Caleres, Inc. Aktie

Greetings, and welcome to Caleres' First Quarter 2026 Earnings Conference Call. [Operator Instructions] As a reminder, this conference call is being recorded. I would now like to turn the conference over to your host, Liz Dunn, Senior Vice President, Corporate Development and Strategic Communications. Thank you. You may begin.

Thanks, Rob. Good morning, and thank you for joining our first quarter earnings call and webcast.

A press release with detailed financial tables as well as our quarterly slide presentation are available at caleres.com. Please be aware 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 operating 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 in our earnings release and on caleres.com. The company undertakes no obligation to update any information discussed on this call at any time.

Joining me today are Jay Schmidt, President and CEO; and Dan Karpel, 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?

Good morning. Earlier today, Caleres reported first quarter sales and earnings. Earnings per share exceeded our guidance, driven by strong sales and gross margin results in the Brand Portfolio segment. In the Brand Portfolio, the quarter demonstrated the power of our strategic growth sectors with broad growth across channels and geographies supported by our centers of expertise. Lead Brands outperformed, but the performance was solid across our Brand Portfolio with most brands delivering growth in both revenue and profit.

This segment also saw significant gross margin expansion, reflecting strong brand and channel mix, tariff mitigation efforts, lower current tariff rates, continued operational execution, improved product mix and disciplined inventory control. And once again, the Brand Portfolio gained market share in the quarter for women's fashion footwear according to Circana.

At Famous Footwear, results were more challenging amid a softer consumer and macroeconomic backdrop. However, we continue to see strong e-commerce growth with sales up nearly 10%. We also made progress on our strategy to add more elevated brands and products that strengthen Famous Footwear's relevance and market position. And in the quarter, our FLAIR remodel saw accelerating outperformance versus the fleet with stores opened less than a year ago, outperforming non-FLAIR stores by 9 points and total FLAIR stores outperforming by 7 points. And during the quarter, according to Circana, Famous gained market share in Shoe Chains both overall and in Kids.

Turning now to more detail on the first quarter. Brand Portfolio sales on an organic basis increased 5.8% in the quarter and 20.6% when factoring in Stuart Weitzman. Lead Brands grew 7% organically and represented nearly 60% of organic Brand Portfolio sales. Owned e-commerce continued to see growth, and our international business was up.

Last year, as we reported, we engaged an outside partner to ensure we were capturing all the synergies as we integrated Stuart Weitzman. At the same time, they analyzed our entire Brand Portfolio to find ways to increase efficiency and effectiveness.

As a result of that work, we created several new centers of expertise. These include International, our biggest growth vector, specialty retail operations, which is an increasing focus with 3 of our 5 Lead Brands operating retail stores. In digital, where we expect to continue to see outsized growth.

In marketing operations where we are successfully using our CDP and improving our media efficiency across all our brands. And planning and costing, where we are focused on improved inventory management to drive stronger gross margins. As we discuss our results today in the Brand Portfolio, it is important to keep in mind the structural work we completed to drive these results.

Now for the Lead Brands highlights. First, Sam Edelman delivered double-digit top line growth, both domestically and internationally. Performance was strong across both existing and new doors, complemented by successful shop-in-shop rollouts and other distribution gains. The consumer reaction to the brand's spring fashion was very positive with standout increases in both casual and dress, solid results in sandals, and continued traction from both newness and key iconic styles.

In direct-to-consumer, full price selling at higher average unit retail supported strong margins. The brand gained significant market share in the quarter in women's fashion footwear coming in at #9 for the quarter according to Circana. Internationally, growth was driven primarily by our joint venture in China and the brand is gaining traction around the globe. We are building momentum in our handbag business with upgraded materials and expanded global distribution.

We also continue to be pleased with the progress we're seeing with our Sam Edelman fragrance lines. From a brick-and-mortar perspective, we ended the quarter with 113 Sam Edelman stores including 54 owned and 59 franchise with 109 being international. Stuart Weitzman made meaningful progress in the quarter with results that support our continued expectations for breakeven in fiscal 2026 and lay the foundation for our long-term aspirations for the brand.

As we mentioned last quarter, we successfully integrated Stuart Weitzman's global business onto Caleres platforms in February with minimal disruption. We made progress in the first quarter as sales and profit exceeded our internal expectations, and cleaner, more current inventory supported strong gross margins that were accretive to the total Brand Portfolio gross margin rate. We saw strengthening trends in both direct-to-consumer and wholesale, driven by key franchises and core icon styles and improving conversion following our e-commerce transition.

Internationally, trends in China also improved as product and marketing became more closely aligned with the brand's global positioning. The China business is also seeing early success from an expanded sneaker assortment powered by Caleres' sourcing and product capabilities and those sneakers are planned for continued growth. In Europe, we are renewing our engagement with key luxury partners, including the opening of a new shop in Printemps during the quarter.

Looking ahead, we are excited to celebrate the brand's 40th anniversary this fall with a global campaign and engaging activation. Stuart Weitzman ended the quarter with 71 stores, including 23 in North America and 48 in China. Our Allen Edmonds brand delivered nearly 20% first quarter sales growth with broad-based momentum across the business. Brick-and-mortar stores, owned e-commerce and wholesale, all posted solid gains in the quarter with healthy demand, particularly in dress, loafers and [ handbags ].

During the quarter, Allen Edmonds gained market share and moved up 5 points to the #11 brand in the $200-plus segment for men's fashion footwear in the premium channel, according to Circana. Our Reserve Collection, the brand's most elevated product offering continued to scale meaningfully attracting high-value customers who shop more frequently, spend more annually and demonstrate higher loyalty engagement.

We also continue to be pleased with the outperformance from our Port Washington Studio stores. And shortly after quarter end, we opened our most recent location on King Street in Charleston, South Carolina. These 18 stores outperformed the broader 58 store fleet by 11 points in the quarter.

Naturalizer had a solid quarter with modest growth, led by continued strength in owned e-commerce. The brand's collaboration with June Ambrose drove a step-up in traffic and sales on naturalizer.com including strong new customer acquisition and broader brand awareness among younger, higher income and more diverse consumers. Wholesale performance also improved as localized assortments with key partners drove growth and higher average unit retails.

Consistent with broader portfolio trends, sandals and dress shoes led the quarter with consumers responding especially well to on-trend colors and textures including raffia, mesh and woven materials. Looking ahead, the June Ambrose collaboration will continue with additional product drops in August, September and October.

Vionic delivered strong owned e-commerce performance in the first quarter, along with growth at key wholesale partners helping to offset planned declines in value channels. Premium wholesale accounts supported year-over-year gains with expanded assortments, early sneaker launches and exclusive styles. Targeted marketing drove solid sell-throughs across athletics, walking, sandals and casual categories. Consumer response to new products was positive, and the new City Walk sneaker sold out quickly online.

Vionic is leaning further into walking as an ownable category, supported by wellness ambassador, Gabby Reece, and the launch of the Hummingbird style at market this week. It is Vionic's lightest walking sneaker ever. Vionic understands that walking is essential to wellness and has unique biomechanics that are different than in running shoes. Vionic is well positioned to lead in this growing segment.

Moving on to Famous Footwear. In the quarter, total sales decreased 2.5% and comp sales decreased 2.3%, about in line with the low end of our guidance. E-commerce continued to outperform stores, up almost 10% as we leveraged our CDP to deliver more personalized customer outreach. Famous sales results were strongest in February. While we saw improving trends leading into Easter, we believe accelerated inflation put pressure on consumer traffic and sales, especially as we moved into April.

From a divisional perspective, Kids performed best, followed by men's, while women's and accessories underperformed the total business. Fashion outperformed athletic with more pronounced softness in women's athletic, while sandals were strong across both adults and kids categories.

On the brand side, our Elevate-and-Edit strategy continues to resonate with our Famous consumers. Sales of Elevated products increased nearly 50% in the quarter and penetration reached almost 20% year-over-year. We saw growth in the quarter from Jordan, Skechers, Birkenstock, New Balance, Reef and Brooks, while several brands in the Caleres portfolio finished among Famous' top 15 best-selling brands.

We continue to expand newness and key product launches across the assortment which we believe positions us well heading into the balance of the year. We showcased our brand elevation strategy with targeted brand activations in the quarter. We were especially pleased with the first Skechers takeover in February. These exclusive high-impact events drive strong visibility and brand excitement which we amplify through media, in-store and across digital.

We've seen similar results with the Birkenstock takeover that began in April and continued into May. Considering the investments so far this spring, these events are delivering meaningful returns, and we have at least 5 additional brand events planned for the balance of the year.

Famous continues to enhance its consumer experience through the FLAIR format. We ended Q1 with 59 FLAIR locations, which generated a 7-point sales lift overall and a 9-point sales lift for stores converted in the last year. These results continue to reinforce our confidence in the FLAIR strategy and underscore Famous' ability to amplify elevated brands and products. As we evaluate the optimal markets for FLAIR, we are shifting our focus to FLAIR openings in the near term, which generate even higher returns than remodels. We plan to end the year with approximately 65 FLAIR locations.

So our first quarter results provided encouraging evidence that our plans are taking hold. Caleres made meaningful progress against our strategic growth objectives, including lead brands, international, direct-to-consumer, our Elevate-and-Edit strategy and enhancing consumer experiences through FLAIR. We've made structural organizational changes to ensure our operational execution supports our efforts. We are playing to our strength and investing in our highest return growth initiatives, and we are gaining market share in both segments of our business.

So Dan will walk you through our expectations for the balance of the year in detail, but we continue to view 2026 as a build-back year, characterized by relatively modest organic sales growth and meaningful earnings recovery. In the Brand Portfolio, our momentum is building. Product strength, brand [indiscernible] and marketing investments are set up to drive growth in wholesale, B2C and international for the balance of the year.

At Famous Footwear, while the environment is more challenging, we are encouraged by continued e-commerce growth, the progress we've made with our Elevate-and-Edit strategy and our efforts to enhance the shopping experience through FLAIR. We will continue to expand our penetration of elevated brands and products and we have exciting brand takeovers planned for the remainder of the year. And as always, we will lean into our strength in Kids heading into this important back-to-school season.

As we move into the second quarter, we feel good about our overall performance and our ability to deliver on our guidance for the year. With that, I'll now turn it over to Dan Karpel, who officially assumed the CFO role in May, for a more detailed view of our financial performance and our outlook for the balance of 2026. Dan?

Thank you, Jay, and good morning, everyone. During today's call, I'll provide additional details on first quarter results as well as our expectations for Q2 and the full year. Please note that my comments will be on an adjusted basis, and I will note when they exclude Stuart Weitzman.

For the first quarter, sales were $667 million, up 8.5%. Sales on an organic basis, excluding Stuart Weitzman, increased 1.4%. Organic sales increased in the Brand Portfolio segment and declined at Famous Footwear. Sales for Stuart Weitzman were $43.9 million. Brand Portfolio sales were up 5.8% on an organic basis and 20.6% including Stuart Weitzman. Lead brands in total, excluding Stuart Weitzman, grew about 7% with growth in both North America and international. Famous sales were down 2.5% with comparable sales down 2.3%.

