Q3 2024 Shoe Carnival Inc Earnings Call
Ladies and gentlemen, good morning, and welcome to shoe Carnival third quarter 2023 earnings Conference call.
Today's conference call is being recorded and is also being broadcast via webcast.
Any reproduction or rebroadcast of any portion of this call is expressly prohibited.
I would now like to introduce Mr. Steve Alexander with shoe Carnival Investor Relations Mr. Alexander. Please go ahead.
Thank you and good morning, thanks for joining us today.
Earlier. This morning, we issued our earnings press release for the third quarter of 2023.
If you need a copy of the release it is available on our website in the investors section.
Joining me on today's call are Mark Worden, President and Chief Executive Officer of Shoe Carnival Carlson matter, Chief Merchandising Officer, and Patrick Edwards Chief Financial Officer.
Managements remarks today may contain forward looking statements that involve a number of risk factors. These.
These risk factors could cause the company's actual results to be materially different from those projected in such statements.
Forward looking statements should also be considered in conjunction with the discussion of risk factors included in the company's SEC filings and today's earnings press release.
Investors are cautioned not to place undue reliance on these forward looking statements, which speak only as of today's date.
The company disclaims any obligations to update any of the risk factors or to publicly announce any revisions to the forward looking statements discussed on today's conference call or contained in todays press release to reflect future events or developments and with that I'll hand, the call over to Mark. Thank you, Steve and good morning, everyone.
I'd like to start today by introducing Patrick Edwards through in September was promoted to the role of Chief Financial Officer, Treasurer and Board Secretary.
Patrick has served as an executive officer of the Corporation since 2021, as our Chief Accounting Officer and Board Secretary previously he served as our corporate controller since joining the company in 2019 got.
Patrick brings over 30 years of Progressive financial leadership experience to his new role and has been instrumental to our financial performance.
I'm sure you will all enjoy working with him going forward I don't know is excited to get to know you all now moving onto the quarter.
Started out Q3 with a very successful back to school campaign and strong results.
We saw momentum building in key categories market share growing and moderating sales trends compared to earlier in the year. However, once back to school shopping concluded the sales trend softened significantly heading into labor day weekend, and we saw disappointing seasonal sales for the remainder of September and October.
For the quarter sales were $319 9 million.
Down six 4% versus the prior year. This result was at the low end of our expectations, Yes, I would like to commend the teams achievement of approximately $320 million in sales, which is a level of quarterly sales that the company had never come close to achieving in any quarter prior to 2021.
I am so proud of our team's customer focus and strong commitment to delivering results in the face of a challenging environment our.
Our EPS delivery was 80 in the quarter and $2 11 year to date, both are below our expectations and were impacted by the very sluggish start to the fall season.
Looking at how these results compare over the longer term strategic horizon, our 2023 year to date EPS has more than 40% higher than any full year EPS results. Prior to 2021 in fact, the Q3 EPS result, 80.
It is more than any full year EPS delivery prior to 2018.
I am disappointed with our performance shortfall versus our expectations that we set too high yet by steadily advancing our long term strategies. The company has achieved transformative profit growth compared to the results just a few years earlier.
Moving to a recap of the August back to school season.
I believe shoe carnival as the leader of the family footwear business for kids and has been for over four decades, we pride ourselves on delivering kids a fund back to school shopping experience with the best depth and breadth of the brand's kids want to show off the head back to school.
When I look back at this challenging year. The results I'm. Most pleased with is the sales growth achieved during the month of August growing our kids categories low single digits versus the prior year.
The 2023 back to school season resulted in the second highest kids category sales in the company's 45 year history surpassed only by 2021.
Our kit sales grew to over 30% of total sales during back to school as compared to a typical full year historical range of 18% to 20% of total sales.
This category acceleration was driven by growth in athletic sales led by court and basketball and both girls and boys.
Our record higher transaction value as well as conversion and margins, but we are among the highest levels in our history.
Similar to Q2, we invested aggressively this quarter supporting our back to school advertising and marketing campaigns. As we were seeing encouraging sales trends. This growth contributed to significant market share gains year to date for our company within the backdrop of the family footwear industry, where sales have declined.
<unk> approximately 10% year to date 2023 to.
To summarize momentum was improving as we headed into our last earnings call and that gave us increased confidence that balance of your trends appears likely to continue to moderate.
In hindsight, we were wrong about trends moderating for the balance of the year.
After back to school finished our topline performance quickly softened as the normal seasonal business and fall season did not kick in.
The weather was persistently hot and dry in most of our geographies during September and October and sales turn to high single digits and low double digit declines for multiple weeks and the early fall period.
From a category perspective boot sales have been very soft with the warm dry weather total boot sales declined low to <unk> in the quarter and certain seasonal segments barely started at all.
