Shoe Carnival Reports Second Quarter Fiscal 2023 Results

Shoe Carnival, Inc. (Nasdaq: SCVL) (the “Company”), a leading retailer of footwear and accessories for the family, today reported results for the second quarter ended July 29, 2023.

Highlights

  • Net sales and diluted earnings per share improved from first quarter 2023 as a result of investments in branding, advertising and in-store experience.
  • Softness in urban markets led to comparable sales down 6.5 percent versus prior year.
  • Shoe Station net sales increased low-single digits in second quarter 2023; growth accelerated in August to mid-teens during back-to-school, both versus prior year.
  • Gross profit margin exceeded 35 percent for the 10th consecutive quarter.
  • Annual guidance is updated, reflective of second quarter results and ongoing consumer trends.

“Our second quarter results demonstrated the momentum of our strategy within the context of a challenging economic backdrop. We delivered improvement on net sales, earnings per share and market share growth versus first quarter 2023, while also increasing investment in our branding, advertising and in-store experience. In August, we opened our 400th store and surpassed over half of our stores being modernized,” said Mark Worden, President and Chief Executive Officer.

“We saw improving conditions related to the impact of inflation in the second quarter, but some of our urban customers remain challenged in the current economic environment. As such, we are taking a measured approach to the balance of the year. Given the strength of our balance sheet and our strategy, we are in a strong position to grow as the economy improves and continue to actively evaluate both organic and acquisition-related opportunities,” said Mr. Worden.

Back-to-School Update

Market conditions continued to modestly improve in early third quarter 2023 versus second quarter 2023. August sales and profits were among the highest of any month in the Company’s 45-year history, with product margins approaching record highs. The August back-to-school shopping period accounts for half of the Company’s third quarter gross profit, and with the results achieved to date, the Company remains on track to deliver its full year gross profit margin guidance of 36 to 37 percent.

Fiscal 2023 Earnings Outlook

The Company now expects to deliver on the following annual guidance for 2023, which includes 53 weeks compared to 52 weeks in 2022:

 

 

2023

 

 

Guidance

Diluted earnings per share ("EPS")

 

$3.10 to $3.25

Net sales (in billions)

 

$1.19 to $1.21

Gross profit margin

 

36% to 37%

SG&A (in millions)

 

$321 to $327

SG&A as a percent of net sales

 

~27%

Operating income (in millions)

 

$109 to $116

Net income (in millions)

 

$85 to $89

Return on beginning equity

 

16% to 17%

 

 

 

Cash flows from operations (in millions)

 

$120 to $130

Capital expenditures (in millions)

 

$55 to $65

 

 

 

Merchandise inventories (in millions)

 

- ~$40

 

 

 

Comparable store sales

 

-8% to -6%

New stores

 

6 to 10

Second Quarter Operating Results

Net sales were $294.6 million, down 5.7 percent in the quarter compared to second quarter 2022, with comparable store sales down 6.5 percent. While overall conditions improved from earlier in 2023, soft traffic results continued within lower income households and urban markets, partially offset by 5.4 percent e-commerce net sales growth and growth from the new Shoe Station stores. E-commerce net sales were favorably impacted by the February 2023 launch of shoestation.com and increased net sales through shoecarnival.com. With an improved brand name assortment this year, net sales of athletic merchandise in second quarter 2023 were flat compared to the second quarter 2022 despite lower store traffic.

Gross profit margin was 35.8 percent, down 40 basis points, with merchandise margin down 20 basis points. Buying, distribution and occupancy (“BDO”) costs were lower in the quarter compared to the prior year as freight and distribution costs have continued to decrease, partially offset by investment in store modernization and by rent associated with operating more stores. However, on the lower net sales, BDO decreased gross profit margin by 20 basis points.

Selling, General and Administrative expenses (“SG&A”) were $80.8 million in second quarter 2023, or 27.4 percent of net sales. $6.2 million of the increase in SG&A compared to second quarter 2022 resulted from strategic investments in brand initiatives, advertising and the in-store experience.

