Q3 2025 Shoe Carnival Inc Earnings Call

Good morning and welcome to SHU Carnival's 3rd Quarter 2024 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.

Speaker Change: I would now like to introduce Mr. Steve Alexander with Shoe Carnival Investor Relations. Mr. Alexander, please go ahead.

Steve Alexander: Thank you and good morning. Thanks for joining us today. Earlier this morning, we issued our earnings press release for the third quarter of 2024. If you need a copy of the release, it is available on our website in the investor section.

Steve Alexander: Joining me on today's call are Mark Worden, President and Chief Executive Officer of Shoe Carnival, Carl Scibetta, Chief Merchandising Officer, and Patrick Edwards, Chief Financial Officer.

Steve Alexander: Management's remarks today may contain forward-looking statements that involve a number of risk factors. These risk factors could cause the company's actual results to be materially different from those projected in such statements.

Steve Alexander: 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.

Steve Alexander: Investors are cautioned not to place undue reliance on these forward-looking statements which speak only as of today's date.

Steve Alexander: The company disclaims any obligation to update any of the risk factors or to publicly announce any revisions to the four looking statements Discussed on today's conference call or contained in today's press release to reflect future events or developments

Steve Alexander: Today's call will reference non-GAAP measures. The non-GAAP measures or adjusted results referenced exclude the purchase accounting, merger, integration, and transaction costs related to the acquisition of Rogan Shoes.

Steve Alexander: A reconciliation of GAAP to non-GAAP results is included in this morning's release.

Steve Alexander: And with that, I'll hand the call over to Mark. Thank you, Steve, and good morning, everyone.

Mark Worden: Before discussing results for the quarter, I'd like to start today by thanking all our team members for their hard work and tireless dedication.

Mark Worden: As a result of the devastating hurricanes Helene and Milton, the lives of both our employees and our customers were dramatically impacted.

Mark Worden: Importantly, all our team members are now safe and accounted for and we're fortunate that we did not suffer meaningful damage to our stores. We're grateful for both outcomes and thank you team.

Moving now to our results.

Mark Worden: I am so proud of the profitability the team achieved in the quarter. We delivered third quarter adjusted EPS of 71 cents, which was in line with our expectations shared earlier this year.

Mark Worden: On a year-to-date basis, adjusted EPS totaled $2.19, an increase of 3.8% versus prior year.

Mark Worden: Gross profit margin in the quarter was 36%, exceeding 35% for the 15th consecutive quarter.

Mark Worden: We achieved year-to-date net sales of $939.9 million, an increase of 4.9%, and year-to-date adjusted operating income of $78.4 million, an increase of 6.6% versus prior year and growing faster than sales.

Mark Worden: The key drivers of our third-quarter profit delivery included a very strong back-to-school performance with comparable store sales growth across our banners, efficiencies in our digital-first marketing approach, the addition of Rogans in February 2024, and the rapid progress testing our store re-banner strategy, which I will discuss in a few moments.

Mark Worden: From a top-line perspective, Rogan's continued to deliver in line with our expectations. And from a profit perspective, we further accelerated the Rogan's integration timeline and began capturing significant profit synergies in the third quarter, a full six months ahead of our previous schedule, which was to begin capturing synergies in fiscal 2025.

Mark Worden: The synergy capture in the quarter was primarily corporate and back-office support where we had the capacity to consolidate functions ahead of schedule.

Speaker Change: Patrick will go into more details in his comments, but our ability to accelerate the capture of these savings into 2024 demonstrates our team's ability to quickly identify and capture profit synergies while also delivering on our top-line expectations for Rogans.

Speaker Change: In addition to the profit synergies on Rogans, we also drove leverage in our SG&A led by our digital-first marketing strategies.

Speaker Change: As we have previously discussed, our transition to a digital-first approach and away from more traditional forms of media, which began over a year ago, gives us the ability to quickly pivot and adjust spending to invest strategically and maximize engagement when customers are ready to purchase.

Just as we did during back-to-school in the quarter.

Speaker Change: Importantly, the inverse is also a key aspect of our digital strategy, to be flexible enough to ratchet spending down when consumers are not engaging with advertising investments at a sufficiently profitable level, such as the weak surrounding hurricanes Helene and Milton.

Speaker Change: Our spending flexibility to match the customer's real-time behavior was essential to delivering our profit expectations this quarter.

Turning to south in the quarter.

Speaker Change: Back-to-School was an all-around success. Led by children's and athletics, we achieved solid, comparable store net sales growth. In the Back-to-School weeks leading up to Labor Day, we achieved comparable store net sales growth in both Carnival and Station banners, delivered strong product margins, customer traffic growth, and transaction size increases versus prior year.

Speaker Change: After Labor Day in September and October, sales slowed meaningfully as a result of the two hurricanes and persistently warm weather.

