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Shoe Carnival to Double Nike Shop-in-Shops

The second quarter was a series of records for Shoe Carnival, with the family footwear retailer achieving its highest ever quarterly net sales, net income, operating income, diluted earnings per share and gross margin. Shoe Carnival reported net sales of $332.2 million for the second quarter of fiscal 2021, a 10.5 percent increase compared to net sales of $300.8 million for year-ago quarter, with the company taking in $44.2 million.

In a Nutshell: The retailer’s 378 stores are becoming more profitable as shoppers return, with total sales per square foot for 2021 expected to approach $300, well ahead of 2019 highs of $245 per square foot, Mark Worden, Shoe Carnival’s president and incoming CEO, said in an earnings call. The company’s average sales per store will be $3.2 million, besting the prior average sales per store of $2.6 million.

Worden said the retailer is on track to modernize approximately 100 stores by the spring of 2022, and is ahead of its goal to modernize two-thirds of its store fleet in the next three-to-five years.

Shoe Carnival has even become a favorite of Nike, which has been increasingly more selective in its wholesale partnerships. While there are more than 100 Nike shops in Shoe Carnival stores today, the footwear retailer plans to add at least 100 more through 2023.

Shoe Carnival expects a lucrative back-to-school season. For the first three weeks of August, overall store traffic is more than 50 percent higher than 2020 when Covid-19 closed many schools. For the first three weeks of the third quarter ended Aug. 21, comparable sales are up nearly 60 percent versus 2020, according to Worden.

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“Multiple competitors returned to the standard buy one, get one half-off profit-diluting promotions used during the last decade,” said Worden. “But our back-to-school strategic promotional approach resulted in a 23 percent comp store sales increase through the first three weeks of August compared to two years ago, while product margins grew nearly 11 percent. This type of profit-driving innovation will be a key differentiator for Carnival.”

Shoe Carnival ended the second quarter with inventory up 4.2 percent to $308.1 million compared with 2020 and down 4.9 percent to 2019. Gross profit margin was 40.9 percent, an increase of more than 1,300 basis points (13 percentage points) on a year over year basis over last year’s 25.4 percent and a 1,000-basis-point (10 percentage point) jump over the two-year period, largely driven by improvements in merchandise margin.

“The merchant team continues to work closely with our vendor partners to reduce negative impacts from industrywide supply chain disruptions,” Carl Scibetta, senior executive vice president and chief merchandising officer for Shoe Carnival, said in the call. “We made a purposeful decision to buy for growth in the second quarter, as we anticipated a return to more normalized consumer demand for the period. For example, we increased our inventory position for dress shoes to be in line with pre-Covid levels in anticipation of a surge of events like weddings and graduation parties, which typically occur in the second quarter.”

The holiday season is still “somewhat of an unknown” as far as inventory positioning, according to Scibetta, with the majority of the noise coming from Vietnam as pandemic-related issues compound the already existing supply chain disruptions.

Even with anticipated delays, which Worden expects to continue through the fourth quarter into spring 2023, “we’re quite pleased where we are right now” with inventory availability,” he said.

Cash, cash equivalents and investments were $163.9 million with no outstanding debt as of July 31, 2021.

Based on third quarter results to date, the constrained landscape in the global supply chain and expected strength in gross margin, Shoe Carnival currently anticipates diluted net income per share in the range of $1.10 to $1.15 and net sales in the range of $307 million to $315 million for the full quarter.

The retailer also increased its guidance for fiscal 2021, currently anticipating diluted net income per share in the range of $4.35 to $4.50 and net sales in the range of $1.21 billion to $1.23 billion.

Net Sales: Shoe Carnival reported net sales of $332.2 million for the second quarter of fiscal 2021, a 10.5 percent increase compared to net sales of $300.8 million for year-ago quarter. The increase resulted from continued broad-based demand for the retailer’s product offerings, a more normalized beginning to the back-to-school season, improving macroeconomic factors in the U.S. and the easing of Covid-19 restrictions.

On a two-year basis, net sales increased 23.8 percent over the $268.2 million taken in during last year’s second quarter.

The family footwear and accessories retailer saw overall comparable store sales increase 11.4 percent year over year, and jump 25.5 percent on a two-year basis.

E-commerce sales have declined 18 percent year-to-date, normalizing from pandemic-driven growth, Worden said in the call. The second quarter e-commerce sales decline is slightly steeper, he said, but was in line with the retailer’s expectations. On a two-year basis, e-commerce sales for the second quarter soared 140 percent.

Net Earnings: Net income for the second quarter of fiscal 2021 was $44.2 million, or $1.54 per diluted share, well ahead of 2020’s second quarter, which drove reported net income of $10.1 million, or $0.35 per diluted share.

Shoe Carnival had its highest operating profit on record during the quarter, which was nearly four times what the retailer reported in the second quarter of fiscal 2019.

Operating income was $59.7 million, or 18 percent of second quarter 2021 sales, compared to $14.4 million, or 4.8 percent of sales in 2020. Operating income was $15.7 million in 2019.

CEO’s Take: In his final earnings call before passing the CEO baton to Worden, vice chairman and CEO Cliff Sifford announced that Shoe Carnival will launch a new planning software system in the fall designed to help the merchandising team more effectively plan product assortment for each individual store. He attributed much of the company’s recent success to the deployment of a CRM system in 2019 that has served as the backbone to the Shoe Perks loyalty program.

“I believe these investments have been the catalyst for outstanding results and market share gains over the past several years,” Sifford said in the call. “These strategic conditions are a testament to the knowledge and tenure of the team, but even more so to our ability to identify an opportunity, and seize it in a meaningful way. The methodology that has served us well for many years is our ability to react quickly to the brands and trends of the season, and quickly make the inventory investments that will make Shoe Carnival the stop for any current trend.”