Q1 2021 Shoe Carnival Inc Earnings Call
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Good afternoon, and welcome to shoe Carnival's first quarter 2021 earnings Conference call Today's conference is being recorded.
Is also being broadcast via webcast and reproduction or rebroadcast of any portion of this call is expressly prohibited.
Management's remarks may contain forward looking statements day 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.
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 todays press release to reflect future events or developments on.
Now turn the conference over to Mr. Cliff Sifford, Vice Chairman and CEO of shoe Carnival for opening comments.
Your Sifford you may begin.
Thank you and welcome to shoe Carnival 2021 first quarter earnings conference call joining.
Joining me on the call today are Mark Gordon President and incoming Chief Executive Officer, Carl Ciabatta Senior Executive Vice President Chief Merchandising Officer, and Kerry Jackson, Senior Executive Vice President Chief financial and administrative officer.
On today's call I'll provide a high level review of our fiscal first quarter 2021 results as well as on an update on our business operations. Mark will then provide an update on our strategic initiatives followed by Karl who will provide an overview of our business trends and <unk>.
Finally, Kerry will discuss the quarter's financial results in more detail.
And then open the call for your questions.
I could not be more thrilled with our fiscal first quarter results. The team delivered a record breaking quarter with the highest quarterly sales margin and EPS company's history.
In fact, our first quarter sales of $328 million eclipsed our previous record first quarter 7.2.
2016 by 26, 1%.
But more importantly, our EPS on $3.2.
Beat our highest reported annual EPS of $2.92.
Which on a reported in fiscal year 2019.
The first quarter of 2021 started out relatively slow due to a combination of colder wetter weather in February versus last year and a delay in tax free funds. However, those new spring product arrive rather than became more seasonal tax refunds on stimulus paint.
<unk> begun to reach our customers and sales took on sales for fourth are bolstered by the successful rollout of COVID-19, vaccinations and the decrease in the number of COVID-19 cases.
The combination of both of these events gave our customers confidence to shop brick and mortar stores again.
E Commerce sales were up double digits, and our brick and mortar stores posted triple digit comparable store sales growth for the quarter.
The decisions we made early on the pandemic to support our employees, while redirecting their focus to e-commerce sales and fulfillment.
Enabled shoe carnival to reopen faster than many of our competitors, allowing us to welcome back our customers and get new customers on the <unk>.
Opportunity to experience our concept for the first time.
Much of the credit goes to our CRM initiative, which allowed us to nurture the bond we have with our existing loyal customers.
We also took the opportunity with new first time customers to sign them up for shoe perks membership to turn them into long term loyal shoppers. We truly believe that is what has set us up for such great success over the last 12 months and will serve us well into the future.
Our loyal shoppers continue to trust shoe Carnival to have his latest trends and the best brands to make their shopping experience simple and enjoyable.
Merchandising team's execution continue to be impactful for the first quarter, our merchants and partnership with our vendors kept our inventory is flowing and in line with our key trends and brands. Despite the ongoing supply chain issues the retail industry is facing.
I believe the relationship we have with our key vendors as the definition of true partnership.
Additionally, we eliminated all low margin global promotional events, including Bogo half for the quarter.
Customers remain focused on certain categories and brands and they had faith shoe carnival will deliver those brands and categories with the breadth and depth. We have always been known for our teams recognition that our customers were focused on lease items and brands along with the R&D side.
To make shoe carnival the retail headquarters for this product led to the decision to eliminate global promotions.
The Heck key decision led to record product margins, which were up 910 basis points compared to last year.
Our strategic investments in technology also continues to serve us well E. Commerce sales continued to increase at double digit rates as a growth toward our goal of 20% of overall sales.
I'm also very happy to report that our shoe perks loyalty program grew significantly during the quarter and active numbers through achieved gold status increased in the low twenties.
This is a critical metric as Golden numbers drive a higher average ticket and shop more often than those numbers, who are not yet active Gulf numbers.
Im confident that our shoe perks loyalty program, along with our industry, leading CRM initiatives helped drive our positive sales trends throughout the pandemic.
Karl will dive deeper into business trends and category performance, but looking at comparable store sales by department for the quarter. Our major departments posted very strong comparable store sales increases led by athletics and seasonal categories.
As I mentioned earlier, we're still seeing supply chain issues across the board all retailers not just footwear segment are having issues getting product food factories, and then once product is through the factories. There are significant delays at all ports. However, we are in constant communication with our vendors to <unk>.
