Good afternoon, and welcome to Shoe Carnival's Fourth Quarter and Fiscal Year 2020 Earnings Conference Call. Today's conference is being recorded. It is also being broadcast via webcast. Any reproduction or rebroadcast of any portion of this call is expressly prohibited. Management's remarks 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. Forward-looking statements should also be considered in conjunction with the discussion of risk factors included in the company's SEC filings and today's earnings press release. Investors are cautioned not to place undue reliance on these forward-looking statements, which speak only as of today's date. The company disclaims any obligation to update any of the risk factors or to announce any revisions to the forward-looking statements discussed on today's conference call or contained in today's press release to reflect future events or developments. I'll now turn the conference call over to Mr. Cliff Sifford, Vice Chairman and CEO of Shoe Carnival for opening comments. Mr. Sifford, you may begin.

Thank you, and welcome to Shoe Carnival's 2020 Fourth Quarter and Fiscal Year Earnings Conference Call. Joining me on the call today are Mark Worden, President and incoming Chief Executive Officer; Carl Scibetta, Senior Executive Vice President, Chief Merchandising Officer; and Kerry Jackson, Senior Executive Vice President, Chief Financial and Administrative Officer. As you saw last week, we announced that I will be transitioning to the Vice Chairman role on September 30 of this year; and Mark Worden, currently President and Chief Customer Officer, will succeed me as President and Chief Executive Officer. On today's call, I want to focus my comments primarily on this transition, which has been well planned and marks a new and exciting chapter for our company. I have always had complete confidence in our team throughout your organization. Our stores are run by the most tenured management team in the shoe business. They open the doors every morning as if they're opening their own business. They have passion and skills, which creates an unstoppable combination. We have built the best merchant team in the shoe business, made up of tenured professionals who have industry-leading institutional knowledge of our customers and how they shop. Our management team on every level also has a tremendous track record and passion for the success of this unique concept. This announcement is a culmination of a multiyear succession plan we established when Mark joined the company in 2018, which was aimed at ensuring a seamless transition of leadership. This is critical as we position the company to continue our strong track record of financial and operational performance, while at the same time, maintaining our commitment to our employees, customers, vendors and shareholders. Mark and I have worked closely together over the last several years, and his clear passion for our…

Good afternoon. Before we discuss our record Q4 results, I'd like to recognize Cliff's outstanding contributions to the Shoe Carnival organization. I've been very fortunate to work closely with Cliff over the last 3 years. His deep industry knowledge and leadership in the footwear channel over the past 4 decades set him apart as one of the retail leaders I respect most. Good decisions during his tenure as CEO help make Shoe Carnival the healthy, consumer-centric company it is today. First, investing in consumer technology enhancements put us in a position to succeed during an incredibly volatile market this past year. Making significant investments in our e-commerce platform and customer relationship capabilities are key catalysts to achieving the record results we achieved the last 3 quarters following the pandemic store closures, while at the same time, laying a foundation for continued growth well into the future. Anyone who has met Cliff immediately learns just how passionate and knowledgeable he is about merchandising and the vendor community. He's worked tirelessly over the past 24 years to establish Shoe Carnival as the top destination for family footwear customers that have built long-lasting relationships with our vendor partners. I'm excited to build upon those relationships as we move forward with our strategic partners. I'm honored for the opportunity ahead and to have been selected by our Board of Directors to succeed Cliff as CEO, and I look forward to continuing to partner with him in his role as Vice Chairman of the Board. In addition to the planned CEO transition we announced, I'd like to highlight 3 additional components of our succession plan. These changes further strengthen our leadership team and position us well for the future as we execute our long-term strategic plans. First, I'm thrilled to share that Carl Scibetta, our…

