Caleres, Inc. (CAL) Earnings Call Transcript & Summary

Good morning. Welcome to the 2023 Caleres Investor Day. I'm Logan Bonacorsi, Vice President of Investor Relations. Before we get started, please take a moment to read our safe harbor statement as we will be discussing forward-looking statements. Additionally, we'll be providing and referring to certain non-GAAP financial measures. You can find additional information regarding these measures as well as others in today's presentation on the Investors section of our website. We have a great lineup for you this morning. You'll hear from the leadership team on how we transformed the earnings power of the organization as well as detail our strategic growth plan and, of course, discuss our outlook for the next 3 years. So now I'd like to welcome to the stage, President and CEO, Jay Schmidt.

Good morning, everyone, and thank you, Logan, for that nice introduction, and I'm so glad for all of you to join us today, both in-person and virtually. So I'll start by saying when I became CEO of Caleres in January 2023, I have to admit I had a significant advantage. I grew up as a merchant in footwear. And I've touched about almost every part of the shoe business, and some of the team members in the audience might take a shoe with us. But from brand management, product creation, assortment planning, marketing, buying, store selling, it's a business I love. And I'm energized by the people, the process and the passion involved in running a successful footwear company. And that's a very good thing because I need that energy every day from everyone as I navigate the opportunities and challenges we encounter. And over the last 15 years at Caleres, I've worked side by side with a talented team of footwear experts, many who are in the room today and new team members with new competencies that have joined us, and they're in the room today to strengthen our portfolio of brands and accelerate our learning and our progress. Today, you will see a new Caleres, one that we have spent the last few years engineering and implementing. We are a brand and product-driven company with exceptional capabilities. And we are producing results that have set us on a fundamentally new and extremely positive course. Today, you will hear about our new vision and our strategies for the future. But before I get too far ahead of myself, I'd like to honor our long history in legacy, which many of you know. But Caleres is 145 years old this year and it has been listed on the New York Stock Exchange for 109 years. Our founder, George Brown, that handsome man with the moustache up there, was an entrepreneur and an innovator, and he is widely credited for creating the first pair of shoes built on a separate last for a left and a right foot. It's really incredible. With that spirit and a commitment to quality and fit, our company has always been about innovation, reinvention and creating trust with the consumer. We're constantly thinking about how to make things better for her, him. And today, you will hear more about how we do that and how it has guided our evolution and our success. So when I stand back here and look at Caleres today, I have to say with great pride that we are a leading force in footwear. Our brands have deep meaning and purpose to consumers. We operate profitably in all channels and categories. Our competitive advantages and core competencies put us in a unique position to build brands, to deliver products that consumers want and to drive value for our shareholders. With over $2.7 billion in revenue and producing an 8% operating margin as expected this year, we hold over 6% market share in the U.S., and we drive over 70% of our business through our own retail and digital channels. So the last few years have positioned us exceptionally well for our next chapter. Since 2019, we have transformed the company's performance by implementing a number of structural changes across our organization and building significant momentum in our Lead Brands, which include Sam Edelman, Allen Edmonds, Naturalizer and Vionic. So we did a lot over the last 4 years. We've taken significant action. We have elevated our entire portfolio. We closed over 100 Famous Footwear stores and approximately 150 Naturalizer stores. We exited 4 unprofitable brands, and we upgraded the Brand Portfolio's channel strategy to create more premium experiences for many of our brands. We have restructured the organization to align with the greatest opportunities for growth and returns, and these efforts have freed up capital to invest in areas that set us up to accelerate growth. We invested in our capabilities, including marketing, analytics, digital and omnichannel, consumer experience, design and innovation and our supply chain and of course, in the people that we needed to drive them. We've edited assortments. We've reduced inventory and at the same time, we increased speed. We reduced debt and we returned cash to shareholders through dividends and share buybacks. So the transformation is there, and it's been powerful and it's been paid off financially, resulting in a step change in the earnings power of our company, which is more than double the earnings per share that Caleres has generated just 4 years ago. These structural changes have resulted in a new baseline earnings of $4 per share. And while I am enormously proud of our recent accomplishments we have even more opportunity in our next chapter. Beginning with 2024, Caleres will return to growth, by leveraging our competitive advantages to drive business expansion across our brands. Our competitive advantages are threefold. We build powerful brands, we deliver innovative products across multiple categories of footwear, and we showcase our brands through compelling experiences across channels and geographies. We apply these competitive advantages to our powerful brand assets and employ our One Caleres capabilities to accelerate growth. Our One Caleres platform is built on a continuously strengthening foundation that supports and fuels us. Our platform works to create a virtuous circle of growth. So I like simple messages. So I'm going to say this is 1, 2, 3, 4, okay? I have 4 messages to deliver today. First, we will accelerate growth in our Brand Portfolio segment, which will deliver an outsized contribution to the company's earnings. Second, we are executing strategies to fuel Famous Footwear's growth by strengthening its position with kids and the millennial family, while maintaining strong profitability. Third, in addition to our brand assets, our unique structure is an asset that provides scale and stability and it allows us to leverage our capabilities synergistically. And fourth, our successful execution of these operational initiatives will deliver strong long-term financial performance and generate value for our shareholders. So let's begin with the Brand Portfolio. We're now at an inflection point. During the first half of 2023, the Brand Portfolio delivered the majority of the operating profit. We expect the contribution from the Brand Portfolio will be about half of our operating profit full year 2023. We also expect the Brand Portfolio's revenue growth to lead revenue growth over the next 3 years, with the 4 Lead Brands growing 10% on average during that period. And by 2026, we see the Brand Portfolio generating about half of our company revenue and 60% of our operating profit. Within the Brand Portfolio, we have outsized expectations for our Lead Brands, and we are investing accordingly in their growth. These brands, Sam Edelman, Allen Edmonds, Naturalizer and Vionic have significant runway to gain market share and to grow across channels, product categories and geographies. These 4 currently represent half of the Brand Portfolio and over 1/4 of our total company revenue with more growth to come. In addition to the Lead Brands, we have a number of other brands in the portfolio that reach unique customer segments while generating profit and cash flow. As active brand managers we will continue to nurture and invest in these brands at an appropriate level relative to their size and growth profiles. And each of our Lead Brands have been transformed and readied for accelerated growth with clear strategies to optimize our ongoing investment. So here is how we'll grow. We will continue to leverage our competitive advantages in brand building, superior product and innovation and compelling consumer experiences. For example, we are using marketing and analytics to acquire new customers while retaining and driving lifetime value of existing customers. Keith will talk about later about how inclusivity is helping Naturalizer engage with a broader audience of millennial women. We will expand product categories using our capabilities in design and innovation, like Sam Edelman, really exploding his sneaker category, Vionic growing at leisure and Allen Edmonds expanding casual. We will accelerate growth from our own e-commerce and retail, where we have a direct relationship with the consumer and with select strategic wholesale partners. And we'll expand across geographies with faster growth coming from our international business. You'll get to hear today from each of our Lead Brands about their strategic growth initiatives. Now let's turn to our retail brand, Famous Footwear. We expect Famous Footwear will drive profitable growth and generate significant cash flow. We've developed an ambitious and yet achievable plan for the future of Famous. We believe our current position as a retailer of choice for the millennial family and our unparalleled position in kids footwear sets us up to win going forward. So let's walk through some numbers. We have 22% and growing market share in the shoe chains at Famous Footwear. When you look at kids, that goes up to 28% of kids in shoe chains. Our leadership in kids is powerful. It represents about 20% of our business in kids styles, plus, if you think about it this way, according to Circana, when you account for kids who wear adult sizes and I'm sure some people can relate to this very well, the penetration of kids under 18, their estimate is that it's a full 30% of our business. We have the best brands for the millennial family and our national footprint of mostly off-mall stores positions us as the most convenient as well. So becoming the best footwear for the retail best footwear for retail -- best footwear retailer for the millennial family means we will build upon the competitive advantages I've mentioned across brand, product and experience, specifically, we will amplify Famous Footwear's brand messaging so that it remains top of mind and highly relevant. We will elevate our product assortment to better meet the needs of the entire family with a more balanced assortment of fashion and athletic. And we will enhance the consumer experience, which includes a more personalized and inspiring shopping environment both in-store and online. And Mike will take you through later how this is all coming to life at Famous Footwear. Our third message today is that our unique and synergistic structure sets us apart from our peers. The competitive advantages and capabilities that we have built over the last 145 years, and which we have strengthened through our recent transformation process enables us to build brands profitably and accelerate growth. As I've said before and this is a great slide that I think shows how Caleres all works together, the whole when you look at it from the inside is really greater than the sum of the parts. Our unique structure and our foundational elements support and fuel our growth. So there are 3 key accelerants, our capabilities, our synergies and our team, and culture. So our scale today allows us to support our brands and Famous Footwear with best-in-class capabilities that might not be possible otherwise. I'll begin with sourcing and logistics, which our capability here is strong and getting stronger. We not only manage well through a period of unprecedented disruption but we also significantly improved speed. We are now closing in on our goal of 20% of our receipts coming from speed programs. And we're now able to get back into best-selling styles in 90 days or less with quality and scale across all brands in our portfolio. On the digital, marketing and analytics front, we are driving deep connections with our consumers, and we are investing in new technologies to broaden and deepen our consumer reach. We have also positioned our company and team for global growth. We have built a network of both new and existing partners as well as new and existing team members to drive a stronger result. And while this is a smaller portion of Caleres today, it offers one of the greatest potentials. You'll be hearing more from us in the coming months on this front. And finally, what powers all of this is our technology platform. From our own e-commerce to our recent launch of our CDP to our common platform integration and planning and forecasting tools. All of these allow us to operate with confidence and deliver with excellence. These best-in-class capabilities reflect investments made over many years and still being made that many of our brands would not be able to afford on a stand-alone basis but they benefit from them significantly. So we also have significant synergies in our organization. First, our large consumer file, Jenny will talk to you today, but the headline of that is that we have about 56 million consumers in our file. And how -- she will tell us how we have built a cross-portfolio marketing ecosystem to take advantage of this powerful asset. Second is our investment leverage, our business benefits from investments in our capabilities and our shared services. Third, our structure allows us to deliver strong financial results and reduces volatility and we deliver more consistent performance from it. And finally, vertical integration, a topic that I'm very close to. I'll go into detail in a little bit, more detail right now. Kind of bears taking a moment to look at the unique synergies between our Brand Portfolio and Famous Footwear and these synergies are only going greater as we move forward. Vertical integration provides Famous with greater access to fashion products from brands that resonate with their consumer as well as greater ability to flex with trends, differentiate versus competitors and provide superior profit potential. The brands were kind of focused on like Dr. Scholl's Naturalizer, Blowfish Malibu and LifeStride gained more than just distribution and profit from Famous. They actually gained more consumers, brand awareness and an ability to test and learn. Perhaps 1 of the examples of the synergy, maybe 1 of the best ones will be the launch of Sam & Libby, first of Famous, which we'll hear more about from Sam himself later on in today's presentation. At an enterprise level, Caleres captures a high gross margin on brand sold vertically, which will expand our vertical penetration. So none of this would be possible without our passionate and driven team, and our value-driving culture. We benefit significantly from our merchant-led design-focused organization, which gives us enhanced visibility across many channels and categories. Our people are agile, smart and possess great expertise, which they share openly. Caring and learning our values our teams prioritize. Our portfolio structure provides our team with opportunities to advance other brands or functions and to share their knowledge with teammates. We have invested and we'll continue to invest in people. Ambition to action is 1 of our mantras. Perhaps it's really my mantra, but -- and it's something that's really circulating to the building really nicely at Caleres and it infuses every part of our culture. We like to say that we don't manage to budget. We manage to ambition. And what that means is that we're constantly reading, reacting in order to seize new opportunities and using speed to fuel them. Natelle will share a great example of this in Vionic. Edit to win is another 1 of our mantras, and it simply means taking fewer, bigger bets. It applies across the organization to assortments, to brands, to inventory buying, to marketing campaigns or simply prioritizing where we focus our energies and our resources. So the net results of our operational strategies and investments will be strong financial performance. The Brand Portfolio is not only achieving record earnings this year but will also comprise 50% of total company earnings this year and 60% by 2026. Famous Footwear will continue to grow, but its earnings contribution will be lower than the Brand Portfolio going forward. This is a game changer for Caleres. Earnings driven more by our brands than by Famous Footwear and it really represents solid proof that we have planned and executed a transformation of our company's performance. We have plenty of runway left for our brands to grow and Jack will walk you through the financial expectations in 3-year outlook in more detail. So I hope we will walk away today with a new appreciation for our brands, our structure and our future growth potential. And now I get to leave the stage. But as I said, we'll hear from each of the Lead Brands and their strategies and their growth ideas. So the first of today, you will hear from the Allen Edmonds team. Last year, they celebrated the brand's 100th anniversary. And last quarter, they delivered their tenth consecutive quarter of growth. So I'll repeat what I said then. There's a lot to be excited about at Allen Edmonds. [Presentation]

