Shoe Carnival Inc. (SCVL) recently posted second quarter 2011 earnings of 20 cents per share, well below the Zacks Consensus Estimate of 30 cents and the year-earlier quarter earnings of 32 cents per share. The company delivered poor quarterly earnings mainly due to a decline in traffic at stores.
Net sales inched up 0.8% year over year to $166.7 million during the quarter. Comparable store sales (comps) fell 1.1% in the quarter versus 8.3% increase in the year-ago quarter. The downside in comps was attributable to unfavorable weather conditions in many of Shoe Carnival’s markets during the quarter.
During the quarter, gross margin contracted 50 basis points (bps) to 27.8% due to flat merchandise margin, partly offset by a 0.5% spike in buying, distribution and occupancy costs. Selling, general and administrative (SG&A) expenses increased 3.7% year over year to $42.3 million. As a percentage of net sales, SG&A escalated 60 bps to 25.3%, due to lower comparable sales growth.
Financial Position
At the end of the quarter, the company had cash and cash equivalents of $44.1 million and shareholders’ equity of $267.8 million.
Outlook
For third quarter 2011, the company anticipates revenue growth between $217 million and $219 million and earnings per share in the range of 77 to 81 cents. Comparable store sales are expected to increase in the range of 3.4%-4.4%.
For fiscal 2011, Shoe Carnival expects to open approximately 17 new stores and close 4 stores in its existing markets. Among the 17 new stores expected to be opened, the company has already rolled out 4 and 5 stores in the first quarter and second quarter, respectively. The company is slated to launch 7 stores in the third quarter and 1 store in the fourth quarter.
The company closed 2 stores in the reported quarter and intends to shut down one store in each of the two remaining quarters.
Our Take
Shoe Carnival is a leading retailer of value-priced footwear and accessories. We remain positive on the stock based on the company’s strong operational and financial execution.
Although the company failed to perform in accordance to our expectation in the second quarter, the upcoming third quarter is seasonally strong. Third quarter includes the very important back-to-school season, which will make consumers shell out more for their necessary purchases. The improving trend can be evidenced from the month-to-date comparable store sales rise of 6%.
From a financial standpoint, Shoe Carnival is free from interest-bearing debt. However, we remain cautious on the execution risk associated with the launch of Shoe Carnival's e-commerce platform, which is expected to increase software costs.
Shoe Carnival currently retains a Zacks #2 Rank, which translates into a short-term Buy rating. We are maintaining our long-term Neutral recommendation on the stock.
One of Shoe Carnival’s peers, Cache Inc. (CACH) currently retains Zacks #1 Rank, which translates into a short-term Strong Buy rating.
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SHOE CARNIVAL (SCVL): Free Stock Analysis Report
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