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Shoe Carnival Inc. (SCVL - Snapshot Report) recently posted first-quarter 2013 earnings of 47 cents per share, down 13.0% year over year, hurt by margin pressure. However, earnings per share were significantly ahead of the Zacks Consensus Estimate of 39 cents.

The retailer's net sales grew 4.3% year over year to $232.3 million during the quarter despite a 0.8% decline in comparable store sales (comps). Traffic for the quarter was down high single digits due to unfavorable weather conditions in March. As many as 44 new stores, opened since the beginning of fiscal 2012, contributed to the sales growth. Net sales also beat the Zacks Consensus Estimate of $231.0 million.

During the quarter, gross margin declined 130 basis points (bps) to 29.5%. Lower merchandise margin as well as a rise in buying, distribution and occupancy costs led to the fall in gross margin. Selling, general and administrative (SG&A) expenses as a percentage of sales increased 20 bps year over year to 22.9%. Increased number of stores in operation led to higher SG&A expenses.


For second-quarter 2013, the company anticipates revenues between $217.0—$220.0 million and earnings per share in the range of 26–30 cents. The earnings per share expectation is considerably higher than the year-ago period. Comparable store sales are expected to increase in the range of 3.0–5.0%. The shift of the back-to-school season, one of the peak selling seasons, from the third quarter last year to the second quarter this year will likely have a positive impact on the quarterly results.

For fiscal 2013, Shoe Carnival remains on track to open approximately 33 new stores and close 5. Among the scheduled openings, the company has already opened 13 stores in the first quarter and will likely open 10 each in the second and fourth quarters. The third quarter will witness no openings.  Moreover, the second and fourth quarters will witness 2 and 3 closings, respectively.

Our Take

Although Shoe Carnival, a leading retailer of value-priced footwear and accessories, posted better-than-expected performance in the reported quarter, sluggish traffic, pressure on comps and margins concern us.

Shoe Carnival currently carries a Zacks Rank #5 (Strong Sell). However, not all stocks in the retail industry are performing as poorly as Shoe Carnival. Some of the stocks that are doing well include Dollar Tree Inc. (DLTR - Analyst Report), Cabela’s Inc (CAB - Analyst Report) and The TJX Companies Inc. (TJX - Analyst Report) all with a Zacks Rank #2 (Buy).


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