Footwear company Caleres (NYSE:CAL) fell short of analysts’ expectations in Q2 CY2024, with revenue down 1.8% year on year to $683.3 million. It made a non-GAAP profit of $0.85 per share, down from its profit of $0.98 per share in the same quarter last year.
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Caleres (CAL) Q2 CY2024 Highlights:
- Revenue: $683.3 million vs analyst estimates of $723.8 million (5.6% miss)
- EPS (non-GAAP): $0.85 vs analyst expectations of $1.22 (30.3% miss)
- EPS (non-GAAP) guidance for the full year is $4.08 at the midpoint, missing analyst estimates by 7.8%
- Gross Margin (GAAP): 45.5%, in line with the same quarter last year
- EBITDA Margin: 8.4%, down from 9.4% in the same quarter last year
- Free Cash Flow Margin: 9.9%, down from 11.3% in the same quarter last year
- Market Capitalization: $1.31 billion
“Caleres reported second quarter results that were below expectations. While our brands and products continue to resonate with consumers and we remain confident in our long-term vision, our second quarter results in both segments fell short of our potential. Our systems implementation led to lack of visibility that prevented us from delivering our expected results. We also experienced weak seasonal demand and back-to-school business came later than expected,” said Jay Schmidt, president and chief executive officer.
The owner of Dr. Scholl's, Caleres (NYSE:CAL) is a footwear company offering a range of styles.
Footwear
Before the advent of the internet, styles changed, but consumers mainly bought shoes by visiting local brick-and-mortar shoe, department, and specialty stores. Today, not only do styles change more frequently as fads travel through social media and the internet but consumers are also shifting the way they buy their goods, favoring omnichannel and e-commerce experiences. Some footwear companies have made concerted efforts to adapt while those who are slower to move may fall behind.
Sales Growth
A company’s long-term performance is an indicator of its overall business quality. While any business can experience short-term success, top-performing ones enjoy sustained growth for multiple years. Over the last five years, Caleres’s sales were flat. This shows demand was soft and is a tough starting point for our analysis. 
Long-term growth is the most important, but within consumer discretionary, product cycles are short and revenue can be hit-driven due to rapidly changing trends and consumer preferences. Caleres’s recent history shows its demand has stayed suppressed as its revenue has declined by 2.3% annually over the last two years.
This quarter, Caleres missed Wall Street’s estimates and reported a rather uninspiring 1.8% year-on-year revenue decline, generating $683.3 million of revenue. Looking ahead, Wall Street expects sales to grow 3.6% over the next 12 months, an acceleration from this quarter.
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Cash Is King
If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can’t use accounting profits to pay the bills.
Caleres has shown weak cash profitability over the last two years, giving the company limited opportunities to return capital to shareholders. Its free cash flow margin averaged 5.5%, subpar for a consumer discretionary business.
Caleres’s free cash flow clocked in at $67.62 million in Q2, equivalent to a 9.9% margin. The company’s cash profitability regressed as it was 1.4 percentage points lower than in the same quarter last year, but it’s still above its two-year average. We wouldn’t read too much into this quarter’s decline because investment needs can be seasonal, leading to short-term swings. Long-term trends are more important.
Over the next year, analysts predict Caleres’s cash conversion will slightly fall. Their consensus estimates imply its free cash flow margin of 5% for the last 12 months will decrease to 3.5%.
Key Takeaways from Caleres’s Q2 Results
We struggled to find many strong positives in these results. Its revenue unfortunately missed and its EPS fell short of Wall Street’s estimates. Guidance was also underwhelming, which means that Wall Street analysts will be reducing their projections. Overall, this quarter could have been better. The stock traded down 14.1% to $32 immediately following the results.
Caleres may have had a tough quarter, but does that actually create an opportunity to invest right now? When making that decision, it’s important to consider its valuation, business qualities, as well as what has happened in the latest quarter. We cover that in our actionable full research report which you can read here, it’s free.