Speaker Change: While we did not experience major damage to our stores resulting from the hurricanes, our business was significantly disrupted.

Speaker Change: Ranging from some stores being closed for a day or two all the way to one of our stores in Western North Carolina being closed for nearly a month without electricity or water.

Speaker Change: From a high-level perspective, about half of our stores were affected to varying degrees by the hurricanes, and our customers' lives were significantly impacted as well. Understandably, shopping for shoes during these storms was simply not a priority for them.

Speaker Change: Later in the quarter, the weather remained unseasonably warm into November, which delayed the start of our winter boot season.

Speaker Change: Carl will go into more details in his remarks, but as a point of reference, boots were down over 35% in the month of October and our sandals assortment, given the very warm weather, continued to deliver sales up double-digit in October.

Speaker Change: All in, the disruption from the hurricanes to our stores and to our customers' lives combined with the lack of a boot season in the quarter were the primary drivers of sales performing about $10 million below our goals in the back half of the quarter.

Now, shifting to thoughts on the balance of the year.

Speaker Change: Today we revise our full year sales guidance given the sales performance in the third quarter. We anticipate customer purchasing behaviors during non-event periods, which we are in now until the holidays, will continue to be in decline across the industry.

Speaker Change: And while the winter boot season was delayed out of the third quarter due to the warm weather, I expect trends to improve materially when the weather turns cooler and we enter the winter holiday event period.

Speaker Change: Consistent with last quarter, we anticipate the lower side of our guidance range is the most likely outcome, considering where we stand today. But if boot trends turn to significant growth once the weather gets cold and strong holiday results are achieved, then the mid-to-higher side of the range is a possible outcome.

Speaker Change: As I said, we believe the lower end is most likely, as persistent warm weather has continued into early fourth quarter.

Speaker Change: We also reiterated our fiscal 2024 EPS guidance range based on our strong margins and profit delivery in the third quarter and year-to-date. Patrick will go into more details on guidance, but I am proud of the team for delivering such strong profit results in the third quarter in the face of many unexpected weather challenges.

Speaker Change: I would now like to take a few moments to discuss two core growth strategies that support our vision to be the nation's leading family footwear retailer.

One of those core strategies is profitable M&A activity.

Speaker Change: Rogins, which we acquired in February 2024, continues to deliver top-line results in line with our expectations, and as I discussed earlier, we achieved full run rate synergies in the quarter, six months faster than we anticipated.

Speaker Change: With integration largely complete and full synergies now being captured, the team is turning to building out our shoe perks CRM program in the Rogan stores, which we just rolled out and are mining customer data for new growth opportunities in the years ahead.

Speaker Change: Shoestation, which we acquired in December 2021, continues to deliver strong sales growth year over year since the acquisition, along with profitable results that are accretive to our bottom line.

Speaker Change: In addition to being a profitable acquisition, the Shoestation brand, product assortment, and in-store shopping experience make Shoestation a key component of a second core growth strategy, which is to grow our existing business.

Speaker Change: One of the primary focus areas in this strategy is to evaluate data on community characteristics, purchasing trends, product assortment, and mix at a store level.

Speaker Change: As part of that analysis, we have defined existing shoe carnival locations where the customer and real estate characteristics are better aligned with shoe station.

Speaker Change: As I discussed on our last call, we re-bannered three stores from carnival to station during the second quarter in the core station markets of Alabama and Mississippi.

Speaker Change: The results were very encouraging, surpassing our expectations early on and continuing to do so in the third quarter.

Speaker Change: During the third quarter, we expanded the testing of this strategy by re-bannering seven more stores, bringing the total number of re-bannered stores to ten.

Speaker Change: Our focus on this round of testing was to further validate that re-battering stores in core markets is profit accretive and test expansion into additional southern markets where Shoe Station is present or known, but not the market leader.

Speaker Change: With the addition of these seven newly rebounded stores, we entered multiple new station markets in Florida, Alabama, and Mississippi, along with the state of Tennessee.

Speaker Change: It's still early days on these seven stores, but the results are promising.

Speaker Change: Our success criteria for re-banner stores are plus 3% to 5% sales and profit growth and based on the first 10 stores we are very encouraged with the early results.

Speaker Change: We will continue to learn from the re-bannered stores during the fourth quarter and the important holiday shopping period, but it is very clear that these stores are significantly outperforming as shoe station bannered stores compared to their performance prior as shoe carnival stores.

Speaker Change: As such, we plan to further expand the testing by re-bannering an additional 25 stores in the first half of fiscal 2025.

Speaker Change: The markets currently planned are in the south and include new shoe station markets in Tennessee, Florida, Alabama, Mississippi, Louisiana, Georgia, and possibly Kentucky and the Carolinas.

Speaker Change: With this round of testing we plan to further test the success of this strategy by expanding it to markets outside of Alabama and Mississippi into markets further away from where the Shoe Station brand is known.

