Q2 2021 Shoe Carnival Inc Earnings Call

August 25, 2021

As 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.

Busters 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 are contained in today's press release to reflect future events or developments I will now turn the conference over to Mr. Cliff Sifford, Vice Chairman and CEO.

If she carnival for opening comments.

Mr. Sifford, you may now begin.

Thank you and welcome to shoe Carnival.

21 second quarter earnings Conference call joining me on the call today are Mark <unk>, President and incoming Chief Executive Officer, Carl ship better.

<unk> Senior Executive Vice President Chief Merchandising Officer, and Kerry Jackson, Senior Executive Vice President Chief financial and administrative officer.

Many of you know today is my final earnings conference call.

<unk> CEO.

This management team has worked tirelessly to deliver.

Subsistent growth and value to our shareholders.

I'm extremely proud of our record performance and I am convinced we have not come close to realizing our full potential I.

I am so excited to watch this terrific management team continued to build on the successes we have enjoyed during my tenure.

Kind of CEO.

I'll, let mark Carleton Terry get to the specifics of the quarter, but first I'd like to take a few minutes to reflect on the last several years.

The strategic initiatives, we have implemented thus far and the strategies we have in place for long term growth had been a critic.

Full driver of our strong performance and I believe have set shoe carnival app for further successes well into the future.

Customer Centricity is not just a catchphrase to us is a core principle to every decision we make.

The customer is and we will continue to.

At the center of everything we do at shoe Carnival are stores are easier to shop with all the product to the open sell environment. However, we are not self service shoe stores, our stores are well staffed with knowledgeable associates, who offer as much service as a customer desires.

Our.

Our merchandising team is made up of well tenured professionals, who have a vast understanding of our customers and our stores down to the specific market.

This deeper understanding of each store's specific consumer and history of category performance allows our merchant team to bill.

Pacific Storm level Assortments that are not cookie cutter.

Our systems and create size runs that are specific binding department and category based on each stores history.

And most importantly, our stores are well stocked with a broad assortment of the latest trends from them.

Best brands with an adequate depth of sizes.

Our customers trust that when they walk into one of our stores. They will find the style say Walt emphasized a need.

While many businesses were shut down during the pandemic, we continue to invest in our future our investment in infrastructure.

The technology has been a game changer that will pay for itself many times over in the years to come we launched three internal systems that have positioned us for immediate success, and our online and brick and mortar stores and will drive future growth.

Our order management system has positioned.

<unk> us to effectively and efficiently improve service to our digital consumer.

Our transportation and warehouse management systems have improved our supply chain performance from the far east to our distribution center and ultimately to our stores.

Our order management system.

Allows for the fulfillment of our E Commerce orders.

Through our distribution center from one of our stores, depending upon which ever is the most cost effective and timely way to get the product to the customer.

This fall, we will launch a new planning software system that will give our merchants see additional tools.

They need to more effectively plan product assortment and flow to each individual store.

We talked for several years about the ongoing investment we made in our CRM system and our strong commitment to making the best in class.

CRM is a vital part of our innovative marketing plan.

And has allowed us to begin to facilitate.

Personalized communications with our customers.

Further it provides us with valuable consumer insights that will influence every decision we make.

I believe these investments have been the catalyst for our outstanding results and market.

Plan for gains over the past several years.

These strategic initiatives are testament to the knowledge and tenure on the team, but even more so to our ability to identify an opportunity and sees it in a meaningful way.

The methodologies that have served us well for many years is our ability.

Sure react quickly to the brands and trends of the season and quickly make the inventory investments that we'll make shoe carnival the headquarters shop for any current trend.

I have never been more confident in the team that will be leading this organization on a day to day basis.

A new chapter.

Chapter as a continuum really theyre smart aggressive and ready to take this company to move levels.

Mark has been by my side, the last three years, helping to craft and execute these strategic decisions and his leadership has been integral to the successes we have experienced to date.

Mark is a great friend and will be an even better CEO with a strong vision and incredibly talented team new systems technology, and a loyal customer base, a truly believe mark will lead shoe carnival into strong and profitable future growth.

I'd now like to turn the call.

All over to Mark to provide an overview linked quarter and an update of our strategic initiatives Mark.

Thank you cliff and good.

Morning, everyone.

Footwear customers Apple resoundingly return to shopping at shoe Carnival stores all across the country.

And profit results are.

Far exceeding our expectations for fiscal 2021, and as such we are significantly raising our annual guidance today.

