Q2 2022 Caleres Inc Earnings Call

Thank you for standing by our coffers. So beginning started momentarily once again, please standby our conference will be getting started momentarily.

[music].

Good afternoon, and welcome to the clarity second quarter earnings Conference call. My name is Kevin and I'll be your conference coordinator at this time all participants are in a listen only mode. If anyone should require operator assistance. Please press star zero on your telephone keypad.

And answer session will follow the formal presentation. As a reminder, this conference is being recorded.

At this time I'd like to turn the call over to Logan born of course, he Vice President Investor Relations. Please go ahead Miss.

Good afternoon, I'd like to thank you for joining our second quarter 2022 earnings call and webcast a press release with detailed financial tables as well as our quarterly slide presentation are available at Polaris Dot Com. Please be aware today's discussion contains forward looking statements, which are subject to a number of risks and uncertainties.

Actual results may differ materially due to various risk factors, including but not limited to the factors described in the company's Form 10-K, and other filings with the U S Securities Exchange Commission.

Please refer to today's press release, and our SEC filings for more information on risk factors and other factors, which could impact forward looking statements.

These reports are available online the company undertakes no obligation to update any information discussed on this call at any time.

Joining me on the call today is Diane Sullivan, Chairman and CEO , Ken Hannah Senior Vice President and CFO and Jay Smith, President, we will begin the call with our prepared remarks and thereafter, we'll be happy to take your questions I would now like to turn the call over to Diane Diane.

Thank you Logan and good afternoon, everyone I'm pleased to report the Claris continued its strong execution in the second quarter, achieving yet another period of outstanding results. We delivered record consolidated sales net earnings earnings per share and generated still strong consolidated margin level.

And we closed the first six months of 2022.

Earnings per share of $2.70 more than double the previous six months high set in 2021, and 22% higher than our pre Covid annual record of adjusted earnings per share of $2.21.

During the period, we continued to leverage our diversified portfolio to capitalize on demand and trending footwear categories. So we could meet the needs of our core consumers, when where and how they wanted to shop and enhanced our customer file while at the same time, making strategic investments for future growth.

Over the year overall, the year is progressing very much in line with our expectations with the cadence of our quarterly results playing out as anticipated as we previously discussed we projected that our first half results would represent well over half of our expected 2022.

Earnings per share as a result, we are reaffirming our previous annual guidance, specifically, we still expect to achieve diluted earnings per share between $4 20, and $4 40, which will represent record or near record annual earnings per share.

Now taking a look at the results more closely among them any significant highlights for the quarter. We achieved another quarterly sales record of 738 million driven by a significant year over year increase in sales from the brand portfolio segment.

We generated record consolidated operating earnings of $68 4 million.

And a nice per diluted share of $1 38.

We captured a consolidated gross profit margin of 45, 6% holding the consolidated margin level delivered in the first quarter of 'twenty two.

Levered another strong consolidated return on sales, reaching more than 9% during the period as famous achieved an Roe of 14%.

We also made sure that we prioritized our strategic investments, namely in consumer marketing to drive deeper and stronger connections with our consumers.

And we also made noteworthy progress on our capital return priorities.

To that end during the second quarter, we returned $27 million of capital to shareholders via the repurchase of one 1 million shares or roughly 3% of our shares outstanding.

As you know we grew this program is an excellent way to drive long term value for our shareholders as we progress through the balance of the year, we are well positioned to take advantage of opportunities in the marketplace and expect to generate significant amounts of cash in the year's second half.

While we will constantly evaluate the optimal use of our free cash we clearly view buybacks as an effective means of returning capital to shareholders.

And with our P E still well below historical levels, we view of Polaris stock as an attractive investment option.

In short we believe this ongoing outstanding financial performance continues to demonstrate the structural shift in the earnings potential of Claris and highlights the significant competitive advantage of our versatile platform.

And if you think about it over the long term this structure enables cooliris to drive exceptional results and strong market environments, while still generating a traffic attractive levels of profitability.

Even when there is a more difficult macro economic backdrop.

