Boosted by higher merchandise margins and lower advertising expenses, Shoe Carnival Inc.’s earnings vaulted 86.4 percent in the second quarter, to $4.8 million, or 24 cents a share.
Sales expanded 2.6 percent to $227.8 million. Comparable store sales inched up 0.5 percent, in-line with guidance.
Earnings came in easily ahead of Wall Street's consensus estimate of 18 cents a share although revenues slightly trailed the average target of $228.9 million.
On a conference call with analysts, Cliff Sifford, president, CEO and chief merchandising officer, said comps were up mid-single digits through mid-July but then were impacted by major changes in tax-free holidays that shifted approximately $7 million in sales out of the second quarter into the third.
Sifford said that despite the shift, the company was “very pleased with our sandal sales for both the women's and kids departments.” In addition to sandals, “nice double-digit” increases were seen in canvas for men, women and kids. By department, women's was essentially flat with best-performing categories including junior dress wedges, ladies pumps, casual sandals and boots.
The men's segment was up low-single digits, driven primarily by casuals and work shoes. Kids was down mid-single digits, driven entirely by the shift of BTS and tax-free holidays. Adult athletic was up low single digits, driven by canvas, women's fashion athletic and men's basketball.
Elaborating on adult athletic’s performance in the Q&A session, Sifford said, “Well, our business is really no different than anyone else's. Fashion athletic has been very strong. We see our running business, our basketball business, led mainly by canvas, and canvas product in general, all selling – a very strong athletic month. In addition to being a very strong athletic month, again, I have to say it, we were pleased with the performance of our boot category and the fact that we saw double digit increases there. So that gives us some reason to be positive about the fourth quarter.”
Due to the tax-free holiday and back to school shifts, store traffic and units per transaction were down. However, average dollar transactions and conversions showed positive growth for the quarter, due to the strength of its inventory selection. It ended the quarter with inventory up 2.9 percent on a per store basis, again, in line with expectations, primarily due to the shift in the BTS dates and tax-free holidays.
Gross margins increased 110 basis points to 29.1 percent, driven by a 110 basis point increase in the merchandise margin. For the past two years in Q2, merchandise margin had declined a combined 90 basis points due to a tepid response by customers to its spring merchandise and higher levels of clearance products.
SG&A expenses decreased 50 basis points to 25.6 percent of sales due to a $2.6 million reduction in advertising expense for the quarter.
Shoe Carnival added over 758 members to Shoe Perks, its loyalty program, “and we continue to be pleased with this growth initiative,“ said Sifford. Shoe Perks members spent on average 28 percent more per transaction than non-members and accounted for over 53 percent of the quarter’s sales.
Online sales performed well and the June launch of Shoes 2 U, which enables associates to find shoes online for under-stocks in store, has been “very positive.” Shoe Carnival plans to further expand its multi-channel capabilities to include buy online and pickup in store.
Shoe Carnival opened five stores, relocated one and closed six in the quarter to close with 400. A major brand-opening event just took place in Philadelphia, its latest large market, with seven stores opening on Sept. 1. Shoe Carnival also announced plans to launch a new small-market store concept and first two will open in the second half. For the remainder of the year, it plans to open an additional nine stores and close three.
For the current quarter, August comps were up high single digits, in line with expectations. Last year in the markets the chain serves 13 states had tax-free holidays observed at the end of July. This year, nine states shifted their tax-free holiday to August.
August gains were led primarily by athletic, which was up double digit in total for both kids and adults. Women's boots were up high double digits, women's sandals up in the teens, and men's casual boots were up low double digit.
“It is early in our third quarter and we are really excited about our selection of boots for the family as we head into the fall and winter season,” added Sifford. “We believe we have a great merchandise assortment and favorable inventory position to generate strong sales as the weather gets cooler and believe there is a potential for us to outperform our guidance if we see similar weather patterns to last year.”
Shoe Carnival nonetheless kept its guidance for the year, given the tough comparison the second half of last year. Sales are expected to be in the range of $977 million to $991 million, with a comp increase in the range of 1.5 percent to 3.0 percent. EPS is expected in the range of $1.42 to $1.48, representing an increase of 12 percent to 17 percent 2014’s EPS of $1.27.
