Q2 2024 Caleres Inc Earnings Call

September 12, 2024

Speaker Change: Music

Rob Mubier: Good morning and welcome to the Clara's second quarter, 2024 earnings fall. My name is Rob Mubier Conference Coordinator. At this time, I'll participants are in list-only mode. The question answers session will follow the formal presentation.

Speaker Change: If anyone wants you to car our predecessors during the conference, please press star 0 from your telephone keypad. As a reminder, this conference is being recorded.

Liz Dunn: If this time I'll turn the call over to Liz Dunn, Senior Vice President, Corporate Development and Strategic Communications, please go ahead.

Liz Dunn: Thank you Rob. Good morning. I'd like to thank you for joining our second quarter 2024 earnings call in webcast. A press release with the detailed financial tables as well as our quarterly slide presentation are available at Calera.com.

Speaker Change: Please be aware today's discussion contains forward-looking statements, which are subject to a number of risks and uncertainties.

Speaker Change: 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. Please refer to today's press release and our SEC filings.

Speaker Change: For more information on risk factors and other factors which could impact forward-looking statements.

Speaker Change: copies of these reports are available online. In discussing the results of our operations, we will be providing and referring to certain non-gap financial measures.

Speaker Change: 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.

Speaker Change: The company undertakes no obligation to update any information discussed in this call at any time.

Speaker Change: Joining me on the call today is Jason Schmidt, President and CEO and Jack Calandra, Senior Vice President and CSO. 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, and good morning everyone.

Jason Schmidt: Earlier today, we reported sales and earnings that were below our expectations.

Jay: Well, our brands and our products continue to resonate with consumers and we remain committed to and confident in our long-term vision. Our second quarter results fell short in both segments and do not reflect our true potential.

Unknown Executive: Our second quarter results fell short in both segments and do not reflect our true potential. Our ERP upgrade during the quarter was a significant part of the problem, but not the entire problem. lack of visibility caused execution issues that prevented us from delivering our expected results.

Jay: Our ERP upgrade during the quarter was a significant part of the problem, but not the entire problem.

Jay: lack of visibility caused execution issues that prevented us from delivering our expected results.

Unknown Executive: Thank you.

Unknown Executive: In total for the second quarter, we achieved earnings per share of 85 cents. Our second quarter sales declined 1.8% year-over-year, and the sales miss drove the bottom line miss. We generated strong growth margin rates of 30 basis points driven by the brand portfolio.

Jay: In total, for the second quarter, we achieved earnings per share of 85 cents.

Jay: Our second quarter sales declined 1.8% year over year, and the sales myth drove the bottom line myth.

Jay: We generated strong gross margin rates of 30 basis points driven by the brand-port folio.

Unknown Executive: Now, let me delve into the issues faced with regard to our ERP system upgrade and what we have done to course correct. As you are aware, we upgraded our SAP enterprise system to the new cloud-based version. This was a necessary upgrade that our teams have been working on for the past year, resulting in a common platform to leverage across our brand portfolio. Mid-quarter, we were down for a few days as we planned. When our systems came back online, we initially saw signs of a successful implementation with e-commerce and order shipping on track. However, as we progressed through the quarter, several key operational reports were delayed, causing a lack of visibility to the tools we rely on to drive our business day in and day out.

Jay: Now, let me delve into the issues faced with regard to our ERP system upgrade and what we have done to course correct.

Jay: As you are aware, we upgraded our SAP Enterprise System to the new cloud-based version.

Jay: This was a necessary upgrade that our teams have been working on for the past year, resulting in a common platform to leverage across our brand portfolio.

Jay: mid-quarter, we were down for a few days as we planned.

Jay: When our systems came back online, we initially saw signs of a successful implementation with e-commerce and order shipping on track.

Jay: However, as we progress through the quarter, several key operational reports were delayed, causing a lack of visibility to the tools we rely on to drive our business day in and day out.

Unknown Executive: Additionally, there were issues related to size reporting that initially made it difficult for us to service dropship and replenishment orders. Finally, we experienced late shipments and carrier failures that, while not related to the ERP implementation, contributed to the sales decline. It is important to note that about 45% of our brand portfolio business is dynamic, including direct-to-consumer, replenishment, dropship, and advancing newness. And without the tools and the reports to monitor these areas, we could not see all the issues until it was too late to fully recover.

Jay: Additionally, there were issues related to size reporting that initially made it difficult for us to serve as dropship and replenishment orders.

Jay: And finally, we experience late shipments and carrier failures that, while not related to the ERP implementation, contributed to the sales decline.

Jay: It is important to note that about 45% of our brand portfolio business is dynamic.

Jay: Including Director Consumer, Replenishment, Dropship, and Advancing Nunes.

Jay: and without the tools and the reports to monitor these areas, we cannot see all the issues until it was too late to fully recover.

Unknown Executive: In response, we took several actions. First, we immediately replaced one of our integration partners who handled reporting. Second, we pulled experienced order management professionals from elsewhere in our company and enlisted them to help ship out as many orders as possible. Third, we've gone function by function to shore up reporting and develop work around until the automated solutions are fully online. Importantly, we are now operational in all areas that cause the ERP disruption, and we have addressed the issues that temporarily impacted visibility. That said, we do not expect to recover all the missed sales with respect to seasonal categories, dropship, and other direct-to-consumer purchases.

Jay: In response, we took several actions.

Jay: First, we immediately replaced one of our integration partners who handled reporting.

Jay: Back in, we pulled experienced order management professionals from elsewhere in our company and enlisted them to help ship out as many orders as possible.

Jay: Third, we've gone function by function to shore up reporting and develop work around until the automated solutions are fully online.

Jay: Importantly, we are now operational in all areas that cause the ERP disruption, and we have addressed the issues that temporarily impacted visibility.

Jay: That said, we do not expect to recover all the missiles with respect to seasonal categories, dropship, and other direct-to-consumer purchases.

Unknown Executive: This is factored into our updated guidance that Jack will share with you momentarily.

Jay: This is factored into our updated guidance that Jack will share with you momentarily.

Unknown Executive: We have also accelerated cost reduction initiatives to mitigate the impact on profitability. To that end, today we announced a restructuring that will save us approximately $7.5 million on an annualized basis and $2 million in this fiscal year. These moves will make our teams more efficient and effective. Additionally, we are reducing other S-GNA items for the back half to align with our forecast.

Jack Calandra: We have also accelerated cost reduction initiatives to mitigate the impact on profitability.

Jack Calandra: To that end, today we announced a restructuring that will save us approximately 7.5 million on an annualized basis and 2.0 million in this fiscal year.

Jack Calandra: These moves will make our teams more efficient and effective.

Jack Calandra: Additionally, we are reducing other SGNA items for the back half to align with our forecast.

Unknown Executive: Now let's turn to our operating segments. The brand portfolio sales declined 5.1% with the issues related to our SAP upgrade impacting all brands, as well as weakness in seasonal categories. Whole sale and dropship were down, and our own e-commerce was flat but the lower expectations. We continue to see strong growth in demand for new products and momentum in fashion sneakers. In fact, sneakers and sport represented 28% of retail selling for the quarter, of six points versus the prior year. The seasonal product continued to underperform, with sandals down high single digits versus last year. We are well-positioned sneakers going forward and have aligned our inventory with consumer demand for this trending category.

Jack Calandra: Now let's turn to our operating segments.

Jack Calandra: The brand portfolio sales declined 5.1% with the issues related to our SAP upgrade impacting all brands as well as weakness in seasonal categories.

Jack Calandra: wholesale and dropship were down and our only commerce was flat but below our expectations.

Jack Calandra: We continue to see strong growth in demand for new products and momentum and fashion sneakers.

Jack Calandra: In fact, sneakers and sport represented 28% of retail selling for the quarter of six points versus the prior year.

Jack Calandra: These no product continue to underperform with sandals down high single digits versus last year.

Jack Calandra: We are well positioned sneakers going forward and have aligned our inventory with consumer demand for this trending category.

