Good morning, and welcome to Shoe Carnival's First Quarter 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. 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 all 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. I will now turn the conference over to Mr. Mark Worden, President and CEO of Shoe Carnival for opening remarks. Mr. Worden, you may begin.

Good morning, everyone, and thank you for joining us today for the Shoe Carnival's First Quarter 2025 Earnings Conference Call. Joining me on today's call are Patrick Edwards, Chief Financial Officer; and [ Tony Gordon], Chief Merchandising Officer. The company's first quarter 2025 results were better than expected with profits outperforming expectations by approximately 10%, our [ rebanner ] expansion plans delivering outstanding results and our debt-free balance sheet getting even stronger. Given the volatility in the market and high levels of uncertainty, the teams are navigating, I'm very pleased with our position as we start the second quarter. As I may be a contrarian on this next statement but I'm starting to feel cautiously optimistic about back-to-school as we have a compelling assortment in hand and our product costs have not skyrocketed. I would like to thank our vendor partners for their close collaboration and our merchant organization under [ Tania's ] leadership for their tireless work, ensuring we have our best foot forward for customers during back-to-school. Our Q1 financial results landed squarely within our annual guidance ranges. We have not yet experienced nor do we have visibility to any massive product cost or price increases outside of ranges considered in our guidance. This could evolve, but that is the situation now. Our singular corporate focus is to be the nation's leading footwear retailer for families. We operate no wholesale businesses and this has us in a comparatively solid and flexible stamps to shift our [indiscernible], does not mean [indiscernible] price volatility. However, we enjoy a superior position compared to our competitors for 2 reasons. First, we do not have direct manufacturing exposure. Second, were not locked into our own production commitments that could force uncompetitive decisions. Additionally, our debt-free balance sheet with expanded cash reserves compared to…

Thank you, Mark, and good morning, everyone. I'm pleased to report that despite the challenging [ macroeconomic ] and retail environment, our first quarter profits outperformed market expectations by approximately 10%. While our costs are down compared to last year, this reflects our deliberate decision to invest in the rebanner initiative that Mark just outlined, a choice that is already showing promising returns through Shoe Station's exceptional performance and our continued balance sheet strength. Our first quarter net income was $9.3 million or $0.34 per diluted share which exceeded analyst consensus despite being lower than the $17.3 million or $0.63 per diluted share we reported in Q1 of fiscal 2024. This year-over-year decrease primarily reflects the planned investments in the rebanner initiative that we estimated $0.15 in the quarter and the broader industry headwinds that Mark described. The encouraging story behind our better-than-expected profit performance is the early success we are seeing with Shoe Station. As Mark highlighted, while the broader family footwear industry declined, Shoe Station achieved sales growth of 4.9% and was comp positive in the quarter. The impact goes beyond just sales. Our rebannered stores showed meaningful product margin improvement compared to their performance at Shoe Carnival locations. These accretive product margins generated by the rebanner strategy, inclusive of rebannered stores contributed to our increased merchandise margin in the quarter. Store level profit contribution was also up double digits, inclusive of ongoing amortization of the new CapEx investments and normal advertising costs. These early phase outcomes are compelling and in line with the modeling we discussed last quarter that supports a 2- to 3-year payback of the P&L investment we are making this year. This rebanner strategy is the best use of capital in our current portfolio of opportunities, and these results strongly support acceleration of the…

