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DATE

Thursday, May 21, 2026 at 9 a.m. ET

CALL PARTICIPANTS

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

TAKEAWAYS

• Net Sales -- $270.7 million, declining 2.6% year over year and described as modestly above consensus.
• Comparable Store Sales -- Down 2.1%, outperforming consensus expectations.
• Shoe Carnival (SCVL +6.02%) Banner Net Sales -- $177.3 million, representing 65% of total; declined 2.2% with comparable store sales down approximately 1.7%, a notable improvement from the prior year's steeper declines.
• Shoe Station Banner Net Sales -- $93.4 million, 35% of total; down 3.1%, with comparable sales off approximately 2.9%.
• Gross Profit Margin -- 33.3%, down about 120 basis points year over year, in line with full-year margin compression guidance.
• GAAP Net Loss -- $5.6 million (diluted loss per share of $0.21) due to $13.6 million in pretax charges from CEO transition and strategic review.
• Non-GAAP Adjusted Diluted EPS -- $0.23, matching consensus and excluding CEO transition and strategic review charges.
• Inventory -- $417.2 million, decreased by $11 million year over year; management expects additional $50 million to $65 million decline by fiscal year-end.
• Cash, Cash Equivalents, and Marketable Securities -- $129 million, up $36.4 million (39%) year over year; company remains debt free.
• Shareholder Returns -- Returned $12 million in the quarter through dividends and repurchases; $0.17 per share dividend (up 13.3%, twelfth consecutive annual increase), 390,000 shares repurchased for $7 million, with $43 million remaining under the authorization.
• Store Fleet and Closures -- 426 stores as of quarter-end (281 Shoe Carnival, 145 Shoe Station); plans to close 12 to 14 underperforming stores in fiscal 2026 and 6 to 10 more in fiscal 2027, majority being Shoe Carnival locations.
• Rebanner Program -- Strategic review concluded only a limited number of further conversions are viable; few rebanners expected over next two years, with fiscal 2026 rebanners completed as of the call date.
• Assortment Strategy -- Company is recalibrating store-level assortments by banner and trade area, with a focus on restoring value and fast fashion at Shoe Carnival and targeting premium positioning at Shoe Station; visible changes expected at back-to-school and fall seasons.
• Fiscal 2026 Guidance Reaffirmed -- Net sales guidance of $1.125 billion to $1.147 billion (down 1% to up 1%), adjusted EPS of $1.40 to $1.60, and full-year gross margin of approximately 34% (about 260 basis points below previous year).
• New Store Growth -- Selective expansion planned for fiscal 2027 (3-5 new stores) and fiscal 2028 (8-10 new stores), mainly under the Shoe Station banner within the existing footprint where target demographics align.

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RISKS

• Management explicitly cited "continued pressure on moderate income households," and forecast ongoing consumer softness due to higher fuel and food costs and "recent geopolitical developments."
• Company expects "majority of that compression weighted to the first half," with additional promotional activity and inventory liquidation posing further risk to margins in the near term.
• First quarter included a $13.6 million pretax charge comprising CEO transition costs and asset impairments from the strategic review, driving a net loss.
• Executives highlighted the risk that "underlying issue in the first quarter was our product positioning at both banners," acknowledging product mix and price misalignment may take several quarters to fully correct.

SUMMARY

The strategic review confirmed Shoe Carnival (SCVL +6.02%) and Shoe Station will remain independent banners, with rebanner activity sharply reduced versus prior years and most future new store growth focused on Shoe Station. Leadership noted that sales and margin performance were consistent with expectations, but near-term outlook is shaped by macroeconomic pressures and a need to adjust product positioning to better match customer preferences. The company reported no debt and enhanced liquidity, which management emphasized will support store closures, inventory reduction, and operational recalibration. Store-level assortment localization, especially at converted stores, is being accelerated before the important back-to-school and fall periods, though management cautioned that full benefits will not be visible until the second half. Fiscal 2026 guidance was reaffirmed despite a pragmatic acknowledgment that consumer and margin headwinds will persist through midyear.

• Management reported quarterly comparable sales improved for the Shoe Carnival banner, narrowing declines to 1.7% by shifting marketing and promotional cadence to its "return to the traditional shoe carnival proposition."
• Executives stated "we expect to begin selective new store growth in fiscal 27," emphasizing Shoe Station will lead this expansion in affluent demographic areas, while aggregate store count is projected to fall in the near term due to closures of underperforming locations.
• W. Kerry Jackson stated, "the opportunity we see in second half, which we have said all along is that we expect to see it down first half and then up second half," clarifying anticipated sales and margin seasonality.
• Product assortment for back-to-school in athletic categories is being prioritized, with management saying "70% of our business is still athletic during that time period" and indicating that most nonathletic repositioning will be executed by the fall season.

