Shoe Station Group, Inc.

Good morning and welcome to SHU Carnival's fourth quarter 2023 earnings conference call. Today's conference call is being recorded and is also being broadcast via webcast. Any reproduction or a broadcast of any portion of this call is expressly prohibited. I would now like to introduce Mr. Steve Alexander with SHU Carnival Investor Relations. Mr. Alexander, please go ahead.

Thank you and good morning. Thanks for joining us today. Earlier this morning, we issued our earnings press release for the fourth quarter of 2023. If you need a copy of the release, it is available on our website in the investor section. Joining me on today's call are Mark Worden, President and Chief Executive Officer of Shoe Carnival, Carl Shibata, Chief Merchandising Officer, and Patrick Edwards, Chief Financial Officer. Managers for ARCS today 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. Today's call will reference non-GAAP measures. The non-GAAP or adjusted results referenced exclude the purchase accounting, merger, integration, and transaction costs related to the acquisition of Rogan's shoes. A reconciliation of GAAP to non-GAAP results is included in this morning's release. And with that, I'll hand the call over to Mark.

Thank you, Steve, and good morning, everyone. I'd like to start today by thanking our 5000 team members and vendor partners for their support in driving sales growth during the December holiday period and setting us up for accelerated sales growth in fiscal 2024. Let me also take this opportunity to welcome all our new team members from the Rogan's Shoes acquisition announced last month. One month after the acquisition, it's abundantly clear to me why Rogan's is the market leader in the state of Wisconsin. Their assortment is compelling, brands are spot on for the target customer, and the long-tenured team has a deep commitment to their customers. This combination sets us up for significant profit growth and sales expansion ahead. Welcome, team. Before turning to 2024 growth expectations and guidance, I'll start with highlighting Q4 2023 results. First, our results were consistent with the preliminary financials announced in mid-February. We delivered net sales at the high end of our expectation with $280.2 million in the fourth quarter and $1.176 billion for the year. Excluding the transaction costs incurred in the fourth quarter related to the rovings acquisition, adjusted EPS totaled 59 cents and was in the mid-range of our expectation, and adjusted EPS for the full year totaled $2.70. Sales during the December holiday period exceeded our expectations, with strong gross profit delivery again, sustaining above 35% for the 12th consecutive quarter. We posted mid-single-digit sales growth during the holiday period with balanced growth across both banners. Our growth was driven by, number one, our new holiday marketing campaign, which surrounded customers during the two peak holiday weeks, With a new slate of social, digital, and influencer marketing, the message resonated with our core customer immediately. And number two, Carl's buying team rolled out a compelling holiday assortment with robust margins that our customers wanted for their holiday gifting list. Between the new campaign and right brand, right depth, we found the perfect combination to capture customers' share of wallet when they were ready to shop for the holidays. The wins from the December holiday season were built from the early learnings we captured during our back to school campaign, where we grew our children's category sales during the most important season of our year. 2023 was a challenging year overall, with net sales declining versus the prior year. Customers were cautious during the year, focused on event-driven shopping occasions and essential footwear purchases. With that said, the team successfully grew market share once again this year within the family footwear industry and rapidly advanced our long-term strategic plans. We delivered successful growth events during both back-to-school and holiday, establishing a compelling approach to incite customers to choose our banners when they are ready to purchase in 2024. We have applied learnings from our go-to-market approach focused on social, digital marketing, and compelling assortments to the 2024 tax refund and early spring season, which I will provide an update on shortly. Gross profit margin in the quarter was 35.6%, representing the 12th consecutive quarter above 35%. Since fiscal 2019, our full year gross profit margin has expanded 570 basis points. Margin over the long term has been a key driver of our profit transformation, driven by our targeted promotional plans, smart buying strategies, and growth of our shoe perks PRM membership, which grew to over 34 million members at the end of fiscal 2023. Fourth quarter net income was $15.5 million, or $0.57 per diluted share, compared to fourth quarter 22 net income of $21.6 million, or $0.79 per diluted