Earnings Call: Q2 2022

Aug 25, 2021

Quarterly report

Good morning, and welcome to Shoe Carnival's Second Quarter 2021 Earnings Conference Call. Today's conference is being recorded. It is also being broadcast via the 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 The risk factors included in the company's SEC filings and today's earnings press release, investors You 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 publicly announce any revisions to the forward looking statements Discussed on today's conference call are contained in today's press release to reflect future events or developments. I will now turn I will turn the conference over to Mr. Cliff Sifford, Vice Chairman and CEO of Shoe Carnival for opening comments. Mr. Sifford, you may now begin. Thank you, and welcome to Shoe Carnival's 2021 Second Quarter Earnings Conference Call. Joining me on the call today are Mark Wharton, President and Incoming Chief Executive Officer Carl Ciavetta, Senior Executive Vice President, Chief Merchandising Officer and Kerry Jackson, Senior Executive Vice President, Chief Financial and Administrative Officer. As many of you know, today is my final earnings conference call as Shoe Carnival's CEO. This management team has worked tirelessly to deliver consistent growth and value to our shareholders. I'm extremely proud of our record performance And I am convinced we have not come close to realizing our full potential. I am so excited to watch this terrific management team Continue to build on the successes we have enjoyed during my tenure as CEO. I will let Mark, Carl and Carey get to the specifics of the quarter, but first, I'd like to take a few minutes to reflect on the last several years. The strategic initiatives we have implemented thus far and the strategies we have in place for long term growth Have been a critical driver of our strong performance and I believe have set Shoe Carnival up for further successes Well into the future. Customer centricity is not just catchphrase to us. It's a core principle to every decision we make. The customer is and will continue to be at the center of everything we do at Shoe Carnival. Our stores are easy to shop with all product in an open However, we are not a self-service shoe store. Our stores are well staffed with knowledgeable associates who offer as much service Our merchandising team is made up of well tenured professionals who have a vast understanding of our customers And our stores down to the specific market. This deep understanding of each store's specific consumer and history of Category performance allows our merchant team to build specific store level assortments that are not cookie cutter. Our systems then create size runs that are specific by department and category based on each store's history. And most importantly, Our stores are well stocked with a broad assortment of the latest trends from the best brands with an adequate depth of sizes. Our customers trust that when they walk into one of our stores, they will find the styles they want and the size they need. While many businesses were shut down during the pandemic, we continue to invest in our future. Our investment in infrastructure and technology has been a game changer That will pay for itself many times over in the years to come. We launched 3 internal systems That has positioned us for immediate success in our online and brick and mortar stores and will drive future growth. Our order management system has positioned us to effectively and efficiently improve service to our digital consumer. Our transportation and warehouse management systems have improved our supply chain performance from the Far East Our distribution center and ultimately to our stores. Our order management system allows for the fulfillment of our e commerce orders Either through our distribution center or one of our stores depending upon whichever is the most cost effective and timely way To get the product to the customer, this fall we'll launch a new planning software system that will give our merchants the additional tools They need to more effectively plan product assortment and flow to each individual store. We talked for several years about the ongoing investment we made in our CRM system and our strong commitment to making it best in class. CRM is a vital part of our innovative marketing plan and has allowed us to begin to facilitate Personalized communication with our customers. Further, it provides us with valuable consumer insights That influence every decision we make. I believe these investments have been the catalyst for our outstanding results And market share gains over the past several years. These strategic initiatives are a testament to the knowledge And tenure of the team, but even more so to our ability to identify an opportunity and seize it in a meaningful way. The methodology that has served us well for many years is our ability to react quickly to the brands and trends of the season And quickly make the inventory investments that will make Shoe Carnival the headquarters shot for any current trend. I have never been more confident than the team that will be leading this organization on a day to day basis. It isn't a new chapter. It is a continuum really. They are smart, aggressive and ready to take this company to new levels. Mark has been by my side The last 3 years helping to craft and execute these strategic decisions and his leadership has been integral to the successes We have experienced today. Mark is a great friend and will be an even better CEO with a strong vision, An incredibly talented team, new systems, technology and a loyal customer base, I truly believe Mark will lead Shoe Carnival into Strong and profitable future growth. I would now like to turn the call over to Mark to provide an overview of the quarter Footwear customers have resoundingly returned to shopping at Shoe Carnival stores all