I'm back. Let's thank to the Allen Edmonds team for that great overview of their brand. I think this was fantastic. So the next lead brand we're going to hear from today is Naturalizer. So I'd like to welcome Keith Duplain, he's the President of our Brand Portfolio in St. Louis. Keith? [Presentation]

It's amazing to work with Angelique. She inspires all of us and her passion for this brand. Hey, I'm Keith Duplain, I'm the President of the Brand Portfolio. A lot of brands talk about being purpose driven. Naturalizer has its origins and purpose. Our purpose is putting women first. One of the ways that we've done this is by delivering comfort. We have a great saying, comfort that's why we exist. for nearly 100 years it's been our privilege to be stewards of this great brand. We are now introducing Naturalizer to a new generation of women through product, innovation, brand messaging, experiences, and points of distribution. Over the last 4 years, we've fundamentally transformed the Naturalizer business and it all started with the consumer. Our research identified an opportunity with the consumer 2 generations younger than our current. And our comfort proposition resonated as much with this younger consumer as with the consumer we already have. We call this younger consumer, the confident explorer and she is amused. Defining our consumer was only the beginning. We upgraded and improved our product, our consumer shopping experiences. We closed 150 Naturalizer stores, prioritized premium wholesale distribution and invested in e-commerce. We created collaborations and marketing experiences to reach new and younger consumers. To share a couple of the success metrics since 2019, we've gained market share and we improved gross margins by 900 basis points. Our product focuses -- our product strategy focuses on 3 pillars: Inclusivity, icons innovation and culture. These pillars drive relevance, discovery, engagement, brand advocacy and of course, sales. Inclusivity, inclusivity is a critical element in the Naturalizer DNA. putting women first means that we strive to be the most inclusive women's fashion footwear brand. We offer more of the latest fashions in wide calf, narrow calf, smaller and larger sizes and mediums and wides than our competitors. In fact, 30% of our wholesale volume comes from extended sizes and widths. We offer varying shades of nude. In 2024, we'll be expanding our True Colors collection, offering 29 style color combinations in a broad range of skin tones. Our pillar of inclusivity has broadened our appeal, driven consumer loyalty and created additional opportunities for growth. A key part of our strategy is also our brand icons. We define these shoes that are proven at retail, have strong consumer engagement, a star rating above 4 and are top sellers. We invest in marketing and inventory to support these, building them into franchises for the brand. This merchandising approach is part of that Caleres Edit to Win where we make fewer and bigger bets with the goal of product relevancy and conversion. Naturalizer icons represent 31% of the volume and premium distribution. Talk about Gen N is our platform for innovation and culture. It's how we stay relevant. It helps us reach new consumers. It extends our brand into new occasions and provides content to tell bolder stories. To highlight a few of the innovations with meaningful commercial outcomes Contour Plus, it uses the shape of the woman's foot and designing shoes that work with her natural movement. Wide calf boots. We completely redesigned our [indiscernible] last to deliver the perfect fit for women. We created beautiful fashion boots that were also waterproof at the request of our consumers, and she absolutely loves the functionality. Gen N is also a platform for cultural engagement. It's our platform and partnering with other purpose-driven brands. These partnerships are an accelerant to our business, enabling us to reach new consumers. Pnina Tornai, she helped us reach an entirely new audience with a social occasion and wedding footwear. Universal Standard has given us access to extended size consumers. And coming in spring of '24, Live Tinted will expand the reach of our True Colors collection. We showcased all these great stories through our D2C and wholesale channel experiences. The most robust expression of this work comes together on naturalizer.com. Leveraging the Caleres digital capabilities we bring the brand to life to engage consumers more deeply and drive sales, naturalizer.com is, in fact, up 6% in the first half of 2023 and we're additionally seeing strong repeat purchases, especially among millennials. In September, we'll be -- in September, we launched our loyalty program, Naturalizer Insider. And in 2024, we'll begin leveraging the Caleres consumer data platform, which Jenny will tell you more about in a little bit. While we're pleased with the progress, we know there's a lot more opportunity ahead for the brand. And the brand is getting noticed. This is a small sample of the press clippings that show our brand and products and how they're resonating with both media and consumers alike. It's my favorite from Vogue Naturalizer, a sleeper shoe of the summer. We're incredibly proud of what we've achieved at Naturalizer over the last 4 years. And as you can see by these metrics, the business is fundamentally changed. We've reduced promotions. We've increased AUR. We've improved gross profit. We've achieved star rating, consumer ratings of 4.1%. We've shifted the store consumer to our website and other premium outlets and we are now the #12 women's fashion footwear brand on Circana. We're up 6 spots from 2019. The next chapter we want to grow. As we extend our reach across consumers, products, channels and geographies, we have opportunities with inside our own D2C to continue to grow, opportunities with inside of our existing and new wholesale partnerships. We have international customers in existing countries and in new markets yet to develop and, of course, by doubling down our efforts to reach more confident explorers. For nearly 100 years, Naturalizer has been a purpose-driven brand. Today, that same purpose and mission drives us. We put women first and strive to be the most inclusive women's fashion footwear brand. Thank You.

