Shoe Station Group, Inc.

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 Worden, President and CEO of Shoe Carnival, for opening remarks. Mr. Worden, you may begin.

Good morning, everyone, and thank you for joining us today for Shoe Carnival's second quarter 2023 earnings conference call. Joining me on today's call are Carl Shabetta, Chief Merchandising Officer, Eric Gast, Chief Financial Officer, and Steve Alexander, Supporting Investor Relations. Let me start today by saying that conditions impacting customer trends improved in Q2. As the quarter progressed, we saw encouraging signs that the impact of inflation on our customers was starting to moderate. Customer engagement in-store and online picked up, average transactions climbed to a new second quarter high, product margins were robust, and customer conversion remained strong. Based on these improving conditions, we see an opportunity to invest to increase our market share, to accelerate sales growth, and to grow earnings per share results compared to the soft market and results in Q1 of this year. As such, we accelerated investments to fuel profitable brand building activities and drive our excellent customer experience. We continued to roll out our store modernization plans and drive customer engagement with new stores in new markets to capitalize on improving conditions. Sales in Q2 grew approximately 5% versus Q1 2023 to $294.6 million. Earnings per share increased at an even faster rate of 18% growth versus Q1 to 71 cents, demonstrating the success of our investments to accelerate profitable growth as the year has progressed. While the back to school season is not yet complete, August results provide further signs that inflationary conditions have moderated during the year. In Q3, while we are not seeing growth versus prior year yet, we continue to see modest improvement versus Q2 in sales, margins, transaction size, and strong conversion. Competitive intensity has been high in both Q2 and the Q3 back to school season, with many competitors deep discounting products and running profit-losing promotions. We remain committed to our profit transformation and targeted promotional strategies that are based on customer analytics and deep knowledge of our loyal customers. That strategy is working. For example, the August back-to-school shopping period accounts for half of the company's third quarter gross profit. August sales and product margin results were among the highest of any month in the company's 45-year history. With strong profit results achieved Q3 to date, the company is on track to deliver its full-year gross profit margin guidance of 36 to 37%. Given the inflationary environment our customers face, we are very pleased with this result, including our ability to gain market share and our customers' response to investments in brand building and customer experience. As such, we plan to continue to invest in those areas in the remainder of Q3. Eric will provide more detailed guidance in his section. Although customer trends and results have improved, it would be premature to declare that the inflationary and economic headwinds are no longer significantly impacting our customers. While gross margin remains strong for Q2 and results accelerated versus earlier in the year, total sales declined 5.7% versus the year-ago period, and comparable store sales declined 6.5%. Store traffic performance improved in Q2 versus Q1, but still declined versus prior year. We continue to see softness in the segment of our customers with household income under $30,000, including our urban lower-income customers. We see this headwind as an ongoing challenge throughout the remainder of the year. We are also seeing a favorable mix shift to higher income, more profitable customers, led by our shoe station banner and our online transactions. For some perspective, historically, over 50% of our customers were from households with income under $50,000. This year, we're seeing a meaningful shift with over half of our customers now in households with income over $50,000, including a significant percentage increase in households with income over $75,000. As part of our long-term strategy, we continue to invest to build our brand and acquire these higher-income, more affluent customers to expand our customer base. At the same time, we also continue to invest in our very important value customer base. The broader inflationary environment continues to make it more expensive to compete for share growth, to attract and retain talent, and to capture new customers. With unemployment levels remaining near 50-year lows, hiring and retaining employees in the retail space requires continual innovation to ensure a great place to work, as well as higher investments in wages, healthcare, and benefits. With our team of nearly 6,000 talented, customer-focused members, We pride ourselves on delivering the best customer experience. By investing in our team, we are driving continued new customer engagement, strong conversion levels, and customer loyalty. With increased strategic investments in our brand and customer experience and the slower economic recovery, we have decided to lower our expectation for new store openings this year. We now plan to open six to 10 new stores in 2023, likely on the lower end of the range unless economic conditions improve rapidly during Q3. Importantly, there is no change to our long-term plan to operate over 500 stores in 2028. We're taking a more measured approach to near-term organic growth until market conditions improve further. Economic and inflationary conditions are not improving as quickly as we had projected, and we expect that they will remain challenging as we navigate the remainder of 2023, particularly with urban customers. Given that and reflecting our updated new store plans, we are updating our full year 2023 sales guidance to $1.19 to $1.21 billion. Eric will discuss