Transcript
Good afternoon, and welcome to Shoe Carnival's Fourth Quarter and Fiscal Year 2020 Earnings Conference Call. Today's conference is being recorded. It is also being broadcast via webcast. Any reproduction or rebroadcast of any portion of this call is expressly prohibited. Management's remarks may contain forward-looking statements that involve a number of risk factors. These risk factors could cause the company's actual results to 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 announce any revisions to the forward-looking statements discussed on today's conference call or contained in today's press release to reflect future events or developments. I'll now turn the conference call over to Mr. Cliff Sifford, Vice Chairman and CEO of Shoe Carnival for opening comments. Mr. Sifford, you may begin.
Thank you, and welcome to Shoe Carnival's 2020 Fourth Quarter and Fiscal Year Earnings Conference Call. Joining me on the call today are Mark Worden, President and incoming Chief Executive Officer; Carl Scibetta, Senior Executive Vice President, Chief Merchandising Officer; and Kerry Jackson, Senior Executive Vice President, Chief Financial and Administrative Officer. As you saw last week, we announced that I will be transitioning to the Vice Chairman role on September 30 of this year; and Mark Worden, currently President and Chief Customer Officer, will succeed me as President and Chief Executive Officer. On today's call, I want to focus my comments primarily on this transition, which has been well planned and marks a new and exciting chapter for our company. I have always had complete confidence in our team throughout your organization. Our stores are run by the most tenured management team in the shoe business. They open the doors every morning as if they're opening their own business. They have passion and skills, which creates an unstoppable combination. We have built the best merchant team in the shoe business, made up of tenured professionals who have industry-leading institutional knowledge of our customers and how they shop. Our management team on every level also has a tremendous track record and passion for the success of this unique concept. This announcement is a culmination of a multiyear succession plan we established when Mark joined the company in 2018, which was aimed at ensuring a seamless transition of leadership. This is critical as we position the company to continue our strong track record of financial and operational performance, while at the same time, maintaining our commitment to our employees, customers, vendors and shareholders. Mark and I have worked closely together over the last several years, and his clear passion for our concept and vision for this business gives me great confidence in his ability to lead Shoe Carnival into our next chapter. His strategic direction, deep knowledge of our customers and unwavering commitment to our employees make him the perfect fit for the job. He has been instrumental in the company's growth since the day we started in 2018. So I transition to Vice Chairman with unwavering confidence that Shoe Carnival will not miss a beat, and I have tremendous confidence that Mark will take Shoe Carnival to new heights. We also made several other leadership changes we believe will enhance the current leadership and provide deep bench strength across the organization. Mark will talk more about these changes in his comments. Looking back to my time as CEO, I'm extremely grateful for the opportunity to have led a team as talented as the Shoe Carnival family. We have accomplished so much together both financially and operationally over the last 9 years. From a financial perspective, we grew revenues to over $1 billion, delivered 11 consecutive years of comparable store sales growth leading into 2020, realized best-in-class merchandise margins and maintained disciplined capital management throughout various economic cycles, most recently as it relates to the COVID-19 pandemic. I could not be prouder of the Shoe Carnival team's performance throughout 2020, especially considering the ongoing impact of COVID-19 on the retail industry and broader economy. We saw record results for the year. And because of our strong balance sheet, we were able to keep all our employees working. Operationally, our accomplishments over the past 9 years have been plentiful. First, we relaunched our e-commerce platform, which grew to approximately 20% of our sales. And most importantly, we were ready when our customers needed it most. We also reinvigorated our Shoe Perks loyalty program that grew to 26 million members from 1 million members we could not communicate with. I am happy to say Shoe Perks was responsible for approximately 67% of our overall sales in fiscal 2020. We have also implemented several new systems over the years, including an industry-leading CRM program that is driving sales both online and in our brick-and-mortar stores; a new transportation management system and order management system; and later this year, our buyers will be managing their distribution and orders through our new planning system. These systems have enabled our employees to work more efficiently, saving the company time and resources. We also established several new programs that supported our commitment to our customers, including our SHOES2U program, which opened up total company inventory to all stores. And we were first to offer ship from store, which essentially turned every store into an e-commerce fulfillment center. Our strong fourth quarter and fiscal year 2020 results are true reflections of the resiliency and dedication of our Shoe Carnival team and their unwavering support of our loyal customers. It was just a year ago when we announced the closing of all our retail stores. And as a team, we quickly shifted gears to meet the needs of our customers exponentially, growing our e-commerce business. By June, we safely reopened our stores faster than any of our competitors. Looking back on what we were able to achieve in the time of such uncertainty makes me incredibly proud to have had the opportunity to lead this organization. Today, as part of the transition, Carl Scibetta, Senior Executive Vice President and our Chief Merchant, will walk you through the merchandise categories. But first, I'd like to turn the call over to Mark Worden to provide an overview of the quarter and an update on our strategic initiatives. Mark?
