Caleres, Inc. Q2 FY2027 earnings call

Strategic Overview

• 2026 is defined as a "build-back" year focused on restoring earnings power, integrating Stuart Weitzman, and positioning the company for durable, profitable growth.
• Second quarter results validated this strategy, delivering margins and earnings well ahead of expectations despite challenges at Famous Footwear.

Brand Portfolio Highlights

• Broad-Based Growth: Experienced gains across wholesale, direct-to-consumer, and international channels. Gained market share in women's fashion footwear according to Circana.
• Sam Edelman: Sales grew mid-teens. Became the #9 volume brand in women's fashion footwear with #1 rankings in flats, pumps, and loafers. International business scaled through global partners, with momentum in China. Launched men's line with positive reception. Ended with 110 owned/franchised stores.
• Stuart Weitzman: Solid quarter with improved full-price sell-through and international sales. Goal is breakeven operating earnings in 2026. Fleet rationalized and operating model simplified. Wholesale exceeded expectations. Digital improved post-replatform. China business is ahead of plan under new leadership. Launched 40th-anniversary campaign featuring Gigi Hadid and Yang Mi. Ended with 62 stores.
• Allen Edmonds: Net sales up low teens, led by wholesale. Dress shoes and loafers strong. Reserve collection doubled in sales. Non-shoe business grew double digits. Gained meaningful market share in men's footwear. Port Washington Studio stores grew 15%, outperforming the rest of the fleet by 800 basis points.
• Naturalizer: Sales up high single digits. Profitability outpaced sales due to product newness and disciplined expense management. Dress category stood out with double-digit growth. Creative partnership with June Ambrose driving traffic and attracting younger, higher-income consumers.
• Vionic: Sales lower due to distribution elevation efforts, but earnings slightly up. Walking category penetration increased to 13%, with sales growing over 50%. New "Vionic Beach" line launched with encouraging early response.

Famous Footwear Operational Updates

• Back-to-School Timing: Sales pressured by a later-than-expected back-to-school season due to Labor Day timing shifts and tax-free events. Comp sales were flat through Labor Day.
• Product Mix Shift: Shift away from lifestyle athletic toward performance athletic and fashion. Fashion comp was positive and outperformed athletic by over 10 points in August/quarter-to-date.
• Inventory Management: Reduced receipts and increased clearance events to address excess aged inventory, pressuring gross margin but improving inventory position exiting the quarter.
• FLAIR Stores: Continued to outperform non-FLAIR stores, particularly in premium products, though margins were more pressured compared to previous quarters.

Tariff Refunds

• Received $57.4 million in IEEPA tariff refunds during the quarter ($55.6M in cost of sales reduction, $1.8M in interest income). These are excluded from adjusted results.

The company operates two primary segments: Brand Portfolio and Famous Footwear.

Brand Portfolio:

• Financial Performance: Sales increased by 8.2% on an organic basis (up 23.6% including Stuart Weitzman). Gross margin was 49.1%, an increase of 880 basis points year-over-year. Operating margin was 10.5%, up 740 basis points; excluding Stuart Weitzman, the operating margin was 13%, up 990 basis points.
• Revenue Contribution %: Specific revenue contribution percentages for individual brands are not explicitly stated as a percentage of total consolidated sales in the financial summary, but the segment as a whole drove the majority of the growth and margin expansion.

Famous Footwear:

• Financial Performance: Sales decreased by 6.3%, with comparable sales down 5.9%. Gross margin was 42.7%, a decline of 100 basis points year-over-year due to promotional activity in lifestyle athletic. Operating margin was 1.4%.
• Revenue Contribution %: The segment faces headwinds from shifting consumer preferences away from lifestyle athletic toward fashion and performance categories.

