Shoe Station Group, Inc.

Good morning and welcome to Shoe Carnival's fourth 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 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 would now like to turn the conference over to Mr. Mark Warden, President and CEO of Shoe Carnival, for opening remarks. Mr. Warden, you may begin.

Good morning and welcome to Shoe Carnival's fourth quarter 2022 earnings conference call. Joining me on today's call are Kerry Jackson, Chief Financial and Administrative Officer, and Carl Shabetta, Chief Merchandising Officer. Let me start today out by thanking our nearly 6,000 team members. During 2022, they ensured our customer shopping experience at shoe carnival and shoe station stores across the country was exceptional, with the freshest branded products, a modernized shopping experience, more convenient locations to shop, and dedicated service to always meet our customers' needs. As we start fiscal 2023 and I look ahead, we are well-positioned to execute our strategic growth plan to become a multi-billion dollar retailer by 2028, and to provide our shareholders with the top tier returns in our sector. I would now like to begin by reviewing highlights from 2022. First, during 2022, we grew our customer base to over 32 million, with our loyalty membership surging over 34% from just three years ago. Every day of every week, we're learning more about these customers, enabling us to better segment our customer base, better identify the optimal product for them, and to better engage them with meaningful messages and the freshest products. We continue to elevate our capabilities and CRM advantages that drive traffic into our stores and online, including upgrading our technology, building our analytical capabilities, and developing our internal talent. This translated into a targeted promotional plan for the year and segmented marketing activities that helped deliver gross profit margins up 700 basis points for the year and 920 basis points growth for Q4 as compared to just three years prior. The acceleration of gross margin growth in Q4, our most promotional period of the year, is further reassurance that the improved margin levels are sustainable. In fact, gross margins have now been 500 to 1,000 basis points higher for each of the last eight quarters versus 2019. Q4 gross margins were the highest Q4 result in our 44-year history, despite increasingly deep price discounting from our competitive set. We have already captured nearly 1.5 million shoe station customers into our loyalty program only a few short months after launching. Moving forward, we will continue to build our customer relationship expertise and see this as a key lever for expanding customer accounts, driving traffic, and delivering top-tier shareholder returns. Second, the rapid growth of our customer count and continued high gross margins resulted in 2022 sales growth of $225 million versus three years ago, or plus 21.8%. This achieved significant market share growth over the prior three-year growth period compared to our competitors' results. Specifically, looking at the competition for the three-year horizon from 2019 to 2022, none of the other public family footwear retailers or moderate department stores achieved half the sales growth of our corporation, and many competitors, in fact, had sales declines. Customers in shoe carnival and shoe station markets are resoundingly selecting us over the competition for the best branded footwear and accessories from their most loved brands. Our sales growth has been balanced over the past three years, with approximately $125 million of organic sales growth and approximately $100 million of growth from acquisitions. We see this balanced approach continuing. as a core part of our strategic growth roadmap to surpassing $2 billion in sales in 2028. Third, earnings per share of $3.96 achieved our annual profit guidance. This EPS result is growth of 171% versus three years ago and 583% earnings growth versus just five years ago. In fact, the total earnings generated during 2022 in 2021 are more than the prior 13 years of earnings combined. I was most encouraged that our Q4 GAAP earnings per share were the most profitable Q4 in our history, despite winter storms disrupting our customer shopping during the peak holiday period. Fourth, I've made a commitment to shareholders throughout the past two years that executing our strategic plans would result in doubling our operating profit and generating shareholder returns in the top tier of the sector. I'm pleased to report this has been achieved. Operating profit margins achieved the increased guidance I shared last quarter, ending the full year at 11.6% compared to 5.2% three years ago. We have now sustained operating profit margins over a Last, our balance sheet is strong. We have zero debt at the end of 2022, marking the 18th consecutive year of no debt. We have no debt today, and as we progress into our peak back-to-school selling season, we see rapid free cash flow generation and inventory levels across categories normalizing. We are mindful of the inflationary environment and economic uncertainty in the markets. As such, we have updated our capital investment to a modest their first half of 2023. Financially and operationally, this has us very well positioned to fund accelerated growth in the second half of 2023 and into 2024, both organically and with targeted acquisitions if desirable targets become available. Turning now to a few comments about 2023 before Carl and Kerry add further detail. Our business fundamentals and long-term growth prospects are strong despite the current high inflationary environment We see growth of customers and growth of store accounts this year. Our operating margins remain on track to be double-digit for the third consecutive year, and we see the most likely outcome is that earnings per share is over $4 for 2023. Carol will provide a detailed overview of our 2023 guidance shortly. The addition of new stores to the fleet will increasingly be the core driver of growth in the years ahead. the new shoe station stores that opened in 2022 have far exceeded our historical new store opening results. Historically, successful new shoe carnival stores on average took six years from launch to generate double digit profit contributions for the corporation. I'm excited to share that the new shoe station stores are pacing to deliver double digit profit contribution within the first 18 months of operation, cutting down the duration of time from launch the solid profit contributor, by approximately 75%. This, in turn, enables us to leverage our new stores' profit generation to self-fund rapid expansion in the years ahead. For example, the three new stores open in 2022 can self-fund 10 stores opening this year. 10 store openings in 2023 can more than fund 20 store openings in 2024, and so on. We continue to take a methodical approach to new site selection to M&A activity, and to capital allocation strategies to ensure top-tier profit returns for our shareholders. As shared previously, we will surpass 400 stores this year, and we have a roadmap to surpass 500 stores by 2028 through a combination of organic growth and targeted store acquisitions. We have planned store growth this year to be primarily back-loaded with a range of 10 to 20 additional store center guidance. We continue to make significant progress in our fleet modernization program, with over 40% of the fleet complete currently. Feedback from customers and vendors has been compelling for our differentiated store experience with this rollout. As such, we plan to proceed with our modernization rollout and plan to complete over 60% of the fleet by the end of fiscal 2023. Finally, as previously shared, our CFO, Kerry Jackson, is retiring in May after 35 years of service to SHU Carnival. I'm so thankful for Kerry's exceptional contributions and for the legacy of excellence he leaves behind in our finance organization. Last week, I announced that Mr. Eric Gast has been named our next CFO and will be joining the company in April. Eric is currently the Executive Vice President and CFO at Fleet Farm, a billion dollar plus retailer in the Midwest. Eric's 30 plus years in finance roles his deep retail and M&A experience, and his results orientation make him a strong addition to our management team. I look forward to Eric joining and introducing him to the investment community at our Q1 earnings call scheduled in May. With that, I'll ask Carl to discuss our performance further. Carl?

