Shoe Station (SHOE) Q2 2026 Earnings Call Transcript

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DATE

Thursday, Sept. 10, 2026 at 9:00 a.m. ET

CALL PARTICIPANTS

• Interim President and Chief Executive Officer - Clifton E. Sifford
• Executive Vice President and Chief Financial Officer - W. Kerry Jackson
• Chief Merchandising Officer - Tanya E. Gordon
• Chief Operating Officer - Marc A. Chilton

TAKEAWAYS

• Net Sales -- $284.3 million, representing a 7.2% decline compared to $306.4 million in the prior year quarter.
• Comparable Store Sales -- Down 7.1% for the quarter, compared to a 7.5% decline in the second quarter of 2025.
• Shoe Carnival Banner Sales -- $178.5 million, accounting for 63% of total revenue and reflecting a 6.5% decline from last year.
• Shoe Station Banner Sales -- $105.7 million, representing 37% of total revenue and an 8.4% decline compared to the previous year.
• E-commerce Comparable Sales -- 18.8% growth, which management highlighted as a positive result relative to a 9.5% decline in store-based comparable sales.
• Gross Profit Margin -- 31.9%, a decrease of 690 basis points from 38.8% in the prior year quarter due to promotional activity and inventory liquidations.
• Merchandise Margin -- 630 basis points lower than the prior year, driven by the absence of a temporary tariff-related pricing benefit and a promotional footwear market.
• SG&A Expenses -- $83 million, a decrease of $10.6 million from last year following lower advertising, rebannering costs, and performance-based compensation.
• Net Income -- $6.3 million, or $0.23 per diluted share, compared to $19.2 million or $0.70 per diluted share in the second quarter of 2025.
• Cash and Marketable Securities -- $131.6 million, an increase of $39.7 million from the second quarter of last year with zero debt outstanding.
• Inventory Levels -- $426.6 million, reflecting a 5% reduction compared to last year as the company manages toward a $50 million year-end reduction target.
• August Comparable Sales -- Down 2.7%, indicating sequential improvement from the 7.1% decline in the second quarter following the deployment of localized assortments.
• Fiscal 2026 Sales Guidance -- $1.1 billion to $1.111 billion, representing an expected annual decline of approximately 2% to 3%.
• Adjusted Diluted EPS Guidance -- $0.75 to $0.90 for the full year, excluding $13.6 million in non-recurring charges recorded in the first quarter.
• Full Year Gross Margin Guidance -- 32.5% to 32.7%, representing expected compression of 390 to 410 basis points compared to fiscal 2025.
• Store Impairment Charges -- $396,000 on four stores during the quarter, bringing the year-to-date total to $6.7 million on 11 stores.
• Tariff Refund Claims -- $1.2 million expected to be filed and collected in the second half of fiscal 2026 following a Supreme Court ruling on certain tariffs.
• Adult Athletic Performance -- Mid-single digit decline for the quarter, though the running category achieved positive comparable growth in both men's and women's categories.
• Men's Work Boots -- 2% comparable growth, reflecting relative stability in replenishment-based categories versus fashion-oriented products.
• Year-to-Date Adjusted SG&A -- Decreased $11.9 million, reflecting lower advertising and rebannering costs along with reduced performance-based compensation.

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RISKS

• Sifford warned that management expects the promotional marketplace to persist through the second half of the year, stating, "We are not assuming the environment improves."
• Jackson warned that gross margins in fiscal August continued to run below last year's levels at a rate comparable to the second quarter's results.

SUMMARY

Shoe Station Group Inc. (NASDAQ:SHOE) reported a decline in second quarter revenue and adjusted its full year guidance downward to reflect a promotional footwear market and merchandise misalignments. Management indicated that store traffic was the primary driver of the sales shortfall, as store conversion rates improved while total consumer visits declined. In response, the company has implemented localized product assortments and sizing profiles, which management credited for improved comparable sales trends in fiscal August. The company also accelerated the liquidation of aged inventory to increase cash flow and prepare for fall product arrivals.

