Shoe Carnival Inc. (SCVL) Q2 2021 Earnings Call Transcript

Shoe Carnival Inc. (NASDAQ: SCVL) Q2 2021 earnings call dated Aug. 25, 2021

Corporate Participants:

Clifton E. Sifford — Vice Chairman and Chief Executive Officer

Mark J. Worden — President and Chief Customer Officer

Carl N. Scibetta — Senior Executive Vice President – Chief Merchandising Officer

W. Kerry Jackson — Senior Executive Vice President – Chief Financial and Administrative Officer and Treasurer

Analysts:

Mitch Kummetz — Pivotal Research — Analyst

Sam Poser — Williams Trading — Analyst

Greg Pendy — Sidoti — Analyst

Jim Chartier — Monness Crespi Hardt — Analyst

Presentation:

Operator

Good morning and welcome to Shoe Carnival’s Second Quarter 2021 Earnings Conference Call. Today’s conference is being recorded. It is also being broadcast via the webcast. Any reproduction or rebroadcast of any portion of this call is expressly prohibited.

Management’s remarks may contain forward-looking statements that involve a number of risk factors. These risk factors could cause the company’s actual results to be materially different from those projected in such statements.

Forward-looking statements should also be considered in conjunction with the discussion 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.

I will now turn the conference over to Mr. Cliff Sifford, Vice Chairman and CEO of Shoe Carnival, for opening comments. Mr. Sifford, you may now begin.

Clifton E. Sifford — Vice Chairman and Chief Executive Officer

Thank you and welcome to Shoe Carnival’s 2021 second quarter earnings conference call. Joining me on the call today are Mark Worden, President and incoming Chief Executive Officer; Carl Scibetta, Senior Executive Vice President, Chief Merchandising Officer; and Kerry Jackson, Senior Executive Vice President, Chief Financial and Administrative Officer.

As many of you know, today is my final earnings conference call as Shoe Carnival CEO. This management team has worked tirelessly to deliver consistent growth and value to our shareholders. I am extremely proud of our record performance and I am convinced we have not come close to realizing our full potential. I am so excited to watch this terrific management team continue to build on the successes we have enjoyed during my tenure as CEO.

I will let Mark, Carl and Kerry get to the specifics of the quarter. But first, I’d like to take a few minutes to reflect on the last several years. The strategic initiatives we have implemented thus far and the strategies we have in place for a long-term growth have been a critical driver of our strong performance and I believe have set Shoe Carnival up for further successes well into the future. Customer centricity is not just a catchphrase to us, it’s the core principle to every decision we make. The customer is and will continue to be at the center of everything we do at Shoe Carnival.

Our stores are easy to shop with all products as our open sale environment. However, we are not a self-service shoe store. Our stores are well staffed with knowledgeable associates who offer as much service as the customer desires. A merchandising team is made up of well tenured professionals who have a vast understanding of our customers and our stores down to the specific market. This deep understanding of each store-specific consumer and history of category performance allows our merchant team to build specific store level assortments that are not cookie cutter. Our systems then create size runs that are specific by department and category based on each store’s history. And most importantly, our stores are well stocked with a broad assortment of the latest trends from the best brands with an adequate depth of sizes.

Our customers trust that when they walk into one of our stores, they will find the styles they want and the size they need. While many businesses were shut down during the pandemic, we continued to invest in our future. Our investment in infrastructure and technology has been a game changer that will pay for itself many times over and the years to come. We launched three internal systems that have positioned us for immediate success in our online and brick-and-mortar stores that will drive future growth.

Our order management system has positioned us to effectively and efficiently improve service to our digital consumer. Our transportation and warehouse management systems have improved our supply chain performance from the Far East to our distribution center and ultimately to our stores. Our order management system allows for the fulfillment of our e-commerce orders either through our distribution center from one of our stores depending upon which ever is the most cost effective and timely way to get the product to the customer. This fall, we’ll launch a new planning software system that will give our merchants the additional tools they need to more effectively plan product assortment and flow to each individual store.

We talked for several years about the ongoing investment we made in our CRM system and our strong commitment to making it best-in-class. CRM is a vital part of our innovative marketing plan and has allowed us to begin to facilitate personalized communication with our customers. Further, it provides us with valuable consumer insights that influence every decision we make. I believe these investments have been the catalyst for our outstanding results and market share gains over the past several years.

These strategic initiatives are a testament to the knowledge and tenure of the team, but even more so to our ability to identify an opportunity and seize it in a meaningful way. The methodology that has served us well for many years is our ability to react quickly to the brands and trends of the season and quickly make the inventory investments that will make Shoe Carnival the headquarter shop for any current trend.

I have never been more confident in the team that will be leading this organization on a day-to-day basis. It is a new chapter, it is a continuum really. They are smart, aggressive and ready to take this company to new levels. Mark has been by my side the last three years helping to craft and execute these strategic decisions. And his leadership has been integral to the successes we have experienced today. Mark is a great friend and will be an even better CEO with a strong vision and incredibly talented team, new systems, technology and a loyal customer base. I truly believe Mark will lead Shoe Carnival into strong and profitable future growth.

I would now like to turn the call over to Mark to provide an overview of the quarter and an update of our strategic initiatives. Mark?

