Good morning, and welcome to Shoe Carnival's Fourth Quarter 2023 Earnings Conference Call. Today's conference call is being recorded and is also being broadcast via webcast. Any reproduction or rebroadcast of any portion of this call is expressly prohibited. I would now like to introduce Mr. Steve Alexander with Shoe Carnival Investor Relations. Mr. Alexander, please go ahead.

Thank you, and good morning. Thanks for joining us today. Earlier this morning, we issued our earnings press release for the fourth quarter of 2023. If you need a copy of the release, it is available on our website in the Investors section. Joining me on today's call are Mark Worden, President and Chief Executive Officer of Shoe Carnival; Carl Scibetta, Chief Merchandising Officer; and Patrick Edwards, Chief Financial Officer. Management's remarks today may contain forward-looking statements that involve a number of risk factors. These risk factors could cause the company's actual results to be materially different 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 these 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. Today's call will reference non-GAAP measures. The non-GAAP or adjusted results referenced exclude the purchase accounting, merger, integration and transaction costs related to the acquisition of Rogan's shoes. A reconciliation of GAAP to non-GAAP result is included in this morning's release. And with that, I'll hand the call over to Mark.

Thank you, Steve, and good morning, everyone. I'd like to start today by thanking our 5,000 team members and vendor partners for their support in driving sales growth during the December holiday period and setting us up for accelerated sales growth in fiscal 2024. Let me also take this opportunity to welcome all our new team members from the Rogan Shoes acquisition announced last month. 1 month after the acquisition, it's abundantly clear to me why Rogan's is the market leader in the state of Wisconsin. Their assortment is compelling. Brands are spot on for the target customer and the long-tenured team has a deep commitment to their customers. This combination sets us up for significant profit growth and sales expansion ahead. Welcome, team. Before turning to 2024 growth expectations and guidance, I'll start with highlighting Q4 2023 results. First, our results were consistent with the preliminary financials announced in mid-February. We delivered net sales at the high end of our expectation with $280.2 million in the fourth quarter and $1.176 billion for the year. Excluding the transaction costs incurred in the fourth quarter related to Rogan's acquisition, adjusted EPS totaled $0.59 and was in the midrange of our expectations and adjusted EPS for the full year totaled $2.70. Sales during the December holiday period exceeded our expectations with strong gross profit delivery again, sustaining above 35% for the 12th consecutive quarter. We posted mid-single-digit sales growth during the holiday period with balanced growth across both banners. Our growth was driven by: #1, our new holiday marketing campaign, which surrounded customers during the 2 peak holiday weeks with a new slate of social, digital and influencer marketing. The message resonated with our core customer immediately. And #2, Carl's buying team rolled out a compelling holiday assortment with robust margins that…

Thank you, Mark. I would like to begin by setting up the customer backdrop during the quarter. Similar to previous quarters, the families of our customer continues to be cautious with their purchases. Our customers continue to focus on value and they are making more of their footwear purchases during event-driven periods such as the December holiday season this quarter. We saw this customer behavior play out in our results for Q4 and more specifically in our strong performance during the December holiday season. I'll provide more details on our category performance for the quarter later. But first, I would like to highlight our performance during the holiday season. As Mark discussed, our performance was strong as we built on the learnings from our successful back-to-school performance earlier in the year. Our strategy included a new holiday marketing campaign, which included social, digital and influencer messaging. We rolled out a compelling holiday assortment, providing exceptional value on key products and items that our customers wanted for their holiday gift list and our in-store execution was outstanding. All strategies that we are replicating successfully during tax refund season and early spring, and we will build on these strategies even further for Easter and back-to-school 2024. Our comp sales for the 2-week holiday period increased mid-single digits, led by total athletics, which were up low teens. Nonathletic also performed well, down only low single digits. Continuing with the December holiday season, we grew total children's low single digit. Our total men's category was flat to slightly up during the holiday period and total women's was down low single digits. Our marketing strategies drove demand. Our merchandise assortment modernize fully staffed stores and easy to shop e-commerce platforms provided the right backdrop for our customers to purchase during the holiday. Now moving to…