Sure a steady stream of product for our stores and we are confident that we will have sufficient inventory for the back to school season and beyond.
Based on our conversations with our vendor partners, we are expecting to supply chain issues to normalize during the second half of the calendar year.
We continue to prioritize our financial strength and flexibility is our discipline in this area has proven to be invaluable over the last 14 months.
Our solid balance sheet combined with our strategic investments and exceptional execution has allowed us to make incredible progress on our long term goals. Despite these ever changing market conditions.
We are excited about the remainder of this quarter and are looking forward to having a more normal back to school season.
Many of our markets have not yet posted there is plans for back to school, which makes it difficult to provide guidance for that particular time period.
However, as vaccines continue to roll out to more and more of the populations school should begin to announce some more normalized opening plan.
Believe we are well positioned to continue our historic leadership position as the back to school headquarters from footwear and the markets we serve.
Harry will provide more color on our financial expectations in his prepared remarks, I'd now like to turn the call over to Mark Worden to provide an update on our strategic initiatives Mark.
Thank you Clifton and good afternoon, everyone.
Today, the shoe Carnival brand is stronger than ever.
Our strategic plans to deliver the preferred consumer shopping experience and grow shareholder value are outpacing our internal expectations.
Consumers are once again, we have downwardly choosing shoe carnival for their family footwear needs as a result, our sales and profits in Q1 far exceeding any prior quarterly records in.
In fact as cliff shared the value we provided to shareholders. During Q1 surpassed any full year total earnings per share achieved on our company's history.
Total company quarterly comp sales grew 125, 8% with store sales up 161%.
With record setting growth level spanned across the shoe carnival geographic footprint with all store divisions growing 140% or more for Q1.
Our E Commerce sales grew by low double digits in the first quarter successfully accomplished with the 160% growth achieved in Q1.2020.
We are thrilled with the positive trajectory of our e-commerce business over the past year.
We believe the triple digit growth experienced in online sales from 2020 has begun to plateau, and we will move into a more normalized growth rate as the year progresses.
So far through 2021 shoe carnival consumers are resoundingly re engaging with live shopping experiences as COVID-19 restrictions continue to EPS.
We anticipate this trend will continue and our brick and mortar store sales growth will outpace e-commerce growth for 2021 as consumers continue to seek in person experiences and family activities outside the home.
As a result, we expect online SaaS for 2021 to deliver triple digit sales growth versus 2019.
And the moderate single digit year over year declines versus 2020.
Over the next 2 to 3 years E Commerce sales will be a key strategic driver of new customer acquisition and profitable sales growth for US for example, looking at 2022 and 2023, we're planning on low double digit e-commerce sales growth to be our new norm.
But assuming that COVID-19 does not disrupt in store shopping again.
As part of our go forward strategy, we are transforming the way, we think about promotions to best meet consumer needs to drive margin growth and to accelerate shareholder value.
During the first quarter, we continued to successfully shift away from deep discount chain wide promotions.
And we eliminated bogo have promotions for the entire quarter.
Results have been exceptional we saw merchandise margins grow over 1000 basis points converging growth was explosive up over 500 basis points and our <unk>.
Average transaction increased mid single digits.
Building on the momentum from Q1 and the promising results. We've seen to date in Q2, we have eliminated bogo promotions for all of Q2, but we anticipate good except for the rest of 2021.
The strategy to drive transformation on margin improvement fuels stronger brand building and loyalty building investments.
Continue to be pleased with our strategic investments in digital marketing and CRM with result of climbing to new records.
Loyalty members exceeded 27 million during Q1, posting a double digit gain.
We expect to see growth continue as we strategically invest to enhance our digital marketing analytics and CRM capabilities.
New customer acquisition is accelerating achieving double digit growth during Q1.
Our customer insights and analytics are growing rapidly and enabling enhanced personalization efforts, resulting in converting more new customers into repeat buyers.
And energized by our team's progress our customers' response and see a significant continued growth runway for this strategy ahead.
As we discussed last quarter the major driver of our strategic plan includes modernizing over 2 thirds of our store fleet in the next 3 to 5 years.
Shoe Carnival is already known for providing family's footwear consumers a unique in store and online shopping experience.
Remain at the forefront of the industry continuously innovating to bring consumers into our stores for our opinion enticing in store experience.