Mark J. Worden — President and Chief Customer Officer

Thank you, Cliff. And good morning, everyone. Footwear customers have resoundingly returned to shopping at Shoe Carnival stores all across the country. Sales and profit results are far exceeding our expectations for fiscal 2021. And as such, we are significantly raising our annual guidance today.

Before we get into the details, let me provide some context for the comparisons that I will refer to during my comments. Given the impact of the COVID-19 pandemic on our second quarter fiscal 2020, we believe our current performance is best viewed relative to the same period two years ago. In our view, this provides a more transparent picture of sustainability of the growth we’re experiencing as well as the underlying strength of our business. As such, comparisons I provide would be relative to the second quarter of fiscal 2019 unless indicated otherwise.

Kerry will provide further comparisons versus 2020. The Shoe Carnival team once again rapidly accelerated growth posting record sales and record earnings per share during Q2. Merchandise margins expanded substantially and we achieved our highest operating profit on record during the quarter, which was nearly 4 times what we reported in the second quarter of fiscal 2019. We also achieved overall comparable store growth of 25.5% in the quarter compared to Q2 2019. These growth results included a mid-teen increase in customer conversion within our brick-and-mortar stores, fueling double-digit comp store sales increases across all geographic divisions over the same period two years prior.

Importantly, our long term e-commerce growth strategies continue to deliver on our customers shopping needs. For the second quarter, e-commerce sales grew 140% versus the second quarter of fiscal 2019, driven by customer traffic up high double-digit. Further, product margin associated with e-commerce sales was up over 1,500 basis points compared to the fiscal 2019 second quarter. E-commerce has grown into both a new customer acquisition pipeline for the company and a major contributor of profit to shareholders.

Turning to back-to-school. The communities we serve are returning to school to fall sport [Phonetic] and the shopping patterns that are similar to 2019. Our customers are back in our stores shopping at levels exceeding prior back-to-school seasons and e-commerce sales continue to far outperform 2019 models.

To provide some additional context, for the first three weeks of August, overall store traffic is up over 50% compared to 2020 and schools did not return normally due to COVID-19. For the first three weeks of Q3 2021 ended August 21, comparable sales are up nearly 60% versus 2020 and up 23% when compared to August 2019.

Thanks to our best-in-class merchandise team and strong vendor partnerships, when our customers come to shop, they have [Phonetic] a broad on-trend selection of brands and styles in their size. We expect this momentum to continue throughout the back-to-school season and forecasting it translates into record Q3 sales and profit results. Kerry will elaborate on specific increased guidance later in this call.

Over the last three years, we’ve been implementing a strategy aimed at delivering a unique preferred shopping experience for our customers. To do this, we knew we needed to get to the core of what family footwear customers want when walking into our store or logging onto our e-commerce site to make several significant investments in our technology, including building a world-class CRM system and launching the Shoe Perks loyalty program, while at the same time strengthening our e-commerce capabilities. As a result, our brand experience and customer capabilities are stronger than ever.

Building from the solid foundation, we will align around four strategic pillars; customer first, innovation, profit transformation and growth acceleration. It’s through this lens, we will further solidify Shoe Carnival’s leadership position within the family footwear space.

Let me talk about the progress we are already making within these pillars and how we will continue to execute this strategy. Customers first. As the leader in the family footwear, Shoe Carnival priced itself on delivering a shopping experience that is preferred by our customers whenever and wherever they stop. We’re doubling down on the commitment to relentlessly operate with a customer-first mindset. Specifically, we prioritize a strategic focus on customer acquisition and then converting newly acquired customers into Shoe Perks’ loyalty members. Our customer insight and analytics capabilities are growing rapidly and enabling enhanced personalization efforts, resulting in converting more new customers into repeat buyers.

For the trailing 12 months ending Q2 2021, we expanded our new customers that purchased at Shoe Carnival by mid-teens percent versus 2019. Important to this strategy, we also grew our Shoe Perks loyalty program membership by over 20% versus Q2 2019 and double-digit growth versus Q2 2020.

Next, to be a customer-first organization, it’s critical to always be innovative, whether it be the in-store experience, our back-end systems that enhance customer personalization or staying at the forefront of key trends from a merchandising standpoint. Innovation will be the cornerstone of how we drive new customer acquisition and retention and ultimately long-term financial performance.

We continue to develop innovative marketing plans to ensure a strong customer engagement. As we discussed last quarter, we shifted away from profit dilutive, deep discount chain-wide promotions, like buy one get one-half off. We replaced this with targeted promotions to our customers powered by data analytics that gives them the product they’re looking for at a price point that represents value to them. One example of these efforts is our back-to-school results, which demonstrates the strategy is working.

Multiple competitors returned to the standard buy one get one-half off profit-dilutive promotions used during the last decade. Our back-to-school strategic promotional approach resulted in 23% comp store sales increase through the first three weeks of August, while product margins grew nearly 1,100 basis points compared to August 2019. This type of profit-driving innovation will be a key differentiator for Shoe Carnival and ultimately a driver of continued performance for shareholder value creation going forward.

In addition, as Cliff mentioned, we have transformed our infrastructure by upgrading and enhancing our transportation, warehouse and order management systems, which will allow us to meet our customers’ needs more efficiently. Notably, we’re in the midst of a multi-year store modernization effort. Shoe Carnival is already known for providing family footwear consumers a unique in-store and online shopping experience.

