Caleres, Inc. (CAL) Q3 2025 Earnings Call Transcript
Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
Overview
The earnings call presents a mixed picture. Positive elements include the announcement of a share buyback program, dividend increase, and expected growth in cloud bookings and free cash flow. However, concerns arise from the high tax rate, increased net interest expense, and inventory issues at Stuart Weitzman. The Q&A reveals optimism about future growth, but vague responses regarding specific targets and strategies create uncertainty. The overall sentiment is neutral, with balanced positive and negative factors.
Key Financial Performance
Brand Portfolio sales Increased 4.6% organically and 18.8% including Stuart Weitzman. Growth driven by premium brands, while value-priced brands faced pressure.
Famous Footwear sales Declined 2.2% with comparable sales down 1.2%. Retail conversion and average unit retails increased low single digits, but traffic declined mid-single digits.
Consolidated gross margin 42.7%, down 140 basis points year-over-year. Driven by lower margins in both segments, with Stuart Weitzman modestly accretive to gross margin.
Brand Portfolio gross margin 42.3%, down 150 basis points year-over-year due to higher tariff-related costs and unfavorable wholesale customer mix. Excluding Stuart Weitzman, gross margin was down 200 basis points.
Famous Footwear gross margin 41.6%, down 130 basis points year-over-year due to more clearance days, additional LIFO and other inventory reserves, and an unfavorable channel mix.
SG&A expenses Increased $42.6 million to $311.3 million. Approximately $10 million of this increase was organic, with the balance from Stuart Weitzman. Deleveraged 310 basis points as a percentage of sales.
Operating earnings $26.3 million with an operating margin of 3.3%. Excluding Stuart Weitzman, operating earnings were $37.4 million with an operating margin of 5%.
Net interest expense $5.5 million, up $2.6 million year-over-year due to higher average borrowings. $1.6 million of the increase was related to Stuart Weitzman acquisition.
Tax rate 41% for the quarter and 27.5% year-to-date.
Earnings per diluted share $0.38. Excluding Stuart Weitzman, earnings per diluted share were $0.67.
Inventory $678 million, up $92 million year-over-year, with $77 million attributed to Stuart Weitzman. Inventory was up less than 1% in Famous and 5.5% in Brand Portfolio organically.
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Operating Highlights
Stuart Weitzman Acquisition: The acquisition of Stuart Weitzman is seen as a transformational moment for Caleres, aligning with their strategic focus on premium contemporary, direct-to-consumer, and international business. The brand's integration is expected to be completed by February 2026, with plans to achieve breakeven in 2026 and profitability thereafter.
Sam Edelman Performance: Sam Edelman achieved double-digit sales growth domestically and internationally, with strong performance in boots, flats, and loafers. The brand's eCommerce channel had its best quarter ever, and licensing initiatives, including a fragrance launch, expanded retail presence.
Vionic Product Launches: Vionic introduced new products like the Willa 2.0 and Walk Slim sneakers, contributing to growth in wholesale and international markets. The Gabby Reece campaign, featuring a wellness ambassador, drove higher engagement.
International Business Growth: The international business showed marked strength, with robust growth in direct-to-consumer channels and eCommerce. The Brand Portfolio gained significant market share in women's fashion footwear.
Famous Footwear Trends: Famous Footwear saw a decline in total sales by 2.2%, but eCommerce sales were up double digits. The launch of Jordan contributed to steady momentum, and premium brands outperformed.
Operational Efficiencies: Caleres is working with an external consulting partner to identify efficiencies and establish new centers of excellence. These efforts are expected to drive structural cost savings and improved discipline in 2026.
Tariff Mitigation: Tariffs continued to pressure gross margins, but mitigation efforts, including factory negotiations and price increases, have reduced the impact by $40 million annually.
Strategic Focus Areas: Caleres is focusing on lead brands, international expansion, direct-to-consumer channels, and enhanced customer experience to drive growth.
Stuart Weitzman Integration: The integration of Stuart Weitzman is a key strategic shift, with plans to stabilize and transition the brand to profitability by leveraging synergies in distribution, logistics, and marketing.
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Risk or Challenges
Tariffs: Tariffs continue to pressure gross margin and earnings, with an annualized unmitigated impact of approximately $65 million on the Brand Portfolio segment. Despite mitigation efforts, the impact remains significant.
Stuart Weitzman Integration: The integration of Stuart Weitzman is incurring temporary elevated and duplicative costs, delaying the realization of synergies and cost savings until February 2026. The brand is currently dilutive to earnings and faces challenges such as global excess inventory and underperformance in the China D2C business.
Famous Footwear Sales Decline: Famous Footwear experienced a 2.2% decline in total sales and a 1.2% decline in comparable sales, driven by mid-single-digit traffic declines and underperformance in the women's category.
Gross Margin Pressure: Consolidated gross margin declined by 140 basis points year-over-year, driven by lower margins in both Brand Portfolio and Famous Footwear segments, as well as higher tariff-related costs and unfavorable wholesale customer mix.
Inventory Challenges: Inventory levels increased by $92 million year-over-year, with $77 million attributed to Stuart Weitzman. Excess and aged inventory in Stuart Weitzman is dilutive to gross margin and requires liquidation efforts.
Economic and Consumer Trends: Traffic declines and shifts in consumer preferences, such as underperformance in women's fashion categories and the need to edit underperforming labels, are impacting sales and operational strategies.
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Guidance & Outlook
Stuart Weitzman Integration: The company plans to achieve breakeven for Stuart Weitzman in 2026 through significant synergistic savings in distribution, logistics, specialty retail, digital and marketing operations, and office facilities. Full integration is expected by February 2026, with structural cost savings and improved discipline anticipated.