Thanks, Keith. Next, you're going to hear from Natelle Baddeley. She was recently named Chief Design & Product Officer for Caleres, a new role within the organization, and she's going to walk us through the Vionic brand. Natelle?

Thank you, Logan. I'm happy to be here today to talk to you about Vionic, the brand where science sets you in Motion. Vionic has always been about wearable well-being for your feet. Vionic meets the consumer's desire for solution-oriented products. We spent the last 2 years readying Vionic for growth, using our legacy technology and bringing it forward across product and content. [Presentation]

Mesmerizing, what you just saw was how science sets you in motion. But first, let's talk about our origin story. Every once in a while, a product comes along that changes everything. That's exactly what happened the day and athlete walked into our founding partners podiatrist office wearing this shoe. His custom orthotic dictate to a regular sandal. This was our first prototype. This was our an aha moment. We went from revolutionizing medical orthotics to begin engineering a more dynamic shoe and a more aesthetically pleasing shoe. Today, that science continues to lead us. Vionic is unrivaled as a technology-first fashion footwear brand. Our founding mission of science infused shoes that improve your everyday remains Vionic's unique authority. We are delivering wearable wellness to the modern consumer and we're exceptionally well positioned to capture the outsized growth in the well-being movement. We're fortunate that our original idea, which was revolutionary in 1991, is every bit as relevant now. Vionic has always been about delivering product at the intersection of performance and prevention, which we're now packaging with style. Our footwear is designed to promote balance alignment, injury prevention, improved performance and recovery aid. But our unique difference is that we meet the wellness seeker through motion. Our shoes are made to move and keep you balanced. As we transform this great brand for the future, our responsibility is taking its wearable tech and interpreting it to meet the lifestyle needs of the modern consumer. As a result, we established Vitals, our iconic styles, customer favorites and essentials for their shoe closet. We franchised VRX, our Recovery collection and more to come on that in a moment. We began maximizing the performance walk category. A category often recommended by podiatrists, and the first point of contact frequently for the brand, and we introduced new casual athleisure hybrids. Let's talk briefly about Vitals and why they are a priority for our brand strategy. Vitals, our big breakthrough sales driving items curated to lead, given marketing prominence and inventory depth, year-round essentials offered in season, right colors and materials. The Vitals collection captures a greater share of per-shoe closet and supports her lifestyle. The uptown mark. This showcases Caleres, One Caleres at its best, design, sourcing, speed, marketing, working in unison. From a design and construction standpoint, this is what it looks like to really put science first. We invented 360 flex, a technology to uniquely combine with our Vio Motion System, to provide outstanding support and alignment, we added a glove like deconstructed soft upper, which molds to your foot. When you take all of those things together, you have the ultimate travel shoe. And while it's lightweight and flexible, it's uncompromising in delivering superior functional benefits, and is also our most sustainable shoe to date. The uptown mark is Caleres' #1 shoe in weekly retail volume, and it got there fast because we expedited it through our speed-to-market process. Early reads on this shoe was so strong that we sped up production to bring it to market a full season early. In addition, we are continuing to use Caleres speed program to react quickly to the strong consumer demand. We're creating extension styles, expanding the choice into new categories and across men's. This type of fast success didn't happen a few years ago at Vionic. We are talking about a brand-new shoe in #1 in 5 months. To amplify the uptown, we're pushing our communications and multiplying our ability to be seen. And to drive velocity, we're utilizing impactful PR, targeting direct mail, e-mail, paid social and point of sale. Another great example of our product innovation is in the Recovery category. And I -- and this is our VRX technology, and it's unlike any other recovery slide, this -- which provides just cushioning. It is what we call a dynamic system. We made a leapfrog product in the recovery space, which is smarter than any other recovery shoe. It fits the shape of your foot accurately, has adjustability and the textured footbeds message for improved circulation. It provides alignment support with dual density zoned cushioning. And this delivers what the foot actually requires to truly recover, something cushioning alone does not do, and it's a dream to wear. VRX is available in casual and sports styles for both men and women. Additionally, this sport focus moves us into new channels of specialty distribution. It's our goal to develop new technology to bring breakthrough product creation is about continuous innovation never standing still. Vionic is transformed for growth. The power of Caleres has delivered a new proven leadership and design team. We've completed a rebranding, modernizing product aesthetic and marketing tone. Our new campaigns evoke the Northern California way of life, effortlessly casual, basking in the Northern California [indiscernible]. Our powerful message is resonating with consumers. Our customer file is growing. Brand awareness is up, Vionic is acquiring a younger audience and purchaser whilst retaining our existing loyal consumer. We've aged the consumer down 5 years since acquisition. Our AUR is increasing, proving that we are commanding more for our authoritative product. As we think about our growth strategies, our aim is to apply our winning formula and expand into the men's market. We will continue to disrupt the wellness space with breakthrough product innovation and we'll use our marketing to drive hype and sales momentum. We will be optimizing our wholesale distribution. We see growth and independence and strategic wholesale partners, and we'll be driving new business opportunities internationally. Imagine a shoe that can infinitely enhance your day, science infused shoes that can improve your everyday just by wearing them. Now that's life-changing. And for Vionic, it's the launch pad for growth. Thank you. [Presentation]

We'll now hear from Jay Schmidt and Sam Edelman for a fireside chat. Welcome, guys.

So I have to say that becoming CEO, 1 of my greatest privileges is now I get to work with Sam really closely and in addition to getting to work with them, I'm also a huge fan. So it works in all different ways. So.

Thank you, Jay. The feeling is completely mutual.

So -- and again, it's so much fun to ask the question. It's actually been something else. So I'm really enjoying this one. But anyway, Sam in a world full of fashion trends, how do you continually break through year after year and find something unique every season?

It's funny because I was talking to Keith earlier and telling them how tired I am right this minute because we just came back from Europe, and we're working on new trends for fall '24. I think something that we do that's very unique and very special is the team of people that we've built. And with very, very little turnover, people stay a long time but people start with us right out of school. And I make with Libby and with my team 2 or 3 trips a year to Savannah, Georgia to meet with young design students and tell them about Sam Edelman, and wind up bringing them to New York to work with us. I just came back from Europe and I had a fascinating group with me in London, a 23-year-old person who just started right out of school and a couple of other more experienced and mature people. For Libby and I, I think our greatest pleasure and 1 of the great things that draws us to work is working with young people, young people keeping the company, fashion right, trend right and hopefully, that's the future of the brand.

So you're often disband as aspirational modern luxury. And so probably hearing what is that to you and who is the customer from your perspective?

Yes. I think that we don't kid ourselves. We understand luxury, we study luxury, real luxury, which is top-end designer. But we don't believe that everybody has access -- financial access to top end luxury. Our strength is to bring the feeling of luxury to our customer. And our customer is a department store customer across America. We know her. We live with her. We understand how often she takes her Pilates, how she does her hair, her makeup, how many kids she has, and we really study it. We travel across the country. We do have a lot of personal appearances. We do fashion shows and we really get to meet her and understand her.

So thinking about that and thinking about really how you spent your time during the pandemic because each of our brand teams were not as together as they could be but I know it was a great time of actually reinventing way and just really new learning for you. What did that really mean to you? And what do you think with the greatest learnings coming out?

That's a great story because obviously, we had to close our offices for a while. So I opened a regional design office near our home in Northern Westchester . And I invited to young people to work with us. So it was just 4 or 5 people in that office, Libby and I and we were kind of like old workhorses. We still want to work at 8:30 and we still left at 5:30. We're just in a little office. And I think that is where the maturity that we have as leaders really came in. And that was to put blinders on our eyes not to look left, not to look right, but -- and not to get scared. And during the pandemic in a sense, I think we reinvented a lot of the brand. We believe that we could upgrade. We believe that we could raise our prices 20%. We believe we could go from paper boxes to boxes that are made like luxury with silicon and we did all sorts of things. We reinvented new logos. We thought a lot about our customer. And what was going to happen when she came out of the pandemic and we were convinced the first thing she was going to want to do was get rid of her sweats and her stretch and go out and have drinks and go to parties and get married and do things like that. So we concentrated on upgrading our logos. And I remember sitting there in this barn thinking about her coming out of the pandemic and being at a wedding when women often will drop the heels of their shoes. In other words, they're sitting there and they sort of bring the -- they just dropped the heel to get a break, what do you want to see? So we changed some of our logos in our dress areas to something much more she can, and it's been well accepted.

I think the I was amazed really coming back into it being a way and then coming back and seeing it, and it was so powerful and one of the other things just thinking about it is what you did with your icons during that time frame in terms of upgrading. And I always think that when I first met Sam, it was really this important about really this iconic shoe that was really represented to you. And what do you think goes into building an icon? Do you design them? Or do they just emerge? Or what -- tell everyone what your process is really?