But let's now turn to our segment level performance, starting with our largest brand famous footwear.

Amos continue to perform at a high level in the second quarter building on the strong performance in Q1 and in meeting our internal expectations across all key financial metrics. In fact famous delivered 62 million in operating earnings on net sales down three 8%, resulting in a return on sales of more.

And then 14% I would note that this is our sixth consecutive quarter of achieving double digit arrow asked in this segment.

Notably famous also sustained its strong gross margin rate of nearly 49% from the first quarter as we continued to limit promotional activity.

Turning now to inventory our current inventory position is up approximately 18% compared to 2021 when inventory was low due to supply chain constraints. However, when compared to the same period in 2019 inventory is down approximately 15%.

Therefore, we're working in real time to make sure that we're managing our inventory flow by classification and brand to emphasize and amplify what's working and selling through and what's not going forward. We believe there are certain spots, where we can improve our inventory position, particularly in specific categories in order to more fully capture part.

Talking of strong consumer demand.

As I normally do let me give you an update on a few key initiatives, we feel will enhance our competitive advantage at famous.

As it relates to product the categories and brands that had been selling continue to resonate with a famous consumer in fact, our top 25 brands represented more than 85% of our sales during the quarter.

In addition, we believe there is significant opportunity to maximize the vertical integration between famous in our own portfolio, which has the potential to connect with the current target customer engage new potential new consumers as well.

Has he been drive greater margins for Polaris as a whole.

In fact in addition to life threatening doctor shows which are already performing well at famous we believe we are uniquely positioned to leverage our extensive knowledge and deep consumer insights around fashion footwear to address the customers' increasing interest in adding seasonal footwear to her wardrobe and we are working to inject the rights.

Styles and brands in the right location to broaden our reach and to drive highly profitable incremental sales on top of our core athletic and sport business, we know that when she buys for her family and for herself. She is spending more connecting more and returning more often.

Turning now to marketing during the second quarter, we use the funded findings collected during our media mix and and marketing attribution study to build out and execute immediate plan.

It would be more effective and officially efficiently reaching the consumer.

We strategically invested in consumer marketing, including T D creative production and paid search really accelerating these efforts ahead of back to school.

I would be remiss, if I didn't highlight the outstanding back to school campaign that launched on July 5th and.

In fact famous celebrated back to school in a big way with a fine happy and musical campaign, it's centered around a TV commercial featuring John legend crowd go Crazy and ran across Premier programming and networks you can see the full commercial via the link in our quarterly earnings slides.

Before I move on to the brand portfolio I'd like to provide some color on the consumer demand environment and more specifically around the early trends we're seeing during this important back to school season.

Since March of 'twenty, one famous has benefited significantly from elevated levels of consumer demand in those conditions continued for most of the second quarter. However, it beginning in July we began to see demand in traffic and conversion impact impacted by a more cautious consumer.

So as a result, while we anticipate and see clear evidence of a solid back to school season. We're currently forecasting third quarter famous sales to decline approximately 4% or.

Or similar to what we've experienced in the first half of 2022.

In short famous had an outstanding first half of the year with double digit operating margins underscoring the significant power and agility of the famous brand and providing just a terrific foundation for another strong earnings year in 2022 and beyond.

Well, yes, consumer demand may moderate somewhat in the second half of the year famous remains positioned to win with its national footprint.

Its strong digital business, it's improving inventory position enhanced consumer experience and then all of those being very powerful drivers for growth.

So now let me turn to the brand portfolio.

The brand portfolio turned in another exceptional performance achieving significant year over year improvements and continuing to lay the groundwork for a significant step up in the segments overall annual earnings contribution.

Specifically, we delivered an approximately 36% year over year increase in sales driven by consumer demand across trending categories and reflecting the successful execution of our initiatives to elevate product design.

Find our product Assortments.

And importantly to increase the availability of inventory to meet demand.

In fact, we saw double digit sales increases across much of the portfolio as we not only had the right products to consumer watch it but the inventory behind the right brand and styles to meet the consumers' needs.

