Q2 2024 Caleres Inc Earnings Call

August 31, 2023

Ladies and gentlemen, thank you for standing by. Our conference will begin in just a couple of minutes. Once again, thank you for standing by. Our conference will begin in just a couple of minutes.

Ladies and gentlemen, thank you for standing by our conference will begin in just a couple of minutes. Once again. Thank you for standing by our conference will begin in just a couple of minutes.

[music].

Good morning, and welcome to the Polaris second quarter 2023 earnings Conference call. My name is Daryl and I will be your conference coordinator for today at this time all participants are in a listen only mode. A question and answer session will follow the prepared remarks, if anyone should require operator assistance.

Good morning and welcome to the Calera second quarter 2023 earnings conference call. My name is Daryl and I will be your conference coordinator for today. At this time all participants are in a listen-only mode. The question and answer session will follow the purpose.

If anyone should require operator assistance during the call, please press star 0 on your telephone keypad. As a reminder, this conference is being recorded. At this time, I would like to turn the call over to Logan Bonacorcy, Vice President of Investor Relations. Please go ahead.

During the call. Please press star zero on your telephone keypad. As a reminder, this conference is being recorded at this time I would like to turn the call over to Logan Upon of course, he vice President of Investor Relations. Please go ahead.

Good morning. Thank you for joining our second quarter 2023 earnings call and webcast. A press release with detailed financial tables as well as our quarterly slide presentation are available at calaris.com.

Good morning, Thank you for joining our second quarter 2023 earnings call and webcast a press release with detailed financial tables as well as our quarterly slide presentation are available at Polaris Dotcom.

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 disclosed in the company's Form 10K and other filings with the U.S. Security and Exchange Commission.

These 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 disclosed in the company's Form 10-K, and other filings with the U S Securities and 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.

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.

Copies of these reports are available online. In discussing the results of our operations, we will be providing and referring to certain non-GAAP financial measures. You can find additional information regarding these non-GAAP financial measures as well as others used in today's earnings release and our presentation on the investor section of our website. The company undertakes no obligation to update any information discussed in this call at any time.

Copies of these reports are available online.

In discussing the results of our operations, we'll be providing in referring to certain non-GAAP financial measures you can find additional information regarding these non-GAAP financial measures as well as others used in todays earnings release and our presentation on the investors section of our website. The company undertakes no obligation to update any information disk.

In this call at any time.

Joining me on the call today are Jay Schmidt, President and CEO , and Jack Calandra, Senior Vice President and CFO . We will begin this morning's call with our prepared remarks and thereafter we will be happy to take your questions. I would now like to turn the call over to Jay. Jay? Thank you Logan.

Joining me on the call today are J Smith, President and CEO, and Jack Calandra, Senior Vice President and CFO will begin this morning's 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 J J.

Thank you Logan and good morning, everyone.

Once again, the Calaris team performed at a high level during the second quarter of 2023, delivering strong financial and operational results, despite the challenging consumer demand environment.

Once again, the Polaris team performed at a high level during the second quarter of 2023, delivering strong financial and operational results. Despite the challenging consumer demand environment.

We leveraged our diversified structure, our powerful brands, and our enhanced Omni capabilities to drive earnings per share above the high end of our guidance rate.

We leveraged our diversified structure, our powerful brands and our enhanced omni capabilities to drive earnings per share above the high end of our guidance range.

This gain was achieved even with fails modestly below our initial expectations because we prioritized profitability and generated strong consolidated operating margins.

This gain was achieved even with sales modestly below our initial expectations, because we prioritize profitability and generated strong consolidated operating margins.

Our ability to deliver bottom line results in a choppy consumer market demonstrates the desirability of our brands and the success of our efforts to tighten inventory and reduce promotion across our business.

Our ability to deliver bottom line results in a choppy consumer market demonstrates the desirability of our brands and the success of our efforts to tighten their inventory and reduced promotion across our businesses.

We have also reduced expenses across the enterprise.

We have also reduced expenses across the enterprise. These actions have yielded a fundamentally healthier chalaris.

These actions have yielded a fundamentally healthier Polaris.

Indeed, we believe our diversified model and operational discipline sets us up to drive value in a variety of market conditions.

The structural improvements we've implemented over the last several years coupled with our focus on cost control and commitment to our strategic initiatives positions us well for sustainable long term growth.

The structural improvements we've implemented over the last several years, coupled with our focus on cost control and commitment to our strategic initiatives.

That's well for sustainable long term growth.

Now let's turn to some key highlights in the second quarter.

Now, let's turn to some key highlights in the second quarter.

We delivered adjusted earnings per share of 98 cents.

We grew market share in our lead brand, Sam Edelman, Alan Edmond, Naturalizer, and Vionic.

We grew market share in our lead brand, Sam Edelman, Allen Edmonds, Natura lighter and bionic.

We increased famous footwear's market share in shoe chains.

We increased famous footwear, its market share and shoe chains.

We generated record second quarter gross margins in the brand portfolio.

We achieved sequential improvement from the first quarter in the year-over-year sales trend at both famous and brand portfolio.

We achieved sequential improvement from the first quarter and the year over year sales trend at both famous and brand portfolio.

We maximized our inventory levels and managed them well, ending the period approximately 14% below 2022.

We maximized, our inventory levels and manage them well ending the period of approximately 14% below 2022.

We invested in consumer experience analytics and marketing areas that are key to accelerate our strategic growth initiatives.

We invested in consumer experience analytics and marketing areas that are key to accelerate our strategic growth initiative.

We returned approximately 20 million to shareholders via share repurchases and the quarterly dividend.

We returned approximately 20 million to shareholders via sharey purchases and the quarterly dividend.

And we utilized our free cash flow to reduce the borrowings under our asset base revolving credit facility by 48 million from first quarter of 2023.

And we utilized our free cash flow to reduce the borrowings under our asset based revolving credit facility by 48 million from first quarter of 2023.

This also represents a $105 million year-over-year decline in our borrowing.

This also represents 105 million year over year decline in our borrowings.

In recent years, we have prioritized debt reduction after funding our dividend as the top priority for free cash flow.

During the second quarter, we reached our leverage ratio target of one times debt to EBITDA.

We anticipate strong levels of cash generation and Jack will cover our capital priorities in more detail in a few moments.

We anticipate strong levels of cash generation and Jeff will cover our capital priorities in more detail in a few moments.

Now, let's move to our second quarter operating results.

Overall, consolidated sales declined 5.8% falling short of our expectations.

Overall consolidated sales declined five 8% falling short of our expectations famous.

Famous footwear sales were about in line with our expectations, while brand portfolio revenues were somewhat below our initial view.

Amos footwear sales were about in line with our expectations, while brand portfolio revenues were somewhat below our initial view.

Despite this, we generated strong consolidated gross margins of more than 45%.

Despite this we generated strong consolidated gross margins of more than 45%.

This was driven by continued improvement in the brand portfolios gross margin, as well as rigorous cost management across both segments.

This was driven by continued improvement in the brand portfolio gross margin as well as rigorous cost management across both segments.

Faced with softer demand, we chose to prioritize profitability over promotions. As a result of all of these efforts, we achieved solid second quarter operating earnings.

States with softer demand, we chose to prioritize profitability over promotions as a result of all of these efforts we achieved solid second quarter operating earnings.

Now let's turn to our operating segments starting with the brand portfolio, which remains on track to deliver an increased earnings contribution this year in both dollars and rates.

Now, let's turn to our operating segments, starting with the brand portfolio, which remains on track to deliver an increased earnings contribution this year in both dollars and rate.

During the quarter, we experienced some seasonal weakness and sandals as consumers prioritize casual flats and sneakers.

During the quarter, we experienced some seasonal weakness in sandals as consumers prioritize casual flats and sneakers.

We also saw conservative ordering patterns by our wholesale partners.

We also saw a conservative ordering patterns by our wholesale partners.

As you May remember last year consumer demand surged as restrictions were lifted and our wholesale partners built their inventories.

As you may remember last year, consumer demand surged as restrictions were lifted and our wholesale partners built their inventory.

As we move into the back half of 2023 though, these more difficult year-over-year comparisons ease. And we are ready with strong inventory in low-for-flat and sneaker styles that are consumers desire.

As we move into the back half of 2020 three though these more difficult year over year comparisons ease and we are ready with strong inventory and low for flat and sneaker styles that are consumers desire.

Yeah.

In contrast, our own channels performed well in the second quarter. Our own e-commerce sales were up 8% year over year with standout performances from lead brands Allen Edmonds and Bionic.

In contrast, our own channels performed well in the second quarter around ecommerce sales were up 8% year over year with standout performances from Lee brands Allen Edmonds antibiotics.

In addition, our brick and mortar business climb more than 16% compared to the prior year.

In addition, our brick and mortar business climbed more than 16% compared to the prior year.

We continue to maximize top selling items and get the consumer what they want and faster by leaning into our Edit to Win initiative and utilizing our speed programs that takes advantage of the fully recovered supply chain network.

We continue to maximize top selling items and get the consumer what they want and faster by leaning into our edit to win initiative and utilizing our speed program that takes advantage of the fully recovered supply chain network.

It's worth noting here that our speed capabilities enable us to pivot quickly in this dynamic market environment and we are closing in on our goal of speed orders, representing 20% of our inventory purchases.

We have a short note in here that our speed case abilities enable us to pivot quickly in this dynamic market environment and we are closing in on our goal of speed orders representing 20% of our inventory purchase.

As a result, the brand portfolio delivered second quarter adjusted operating earnings of 28 million and achieved a 9% operating margin.

As a result, the brand portfolio delivered second quarter, adjusted operating earnings of $28 million and achieved a 9% operating margin.

This performance was driven by a 295 basis point improvement in gross margins due to higher initial margins, lower freight costs, and strong inventory management.

This performance was driven by a 295 basis point improvement in gross margins due to higher initial margins lower freight cost and strong inventory management.

We believe our inventory is aligned with our top line trends due to careful category planning.

We believe our inventory is aligned with our topline trends due to careful category planning.

This benefits our wholesale partners as well, leading to healthier business across all channels and this sets the stage for a stronger second half for this segment.

This benefits, our wholesale partners as well leading to healthier business across all channels and this sets the stage for a stronger second half for this segment.

Uh huh.

