Shoe Station Group, Inc.

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 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. I will 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 first quarter 2025 earnings conference call. Joining me on today's call are Patrick Edwards, Chief Financial Officer, and Tanya Gordon, Chief Merchandising Officer. The company's first quarter of 2025 results were better than expected, with profits outperforming expectations by approximately 10%, our rebanner expansion plans delivering outstanding results, and our debt-free balance sheet getting even stronger. Given the volatility in the market and high levels of uncertainty the teams are navigating, I'm very pleased with our position as we start the second quarter. And I may be a contrarian on this next statement, but I'm starting to feel cautiously optimistic about back to school as we have a compelling assortment in hand and our product costs have not skyrocketed. I would like to thank our vendor partners for their close collaboration and our merchant organization under Tanya's leadership for their tireless work, ensuring we have our best foot forward for customers during back to school. Our Q1 financial results landed squarely within our annual guidance ranges. We have not yet experienced, nor do we have visibility to, any massive product cost or price increases outside of ranges considered in our guidance. This could evolve, but that is the situation now. Our singular corporate focus is to be the nation's leading footwear retailer for families. We operate no wholesale businesses And this has us in a comparatively solid and flexible stance to shift our buying decisions as costs evolve. This does not mean we're immune to vendor price volatility. However, we enjoy a superior position compared to our competitors for two reasons. First, we do not have direct manufacturing exposure. Second, we're not locked into our own production commitments that could force uncompetitive decisions. Additionally, our debt-free balance sheet with expanded cash reserves compared to the end of Q1 last year had us poised to make opportunistic buys in this volatile time and capture margin growth prospects ahead. Given all these variables, the executive team does not view it appropriate to withdraw 2025 guidance and today are reaffirming our annual profit guidance as the most likely outcome. Turning to specifics of the quarter. Similar sales trends to last year continued across our banners and the family footwear industry. Shoe Station achieved industry-leading growth again this quarter, and Rogan's produced solid, profitable results in line with our integration and synergy plans. Shoe Carnival declined similar to the industry and consistent with our annual guidance, albeit on the lower side of sales ranges for Carnival. Our teams observed a cautious customer during the quarter with the SHU Carnival lower income household. Tax refund season saw muted results as it appeared customer concerns about prices today and speculation of higher prices forthcoming kept a small segment on the sidelines. As previously shared, I do not anticipate that SHU Carnival nor the family footwear industry return to profitable sales growth in the near term. based on the current external conditions and soft consumer confidence we are seeing. However, implicit in our guidance range is a moderating sales decline trend in the back half of the year, primarily driven by shoe station momentum and expansion, compelling back-to-school assortments, and encouraging progress on trade negotiations. The organization's organic growth approach remains focused on expanding shoe station from the regional market leader it is today into a national footwear and accessories market leader. Shoe Station 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. It is a market leader in the Gulf of America region And as we rebounded SHU Carnival stores to SHU Station stores in existing markets, we expected a positive customer response, and we achieved them. Since our last earnings call, the rebounded results continue to be outstanding, and I would like to now unpack the results, share key learnings we have gained, and provide transparency to our accelerated plans and targets. First, SHU Station grew sales 4.9% for the quarter. driven by the rebanner approach growing sales low double digits. The continued shoe station sales growth, including comp growth in the quarter, is in stark contrast to the family footwear industry and shoe carnival trends, where both had comparable store declines in the high single digits during Q1. This creates an exciting national growth opportunity to scale up shoe station store counts to drive the overall corporation sales and profit growth impact. Previously, the leadership team shared a range for our shoe station rebanner plans between 50 and 75 stores during fiscal 2025. Based on the continued sharp superior performance of shoe station versus the industry and shoe carnival, we will complete all 75 rebanners this year, the top point of the range. These 75 stores will be completed on the following quarterly cadence. 24 were completed during Q1. 20 will be completed in Q2, of which three are completed. 