Comparable sales increased low single digits in February and decreased mid-single digits in the combined March-April period. We ended the quarter with 812 store locations as we closed 10 and opened 1 during the quarter.

Consolidated gross margin was 47.3%, up 200 basis points to last year, driven by the Brand Portfolio. Brand Portfolio gross margin was 49%, up 520 basis points to last year, reflecting favorable brand and channel mix, lower current tariffs, the continuation of our tariff mitigation efforts and lower markdowns. Famous gross margin was 43.8%, down 150 basis points to last year with a greater proportion of clearance sales in the quarter, higher markdowns and higher shipping costs from a larger mix of web sales.

Consolidated SG&A expenses increased $27.2 million or 10.2% to $293.7 million. The increase was primarily driven by $25.7 million of expenses related to Stuart Weitzman. As a percentage of sales, SG&A was 44.1% and deleveraged 70 basis points. Excluding Stuart Weitzman, the SG&A rate improved 30 basis points.

Operating earnings in the quarter were $21.7 million and operating margin was 3.3%. Operating margin at Brand Portfolio was 11.1%, up 520 basis points to last year. When excluding Stuart Weitzman, operating margin was 13.1%, up 720 basis points to last year. Operating margin at Famous was negative 0.1%. Our adjusted results excluded $1.8 million of Stuart Weitzman acquisition and integration costs, modestly below our expectation of approximately $2 million as well as the gain related to the sale of a small parcel of our corporate headquarters campus during the quarter.

Net interest expense was $4.7 million, up $0.9 million to last year due to higher average borrowings driven by the acquisition of Stuart Weitzman in August 2025. The weighted average borrowing rate in the quarter was down about 40 basis points to last year. The consolidated tax rate was 33.2% for the quarter.

First quarter earnings per diluted share was $0.38 as compared with $0.22 last year.

Turning to the balance sheet. We ended the first quarter with $37.7 million in cash and cash equivalents, $34.7 million in borrowings and $229.2 million in liquidity. Inventory at quarter end was $609.1 million, up $35 million to last year of which $58 million was from Stuart Weitzman. Excluding Stuart Weitzman, organic inventory was down $23 million, with Brand Portfolio down 12.6%, and Famous inventory up 3%.

Now turning to our outlook. We continue to face an uncertain tariff environment. Our guidance is built on the assumption that new tariffs will be enacted in July 2026 that will largely replace the prior IEEPA tariffs. Given the uncertainty around potential additional tariffs, we believe this is prudent. We remain flexible in our sourcing strategy, and we'll continue seeking the best country matrix for our quality and price needs.

Additionally, with elevated inflation the risk of economic slowdown persists. The low end of our guidance anticipates continued softness related to the economy, but it does not anticipate growing issues. Lastly, we currently estimate that we are eligible to receive approximately $57.8 million plus interest in refunds related to the invalidated IEEPA tariffs. Although we have begun to receive refunds, there can be no guarantee that the refunds will equal the full amount of the IEEPA tariffs paid and any refund may be subject to further legal and regulatory developments.

As a result of this uncertainty, we have not recorded a receivable related to the potential recovery of the IEEPA tariffs paid, nor have we reflected such recoveries in our guidance for the second quarter or full year.

For the second quarter, we expect consolidated sales to increase mid- to high-single digits compared to last year. For Brand Portfolio, sales up in the mid-20s percent range, inclusive of low double-digit organic growth. For Famous, sales and comparable sales down mid-single digits. We anticipate opening 3 stores and closing 2 during the quarter. Consolidated gross margin to improve 345 to 375 basis points compared to last year.

SG&A deleverage of 325 to 375 basis points compared to last year, driven by the inclusion of Stuart Weitzman, lower sales at Famous and incremental incentives related to the performance of the Brand Portfolio. Tax rate of 26% to 27% and GAAP earnings per diluted share of $0.32 to $0.38.

For the full year 2026, we expect consolidated sales up low to mid-single digits compared to last year. Brand Portfolio sales up low double digits compared to last year and up mid-single digits organically. Famous Footwear sales and comparable sales down low to mid-single digits compared to last year. We expect to open 12 stores and close 15 during the fiscal year. Consolidated gross margin up 220 to 260 basis points compared to last year.

SG&A rate flat to slightly deleveraged compared to last year, with increases in incentive compensation and other investments, largely offset with cost-saving measures. Interest expense of $18 million, and a full year tax rate of 27% to 28%. GAAP earnings per diluted share of $1.44 to $1.69 and adjusted earnings per diluted share of $1.40 to $1.65. CapEx of approximately $50 million to $55 million which we will continue to evaluate based upon macroeconomic conditions and performance.

With that, I'd now like to turn the call back over to the operator for Q&A. Operator?

[Operator Instructions] Our first question comes from Mitch Kummetz with Seaport Research Partners.

Let me start on the guide. The full year sales guide hasn't changed but you changed your outlook by operating group a little bit, I think. Can you just maybe go over that?

Yes, so the question was, your full year guide hasn't changed, but it has changed by operating group. Is that correct, Mitch?

Yes. And I was just hoping you could address the changes by operating group. What are you seeing by operating group that led you to make those changes in terms of the guidance?

Well, I think that we're seeing a lot of strength in our Brand Portfolio, and we continue to see optimism on all of the strategies coming through and don't see that really slowing down materially. And then over at Famous and Dan can fill in the fact numbers here, but we're trying to keep it more realistic to where our current trend is just to make sure that we don't -- we've kind of got all the things looked at appropriately in the company. So Dan?

No, I think that's exactly right, Jay. Just to add a little bit of color. As we said in February, we saw positive store-for-store comps. And then we had seen a decline in that March, April period. We've continued to be thoughtful about that guide on the Famous side of the business, so that we ensure we're managing the business, controlling inventory, things of that nature. And offsetting that was the strength that you saw in the first quarter related to Brand Portfolio, we continue to see that momentum. And that's really how you get the balance on the sales guide.

And then as far as Famous goes, the softness that you experienced in March and April, has that continued into May? And what are you assuming for back-to-school? Are you assuming some sequential uptick in the Famous business with back-to-school, obviously, being an event period and consumers somewhat showing up for events versus nonevent periods?

Yes, Mitch. So we've seen, as we've guided in the second quarter, down mid-single digits there. And for the full year, we've guided low to mid-single digits. And we've seen at time of back-to-school and some of our specific sale periods, our performance being very strong. It's a little bit in the gaps that we're seeing a little bit off of that. So yes, we do have conservative guidance going forward. And we've modeled that in where we're performing better in our peak periods like back-to-school and the holiday season.

Okay. And then maybe just lastly for me. On the gross margin guide, you provided it for both the second quarter and updated it for the full year. Again, maybe speak to the increase in the gross margin guidance for the year? And can you also provide an updated outlook by operating group? I think previously, you had said sort of Famous Footwear flattish gross margin and BP up. I'm wondering if that's changed. And also, can you give us an outlook by operating group for the second quarter in terms of gross margin?

Yes. So Mitch, maybe some color on that. In the second quarter, as we shared in the script, we see that expansion largely driven on the BP side, and we're seeing that in our brand and channel mix is a big driver for it. We're also seeing a bit of a tariff benefit where we've got mitigation strategies in place, and we're currently operating in an environment with lighter tariffs.

And finally, if you recall last year, our comps year-over-year margins were relatively light in Q2 of last year, as that's when we had some more significant inventory markdowns. So as we think about that guide, you're seeing a pretty big step up on the Brand Portfolio side in margins. And we've guided for the full year, the plus 220 to plus 260 beyond consolidated gross profit. You'll see that continued strength on the Brand Portfolio side.

But there is some -- the bulk of it being structural, but some of it with the volatility in the tariffs, certainly, and that's why you're seeing it. From a Famous standpoint, you're right, we haven't guided that. As we talked in the script, we -- we're being very thoughtful of clearance and being thoughtful that we're controlling that inventory. We do have some modest clearance as we anticipate the uncertainty in that marketplace. And so Famous, you'll see kind of flat to slightly down with the bulk of the difference being in Brand Portfolio.

Our next question comes from Dana Telsey with Telsey Advisory Group.

Jay, as you think about the overall footwear market, how did it grow this quarter? What did you see? And certainly, the shift to fashion from sneakers and some of the brands you called out from Famous seems to be there. And also, that seems to be benefiting the Brand Portfolio. What are you seeing in terms of full price versus promo sales at Brand Portfolio? And how is the distribution of Brand Portfolio changing given changes in the environment, whether with Bloomingdale's, with Nordstrom, given the reduction of brands and vendors that are being sold in Saks?

And lastly, as you think about unpacking the gross margin and SG&A through the balance of the year, how are you incorporating the potential for tariffs and tariff refunds into the landscape? I just have one follow-up after.

Okay. So first of all, you're right, Dana, we are seeing fashion really take on strongly. As I believe I commented there, we're seeing nice growth in categories just outside of sneakers. We saw -- in many of our brands, we saw a return to dress, which we think will have long standing trend there, which is great. Our sandals business, even despite some weather issues, was pretty good all the way through. And I think that reflects in both dress and casual new offerings in that category.

And at the same time, our casual business, particularly in flats, was very, very strong in the quarter. The sneaker business is kind of tricky on the Brand Portfolio side because overall, it was down about mid-singles from where we were last year. And I think that just reflects a little bit of shift, but the combined effort is all positive. We do have new offerings in all of our key fashion brands and some of the other ones that are also taking hold.

So just kind of seeing it as, I think, a year ago, it was much more heavily -- heavily focused on consumer purchase on a sneaker versus now the consumer is shopping across more, which, as you know, is very good for our company and our Brand Portfolio and truthfully for the whole business. So I think we're continuing to see that going over to how we're doing with the Brand Portfolio. Our market share was quite strong. It was stronger in the more premium part of our business.

But I would say, overall, we did see good results coming through. So that's encouraging also that as we look out there, we are taking more share in there. And I would say that was -- going to turn over the last one, I believe, over to Dan to talk about how we connected on our guidance and what we factored in and out.

Sure. Dana. I think the two points I had one of them was about the BP margins and just sharing again the substantive -- as we guided when we closed 2025, we had a lot of structural improvements and had planned BP gross margins up. And in fact, we've realized that. And I think as we've looked at our performance in the first quarter and the balance of the year, we feel comfortable and that's where you see a bit of the increased guidance there in that BP margin expansion.

The other thing you had asked two things about tariffs, one of them related to how we thought about them. And we've assumed the IEEPA tariff rates largely come back in line at the end of August -- by the end of July, I'm sorry. And then your other question about the tariff refunds, as we had mentioned in the call script, we've filed claims for a little over $57 million. We have not factored that into our earnings guidance at all. We're thinking of that as a gain contingency and we'll continue to report it as we collect it as we go forward.

Got it. And then any follow-up just on rising energy prices. How is that impacting freight costs and how you're planning?