Unknown Executive: Higher initial margin rates and a favorable channel mix resulted in a 140 basis point improvement in segment gross margin. This demonstrates the health of our business overall. Our 8.3% return on sales for the brand portfolio was down to last year due to de-leveraging of expenses. Inventory is in good shape, about flat to last year, with a reduction in aged inventory. Our four-lead brands, which include Sam Edelman, Allen Edmunds, Naturalizer, and Vionic, represented more than half of the brand portfolio sales in the quarter. While sales were down for the lead brands, in total they outperformed the other brands in our portfolio.

Jack Calandra: Higher initial margin rates and a favorable channel mix resulted in a 140 basis point improvement in segment gross margin.

Jack Calandra: This demonstrates the health of our business overall.

Jack Calandra: Our 8.3% return on sales for the brand portfolio was down to last year due to a

Jack Calandra: Inventory is in good shape about flat to last year with a reduction in aged inventory.

Jack Calandra: Our four-lead brands, which include Sam Edelman, Allen Edmonds, Naturalizer, and Vyonic, represented more than half of the brand portfolio sales in the quarter.

Jack Calandra: While sales were down for the lead brands in total, they outperform the other brands in our portfolio.

Unknown Executive: A few highlights from the quarter demonstrate that our growth vectors are still on track. On the international front, we are very pleased with SAM Edelman's momentum. What we are seeing in Asia is giving us increased conviction in our strategy there. In terms of new channels of distribution, Allen Edmunds, wholesale door count is up 30% year-over-year, and we continue to see a strong response at Nordstrom and other strategic specialty accounts. We also continue to attract new consumers to our brands like Naturalizer. There, I hope you noticed that we are moving forward with Deepika Mutiala and Lauren Chan as our first inclusivity ambassadors, starting with a campaign centered around our sizing initiatives and wide shaft boots.

Jack Calandra: A few highlights from the quarter demonstrate that our growth vectors are still on track.

Jack Calandra: On the International Front, we are very pleased with Sam Edelman's momentum.

Jack Calandra: What we are seeing in Asia is giving us increased conviction and our strategy there.

Jack Calandra: In terms of new channels of distribution, Allen Edmunds wholesale door count is up 30% year of a year and we continue to see a strong response at Nordstrom and other strategic specialty accounts.

Jack Calandra: We also continue to attract new consumers to our brands like Naturalizer.

Speaker Change: There, I hope you noticed that we are moving forward with Deepakha, Mutyalah and Lauren Chan as our first inclusivity ambassadors. Starting with a campaign centered around our sizing initiatives and wide chef boots.

Unknown Executive: We are already seeing a strong reaction in early fall toward tall boots, especially in wide shaft. And finally, at Vionic, the Uptown Mod franchise continues to introduce the brand to new consumers with more modern and relevant fashion that embodies wearable well-being.

Speaker Change: We are already seeing a strong reaction in early fall to our tall boots, especially in wide shaft.

Speaker Change: And finally, at Vionic, the Uptown Mock franchise continues to introduce the brand to new consumers with more modern and relevant fashion than embodies wearable, well-being.

Unknown Executive: Overall, the brand portfolio had a difficult quarter. However, we have full confidence in our growth vectors. Our retail shelters in the quarter were strong. We are well positioned from an inventory perspective in sneakers. And many of our brands have growth and received plans for the back half to support our guidance. This was a moment that is not indicative of our future potential.

Speaker Change: Overall, the brand portfolio had a difficult quarter.

Speaker Change: However, we have full confidence in our growth vectors, our retail cell thru's in the quarter we're strong.

Speaker Change: We are well positioned from an inventory perspective and sneakers, and many of our brands have growth and receipt plans for the back half to support our guidance.

Speaker Change: This was a moment that is not indicative of our future potential.

Unknown Executive: Moving on to Famous Footwear, total sales were up 1.5% during the second quarter, while comp sales declined 2.9%. Despite sales that were lower than anticipated, we delivered sequential improvement in each month of the quarter. We saw our athletic trend build in July as the back to school season began, and we aligned our assortment with trending categories and brands. Notably, our strategically important kids category once again grew in the quarter, and kids outpaced the total business. Our kids business has now outperformed the rest of the chain for 14 consecutive quarters. Kids penetration of the total famous business was 21% in the quarter, and we gained 0.5 points of market share of kids in shoe chains according to Serkana data.

Speaker Change: Moving on to famous footwear.

Speaker Change: Total sales were up 1.5% during the second quarter, while comp sales declined 2.9%.

Speaker Change: Despite sales that were lower than anticipated, we delivered sequential improvement in each month of the quarter.

Speaker Change: We saw our athletic trend build in July at the back-to-school season began and we aligned our sortment with trending categories and brands.

Speaker Change: Notably, our strategically important kids category once again grew in the quarter and kids outpace the total business.

Speaker Change: Our Kids Business has now performed the rest of the chain for 14 consecutive quarters.

Speaker Change: It's penetration of the total famous business was 21% in the quarter and we gain 0.5 points of market share of kids in due chains according to Sercana data.

Unknown Executive: Also in the second quarter, Famous Footwear's market share was flat to the total footwear market overall and gained 0.5 points in shoe chains, according to Serkana. We were also pleased with the performance of our own brands at Famous. Penetration of our Colaris brands was once again up in the quarter. Our own portfolio provides famous with greater access to fashion products. And at an enterprise level, Colaris captures a higher gross margin on brands sold vertically. Our famous.com business was solid in the quarter of 10% year over year, with much of the business fulfilled through our stores.

Speaker Change: Also in the second quarter, famous footwear's market share was flat to the total footwear market overall and gained 0.5 points in shoe chains according to Sarkana.

Speaker Change: We were also pleased with the performance of our own brand's at famous.

Speaker Change: Penetration of our colaris brand was once again up in the quarter.

Speaker Change: Our own portfolio provides famous with greater access to fashion products.

Speaker Change: and at an enterprise level, Calerus captures the higher gross margin on brand-sold vertically.

Speaker Change: Our famous.com business was solid in the quarter of 10% year over year with much of the business fulfilled through our stores.

Unknown Executive: Finally, we continue to further our efforts to enhance the consumer experience at Famous. At the end of Q2, we had 31 flare locations in total. We experienced a five-point sales lift versus the rest of the chain in our fall 2023 and spring 2024 flare stores. Those of you that shop there may notice an expanded assortment of brands like New Balance and Broke. Lair is helping us attract these and other more elevated brands and products, and our famous consumer is responding. We are on track to remodel 12 additional Flair stores in the back half of this year.

Speaker Change: Finally, we continue to further our efforts to enhance the consumer experience at famous.

Speaker Change: At the end of Q2, we had 31 flare locations in total.

Speaker Change: We experienced a five-point sales lift versus the rest of the chain in our fall, 2023 and spring 2024 flare stores.

Speaker Change: Those of you that shop there may notice an expanded assortment of brands like New Balance and Brooks.

Speaker Change: Layers helping us attract these and other more elevated brands and products, and our famous consumer is responding.

Speaker Change: We are on track to remodel 12 additional flare stores in the back half of this year.

Unknown Executive: As for the back to school business, it came late, but it is coming strongly, and we are pleased with where the season ended up. Early in the year, we saw a stronger athletic business materializing and worked hard to align our inventory investment with emerging trends for back to school. In mid-July, we launched new marketing messages and shifted our marketing mix to channels that were driving the most traffic. We also shifted our promotional strategy to Bogo from Vymore Savemore after conducting a test that showed Bogo was margin-dollar accretive. In August, we experienced a high single-digit positive comp store sales gain.

Speaker Change: As for the back-to-school business, it came late but it has come in strongly and we are pleased with where the season ended up.

Speaker Change: Early in the year, we saw a stronger athletic business materializing and worked hard to align our inventory investment with emerging trends for back to school.

Speaker Change: In mid-July, we launched new marketing messages and shifted our marketing mix to channels that were driving the most traffic.

Speaker Change: We also shifted our promotional strategy to Bogo from Vymor Saintmore, after conducting a test that showed Bogo was margin dollar accretive.

Speaker Change: In August, we experienced a high single-digit positive, calm store sales gain.

