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Where’s the Sneaks? Late Athletic Deliveries Snag Shoe Carnival Sales

Late deliveries in the second quarter prompted Shoe Carnival, Inc. to pull back its full-year sales forecast Thursday.

Having gone into the period expecting athletic sales to retreat, a delay in sneaker deliveries in the back half of the period led to an even “steeper” decline in supply, president and CEO Mark Worden said. Though delayed product began to arrive in Q3, the company remains below its desired inventory levels, he noted.

“As such,” Worden said, Shoe Carnival updated its annual sales guidance to between $1.29 billion and $1.34 billion. In May, it had forecasted revenue would increase 4 percent to 7 percent compared to last year’s $1.33 billion for a prior range of between $1.38 billion and $1.42 billion.

In a Nutshell: Coming into the second quarter, Shoe Carnival was already positioning its inventory for an expected shift from its “normal” 50/50 balance between athletic and non-athletic styles, chief merchandising officer Carl Scibetta said. With supply chain issues impacting athletic footwear availability, however, the company was “simply unable to deliver enough new athletic receipts to meet demand within our athletic product categories,” he said.

By the end of the quarter, athletic inventories were down “high teens” versus 2019. Based on weekly averages, athletic inventory was down 25.7 percent in Q2 compared to three years earlier.

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Comparable store sales fell in the low teens across men’s, women’s and children’s athletic styles compared to 2019. Year over year, these categories were down in the mid-20s. Coming into the quarter, Shoe Carnival planned for athletic footwear “to be relatively flat,” Scibetta said.

Non-athletic styles, however, saw “continued strength,” Scibetta said. Compared to 2019, women’s non-athletic ended the quarter up in the high 20s, driven by dress, which was up more than 50 percent. Men’s non-athletic sales grew in the mid-20s versus 2019, with men’s dress and casual shoes both up more than 20 percent and boots up by more than 30 percent. Children’s non-athletic experienced sales growth in the high 50s on a three-year stack.

“Looking ahead, we believe athletic inventories will replenish as we move through the third quarter,” Scibetta said. “In addition, deliveries of new fall non-athletic products are flowing much better than 2021 and we are well positioned from an inventory perspective to deliver on the sales and profit guidance for the remainder of the fiscal year.”

Shoe Carnival ended the second quarter with inventory of $385.5 million, an increase of $48.6 million compared to the second quarter of 2019. About 59 percent of that growth came from Shoe Station stores acquired last year or opened this year, it noted.

Based on its second-quarter results, Shoe Station sales are now expected to exceed the company’s prior full-year expectations of $100 million by more than 10 percent, Worden said. Year-to-date, sales from the recently acquired retail chain totaled $54 million.

The integration of Shoe Station is “far ahead” of Shoe Carnival’s preliminary timeline, Worden added, as it realizes “significant” back-office synergies and gains efficiencies and best practices across merchandising, operations and marketing. As such, the company raised its full-year operating profit margin expectations for the banner from 10 percent to between 11 percent and 12 percent. This result will either be in line with company’s overall margin, or “slightly accretive if synergies progress even further,” Worden said.

Net Sales: Shoe Carnival recorded $312 million in net sales during the quarter ended July 30, a 16.4 percent increase from the $268 million it earned in the second quarter of 2019, but a decrease from the prior-year period’s $332 million. The results were driven by contribution from Shoe Station stores and new customer acquisition at Shoe Carnival doors of 28 percent, the company said. Comparable store sales, however, grew a more modest 8 percent versus 2019.

Compared to three years ago, athletic sales fell 12.9 percent in the second quarter. The decrease was more than offset by a 30.8 percent increase in on-athletic shoe categories.

Net Earnings: The company’s gross profit margin grew to 36.2 percent in the second quarter, a 560-basis point increase from the same period in 2019, but a 470-basis point decline year over year. Its operating income margin remained in the double digits for the sixth consecutive quarter, coming in at 12.4 percent. Though lower than the 18 percent it saw in 2021, it marked a significant improvement from the 4.8 percent and 5.8 percent operating income margins it experienced in 2020 and 2019, respectively.

Shoe Carnival, Inc. recorded a net income of $28.9 million, or $1.04 per diluted share, in the second quarter, down from last year’s $44.2 million, but up from $11.8 million three years ago.

The company reaffirmed its full-year EPS forecast of between $3.95 and $4.15. It expects gross margin to be in the range of 36.6 percent to 36.7 percent, up from 30.1 percent in 2019, and operating income margin to fall between 11.4 percent to 11.6 percent, compared to 5.2 percent in 2019.

CEO’s Take: “We delivered excellent gross margins, double-digit operating margins and earnings per share that was more than 43 of 44 prior full-year earnings already,” Worden said. “Our customers remain highly engaged despite the inflationary pressures, we generated the critical profits planned during our key back-to-school season and we are on track to deliver against our financial and strategic targets for the remainder of fiscal ‘22.”