Good afternoon. Before we discuss our record Q4 results, I'd like to recognize Cliff's outstanding contributions to the Shoe Carnival organization. I've been very fortunate to work closely with Cliff over the last 3 years. His deep industry knowledge and leadership in the footwear channel over the past 4 decades set him apart as one of the retail leaders I respect most. Good decisions during his tenure as CEO help make Shoe Carnival the healthy, consumer-centric company it is today. First, investing in consumer technology enhancements put us in a position to succeed during an incredibly volatile market this past year. Making significant investments in our e-commerce platform and customer relationship capabilities are key catalysts to achieving the record results we achieved the last 3 quarters following the pandemic store closures while at the same time, laying a foundation for continued growth well into the future. Anyone who has met Cliff immediately learns just how passionate and knowledgeable he is about merchandising and the vendor community. He's worked tirelessly over the past 24 years to establish Shoe Carnival as the top destination for family footwear customers that have built long-lasting relationships with our vendor partners. I'm excited to build upon those relationships as we move forward with our strategic partners. I'm honored for the opportunity ahead and to have been selected by our Board of Directors to succeed Cliff as CEO, and I look forward to continuing to partner with him in his role as Vice Chairman of the Board. In addition to the planned CEO transition we announced, I'd like to highlight 3 additional components of our succession plan. These changes further strengthen our leadership team and position us well for the future as we execute our long-term strategic plans. First, I'm thrilled to share that Carl Scibetta, our Chief Merchandising Officer and EVP, has been promoted to Senior Executive Vice President, Chief Merchandising Officer. For the past 9 years, Carl has built a world-class merchandising team and has been a key leader among the Shoe Carnival officer team. His 40-plus years of retail merchandising leadership in both specialty retail and department stores will continue to keep Shoe Carnival at the forefront of the industry. I'm excited to work closely with Carl and the vendor community in the years ahead. Second, Marc Chilton has been appointed Executive Vice President and Chief Retail Operations Officer, succeeding Tim Baker effective April 4. This month marked Tim's 50th year in the retail industry and his 32nd year as an operations leader at Shoe Carnival. Tim's contributions to the company have been remarkably significant since joining Shoe Carnival in 1989. We have particularly valued his focus on people development and operational excellence, which has provided us with an industry-leading store organization and a deeply talented leadership team as we move forward. Thank you, Tim, for your dedicated service to Shoe Carnival. Marc Chilton has been with the Shoe Carnival team for 27 years in relative increasing responsibility in store operations. Most recently, Marc served as Senior Vice President within operations, working directly with him. He is a respected executive and people leader across the organization and his deep, broad-based experience will be invaluable as we look to grow Shoe Carnival in the coming years. Finally, Patrick Edwards has been promoted to Chief Accounting Officer. Patrick has been an excellent addition to our Shoe Carnival finance team since he joined in 2019. Under Kerry's leadership, Patrick will further bolster an already strong finance organization and add the layer of financial expertise that will enable us to continue to deliver financial strength, discipline and flexibility. Carl, Marc, and Patrick, each bring excellent knowledge, focus on driving shareholder value, and experience to our leadership team. And I know both Kerry and I look forward to working closely with them as we move forward. Moving on to performance. I'm so thankful for the continued commitment of our Shoe Carnival team members. Their focus on our customers' experience and delivering operational excellence. 2020 was an unpredictable year, but our team rose to the challenge and delivered value for our customers and our shareholders. The Shoe Carnival brand, unique consumer experience, and broad product assortment positioned us very well for growth in fiscal Q4. We delivered record sales and profits during Q4 with comp sales growth of 6.4%; merchandise margins expanded by 160 basis points; and operating income went to the highest Q4 ever, up approximately 114% versus 2019. At the heart of our long-term strategy is providing consumers the preferred shopping experience and product assortment within the family footwear channel. We believe our strong 2020 sales and profit outperformance in the channel reflects our 26 million-plus loyal consumers choosing to engage with Shoe Carnival for their family footwear needs wherever and whenever they chose to over the past year. Throughout the year, we continued to rapidly progress our consumer engagement strategy to develop the leading digital, analytics, and customer relationship capabilities in our industry. Despite the pandemic, I'm pleased we surpassed our brand-building strategic plans during the past year. By the fourth quarter, we had robust consumer data from our new customer relationship platform, which enabled highly accretive customer segmentation and targeting capabilities. These new capabilities enabled both profitable new customer acquisition initiatives and loyalty-building programs once acquired. Our deep consumer understanding is rooted in our customers' omnichannel buying behavior. We're positioned in 2021 and beyond to unlock significant consumer insights and growth opportunities with our strategic vendor partners. As I transition into my new role as CEO, I'm excited to work closely with Carl and our top strategic partners to