Caleres (CAL)

Footwear company Caleres (NYSE:CAL) beat Wall Street’s revenue expectations in Q3 CY2025, with sales up 6.6% year on year to $790.1 million. Its non-GAAP profit of $0.38 (Adjusted excluding Stuart Weitzman: $0.67) per share was below analysts’ consensus estimates.

Company Overview

The owner of Dr. Scholl's, Caleres (NYSE:CAL) is a footwear company offering a range of styles.

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.

Caleres's shoe brands compete with Deckers Outdoor (NYSE:DECK) and VF Corp (NYSE:VFC) while Famous Footwear competes with retailers such as Foot Locker (NYSE:FL) and Designer Brands (NYSE:DBI).

Examining a company’s long-term performance can provide clues about its quality. Any business can put up a good quarter or two, but many enduring ones grow for years. Unfortunately, Caleres’s 3.8% annualized revenue growth over the last five years was weak. This was below our standard for the consumer discretionary sector and is a rough 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 performance shows it grew in the past but relinquished its gains over the last two years, as its revenue fell by 2.1% annually.

This quarter, Caleres reported year-on-year revenue growth of 6.6%, and its $790.1 million of revenue exceeded Wall Street’s estimates by 2.8%.

Looking ahead, sell-side analysts expect revenue to grow 6.8% over the next 12 months. Although this projection implies its newer products and services will fuel better top-line performance, it is still below the sector average.

Caleres’s operating margin has shrunk over the last 12 months and averaged 4.3% over the last two years. The company’s profitability was mediocre for a consumer discretionary business and shows it couldn’t pass its higher operating expenses onto its customers.

This quarter, Caleres generated an operating margin profit margin of 1.5%, down 6.5 percentage points year on year. This contraction shows it was less efficient because its expenses grew faster than its revenue.

We track the long-term change in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company’s growth is profitable.

Caleres’s full-year EPS flipped from negative to positive over the last five years. This is encouraging and shows it’s at a critical moment in its life.

In Q3, Caleres reported adjusted EPS of $0.38, down from $1.23 in the same quarter last year. This print missed analysts’ estimates. Over the next 12 months, Wall Street expects Caleres’s full-year EPS of $1.28 to grow 86.2%.

Free cash flow isn't a prominently featured metric in company financials and earnings releases, but we think it's telling because it accounts for all operating and capital expenses, making it tough to manipulate. Cash is king.

Caleres has shown poor cash profitability over the last two years, giving the company limited opportunities to return capital to shareholders. Its free cash flow margin averaged 1.5%, lousy for a consumer discretionary business.

Caleres burned through $13.93 million of cash in Q3, equivalent to a negative 1.8% margin. The company’s cash burn slowed from $57.37 million of lost cash in the same quarter last year. These numbers deviate from its longer-term margin, indicating it is a seasonal business that must build up inventory during certain quarters.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? A company’s ROIC explains this by showing how much operating profit it makes compared to the money it has raised (debt and equity).

Caleres historically did a mediocre job investing in profitable growth initiatives. Its five-year average ROIC was 12.6%, somewhat low compared to the best consumer discretionary companies that consistently pump out 25%+.

We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. Over the last few years, Caleres’s ROIC has unfortunately decreased significantly. Paired with its already low returns, these declines suggest its profitable growth opportunities are few and far between.

It was encouraging to see Caleres beat analysts’ revenue expectations this quarter. On the other hand, its full-year EPS guidance missed and its EPS fell short of Wall Street’s estimates. Overall, this was a weaker quarter. The stock traded down 18.5% to $11.02 immediately following the results.

The latest quarterly earnings matters, sure, but we actually think longer-term fundamentals and valuation matter more. Investors should consider all these pieces before deciding whether or not to invest in Caleres.

We see the value of companies helping consumers, but in the case of Caleres, we’re out. To begin with, its revenue growth was weak over the last five years. And while its projected EPS for the next year implies the company’s fundamentals will improve, the downside is its relatively low ROIC suggests management has struggled to find compelling investment opportunities. On top of that, its low free cash flow margins give it little breathing room.

Caleres’s P/E ratio based on the next 12 months is 5.7x. While this valuation is optically cheap, the potential downside is huge given its shaky fundamentals. There are better stocks to buy right now.

Wall Street analysts have a consensus one-year price target of $19 on the company (compared to the current share price of $11.02).

Although the price target is bullish, readers should exercise caution because analysts tend to be overly optimistic. The firms they work for, often big banks, have relationships with companies that extend into fundraising, M&A advisory, and other rewarding business lines. As a result, they typically hesitate to say bad things for fear they will lose out. We at StockStory do not suffer from such conflicts of interest, so we’ll always tell it like it is.