17 Jan Shoe Carnival Turns Promotional In December
Shoe Carnival Inc. warned that its earnings would come in at the lower end of its previous guidance for the year due to weak traffic early in December.
At the ICR Investor Conference, President and CEO Cliff Sifford said warm weather in November “gave way to a very promotional environment on and off the mall.” Same-store sales for the shoe chain in that month wound up down 3.3 percent.
With more seasonal weather patterns expected, Shoe Carnival was hoping for a “stronger, more profitable December and January.” Unfortunately, brick-and-mortar traffic declined further through the first several weeks of December.
“This left us with a dilemma: either become more promotional to drive customers into our store or face an inventory issue on seasonal product,” Sifford said. “We chose to focus on inventory control across all categories, which resulted in improved sales performance, but at the cost of margin.”
Combined comparable-store sales for November and December decreased 1.1 percent. Due to the heavy promotions to reduce inventories, gross margins are projected to decline approximately 210 basis points for the fourth quarter. Inventories are expected to be down mid single digits on a per-store basis and will be in line with its plan. Said Sifford, “This allows us to put fourth quarter behind us and then turn to a new year with fresh product for the season.”
Shoe Carnival now expects 2016 sales to be in the range of $1 billion to $1.003 billion, slightly down from its previous range of $1.002 billion to $1.006 billion.
Comparable-store sales are now projected to increase slightly versus prior expectations of an increase in the range of 0.5 percent to 0.9 percent. EPS for the year is expected in the range of $1.36 to $1.38, down from $1.46 to $1.51 previously. In 2015, net sales were $984 million, comps increased 3 percent and EPS was $1.45.
In his presentation at the ICR Conference, Sifford updated the investor crowd on some key initiatives.
The company expects to maintain a 30 percent year-over-year growth over the next three years. Its strongest growth opportunities in the near term are the Midwest, from Upper Midwest, the Great Lakes, all the way through Texas.
The company’s traditional store size is 9,000 square feet, but more promising growth opportunities are in mid-markets (average store size 7,000 square feet) and small markets (average store size 5,000 square feet). Shoe Carnival is also finding some success opening locations in malls and currently has 18.
The retailer rolled out a ship-from-store program several years ago and it has been well received by customers. A buy-one, pick up in-store program was launched a couple months ago. Officials are “very, very pleased with the performance,” with a long-term benefit expected to come in lower shipping costs. Vendor drop-ship is currently being developed.
A continued focus will remain on mobile, with 40 percent of online purchases stemming from mobile during peak periods. Advertising is expected to increasingly shift to digital.
A newer part of its differentiation efforts are shop-in-shops. In the athletic category, it began last year to open Nike shops in all new stores and remodeled stores. Said Sifford, “We believe that it sets us apart from our competition and allows us to take the world’s No. 1 brand and become the destination store in the family channel for that brand.”
Shoe Carnival also continues to open up running-themed shops in suburban areas while basketball shops are opening in urban areas “to put lifestyle product down the power aisle.”
Marketing is driven by its loyalty program, Shoe Perks, which counted 12 million members at the end of the third quarter. Members make up 68 percent of total sales. About 3 million have been added over the last three years.
Shoe Carnival is investing more in segmenting customer data for marketing and real estate purposes, officials said. These segmentation efforts confirmed some findings the chain already knew, such as its loyal following among African-Americans and Hispanics. About 40 percent of its sales come from African-Americans or Hispanics. However, the segmentation also found that a large percentage of its customers are higher-income than previously thought and “baby boomers truly are devout Shoe Carnival customers,” Sifford said.