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Shoe Carnival Misses Sales Target After Headwind-Filled First Quarter

Shoe Carnival released its first-quarter financial report after markets closed on Wednesday, revealing poor comparable sales caused by a number of headwinds—including a “very cold and wet start to the quarter” and a delay in tax refunds.

In a Nutshell: The footwear retailer, led by president and CEO Cliff Sifford, saw its shares fall on early trading Thursday morning after a tepid earnings report. Shoe Carnival stock subsequently fell from $30.48 to $27.12 at the time of writing, a loss of about 11 percent.

Shoe Carnival said its continued work to improve its in-house customer relationship management (CRM) systems is “moving forward nicely” and expects it to be a sales driver over the next three to five years as it works to “better align our real estate team to identify specific market areas where our typical shopper lives.”

Sifford, who is on the board of the FDRA, also took some time to speak about his organization’s stance on the tariffs proposed by the Trump administration. According to the FDRA’s own figures, American consumers could be forced to pay an extra $7 billion annually as a result of this proposal.

“It just makes absolutely no sense. But we can’t just sit back and hope that it doesn’t happen, so wherever we can make changes, we are. We have begun to move product away from China and then to other countries and Southeast Asia,” Sifford responded when questioned about the tariffs during Shoe Carnival’s Q1 conference call. “And, you know, the good news is that much of our athletic product has already been moved out of there by the brands. So, we have taken a very proactive approach through FDRA and through our winter communities.”

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Sales: Revenue for Shoe Carnival in Q1 totaled $253.8 million, a 1.4 percent fall from the $257.4 million earned in the comparable period last year and well below the average analyst prediction of $258.9 million. Shoe Carnival said that this $3.6 million decrease in comparable revenue could be explained by the $3.9 million it lost from closing 16 stores since the start of 2018, resulting in a $639,000 decrease in comparable store sales.

The retailer said the aforementioned headwinds produced a high single-digit comparable store sales decrease during February.

Regardless, non-athletic footwear for both men and women sold well in the first quarter of FY19, Shoe Carnival said. However, athletic footwear continued to struggle, down low single-digits. Women’s sandals and boots performed well over the quarter, up mid-single-digits on a comparable basis.

Sifford said he expects sales to improve in the near future as Payless continues to wind down its operations.

“The key retailer that is closing 1,700 stores at our market area will be gone by the end of June, meaning there will be 1,700 fewer stores to shop at come July,” Sifford explained.

Shoe Carnival affirmed that its sales outlook for FY19 will be in the range of $1.035 billion to $1.043 billion, with comparable store sales up low single-digits.

Earnings: On net income of $13.9 million, Shoe Carnival earned 91 cents per diluted share in the first quarter, compared to the 84 cents expected by analysts and the 83 cents it earned in Q1 of last year. However, its earnings were buoyed by the vesting of certain equity-based compensation packages during the quarter.

Shoe Carnival said the impact of that strategy likely added around $1.9 million to its net income, an impact of around 13 cents per diluted share.

As a result, the footwear retailer said it would be raising its earnings outlook for the fiscal year to a range of $2.73 to $2.83 from the previous outlook of $2.60 to $2.70—both ranges well above the $2.45 EPS it collected in FY18.

CEO’s Take: After acknowledging some early struggles in Q1, Sifford said his company was looking forward to the back-to-school season as he thought the collections offered by brands this year were particularly strong.

“After a difficult February due to the later tax refund season as well as inclement weather, we experienced a positive change in sales for the Easter time period of March and April,” added Sifford. “Comparable store sales for the combined months of March and April increased 3.6%. Our merchants once again did a great job of controlling inventories while maintaining margin. As we look ahead, we believe we have identified a strong assortment of key items and a great product mix and we remain on track to achieve our outlook for the fiscal year.”