Before we get into the details let me provide some context for the comparisons I will refer to during my comments.

Given the impact of the COVID-19 pandemic on our second quarter of fiscal.

Fiscal 2020, we believe our current performance is best viewed relative to the same period two years ago.

Our view this provides a more transparent picture of the sustainability of the growth we are experiencing as well as the underlying strength of our business.

Such comparisons I provide will be relatively.

Relative to the second quarter of fiscal 2019 unless indicated otherwise.

Terry will provide further comparisons versus 2020.

The shoe Carnival team once again rapidly accelerated growth posting record sales and record earnings per share during Q2.

Merchandize.

Margins expanded substantially and we achieved our highest operating profit on record during the quarter, which was nearly four times, what we reported in the second quarter of fiscal 2019.

We also achieved overall comparable store growth of 25, 5% in the quarter compared to Q2 2000.

19.

These results included a mid teen increase in customer conversion within our brick and mortar stores fueling double digit comp store sales increases across all geographic divisions over the same period of two years prior.

Importantly, our long term e-commerce growth strategies.

Continue to deliver on our customers' shopping needs for.

For the second quarter E Commerce sales grew 140% versus the second quarter of fiscal 2019, driven by customer traffic up high double digits.

Further products margin associated with E Commerce sales.

For over 1500 basis points compared to the fiscal 2019 second quarter <unk>.

E Commerce has grown into both a new customer acquisition pipeline for the company and a major contributor a profit to shareholders.

Turning to back to school.

The communities. We serve are returning to school to fall sport and to shopping patterns that are similar to 2019, our customers are back in our store shopping at levels exceeding prior back to school season, and e-commerce sales continue to far outperform 2019 levels.

To provide some additional context.

For the first three weeks of August overall store traffic is up over 50% compared to 2020 and schools did not return normally do to COVID-19.

The first three weeks of Q3 2021, and the August 21.

Comparable sales are up nearly 16% versus 2020 and up 23% when compared to August 2019.

Thanks to our best in class merchandise team and strong vendor partnerships when our customers come to shop. They are met with a broad on trend selection of brands and styles and their size.

We expect this momentum to continue throughout the fastest full season and forecasting it translates into record Q3 sales and profit results.

Kerry will elaborate on specific increased guidance later on this call.

Over the last three years, we've been implementing a strategy aimed at delivering a unique preferred shopping experience for our customers to do this we knew we needed to get to the core of what family footwear customer's bottom on walking into our store or logging onto our ecommerce site.

We made several significant investments in our technology, including building a world class CRM system and launching the shoe perks loyalty program, while at the same time strengthening our ecommerce capabilities.

As a result, our parameters experience and customer capabilities are stronger than ever.

Buildings from the solid foundation, we will align around for strategic pillars.

Customer first and.

Innovation.

Profit transformation and growth acceleration.

It is through this lens, we will further solidify shoot carnivals leadership position within the family footwear space.

Let me talk about the progress we are already making within these pillars and how we will continue to execute this strategy.

Customers first and.

As a leader in the family footwear shoe Carnival price itself on delivering the shopping experience. It is preferred by our customers whenever and wherever they shop.

We're doubling down on the commitment to read relentlessly operate with the customer first months specifically.

Specifically with.

Cost of strategic focus on customer acquisition, and then converted newly acquired customers and tissue first loyalty members are.

Our customer insights and analytics capabilities are growing rapidly and enabling enhanced personalization efforts, resulting in converting more new customers into repeat buyers.

For the trailing 12 months in Q2 2021, we expanded our new customers at purchase that shoe carnival by mid teens percent versus 2019 and.

Important to this strategy. We also grew or shoot first loyalty program membership by over 20% versus Q2, 2019, and double digit growth versus Q2 2020.

Next to be a customer first organization, it's critical to always be innovating, whether it be in store experience or back end systems that enhance customer personalization are staying at the forefront of key trends from a merchandising standpoint innovation.

Innovation will be the cornerstone of how we drive new customer acquisition and retention and ultimately long term financial performance.

We continue to develop innovative marketing plans to ensure strong customer engaging.

As we discussed last quarter, we shifted away from profit Federative deep discount chain wide promotions like five one get one half off we've.

We replace this with targeted promotions to our customers powered by our data analytics that gives them the product they're looking for at a price point that represent value for them.

One example of these efforts are back to school results, which demonstrated the strategy is working.

Multiple competitors returns with the standard buy one get one half off profit dilutive promotions used during the last decade.