Unknown Executive: As a result, through August, Famous Footwear comp sales are now about flat for the full year to date. The athletic trend continued to build and turned positive with strength in Nike and Adidas, among others. Furthermore, we are seeing strength in men and women, alongside continued outperformance in kids. While we see these trends normalizing now that the back-to-school season is over, our results suggest our product, marketing, and promotional messages are resonating with the Millennial family. The strength of kids are flare results, and our trend in August lead us to a place of cautious optimism at famous.

Speaker Change: As a result, through August, famous footwear compsails are now about flat for the full year today.

Speaker Change: The athletic trend continued to build and turned positive with strength in Nike and Adidas amongst others.

Speaker Change: Furthermore, we are seeing strength in men and women alongside continued out performance in kids.

Speaker Change: While we see these trends normalizing, now that the back-to-school season is over, our results suggest are product, marketing, and promotional messages are resonating with the millennial family.

Speaker Change: The strength of kids are flare results and are trend in August, lead us to a place of cautious optimism at famous.

Unknown Executive: We believe Famous is inherent competitive advantages, namely its leadership position with the Millennial family, especially kids, coupled with its clear avenues for growth and support from the cholera structure. Position the business to gain additional market share and shoe chains generate robust levels of cash and increase profitability over the long term. As we look ahead, we are confident in our ability to get back on track and deliver earnings per share in line with our revised guidance.

Speaker Change: We believe famous as inherent competitive advantages, namely its leadership position with the millennial family, especially kids.

Speaker Change: Coupled with its clear avenues for growth and support from the colorist structure. Position the business to gain additional market share and shoe chains, generate robust levels of cash, and increase profitability over the long-term.

Speaker Change: As we look ahead, we are confident in our ability to get back on track and deliver earnings per share in line with our revised guidance. Longer term, we believe we are exceptionally well positioned to execute our strategic plan.

Unknown Executive: Longer term, we believe we are exceptionally well positioned to execute our strategic plan, invest a few of our growth initiatives, and drive sustained value for our shareholders.

Speaker Change: Invest if you are growth initiatives and drive sustained value for our shareholders.

Jack Calandra: And with that, I will now hand it over to Jack for a more detailed view of our financial performance and our outlook. Jack, thanks, Jay, and good morning everyone. During today's call, I'll provide additional details on our second quarter performance, share our outlook for the third quarter, and discuss our revised guidance for the full year. While there were no adjustments to the second quarter this year, please note my comparisons to last year will be on an adjusted basis. For the second quarter, sales were 683 million, down 1.8%, which included a 23 million benefit in famous due to the retail calendar shift that pulled a peak back to school week into the quarter.

Speaker Change: And with that, I will now hand it over to Jack for a more detailed view of our financial performance and our outlook. Jack.

Jack Calandra: Thanks Jay and good morning everyone. During today's call I'll provide additional details on our second quarter performance. Share our outlook for the third quarter and discuss our revised guidance for the full year.

Jack Calandra: While there were no adjustments to the second quarter of this year, please note my comparisons to last year will be on an adjusted basis.

Jack Calandra: For the second quarter, sales were 683 million down 1.8% which included a 23 million benefit in famous due to the retail pounder shift that pulled a peak back to school week into the corner.

Jack Calandra: As Jay mentioned, our ERP upgrade, weak sandal demand, and a late back-to-school lift resulted in a shortfall to expectations. Brand portfolio sales were down 5.1%. Based on our analysis, we believe the system issue resulted in about 10 million to 15 million of lost sales in the quarter, or as much as 5 percentage points of growth. Famous sales were up 1.5%; comparable sales, which adjust for the calendar shift, were down 2.9%. Encouragingly, we saw sequential improvement in each month of the quarter, and that improvement continued with a strong performance in August. Consolidated gross margin was 45.5%, a 30 basis point increase versus last year, and was driven by higher margin in brand portfolio, partially offset by a lower margin in Famous.

Jack Calandra: As Jay mentioned, our ERP upgrade, week-sandled demand and a late back-to-school lift resulted in a shortfall to expectations.

Jay: Brand portfolio sales were down 5.1%.

Jay: Based on our analysis, we believe the system issue resulted in about 10 million to 15 million of law sales in the quarter, or as much as 5 percentage points of growth.

Famous: Famous sales were up 1.5%

Speaker Change: Comparable sales, which adjust for the calendar shift, were down 2.9%.

Speaker Change: Incurgingly, we saw sequential improvements in each month of the quarter, and that improvement continued with a strong performance in August.

Speaker Change: Consolidated gris margin was 45.5% a 30 basis point increase versus last year, and was driven by higher margin in brand portfolio, partially offset by a lower margin in famous.

Jack Calandra: Brand portfolio gross margin was 42.7%, up 140 basis points versus last year, as a result of higher initial margins and a favorable channel mix. Famous gross margin was 45%, down 120 basis points versus last year, due to more days on promotion and the pull forward of our BOGO-50 offer, as well as higher clearance activity. While we utilize the BOGO-50 offer earlier than planned, we believe we maximize gross profit given the initial tepid response to our buy more, save more promotion. SG&A expense was 268 million, or 39.3% of sales, and included planned investments in marketing behind our lead brands, the expansion of our international business, and the SAP upgrade.

Speaker Change: Brand portfolio burst margin was 42.7% up 140 basis points versus last year as a result of higher initial margins and a favorable channel mix.

Speaker Change: famous gross margin was 45% down 120 basis points versus last year due to more days on promotion and the pull forward of our Bogo 50 offer as well as higher clearance activity.

Speaker Change: While we utilize the Bogof 50 offer earlier than planned, we believe we maximize gross profit given the initial tepid response to our buy more save more promotion.

Speaker Change: SGA expense was 268 million or 39.3% of sales and included planned investments in marketing behind our lead brands, the expansion of our international business and the SAP upgrade.

Jack Calandra: Operating earnings were 42.5 million, and operating margin was 6.2%. Operating margin was 8.2% at brand portfolio, and 8.3% at Famous. Net interest expense was 3.3 million, down about 2 million from last year. The reduction was driven by lower borrowings, as our weighted average borrowing rate was similar to last year. Earnings per diluted share were 85 cents, versus 98 cents last year, and EBITDA was 57 million, or 8.4% of sales. Turning now to the balance sheet in cash flow, we ended the second quarter with 147 million in borrowings, down about 98 million from Q2 2023 and no long-term debt.

Speaker Change: Operating our earnings were 42.5 million, and operating margin was 6.2%.

Speaker Change: Operating margin was 8.2% at Brand Portfolio and 8.3% at Famous.

Speaker Change: net interest expense was 3.3 million, down about 2 million from last year.

Speaker Change: The reduction was driven by lower bar ranks as our weighted average bar ring rate was similar to last year.

Speaker Change: earnings per diluted share were 85 cents versus 98 cents last year.

Speaker Change: and EBITDA was 57 million or 8.4% of sales.

Unknown Executive: Thank you.

Speaker Change: Turning now to the balance sheet and cash flow, we ended the second quarter with 147 million in borrowings, down about 98 million from Q2, 2023, and no long term debt.

Jack Calandra: I would note that one of our vendors had issues receiving payment later in the quarter, which resulted in a planned payment of 49 million being pushed into August. Inventory at quarter end was 661 million, flat to last year. Inventory was up slightly in Famous and down slightly in Brand portfolio. Regarding cash flow from operations, we generated 80 million, which included the favorable impact of the deferred vendor payment. Now turning to our outlook, we are updating our full-year 2024 guidance to reflect the shortfall we experienced in Q2, our strong August resulted famous, and the restructuring actions we announced today.

Speaker Change: I would note that one of our vendors had issues receiving payment later in the quarter, which resulted in a planned payment of 49 million being pushed into August.

Speaker Change: Inventory at quarter-end was 661 million, flat the last year, inventory was up slightly in famous and down slightly in brand portfolio.

Speaker Change: Regarding cash flow from operations, we generated 80 million, which included the favorable impact of the deferred vendor payments.

Speaker Change: Now, turning to our Outlook.

Speaker Change: We are updating our full year 2024 guidance to reflect the shortfall we experienced in Q2, our strong August resulted famous and the restructuring actions we announced today.

