Shoe Station Group, Inc.

Good morning, my name is Chris and I'll be your conference operator today. At this time, I'd like to welcome everyone to the SHU Carnival 2021 fourth quarter earnings call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star then the number one on your telephone keypad. To withdraw your question, please press star one again. Thank you. Mark Gordon.

President and Chief Executive Officer, you may begin. Good morning and welcome to SHU Carnival's Fourth Quarter Earnings Conference Call.

Joining me on today's call are Carl Scibetta, Chief Merchandising Officer, and Kerry Jackson, Chief Financial and Administrative Officer. I'd like to start by recognizing our team of nearly 6,000 members for their commitment, perseverance, and their winning spirit demonstrated throughout 2021. And to our millions of loyal customers and new customers across the hundreds of communities we serve, we are thankful you selected Shoe Carnival for your family's footwear shopping experiences. I have the pleasure of opening today's call by reporting that Shoe Carnival generated more profit for our shareholders during 2021 than the prior six years combined. Furthermore, growth momentum remains very strong at Shoe Carnival. No doubt 2021 presented a challenging macro environment. COVID-19 and supply chain disruptions required our exceptional merchandising team and operators to navigate ongoing complications. Inflation and a tight job market make clear how essential our team members are and how important our commitment to invest in competitive wages, compelling benefits, and long-term career growth is. One element was constant for Shoe Carnival every quarter in 2021. Our customers shopped in person at record levels, and when they did, the merchandise assortment delivered on their family footwear needs. Sales grew 36% for fiscal 2021, with every quarter growing double-digit versus 2020. We were most encouraged with the sustained market share growth achieved as every quarter grew over 20% versus 2019, which we view as a more normal sales profile without the pandemic disruption in 2020. Millions of new customers experienced U Carnival for the first time during 2020, after reopening our stores following the pandemic shutdown. Our team's 2021 focus was to leverage our advanced CRM and digital marketing capabilities to convert these new customers The plans work exceptionally well. For example, Q4 marked the seventh consecutive quarter of comp store growth and the sixth consecutive quarter of record earnings per share delivered. Growth was driven by double-digit store customer traffic increases and the acquisition of over 3 million new loyal customers first prior year. Total Q4 sales grew 23% with exceptionally strong holiday sales generated from the hottest athletic and non-athletic brands and styles for the family in stock. Despite the Omicron variant surging in Q4, our customers shopped in person during the holidays at the highest levels in our history. And did so with gross margins for the entire Q4 at 37.4%, up 650 basis points compared to Q4 last year. Carl and Kerry will discuss the margin results and sustainability of it shortly. Sales momentum has continued into fiscal 2022. We expect to deliver another sales record in fiscal 2022, with sales growth of 4% to 7% on top of the 36% growth achieved the prior year. We aim to surpass $1.4 billion this year, which will result in SHU Carnival sales 43% larger on a two-year stack. For the first six weeks of fiscal 2022, net sales continue to grow, driven by strength of customer traffic gains. The second half of Q1 and Q2 go up against large government stimulus funds in the prior year, which we are not anticipating being funded again this year. As such, we anticipate the first half of 2022 to generate net sales between flat and low single-digit increase. Once we last the major stimulus funding, we forecast mid to high single-digit growth for the remainder of 2022. I would like to turn now to our strategic plan to transform shareholders' profits. In 2019, we set a long-term objective to increase our operating margins from the historical 4% to 5% range, which was lagging the competitive set, to a long-term ambition to exceed 10%. To accomplish this objective, we invested in consumer technology, analytics, and hiring top talent so we could build out advanced customer relationship management and digital marketing capabilities. These investments resulted in profit generation faster and higher than we expected. For the full fiscal year, operating margin and EPS more than doubled versus our historical averages. For the fourth quarter, Despite the supply chain cost headwinds and average hourly wage inflation, earnings per share grew 177% versus the prior year and 500% on a two-year stack. For the full year, earnings per share grew 271% versus the prior record achieved during 2019, resulting in a return on beginning equity of 49.9%. Looking forward, We see our business model generating high levels of cash flow and gross margins. We do not see the 49% return achieved in 2021 being the norm. However, we have plans in place to now sustain double-digit operating margins and earnings per share more than 250% higher than the pre-pandemic levels. Turning to store productivity and growth. The full fleet is healthy with all comp stores cash flow positive and the chain generated sales over $300 per square foot. With these results achieved, we have now completed our multi-year store productivity improvement plans and forecast limited, if any, store closings for the next several years. Our store modernization plans continue to generate accelerated sales and positive customer feedback. Our athletic shop and shops with the brands our customers love and seek out is playing out as a compelling traffic driver and a competitive differentiator. With net sales and gross margins overperforming expectations, we are again accelerating capital investments for this program. We now aim to complete the modernization program across the fleet by the end of fiscal 2024. As we concluded fiscal 2021, approximately 20% of the fleet remodels were complete. We have over 100 more in flight and plan to have approximately 50% of the fleet complete at the end of this year. Our first acquisition closed successfully on December 3rd, 2021, acquiring the assets of the leading Southeast retailer, Shoe Station. Our original plan was to complete the back office integration by late 2022 and then begin rapid store growth in the 2023-2024 horizon. I'm very pleased to share today that the teams did an amazing job, and the back office integration is complete, six months ahead of our expectations. With this rapid, smooth start, we have shifted resources to store growth mode and building advanced CRM capabilities for the new banner. We're seeing encouraging opportunities to grow our new banner with complementary consumer demographics and real estate locations to the SHU Carnival banner. The real estate and analyst teams are deep into our CRM data and finding many promising markets to expand into. With both founder stores productive and generating strong cash flow, we are moving into store growth mode. For 2022, we aim to add over 10 stores to the fleet, then accelerate to over 20 stores annually beginning in 2023 through a combination of organic growth and opportunistic acquisitions where a strong regional or local player exists. Turning to shareholder value, we forecast earnings per share to be in the range of $3.80 to $4.10 for fiscal 2022, compared to $1.46 in fiscal 2019. This will generate a return on beginning equity between 24% and 26%. Additionally, with our strong cash flow and balance sheet, for raising our dividend by nearly 30% after raising it 50% last year. Kerry will discuss this shortly. In closing, SHU Carnival growth momentum is strong, despite the challenging macroeconomic environment. 2022 will be yet another record growth year, thanks to our exceptional team and rapidly expanding loyal customer base. I would now like to turn over the call to Carl.