Caleres, Inc. (CAL) shares took a steep dive on Thursday after the company revealed a disappointing second-quarter performance and lowered its annual outlook. The news sent shockwaves through the market, prompting investors to reconsider their positions in the footwear retailer.
The company’s revenue for the quarter came in at $683.32 million, falling short of analyst expectations of $723.80 million. While Famous Footwear sales saw a modest 1.5% year-over-year increase, attributed to a later-than-anticipated back-to-school season, Brand Portfolio sales took a hit, declining by 5.1%. This decline was attributed to operational reporting challenges stemming from the company’s SAP ERP implementation and sluggish seasonal demand in certain regions.
Despite the revenue miss, Caleres’ gross margin rate did expand slightly, increasing by 30 basis points year-over-year to 45.5%. EBITDA reached $57.2 million. However, the company’s adjusted earnings per share (EPS) of $0.85 also missed the mark, coming in below the consensus estimate of $1.22.
In an effort to address the challenges, Caleres announced restructuring actions designed to achieve $7.5 million in annualized SG&A savings. The company expects $2 million in savings from these actions during fiscal 2024.
The company’s revised outlook for fiscal 2024 paints a less optimistic picture than previously anticipated. Net sales are now expected to decline by a low single-digit percentage, a significant shift from the prior guidance of flat to up 2%. Caleres also downgraded its fiscal 2024 EPS guidance to $3.94 – $4.09, compared to the previous range of $4.30 – $4.60. Excluding anticipated restructuring costs of $3 million in the third quarter, the adjusted EPS is projected to be between $4.00 and $4.15. This forecast falls short of the consensus estimate of $4.42.
For the third quarter, Caleres anticipates net sales to remain flat or decline by 2%, with adjusted EPS projected to be in the range of $1.30 – $1.40, trailing the estimate of $1.50.
Caleres’ CEO, Jay Schmidt, acknowledged the company’s underwhelming performance, stating that while their brands and products continue to resonate with consumers, their second-quarter results fell short of their potential. He attributed the shortfall to the ERP implementation challenges, which hampered visibility and hindered their ability to deliver expected results. He also highlighted weak seasonal demand and the later-than-expected back-to-school season as contributing factors.
Despite the current setbacks, Schmidt expressed confidence in the company’s ability to recover and address the issues stemming from the ERP implementation. He also mentioned that Caleres is accelerating restructuring actions to enhance team efficiency and effectiveness.
As of August 3, 2024, Caleres’ inventory stood at $661.1 million, while cash and equivalents amounted to $51.8 million. The company’s borrowings under its asset-based revolving credit facility totaled $146.5 million at the end of the reporting period. Caleres plans to maintain its focus on reducing debt and aims to lower its borrowings under the revolving credit facility to below $100 million by 2026.
Investors seeking exposure to Caleres can consider the SPDR S&P Retail ETF (XRT) and the Cambria Micro and SmallCap Shareholder Yield ETF (MYLD).
Following the announcement, CAL shares plummeted by 18.7% to $30.28 at the last check on Thursday.
The market’s reaction highlights the significance of Caleres’ earnings miss and the impact of its revised outlook on investor sentiment. The company faces an uphill battle to regain investor confidence and navigate the challenging retail landscape.
