Greetings. Welcome to Caleres, Inc. Third Quarter 2025 Earnings Call. At this time, all participants are in a listen-only mode. Please note this conference is being recorded. I will now turn the conference over to Liz Dunn, SVP, Corporate Development and Strategic Communications. Thank you, Liz. You may begin.

Thank you. Good morning, and thank you for joining our third quarter earnings call and webcast. A press release with detailed financial tables as well as our quarterly slide presentation are available at calaris.com. Please be aware that 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, we will 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 on our earnings release and on calaris.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 Jack Calandra, 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? Thank you.

And good morning, everyone. Earlier today, we reported third quarter sales and earnings. We were pleased to deliver organic sales growth led by our brand portfolio, and particularly our lead brands. Sales trends also improved sequentially as Famous Footwear. Both segments of our business posted double-digit owned e-commerce performance with strong customer growth, enhanced targeting through our customer data platform, and incremental investment to fuel the momentum in trending fashion categories. As expected, tariffs continued to pressure our gross margin and earnings. However, our organic sales performance exceeded our internal expectations heading into the quarter. This is also the first quarter where our total financial results include Stuart Weitzman. It is important to remember that we are operating under a transition service agreement with Tapestry until we can fully integrate the brand into the Caleres ecosystem. I will speak in a moment about our plan to bring the brand to breakeven in 2026 and profitability thereafter. But we will incur temporary elevated, and in some cases, duplicative costs during this period. And will not be able to unlock synergies or cost savings for the most part until we fully integrate in February year. That said, we are pleased to be working with a highly engaged Stuart Weitzman team side by side to improve operating performance. Stuart Weitzman is an iconic brand with unique consumer resonance. Aligning with our strategic focus on premium contemporary, direct to consumer, international business. In addition, it represents a transformational moment for Caleres. With this acquisition, our brand portfolio represents nearly half of our sales while continuing to generate more than half of our operating earnings. We realized that scale is important in today's operating environment and leveraging that scale through an efficient operating structure matters more than ever. For this reason, we are taking decisive…

Thanks, Jay, and good morning, everyone. During today's call, I'll provide additional details on third quarter results, and our expectations for the fourth quarter. Please note my comments will be on an adjusted basis and will highlight where they exclude Stuart Weitzman. For the third quarter, sales were $790.1 million, up 6.6%. Sales on an organic basis, excluding Stuart Weitzman, increased 0.4%. Organic sales increased in brand portfolio, and declined in Famous. Both segments saw an improvement in the trend versus 2Q. Sales for Stuart Weitzman in the quarter were $45.8 million. Brand Portfolio sales were up 4.6% on an organic basis and 18.8%, including Stuart Weitzman. Lead brands in total excluding Stuart Weitzman, grew about 10% in North America, and 12% on a global basis. We saw strength in premium brands and declines in our more value-oriented brands. Tariffs did not have a meaningful impact on sales in the quarter. Famous sales were down 2.2% with comparable sales down 1.2%. Comparable sales increased 1% in August the largest month of the quarter, and declined about 3% in September and October, as expected. Consolidated gross margin was 42.7%, down 140 basis points versus last year, and was driven by lower margins in both segments. Stuart Weitzman was modestly accretive to gross margin. Brand Portfolio gross margin was 42.3%, down 150 basis points to last year, due to higher tariff-related costs and an unfavorable wholesale customer mix. Excluding Stuart Weitzman, gross margin was down 200 basis points, and the impact of tariffs was about 175 basis points. Famous gross margin was 41.6% down 130 basis points to last year, due to more clearance days additional LIFO and other inventory reserves, and an unfavorable channel mix with stronger e-commerce sales. SG and A expenses increased $42.6 million to $311.3 million. Approximately $10…

Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press 2 if you would like to remove your question from the queue. And for participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Our first question is from Dana Telsey with Telsey Advisory Group. Please proceed.

Good morning, everyone. Couple things. As you think about Stuart Weitzman and what you're finding under the hood and what the opportunity is going forward into 2026 and beyond. And obviously, one happened this past quarter and what you're guiding to, how do you whether it's the team or the product, how you're thinking about their retail and wholesale portfolio. A year from now, if we're sitting here, what does the business look like Jay? And how do you think of what the opportunity is? Is there more on margin, on top line? How are you thinking about it? And then on the Famous Footwear side of the business, encouraging to hear about the frankly, the AUR and even the traffic. What's happening on the fashion side of business given the other categories out there? How is that shifting and what you said about athletic? And then I just have one follow-up on the brand portfolio. Thank you.

