Caleres, Inc.

Good morning, and welcome to the Calera's first quarter earnings conference call. My name is Lindsay, and I will be your conference coordinator. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1 on your telephone. As a reminder, this conference is being recorded. At this time, I will turn the call over to Logan Bonacorsi, Vice President of Investor Relations. Please go ahead.

Good morning. I would like to thank you for joining our first quarter of 2021 earnings call and webcast. A press release with detailed financial tables as well as our quarterly slide presentation are available at Calaris.com. Please be aware today's discussion contains forward-looking statements which are subject to a number of risks and uncertainties. Actual results may differ materially due to various risk factors, including but not limited to the factors disclosed in the company's Form 10-K and other filings with the U.S. Securities and Exchange Commission. Please refer to today's press release and our SEC filings for more information on risk factors and other factors which could impact forward-looking statements. Copies of these reports are available online. The company undertakes no obligation to update any information discussed in this call at any time. Joining me on the call today is Diane Sullivan, Chairman and CEO, Ken Hanna, Senior Vice President and CFO, and Jay Schmidt, President. We will begin the call with brief prepared remarks, and thereafter we will be happy to take your questions. I will now like to turn the call over to Diane. Diane?

Thanks, Logan, and good morning, everyone. We appreciate you joining us today at this new time and capping off what we know is a busy earnings week in the footwear space. Well, I think we've all begun to see that the consumer has emerged and is ready to spend on items and experiences across the board. They're reconnecting with family, spending time with friends, traveling, returning to office in some capacity, and are celebrating all of life's occasions, both large and small. I'm pleased to report that Claris delivered strong results during the first quarter, making significant progress across a number of our strategic initiatives. and is driving forward with our goals to take advantage of this new and exciting phase of the current market cycle. For the quarter just ended, Calera's exceeded first quarter 2019 earnings levels, drove sequential sales and operating earnings improvement, generated stronger growth margins, and turned in an improved working capital and expense position. Overall, our consolidated revenue for the first quarter was $639 million, representing a nearly 12% improvement from the fourth quarter of 2020 and a modest 6% decline from the first quarter of 2019. Our adjusted earnings per share for the period reached 60 cents, up 57 cents sequentially, and surpassing first quarter 2019 levels by 24 cents. Adjusted growth margins for the company also improved, rising 70 basis points from the first quarter of 2019. Ken will provide further detail on these metrics in just a few moments. We also continue to generate significant levels of cash, particularly as our famous footwear business accelerated meaningfully in the quarter's second half, and we've put that cash to good use, paying down an additional $50 million of debt. during the period. As a reminder, we have proactively reduced our total debt by approximately $240 million since March of 2020. In addition, we leveraged our enhanced digital platform to drive further our e-commerce sales. In fact, during the first quarter, sales from our own .com sites increased approximately 22% when compared to the strong e-commerce trends that prevailed during the prior year period. And when compared to the first quarter of 2019, a more comparable time period, sales from our own dot-com sites improved approximately 57%, highlighting the previous capital investments to enhance our capabilities and upgrade our platforms, and of course, the work and the creativity of all of our digital teams. Now I'd like to turn to our business segments, starting with the absolute outstanding performance at Famous Footwear. We continue to execute at a very high level at Famous during the quarter, leveraging our competitive advantages and building further on the momentum that developed through the back half of 2020. In fact, we saw our business steadily improve as we moved through the period closing the first quarter of 2021 with record-setting performance. The segment generated record first quarter sales of $398 million, which equated to a 13% improvement over the first quarter of 2019. Most notably, Famous' first quarter operating earnings totaled $47.9 million, which was $37.4 million greater than the first quarter of 2019, and marked our best quarterly earnings level for the segment ever. Of course, one of the primary drivers behind Famous' improved performance was the step change in consumer confidence, which would certainly help by the increasingly widespread availability of the vaccines, the easing of governmental restrictions, and the continuation of the stimulus efforts. As a result of the uplift in overall confidence levels, we saw positive trends across the omnichannel ecosystem as consumers had the inclination and the means to buy and were shopping with intent. In fact, we saw improvement in conversion and AURs when compared to the first quarter of 2019. It's also worth noting that strong e-commerce sales continue to play an important role even as in-store trends improved. Our e-commerce business was up nearly 100% when compared to the first quarter of 2019 and still representing approximately 16% of our total net sales, which was up from