Now to the performance of our lead brands.

As we indicated last quarter, our lead brands have significant growth potential, and we are strategically investing in these lead brands to power growth.

As we indicated last quarter, our lead brands have significant growth potential and we are strategically investing in these lead brands to power growth.

We expect these brands will represent a higher percent of our total colorist revenue in 2023 with opportunities to increase that penetration further over the long term via a number of different growth vectors.

We expect these brands will represent a higher percent of our total clarus revenue in 2023 with opportunities to increase that penetration further over the long term the a number of different growth vectors.

Starting with Alan Edmond, the brand delivered its 10th consecutive quarter of growth.

Starting with Allen Edmonds, the brand delivered its 10th consecutive quarter of growth.

Improvement was broad based across all channels with sales of mid single digits. Compared to the second quarter last year.

Improvement was broad based across all channels with sales up mid single digits compared to the second quarter last year.

We saw strength in our direct channels with brick and mortar of 5% and e-commerce of 13% driven by increased traffic and conversion.

We saw strength in our direct channels with Brexit with brick and border up 5% and e-commerce up 13% driven by increased traffic and conversion.

I am pleased to note that we've seen significant increases in the brand's average unit retails compared to pre-pandemic levels. There's a lot to be excited about at Allen Edmonds.

I am pleased to note that we've seen significant increases in the brand's average unit retails compared to pre pandemic levels.

There's a lot to be excited about at Allen Edmonds.

Turning now to bionics.

Fresh off its new marketing campaign, emphasizing its northern California roots, the brand saw a nice improvement in its e-commerce business during the second quarter.

Fresh off its new marketing campaign, emphasizing its northern California roots. The brand saw a nice improvement in the e-commerce business during the second quarter.

Early catalog performance helped deliver a 7 plus percent year over year increase in e-commerce with newness particularly loafers and white seekers driving the upload.

Early catalog performance helped deliver a seven plus percent year over year increase in e-commerce with newness, particularly low person white seekers driving the uplift.

One of their new styles, the Uptown Mach, sold out during its spring launch and will be a top 10 style for fall.

One of their new styles, the Uptown Marc sold out during its spring launch and will be a top 10 styles for fall.

and Sam Edelman and Naturalizer continue to harness their significant brand strength to capture market share.

And Sam Edelman, and naturalize or continued to harness their significant brand strength to capture market share.

For Sam Edelman, we saw strong consumer reaction to the brand's new Layla Sneaker, as well as an impressive performance at retail with their flat.

For Sam Edelman, we saw strong consumer reaction to the brand's new Layla sneaker as well as an impressive performance at retail where they're flat.

Naturalizer capitalized on the cholera's speed to market capabilities, as I mentioned earlier, to accelerate delivery of the Mars and 2.0 sneaker, a new evolution of its best-selling lace-up sports shoe.

Naturalize are capitalized on the Calera speed to market capabilities, I mentioned earlier to accelerate delivery of the Morrison to point out a sneaker.

New evolution of its best selling lace up sports shoe.

Launched in the early spring the sneaker has grown to the number two style in the naturalized their brand.

Launched in early spring, this sneaker has grown to the number two style in the Naturalizer brand.

In addition, naturalize her had standout gross margin and operating contribution during the quarter.

In addition, Naturalizer had standout gross margin and operating contribution during the quarter.

Now we also had sales growth and profitability improvement from report folio brands, especially Lysride, Franco Sardo and Dr. Scholl.

Now, we also had sales growth and profitability improvement from our portfolio brands, especially life stride Franco Sarto and Doctor Shoals.

As a reminder, these brands are growing assets within the portfolio that serve key consumer segments not currently served by our lead brands and benefit from our One Caleras capability.

As a reminder, these brands are growing assets with the within the portfolio that serves key consumer segments. Not currently served by our lead brands and benefit from a one color its capabilities.

In each of these brands, the consumer responded to style, comfort, and value.

In each of these brands the consumer responded to style comfort and value.

and we even had a viral success in the Dr. Scholl's brand with the Time Off Sneaker, which was a TikTok favorite, and I may add, sold 75,000 pairs of retail during the second quarter.

And we even had a viral success and the Doctor shows brand with the time off sneaker, which was a tick tock favorite and I may add sold 75000 pairs at retail during the second quarter.

Overall, the brand portfolio is performing well with the first half of 2023 providing a solid foundation on which to build.

Overall, the brand portfolio is performing well with the first half of 'twenty, two 'twenty three providing a solid foundation on which to build.

As year over year comparisons ease, we expect sales trends will improve and more importantly, the brand portfolio will make a larger and more meaningful contribution to the total company's operating performance this year.

As year-over-year comparisons ease, we expect sales trends will improve, and more importantly, the brand portfolio will make a larger and more meaningful contribution to the total companies operating performance this year.

Turning now to famous footwear.

During the second quarter, they must continue to navigate difficult spending trends among its target consumer and the challenging macroeconomic backdrop overall.

During the second quarter famous continued to navigate difficult spending trends among its target consumer.

And the challenging macro economic backdrop overall.

Even in this environment, famous outperformed its competitive set and increased market share and shoe chain.

Even in this environment famous outperformed its competitive set and increase market share and shoe chain.

We saw strengthening sales trends as we moved through the quarter, and we delivered an expected sequential quarterly improvement in Q2.

We saw a strengthening sales trends as we move through the quarter and we delivered an expected sequential quarterly improvement in Q2.

Our kids business, a key differentiator for famous, was a bright spot again this quarter, increasing 5% over last year.

Our kids business, a key differentiator for famous was a bright spot again this quarter, increasing 5% over last year.

Kids is an essential and growing category for famous and are focused paid off as families continue to prioritize purchases of kids' footwear.

Kids is an essential and growing category for famous and our focus paid off as families continue to prioritize purchases of kids footwear.

This strength is particularly important heading now into the back to school season.

The strength is particularly important, heading now into the back to school seats.

In total, famous generated nearly $41 million in adjusted operating earnings, a net sales down 5%, resulting in a return of sales of nearly 10%.

In total famous generated nearly 41 million in adjusted operating earnings on net sales down 5%, resulting in a return on sales of nearly 10%.

They must sustain this gross margin rate of 46% from the first quarter as we continue to be strategic around our promotional approach.

<unk> sustained its gross margin rate of 46% from the first quarter as we continue to be strategic around our promotional approach.

About 50% of our businesses now excluded from BOGO promotions up from about 30% pre-pandemic.

About 50% of our business is now excluded from Bogo promotions up from about 30% pre pandemic.

As we are with the brand portfolio, we are prioritizing the health of our business and the same as footwear over trying to capture lower quality sales.

As we are with the brand portfolio, we are prioritizing the health of our business at famous footwear over trying to capture lower quality sales.

Looking more closely at Back to School, we executed a number of strategies to capitalize on this important demand opportunity.

Looking more closely at back to school, we executed a number of strategies to capitalize on this important demand opportunity.

First, we focus on amplifying newness to drive excitement, interest and relevance.

First we focus on amplifying newness to drive excitement and interest and relevance.

Second, we approached inventory in a measured and agile manner.

Second we approached inventory in a measured and agile manner.

While we built up inventory behind key brand styles and patterns, we tightly managed our overall inventory position, which declined 2% compared to last year. In order to have the capacity to react aggressively to best sellers in season.

While we built up inventory behind key brands styles and patterns, we tightly managed our overall inventory position, which declined 2% compared to last year in order to have the capacity to react aggressively to best sellers in season.

Finally, we continue to enhance, energize, and modernize the store experience through our new prototype stores.

Finally, we continued to enhance energized and modernize the store experience through our new prototype stores.

While we don't anticipate comping last year's record back to school period, we do believe famous is uniquely positioned to maintain its leadership status and shoe chains and deliver a solid performance.

While we don't anticipate Comping last year's record back to school period, we do believe famous it's uniquely positioned to maintain its leadership status in shoe chains and deliver a solid performance.

Looking ahead, the famous team is extremely focused on fueling what's working from a product, marketing, and digital perspective to maximize our earnings potential while managing inventory and expense levels.

Looking ahead. The famous team is extremely focused on fueling what's working from a product marketing and digital perspective to maximize our earnings potential while managing inventory and expense levels.

Overall, we believe in the power and agility of the brand and expect strong earnings in 2023 and beyond.

Unknown Executive: Ladies and gentlemen, thank you for standing by. Our conference will begin in just a couple of minutes. Once again, thank you for standing by. Our conference will begin in just a couple of minutes.

Okay.

In short, we continue to have great confidence in the long-term outlook for famous. And we believe we can leverage our competitive advantages to accelerate our growth in this phase.

In short we continue to have great confidence in the long term outlook for famous and we believe we can leverage our competitive advantages to accelerate our growth in this segment.

These include our leadership position with kids and the Millennial family.

These include our leadership position with kids and the millennial family.

Our leading assortment of national brands, our nationwide and largely all-mall retail footprints.

Our leading assortment of national brands.

Our nationwide and largely off mall retail footprint.

and our elevated consumer experience in store and online.

And our elevated consumer experience in store and online.

So in summary, I'm extremely proud of our strong operational discipline and the financial performance we delivered in second quarter.

So in summary, I'm extremely proud of our strong operational discipline and the financial performance, we delivered in second quarter.

I believe the most recent quarter underscored yet again the advantages of our diversified structure and the one-collarist model.

I believe the most recent quarter underscored yet again, the advantages of our diversified structure and the one clarus model.

We remain confident in our ability to achieve our annual sales and earnings guidance for the year.

Our brands are strong and enduring, our strategies are clear and actionable, and our teams are dedicated to exceeding the expectations of our consumers in this dynamic marketplace.

Our brands are strong and enduring our strategies are clear and actionable and our teams are dedicated to exceeding the expectations of our consumers in this dynamic marketplace.

Moreover, we continue to believe the Strong Financial Foundation we've built will enable us to consistently deliver our annual earnings baseline of more than $4 per share while generating strong levels of free cash flow and creating long-term value for our shareholders.

Moreover, we continue to believe the strong financial foundation, we built will enable us to consistently deliver our annual earnings baseline of more than $4 per share, while generating strong levels of free cash flow and creating long term value for our shareholders.

And with that, I'll now hand it over to Jack for a more detailed view of our financials. Jack.

