Caleres, Inc.

Good morning. Welcome to CLARA's first quarter 2023 earnings conference call. My name is Shari and I will be your conference coordinator. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. At this time, I will turn the conference over to Logan Bonacorsi, Vice President of Investor Relations. Please go ahead.

Good morning. Thank you for joining our first quarter 2023 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. In discussing the results of our operations, we will be providing and referring to certain non-GAAP financial measures. You can find additional information regarding these non-GAAP financial measures as well as other views in today's earnings release in our presentation on the investor section of our website. The company undertakes no obligation to update any information discussed in this call at any time. Joining me on the call today are Jay Schmidt, President and CEO, and Jack Calandra, Senior Vice President and CFO. We will begin this morning's 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 Jay. Jay?

Thank you, Logan, and good morning, everyone. During the first quarter, we leveraged our diversified structure to deliver earnings per share at the top end of our guidance range. Profit contribution from the brand portfolio more than offset the challenging operating environment at Famous Footwear. As we said last quarter, the structural changes we've implemented over the last several years have resulted in a much more nimble, productive, and profitable organization. This quarter's performance underscores the value of the Calaris platform, the strength of our omnichannel capabilities, and the power of our carefully curated portfolio. We believe this structure enables us to be successful in a variety of different operating environments. Now let's turn to some key highlights from first quarter 2023. We delivered earnings per share of 97 cents driven by a record profit in our brand portfolio. We sustained total Calaris market share of more than 6% of the US footwear market We grew market share in the brand portfolio with many of our brands improving their rankings, and we increased Famous Footwear's market share in shoe chains. We managed our inventory levels very well, ending the period approximately 13% below the prior year period and down 3.6% compared to fiscal year end 2022. We continue to drive investment in strategic areas that are essential for our future growth. We maintained our longstanding quarterly dividend, and we prioritize debt reduction utilizing our free cash flow to reduce the borrowings under our asset-based revolving credit facility by $16 million from fiscal end 2022. As we've communicated, After funding our dividend, we believe that continued debt reduction is the top priority for cash flow near term in this uncertain macroeconomic environment. Now let's move to our first quarter operating results. Overall, consolidated sales declined 9.8%, falling short of our initial expectations. While some of this decline was expected, Famous Footwear was particularly hard hit by the softer consumer demand within the shoe chain channel. Fortunately, the weaker performance by Famous was offset by the outsized margin performance of the brand portfolio. As a result, we achieved solid first quarter operating earnings and generated strong consolidated gross margins of nearly 46%, which represented a record for the period. and we delivered $64 million in EBITDA. In addition, beginning in the first quarter, we initiated cost cutting and profit improvement initiatives across the organization. In total, we expect these measures to deliver approximately $20 million of SG&A savings this year, plus an additional $10 million of better than expected freight costs. We took these actions while still preserving investments in areas of strategic priority, namely consumer experience, analytics, and marketing that will accelerate our long-term growth vectors. Now let's turn to our operating segments, starting with the brand portfolio, which led our financial performance in the quarter. We delivered sales modestly ahead of our expectations and second only to the first quarter of 2022, which, as you will remember, included $50 million of wholesale inventory restock. Despite this difficult compare, a number of our brands, including lead brands Sam Edelman and Allen Edmonds, delivered quarterly sales improvements. The consumer was motivated by newness and gravitated toward fashion footwear, especially casual, new dress, casual sandals, and retro-inspired white sneakers. We capitalized on all these trends by leaning into our Edit to Win initiative. We chased product and utilized our speed programs and supply chain network to react aggressively in season to maximize top selling items. We are pleased that even with the expected sales decline, the brand portfolio delivered record first quarter operating earnings of nearly $43 million and achieved a 13% operating margin. This performance was driven by a 611 basis point improvement in gross margins due to higher initial margins and lower freight costs. We believe these results are a direct reflection of the progress we've made elevating product design sharpening brand messaging, and maximizing our inventory investment. Also during the quarter, we capitalized on strong product trends and our capabilities to drive an approximately 8% increase in our D2C business compared to the first quarter of 2022. This increase includes notable year-over-year improvements from our overall owned e-commerce drop shift and own brick and mortar businesses. Going forward, we will provide color on the performance of our lead brands, Sam Edelman, Naturalizer, Allen Edmonds, and Vionic on each earnings call. We want the investment community to understand what's driving our business. We believe each of these brands has significant growth ahead, and we are strategically investing to power that growth. These four