Shoe Carnival Inc. reported earnings in the quarter ended January 30 came in significantly higher than Wall Street’s targets as sales more than doubled against a pandemic-depressed year-ago period. Comparable store sales increase of 125.8 percent and an all-time high store conversion rate was achieved.

First Quarter Highlights

  • Record quarterly net income of $43.2 million and diluted net income per share of $3.02; first-quarter earnings exceed any previous full-year earnings. Wall Street’s consensus estimate was $1.40;
  • Record quarterly net sales of $328.5 million and record quarterly comparable-store sales increase of 125.8 percent. Wall Street’s consensus target was $274.36 million;
  • Revenue was expected to be  $274.36 million, according to the consensus estimate;
  • Record quarterly gross profit of $130.2 million and record quarterly gross profit margin of 39.6 percent;
  • E-commerce sales increase of 11.8 percent versus fiscal 2020 and 191.3 percent versus fiscal 2019;
  • Shoe Perks customer loyalty program membership grew over 10 percent compared to the prior-year bringing total membership in the program to over 27 million; and
  • Cash and cash equivalents were $174.6 million with no outstanding debt as of May 1, 2021.

“Once again, the Shoe Carnival team delivered another record-breaking quarter, achieving the highest sales, margin, and EPS results in our history. Tax refunds, stimulus payments, and our merchants’ ability to deliver the items and brands our customers desired fueled positive traffic trends during the quarter. This resulted in a comparable store sales increase of 125.8 percent and all-time high store conversion rates. Our customer’s focus was on product and not promotion. This allowed us to eliminate low-margin promotions for the entire first quarter, which led to a 1,000-basis point increase in merchandise margin. Our industry-leading CRM program allowed us to get our brand message to our customers and their positive reaction gives us confidence for the remainder of the year. Our relentless focus will remain on continuing to deliver the right product, service and overall customer experience,” said Cliff Sifford, Shoe Carnival’s Vice Chairman and CEO.

“We are thrilled that customers are shopping in-store again, and we look forward to giving them an even more exciting shopping experience as we continue modernizing our store fleet and delivering on-trend products for the entire family at the value they expect. We believe we have earned the tremendous support our customers have in us. We will continue our mission of putting our customers in the center of all we do to maintain and grow the loyalty they have in the Shoe Carnival brand,” concluded Mr. Sifford.

First Quarter Financial Results
The company reported net sales of $328.5 million for the first quarter of fiscal 2021, a 122.7 percent increase compared to net sales of $147.5 million for the first quarter of fiscal 2020. The increase resulted from continued demand for strong product offerings, seasonal weather, increased vaccination rates, and the positive impact of government stimulus. Additionally, substantially all of the company’s stores were closed for approximately half of the first quarter of fiscal 2020 due to the pandemic.

Gross profit margin for the first quarter of fiscal 2021 increased 18.3 percentage points to 39.6 percent compared to 21.3 percent in the prior year. Merchandise margin increased 10.0 percentage points and buying, distribution and occupancy expenses, which are generally fixed costs, decreased 8.3 percentage points as a percentage of net sales compared to the first quarter of fiscal 2020. The increase in merchandise margin was primarily due to strong customer response to the company’s merchandise selection, which resulted in less promotional activity during the quarter. The decrease in buying, distribution and occupancy costs, as a percentage of sales, was primarily due to leveraging occupancy costs against a higher sales base.

Selling, general and administrative expenses (“SG&A”) for the first quarter of fiscal 2021 increased $17.8 million to $72.6 million. As a percentage of net sales, these expenses decreased 15.0 percentage points to 22.1 percent primarily due to the leveraging effect of higher sales. The increase in SG&A primarily correlates with the company’s record performance, in terms of increased performance-based incentive compensation, general wages and variable costs that change with sales, such as credit card fees. SG&A also increased due to market return volatility on the company’s deferred compensation plan.

Net income for the first quarter of fiscal 2021 was $43.2 million, or $3.02 per diluted share. For the first quarter of fiscal 2020, the company reported net loss of $16.2 million, or a loss of $1.16 per diluted share.

Store Updates
No new stores were opened in the first quarter of fiscal 2021 and six stores were closed. The company expects to open one store and close two additional stores during the remainder of fiscal 2021 compared to a total of four store openings and 13 store closings in fiscal 2020.

The company is currently in the process of modernizing its stores and plans to modernize approximately 100 stores by May 2022, with the goal of modernizing two-thirds of its store fleet in the next three to five years.

Fiscal 2021 Outlook
Based on second-quarter results to date and expected continued strength in gross profit margin for the remainder of the quarter, the company currently anticipates record diluted net income per share in the range of $1.00 to $1.20 and net sales in the range of $268 million to $278 million for the second quarter of fiscal 2021.

Given the continued uncertainty in the business environment, including consumer spending behaviors, ongoing supply chain disruptions, and the timing of in-person learning in the fall, the company is not providing guidance for the second half of fiscal 2021 at this time.

Share Repurchase Program
As of May 1, 2021, the company had $50 million available for future repurchases under its share repurchase program. The company will continue to evaluate the repurchase of shares under the repurchase program during the remainder of fiscal 2021.

Photo courtesy Shoe Carnival