We are moving rapidly on this work and are on targets that completed the first 100 stores within our fleet modernization plan at this time next year.
So far the consumer response to our enhanced shoe Carnival store experience has been overwhelmingly positive consumer law, perhaps lettic shop in shops, the robust athletic assortment from the leading brands convener.
Convenience of shopping multiple categories in the modern shopping experience.
Thanks to our disciplined capital management approach, we on our strongest financial position with no debt and $175 million on cash and cash equivalents.
The strength of our balance sheet and transformative margin strategy is enabling us to make investments in our brand technology people and our stores.
Im excited for the continued progress we will make throughout the rest of the year.
There are still many unknowns in fiscal 2021, including the ongoing impact of COVID-19, particularly as it related to abaxis flow on the broader global supply chain disruptions how's.
However, I am confident and shoe carnival team and our ability to continue making headway on our strategic priorities, while it's around profitability and accelerating shareholder value.
I'll now turn it over to cost should better for an update on our product performance and inventory position.
Thank you Mark this quarter as you have heard we continue our reduced global promotion strategy and focused promotion on key categories and items throughout the period.
This has served us well so far delivering record sales and margin. We continue to monitor key metrics that give us insight into our customers' behavior and while adjusted if we see changes in their shopping habits and.
In addition to our reduced promotional strategy the strength of our expanding merchandise organization and our strong vendor relationships are key to outstanding first quarter results, we were able to secure additional inventory in key demand product categories. When we needed it most.
And we continue to work very closely with our vendors to ensure this continues and to help mitigate any impact from the global supply chain constraints.
As you've heard from Clifton, Mark first quarter comparable store sales increased 125% versus 2020, all merchandising categories were up ranging from 90% to 160% versus the same period last year.
To further illustrate.
The strength of our performance in Q1 comparable store sales increased over 31% versus 2019 gross margins were up over 900 basis points versus Q1.2019.
Turning to comparable store sales by department for the quarter versus 2019 adult athletic continue to perform adult athletic Comped up in the mid <unk> as we continue to grow our leadership position in this category.
Men's and women's athletic had strong performances with sales driven by the basketball skate and running categories sales.
Sales in our womens non athletic categories were up in the high <unk> for the quarter.
Women's sport and seasonal drove the category, but as communities begin to reopen and demand for additional product categories like dress shoes have increased sales in women's dress shoes were down single digits compared to the first quarter of 2019, however, up triple digits when compared to 2020, we.
Expect this trend to continue throughout the year.
Sales of men's non athletic categories were up in the middle twenties increases were driven by mens casuals seasonal and all categories Kids.
Kids comparable store sales versus 2019 were up over 50% for the quarter with every major category doing well sales on both kids athletic and non athletic on very strong and we were particularly pleased with the results and kid's sandals and shoes.
Sales in non athletic were driven by casual and seasonal products as families began to get out of the house for travel and entertainment.
Barrels and voice Athletics also performed very well consistent with what we have seen over the last several quarters. We ended the quarter with inventory down 8.6% on a per door basis. As I mentioned, we continue to work closely with our vendor partners to replenish key categories and are diligently monitoring our supply chain.
I believe we will be well positioned with the product our customer can be looking for as we approach back to school with that let me now turn the call over to Kerry Jackson to provide more insight into our financial performance for the quarter and the full year.
Thank you Carl.
We achieved record net sales of $328.5 million during the first quarter of fiscal 2021 and.
An increase of nearly $181 million or 123% compared to the first quarter of fiscal 2020.
This record sales number represents a 29, 4% increase compared to the first quarter of fiscal 2019.
Call debt last year, our stores were closed for the second half of the first quarter due to the pandemic as such in certain circumstances, we will compare the first quarter of fiscal 2021 to the first quarter of fiscal 2019.
Comparable store sales increased 125, 8% in the first quarter of fiscal 2021 compared to the first quarter of fiscal 2020.
Compared to the first quarter of fiscal 2019 comparable store sales increased 31, 6%.
E Commerce sales represented nearly 12% of total merchandise sales during the first quarter of fiscal 2021.
As Mark noted, we generated a low double digit increase in ecommerce sales for the first quarter of 2021 on top of the 160% increase in ecommerce sales in the first quarter of fiscal 2020.
Our total brick and mortar comparable store sales were up 161% in the first quarter of fiscal 2021, reflecting the consumers' desire to shop in our stores like Yan.