Jack Calandra: Specifically, we now expect sales to be down a low single-digit percent versus last year. This comparison includes the impact of the 53rd week in 2023. Excluding the 53rd week, sales to be flat to down 2%, and earnings per diluted share of $3.94 to $4.9 and adjusted earnings per diluted share of $4 to $4.15, which includes about 2 million of savings and excludes 3 million of one-time costs associated with the restructuring. Additionally, we now expect the following for 2024. Consolidated operating margin of 7% to 7.1%, and capital expenditures of 50 million to 55 million. Given the continued strength of e-commerce relative to stores in famous, we will close an additional 10 stores this year and expect to end the year with 850 stores versus 860 stores last year.

Speaker Change: Specifically, we now expect.

Speaker Change: Sales to be down a low single digit percent versus last year.

Speaker Change: This comparison includes the impact of the 53rd week in 2023.

Speaker Change: Excluding the 53rd week, sales to be flat to down 2% and earnings per diluted share of $3.94 to $4.96 and adjusted earnings per diluted share of $4.4 to $4.15.

Speaker Change: which includes about 2 million of savings and excludes 3 million of one time costs associated with the restructuring.

Speaker Change: Additionally, we now expect the following for 2024.

Speaker Change: Consolidated operating margin of 7% to 7.1% and capital expenditures of 50 million to 55 million.

Speaker Change: Given the continued strength of e-commerce, relative to stores in famous, we will close an additional 10 stores this year and expect to end the year with 850 stores versus 860 stores last year.

Unknown Executive: And lastly, we still expect an effective tax rate of about 24%. We are also providing the following guidance for Q3. We expect consolidated net sales to be flat to down 2%, a cash restructuring charge of 3 million, and earnings per diluted share of $1.24 to $1.34 and adjusted earnings per diluted share of $1.30 to $1.40. We have provided a table in our earnings release and slides that summarizes our previous and revised guidance. With that, I'd like to turn the call over to the operator for questions. Operator? Thank you. Well now, we conduct a question-and-answer session.

Speaker Change: And lastly, we still expect an effective tax rate of about 24%.

Speaker Change: We are also providing the following guidance for Q3.

Speaker Change: We expect consolidated net sales to be flat to down 2%.

Speaker Change: a cash restructuring charge of 3 million.

Speaker Change: and earnings per diluted share of $1.24 to $1.34.

Speaker Change: and adjusted earnings per diluted share of a dollar 30 cents to a dollar 40 cents.

Speaker Change: We have provided a table in our earnings-release-and-slides that summarizes our previous and revised guidance.

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

Laura Champine: If you'd like to ask the question today, we press star one from your telephone keypad, and a confirmation tone will indicate your online is in the question queue. You may press star 2 if you'd like to withdraw your question from the queue. For participants that may be using speaker equipment, you may have to put the handset before pressing the star keys. One moment, please. We'll be poll for questions. Thank you. Thank you, and our first question is from the line of Laura Champine with Loop Capital Markets. Please proceed with your questions. Thanks for taking my question this morning.

Speaker Change: Thank you. Well now we can definitely know a question and answer session. If you'd like to ask the question, say we press star 1 from your telephone keypad and a confirmation tone to indicate your line is in the question queue.

Unknown Executive: This is factored into our updated guidance that Jack will share with you momentarily.

Speaker Change: You repressed our two feelings to withdraw your question from the queue.

Speaker Change: For participants that may be using speaker equipment, you may have to put the handset before pressing the star keys, or on-mone please will be poll for questions. Thank you.

Speaker Change: i

Speaker Change: Thank you to our first question, Mr. Milline, of the Laura Champlain with Luke Calvera Markets. Please just use your questions.

Jay Schmidt: Jay, just hearing all the things that you've done to fix the ERP implementation issues. Should we consider it an immaterial impact on the back half of the year? I would say that's accurate, Laura. We have really triaged this during the second quarter, and we feel confident that we have all systems go and where we don't. We have the accurate backups in place until we do that we really feel are very confident in. Got it. And then on this August rebound, and I think this would probably be tough to tell, but do you have a sense that that was driven by the macro or could it be that your promotions, which were stepping up in that time period, or what drove the improved results?

Speaker Change: Thanks for taking my question this morning. Jay, just hearing all the things that you've done to fix the ERP implementation issues. Should we consider it an immaterial impact on the back half of the year?

Jay: I would say that's accurate Laura. We have really triaged this during the second quarter and we feel confident that we have all systems go and where we don't, we have the accurate backups in place until we do that we really feel are very confident in.

Speaker Change: Got it. And then on this August rebound, and I think this would probably be tough to tell, but, but do you have a sense that that was driven by?

Speaker Change: the macro or it could it be that your promotions which were stepping up in that time period are what drove the improved results.

Jay Schmidt: I think it starts with the fact we were looking here this morning. We have a lot of our athletic brands are trending extremely well, so we were much better in position with key athletic brands. It's representing well north of 50% of our athletic or total famous business. So getting those key brands in place and the kids' inventory in place was the first part. Second part was, as you alluded to, this was the first time that we saw such a high demand on the BOGO versus BIMOR Save More that it became large and creative. And that was a different place for us that we haven't seen prior to that.

Speaker Change: It's, you know, I think it starts with the fact, you know, we were looking here this morning. We have, you know, a lot of our athletic brands are trending extremely well. So we were much better in position with key athletic brands.

Speaker Change: representing well in the worth of 50% of our athletic or total famous business. So getting those key brands in place and the kids inventory in place was the first part. Second part was as you alluded to.

Speaker Change: This was the first time that we saw such a high demand on the Bogo vs. Bimor Saviour that it became large and accretive.

Speaker Change: and that was a different place for us that we haven't seen prior to that.

Jay Schmidt: So while not more days in the pure back to school business, we do see we got a much higher traffic lift from it. And then finally, our marketing was really all focused on kids during the back to school and the key athletic shoes and others that they really drove through. So you're right; it's hard to get one impact on it, but I think those three things probably drove it through. That would be where I think we wound up. Got it.

Speaker Change: So, while not more days in the pure back to school business, we do see we got a much higher traffic lift from it.

Speaker Change: and then finally our marketing was really all focused on kids during the back to school and the key athletics shoes and others that they really drove through. So you're right it's hard to get one impact on it but I think those three things and probably probably drove it through.

Unknown Executive: A few highlights from the quarter demonstrate that our growth vectors are still on track. On the international front, we are very pleased with SAM Edelman's momentum. What we are seeing in Asia is giving us increased conviction in our strategy there. In terms of new channels of distribution, Allen Edmunds' wholesale door count is up 30% year-over-year, and we continue to see a strong response at Nordstrom and other strategic specialty accounts. We also continue to attract new consumers to our brands like Naturalizer.

Mitch Cummins: Thank you. Our next question is from the line of Mitch Cummins with C-Port Global Scuries. Please introduce your line of line for questions.

Speaker Change: That would be where I think we wound up.

Speaker Change: Got it. Thank you.

Speaker Change: Our next question is from the line of Mitch Cummets with C.P. Global Securities. Please just use your questions.

Speaker Change: The End

Speaker Change: Episode 2

Mitch Cummins: Yeah, sorry, I was muted. Yeah, I've got a few questions. On the ERP situation, Jay, it sounds like you said, "all systems go." I am curious, though, you mentioned that with brand portfolio that you're seeing growth in your receipt plans. Is there any concern about fallout to those plans, maybe just as some of these issues might have negatively impacted some confidence in your business from your wholesale partners? No, and it was really, in many cases, Mitch, we did ship second quarter later, but it was within a customer's shipping window, so we haven't seen that any lack of confidence from our retail partners, and in some cases, again, very nominal.

Speaker Change: I'm Mr. Cummins, your line is live for questions.

Mitch Cummins: Yes, sorry, it was muted.

Mitch Cummets: Yeah, I've got a few questions on the ERP.

J.: situation, J. It sounds like he said all systems go

Speaker Change: I am curious though, you mentioned that with brand portfolio that you're seeing growth in your receipt plans. Is there any concern?

Unknown Executive: There, I hope you noticed that we are moving forward with Deepika Mutiala and Lauren Chan as our first inclusivity ambassadors, starting with a campaign centered around our sizing initiatives and wide shaft boots. We are already seeing a strong reaction in early fall toward tall boots, especially in wide shaft. And finally, at Vionic, the Uptown Mod franchise continues to introduce the brand to new consumers with more modern and relevant fashion that embodies wearable well-being.