The effective tax rate in second quarter 2023 of 22.3 percent was lower than the prior year rate of 25.6 percent. The effective tax rate for the full year is expected to be between 24 and 25 percent compared to 25.2 percent in 2022.

Second quarter 2023 net income was $19.4 million, or $0.71 per diluted share, compared to second quarter 2022 net income of $28.9 million, or $1.04 per diluted share. The EPS in second quarter 2023 improved versus first quarter 2023 by 18.3 percent and is nearly 80 percent higher than any other second quarter in Company history prior to 2021.

Merchandise Inventory

Significant progress was made in the first half of 2023 to reduce total inventory and optimize inventory positions for an improved athletic assortment of national named brands. Second quarter 2023 ending inventory was approximately $24 million higher than the prior year, comparing favorably to first quarter 2023 when ending inventory was approximately $44 million higher than the prior year and fiscal 2022 year end when inventory was $105 million higher than the prior year end. With back-to-school shopping in progress, inventory is on track to be below prior year levels in September and to achieve the annual guidance for inventory to be approximately $40 million lower by year end 2023 compared to year end 2022. Both aged inventory and seasonal carryover inventories are in line, and there is currently no expectation of deep discounting to liquidate merchandise.

Store Count, Modernization and Planned Store Growth

In August 2023, the Company opened its 400th store, now operating 373 Shoe Carnival stores and 27 Shoe Station stores. Store productivity and profitability have increased sharply for the fleet since the last time the Company operated 400 stores in 2018. The multi-year fleet productivity and rationalization improvement plan contributed to sales per door increasing more than 15 percent and profit contribution per door increasing more than 40 percent compared to 2018 levels.

The Company is currently modernizing its Shoe Carnival fleet through a multi-year remodel program. As of July 29, 2023, over 50 percent of the modernization initiative was complete, and the Company is on track to be approximately 65 percent complete during the summer of 2024.

The Company has a strategic growth roadmap in place to surpass 500 stores and be a multi-billion dollar retailer in 2028, inclusive of organic and acquired growth.

Capital Management

The 2022 fiscal year end marked the 18th consecutive year the Company ended a year with no debt, and through year-to-date August, the Company continued to fund its operations without debt. As of yesterday, the Company had over $90 million of cash, cash equivalents, and marketable securities and approximately $100 million in borrowing capacity. At the end of second quarter 2023, the Company had nearly $47 million of cash, cash equivalents and marketable securities and approximately $100 million in borrowing capacity. Cash flow from operations is expected to more than fully fund store remodels and growth planned in the back half of fiscal 2023.

Share Repurchase Program

As of July 29, 2023, the Company had $50 million available for future repurchases under its share repurchase program. During second quarter 2023, the Company did not repurchase any shares.

Conference Call

Today, at 8:30 a.m. Eastern Time, the Company will host a conference call to discuss the second quarter results. Participants can listen to the live webcast of the call by visiting Shoe Carnival's Investors webpage at www.shoecarnival.com. While the question-and-answer session will be available to all listeners, questions from the audience will be limited to institutional analysts and investors. A replay of the webcast will be available on the Company’s website beginning approximately two hours after the conclusion of the conference call and will be archived for one year.

About Shoe Carnival

Shoe Carnival, Inc. is one of the nation’s largest family footwear retailers, offering a broad assortment of dress, casual and athletic footwear for men, women and children with emphasis on national name brands. As of August 29, 2023, the Company operates 400 stores in 35 states and Puerto Rico under its Shoe Carnival and Shoe Station banners and offers shopping at www.shoecarnival.com and www.shoestation.com. Headquartered in Evansville, IN, Shoe Carnival, Inc. trades on The Nasdaq Stock Market LLC under the symbol SCVL. Press releases and annual reports are available on the Company's website at www.shoecarnival.com.

