Good morning, and welcome to Shoe Carnival's Third Quarter 2024 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 third quarter of 2024. 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 a 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 measures 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 results 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. Before discussing results for the quarter, I would like to start today by thanking all our team members for their hard work and tireless dedication. As a result of the devastating hurricanes, Helene and Milton, the lives of both our employees and our customers were dramatically impacted. Importantly, all our team members are now safe and accounted for, and we are fortunate that we did not suffer meaningful damage to our stores. We are grateful for both outcomes. And thank you, team. Moving now to our results. I'm so proud of the profitability the team achieved in the quarter. We delivered third-quarter adjusted EPS of $0.71, which was in line with our expectations shared earlier this year. On a year-to-date basis, adjusted EPS totaled $2.19, an increase of 3.8% versus the prior year. Gross profit margin in the quarter was 36%, exceeding 35% for the fifteenth consecutive quarter. We achieved year-to-date net sales of $939.9 million, an increase of 4.9%, and year-to-date adjusted operating income of $78.4 million, an increase of 6.6% versus the prior year and growing faster than sales. The key drivers of our third-quarter profit delivery included a very strong back-to-school performance with comparable store sales growth across our banners, efficiencies in our digital-first marketing approach, the addition of Rogan's in February 2024, and the rapid progress testing our store rebanner strategy, which I will discuss in a few moments. From a top-line perspective, Rogan's continued to deliver in line with our expectations. And from a profit perspective, we further accelerated the Rogan's integration timeline and began capturing significant profit synergies in the third quarter, a full six months ahead of our previous schedule, which was to begin capturing synergies in fiscal 2025. The synergy capture in the quarter was…

I would now like to take a few moments to discuss two core growth strategies that support our vision to be the nation's leading family footwear retailer. One of those core strategies is profitable M&A activity. Rogan's, which we acquired in February 2024, continues to deliver top-line results in line with our expectations. And as I discussed earlier, we achieved full run-rate synergies in the quarter, six months faster than we anticipated. With integration largely complete and full synergies now being captured, the team is turning to building out our Shoe Perks CRM program in the Rogan stores, which we just rolled out, and are mining customer data for new growth opportunities in the years ahead. Shoe Station, which we acquired in December 2021, continues to deliver strong sales growth year over year since the acquisition, along with profitable results that are accretive to our bottom line. In addition to being a profitable acquisition, the Shoe Station brand, product assortment, and in-store shopping experience make Shoe Station a key component of a second core growth strategy, which is to grow our existing business. One of the primary focus areas in this strategy is to evaluate data on community characteristics, purchasing trends, product assortment, and mix at a store level. As part of that analysis, we have defined existing Shoe Carnival locations where the customer and real estate characteristics are better aligned with Shoe Station. As I discussed on our last call, we rebannered three stores from Carnival to Station during the second quarter in the core Station markets of Alabama and Mississippi. The results were very encouraging, surpassing our expectations early on and continuing to do so in the third quarter. During the third quarter, we expanded the testing of this strategy by rebannering seven more stores, bringing the total…

Thank you, Mark. I appreciate your kind words and have very much enjoyed working with you and the team over the last decade. And I look forward to closing out the year strong. As you discussed, we delivered a strong back-to-school season with comparable store sales growth led by mid to high single-digit growth in children's and athletics. In September and October, sales slowed as the two hurricanes disrupted our business and impacted our customers. The weather also remained persistently warm in October, resulting in a boot season that was delayed out of the third quarter. From a category perspective, athletics performed well, growing low single digits in the quarter with growth in women's and children's, partially offset by a decline in men's. In the third quarter, which historically has represented about one-third of our entire winter boot season, we were down over 35% in the month of October and over 30% in the third quarter with declines in women's, men's, and children's. In the quarter, we again delivered a gross profit margin above 35% for the fifteenth consecutive quarter, and we remain committed to our targeted CRM strategies to continue delivering sustained gross profit margin performance. Our merchandise margins in the quarter increased by approximately 50 basis points versus the prior year, and on a year-to-date basis, our merchandise margins are even with the prior year. Inventory at the end of the quarter totaled $406.6 million, an increase of $38.3 million versus the prior year, primarily reflecting the impacts of the Rogan's acquisition in February 2024. Excluding the impacts from Rogan's, our merchandise inventory at the end of Q3 was lower by approximately 1% on a dollar basis than the prior year, and on a unit basis, merchandise inventory was down approximately 3% versus the prior year. Now moving…

