Good morning. My name is Chris, and I'll be your conference operator today. [Operator Instructions] At this time, I'd like to welcome everyone to the Shoe Carnival 2021 Fourth Quarter Earnings Call. [Operator Instructions] Thank you, Mark Worden, President and Chief Executive Officer. You may begin.

Good morning, and welcome to Shoe Carnival's Fourth Quarter Earnings Conference Call. Joining me on today's call are Carl Scibetta, Chief Merchandising Officer; and Kerry Jackson, Chief Financial and Administrative Officer. I'd like to start by recognizing our team of nearly 6,000 members for their commitment, perseverance and their winning spirit demonstrated throughout 2021, and to our millions of loyal customers and new customers across the hundreds of communities we serve, we are thankful you selected Shoe Carnival for your family's footwear shopping experiences. I have the pleasure of opening today's call by reporting that Shoe Carnival generated more profit for our shareholders during 2021 than the prior 6 years combined. Furthermore, growth momentum remained very strong at Shoe Carnival. No doubt, 2021 presented a challenging macro environment. COVID-19 and supply chain disruptions required our exceptional merchandising team and operators to navigate ongoing complications. Inflation and a tight job market made it clear how essential our team members are and how important our commitment to invest in competitive wages, compelling benefits and long-term career growth is. One element was constant for Shoe Carnival every quarter in 2021. Our customers shopped in person at record levels. And when they did, the merchandise assortment delivered on their family footwear needs. Sales grew 36% for fiscal 2021 with every quarter growing double digit versus 2020. We were most encouraged with the sustained market share growth achieved as every quarter grew over 20% versus 2019, which we view as a more normal sales profile without the pandemic disruption in 2020. Millions of new customers experienced Shoe Carnival for the first time during 2020 after reopening our stores following the pandemic shutdown. Our team's 2021 focus was to leverage our advanced CRM and digital marketing capabilities to convert these new customers. The plans worked exceptionally…

Thanks very much, Mark. As Mark said, we are delighted to report our strongest ever fourth quarter as well as our best fiscal year ever. I will highlight several areas that were key to delivering our outstanding performance. The first is we are winning with loyalty and brand building. Through our ongoing investment in CRM, we understand our customers better than ever. This enables us to continue to execute our promotional strategy using data intelligence to drive customers into our stores and online. These targeted personalized promotions have been a key component of our innovative marketing plan. It has served us well since we implemented it over a year ago. Our best-in-class CRM is driving record sales and gross margins. And as we saw in the fourth quarter, it consistently drove higher customer acquisition, retention and reactivation all at the same time. With the use of the valuable consumer insights our CRM provides, we can leverage deeper engagement across both online and in-store channels. The stellar results we announced today are the strongest evidence to date our strategy is working. Secondly, is our unparalleled vendor relations. Our merchandise story is above all one of overcoming supply chain challenges through working with our vendors daily to minimize the disruptions being caused by the global supply chain issues. In this challenging environment, our vendors are highly selective with their inventory allocations, and many do not have the capacity to supply demand from retailers in the mall, department stores and discount stores. Customers want brands and they will go to retailers where they can reliably find those brands. Given our firmly embedded relationships with our vendor partners, we continue to stay stocked with a variety of depth, breadth of the hottest in-demand products. As a result, we are uniquely positioned to capture customers…