Yes. I remember when I came out of retirement and Libby and I started as Sam Edelman, and somebody said to me, why don't you just design another [indiscernible]. The [indiscernible] was the biggest shoe we've ever had and 1 of the bigger issues in the industry. And I remember being very upset with that person because I thought that how do you say that? That's just -- you wouldn't say that to Michael Jordan, just find another athlete like you, its rude. Libby and I have had a lot of what we call big shoes. And big shoes is what I have to say that #1 is working with my family and with young people but #2, in my life really, really is developing big shoes. And I think we've had today 17 shoes that are above $1 million pair each, which -- it's a very big number in our industry. You don't design a big shoe. The same way you don't go to the gym and just work on your biceps. You have to go to the gym and work on your core. Your core supports everything else that you're doing. It is important for us to be in Milan as it is to be in Soho. It's as important for us to look at beauty and fashion and really understand what's happening. We always go back to our basics. We always go back to fashion. Fashion leads us. We develop big lines every season. But of course, we always have a focus. And quite honestly, I think we know -- I think we do know what's going to be the big shoes. Historically, and I think the advantage that both Jay and I have with our backgrounds as shoe man is we know what to do when we have a big one. We know that fit, quality and comfort. We know that the factory is so important, and we know that we have to get ahead of the shoe before the competition gets us. And I would say that we are -- that's what we do the best. And I've worked with my teams, my teams understand it. I'm very, very fortunate that Libby and I have our son running all the operations of the company. He's 40. And if you stop them and ask them how long he's been in the shoe business, he'll give you the greatest answer you've ever heard, which is 40 years. He started as a stock boy and went from being a stock boy to a salesman at Nordstrom's, time with Kenneth Cole and he knows what to do, as does the rest of our team.

Absolutely. And I always say I love when Sam and I talk about how many we should buy if something I said, maybe I don't know for feeding each other, but the number always goes up is what I would say. So your international business is starting to really gain traction, and it feels and looks really good. How do you envision that business continuing to grow? And do you do anything special to service the global consumer?

We were introduced to a terrific team of people in China about 2 or 3 years ago. And today, we have, I don't know, 55 stores in China. I think we'll have 150 stores in China in the next couple of years. We have a team of people really what we have is a partnership with our Chinese joint venture. And we've duplicated our American stores to [indiscernible], they're identical. We're working very, very closely with the merchandising teams in Asia to be sure that we have the right product mix all the time. We've opened in Israel, Mexico City and many other places across the world. Freestanding stores, we're opening in Dubai. I believe that the global expansion of Sam Edelman is huge. I never dreamed that I would hear people talking about the American designer Sam Edelman. And I am an American designer and the -- it's really working globally.

Well, we knew you were the first that would go faster and further in this, and it's really been great that you've led toward that. There's also been a huge swing toward digital and your digital business, in particular, has grown dramatically is what I would say. So as someone who's been in the industry for 45 years, how do you envision the experiential story of Sam Edelman going forward?

Yes, the experiential story goes quite honestly, it includes direct-to-consumer, it includes retail. But it also includes many, many other things. If you walk into our office, which is, by the way, made totally with recycled materials, it's totally sustainable product and that office is 10 years old. It's not 6 months old. And in that -- in the surrounding, the average age is 27, 28 years old. We have access to young people telling us what's happening on TikTok, Instagram, and what they're seeing and believing in. Not only has our direct-to-consumer business risen dramatically. We've got a fabulous team of people on that. We've now expanded our direct-to-consumer to Canada, which is a wide-open opportunity for us and we're working very closely with our direct-to-consumer team in China, but we also do many, many other experiential things. So point of sale, which means the opportunity to reach our customer through the department store environment and we're opening Sam Edelman shop-in-shops across the country. Our increase in specifically with our biggest customer is between 20% and 50% when we go to a shop-in-shop. And we now have them in, I don't know, maybe 25, 30 locations in America and going to at least 100. 34th Street is one of the great examples. North Park is another one in Dallas. And the list goes on. In addition, we're doing wonderful experiential pop-ups where we introduced the brand to people that maybe don't know us that well or in strategic locations where we want to continue the aspirational journey of the product.

So your first autonomous brand, Sam & Libby is relaunching this spring at Famous and other retailers. Talk about your concept and your approach for Sam & Libby, and what the opportunity is?

It started in December of 1987 and it's just it's been incredible. The brand has been the #1 junior moderate brand in America. It's expanded, and it's been in many, many different retail partnerships. And I really felt it was time to reinvent Sam & Libby. Very, very different than San Edelman, our main brand, very different than Circus, our younger, more aggressive brand. I thought there was a place where Sam & Libby really began, which is the family shoe channel. And I think that there's this [indiscernible] quality to the name Sam & Libby. People just love it. And they're very -- they're always excited about Sam & Libby. You never hear someone say, I saw it on sale. They just say how much they love the product and they just love the brand. We reinvented it. And I think the thing I'm most excited about Sam & Libby is not only did we reinvent it but we had a home for it to launch it, which is Famous Footwear. But it's not the first time that Sam & Libby has been in Famous Footwear. It was a huge brand in Famous in the past and working closely with Jay and the rest of the team. We put a very, very strong organization in Sam & Libby, fabulous product people, great sellers. And yes, I am very excited about the relaunch of that brand this spring.

Well, I'm obviously biased, but I think it's going to be great. So I'm really excited, and I can't wait for it to come. So I can't believe it but Sam Edelman is celebrating 20 years in 2024 and 16 of those which have been with Caleres. And I remember, I actually joined Caleres at the same year that Sam came into the company, and I don't know where the time in but it's here, okay. But what does your partnership meant to you? And then also, I'd love you to tell everyone because I've obviously have a little more vision into what you're doing and how you're celebrating it, but I think it's going to be so exciting. So I'll let you just run with it.

I remember when we were first exposed to brand shoe company at that time, Caleres, and we were invited to visit the China office, Sam Edelman had just started with 5 or 6 key people, key founders, and we are in China. And we were working almost in garages with the original product development. And we're invited to the Browns Shoes headquarters in China. We walked in and within 3 minutes, I'm standing in the most high-tech room I've ever seen. And there's robots wearing shoes walking, testing the how the heel hits the ground and how they wear and how the fit is and I looked and I said, this is the future for us because we will hit the trends. We will know we'll hit the trends. We have the relationships. But if you can have the best product in the world, the best fit, the best quality and opportunity to get in the best factories, this business could really explode. Caleres, under the [indiscernible] and leadership now of 3 CEOs that I -- that we've worked with has given us the opportunity to truly manifest our vision our creativity. We have a replenishment program, which means that of our 12 key icon shoes, we carry those shoes in warehouses and we're able to take reorders and keep the levels of the shoes consistent in the stores. This is something that would be impossible to do without the power of Caleres. When we have new ideas, we're able to execute them in 3 to 6 weeks, 7 weeks. When we wanted to get in the sneaker business, we were able to move into it in a period of months, not years. And all of these things we take advantage of all the time. The Head of Sourcing has become 1 of my closest friends, and we work hand in hand now for almost 20 years developing what we've done. We have our 20th anniversary. It's a very, very exciting time. I just think green when I think about Sam Edelman. I think about the original green color, I think about how Libby and I really believed in saving the planet and all the kinds of things that today everybody is talking about, and we founded the company with the green color. I plan -- our plan is to go across the country and celebrate our anniversary with our consumer. Our plan is to celebrate it in Hong Kong, Shanghai and other cities in China. Our plan is to launch one of the most exciting ad campaigns that we've ever had to establish a new face for Sam Edelman. And I think it's -- I think one thing I wanted to mention earlier is I have the greatest respect for my competition, of course. However, I believe that there's more void and more opportunity today than there's ever been for our brand.

So I think you can see, first of all, why I'm so excited, not only to work with you, but I'm so positive about the growth and ideas coming through here. And I could go on forever. Every time I go to the Sam office, I come back and think, "Oh my God, it can just be even bigger." So Sam, I just want to say thank you for coming over and really being my partner. Appreciated.

Thanks.

Thanks, Sam. Thanks, Jay. So after a 10-minute break, so a quick break, we will come back with Mike Edwards from Famous Footwear. And then we'll also hear from Jenny Olsen and Jack Calandra. So be back in 10 minutes, and we will get started. Thank you. [Break]

Okay. Welcome back. We're going to start our second session with a review and overview of our retail brands, Famous Footwear. So I'd like to welcome Mike Edwards, President of Famous Footwear.