across the country. Sales and profit results Are far exceeding our expectations for fiscal 2021 and as such, we are significantly raising our annual guidance today. Before we get into the details, let me provide some context for the comparisons I will refer to during my comments. Given the impact of the COVID-nineteen pandemic on our Q2 of fiscal 2020, we believe our current performance is That's viewed relative to the same period 2 years ago. In our view, this provides a more transparent picture The sustainability of the growth we are experiencing as well as the underlying strength of our business. As such, Comparisons I provide will be relative to the Q2 of fiscal 2019 unless indicated otherwise. Carrie will provide further comparisons versus 2020. The Shoe Carnival team once again rapidly accelerated growth, Posting record sales and record earnings per share during Q2, merchandise margins expanded substantially And we achieved our highest operating profit on record during the quarter, which was nearly 4 times what we reported in the Q2 of fiscal 2019. We also achieved overall comparable store growth of 25.5% in the quarter compared to Q2 2019. These growth results included a mid teen increase in customer conversion within our brick and mortar stores, fueling double digit comp store sales increases across all geographic divisions over the same period 2 years prior. Importantly, Our long term e commerce growth strategies continue to deliver on our customers' shopping needs. For the 2nd quarter, E commerce sales grew 140% versus the Q2 of fiscal 2019, driven by customer traffic up high double digits. Further, product margin associated with e commerce sales was up over 1500 basis points Compared to the fiscal 2019 Q2, e commerce has grown into both a new customer acquisition pipeline for the company and a major contributor of profit to shareholders. Turning back to school. The communities we serve are returning to school To fall sports and to shopping patterns that are similar to 2019, our customers are back in our stores shopping at levels exceeding prior back School seasons and e commerce sales continue to far outperform 2019 levels. To provide some additional context, For the 1st 3 weeks of August, overall store traffic is up over 50% compared to 2020 And schools did not return normally due to COVID-nineteen. Through the 1st 3 weeks of Q3 2021 ended August 21, Comparable sales are up nearly 60% versus 2020 and up 23% when compared to August 2019. Thanks to our best in class merchandise team and strong vendor partnerships. When our customers come to shop, they're met with a broad On trend selection of brands and styles in their size. We expect this momentum to continue throughout the back of the school season In forecasting, it translates into record Q3 sales and profit results. Carey will elaborate on specific increased guidance later in this call. Over the last 3 years, we've been implementing a strategy aimed at delivering a unique preferred shopping experience for our customers. To do this, we knew we needed to get to the core of what Family Footwear customers want when walking into our store or logging on to our e commerce site. We made several significant investments in our technology, including building a world class CRM system and launching the Schuh Perks loyalty program, while at the same time strengthening our e commerce capabilities. As a result, our brand experience and customer capabilities are stronger than ever. Building from this solid foundation, we will align around 4 strategic pillars: customer first, innovation, Profit transformation and growth acceleration. It is through this lens we will further solidify Shoe Carnival's leadership position Within the family footwear space. Let me talk about the progress we are already making within these pillars and how we will continue to execute this strategy. Customers first. As a leader in family footwear, Shoe Carnival prides itself on delivering a shopping experience that is Specifically, we've prioritized a strategic focus on customer acquisition and then converting newly acquired customers into Shoe First loyalty members. Our customer insights and analytics capabilities are growing rapidly and enabling enhanced personalization efforts, Resulting in converting more new customers into repeat buyers. For the trailing 12 months and in Q2 2021, we expanded Our new customers have purchased at Shoe Carnival by mid teens percent versus 2019. Important to this strategy, We also grew our Shoe Pertz loyalty program membership by over 20% versus Q2 twenty nineteen and double digit growth versus Q2 twenty twenty. Next, to be a customer first organization, it's critical to always be innovating, whether it be the in store experience, Innovation will be the cornerstone of how we drive new customer acquisition and retention and ultimately Long term financial performance. We continue to develop innovative marketing plans to ensure strong customer engagement. As we discussed last quarter, we shifted away from profit dilutive, deep discount chain wide promotions like buy 1 get 1 half off. We replaced this with targeted promotions to our customers powered by our data analytics that gives them the product they are looking for One example of these efforts is our back to school results, which demonstrates the strategy is working. Multiple competitors returned to the standard buy one, get one, half off profit dilutive promotions used during the last decade. Our back to school strategic promotional approach resulted in 23% comp store sales increase through the 1st 3 weeks of August, While product margins grew nearly 1100 basis points compared to August 2019, This type of profit driving innovation will be a key differentiator for Shoe Carnival and ultimately a driver of continued performance In addition, as Cliff mentioned, we've transformed our infrastructure By upgrading and enhancing our transportation, warehouse and order management systems, which will allow us to meet our customers' needs more efficiently. Notably, we are in the midst of a multiyear store modernization effort. Shoe Carnival is already known for providing family footwear consumers A unique in store and online shopping experience. Last quarter, we stated an aggressive goal of completing the first 100 stores I'm pleased to say we're on track to achieve our 2022 target and are pacing ahead of our 3 to 5 year plans. The feedback from our customers thus far has been overwhelmingly positive. They found our enhancements to be engaging, Offering an even more exciting and rewarding in store shopping experience. 