Caleres, Inc.

Good morning, and welcome to Calera's fourth quarter and fiscal year 2023 earnings conference call. My name is Sherry, and I will be your conference coordinator. 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 would like to turn the call over to Liz Dunn, Senior Vice President of Corporate Development and Strategic Communications. Please go ahead.

Good morning. Thank you for joining our fourth quarter and full year 2023 earnings call and webcast. A press release with detailed financial tables as well as our quarterly slide presentation are available at CLARIS.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. In discussing these 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 others used in today's earnings release on our presentation on the Investors section of our website. The company undertakes no obligation to update any information discussed in this call at any time. Joining me today on the call are Jay Schmidt, President and CEO and Jack Calandra, Chief Financial Officer. We will begin this morning's call with our prepared remarks, and thereafter, we would be happy to take your questions. I would now like to turn the call over to Jay. Jay?

Thank you, and good morning, everyone. I'm pleased to report that Calaris delivered another strong performance during the fourth quarter of 2023, capping off the third straight year of adjusted earnings per share above our $4 baseline. These results continue to underscore the power of our portfolio of brands, the focus of our talented team, and the magnitude of our structural financial transformation. Overall, 2023 marked another year of significant accomplishment and disciplined financial execution at Calaris. In total, we delivered annual sales of $2.8 billion in line with our expectations. We achieved adjusted operating earnings of $201 million and generated a strong consolidated adjusted operating margin of more than 7%. Our adjusted earnings per share of $4.18 was in line with the outlook we reaffirmed in January. and we generated approximately 260 million in adjusted EBITDA. We are particularly proud of these results, which were achieved while navigating a dynamic demand environment and making prudent investments in support of our future growth. In addition to our financial accomplishments during 2023, We gained market share in both the brand portfolio in women's fashion footwear, and we gained market share in shoe chains for famous footwear as well as in kids. We leaned into our edit to win initiative and leading speed capabilities, which facilitated a nearly 7% reduction in inventory. We generated $200 million of cash from operations and strategically used that cash to invest in and accelerate value driving capabilities essential for our future growth. This included enhancements to our marketing ecosystem, the expansion of our international presence, particularly at Sam Edelman, the involvement in consumer experience at Famous Footwear, and the upcoming go live of our financial and operating system into a new integrated SAP platform. We also deployed cash to further strengthen our balance sheet and enhance our financial flexibility by reducing borrowings by $126 million from 2022. Finally, we returned more than $27 million to our shareholders through share repurchases and dividends. Now let's move to some performance highlights from the fourth quarter. During the period, we delivered sales of 697 million, up slightly from the prior year. We generated strong margins and we achieved fourth quarter adjusted earnings per share of 86 cents, which represented a 32% increase over the fourth quarter of 2022. Now, let's turn to our operating segments. The brand portfolio delivered its best ever annual adjusted operating earnings, which topped 148 million, eclipsing its previous record of 112 million, and was accompanied by a nearly 12% adjusted return on sales. Of particular note, the segment led the financial performance of the company for the first time in nearly two decades. Looking more closely at the quarter, strong demand for our lead brands and largest portfolio brands drove the company's performance. Notably, sales in the segment were 4.5% higher than fourth quarter of 2022, and segment gross margin increased significantly. And while we invested in key capabilities like our marketing network and international expansion, most of the margin strength flowed through to the bottom line, leading to a 570 basis point improvement in adjusted quarterly operating margin. This strong upward momentum was broad-based with increases across both our wholesale and direct channels primarily our own e-commerce, which increased 5% year over year. As the consumer continued to prioritize newness, including loafers, valets, Mary Janes, slingbacks, and of course, fashion sneakers, our brands were well positioned to meet the diversified needs and preferences of our consumers. We saw particular strength across our lead brands during the last quarter of the year with positive trends in year-over-year sales, operating earnings, and market share. In total, these four brands, which include Sam Edelman, Allen Edmonds, Naturalizer, and Bionic, represented about 55% of the brand portfolio sales and more than half the segment's operating earnings during the fourth quarter. Diving into the performance of our lead brands, Sam Edelman had a solid quarter with improving financial metrics. We announced some big news last week. In case you missed it, Sam unveiled Kylie Jenner as the face of his spring marketing campaign. This is an exciting time for the Sam Edelman brand and team, which is celebrating its 20th anniversary this year. The brand also continued to expand internationally, opening 10 new stores in 2023, with plans to grow that number significantly in 2024. We expect the 20th anniversary marketing plans and events, international expansion with our joint venture partner in Asia, and the relaunch of the Salmon Libby brand will be significant sales drivers in 2024 and beyond. Next, at Allen Edmonds, they turned in their 12th positive quarter of growth. Casual and sports styles continue to lead the way during the period, with the consumer responding to newness in colorways of our iconic shoes and introductions of new styles. During the quarter, we opened a new Port Washington Studio concept store in Birmingham, Alabama. We now have eight Port Washington Studio stores, and continue to see the sales performance outpace the rest of the chain. We already have plans to introduce the Port Washington studio into four stores during 2024 and continue to look for more opportunities to add this concept to new and existing locations. Our naturalizer brand had a standout quarter from both a sales and margin perspective. Sales were up double digits and operating margin improved substantially. The brand gained one point of market share during the quarter with a significant increase in new consumers. We are pleased with the rollout of the Naturalizer Loyalty Program, named Naturalizer Insider, and are seeing positive spending trends with loyalty members. We are also seeing an increase in younger consumers driven by strong, relevant fashion offerings and targeted marketing efforts, including new collaborations and