INDUSTRY GLOSSARY

• Rebanner Program: The company’s initiative to convert existing stores from one banner (brand) to another, aimed at aligning stores with local demographic and consumer profiles for better performance.
• Comparable Store Sales: Year-over-year sales performance metric for stores open at least one year, indicating core retail trends excluding new store additions or closures.

Full Conference Call Transcript

Clifton E. Sifford: Good morning, everyone, 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 my second earnings call since returning as interim chief executive officer in late February. And I want to begin by thanking our board, our management team, and our associates across the company for their hard work during this period of transition.

When I returned in late February, the board asked me to take a fresh look at the rebanner program and the broader strategic direction of the company. Working closely with Kerry, Tanya, and Marc, and the rest of our management team, we completed that review during the first quarter. 3 conclusions emerged. First, the Shoe Carnival and Shoe Station banners each serve distinct consumer segments, and the company is best positioned to operate both banners as permanent independent components of our portfolio. We are not pursuing a single banner strategy.

Second, while the rebanner program has been successful in markets where the consumer demographics align, our detailed analysis of customer data, individual store trade areas, shopping center co-tenancy, and brand awareness by market identified only a limited number of additional Shoe Carnival locations that meet the criteria for conversion. For this reason, we expect few store rebanners over the next 2 years. A substantial departure from the prior expectations. Third, our store fleet includes underperforming locations that do not have a path to acceptable economics with or without banner conversion. We expect to close 12 to 14 such stores during fiscal 26 and a further 6 to 10 stores during fiscal 27.

These decisions together with related fixed asset write offs drove the strategic review charges of approximately $8 million that we recorded in the first quarter. I want to spend a moment on the Shoe Carnival banner. Because we believe this banner has more potential than recent results have shown. The first quarter offered an early indication of what is possible. To a rebalancing of marketing investment in a more deliberate promotional cadence in our stores, we narrowed Shoe Carnival's year over year net sales decline to 2.2%. A meaningful improvement compared to the trends we experienced throughout fiscal 25. The plan from here is straightforward.

We will restore the right product mix that delivers competitive opening price points our customers expect. expects. We will pair that assortment with a measured in store promotional cadence and supporting marketing presence. We will execute consistently across the chain. I want to be candid with you about the timing. We do not believe correcting the product mix will be visible in our reported results until back to school for athletic categories. And into the fall season for nonathletic categories. We have also begun the effort to reengage the value focused families and a more fast fashion forward customer.

Both of whom we underserved in fiscal 25 when our merchandising drifted toward higher price points and assortments that did not reflect what those customers historically came to Shoe Carnival to find. Reengaging those customers will take longer than a single quarter, where our back to school product offering and supporting promotions would demonstrate a clear return to the traditional shoe carnival proposition. The Shoe Station banner net sales declined 3.1% in the quarter. The first banner level decline in some time. Part of that softness reflects a marketing rebalance towards Shoe Carnival. That I just described. But it also reflects a more fundamental issue we identified through the strategic review and 1 I want to address directly.

When we converted Shoe Carnival locations, to the Shoe Station banner over the past few years, we applied a uniform shoe station assortment, 1 calibrated to the premium brand led experience that our legacy shoe station customers in the Southeast know well. The assortment has performed well in markets where the trade area demographics align with the shoe station consumer profile. In other markets, however, the trade area retains characteristics of the original Shoe Carnival customer base and the uniform assortment has not resonated as we expected. The path forward is not to reverse those conversions.

Rather, our merchandising team under Tanya's leadership and in close coordination with our key vendor partners is calibrating the assortment at each converted store to align with the actual demand profile of its trade area. In some markets, that means a more accessible mix within the shoe station banner. In others, it means leaning further into the premium brand led positioning. The shoe station banner remains our premium concept but the assortment discipline behind it is being tailored to each market. This is the most important operational priority for our merchandising team between now and August. Our goal is to have the right assortments by store based on the customer shopping that particular store and time for back to school.

Looking further forward, we expect to begin selective new store growth in fiscal 27 Our plan currently contemplates 3 to 5 new stores in fiscal 27 expanding to 8 to 10 in fiscal 28. These new stores will be primarily under the Shoe Station banner, in suburban trade areas within our existing 35-state footprint. Where the consumer demographic clearly supports the concept We are executing this plan from a position of financial strength We ended the first quarter with $129 million in cash equivalents and marketable securities. An increase of more than $36 million compared to the prior year quarter. And we operate with no debt.

During the quarter, we also returned approximately $7 million to shareholders through the repurchase of 390 thousand shares of common stock. This financial flexibility is a deliberate result of disciplined capital management over many years, and it allows us to fund the actions I have just described. The moderated rebanner activity the store closures, the inventory normalization, and the future new store program entirely from operating cash flows and existing reserves. On a GAAP basis, we reported a first quarter diluted loss per share of $0.21 reflecting the cost associated with the chief executive transition and the strategic review, review of our rebanner program. Excluding those charges, the underlying business generated $0.23 of non GAAP adjusted diluted earnings per share.

