Caleres, Inc.

Good afternoon and welcome to the Calera's fourth quarter earnings conference call. My name is Jamaria and I will be your conference coordinator. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1 in your telephone. Please limit to one question and one follow-up question. 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 afternoon. I'd like to thank you for joining our fourth quarter 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 online. The company undertakes no obligation to update any information discussed on 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'll be happy to take your questions. I would now like to turn the call over to Diane. Diane?

Thank you, Logan, and good afternoon, everyone. I'm thrilled to report that Calaris delivered strong results, exceeding our expectations during the fourth quarter of 2021, capping off our best year ever. Our global workforce didn't allow the significant rebound in demand and the rapid return of the consumer to pass us by. We leveraged our strengths, leaned into our capabilities, navigated the ongoing macro challenges, and strengthened our balance sheet while always keeping the consumer at the core of our focus. These tremendous efforts, coupled with our established strategies and investments, resulted in a record-breaking year on effectively every financial measure. In total, we delivered adjusted operating earnings of nearly $220 million and adjusted earnings per share of $4.29, a level nearly double that of our previous annual record. In addition, we generated approximately $286 million in adjusted EBITDA. Furthermore, we highlighted our recent environmental, social, and governance progress and set ambitious 2025 targets in our inaugural ESG report, a report that was nationally recognized on Newsweek's most responsible companies list and ranked in the top 10 for the consumer goods category. We look forward to providing an update on these efforts in our next report. Overall, we exited 2021 a more agile and financially sound organization poised to generate significant and ongoing value for our shareholders. Now let me move to some of our performance highlights from the quarter just ended. During the fourth quarter, we delivered strong fourth quarter sales, generated record fourth quarter gross margin levels, achieved record fourth quarter operating earnings of approximately 44 million and adjusted earnings per share of 91 cents, eliminated the remaining portion of our higher cost long-term debt, and maintained our focus on connecting with our consumers and advancing our efforts to unlock growth opportunities across the enterprise. Leading this outstanding performance was the strong demand at Famous Footwear, which resulted in another record quarter for our largest brand. Most notably, Famous delivered a nearly 9% increase in sales over the fourth quarter of 2019. despite entering the period with inventory down 24%. Furthermore, Famous achieved its strongest holiday season on record as consumers looked to us for the brands and styles they love. In addition, we sustained strong gross margin levels with a gross margin rate of nearly 49% as full price selling continued during the period. This marks four quarters of year-over-year margin improvement and ultimately resulting in a full year gross margin rate of 48%, or 548 basis points better than 2019. And for the full year, our famous brand delivered its best year on record by a wide margin. Our targeted consumer marketing, coupled with merchandising, planning, and allocation expertise, and our unmatched local knowledge enabled us to have the right product in the right places to meet the needs of the famous consumer. Going forward, while we are still experiencing disruptions due to the supply chain, we are confident that our disciplined approach to inventory and the structural shift in the industry's promotional environment will enable Famous to sustain a margin level higher than our historical averages. The brand portfolio also turned in an impressive performance and made significant strides in its ongoing rebound despite a number of strong headwinds. Notably, we furthered our efforts to grow our direct-to-consumer business with our fourth quarter owned e-commerce increasing approximately 32% when compared to the fourth quarter of 2020. Also during the fourth quarter, four of our key brands, Sam Edelman, Allen Edmonds, Bionic, and Blowfish, turned in strong sales and margin results with all four outpacing quarterly sales expectations and also surpassing fourth quarter 2019 earnings levels. It's worth noting that Kolaris acquired three of these four brands during the course of the last five years to differentiate our portfolio further and reach new consumer segments. This recent performance underscores our capabilities in cultivating, integrating, and then growing acquired assets in a way that is leveraging and value creating. With the effects of the pandemic beginning to recede, we expect to build further momentum and critical mass with these four brands and the entire portfolio. So now I'd really like to turn our attention to highlight on our key focus areas that will enable us to win in 2022. Looking first at FAMIS, where we expect another strong earnings performance this year, we continue to execute with excellence on our merchandising, marketing, and consumer experience strategies. First, when it comes to our product, we will continue to offer what the consumer wants through a balanced assortment of athletic sport and seasonal styles, both in-store and online. We will continue to leverage our leadership position in athletic and sport, and build upon our strong relationships with key partners in these categories in order to capitalize on the ongoing demand. We expect consumers will still