share. Excluding the Rogan's transaction costs in the fourth quarter, Adjusted net income was $0.59 per diluted share and $2.70 per diluted share for fiscal 2023. We continued executing our inventory optimization improvement plan in the quarter and delivered ahead of expectations for the first year of this plan. We reduced inventory levels while sustaining robust gross profit margins and providing a fresh assortment of branded products for our customers. Our inventory coming out of the year is in a good position. and we expect to continue driving additional efficiencies in 2024. Carl will lay out our 2024 inventory optimization targets in a moment. We're at an all-time high of 429 stores, including the 28 acquired Rogan store locations. By the end of fiscal 2024, we expect to operate 430 to 432 stores, resulting in an increase of 30 to 32 stores this year. The new stores that are expected to open in 2024 will be part of our SHU Station growth banner, contributing to our expectation of sales growth this year. We also continue to modernize our SHU Carnival fleet, with approximately 60% now complete and additional stores being modernized during 2024. The annual capital investment required for the modernization program decreases starting this year as the program nears completion. We continue to have a strategic roadmap in place to surpass 500 stores in our fleet in 2028. We plan to achieve this store growth objective through organic new store growth and by pursuing additional M&A targets as profitable opportunities arise. Our balance sheet is strong, with over $110 million in cash and marketable securities on hand at the end of the year. As compared to the prior year, cash and marketable securities increased nearly $50 million and cash flow from operations increased over $70 million. We continue to fund our strategic investments in the business from operating cash flows, carry no debt, and we funded the acquisition of Rogan's with cash flow entirely generated in fiscal 2023. Given the current high interest rate environment, our no-debt position puts us in a great place to continue to fund future growth opportunities with cash generated by the business. In March, we raised our quarterly dividend by 12.5% per share. With this recent increase, we have now grown our shareholder dividend by 238% since the first quarter of 2019 and provided 48 consecutive quarterly dividends. And in the last 12 months, we've increased the dividend 35%, demonstrating our competence in delivering growth and further enhancing shareholder returns over the long term. In February, we acquired Rogan's, the second acquisition in Shoe Carnival's history, for a purchase price of $45 million. Founded in 1971, Rogan's is a 53-year-old work and family footwear company with 28 stores in Wisconsin, Minnesota, and Illinois. Importantly, this acquisition provides us market leadership in Wisconsin and expands our presence into Minnesota, our 36th state. Rogan's carries over 100 name brands and thousands of styles of footwear for men, women, and children, and has a customer base that is complementary with our shoe station banner. As previously announced, we have an 18-month plan to integrate Rogan's into our shoe station growth banner, which is well underway and I'm pleased with the progress to date. Rogin's will be immediately accretive to our 2024 results, and we now expect the level of accretion will increase meaningfully in 2025. We had initially planned to realize full synergies of approximately $1.5 million at a level that was relatively balanced over the course of fiscal 2025 and fiscal 2026. But as we announced in our press release this morning, we've now increased the full synergy expectation to $2.5 million. Additionally, We now expect to realize the full synergy amount in fiscal 2025 based on the early, smooth progress of the integration process to date, the strength of the Rogan's business, and the opportunities for future growth. Moving now to our full-year 2024 outlook. We expect to drive significant top-line growth in 2024, sustain strong gross profit margins, expand our customer base, and begin to strategically integrate the Rogan's business. From a net sales perspective, the outlook includes the expectation of net sales growth in 2024 led by the Rogan's acquisition, continued strength in our shoe station growth banner, growth in e-commerce, and significantly improving sales trends in our shoe carnival banner. Net sales for 2024 are expected to be in a range of $1.21 billion to $1.25 billion, representing growth of approximately 4% to 6%. Worth noting, fiscal 2024 includes 52 weeks as compared to 53 weeks in fiscal 2023, representing an approximate 1% headwind to growth in 2024 versus 2023. Comparable store sales are expected to be in a range of down 3% to up 1% versus 2023, representing a significantly improved trend versus prior year, primarily in our shoe carnival banner. Gross profit margin is expected to be approximately even with prior year, reflecting