create brand value from our deep consumer analytics and capabilities. In addition to providing the preferred consumer experience in the channel, another key part of our strategy is to increase merchandise margins by reducing promotional intensity. The consumer data that we've been able to collect and analyze has enabled a sharp reduction in promotional intensity and the elimination of many low ROI customer promotions and marketing activities. We've pivoted away from a historically heavy reliance on BOGO half-off promotions in the chain for non-peak periods in 2020, instead using our customer relationship platform and analytics to segment and personalize compelling product offers. Eliminating promotional intensity resulted in an increased product margin, up over 300 basis points for Q4. We've been so encouraged by our consumer response to this strategy that we have accelerated our plans. For example, we eliminated all BOGO half-off promotions for the current quarter with continued encouraging consumer results and sales exceeding expectations. Our brand strategy has resulted in expanding and deepening our connections with our 26 million-plus loyalty members at the end of the fourth quarter. We added over 2 million new members or nearly 10% growth in consumers we directly reach year-over-year. For our Gold consumer membership, the fastest segment of this group was approximately $70 for the year, generating over $15 more per order than nonmembers. We remain focused on growing our relationship with this segment of consumers and see robust growth opportunities with both our athletic and nonathletic strategic brand partners. Holiday-focused customer acquisition efforts also drove strong results. Consumers who are non-loyalty members grew sales in the teens for Q4, increasing the total year to mid-single-digit sales growth. Our targeted digital marketing capabilities were key in acquiring these new customers and converting them into record sales levels. Our strategy to rapidly accelerate our digital capabilities and specifically our e-commerce strategic plans far exceeded our 2020 expectations. For the full fiscal year, e-commerce sales grew over $110 million or 175%. In fact, Shoe Carnival e-commerce sales grew triple-digit in every quarter during 2020. Product margin associated with e-commerce sales was up over 300 basis points compared to the prior year in the quarter and over 150 basis points for the full year. E-commerce sales represented approximately 19% of company sales for 2020 compared to approximately 6% in the prior year. On the back end, we implemented a new warehouse management system and order management system to enable our long-term strategic growth plans and augmented e-commerce ship-from-store order fulfillment capabilities already in place. Moving on to our long-term brand development and consumer engagement strategy. With such robust consumer insights, analytics, and digital capabilities in hand, we're excited to announce a strategic plan to modernize our most profitable stores across the fleet. Our goal is to have approximately two-thirds of our store fleet modernized in the 3 to 5 years ahead. This will be achieved through a robust annual remodel plan, relocations where we have strong customer opportunities in the market but underperforming real estate, and reigniting new store growth. We are currently finalizing our beta test mode on store experience and design enhancements and are fairly pleased with our consumer learning. We plan to move ahead rapidly with rollouts this year, assuming COVID-19 does not disrupt any development plans. As we have shared during the past year, we chose to take a conservative capital approach during the pandemic, and we'll continue to do so regarding new store growth for 2021. Our strategy is to continue to accelerate our store fleet's 4-wall profit contribution. In 2021, we plan not to renew approximately 10 leases on stores that do not drive long-term profit potential nor connect with our most valuable consumers. We anticipate opening 1 new store this year. While we are not providing 2022 store opening guidance at this time, our intent is to reignite store growth in the years ahead and to continue to rapidly accelerate e-commerce growth. Teams are mining the rich CRM insights in hand. And as highly profitable real estate opportunities open up in late 2022 and 2023, we plan to pursue store openings within existing operating states as a top strategic priority. Our disciplined capital management strategy resulted in closing the year in our strongest balance sheet position ever. At quarter end, the company had no debt and approximately $106 million in cash and cash equivalents. The strength of our balance sheet coupled with our outstanding team and their dedication to executing our consumer-centric strategy has allowed us to achieve our strongest Q4 operating results in what has been one of the most difficult periods for retail in modern history. Additionally, this healthy position enabled us to return increased shareholder value as our Board of Directors approved a 56% increase in our dividend last week. Kerry will discuss this and other financial updates in greater momentarily. In closing, I'd like to reiterate my gratitude to Cliff for his leadership and his partnership over the last 3 years. Further, I want to offer my heartfelt thanks to the entire Shoe Carnival team for all their hard work over the last 12 months. 2020 brought about events that are hopefully once in a lifetime. And our team's ability to serve our loyal customers and come together as an organization was remarkable. Our strategic investments to build our brand, our unique consumer experience, our talented team, strong vendor partnerships, and our superior execution have been the cornerstone of our success and continue to be our focus ahead. I'll now turn it over to Carl Scibetta, Senior Executive Vice President, Chief Merchandising Officer, for an update on our product performance and inventory position.