Consistent with the consensus analyst expectations for the quarter. Net sales of $270.7 million and a comparable store sales decline of 2.1% both came in modestly ahead of consensus. And gross profit margin of 33.3% was in line. Selling, general and administrative expense on a non GAAP adjusted basis was modestly above consensus. That said, meeting consensus this quarter should not obscure the underlying issues we identified through the strategic review. The microenvironment was a contributing factor Our customers particularly at the Shoe Carnival banner, are absorbing higher cost for fuel, food, and other essentials with recent geopolitical developments adding pressure. We saw that reflected an unusually consistent softness across all 4 of our major footwear categories.

Adult athletic, men's nonathletic, women's nonathletic, and children were each down low single digits in the quarter. That kind of cross category symmetry tells us this is a consumer pressure story. Not a category specific 1. More fundamentally, the underlying issue in the first quarter was our product positioning at both banners. At the rebannered shoe station stores, our assortment was tilted toward a customer profile we have not yet attracted in meaningful volume to those locations and 1 that in many cases, does not naturally shop at the centers where those stores are located.

At our legacy Shoe Carnival stores, our merchandising had drifted toward a more moderate income customer while underserving the value focused family and fast fashion customers in large metropolitan areas both of whom have been important customers for the Shoe Carnival banner. We believe those positioning issues are reversible, and both are being addressed by the corrective actions I described earlier. We expect the work to begin to show in our results at back to school and athletic categories and through fall and non athletic categories. Looking ahead, the consumer environment remains challenging. We expect continued pressure on moderate income households through the balance of fiscal 26 particularly given the recent geopolitical developments affecting fuel and food costs.

We are planning the business accordingly. At the same time, the bulk of our annual earnings opportunity sits in back-to-school and fall, and our corrective actions at both banners are deliberately targeted to land in advance of those critical selling periods. For that reason, we are reaffirming the fiscal 26 guidance we communicated in March. Most important quarters for our business are still ahead of us. And it is too early in the year to step away from the guidance we set. Carrie will walk you through the detail in his remarks. I am confident in our team and the strategic review, conclusions that we have reached. And in the financial foundations for which we are executing.

Carrie will now provide a detailed financial review of the first quarter. We will then open the line for questions, after which I will offer brief closing remarks. Kerry?

W. Kerry Jackson: Thank you, Clint, and good morning, everyone. Our first quarter results came in within the range of consensus analyst expectations with sales modestly above consensus gross margin in line, and adjusted diluted earnings per share of $0.23 matching consensus. I will walk you through the detailed financial results, our balance sheet position and our reaffirmed fiscal 26 guidance. On a GAAP basis, we reported a first quarter net loss of $5.6 million or $0.21 per diluted share reflecting 13.6 million of pretax charges associated with the CEO transition and strategic review of our rebanner program that Clint described.

These charges break down as $5.3 million of costs related to the CEO transition primarily cash severance, the accelerated vesting of equity awards, outplacement fees, related payroll taxes, and related legal costs. An $8.3 million of strategic review charges comprising of the impairment of 7 store locations some of which were previously identified as rebanner candidates, write offs of rebannered related and corporate fixed assets and related lease costs. The after tax impact of these charges was $11.9 million or $0.43 per diluted share. Excluding these charges, non GAAP adjusted net income for the first quarter was $6.2 million or $0.23 per diluted share.

This compares to a net income of $9.3 million or $0.34 per diluted share in the first quarter of fiscal 25. Net sales for the first quarter $270.7 million, modestly ahead of consensus compared to $278 million in the first quarter of fiscal 25. Total company comparable store sales declined 2.1% also modestly ahead of consensus. Breaking down performance by banner, Shoe Carnival banner net sales of $177.3 million. Representing 65% of net sales. A decline of 2.2% compared to the first quarter of fiscal 25. Comparable store sales at Shoe Carnival declined approximately 1.7% This represents a meaningful improvement from the mid to high single digit comparable sales declines we reported at Shoe Carnival banner throughout fiscal 25.

Shoe Station banner net sales were $93.4 million, representing 35% of total net sales. And declined 3.1% compared to the first quarter of fiscal 25. Comparable store sales at Shoe Station declined approximately 2.9%. While we saw an improvement in the rebanner stores, a moderation in an increase in shoe stations' e commerce sales resulted in the comparable store sales decline. First quarter gross profit margin was 33.3%. A decrease of approximately 120 basis points compared to the first quarter of fiscal 25. Within that, merchandise margin decreased 140 basis points primarily reflecting increased promotional activity and higher e commerce related shipping costs.

