Shoe Carnival Urban Product Slows Athletic Sales…

After posting their highest quarterly earnings in company history during last year’s first quarter, Shoe Carnival nearly matched that number this year, in spite of a very challenging spring retail environment and declining comparable store sales. Mark Lemond, CEO and president of Shoe Carnival, said that the footwear industry experienced a slower than anticipated spring retail season, but tight inventory management helped keep declines in the bottom line to a minimum.

Based on past experience, Lemond expects some “pent up footwear demand” in Q2, during the back-to-school period and in the fall season. He pointed to the fact that from 1996 to 2006, SCVL has experienced 11 straight years of positive third quarter comp store sales averaging around 2.9%. However, with $3 per gallon gas, management does not expect a very strong economy to boost sales going forward.

“Our merchants have done a very good job controlling inventories,” said Lemond. “In fact we've got open to buy in the second quarter and we plan on bringing in fresh goods. Having said that, I don't really see, other than warmer weather starting to spur sandal sales as they have, I don't see a tremendous catalyst from an economic standpoint in the marketplace today that leads me to believe that business is going to be significantly better.”

On a category basis, men's non-athletic sales were down mid-singles on a comparable store basis with losses in dress shoes, urban boots, and sandals. Comfort, dress, boat shoes and low profile shoes all produced double-digit increases. While sandal sales were down in the double-digits in Q1, management has seen an improvement in men's sandals during the latter part of April and into May.

SCVL’s largest sales decline came out of the athletic department with declines in girls' and boys' fashion classics as well as boys' basketball. In adult athletics, the company saw mid-single-digit declines on a comparable basis with men's athletic down in the low-single-digits and women's athletic down in the mid-singles. Declines in urban classic product also continued during Q1 and were more pronounced in women's athletic than in men's. SCVL also experienced sales declines in men's basketball, as this classification continues to struggle throughout the market.

Sales were “very strong” in girls' low profile and boys' skate and fashion athletic. SCVL is expecting continued increases out of skate and fashion athletic. Skate for both men's and women's was said to have performed “extremely well.” Performance running, fashion athletic, and Chuck Taylors, all produced “healthy” sales increases. The Junior department produced a high-single-digit comp store increase. Flats, vulcanized canvas and low profile performed well for Juniors.

Gross margins slipped 50 basis points during the quarter, primarily due to increased distribution and occupancy expenses. Despite an increase in new store opening costs, the company opened seven stores in Q1 2007 compared to zero in Q1 of 2006, SCVL was able to decrease net selling, general and administrative expenses by over $300,000. The bottom line was positively impacted by an effective income tax rate of 32.0% during Q1 2007 compared to 38.3% last year for the same period. However, lower sales and margins with a slight up-tick in SG&A kept net earnings slightly below 2006 levels.

Earnings per diluted share in the second quarter of fiscal 2007 are expected to range from 20 cents to 23 cents compared to 21 cents for the second quarter of 2006. This assumes comparable store sales ranging from a decrease of 1% to an increase of 1%.