Shoe retailer Bakers Footwear (NASDAQ:BKRS) just reported another difficult quarter as it attempts to remodel stores and revive sales. The shares have sunk to buy-one, get-one-free status, trading at less than half their 52-week high. Is this a buying opportunity?

Not so fast. The company released second-quarter earnings late last week, and while total sales advanced 4.3%, same-store sales fell a depressing 6.4%, though they did follow a strong 12.7% increase in the year-ago period. Unfortunately, Bakers also reported losses on both an operating and net earnings basis, and first-quarter results were not overly rosy, either. Pretty sad indeed, but the shares are now only trading at about 12 times earnings.

Still, it's hard to tell just when things might turn around. Over the past year and a half, Bakers has spent more in capital expenditures than it generated in operating cash flow, remodeling existing stores and opening new ones. It also just increased its credit line with its lender and pushed out the maturity of the facility, and it's been issuing shares and warrants for additional capital.

Unfortunately, right now I can't tell whether management's capital allocation decisions are generating returns above the cost of that capital. Neither sales nor cash flow are improving, and additional shares being issued are diluting shareholder interests.

Again, results don't sound promising, but the valuation is pricing in some downside, as witnessed by the low P/E ratio and an enterprise value (market capitalization plus debt minus cash) to sales ratio of only .36. That's as low as other struggling retailers, including Sharper Image (NASDAQ:SHRP) and Pier 1 Imports (NYSE:PIR). The million-dollar question: When will things turn around? That's always difficult to determine in the land of retailing, since consumer tastes are fickle and unpredictable.

I'm also concerned that Bakers is a small company with only a $63 million market cap, which makes it more difficult to for the company to achieve economies of sale. For example, it can't spread administrative costs over a larger store base, nor employ operational and logistics savvy to drive sales. Being small, Bakers has a lot of room to expand, but it also has a limited history as a publicly traded company. Its shares now trade for only about a buck more than its February 2004 IPO price of $9.

Right now, it may be a safer bet to go with the two largest footwear retailers: Finish Line (NASDAQ:FINL), which trades at a similar multiple, or Foot Locker (NYSE:FL). Although Payless Shoesource (NYSE:PSS) is also changing its stores to attract more upscale shoppers, it's posting improved profits thanks to its cost-cutting moves. There's also Steve Madden (NASDAQ:SHOO), which tends to have higher margins, since it also owns and licenses shoe brands, as opposed to just operating in the retail stores. The shoe space is crowded, but at least that leaves plenty of options to mull over when going shopping -- or investing in the space.

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Fool contributor Ryan Fuhrmann has no financial interest in any company mentioned. The Fool has an ironclad disclosure policy. Feel free to e-mail Ryan with feedback or to further discuss any companies mentioned.