Caleres Inc 2027 Q2 Earnings Call

Thanks, Rob. Good morning, and thank you for joining our second quarter earnings call and webcast. A press release with detailed financial tables as well as our quarterly slide presentation are available at caleres.com. Please be aware today's discussion contains forward-looking statements, which are subject to several risks and uncertainties. Actual results may differ materially due to various risk factors, including those disclosed in the company's Form 10-K and other filings with the U.S. Securities and Exchange Commission. Please refer to today's press release and our SEC filings for more information on risk factors and other factors which could impact forward-looking statements. Copies of these reports are available online. In discussing our operational results, we will be providing and referring to adjusted operating and earnings results, and in some cases, be discussing our results excluding the impact of Stuart Weitzman.

Additional details on non-GAAP measures, as well as others featured in today's earnings release and presentation, are available in the reconciliation tables in our earnings release and on caleres.com. The company undertakes no obligation to update any information discussed in this call at any time. Joining me today are Jay Schmidt, President and CEO, and Dan Karpel, Senior Vice President and CFO. Our call will begin with prepared remarks, followed by a Q&A session to address any questions you have. With that, I will now turn the call over to Jay.

Jay? Good morning, and thank you for joining us.

Earlier today, Caleres reported second quarter adjusted earnings results above our expectations. As we discussed over the past two quarters, 2026 is a build back year for Caleres, a year focused on restoring earnings power, strengthening the foundation of the business, integrating Stuart Weitzman, and positioning the company for more durable, profitable growth over time. Second quarter earnings validate our strategy as we delivered margins and earnings well ahead of our expectations. In our brand portfolio, we experienced broad-based gains across brands with strength in wholesale, direct-to-consumer, and international, and we once again gained market share in women's fashion footwear according to Circana. Importantly, both lead brands and the balance of the brand portfolio delivered sales and earnings growth during the quarter. Fashion footwear is clearly seeing breakout momentum, and our brands are resonating with consumers.

We saw strength in ballet flats, pumps and loafers, and yes, even boots as the quarter progressed, particularly with fashion-relevant styling. International, which is our single greatest growth vector, delivered second quarter sales of over 50% and up high teens organically. Our lead brands remain under-penetrated in international markets with significant runway to grow. We also continue to leverage Caleres capabilities across product, sourcing, marketing, digital, and logistics to support our brands and drive profitable growth. The strength of our brand portfolio helped offset challenges we saw at Famous Footwear in the quarter, where sales were pressured by a back-to-school season that came later than expected, as well as a shift away from lifestyle athletic.

We are actively pivoting the assortment to reflect that shift, reducing exposure to softer lifestyle athletic products and increasing our emphasis on performance athletic, fashion, and the higher demand brands and products that are resonating with consumers. More on that in a moment, but let's first turn to key highlights from the quarter, starting with the brand portfolio. Sam Edelman delivered another strong quarter with sales of mid-teens versus last year. Performance was broad-based across categories with continued strength in closed casuals, dress, flats, and other key franchises that reflect the brand's ability to grow enduring icons along with trend-right newness. According to Circana, Sam Edelman is now the number nine dollar volume brand in women's fashion footwear. A strong achievement underscored by having the number one flat, the number one pump, and the number one loafer in that segment through spring.

Growth was supported by strong double-digit increases at key department store accounts. Our owned retail business also grew in the quarter, fueled by higher average unit retails and improved gross margins. The successful Hamptons pop-up brought the full Sam Edelman lifestyle expression to a high-impact market, and sales exceeded our expectations. The Sam Edelman international business continued to be a bright spot, scaling through premier global partners with market-right execution in key regions and particular momentum in China. You may have also noticed the launch of our men's line in the August market, which received positive reactions from all key accounts. This breadth of momentum across categories, channels, and geographies reinforces the power of the Sam Edelman platform and gives us confidence in the brand's ability to keep growing profitably. Finally, we ended the quarter with 110 owned and franchised Sam Edelman stores, including four in North America.