Speaker Change: About fallout to those plans, maybe just as some of these issues might have negatively impacted some confidence in your business from your wholesale partners.

Speaker Change: No, and there was really, in many cases, Mitch, we did ship second quarter later, but it was within a customer's shipping window, so we haven't seen that any lack of confidence from our retail partners, and in some cases, you know, again, very...

Jay Schmidt: What we are seeing though is some real strength at a fall, and it's early days for sure, but we are seeing some really nice reaction to some key trending categories on the brand side, and those include sneakers, as we've mentioned, in you to grow. We've seen great results in some early flats and mocks coming through, and then sport-inspired casuals, or another great example. Finally, we've seen some interest in high-shap foods, particularly at Naturalizer and Sam Edelman, so it seems like the consumers are interested in new fall and is out shopping, and we're in position to address that.

Mitch: Nominal, what we are seeing though is some real strength that of fall and it's early days for sure, but

Mitch: We are seeing some really nice reaction to some key trending categories on the brand side and those include sneakers as we've mentioned.

Speaker Change: In you to grow, we've seen great results in some early flats and mocks coming through and then sport-inspired casuals or another great example. Finally, we've seen some interest in high-shap boots, particularly at naturalizer and Sam Edelman. So it seems like the consumers interested in new fall and is out shopping and we're in the station to address that.

Jay Schmidt: And just on the boot piece, can you remind us how big a part of your business that is in the back half of the year, and what kind of performance you're lapping there from a year ago? Yeah, it's a good question. Obviously, we haven't. We've had food seasons that were disappointing in the last two. Our best information right now tells us it's about 28% of our brand portfolio sales in the back half, and what we see about that is, from what I can see today, tall boots will be up slightly, and then short boots will be down.

Speaker Change: It's just on the boot piece, can you remind us how big a part of your business that is in the back half of the year and what kind of performance you're laughing there from a year ago?

Speaker Change: Yeah, we're, the good question where we were, obviously we haven't, we've had blue seasons that were disappointing in the last two, our bets information right now tells us it's about 28% of our, um, brand-portfolio sales in the back half.

Speaker Change: So, and what we see about that is we, from what I can see today, tall boots will be up slightly and then short boots will be down.

Jack Calandra: But, again, a manageable amount. Over on the famous side, boots are obviously a much smaller penetration, about 14% of the fall season. And we, over on there, the only thing to report is that we are seeing some good results in actually some cozy type of product selling early, which is good to see. And then on your third quarter outlook, I think Jay, you said that the famous footwear comp of 8%, I'm sorry, high single digits in August. So what kind of comp assumption for the quarter is embedded in your outlook? What kind of famous comp is in that sales range that you provided?

Speaker Change: but again, a manageable amount over on the famous side, boots are obviously a much smaller penetration about 14% of the fall season, so, and we.

Speaker Change: Over on there, the only thing to report is that we are seeing some good results in actually some cozy type of product selling early, which is good to see.

Speaker Change: and then on...

Speaker Change: and then on your third quarter outlook, I think, Jack, you said that the famous footwear comp of a percent, I'm sorry, high single digits.

Speaker Change: in August. So what kind of compasumption for the quarter is embedded in your out-luck what kind of famous comp is in that sales range that you provided?

Jack Calandra: Yeah, I'll let Jack pick up for the comp reporting here. Yeah, hi, Mitch. So, yeah, we expect a, well, describe as a modest positive comp in Q3, four famous, which obviously drafts off of the strength of August. And, but I will say, though, that the total reported sales for Famous in the quarter will be down mid single digits as a result of this shift in the calendar with the back to school weeks and what we're anniversary last year. So what you'll see is a, I think, a modestly positive comp in Q3 for Famous, but a, but sale total sales reported sales that are probably down low to mid single digits.

Jack Calandra: Yeah, I'll let Jack pick up for the comforting here. Yeah, hi, Mitch. So, yeah, we expect what I'll describe as a modest, positive, comp, in Q3, 4 famous, which obviously drafts off of the strength of August.

Jack Calandra: Um...

Speaker Change: and I will say that the total reported sales for famous in the quarter will be down mid-Single digits.

Jack Calandra: As a result of this shift in the calendar, you know, with the back to school weeks and what we're anniversary last year. So what you'll see is a, I think, a modestly positive comp in Q3 for famous.

Jack Calandra: but a total sales reported sales that are probably down low to mid-single digits.

Jack Calandra: Okay, and then how about famous gross margin for the third quarter? I mean, obviously it was down pretty substantially in two key or. You also expecting to be down three Q or do you expect it to be better? No, we're anticipating the gross margin for Famous to be down in the third quarter. And what I would say is when we look at sort of the year, we're still looking for gross margin improvement at the consolidated level, which is really being driven by brand portfolio.

Speaker Change: Okay, and then how about famous growth margin for the third quarter I mean obviously was down pretty substantially in two key or you also expecting to be down three key or expected to be better.

Speaker Change: Now, we're anticipating the gross margin for famous to be down in the third quarter.

Speaker Change: and what I would say is when we look at sort of the year we're still looking for a gross margin improvement at the consolidated level which is really being driven by brand portfolio.

Mitch Cummins: And then one last one for me, just in terms of the revision to the full year sales guidance, because it sounds like in the quarter, there were three main issues: there was ERP, there was back to school, there was seasonal. So for the full year revision, does that basically take into effect kind of the 10 to 15 million year lost on ERP, but for back to school, it's just kind of wash, right, because what you lost in two key, you kind of pick up in three Q and then and then it's seasonal. And how much was the impact on seasonal?

Speaker Change: and then one last one for me, just in terms of the revision to the full year sales guidance.

Speaker Change: because it sounds like in the quarter there were three main issues. There was ERP, there was back to school, there was seasonal, so for the full year of vision.

Speaker Change: Um, does that basically take a no effect kind of the 10 to 15 million year lost on ERP, but for back in school it's just kind of...

Speaker Change: Back to school is kind of wash, right? Because what you've lost in two keys, you kind of pick up in three queue and then it's seasonal and how much was the impact on seasonal? Can you kind of parse that out?

Jack Calandra: Can you kind of parse that out? Sorry, we're just getting the number. Yeah. Okay, maybe I lost you. No, we probably will have to pull it for you, but we did see sandals down on the brand portfolio piece of our business high single digits in the second quarter. In famous, they were actually sandals worth flatish. So we can pull the exact dollar amount as relates to the midst there. But it's fair to say that back school, in terms of those in terms of the rise for your guidance, that doesn't really reflect any changes to your making around back to school, because what you lost in two Q, you pick up in three Q, or is your overall view of that school worse than what it was when you last gave the God.

Speaker Change: Episode 2

Speaker Change: Alright, we're just getting the number. Yeah, okay, so maybe I lost you.

Speaker Change: Now we probably will have to pull it for you, but we did see sandals down on the brand-portfolio piece of our business high single digits in the second quarter.

Speaker Change: and famous, they were actually sandals for flyers. So we can pull the exact dollar bound as relates to the myth there.

Speaker Change: but it's fair to say that back school in terms of the interest of the rise full year guidance, that doesn't really reflect any changes to your taking around back to school because what you lost in two kids you pick up in three kids or is your overall view of that school worse than what it was when you last gave the God

Jay Schmidt: No, I think it was actually we were pleased with where we saw we came out in back to school, and I think Mitch, the other thing is that a lot of the key brands and trends that were there, we do see a go forward application of that. We're looking to fuel those all the way through as we continue to serve the family throughout the fall season. So pretty pleased with what we saw, and obviously a lot of these areas are things that we're very strong for and known for. So those actually will help us as we move forward.

Speaker Change: Now, I think it was...

Mitch: is actually, we were pleased with where we saw it, we came out in back to school, and I think Mitch, the other thing is that a lot of the key brands and trends that were there, we do see a go-forred application of that, and we're looking to fuel those all the way through, as we continue to serve the family throughout the fall season.

Mitch: Pretty pleased with what we saw and obviously a lot of these areas are things that we're very strong for and known for, so those actually will help us to move forward.

