Shoe Carnival’s Q1 Results Are No Joke, Shares Fall 15%

Shoe Carnival Moves Lower Despite Upside Surprises 

Shoe Carnival (NASDAQ: SCVL) had a tough quarter in Q1 and shares are moving lower because of it. The problem is that revenue, margin, and earnings all fell relative to last year but there is a mitigating factor we think readers should be aware of. The company’s comps versus last year are negative but last year was a blowout year with sales up 122% YOY and 30% versus the 2019 pre-pandemic comp. While the earnings news suggests near-term weakness is warranted, we feel the sudden drop in share prices is also an attractive buying opportunity because the company is delivering results. The comps versus 2019 are double-digit and YOY growth is expected later in the year. 

“Our strategies to double our operating profit compared to the levels before the pandemic have worked. Our first quarter results demonstrate the structural profit transformation and increased scale our plans have achieved compared to pre-pandemic results. With gross profit margins in the mid-thirties, double-digit operating profit margin and store productivity above $300 per square foot, we are incredibly optimistic about our future growth and long-term profit potential,” said Mark Worden, President and Chief Executive Officer.

Shoe Carnival Has Mixed Quarter

Shoe Carnival had a very mixed quarter, so mixed in fact investors will have to choose which metrics to focus on. In regard to revenue, the revenue of $31.53 million is down -3.3% versus last year but last year’s Q1 was a record. The revenue missed the consensus estimate, which is worse news, but that is offset by customer growth and the long-term trend in business growth. The company’s revenue is down versus last year but up more than 25% versus Q1 2019 with new customer acquisitions up 10% from last year. 

The margins are another mixed bag of results. The gross and operating margins both contracted versus last year but less than expected and they are also both up significantly versus 2019. The gross margin is up 600 basis points versus 2019 and the net income is up more than double and both are driving bottom-line results as well. The GAAP $0.95 is down more than $0.50 from last year but up 107% versus 2019 and $0.02 ahead of the Marketbeat.com consensus. 

And the outlook is just as mixed relative to the analyst's expectations. The company reiterated its guidance for 4% to 7% revenue growth this year but raised the EPS to a range of $3.95 to $4.15, both of which bracket the consensus estimate with the consensus at the very high end of the range. This sets a high bar for the company to beat but it is one we think can be overcome. 

Institutional Support For Shoe Carnival Is Present 

The institutions own more than 60% of Shoe Carnival stock and they have been buying it over the past year. The activity has calmed from the peak set in Q3 of 2021 but it is still elevated relative to historic norms and net bullish. Over the past 12 months, the institutions purchased a net 25% worth of the market cap which is a resoundingly bullish call on their part. The risk is that institutions will become sellers and add to the downward momentum. 

Turning to the chart, price action in Shoe Carnival is down more than 17% and trading at a post-COVID low. The move is driven in large part by short-selling so there is a growing chance of a short-covering-related rebound based on the earnings results and outlook.  At this level, the stock is valued at less than 7X its earnings while paying out 1.25% in yield and both indicators are showing large divergences from the price action. Price action may continue lower in the near term but we are expecting to see a bottom form and that is possible at the $24 level. If there are no signs of buying, however, the bears may take another swipe and drive this stock to new lows.