• Full Year 2026 Adjusted EPS: Raised the lower end of the guidance range while maintaining the high end. Previously, the range was likely tighter or lower; now expecting GAAP EPS of $2.80-$2.95 and Adjusted EPS of $1.50-$1.65.
• Q3 2026 Outlook:
  • Consolidated sales expected to increase low single digits.
  • Brand Portfolio sales up mid-to-high single digits.
  • Famous Footwear sales and comps down low single digits.
  • Consolidated gross margin expected to improve 150-200 basis points year-over-year.
  • SG&A deleverage of 100-150 basis points due to incentives and lower Famous sales.
  • Tax rate 23%-25%.
  • GAAP EPS $0.62-$0.70.
• Full Year 2026 Outlook:
  • Consolidated sales up low-to-mid single digits.
  • Brand Portfolio sales up low double digits (mid-single digits organically).
  • Famous Footwear sales and comps down low-to-mid single digits.
  • Store count: Open 13, close 26.
  • Consolidated gross margin up 180-220 basis points.
  • SG&A rate flat to slightly deleverage.
  • Interest expense ~$16M-$17M.
  • Full-year tax rate 24%-26%.
  • CapEx $50M-$55M.
• Key Assumptions & Risks: Guidance assumes new tariffs will be enacted in Q3 replacing prior IEEPA tariffs. Assumes continued softness in certain Famous categories and related promotional activity. Flexible sourcing strategy maintained.

• Tariff Uncertainty: Significant uncertainty regarding potential additional tariffs. Guidance assumes new tariffs replace prior IEEPA tariffs, which could impact costs and pricing strategies.
• Famous Footwear Category Shifts: Risk associated with the shift away from lifestyle athletic products. Continued promotional pressure may impact gross margins if inventory is not managed effectively.
• Seasonal Timing Variability: Back-to-school sales timing can fluctuate significantly (e.g., due to Labor Day shifts), causing quarterly comp distortions and requiring agile inventory management.
• Integration Challenges: Ongoing integration of Stuart Weitzman carries execution risk, although progress toward breakeven is noted.
• Consumer Demand Volatility: Shifts in consumer preference between key items vs. silhouettes and between athletic vs. fashion categories require continuous assortment adaptation.

Q: Ashley Owens asked for details on Brand Portfolio domestic organic growth rates and retailer order book sentiment for Spring '27. She also inquired about the magnitude of Lifestyle Athletic decline at Famous Footwear and the cadence of margin pressure in H2.

A: Jay Schmidt noted that international sales are less than 10% of total, leaving significant runway for growth. He stated the order book is consistent with Q3 guidance without volatility, indicating retailers are running businesses strongly. Regarding Famous Footwear, he explained that Lifestyle Athletic declined but improved into August, with fashion now outperforming athletic by over 10 points. He described this as a "rightsizing" where athletic spikes >60% in back-to-school then normalizes to ~50/50 split with non-athletic. Dan Karpel added that margin pressure in H2 will likely remain in line with Q2 (~100 bps decline) as they continue promotional activity to clear lifestyle athletic inventory.

Q: Mitch Kummetz asked if consumer demand is shifting from specific "key items" (e.g., Birkenstock Boston) to broader "key silhouettes," and how this benefits the Brand Portfolio. He also asked about challenges in Lifestyle Athletic and boot trends.

A: Jay Schmidt responded that demand is bifurcated; big key items like Birkenstock still trend strongly, but other fashion areas focus more on silhouettes (e.g., flats). This benefits the Brand Portfolio's breadth. Regarding athletic, he noted pockets of strength in fashionable lifestyle Adidas and performance Jordan/Brooks. For boots, he reported nice early interest in dress and festival styles, though Q3 flow was delayed due to tariff/receipt issues. They are monitoring Q4 closely.

Q: Dana Telsey asked about Stuart Weitzman’s progress toward breakeven and whether FLAIR stores at Famous Footwear show different performance for athletic vs. non-athletic categories.

A: Jay Schmidt stated Stuart Weitzman integration is progressing well, with a unified global assortment helping balance the business. Strong dress shoe and boot trends are supporting the path to breakeven. Regarding FLAIR stores, he noted they haven't seen a stark athletic vs. non-athletic split yet, but premium brands/products are outperforming in FLAIR locations, aligning with consumer prioritization of premium quality. He emphasized that as back-to-school ends, the focus shifts to fashion, which will be measured in Q3.

Q: Dana Telsey followed up on the pricing environment for H2, asking if there would be a change in full-price vs. promotion dynamics for new items.

A: Jay Schmidt indicated that the company will remain aggressive in clearing non-performing inventory, particularly in Lifestyle Athletic, keeping markdown pressure on those categories. Conversely, fashion assortments are focused on newness, which should result in less promotional activity for those items. The strategy aims to keep inventories clean to drive consumer traffic across all categories.