Shoe Carnival, Inc. Q1 2023 Fiscal Report

NASDAQ: SCVL | Report Date: 2024-06-07

Overview

Good morning, and welcome to Shoe Carnival, Inc. Fiscal Year 2023 First Quarter Earnings Call. We'll be providing a comprehensive overview of our financial performance, key achievements, and future outlook.

Key Financial Metrics

Our financial results for the first quarter of 2023 show steady progress despite facing critical macroeconomic challenges. Below are some highlights:

• Revenue: $300.37M
• Gross Profit: $106.80M
• Operating Income: $22.51M
• Net Income: $17.29M
• EPS: $0.64
• Cash and Cash Equivalents: $56.92M

Revenue and Sales Analysis

The net sales for Q1 2023 stood at $281.2M, marking a decline of 11.4% compared to the same period last year. This decline was primarily driven by a 10% reduction in store traffic, influenced by persistent inflation and lower federal tax refunds.

Despite this, Shoe Carnival managed to record its third-highest first-quarter sales in the company’s history. Revenues were heavily impacted by adverse weather conditions delaying the onset of spring seasonal sales.

Profit Margins

Our gross profit margin for the first quarter remained robust at 35%, sustaining growth for the ninth consecutive quarter. Merchandise margins saw a slight decline of 0.3% due to promotional activities, but the company managed buy, distribution, and occupancy costs efficiently.

Operating income came in at $20.9M, corresponding to a 7.4% margin on sales.

Operating Expenses and SG&A

Shoe Carnival’s selling, general, and administrative (SG&A) expenses were $77.6M, which remained flat compared to last year but resulted in a deleverage due to decreased sales. The company maintained tight cost controls to keep these expenses under its initial plan.

Strategic Initiatives and Inventory Levels

Despite macroeconomic challenges, Shoe Carnival has made impressive strides in its long-term strategies. Efforts in transforming promotional activities have shown tangible results. The company was able to reduce its inventory levels significantly, ending Q1 with $45M more in inventory than the previous year, a reduction from $105M more at the beginning of the quarter. The goal remains to reduce inventory levels to $40M below last year's levels by the year-end.

The company also noted significant improvements in athletic inventory, gearing up for a promising back-to-school season.

Customer Loyalty and Market Share

Customer engagement continues to be a key driver of success. Customer memberships surged to an all-time high of 32.7M by the end of Q1, reflecting a 12% growth year-over-year. A substantial 70% of our sales now come from loyalty members, which continues to be a core advantage of the company.

Updated Annual Guidance

Due to continued challenges with consumer trends and economic conditions, Shoe Carnival is revising its annual guidance for fiscal 2023. The company now expects sales to be down 3% to 6% compared to previous forecasts ranging from a decrease of 2% to a slight increase of 2%.

Gross profit margins for the year are now anticipated to range between 36% and 37%, lower than the earlier projection of approximately 37%.

Diluted EPS guidance has been updated to $3.60 to $3.85, down from earlier estimates of $3.96 to $4.20.

Conclusion

Shoe Carnival continues to navigate through tough economic headwinds, focusing on strategic growth and market share expansion. The company remains financially robust, ready to accelerate growth once macroeconomic conditions stabilize.

We are confident in the resiliency of the American consumer and optimistic about the upcoming quarters, especially with an improved inventory position and continued customer engagement.