Thank you, Patrick. Before we open the call for questions, I want to emphasize the key takeaways that I believe are most important about our first quarter results and strategic direction. First, our Shoe Station growth approach is working and working exceptionally well. The rebanner initiative has consistently yielded double-digit sales growth and accretive merchants across diverse market types. This isn't just a regional success story limited to the [ Gulf ] states. We're seeing this performance in suburban markets, rural communities and even in areas with more diverse demographics. The data is compelling and provides us with the confidence to accelerate this transformation. Second, we're implementing a disciplined approach to capital allocation. As Patrick outlined, the 2- to 3-year payback period on our rebanner investments makes this the best use of our capital. We're making these investments from a position of financial strength, with growing cash reserves and 0 debt, allowing us to pursue both organic growth and potential M&A opportunities when the right valuation presents itself. Third, we're executing inventory decisions that provide both defensive protection and offensive opportunity. In the current uncertain environment, we've secured key products at favorable cost, ensuring we'll be in stock for our customers while potentially benefiting from margin expansion if costs rise. Importantly, we've managed to increase inventory while simultaneously growing our cash position, a testament to our disciplined financial management. Fourth, while industry-wide pressures continue to affect the lower income consumer, we're seeing encouraging signals in our business. Shoe Station's consistent superior performance demonstrates that our premium offering resonates with customers who remain willing to spend on quality branded footwear. The early success of our rebanner initiative in diverse markets together's broader appeal for the Shoe Station concept than we initially anticipated. Finally, I want to emphasize that we're building for the long term while producing near-term results. Our profits outperformed expectations this quarter despite deliberate investments in our future. We believe the aggressive acceleration of our rebanner initiative puts us on a path to generate total company comparable store growth starting in Q3 of 2026, with Shoe Station representing over 80% of our store base by March 2027. This is a pivotal moment for our company as we transform from a traditional family footwear retailer to a premium-focused national leader in footwear. Our strong balance sheet, proven rebanner playbook and experienced leadership team position us well to execute this vision despite the challenging environment. With that, we'd be happy to take your questions. Operator, please open the line up for Q&A.

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

I guess I have 2 top of mind. Number one, with the decision with the decision to expand Shoe Station stores is -- more quickly. Is this really a situation where you're seeing the outperformance there? You're also looking at the competitive set because if I think of Shoe Carnival goes up against some other [indiscernible] names, the [ show Rack Room], famous Footwear, [ poles, maybe few sensation, while ] and then [ DSW ] to a degree. But then you have Shoe Station that goes more directly up against, let's say, a [ DSW ] and a Nordstrom Rack and while it does compete to some degree with those others, it's less though. So this can be more of a stand-alone situation and then looking at the private -- our private label, private brand exposure there. As you mentioned, you really don't have a wholesale component of your business either. So I mean, how much of that sort of do you think is forming the outperformance and then informing the decisions that you're making?

Sam, it's Mark. Thanks for that great question. I think you characterized it well, and I [indiscernible] thought. For Shoe Station, we see a lot of white space nationally where the competitive set is not completely fulfilling what that higher end customer wants. And when we looked at it, we really see that the moderate -- so the moderate department store is really where we've seen that person looking for a place to shop and that off-mall large square foot store with higher-end premium brand performance running, women's is an unmet need that we are seeing, whether it's rural, Tennessee or coastal Florida or as we move through Carolina, the unmet need is really capturing new customers at an exciting rate. So thanks for the question. I think you characterized Carnival spot on too. I think that absolutely is the competitive set, the traditional family footwear. Station is a different animal, higher end, going after white space that we see national over the decade ahead.

I just want to follow up real quick. You mentioned Patrick, when you were going through the -- you mentioned that dress shoes did well in Shoe Station. Do you think that, that -- I mean, is that really a mark of the same? Is that just another one of sort of -- is that another part of that proof point?

Sam, it's Mark. I'm going to grab that. Absolutely. I think we offer to our customers address an assortment that's very hard to curate in any of the competitive set. Those competitors you mentioned would be the competitive set as well as the mall department stores. But [indiscernible] team's got a spectacular women's and men's dress category with exciting brands, high AURs and profitable margins. And that is a great competitive advantage to be able to get nonathletic dress or nonathletic period with the best athletic brand all under one house of brands. Thank you. Two great questions.

Okay. And then lastly, speaking of athletic, one of your competitors is getting the Jordan brand and I had thought that sort of Shoe Carnival was probably more of a natural fit there. But -- and it appears that they have it exclusive for this year. Is that something we're going to see in the mix next year, and I'll just point this right to [ Tania ] so she can -- welcome aboard and good luck and [indiscernible] misses you on the [ beach ] somewhere.

I'm going to grab that. That is a great brand, which we do not offer today. As always, Sam, we're not going to share forward-looking brand information with our competitors on the line, but I'll share 2 things. We are focused on the hottest category and athletics right now, which is performance running and have the best-in-class brands new assortments coming for back-to-school, and we're going to be able to continue with that double-digit growth trend I talked about a little earlier. Second, and I'm not going to answer it, but here's how I'm going to answer it for you. Our merchant team is always working to add the brands our customers want most. I have no doubt they will secure new brands before fiscal end.