Clearly this was a significant shift from the environment from last year Ken.

Ken will discuss our inventory position in more detail shortly.

In addition, our gross profit margin was 38%.

In line with the first quarter of 2022.

In total the brand portfolio achieved 29 million and earnings of 78% increase over 2021 with a 215 basis point improvement in the segment's return on sales.

Also during the quarter, we achieved a 30% increase in the portfolio is direct to consumer business highlighting the power of our brands coupled with our improving reach of our digital capabilities.

This included an approximately 9% growth from our owned e-commerce sites with solid increases from nearly every one of our branded websites. In addition, we drove a 27% year over year increase in new customers as consumers continue to look to our portfolio for fresh and compelling products and diverse.

Assortments.

We believe we can leverage our powerful brands customer analytics and overall expertise to unlock more value from the total Polaris customer file over time.

Now, let's look more closely at some brand level detail first it's important to note that several of our brands are gaining share and winning with the consumer a consumer who is definitely out and looking for new and updated footwear for fall in fact, given our early reads on what the consumer wants for the season with boots showing positive trends.

It appears dress and casual will remain strong as well and we are ready.

Our Sam Edelman brand delivered strong results in the quarter with a year over year sales increase of 86% of course. This performance was driven by strong demand across all categories as well as a strong in stock position of poor inventory.

While the brand's wholesale business improve the highlight again this quarter was the growth in its digital business with Sam Edelman dotcom up nearly 60% when compared to the same period last year. In addition, the brand continued to engage with consumers increasing its consumer filed by more than 30% and underscoring the cig.

<unk> connection of the brand is fostering with new customers.

I would also note that most recent Sam Edelman catalogue arrived in homes, just under two weeks ago and it is generating excitement around our fall product and translating to an uplift in sales and an increase in web traffic.

Finally next week, we'll be launching an exciting campaign with world renowned supermodel Naomi Campbell, we're anxious for everyone to get a look at this campaign, it's new and fresh and really uses Naomi as powerful presence to support the power of Sam's product the cameras. The Champaign will showcase key items from the footwear collection highlight.

Both new fashion styles as well as the brand's heritage classics.

Next our nationalize our brand has continued its exceptional turnaround with total sales up nearly 70% as the brand benefited from strong dress casual and occasion based trends and also from its solid inventory position behind key styles.

Importantly, the brand sales improvement was broad based with strong sell through at our key retail partners and with a more than 50% increase on naturalize their dotcom.

Notably the brand's top 10 styles generated 35% of its total business highlighting the commitment to our edit to win initiative. In addition to the uplift in sales another period of lower promotional activity drove substantial improvement in margin.

The ongoing evolution of the naturalize of brand continues to resonate with the younger educated and more affluent consumer and have successfully combined great fit and comfort with style. We believe the brand's relevancy is attracting a wider audience appealing to the consumer earlier in her career and meeting her needs through.

All of life's occasions.

Now Allen Edmonds also continues to show strong signs of improvement with sales running ahead of last year higher AUR and approximately 500 basis point increase in gross margin over the second quarter of 2021.

Demand continues across dress and sneaker classification as interest in our iconic styles grows and we leveraged these silhouettes and new casual ways.

Also edit to win is.

Additionally, yielding great results with our top 10 shoe patterns, representing 46% of our total footwear business and in addition, our recent limited drops, namely the macallister and Maura had been successful in augmenting our full price selling and supporting our strong margin levels and our.

Ladies campaign team colors, which I would all right I would definitely recommend you take a look at is the epitome of Allen Edmonds unique capabilities around customization a.

A feature that we know the consumer wants and loves all things are for sure heading in the right direction at Allen Edmonds.

Finally, while life stride has really come on strong.

Sales increased 79% over the comparable period last year with AUR, it's rising significantly.

This performance demonstrates the value of the brand provides consumers, particularly in this macro environment, the compelling new product design as well as delivering the comfort level. The consumer is demanding post pandemic.