Given the unexpected top line challenges in the latter part of the quarter, we are lowering our full year 2023 sales and EPS guidance.
Patrick will go into detail on guidance in his remarks, but I will highlight that our revised guidance reflects the Q4 outlook that comp sales decline steeper than prior quarters and is based on our limited visibility into customer holiday shopping and the broader macroeconomic drivers that continue to be volatile.
We continue to experience softness in this segment of our customers with household income under $30000, including our urban lower income customers for some perspective, our overall customer mix the split about evenly above and below household income of $50000.
In this segment of our customers that are above $50000 household income, we're seeing a mix shift to more affluent customers with household income over $75000 in fact, our customer segments below $30 and above $75000 or now about equal on a year to date basis with both.
Segments in the high 20% range the.
The growth in the above $75000 segment is being driven by e-commerce transactions and our shoes station banner.
Turning to shoe station the banner produced excellent results all around in the quarter with net sales increasing low double digits versus the prior year margins expanding and sequentially accelerating sales growth versus Q2, we continue to see shoe station results significantly outpacing the overall footwear category and.
Getting leading performance within our company.
Growth is largely driven from investments in our CRM platform capabilities that have grown as schuh stations CRM membership high teens versus prior year.
The success of this acquisition and the speed of achieving synergies further strengthens our commitment to our M&A growth strategy, which is largely focused on making additional regional acquisitions that.
Can be rolled up into our shoe station growth pattern.
Total company E Comm sales increased approximately 10% in the quarter demonstrating their digital marketing and CRM strategies are driving customer awareness and engagement, helping to partially offset the traffic softness we're seeing in our lower income urban customers.
As part of our continued strategy to drive long term sustainable top line growth at the end of October we relaunched our shoe Carnival E com website, bringing customer focused improvements to the online experience as part of this redesign we have completely re implemented our search platform and we are leveraging real time analytics.
To display the most relevant trending and recent searches while also heavily emphasizing product imagery.
We're also leveraging predictive analytics and the power of generative AI across the site to create a more personalized and engaging experience for the customer.
Combined with our advanced CRM capabilities. These investments to improve our customers online interaction brings us closer than ever to show right product to the right customer at the right time.
We're very excited about the relaunch site and we believe that this user experience will drive a higher level of customer engagement, whether the customer is looking to purchase online or to simply get more information for visiting one of our over 400 stores grew.
Gross profit margin in the quarter was 36, 8%, representing the 11th consecutive quarter above 35%.
Taking a longer term view of our profit transformation. The margin expansion is the key driver of improved results as evidenced by an increase of 590 basis points in Q3 2023 versus Q3 2019.
As I discussed previously competitive intensity was high during the back to school season, with many competitors deep discounting product and running profit losing promotions.
Comparing to the back to school period four years ago in 2019, our gross profit margin in the 2023 back to school season increased 820 basis points.
Driven by our targeted promotional plans smart buying strategies and continued growth of our shoe perks CRM membership.
And as I shared earlier, we gained this long term margin expansion, while also growing our <unk> business to the second highest level of any prior back to school.
During the quarter, we continued our strategic investments advancing our store modernization program as we have discussed in the past our store modernization and in store experience investments continue to drive fleet profitability and productivity.
Over two years into the program, we now have 55% of the fleet remodel complete and continue to be approaching approximately 65% of all stores to be completed summer of 2024. Additionally, we now have approximately 70% of the fleet updated with Nike shops, or multi branded athletic shops.
Bringing a differentiated athletic shopping experience to our customers across most of our store footprint.
We also continued executing our inventory optimization improvement plan in the quarter were ahead of schedule, reducing inventory levels, while sustaining strong gross profit margins and providing the freshest mix of branded products for our customers.
We will cover more details in a few moments, but our inventory coming out of back to school in Q3 is in a good position.
Our balance sheet has continued to strengthen as the euro has progressed with approximately $71 million in cash and marketable securities on hand at the end of the quarter.
Additionally continued to fund our strategic investments in the business from operating cash flow and carrying no debt.
In the current interest rate environment, our zero debt position puts us in a great place to efficiently and strategically fund, both internal and external growth opportunities with cash generated by the business.
Given the strength of our balance sheet and the expectation for a lower level of near term growth. We've made the decision to increase our dividend by 20% per share during the quarter with this recent increase we have now increased our shareholder dividend by 166% since the third quarter of 2020.
And provided 46th consecutive quarterly dividend.
Additionally, with a portion of our excess capital, we began making share repurchases.
We repurchased $5 $4 billion worth of our shares in the quarter and have approximately $44 6 million still available under our share repurchase program at the discretion of management.
Before I turn it over to Carl I'll briefly summarize our Q3 performance by saying that we've won the August back to school period growing our kids business low single digits and once again growing market share.