• Sifford stated that the company is shifting from uniform store modeling to localized demographics, noting, "we had gotten ourselves into a cookie cutter. All stores need to look the same. And as you know, that does not work for our stores because we service distinctively different customers."
• Sifford stated that the company's primary challenge involves generating store traffic and consumer awareness rather than pricing alone.
• Management reported that the adult athletic category, representing 37% of sales, saw performance shift from a low-single digit decline in Q2 to a low-single digit increase in August after localized distributions were established.
• Sifford stated, "I believe our boot assortment is outstanding. The strongest we have offered in several years, and boots are the most important fall category in family footwear."
• The company completed the rebannering of 20 stores during the quarter but plans to pause further conversions for the remainder of the fiscal year to focus on retail fundamentals.
• Management indicated that the industry may be entering a new fashion cycle, with Sifford stating, "I believe we are on a-- we are entering into a cycle of nonathletic being more important to our business as we go into the fourth quarter and into the first quarter of next year."

INDUSTRY GLOSSARY

• IEPA: International Emergency Economic Powers Act, used as a basis for certain trade tariffs and subsequent refund claims.
• MAP Pricing: Minimum Advertised Price, a policy where manufacturers restrict the lowest price at which a retailer can advertise a product.
• Merchandise Margin: The difference between the retail selling price and the cost of the product, before accounting for occupancy and distribution costs.
• Rebannering: The process of converting a store's signage and brand identity from one of the company's banners to another, such as from Shoe Carnival to Shoe Station.

Full Conference Call Transcript

Operator: Good morning, and welcome to Shoe Station Group's Second Quarter Fiscal 26 Earnings Conference Call. Todd's conference call is being recorded and is also being broadcast via webcast. Any reproduction or rebroadcast of any portion of this call is expressly prohibited. Management's remarks today contain forward looking statements that involve a number of risks and uncertainties that could cause the company's actual results to be materially different from those projected in such statements. Forward looking statements should also be considered in conjunction with the discussion of risk factors included in the company's SEC filings and today's earnings press release. Investors are cautioned not to place undue reliance on these forward looking statements which speak only as of today's date.

The company disclaims any obligation to update any of the risk factors or to publicly announce any revisions to the forward looking statements discussed on today's conference call or contained in today's press release to reflect future events or developments. Management's remarks today will also reference certain non GAAP financial measures. Reconciliations to the most directly comparable GAAP measures are included in today's earnings press release. I will now turn the conference over to Mr. Clifton E. Sifford, Interim President and Chief Executive Officer of Shoe Station Group for opening remarks. Mr. Sifford, you may begin.

Clifton E. Sifford: Good morning, and thank you for joining us today. With me on the call are W. Kerry Jackson, our chief financial officer Tanya E. Gordon, our chief merchandising officer, and Marc A. Chilton, our chief operating officer. Tanya and Marc are both available to take your questions during the Q&A portion of the call. This is our first earnings call as Shoe Station Group which became official in June. The new name reflects our strategic vision Shoe Station as our primary vehicle for long term growth. Operating alongside Shoe Carnival in an ongoing 2 banner model. With each banner serving its localized customer base with the right assortment at the right price.

Our second quarter results fell short of our expectations. This morning, I will cover what drove the quarter. What our product and customer data tell us, and the actions underway for the fall season. Several of which are already showing up in our Q3 results. Carrie will then take you through the financials and our updated outlook. 3 factors drove the quarter. And they interacted with 1 another. First, and this is the issue we identified and discussed with you on our first quarter call, the assortments in our Shoe Carnival and rebannered Shoe Station stores were not fully aligned with the customers actually shopping those stores.

This alignment by location includes brand, assortment, and sizing, all of which was not up to the standards we have set for our stores. When the assortment and sizing based on the customer that shops the store is wrong promotion cannot fix it. Both of these opportunities showed in our Q2 results. Second, we accelerated the liquidation of our aged and excess inventory. This was also deliberate It pressured merchandise margin in the quarter but it converted slow moving inventory into cash and open receipt dollars for our fall assortments that I will describe in a moment.

Our inventory ended the quarter down 5.0% from last year, and we remain on plan to reduce inventory approximately $50 million by year end. Third, the footwear marketplace became increasingly promotional. As the quarter progressed, faced with that environment, we made a deliberate choice. We priced in season product competitively to protect our market position rather than defend margin rate and lose the customer. That said, we were pleased with our customer conversion rate. When customers came in our stores during the quarter, they bought. Store conversion improved in both banners rising to levels we have not experienced in years. What declined was traffic Lower prices alone did not bring customers through the door.