Speaker Change: With the additional 25 stores planned in early 2025, the number of re-battered stores will total 35 and represent approximately 10% of shoot carnival stores that will have been re-battered during the first phase of our testing.

Speaker Change: We see this strategy as a potential long-term source of growth, and I look forward to providing an update on our next earnings call, as well as our expectations for 2025 impact and thoughts on potentially expanding testing further geographically in the years ahead.

Speaker Change: I'd like to thank our team for their spirit of innovation and reimagining ways to better meet our customers needs. This new strategy is energizing teams, delighting customers, and early days are very profit accretive.

Speaker Change: Before handing it over to Carl, I'll summarize with a few closing thoughts.

Speaker Change: We delivered a very profitable quarter and EPS that was in line with our expectations, led by a successful back-to-school, strong margins, and continued efficiencies, in our successful digital-first marketing approach.

Speaker Change: Rogans delivered top-line results that were in line with our expectations for the quarter and we accelerated the integration and delivered full profit synergies in the quarter six months ahead of schedule.

Speaker Change: As part of our store rebounder strategy, we expanded testing in the quarter with seven additional stores, bringing the total number of stores to 10.

Speaker Change: We continue to be encouraged by the early results and currently plan to further expand the strategy by re-bannering 25 additional stores in the first half of fiscal 2025.

Speaker Change: And as we announced in October, Carl Scibetta has decided to retire during the spring of 2025 after over 50 years in the retail industry and over a decade of service to Shoot Carnival.

Speaker Change: I'd like to thank Carl for his partnership over the last decade, as well as his valuable leadership, his friendship, and many contributions to SHU Carnival's successful growth during his tenure.

Speaker Change: The process to select Carl's successor is underway, and we plan to share further information at the appropriate time in 2025.

Speaker Change: We are grateful that Carl will remain with the company to close out Fiscal 2024 and to facilitate a smooth transition during Fiscal 2025. And now, I'll hand it over to Carl. Carl?

Carl Scibetta: Thank you, Mark. I appreciate your kind words and have very much enjoyed working with you and the team over the last decade. And I look forward to closing out the year strong.

Carl Scibetta: As you discussed, we delivered a strong back-to-school season with comparable store sales growth led by mid-to-high single-digit growth in children's and athletics.

Carl Scibetta: In September and October, sales slowed as the two hurricanes disrupted our business and impacted our customers.

Carl Scibetta: The weather also remained persistently warm in October, resulting in a boot season that was delayed out of the third quarter.

Carl Scibetta: From a category perspective, athletics performed well, growing below single digits in the quarter with growth in women's and children's, partially offset by a decline in men's.

Carl Scibetta: Boots in the third quarter, which historically has represented about one third of our entire winter boot season, we're down over 35% in the month of October and over 30% in the third quarter with declines in women's, men's, and children's.

Carl Scibetta: In the quarter, we again delivered gross profit margin above 35% for the 15th consecutive quarter, and we remain committed to our targeted CRM strategies.

to continue delivering sustained gross profit margin performance.

Carl Scibetta: Our merchandise margins in the quarter increased by approximately 50 basis points versus prior year, and on a year-to-date basis, our merchandise margins were even with the prior year.

Carl Scibetta: Inventory at the end of the quarter totaled $406.6 million, an increase of $38.3 million versus prior year, primarily reflecting the impact of the Rogans acquisition in February 2024.

Carl Scibetta: Excluding the impacts from Rogans, our merchandise inventory at the end of Q3 was lower by approximately 1% on a dollar basis than prior year, and on a unit basis, merchandise inventory was down approximately 3% versus prior year.

Now moving to cells and categories for the quarter.

Carl Scibetta: Total Q3 comp sales were down 4.1 percent which reflected weakness in boots that was partially offset by growth in athletics driven by a strong back-to-school performance.

Carl Scibetta: From a category perspective, total adult athletics comp sales increased low single digit in the quarter. Comp sales in women's adult athletics were up high singles led by court and basketball, partially offset by decline in skate.

Carl Scibetta: Comp sales in men's adult athletics were down low singles with declines in skate and running partially offset by strength in court and walking.

Carl Scibetta: Children's comp sales were down low single-digit with athletic up low single-digit led by court and non-athletics down high single-digit.

Carl Scibetta: The children's non-athletic performance is primarily due to softness in boots, which were down over 30% in the quarter.

Carl Scibetta: Third quarter comp sales in women's non-athletic footwear were down mid-teens. Wrestling casual were both down high-teens, and sport was down low single-digit. Sandals were down high single-digit, and boots were down over 35% in the quarter.

Carl Scibetta: Men's non-athletic comp sales were down mid-single-digit, dress was down low double-digit, and casual was down low single-digit. Men's boots were down high single-digit.

Carl Scibetta: Coming out of the quarter, Inventory Contents is clean and in good position.

