Shoe Carnival Inc.'s profits edged up 1% in the second quarter, thanks to tight inventory and expense controls. The bigger news was that August comps have bounced back — with athletics running up double digits. Management now expects comps in its third quarter to be positive for the first time in 12 quarters.


The 6.4% comp decline in Q2 reflected a 6.1% traffic decline. About 2% of the decline was attributed to the shift in sales tax-free holidays.  Customers also had less disposable income due to lack of consumer stimulus checks that arrived last year. Average selling prices per pair was up 6.2%, but fewer transactions caused every department to show declines.


In adult athletics, comps were down mid-single-digits due to weakness in classics, fashion low-profile, men’s basketball and skate. Converse Chucks, urban fashion styles from Nike, along with a running across both genders sold well.  Women’s non-athletic was down mid-single-digits due to weakness in dress shoes, low-profile and traditional flats that offset gains in women's sandals. Men's non-athletic was down mid-single-digits due to a continuing slowdown of low-profile casuals.
Children’s athletic was down in low-single-digits as weakness in boys skate and basketball and girls classics offset strong sales in Chucks, boys running and fashion athletic from Nike. The children’s non-athletic business was down in high-single-digits due to last year's exit from the low-margin molded footwear business.


Comps so far in August are up 11%, with only about five points of that increase attributed to the shift of sales-tax-free holidays from July to August. Non-athletic departments are up in mid-single-digits while athletic is up double-digits. Brands standing out include Sperry, Blowfish, Nike, Converse and Puma.  Key categories include women’s boots, junior’s flats, women’s and men’s boat shoes, children’s and adult Chucks, children’s skates and adult fashion athletic.


Cliff Sifford, Shoe Carnival's EVP and GMM, noted that not only have customers shopped early, but sales in stores that have already gone back-to-school have continued to be strong. He believes the arrival of BTS is giving consumers a reason to buy. 


“We believe that in challenging economic time periods buying habits shift from want to need,” said Sifford. “We believe that back-to-school is a time of need and we definitely experienced this as we entered the season.”


Mark Lemond, president and CEO, also noted that while Shoe Carnival had been shrinking average per-store inventories, it reversed that strategy in Q2 by reducing reserve inventories and increasing in-store inventories by an average of 6% for the period. 


“We feel this increase in inventory is one of the keys to our current success during the back-to-school sales period and will enable us to maximize our business in the remainder of the third quarter,” said Lemond.


Gross margins in the quarter increased 20 basis points to 26.8% of sales, aided by a 40 basis point improvement in merchandise margin due to substantially less clearance product. SG&A expense was reduced $1.7 million despite 11 new stores since the year-ago quarter.
Going forward, Lemond said Shoe Carnival will focus on four initiatives: providing a full assortment of family footwear at affordable prices, maintaining a stronger focus on children's products and sizes than competitors, broadening and deepening its athletic footwear assortments, and implementing creative in-store visuals to highlight key styles and brands.