Our challenge is clearly traffic and consumer awareness, not price. And that shapes where we need to invest. We will be communicating our value proposition and our assortment to both the legacy Shoe Carnival customer and the Shoe Station customer. The message will be differentiated it will communicate our improved assortment and value proposition. We need to rebuild trust with our customers that our stores offer the best selection of shoes and accessories at a great value for the entire family. And that takes effective and targeted communication, not deeper discounting. Let me spend a moment on the product. Because the category detail tells you exactly where the assortment work matters. And where we believe it is already paying off.

Adult athletic, our largest business at roughly 37% of sales, declined mid single digits. But the story underneath is mixed. Men's athletic was down only about 1% with the running category comping positive in both men's and women's. Where we underperformed, was fashion athletic, including the basketball category. Running shoes are a staple for our customers. They trust us to have the best brands and a broad assortment. And when we have the right brands and the right doors, we win. That is a localization thesis in 1 category. Women's nonathletic roughly 23% of sales, declined high single digits with both sandals and women's sport casuals down double digits.

Children's shoes declined high single digits This is a business that we should own in the Shoe Carnival stores. Our family proposition in these stores start with the children's business. Our children's shoe buyers are as good as it gets in the industry, and they are rebuilding this business back to the levels we have traditionally experienced. This is a huge opportunity for us, and we believe we will once again be the destination shop for kids shoes. Men's non athletic declined high single digits in dress and casual while men's work boots, a replenishment business with a loyal customer, comped up about 2% The pattern across all categories is consistent. Replenishment categories performed better.

The categories that depend most on having the right localized assortment and sizing structures underperformed. We believe this is fixable. We are very focused on making that happen. Back to school is the first evidence that our localized assortment focus is working. Ahead of the season, we were able to change many distributions to a more localized athletic assortment. The category that drives back to school. And in August 2026, the beginning of our third quarter, comparable store sales declined 2.7%. A substantial improvement from the second quarter's 7.1% decline. With improvement in both banners and continued double digit ecommerce growth.

As we move forward, our merchandise will reflect not only the right product based on the customer shopping in each store, but also the size profiles that best serve that customer. We believe the bigger opportunity is still ahead of us. The majority of our fall receipts localized across categories, not just athletic, arrive after back to school. And I will say this plainly, I believe our boot assortment is outstanding. The strongest we have offered in several years, and boots are the most important fall category in family footwear. The brands the styles, and the depth are targeted to each store's customer in a way they have not been before. We are supporting the season with intensified advertising.

And incremental investment directed at building customer traffic and communicating our assortment and value to both customer groups I described. The second quarter demonstrated that price alone will not deliver traffic. We believe communication is the missing element. During the quarter, we completed the rebannering of 20 stores bringing the year to 2021, and we do not expect to rebanner additional stores for the remainder of fiscal 26. This pause allows us to concentrate on retail fundamentals. Assortment, presentation, and the customer relationship. Particularly at our converted stores where that relationship is still being established. We expect the promotional environment to persist through the balance of the year and our updated guidance reflects that reality.

We are not assuming the environment improves. What we are assuming is that the actions I have described localized assortments, arriving for fall, a boot offering we believe in, and intensified advertising continue to close the sales gap the way back to school has begun to do. We enter the second half debt free with strong cash position and inventory position for the season. With that, I will turn the call over to Carrie to review the financials and our updated outlook in detail. Carrie?

W. Kerry Jackson: Thank you, Cliff, and good morning, everyone. Our second quarter results came in below the expectations underlying our first quarter guidance, driven principally by lower sales and gross profit margin in an increasingly promotional footwear marketplace. This morning, I will review the quarter, our year to date results, fiscal August and our updated fiscal 26 guidance which we have lowered. I will start with the balance sheet because this is a foundation from which we are managing through this period. We ended the quarter $131.6 million in cash, cash equivalents and marketable securities. An increase of $39.7 million compared to the end of the second quarter of last year.

We have no debt outstanding, $99 million currently available under our $100 million credit facility. Which we expect to renew or replace in the second half of 26. During the quarter, we paid the 57th consecutive quarterly dividend. Inventory ended the quarter at $426.6 million, down $22.4 million or 5.0% from last year with inventory per store down 3.6%. This reduction was achieved deliberately. Through the accelerated liquidation of aged and excess inventory Cliff described and we remain on plan for an approximately $50 million reduction in inventory by fiscal year end. We are converting slower moving inventory into cash while funding open to buy for localized fall assortments.