Carl Scibetta: Specifically, our boot inventory is over 15% lower than prior year, and with our strong vendor relationships, the team has been able to adjust receipts based on category trends to date, and we are on target to finish the season in line with our boot inventory plan.

Carl Scibetta: In closing, we achieved a strong back-to-school performance, but lacked children's and athletics in the quarter. Sales in September and October slowed due to the impacts of hurricanes on our business and our customers.

Carl Scibetta: and the persistently warm weather which resulted in the winter boot season being delayed out of the quarter.

Carl Scibetta: and our inventory is well positioned to continue providing the product assortment, mix and values that our customers want.

Carl Scibetta: and with that I'll turn the call over to Patrick for a review of our financials.

Thank you very much.

Thanks, Carl. Moving on to our financial results.

Carl Scibetta: We were pleased to deliver EPS in line with expectations for the quarter and grow our year-to-date top line in EPS compared to the prior year.

Carl Scibetta: As a reminder, the 53rd week in fiscal 2023 will not recur in fiscal 2024, and as a result, the retail calendar weeks in each quarter shift in 2024 as compared to prior year.

Carl Scibetta: This shift benefited second quarter net sales approximately $20 million and unfavorably impacted our third quarter by approximately $20 million. On a year-to-date basis, comparisons to the prior year now incorporate material elements of the shift between these two quarters.

Carl Scibetta: In the third quarter, net sales totaled $306.9 million, down $13 million compared to the prior year, or 4.1%. This decrease was due to the $20 million retail calendar shift.

Carl Scibetta: In the quarter, net sales otherwise increased 7 million, or 2.2%, compared to Q3 last year.

Carl Scibetta: On a year-to-date basis, which now includes the material impacts of the retail calendar shift, net sales totaled $939.9 million, an increase of 4.9% versus prior year.

Carl Scibetta: Now, going into a little more detail on the top line in the quarter.

Carl Scibetta: Net sales were led by strong back-to-school performance and comparable store sales growth across our banners in August.

Carl Scibetta: Net sales in the quarter were also favorably impacted by Rogan's, which we acquired in mid-February of this year. I'll discuss Rogan's sales activity and integration successes in more detail in a moment.

Carl Scibetta: Net sales in September and October were significantly impacted by the two hurricanes that disrupted many of our store operations and customer shopping trends.

Carl Scibetta: Net sales were also negatively impacted by persistently warm weather that delayed a meaningful start to the winter boot shopping season out of the third quarter.

Carl Scibetta: On a comparable store sale basis, which excludes the impact of the retail calendar shift, Rogan sales, and other new store growth,

Carl Scibetta: Net sales in the third quarter declined 4.1% as impacted by August back-to-school low singles comp growth and the weather-related declines in September and October.

Carl Scibetta: Comparable store sales in these two months were down high singles compared to last year's combined September and October, with boots driving about half of the decline.

Carl Scibetta: For the entire quarter, the slower boot sales also drove about half of the 4.1% comparable store sale decline, partially offset by continued strength in athletics.

Carl Scibetta: Q3 Gross Profit Margin was 36%, compared to Q3 2023 Gross Profit Margin of 36.8%, declining 80 basis points compared to last year's third quarter.

Carl Scibetta: The decrease was primarily due to BD&O costs, which increased in the quarter on higher occupancy costs from operating more stores and de-leverage as impacted by the retail calendar shift.

Carl Scibetta: On a year-to-date basis, gross profit margin was even with the prior year, consistent with our expectations and full year guidance.

Speaker Change: For the quarter, merchandise margins were up 50 basis points, as Carl discussed, and on a year-to-date basis, merchandise margins were flat to prior year, consistent with our overall gross profit margin, and in line with expectations.

Speaker Change: As a percentage of net sales, SG&A was 28%, reflecting a 10 basis point decrease in the quarter, even with the lower shifted net sales.

Speaker Change: SG&A in Q3 was $85.9 million, representing a decrease of $3.9 million versus 2023's third quarter, primarily related to lower selling costs at shoe carnival and shoe station stores.

Speaker Change: As Mark discussed, these lower selling costs reflect optimized advertising spend driven by our digital-first marketing strategy.

Speaker Change: These lower selling expenses more than offset the cost of operating Rogan stores in the quarter.

Speaker Change: Now going into more detail on Rogan's top-line results and accelerated integration.

Speaker Change: We are very happy with how the Rogans acquisition has performed, with net sales approximating $22.3 million in the quarter and $63.9 million year-to-date, in line with our full-year expectations.

Speaker Change: We continue to expect Rogans to deliver annual net sales of over $80 million in fiscal 2024.

Speaker Change: We have completed integration of store operations, marketing, e-commerce platforms, point-of-sale systems, merchandising, and back office.