First quarter 2021 gross profit margin of 39, 6% was a record high for shoe Carnival and represents an increase of 18, 3% over the first quarter of fiscal 2020.
Our merchandise margin increased 10%.
Buying distribution and occupancy expenses decreased 8.3% as a percentage of sales.
Our decision to eliminate low margin promotional activity during the quarter has significant effect on margins.
To drive the point home a little further on.
Our margins were also significantly above first quarter 2019, which is considered a more normal quarter.
<unk> first quarter 2021, gross profit margin increased 10% over the first quarter of 2019.
Merchandise margin increased 8.1% and buying distribution occupancy expenses as a percentage of sales decreased 1.9%.
This reflects tremendous improvement over 2019 when stores were opened for the full quarter and there were significant less disruptions in the marketplace.
SG&A expenses increased $17.8 million on the first quarter of fiscal 2021 to $72.6 million.
As a percentage of net sales.
SG&A expense in the first quarter. This year decreased to 22, 1% compared to 37, 1% in the first quarter of last year and further compared to 23, 4% in the first quarter of fiscal 2019.
Approximately 50% of the increase in SG&A expenses were increases in compensation credit card charges and earnings on our nonqualified deferred compensation plan.
An additional 40% of the increase.
List for performance based incentive compensation.
Our record performance in the first quarter exceeded the annual performance targets and consequently, virtually all annual performance based compensation expense expected for the year was incurred in the first quarter. This year.
The effective income tax rate for the first quarter of fiscal 2021 was 24, 8%.
Compared to the 33% in the first quarter of 2020.
The higher tax rate in the prior year was primarily impacted by our first quarter implementation of the cares Act and the deleveraging effect of lower pre tax income on permanent differences for.
For the full year, we expect our effective tax rate to be comparable to the 25, 8% tax rate recognized in fiscal 2020.
Net income for the first quarter of 2021 with $43.2 million compared to net loss of $16.2 million last year.
Diluted income per share for the first quarter of 2021 increased $4.18.
The $3 <unk> per diluted share.
Compared to the first quarter of 2019 diluted income per share increased $2.11.
Now turning to information affecting cash flow.
Depreciation and amortization expense was $4.3 billion in the first quarter of 2021 compared to $3.8 million net first quarter last year.
We ended the quarter with inventory of $259 million, which was down $35 million compared to the prior year or 8.6% on a per store basis.
As Mark mentioned, we are aggressively working at modernized historically and expect capital expenditures in the range of $30 million to $35 million with.
With 24 to 26 million on that to be used on remodels relocations and the planned new store.
We expect to spend $2 million to $4 million on additional upgrades store distribution center and E Commerce platform with.
With the remainder spent on various store improvement technology investments and normal asset replacements.
Our planned expenditures remained subject to near term changes associated with the pandemic and ongoing supply chain disruption.
During the first quarter, we spent approximately $4.1 million on capital projects with the majority of those on the Remodels.
As of May 1.2021, we had no outstanding debt and cash and cash equivalents of $175 million.
Our borrowing capacity was $99.2 million at the end of the quarter and we generated free cash flow of $72.4 million.
My final comment today will be on our outlook for the second quarter.
Our strong sales and merchandising margins have continued into may with our comps up in the mid <unk>. The first 2.5 weeks of the second quarter.
However, we expect this sales pace to moderate and turned negative in June when we start comping. The strong sales we saw after reopening our stores last year.
You may recall, our stores began opening last year and late April and almost all were open by June 1.
Our comp store sales increase in June last year with almost 40%.
Additionally, the strength of the back to school sales, which typically drive sales in the last 2 weeks of the quarter or a question at this time.
Unlike in prior years <unk> schools in the trade areas, we serve have announced start dates for the fall semester.
While on appears likely most growth we'll have at least a part time in person learning is less understandable as to whether the traditional late July and early August school openings, which benefited Q2 sales and earnings will resume as normal will commence at a later date.
We have factored this into our guidance and this accounts for the majority of the range of sales and diluted EPS expectations.
Now for the specific guidance.
For the second quarter, we expect sales to range from $268 million to $278 million and based on higher merchandize margin diluted EPS to range from Q2, all time high but dollar to $1.20.
Implicit in our sales expectation as comparable sales decreased between high single digits to very low double digits.
However, when compared to Q2.2019 sales results, we are expecting a comp store sales increase of low to mid single digits.
