Shoe Carnival's (NASDAQ:SCVL) Q1 Sales Beat Estimates

Full Report / May 23, 2024

Footwear retailer Shoe Carnival (NASDAQ:SCVL) reported Q1 CY2024 results topping analysts' expectations, with revenue up 6.8% year on year to $300.4 million. It made a non-GAAP profit of $0.64 per share, improving from its profit of $0.60 per share in the same quarter last year.

Shoe Carnival (SCVL) Q1 CY2024 Highlights:

  • Revenue: $300.4 million vs analyst estimates of $294.5 million (2% beat)
  • EPS (non-GAAP): $0.64 vs analyst estimates of $0.60 (7.3% beat)
  • 2024 EPS (non-GAAP) guidance: $2.65 at the midpoint vs analyst estimates of $2.64 (7.3% beat)
  • Gross Margin (GAAP): 35.6%, up from 35% in the same quarter last year
  • Free Cash Flow of $6.87 million is up from -$12.95 million in the same quarter last year
  • Same-Store Sales were down 3.4% year on year (beat vs. expectations of down 4.0% year on year)
  • Store Locations: 430 at quarter end, increasing by 33 over the last 12 months
  • Market Capitalization: $934.2 million

Known for its playful atmosphere that features carnival elements, Shoe Carnival (NASDAQ:SCVL) is a retailer that sells footwear from mainstream brands for the entire family.

A shopper can find shoes from Nike, Adidas, Skechers, Converse, Vans, and Crocs for sale at a typical store. Because Shoe Carnival focuses on keeping prices low and attracting a value customer, the selection from these brands will likely not be the newest, hottest releases but the staples. The company’s purchasing approach is also a major reason prices are competitive–Shoe Carnival acquires some inventory through excess inventory and closeouts. The company also maintains direct relationships with many suppliers, cutting out the expenses of middlemen.

On average, Shoe Carnival stores are mid-sized in the world of retail at approximately 10,000 square feet. Stores are typically located in both urban and suburban areas shopping centers and malls alongside other apparel and footwear retailers. The floors are easy to navigate, with sections for men, women, and children and those sections with further subsections for athletic, casual, and dress shoes. Shoe Carnival does have an e-commerce presence, established in 2008, but it is a concept and category that tends to draw shoppers in person.

Footwear Retailer

Footwear sales–like their apparel counterparts–are driven by seasons, trends, and innovation more so than absolute need and similarly face the bigger-picture secular trend of e-commerce penetration. Footwear plays a part in societal belonging, personal expression, and occasion, and retailers selling shoes recognize this. Therefore, they aim to balance selection, competitive prices, and the latest trends to attract consumers. Unlike their apparel counterparts, footwear retailers most sell popular third-party brands (as opposed to their own exclusive brands), which could mean less exclusivity of product but more nimbleness to pivot to what’s hot.

Footwear retailer competitors include Designer Brands’s (NYSE:DBI) DSW banner, Foot Locker (NYSE:FL), and TJX (NYSE:TJX).

Sales Growth

Shoe Carnival is a small retailer, which sometimes brings disadvantages compared to larger competitors that benefit from economies of scale.

As you can see below, the company's annualized revenue growth rate of 3.1% over the last five years was weak , but to its credit, it opened new stores and expanded its reach.

Shoe Carnival Total Revenue

This quarter, Shoe Carnival reported solid year-on-year revenue growth of 6.8%, and its $300.4 million in revenue outperformed Wall Street's estimates by 2%.

Same-Store Sales

Same-store sales growth is an important metric that tracks demand for a retailer's established brick-and-mortar stores and e-commerce platform.

Shoe Carnival's demand has been shrinking over the last eight quarters, and on average, its same-store sales have declined by 9% year on year. This performance is quite concerning and the company should reconsider its strategy before investing its precious capital into new store buildouts.

Shoe Carnival Year On Year Same Store Sales Growth

In the latest quarter, Shoe Carnival's same-store sales fell 3.4% year on year. This decrease was an improvement from the 11.9% year-on-year decline it posted 12 months ago. It's always great to see a business improve its prospects.

Number of Stores

When a retailer like Shoe Carnival is opening new stores, it usually means it's investing for growth because demand is greater than supply. Shoe Carnival's store count increased by 33 locations, or 8.3%, over the last 12 months to 430 total retail locations in the most recently reported quarter.

Shoe Carnival Operating Retail Locations

Over the last two years, the company has generally opened new stores and averaged 2.7% annual growth in its physical footprint, which is decent and on par with the broader sector. With an expanding store base and demand, revenue growth can come from multiple vectors: sales from new stores, sales from e-commerce, or increased foot traffic and higher sales per customer at existing stores.

Gross Margin & Pricing Power

Gross profit margins are an important measure of a retailer's pricing power, product differentiation, and negotiating leverage.