Last quarter, we stated an aggressive goal of completing the first 100 stores within our fleet modernization plan by Spring 2022 and over two-thirds of our store fleet in the next three to five years. I’m pleased to say we’re on track to achieve our 2022 target and are pacing ahead of our three to five-year plans. The feedback from our customers thus far has been overwhelmingly positive. The counter enhance [Phonetic] has been engaging, offering an even more exciting and rewarding in-store shopping experience.

Third, as we reap the benefits from our first two pillars, customers first and innovation, we are in an enviable position to deliver enhanced operational excellence, which will translate into profit transformation. You can see this most clearly in the record product margins and operating income we delivered during the second quarter of fiscal 2021. In addition, because of our strategic initiatives, we now believe that we have the ability to sustain operating margins of at least 8% over the long-term. Our new profit level far surpasses our previous strategic plan target to achieve 6% operating margins by 2023.

Fourth, accelerating growth. Near-term growth will be focused on new customer acquisition, expanding comparable same-store sales and increasing sales and profit per square foot. We’re very pleased with the progress on our store profitability metrics. At the high end of our guidance for this year, our sales per square foot will be approaching $300 a foot and our average sales per store will be $3.2 million. This compares to our previous recent highs achieved in 2019 of sales per square foot of $245 and average sales per store of $2.6 million.

Significant runway exist to grow profit accretive market share in our existing core markets and sustainably deliver over 8% operating margin for our shareholders. Our disciplined capital management strategy have served us well and we’ll continue to do so as we further evolve as a leader in the space. At quarter end, the company has no debt and approximately $164 million in cash, cash equivalents and investments. The strength of our balance sheet, combined with the strong strategic vision and execution across the organization, has allowed us to achieve our strongest Q2 operating results in company history.

Given the continued record-setting performance achieved fiscal year-to-date, we are significantly increasing our full year guidance. Our increased guidance reflects our confidence in the business fundamentals, our strong competitive positioning and record results achieved year-to-date. In addition, given the start to the back-to-school season far outpaced earlier expectations and any prior back-to-school start, we will also be offering third quarter fiscal 2021 guidance that represents significant growth over last year. Our solid foundation, coupled with our innovation-led, customer-first strategy will support this increased outlook for the remainder of the year and beyond.

I want to take a moment to recognize our outstanding Shoe Carnival team members for their continued commitment, operational excellence and their customer-first mindset. We could not achieve the results we have without their hard work and dedication. We’re very excited to continue the great work the team has been doing, but I am also cognizant of the rising uncertainty in light of the increasing transmission rates of the COVID Delta variant. As such, we continue to prioritize the health and safety of our customers, employees and communities. While the environment remains fluid, we are confident we have a strong playbook in place to remain nimble from periods of uncertainty and are well positioned to react quickly to things materially change.

In closing, we are committed to providing our customers the preferred shopping experience and product assortment within the family footwear channel. The team’s strategic efforts will unlock significant brand value over the coming months and years, while at the same time solidifying our position as an innovative leader in the family footwear space.

I’ll now turn it over to Carl Scibetta, Senior Executive Vice President – Chief Merchandising Officer, for an update on our product performance and inventory position.

Carl N. Scibetta — Senior Executive Vice President – Chief Merchandising Officer

Thank you, Mark. We continue to execute on our focused promotional strategy using data intelligence to drive customers in-store with more personalized recommendations. This strategy has served us well since implementing it over 10 months ago driving record sales and gross margins. We continue to monitor key metrics that provide valuable insight into customer behavior.

We then flex [Phonetic] our promotional and merchandising strategies to allow any changes in customer shopping preferences. This flexibility allows us to gain additional insight into our customer, which further enhances targeting to drive more customer acquisition growth. One of our key strengths as an organization is our ability to react quickly to a changing market.

The merchant team continues to work closely with our vendor partners to reduce negative impacts from industry-wide supply chain disruptions. We made a purposeful decision to buy for growth in the second quarter as we anticipated a return to more normalized consumer demand for the period. For example, we increased our inventory position for dress shoes to be in line with pre-COVID levels in anticipation of a surge of events like weddings and graduation parties, which typically occur in the second quarter. This was another great example of Shoe Carnival being on trend early.

Our stores were stocked with the styles and quantities of dress shoes that customers wanted, giving us an edge over our competition and driving a significant increase in new customers in the quarter, our ability to lean in continues to set us apart from others in the industry.

Before I get into the results for the quarter, as Mark noted, I will be including comparisons to the second quarter of fiscal 2019 in my comment. The second quarter of fiscal 2021 comparable store sales increased 11.4% over 2020 and 25.5% over 2019. Product margins for the quarter skyrocketed, up more than 1,100 basis points compared to 2020 and over 1,000 basis points compared to 2019.

Turning to comparable store sales by department for the quarter versus 2019, all product categories were up double-digits. In-store sales versus 2019 were up over 20% in the quarter with every major category doing well as family lifestyles returned to more normal level in travel and entertainment increased. As a result, we saw category selling returning to a more historical mix by classification.

Comp store sales in both kids athletic and non-athletic were very strong. Sales in non-athletic were driven by casual and seasonal products. Sales in both boys and girls also performed well, consistent with what we have seen over the last several quarters. Comp sales in the men’s non-athletic categories were up over 30% versus 2019. Increases were driven by men’s canvas seasonal and all boot categories. Comparable store sales in women’s non-athletic categories were up in the high-20%s for the quarter. Sales on women’s sports seasonal and dress drove the category. But as communities continue to reopen, demand for additional product categories has increased.