We invested aggressively behind advertising and marketing to drive growth in kids and while that pressured short term profitability. It resulted in more profit generated in Q3 alone than in any full year EPS prior to 2018.
We have a playbook in place gross our kids business and can be replicated to drive success and future back to school season.
September and October were challenging after a strong start to the quarter.
Seasonal business in the fall season never really got started resulting in soft top line performance in the latter part of the quarter with poor results in boots and certain other categories.
We invested behind advertising and marketing in September and October driving continued market share gains, but sales were below our expectations.
We're taking a cautious approach to the balance of the year guidance, given the limited visibility into customer holiday shopping and poor seasonal category performance to date.
During the quarter, we continued to drive accelerated growth and shoe station as well as strong growth in our total E comm sales.
Part of our profit transformation strategy, we delivered a healthy gross profit margin and are on pace to deliver approximately 36% gross profit margin for the year up approximately 600 basis points from four years ago.
We're ahead of schedule on our inventory optimization plan with inventory levels down and product assortment in a good position.
We are disappointed with the soft Q3, ending and declining trends carrying into Q4, yet our balance sheet is very strong with no debt and we are generating solid cash flow.
This positions the company to fund increased shareholder value and future growth opportunities as they become available in 2024 and beyond with cash generated by the business.
And now I will hand, it over to Karl to provide further color on the quarter and our categories performance Carl Thank you Mark.
I think it's helpful to start with a level set on the consumer backdrop and inventory positioning heading into the third quarter and back to school and how it impacted our results we knew the family footwear consumer would be cautious with their purchases given persistent inflation and the highest interest rates.
In 17 years, our consumer would be focused on essentials and more importantly, we knew they were looking for value, especially in the case of our lower income urban consumer who continues to be challenged and it's more price conscious and the current economic backdrop.
<unk> supply chain disruptions experienced last year eased and we were ready for this value conscious consumer with a significantly improved athletic merchandise assortment.
As we saw this consumer behavior played out in our results for Q3 and more specifically in our strong performance during August back to school, our assortment delivered on our customers' needs. Our total athletic business performed well in the quarter down only mid singles.
Reflecting this focus on our central purchases and one of our most essential categories children's Athletics. We grew the category low single digits said another way when it comes to the central footwear brands that kids wanted us to headed back to school, we had debt and for parents, who are looking for value when PERC.
<unk> central footwear for their kids, we delivered.
As Mark discussed our performance during the key August back to school season was very strong, particularly in the children's category, where we grew comp sales low singles in August we have been the leader in the children's category for decades, and once again. This year, we grew our sales and market share in children.
Footwear across shoe Carnival and shoe station during the most important season of the year.
Our marketing strategies drove what demand was out there and.
And our merchandise assortment modernized fully staffed stores and easy to shop ecommerce platform provided the right backdrop for the consumer to make purchases I will provide more details on our category performance for the quarter later, but I first wanted to highlight the strong performance.
In the month of August.
Through our children's comp sales low single digits, driven by both girls and boys Athletic sales led by court in basketball, we invested aggressively behind advertising during August our investments paid off as our market share continued to grow our strategy to deliver children's sales growth through <unk>.
School work and it can be used against successfully to deliver growth in the future competitive intensity was high during the quarter. We continued to see aggressive promotional activity on seasonal and fall merchandise all the way through October in the quarter, we delivered gross profit margin 35.
For the 11th straight consecutive quarter, and we remain committed to our profit transformation and targeted CRM strategies to continue delivering strong gross profit margin our merchandise margin in the quarter decreased by 120 basis points versus prior year as unseasonably hot weather.
There is softness in boots, which were down in the low twenties resulted in increased promotional activity in September and October.
So we're a long term perspective compared to four years ago in Q3, 2019, our merchandise margin significantly expanded by 645 basis points in the quarter demonstrating the success of our long term profit transformation strategy and our ability to leverage our advanced CRM.
<unk> and analytics.
During the third quarter continued to further optimize our inventory levels, but we are ahead of schedule inventory at the end of the third quarter was approximately 6% lower on a dollar basis than prior year and on a unit basis total inventory was down 11% versus prior year.
Inventory content is clean and we continue to manage inventory flow to ensure our stores are stocked with the product offerings that our customers want.
We will continue to generate additional efficiencies as we execute our inventory strategy for the balance of the year and we continue to expect that our inventory at year end 2023 will be down more than 10% on a dollar basis versus 2022.
To be clear our strategy to further optimize inventory levels and drive more efficiency, while maintaining the freshest product assortment for our customers is ongoing and will continue beyond the end of fiscal 2023.
Now moving to the quarter total Q3 comp sales were down seven 4%, which reflected the increased headwinds coming out of August and going into labor day weekend, our back to school performance was successful with an improving trend in comparable sales versus both Q1 and Q2 comp sales.
And was led by growth in children sales.
