Good morning, and welcome to Shoe Carnival's Third Quarter 2021 Earnings Conference Call. Today's conference is being recorded. It is also being broadcast via webcast. Any reproduction or rebroadcast of this portion of the call is expressly prohibited. Management's remarks may contain forward-looking statements that involve a number of risk factors. These risk factors could cause the company's actual results to differ materially from those projected in such statements. Forward-looking statements should also be considered in conjunction with the discussion of risk factors included in the company's SEC filings and today's earnings press release. Investors are cautioned not to place undue reliance on those forward-looking statements, which speak only as of today's date. The company disclaims any obligation to update any of the risk factors or to publicly announce any revisions to the forward-looking statements discussed on today's conference call or contained in today's press release to reflect future events or developments. I'll now turn the conference over to Mr. Mark Worden, President and CEO of Shoe Carnival, for opening comments. Mr. Worden, you may begin.

It's an honor and a pleasure to welcome you to Shoe Carnival's Third Quarter Earnings Conference Call. My first as President and CEO of this great company. Those who know me from my prior roles as President and Chief Customer Officer, or previously as Chief Strategy Officer and Chief Marketing Officer, know how passionate I am about our brand. I'm so excited to lead during this pivotal point in our company's trajectory. As today, we report the best quarter of our best year in our entire 43-year history. And when I say best, I mean best, as measured by every relevant metric. We created more shareholder value during this quarter than in any prior full year. EPS and operating income are both up over 3x versus any prior Q3 result. Our dividend is up 58%. We split the stock in the last quarter. And as I sit here today, sales are up over $300 million year-to-date or over 41% growth. I'm thrilled to be leading our talented, resilient, dedicated team into a new growth phase, defined and driven by traits that made us an industry leader over the past 4 decades. We consistently offer the best product, customer experience and value in-store and online. If I had to pick a headline to tell the last quarter's story, it would be this, back to $1 billion brand. The pandemic briefly took that distinction away from us. And now we've got it back. How did we do it? First, customers resoundingly returned to shopping in person. Importantly, our accelerating growth is multichannel. We're hitting all-time highs with bricks and clicks. Some volume is ascribable to pent-up demand as kids got back-to-school, and team sports and others came in to pick up a new pair of fresh shoes for their first in-person fall…

Thanks very much, Mark. As Mark said, we are delighted to report the strongest ever quarter. I will now provide an update on 4 key factors driving our outstanding performance. First, we are leading the way with loyalty and brand building. Through our ongoing investment in CRM, we are able to understand our customer better than ever before and continue to execute on our focused promotional strategy by using data intelligence to drive customers in store and online with more personalized recommendations. This strategy has served us well since implementing it just over a year ago, driving record sales and gross margins. CRM is a vital part of our innovative marketing plan and has allowed us to facilitate personalized communication for our customers. Further, it provides us with valuable customer insights. These investments have been a catalyst for our outstanding results and market share gains over the past several quarters, with today the strongest evidence yet that our strategy is working. Second, our unparalleled vendor relationships. Supply chain challenges continue to impact our industry and many others. We are the partner of choice for vendors navigating supply chain volatility and are the first port of call when product comes in. Why? Well, some of our competitors were dialing back purchases and keeping inventories low because they were worried they get stuck with the surplus of goods. We did the opposite. We plan for growth in 2021 from a merchandising perspective. We planned for the best back-to-school season ever, and we got it. We were prepared and positioned to meet pent-up demand, and we did it. We got the right product at the right time due to strong vendor community relationships. Our vendors knew we had our heart in the business, and they allotted to us accordingly. Because we have the…

Thank you, Carl. It's time for me as the CFO to talk through results this good. So here we go. We achieved a third consecutive quarter of record-breaking net sales of $356.3 million for the fiscal 2021 third quarter, an increase of $81.7 million or 29.8% compared to the third quarter of fiscal 2020. Comparable store sales increased 30.1% for the third quarter of 2021 compared to the prior year. Our brick-and-mortar comparable store sales were up 32.8%, and e-commerce was up 12.5% in the third quarter of 2021 compared to the third quarter of 2020. Third quarter 2021 gross profit margin was 40.4% and near record high for Shoe Carnival and up more than 840 basis points compared to the third quarter of 2020, driven primarily by continued strength in our merchandise margins in the quarter. Buying, distribution and occupancy expenses decreased 170 basis points as a percentage of sales when compared to the third quarter of 2020 despite higher supply chain expense. These results clearly underscore the successful execution of our merchandise strategy highlighted by Mark and Carl earlier in the call. SG&A expenses increased by $14.0 million in the third quarter of fiscal 2021 to $81.6 million. As a percentage of net sales, these expenses decreased to 22.9% compared to 24.7% in the third quarter of fiscal 2020. The increase in SG&A was driven primarily by increased advertising expense as well as by higher employee compensation expense as a result of our continued record performance. However, the 180 basis point decrease in SG&A as a percentage of sales was a reflection of the outstanding sales growth we achieved during the quarter. Operating income was $62.4 million or 17.5% of third quarter 2021 sales, which is another record for the company. In the third quarter last year, operating…

[Operator Instructions] Your first question comes from the line of Sam Poser with Williams Trading.

I've got a handful here. Carl, you cut off at the end of your discussion there when you were talking about '22. I just wondered if you could just repeat what you said there? Because it totally went dark for, at least on my phone, for a bit there.

Sure, Sam. What I said was that we expect 2022 beginning inventories be up high teens versus 2021 and mid-singles versus 2020, and that the increase is mostly driven by increases in our athletic and men's inventories.

You talked about net store openings in '22. Can you give us some idea of what you're thinking there since you've opened that can up a little bit? And how we should think about that?