gravitate towards the most well-known brands in these categories and believe Famous remains exceptionally well situated to benefit, particularly as some of our competitors have been limited in their ability to distribute certain iconic brands. In addition, As we work to evolve our product offerings, we are testing and adding new and emerging brands across genders and categories using our nationwide network and our localized knowledge and expertise to meet the shifting preferences and behaviors of the famous consumer. We believe this could attract new famous consumers while at the same time providing the current customer with additional options. During the year, our top 20 brands represented more than 80% of our sales, with the top 11 to 20 brands growing in their importance. A great example of this would be Birkenstock, which has moved into the top 10. And third, on merchandise, we are focused on increasing the opportunity between famous and our own portfolio brands, as this provides a potential for higher margin for the enterprise as a whole. There are several brands within the current portfolio that represent an excellent fit with the famous consumer's desire for athletic and sports styling and could provide a runway for growth. These brands include Life Stride, Blowfish, Dr. Scholl's, and Bionic Beach. In fact, three of these brands currently sit in the top 20 sales performers at Famous. In addition, the recent lift in interest and demand for occasion and dress styles by the famous consumer could provide another avenue for some of our fashion-focused brands both in-store and on famousfootwear.com. Turning to marketing during 2021, we did a tremendous amount of work to further understand the famous consumer while at the same time undertaking a marketing attribution study. We are using our findings to inform our strategies and to optimize our media investment in order to acquire new, reactivate previous, and perhaps most importantly, retain existing famous consumers. Over the last year, we saw a significant increase in AURs and margins in famous as we improved our inventory efficiencies and pulled back on promotions. As we progress through 2022, we expect the competitive landscape to continue to support an environment of limited promotional activity. thus requiring a different approach in connecting with new consumers, engaging current ones, and establishing a strong connection with the famous brand overall. As a result, we are being surgical in our marketing tactics, using targeting and personalization in order to drive repeat purchases, and working to shift traditional one-channel shoppers to omnichannel consumers. We are highly aware of the lifetime value omnichannel customers bring and believe this to be a long-term value creating opportunity for FAMIS. Finally, I want to close the discussion on FAMIS with our focus on enhancing the consumer experience, an area where we're always striving to do better and where we have done a significant amount of work. It's worth noting that year-over-year top line growth was driven by increased sales at brick and mortar. making it much more important that the consumer experience is consistent across the omnichannel. As a result, we've developed and are testing a prototype store that offers an enhanced shopping experience showcasing the fact that we carry the most in-demand brands and styles. It's completely localized and extremely convenient. Most importantly, it's very consistent with our enhanced digital experience and stays true to the brand's DNA. So far, we really like the results we're seeing, making a few adjustments here and there, and plan to open 10 additional prototypes in key geographically diverse markets over the next several months. We look forward to sharing consumers' reactions to the new stores as we move through the year. Beyond this, we are constantly exploring adding locations and markets where we may be under penetrated and where we believe we can leverage our leading athletic assortment to gain share and grow earnings. In addition, we have plans to refresh and upgrade high traffic and high potential famous stores this year. As you'll recall, this was an initiative that we began in 2019 but was paused due to the pandemic and then restarted in 2021. We're planning to update 120 stores this year, which is on top of the nearly 70 store enhancements we completed in 2021. These upgrades should further enhance the consumer experience, elevate key brand stories, and unlock still greater value from these already high-performing locations. We are already seeing positive trends in stores where we have previously completed refreshes and are optimistic that these efforts will create consumer excitement further our differentiation and bolster our national presence and generate solid returns. So now let's turn to the key areas of focus for the brand portfolio in 2022. First, we believe that we have established an exceptionally strong foundation on which to build and view our improving performance to be a key component in our ability to continue the strong results of fiscal year 2021 in 2022. A central component to drive brand growth is in the brand portfolio this year will be to ensure that we can better align inventory with consumer demand. During the back half of 2021, global supply chain dislocations limited our ability to adequately meet improving demand for certain of our brands and certain of our products. In fact, we operated in the fourth quarter of 21 with approximately 20% less inventory when compared to fourth quarter of 19, excluding the in-transit inventory, which was more than twice as high for the same period. That said, we have been slowly building back our inventory levels over the last several months, managing our supply chain aggressively and in real