Thank you, Mark. I'm excited to join today's call and look forward to getting to know each of you more in my new role. Before I get into our performance during the quarter, I'd like to echo Mark's gratitude to Cliff. It has been a pleasure having an opportunity to work with Cliff over the past 8-plus years. His leadership has built a strong company with an outstanding culture that is positioned for growth. Over the past 3 years, working closely with Mark, we've been able to grow synergies within our merchandising, marketing, and e-commerce teams. This enabled us to successfully navigate through the pandemic, maximizing sales and margin. This, along with our expanding vendor relationships, has positioned Shoe Carnival to continue to grow through both brick-and-mortar and e-commerce channels. Now turning to comparable store sales by department for the quarter. Adult athletics continued to outperform. The category was up mid-teens overall, driven by strong growth in both women's and men's product categories, which were both up mid-teens for the quarter. We continue to deliver triple-digit athletic e-commerce comparable sales increases. Our leadership position in the marketplace enables us to continue to deliver the broad trend-right assortment our customers are looking for. Sales in women's nonathletic categories were driven by comfort sport shoes, as customers continue to work and quarantine at home. Sales in men's nonathletic categories were driven by boots sales. The increase was from both the work boot category as well as the casual hunting boot category, which were bought as people got tired of being confined in their homes and ventured out for exercise. Consistent with the last quarter, dress shoes were down double digits, reflecting a more casual, active lifestyle as many offices remain closed. Kids comparable store sales were up mid-teens for the fourth quarter. Once schools in many markets return to some form of in-class learning, we experienced strong sales in children's casuals and in the athletic categories. Kids nonathletic was up mid-teens because athletic was up low teens. We ended the quarter with inventory down 8% on a per-store basis. The industry is currently experiencing major supply chain issues from the factories to the ports and from the ports to our DC. At Shoe Carnival, we have built an outstanding merchant team. Their experience with our company and their position in the marketplace with our vendors is second to none. We believe in the strength of this team and the fact that we did not furlough our buying staff has given us an advantage with the supply chain. We continue to work closely with our vendor partners to deliver fresh new products and replenish key categories and classifications. We are monitoring our supply chain very closely and reacting when needed. Our increased marketing and analytics capability have given us insights into the results of our promotional activity. We have eliminated most of the storewide global promotions for fall 2020. This enabled us to drive sales and margin growth through targeted promotions while still providing our customers the value they have come to expect from Shoe Carnival. Our plan is to continue this strategy into 2021. I am confident that we have a powerful leadership team in place that will guide Shoe Carnival to great success ahead. Through our best-in-class merchandising, marketing, and store teams and our excellent vendor partnerships, we are confident in our ability to build on our success.
