Shoe Carnival, 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?

Thank you, Carl, and good morning, everyone. Moving to the financial results. In my remarks, I will be comparing our second quarter results with the second quarter of 2022, noting comparison to Q1 2023 and year end 2022 if needed for context. Starting with top line, our net sales in Q2 were $294.6 million. This was down 5.7% on income decline of 6.5% versus prior year. To offer some perspective on our performance, while net sales in the quarter were lower than the prior year, the Q2 performance represented an improvement of 5% as compared to Q1 2023. The comp decline was driven by approximately 7% reduction in traffic versus prior year, partially offset by a 5.4% increase in e-commerce net sales. Some customer trends are improving, but inflationary and economic headwinds are still impacting traffic. Shoe station banner sales for Q2 came in at a low single-digit increase versus prior year, and shoe carnival banner sales came in at a mid-single-digit decline. In August, we opened our 400th store with the fleet now comprised of 373 shoe carnival stores and 27 shoe station stores. Our store productivity and profitability have increased significantly since 2018, which was the last time we operated 400 stores. Q2 gross profit margin was 35.8%, reflecting the 10th consecutive quarter at or exceeding 35%. The margin reflects continued advancement of our CRM capabilities, resulting in high customer conversion and increased loyalty members in the quarter. Compared to prior year, merchandise margins decreased 20 basis points, reflecting an improvement versus Q1 2023, led by our CRM strategy, which is driving strong product margin. Buying distribution and occupancy costs declined in the quarter, However, we're leveraging by 20 basis points as a result of the sales decline. The buying distribution and occupancy expense reductions were primarily the result of lower freight and distribution costs, partially offset by higher occupancy costs related to new stores and store modernization. SG&A expense in Q2 was $80.8 million, representing an increase of $6.5 million over Q2 2022, driven by our investment decisions in brand building, and customer experience during the quarter. We are pleased with the customer response to our investments and we plan to continue to invest in those areas in the remainder of Q3. As a percentage of net sales, SG&E expenses were 27.4% in the quarter as compared to 23.8% in Q2 2022 and 27.6% in Q1 2023. Q2 operating income was 24.7 million or 8.4% of sales compared to 38.8 million and 12.4% of sales in Q2 2022. Net income for the second quarter of 2023 was 19.4 million or 71 cents in diluted earnings per share. While lower than Q2 2022, earnings per diluted share in the current quarter reflected an 18% increase versus Q1 2023. We closed out the second quarter with inventory of 409 million, which was up approximately 24 million compared to the prior year, or 5.1% on a per store basis. This higher inventory level of 24 million compares favorably to 44 million higher than the prior year for Q1 2023, and 105 million higher at year end 2022. With back to school shopping in progress, Inventory is on track to be below prior year levels in September 2023, and we expect it to be approximately 40 million lower by year end 2023 as compared to 2022. Importantly, our aged and seasonal carrier inventories are in line, and we have no expectation of deep discounting to liquidate merchandise. Moving now to our strong balance sheet and liquidity position. At the end of Q2, we had total cash, cash equivalents, and marketable securities of approximately $47 million. And as of yesterday, that total was over $90 million with no outstanding debt. At the end of 2022, the company had maintained no debt for 18 consecutive years and has continued funding its operations without debt through the second quarter. During the quarter, there were no share repurchases, and we currently have the entire authorized amount of $50 million available for the share repurchase program. We provided detailed updated guidance for fiscal 2023 in our urgent press release earlier this morning, and so I will cover a few of those items now. Given the Q2 results driven by lower traffic and consumer trends that remain challenging, we are updating our sales guidance for fiscal 2023 to $1.19 billion to $1.21 billion, compared to the prior range of $1.23 billion to $1.25 billion. We now expect comparable store sales of down 8% to down 6%. Given our increased strategic investments in brand and customer experience and the slower economic recovery, we now plan to open a total of 6 to 10 new stores in 2023. We continue to expect gross profit margin to be between 36% and 37%. We now expect total SG&A expense to be between $321 million and $327 million, or approximately 27% of net sales as we continue to invest in brand building and store experience. For the year, including the extra week, we are lowering our diluted EPS guidance to 310 to 325 from our previous expectation of 360 to 385. As I discussed earlier, we continue to expect inventory at the end of fiscal 2023 to be approximately 40 million lower than the prior year. To close, we are seeing some improving conditions, but we expect inflationary and economic headwinds will continue to significantly impact our lower-income urban customers. We are taking a measured approach to the balance of the year. Our strategy to drive growth will remain a priority. Our balance sheet is strong with cash, and we have no outstanding debt. This concludes our financial review. Now we would like to open the call up for questions.

