Wholesale Expansion And Supply Chain Shift Will Transform Footwear Landscape

Key Takeaways

• Strategic international expansion and new partnerships in Europe and Asia are expected to drive revenue growth in the sneaker segment.
  
• Focusing on supply chain diversification and brand expansion could improve net margins and enhance revenue streams.
  
• Economic challenges, cautious spending, and supply chain issues could pressure Caleres' revenue growth, profitability, and sales consistency across product lines.

Catalysts

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

• Caleres is expecting significant growth in its sneaker segment and international expansion, notably through new premium wholesale partnerships in Europe and Asia, which could boost revenue.
  
• The company is undergoing a strategic shift in supply chain sourcing, targeting 75% outside of China by mid-2025. This move aims to mitigate tariff impacts and improve net margins.
  
• Caleres is focusing on expanding its presence in the contemporary market segment, highlighted by new brand introductions like Favorite Daughter footwear, and the acquisition of Stuart Weitzman, likely to enhance revenue streams and pricing power.
  
• The development and growth of the Flare store format, intended to enhance the shopping experience and attract premium brands, is expected to bolster store performance significantly, boosting overall earnings and margins.
  
• The expansion of leadership and expertise at Famous Footwear, including a focus on new product introductions especially for the back-to-school season, is anticipated to improve sales and operating margins.

Caleres Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Caleres's revenue will grow by 1.6% annually over the next 3 years.
• Analysts assume that profit margins will increase from 3.8% today to 3.9% in 3 years time.
• Analysts expect earnings to reach $111.5 million (and earnings per share of $3.42) by about April 2028, up from $103.4 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 7.1x on those 2028 earnings, up from 5.8x today. This future PE is lower than the current PE for the US Specialty Retail industry at 16.2x.
• Analysts expect the number of shares outstanding to decline by 7.0% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 11.09%, as per the Simply Wall St company report.

Caleres Future Earnings Per Share Growth

Risks

• Continued cautious consumer spending and softer wholesale demand could impact Caleres' revenue growth, especially as these trends have previously led to decreased sales and demand in certain segments.
  
• The potential for persistent inflation and the introduction of new tariffs could create ongoing pressure on Caleres' gross margins, which may affect its profitability.
  
• Brand Portfolio's performance could face challenges without a significant improvement in same-store sales trends, impacting overall sales growth and earnings.
  
• Fluctuations in category performance, such as recent weaknesses observed in certain product lines like booties, if not addressed, may lead to inconsistent revenue streams and impact earnings.
  
• Order trends among wholesale accounts may remain cautious, reflecting retailer concerns over inventory levels in a weak economic environment, potentially suppressing Caleres' future revenue growth.

Valuation

• The analysts have a consensus price target of $21.333 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 $24.0, 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 $2.9 billion, earnings will come to $111.5 million, and it would be trading on a PE ratio of 7.1x, assuming you use a discount rate of 11.1%.
• Given the current share price of $17.71, the analyst price target of $21.33 is 17.0% higher.
• 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.