<unk> back from school strategic promotional approach resulted in 23% comp store sales increase through the first three weeks of August whilst product margins through nearly 1100 basis points compared to August 2019.

This type of profit driving innovation will be a key differentiator for shoe carnival and ultimately a driver's continued performance per shareholder value creation going forward.

In addition is cliff pensions weeded transformed our infrastructure by operating and enhancing our transportation warehouse and order management systems, which will allow us to meet our customers needs more efficiently.

Notably we're in the midst of a multi year store modernization effort should.

Should chronicles already known for providing family footwear consumers are unique in store and online shopping experience last quarter. We stated an aggressive goal of completing the first 100 stores within our fleet modernization and plan by spring 2022, and number two thirds of our store fleet in the next three to five.

Years.

I am pleased to say we are on track to achieve our 2022 target and are pacing ahead of our three to five year plans.

The feedback from our customers, thus far has been overwhelmingly positive that.

The founder enhancements be engaging offering an even more exciting and rewarding in store shopping experience.

Third as we reached the benefits for our first two pillars customers first and innovation. We are in an enviable position to deliver enhanced operational excellence, which will translate into profit transformation.

You can see this most clearly in a record of products margins and operating income we delivered during the second quarter of fiscal 2021.

In addition, because of our strategic initiatives. We now believe that we have the ability to sustain operating margins of at least 80% over the long term, our new profit level far surpasses our previous strategic plan target to achieve 6% operating margin by 2023.

Fort accelerated growth near.

Near term growth will be focused on new customer acquisition, expanding comparable same store sales and increasing sales and profit per square foot. We're very pleased with the progress on our store profitability metrics at the high end of our guidance for this year, our sales per square foot will be approaching $300 a foot in our.

Average sales per store will be three $2 million.

This compared to our previous recent pies achieved in 2019 of sales per square foot of $245, an average sales per store $2.6 million.

Significant runway exists to grow profit accretive market share and our existing core markets and sustainably delivery of our 8% operating margin for our shareholders.

Are disciplined capital management strategy have served us well and we will continue to do so as we further evolve as a leader in this space.

At quarter, and the company has no debt and approximately $164 million in cash cash equivalents in investments.

The strength of our balance sheet combined with a strong strategic vision and execution across the organization has allowed us to achieve our strongest Q2 operating results in company history.

Given the continued record setting performance achieve fiscal year to date, we have significantly increasing our full year guidance.

Increased guidance reflects our confidence in the business fundamentals are strong competitive positioning and record the results achieved year to date and.

In addition, given the start to the back to school season far outpaced earlier expectations and any prior <unk> access will start we will also be offered in the third quarter of fiscal 2021 guidance that represents significant growth over the last year.

Or solid foundation, coupled with our innovation led customer first strategy will support this increased outlook for the remainder of the year and beyond.

I want to take a moment to recognize our outstanding shoe Carnival team members for their continued commitment operational excellence and their customer first mindset we.

We could not achieved results, we have without their hard work and dedication.

And very excited to continue the great work. The team has been doing but I am also cognizant of the rising uncertainty in light of increasing transmission rates of the Covid belt's apparent as such we continue to Prioritise, the health and safety of our customer employees and communities.

While the environment remains fluid we are confident that we have a strong playbook in place to remain nissl foreign periods of uncertainty and are well positioned to react quickly stood things materially change and.

In closing.

We are committed to providing our customers the preferred shopping experience and product assortment within the family sort of our channel. The team strategic efforts will unlock significant brand value over the coming months and years, while at the same time solidifying our position as an innovative leader and the families both of our states.

I will now turn it over to Carl Shout, a senior executive Vice President Chief Merchandising officer for an update on our product performance and inventory position.

Thank you Mark we continue to execute on our focus promotional strategy using data intelligence to drive customers in store with more personalized recommendations. This strategy has served us well since implementing it over 10 months ago driving record sales and gross margins, we continue to monitor key.

Metrics that provide valuable insight into customer behavior, we then flex or promotional and merchandising strategies to allow any changes in customer shopping preferences. This flexibility allows us to gain additional insight into our customer, which further enhances targeting drive more customer acquisition growth.

One of our key strengths as an organization is our ability to react quickly to a changing market.

The merchant team continues to work closely with our vendor partners to reduced negative impacts from industrywide supply chain disruptions, we made a purposeful decision to buy for growth in the second quarter as we anticipated a return to more normalized consumer demand for the period. For example, we increased our inventory <unk>.