After back to school finished our topline performance softened as seasonal business and all sales, particularly in each were below our expectations for September and October.
From a category perspective for the quarter children's comp sales were essentially flat with low single digit growth at Atlantic led by court in basketball, while non athletic was down high single digit comp sales in both mens and womens adult athletics were down mid singles and improved inventory assortment.
Stabilize athletic sales even in this cost conscious environment.
As we optimize athletic inventory levels versus prior year that had a solid performance as part of the August fastest school basketball grew high <unk> in the quarter, but this growth was more than offset by scale Donlin high thirties, and running down mid teens.
Third quarter comp sales in womens non athletic footwear were down mid teens with boots and dress down in the twenties sand.
Sandals were down low double digit and support was down high single digit casuals were down mid single digits in the quarter led by low double digit decline in flat, partially offset by mid twenty's growth and tailored.
Mens non athletic comp sales were down low double digit dress was down low twenty's and boots were down mid teens casuals were down mid single digits.
To summarize our kids business performed very well during the key back to school season growing sales in August low single digits on a comp basis.
Then in adult basketball delivered strong high <unk> growth in the quarter.
However.
In September October our topline performance softened as seasonal business in all sales were below our expectations. The persistently hot dry weather in most geographies and a lower income urban customer that remains challenged.
As we have seen in other past recent seasonal periods that challenge customer is reducing nonessential purchases, including seasonal footwear the.
The softer topline trend coming out of Q3 has carried into early Q4 and visibility into holiday shopping is limited.
In the quarter, we continued optimizing our inventory. We are ahead of schedule and remain on track for inventory to be more than 10% lower on a dollar basis than prior year at year end of 2023.
Remain committed to our profit transformation and targeted CRM strategies and are excited about fresh new products that are coming into our stores. The balance of this year and in early 2024 and with that I'll turn the call over to Patrick for a review of our financials Patrick.
Carl and thank you Mark for the earlier introduction I am excited to be in my new role and to continue supporting the future success of shoe Carnival and execution of our growth strategies, we have a strong foundation and I am confident in our ability to continue growing and driving shareholder value and growing market share look.
Forward to getting to know each of you and working with you.
Now moving onto our financial results.
<unk> with top line, our net sales in Q3 were $319 9 million. This was down six 4% versus the prior year and down seven 4% on a comparable store basis.
As Mark discussed our results during the key August back to school period, where sequentially improving compared to Q2 in Q1, including growth in the children's Athletic category, we invested in advertising and marketing and we gained market share our strategy work.
Going into Labor day top line trends for our shoe Carnival banner softened versus the prior year on warm weather impacting seasonal merchandise, including boots.
That trend continued into September and October.
September and October both reflected high single digit comparative sell declines more than offsetting the improved back to school trends.
The seven 4% comparable sales decline for the entire third quarter was driven by an approximate 11% reduction in traffic, partially offset by a nearly 10% increase in E Commerce net sales.
Shoe station banner total sales for Q3 came in at a low double digit increase versus prior year on the strength of new stores and E Commerce and shoe Carnival banner total sales came in at a high single digit decline, particularly impacted by September and October.
Tober activity.
I would like to take a moment to discuss the success of our shoe session banner acquired in December 2021.
Our expectations were that the transaction would be immediately accretive to diluted EPS in 2022, contributing approximately $100 million in incremental sales.
<unk> station delivered on both at the time of the deal we started with 21 stores and we currently operate 28 with clear line of sight on several more integration was completed ahead of schedule delivering efficiencies and synergies that as expected have continued to increase the banners gross profit margin.
As we have discussed today shoe stations net sales are growing at an accelerated and profitable pace driven by both storefront and e-commerce.
<unk> results are significantly outperforming the overall family footwear category.
Within our own operations the shoe station banner leaves an operating income margin with a margin in the low double digits year to date.
In summary, the shoe station acquisition is delivering a very attractive return on investment for shareholders and the success of this acquisition and the speed of completing the integration and achieving synergies further supports our commitment to M&A as a growth strategy.
Now moving back to total shoe Carnival results.
Q3 gross profit margin was strong at 36, 8% our increased level of gross profit margin over the long term has been a key driver of the company's profit transformation.
Compared to pre pandemic Q3, 2019 gross profit margin in third quarter 2023 expanded significantly with as Karl mentioned that increase driven by higher merchandise margins compared to Q3 2022 gross profit margin was down 150 basis points with merchandise margins.
Decreasing 120 basis points, reflecting increased promotions on seasonal merchandise in the back half of the quarter.
Buying distribution and occupancy cost declined in the quarter, but deleveraged 30 basis points as a result of the lower sales.
Video expense reductions were primarily the result of continued lower freight and distribution costs, partially offset by higher investment in store modernization and increased rent associated with operating more stores.