Stride, which touches a large and growing segment of the footwear market is rapidly becoming a name that consumers know and trust.

In short the momentum in the brand portfolio continues as we are seeing demand strength across many of our brands to the portfolio as versatility across categories and across price points.

Tumors are looking for fresh and new for fall and they are reacting well to our products up and down the brand portfolio.

Looking ahead, we expect to build on our solid foundation established in the segment during the first half of this year.

We will of course lean into our strong product design and our diversified assortment make sure that we leverage that inventory position built on our consumer insights keep that added to win initiative going capitalize on the strong demand and then always look for new ways to unlock future growth opportunities.

As we look ahead 22 is shaping up to be another record or near record year for Polaris. We believed that the stage is set for a strong and highly profitable 20 twenty-three given the tremendous progress we've made across a wide range of strategic and value driving initiatives in recent quarters.

With that I'll now hand, it over to Ken for a more detailed view of our financials Ken.

Thank you Diane and good afternoon, everyone.

I'd like to start my discussion today by sharing additional details around our strong second quarter results, our capital allocation plans and our outlook for the third quarter of 2022.

It's important to note that most of my commentary will focus on the comparable period in 2021.

Some supplemental comparisons to the second quarter of 2019, we're relevant and useful.

We delivered consolidated second quarter sales of $738 $3 million, which was nine 3% above the second quarter of 2021.

Diane mentioned this performance was driven by the brand portfolios outstanding 35, 6% increase over the second quarter of 2021.

For all consumer demand for our brands and product Assortments continued.

As expected famous footwear sales declined three 8% in the quarter driven by a 3.4% decline in store count year over year and a later start to back to school.

Our consolidated gross margin was 45, 6%.

Down 290 basis points from the second quarter of 2021, reflecting a higher mix of brand portfolio sales and increases in freight expense.

Ramius footwear delivered a gross profit margin of 48, 9% in the second quarter.

The 118 basis point decline was driven by a more modest level of markdowns and an increase in freight costs associated with E. Commerce sales gross margin at famous footwear was up more than 550 basis points versus the second quarter of 2019.

Brand portfolio recorded second quarter gross margin of 38, 3%.

139 basis point decline over the second quarter of 2021, driven by an increase in wholesale sales.

Discounts and markdowns, the gross margin and brand portfolio increased over 350 basis points over the 2019 levels.

Our second quarter SG&A expense was $268 $4 million.

For 36, 4% of sales, a 206 basis point improvement as compared to the second quarter of 2021, which included approximately $10 million of stock and incentive compensation expense that will occur in the third quarter. This year.

Our operating earnings for the quarter were $68 $4 million or nine 3% sales, reflecting a 14% return on sales at famous footwear and a 90% return on sales of brand portfolio.

This all resulted in diluted earnings per share for the quarter of $1.38. This is up from 61 cents in the second quarter of 2019, and 97 cents in the second quarter of 2021.

Our EBITDA for the trailing 12 months was $324 million in excess of 11% of sales now.

Now turning to the balance sheet and cash flow the company generated $7 $6 million in cash from operations during the quarter.

Continued to prioritize that cash towards shareholders funding, our dividend buying back shares and investing in our business specifically in consumer marketing.

We ended the second quarter of 2022 with approximately $349 million in borrowings under our ABL revolving credit facility and no long term debt.

Our second quarter interest expense was $2 $6 million down $2.2 million from the second quarter of 'twenty, 'twenty, one and down $4.8 million from the second quarter of 2019.

Given the recent increases in interest rates and expectation for further increases from the Federal reserve, we expect our interest expense to approximate $13 million for fiscal 2022.

And I think it would be helpful to spend some time on our inventory position.

Consolidated inventory at quarter end was up approximately 36% compared to the second quarter of 2021, and it was down slightly to the second quarter of 2019.

The increase included an 18% increase at famous footwear, and a 64% increase in the brand portfolio.

Famous footwear inventory was down 15% when compared to 2019 levels, while the brand portfolio was up 14%.

As you know, we believe a central component to drive growth in the brand portfolio. This year is to ensure we align our inventory with consumer demand.