the 9% penetration in the same period in 2019. In addition to these sales drivers, we believe a large part of the strong performance was due to our advantageous trend-right assortment of athletic sport and seasonal styles. with our sandal mix returning to 2019 levels from the on-trend brands the consumer knows and demands. As consumers gravitate towards these categories and styles, our ongoing investment in these well-known brands that famous is increasingly recognized for carrying continues to pay off. Moreover, as consumer demand improves and sales increased, we drove higher margins. In fact, Margins improved by 181 basis points when compared to the first quarter of 2019, as we pulled back on promotional activity and maintained rigorous focus on expense management. Finally, rounding out the performance, it's important to highlight that Samus capitalized on the rapid acceleration in the market, gaining share in the channel and across women's, men's, and kids' product categories. Moving ahead, as we detailed on our last quarter call, we implemented a three-pronged strategy to maximize our momentum at Famous, which focused on merchandising, marketing, and, of course, the consumer experience. That strategy is in full swing, and we're already seeing positive signs that these efforts are paying off. While I just highlighted a main component of our merchandising approach, which acted as an important sales driver in the quarter, It's also worth noting that we continue to leverage our convenient and family-friendly model to increase our kids' business again this quarter. In fact, the kids' category represented nearly 18% of total sales during the period, with kids' sales up approximately 39% from the first quarter of 2019. Through our planned marketing efforts and flexible shopping environment, we fully expect to extend the momentum in our kids' business as we approach and enter the back-to-school season this summer. Furthermore, we have maintained a balanced mix, not dissimilar to where it has been in previous years, as it relates to our assortment and have been able to flex to meet what the consumer wants when and how they want to shop. On the marketing front, I'm really thrilled with the progress we made in the period where we increased our new Famously You Rewards members by 13.5% compared to the first quarter of 2019. Notably, sales from Rewards members represented nearly 81% of net sales in the first quarter of 2021 and marked the best quarter ever for Rewards sales, with members purchasing more and more often, and importantly, with margin rates 248 basis points higher than the first quarter of 2019. We are highly aware of the lifetime value that rewards customers bring and believe this to be a long-term value-generating opportunity to famous. So to that end, as we move through the year, we're going to be redoubling our efforts to attract new, retain current, and reactivate previous rewards members, optimizing our marketing mix, leveraging our newly launched Famously You credit card, expanding personalization across communication channels, and furthering strong emotional connections with the famous brand overall. Now, turning to consumer experience, another area where we've made significant strides. First, as we mentioned, we converted famousfootwear.com over to a new platform. Since that time, we have seen improved sales, traffic conversion, and AURs compared to the first quarter of 2019. This all-encompassing system optimizes the cross-channel experience and leverages our both its curbside pickup and ship-from-store capabilities. Additionally, we're going to be placing a greater importance on the role of our kids' business in-store. We know that our highest-value customers shop at Famous for their families and kids, and when they do, those customers shop at Famous more frequently have higher retention rates and derive more long-term net margin dollars. With that in mind, we are finalizing two separate shop-and-shop concepts, one that will further elevate our kids' business, leading into back to school, and the second focusing on strong, on-trend women's brands. Looking ahead, we expect Famous Footwear to be an important and strong driver of our profitability in 2021. with our first quarter results and the market share gains achieved providing a solid foundation on which to build. We'll work with towards extending our momentum through back to school and the remainder of 2021. We will accomplish this goal by keeping the consumer at the center of everything we do and remaining agile in order to support and capitalize on the dynamic market environment. Now let's turn to the brand portfolio. While down 26.6% from the first quarter of 2019, first quarter net sales in the brand portfolio surpassed our expectations and were accompanied by adjusted operating earnings of $10.7 million. Sales from our ongoing business was down 22%. In addition, first quarter sales increased approximately 7% sequentially, underscoring the rapid and ongoing rebound for certain brands and trending styles. In particular, as we have discussed with you on prior calls, we've always been known for brands that are rooted in wellness, comfort, and sport categories, and we know that that is very well aligned with current consumer preferences and the changing cultural landscape. As we just mentioned, consumers are much more comfortable getting out and about, and as a result, we were encouraged by the monthly improvement as we've progressed throughout the quarter. Market share gains in certain growth categories, and even more interestingly, the early signs of strength of opened up products that appeared in late April. Several of our brand performances demonstrate