detailed guidance in a few moments as part of his commentary on the quarter. Now, I'd like to discuss how our continued strategic investments are positioning us for profitable growth when the economy improves. Our store modernization program and in-store experience investments continue to drive fleet profitability and productivity. A little over two years into the program, we have 52% of the SHU Carnival fleet remodel complete, and we are on track for approximately two-thirds of the fleet to be completed by summer of 2024. also very excited that we opened our 400th store since our last earnings call the last time we operated 400 stores was back in 2018 when we were at the very early stages of our multi-year productivity improvement and store rationalization program since that time our fleet productivity and profitability has dramatically improved for comparison Sales now for our 400 stores per door has increased 15%. With the productivity increases in revenue per door combined with our targeted promotional strategy, profit per 400 doors this year has increased more than 40% versus 2018. As shared in preceding quarters, our highly profitable fleet of stores has us in a solid position to self-fund our investments in the business. Additionally, The investment in our CRM platform continues to drive customer membership growth, reaching 33.3 million members, an increase of 12% over prior year. Salesforce loyalty members now represent over 70% of the company's net sales. Transaction size for gold members was over 15% higher than non-members. One of the brand building areas we invested in was to reactivate last athletic shoppers. Specifically, those members did not purchase a top global athletic brand with us in 2022, during our period where the supply chain disrupted our assortment and availability. With this year's solid assortment in stores, we utilized our CRM assets to re-engage many of those shoppers and get them to retry SHU Carnival. among other targeted campaigns, led to a significant number of customers reactivated into active buyers during Q2. We're very encouraged by these results and continue to invest in targeted brand building and customer programs. As I discussed earlier, we're seeing a shift to more affluent customers, which in part is being driven by our e-com and CRM capabilities. In short, our always-on digital marketing strategy is working very well capturing and converting customers, and it's partially offsetting the traffic softness we are seeing in some of our urban customers. We have significantly more untapped customers to re-engage in the years ahead, making CRM a core continued driver of profitable customer engagement. As I mentioned earlier, conditions are improving with our more affluent customer base across the business And this improvement is particularly evident in the performance of ShoeStation. Q2 sales for ShoeStation increased low single digits, and Q3 sales to date grew mid-teens versus prior year, outperforming the overall company each quarter and driving profitable growth. Our investments to harmonize our online and CRM platforms for customers are working, enabling ShoeStation to build top-line sales and margin momentum. We continue to advance value capture programs and gain synergies across the Shoe Carnival and Shoe Station banners to drive further efficiencies and margin expansion. Given the challenging economic landscape, we continue to prioritize reducing inventory levels, sustaining strong margins, and providing the right mix of branded products for our customers. We started this year with inventory approximately $105 million higher than prior year, with plans in place to rapidly right-size our inventory position by back to school. We ended the second quarter with inventory up only $24 million versus prior year, continuing to reduce inventory levels versus year ago, and importantly, as I mentioned earlier, we're maintaining strong margins. Carl will cover more details in a few moments, But our inventory is on track to be below prior year levels in the coming weeks and to achieve the annual guidance for inventory to be approximately $40 million lower by year end 2023 compared to year end 2022. Our balance sheet is building to an even stronger position with over $90 million in cash and marketable securities on hand as of yesterday. And equally as important, we continue to operate with zero debt. As we have in the past, we're funding our significant investments to grow the business profitably from the strong operating cash flows generated by the business. Before I hand it over to Carl, I will summarize by saying that our second quarter results demonstrated the momentum of our strategy within the context of a challenging economic backdrop. We delivered improvement on net sales, earns per share, and increased investment in advertising, branding, and customer experience during the quarter versus Q1. Our strategic investments drove growth in our customer loyalty program, high conversion, and continued market share gains in the family footwear channel. We opened our 400th store as we continue to invest in the business with new stores, our CRM strategies, store modernization, and best-in-class store experience for our customers. We saw improving conditions related to the impact of inflation on consumers in the second quarter, but some of our highly valued lower income urban customers remain challenged and we expect we'll continue to be cautious in the current economic environment. We're taking a measured approach to the balance of the year as we expect economic conditions likely will remain challenging, but importantly, our balance sheet is strong And our strategy to drive growth continues to be a priority. When the lower income consumer segment starts to improve, we'll be in a great position to drive profitable growth. And now I'll hand it over to Carl to provide further color on the quarter and year ahead. Carl?

