Delayed shipments in the second quarter caused Shoe Carnival, Inc. to withdraw its full-year sales forecast on Thursday.
After going into the period when athletic sales were expected to pick up, a delay in sneaker shipments in the back half of the period led to an even more “significant” drop in supply, president and CEO Mark Worden said. Although backlog product began arriving in the third quarter, the company remains below desired inventory levels, he noted.
“As such,” Worden said, Shoe Carnival updated its annual sales guidance to between $1.29 billion and $1.34 billion. In May, it had forecast revenue to rise 4 percent to 7 percent from $1.33 billion last year for a prior range of between $1.38 billion and $1.42 billion.
In short: Coming into the second quarter, Shoe Carnival was already positioning its inventory for an expected shift from its “normal” 50/50 balance between athletic and non-athletic styles, said chief merchandising officer Carl Scibetta. However, with supply chain issues impacting availability, the company was “simply unable to deliver enough new athletic receipts to meet demand within our athletic product categories,” he said.
At the end of the quarter, athletic inventories were down in the “high teens” versus 2019. Based on weekly averages, athletic inventory was down 25.7 percent in the second quarter compared to three years ago.
Comparable store sales fell into the low-teens in men’s, women’s and kids’ athletic styles compared to 2019. Year-over-year, those categories fell into the mid-20s. Coming into the first quarter, Shoe Carnival planned for the athletic shoe “to be relatively flat,” Scibetta said.
Non-athletic styles, however, saw “continued strength,” Scibetta said. Compared to 2019, non-athletic women finished the quarter in the 20s, driven by apparel, which was more than 50 percent. Men’s non-athletic sales were up in the mid-20s versus 2019, with men’s apparel and casual footwear up more than 20 percent and boots up more than 30 percent. Non-athletic kids experienced sales growth in the high 50s in a three-year streak.
“Looking forward, we believe athletic inventories will be replenished as we move into the third quarter,” Scibetta said. “Additionally, shipments of new non-athletic fall products are flowing much better than 2021 and we are well positioned from an inventory perspective to provide sales and profit guidance for the remainder of the fiscal year.”
Shoe Carnival ended the second quarter with $385.5 million in inventory, an increase of $48.6 million over the second quarter of 2019. About 59 percent of that increase came from Shoe Station stores acquired last year or opened this year, he noted.
Based on second-quarter results, Shoe Station sales are now expected to exceed the company’s previous full-year expectations of $100 million by more than 10 percent, Worden said. Year-to-date sales from the recently acquired retail chain totaled $54 million.
The Shoe Station integration is “well ahead” of Shoe Carnival’s preliminary timeline, Worden added, as it realizes “significant” backoffice synergies and gains efficiencies and best practices in merchandising, operations and marketing. As such, the company raised its full-year operating profit margin expectations for the flagship from 10 percent to between 11 percent and 12 percent. That result will either be in line with the company’s overall margin, or “slightly accretive if the synergies progress even further,” Worden said.
Net sales: Shoe Carnival posted $312 million in net sales during the quarter ended July 30, a 16.4 percent increase from the $268 million it earned in the second quarter of 2019, but down from $332 million in the year-ago period. . The results were driven by the contribution from Shoe Station stores and the acquisition of new customers in the doors of Shoe Carnival of 28 percent, the company said. However, comparable store sales rose a more modest 8 percent compared to 2019.
Compared to three years ago, sports sales fell 12.9 percent in the second quarter. The decline was more than offset by a 30.8 percent increase in the athletic footwear category.
Net earnings: The company’s gross profit margin rose to 36.2 percent in the second quarter, an increase of 560 points from the same period in 2019, but a decrease of 470 points year over year. Its operating income margin remained in double digits for the sixth consecutive quarter, reaching 12.4 percent. Although lower than the 18 percent it saw in 2021, it marked a significant improvement from the 4.8 percent and 5.8 percent operating income margins it experienced in 2020 and 2019, respectively.
Shoe Carnival, Inc. reported net income of $28.9 million, or $1.04 per diluted share, in the second quarter, down from $44.2 million last year but down from $11.8 million three years ago.
The company reaffirmed its full-year EPS guidance of $3.95 and $4.15. It expects gross margin to be in the range of 36.6 percent to 36.7 percent, from 30.1 percent in 2019, and operating income margin to fall to between 11.4 percent to 11.6 percent, compared to 5.2 percent in 2019.
Getting the CEO: “We’ve delivered excellent gross margins, double-digit operating margins and earnings per share that were more than 43 of the previous 44 full-year earnings already,” Worden said. “Our customers remain highly engaged despite inflationary pressures, we generated critical planned earnings during our key back-to-school season and are on track to meet our financial and strategic objectives for the remainder of fiscal ’22.”
