentage of net sales, the operating loss was 45.3% in 2020, compared to operating earnings of 4.1% last year.

ELIMINATIONS AND OTHER

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The Eliminations and Other category includes the elimination of intersegment sales and profit, unallocated corporate administrative expenses, and other costs and recoveries.

The net sales elimination of $49.0 million for 2020 is $24.0 million, or 32.9%, lower than in 2019, reflecting a decrease in product sold from our Brand Portfolio segment to Famous Footwear.

Selling and administrative expenses increased $26.9 million, or 95.9%, to $54.9 million in 2020, compared to $28.0 million last year, primarily driven by higher unallocated logistics, insurance and consulting expenses.

Restructuring and other special charges of $0.8 million in 2020 were comprised primarily of costs associated with workforce reductions as we sought to align our expense structure with the lower sales performance, combined with incremental expenses associated with deep cleaning our facilities and related supplies.  In 2019, restructuring and other special charges of $5.6 million were comprised of $3.8 million for expense containment initiatives and $1.8 million for Vionic integration-related costs.

RESTRUCTURING AND OTHER INITIATIVES

During 2020, we incurred restructuring and other special charges of $96.7 million, including approximately $80.9 million in costs primarily associated with the economic impact of the COVID-19 pandemic, consisting of impairment charges associated with lease right-of-use assets and retail store furniture and fixtures, liabilities associated with factory order cancellations and severance.  In addition, we incurred $12.4 million related to the decision to close all but a limited number of Naturalizer retail stores and $3.4 million of integration-related costs for Vionic.    

During 2019, we incurred restructuring and other special charges of $14.8 million, including approximately $12.3 million related to our expense containment initiatives, $1.9 million of acquisition and integration-related costs for Vionic, and $0.5 million related to the decision to exit the Carlos brand and reposition our Via Spiga brand.  In addition to the severance and benefits presented as restructuring and other special charges, we also incurred $2.7 million in special charges for our pension associated with the VERP, which is included in other income, net in the consolidated statement of earnings, as further discussed in Note 6 to the consolidated financial statements.

Refer to the Financial Highlights section above and Note 5 to the consolidated financial statements for additional information related to these charges.

IMPACT OF INFLATION AND CHANGING PRICES

Although inflation has slowed in recent years, it is still a factor in our economy.  While we have felt the effects of inflation on our business and results of operations, it has not had a significant impact over the last three years.  Inflation can have a long-term impact on our business because increasing costs of materials and labor may impact our ability to maintain satisfactory profit rates.  For example, our products are manufactured in other countries, and a decline in the value of the

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U.S. dollar and the impact of labor shortages in China or other countries, or the imposition of tariffs, may result in higher product costs.  Similarly, any potential shortage of quantities or, if significant, increases in the cost of the materials that are used in our manufacturing process, such as leather and other materials or resources, could have a material negative impact on our business and results of operations.  In addition, inflation is often accompanied by higher interest rates, which could have a negative impact on consumer spending, in which case our net sales and profit rates could decrease.  Moreover, increases in inflation may not be matched by increases in wages, which also could have a negative impact on consumer spending.  If we incur increased costs that we are unable to be recover through price increases, or if consumer spending decreases generally, our business, results of operations, financial condition and cash flows may be adversely affected.  In an effort to mitigate the impact of these incremental costs on our operating results, we expect to pass on some portion of cost increases to our consumers and adjust our business model, as appropriate, to minimize the impact of higher costs.  Further discussion of the potential impact of inflation and changing prices is included in Item 1A, Risk Factors.

LIQUIDITY AND CAPITAL RESOURCES

Borrowings

Total debt obligations decreased $24.5 million to $448.9 million at the end of 2020, compared to $473.4 million at the end of last year, as we made continued progress on paying back borrowings which were used to fund the Vionic acquisition in October 2018.  Net interest expense in 2020 was $48.3 million, compared to $33.1 million in 2019.  The increase in net interest expense in 2020 was primarily attributable to the fair value adjustment for the mandatory purchase obligation associated with the Blowfish Malibu acquisition, as further discussed in Note 2 and Note 15 to the consolidated financial statements, partially offset by lower average borrowings under our revolving credit agreement.

