Caleres, Inc.

Good morning, and welcome to the CLARIS third quarter 2024 earnings conference call. My name is Darrell, 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 prepared remarks. As a reminder, this conference is being recorded. At this time, I will turn the call over to Liz Dunn, Senior Vice President of Strategic Communications and Corporate Development. Please go ahead.

Thank you, Darrell. Good morning, and thank you for joining our third quarter 2024 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 several risks and uncertainties. Actual results may differ materially due to various risk factors, including those 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 our operating results, we will be providing and referring to certain non-GAAP financial measures. Additional details on these measures, as well as others featured in today's earnings release and presentation, are available at CLARIS.com. The company undertakes no obligation to update any information discussed in this call at any time. Joining me today are Jay Schmidt, President and CEO, and Jack Calandra, Senior Vice President and CFO. Our call will begin with prepared remarks followed by a Q&A session to address any questions you have. With that, I'll turn the call over to Jay.

Thank you, and good morning, everyone. As we reported earlier today, our third quarter saw progress toward our strategy, highlighted by the brand portfolio reporting growth, famous footwear delivering positive comp store sales, and both segments increasing market share. However, our earnings were clearly below our expectations. There were a number of challenges in the quarter that impacted our results. We saw soft food sales in both segments of our business. We had discreet issues with late receipts of trending athletic product and famous footwear. We had a credit issue associated with one customer in the brand portfolio that resulted in lower shipments. And finally, our China business has softened. While this was not the result we wanted, There were several areas of strength on both sides of our business that leave us cautiously optimistic for the future. Our brands and products are resonating with consumers. We are gaining market share in both segments of our business, and we remain confident in our growth strategies and long-term vision. In total, for the third quarter, sales declined 2.8% year over year, and we reported adjusted earnings per share of $1.23. Now let's turn to our operating segments. Brand portfolio sales increased approximately 1%. Our lead brands outperformed our portfolio brands with Wholesale and Own.com, both showing modest growth versus last year. We were encouraged to see a return to growth and pleased to report that the issues that we had last quarter related to our systems implementation did not impact this quarter. Additionally, our brand portfolio gained market share according to Cercana during the quarter, both in total and in women's fashion footwear. We continue to see robust demand for new products with momentum in fashion sneakers. In fact, sneakers and sport represented over 30% of retail selling for the quarter. Blingbacks, Mary Janes, and ballet flats also performed very well. Wholesale boot shipments, however, declined 5% versus last year. However, at retail, short boots were down 18% and tall shaft boots were up slightly. Wide shaft boots stood out with double-digit growth to last year. In the boot category, much like in the rest of our business, the consumer is prioritizing trend and newness over basics. And more broadly, brands with premium positioning outperformed. From an inventory perspective, we have more current, less core, and less aged inventory. In addition, our speed initiative drove about 30% of our sourcing in the quarter. Our lead brands, Sam Edelman, Allen Edmonds, Naturalizer, and Vionic, represented more than half the brand portfolio sales and operating earnings in the quarter. Three of those four brands saw growth, and collectively, lead brand growth exceeded that of the portfolio brands. The Sam Edelman brand saw strength in the quarter, driven by positive response to fashion newness, particularly in sneakers, flats, and tall-shaft boots. Sales in Sam Edelman retail stores exceeded expectations, and retail sell-throughs with our wholesale accounts were up year over year. Sam introduced handbags under license in October, and we are encouraged by the positive early reaction. And finally, we continue to believe Sam Edelman has a significant opportunity internationally. During the quarter, the brand launched in Selfridges and John Lewis in the UK and unveiled the first global location for Sam Edelman's new store concept in Shanghai in October. The Allen Edmonds business was also driven by newness. particularly in new sneakers and dress loafers, while boots underperformed. We successfully launched our new Allen Edmonds Reserve Collection across all channels during the quarter, including an exclusive collection with Bergdorf Goodman. In our retail stores, we continue to see success with our Port Washington Studios store concept and now have 11 of these prototypes with comp stores outperforming the chain by a high single-digit percentage. Naturalizer returned to growth in Q3, led by its direct-to-consumer business. We saw increases in purchasing by Gen Z, millennials, and higher household income consumers. Food sales here were solid, driven by growth in expanded cap width. Our focus on inclusivity is attracting new loyal consumers to the brand. Additionally, we also opened a new