SG&A expense in Q3 was $89 8 million, representing an increase of $2 5 million over Q3 2022. The increase was primarily from advertising investment that drove growth in children's sales during back to school and market share gains throughout the quarter.
Net income for the third quarter of 2023 was $21 9 million or <unk> 80 per diluted share as Mark mentioned these results were below our expectations given the unseasonable weather post labor day it.
It is worth re emphasizing that over the long term. The <unk> earned this quarter is more than any full year EPS delivery prior to 2018.
Over a five year period, ending with Q3 2023, we have delivered a 22% EPS CAGR a special thank you to our team members and our vendor partners that have helped us achieve this kind of growth and profit transformation and also thank you to our long term shareholders for supporting this.
Growth over the last five years.
To further support shareholder value during the quarter, we increased our dividend by 20% to <unk> 12 per share.
The increase in the quarter represents a 166% increase compared to three years ago.
In the quarter, we also repurchased $230 696000 shares at a weighted average share price of $23 60.
Totaling $5 4 million or.
Our strong balance sheet liquidity position and history of generating steady operating cash flow are key drivers to internally fund growth and deliver these dividend increases and share repurchases.
As of the end of 2022, we have maintain no debt at year end for 18 consecutive years and we have continued funding our operations without debt through the third quarter at the end of the third quarter. We had total cash cash equivalents and marketable securities of approximately 71 million with no debt outstanding.
<unk>.
Cash and cash equivalents increased almost $23 million in third quarter 2023 versus Q3, 2022 and on a Q3 year to date basis cash flow from operations increased over 50 million versus year to date 2022.
We continue to expect cash flow performance to more than fully fund store Remodels and new store activity planned in the balance of the year and provide the capacity for M&A opportunities if conditions are appropriate.
As previously discussed the shoe station transactions that closed in December 2021 was consummated with cash on hand, while no debt was incurred or was any stock issued in that deal. We have the flexibility of doing so in future acquisitions if desirable.
Now moving onto guidance.
We provided a detailed updated outlook for fiscal 2023 in our earnings release earlier this morning.
Given the softness in the latter part of Q3, continuing trends we have seen in the November and uncertainty with holiday shopping we are updating our net sales guidance for fiscal 2023 to $1 6 billion to $1, one 8 billion.
Compared to the prior range of $1, one 9 billion to $1 two 1 billion.
We now expect comparable store sales to be down eight 5% to nine 5% for the full year that range reflects our expectation of a comparable store sale decline of 9% to 12% in the fourth quarter of 2023.
We expect gross profit margin to be approximately 36% and SG&A to be between $323 million and $327 million or approximately 28% of net sales.
For the year, including the extra week, we're lowering our diluted EPS guidance to $2 65 to $2 75 from our previous expectation of 310 to $3 25.
We continue to expect inventory at the end of fiscal 2023 to be approximately $40 million or 10% lower than the prior year.
After a promising start in August with children's sales growth improving trends and continued market share growth September and October slowed at our shoe Carnival banner compared to last year as Mark discussed with a softer than expected start to the fall season continuing.
Into November and uncertainty regarding customer holiday shopping we are taking a measured approach to the balance of the year.
Our strategy to drive growth remains unchanged our balance sheet is strong and our cash flow is steady.
This puts us in a great position to fund internal growth execute on desirable M&A opportunities and most importantly, the continued ability to deliver long term shareholder return.
This concludes our financial review, we would now like to open the call up for questions.
Operator.
Thank you if.
If you have a question. Please press star one on your telephone keypad.
You wish to remove yourself from the queue simply press star one again.
We ask that you. Please limit yourself to one question and one follow up question and we will pause for just a moment to compile the Q&A roster.
Yeah.
And we will take our first question from Mitch <unk> with.
Seaport Research partners. Your line is open.
Yes, thanks for taking my questions and Patrick Congratulations on the promotion.
Alright got half dozen questions I hope that's okay.
Starting with the quarter you guys.
Carnival.
Asian sales.
But you did you could.
Could you give us on those key businesses for <unk>.
Hey, Mitch this is Patrick glad to talk to you.
Can't wait to meet you in person.
We're not going to give out the comp guidance for the individual banners at this time, it's just not what we do we think the total number was just fine seven 4% down.
Okay.
Yes.
Nathan was positive comp in the quarter I know that the growth was double digit, but I imagine a lot of that is from stores.
Hey, Matt just Mark Good morning, let me build on it again, we don't delineate comps between here's what I'll tell you.
Station performed in the quarter. If you go back over the last three quarters origination declined single digits in Q1 and Q2. It grew single digits in Q3, it grew double digit.
Seeing great acceleration continuing trends.
So we're very pleased with where it's going we just help delineate the comps between the banners.
Got it and then you mentioned that.
The comp on food was down low twenties.
Can you either give us what the.
Penetration was in the quarter or can you tell us what.
