Shoe Carnival dropped 9% after releasing its first quarter financial report on Thursday afternoon. Net sales were up about 3% to a new record for a first quarter and earnings rose 8% ($0.56 per share) setting a record as well. In addition, comparable store sales were up 2.7% marking the seventh quarter in a row of rising comps. But despite all this good news, investors didn't seem satisfied with the company's guidance for the entire year. Shoe Carnival expects comparable store sales to grow just 1% to 3% and earnings to grow between 9% and 14%. But with a forward P/E of just 11.45, this pullback may just be the move smart investors are looking for.
Shoe Carnival, Inc., together with its subsidiaries, operates as family footwear retailer primarily in the United States. It provides various dress, casual, and athletic footwear products for men, women, and children; and accessories, including socks, belts, shoe care items, handbags, jewelry, scarves, and wallets. As of January 30, 2016, the company operated 405 stores in 34 states and Puerto Rico. It sells its products through online shopping at shoecarnival.com. Shoe Carnival, Inc. was founded in 1978 and is headquartered in Evansville, Indiana.
(Summary) (Company) (Chart)
22 May 2016
1yr Target $28.00
Payout Ratio 17.93%
1yr Cap Gain 31.64%
1yr Tot Return 32.86%
EPS (ttm) $1.45
EPS next yr $1.86
Forward P/E 11.45
EPS next 5yr 15.00%
1yr Price Support $27.90
Market Cap $427.95 Mil
Revenues $984.00 Mil
Earnings $28.20 Mil
Profit Margin 2.86%
Quick Ratio 0.90
Current Ratio 4.20
1yr RevGR 4.65%
3yr RevGR 4.74%
5yr RevGR 5.88%
1yr EarnGR 14.17%
3yr EarnGR 0.45%
5yr EarnGR 1.14%
1yr DivGR 6.25%
3yr DivGR 9.04%
5yr DivGR ---
Shoe Carnival is one of the nation’s largest family footwear retailers providing in-person shopping at more than 400 locations in 33 states and Puerto Rico or online at www.shoecarnival.com. They offer customers a broad assortment of moderately priced dress, casual and athletic footwear for men, women and children with emphasis on national and regional name brands. They differentiate their retail concept from their competitors by their distinctive, highly promotional marketing efforts. Stores are approximately 11,000 square feet, generate approximately $2.4 million in annual sales and carry inventory of approximately 28,200 pairs of shoes per location.
Key Competitive Strengths
Distinctive shopping experience. Shoe Carnival stores combine competitive pricing with a highly promotional, in-store marketing effort that encourages customer participation and injects fun and surprise into every shopping experience. The company promotes a high-energy retail environment by decorating with exciting graphics and bold colors, and by featuring a stage and mic-person as the focal point in each store who announces current specials, organizes contests and games, and assists and educates customers with the features and location of merchandise. This highly promotional atmosphere results in various competitive advantages, including increased multiple unit sales, the building of a loyal, repeat customer base, the creation of word-of-mouth advertising, and enhanced sell-through of in-season goods.
Broad merchandise assortment. Shoe Carnival's objective is to be the destination retailer-of-choice for consumers seeking value priced, current season name brand and private label footwear. Their product assortment includes dress and casual shoes, sandals, boots and a wide assortment of athletic shoes for the entire family. Their average store carries approximately 28,200 pairs of shoes in four general categories – women’s, men’s, children’s and athletics – which are organized within the store by category and brand. Key brands are emphasized by prominent displays on end caps, focal walls, and within the aisles. These visual merchandising techniques make it easier for customers to shop and focus attention on key name brands. The company's e-commerce site offers customers an opportunity to choose from a large selection of products in all of the same categories of footwear, and introduces the company's concept to consumers who are new to Shoe Carnival, in both existing and new markets.
Value pricing for our customers. The company's marketing effort targets moderate income, value conscious consumers seeking name brand footwear for all age groups. By offering a wide selection of popular styles of name brand merchandise at competitive prices the company generates broad customer appeal contributes to a reputation of value pricing.
Efficient store level cost structure. Shoe Carnival's cost efficient store operations and real estate strategy enable the company to price products competitively. Merchandise is positioned directly on the selling floor in an open stock format allowing customers to serve themselves which reduces the staffing required to assist customers and reduces store level labor costs as a percentage of sales. In addition, the company locates stores in open-air shopping centers to take advantage of lower occupancy costs and maximize exposure to value oriented shoppers.
Shoe Carnival operates a single 410,000 square foot distribution center located in Evansville, Indiana. The facility can support the processing and distribution needs of a minimum of 460 stores to facilitate future growth. The company has the right to expand the facility by 200,000 square feet, which would provide them with the processing capacity to support approximately 650 stores.
The company's quarterly results of operations have fluctuated over the years and over the seasons and are expected to continue to fluctuate in the future. This is primarily the result of seasonal variances and the timing of sales and costs associated with opening new stores. Non-capital expenditures, such as advertising and payroll incurred prior to the opening of a new store, are charged to expenses as incurred. Therefore, results of operations may be adversely affected in any quarter in which the company incurs pre-opening expenses related to the opening of new stores.
Shoe Carnival has three distinct peak selling periods: Easter, back-to-school and Christmas. To prepare for these peak shopping seasons, the company must order and keep in stock significantly more merchandise than they would carry during other seasons. Therefore, any unanticipated decrease in demand for the company's products during those peak shopping seasons could require the company to sell excess inventory at a substantial markdown. This could reduce net sales and gross margins and negatively affect profitability.
Offering value is always a great business strategy and the Shoe Carnival seems to have mastered this strategy. It may not be the most exciting company listed but it's a company that's brought in pretty consistent numbers over the years. But no company's perfect and this company's outlook shows just how dependent they are on the financial aspects of their customers. And to a lesser extent the overall economy.
Their recent fiscal guidance may have created an opportunity for smart investors. This company now has a P/E ratio lower than its estimated future growth rate creating a PEG of less than one. And that may have created an opportunity to accumulate these shares while they're on sale. Simply achieving a P/E ratio next year equal to it's normal P/E of 15 gets the stock to almost $28 per share, which would be an increase of more than 30% in the price of the stock.
Consider the fact that the dividend has been growing in the low single digits while the earnings are expected to grow in the mid-teens, and it's obvious that dividends will eventually increase significantly to a level more appropriate to the growth in earnings. Add in the fact that the payout ratio is only about 18% and this company could accelerate the dividend even faster. There's plenty of room to hike the dividend even without the upcoming increases in earnings.
I don't see anyway to loose owning this stock over the long run (although there's always a way to loose money over the short term). I believe the recent pullback in the price of these shares has opened up an opportunity for me to start a position in this company and I believe I'll buy shares of this company this upcoming week before this window closes.
As always, I'll start with a small position and build that position over time with dividend reinvestment, selling of call options, and additional buying on the open market as price dictates.