25 will be completed during Q3, and six will be completed in Q4. To summarize the shoe station store count progression this fiscal year, the business started this year with 42 shoe station stores, representing 10% of our store fleet. Today, we operate 70 shoe station stores, representing 16% of the fleet, and we plan to end fiscal 2025 with approximately 120 SHU Station stores, representing 28% of the fleet. Given this rapid growth of SHU Station, we will plan to disclose the Banner sales growth ongoing starting now. Each month, our teams are discovering valuable insights to help us optimize our rollout plans as we enter new markets. The corporation has already expanded significantly into new markets in Alabama, Mississippi, Georgia, Louisiana, South Carolina, Tennessee, and Florida, and will further extend our presence. As operations move beyond core markets into new states, the customer and market data highlighted a large set of stores with similar dynamics where shoe stations should also surpass shoe carnivals, and those are being re-bannered now. I would like to share four brief examples from Q1 stores rebannered to highlight real-world learnings and what we are doing with those expanded insights as we move forward. Number one, SHU Station entered the Atlantic coast of Florida, a very large opportunity for future growth. The team rebannered an underperforming SHU Carnival store in a new market far from any other SHU Station store. This market had demographics that appeared on paper should work far better as a station. a more fluent trade area, skewed older customer base, and had a beachy vibe similar to many areas stationed thrashing. On paper, this store is prototypical of one we expect to hit at least a double in baseball terms, but we hit a home run here with sales growth over 20%, strong AUR growth from a superior branded assortment, and accretive margins. Our action step from this learning the organization will continue rebannering and expanding in markets like this one on the East Coast. Number two, Shoe Station entered a new rural market in Tennessee, over an hour from any major city. This was previously an average performing shoe carnival store with typical rural community demographics. Customer data alone didn't clearly indicate which banner would perform better. However, our analysis of local competition and available product assortments in that area pinpointed a gap that Shoe Station's unique merchandise mix could fill. And our prediction was accurate, with sales growing over 20% versus the prior year, and again, higher AUR and accretive margins. Number three, the team executed the same type of rebanner in a rural market in Alabama, and results were even stronger. These home runs in rural markets where the brand has awareness, and also where it does not, gives us confidence to action rebannering our shoe carnival stores across rural markets in America. Fourth, and very exciting and frankly, a bit surprising, we rebannered a poorly performing shoe carnival store in a lower income, highly diverse market in Georgia, not in a major city. The executive team thought this might achieve flattish results or maybe even be rejected by the customer. We were wrong. as its lower-income customer also responded very strong to the new assortments, just as well as the response in rural Tennessee and the affluent Florida beach town. This encouraging result could prove a game-changer in how wide the scope is for shoe station customer acquisition as we go national. Action from this is the business will re-banner more stores like this one to validate a shoe station can consistently exceed industry benchmarks in diverse rural markets that are not affluent. To summarize our field-based learning to date, ShoeStation is outpacing the industry in shoe carnivals quarter after quarter for over two years now. The rebounder approach has generated oversized growth of sales, in fact, exceeding shoe carnival sales by over 20% during the last five quarters since beginning this rollout, producing increased AURs and accretive product margins in markets we expected to win in, more affluent, suburban, mature customers. These new learnings are substantial. Shoe Station also is transforming an average or poor-performing shoe carnival into a growth storm in rural America, in new markets, in coastal America, and is showing early signs of growth in diverse, lower-income areas outside major cities. With these results in hand, it is crystal clear that SHU Station is the future of our organic growth and future of our store base. The superior performance in regions quarter after quarter versus SHU Carnival and the industry have provided us the customer data and the on-the-ground confidence to accelerate and increase our ambition with this approach. Today, I'm announcing an ambitious expansion. SHU Station will represent over 80% of our store fleet by March 2027, up from our previous target of 51%. We're accelerating our investment to maximize this rollout before back to school 2026. By July 2026, at least 51% of our current store fleet will operate a SHU Station. I believe this expansion gives us the scale necessary to deliver total company comparable store growth starting in Q3, 2026, as the strength and scale of SHU Station will more than offset the ongoing challenges we expect to face with the SHU Carnival banner. We can't wait. Tanya and I have been meeting extensively with our vendors and key stakeholders discussing this initiative. It is being met with great enthusiasm and support. Let me ask one question time and time again. Will SHU Station represent 100% of the current store fleet in the future? I can share the organization is deeply evaluating that. While I do not have a decision today, I can share we're planning steps in market during 2026 to help us answer that based on the customer. The key topic to learn about is how best to operate our urban stores and satisfy the needs of the low household income, highly diverse customer base in cities like Chicago or Houston. The answers aren't clear today, but I believe it is prudent to explore this topic and plan to begin testing in urban doors by early 2026. We anticipate the potential for meaningful internal synergies and efficiencies if we were to learn that the station banner can better meet all of our store needs. I look forward to sharing more about our organic growth approach after back