Caleres, Inc. (CAL) Earnings

Management highlights

### Overall Strategic Progress - Calaris gained market share in both business segments during Q1 2026, with meaningful progress against core strategic growth objectives focused on lead brands, international expansion, direct-to-consumer growth, Famous Footwear's elevate-and-edit strategy, and enhanced consumer experiences via the Flare store format. - New centralized centers of expertise were created following an external portfolio efficiency review, covering international growth, specialty retail operations, digital, marketing operations, and planning & costing to support structural margin and growth improvements. ### Brand Portfolio Operational Highlights - Sam Edelman delivered double-digit top-line growth domestically and internationally, gained significant market share in women's fashion footwear to reach the #9 position per industry data, and saw strong growth in handbags and ongoing traction from its new fragrance line. It ended the quarter with 113 stores, 109 of which are international. - Stuart Weitzman completed global integration onto Calaris platforms with minimal disruption, and Q1 sales and profits exceeded internal expectations. The brand is on track to reach breakeven in full-year fiscal 2026, with strengthening demand across direct-to-consumer, wholesale, and the China market. It ended the quarter with 71 global stores. - Allen Edmonds delivered nearly 20% Q1 sales growth across all channels, gained market share to move up 5 positions to #11 in the $200+ men's fashion footwear premium segment, and its elevated Reserve Collection continues to scale with high-value, loyal customers. - Naturalizer delivered modest growth led by owned e-commerce, with its collaboration with June Ambrose driving strong new customer acquisition and improved brand awareness among younger, higher-income consumers. - Bionic delivered strong owned e-commerce and premium wholesale growth, offsetting planned declines in value channels. It is positioning itself as a leader in the fast-growing specialty walking sneaker segment, with the upcoming launch of its lightest-ever walking sneaker, the Hummingbird. ### Famous Footwear Operational Highlights - The segment gained market share in overall kids footwear and across the overall shoe chain category per industry data. Elevated brand product sales increased nearly 50% year-over-year, and targeted brand takeover events have delivered strong returns on investment, with 5 additional events planned for the rest of the year. - The Flare remodel format continues to outperform: all Flare locations deliver a 7-point sales lift over non-Flare stores, while locations converted in the last 12 months deliver a 9-point sales lift. The company shifted near-term focus to new Flare openings (which deliver higher returns than remodels) and plans to end the year with approximately 65 Flare locations, up from 59 at quarter-end. ### Financial Operational Highlights - Consolidated gross margin expanded 200 basis points year-over-year, driven by strong performance in the brand portfolio. SG&A as a percentage of sales was 44.1% (a 70 basis point deleverage), but excluding Stuart Weitzman acquisition-related expenses, the SG&A rate improved 30 basis points year-over-year. - End-of-quarter inventory totaled $609.1 million, up $35 million year-over-year; $58 million of this increase comes from Stuart Weitzman, while organic inventory excluding the acquisition was down $23 million year-over-year.

Guidance

- **Full-year 2026 consolidated guidance is maintained overall**, with offsetting revisions between segments: brand portfolio guidance was raised to reflect stronger-than-expected Q1 momentum, while Famous Footwear guidance was lowered to reflect recent softening demand trends to keep projections realistic. Full-year 2026 is still expected to be a build-back year with modest organic sales growth and meaningful earnings recovery. - Full-year 2026: Consolidated sales are expected to increase low to mid single digits year-over-year. Brand portfolio sales are expected to increase low double digits overall and mid single digits organically. Famous Footwear total and comparable sales are expected to decrease low to mid single digits year-over-year. - Full-year 2026: Consolidated gross margin is expected to increase 220 to 260 basis points year-over-year, with almost all expansion coming from the brand portfolio segment; Famous Footwear gross margin is expected to be flat to slightly down year-over-year. The SG&A rate is expected to be flat to slightly deleveraged year-over-year, with incentive and investment costs offset by cost-saving measures. GAAP diluted EPS is expected to be $1.44 to $1.69, and adjusted diluted EPS is expected to be $1.40 to $1.65. Capital expenditure is planned for $50 to $55 million, which will be re-evaluated based on macroeconomic conditions. - Q2 2026: Consolidated sales are expected to increase mid to high single digits year-over-year. Brand portfolio sales are expected to increase mid-20s percent overall, with low double-digit organic growth. Famous Footwear total and comparable sales are expected to decrease mid single digits year-over-year. Consolidated gross margin is expected to improve 345 to 375 basis points year-over-year, driven by brand portfolio expansion. Diluted GAAP EPS is expected to be 32 cents to 38 cents. - No potential tariff refund amounts have been included in any guidance, as the final total and timing of recovery remain uncertain.