Thank you, good morning, everybody. It's great to be with you today. Before we get started, I just want to talk about how excited and proud I am of all the work that the Famous team has put in over the last couple of years to really set us up in a great position as we look forward in the next 3 years. We have a short video that we've pulled together that will give you an overview of our brand, our consumer, our strategic efforts and our wins. And above all, you'll see what we're doing to champion everyone in the family with an emphasis on kids. So if you could play the video. Thank you. [Presentation]

We continue to focus our strategies and resources on making Famous the destination for the millennial family. And the numbers tell the story of our success over the last few years. Since 2019, sales increased 7% with 9% fewer stores. Our brick-and-mortar business is up 3% and with the lower store count driving sales per square foot and sales per store up 13%. Our digital business has increased 47% over that same period and represents 14% of our total sales. While this has moderated since 2020 and the impact of the pandemic is still meaningfully above pre-pandemic levels and has become an essential component of our valuable omni business. We currently own 22% of the shoe chain market, up 1.2 percentage points from 2019. We're extremely proud of this market share growth but perhaps even more notably, we've delivered exceptional performance in kids with market share up 1.9 percentage points over that same period. In fact, we've captured 28% of the market share of kids within the shoe chain category. And we have plans in place to build on the strength and cement our leadership further. While sales have improved $117 million since 2019, our gross profit dollars are up $114 million, driven by a 500-basis point improvement in our margin rate. This improvement has been driven by less reliance on lower-margin promo offers like BOGO, better inventory management to reduce the penetration of clearance product and an increase in assortment that is excluded from offers. Today, more than 50% of our brands and styles are excluded from promotions. We've delivered significant growth in our operating earnings, up 144% and operating margin, which was 11.5% in 2022. We expect another strong operating margin performance in 2023 and believe we can sustain high single-digit operating margins over the next few years. As you know, at Caleres, we focused on sharpening our approach to inventory buys and driving improvement in inventory turns across the organization. And this is no different at Famous. Our inventory turn has improved 7% versus pre-Covid levels. At the same time, we're getting behind key trends and brands in a big way, using Edit to Win to make fewer, bigger bets on the right items and brands. As an example, this back-to-school season, we increased our kids inventory by 24% compared to a year ago, ensuring we could capitalize on this important demand season with the right brands and styles for our youngest consumers. The success we have had improving the performance at Famous goes back to our relentless focus on our target consumer, Christina. You met that millennial mom in our video. She wants to be able to shop anywhere at any time, and she approaches every interaction with retailers and brands with the assumption that she'll find relevant content and an easy shopping experience. Consumers like Christina spend more, they shop more often and they remain loyal over a longer period of time. When she shops at Famous for herself and her family, her value to us increases. Getter to shop both in store and online, we see yet another escalation in our spend in our lifetime value. Christina's primary purchase motivation is her kids. Even when the family budget is under pressure, she prioritizes shopping for her kids, and it's a dynamic we are clearly seeing this year. At Famous, our current our business -- our kids business, sorry, currently represents 21% of our total and that penetration grows by 10 percentage points during the key back-to-school season. It's important to note, and I think Jay mentioned this earlier, that, that 21% penetration only includes sales of kids shoes and doesn't represent consumers that are under 18 but already in adult sizes. Circana estimates that when you include this important consumer cohort, our kids business is actually 30% of our total sales. This year, our kids business is outperforming the total business by 10% compared to a year ago and continues to be a key differentiator and a top priority for us all year long. We are placing a great focus on this important business by making outsized investments in inventory to support the hottest brands and items and make sure we have exactly what our family shoppers are looking for. Beyond the inventory investment, we are making the kids business a critical component of how our associates connect with our customers, including ensuring every child finds the perfect fit. Our investments in new and remodeled stores over the last few years prioritized an elevated experience within our kids department and our charitable partnerships with Ticket to Dream and Soles4Souls send a light on kids in need. Christina and her family love brands and Famous Footwear is known for our strategically cultivated assortment of iconic national brands. Put it another way, there are no private label brands at Famous. We curate the best brands across athletic and fashion categories that still let each member of the family show off their unique style. We've distorted top brands in our assortment to enhance our appeal to the millennial family. Today, our top brands represent 78% for sales, were 64% in 2019. Our top brands connect across the family. From key athletic resources like Nike and Converse to premium fashion brands like Birkenstock and Dr. Martens. We reached Christina through our stores, our website and our omnichannel capabilities. All of which makes shopping at Famous convenient and engaging. Our nationwide store fleet is primarily off-mall and aligned with consumer shopping trends. About 55% of the U.S. population are 70 million households live within 10 miles of the Famous Footwear. We've invested in our store footprint, reimagining the space beyond the notion of functional reframing how the experience can not only be shoppable but also enjoyable. Our newest flare format has oversized immersive pinwheel displays that showcase newness, emerging trends, seasonal offerings or high-demand brands and products. In addition, new digital displays deliver energy and inspiration through site, sound and motion, and tech-enabled touchscreens allow consumers to browse more styles online and trigger an online purchase. We've tested this new prototype in a variety of different centers and different formats to determine which formula drove the highest impact. We now have a blueprint for what works and have seen a 5% lift in the go-forward format. And we've invested to improve our consumer experience on our website, providing a personalized and relevant experience to those that transact online or shop before visiting their local store. According to a recent survey by Google/Ipsos Connect, 66% of U.S. consumers say they prefer a mix of online and in-store shopping. Christina is searching online for both inspiration and to find the right shoe at the right price nearby. And she's often heading into the store to make that final purchase. We understand and encourage that behavior because at Famous, our omni shoppers spend 2x more than those who shop only online or only in store. As we look ahead, we are focused on and committed to 4 key brand strategies to continue to build on our wins and drive market share growth. First, kids has become a key differentiator for Famous and a way in with our target Christina, not just at back-to-school, but 12 months a year. Our opportunity is to drive higher annual and lifetime value by getting more of our self-purchase. We will drive this through product and content that connects with her emotionally and at the same time, balancing for her and for her family. Second, we're leaning into our best brands in most iconic styles from an inventory, a marketing and a store presence perspective. And we continue to work with our current partners to drive more premium product as well as building relationships with and bringing in new in-demand brands to our assortment. Third, we are balancing our assortment, as Jay mentioned earlier, by increasing the mix of fashion to achieve a 50-50 balance between athletic and non-athletic. This allows us to flex into different categories. So we are poised and ready to respond to what's trending. It also positions us to capture more of Christina's self-purchase spend by offering her a broader assortment in categories like casual, dress and seasonal. Our fashion strategy also ties directly into our One Caleres strategy to increase the vertical penetration at Famous. Caleres brands represent about 6% of our total sales today. We expect outsized growth from vertical brands going forward and are supporting the effort with a new team, including a dedicated buyer to lead the vision for Caleres brands across women's. And this also will include, as Sam and Jay talked a little bit earlier, a new launch of the Sam & Libby brand reimagined at Famous -- coming to the Famous stores in February '24. Our target is to achieve 10% of Famous sales by 2026. More meaningful than the sales impact, though, is the margin. Sales of our own brands have an all-in brand margin rate of 66% when compared to non-Caleres brands at less than 50%. And finally, we are investing to deliver a more engaging and inspiring experience across the omnichannel. As I outlined earlier, we have and are continuing to invest in big changes to enhance our in-store experience through our new flare format with 11 open today and another 20 coming later this year. These investments also support our efforts to continue to attract new and in-demand brands. Going forward, we are confident in the health of our fleet and expect openings to approximate closures. We proactively manage our leases and continuously look to upgrade locations within our top DMAs. Nearly 50% of our store openings over the last 3 years have been relocations to improve our positioning in these key markets. We also believe we have opportunity in under penetrated markets like the Southeast and small urban markets or suburban and rural markets where we typically see higher profitability. And we will continue to serve our consumers however she chooses to shop with us through our convenient and easy omnichannel and digital offerings. In summary, we're excited about and encouraged by the opportunities we see for sustained growth at Famous. We have made significant progress since 2019 and the strong foundation will enable us to further our strategic efforts, grow market share amongst our competitive set and be the #1 destination for the millennial family. Thank you.

Thanks, Mike. Now we'll hear from Jenny Olson, Caleres' Chief Marketing Officer, and she's going to talk to us about the One Caleres marketing ecosystem in our 56 million consumer file.