3rd, as we reach the benefits from our first two pillars, customers First, in innovation, we are in an enviable position to deliver enhanced operational excellence, which will translate into profit transformation. You can see this most clearly in the record product margins and operating income we delivered during the Q2 of fiscal 2021. In addition, because of our strategic initiatives, we now believe that we have the ability to sustain Operating margins of at least 8% over the long term. Our new profit level far surpasses our previous strategic plan target to achieve 6% operating margins by 2023. 4th, accelerating growth. Near term growth will be focused on new customer acquisition, expanding comparable same store sales and increasing sales and profit per square foot. We're very pleased with the progress on our store profitability metrics. At the high end of our guidance for this year, Our sales per square foot will be approaching $300 a foot and our average sales per store will be $3,200,000 This compares to our previous recent highs achieved in 2019 of sales per square foot of $2.45 And average sales per store of $2,600,000 Significant runway exists to grow profit accretive market in our existing core markets and sustainably delivering over 8% operating margin for our shareholders. Our disciplined capital management strategy has served us well and will continue to do so as we further evolve as a leader in this space. At quarter end, the company had no debt and approximately $164,000,000 in cash, Cash equivalents and investments. The strength of our balance sheet combined with a strong strategic vision and execution across the organization Has allowed us to achieve our strongest Q2 operating results in company history. Given the continued record setting performance achieved fiscal year to date, We are significantly increasing our full year guidance. Our increased guidance reflects our confidence in the business fundamentals, Our strong competitive positioning and record results achieved year to date. In addition, given the start to the back to school season Far outpaced earlier expectations and any prior factors will start, we will also be offering Q3 fiscal 2021 guidance That represents significant growth over last year. Our solid foundation coupled with our innovation led Customer first strategy will support this increased outlook for the remainder of the year and beyond. I want to take a moment to recognize Our outstanding Shoe Carnival team members for their continued commitment, operational excellence and their customer first mindset. We could not achieve the results we have without their hard work and dedication. I'm very excited to continue the great work the team has been doing, But I am also cognizant of the rising uncertainty in light of the increasing transmission rates of the COVID delta variant. As such, we continue to prioritize the health and safety of our customers, employees and communities. While the environment remains fluid, We are confident that we have a strong playbook in place to remain nimble during periods of uncertainty and are well positioned to react quickly should things materially change. In closing, we're committed to providing our customers the preferred shopping experience and product assortment within the Family Coker channel. The team's strategic efforts will unlock significant brand value over the coming months years, while at the same time Solidifying our position as an innovative leader in the family footwear space. I'll now turn it over to Carl Chabetta, Senior Executive Vice President, Chief Merchandising Officer for an update on our product performance and inventory position. Thank you, Mark. We continue to execute on our focused promotional strategy using data intelligence to drive customers in store with more personalized recommendations. This strategy has served us well since implementing it over 10 months ago, driving record sales and gross margins. We continue to monitor key metrics that provide valuable insight into customer behavior. We then flex our promotional and merchandising strategies To allow any changes in customer shopping preferences, this flexibility allows us to gain additional insight And to our customer, which further enhances targeting to drive more customer acquisition growth. One of our key strengths As an organization, it's our ability to react quickly to a changing market. The merchant team continues to work closely with our vendor partners To reduce negative impacts from industry wide supply chain disruptions, we made a purposeful decision to buy for growth in the second quarter As we anticipated a return to more normalized consumer demand for the period. For example, we increased our inventory position for dress shoes To be in line with pre COVID levels in anticipation of a surge of events like weddings and graduation parties, which typically occur in the Q2. This was another great example of Shoe Carnival being on trend early. Our stores were stocked with the styles and quantities of dress shoes that customers wanted, Giving us an edge over our competition and driving a significant increase in new customers in the quarter. Our ability to lean in continues to set us