And with that I'll now hand, it over to Jack for a more detailed view of our financials Jack.

Thanks, Jay, and good morning, everyone. We maintain strong financial discipline across the company in the second quarter. This resulted in earnings per share that exceeded the upper end of our guidance and healthy cash flow, which enabled us to reduce debt, invest in our critical growth initiatives, and return cash to shareholders.

Thanks, Jay and good morning, everyone, we maintain strong financial discipline across the company in the second quarter. This resulted in earnings per share that exceeded the upper end of our guidance and healthy cash flow, which enabled us to reduce debt invest in our critical growth initiatives and return cash to shareholders.

Yeah.

In today's call, I'll provide additional details on our second quarter performance, discuss the progress we've made on our cost reduction initiative.

In today's call I'll provide additional details on our second quarter performance discuss the progress we've made on our cost reduction initiatives.

Update you on our Capital Allocation Plan and Priorities and share our outlook to the third quarter and full year.

I'll take you on our capital allocation plan and priorities and share our outlook for the third quarter and full year.

Unknown Executive: Good morning and welcome to the Collar's second quarter, 2023 earnings conference call.

Darrell: My name is Darrell and I will be your conference coordinator for today. At this time, all participants aren't a listen only mode. The question and answer session will follow the prepared remarks. Many want to require operator assistance during the call. Please press star zero on your telephone keypad. As a reminder, this conference is being recorded.

My comments will be on an adjusted basis. Please see today's press release for a reconciliation of adjusted results.

Starting with Q2.

Can Thalay's sales were $696 million, a 5.8% decrease versus last year.

Consolidated sales were 696 million, a five 8% decrease versus last year.

Logan Bonacorsi: At this time, I would like to turn the call over to Logan Bonacorsi, vice president of investor relations. Please go ahead. Good morning. Thank you for joining our second quarter, 2023 earnings call and webcast, a press release with detailed financial tables, as well as our quarterly size presentation are available at Caleres.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 disclosed in the company's form 10K and other filings with the US Securities and Exchange Commission.

At famous, sales were down 5.1% and comparable sales were down 4.3%.

At famous sales were down five 1% and comparable sales were down four 3%.

Fails the clients versus last year improved each month of the quarter.

Sales declines versus last year improved each month of the quarter.

Brand portfolio sales were 301 million down 7.2% to last year due to softness in seasonal categories, namely, scandals, and cautious buying behavior in the wholesale channel.

Brand portfolio sales were 301 million down seven 2% to last year due to softness in seasonal categories, namely sandals and cautious buying behavior in the wholesale channel.

Whilst hails were down, we were able to protect margin with fewer markdowns and allowance.

While sales were down we were able to protect the margin with fewer markdowns and allowances.

Consolidated gross margin decreased 45 basis points to 45.2%, which reflected an increase in brand portfolio gross margin offset by a decrease in famous gross margin.

Consolidated gross margin decreased 45 basis points to 45, 2%, which reflected an increase in brand portfolio gross margin offset by a decrease in famous gross margin.

Logan Bonacorsi: Please refer to today's press release in our SEC filings for more information on risk factors and other factors which could impact forward looking statements. Copies of these reports are available online. In discussing the results of our operations, we'll be providing and referring to certain non-gap financial measures. You can find additional information regarding these non-gap financial measures, as well as others used in today's earnings release and our presentation on the investor section of our website. The company undertakes no obligation to update any information discussed in this call at any time.

Grand portfolio gross margin was 41.3%, a 295 basis point increase versus last year.

Brand portfolio gross margin was 41, 3%, a 295 basis point increase versus last year.

This gross margin was a record for the second quarter for the segment, and it was due to higher initial margins, lower ocean freight cost, and disciplined inventory management.

This gross margin was a record for the second quarter for this segment and it was due to higher initial margins lower ocean freight cost and disciplined inventory management.

Famous first margin was 46.2%, a 273 basis point declined versus last year.

Famous gross margin was 46, 2%, a 273 basis point decline versus last year.

Logan Bonacorsi: Joining me on the call today are Jay Schmidt, President and CEO, and Jack Calandra, Senior Vice President and CFO. We will begin this morning's call with our prepared remarks, and thereafter we will be happy to take your questions.

This decline reflects lower initial margins and a more normalized level of clearance pricing and activity given last year's clean inventory position.

Jay Schmidt: I would now like to turn the call over to Jay.

That said, clearance pricing and activity continue to compare favorably to 2019.

That said clearance pricing and activity continue to compare favorably to 2019.

Jay Schmidt: Thank you Logan and good morning everyone. Once again, the Caleres team performed at a high level during the second quarter of 2023, delivering strong financial and operational results despite the challenging consumer demand environment. We leveraged our diversified structure, our powerful brands, and our enhanced Omni capabilities to drive earnings per share above the high end of our guidance range. This gain was achieved even with sales modestly below our initial expectations because we prioritized profitability and generated strong consolidated operating margins.

SGNA expense was 263 million or 37.8% of sales. SGNA expense was 5.6 million lower than last year from lower variable expenses and incentive compensation costs.

SG&A expense was 263 million or 37, 8% of sales.

SG&A expense was $5 6 million lower than last year from lower variable expenses and incentive compensation costs.

Operating earnings were 51 million and operating margin was seven 4%.

Operating earnings were 51 million and operating margin was 7.4%.

Operating margin was 9.2% at Grand Portfolio and 9.9% at Famous.

Operating margin was nine 2% at brand portfolio and nine 9% at famous.

Net interest expense was 5.1 million, double versus last year, given a higher roaring rate.

Net interest expense was $5 1 million double versus last year, given a higher borrowing rates.

Jay Schmidt: Our ability to deliver bottom line results in a choppy consumer market demonstrates the desirability of our brands and the success of our efforts to tighten inventory and reduce promotion across our businesses. We have also reduced expenses across the enterprise. These actions have yielded a fundamentally healthier coloris. Indeed, we believe our diversified model and operational discipline sets us up to drive value in a variety of market conditions.

The weighted average interest rate in Q2 was 6.7% versus 2.8% last year.

The weighted average interest rate in Q2 was six 7% versus two 8% last year.

The Luder D'Arrikes for Share were 98 cents in excess of the high end of our guidance.

Diluted earnings per share were <unk> 98 cents in excess of the high end of our guidance.

and EBITDA was 65 million or 9.4% of sales.

And EBITDA was 65 million or nine 4% of sales.

Turning now to the balance sheet and cash flow, we ended the second quarter with 244 million in borrowings and no long-term debt.

Turning now to the balance sheet and cash flow. We ended the second quarter was $244 million in borrowings and no long term debt.

Inventory at the end of the second quarter was 661 million down 14% versus last year, reflecting reductions in both in transit and on-hand inventory. Due to both accelerated receipts last year in Brand Portfolio, a supply chain challenges started to resolve, and disciplined inventory management across the business.

Inventory at the end of the second quarter was 661 million down 14% versus last year, reflecting reductions in both in transit and on hand inventory to do both accelerated receipts last year in brand portfolio, our supply chain challenges started to resolve.

Jay Schmidt: The structural improvements we've implemented over the last several years coupled with our focus on cost control and commitment to our strategic initiatives, positions as well for sustainable long-term growth.

Jay Schmidt: Now let's turn to some key highlights in the second quarter. We delivered adjusted earnings per share of 98 cents. We grew market share in our lead brands, Sam Edelman, Allen Edmunds, Naturalizer, and Vionic. We increased famous footwear's market share in two chains. We generated record second quarter growth margins in the brand portfolio. We achieved sequential improvement from the first quarter in the year-over-year sales trend at both famous and brand portfolio. We maximized our inventory levels and managed them well, ending the period approximately 14 percent below 2022.

And disciplined inventory management across the business.

By segment, inventory of famous was down 2% versus last year. At brand portfolio, inventory was down 26% versus last.

By segment inventory at famous was down 2% versus last year as brand portfolio inventory was down 26% versus last year.

In general, we feel good about the amount and composition of inventory in both seconds.

In general we feel good about the amount and composition of inventory in both segments.

Regarding cash flow from operations, we generated 88 million during the quarter and deployed cash for strategic investments in the business, paid our quarterly dividend, reduced our rings on our asset-based revolver, and repurchased shares.

Regarding cash flow from operations, we generated $88 million during the quarter and deploy cash for strategic investments in the business.

Our quarterly dividend reduce borrowings on our asset based revolver and repurchased shares spa.

Specifically, we spent 10.3 million on capital expenditures, 2.5 million on our quarterly dividend, 17.4 million to buy back 763,000 shares at an average price of $22.86, and 47.5 million to reduce our borrowing.

Specifically, we spent $10 3 million on capital expenditures to $5 million on our quarterly dividend $17 4 million to buy back 763000 shares at an average price of $22.86.

Jay Schmidt: We invested in consumer experience, analytics, and marketing areas that are key to accelerate our strategic growth initiatives. We returned approximately 20 million to shareholders via share repurchases and the quarterly dividend, and we utilized our free cash flow to reduce the borrowings under our acid base revolving credit facility by 48 million from first quarter of 2023. This also represents 105 million year-over-year decline in our borrowings. In recent years, we have prioritized debt reduction after funding our dividend as the top priority for free cash flow. During the second quarter, we reached our leverage ratio target of one time's debt to EBITDA.

And $47.

$47 5 million to reduce our borrowings.

with the Q2 paydown, barring to approximately 105 million below Q2 last year and down 64 million year to date.

With the with the cue to pay down borrowings or approximately $105 million below Q2 last year and down 64 million year to date.

As Jay mentioned, we reached our target leverage ratio of one times on a death to trailing 12 month EBITDA basis.

As Jay mentioned, we reached our target leverage ratio of one times on a debt to trailing 12 month EBITDA basis.

While we continue to evaluate our capital allocation options and maintain a flexible approach, we believe at this time that best use of free cash flow is to continue to reduce our bar rings. This will allow us to reduce interest expense in this higher rate environment and maximize liquidity.

While we continue to evaluate our capital allocation options and maintain a flexible approach. We believe at this time the best use of free cash flow is to continue to reduce our borrowings.

This will allow us to reduce interest expense and this higher rate environment and maximize liquidity.

Jay Schmidt: We anticipate strong levels of cash generation and Jack will cover our capital priorities in more detail in a few moments.