Thank you, Mark. As you discussed, we saw some improving customer trends as the quarter progressed that the impact of inflation on our customers moderated. Customer engagement picked up meaningfully. Product margins remained healthy. Average transactions climbed to new second quarter highs, and customer conversion was strong. Back-to-school season is ongoing, and our athletic and children's inventory is exactly where we want it. While competitive intensity has been high in Q2 and early Q3, we remain committed to our profit transformation and our targeted CRM strategies. continue to focus on driving our strategic objectives which include connecting with our consumers using our CRM program to maximize sales continuing to reduce our inventory throughout the year and delivering strong product margin we have many more untapped customers to re-engage with going forward making CRM a core driver of profitable customer engagement moving to the quarter Total Q2 comp sales were down 6.5%, which was an improvement versus the low double-digit decline we saw in Q1 2023. Including August VTS, we are seeing a trend of improved but down versus prior year, continuing for the balance of 23. From a category perspective, second quarter comp sales in women's non-athletic footwear were down low teens with thrusts down over 25%. Boots and sandals were both down mid-teens. Sport was down mid-single digit with leisure down low singles. Casuals were up low single digits in the quarter, led by flats and tailored. Men's non-athletic comp sales were down mid-single digit. Casuals were up low single digit with strong performance in both canvas and slip-ons. Men's dress was down high teens and boots were down mid-teens in the quarter. Children's comp sales were up low single digit led by children's athletic up low single digit driven by performance in court. Partially offset by children's non-athletic down low singles. The trend improvement during the quarter in children's led by athletic reflected our strong inventory position for back to school and we continue to see that improved trend in August. Comp sales in adult athletic improved to down low single digit with men's down slightly more than women's. As we optimized inventory levels, the improved trend of down low single digit continued in August as part of back to school and was led by court and basketball, but with continued softness in skate and running. As I mentioned earlier, competitive intensity was high in Q2. However, our merchandise margin decreased by only 20 basis points in the quarter versus the prior year. improving sequentially versus Q1 performance and reflecting our discipline strategy and investments in CRM, which are based on data, customer insights to drive strong product margin. We continue to prioritize inventory levels, providing the right mix of the freshest products for our customers and sustaining strong margins. We entered the first quarter with inventory up approximately 105 million or 37% versus the previous year with a strategy to right-size our inventory. We ended the first quarter with inventory up approximately 44 million or 13% versus 2022. And importantly, we ended second quarter with inventory only higher than the prior year by approximately 24 million or 6%. Inventory at the end of Q2 23 was higher than Q1 But with back to school in progress, we expect our inventory level to be lower than the prior year in September, and we continue to expect that our inventory level at the end of fiscal 2023 will be approximately $40 million lower than the end of fiscal 2022. Currently, our inventory content is clean, and we see no reason to change our strategy to achieve our goals. We will continue to optimize inventory levels and diligently manage inventory flow to ensure our stores are stocked with the most desired product offerings that are time appropriate as we move through the balance of fiscal 2023 and going forward. To be clear, our strategy to right-size inventory while maintaining the freshest product selection for our customers is ongoing and will continue even after we achieve our guidance for fiscal year-end 2023 to be $40 million lower than the prior year. And with that, I will turn the call over to Eric for a review of our financials. Eric?