Shoe Carnival Trims Outlook

Shoe Carnival Inc. (SCVL - Snapshot Report) a retailer of family footwear in the United States, recently trimmed its outlook for the fourth quarter of 2011, as warm weather conditions adversely affected the demand for boots, particularly the women’s category. On a comparable basis, the sale of boots dipped 15% in the fourth quarter compared with a double digit rise in the year ago period.

For the upcoming fourth quarter of 2011, the Evansville, an Indiana based company slashed its net sales forecast to $181 million - $182 million from the previous range of $186 million - $190 million and earnings per share guidance to 20 cents to 23 cents from the earlier projection of 33 cents to 36 cents. Comparable store sales outlook also stands reduced from the prior projection of negative 1%- to positive 1.0% to negative 3% to positive 3.5%. The footwear company also expects gross margins to plunge 170 basis points (bps) in the quarter, attributable to heavy spending on the promotion of boots.

Based on poor fourth quarter results outlook, Shoe Carnival also lowered its guidance for the fiscal year 2011. The company cut down its projection of net sales from $767 to $770 million to $761 to $762 million; comparable store sales growth from 1.2% to 1.7% to 0.7% and EPS from the range of $2.05 to $2.08 to $1.92 to $1.95.

The narrowed outlook disappointed investors greatly; and as a result, the company’s share price fell 98 cents to close at $24.38 on Thursday.

In the recently concluded third quarter of 2011, Shoe Carnival posted its third quarter 2011 earnings of 78 cents per share, in line with the Zacks Consensus Estimate but above the year-earlier earnings of 70 cents.

Net sales rose 5.4% year over year to $215.5 million during the quarter aided by an early back-to-school season, offset somewhat by decelerating comparable store sales (comps). Comps increased 2.8% in the quarter versus a 7.2% increase in the year-ago quarter. Lower-than-expected store traffic trends in late September and October resulted in modest comps growth. During the quarter, gross margin increased 10 basis points (bps) to 30.2%.

At present, the company is not only offering women’s, men’s, and children’s non-athletic footwear, including dresses, casuals, sport, sandals, and boots but also remaining focused on expansion through unit growth. The footwear company currently operating 328 stores located in the Midwest, South and Southeast, is on track to open 30 stores in 2012 as compared to 17 stores in 2011.

In pursuit of its expansion plans, the company intends to make forays into two new markets; Dallas, Texas, and Puerto Rico in 2012. Shoe Carnival also offers competitive pricing for its products to continue to attract consumers in this value-sensitive environment.

The Zacks Consensus Revenue Estimates for the fourth quarter of 2011 and fiscal 2011 are pegged at $181 million and $763 million, respectively. The Zacks Consensus Estimates for the fourth quarter of 2011 and fiscal 2011 are pegged at 34 cents and $2.08, respectively. We expect estimates to go down in the coming days as the company has trimmed its guidance for the coming quarter and 2011.

Shoe Carnival, which faces stiff competition from Foot Locker, Inc. (FL - Snapshot Report), Lacrosse Footwear Inc. (BOOT), expects to report its fourth quarter 2011 results on March 21, 2012.

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.