Caleres' Q2 2025 Earnings Call: Contradictions in Brand Performance, Tariff Strategies, and Acquisition Impact

The above is the analysis of the conflicting points in this earnings call

Date of Call: September 4, 2025

Financials Results

• Revenue: $658.5M, down 3.6% YOY
• EPS: $0.35 per diluted share (adjusted), down 59% YOY (vs $0.85 prior year); includes $0.07 discrete tax benefit
• Gross Margin: 43.4%, down 210 bps YOY
• Operating Margin: 2.4%; segment operating margins: Brand Portfolio 3.1%, Famous Footwear 4.7%

Guidance:

• Not providing annual guidance due to tariff uncertainty.
• Famous Footwear: August comp +1%; expect Sept–Oct comps down low single digits.
• Brand Portfolio (ex-Stuart Weitzman): August sales up low single digits; 3Q gross margin down similar to 2Q (~240 bps), improving in 4Q as mitigation takes hold.
• SG&A (ex-SW): modest increase in 3Q; greater savings benefit in 4Q.
• Expect continued 2H gross margin pressure from tariffs; mitigation actions underway (pricing, sourcing, factory concessions).
• FLAIR stores to expand from 55 to 57 by year-end.
• Borrowed ~$120M to fund Stuart Weitzman at ~5.7–5.8% rate.

Business Commentary:

• Sales and Market Share Gains:
• Caleres Inc. reported a decline in second-quarter sales by 3.6% year-over-year, with both segments showing negative sales trends.
• Despite the decline, the company gained market share in women's fashion footwear and shoe chains.

• The performance was driven by resilience in the company's lead brands and international sales, despite market uncertainties and tariff impacts.

• Tariff Impact and Mitigation:

• Tariffs negatively impacted second-quarter sales by $10 million due to order cancellations and delayed receipts.
• The company is working on mitigating tariff impacts through strategies such as sourcing country mix, factory concessions, and price increases.

• The lag in mitigating actions has led to continued pressure on gross margins, expected to improve by the fourth quarter.

• Brand Portfolio Performance:

• Brand Portfolio sales declined by 3.5%, with lead brands growing 1% in North America and 3.6% globally.
• Growth was driven by brands like Sam Edelman and Allen Edmonds, while value-priced brands faced pressure due to cancellations related to China manufacturing.

• International and direct-to-consumer businesses showed growth, benefiting from newness and strong product categories.

• Famous Footwear Performance:

• Famous Footwear saw a decline in total sales by 4.9%, with comparable sales down 3.4%.
• The company gained market share in shoe chains and kids, with e-commerce sales up double digits, driven by the launch of Jordan as a top 10 brand.
• The improvement in consumer behavior during peak shopping periods and strategic brand additions contributed to the performance.

Sentiment Analysis:

• Sales were $658.5M, down 3.6% YOY; consolidated gross margin 43.4%, down 210 bps. Management is not providing annual guidance due to tariff uncertainty. However, Famous Footwear posted +1% comps in August (biggest month), and Brand Portfolio August sales ex-Stuart were up low single digits, with 4Q margin trends expected to improve as mitigation actions take effect.

Q&A:

• Question from Ashley Owens (KeyBanc Capital Markets): What drove Famous Footwear’s positive August comp, and any change in women’s softness or FLAIR impacts?
  Response: August’s +1% comp was driven by better in-store traffic/conversion and web traffic/AUR, aided by assortment shifts and the Jordan launch.

• Question from Ashley Owens (KeyBanc Capital Markets): How should we think about 3Q–4Q gross margin dynamics for Famous and Brand Portfolio amid promos, tariffs, and markdowns?
  Response: No change to promo cadence; BP markdown pressure should ease as inventory aligns, but tariffs pressure near term with improvement by 4Q; vendor cost increases at Famous will be passed through.

• Question from Mitchel Kummetz (Seaport Research Partners): Any back-half impact detail from the Stuart Weitzman acquisition on sales/EBIT and interest expense?
  Response: No sales/EBIT guidance yet due to purchase accounting; interest on ~$120M acquisition debt is ~5.7–5.8%.

• Question from Mitchel Kummetz (Seaport Research Partners): Will Stuart Weitzman be accretive next year?
  Response: Target is profitability post-transition by end of January and accretion thereafter, but no formal guide.

• Question from Mitchel Kummetz (Seaport Research Partners): Quantify BP’s 2Q order cancellations/delays and 3Q tariff margin impact?
  Response: About $10M 2Q sales impact split evenly; ~$5M shifts to 3Q; BP gross margin down similar to 2Q (~240 bps) with improvement in 4Q as mitigation takes effect.

• Question from Dana Telsey (Telsey Advisory Group): What are you seeing in consumer health and brand performance at Famous and BP?
  Response: Consumers are prioritizing top national and premium brands; back-to-school was strong (Jordan), and lead/premium contemporary brands outperformed with fashion/dress/boots gaining.

• Question from Dana Telsey (Telsey Advisory Group): Status of tariff mitigation and additional cost savings?
  Response: Mitigation includes selective pricing, factory concessions, and sourcing mix; additional structural cost savings are being identified, largely benefiting 2026.

• Question from Dana Telsey (Telsey Advisory Group): How are wholesale order trends shaping up into the holidays?
  Response: Sell-through is exceeding sell-in; BP DTC is up YoY; retailers are ordering closer to demand with cautious optimism.