Due to lower than originally expected sales performance for the year, we are targeting the year end inventory reduction at the low end of the range we gave in Q1 26. 1 additional item. Following the Supreme Court's February rule striking down certain tariffs imposed under IEPA, we submitted initial tariff refund claims in July, and expect to file additional claims in the second half of fiscal 26. We expect these claims to total approximately $1.2 million and we will record refunds when collected. Net sales in the second quarter were $284.3 million, compared to $306.4 million last year. A decline of 7.2%. Comparable store sales declined 7.1% compared to a 7.5% decline in the second quarter of last year.

By banner, Shoe Carnival net sales were $178.5 million, representing 63% of total net sales and declined 6.5%, comparable store sales down 6.3%. Shoe Station net sales were $105.7 million, or 37% of the total. And declined 8.4%, with comparable store sales down 8.5%. E commerce was a bright spot. Comparable e commerce sales grew 18.8%, with growth in both banners while store comparable sales declined 9.5%. We believe the sales shortfall in the quarter was concentrated in store traffic not in demand for our banners. Gross profit margin in the second quarter was 31.9%, a decrease of 690 basis points from last year.

Merchandise margins decreased 36 basis points while buying, distribution and occupancy costs deleveraged 60 basis points on the lower sales base even though those costs declined in dollars. The merchandise margin decline reflects 3 drivers. First, the second quarter of last year included a temporary benefit from rising retail prices ahead of tariff driven cost increases while selling through inventory purchased at pre tariff cost. A benefit that did not repeat. Second, we priced competitively in an increasingly promotional marketplace which lowered average transaction size. And third, we accelerated the liquidation of aged and excess inventory accepting margin dilution in exchange for inventory quality. A simpler way to size these pieces is to look back 2 years.

To the second quarter of fiscal 24 before last year's tariff related pricing benefit. On that comparison, gross profit margin declined approximately 24 basis points and the merchandise margin declined approximately 240 basis points. Put plainly, of this year's 360-basis point merchandise margin decline, roughly 390 basis points came from lapping last year's temporary pricing benefit and roughly 240 basis points reflects today's promotional environment and our inventory liquidation. SG&A in the second quarter was $83 million, a decrease of $10.6 million from last year driven by lower selling costs primarily advertising and other rebanner related expenses, and lower incentive and equity compensation. As a percentage of net sales, SG&A was 29.2%, compared to 30.6% last year.

In the normal course of business, we recorded $396 thousand of store impairment charges on 4 stores during the quarter. Bringing year to date impairment charges of $6.7 million on 11 stores. Including the impairments recognized in the first quarter as part of our previously discussed strategic review. Income tax expense was $2.3 million, and the effective tax rate was 26.7%. Compared to 25.9% in the prior year quarter. Net income for the quarter was $6.3 million or $0.23 per diluted share compared to $19.2 million or $0.70 per diluted share last year. There were no non GAAP financial measures adjustments in the second quarter.

Through the first 6 months, net sales were $555 million, down 5.0%, with comparable store sales down 4.7%. GAAP net income year to date was $631 thousand or 2¢ per diluted share inclusive of the $13.6 million of nonrecurring charges recorded in the first quarter related to the CEO transition and our strategic review. Excluding those nonrecurring charges, non GAAP adjusted net income $12.5 million or $0.45 per diluted share and non GAAP adjusted SG&A declined $11.9 million year to date. Turning to the third quarter to date. Comparable store sales for fiscal August which ended on August 29, declined 2.7% and net sales declined 3.3%.

This was a substantial improvement in both banners from the rate of decline in Q2 26 and ecommerce continued double digit growth. As Cliff described, we localized our athletic assortments ahead of back to school and we attribute the improvement to that work along with competitive prices and intensified advertising. The majority of her fall receipts localized across categories, arrived in the stores after back to school. I would note the promotional environment has not abated. Our margins in August continued to run below last year's at a rate comparable to the second quarter. And our updated guidance contemplates that continuing. We are lowering our fiscal 26 guidance to reflect second quarter results and current family footwear trends.

