8-K: Caleres Reports Disappointing First Quarter 2025 Results, Suspends Guidance Amid Market Uncertainty

Caleres, Inc. reported first-quarter 2025 financial results below expectations, with sales down 6.8% and diluted earnings per share at $0.21, leading the company to suspend its fiscal 2025 guidance due to market uncertainty.

Summary

• Reported Sales were $614.2 million for the first quarter of 2025, representing a 6.8% decrease year-on-year and falling below expectations.
• Famous Footwear sales decreased by 6.3%, with comparable sales down 4.6% compared to the first quarter of 2024.
• Brand Portfolio sales declined by 6.9% versus the first quarter of 2024.
• The company reported $0.21 in earnings per diluted share and $0.22 in adjusted earnings per diluted share for the first quarter, both below expectations.
• Caleres announced structural cost-cutting actions projected to result in a $15 million SG&A reduction on an annualized basis, with $7.5 million expected in fiscal 2025.
• The company expects dollars sourced from China to be 10% or less in the second half of 2025 as part of its optimized sourcing strategy.
• Fiscal 2025 guidance has been suspended due to ongoing market uncertainty.
• Gross profit was $278.7 million, with a gross margin of 45.4%, down 150 basis points from the prior year.
• Selling, General, and Administrative (SG&A) expenses as a percentage of net sales increased to 43.4%, up 300 basis points, reflecting deleverage on the sales decline.
• Net earnings were $6.9 million, a significant decrease from $30.9 million in the first quarter of 2024.
• Inventory was up 8.1% compared to the first quarter of 2024, reaching $573.6 million.
• Borrowings under the asset-based revolving credit facility increased to $258.5 million at period-end, up $67.5 million from the first quarter of 2024.
• The company repurchased 300,000 shares at an average price of $16.81 per share during the quarter.

Sentiment

Score: 3

Explanation: The sentiment is largely negative due to significant declines in sales and earnings, results falling below expectations, increased inventory and borrowings, and the suspension of future guidance. While management highlights some positive internal trends like market share gains and international business growth, and announces cost-cutting measures, the overall financial performance and outlook are concerning, indicating a challenging period ahead.

Positives

• Caleres' brands continue to resonate with consumers, and both Famous Footwear and Brand Portfolio segments gained market share during the period.
• The company experienced improving momentum at retail in March and April, following a weak February.
• There was growth in the strategically important international business.
• Management announced structural cost-cutting actions expected to reduce SG&A by $15 million on an annualized basis, with $7.5 million in fiscal 2025.
• The company is optimizing its sourcing strategy, aiming to reduce reliance on China to 10% or less of sourced dollars in the second half of 2025.
• Caleres continued to invest in value-driving growth opportunities and returned cash to shareholders through dividends and share repurchases during the quarter.

Negatives

• First quarter results fell short of expectations for both sales and earnings.
• Reported Sales of $614.2 million were down 6.8% year-on-year.
• Famous Footwear sales decreased 6.3%, with comparable sales down 4.6%.
• Brand Portfolio sales declined 6.9%.
• Reported earnings per diluted share of $0.21 and adjusted earnings per diluted share of $0.22 were below expectations.
• February sales were particularly weak, impacting overall quarterly performance.
• Operating earnings were pressured by lower gross margins, increased reserves, and costs associated with inventory management.
• Gross margin decreased by 150 basis points to 45.4% compared to the prior year.
• SG&A as a percentage of net sales increased by 300 basis points to 43.4%, indicating deleverage due to declining sales.
• Net earnings significantly dropped to $6.9 million from $30.9 million in the first quarter of 2024.
• Inventory increased by 8.1% compared to the first quarter of 2024.
• Borrowings under the asset-based revolving credit facility increased by $67.5 million to $258.5 million.
• The company suspended its fiscal 2025 guidance due to market uncertainty, signaling a less predictable outlook.
• The operating environment has become more challenging.

Risks

• Changes in United States and international trade policies, including tariffs and trade restrictions.
• Changing consumer demands, which may be influenced by general economic conditions and other factors.
• Inflationary pressures and supply chain disruptions.
• Rapidly changing consumer preferences, purchasing patterns, and fashion trends.
• Supplier concentration, customer concentration, and increased consolidation in the retail industry.
• Intense competition within the footwear industry.
• Foreign currency fluctuations.
• Political and economic conditions or other threats to the continued and uninterrupted flow of inventory from China and other countries, where the company heavily relies on third-party manufacturing facilities.
• Cybersecurity threats or other major disruptions to the company's information technology systems, including those related to its ERP upgrade.
• Transitional challenges associated with acquisitions and divestitures, specifically mentioning the planned acquisition of Stuart Weitzman.
• The ability to accurately forecast sales and manage inventory levels effectively.
• Potential disruptions in the company's distribution centers.
• The ability to recruit and retain senior management and other key associates.
• The ability to secure or exit leases on favorable terms.
• The ability to maintain relationships with current suppliers.
• Changes to tax laws, policies, and treaties.
• Meeting commitments and shareholder expectations related to responsible business initiatives.
• Compliance with applicable laws and standards concerning labor, trade, and product safety issues.
• The ability to attract, retain, and maintain good relationships with licensors and protect intellectual property rights.

