Shoe Carnival reported earnings rose 4.9 percent in the fourth quarter ended January 28 as higher gross margins offset a 7.2 percent decline in sales. The family apparel chain said comparable store sales were up 12.6 percent against the pre-pandemic 2019 fourth quarter.

EPS of 79 cents a share was just below analysts’ consensus estimate of 80 cents. Revenue for the quarter came in at $290.8 million, below the consensus estimate of $307.7 million.

“The Shoe Carnival team successfully delivered operating income margins and overall profitability more than double those generated just three years ago, consistent with our strategic plans and 2022 guidance. These results demonstrate the sustainability of our profit transformation and set the new benchmark for us going forward,” said Mark Worden, president and chief executive officer.

“Our growth strategies to increase scale, modernize our customer experience, leverage customer data, and carry the hottest branded merchandise are working. As a result, the total earnings per share generated over the last two years have exceeded the earnings per share the corporation achieved over the preceding 13 years combined. As we move forward, we expect this profit level to continue on our track to becoming a multi-billion-dollar retailer by 2028,” concluded Worden.

Operating Results Compared To 2019
The transformational increase in gross profit margin (full year up 700 basis points compared to 2019) and increased scale through the acquisition of Shoe Station increased shareholder returns, with full-year 2022 EPS up 171 percent compared to 2019. Following is further detail on the company’s successes compared to pre-pandemic results in 2019.

Fourth quarter 2022 net sales of $290.8 million increased $50.9 million, or 21.2 percent, compared to the pre-pandemic fourth quarter 2019, with the Shoe Station bannered stores contributing $24.3 million. Comparable store sales increased 12.6 percent. The primary merchandise category driving the increased net sales was non-athletics.

Full-year net sales grew $225.7 million, or 21.8 percent, compared to 2019, with the Shoe Carnival banner growing $125.8 million and the Shoe Station stores acquired and recently opened contributing $99.9 million. A key contributor to the growth in net sales was an 8 million, or over 30 percent, increase in Shoe Perks loyalty members since 2019.

In the fourth quarter 2022 gross profit margin increased 920 basis points to 38.3 percent compared to the fourth quarter 2019. An approximate 920 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 were flat as a percent of net sales compared to the fourth quarter 2019.

Operating income for the fourth quarter 2022 was $28.7 million and was 9.9 percent of net sales, nearly five times higher than the operating margin in the fourth quarter 2019.

Fourth quarter 2022 net income and EPS on a GAAP basis were a record at $21.6 million and $0.79, respectively, with EPS increasing over 550 percent compared to the fourth quarter 2019.

Operating Results Compared To 2021
Fourth quarter 2022 net sales of $290.8 million decreased $22.6 million, or 7.2 percent, compared to a stimulus-elevated fourth quarter 2021. In January 2023, the first comparable month without government stimulus, net sales increased low-single-digits versus January 2022.

Fourth quarter 2022 gross profit margin increased 100 basis points to 38.3 percent compared to the fourth quarter 2021, primarily reflecting higher merchandise margins in the fourth quarter 2022 and $1.1 million of Shoe Station acquisition-related charges in the fourth quarter 2021.

Operating income for the fourth quarter 2022 was $28.7 million and was 9.9 percent of net sales. In the fourth quarter 2021 operating income margin was 8.9 percent, inclusive of $4.3 million in Shoe Station acquisition-related charges.

Fourth quarter 2022 net income and EPS on a GAAP basis were $21.6 million and $0.79, respectively. Fourth quarter 2021 net income and EPS were previous record highs at $20.6 million, and $0.72, respectively. Excluding the Shoe Station acquisition-related charges incurred in the fourth quarter 2021, the fourth quarter 2021 adjusted net income and adjusted diluted EPS were $23.8 million and $0.83, respectively.

Merchandise Inventory
The company ended 2022 with inventory of $390.4 million, an increase of $130.9 million compared to 2019. Approximately 40 percent of the increase was inventory for the Shoe Station stores acquired last year or opened this year and higher in-transit inventory. The remaining increase in inventory was supportive of the net sales increases compared to 2019 and the expectation of increased sales in 2023. Management is planning inventory levels to reduce by approximately $40 million by year-end in 2023, principally during the back-to-school shopping season. The planned increase in free cash flow during 2023, inclusive of lower inventory, is expected to fund store growth.

Fiscal 2023 Earnings Outlook
The company expects to deliver on the following annual guidance for 2023, which includes 53 weeks compared to 52 weeks in 2022:

  • EPS in the range of $3.96 to $4.20, flat to up 6 percent versus 2022;
  • Net sales in the range of $1.26 billion to $1.32 billion, flat to up 4.5 percent versus 2022; and
  • Comparable store sales in the range of negative 2 percent to positive 2 percent.

This annual guidance includes the expectation of a mid-single-digit decline in net sales in the first quarter 2023.

Store Count, Modernization and Planned Store Growth
The company ended its fiscal year with 397 total stores, 373 Shoe Carnival stores and 24 Shoe Station stores. It is currently modernizing its Shoe Carnival and Shoe Station stores through a comprehensive remodel program. Thus far, over 40 percent of the fleet remodel has been completed and the company is on track to be over 60 percent complete by the end of 2023.

Since its fiscal year-end, the company opened one Shoe Station store and its Shoe Station e-commerce site, shoestation.com, went live. The company is on track to operate over 400 stores in the third quarter 2023. The company has a strategic growth roadmap in place to surpass 500 stores and be a multi-billion dollar retailer by 2028, inclusive of organic and acquired growth.

In light of its strong balance sheet with no debt and history of steady operating cash flows, the company believes this growth goal of more than 500 stores is achievable. As previously disclosed, the Shoe Station transaction that closed in December 2021 was consummated with cash on hand. No debt was incurred nor was any stock issued, although the company has the flexibility of doing so in future acquisitions if desirable.

Dividend and Share Repurchase Program
The Board of Directors approved an 11 percent increase to the quarterly cash dividend from $0.09 to $0.10 per share. The quarterly cash dividend will be paid on April 17, 2023, to shareholders of record as of the close of business on April 3, 2023. Additionally, the company has $50 million available in calendar 2023 for future repurchases under its share repurchase program if deemed appropriate.