Shoe Carnival Lowers Expectations

Shoe Carnival Inc. emerged late Thursday as the first firm to confirm poorer-than-expected boot sales in the last weeks of the fiscal year.

The Evansville, Ind.-based retailer released a statement revising downward its sales and earnings guidance for the fourth quarter ended Jan. 28, 2012. Comparable-store sales are now expected to decline between 3 percent and 3.5 percent, versus roughly flat previously, while earnings per share are now expected at 20 cents to 23 cents, versus a previous 33 cents to 36 cents.

The news sent the firm’s shares down 4.5 percent in Friday morning trading, as analysts such as Susquehanna Financial’s Christopher Svezia and Sterne Agee’s Sam Poser lowered their price estimates on the stock.

Mark Lemond, president and CEO of Shoe Carnival, said unseasonably warm weather caused lackluster boot sales, particularly in the women’s category.

“Our boot sales in the first two months of the fourth quarter last year increased 20 percent on a comparable basis, whereas this year boot sales have declined 15 percent in our comparable stores,” he said, adding that increased promotional activity to clear boot inventory will also drag down the fourth-quarter gross profit margin by about 170 basis points.

Poser noted that cold-weather fashion boots, from brands such as Bearpaw, were major contributors to the disappointing results.

“While we expect [Shoe Carnival] to do an adequate job of liquidating slow-selling goods by the end of the fiscal year, we would not be surprised to see … elevated inventory levels driven by … an earlier Chinese New Year, which necessitates the earlier delivery of goods, an earlier Easter, and the pulling forward of key athletic styles to drive February sales,” Poser added.

Other analysts reiterated that fashion footwear companies should still be expected to report strong results.

“Given that this is the first negative pre-announcement in the footwear space, we believe all footwear, and cold weather-related, companies could be impacted,” said Camilo Lyon, an analyst at Canaccord Genuity. “That said … we do not view this as a read-through to Steven Madden because [that] business is driven more by fashion and less by weather. In fact, we believe fashion boots experienced a healthy holiday season despite a warmer winter.”

Oliver Chen at Citi Investment Research agreed, saying store checks completed last Wednesday showed markdown levels were in line with last year’s. “We believe December was solid on a strong second half,” he said.

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