Ouch! I hate it when that happens.
A few months ago Shoe Carnival (Nasdaq: SCVL ) looked to be really hitting its stride with a gangbuster end to 2006. Alas, a new year is upon us, and after stubbing its toe in the first quarter, some footwear followers are wondering whether this shoe really fits.
We shouldn't be totally surprised. A couple of weeks ago the company reported first-quarter comparable sales down 3.7%, so earnings weren't likely to shine. EPS of $0.53 met the consensus analyst estimate, but got there on the back of a $0.05 per-share tax benefit. Last year, EPS was $0.54 without the tax windfall.
Shoe Carnival also warned that next quarter EPS is likely to be flat with prior year, in the range of $0.20 to $0.23, compared to estimates of $0.31. Comparable-store sales are expected to be flat again. Analysts have been tripping over each other lowering estimates for the past few months, explaining why the stock is down more than 20% from its March high of just over $35.
Other than the sales slide, first-quarter results don't have any really bad news. Merchandise margin was up a healthy 1%. Total margins were slightly off due to occupancy deleverage from negative comp sales, and conversion expense from doubling the size of its distribution center last year. The company actually reduced SG&A expense by about 1%. Inventories were slightly down on a per-store basis compared to prior year, a healthy sign.
Is the sales problem simply consumers putting off shoe purchases when the economy is soft? Overall retail sales for first quarter have been below expectations. Note that DSW (NYSE: DSW ) reported first-quarter comparable sales down 3.6%. But Brown Shoe (NYSE: BWS ) stepped lively with a 3.4% increase. Payless (NYSE: PSS ) reports next week and just announced its intention to pay up big to acquire Stride Rite (NYSE: SRR ) .
Shoe Carnival is clearly convinced its sore toe is just a temporary condition. The company is moving forward with a multiyear plan to grow new stores at a 12%-15% clip, following its distribution network upgrade. It's targeting fill-in locations in existing markets, along with entry into smaller, single-store markets. During the first quarter, the company entered single-store markets in Marion, Ohio, and Sioux Falls, S.D.
The shoe retail channel has rewarded investors the past few years. All the major players have recently seen their share prices tumble, bringing P/E ratios back to more reasonable levels. (Shoe Carnival is under 16 times trailing-twelve-month earnings today, compared to more than 20 times around the end of March). With the industry going through a consolidation phase, this could be an opportunity for value investors to begin averaging in.
Kick off the sandals, and check out some of these shoes:
Motley Fool contributor Timothy M. Otte surveys the retail scene from Dallas. He welcomes comments on his articles, but doesn't own shares in any of the companies mentioned in this article. The Fool's disclosure policy is always a perfect fit.
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