Thank you. If you have a question, please press star 1 on your telephone keypad. If you wish to remove yourself from the queue, simply press star 1 again. One moment for your first question. Your first question comes from the line of Mitch Kumetz of Seaport Research. Your line is open.

Yes, thanks for taking my questions. I've got maybe a handful. Marco, something you could start by just elaborating on what you're seeing with the lower income

consumer especially if you can maybe reconcile that with your um prepared remark that the inflation impact is starting to moderate um if you just start there hi mitch good morning thanks for joining us today with the trends we started to see as q2 began in q1 we saw significant declines from traffic with the urban markets and the broader markets having challenges. As we got into the beginning part of Q2, we started to see meaningful improvements within the base. And that led to us investing into that, driving advertising, building brand activity. And we saw continued improvement as the quarter improved, progressed through the quarter. If you unpack that a little, we're seeing two different situations, one in our more urban markets, inner cities across the geographies, we're seeing traffic challenge. On the other side, we're seeing improvement conditions where the inflationary impact is starting to show encouraging signs. So two different situations, but we're very pleased with what we started seeing as the quarter progressed. And that continued through Q2. and continue to moderate as we went into Q3.

Okay, that's helpful. Thank you. And then on the Merch Margin, it was down 20 bps year over year. Can you say what that is compared to 2Q of 19? And then also, I'd be curious to know, I know you guys have really changed your BOGO strategy. Is there any way you can kind of provide us information on Merch Margin? like BOGOs in this quarter versus maybe BOGOs four years ago?

Hi, Mitch. This is Carl. Good morning. From a BOGO strategy, BOGOs four years ago, we would have run entire stock of our inventory for the most part on a buy one, get one half off strategy. We no longer do that. When you see any buy one get something from us, it's very curated product bought specifically for that particular event. And those margins tend to run about 1,000 basis points higher than they would have back when we were running BOGO on the entire inventory.

And Mitch, let me build on that for a sec. If you take that back to 2019, We've run a little over 550 basis points higher gross margin than this Q2 compared to what we ran in 2019. In 2019, we were at 30.1 gross margin. I ran a merge margin in front of us right this second four years back. We can follow up with that. But on a gross margin perspective, we're still landing at over 500 basis points improvement versus 2019.

Okay, good. And then, Eric, maybe just on the guide, we can kind of back into the second half of the year, but is there any color that you could provide, you know, 3Q versus 4Q, whether it's, you know, comp or margin, anything there?

Hey, Mitch, it's Mark. I'm going to grab that. So, again, we've seen conditions improving throughout the year. Q1 was down double digits. And that progresses, as I shared, in Q2 to down mid-single digits. Q3, I started off, and we continued to see nice but moderate improvement versus Q2. So when we look at the whole year, we're taking in balance the perspective that the back half of the year continues with similar results as we're seeing right now. So take a measured approach that says, will be in that minus 8% to minus 6%. So very similar to what we just achieved in Q2, very similar to what we just achieved in the month of August, but a measured conservative approach. However, if we start to see the economic conditions improve or sequentially get better, as they have been each quarter, then we have upside potential, and we're going to continue to invest in the brand building and advertising to go after that, should we say it.

