Q3 2021 Shoe Carnival Inc Earnings Call
Took that distinction away from us and now we've got it back.
How did we do it.
First customers resoundingly returned to shopping in person.
Importantly, our accelerating growth as multichannel, we're hitting all time highs with bricks and clicks.
Some volume as it.
Both the pent up demand as kids got back to school and team sports and others came in to pick up a new pair of dress shoes for that first in person fault.
But we also delivered strong growth and other lifestyle categories, including App leisure. So it's also about having the right range of product available at.
Ascribe a time.
Our second core message you're hearing me hit hard upfront we are back in growth mode again.
Wrapping up a protracted period of net store closings and with the productivity moving in the right direction. We are moving back toward net store openings as we enter 2022.
We're seeing families flocking to our bright clean fresh modern stores and likely what that fine there.
Our customers are more excited than ever about getting out of their homes and into our stores and with that in mind, we're accelerating investment in building the best in class loyalty and CRM platforms.
We have reached an inflection point that our company.
We've entered a new era of growth and expansion as we fulfill our long term strategic ambition to become a multibillion dollar retailer in the years ahead.
I'm joined on today's call by two seasoned industry leaders, Chief merchandising officer cost should better and chief.
Insulin administrative officer, Kerry Jackson, whose combined 42 years of service at shoe Carnival are a testament to the stability and continuity of our leadership team.
Before moving on I'd like to stress the incredible contributions of the thousands of shoe Carnival team members, who collectively contributed to our success over the.
The past year and the past quarter.
It's no exaggeration to say that we could not have reported such remarkable results if not for the dedication motivation and inspiration of the best merchants marketers and operators in our industry bar. None on this call I will provide you with some perspective on.
A final order in our strategic priorities.
Carl will weigh in with his thoughts on some key industry trends and our longer term outlook.
Kerry will share insights from his deeper dive into our Q3 financial performance in greater detail.
Finally, we will be opening this call up to questions.
I'd like to thanks.
All of you on this call for joining us today and for your interest in shoe carnival into our millions of customers. Thank you for the trust you place in us and your ongoing loyalty to our brands.
I'll start out with a few high level proof points to back up my earlier statement.
Is that this was by every metric.
Our best quarter of our best year in our 43 year history.
We took home our highest quarterly earnings ever.
We achieved the highest sales of any quarter.
More than tripled operating income versus any prior Q3.
Store traffic is up over 40% year to date with strong growth.
Across every region, we operate from Chicago down to Texas.
Our profit margins are highest ever with all of our comparable stores generating positive cash flow year to date and going into 2020 to all stores across the fleet are forecast to have positive cash flow on a comp basis.
Importantly from the point of view of our customers, we're executing rapidly on our store modernization plan to update two thirds of our fleet in three to five years.
Based on overwhelmingly positive customer response to our modernized stores today I'm announcing an acceleration of our strategic plans and are now proceeding to modernize.
Modern is 90% of the fleet by 2025.
Now let me respond to two obvious follow up questions first how did we do it and second can we keep it up.
We did it by executing flawlessly on and investing aggressively in our best in class brand building loyalty and customer relationship.
Jeff management platforms.
Since the onset of the pandemic, we have engaged with many millions of new customers and expanded our active buyers account to new heights.
At the end of Q3, we surpassed 28 million shoe perks loyalty members growing nearly 3 million loyal customers versus the prior year.
I think one of the best ways to highlight the success of Q3 is by the increase in our gross profit margin up 840 basis points for Q3 to 44% compared to 32.0% in the prior year.
One of the most important ways, we got there was by delivering on our stated.
<unk> pension to eliminate bogo half off promotions for the year.
<unk> buy one get one half price promotional tactics has been exposed as an approach that committed us and many of our competitors to selling our best shoes at the lowest price point.
We are no longer reliant on that profit 10 motive promotional.
Good intentions.
Turning now to our e-commerce results artisans emphatically an omnichannel story, we're all about getting our digital cliff to complement our bricks business.