these points. We are particularly enthusiastic about the recent results from our Vionic, Sam Edelman, Blowfish Malibu, and Ryka brand. Given that fact, I'd just like to provide a little bit more color on each of those. Vionic returned to its strong growth track and has developed and emerged as our largest brand in our portfolio, highlighting the company's capability to curate, nurture, and develop strong new brands. During the quarter, Vionic experienced a significant improvement in its e-commerce sales, which were up 122% compared to the same period in 2019. Bionic also delivered stronger margins during the quarter as promotional activity waned and made way for more full-price selling. Furthermore, Bionic's beach line of sustainable California lifestyle product hit the market with early success and is currently sold out. As planned, this new line has provided Bionic access to a large and growing segment of the footwear market. Turning now to Sam Edelman. As we highlighted last quarter, this brand remains a central part of the brand portfolio and over the years has shown its ability to shift with consumer preferences and behaviors and provide its consumer with new and fresh styles she desires every year. For example, the brand gained share in the casual athletic category where it was lagging pre-pandemic. Now that the consumer is spending more on in-person social events and occasions, we will likely see another step up in its performance as she gravitates towards the great fashion that Sam Edelman is known for. During the first quarter, Sam built on its slate 2020 performance, executing on its strategy, delivering compelling new products, driving strong digital improvement across all metrics, and reestablishing its position in the marketplace. During the period, SamEdelman.com delivered significant improvement in demand, margin, conversion, and traffic, and launched its first online catalog. Now let's talk about two emerging growth brands, Blowfish Malibu and Rika, that should allow us to continue to expand our vertical integration at Famous Footwear as they represent a great fit with a famous consumer. In the sport fashion category, Blowfish Malibu started the year strong, delivering sales and earnings growth. In fact, Blowfish sales increased approximately 50% when compared to the first quarter of 2019. We expect Blowfish will continue to resonate with the younger consumer, particularly in the 18 to 24-year-old segment. And finally, turning to Rika, our athletic brand made for women, which has benefited from the shift to more casual styles and the focus on health and wellness. The brand has acted quickly to ensure it furthers its growth, expands its distribution, and remains a strong player in the category. We believe this Rikah consumer is stronger than ever before, and we're engaging her in unique and relevant ways on social media. From inspirational workouts from our Rikah ambassadors to Rikah-sponsored playlists and our Rikah Tribe Female Empowerment Series, she's double tapping and commenting now more than ever. While these four brands have already displayed significant momentum, we expect the balance of the brand portfolio to follow suit as this year progresses and we see significant upside for many of our brands during this fiscal year. As we discussed last quarter, there are a couple of brands in the portfolio that were impacted in a disproportionate manner in recent quarters, namely Naturalizer and Allen Edmonds. And over the next several months, we plan to continue to take the steps necessary to accelerate their rebound. While Allen Edmonds will certainly benefit as consumers return to the office, resume travel, and attend social outings, we will also continue to build on our efforts to appeal to new consumers, provide the Allen Edmonds consumer with a great experience across all channels, and balance out the product line with additional casual and sport offerings. This year, we still plan to reach 50% penetration from these categories and are pleased with the ongoing response on these key casual styles. Moreover, we are encouraged by the early positive signposts that emerged in late April, which included better than anticipated sales levels, improved margins, higher AURs, and an increase in new customer acquisition. While the early stages of the rebound have been uneven, we continue to expect that we will see ongoing improvement as we progress through the year. We believe the portfolio is well-positioned to capitalize on the new dynamics in the marketplace and to take significant steps up in contribution, reaching 2019 operating earnings levels in the year's second half, thus setting the stage for further expansion 2022 and beyond. So in summary, you know, we came out of the gate strong, but we fully understand there's still work to do this year. We are agile, we're focused and poised to lean in to the robust momentum at famous, our enhanced direct to consumer capabilities, and our data-derived consumer insights to drive greater consumer alignment and engagement, while at the same time making sure that we maintain our balanced and disciplined approach to capital allocation. We are confident in the strategy that we have in place for value creation and believe that we are uniquely positioned to capitalize on the accelerated rebound in the marketplace and to chase and capture market share opportunities as they develop throughout the balance of 2021. And I just want to add my thanks to the entire Calaris team, as always, because it really takes everybody working together as one Calaris to make sure that we deliver these kind of results. And with that, I'd like to now turn the call over to Ken for a financial review.