Segment performance

Consolidated total sales for Q1 2026 were $667 million, an increase of 8.5% year-over-year. Organic sales, excluding the Stuart Weitzman acquisition, increased 1.4% year-over-year. 1. **Brand Portfolio Segment**: Organic sales increased 5.8% year-over-year; including Stuart Weitzman, sales increased 20.6% year-over-year. Lead brands grew 7% organically, accounting for nearly 60% of organic brand portfolio sales. Gross margin for the segment was 49%, up 520 basis points year-over-year. Operating margin was 11.1%, up 520 basis points year-over-year; excluding Stuart Weitzman, operating margin was 13.1%, up 720 basis points year-over-year. Stuart Weitzman contributed $43.9 million in sales in the quarter. 2. **Famous Footwear Segment**: Total sales decreased 2.5% year-over-year, with comparable sales down 2.3% year-over-year, in line with the low end of prior guidance. Gross margin was 43.8%, down 150 basis points year-over-year. Operating margin was negative 0.1% year-over-year. E-commerce sales grew nearly 10% year-over-year, and elevated brand product penetration reached almost 20% of total segment sales.

Risks & headwinds

- There is ongoing uncertainty around the global tariff environment: management assumes new tariffs will replace the prior IEPA tariffs in July 2026, and there is no guarantee that the expected ~$57.8 million in IEPA tariff refunds will be received in full, or at all. Potential refunds have not been included in guidance. - Persistent elevated inflation and the ongoing risk of an economic slowdown create pressure on consumer spending, particularly at Famous Footwear which caters to more price-sensitive consumers. Accelerated inflation negatively impacted Famous Footwear consumer traffic and sales starting in March and April 2026. - Rising energy and gasoline prices create upward pressure on freight and production costs, which the company is working to offset, though the dynamic remains uncertain. - Macroeconomic uncertainty may lead the company to adjust capital expenditure plans for the full year.

Analyst Q&A

• Q: Full-year consolidated guidance is unchanged, but there were changes to segment-level guidance. Why were segment guidance revised, and what trends are driving the changes? /

  A: Management raised the brand portfolio guidance to reflect stronger-than-expected Q1 momentum, which is expected to continue for the rest of the year. Famous Footwear guidance was lowered to reflect the softening demand seen in March and April after strong February comps, to keep projections realistic amid uncertain consumer conditions. The offsetting revisions leave the top-line full-year consolidated guidance unchanged.

• Q: Has the March-April softness at Famous Footwear continued into May, and how is back-to-school season incorporated into guidance? /

  A: Guidance already reflects the ongoing soft demand trends, with a conservative outlook built in. Management models for stronger performance during peak seasonal events including back-to-school and the holiday season, with softness concentrated in non-event periods, which is already accounted for in the full-year guidance.

• Q: Why was full-year gross margin guidance increased, and what is the margin outlook by segment? /

  A: The gross margin increase is almost entirely driven by the brand portfolio. Strong brand and channel mix, existing tariff mitigation strategies, and easy comparisons to last year's Q2 (which held large inventory markdowns) support the large margin step-up. Famous Footwear is expected to see flat to slightly down margins, as management plans for modest inventory clearance to control stock amid uncertain demand, which is already reflected in guidance.

• Q: What market trends are you seeing in footwear, and how have potential tariffs and refunds been incorporated into guidance? /

  A: Management is seeing a broad shift in consumer demand from sneakers to fashion footwear, with strong growth in dress shoes, sandals, and casual flats; overall sneaker sales were down mid-singles in the brand portfolio, but broader category mix is a net positive for the company. Guidance assumes IEPA tariffs will be reinstated in July, and no potential tariff refunds have been factored into earnings projections; refunds are treated as a contingent upside that will be reported as received.