Hi. I'm Jenny Olson, and I'm so pleased to be here today to talk to you about One Caleres marketing. Over the last several years, we've been building out a marketing ecosystem. At its heart is a massive amount of consumer data, 56 million consumers. We believe robust, actionable first-party consumer data is going to be a true source of competitive advantage, especially at a time when marketers can no longer rely on cookies for targeting and personalization. So we see these consumers as an asset, and we're focused on maximizing the value of that asset. As part of that effort, we've surrounded these 56 million consumers with deep competencies in digital marketing, loyalty, data and analytics, consumer insight and brand marketing. By centralizing some of these functions, we've concentrated and deepened our expertise, and we've attracted great talent. We're leveraging these competencies in a highly effective manner across the portfolio. These integrated functions now partner closely with their brand marketing counterparts. So we're bringing these competencies to bear in ways that are aligned with each brand's unique ethos. Now I want to go deeper on 2 competencies in particular. Digital marketing and loyalty. We're especially strong at digital marketing, and that helped propel our significant growth in D2C. Our Brand Portfolios owned direct-to-consumer businesses are up 50% since 2019. And as Mike mentioned, famous.com is up 47%, and in that same period. And this D2C growth is 1 of the reasons we have so much consumer data. The other reason is our strength in loyalty. We have about 860 Famous Footwear stores and we are very good at capturing consumer data in those stores, through our Famously YOU Rewards program, a program that's been around since 1996. Now 78% of Famous sales come from our Famously YOU Rewards members. We've taken that loyalty muscle at Famous Footwear and we're leveraging it across the portfolio in the programs at Vionic and Allen Edmonds. And just in recent weeks, we've launched entirely new loyalty programs at Naturalizer and Sam Edelman. So all in, these digital marketing and loyalty competencies have helped drive this 56 million consumer asset that sits at the heart of this marketing ecosystem. Now while we have a lot of first-party data, it was all sitting in separate silos. In May of this year, we implemented a customer data platform, a CDP. CDP combines our transaction data, website browse behavior, loyalty information, e-mail and social engagement to give us 1 unified view of the consumer. All 56 million of them. This first-party data is now clean, it's structured, and it can be used in combination with predictive models powered by AI to do entirely new things like finding the next generation of high-value consumers while simultaneously decreasing our customer acquisition costs. Reliably predicting, which consumers are likely to take a specific action like buying from a new brand or a new category at Famous Footwear and identifying the window in which a specific consumer is most likely to make another purchase or lapse so that we can intervene and take action and keep them shopping with us. To show you how all this comes together, not just in theory but in practice, I want to zoom in to a very specific example at Famous Footwear. As you heard from Mike, we have a very clear strategy at Famous Footwear focused on Christina or millennial mom. She's shopping for herself and for her family. We placed Christina at the center of everything we do. We're leveraging our very strong consumer insight muscle to really understand what makes Christina tick to get a sense of how she connects with Famous, and make sure we're always delivering exactly what she needs. Using our expertise in media and analytics, we also figured out that we could use kids product in paid digital to find new Christina's more efficiently. So we went after that opportunity. And this back-to-school season we use our own data, data in our CDP to power those campaigns and make them more effective. Now it's still early days but we're pleased to see improved media efficiency. On Meta, our kids campaign using CDP audiences generated 2x the click-through rate and 2x the return on ad spend versus past methods of targeting moms with kids. And on Google, we layered our CDP audiences into our kids search campaigns, and those campaigns resulted in higher conversion and sales improvement of 14% plus. While we're encouraged by these early reads and results, we're just getting started. We are in learning mode. In fact, we are continually testing and learning. You heard from Mike that we maximize Christina's value when we get her shopping for herself and her family. And when we get her shopping online and in stores, this will be a very big push as we go into 2024, but we've already begun using the CDP and AI-driven predictive models to inspire her to shop for more members of the family, increase our purchase frequency and keep her engaged with us over the longer term. We are on a path to personalization with Christina. As we hone our ability to serve up product and messaging that aligns with her needs, we expect our frequency and retention metrics to continue to improve. As we look ahead, we're implementing the CDP for our Lead Brands in Q4 2024 and we'll be applying what we are learning right now at Famous Footwear. We believe there is real opportunity at the intersection of our new competencies and the brand strategies you've heard today. At Naturalizer, we'll be better able to find extended size consumers who've proven to be more loyal. At Sam Edelman, our CDP will help us acquire and retain the valuable trend seeker. At Vionic, we'll be able to reach the next generation of younger wellness seekers. And in Allen Edmonds, we'll be better able to target personalized messages to our collectors and find new consumers who will behave like them. To conclude, we are actively nurturing our powerful brands and this incredible asset are 56 million consumers. We have leveraged our scale to build a One Caleres marketing ecosystem that includes competencies in digital marketing, in loyalty, data and analytics and consumer insight and brand marketing. All of this is underpinned by best-in-class technology, including a new customer data platform, CDP, and a powerful personalization layer. We will soon be announcing a new partnership with Bluecore that will further enhance our ability to deliver personalized e-mails to our consumers. We are evolving our tech stack. We're then our competencies, and we are constantly testing and learning. This One Caleres marketing muscle positions us to drive outside growth. We look forward to sharing the progress with you in the months to come. Thank you.

Thanks, Jenny. Now let's welcome Jack Calandra, Caleres' CFO to the stage. He's going to go through the financial review. Jack?