Speaker Change: With respect to customer-facing technology, Rogan's customers can now participate in ShoePerks, our customer loyalty program. And toward the end of the third quarter, we integrated the Rogan's e-commerce platform into shoe stations.

Speaker Change: For Rogan's customers, these changes expand merchandise selection and provide access to other new benefits.

Speaker Change: As Mark discussed, we captured significant profit synergies in the quarter, six months ahead of our previously expected schedule, which was to generate savings beginning in fiscal 2025.

Speaker Change: We currently estimate Rogan Synergy capture of over 1 million in fiscal 2024, with a significant portion of that total banked in the third quarter.

Speaker Change: Our estimate for Total Rogan's profit synergies continues to be approximately 2.5 million, with approximately half of that total now expected to be captured in fiscal 2024.

Moving back to results in the quarter.

Speaker Change: Operating income total $24.5 million, a decrease of $3.4 million versus prior year on a gap basis.

Speaker Change: as impacted by the lower net sales from the retail calendar shift, partially offset by growth, principally from the Rogans acquisition and related profit synergies, as well as lower SG&A.

Speaker Change: Year-to-date adjusted operating income totaled $78.4 million, increasing 6.6% versus the prior year.

Speaker Change: Year-to-date, these expenses total $1.3 million, with approximately $800,000 in cost of sales and $500,000 in SG&A.

Speaker Change: Our income tax rate in the quarter was 24.7 percent, resulting in a headwind to EPS of approximately one cent per share versus the prior year third quarter rate of 23.8 percent.

Speaker Change: This higher rate primarily reflected discrete benefits that favorably impacted the prior year and did not recur in 2024.

Speaker Change: Year-to-date, our tax rate is 25.5% in fiscal 2024 compared to 23% last year, a headwind to the year-to-date EPS of approximately 7 cents.

Speaker Change: On a gap basis, net income for third quarter 2024 was $19.2 million or $0.70 per diluted share and in line with expectation.

Speaker Change: On a year-to-date basis, GAAP Net Income and EPS have increased 2.2% and 1.9% respectively versus prior year.

Speaker Change: On a non-GAAP basis, excluding the Rogen's acquisition-related costs, adjusted net income for the third quarter was $19.5 million, or $0.71 per diluted share, and in line with expectations.

Speaker Change: On a year-to-date basis, adjusted EPS totaled $2.19, an increase of 3.8% versus prior year, even with the challenging market conditions experienced in September and October.

Speaker Change: At the end of the quarter, we had total cash, cash equivalents, and marketable securities of approximately $91 million, an increase of $20 million versus third quarter 2023, even with the all-cash acquisition of Brogan's earlier this year.

Speaker Change: Cash flow from operations here to date in fiscal 2024 totaled $58.1 million.

Speaker Change: Our strong balance sheet and history of generating steady operating cash flow are key drivers to internally fund our growth objectives, including our emerging re-banner strategy and profitable M&A, as well as to deliver dividends and, when desirable, share repurchases.

Speaker Change: During the quarter, we did not repurchase any shares and have $50 million available under our current share repurchase program.

Speaker Change: Inventory at the end of the quarter totaled 406.6 million, an increase of approximately 38 million versus prior year, primarily reflecting Rogan's acquired inventory. As Carl discussed earlier, our inventory content is clean and in good position, including boot inventory.

Speaker Change: Including the newly revandered stores in Q3, at the end of the quarter, we operated 431 stores, with 361 Shoe Carnival stores, 42 Shoe Station stores, and the 28 Rogans locations.

Speaker Change: One new shoe station store opened in Q3, entering Tennessee, an expansion into a new market for the banner.

Speaker Change: And, as Mark mentioned, we plan to re-banner 25 additional stores in the first half of fiscal 2025.

Moving on to our 2024 outlook.

Speaker Change: Based on year-to-date results, inclusive of third-quarter profitability that was in line with expectation, and net sales that was lower than expectation, today we provided the following fiscal 2024 guidance ranges.

Speaker Change: We now expect full year 2024 net sales in a range of $1.20 billion to $1.23 billion, reflecting growth of 2% to 4.5% versus fiscal 2023.

Speaker Change: We continue to expect gross profit margin to be approximately even with fiscal 2023.

Speaker Change: We now expect SG&A as a percent of net sales to be approximately 30 basis points higher than fiscal 2023 compared to our previous guidance of 40 basis points higher. This improved guidance is driven by expected synergy capture and third quarter operating expense management.

Speaker Change: We now expect our income tax rate to be lower than our previous guidance at approximately 25.6% to 26%. Our previous guidance was a tax rate of 26%.

Speaker Change: We continue to expect GAAP EPS in a range of $2.55 to $2.70 and adjusted EPS in a range of $2.60 to $2.75.

Speaker Change: going into a little more detail on our revised guidance and what it means for the balance of the year.