Over the past year and past quarter, we transformed our e-commerce business from a sales and profit perspective.
Today, we're at about 100.
<unk> million dollars.
Sales for the first three quarters, which is roughly twice all of our e-commerce revenues for all of 2019.
I referred to 2019, because while year to date revenues are down from 2020. The comparison isn't very useful because our stores were closed for a significant part of the first half of that year.
This past quarter was as you'll be hearing from us in different context, the most normalized since the onset of the pandemic in the first quarter of 2020.
Margins in our E Commerce business are up significantly in Q3 sales returned to low double digit growth compared to last year.
We expect that growth.
The trend to continue and forecast low double digit e-commerce growth continuing annually for many years ahead.
Now let me provide you with an update on our progress executing on our strategic plan investments and innovations.
We've been putting every one of those best in class programs and initiatives.
<unk> through their paces with just one goal in mind.
We want our customers to once again fueled the joy and fulfillment of real time in person shopping through an in store experience that it's unique in our category.
And just as importantly, we want our customers to have a comparably compelling experience engaging our brands.
Online.
The best news coming out of the quarter is that we are continuing to pulling customers by the millions into our stores, who have not recently or ever seen or experienced the assignment of the modern shoe carnival we.
We see the future of retail is being about having a real world experience walking our clean.
Bright stores seeing the compelling visuals at a constantly updated and discovering new brands through our steady stream of exciting pop ups.
Let me share with you some of the best outcomes over the past year, and the past quarter, which can't be conveyed by the numbers alone.
Since the pandemic shine the spotlight.
On persistent and equities in our society and communities at shoe Carnival, we have resoundingly taken that challenge as inspiring all of us on our team to do even more.
We are proud of the commitment to community engagement represented by our recent new business partner of the year Award from St. Jude's children Hospital.
To round up at the Register program, we facilitated our customers donations of over $1 $1 million.
To our charitable partners year to date.
And we have had promising partnerships with among a wide range of organizations the boys and girls club.
<unk> philanthropic initiatives taken.
Gather or the positive outcome of a long term strategy to significantly increase our involvement in and positively impact local communities and families across our geographic footprint.
We've made significant progress in other areas, including advancing the diversity of our board with a welcome addition.
<unk> have Diane ramp off the former CIO of Ulta beauty.
This brings the gender diversity up to our near term target of 40% of independent directors, a significant improvement over 16% in 2018.
Importantly, Diane will be a tremendous resource as we continue on our journey to lead the retail book.
We're industry on technology innovation and customer experience.
Before turning the call over to Carl and Carrie I'd like to take a few moments to share two of my long term ambitions for shoe Carnival at the close of my first quarter as CEO.
First I aim to grow the shoe Carnival Corporation.
Into a multibillion dollar retailer within the years ahead.
Second.
I see the shoe Carnival Corporation has Z preferred family footwear destination among value customers across America.
I am confident that with our long term strategic plans and Outstandings.
Operations, the future is very bright for shoe carnival.
You all again.
Now I'll turn it over to Carl showed better Chief merchandising officer for an update on our product performance and inventory position.
Thanks, very much Mark as Mark says, we are delighted to report the strongest ever quarter, Adam will now provide.
An update on four key factors driving our outstanding performance.
We are leading the way with loyalty and brand building through our ongoing investment in CRM, we are able to understand our customer better than ever before and continue to execute on our focused promotional strategy by.
<unk> data intelligence to drive customers in store and online with more personalized recommendations. This strategy has served us well since implementing it just over a year ago driving record sales and gross markets.
CRM is a vital part of our innovative marketing plan and has allowed.
Cloud us facilitate personalized communication for our customers.
Further it provides us with valuable customer insights. These investments have been a catalyst for outstanding results and market share gains over the past several quarters with today the strongest evidence yet that our strategy is working.
Second our unparalleled vendor relationships supply chain challenges continue to impact our industry and many others. We are the partner of choice for vendors navigating supply chain volatility and are the first port of call when product comes in why well some of our competitors for dialing back purchases.
