Shoe Station Group, Inc.

Good morning and welcome to SHU Carnival's third quarter 2021 earnings conference call. Today's conference is being recorded. It is also being broadcast via webcast. Any reproduction or rebroadcast of this portion of the call is expressly prohibited. Management's remarks may contain forward-looking statements that involve a number of risk factors. these risk factors could cause the company's actual results to differ materially from those projected in such statements. Forward-looking statements should also be considered in conjunction with the discussion of risk factors included in the company's SEC filings and today's earnings press release. Investors are cautioned not to place undue reliance on those forward-looking statements which speak only as of today's date. The company disclaims any obligation to update any of the risk factors or to publicly announce any revisions to the forward-looking statements discussed on today's conference call or contained in today's press release to reflect future events or developments. I'll now turn the conference over to Mr. Mark Warden, President and CEO of Shoe Carnival, for opening comments. Mr. Warden, you may begin.

It's an honor and a pleasure to welcome you to SHU Carnival's third quarter earnings conference call, my first as president and CEO of this great company. Those who know me from my prior roles as president and chief customer officer, or previously as chief strategy officer and chief marketing officer, know how passionate I am about our brand. I'm so excited to lead during this pivotal point in our company's trajectory, as today, we report the best quarter of our best year in our entire 43-year history. And when I say best, I mean best as measured by every relevant metric. We created more shareholder value during this quarter than in any prior full year. EPS and operating income are both up over 3x versus any prior Q3 result. Our dividend is up 58%. We split the stock in the last quarter. And as I sit here today, sales are up over $300 million year to date, or over 41% growth. I'm thrilled to be leading our talented, resilient, dedicated team into a new growth phase defined and driven by traits that made us an industry leader over the past four decades. We consistently offer the best product, customer experience, and value in-store and online. If I had to pick a headline to tell the last quarter story, it would be this, back to billion-dollar brand. The pandemic briefly took that distinction away from us, and now we've got it back. How did we do it? First, customers resoundingly returned to shopping in person. Importantly, our accelerating growth is multi-channel. We're hitting all-time highs with bricks and clicks. Some volume is ascribable to pent-up demand as kids got back to school and team sports, and others came in to pick up a new pair of dress shoes for that first in-person fall dance. But we also delivered strong growth in other lifestyle categories, including athleisure. So it's also about having the right range of product available at the right time. A second core message you're hearing me hit hard up front. We are back in growth mode again. We're wrapping up a protracted period of net store closings. And with the productivity moving in the right direction, we are moving back toward net store openings as we enter 2022. We're seeing families flocking to our bright, clean, fresh, modern stores and liking what they find there. Our customers are more excited than ever about getting out of their homes and into our stores. And with that in mind, we're accelerating investment in building the best-in-class loyalty and CRM platforms. We've reached an inflection point at our company. We've entered a new era of growth and expansion as we fulfill our long-term strategic ambition to become a multi-billion dollar retailer in the years ahead. I'm joined on today's call by two seasoned industry leaders, Chief Merchandising Officer Carl Scibetta and Chief Financial and Administrative Officer Kari Jackson. whose combined 42 years of service at SHU Carnival are a testament to the stability and continuity of our leadership team. Before moving on, I'd like to stress the incredible contributions of the thousands of SHU Carnival team members who collectively contributed to our success of the past year and the past quarter. It's no exaggeration to say that we could not have reported such remarkable results if not for the dedication, motivation, and inspiration of the best merchants, marketers, and operators in our industry, bar none. On this call, I'll provide you with some perspective on the quarter and our strategic priorities. Carl will weigh in with his thoughts on some key industry trends and our longer-term outlook. Kerry will share insight from his deeper dive into our Q3 financial performance in greater detail. Finally, we'll be opening this call up to questions. I'd like to thank all of you on this call for joining us today and for your interest in SHU Carnival. And to our millions of customers, thank you for the trust you place in us and your ongoing loyalty to our brand. I'll start out with a few high-level proof points to back up my earlier statement, which is that this was by every measure our best quarter of our best year in our 43-year history. We took home our highest quarterly earnings achieved the highest sales of any quarter, more than tripled operating income versus any prior Q3. Store traffic is up over 40% year to date with strong growth across every region we operate from Chicago down to Texas. Our profit margins are highest ever with all of our comparable stores generating positive cashflow year to date. And going into 