And then on the SG&A, just a little help here, because SG&A dollars were up $6.5 million in the quarter, and you talked about accelerated investment. If I back into the back half, it looks like SG&A dollars are actually down a little bit year over year. It sounded like you expected some investments to continue. I guess maybe really two questions. One, were any investments accelerated in the 2Q, which led to that big dollar increase? And why is SG&A down in the back half if you're continuing to invest? Are you finding some dollars to kind of pull out of the business in other areas?

Sure, Mitch. Good morning. This is Eric. Good to speak with you. You know, as I think about it, when we saw the market conditions improve, We did do some acceleration in our growth, and as you can see, the sales did improve. We went up 5%. EPS was up 18. And Mark talked a little bit about where we invested, and I'll just elaborate a little bit. Half of that was in the brand building, and we did have pull-forward investments, particularly in advertising. You'll continue to have spend in new stores. We also talked a little bit about it, but we launched our shoe station business in February of 23. So there's additional costs related to that expense. The other half of that increase was the in-store experience. We had modernization costs, and that strategy will continue. These investments are working, and we will continue to invest. So when I think about the back half of the year, however, as I mentioned, we did pull forward some of those expenses. So we will moderate and continue to watch that expense. And we'll see how that plays out. And as Mark talked about, we'll see how opportunistic we are.

And then I guess last question for Carl. You talked about sequential improvement and the athletic business. It sounds like you've got better inventory. I mean, one of the things that I just noticed online is that there's a lot of kind of promo Air Max product. And I'm just curious. Maybe just your broader thoughts on how you're positioned in athletic. I'm curious to know if a lot of that product was bought on closeout or are those promos margin diluted?

So, Mitch, we're in a much better position heading into back to school and coming out of back to school soon with our athletic inventories versus a year ago. It really had to do with the delivery on time delivery of products from our key key vendors as far as promotional activity as we've stated since we're not in a global promotion environment at since we have sort of remodeled our promotional strategy we're able to take products that we need to move on get very aggressive and clean them up while we maintain price and on the most valuable product that we have. And that balance enables us to achieve our margin goals and continue to liquidate the distressed inventory and remain competitive in the marketplace with those, frankly, that are doing more global promotions.

All right. Thanks, guys. Good luck. Your next question comes from the line of Sam Poser of Williams Trading. Your line is open.

Good morning. Thank you for taking my question. I want to talk about the inventory and how you're getting to $40 million below at the end of the year. My math tells me, and I know it includes other things, that your receipts in the back half of the year would probably have to be down almost 17%. And even if you get to that number, the inventory is still going to be well above where it is. And my question is, if your receipts have to be down in that range, then how do you bring enough newness in for both holiday and for spring early and keep things going? Or should you just be more aggressive with the inventory you have now to drive it down to open up more, you know, more open to buy for better goods and still achieve the inventory you want to at the end of the year?

You know, Sam, the inventory reduction is an accumulation of several strategies. Receipts would be down to a year ago. If you remember a year ago, receipts ballooned significantly in the fourth quarter when the late inventories due to supply chain issues came in at the same time as the early receipts due to improved supply chain issues. situation that caused a big blip in inventory. We'll be down to that and more in line with the appropriate amount of receipts at that timeframe. That's part one. Part two, we continue to work very closely with our vendor partners to get creative on many ways to reduce inventory as we go through the back half of the year, as well as reevaluating model stocks, letter plans, everything based on the sales trend that we're seeing. So we're very confident we're going to hit that number. And as we stated, it's something in progress. It'll be ongoing as we move forward. We're being very careful here to continue to deliver great product assortment to our stores and continue our strong margins. And we believe we have a formula to get there by the end of the year.

Okay. And then, thank you. And can you tell us what your store productivity was year over year? And also, you had guided SHU Station to be up low double digits prior for the year. Where does that stand now?