Thank you, Carl. It's exciting to share with you some financial highlights from the best fourth quarter and the best fiscal year in the company's history. We achieved a record fourth quarter with net sales of $313.4 million, an increase of $59.5 million or 23.4% compared to the fourth quarter of fiscal 2020. Comparable store sales increased 17.7% for the fourth quarter of fiscal 2021 compared to the prior year. Our brick-and-mortar comparable store sales were up 22.1% and e-commerce was mostly flat in the fourth quarter compared to the fourth quarter of 2020. Fourth quarter 2021 gross profit margin was 37.3%, a Q4 record high for Shoe Carnival and up more than 650 basis points compared to the fourth quarter of 2020, driven primarily by continued strength in our merchandise margins in the quarter. Excluding onetime acquisition costs, our Q4 gross profit margin was 37.6%. Buying, distribution and occupancy expenses decreased 140 basis points as a percentage of sales when compared to the fourth quarter of 2020 despite higher supply chain expense. These results clearly underscore the successful execution of our merchandising strategy highlighted by Mark and Carl earlier in the call. SG&A expenses increased by $21.3 million in the fourth quarter of fiscal 2021 to $88.9 million. As a percentage of net sales, these expenses increased to 28.4% compared to 26.6% in the fourth quarter fiscal 2020. Excluding onetime acquisition costs, SG&A expenses in Q4 were $85.7 million or 27.3% of net sales. The increase in adjusted SG&A was driven primarily by increased investments in advertising and store level wages. Operating income was $27.9 million or 8.9% of fourth quarter 2021 sales. In comparison, operating income was $10.6 million or 4.2% of sales in the prior year quarter. Adjusted operating income in Q4 was $32.2 million or 10.3%…

[Operator Instructions] Our first question is from Mitch Kummetz with Seaport.

Congratulations on the quarter and the year. I've got a few questions. You guys have referred to momentum through the first 6 weeks of Q1. I was hoping you might be able to quantify that. And I'd be most interested in knowing how that performance compares to the first 6 weeks of 2019, if you happen to have that?

This is Mark. Thank you for the congratulations. We're thrilled with the way last year concluded, and that momentum has carried into the first 6 weeks of fiscal 2022. We have great confidence based on the start that we can continue to grow and have a record 2022 this year, as we said, growing 4% to 7% revenue range. Specific to the first 6 weeks, we are seeing continued strength in store traffic and people coming out despite all of the macroeconomic things going on, and we're very comfortable that before we started lapsing the stimulus, we were seeing high single-digit type growth, Mitch, compared to the prior year.

Okay. That's helpful. And then, Mark, you kind of broke out the year, first half, second half in terms of the year-over-year. Sort of quick back-of-the-envelope math that I've done. Again, when I'm trying to compare this to 2019, which is the last pre-COVID year, that kind of implies high 20s growth in the first half, high 30s growth in the second half versus 2019. I can appreciate the lapping a stimulus on a year-over-year basis. But I'm kind of curious why more growth in the back half versus the first half when you compare it to that pre-COVID? Is that mainly kind of inflation and supply chain that's holding back the sales growth over the first half that you would expect to kind of be alleviated in the back half or is there something else going on?

Yes, you're right. Regarding versus prior year, it is purely the stimulus that's going to be a challenging headwind for retail for the next month or 2, and then we get into rapid growth once we start lapsing that. If you look 2 years back, no doubt the supply chain and inflation are challenging headwinds that everyone is facing at this moment in time, and we expect that to continue to be challenging for us to navigate. Our merchants, as we talked about last year, navigated it with astonishing nimbleness, and were able to secure the inventory we needed, had our stores well stocked when customers were there. And we have confidence we're going to do that again this year. However, compared to 2019, we're not immune to, there are delays in shipping. There are delays throughout the supply chain and inflation is causing consumer sentiment to be different than the 2019. With all that said, we have great confidence we get beyond that in the coming weeks as we head towards back-to-school. We're positioned very well to accelerate growth.

And then, Mark, you mentioned double-digit operating margin as kind of a new sustainable level for the company. That's up, I think, over 500 bps from where you were pre-COVID. Can you just talk about the structural changes that you've seen in the business that gets you to this new level? I mean I would imagine a pretty good piece of that is going to be the CRM and your ability to be more kind of targeted and strategic with your promotions. And if there's anything else that you might want to refer to, to help explain that lift in margins, whether that's market share gains that you've taken that helps with the fixed cost leverage. I mean, can you maybe kind of go through some of those components?