Mitch Cummins: Okay, thanks a lot. Thank you.

Mitch: Thanks for watching

Josh Herrity: Our next questions from the land of Josh, Josh, Herty with Chelsea, Viser group, please just use your questions. Hey, Jay and Jack, I just wanted to follow up a little more on, you know, a lot of moving pieces here in the quarter from an inventory perspective. Like you mentioned a carrier delay, your P implementation, you know, season of weakness, you talk a little bit more broadly about, you know, demand trends by category, you know, I was the athletic stronger but dress season on and what that means for your inventory composition heading into the back after the year, you know, relative to, you know, the overall promotional environment and what it could be for the gross margin back after the year.

Speaker Change: Thank you, good to see you.

Speaker Change: Our next question to the line of Josh Herdy with Kelsey Viser Group. Please just use your questions.

Unknown Executive: And with that, I will now hand it over to Jack for a more detailed view of our financial performance and our outlook.

Speaker Change: David James, Jack. I just wanted to...

Jack Calandra: Jack, thanks, Jay, and good morning everyone. During today's call, I'll provide additional details on our second quarter performance, share our outlook for the third quarter, and discuss our revised guidance for the full year. While there were no adjustments to the second quarter this year, please note my comparisons to last year will be on an adjusted basis. For the second quarter, sales were 683 million, down 1.8%, which included a 23 million benefit in famous due to the retail calendar shift that pulled a peak back to school week into the quarter. As Jay mentioned, our ERP upgrade, weak sandal demand, and a late back-to-school lift resulted in a shortfall to expectations.

Speaker Change: Follow up a little more on...

Josh Herdy: You know, a lot of movie pieces here in the quarter from an inventory perspective, we can mention the carrier delays in your presentation, you know, season a weakness. You talk a little bit more broadly about, you know, demand trends by category, you know, I was just a lot of stronger but dress season on and what that means for your inventory composition heading into the back after the year, you know, relative to, you know, the overall promotional environment and what it could mean for the gross margin back after the year.

Jay Schmidt: Okay, so I'll start with the brand piece, Josh, and we obviously see a lot of these key trends continuing here. The pivot to sneakers was done in the season, so we've already seen in the first couple of weeks of August that comes through. I think we're reacting appropriately with the tall versus short dynamic in boots and feel pretty good about the, what I would call the casual footwear business in the fall season, and we've made the appropriate, I think, adjustments to our dress business. So that feels pretty good for me. And then on famous, again, we've seen some really strong brand results there: Nike business, very strong; Adidas powering through, very nicely; New Balance, Converse, amongst many others; Birkenstock.

Josh Herdy: Okay, so I'll start with the brand-piece Josh, and we obviously see a lot of these key trends continuing here, the pivot to sneakers was done.

Speaker Change: in the season, so we've already seen in the first couple weeks of August that comes through. I think we're reacting appropriately with the tall versus short dynamic and boots and feel pretty good about what I would call the casual footwear business in the fall season. And we've made the appropriate, I think, adjustments to our dress business. So that feels pretty good for me.

Jack Calandra: Brand portfolio sales were down 5.1%. Based on our analysis, we believe the system issue resulted in about 10 million to 15 million of lost sales in the quarter, or as much as 5 percentage points of growth. Famous sales were up 1.5%; comparable sales, which adjust for the calendar shift, were down 2.9%. Encouragingly, we saw sequential improvement in each month of the quarter, and that improvement continued with a strong performance in August. Consolidated gross margin was 45.5%, a 30 basis point increase versus last year, and was driven by higher margin in brand portfolio, partially offset by a lower margin in Famous.

Speaker Change: and then on famous, again, we've seen some really strong brand results there, Nike Business, very strong, a data's powering through very nicely new balance, converse amongst many others for constructs. So we have a very good feeling about continuing to pivot into those brands.

Jay Schmidt: So we have a very good feeling about continuing to pivot into those brands. You know, Famous is continuing to work with all their key strategic brand partners to bring in the very best from all of them to get the business to continue to, to all the learnings to keep going through and get more of that inventory and that the consumer's demanding. And on our brand side, we're seeing, you know, our target of 30% of our business coming through speed on receipts will continue. So that will continue to help us fuel all the good things that are working there too, and it's part of our dynamic model.

Speaker Change: You know, famous is continuing to work with all their keys to strategic brand partners to bring in the very best from all of them to get the business to continue to...

Speaker Change: to all the learnings to keep going through and get more of that inventory in that the consumer's demanding. And on our brand side, we're seeing our target of 30% of our business coming through speed on receipts will continue. So that will continue to help us fuel all the good things that are working there too in part of our dynamic model.

Jack Calandra: Brand portfolio gross margin was 42.7%, up 140 basis points versus last year, as a result of higher initial margins and a favorable channel mix. Famous gross margin was 45%, down 120 basis points versus last year, due to more days on promotion and the pull forward of our BOGO-50 offer, as well as higher clearance activity. While we utilize the BOGO-50 offer earlier than planned, we believe we maximize gross profit given the initial tepid response to our Buy More, Save More promotion. SG&A expense was 268 million, or 39.3% of sales, and included planned investments in marketing behind our lead brands, the expansion of our international business, and the SAP upgrade.

Unknown Executive: Great. Thanks.

Jay Schmidt: And then I can just follow up with the second question on the ERP implementation. That was entirely on the brand portfolio side. Is that correct? It was the brand portfolio side as well as our core financial systems. And can you remind us of where the ERP, you know, rollout or system stand for the famous side or if there's any other system implementations upcoming here? Yeah. At this point, we put everything on hold for the future, Josh, just to make sure that we're 100% on this. So we'll update everyone on our progress as we pull the whole company in.

Speaker Change: Great thanks, and then I just follow up with the second question on the ERP implementation. That was entirely on the brand portfolio side, is that correct?

Speaker Change: It was the brand portfolio side as well as our core financial systems.

Speaker Change: and can you remind us of where the ERP, you know, rollout or system stand for the the famicider, if there's any other system implementations upcoming here?

Speaker Change: Yeah, at this point, we put everything on hold for the future Josh just to make sure that we're 100% on this, so we'll update every one on our progress as we pull the whole company in, but for sure, we want to prioritize and get this to be, make sure that we're 100% right on this.

Josh Herrity: But for sure, we want to, you know, prioritize and get this to be, make sure that we're 100% right on this, and we'll announce more when we have more to fill. Thank you. Thanks. Thank you.

Speaker Change: and will announce more when we have board of foot.

Chandana Madaka: Our next questions are in the line of Ashley Owens with KeyBank Capital Markets. Please just use your questions. Hi, everyone. This is Chandon and Madoka on for Ashley. Today, thanks for taking your question. So first, I just kind of wanted to dig in a little bit more. You've already spoken to your trans quarter to date by month. But you mentioned back to school, kind of started off a little bit late, just wanting to ask why do you think that is, and then you've talked about how selling takes up in August and some of the dynamics and marketing and promo bringing that up and more in line with your expectations.

Speaker Change: Thank you.

Speaker Change: Thanks. Thank you.

Speaker Change: Our next question to the line of Ashley Owens with key bank capital markets. Please excuse your questions.

Speaker Change: Hi everyone, this is John Dunn, I'm a doggo, I'm for Ashley today. Thanks for taking your question.

John Dunn: So first I just kind of wanted to dig in a little bit more eVardy's spoken to your transquorded date by month, but you mentioned back to school, kind of started off a little bit late, just wanting to ask, why do you think that is, and then you've talked about how it's going to take up an August and some of the dynamics of marketing and promote bringing that up and more in line with your expectations, but just wanting to dig in further there.

Jay Schmidt: But just wanting to dig in further there. Yeah, I think we did see, you know, the consumer at famous and has been very wear. Now, granted. And so I'm not surprised that back to school opened up a little late in terms of when they really needed to buy it is when they came out and shopped. And I think so that was just one thing I think was consumer demand and people really prioritizing their spend in different ways and spending really when they needed it. The second thing we saw was obviously when we did go into full back to school and we did shift from last year's by more say more type of time promotion into this.

Speaker Change: Yeah, I think we did see, you know, the consumer at famous and has been very wear now, granted, and so, not surprised that back to school opened up a little late in terms of when they really needed to buy it, as when they came out and shocked.

