Shoe Carnival, Inc. CEO Mark Lemond is starting to see his team’s strategy start to bear fruit as the family footwear retailer posted solid back-to-back monthly comp store sales gains for the last two months. Net sales for the fourth quarter ended January 29 increased 7.2% to $143.9 million from $134.2 million last year. Comparable store sales increased 1.4% for the quarter after November comps dipped 1.7%, December comps inched up 1.1%, and January increased 6.8%. February comps kicked off the new fiscal year with a 13.3% comp store sales gain.

Net income for Q4 increased nearly ten-fold to $1.2 million, or 9 cents per diluted share, compared to net earnings of $111,000, or a penny per diluted share in the fourth quarter last year. Gross margin improved 90 basis points to 27.3% of sales in the fourth quarter from 26.4% in the fourth quarter of 2003, due primarily to tighter inventory control and a better fashion mix in product. Merchandise margins increased 130 basis points for the quarter, due to less product sold at clearance and better margins for product sold at clearance, particularly in women’s boots. Operating income increased 223% to $1.8 million in fourth quarter.

SCVL also said that lease accounting changes, as mandated by the SEC, are only expected to decrease fiscal 2004 by approximately $150,000, or approximately a penny per share, and $300,000, or approximately two cents per share, in fiscal 2003.

Part of the new strategy at SCVL was to limit the number of new store openings, and to limit those store openings within current markets or geographic footprint. They see carrying that strategy forward into 2005. Another key component to the strategy was to expand the women’s non-athletic business as a percent of the total sales mix, a business they hope to influence through re-vamped store design and a new advertising program they launched last week. Store re-formatting and product mix alone accounted for a three-point increase in the percent of sales for the women’s non-athletic business in stores with the new layout.

The women’s non-athletic business represented about 24% of total sales in 2004, but Lemond expects to see the number get back to about 28% to 30% of the business without sacrificing sales elsewhere. They see spending about $5 million in 2005 on enhanced graphics and to remodel 10 stores and partially remodel another 30 stores for the year.

EVP/GMM Cliff Sifford said that the juniors and urban fashion business came back in the quarter. He said they also saw “continued strength” in dress shoes. The women’s non-athletic business got progressively better throughout the quarter, finishing flat for the period, but was up in low-singles in February. The men’s non-athletic business was down low-singles in Q4, but increased low-double-digits in February as new trend right product hit the stores.

Sifford said athletic sales were up in low-single-digits, with fashion tennis and skate product in both men’s and women’s and women’s retro basketball product showing “very strong gains.” He also said that the running category for men’s and boy’s had “very strong growth.” Sifford also called out the walking category as one that showed “terrific increases” for February.

The company opened 22 new stores in fiscal 2004 and closed four to end the year with 255 stores. Total gross retail selling square footage increased 6.6% to end the year at 2.9 million square feet. Inventories rose 1.7% on a per store basis at year-end, a stat they see “flat to slightly higher” in 2005.

Store growth in fiscal 2005 is expected to range from 8 to 10 stores, net of closings. Five stores are expected to open in the first quarter.

Earnings per diluted share in the first quarter of fiscal 2005 are expected to range from 40 cents to 44 cents on a total sales increase between 7% and 10% and a gain of 2% to 4% in comparable store sales. Earnings per diluted share were 35 cents for the first quarter of 2004. For the full year of 2005, earnings per diluted share are expected to range from $1.15 to $1.30.