Caleres, Inc.

ITEM 2    MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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OVERVIEW

Business Overview

We are a global footwear company that operates retail stores and e-commerce websites, and designs, develops, sources, manufactures and distributes footwear for people of all ages.  We offer retailers and consumers a diversified portfolio of leading footwear brands.  Outfitted in our brands, customers can step confidently into every aspect of their lives.  As both a retailer and a wholesaler, we have a perspective on the marketplace that enables us to serve consumers from different vantage points.  We believe our diversified business model provides us with synergies by spanning consumer segments, categories and distribution channels.  A combination of thoughtful planning and rigorous execution is key to our success in optimizing our business and portfolio of brands. Our business strategy is focused on accelerating growth in our Brand Portfolio segment, gaining market share and deepening connections with the millennial family in our Famous Footwear segment, leveraging our “One Caleres” capabilities to increase profitability, and delivering value for our shareholders.

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Known Trends Impacting Our Business

Based on the current macroeconomic environment and our recent operating results, we believe the following trends may continue to impact our business and operating results:

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Macroeconomic Environment

Macroeconomic conditions continued to weigh on consumer discretionary spending and our financial results during the second quarter of 2026. Consumers remain impacted by elevated interest rates, persistent inflation, and expectations of future price increases, which have increased pressure on discretionary spending. In addition, heightened geopolitical volatility has adversely affected the global economy. More recently, conflict throughout the Middle East, particularly the war in Iran, has increased oil prices, resulting in higher product and transportation costs. As a result, we continued to experience lower consumer traffic in our Famous Footwear retail stores during the quarter.

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Tariff volatility and the lack of clarity surrounding future trade policy developments have heightened uncertainty in the global economy. We source a majority of our products internationally. We continue to monitor changes in policy impacting global trade, including tariffs, which have been volatile and subject to ongoing modification. In February 2026, the U.S. Supreme Court invalidated certain tariffs imposed under the International Emergency Economic Powers Act (“IEEPA”) and in March 2026, the U.S. Court of International Trade ordered the U.S. Customs and Border Protection Agency (“CBP”) to suspend collection of the invalidated tariffs and to establish a process to refund IEEPA tariffs previously collected. During the thirteen and twenty-six weeks ended August 1, 2026, we collected $57.4 million of tariff refunds and related interest. The Company has received substantially all of the tariff refunds.

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Additionally, following the Supreme Court’s ruling invalidating the IEEPA tariffs, the U.S. imposed a temporary 10% general tariff under Section 122 of the Trade Act of 1974 and initiated additional trade actions, including the imposition of tariffs under Sections 301of the Trade Act of 1974, as well as other statutory authorities that may be used to impose tariffs or other import restrictions. On July 24, 2026, new tariff rates were imposed under Section 301 of the Trade Act of 1974. In addition, the U.S. Trade Representative has indicated that additional Section 301 tariffs may be implemented in the coming months following investigations covering a broad range of countries, including major sourcing markets. There remains substantial uncertainty regarding the potential changes or pauses to existing and newly announced tariffs, tariff levels, and whether additional tariffs or other reciprocal actions may be imposed, modified, or suspended. We have continued to implement various mitigation strategies including adjusting the countries from which we source our products and negotiating price concessions with our factories and selectively raising prices. Proposed or enacted tariffs and changes to U.S. trade policies may be reinstituted, paused, removed, or changed at any time, and to the extent we are unable to successfully mitigate any negative resulting impacts, it could adversely affect our business, financial condition, and results of operation.

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Liquidity

Our liquidity position remains strong, with $50.9 million in cash and cash equivalents and excess availability on our revolving credit agreement of $357.3 million as of August 1, 2026.  During the second quarter of 2026, borrowings on our revolving credit agreement decreased to $288.0 million, primarily driven by repayments under our revolving credit agreement resulting from cash receipts from tariff refunds.  

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Financial Highlights

Highlights of our consolidated and segment results for the second quarter of 2026 and 2025 are as follows:

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Metrics Used in the Evaluation of Our Business

The following are a few key metrics by which we evaluate our business, identify trends and make strategic decisions:

Comparable sales

The comparable sales metric is a metric commonly used in the retail industry to evaluate the revenue generated for stores that have been open for more than a year, though other retailers may calculate the metric differently. Management uses the comparable sales metric as a measure of an individual store’s success to determine whether it is performing in line with expectations. Our comparable sales metric is a daily-weighted calculation for the period, which includes sales for stores that have been open for at least 13 months.  In addition, in order to be included in the comparable sales metric, a store must be open in the current period as well as the corresponding day(s) of the comparable retail calendar in the prior year. Accordingly, closed stores are excluded from the comparable sales metric for each day of the closure.  Relocated stores are treated as new stores and therefore excluded from the calculation. E-commerce sales for those websites that function as an extension of a retail chain are included in the comparable sales calculation.  In fiscal years with 53 weeks, the 53^rd week of comparable sales is included in the calculation.  In the following year, the prior fiscal year period is shifted by one week to compare similar calendar weeks.  We believe the comparable sales metric is useful to shareholders and investors in assessing our retail sales performance of existing locations with comparable prior year sales, separate from the impact of store openings or store closures.