Thank you, Mark. I'm excited to join today's call and look forward to getting to know each of you more in my new role. Before I get into our performance during the quarter, I'd like to echo Mark's gratitude to Cliff. It has been a pleasure having an opportunity to work with Cliff over the past 8-plus years. His leadership has built a strong company with an outstanding culture that is positioned for growth. Over the past 3 years, working closely with Mark, we've been able to grow synergies within our merchandising, marketing and e-commerce teams. This enabled us to successfully navigate through the pandemic, maximizing sales and margin. This, along with our expanding vendor relationships, has positioned Shoe Carnival to continue to grow through both brick-and-mortar and e-commerce channels. Now turning to comparable store sales by department for the quarter. Adult athletics continued to outperform. The category was up mid-teens overall, driven by strong growth in both women's and men's product categories, which were both up mid-teens for the quarter. We continue to deliver triple-digit athletic e-commerce comparable sales increases. Our leadership position in the marketplace enables us to continue to deliver the broad trend-right assortment our customers are looking for. Sales in women's nonathletic categories were driven by comfort sport shoes, as customers continue to work and quarantine at home. Sales in men's nonathletic categories were driven by boots sales. The increase was from both the work boot category as well as the casual hunting boot category, which were bought as people got tired of being confined in their homes and ventured out for exercise. Consistent with last quarter, dress shoes were down double digits, reflecting a more casual, active lifestyle as many offices remain closed. Kids comparable store sales were up mid-teens for the fourth quarter. Once…

Thank you, Carl. Before I take us through the financials of the quarter, I would also like to express my gratitude to Cliff for his steady leadership. We would not be as fiscally sound as we are today without his guidance and commitment to driving results and improving margins. Under Cliff's leadership, we had an incredibly impressive year given such extenuating circumstances. We achieved record net sales of $253.9 million for the fiscal fourth quarter ended January 30, 2021, an increase of $14 million compared to the fourth quarter of last year. Of this increase in net sales, $16 million was attributable to an increase in comparable store sales and $1 million was attributable to the 4 new stores opened since the beginning of the fourth quarter of fiscal 2019. This was partially offset by a loss in sales of $3 million from the 14 stores closed and other noncomp sales over the same period. Comparable store sales increased 6.4% for the quarter on top of the 3.2% comparable store sales increase in the fourth quarter of fiscal 2019. Our e-commerce business sustained triple-digit growth and represented more than 19% of fiscal fourth quarter sales. As Mark mentioned, our brick-and-mortar store sales were negatively impacted by customer concern related to COVID-19 and holiday sale crowds. Our gross profit margin for the quarter was 30.8% compared to 29.1% in the fourth quarter of last year. Our merchandise margin increased 160 basis points, while buying, distribution, occupancy expense was nearly flat as a percentage of sales. The increase in the merchandise margin was primarily due to lower promotional activity during the quarter but was partially offset by higher shipping costs associated with the increase in e-commerce sales. SG&A expenses increased $2.5 million in the fourth quarter of fiscal 2020 to $67.6 million.…

[Operator Instructions] Our first question comes from Mitch Kummetz with Pivotal Research.

Congrats on the quarter and also congrats to Cliff, Mark and Carl on the transition. Carl, I think you get the short end of that deal, just now you got to be on this conference call. And with that as a transition, I'm going to start with you, my friend. So you're talking about some of the categories -- you kind of went through some stuff on women's nonathletic and men's nonathletic, but I don't think you gave the comps on those. Do you happen to have that?

Gave comps that were both down on the -- sorry, on the nonathletic for the quarter, comps on women's nonathletic were down low singles; and on men's nonathletic, low singles as well.

Okay. Great. Stimulus, I'll just jump ball for who wants to take it -- actually, maybe, Kerry, could you talk about -- so you've given guidance on the quarter, and that's -- just on a 2-year basis, I think the sales were up 8% from 2 years ago. I think last year is not a very good quarter to compare to. I'm just kind of curious, you mentioned February was a little rough given the refunds and weather, and then March has been good as refunds have come in and stimulus has kicked in. Is there any way you can tell us sort of where you are quarter-to-date on your sales and then kind of what the assumption is for the balance of the quarter, just so we have a sense as to kind of what you're thinking for the remainder of the quarter?