Thank you, Mark. As Mark highlighted, today's results are compelling evidence that our strategy continues to work. During the fourth quarter, we again saw a shift in consumer demand as sales continued to move to the non-athletic categories. This shift was 410 basis points compared to the same period during 2019. We anticipated this move in customer demand to the non-athletic product and positioned inventories to take advantage of this fashion change. We did see improvement in product deliveries as the supply chain issues we have been experiencing the past several years continue to improve. Our outstanding team of merchants continues to collaborate closely with our vendor partners, ensuring consistent flow of products to our stores. The normalization and consistency of deliveries enables the merchant team to plan and execute appropriate monthly receipt levels. The result will see inventories reducing as we move through the year. This reduction will further support our modernization as well as our aggressive store growth plans. Diligently managing inventory flow will ensure our stores are stocked with the most desired product offerings that are time appropriate as we move through fiscal 2023. Importantly, both aged inventory and seasonal carryover inventories are in line. As a result, we do not have a glut of distressed inventories and see no need to provide deep discounts to liquidate goods going forward. Turning to results. As I mentioned, our anticipated shift in sales from the athletic categories to the non-athletic categories continued in fourth quarter. Comp sales in the non-athletic categories versus 2019 were up in the low 20s, and comp athletic footwear sales were up in the mid-singles. Sales versus 2021 were down in the low singles for non-athletics attributed to lower boot sales. and athletics were down in the low 20s. By department, women's non-athletic was up in the high singles versus 2019. Casuals drove sales up in the mid 40s, sport up in the low 30s, and dress shoes were up in the mid 20s. Women's boots were down 10%. Men's non-athletic sales were up in the high 20s versus 2019. Men's casuals drove this increase which was up over 60%, and further reflects the consumer's move to non-athletic footwear. Men's boots were up in the high singles and men's dress down in the low singles compared to 2019. In the markets we serve, Shoe Carnival continues to lead the way regarding children's footwear. Children's non-athletic sales versus 2019 were up in the mid-50s. All children's product categories were up significantly. Casual's growth increases up almost 200%, and infants' non-athletic sales were up in the mid-50s. Sales in children's athletic were up in the mid-teens. Adult athletic sales were down less than 1% versus 2019. With the fashion trends we are seeing and the improved product flow, we anticipate the continuation of strong sales results and the non-athletic categories for fiscal 2023. As we have seen for the past eight quarters, we continue to deliver excellent product margins. Fourth quarter product margins ran up over 800 basis points versus 2019 on our result of our transformational promotional strategy. Our best-in-class CRM program continues to drive loyal customer growth. This data provides us valuable insights into our over 32 million customers and enables us to engage with these consumers through smart, effective promotions that are not margin diluted. The success we have seen utilizing this strategy transformed the Shoe Carnival model, and the fact that we have seen these margin levels for over two years is proof of that. As we move into fiscal 2023, the uncertain economic climate, as well as cooler weather, has led to a slow start of the spring season. While our inventory position in the important categories has improved versus last year, the consumer demand has been delayed. We have seen this delay in previous years and anticipate the sales acceleration we realized then, which came later in the spring-summer time period. In addition, the supply chain improvements will provide a much stronger athletic offering moving into back-to-school and the fall selling seasons. With that, I will turn the call over to Kerry for a review of our financials. Kerry?