Good afternoon, and welcome to the Caleres First Quarter 2022 Earnings Call. My name is Jeff, and I'll be your conference coordinator. At this time all participants are in listen-only mode. After the speaker presentation, there will be a question-and-answer session, [Operator Instructions]. And as a reminder, this conference is being recorded. At this time, I will turn the call over to Ms. Logan Bonacorsi, Vice President of Investor Relations. Please go ahead.

Good afternoon. I'd like to thank you for joining our first quarter 2022 earnings call and webcast. A press release with detailed financial tables as well as our quarterly slide presentation are available at caleres.com. Please be aware today's discussion contains forward-looking statements, which are subject to a number of risks and uncertainties. Actual results may differ materially due to various risk factors, including, but not limited to, the factors disclosed in the company's Form 10-K and other filings with the U.S. Securities and Exchange Commission. Please refer to today's press release and our SEC filings for more information on risk factors and other factors, which could impact forward-looking statements. Copies of these reports are available online. The company undertakes no obligation to update any information discussed in this call at any time. Joining me on the call today is Diane Sullivan, Chairman and CEO; Ken Hannah, Senior Vice President and CFO; and Jay Schmidt, President. We will begin the call with our prepared remarks and thereafter, we'll be happy to take your questions. I would now like to turn the call over to Diane. Diane?

Thank you, Logan, and good afternoon, everyone. I'm pleased to report that Caleres continued its strong momentum as we transitioned into 2022, delivering record-breaking first quarter results across every key financial measure. This was in spite of headwinds we have all been facing, including ongoing inflationary pressures and the drag of supply chain-related challenges. This was our fourth straight quarter of record results and it sets the stage for another year of record or near record earnings. As a result, with today's earnings release, we are raising our earnings per diluted share guidance to be between $4.20 and $4.40. We view our first quarter performance as a further proof point of the step change that we've achieved in the long-term cash generation potential of Caleres. As a result of the smart investments made and the enterprise-wide strategies deployed, we believe we have effectively doubled our normalized mid-cycle earnings to something approximating $4 a share. Now taking a look at the quarter more closely, we once again executed at a high level, making significant progress against our key strategic initiatives and building on our tremendous foundation. Among the highlights, Caleres turned in record sales of $735 million; generated record consolidated gross margin -- profit margin of nearly 45%; and achieved record consolidated operating earnings of approximately $66 million. In addition, we published our second ESG report in mid-April. And I'm proud to say that we've made strong progress against all of our long-term goals. We are well on our way to meeting these goals by 2025 and in some cases, earlier. Now before moving on to our segment performance, I'd like to provide an update on our capital return program. As you know, in March, the Board of Directors increased our buyback authorization by 7 million shares, further underscoring its confidence…

Thanks, Diane, and good afternoon, everyone. I'm excited about the structural changes we've made across the business and the momentum we drove during the first quarter. I'm even more excited about the potential for future value creation as we progress throughout the year. I'd like to start my discussion by sharing some additional details around our record-breaking results, our capital allocation plans and our outlook for 2022. It's important to note that most of my commentary will focus on the comparable period in 2021, with some supplemental comparison to the first quarter of 2019, where relevant and useful. We delivered consolidated first quarter sales of $735.1 million, which was 15% above the first quarter of 2021. As Diane mentioned, this performance was driven by the Brand Portfolio's outstanding 46.1% increase over the first quarter of 2021. In addition to great sell-through at our retail partners and a significant uplift in the direct sales across all brand divisions, this sales improvement in the Brand Portfolio includes $50 million of shipments to refill our partners' inventory pipeline. As planned, Famous Footwear sales declined a modest 3%, reflecting a lower store count and the easing of the pandemic in the prior period and that has spurred a burst in pent-up consumer demand. Our consolidated gross margin was 44.5%, up 144 basis points from the first quarter of 2021, reflecting another quarter of strong margin performance at Famous and improving margins at the Brand Portfolio. In fact, Famous Footwear delivered gross profit margin of 49.2% in the quarter. This 405 basis point improvement over 2021 was driven primarily by the robust consumer demand for leading brands and style assortment, the continuation of more full-price selling and another quarter of minimal promotional activity. The Brand Portfolio recorded first quarter gross margin of 38.1%, a 53…

[Operator Instructions] Your first question comes from the line of Laura Champine from Loop Capital. Your line is open.

Thanks for taking my question and congratulations on a nice quarter. I wanted to give you sort of my interpretation of your comments that Q2 should be similar to Q1 and rescue me if I'm wrong on this. So I'm guessing that you mean sales and earnings total levels will be similar, but given the seasonality we normally see, I would expect revenues to be higher at the Brand Portfolio and lower at -- I'm sorry, higher at Famous and a little bit lower seasonally at Brand Portfolio. Does that make sense?

Yes, Laura, thanks for the question and an opportunity to clarify. On a consolidated basis, we expect sales and earnings to be very similar to what we just reported in 2022's first quarter. When you look, one of the reasons that we called out the $50 million of pipeline fill at our partners was that's really the difference between Q1 and Q2 for kind of the Brand Portfolio segment and then that delta to keep those sales relatively consistent would be the increase that you would see at Famous Footwear.

Got it. Thank you for that.