In Q2 last year sales were at $300.8 million and diluted EPS was <unk> 71.
In Q2, 2019 sales were $268.2 million and diluted EPS was <unk> 80.
And the Clifton Mark both mentioned earlier there is continued uncertainty in the business environment.
Including consumer spending behavior ongoing supply chain disruption and the timing of in person learning into fall due.
Due to the uncertainties, we will only be giving directional guidance for the second half at this time.
Our second half results last year included a comparable store sales gain of 3.5% and record diluted EPS of $1.55.
We began aggressively reducing low return promotions in the second half last year and instead focused on the merchandize assortment and direct communications with our customers through our CRM.
This change in focus.
Along with the government stimulus resulted in a significant increase in our merchandise margin and drove a record diluted EPS performance.
Based on the significant increases in the second half of last year and the expectation of a decrease in government stimulus we're.
We are anticipating this year second half sales and merchandise margin to be flattish to slightly down.
However, when compared to the results for the second half of 2019.
We would expect both sales and merchandise margin to increase in the second half of this year.
This concludes our financial review and now I'd like to open up the call for questions.
At this time I would like to inform everyone to ask a question you will need to press star 1 on your telephone to withdraw your question press the pound key please standby, while we compile the Q&A roster.
Your first question comes from Mitch counts from pivotal research.
Yes, congrats on the on the quarter on thanks for taking my questions.
Kerry let me start with you just took some questions around around the guidance.
So let me start I think you said that may tick.
To date is up mid Twenty's was.
Was that a comp did I hear that correctly or is that sales.
Comp.
Okay, so comps up mid twenties.
Can you say what that is on a 2 year basis or could you give the sales quarter to date on a 2 year basis.
You don't Mitch I don't have that in front of me, but.
The important part about debt guidance was that.
As we were opening up our stores last year.
Becoming into tougher weeks as we progress and Thats why on Earth.
Putting a point that we were up now have a positive sales trend, but we expect that to moderate as we progressed through the quarter right yes.
Yes.
That's basically what I was asking for it on a 2 year basis, just trying to normalize some of the noise in the business last year, because when I look at your guide your sales guide for the quarter I think the high end of the guide is up up 4% from 2 years ago. The quarter you guys. Just reported it was up 29% from 2 years ago.
And I guess I'm, just trying to understand how is the business.
Currently following because it sounded like you are being cautious on your back to school assumption on maybe cautious around some other things so.
That's kind of why on the asking the question that way. So I don't know if theres anything else you can add.
Okay.
No.
I'll see if I can't get that number for EBITDA.
Okay that would be helpful. If you could.
You called out stimulus.
On your guys' comments.
Is there any way to quantify that and I know thats difficult to do but is there any way that you kind of as you look at the trend.
And the business since sort of mid March when all the stimulus started to hit.
Is there any way you could sort of speak to the trajectory or even if maybe you could talk about that.
May made a day do you still think there's stimulus in those numbers.
Mitch.
It's very difficult on the first quarter to call out stimulus because <unk>.
February weather was not really conducive to build the spring business.
As I mentioned on my prepared remarks.
February was not positive.
However, both weather and the stimulus hits at the same time, so it's tough for us to quantify whether that was the stimulus or whether it was both.
We're just thankful that both happened.
Net.
That helped us produce a record breaking quarter.
Cliff do you think you're still seeing stimulus.
I mean, there is still I think some checks being cut but the majority of the money went out.
We do a month on Africa.
The majority of the money is as Al mentioned loans you have the direct.
Children's tax credit debt still right.
As it's our.
Our customer right, where they live.
Yes.
And then Kerry on the merch margins I think you said Q1 was up 810 basis points from 2 years ago.
Is that kind of the.
The number that we should think flowing through the year I mean, do you think of that as being kind of a permanent number just given the elimination of the bogo and the.
And also cutting back on other promotions does that is that a good way to think about that or do you expect to kind of give some of that up.
Well.
We'll see as we progressed through it now we think we're running achieve higher permanently higher merchandize margins.
This will be the third quarter was the third quarter on ROE that we've had a significantly higher.
Margins on a year over year basis, obviously, the last year was affected by Covid shutdown. So the.
The percentage point increases in Q1 were higher we're expecting we built into our guidance once again to have higher margins.
In Q2.
We probably will deleverage on <unk>, which will take a little bit off of that.
