Shoe Station Group, Inc.

Good morning and welcome to SHU Carnival's second quarter 2022 earnings conference call. Today's conference is being recorded. It is also being broadcasted via webcast. Any reproduction or rebroadcast of any portion of this call is expressively 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 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 SHU Carnival, for opening remarks. Mr. Worden, you may begin.

Good morning and welcome to SHU Carnival's second quarter 2022 earnings conference call. Joining me on today's call are Kerry Jackson, Chief Financial and Administrative Officer, and Carl Scibetta, Chief Merchandising Officer. As announced in this morning's press release, SHU Carnival delivered earnings per share during the first six months of the fiscal year that already surpassed any full year of earnings in our 44 years of operation, except for 2021. I'm so proud of our nearly 6,000 team members for this accomplishment and thankful for their commitment to our customers, our communities, and our shareholders. Throughout the quarter, American households faced a challenging inflationary environment, putting pressure on disposable incomes and on our traffic counts. We also experienced an increase in supply chain disruption during the back half of the quarter. Despite these external headwinds, The company's strategic plans to double operating profit margins versus historical levels continue to work. Furthermore, profitability growth has accelerated as 2022 progressed. Our merchant organization has worked in close partnership with our strategic vendors throughout the year. Together, they delivered the freshest product assortments from our customers' favorite brands and applied customer analytics to unlock highly profitable promotion. This resulted in Q2 operating profit margins of 12.4% and marked the sixth consecutive quarter in double digits. We were most encouraged that operating profit delivered sequential growth in Q2 above the 11.1% operating margin achieved during Q1. To further illustrate the profit transformation the company has achieved, operating profit margin was 5.9% for the prior 10-year period. Throughout 2022, we have been lapping the stimulus-impacted 2021 quarters. The more normalized quarters with no stimulus benefits in 2022 have helped provide clearer visibility into the sustainability of our operating profit levels. As such, today we are increasing our operating profit margin expectations for 2022 and providing guidance to achieve between 11.4% and 11.6% operating margins, doubling the company's historical lows. We believe the best way to understand the underlying sales and customer growth achieved and sustained at Shoe Carnival during these COVID-impacted and stimulus benefit years is to benchmark back to 2019. Overall sales have grown 20.6% for the first half of fiscal 22. Customer accounts for our loyalty membership climbed to just below 30 million at the end of Q2, setting a new record up 28% compared to 2019 and up nearly 7% versus 2021. Non-athletic sales growth has been exceptional, up over 30% versus 2019. During Q2 of 2021, the company grew net sales 10.5% on top of 12.1% in Q2 2020. Compared to 2021, net sales retreated 6% during Q2 2022. The team posted solid non-athletic category performance across genders and styles offset by declines in our athletic categories driven by supply chain delays. Related to the supply chain, key athletic inventory shipments plan did not make it fully through the global supply chain and into our stores in time to support our June and July sales as planned. While we forecasted athletic sales to pull back during Q2, due to our customers having loaded up on athletic product during 2021, this supply delay led to steeper declines. Carl and Kerry will break down the category trends and our overall inventory position shortly. As Q3 began, the delayed athletic product began to arrive, but we remain below our desired inventory levels this quarter as we replenish scores. As such, we are updating our annual sales guidance to 1.29 billion to 1.34 billion. While below our original growth ambitions for 2022 top line, this sales range represents growth of 24% to 29% versus 2019. demonstrating top-tier growth levels in the channel, better reflects the challenging inflationary environment our consumer is now facing, and includes the short-term disruption to our 2022 athletic supply. After growing net sales 36% during 2021, we are encouraged by sustaining growth levels between 24% and 29% versus 2019, and to build up record customer counts level to engage with ongoing. I would like to now share an update on Q3 to date and our most important month of the year, the back to school period of August. We are seeing encouraging back to school profitability results in the third quarter. Sales through August 24th have increased over 15% compared to 2019 and include the best three days of sales at any three day period in the June carnival's history. Profitability for the month is very strong. with gross margins on pace to grow 650 basis points versus 2019. Based on the previously discussed athletic inventory position, we are including in our guidance that Q3 sales will be down versus 2021 in the low to mid single digits. August back to school shopping typically drives over half of our third quarter profitability. Taking into account the sales and profit achieved quarter to date, Q3 is pacing on track to deliver our targets for gross margins, for SG&A, and for operating profits. With $1.99 of EPS achieved during the first half of the year, plus the solid Q3 profit start in hand, we are reiterating our annual guidance for earnings per share between $3.95 and $4.15. Combining the sales range guidance, the increased operating margin range, and current inflation trends, we anticipate sales and earnings per share is most likely to deliver on the mid to lower side of our annual 2022 guidance. Moving on now to an update on progress toward our key strategic plans. First, our shoe station banner continues to outperform expectations on all fronts. Sales were $54 million during the first half of 2022. We now expect shoe station sales to exceed our previously announced full year expectations of $100 million by approximately 10%. Operating profit expectations were previously communicated as 10% for 2022. Our integration efforts of the recently acquired banner are pacing far ahead of our preliminary timelines. We have realized significant back office synergies, as well as gaining efficiencies and best practices across merchandising, operations, and marketing. As such, we are raising our operating profit expectations for SHU stations to a range between 11% and 12% for 2022. Finally, new store site identification efforts continue to progress throughout the South, and we expect to grow the 21 store chain acquired to 30 stores during the fiscal 2023 horizon and to build out the expansion roadmap to exceed 100 stores in the next five years. Second, we continue to make significant progress on our fleet modernization program. Our plan to have over 50% of stores modernized by the summer of 2023 and the full program complete by the end of fiscal 2024 is on track. In addition to the modern shoe carnival experience rolling out now, we are launching a Shoe Station modernized prototype store in Q4 of this year and new store openings in both Alabama and Georgia. Third, we continue to improve our advanced CRM, analytics, and digital marketing capabilities, which allow us to have one-on-one communication with our customers. These highly profitable tools give us a targeted platform to reach our customers via text and email, and we're able to drive sales at attractive margins and without deep, unprofitable promotions. During this quarter, we will complete the SHU Station integration into our CRM organization and platform technologies, and we will extend our SHU Perks loyalty program across both banners. We will be sharing early results of this CRM launch at our Q3 earnings call, and we are so very excited to begin building CRM excellence and shared insights across the enterprise. as this will further improve profitable growth across the banners. Fourth, we're planning to rapidly expand scale in the next five years. Shoe Carnival is on track to operate 400 locations by the end of this fiscal year, and we are not expecting any store closures this year. This is such an exciting moment for the enterprise. Having completed our store productivity improvement plan, 2022 marks the first year in 20 years that no stores were closed. In conclusion, we have undergone a sustainable profitability transformation and are seeing profit growth accelerate sequentially at a very encouraging rate during 2022. While a lack of athletic inventory limited our sales potential in the first half of 2022, we delivered excellent gross margins, double digit operating margins, and earnings per share that was more than 43 of 44 prior full year earnings already. Our customers remain highly engaged despite the inflationary pressures. We've generated a critical profits plan during our key back to school season, and we are on track to deliver against our financial and strategic targets for the remainder of fiscal 22. With that, I'll ask Carlton to discuss our performance further.