I think right now, all of that work is currently in total, we're seeing, obviously, a lot of ways that actually energy can -- or the gas price can affect some of the -- not just only the freight piece but also some product movements, we're looking to offset those as best we can. But I think that's still something that we're currently working on with all of our -- I think all of the moving dynamics that are happening right now in the industry and -- but we have, I think, given ourselves some room, so we feel comfortable about the guidance that we delivered in there. So we have taken that into effect.

We have reached the end of the question-and-answer session. I'd now like to turn the call back over to Jay Schmidt for closing comments.

Okay. Thank you for your continued interest in our company. Before we conclude, I want to recognize our Caleres teams around the world who continue demonstrating the focus, the adaptability and commitment needed to navigate this rapidly changing environment. The progress we made in the first quarter reinforces our belief that the strategies we put in place are strengthening the foundation of our business and positioning us to create long-term value for our shareholders and we look forward to updating you in the coming quarters. Thank you.

This concludes today's conference. You may disconnect your lines at this time, and we thank you for your participation.

Greetings, and welcome to the Caleres Inc. Fourth Quarter 2025 Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded.

I would now like to turn the conference over to your host, Liz Dunn, Senior Vice President, Corporate Development and Strategic Communications. Thank you. You may begin.

Thank you, Melissa. Good morning. Thank you for joining our fourth quarter earnings call and webcast. A press release with detailed financial tables as well as our quarterly slide presentation are available at caleres.com.

Please be aware 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 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 caleres.com. The company undertakes no obligation to update any information discussed on this call at any time.

Joining me today are Jay Schmidt, President and CEO; and Dan Karpel, Senior Vice President and Interim CFO and CAO. Our call will begin with prepared remarks, followed by a Q&A session to address any questions you have.

With that, I'll turn the call over to Jay. Jay?

Good morning. Earlier today, Caleres reported fourth quarter sales and earnings. Earnings per share exceeded our guidance with sales modestly above our guidance and gross margin better than expectations. Brand Portfolio sales performance in the quarter was driven by continued strength in owned e-commerce and international performance, underscoring key strategic growth vectors for the company. Lead brands once again outperformed, reinforcing their role as Caleres' primary growth engine, and we once again gained market share.

At Famous Footwear, we continue to see encouraging signs that our strategic initiatives are working. Our flare remodels are consistently outperforming the fleet and remain an important growth lever as we elevate the in-store experience. We leaned further into our strategy to elevate and edit the brand and product assortment, and we're seeing consumers respond to a curated mix of premium and demanded brands. And for the quarter, we gained market share in shoe chains. We were pleased that Caleres ended 2025 with some momentum in both segments of our business. 2026 will be a build back year where we begin to build back our earnings power, driven by the strategic growth vectors and initiatives that are already in place and working. We'll say more on that in a moment, but first, let me provide more detail on fourth quarter performance.

Brand Portfolio sales on an organic basis increased 1.5% in the quarter and 20.3% when factoring in Stuart Weitzman. Lead Brands in total were up 2% organically and represented nearly 60% of the Brand Portfolio sales. Owned e-commerce continued to see outsized growth and our international business was strong. According to Circana, our Brand Portfolio gained significant market share in both women's fashion footwear and total footwear during the quarter. Boots, particularly tall shaft were a standout category, complemented by strength in flats and loafers, solid performance in dress and continued momentum in sneakers. Sam Edelman delivered another very strong quarter with sales growth that exceeded expectations and outperformed the broader premium market.

Performance was broad-based across categories, anchored by exceptional results in dress, casuals and boots where the brand saw success in both proven icons and new styles. Wholesale sales exceeded plan, reflecting strong demand across core product franchises. Owned e-commerce saw double-digit growth and higher full price selling in the quarter, closing out a record setting year. Sam Edelman's licensing initiatives, added incremental growth and visibility highlighted by a successful fragrance launch with rapid sell-through and expanded national distribution. We continue seeing positive results from our Sam Edelman stores, which now tally 111 doors, 56 owned and 55 franchised with 107 of them international. Stuart Weitzman delivered solid fourth quarter progress as we continue strengthening the foundation of Caleres' newest lead brand.

We successfully integrated Stuart Weitzman onto Caleres platforms as we completed the quarter, both on time and on budget. During this transition process, we implemented a new organization structure, moved teams into new headquarters in New York and Shanghai, completed the relocation of our U.S. and Canadian warehouses and liquidated a significant volume of aged inventory globally. Operationally, fourth quarter sales were driven by core boots and booties alongside new dress and social styles. As we clear out aged inventory, we are successfully reducing discounting and flowing newness to support improved specialty retail and e-commerce performance.

At quarter end, Stuart operated 73 retail locations worldwide, including 50 in China and 23 in North America, with the latter spanning full price outlet and shop-in-shop formats. We remain committed and confident in our plan to bring the brand to breakeven in 2026. Allen Edmonds delivered a very strong fourth quarter with broad-based growth across all channels and continued momentum with the consumer. Performance was led by strength in brick-and-mortar stores, own e-commerce and wholesale with particularly strong demand for dress, loafers, sneakers and boots. Wholesale momentum driven by key national partners, strong store level productivity and expanded distribution continued.

The Reserve Collection, the most elevated product in the Allen Edmonds brand continued to scale meaningfully, attracting a highly valuable customer who shops more frequently, spends more annually and shows higher loyalty engagement. This special collection is available at the majority of our 58 Allen Edmonds stores including our 18 Port Washington Studio stores, which continue to outperform, reflecting the power of an elevated store experience and recent enhancements to the format. Naturalizer made meaningful progress in the fourth quarter with improving e-commerce sales momentum and new and retained customer growth. Owned e-commerce performance was a standout, supported by strength across on-trend product categories, including boots, dress, sport and sandals, with particular success in tall boots.

Marketing efforts were increasingly focused and effective with refined targeting strong influencer content and compelling storytelling, driving higher-quality traffic, higher conversion and higher average order value. These efforts translated into customer growth across both new and returning shoppers with strong engagement from younger and core generations. And shortly after quarter end, we launched our newest collaboration with Casemaker and Style icon, June Ambrose. June's collaboration is building awareness for the Naturalizer brand with new consumers and June's STYLE-LETICS collection sells at significantly higher retails, mostly through naturalizer.com. Vionic closed the fourth quarter with strength in e-commerce and international channels, compelling new product launches and growing interest in sport and performance walking.

Vionic's wearable well-being positioning has high emotional resonance with consumers. We're pleased with the growing momentum in sport lifestyle and performance walking categories, underscored by Vionic's first sport collaboration with wellness advocate Gabby Reece, which we launched in January and supported with a robust marketing campaign. International best sellers in the quarter closely mirrored those in the U.S., illustrating consistent global demand for the brand's key styles. Brand awareness is growing for Vionic, particularly with younger and more affluent consumers.

Moving on to Famous Footwear. In the quarter, total sales decreased 1.2% and comp sales increased 0.1%, in line with our expectations. E-commerce outperformed stores, but average unit retails were up in both channels. We continue to see the Famous consumer respond strongly during peak shopping periods with more positive comps during the holiday period, followed by more modest results in January. E-commerce sales accelerated and were up double digits for the third straight quarter. The launch of Jordan earlier in the year contributed steady momentum throughout the holiday season remaining a top 10 brand and reinforcing Famous' ability to launch leading brands and deliver powerful results.

Famous continues to enhance its consumer experience through the Flair format. We ended fourth quarter with 57 Flair locations, which generated a 4.5 point sales lift overall and a 6-point sales lift for stores converted in the last year. The success of Flair continues to underscore Famous' ability to amplify elevated brands and products. We plan to build on that momentum with additional Flair openings in 2026, ending with a range of 65 to 75 locations by year-end. From a divisional perspective, men's performed best in the quarter, kids performed in line with the total and women's unperformed slightly. However, fashion boots were a standout category in total. Top growth brands for the quarter were Skechers, Jordan, Birkenstock, Timberland, SOREL, Brooks and Columbia.

While our Caleres brands outperformed its Famous footwear with sales up mid-teens and saw a higher margin rate on lower inventory. We continue to make progress on our elevate and edit strategy at Famous with outperformance from premium brands. In 2026, we plan to accelerate this strategy by expanding higher demand brands and products while exiting underperforming labels. We're also expanding immersive brand takeovers that have been driving outsized growth at key points across the seasons with multiple takeovers planned for core brands throughout 2026.

In summary, Caleres made progress on our strategic growth objectives in the second half of 2025, including lead brands international, direct-to-consumer and enhanced customer experience and edit and elevate. Joining us today on the call is Dan Karpel. Dan returned to Caleres as Chief Accounting Officer in 2025 and has assumed the additional role of interim CFO. He is well versed in our company, and I am pleased to welcome him to the call. Dan will walk you through our guidance in detail, but I wanted to provide some color on what we are expecting for the year.

As we look forward, 2026 is shaping up as a build back year characterized by relatively modest organic sales growth but meaningful earnings recovery. We have several encouraging green shoots leading us to a place of optimism. Our market share continues to build.

Our international business is up, and our own e-commerce business is up quarter-to-date across the brand portfolio. Famous Footwear is seeing slightly down comp store sales with e-commerce up high single digits quarter-to-date. Our tariff mitigation strategies have taken hold, and we successfully completed our Stuart Weitzman systems integration, which sets the stage for improved profitability in the brand. We also made progress across our centers of excellence, which we have shifted internally to calling centers of expertise. We are finding the greatest success by deliberately leveraging Caleres' core capabilities at scale. This includes expanding our international platform, accelerating owned e-commerce and establishing more disciplined planning and costing capabilities.

In addition, now that 3 of our 5 lead brands have brick-and-mortar stores, we have launched a specialty retail operations team to elevate performance and the consumer experience. We've also established a marketing operations center of expertise to enhance our data, analytics and media buying. These centers of expertise are helping us move faster and operate more consistently and efficiently. And international specialty retail and e-commerce are where we are seeing some of our earliest improvements with Stuart Weitzman. We see a meaningful opportunity to build on this foundation, not just as it relates to Stuart, but for our whole company as we move through 2026 with more to come.

So while the market remains volatile, based on what we know today, we are providing guidance with a realistic view of the risks and the opportunities ahead of us, including geopolitical risk and tariff changes. Our sales growth is coming from our proven growth vectors and annualized benefit from our recent acquisition and our earnings bridge is clear.

So with that, I will now hand it over to Dan for a more detailed view of Caleres' financial performance and our outlook for 2026. Dan?

Thank you, Jay, and good morning, everyone. During today's call, I'll provide additional details on fourth quarter results as well as our expectations for 2026. Please note that my comments will be on an adjusted basis, and I will note when they exclude Stuart Weitzman. For the fourth quarter, sales were $695.1 million, up 8.7%. Sales on an organic basis, excluding Stuart Weitzman, decreased 0.1%. Organic sales increased in the Brand Portfolio segment and declined at Famous Footwear. Notably, both segments saw an improvement in the trend versus the first half of the year. Sales for Stuart Weitzman were $56.3 million. Brand Portfolio sales were up 1.5% on an organic basis and up 20.3%, including Stuart Weitzman.