Speaker Change: We are currently in a non-event buying period until we get to the holidays. As Mark discussed, we expect that customer purchasing behavior during non-event periods will continue to be in decline across the industry.

Speaker Change: We will continue to monitor customer buying behavior closely during this period before and after the holiday season and pivot accordingly.

Speaker Change: While we see a path to achieving the higher side of our net sales guidance and the higher side of our EPS guidance.

Speaker Change: Consistent with last quarter, we anticipate the more likely outcome is the lower side of both ranges, unless, as Mark pointed out, we have a record boot season and holiday to close out fiscal 2024.

Speaker Change: Our guidance assumes fourth quarter growth from Rogan's and Shoe Station new stores and a comparable store sale decline led by Shoe Carnival brick and mortar stores.

Speaker Change: consistent with the low to mid single-digit comparable store sale decrease experienced in the quarter and year-to-date at the lower side of our guidance range.

Speaker Change: In Q4 2024, the loss of the 53rd week and the retail calendar shift will result in the loss of approximately $20 million in net sales compared to the prior year.

Speaker Change: We estimate the retail calendarship and the loss of the 53rd week will be a headwind to EPS of approximately $0.10 in the 4th quarter compared to the prior year 4th quarter when we earned EPS of $0.57.

Speaker Change: To close, we delivered a profitable third quarter and EPS that was in line with the expectation set in our last earnings call. We are very proud of the team and teamwork it took to achieve this for our shareholders.

Speaker Change: Achievement was driven by a very successful August back-to-school and overcoming subsequent softness in market demand caused by two natural disasters that affected about half our stores and that changed the landscape of consumer spending, in addition to very warm weather that delayed our boot season.

Speaker Change: Lower boot cells were about half of our comparable storage of cell decline in the quarter.

Speaker Change: We pivoted in the quarter to accelerated synergy capture and expense management to offset the slower-than-expected September and October market conditions.

Speaker Change: With respect to our outlook for the remainder of fiscal 2024, we lowered our sales guidance, given the September and October market conditions, and reiterated our EPS guidance.

Speaker Change: We now expect lower SG&A as a percent of med cells given synergy to capture in Q3 expense management. And while our tax rate is higher than last year, we are now anticipating it will be lower than originally expected. And we are excited about our product assortment for holiday and our plans to drive traffic and profitability in the fourth quarter.

Speaker Change: Our strategy to drive long-term growth remains unchanged. Our strong balance sheet and solid, steady cash flow put us in a great position to continue to fund internal growth, including our emerging re-banner strategy.

Speaker Change: to execute on desirable M&A opportunities and, most importantly, the continued ability to deliver long-term shareholder returns.

Speaker Change: This concludes our financial review. Now we would like to open up the call for questions. Operator?

Thank you.

Speaker Change: If you have a question, please press star 1 on your telephone keypad. If you wish to remove yourself from the queue, simply press star 1 again. In the interest of time, we ask that you please limit yourself to one question and one follow-up question. If you have additional questions, you may rejoin the queue.

One moment for your first question.

Speaker Change: Our first question comes from the line of Mitch Cummins with Seaport Research Partners. Please go ahead.

Speaker Change: Yes, thanks for taking my questions, and Carl, congrats and best of luck to you. And unfortunately, I'm going to break your rule about one question and one follow-up. I've got maybe a handful here. So let me start. Just, Mark, on the hurricanes, is there any way to quantify...

Speaker Change: the sales impact from those two hurricanes. And I'm curious, have you seen any, you know, replacement buying kick in of late as far as those impacted markets? That's my first question.

Good morning, Mitch. Thanks for the question.

Speaker Change: When you look at the losses, I think Patrick summed it up well. About half of our loss came from that persistently warm weather and boot decline, with boots down over 35% specifically in the month of October.

Speaker Change: The other half, not all of it, but most of the other half would come from the hurricane disruption we had from about half of our fleet during the Hurricane Helene and Milton. So roughly half and half.

Thank you.

Speaker Change: And then how about replacement buying? Anything there? Are you seeing any benefit from that? We have not yet.

We still believe that the weather turns cold.

Speaker Change: People will be re-thinking about the lost boots, the lost product that they suffered during some of these catastrophic storms in the South.

So we remain optimistic that

Once it gets colder,

Speaker Change: and people really start to pivot from recovery mode, which they've been in for the last, you know, six, eight weeks.

Speaker Change: They'll start to think about repurchasing and things they need to do.

Speaker Change: Yeah, whether they love that rescue, so they can go to a special Thanksgiving next week, or holiday gifting. We think that is ahead of us, and we remain optimistic, as you could see in our guidance, that profitable footer remains ahead of us.

Speaker Change: And then on Boots, obviously a slow start as you've detailed, what is your expectation for the fourth quarter? And Carl, I'm curious, do you see any pent-up demand potentially benefiting you in the fourth quarter, just given the slow start, or is that just lost business?

