By Eric Smith
Mid-single-digit sales growth of adult athletic shoes helped propel Shoe Carnival Inc. to a superb second quarter, sparking the retailer to sharply raise its full-year guidance, but the company could struggle to maintain momentum in that category moving ahead.
“There is some concern whether or not the athletic trend will continue at the current rate through the rest of the fall season,” President and CEO Cliff Sifford said on Wednesday’s earnings conference call with analysts. “So that is part of the cautious outlook. … We see a strong women’s trend continuing throughout the fall period, especially with boots and booties, but a little concerned on the athleisure trend.”
The doubt comes just three months after Sifford doubled down on the category’s gains when he said during the Q1 earnings call, “The strong athletic and athleisure trend shows no sign of slowing down.”
The biggest issue for Shoe Carnival is that the company’s athletic shoe trend has been on a hot streak, and this year’s back-to-school sales served as even more fuel for the category’s fire. But after seven years of an upward trend, the company is now being a little “judicious” about athletic shoes’ fortunes in the fall, Sifford cautioned.
Even with this expectation, any falloff could be problematic for the company. As Sam Poser of Susquehanna Financial Group LLLP wrote in a note to investors, “The increasing likelihood of decelerating athletic sales are of concern.”
Poser added in his note: “While management indicated the athletic category has been strong during the back-to-school selling season, they raised some concern that certain product offerings in SCVL’s assortment may not be enough to sustain the robust sales in the category. Additionally, SCVL will be lapping tough comparisons in the boot category in 2H18 which may prove difficult to match or beat. Given management’s concerns, and the stock trading at an elevated valuation, we believe remaining on the sidelines into 2H18 is prudent.”
The concern over a dip in athletic sales didn’t diminish the firm’s estimates. Susquehanna raised FY18 EPS/SSS (earnings per share/same store sales) from $2.09/+2.7 percent to $2.15/+3.6 percent and FY19 EPS estimate from $2.29 to $2.34 to reflect strong GPM trends and accelerating SSS.
And it didn’t diminish Shoe Carnival’s shares on Wednesday, which soared $4.83, or 13.1 percent, by market close. The company impressed Wall Street by outperforming expectations in the second quarter. Net sales of $268.4 million increased 14.2 percent for the second quarter ended August 5, compared to net sales of $235.1 million for the same quarter a year ago. Wall Street was expecting $267 million on average. Comparable store sales increased 6.7 percent compared to year-ago period.
Net income for Q2 was $11.8 million, or 76 cents per diluted share. For the second quarter of fiscal 2017, the company reported net income of $3.9 million, or 24 cents per diluted share. Wall Street’s consensus estimate had been 57 cents.
The company’s comp store sales increase was primarily driven by a double-digit increase in women’s non-athletic footwear, with most of Shoe Carnival’s other major footwear categories up in the mid single digits, Sifford said.
“This positive trend has accelerated into the back-to-school season with comparable store sales up 7.7 percent through the first three weeks of August,” he said. “This sales increase was on top of a 7 percent increase in the full month of August last year. We believe we remain well positioned for future growth, and based on these strong operational and financial results, as well as our outlook for the remainder of the year, we are raising our annual earnings guidance.”
The company raised fiscal 2018 outlook to net sales in the range of $1.016 billion to $1.02 billion, with comparable store sales up low single digits, up from a range of $1.013 billion to $1.020 billion, with comparable store sales up low single digits.
And Shoe Carnival now expects earnings per diluted share in the range of $2.07 to $2.15, up from earnings in the range of $1.90 to $2.05. Fiscal 2017 earnings per diluted share were $1.15 and adjusted earnings per diluted share were $1.49.
The company also expects to open approximately three stores and close approximately 15 to 17 stores during fiscal 2018 compared to opening 19 stores and closing 26 stores during fiscal 2017. However, Shoe Carnival’s new CRM (customer relationship management) system—which is now being implemented—is causing the company to be “conservative” with new store openings, Sifford said on the conference call.
“Our real estate strategy remains conservative, as we complete the implementation of our CRM initiative and allow the real estate market in total to settle down,” Sifford said. “Our CRM initiative will help us identify our high value customers who are driving a high percentage of our overall sales. For the remainder of this year, we will open up approximately three new stores. We expect to realize improved operating income and EPS performance as a result of our store opening and closing strategy.”
The CRM initiative should be completed by the end of the calendar year, Sifford said. The company chose to implement CRM to better understand the its customers and create “one-to-one relationships with them,” he added, which Shoe Carnival is confident can become a competitive advantage once up and running.
“Although a large part of customer data comes from our loyalty program, it is not just about loyalty,” Sifford said. “By identifying our high-valued customers and where they live, we will improve site selection and real estate. By understanding how they shop along with the brands and categories they prefer, a merchant team can improve the merchandise selection on a store-to-store basis and by understanding the pain points in our customers’ journey, we can improve the operations in our brick-and-mortar stores and online. We believe this holistic approach to CRM will give us a clear runway for growing Shoe Carnival now and in the future.”
Photo courtesy Shoe Carnival
[author] [author_image timthumb=’on’]https://s.gravatar.com/avatar/dec6c8d990a5a173d9ae43e334e44145?s=80[/author_image] [author_info]Eric Smith is Senior Business Editor at SGB Media. Reach him at eric@sgbonline.com or 303-578-7008. Follow on Twitter or connect on LinkedIn.[/author_info] [/author]