our long-term profit transformation strategy and our sustained gross profit margin performance. SG&A, as a percent of net sales, is expected to be approximately 40 basis points higher than fiscal 2023. The increase versus prior year is led by two primary factors that are important to understand as part of our 2024 outlook. Practically 20 basis points of the SG&A increase is due to expected purchase accounting, merger and integration costs related to the Rogan's acquisition. Patrick will elaborate shortly. The balance of the increase versus prior year is driven by Rogan's operating expenses that are expected to be synergized in fiscal 2025 as part of the accelerated integration plan. We do not expect to begin realizing synergies on the Rogan's operating expenses into late 2024. The income tax rate for fiscal 2024 is expected to be approximately 26%, representing an increase of 230 basis points versus prior year and a negative impact to EPS of approximately $0.08. Patrick will provide more details in a few moments. In summary, our 2024 expectation is for sales growth, gross profit margin that is approximately flat to prior year, increased SG&A in the near term, and a tax headwind of approximately $0.08. This translates into adjusted EPS in fiscal 2024 of $2.65 at the midpoint of guidance. Metro will provide additional details on the 2024 outlook, but in terms of year-to-date performance in early 2024, we are seeing encouraging trends. As I discussed earlier, we're applying the learnings from our successful August back-to-school campaign and December holiday season to win customers' business when they're ready to purchase in 2024. Using our go-to-market approach focused on social and digital marketing and compelling products, we're achieving success during the tax refund and early spring season. Rogan's, Shoe Station, and e-commerce sales are growing as expected, and shoe carnival trends are improving. We're now halfway through Q1, and I can share that we achieved sales growth in the low to mid single-digit range and sustained gross profit margin performance quarter to date. I'm most encouraged with customers' response to our tax refund and spring sandal seasonal marketing campaign and the fresh product assortment. Specifically, over the past three weeks of running our new Digital First campaign, we've seen our sales accelerate to high single-digit growth with a very strong customer response to our spring seasonal offering across our banners. In summary, we delivered net sales at the high end of our fourth quarter expectations, led by strong growth during the December holiday period. We delivered profitability in line with our expectations and our results were consistent with the preliminary results announced last month. Our new plans drove growth during the holiday period and are being activated again successfully in early 2024. We delivered on our inventory optimization improvement plan ahead of target, with inventory levels down, product assortment in a good position, with additional efficiencies expected in 2024. Our balance sheet is strong, with no debt for the 19th consecutive year end. We continue to generate solid cash flow, and we have the capacity to fund increased shareholder value and future growth opportunities with cash generated by the business. In February, we completed the Rogan's acquisition and funded the deal with cash flow generated in 2023. We have increased the expected synergy realization $2.5 million, and accelerated the integration plan with the expectation of realizing the full synergies in fiscal 2025. Rogan's will be accretive to our results in 2024, and the level of accretion is now expected to increase significantly in 2025 as the expected synergies are realized. Our 2024 outlook demonstrates our expectation for net sales growth and sustained profitability performance with the top line growth led by Rogan's, the strength of our shoe station banner, growth in e-commerce sales, and significantly improving trends in our shoe carnival banner. Before handing it over to Carl, I would like to close with some perspective on our long-term performance. We've experienced solid net sales growth and transformational profitability growth since 2019, led by our acquisition strategy, our investments in CRM and e-commerce modernization, as well as our targeted promotional strategies. Since 2019, Earnings per share have increased 84%, representing an EPS CAGR of 16%. Over the same period, gross profit margin has expanded 570 basis points and sales has grown 13%. Our strategies to grow sales and increase profitability over the long term have put us in a strong competitive position to continue growing market share in 2024 and beyond. Our long-term vision is clear. to be the nation's leading family footwear retailer. And I believe we are well positioned to continue advancing toward that ambition in 2024. And now, I'll hand it over to Carl to provide further color on the quarter and our category of performance. Carl?