Hi, Sam. Good morning. Door productivity has progressed dramatically. Like I said in my speech over the past five years, revenues per door are approaching the highest they've ever been. They won't touch the high water mark of the stimulus-infused 21 and 22, but they're up 15% from when we were in the midst of the last time we had 400 doors. And more importantly, The profit has just been transformational. Now that we've completed the modernization and half our fleet, conversion is strong and the response is outstanding. Profit per 400 doors now is up over 40%, as I said, compared to when we were in the midst of the program. Neither sales nor productivity are gonna touch the high watermark near term of the stimulus years, but we're incredibly pleased with where it's grown over the long term. In terms of shoe station, It's accelerating. We couldn't be more pleased with the integration, with the synergies, with the margin capture, and with the customer response to that incredibly fresh performance running portfolio. It's been spectacular. When you look at where it's been, as I said in my prepared remarks, we've started to see growth in Q2 meaningfully, and it accelerated throughout Q2 and climbed into the mid-teens in Q3. We're not breaking out specific guidance, but we're expecting in this very difficult context, Shoestation is going to grow this year and buck the trend in the challenging retail environment.

I just want to walk through something here. You feel great about everything. You've cut your EPS guidance by 16%. You've cut your revenue guidance by three plus percent after cutting last quarter as well. So you seem to feel, based on what you're saying, a lot better than the results are telling us right now. And I think everybody wants to sort of put that, you know, balance that against your confidence, what's really going on, and what you need to do to fix the business right now rather than just saying it's macro stuff.

Yeah, so we do feel really good about our underlying business and the improvements we're seeing through the year. As I said many times in my prepared remarks, we're having difficulty with store traffic and particularly in urban markets. We don't see that measurably improving in the balance of the year and therefore we are taking a measured approach on that dimension. When you look at the other side, as I talked about, we're encouraged by the more affluent customer results. Whether that's in Shoe Station turning to meaningful growth compared to Q1 or our affluent e-commerce shopper showing signs of improving as the year goes or transactions climbing to new highs, there are so many things that are moving forward positively But the bottom line is it's a challenging economic market, and we do not see it getting better to a point of getting into growth during Q3 or Q4, as our guide implies. The underlying thing .

One last thing. What percent of your overall business historically, or however you want to talk about it, has been sort of the moderate, more urban customer that seems mostly affected? What, you know, what is the, what percent of your total revenue does that business, has that business represented?

Yes, I was talking about it earlier that about historically over half of our customers and about half of the revenue comes from households under 50,000. There's a segment below that, though, which we have about double-digit percent come from households under 30,000 households. $30,000 per year household income. It's that segment in particular in urban markets, the sub-$30,000 households in urban markets across the country that represent double-digit portion of our business. That's the portion that's struggling. That's the portion that's giving us some traffic headwinds. It's been moderating, as I said, Q1, double-digit, Q2, mid-singles, Q3, improving, but we don't see improving fast enough. back half of the year. Simply put, until the household under $30,000 has better economic conditions, we're going to see a headwind in our urban markets, offset by the things that are working in the non-urban markets, which I want to reiterate again.

Thank you very much.

Thank you, Sam.

We have a follow-up question from Mitch Kumetz of Seaport Research. Your line is open.

Yeah, thank you. Yeah, just to follow up on that question from Sam, with that consumer, that below $30,000 household income consumer, do you think you're losing them right now to kind of the targets and the Walmarts of the world as the macro gets better that you can kind of regain them?

They're still engaged, simply put. We look at our broad CRM database that's now over 33 million, which is over 12% growth. We can dissect that and understand who's still engaging with us. And we're seeing strong engagement still in that under $50,000 and under $30,000 household income. But we're not seeing them convert at the same levels as we did during 2021. But not converting, which says we have an opportunity to continue to engage with them as we did in Q2. as we started doing back to school. And I think the biggest thing we saw some courage about was reengaging those customers during back to school with our broader athletic position showed very encouraging results. They still have weakness in that segment, Mitch, but we continue to see improvement. We've seen... Okay.

