After The Q2 2024 Stock Price Fall, Caleres Trades More Reasonably, But Is Not An Opportunity

Core Insights - Caleres reported disappointing Q2 2024 results, leading to a 19% drop in stock price and a 32% decline from its recent peak of $44 [1] - The company revised its revenue guidance from a positive outlook to a low single-digit decline for the year [1][4] - Current earnings yield stands at 13%, but historical margin analysis suggests a potential yield drop to 9% if margins normalize [1][6] Revenue Performance - Unadjusted revenues fell by 2%, with a calendar shift in back-to-school sales contributing a 3.5% lift, resulting in an effective decline of approximately 5.5% [2] - The branded segment, accounting for 43% of sales, experienced a 5% decline due to issues related to a new SAP ERP system [2] - Retail sales were down 2.9% on a comparable basis, with gross margins decreasing by 140 basis points due to increased promotional activities [2] Operational Challenges - SG&A expenses increased by $6 million in Q2 and $18 million in the first half of 2024, driven by wage inflation and higher marketing costs [2] - Management indicated that the ERP implementation negatively impacted growth by 5 percentage points, suggesting that the branded segment would have been flat without these issues [2] Future Outlook - Management expressed cautious optimism regarding August results, noting flat comparable sales for Famous Footwear [3] - Q3 guidance suggests a potential decline of 2% in aggregate sales, with expectations of losing $23 million in sales year-over-year due to the absence of back-to-school sales [3] Valuation and Yield - The company lowered its revenue guidance for the year to a low single-digit decline and adjusted operating margin expectations to 7.1% [4] - Caleres is currently trading at approximately $30, the lowest price since coverage began, offering a current yield of 13% based on expected EPS of $4 [4] - Historical margin analysis indicates that a return to more normalized margins could reduce the earnings yield to 9%, making the stock less attractive [5][6]