Hi, Dana. So I'll start with Stuart Weitzman. And first, we plan to achieve, obviously, a better 2026 through a combination of gross margin improvement as we get past the inventory cleanup and really SG and A reductions. And as we kind of commented, there are really reductions coming through as we take away the duplicative and elevated costs from the TSA going away. And then savings in distribution, logistics, facility, the retail stores, and back office leverage. So we feel very good about working with them. We enjoy working with the team. It's a natural fit, and we've really been spending you know, really working side by side, as I said in my call. About it. When we look at the fundamentals of the business, the consumer is responding well. The product is well. These are all things to keep building on. The marketing is resonating with consumers. And even we've seen on a comp store sales business in our North America retail stores, some really nice progress just by getting what I would call a global brand assortment going. So we have a lot of opportunity as I look forward into the business, although we're certainly not, you know, fully done with the twenty sixth you know, outlook for this brand. The complete feeling on this is one of of very much positivity. We feel there's more wholesale opportunity as we really work for all of the accounts. A lot of them are our same, customers that we work within our brand portfolio. Feel there's more opportunity and, direct to consumer on digital as we really, try to work through some best practices on that particular, piece. And then finally, we we see an opportunity. The Europe piece of it, feel is is in good shape and really…

Got it. And then I think you'd mentioned in the prepared remarks something about women's underperforming and athletic slightly positive. What are you seeing in women's? Because like you just mentioned, we're seeing and hearing about strength and fashion for women.

Yeah. So, clearly, you know, our our key strength in Famous, particularly in the third quarter, driven by athletic. We still have that back-to-school month in that. And for sure, our Jordan business was explosive, in that moment. So that along with many of the you know, key athletic brands we've seen, nice performance in Q3. We do feel an to build back our, our fashion business in fourth and third and fourth quarter. And, with the leadership team in Famous Footwear right now with marketing supporting that, we're seeing some nice proof points. The good news is is that the key brands that we're still working are still working there, and our holiday, marketing, which has really featured a lot of these big items, has connected very nicely with the consumer. And glad to see excuse me, that our that our business really quarter to date is on a flat comp basis. So that's really exciting too. So lots coming through, but it is it's really a lot of the big trends that are resonating are resonating with our consumers and then new brands and premium brands are growing fast.

Got it. And just lastly, Jack, on the margins, when you think about gross margin, for Famous and Brand Portfolio the SG and A, any markers that would be different going forward than what happened in this third quarter and what does it mean for the balance sheet? Thank you.

Yeah. Dana, so in terms of in terms of the gross margin, we are expecting improvement in Q4 in the overall consolidated gross margin, as I referenced. And really expecting to see that from both both businesses. So in the case of Famous, while we think the IMUs will largely be similar to the third quarter, we are expecting improvement from shrink, which is something that we've been focused on for a little while in bringing that down as well as the LIFO reserve that I one of those inventory reserves. So we are anticipating in Q4 Famous to do better than the down 130 basis points it did in Q3. And then in brand portfolio, while we expect the tariff impact to be about the same, that 175 basis points. We expect more favorable channel and customer mix that's gonna allow us to to further improve that that down 200 basis points without Stuart Weitzman that we we posted in Q3.

Thank you.

Our next question is from Ashley Owens with KeyBanc Capital Markets. Please proceed.

Hi, great. Thanks for taking our questions. Wanted to just start really quickly, on the Stuart Weitzman inventory. I think just doing the math with some of the clarifications you gave in the PowerPoint deck we're sitting at. A little bit north of $75 million on the balance sheet today. Could you just help us dissect how much of that needs to be worked through over the next five months to get to really healthy levels, and then what the promotional or discounting is gonna look like to move through that product while still protecting that brand?

Thanks. Yeah. As this is Liz. I I'm not sure we're gonna give the full detail, but I would say, like, broadly, if you think about the inventory that came over, it's there's maybe a quarter to a third of it that that we would put in that kinda aged in excess category. And as as you'll see in our financial filings, as the valuation firm has looked looked over the value of the inventory coming through. It's still in that kinda $85 to $90 million that we saw when we acquired it, though that includes, you know, the step up. So that that is where they're pegging it in terms of what they think the the value of that inventory is. Right now. I'll let Jay answer the question about how we're thinking about disposing of it in a, you know, in a way that doesn't damage the brand?

Yeah. We think that we really are know, we're working on it from a multiple I would say, action basis. The inventory is global, so that requires different strategies in different places. But again, it is a and we were are taking the hard steps to do it. We think we're more than two-thirds of the way there in terms of really nailing that, but that will be something that you'll see most of that action move through the fourth quarter on Stuart Weitzman, meaning we've we've sold a lot of it. But, again, the shipping will take place in the balance of the year, and we are trying to do a lot of that before as you can imagine, we come into our Caleres facility in terms of you know, integration.

Okay. Understood. Just a follow-up. Maybe more structurally, as we look beyond some of the moving pieces, over the past two years, just how should we think about the company's normalized earnings power once you're through this transition period with STORE? And then within that, which factors do you see contributing the most to rebuilding that Any directional guardrails you can provide on what a more sustainable profile looks like Thanks.