Thank you, Carl. Before I take us through the financials of the quarter, I would also like to express my gratitude to Cliff for his steady leadership. We would not be as fiscally sound as we are today without his guidance and commitment to driving results and improving margins. Under Cliff's leadership, we had an incredibly impressive year given such extenuating circumstances. We achieved record net sales of $253.9 million for the fiscal fourth quarter ended January 30, 2021, an increase of $14 million compared to the fourth quarter of last year. Of this increase in net sales, $16 million was attributable to an increase in comparable store sales and $1 million was attributable to the 4 new stores opened since the beginning of the fourth quarter of fiscal 2019. This was partially offset by a loss in sales of $3 million from the 14 stores closed and other non-comparable sales over the same period. Comparable store sales increased 6.4% for the quarter on top of the 3.2% comparable store sales increase in the fourth quarter of fiscal 2019. Our e-commerce business sustained triple-digit growth and represented more than 19% of fiscal fourth quarter sales. As Mark mentioned, our brick-and-mortar store sales were negatively impacted by customer concern related to COVID-19 and holiday sale crowds. Our gross profit margin for the quarter was 30.8% compared to 29.1% in the fourth quarter of last year. Our merchandise margin increased 160 basis points, while buying, distribution, and occupancy expense were nearly flat as a percentage of sales. The increase in merchandise margin was primarily due to lower promotional activity during the quarter but was partially offset by higher shipping costs associated with the increase in e-commerce sales. SG&A expenses increased $2.5 million in the fourth quarter of fiscal 2020 to $67.6 million. As a percentage of net sales, these expenses were leveraged to 26.6% compared to 27.1% in the fourth quarter of fiscal 2019. The increase in SG&A expenses was primarily attributable to costs supporting increased e-commerce sales. The effective income tax rate for both the fourth quarter of fiscal 2020 and 2019 was 28.8%. For the full year of 2020, the effective income tax rate was 25.8% compared to 21.6% in the full year of 2019. The tax rate in 2019 contains a one-time benefit of approximately $1.9 million or $0.13 per diluted share associated with vesting multiple equity-based compensation awards. Net income for the fourth quarter was $7.4 million compared to net income of $3.5 million last year. Earnings per diluted share for the fourth quarter increased by $0.28 to $0.52 per diluted share. Now turning to information affecting cash flow. Depreciation and amortization expense was $4.1 million in the fiscal fourth quarter compared to $4.3 million in the fourth quarter of fiscal 2019. Depreciation expense for the full year was $16.1 million compared to $17.0 million for the full year 2019. Capital expenditures for fiscal 2020 were $12.4 million, with approximately $5.9 million used for new stores, relocations, and remodels. In fiscal 2021, we expect to spend $23 million to $25 million on capital expenditures, with a principal focus on the remodeling efforts Mark spoke about. As Mark mentioned, we continue to work closely with our vendor partners to strategically manage our inventory given current supply chain constraints. As a result, we ended the quarter with inventory of $233.3 million, which is down $26.2 million compared to the prior year or 8.0% on a per-store basis. As of January 30, 2021, we had no outstanding debt and cash equivalents of $106.5 million. Our borrowing capacity was $98 million at the end of the quarter. Free cash flow was $61 million in the quarter, driven primarily by the reduction in inventory. Due to volatility this year, no shares were repurchased in fiscal 2020. As of January 30, 2021, $50 million was available for future repurchase under our Board-authorized share repurchase program. The company plans to resume the repurchase of shares under the repurchase program in fiscal 2021 under the assumption that general economic conditions will stabilize and the pandemic will have significantly less impact on the company's performance and operations. The company paid $5.1 million cash dividends during the fiscal year 2020. The company announced last week that our Board of Directors has approved a 56% increase in the quarterly cash dividend. The quarterly cash dividend of $0.14 per share will be paid on April 19, 2021, to shareholders of record as of the close of business on April 5, 2021. Given the continued uncertainty around COVID-19 and its impact on consumer spending behaviors and recent supply chain disruptions, we are not introducing annual guidance at this time. That being said, we are providing our initial view of the first fiscal quarter for 2021. The delay in tax refunds, along with severe weather throughout most of the country, led to a difficult sales month in February. However, in early March, when our customers began receiving their tax refunds and stimulus payments, our sales trends rapidly shifted, increasing to record-setting levels. Based on quarter-to-date results, we are currently anticipating a record first quarter in both sales and earnings. If we continue to see positive sales trends for the remainder of the quarter, sales for Q1 are expected to be a minimum of $273 million with diluted EPS of at least $1.40. This is a 54% increase over the $0.91 earned in Q1 of 2019. While the rebound in March sales has been strong and concentrated, the month-to-month variability in customer spending we have experienced during the quarter has made predicting the duration of this recent sales intensity difficult. My final comments today are about the transitions happening at Shoe Carnival. Cliff opened the call by saying the company is embarking on a new and exciting chapter. I share Cliff's enthusiasm for the future. While Shoe Carnival would not be what it is today without the contributions by Cliff and Tim, they have both planned for this transition by putting in place talented individuals that they can seamlessly pass the baton to. Our management team is strong and prepared for the future. This concludes our financial review. Now I'd like to open the call for questions.
Our first question comes from Mitch Kummetz with Pivotal Research.
Congratulations on the quarter and also to Cliff, Mark, and Carl on the transition. Carl, I think you drew the short straw having to be on this conference call. With that, I'll start with you. You mentioned some of the categories and went through details on women's nonathletic and men's nonathletic, but I don't think you provided the comparisons for those. Do you have that information?
Comps for the quarter were down in the nonathletic category, with women's nonathletic comps down in the low singles, and men's nonathletic also down in low singles.
