This summary is based on the second quarter fiscal 2008 earnings call conducted by Shoe Carnival Inc. (SCVL) on August 21, 2008.
Management:
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President, Chief Executive Officer, Director: Mark L. Lemond
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Chief Financial Officer, Executive Vice President, Treasurer: W. Kerry Jackson
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Executive Vice President - Store Operations: Timothy T. Baker
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Executive Vice President - General Merchandise Manager: Clifton E. Sifford
Key Investors Issues
- Net earnings were $977,000 or 8 cents a share, up 485% from $167,000, or 1 cent per share in 2007.
- Sales increased by 2.3% to $158.5 million from $154.8 million for the prior year second quarter.
- Comparable store sales decreased by a percentage points.
Half Year Highlights:
- Net sales increased to $320.6 million compared to $320.5 million in 2007 as same-store sales decreased 3%.
- The firm has opened 14 stores versus opening 13 stores in the first half last year.
Second Quarter Highlights
Net sales increased $3.7 million to $158.5 million compared to $154.8 million for the second quarter of 2007 though same-store sales declined 1%.
- Gross margins increased 0.6% to 26.6% over the same period last year and as a percentage of sales the merchandise margin increased 0.9% while buying, distribution and occupancy costs increased 0.3%.
- Markdowns were more balanced between first and second quarters resulting in a 0.9% improvement in the merchandise margins.
- The 0.3% increase in buying, distribution and occupancy costs was all attributable to the deleveraging of occupancy costs.
Due to tight expense controls selling, general and administrative expenses only increased $543,000 to $40.7 million.
- Pre-opening costs were $406,000 compared with $268,000 in the second quarter last year.
- Store closing costs included in SG&A were $387,000 as compared to $375,000 for the second quarter last year.
- Net income rose to $977,000 or 8 cents a share from $167,000 or 1 cents a share in the prior year on revenue growth and expense management.
Operational Review:
- One of the initiatives for 2008 has been to increase the net realized price on the footwear sales and the firm was able to achieve a nice year-over-year increase particularly within the adult and children’s athletic categories.
- And despite the declines in traffic this price increase enabled the firm to generate positive comparable store sales of athletic footwear for the second quarter in a row.
- Merchants reduced year-over-year inventory on a per-store basis by approximately 7% and actually improved merchandise margins over the prior year.
- The targeted moderate income consumer will continue to experience a negative effect on their disposable income as a result of rising fuel and food prices, issues in the home mortgage industry, and rising unemployment in many markets.
Additionally, the footwear industry is one of the industry’s facing the rising costs of Chinese imports.
- Strategies for mitigating the effects of all these challenges include the tight control of inventories and improving the turnover in gross margin return on investment.
- The firm is continuing its efforts to reduce the overall SKU count within a store’s inventory in order to provide greater depth and size runs for the customers and yet maintain lower, cleaner inventories.
- It will continue to try to increase the net realized price of footwear throughout the remainder of this year and into 2009.
- Over the course of the last year, the firm has reassessed the store level operations on a line by line basis to determine the optimal level of controllable expenses that will enable it to maintain the desired approach to total customer services.
Additionally, the firm is enhancing its distribution logistics to minimize the impact of rising fuel prices.
- Late in the second quarter in conjunction with the new agency, 22 Squared, the firm introduced a more contemporary look to the television and circular advertising and back-to-school in-store graphics to better deliver value and fashion proposition.
- Additionally, it has also made changes to the website to incorporate the new look of the advertising and in-store graphics.
- Late in 2008 or early 2009 the firm anticipates launching a new customer loyalty program to further solidify the relationship with the core repeat customer base.
Additionally, the firm is making limited changes to the store layout and fixtures to better feature the women’s non-athletic product.
- The firm has opened 14 stores so far in 2008 and now expects to open a total of 24 new stores this year.
- A total of 15 of those new stores will be located in large and small markets in existing geographic regions.
