Why Shoe Carnival’s CFO Thinks Being Cash-Rich is the Most Important Thing

Kerry Jackson isn’t the typical CFO whose role is limited to number crunching and financial risk management. Instead, the Shoe Carnival veteran is helping tell the retailer’s largely overlooked story to Wall Street and the public.

“Many people, even in our hometown, have no idea we’re a billion-dollar company and have over 400 stores today,” said Jackson, the senior EVP and chief operating and financial officer, who joined the firm in 1988. “They still think we are the original, single Shoe Carnival store.”

Much of the Evansville, Ind.-based firm’s success, though, stems from what its executives call a refined “smart growth” formula.

Take, for instance, its plans for the rest of 2018 and into next year. The company will slow down the number of store openings and close underperforming locations. The goal, according to Jackson, is to wait for more favorable rents from landlords and for newer construction projects to hit the market.

For much of its 40-year history, the family footwear chain has funded its own expansion — from stores to distribution centers — thanks to its positive cash flow. In the last decade, in particular, it has repurchased more than $100 million worth of shares, paid $48 million in dividends and rarely tapped into its line of credit.

Jackson said the company’s goal — and promise to shareholders — is to have at least $50 million on its balance sheet at the end of every year. It also aims to have access to a $50 million line of credit. With that kind of financial foundation, he said, “we think we can get through virtually any hiccup in the economy.”

Indeed, the company has navigated several economic storms. But its recent success is even more impressive when considering the fate of its retail peers. In the last three years, once-dominant rivals like Nine West, Payless ShoeSource, Aerosoles and The Walking Co., among others, all filed for retail bankruptcy due to declining store traffic, mounting debt and changes in the way consumers shop.

“We don’t believe our growth should ever outstrip our ability to fund it. We don’t think retailers are a good business in which to be highly leveraged,” said Jackson. “There have been good retailers that have gone away. It’s because they had too much debt and then they run into an air pocket in the economy and they can’t get through it.”

Analysts believe Shoe Carnival is on the right path.

According to Christopher Svezia of Wedbush Securities, the retailer’s second-quarter 2018 earnings “far exceeded Street expectations” and that the company’s full-year outlook was “likely conservative.”

Shoe Carnival raised its fiscal 2018 outlook after reporting net sales of $525.8 million in the first half of the year, a boost of $37.4 million from the same period a year earlier. The organization’s comparable-store sales for the 26-week span also rose 4 percent.

Svezia wrote: “The retailer’s outperformance is carrying over into the [second half of the year], and its clean inventories, conservative boot planning, improved product and brand availability, rewards, CRM, digital and real estate initiatives should bode well for the outlook.”

Going forward, the retail giant, which went public on the Nasdaq exchange in 1993, plans to better serve customers who are accustomed to buying shoes online.

Jackson said the chain historically hadn’t put much effort behind its e-commerce initiatives. That’s changed in the last few years, though, as the retailer invested significant funds to make it easier for customers to purchase shoes online or via mobile app. Now digital sales are the fastest-growing part of Shoe Carnival’s business.

To further boost sales, the company also poured money into revamping its customer loyalty program. In July, the retailer updated the Shoe Perks service to offer customers enhanced features and new incentives.

The company, too, has benefitted from a more cohesive rewards program — almost 70 percent of its sales in the second quarter came from loyalty members.

“We let our results speak for themselves,” Jackson said. “We think we have a pretty good story.”

(Editor’s Note: This story originally appeared in the Sept. 24 print issue of FN, which observed the 40th anniversary of Shoe Carnival.)

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