Shoe Carnival, Inc. reported that same-store sales in the adult athletic category were down low single digits in the second quarter but improved sequentially from down low-teens in the first quarter. Company officials told analysts the category continues to benefit from “materially” improved inventory levels versus last year and a new campaign designed to “reactivate” former athletic footwear purchasers.
Including children’s athletic footwear, net sales of athletic merchandise in the second quarter were flat year-over-year despite lower store traffic.
The family footwear chain noted that vendor supply chain issues disrupted on-hand inventories in the athletic category for back-to-school 2022. The targeted marketing efforts sought to reach shoppers who might have been disappointed with athletic footwear shortages last year.
“One of the brand-building areas we invested in was reactivating last athletic shoppers. Specifically, those members did not purchase a top global athletic brand with us in 2022 when the supply chain disrupted our assortment and availability,” said Mark Worden, president and CEO, on a call with analysts. “With this year’s solid assortment in stores, we utilized our CRM [customer relationship management] assets to reengage many of those shoppers and get them to retry Shoe Carnival. This, among other targeted campaigns, led to a significant number of customers reactivated into active buyers during Q2. We are very encouraged by these results and continue to invest in targeted brand building and customer programs.”
Carl Scibetta, chief merchandising officer at Shoe Carnival, said men’s was down slightly more than women’s in the adult-athletic category in the second quarter ended July 31. He noted that the improved trend in adult athletics, down low-single-digits, continued in August, supported by back-to-school selling. The athletic gains in August were led by court and basketball and with continued softness in skate and running.
Overall, Shoe Carnival slightly lowered its outlook for the year as second-quarter results missed analysts’ consensus EPS target, with the retail chain continuing to see softness in the segment of customers with household income under $30,000, including urban lower-income customers; however, sales and earnings improved sequentially from the first quarter, and Shoe Carnival officials noted that back-to-school selling saw a strong start in August.
“As the quarter progressed, we saw encouraging signs that the impact of inflation on our customers was starting to moderate,” said Worden. “Customer engagement in-store and online picked up, average transactions climbed to a new second-quarter high, product margins were robust and customer conversion remains strong. Based on these improving conditions, we see an opportunity to invest in increasing our market share to accelerate sales growth and to grow earnings per share results compared to the soft market and results in Q1 of this year.”
In the quarter, sales were $294.6 million, down 5.7 percent in the quarter but above analysts’ consensus estimate of $290 million.
Comparable store sales declined 6.5 percent as store traffic improved versus the first quarter but was still down year-over-year due to weakness in urban markets. The store decline was partly offset by 5.4 percent e-commerce growth and growth from its new Shoe Station stores. E-commerce sales were favorably impacted by the February 2023 launch of shoestation.com and increased net sales through shoecarnival.com.
Worden also noted that Shoe Carnival had seen a favorable mix shift to higher income, more profitable customers, led by its Shoe Station banner and online transactions. Worden said, “For some perspective, historically, over 50 percent of our customers were from households with income under $50,000. This year, we are seeing a meaningful shift with over half of our customers now in households with income over $50,000, including a significant percentage increase in households with income over $75,000.”
Among other categories, second-quarter comp sales in women’s non-athletic footwear were down in the low-teens, with dress down over 25 percent. Boots and sandals were both down mid-teens. Sport in the women’s non-athletic footwear category was down mid-single digits, with leisure down low singles. Casuals were up low-single digits in the quarter.
Men’s non-athletic comps were down mid-single digits, with casual styles up low-single-digits on a strong performance in both canvas and slip-ons. Men’s dress was down in the high-teens and boots were down mid-teens in the quarter. Children’s comp sales were up low-single-digit, led by children’s athletic, up low-single digit, driven by performance in court, partially offset by children’s non-athletic down low-single-digits. Scibetta told analysts, “The trend improvement during the quarter in children’s led by athletic, reflected our strong inventory position for back-to-school, and we continue to see that improved trend in August.”
Gross margins in the quarter were down 40 basis points to 35.8 percent, with merchandise margins down 20 basis points. Buying, distribution and occupancy costs were lower in the quarter than the prior year as freight and distribution costs have continued to decrease, partially offset by investment in store modernization and rent associated with operating more stores.
SG&A expenses were 27.4 percent of sales, up from 23.8 percent a year ago due to strategic investments in brand initiatives, advertising and the in-store experience.
Net income declined 32.9 percent to $19.4 million, or 71 cents per share, below Wall Street’s consensus of 84 cents. Shoe Carnival noted that EPS in the second quarter of 2023 improved by 18.3 percent versus the 2023 first quarter and is nearly 80 percent higher than any other second quarter in company history before 2021.
Looking ahead, Shoe Carnival lowered its EPS guidance to a range of $3.10 to $3.25 from $3.60 to $3.85 previously. Sales are now expected in the range of $1.19 billion to $1.21 billion, down from guidance of $1.23 billion to $1.25 billion previously. Gross margin is expected in the range of 36 to 37 percent, the same as previous guidance.
Worden said that while Shoe Carnival is not yet seeing year-over-year growth in the third quarter, modest improvement is being seen versus Q2 in sales, margins, transaction size and conversion.
“Competitive intensity has been high in both Q2 and the Q3 back-to-school season with many competitors, deep discounting products and running profit-losing promotions,” said Worden. “We’ve been committed to our profit transformation and targeted promotional strategies based on customer analytics and deep knowledge of our loyal customers. That strategy is working.
For example, he noted that the August back-to-school shopping period accounts for half of the company’s third-quarter gross profit, and August sales and product margin results were among the highest of any month in the company’s 45-year history.
“With strong profit results achieved Q3 to date, the company is on track to deliver its full-year gross profit margin guidance of 36 percent to 37 percent,” said Worden., “Given the inflationary environment our customers face, we are very pleased with this result, including our ability to gain market share and our customers’ response to investments in brand building and customer experience. As such, we plan to continue to invest in those areas in the remainder of Q3.”
Photo courtesy Shoe Carnival