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. (BOOT - Snapshot Report) reported a loss of 10 cents in the first quarter of 2011, well below the Zacks Consensus Estimate of earnings of 17 cents.

Read the full analyst report on BOOT

Read the full analyst report on SCVL