For the second half of fiscal 26, we expect comparable store sales in the range of down 1% to up 1% inclusive of fiscal August. For the full year, we now expect net sales of $1.1 billion to $1.111 billion representing a decline of approximately 2% to 3% versus fiscal 25. GAAP EPS of $0.32 to $0.47 and adjusted EPS of $0.75 to $0.90 Gross profit margin of approximately 32.5% to 32.7%, representing approximately 390 to 410 basis points of compression versus fiscal 25. GAAP SG&A approximately flat versus fiscal 25 and a reduction in adjusted SG&A of approximately $14 million, inclusive of the intensified advertising investment.

And a GAAP tax rate of approximately 37% and an adjusted tax rate of approximately 27%. The GAAP guidance reflects $13.6 million first quarter charges or $0.43 per diluted share. The elevated GAAP tax rate reflects the nondeductible portion of the CEO's severance, against the lower pretax income base. Let me be clear about the philosophy behind the guidance. We are not assuming the promotional environment improves in the second half. And we are not assuming margin recovery. Our gross margin outlook contemplates continued pressure at rates similar to what we experienced in the second quarter and August.

What we are assuming is continued improvement in comparable sales consistent with the trend change we saw in August, supported by localized fall assortments, our boot offering, intensified advertising, and progressively easier prior year comparisons. With that, I will turn the call back to Cliff.

Clifton E. Sifford: Thank you, Carrie. Before we open the line for questions, I want to thank our teams across both banners and our distribution and support centers. The second quarter did not meet our standards. But the response of this organization and resetting assortments managing inventory with discipline, and delivering an improved back to school reflects the operating culture we are building. Our focus for the balance of the year is execution. The right product, and the right store communicated to the right customer. Operator, we are ready for questions.

Operator: We will now begin the question and answer session. Please limit yourself to 1 question and 1 follow-up. If you would like to ask a question, please press *1 to raise your hand. To withdraw your question, press *1 again. We ask that you pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. Please standby while we compile the Q&A roster. Your first question comes from the line of Samuel Poser with Williams Trading. Your line is open. Please go ahead.

Samuel Poser: Good morning, everybody. Thank you for taking my questions. Cliff, can you talk about your quarter to date same store sales and how much you think the shift of the later Labor Day impacted both late July back to school and quarter to date. I am talking through Labor Day sales Can you just give us some color in your mind there? And where you are quarter-to-date. Yeah.

Clifton E. Sifford: No problem, Samuel. I hope you are doing well. You are correct that the shift in Labor Day does have an effect in our quarter 3 sales. As we move sales out of the first week of September and then through the second week of September, which is where we are. So we have experienced a pretty good beginning of this week. However, you gave back sales in the first week. So as of right now, our sales are trending slightly negative. And but with this week, much better than last week. So I mean so you are so it was down you were comping down 2.7 through August 29. So as of today, that has improved a bit.

Since then? Quarter to date? No. I would say as of today, we are still trending about the way we trended in August. But, again, Labor Day shifted into this week, and this week is trending much better than last week. So I think that with the labor, we have not experienced the full labor day shift. Okay. Thank you. And then when you think about the combination of your traffic was down, your conversions were up, your product mix is improving, we are going into a period of time in between back to school and holiday where we sort of get into the doldrums.

How do you wait the sort of the macro in like, the promotional environment your need to improve, let people know you are around again, with the right stuff versus where you are in getting your merchandise assortments where they need to be. And where when do you think your merchandise assortments and the messaging will be optimized. I mean, I know it always can get better, but like optimized relative to where you think you where you need to be right now. Yeah. I understand the question very well. They because it is as important.

As we walk out of back to school and into September, you said it, that you enter into a doldrums time period of September where waiting for all the new product to catch on with the customer and the athletic business kind of slows down a little bit and the nonathletic business picks up. What you really look forward to is October when hopefully, the weather turns cooler and then you can see the real results of the new fall product. We are getting the new fall product in every day. I mean, it is coming in rapidly, and we are really excited about it. And I have seen a few things, start to tick up.

But the I do not expect to see a true turnaround to better comps. Until we see a weather break, and that normally happens in October. That does not happen in October. Then it always happens by November. So, we expect that at that point, we will see sales of fall product and our boot assortment kick in Alright.

Samuel Poser: I will jump back on. Thank you very much.

Clifton E. Sifford: Thank you, Samuel.

