Shoe Carnival, Inc. said athletic footwear further weakened due to shifting trends in the fourth quarter ended January 28, but the family footwear chain posted record earnings on higher margins and claimed it’s continuing to build on significant share gains over competitors in recent years.

Shoe Carnival had warned in recent quarters of softness in athletics.

“During the fourth quarter, we again saw a shift in consumer demand as sales continue to move to the non-athletic categories,” said Carl Scibetta, chief merchandising officer, on an analyst call. “This shift was 410 basis points compared to the same period during 2019. We anticipated this move in customer demand to the non-athletic product and positioned the inventory to take advantage of this fashion change.”

Shoe Carnival continues to emphasize comparisons versus the pre-pandemic fourth quarter of 2019 due to numerous disruptions caused by the pandemic.

Athletics were down in the low 20s in the fourth quarter year over year but were still up the mid-singles versus the pre-pandemic fourth quarter. In non-athletics, comps were down in the low singles for non-athletics year over year attributed to lower boot sales. Versus the 2019 fourth quarter, non-athletics were up in the low 20s.

Companywide, sales in the fourth quarter decreased 7.2 percent to $290.8 million compared to a stimulus-elevated fourth quarter 2021. In January 2023, the first comparable month without government stimulus, net sales increased by low single digits versus January 2022. Shoe Station, acquired in December 2021, contributed $24.3 million in sales.

Compared to the pre-pandemic fourth quarter 2019, total sales jumped 21.2 percent and comparable store sales increased 12.6 percent.

By department, women’s non-athletic was up in the high singles versus 2019. Casuals drove sales up in the mid-40s, sport was up in the low-30s, and dress shoes were up in the mid-20s. Women’s boots were down 10 percent versus 2019. Men’s non-athletic sales were up in the high 20s versus 2019. Men’s casuals, up over 60 percent, drove the increase. Men’s boots were up in the high singles and men’s dress were down in the low singles compared to 2019.

Children’s non-athletic sales versus 2019 were up in the mid-50s. All children’s product categories were up significantly. Casuals drove increases up almost 200 percent and infants’ non-athletic sales were up in the mid-50s. Sales in kid’s athletic were up in the mid-teens. Adult athletic sales were down less than 1 percent versus 2019.

Net earnings in the quarter rose 4.9 percent year over year, to a record $21.6 million, or 79 cents a share, from the previous record highs at $20.6 million, and 72 cents, a year ago. Excluding the Shoe Station acquisition-related charges incurred in the fourth quarter 2021, the fourth quarter adjusted net income in the year-ago period would have been $23.8 million, or 83 cents.

Gross margins increased 100 basis points to 38.3 percent, primarily reflecting higher merchandise margins in the latest quarter and $1.1 million of Shoe Station acquisition-related charges in the year-ago quarter. Operating margins improved to 9.9 percent from 8.9 percent a year which included $4.3 million in Shoe Station acquisition-related charges.

Compared to the fourth quarter of 2019, EPS increased over 550 percent, merchandise margins increased 920 basis points and operating margins were nearly five times higher than the operating margin in fourth quarter 2019. The merchandise margin improvement was attributed to increased customer relationship management capabilities, which have resulted in more targeted promotional pricing and higher average selling prices.

In the year, sales were down 5.1 percent to $1.26 billion year over year but up 21.8 percent versus 2019. Gross margins eroded to 37.1 percent from 39.6 percent in 2020 and up from 30.1 percent in 2019. Net income fell 28.9 percent to $110.8 million, or $3.96 a share, from $154.9 million, or $5.42, a year ago, but ahead 156 percent from $42.9 million, or $1.46 a share, in 2019.

On the analyst call, Mark Worden, president and CEO, highlighted significant progress Shoe Carnival has made over the last three years, including expanding its customer base to over 32 million, with its loyalty membership surging over 34 percent from just 3 years ago. He said, ‘Every day of every week, we are learning more about these customers, enabling us to better segment our customer base, better identify the optimal product for them and to better engage them with meaningful messages and the freshest products.”

He noted that the 100 basis point gross margin improvement came despite the chain’s” most promotional period of the year” and offered “further reassurance that the improved margin levels are sustainable.”

He noted that gross margins have now been 500 to 1,000 basis points higher for each of the last eight quarters

He also noted that Shoe Carnivals’ 21.8 percent growth rate versus three years ago has driven “significant market share growth” when compared to its publicly-held competitor’s results.

“Specifically, looking at the competition for the 3-year horizon from 2019 to 2022, none of the other public family footwear retailers or moderate department stores achieved half the sales growth of our corporation and many competitors, in fact, had sales declines,” said Worden. “Customers in Shoe Carnival and Shoe Station markets are resoundingly selecting us over the competition for the best-branded footwear and accessories from their most loved brands.”

Looking ahead, Scibetta said Shoe Carnival anticipates the continuation of strong sales results in the non-athletic categories for fiscal 2023 given the fashion trends combined with improved product flow.

Scibetta expects a pickup in athletic in the back half around back-to-school season with the aid of the improved supply chain. Scibetta said, “As we move through the back-to-school time frame last year, we had a lot of disruption in deliveries on the athletic footwear side…late deliveries and goods that actually missed the back-to-school selling period. This year, what we’re experiencing starting in the fourth quarter and forward, our athletic deliveries actually coming in on time and in some cases, early. So, we think that’s an opportunity as we move out of second-quarter into the third quarter and throughout the fall season from the athletic standpoint.”

Scibetta said spring selling has gotten off to a slow start due to the “uncertain economic climate as well as cooler weather,” but Shoe Carnival remains optimistic that sales trends will pick up. Scibetta said. “While our inventory position in the important categories has improved versus last year, the consumer demand has been delayed. We have seen this delay in previous years and anticipate the sales acceleration we realized then, which came later in the spring and summertime period. In addition, the supply chain improvements will provide a much stronger athletic offering moving into back-to-school and the fall selling season.

For 2023, Shoe Carnival expects earnings in the range of $3.96 to $4.20, flat to up about 6 percent versus 2022. Sales are expected to range between $1.26 billion and $1.32 billion, flat to up + 4.5 percent against 2022. Same-store sales are expected to be negative 2 percent to positive 2 percent.

Photo courtesy Shoe Carnival