Good afternoon, and welcome to the Caleres Third Quarter Earnings Conference Call. My name is Erica, and I will be your conference coordinator. [Operator Instructions] Please be advised that today's conference is being recorded. [Operator Instructions] At this time, I will like to turn the call over to Logan Bonacorsi, Vice President of Investor Relations. Please go ahead.

Good afternoon. I would like to thank you for joining our third quarter 2021 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 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. During today's discussion, unless otherwise noted, our comparisons will be primarily in relation to the third quarter of 2019. We believe this to be a more comparable time period for most of our key metrics due to the pandemic-related pressures that impacted the third quarter of 2020. Joining me on the call today is Diane Sullivan, Chairman and CEO; and Ken Hannah, Senior Vice President and CFO; and Jay Schmidt, our President. We will begin the call with brief prepared remarks and thereafter, we will be happy to take your questions. I'd now like to turn the call over to Diane. Diane?

Thanks, Logan. And good afternoon, everyone. And thank you for joining us on today's call. I'm thrilled to report that the positive consumer demand dynamics that reemerged earlier this year continued during the third quarter. These trends were powered by a return to a more normal back-to-school buying activity, accelerated holiday shopping, and the ongoing momentum from the great economic reopening. In short, the footwear consumer is strong, healthy, and motivated. Caleres capitalized on this robust consumer demand achieving another exceptional operating performance during the quarter, while navigating the persistent challenges we are all facing in the global supply chain. I'm extremely proud of how our team has continued to deliver through the ongoing volatility, never losing focus on the variables within our control and driving forward with our strategic priorities. As a result of our strong performance during the first nine months of the year and our expectations for ongoing momentum for the remainder of 2021, we are raising our full year earnings outlook. We now expect record adjusted earnings per share of between $3.80 and $3.90 for fiscal year 2021, up from the initial guidance range of $3.25 to $3.50. Among the many highlights for the third quarter, we achieved another record, quarterly operating earnings of $81 million and adjusted earnings per share of a $1.59. We generated $784 million in revenue, nearly matching our third quarter 2019 performance. We captured a strong consolidated gross margin of approximately 43%, a 241 basis point improvement over the same period two years ago. And we drove forward with our digital first initiatives to attract new maintained current and reactivate previous consumers across our entire portfolio of brands. In addition to our strong execution, we continue to further our strategic priorities, invest in our diversified portfolio to support our long-term growth…

Thanks, Diane. The progress we have made during 2021, both from an operational and a financial perspective is significant. Based on this strong progress, we believe we are well-positioned to close the year in record fashion and head into 2022 with excellent momentum. I'm particularly pleased with the fact that we've continued to drive forward with our efforts to strengthen the balance sheet. As you will recall, early in the pandemic, our total debt peaked at $640 million. However, since that time we've systematically reduce it by $365 million in just six quarters. And the remaining $275 million of debt on our balance sheet is all classified as short-term. Even in the third quarter, we were building cash in advance of making the final payment on the Blowfish Malibu acquisition, we were able to reduce debt by another $25 million. In addition to our debt reduction, we've also renegotiated the terms of our revolving credit facility during the quarter. The terms, which now more accurately reflect our significantly improved capital structure, positive business trends and rapid recovery in the footwear market have been restored to pre-COVID terms, including a five-year extension of the facility's maturity date and a reduction in the borrowing rate. As highlighted on our last call, we elected to call $100 million of our outstanding senior notes in August of 2021. In addition we've since notified our bond holders, that we will be calling remaining $100 million of senior notes in January of 2022. We expect these collective actions to reduce our interest expense by approximately $12 million annually going forward. Now let's talk about a few of our financial metrics in a bit more detail. As Diane highlighted. For the third quarter, we delivered $784.2 million in sales, which was only 1% below 2019 levels and…

[Operator Instructions] Your first question comes from the line of Laura Champine with Loop Capital.

Congratulations on a great quarter and record guidance. It's particularly the gross margin levels at Famous are really exciting. I'm guessing they're not sustainable though, because at some point I would guess that inventory flows normalized, what do you think is a normalized gross margin level for Famous?

Laura, I think if we – if we go forward, we look at Q3, we typically would be in a BOGO situation, we chose not to run BOGO this year. As we get into holiday, given the current supply situation, I mean, we'll likely not have a lot of holiday promotions going on. I mean, I think that, we're buying as though, we're going to continue full price selling and certainly I think we're all enjoying the benefits of that certainly has had a really nice impact on our P&L. So it's really going to come down to, as we move forward and the supply chain starts to work out kind of what are the levels of promotion that are going to be baked into the calendar. As we sit here today, we don't have a lot baked-in in the foreseeable future. And I think we'll look to put some very specific guidance around kind of how we see 2022 specifically from a margin standpoint when we're back together in March.

Understood. Would you contemplate not running BOGO next year too? Do you think the industry will be disciplined enough to let you do that?