You’re welcome.

Your next question comes from the line of Dana Telsey. Your line is open.

Thank you. Good afternoon everyone and congratulations on the nice progress. In light of the current environment, how would you frame health of the consumer, what you're seeing in pricing, what you're doing on pricing in Famous and in the branded portfolio? And any updates on the supply chain? And then I have a follow-up.

Okay. Great. This is Diane. I would say the consumer demand fundamentals, as far as we can see, remain very strong. I think we're extraordinarily fortunate that we have a portfolio of diverse brands like we have that reach so many different consumer segments and price points, along with Famous that really reaches so many consumers and has all the national brands that they really want. So quite honestly, Dana, we have not seen any significant change in the demand of the consumer in the last number of weeks. It's still as strong as April had been and really don't believe that that's going to change that significantly for us as we move through the second quarter and through the rest of the year. Again, all to be seen, but we feel very confident in all of the signals that we're seeing about our business. The second thing is that with respect to price elasticity and price increases, again, same thing. Because of the much lower promotional environment, it's a lot quieter than it has been, as well as the fact that we really took our price increases up going into spring of this year. Again, feel like all of that looks like right now that, that is holding. And we really, again, believe that part of that has been, we've always tried to deliver unbelievable value every day in the products that we deliver to the consumer. So that would be, I think, the second thought -- second point. And then lastly, in terms of supply chain costs that -- and lead times, I would tell you that from a cost input cost and certainly transportation costs, we have not seen anything that would give us any indication that we should expect let up in that area until 2023. But we have certainly accounted for that as we've been thoughtful about our guidance for the rest of the year. And we'll see what happens in the ports as they go through their negotiation in July. But again, we are working very hard to make sure that we have the right products and the right inventory at the right time to continue to drive our and satisfy our consumers going forward. So not a lot changed in that area, but feeling like we have a really good balance of inventory to support our needs.

Got it. And just a quick follow-up, the strength of Nike and Famous and how that's doing for you and then also the order book on the branded portfolio, how is that looking and anything we should be watching for?

Okay. Thanks, Dana. With respect to Nike, again, continues to be very good for us, and we're not seeing any slowdown in the demand for the Nike products nor our opportunity to be able to have those products in our stores. So our teams are doing a terrific job there. We're continuing to see the sell-through there be very, very good, along with, frankly, really a broad range of brands within the Famous experience. So it's been really very good all the way around. And in terms of the order book, I'll let Jay make a comment, but we'd say that we like what we're seeing, and it certainly supports the guidance that we have shared with you for the rest of the year, so Jay, maybe a little color on the order book for Q3?

Yes. I would say, Dana that the Q3 order book is shaping up nicely versus '21 position, and we are encouraged by our fill rate to date. We have adjusted our buying to account for higher transportation lead times, so that is resulting in a little of a higher fill rate. And while there are still a lot of uncertainties with port delays and COVID shutdowns, so far, we haven't experienced any significant cancellations and do not anticipate that being the case going forward.

Thank you.

Your next question comes from the line of Steve Marotta.

Good evening everybody. Diane and Ken and Logan, congratulations again on a terrific quarter. Diane, you touched on this already, I'm hoping maybe you could just put a finer point on it. Obviously, the guidance was very good for the balance of the year. What gives you confidence that gross margins will hold across the portfolio and that promotions just competitively won't tick up for the balance of the year?

Yes. Well, a couple of things. You never know for sure, but I think we have taken a very realistic view on our guidance for the rest of the year. We have very good visibility, obviously, into what our expectations are right now for the second quarter. Ken commented a little bit on that already. We also have really managed our promotions in our own stores to make sure that I think we had 70 fewer days, frankly, in the first quarter of promotional activity than we had last year. So we are really dialing it back. We're keeping our inventories as tight as we possibly can and managing the push and the pull of all of that in the way that we believe that we need to. And again, I think the teams have done a great job in focusing on the brands really and the styles that the consumer wants. So we've really made sure we have those right brands and those right styles to make sure that our margins continue to be, reflect the kind of improvement that we have seen for the last number of quarters. So again, feeling very positive, Steve, about what that looks like and again, it's all tied to, I think, really managing our inventory in the best way that we possibly can. And we have just outstanding capabilities in terms of how we plan and how we allocate inventory. And we have outstanding operational excellence on the execution of all of that.

Great. That's very helpful. And Ken, besides the pipeline fill that you referred to from the branded portfolio standpoint in the first quarter, were there any other puts and takes to shifting, say, earlier deliveries? Or was there any other significant call-outs for the branded portfolio side on shipments in the first quarter?

No. I mean I think Diane said, we had double-digit growth across the brands and a number of them were up triple digits. So I think it was the breadth of not only our product, but the consumer that we're servicing, and we expect the momentum that we had in Q1 to flow into Q2, and we wanted to make sure we did call out the pipeline fill because that's not -- that won't repeat in Q2. But across all brands, all categories, we're seeing good performance.

Very helpful. Thanks. I'll take the balance offline. Thank you.

There are no more questions at this time. Turning the call back over to Ms. Diane Sullivan for closing remarks.

Thank you very much. Appreciate you all joining us this afternoon, and we'll see you along the way. Some of you next week. So we look forward to that. Take care.

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