Caleres, Inc.

Good afternoon and welcome to the Caleries first quarter 2022 earnings call. My name is Jeff and I'll be your conference coordinator. At this time, all participants are in listen only mode. After the speaker presentation, there will be a question and answer session. To ask a question during this time, you will need to press star one on your telephone keypad. And as a reminder, this conference is being recorded. At this time, I will turn the call over to Ms. Logan Bonacorsi, Vice President of Investor Relations. Please go ahead.

Good afternoon. I'd like to thank you for joining our first quarter 2022 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 that 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'll begin the call with our 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 pleased to report that Calaris continued its strong momentum as we transitioned into 2022. delivering record-breaking first quarter results across every key financial measure. This was in spite of headwinds we have all been facing including ongoing inflationary pressures and the drag of supply chain related challenges. This was our fourth straight quarter of record results and it sets the stage for another year of record or near record earnings. As a result, with today's earnings release, we are raising our earnings per diluted share guidance to be between $4.20 and $4.40. We view our first quarter performance as a further proof point of the step change that we've achieved in the long-term cash generation potential of Calaris. As a result of the smart investments made and the enterprise-wide strategies deployed, we believe we have effectively doubled our normalized mid-cycle earnings to something approximating $4 a share. Now, taking a look at the quarter more closely, we once again executed at a high level, making significant progress against our key strategic initiatives and building on our tremendous foundation. Among the highlights, Calaris turned in record sales of $735 million, generated record consolidated gross margin, profit margin of nearly 45%, and achieved record consolidated operating earnings of approximately 66 million. In addition, we published our second ESG report in mid-April, and I'm proud to say that we've made strong progress against all of our long-term goals. We are well on our way to meeting these goals by 2025, and in some cases earlier. Now, before moving on to our segment performance, I'd like to provide an update on our capital return program. As you know, in March, the Board of Directors increased our buyback authorization by 7 million shares, further underscoring its confidence in the strength of the business and its positive long-term outlook. In keeping with that vote of confidence during the first quarter, we returned approximately 15 million of capital to shareholders via the repurchase of approximately 701,000 shares or roughly 2% of our shares outstanding. Looking ahead, we view the buyback as a prudent use of a discretionary cash and believe our early progress on this front is already delivering value to our shareholders. Given the value-creating nature of the Calera structure, we believe we're poised to maintain this momentum this year and beyond with our dynamic and growing portfolio of brands plus the strength of our expansive direct-to-consumer network, which just provides significant access and the ability to reach the consumer when, where, and how they want to shop. In our view, our multifaceted platform for engaging consumers is a significant and differentiating strength, one that greatly enhances our overall value proposition. Turning now to our segment-level performance, starting with our largest brand, Famous Footwear. FAMIS maintained its stride, resulting in another record first quarter, topping the record first quarter earnings performance set in the comparable period last year. Notably, FAMIS maintained its focus on full price selling, which enabled us to sustain our strong gross margin level, achieving a gross margin rate of over 49% during the period. This was a 405 basis point increase over the first quarter of 2021, and marks the fifth straight quarter of year-over-year margin improvement. While we are still experiencing delayed receipts due to supply chain disruptions, we believe our ability to continue full-price selling and our disciplined approach to inventory buys will enable Famous to sustain a margin level higher than our historical averages. In addition to the strong margin rate, robust demand for our differentiated assortment of brands, coupled with our targeted marketing approach, planning and allocation expertise, and unmatched local presence resulted in nearly 50 million in operating earnings for the segment. This nearly 4% year-over-year improvement was achieved despite the modest 3% decline in sales. In short, the strong financial and operating performance, including the approximately 13% return on sales, demonstrates the power of the FAMIS brand and paves the way for another strong earnings year. Before I move to the brand portfolio, I'd like to provide a brief update on some of the progress against our key focus areas in FAMIS. First, as it relates to product, and as you well know, with our 887 locations, we are the go-to local footwear destination for the millennial family. To that end, we'll continue to offer what the famous consumer knows, wants, and loves through our leading assortment of the most sought-after