[Operator Instructions] Our next question comes from the line of Mitch Kummetz with Seaport Research Partners.

I think I got maybe a handful here. So I hope you'll indulge me. Mark, on the rebannering examples, you provided, especially the 3 that were kind of rural, lower income, how instructive are those initial results to how those locations might perform on a forward basis? I'm just curious, was there any kind of unusual marketing that was put behind those rebannerings. I'm wondering if maybe the consumers in those markets were kind of attracted to something new in the area? Like is there anything about the initial results that you wouldn't think would continue as the stores are in those locations like the further down the road we go?

I thought one that I didn't talk about, but I can build on that. We're just starting to lap the stores we did last year. And so last year, we had a store in rural America that just did outstanding and got us invigorated to do more and more stores. It's comping up again as we're in year 2 without significant activity going on. And we read that as an incredibly encouraging thing that it grew double digit in its first year, capturing new customers with the new assortments and higher [ AURs ] and in year 2, it was able to sustain that. Hey, it's early, and we've got a lot more stores we'll keep evaluating, but we thought that was encouraging. Second, in the Tennessee or Florida example, it's really looking at the competitive set and that we have that unique offering. Like Sam asked, it really is setting a white space where unless you want to go to an A or B mall where you could find similar nonathletic products, or, say, it's exporting goods where they have outstanding, of course, athletics. We offer all of that stuff under one building. So you don't have to go to a mall and then to a exporting goods. I can come straight to our place and get both of those things. So those are early learnings. We're going to learn a lot more as we do the full [ $75 million ] this year, and we get towards, well, above 51% at minimum by back-to-school next year.

Yes. And then maybe for Patrick. I'm trying to understand the rebanner impact on the P&L for next year. I mean, so this year, from an earnings standpoint, it's a $0.65 drag on 75 stores. It looks to me that next year you're going to be 2x plus in terms of the rebannerings. So should we think of like $1.30 negative drag on EPS? And I would imagine there is some offset to that as you then you're pulling the $0.65 drag out of the business this year and the next year plus you get the benefit of the performance of the rebanner stores like how should I think of it? I think prior to this acceleration like next year kind of looks like they might just be sort of a wash. But now I would think rebanners are going to be a drag on next year's earnings. Is that fair?

Mitch, thanks for the question. We're really excited about the 10% revenue growth that we saw last year on these rebanners and we're excited this year as we continue to see the double-digit growth in sales that Mark talked about and seeing down the P&L, store level profit contributions also increase. And we pointed to the 2- to 3-year payback period and our results early on in this process are continuing to support that. With respect to next year, we've got a number out on the street that was $22 million to $27 million of P&L investment and that was to rebanner approximately 100 stores over the entire horizon through March of 2027. That number has now been accelerated where we would expect to spend those sort of dollars by the end of Q2 in advance of back-to-school now to meet that 51% goal that we had. So you're correct. All of that -- all of those costs that we've disclosed previously have been accelerated into the first 2 quarters. With respect to what happens in Q3 and Q4 and into Q1 of next year, we don't exactly have all of those costs identified and planned out through our process yet. So there's still work for us to do on that front and additional information that we'll provide at a later date. But we do anticipate that there will be more cost beyond the $22 million to $27 million that we've disclosed.

Got it. That's helpful. you guys provided sales and earnings gross margin guide. I'm curious if there's anything you can say in terms of kind of what comp is embedded in that sales range? Is there anything you can say about kind of performance quarter-to-date?

Mitch, I would think through that guidance as a similar comp expectations with Carnival performing poorly, like it has been and Shoe Station outperforming at similar rates we've just disclosed is our baseline assumption.

Okay. And then, Mark, I know you don't want to talk about brands necessarily, but you -- in your prepared remarks, you talked about some exciting addition of assortments and in response to Sam's question. You talked about on the performance running side, some new product for back-to-school. So I mean, is it fair to say that in terms of what you're the brands that you're adding for back-to-school, they're all on the Shoe Station side. Is that correct?

