4/28/2016
By Charles Payne, CEO & Principal Analyst

Caleres (CAL) began as the Brown Shoe Company back in 1878 and has since has grown into a maker and retailer of a variety of shoes and brands.  Our original investment thesis was based on solid growth not reflected in traditional valuation metrics.  We have been influenced in part by a macro backdrop that includes stagnant wages and subpar economic growth (see 1Q16 GDP 0.5%).  I’m now concerned this may be more of a value trap, or take too long to evolve into the winner we modelled it would eventually become.

Based on the valuation metrics, the stock is cheaper than its rivals.  However, there is no top line growth and margins, particularly operating margins, trails the competition (see tables).  

Earnings have been consistent but guidance modest.

It’s clear the athletic/healthy business is doing much better than the brands segment, but it’s not keeping up with its peers.   It’s not complete apples to apples as the company’s Famous segment includes: Naturalizer, Dr. Scholl’s, Life Stride and Ryka.

Technical View

The February bounce has faded, and now the stock is making a series of lower highs (bearish), and must hold above $25.00.

CAL

Conclusion

We are going to hold for one more earnings report.  More than likely, the position will be closed as it goes beyond our initial goal of three to six month holds unless the value proposition continuously improves.  We don’t use automatic stop losses on this service, but it’s critical the shares hold up above $25.00. 

Charles Payne
Wall Street Strategies

Add a Comment!