Caleres, Inc.

Good afternoon, and welcome to the CLARIS Second Quarter Earnings Conference Call. My name is Kevin, and I'll be your conference coordinator. At this time, all participants are in listen-only mode. If anyone should require operator assistance, please press star zero and your telephone keypad. A question and answer session will follow the formal presentation. As a reminder, this conference is being recorded. At this time, I'd like to turn the call over to Logan Bonacorsi, Vice President, Investor Relations. Please go ahead, Miss.

Good afternoon. I'd like to thank you for joining our second 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 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 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 our prepared remarks, and thereafter, we will 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 execution in the second quarter, achieving yet another period of outstanding results. We delivered record consolidated sales, net earnings, earnings per share, and generated still strong consolidated margin levels. And we closed the first six months of 2022 with earnings per share of $2.70, more than double the previous six months high set in 2021, and 22% higher than our pre-COVID annual record of adjusted earnings per share of $2.21. During the period, we continued to leverage our diversified portfolio to capitalize on demand and trending footwear categories so we could meet the needs of our core consumers when, where, and how they wanted to shop, and enhanced our customer file while at the same time making strategic investments for future growth. Overall, the year is progressing very much in line with our expectations with the cadence of our quarterly results playing out as anticipated. As we previously discussed, we projected that our first half results would represent well over half of our expected 2022 earnings per share. As a result, we are reaffirming our previous annual guidance. Specifically, we still expect to achieve diluted earnings per share between $4.20 and $4.40, which will represent record or near record annual earnings per share. Now taking a look at the results more closely, among the many significant highlights for the quarter, we achieved another quarterly sales record of $738 million, driven by a significant year-over-year increase in sales from the brand portfolio segment. We generated record consolidated operating earnings of $68.4 million and earnings per diluted share of $1.38. We captured a consolidated gross profit margin of 45.6%. holding the consolidated margin level delivered in the first quarter of 22. We delivered another strong consolidated return on sales, reaching more than 9% during the period its famous achieved an ROS of 14%. We also made sure that we prioritized our strategic investments, namely in consumer marketing, to drive deeper and stronger connections with our consumers. And we also made noteworthy progress on our capital return priorities. To that end, during the second quarter, we returned $27 million of capital to shareholders via the repurchase of 1.1 million shares, or roughly 3% of our shares outstanding. As you know, we view this program as an excellent way to drive long-term value for our shareholders. As we progress through the balance of the year, we are well positioned to take advantage of opportunities in the marketplace and expect to generate significant amounts of cash in the year's second half. While we will constantly evaluate the optimal use of our free cash, we clearly view buybacks as an effective means of returning capital to shareholders. And with our PE still well below historical levels, we view Calaris' stock as an attractive investment option. In short, we believe this ongoing outstanding financial performance continues to demonstrate the structural shift in the earnings potential of Calaris and highlights the significant competitive advantage of our versatile platform. And if you think about it over the long term, this structure enables Kolaris to drive exceptional results in strong market environments while still generating attractive levels of profitability even when there is a more difficult macroeconomic backdrop. But let's now turn to our segment level performance starting with our largest brand, Famous Footwear. Famus continued to perform at a high level in the second quarter, building on the strong performance in Q1 and in meeting our internal expectations across all key financial metrics. In fact, Famus delivered $62 million in operating earnings on net sales down 3.8%, resulting in a return on sales of more than 14%. I would note that this is our sixth consecutive quarter of achieving double-digit ROS in this segment. Notably, Famus also sustained its strong growth margin rate of nearly 49% from the first quarter as we continue to limit promotional activity. Turning now to inventory, our current inventory position is up approximately 18% compared to 2021 when inventory was low due to supply chain constraints. However, when compared to the same period in 2019, inventory is down approximately 15%. Therefore, we're working in real time to make sure that we're managing our inventory flow by classification and brand to emphasize and amplify what's working and selling through and what's not. Going forward, we believe