Sam Edelman Global Launch And Famous Footwear's Kids Success Boost Revenues, But China Weakness And Supply Delays Pressure Margins

Key Takeaways

• Strategic global expansion and product diversification, such as new Sam Edelman locations and handbag lines, aim for increased revenue and brand growth.
  
• Operational efficiencies and sourcing strategies, including the speed initiative and pivoting from China, target improved margins and business resilience.
  
• Delayed product trends, weak demand, and strategic costs are pressuring Caleres' margins and affecting revenue across key segments.

Catalysts

Engages in the retail and wholesale of footwear business in the United States, Canada, East Asia, and internationally.

• Caleres' strategic focus on international expansion, particularly with Sam Edelman's launch in Selfridges, John Lewis, and a new store in Shanghai, indicates potential revenue growth through increased global brand recognition and market presence.
  
• The continuous growth of the kids' category at Famous Footwear, which has outperformed the rest of the chain for 15 consecutive quarters and gained market share, is a catalyst for future revenue increase and overall business resilience.
  
• The speed initiative, which resulted in about 30% of sourcing in the quarter, and the strategy to pivot sourcing outside of China to mitigate tariff impacts, are operational efficiencies likely to improve net margins.
  
• The transformation of retail stores into FLAIR locations, which has resulted in mid-single-digit sales lifts, signifies potential revenue growth and enhanced profitability through improved consumer experiences and product offerings.
  
• The launch of new product lines, such as Sam Edelman handbags, and the outperformance of lead brands like Allen Edmonds and Vionic, indicate strategic product diversification and innovation, expected to drive both revenue growth and market share expansion.

Caleres Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Caleres's revenue will grow by 2.2% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 5.5% today to 3.4% in 3 years time.
• Analysts expect earnings to reach $101.7 million (and earnings per share of $3.04) by about March 2028, down from $152.0 million today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 8.7x on those 2028 earnings, up from 3.6x today. This future PE is lower than the current PE for the US Specialty Retail industry at 13.5x.
• Analysts expect the number of shares outstanding to decline by 4.33% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 11.39%, as per the Simply Wall St company report.

Caleres Future Earnings Per Share Growth

Risks

• Weak seasonal demand in the boot category led to lower sales and impacted clearance margins. This could lead to reduced revenue and net margins if not addressed adequately.
  
• Delays in receiving trending athletic products resulted in missed opportunities and lower sales, particularly at Famous Footwear, impacting overall earnings potential.
  
• A credit issue with a customer led to reduced wholesale shipments, directly affecting revenue from the Brand Portfolio segment.
  
• Muted demand in China and an aggressive initial growth plan in the region indicate potential revenue shortfalls, affecting overall earnings growth.
  
• Investments in strategic initiatives and restructuring expenses, although necessary for long-term positioning, are leading to increased operating costs and pressuring net margins in the short term.

Valuation

• The analysts have a consensus price target of $22.0 for Caleres based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $25.0, and the most bearish reporting a price target of just $17.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $3.0 billion, earnings will come to $101.7 million, and it would be trading on a PE ratio of 8.7x, assuming you use a discount rate of 11.4%.
• Given the current share price of $16.23, the analyst price target of $22.0 is 26.2% higher. Despite analysts expecting the underlying buisness to decline, they seem to believe it's more valuable than what the market thinks.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.