Cautionary Statement Regarding Forward-Looking Information

As used herein, “we”, “our” and “us” refer to Shoe Carnival, Inc. This press release contains forward-looking statements, within the meaning of the Private Securities Litigation Reform Act of 1995, that involve a number of risks and uncertainties. A number of factors could cause our actual results, performance, achievements or industry results to be materially different from any future results, performance or achievements expressed or implied by these forward-looking statements. These factors include, but are not limited to: our ability to control costs and meet our labor needs in a rising wage, inflationary, and/or supply chain constrained environment; our ability to maintain current promotional intensity levels; the effects and duration of economic downturns and unemployment rates; our ability to achieve expected operating results, synergies, and other benefits from the Shoe Station acquisition within expected time frames, or at all; the potential impact of national and international security concerns, including those caused by war and terrorism, on the retail environment; general economic conditions in the areas of the continental United States and Puerto Rico where our stores are located; changes in the overall retail environment and more specifically in the apparel and footwear retail sectors; our ability to generate increased sales; our ability to successfully navigate the increasing use of online retailers for fashion purchases and the impact on traffic and transactions in our physical stores; the success of the open-air shopping centers where many of our stores are located and its impact on our ability to attract customers to our stores; our ability to attract customers to our e-commerce platform and to successfully grow our omnichannel sales; the effectiveness of our inventory management, including our ability to manage key merchandise vendor relationships and direct-to-consumer initiatives; changes in our relationships with other key suppliers; changes in the political and economic environments in, the status of trade relations with, and the impact of changes in trade policies and tariffs impacting, China and other countries which are the major manufacturers of footwear; the impact of competition and pricing; our ability to successfully manage and execute our marketing initiatives and maintain positive brand perception and recognition; our ability to successfully manage our current real estate portfolio and leasing obligations; changes in weather, including patterns impacted by climate change; changes in consumer buying trends and our ability to identify and respond to emerging fashion trends; the impact of disruptions in our distribution or information technology operations; the impact of natural disasters, public health and political crises, civil unrest, and other catastrophic events on our operations and the operations of our suppliers, as well as on consumer confidence and purchasing in general; the duration and spread of a public health crisis, such as COVID-19, and the mitigating efforts deployed, including the effects of government stimulus on consumer spending; risks associated with the seasonality of the retail industry; the impact of unauthorized disclosure or misuse of personal and confidential information about our customers, vendors and employees, including as a result of a cybersecurity breach; our ability to successfully execute our business strategy, including the availability of desirable store locations at acceptable lease terms, our ability to identify, consummate or effectively integrate future acquisitions, our ability to implement and adapt to new technology and systems, our ability to open new stores in a timely and profitable manner, including our entry into major new markets, and the availability of sufficient funds to implement our business plans; higher than anticipated costs associated with the closing of underperforming stores; the inability of manufacturers to deliver products in a timely manner; an increase in the cost, or a disruption in the flow, of imported goods; the impact of regulatory changes in the United States, including minimum wage laws and regulations, and the countries where our manufacturers are located; the resolution of litigation or regulatory proceedings in which we are or may become involved; continued volatility and disruption in the capital and credit markets; future stock repurchases under our stock repurchase program and future dividend payments.; and other factors described in the Company’s SEC filings, including the Company’s latest Annual Report on Form 10-K. In addition, these forward-looking statements necessarily depend upon assumptions, estimates and dates that may be incorrect or imprecise and involve known and unknown risks, uncertainties and other factors. Accordingly, any forward-looking statements included in this press release do not purport to be predictions of future events or circumstances and may not be realized. Forward-looking statements can be identified by, among other things, the use of forward-looking terms such as “believes,” “expects,” “aims,” “on track,” “may,” “will,” “should,” “seeks,” “pro forma,” “anticipates,” “intends” or the negative of any of these terms, or comparable terminology, or by discussions of strategy or intentions. Given these uncertainties, we caution investors not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. We disclaim any obligation to update any of these factors or to publicly announce any revisions to the forward-looking statements contained in this press release to reflect future events or developments.