partnerships. As you know, we've done a lot of work in recent years to transform and ready Naturalizer for even greater growth. We believe there is tremendous opportunity for the brand moving forward. Finally, Bionics profitability improved significantly in the quarter, despite a modest decline in sales, with both our wholesale and e-commerce businesses making significant contributions. Loafers, flats, and sneakers drove the brand's fourth quarter business, and the uptown mock remains Bionics' number one item. In addition, our Rejuvenate recovery slide sold very well, as did new styles in the walking category. with more to come in 2024. As I mentioned, our largest portfolio brands also delivered outsized performances in the quarter. Namely, Dr. Scholz, Franco Sarto, and LifeStride achieved year-over-year improvements in sales and earnings. As we've noted, these brands play an important role in our overall portfolio reaching different customer segments while generating meaningful profit and cash flow. This year, Dr. Scholl celebrates its 100th year anniversary with sales-driving collaborations and partnerships. The first will be a collaboration with apparel brand Free People, which is set to drop in early April. Overall, the brand portfolio performed at a high level during 2023, delivering its best performance in portfolio history. As we outlined at our investor day last October, we continue to expect the brand portfolio to contribute about half of total sales and 60% of operating profit within the three-year period. We are confident the brand portfolio, powered by its lead brands, is positioned to lead the financial performance of Calaris over the long term. Moving on to famous footwear. Total sales declined 1.5% and comp sales declined 5.9%, representing a sequential improvement in trend from the prior quarter period, both in-store and online. Traffic was down and seasonal products, namely boots, represented much of the sales decline. Famous once again, though, outperformed its competitive set, gaining market share in shoe chains. During the holiday season, the consumer was motivated by highly demanded trend items instead of promotions. Robust selling on key athletic brands and styles and cozy products like slippers drove a modestly better sales trend during the seven-week holiday period. In addition, we were particularly pleased with the performance of our kids business, where sales increased 2% year over year and we gained 1.4 points of market share in shoechains. As you know, we view kids as our key differentiator and the entry point for the millennial family. Our kids business has outpaced the rest of the chain for 12 consecutive quarters. And 2023 marked our highest level of annual kids sales ever. We were also pleased with the relative outperformance of women's fashion. And sales of key vertical brands naturalizer and Dr shows were up year over year and famous. Over the last year, we've worked to drive a more balanced athletic versus fashion assortment, and we are making progress on that front. Our vertical integration provides famous with greater access to fashion products, a key growth driver for the business, as well as a greater ability to flex with trends and differentiate versus competitors. And vertical integration allows our own brands to reach new audiences. Our newest vertical brand, Sam & Libby, launched and famous for spring with solid early reads. I will remind you, at an enterprise level, Kolaris captures a higher gross margin on brands sold vertically. Finally, our efforts to enhance the consumer experience at Famous Footwear continues. We had 21 flare stores open at the end of the quarter. The second wave of flare stores have proven highly successful and are outperforming the chain and delivered positive year over year comps in the fourth quarter. We plan to continue to refine our approach to improving consumer experience to ensure we are realizing the highest return on this investment. We will transform an additional 23 stores to the Flair concept in 2024, and we'll have 44 Flair stores by year end. All in, Famous performed well in 2023. The structural changes we've made across the business have enabled the Famous segment to maintain operating earnings and operating margin well above pre-pandemic levels. and we expect this to continue. Looking ahead, we believe Famous Footwear is exceptionally well positioned to compete and solidify its leadership position in the family channel. So before I hand it over to Jack to walk through our financials in more detail, I would like to highlight a few key focus areas that will enable us to achieve our long-term strategic operating initiatives and financial targets. First, we are focused on expanding our direct to consumer business and expect our own e-commerce business to continue to outperform. We have launched loyalty programs across several of our lead brands that will allow us to engage more directly with our consumers and capture more share of wallet. We are utilizing our marketing and analytics capabilities to engage consumers efficiently and profitably. Second, we will continue to focus on our enhanced speed programs to read and react in real time. During 2023, 20% of our brand portfolio receipts came through speed, and we expect that penetration to grow well above 20% moving forward. Now more than ever, our brands are positioned to capitalize on trend, whether the trend is casual, dress, or sneaker driven. Our speed programs create a virtuous circle, aligning inventory with consumer demand to drive sales productivity and expand gross margin. Third, we believe FAMIS is well positioned to return to growth and drive greater market share in the family channel. This year, we will build on our leadership position in kids, continue to focus on evolving our Flare Store format, offer an elevated and curated assortment of key in-demand brands for the entire family, ensuring a more advantageous mix of athletic and fashion, and leverage the Consumer Data Platform, or CDP, to connect with and drive an even greater level of engagement with consumers through personalized communication and localized assortments. Fourth, as we outlined at our investor day, international is a significant growth area for Calaris. In the fourth quarter, we hired Erica McCool as Senior Vice President of International to focus more intensely on that effort. In 2024, we will continue to build the Sam Edelman business in China with 45 new stores. Naturalizer will reenter China with its newly created global flagship store design with 10 new stores in the fall of 2024, as well as a digital relaunch. This is just the beginning. International is a big growth opportunity for Kolaris. And finally, we are investing to fuel growth. In 2024, we will make outsized investments in international expansion, consumer experience, both in-store and online, and across our marketing platform. These investments are an accelerant to unlock additional growth opportunities for the future. At the same time, we will remain disciplined and rigorous in managing our expense level to drive strong financial performance and shareholder value. And with that, I will now hand it over to Jack for a more detailed view of our financial performance and outlook. Jack?