Okay. Great. Stimulus, I'll just jump in to see who wants to address this. Kerry, could you discuss your guidance for the quarter? On a two-year basis, the sales were up 8% compared to two years ago. Last year was not a strong quarter for comparison. You mentioned February was a bit challenging due to refunds and weather conditions, but March has improved as refunds have come in and stimulus has started to help. Can you provide any insights on your sales performance so far this quarter and your expectations for the remainder of the quarter? This would help us understand your views for the rest of the period.
We are in a similar position as you, Mitch. We're looking at comparisons to last year, which presents challenges because the stores were closed during this time last year. We are also comparing it to the more normalized year of 2019. As you mentioned, February was challenging due to weather and delayed refunds. However, in March, as tax refunds started to come in, we also benefited from the stimulus checks. Therefore, we anticipate about a 19% comparable increase against 2020 in our guidance, while a comparison to 2019 suggests about a 9% increase is factored in. Currently, we are tracking higher than that, but we acknowledge that some of the boost from stimulus and tax refunds may diminish as we move further into the quarter.
Got it. That's helpful. Kerry, looking at this compared to 2019, the $273 million indicates sales up 8%. I can calculate an EBIT number suggesting an operating margin close to 10%, which is a significant increase from 6.1% two years ago. I'm curious how much of this increase is attributed to occupancy leverage, as I would think the sales growth over two years would likely mean that the margin improvement is coming more from product margins, possibly due to the reduction of the BOGOs you mentioned. Could you discuss the margins and how they are shaping up for the quarter, assuming my calculations are somewhat accurate?
Your math is halfway correct. You've got it pretty well. But it is being driven by the great margins we're driving at retail. We've been seeing sustained second half increases in our product margins, and we're seeing that flow through into Q1 also.
Mitch, it's Mark. If I could just build on the comments, we learned a lot about our customers. And through our analytics, we tested significant reduction in promotional intensity throughout 2020. And to share, this Q1, I shared in my prepared remarks that we eliminated all BOGO half promotion as one example. And in doing so, we continue to be very pleased with the merchandise margin expansion and the sales acceleration. So the strategy is working, and we have great confidence that we can continue to make merchandise margin improvements and lower promotional intensity this year.
Okay, great. Cliff, I have a question for you. I don't want to let you off easily. We’ve seen a backdrop of bankruptcies and store closures over the past couple of quarters. I'm not sure if you're ready to discuss that yet, but I imagine it may have contributed a bit in this quarter and could also be a factor in the first quarter. What is your perspective on the current competitive landscape?
To be truthful, we are uncertain about the reasons behind the increase we’re seeing today. We believe it is primarily due to having the right products and the right stores in the right locations. Our focus is on the athletic and sandal businesses, which are what customers are currently seeking. This is the main factor driving our success. We haven't been able to identify specific closures as a direct cause for our business growth; it all occurred simultaneously. Our business began to improve significantly around mid-last year and continued to thrive as we reopened our stores early.
Let me ask one more question and then I'll return to the queue. Kerry, regarding the SG&A line, how does the cost structure look? Specifically, was your SG&A spending in 2020 significantly different in dollar terms compared to 2019, even with a nearly 6% decline in sales for the year? I'm curious about your plans for SG&A in 2021. Can you keep those costs relatively stable? Assuming sales continue to grow, and it appears that your sales in Q1 will increase compared to the same period last year, how permanent are the cost reductions you've implemented? It doesn't seem like you made extreme cuts like some companies did in 2020, as your SG&A spending appears to be flat.
They remained relatively stable. We observed an increase in SG&A compared to the previous year in the second, third, and fourth quarters. During the shutdown, there was a decrease in SG&A, which is what kept the numbers flat compared to 2019. Once we adjust the first quarter figures to align more closely with the rest of 2019, that will better represent what you should consider.
Our next question is from Sam Poser with Williams Trading.
I have to ask you about your promotion. Is the new head merchant better than the old head merchant?
Well, Sam, I think there's a store in North Carolina you need to ask that question to. She's waiting for it.
I didn't predict you to ask that question, Sam.
Okay. Anyway, speaking of North Carolina, Nike has made several decisions, including significant cuts and plans to stop selling through retailers later this year, particularly a company based in Carolina. Considering the 1,000 stores in the area, is there anything that could help expedite the store openings? It seems like you're looking at the end of 2022 to really start moving forward.