apart from others in the industry. Before I get into the results for the quarter, as Mark noted, I will be including comparisons To the Q2 of fiscal 2019 and my comments. The Q2 of fiscal 2021 comparable store sales increased 11.4% over 202025.5 percent over 2019. Product margins for the quarter skyrocketed up more than 1100 basis points compared to 2020 and over 1,000 basis points compared to 2019. Turning to comparable store sales by department for the quarter versus 2019, all product categories were up double digits. Kid store sales versus 2019 were up over 20% in the quarter, with every major category doing well As family lifestyles return to more normal level of travel and entertainment increased. As a result, we saw category selling Returning to a more historical mix by classification. Comp store sales in both kids athletic and non athletic were very strong. Sales in non athletic were driven by casual and seasonal products. Sales in both boys and girls also performed well consistent with what we have seen over the last Several quarters. Top sales in the men's non athletic categories were up over 30% for 2019. Increases were driven by men's canvas, seasonal and all boot categories. Comparable store sales in women's non athletic categories We're up in the high 20s for the quarter. Sales on women's sports seasonal and dress drove the category, but as communities continue to reopen, Demand for additional product categories has increased. We continue to grow our leadership position in adult athletics, Which were up in the high teens on a comparable store basis, despite the move in several states' tax free events to fiscal Q3. Both men's and women's athletics had strong performances with sales driven by the basketball, skate and court categories. We ended the quarter with inventory up 4.2% on a per door basis compared with 2020 and down 4.9% to 2019. We are working closely with our vendor partners to replenish key categories and are diligently monitoring our supply chain. While these shortages are forecasted to continue for the balance of the year, we believe that our outstanding buying team Through their excellent vendor relationships, we'll continue to be successful in providing our stores with the products needed to accomplish our goals And sustain our record breaking numbers. With that, now let me turn the call over to Keri Jackson to provide more insight And to our financial performance for the quarter full year. Thank you, Carl. As Mark mentioned, Given the impact of the COVID-nineteen pandemic during the Q2 of fiscal 2020, we believe our performance is best viewed relative Through the same period in 2019, as this will provide a more accurate depiction of our outstanding results we achieved during the period. I will provide comparisons relative to 2020, but we will place added emphasis on some of our results compared to the Q2 of fiscal 2019. We achieved record net sales of $332,300,000 for the fiscal 2021 Q2, An increase of $31,400,000 or 10.5 percent compared to the Q2 of fiscal 2020. Comparable store sales increased 11.4% for the Q2 2021 compared to the prior year And 25.5% compared to the Q2 2019. Our brick and mortar comparable store sales were up 25.8 percent in the Q2 2021 compared to the Q2 2020 And up 19% compared to the Q2 2019. E commerce sales were up 140% In the Q2 2021 compared to the Q2 2019, but down in line with expectations Thank you for the Q2 of 2020. Q2 of 2021 gross profit margin was 40.9%, A record high for Chute Carnival and up more than 1300 basis points compared to the Q2 of 2020, driven primarily by our tremendous merchandise margins in the quarter. Buying, distribution and occupancy expenses Decreased slightly as a percentage of sales when compared to Q2 2020. To put a finer point on our incredible growth, When compared to 2019, Q2 2021 gross profit margin grew by more than 1,000 basis points, Driven by a 960 basis point improvement in merchandise margins and a 60 basis point improvement in buying, distribution and occupancy expenses as a percentage of sales. These results clearly underscore the successful execution of our merchandising strategy highlighted by Cliff, Mark and Carl earlier in the call. SG and A expenses increased to $7,800,000 in the Q2 of fiscal 2021 To $76,000,000 As a percentage of net sales, these expenses increased to 22.9% Compared to 22.7% in the Q2 of fiscal 2020. The increase in the SG and A was driven by Higher employee compensation expense related to increased store level wages and expense compensation as a result of our continued record performance. When compared to Q2 2019, SG and A expenses as a percentage of sales for the Q2 of 2021 decreased 190 basis points due to significant increase in sales. Operating income Was $59,700,000 or 18 percent of Q2 2021 sales, which is a record for the company compared to $14,400,000 or 4.8 percent of sales in the Q2 2020. When compared to Q2 2019, 2nd quarter 2021 operating income increased an extraordinary $44,000,000 As Mark mentioned earlier, We believe we can sustain future operating margins of at least 8% when the retail environment has normalized. The effective income tax rate for the Q2 of fiscal 2021 was 25.8% compared to 29.6 percent in 2020. Net income for the Q2 of 2021 Was $44,200,000 compared to net income of $10,100,000 during the same period last year. Earnings per diluted share for the Q2 2021 increased by $1.19 to $1.54 per diluted share. Compared to the Q2 2019, earnings per diluted share increased $1.14 Now turning to information affecting cash flow. Depreciation and amortization expense was $4,600,000 in the fiscal Q2 compared to $4,000,000 The Q2 of fiscal 2020. We ended the quarter with inventory of $308,100,000 Which was up $9,300,000 compared to the prior year or 4.2% on a per store basis. Compared to the Q2 of 2019, inventory is down 4.9% on a per store basis. As was mentioned earlier, we continue to