Caleres Posts 59% EPS Drop in Fiscal Q2

Key Points

• Earnings per share (non-GAAP) declined 58.8% year-over-year to $0.35 for Q2 FY2025, marking a significant decrease from the prior year.

• Revenue dropped 3.6% to $658.5 million (GAAP) for Q2 FY2025, driven by declines in both core business segments.

• Gross margin (GAAP) fell 2.1 percentage points year-over-year in Q2 FY2025, reflecting the impact of tariffs, increased promotions, and higher inventory markdowns.

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Caleres (NYSE:CAL), the footwear company behind brands like Famous Footwear and Sam Edelman, released second quarter results for fiscal 2025 on September 4, 2025. The company reported notable year-over-year declines: adjusted diluted earnings per share dropped to $0.35 from $0.85, revenue slipped to $658.5 million from $683.3 million, and gross margin fell to 43.4%. These results came in well below normalized recent performance, with earnings and margins pressured more than management had previously anticipated. Overall, the quarter reflected significant operational headwinds and softer consumer demand but included some early signs of stabilization late in the period.

About Caleres: Business Overview and Focus Areas

Caleres is a leading footwear company managing two core segments: Famous Footwear, which sells branded family footwear through both stores and e-commerce, and Brand Portfolio, which focuses on wholesale and direct sales for a set of owned and licensed footwear brands. This dual-segment structure lets Caleres serve a wide range of customers and adapt quickly to changes in shopping trends, both online and in retail stores.

Recent strategies have included ramping up omni-channel offerings, investing in supply chain agility, and stepping up direct-to-consumer sales. Caleres has also focused on strategic acquisitions, most notably bringing high-end women's footwear brand Stuart Weitzman into its Brand Portfolio. Efficient inventory management and cost control have become increasingly important as the industry navigates shifting consumer behavior and supply chain disruptions. The company’s dedication to responsible business practices and sustainability also continues to be a key part of its long-term plan.

Quarter in Detail: Financial and Operational Developments

The latest quarter saw GAAP revenue drop 3.6%, with declines across both Famous Footwear and Brand Portfolio. Famous Footwear saw sales contract 4.9%, while Brand Portfolio fell 3.5%. Both segments faced softer retail conditions and inventory overhangs. Gross margin, which measures how much money the company keeps after the cost of goods sold, decreased by 2.1 percentage points compared to last year, mainly due to $10 million in new tariffs, heavier use of promotions, and higher reserves for inventory markdowns.

Profitability took a pronounced hit. Adjusted operating margin fell from 6.2% to 2.4% year-over-year with segment margins down sharply for both Famous Footwear and Brand Portfolio. The inventory balance climbed to $693.3 million, a 4.9% jump compared to the second quarter of fiscal year 2024, despite management’s prior efforts to actively manage stock and move toward stability. The balance sheet also reflected a significant increase in leverage, with borrowings rising to $387.5 million from $146.5 million compared to the second quarter of 2024. This rise was mainly related to cash pre-positioning for the post-quarter-close Stuart Weitzman acquisition.

Management pointed to persistent tariff headwinds and longer-than-expected timelines for mitigation. Structural cost savings are on track for $15 million annually, as reported, but sales declines led to a higher percentage of revenue spent on selling and administrative expenses (41.0%, up from 39.3% in Q2 FY2024).

The quarter also marked several notable operational moves. The purchase of Stuart Weitzman was completed after quarter end. While not included in the quarter’s numbers, this upscale women’s footwear business is expected to enhance brand positioning in international and luxury segments. The company also saw its direct-to-consumer share rise to roughly 75% of total sales, a strategic focus as this channel tends to be more profitable and supports brand-building. Management noted sequential improvement in Famous Footwear sales in July and August, with August comparable sales returning to growth (up 1%).

Gross margin pressure continues to be a major concern. Tariffs and the need for competitive promotions drove the latest margin declines. Cost control initiatives met advertised targets, but margin dilution from sales drops outweighed these gains. The ongoing pressure led management to warn that Brand Portfolio gross margin is likely to remain under pressure in Q3 FY2025, with some relief planned for the holiday season as mitigation measures mature.

Caleres’s liquidity position strengthened as cash increased markedly, partly owing to actions taken ahead of the acquisition. The company extended its credit facility maturity to 2030 and lifted its borrowing capacity to $700 million. Despite this, the company’s debt relative to earnings before interest, tax, depreciation, and amortization (EBITDA) (non-GAAP, trailing twelve months ended August 2, 2025) jumped sharply, indicating higher financial risk if earnings do not recover soon. No additional update was given on environmental or social responsibility initiatives in this report.

Looking Ahead: Guidance and Focus for Investors

Caleres did not provide full-year financial guidance for fiscal 2025, citing a lack of visibility due to the uncertain market environment and the evolving impact of tariffs and consumer demand. Management shared only limited third quarter color, noting that August saw a modest return to same-store sales growth at Famous Footwear. However, leadership also signaled that gross margin remains under pressure for the near term.

In coming quarters, investors may want to focus on several key areas: Monitoring how quickly the company can lower its leverage ratio and whether cost savings begin to offset sales softness will be important. Any moves on the dividend will also be closely watched, though the company has not disclosed any changes for this period.

Revenue and net income presented using U.S. generally accepted accounting principles (GAAP) unless otherwise noted.

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