Shoe Station Group, Inc.

Good morning and welcome to SHU Carnival's first quarter 2022 earnings conference call. Today's conference is being recorded. It is also being broadcast via webcast. Any reproduction or rebroadcast of any portion of this 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 be materially different 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 these 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 Worden, President and CEO of Shoe Carnival for opening remarks.

Mr. Worden, you may begin.

Good morning and welcome to Shoe Carnival's first quarter 2022 earnings conference call. Joining me on today's call is Kerry Jackson, Chief Financial and Administrative Officer. I'm encouraged to share that our customers return to a more normal shopping pattern during Q1 of 2022. Footwear category trends and customer behavior closely resembled the first quarter of 2019 before the pandemic began. Importantly, during this quarter, we gained valuable insights into how our customers would shop for footwear without the massive government stimulus distributions during 2021 and without the retail store closures from the pandemic in 2020. As such, I'll be comparing results versus Q1 2019 throughout my speech as we see it as the most relevant and normalized quarterly benchmark since the pandemic began. Three key learnings emerged for Shoe Carnival. First, our strategies to double our profit generation model compared to the levels before the pandemic have worked. Second, market share growth from new customer acquisition and loyalty enhancements continues to advance our plans to become a multi-billion dollar retailer. Third, customers are highly engaged with the dress, casual, and sandals product categories, demonstrating a strong return to pre-pandemic lifestyles and trends. More specifically, profits for the first quarter of 2022 significantly exceeded expectations. Earnings per share were 95 cents, achieving growth of 107% versus Q1 2019. Results were driven by double-digit operating income and net sales growth of 25.1%. This marks the fifth consecutive quarter of growing sales by over 20% versus 2019. Further, the 2022 results highlight the staying power of the customer growth achieved. I'm thrilled to share that we've surpassed 29 million loyal customers at the end of Q1, which is up over 10% from last year and over 25% from 2019. During the first quarter of 2021, the government distributed over $400 billion in consumer stimulus, contributing to SHU Carnival growth of over 120% versus the prior year. As included in our 2022 annual guidance, Q1 sales and EPS were planned lower than the prior year. However, our EPS over delivery versus planning Q1 reinforces our confidence for the remainder of the year. As a result of the strong start, today we are reiterating our sales guidance to achieve net sales growth of 4% to 7% on top of the 36% annual growth achieved last year. Additionally, we are raising our EPS guidance range to $3.95 to $4.15. Combined, this generates a return on beginning equity between 24% and 26% for our shareholders. We faced inflationary and supply chain headwinds throughout the quarter, yet our team of seasoned merchants continue to navigate the complexities with excellence. The teams partnered with our strategic vendors to ensure a solid inventory position and ultimately strengthen our delivery against our customer expectations. Our inventory positioning stores has us set up well to capture rapid growth in non-athletic seasonal products, dress, and casual categories. We started seeing these categories reemerge as growth trends last year, and the team bought 2022 for the consumer to return to more historic splits between athletic and non-athletic categories. During Q1, we saw that shift happen with an approximately 600 basis point shift from athletics back to non-athletics for the total corporation. This returns our category mix back to our normal split of approximately 50-50 athletic and non-athletic. Our balanced business model gives Shoe Carnival significant advantages to pivot rapidly as customer trends shift like they did over the past three years. Despite the supply chain challenges globally and the backup of goods at the ports, our inventory per door is up approximately 20% versus last year and versus 2019. We are positioned to win the back-to-school season with these inventory levels. Kara will discuss the supply chain and inventory positions further shortly. Overall, enthusiasm to rapidly grow sales and profits permeates through the organization. We are consistently executing on our core strategic priorities, which I will now provide a brief update on. Number one, delivering the most modern store fleet and shopping experience. Our BRICS-first retailer mindset ensures we constantly reimagine our store design, our shopping experience, and customer service processes. A total fleet modernization plan is well underway, and the new store design and enhanced shopping experience has generated exceptional customer response. As shared earlier this year, we have accelerated investments to complete the program faster. Today, 31% of the fleet modernization has been completed. Over 50% will be complete by the summer of 2023, and the full fleet plan will be completed by the end of fiscal 2024. One of the major advantages of the new design is to create distinct brand experiences and present customers with shop-in shop destinations. An example of this is our athletic shop-in shops, which provide a large, open, easy-to-shop environment with the nation's most sought-after athletic brands for the entire family. Another example is our seasonal pop-up shops that are focused on the hottest casual and sandals brands currently. Our new design is full of digital elements that allow us to pivot rapidly from one season to the next to the hottest new product, or to market the latest new brand in conjunction with our strategic vendor partners. Number two, our advanced CRM analytics and digital marketing. Understanding the footwear customer best and how to communicate effectively with them is a top strategic priority and core driver of our profit model. We elevated our capabilities in this space to accelerate profitable growth and to pinpoint desirable real estate. The Loyal Shoe Carnival customer base expanded over 10% this last 12 months and is now over 29 million customers that we can effectively engage with. Investments made in technology and team capabilities have transformed our promotional model into a highly profitable, personalized, digital-first approach. This has structurally shifted our gross margin levels upward by approximately 600 basis points, during Q1 2022 versus the previous highs pre-pandemic. Combined with our increased scale, the margin growth results in a sustainable operating income level that is double-digit and EPS that is more than twice the levels generated historically. This, in turn, creates strong operating cash flow characteristics to invest in accelerating future growth. Number three, leading store productivity. We completed our multi-year store productivity improvement plan this past year. The strategic plan eliminated all underperforming stores and those that were not positioned well to reach our core customer target. All comparable stores across the fleet generated positive cash flow and profit contribution last year. This past year, our sales per square foot also surpassed $300 for the first time compared to historically delivering $225 to $250 range. This quarter, we continue to deliver over $300 per square foot, and all comparable stores generated positive cash flow and profit contribution on a trailing 12-month basis. Based on our guidance, we expect to end fiscal 2022 with a strong cash flow generation and top-tier productivity. And strategy number four, rapidly expanding scale the existing fleet is highly productive the modernization program is progressing quickly we have structurally more than doubled our ongoing earnings per share we are now positioned to rapidly expand our scale profitably during december of 2021 we completed the acquisition of shoe station a leading footwear retailer in the south the second banner added a growth platform to expand store accounts across the southern markets We have smoothly completed the integration phase of the acquisition, and during 2022, are building out the banner's advanced CRM, analytics, and marketing capabilities. We opened our first shoe station store since the acquisition this past quarter, and sales have far exceeded our plans. Another handful of shoe station new stores have leases executed or near completion, and many more new stores are following on the heels. The SHU Station CRM and .com platforms are on track to go live ahead of plans and support our customers' holiday shopping this year. We are on track to double the footprint and sales of the SHU Station banner in the next two to three fiscal years. The SHU Carnival banner is also expanding store accounts and is moving into an accelerated growth mode in 2023. We opened a new store in Morgantown, West Virginia during Q1, and it also exceeded our sales plans and customer response. I'm bullish on sales growth and store account expansion for both banners. The total company fleet will reach 400 stores this fiscal year and over 450 stores during fiscal 2024. In closing, we see tremendous market share potential and a long runway for further store growth for our banners in the years ahead. Our inventory position is ready for a big spring sandal season that we are now in, ready for the upcoming back to school season, and is well positioned for the customer's return to a more normal 50-50 athletic, non-athletic balance between categories. I'd like to thank our nearly 6,000 team members, our customers, and vendor partners for contributing to our many successes in Q1. I would now like to turn the call over to Carrie And then we will open up for your questions. Kerry? Thank you, Mark.