store in Beijing, relaunching the Naturalizer brand in Asia, and are in early innings of international expansion for this brand. Bionic had solid trends at retail, particularly with Nordstrom, and saw continued outperformance in both its uptown casual business and the sport lifestyle category. However, the brand faced challenge again with casual short boots. We continue to evolve and modernize the assortment while maintaining Bionic's wearable well-being positioning. And as we continue to fuel innovation at Bionic, we expect to further expand the brand's reach. Overall, the brand portfolio had a mixed quarter. Outperformance by our lead brands is encouraging, and strong retail selling trends and market share gains across the portfolio will drive growth in the future. Moving on to famous footwear, total sales declined 5% during the third quarter, while comp sales increased 2.5%. After a very strong back-to-school season, sales returned to the prior trend. Athletic was strong and positive across men's, women's, and kids. Boots were down over 20% at famous during the quarter, comprising most of the sales shortfall relative to expectations. At the same time, we saw an extended season for sandal selling with strength from both Birkenstock and Reef. Once again, our strategically important kids category grew in the quarter, outpacing the total business. Our kids category has now outperformed the rest of the chain for 15 consecutive quarters. His penetration of the total famous business was 25% in the quarter, and we gained 1.3 points of kids' market share in shoe chains, according to CERCONA data. Overall, in the third quarter, Famous Footwear's market share gained a half a point in shoe chains, according to CERCONA data. We were also pleased with our performance of our own brands at Famous. Penetration of our Calaris brands was once again up in the quarter, with strong selling from both Naturalizer and Blowfish. Calaris brands continue to provide Famous with greater access to fashion products, while at the enterprise level, vertical sales allow us to capture higher gross margins. Our famous.com business was strong in the quarter, posting an 8.3% year-over-year increase on a calm basis. Finally, we continued to focus on enhancing the consumer experience at Famous. At the end of Q3, we had 32 Flare locations in total. We continue to experience a mid-single digit sales lift versus the rest of the chain in our fall 2023 and spring 2024 Flair stores. Flair is successfully attracting more elevated brands and products, and our famous consumer is responding positively. We made a tactical decision to delay construction on additional remodels until the first quarter of 2025 to prevent lost holiday sales. However, we will open one new flare store in Boston in the fourth quarter. Famous is well positioned on inventory heading into the holiday season, particularly in the key trending brands and styles. The strength of kids our continued success with Flair, and our broad-based improvement in athletic are encouraging. We believe Famous' inherent competitive advantage, namely its leadership position with the millennial family, especially kids, coupled with its clear avenues for growth and support from the Calera structure, position the business to gain additional market share in shoe chains, generate robust levels of cash, and increased profitability over the long term. Looking forward, we are now expecting lower sales and earnings than our previous guidance. While Jack will walk you through our updated assumptions in detail, I will provide some color on the factors impacting our revised outlook. We are seeing several trends play out in our business that are negatively impacting our top line performance in the near term. On the brand portfolio side, we expect boots to continue to trend below last year through the fourth quarter. We plan to take aggressive action on poor performing items to end the year in a clean position. We also expect demand in China to be more muted than previous expectations for the balance of the year. At Famous Footwear, we are outperforming in our competitive set, but the overall environment in Family Footwear has been more challenged. Lastly, we incurred necessary investment this year to position our business for the long term. We have restructured our business and reduced expense, but we do not want to set back long-term growth plans by cutting too deeply. Finally, I would also like to touch on two subjects, tariffs and our long-term plan. First on tariffs, our sourcing and supply chain capabilities are well positioned to adapt and evolve to meet the changing environment. We have been working closely this year with our factory partners to pivot our sourcing outside of China and mitigate the impact of additional tariffs on the business for 2025. Jack will discuss this with more detail on our sourcing plan shortly. Second, on the subject of our long-term financial targets. In October of 2023, we announced a plan to drive growth in sales earnings, and total shareholder return. While we still expect to return to more consistent growth in these metrics, we now expect it to take longer to achieve the specific EPS goals we laid out last October. This year has clearly been a setback for us. Having said that, we believe we are on the right track with the right strategies for the future. We look forward to updating you on our 2025 expectations during our fourth quarter call. And with that, I will now hand it over to Jack for a more detailed view of our financial performance and our outlook.