Brand Portfolio Sales: Sales performance appears stable with owned eCommerce showing strong momentum. Order-to-date direct-to-consumer performance remains up double digits, including during the Black Friday and Cyber Monday window.
Tariff Impact: The tariff environment is stabilizing, and mitigation efforts are beginning to take hold. The company expects a similar impact in Q4 as in Q3, with improvement anticipated in 2026.
Famous Footwear Sales: For Q4, comp store sales are expected to be about flat, with total sales down low single digits. Holiday sales at Famous Footwear have been strong so far, with comp store sales flat quarter-to-date.
Consolidated Gross Margin: Consolidated gross margin is expected to be down 75 to 100 basis points versus last year in Q4, with more pressure in the Brand Portfolio than Famous Footwear, though improvement is expected in both segments compared to Q3.
Full-Year Earnings Guidance: The company expects full-year earnings per diluted share of $0.55 to $0.60, including $0.30 to $0.35 of dilution from Stuart Weitzman. Excluding Stuart Weitzman, full-year earnings per diluted share are expected to be $1.15 to $1.25.
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Shareholder Return Plan
The selected topic was not discussed during the call.
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Key Q&A
Q:What is the outlook for Stuart Weitzman into 2026 and beyond, and what are the key areas of focus for improvement?
A:The company plans to achieve a better 2026 for Stuart Weitzman through gross margin improvement, SG&A reductions, and operational efficiencies. Key areas of focus include wholesale opportunities, direct-to-consumer digital strategies, and international growth, particularly in Europe and China. The management is optimistic about the brand's progress and sees significant opportunities for growth.
Q:What is happening with Famous Footwear's fashion and athletic categories, and how is the business performing?
A:Famous Footwear is seeing success with premium brands like Birkenstock and Timberland, and the consumer is responding well to new and strong brands. The fashion category, including tall shaft boots and heeled items, is performing well. Athletic categories, particularly Jordan and other key athletic brands, showed strong performance in Q3. The business is on a flat comp basis quarter-to-date, and holiday marketing has resonated well with consumers.
Q:What is the current state of women's fashion at Famous Footwear, and how is it performing compared to athletic categories?
A:Women's fashion at Famous Footwear has underperformed compared to the athletic category, which was strong in Q3 due to back-to-school sales and brands like Jordan. However, there is an opportunity to rebuild the fashion business, and holiday marketing has shown positive results. Key brands and trends are resonating with consumers.
Q:What are the expectations for gross margin and SG&A for Famous Footwear and Brand Portfolio in Q4?
A:The company expects consolidated gross margin improvement in Q4. For Famous Footwear, IMUs will be similar to Q3, but improvements are expected from shrink reduction and inventory reserve adjustments. For Brand Portfolio, the tariff impact will remain at 175 basis points, but favorable channel and customer mix will improve margins compared to Q3.
Q:What is the status of Stuart Weitzman's inventory, and what is the strategy for addressing aged and excess inventory?
A:Stuart Weitzman has approximately $75 million in inventory, with 25-33% categorized as aged and excess. The company is taking a multi-action approach to address this globally, aiming to sell most of it by the end of the year without damaging the brand. Progress has been made, with over two-thirds of the inventory issues addressed.
Q:What is the company's long-term strategy for normalized earnings power and growth post-Stuart Weitzman transition?
A:The company aims to focus on its Brand Portfolio, particularly Lead Brands, for profitability and growth. Key pillars include international expansion, direct-to-consumer growth, and SG&A savings. Famous Footwear will focus on improving profitability with lower growth. The company expects better results in 2026 as tariff impacts lessen and operational efficiencies improve.
Q:What does the company mean by 'growth' in 2026, and what are the key drivers?
A:Growth in 2026 refers to both organic growth and improvements in margins, particularly gross margins. Key drivers include mitigating tariff impacts, SG&A savings, and leveraging strengths in Lead Brands. The company is targeting organic growth and improved profitability across its portfolio.
Q:What is the long-term margin profile expectation for Stuart Weitzman, and where will improvements come from?
A:The company expects Stuart Weitzman to align with the average margin of the Brand Portfolio. Improvements will come from SG&A efficiencies and operational enhancements, allowing the Stuart Weitzman team to focus on growth and strengthening the business.
Q:Review of Unclear Management Responses
A:Management avoided providing specific details on the exact amount of Stuart Weitzman's aged and excess inventory to be worked through, as well as the precise promotional or discounting strategy to address it. Additionally, they did not provide specific guidance for 2026, including exact growth or margin targets, and used general terms like 'better results' and 'organic growth' without detailed metrics or benchmarks.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
Boots
Brand Portfolio
Caleres brand
China
DC
Development Strategic
Flair
Gen
Marketing
Portfolio sale
Strategic Communications
Tapestry
ability brand
ambassador
boot
brand Caleres
brand consumer
brand margin
casual sport
channel
comp store
cost saving
digit
dress
eCommerce
effort
fashion
focus
inventory
launch
loafer
ownership
price
retail
sneaker
style
trend
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The earnings call presents a mixed picture. Positive elements include the announcement of a share buyback program, dividend increase, and expected growth in cloud bookings and free cash flow. However, concerns arise from the high tax rate, increased net interest expense, and inventory issues at Stuart Weitzman. The Q&A reveals optimism about future growth, but vague responses regarding specific targets and strategies create uncertainty. The overall sentiment is neutral, with balanced positive and negative factors.
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