Sure. I'll highlight 3 of them that are key drivers. First is our investment to build advanced analytics and CRM capabilities, like you touched on. We're at this stage of gaining leverage from those systems we've been investing in for multiyears and gaining true fruit of it. We can target consumers effectively. We can promote far more profitably and still generate the top line we want. That's going to be a key contributor. Second, that capability and our merchants excellence has enabled us to eliminate the historical buy 1, get 1 half off and other deeply unprofitable promotions we used to do. Between those 2 key elements, we can sustain margins significantly higher, and Carl and Kerry can build on that. Third, the job environment is tighter than I've seen in my nearly 30 years. And we have made a conscious decision to invest in our employees, invest in compelling pay for them, invest in benefits and invest in career opportunities. And so I'm thrilled today to share that effective this year, all full-time employees at Shoe Carnival will be earning at minimum $15 per hour. And this is allowing us to invest in having the best talent we need in our stores, that customer-first mindset. So 2 major tailwinds from more analytics are helping increase our gross margin and then an investment in our people helps us win but also puts pressure on SG&A pulling down have some of the high results and that 49-plus percent return on equity we delivered this past year.

Our next question is from Sam Poser with Williams Trading.

Kerry, I was just wondering if you could just give us some details or Carl, on the sales -- on the sales increases by month or the same-store sales increases by month in the fourth quarter, given how there was some stimulus lapping in January?

Sam, it's Mark again. I can share that with you. Q4 was exceptional, delivering over 23% growth overall and over 17% comp. It was driven by holidays. We've never seen stronger holiday traffic. Consumers were flocking in person back to our bricks. And we saw over 20% comp growth for both the month of November and the month of December. Turning to January. That was the unknown when we spoke to everyone last that what would be the impact of not having the stimulus funds, which were in our consumers' hands the prior year. We had expected to have an over-20% sales decline in January and we're thrilled we far outperformed that. In fact, for the month of January, we had a mid-single-digit decline, again, beating our expectations by over 10%. It was a great learning for us too, Sam, to show us, we grew so many new customers and were able to talk to them with CRM that we've been able to grow market share during this past January, offsetting some of the stimulus money that was there last.

And then on number retailers within your markets are losing access to one of your large -- your largest vendor and others have closed. How -- but I've also heard that some of that may -- some of that product flow because goods are late isn't happening as quickly as anticipated. How do you foresee that helping or I won't say helping, impacting your business this year?

We talk about our store modernization plans exciting us and accelerating our plan to have the whole fleet accomplished. One of the things that consumers are gravitating to is our athletic shop-in-shops. And so this year, we have in flight another 100 -- 100-plus to be rolled out with the best brand that those consumers are shopping for across channels, and they're delighted when they can find them in our athletic shop-in-shops. The brand experience, the full price realization, the way that brands love seeing them come to life with a Shoe Carnival, we believe better than anyone in the channel. And so we're moving full steam ahead and plan to have the entire fleet have athletic shop-in shops by the end of fiscal 2024. Carl could build on our vendor base to how excited we are about that.

Sure. Sam, while we don't talk about individual vendors on the call, what I'll tell you is the top 5 athletic brands from 2021 produced 37% of the company's business. And in 2022, those same top 5 athletic brands are projected to equal the same 37% of the company's business.

And does that include the Shoe Station acquisition?

That includes -- those particular numbers are the Shoe Carnival. The Shoe Station acquisition carries -- stores carry a different merchandise mix with access to some of the other more premium running brands. And we don't see a change in the way they have historically been assorted.

And then your store opening plans to open 10-plus stores this year and 20-plus stores next year, can you give us details as to what the composition of that is between Shoe Station and Shoe Carnival? And prior to that, I know you don't plan to close -- I believe you said you're not going to close in new stores or don't plan to close any stores this year?

