Good afternoon and welcome to the Caleres Second 2020 Earnings Conference Call. My name is Erika and I will be your conference coordinator. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. [Operator Instructions] As a reminder, this conference is being recorded. At this time, I would like to turn the call over to Logan Bonacorsi, Vice President of Investor Relations. Please go ahead, miss.

Good afternoon. I would like to thank you for joining our second quarter 2020 earnings call and webcast. A press release with detailed financial tables as well as our quarterly slide presentation are available at caleres.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. The company undertakes no obligation to update any information discussed in this call at any time. Joining me on the call today is Diane Sullivan, CEO, President, Chairman; and Ken Hannah, Senior Vice President and CFO. We will begin the call with brief prepared remarks and thereafter we will be happy to take your questions. I would now like to turn the call over to Diane Sullivan. Diane?

Thanks Logan, and good afternoon everybody. Thank you for joining our second quarter earnings call and for your ongoing support of our company. We hope that you and your families are staying healthy and safe. As I did last quarter, I'd like to extend my thanks and my gratitude to the Caleres team for their resilience and ongoing dedication as we continue to navigate this rapidly evolving environment. We once again demonstrated our ability to collaborate effectively, work efficiently, and respond quickly to ever changing market conditions. As we have stressed in the past, the health and the well-being of our associates, our consumers, and our communities has been a guiding principle in our decision making over the last several months. And this will continue to take priority through the duration of this global health crisis. Before I jump into our results, I'd like to take a step back and remind you why Caleres as a whole is positioned to be successful now and over the long term. First of all, our brands relate well to the consumers’ ever evolving mindset, changing preferences, and dynamic behaviors. Casual, athletic, and sport inspired styles currently in demand by consumers make up a large and growing part of our portfolio. For the trailing 12 months, approximately 85% of our total product mix resided in these categories. Also, our previous investments in our capabilities and e-commerce business has positioned us exceptionally well to capitalize on the accelerating shift to online purchasing. Illustrating this progress, for the trailing 12 months, our e-commerce penetration grew to 27%, up from 18% during the previous 12-month period. We will continue to look for ways to invest wisely in our digital platform, as we progress through this new marketplace. And finally, our foundation is built on putting the consumer…

Thank you, Diane and good afternoon everyone. Despite facing ongoing pressure from the lingering health crisis, I am pleased with how we have further strengthened our competitive position during the period. We remain focused on appropriately managing expenses and working capital. We remain committed to controlling the controllables, improving inventory turns, reducing SG&A, and lowering capital expenditures. We remain confident with more than adequate liquidity and our ability to weather the downturn. I'd like to start to discussion this afternoon by providing an update on our liquidity position and capital structure, then discuss our second quarter results, and finally provide some additional color on the outlook for our business for the remainder of the year. As we communicated on our last call, we believe deleveraging to be the most value creating use of cash given the volatile marketplace. To that end, during the second quarter we made debt reduction a priority in our capital allocation process. We paid down $88.5 million in revolver debt, reducing the outstanding balance to $350 million at the end of the quarter. Our cash balance of $148.5 million and our $600 million revolving line of credit provide adequate liquidity for us to navigate these uncertain times. Notably, we have no significant debt maturities until 2023. Looking ahead, we expect that debt reduction will continue to be a priority for our capital allocation process for the balance of 2020. Now moving on to review of our second quarter financials. We reported a loss per share of $0.83, including $0.13 of adjustments for COVID-19 related expenses and $0.13 related to the fair value adjustment associated with the mandatory purchase obligation for Blowfish Malibu. Our adjusted loss per share in the quarter, excluding these items was $0.57 per share. Our consolidated sales for the second quarter were $501.4…

[Operator Instructions] Your first question is from Laura Champine with Loop Capital.

Thanks for taking my question. I appreciated in the deck that you gave a mix of your business that sport inspired or casual of 86%, what would that have been a year ago?

It would be somewhere in the probably 82%, 80% somewhere along there Laura.

Got it. Understood.

Famous has always been very much in that area, up in the 90% plus always, and they're sitting at 96% now. Brand Portfolio would be the one that has sort of lagged, and we're going to have to continue to pivot as we move forward to make sure that we - have all the product categories in line with where consumers are going and if that's appropriate for the brand should we have to take - have that in mind as well. So, it was roughly about 80%, 81%, 82% last year.

And as we think about sort of moving into the back half, I appreciate the range of expectation by segment. For Q3 would indicate that Brand Portfolio recovers slower, should that slower trend persist until we get people on more of a normal away-from-the-home schedule, meaning will Famous Footwear likely stay stronger than Brand Portfolio as long as there is such a big trend towards casual and away from fashion footwear?