<unk>.
Nice increase youre expecting our merchandise margins.
Hi, Matt This is mark.
Net.
Our.
We started to.
Significantly test and learn and reducing promotional intensity in Q3 and Q4 during the pandemic, but we're about to lap into those so again.
On the background goal as I said, we anticipate continuing to remain.
With the elimination of those low profit right. If I were to think of our guide for Q3 Q4 last year is a good benchmark of where we think gross margins have the potential of gravitating around.
Got it I guess, that's again why I asked the question on a 2 year basis, because I think Kerry in his prepared remarks called out merch margins up 810 bps from 2 years ago, So that would be even when you get to the back half of this year. If you compare it to 2 years ago that would be before you started the bogo elimination.
That's again why Im trying to ask the question the way I did in order to kind of again normalized for some of those changes but.
And I guess my last question maybe for Carl.
Where are you seeing inflection across categories right now you called out like the dress business was still down from 2 years ago, but up triple digits.
Yes.
Last year, I mean, I guess I'm just kind of we're on the margin are you seeing things just getting incrementally better or maybe even on the on the flip side.
Slightly worse or is it really around those categories that benefit.
The market opens up and people are getting out and about and doing social thing maybe you could just elaborate on that.
Sure Mitch we're continuing to see the categories that drove business during the peak of Covid.
The categories, we've been seeing all along what has happened, though as we got into <unk>.
Late.
First quarter and early second quarter, we're seeing a much more diverse.
Consumer coming out buying products for different functions as that consumers getting back out into their social life going on vacation.
There's a lot of weddings going on right now and we're seeing a much greater expansion of the customers wants into categories that were hurt severely during COVID-19 non.
It all back not all of the categories back, but we're definitely seeing that movement.
To buy goods that frankly here she hadn't bought for 14 months.
Got it okay, alright, that's helpful. Thanks, guys.
Thank you.
And your next question comes from Greg <unk> from Sidoti.
Hey, guys. Thanks for taking my questions I, just wanted to dig into the inventory at Kerry I think you mentioned bolt on <unk>.
On form 8-K.
On a per dollar basis, but if I go back to 2019 net lease on an absolute basis, you're still down 7%. So I was just wondering if you could provide a little bit of color on inventory levels, and then maybe within that context.
Just any color on whether you are running a high stock out level during the quarter.
The.
Greg the inventory levels on a if you want to match it up on a per door basis to 2019 at the end of the first quarter 2021, 2019 were down 2.7%.
And and as I said, we were able to pick up 31% in the quarter and you were able to maintain $2.7 worsens again touch on versus 2019, we were able to get back into some critically important products for the timeframe.
There were a lot of the inventory is.
He is lower it's frankly in categories that needed to be lower based on the consumers.
Response to the product during Covid.
Okay. That's very helpful. And then maybe could you just.
Provide a little bit of color on where.
I understand the elimination.
Being less promotional as helping the merch margin, but just at lower inventory when the months on the supply chain across the board is that also having any impact on your merch margin you think that maybe we will start to wane in the second half just trying to walk through your guidance a little bit.
Greg I do believe as if the supply chain problems.
Get better.
And continuing to get better they'll be more precious there'll be more product out in the marketplace and as there's more product out in the marketplace. There is more choices and it could have an effect.
On margin basis to the same levels that we're running today.
And I want to build on that element of build on that too if I can.
Customer as we've talked about this on last call the customers very very focused on the categories and items that they want to buy 1 on lead by that is this.
There are certain brands that are really performing very very well certain categories that are just over performing and they are just that allows us to not get promotional on most categories.
I've got to give the merchants incredible credit so the fact that they recognize that early and they said the customer is focused on buying that product.
We're going to do everything we can to maximize on margin, we make on that product and that's exactly what we did and thats. The reason that our margin.
On the way they have.
And very proud of that so.
On the promotional is 1 thing and that's probably the biggest issue.
The biggest opportunity that we grab hold of and and 1 web but.
The fact that our merchants just with after the product categories that we're selling and kept it in stock and didn't promoted that.
Also as a factor.
That's very helpful. Thanks, a lot and congratulations on the quarter.
Jude.
As a reminder to ask a question press star 1.
Our next question comes from Sam Poser from Williams trading.
Good afternoon, everybody. Thanks for taking my questions I've got a capsule.
And I guess, 1 thing ill start off with the serious stuff.
