Shoe Station Group, Inc.

earnings conference call. 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. 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 Rogen's shoes. A reconciliation of GAAP to non-GAAP results is included in today's earnings press release. 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 fourth quarter 2024 earnings conference call. Joining me on today's call are Carl Scibetta, Chief Merchandising Officer, and Patrick Edwards, Chief Financial Officer. We're excited to share our fiscal 2024 growth results with you today and discuss the transformational news announced this morning about our shoe station growth strategy. First, I'll start with a brief overview of 2024 trends and results. Over the past few years, our industry has faced a challenging landscape with inflationary pressures, constraining purchases among lower income households and urban consumers. We've seen footwear customers shop at high engagement levels during key event periods, such as back to school and holiday, and then pull back spending and engagement during non-key periods. Despite the many headwinds our customers and industry faced last year, our long-term strategies set our results apart from the competitive set and enabled us to deliver industry-leading sales growth during fiscal 2024 and achieve net income growth. We remained disciplined throughout the year, relentlessly focused on maximizing margin delivery, cost controls, synergy capture, profitably engaging customers, and bringing the nation's best brands to market. We gained market share again in 2024. We entered new geographies, expanded our customer base, and acquired a regional leader in the Midwest. Our balance sheet started fiscal 2024 strong and got even stronger by year-end. We expanded our cash flow generation and built up higher year-end cash balances during a year where we also acquired a chain from 100% cash on hand. We provided shareholders our 52nd consecutive dividend and for the 20th consecutive year, we started a year with zero debt and ended a year with zero debt. Ultimately, our strategies resulted in net income growth and EPS results at the very high end of our profit guidance range. I'd like to thank our exceptional vendor partners and team members for all their efforts to achieve these results during a tough year. Turn to a few highlights of fiscal 2024 results. Net sales were $1.2 billion this year, growth of 2.3%. This contrasts to the industry contracting mid-singles for the year. and reflects solid growth, particularly given this was a 52-week year compared to a 53-week in the prior year comparison. Our Shoe Station growth banner grew an industry-leading 5.7%, successfully entered new markets, captured new customers, and achieved comparable growth for the year. Rogan's achieved profitable results beyond our expectations, with integrations completed well ahead of target and full synergies captured. The contributions from these two acquisitions drove our overall sales growth and led to achieving the high end of our EPS guidance for the year. Our digital-first marketing approach continued to drive highly profitable growth and efficiencies, particularly during event periods where we achieved sales growth during both the Thanksgiving and Christmas holiday period, similar to growth achieved earlier in the year during back to school and spring events. During non-event periods, customer trends remain unchanged with the lower income customer at our Carnival banner. We continue to see customers pull back on spending in the industry in these non-event periods. The shoe Carnival contracted at similar levels as the broader industry declines during fiscal 2024. Looking at these first months of 2025, which are non-event shopping months, I can share the trends have not changed. and we expect this downtrend persists this year with lower-income customers in non-event months. Additionally, the 2024 boot season was a disappointment, with unseasonably warm weather in Q3 lingering late into Q4 and then an average customer response for the balance of the year. Boot inventory dollars are down around double-digit currently versus last year with smart inventory management. We achieved gross profits over 35% for the fourth consecutive year, with a steady focus on targeted, smart promotions and buys that maximize margins and conversion. Adjusted net income grew to $75 million, or $2.72, versus $74 million, or $2.70, in fiscal 2023. Patrick will provide additional commentary on fiscal 2024 results. I'd now like to turn to what I believe could be the most transformational strategy in our company's 46-year history. This morning, we announced a new strategic plan to scale up ShoeStation from a regional retailer to a national footwear and accessories leader. Today, we will review the first phase of this plan, the investments, the expected payback period, financial leverage, and thoughts on following phases. ShoeStation is our premium retail banner. attracting higher income households, providing customers the top branded assortments for both non-athletic and athletic branded footwear, high levels of service, and a welcoming contemporary shopping environment. Since we acquired Shoe Station in 2021, we've been evaluating customer analytics, market data, and developing strategies to expand the chain beyond its roots in the Gulf region of America. Over the past two years, We've been expanding Station into new markets, and it has become the industry's fastest-growing retailer and solid market leader in the Southeast where it competes. As discussed in prior calls, we conducted an extensive in-market test to validate what our customer and market data indicated, that SHU Station would better meet customer needs than SHU Carnival in many markets we operate. We methodically went about testing this, including closing 10 underperforming shoe carnival stores across multiple markets and opening 10 new shoe station stores. After a full year of testing and analysis, I can share the test is now complete, and it is clear that shoe station was preferred by customers to carnival. This creates a transformational business opportunity to invest now to accelerate our future earnings potential. The overall results from the 10 re-bannered stores exceeded our success criteria. Combined, they generated sales over 10% higher than Shoe Carnival, expanded margins, attracted higher income households, converted new customers, and ultimately delivered a double digit increase in profits, excluding closing and opening costs. Patrick will unpack the payback model for this strategy, but I will share that the return on investment is high fast and currently is our best usage of our solid cash flow to drive organic growth we originally planned for 25 rebanners this year and then a gradual expansion over many years we now believe that is too conservative an approach based on the customer response financial accretion and the continued headwinds we anticipate the lower income households face this year we will move swiftly with executing our transformation plan in order to capture future earnings and market share. Within 24 months, 51% of our current store fleet will be operated under the SHU station banner. Let me break out the specifics in a little more depth. During this fiscal year, we have increased the rebanner store count to 50 to 75 from the 25 originally planned. Growth this year will include markets where stations already well-known to customers in the South as well as entering new markets where we operate a shoe carnival. This will result in