<unk> for dress shoes to be in line with pre COVID-19 levels in anticipation of the surge of events like weddings and graduation parties, which typically occur in the second quarter. This was another great example of shoe powerful being on trend early or stores were stocked with the styles and quantities of dress shoes that Custer.

Rumors wanted giving us an agile for our competition and driving a significant increase in new customers in the quarter, our ability to lean and continues to set us apart from others in the industry.

Before I get into the results for the quarter. It's Mark noted I will be including comparisons to the second quarter of fiscal 2019 and my comments.

The second quarter of fiscal 2021 comparable store sales increased 11.4% over $2045, 5% over 2019 product margins for the quarter skyrocketed up more than 1100 basis points compared to 2020 and over a thousand basis points compared to two.

2019.

Turning to comparable store sales by department for the quarter versus 2019, all product categories were up double digits kidney.

His store sales versus 2019 were up over 20% in the quarter with every major category doing well as family lifestyles return to more normal level of travel and entertainment increased as a result, we saw category selling returning to a more historical mixed by classification.

Comp store sales and both kids athletic and not athletic for very strong.

Sales and non athletic wear driven by casual and seasonal products sales and both boys and girls also performed well consistent with what we have seen over the last several quarters.

Top sales and the men's nonathletic categories were up over 30% for 2019 increases were driven by men's Kansas seasonal in all categories.

Comparable store sales and women's down athletic categories were up in the high twenties for the quarter sales on women's sports seasonal and dressed drove the category, but as communities continue to reopen demand for additional product categories has increased.

We continue to grow our leadership position in adults athletics, which were up in the high teens on a comparable store basis. Despite the movements several states tax free events to fiscal Q3.

Both Venza women's athletics headstrong performances with sales driven by the basketball skate and court categories. We ended the quarter with inventory up for 2% on a per door basis, compared with 2020 and down 4.9% to 2019, we are working closely with our vendor partners to.

Punished key categories and are diligently monitoring our supply chain while.

While these shortages are forecasted to continue for the balance of the year, we belief that are outstanding buying teen through their excellent vendor relationships will continue to be successful in providing our stores with the products needed to accomplish our goals and sustain a record breaking numbers with that that let me turn the call over to carry Jackson to.

Five more insight into our financial performance for the quarter and full year.

Thank you Carl.

As Mark mentioned, given the impact of the COVID-19 pandemic during the second quarter of fiscal 2020. We believe her performance is best viewed relative to the same period in 2019 at this will provide a more accurate depiction of our outstanding resource we achieved during period.

Will provide comparisons relative to 2022.

Will replace added emphasis on some of our results compared to the second quarter of fiscal 2019.

We achieved record net sales of $332.3 million for the fiscal 2021 second quarter, an increase of $31.4 million or $10, 5% compared to the second quarter of fiscal 2020.

Comparable store sales increased 11, 4% for the second quarter of 2021 compared to the prior year and $25, 5% compared to the second quarter 2019.

Our brick and mortar comparable store sales were up 25, 8% in the second quarter of 2021 compared to the second quarter 2020 and.

And up 19% compared to the second quarter 2019.

E Commerce sales were up 140% in the second quarter of 2021 compared to second quarter 2019.

But down in line with expectations against the second quarter of 2020.

Second quarter of 2021 course profit margin was 49% a record high for shoe carnell and up more than 1300 basis points compared to the second quarter of 2020, driven primarily by our tremendous merchandise margins in the quarter.

Buying distribution oxy expenses decreased slightly at the percentage of sales when compared to second quarter 2020.

To put a finer point on our incredible growth when compared to 2019 second quarter of 2021 gross profit margin grew by more than 1000 basis points driven by a 960 basis point improvement in Berkshire dice margin and is 60 basis point improvement and buying distribution narcotics.

Fences as a percentage of sales.

These results clearly underscore the successful execution of our merchandising strategy highlighted by Cliff, Mark and Carl earlier and to call.

SG&A expenses increased to seven $8 million in the second quarter of fiscal 2021.76.0 million.

As a percentage of net sales these expenses increased to 22.9% compared to $22, 7% in the second quarter of fiscal 2020.

The increase in the SG&A was driven by hiring employee compensation expense related to increased store level wages and a sperm compensation as a result of our continued record performance.

When compared to second quarter 2019.

Expenses as a percentage of sales for the second quarter of 2021 increased 190 basis points due to the significant increase in sales.

Operating income was 59.7 billion or 18% of second quarter of 2021 sales, which is a record for the company compared to $14.4 million or four 8% of sales in the second quarter of 2020.