We continue to grow our leadership position in adult athletics, which were up in the high-teens on a comparable store basis, despite the move to several states tax-free events to fiscal Q3. Both men’s and women’s athletics had strong performances with sales driven by the basketball, skate and core categories.

We ended the quarter with inventory up 4.2% on a per-door basis compared with 2020 and down 4.9% to 2019. We are working closely with our vendor partners to replenish key categories and are diligently monitoring our supply chain. While these shortages are forecasted to continue for the balance of the year, we believe that our outstanding buying team through their excellent vendor relationships will continue to be successful in providing our stores with the products needed to accomplish our goals and sustain our record-breaking numbers.

With that, now let me turn the call over to Kerry Jackson to provide more insight into our financial performance for the quarter and full year.

W. Kerry Jackson — Senior Executive Vice President – Chief Financial and Administrative Officer and Treasurer

Thank you, Carl. As Mark mentioned, given the impact of the COVID-19 pandemic during the second quarter of fiscal 2020, we believe our performance is best viewed relative to the same period in 2019 as this will provide a more accurate depiction of our outstanding results we achieved during the period. I’ll provide comparisons relative to 2020. We will place added emphasis on some of our results compared to the second quarter of fiscal 2019.

We achieved record net sales of $332.3 million for the fiscal 2021 second quarter, an increase of $31.4 million or 10.5% compared to the second quarter of fiscal 2020. Comparable store sales increased 11.4% for the second quarter of 2021 compared to the prior year and 25.5% percent compared to the second quarter 2019. Our brick and mortar comparable store sales were up 25.8% in the second quarter 2021 compared to the second quarter 2020 and up 19% compared to the second quarter 2019.

E-commerce sales were up 140% in the second quarter 2021 compared to the second quarter 2019, but down in line with expectations against the second quarter of 2020.

Second quarter 2021 gross profit margin was 40.9%, a record high for Shoe Carnival and up more than 1,300 basis points compared to the second quarter of 2020, driven primarily by our tremendous merchandise margins in the quarter. Buying, distribution and occupancy expenses decreased slightly as a percentage of sales when compared to second quarter 2020.

To put a finer point on our incredible growth, when compared to 2019, second quarter 2021 gross profit margin grew by more than 1,000 basis points, driven by a 960 basis point improvement in merchandise margin and a 50 basis point improvement in buying, distribution and occupancy expenses as a percentage of sales. These results clearly underscore the successful execution of our merchandising strategy, highlighted by Cliff, Mark and Carl earlier in the call.

SG&A expenses increased $7.8 million in the second quarter of fiscal 2021 to $76.0 million. As a percentage of net sales, this expense increased to 22.9% compared to 22.7% in the second quarter of fiscal 2020. The increase in the SG&A was driven by higher employee compensation expense related to increased store level wages and incentive compensation as a result of our continued record performance. When compared to second quarter 2019, SG&A expenses as a percentage of sales for the second quarter of 2021 increased 190 basis points due to the significant increase in sales.

Operating income was $59.7 million or 18% of second quarter 2021 sales, which is a record for the company compared to $14.4 million or 4.8% of sales in the second quarter 2020. When compared to second quarter 2019, second quarter 2021 operating income increased an extraordinary $44 million. As Mark mentioned earlier, we believe we can sustain future operating margins of at least 8% when the retail environment has normalized.

The effective income tax rate for the second quarter of fiscal 2021 was 25.8% compared to 29.6% in 2020. Net income for the second quarter of 2021 was $44.2 million compared to net income of $10.1 million during the same period last year. Earnings per diluted share in the second quarter 2021 increased by $1.19 to $1.54 per diluted share. Compared to the second quarter 2019, earnings per diluted share increased $1.14.

Now turning to information affecting cash flow. Depreciation and amortization expense was $4.6 million in the fiscal second quarter compared to $4.0 million in the second quarter of fiscal 2020. We ended the quarter with inventory of $308.1 million, which was up $9.3 million compared to the prior year or 4.2% on a per store basis. Compared to the second quarter of 2019, inventory is down 0.9% on a per store basis. As was mentioned earlier, we continue to work closely with our vendor partners to strategically manage our inventory, given current supply chain constraints.

As of July 31, 2021, we had no outstanding debt and total cash, cash equivalents and marketable securities were $163.9 million. Our borrowing capacity was nearly $100 million at the end of the quarter. As you know, during the second quarter, our Board of Directors authorized a two-for-one stock split of the shares to the company’s common stock, which was affected in the form of dividend. The stock split entitle each shareholder of record at the cost of business on July 6, 2021 to receive one additional share of common stock for each share they own as of that date and was paid on July 19, 2021. Upon completion of the stock split, our outstanding shares increased from approximately 14.1 million shares to approximately 28.2 million shares.

During Q2, we repurchased approximately 117,000 shares of common stock at a total cost of $4 million. As of July 31, 2021, we had $46 million available for future repurchases under our share repurchases program. We will continue to evaluate the repurchase of shares under the repurchase program during the remainder of fiscal 2021.

Turning to our outlook. Given our third quarter results to-date and our expected continued strength for the remainder of the quarter, we expect third quarter diluted earnings per share in the range of $1.10 to $1.15 and net sales in the range of $307 million to $315 million for the third quarter of fiscal 2021. Additionally, we are raising our full-year fiscal 2021 guidance and now expect diluted earnings per share in the range of $4.35 to $4.50 and net sales in the range of $1.21 billion to $1.23 billion. This concludes our financial review.