to school. Turning to our inventory strategy. We've made a deliberate decision to maintain elevated inventory levels in the current environment, leveraging our strong balance sheet to navigate marketplace uncertainties. With our cash-rich position, we determined the best approach to serve customers during back to school and holiday seasons was to invest early in key products, maximize our in-stock position, and ensure our stores are fully prepared. Media pundits have warned about potential empty shelves across retail this year. I want to assure you, our customers will find their favorite brands fully stocked across Shoe Station, Shoe Carnival, and Rogan's locations throughout 2025. One specific inventory investment I'd like to call out. Our men's and women's performance running brands continue to deliver exceptional results across the company and are particularly strong with double-digit growth at Shoe Station. We have the best-in-class brands with the latest styles ready for back to school with robust AURs over $130 on average. As always, I'm not going to share brand-specific details for obvious competitive reasons, but I will share our merchant team is continually working with the world's best brands to add sought-after styles and the hottest brands. No doubt. our exceptional merchants have exciting additions to our assortments coming before fiscal end. Shoe Carnival Inc. is strategically buying goods now at a lower cost basis where appropriate. And if those costs increase for whatever reason, this approach positions us well to gain margin, go to market with a sharp price, or both. I like that competitive advantage and financial upside possibility. The corporation will maintain these higher inventory levels until we no longer see it as the best risk position for us. At that point, the team will reduce inventory levels, but only once we see limited risk of supply or cost disruption. Again, with a balance sheet that grew cash compared to Q1 last year, as we invested in more inventory and accelerated our capital plans, the business is well positioned. In addition to our organic growth approach, Chew Carnival remains committed to pursuing M&A to achieve our long-term vision to be the nation's leading footwear retailer for families. Our financial foundation started the year strong, and despite the market volatility, our balance sheet is stronger now than a year or even two years ago. Our prior acquisitions have integrated smoothly. Full synergy is captured and built our readiness for further acquisitions when the right opportunity at a fair 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. The leadership team will pursue scale-changing M&A. Turning briefly to an organizational topic, earlier this year, we designated our existing office in Fort Mill, South Carolina, small town 15 minutes south of Charlotte, as our corporate HQ. This office is where I am based, along with our senior leaders, merchants, marketers, and our customer-facing teams. It is also where we collaborate with our vendor partners, host our annual shareholder meeting, and conduct our board meetings and earnings calls. As such, the leadership team thought this office location would best serve as our corporate headquarters. The organization also operates our shared service back office functions for SHU Station, SHU Carnival, and Rogan Stores, as well as our supply chain from our existing office and distribution center in Indiana. Our company has been here in the Charlotte suburb for a few years now, and we've found it a great advantage for engaging more frequently with our vendors, helps attract the best talent, and provides us efficiencies to travel all over the country to be with our customers, vendors, and stakeholders. With that, I would like to now hand over to Patrick to provide further details on our financials and results And then I will provide closing comments before opening the call for Q&A with Patrick, Tanya, and myself. Patrick?

Thank you, Mark, and good morning, everyone. I'm pleased to report that despite the challenging macroeconomic and retail environment, our first quarter profits outperformed market expectations by approximately 10%. While our profits are down compared to last year, this reflects our deliberate decision to invest in the rebanner initiative that Mark just outlined. a choice that is already showing promising returns through SHU Station's exceptional performance and our continued balance sheet strength. Our first quarter net income was $9.3 million, or $0.34 per diluted share, which exceeded analyst consensus despite being lower than the $17.3 million, or $0.63 per diluted share, we reported in Q1 of fiscal 2024. This year-over-year decrease primarily reflects the planned investments in the rebanner initiative that we estimated 15 cents in the quarter and the broader industry headwinds that Mark described. The encouraging story behind our better-than-expected profit performance is the early success we are seeing with ShoeStation. As Mark highlighted, while the broader family footwear industry declined, ShoeStation achieved sales growth of 4.9% and was comp positive in the quarter. The impact goes beyond just sales. Our re-bannered stores showed meaningful product margin improvement compared to their performance-issued Carnival locations. These accretive product margins generated by the re-banner strategy, inclusive of re-bannered stores, contributed to our increased merchandise margin in the quarter. Store-level profit contribution was also up double digits, inclusive of ongoing amortization of the new CapEx investments, and normal advertising costs. These early phase outcomes are compelling and in line with the modeling we discussed last quarter that supports a two to three year payback of the P&L investment we are making this