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Shoe Carnival Inc. (SCVL - Snapshot Report) -- a leading retailer of value-priced footwear and accessories -- recently posted second-quarter 2013 earnings of 29 cents per share, which more than doubled from 14 cents in the year-ago quarter. The year-over-year increase was primarily due to top-line growth and margin expansion. Earnings per share were in line with the Zacks Consensus Estimate and came within the company provided range of 26–30 cents.

Net sales grew 18.8% year over year to $216.4 million during the quarter, driven by comparable store sales (comps) increase of 2.6%. The shift of one of the peak selling seasons – back-to-school season – to the second quarter from the third quarter in the year-ago period also boosted the sales in the quarter.

Women’s non-athletic and children's footwear segments posted a good show in the quarter. Traffic was down low single digit, but was better than the high single digit decline in comps recorded in the last quarter.

However, sales missed the Zacks Consensus Estimate of $219.0 million. Sales also fell short of the company guided range of $217.0—$220.0 million. Lower-than-expected comps growth (projected in the range of 3.0%–5.0%) was responsible for the sales miss.

During the quarter, gross margin improved 20 basis points (bps) to 28.9% mainly due to lower buying, distribution and occupancy costs. Selling, general and administrative (SG&A) expenses as a percentage of sales decreased 160 bps year over year to 24.5%.

Third Quarter Outlook

For third quarter 2013, the company anticipates revenues between $236.0—$240.0 million and earnings per share in the range of 51–55 cents. Comparable store sales are expected to increase in the range of 1.0%–2.5%. The third quarter outlook for revenues, earnings and comps is lower than the year-ago numbers. Comps are guided to suffer the most.

Outlook for 2013 & 2014

For full year 2013, Shoe Carnival plans to open approximately 32 new stores and close 5. Among the scheduled openings, the company has already opened 13 stores in the first quarter and 8 in the second. The third quarter is likely to witness 8 openings while 3 are scheduled for the fourth quarter.

While the second quarter witnessed 2 closures, the third quarter will witness no shutdown. There will be 3 store closures in the fourth quarter of 2013. Moving on to 2014, the company seeks to speed up its expansionary activity and enter several new markets.

Our Take

Shoe Carnival’s second-quarter results were marked by soft sales generation due to sluggish traffic and pressure on comps. Also, the outlook for the upcoming quarter is not quite encouraging. While the company performed well on the margin front, we do not expect the trend to continue in the upcoming quarter.  

Shoe Carnival currently has a Zacks Rank #4 (Sell). However, not all stocks in the retail industry are performing as poorly as Shoe Carnival. Some of the stocks that are doing well in the retail industry include Haverty Furniture Companies Inc. (HVT - Snapshot Report), hhgregg, Inc. (HGG - Analyst Report) and Green Mountain Coffee Roasters Inc. (GMCR - Analyst Report). While Haverty and hhgregg carry a Zacks Rank #1 (Strong Buy), Green Mountain has a Zacks Rank #2 (Buy).

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