Now I’d like to turn the call back to Mark for some additional comments.

Mark J. Worden — President and Chief Customer Officer

Thank you, Kerry. Before we open the call for Q&A, I’d like to take a moment to recognize Cliff, given this will be his last earnings call. First and foremost, I would like to express my personal gratitude to Cliff for his innumerable contributions to the Shoe Carnival organization and the broader family footwear industry for more than two decades.

I appreciate the strategic partnership and the great friendships we have developed working closely together over the last three years. Cliff has built an incredible company culture, his vision combined with our collective strategic investments to build our brand and consumer experience, drives us the springboard to drive long-term success for Shoe Carnival and I’m honored to be following his lead.

Cliff has also pioneered [Indecipherable] profit efforts on both the personal level and at the company. In fact, it was recently announced that he would be awarded with T. Kenyon Holly Memorial Award by The Two Ten Footwear Foundation in December, the foundation’s highest honor for exceptional humanitarian achievement. We are so proud of this well deserved recognition as it perfectly sums up who Cliff is as a person.

Cliff, from all of us at Shoe Carnival, it’s been an honor and a privilege to work with you. We wish you nothing but the best as you transition into your new role.

I would now like to open up the call for questions and answers.

Questions and Answers:

Operator

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

Mitch Kummetz — Pivotal Research — Analyst

Hi, yes. Thanks for taking my questions. Cliff, pretty good quarter. I should probably add my congratulation, so I’ll reluctantly do that just for you.

Clifton E. Sifford — Vice Chairman and Chief Executive Officer

Thank you for that.

Mitch Kummetz — Pivotal Research — Analyst

Of course. I’ve got a handful of questions. So, first off, obviously business had a great quarter, you’re having a strong start to Q3. When you reflect on that, how much do you think that’s the macro, stimulus, pent-up demand, things like that versus some of your company-specific strategies around consumer acquisition and engagement or even just the fact that you may have better product developed LOEs than some of your competition. Can you maybe just talk a little about that?

Clifton E. Sifford — Vice Chairman and Chief Executive Officer

Mitch, I’d like to tell you, everything that we’ve done through the years, I have got this here [Phonetic], but to be [Indecipherable] I’m going to let Mark answer this question because the things that he has put in place to take the CRM to the next level is what’s got us to where we are today. And I am so confident that what he is going to do as our transition to buy share is going to take us to next level. So, Mark, why don’t you take that?

Mark J. Worden — President and Chief Customer Officer

Thank you, Cliff. And hi, Mitch. Thank you for the congratulations. Mitch, we’re thrilled with the business fundamentals that we’re either seeing throughout Q2 and even more encouraged by the way the plans have worked as we started out Q3. As I shared in my prepared remarks, Q3 is on pace to set a record back-to-school. And we’re so confident in the traffic, the conversion, the merchandise product that Carl and team has gotten our delighting customers that were already ready to share their record Q3 earnings. So in short, we believe our strategic plans are working well and set us up to maintain this momentum throughout the remainder of the year, on pace for the tremendous increase in earnings and sales charges provided.

Mitch Kummetz — Pivotal Research — Analyst

And then, Kerry, on the guidance, I want to kind of look at sort of what’s embedded over the balance of the quarter, it looks like you’re expecting some moderation in the trend. I’m just curious, is that just some conservatism baked into the outlook or is there something that you’re seeing as you think about the balance of the quarter. Again I’m sort of really thinking about that on a two-year basis, I know that back-to-school is funky last year, but I’m thinking about that in terms of two years ago.

W. Kerry Jackson — Senior Executive Vice President – Chief Financial and Administrative Officer and Treasurer

Well, back-to-school, as we’ve said before, it’s kind of a forced buying and then all kids go back to school with new shoes. And since the kids have gone back to school physically in presence, we’re seeing a nice surge which we wouldn’t expect to see outside of a peak demand like this. So, yes, sequentially through the rest of the quarter, we are expecting to see it more normalized and positive.

Mitch Kummetz — Pivotal Research — Analyst

Okay. And then, Carl, talk to me about boots, you made some comments on the quarter about the non-athletic business being good, people kind of getting back to events, I’m kind of curious how you think about that into the holiday season. I mean, do you expect you have a good dress boot business, can you just broadly talk about kind of your outlook for boots?

Carl N. Scibetta — Senior Executive Vice President – Chief Merchandising Officer

Sure, Mitch. We plan boots up for the back half of the year mid-single digits. I’ll tell you that [Indecipherable], the numbers are very small, so we have to keep that in mind, early boot reads are outstanding so far. And as multiple categories of other boots that are performing, some of the fashion that we saw in ’19 that we expected to accelerate in ’20, that obviously got derailed because of COVID, we’re seeing that happen in ’21. So we are encouraged on the boot sales for the fall of the year.

Mitch Kummetz — Pivotal Research — Analyst

Okay. Just couple of last ones. Any comments on the supply chain? It looks like you guys are doing a really good job in terms of having good product availability, but I’m just kind of curious how you — what are you’re hearing on the supply chain? What are you seeing more broadly across the industry? We’ve heard that people expect the supply chain are being challenged at least through the balance of this year into the first half of next year. And I’m kind of curious how you think about that relative to what you think channel inventory might look like and your ability to kind of, again, continue to hold off promotions if things stayed pretty clean out there?