Sam, it's Mark. It's a great question. As we said in the prepared remarks, we're taking still a conservative capital approach for 2021, and we're prioritizing our investment on our multiyear strategy to modernize our existing highly profitable stores. We're incredibly excited about the store experience that we are putting in place and want to rapidly roll that out as fast as we can, assuming there's no COVID disruption. With that said, Sam, though, we're looking closely at every market we compete in and looking for profitable opportunities where our consumers are there. And if that opportunity presents itself, we're ready to rapidly move back into store growth. As I said, we plan to reignite store growth whether that's late '22 or in '23. That's our intent right now. But if we find something faster, we're ready to move.
After the stores reopened in the fourth quarter, how do the store comparisons look? Are your stores more productive now than they were in 2019, or are they less productive due to the increase in e-commerce? As you evaluate the full year and consider these factors, is it possible to significantly enhance store productivity? Additionally, how sustainable do you believe this level of e-commerce revenue will be moving forward, especially considering the new customers you have acquired?
During the year, we achieved over $100 million in e-commerce sales, a 175% increase. We observed some transitions from our existing stores. We are beginning to see the percentage of total company sales stabilize as consumer shopping behaviors become more predictable as time moves on from the onset of COVID. We expect that the stores will continue to drive increases in 4-wall contributions, which remains a core component of our strategy in the coming years. Regarding e-commerce, while it currently represents about 19% of the company's value, we anticipate that over the next 2 to 3 years, the incremental sales from e-commerce will elevate that figure to the low to mid-20s. This year likely marks a period of stabilization as customers are eager to resume in-store shopping, and we are witnessing significant enthusiasm in our stores at this moment.
And then, Carl, given the comps that you've driven, and it sounds like you're driving right now and given all the supply chain issues that are out there, how much have you narrowed the assortment targeted big key items better, using all the data and consumer insights you have versus '19? I mean are the assortments narrow or in the stores? Are you going deeper? Can you give us some color on that?
Sure, Sam. We began this approach in a significant way in 2017 and have continued to reduce our assortments while focusing on enhancing our key items. This trend has persisted since 2019, and we are currently prioritizing key categories. We're seeing unit sales growth that exceeds our projections and previous performance. This strategy will remain central to our plans in 2021 and beyond.
Great. I'm sorry for asking so many questions. When do you expect inventory to catch up? Or do you think that gross margins will benefit for the entire year since you'll still be in a constant chase mode?
I believe gross margins will remain strong throughout the year, and we expect them to increase. Currently, we are anniversarying BOGO with non-BOGO, leading to a natural margin improvement. Like others in the industry, we are facing supply chain challenges. We are in regular contact with our vendors. Although we had a slow start for spring deliveries, the flow of products has picked up and is now aligned with previous years. We aim to improve our position each quarter and month as the season progresses.
Great. How is your relationship with Nike right now? Are you planning to add those Nike shops, considering you're adding around 100 stores this year? Are you looking to speed up that process as you remodel and modernize the stores? I have one last question for Cliff, but I'll leave it at that.
Sam, we take great pride in providing unique customer experience, and we are continuing to invest in providing the most differentiated athletic shopping experience in the channel. And we have plans to continue to put that modern store design in as we proceed through the year.
And then, Cliff, since everyone wants to hand over the responsibilities to you in your new position as Vice Chairman, we're going to call you Harold Hill, and I'll leave it at that. Congratulations.
Thank you, Sam.
Our next question is from Greg Pendy with Sidoti.
You're deciding to reduce BOGOs while relying on data from an unusual year in a time when inventory is somewhat limited. What kind of risks do you foresee in not alienating your core customers who are seeking value? Do you believe you will still be able to retain them? Is this a risk you are aware of and planning to address? What are your thoughts on this?
Yes. We monitor our 26 million loyalty members every week to see if their purchasing behavior is changing. If it does, we will adjust our strategies accordingly. We have tested this approach over multiple quarters during the pandemic, from its peak to the low points and the holiday season, and it has proven effective in all those cases. We've decided to implement this for Q1, and it has shown consistent results throughout the quarter. You're correct that we need to keep an eye on how customer behavior evolves as we hope for a return to normal life soon. However, we are prepared to make quick adjustments if necessary.
Great. If I'm not mistaken, are the 10 store closings this year due to natural lease expirations? I understand that you don't have mall exposure, which has impacted many retailers. Is there a common theme among those 10 closings? Was there an anchor that drove traffic to those locations, or is there anything specific to the real estate that indicates a trend in those closures?
First answer, yes, they're natural lease end dates. They're stores that simply do not have accretive 4-wall contribution possibilities long-term for us nor that customer base that really fits our CRM profile where we have that opportunity. There's probably not one broad sweeping commonality across them, but there are a handful within that, that are very small format, small square foot stores that simply don't allow us to provide that differentiated unique experience as well as we would like to, and so we are closing those ones.
