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Shoe Carnival Stock Rises on Q4 Earnings Beat, Infrastructure Improvements

Investors liked what they saw from Shoe Carnival in the fourth quarter, rewarding the footwear retailer’s performance with a $6.44 increase in share price—up 21 percent from its position prior to the release of its full-year financial report Tuesday.

In a Nutshell: Calling 2018 “a year of innovation,” Shoe Carnival made several improvements to its infrastructure during the year, including a massive overhaul of the company’s customer relationship management system. During its FY18 conference call, Shoe Carnival announced plans to open 10 new stores in 2020 that will rely heavily on the new system, which it says gives its sales team an “unparalleled view” into the shopping habits of its consumers.

The company also relaunched its loyalty program, Shoe Perks, in July with a new emphasis on rewarding its highest-spending customers. Shoe Carnival estimates that its “gold level” shoppers now spend around 20 percent more than non-gold members per visit. To support this, the company says same-store sales increased 6.5 percent in August after the implementation of the loyalty system.

Sales: Comparable store sales for the company rose 4.7 percent in the fourth quarter. Net sales totaled $234.7 million. A total sales comparison for the quarter would not be possible, considering Q4 of FY17 was one week longer than Q4 of FY18. Shoe Carnival estimates the effect of the extra week was roughly $15.2 million. If accurate, adjusted net sales for the fourth quarter would be $249.9 million—compared to $243.2 million in the previous year. On average, analysts expected sales of $232.8 million for the quarter.

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For the full year, Shoe Carnival registered sales of $1.03 billion, a record for the company and up 4.3 percent over FY17. The company credits its record year on double-digit digital sales growth and a low single-digit increase in physical store sales. Full-year sales expectations from Wall Street analysts were dead on at $1.03 billion.

Shoe Carnival told attendees of its FY18 conference call that women’s boots were the key driver for the increase in annual revenue. Due to the strong demand for the segment, Shoe Carnival was able to improve its margins for women’s boots by 90 basis points—leading to a double-digit decrease in inventories for the category compared to last year.

In FY19, Shoe Carnival expects sales to be in the range of $1.035 to $1.043 billion.

Earnings: Net income for the retailer was $1.4 million for the quarter, an increase of 9 cents per diluted share. As such, earnings for the quarter were up from a net loss of $3.9 million in the comparable period in 2017, which led to a deficit of 24 cents per share. Additionally, merchandise margins were up an average of 90 basis points for the quarter and Shoe Carnival received a $3.3 million gain from insurance payouts related to hurricane damage.

For the total year, Shoe Carnival touted earnings of $2.45—another company record and nearly a full dollar higher than the $1.49 it earned last year. Net income was $38.1 million for FY18, up from $18.9 million in FY17. Analysts expected a $2.41 gain from Shoe Carnival in FY18.

Shoe Carnival set its earnings outlook for FY19 at $2.60 to $2.70.

CEO’s Take: Cliff Sifford, Shoe Carnival’s president and CEO, said the company would continue to build on its initiatives and grow out its customer relations capabilities.

“We are pleased to report record net sales and earnings results above our expectations for the fiscal year. Our comparable store sales increases were broad-based, driven by positive results for both our athletic and non-athletic footwear,” Sifford said. “We believe our customer-centric strategic initiatives, trend-right selection of compelling brands and the latest fashion along with our exciting in-store environment continue to make Shoe Carnival the store of choice for moderately priced family footwear. Going forward, we believe we remain well positioned to deliver long-term sustainable growth and value for our shareholders.”