Caleres, Inc.

Good morning and welcome to the CLARIS second quarter 2024 earnings call. My name is Rob and I'll be your conference coordinator. At this time all participants are in listen-only mode. The question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero from your telephone keypad. As a reminder, this conference is being recorded. At this time I'll turn the call over to Liz Dunn, Senior Vice President, Corporate Development and Strategic Communications. Please go ahead.

Thank you, Rob. Good morning. I'd like to thank you for joining our second quarter 2024 earnings call and webcast. A press release with the 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 others used in today's earnings release and 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 is 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 and good morning everyone. Earlier today we reported sales and earnings that were below our expectations. While our brands and our products continue to resonate with consumers, and we remain committed to and confident in our long-term vision. Our second quarter results fell short in both segments and do not reflect our true potential. Our ERP upgrade during the quarter was a significant part of the problem, but not the entire problem. Lack of visibility caused execution issues that prevented us from delivering our expected results. In total, for the second quarter, we achieved earnings per share of 85 cents. Our second quarter sales declined 1.8% year over year, and the sales miss drove the bottom line miss. We generated strong gross margin rates of 30 basis points driven by the brand portfolio. Now, let me delve into the issues faced with regard to our ERP system upgrade and what we have done to course correct. As you are aware, we upgraded our SAP enterprise system to the new cloud-based version. This was a necessary upgrade that our teams have been working on for the past year, resulting in a common platform to leverage across our brand portfolio. Mid-quarter, we were down for a few days as we planned. When our systems came back online, we initially saw signs of a successful implementation with e-commerce and order shipping on track. However, as we progressed through the quarter, several key operational reports were delayed causing a lack of visibility to the tools we rely on to drive our business day in and day out. Additionally, there were issues related to size reporting that initially made it difficult for us to service dropship and replenishment orders. And finally, we experienced late shipments and carrier failures that, while not related to the ERP implementation, contributed to the sales decline. It is important to note that about 45% of our brand portfolio business is dynamic, including direct-to-consumer, replenishment, dropship, and advancing newness. And without the tools and the reports to monitor these areas, we could not see all the issues until it was too late to fully recover. In response, we took several actions. First, we immediately replaced one of our integration partners who handled reporting. Second, we pulled experienced order management professionals from elsewhere in our company and enlisted them to help ship out as many orders as possible. Third, we've gone function by function to shore up reporting and develop workarounds until the automated solutions are fully online. Importantly, we are now operational in all areas that cause the ERP disruption, and we have addressed the issues that temporarily impacted visibility. That said, we do not expect to recover all the missed sales, with respect to seasonal categories, dropship, and other direct-to-consumer purchases. This is factored into our updated guidance that Jack will share with you momentarily. We have also accelerated cost reduction initiatives to mitigate the impact on profitability. To that end, today we announced a restructuring that will save us approximately $7.5 million on an annualized basis and $2 million in this fiscal year. These moves will make our teams more efficient and effective. Additionally, we are reducing other SG&A items for the back half to align with our forecast. Now let's turn to our operating segments. The brand portfolio sales declined 5.1% with the issues related to our SAP upgrade impacting all brands as well as weakness in seasonal categories. Wholesale and dropship were down and our own e-commerce was flat but below our expectations. We continue to see strong growth in demand for new products and momentum in fashion sneakers. In fact, sneakers and sport represented 28% of retail selling for the quarter, up six points versus the prior year. Seasonal product continued to underperform with sandals down high single digits versus last year. We are well positioned in sneakers going forward, and have aligned our inventory with consumer demand for this trending category. Higher initial margin rates and a favorable channel mix resulted in a 140 basis point improvement in segment gross margin. This demonstrates the health of our business overall. Our 8.3% return on sales for the brand portfolio was down to last year due to deleveraging of expenses. Inventory is in good shape about flat to last year with a reduction in aged inventory. Our four lead brands, which include Sam Edelman, Allen Edmonds, Naturalizer, and Vionic, represented more than half of the brand portfolio sales in the quarter. While sales were down