That said, we view buybacks as effective means of returning capital shareholders. And with our valuation metrics still well below historical levels, we view cholera stock as an attractive investment.

That said, we view buybacks as an effective means of returning capital to shareholders and with our valuation metrics still well below historical levels, we view calera stock as an attractive investments.

Jay Schmidt: Now let's move to our second quarter operating results. Overall, consolidated sales declined 5.8 percent, falling short of our expectations. Famous footwear sales were bound in line with our expectations while brand portfolio revenues were somewhat below our initial view. Despite this, we generated strong consolidated gross margins of more than 45 percent. This was driven by continued improvement in the brand portfolio's gross margin as well as rigorous cost management across both segments. Fates with softer demand, we chose to prioritize profitability over promotions. As a result of all of these efforts, we achieved solid second quarter operating earnings.

We have 5.6 million shares remaining under our current or authorization and will continue to consider sharey purchases based on market conditions.

We have $5 6 million shares remaining under our current board authorization and we'll continue to consider share repurchases based on market conditions.

Now turning to our outlook.

Given our performance year to date and our forecast for the second half, we continue to expect full year earnings per share of $4.10 to $4.36.

Given our performance year to date and our forecast for the second half we continue to expect full year earnings per share of $4 10 to $4 30.

In addition, we still anticipate consolidated sales to be down 3% to 5%, including the impact of the 53rd week.

In addition, we still anticipate consolidated sales to be down 3% to 5%, including the impact of the 50 <unk> week.

Consolidated operating margin of 7.3% to 7.5%.

Consolidated operating margin of seven 3% to seven 5%.

Jay Schmidt: Now let's turn to our operating segments starting with the brand portfolio, which remains on track to deliver an increased earnings contribution this year in both dollars and rate. During the quarter, we experienced some seasonal weakness and sandals as consumers prioritize casual flats and sneakers. We also saw conservative ordering patterns by our wholesale partners. As you may remember last year, consumer demand surged as restrictions were lifted and our wholesale partners built their inventories. As we move into the back half of 2023 though, these more difficult year-to-year comparisons ease. And we are ready with strong inventory and lower flat and sneaker styles that are consumers desire.

We still expect to generate 20 million of in-year savings and 30 million to 35 million on an annualized basis from our cost reduction action.

We still expect to generate $20 million of in year savings and $30 million to $35 million on an annualized basis from our cost reduction actions.

For the in-your savings, 3 million was realized in Q1, 7 million was realized in Q2, and the remaining 10 million will be realized in the second half.

For the in year savings 3 million was realized in Q1 7 million was realized in Q2 and the remaining $10 million will be realized in the second half.

We continue to expect a one-time cash charge of about 4 million associated with this initiative.

We continue to expect a one time cash charge of about 4 million associated with this initiative.

We took $1.6 million of that charge in the second quarter and expect to take the remaining charge in Q3.

We took $1 6 billion of that charge in the second quarter and expect to remain and expect to take the remaining charge in Q3.

We still expect net interest expense of 17 million to 19 million and effective tax rate of about 25%.

We still expect net interest expense of 17 million to $19 million.

An effective tax rate of about 25%.

and shares outstanding of approximately 34.3 million, which assumes no additional share repurchases this year.

And shares outstanding of approximately $34 3 million, which assumes no additional share repurchases this year.

Jay Schmidt: In contrast, our own channels performed well in the second quarter. Our own e-commerce sales were up 8 percent year-over-year with standout performances from lead brands, Allen Edmunds and Bionic. In addition, our brick-and-mortar business climbed more than 16 percent compared to the prior year. We continue to maximize top-selling items and get the consumer what they want in faster by leaning into our Edit to Win initiative and utilizing our speed program that takes advantage of the fully recovered supply chain network.

In addition, we now expect capital expenditures of 50 million to 60 million versus our previous revised guidance of 55 million to 65 million.

In addition.

<unk>, we now expect capital expenditures of 50 million to $60 million versus our previous revised guidance of $55 million to $65 million.

This decline reflects an adjustment to the timing of certain projects, and we remain committed to investing in our strategic initiatives.

This decline reflects an adjustment to the timing of certain projects and we remain committed to investing in our strategic initiatives.

Finally, we are providing the following guidance for the third quarter.

We expect net fails to be down low single digits.

We expect net sales to be down low single digits and earnings per share of $1 31.

and earnings per share of $1.30 with $1.35.

Jay Schmidt: It's worth noting here that our speed capabilities enable us to pivot quickly in this dynamic market environment. And we are closing in on our goal of speed orders representing 20 percent of our inventory purchase. As a result, the brand portfolio delivered second quarter adjusted operating earnings of 28 million and achieved a 9% operating margin. This performance was driven by a 295 basis point improvement in gross margins due to higher initial margins, lower freight costs, and strong inventory management. Due to careful category planning, this benefits our wholesale partners as well, leading to healthier business across all channels and this sets the stage for a stronger second half for the segment.

The $1 35.

With that, I'd like to turn the call over to the operator for questions. Operator?

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

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Our first questions come from the line of Dana Telsi with Telsi Advisory Group. Please proceed with your questions.

Our first questions come from the line of Dana Telsey with Telsey Advisory Group. Please proceed with your questions.

Hi, good morning, good morning afternoon. Everyone what a busy day so far. Can you talk a little about the puts and takes on the growth margin in the back half of the year across both businesses? How you're seeing it and planning as we go into the back half? And what you're thinking about in terms of promo versus full price, and is there any difference by category? Thank you.

Hi, good good morning, good morning afternoon, everyone. What a busy day. So far can you talk a little bit about the puts and takes on the gross margin in the back half of the year across both businesses, how you're how you're seeing it and planning as we go into the back half.

Jay Schmidt: Now to the performance of our lead brands. As we indicated last quarter, our lead brands have significant growth potential and we are strategically investing in these lead brands to power growth. We expect these brands will represent a higher percent of our total colorist revenue in 2023 with opportunities to increase that penetration further over the long term via a number of different growth vectors.

What you're thinking about in terms of promo versus full price and is there any difference by category. Thank you.

Yeah, Hi, Dana this is Jack. Thank you for your question you know in terms of I'll I'll take it by business segments. So in terms of famous the tailwind in gross margin as we go into the back half include I think the disciplined inventory management that we've we've demonstrated we do expect to have fewer days.

Yeah, hi Dana, this is Jack. Thank you for your question. You know, in terms, I'll take it by business segment, so in terms of famous, the tailwinds in gross margin as we go into the back half include, I think, the disciplined inventory management that we've demonstrated. We do expect to have fewer days on promotion, but the headwinds there would include lower initial margins and the more normalized level of clearance, activity, and pricing that I mentioned earlier.

Jay Schmidt: Starting with Alan Edmond, the brand delivered its 10th consecutive quarter of growth. Improvement was broad based across all channels with sales of mid single digits compared to the second quarter last year. We saw strength in our direct channels with brick and with brick and mortar of 5% and e-commerce of 13% driven by increased traffic and conversion. I am pleased to note that we've seen significant increases in the brand's average unit retails compared to pre-pandemic levels. There's a lot to be excited about at Alan Edmond's.

On promotion.

But the headwinds there would include lower initial margins and the more normalized level of clearance activity in pricing that I mentioned earlier.

For grant portfolio, I would say there's more tailwinds there than headwinds. The tailwinds there also include the Discipline Inventory Management that we've demonstrated. But there we have, we have higher initial margins, continued ocean freight savings, and a higher contribution of sales from direct to consumer, which as you know is a more profitable business for us in that channel. Thank you.

For brand portfolio, I would say theres more tailwind there than headwinds, but headwinds. There also include the disciplined inventory management that we've demonstrated but there. We have we have higher initial margins continued ocean freight savings and a higher and.

Higher contribution of sales from direct to consumer which as you know is a more profitable business for us in that channel.

Jay Schmidt: Turning now to Bionic. Fresh off its new marketing campaign emphasizing its northern California roots, the brand saw a nice improvement in its e-commerce business during the second quarter. Early catalog performance helped deliver a 7 plus percent year-over-year increase in e-commerce with newness, particularly low-versen white seekers driving the uplift.

Okay.

Got it.

And then if you're thinking about, as you went through this back to school season, any learnings from back to school that can inform for holiday on the merchandising side, what you saw in either portfolio, and any thoughts on the wholesale division with branded portfolio with some of those orders tightening, what do you see as getting the spigot to open again, or anything you're seeing from the wholesale accounts in particular? Thank you.

And then as you're thinking about as you went through this back to school season, any learnings from back to school that can inform for holiday on the merchandising side well what you saw in either portfolio and any thoughts on the wholesale division with branded portfolio with some of those orders tightening.

Jay Schmidt: One of their new styles, the Uptown mock sold out during its spring launch and will be a top 10 style for fall. And Sam Edelman and naturalizer continued to harness their significant brand strength to capture market share. For Sam Edelman we saw strong consumer reaction to the brand's new Layla sneaker as well as an impressive performance at retail with their flats. Naturalizer capitalized on the cholera's speed to market capabilities I mentioned earlier to accelerate delivery of the Mars and 2.0 sneaker, a new evolution of its best selling lace up sports shoe.

What do you see as getting the spigot open again or anything you're seeing from the wholesale accounts in particular, thank you.

Okay. So hi, Dana this is Jay.

Hi, Dana. This is Jay. Hi, hi Jay. Start with your brand portfolio question. You know, our ongoing Disappost.

Good day start with your brand portfolio question.

You know our on going discipline disciplined approach to inventory management really helps us to chase these top selling items in season through our speed programs and we've been able to mitigate navigate kind of some of the shifts in behavior. We saw a lot of positivity on the sneaker trend is.

Discipline approached the inventory management, really helps us to chase these top selling items and season through our speed programs. And we've been able to mitigate and navigate kind of some of the shifts in behavior. We saw a lot of positivity on the sneaker trend as we went into second quarter and we're able to actually get enough inventory to make that a meaningful business as we walk into Q3. Or...

We went into second quarter, and we're able to actually.