Well, we're the same way as you are, Mitch. We look at both comparison to last year, 2020, which is difficult because the stores have closed during this period last year. We're also comparing it back to more normalized 2019. So we are seeing -- as you said, February is tough because of weather, the delayed refunds. Well, in March, as soon as those tax refunds started coming up, plus we had the double benefit of seeing that the incentive checks coming out, so we built into -- implicit in the guidance we gave would be approximately a 19% comp increase against 2020. But a more comparative look would be -- against '19 would be about a 9% comp increase built into our guidance on that. Now we're trending higher than that right now. However, we recognize that some of that stimulus and tax refunds and we expect it to slow down as we progress further through the quarter.

Got it. Okay. That's helpful. And then also maybe for you, Kerry. So again, if I look at this versus 2019, the $273 million, looks like sales up 8%. I can kind of back into an EBIT number that implies an operating margin of close to 10% -- not quite 10%, but close to 10%, and that's versus, I think, 6.1% 2 years ago. So that's a pretty big jump. But I'm wondering how much of that -- it doesn't -- I wouldn't think with that kind of a sales increase over 2 years, that a lot of that margin would be coming from occupancy leverage. I would think it's probably coming on the product margin side and maybe having to do with getting rid of all the BOGOs that you talked about. So maybe could you address those margins or kind of how the margins are shaping up from the quarter, assuming that my math is halfway correct?

Your math is halfway correct. You've got it pretty well. But it is being driven by the great margins we're driving at retail. We've been seeing sustained second half increases in our product margins, and we're seeing that flow through into Q1 also.

Mitch, it's Mark. If I could just build on the comments, we learned a lot about our customers. And through our analytics, we tested significant reduction in promotional intensity throughout 2020. And to share, this Q1, I shared in my prepared remarks that we eliminated all BOGO half promotion as one example. And in doing so, we continue to be very pleased with the merchandise margin expansion and the sales acceleration. So the strategy is working, and we have great confidence that we can continue to make merchandise margin improvements and lower promotional intensity this year.

Okay. Great. And then, Cliff, maybe one for you. I don't want to let you off the hook too easy. Bankruptcies, store closures, I feel like that's kind of been in the backdrop for the last couple of quarters. I don't know if you -- at the point where you want to speak to that yet. But I imagine it probably helped a little bit in the quarter, it's probably helping in the first quarter. I'm just -- how do you see that competitive landscape right now?

Just to be honest with, we don't know -- we think the increase that we have today is, a, because we have the right product and the right stores at the right level. So we're in the athletic business. We are in the sandal business. We're in the businesses that the customers are looking for. So I think that is that's number one, two and three. We really have not been able to pinpoint the closures and say, "Yes, that's the reason our business has been driven." It all happened at one time. So our business started to get really good, as you know, last year, midyear and as we reopened our stores early, and it just has continued.

Let me ask one more and then I'll jump back in the queue. Just, Kerry, on the SG&A line, kind of just thinking about the cost structure, your SG&A in 2020, was it -- dollar-wise, was it that different than '19, even though the sales for the year were down close to 6%? I'm just wondering how you're thinking about those SG&A line items in 2021. Can you keep those dollars reasonably flat? I mean assuming you build on the sales, I mean, obviously, in Q1, it looks like your sales are going to be up quite a bit from Q1 of last year. I'm just wondering how maybe permanent are some of the cost cuts that you've taken. And again, it doesn't seem like you guys really cut to the bone, like some companies did in 2020 that -- because your dollars are sort of flattish.

Well, they're flattish. What we saw was increased SG&A on a year-over-year basis as a group in Q2, 3 and 4. What we saw during the shutdown is we saw a reduction in SG&A, and that's really where the -- the number that kept it flat with the prior year of '19. So we looked like -- when you true up Q1 to be more in line with the rest of '19, that would be more in line with what you should be thinking about.

