Caleres, Inc. (CAL Quick QuoteCAL - Free Report) posted soft results in the second quarter of fiscal 2024, wherein the bottom and top lines missed the Zacks Consensus Estimate and fell year over year. The company posted adjusted earnings of 85 cents a share, lagging the Zacks Consensus Estimate of $1.21. Also, the bottom line decreased from 98 cents a share in the same quarter a year ago.

Though the company’s brands and products resonate with consumers, second-quarter results in both segments were weak. It also saw dull seasonal demand and late back-to-school season. The gross margin was healthy, led by the brand portfolio. The Famous Footwear segment saw higher market share in the Kids category.

This presently Zacks Rank #3 (Hold) company’s shares have gained 7.8% in the past three months against the industry’s 16% decline.

Caleres' Quarterly Performance: Q2 Insights

Consolidated net sales of $683.3 million dipped 1.8% year over year on lower sales across the Brand Portfolio segment. Also, the metric missed the Zacks Consensus Estimate of $716 million. The Famous Footwear segment net sales increased 1.5% with a comparable sales dip of 2.9% while the Brand Portfolio unit’s sales dropped 5.1%. Direct-to-consumer sales accounted for roughly 75% of the overall quarterly sales.

Gross profit fell 1.1% year over year to $310.9 million while the gross margin increased 30 basis points (bps) to 45.5%. The Famous Footwear segment’s gross margin fell 120 bps year over year to 45% while the Brand Portfolio segment's gross margin increased 140 bps to 42.7%.

The company delivered a gross margin of $189.3 million for Famous Footwear and $121.9 million for Brand Portfolio. The Zacks Consensus Estimate for Famous Footwear’s gross margin was pegged at $201 million while the estimate for Brand Portfolio was $132 million.

Moreover, adjusted EBITDA fell 12.4% to $57.2 million with adjusted EBITDA margin contraction of 100 bps to 8.4%.

CAL’s Financial Snapshot

Caleres ended the quarter with cash and cash equivalents of $51.8 million and a total shareholders’ equity of $613.5 million, including non-controlling interests of $7.4 million. Cash generated from operating activities was $115.7 million during the 26 weeks ended Aug. 3, 2024. Inventory remained flat year over year.

Caleres had borrowings under its asset-based revolving credit facility of $146.5 million at the end of the quarter.

What to Expect From CAL in Q3 & FY24?

For the near term, Caleres continues focusing on lowering debt and expects borrowings under its asset-based revolving credit facility to be less than $100 million by 2026. It will continue to boost business performance and market conditions with free cash flow and share repurchases.

For the fiscal third quarter, Caleres anticipates sales in the range of flat to down 2% year over year and adjusted earnings per share (EPS) to be in the range of $1.30-$1.40.

For fiscal 2024, management projects consolidated net sales to decline in the low single digits compared with the earlier guidance of flat to up 2%. Caleres expects a consolidated operating margin in the band of 7-7.1% compared with 7.3-7.5% projected earlier and an effective tax rate of 24%. It envisions adjusted EPS to be in the range of $4-$4.15, excluding 6 cents a share of restructuring charges in the third quarter. Capital expenditures are projected to be in the range of $50-$55 million.

Key Consumer Discretionary Picks

We have highlighted three better-ranked stocks, namely Royal Caribbean (RCL Quick QuoteRCL - Free Report) , G-III Apparel Group (GIII Quick QuoteGIII - Free Report) and Gildan Activewear (GIL Quick QuoteGIL - Free Report) .

Royal Caribbean, which is a cruise company, owns global brands like Royal Caribbean International, Celebrity Cruises and Azamara Club Cruises. It sports a Zacks Rank #1 (Strong Buy) at present. You can see the complete list of today’s Zacks #1 Rank stocks here

The Zacks Consensus Estimate for RCL’s current financial-year sales indicates an increase of 18.1% from the year-ago reported level. RCL has a trailing four-quarter earnings surprise of 18.5%, on average.

G-III Apparel is a manufacturer, designer and distributor of apparel and accessories under licensed brands, owned brands and private label brands. It carries a Zacks Rank #2 (Buy) at present.

GIII Apparel has a trailing four-quarter earnings surprise of 118.2%, on average. The Zacks Consensus Estimate for GIII Apparel’s current financial-year sales indicates growth of 3.3% from the year-ago figure.

Gildan Activewear, a manufacturer of premium quality branded basic activewear, carries a Zacks Rank of 2 at present. GIL has a trailing four-quarter earnings surprise of 5.5%, on average.

The consensus estimate for Gildan Activewear’s current financial-year sales indicates growth of 1.4% from the year-ago figure.