brands in total represented more than half of the brand portfolio and 27% of our total Calaris revenue in the first quarter. We outperformed in own channels across all lead brands in the quarter, with strong positive comps driven by increased traffic. Trends in flats, loafers, new dress shoes, and fashion sneakers drove business at both Sam Edelman and Naturalizer, where we delivered an improvement of 25% and 11% on our own websites, respectively. Allen Edmonds delivered a strong first quarter performance with sales up 11% versus last year. This improvement was led by robust consumer demand for loafers and slip-ons and positive response to its new offerings. AE's efforts to focus on its consumer also yielded encouraging results from the relaunched loyalty program known as the collectors. In fact, we've seen our total collectors grow since the reintroduction of the program last September and the average spend from AE collectors is 20% higher than non-collectors. And finally, we successfully launched a new brand direction for Vionic, combining a Northern California aesthetic with our unique scientific solutioning. This new branding, which went live on our website and in catalog during the quarter, spurred an immediate positive reaction on Vionicshoes.com with casual sandals and dress delivering the largest year-over-year growth. We are encouraged by the early consumer response to its new offerings. In addition, we saw continued strength in our portfolio brands, including Lifestride, Franco Sardo, and Dr. Scholl's. These are important growing assets that serve key consumer segments not currently served by our lead brands. We are leveraging our OneColaris capabilities across our portfolio to ensure all our assets are positioned to succeed. As we progress through the rest of the year, the teams will remain nimble, amplify newness, and react quickly to maintain momentum for the balance of the year. Longer term, we are laser focused on building upon the momentum we've seen in the recent quarter and have ambitious growth plans for all of our lead brands. We expect that given the strength of our brands, the diversity of the portfolio, our flexible and agile operating model, and our improved margin performance, that the BP will continue to contribute substantially to the company's operating performance. Turning now to famous footwear, after several successive quarters of strength, famous footwear's contribution declined markedly as it navigated a challenging macroeconomic backdrop and decelerating spending, particularly in the month of March among its target consumer. The challenging backdrop was exacerbated by a late breaking sandal season. Even in this difficult environment, Famus outperformed its competitive set and increased market share in shoe chains. Our kids' business, a key differentiator for Famus, was a bright spot in the quarter. This important and growing category once again outpaced the rest of our business as families prioritized purchases of kids' footwear. In total, FAMIS generated $17 million in operating earnings, and even with the weakness in shoe chains, we expect FAMIS to deliver a significantly stronger earnings contribution in the second quarter as consumer activity accelerates due to typical seasonal drivers, including warm weather and back to school beginning in mid-July. To that end, we have taken a number of steps to ensure that famous leverages its strengthened kids and delivers for back to school. As you will remember, we delivered our best ever back to school in 2022, despite a less than ideal inventory position. This year we have a better in stock position from the beginning on key trending brands and styles that we've reacted to due to our well managed inventory position. We have named a new kids merchant to closely maximize all opportunities and a new head of stores to drive our strategy at point of sale. We have planned a high impact marketing campaign across all consumer touch points, but especially aimed at the millennial family. And our investments in technology, specifically launching a CDP during the quarter, should better target our messaging and improve our conversion and drive sales. Clearly, there's a lot to be excited about during back-to-school at FAMIS. In summary, we continue to have great confidence in the long-term outlook for FAMIS. The same strengths that delivered stellar results in recent years are still very much in place and, in fact, continue to expand. As we move forward, we will be taking immediate actions across our product assortment, our team, our marketing approach, our digital strategy, in an effort to maximize our earnings potential this year. In parallel, we will continue to leverage our leadership position with the family, our leading assortments of national brands, our nationwide retail footprint, mostly off mall, and consistent consumer experience in stores and online to accelerate all opportunities for growth at Famous. So overall, as we look forward to the balance of the year, we are optimistic about the strength of our brand portfolio segment and its ability to deliver a much stronger earnings contribution in 2023 and beyond. And while we have worked to do it famous, we believe that the relative strength in kids, its inherent competitive advantages, and its avenues for growth set us up to improve as the year progresses. Before I hand it over to Jack to walk through our financials in more detail, I'd like to highlight and remind you of the power of the Calaris model. We believe the structural changes we made in recent years, coupled with our diversified structure and strong financial contribution from both operating segments, will enable us to deliver annual earnings of more than $4 per share on a consistent basis, while generating strong levels of free cash flow and creating long-term value for our shareholders. And with that, I will now hand it over to Jack for a more detailed view of our financials.