Shoe Carnival (SCVL), a leading retailer of value-priced footwear and accessories, reported modest second quarter results with earnings of 8 cents per share, which was above the Zacks Consensus Estimate of 2 cents. Earnings were in line with the prior-year quarter.
Net sales for the quarter declined 3.6% year over year to $152.8 million while comparable store sales fell 6.4%. The decrease in sales was attributable to lower customer traffic impacted by the global recession.
Sales were down across all the departments. In the women’s non-athletic department, sales were down to mid single-digit. However, overall sales in the department were partially offset by positive results in the women’s sandal category.
In the men’s non-athletic department, sales declined to mid single-digits for the quarter. The decline is primarily due to a continuous shift to more traditional classifications such as comfort dress shoes, boat shoes and soccer slides.
The children’s athletic and non-athletic businesses were down to low single-digits and high single-digits, respectively. The decline in the non- athletic business was primarily attributable to exiting the molded footwear business in the prior-year period.
Gross margin for the quarter improved 17 basis points to 26.8% versus 26.6% in the comparable prior-year quarter, primarily due to better inventory control. The operating income improved to $1.9 million compared to $1.5 million in the prior-year quarter due to lower selling, general and administrative expenses.
Although Shoe Carnival witnessed a decrease in transactions due to lower consumer traffic, it realized an increase of about 6% in the average price per pair. Management believes that the strategy of raising the net realized price of its footwear will be significant as it enters the back-to-school sales period.
A part of the company’s strategy to mitigate the impact of the downturn in the economy has been to shrink its average per store inventories. However, during the second quarter, it reversed that strategy. The company decreased the amount of inventory held in reserve in the distribution center and increased the amount of inventory in stores by an average of 6%.
The company feels that increase in inventory will be one of the keys to its success during the back-to-school sales period and will enable it to maximize revenues in the remainder of the third quarter. Further, the company’s strong un-leveraged financial position leaves it well positioned for additional square footage growth over the next several years. Cash and cash equivalents for the first half of 2009 were $17.7 million, reflecting a 6% increase year over year.

For fiscal 2009, the company plans to open approximately 16 stores, two of which were already opened in August. About 14 of the 16 new store openings will be in existing markets. The company closed one store in the second quarter and will close additional six stores during the second half of 2009.

To weather the current market challenges, management outlined key strategies for the remainder of 2009. The company plans to provide a full assortment of family footwear at affordable prices and maintain a stronger focus on children’s products. In addition, it plans to shift the product mix to include a broader selection of athletic footwear and implement creative in store visual elements by highlighting the key product styles and the hottest brands.

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