year. This rebanner strategy is the best use of capital in our current portfolio of opportunities. And these results strongly support acceleration of the approach that Mark outlined. I found the four examples Mark shared particularly informative Those locations showed varying degrees of improvement in profitable sales following rebanner, providing us with valuable data to refine our approach going forward. When Mark talks about SHU Station representing 80% of our store fleet by March 2027, we see this as a path to restore and eventually grow our profit trajectory. Our financial foundation continues to be a competitive advantage. with cash positions in a stronger position compared to the prior year, even as we simultaneously accelerated rebanner investments and increased our inventory levels. We ended the quarter with $93 million in cash, cash equivalents, and marketable securities, up over 30% or $23.5 million compared to the end of Q1 last year. We also continue to have no debt and nearly $100 million of available credit. This financial strength enabled the deliberate approach Mark described to increase our inventory levels, which are up 4% compared to last year. With respect to our on-hand inventory, there are a few concepts I would like to highlight. First, our inventory has been secured at competitive costs and at levels that are expected to protect and perhaps increase our margins. Second, we're maintaining an appropriate level of in-stock positions across key categories that continue to support strong conversion rates. Further, we believe our in-stock inventory positions us well to navigate any potential future supply chain disruption. As Mark emphasized, we will adjust these inventory levels as conditions evolve, balancing working capital efficiency with ensuring product availability in an uncertain environment. Our debt-free position combined with increased liquidity on hand gives us flexibility in this volatile environment. While some competitors may need to pull back on investments due to leverage concerns, we were able to simultaneously invest in our long-term vision and strengthen our financial position. Now, moving on to our broader financial results for our first quarter ended May 3rd, 2025, starting with net sales. In first quarter 2025, net sales totaled $277.7 million, and compared to $300.4 million last year, a decline of 7.5%, similar with declines across family footwear. Our comparable store sales were down 8.1%. Our net sales and comp sales in the quarter were both impacted approximately 1% by lost sales associated with the 24 stores re-bannered in the quarter, in line with our expectations. Breaking down performance by storefront. Shoe Station sales increased 4.9% and were comp positive in the quarter. Rogan's achieved results in line with our synergy and integration plans, with net sales above 19 million both this year and last year. Shoe Carnival experienced the industry-wide challenges that Mark referenced, with total sales declining 10%. Shoe Carnival's high singles comp decline in the quarter was the main driver of our overall comparable store sale decrease. Let me now provide some additional color on our performance by major footwear categories, which offers further insight into both our challenges and opportunities. Athletic footwear, which accounted for 46% of our revenue in the quarter, was in greater demand and outperformed our overall comparable store metrics. The mid-singles decline in athletic footwear in the quarter reflects the relative resilience of our consumers' emphasis on casual and active lifestyles. Shoe Station's athletic business grew low teens during the quarter, demonstrating that even in a more competitive category, our premium banner positioning, including in the performance running category, resonates with consumers willing to invest in quality branded athletic footwear. In women's non-athletic footwear, which represented 24% of our business in the quarter, we saw comp declines in the mid-teens compared to the same period last year. This category was most impacted by the cautious consumer behavior Mark described, with shoe carnivals comp decline nearly double shoe stations. Within our shoe station banner, women's non-athletic was driven by stronger performance, primarily in dress shoes. This notable outperformance compared to carnival underscores the power of our rebanner initiative and shoe stations appeal to a different customer demographic. Men's non-athletic footwear which represented 7% of our business in the quarter, declined low singles compared to Q1 last year. Similar to women's, we saw a significant divergence between the banners, with Shoe Station achieving low singles comp positive growth in this category. The difference was particularly pronounced in casual footwear, with Shoe Station's expanded branded assortment and higher price points. Finally, Children's footwear, representing 18% of our business in the quarter, experienced a low teens decline versus the prior year. This category was particularly challenged by the low income consumers reduced spending. However, Shoe Station's kids business declined only low singles, significantly outperforming the company average. This relative outperformance in the children's category at Shoe Station is encouraging as we approach the important back to school season. What's particularly notable across all these categories is the consistent pattern of shoe station outperforming shoe carnival, regardless of category. This reinforces our confidence in the rebanner strategy as a driver of future growth. We believe the combination of upgraded store environments, enhanced brand presentations, and higher service levels that characterize the shoe station format creates a compelling value proposition that resonates across multiple footwear