To that end, we will continue to manage the supply chain aggressively placing a strong emphasis on building up each brands' top selling styles.

We believe that having corn fall goods behind the right brands and styles could be a competitive advantage heading into fall.

Expect to capture demand as we progress through the year second half.

As we turn out of capital allocation as you know, we carefully and constantly evaluate the most value enhancing avenues for our free cash flow at.

At the start of the fiscal year, we put in place a flexible capital return program inclusive of dividends buybacks and investing in growing our business. We executed on that plan during the second quarter repurchasing nearly 3% of our shelves shares outstanding for $27 million.

As a reminder, our reaffirmed fiscal year guidance takes into consideration our year to date share repurchase activity.

Well, we are constantly evaluating the optimal use of our free cash given our outlook for strong cash generation during the second half of the year, we would expect to make ongoing purchases under the existing authorization during the remainder of 2022.

Finally, inclusive of our first half performance and current expectations around our underlying business for the year.

Claris is reiterating its annual financial guidance more Super specifically, we are raising and tightening our consolidated net sales range to be up between 4% and up 6% when compared to 2021. This is up from our previous net sales outlook of up 2% to 5%.

And as Dan mentioned, our earnings per share are expected to be between $4 26, and $4 40 per share.

Additionally, we are making the following assumptions regarding our third quarter 2022 performance.

We expect our consolidated sales to be comparable to last year.

With famous footwear sales down approximately 4% compared to the third quarter of 2021 and brand portfolio sales expected to be up between seven and 10% over the third quarter.

Consolidated gross margins are expected to be flat to last year.

Our SG&A expense will approximate 36% of sales, including investments in store experience and customer acquisition.

And comparing to 2021, there is timing of approximately $10 million of stock and incentive compensation expense that is occurring in Q3 of 2022 that occurred in Q2 of 2021.

Our earnings per diluted share for the third quarter is expected to be between $1 five and $1 15 per share.

And with that I'll turn the call back over to Diane Thanks, Ken and before we then begin Q&A I think as most of you know I know I recently announced that I plan to retire as CEO in mid January it's been an immense privilege and honor to lead claris and I couldn't be happier that the board has asked me to continue to work.

With them and this terrific management team as executive Chairman when my tenure as CEO is up.

But he wants to know like why now and every and what sort of made you decide that this is the right moment and you know for me given the strength and the momentum in our business I. Just thought this was the perfect time to pass the baton to Jay as part of our long standing and carefully planned succession process.

I'm confident that he is the ideal person to lead claris forward at this point in time and to build on the many initiatives that we put in place in recent years to drive growth across the company.

Now I know Jay would like to say a few words before we turn the call over to for to the operator for Q&A J do you want to say a few things absolutely. Thanks Diane.

I'm excited to lead Calera tend to continue to build on our recent successes and to continue to identify new opportunities for growth.

I'm also extremely confident in our portfolio and our capabilities and most importantly, and our talented global team.

Many of you might know I had the good fortune to work alongside some of the best in the industry, especially at Polaris and above all with Diane and I. Thank everyone for their support.

And encouragement.

Looking forward I firmly believe in the significant potential of claris and our ability to unlock long term value for our shareholders.

I also look forward to talking with you many of you over the coming months.

And with that I'd like to turn the call over to the operator for questions operator.

Thank you well now be conducting a question answer session. We ask you. Please ask one question and one follow up then return to the queue, if you'd like to be placed in the question queue. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue.

Press Star two if he'd like to remove your question from the queue for participants using speaker equipment, it would be necessary to pick up your handset before pressing star one and once again, we ask you. Please ask one question one follow up then return to the queue. Our first question today is coming from Dana Telsey from Telsey Advisory Group. Your line is now live.

Perhaps your phone is on mute.

Oh, yes, I'm on mute hi, sorry about that Jay congratulations on your new role.

Well deserved Diane congratulations.

Not going to say goodbye, because being executive chairman you still remain in the mix, which is a very good thing.