Thanks, Carl. Moving on to our financial results. Starting with top line, our net sales in Q4 were $280.2 million. This was down 3.6% versus the prior year. Net sales in the quarter were at the high end of our expectations, led by strong performance during the December holiday period and the benefit of the 53rd week in the quarter. On a banner basis, our Shoe Station banner, total sales for Q4 came in at a low teen increase versus the prior year on the strength of new stores and e-commerce sales, and our Shoe Carnival banner total sales came in at a mid-single-digit decline for the quarter. On a comparable store basis, which excludes the impact of the extra week in new store growth, company-wide sales were down 9.4% for fourth quarter and in line with our expectations. The lower sales were primarily driven by soft trends prior to the December holiday peak period and impacts from weather disruption, resulting in store closures for a couple of weeks across multiple geographies in January. As Mark and Carl discussed, our results during the peak December holiday period were strong with mid-single-digit comparable sales growth, led by athletics. Q4 gross profit margin was 35.6%, marking the 12th consecutive quarter that our gross profit margin has exceeded 35%. Compared to Q4 2022 gross profit margin was down 270 basis points, with merchandise margins decreasing 170 basis points, reflecting increased promotions on seasonal merchandise during the quarter. Buying distribution and occupancy costs were higher in the quarter, primarily due to increased rent associated with operating more stores, partially offset by lower freight and distribution costs. In the quarter, BD&O deleveraged 100 basis points on the lower sales. SG&A expense in Q4 was $79.7 million, representing a decrease of $2.9 million versus Q4 2022.…

[Operator Instructions] Your first question comes from the line of Mitch Kummetz with Seaport Research.

Yes. My first question has to do with the first quarter. I appreciate all the commentary around quarter-to-date sales and 1Q sales guidance. But given the acquisition of Rogan's, sales is apples to apples, can you say what the comp is quarter-to-date? And what comp is embedded in your Q1 guide? And then also on 1Q. You talked a little bit about the impact of weather and kind of how you see that going forward to the extent that maybe there's a little bit more cold weather coming? And then I do have a follow-up.

Mitch, it's Mark. So let me start with your sales growth for Q1 is achieved right in that low single-digit range. We're very encouraged. We started the spring campaign and [ tax miss ] campaign 3 weeks ago, activating the learnings from holiday and BTS and it's working very well. [ Well, for ] the last 3 weeks for the company have accelerated quickly. And specifically, we're in the high single-digit sales growth range for the 3 weeks since the campaign started, and it's accelerating even faster as we look into March as that weather turns favorable for spring sandal season. We're not disaggregating comps at this point, but I can give you a broad comment. All banners are growing in March. And we're very pleased with the strong growth acceleration in Shoe Station. Our e-commerce is accelerating like we had expected in our guidance. Rogan's is delivering, where we had hoped for our guidance. And I think everyone wants to hear what we're most pleased with, Shoe Carnival is accelerating rapidly. Shoe Carnival is also growing for the month of March, and we're seeing strong results in the campaign. So while we're not going to break out comps per se on a banner level, I hope that helps give commentary. Every part of the business is responding fast, favorably and in growth as we get into this campaign season. Regards to weather, we're confident in March. I mean we can't predict if we get a crazy snowstorm in the Upper Midwest, but our comps are easier in the March, April time frame versus a very challenging disappointing spring season last year. We expect March to be strong. As I said, we continue to accelerate sales in the high singles for the 3 weeks of the campaign and it's accelerated from there if I just look at the month of March. So we feel very confident in March. What will -- I think an important topic for all and I'll address it right now. What has given us a broad range in our comp from a down [ 3 to a plus 1 ]. We're still not clear yet if the consumer is going to be cautious as we get past the Easter early spring holiday season and the event period and until we get to back-to-school. So we have a wide range there, particularly on the Shoe Carnival banner as -- until we see how the consumer responds after this event, what will that look like. And that's really the 4-point range and that range is largely in Shoe Carnival.

That's helpful, Mark. And then my follow-up, maybe for Carl. Could you speak to the product pipeline in 2024? I think you made the comment that you're seeing a nice improvement in the athletic business. It sounds like sandals are off to a good start again. I don't know how much of that is weather versus the assortment? And then maybe talk a little bit about how you're thinking about boots in the back half, lapping some pretty poor performance this year. I don't know if you see that as an opportunity or if that's a category that you still want to be cautious around.

Mitch, we are -- in the athletic world, we have a nice flow of product coming in. We're receiving goods, new fresh products on time, in fact, early in some cases, and we're seeing some nice performance out of new categories or retro categories that our consumer is now watching on to. From a sandal standpoint, certainly, weather has helped early, but several categories have emerged quite well in that area, and we're pleased with what we're seeing there. And most definitely, my flow of product into the stores on a sandal perspective is much better than it was a year ago. It was not a little choppier a year ago with supply chain issues where that's all cleaned up and products are coming in as expected or early and flowing out nicely. Regarding boots, we're still cautious on boots. We need to see some freshness there, enough freshness that we feel will drive incremental boot sales over a year ago. So we're taking a cautious approach to that like we have in the past. We'll partner with our major boot vendors to make sure that there's supply if needed. But then there's also -- we also have an ability to move if we need to if we're not seeing performance. So we'll play boots next year the way we play in this year.

Our next question comes from the line of Jim Chartier with Monness, Crespi & Hardt.