Sales per square foot

The sales per square foot metric is commonly used in the retail industry to calculate the efficiency of sales based upon the square footage in a store. Management uses the sales per square foot metric as a measure of an individual store’s success to determine whether it is performing in line with expectations. The sales per square foot metric is calculated by dividing total retail store sales, excluding e-commerce sales and the retail operations of our joint venture in China, by the total square footage of the retail store base in North America at the end of each month of the respective period.  

Direct-to-consumer sales

Direct-to-consumer sales includes sales from our retail stores, our company-owned websites and sales through our customers’ websites that we fulfill on a drop-ship basis. While we take an omni-channel approach to reach consumers, we believe that our direct-to-consumer channels reinforce the image of our brands and strengthens our connection with the end consumer. In addition, direct-to-consumer sales generally result in a higher gross margin for the Company as compared to wholesale sales. As a result, management monitors trends in direct-to-consumer sales as a percentage of our Brand Portfolio segment and total consolidated net sales.

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RESULTS OF OPERATIONS

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Following are the consolidated results and the results by segment:

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CONSOLIDATED RESULTS

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Net Sales

Net sales increased $37.0 million, or 5.6%, to $695.5 million for the second quarter of 2026, compared to $658.5 million for the second quarter of 2025.  Net sales of our Brand Portfolio segment increased $65.0 million, or 23.6%. Stuart Weitzman, acquired on August 4, 2025, contributed net sales of $42.5 million. Brand Portfolio net sales were up 8.2% on an organic growth basis, reflecting increases in our wholesale and international businesses. We saw broad strength in our fashion footwear brands and growth in most of our more value-oriented brands. Net sales in our Famous Footwear segment decreased $25.2 million, or 6.3%, and comparable sales declined 5.9%, reflecting less traffic in our retail stores.  Our direct-to-consumer sales represented approximately 71% of consolidated net sales for the second quarter of 2026, compared to 75% for the second quarter of 2025. We remain focused on international growth, direct-to-consumer penetration, elevating the consumer experience at Famous Footwear and maximizing the vertical opportunity between the Famous Footwear and Brand Portfolio segments, with Dr. Scholl’s, LifeStride, Naturalizer, and Blowfish Malibu representing four of Famous Footwear’s top 20 best-selling footwear brands during the quarter.

Net sales increased $89.4 million, or 7.0%, to $1,362.1 million for the six months ended August 1, 2026, compared to $1,272.7 million for the six months ended August 2, 2025.  Net sales of our Brand Portfolio segment increased $125.9 million, or 22.0%. Stuart Weitzman contributed net sales of $86.4 million. Brand Portfolio net sales were up 6.9% on an organic growth basis.  Net sales in our Famous Footwear segment decreased $33.6 million, or 4.6%, and comparable sales declined 4.3%, reflecting less traffic in our retail stores.  Our direct-to-consumer sales represented approximately 69% of consolidated net sales for the six months ended August 1, 2026, compared to 73% for the six months ended August 2, 2025.

Gross Profit

Gross profit increased $95.2 million, or 33.3%, to $381.0 million for the second quarter of 2026, compared to $285.8 million for the second quarter of 2025. As a percentage of net sales, gross profit increased to 54.8% for the second quarter of 2026, compared to 43.4% for the second quarter of 2025. The increase primarily reflects $55.6 million of tariff refunds received in the second quarter of 2026. The remaining increase is driven by lower ongoing tariffs and the continuation of our tariff mitigation efforts as well as favorable channel mix with more retail sales, which have a higher margin than wholesale, as a result of the Stuart Weitzman acquisition. This was offset by clearance-related activity.

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Gross profit increased $131.9 million, or 23.4%, to $696.4 million for the six months ended August 1, 2026, compared to $564.5 million for the six months ended August 2, 2025. As a percentage of net sales, gross profit increased to 51.1% for the six months ended August 1, 2026, compared to 44.4% for the six months ended August 2, 2025. The increase primarily reflects $55.6 million of tariff refunds received in the second quarter of 2026. The remaining increase is driven by the same factors described above.

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We classify certain warehousing, distribution, sourcing and other inventory procurement costs in selling and administrative expenses.  Accordingly, our gross profit and selling and administrative expense rates, as a percentage of net sales, may not be comparable to other companies.