Well compared to second quarter 2019.

Quarter of 2021 operating income increased and extraordinary $44 million.

As Mark mentioned earlier, we believe we can sustain future operating margins of at least 8% when the retail environment has normalized.

The affected income tax rate for the second quarter of fiscal 2021 was 25, 8% compared to 29.6% in 2020.

Net income for the second quarter of 2021 was $44.2 million compared to net income of $10.1 million during the same period last year.

Earnings per diluted share the second quarter of 2021 increased by $1.19 to $1.54 per diluted share.

Compared to the second quarter of 2019 earnings per diluted share increased $1.14.

Now turning to information effecting cash flow.

Depreciation and amortization expense was four 6 million and that this was the second quarter compared to 4.0 million in the second quarter of fiscal 2020.

We ended the quarter with inventory of $381 million, which was up $9.3 million compared to the prior year for $4, 2% on a per store basis.

Compared to the second quarter of 2019 inventory is down for 9% on a personal basis.

As was mentioned earlier, we continue to work closely with their vendor partners to strategically manager inventory given current supply chain constraints.

As of July 31st 2021, we've had no outstanding debt and total cash cash equivalents and marketable securities of $163.9 million.

Our barring capacitors nearly $100 million at the end of the quarter.

As you know during the second quarter, our board of directors authorized a two for one stock split of the shares of the companies common stock Bush's affected in the form of a dividend.

The stock split entitled each shareholder record at the close of business on July 6th 2021 to receive more additional share common stock pretty sure. They owned as a bad date and was paid on July 19th 2021.

Cotton completion of the stock split are outstanding shares increase for approximately $14.1 million shares to approximately $28.2 million shares.

During Q too, we repurchased approximately inherent 17000 shares of common stock at a total cost of $4 million.

As of July 31, 2021, we had $46 million available for future repurchases under our share repurchase program.

We will continue to evaluate the repurchase of shares under the repurchase program during the remainder of fiscal 2021.

Turning to our outlook given our third quarter results to date and are expected to continue strength for the remainder of the quarter, we expect third quarter diluted earnings per share in the range of $1.10 to $1.15.

Net sales in the range of 307 million.

$315 million for the third quarter of fiscal 2021 and.

Additionally, we are raising their full year fiscal 2021 guidance and now expect diluted earnings per share in the range to $4.35.

Two $4.50.

And net sales in the range of $1 billion to $1 billion $212.3 billion.

This concludes our financial review now I'd like to turn to call back to Mark for some additional comments.

Thank you Kerry.

Before we open the call for Q&A with let's take a moment to recognize cliff.

Even this will be his last earnings call.

First and foremost I would like to express my personal gratitude to cliff or is in Numerable contributions to the shoe carnival organizations and the broader family footwear industry for more than two decades.

I appreciate the strategic partnership and the great friendships, we have developed working closely together over the last three years.

Cliff is built in in critical company culture is vision combined with our collective strategic investments to build our brand and consumer experience for US was the springboard to drive long term success per shoe carnival.

I am honored to be following his lead.

This is also pioneered philanthropic efforts on both a personal level and at the company. In fact, it was recently announced that it would be awarded Loopy and Holly Memorial Award of the tooth and footwear Foundation in December the foundations highest honor for exceptional humanitarian achievement.

We are so proud of this well deserved recognition at the perfectly sums up the cliff is as a person.

Cliff from all of US a shoe carnival, it's been an honor and a privilege to work with you. We wish you nothing but the best if we transitioned into your new role.

I would now like to open up the call for questions and answers.

AP, we'd like to ask a question please press side.

And the number one on your telephone keypad.

On one side and the number one.

And your first class income tax.

Can you make significant repairs.

Yes, thanks for taking my questions.

Cliff.

Pretty good quarter I.

I should probably add my congratulations so ill reluctantly do that just for you.

Thank you for that.

Of course.

Got a handful of questions. So first off obviously business have a great quarter, you are having a strong start to.

Q3, when you reflect on that.

How much do you think that's the macro stimulus pent up demand things like that versus you know some of your company's specific strategies around consumer acquisition and an engagement or even just the fact that you may have better product developed pilates and some of your competition could you maybe just talk a little bit about that.

I would like to tell you that.

Everything that we've done through the years ahead dot got those here, but to be perfectly honest with you.

I'm going to let Mark answer. This question, we close the things that he's put in place to take the CRM to the next level is what's guidance to where we are today and I am so confident that what is going to do.