Hi, Haymitch. We certainly...

Speaker Change: We believe there's some pent-up demand that's going to come our way in the fourth quarter. However, we don't see any recovery from the loss business in Q3. And while we are planning Q4 in our guidance,

Speaker Change: We are still planning boots down and managing that boot inventory down in the in Q4 Much more much less than we did in Q3 But we do not see any recovery nor do we see boots turning positive in the quarter

Speaker Change: Boots have not started to turn to that positive place. We expect it coming.

Speaker Change: And while we're no weather forecasters, cold weather is coming, winter is coming and we do anticipate growth then but...

Yeah, I have you all now.

Stone.

Speaker Change: Highly accretive margin capture was not made in these early weeks.

Speaker Change: And so that's going to make it very unlikely it's a record boot season.

Speaker Change: It will be strong, but it's getting shorter by the week before it kicks in. And it sounds like your boot inventory coming out of 3Q is in pretty good shape. And I'm guessing that as we're early in 4Q, you've been able to kind of continue to work down those receipts as the weather hasn't cooperated.

Speaker Change: Sure, sure, Mitch. The team did a great job planning the boot season out, holding back on some Q4 receipts.

Speaker Change: So they can get a good glimpse at what was going to happen. That, on top of the fact that our partners have really come to the table and helped us, we believe we're going to be in great boot position coming out of the quarter. And we're in great boot position to take advantage of what's remaining in the season right now. So very pleased with the way the team managed this. They did an outstanding job.

Speaker Change: handling the boot season this year. Okay, and then a couple last ones. Maybe sort of big picture on the sales guide. It looks like the low end of the range.

Speaker Change: is down $30 million, and that would seem to factor in.

Speaker Change: coming in about 13 million below plan, which would suggest that, you know, maybe the fourth quarter is looking about 17 million worse.

Speaker Change: than prior expectations? First of all, I don't know if you want to confirm my math, but I guess more so, you know, what's changed in terms of your outlook for 4Q versus sort of prior expectations and how much of that is, you know, what you're seeing quarter to date with Boots?

Speaker Change: Yes, as I said in my speech, we anticipate, you know, mid to low side of the guidance being likely.

The big change, you've characterized it accurately.

Speaker Change: We built that in to say it turns, but it hasn't turned yet.

Speaker Change: But I want to reiterate, if boots really kick in next week when the holiday season starts in earnest,

Speaker Change: The mid to upper side of our guides remains squarely in reach, and if we have a great holiday, we have great confidence that we have in our sites the profit delivery.

Mark Worden: And then, Mark, maybe lastly on the re-bannering, I know you're still super early in the process, but

Speaker Change: Is there anything that you're seeing now that you've moved outside of Alabama in terms of the performance of the Rebanner stores, Alabama versus, you know, non Alabama?

Speaker Change: Yes, thank you. We are very excited about this for a long-term growth strategy. The first test, inclusive of the ten stores, showed us explosive results in markets where the shoe station brand is known and we were operating a shoe carnival.

Speaker Change: far stronger than plus 10% sales and profit. As we get further away and we're building brand awareness, we're still seeing very strong results with over 10% sales and profit.

Speaker Change: But now we're starting to enter new markets like the state of Tennessee. We're very excited we've just re-bannered two stores in the state of Tennessee and opened a new one and progressing in earnest in 2025 with re-bannering in Tennessee

Speaker Change: They're still showing promising results as well, but our expectation is as we get further and further away from the mothership of Core Alabama, we get closer and closer to our success criteria, which is in that plus 3 to 5 percent sales and profit range.

Speaker Change: We're still doing better than that now, but as we branch further and further into those new states I mentioned we would anticipate things

Speaker Change: get incredibly profitable, strong leverage and a significant outperform compared to, say, the shoe carnival, low to mid single count declines, we're flipping that dramatically. But I would set the stage.

Speaker Change: As we're in these early learning, the three to five percent range is probably a more likely anticipation. We hope to beat it. A lot more to learn when we rebound our 25 more in all these new markets during Q1. But it is a big winner so far.

Speaker Change: Great. Thanks and good luck for holiday. Thank you and happy holiday to you, Mitch.

Speaker Change: Our next question comes from the line of Sam Poser with Williams Trading. Please go ahead.

Sam Poser: Good morning. Thank you for taking my question. I just want to verify one thing and then ask another question. Did you say on prior...

Sam Poser: On the prior earnings calls that Rogan's was expected to $284 million, has Rogan's guidance changed?

Or is it just a, are you wording it differently?

Speaker Change: Hi, Sam. Good morning. We have said that. There's no change.

Speaker Change: It's still over 80. We still expect it to deliver that.

Thank you. And then...

Your inventory levels.