Operator: Your next question comes from the line of Mitchel Kummetz with Seaport Research. Your line is open. Please go ahead.

Mitchel Kummetz: Yeah. Yes. Thanks for taking my questions. Maybe just kind of follow-up on 1 of Samuel's questions. So you guys were minus 2.7 comp in August that is kind of where you are quarter to date. This week should maybe be a little bit better How are you thinking about the remainder of the quarter as we kind of go through this period of doldrums where the consumer kind of goes away for a bit until they come back for you know, holiday or when the weather turns. And what and what does that mean in terms of kinda your complex big quarter? I know for the back half, you are saying down 1% to up 1%.

But are you kind of anticipating sort of like a down 3% in the third quarter? And then I have got follow-ups.

Clifton E. Sifford: I tell you, we think Q3 probably going to be flattish, Mitchel. The it really depends again on to October, if the weather cooperates in October, then we could produce a small increase, but I would say we cannot count on that. Because October changes every year. You know? Some years it is it is it is warm and others not. So we-- so we are assuming flattish for the third quarter. And then the increase coming in the fourth quarter is boots. Kick in and the weather turns more seasonal, we think we are ready We are armed and ready for that quarter. And that is when we believe that increases will start.

Mitchel Kummetz: And, Cliff, it sounds like you are pretty bulled up on the boot assortment. Can you just elaborate on that? What is it about boots this year that is so encouraging to you? Maybe you can kind of walk through some of the detail there.

Clifton E. Sifford: Yeah. You know, I am going to-- I am going to congratulate the boot buyers once again When they took me through the boot assortment. it is well balanced. it is balanced between low boots and high boots, and it has a mix of fashion and basics. In fact, I personally believe that the fashion boots that they showed us are so much better than the years before. You know, we have kind of gotten stale. And the whole shoe business gotten stale in boots. Ever since the whole fur or faux fur. In our case, took hold and everything began to look the same year after year after year.

And what our buyers decided to do this year, and, which I think is absolutely right, was just forget about the past and then build a boot assortment that attracts across the board, all consumers, young, and old. And I am just really excited about it from a pricing standpoint, not all promotional the way it has been in the past. We expect our boot average prices will be up in my opinion, significantly, and that is good. Because it just tells us that we have new fresh product Tanya, do you want to add anything to that?

Tanya E. Gordon: Sure. And something we were able to catch-- hi, Mitchel. Something we were able to catch just based on Cliff's return was really to go back on the-- we had-- we had placed the goods, but we went back and based on localized assortment, made sure we were balanced both in the Shoe Carnival stores as well as the Shoe Station stores. So we have got a really good balance of good, better, best. And based on the trends, whenever you get to a better balance of tall shaft versus booties and fur, it bodes well for a good boot season. So we are much more balanced in terms of high boots versus low boots.

So that tells me we are going to have a much better season. And I think our value proposition is much better this year versus last year, and you can see it. So the materials are better. The looks are better. The balance of fashion and the fashion pyramid is better. So excited about excited about what that looks like for the season.

Clifton E. Sifford: And, again, it is really just getting it localized back to the way we used to do things. And we got away from the true cookie cutter assortment that we have experienced in the first half of the year. it is very helpful. And that last point she just made, Mitchel, is really important. Yeah. We had gotten ourselves into a cookie cutter. All stores need to look the same. And as you know, that does not work for our stores because we service distinctively different customers based on the regions that we are in And it is important that we merchandise those stores.

I have mentioned that several times in my prepared remarks. it is critically important that we merchandise the stores based on the customers that are walking in, and that I think Tanya and her team have done an outstanding job of that for the boots. Sorry. I interrupted you. Please ask your next question.

Mitchel Kummetz: No, no, that is quite right. That was-- I appreciate that extra color. 1 last 1 for me. If you could just elaborate on the promotional environment, I mean, is it mostly concentrated in fashion athletic? Is it more broad based than that? And I know that the guide contemplates the continuation of a promotional environment for the balance of the year, but given your crystal ball, Cliff, I mean, when do you think things will get better? Do you think we could be in better shape the marketplace in better shape come spring of 2027?