work closely with our vendor partners to strategically manage our inventory given current supply chain constraints. As of July 31, 2021, we had no outstanding debt and total cash, Cash equivalents and marketable securities were $163,900,000 Our borrowing capacity was nearly $100,000,000 at the end of the quarter. As you know, during the Q2, our Board of Directors authorized a 2 for 1 stock split of the shares of the company's common stock, Which was affected in the form of a dividend. The stock split entitled each shareholder of record at the close of business on July 6, 2021 We received one additional share of common stock for each share they owned as of that date and was paid on July 19, 2021. Upon completion of the stock split, our outstanding shares increased from approximately 14,100,000 shares to approximately 28,200,000 shares. During Q2, we repurchased approximately 117,000 shares of common stock at a total cost of $4,000,000 As of July 31, 2021, we had $46,000,000 available for future repurchases Under our share repurchase program, we will continue to evaluate the repurchase of shares under the repurchase program during the remainder of fiscal 2021. Turning to our outlook. Given our Q3 results to date and our expected continued strength for the remainder of the quarter, We expect Q3 diluted earnings per share in the range of $1.10 to $1.15 and net sales in the range of 3 0 $7,000,000 to $315,000,000 for the Q3 of fiscal 2021. Additionally, we are raising our full year fiscal 2021 guidance and now expect diluted earnings per share in the range of $4.35 to $4.50 and net sales in the range of $1,210,000,000 to $1,230,000,000 This concludes our financial review. Now I'd like to turn the call back to Mark for some additional comments. Thank you, Carrie. Before we open the call for Q and A, I would like to take a moment to recognize Cliff, given this will be his last earnings call. 1st and foremost, I would like to express my personal gratitude to Cliff for his innumerable contributions to the Shoe Carnival organization In the broader family footwear industry for more than 2 decades. I appreciate the strategic partnership and the great friendships we have working closely together over the last 3 years. Cliff has built an incredible company culture. His vision, Combined with our collective strategic investments to build our brand and consumer experience drives us the springboard To drive long term success for Shoe Carnival and I am honored to be following his lead. This has also pioneered philanthropic efforts On both a personal level and at the company. In fact, it was recently announced that he would be awarded the T. Kenyon Holly Memorial Award of the 2/10 Footwear The foundation's highest honor for exceptional humanitarian achievement. We are so proud And this well deserved recognition as it perfectly sums up who Cliff is as a person. Cliff, from all of us at Shoe Carnival, it's It's been an honor and a privilege to work with you. We wish you nothing but the best as you transition into your new role. I would now like to open up the call for questions and answers. And your first question comes from Mitch Kummetz with Pivotal Research. Yes. Thanks for taking my questions. Cliff, pretty good quarter. I should probably add my congratulations. So I'll reluctantly do that just I'm going to be happy for that. Of course. I've got a handful of questions. So first off, obviously, Business had a great quarter. You're having a strong start to Q3. When you reflect on that, how much do you think that's The macro stimulus pent up demand, things like that versus some of your company specific strategies around Consumer acquisition and engagement or even just the fact that you may have better product availabilities and some of your competition. Can you maybe just talk a little bit about Mitch, I'd like to tell you that everything that we've done through the years that have got us here. But to be perfectly honest with you, I'm going to let Mark answer this question because the things that he's put in place to take the CRM to the next level is what's got us To where we are today and I am so confident that what he's going to do as I transition to vice chair He's going to take us to the next level. So Mark, why don't you take that? Thank you, Cliff, and hi, Mitch. Thank you for the congratulations. We're thrilled with the business fundamentals that we are seeing throughout Q2 and even more encouraged By the way the plans have worked as we started out Q3, as I shared in my prepared remarks, Q3 is on pace to set a record back to school We're so confident in the traffic, the conversion, the merchandise product that Carl and team have gotten are delighting customers That we're already ready to share the record Q3 earnings. So in short, we believe our strategic plans are working well and set us up To maintain this momentum throughout the remainder of the year on pace for the tremendous increase in earnings and sales that Kare And then, Carey, on the guidance, When I kind of look at sort of what's embedded over the balance of the quarter, it looks like you're expecting some moderation in the trend. I'm just curious, is that just Some conservatism baked into the outlook or is there something that you're seeing as you think about the balance of the quarter? And Again, I'm sort of really thinking about that on a 2 year basis. I know that back to school was funky last year, but I'm thinking about that in terms of 2 years ago. Well, back to school, as we've said before, is kind of a forced buying event. All kids go back With new shoes and since the kids have gone back to school physically in presence, we're seeing a nice surge, which we wouldn't expect to see Outside of a peak demand like this, so yes, sequentially through the rest of the quarter, we are we would expect to see it more normalized or positive. Okay. And then Carl, talk to me about