Well, I think it's a combination of a couple of factors. The short answer is yes. I think Famous Footwear is definitely going to be the leading segment out of this pandemic for the company, primarily because it all is a direct-to-consumer business, right. And we have, we have complete control over what products we present in front of those consumers and they were already in the sweet spot of where consumers are today. The Brand Portfolio has to work through a number of things as more of our partners continue to open up their stores as they look at their business and how they develop their assortments and their plans. We're seeing many of our brand partners planning down in that 30% range, which is kind of where we're making sure we're planning as well. So, I think it's clear, at least for the next quarter or two, those are the kind of dynamics that you should expect I think from both segments of our business.

Your next question is from Rick Patel with Needham and Company.

Can you talk about comps for stores in markets that have been opened the longest. I'm just curious how things look on a year-over-year basis for that cohort of doors? And are you assuming that markets that reopen at a later time follow a similar path?

You know it's not so much the timing of the openings anymore because we kind of saw most of that happen through the month of June. It really is now what ended up happening Rick in late July, last couple of weeks of July we saw some of the markets being hit with the second impact of COVID, whether it was in the South or the West, and we saw that actually become the biggest issue, with respect to how the consumer was responding, particularly as it related to our brick and mortar. The good news is that we have not seen a decline in our e-commerce business. So, the business that we were capturing during the first and through the second quarter really appears to be holding. So now the question is as we get more information around when kids are going back to school, what ends up happening potentially with the stimulus checks and all that kind of thing, well we think it's going to help extend that back to school time period and we will not have though - we won't have and haven't had that peak, but we think it will extend through the third quarter, which is why there is so many variables, you can't judge right now market by market, it changes, you know some are up 50, some are down 50, some are up 3, some are down 10 and it's -- there is all different correlating factors. So it's really hard to find one, which is why we really try to projects through this and look at the full quarter and give you some kind of sense around down 15% to 20% is where we think this will all shake out.

And it seems that the strength that you've seen in digital has been sticky even in the face of new store openings, so I'm curious as that happens, how are you thinking longer-term about your store footprint and how many doors you should have over the long run?

Yes, we are constantly looking at that. It's a great question. You know and we have been really opening many fewer, in fact, we've had net closures really for the last couple of years, so we've been really focused on that. I know Molly and Ken and the team are looking at going market by market right now and looking at what kind of penetration of stores do we need with the growth that we're seeing in e-commerce and how do we optimize each of those markets, based on consumer acquisition and the thought process behind that. So we're sort of working our way through all of those markets ensuring that we're thinking about what that right footprint is and that right combination is. So, ongoing work on that, and I can see that happening really for quite some time.

And last question is around the Brand Portfolio. So, to what extent has this pandemic changed your thinking about the Brand Portfolio strategy going forward? In other words, given e-com has accelerated and you're finding you have genuine strength in the brands themselves, should we expect your focus to shift away from your traditional wholesale channels and more into a DTC model as we come out of this?

Yes, it's a good question. You know and - I think –there’s a couple of things that I think it's reinforced. I mean I think it's reinforced number one, that we feel really glad that we made the investment in the capabilities that we did over the last couple of years, specifically around our consumer fulfillment capabilities, because frankly, Rick, if we had not done that we would not be in a position to driving our digital business today. So, I think it confirms that. I think it confirmed that our brands do have a lot of consumer loyalty out there, and there is an opportunity for us to continue to figure out how to grow those. We know that the speed piece, and how we really think about inventory and how we buy inventory and flow it, in order to really drive turns, better generate more cash, and all of that, I think that had a profound impact on the way our teams are thinking about our businesses here. And I guess maybe the two last things about Brand Portfolio specifically, we really believe that and you can see in a lot of the data that came out in the second quarter that brands that have comfort properties, and we have a lot of them in our business, and we can even see the strength of Vionic. I mean that business was up 120% on their e-commerce business. Those brands that sort of speak to that are doing really well. So we think we really have to do even a better job of innovation and storytelling around what we're doing in our comfort brands. And then lastly, I think you're going to see us think about other new digital concepts. Sort of digital first concepts that take our Brand Portfolio and begin to present those to the consumer in new ways. So it's been a difficult time for everybody, but it's also been a time that really does challenge you and challenges some of the thinking that you have about what were the lanes of opportunity and I would tell you, I think we sort of - we feel really reenergized around what the potential might be here and it's not always just growth for topline sake. We think we are like at this point where we can really think about the quality of what we're doing in the earnings as we go forward here. So I think it's been - I think it's been a good thing for us. So just give you - it's a little flavor for some of the things we're thinking about.

