Shoe Carnival (SCVL 40.76, +3.85, +10.43%) opened sharply higher today (+16%)
after reporting strong Q2 (Jul) earnings results last night.
One of the nation's largest family footwear retailers, Shoe Carnival offers an assortment of moderately priced footwear for men, women, and children. It currently operates 402 stores in 35 states and online. Its goal is to be the retailer-of-choice for a wide range of consumers seeking value-priced, current season name brand and private label footwear. The retailer’s product assortment includes dress and casual shoes, sandals, boots, and a broad selection of athletic shoes for the entire family. Its marketing efforts target value-conscious consumers seeking national name brands to meet their footwear needs.
One way Shoe Carnival differentiates its retail concept from its competitors is by combining competitive pricing with a fun shopping experience. It promotes a high-energy retail environment by decorating with exciting graphics and bold colors and by featuring a stage and mic-person as the focal point in stores. With a microphone, this mic-person announces current specials, organizes contests and games, and assists customers with finding merchandise. Its mic-person offers limited-duration promotions throughout the day, encouraging customers to take immediate advantage of value pricing. This atmosphere has helped Shoe Carnival to build a loyal, repeat customer base and to create good word-of-mouth advertising.
SCVL achieves low labor costs by housing merchandise directly on the selling floor in an open stock format, allowing customers to serve themselves. This reduces the staffing required to assist customers. Also, its stores are predominantly located in open-air shopping centers in order to take advantage of lower occupancy costs. SCVL has also invested significant resources in IT. Its proprietary inventory management and point-of-sale systems provide management, buyers, and store managers with timely information necessary to monitor and control all phases of operations.
Turning to the Q2 (Jul) results, EPS more than tripled year/year to $0.76, which was much better than market expectations. On the top line, revenue rose 14.2% year/year to $268.4 mln, which was generally in-line with consensus. For the full year, SCVL bumped up its EPS forecast to $2.07-2.15 from $1.90-2.05 while revenue is now expected at $1.016-1.020 bln, up slightly from prior guidance of $1.013-1.020 bln.
Same store comps were very good at +6.7%, which was a nice improvement from the +1.3% comps seen in Q1 (Apr). Comp growth was primarily driven by a double-digit increase in women's non-athletic footwear with most other major footwear categories up mid-single digits. This positive trend has accelerated into the back-to-school season with comps up +7.7% through the first three weeks of August. And that's despite lapping a tough +7% comp in August 2017. However, as a word of caution, September is expected to see a low-single digit decline, and October is also expecting a small comp loss. The Sep-Oct expected declines are mostly because SCVL will be lapping hurricane-affected stores where SCVL saw considerable rebounds that elevated comp numbers during those months last year, particularly in re-opened stores in Puerto Rico and the Houston area. SCVL is not sure how strong this year’s comp sales will appear when compared against the metrics deriving from those extraordinary circumstances.
Overall, this was a very nice quarter for SCVL. What enabled the big EPS upside? It seems margins came in better than expected. Merchandise margins improved 20 bp due to the company’s focus on inventory management, and SCVL benefitted from a strong performance from its high-margin seasonal product categories. Comps were also very good at +6.7%. There could be some moderation in the comp result in Q3 (Oct) as SCVL is lapping tough comparisons. Much like it did after reporting Q1 (Apr) results back in May, the stock has broken out to new all-time highs today on strong volume, which is a good sign.
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