boots. You made some comments on the quarter about the non athletic business being good, people Getting back to Avance, I'm kind of curious how you think about that into the holiday season. I mean, do you expect you Have a good dress boot business and maybe just broadly talk about kind of your outlook for boots? Sure, Mitch. We plan boots For the back half of the year, mid single digits, I'll tell you that early boot REITs and the numbers are very small, so So we have to keep that in mind. Early boot REITs are outstanding so far and it's multiple categories Out of the boots that are performing, some of the fashion that we saw in 'nineteen that we expected to Accelerate in 2020 and then obviously got derailed because of COVID, we're seeing that happen in 2021. So we're encouraged On the boots sales for the fall of the year. Okay. Just a couple of last ones. Any comments on the supply chain? It looks like you guys are doing a really good job in terms of having good product availability. But I'm just Curious how you what are you hearing on the supply chain? What are you seeing more broadly across the industry? And we've heard that People expect that the supply chain will remain challenged at least through the balance of this year into the first half of next year. And I'm kind of curious how you think about that relative So what you think channel inventory might look like and your ability to kind of again continue to hold off promotions if Thanks, Dave. Pretty clean out there. Sure, Mitch. This is the all consuming part of my day, Trying to get our arms around the supply chain and trying to sort of move things around, we've been fortunate so far that We have been able to deliver inventory and based on our inventory levels, I quoted in my prepared remarks, we're quite pleased where we are right now. We think we're positioned as we move through Q3 and into the 1st part 4th quarter that we have products flowing. We have anticipated delays. And even with those delays, we feel pretty good about where we are. As we move into late Q4 and spring, we do see this continuing, especially with the issues that we're having in that the industry is having in Vietnam Right now and how that's going to play out, we don't have complete vision to that today. But I will say that our team has executed very well. So far, our vendor partners have really stepped up and supported us And I expect that to continue here throughout fall, although I do see the possibility that The channel will be light on inventory and we'll once again be able to hold off promotion based on Our position of inventory this season. Okay. And then lastly, if I heard you guys correctly, I think you said that 8% Operating margins kind of where you think it'd be more of a sustainable level, which that would be down from kind of where you guys should land this year. So I'm kind of curious, what do you think You give back, is it just that as the environment normalizes, just maybe the sales come down a little bit, Do you deleverage some or is it really on the the merch margins aren't sustainable at this level? I know you've kind of moved away from BOGO's. I would expect that you would think that continues, but I mean the margin has been so good, you just think that you have to give Can you just maybe talk through that? Sure, Mitch. I'm going to compare versus 2019 and our historical pre pandemic We have put in place a transformational profit improvement plan to get to a 6% operating margin by High fours and in that range for the 5 years leading into it. So we put a variety of plans in place that we talked about the last including our innovation, our new systems, our customer first focus and most importantly, our view to transformation. Those things are coming to bear faster than we thought. And by nature of that, we're giving guidance now that 8% is our new norm compared to 6% in 2023. So we're thrilled with that. The primary driver of it will be landing a promotional strategy that delivers margins significantly Higher than pre pandemic. And it's not that we've shifted at all from delighting our value based customer, we're still Talking to them, providing them the best product at the price for them, but we're doing it on more of a personalized 1 on one basis, leveraging our CRM, our marketing plans and our best in class merchandise buying on trend. So we are confident that we can come out there today, not ready to give guidance on revenue or other 'twenty two items, We have changed the profitability from low fives pre pandemic to 8 is the new perspective. There's a lot we need to learn about other cost structures, supply chain, revenue and leverage and therefore we're not giving guidance Overall today, we're not ready for that, but we're very confident in the step change. Okay. All right, guys. Thanks. Good luck. Cliff, I know you're probably not going to miss these calls, but we're going to miss having you on them. So thanks again. Thank you. The next question is from Sam Poser with Williams Trading. Well, good morning, everybody. This was By far, the most amazing, unbelievable, spectacular quarter I've ever seen. And now I hope nobody ever says anything like that again. Now I'm moving on. But thank you, Sam. Thank you, Sam. All right. So number 1, I just want to dig into the post early holiday inventory availability I mean, we are hearing all sorts of stuff, vendors pushing back orders, potential Cancellations, lots of different stuff going on. So when we think about How much of those issues, let's say, in prime time holiday, let's say, December, January, are How is that impacting the guidance for the balance of the year? And what are you doing to make sure that you can be in position for spring 'twenty two because that seems to be The wildcard right now. Holiday is big, but spring 'twenty two sounds like it could even be a bigger issue. Hi, Sam. It's Mark. Thanks so much for Congratulations. We