Caleres (CAL)

Footwear company Caleres (NYSE:CAL) met Wall Street’s revenue expectations in Q2 CY2025, but sales fell by 3.6% year on year to $658.5 million. Its non-GAAP profit of $0.35 per share was 37.5% 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).

A company’s long-term sales performance is one signal of its overall quality. Any business can have short-term success, but a top-tier one grows for years. Regrettably, Caleres’s sales grew at a weak 2.1% compounded annual growth rate over the last five years. This fell short of our benchmarks and is a poor baseline 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 3.6% annually.

This quarter, Caleres reported a rather uninspiring 3.6% year-on-year revenue decline to $658.5 million of revenue, in line with Wall Street’s estimates.

Looking ahead, sell-side analysts expect revenue to grow 1.4% over the next 12 months. While this projection implies its newer products and services will catalyze better top-line performance, it is still below the sector average.

Caleres’s operating margin has been trending down over the last 12 months and averaged 5.1% 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 1.4%, down 4.9 percentage points year on year. This contraction shows it was less efficient because its expenses increased relative to its revenue.

Revenue trends explain a company’s historical growth, but the long-term change in earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.

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 Q2, Caleres reported adjusted EPS of $0.35, down from $0.85 in the same quarter last year. This print missed analysts’ estimates, but we care more about long-term adjusted EPS growth than short-term movements. Over the next 12 months, Wall Street expects Caleres’s full-year EPS of $2.13 to grow 22.7%.

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 2%, lousy for a consumer discretionary business.

Caleres’s free cash flow clocked in at $33.77 million in Q2, equivalent to a 5.1% margin. The company’s cash profitability regressed as it was 4.9 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 trump temporary fluctuations.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? Enter ROIC, a metric showing how much operating profit a company generates relative 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 12.8%, 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. Paired with its already low returns, these declines suggest its profitable growth opportunities are few and far between.

Caleres reported $191.5 million of cash and $969.1 million of debt on its balance sheet in the most recent quarter. As investors in high-quality companies, we primarily focus on two things: 1) that a company’s debt level isn’t too high and 2) that its interest payments are not excessively burdening the business.

With $162.7 million of EBITDA over the last 12 months, we view Caleres’s 4.8× net-debt-to-EBITDA ratio as safe. We also see its $6.14 million of annual interest expenses as appropriate. The company’s profits give it plenty of breathing room, allowing it to continue investing in growth initiatives.

We struggled to find many positives in these results. Its EBITDA missed and its EPS fell short of Wall Street’s estimates. Overall, this quarter could have been better. The stock traded down 12.7% to $13.06 immediately after reporting.

Updated: December 4, 2025 at 9:48 PM EST

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.

Caleres falls short of our quality standards. First off, its revenue growth was weak over the last five years. And while its solid EPS growth over the last five years shows its profits are trickling down to shareholders, the downside is its projected EPS for the next year is lacking. On top of that, its relatively low ROIC suggests management has struggled to find compelling investment opportunities.

Caleres’s P/E ratio based on the next 12 months is 6.1x. While this valuation is optically cheap, the potential downside is huge given its shaky fundamentals. There are better investments elsewhere.

Wall Street analysts have a consensus one-year price target of $19 on the company (compared to the current share price of $13.48).

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.