Our next question is from Sam Poser with Williams Trading.

I -- Carl, I have to ask you the question on your promotion. Is the old -- is the new head merchant better than the old head merchant?

Well, Sam, I think there's a store in North Carolina you need to ask that question to. She's waiting for it.

I didn't predict you to ask that question, Sam.

Okay. Anyway, well, speaking of North Carolina, apparently, Nike has made a number of decisions, one of your larger -- to make some cuts, stop selling from retailers later this year and especially a Carolina-based company there. Given the 1,000 stores there, and is there anything that could facilitate opening -- getting the store openings going more quickly? It sounds like your back end -- you're talking about back end of '22 to really get going here.

Sam, it's Mark. It's a great question. As we said in the prepared remarks, we're taking still a conservative capital approach for 2021, and we're prioritizing our investment on our multiyear strategy to modernize our existing highly profitable stores. We're incredibly excited about the store experience that we are putting in place and want to rapidly roll that out as fast as we can, assuming there's no COVID disruption. With that said, Sam, though, we're looking closely at every market we compete in and looking for profitable opportunities where our consumers are there. And if that opportunity presents itself, we're ready to rapidly move back into store growth. As I said, we plan to reignite store growth whether that's late '22 or in '23. That's our intent right now. But if we find something faster, we're ready to move.

And then in -- after the stores reopened -- or let's say, in the fourth quarter, how did this -- I mean how do the stores comp versus -- I mean, are your stores as productive? Are they more productive now than they were in '19, given the -- or are they less because of the influx of e-commerce? And so when you go for the full year and start doing this work, you could really increase the productivity of the stores. I wonder if that's kind of a quick -- can you -- is that why -- how we should think about the increased productivity of the stores? And then secondly, how sticky do you think this level of e-commerce revenue is looking forward, I mean, given all the new customers you've gotten and everything else?

So during the year, we picked up over $100 million in e-commerce sales or 175%. We did see some switching from our existing stores. We are starting to see the percent of total company stabilize as consumer shopping habits are getting more and more predictable the further we get away from the start of COVID. And we would forecast that the store continues to drive, as we talk about, 4-wall contribution increases as a core part of our strategy in the years ahead. I think the e-commerce -- while we talked about approximately 19% of company value, we see that over the next 2 to 3 years, that incremental sales from e-com to the company will result in it being in the low to mid-20s is what we anticipate in the next 2 to 3 years. So this is probably a stabilization year as customers are very excited to get unboxed and get back out there into stores. And we're seeing that tremendous energy in our stores right now, which Kerry discussed.

And then, Carl, given the comps that you've driven, and it sounds like you're driving right now and given all the supply chain issues that are out there, how much have you narrowed the assortment targeted big key items better, using all the data and consumer insights you have versus '19? I mean are the assortments narrow or in the stores? Are you going deeper? Can you give us some color on that?

Sure, Sam. We started down that road, I would say, really in a big way in '17, and we've continued to pare down the assortments and make big items bigger. And that, since 2019, has continued. And we are in a process now on big key items or big key categories. We continue to accelerate unit sales beyond -- frankly, beyond our projections and where we've been in the past. That will continue to be a core strategy in '21 and beyond.

Great. And the -- I'm sorry, I'm asking so many questions. But the merchant -- the -- okay -- sorry. You're -- when do you expect inventory to catch up here? Or do you think that gross margins will benefit for the entire year because you're still going to be a permanent chase mode?

I think gross margins will continue throughout the year. We're anticipating increases. Right now, we're anniversarying BOGO with non-BOGO, which gives you a natural margin increase. We're chasing products like everybody else. We're experiencing the same supply chain issues that everybody else is at this point. We're working with the vendors in constant communication. We certainly had a slow start to deliver spring, but I will tell you that the flow of product has ramped up and is consistent with previous years at this point. We hope to get closer each quarter and as we move through the season -- or each month, I should say.