Thanks, Carl. Moving on to our financial results. We were pleased to deliver EPS in line with expectations for the quarter and grow our year-to-date top line and EPS compared to the prior year. As a reminder, the fifty-third week in fiscal 2023 will not recur in fiscal 2024. And as a result, the retail calendar weeks in each quarter shift in 2024 as compared to the prior year. This shift benefited second-quarter net sales by approximately $20 million and unfavorably impacted our third quarter by approximately $20 million. On a year-to-date basis, comparisons to the prior year now incorporate material elements of the shift between these two quarters. In the third quarter, net sales totaled $306.9 million, down $13 million compared to the prior year, or 4.1%. This decrease was due to the $20 million retail calendar shift. In the quarter, net sales otherwise increased $7 million or 2.2% compared to Q3 last year. On a year-to-date basis, which now includes the material impacts of the retail calendar shift, net sales totaled $939.9 million, an increase of 4.9% versus the prior year. Now going into a little more detail on the top line in the quarter. Net sales were led by strong back-to-school performance and comparable store sales growth across our banners in August. Net sales in the quarter were also favorably impacted by Rogan's, which we acquired in mid-February of this year. I'll discuss Rogan's sales activity and integration successes in more detail in a moment. Net sales in September and October were significantly impacted by the two hurricanes that disrupted many of our store operations and customer shopping trends. Net sales were also negatively impacted by persistently warm weather that delayed a meaningful start to the winter boot shopping season out of the third quarter. On a…

Thank you. If you have a question, please press star one on your telephone keypad. Simply press star one again. In the interest of time, we ask that you please limit yourself to one question and one follow-up. Our first question comes from the line of Mitchel Kummetz with Seaport Research Partners. Please go ahead.

Yes. Thanks for taking my questions. And, Carl, congrats, and best of luck to you. And, unfortunately, I'm going to break your rule about one question and one follow-up. I've got maybe a handful here. So let me start. Just Mark, on the hurricanes, is there any way to quantify the sales impact from those two hurricanes? And I'm curious, have you seen any, you know, replacement buying kick in of late as far as those impacted markets? That's my first question.

Good morning, Mitch. Thanks for the question. When you look at the losses, I think Patrick summed it up well. About half of our loss came from that persistently warm weather and boot decline, with boots down over 35% specifically in the month of October. The other half, not all of it, but most of the other half would come from the hurricane disruption we had from about half of our fleet during the hurricane Helene and Milton. So roughly half and half.

And then how about replacement buying? Anything there? Are you seeing any benefit from that?

We have not yet. You know, we still believe as the weather turns cold, people will be rethinking about the lost boots, the lost product that they suffered during some of these catastrophic storms in the South. So we remain optimistic that once it gets colder, and people really start to pivot from recovery mode, which they've been in for the last, you know, six to eight weeks, to starting to think about more joyful things. The holiday, time with families together. They'll start to think about repurchase and things they need to do. You know, whether they lost that dress shoe, so they can go to a special Thanksgiving next week or holiday gifting. We think that is ahead of us. We remain optimistic, as you could see in our guidance, that a profitable quarter remains ahead of us.

And then on boots, obviously, a slow start as you've detailed. What is your expectation for the fourth quarter? And Carl, I'm curious. Do you see any pent-up demand potentially benefiting you in the fourth quarter, given the slow start? Or is that just lost business?

Hi, Mitch. We certainly believe there's some pent-up demand that's going to come our way in the fourth quarter. However, we don't see any recovery from the lost business in Q3. And while we are planning Q4 in our guidance, we are still planning boots down and managing that boot inventory down in Q4, much less than we did in Q3, but we do not see any recovery nor do we see boots turning positive in the quarter.