Well, thanks, Logan, and good morning, everyone. From the presentations this morning, you've heard from our different leaders about the brands, strategies and initiatives that will drive the business to new heights. When married with rigorous financial discipline, a strong balance sheet and a commitment to return cash to shareholders, we have a 3-year plan that delivers an attractive return to investors. Today, I'll walk you through the structural changes made over the last several years to double the baseline earnings of the company, the investments we've made and are making and the strategies that will provide continued profitable growth over the next 3 years. Before we dive in, a quick update on our guidance for the third quarter and full year that we announced this morning. We are reiterating our third quarter and full year guidance, although based on September sales, which came in below expectation, we now expect sales to be on the low end of the existing range for both the third quarter and full year. Specifically for the third quarter, we still expect consolidated net sales down low single digits versus last year and adjusted diluted earnings per share of $1.30 to $1.35. For the full year, we still expect consolidated net sales down 3% to 5% versus last year, including the 53rd week. Adjusted diluted earnings per share of $4.10 to $4.30, consolidated operating margin of 7.3% to 7.5%, interest expense of $17 million to $19 million, an effective tax rate of about 25% and capital expenditures of $50 million to $60 million. Before we look ahead to the next 3 years, it's important to take a moment to recognize what's been accomplished over the past few years and to understand the structural operating and financial changes we've made to the business. These changes have resulted in a $4 EPS baseline and provide a strong foundation for our plan. Summarizing some of the key financial accomplishments. You can see we've made significant progress since 2019. Specifically, we grew sales to $3 billion. We expanded gross margin 250 basis points, with both segments contributing to that improvement. We increased operating margin almost 300 basis points to 7.3%, again, with both segments contributing to that margin expansion. We more than doubled EPS to $4.52. We reduced debt by $228 million, including eliminating the long-term debt, and we returned $180 million cash to shareholders through dividends and share repurchases. Now let's turn to the structural changes that resulted in this doubling of EPS. Here, you can see that before the pandemic-driven loss in 2020 the business averaged about $2 EPS in the preceding 5-year period. With the structural changes made in the business, we are forecasting our third consecutive year of EPS above $4. Some have questioned whether the new baseline EPS was the result of pent-up demand after the pandemic. While there was certainly some benefit in 2021, that benefit was short-lived. But let me walk you through the specific operating changes we made in both the Brand Portfolio and Famous as well as changes to the company's financial structure and how those each contributed to this higher earnings baseline. Comparing the $2.10 EPS in 2019 to the midpoint of our guidance for 2023, you can see how much of the improvement was driven by operational changes and financial changes. Over this period, operational changes drove about 75% of that increase. In addition to the improved earnings, these changes allowed us to make critical investments in the business, the benefits from which we continue to realize. I'll unpack the specific operational and financial changes as well as the investments in the next slides. Starting with the operational changes, which drove $125 million of operating profit and $2.40 of EPS improvement versus 2019. In Brand Portfolio. First, we structurally improved the margin profile of the business through the Edit to Win initiative, which drives more volume through fewer SKUs. The speed program, about 20% of receipts are sourced through speed programs, which reduce inventory risks and markdowns and the distribution model where we grew more profitable D2C sales and exited low-margin makeup business. Second, we closed about 150 retail stores for Naturalizer, which was a dilutive channel for the brand. Next, we exited 4 brands that were dilutive to earnings. And finally, we streamlined the organizational structure of our smaller brands to drive efficiencies and improve profitability. In Famous Footwear, we closed over 100 underperforming stores, and we improved the margin profile of the business by increasing the number of exclusions from promotions. We now exclude about 50% of product from promotions. We've also made a number of financial improvements in the business. First, in terms of debt, in fiscal 2021, we eliminated our long-term debt and since then have been working to reduce borrowings on our asset-based revolver. These actions have reduced interest expense by $10 million, adding $0.20 to EPS. The contribution from this action would have been much higher but for the 500-basis point increase in interest rates. We continue to focus on debt reduction, given the higher cost of borrowing and the desire to maintain ample liquidity. Over this period, we also returned over $150 million to shareholders through the repurchase of 8.7 million shares. These share repurchases provided the remainder of that $0.75 EPS improvement. And given an average price per share of $17.86 these repurchases have delivered an attractive return. In addition to doubling the baseline EPS of the company, these changes have enabled $300 million of critical investments that will drive continued profitable growth. Highlighting just a few. In design and innovation, we invested in greater consumer insights and launched Cal Lab, which formalizes a process around trend research and translates the market trends into an application for each of our brands. In consumer experience, we made significant investments in both our physical and digital environments. We replatformed our websites, delivering a more personalized, immersive shopping experience for customers. We invested in our Famous stores through both refreshes and more impactful remodels with our flare design, and we invested in marketing technology and analytics. In logistics and distribution, we completed the insourcing and automation of wholesale logistics, which provided improved processing speed and a hedge against expense increases. We also expanded retail DC and drop ship capabilities, which have driven sales and profits through more efficient store replenishment and our ability to better service a more profitable channel within wholesale. And in IT, we're migrating to a cloud-based SAP architecture, to bring our retail and wholesale systems onto a common platform, which will improve business processes and provide efficiencies. With a solid understanding of the structural changes we've made to the business, the new earnings baseline and the investments we've made, I'm now going to turn to our financial plan for the next 3 years. Highlighting a few of the key metrics. At its midpoint, our plan provides for a 4% sales CAGR and adds $360 million to the top line. We expect the bulk of the sales and operating profit growth to come from the Brand Portfolio, powered by our Lead Brands Sam Edelman, Vionic, Allen Edmonds and Naturalizer, we expect about a 7% sales CAGR and operating margin expansion in this segment. We expect more modest growth in Famous, about a 2% CAGR, excluding the impact of the 53rd week on 2023. Regarding operating margin, we expect continued expansion in Brand Portfolio to 14%, up from this year's forecast of about 11%. This is driven by about 50 basis points of further gross margin expansion with the remaining improvement from SG&A leverage. For Famous, we expect operating margin to hold flat versus this year's forecast of about 8%. Our plan delivers strong EPS growth, a 13% CAGR and a $6 EPS by 2026. In a few slides, I'll show the algorithm that gets us there. Looking deeper at segment contribution to total Caleres sales and operating profit. Our 3-year plan increases the sales contribution of Brand Portfolio by 400 basis points and brings the 2 segments into a more balanced position. Both businesses grow but Brand Portfolio grows faster. With regard to operating profit, by 2026, we expect Brand Portfolio to contribute 60% of the company's operating profit. This is as a result of a higher sales growth rate and greater penetration of the direct-to-consumer channels in that business, which are more profitable than traditional wholesale. Earlier, Jay and the leaders in Brand Portfolio and Famous shared with you their key growth strategies. In our 3-year plan, we've included the following: in Brand Portfolio we will grow our wholesale business with deeper penetration in the channel. This is a sizable opportunity for brands where we are underpenetrated, such as Allen Edmonds, and where we see brand extension opportunities like Sam Edelman. We will accelerate direct-to-consumer through owned retail and e-commerce. In addition to driving higher sales, these channels also drive higher operating margin. We will drive international growth for brands that have awareness and relevance. We believe Sam Edelman has a big opportunity to build on its relatively small international business. We will drive select category expansion, which is an opportunity for all 4 of our Lead Brands. And finally, we will grow our own brand sales in Famous, and these intercompany sales provide higher margins to our company. We expect these strategies to drive $275 million incremental sales by 2026. In Famous, we will grow sales by increasing store productivity. With the actions we have taken on the fleet in recent years, we think our current fleet of about 860 stores is the right number. To accomplish this productivity improvement, we will lean into our best brands and styles from an inventory, marketing and visual merchandising perspective, achieve a 50-50 mix of fashion and athletic. In general, fashion offers higher margin than athletic. We will continue to build our engaging customer experience in both the physical and digital channels. This includes a disciplined and fiscally responsible rollout of flare store remodels, and we will capitalize on the CDP opportunities Jenny shared with you earlier. And we will grow our leadership position in kids and capture the whole family. We expect these strategies to drive We expect these strategies to drive $75 million of incremental sales by 2026. In corporate, we will continue to rigorously manage inventory to maintain higher margins and unlock cash. To be conservative, our plan does not assume increased turns but we believe there is additional opportunity here. We will manage our SG&A expenses to about 36% of sales. We will be higher than that this year due to the inflationary pressures and lower sales but we believe that this is the right level of expense for the business and have been there before as recently as last year. And finally, we will continue to explore opportunities to maximize asset utilization. This includes our owned manufacturing for Allen Edmonds and our leased DCs, showrooms and office space. We expect these initiatives, along with the higher top line to drive 100 basis points of SG&A leverage by 2026. Our 3-year plan, which we believe is balanced and achievable and grounded in identified and quantified strategies deliver strong EPS growth and an attractive return to shareholders. Here are the levers. We expect only very modest market growth, about 1% per year per Circana's latest outlook. We expect to continue to grow market share in both segments, just as we have been doing. In Famous, we believe our strategies will enable us to outpace market growth by about 1%. In Brand Portfolio, we expect more significant market share growth driven by our Lead Brands. We expect to expand total company operating margin by about 100 basis points. We've considered all the headwinds and tailwinds to gross margin, including segment mix, channel mix, category mix and sourcing mix. The impact of all of these factors is nominal improvement in consolidated gross margin. As such, we expect the majority of the operating margin improvement to come from SG&A leverage, facilitated by greater top line growth and continued discipline on our expense base, while allowing for the necessary investments to support our strategies. We expect lower interest expense as we continue to reduce borrowings and have assumed interest rates remain at current elevated levels. These levers drive an EPS CAGR of 11% to 13% over the plan period. With the addition of our dividend, which we have held flat in the plan, we deliver a low to mid-teens annual TSR. Important to note that there are additional levers which could drive further TSR upside and are not built into our base case. They are potential multiple expansion. With the company currently trading at about 6.5x this year's expected earnings and about 4.5x trailing 12-month EBITDA, executing this plan should reward the company with a higher multiple. Additional share buybacks. As I'll show you in the next few slides, this plan generates significant free cash flow that could be used to buy back shares and/or a higher dividend. The current dividend costs only $10 million per year. We could significantly raise the yield without a large cash commitment. And lastly, accretive M&A. The emphasis here is on accretive, we have significantly raised the bar in terms of profitability of the Brand Portfolio and are planning for continued margin expansion. Any M&A would need to support that objective and be of sufficient scale to make a difference. Turning to cash. We have a history of generating strong operating cash flow, nearly $600 million over the past 4 years, including 2020, which was below average because of the pandemic and putting that cash to use effectively. Over this period, we invested $160 million in CapEx and the remaining $400 million plus was allocated to grow shareholder value through the reduction of debt, share repurchases and the dividend payment. Looking ahead, we expect to generate nearly $900 million or 50% more operating cash flow over the next 4 years and $600 million of free cash flow. Our plan assumes $270 million for CapEx, maintaining the dividend, reducing borrowings to less than $100 million and repurchasing shares to offset the impact of stock-based compensation. This leaves over $200 million of unallocated discretionary cash flow that can be used to further enhance shareholder returns. We recognize that executing our plan will require a stepped-up investment in CapEx and to deliver on our initiatives and to maintain our asset base. As such, we are planning to increase CapEx from an average of $40 million per year to approximately $70 million per year. Going forward, CapEx will run about 2% of sales, and we think this is appropriate. With regard to our capital structure, we have focused on reducing our borrowings. In fiscal 2021, we eliminated our long-term debt, and our borrowings since then have been made on our revolver, which was refinanced in October 2021 at favorable rates. Our plan continues to reduce debt given the higher interest rates and the desire to maintain ample liquidity. By 2026, borrowings will be less than $100 million and less than half a turn of EBITDA. Our capital allocation priorities remain consistent with what we've communicated previously. First, invest for organic growth with investments prioritized on Lead Brands and key initiatives that will deliver profitable growth. Second, pay the dividend, we've paid a quarterly dividend for over 100 consecutive years and will continue to do so. Third, reduce debt. Based on today's interest rate for interest rates and economic environment, we think reducing debt and maximizing liquidity is prudent. Fourth, share repurchases. We believe our stock is undervalued and this is an efficient way to return cash to shareholders. And lastly, M&A, we will consider, if accretive, opportunistic and focused on the white spaces in the portfolio, specifically men's, Gen Z consumers, or international. In conclusion, there are 5 things I hope you take away. First, baseline EPS of $4 is sustainable based on the structural, operating and financial changes we've made to the business. Second, the 3-year plan we've presented is balanced and achievable, building on previous investments we've made and grounded in identified and quantified strategies. Third, the plan delivers strong EPS growth and an attractive TSR with several growth vectors for additional upside, including multiple expansion, share buybacks, dividend yield and accretive M&A, and supported by over $200 million of unallocated free cash flow. Fourth, our capital priorities are unchanged with a focus on organic growth, a strong balance sheet, and returning free cash flow to shareholders. And finally, with this balanced and achievable plan and our stock trading at bargain multiples of earnings and EBITDA, we believe our stock is a compelling investment opportunity. Thank you.

Before I bring the rest of the management team up for Q&A, I'm going to turn it over to Jay for some closing remarks.