Your next question is from Steve Marotta with CL King & Associates.

Diane in your initial remarks, you mentioned that back to school seem to be better in markets where the programs were finalized and the information there was even if it was digital, just sort of settling in the consumers head what is helpful. Am I reading into that properly?

Yes, no that's true. That it's - it's definitely post peak because we really peak as you know in the last two weeks of July, the first three weeks of August is really our key time period. And what we're seeing is, as it's more clearly defined in those markets about when they're going back to school, our business actually improves relative to where it had been, it's still not up to those peak levels Steve, but we see an improvement in that performance. So we see like even what I think today, they announced that New York schools were going back mid-September or something like that. In the Northeast right now for us has not been terrific really at all. So we think that as more of that clarity comes to the consumers mind that we expect to see our business continue to improve. We have no dilutions that is going back to that peak level or anything like that, which is why you know Ken and I both talked about that 15% to 20%, but we know that - actually, this could be healthy. It's a tough way, we have to go through it, but could be a healthy year thing long term that that there is more continuous buy now wear now and all of that as we go forward. So that's a little more color on that point.

Considering that digital commerce was so strong in the recent period, can you comment at all about your new customer file, how much of that has grown over the last year? During this period, how much additional data you're gathering on the customer?

Well, I can tell you that we normally get a pretty good slug of new consumers coming in, I'm speaking now for Famous, through our stores and digitally, but we actually found that a little over 90% of - we had 90% new customer shopping online. And a pretty good percentage of, and I'm doing this from memory, now a pretty good percentage of them continuing to stick and stay and shop from an omni-channel perspective. So new to online there were almost 94% increase over the customers we had last year. So now our job is obviously and a Molly and Marcy and the team are obviously always thinking about this, what do we have to do to attract, retain and grow. And this gives us a totally new base of consumers to begin to communicate with so. So, while we didn't, the stores weren't open, so there weren't a lot new to brick and mortar obviously, they were quite lot to new to online.

And then last question pertains to spring of '21. I know that this is really looking very far out, but considering the Branded Portfolio has a major wholesale component to it, can you talk a little bit about what you're seeing there from an open to buy dollar standpoint? I know, again it's preliminary, and I'm sure that retailers are holding it close to the vest and wanting deliveries later, but can you give us a little indication of how that process is flowing out for now?

Yes, I would say, it really is too early to tell. We had our first meetings in early August. And I think everybody is trying to figure out right now how to work through third quarter and fourth quarter. And what's that going to take, and in some cases inventories are pretty light. So what do we have to do to help support our partners with inventory of goods that are - is really working. So we're seeing a bit of that. I would say Steve that they are today still trying to figure out what they think the rest of the year is going to look like. I think they're going to plan very, very conservatively. We are not going to take any chances. We're going to make sure - we work to chase everything that we possibly can. We're going to continue to be very disciplined and very tight around the inventory that we buy. So I think the whole system is getting used to trying to figure out how to do what we need to do with much less inventory everywhere. So it's a little unclear how that will all shake out, right now for next year. But I would think somewhere in late September, will be when I have a pretty good view of what that's going to look like because we'll have a better feel of how we feel how we think fall 2020 is going and then that's going to be a very important indicator for spring '21 to. But we feel, again we feel like we're - we've got great relationships, we're working with the right folks. I think our capabilities, and as a company that we've built, they know that we can support them, we are well capitalized. So there is a lot of reasons why we're one of the go-to place going forward to work with our partners. So - but more on that as we learn a little more.

Your next question is from Sam Poser with Susquehanna.

This is Will on for Sam. I just wanted to ask, what impact do you believe that Nike's decision, I am not sure if you have seen to prune the - to prune some of their wholesale partners, what you think that is going to have on the Famous business? And are you seeing improved availability of product and improved allocations as they are pruning some of these partners?

Right. We have, thanks Will for the question, we have obviously heard about it and seen it and I know Nike has been working and thinking about this for quite some time about how do they prune their partners to some of the best. We do think it is definitely going to be an opportunity for Famous in the marketplace. I mean I think we did a quick calculation that was somewhere in the $300 million to $400 million of retail sales that we are potentially shifting around, arguably somewhere in that range anyway. And we think that we are very important strategic partner to them and so we do expect it to be advantageous for us over a period of time. And right now their business as you very know very well is very good, and our business with them is very good. So, hopefully a lot more to follow on that.

And then you mentioned you've expanded BOPIS to 600 stores. How much - can you give us a sense of how much BOPIS is a part of e-com? And what was the penetration of BOPIS of e-commerce business?