Jay Schmidt: Launched in early spring the sneaker has grown to the number two style in the naturalizer brand. In addition, naturalizer had stand out gross margin and operating contribution during the quarter. Now, we also had sales growth and profitability improvement from report folio brands, especially Lysride, Franco Sardo, and Dr. Scholl. As a reminder, these brands are growing assets within the portfolio that serve key consumer segments not currently served by our lead brands and benefit from our one Caleres capabilities.

Get enough inventory to make that a meaningful business as we walk into Q3 our cat.

Our category business includes on flats and loafers. We're seeing really nice progress on that and really good stealth routes on that, particularly with classic hardware and classics being so strong.

Cat our category business includes on flat and low first we're seeing really nice progress on that and really good sell throughs on that particularly with classic hardware and classics being so strong and finally that there is some newness in the dress business with sling back to coming in and really <unk>.

And finally, there is some newness in the dress business with slingbacks coming in, and really particularly on low heels. So we're really focused on getting these right categories and then all the way down to the items to really help move this business back.

Low heel. So we're really focused on getting these right categories and then all the way down to the items to really help move this business back and we still do get Reorders from people on these really strong item selling.

And we still do get reorders from people on these really strong items selling.

Jay Schmidt: In each of these brands, the consumer responded to style, comfort, and value. And we even had a viral success in the Dr. Shoal's brand with a time off sneaker which was a TikTok favorite, and I may add, sold 75,000 pairs of retail during the second quarter.

The conversation is very similar over at Famous Footwear. When we think about it, some of our biggest brands that are working well that we're trying to get back into them, we saw really good strength with our Nike business, Continuously Performing, Continued at Kids. Our Converse Business is very strong. Hey, dude, it's working well for the brand during this period. And then...

The conversation is very similar over at famous footwear, when we think about it some of our biggest brands that are working well that we're trying to get back into them. We saw really good strength with our our Nike business continues to perform and continue to kids are converse business is very strong hey, Dude, it's working well.

Jay Schmidt: Overall, the brand portfolio is performing well with the first half of 2023 providing a solid foundation on which to build. As year-over-year comparison sees, we expect sales trends will improve, and more importantly, the brand portfolio will make a larger and more meaningful contribution to the total company's operating performance this year.

The brand during this period and then some really nice progress with new balance, which we're excited about and looking to really expand that through as we get into third quarter. So there's a lot of that going through that we're working on clearly, though and when you look at famous our kids has been a differentiator and you know we're seeing that.

some really nice progress with new balance, which we're excited about, and looking to really expand that through as we get into third quarter. So there's a lot of that going through that we're working.

Clearly though, when you look at famous, our kids have been the differentiator and we're seeing that.

as we have continued to see outpace the whole organization by almost, you know, almost ten points, which is really excited on that delta there. And,

As we have continued to see outpaced the whole organization by almost you know almost 10 points, which is really excited on that delta there and.

Jay Schmidt: Turning now to famous footwear. During the second quarter, famous continued to navigate difficult spending trends among its target consumer and the challenging macroeconomic backdrop overall. Even in this environment, famous outperformed its competitive set and increased market share and shoe chain. We saw strengthening sales trends as we moved through the quarter, and we delivered and expected sequential quarterly improvement in Q2. Our kids' business, a key differentiator for famous, was a bright spot again this quarter, increasing 5% over last year.

You know, that really is our competitive place. We outpaced in the shoe chain channel in that category. We've done a lot of work on kids' marketing and then also trions and stores and really seeing some good reaction there as we focus on that business. So that's really the biggest learning so far that we've seen.

That really is our competitive place we outpace in the shoe chain channel in that category. We've done a lot of work on kids marketing and then also try on 10 stores and really seeing some good reaction there as we.

Focus on that business. So that's really the biggest learnings so far that we'd see.

And then Jack, nice progress on the revolving credit, the debt paydown. What do you think for that going forward? And thank you.

Got it and then Jack nice progress on the revolving credit the debt pay down what are you seeing for that going forward and thank you.

Yeah, yes. So, as I mentioned, Dana, we've hit that one time's debt to EBITDA target that we have outlined. I think just given certainly the continued macro uncertainty and consumer demand uncertainty.

Yeah, Yeah. So as I mentioned, Dana you know, we've hit that one times debt to EBITDA target.

Jay Schmidt: Kids is an essential and growing category for famous and are focused paid off as families continue to prioritize purchases of kids' footwear. This strength is particularly important heading now into the back-to-school season. In total, famous generated nearly 41 million in adjusted operating earnings on net sales down 5%, resulting in a return of sales of nearly 10%. Famous sustained its gross margin rate of 46% from the first quarter as we continue to be strategic around our promotional approach.

That we have outlined I think just you know given.

You know certainly the continued macro uncertainty and can consumer demand uncertainty and also just the higher interest rates that we're paying as I mentioned the average interest rate. We paid in Q2 this year versus last year I would say our most recent borrowings now are closer to 7% and so I think those.

and also just the higher interest rates that we're paying. As I mentioned, the average interest rate we paid in Q2 this year versus last year, I would say our most recent borrowings now are closer to 7%.

And so I think those two reasons present a really compelling argument for continuing to pay that down. Obviously we'll get some nice EPS benefit from continuing to reduce that interest expense. As, you know, based on our guidance, we have somewhere between, you know, 34 and 38 cents of interest expense, headwind and EPS.

Two reasons are present, a really compelling arguments for continuing to pay that down obviously, we will get some nice EPS benefit from continuing to reduce that interest expense as you know based on our guidance we have somewhere between.

Jay Schmidt: About 50% of our business is now excluded from bogo promotions up from about 30% pre-pandemic. As we are with the brand portfolio, we are prioritizing the health of our business as famous footwear over trying to capture lower quality sales. Looking more closely at back-to-school, we executed a number of strategies to capitalize on this important demand opportunity. First, we focus on amplifying newness to drive excitement, interest, and relevance. Second, we approach inventory in a measured and agile manner.

<unk> 34, and 38 cents of of interest expense headwind in EPS and so we'll.

And so, you know, we'll continue to focus on that in a near term. But again, as you know, we bought back shares in the second quarter. And so we are always, you know, looking to be flexible and opportunistic there. And I think the balance sheet that we now have gives us that ability.

We will continue to focus on that in the near term, but again as you know we bought back shares in the second quarter and so we are always.

You know looking to be flexible and opportunistic there and I think the balance sheet that we now have gives us that ability.

Thank you.

Thank you. Our next questions come from the line of Laura Champey with loop capital markets. Please proceed with your question.

Thank you. Our next question is come from the line of Laura Champine with loop capital markets. Please proceed with your questions.

Jay Schmidt: While we built up inventory behind key brand styles and patterns, we tightly managed our overall inventory position, which declined 2% compared to last year. In order to have the capacity to react aggressively to best fellers in season. Finally, we continue to enhance, energize, and modernize the store experience through our new prototype stores. While we don't anticipate comping last year's record back to school period, we do believe famous is uniquely positioned to maintain its leadership status and shoe chains and deliver a solid performance.

Good morning, I have a follow on question about the brand portfolio of business.

Good morning, I have a follow along question about the brand portfolio business. Can you comment on anything of note within the different channels that you sell to you on the wholesale side and how you expect that to trend as we head into Q3, maybe if you can comment on what you're seeing so far this quarter?

Can you comment on anything of note within the different channels that you sell to on the wholesale side and how you expect that to trend as we head into Q3, maybe if you can comment on what you're seeing so far this quarter.

Yeah, hi, Lord. Jay, I will, um,

Yeah, Hi, lore, it's J M I.

On the brand portfolio, we are seeing, as we said, our lead brands are continuing to taking share.

Yeah on the brand portfolio, we are seeing them I think are as we said our lead brands are continuing to taking share consumers are voting toward newness and that's where we're seeing the prioritization. There you know we sell in a dynamic way to some of our lead customers. So we sell both on.

Consumers are voting toward newness, and that's where we're seeing the prioritization there. You know, we sell in a dynamic way to some of our lead customers, so we sell both on, you know, brick and mortar upfront. We do a lot of direct-to-consumer online with them, and then we do work on a replenishment basis. So our model hasn't changed. We're continuing to see that demand for newness, but that's really what we're seeing. So.

Jay Schmidt: Looking ahead, the famous team is extremely focused on fueling what's working from a product, marketing, and digital perspective to maximize our earnings potential while managing inventory and expense levels. Overall, we believe in the power and agility of the brand and expect strong earnings in 2023 and beyond. In short, we continue to have great confidence in the long-term outlook for famous and we believe we can leverage our competitive advantages to accelerate our growth in this segment.

<unk>, you know brick and mortar upfront, we do a lot of.

Direct to consumer online with them and then we do work on a replenishment basis. So our model Hasnt change, we're continuing to feed that demand for newness, but that's really what we're seeing so far that.

We did see obviously at a dynamic shift, if you compare it to last year, where we were selling a lot of ankle strap dress sandals and things to go out. We're now seeing a shift more towards, I say, very versatile footwear in terms of these flats and other styles, and our customers are continuing to respond to that. But for sure, we're looking at it in a very dynamic mode right now. Lastly, as we said, our direct consumer visits on our brand portfolio was up nicely in the quarter and we continue to work toward that. So that's how we're working with everyone. But it does, it's a very similar concept. We're just working with our partners in the same way.

We did see obviously a dynamic shift if you compare it to last year, where we were selling a lot of ankle strap dress sandals and and things to go out and we're now seeing a shift more towards I'd say very versatile footwear in terms of these flats and other styles and and our customers are continuing to respond to that but.

Jay Schmidt: These include our leadership position with kids and the Millennial family. Our leading assortment of national brands, our nationwide and largely all small retail footprint, and our elevated consumer experience in store and online. So in summary, I'm extremely proud of our strong operational discipline and the financial performance we delivered in second quarter. I believe the most recent quarter underscored yet again the advantages of our diversified structure and the one-collaris model. We remain confident in our ability to achieve our annual sales and earnings guidance for the year.

For sure we're looking at it in a very dynamic mode right. Now lastly, if we set our direct to consumer business on our brand portfolio was up nicely in the quarter and we continue to work toward that so that's how we're working with everyone, but it it it does.

It's a very similar concept, we're just working with our partners in the same way.

I guess I meant more about retail channels, meaning how's your business with, how are you using the off-pricers who continue to grow and is there a significant difference than trends at department stores as opposed to specialty? That's the direction I was supposed to go. Oh, okay. So just do refresh on that our.