there are certain spots where we can improve our inventory position, particularly in specific categories in order to more fully capture pockets of strong consumer demand. As I normally do, let me give you an update on a few key initiatives we feel will enhance our competitive advantage at Famous. As it relates to product, the categories and brands that have been selling continue to resonate with the Famous consumer. In fact, our top 25 brands represented more than 85% of our sales during the quarter. In addition, we believe there is significant opportunity to maximize the vertical integration between Famous and our own portfolio which has the potential to connect with the current target customer, engage potential new consumers, as well as even drive greater margins for Kolaris as a whole. In fact, in addition to Lifestride and Dr. Schultz, which are already performing well at Famous, we believe we are uniquely positioned to leverage our extensive knowledge and deep consumer insights around fashion footwear to address the customer's increasing interest in adding seasonal footwear to her wardrobe. We are working to inject the right styles and brands in the right location to broaden our reach and to drive highly profitable incremental sales on top of our core athletic and sport business. We know that when she buys for her family and for herself, she is spending more, connecting more, and returning more often. Turning now to marketing. During the second quarter, we used the findings collected during our media mix and marketing attribution study to build out and execute a media plan that would be more effective in efficiently reaching the consumer. We strategically invested in consumer marketing, including TV, creative production and paid search, really accelerating these efforts ahead of back to school. I would be remiss if I didn't highlight the outstanding back to school campaign that launched on July 5th. In fact, Famous celebrated back to school in a big way with a fun, happy and musical campaign. It centered around a TV commercial featuring John Legend's Crowd Go Crazy and ran across premier programming and networks. You can see the full commercial via the link in our quarterly earnings slides. Before I move on to the brand portfolio, I'd like to provide some color on the consumer demand environment and more specifically around the early trends we're seeing during this important back to school season. Since March of 21, famous has benefited significantly from elevated levels of consumer demand, and those conditions continued for most of the second quarter. However, beginning in July, we began to see demand and traffic and conversion impacted by a more cautious consumer. So as a result, while we anticipate and see clear evidence of a solid back-to-school season, we're currently forecasting third quarter famous sales to decline approximately 4% more similar to what we've experienced in the first half of 2022. In short, Famus had an outstanding first half of the year with double digit operating margins, underscoring the significant power and agility of the Famus brand and providing just a terrific foundation for another strong earnings year in 2022 and beyond. And while yes, consumer demand may moderate somewhat in the second half of the year, Famus remains positioned to win with its national footprint its strong digital business, its improving inventory position, enhanced consumer experience, and then all of those being very powerful drivers for growth. So now let me turn to the brand portfolio. The brand portfolio turned in another exceptional performance, achieving significant year-over-year improvements and continuing to lay the groundwork for a significant step up in the segment's overall annual earnings contribution. Specifically, we delivered an approximately 36% year-over-year increase in sales driven by consumer demand across trending categories and reflecting the successful execution of our initiatives to elevate product design, refine our product assortments, and importantly, to increase the availability of inventory to meet demand. In fact, we saw double-digit sales increases across the portfolio, as we not only had the right products the consumer wanted, but the inventory behind the right brand and styles to meet the consumer's needs. Clearly, this was a significant shift from the environment from last year. Ken will discuss our inventory position in more detail shortly. In addition, our gross profit margin was 38%, in line with the first quarter of 2022. In total, the brand portfolio achieved $29 million in earnings, a 78% increase over 2021, with a 215 basis point improvement in the segment's return on sales. Also during the quarter, we achieved a 30% increase in the portfolio's direct-to-consumer business, highlighting the power of our brand, coupled with our improving reach of our digital capabilities. This included an approximately 9% growth from our own e-commerce sites, with solid increases from nearly every one of our branded websites. In addition, we drove a 27% year-over-year increase in new customers as consumers continue to look to our portfolio for fresh and compelling products and diverse assortments. We believe we can leverage our powerful brands, customer analytics, and overall expertise to unlock more value from the