"If the shoe fits." is how the saying goes. How would a 44.4% gain over the last 52 weeks fit into your portfolio? Welcome to Shoe Carnival (NASDAQ:SCVL) -- a leading retailer of value-priced footwear and accessories.
The company announced first-quarter results befitting a company with a surging stock price -- earnings for the first quarter were a record for any quarter in company history.
Net sales increased 10.5% and same-store sales, the holy grail of retail measures, increased a strong 5.5% over the same quarter last year (and beat the company's guidance of a 2% to 4% gain). Net income soared 31.2% and, if you take out a $235,000 one-time charge to correct an inventory valuation error, was up an even stronger 36.4% for the quarter. Earnings per share exceeded the company's high-end guidance by one cent.
Look back to 2004 to make sense of the surging stock. The third and fourth quarters of 2004 were the first back-to-back quarters with same-store sales gains since fiscal year 2001 (and now that streak sits at three). The company undertook a myriad of improvement projects. There were no guarantees that these high-risk efforts would be successful.
That risk is paying off. Slowing store growth, closing underperforming stores, updating and remodeling stores, new advertising approaches, and a focus on operating performance are producing record results. That same plan is still at work in 2005, when $5 million will be spent on remodeling and "graphics enhancements." And, while 10 to 12 new stores will open, six will be closed.
The company is gaining credibility quarter-by-quarter by both increasing gross margins and decreasing sales, general, and administrative expenses. The company is also seeing good things ahead. It raised the low end of 2005 guidance a nickel -- and now expects to earn between $1.20 and $1.30 a share for the fiscal year.
The company still has a way to go before reaching the performance levels of its competitors. Foot Locker (NYSE:FL) and Payless ShoeSource (NYSE:PSS) have gross profit margins of 30.5% and 30.9% respectively, better than the 29.6% Shoe Carnival is touting today.
The stock is trading for 16.6 times low-end guidance for 2005. Analysts expect the good news to continue and are calling for fiscal 2006 earnings per share of $1.38 -- a forward multiple of 14.5 times earnings.
With the company building credibility with its operating performance, the stock, even after being up 6% in late morning trading, looks like a perfect fit for investors looking for a value.
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Fool contributor W.D. Crotty does not own shares in any of the companies mentioned.