2022, All stores across the fleet are forecast to have positive cash flow on a comp basis. Importantly, from the point of view of our customers, we're executing rapidly on our store modernization plan to update two-thirds of our fleet in three to five years. Based on overwhelmingly positive customer response to our modernized stores, today I'm announcing an acceleration of our strategic plans and are now proceeding to modernize 90% of the fleet by 2025. Now, let me respond to two obvious follow-up questions. First, how did we do it? And second, can we keep it up? We did it by executing flawlessly on and investing aggressively in our best-in-class brand building, loyalty, and customer relationship management platforms. Since the onset of the pandemic, we've engaged with many millions of new customers and expanded our active buyers count to new heights. At the end of Q3, we surpassed 28 million shoe purse loyalty members, growing nearly 3 million loyal customers versus the prior year. I think one of the best ways to highlight the success of Q3 is by the increase in our gross profit margin of 840 basis points for Q3 to 40.4% compared to 32.0% in the prior year. One of the most important ways we got there was by delivering on our stated intention to eliminate BOGO half-off promotions for the year. That buy one, get one half price promotional tactic has been exposed as an approach that committed us and many of our competitors to selling our best shoes at the lowest price point. We are no longer reliant on that profit dilutive promotional approach. Turning now to our e-commerce results, Ours is emphatically an omnichannel story. We're all about getting our digital clicks to complement our bricks business. Over the past year and past quarter, we transformed our e-commerce business from a sales and profit perspective. Today, we're at about $115 million in sales for the first three quarters, which is roughly twice all of our e-commerce revenues for all of 2019. I refer to 2019 Because while year-to-date revenues are down from 2020, the comparison isn't very useful because our stores were closed for a significant part of the first half of that year. This past quarter was, as you'll be hearing from us in different contexts, the most normalized since the onset of the pandemic in the first quarter of 2020. Margins in our e-commerce business are up significantly, and Q3 sales returned to low double-digit growth compared to last year. We expect that growth trend to continue and forecast low double-digit e-commerce growth continuing annually for many years ahead. Now, let me provide you with an update on our progress executing on our strategic plans, investments, and innovations. We've been putting every one of those best-in-class programs and initiatives through their paces with just one goal in mind. We want our customers to once again feel the joy and fulfillment of real-time, in-person shopping through an in-store experience that is unique in our category. And just as importantly, we want our customers to have a comparably compelling experience when engaging our brand online. The best news coming out of the quarter is that we are continuing to pull in customers by the millions into our stores who had not recently or ever seen or experienced the excitement of the modern shoe carnival. We see the future of retail as being about having a real world experience, walking our clean, bright stores, seeing the compelling visuals that are constantly updated and discovering new brands through our steady stream of exciting pop-ups. Let me share with you some of the best outcomes of the past year and the past quarter, which can't be conveyed by the numbers alone. Since the pandemic shined the spotlight on persistent inequities in our society and communities, At SHU Carnival, we have resoundingly taken that challenge as inspiring all of us on our team to do even more. We're proud of the commitment to community engagement represented by our recent New Business Partner of the Year Award from St. Jude's Children's Hospital. Through the Roundup at the Register program, we facilitated our customers' donations of over $1.1 million to our charitable partners year to date. And we have had promising partnerships with among a wide range of organizations, the Boys and Girls Club. All these philanthropic initiatives taken together are the positive outcome of a long-term strategy to significantly increase our involvement in and positively impact local communities and families across our geographic footprint. We've made significant progress in other areas, including advancing the diversity of our board with the welcome addition of Diane Randolph, the former CIO of Ulta Beauty. This brings the gender diversity up to our near-term target of 40% of independent directors, a significant improvement over 16% in 2018. Importantly, Diane will be a tremendous resource as we continue on our journey to lead the retail footwear industry on technology, innovation, and customer experience. Before turning the call over to Carl and Kerry, I'd like to take a few moments to share two of my long-term ambitions for Shoe Carnival at the close of my first quarter as CEO. First, I aim to grow the Shoe Carnival Corporation into a multi-billion dollar retailer within the years ahead. Second, I see the Shoe Carnival Corporation as the preferred family footwear destination among value customers across America. I'm confident that with our long-term strategic plans and outstanding team, the future is very bright for Shoe Carnival. Thank you all again. Now, I'll turn it over to Carl Scivetta, Chief Merchandising Officer, for an update on our product performance and inventory position.