The decrease was partially offset by approximately 20 basis points primarily due to lower buying distribution and occupancy costs. The first quarter gross profit margin compression of 120 basis points is consistent with the full year fiscal 26 gross margin expectation we communicated in March. Contemplates approximately 62 to 72 basis points of gross profit margin compression for the year with the majority of that compression weighted to the first half. Selling, general and administrative expense on a GAAP basis was $96.1 million in the first quarter. An increase of $12.3 million compared to the first quarter of fiscal 25.

Excluding the $13.6 million of nonrecurring charges associated with the CEO transition, and the strategic review, review adjusted SG&A was $82.5 million, a decrease of approximately $1.3 million compared to the prior year quarter. Of that decrease, approximately $200 thousand reflected lower rebanner-related costs and $1.1 million reflected the other lower selling expenses. First quarter income tax expense on a GAAP basis was $600 thousand despite a pretax loss for the quarter. This reflects the nondeductibility of certain CEO severance payments which increased reported income tax expense by approximately $1.6 million On a non GAAP adjusted basis, our effective income tax rate in the first quarter was approximately 27%, compared to 28% in the first quarter of fiscal 25.

We continue to operate from a position of significant financial strength, At the end of the first quarter, cash, cash equivalents and marketable securities totaled $12$9.3 million an increase of approximately 39% or $36.4 million compared to the end of the first quarter of fiscal 25. We remain debt free. Cash flow from operating activities in the first quarter increased $32.7 million compared to the first quarter of fiscal 25. Capital expenditures during the first quarter totaled approximately $10.4 million a decrease of approximately $3 million compared to the first quarter of fiscal 25 primarily reflecting the moderated pace of rebanner activity.

Merchandise inventories at the end of the first quarter were $417.2 million a decrease of approximately 11 million compared to the end of the first quarter of fiscal 25. Consistent with the framework we communicated in March, we continue to expect inventory to decline by 50 million to 65 million by the end of fiscal 26 compared to the end of fiscal 25 driven by disciplined buying and planned promotional activity during the first half of the year. During the first quarter, we returned approximately $12 million to shareholders through a combination of dividends, and share repurchases. We paid a dividend of $0.17 per share, an increase of 13.3% compared to the first quarter of fiscal 25.

This marked the twelfth consecutive year in which we increased the quarterly dividend rate and the 50 sixth consecutive quarter in which the company has paid a dividend. We also repurchased 390 thousand shares of common stock during the first quarter for approximately $7 million at an average price of $17.93 per share. As of the end of the first quarter, approximately $43 million remained available under our existing share repurchase authorization. Turning to our fiscal 26 guidance. The first quarter unfolded broadly in line with the consensus expectation on the key financial metrics.

We are reaffirming the fiscal 26 guidance we communicated in March, which continues to contemplate net sales of $1.125 billion to $1.147 billion representing a range of down 1% to up 1% versus fiscal 25. Adjusted diluted earnings per share of $1.40 to $1.60 gross profit margin of approximately 34%, representing approximately 260 basis points of compression versus fiscal 25 reductions in adjusted SG&A of 12 million to $14 million versus fiscal 25 and an effective adjusted income tax rate of approximately 26%. Our adjusted diluted earnings per share guidance excludes the impact of the CEO transition costs previously identified and strategic review charges recorded during the first quarter. With that, I will open up the call for questions.

Operator: Thank you. We will now begin the question and answer session. 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 stand by while we compile the Q&A roster. Your first question comes from the line of Mitchel Kummetz with Seaport Research Partners. Your line is open. Please go ahead.

Analyst (Mitchel Kummetz): Yes. Thanks for taking my questions. Guess I have got I have got a few. So let me start on the stores. I think you are at 426 now. So what is the mix between Carnival and Station on that number?

Clifton E. Sifford: You want to-- you want to take that? Marc, do you know Maybe when you are looking I am sorry? Marc A. Chilton is on the call. And I would like for him to give you that number.

Analyst (Mitchel Kummetz): And while you are looking for that, Clint, you talked about closing 12 to 14 this year, and then you also talked about slowing the rebanners. So could you could you also address I mean, are the 12 to 14 all Station stores? Are there some carnival stores? And how many rebanners are you still looking to do this year?

Clifton E. Sifford: And, again, I will turn that question over to Marc. who is our chief operating officer. he is in charge of the store.

Marc A. Chilton: So, Marc, please-- Yep. Okay. Yes. Yeah. Hey, Mitchel. When you look at the breakdown of carnivals, Shoe Carnival, Shoe Station, there is 281 Shoe Carnivals and 145 Shoe stations. And then some of the closures, the I am sorry, Mitchel. The other stores you asked about? Other stores were closed? Closures. Almost majority of them are Shoe Carnival. I think we have 1 right now slated in 2026 to close that is a Shoe Station.

Analyst (Mitchel Kummetz): And then how many rebanners are you still rebannnering over the balance of this year? And if so, how many are you doing?

Marc A. Chilton: No. We have completed we completed the rebanners for this year, this month. And the middle of finishing them up. So we will be done going forward for this fiscal year. Got it.