brands. In fact, these top brands continue to be a source of strength for famous during the first quarter, representing a key driver and its overall financial performance. As we progress throughout the year, we will continue to leverage our leadership position in athletic and sport and build upon our strong relationships with all key brand partners. In addition, we'll continue to be laser-focused on maximizing the vertical opportunity between FAMIS and our own portfolio of brands, as this provides the potential for higher margins for the enterprise as a whole. Of note, Portfolio brands Lifestride, Shoals, and Blowfish were all in the top 10 best-selling brands at famous during the quarter. Additionally, the famous consumer is out and about and has a growing interest to add a broader assortment of seasonal and occasional-based products to satisfy all of their social needs. This provides a compelling opportunity for us to leverage our fashion-focused brands in our portfolio to drive highly profitable incremental sales. We know that when she buys for her family and for herself, she is spending more, connecting more, and returning more often. So adding the right styles in the right locations will broaden our business and provide value on top of our core athletic and sport business going forward. Turning now to marketing. As we highlighted in March, we completed a marketing attribution study at Famous last year. We've strategically used those findings to inform our 2022 marketing strategy with the focus on growing our contactable consumer file by acquiring new, retaining current, and reactivating previous consumers. As a result, we have identified opportunities to efficiently shift a portion of our marketing dollars to digital during the period to help offset the decline in year-over-year promotional activity, which impacts our digital business more significantly. It's important to remember that the competitive landscape has shifted with the expectation that we will see another year of limited promotional activity. As a result, it's critical that we employ a more tactical approach to connect and engage with consumers. And to that end, we're 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. Particularly in April, where we had a more comparable promotional cadence to the year prior, we began to see both year-over-year customer growth as well as higher spend per customer. Rounding out the marketing discussion as we look toward the important back-to-school season, we will work to ensure we optimize our media investment and mix to get the biggest bang for our buck. While it's too early to provide any specifics, I'm excited by the early creative assets that I've seen from the team. The campaign, which represents a tangible modern image of famous footwear, was created in part by using our consumer analytics data mined from our customer file, as well as early reads from our new store prototype and store refreshes. Speaking of the new store, we're continuing to place a strong emphasis on enhancing the consumer experience and have made significant strides towards that end. Recently, we developed and are testing a prototype store that offers an enhanced shopping experience. highlights our leading assortment of the most in-demand brands and elevates those brands in a very energetic and exciting manner. At the same time, we have been furthering our store refresh initiatives. Together, these actions should further enhance the in-store experience, generate consumer excitement, and unlock still greater value from these already high-performing locations. While it's still early, we're already seeing positive trends from the first prototype and in stores that have completed their refreshes. We're optimistic that these efforts will reinforce our national presence, further our differentiation, and generate solid returns. So overall, Famous is off to a great start with its increasingly strong brand awareness, improving inventory position, and support from key brand partners. Famous is poised to capitalize on the current market environment. So let's turn now to the brand portfolio. Following the strong rebound in the second half of 2021, the brand portfolio turned in an exceptional performance, eclipsing the first quarter of 2021, surpassing its first quarter 2019 results, and setting the stage for a significantly improved earnings contribution in 2022. Specifically, we delivered a 46% year-over-year improvement in sales as consumer demand particularly for drafts occasion and where to work products, accelerated during the period and as key retail partners rebuilt their inventory position. It's important to note this wholesale partner post-pandemic restock will likely moderate as we move through the year as they return to more normal buying and replenishment patterns. In addition, gross profit margin reached 38% or a 53 basis point improvement over the first quarter of 2021 due to favorable sales mix and a less promotional retail environment. It's worth highlighting that while we saw ocean freight costs begin to climb during the second half of last year, we were successful in offsetting the impacts of those higher freight rates in the first quarter of this year as price increases we implemented began to sell through. We will continue to work to mitigate increased freeze costs as we move through the year. In total, the brand portfolio achieved $41 million in earnings, a $44 million increase over 