I guess I meant more about about retail channels, meaning how is your business with how are you using the off price or as you continue to grow and is there a significant difference in trend at department stores as opposed to specialty and that that's the direction I was hoping to go Oh okay.

Jay Schmidt: Our brands are strong and enduring, our strategies are clear and actionable, and our teams are dedicated to exceeding the expectations of our consumers in this dynamic marketplace. Moreover, we continue to believe the strong financial foundation we built will enable us to consistently deliver our annual earnings baseline of more than $4 per share while generating strong levels of free cash flow and creating long-term value for our shareholders.

Just to refresh on that our.

our department store business for Q2 would

Are.

Department store business for Q2 with.

down a little more than I would say other ones in the brick and mortar piece.

Down a little more than I would say other ones in the brick and mortar piece the.

you know our shoe chain business was up in the quarter um... which um... was was nice and then off our off-price business uh... it's really more of a close-out piece for us right now and um... you know so that has not been a uh... as big a piece for us so that's what i would say for the quarter right now that's where we saw an in q2 and will continue to watch as we go forward

Our shoe chain business was up in the quarter, which was.

Jack Calandra: And with that, I'll now hand it over to Jack for a more detailed view of our financials. Jack? Thanks, Jay, and good morning everyone. We maintain strong financial discipline across the company in the second quarter. This resulted in earnings per share that exceeded the upper end of our guidance and healthy cash flow, which enabled us to reduce debt, invest in our critical growth initiatives, and return cash to shareholders.

What's nice and then our off price business, its really more of a closeout piece for us right now.

And.

So that has not been a as big a piece for us. So that's what I would say for the quarter right now that's where we saw in Q2 and we'll continue to watch as we go forward.

Got it thank you.

Jack Calandra: In today's call, I'll provide additional details on our second quarter performance, discuss the progress we've made on our cost reduction initiative, update you on our capital allocation plan and priorities, and share our outlook for the third quarter and full year. My comments will be on an adjusted basis. Please see today's press release for a reconciliation of adjusted results. Starting with Q2, consolidated sales were $696 million, a 5.8% decrease versus last year.

Thank you. Our next question has come from the line of Mitch Cummets with Seaport Research. Please proceed with your question.

Thank you. Our next question is come from the line of Mitch <unk> with Seaport Research. Please proceed with your question.

Yes, thanks for taking my questions. My first question is on famous, and it does have a few parts. Jay, you mentioned that kids was, I think you said five, and that was 10 points better than the business as a whole. Can you tell us kind of how the rest of the famous broke out? Maybe casual versus drafts versus athletic?

Yes, Thanks for taking my questions. My first question is on famous and it does have a few parts.

Joe You mentioned the kids was up I think you said five and that was 10 points better than the business as a whole can you can you tell us kind of how the rest of the famous broke out maybe casual versus dress versus athletic.

And then also on famous, little movie if you could just take that first.

And they also on famous but well maybe if you could just take that person.

Okay, so for sure our casual business was better than our performance athletic business, the adult side. As we said, our kids business was up significantly and

Okay. So for sure our casual business was better than our performance athletic business the adult side.

Jack Calandra: At famous, sales were down 5.1% and comparable sales were down 4.3%. Sales declines versus last year improved each month of the quarter. Brand portfolio sales were 301 million down 7.2% to last year due to softness and seasonal categories, namely sandals, and cautious buying behavior in the wholesale channel. While sales were down, we were able to protect margin with fewer markdowns and allowances. Consolidated gross margin decreased 45 basis points to 45.2%, which reflected an increase in brand portfolio gross margin offset by a decrease in famous gross margin.

As we said our kids business was up significantly and.

And then the other businesses which were smaller that we break out was with down, but that was a small piece of the total. It didn't let it go or a right side business was particularly strong. And then...

And then the other.

Businesses, which were smaller that we breakout was down but that was a small piece of the total.

So our lives right.

It can be strong and then.

I'd be our light style business, I should say, was particularly strong versus the performance piece of it right now. And then finally, Mitch, we did have, as I called out in the beginning, our sandal weakness was really similar across both channels. And it was down 11% in famous and in the brand portfolio. It was down a similar amount in our total shipment.

That'd be our lifestyle business I should say it was particularly strong.

Versus the performance piece of it right now and then finally, Mitch we did have as I called out in the beginning our sandal weakness, what's really at similar above across both channels and it was down 11% in famous and in the brand portfolio was down a similar amount in our total shipments.

Jack Calandra: Brand portfolio gross margin was 41.3%, a 295 basis point increase versus last year. This gross margin was a record for the second quarter for the segment and was due to higher initial margins, lower ocean freight cost, and disciplined inventory management. Famous gross margin was 46.2%, a 273 basis point decline versus last year. This decline reflects lower initial margins, and a more normalized level of clearance pricing and activity given last year's clean inventory position.

Okay, and then on the COP, you know, your minus 4.3, you said that sales declines, improved each month. Can you say, you know, where you ended the quarter, like, you know, what was COP in July , and have you seen continued improvement into August ? And then I guess lastly.

Okay, and then on the call you're minus four three you said that sales declines improved each month.

Can you say, you know where where you ended the quarter like you know what was cop in July and have you seen continued improvement.

Into August and then I guess lastly.

in terms of that improvement, both, you know, 2Q versus 1Q or even over the course of 2Q. You know, what would you attribute that to? Is some of it an improving macro or is it just more a function of, you know, more newness?

In terms of that improvement.

Q2 versus the <unk> or even through the over the course of <unk>.

<unk>, what would you attribute that to some a bit and improving macro or is it just more a function of you.

Jack Calandra: That said, clearance pricing and activity continued to compare favorably to 2019. SGNA expense was 263 million or 37.8% of sales. SGNA expense was 5.6 million lower than last year from lower variable expenses and incentive compensation costs. Operating earnings were 51 million and operating margin was 7.4%. Operating margin was 9.2% at brand portfolio and 9.9% at famous. Net interest expense was 5.1 million double versus last year given a higher borrowing rate. The weighted average interest rate in Q2 was 6.7% versus 2.8% last year.

More newness in the product.

So, Mitch or comp did improve as we move through the quarter. You know, May was our worst month. We improved in June and then July significantly in June or two. But when we look at a head fill far based on what we know, our guidance, our famous really reflects, you know, really more of this historic trend of where we've been and we do think we'll deliver against that.

So Mitch our comps did improve as we move through the quarter.

No.

May was our worst month, we improved in June and then July significantly improved there too.

But when we look at ahead, so far based on what we know our guidance. The famous really reflects you know really more of this historic trend of where we've been and we do think we'll deliver against that.

That's a trend that we put out there and we've kind of built everything against that for the.

at trend that we put out there and we've kind of pulled everything against that for the certainly as we go into third quarter. Yeah, I would just, I just just add to James comments, as a reminder, our back to school performance last year was a record performance. And so some of that comp, we're up against some decent comps and the famous business for back to school.

Certainly as we go into third quarter. Yeah. It was just okay doesn't make sure yes, just to add to Jay's comments as a reminder, our.

Our back to school performance last year was a record performance and so some of that comp.

We were up against some some decent comps in the famous business for back to school.

Okay, and maybe with that being said, Jack, on the 3Q guide, you said, fill down those single digits. Can you provide any color on how you think about that between famous and BP? And is there any change to your kind of overall outlook for the year between those two businesses? It did sound like the BP was a little slower than you expected in 2Q. And I don't know if that changed how you're thinking about that business as a whole for the year.

Jack Calandra: The Luder Darring for Share were 98 cents in excess of the high end of our guidance and EBITDA was 65 million or 9.4% of sales. Turning now to the balance sheet and cash flow, we ended the second quarter with 244 million in borrowings and no long-term debt. Inventory at the end of the second quarter was 661 million down 14% versus last year, reflecting reductions in both in transit and on-hand inventory due to both accelerated receipts last year in brand portfolio as supply chain challenges started to resolve and disciplined inventory management across the business. By segment, inventory at famous was down 2% versus last year. At brand portfolio, inventory was down 26% versus last year, here. In general, we feel good about the amount and composition of inventory in both segments.

Okay, and maybe with that being said Jack on the <unk> Guide you said sales down low single digits can you provide any color on how you think about that between famous and BP and is there any change to your kind of overall outlook for the year between those two businesses.

It didn't sound like maybe <unk> was a little slower than you expected them to.

<unk> I don't know if that changed how you're thinking about that business as a whole for the year.

Yeah, so we've, you know, I would say our base case and our guidance for famous is basically a continuation of what we saw on Q2, so call it that minus 5%.

Yeah, Mitch. So so we've you know I would say our base case in our guidance for famous is basically a continuation of what we saw in Q2, so call that minus 5%.

Obviously, the guidance provides a range, and so if Famous does a little bit better, we're towards the higher end of that range, and a little bit worse, we'd be towards the lower end of that range. So I would say Famous is pretty well-

Obviously, the guidance provides a range and so famous does a little bit better work towards the higher end of that range and a little bit worse, we'd be towards the lower end of that range. So I would say famous is pretty well set on what we've seen pretty consistently for the year because if we look at Q2 down five.

on what we've seen pretty consistently for the year, because if we look at Q2 down 5, and then if you take out March out of Q1, that quarter was also down 5. So I would say pretty consistent performance.

And then if you take out March out of Q1 that quarter was also down five so I would say pretty pretty consistent performance.

Jack Calandra: Regarding cash flow from operations, we generated 88 million during the quarter and deployed cash for strategic investments in the business, paid our quarterly dividend, reduced capital expenditures, 2.5 million on our quarterly dividend, 17.4 million to buy back 763,000 shares at an average price of $22.86, and 47.5 million to reduce our borrowings. With the Q2 paydown, borrowings are approximately 105 million below Q2 last year and down 64 million year-to-date. As Jay mentioned, we reached our target leverage ratio of one times on a debt to trailing 12-month EBITDA basis.

And that's what we've modeled. In the case of brand portfolio, that's where we were up against some really tough compares in the first half. So in the first half of 2022, our brand portfolio business was up 41%.

And that's what we've that's what we've modeled in the case of brand portfolio, that's where we are up against some really we were up against some really tough compares in the first quarter.