And keeping inventories low because they were worried they get stuck with a surplus of goods. We did the opposite we plan for growth in 2021 from a merchandising perspective, we plan for the best back to school season ever and we got it we were prepared and positioned to meet pent up demand and we did it.
We got the.
<unk> product at the right time due to strong vendor community relationships are vendors knew we had a hard in the business and the allotted to us accordingly, because we had the right products at the right time on our competitors, we crushed back to school with comps up over 30% to the prior period.
August was incredibly strong.
Right per month, and we sustain those highest ever volumes through October <unk>.
Stories about working with vendors to overcome supply challenges in this environment vendors are picking and choosing more carefully than ever and we are proud to be at the top of their list.
We are firmly embedded relationships with our vendor partners both existing and.
New vendors continue to think of us of course.
Third we are winning merchandize categories and Assortments as Mark mentioned, our customers return to our stores in droves and we have what they want comp sales versus Q3, 2020 were up 31% and up 31, 4% versus.
Strong 2019, as Mark mentioned this past quarter was the most normalized since the onset of the pandemic in 2020.
As a benchmark merchandize margins in our e-commerce business are up over 500 basis points compared to the comparable prior year period.
I'd like to highlight our best in class merchandise.
Versus as the unsung heroes of the quarter, not only anticipating trends, but navigating supply shops to deliver the right assortment for back to school and the whole family.
Drilling down to back to school performance, we said at Q2, we plan for an active back to school season, and we got it because we have the right products at the right time.
That resulted in our converting the most customers in the past quarter than ever before.
We feel Q3 was the most normalized quarter, we have seen since the pandemic began and E. Commerce now has normalized with double digit growth.
E Commerce continues to play a significant role with consumers balancing wanting to get back.
Team on the main street with continuing to work from home as they juggle their work life balance overall ecommerce traffic continued to grow in the third quarter remained a key driver for new customer acquisition and an important part of the Omnichannel approach.
Ours is truly an omnichannel story as.
We provide a highly complementary bricks and clicks offering that provides customers with the breadth of assortment and quality of service they've come to expect from US Let me touch on that a little more.
Fourth is our differentiated store environment and customer service Margaret alluded to this earlier, but we see a modern shoe carnival.
<unk> is well positioned to succeed in the post Covid era, we want our customers to feel joy and fulfillment of in person shopping in our stores. Our stores have been opened modern clean look and they feel safe.
These environments are motivating more customers to step through the door and browse.
Our larger in store footprint facilitates both the pleasant browsing experience and provides the opportunity for socially distance environment to ensure health and safety.
Our digital displays and brand shops, and our customers to trends and promotions they seek with real time updates above all our people are friendly knowledge.
<unk> Ivo and always put the customer first in.
In fact, our customer focus is a core value and a key difference maker in the category.
As we turn to results category comparable store sales were all up double digits with overall merchandise margins for the quarter up 670 basis points versus two.
Knowledge.
And 830 basis points versus 2019 kids comparable store sales versus 2020, we're up in the mid Forty's, both athletic and non athletic sales were up over 40% versus last year.
Mens non athletic comparable store sales were up in the high Twenty's sales were driven.
By men's canvas sandals, and all boot categories.
Womens non athletic comparable store sales were up in the mid Thirty's as we reported during our second quarter call men's women's and children's dress footwear has made a huge comeback with women's dress, leading the way with the third quarter comparable sales gain of over 100%.
<unk> versus 2020 sales in women's sport and sandals were also strong and the boot season, starting off well.
Adult athletic comparable store sales were up over 20% versus 2020, both men's and women's areas performed well with basketball skate and running alternatives and strong.
Strong results.
As we laid out at the start of the call supply chain challenges continue to impact our industry and many others. As we mentioned there is no way to minimize the supply chain challenges for what differentiates us from the competition is that these challenges presented us with a competitive opportunity which.