And then with your upper income consumer where you seem to be doing better I'm also curious, do you think that some of that strength is people trading down from maybe specialty retail or the department stores? And if so, how do you retain that new customer as the macro improves?

Yeah, in our over $75,000 households, we saw the biggest growth in the past quarter. We're capturing, as part of our strategy, the former department store shopper. through the brand assortments and the depth of product that Carl and his organization are bringing in, we're able to satisfy what the department stores used to. As well as some family footwear that are heavily private label, we're instead continuing to be focused on the best brand, the depth of assortment, and they're liking what they see. The KPIs are working across the board for that higher-end consumer, and I do think we retain them. As the mall shopper, the department store shopper and private label focused family footwear retailers don't have the same assortments we have.

Okay, and then maybe last one for Carl. When you were going through your kind of category performance on the quarter, I thought I heard you say that boots weren't very good. I don't think of QQ as being much of a boot quarter, but are you getting any early reads on boots as you've gotten into kind of August and back to school? And kind of remind me how you're thinking about boots for the back half of the year.

Mitch, we're not seeing a lot of action right now in boots. During Q2 and early Q3, we did see an uptick in Western, which which typically happens at this time, especially with a lot of the festivals and the whole Taylor Swift Stadium concert thing. That typically is short-lived. We are hearing, although experiencing in a very small way, some early sales on Combat, which is frankly a little surprising to us. But that's about it. With the weather and the frankly, the lack of some new fashion there, we're not seeing anything too much at this point.

Okay.

All right.

Thanks again. And we have another follow up question from Sam Poser of Williams Trading. Your line is open.

Carl, you said that the adult athletic business was down low single digits. Your inventory had improved. Can you give us some idea of of like stock to sales ratio there? You know, is the inventory down low single digits as well? Is it up double digits? I mean, you know, just some ratio of that relationship.

Here's what I would say, Sab. As we came out of second quarter, the inventory levels in athletic were higher than a year ago with sales down down low singles. That had to do all with the timing of deliveries last year and the fact that we didn't deliver a lot of athletic inventory until late August, early September. So a comparison really wouldn't be fair at this point. I'll say we feel real comfortable where our athletic inventory is going forward as we move through Q3 and the end of the year.

And then to follow up one more time, You mentioned that skate and running were soft and court and basketball were good. Can business really get that much better with skate and running soft? And do you see any light at the end of that tunnel?

I would say that we're seeing some improvement. We certainly are a performance running business where we have access to the hot brands that has turned in as very strong. We're seeing small improvements beyond category. At this point, we don't see any improvement in skate. I will say at Shoe Carnival, A large percentage of our athletic business is done in basketball and court, the biggest percentage in the channel. And that business is very strong and will continue to ride that until the other businesses come back.

And then lastly, Eric, what about, you know, given where the stock is and everything else, I mean, where are you standing on share buyback and so on these days?

Thanks, Sam. Our priorities, as you know, we invest in the business, then dividends, and then lastly, if there's an opportunistic position, we'll look at the stock buybacks. We still have the $50 million that was authorized at the beginning of the year, so that's an opportunity for us. So we will be continuing to evaluate it.

Thanks very much.

There are no further questions at this time. I would now like to turn the call back to the management team for closing remarks.

Thank you all so much for joining today's call. I look forward to discussing Q3 results later this year. And as I mentioned at the top of the call, Steve Alexander has recently joined us to support our investor relations function. Please reach out to him with any questions or follow-ups you might have.

Thanks, Mark. Thanks again to everyone for joining the call today. I'm around all day. I look forward to speaking with you and hopefully meeting you in person going forward. Thanks very much again for joining the call.

This concludes today's conference call. You may now disconnect.