CAL Q2 Deep Dive: Tariffs and Promotions Pressure Margins Amid Strategic Brand Shifts

Footwear company Caleres (NYSE:CAL) met Wall Street’s revenue expectations in Q2 CY2025, but sales fell by 3.6% year on year to $658.5 million. Its non-GAAP profit of $0.35 per share was 37.5% below analysts’ consensus estimates.

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StockStory’s Take

Caleres’ second quarter results were met with a significant negative market reaction, reflecting investor concern over both margin compression and earnings performance. Management attributed the quarter’s challenges primarily to ongoing tariff disruptions, heightened promotional activity at Famous Footwear, and inventory markdowns. CEO Jay Schmidt described the environment as “dynamic and demanding,” highlighting that while lead brands such as Sam Edelman and Allen Edmonds showed resilience and market share gains, value-oriented brands and certain segments underperformed. Gross margins were pressured by higher tariff-related costs and clearance promotions, with Schmidt noting, “Sales trends improved sequentially in both segments, and we saw market share gains in both women's fashion footwear and in shoe chains.”

Looking ahead, Caleres’ outlook is shaped by continued tariff uncertainty, further integration of the Stuart Weitzman acquisition, and a focus on cost savings initiatives. Management acknowledged the lag in realizing tariff mitigation strategies and expects margin pressure to persist into the second half of the year. CFO Jack Calandra stated that “there is a lag between when higher tariffs take effect and when these mitigating actions become effective,” signaling ongoing volatility. The company is prioritizing structural cost reductions, international growth, and enhancing its direct-to-consumer channels, while cautioning that the impact of new tariffs and evolving consumer demand will require ongoing operational agility.

Key Insights from Management’s Remarks

Management attributed quarterly underperformance to tariff impacts, promotional shifts, and inventory actions, while pointing to brand portfolio strength and cost-saving measures as key areas of progress.

• Tariffs disrupt margins: Management stated that tariffs negatively impacted sales and gross margin, particularly within the Brand Portfolio segment. Calandra estimated tariffs reduced second quarter sales by $10 million due to order cancellations and delayed receipts, with a 250 basis point margin impact.

• Promotional cadence shifts: Famous Footwear increased promotions through deeper “BOGO” (buy one, get one) offers and clearance sales, which contributed to gross margin declines. The company expects less margin headwind from this strategy moving forward as they annualize the change.

• Lead brands outperform: Sam Edelman and Allen Edmonds delivered sales growth and market share gains, with Sam Edelman achieving strong international performance and Allen Edmonds benefiting from reduced promotions and limited foreign sourcing exposure. These lead brands represented well over half of segment sales and earnings.

• Inventory and cost actions: Caleres completed previously announced cost savings initiatives expected to yield $15 million in annualized savings. The company also reported inventory levels up year-over-year, citing ongoing efforts to better match inventory with sales trends and reduce markdown risk.

• Stuart Weitzman acquisition integration: The company finalized the acquisition of Stuart Weitzman after the quarter ended. Management emphasized its alignment with strategic priorities and expects operational efficiencies and expense savings post-integration, though cautions that benefits will be realized after a transition period.

Drivers of Future Performance

Management expects persistent margin headwinds and emphasizes the need for ongoing tariff mitigation, structural cost reductions, and brand portfolio expansion to drive future performance.

• Tariff mitigation remains critical: Management highlighted that new Southeast Asia tariffs are expected to pressure gross margins in the second half of the year, with ongoing efforts to diversify sourcing, negotiate with factory partners, and selectively raise prices. CFO Jack Calandra noted that mitigation strategies will take time to show results, leading to a lag in margin recovery.

• Cost savings and integration: The company is focused on realizing additional structural cost savings, particularly through the integration of Stuart Weitzman and portfolio-wide efficiency initiatives. Management expects these actions to begin benefiting margins and profitability in 2026, with a consulting partner engaged to identify further opportunities.

• Direct-to-consumer and international growth: Caleres aims to expand its direct-to-consumer channels and international footprint, especially for lead brands like Sam Edelman and Vionic. Management sees these areas as key drivers of long-term revenue growth, helping to offset domestic retail headwinds and value brand challenges.

Catalysts in Upcoming Quarters

Looking forward, the StockStory team will be monitoring (1) the pace and effectiveness of tariff mitigation actions and the impact on gross margins, (2) the integration and operational performance of Stuart Weitzman, including cost synergies and sales trends, and (3) the progress of direct-to-consumer and international growth initiatives for lead brands. Execution on inventory management, promotional strategies, and ongoing cost reductions will also be important markers of success.

Caleres currently trades at $14, down from $14.96 just before the earnings. Is the company at an inflection point that warrants a buy or sell? See for yourself in our full research report (it’s free).

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