2021, and approximately $28 million increase over the first quarter of 2019. The better than expected results in the quarter were driven by double-digit improvements from each brand across the portfolio, with a couple of brands recording triple-digit increases. This broad-based performance highlights the depth and the breadth of the portfolio and underscores that while we are capturing the acceleration in dress and occasion, we are capitalizing on the continued demand for casual and sport-inspired styles as well. In addition, our strategic and bold approach to inventory has started to pay off with the right inventory behind the right brands and products. Also during the quarter, the brand teams continued the work to align the organization behind the consumer, resulting in an approximately 23% increase in the portfolio's D2C business. This included an approximately 19% growth from our owned e-commerce sites, with strong year-over-year increases from nearly every one of our brand websites. In addition, we drove a 26% increase in new customers as consumers are delighted with our innovative designs, fresh and compelling products, and diverse assortments. In fact, we're building a culture of consumer centricity at Calaris and believe we can leverage our powerful brands, consumer analytics, and overall expertise to grow and unlock more value from the total Calaris customer file over time. Now looking a little more closely at some of our brand wins, it's important to note that the consumer is out working, traveling, socializing, and celebrating. More importantly, She is focused on footwear and is buying for all of life's experiences. A big success story during the quarter came from Naturalizer, which has been gradually climbing out of its pandemic low. Naturalizer's sales increased significantly over the first quarter of 2021, with a solid increase over 2019 as well. As the brand started the year in good inventory position, and as we strategically used air freight to ensure the availability of highly demanded products, particularly opened-up, occasion-based styles. More specifically, the online wedding shop and the brand's party-ready styles fueled the sales improvement as consumers are out and attending all-of-life celebrations. In addition to the uplift in sales, lower promotional activity drove a substantial improvement in margin, for the first time since the onset of the pandemic. Sam Edelman had another great quarter, also benefiting from strong demand for dress products and styles, the category in which Sam is most well known and what his consumer is seeking. While the brand's wholesale business improved, the highlight during the quarter was its growth in its digital business, with samedelman.com up nearly 60% when compared to the first quarter of 2021. I would also note that the Sam and Libby brand made its debut at Walmart earlier this spring and received overwhelmingly positive reaction. We are excited about the strength we are seeing in our Sam Edelman business and the potential for even stronger earnings contributions for the brand in 2021. Next, we continue to build on the recent success progress at Allen Edmonds with strong improvements in both our digital and brick and mortar sales. higher AURs, and an approximately 600 basis point increase in our gross margin. Interestingly, demand for dress shoes and sneakers continued into 2022, with the sport category growing to our second largest classification. Finally, and while I would like to talk about all the brands if time would allow, I would be remiss if I didn't highlight Lifestride's performance. Lifestrive sales increased more than 100% over the comparable period in 2021, as it offers its consumers strong designs for a tremendous value across all categories. In addition, the brand delivered higher margins and achieved its best-ever return on sales. Shifting to inventory, we believe a central component to driving growth in the brand portfolio this year is to ensure we better align inventory with consumer demand. To that end, we have been managing our supply chain aggressively, accelerating receipts wherever possible, and placing a strong emphasis on building up each brand's top selling styles to drive sales through our edit to win initiative. We believe that this greater alignment of inventory was a competitive advantage during the quarter, and we expect additional opportunity to capture demand as we progress through the year. So in short, the rebound in the brand portfolio is playing out as we anticipated with the expectation for a much stronger contribution this year. Looking ahead, we expect the brand portfolio to build on the solid foundation established at the outset of this year. We will lean into our strong product design and stay true to our edit to win initiative. to capitalize on the great consumer demand fundamentals to unlock growth opportunities across our portfolio. Overall, we have seen a structural shift upward in the earnings expectations of the enterprise, and we are excited about the future opportunities for our brands and the potential for long-term value creation. The strategies in place and the capital invested have served to greatly enhance the organization's earnings power to date and has set the stage for still greater progress as we advance throughout the year. With that, I will now turn it over to Ken for a more detailed view of our financials, capital return plans, and revised outlook for 2022. Ken?