As a transition to buy share is going to take us some next level so mark lunch.

Thank you could have been high mentioned, thank you for the congratulations.

Worked grill with the business fundamentals that will either seeing throughout Q too and even more encouraged by the way the plants at work because we started out Q3 with the sheriff in my prepared remarks Q3 is on pace to set a record back to school or so confident in the traffic the conversion.

And the merchandise products that column team have gotten our delight and customers that were already ready to share.

Q3 earnings so to charter, we believe our strategic plans are working well and set us up to maintain this momentum throughout the remainder of the year.

On page for the tremendous increase in earnings and sales carriages provided.

And then carry on the guidance.

When I kind of look at sort of what's embedded over the balance of the quarter. It looks like you're expecting some moderation.

And the trend I am just curious is that just some conservatism baked into the outlook or is there something that you are you are seeing.

As you think about the balance of the quarter and again I'm sort of really thinking about that on a on a two year basis I know the doctors scores funky last year, but I'm thinking about that in terms of two years ago.

Well.

The schools.

We've said before it's kind of a forest fire than our kids go back to screw with new shoes and since the kids have gone back to school physically and presence, we're seeing a nice surge, which we wouldn't expect to see outside of a peak demand like this though yes.

Sequentially through the rest of the quarter. We are we would expect to hear more normal life partner.

Okay, and then Carl talk to me about Boots, you made some comments on the quarter about the non athletic business being good people kind of getting back to.

So I'm kind of curious how you think about that.

Into the holiday season, I mean, do you expect to advocate dressed in business. David just just broadly talk about cutting your outlook for boots.

Sure Mitch we'd planned and planned boots up for the back half of the year mid single digits. I'll tell you that early boot reason the numbers are very small. So so we have to keep that in mind fairly big rigs are outstanding so far and it's multiple categories auto booths that are performing.

Some of the fashion that.

We saw in 19 that we expected to.

Accelerating 20, and that obviously get the real because the COVID-19, we're seeing that happen in 21. So we are encouraged.

And sales will fall.

Of the year.

Just a couple a couple last one has any comments on the on the supply chain and it looks like you guys are doing a really good job in terms of having good product availability, but I'm just kind of cure curious how you. What are you hearing on the supply chain, where do you see more broadly across the industry.

We have heard that.

You would expect that this question of our main challenge at least you the balance this year into the first half of next year and I'm kind of curious how you think about that relative to what you think channel of a trial might look like.

And your ability to kind of again continue to hold off promotions things stay pretty clean out there.

Sure sure Mitch says this is the all consuming part of my day.

Trying to get our arms around the supply chain.

And trying to.

Sort of move things around.

We've been fortunate so far that we have we have been able to deliver inventory and based on our inventory levels. I quoted my prepared remarks were quite pleased where we are right now.

We think we're positioned.

As we move through third quarter and into the first part of the fourth quarter that we have products flowing we have anticipated delays.

And even with those delays you feel pretty pretty good about where we are.

As we move into late fourth quarter is spreading to see this continuing especially with the issues that we're having at the industries, having Vietnam right now and how that's going to play out we don't have complete vision to that today.

But I will say that our team is executed very well so far our vendor partners have really stepped up and supported us and I expect that to continue here.

Outfall, although I do see see the possibility that the channel will be light on inventory and will once again be able to.

Although promotion based on.

Our position of inventory of the season.

Okay, and then and then lastly, if I heard you guys correctly I think you said that 8% operating margin kind of where you think would be more of a sustainable level, which.

That would be down from kind of where you guys should lamb. This year. So I'm kind of curious what do you think you'd give back is it just that as the environment normalizes.

Just maybe the sales come down a little doses.

Deleverage some or is it really on the.

The birch margins are sustainable at this level I know you've kind of moved away from Bogost I would expect that you would think that continues but the margins, but so good you just think that you have to give us some of that back and you just talk.

Talk through that.

Sure Mitch I'm.

I'm going to compare versus 2019, and our historical priest pram them expense.

We have put in place.

Transfer national profit.

Improvement plan to get to a 6% operating margin by 2023 as historically Prepandemic we were running.

Low five high.

Hi floors and in that range for the five years leading into it so.

So quite a variety of plans in place that we've talked about the last quarter's including our innovation or new systems are customer focused and most importantly are viewed transformation.

No thanks for coming to bear faster than we thought and by nature of that were given guidance now that are 8% is our new norm compared to 6% in 2023.