Mitch, I'm not real quick to Mark. Quite, you know, we're only a couple of weeks in, so I can't share how the holiday's going to play out. But that persistent warm weather I spoke about, it continued to now. So boots have not started to turn to that positive place we expect it coming. And while we're no weather forecasters, cold weather is coming. Winter is coming, and we do anticipate growth then. But you know, as you all know, the highly accretive margin capture was not made in these early weeks. And so that's going to make it very unlikely it's a record boot season. It will be strong, but it's getting shorter by the week before it kicks in.

And it sounds like your boot inventory coming out of Q3 is in pretty good shape. And I'm guessing that as we're early in Q4, you've been able to kind of continue to work down those receipts as the weather hasn't cooperated?

Sure. Sure, Mitch. The team did a great job planning the boot season out, holding back on some recent Q4 receipts so they can get a good glimpse at what was going to happen. That, on top of the fact that our partners have really come to the table and helped us. We believe we're going to be in great boot position coming out of the quarter. And we're in a great position to take advantage of what's remaining in the season right now. So very pleased with the way the team managed this. They did an outstanding job handling the boot season this year.

Okay. And then a couple last ones. Maybe sort of big picture on the sales guide. It looks like the low end of the range is down $30 million, and that would seem to factor in Q3 coming in about $13 million below plan, which would suggest that, you know, maybe the fourth quarter is looking about $17 million worse than prior expectations. First of all, I don't know if you want to confirm my math, but I guess more so, you know, what's changed in terms of your outlook for Q4 versus sort of prior expectations and how much of that is, you know, what you're seeing quarter to date with boots?

Yes, Mitch. We anticipate, you know, the mid to low side of the guidance being likely. The big change you've characterized it accurately, we're building into the lower side of the revenue forecast that persistently warm weather has continued through today as we speak, and so the boot season is getting shorter and shorter for positive impacts and revenue impacts. We've built that in to say it turns, but it hasn't turned yet. But I want to reiterate if boots really kick in next week when the holiday season starts in earnest, the mid to upper side of our guide remains squarely in reach. And if we have a great holiday, we have great confidence that we have in our sights the profit delivery.

And then, Mark, maybe lastly on the rebanner, I know you're still super early in the process, but is there anything that you're seeing now that you've moved outside of Alabama in terms of the performance of the rebannered stores, Alabama versus, you know, non-Alabama?

Yes. Thank you. We are very excited about this for a long-term growth strategy. The first test, inclusive of the ten stores, showed us explosive results in markets where the Shoe Station brand is known. We were operating Shoe Carnival far stronger than plus 10% sales and profit. As we get further away and we're building brand awareness, we're still seeing very strong results with over 10% sales and profit. But now we're starting to enter new markets, like the state of Tennessee. We're very excited. We've just rebannered two stores in the state of Tennessee and opened a new one. And progressing in earnest in 2025 with rebannering in Tennessee. They're still showing promising results as well. But our expectation is we get further and further away from the mothership of Core Alabama, we get closer and closer to our success criteria, which is in that plus 3% to 5% sales and profit range. We're still doing better than that now, but as we branch further and further into those new states I mentioned, we would anticipate things get incredibly profitable, strong leverage, and a significant outperform compared to, say, the Shoe Carnival low to mid-single comp declines are flipping that dramatically. But I would set the stage as for these early learning, the 3% to 5% range is probably a more likely anticipation. We hope to beat it. A lot more to learn when we rebanner 25 more in all these new markets during Q1. But it is a big winner so far.

Great. Thanks, and good luck for the holiday.

Thank you, and happy holiday to you, Mitch.

Our next question comes from the line of Sam Poser with Williams Trading. Please go ahead.

Good morning. Thank you for taking my question. I just want to verify one thing and then ask another question. Did you say on prior earnings calls that Rogan's was expected to do $84 million? Is that, has Rogan's guidance changed, or is it just a, are you wording it differently?

Hi, Sam. Good morning. We have said that. There's no change. It's still over $80 million. We still expect it to deliver that.

Thank you. And then your inventory levels are higher than I anticipated going into the quarter, taking into account. When we get to the end of the year, what's it going to look like? And have any of the inventory receipts or planned receipts going forward been impacted by the potential for tariffs? And I also want to know what your thoughts are about tariffs within your mix and how you're thinking about that going into 2025.