Speaker Change: are higher than I anticipated going into the quarter, taking Rogan into account. When we get to the end of the year, what's it going to look like? And have any of the inventory receipts or planned receipts going forward impacted by the potential for tariffs? And I also want to know, you know, what your thoughts are about tariffs.

Speaker Change: within your mix and how you're thinking about that going into 2025.

Speaker Change: Hey Sam, it's Patrick. I'll take the first part of your question about our inventory balances, and then I'll pass it off to Carl to talk about tariffs.

Speaker Change: Our inventory balance, we expect it, right now it's 3% down on a unit basis, 1% down.

Speaker Change: on a dollar basis. We do see current, currently reductions in that by the time we get to the end of the year, but that balance reduction won't be as great as previously disclosed.

Speaker Change: This rebranding strategy that we're very excited about requires us to carry a little bit more inventory and investing in those hot brands.

Speaker Change: at the Chew Station Sales and having them ready for rebannering these 25 stores in the first quarter requires us to carry a little bit more inventory at year end.

Speaker Change: Sam, on the terror front, it seems to be the topic of conversation.

with every vendor appointment we have.

We're watching it closely

Speaker Change: We direct import ourselves a very small percentage of our own inventory, so we'll see how that gets affected.

Speaker Change: and how the vendors, if indeed the tariffs come across at whatever the income,

We'll have to be very careful about

Speaker Change: pricing to our consumer, and certainly look at where products are being made and how we can best provide the value that our consumers are used to at this point. But at this point, we're like everybody else, we're watching it very carefully, and we will adjust where we need to, but most importantly, continue to attempt, continue to deliver value to our customers.

Speaker Change: Thanks. What percent exposure of your purchases or sales, however you want to talk about it, do you have to China right now?

of our, the percentage of our own imports from China.

Speaker Change: I'm talking about total, I'm talking about total, like from the graph. You know, Sam, I don't have that number. I would say it's...

Speaker Change: I would say it's less than 50% because the majority of the athletic product is coming out of countries other than China, and I would say on the non-athletic side, it's probably 60-40 in China, but as you put it all together, it'll be less than 50%.

Thanks.

And congratulations, Carl, we're gonna miss you.

Thanks, Sam.

Speaker Change: Our next question comes from the line of Jim Chartier with Monash Crispy Heart. Please go ahead.

Hi, good morning. Thanks for taking my question.

Speaker Change: It looks like SG&A is coming down to about $5 million from where it had it previously. In addition to the Rogan synergies and some advertising savings, what are the other key components of that?

Hey Jim, it's Patrick Edwards. You're spot-on on the

Patrick Edwards: You're spot-on on the Synergy concepts and you're spot-on on the Digital First marketing strategy, the flexibility that it brings. Those are the two and really only variables that we were able to press on in the quarter in order to do that expense management Synergy capture to bring our EPS in line with our expectations.

Thank you. Thank you.

Speaker Change: Okay, and that's the same kind of component for fourth quarter? Any SG&A savings in fourth quarter would be those two components as well?

Speaker Change: Sure, Jim. In the fourth quarter, obviously, there's a wide range on sales, plus or minus $30 million, I believe. So we are able to manage those two levers reasonably well, especially the advertising spend. When demand is there, we're going to ramp that up. And if we see weak demand during non-event periods, like we did this quarter, we'll

will be left in the market with our advertising.

David

Hey Jim, it's Mark.

Speaker Change: We don't know how wide the legs to this strategy go yet. We know it's resonating across the South, and now we're going to push that limit, you know, further into these new states, further and further, where the brand's not known. The next 25 stores that we complete in the first half of next year are going to help us answer that question.

Speaker Change: I can give you one thing. We're very confident that we're going to have over 100 shoe station stores near term and ahead of what we previously disclosed as a 2028 objective. Re-bannering is rapidly accelerating that expectation and as we get into guidance next year, we'll be able to be far more explicit when we get into these new states.

Speaker Change: We're going to learn by early next year if this thing has legs to go beyond those core markets into new places like Kentucky, the Carolinas, Atlanta, and even further beyond that. We don't have those answers yet, but we're excited with what it is delivering so far.

Great. Thank you, Carl. Best of luck to you.

Thanks, Jim.

Speaker Change: At this time there are no other questions, so I will hand the call back over to Steve Alexander for closing remarks.

Steve Alexander: Thanks for joining the call today. We're available all day if you have any follow-up questions and I'd like to quickly hand it over to Mark as well.

Speaker Change: Hi, as we wrap up 2024, I just want to take a moment to wish all of you, your families, a happy holiday.

Mark Worden: I hope you have a safe and enjoyable time ahead. We thank you so much for your time spent getting to know Shoe Carnival, spending time with us in person, in NDRs, on the road, or wherever we may have joined you. It's just been a call. Best wishes from Shoe Carnival to all of you.

Speaker Change: This concludes today's conference call. Thank you all for your participation. You may now disconnect.