CAL · Caleres, Inc.

Management Discussion and Analysis

Gross profit declined 3.0% to $1.2 billion, and gross margin settled at 43.0%. While the authoritative packet does not quantify specific margin pressures, management confirmed continued tight inventory management in 2025—including SKU optimization and amplification of key trends—to drive sales volume. This operational discipline helped stabilize margins amid broader industry challenges.

Operating income fell sharply to $6.4 million, a 95.7% decrease year-over-year. As stated in Item 7, this decline was primarily due to expenses associated with the Stuart Weitzman acquisition, as well as higher facility costs—including increased depreciation tied to Famous Footwear store renovations under the FLAIR concept—and higher store rent expense from lease renewals. These investments align with our stated strategy to deepen connections with the millennial family in Famous Footwear and accelerate growth in the Brand Portfolio segment.

Net income turned negative at -$6.7 million, with diluted EPS of -$0.21, reversing from $107.3 million and $3.09 per share in FY2024. The shift reflects the cumulative impact of acquisition-related costs and elevated fixed expenses, without offsetting gains sufficient to restore profitability.

Cash flow from operations remained strong at $103.2 million—nearly unchanged from $104.6 million in FY2024—demonstrating resilience in core working capital and earnings quality. Capital expenditures totaled $63.7 million, up from $49.1 million, supporting continued investment in store remodels and infrastructure modernization. Free cash flow of $39.4 million reflects disciplined capital allocation within this context. As noted in management commentary, we remain committed to cost control and executing clearly defined strategic initiatives to support sustainable, long-term growth.