Shoe Carnival reported fourth-quarter earnings fell 81.4 percent to $598,000, or 3 cents a share, as snowy conditions led to declining traffic throughout most of December and January.
The family footwear chain also provided first-quarter guidance that trailed Wall Street targets due to the continuation of cold, wet weather in most markets.
Fourth-quarter earnings came in at the low-end of its updated guidance. On Jan. 9, Shoe Carnival warned that double-digit traffic declines through the first three weeks of December would cause its Q4 to land in the range of 3 to 6 cents a share. When reporting third-quarter results in early December, the retailer forecast earnings of 18 cents to 22 cents a share.
Sales in the fourth quarter slid 2.6 percent to $200.3 million, with $12.7 million attributed to the latest quarter running 13 weeks versus a 14-week quarter last year. Same-store sales were down 2.5 percent.
On a conference call with analysts, Clifford Sifford, president, CEO and chief merchandising officer, said that after a high single digit comparable store sales gain in November, traffic declined sharply throughout most of December and January in most geographies.
“At one time or another during the months of December and January, we experienced over 500 instances where individual stores were either closed for an entire day or had to close for a partial day due to inclement weather,” said Sifford.
Traffic was down mid-single digits overall for the quarter. Conversion was basically flat and average transactions were up mid-single digits, driven in part by average unit retail and an increase in units per transaction.
By category, Women’s (non-athletic) managed a comp gain in the low-single digits, carried by a gain in the mid-teens in boots. Riding boots, fur-lined boots and weather boots all produced robust sales growth.
“After the past several years of declining boot sales, it was nice to see this category perform at this unexpected level,” said Sifford. “We ended the quarter with boot inventories down in the midteens on a per-door basis as compared to last year.”
Across women, men and kids, gross margins for the quarter in its fashion boot categories ran 855 basis points higher than the same time period last year, helping reduce per-door inventories at the end of the quarter by 2.4 percent.
Men’s non-athletic comps were down mid-single digits in the quarter despite a gain in the mid-teens in casual boots. Children’s non-athletic was off low-single digits, again in spite of a boot gain in the 30s. Athletic footwear sales across men, women and kids were down mid-single digits.
“The winter weather patterns kept outdoor activity to a minimum, and we experienced declines in most categories of athletic,” said Sifford. “We believe based on store scan data that this was a trend felt throughout the family footwear channel as the only athletic gains in the quarter came from marquee launches in the athletic specialty stores.”
Key merchandising initiatives in the quarter included a push also mentioned in Q2 and Q3 conference calls to increase inventory turns in part by better flow seasonal product on a timelier basis and align its lower volume stores' inventory closer to customer demand. Along with initiative to raise its women's percent to total sales, SCVL hopes the move will improve both cash flow and merchandise margins.
Gross margins in the quarter decreased to 28.5 percent compared to 29.3 percent. Merchandise margins decreased 0.2 percent while buying, distribution and occupancy expenses increased 0.6 percent as a percent of sales. SG&A expenses increased to 28.0 percent of sales compared to 26.7 percent, primarily due to the lack of sales leverage.
On the marketing front, Shoe Carnival’s first ever national cable television ad campaign will launch in April. It also doubled its member count in its Shoe Perks customer loyalty program in 2013, and expects to double it again in 2014. Shoe Perks customers accounted for more than 20 percent of overall sales in 2013, and on average spend almost 40 percent more than non-members.
Shoe Carnival’s e-commerce business underwent a leadership change in Q213 and sales improved in the latter part of the year with enhancements to site functionality and the overall customer experience.
Regarding expansion, Shoe Carnival opened 32 stores last year end with 376, with plans to open 30 to 35 this year. Its goal is to double its current store base serving markets throughout the United States.
For the first quarter, earnings are projected in the range of 45 to 52 cents per share and sales of $232 million to $241 million. Same-store sales are expected to be flat to down 3.5 percent, partly due to tough comparisons with a late Easter this year as well as the lack of spring weather. Analysts on average had expected earnings of 49 cents per share on sales of $252.3 million for the quarter.
Sifford said that for the first quarter through last week, comparable-store sales were down 4 percent. Traffic was down in the teens during the first two weeks of February due to snow and ice, leading to a low-single digit comp drop in February. While traffic improved later in February, the chain faced “similar weather issues the first week of March,” to lead to a rough start to the current quarter.
On the positive side, merchandise margins are significantly higher versus last year due to strong winter product sell-throughs and Sifford expects a more positive trend as spring weather arrives. Added Sifford last week, “This belief is driven by the fact that even though we have experienced one of the most challenging winters in recent memory, through this past Saturday our sandal business for the family is up in the midteens on a comparable store basis.”
