Shoe Carnival Inc. said strong product allocations amid supply chain disruptions helped make the third quarter the best in the off-pricer’s 43-year history. Company officials said they were rewarded for supporting the vendor community in the early stages of the pandemic.
“We are the partner of choice for vendors navigating supply chain volativity and now the first port of call when product comes in,” said Carl Scibetta, senior EVP and chief merchandising officer, on a call with analysts. “Why? Some of our competitors were dialing back purchases and keeping inventories low because they were worried they would get stuck with the surplus. We did the opposite.”
Scibetta said Shoe Carnival bought aggressively for 2021 to take advantage of pent-up demand and “crushed” the back-to-school selling season with 30 percent growth over the prior year. Scibetta added, “August was an incredibly strong month, and we sustained are highest-ever volumes through October.”
He said it was only possible because vendor community relationships helped it stay in stock on the right product at the right time. “In this environment, vendors are picking and choosing more carefully than ever, and we are proud to be at the top of their list,” he said.
Back To Expansion Mode
Mark Worden, in his first conference call since taking over as CEO from Cliff Sifford, said the third quarter marked a historic high in earnings and sales for any quarter in the chain’s history.
“Store traffic is up over 40 percent year to date with strong growth across every region we operate from Chicago to Texas,” said Worden. “Our profit margins are the highest ever, with all of our comparable stores generating positive cash flow year-to-date, and going into 2022, all stores across the fleet are forecasted out positive cash flow on a cost basis.”
Worden also announced that Shoe Carnival would resume expansion in 2021 after a period of net closings in recent years due to improving store productivity. The goal is to return to double-digit net store growth by 2023.
“We’re seeing families flock to our bright, clean, fresh modern stores and liking what they find there,” said Worden. “Our customers are more excited than ever about getting out of their homes and into our stores. And with that in mind, we’re accelerating investment in building the best-in-class loyalty and CRM platforms. We have reached an inflection point at our company. We’ve entered a new era of growth and expansion as we fulfill our long-term strategic ambition to become a multi-billion dollar retailer in the years ahead.”
Q3 Comps Climb 30 Percent
Net sales in the quarter reached $356.3 million, a 29.8 percent increase year-over-year. Sales far exceeded Wall Street’s consensus estimate of $314.7 million.
Same-store sales in the quarter rose 30.1 percent year-over-year and 31.4 percent versus 2019. Brick and mortar comps were up 32.8 percent, and e-commerce was up 12.5 percent year over year.
All category comparable store sales were up double-digits.
Kids’ comparable store sales were up mid-40s, with athletics and non-athletic up over 40 percent versus last year. Men’s non-athletic comps were up in the high-20s, driven by canvas, sandals and boot categories.
Women’s non-athletic comps jumped in the mid-30s. Dress footwear was built on the comeback seen in the second quarter, with women’s dress footwear ahead 100 percent in the third quarter year-over-year. Sales of women’s sport and sandals were also strong in women’s non-athletic while the boot season is starting well.
Adult athletic comps climbed up over 20 percent in the quarter versus 2020. Both men’s and women’s areas performed well, with basketball, skate and running turning in strong results.
Merchandise Margins Vault 670 Basis Points
Gross margins for the quarter increased 840 basis points to 40.4 percent. Merchandise margins surged 670 basis points versus 2020 and 830 basis points versus 2019. The improvement reflected high demand and less promotional activity.
“One of the most important ways we got there was by delivering on our stated intention to eliminate BOGO half-off promotions for the year,” said Worden. “That buy one get one half price promotional tactic has been exposed as an approach that committed us and many of our competitors to sell our best shoes at the lowest price point. We are no longer reliant on that profit-motive promotional approach.”
Buying, distribution and occupancy expenses declined 170 basis points due to the leveraging effect of higher sales, despite higher supply chain expense.
SG&A expenses increased 21.8 percent to $81.6 million. Nearly half of the increase was due to increased advertising expense, with the remaining increase primarily attributable to store-level wages, including incentive compensation. As a percent of sales, SG&A expenses decreased 180 basis points to 22.9 percent.
Net income reached a record quarterly high at $46.8 million, or $1.64, increasing more than three-fold over net income of $14.7 million, or 51 cents, a year ago. Earnings were well above Wall Street’s consensus estimate of $1.15.
E-commerce Margins Show Significant Improvement
Other highlights of the quarter included margins in the e-commerce business increasing over 500 basis points. E-commerce sales also returned to double-digit growth after declines earlier in the year due to tough comparisons and are being forecasted to expand low double-digits annually for the next several years.
In marketing, Shoeperks membership grew 10 percent in the quarter to bring total members to 28 million at the quarter’s end. Said Worden, “Since the onset of the pandemic, we’ve engaged with many millions of new customers and expanded our active buyers count to new heights.”
Shoe Carnival’s ongoing investments in CRM (customer relationship management) are helping facilitate personalized communication for customers, drive efficiencies in promotions and provide customer insights. Said Scibetta, “These investments have been a catalyst for outstanding results and market share gains over the past several quarters with today the strongest evidence yet that our strategy is working.”
Shoe Carnival continues to modernize its stores and plans to complete approximately 100 stores by the spring of 2022. The company has accelerated its overall goal and expects to update 90 percent of its fleet by 2025.
At the quarter’s end, inventories were up 7.8 percent against the year-ago period and up 4.5 percent on a per-store basis. Shoe Carnival officials said they feel well-positioned to support fourth-quarter sales plans and expect a stronger inventory position at year-end. At the beginning of 2022, inventories are expected to be up high-teens versus 2021 and ahead mid-single digits against 2020.
Said Scibetta, “Although delays continued through the quarter, our team of seasoned merchants continued their aggressive approach to sales and inventory as they have shown throughout the entire year.”
Looking ahead, sales for the current year are now expected in a range of $1.285 billion to $1.290 billion, up from $1.21 billion to $1.23 billion previously. EPS is projected to range between $5.00 to $5.10, up from an earlier forecast of $4.35 to $4.50. At the upper range of its updated annual guidance, fourth-quarter results are expected to show sales of $273 million and EPS 41 cents, beating year-ago record Q4 results of sales of $254 million and EPS of 26 cents.
Photo courtesy Shoe Carnival