Clifton E. Sifford: Mitchel, if I can add-- if can I add to that? The goal here now is to find sites to grow Shoe Station with new stores in the-- in the areas where the demographics match what we want Shoe Station to be. So there are chances that even in the cities that we serve today with Shoe Carnival, we will be opening up across town with Shoe Station because that is where the customer that shoe station wants to serve lives. So that is the goal. And, the new stores that we are opening up over the next 2 years will primarily be Shoe Station stores.

So maybe, Clint, elaborate on that because you in the press release you mentioned, and I also think you hit on this in your prepared remarks, that you see 2 distinct customer segments 1 for Shoe Station and 1 for Shoe Carnival.

Analyst (Mitchel Kummetz): Can you just maybe speak a little bit to what that means? Is this really about income level, or is it-- how do you see these 2 customer segments?

Clifton E. Sifford: So in Shoe Carnival, you followed us a long time so that you know we have served a very diverse customer base. Our strongest market was Chicago, We would also had a strong market in Houston and other markets where we served the Hispanic customer base, African American but we were served a very distinct, customer base, or diverse excuse me, in Shoe Carnival. Shoe Station has been a little different and 1 that we have found resonates well with a higher income customer also diverse but higher income looking for better brands, better product.

So that is that is the way we are going to run or the way we are going to grow Shoe Station in the future going after that customer, a diverse consumer with higher income living in better sides of town. And with and maybe a little older. But 1 of the things that we have seen with Shoe Carnival is that it is a very young customer. Families, just getting started. And as they grow up, as they grow up and they get better jobs in their-- the better income sometimes we lose them at Shoe Carnival and we are replaced by younger customers that are then coming up. Shoe Station takes them on at that point.

And it is a great opportunity for us to service all customers of all income brackets that is why we are that is 1 of the reasons we are so excited about our opportunity it is going to be a great growth opportunity going forward. And markets and neighborhoods and shopping centers that we would not have been successful with. With Shoe Carnival. Okay. And then, Clint, at the at the Carnival side of things, you mentioned that you tweaked kind of the marketing and promotional strategies there.

Analyst (Mitchel Kummetz): Can you can you talk about what you have done and how that is improved the performance of that banner?

Clifton E. Sifford: Yeah. You know, the strength of Shoe Carnival of the things that we talked to you about early on as you covered us was that when the customer walks in our store, our goal we assume that they wanna buy 1 pair of shoes. They are there for that. Our goal is to sell them the second or third pair. And we use the what we call the mic person that we make announcements in store, to entice that customer, to sell that customer a second or third pair.

That mic person had been silenced somewhat, and were no longer calling out promotions, we handcuffed them and asked them to go back to the shoe carnival methodology that had made us so great in the beginning and that worked. That worked. The other thing that will-- you will see at back to school is that the promotional cadence for back-to-school on athletic and nonathletic product, will be a little it will be paginated a little different than shoe station.

Analyst (Mitchel Kummetz): With some lower price product that will appeal to that customer with large families and then shoe station product will be a bit different even from there with higher price points, higher product categories. And then on back to school, it sounds like some of the adjustments that you are making to the assortment but those will those will be in place on the athletic side. But the nonathletic piece will not come until a little bit later. I know that back-to-school skews athletic, but are there any concerns that you will not have the right nonathletic assortment in place for back to school, especially on some of these kind of price point items?

Clifton E. Sifford: I am going to let Tanya address that, but I am gonna start off by saying this. To you. Is that there are brown shoe products that sell well during the back-to-school time period. And we will we will be in stock on those items. But 70% of our business is still athletic during that time period. Tanya, you should you should round that out.

Tanya E. Gordon: Yes. Thanks, Mitchel. Just to build on that, we will on the nonathletic side. We have made changes. Just gonna see a bigger shift when we get into the fall season, when we really get into the nonathletic side of the business. And just to reiterate what Clint said, 70% of the business at back to school is athletic, and we have positioned that very well. We have positioned on the nonathletic side some more of our urban brands where we walked away from that consumer the Shoe Carnival consumer. So we do have those positioned on the nonathletic side. And we do have more value positioned on the nonathletic side for back to school.

But, again, as we move into fall and we get into our boot assortments, we were able to go back and make many more pivots for the fourth for the third and fourth quarter. Okay.

Analyst (Mitchel Kummetz): that is very helpful. Thanks, and good luck.

Clifton E. Sifford: Thank you, Mitchel.

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

Analyst (Samuel Poser): Just 1, the timing I guess this is paperwork The timing of the store closures that you foresee this year, could we assume Q2 and Q4 is most of it going to be, like, right at the end of the fiscal year?

Marc A. Chilton: Yeah. Hey, Samuel. it is Marc. We are looking at 5 in Q2. 2 in Q3, and somewhere between 5 and 7 in Q4.