So back again. You've heard now about our vision and our strategies for growth and about our brands and our capabilities. Hopefully, you're hearing our key message that Caleres is delivering results. And none of this would be possible without our dedicated people and a culture that turns ambition into action and action into results. Just for a minute, our need to focus on culture really became apparent during the pandemic. We've always been focused on it, but we were really concerned about engagement during that period and understandably so. We recommitted to building our culture to support our new strategies and drive results. We also needed to demonstrate our caring culture in how we interacted with our consumers and our partners, our environment and our people. We also needed to lean in to change and involved to be a learning organization. Over the last 2 years, we strengthened programs for our associates and, in some cases, created new programs. The result is Caleres today, and this is super important because we want to be this place where people want to work and where we're able to find great talent. Our culture is about learning and caring and we'll continue to prioritize its focus as we go forward. The CAL Lab that was mentioned briefly a couple of times was a great example of this. And it was borne out of the need to find new ways to connect and be inspired. CAL Lab is an internal communication platform at Caleres and it was envisioned and led by Natelle. It highlights new trends and innovations to spark learning and ideation across the organization and to communicate more easily as many of us were in different places during that time, and it continues to this day to be a source of inspiration. For many years, Caleres is focused on gender inclusivity and our work has paid off with women well represented at every level of our organization, including 70% of our leadership and over 50% of our Board. We are also focusing on BIPOC inclusivity, and we're making some good progress here, attracting, retaining and supporting these associates and leaders in our organization. Currently, about 38% of our corporate associates are BIPOC, and the work does continue. We offer a number of associate resources, including education, mentorship and groups that encourage leadership skills and are designed to create a sense of belonging among all of our associates. This helps attract new talent while at the same time supporting the engagement of our current team. We are committed to building a diverse and engaged workplace. We also ensure that we act as a good corporate citizen. Through our Caleres Cares charitable trusts and employee volunteerism, we are continuously working to strengthen our communities and provide support for those in the footwear industry. In addition, we have committed to clear an ambitious 2025 ESG targets. We continue to execute on and make significant progress against these goals. We published our inaugural ESG Report in 2021 for year-end 2020, and we provide updates on our progress every year. We have been proud to see Caleres recognized as one of America's Most Responsible Companies by Newsweek and one of America's Climate Leaders by USA Today. So in close, we are One Caleres. Our structure and our brand assets, our capabilities, our culture and our people are all value driving. As we look ahead, our brands are strong and enduring, our strategies are clear and actionable. And our teams are dedicated to exceeding the expectations of our consumers in this dynamic marketplace. We believe our solid financial foundation has set the stage for us to deliver long-term sales and EPS targets, while at the same time generating strong levels of free cash flow and creating long-term value for you, our shareholders. I'd like to thank you for your attention and your interest in Caleres. And with that, I'll ask our team members to come up, and we're happy to take questions. Thank you.

So any questions? we have some mic runners Oh, okay. We'll start with Dana. Please say your name and firm.

Yes. Thank you, Dana Telsey. Telsey Advisory Group. Thank you for a great presentation and presenting the overview on near term and long term. On the near term, with September sales being challenging, is it both brands, is it all regions? Is it traffic or conversion? Anything different in terms of the mix?

Yes. So in general, I would say we're seeing a little bit sluggishness in some of the seasonal categories, I would say, coming out of early fall, which has been not all that surprising considering, as most of you walked here today, it was probably a little warmer than you expect in October. And that's probably, I would say, the major piece, and looking at other categories, we're still seeing good interest in the sneaker -- fashion sneaker business. As we've reported on, there is great interest in the ballet and flat category. And we also are excited about that because, as we build on those and react to those, we see those as really going from fourth quarter into spring. And we think that that shoe business coming back will serve us really nicely there.

And then on the long-term question. You mentioned that 20% of the goods come from speed programs. And is there an opportunity for greater there? And what impact does it have on margins? And then just on the Famous Footwear with 6% of the brands now from Caleres brands and has a higher margin going to 10%, what would drive that higher? Is there a category? Is there an acquisitive nature that would drive it higher? How do you see that complexion?

Well, I always think that we can do more. So I think that the 20% -- I would say somewhere between 20% and 25% is a really healthy number. And what I love about that is that assumes that 20% to 25% of our receipts are exactly what the consumer wants in exactly the way they want them, the sizes they want them, in the area of that. So that's very exciting. And that also helps us really flow our inventory much better as we work all the way through. So that's a really exciting piece. That takes a lot of planning that we do. And a lot of the people here are all involved in that and working really closely with our factory partners. But I think it's something that works across our company and it's one of our biggest accelerants and it pays off in lots of ways. As Jack alluded to also, the markdowns coming off that both from an inventory and then, honestly, allowances, if it was to go into the wholesale channel, come way down because of that, because of the rightness of the product. So then, secondarily, the next question. So in Famous Footwear. Yes, this is something I really -- I'm so glad you asked this because I really wanted to answer this. I really should start with Famous and say, it really does start on the consumer, okay? We didn't come up with 6 or 10 or 11 just because we picked a number. We really thought about who's the consumer, and then how can we really meet that gap in there. So as we look at the type of businesses as we're growing there, we're making a lot of investments, first off, in -- as we discussed in our Sam and Libby business, which we think will be a nice growth that we have not really had a large business from that particular brand. And that feels perfectly aligned for that millennial family, millennial mom in particular. If we look at Dr. Scholl's, we're actually making investments that go across the family and developing out the product categories in men's, women's and kids. So we really see that on its way, I would say, Mike, growing to be the #1 brand in Famous Footwear. And again, it comes back from really looking at that consumer and really working through the product offerings that that has for them. And then as our consumer, they love brands at Famous. So as some of our brands grow, like Naturalizer, well, that's become more important to the Famous Footwear consumer. And then one of our more recent acquisitions, Blowfish Malibu, we think, is -- really has been, and it's aligned with this millennial family and really that younger fashion piece of the business. So I would say those are all the reasons. And it really is about us understanding more about the consumer and really working to that. And while I -- before I go on one more time, I will say just thinking of what Jenny talked about, we're really understanding a lot more about our Famous consumer than ever before. So that learning from that obviously allows us to build more product and better product for the consumer.

It's Laura Champine from Loop Capital. First question on -- the -- if I triangulate the sales guidance and the SG&A guidance, it looks like you're looking for very little SG&A expense growth over the next 3 years. Are there incremental cost cuts that you plan to make? Or how do you hold SG&A to that dollar level? .

Yes. It's a good question, Laura. So actually, when we look at the plan over the 3 years, there's about $100 million of incremental SG&A versus this year. So with the higher sales growth, even getting some leverage there, the dollars are actually quite incremental, it's about $100 million. That on top of the fact that we're stepping up our capital investments as well, which are also critical to some of the growth initiatives. So between the stepped-up capital and another $100 million of SG&A investments, we feel like we've got the initiatives that we've talked about appropriately funded.

Okay. Let's dig into that a little bit more. So the incremental cost on CapEx, if your store units are flat, you've made a lot of IT investments, including the common platform, loyalty programs for Naturalizer, et cetera. What's left to spend? Like what do you get for those incremental, call it, $10 million, $20 million? .

Yes. So in the plan, we've got about $30-ish million a year allocated to Famous. And then we've got -- obviously, there's always money. I mean, IT is something we're always investing in. Obviously, a big investment with our -- going to a common platform on SAP. But there are DC investments that we need to continue to make. And then actually, in our $270 million capital plan, right now we have a $40 million open to buy. So there's $40 million right now that is not earmarked for any specific project or initiative, but again, it gives us the fuel to direct that money as we feel is a good investment.

Got it. And last one for me. The expectation that you get very small gross margin improvements, what does that assume from a macro promotional environment where gross margins you can model them out, but you are small market share in a highly volatile promotional market?

Do you want me to start with that? Yes. So I mean, in terms of gross margin, so on the Famous business, really, there's no improvement in gross margin over the plan. So that's basically flat. On brand portfolio, where we're seeing gross margin improvement is really from the mix of the businesses. It's the channel mix. So as we grow more into D2C, owned retail, owned e-commerce, that's where we get the benefit. We actually did also assume that some of the Ocean benefit that we've gotten this year, that we give some of that back next year. So that is -- that's been a nice tailwind this year, but we expect that we'll probably get to a more normalized level. So it's really on the brand portfolio side is going to be more around the channel mix. Thank you.

Mitch Kummetz with Seaport Research Partners. Just going back to Dana's first question about September. How does that inform your thinking going into October and then kind of the fourth quarter? Because the weakness was more seasonal. Do you sort of assume that once the weather turns, that business will pick up? Or are you taking kind of a more cautious view on the consumer than kind of what was maybe in the prior guidance?

You want to talk about the total trend and then I'll fill in the gaps there?

Yes. So what we saw in both segments was that October was -- sorry, September was weaker than August. We think there are a couple of things going on there. One is we have read a lot about the lag effect of some of the interest rate increases and some of those are starting to come through. We also know that the student loan repayment of a program restarted in September with payments coming out in October. But as we look at some of the things that we're comping, some of the things that -- the initiatives that we have in place, we felt like at this time, the right thing was to guide to the low end of our guidance on both the quarter and the full year.

And then I would just say that, yes, we do expect that to -- but more to a moderated degree, I would say. And that's reflected in our guidance, too, that as we get into season, things will get on the seasonal category, obviously, a little bit better.

And then on the 2026 plan on Brand Portfolio, I think you said that the Lead Brands were 55% of BP. And I think you -- well, let's start there. Is there any way to kind of break out those 4 brands? I mean, I know you're -- in terms of volumes, you're kind of lumping them into sort of one big piece, but can you kind of rank-order them or give us more color on the volumes of those 4 brands? And then I think you said that, in terms of sales growth, I think it was about $275 million of incremental sales.

In total brand -- total brand portfolio.