Speaker Change: and I think.

Speaker Change: So that was just one thing I think was consumer demand and people really prioritizing their spend in different ways and spending really when they needed it.

Speaker Change: The second thing we saw was obviously when we did go into full back to school and we did shift from last year's by more say more type of time promotion into this.

Jay Schmidt: We did see a good piece of traffic come through, and then finally we really turned on all of our marketing through new digital channels as well as standard channels to really maximize the time of this back to school period, which was primarily in August. So I think it was a combination of three things at once, and then obviously we had the inventory aligned to really take advantage of the traffic that came through.

Speaker Change: We did see a good piece of traffic come through and then finally we really turned on all of our marketing

Jack Calandra: Now turning to our outlook, we are updating our full-year 2024 guidance to reflect the shortfall we experienced in Q2, our strong August resulted famous, and the restructuring actions we announced today. Specifically, we now expect sales to be down a low single-digit percent versus last year. This comparison includes the impact of the 53rd week in 2023. Excluding the 53rd week, sales to be flat to down 2%, and earnings per diluted share of $3.94 to $4.9 and adjusted earnings per diluted share of $4 to $4.15, which includes about 2 million of savings and excludes 3 million of one-time costs associated with the restructuring.

Speaker Change: Drew, you know, new digital channels as well as standard channels to really maximize the time of this back-to-school period, which was primarily an August.

Speaker Change: So I think it was a combination of three things of once and then obviously we had the inventory aligned to really take advantage of the traffic that came through.

Jay Schmidt: Awesome, and then just as a follow-up, saw some door account expansion at Allen Edmonds. Just any early success that you can speak to or any other door expansion that's planned for the other lead brands and maybe what are you carrying through wholesale partners. Yeah, I think that for sure we're seeing some growth plans come through for the back half from both Sam Edelman and Vionic, as well as what we discussed with Allen Edmonds. We're seeing all categories of growth, sneakers, tall boots off to a good early start, and then also I would say overarching within this honor of Vionic brand.

Speaker Change: Awesome, and then just as a follow-up, so saw some door count expansion on Edmunds, just any early success that you can speak to or any other door expansion that's planned for the other league brands, and maybe what are you hearing through wholesale partners?

Speaker Change: Yeah, I think that done.

Speaker Change: For sure, we're seeing some growth plans come through for the back half from both Sam Edelman and Vionic as well as what we discussed with Allen Edbens. We're seeing old categories of growth sneakers.

Jack Calandra: Additionally, we now expect the following for 2024. Consolidated operating margin of 7% to 7.1%, and capital expenditures of 50 million to 55 million. Given the continued strength of e-commerce relative to stores in famous, we will close an additional 10 stores this year and expect to end the year with 850 stores versus 860 stores last year. And lastly, we still expect an effective tax rate of about 24%.

Speaker Change: Tall Boots off to a good early start and...

Speaker Change: and then also I would say overarching, you know, within this honor of Ionic brand, we're seeing continued interest in comfort oriented brands that really have a great experience for the consumer gaining traction going forward. So I would say everyone is in a space cautious optimism similar to famous, you know, we're both a wholesaler and a retailer here and I think we share their vision, but we're really focused on getting the best of the product back into the consumer's hands.

Jay Schmidt: We're seeing continued interest in comfort-oriented brands that really have a great experience for the consumer gaining traction going forward. So I would say everyone is in a space cautious optimism similar to Famous. You know, we're both a wholesaler and a retailer here, and I think we share their vision, but we're really focused on getting the best of the product back into the consumer's hand to the best possible means. And so far, it seems like it's all to a, you know, an optimistic start as we look at just early pull.

Jack Calandra: We are also providing the following guidance for Q3. We expect consolidated net sales to be flat to down 2%, a cash restructuring charge of 3 million, and earnings per diluted share of $1.24 to $1.34 and adjusted earnings per diluted share of $1.30 to $1.40. We have provided a table in our earnings release and slides that summarizes our previous and revised guidance.

Speaker Change: to the best possible means and so far it seems like it's all to an optimistic start as we look at just early poll.

Speaker Change: [inaudible]

Jay Schmidt: Thank you at this time, I'll turn the, I'll turn the floor right to Jay Schmidt for closing remarks. Okay, thank you. Before we close today, I would like to thank the Collaris team for their focus, hard work, and dedication during this quarter. Our team worked extremely hard to deliver while executing the future strategy that will continue to help us go forward. Despite the setback, we are confident in our long-term plans and growth opportunities. We look forward to a stronger finish to the year, and we will update you along the way. Thank you all for joining us this morning on the call, and thank you for your interest in Collaris.

Speaker Change: Episode 2

Speaker Change: Thank you.

Speaker Change: at this time. Thank you. I'll turn this one right to Jason Schmidt for closing remarks.

Jason Schmidt: Okay, thank you. Before I close today, I would like to thank the Calaris team for their focus, hard work and dedication during this quarter.

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

Jason Schmidt: are teamwork extremely hard to deliver while executing the future strategy that will continue to help us go forward. Despite the setback, we are confident in our long-term plans and growth opportunities.

Unknown Executive: Operator? Thank you.

Unknown Executive: Well now, we conduct a question-and-answer session. If you'd like to ask the question today, we press star one from your telephone keypad, and a confirmation tone will indicate your online is in the question queue. You may press star 2 if you'd like to withdraw your question from the queue. For participants that may be using speaker equipment, you may have to put the handset before pressing the star keys. One moment, please. We'll be poll for questions. Thank you.

Jason Schmidt: We look forward to a stronger finish to the year and we will update you along the way.

Speaker Change: Thank you all for joining us this morning on the call and thank you for your interest and colaris. Have a good day.

Unknown Executive: Have a good day. This will conclude today's conference. May I disconnect your line at this time? Thank you for your participation.

Speaker Change: This will conclude today's conference. May I disconnect your lines at this time? Thank you for your participation.

Laura Champine: Thank you, and our first question is from the line of Laura Champine with Loop Capital Markets. Please proceed with your questions. Thanks for taking my question this morning. Jay, just hearing all the things that you've done to fix the ERP implementation issues. Should we consider it an immaterial impact on the back half of the year? I would say that's accurate, Laura. We have really triaged this during the second quarter, and we feel confident that we have all systems go and where we don't. We have the accurate backups in place until we do that we really feel are very confident in.

Speaker Change: [inaudible]

Laura Champine: Got it.

Laura Champine: And then on this August rebound, and I think this would probably be tough to tell, but do you have a sense that that was driven by the macro or could it be that your promotions, which were stepping up in that time period, or what drove the improved results? I think it starts with the fact we were looking here this morning. We have a lot of our athletic brands are trending extremely well, so we were much better in position with key athletic brands. It's representing well north of 50% of our athletic or total famous business. So getting those key brands in place and the kids' inventory in place was the first part.

Speaker Change: [inaudible]

Laura Champine: Second part was, as you alluded to, this was the first time that we saw such a high demand on the BOGO versus BIMOR Save More that it became large and creative. And that was a different place for us that we haven't seen prior to that. So while not more days in the pure back to school business, we do see we got a much higher traffic lift from it. And then finally, our marketing was really all focused on kids during the back to school and the key athletic shoes and others that they really drove through. So you're right; it's hard to get one impact on it, but I think those three things probably drove it through. That would be where I think we wound up.

Laura Champine: Got it.

Mitch Cummins: Thank you. Our next question is from the line of Mitch Cummins with C-Port Global Scuries. Please introduce your line of line for questions.

Mitch Cummins: What we are seeing though is some real strength at a fall, and it's early days for sure, but we are seeing some really nice reaction to some key trending categories on the brand side, and those include sneakers, as we've mentioned, in you to grow. We've seen great results in some early flats and mocks coming through, and then sport-inspired casuals, or another great example. Finally, we've seen some interest in high-shap foods, particularly at Naturalizer and Sam Edelman, so it seems like the consumers are interested in new fall and is out shopping, and we're in position to address that.