Great. And then lastly, I mean this Nike -- I mean, how is your relationship with Nike right now? Are you planning on putting in those Nike shops -- I think you're adding another 100 stores or so this year. Are you planning on accelerating that as you remodel these -- as you redo the stores and modernize the stores? And then I have one last one for Cliff, just because I have to. So -- but I'll leave it there for that question.

Sam, we take great pride in providing unique customer experience, and we are continuing to invest in providing the most differentiated athletic shopping experience in the channel. And we have plans to continue to put that modern store design in as we proceed through the year.

And then, Cliff, given that everybody wants to pass you the baton in your new role as vice -- solely as Vice Chairman, we're changing your name to Harold Hill, and that's what I'm going to leave it with. Congratulations.

Thank you, Sam.

Our next question is from Greg Pendy with Sidoti.

Just to -- just you're making the decision to pare back on BOGOs at -- using data from arguably an abnormal year in an environment where inventory out there is kind of lean. what type of risk do you think you might be able to manage, I guess, from not alienating a core customer of yours that was looking for that value? I mean do you think you'll still be able to retain them? Is that a risk that you're aware of and going to manage? Any thoughts on that?

Yes. We're monitoring it every week with our 26 million strong loyalty members. We're able to see if their purchase behavior is changing. And if so, we'll adjust our tactics in the future. So far, we tested it throughout multiple quarters at the height of the pandemic, when it was calming down to really low points and holiday, and it works across all of those. And we've decided to test it for Q1. And we've taken out -- all of Q1, and it's worked consistently. Now you're spot on, we need to monitor how the customer behavior continues to change as normal like, hopefully, returns very soon. But we're ready to pivot should we need to on a dime.

Great. And then if I'm not mistaken, you're looking -- the 10 store closings this year, are those natural lease expirations? And I know you don't have mall exposure, which a lot of retailers struggled with. But is there anything kind of thematic in those 10 closings? Maybe there was an anchor that was driving traffic to those types of locations? Or is there anything with the real estate, I should say, specific to it, that is sort of a trend within those 10 store closings?

First answer, yes, they're natural lease end dates. They're stores that simply do not have accretive 4-wall contribution possibilities long-term for us nor that customer base that really fits our CRM profile where we have that opportunity. There's probably not one broad sweeping commonality across them, but there are a handful within that, that are very small format, small square foot stores that simply don't allow us to provide that differentiated unique experience as well as we would like to, and so we are closing those ones.

Our next question is from Mitch Kummetz with Pivotal Research.

Just a couple of follow-ups for me. Mark, on the consumer insights, I mean, it feels to me like you guys are still pretty early in that you've added a lot of people to your member program -- your Shoe Perks program, you've got a lot of data. What's the low-hanging fruit over the next year or 2 as you take that information and those learnings? And what can you achieve that's pretty obvious to you guys right now in terms of driving the business?

Start with our excitement is we think there's multiple years of comp store growth within our existing fleet that the CRM program will open up and more profit-rich, lower promotional opportunities. So that we can have a continued, sustainable shareholder value. So I think that's the high level. Specifically, though, I'm really excited about how we're now able to segment our consumers so that Carl and I can personalize product offers to them. And the big insight that we're shifting away from is using a global offer that gives everyone the same offer because we don't know what's important to the specific consumer. We're now getting into -- I can really think about the specific product, the subcategory and giving them an offer and message that's attractive to them. So I'm very excited about our personalization capabilities and how we can leverage that in the year ahead.

And just to put that in context, when did that start? I mean are you a quarter or 2 into that? Or where exactly are -- what inning are you in that process?

Probably second, third inning. Now we have the capabilities of doing it as we're lapping into the second year of our CRM platform. And we have significant years ahead of us to continue to mine insights and grow profits themselves. But it's a big opportunity for us, we believe, for many, many years to come.