Clifton E. Sifford: That is that is where we are focused, Mitchel. We think that especially in the athletic business that things could stay challenging, you know, when 1 of the larger vendors we deal with, pretty much did away with MAP pricing for the time period of back to school. There was a race, in my opinion, a race to the bottom. And we did not want to participate in that race. And, hopefully, as product is cleared and those stores have decided to race toward the bottom, things will recover. But the good news is and you have heard me say this before, I really believe, fashion cycles run in 3-year cycles.

And I believe we are on a-- we are entering into a cycle of nonathletic being more important to our business as we go into the fourth quarter and into the first quarter of next year. So that race to the bottom that did hurt our margins in August time period and the second quarter. will not be as pronounced because it will be a fashion business. Great.

Operator: Thank you. Your next question comes from the line of Jim Chartier with Monness, Crespi, Hardt & Co. Your line is open. Please go ahead.

James Chartier: Good morning. Thanks for taking my questions. I was wondering if you could talk about the difference in performance between athletic and nonathletic in August. And try and help us understand how impactful the changes to the assortment and localization were on the business so far in the third quarter-to-date.

Clifton E. Sifford: Do you wanna take that?

Tanya E. Gordon: Sure. Hi, Jim. So the difference between athletic and non in the August time frame, we saw really great improvement in athletic specifically. The month of August with back to school is still really dominated by the athletic category. And adult athletics just from Q2 down low singles to August up low singles. So saw a significant shift there. And that inventory as Cliff had spoken to, came in localized. So that was bought. We were able to get those localized assortments in place. Which is why I think we are seeing better performance overall in athletics.

Then the nonathletic piece of it, we were down high singles for Q2, we brought those to mid down mid singles for the month of August. We are definitely seeing as we get more product in the in the right stores at the right prices on the nonathletic side, we are seeing some success But to my point earlier, we bought all of the first half of the year cookie cutter. And we also bought the nonathletic areas down to last year pretty significantly. So we did not have the inventory to do the sales.

So a lot of things that we have gotten in casuals, for instance, in women's, a flat category, the clog category, we are seeing really good sell-throughs. So we are getting new products in those categories every day. I think we will see a difference as we continue to move through the second half of the year. In the non the non athletic piece of the business because we will have the localized assortments. We will have a better balance in our inventory. And we will continue to work through the age through the end of the year.

James Chartier: Okay. And then in terms of the opportunity from an assortment perspective, for athletic versus nonathletic, is there more opportunity in 1 versus the other?

Tanya E. Gordon: there is more opportunity in the nonathletic business. Definitely, in both men's and women's and actually in kids' nonathletic as well. And we already started to see a shift in the month of August. In the kids athletic versus nonathletic. The athletic kids business was actually down mid single in August, and the kids nonathletic business was up mid singles. So we are already starting to see a shift there, as we get the stores more localized and we get to our customer, in these rebannered stores. I think we have got a lot of opportunity on the non athletic side. Which is timed very well with Cliff's point of just the cycle.

And coming back into a non athletic cycle.

James Chartier: Okay. And then last question, how did kind of your advertising investment for back to school terms of the amount of incremental advertising and the type compared to what you are planning for holiday?

W. Kerry Jackson: If that let me make sure I understood the question you are asking. How we thought the advertising for back to school performed. As compared to what we are gonna do as we go forward. No. How much more did you invest in advertising-- like, how much was the growth in advertising spend for back to school year over year? How does that growth rate compare to what you are planning for holiday? And then in terms of the opportunities to shift the mix of that advertising around, How does that opportunity for holiday compared to what you were able to do for back to school?

Jim, on the advertising and the I will I will generally talk about the second half So we are gonna be relatively flat on total advertising on the half compared to last year. Now if you remember last year, we were overinvested in advertising for the Re Banner stores. And at the beginning of the year, we intended to rightsize that since we were not rebannering stores. We were going to have savings against the SG&A by reducing the advertising, by not having to re advertise through banners. We are going to-- we have adjusted course on that, and we are gonna reinvest those dollars into advertising. So they are going to be distributed slightly differently.

I think to answer your question a little bit, it might give you a little context on the advertising about how it did at back-to-school. We were pleased that we were advertising to that Shoe Carnival customer again And for a while, we were down 7 comp in the August time frame, Shoe Carnival was down less than 1%. So we saw a significant trajectory change in that banner. What we saw though is Shoe Station did not respond as quickly.