So we're thrilled with that the primary driver of it will be landing a promotional strategy that delivers barges significantly higher and prepandemic and it's not that we've shifted at all from the line in our value based customer, we're still talking to them providing them in the past.

<unk> has a price for them, while we're doing it on more of a personalized one on one basis, leveraging our CRM, our marketing plans on our best Clayton class merchandise I'm on trends.

We are confident that we can come out there today not ready to give guidance on revenue or other 22 items, but we have changed the profitability.

Low five prepandemic to eight is the new perspective, there's a lot we need to learn about other cost structure supply chain revenue and leverage and therefore were not given guidance overall the guidance and we're not ready for that over very confident in the step change.

Alright, guys. Thanks, Good luck clarify no you're probably not going to Miss These calls that we're going to Miss Avenue on him. So thanks again.

Thank you.

David Williams.

Well good morning, everybody. This was by far we both amazing.

<unk> verbal spectacular quarter I've ever seen and now I hope nobody ever says anything like that again now.

But thank you Spank your family.

Alright, so number one I just wanted to dig into the to the post early holiday inventory availability situation. I mean, we are hearing all sorts of stuff.

Vendors pushing back orders potential cancellations.

Lots of different stuff going on so so when we think about how much of those issues, let's say in prime time holiday, Let's say December January.

Sure.

In that.

How is that impacting the guidance.

In the back for the balance of the year.

And what are you doing to make sure that you can be in position for spring 22, because that seems to be.

The wildcard right now.

Holiday is big but spring training sounds like it could even be a bigger issue.

Hi, Sam it's mark Thanks, so much for the congratulations.

And the supply chain concerns into our Q3 and Q4 guidance vicarious provided today so.

So we feel confident with the current situation in the landscape and the global supply chain. We are on track to achieve what we've just guidance.

Charles to build on the outlook past the holiday season, and as we start to look to the uncertainty that still exists in 2002.

Hi, Sam.

We.

We feel good like we mentioned about getting into the holiday season.

Getting through the holiday season naming delivery of products in January February of next year that is still somewhat of an unknown we are.

Every day, we're getting more answers from our vendors regarding.

Delivery moves and shifts we're not seeing.

A large quantity of cancellations at this point, although we are seeing some delays.

In that supply chain will know and the majority of the.

The nights were getting is all about Vietnam products that you know what those are so.

It's hard to tell at this point, we're or Q1.22 is going to fall as far as beginning inventory, we feel good getting through.

Fall early fall and holiday and we'll get more updates every day on January February and and it's.

It's really early in the game for me to give you more than that.

Okay and then.

Can you.

You said that E Commerce business was in law versus last year was in line with your expectations.

Since you've been giving all the other numbers can you tell us what the E com was versus.

Q Q20.

Sure Sam.

Like I said, we're delighted with the new customers, we brought in for our acquisition of digital.

It's laminate as I said, 140% growth versus two years ago.

Through through now it's down mid double digit versus last year and by now I mean through where we are three weeks into August we're down.

Low double digit versus 2020 exactly in line with where we had planned the year.

We are incredibly excited by how fast customers have returns of our bricks and mortar store.

The return them, even faster so the acquisition of customers that we've taken to CRM, both the digital and in our bricks and mortar is dramatically higher as I said in the call and two years ago and significantly higher than one year ago, but I do I find out our brisk sales are.

Accelerated faster than we thought and many Tom sale held in line with the switching back that we had anticipated.

So I'm going to be a pain.

<expletive> Sporting goods, just reported earnings and he just said that their ecommerce business was down 28% year over year.

A number they understand.

We all everybody understand glass Judy climate business was through the roof. So what was it.

That brings this last year.

Number you gave us with 140 give us what the down as this year I've just.

Minutes.

We understand it it's just.

The numbers number to our benefit work down.

Proximately, 18% year to date E Commerce sales.

And in the second quarter.

Yeah.

Do not have second quarter in front of US right now Sam.

Is higher than that but in line with expectations.

And then.

What's the store opening closing situation looked like given the productivity of the stores are going up.

How do you see.

And about how do you see for bounce new year income next year right now for your store plans.

And right now we are really excited about reigniting the store growth plan as well as all the energy we're putting in the modernization plans.

Our current plans are to get the net new store growth as we approached 2023.

2022 is currently focused on finding those sites really driving with acceleration the modernization of our fleet and accelerating the profitability.

And for the balance of this year, what's the plan right now for stores.

Still no change we still we've just opened one store last quarter.