There's a lower income consumer [indiscernible] the struggle for you, I believe, from most of last year, given kind of [ quarter delayed ] trends, can you decide whether kind of the improvement in the lower income versus higher income consumer Shoe Carnival banner?

Jim, it's Mark. First spring, we're seeing improvement across banners and across demographics. It's very encouraging. And the 2 things that are absolutely working across low income or high income, urban and suburban are the new approach to our marketing campaign. It's -- we're really surrounding people the social, digital and influencer and it's resonating quickly with Carl's fantastic slate of brands and new fresh value for providing -- working great across banners. The big question again and again, the range for our guidance, and we're still cautious is once we get past the spring season events, that's going to be the big learning we're going to have as we get into April and May, and we can provide more color when we get into reporting Q1 during May of what did it look like post event shopping for the lower-income consumer. But right now, everything is resonating strong growth across all banners are feeling really good about winning share with our plans during event season, we're waiting to learn and we have caution of what it's going to look like for nonevent season still.

And then within the marketing, given the [ response we're seeing ], is there opportunity to do more within marketing for back-to-school and holiday based on what you've seen so far?

Absolutely. Yes, absolutely. We're planning to replicate and increase for back-to-school. We had a good kids growth business in 2023. We plan to activate these plans and grow our ambition is not just kids growth, but we intend to grow back-to-school this year for the whole business is our goal. And holiday, we spoke [ at late minutes ]. We had a very good holiday season this year. We can do more because we were still testing and learning what did work, and so we can invest more for this upcoming holiday if it continues to work in back-to-school. So again, we have high confidence, our approach is working on event periods, and will be replicated and activated aggressively. We'll learn if that approach works in nonevent seasons. And if that does work, then we'll be able to provide an update in May on that progress.

Great. And then on inventory levels, you talked about [ reduced inventory ] further this year. Any specific categories where you feel like the inventory is still a little too high or which categories are you focused on reducing levels?

Well, Jim, it's Carl. We'll continue to drive inventory levels down at the end of the season on seasonal products to make sure we come out even cleaner than we have in the past. We're quite pleased where we came in this year in boots, inventories down about 30%. We think there's still some opportunity there, to continue to drive that business down -- I'm sorry, that was ending down. And then really, we are looking at all areas and we anticipate inventory improvements across the board, not that we have any particular area that is -- has an extremely high inventory level. It's pretty consistent across the company, but we think we can get efficiencies in all areas of the business.

Next question comes from the line of Sam Poser with Williams Trading.

I'm just wondering if you could give me some color on the store traffic that you saw in the fourth quarter, especially at Shoe Carnival and then sort of how -- what you're seeing now versus what -- how all these sales are being driven and what you're doing to drive more people or if you need to the Shoe Carnival store specifically? Because it sounds like your Shoe Station traffic [ is very decent ].

Sam, it's Patrick. With respect to the fourth quarter, it's [ not uncommon ] for our traffic pattern and match our comparable store sales, which were down 9.4%. Our overall traffic was in that same range of down 9% throughout the fourth quarter. With respect to going forward now, similarly, not surprising that our sales are up low to mid-single digits. Our traffic is also sort of trending in that same way.

Okay. And then Carl, you talked about -- I've got a double question here. Carl, you talked about athletic being strong in that, I guess, [ in that ] period. And it sounds like athletic you're still happy with it. Can you talk about what kind of things are working in athletic? And then separately, as you look at -- you talk about inventory, can you talk about sort of how you think about like narrowing -- maybe narrowing the mix going deeper on key items. You've always done that? And give us some idea how that might look versus 2023 sort of as we move through 2024.

Sure, Sam. On the athletic side, we're starting to see the customer respond to newness and freshness today, [ retro jogger ] kinds of products, the whole soccer category are really taking off with our consumer throughout the fourth quarter and until today, our business with court, our business with basketball and our business with performance running in our Shoe Station business continue to be very, very strong. But athletic right now is about newness and freshness and new categories. And our customers beginning to jump into those new sort of emerging new old categories that have come out. From a standpoint of inventory, sure we most definitely will continue to edit assortments, drive key items. We have a reliable flow of product coming in right now, and we feel that there's great opportunity to continue to drive key items. That's what we do very, very well. So we feel we're back to somewhat of a normal. We are back to a normal cycle. Our vendors are back to a normal cycle, and we will certainly move into what I believe, an exciting time from a product standpoint, driving key important items and brands.

And then one last thing just about the -- this timing shift. The -- it appears to me that you probably expect the comps to improve through the year. But because of the way you have the weeks comparing, again, back to this Q2, Q3 situation. Can you give us sort of how this works by quarter, like what the -- you said $25 million, I think, in Q3 was shifting to Q2, but you lose a small week at the beginning of Q2 and you gain a big week at the end. How does that affect Q1, Q2, Q3, and you lose, I guess, $15 million in Q4. But can you sort of walk through that and give us each quarter with how to think about just the dollar shift in and out of each quarter?