Our next question is from Mitch Kummetz with Pivotal Research.
I have a couple of follow-up questions. Mark, regarding the consumer insights, it seems to me that you are still in the early stages since you have added many members to your Shoe Perks program and have gathered a considerable amount of data. What do you see as the immediate opportunities in the next year or two as you utilize that information and those insights? What are the clear objectives you think you can accomplish to drive the business?
We are really excited about the potential for several years of comparable store growth within our current network, which the CRM program will enhance. This will lead to more profitable and less promotional opportunities, allowing us to sustain and increase shareholder value. Specifically, I am enthusiastic about our ability to segment our consumers better so that we can tailor product offers to them. We're moving away from a uniform global offer to a more individualized approach that considers the specific preferences of each consumer. This means we can focus on particular products and categories to present offers and messages that resonate with them. I'm very optimistic about our personalization capabilities and how we can utilize them in the coming year.
To provide some context, when did that process begin? Are you one or two quarters into it? What phase are you currently in?
Probably second, third inning. Now we have the capabilities of doing it as we're lapping into the second year of our CRM platform. And we have significant years ahead of us to continue to mine insights and grow profits themselves. But it's a big opportunity for us, we believe, for many, many years to come.
We're learning something new almost every day. It's not just that we're further along in the process; in some instances, we're still at the beginning because we keep discovering new insights about our customers as they shop. For example, with the BOGO half promotion, we can now target our customers with specific products or categories they are interested in, which allows us to phase out those BOGO half days.
Mitch, there's the second thing that I think we're very excited about. And that's with these insights in hand, working closely with our strategic partners on where their consumers can vest, convert, and how we can help them acquire the most important consumer to them or reactivate someone. So I think our differentiated digital-first capabilities will really help the partners who we value so much and who value us as well.
Okay. I have one last question. We’re a bit over a year into COVID now, and I know your athletic business has been particularly strong. It was already trending that way before COVID, and you've had some great products like Court Vision by Nike. I'm curious about other aspects of 2020 that might have been more influenced by COVID, like the slipper business or hiking boots. Carl, as you think about moving past COVID, how are you looking at those product opportunities? Do you see this year as a continuation of trends that started last year due to COVID? Or do you think there might be a shift back to products that didn’t perform as well, not necessarily dress shoes but maybe other items that didn’t do well during COVID? As people are getting out again and social gatherings are happening, are there products you can capitalize on for events like Easter, Memorial Day, or the 4th of July that didn’t take place last year?
Sure, Rich. Right now, we are seeing the continuation of COVID-related products, especially in the athletic category, and you're absolutely correct about the hiking segment. What’s very promising is the significant increase in new seasonal products that have been delivered, reflecting customers’ desire to refresh their collections. We believe this trend will persist throughout the season. The expanded selection in our athletic line should maintain its momentum, and we anticipate that seasonal sandals for spring will gain traction, which they already have. This provides us with great optimism that customers will be eager to purchase those products and participate in the events you mentioned. Although it may be premature to say, we are observing a slight rise in fashion-forward, perhaps younger dress shoes that are intended for social outings rather than work. It’s a modest increase, but it’s the first one we’ve seen in over a year, which gives us hope that consumers are ready to return to a more normal lifestyle.
Our last question is from Sam Poser with Williams Trading.
Regarding capital allocation, what is the priority? You've mentioned that you're reinstating the buyback. Are you planning to buy back stock at these levels? What is the overall strategy?
Our priorities haven't changed. The first focus is on investing in growth. As Mark mentioned, we've invested in a new store design and refreshing our stores, which is our top priority for capital allocation. This is why we are nearly doubling our capital expenditures this year, almost entirely directed towards remodeling. The Board has also increased the dividend by 56%, reflecting their commitment to showcasing long-term confidence in the company. Lastly, our approach to capital allocation includes share buybacks. We don’t announce when we will buy back shares; we’ll proceed when we believe the economic environment is stable and we are comfortable moving forward.
Ladies and gentlemen, this concludes the Q&A session. I'll now turn the call back over to Mr. Sifford for any closing remarks.
Thank you. I would again just like to thank everyone for joining us on the call today. I hope you all are staying well. I just want to close by saying thanks to all our Shoe Carnival team and all the work that they've done to elevate this company over the last 9 years and particularly over this past year. We look forward to speaking to you all again at our conference call in May. Thank you, again.
Ladies and gentlemen, this concludes today's conference call. You may now disconnect.