Shoe Carnival Inc. reported sales were down 4 percent year-over-year in the third quarter ended October 29 but they marked the second highest quarterly result and were up 24 percent against the pre-pandemic third quarter of 2019.
Given the volatility experienced during 2020 and 2021, the company believes the most relevant comparison for the third quarter 2022 is to the third quarter 2019, prior to the onset of the COVID-19 pandemic and related government stimulus and supply chain disruption.
Third Quarter Highlights Compared to 2019
- Net sales grew 24.4 percent with both store banners contributing to the growth;
- Gross profit margin increased 740 basis points;
- Operating income margin increased 620 basis points and at 12.8 percent was the seventh consecutive quarter in double-digits; and
- Third-quarter EPS of $1.18, up 151 percent, and year-to-date EPS of $3.17, up 138 percent, is on track to deliver previously announced full-year guidance within tightened range.
“The Shoe Carnival team grew our customer base to a record high 31.5 million loyal customers, up nearly 35 percent over the past three years, by leveraging our advanced customer relationship capabilities and providing our customers the freshest products from their favorite brands,” said Mark Worden, president and chief executive officer.
“Despite the challenging inflationary environment our customers face, Q3 sales results were the second highest quarterly result in the company’s history and year-to-date EPS more than doubled any full year of earnings in our 44 years of operation except for government stimulus influenced 2021,” concluded Worden.
Fiscal 2022 Earnings Outlook
EPS and operating margins accelerated sequentially during each quarter of fiscal 2022. The company is on track to deliver the following annual guidance:
- Annual EPS is expected to be in the tightened range of $3.95 to $4.10, compared to a pre-pandemic annual high of $1.46 in 2019, prior, EPS was expected in the range of $3.95 to $4.15;
- Net sales are expected to be between $1.27 billion and $1.30 billion, up 23 percent to 25 percent compared to 2019, prior guidance called for sales in the range of $1.29 billion and $1.34 billion, up 24 percent to 29 percent compared to 2019;
- Gross profit margin is expected to be approximately 37.0 percent, compared to 30.1 percent in 2019, prior, 36.6 percent to 36.7 percent;
- Operating income margin is expected to be in the range of 11.5 percent to 11.7 percent, compared to 5.2 percent in 2019, prior, 11.4 percent to 11.6 percent; and
- Return on equity is expected to be between 24 percent and 25 percent for shareholders.
The company ended third quarter 2022 with inventory of $392.3 million, an increase of $94.3 million compared to third quarter 2019. Approximately 40 percent of the increase is inventory for the Shoe Station stores acquired last year or opened this year and higher in-transit inventory. The remaining increase in inventory is supportive of the net sales increase year-to-date compared to 2019 and the expectation of increased sales for the remainder of the fiscal year.
Operating Results Compared to 2019
The company’s EPS and operating income margin for each quarter and for the year-to-date period in 2022 compared to 2019 are as follows:
Third quarter 2022 net sales of $341.7 million increased $67.0 million, or 24.4 percent, compared to the pre-pandemic third quarter 2019, with the Shoe Station bannered stores contributing $22.2 million. Comparable store sales increased 18.3 percent driven by increased non-athletic and athletic sales and less promotional intensity during the quarter. Net sales achieved in the quarter were the second highest of any quarter in the company’s history, only surpassed by third quarter 2021.
Year-to-date net sales increased $174.8 million, or 21.9 percent, compared to 2019, with Shoe Station contributing $75.6 million of the increase. The Shoe Station banner is expected to deliver net sales in excess of $100 million in fiscal 2022.
Third quarter 2022 gross profit margin increased 740 basis points to 38.3 percent compared to third quarter 2019. A 760 basis point increase in merchandise margin was primarily due to increased customer relationship management capabilities, which have resulted in more targeted promotional pricing and higher average selling prices. Buying distribution and occupancy costs increased 20 basis points as a percent of net sales compared to third quarter 2019 due primarily to increased distribution and freight costs.
Operating income for third quarter 2022 was $43.6 million and was 12.8 percent of net sales, a 620 basis point increase compared to third quarter 2019.
Third quarter 2022 net income was $32.7 million, or $1.18 per diluted share, an increase of 151 percent compared to third quarter 2019.
Operating Results Compared to 2021
Net sales in third quarter 2021 grew 29.8 percent versus third quarter 2020, with significant government stimulus distributions enhancing discretionary incomes. Net sales decreased 4.1 percent in third quarter 2022 versus this stimulus-elevated third quarter 2021, maintaining growth of 24.4 percent versus pre-pandemic 2019.
Gross profit margin decreased 210 basis points compared to third quarter 2021, with merchandise margin decreasing 70 basis points and buying, distribution and occupancy costs increasing 140 basis points as a percentage of net sales.
In third quarter 2021, operating income, net income and EPS were $62.4 million, $46.8 million, and $1.64, respectively.
The company expects to open three Shoe Station stores in the fourth quarter, ending the fiscal year with 25 Shoe Station stores, 373 Shoe Carnival stores and 398 total stores. The company is on track to operate over 400 stores during the first half of 2023 and has a strategic growth roadmap in place to surpass 500 stores in the following three- to five-year horizon.
The company is currently modernizing its Shoe Carnival stores with a comprehensive remodel program. To date, 41 percent of the fleet remodel has been completed and the company remains on track to complete over 50 percent of stores during 2023.
Share Repurchase Program
In the third quarter of fiscal 2022, the company repurchased 451,638 shares at a total cost of $10.0 million. The company has repurchased approximately 1.1 million shares of common stock in the first nine months of fiscal 2022 at a total cost of $30.5 million. As of October 29, 2022, the company had $19.5 million available for future repurchases under its share repurchase program.
Photo courtesy Shoe Carnival