Shoe Station Group, Inc.

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 Worden, President and Chief Executive Officer of Shoe Carnival, Carl Shibata, Chief Merchandising Officer, and Patrick Edwards, Chief Financial Officer. 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 measures or adjusted results referenced exclude the purchase accounting, merger, integration, and transaction costs related to the acquisition of Rogan 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 congratulating our 6,000 team members on achieving a new sales record for the second quarter and on the comp sales growth delivered during our most important event of the year, the back-to-school season. Well done, team. Based on these strong results, today we are raising our annual sales and EPS guidance ranges. During the quarter, our digital-first marketing approach worked, and our brand-focused product assortment resonated with customers across our banners, geographies, and demographics. This drove customer engagement to levels that exceeded our expectations and sales and EPS that exceeded our Q2 guidance. But once the back-to-school season was in full swing at the tail end of July, comp sales growth rapidly accelerated. We once again gained significant market share and we achieved a net sales record in the quarter, exceeding all previous second quarter net sales in SHU Carnival's history. During the quarter, net sales grew 12.9% to $332.7 million. Our sales growth surpassed our expectations for the quarter, and there are several key drivers that I would like to highlight. First, SHU Station net sales continued to grow faster than planned, increasing double digits as we continue to grow share in our existing markets, bring new customers into our ShoePerks CRM platform, and drive growth in expansion markets. ShoeStation has continued to deliver profit-accretive results as our growth banner, and as I briefly mentioned last quarter, we've identified significant additional growth opportunities going forward with our new banner switch strategy that we are in test markets with now. I'll cover this topic in more detail in a few moments. Second, shoe carnival trends continue to strengthen with comparable store sales sequentially improving versus Q1 and turning to growth during the back-to-school season. Store traffic improved sequentially versus first quarter 2024, and both conversion rates and average transaction amounts remain strong. Our digital-first, go-to-market approach worked beyond my expectations. This was the first back-to-school season where we fully pivoted from a traditional marketing campaign heavily focused on TV to the digital-first, targeted marketing approach we have been testing for the past year. This approach gives us increased flexibility to invest in real-time behind the products that are resonating with our customers during the season versus the old school way of being locked into whatever bets on the hot product were made at the time of the TV shoot and media buys. This added flexibility allowed us to amp up messaging in real time for brands that our customers were responding to during the season. The customer engagement with our social and influencer content was very exciting to see in Q2, and results spiked as we turned on the full weight of the investments during back to school. Bottom line, this new approach contributed to a record setting Q2 sales and comparable sales growth during back to school without spending additional marketing dollars versus the prior year. The effectiveness of our spend and added flexibility to react immediately to the customer are exciting to me, but we intend to continue building our expertise in this area going forward. And fourth, Rogan's, which we acquired during the middle of February 2024, delivered second quarter net sales in line with our expectation and continues to be on track to deliver approximately $84 million in annual sales, as we expected when we announced the acquisition. The integration is progressing smoothly on the accelerated schedule previously discussed, and we continue to be on pace to deliver the increased synergies in fiscal 2025 as discussed in each of the last two quarters. We're now about six months post-acquisition, and our team has become very efficient at identifying synergies, integrating rapidly, and building the skill set internally to capture profit synergies. The capabilities that we are building set us up well for future M&A opportunities as they become available to expand shareholder value and gain market share. We're still early into Q3, but nearly all of our markets have gone back to school now, so I'd like to share some color commentary on our August back-to-school sales and margin results. In the fiscal month of August, we achieved solid, low single-digit comparable sales growth, led by mid- to high single-digit growth in children's and athletics. The back-to-school weeks before Labor Day are the largest weeks of the quarter for us in Q3, and where we focused much of our campaign investments. During this time frame, we achieved comparable sales growth at both Carnival and Station banners, strong product margins, customer traffic growth, and transaction size increases versus prior year. Overall, we are encouraged not only with back-to-school and the key to improving comparable