Analyst (Samuel Poser): Thank you. And then can you go in a little bit more into the local I mean, I am paraphrasing. The localized assortments that you are working to put in place and how long both by both banners, it will take to sort of be at a level that you can work with because I do not think you are there at the moment given the standardization of the mix. that is been put in place?

Tanya E. Gordon: Hi, Samuel. it is Tanya. Yes. You are absolutely right. We are not there today, but we, again, have made changes for back to school and then more changes as we get into the back half of the year We were able to go back and make, pivots because you are right. The assortments that we have in the store today we bought all stores the same. So we got away from our localization, meaning really leaning into that urban consumer in the Shoe Carnival stores as well as the Shoe Station stores.

We have urban customers in both markets and did not did not serve her properly in terms of assorting to the consumer in those markets, whether it is Shoe Station or Shoe Carnival. So we have gone back and pivoted. We got more assortments coming in to serve those consumers. And to get more value in and making sure that the shoe carnival assortment, when you think about the assortment, in terms of good, better, best and getting the value in there, Both banners need the good, but Shoe Carnival leans much heavier into that good and that value.

And we have gone back and pivoted you are going to see a lot more of that as we get into the second half of the year. On the Shoe Carnival side just based on the pivots that we have been able to make. And really increasing some of those urban brands on the Shoe Carnival side. So you will see you will definitely see it in, back to school. But then as we get into the fall, you will start to see even more changes just based on who the customer is and, and going back to what Clint said, the customers are very different.

The Shoe Carnival customer is a much younger consumer, fast fashion consumer at very valued prices. And a lot built on that good spectrum. So, again, we had a lot of changing to do to get that shoe carnival assortment back the way it needs to be. And then Shoe Station, that consumer is a more mature consumer. They definitely like value. And on the nonathletic side, they like the brands, but they like the brands at a value. So what we have to pay based on how what the direction was and how they were bought, we did not necessarily have those at the right value.

We have been able to go back and get the brands, the more mature brands that consumer likes, add a value, and we will be competitively priced in both banners. Does that answer your question?

Analyst (Samuel Poser): Yeah. It does. And then I have 2 more. 1, for Carrie. You know, you talked about this 270 basis point drop in gross margin You said that it would be skewed towards the front half. How should we think about I mean, how should we think about this at all? What is Q2 going to look like? On a from a gross margin perspective? Because, you know, we are looking down, like, 500 plus basis points in Q2, and then or even I mean, that is could you help us a little bit there?

W. Kerry Jackson: Well, directionally, you are right about that. Because last year in Q2 was the biggest increase on a year over year basis in our merchandise margin. The merchandise margin was up almost 400 basis points And we have and as we talked about in our Q4 call, we expect to give that back because that pricing was in front of the cost increases, and we were not competitive on our pricing at that point in time. So not only will we give that 400 basis points, but we will, through liquidation of product promotional categories that we will do in Q2 to keep getting our inventories in better shape, we would expect our merchandise margin to be higher decline.

Having said that, though, we will leverage our BD and O against the higher sales base. So your 500 may be a little high, but, directionally, you are right. You are in the you are right on the trend. Okay.

Analyst (Samuel Poser): And then lastly, for Clint, I have to ask you this question. I apologize ahead of time, Clint. But how does the new chief merchant rank versus her 2 predecessors.

Clifton E. Sifford: Now be honest with me, Samuel. Your dog just gave you that question.

Analyst (Samuel Poser): So Well, no. You were upset I did not ask that question on the last call. So Yeah.

Clifton E. Sifford: I know. I felt like I needed to ask that. So no pressure to question, Clint. Here's the here's the way here's the way I look at it. I hired Tanya and after I got a very strong recommendation from Carl that I hired Tanya, and I hired Carl. And I always hire people that remind me of the way I did the business. So I would say, I would say I am very proud of her, and I am so happy that she's here. And we have just had a great string of great chief merchants. Ever since I was hired by Marc Lamont. And then and then so, Tanya, when are you taking over the entire company?

Analyst (Samuel Poser): And I will leave it at that. And I do not need an answer, but have a great 1, and I will talk to you soon.

Clifton E. Sifford: Alright. Talk to you soon, Samuel. Thank you.

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

Analyst (Mitchel Kummetz): Yeah. Thanks again. I guess I have a few more. You know, Clint, you talked about some of these converted stores not aligning with their trade areas Have you have you really been able to identify yet how many stores we are talking about? And can you give us that number?

Clifton E. Sifford: I would ask Marc to maybe jump in on this 1. But, yes, we know the stores that do not align because that was part of the strategic review. it is not truly a hard-- in my mind, and Tanya's mind as well, it is really not a hard fix. it is just the timing of the fix because as you know actually, you probably know better than anyone that you are 6 months out. By the time we identified the store, on getting the right product.