That's what I'm most excited about to see our continued strength, and that's our focus, of course, as we progressed towards 80% or over 80% of the company being station. We're focused on building those relationships with the world's best friends, ensuring we have all those world's best brands. Some we don't have today. But [ Tanya ] is aggressively scouring and meeting with people across all coasts over the last few weeks, learning, seeing what excites are getting ready to go.

And then I guess lastly on the tariff side. Obviously, you guys haven't changed your guidance. I think in your prepared remarks, Mark, you said something like you haven't experienced any cost increases outside of the guide. That being said, versus when you provided that initial guidance, we're now looking at a 30% China tariff versus 20%, and we're now looking at a 10% universal tariff, which I believe didn't exist when you provided the initial guidance. So is there essentially no change at all in your thinking around tariffs in terms of kind of the -- what vendor pricing might look like as you get further into the year, I know you guys brought a lot of inventory in early, but -- I mean, so no change at all? Or is there anything more you can say there?

I'm going to be a contrarian here. I feel really optimistic about how this is playing out. And in the longer term, you have jobs coming to America is a good thing for our footwear in the long term. In the short term, near term, comparatively, as I said in my prepared remarks, we're not a wholesaler. So comparatively, we're in a great position with what we do, with what we control, and [indiscernible] is doing a fantastic job working with our partners to help them get some things in here opportunistically. Our balance sheet is very strong. And with our cash position, [indiscernible] I have taken a position of let's bring in key brands, key products right to the second at attractive prices and have been continuing to do so, whether that's for [ BTS ] or boots or sandals next year. Great products at great prices are things I like a lot. So I feel good about all that. As I said in my prepared remarks, and of course, I don't -- we're not naive. The vendors have to sort through a myriad of changing fluid things. To date, we've had nothing that surprised us. That could change tomorrow. This is very fluid. But as I said here and said that much, we've seen no cost or price change that materially impact how we think about the shape of the year, how we think about back-to-school or how we have a great relationship with any particular partner. So I feel cautiously optimistic. The one thing that we don't have a good read on is consumer sentiment, right? Cost and price isn't what's spooking us. What is concerning is the endless barrage of the world is ending in the media, and we keep hearing that. It's a very small segment of our Shoe Carnival customer that is pulling back. our Shoe Station customer is expanding. And so we feel good, but consumer sentiment going into back-to-school is the one big question mark that we'll learn a lot more about.

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

Could you talked about trends during the first quarter, how did March, April compared to February? And then what is kind of the 2Q guidance [indiscernible] assume? Does it assume the trend for March, April continues or gets better or worse?

Jim, it's Mark again. Yes, February was tough. As I said, we didn't see an exciting tax this season this year. As March, April, we look at those combined, we think it's silly logic for people to separate that as Easter shift later and call victory. We've said March, April combined was okay. Again, the trends we talked about weren't materially different across Carnival did poorly across the months. Station was exciting. Rogan's delivered just as we thought. So we didn't have a real material trend. Yes, March, April was better with the holiday there, but nothing I would pound our chest on about exciting consumer sentiment or trends other than what we've said about station. Nothing to share early May. We haven't seen any major changes in that. So I'm going to ask [ Tania ] to maybe just build on sharing your sandals perspective on the first couple of months. So the team could hear -- hello to our new Chief [indiscernible].

Yes, sure. Thanks, Mark. So just to speak to sandals, which compromises a big portion of our women's business, it was a little softer than we initially planned. However, last year was our best sandal -- our best sandal season that we've had in the history of the company, at least since I've been here, and that's 11 years of sandal season. So I really -- I went back and looked at the 2-year stack. And based on the 2-year stack, we were up low double digits. So that makes me pretty happy sitting here today. So I feel good that the sandal trend, the seasonal trend is really normalizing and we've gotten -- we've enjoyed some increased AURs and increased margins in the sandal category. So we feel good about that.

Our next question is a follow-up from the line of Sam Poser with Williams Trading.

Real quick, you've guided the full year to be down or up 2%. And then you called out that -- and basically, your comp and your sales growth totaled pretty close. You also said that you anticipate that year-over-year sales will start to be up in Q3 '26. How do you get -- I mean, how do you foresee you even get to this high end of the trend this year? Or are we most likely looking at a down 2% to 4% comp situation where Q4 could be up because you have -- you'll have all those conversions up and you've got a holiday with more Shoe Station stores open and so on, and that could offset on lessening weakness at the [indiscernible].