We're learning. We learn something new almost every day. So it's not only as are we in the second or third inning, but in some cases, we're in the first inning because we learn something new about our customers as they continue to shop our stores. And it's just like the BOGO half promotion. By being able to target our customers with specific products that we know or categories that we know that they shop that we were able to eliminate -- continue to eliminate those BOGO half days.

Mitch, there's the second thing that I think we're very excited about. And that's with these insights in hand, working closely with our strategic partners on where their consumers can vest, convert and how we can help them acquire the most important consumer to them or reactivate someone. So I think our differentiated digital-first capabilities will really help the partners who we value so much and value us as well.

Okay. And then last question. So we're, I guess, a little over a year into COVID now. And I know your guys' athletic business has been particularly strong. I mean it was -- I think it was already sort of turning that way pre-COVID. And then I think a lot of that would -- you've gotten some good product, whether it's like Court Vision by Nike or whatever. But I'm curious, I think other aspects of 2020 might have been more COVID driven, whether it was like the slipper business or maybe things like hiking boots. I'm curious for Carl, as you think about lapping COVID, how are you thinking about kind of those product opportunities, whether or not you think this year is just going to be kind of a continuation of some of the trends that kicked in last year because of COVID? Or do you think there's actually going to be some shift back to some things that didn't necessarily work as well, maybe not necessarily dress use, but maybe some other stuff that didn't work so well in COVID? But now that people are getting out and getting immunized, and there's going to be social gatherings, types of product there that -- whether it's like going into Easter or Memorial Day or 4th of July, those type of events that you can sort of capitalize on that, that didn't happen last year?

Sure, Rich. We're seeing right now, obviously, the continuation of the COVID product -- the athletic product and some of the things that drove COVID, and your dead on with the hiking category. What's very encouraging is we're seeing a big uplift in seasonal -- new fresh seasonal product that has been delivered and the customer's desire to go out and freshen up things. So we continue -- we believe that's going to continue throughout the season. The athletic stuff with our increased selection fashion in the athletic business should continue. But we think that seasonal sandal for spring will certainly kick in. It's already kicked in. That gives us great encouragement that they're going to buy those products and attend those events you talked about. I almost don't want to say this, but we're seeing a slight tick-up in some fashion-forward, maybe younger dress shoes today that maybe aren't used for work, but they are used for social occasions. It's a minor tick-up. It's the first one we've seen over a year. So that gives us encouragement that the consumer's mindset is ready to get out there and get back from normal life.

Our last question is from Sam Poser with Williams Trading.

Real quick on capital allocation. What's the priority? You said you're going to -- you're reinstating the buyback. Are you willing to buyback? Are you planning on buying back stock around these levels? Or what's the real -- what's the game plan there?

So Sam, our priorities haven't changed. First is investing in growth. And as Mark talked about, we invested in a new store design and refreshing our stores. That's going to be our top priority with our capital, and that's why we're almost doubling our CapEx for the year, and that's almost entirely going to the remodeling process. The Board just increased the dividend by 50%, 56%. So they felt that, that was a priority to put that out there and show the long-term belief in the company. And the last component of our capital allocation has been buy back shares. We really don't signal when we're going to buy back. Like we said, when we see that the -- there's a clean economy going forward and we feel comfortable with it, then we'll be out there and buying shares back.

Ladies and gentlemen, this concludes the Q&A session. I'll now turn the call back over to Mr. Sifford for any closing remarks.

Thank you. I would again just like to thank everyone for joining us on the call today. I hope you all are staying well. I just want to close by saying thanks to all our Shoe Carnival team and all the work that they've done to elevate this company over the last 9 years and particularly over this past year. We look forward to speaking to you all again at our conference call in May. Thank you, again.

Ladies and gentlemen, this concludes today's conference call. You may now disconnect.