Shoe Carnival, Inc. was able to leverage a fairly moderate sales increase in the fourth quarter and year into solid improvements in operating profit for both periods. While comps for the fourth quarter declined 0.9%, and net sales rose only 1.3% on a comparable 13-week basis, and gross margins declined 50 basis points to 28.1% of sales for the quarter, the family footwear retailer was able to take advantage of a 200 basis point improvement in SG&A expenses to boost operating margins by 150 basis points to 4.5% of sales for the period.

Total net sales increased 8.3% to $177.2 million for the 14-week fourth quarter compared with $163.6 million in the 13-week Q4 period in the previous year. Sales of approximately $11.5 million were recorded in the extra week of Q4 2006. The 0.9% comp sales gain was up against an 11.7% increase posted in Q4 2005. Net earnings for the 14-week fourth quarter increased 70.0% to $5.1 million, or 37 cents per diluted share, compared with net earnings of $3.0 million, or 22 cents per diluted share, in the prior-year period.

A 30 basis point improvement in merchandise margins was offset by an 80 basis point increase in buying, distribution, and occupancy expenses, due primarily to incremental costs associated with the opening of a new distribution center during the fourth quarter of 2006.

Carnival said the women’s non-athletic business was up in low-single-digits, with strength in the juniors business driven by double-digit increases in low profile and dress shoes. Leather, flat and vulcanized canvas footwear also produced strong results for the period. The boot business was predictably soft in November and December and unit sales picked up again once more seasonal weather hit in January, “albeit at lower retails.” Management said that they are disappointed in their urban brands and are starting to see a shift from hip-hop looks to dressier or preppy looks in some markets. Women’s non-athletic made up 27% of sales for the year, inching closer to the 28% to 30% goal set by management.

Men’s non-athletic was down in mid-single-digits for Q4, thanks to weakness in leather boots and hikers, along with urban boots and urban casuals. Management also pointed to an absence of opportunity buys during the quarter that cut into sales. They point to better inventory management by vendors that led to fewer close-outs.

The children’s business, which includes children’s athletics, was up in mid-single-digits. The retailer saw “very strong growth” in both girls and boys low profile, girls fashion boots, fashion athletics, and boys skate. Cold weather boots ended the season down in double-digits.

Men’s athletic was flat for the quarter and women’s athletics was down in mid-single-digits. They continue to see declines in urban classics, but did cite some renewed interest in fashion classics and the new K-Swiss low profile product that shows promise. Performance running is showing double-digit gains in both men’s and women’s. Men’s skate and the new Nike basketball product for the mid-tier was also called out as positive for the quarter.

Total footwear sales were down 0.7% and accessory sales were down in mid-single-digits. Management said the comp store sales decline was entirely due to a high-single-digit decrease in the Southern region.

SCVL opened 14 new stores and closed six doors during the year to end the year with 271 stores in operation. They plan to open 25 new stores and close three stores in fiscal 2007.

Shoe Carnival, Inc. 
Full Year Results
(in $ millions) 2006 2005 Change
Total Sales $681.7  $655.6  +4.0%
Gross Margin 29.2% 28.9% +20 bps
SG&A % 23.6% 24.2% -60 bps
Net Income $23.8  $18.8  +26.5%
Diluted EPS $1.73 $1.40 +23.6%
Comp Sales +1.5% +6.9%  
Inventory* $196.7  $184.0  +6.9%