Lead Brands, in total, excluding Stuart Weitzman, grew about 2% with growth in both North America and International. Famous sales were down 1.2% with comparable sales up 0.1%. Comparable sales increased slightly in November and December and declined low single digits in January. Consolidated gross margin was 42.9%, down 10 basis points versus last year, reflecting lower margins in Brand Portfolio and relatively stable margins at Famous Footwear. Stuart Weitzman was modestly accretive to gross margin. Brand Portfolio gross margin, excluding Stuart Weitzman, was down 130 basis points due to tariffs as well as markdown allowances, somewhat offset by favorable channel mix. Brand Portfolio gross margin was 41.6%, down 10 basis points to last year, including Stuart Weitzman.

Famous gross margin was 42.5%, essentially flat to last year with greater proportion of clearance sales to total offset by higher clearance margin. expenses increased $48.3 million or 18.3% to $310 million. The increase was primarily driven by expenses of $39 million related to Stuart Weitzman. As a percentage of sales, SG&A was 44.6% and deleveraged 370 basis points. Operating loss in the quarter was $11.6 million, and operating margin was negative 1.7%. Excluding Stuart Weitzman, operating earnings were $0.5 million and operating margin was 0.1%. Operating margin at Brand Portfolio was 2.4% and was 6.8%, excluding Stuart Weitzman. Operating margin at Famous was 0.8%. Net interest expense was $4.7 million, up $0.7 million to last year due to higher average borrowings.

Approximately $1.4 million was interest expense associated with the acquisition of Stuart Weitzman. The weighted average borrowing rate in the quarter was down about 25 basis points to last year. Tax rate was 25.4% for the quarter and 28.9% for the full year. Fourth quarter earnings per diluted share were a loss of $0.36 and earnings per diluted share, excluding the acquisition of Stuart Weitzman or a loss of $0.06. For the full year, sales increased 1.3% in total and declined 2.5% on an organic basis, excluding Stuart Weitzman. The acquisition added $102.2 million of sales during the year. Brand Portfolio sales increased 7.3% and declined 1% on an organic basis. Famous Footwear sales for the full year declined 3.6%, with comp store sales down 2.3%.

Gross margin for the full year was 43.5%, down 135 basis points. Brand Portfolio gross margin declined 170 basis points to 42%, primarily reflecting a 160 basis point impact from tariffs. Stuart Weitzman added 40 basis points to the Brand Portfolio gross margin for the year. Famous Footwear gross margin declined 90 basis points to 43.2%. SG&A expenses for the full year increased $92.5 million or 7.4% to $1.2 billion, primarily reflecting $71 million of Stuart Weitzman expense. As a result, SG&A was 42% and deleveraged 290 basis points.

On an organic basis, SG&A expenses were $1.1 billion. Operating earnings for the full year were $43 million and operating margin was 1.6%. Excluding Stuart Weitzman, operating earnings were $66.3 million, and operating margin was 2.5%. Brand Portfolio operating margin declined 630 basis points as tariffs, SG&A deleverage and Stuart Weitzman dilution all contributed similar amounts to the decline. Famous Footwear operating margin declined 250 basis points with both gross margin declines and SG&A deleverage on lower sales. Adjusted earnings per diluted share were $0.61 for the full year and $1.19, excluding the impact of Stuart Weitzman.

Turning to the balance sheet. We ended the fourth quarter with $29.8 million in cash, $296.5 million in borrowings and $238 million in liquidity. Inventory at quarter end was $610.5 million, up $45 million to last year, of which $57 million was for Stuart Weitzman. Excluding Stuart Weitzman, organic inventory was down $12 million with Brand Portfolio inventory down 6% and Famous Footwear up 2%.

Now turning to our outlook. We continue to face an evolving tariff environment. Our guidance is built on the assumption that new tariffs will be enacted that will largely replace the prior IEEPA tariffs. This could prove conservative. But until we have clarity on the level of additional new tariffs, these assumptions appear prudent. We are maintaining a flexible approach to sourcing, and we'll continue to seek the best country matrix for our quality and price needs. Additionally, the conflict in the Middle East introduces risk to our outlook.

As of today, we are experiencing modest business disruption with our Middle East business partners. The region is less than 1% of our total business, though an important part of our longer-term international growth opportunity. We are carefully monitoring the situation and working with our partners to mitigate risk. However, with oil prices on the rise, the risk of economic slowdown has increased. The low end of our guidance anticipates some slowdown related to the economic impact of the current geopolitical conflict, but does not anticipate growing issues.

For the first quarter, we expect consolidated sales to increase mid- to high single digits compared to last year. For Famous, sales are expected to be down low single digits to flat, with comparable sales down 2% to up 1%. For Brand Portfolio, sales are expected to be up mid-teens, inclusive of low single-digit organic growth. Consolidated gross margin to improve 120 to 140 basis points compared to last year, modest deleverage of SG&A compared to last year due to the inclusion of Stuart Weitzman. With discrete items impacting the quarter, we expect a tax rate of 30% to 32%. GAAP earnings per diluted share of $0.21 to $0.26 and adjusted earnings per diluted share of $0.25 to $0.30 as we expect to incur approximately $2 million in remaining Stuart Weitzman acquisition and integration costs. For the full year 2026, we expect consolidated sales up low to mid-single digits compared to last year.

Famous Footwear sales down low single digits to flat compared to last year, with comp store sales of down 1% to up 1%. Brand Portfolio sales up low double digits compared to last year, inclusive of low to mid-single-digit organic growth when excluding Stuart Weitzman. Gross margin up 140 to 100 basis points compared to last year, driven mostly by the Brand Portfolio as our tariff mitigation strategies improve and with favorable customer and brand mix. SG&A rate relatively flat compared to last year, with cost saving measures largely offset by increases in incentive and merit build back and other selective investments, interest expense of approximately $18 million and a full year tax rate of 28% to 30%.

As a result, we expect GAAP earnings per diluted share of $1.31 to $1.61 or adjusted earnings per diluted share of $1.35 to $1.65 due to the aforementioned Stuart Weitzman acquisition and integration costs. CapEx of approximately $55 million to $60 million that we will continue to evaluate based on macroeconomic conditions and performance.

With that, I'd now like to turn the call back over to the operator for Q&A. Operator?

[Operator Instructions] Our first question comes from the line of Ashley Owens with KeyBanc Capital Markets.

So maybe just starting with the quarter, I know there was concern about potential risk to sales volatility in the bottom line and that didn't really play out here. Could you just help us bridge if there was any volatility recognized and what some of the offsets were? And then more importantly, is there a go-forward risk with the ongoing Saks reps here? How should we think about it as more onetime in nature?

Okay. Ashley, we're having a little bit of a hard time hearing, but your question is we expected more sales volatility in the quarter and it didn't come through. So talk about some of the puts and takes. Is that right?

Yes. Yes, please.

Okay. So first of all, we did provide an estimate mid-January and that did actually play out. We didn't ship Saks for the balance of the month, and we were fully reserved on the bad debt. So however, other areas of our business were strong enough to offset the $0.06 that we did play out. And I think that was a key reason for it. It just came in better. Our gross margin impact on tariffs was 40 basis points in the Brand Portfolio in the quarter, which was also better than our expectation.

Yes, we'll try. We'll clarify if we can.

So for -- just as a follow-up then, as we think about gross margin and the embedded recovery story here, can you help us parse out what's already in the exit rate for the year versus what still needs to come through from either mix or tariff mitigation standpoint in 2026?

Yes. So on the margin, when we think about guidance in 2026, you'll see relatively flat margins on the Famous business. And as it relates to the Brand Portfolio side, we'll see recovery around the tariff side of the business. Also with mix, we think about Stuart Weitzman is incremental, margin accretion because of the margin levels that they play as well as other mix in our lead brands driving that up.

Our next question comes from the line of Dana Telsey with Telsey Advisory Group.

I like the term build back year for 2026. And as you think about the build back year for 2026, on the Brand Portfolio side, how are you thinking about wholesale with Saks, the $0.06 impact, I think you may have expected or up to $0.06 for the year. How you planning that this year? Are you shipping them or not shipping them? And with the market share gains that you saw in shoe chains at Famous Footwear in the fourth quarter, key drivers of that new brands being added? How do you think about the addition of new brands and categories that you're adding in them?

And then just lastly, the shaping or cadence of the year, anything on margin profile, whether it's lapping of tariffs that we should expect to see? And does the rising energy prices, how is that an impact?

Dana, I'll start and then we'll fill in along the way. So first of all, we are seeing our key points of our business on the brand portfolio continue to point toward support our guidance. We said our order book is in line with that guidance right now. Our own e-commerce trend line right now looks very good for the brand portfolio, and we're seeing international up on it as well. So that's been quite good. We have -- and we're seeing those key drivers coming through with our lead brands. So we continue to see that come through. But otherwise, we feel pretty good all the way around with Stuart, as you've noticed, the -- we feel like the -- all of the work that was done in the back half of '26 leads us to a place where they can start to build back their business, and that really goes straight across all of their channels and geography and everywhere.

So we -- while we're not guiding specifically by brand, we will see good, I'd say, momentum coming through there, which is great. And then finally, on the Saks piece right now, we don't have anything new to report on that, but our -- we're prepared to go forward at this moment with our -- with the wholesale book that we have and then actually that does support at least our guide for the quarter. So we'll tell you more when we have more to say. But otherwise, it looks pretty good. And then you also mentioned about Famous Footwear, what drove the market share gain back and that was, as you had suggested, the lead brands coming through in Famous Footwear was actually the big driver for that. And as we had said earlier, Famous had a nice lift in holiday, really going after that more gift-giving piece. And we felt very good about it. And it's all the brands that I did mention.

We had good momentum from Skechers, Birkenstock, SOREL, Timberland, others. And obviously, the big Jordan piece proved very powerful during holiday. So that was obviously a big win for us, too. So again, it just supports, I think, our guidance going forward and the momentum we're seeing.

And Dana, you had asked a little bit about the spread of margin during the quarter. Just to reinforce the guidance, we said consolidated in the first quarter was going to go up $120 million to $140 million. And then for the full year, $140 million to $180 million. And so you'll see it results kind of throughout each of those quarters as we look at the year.

And then just, Dana, one more thing on market share. You mentioned new brands. On the Brand Portfolio side, while Stuart Weitzman did add to our market share, we gained market share in women's fashion footwear on an organic basis as well.

Our next question comes from the line of Mitch Kummetz with Seaport Research.

Jay, in your prepared remarks, you talked a little bit about quarter-to-date performance at BP e-comm and also at Famous. And I was wondering if there's any way to kind of parse out the impacts that you might be seeing from kind of tax refunds versus more recently higher gas prices and maybe just the overall impact from the war in Iran. And I do have a couple of follow-ups.