Mark J. Worden — President and Chief Customer Officer

Sure, Mitch. That’s — this is the all-consuming part of my day, trying to get our arms around the supply chain and trying to sort of move things around. We’ve been fortunate so far that we have been able to deliver inventory based on our inventory levels. I quoted in my prepared remarks, we’re quite pleased where we are right now. We think we’re positioned as we move through third quarter and into the first part of fourth quarter that we have products flowing, we have anticipated delays. And even with those delays, we feel pretty good about where we are. As we move into late fourth quarter at Spring, we do see this continuing, especially with the issues that we’re having in — that the industries have in Vietnam right now and how that’s going to play out, we don’t have complete vision to that today.

But I will say that our team has executed very well so far. Our vendor partners have really stepped up and supported us. And I expect that to continue here throughout fall, although I do see the possibility that the channel will be light on inventory and we’ll once again be able to hold off promotion based on our position of inventory in the season.

Mitch Kummetz — Pivotal Research — Analyst

Okay. And then, lastly, if I heard you guys correctly, I think you said that 8% operating margin is kind of where you think it’s being more sustainable level which that would be down from kind of where you guys should land this year. So I’m kind of curious, what do you think you give back, is it just that as the environment normalizes, just maybe the sales come down a little bit, you deleverage some or is it really on the merged margins aren’t sustainable at this level. I know you’ve kind of moved away from BOGOs, and I would expect that you would think that continues, but I mean the margins have been so good, you just think that you have to give some of that back. Can you just maybe talk to that?

Clifton E. Sifford — Vice Chairman and Chief Executive Officer

Sure, Mitch. I’m going to compare versus 2019 in our historical pre-pandemic stance. We have put in place a transformational profit improvement plan to get to a 6% operating margin by 2023. As historically pre-pandemic, we were running low-5%s, high-4%s and in that range for the five years leading into it. So, quite a variety of plans in place that we talked about the last quarters, including our innovation, our new systems, our customer focus and, most importantly, our view to transformation. Those things are coming to bear faster than we thought and by nature that we’re giving guidance now that 8% is our new norm compared to 6% in 2023.

So we’re thrilled with that. The primary driver of it will be landing a promotional strategy that delivers margins significantly higher than pre-pandemic. And it’s not that we’ve shifted at all from the lighting our value-based customer, we’re still talking to them, providing them the best product as a price for them. But we’re doing it on more of a personalized one-on-one basis, leveraging our CRM, our marketing plans and our best-in-class merchandise buying on trend.

So, we are confident that we can come out there today, not ready to give guidance on revenue or other 22 items, but we’ve step change the profitability from low-5%s pre-pandemic to 8% as the new perspective. There’s a lot we need to learn about other cost structure, supply chain, revenue and leverage. And therefore, we’re not giving guidance overall today and we’re not ready for that, but we’re very confident in the step change.

Mitch Kummetz — Pivotal Research — Analyst

Okay. All right, guys, thanks. Good luck. Cliff, I know you’re probably not going to miss these calls that we we’re going to miss having you on them. So, thanks again.

Clifton E. Sifford — Vice Chairman and Chief Executive Officer

Thank you.

Operator

The next question is from Sam Poser with Williams Trading.

Sam Poser — Williams Trading — Analyst

Well, good morning everybody. This was by far the most amazing, unbelievable, spectacular quarter I’ve ever seen. And now, I hope nobody ever says anything like that again.

Clifton E. Sifford — Vice Chairman and Chief Executive Officer

Thank you, Sam.

Mark J. Worden — President and Chief Customer Officer

Thank you, Sam. [Indecipherable]

Sam Poser — Williams Trading — Analyst

All right. So, number one, I just want to dig into the post early holiday inventory availability situation. I mean, we are hearing all sorts of stuff, vendors pushing back orders, potential cancellations, lots of different stuff going on. So, when we think about how much of those issues, let’s say, in prime time holiday, let’s say, December/January or in that — how is that impacting the guidance in the back — for the balance of the year? And what are you doing to make sure that you can be in position for Spring ’22 because that seems to be the wildcard right now. Holiday is big, but Spring ’22 sounds like it could even be a bigger issue.

Mark J. Worden — President and Chief Customer Officer

Hi, Sam, it’s Mark. Thanks so much for the congratulations. We have baked in the supply chain concerns into our Q3 and Q4 guidance that Kerry has provided today. So we feel confident with the current situation in the landscape and global supply chain. We are on track to achieve what we just guided to. I mean, ask Carl to build on to the outlook path the holiday season and as we start to look to the uncertainty that still exist in ’22.

Carl N. Scibetta — Senior Executive Vice President – Chief Merchandising Officer

Hi, Sam. We feel good like we mentioned about getting into the holiday season, getting through the holiday season meaning delivery of products in January, February of next year. That’s still somewhat of an unknown. We are — every day we’re getting more answers from our vendors regarding delivery moves and shifts. We’re not seeing a large quantity of cancellations at this point, although we are seeing some delays in that supply chain. We’ll know and the majority of the noise we’re getting is all about Vietnam products, you know what those are. So it’s hard to tell at this point where Q1 ’22 is going to fall as far as beginning inventory. We feel good getting through fall, early fall and then holiday and we’re getting more updates every day on January, February. And it’s really early in the game for me to give you more than that.