Hi, Laura, it's Diane. I think that we're going to be in this environment of tighter supply for quite some time. And I think we're really focused as you could hear about making sure we have that inventory against those really important brands and styles, so that Top 10 that I spoke to. So we're really going to make sure that we're focusing that inventory against the brands and the styles that we think are the most important. So that is something that we're making sure that we do. We had always thought that there was an opportunity for us to improve our productivity and our turn and while sure would we have wanted a few more shoes, maybe this year we've learned, I think through this pandemic a lot about what – what the possibility is. And we don't really see any reason why we would want to go back. If we can live in a full price selling world, we're going to – we're going to certainly do that. So we feel pretty strongly about that because we think that's healthy all the way around.

Makes sense to me. Thanks so much.

All right. Thanks Laura.

[Operator Instructions] Your next question comes from the line of Steve Marotta with CL King & Associates.

Good evening, Diane, Ken, Jay and Logan. Thank you for taking my question, Diane. I know that you don't specifically provide order book guidance, but can you talk a little bit about what you were seeing on the branded portfolio side from an order book? How far out our wholesale customers taking orders and maybe talk a little bit about the cadence of next year and how confident you are in the order book and the delivery schedule? Thanks.

Yes. Okay. Thanks. Thanks Steve. Yes. We are if they continue the order book continues to get better and better. Not only I think because of the, obviously the strength of many of the brands in the portfolio, but as people are placing orders a little bit earlier, so we have pretty good visibility right now and our order position looks great. I would say through most of spring we have right now, and we're now in taking orders for really summer. So all of that – where all of that seems to be good and as it feels like we're exactly where we need to be. And as you could see with what we talked about with respect to even our inventories in transit, those in transit inventories also speak to the strength of the on order that we see as we turn the corner into spring of 2022 as well. So I think we're in very good shape. Jay, I don't know if you have anything else that you would want to add on that?

No, I think that says that we're up significantly from 2020 and we're moving back toward levels where we want to be and in the lead asset brands.

Good. Okay. Steve is that good.

Very helpful. And I know that you're not providing guidance for next year, but maybe you can talk a little bit about inflationary pressures that you're seeing on a consolidated basis. I understand there's a lot of moving parts between ocean freight, as well as raw materials, labor, the whole Shebang. But maybe you can talk a little bit about what you're seeing and Diane with the exception of price increases, which you've mentioned. You mentioned a few other potential offsets. Maybe you can talk about those as well? Thanks.

Yes. Yes. Okay. Yes. Well, of course we are, everybody is looking at price increases and I think we had had mentioned at even at our last call that we're taking price increases going into spring of 2022, and expected for them on average that those increase would be somewhere retail in the range of 15%. So those are in place and are part of the plan going forward. I think the biggest – biggest impact is we discussed was the ocean freight costs really. We're seeing some input costs and product too, and the teams are managing through that, doing whatever we need to do, taking price increases, reworking things, but basically we're very confident we can manage through those input cost issues. The transportation ones and the ocean freight costs have been the biggest impact. We don't expect that they're going to stay at the current rates where they're at. They're going to moderate at some point in time during 2022, and it's hard to know Steve exactly when that's going to be. But as we work through our plans and our guidance for 2022, we'll take that into – into account, but don't really think that will – that will remain at the current levels. And I think the last thing I'd say is what I'm really hoping for is that this the delay in the lead times within the supply chain is somehow gets smoothed out because right now, we're trying to get product to consumers today. It almost every step of the way is taking a little longer than what everybody had expected. So whether it's even coming out of our distribution centers and getting through our customers, warehouses, it's taking longer than ever. So as much as the cost, it's really back to some kind of normalized speed and operating time to service the customer, I think is our biggest hope. And fortunately, in our DCS and even as we're getting our products to stores at famous footwear, we have been fortunate that we haven't had any delays at all. We're getting once we get goods in, we're getting them out in a week to our stores at famous. So actually everything is operating very, very nicely within the network that, that we can control. So managing through it and like having to be agile, just like we had to be this year, you deal with the cards you dealt with and you make the most of it and we feel highly confident that we've got the plans in place sooner, doing the right sort of things to continue this momentum that the company has.

That's great. Very helpful. One last question, Ken of the $12 million net is expected to be saved on an annualized basis from interest expense. How much is captured in 2021, and by extension I'm asking what the delta would be expected for 2022? Thank you.

All right, Steve. Yes, we captured a little bit since we renegotiated the credit facility in the third quarter, and then we called that first – first, not. So it's really the 12 million is starting from August when we called the first 100 kind of going forward. So just on an annualized basis, so we'll get a little bit of that in the fourth quarter.

Very helpful. Thank you. Best of luck.

Yes. Thanks, Steve.

[Operator Instructions] At this time there are no further questions. I'll turn the call back over to Diane Sullivan for any closing remarks.

Thanks. Thank you as always for your interest and support of our company. As we round out 2021, and its robust consumer demand dynamics continue to accelerate. We really fully expect the ongoing recovery in the brand portfolio to be and increasingly strong compliment to the ongoing success at Famous Footwear in the quarters ahead. And I can just tell, tell you that this team is all in and doing everything to power and harness this momentum and capitalize on everything as we move into 2022. So thanks so much. Appreciate it. Have a nice holiday season.