Shoe Station Group, Inc.

Today's conference call is being recorded and is also being broadcast via webcast. Any reproduction or rebroadcast of any portion of this call is expressly prohibited. I would now like to introduce Mr. Steve Alexander with Shoe 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 first quarter of 2024. If you need a copy of the release, it is available on our website in the Investors section. Joining me on today's call are Mark Warden, President and Chief Executive Officer of Shoe Carnival, Carl Scibetta, Chief Merchandising Officer, and Patrick Edwards, Chief Financial Officer. The management's remarks 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 a 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. Let me start today by saying that sales momentum is accelerating across the company. We gained significant market share during the quarter. Our new digital-first marketing plans worked, and we sold a ton of sandals at Shoe Carnival. During the quarter, net sales grew 6.8% to $300.4 million. Our sales growth surpassed the high end of our expectations for the quarter, and there are four key drivers I would like to highlight. First, SHU Station net sales grew faster than planned, increasing low double digits as we entered new markets, engaged new customers, and continued to rapidly grow share in the existing markets we serve. Second, E-commerce sales continued to grow double-digit during the quarter, driven by the relaunch of shoecarnival.com in the third quarter of 2023. That relaunch enhanced the customer experience and is driving significant gains in customer conversion and ultimately in sales growth. Additionally, our launch of shoestation.com in early 2023 continues to drive growth as the platform scales up customer acquisition. Third, Rogan's, which we acquired during the middle of February 2024, delivered first quarter net sales in line with our expectation. The integration is progressing ahead of schedule and we continue to be on pace to deliver the increased synergies in fiscal 2025 as discussed last quarter. Fourth, and most encouraging to me, during the quarter, trends significantly improved at our shoe carnival banner when we kicked off our new digital-first marketing campaign. The customer response to our sandal assortment has been outstanding, with total sales growth of 14% in sandals during the quarter and accelerated sales growth in April after the Easter holiday period ended. The results are clear. Our new digital-first marketing approach and compelling product assortment are working. We launched the new Sandal Season Easter holiday marketing campaign about a month into Q1 and accelerated investments as spring weather progressed. Prior to the campaign launch, sales were soft in January and February, with a declining sales trend similar to non-event periods in the prior year. Once we started the new campaign, we saw an immediate improvement in results. During March, sales accelerated to single-digit growth early in the month and continued to accelerate significantly in the days leading up to Easter, with double-digit growth across both the SHU Station and SHU Carnival banners. Coming out of the Easter holiday event period, we saw encouraging sandal buying trends, so we continued to engage customers with our marketing campaign focused on social, digital, and targeted CRM activities. While April is not what I would consider a non-event period due to it being an important seasonal event month for us, it did provide some early insights about customer buying behavior. We need to see this play out over a longer time period to understand that this is a sustaining trend in 2024. but I can share that the customer was far more engaged and motivated to purchase across our banners, across our geographies, and across household income levels in both March and April as compared to January and February. We will be monitoring this encouraging pattern closely and investing appropriately into trends as they emerge ahead. Shifting from our sales growth to financial highlights in the quarter, We again delivered sustained margin performance in the quarter with gross profit margin expanding to 35.6%, representing the 13th consecutive quarter above 35%. Operating income in the quarter increased 7.5% and pre-tax income increased 8.5% to $23.2 million. Margin expansion over the long term has been a key driver of our profit transformation. led by our targeted promotional plans, smart buying strategies, and growth of our shoe perks CRM membership. I'm particularly pleased with the merchandise margin expansion achieved this quarter versus Q1 last year, and at the same time, we were able to grow sales ahead of our expectations. And compared to five years ago, gross profit margin in first quarter 2024 expanded 600 basis points and operating income grew 44% on sales growth of 18%, demonstrating our success to grow the business profitably over the long term. Our vision is to be the nation's leading family footwear retailer, and a core strategy of realizing this vision is profitable M&A activity. We've completed two acquisitions in our company's history. ShoeStation, which we acquired in late 2021, and then most recently Rogans, which we acquired in February 2024. Starting with ShoeStation, we completed the integration about a year ahead of schedule and achieved both the efficiencies and synergies that we expected. A little over two years later, ShoeStation continues to significantly grow sales ahead of the retail footwear category, grow profit, and expand margins. We have added new stores as part of growing the ShoeStation banner, and we are well positioned to continue expanding our market reach, engaging with new customers, and continue rapidly expanding the ShoeStation banner in the years ahead. We also launched the Shoestation.com website in early 2023, which is driving e-commerce growth. We've fully integrated ShoeStation into our ShoePerks platform and are leveraging