time, accelerating receipts wherever possible, and placing a strong emphasis on building up each brand's top selling styles to drive sales. We view this greater alignment of inventory as a real opportunity to capture demand and accelerate growth during the year. Next, we have initiated an edit-to-win strategy across the brand portfolio with positive impacts for our brands, consumers, retail, and sourcing partners, and really, frankly, Polaris as a whole. In short, we're tightening our SKU count in each owned brand to enhance productivity and lower costs. while building on the successful in-demand products that consumers want. We expect that this focus will result in more in-stock of what the consumer loves, leading to much higher satisfaction and loyalty rates, higher retail prices and fewer markdowns and allowances, better sell-throughs and better margins, lower development and sample costs, and simplification of functions across the product lifecycle. That's kind of a no-brainer to do that. I'm not sure why you wouldn't want to do that with those kind of outcomes. Finally, we're putting a high degree of focus on optimizing the portfolio, emphasizing and investing in our lead brands. In addition to Famous Footwear, which we've discussed, these include Sam Edelman, Allen Edmonds, and Bionic. We view these brands as central to our portfolio. They have advanced product innovation capabilities to pivot seamlessly with consumer trends and have strong consumer recognition and loyalty with a clear runway for growth. Most notably, Sam Edelman and Alan Edmonds are extremely well positioned to capitalize on the resurgence in footwear for event and work, while Vionic will continue to take advantage of the demand for health and wellness products, which has been and continues to be strong. It's worth noting that the excitement around SAM Edelman's new products and styles, which have been showcased beautifully in their recent catalogs, have driven significant increases in their direct-to-consumer business. In fact, during 2021, its e-commerce business increased 104% when compared to fiscal year 19, with traffic, conversion, and average order value metrics all showing strong improvements over the same period. Looking at Allen Edmonds, we furthered our product evolution in this brand by leveraging our design and innovation capabilities and our top selling Park Avenue to create the Park Avenue sneaker and the Park Avenue lug sole, all of which are receiving a fantastic response from consumers. This progression will allow the brand to build nicely on a signature and a very popular style to attract new consumers while at the same time reinforcing brand awareness and building on its strong consumer loyalty. Speaking of Allen Edmonds, excitingly, the brand will be celebrating its 100th anniversary in May, a century of an American-made brand. As we honor this significant milestone, we have curated 100 creators, entrepreneurs, artists, musicians, dancers, activists, and thought leaders across generations, genders, and race, photographing them all in the Park Avenue. Through these remarkable people, we will highlight the stories and the pride that comes from the passion for creating and further underscores the 100 years of commitment to our life's work, designing and making shoes. I'd like to encourage you to follow our story and their stories on AllenEdmonds.com during the month of May as we celebrate our legacy. Beyond our leadership brands, we see significant upside for Veronica Beard, Franco Sardo, and Naturalizer as demand for dress styles accelerate during the year. These brands, which were disproportionately affected during the pandemic, are well known by the consumer and have exciting new offerings to celebrate the consumer's more social event-driven lifestyle. In fact, many of our brands are positioned ideally to capitalize on what is shaping up to be one of the biggest years for events, social gatherings, and for sure, wedding celebrations. One brand in particular that has a tremendous opportunity is Natural. is naturalizer that brand has launched a wedding shop on naturalizer.com that showcases its expanded offerings and styles designed for the bride and for her big day as well as all the bridal party and guests and all of the special events leading up to it we are amplifying this further with collaborations with key retail partners to bring it to life across many touch points currently more than 20 percent of our naturalizer web businesses coming through the wedding shop. We expect the increased demand for these brands to be a significant driver also in the overall rebound for the brand portfolio in 2022. So to wrap up some of my comments this afternoon, we have seen a step change in the earnings power of the organization. And we are excited about the future opportunities for our brands and the potential for long-term value creation. The strategies deployed and the capital invested have served to greatly enhance our earnings power to date and have set the stage for even greater progress as we advance through the year. While clearly we are operating during a period of a continuously evolving and unpredictable macro challenges, We know how and are prepared to move swiftly and we believe we are poised to deliver the most exceptional operating and financial performance possible in these uncertain times. Even with this uncertainty and given its continuing confidence in Calaris' future outlook and ongoing improvements in the company's sustainable long-term cash generating capabilities, the Calaris Board recently authorized an additional 7 million shares of Calaris common stock for share repurchases. With that, I will now hand it over to Ken for a more detailed look at our financials, capital allocation plans, and our 2022 outlook. Ken?