Yes, I think it traditionally - when we originally launched it we expected it to be upwards toward between 15% and 20% of our business. And so when we go through the buy online pickup in store, we also segregate out kind of that curbside so in - what Diane was referring to was really our curbside opportunities. Obviously, we can do buy online pickup in a mall, but it's a little bit harder to do the curb side in the mall.

And then I guess I think you said e-commerce business for Brand Portfolio was up 35%, is that just the owned websites or is that the - is that could drop ship to wholesale?

Yes. It's our owned e-commerce sites.

And then just one final for me. So you mentioned on the 1Q call about accelerating store closures 160 stores across this Famous fleet. How many doors, you're going to close in FY20? And are you still planning on opening any doors? I think you said 14 in 1Q?

I think we ended up opening like five in the second quarter and then obviously at Famous we were down 37 stores. So we were at 973 a year ago, we did include in my prepared remarks to share with you that year-over-year kind of what our sales were excluding those stores. The 37 that were permanently closed, but we're on track and continuing to close. I think we accelerated maybe 11 stores in the second quarter as a result of some of the COVID closures, but we continue to march down the path that we had laid out in last quarter's call.

So what's - so can you just give us kind of a range of what you expect of net closure for this year?

Ken is taking a look Will.

Okay, thank you.

We have got this year, I think the net number is going to be close to 35. And that assumes that that we open around 11. So we opened five stores at Famous Footwear in the second quarter and obviously we're looking at remaining ones on the grid. But that's got us closing this year about 46. And as I mentioned earlier, we've closed 37 in the second quarter over last year.

Your final question is from William Reuter with Bank of America.

I have a two part question. So with regard to your lead times for seasonal kind of cold weather footwear, I guess what are your lead times on the Branded Portfolio side and then on the Famous Footwear side? And I guess I'm just curious, based upon that this summer, it was fairly easy to go out and socially distance outside so seasonal footwear probably did well. It might be more challenging this winter, how you think about that in the context of when you're going to have to make decisions on the volume of inventory?

Yes, well we expect actually that whole category of waterproof boots, outdoor hiking and all of that to be actually pretty good category. Early reads on boots, it's very early, not necessarily in the performance side, but it is okay. Our lead times from a Brand Portfolio perspective would be somewhere around 90 days on goods that - on an item that we have already placed before and can turnaround - could turn it around in that period of time. For us to introduce something new, build something new today would take us closer to 120 days to really be able to do that. So on the Famous side, same kind of thing. They would have been placing goods in the spring for their holiday time period. They can typically augment it, you know if they really see something going well. I think everybody right now is trying to figure out how do they keep their inventories as lean as possible and try to respond as quickly. So we'll see, it's a good question, we'll see in that category how fast people can turn and respond to respond to changes as we go forward. But based on kind of how we're seeing the length of seasonal selling for sandals, we would expect that boots could really go into - let's assume that consumer keeps doing the same thing into March of this year. So keep your fingers crossed on that because it gives you more time to really responded and liquidate.

And then just my last question. Across different consumer products, whether it's apparel or footwear, I'm hearing of companies that are attempting to take less fashion risk in an effort to not be stuck with things and actually tightening their product assortment, which could have some benefits in terms of some efficiencies of manufacturing. Is that something which you would expect, you're going to be doing? And will that, more or less be a tailwind to gross margins?

Yes, I think so. I think the whole supply chain - sort of the development and the supply chain and the way people are buying is definitely all tightening up for sure. I think there's less development that's happening there, you have to be more focused. I think, how you place your assortments are much clearer and fewer. I think the flow of the inventory to is going to change quite a bit. So as opposed to selling in and selling it down, I think you're going to see more frequent flows of not only existing goods, but fresh inventory along the way. So all of that we think is going to be healthy. It will take a little while for the whole supply side to work through all that. But yes, we do think that's going to be a healthier for the overall margin profile of our business. It doesn't mean that the consumer doesn't want newness, because that is - they really do. Actually what we see is what is performing pretty well are some of the things that are new. So you got to keep injecting newness, but you've got to do it at a pace that allows the whole system to be able to digest that inventory. So, great question. I definitely think that think that will have a positive impact on our margins going forward.

There are no further questions at this time. Diane, I will turn the call back over to you for closing remarks.

Thank you very much everybody for your continued support of our company. We're excited about the progress that we've made. We think we're in a good position to continue to keep focused on, continuing to really add shareholder value here at Caleres. So thanks again. Talk to you soon. Bye now.

Ladies and gentlemen, this concludes today’s conference call. Thank you for participating. You may now disconnect.