Financial Tables Follow

SHOE CARNIVAL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(In thousands, except per share data)

(Unaudited)

 

 

 

Thirteen

 

 

Thirteen

 

 

Twenty-six

 

 

Twenty-six

 

 

 

Weeks Ended

 

 

Weeks Ended

 

 

Weeks Ended

 

 

Weeks Ended

 

 

 

July 29, 2023

 

 

July 30, 2022

 

 

July 29, 2023

 

 

July 30, 2022

 

Net sales

 

$

294,615

 

 

$

312,268

 

 

$

575,799

 

 

$

629,795

 

Cost of sales (including buying,

distribution and occupancy costs)

 

 

189,150

 

 

 

199,138

 

 

 

371,817

 

 

 

403,802

 

Gross profit

 

 

105,465

 

 

 

113,130

 

 

 

203,982

 

 

 

225,993

 

Selling, general and administrative expenses

 

 

80,803

 

 

 

74,341

 

 

 

158,381

 

 

 

151,820

 

Operating income

 

 

24,662

 

 

 

38,789

 

 

 

45,601

 

 

 

74,173

 

Interest income

 

 

(433

)

 

 

(138

)

 

 

(911

)

 

 

(170

)

Interest expense

 

 

71

 

 

 

65

 

 

 

137

 

 

 

160

 

Income before income taxes

 

 

25,024

 

 

 

38,862

 

 

 

46,375

 

 

 

74,183

 

Income tax expense

 

 

5,583

 

 

 

9,953

 

 

 

10,408

 

 

 

18,377

 

Net income

 

$

19,441

 

 

$

28,909

 

 

$

35,967

 

 

$

55,806

 

Net income per share:

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.71

 

 

$

1.05

 

 

$

1.32

 

 

$

2.01

 

Diluted

 

$

0.71

 

 

$

1.04

 

 

$

1.31

 

 

$

1.99

 

Weighted average shares:

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

27,336

 

 

 

27,590

 

 

 

27,280

 

 

 

27,784

 

Diluted

 

 

27,410

 

 

 

27,812

 

 

 

27,449

 

 

 

28,061

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash dividends declared per share

$

0.100

$

0.090

$

0.200

$

0.180

SHOE CARNIVAL, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands)

(Unaudited)

 

 

July 29,

 

 

January 28,

 

 

July 30,

 

 

 

2023

 

 

2023

 

 

2022

 

ASSETS

 

 

 

 

 

 

 

 

 

Current Assets:

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

34,562

 

 

$

51,372

 

 

$

51,620

 

Marketable securities

 

 

12,218

 

 

 

11,601

 

 

 

10,994

 

Accounts receivable

 

 

3,961

 

 

 

3,052

 

 

 

10,677

 

Merchandise inventories

 

 

409,342

 

 

 

390,390

 

 

 

385,510

 

Other

 

 

25,281

 

 

 

13,308

 

 

 

18,131

 

Total Current Assets

 

 

485,364

 

 

 

469,723

 

 

 

476,932

 

Property and equipment – net

 

 

159,186

 

 

 

141,435

 

 

 

124,789

 

Operating lease right-of-use assets

 

 

339,598

 

 

 

318,612

 

 

 

254,537

 

Intangible assets

 

 

32,600

 

 

 

32,600

 

 

 

32,600

 

Goodwill

 

 

12,023

 

 

 

12,023

 

 

 

10,786

 

Other noncurrent assets

 

 

14,433

 

 

 

15,388

 

 

 

14,871

 

Total Assets

 

$

1,043,204

 

 

$

989,781

 

 

$

914,515

 

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND SHAREHOLDERS' EQUITY

 

 