total Calaris customer file over time. Now let's look more closely at some brand-level detail. First, it's important to note that several of our brands are gaining share and winning with the consumer, a consumer who is definitely out and looking for new and updated footwear for fall. In fact, given our early reads on what the consumer wants for the season, with boots showing positive trends, it appears dress and casual will remain strong as well, and we are ready. Our Sam Edelman brand delivered strong results in the quarter, with a year-over-year sales increase of 86%. Of course, this performance was driven by strong demand across all categories, as well as a strong in-stock position of core inventory. While the brand's wholesale business improved, the highlight again this quarter was the growth in its digital business, with SamEdelman.com up nearly 60% when compared to the same period last year. In addition, the brand continued to engage with consumers, increasing its consumer file by more than 30% and underscoring the significant connection the brand is fostering with new customers. I would also note the most recent Sam Edelman catalog arrived in homes just under two weeks ago, and it is generating excitement around our fall product and translating to an uplift in sales and an increase in web traffic. Finally, next week we will be launching an exciting campaign with world-renowned supermodel Naomi Campbell. We're anxious for everyone to get a look at this campaign. It's new and fresh and really uses Naomi's powerful presence to support the power of Sam's product. The campaign will showcase key items from the footwear collection, highlighting both new fashion styles as well as the brand's heritage classics. Next, our Naturalizer brand has continued its exceptional turnaround with total sales at nearly 70% as the brand benefited from strong dress, casual, and occasion-based trends, and also from its solid inventory position behind key styles. Importantly, the brand's sales improvement was broad-based with strong sell-through at our key retail partners and with a more than 50% increase on naturalizer.com. Notably, the brand's top 10 styles generated 35% of its total business, highlighting the commitment to our Edit to Win initiative. In addition to the uplift in sales, another period of lower promotional activity drove substantial improvement in margin. The ongoing evolution of the Naturalizer brand continues to resonate with a younger, educated, and more affluent consumer and a successfully combined great fit and comfort with style. We believe the brand's relevancy is attracting a wider audience, appealing to the consumer earlier in her career and meeting her needs throughout all of life's occasions. Now, Alan Edmonds, also continues to show strong signs of improvement with sales running ahead of last year, higher AURs and approximately 500 basis point increase in gross margin over the second quarter of 2021. Demand continues across dress and sneaker classifications as interest in our iconic styles grows and we leverage these silhouettes in new casual ways. Also, Edit to Win is additionally yielding great results with our top 10 shoe patterns representing 46% of our total footwear business. And in addition, our recent limited drops, namely the McAllister and Mora, have been successful in augmenting our full price selling and supporting our strong margin levels. And our latest campaign, Team Colors, which I would definitely recommend you take a look at, is the epitome of Allen Edmonds' unique capabilities around customization. a feature that we know the consumer wants and loves. All things are for sure heading in the right direction at Allen Edmonds. Finally, wow, LifeStride has really come on strong. Sales increased 79% over the comparable period last year, with AURs rising significantly. This performance demonstrates the value the brand provides consumers, particularly in this macro environment. The compelling new product design, as well as delivering the comfort level the consumer is demanding post-pandemic. Lifestride, which touches a large and growing segment of the footwear market, is rapidly becoming a name that consumers know and trust. In short, the momentum in the brand portfolio continues as we are seeing demand strength across many of our brands due to the portfolio's versatility across categories and across price points. Consumers are looking for fresh and new for fall and they are reacting well to our products up and down the brand portfolio Looking ahead we expect to build on the solid foundation established in the segment during the first half of this year We will of course lean into our strong product design and our diversified assortment Make sure that we leverage that inventory position build on our consumer insights keep that edit to win initiative going and capitalize on the strong demand, and then always look for new ways to unlock future growth opportunities. As we look ahead, 22 is shaping up to be another record or near record year for Calaris. We believe that the stage is set for a strong and highly profitable 2023, given the tremendous progress we've made across a wide range of strategic and value-driving initiatives in recent quarters. With that, I'll now hand it over to Ken for a more detailed view of our financials. Ken?