our advanced CRM analytics and capabilities to drive deeper engagement with both new and existing customers. Moving to Rogans, which we acquired in February 2024. We're in the early stages of integration and continue to be encouraged with the progress. Rogan's delivered first quarter 2024 sales and profit results in line with our expectation, and we continue to expect that it will be accretive to our results in fiscal 2024. We also continue to expect that the level of accretion will increase meaningfully in fiscal 2025. As discussed previously, based on the early pace of progress of the integration, we accelerated the timeline, increased the expected synergy amount to $2.5 million, and accelerated the timing of the synergy capture entirely into fiscal 2025, rather than across fiscal 2025 and 2026. Today, we continue to expect full synergy capture in the amount of $2.5 million, and we continue to expect the entirety of those synergies will be realized in fiscal 2025. Additionally, we are on pace to have Rogans fully integrated into our Shoe Station growth banner operations in early 2025 and expect that Rogans will be a solid source of accretive profit growth in 2025 and beyond. In 2025, with Rogan's fully integrated, we believe that our Shoe Station banner will be even better positioned to drive sales and profit growth. Including Rogan's, Shoe Station is currently at 59 stores, and we expect to surpass the 100 store count sooner than planned as part of our long-term strategy to surpass 500 total stores in 2028. Shoe Station and Rogan's both demonstrate our successful approach to M&A as a key component of our long-term growth strategy. To date, we've largely focused on acquisitions that provide market leadership in their regions, are profitable, and give us the opportunity to expand our market presence or further penetrate existing markets. Going forward, we are well-positioned to continue pursuing M&A as part of our growth strategy. Our balance sheet is strong and we have zero debt. We have the flexibility to consider using equity or modest debt for the appropriate M&A opportunity, but given our solid cash position, funding M&A with cash flow from operations has been our approach, just as we did with Shoe Station and Rogan's. In addition to M&A, another key component of our growth strategy is to continue leveraging our advanced customer analytics and capabilities. By doing this, we can better identify customer priorities at a market level and drive engagement both in-store and online. One of the primary focus areas in this strategy is to evaluate data on community characteristics, purchasing trends, product assortment, and mix. We've gained valuable insights about our shoe station customer by doing this analysis and have defined many markets where shoe station stores can likely outperform. Specifically, we've identified existing shoe carnival locations where the customer and real estate characteristics better align with ShoeStation. We're now in the early test and learn development process of banner transitions, meaning closing an existing shoe carnival store and opening a ShoeStation store in the market where customer dynamics better fit our growth banner. It's very early days on executing the strategy, but I'm excited about what the data indicates regarding the potential for profitable growth in the years ahead. I'll have an in-market test to discuss at our next conference call, so stay tuned. Moving now to thoughts on the balance of fiscal 2024. As I discussed earlier, we are encouraged with the sales growth and profitability we achieved in the first quarter. We achieved sales ahead of our expectation and grew operating profit even faster than sales. Patrick will provide additional details in his remarks, but given the solid performance in the quarter, today we are reiterating our entire fiscal 2024 outlook. We are only two weeks into Q2, so I do not have a lot to share about this quarter yet, but I can provide a brief update on a few things we are seeing so far in May. First samples continue to sell very well with double digit growth in the first two weeks of May. And this is particularly encouraging as we are now in the peak selling period. Second, product gross margins remain strong and in line with what I would like to see for Q2. Third, we're continuing to see sales trends pace where I would like to see them to achieve our annual expectations across our banners. Last, we're now entering a non-event buying period until we get into back to school. It is not yet clear if the customer remains as cautious about buying in non-event periods as they were last year. We will continue to monitor customer buying behavior closely during this period before back to school starts and pivot accordingly. Before handing it to Carl to discuss Q1 category level performance, I'd like to share a few summary comments. We are encouraged by the results we achieved in the quarter. We delivered sales growth and operating profits higher than our expectations. We again delivered sustained gross profit margin performance, exceeding 35% for the 13th consecutive quarter. Sales growth in the quarter was led by continued strength in our shoe station banner, e-commerce, and Rogan's acquisition. Trends improved sharply at our shoe carnival banner during March and April. as we are having a strong start to the sandal season. Our digital-first marketing strategy is resonating with customers and our assortment of the right brands with the right depth is working. Our strategies to grow sales and increase profitability over the long term have put us in a competitive position of strength to continue growing market share and delivering shareholder value. Our long-term vision is clear, to be the nation's leading family footwear retailer. And I believe we are very well positioned to continue advancing toward that ambition in 2024 and beyond. And now I'll hand it over to Carl to provide further color on our categories performance.