Shoe Carnival Surges on Higher Comps

Shoe Carnival Inc. ( SCVL - Snapshot Report ) recently posted first quarter 2011 earnings of 75 cents per share, edging out the Zacks Consensus Estimate by a penny and the year-earlier quarter earnings of 72 cents per share.

The company delivered strong quarterly earnings based on a surge in demand for footwear and cost control efforts.

Net sales grew 4.7% year over year to $198.5 million during the quarter, but failed to beat the Zacks Consensus Estimate of $200 million. The upside in revenue was attributable to strong demand for athletic footwear along with continued strength in women's casual sport category. Comparable store sales grew 3.4% year over year in the quarter.

During the quarter, gross margin contracted 20 basis points (bps) to 31.1% due to a 40-bp drop in merchandise margin, partially offset by a decrease of 20 bps in buying, distribution and occupancy costs. Selling, general and administrative (SG&A) expenses increased 2.8% year over year to $45.6 million. However, as a percentage of net sales, SG&A fell 140 bps to 23%, due to higher comparable sales growth.

Financial Position

At the end of the quarter, the company had cash and cash equivalents of $69.1 million and shareholders’ equity of $264.1 million.

Store Count

In the first quarter of 2011, the company opened 4 new stores and currently operates a total of 316 stores.

Outlook

For second quarter 2011, the company anticipates revenue growth between $169 million and $172 million and earnings per share in the range of 27 to 31 cents. Comparable store sales are expected to be flat to up 2%.

For fiscal 2011, Shoe Carnival expects to open approximately 20 new stores and close 5 stores in its existing markets. Among the 20 new stores expected to be opened, the company has already rolled out 4 in the first quarter and plans to launch 5 and approximately 11 in the second and third quarter, respectively.

Our Take

Shoe Carnival is a leading retailer of value-priced footwear and accessories. We remain positive on the stock based on the company’s strong operational and financial execution. From a financial standpoint, Shoe Carnival is free from interest-bearing debt. However, we remain cautious on the execution risk associated with the launch of Shoe Carnival's e-commerce platform, which is expected to increase software costs.

Shoe Carnival currently retains a Zacks #4 Rank, which translates into a short-term Sell rating. We are also maintaining our long-term Neutral recommendation on the stock.

One of Shoe Carnival’s peers, LaCrosse Footwear Inc. ( ) reported a loss of 10 cents in the first quarter of 2011, well below the Zacks Consensus Estimate of earnings of 17 cents.