have baked in the supply chain concerns into our Q3 and Q4 guidance that Cary has provided today. So we feel confident with the current situation and the landscape In the Global Supply Chain, we are on track to achieve what we've just guided to. I'm going to ask Carl to build on the outlook past the holiday season and as we start to look to the uncertainty that still exists in 'twenty two. Hi, Sam. We feel good like we've mentioned about getting into the holiday season, getting through the holiday season, meaning delivery of products January, February of next year. That's still somewhat of an unknown. We are every day we're getting more answers from our vendors regarding Delivery moves and shifts, we're not seeing a large quantity of cancellations at this point, although we are seeing Some delays in that supply chain, we'll know in the majority of the noise we're getting is all about Vietnam products, you know what those are. So it's hard to tell at this point where Q1 22 is going to fall as far as beginning inventory. We feel good getting through fall, early fall and then holiday And we're getting more updates every day on January, February and it's really early in the game for me to give you more than that. Okay. And then can you you said that e Commerce business was in versus last year was in line with your expectation. Can you since you've been giving all the other numbers, can you tell us what the ecom Sure, Sam. Like I said, we are delighted with the new customers we brought in through our acquisition of digital. It's landed, as we said, 140% growth versus 2 years ago. Through now, it's down mid double digit Versus last year, by now I mean through where we are 3 weeks into August, we're down low Double digit versus 2020, exactly in line with where we had planned the year. We are incredibly excited by how fast customers have returned to our bricks and mortar store They have to return even faster. So the acquisition of customers that we've taken through CRM, both at digital And in our bricks and mortar is dramatically higher, as I said in the call, than 2 years ago and significantly higher than 1 year ago. But I do want to call out our bricks sales are accelerated faster than we thought and the e comm sales Held in line with the switching back that we had anticipated. Okay. So I'm going to be a pain. Dick's Sporting Goods just reported earnings. They just said that their e commerce business was down 28% year over year. They gave a number. They understand Everybody understands last year's e commerce business was through the roof. So what is it down versus last year? Just The number you gave us, the 240. Give us what the down is this year. I just I mean, it's not we understand it. It's just The number is the number. Sure, Sam. Yes, we're down approximately 18% year to date E commerce sales? And in the second quarter? Do not have second quarter in front of us right now, Sam, but It's higher than that, but in line with expectations. And then are you what's the store opening closing situation look like given the Productivity of the stores are going up. How do you see what do you see for the balance of the year into next year right now For your store plans? Yes. Right now, we are really excited about reigniting the store growth plans As well as all the energy we're putting in the modernization plans. Our current plans are to get to net new store growth As we approach 2023, 2022 is currently focused on finding those sites, Really driving with acceleration the modernization of our fleet and accelerating the profitability. As of the balance of this year, what's the plan right now for stores? Still no change. We still we just opened one store last quarter We have 2 to 3 we continue to expect to close this year on natural terms that are low performing. Okay. All right. And Cliff, congratulations and enjoy your Retirement, non retirement. Thank you, Sam. Your next question is from Greg Pendy with Sidoti. Hi, guys. Thanks for taking my questions. Just 2, I guess on the near term outlook August, is that typically I think in the past you've mentioned that's around 70% athletic. And just kind of I guess the context of the question would be, I mean, is that where you're winning most because earlier in the call you kind of mentioned market share? Hi, Brad. This is Carl. Typically, it's 70% athletic For the month of August, I can tell you right now we're running a little bit less than that percentage of athletic for the total And that's not a reflection, I don't believe, of athletic sales slowing. It's a reflection of other fashion categories accelerating Like they were at the beginning of for fall of 2019 before they got derailed. So slightly less than 70%, but still A giant number. Okay, understood. And then just considering your customer demographic, I know it's a little ways out, but The tax credit, can you kind of talk to on childcare, just how to think about that and maybe even relative to 2019, if you can kind of remember, What was the refund season like in the sense of anniversarying that now that people will probably They're getting their credits now and they won't be getting the refunds. How should we be thinking about that? We're seeing that our customers continue to be motivated to come into Shoe Carnival stores live Following the trial tax credits that are coming out monthly, we've seen specifically traffic spike double digit The weeks after the new tax credits have come out, conversion has been exceptional and comp sales have been continuously strong Following each of the checks, still a little early, but it's been consistent for both of the months so far And it seems to be lasting for a good 1 to 2 weeks where we're getting material bump. So we've built into the remainder of the year forecast For the stated credits, the similar expectations that we continue to fuel a part of that growth. It's too early to understand