Successfully captured although delays continued through the quarter our team of seasoned merchants continue their aggressive approach to sales and inventory as they have shown throughout the entire year.
Through their hard work and excellent vendor partnerships. The team was able to deliver the products needed to fuel these outstanding results.
Which we feel we are well positioned with inventory to succeed in the fourth quarter and are confident.
Sorry to be up in the high teens versus 2021 and metal singled.
We've reduced versus 2020 this.
This increase will be mostly driven by increases in our athletic and men's inventories with that now let me turn the call over to Kerry Jackson.
Two our financial performance for the quarter and the full year.
Thank you Carl.
<unk> CFO.
Singled it did talk to results. This year. So here we go.
We achieved a third consecutive quarter of record breaking net sales of $356 3 million for the fiscal 2021 third quarter, an increase of 81 7 million or 29, 8% compare.
Compared to the third quarter of fiscal 2020.
Comparable store sales increased 31% for the third quarter of 2021 compared to the prior year.
Our brick and mortar comparable store sales were up 32, 8% and E. Commerce was up 12, 5% in the third quarter 2021.
Compared to the third quarter of 2020.
Third quarter 2021 gross profit margin.
44%.
Near record high for shoe Carnival, and up more than 840 basis points compared to the third quarter of 2020, driven primarily by continued strength in our merchandise margins.
Per quarter.
Buying distribution occupancy expenses decreased to 170 basis points as a percentage of sales when compared to the third quarter of 2020, despite higher supply chain expense.
These results clearly underscore the successful execution of our merchandise strategy.
<unk> highlighted by Mark and Karl earlier in the call.
SG&A expenses increased by 14.0 million in the third quarter of fiscal 2021 to $81 6 million.
As a percentage of net sales these expenses decreased to 22, 9% compared.
Compared to 24, 7% in the third quarter of fiscal 2020.
The increase in SG&A was driven primarily by increased advertising spend as well as by higher employee compensation expenses as a result of our continued record performance.
However, the 180 basis point decrease.
<unk> and SG&A as a percentage of sales was a reflection of the outstanding sales growth we achieved during the quarter.
Operating income was $62 4 million or 17, 5% of third quarter 2021 sales, which is another record for the company and.
In the third.
Third quarter last year operating income was $20 2 million or seven 3% of sales.
The effective income tax rate for the third quarter of fiscal 2021 was 24, 8% compared to 26, 8% in Q3 last year.
Net income for the third.
Quarter of 2021 was an all time quarterly record of $46 8 million.
<unk> to net income of $14 7 million during the same period last year.
Earnings per diluted share for the third quarter 2021 increased by $1 13 to a record $1 64.
Per diluted share.
We ended the quarter with inventory of 282.0 million, which is up $7 8 million compared to the prior year or four 5% on a per store basis.
As was mentioned earlier, we feel that we're well positioned with inventory succeed.
<unk> in the fourth quarter and are confident heading into fiscal 2022 with a strong inventory position to deliver continued success.
Our balance sheet remains strong and we have ample liquidity and best and the opening of new stores and modernization of existing ones.
As of October 32021.
We had no outstanding debt and total cash cash equivalents in marketable securities of $191 2 billion.
As a reminder, during the second quarter, our board of directors authorized a two for one stock split of the shares of the company's common stock.
Upon completion of the stock split.
Our outstanding shares increased from approximately $14 1 million shares to approximately $28 2 million shares.
As we invest for future growth.
Following through on our commitment to shareholder return.
During the quarter, we repurchased 91000.
594.
The common stock at a total cost of $3 2 billion.
And the first nine months of fiscal 2021, we've made a total purchase of 208662 shares and we have $42 9 million available for future repurchases under our share repurchase program.
Sure Sir.
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 fourth quarter results to date and our expected continued strength for the remainder of the quarter. We are raising our full year 2021 guidance again.
Program and now expect diluted earnings per share in the range of $5 to $5 10.