In the first half so in the first half of 2022, our brand portfolio business was up 41%, but then in the back half of 2022, only up 7% and so part of our confidence other than all the other operating things that we've talked about in terms of inventory management and things of that.

Then in the back half of 2022 only up to seven percent.

And so part of our confidence other than all the operating things that we've talked about in terms of inventory management and things of that is we're just up against much easier comps going into the back half of this year on Brandt Works Folio.

As we're just up against much easier comps going into the back half of this year on brand portfolio.

Great Alright, thank you.

Thank you. Our next questions come from the line of Abbey's evening with Piper Sandler. Please proceed with your questions.

Thank you our next questions come from the line of abbey's, even ex with Piper Sandler. Please proceed with your questions.

Jack Calandra: While we continue to evaluate our capital allocation options and maintain a flexible approach, we believe at this time the best use of free cash flow is to continue to reduce our borrowings. This will allow us to reduce interest expense in this higher rate environment and maximize liquidity. That said, we view buybacks as effective means of returning capital shareholders, and with our valuation metrics still well below historical levels, we view cholera stock as an attractive investment. We have 5.6 million shares remaining under our current or authorization and will continue to consider sharey purchases based on market conditions.

Great, thanks so much for taking my question. So just on the inventory, like how should we be thinking about inventory levels for the ballots of the year? And then how are you thinking about managing, bringing in this newness that's driving demand versus keeping controlled inventory levels given the uncertain macro?

Great. Thanks, so much for taking my question.

So just on the inventory like how should we be thinking about inventory levels for the balance of the year and then I mean, how are you thinking about managing bringing in newness in driving demand and prices.

Controlled inventory levels, given the uncertain macro.

So Abby, Hi, it's Jay. Just how we're managing inventory is really, we're kind of setting up a new normal forest and we're really managing to a new inventory turn. So in looking at this.

So Avi hi, it's Jay kitchen, how were managing inventories really we're kind of setting up a new normal for us and we're really managing to a new inventory turns so and looking at that we really are driving newness I'm continually we think to consumer demands it and we are chasing more.

We really are driving newness continually. We think the consumer demands it, and we are chasing more product through our speed program, which is running at that.

Product through our speed program, which is running at that go moving toward that 20% of our receipts. So weren't really seeing it as any detraction of terms of holding us back right now and then the last thing I'll say is in particular in the brand portfolio. We had a lot of our product last year show way way earlier up.

Jack Calandra: Now, turning to our outlook. Given our performance year-to-date and our forecast for the second half, we continue to expect full-year earnings per share of $4.10 to $4.30. In addition, we still anticipate consolidated sales to be down 3% to 5%, including the impact of the 53rd week, consolidated operating margin of 7.3% to 7.5%.

is in particular in the brand portfolio, we had a lot of our product last year show way, way earlier up into second quarter than we had planned. So what you're gonna kind of see is a more balanced flow with us through this discipline management and will, I think, continue to be able to deliver the newness, but more importantly, chase it quickly. And that inventory amounts that we're now working on on TURN allow us to really pivot and react more aggressively. And then Jack, I think you'd share some of the numbers there too. Yeah, Abby, thanks for the question. Just to add to Jay's comments, for the back half, we expect to have lower inventory this year versus last year in both the third quarter and the fourth quarter. Now they won't be down as much as they were in the first half when they were down low teens, but we expect continued improvement year over year in that metric. We're always focused on both the quantity and the quality of inventory, and certainly appreciate the importance of maintaining that healthy inventory to sales.

Into the second quarter than we had planned so what youre going to kind of see it as a more balanced flow with us through this disciplined management and and will I think continue to be able to deliver the newness, but more importantly chase it quickly and that inventory amounts that were now working on in turn allow us to really pivot and react more aggressive.

Jack Calandra: We still expect to generate 20 million of in-year savings and 30 million to 35 million on an annualized basis from our cost reduction actions. For the in-year savings, 3 million was realized in Q1, 7 million was realized in Q2, and the remaining 10 million will be realized in the second half. We continue to expect a one-time cash charge of about 4 million associated with this initiative. We took 1.6 million of that charge in the second quarter and expect to take the remaining charge in Q3. We still expect net interest expense of $17 million to $19 million, an effective tax rate of about 25% and shares outstanding of approximately $34.3 million, which assumes no additional sharey purchases this year.

And then Jack I think you can share some of the numbers there too yeah Avi. Thanks for the question just to add to Jay's comments for the back half we expect to have lower inventory this year versus last year in both the third quarter and the fourth quarter now they won't be down as much as they were in the first half when they were down low teens, but we expect continue.

Due to improvements in our year over year in that metric.

You know, we're always focused on both the quantity and the quality of inventory, and certainly appreciate the importance of maintaining that healthy inventory to sales relationship.

Always focused on both the quantity and the quality of inventory and certainly appreciate the importance of maintaining that healthy inventory to sales relationship.

Got it and then just one more on the brand portfolio.

Got it. And then just one more on the brand portfolio. I guess like in this environment, I would assume that that your wholesale partners, you know, are like that you, you know, have a good capabilities for dropship. Can you just talk about what you're doing in dropship? And if that's increased as a percentage of the business, you know, as wholesale orders of tighten things?

I guess like in this environment I would assume that that your wholesale partners.

I like that you haven't got that capability for drop ship can you just talk about what are you doing in drop ship and it increased as a percentage of the business.

Yeah as wholesale orders have tightened.

Jack Calandra: In addition, we now expect capital expenditures of $50 million to $60 million versus our previous revised guidance of $55 million to $65 million. This decline reflects an adjustment to the timing of certain projects and we remain committed to investing in our strategic initiatives.

Yeah, So where we are funding our drop ship fully.

So we are funding our drop ship fully. There is, it's a continued important portion of our business. Most likely what we're seeing is our wholesale partners continue to want to receipt newness in a very timely way so they can react to it. And yes, they are acting more conservatively, but again, reacting more toward the real product that is working. So our model continues as it has been with a very dynamic piece with it, with those drop ship and then replenishment being a very important portion of this. And I think it's going to be similar for us versus how we've operated in Q2 and Q1. So I'm not seeing a different ship for that as we go into Q3.

There is it's a continued important portion of our business most likely what we're seeing is our wholesale partners continue to want to receipt newness in a very timely way. So they can react to it and yes. They are acting more conservatively.

Jack Calandra: Finally, we are providing the following guidance for the third quarter. We expect net sales to be down low single digits and earnings per share of $1.30 with $1.35.

But again reacting more toward the real product that is working.

So our model continues as it has been with a very dynamic piece with it with both drop ship and then replenishment being a very important portion of this and I think it's going to be similar for us versus how we've operated in Q2 and Q1, so I'm not seeing a different shift for that is as we go into.

Unknown Executive: With that, I'd like to turn the call over to the operator for questions. Operator? Thank you.

Unknown Executive: We will now be conducting a question and answer session. If you would like to ask a question, please press star one on your telephone keypad. The confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment it may be necessary to pick up your handset before pressing the star keys. We ask that you please limit yourself to one question and one follow-up question. One moment please while we pull for your questions.

Q3.

Thank you.

Got it thank you.

Thank you.

Thank you. There are no further questions at this time. I would now like to turn the floor back over to Jashimit for any closing.

Thank you there are no further questions at this time I would now like to turn the floor back over to Jay Schmidt for any closing comments.

Okay, well, I'd like to thank everyone for joining us this morning before we close today. I'd like to thank the talented Claris team for their hard work and dedication.

Okay, well I'd like to thank everyone for joining us. This morning before we close today I'd like to thank the talented claris team for their hard work and dedication we remain confident in our ability to create exceptional product to exceed our consumers' expectations and drive value for our shareholders.

We remain confident in our ability to create exceptional product, to exceed our consumer's expectations and drive value for our shareholders. We also look forward to providing you with some additional detail around our long-term growth strategies that are upcoming investor day in October . So with that, I'd just like to say, have a great holiday and we'll talk soon. Thank you.

Dana Telsey: Our first questions come from the line of Dana Telsi with Telsi Advisory Group. Please proceed with your questions. Hi. Good morning. Good morning, afternoon. Everyone, what a busy day so far.

We also look forward to providing you with some additional detail around our long term growth strategy at our upcoming Investor day in October so with that I'd, just like to say have a great holiday and we'll talk soon thank you.

Jack Calandra: Can you talk a little about the puts and takes on the gross margin in the back half of the year across both businesses? How you're seeing it and planning as we go into the back half? And what you're thinking about in terms of promo versus full price and is there any difference by category? Thank you. Yeah, hi, Dana. This is Jack. Thank you for your question. In terms, I'll take it by business segments.

Thank you. This does conclude today's teleconference. We appreciate your participation you may disconnect. Your lines at this time enjoy the rest of your day.

Thank you. This does conclude today's teleconference. We appreciate your participation. You may disconnect your lines at this time. Enjoy the rest of your day.

Jack Calandra: So in terms of famous, the tailwinds in gross margin as we go into the back half include, I think, the disciplined inventory management that we've demonstrated. We do expect to have fewer days on promotion. But the headwinds there would include lower initial margins and the more normalized level of clearance activity and pricing that I mentioned earlier.

Jack Calandra: For grant portfolio, I would say there's more tailwinds there than headwinds. The tailwinds there also include the disciplined inventory management that we've demonstrated. But there we have, we have higher initial margins, continued ocean freight savings, and a higher contribution of sales from direct to consumer, which as you know is a more profitable business for us in that channel. Got it.

Jay Schmidt: And then if you're thinking about, as you went through this back to school season, any learnings from back to school that can inform for holiday on the merchandising side, what you saw in either portfolio, and any thoughts on the wholesale division with branded portfolio with some of those orders tightening, what do you see is getting the spigot to open again, or anything you're seeing from the wholesale accounts in particular. Thank you.

Jay Schmidt: Hi, Dana. This is Jay. Hi, Jay. Start with your brand portfolio question. You know, our ongoing Discipline Approach to Inventory Management really helps us to chase these top selling items in season through our speed programs. And we've been able to mitigate and navigate kind of some of the shifts in behavior. We saw a lot of positivity on the sneaker trend as we went into second quarter and were able to actually get enough inventory to make that a meaningful business as we walk into Q3.

