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How Shoe Carnival Captured ‘Dislocated’ Customers

Shoe Carnival recorded strong gains in sales and income during the fourth quarter as it followed up its first-ever acquisition with an “exceptional” holiday season.

The footwear retailer reported its fourth-quarter earnings results Wednesday, touting sales growth of 23 percent in the fourth quarter and 36 percent in the full year. Carl Scibetta, senior executive vice president and chief merchandising officer, identified the company’s “unparalleled vendor relations” as one of several areas “key” to its performance this past quarter.

“Our merchandise story is, above all, one of overcoming supply chain challenges through working with our vendors daily to minimize the disruptions being caused by the global supply chain issues,” Scibetta said on a call with investors Wednesday.

In a Nutshell: According to Scibetta, Shoe Carnival has remained stocked with a “variety of depth and breadth of the hottest in-demand products” thanks to its “firmly embedded” relationships with vendor partners. This positioning, he added, allowed it to capture customers “dislocated” from other sources. “We saw the power of those relationships throughout every quarter in fiscal 2021,” he said.

“That said, our industry faces potential challenges this spring,” Scibetta continued. “Consumer spending will be impacted as the stimulus programs of 2021 are no longer and the supply chain and inflation issues continue. We aren’t immune from these challenges, but thankfully we are well positioned to continue to increase our market share due to our strong management and vendor relations.”

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Shoe Carnival ended the year with inventory levels up and its stores “ready for spring selling,” Scibetta said. It closed out the fourth quarter with inventory of $285.2 million, a $51.9 million bump versus the prior year. On a per-store basis, the retailer was up 19.2 percent. A little more than half of that increase came from the 21 Shoe Station stores it acquired late last year, senior executive vice president and chief financial officer Kerry Jackson said.

Shoe Carnival completed its multi-year “store productivity improvement” plan during fiscal 2021, with all comparable stores cash-flow positive, president and CEO Mark Worden said. At the same time, the company is also accelerating capital investments in its store modernization program, generating accelerated sales and positive customer feedback, the CEO added. It aims to complete the rollout across its fleet by the end of fiscal 2024. Approximately 20 percent of the remodels were completed by the end of fiscal 2021 in January. The retailer expects half to be completed by the end of the current fiscal year.

A little more than three months after buying the privately held, family-owned footwear retailer Shoe Station for $67 million, Shoe Carnival has completed back-office integrations approximately nine months ahead of schedule, it said. The company expects to transition the brand into store growth “later in 2022.”

Over the coming years, Shoe Carnival plans to ramp up its store count growth, with aims to add “10 plus” new locations this year, more than 20 in fiscal 2023 and over 25 annually by 2024.

Net Sales: An increase in store traffic and new customer acquisition drove net sales up 23 percent to $313.4 million during the fourth quarter ended Jan. 29, Shoe Carnival said. Comparable store sales grew for a seventh consecutive quarter by 17.7 percent, roughly mirroring an 18 percent increase in comparable store traffic. Despite the Omicron-driven Covid spike, customers shopped in person during the holidays at the highest levels in Shoe Carnival’s history, Worden said.

Full-year net sales grew 36 percent to $1.3 billion. The growth compared to a 5.8 percent year-over-year drop in net sales during the 52-week period. Versus 2019, sales improved more than 20 percent every quarter of the year, Worden said. This year, Shoe Carnival expects net sales will grow 4 to 7 percent. Given the tough comparisons in the first and second quarters, it anticipates sales will be flat to up in the low single digits for the first half of the year.

Net Earnings: Shoe Carnival’s fourth-quarter gross profit totaled $116.8 million, inclusive of a $1.1 million one-time charge related to its acquisition of Shoe Station. Its gross profit margin rose 650 basis points to 37.3 percent. Its merchandise margin rose 5.1 percentage points amid fewer margin-dilutive promotions and higher average selling prices. As a percentage of sales, selling, general and administrative expenses inched up 1.8 percentage points to 28.4 percent due to one-time acquisition-related expenses and increased investment in advertising and store-level wages.

In the fourth quarter, the company recorded a net income of $20.6 million, or 72 cents per diluted share, up 177 percent against the prior year’s $7.4 million, or 26 cents per diluted share. Its adjusted net income totaled $23.8 million, or 83 cents per diluted share, up 220 percent year over year.

Looking at the 52 weeks ended Jan. 29, Shoe Carnival’s gross profit margin soared 1093 basis points to 39.6 percent. SG&A expenses increased $61 million, but decreased as a percentage of sales from 26.5 percent to 24 percent.

The company’s net income grew $154.9 million, or $5.42 per diluted share, a nearly 870 percent increase compared to the $16 million, or 56 cents per diluted share, it pulled in the year before. Adjusted net income came in slightly higher at $158.1 million, or $5.53 per diluted share.

With net sales expected to grow 4 to 7 percent this year, Shoe Carnival is predicting its operating income will land in the range of $142 million to $154 million in fiscal 2022. This compares to a pre-pandemic record of $54.2 million in fiscal 2019. The company’s outlook also calls for earnings per share in the range of $3.80 to $4.10, another massive increase compared to 2019, when EPS totaled $1.46.

CEO’s Take: “If you look two years back, no doubt the supply chain and inflation are challenging headwinds that everyone’s facing at this moment in time, and we expect that to continue to be challenging for us to navigate,” Worden said. “Our merchants, as we talked about last year, navigated it with astonishing nimbleness and were able to secure the inventory we needed, had our stores well stocked when customers were there, so we have confidence we’re going to do that again this year. However, compared to 2019, we’re not immune to there are delays in shipping, there are delays throughout the supply chain, and inflation is causing consumer sentiment to be different than 2019.”