Credit Agreement

As further discussed in Note 12 to the consolidated financial statements, the Company maintains a revolving credit facility for working capital needs.  The Company is the lead borrower, and Sidney Rich Associates, Inc., BG Retail, LLC, Allen Edmonds LLC, Vionic Group LLC and Vionic International LLC are each co-borrowers and guarantors under the revolving credit facility. On January 18, 2019, the Loan Parties entered into the Third Amendment to Fourth Amended and Restated Credit Agreement  to extend the maturity date to January 18, 2024 and changed the borrowing capacity under the former credit agreement from an aggregate amount of up to $600.0 million to an aggregate amount of up to $500.0 million, with the option to increase by up to $250.0 million. The Third Amendment to Fourth Amended and Restated Credit Agreement also reduced upfront and unused borrowing fees, provided for less restrictive covenants and offered more flexibility.  On April 14, 2020, we entered into a Fourth Amendment to Fourth Amended and Restated Credit Agreement (as so amended, the “Credit Agreement”) which, among other modifications, increased the amount available under the revolving credit facility by $100.0 million to an aggregate amount of up to $600.0 million, subject to borrowing base restrictions, and may be further increased by up to $150.0 million.

Borrowing availability under the Credit Agreement is limited to the lesser of the total commitments and the borrowing base ("Loan Cap"), which is based on stated percentages of the sum of eligible accounts receivable, eligible inventory and eligible credit card receivables, as defined, less applicable reserves. Under the Credit Agreement, the Loan Parties’ obligations are secured by a first-priority security interest in all accounts receivable, inventory and certain other collateral.

Interest on borrowings is at variable rates based on the London Interbank Offered Rate (“LIBOR”) (with a floor of 1.0% imposed by the Credit Agreement) or the prime rate, as defined in the Credit Agreement, plus a spread.  The interest rate and fees for letters of credit vary based upon the level of excess availability under the Credit Agreement.  There is an unused line fee payable on the unused portion under the facility and a letter of credit fee payable on the outstanding face amount under letters of credit.  Refer to further discussion regarding the Credit Agreement in Note 12 to the consolidated financial statements.

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At January 30, 2021, we had $250.0 million borrowings and $11.2 million in letters of credit outstanding under the Credit Agreement.  Total borrowing availability was $136.0 million at January 30, 2021.  Borrowings under the revolving credit facility, which will be used for working capital needs, will bear interest at LIBOR plus a spread of between 1.25% and 1.5%.

The accordion feature of our revolving credit facility provides us with a maximum of $250 million in additional borrowing capacity subject to our compliance with covenants and restrictions under the Credit Agreement. Currently, based on our level of inventory and accounts receivable, the accordion feature would provide approximately $100.0 million of additional borrowing capacity.  We were in compliance with all covenants and restrictions under the Credit Agreement as of January 30, 2021.  Our credit rating was downgraded in March 2020 by Moody’s and S&P and again in April 2020 by Moody’s. Further deterioration in our credit ratings or non-compliance with any covenants or restrictions under the Credit Agreement may impact our ability to access borrowings or capital, as well as negatively impact interest rates and the cost of borrowings.

$200 Million Senior Notes

On July 27, 2015, we issued $200.0 million aggregate principal amount of Senior Notes due in 2023 (the "Senior Notes").  The Senior Notes are guaranteed on a senior unsecured basis by each of the subsidiaries of Caleres, Inc. that is an obligor under the Credit Agreement, and bear interest at 6.25%, which is payable on February 15 and August 15 of each year.  The Senior Notes mature on August 15, 2023.  We may redeem some or all of the Senior Notes at various redemption prices, as further discussed in Note 12 to the consolidated financial statements.

The Senior Notes also contain covenants and restrictions that limit certain activities including, among other things, levels of indebtedness, payments of dividends, the guarantee or pledge of assets, certain investments, common stock repurchases, mergers and acquisitions and sales of assets.  As of January 30, 2021, we were in compliance with all covenants and restrictions relating to the Senior Notes.

Supplemental Guarantor Financial Information

The Senior Notes are fully and unconditionally and jointly and severally guaranteed on a senior unsecured basis by all of our existing and future subsidiaries that are guarantors under the Credit Agreement.  The guarantors are 100% owned by Caleres, Inc. (“Parent”).  On October 31, 2018, Vionic was joined to the Credit Agreement as a guarantor.  After giving effect to the joinder, the Company is lead borrower, and Sidney Rich Associates, Inc., BG Retail, LLC, Allen Edmonds and Vionic are each co-borrowers and guarantors under the Credit Agreement.  During the second quarter of 2020, we adopted SEC Release No. 33-10762, Financial Disclosures About Guarantors and Issuers of Guaranteed Securities and Affiliates Whose Securities Collateralize a Registrant’s Securities, as further discussed in Note 1 to the consolidated financial statements.  The following tables present summarized financial information for the Parent and guarantors on a combined basis after the elimination of intercompany transactions between entities and amounts related to investments in any subsidiary that is a non-guarantor:

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