Clear, Sam. So Mark, again, we see the pace moderating as the 2 things you laid out happened, more Shoe Station percent of total fleet continued success on that. And that starts to dampen the continued negative results we expect on Carnival. We foresee that when we get 51% of the fleet being Shoe Station that Q3 2026 becomes a pivotal moment where we go comp positive, and we can't wait to get there. In the back half of the year, you're right, -- so things have to go our way for the sales to hit the high end of our guidance. It's not implicit. But if things were to go our way with back-to-school season being not just a market share gain, which we expect but a consumer sentiment helps us, we can start to see moderating trends [indiscernible] in Q3 with potential for even better in Q4. That's not our expectation, implicit in the mid-zone. But is it possible? Absolutely, as we have very strong market share growth plans that we are confident about for [ BCS], holiday and into next year. But I would think about it more like you said, that mid- to lower end of the range is the right way to think about the sales. And I think I addressed it Shoe Carnival was very much on the low end of our expectations during the start of the year, anticipate that likely doesn't change.

And then secondly, what -- like can you talk about your use of private label, both at Shoe Carnival and how -- and what's going on with the private label product that you have at Shoe Station? It's like -- it appears to be a promotional vehicle on key items at Shoe Carnival. I'm wondering what that percent is and then how do you utilize it at Station.

I think we're very small percent under 10% is private label and smaller than that. You didn't ask it and a very small percent of any exposure to the high [ power country risk]. So it's almost de minimis. We do see a unique role for having private label and Shoe Station to provide women's nonathletic uniqueness and traffic driving activity as we continue to develop that. So we're excited about what it can play but let's make no mistake. We are a house of brands. Shoe Station is a house of the best brands. That's our vision. And private label will be a small place fill in maybe a price point, maybe a promotional point or something unique. So we will have the best brands at high AURs and robust margins at Shoe Station.

Our final question is a follow-up from the line of Mitch Kummetz with Seaport Research Partners.

Mark, you made the comment that you will be evaluating whether or not it makes sense for Shoe Station to become 100% of the total business. When I kind of do my math on store count, assuming that the 429 sort of stays for 29 over the next couple of years, Rogan stays around 28 can you grow Station to be 80% of the total. That puts Carnival down to like around 60 stores or somewhere in that neighborhood. I don't know if you're going to [indiscernible] the math, but if that is somewhat correct, does it make sense for Shoe Carnival to be a 60 store concept? And if it at that level, it seems like it would have to be very concentrated within just a few days, I wouldn't think that it would make sense to have like 60-ish stores over 20-something states across the U.S. Can you say anything along about that?

Yes, happy to, Mitch. So your math not wrong, it would be under 100 stores for the Shoe Carnival banner by the time you get to March 2027 on this announcement. So that's accurate. And you're right, there will be significant synergy, internal efficiencies that can be gained if we learn that the Shoe Carnival banner, customers can better be served by Shoe Station in those particularly urban markets concentrated with lower-income diverse households. And we believe it is a high possibility it can, but we don't have to proof points for me to say it today, and I don't want to get ahead of myself. But I want to be real transparent. I like the potential synergies that could come from that. We are going to answer that question with in market data to see if that's the right path for our customers and shareholders. I hope that is the outcome that the data shows us because that leads to an even more profitable 2027 and beyond for our corporation. But I don't know now. We'll take the steps to do that at the latest by early 2026. And if opportunity presents towards the end of this fiscal year, we might get an early start in trying to learn that. So great question, more to come after back-to-school.

And that will conclude our question-and-answer session. And I will now hand the call back over to Mark Worden for closing remarks.

Thank you for your questions and joining us today. I hope you can hear we are incredibly excited about our news that Shoe Station is working incredibly well with customers, our partners and our stakeholders, and we are accelerating this to be the largest portion of our corporation and we believe the fastest growing. It's our path back to comp growth as we get into the back half of '26 and profit accretion is on the horizon as we look at '27. It's a big investment now, but it's absolutely the right thing as we pursue being the leading family footwear across America. I want to take the chance again to welcome [ Tanya ] to our leadership team. So excited to have her here and for all of you to get to know her. So wishing you all a great summer, and talk to you after back-to-school.

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