Yes. So on -- just to characterize right now, we did see on our Brand Portfolio strong owned e-comm performance coming through, which supports our guide. The good news is, is that they're from all the key brands. We've seen it now on all 4 of our lead brands, Sam Edelman, Allen Edmonds, Naturalizer and Vionic. We're also starting to see a nice turnaround at Stuart Weitzman on their e-commerce business, where that was not something that we saw in the back half of this year. So it looks like a lot of the team's work there coming through is working. As it goes over to the Famous side, it's kind of a little different story. We had a good February, I would say, and that was through some good performance on some of the big brands there that continues. Skechers being one of them where we did have a brand takeover there, and that worked very well.

We also did sell through some clearance there, too, which did support the business there. As we walk into March, it's a little bit of a mixed story here right now, and we're monitoring it day by day, week by week. There's also -- in addition to the geopolitical situation, there is a -- we did have some weather impact, and we do have an Easter shift timing. So right now, as I said, the -- what we're looking at supports our current guide, and we'll report more when we know it, but we are managing it week to week.

And then between Famous and Brand Portfolio, could you talk a little bit about what you're seeing from a category performance quarter-to-date? And I'm also specifically curious kind of what you're seeing in terms of sandals as we're entering the spring/summer season? And any kind of sandal drivers there as you kind of see that playing out over the balance of the season? And then I have one last question.

So on the Famous side, I mean, we continue to see a very strong Birkenstock business, and you know it well. So I mean, there's -- it's clogs and sandals. That's where we are. And we're seeing strength on both of them from that, and that continues every single week. We're also seeing some good selling on sandals from Crocs, which I think is very good and does -- I think will overall support that business trend as we look forward. On the BP, we are seeing some good sandal business, particularly in the song category coming through on kit and heels, and that's been a key winner, but we're seeing it a little bit more on the fashion side. And even in Vionic, we're seeing a very nice sandals strength as of very recently, with -- now that all the inventory is here with both casual songs and then we're also seeing casual footbeds work well in that business.

So I think it certainly wasn't supported by weather, Mitch. So we really think it's driven by newness right now. And -- but that does at least give us optimism as we look forward.

And then my last question, just on Stuart Weitzman. You talked about being breakeven for the year. Can you talk a little bit about how you see that playing out by quarter especially in the first quarter? And what's kind of embedded in the guidance in terms of Stuart?

Yes, I'll start and then Dan can cut in. So we have completed most of the cost savings work. So getting on to our systems was a big piece of that, moving the headquarters, getting off of the TSA getting it into our distribution center. As we think about the Stuart Weitzman SG&A piece of the puzzle, we've got some big buckets, I would say, distribution and logistics being one facilities being one. We did complete in January a restructuring. So that was a big piece of it. And so those are the big pieces of the puzzle. And then moving on to the gross margin side of things, we moved through a significant amount of aged inventory. We talked about that last quarter. It was $25 million in inventory. I think you could see it on the balance sheet, that's where we are.

So that positions us a lot stronger place. But if you think about Stuart Weitzman's business, it is a seasonal business, and so there will be some movement there. But in total, we feel very confident that we've positioned the business to return to breakeven and longer term, as we've said, we don't think that there's anything we see with the business that wouldn't suggest it can operate at the profit margins. We are quite comfortable earning for the rest of our brand portfolio. I don't know, Dan, if you would have anything to add there.

No. I think to your point, if you look at our Q3 and Q4, we lay out in kind of the with and without the clarity there. And so you could see the impact of Stuart Weitzman on that business. And to Liz's point, a lot of these significant changes have been made. We're on our systems now. And structurally, we're there. So certainly not seeing those types of results that we saw in Q3 and Q4 as we walk back to kind of breakeven here in the full year '26.

Thank you. Ladies and gentlemen, that concludes our question-and-answer session. I'll turn the floor back to Mr. Schmidt for any final comments.

Okay. Thank you for your continued interest in Caleres. Before we close I'd like to recognize the dedication of our teams across the company and across the globe who've shown tremendous determination and resilience this year. We are encouraged by the early momentum building in our business through all of our strategic initiatives, and we look forward to an improved more profitable 2026. Thank you.

Thank you. This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.

Greetings. Welcome to Caleres, Inc. Third Quarter 2025 Earnings Call. [Operator Instructions] 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 caleres.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 in our earnings release and on caleres.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 at Famous Footwear. Both segments of our business posted double-digit owned eCommerce 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 next year. That said, we are pleased to be working with a highly engaged Stuart Weitzman team side-by-side to improve operating performance.

It's also important to restate why we made this acquisition. Stuart Weitzman is an iconic brand with unique consumer resonance, aligning with our strategic focus on premium contemporary, direct-to-consumer and 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 realize 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 action in the back half of 2025 to bring Stuart Weitzman along with the rest of our portfolio into 2026 as clean, productive and efficient as possible.

To accomplish this, we have been working with an external consulting partner on integration to ensure we capture all synergistic opportunities and amplify our best capabilities. As a result of this effort, we have identified efficiencies across our company. We are establishing new centers of excellence that will support our entire Caleres portfolio. These efforts are expected to drive material structural cost savings, improved discipline and growth in 2026. We will share more about this new structure on our fourth quarter call when we provide 2026 guidance.

Turning now to the results for the third quarter. Brand Portfolio sales on an organic basis exceeded our expectations, increasing 4.6% in the quarter and 18.8% when factoring in Stuart Weitzman. Lead Brands in total were up double digits organically, with 3 of the brands showing growth. The full portfolio saw growth in both wholesale and owned eCommerce on an organic basis. Premium brands showed strength while value-priced brands remained under some pressure.

Our international business was markedly strong in the quarter and our direct-to-consumer channels delivered growth and momentum. According to Circana, our Brand Portfolio gained significant market share in women's fashion footwear during the period. Boots were a standout category, particularly tall shaft fashion boots. However, we also saw strength and growth in flats and loafers, solid performance in dress and continued momentum in sneakers.

Sam Edelman delivered a very strong quarter, marked by double-digit sales growth both domestically and internationally. Success was broad-based. Boots stood out as the fastest-growing segment driven by markedly strong demand in both established and new tall boot styles, while short boots and casual flats and loafers also performed well. Sam Edelman's owned eCommerce channel had its best quarter ever, achieving higher full price sales. Licensing initiatives progressed, highlighted by a successful fragrance launch that expanded retail presence for the holiday season. At quarter end, we had 114 Sam Edelman stores, 57 owned and 57 franchised, with 110 of them international.

Allen Edmonds delivered a strong quarter with positive comp store sales, solid eCommerce trends and wholesale strength. Growth was steady across categories, led by sneakers, dress and casual loafers. Boots saw improvement as the quarter progressed and are growing now in fourth quarter. The elevated Reserve collection expanded into new casual and sneaker styles, and we are highly encouraged by the stronger-than-expected demand for these styles at premium price points, which are now in 42 stores. Lastly, our 16 Port Washington Studio stores continue outperforming the broader 59 store fleet this quarter by 400 basis points.

Naturalizer saw sequential revenue improvement in third quarter with eCommerce in the U.S. and Canada showing double-digit growth compared to last year. Our direct-to-consumer channel saw growth across all major categories, boots, dress, casual and sport, and delivered higher margins. Marketing efforts were highly targeted, spotlighting select product categories and silhouettes, color and material trends through creative storytelling. The use of brand ambassadors helped to track and convert higher quality traffic. The brand had strong purchasing appeal among Gen Z, Millennials and Gen X, reflecting a broadening generational reach.

Vionic saw growth this quarter, up solidly in wholesale and international markets, while eCommerce was softer. Retail sales increased in all categories with casual, sports styles and slippers leading the way. International business was a bright spot, showing robust growth thanks to strong eCommerce and marketplace performance. New product launches like the Willa 2.0 and the Walk Slim sneakers gained traction and contributed to the brand's momentum. The quarter also marked the launch of the Gabby Reece campaign, introducing Vionic's first wellness ambassador. Campaign content outperformed traditional brand content, driving higher engagement and capturing a significant share of spend.

And finally, our newest lead brand, Stuart Weitzman. As many of you know, the brand under Tapestry ownership has been underperforming in recent years and, as such, is dilutive to earnings as it came over. During our first 3 months of ownership, our focus has been on stabilization and transition.

Here's what's working. The design, product quality and price value are all resonating with the consumer on the fall line offerings. Sell-throughs on the fall product have improved year-over-year, especially at wholesale and U.S. owned retail with full price strength in dress as well as short and tall boots. Marketing featuring global ambassadors has connected with consumers of all ages. Our system integration is on track for the beginning of 2026 and reporting structures are in place for key functional areas such as finance, specialty retail, international and sourcing.

Here's what's not working, which needed some intense focus and action. The China D2C business, where the shift in ownership resulted in sales volatility especially in August. We have added new leadership in China and, in working closely with the Stuart Weitzman team in New York and our Caleres international team, they have made significant progress on improving sales sequentially month by month.

Global excess inventory. Much of it aged, and thus, more difficult to clear. We've established appropriate reserves through the purchase accounting process, but it is dilutive to the brand's gross margin for the back half. While costly, we feel this issue is momentary in nature and taking action now is essential for the success of this transition. The team has made significant progress on liquidation, leading us to feel confident this issue will be largely behind us as we enter 2026.

While we continue to expect the Stuart Weitzman business to be dilutive for the balance of 2025, we have a plan in place to achieve breakeven in 2026 through significant synergistic savings in distribution, logistics, specialty retail, digital and marketing operations and office facilities, along with all other back office functions currently being covered under the TSA. And while these expense reductions will not be able to be realized until system cutover in February, I look forward to speaking much more about Stuart Weitzman, including our plans to improve sales performance, on the fourth quarter call.

Looking at the balance of the year for the Brand Portfolio, sales performance appears stable with owned eCommerce showing strong momentum. Order-to-date direct-to-consumer performance remains up double digits, including during the Black Friday and Cyber Monday window. The tariff environment is stabilizing and our mitigation efforts are beginning to take hold. Our inventory position excluding Stuart Weitzman is now more aligned with our sales trend and we continue to work through Stuart Weitzman's inventory to enter 2026 in a clean position.

Moving on to Famous Footwear. In the quarter, total sales were down 2.2% and comp sales declined 1.2%, in line with our expectations. Retail conversion and average unit retails increased low single digits while traffic declined mid-single digits. We continue to see the Famous consumer respond strongly during peak shopping periods with positive comps in August, followed by September, October declines similar to our first half trend. Our eCommerce sales were up double digits for the second straight quarter. The launch of Jordan last quarter contributed steady momentum throughout the back-to-school season, remaining a top 10 brand and reinforcing Famous' ability to launch leading brands and deliver powerful results.

Famous continues to enhance its consumer experience through the Flair format. We ended third quarter with 56 Flair locations, which generated a 3-point sales lift overall and a 6-point sales lift for stores converted in the last year. We plan to add one additional location by year-end as the success of our Flair concept continues to underscore Famous' ability to amplify elevated brands and products.

