Shoe Carnival's Weak Fourth-Quarter Report Sent Its Shares Tumbling

Shoe Carnival has just released its fourth-quarter report, so let's take a look at the results and see how the stock is reacting.

Mar 24, 2014 at 12:00PM

Shoe Carnival (NASDAQ:SCVL), the footwear retailer, has just released its fourth-quarter report to complete fiscal 2013. The results came in below analyst expectations on both the top and bottom line and the stock has taken a 5% haircut in response. Let's take a deeper look into the report to determine if this is weakness is our opportunity to buy or if we should avoid it entirely. 

Screen Shot

Source: Shoe Carnival's Facebook

The poor results
The fourth-quarter report was released after the market closed on March 20 and the results missed expectations; here's a breakdown and a year-over-year comparison:

Metric Reported Expected Year Ago
Earnings Per Share $0.03 $0.04 $0.13
Revenue $200.31 million $203.84 million $205.74 million

Source: Benzinga

Earnings per share decreased 76.9% and revenue decreased 2.6% year-over-year, as comparable-store sales fell 2.5%. Shoe Carnival's management used a very popular excuse for its underperformance, the "unfavorable weather" conditions, and it allegedly was the cause of the steep decline in customer traffic in December and January.

Shoe Carnival Store

Source: Wikinvest

Gross profit fell 5% to $57.18 million and the gross margin declined 80 basis points to 28.5%, as the company faced higher costs associated with buying, distributing, and occupancy. Three new stores were opened during the quarter and five were closed, bringing its total store count down to 376, and I think the higher occupancy costs may have played a role in the closures. Also, the company announced that it will maintain its quarterly dividend of $0.06 and the next payment will come on April 21. 

Overall, it was a very weak quarter for Shoe Carnival and I do not believe weather was to blame; I think the real reason was the highly competitive and promotional retail environment during the holiday season, and the company could simply not draw customers in.

What does the company expect going forward?
In the report, Shoe Carnival also provided its guidance for the first-quarter of fiscal 2014; here's what the company expects to see compared to the consensus analyst estimates:

Metric Company Outlook Analyst Expectations
Earnings Per Share $0.45-$0.52 $0.50
Revenue $232 million-$241 million $252.81 million

Source: Estimize


Source: Shoe Carnival's Pinterest

In the first quarter of fiscal 2013, Shoe Carnival earned $0.47 per share on revenue of $232.3 million, so this outlook would result in losses at the low-end or growth at the high-end. The company also said it expects comparable-store sales to be flat to down 3.5% compared to a growth of 4.3% a year ago.

Overall, this information did little to instill confidence in investors and I believe the market reacted correctly by sending shares 4.97% lower. As a result of the slowed growth and weak outlook, I would avoid placing a new investment in Shoe Carnival today.

How did the other big boys do?
Brown Shoe (NYSE:BWS) and DSW (NYSE:DSW) are two of Shoe Carnival's largest competitors and both have recently released quarterly results as well. In case you are not familiar, Brown Shoe is the company behind brands such as Famous Footwear and Here's an overview of what these companies accomplished in their quarters:

Metric Brown Shoe DSW
Earnings Per Share $0.14 $0.31
EPS Growth 55.6% (11.4%)
Revenue $600.00 million $572.27 million
Revenue Growth (3%) (3.7%)
Comp-Store Sales Growth (1.8%)* 0%
Gross Margin 40.2% 28%
Gross Margin Change 20 basis points (90 basis points)

*Comparable-store sales growth at Famous Footwear

About Dsw

Source: DSW

As you can see, Brown Shoe and DSW faced declining sales as well, which means that Shoe Carnival was not alone its struggles. This clearly shows that brick-and-mortar footwear retailers are getting less attention from consumers and this may be a result of increased competition from online competitors, such as Amazon. When an industry is experiencing a slowdown, it is rarely smart to place an investment, so I would avoid all three of these companies for now and simply monitor them going forward. If the next set of quarterly results are strong and outlook is promising, we can revisit the idea of investing.

The Foolish bottom line
Shoe Carnival's earnings miss and weak outlook on the first-quarter has sent shares sharply lower and the sell-off may only be getting started. The company and its competitors have experienced lower customer traffic over the last few quarters and the year ahead looks like it will hold similar issues. For these reasons, Foolish investors should avoid this industry today and look elsewhere for opportunities.

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