Your consolidated non food comp was with re queue.
Hi, Mitch this is Carl did penetration is really not high.
The quarter to a total.
It runs.
Approximately.
Just under just under double digits.
For the quarter.
What I would say is the.
The entire non athletic category was affected by a lot.
Lack of the consumer in September starting.
Fall and boot, which certainly falls into that.
Shopping.
So they were all affected in the non SLR Atlantic area about the same.
We gave you.
We gave you on the prepared remarks were kids and adult athletics.
Directionally you finish.
And then Carlo.
Hum.
Was it broad based softness.
Can you maybe speak to your boot performance by any sort of subcategories. If there was any variation in our performance.
And I'm also curious on food.
Have you seen any uptick.
In November, particularly the first week of November because I know there was some colder weather that way.
Sure sure sure Mitch for the quarter.
For the third quarter, we saw.
We saw some signs positive signs in the FERC category.
And we I'm, sorry, sulfur category, let me get that out right.
And we did see.
We did see though not a big category.
Stronger sales in tall shafted boots than in booties, so more traditional booties that our big big piece of our business.
Started off very slow.
Tell you in the first week of November when weather cooled.
The boot category did improve quite a bit and that beauty category that.
That we have.
Little more traditional did pop up quite a bit as weather cooled. However, once the weather second week in November got warm again, we saw the.
And revert back to what happened in third quarter.
Okay, and then you mentioned inventory down 10% year over year.
How are you feeling about your.
Inventories in particular, how does that look.
And what does that kind of per turn.
For Q, particularly on the margin side.
We are.
I am very pleased with the job the team did.
I am planning boots and purchasing.
The styles and moods they left themselves frankly.
A lot of flexibility and we'll react to that flexibility if needed, but as a result, the way they planned and purchased the category I do not see.
Any margin erosion liquidating inventory to hit our target at the end of the year.
Okay, and then maybe my last one and I'll get back in queue.
<unk>.
In terms of the fourth Q.
I think down nine well.
How did you guys come up with that are you basically extrapolating September and October over the balance of the year and actually maybe you can give us.
The first two weeks of the fourth quarter, but how did you come up with that as your as your comp guide.
Hey, Mitch this is patrik again.
The high single digit comp declines that we saw in October and in September have continued into the first part of November and we're seeing very similar results to that.
The 9% to 12% comp decline Q4.
Sort of brackets, what we're seeing right now and also encompasses the comp decline that we saw in Q1 of 2023 that was around 11, 9%. So it's within that range.
Okay.
Also.
Just one other one other point too on that.
Theres a lot of limited visibility on the holiday season, we're uncertain. How this holiday season is going to go given our low income customer and consumer sentiment all over so I would just.
Indicate the targeted days on which we sell we don't know how that reaction is going to come around day after Thanksgiving.
Alright, thanks, guys.
And we will take our next question from Sam Poser with Williams trading your line is open.
Good morning, everybody. Thank you very much Patrick congratulations as well.
Okay.
Just talking about inventory for a second and could you tell us call or anybody.
What your optimum inventory turn would be because even getting the inventories down to where youre planning to get.
It still leaves you with us.
A far greater forward weeks of supply that new pad than you've had back if you want to go back.
Do you want to go way back to when your business was smaller so I'm wondering what that optimum turn.
I'll turn would be and where youre trying to get the inventories too.
Sam <unk>.
<unk>, we're not going to give out one inventory turn targets. We have what I would tell you is the right sizing or in our mind, the optimizing where we think the inventory should be continue.
<unk> continues out through.
2020 forward, we certainly feel we will have in turn improvements in 'twenty four to where we were in 2023 as I said before we're carefully carefully surgically.
Reducing inventory to ensure that we're not damaging the business and we're still able to deliver the shoes and the products our customers want and fill back into whats working so is an ongoing process like I have stated.
And like we've talked in the past it is a long term strategy more than a 90 day strategy to get where we want to go and keep the business is healthy as it could possibly be.
Thanks.
Then can you talk also about.
You talked about the traffic and you talked about the.
The.
The.
E Commerce sales can you.
One give us the variance of ecommerce sales between.
Shoe station and shoe Carnival, and secondly, can you tell us what your.
You have the traffic down 11% can you talk about converged.
I assume that store traffic and can you talk about conversion rate.
Within that as well please.
Hey, Sam it's Patrick.
Thanks for the question.
With respect to e-commerce growth.
It's split about evenly between the two banners.
The growth this period.
And with respect to conversion or conversion rate remains the highest.
Ever been it has some variation within it from quarter to quarter, but overall it remains about 400 basis points higher from where it was back in 2019.
When you say E Commerce was evenly split so it was up 10% in both at both.
Well the e-commerce website didn't exist.
