Shoe Carnival Posts 2.7% Margin Gain

Key Points

• GAAP earnings per share exceeded expectations in Q2 FY2025, Earnings per share outperformed, driven by a strong gross margin.

• GAAP revenue declined year over year in Q2 FY2025 as the core banner struggled, but rebannered Shoe Station locations delivered stronger growth and margins through year-to-date August FY2025.

• Management raised the lower end of full-year GAAP earnings and gross profit margin guidance for FY2025, signaling confidence in the rebound of key segments.

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Shoe Carnival (NASDAQ:SCVL), a leading family footwear retailer known for its value-driven and brand-name shoe offerings, reported Q2 FY2025 results on September 4, 2025. The company delivered GAAP earnings per share of $0.70 in Q2 FY2025, topping Wall Street's expectations by more than 20% (GAAP) and coming in ahead of previous company guidance. Revenue, however, declined to $306.4 million from $332.7 million in the same quarter last year, falling below the expected GAAP net sales range of $310–$320 million. Gross margin (GAAP) improved substantially versus the prior period. Management highlighted gains in recently converted stores while acknowledging ongoing challenges in other areas of the business.

Source: Analyst estimates provided by FactSet. Management expectations based on management's guidance, as provided in Q1 2025 earnings report.

Company Profile and Business Focus

Shoe Carnival operates a network of shops across the United States under several banners, offering family footwear at a range of prices and styles. Its portfolio includes the core Shoe Carnival banner, Shoe Station, and Rogan’s.

Recently, the company’s focus has shifted to revamping underperforming locations with its rebanner strategy, converting stores from the Shoe Carnival name to the Shoe Station concept. Shoe Station targets more affluent customers and carries a broader selection of premium name-brand footwear, particularly athletic and children’s shoes. The ability to execute this conversion program, grow digital sales, and maintain strong relationships with major footwear brands are central to Shoe Carnival’s ongoing strategy.

Quarterly Highlights: What Drove Results This Period?

Gross margin (GAAP) expanded by 2.7 percentage points year over year in Q2 FY2025, marking the company’s strongest result for this quarter in years. This margin expansion is attributed to full-price selling, a more favorable mix centered on higher-income Shoe Station shoppers, and disciplined inventory strategies. Management noted that, despite declines in revenue and net income, the company’s gross margin (GAAP) exceeded both the high end of guidance and analysts’ expectations. The top-line miss was offset by stronger profitability, as ongoing cost control further supported earnings.

Total comparable store sales declined 7.5% in Q2 FY2025, performance varied sharply by banner. Shoe Carnival stores experienced a 10.1% year-over-year decline in net sales in Q2 FY2025, largely due to continued pressure on value-focused, lower-income shoppers. In contrast, Shoe Station grew net sales by 1.6% in Q2 FY2025 and posted break-even comparable sales. Shoe Station’s growth was driven by high-single-digit comparable sales growth in children’s shoes during fiscal August in Q3 FY2025 and over 20% growth in adult athletic footwear during the key back-to-school season. Rogan’s, the company’s other smaller banner, recorded over $20 million in net sales in Q2 FY2025, with notable comparable sales growth in August FY2025.

The rebanner initiative accelerated in Q2 FY2025, with 20 stores converted to Shoe Station during the quarter and 44 year to date. Shoe Carnival expects to complete an additional 58 conversions in the second half of FY2025, with a goal for Shoe Station to comprise 34% of its store fleet by year-end FY2025. Management reported that rebannered locations generated higher sales and margins in Q1 FY2025, and expects these investments to pay off in two to three years. However, the initiative has weighed on current earnings, with a $0.21 per share negative impact in Q2 FY2025 and $0.36 year to date. The company’s outlook hinges on whether these transformations can keep reshaping its margins and customer mix outside of peak shopping seasons.

The company did not break out e-commerce results in detail but has previously set a goal for online sales to reach 10–15% of enterprise-wide merchandise sales. Vendor partnerships with major brands such as Nike, Skechers, and Crocs—which collectively accounted for approximately 48% of net sales in FY2024—remain key but were not specifically detailed in the most recent release. Shoe Carnival continues to highlight the importance of effective pricing and loyalty programs, citing competitive pricing across banners as a driver of margin stabilization.

Aside from strategy, the company maintained its strong financial footing. The company ended Q2 FY2025 with $91.9 million in cash and marketable securities, and no debt on the balance sheet. Inventory rose 5% to $449.0 million as of Q2 FY2025, reflecting management’s decision to invest in supply to support critical seasons like back-to-school, with inventory levels expected to normalize during FY2026. Capital expenditures totaled $24.4 million for the first half of FY2025, in line with the rebanner conversion plan. The company approved a $0.15 per share quarterly dividend.

Outlook and What to Watch Ahead

Shoe Carnival updated its FY2025 guidance following Q2 FY2025 results and the early performance of the back-to-school season. Management now projects full-year net sales of $1.12–$1.15 billion, representing a decrease from the previous forecast of $1.15–$1.23 billion, reflecting lower revenue expectations despite stronger recent momentum in the rebannered fleet. The company expects a gross profit margin of 36.5–37.5% for FY2025, up 1.5 percentage points from previous guidance, benefiting from improved product mix and emphasis on premium banners. The expected range for earnings per share (GAAP) is now $1.70–$2.10, with the lower end raised compared to earlier in the year.

Management explained that the new outlook is more reliant on ongoing margin improvement rather than a rapid return to sales growth, explicitly citing ongoing uncertainty in store traffic outside major shopping events. Investors should continue to monitor the pace of rebanner conversions, trends in store and digital traffic beyond peak periods, and ongoing impacts on earnings from conversion-related costs. The company also indicated that inventory levels should return to normal in FY2026, and that its strong balance sheet supports continued investment in its transformation plans. The quarterly dividend was raised to $0.15 per share in Q1 FY2025.

Revenue and net income presented using U.S. generally accepted accounting principles (GAAP) unless otherwise noted.

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