Shoe Carnival’s stock price fell 16 percent Wednesday as better-than-expected earnings proved an inadequate balm for the 3.3 percent sales decline it saw during the first quarter.
The drop proved less precipitous than that seen by Target, which ended the day down 25 percent Wednesday after it lowered its full-year guidance. Walmart similarly took a hit to its share price this week after releasing its first-quarter results Tuesday. By the time the market closed Wednesday, it was down 17 percent compared to the same time two days earlier.
In a Nutshell: Two years into the pandemic, Shoe Carnival finally saw its mix of athletic to non-athletic footwear return to its pre-Covid, 50-50 split. In the first quarter alone, president and CEO Mark Worden said the company experienced an approximately 600 basis point shift from athletic to non-athletics.
According to Carl Scibetta, senior executive vice president and chief merchandising officer, non-athletic categories began rebounding in April 2021. “We took that as an alarm—or as an opportunity, I guess I should say—to go after those categories,” he said. The strategy worked, it seems, with dress, casual and sandals “demonstrating a strong return to pre-pandemic lifestyles and trends,” Worden said.
Compared to 2019, women’s non-athletic sales grew “in the 30 percent range,” Scibetta said, while men’s and kids’ saw improvements in the mid-20s and low 30s, respectively.
The merchandising executive said Shoe Carnival sees non-athletic categories continuing to thrive this year. “We believe we’ve taken market share in those areas, and we believe we’re ahead of the curve on that,” he added.
The retailer ended the first quarter with inventory of $345 million, up $76.4 million compared to the prior year, or 22.6 percent on a per-store basis. Senior executive vice president and chief financial officer Kerry Jackson attributed approximately 40 percent of this increase to the addition of Shoe Station stores and the remainder to “the accelerated receipt of merchandise to help protect our store inventory against supply chain delays.” The increased inventory, he added, puts the company “in a solid position for spring and should position us well for back-to-school.”
Though Worden categorized inflation as “a challenging headwind” in the first quarter, the CEO said Shoe Carnival is already seeing that mitigate in the early parts of the second quarter.
“Q1 was truly an anomaly with the inflationary shocks, I think, consumers were digesting,” he added. “We’re seeing them get into a more normal stage in these first few weeks of Q2.”
Net Sales: Shoe Carnival’s net sales totaled $317.5 million in the first quarter ended April 30, a 3.3 percent decline from the prior-year period, and a 115.3 percent and 25.1 percent increase versus 2020 and 2019, respectively. Comparable store sales declined 10.6 percent against last year.
Net Income: The shoe retailer recorded a first-quarter gross profit of $112.9 million, down from $130.1 million a year earlier, but up from $75.1 million in 2019. Its gross margin came in as 35.5 percent, which again was a decline from last year, when the metric reached 39.6 percent. Versus last year, Shoe Carnival’s merchandise margin decreased 130 basis points and its buying, distribution and occupancy expense as a percentage of sales grew 280 basis points. Higher transportation and fuel costs reduced the former by 150 basis points and increased the latter by 190 basis points for a total, 340-basis point impact.
“While we expect to incur higher translation of fuel costs through the remainder of the year, we feel the year-over-year increase will moderate in Q2 and beyond, partly due to mitigations we have put in place,” Jackson noted.
Though down from last year, the company’s first quarter gross margin represented a significant improvement from 2019’s 29.6 percent. The 590-basis point gain included a 680-basis point increase in its merchandise margin and a 90-basis point headwind from increased buying, distribution and occupancy expense as a percentage of sales, Jackson said.
Shoe Carnival’s net income in the period was $26.9 million, down from $43.2 million in 2021, but nearly double the $13.9 million it saw in 2019. Its diluted net earnings per share “significantly exceeded expectations” at 95 cents, Worden said. It reported EPS of $1.51 and 46 cents in 2021 and 2019, respectively.
The retailer raised its full-year EPS guidance to between $3.95 and $4.15. It had previously forecasted EPS of $3.80 to $4.10. Prior to the pandemic, its annual EPS peaked in fiscal 2019 at $1.46. The company maintained its net sales forecast of 4 to 7 percent growth.
CEO’s Take: “We see tremendous market share potential and a long runway for further store growth for our banners in the years ahead,” Worden said. “Our inventory position is ready for a big spring sandal season that we are now in, ready for the upcoming back-to-school season, and is well positioned for the customer’s return to a more normal 50:50 athletic, non-athletic balance between categories.”