Thank you, Mark. As Mark highlighted, today's results are strong evidence that our strategy is working. However, During the second quarter, we experienced a shift away from our normal 50-50 athletic non-athletic sales balance. We anticipated this move in consumer demand to non-athletic product and positioned inventories to take advantage of this fashion change. Supply chain issues impacted athletic inventory availability. Despite our unparalleled vendor relations, we were simply unable to deliver enough new athletic receipts to meet demand within our athletic product categories. Athletic inventories ended the quarter down high teens versus 2019. Our team continues diligently to manage the supply chain, and looking ahead, we believe athletic inventories will replenish as we move through the third quarter. In addition, deliveries of new fall non-athletic product are flowing much better than 2021, and we are well positioned from an inventory perspective to deliver on the sales and profit guidance for the remainder of the fiscal year. At quarter end, our inventory forward weeks of supply was down 6% versus 2019. Importantly, both aged inventory and seasonal carryover inventories are in line. As a result, we do not have a glut of inventory and see no need for deep discounts or dump goods in the second half of the year. Turning to results. Mark mentioned the challenges we saw within the athletic area. The quarter started off strong and sales weakened as athletic inventory levels slipped by quarter's end due to late deliveries. The quarter finished with men's, women's, and children's athletic comparable store sales down low teens compared to 2019. Versus last year, these categories were down in the mid-20s. However, as I previously highlighted, we saw continued strength in non-athletic shoes. Women's non-athletic was up in the high 20s versus 2019. Sales were driven by dress up over 50%, sport up in the high 30s, and sandals up in the mid-teens. Men's non-athletic sales were up in the mid-20s versus 2019. Men's dress and casual shoes were both up over 20%, with men's boots up over 30%. Children's non-athletic sales were up in the high 50s. Increases were driven by children's casuals up over 90% and infants up in the high 70s. Versus last year, women's was up low singles and men's and children's were down mid singles. With the trends we are seeing and the anticipated product flow, we see strong sales results in non-athletic categories for the remainder of 2022. As Mark highlighted earlier, we continue to deliver excellent product margins. Using the data provided from our best in class CRM, we continue to drive loyal customer growth. This data gives us insight into our consumers and gives us a path to engage with them through smart, effective promotions that are not margin dilutive. Before turning the call over to Carrie, I would like to highlight one of these ongoing promotional strategies. We recently created an inflation buster program that highlighted key back-to-school products and brands along with store-wide events as well as gasoline and grocery incentives to our customers. This drove increased traffic at accretive margins. We engaged our existing consumers, won new loyal customers, drove store traffic, and built brand loyalty. With the help of these innovative analytics-based marketing campaigns, we are confident that our marketing and promotional strategies will continue to drive the margin levels we have seen the past several quarters. In fact, this inflation buster promotion produced the best three combined sales days of any three-day period in the company's history and delivered the strong margin levels we have seen throughout the entire year. Based on the strength of the emerging fashion categories, athletic inventory flows improving and effectiveness of our modernized promotional strategies, we feel confident we will deliver on the sales and profit guidance for the balance of the year. With that, I will turn the call over to Kerry for a review of our financials. Kerry?