store sales performance, but also our performance on a year-to-date basis. All are key drivers of our decision to raise our full-year net sales guidance range to growth of 5% to 6% versus prior year, and our comparable store sales guidance range for the full year to down 1.5% to up 1% versus prior year. Implicit in this enhanced guidance is comparable sales growth for combined Q3 and Q4 in the range of flat to plus 5%. I currently anticipate the lower side of this range is the most likely outcome as I look at where we stand today and the shape of the year to go. But if we have a record-setting boot season and holiday, then the higher side of that range is a possible stretch outcome. Moving now from our sales growth and back-to-school update to a few financial highlights in the quarter. We again delivered sustained margin performance in the quarter with gross profit margin expanding to 36.1%, representing the 14th consecutive quarter above 35%. I'm pleased with the gross profit margin expansion achieved this quarter versus Q2 last year, and at the same time, we delivered record high sales in the quarter. Operating income in the quarter increased 22% versus prior year to $30.1 million, demonstrating that our strategies to grow the business profitably are working. EPS in the quarter increased on the strong net sales performance and the higher gross profit margin. On an adjusted basis, EPS in the quarter increased 17%, totaling 83 cents, as compared to 71 cents in second quarter 2023. And operating cash flow in the quarter totaled $40.7 million, and we ended the quarter with over $84 million of cash, cash equivalents, and marketable securities. Our vision is to be the nation's leading family footwear retailer, and one of the core strategies to executing on this vision is profitable M&A activity. As I mentioned earlier, Rogan's, which we acquired in February 2024, is delivering results in line with our expectations, and we're on track with the integration and synergy delivery for fiscal 2025. Along with profitable M&A, Another core strategy is to grow our existing business by leveraging our advanced customer analytic capabilities. As I mentioned on our call last quarter, one of the primary focus areas in this strategy is to evaluate data on community characteristics, purchasing trends, product assortment, and mix at a store level. As part of that extensive analysis, we have gained valuable insights about our Shoe Station customer and have defined markets where SHU Station can likely outperform. Specifically, we have identified existing SHU Carnival locations where the customer and real estate characteristics are better aligned with SHU Station. We've been in the test and learn process for several months now, and I'd like to share some of the early results from these test markets and our observations to date on this exciting growth opportunity. Let me start by saying, that it is currently only a small-scale test and only a few months of in-market results. But to say the early results to date have outperformed our objectives would be an understatement. So, what have we done so far? We defined the success criteria for our Banner Switch test markets at 3% to 5% annual sales growth, which is roughly the break-even profit point for the investments required to close the existing Shoe Carnival store and open a new shoe station store in the market. Our first in-market test included three store switches from Shoe Carnival to Shoe Station in the core station markets of Alabama and Mississippi. Here, the Shoe Station brand is very strong, with high customer awareness and decades of experience. Said differently, we expected the switch would succeed here. These three stores did more than succeed, though. They performed exceptionally well, with sales for the three in total growing over 15% versus prior year, and each of the stores individually also grew over 15%. The growth achieved was widespread across athletics and non-athletic categories and men's and women's, again, each expanding over 15%. Even more encouraging is the profit growth of these three stores. with each store growing profit over 20% versus prior year. The financial leverage gained from the more productive sales is driving solid profit leverage gains and flowing through. Based on these compelling early results, we're expanding the scope of our test and switching an additional six to seven stores this fall to shoe station stores. Our focus on this second round of testing is to further validate that switching in core markets is profit accretive and better meets the local customer needs. But importantly, we're expanding the test into additional southern states where SHU Station is present or known, but not the market leader. I'm sure you share my interest in learning what the store count potential is for this strategy over the years ahead. It is too early to say today if this strategy is a winner solely in core southern markets, across most or all of our southern markets, or possibly even further. We'll be working diligently over the fall and early into 2025 to answer these questions in the south with in-market live customer data to guide our strategic roadmap. I'll update you on how this encouraging test is progressing on our Q3 earnings call. Now shifting to thoughts on the balance of this year. As I discussed