Shoe station last year. So its growth is 100%, but just on the on balance the growth in our overall ecommerce business was evenly split with growth out of both banners.
So you were up at shoe Carnival dot com as well as.
Yes up against nothing okay.
Yes.
And.
I wanted to ask the same I wanted to ask the same question I mean, you talked about how good.
Yeah.
How good your thoughts about shoe station it sounds like it's quite good.
Giving overall comps I mean, I think from a disclosure perspective, providing for people to understand to understand your business to provide the comp for both banners.
Maybe time for an exception here just so.
Understand.
What's going on I know, it's not something you normally do but.
No.
People want to hear it and I think it's I think it's important I don't think it's giving away the farm to tell anybody of that.
Hey, Sam.
I appreciate the input.
Enjoy that will take it under advisement and we will we will consider that in future calls, but we're just not prepared to do that today.
Okay. Thanks, Thanks very much.
Yeah.
And we will take our next question from Jim Chartier with <unk> Crespi Hardt. Your line is open.
Good morning, Thanks for taking my questions and let me add my congratulations Patrick as well.
Can you just talked about.
What do you think has been driving the acceleration and the shoe station sales over the last three quarters.
And then following up what's kind of a store opening plans for next year, What's your station.
Hi, Jim its mark good morning, Thanks for joining today.
Three things are working very well for Schuh station first its a higher income consumers I talked about in my speech.
<unk> shares over 50000 large segment is over 75000, and we're seeing to help it back consumer significantly better than the health of the consumer and Thats up 30000 urban consumer.
A healthy consumer base compared to the other parts of our business number two we've fully integrated two station onto our shoe perks CRM platform and we fully launched this foundation dot com business. So we're now able to rapidly get new customer acquisition and start talking to them through our shoe perks program.
Graham.
Over double digit growth of shoe perks memberships through shoes station and we're talking to them actively building that loyalty building those purchase occasions. So we're very pleased with that.
Third our new store growth and successful.
As Rick mentioned, we have grown from 21 to 28 stores and have line of sight to moving into the 30 plus range over the near term ahead. We're very pleased with the performance. We're seeing overall from our shoes station new store growth and its contributing as we said to double digit overall growth in Q3.
And as Patrick said, while we don't delineate the comps I would just share with you. The health of the first 21 stores is very good and continues to improve each quarter I don't have a number we can share with you. So the analyst community has asked it but I'd sure Q1 was soft for the company, but those 'twenty one original stores.
To improve in Q2 Q3, it was industry leading share results.
For the banner of the <unk>.
Comp stores and it was industry, leading share results for the new stores as well as the dotcom. So yes, it's kind of track vector it's all working.
Alright.
I mean, you don't give quarterly EPS guidance, but where are you.
Did you expect third quarter EPS would have come in.
Back in August.
Hey, Jim this is patrik.
We had expected our topline.
Revenues to come in appreciably better.
And then what they came in we saw.
<unk> trends in Q1, and Q2 narrowing comp declines.
We saw August comp declines narrowing even further.
And our initial reactions with that was that we would continue to see that trend through October.
September and October and our plan was at the time about 90 per share.
We missed it by chance it's helpful on.
On topline sales.
Great. Thanks again.
Yeah.
And we will take follow up question from Mitch <unk> with Seaport Research partners. Your line is open.
Alright, Thank you I've got another handful.
Call me back.
What is the penetration typically in Q.
It's about 40%.
Yes.
Okay.
How do you do that.
Comp guide on <unk> was down nine to 12 are you expecting.
We kind of be in line with that or that needs to be.
The worst kind of following.
Oh Im sorry, the three key to performance.
Here's the way I would answer that Mitch.
Our initial plan for boost going into the season was right at that number you mentioned, but we have the flexibility to manage that.
Based on <unk>.
Whether the weather turns cold and we and we have the ability to drive more sales or if the weather stays the way. It is we were positioned to be able to transfer that consumer.
Out of boots into <unk>.
<unk> or Atlantic product going forward so.
The team's done a great job keeping as flexible as we can move through the balance of fourth quarter.
Okay.
And then Patrick on the guide.
You've given us.
Sales and earnings comp sales and earnings.
Say, a little bit more about margin gross margin versus SG&A, particularly interested in.
And your thoughts around merch margin in the fourth quarter I assume that you expect it to be down I'm curious.
How much.
Hey, Mitch Thanks for the question overall, we're sitting at like.
I think year to date, we're sitting in the high 35 to $35 eight on overall margin and our projection for the entire year is approximately 36. So we can expect.
Yes.
Upper 30.
Hey, just above 36% margin or in that range for Q4 is what were what were planning for on the merch margin side, we will be down versus the prior year.
But it's not going to be anything appreciable.
Okay.
And then my last question maybe for you Mark you guys have done a great job on the on the.
On the gross margin in particular with merch margin being up.