And we have.

Two to three we continue to expect to the club this year on natural terms that are low performing.

Okay.

And.

Congratulations on.

Enjoy your rich.

Retirement Valentine.

[laughter]. Thank you swim.

Your next question and Sandburg PD.

Hey, guys since they're taking my questions just to I guess on the near term outlook August is that typically I think in the past you've mentioned that is around 70% athletic and just kind of I guess a complex with the question would be I mean is that where you are winning most from earlier in the call you kind of mentioned market share.

Hi, Greg This is Carl.

Typically at 70% athletic.

For the month of August I can tell you right now, we're running a little bit less than that percentage.

Of athletics of the total and that's not a reflection I don't believe those athletic sales slowing it's a reflection of other fashion categories accelerating.

Like a word with beginning at for fall of two.

2019, before they get the rental so.

Slightly less than 70% of still a giant number.

Understood and then just considering your customer demographic I know, it's a little ways out.

The tax credit can you kind of talk to on childcare, how to think about that and maybe even relevant to 2019. If you can kind of remember what were what was the refund season like in the sense of.

Anniversarying that now that people will probably they're getting their.

Credits now and they won't be getting the refunds, how should we be thinking about that.

But.

We're seeing that our customers continue to.

Be motivated to come into shoe Carnival stores live following the trial tax credits that are coming out monthly we've seen.

Specifically traffic spike double digit the weeks after the new tax credits have come out conversion has been exceptional and comp sales have been continuously strong following each of attacks still a little early but it's been consistent for both of the month so far.

And seems to have been lasting for a good one to two weeks or were getting material.

So we built into the remainder of the year forecast for the stated credits similar expectations that we continue to fuel a part of that growth.

Two earliest understand yet for 2022, what the actual big but we're clearly seeing it's resonating with our customer chosen shoe carnival and conversions and traffic are exceptional.

Okay.

That's very helpful.

Your next quest from Jim <unk>.

Great behind.

Good morning textbook of my questions.

I just wanted to talk about the composition of the.

The sales growth first 2019, how much is being driven by the gains in your customer base and over the last two years and how much is a increased spend by your existing customers.

Good morning. Thank you for the question and we see the lion's share of the growth is being driven by new customer acquisition versus the Prepandemic.

The the double digit gains were bringing in have been the primary fuel.

To our success, we believe in the conversion at that point of time visit credit to what Carl and his organization of has the right products or the rite trends and importantly in stock to convert on time during the supply chain disruption so without a shadow of doubt new customer acquisition has been primary.

Second narrowed it out or shoot <unk> loyalty program is also grows double digit and we think that if the magic. So the quarter that we've been able to bring those double digit customers and but make our shoot parts loyalty member climb to the highest it's ever been.

Things are really enjoying it and we're bringing them through that value chain of.

Internet trial trial in the store importantly, buying and then becoming loyalty members, which are most profitable.

To work were thrilled with the dynamics, we're seeing for the underlying business fundamentals.

Great and then.

The new customers and required last year.

The behavior similar to earlier cohort of new customers and then is there a maturation period for new customers.

They're they're behaving differently and reacting incredibly positive to our new promotional strategy in fact.

If we look at 2019.

The core new customer acquisition was coming in through lower promotion profitability activity now or targeting new customer acquisition specifics Elizabeth Brown with styles that communication with experience.

And it's taking our average basket five up to some.

Some of the highest levels, we've seen in our profitability and margin to the highest levels we've ever seen so they're acting like bright positive related to the CRM investments outside and we're bringing in a customer that still value oriented, but not looking for cheap and that's a big differentiator, we're articulating internally label Harper Valley.

For the best product given us at the right price not achieved.

Right that is giving a light value for shareholders.

Great and then.

For modernization plan.

How does the Nike shops kind of play within that so often hunter storage you plan to modernize by next spring how many of those will include a Nike shop, and then just to kind of follow up how are you thinking about benefits from from Nike distribution rationalization going forward.

Yet as we said on the call. We are very pleased with how the store modernization is rolling out we are on track to exceed the pay us for the three to five year plan to have at least two thirds of the store done. So we're very confident that darn well related to next year contract for that first hundreds.

To be completed by spring.

And even more exciting part I didn't share before this quarter. The first 50 of those will be completed and we're very proud with that despite the COVID-19 at all that's going on our teams have worked tirelessly to still refresh and the first 50 will be completed this quarter.

Q2 2021 Shoe Carnival Inc Earnings Call

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