And net sales in the range of $1 $2 5 billion to $1 290, 1 billion from a previously expected diluted net income per share in the range of $4 35 to $4 50.
And net sales in the range of $1, two 1 billion to 123 billion.
Implicit in the upper range of our annual guidance is an expectation of record fourth quarter results with net sales of 273 million and diluted income per share of <unk> 41.
Our previous highest fourth quarter was last year with net sales of 254 million and diluted net income per share of <unk> 26.
In closing these are the best results in our over 40 year history.
With fast growing sales improving profitability and robust.
Cash flow, we are better positioned financially than ever executed in our store expansion and modernization plans and to generate long term stakeholder value.
This concludes our financial review now I'd like to open up the call for questions.
At this time I would like to remind everyone in order.
It's a good question press star followed by the number one on your telephone keypad, we'll pause for just a moment to compile our Q&A roster.
Your first question comes from the line of Sam Poser with Williams trading.
Line is open.
Hi.
Good morning, guys. Thank you for taking my questions I've got a handful here.
Carl you cut off at the end of your.
<unk> discussion there when you were talking about 'twenty two I'm just wondering if you could just repeat what you said there.
'cause it totally went dark or at least on my phone broke up there.
Sure Sam.
What I said was we expect 2022, beginning inventories to be up high teens versus 2021, and mid singles versus 2020 and that the increase is mostly driven by increases in our athletic and men's inventories.
Thanks.
Thank you.
You talked about net store openings in 22 can you give us some idea of what Youre thinking there since you opened that.
Cam up a little bit and how we should think about that.
Good morning, Sam.
Sure.
That is we.
We enter 2022, all comp stores in the fleet will be cash flow positive our store productivity measures.
Sure.
They exceeded our expectations and with that we're announcing today a return to net new store growth during 2022, we're not.
We have a phone number but we're confident that in 2022, it will start to ramp up during the year and we're aiming to be back into a double digit net store growth mode by the time, we get to 2023.
So on a net basis when you say double digit you mean 10 stores.
Or more or double digits as a percent.
10 stores or more as our aim as we get to 2023 that will be ramping up towards that as we proceed through 2022 and as more good sites open up we'll be pursuing growth as fast as we can close deals.
Okay.
And then Kerry on the last call you talk could you talk about how we should think I mean, it looks like youre going to hit around the 15% operating margin this year.
How should we think about operating margin going forward.
Yeah.
Outside of.
Outside of this year, because that was a little bit of.
I don't know how to put it on the last earnings call regarding something that you know other than Covid.
Yes.
Like we've said before.
We have changed the profitability perspective of the company we're operating.
At a much higher level with higher.
A higher sales productivity out of our stores and higher margins.
Yes.
Well we.
We're not going to go back to our 19 levels.
Not in a position yet really talk about where we expect to be at for the.
For next year.
Well, we are focused on is continuing to deliver for this year with record.
Sales for our fourth quarter and record earnings for the fourth quarter, leading into the highest sales and earnings in the company's history for this year.
Alright, well then one more follow up for you carry on the fourth quarter.
You've been putting up gross margins in the.
Yes.
40% range all year, how should we think about the gross margin in Q4.
Relative.
For the whole year.
<unk> been beating last year and the year before handily.
Year to date as well.
But we expect to continue to see gross profit margin improved Q4.
It's not our most productive quarter.
But we will see growth in there.
I understand that but I mean are we looking at 36% are we looking at 32% give us some ballpark.
Ballpark here.
That's sort of baked into how youre thinking about your guidance right now.
We expect to see a significant growth in our margins in the <unk>.
Fourth quarter as we've seen throughout the year.
Isn't expected to be at the same run rate as we've seen the first three quarters, but it's impressive.
On a year over year basis.
Yeah.
Yes.
Okay.
I'll, let the next person bill Thanks, very much continued success.
Success.
Thanks Sam.
Again, if you would like to ask a question press star followed by the number one on your telephone keypad.
