conference operator today at this time i'd like to welcome everyone to the shoe carnival 2021 fourth quarter earnings call all lines have been placed on mute to prevent any background noise after the speaker's remarks there will be a question and answer session if you would like to ask a question during this time simply press star then the number one on your telephone keypad to withdraw your question please press star one again thank you mark warden President and Chief Executive Officer, you may begin.

Good morning, and welcome to Shoe Carnival's fourth quarter earnings conference call.

Joining me on today's call are Carl Shabetta, Chief Merchandising Officer, and Kerry Jackson, Chief Financial and Administrative Officer. I'd like to start by recognizing our team of nearly 6,000 members for their commitment, perseverance, and their winning spirit demonstrated throughout 2021. And to our millions of loyal customers and new customers across the hundreds of communities we serve, we are thankful you selected Shoe Carnival for your family footwear shopping experience. We have the pleasure of opening today's car. The Shoe Carnival generated more during 2021 than the prior six years combined. Growth momentum, COVID-19 and supply chain disruptions, merchandising team and operators to navigate ongoing complications, make it clear how essential our team members are and how important our commitment to invest in competitive wages, compelling benefits, and long-term career. One element was in-person, exceptional in Q4. Despite the Omicron variant surging in Q4, our customers shopped in-person and did so with gross margins. Sales momentum has continued. Once we last the major stimulus, I would like to turn now to our strategic plan to transform shareholders profit in 2019 we set a long historical for which was lagging the competitive set to a long-term and to accomplish this objective these investments for the both historical averages for the fourth quarter heard achieved looking forward not see the 49 we now aim exposition we are winning with one this enables us our best because we saw in

the fourth quarter it consistently our merchandise story supply chain issues In this challenging environment, our vendors are highly successful, and many do not have to supply demand from retail and reliably. Given our firmly embedded relationships with our vendor partners, we continue to stay successful. As a result, we saw the power of those relationships through 2009. We are not immune from these. Our inventory levels are up, and we are winning with strong merchandise categories. As Mark mentioned, customers shopped in person for their holiday needs. Drilling down to consumers and back to buying non-athletic shoes. Across customer groups, non-athletic sales grew by over 20% in the fourth quarter, while athletics continued to grow by low team percentage points. Currently, we have a 50-50 non-athletic merchandise portfolio, which has us well positioned for growth and mitigates risk. We are also delighted with our e-commerce business. In 2021, e-commerce sales grew 140 since 2019. While we don't see our e-commerce margins as a result of these evolving of our team's ability to launch this in going forward we expect e-commerce to be a high single-digit low double-digit long-term will continue to be an army as Mark mentioned we continue an aggressive roll-off we want our customers to feel the joy and fulfillment of in-person shopping in our stores our efforts are real athletic brand as we continue to invest in new store designs our integration a few station is ahead of schedule we have worked with our vendor partners from the shoe station business we are mutually excited about the future growth our southern base shoe station buying team is engaged and ready to go we expect modernization of all existing 21 stores to be completed along with our company wide modernization strategy above all our people are friendly knowledgeable and always put the customer first in fact customer first is a core value and key differentiator in the category now turning to results all merchandise categories comparable store sales for the quarter were up double digits versus 2020 and margins were up 700 and for the same period and a thousand thirty basis even though inflation could have some effect on margin levels in 2022 we feel the changes and the power of our CEO is fundamentally the team is able to despite in 22 with a strong inventory position. Fiscal 2022, beginning in 2020. Now let me turn the call over to Kerry Jackson.