Sam, this is Patrick. You're correct. The meaningful impacts to be focused on is this large week that we have that moves out of Q3 and into Q2. That's the $25 million net week, not a gross weak, but that's the net amount that moves between the shifting of what moves in and what moves out. And then the $15 million that we lose in Q4 compared to 2023, those are the 2 meaningful elements of it in the quarterly shifts. Again, over both of those periods of time between Q2 and Q3, we would expect our sales growth to level out to that 4% to 6% growth rate that we have for the overall year. In Q4, that growth rate will be lower because we're losing that $15 million.

Right. I understand. But what I'm saying is that in Q2, so you're gaining a week that's bigger than $25 million, and then you're losing a week that's much smaller than that. And you're getting a -- you're netting that, but you're gaining like [ $30 million and then losing $5 million ] or whatever it is. Can you give us the plus and minus for each quarter? It would just really help being able to...

Sure. So I'll try it again in a different way. The impact on Q1 is not meaningful. The impact on Q2 will be plus $25 million, and the impact on Q3 will be minus $25 million. And then Q4 is roughly down $15 million.

Another question comes from the line of Mitch Kummetz with Seaport Research.

When I ask Sam's last question maybe a little bit differently. I want to focus on the EBIT. So starting with the 53rd week this -- in 2023, Patrick, you mentioned that was about $15 million in sales. What was the impact on EBIT? And then that 2Q, 3Q $25 million shift you're referencing, how does that sort of flow through to EBIT? Like how much EBIT is shifting from 3Q to 2Q?

Mitch, it's a great question. Our point of view on that, generally speaking, is each one of those sales dollars is roughly about $10 million -- or excuse me, is about 10% of operating income. So $15 million, $1.5 million-ish, something like that on operating income on -- before you get -- sorry, before you get down to operating income, it's probably going to be bigger than that. It's probably somewhere around half that number. So the $15 million is principally somewhere around half of that without any other effects.

I guess I didn't quite follow that. Because you said $1 million is about 10% and then you said something about half I didn't...

Sorry. Sorry, Mitch. Let me get your question again. It's down to an EBIT number. So it's 8% to 10% of the number. Like I said before, on operating income. Whenever we're pulling down to -- from revenues down to EBIT, it's about 8% to 10%.

Okay. And then on 2024, you mentioned that gross margin will be sort of flattish year-over-year. How does that sort of break out between merch margin and BD&O? I'm assuming maybe especially kind of given the comp level that those are probably sort of flattish as well? Is that how you're thinking about it?

Mitch, that's another good question. I can start to give -- provide a little bit of color and then have Mark pull back in a little bit. But with respect to our overall gross profit margin, we do see the capabilities of keeping this above 35% thing running for the entire year. We still need a little bit more clarity on the Rogan's acquisition and whether or not those stores will have some bit of impact. And as we move them into our process and our ability and into our distribution and supply chain. But overall, we see a margin that a gross profit margin that will stick and be even to the current year. I would say with respect to merchandise margin and our product margins associated with that, we still see strong product margins continuing into the current year, and those product margins is what drives our overall merchandise margin. So those will be flat. And then the concept of BD&O is also expected to be flat, but hopefully improving a little bit as we leverage some stores over some sales growth.

Okay. And then one last one for me. Just on the SG&A, it sounds like from a marketing standpoint, you guys seem to be seeing a lot of success with the new campaign. It sounds like you're not really -- for 2024, it doesn't sound like you're expecting to spend more from a percentage standpoint. You're just expecting to spend sort of better in terms of kind of how and when you're flowing those marketing dollars. Could you maybe just sort of elaborate on that?

This is Mark. Spot on Mitch. We tested and learned a significant shift out of traditional marketing vehicles like television, like print during BTS and then again, during holiday and into more effective targeted vehicles like digital, like social, like influencer. It worked as we shared, and we're going to do that again this year, having a significantly reduced investment in those traditional mediums that frankly weren't giving us great return and work delivering great traffic for us last year and shifting our funding to far more efficient, profitable tactics like I just mentioned. If we see it working in nonpeak seasons, we'll increase advertising investments and talk more about that in pursuant quarters if we decide to take SG&A higher if it's getting a strong return on ad spend. But right now, we've got the events loaded effectively and I think for a really good shape.

At this time, there are no other questions. So I will hand the call back over to management for closing remarks.

Thanks again for joining today's call. This is Steve. I'm around all day. So [ if you'd ] like to talk, please reach out to me. Thank you very much.

Ladies and gentlemen, this concludes today's conference call. You may now disconnect.