Your next question comes from the line of Jim Chartier with <unk> Crespi Hardt. Your line is open.
Good morning, Thanks for taking my questions.
So first yes.
It looks like I believe last quarter, you said comp.
Comp sales were up 23% for the first three weeks of August relative.
2019, and then for the full quarter, you guys did 31% versus 19, so sales accelerated.
Curious what drove that and then any commentary on how fourth quarter has started out today. Thanks.
Good morning, Tim.
Our customers are rebound.
Resoundingly returning into our stores.
And our store traffic trend continues to be exceptional as we go into Q4.
With that the product that we have on hand, and our strong staffing levels. We are confident Q4 will close at the best Q4 sales.
Institute and the highest earnings we've ever delivered.
We couldnt be more excited with the return of live shopping into our fleet across our geographic footprint.
So would you attribute the acceleration to just people being more comfortable returning to stores or were there some canada.
<unk> four is that that may be accelerated over the course of the quarter for you.
The key driver for US has been our accelerated investment in our CRM and engagement with new customers, we're bringing in by drugs new people to the shoe Carnival modern experience whether it's their first.
<unk> seeing that or they're retrying us after many years and they are loving what they are seeing with the quarters delivering more customers converted than during any period prior.
So I think first and foremost is what were doing second compared to last year.
Being consumers more confident to get out there to in person shopping and our open strip centers and really having that experience of walking those.
Bright safe modern shopping environments, we provide them.
Great.
<unk> talked.
About the new customer acquisition any way to kind of quantify for us how much of your growth maybe.
Year to date versus 2019 has been driven by new customers versus existing customers.
Yeah.
I think the best point I could point to is our shoe perks loyalty membership.
It has surged to an all time record exceeding $28 million. This year and if you look at that on a year over year basis. We grew that by just about 3 million new customers into that group.
We think new customer acquisition has been a key catalyst.
Four.
Our record year and the big opportunity for US now is now that we can engage with them.
Converting those into multi purchase loyal consumers as the big opportunity for us in 2022 in the years ahead.
Great and then you talked about a multibillion dollar brand.
And you have to get to $2 billion, that's over 50% growth from where you're guiding this year.
Any sense of what kind of timeframe youre looking to get there.
We're signaling our ambition is to move into an aggressive.
Decades of growth ahead both.
In our current footprint as well as looking beyond that we don't have a timeframe on the exact number of years, but we want to be clear to say, we're back in growth and as we sit here today.
Growing over $300 million in sales with the profits.
In our guidance.
In north of $5.
Wanted to signal to the group that we are looking aggressively to expand and become a multibillion dollar retailer in the years ahead more to come on that also in the quarters ahead.
For now we want to signal where in aggressive growth mode again.
Great.
Would you consider acquisitions within that.
Potential for it to get to a multibillion dollar brand.
We're looking at the best way, we can gain market share leadership in the markets. We're in whether that's organic growth our opportunities provide themselves through M&A activity.
We're going to contemplate the best way for us to get to that multibillion dollar leader.
The leader of the family footwear with the value consumer.
Alright, and then just last question can you remind us what you believe kind of the store opportunity is for shoe carnival over time. Thanks.
Sure.
And then near.
Near term as I said to Sam earlier, we're going to get back into a net store growth now that the entire fleet is forecast to be cash flow positive for 2022, we will get the net store growth, we will ramp that up rapidly into double digit gains as we get into 'twenty three.
And considerations beyond not putting our long term target for store count out there today, but we are intending to significantly expand our store count in the years ahead.
Great. Thank you.
Again, if you would like to ask a question Crestar followed by the number one on your telephone.
Keith.
Okay.
As there are no further questions at this time I will now turn the call back over to Mr. Mark Gordon Chief Executive Officer.
I'd like to thank you all for again your interest in shoe Carnival and joining us today and we wish you all very happy holiday season ahead.
Right, but forward to talking to you again soon.
Ladies and gentlemen, thank you for your participation. This concludes today's conference call you may now disconnect.
[music].