Shoe Carnival (SCVL 38.61, +1.52, +4.10%) opened sharply higher today (+12%)
after the company reported strong Q3 (Oct) earnings results last night. The
shoe retailer continues to find success in the age of the internet.
One of the nation's largest family footwear retailers, Shoe Carnival offers an assortment of moderately priced footwear for men, women, and children. As of November 15, the company operates 402 stores in 35 states and Puerto Rico while also providing online shopping opportunities. 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 in which 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. The mic-person offers limited-duration promotions throughout the day, encouraging customers to take immediate advantage of value pricing. This atmosphere and promotional strategy 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.
Turning to the Q3 results, EPS rose 15% year/year to $0.76,
which was much better than market expectations. This was the second quarter in
a row in which the company managed a huge EPS beat. Revenue fell 6.4% year/year
to $269.2 mln, which was above prior guidance of $264.47-267.35 mln. For the
full year, SCVL bumped up its EPS forecast to $2.36-2.38 from $2.07-2.15 while
revenue is now expected at $1.020-1.022 bln, up slightly from prior guidance of
Same store comps in OctQ were good at +4.5% -- not quite the +6.7% result seen in JulQ, but still nicely above the +1.3% comps seen in AprQ. On the call, SCVL said it saw growth across most major product categories, but SCVL was especially pleased with the strong comps in the non-athletic categories. This performance, said management, demonstrates the core strength of the company’s business model, which allows SCVL to “flex and react to changing trends in athletic and non-athletic footwear categories.”
August is always a key month for the company due to the back-to-school selling period. This August, monthly comps increased a robust +6.5% on top of the +7% increase for the same month last year. SCVL also reported positive comps for both September and October, but it sounds like August was the standout.
In sum, this was another very nice quarter overall for SCVL. How did SCVL manage the big EPS upside? While same store comps were good, the real standout metric was a 110bp improvement in merchandise margin. This was driven by customer preference for SCVL's high-margin seasonal categories. SCVL has now posted back-to-back big EPS upside quarters. We would not worry too much about the sequential comp decline in OctQ as SCVL was lapping some tough comps in the prior year period. Overall, investors seem quite pleased with the OctQ results. SCVL seems to be navigating online competitive threats with success.