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Shoe Carnival Beats on Both Lines

SCVL CACH

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Shoe Carnival Inc. (SCVL - Snapshot Report) recently posted third quarter 2012 earnings of 60 cents per share, up 15.4% year over year. Earnings per share were also ahead of the Zacks Consensus Estimate of 58 cents.

Net sales grew 13.4% year over year to $244.4 million during the quarter, aided by comparable store sales (comps) growth of 6.2%. The increase in traffic (up low-single digit) and transaction (up mid-single digit) resulted in the strong comps growth. Net sales beat the Zacks Consensus Estimate of $242.0 million.

During the quarter, gross margin increased 110 basis points (bps) to 31.3%. Higher merchandise margin as well as a fall in buying, distribution and occupancy costs led to the hike in gross margin. Selling, general and administrative (SG&A) expenses, as a percentage of sales, increased 50 bps year over year to 22.9%. Increased number of stores operated as well as higher incentive compensation led to higher SG&A expenses.

Financial Position

At the end of the quarter, the company had cash and cash equivalents of $67.1 million and shareholders’ equity of $312.6 million.

Outlook

For fourth quarter 2012, the company anticipates revenue growth between $215.0—$220.0 million and earnings per share in the range of 19–23 cents. Comparable store sales are expected to increase in the range of 2.0–4.0%.

For fiscal 2012, Shoe Carnival expects net sales in the range of $864—$869 million. Comparable store sales are expected to increase in the range of 4.8–5.3%. Earnings per diluted share are expected in the range of $1.47 to $1.51.

For fiscal 2012, Shoe Carnival remains on track to open approximately 31 new stores and close 7. Among the scheduled openings, the company has already opened 13 stores in the first quarter, 11 in the second and 6 in the third quarter. As a result, the fourth quarter will now witness only one opening.

Year to date, the company closed 3 stores in the first quarter and 2 stores in the second quarter. The third quarter did not witness any unit shutdown but the company intends to close the remaining two in the final quarter. Shoe Carnival plans to finish the year with 352 stores. Management also plans to open as many as 30–35 new stores in 2013.

Our Take

Shoe Carnival, a leading retailer of value-priced footwear and accessories, posted better-than-expected performance in the reported quarter. Furthermore, the company has outperformed the Zacks Consensus Estimates in the trailing four quarters with an average surprise of 12.72%.

Solid sales momentum combined with margins improvement reflect its strong performance. The company’s e-commerce drive and new loyalty programs are also contributing considerably. Management also remains optimistic about the company’s expansion plan, which will likely broaden its market reach.

Shoe Carnival currently carries a Zacks #1 Rank, which translates into a short-term Strong Buy rating. We are maintaining our long-term Outperform recommendation on the stock. One of its close peers, Cache Inc. (CACH - Snapshot Report) recently reported loss of 39 cents per share beating the Zacks consensus estimate of 40 cents of loss. Its net sales declined 5.9% to $45.8 million.
 

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