Selling and Administrative Expenses

Selling and administrative expenses increased $33.7 million, or 12.5%, to $303.4 million for the second quarter of 2026, compared to $269.7 million for the second quarter of 2025.  The increase was driven by expenses associated with our acquired Stuart Weitzman brand, as well as higher expenses associated with our incentive compensation programs.  As a percentage of net sales, selling and administrative expenses increased to 43.6% for the second quarter of 2026, from 40.9% for the second quarter of 2025.

Selling and administrative expenses increased $60.9 million, or 11.4%, to $597.1 million for the six months ended August 1, 2026, compared to $536.2 million for the six months ended August 2, 2025.  The increase was driven by the same factors described above.  As a percentage of net sales, selling and administrative expenses increased to 43.8% for the six months ended August 1, 2026, from 42.1% for the six months ended August 2, 2025.

Restructuring and Other Special Charges, Net

Restructuring and other special charges, net resulted in income of $2.1 million for the six months ended August 1, 2026, driven by a gain on the sale of one of the remaining parcels comprising the corporate headquarters and offset by Stuart Weitzman acquisition and integration costs. Refer to Note 6 to the condensed consolidated financial statements for additional information related to these charges. We incurred restructuring costs of $7.4 million for the six months ended August 2, 2025, primarily for legal and other related costs associated with the acquisition of Stuart Weitzman and other related costs associated with our expense reduction initiatives.

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Operating Earnings

Operating earnings increased $68.3 million to $77.6 million for the second quarter of 2026, compared to $9.3 million for the second quarter of 2025, reflecting the factors described above. As a percentage of net sales, operating earnings were 11.2% for the second quarter of 2026, compared to 1.4% for the second quarter of 2025.

Operating earnings increased $80.6 million to $101.5 million for the six months ended August 1, 2026, compared to $20.9 million for the six months ended August 2, 2025, reflecting the factors described above. As a percentage of net sales, operating earnings were 7.5% for the six months ended August 1, 2026, compared to 1.7% for the six months ended August 2, 2025.

Interest Expense, Net

Interest expense, net decreased $0.1 million, or 2.5%, to $4.4 million for the second quarter of 2026, compared to $4.5 million for the second quarter of 2025, reflecting lower average borrowings on our revolving credit facility.

Interest expense, net increased $0.8 million, or 9.3%, to $9.1 million for the six months ended August 1, 2026, compared to $8.3 million for the six months ended August 2, 2025, reflecting higher average borrowings on our revolving credit facility.

Other Income, Net

Other income, net increased $3.5 million to $4.5 million for the second quarter of 2026, compared to $1.0 million for the second quarter of 2025, and increased $4.0 million, to $5.7 million for the six months ended August 1, 2026, compared to $1.7 million for the six months ended August 2, 2025, primarily reflecting $1.8 million of interest received from tariff refunds, as well as higher income generated from our pension plan assets in the second quarter and six months ended August 1, 2026. Refer to Note 14 of the condensed consolidated financial statements for further information.

Income Tax Provision

Our effective tax rate can vary considerably from period to period, depending on a number of factors.  Our consolidated effective tax rates were a provision of 23.6% and a benefit of 22.0% for the second quarter of 2026 and 2025, respectively. Our consolidated effective tax rates were provisions of 25.4% and 8.8% for the six months ended August 1, 2026 and August 2, 2025, respectively. The higher effective tax rate for the quarter was driven by the pre-tax income and tax provision associated with tariff refunds received during the second quarter of 2026 contrasted with a discrete tax benefit of $2.5 million associated with foreign earnings transition tax resolution during the second quarter of 2025.  Discrete tax provisions related to share-based compensation of $1.5 million and $0.4 million were also recorded for the six months ended August 1, 2026 and August 2, 2025, respectively.

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In 2021, the Organization for Economic Cooperation and Development (OECD) released Pillar Two Global Anti-Base Erosion model rules, designed to ensure large corporations are taxed at a minimum rate of 15% in all countries of operation. The OECD continues to release guidance and countries are implementing legislation to adopt the rules, which became effective on January 1, 2024.  In January 2026, the OECD announced that the U.S. multinational regime would be considered a side-by-side regime that should prevent U.S. companies from double taxation, although the arrangement is still being reviewed and adopted by other countries who have enacted Pillar Two legislation. We are continuing to evaluate the Pillar Two rules and their potential impact on future periods, but we do not expect the rules to have a material impact on our tax provision or effective tax rate.

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Net Earnings Attributable to Caleres, Inc.

Net earnings attributable to Caleres, Inc. was $58.6 million and $72.9 million for the second quarter and six months ended August 1, 2026, respectively, compared to $6.7 million and $13.7 million for the second quarter and six months ended August 2, 2025, respectively, as a result of the factors described above.

FAMOUS FOOTWEAR