And it is not a complete change it is really important to understand. it is not a complete change of the total inventory in those stores. it is just adding, additional product into those stores, maybe eliminating some of the higher end product But, adding in some of the opening price points to those stores to get them fixed. And, Tanya, you should you should jump in on that because you are the 1 working through it.

Tanya E. Gordon: Yes. Absolutely. Just to build on that. The brands the overall brand mix, as you well know, based on the national brands, about 60-65% of the assortment is very similar. Because the national brands are what the national brands are, and we need to carry those it is just the penetration of each of those brands that is different. Based on who the customer base is in each of the markets. And then to Clint's point, for the Shoe Carnival consumer, it is really getting in more value in those stores And like I spoke to earlier, getting more of that, young younger, fashion at a good price, good opening price point.

And then on the shoe station side, it is again, really getting in the branded piece of it for that more mature consumer at a great value.

Analyst (Mitchel Kummetz): And then, you know, as it-- as an enterprise, as you think about running both of these banners long term, I think you said I think you are in 35 states. I know that station, when you bought it, was relatively small initially. I think it was based out of Alabama. It had a kind of a real Southeastern presence. Are there any do you see any limitations on station in terms of, you know, growing into your kind of geographic footprint of 35 states? I mean, as you have opened stores, in geographies outside of this kind of core Have those stores worked well?

And, you know, do you see it as a banner that can function as broadly as the carnival banner has?

Marc A. Chilton: Mitchel, let me start with that 1. I think that the key differential for the Shoe Station when we are looking at it is finding the right customer base, which is as Tanya and Clint both said, is a little older, a little more affluent. So I think that is the limiting factor, but ethnicity is Clint said. It has not been an issue in Shoe Station. So we do not perceive that there is a limitation to being a nationwide retailer if we can find the locations. Now, obviously, that is over time.

Clifton E. Sifford: that is just I get excited when I think about some of the towns, like Indy or St. Louis, of the towns that we have historically been strong in but in more urban areas. Opening up those cities with a shoe station store and a higher income neighborhood or shopping center and servicing the customer on both ends of the income spectrum. I just see it as a tremendous opportunity for long term growth. Marc, you wanna add anything to that?

Marc A. Chilton: Yeah. Go ahead. Yeah. Mitchel, I would I would add to what Clint just said. If you look at some of our top markets, where we are very successful, we do not operate out of that entire market. Because there is large sections that a carnival does not make sense. This gives us the vehicle to complete a market. And I think it gives us a lot of room for growth as we look forward. Into areas, markets, and states we already know very well. Okay.

Analyst (Mitchel Kummetz): Then 2 last ones. I think these are for Carrie. 1, on the first quarter, can you give us comp by month? And then can you do not know if you can add to it sort of how early Q2 is trending.

W. Kerry Jackson: Well, directionally, I will give you as we said at our Q4 call, February started out nice and we were comping up low singles. And then you get into the shift of Easter, which makes it a little bit more difficult. And then we ran into the macro issues where you could see a slowdown in the consumer. So the-- the quarter ended much more difficult than it began.

Analyst (Mitchel Kummetz): And has that continued the, you know, the macro? I do not think it is gotten any better in May. Have you have you seen that kinda continue into May?

Clifton E. Sifford: We have-- that trend has continued into May. And we I just tell you, we believe that we are gonna see a continuation of this trend into the macroeconomic issues clear up whenever that might be. Until we get to back to school. Because when we get to back to school, we will be talking to our customer, where they live and how they shop. And I think it is going to set us up differently than we have been set up in the past. Very I am I am truly excited about the opportunity for that time period and beyond.

I sat through-- let me mention I am gonna get off subject in a minute, and Carrie's gonna slap me around, but I sat through boot presentation the other day for this fall, And I just have to tell you, it is the it is by far the best boot presentation I have ever seen, and it is so targeted to the customer that shops each 1 of these brands Shoe Carnival and Shoe Station, and I just I am so excited about our opportunity that even when you get past the boot presentation and see the product mix in athletic and women's nonathletic past boot buying, it is just it is very exciting to see.

We have even reenergized the kids department where before I believe that it was downplayed because it did not seemed to fit the shoe station customer base. But I am I have seen it. Excited about it, and I do believe that as we get toward back to school, you are gonna see a change in direction from ourselves.

Analyst (Mitchel Kummetz): So this is when Carrie steps in and guides to a double digit positive comp for the fourth quarter then. Right?

Clifton E. Sifford: Yeah. Yeah. that is why I said he is gonna not be happy with me But it I do there is a there is a change and the yes. The geopolitical issues of today will still have an effect, but I think we can overcome some of that. With the product mix I have seen. Alright. Great.

W. Kerry Jackson: Thanks again, guys. Partly why we were able to feel comfortable reaffirming our earnings is that even with the difficult trend we are seeing in Q2, the opportunity we see in second half, which we have said all along is that we expect to see it down first half and then up second half. And that is still played into our thought process when we reaffirm our guidance.