Thank you and God, we I have one more call to data.

[laughter].

While the officially CEO I told everybody I am I am.

Oh I'm not [laughter].

Oh I have to go ahead with your.

No worries.

So nice to see the big pick up in the brand portfolio, how much of a brand portfolio improvement is driven by the current environment of social occasion, and what you're seeing there. What are you doing in terms of the inventory levels, where do you see that brand portfolio inventory leveling.

At the end of the year and how's the wholesale accounts in terms of ordering patterns that and then just on famous I had a question on what you mentioned Ken about the later start to back to school, what did you see and how you're managing pricing in this Baptist competitive back to school season. Thank you.

Thanks Dana.

Starting maybe with your second question first on on famous in back to school as you know as a as I said in my comments and Ken reiterated that we really have seen them, I guess and and and back to school very much a continuation of the trend that we have seen in the second quarter you know as we've been moving through August we see.

That trend improve a little bit which was is nice to see but the there's still three to four more weeks that we have are really getting through back to school and we did see.

The build in our back to school business coming really a little bit later than we had seen and in prior years, who knows I don't know whether the consumer was it really enjoying the does great vacation that they couldn't have in the last two years or they were you know not thinking about getting back to school as quickly or or whether it was the impact on you know.

Inflation and gas et cetera, really on their overall sentiment and buying much more closer to need. So so really anticipate it's going to be in that down for range have seen it improve a little bit from that you know in the month of August but you don't want to make sure. We are thoughtful about our outlook and are you now.

The kids business, that's actually kids and accessories and has been very very strong so.

So that's a little bit on famous and I can come back on that if if needed but with respect to the brand portfolio I think it's a combination of so many things that have really driven that business I think it's the great strategic work in product where the teams have been doing for really I think throughout this whole pandemic cycle to make sure.

Or that we were leaving behind the things that we didn't want to carry forward and make sure that we were really focused on what what what we wanted this brand portfolio look like post post the pandemic and I think Jay and the team has done a great job on that and then I would say and then I'll pass it to Jay the only other thing is you know when we look it's not a.

It's not a a just a little piece of our portfolio that's working its across the entire portfolio, that's been performing well and it isn't just dropped.

It actually is casual product and sandals and you name. It. So the nice thing is sure occasion address.

You know, we got some nice lift in that but what it really has been broad based so I'll turn it over to Jay Dana to give you a little bit more color on on on the brands.

I think that really sums it up nicely.

But just to add a few more things about over 50% of our our portfolio of businesses in the casual so while we did see some nice growth coming out of dress. We also saw a strong growth coming out of the casual segment, which I think really makes us feel great about the go forward position.

I believe you asked a question about how do we feel about you know order book in going forward and we do see that you know we're on track with that it feels very right to where we've been working on that and our inventory is very closely aligned with I would say our top sellers in that I'm using that added to wind capability and so.

We feel really good about going forward into fall, but obviously, a little more measured than we were in the first half which is really consistent with our guidance.

Thank you.

The next question is coming from Laura Champine from loop capital. Your line is now live.

Thanks for taking my question and congratulations on your announced but not yet executed retirement Diane.

Congratulations on the promotion Jay Hey.

In my mind I can't see it.

This is a basic one but why raise the topline guide a little bit but leave the bottom line guide unchanged.

Yeah, Laura I'll I'll take that thanks for the question you know I think the top line growth is really you know through the first half we saw an acceleration in the brand portfolio and as we reported while famous footwear is return on sales last quarter were 14%, we've got the beer portfolios.

We're up to 9% so it's a little bit of a mix right. The growth that we added is coming in a business segment that has a lower percentage and then I think the other piece of it is really on the interest expense that initial outlook had about $10 million of interest expense included and just.

The the raises that we've seen we have been prioritizing buying back shares as opposed to paying down that revolver debt. So that's going to be up.

3 million to 13 million. So that's really that's really what it is and.

And we're trying to give ourselves a little bit of room in the rest of the year just to make sure from a margin standpoint. So.