Stuart Weitzman had a solid quarter, with improvement in both full price sell-through and international during the quarter. Our goal remains to achieve break-even operating earnings in 2026, and we believe we have the foundation in place to get there. The brand is operating on Caleres platforms. The fleet has been rationalized, and the operating model has been simplified, and that discipline is showing up in the results. The brand made meaningful progress in the quarter. While direct-to-consumer sales were pressured by lower outlet and clearance activity, full price sell-through improved, supporting our path to break even. Wholesale exceeded expectations. Digital continues to improve following the re-platform, and brick-and-mortar comps strengthened as key flagships returned to growth. From a product perspective, Stuart Weitzman is building on its icons, the 50/50 and the Nudist, while establishing new hero franchises like Stuart Power and the Vinnie.

We are also expanding the brand's casual and sneaker assortment to maximize new avenues of growth. Internationally, we were particularly pleased with our business in China, which is ahead of plan under new leadership and is seeing a rapid resurgence in the brand's popularity. At the beginning of September, Stuart Weitzman launched its 40th anniversary campaign featuring Gigi Hadid, Misty Copeland, and Yang Mi. The campaign is particularly well-timed, with strength in the fashion boot stretch trend, particularly over-the-knee styles that have long been associated with the Stuart Weitzman brand. We ended the quarter with 62 stores, including 21 in North America and 41 in Asia. Allen Edmonds delivered another strong quarter with net sales up low teens and cross-channel growth led by wholesale. Consumer demand was broad-based, with dress shoes and loafers especially strong, and sandals benefiting from expanded newness.

The Reserve collection, our most elevated product, more than doubled in the quarter and gained further distribution in premium wholesale accounts and expansion in our own stores. Beyond footwear, our non-shoe business grew at a healthy double-digit clip across accessories and apparel as cross-category shoppers continue to spend more, buy more often, and deliver better margin. Allen Edmonds also continued to gain meaningful market share in men's footwear across every footwear category, significantly outpacing the broader premium and non-athletic markets. E-commerce continued to grow, and customer acquisition also strengthened, with growth skewing to younger, higher-income households. Retail sales were strong again, led by our 18 Port Washington studio stores, where sales grew 15%, outperforming the rest of our 58-store fleet by over 800 basis points. Our newest Port Washington studio store opened on King Street in Charleston during the quarter, and early reads have been promising.

Naturalizer delivered strong growth in the quarter, with sales up high single digits and growth across wholesale and direct-to-consumer. Profitability outpaced sales as the brand benefited from product newness, more full-price selling, and disciplined expense management. By category, dress was the standout, up double digits and led by modern takes on pumps, sling-backs, and flats. In casual, ballets and Mary Janes continued to drive demand, while casual sandals and sneakers saw some pullback. We were also encouraged by the consumer response to textured materials, including snake, raffia, and woven details, which played an important role in creating an emotional connection with consumers, differentiating the assortment and driving demand. The brand's creative partnership with June Ambrose is delivering on its objectives, generating strong social interest that is converting into traffic and sales. It's also attracting younger, more diverse, and higher-income consumers.

As Naturalizer approaches its 100th anniversary next year, its brand relevance is stronger than ever. Vionic sales were lower in the quarter, reflecting ongoing efforts to elevate distribution. However, earnings were up slightly year over year. We remain encouraged by the opportunity in the walking category, where penetration increased sequentially to 13% and sales grew over 50% versus last year. Our channel mix is shifting toward a more premium position while we are simultaneously introducing new products with broader distribution opportunities. Consumer adoption of Vionic's newer technology platforms has been encouraging, reinforcing the strength of the brand's wearable well-being positioning and differentiated combination of science, comfort, and style. We are also encouraged by the early response to Vionic Beach, a newly launched, more casual and accessible Vionic line. Importantly, these positive signals leave us with optimism for the future.

With fall inventory in place, continued newness flowing into the assortment, and broader distribution opportunities developing, Vionic is building a stronger foundation to translate these positive signals into sales growth. Taken together, these results reinforce what we have been saying for several quarters. Our lead brand strategy is working. We are building stronger brands, deepening consumer relationships, and creating a business that is positioned to deliver sustainable, profitable growth over time. Turning to Famous Footwear, second quarter sales were below our expectations as the business was pressured by a later start to back to school and a shift away from lifestyle athletic. First, on the shift in back to school. Based on our business in the third quarter to date, it now appears that back to school came later than expected due to the shift in Labor Day timing and several shifts in tax-free events.