It's exciting to share with you some financial highlights from the, we achieved a record fourth quarter with 4 million, an increase of 59.4, 23.4% compared 17.7% for the fourth quarter fiscal 2021. Our brick and mortar comparable store sales were up 22.1% and e-commerce was mostly flat in the fourth quarter 2021 gross profit margin was 37.3%, a Q4 record high for Chicago and up more than 650 basis points compared to the fourth driven primarily by continued strength in our merchandise margins in the quarter. Excluding one-time acquisition costs, our Q4 gross profit margin was 37.6%. Buying, distribution, and OXC expenses decreased 140 basis points as a percentage of sales when compared to the fourth quarter of 2020, despite higher supply chain expense. These results clearly underscore the successful execution of our merchandising strategy highlighted by Mark and Carl earlier in the call. SG&A expenses increased by $21.3 million in the fourth quarter of fiscal 2021 to $88.9 million. As a percentage of net sales, these expenses increased to 28.4% compared to 26.6% in the fourth quarter of fiscal 2020. Excluding one-time acquisition costs, SG&A expenses in Q4 were $85.7 million, or 27.3% of net sales. The increase in adjusted SG&A was driven primarily by increased investments in advertising and store-level wages. Operating income was $27.9 million, or 8.9% of fourth quarter 2021 sales. In comparison, operating income was 10.6 million, or 4.2% of sales in the prior year quarter. Adjusted operating income in Q4 was 32.2 million, or 10.3% of net sales. Net income in the fourth quarter of 2021 was an all-time fourth quarter record of 20.6 million compared to net income of 7.4 million during the same period last year. Earnings per diluted share for the fourth quarter 2021 increased by 46 cents to a record 72 cents per diluted share. Adjusted net income in Q4 was 23.8 million or 83 cents in diluted earnings per share. We closed out the quarter with inventory of $285.2 million, which was up $51.9 million compared to the prior year, or 19.2% on a per-store basis. A little over half of the increase in inventory was due to the 21 stores acquired in the shoe station acquisition. We have ample liquidity to fund our growth through store expansion and modernization, target further acquisitions, while continuing to build cash on our balance sheet. As of January 29, 2022, we had total cash, cash equivalents, and marketable securities of $132.4 million and no outstanding debt. We had more cash on hand than last year, even after paying for the shoe station acquisition in cash. As we invest for future growth, we continue to follow through our commitment to shareholder return. In addition to our current share repurchase authorization, our Board of Directors approved the payment of a 29% increase in our quarterly cash dividend to $0.09 per share from $0.07 per share previously, turning to our longer-term outlook. As we continue to see momentum in our business as we come into March, and based on our expectation of continued strength. We expect fiscal 2022 net sales to increase mid-single digits to $1.38 billion to $1.42 billion, and earnings from doulety share for the fiscal year to be in the range of $3.80 to $4.10. In closing, this morning we announced the best results in our 43-year history. Looking ahead, with continued strength and success of our fast-growing omnichannel sales model, our transformed profitability profile, all supported by robust cash flow, we are better positioned financially than ever before to execute on our growth strategy, which combines organic store expansion and modernization on one hand and selective acquisition strategy on the other. With that, I've concluded our financial review. Now I'd like to open up the call for questions.

If you'd like to ask a question at this time, please press star then one on your telephone keypad. Our first question is from Mitch Koumetz with Seaport. Your line is open.

Yes, thanks for taking my questions and congratulations on the quarter and the year. Got a few questions. You guys have referred to momentum through the first six weeks of Q1. I was hoping you might be able to quantify that And I'd be most interested in knowing how that performance compares to, you know, the first six weeks of 2019, if you happen to have that.

Good morning, Mitch. Mark, thank you for the congratulations. We're thrilled with the way last year concluded and that momentum has carried into the first six weeks of fiscal 2022. We're of great confidence based on the start that we can continue to grow and have a record 2022 this year, as we said, that revenue range. Specific to this first six weeks, we are seeing continued strength in store traffic and people coming out despite all of the macroeconomic things going on, and we're very comfortable that before we started lasting the stimulus, we were seeing high single-digit type growth, Mitch, compared to the – Okay, that's helpful.

And then, Mark, you kind of broke out the year, first half, second half, in terms of kind of the year-over-year, you know, sort of quick back-of-the-envelope math that I've done. Again, when I'm trying to compare this to 2019, which was the last pre-COVID year, that kind of implies, you know, high 20s growth in the first half, high 30s growth in the second half versus 2019. I can appreciate the laughing of stimulus on a year-over-year basis, but I'm kind of curious why more growth in the back half versus the first half

when you compare it to that pre-COVID.

Is that mainly, you know, kind of inflation and supply chain that's holding back to sales growth a little bit in the first half that you would expect to kind of be alleviated in the back half, or is there something else going on?

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

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

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

All right, guys.

Thanks, and good luck. Thank you, Mitch. Our next question is from Sam Poser with Williams Trading. Your line is open.

um uh thank you thank you very much thanks for answering my questions um carrie i was just wondering if you could uh just give us some details or or call on the sales by on the sales increases by month or the same store sales increases by month in the fourth quarter um given how um you did there was some stimulus lapping in january hi sam good morning it's mark

again. I can share that with you. Q4 was exceptional, you know, delivering over 23% growth overall and over 17% comp. It was driven by holidays. We'd never seen strong consumers were flocking in person back to our BRICS, and we saw over 20% comp growth for both the month of November and the month of December. Turning to January, that was the unknown when we spoke to everyone last of what would be the impact of not having the stimulus funds which were in our consumers hands the prior year. We had expected an over 20 percent sales decline in January and we're thrilled. In fact for the month of January we had a mid single digit decline again beating our expectations. It was a great learning for us to Sam to show us we grew so many new customers that we've been able to grow mark offsetting you and then a number of retailers within

your markets are losing access to one of your large if you're not your largest vendor and others have closed how but I've also heard that some of that may some of that product flow because goods are late isn't happening as quickly as anticipated. How do you foresee that helping, or I won't say helping, impacting your business this year? We talk about

our store modernization plans to have the whole fleet accomplished. One of the things that consume our athletic shop in shops. This year, we have in flight another be rolled out with the best brands that those consumers, and they're delighted. So we're moving full steam ahead and plan to have the entire fleet have athletic shop and shops by the end of fiscal 2024.