That's the contribution.

Got it can you see any positive I hear what you're saying about sort of a late back to school and consumer that obviously is distracted in and under pressure, but are you seeing any kind of a lift from the the great position you have in the market at famous.

Footwear with Nike, whereas they've consolidated some of their family wholesale distribution.

Right you know not I would say that we have not seen a lot of that as of yet, but I think that has a floor for us is as we look at that that it feels a that's one of the areas of those pockets of consumer demand that strong that we don't have I know all of the inventory in the places that we do.

Like so while our kids business and at Nike, we seem to have pretty good inventory availability there, although that's getting a little tighter given the strength of it that that we believe that you know in the next 30 to 60 days as we get receive more receipts that I would expect to see that advantage continue to.

Sort of play out in the late third and fourth quarter, and obviously into 'twenty twenty-three and you know I would the other thing in terms of you know inventory levels too. It's you know it's that double edge sword. We've also tried to manage that so carefully. So we you know we had the right things in the right places.

So when famous escape.

It's a little more of an opportunity for US right now so things like converse to could be an area that we'd like to see them. Some additional inventory and a few other places too. So you know the market was so disrupted and there was a lot of dislocation with respect to inventory and I always believed that it was going to take much of 'twenty much of the full year.

With 22 to really get things back in line, you know with where where we thought we were really going to be specifically, but I think overall for famous they've done a really nice job of really balancing that making sure that that we manage that you know as well as that we possibly could as you know still down 15%.

You know from from 19 level so.

So opportunity I think about it as an opportunity to go forward.

Got it thank you.

Thank you next question is coming from it's coming from Seaport Research. Your line is not a lot.

Hi, Yeah. Thanks for taking my questions and let me add my congratulations as well.

So Dan you made a comment I think early on in your prepared remarks about some positive reads on boots can you just remind us how important the boot category as to both the famous business and also the brand portfolio.

And kind of how you how you think fashion trends in boots will play out, especially with maybe a bit of a pendulum swing too kind of dressing occasion.

Great Great question Rich and thank you for the congrats I appreciate that you know, yes. The early read actually on booths for our brand portfolio is very good and it's great also in our famous business as a percent of the total in jays like kind of looking it up but I think we're about a third of our business. In fall is is in is in blue.

Boots, where we're seeing you know things that are not quite as casual as they had been a little bit more dress shops dressed up a little bit more on hail and loves also have continued to be you know pretty good in certain categories in food.

So in the brand portfolio is extremely important for us and that's when the fall season, and we really think we're in great position to take advantage of that and the famous business. It really it's really more on the casual side and more and I I would say you know outdoor I'm kind of looks but that's again and you know as we look at the intercompany.

<unk> there.

You know, there's there's lots of ways that we can really work with famous to take advantage of our our not only our expertise and our knowledge of where things are trading but also help in terms of some of the short term opportunities that they might have so I think I get it it bodes well for us in the back half of the year.

And it feels it feels good so far I was kind of surprised to see it start I think people are so anxious to see something new and and that and add something that they haven't added to their closet in a while and I think that's really what's happening there I Jay would you and what else are you seeing on on and I think the only.

The other thing is that high shaft, although it's much smaller portion of the total boot business has come on very strong and that's a trend we havent seen really worked well and I would say almost three years. So it's again going back to that consumer reacting to newness and word fashion appropriate, but some really nice hum selling.

And we've seen it in a couple of our brands, Sam Edelman and naturalize, there being two of them that have been very strong.

Okay, Great and then on the brand portfolio business can you remind us.

How much you sell into the Department store channel and some of the department stores have reported they've talked about some inventory challenges, albeit maybe not necessarily in your categories and they've canceled receipts and things like that I'm, just wondering if some of that activity.

Is it all filtering down to the brand portfolio business at all as maybe they were just overall, becoming a little bit more cautious on the consumer and the environment.

Yes, I'll I'll add a few things and then Jay can jump into Mitch you know its about 20% of the department stores or roughly 20% of our total brand portfolio of business and that's been you know a robot range I'd say for the last you know a couple of years yeah.