Future Outlook

Caleres has suspended its fiscal 2025 guidance due to significant market uncertainty. The company plans to focus on internal controls, including optimizing its sourcing strategy to reduce reliance on China to 10% or less of sourced dollars in the second half of 2025. Additionally, structural expense cuts are expected to reduce SG&A by $15 million annually. Management expresses confidence in their longer-term ability to execute their strategic plan, invest in growth initiatives, and drive sustained shareholder value.

Management Comments

• "While our brands continue to resonate with consumers and both segments of our business gained market share in the period, our first quarter results fell short of expectations." Jay Schmidt, President and Chief Executive Officer.
• "February sales were particularly weak, and although trends improved in March and April, overall performance was below plan." Jay Schmidt, President and Chief Executive Officer.
• "Operating earnings were pressured by lower gross margins, increased reserves, and costs to cancel and move inventory." Jay Schmidt, President and Chief Executive Officer.
• "Despite the weak quarter, we did experience improving momentum at retail and growth in our strategically important international business." Jay Schmidt, President and Chief Executive Officer.
• "The operating environment has become more challenging, and we must redouble our efforts to drive growth and profitability." Jay Schmidt, President and Chief Executive Officer.
• "In the near term, we are focused on controlling what we can control, including optimizing our sourcing strategy." Jay Schmidt, President and Chief Executive Officer.
• "Additionally, we expect to decrease SG&A by $15 million on an annualized basis through structural expense cuts. We are viewing this as an opportunity to strengthen Caleres and position our company for the future." Jay Schmidt, President and Chief Executive Officer.
• "Longer term, we are confident in our ability to get back on track, execute our strategic plan, invest to fuel our growth initiatives, and drive sustained value for our shareholders." Jay Schmidt, President and Chief Executive Officer.

Industry Context

The document highlights a challenging operating environment for Caleres, consistent with broader retail trends facing inflationary pressures, changing consumer demands, and supply chain disruptions. The company's focus on optimizing its sourcing strategy (reducing China reliance) and implementing structural cost-cutting measures reflects a common industry response to macroeconomic headwinds and efforts to improve profitability amidst declining sales. While Caleres reported gaining market share, indicating some resilience relative to competitors, the overall market conditions remain tough, leading to the suspension of guidance.

Comparison to Industry Standards

• No specific comparable companies, projects, or industry benchmarks were mentioned in the document for direct comparison of results.

Stakeholder Impact

• Shareholders: Likely negative impact due to lower-than-expected earnings, significant decline in net income, increased leverage, and the suspension of guidance, which could lead to stock price pressure. However, the company continues to pay dividends and repurchase shares, albeit with re-evaluated capital allocation plans.
• Employees: Potential impact from structural cost-cutting actions, which may involve workforce adjustments or operational streamlining.
• Customers: Brands continue to resonate and market share was gained, suggesting continued customer engagement despite overall sales decline.
• Suppliers: Potential impact from the optimized sourcing strategy, particularly the stated reduction of reliance on China-based manufacturing.
• Creditors: Increased borrowings under the revolving credit facility and a higher debt/EBITDA ratio indicate increased leverage, which could be a concern for creditors if financial performance does not improve.

Next Steps

• Caleres will host an investor conference call on May 29, 2025, to discuss the results.
• The company is re-evaluating its capital spending plans given the current challenging environment and the planned acquisition of Stuart Weitzman later this year.
• Caleres will continue to consider business performance and market conditions as it evaluates all opportunities for free cash flow, including share repurchases, as the year progresses.
• Implement structural expense cuts to achieve a $15 million SG&A reduction on an annualized basis, with $7.5 million expected in fiscal 2025.
• Optimize sourcing strategy to reduce dollars sourced from China to 10% or less in the second half of 2025.
• Longer term, the company aims to get back on track, execute its strategic plan, invest to fuel growth initiatives, and drive sustained value for shareholders.

Key Dates

Recommendation

Keywords

Footwear, Retail, Caleres, Famous Footwear, Brand Portfolio, Earnings, Financial Results, Q1 2025, Guidance Suspension, Cost Cutting, Inventory, Supply Chain, Consumer Trends, Share Repurchase, Dividend, SEC Filing, 8-K