yet for 2022 what the impact will be, but we are clearly seeing it's resonating with our customer The Shoes and Shoe Carnival and conversions and traffic are exceptional. Okay. That's very helpful. Your next question is from Jim Chartier with Monness Crespi Hardt. Good morning. Thanks for taking my questions. I just wanted to talk about the composition of The sales growth for 2019, how much is being driven by the gains in your customer base over the last 2 years and how much is an increased spend by your existing customers? Good morning. Thank you for the question. And we see the lion's share of the growth is being driven by new customer acquisition versus the pre pandemic. The double digit gains we're bringing in have been the primary fuel to our success, we believe, And the conversion at that point of time is a credit to what Carl and his organization have had the right product, The right trends and importantly in stock to convert on time during the supply chain disruption. So without a shadow of a doubt, new customer acquisition has been primary. Secondary though, our Schubert's loyalty Program has also grown double digit and we think that's the magic to the quarter that we've been able to bring Double digit customers in, but make our Shoe Perks loyalty member climb to the highest it's ever been. I'm saying they're really enjoying it and we're Bringing them through that value chain of awareness, trial, trial in store importantly, buying and then becoming loyalty members, which are our most Profitable. So we're thrilled with the dynamics we're seeing for the underlying business fundamentals. Great. And then In terms of the new customers that you acquired last year, are they behaving similar to earlier cohorts of new customers? And then is there a maturation period for new customers? They're behaving differently and reacting incredibly To our new promotional strategy, in fact, if we look at 2019, The core new customer acquisition was coming in through lower promotion profitability activity. Now we're targeting New customer acquisitions specifically with brands, with styles, the communication, with experience and it's taking our average Basket size up to some of the highest levels we've seen and our profitability and margin to the highest levels we've ever seen. So they're acting Quite positively to the CRM investments, I would say, and we're bringing in a customer that's still value oriented, but not looking for cheap. And that's a big differentiator we're articulating internally. We will have the value for the best product, but we'll give it at the right price, not a cheap Right. That is giving the right value for shareholders. Great. And then on the store modernization plan, How do the Nike shops kind of play within that? And so if the Hunter stores you plan to modernize by next How many of those will include a Nike shop? And then just to kind of follow-up, how are you thinking about benefits from Nike's distribution Yes. As we said on the call, we are very pleased with how the store modernization is rolling up. We are on track to exceed the pace for the 3 to 5 year plan to have at least 2 thirds of the store done. So we're very confident that's going well. Related to next year, we're actually on track for that first 100 to be completed by spring. And an even more exciting part I didn't share This quarter, the first fifty of those will be completed and we're very proud of that despite COVID and all that's going on. Our teams I've worked tirelessly to still refresh and the first fifty will be completed this quarter. More specifically to your question, by Spring of 'twenty two, when we have that first 100, approximately half of the company's fleet will have Nike Shops in them And our plan is right now for the lion's share for all of those to have Nike Shops in. Great. And then just thoughts on kind of when you'll start to see the benefit from some of the Northeast wholesale distribution narrowing? Hi, this is Carl. Todd, we really don't get into Individual brands on the call and how we're planning individual brands at this point. And I guess that's all I'm sorry about that at this time. Okay, great. That's all I have. Thank you. Thank you. You have a follow-up question from Mitch Kummetz with Tivotal Research. Yes, thanks. I just have one quick follow-up. Carrie, obviously great quarter and then great start to Q3. I'm just curious when you look at Q2 by month On a 2 year basis, could you maybe speak to the months? I don't know if you have any numbers on the months versus 2 years ago. And if you don't, could you at least Maybe kind of how consistent was the quarter or was it all lumpy? Anything there would be helpful. Against the prior year, We had a very strong May June in the 30 plus And then July was up in low to double digits. So we had a very strong quarter. Do you have any sense as to how that was versus 2 years ago? Was it even more? Yes. It was a 2 year. That was a 2 year. Okay. I'm sorry. I thought you said prior to last year. Okay. All right. Thank you. There are no further questions at this time. I will now turn the call back over to Mr. Siffert for closing remarks. Thank you. I cannot fully express my gratitude to the Shoe Carnival family. That includes our customers, our employees, our vendor partners, our investors, everyone on this call and to the Shoe Carnival Board of Directors who believes And this team gives us the latitude to win. It has truly been my honor to lead such an impressive organization for the past 9 years And be part of it for 24. I truly mean it when I say the Shoe Carnival family. This company has and will always feel like home. I look forward to working with Mark and the team as I join the Board full time, and I wish the team all the success in the world. I cannot wait to watch you continue to do such great customer focused work. Thank you all once again. Mark and the team look forward