Men's and kids performed best during the quarter while women's underperformed. By category, athletic was slightly positive on a comp basis and fashion declined. Jordan, adidas, Birkenstock, New Balance, Brooks, DC Shoes and Timberland were top growth brands, while our Caleres brands outperformed at Famous Footwear with sales up mid-single digits. Within the strategically important kids category, penetration was 25% in the quarter.

In addition to Jordan, we are seeing a trend of outperformance from premium brands at Famous, which we plan to capitalize on by bringing in more of these highly demanded brands. At the same time, we see a need to edit some underperforming labels, particularly in the fashion category. This will free up open-to-buy to invest in demanded brands, including some of our own Caleres brands.

But I want to be clear. We are following the consumer. We are growing our Caleres brands at Famous because they are performing. As we do this, it is accretive to our consolidated gross margin. Jack will cover our fourth quarter expectations in more detail, but I will note that holiday sales at Famous Footwear have been strong so far and comp store sales are flat quarter-to-date.

In summary, we are pleased with our sales performance in the quarter and the particular strength of our strategic growth vectors: Lead Brands, international, direct-to-consumer and enhanced customer experience. Our near-term focuses are restoring gross margins, operational discipline, structural cost savings and integrating Stuart Weitzman. We are finding new, more efficient ways of working and leveraging our best capabilities. We are focused on speed, agility and controlling what we can control. We are confident that fueling both Brand Portfolio and Famous Footwear and executing our strategic plans will result in improved financial performance and drive long-term value for our shareholders.

And with that, I will now hand it over to Jack for a more detailed view of our financial performance. Jack?

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 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 eCommerce sales.

SG&A expenses increased $42.6 million to $311.3 million. Approximately $10 million of this increase was organic with the balance coming from Stuart Weitzman. As a percentage of sales, SG&A was 39.4% and deleveraged 310 basis points. On an organic basis, continued investment in our international business, higher depreciation expense for stores and lapping last year's incentive compensation accrual release was somewhat offset by our cost savings initiatives.

Operating earnings were $26.3 million and operating margin was 3.3%. Excluding Stuart Weitzman, operating earnings were $37.4 million and operating margin was 5%. Operating margin in Brand Portfolio was 5.2% and 9.2% excluding Stuart Weitzman. Operating margin at Famous was 5%.

Net interest expense was $5.5 million, up $2.6 million to last year due to higher average borrowings. Approximately $1.6 million of the increase was interest expense associated with the acquisition of Stuart Weitzman. The weighted average borrowing rate was down about 25 basis points.

Tax rate was 41% for the quarter and 27.5% year-to-date. Earnings per diluted share were $0.38 and earnings per diluted share excluding Stuart Weitzman were $0.67.

Turning to the balance sheet. We ended the third quarter with $34 million in cash, $355 million in borrowings and $312 million of liquidity. Inventory at quarter end was $678 million, up $92 million to last year, of which $77 million was for Stuart Weitzman. Inventory was up less than 1% in Famous and up 5.5% in Brand Portfolio on an organic basis.

Now turning to our outlook. As noted, tariffs continue to weigh on our results. On an annualized basis, the unmitigated tariff impact on our Brand Portfolio segment is approximately $65 million, of which we have mitigated about $40 million through factory negotiations, price increases and other actions to reduce the dutiable value of goods. The 175 basis point impact on Brand Portfolio gross margin in the quarter from tariffs was somewhat better than we expected due to timing differences, and we would expect a similar impact in 4Q with improvement in 2026.

That said, with the tariff uncertainty largely behind us, we are providing guidance both on an organic basis and including Stuart Weitzman. Our 4Q expectations are as follows. For Famous, we expect comp store sales about flat and total sales down low single digits. This is in line with the quarter-to-date trend. For Brand Portfolio, we expect sales to be flat to up 1% on an organic basis, and we expect Stuart Weitzman to add $55 million to $60 million in sales. We expect consolidated gross margin to be down 75 to 100 basis points versus last year both on an organic basis and with Stuart Weitzman, with more pressure in the Brand Portfolio than Famous, though improvement in both versus last year as compared to 3Q.

For SG&A, excluding Stuart Weitzman, we expect a modest increase in 4Q versus last year. We expect SG&A for Stuart Weitzman to be slightly higher than the $32 million incurred in 3Q. And we expect a full year tax rate of 27% to 28%. As a result, we expect a loss per share for the fourth quarter in the range of $0.35 to $0.40, including $0.30 to $0.35 of dilution from Stuart Weitzman. For the full year, we expect earnings per diluted share of $0.55 to $0.60 and earnings per diluted share excluding Stuart Weitzman of $1.15 to $1.25.

With that, I'd now like to turn the call back over to the operator for questions. Operator?

[Operator Instructions] Our first question is from Dana Telsey with Telsey Advisory Group.

A couple of 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, what happened this past quarter and what you're guiding to, how do you -- whether it's the team, whether it's 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 opportunity 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 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.

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&A reductions. And as we kind of commented, there are natural 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 -- 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 fully done with the '26 outlook for this brand. The complete feeling on this is one 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 with in our Brand Portfolio. Feel there's more opportunity in direct-to-consumer on digital as we really try to work through some best practices on that particular piece. And then finally, we see an international opportunity. The Europe piece of it, we feel is in good shape and really has a lot of opportunity to grow faster. And then China, we're making a ton of progress working together. And I really would like to say I feel very confident in early signs from that team.

So as you can hear, obviously, I feel more convicted than ever about it. It's just going to take us getting through this back half and really doing the necessary actions to make this better.

Moving over to Famous Footwear. As I stated, we're seeing a lot of success with premium brands coming through our assortments. And I'm very excited to say that we're seeing continued strength as brands that you know from us, like our Birkenstock business, continues to grow. We've seen nice acceleration in brands like Timberland coming through. And what we're finding in all of this is that our consumer is about as ready to embrace, I would say, newness and these really strong brands with deep meaning to the consumer right away. And there's very little lag time on that. So that's really been encouraging for the whole team to go faster and further.

And then finally, the fashion moments that we talked about in our Brand Portfolio in terms of tall shaft boots, return to heeled and other items are working very well at Famous Footwear. And we plan to build on those aggressively as we move into 2026. So the discussion about really more premium brands and the consumer voting for those has really worked out very nicely, and we plan to build on it.

Got it. And then I think you had 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 in fashion for women.

Yes. So clearly, our key strength in Famous particularly in the third quarter is driven by athletic. We still have the back-to-school month in that. And for sure, our Jordan business was explosive in that moment. So that, along with many of the key athletic brands, we've seen nice performance in Q3. We do feel an opportunity to build back our fashion business in 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 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's really a lot of the big trends that 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 and the SG&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?

Yes. Dana, so in terms of the gross margin, we are expecting improvement in Q4 and the overall consolidated gross margin, as I referenced, and really expecting to see that from 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 and bringing that down as well as the LIFO reserve that I mentioned, 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 at 175 basis points, we expect more favorable channel and customer mix. That's going to allow us to further improve that down 200 basis points without Stuart Weitzman that we posted in Q3.

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

I 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.

Can you just help us dissect how much of that needs to be worked through over the next 5 months to get to really healthy levels and then what the promotional or discounting strategy is going to look like to move through that product while still protecting that brand?

Ashley, this is Liz. I'm not sure we're going to give the full detail, but I would say like broadly, if you think about the inventory that came over, there's maybe 1/4 to 1/3 of it that we would put in that kind of aged and excess category. And as you'll see in our financial filings, as the valuation firm has looked over the value of the inventory coming through, it's still in that kind of $85 million to $90 million that we saw when we acquired it, though that includes the step up. So that is where they're pegging it in terms of what they think 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 way that doesn't damage the brand.

Yes. We think that we really are 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 aged, and we are taking the hard steps to do it. We think we're more than 2/3 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 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 integration.

Okay. Understood. Just a follow-up, maybe more structurally, as we look beyond some of the moving pieces over the past 2 years, just how should we think about the company's normalized earnings power once you're through this transition period with Stuart? 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?

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 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'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&A across the company as we really put these centers of excellence coming through so that we can return to growth in a more profitable way. And those are the key pillars. We're 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 going to be looking at lower growth 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.

Our next question is from Mitch Kummetz with Seaport Research.

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?

And if so can you unpack 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 being 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 kind of qualify 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 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 that certainly, while we're not going to get everything on gross margin back, we do feel that we're going to be in a much better place for sure. We're not guiding '26 right now, but that's what we see as we've gotten so far. And then finally, we do have structural SG&A savings coming through that we feel are necessary to run our business more profitably and efficiently. So Jack?

Yes. Mitch, I would just say that 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 improvement in gross margin in 2026 as a result of that. I would say, though, that given that the incremental tariffs that have 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&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 '26, do you mean on an organic basis? Because obviously, if you're going -- if work at Stuart is going from dilutive to breakeven, obviously, that implies growth on that business. But do you think that organically you will see growth in '26?

We will 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 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 Stuart, 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 margin on Brand Portfolio as an enterprise? Do you think it can be better than that? And is the biggest opportunity going from breakeven to something better mostly on the SG&A side? Or is it really kind of equally across the board?

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 we could see a pathway to it, 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 really a new way of working with them.

So I think that's why we're so committed to, I think, getting all of these, I would say, the best of the Caleres capability structure into Stuart Weitzman so the team there can really focus on growth and really continuing to try to make this business as strong as possible. But I would say that's probably fair to say for right now.

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 who 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.

Greetings. Welcome to the Caleres Inc. Second Quarter 2025 Earnings Call. [Operator Instructions] Please note this conference is being recorded. At this time, I'll turn the conference over to Liz Dunn, Senior Vice President, Corporate Development and Strategic Communications.

You may begin, Liz.

Thanks, Rob. Good morning and thank you for joining our second quarter earnings call and webcast. A press release with detailed financial tables as well as our quarterly slide presentation are available at caleres.com. Please be aware 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 operating results, we will be providing and referring to certain non-GAAP financial measures. Additional details on these measures as well as others featured in today's earnings release and presentation are available at caleres.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 turn the call over to Jay. Jay?

Thank you, and good morning, everyone. Earlier today, we reported second-quarter sales and earnings. While we did experience headwinds due to market uncertainty, we demonstrated the strength and the resilience of our company this quarter. Sales trends improved sequentially in both segments of our business, and we saw market share gains in both women's fashion footwear and in shoe chains.

Highlights of second quarter include our lead brands, which in total delivered sales growth in the quarter. We experienced strength in our brand portfolio's direct-to-consumer channels. International sales increased by double digits, and we saw solid improvement in July at Famous Footwear, and that improvement continued into August. During the quarter, we worked closely with our factory partners to mitigate as much of the tariffs as possible while leaning into our supply chain agility and passing through moderate price increases.

