Shoe Carnival Inc. reported fourth-quarter earnings arrived at the top end of guidance due to a focus on lower promotions, but the move led to a dip in same-store sales.
The footwear off-pricer showed a net loss of $3.9 million, or 24 cents per share. The loss included non-cash impairment charges, additional stock-based compensation expense and income tax expense associated with the enactment of the Tax Act. Those were partly offset by a $3.3 million gain on insurance proceeds related to the closing of stores due to year-ago hurricanes.
Adjusted net income improved 30.8 percent to $1.7 million, or 11 cents a share, exceeding Wall Street’s consensus estimate of 9 cents. The company had guided earnings on an adjusted basis to arrive between 4 cents and 11 cents a share.
Sales in the quarter increased 3.9 percent to $243.2 million. Comparable store sales decreased 0.5 percent, missing Wall Street’s target for a comp gain of 1.4 percent.
On a conference call with analysts, Cliff Sifford, Shoe Carnival’s president and CEO, said some of Shoe Carnival’s locations continued to recover from the hurricanes in certain markets like Puerto Rico. Sales were also impacted by a strategic decision to pull back on its promotional cadence during the year, including the decision to close its doors on Thanksgiving Day.
“Despite the external challenges and our promotional changes when the consumer had need to buy, they shop Shoe Carnival,” said Sifford. “Our merchants did a great job during the important shopping seasons, like back-to-school.”
Among the positives was that inventories were down 5.2 percent on a per-store basis at the year’s end, in line with expectations. Both its gross profit margin and merchandise margins also improved 140 basis points for the quarter compared to the prior year period.
On a comparable 13-week basis, traffic declined mid-single digit, while conversion, average transaction and units per transaction increased low-single digit.
Among categories, Adult Athletic was up low-single digits on a comparable basis. Said Sifford, “While our men’s basketball category continues to struggle, we are very pleased with the performance of women’s athletic.”
In women’s non-athletic, comps were down mid-single digits, as expected, with women’s boot sales down high-single digits due to its decision to be less promotional, which included closing on Thanksgiving Day. On the positive side, margin in boots improved 310 basis points and women’s boots inventories at year end were reduced in excess of 20 percent.
Men’s non-athletic ended the quarter down low single digits on a comp basis due to the reduction of its promotional cadence, primarily in the seasonal boot category. Margin in men’s seasonal boots improved approximately 140 basis points.
Children shoes were up mid-single digits with athletic increasing high single digits and non-athletics down mid-single digit. Children’s boots decline mid-single digit while margins increased 260 basis points.
Gross margins for the quarter increased to 28.9 percent compared to 27.5 percent in the fourth quarter of fiscal 2016. Merchandise margin increased 1.4 percent and buying, distribution and occupancy expenses remained flat as a percentage of sales compared to year-ago levels. Gross profit margin in the latest quarter of included a $3.3 million gain on insurance proceeds related to hurricane affected stores. Excluding the gain, adjusted gross margins would have been flat year-over-year.
SG&A expense increased to 28.8 percent of sales from 28.1 percent a year ago. The latest quarter included impairment charges of $3.4 million for 30 underperforming stores and a $1.9 million increase in stock-based compensation expense due to new tax rules and its impact on the anticipated vesting of the company’s outstanding performance-based restricted stock. The year-ago period’s SG&A included an impairment charges of $3.6 million for seven Puerto Rico stores. Excluding non-recurring charges in both period, SG&A was 26.6 percent of sales, equal to the year-ago period.
For the full year, sales increased 1.1 percent to $1.02 billion. Comps inched up 0.3 percent. Net earnings were down 19.5 percent to $18.9 million, or $1.15 per share. Adjusted earnings slipped 4.7 percent to $24.5 million, or $1.49. Results earlier in the year were impacted by the delay in tax refunds in the first quarter and later in the year by the three major hurricanes that impacted its stores in the south and in Puerto Rico.
Sifford described 2017 as a “transitional year” for Shoe Carnival, as the company made a number of investments largely to better engage customers. This includes developing customer segmentation program aimed at its high-value shoppers by better analyzing data from its Shoe Perks loyalty program. In March of this year, Shoe Perks 2.0 will be launched with a focus on incentivizing its best customers to shop more frequently. The company is also working on in fine-tuning its targeting to reach high-value shoppers at an individual store level.
Shoe Carnival also created a new platform for its digital store front to enhance performance and reliability online and the company is pleased with the results so far. The retailer’s mobile-app was re-launched to be more user-friendly and provide an easier way to see Shoe Perks rewards. At the end of 2017, 70 percent of its e-commerce traffic shopped Shoe Carnival via a mobile device and approximately half of its store sales came from customers who have engaged Shoe Carnival through their mobile device.
Shoe Carnival also launched a program that allows customers to receive text messages about deals and new product introductions, and the use of the service is expected to increase with the rollout of Shoe Perks 2.0.
Other new programs this year include the launch of its vendor drop-ship initiative planned to be in place by the end of the second quarter. The program is expected to enable Shoe Carnival to test styles, brands and expand sizes without the risk of inventory ownership while expanding inventory selections for its customers.
In February, Shoe Carnival launches its first brand landing page with its largest brand, Nike. Added Sifford, “We believe [a] brand landing page will enhance our site and make us more relevant in the marketplace. And our merchant team will continue to analyze our footwear assortment with the goal of reducing per store inventories through SKU and brand reduction while also increasing depth in key items.”
Shoe Carnival also slowed expansion with the expectations that better real estate opportunities will arrive with many store closings being seen across retail. For 2018, 25 to 30 stores will close and openings are expected in the low single-digit range. The company opened 19 stores and closed 26 stores during fiscal 2017 compared to opening 19 stores and closing nine stores during fiscal 2016. Shoe Carnival does not expect to continue the rate of store closures seen over the last few years in 2019 and thereafter.
Looking ahead, Shoe Carnival expects comps in 2018 to rise low-single digits. Earnings per share are projected to be in the range of $1.85 to $2.00, representing a gain between 24 percent and 34 percent.
“We continue to plan our business conservatively in order to more efficiently manage inventory and margin,” said Sifford. Given the Easter shift from out of April into March, the retailer did not provide quarter-to-date sales. Added Sifford, however, “I will say we are happy with the performance of our seasonal product categories and the continuation of the strong athletic and at leisure trend we have been experiencing over the past year. We believe this trend will continue through the back-to-school time period.”
Photo courtesy Shoe Carnival