for the lead brands, in total, they outperformed the other brands in our portfolio. A few highlights from the quarter demonstrate that our growth vectors are still on track. On the international front, we are very pleased with Sam Edelman's momentum. What we are seeing in Asia is giving us increased conviction in our strategy there. In terms of new channels of distribution, Allen Edmonds wholesale door count is up 30% year over year, and we continue to see a strong response at Nordstrom and other strategic specialty accounts. We also continue to attract new consumers to our brands like Naturalizer. There, I hope you notice that we are moving forward with Deepika Mutiala, and Lauren Chan as our first inclusivity ambassadors, starting with a campaign centered around our sizing initiatives and wide shaft boots. We are already seeing a strong reaction in early fall toward tall boots, especially in wide shaft. And finally, at Vionic, the Uptown Moc franchise continues to introduce the brand to new consumers with more modern and relevant fashion that embodies wearable well-being. Overall, the brand portfolio had a difficult quarter. However, we have full confidence in our growth vectors, our retail sell-throughs in the quarter were strong, we are well positioned from an inventory perspective in sneakers, and many of our brands have growth and receipt plans for the back half to support our guidance. This was a moment that is not indicative of our future potential. Moving on to famous footwear. Total sales were up 1.5% during the second quarter, while comp sales declined 2.9%. Despite sales that were lower than anticipated, we delivered sequential improvement in each month of the quarter. We saw our athletic trend build in July as the back to school season began and we aligned our assortment with trending categories and brands. Notably, our strategically important kids category once again grew in the quarter and kids outpaced the total business. Our kids business has now outperformed the rest of the chain for 14 consecutive quarters. Kids penetration of the total famous business was 21% in the quarter, and we gained 0.5 points of market share of kids in shoe chains, according to CERCANA data. Also in the second quarter, famous footwear's market share was flat to the total footwear market overall and gained 0.5 points in shoe chains, according to CERCANA. We were also pleased with the performance of our own brands at Famous. Penetration of our Kolaris brands was once again up in the quarter. Our own portfolio provides Famous with greater access to fashion products. And at an enterprise level, Kolaris captures a higher gross margin on brands sold vertically. Our famous.com business was solid in the quarter of 10% year over year with much of the business fulfilled through our stores. Finally, we continue to further our efforts to enhance the consumer experience at Famous. At the end of Q2, we had 31 flare locations in total. we experienced a five-point sales lift versus the rest of the chain in our fall 2023 and spring 2024 Flair stores. Those of you that shop there may notice an expanded assortment of brands like New Balance and Brooks. Flair is helping us attract these and other more elevated brands and products, and our famous consumer is responding. We are on track to remodel 12 additional flare stores in the back half of this year. As for the back to school business, it came late, but it is coming strongly and we are pleased with where the season ended up. Early in the year we saw a stronger athletic business materializing and worked hard to align our inventory investment with emerging trends for back to school. In mid-July, we launched new marketing messages and shifted our marketing mix to channels that were driving the most traffic. We also shifted our promotional strategy to BOGO from Buy More Save More after conducting a test that showed BOGO was margin dollar accretive. In August, we experienced a high single-digit positive comp store sales gain. As a result, through August, famous footwear comp sales are now about flat for the full year to date. The athletic trend continued to build and turn positive with strength in Nike and Adidas, amongst others. Furthermore, we are seeing strength in men's and women's alongside continued outperformance in kids. While we see these trends normalizing now that the back-to-school season is over, our results suggest our product, marketing, and promotional messages are resonating with the millennial family. The strength of kids, our flair results, and our trend in August lead us to a place of cautious optimism at Famous. We believe FAMIS's inherent competitive advantages, namely its leadership position with the millennial family, especially kids, coupled with its clear avenues for growth and support from the Calaris structure, position the business to gain additional market share and shoe chains, generate robust levels of cash, and increase profitability over the long term. As we look ahead, we are confident in our ability to get back on track and deliver earnings per share in line with our revised guidance. Longer term, we believe we are exceptionally well positioned to execute our strategic plan, invest to fuel our growth initiatives, and drive sustained value for our shareholders. And with that, I will now hand it over to Jack for a more detailed view of our financial performance and our outlook. Jack?