It is important to note that while tariff changes can occur quickly, our mitigation efforts require planning and implementation, which can lag the tariff impact in the short term. And given the new tariffs enacted in August, the work here is ongoing. Jack will speak to tariffs in more detail shortly. As we look to address the changes in the operating environment, we completed our previously announced structural cost savings initiatives that will deliver annualized savings of $15 million, with about half of that coming this year.

As I indicated last quarter, we engaged a consulting partner to ensure that as we integrate Stuart Weitzman, we capture all the synergistic opportunities. This partner has examined points of efficiency across our entire portfolio to ensure we are leveraging our greatest capabilities. These efforts are expected to result in additional structural cost savings in 2026 and beyond.

As previously announced, we did complete the acquisition of Stuart Weitzman shortly after quarter-end, adding a new lead brand to our portfolio. Stuart Weitzman is an iconic brand with unique resonance with consumers. It aligns very well with our areas of strategic focus, having premium contemporary positioning, strong direct-to-consumer penetration and an established international footprint. We see clear opportunities to improve its operational efficiency while honoring the brand's legacy of design, fit and quality.

As we have said, our focus is on running this business profitably after a transition period. Once the business is fully integrated, we expect immediate expense savings in areas such as distribution, logistics and media buying with further structural actions to follow. We look forward to providing more detail when we report our third quarter.

Turning now to the results for the second quarter. In total, for the second quarter, we achieved adjusted earnings per share of $0.35. Our second-quarter sales declined 3.6% year-over-year. Sales trends improved, but were still negative in both segments of our business, while gross margins were under continued pressure due to tariff disruption, added inventory reserves and higher clearance promotions at Famous Footwear.

Now let's review each of our business segments. Brand Portfolio sales declined 3.5% in the quarter. While our lead brands outperformed in both sales and operating margin, our value-priced brands experienced ongoing pressure, which was exacerbated by cancellations related to China manufacturing. Our international and direct-to-consumer businesses were both up in the quarter as was our retail trend from our wholesale partners. According to Circana, our brand portfolio gained market share in women's fashion footwear during the period.

Consumer demand remained solid in key categories, including flats, sandals, sneakers and dresses, all feeding the consumers' desire for newness. Sales for our lead brands, which include Sam Edelman, Allen Edmonds, Naturalizer and Vionic, increased in total and represented well over 50% of sales and operating earnings in the quarter.

Sam Edelman delivered a very strong quarter, marked by sales growth domestically and strong double-digit growth internationally. We saw improvement in our China trend, and we saw expansion in the brand's global footprint through new marketplace partnerships and growth in the Middle East. Sam Edelman's innovative marketing broke through in the quarter with the Nantucket influencer event becoming one of the most talked about events of the season and successfully driving new customers.

From a product perspective, strappy dress, casual sandals and sneakers were strong in the quarter. Early boot selling is encouraging heading into fall, and we are well-positioned in tall fashion boots. At quarter end, we had 111 Sam Edelman stores, 57 owned and 54 franchised with 107 of them internationally.

Allen Edmonds also delivered a strong quarter with growth across all retail and wholesale channels. Reduced promotions led to increased gross margins, an outlier for a brand that notably has limited foreign sourcing exposure. From a product perspective, the largest growth came from sneakers, dress and casual loafers.

In second quarter, Allen Edmonds opened another Port Washington Studio store, bringing the total to 16. These locations continue to outperform the broader 59-store fleet by 700 basis points. Naturalizer had a down quarter due to some sourcing shifts in their wholesale business segment. However, the brand's North American direct-to-consumer business posted growth, benefiting from the strength of casual sandals and newness in dress.

The brand's retail sales performance for the quarter was strong, delivering double-digit growth and increasing market share ranking by spot as measured by Circana. Early reads on fall are especially encouraging, particularly newness in flats, detailed dress and tall boots. The upcoming tall boot campaign will be Naturalizer's boldest and most inclusive offering yet with new styles across several categories and a proprietary cat with options from narrow to extra wide.

In Vionic, sales were down modestly in the quarter as the brand cleared through older legacy product into newer, better-performing styles. Sandal selling was strong in the quarter with the new eBay knit footbed finishing as the top sandal style in second quarter and becoming a new icon style for the brand.

The walking category was strong and saw continued growth driven by the Walk Max and the Walk Strider, our top 2 styles. The international business for Vionic was up double digits in the quarter. Shortly after quarter-end, Vionic introduced Gabby Reese as its newest wellness ambassador. Gabby's authentic connection to wellness reinforces Vionic's brand positioning, and we look forward to our special edition collaboration dropping in early spring 2026.

Beyond our lead brands, we see continued strength in our premium contemporary brands, Vince and Veronica Beard, which reinforces our conviction around the premium contemporary space. As we look at the balance of the year for the Brand Portfolio, the tariff environment is clearly still uncertain. While we did selectively raise prices, the new increased Southeast Asia tariffs will require us to focus on additional mitigation efforts.

We do expect our inventory position to be more aligned with our sales trend, but expect gross margin pressure from tariffs to continue into the back half. Beyond that, we will continue to focus on speed, agility and controlling what we can control to drive improved financial performance.

Moving on to Famous Footwear. Total sales were down 4.9% during the second quarter, while comp sales declined 3.4%. We gained share in shoe chains and with kids during the quarter, according to Circana. As has been our recent trend, the Famous consumer responded strongly during peak shopping periods. E-commerce sales were up double digits in the quarter, particularly in May and July. Of course, the big news for back-to-school at Famous was the launch of Jordan, which we have exclusively in our channel this fall across all stores and online.

It quickly became a top 10 brand. This performance reinforces Famous' ability to launch leading brands successfully and deliver powerful results, and we will continue to drive Jordan and other trending and highly demanded brands as we move forward into fall. During the quarter, men's performed best, kids was about in line with the overall trend and women's underperformed.

By category, athletics was nearly flat on a comp basis and fashion declined. Jordan, Adidas, BIRKENSTOCK, New Balance, ASICS, REEF and Brooks were top growth brands in the quarter, while Caleres brands outperformed at Famous Footwear with flat comp sales. Within the strategically important kids category, penetration was 21% in the quarter and Famous gained 0.6 points of kids market share in shoe chains, while total Famous gained 0.1 points.

Famous continues to enhance its consumer experience through the FLAIR format. We ended second quarter with 55 FLAIR locations, which generated a 3-point sales lift overall and a 6-point sales lift for stores converted in the last year. We plan to expand to 57 FLAIR locations by year-end. This success underscores Famous' ability to amplify elevated brands and products.

In addition to Jordan for back-to-school, we added expanded or new assortments from Nike, Adidas, BIRKENSTOCK, New Balance, Brooks, Timberland and FRYE. These brands and our other top national brands drove back-to-school comp sales up 1% in August on top of a high single-digit comp in August of last year. Famous Footwear consumer continues to shift their shopping in the peak selling periods and back-to-school is one of them.

So we are pleased with our performance overall as the season comes to an end. In summary, our near-term strategic focuses are ongoing tariff mitigation, expense and capital discipline, structural cost savings and integrating Stuart Weitzman, all while continuing to fuel our lead brands and Famous Footwear.

Longer term, our priorities are international growth and direct-to-consumer growth for the brand portfolio and FLAIR stores and new powerful brand and product additions at Famous Footwear. We are confident that executing our strategic plans will result in improved financial performance and drive sustained value for our shareholders.

And with that, I will now hand it over to Jack for a more detailed view of our financial performance. Jack?

Thanks, Jay, and good morning, everyone. During today's call, I'll provide additional details on our second quarter results and some color on third quarter performance to date and expectations. Please note, my comments will be on an adjusted basis.

For the second quarter, sales were $658.5 million, down 3.6%. Sales were lower in both Brand Portfolio and Famous, but the trend improved in both segments versus 1Q. Brand Portfolio sales were down 3.5%. Lead Brands grew about 1% in North America and 3.6% on a global basis. Segment sales were weighed down by declines in our more value-oriented brands.

We estimate that tariffs negatively impacted 2Q sales by $10 million due to order cancellations and delayed receipts that pushed sales into 3Q. Famous sales were down 4.9% with comparable sales down 3.4%. Comparable sales declined mid-single digits in May and June and improved to a 1% decline in July. As Jay noted, the improving trends continued in August in which we delivered a positive 1% comp.

Consolidated gross margin was 43.4%, down 210 basis points versus last year and was driven by lower margins in both segments. Brand Portfolio gross margin was 40.3%, down 240 basis points to last year due to higher tariff-related costs and additional markdown reserves on excess spring product, somewhat offset by favorable channel mix and other variances. The gross margin impact of tariffs was about 250 basis points, while the impact of markdown reserves was about 120 basis points.

Famous gross margin was 43.7%, down 130 basis points to last year due to more days on promotion, a deeper promotional offer and an unfavorable channel mix. For promotions, we continue to lean into our BOGO offer versus last year's Buy More, Save More program. We also had more BOGO clearance during the quarter as compared with last year.

In 3Q, we will anniversary the move to BOGO and so expect less gross margin headwind from this promotional change going forward. SG&A expenses increased $1.4 million to $269.7 million. As a percentage of sales, SG&A was 41% and deleveraged 170 basis points. On a dollar basis, continued investment in our international business and higher depreciation for store and IT investments were offset by lower incentive compensation expense.

Operating earnings were $16 million and operating margin was 2.4%. Operating margin was 3.1% at Brand Portfolio and 4.7% at Famous. Net interest expense was $4.5 million, up $1.2 million to last year due to higher average borrowings. The weighted average borrowing rate was down about 50 basis points. Tax rate was 3.7% and included a $2.5 million discrete tax benefit. Earnings per diluted share were $0.35 versus $0.85 last year.

The aforementioned discrete tax benefit added $0.07 to EPS. Trailing 12-month EBITDA was $162.7 million and 6.1% of sales. Turning to the balance sheet. We ended the second quarter with $191.5 million in cash, up $139.7 million versus last year and $387.5 million in borrowings, up $241 million to last year.

We borrowed $120 million just prior to quarter-end to complete the Stuart Weitzman acquisition. And as a reminder, last year's end-of-quarter borrowings were favorably impacted by a deferred $49 million vendor payment that pushed into Q3. Inventory at quarter end was $693 million, up $32 million or 4.9% to last year.

Inventory was up 2% in Famous and up 8.6% in Brand Portfolio. Now I'd like to give an update on tariffs. As I mentioned in our last earnings call, we continue to employ several strategies to mitigate the impact of tariffs on gross margin. These include the mix of sourcing countries, concessions from our factory partners, select price increases and other strategies to reduce the dutiable value of our goods. That said, there is a lag between when the higher tariffs have taken effect and when these mitigating actions become effective.

This was the case with the first round of tariffs in the spring and will also be with the second round of tariffs that went into effect in August. As a result, we expect continued pressure on Brand Portfolio gross margin in the second half. Given the continued uncertainty from tariffs, we are not providing annual guidance at this time. That said, we are sharing the following information about 3Q.

For Famous, as mentioned earlier, comparable sales for August were a positive 1%, and August is the biggest month of the quarter. While we are pleased with our back-to-school results, we expect comparable sales in the largely nonpromotional months of September and October to be down low single digits.

