Shoe Carnival, Inc. reported net sales came in at the high end of the company’s expectations, totaling $280.2 million in the fiscal 2023 fourth quarter and $1.18 billion in the Fiscal 2023 year ended February 3. Sales were down 3.6 percent year-over-year in the fourth quarter, driven by strong sales growth during the key December holiday period.
Comparable store sales, also in line with the company’s expectation, declined 9.4 percent in the quarter, primarily due to soft trends before the December holiday period and weather disruptions in January.
Carnival said fourth quarter 2023 marked the 12th consecutive quarter the company’s gross profit margin exceeded 35 percent. Gross profit margin decreased to 35.6 percent in fourth quarter 2023 on lower merchandise margins and buying, distribution and occupancy deleveraging on lower sales.
Fourth quarter 2023 SG&A included approximately $0.8 million in expenses related to the acquisition of Rogan’s Shoes, Inc., but otherwise declined due to lower selling expenses.
Fourth quarter 2023 net income was $15.5 million, or 57 cents per diluted share, compared to fourth quarter 2022 net income of $21.6 million, or 79 cents per diluted share. EPS was said to be in the mid-range of company expectations.
EPS results in fourth quarter 2023 were in line with the company’s expectations, primarily driven by net sales performance in the quarter at the high end of the company’s expectation and sustained gross profit margin performance.
On an adjusted basis, excluding the approximately $0.8 million in transaction costs in the fourth quarter related to the acquisition of Rogan’s, fourth quarter Adjusted EPS was 59 cents a share and Adjusted EPS for the Fiscal 2023 year was $2.70.
“I would like to thank our dedicated team members and vendor partners for their support in driving growth during the key holiday period and setting us up for continued growth in 2024. With the acquisition of Rogan’s, we are now at an all-time high of 429 stores. Rogan’s will be immediately accretive to our results in 2024 and the level of accretion is expected to meaningfully increase in 2025. The integration progress to date has been encouraging and we are raising the full synergy expectation to $2.5 million and accelerating the integration schedule, with the expectation of now realizing full synergies in 2025. We are well positioned to advance our strategy to be the nation’s leading family footwear retailer by accelerating growth, as well as pursuing additional growth initiatives and M&A opportunities in the future,” said Mark Worden, president and CEO of Shoe Carnival, Inc.
Merchandise Inventory
Shoe Carnival’s inventory optimization improvement plan delivered ahead of expectations in Fiscal 2023, with inventory $43.9 million, or 11.3 percent lower than the prior year-end.
As part of the ongoing inventory optimization improvement plan, Carnival expects further inventory efficiencies in Fiscal 2024. Year-end inventory dollars are expected to be lower by approximately $20 million, or 5 percent, compared to Fiscal 2023 year-end, excluding the impacts of Rogan’s acquisition.
Acquisition of Rogan’s, Planned Store Growth and Store Modernization
On February 13, 2024, the company announced the acquisition of Rogan’s, a 53-year-old work and family footwear company with 28 store locations in Wisconsin, Minnesota and Illinois, for a purchase price of $45 million, subject to further adjustments and funded entirely with cash generated in Fiscal 2023.
The acquisition of Rogan’s is expected to be immediately accretive to the company’s Fiscal 2024 earnings. It positions the company as the market leader in Wisconsin and establishes a store base in Minnesota, the company’s 36th state, creating additional expansion opportunities.
As previously announced, the company has an 18-month integration plan in place. Based on progress to date, the company is increasing its full synergy expectation to approximately $2.5 million annually and is accelerating the integration plan to fully capture those synergies in Fiscal 2025.
As of February 3, 2024, the company had 400 stores, including 372 Shoe Carnival and 28 Shoe Station stores. Today, following the acquisition of Rogan’s, the company operates 429 stores. By the end of Fiscal 2024, the company expects to operate 430 to 432 stores, representing a net growth of 30 to 32 stores. The company said it has a strategic growth roadmap to surpass 500 stores in 2028, including organic growth and strategic M&A activity.
The company said it continued to modernize its fleet in Fiscal 2023. As of February 3, 2024, approximately 60 percent of the Shoe Carnival store modernization was complete, and the company expects to modernize additional stores in Fiscal 2024. Total capital expenditures are expected to be in the range of $25 million to $35 million in Fiscal 2024 and lower than Fiscal 2023 and Fiscal 2022 as the store modernization program nears completion.
Dividend and Share Repurchase Program
In March 2024, the company’s Board of Directors approved a dividend increase of 12.5 percent from 12 cents per share to 13.5 cents per share. The quarterly cash dividend will be paid to shareholders of record on April 22, 2024, as of the close of business on April 8, 2024. With the increase in the quarter, the company has paid 48 consecutive quarterly dividends.
As of March 21, 2024, the company has $50 million available for future repurchases under its share repurchase program. During the fourth quarter 2023, the company did not repurchase any shares.
Capital Management
The 2023 fiscal year-end marked the 19th consecutive year the company ended a year with no debt, fully funding its operations and investments from operating cash flow.
At the end of Fiscal 2023, the company had approximately $111 million in cash, cash equivalents and marketable securities. Compared to year-end Fiscal 2022, cash and cash equivalents increased over $47 million in Fiscal 2023 and cash flow from operations increased over $72 million compared to prior year.
Long-Term Profit Transformation
As part of its long-term growth strategy, the company has invested significantly in CRM capabilities, e-commerce infrastructure, modernization of its store fleet, and acquisitions as key drivers of profitable growth. Since 2019, EPS has increased 84 percent, gross profit margin expanded 570 basis points, and net sales grew 13 percent.
The Fiscal 2024 outlook builds on this sales growth and profit transformation led by the company’s acquisition strategy, sustained gross profit margin, and increased omni-channel sales.
Fiscal 2024 Outlook
Shoe Carnival is initiating its financial outlook for Fiscal 2024 and notes that its Fiscal 2024 is a 52-week year, compared to a 53-week year in Fiscal 2023.
The company expects to grow net sales in Fiscal 2024, led by the recent Rogan’s acquisition, the continued strength of the Shoe Station banner and growth in e-commerce sales, combined with the expectation of improving trends in the Shoe Carnival banner.
Net Sales: Expected to be in a range of $1.21 billion to $1.25 billion, representing growth of 4.0 percent to 6.0 percent versus Fiscal 2023.
Comparable Store Sales: Expected to be in a range of down 3.0 percent to up 1.0 percent versus Fiscal 2023.
Gross Profit Margin: Expected to be approximately even with Fiscal 2023.
SG&A: As a percent of net sales, SG&A is expected to be approximately 40 basis points higher than Fiscal 2023. Approximately 20 basis points of the increase is due to expected purchase accounting, transaction and integration costs related to the Rogan’s acquisition and the balance of the increase is primarily driven by approximately $2.5 million of Rogan’s current operating expenses that are expected to be synergized in Fiscal 2025.
Income Tax Rate: Expected to be approximately 26 percent in Fiscal 2024, representing an increase of 230 basis points versus Fiscal 2023 and a negative impact of approximately of 8 cents to EPS.
GAAP EPS: Fiscal 2024 EPS on a GAAP basis is expected to range from $2.50 to $2.70 per share.
Adjusted (non-GAAP) EPS excludest he expected purchase accounting, transaction and integration costs related to the Rogan’s acquisition. Adjusted EPS is expected to be in a range of $2.55 to $2.75.
Image courtesy Shoe Carnival