Sam Poser — Williams Trading — Analyst

Okay. And then, can you — you said that e-commerce business was in — versus last year was in line with your expectation. Can you — giving all the other numbers, can you tell us what the e-comm was versus 2Q ’20?

Clifton E. Sifford — Vice Chairman and Chief Executive Officer

Sure, Sam. Like I said, we are delighted with the new customers we brought in through our acquisition of digital. It’s landed, as we said, 140% growth versus two years ago, through now it’s down mid double-digit versus last year. And by now, I mean, through where we are three weeks into August, we’re down low double-digit versus 2020, exactly in line with where we had planned the year. We are incredibly excited by how fast customers have returns of our bricks and mortar store and they’ve returned even faster. So, the acquisition of customers that we’ve taken through CRM both at digital and in our bricks and mortar is dramatically higher as I said in the call and two years ago and significantly higher than one year ago. But I do like [Indecipherable] sales accelerated faster than we thought and e-comm sales held in line with switching back that we had anticipated.

Sam Poser — Williams Trading — Analyst

Okay. So I’m going to be paying [Phonetic], DICK’S Sporting Goods just reported earnings, they just said that their e-commerce business was down 28% year-over-year. They gave a number, they understand — we all — everybody understand last year’s e-commerce business was through the roof. So, what is down versus last year just the number, you gave us 240 [Phonetic], give us what the down is this year, we understand that its just — the number is the number.

Mark J. Worden — President and Chief Customer Officer

Sure, Sam. Yeah, we’re down approximately 18% year-to-date e-commerce sales.

Sam Poser — Williams Trading — Analyst

And in the second quarter?

Mark J. Worden — President and Chief Customer Officer

Do not have second quarter in front of us right now, Sam, but it’s higher than that, but in line with our expectations.

Sam Poser — Williams Trading — Analyst

And then, are you — what’s the store opening/closing situation look like given the productivity the stores are going up, how do you see about — what do you see for the balance of the year into next year right now for your store plans?

Mark J. Worden — President and Chief Customer Officer

Yeah. Right now, we are really excited about reigniting the store growth plan as well as all the energy we’re putting into modernization plans. Our current plans are to get net new store growth as we approach 2023. 2022 is currently focused on finding those sites, really driving with acceleration, the modernization of our fleet and accelerating the profitability.

Sam Poser — Williams Trading — Analyst

And for the balance of this year, what’s the plan right now for stores?

Mark J. Worden — President and Chief Customer Officer

Still no change. We’ve just opened one store last quarter and we have two to three, we continue to expect to close this year on natural terms that are low performing.

Sam Poser — Williams Trading — Analyst

All right. And Cliff, congratulations and enjoy your retirement — not retirement.

Clifton E. Sifford — Vice Chairman and Chief Executive Officer

Thank you, Sam.

Operator

Your next question is from Greg Pendy with Sidoti.

Greg Pendy — Sidoti — Analyst

Hey, guys. Thanks for taking my questions. Just two. I guess, on the near-term outlook, August, is that typically — I think in the past you’ve mentioned that’s around 70% athletic and just kind of, I guess, the context of the question would be, I mean, is that where you’re winning most because earlier in the call you kind of mentioned market share.

Carl N. Scibetta — Senior Executive Vice President – Chief Merchandising Officer

Hi, Greg; this is Carl. Typically 70% athletic for the month of August, I can tell you right now we’re running a little bit less than that percentage of athletic to the total. And that’s not a reflection, I don’t believe though the athletic sales slowing, it’s a reflection of other fashion categories accelerating like they were at the beginning at — for fall of 2019 before they got the [Indecipherable]. So, slightly less than 70%, but still a giant number.

Greg Pendy — Sidoti — Analyst

Okay. Understood. And then, just considering your customer demographic, I know it’s little ways out, but the tax credit — can you kind of talk to on child care just how to think about that and maybe in relative to 2019 if you can kind of remember what was the refund season like in the sense of anniversarying that now that people will probably — they’re getting their credits now and they won’t be getting the refunds. How should we be thinking about that?

Carl N. Scibetta — Senior Executive Vice President – Chief Merchandising Officer

We’re seeing that our customers continue to be motivated come into Shoe Carnival store live following the trial tax credits that are coming out monthly. We’ve seen specifically traffic spike double digit, be faster than new tax credits that come out, conversion has been exceptional and comp sales have been continuously strong following each of the checks. Still little early, but it’s been consistent for both the month so far and seems to have been lasting for good one to two weeks where we’re getting material above. So we built into the remainder of the year forecast for the stated credits, similar expectations that we continue to fuel a part of that growth. It’s too early to understand yet for 2022 what the impact will be, but we are clearly seeing it’s resonating with our customer, they are choosing Shoe Carnival in conversions and traffic are exceptional.

Greg Pendy — Sidoti — Analyst

Okay. That’s very helpful.

Operator

Your next question is from Jim Chartier with Monness Crespi Hardt.

Jim Chartier — Monness Crespi Hardt — Analyst

Good morning. Thanks for taking my questions. I just wanted to talk about the composition of the sales growth versus 2019. How much is being driven by the gains in your customer base and over the last two years and how much is an increased spend by your existing customers?