I guess after all these years it proved out that you did hire company.
You did hire a chief merchant so it all works.
And I'll, let Sam.
I credit the merchants that we hired together net rial reported.
Yeah.
Yeah.
Mark Mark.
Congratulations.
Anyway.
Yes.
A couple of things that nobody I think we're talking about.
Were any fact like did you see a back to school push in March when the kids. There was another move towards kids going in person around did you see any change in your business loans or is that just started the size growth with all the others.
On this factor because as I think Mitch.
Mitch or Greg.
On.
The worst return the stimulus checks and the tax refund all happened at the same time so.
When that began in that you can almost pinpoint that day.
But our business just turned from a.
What was disappointing February into a great margin and then continued.
Through well carries Belgium, where we stand on this.
This month, so it's just continued.
Got you and then.
I'm just getting on a couple of little ones here.
On the Guinea in did you move.
What how many basis points did.
Net inventory reserve.
Inventory reserve reversals helped your gross margin Kerry I know youre going to be happy to answer that question.
There is a question that we've never had before income never.
And it wasn't very material.
So if you look at.
Our merchandise margin in Q1.
We are.
We're almost all driven by the product margin.
The increase in net all of the <unk> and then.
The other biggest item was weak.
We leveraged the shipping charges against the higher sales charged on our ecommerce business, even though the dollars were up the sales. The overall sales were up substantially. So we had deleverage debt last year because the stores were closed in Q1 that was the only other big item everything else kind of netted against each other.
Got it thank you and then.
Yes.
You talk.
Mark jump back to school I mean within your guidance right now and there was no back to school at all last year. So.
Isn't how much have you can you give us some idea of what you've put into your guidance, let's say.
Versus 19.
I mean like are you is.
Isn't it.
20% on what happened in Q2 thousand 19, you put into your guidance.
Is it 50% can you give me some idea.
Well as to what's going on there.
In July last year, we were.
Our comps were down.
Just into the teens and we're looking at recovering most of that in July and our guidance, so having a pump comp increase in the very low double digits.
Versus 19.
Versus <unk> 19, and.
And again I'm not sure.
We purchased 20, Sam I'm sorry.
I'll always say, okay. So for the quarter, just walk us through the quarter again.
You're up 20% in May.
That may or May not fall off in next few weeks, but and then June youre up against the 40 and I assume you expect that could be down.
We do.
When do you expect to be up so so this.
Your comp expectation versus last year for Q2.
Can you said highest level the biggest just in the low double digits.
Versus.
The real issue is that just like I said in my speech.
We think that debt may where can we get as the stores open up we get more apparel comps so that.
The increase we're seeing from our comps going to moderate in May we didn't expect to have a pretty significant decline in comps in June going against the 40% near 40% comp increase we had in June last year.
Debt, obviously not sustainable it was driven by the stores reopening.
And the big move down we saw pent up demand et cetera, and then we had a weak July just because back to school and happened and we're looking at recovering.
<unk> of that.
Decline, we had in July last year.
It's still.
Unknown to US right now because the schools have not committed to when they're actually going to go back. So we don't know eye on.
Understand but I mean, you did $300 million last year in Q2.
You're telling us you're going to be less with net.
Sure.
On a positive comp.
So what we're looking at Sam though is a more typical against 2019 so.
Our guidance was $2.68 to $2.78, and we did $2.68 in 2019 so against them.
Normalized <unk> at the high end, we're expecting a nice growth on top of that.
So this comp youre talking about the comp increase of.
In the low double digits as against 19, youre going to be down your comps would be down versus last year.
Against last year, but against 19, we would be on yes.
Yes, yes, okay.
Making sure I get it because youre going to be down sort of mid singles versus your.
Last year.
Correct.
Where I'm coming to it.
Well our guidance was against 20 that we were in Q2, we're going to be down high single to low double digits.
Alright.
Neely, It's really was focused on the strength of June which is a 5 week period and and.
As a big effect on the quarter with that kind of comp.
Are you expecting your return rate, which wasn't much of anything last last year to go much higher this year.
We haven't seen a material change in the percentage of returns.
And then and then 2 other things 1 you said that the.
Karl how much have you narrowed the <unk> how much more have you narrowed the assortment and broader deeper on these key items and then improvement in the CRM, which is sort of probably for everybody.
You keep working on it and it keeps attracting more customers isn't that besides whatever may or may not happen with debt school in July.
