Shoe Carnival Ahead of Estimate

Zacks

Shoe Carnival Inc. (SCVL) recently posted first quarter 2012 earnings of 54 cents per share beating the Zacks Consensus Estimate of 51 cents and improving from the year-earlier earnings of 50 cents per share.

Net sales rose 12.2% year over year to $222.6 million during the quarter aided by comparable store sales (comps) growth of 7.3%. The increase in traffic (up 5.4%) resulted in the strong comps growth. Comps were on the high end of the company’s guided range.

During the quarter, gross margin decreased 30 basis points (bps) to 30.8%. Lower merchandise margin as well as a fall in buying, distribution and occupancy costs hurt the margin to some extent. Selling, general and administrative (SG&A) expenses increased 11.0% year over year to $50.6 million. As a percentage of net sales, SG&A expenses contracted 30 bps to 22.7%, due to higher comparable sales leverage.

Financial Position

At the end of the quarter, the company had cash and cash equivalents of $92.3 million and shareholders’ equity of $297.2 million.

Outlook

For second quarter 2012, the company anticipates revenue growth between $179 million and $182 million and earnings per share in the range of 8 cents to 11 cents (the guidance includes a pre-opening expense of 4 cents a share). Comparable store sales are expected to increase in the range of 1.0–3.0%.

For fiscal 2012, Shoe Carnival remains on track to open approximately 30 new stores and close 6. Among the scheduled openings, the company has already rolled out 13 stores in the first quarter. The second and third quarters will get 11 and 6 openings, respectively. This leaves the final quarter with no opening.

The company closed 3 stores in the reported quarter and intends to shut down another 2 in the upcoming quarter and remaining one in the final quarter. The company plans to finish the year with 336 stores.

Our Take

Shoe Carnival, a leading retailer of value-priced footwear and accessories, performed better than expected. The company’s sales growth is also on a good trajectory. Shoe Carnival offers a competitive pricing to attract consumer in this value-sensitive environment.

Management remains optimistic about its expansion plan which includes the first two openings in Puerto Rico slated for the upcoming quarter alongside domestic openings. While the solid expansion plan will widen the company’s market reach longer term, it will face threats of higher pre-opening expenses in the second quarter which will likely hurt its earnings. 

Shoe Carnival, which competes with Cache Inc. (CACH), currently retains a Zacks #3 Rank, which translates into a short-term Hold rating. We are maintaining our long-term Neutral recommendation on the stock.

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