Thanks very much, Mark. As Mark says, we're delighted to report the strongest ever quarter. I will now provide an update on four key factors driving our outstanding performance. First, we are leading the way with loyalty and brand building. Through our ongoing investment in CRM, we are able to understand our customer better than ever before and continue to execute on our focused promotional strategy by using data intelligence to drive customers in-store and online more personalized recommendations. This strategy has served us well since implementing it just over a year ago, driving record sales and gross margins. CRM is a vital part of our innovative marketing plan and has allowed us to facilitate personalized communication for our customers. Further, it provides us with valuable customer insights. These investments have been a catalyst for outstanding results and market share gains over the past several quarters, with today the strongest evidence yet that our strategy is working. Second, our unparalleled vendor relationships. Supply chain challenges continue to impact our industry and many others. We are the partner of choice for vendors navigating supply chain volatility and are the first port of call when product comes in. While some of our competitors were dialing back purchases and keeping inventories low because they were worried they'd get stuck with a surplus of goods, we did the opposite. We planned for growth in 2021 from a merchandising perspective. We planned for the best back to school season ever and we got it. We were prepared and positioned to meet pent up demand and we did it. We got the right product at the right time due to strong vendor community relationships. Our vendors knew we had our heart in the business and they allotted to us accordingly. Because we had the right products at the right time when our competitors didn't, we crushed back to school with comps up over 30% to the prior period. August was an incredibly strong month, and we sustained those highest ever volumes through October. Our story is about working with vendors to overcome supply challenges. In this environment, vendors are picking and choosing more carefully than ever, and we are proud to be at the top of their list. We have firmly embedded relationships with our vendor partners, both existing and new vendors continue to think of us first. Third, we are winning merchandise categories and assortments. As Mark mentioned, our customers return to our stores and droves, and we have what they want. Comp sales versus Q3 2020 were up 30.1% and up 31.4% versus 2019. As Mark mentioned, this past quarter was the most normalized since the onset of the pandemic in 2020. As a benchmark, merchandise margins in our e-commerce business are up over 500 basis points compared to the comparable prior year period. I'd like to highlight our best-in-class merchandise team as the unsung heroes of the quarter, not only anticipating trends but navigating supply shocks to deliver the right assortments for back-to-school and whole families. Drilling down to back to school performance, we said at Q2 we planned for an active back to school season and we got it because we had the right products at the right time. That resulted in our converting the most customers in the past quarter than ever before. We feel Q3 was the most normalized quarter we have seen since the pandemic began and e-commerce now has normalized with double digit growth. E-commerce continues to play a significant role with consumers balancing wanting to get back on the main street with continuing to work from home as they juggle their work-life balance. Overall, e-commerce traffic continued to grow in the third quarter, remains a key driver for new customer acquisition and an important part of the omnichannel approach. Ours is truly an omnichannel story as we provide a highly complimentary bricks-and-clicks offering that provides customers with the breadth of assortment and quality of service they've come to expect from us. Let me touch on that a little more. Fourth is our differentiated store environment and customer service. Mark alluded to this earlier, but we see a modern shoe carnival as well positioned to succeed in the post-COVID era. We want our customers to feel joy and fulfillment of in-person shopping in our stores. Our stores have an open, modern, clean look, and they feel safe. These environments are motivating more customers to step through the door and browse. Our larger in-store footprint facilitates both a pleasant browsing experience and provides the opportunity for a socially distanced environment to ensure health and safety. Our digital displays and brand shops connect customers to trends and promotions they seek with real-time updates. Above all, our people are friendly, knowledgeable, and always put the customer first. In fact, our customer focus is a core value and a key difference maker in the category. As we turn to results, category comparable store sales were all up double digits with overall merchandise margins for the quarter up 670 basis points versus 2020 and 830 basis points versus 2019. Kids comparable store sales versus 2020 were up in the mid-40s. Both athletics and non-athletic sales were up over 40% versus last year. Men's non-athletic comparable store sales were up in the high 20s. Sales were different by men's canvas, sandals, and all boot categories. Women's non-athletic comparable store sales were up in the mid-30s. As we reported during our second quarter call, men's, women's, and children's dress footwear has made a huge comeback, with women's dress leading the way, with a third-quarter comparable sales gain of over 100% versus 2020. Sales in women's sport and sandals were also strong, and the boot season was starting off well. Adult athletic comparable store sales were up over 20% versus 2020. Both men's and women's areas performed well, with basketball, skate, and running all turning in strong results. As we laid out at the start of the call, supply chain challenges continue to impact our industry and many others. As we mentioned, there's no way to minimize these supply chain challenges. But what differentiates us from the competition is that these challenges presented us with a competitive opportunity, which we successfully captured. Although delays continued through the quarter, our team of seasoned merchants continued their aggressive approach to sales and inventory as they have shown throughout the entire year. Through their hard work and excellent vendor partnerships, the team was able to deliver the products needed to fuel these outstanding results. We feel we are well positioned with inventory to succeed in the fourth quarter and are confident we will head into fiscal 2022 with a strong inventory position to deliver continued success. We expect fiscal 2022 beginning inventories to be up in the high teens versus 2021 and middle single digits versus 2020. This increase will be mostly driven by increases in our athletic and men's inventories. With that, now let me turn the call over to Kerry Jackson to provide more insight into our financial performance for the quarter and the full year.