Caleres (CAL)

Footwear company Caleres (NYSE:CAL) fell short of the market’s revenue expectations in Q1 CY2025, with sales falling 6.8% year on year to $614.2 million. Its non-GAAP profit of $0.22 per share was 39.7% 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 can indicate its overall quality. Any business can experience short-term success, but top-performing ones enjoy sustained growth for years. Unfortunately, Caleres struggled to consistently increase demand as its $2.68 billion of sales for the trailing 12 months was close to its revenue five years ago. This wasn’t a great result and suggests it’s a low quality business.

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 performance shows its demand remained suppressed as its revenue has declined by 3.8% annually over the last two years.

This quarter, Caleres missed Wall Street’s estimates and reported a rather uninspiring 6.8% year-on-year revenue decline, generating $614.2 million of revenue.

Looking ahead, sell-side analysts expect revenue to grow 1.9% over the next 12 months. While this projection suggests its newer products and services will spur 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 5.8% 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 profit margin of 1.9%, down 4.7 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 EPS grew at an astounding 43% compounded annual growth rate over the last five years, higher than its flat revenue. This tells us management responded to softer demand by adapting its cost structure.

In Q1, Caleres reported EPS at $0.22, down from $0.88 in the same quarter last year. This print missed analysts’ estimates, but we care more about long-term EPS growth than short-term movements. Over the next 12 months, Wall Street expects Caleres’s full-year EPS of $2.63 to grow 16.8%.

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 2.8%, lousy for a consumer discretionary business.

Caleres burned through $26.8 million of cash in Q1, equivalent to a negative 4.4% margin. The company’s cash flow turned negative after being positive in the same quarter last year, prompting us to pay closer attention. Short-term fluctuations typically aren’t a big deal because investment needs can be seasonal, but we’ll be watching to see if the trend extrapolates into future quarters.

Over the next year, analysts predict Caleres’s cash conversion will improve. Their consensus estimates imply its breakeven free cash flow margin for the last 12 months will increase to 3.3%, giving it more optionality.

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 12.5%, 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. On average, Caleres’s ROIC decreased by 3.2 percentage points annually over the last few years. Paired with its already low returns, these declines suggest its profitable growth opportunities are few and far between.

Caleres reported $33.14 million of cash and $850.3 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 $187.9 million of EBITDA over the last 12 months, we view Caleres’s 4.3× net-debt-to-EBITDA ratio as safe. We also see its $13.97 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 as its revenue, EPS, and EBITDA fell short of Wall Street’s estimates. Overall, this was a weaker quarter. The stock traded down 5.6% to $15.47 immediately after reporting.

Updated: July 10, 2025 at 10:55 PM EDT

When considering an investment in Caleres, investors should account for its valuation and business qualities as well as what’s happened in the latest quarter.

We see the value of companies helping consumers, but in the case of Caleres, we’re out. For starters, its revenue growth was weak over the last five years, and analysts don’t see anything changing over the next 12 months. And while its astounding EPS growth over the last five years shows its profits are trickling down to shareholders, the downside is its low free cash flow margins give it little breathing room. On top of that, its operating margins are low compared to other consumer discretionary companies.

Caleres’s P/E ratio based on the next 12 months is 4.7x. While this valuation is optically cheap, the potential downside is huge given its shaky fundamentals. There are more exciting stocks to buy at the moment.

Wall Street analysts have a consensus one-year price target of $19.50 on the company (compared to the current share price of $14.48).

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.