Yes, that's correct, Sam. So for 2022, we plan to add at least 10 stores, the lion's share of those will be Shoe Station. We will be adding Shoe Carnival, but the vast majority of this year will be Shoe Station as the real estate opportunities we see there are so exciting. The analytics we're just diving into or pointing into how we can explosively multiply that fleet number over the next few years. As we get into 2023 and 2024, we're pursuing growth at both banners. It's our aspiration to have double-digit net store count growth for both banners. We do see more opportunity for Shoe Station based on the mere size. It's a small footprint, and we have so many states we can bring this great new brand to. By 2024, it's our ambition to be 25-plus additions a year and we're incredibly energized. The only thing keeping us at those low levels is for a -- we're starting from scratch right now to get real estate. If more real estate becomes available, those numbers will go up as quickly.

And then lastly, when you acquired just Shoe Station, you said that you anticipate around $100 million in revenue in 2022 for Shoe Station, but I don't imagine that, that included opening as many stores as you're now opening. So is that $100 million still the number or has that number gone up? And then when we think about over the next 2 years, I mean, you're going to add (sic) [have] more than 50% store growth -- almost 100% store growth by the end of next year probably. So how should we think about that Shoe Station revenue?

Now that we're 3.5 months deeper into it, we have even more conviction with what we've acquired, this brand, the growth, the profitability we're so energized. You should think about this year as we will deliver what we said, the $100 million built in some thought of store growth and with where we are in the year, Sam, when we talk about those 10, most of those will be Q4 or towards the very tail end. So it will have limited impact on this year's sales and profits. But as we go into next year, that's where we can start to really ratchet it up. And you're right, you should think about what the numbers I've just said will more than double, potentially triple the store footprint for that banner within 2 to 3 years, and we will commensurately more than double the revenues of that banner in that same time. So...

And then last -- sorry, lastly, again, the sales -- the margin structure once you -- especially once you get the TRM all set up from a merchandise mix is theoretically better at Shoe Station than it is at Shoe Carnival because of there's less mix of a lower-margin athletic business. Is that a fair way to think about it as well?

It's fair to think about it? We see the margin and profitability structure lining up with the Shoe Carnival banner numbers that we've just guided to. We see them very similar. There's absolutely potential as we identify more synergies and get more into the buying and merchandising functions in the year ahead, there's actually more potential for that trend to drive higher operating margins and higher margins. But at minimum, we see it lining up with this new reset profit level for Shoe Carnival.

[Operator Instructions] The next question is from Jim Chartier with Monness, Crespi, Hardt.

I just wanted to follow up on some of the previous questions. Do you expect share gains related to Nike's exit from other retailers? And then the expectation for the penetration of your top 5 athletic brands being similar to last year. Is that due to stronger growth in nonathletic business this year?

Jim, it's Carl. We do see growth in both athletic and nonathletic for 2022. However, we do see growth at a higher rate in nonathletic than in athletic based on consumer trends, based on recent history and new fashion that has emerged in the non-athletic side of the business.

Okay. And then just, Kerry, what's the timing of the new store openings this year? How should we plan for that? And do you expect to close any stores?

No. As Mark said in his prepared remarks that we're done with our store closing program to improve the store profitability, with all stores on an ongoing basis, cash flow positive that we're very pleased and I think it was a quite successful. And on looking out this year, we're not anticipating closing the stores and including in '23 right now, we don't have any visibility on closing of stores. On the openings this year, we expect -- we just opened one for Shoe Station. So we'll have one in Q1. And then the rest of them is going to be in -- might have a store or 2 in Q3, but really it's going to be the Q4 where the store is going to open.

Okay. And then finally, in terms of the vendor mix between Shoe Carnival and Shoe Station, you mentioned some differences there. What are the opportunities to add some of the stronger Shoe Carnival brands to Shoe Station and vice versa? And then when would that opportunity play out?

