Q3 2025: Contradictions Emerge on Tariff Impact, Inventory Growth, and Acquisition Effects

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, down from $0.85 last year (includes ~$0.07 discrete tax benefit)
• Gross Margin: 43.4%, down 210 bps YOY
• Operating Margin: 2.4% (operating earnings $16.0M; segment margins: Brand Portfolio 3.1%, Famous Footwear 4.7%)

Guidance:

• No annual guidance due to tariff uncertainty.
• Famous Footwear: August comps +1%; expect September and October comps down low single digits.
• Famous margins: less headwind as BOGO is lapped; vendors raising prices, which CAL plans to pass through (demand impact uncertain).
• Brand Portfolio: August sales up low single digits ex-Stuart Weitzman; 3Q gross margin down similar to 2Q; improvement expected in 4Q as tariff mitigation takes effect.
• SG&A (ex-Stuart Weitzman): modest increase in 3Q; more restructuring benefit in 4Q; additional cost savings being explored.
• Stuart Weitzman integration through January; more detail on 3Q call.

Business Commentary:

• Stable Brand Portfolio Performance and International Growth:
• Caleres' Brand Portfolio sales declined 3.5% in the quarter, but international sales increased by double digits.

• Lead brands like Sam Edelman and Allen Edmonds saw growth, while value-priced brands faced challenges due to cancellations related to China manufacturing and tariff impacts.

• Famous Footwear Sales and Market Share:

• Famous Footwear total sales were down 4.9%, with compsales declining 3.4%.

• Despite the decline, Famous Footwear gained market share in shoe chains and with kids, achieving a positive 1% comp in August.

• Tariff Impact on Gross Margin:

• Brand Portfolio's gross margin was under continued pressure, down 240 basis points, due to tariff disruption and markdown reserves on excess spring product.

• Mitigation strategies, including price increases and sourcing changes, aim to offset these pressures in the second half.

• Stuart Weitzman Acquisition:

• Caleres completed the acquisition of Stuart Weitzman, adding a new lead brand with premium contemporary positioning and international footprint.
• Integration efforts are expected to result in immediate expense savings, with longer-term structural actions planned beyond 2026.

Sentiment Analysis:

• Sales down 3.6% YOY and gross margin down 210 bps; tariffs and promotions pressured margins. Famous saw August comps +1% and share gains; lead brands grew and international up double digits. Management expects continued BP gross margin pressure in 2H with improvement in 4Q; completed $15M annualized cost savings and is integrating Stuart Weitzman.

Q&A:

• Question from Ashley Owens (KeyBanc Capital Markets): What drove Famous Footwear’s +1% August comp—traffic, AUR, FLAIR—and any change in women’s softness?
  Response: Store traffic and conversion improved with flat AURs; web traffic and AUR rose; product assortment shifts, including the Jordan launch, materially aided results.

• Question from Ashley Owens (KeyBanc Capital Markets): How should we think about gross margin in Famous (promotions) and Brand Portfolio (tariffs vs markdowns) for 3Q/4Q?
  Response: No change to Famous promo cadence; clearance markdowns continue but normalize. In Brand Portfolio, markdown pressure should ease as inventory aligns, but tariffs weigh more in 3Q with improvement in 4Q; vendor price hikes at Famous will be passed through, demand impact uncertain.

• Question from Mitchel Kummetz (Seaport Research Partners): Any color on Stuart Weitzman’s sales/EBIT and interest expense impact in the back half?
  Response: No detailed P&L guidance yet due to purchase accounting; will disclose later. Borrowed ~$120M at ~5.7–5.8% for the deal, informing added interest expense.

• Question from Mitchel Kummetz (Seaport Research Partners): Will Stuart Weitzman be accretive next year after the transition?
  Response: Goal is profitability post-transition (by end of January), but management is not guiding to accretion yet.

• Question from Mitchel Kummetz (Seaport Research Partners): Quantify BP order cancellations/delays and 3Q tariff impact on margins?
  Response: Tariffs cut BP 2Q sales by ~$10M (~$5M canceled, ~$5M delayed to 3Q). BP 3Q gross margin expected down similar to 2Q; tariff pressure heavier in 3Q with improvement in 4Q as mitigation kicks in.

• Question from Dana Telsey (Telsey Advisory Group): What are you seeing from the Famous and Brand Portfolio consumers and brand performance?
  Response: Consumers prioritize top national/elevated brands; lead and premium contemporary brands outperform; strength in fashion/dress with early boot momentum; back-to-school strong aided by Jordan.

• Question from Dana Telsey (Telsey Advisory Group): Progress on tariff mitigation and additional cost savings?
  Response: Mitigating via selective price increases, factory concessions, sourcing mix, and structural efficiencies. A consulting partner is identifying broader cost opportunities, with most structural savings expected in 2026.

• Question from Dana Telsey (Telsey Advisory Group): How are wholesale order trends shaping up into the holidays?
  Response: Sell-through is outpacing sell-in; Brand Portfolio DTC grew Y/Y; retailers are ordering closer to demand with faster turns, supporting cautious optimism.