categories. Moving on to gross profit. Q1 gross profit margin was 34.5%, consistent with expectations, and was lower than Q1 2024 gross profit margin by 110 basis points. BDNO resulted in 160 basis points of the decrease, most of which was deleveraged as a result of lower net sales. Our merchandise margins were higher in the quarter by 50 basis points, consistent with our profit objectives to not chase unprofitable sales and is impacted by benefits from the re-bannered stores. First quarter 2025 SG&A was 83.8 million, representing an approximate $500,000 decrease in the quarter versus 2024's first quarter. In the quarter, selling expense increases associated with the re-banner strategy were offset by the timing of selling expenses impacting other stores. As a percentage of net sales, SG&A in the quarter was 30.2%, up 2.1 percentage points from last year. That increase is reflective of rebanner costs in the quarter, including store closing costs, amortization of new store construction costs, and customer acquisition costs. Our first quarter tax rate was 28.1% compared to 25.4% last year. This increase resulted from discrete adjustments this year and last year related to share settled equity awards. We anticipate a tax rate in a range around 26% for all of fiscal 2025. Regarding the rebanner initiative that Mark outlined, we continue to expect 30 to 40 million of capital expenditures to complete the 75 rebanners this year. During first quarter 2025, capital expenditures were 10 million for rebanners. In addition, we continue to expect a P&L investment of between 20 and 25 million, inclusive of amortization of the CapEx investments, other new store opening costs and customer acquisition costs, sales reductions during the four to six week period while the Shoe Carnival store is closed and the Shoe Station stores grand opened, and write-offs of existing assets. We continue to expect this 20 to $25 million P&L investment to decrease our operating income in fiscal 2025 compared to fiscal 2024 in a range around 65 cents per share. The amount of the P&L investment estimated during the quarter was in line with expectations at approximately 5.5 million on a pre-tax basis, or 15 cents per share, inclusive of an approximate one percentage point decrease in our sales and an approximate two percentage point increase in our SG&A as a percent of net sales. When we analyze our capital allocation options, this two to three year payback period on this P&L investment makes the rebanner initiative the most compelling use of our resources. Few retail investments offer this combination of reasonable payback, proven execution, and strategic alignment. Moving on to our outlook. As Mark indicated, we are reaffirming our annual fiscal 2025 outlook, which calls for net sales of $1.15 billion to $1.23 billion, representing a range of down 4% to up 2% versus fiscal 2024. GAAP EPS in a range of $1.60 to $2.10. Gross profit margins in a range of 35% to 36%. SG&A in a range of $350 million to $360 million, and CapEx in a range of $45 million to $60 million, with $30 to $40 million for re-banners. As a result of the changes taking place in fiscal 2025, we are providing additional information on the second quarter. For Q2 specifically, we are forecasting net sales in a range of $310 million to $320 million, and EPS in a range of $0.55 to $0.65. We expect our Q2 gross profit margins to be in a range of 36% to 36.5%. As Mark noted, we expect a moderating trend in our sales declines in the back half of the year. This moderating decline results from our rebanner strategy and continued success in event period shopping. As more stores are re-bannered, we expect that shoe station scale will eventually begin to more substantially offset the industry declines impacting shoe carnival. Second, we are cautiously optimistic for a back-to-school shopping season that results in market share gain, reflecting shoe station momentum, and a compelling fresh assortment of branded merchandise. We expect this moderating sales trend in the back half of the year to be coupled with stable to improving margins as reflected by the value and strength of our inventory positions. As noted, we do expect our SG&A to increase in Q2 and Q3 above the $84 million expensed in Q1, reflective of the timing of our planned operating expenses. However, if these moderating trends do not present within the expected timeframe, the low end of our EPS guidance is a potential outcome. In summary, Our first quarter results demonstrate our ability to execute effectively in a challenging retail environment. While our profits are down year over year due to planned investments and industry headwinds, our outperformance versus expectations reflects the early promise of our strategic direction. The rebanner initiative with its compelling two to three year payback period combined with our strength and balance sheet provides us with a clear path forward despite current challenges. We remain confident that these investments, though impacting near-term profitability, position us for more sustainable performance as we progress through our transformation. We are seeing encouraging early results with sharp sales gains over 20% better than Shoe Carnival in the quarter, higher average unit retail selling prices from the branded assortment, accretive margins from re-bannered store locations, and increased profit contribution driven by controlled costs and stable labor efficiency metrics. Before I turn the call back to Mark for closing remarks and opening the line for questions, I would like to remind everyone that our annual meeting of shareholders will be held on June 25, 2025. Information about the annual meeting and related material, including our proxy statement and annual report, can be found on our investor's website. Mark.