Substantially versus four years ago.
Looked at SG&A.
So this year.
Goes out to be maybe 20727 eight.
Back in 2019, it was 24 nine I recognize the business is different in terms of mix and also there is some deleverage on.
Given around the challenges there, but how do you think about that.
SG&A rate longer term.
Alright, so are there any levers that are worth calling here if there are any.
Yeah.
Yes, I'd say.
We think it's the right size roughly dollar range to fuel our growth as we get back into an economic landscape, where we start to get leverage.
We've built an organization to be ready to take on more M&A to grow.
Growth accelerated in 24 or beyond when its available and that organization is now built and the merchandising team that organizations build now and the marketing team and all of the other back office functions. So we recognize that it's now taken a down cycle for us in the industry, that's deleverage, but we'll be able to gain leverage on that.
As soon as things start turning around and we make those next acquisitions and longer term we.
We remain committed to double digit operating margin, we absolutely see we are at a lower portion of our delivery right now as we're in a down cycle and we are investing aggressively in trying to capture the demand out there with advertising and marketing were over investing for the revenues.
We are capturing right now to try to offset the soft consumer demand.
<unk> base right now so to reiterate double digit operating margins is what we're committed to getting back to as we come out of this downturn is going to come from better leverage as we get the next <unk>.
Main driver through M&A as the organization is built for it and ready to go.
Okay. Thanks, and good luck, Hey, Mitch mentioned I, just want to I want to make something clear here.
May a misquoted the <unk>.
<unk>, 40% boot business is of our total non athletic business in the quarter.
And to the total total boot business is in the mid twenties when you throw in the athletic side of the business I don't want to mislead you.
Alright that makes more sense. Thanks, Paul.
And we will take follow up question from Sam Poser with Williams trading your line is open.
Thanks, again I have two questions two more one.
Are you finding I mean part of what we've heard a lot about this year is sort of event driven shopping. So you had a good back to school and then it softened post back to school so.
I mean.
Are you expecting a holiday to be more event, driven or do you think that that sub 30000, arguably maybe sub $50000 consumer.
Especially who shops at shoe Carnival.
Is is feeling it more now then.
He or she may have been feeling it during back to school.
Yes, Sam I believe its event driven I think youre dead on there and and that customer that in that consumer that's challenged.
Wait and shop during the event I think the softness comes in between we saw it in spring.
And then we saw it pop up for back to school, which is a.
A essential necessity kind of timeframe I think we will see the same thing around holiday as well I think it will come late but I think in between is where we anticipate the softness.
Thanks, and then I mean, you talked a lot about what you did really well with.
With the kids business and the marketing for back to school. So when we look at what happened post back to school with the warmer weather and everything else I guess my question to you is what could you have done better.
Two.
Lessen the impact of those macro issues that.
That hurt your business what are you learning from that and applying it to now or into next year during let's say softer than expected or.
Climbs.
It's a great question.
The thing we need to do is continue to invest in getting that limited customer.
<unk> shopping trip.
Shoe Carnival during this down cycle and said differently.
In hindsight, I, probably would've invested more marketing dollars during the quarter to continue to try to gain even faster market share.
A few times, we gained material share in a down market and family footwear. We're pleased with that it's working and in hindsight. We're taking you to that traffic is not coming organically. So it's going to be a more expensive period of time to get those customers to choose whoever they choose and we believe it will continue to be us.
We're going to take that.
Perspective into Q4 and into early next year as economic conditions. As we've said have certainly not improved in Q4, and we don't see any signs that in early next year theres going to be.
A rapid improvement of the economic situation. So that's the key learning, we're going to take the marketing and branding in CRM and engaging with customers is working we should've done more with it but we probably balanced the profitability with the sales driving activity, maybe a little too high on the short term profitability.
Perspective in hindsight.
And are you.
Given.
Given that you've talked about the share gain can you quantify what the share gains you've seen in you mentioned a number of times those share gains can you quantify.
What you've picked up.
Sure.
If you look at the family footwear industry year to date, it's down approximately 10% in dollar sales and we are down significantly less than that and so you have the numbers.
We don't translate to that to an exact sure.
Sam but were down significantly below with the family footwear industry is right now we're going to continue to drive that we're in a really good position with good learnings through back to school, what worked and like I said some good learnings.
Labor day post period of what we could do even better.
Thanks, Rob.
That would be elevated.
Thank you Sam and to you.
And ladies and gentlemen that is all the time, we have for questions today, I will hand, the call back over to management for closing remarks.
Yeah.
Thanks for joining the call today, we look forward to discussing Q4 results. Early next year. This is Steve I'm around all day. So please reach out with any questions or follow up you might have and thanks for joining in.
Ladies and gentlemen, this concludes today's call and we thank you for your participation you may now disconnect.
Yeah.
Yeah.
Yeah.