Great advantage that we have with that though as you know it's not just what we're selling into the brick and mortar there right. We also have a great opportunity. They do tremendous business is digitally and then we do a lot of our business dropped shipped to so as.

The consumer is looking for certain brands and products that capability that we have really helped us.

US address those opportunities with the consumer I'm sure Jay you could comment a little on kind of what you're seeing with them you know.

How how the public department stores now thinking about some of their opportunity yeah, I would say that the you know theres well people are still cautious we're really looking at the business with our sales and our inventory kind of being in line going forward and watching that very closely using the drop ship.

<unk> that we have to really fuel additional growth, but we're seeing that measured and then our retail inventories while up to 'twenty. One commensurate with the sales are still down to 2019 by about 13%. So we're really when we said we're kind of bringing them back in the new way, we really are bringing them back in a new way and watching that.

To make sure it doesn't get out of line.

Okay. Thanks, good luck.

Thank you.

Yeah.

Thank you. Your next question is coming from Steve Marotta from CL, King and associates, who why there's not a lot.

Good evening, J&J can and Logan and it might be a little bit early in the season, but can you maybe comment on the fact that back to school Mali shear just be long tailed and not necessarily muted.

When you look at the entirety of the season.

Yeah, it's it's hard to know yet Steve I know that it you know it it it seemed like it was building you know seven to 10 days later than kind of what we had expected and it's we're yet to see whether or not that you know you catch all of that or is that you know business not not going to materialize or are you now or is it going to.

Come later, so I think you know we've got a couple more weeks to see it and understand what that's going to look like and as I mentioned, you know August has been a bit better than that 4% that I talked about that was a continuation from second quarter, but you know we we want to make sure that you know we see it because it is a little.

Unusual you know the the consumer sentiment the inventory levels you know the what they have in the Clos, they're closet, what they don't it's it's a little it's a little a more of a shift again this year. So I'm trying to make sure that we take all of that into consideration and give them a good.

And and and reasonable outlook, you know four four that back to school season, but we sure hope so.

But we ought to see it continue longer into September .

Sure I understand my follow up question, Ken can you talk a little bit about cost and your expectations, maybe for the first half and second half of next year not necessarily obviously to the penny considering that you're still taking orders and it's a lot of moving targets, but also considering that largely commodity costs are rolling off there is chatter of.

Of capacity, that's coming online or that that's now available in factories, where it might not have been earlier and that generally are costing us rolling off are seemingly peaked and wondering how that is affecting your unit costing in the first half of next year in the second half as well thanks.

Yeah. So.

I don't think we're seeing a ton of casting rolling off what.

What I would say on our pricing as the demand for our brands I think the street. There has allowed us to continue to hold our price and and in price increases if you will into the second half.

You know our initial guidance for the year had us holding our total gross profit margin flat and that was giving back 100 basis points of famous and and seeing a couple of hundred basis point improvement and that was with an assumption that we were going to be able to continue to to hold the price increases we took for spring.

In the fall and that's happening.

Ocean freight is something that you know, we're starting to see come down a little bit.

More so than the product cost, but that really won't show up until those goods come in through inventory and then our sold back through and we realize.

The profit on those those products. So we're not seeing a big reduction right now across the board in cost I don't know Jay if theres anything that you would add to that around pricing or costing no. We haven't seen that come through it yet.

Although the supply chain is normalizing I would say and so we're going to get back to a more normalized flow, so but not yet until we see the component prices coming down.

So more to come there are Steve kind of as we get into you know starting to lay out our specifics around next year.

I'll take I'll take the balance offline. Thank you.

Thank you we've reached end of our question and answer session I'd like to turn the floor back over to Diane for any further or closing comments.

Yeah. Thanks every one for joining us. This afternoon. We appreciate it and we look forward to speaking with you along the way and on the third quarter call as well take care.

Thank you that does conclude today's teleconference and webcast you may disconnect. Your line at this time and have a wonderful day, we thank you for your participation today.