Analyst (Mitchel Kummetz): Great. Thanks.

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

Analyst (Samuel Poser): Okay. No more silliness. The comp that you sorry. Will the comp Be better in Q2, do you expect the comp to be better in Q2 than it was in Q1? Given that you will be in better position for back to school? And I assume July I mean, what? July is, what, 40%, maybe more of Q2 revenue?

W. Kerry Jackson: I do not think it is quite a 40%. You know, back to school starts the third week of July, and it really is really an August play for back to school. Mitchel, I think we are going to be cautious on giving a sales guidance at this stage on Q2. Or even direction on that until we see the macro issues more identifiable. So it is a wild card for us right now.

Analyst (Samuel Poser): But let me ask you a different way. Carrie. Is whatever you are trending like, you know how many dollars a week or dollars a day you are doing right now. Correct? I assume over the first few weeks of Q2. Correct? Okay. Yes. And you know on a relative basis, given that the macro or the micro or it is not great out there, you generally know how things accelerate at back to school. So it would tell you even if things do not get better, they will stay the way they are, you have some idea of where they are gonna be. And things have-- but things have gotten arguably worse since you gave your initial guidance.

Earlier in the year. So why not give direction based on what you know today assuming it stays lousy?

W. Kerry Jackson: Here's the thing, Samuel, is that if the macro environment cleared up quickly, you could have a rebound with the consumer on the spring product. And they could be more open to buying at back-to-school earlier. If the macro environment does not open up for us, then we may not get that rebound. We are seeing. We might have to get more aggressive there. So that is that is why we are going to shy away and stick with our annual guidance direction of, you know, we expect for the year to be down 1, up 1, and the first half will be down, and the second half should be up.

Analyst (Samuel Poser): And then can we assume that the gross-- because the gross margin is inferring that, you know, gross margin is going to be down triple digits in the back half. Is that just because you are gonna be running sort of a more aggressive promotional cadence than you did coupled with I mean and then well, then and then how much is the tariffs worked in, you know, the or the lack thereof of tariffs help you potentially in the back half of the year?

W. Kerry Jackson: Well, yes. And I add 1 additional item as we talked about in the Q4 call is that our margins so we raised the prices in Q2 of last year. And we were not very competitive. We saw it in our traffic, but it helped our margin throughout the year. So we are we are more competitive in our pricing, and we I called that in the last call somewhat artificial margin enhancement because it really was not sustainable over the long term. So that is where we are at.

So, yes, in the second half, we will still have margin compression. it is really getting back to more promotional pricing, but we are also seeing average unit cost pressures through tariffs. And in the first half, you have to add in we have liquidation product that we are trying to clear out our inventories and get cleaner and get the inventories down. So those components all play into it.

Analyst (Samuel Poser): So that, theoretically, you hit a base at the end of fiscal 26, And then that should and then once you get cleaner and where you should be, that is where potentially you can build back margin. By having, you know, within better localized assortments, being more directed, being able to target the promotional activity the way you once did not as you how you have recently done. Is that sort of a I am not asking for numbers, but is that a that is generally fair way to look at it.

W. Kerry Jackson: Yeah. And I made the statement last quarter that we expect to rebound in 2027 back into the 30 fives, which are more traditional. it is below what we did in 2025, but that or 2025 but that was not sustainable. And 2026 is below because we are getting a rebound effect, cleaning out inventory, we should rebound back to normalized margins in 2027 based on a reasonable economy.

Analyst (Samuel Poser): Thank you very much.

Operator: We have reached the end of the Q&A session. I will now turn the call back to Clint Sifford for closing remarks.

Clifton E. Sifford: Thank you for your questions and joining us this morning. Before we close, I will leave you with 3 thoughts. First, the strategic review we completed in March and April has resolved the questions about our direction. The Shoe Carnival and Shoe Station banners are permanent independent components of this company's portfolio. The work from here is operational. Getting the right product into the right stores, executing with discipline across the chain, and reconnecting with our customers at both banners. Second, the corrective actions we have set in motion are deliberately timed to support the back to school and fall selling periods which represent the expected bulk of our annual earnings opportunity.

The visible results of that work are expected to arrive during the third and fourth quarters not the second. The team's focus through the summer will be execution against that plan. Third, we are reaffirming our previous communicated fiscal 2026 guidance and we are doing so from a position of financial strength: $129 million in cash and marketable securities, no debt, and continued capital returns to shareholders during the first quarter we believe we have both the time and the resources to execute this transition properly. I am confident in the management team you heard from this morning and the strategic review, conclusions we have reached and in the financial foundation from which we are operating.

Tanya, Marc, Carrie, and I look forward to speaking with you in early September when we will announce our second quarter results and give an update on the important back-to-school selling season. Thank you for your interest in Shoe Carnival.

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