earlier, we're encouraged with the sales growth and profitability that we achieved year to date. Patrick will provide additional details in his remarks, but given the solid performance in both the quarter and year to date, today we raised our full-year guidance ranges for net sales, comparable store sales, and EPS. As we wrap up the back-to-school season, we're entering a non-event buying period until we get into the holidays. While we have experienced improving customer purchasing trends so far this year during non-event periods, We are not yet seeing category expansion during these periods. It remains unclear if customer caution levels will continue to improve as we head into the upcoming non-event months and the election cycle ahead. We'll continue to monitor customer buying behavior closely during this period before the holiday season starts and pivot accordingly. Before handing it to Carl to discuss Q2 category level performance, I'd like to share a few summary comments. We're encouraged by the results we achieved in the quarter, delivering record second quarter sales with operating profits and EPS higher than our guidance. Sales growth in the quarter was led by continued strength in our shoe station banner, improving shoe carnival trends, our new digital first marketing approach, and Rogan's acquisition. Trends accelerated sharply at our shoe carnival banner once back to school started. Our strategies to grow sales and increase profitability over the long term are working, and we have additional opportunities, including our new banner switch strategy that is currently in test markets to drive additional growth going forward. 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 for the balance of this year and beyond. And now I'll hand it over to Carl. Carl.

Thank you, Mark. As you discussed, we achieved a record sales level for the quarter, which exceeded our expectations. Momentum accelerated across the business as the back to school season started late in the quarter. And that momentum continued in the fiscal month of August. From a category perspective, women's boots, sandals, and adult athletics performed very well in the quarter. And in the fiscal August, as back to school continued, we delivered mid to high single-digit growth in children's and athletics. While competitive intensity remained high during the quarter, we delivered gross profit margin above 35% for the 14th consecutive quarter, and we remain committed to our long-term profit transformation and targeted CRM strategies continued delivering sustained gross profit margin performance. Our merchandise margin in the quarter decreased by 50 basis points versus prior year, reflecting competitive intensity. On a year-to-date basis, our merchandise margin is about even with the prior year. During the second quarter, we continued to further optimize our inventory levels. Inventory at the end of the quarter totaled $425.5 million, an increase of $16.1 million versus prior year, primarily reflecting impacts of the Rogan's acquisition in February 2024. Excluding the impacts from Rogan's, our merchandise inventory at the end of Q2 was lowered by approximately 7% on a dollar basis than prior year, and on a unit basis, merchandise inventory was down approximately 10% versus prior year. Excluding the impacts of Rogan's inventory, we continue to expect fiscal 2024 year-ending inventory to be approximately $20 million or 5% lower than fiscal 2023 year-end, while maintaining the freshest product assortment for our customers. Now moving to sales and categories for the quarter. Total comp sales were down 2.1%, which reflected a very strong start to the back-to-school season. combined with growth in sandals, women's boots, and women's athletics. From a category perspective, total adult athletics comp sales decreased very low single digits in the quarter. Comp sales in women's adult athletics were up low singles, led by running, basketball, and court. Comp sales in men's adult athletics were down low singles, with the decline in running partially offset by strength in basketball and walking. Children's comp sales were down mid-single digits with athletic and non-athletic down mid-single digit. Children's non-athletic performance was primarily due to softness in casuals and sandals. In the fiscal month of August, children's athletic comp sales accelerated to mid-single digit growth during the back-to-school season. Second quarter comp sales in women's non-athletic footwear were down low single digits. Dress was down high teens, and casual was down low double digit. Sport was down low single digit. Sandals were strong in the quarter, growing mid single digit, and boots delivered low single digit growth. Men's non-athletic comp sales were down mid single digit. Dress was down mid teens. Casual was down mid single digit, and boots were down low singles. Sandals delivered a strong performance, growing high teen in the quarter. Coming out of the quarter, our inventory content is clean and in good position. We are excited about the fresh new products coming into our stores for the balance of 2024, and we are in a strong position to continue providing the product assortment, mix, and values that our customers want. And with that, I will turn the call over to Patrick for a review of our financials. Patrick?