We're thrilled that as we enter 2022, all comp stores in the fleet will be cash flow positive. Our store productivity measures have exceeded our expectations. And with that, we're announcing today a return to net new store growth during 2022. We're not ready to give a full number, but we're confident that in 2022 it will start to ramp up during the year, and we're aiming to be back into a double-digit net store growth mode by the time we get to 2023.

So on a net basis, when you say double digit, you mean 10 stores or more or double digits as a percent?

10 stores or more is our aim as we get to 2023. We'll be ramping up towards that as we proceed through 2022. And as more good sites open up, we'll be pursuing growth as fast as we can close deals.

Okay. And then, Kerry, on the last call, you talked -- can you talk about how we should think -- it looks like you're going to hit around the 15% operating margin this year. How should we think about operating margin going forward outside of this year because there was a little bit of, I don't know how to put it, on the last earnings call regarding something that you alluded to?

Sam, like we've said before, we have changed the profitability perspective of the company. We're operating at a much higher level with higher sales productivity out of our stores and higher margins. While we're not going to go back to our '19 levels, we're not in a position yet really and talk about where we expect to be for next year. What we are focused on is continuing to deliver for this year with record sales for our fourth quarter and record earnings for the fourth quarter, leading into the highest sales and earnings in the company's history for this year.

All right. Well, then one more follow-up for you, Kerry. On the fourth quarter, you've been putting up gross margins in the 40% range all year. How should we think about the gross margin in Q4 relative to the whole year, and you've been beating last year and the year before handling year-to-date as well?

Well, we expect to continue to see gross profit margin improvement in Q4. It's not our most productive quarter, but we will see growth in there.

I understand. But I mean are we looking at 36%? Are we looking at 32%? Give us some ballpark here that's sort of baked into how you're thinking about your guidance right now?

We expect to see a significant growth in our margins in the fourth quarter as we've seen throughout the year. It isn't expected to be at the same run rate as we've seen in the first 3 quarters, but it's impressive growth on a year-over-year basis.

[Operator Instructions] Your next question comes from the line of Jim Chartier with Monness, Crespi, Hardt.

So first, it looks like -- I believe last quarter, you said comp sales were up 23% for the first 3 weeks of August relative to 2019. And then for the full quarter, you guys did 31% versus '19. So sales accelerated. Curious what drove that? And then any commentary on how fourth quarter has started out to date?

Our customers are resoundingly returning into our stores and our store traffic trend continues to be exceptional as we go into Q4. With that, the product that we have on hand and our strong staffing levels, we are confident Q4 will close at the best Q4 sales and the highest earnings we've ever delivered. And we couldn't be more excited with the return of live shopping into our fleet across our geographic footprint.

So would you attribute the acceleration to people being more comfortable returning to stores? Or were there some categories that maybe accelerated over the course of the quarter for you?

I'd say the key driver for us has been our accelerated investment in our CRM and engagement with new customers. We're bringing in, by droves, new people to the Shoe Carnival modern experience, whether it's their first time seeing that or they're retrying us after many years, and they're loving what they're seeing with the quarter delivering more customers converted than during any period prior. So I think, first and foremost, is what we're doing. Second, compared to last year, we're seeing consumers more confident to get out there to in-person shopping in our open strip centers and really having that experience of walking those bright, safe, modern shopping environments we provide them.

Great. And you talked about the new customer acquisition. Any way to kind of quantify for us how much of your growth maybe year-to-date versus 2019, has been driven by new customers versus existing customers?

I think the best point I could point to is our Shoe Perks loyalty membership, and that has surged to an all-time record, exceeding $28 million this year. And if you look at that on a year-over-year basis, we grew that by just about 3 million new customers into that group. We think new customer acquisition has been a key catalyst for our record year. And the big opportunity for us now is now that we can engage with them. Converting those into multi-purchase loyal consumers is a big opportunity for us in 2022 and the years ahead.

Great. And then you talked about a multibillion-dollar brand. You have to get to $2 billion, that's over 50% growth from where you're guiding this year. Any sense of what kind of time frame you're looking to get there?

We're signaling -- our ambition is to move into an aggressive decade of growth ahead, both in our current footprint as well as looking beyond that. We don't have a time frame on the exact number of years, but we want to be clear to say we're back in growth. And as we sit here today, growing over $300 million in sales with the profits in our guidance north of $5. We want to signal to the group that we are looking aggressively to expand and become a multibillion-dollar retailer in the years ahead. More to come on that also in the quarters ahead. But for now, we want to signal we're an aggressive growth mode again.

Great. And then would you consider acquisitions within the potential to get to a multibillion-dollar brand?

We're looking at the best way we can gain market share leadership in the markets we're in, whether that's organic growth or opportunities provide themselves through M&A activity. We're going to contemplate the best way for us to get to that multibillion-dollar leader of the family footwear with a value consumer.

Great. And then just the last question. Can you remind us what you believe kind of the store opportunity is for Shoe Carnival over time?

Sure. Well, near term, as I said to Sam earlier, we're going to get back into net store growth now that the entire fleet is forecast to be cash flow positive. So 2022, we'll get to net store growth. We will ramp that up rapidly into double-digit gains as we get into '23 and considerations beyond. Not putting a long-term target for store count out there today, but we are intending to significantly expand our store count in the years ahead.

[Operator Instructions] There are no further questions at this time. I will now turn the call back over to Mr. Mark Worden, Chief Executive Officer.

I'd like to thank you all for, again, your interest in Shoe Carnival and joining us today, and we wish you all a very happy holiday season ahead. Looking forward to talking to you again soon.

Ladies and gentlemen, thank you for your participation. This concludes today's conference call. You may now disconnect.