Hey, Sam. It's Patrick. I'll take the first part of your question about our inventory balance and pass it off to Carl to talk about tariffs. Our inventory balance, we expect it, it's right now, it's 3% down on a unit basis, 1% down on a dollar basis. We do see current reductions in that by the time we get to the end of the year. But that balance reduction won't be as great as previously disclosed. This rebanner strategy that we're very excited about requires us to carry a little bit more inventory and invest in those hot brands that Shoe Station sells and having them ready for rebannering these 25 stores in the first quarter requires us to carry a little bit more inventory at year-end.

Sam, on the tariff front, no. It seems to be the topic of conversation at every vendor appointment we have. We're watching it closely. We direct import, you know, ourselves a very small percentage of our own inventory. So we'll see how that gets affected. And how the vendors, if indeed the tariffs come across at whatever they come, we'll have to be very careful about pricing to our consumer, and certainly look at where products are being made and how we can best provide the value that our consumers are used to at this point. But at this point, we're like everybody else. We're watching it very carefully. And we will adjust where we need to, but most importantly, continue to attempt to deliver value to our customers.

What percent exposure of your purchases or sales, however you want to talk about it, do you have to China right now?

The percentage of our own imports from China, I'm talking about total. I'm talking about total, like from the brand. You know, Sam, I don't have that number. I would say it's less than 50% because the majority of the athletic product is coming out of countries other than China, and I would say on the non-athletic side, it's probably 60/40 in China. But as you put it all together, it'll be less than 50%.

Thanks. And congratulations, Carl. We're going to miss you.

Thanks, Sam.

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

Hi. Good morning. Thanks for taking my question. So it looks like your SG&A is coming down about $5 million from where it had previously. In addition to the, you know, the Rogan synergies and some advertising savings, what are the other key components of that?

Hey, Jim. It's Patrick Edwards. You're spot on on the synergy concepts, and you're spot on on the digital-first marketing strategy, the flexibility that it brings. Those are the two and really only variables that we were able to press on in the quarter in order to do that expense management synergy capture to bring our EPS in line with our expectations.

And is that the same kind of component for the fourth quarter? Any SG&A savings in the fourth quarter would be those two components as well?

Yeah. Sure, Jim. The fourth quarter, obviously, there's a wide range on sales, plus or minus $30 million, I believe. So we are able to manage those two levers reasonably well, especially the advertising. When demand is there, we're going to ramp that up. And if we see weak demand during non-event periods, like we did this quarter, we'll be less in the market with our advertising.

Okay. And then in terms of the rebanner opportunity, how many stores kind of fit the Shoe Station profile from a demographic and then store size standpoint?

Hey, Jim. It's Mark. We don't know how wide the legs to the strategy go yet. We know it's resonating across the South. Now we're going to push that limit further into these new states, further and further where the brand is not known. The next 25 stores that we complete in the first half of next year will help us answer that question. I can give you one thing. We're very confident that we're going to have over 100 Shoe Station stores near term and ahead of what we previously disclosed as a 2028 objective. Rebannering is rapidly accelerating that expectation, and as we get into guidance next year, we'll be able to be far more explicit as we get into these new states. But we see the opportunity as significant. We see the opportunity as potential to go beyond just Alabama and Mississippi profitably. And we're going to learn by, you know, early next year if this thing has legs to go beyond, you know, those core markets into new places like Kentucky, the Carolinas, Atlanta, and even further beyond that. Don't have those answers yet, but we're excited with what it is delivering so far.

Great. Thank you, and, Carl, best of luck to you.

Thanks, Jim.

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

Thanks for joining the call today. We're available all day if you have any follow-up questions, and I'd like to quickly hand it over to Mark as well.

Hi. As we wrap up 2024, I just want to take a moment to wish all of you and your families a happy holiday. I hope you have a safe and enjoyable time ahead, and we thank you so much for your time spent getting to know Shoe Carnival. Spending time with us in person, in NDRs, on the road, or wherever we may have joined you, it's just been a call. Best wishes from Shoe Carnival to all of you.

This concludes today's conference call. Thank you all for your participation. You may now disconnect.