Jay Schmidt: Our category business includes on flats and loafers. We're seeing really nice progress on that and really good sell-throughs on that, particularly with classic hardware and classics being so strong. And finally, there is some newness in the dress business with slingbacks coming in and really particularly on low heels. So we're really focused on getting these right categories and then all the way down to the items to really help move this business back. And we still do get re-orders from people on these really strong items selling.

Jay Schmidt: The conversation is very similar over its famous footwear. When we think about it, some of our biggest brands that are working well that we're trying to get back into them, we saw really good strength with our Nike business continues to perform and continue to kids. Our converse business is very strong. Hey, dude, it's working well for the brand during this period. And then some really nice progress with new balance, which we're excited about and looking to really expand that through as we get into third quarter.

Jay Schmidt: So there's a lot of that going through that we're working on. Clearly though, when you look at famous, our kids has been a differentiator and we're seeing that as we have continued to see outpaced the whole organization by almost ten points, which is really excited on that delta there. And that really is our competitive place. We outpaced in the shoe chain channel in that category. We've done a lot of work on kids marketing and then also trions and stores.

Jay Schmidt: And really seeing some good reaction there as we focus on that business. So that's really the biggest learning so far that we've seen. Got it. And then Jack, nice progress on the revolving credit, the debt paydown. What do you think for that going forward? And thank you. Yeah, yes. So as I mentioned, Dana, we've hit that one times debt to evit.target that we have outlined. I think just given certainly the continued macro uncertainty and consumer demand uncertainty, and also just the higher interest rates that we're paying.

Jay Schmidt: As I mentioned, the average interest rate we paid in Q2 this year versus last year, I would say our most recent bar rings now are closer to 7%. And so I think those two reasons present a really compelling argument for continuing to pay that down. Obviously, we'll get some nice EPS benefit from continuing to reduce that interest expense. As based on our guidance, we have somewhere between 34 and 38 cents of interest expense headwind and EPS.

Jay Schmidt: And so we'll continue to focus on that in a near term. But again, as you know, we bought back shares in the second quarter. And so we are always looking to be flexible and opportunistic there. And I think the balance sheet that we now have gives us that ability. Thank you.

Laura Champine: Our next questions come from the line of Laura Champine with loop capital markets. Please proceed with your questions.

Laura Champine: Good morning. I have a follow along question about the brand portfolio business. Can you comment on anything of note within the different channels that you sell to you on the wholesale side and how you expect that to trend as we head into Q3. Maybe if you can comment on what you're seeing so far this quarter. Yeah, hi, lords, Jay. I will, yeah, on the brand portfolio, we are seeing, I think our, as we said, our lead brands are continuing to taking share.

Laura Champine: Consumers are voting toward newness and that's where we're seeing the prioritization there. You know, we sell in a dynamic way to some of our lead customers. So we sell both on, you know, brick and mortar up front. We do a lot of direct a consumer online with them. And then we do work on a replenishment basis. So our model hasn't changed. We're continuing to see that demand for newness, but that's really what we're seeing so far.

Laura Champine: We did see obviously a dynamic shift if you compare it to last year where we were selling a lot of ankle strap dress sandals and things to go out. We're now seeing a ship more toward, I say, very versatile footwear in terms of these flats and other styles. And our customers are continuing to respond to that. But for sure we're looking at it in a very dynamic mode right now. Lastly, as we said, our directive consumer visits on our brand portfolio was up nicely in the quarter and we continue to work toward that.

Laura Champine: So that's how we're working with everyone. But it does. It's a very similar concept. We're just working with our partners in the same way. I give a bit more about retail channels, meaning how's your business with how are you using the off-pricers who continue to grow and is there a significant difference than trends at department stores as opposed to specialty. That's the direction I was hoping to go. Okay, so just do refresh on that our department store business for Q2 was down a little more than I would say other ones in the brick and mortar piece.

Laura Champine: The, you know, our shoe chain business was up in the quarter, which was nice. And then our off-priced business is really more of a close out piece for us right now. And, you know, so that has not been as big a piece for us. So that's what I would say for the quarter right now. That's where we saw in Q2 and we'll continue to watch as we go forward. Got it.

Unknown Executive: Thank you.

Mitch Cummins: Our next question has come from the line of Mitch Cummins with seaport research. Please proceed with your questions. Yes, thanks for taking my questions.

Mitch Cummins: My first question is on famous and it does have a few parts. Jay, you mentioned that kids was, I think you said five and that was 10 points better than the businesses of all. Can you, can you tell us kind of how the rest of the famous broke out, maybe casual versus drafts versus athletic, and then also, I'm famous. Little maybe if you could just take that person. Okay, so for sure our our casual business was better than our performance athletic business, the adult side.

Mitch Cummins: As we said, our kids business was up significantly and and then the other businesses which were smaller than we break out was with down but that was a small piece for the total. In athletic though our life's right business was particularly strong and then I'd be our lifestyle business I should say was particularly strong versus the performance piece of it right now and then finally Mitch we did have as I called out in the beginning our sandal weakness was really similar both across those channels and it was down 11% in famous and in the brand portfolio it was down a similar amount in our total shipments.

Jay Schmidt: Okay and then on the COP you know your minus 4-3 you said that sales declined improved each month. Can you say you know where you ended the quarter like what was COP in July and have you seen continued improvement into August and then I guess lastly in terms of that improvement both you know 2Q versus 1Q or even over the course of 2Q you know what would you attribute that to is some of it in improving macro or is it just more a function of you know more newness in the product.

Jay Schmidt: So Mitch or COP did improve as we move through the quarter you know May was our worst month we improved in June and then July significantly improved there too. But when we look at ahead so far based on what we know our guidance fame has really reflects you know really more of this historic trend of where we've been and we do think we'll deliver against that trend that we put out there and we've kind of sold everything against that for the certainly as we go into third quarter.

Jay Schmidt: Yeah I would just just add to James comments as a reminder you know our back to school performance last year was a record performance and so some of that comp you know we're up against some decent comps in the famous business for back to school.

Jack Calandra: Okay and maybe with that being said Jack on the 3Q guide you said sales down low single digits can you provide any color on how you think about that between famous and BP and is there any change to your kind of overall outlook for the year between those two businesses. It did sound like maybe BP was a little slower than you expected in in 2Q and I don't know if that changed how you're thinking about that that that business as a whole for the year.

Jack Calandra: Yeah so um so we've you know I would say our base case in our guidance for famous is basically continuation of what we saw in Q2 so call that that minus 5%. Obviously you know the guidance provides a range and so if famous does a little bit better we're towards the higher end of that range and a little bit worse we'd be towards the lower end of that range so I would say famous is pretty well set on what we've seen pretty consistently for the year that if we look at Q2 down 5 and then if you take out March out of Q1 that quarter was also down 5 so I would say pretty pretty consistent performance and that's what we that's what we've modeled.

Jack Calandra: In the case of brand portfolio that's where we're up against some really we're up against some really tough compares in the first quarter I mean in the first half so in the first half of 2022 our brand portfolio business was up 41% then in the back half of 2022 only up to 7% and so part of our confidence other than all the the operating things that we've talked about in terms of inventory management and things of that is we're just up against much easier comps going into the back half of this year on brand portfolio Great.

Jack Calandra: All right. Thank you.

Abigail Zvejnieks: Our next questions come from the line of Abby Zvejnieks with Piper Sandler. Please proceed with your questions. Great. Thanks so much for taking my question. So just on the inventory, like how should we be thinking about inventory levels for the balance of the year? And then, you know, how are you thinking about managing bringing in this newness that's driving demand versus, you know, keeping, you know, controlled inventory levels given the uncertain macro.

Jay Schmidt: So Abby, hi, it's Jay. Just in how we're managing inventory is really we're kind of setting up a new normal forest and we're really managing to a new inventory turn. So in looking at this, we really are driving newness continually. We think to consume or demands it and we are chasing more product through our speed program, which is running at that moving toward that 20% of our receipts. So we're really seeing it as any detraction of terms of holding us back right now.

Jay Schmidt: And then the last thing I'll say is in particular in the brand portfolio, we had a lot of our product last year show way, way earlier up into second quarter than we had planned. So what you're going to kind of see is a more balanced flow with us through this discipline management and we'll, I think, continue to be able to deliver the newness but more importantly chase it quickly and that inventory amounts that we're now working on on turn allow us to really pivot and react more aggressively. And then, Jack, I think you'd share some of the numbers there too.

Jack Calandra: Yeah, Abby, thanks for the question just to add to Jay's comments. You know, for the back half, we expect to have lower inventory this year versus last year in both the third quarter and the fourth quarter. Now, they won't be down as much as they were in the first half when they were down low teens, but we expect continued improvement, you know, year over year in that metric. You know, we're always focused on both the quantity and the quality of inventory and certainly appreciate the importance of maintaining that healthy inventory to sales relationship. Got it.

Jay Schmidt: And then just one more on the brand portfolio. I guess like in this environment, I would assume that your wholesale partners, you know, our life that you, you know, have a good capabilities for dropship. Can you just talk about what you're doing in dropship and if that's increased as a percentage of the business, you know, as wholesale orders of tighten things? Yeah, so we are funding our dropship fully. It's a continued, important portion of our business.

Jay Schmidt: Most likely what we're seeing is our wholesale partners continue to want to receive newness in a very timely way so they can react to it. And yes, they are acting more conservatively, but again, reacting more toward the real product that is working. So our model continues as it has been with a very dynamic piece with it, with those dropship and then replenishment being a very important portion of this. And I think it's going to be similar for us versus how we've operated in Q2 and Q1. So I'm not seeing a different shift for that as we go into Q3. Thank you.

Jay Schmidt: There are no further questions at this time. I would now like to turn the floor back over to Jason Schmidt for any closing comments. Okay, well I'd like to thank everyone for joining us this morning before we close today. I'd like to thank the talented Caleres team for their hard work and dedication. We remain confident in our ability to create exceptional product to exceed our consumer's expectations and drive value for our shareholders.

Jay Schmidt: We also look forward to providing you with some additional detail. We're going to have to fill around our long-term growth strategies that are upcoming investor day in October. So with that, I'd just like to say have a great holiday and we'll talk soon. Thank you.

Unknown Executive: This does conclude today's teleconference. We appreciate your participation. You may disconnect your lines at this time. Enjoy the rest of your day.

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