Mitch Cummins: And just on the boot piece, can you remind us how big a part of your business that is in the back half of the year, and what kind of performance you're lapping there from a year ago? Yeah, it's a good question. Obviously, we haven't. We've had food seasons that were disappointing in the last two. Our best information right now tells us it's about 28% of our brand portfolio sales in the back half, and what we see about that is, from what I can see today, tall boots will be up slightly, and then short boots will be down.

Mitch Cummins: But, again, a manageable amount. Over on the famous side, boots are obviously a much smaller penetration, about 14% of the fall season. And we, over on there, the only thing to report is that we are seeing some good results in actually some cozy type of product selling early, which is good to see. And then on your third quarter outlook, I think Jay, you said that the famous footwear comp of 8%, I'm sorry, high single digits in August. So what kind of comp assumption for the quarter is embedded in your outlook? What kind of famous comp is in that sales range that you provided?

Mitch Cummins: Yeah, I'll let Jack pick up for the comp reporting here. Yeah, hi, Mitch. So, yeah, we expect a, well, describe as a modest positive comp in Q3, four famous, which obviously drafts off of the strength of August. And, but I will say, though, that the total reported sales for Famous in the quarter will be down mid single digits as a result of this shift in the calendar with the back to school weeks and what we're anniversary last year. So what you'll see is a, I think, a modestly positive comp in Q3 for Famous, but a, but sale total sales reported sales that are probably down low to mid single digits.

Mitch Cummins: Okay, and then how about famous gross margin for the third quarter? I mean, obviously it was down pretty substantially in two key or you also expecting to be down three Q or do you expect it to be better? No, we're anticipating the gross margin for Famous to be down in the third quarter. And what I would say is when we look at sort of the year, we're still looking for gross margin improvement at the consolidated level, which is really being driven by brand portfolio. And then one last one for me, just in terms of the revision to the full year sales guidance, because it sounds like in the quarter, there were three main issues: there was ERP, there was back to school, there was seasonal.

Mitch Cummins: So for the full year revision, does that basically take into effect kind of the 10 to 15 million year lost on ERP, but for back to school, it's just kind of wash, right, because what you lost in two key, you kind of pick up in three Q and then and then it's seasonal. And how much was the impact on seasonal? Can you kind of parse that out? Sorry, we're just getting the number. Yeah. Okay, maybe I lost you. No, we probably will have to pull it for you, but we did see sandals down on the brand portfolio piece of our business high single digits in the second quarter. In famous, they were actually sandals worth flatish.

Mitch Cummins: So we can pull the exact dollar amount as relates to the midst there. But it's fair to say that back school, in terms of those in terms of the rise for your guidance, that doesn't really reflect any changes to your making around back to school, because what you lost in two Q, you pick up in three Q, or is your overall view of that school worse than what it was when you last gave the God. No, I think it was actually we were pleased with where we saw we came out in back to school, and I think Mitch, the other thing is that a lot of the key brands and trends that were there, we do see a go forward application of that. We're looking to fuel those all the way through as we continue to serve the family throughout the fall season.

Mitch Cummins: So pretty pleased with what we saw, and obviously a lot of these areas are things that we're very strong for and known for. So those actually will help us as we move forward.

Mitch Cummins: Okay, thanks a lot. Thank you.

Joshua Herrity: Our next questions from the land of Josh, Josh, Herty with Chelsea, Viser group, please just use your questions. Hey, Jay and Jack, I just wanted to follow up a little more on, you know, a lot of moving pieces here in the quarter from an inventory perspective. Like you mentioned a carrier delay, your P implementation, you know, season of weakness, you talk a little bit more broadly about, you know, demand trends by category, you know, I was the athletic stronger but dress season on and what that means for your inventory composition heading into the back after the year, you know, relative to, you know, the overall promotional environment and what it could be for the gross margin back after the year.

Joshua Herrity: Okay, so I'll start with the brand piece, Josh, and we obviously see a lot of these key trends continuing here. The pivot to sneakers was done in the season, so we've already seen in the first couple of weeks of August that comes through. I think we're reacting appropriately with the tall versus short dynamic in boots and feel pretty good about the, what I would call the casual footwear business in the fall season, and we've made the appropriate, I think, adjustments to our dress business. So that feels pretty good for me. And then on famous, again, we've seen some really strong brand results there: Nike business, very strong; Adidas powering through, very nicely; New Balance, Converse, amongst many others; Birkenstock.

Joshua Herrity: So we have a very good feeling about continuing to pivot into those brands. You know, Famous is continuing to work with all their key strategic brand partners to bring in the very best from all of them to get the business to continue to, to all the learnings to keep going through and get more of that inventory and that the consumer's demanding. And on our brand side, we're seeing, you know, our target of 30% of our business coming through speed on receipts will continue. So that will continue to help us fuel all the good things that are working there too, and it's part of our dynamic model.

Joshua Herrity: Great. Thanks.

Joshua Herrity: And then I can just follow up with the second question on the ERP implementation. That was entirely on the brand portfolio side. Is that correct? It was the brand portfolio side as well as our core financial systems. And can you remind us of where the ERP, you know, rollout or system stand for the famous side or if there's any other system implementations upcoming here? Yeah. At this point, we put everything on hold for the future, Josh, just to make sure that we're 100% on this. So we'll update everyone on our progress as we pull the whole company in.

Joshua Herrity: But for sure, we want to, you know, prioritize and get this to be, make sure that we're 100% right on this, and we'll announce more when we have more to fill. Thank you. Thanks.

Chandana Madaka: Thank you. Our next questions are in the line of Ashley Owens with KeyBank Capital Markets. Please just use your questions.

Chandana Madaka: Hi, everyone. This is Chandon and Madoka on for Ashley. Today, thanks for taking your question. So first, I just kind of wanted to dig in a little bit more. You've already spoken to your trans quarter to date by month. But you mentioned back to school, kind of started off a little bit late, just wanting to ask why do you think that is, and then you've talked about how selling takes up in August and some of the dynamics and marketing and promo bringing that up and more in line with your expectations. But just wanting to dig in further there.

Chandana Madaka: Yeah, I think we did see, you know, the consumer at famous and has been very wear. Now, granted. And so I'm not surprised that back to school opened up a little late in terms of when they really needed to buy it is when they came out and shopped. And I think so that was just one thing I think was consumer demand and people really prioritizing their spend in different ways and spending really when they needed it. The second thing we saw was obviously when we did go into full back to school and we did shift from last year's by more say more type of time promotion into this.

Chandana Madaka: We did see a good piece of traffic come through, and then finally we really turned on all of our marketing through new digital channels as well as standard channels to really maximize the time of this back to school period, which was primarily in August. So I think it was a combination of three things at once, and then obviously we had the inventory aligned to really take advantage of the traffic that came through.

Chandana Madaka: Awesome, and then just as a follow-up, saw some door account expansion at Allen Edmonds. Just any early success that you can speak to or any other door expansion that's planned for the other lead brands and maybe what are you carrying through wholesale partners. Yeah, I think that for sure we're seeing some growth plans come through for the back half from both Sam Edelman and Vionic, as well as what we discussed with Allen Edmonds. We're seeing all categories of growth, sneakers, tall boots off to a good early start, and then also I would say overarching within this honor of Vionic brand.

Chandana Madaka: We're seeing continued interest in comfort-oriented brands that really have a great experience for the consumer gaining traction going forward. So I would say everyone is in a space cautious optimism similar to Famous. You know, we're both a wholesaler and a retailer here, and I think we share their vision, but we're really focused on getting the best of the product back into the consumer's hand to the best possible means. And so far, it seems like it's all to a, you know, an optimistic start as we look at just early pull.

John Schmidt: Thank you at this time, I'll turn the, I'll turn the floor right to Jay Schmidt for closing remarks. Okay, thank you. Before we close today, I would like to thank the Collaris team for their focus, hard work, and dedication during this quarter. Our team worked extremely hard to deliver while executing the future strategy that will continue to help us go forward. Despite the setback, we are confident in our long-term plans and growth opportunities. We look forward to a stronger finish to the year, and we will update you along the way. Thank you all for joining us this morning on the call, and thank you for your interest in Collaris.

Unknown Executive: Have a good day.

Unknown Executive: This will conclude today's conference. May I disconnect your line at this time? Thank you for your participation.

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