They were down mid high single digits. it is better than the what they had performed at in Q2, but it just goes to show that our efforts are introducing that those rebannered stores that used to be Shoe Carnival helping people understand what is that new rebannered Shoe Station store look like What does it have? What is this promotion? And that is what that additional advertising is going to be partly directed at helping those rebanner stores to improve Shoe Station in the second half.

James Chartier: Alright. that is helpful. Thank you.

Operator: Your next question comes from the line of Samuel Poser with Williams Trading. Your line is open. Please go ahead.

Samuel Poser: Thank you again. So what percent of your sales right now are driven by the replenishable goods that you said had been outperforming?

Clifton E. Sifford: it is a small percent. Samuel, at this point. But mainly in men's, which was roughly about 18% of our total sales. Between 16-18% of our total sales. And that is where most of the replenishment comes from. Very little replenishment in the athletic business and in the women's business from a weekly replenishment. Now we buy a lot of product off the floor. So if we see a brand that is-- or a style that is selling through at a higher rate, than we anticipated, we are on the phone with that vendor immediately, buying more of that product We have always been aggressive in that in that regard.

When I talk about replenishment, I am talking about automated fill ins. You sell an 8 you get an 8 back. And that is something that we had not done very well in the previous year is something that 1 of the very first things that I course corrected on when I got here is that there are just certain categories of products, especially in men's, especially in work, where you cannot afford to be out of size. And it is it is actually utilizing the vendor inventory, so I do not know why in the world we would not be filling in.

But the fact is that I think that we downplayed that fill in business over the past year or 2. Thank you.

Samuel Poser: And then secondly, given that a lot of the-- you had that big chunk of gross margin in the quarter, that was due to the price increases from last year per pre tariff stuff. And this other part of your business is, you know, your-- is being-- the gross margin's being driven down by promotions. When we look into 27, should we anticipate like, I mean, is a 35% gross margin you know, getting things sort of back to you know, sort of close to 2024. Is that a reasonable assumption, or is it just gonna take longer to build back?

Clifton E. Sifford: No. I tell you, Samuel, the concentration, and I mentioned this on the very first call, after I came back, this is the year we are getting our inventories back in line. You know, we mentioned to you that inventories would be down as much as $50 million by the end of the year.

And this is the year we get the inventories back in line in the year that we retarget the customers that are shopping our stores And if we do that job correctly, and I have all faith that we will do that, and we get the inventories back in line and the and understand who the customer is that is shopping each of our stores and get the product right as we go into spring, I believe that margins recover We recover, not to past expectations of 2004 and before but closer to what we have been running over the past couple of years.

But it is all about and you, Samuel, you are you are on this all the time. it is all about inventory control. We cannot, continue to run the kind of inventories in our stores that we have run over the past year or so. And we gotta get that back in line. And we announced that on my very first call, we are working hard to get it there. As part of the margin decrease that we had in the second quarter. that is part of the guidance that we gave you for the remainder of the year.

And I think that next year, you will see the margins recover to where they were over the past couple of years. But, again, it is about inventory control. You have got to keep the inventories controlled in our stores. Carrie, do you want to add anything to that?

W. Kerry Jackson: No. I think you said it well. You know, we had said in last quarter's call that we thought we would get back into the margins that were closer to the 2024 and the 35 range. You know, it depends on the sales growth, the comp increases, and leveraging some of the fixed cost. that is part of what we have to do as accelerate that growth because we are being penalized on that side of it. So those 2 in combination will help us get back to those historical margins.

Samuel Poser: Okay. And then and then lastly, you have, you know, you have a lot of cash on the balance sheet. Are you are you considering I mean, given where the stock is this morning and everything, is do you can you give us some of your thoughts on how you are going to utilize that cash, maybe through buybacks or something else?

W. Kerry Jackson: Well, we have that always as an opportunity. We do not telegraph what we are going to do in the marketplace ahead of time. But you know, we have a we have the standard 3 pronged that the dividends, buybacks, and acquisitions are how we expect to return value to shareholders.

Samuel Poser: Alright. Thank you very much.

W. Kerry Jackson: We cannot comment on that today.

Operator: There are no further questions. At this time, I will now turn the call back to Cliff Sifford for closing remarks.

Clifton E. Sifford: I want to thank you all for joining us on the call today. We look forward to speaking to you again in November.

Operator: This concludes today's call. Thank you for attending. You may now disconnect.

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