Sure. Sure. Jim, we do see some synergies between the 2 businesses, and we plan to use the power of Shoe Carnival to help leverage and aid some of the purchasing for Shoe Station where appropriate. But as we have seen -- as we anticipated in this business, and it certainly has come to fruition for the short time we've operated them, they have a slight -- they have a different consumer. And their consumer is really more, I would say, targeted at what a department store consumer should be or department store consumer is based on the type of products they sell, based on the categories that drive their business. So while we see some synergies between the 2 and us being able to leverage the strength of Shoe Carnival purchasing power, there are some distinct differences between the 2 businesses. Not to say that to that with vendor support, we might try a few things, but the assortments have distinct differences targeted at a distinct customer and would continue that.

Our next question is from Mitch Kummetz with Seaport.

I just have a couple of quick follow-ups. Mark, on the remodels, I know it's -- you're early in the process, but could you maybe speak to the lift that you're seeing as you remodel those stores, whether it's productivity or margin or whatever metrics you can speak of?

We're seeing strong consumer feedback. Conversion is exceeding our expectations and comps are very strong. To be honest, it's hard to unpack within the strong growth we had to the 23% in the fourth quarter, the different elements. But anecdotally, it's driving all of those core metrics the right way. And most importantly, the profitability and contribution per square foot are ahead of our expectations.

Okay. Great. And then, Carl, you've spoken to the strength of nonathletic. Could you remind us kind of when that really started to kick in and how you think about the first half of this year, particularly around sandals? I don't recall how strong that business was for you last year. I know that can revolve around a lot of occasions, whether it's sort of Easter, Mother's Day, graduation, things like that. I'm kind of curious if you feel like there's an opportunity there versus last year even?

Sure, Mitch. We saw a change to more special occasion, dress up, go out kind of footwear starting mid-April last year. Fortunately, we were very well positioned with inventory, and we're able to take advantage of that for the majority of the second quarter. Now that inventory got depleted, and we have been aggressively chasing that. So I do see that opportunity first quarter this year being very strong. Second quarter as more social occasions, graduations, weddings, those things are happening, continuing through. And I see great opportunity in the second half of the year as we will be in a much better inventory position.

Our next question is from Sam Poser with Williams Trading.

Two things. One, where do you expect the store -- the Shoe Station stores, are you -- when you're looking at markets, are you looking at backfilling? Are you looking at new markets? Can you give us some color there?

Yes. We aim to grow rapidly in the Southeast market. We're starting first with the strategic strongholds that Shoe Station has in that Alabama and Mississippi, Georgia, Florida, Louisiana region. And the lion's share of our near-term growth will be bringing the brand to the consumers who already know and love them, but don't have access to them. From there, once we fill that in, we have the ability to expanding further. But the Southeast market remains the focus of these growth numbers we've talked about in the near term.

And then, Carl, I just want to make sure that you define athletic a little differently than some other retailers do. So can you provide a little color as to what does and does not work into your athletic businesses because there are certain brands and so on that I know other people categorize athletic and you do not?

I'll say this. No matter where we categorize it, the numbers I quoted you were the total brand, not necessarily what category we put that particular brand in. And we define athletic footwear as brands you could do a sport in, not a brand that is purely a fashion in and out.

So -- right. So for instance, the Nikes, the ASICS, the adidas, the Brooks, those are all athletic?

Correct.

And the Skechers is not, Vans and Converse are, is that the right way to think about it? I mean Skechers in general, they do have some running shoes.

In general, yes.

Okay. I just want -- because other people do categorize a lot of Skechers shoes in their athletic and you put it outside of it as well as other brands -- other...

Sam, I would say...

The influence brand.

I would say with that brand, that brand covers every bit in every category we have as a company from accessories to sandals, to athletic to men's, women. That brand is scattered throughout the entire building. And when I look at that brand, I only look at the piece of athletic that fits into athletic.

We have no further questions. At this time, I'll turn the call back to the presenters for any closing remarks.

Thank you all for joining Shoe Carnival today. Growth momentum is incredibly strong, and we are excited to put up another record year as we head forward throughout the quarter. Thank you all.

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