station representing between 22% to 27% of the company's total store count by fiscal end versus a little under 10% at the start of this year. We will rebound our 100 or more stores between the start of fiscal 2026 and April 2027, resulting in 218 shoe station stores in 24 months. At that point, We believe our growth banner has the scale needed to offset the negative trends of the carnival banner and lower income customer headwinds. During 2026, 2027, we will begin testing shoe station and regions the company does not compete meaningfully or not at all. We will be evaluating these markets over the year ahead and expect to have information to share on these expansion markets as we get into 2026. To be clear, we see this 24-month plan as just the first phase of SHU Station scaling up. Based on our customer data, industry-leading growth achieved the past two years, enthusiastic vendor partners, and profit potential, we intend to scale SHU Station nationally over the long-term horizon. The profit leverage of this plan is substantial for long-term earnings accretion and will receive our prioritized investments in 2025. Patrick will provide the details, But the headline is the year one investments, the scale this plan up, total to approximately 65 cents reduction in EPS this year. And the downtime for the 50 to 75 store closures and reopening amounts to approximately 1% sales reduction during the year. That near-term investment is expected to pay back fully in a two to three year horizon and increase our annual profit contribution to these stores by over 20% in 2027. Said differently, in the second full year after rebannering, we expect store profits to increase over 20%. In addition to our organic growth strategy, we remain committed to pursuing M&A to achieve our long-term vision to be the nation's leading footwear retailer for families. We start this fiscal year in a competitive position of strength with a strong balance sheet and robust cash flow generation. Our two prior acquisitions have integrated smoothly, full synergies captured, and built our readiness for further acquisitions when the right opportunity at an attractive valuation becomes available. Our M&A targeting focus is on market-leading footwear retailers with scale, providing geographic expansion, and or diversifying to a higher-income customer base. Before handing it over to Carl, I'll summarize with a few closing thoughts. Fiscal 2024 was a very profitable year, and EPS was at the top end of our guidance, led by the success of our acquisitions, relentless focus on margin delivery, cost controls, and continued efficiencies in our successful digital-first marketing approach. Our shoe carnival comps remain under pressure during non-event periods. We anticipate that pressure continues this year with a lower income customer, uncertainty of tariffs, and increased volatility with Hispanic customers. Shoe Station was the fastest-growing footwear chain in our industry again, and our rebanner in-market test exceeded our success criteria. We rolled out today our new strategy, the Scale-Up Shoe Station, from a regional to a national footwear leader. The first phase will be complete in 24 months, with 51% of our current store fleet operated under our station growth banners. It is a significant near-term investment that pays back quickly and is expected to drive over a 20% increase in profitability at the rebanner stores. Despite a volatile landscape in the industry, our team strengthened our competitive and financial position during 2024 and achieved our expectations. The early 2025 industry landscape is shaping up like 2024, and as such, We expect continued mid to high singles declines from the lower income household at our carnival banner. We also have the added unknown of tariffs yet to play out with the customer, vendors, and industry pricing. Yet, despite the market volatility expected in 2025, we are well positioned with our strong balance sheet to advance our strategies and invest during this down cycle to prepare for long-term profit growth in 2027. Finally, as we announced previously, Carl Shabetta is retiring April 4th after over 50 years in the retail industry and over a decade of service to Shoot Carnival. Thank you so much, Carl, for your outstanding partnership and leadership. We also recently announced that Tanya Gordon has been appointed to succeed Carl as our next chief merchandising officer. I've worked with Tanya for many years and can share she is passionate about brands, growth, prioritizes vendor relationships, and will work tirelessly to drive our vision into reality. On behalf of the Board of Directors, I would like to congratulate Tanya. And now, for one last time, I'd like to hand it over to Carl. Carl?

Thank you, Mark. For full year fiscal 2024, we achieved a net sales increase in line with our expectations and delivered $2.68 earnings per share, which was at the very high end of our guidance. The sales trends we have been experiencing through 2024 continued during the fourth quarter. We performed well during the peak event times of Thanksgiving and Christmas. During off-peak times, we saw traffic and comp sales declines at our carnival banner. I am very proud of our team as they managed their way through the changes in customer behavior. Utilizing well-thought-out, targeted promotions and strong vendor partnerships, we achieved our product margin expectations. We increased our receipts in January to prepare for the first quarter rebanner stores, as well as deliver product early to avoid the effect of potential supply chain disruptions and additional tariffs. Ending inventory was flat versus year-end 2023, excluding the inventory of Rogan shoes that was acquired during 2024. Patrick will take you through the individual product category performances for Q4. As I prepare for my retirement next month, I would like to congratulate Chief Merchandising Officer and Executive Vice President Tanya Gordon on her new role. Tanya brings extensive retail experience to the position and has played a key role within the Chute Carnival Merchant Organization for 10 plus years. She has worked closely with Mark and the officer team and is a cultural leader within the company. Sonia has established excellent vendor relationships while at Shoe Carnival that have contributed greatly to the success of the company. I am very confident I leave the team in good hands. Being part of this industry for many years, I've had the pleasure to work with countless individuals. I would personally like to thank the vendor community for the support they have given me year after year. Especially thankful for your support for Shoe Carnival over the past 12 plus years. We together have achieved much success. I am most proud to have been part of this great company. I would like to thank Mark Warden, Cliff Sifford, and the board of directors for giving me this amazing opportunity. Thank you to the band shoe team here at Shoe Carnival for their unwavering support, as well as our over 6,000 employees. A special thanks to the Shoe Carnival amazing and talented merchant team. It has been my privilege to be a part of this team for over 12 years. We have seen a great deal of change and at times unheard of disruptions. You have performed brilliantly through it all. You truly are best in class, and I know you will achieve great success in the future. With that, I would like to thank our investors and analysts. I have enjoyed working with you over the years. I will now turn the call over to Patrick for review of our financials. Patrick?