Carl could build on the top five athletic brands from 2021 produced 37% of the company's business. And in 2022, those same top five athletic brands are projected to equal the same 37% of the companies.

And does that include the shoe station acquisition?

That includes those particular numbers on the shoe carnival. The shoe station acquisition stores carry a different merchandise mixed with access to some of the other more premium running brands. And we don't see a change

in the way they have historically been assorted and then um your store opening plans to open 10 plus stores this year and 20 plus stores next year can you give us details as to what the you know the composition of that is between shoe station and shoe carnival and um as far as i know you don't plan to close i believe you said you're not going to close in these stores or don't plan to close in these stores this year.

Yeah, that's correct, Sam. So for 2022, we plan to add at least 10 stores. The lion's share of those will be. We will be adding. Shardy this year will be Shoe Station as the real estate opportunities we see there are so exciting. The analytics we're just diving into are pointing into how we can explosively multiply. As we get into 2023 and 2020, keeping us at those low levels right now to get real estate.

And then lastly, $100 million in revenue in 2022. I imagine that that included opening as many. When we think about over the next two years, I mean, almost 100% square growth by the end of next year probably. So how should we think about that shoe station revenue?

you. Now that we're three and a half months deeper into it, we have even more conviction with what we've acquired. This brand, the growth, the profitability, we're so energized. You should think about this year as we will deliver what we said. The 100 million built in some thought of with where we are in the year, Sam, when we talk about those 10, the most of those will be q4 or towards the very tail end so it'll have limited impact on this year's sales and profits but as we go into next year that's where we can start to really ratchet it up and you're right you should think about what the numbers I've just said will more than double potentially triple you know the store footprint for that banner within two to three years and we will commensurately more than double the revenues of that banner in that same time.

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

It's fair to think about it. We see the margin and profitability structure lining up with, you know, the shoe carnival banner numbers that we've just guided to. We see them very similar. There's absolutely potential as we identify more synergies and get more into the buying and merchandising functions in the year ahead. there's actually more potential for that trend to drive higher, but at minimum, Carnival.

Thank you very much. Continued success. Thank you, Sam.

Again, that's star one to ask a question. The next question is from Jim Chartier with Mones, Crespi, and Hart. Your line is open.

Good morning. Thanks for taking my questions. I just wanted to follow up on some of the previous questions. Do you expect share gains related to Nike's exit from other retailers? And then the expectation for the penetration of your top five athletic brands being similar to last year, is that due to stronger growth in non-athletic business this year?

Hi, Jim. We do see growth in both athletic and non-athletic for 2022. However, we do see growth at a higher rate in non-athletic than in-athletic based on consumer trends, based on recent history, and new fashion that has emerged in the non-athletic

side of the business.

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

No. as Mark said in our in his pair remarks that we were done with our store closing program to to improve the store profitability we've with all stores on an ongoing basis cash flow positive that we're very pleased and I think it was a quite success and on looking out this year we're not anticipating closing stores and including in 23 right now we we don't have any visibility on it on closing of stores on the openings this year we expect we just opened one for shoe station so we'll have one in q1 and then the rest of them going to be and it might have a store to in q3 but really it's going to be the q4 where the store

is going to open okay and then finally in terms of the vendor mix between shoe carnival shoe station you mentioned some differences there you know what What are the opportunities to, you know, add some of the stronger Shoe Carnival brands to Shoe Station and vice versa, and then when would that opportunity play out?

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

Great. Thank you.

Our next question is from Mitch Kometz with Seaport. Your line is open.

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

We're seeing strong consumer feedback. Conversion is exceeding our expectations. And, you know, comps are very strong. To be honest, it's within, you know, the strong growth we had, say, the 23% in the fourth quarter, the difference. It's driving all of those core metrics the right way and most important contribution.

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

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

Poser with Williams Trading. Your line is open. Thank you for taking my follow-up. Two things. One, where do you expect the store, the shoe station stores, when you're looking at markets, Are you looking at backfilling? Are you looking at new markets? Can you give us some color there?

Yes. We aim the Louisiana region, and the lion's share of our near-term growth will be bringing the brand to the consumers who already know and love them, both in the near-term.

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

this um no matter on where we categorize it the the numbers i quoted you uh were the total brand not necessarily what category would we put that particular brand in um and we define athletic footwear as you could do a sport in not not a brand that is purely a

fashion in and out so so so for instance the nikes the asics the brooks the adidas the reeboks those are all athletic and and the the sketchers um is not vans and converse are is that the right way to think about it i mean sketches in general they do have some running shoes uh in general yes okay i just want because because other people do categorize a lot of sketcher shoes and they're athletic and you you you put it outside of it as well as other brand other

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

Okay, thanks very much. Again, continued success.

Thanks, Sam.

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

Thank you all for joining Shoe Carnival today. Growth momentum is incredibly strong, and we are excited to put the...

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