Shoe Carnival's unit economics are higher than the typical retailer, giving it the flexibility to invest in areas such as marketing and talent to reach more consumers. As you can see below, it's averaged a decent 36.5% gross margin over the last eight quarters. This means the company makes $0.36 for every $1 in revenue before accounting for its operating expenses.

Shoe Carnival Gross Margin (GAAP)

Shoe Carnival produced a 35.6% gross profit margin in Q1, flat with the same quarter last year. This steady margin stems from its efforts to keep prices low for consumers and signals that it has stable input costs (such as freight expenses to transport goods).

Operating Margin

Operating margin is an important measure of profitability for retailers as it accounts for all expenses keeping the lights on, including wages, rent, advertising, and other administrative costs.

In Q1, Shoe Carnival generated an operating profit margin of 7.5%, in line with the same quarter last year. This indicates the company's costs have been relatively stable.

Shoe Carnival Operating Margin (GAAP)

Zooming out, Shoe Carnival has done a decent job managing its expenses over the last eight quarters. It's produced an average operating margin of 9.4%, higher than the broader consumer retail sector. However, Shoe Carnival's margin has slightly declined by 2.7 percentage points year on year (on average). This shows the company has faced some small speed bumps along the way.


These days, some companies issue new shares like there's no tomorrow. That's why we like to track earnings per share (EPS) because it accounts for shareholder dilution and share buybacks.

In Q1, Shoe Carnival reported EPS at $0.64, up from $0.60 in the same quarter a year ago. This print beat Wall Street's estimates by 7.3%.

Shoe Carnival EPS (Adjusted)

Over the next 12 months, however, Wall Street is projecting an average 2.3% year-on-year decline in EPS.

Cash Is King

If you've followed StockStory for a while, you know that we emphasize free cash flow. Why, you ask? We believe in the end, cash is king, and you can't use accounting profits to pay the bills.

Shoe Carnival's free cash flow came in at $6.87 million in Q1, representing a 2.3% margin and flipping from negative in the same quarter last year to positive this quarter. Seasonal factors aside, this was great for the business.

Shoe Carnival Free Cash Flow Margin

Over the last two years, Shoe Carnival has shown decent cash profitability, giving it some reinvestment opportunities. The company's free cash flow margin has averaged 2.3%, slightly better than the broader consumer retail sector. Furthermore, its margin has averaged year-on-year increases of 9.7 percentage points. This likely pleases the company's investors.

Return on Invested Capital (ROIC)

EPS and free cash flow tell us whether a company was profitable while growing revenue. But was it capital-efficient? A company’s ROIC explains this by showing how much operating profit a company makes compared to how much money the business raised (debt and equity).

Shoe Carnival's five-year average ROIC was 13.8%, somewhat low compared to the best retail companies that consistently pump out 25%+. Its returns suggest it historically did a subpar job investing in profitable business initiatives.

Shoe Carnival Return On Invested Capital

The trend in its ROIC, however, is often what surprises the market and drives the stock price. Unfortunately, Shoe Carnival's ROIC has stayed the same over the last few years on average despite some volatility. If the company wants to become an investable business, it will need to increase its returns.

Balance Sheet Risk

Debt is a tool that can boost company returns but presents risks if used irresponsibly.

Shoe Carnival reported $69.47 million of cash and $369.3 million of debt on its balance sheet in the most recent quarter. As investors in high-quality companies, we primarily focus on two things: 1) that a company's debt level isn't too high and 2) that its interest payments are not excessively burdening the business.

With $124.6 million of EBITDA over the last 12 months, we view Shoe Carnival's 2.4x net-debt-to-EBITDA ratio as safe. We also see its $1.56 million of annual interest expenses as appropriate. The company's profits give it plenty of breathing room, allowing it to continue investing in new initiatives.

Key Takeaways from Shoe Carnival's Q1 Results

It was good to see Shoe Carnival beat analysts' revenue expectations this quarter on better same-store sales. We were also glad its EPS outperformed Wall Street's estimates. Full year EPS guidance was in line with expectations. Overall, this quarter's results seemed fairly positive and shareholders should feel optimistic. Investors were likely expecting more, however, and the stock is down 1% after reporting, trading at $34.05 per share.

Is Now The Time?

Shoe Carnival may have had a favorable quarter, but investors should also consider its valuation and business qualities when assessing the investment opportunity.

We cheer for all companies serving consumers, but in the case of Shoe Carnival, we'll be cheering from the sidelines. First off, its revenue growth has been uninspiring over the last five years. And while its EPS growth over the last five years has been decent, the downside is its shrinking same-store sales suggests it'll need to change its strategy to succeed. On top of that, its brand caters to a niche market.

While we've no doubt one can find things to like about Shoe Carnival, we think there are better opportunities elsewhere in the market. We don't see many reasons to get involved at the moment.

Wall Street analysts covering the company had a one-year price target of $41 per share right before these results (compared to the current share price of $34.05).

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