Couldnt.
Might we.
I mean, thats moving that of <unk>.
Profitable revenue driver as well.
So Sam on the assortment.
We have been on this path for several years.
I can tell you that.
We went into the spring season planning when we initially planned and planned it on.
Lowering the assortment again not as drastically as we have been because they were on our third or fourth year of this.
However, we did tighten it down even more as we got closer into it based on what the consumer wants we're on Covid, we've significantly increased the key item strategy in every category that we have.
And then on CRM, let me pick that 1 great question, yes, it's going to enable tremendous.
Growth in profitability as a key contributor to delivering over $3 earnings in.
In the past 13 waits for Q1 more than any total year in our history.
To drive fuel unprofitable growth and our guidance for Q2, and we anticipate because of the strength, knowing our consumer and now have $27 million of them that we can talk to we will as Kerry delivered record Q2 expectations on our profitability.
On low single digit comp sales growth versus the normal <unk> or the declines we just talked about versus 2020.
We're really excited about it on.
Most energized about our ability to get new customer acquisition as I said on the stage.
We are utilizing our personalization messages to convert those new consumers and the shoe perks members and then ultimately into gold shoe perks members and most profitable loans.
And last we have a long growth way ahead on this journey, we think we have significant ongoing value to create for shareholders based on our CRM in years ahead.
Okay.
Thank you very much and continued success.
Thanks, Tim.
Your next question comes from Mitch comes from pivotal research.
Yes. Thanks, I just had a few hopefully quick follow ups. I think you guys have mentioned that store comp was up triple digits on the quarter I would imagine it was.
Nearly non existent last year, but could you say, what what's the store comp on a 2 year.
Okay.
Yes, Mitch we were up comp to 2000.1931, 6%.
Okay, I think you said that.
Alright, great and then.
Maybe Karl just on.
I think Q2, that's your biggest sandal quarter can you remind us how important sandals are on the second quarter and cash.
What your outlook is there versus.
I don't think sandals were great last year, I don't know that they were terrible, but it sounds like they're trending well now I think some of that having to do with some good early weather, but how are you thinking about sandals on the second quarter.
I don't think we're looking we think channels are going to be strong in the second quarter mentioned, we think there's going to be a tremendous vacation season. This year.
As people are going to go to the beach and get out for the first time, we did see some of that around spring break in the first quarter. So we do anticipate.
Continuing into the second quarter, and and just like we've experienced a longer seasonal selling period on seasonal categories. So we are.
We feel good there.
Okay and then.
Nike talked about they're scaled back on wholesale distribution.
Can you tell me when that really kicks in and benefits you guys have you kind of thought through that.
Please go ahead, okay. The Nike the latest round of Nike adjustments that we have heard take place and what you would consider holiday.
2000.
There are 2022, which is a typical fiscal 2021, which would take place October deliveries forward.
Okay great.
Great.
And then maybe lastly, just.
I noticed you guys have a lot of cash on the balance sheet I know, you've got some remodels and things like that and I think you want to wrap up the unit growth next year, but just can you just kind of remind us how you think about.
Capital allocation on your priorities, there, especially just given.
The size of the cash balance as it stands today.
Owens, our first investment with our cash is going to be for growth and net is going to be through modernizing our stores and thats where were putting a lot of our capex. This year.
While we and.
The other piece of it as you on dividends and buybacks.
The buybacks will come from the excess capital as we have it now 1 of the things that we wanted to do is carry a higher level of cash revenue.
I spent last time.
Right. So I think you have to take that into account debt.
So in order to more fortify our balance sheet during these.
Unusual times, we are in debt that will that will be an important piece of it also.
Okay, Alright, thanks, Kevin.
Thank you.
Your next question comes from Greg <unk> from Sidoti.
And just 1 quick follow up just wanted to get any color on the trend store closings. If there was anything kind of.
On trend with US was that our lease terms or is it just business.
Overall what changed.
Alright.
Plan to close on this we've been talking about but our natural lease explorations starting this year.
We're down to.
2 more remaining for this year on 1 more store openings so unexpected.
James just on that topic.
Okay, Okay got it thanks Mark.
Thank you.
There are no further questions at this time I will turn the call back over to the presenters.
I appreciate I really do appreciate everyone joining us today, and we look forward to talking to you in.
August Thank you again.
This concludes today's conference call. Thank you for participating you may now disconnect.
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