For Brand Portfolio, August sales, excluding Stuart Weitzman, were up low single digits versus last year. While sales in September and October are difficult to predict in this environment, we do expect continued pressure on gross margin. Specifically, we expect Brand Portfolio 3Q gross margin, excluding Stuart Weitzman, to be down a similar amount to 2Q with improvement in the trend in 4Q as we realize more of the benefit of our mitigation strategies.

For SG&A, excluding Stuart Weitzman, we expect a modest increase in 3Q versus last year with more of the benefit in 4Q from the restructuring we just completed. In addition, we are actively exploring other cost savings opportunities. And finally, we are working to finalize the purchase accounting for Stuart Weitzman. We look forward to giving more information on its impact to our 2025 financial results on our 3Q earnings call.

With that, I'd like to turn the call over to the operator for questions. Operator?

[Operator Instructions] And the first question comes from the line of Ashley Owens with KeyBanc Capital Markets.

So just first on maybe the Famous quarter-to-date stats that you gave us with that growing in August. Just any additional color on some of the dynamics at play with that? I know compares get easier in the back half of the year, but you've also shifted the assortment around a little bit, adding in some of those brands that you called out.

So with back-to-school, was it really traffic, AUR, maybe better performance than FLAIR? Anything you could say there? And then additionally, if there's been any shift in the softness in the women's business that you mentioned?

Yes. Ashley, this is Jack. Thanks for your question. I'll start, and I'm sure Jay will fill in some additional comments. But in terms of Famous' August performance at plus 1 comp, what we saw by channel is in brick-and-mortar, we saw improved traffic and conversion with AURs basically flat. And then on the web part of the business, we saw there also improved traffic. AURs were also higher there and conversion was flat.

And I think, Ashley, we did see the good effect of our product assortment shift, as you highlighted, with all the brands that we did mention having, again, new or expanded assortments that really did pay off. And then obviously, while we don't publish the results, for sure, the Jordan piece continued to trend as we launched it all the way through back-to-school.

We're very, very pleased with what we saw there. And again, it became a top 10 brand very quickly as we launched it. So we'll continue to work on maximizing all of those brands as we move into third quarter and beyond. as we try to really make the most out of the assortments that the consumers are demanding for.

Okay. Great. And then just a follow-up really quickly on some of the gross margins. So one for Famous. You mentioned less headwind as we annualize BOGO. Do you anticipate any other changes from 3Q to 4Q, such as deeper discounts or longer promo periods, which took place in 2Q? Just what's embedded there?

Then on the brand portfolio, as we think about the balance of the year, just what's going to be the biggest weight? Is it tariffs? Or are you anticipating a need for further markdowns or elevated markdowns in promos alongside those tariff-related costs? Just puts and takes for both of those would be helpful.

I think at this point, with Famous, we do believe that we've gotten through that promotional cycle. That said, we will be -- if we go into Q4, we'll continue to take markdowns on clearance, but we don't have any plans to change our promotional cycle from last year.

Over on the Brand Portfolio, we do think that as inventory becomes more aligned with sales, we're going to see less headwind on that inventory markdown piece of the business. But as we kind of documented, again, we see more gross margin pressure earlier on and then that kind of more normalizing as we get into fourth quarter with the results of tariff mitigation effects. So that would be probably, I think, the best guidance we can give right now on that subject.

Yes. I think the only thing I would add to that, Ashley, is on Famous, while certainly the promotional cadence, we won't have that headwind in the back half. We are starting to see some price increases from our vendors in Famous.

And so obviously, we plan to pass on those price increases to hold basically the IMUs. I think the big question there is what, if any, impact will that have on consumer demand. So that would be, I think, the only difference I would also just highlight.

The next question is from the line of Mitch Kummetz with Seaport Research.

I guess, first off, just on the Stuart acquisition, is there any kind of color you can provide in terms of its impact on sales and EBIT and even on your interest expense for the back half of the year?

Yes, Mitch, this is Liz. We're not providing that detail at this time. There's just a number of things that are still in flux. As Jack mentioned, we're still finalizing our purchase accounting, which will have implications for how it flows through our P&L.

But we will provide a breakout of Stuart through the end of the year, certainly, so that you can see from a comparability standpoint, what our underlying business reflects or what the organic growth and trends are in our business. And I would also say there will be a number of things that are exceptional. And so we'll be reporting both GAAP and non-GAAP views.

As I think we've discussed in the past, there's purchase accounting requires us to step up some of the value of the inventory. You can read in our documents that a decent amount of working capital came over about $90 million in inventory.

And so there will be, as I'm sure you can imagine, some need to move through some of that. So there will be a lot going on as we move through the back half. But our goal really is to enter 2026 clean, get through the transition and get the business onto our systems so that we can begin to really make significant improvements in their operating performance. operating margin.

Yes. And Mitch, just with regard to interest expense, as I mentioned, we borrowed about $120 million to close the acquisition. I should point out that net of the cash we acquired as part of the business, the price was $108 million. But obviously, if you think about that over -- that borrowing over the back half, I'd call it, probably around a 5.7%, 5.8% borrowing rate. You can do the math there and understand what that interest expense would be.

And then just as a follow-up on Stuart, Jay, I think in your prepared remarks, you mentioned the return to profitability after this transition integration period, which kind of sounds like might be done by the end of this year. So do you expect the acquisition to be accretive to earnings next year?

Well, we're not getting that far through, that would be our goal. As we said, we were going through this transition period, which we expect to complete by the end of January. And then we said that the media expenses would come through. Where exactly that will come out, we're not ready to guide to yet, but I think that is the goal right now.

And then maybe just real quick on BP. It was mentioned that there were some cancellations and delayed receipts in the quarter. Can you quantify that? And those delayed receipts, is that having a benefit to the third quarter?

And then also just quickly on margins for BP, I think you said that the tariff impact was 250 basis points. I know that overall, you expect gross margins to be comparable in the third quarter. But is that kind of how we should think about tariffs as well in 3Q?

Yes, Mitch, let me take your -- let me take the last question first. So what we said was there was the 250 basis point impact in Q2 versus last year. And we expect the overall gross margins of Brand Portfolio to be down similar to what they were in Q2, which was down that 240 basis points.

So I mean, obviously, within that, there should be less of an issue around markdown reserves, obviously, that we took on the spring product. But I think as we mentioned, part of the issue with these new tariffs is, again, that lag effect between when tariffs are effective and when these mitigating actions and strategies take hold. And so what you tend to see, you saw it a little bit in the first half was a little bit more pressure in the first quarter on gross margin when those tariffs went into effect and then some improvement in the second quarter.

I would expect to see sort of the same in the third and the fourth quarter, where more of that pressure in the third quarter is there. And then the fourth quarter, you see some of that trend improvement as those mitigating actions take effect. With regard to that $10 million sales impact on BP from tariffs, the split between what was canceled orders and what was delayed sales that we should recover in Q3 is about 50-50. So about $5 million of cancellations and about $5 million in delayed receipts, which we should benefit from in Q3.

The next question is from the line of Dana Telsey with Telsey Advisory Group.

As you think just broadly about the consumer health of the Famous Footwear customer and the BP customer, what -- has anything changed? Or what are you seeing from them? And then brand performance at Famous, how did that look compared to previous quarters? And then I have a follow-up.

Dana, first of all, I'd say in Famous Footwear, when we talk about these brands that had the most growth in the quarter and then continuing in that in Q2, we're continuing to see our consumer want those highly demanded national brands that really have great meaning to them, and they are purchasing those over others.

So we're continuing to see that as a trend. We're going to be watching the consumer health very closely. As we said, we had a nice back-to-school, and that was on top of a very, very successful back-to-school a year ago. Clearly, Jordan was a big component to that as were many of these other brands that we mentioned.

So what we're really seeing is they continue to want the brands they want first, and that seems to bring the desire into them. And some of our most newest and more elevated brands and products are growing faster. Over on the brand side, we're kind of seeing a similar approach is our lead brands are outperforming and then some of our premium brands, particularly in what I would say is in this premium contemporary position are growing quite a bit.

So we're continuing to see a lot of action there. And then also a lot of interest in fashion right now, which is really helping drive that, including a return to dress and an early good start to boots. So again, the consumer seems to want what they want. They're very informed. They continue to vote for the brands and products that they want. And then I think they find value as they can -- as they work -- shop across the landscape. So that's what I have to say on that subject.

And then on the mitigation tactics for tariffs, where are you on those? How do you see that progressing going forward? And as you wrap to 2026, does it anniversary? Or how you're thinking about it? And then I think you mentioned, Jack, about potentially more cost savings. Did I hear that right? Or is there other things that you're looking at?

Yes. So I think that as previously, we had mentioned, we are selective in passing through price increases. We're continuing to negotiate with factory partners on all types of cost savings there. And then finally, when we look at it, there is also this whole piece of of really looking at our whole company and coming up with additional structural cost savings as we look at efficiency in this back half.

So we don't think we're going to get it from one place. We think it's going to be a combination of things. And then also, we are continuing to look at the mix of sourcing countries as we go forward also. So I think those are the big ones. The other ones get highly detailed and probably solve that piece of it.

Yes. And Dana, just to add to Jay's comments on the savings, we did -- and I think we mentioned this, we brought a partner in to help us with the integration of Stuart Weitzman. They've validated and in some case, increased what are probably the expense opportunities that we can realize upon the integration.

But we've also asked them to look more broadly at the company's cost structure to look for other structural opportunities and ways for us to work more efficiently. So that is work that is in progress, and we're optimistic that it should generate additional savings that will likely come in 2026.

Got it. And then just wholesale order trends going forward as you look towards the holidays. How is that going on wholesale order trends? What are you seeing there?

So as we go forward with our -- what I'd say, half of our Brand Portfolio business is dynamic, as you know, between rapid reorders and speed between direct drop ship and direct-to-consumer. And then -- so it really is very much demanded. So we're measuring it in real time. What I can say is that our sell-through has been consistently better than sell-in. And so we're optimistic about that.

And then in this quarter, we did outperform in direct-to-consumer channels in the brand portfolio. And in fact, D2C was up year-over-year. So we think that's where we're going. But for sure, people do want to turn more quickly, and that's true of ourselves as well. So everyone is out working it and really trying to find all the opportunities right now. But I will say with a good retail trend, it gives people a little more to work with. And obviously, there's out in the space there amongst the retail partners, there is a little more optimism as they look forward.

At this time, we've reached the end of the question-and-answer session. And I'll hand the call over to Jay Schmidt for closing remarks.

Thank you. Before we close, I want to acknowledge the dedication of our entire team during what has proven to be a dynamic and demanding period. Across all functions, our associates have demonstrated resilience and adaptability as we navigated operational challenges and work to sustain momentum amidst shifting market conditions and remain focused on our long-term strategies.

Thank you. This does conclude today's conference. You may disconnect your lines at this time. We thank you for your participation and have a wonderful day.