Shoe Carnival Puts Strong Year to Bed on Execution of Change in Model…

Shoe Carnival, Inc. is reaping the rewards of the changes they have made to their business model over the last 18 months, changes that have enabled them to take advantage of the improving trends in the footwear business. Management sees the opportunities continuing into fiscal 2006 after a strong finish to the last year. Sales per square foot made it back up over $219 per square foot in 2005 after slipping to a low of $207/sf in 2004. The mission is to make it back over the $237/sf level set in 2001.

Net sales for the fourth quarter increased 13.7% to $163.6 million from $143.9 million last year. Comparable store sales increased 11.7% for the quarter on top of a 1.4% comp sales gain in Q4 last year. November comps were up 12.8%, December comps were up 10.6%, and the retailer finished the fiscal year with an 11.8% increase in January.

SCVL said it saw comps increase in every major department, with women’s and men’s non-athletic and women’s athletic all contributing double-digits comp store sales gains. The women’s non-athletic business, which was driven by the boot and dress shoe categories in Q4, saw comps up in the high-teens for the year. The retailer also saw “healthy double-digit increases” in the juniors business for Q4, driven by dress, casual, and boots.

One of the key objectives for Shoe Carnival is to get the women’s non-athletic business to between 28% and 30% of total sales. The business increased to 25.4% of sales in 2005, a 200 basis point improvement from the 23.4% of sales achieved in 2004, while still growing the other categories of business.

The men’s non-athletic categories posted double-digit comp gains for the quarter and the year, driven by the fashion and young men’s category. Show Carnival tracks the euro casual, or fusion, fashion athletic category in non-athletic, which has driven growth in both the men’s and women’s non-athletic business. SVP/GMM Cliff Sifford said they were not pleased with the basic boot business as hikers and sport boots under-performed, but the fashion boot business in the urban and Hispanic markets did see growth.

The children’s business comped up in mid-singles for the quarter and low-singles for the year, with the Q4 gain coming from both athletic and non-athletic. Higher ASP’s in casual and boots drive much of the non-athletic growth. Sifford said they were “disappointed’ with the performance of boy’s basketball and both girl’s and boy’s slip-on and fashion classics. The running category posted double-digit growth in children’s.

In men’s and women’s athletic, SCVL finished the quarter with a high-single-digit comp sales gain, while comps for the year grew in low-singles. The women’s athletic business was up in double-digits for Q4, driven by fashion classics, mules, and performance, and men’s was up in low-singles, driven by performance and skate. Sifford said they continue to see weakness in men’s basketball, fashion classics, and walking, due in large part to weak product offerings, something he feels they will rectify by fourth quarter 2006.

Net income for Q4 increased 154% to $3.0 million, or 22 cents per diluted share, from $1.2 million, or nine cents per diluted share, in the fourth quarter last year. Gross margins improved 30 basis points to 28.6% of sales and SG&A improved 50 basis points to 25.6% of sales for the period.

SCVL expects diluted EPS in the 52 cents to 54 cents per share range in Q1 on a total sales increase in the 5% to 6% range and a 4% to 5% gain in comps. For fiscal 2006, diluted EPS in seen in the $1.65 to $1.75 per share range. SCVL expects to open 13 to 15 new stores, and close five, in fiscal 2006 after adding eight net new stores in 2005 for a total of 263 doors.