Well, I think our long-term strategy is continuing to focus on our brand portfolio and particularly the lead brands in terms of driving through you know, more profitability and more growth coming through there. We again, are going to fully outline everything in the March piece of it, but obviously, we we're feeling that with the tariffs kind of moving on, we will have better results in 2026. And then for sure, as we kind of outlined, we are working very much on these I would say, the SG and A across the company as we really put these centers of coming through so that we can return to growth in a more way. And those are the key pillars. Dramatically growing our international business. Remember, it's our smallest one, but it offers us the biggest growth there. And then probably the latest one is just how much we take through direct to consumer and that favorable profitability, particularly on our brand side is coming through very nicely. And then with Famous, we're working on a lot of things, but we're really gonna be looking at, you know, lower growth and and really working on just improving the profitability on that segment of our business. As we continue to improve the brand mix and the assortments there.

Alright. That's super helpful. Thank you. I'll pass it along.

Our next question is from Mitch Kummetz with Seaport Research. Please proceed.

Excuse me. Yes. Thanks for taking my questions. Jay, in your prepared remarks, you talked about taking actions to go into next year as clean as possible. And then you would expect to drive growth next year. Could you elaborate on what you mean by growth? Is that mainly growth for margins, particularly on the gross margin side. So can you impact that a little bit? Are you expecting tariffs to be kind of a net positive year over year next year given some of the challenges in the back half of this year? And also, is there margin opportunity on, you know, being, you know, less promotional next year.

Well, I'll let Jack answer some of the details on where that is. But for sure, we are looking forward in a better '26 just to kinda qualify my my remarks, first of all, we spent a lot of time really trying to get Stuart Weitzman to a place where we think we're leaving behind some of the you know, the inventory pressure and other cleanup that we're doing there and moving forward in a more positive way. So that's work that we're doing. But across the portfolio, we are seeing some real lead brand strength as we've demonstrated and we think it's certainly, well, not gonna get everything on gross margin back, we do feel that we're gonna be in a much better place. Sure. We're not guiding 26 right now, but that's what we see as we so far. And then finally, we do have you know, structural SG and A savings coming through that we feel are necessary to run our business more profitably and efficiently.

So Mitch, I would just say that you know, we've talked about the lag impact of the actions we've taken, on mitigating the tariffs. And we certainly expect that we're going to see improvements in gross margin in 2026 as a result of that. I would say though that, you know, given that the incremental tariffs that had been put in place this year range from a low of 19% incremental to 50% incremental, we, at this point, I would say, haven't offset all of that through the actions we're taking on gross margin alone. That's why we're also looking at other SG and A opportunities so that we can keep the impact of tariffs neutral from an operating margin perspective.

And then just to clarify, Jay, when you say drive growth, in 'twenty six, do you mean on an organic basis? Because obviously, if you're going if if Stewart is going from dilutive to breakeven, obviously, that implies growth on that business. But do you think that organically, you will see growth in 'twenty six?

We will know, be certainly looking for organic growth within particularly as we've demonstrated some of our lead brands that we think are continuing to grow that we're investing in. But, again, we're we're, not guiding on 2026, so I think that's probably the right piece to it. But to answer your question directly, yes. Organic growth is something that we are targeting for next year.

And then on store, you mentioned breakeven. Next year. When you think about the longer-term margin profile for that business, do you expect it to be kind of at least in line with the the the grip the the margin on brand portfolio as an enterprise? You think it can be better than that? And is the biggest opportunity going from breakeven to something better mostly on the SG and A side, or is it really kind of equally across the board?

I think for sure, we see I would say it's safe to say that we would be targeting where our brand portfolio average comes through. I think that we feel a we could see a pathway to it you know, notwithstanding anything else that would come in the future. But, certainly, it's a place that historically the brand has been. And, we really feel that we will find it that way in in really a new way of working with them. So I think, know, that's why we're we're so committed to, I think, getting all of these would say, the best of the Caleres capability structure into Stuart Weitzman so the team there can really focus and on growth and really continuing to try to make this, business as strong as possible. But I would say that's that's probably fair to say for right now.

Okay. Thank you.

This now concludes our question and answer session. I would like to turn the floor back over to Jay Schmidt for closing remarks.

Thank you for your continued interest in Caleres. Before we close, I want to recognize the dedication of our teams across the company have shown tremendous determination and openness to new ways of working as we bring Stuart Weitzman into the fold. We know we will be operating differently in 2026 and going forward. And the excitement and energy around this is palpable. I am deeply grateful for everyone's commitment to making that happen. It has been a difficult year, and we will look forward to a more profitable 2026. Thank you.

Thank you. This will conclude today's conference. You may disconnect at this time, and thank you for your participation.