Mark J. Worden — President and Chief Customer Officer

Good morning. Thank you for the question. We see the lion’s share of the growth is being driven by new customer acquisition versus the pre-pandemic. The double-digit gains we’re bringing in have been the primary fuel to our success we believe. And the conversion at that point of time is a credit to what Carl and his organization have had the right product, the right trend and importantly in stock to convert on time during the supply chain disruption. So, without a shadow of a doubt, new customer acquisition has been primary.

Secondary though, our Shoe Perks loyalty program has also grown double-digit. And we think that’s the magic to the quarter that we’ve been able to bring double-digit customers in, but make our Shoe Perks loyalty member climb to the highest it’s ever been. I think they’re really enjoying it and we’re bringing them through that value chain of awareness, trial in-store importantly, buying and then becoming loyalty members which are most profitable. So we’re thrilled with the dynamics we’re seeing for the underlying business fundamentals.

Jim Chartier — Monness Crespi Hardt — Analyst

Great. And then, in terms of the new customers that you acquired last year, are they behaving similar to earlier cohorts of new customers? And then, is there a maturation period for new customers?

Clifton E. Sifford — Vice Chairman and Chief Executive Officer

They’re behaving differently and reacting incredibly positive to our new promotional strategy in fact. If we look at 2019, the core of new customer acquisition was coming in through lower promotion, profitability activity. Now, we’re targeting new customer acquisition, specifically the brands with styles, the communication with experience and it’s taking our average basket size up to some of the highest levels we’ve seen and our profitability and margin to the highest levels we’ve ever seen. So they’re acting quite positively to the CRM investments, I would say. And we’re bringing in a customer that’s still value oriented but not looking for cheap. And that’s a big differentiator we’re articulating internally. We will have to value for the best product, but we’ll give at the right price, not a cheap price that is giving away value for shareholders.

Jim Chartier — Monness Crespi Hardt — Analyst

Great. And then, on the store modernization plan, how does the Nike shops kind of play within that? And so, if the 100 stores you plan to modernize by next Spring, how many of those will include a Nike shop? And then just to kind of follow-up, how are you thinking about benefits from Nike’s distribution rationalization going forward?

Mark J. Worden — President and Chief Customer Officer

Yeah. As we said on the call, we are very pleased with our store modernization is rolling out. We are on track to exceed the payers for the three to five-year plan to have at least two-thirds of the store done. So we’re very confident that’s going well. Related to next year, our contract for that first 100 is to be completed by Spring and even more exciting part I didn’t share before, this quarter the first 50 of those will be completed. And we’re very proud of that despite COVID and all that’s going on, our teams have worked tirelessly to still refresh and the first 50 will be completed this quarter. More specifically to your question by Spring of ’22 and we have that first 100 approximately half of the company’s fleet will have Nike shops in them. And our plan is right now or the lion’s share or all of those to have Nike shops in them.

Jim Chartier — Monness Crespi Hardt — Analyst

Great. And then, just thoughts on kind of when you’ll start to see the benefit from some of Nike’s wholesale distribution?

Carl N. Scibetta — Senior Executive Vice President – Chief Merchandising Officer

Hi, this is Carl. We really don’t get into individual brands on the call and how we’re planning individual brands at this point. And I guess it’s offsetted [Phonetic] about that at this time.

Jim Chartier — Monness Crespi Hardt — Analyst

Okay, great. That’s all I had. Thank you.

Clifton E. Sifford — Vice Chairman and Chief Executive Officer

Thank you.

Operator

You have a follow-up question from Mitch Kummetz with Pivotal Research.

Mitch Kummetz — Pivotal Research — Analyst

Hi, thanks. I just have one quick follow-up. Kerry, obviously great quarter and then great start to Q3. I’m just curious, when you look at Q2 by month on a two-year basis, could you maybe speak to the month? I don’t know if you have any numbers on the months versus two years ago and if you don’t, can you at least maybe you kind of — how consistent was the quarter or was it all lumpy, anything that would be helpful?

W. Kerry Jackson — Senior Executive Vice President – Chief Financial and Administrative Officer and Treasurer

Against the prior year, we had a very strong May and June in the 30-plus range and then July was up low double-digits. So we had a very strong quarter.

Mitch Kummetz — Pivotal Research — Analyst

Do you have any sense so how that was versus two years ago, was it even more…

W. Kerry Jackson — Senior Executive Vice President – Chief Financial and Administrative Officer and Treasurer

Yeah, the two year numbers.

Mitch Kummetz — Pivotal Research — Analyst

That was the two year. Okay. I’m sorry, I thought you said prior to last year. Okay. All right. Thank you.

Operator

There are no further questions at this time. I will now turn the call back over to Mr. Sifford for closing remarks.

Clifton E. Sifford — Vice Chairman and Chief Executive Officer

Thank you. I cannot fully express my gratitude to the Shoe Carnival family that includes our customers, our employees, our vendor partners, our investors, everyone on this call and to the Shoe Carnival Board of Directors who believes in this team and gives us the latitude to win.

It has truly been my honor to lead such an impressive organization for the past nine years and be part of it for 24. I truly mean it when I say the Shoe Carnival family, this company has and will always feel like home. I look forward working with Mark and the team as I’ve joined the board full time and I wish the team all the success in the world. I cannot wait to watch you continue to do such great customer focused work.

Thank you all once again. Mark and team, look forward to speaking to you with — with you in November.

Operator

[Operator Closing Remarks]