 

 

 

 

 

 

 

Current Liabilities:

 

 

 

 

 

 

 

 

 

Accounts payable

 

$

77,429

 

 

$

78,850

 

 

$

113,826

 

Accrued and other liabilities

 

 

19,999

 

 

 

20,281

 

 

 

22,893

 

Current portion of operating lease liabilities

 

 

57,335

 

 

 

58,154

 

 

 

52,523

 

Total Current Liabilities

 

 

154,763

 

 

 

157,285

 

 

 

189,242

 

Long-term portion of operating lease liabilities

 

 

307,326

 

 

 

285,074

 

 

 

226,115

 

Deferred income taxes

 

 

14,631

 

 

 

11,844

 

 

 

4,436

 

Deferred compensation

 

 

10,596

 

 

 

9,840

 

 

 

10,779

 

Other

 

 

369

 

 

 

170

 

 

 

311

 

Total Liabilities

 

 

487,685

 

 

 

464,213

 

 

 

430,883

 

Total Shareholders’ Equity

 

 

555,519

 

 

 

525,568

 

 

 

483,632

 

Total Liabilities and Shareholders’ Equity

 

$

1,043,204

 

 

$

989,781

 

 

$

914,515

 

SHOE CARNIVAL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

 

 

 

Twenty-six

 

 

Twenty-six

 

 

 

Weeks Ended

 

 

Weeks Ended

 

 

 

July 29, 2023

 

 

July 30, 2022

 

Cash Flows From Operating Activities

 

 

 

 

 

 

Net income

 

$

35,967

 

 

$

55,806

 

Adjustments to reconcile net income to net

cash provided by operating activities:

 

 

 

 

 

 

Depreciation and amortization

 

 

13,822

 

 

 

10,416

 

Stock-based compensation

 

 

2,326

 

 

 

2,741

 

Loss on retirement and impairment of assets, net

 

 

59

 

 

 

83

 

Deferred income taxes

 

 

2,787

 

 

 

7,135

 

Non-cash operating lease expense

 

 

27,627

 

 

 

23,497

 

Other

 

 

251

 

 

 

384

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

Accounts receivable

 

 

(909

)

 

 

3,481

 

Merchandise inventories

 

 

(18,952

)

 

 

(100,305

)

Operating leases

 

 

(27,181

)

 

 

(24,794

)

Accounts payable and accrued liabilities

 

 

(927

)

 

 

40,514

 

Other

 

 

(12,518

)

 

 

(10,040

)

Net cash provided by operating activities

 

 

22,352

 

 

 

8,918

 

 

 

 

 

 

 

 

Cash Flows From Investing Activities

 

 

 

 

 

 

Purchases of property and equipment

 

 

(30,629

)

 

 

(50,198

)

Investments in marketable securities

 

 

(41

)

 

 

(11

)

Sales of marketable securities

 

 

0

 

 

 

3,040

 

Net cash used in investing activities

 

 

(30,670

)

 

 

(47,169

)

 

 

 

 

 

 

 

Cash Flow From Financing Activities

 

 

 

 

 

 

Proceeds from issuance of stock

 

 

110

 

 

 

93

 

Dividends paid

 

 

(5,675

)

 

 

(5,064

)

Purchase of common stock for treasury

 

 

0

 

 

 

(20,515

)

Shares surrendered by employees to pay taxes on

stock-based compensation awards

 

 

(2,927

)

 

 

(2,086

)

Net cash used in financing activities

 

 

(8,492

)

 

 

(27,572

)

Net decrease in cash and cash equivalents

 

 

(16,810

)

 

 

(65,823

)

Cash and cash equivalents at beginning of period

 

 

51,372

 

 

 

117,443

 

Cash and cash equivalents at end of period

 

$

34,562

 

 

$

51,620

 

 

Contacts

Steve R. Alexander

Shoe Carnival Investor Relations

(812) 867-4034

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