03 Sep Shoe Carnival Sees Record Q2 On Strong Athletic Footwear Sales
Shoe Carnival Inc. reported record sales in the third quarter as same-store sales grew 12.6 percent and online sales more than tripled. Earnings were down slightly due to \higher shipping costs from elevated online sales and a shift to adult athletic sales which typically carry lower margins than non-athletic footwear.
Second Quarter Highlights
- Net sales were an all-time quarterly record $300.8 million;
- Net income was $10.1 million, or $0.71 per diluted share;
- All brick & mortar stores reopened by the end of the second quarter after being closed on March 19, 2020 due to COVID-19;
- Comparable store sales increased 12.6 percent;
- E-commerce sales increased 332 percent;
- During the quarter, Shoe Perks customer loyalty membership surpassed 25 million members; and
- As of August 1, 2020, cash and cash equivalents were $76.9 million, and no cash borrowings were outstanding on the company’s $100 million line of credit.
On July 22, Shoe Carnival issued an upbeat report indicating that for the fiscal second quarter-to-date through June 22, comparable-store sales were up 28.1 percent compared to the prior year, with brick & mortar comparable sales up 4.0 percent and e-commerce comparable sales increasing nearly 470 percent.
“The strength of our team was on full display during the second fiscal quarter. Our customer-centric culture and exceptional operational execution enabled us to swiftly and safely welcome our loyal shoppers and new customers into our stores. At the same time, our strategic investments in technology-supported sustained triple-digit growth in e-commerce sales. The positive response by both our in-store and online customers led to record quarterly revenues and comparable same-store sales growth of 12.6 percent. We also achieved an important milestone surpassing 25 million Shoe Perks loyalty members,” commented Cliff Sifford, Shoe Carnival’s Vice Chairman and Chief Executive Officer.
“The COVID pandemic has undoubtedly created significant uncertainty across the U.S. which has shifted our typical back-to-school season. Nearly all schools within the markets we operate in have, at a minimum, delayed their start dates. Despite this, we continue to see our customers shop Shoe Carnival for their back-to-school needs. Given the shift in the back-to-school season, we anticipate that the majority of the volume we typically see in August will shift later into our third quarter extending the back-to-school season through the end of October. As we look forward, we remain focused on executing our long-term strategic plan. Combined with our strong vendor partnerships and dedicated team, this vision will further propel Shoe Carnival to be America’s favorite family footwear retailer.”
Second Quarter Financial Results
The company reported record net sales of $300.8 million for the second quarter exceeding the previous record set in the third quarter of fiscal 2017 by 4.6 percent. Comparable store sales increased 12.6 percent. E-commerce sales increased 332 percent and represented more than 20 percent of total sales in the second quarter of fiscal 2020. Brick & mortar sales were adversely impacted by COVID-19-related closures early in the second quarter and COVID-19-related delays in back-to-school shopping late in the quarter.
Sales results were still short of Wall Street’s consensus estimate of $310 million.
Gross profit margin for the second quarter of fiscal 2020 decreased to 27.5 percent compared to 30.6 percent in the second quarter of fiscal 2019. Merchandise margin decreased 3.7 percent and buying, distribution and occupancy expenses decreased 0.6 percent as a percentage of net sales compared to the second quarter of fiscal 2019. The decrease in merchandise margin was primarily due to higher shipping costs associated with e-commerce sales and an increase in adult athletic sales which typically carry lower margins than non-athletic products. Of the $32.6 million increase in net sales, $29.0 million was attributable to adult athletic sales. The decrease in buying, distribution and occupancy costs as a percentage of sales were primarily due to the leveraging effect of higher sales.
Selling, general and administrative expenses for the second quarter of fiscal 2020 increased $1.8 million to $68.2 million. As a percentage of net sales, these expenses decreased to 22.7 percent compared to 24.8 percent in the second quarter of fiscal 2019 primarily due to the leveraging effect of higher sales.
Net income for the second quarter of fiscal 2020 was $10.1 million, or $0.71 per diluted share. For the second quarter of fiscal 2019, the company reported net income of $11.8 million, or $0.80 per diluted share. Results topped Wall Street’s consensus estimate of 61 cents.
Six Month Financial Results
Net sales for the first six months of fiscal 2020 were $448.3 million compared to $522.0 million in the first six months of fiscal 2019. Comparable store sales decreased 14.0 percent for the first six months of fiscal 2020.
Net loss for the first six months of fiscal 2020 was $6.1 million, or a loss of $0.44 per diluted share, compared to net income of $25.7 million, or $1.71 per diluted share, for the first six months of fiscal 2019. Included in the first six months of fiscal 2019 was a tax benefit of approximately $1.9 million, or $0.13 per diluted share, associated with the vesting of equity-based compensation that was recorded in the first quarter of fiscal 2019.
The gross profit margin for the first six months of fiscal 2020 was 25.4 percent compared to 30.1 percent in the same period last year. Selling, general and administrative expenses for the first six months decreased $3.0 million to $122.9 million. As a percentage of net sales, these expenses increased to 27.4 percent compared to 24.1 percent in the first six months of fiscal 2019.
Business Update – COVID-19
The safety and well-being of the company’s customers, employees and business partners remains its top priority. The company continues to closely monitor and respond to COVID-19 and is taking steps and dedicating resources to minimize the impact of COVID-19 on its operations. An update for the second quarter is as follows:
- Continued to provide stores with a regular supply of personal protective equipment (PPE) and enhance chain-wide cleaning, sanitation and social distancing procedures;
- Developed a mandatory safety plan for corporate office and distribution center employees, which includes daily health screening and other safety measures;
- Continued to pay employees while stores were closed and assess the benefits of the related Coronavirus Aid, Relief, and Economic Security (CARES) Act payroll tax credit;
- Enhanced liquidity by eliminating a covenant under the company’s credit facility through the first quarter of fiscal year 2021 that may have limited access to increased borrowing capacity;
- E-commerce has been fully operational throughout the pandemic and represents over 20 percent of total net sales in the second quarter. E-commerce traffic increased over 100 percent compared to the prior year;
- Approximately 50 percent of its stores reopened by early May, and substantially all of its stores were open in early June. After reopening, stores experienced increases in conversion, total average transaction and units per transactions despite reduced traffic due to COVID-19; and
- The back-to-school shopping period has been impacted by COVID-19 with nearly all schools within the markets that Shoe Carnival operates, at a minimum, delayed school start dates. As a result, its selling period has shifted largely into the third quarter negatively impacting the final two weeks of July.
Fiscal 2020 Earnings Outlook
COVID-19 is expected to continue to affect macroeconomic conditions and consumer spending in the retail sector. Considerable uncertainty exists surrounding the impact the pandemic may have on the company’s sales and operations for the remainder of the fiscal year. As a result, the company is not providing guidance for fiscal year 2020.
Store Openings and Closings
Two new stores were opened in the second quarter of fiscal 2020 and 10 stores were closed. For the first 6 months of fiscal 2020, the company opened 2 stores and closed 12 stores. The company expects a total of 4 store openings and 13 store closings during fiscal 2020 compared to 1 store opening and 6 store closings in fiscal 2019.
Share Repurchase Program
As of August 1, 2020, the company had $43.1 million available for future repurchases under its share repurchase program. No shares have been repurchased in fiscal 2020, and the company does not anticipate repurchasing any shares in fiscal 2020 but will continue to reevaluate further share repurchases on an ongoing basis.