Shoe Station Group said its second-quarter results fell below expectations as store traffic declined, inventory liquidation pressured margins and competition across the footwear market intensified. The company, which operates Shoe Station alongside Shoe Carnival (NASDAQ:SHOE) under a two-banner model, said it is focusing on localized assortments, fall boot offerings and advertising to improve sales trends in the second half.
Interim President and Chief Executive Officer Cliff Sifford said the company’s assortments at Shoe Carnival and re-bannered Shoe Station locations had not been sufficiently aligned with the customers shopping those stores. The issues involved brands, product selections and size availability, he said.
Net sales for the second quarter were $284.3 million, down 7.2% from $306.4 million a year earlier. Comparable-store sales declined 7.1%, following a 7.5% decline in the prior-year quarter.
- Shoe Carnival sales declined 6.5% to $178.5 million, while comparable sales fell 6.3%.
- Shoe Station sales declined 8.4% to $105.7 million, while comparable sales fell 8.5%.
- Comparable e-commerce sales increased 18.8%, while store comparable sales declined 9.5%.
Margins Decline as Promotions and Liquidation Weigh
Gross profit margin fell 690 basis points year over year to 31.9%. Chief Financial Officer Kerry Jackson said merchandise margins declined 630 basis points, while buying, distribution and occupancy costs deleveraged by 60 basis points because of lower sales.
Jackson attributed the merchandise margin decline to three factors: the absence of a prior-year benefit from tariff-related retail price increases, competitive pricing in a more promotional market, and accelerated clearance of aged and excess inventory.
The company deliberately accelerated inventory liquidation during the quarter, accepting lower merchandise margins in exchange for improved inventory quality and additional funds for fall receipts. Inventory ended the quarter at $426.6 million, down $22.4 million, or 5%, from a year earlier. Inventory per store declined 3.6%.
Shoe Station Group said it remains on track to reduce inventory by about $50 million by fiscal year-end, although Jackson said the company now expects the reduction to land at the low end of the range previously discussed because sales have been weaker than originally anticipated.
Second-quarter selling, general and administrative expense declined $10.6 million to $83 million, largely due to lower selling costs, including advertising and rebanner-related expenses, as well as lower incentive and equity compensation. The company recorded $396,000 in store impairment charges during the quarter on four stores, bringing year-to-date impairment charges to $6.7 million across 11 stores.
Net income totaled $6.3 million, or $0.23 per diluted share, compared with $19.2 million, or $0.70 per diluted share, a year earlier.
Localized Product Strategy Shows Early Improvement
Sifford said store conversion improved across both banners to levels the company had not experienced in years, indicating that customers who entered stores were making purchases. The larger issue, he said, was traffic and consumer awareness rather than pricing.
The company plans to increase advertising focused on communicating product assortment and value to both legacy Shoe Carnival shoppers and Shoe Station customers. It completed the rebannering of 20 stores in the second quarter, bringing the fiscal-year total to 21, and does not expect further re-bannering during fiscal 2026.
Management said August results provided early evidence that localized assortments were helping. Comparable-store sales declined 2.7% during fiscal August, which ended Aug. 29, an improvement from the 7.1% second-quarter decline. Net sales declined 3.3% in August, while e-commerce continued to post double-digit growth.
Chief Merchandising Officer Tanya Gordon said adult athletic performance improved substantially in August as more localized athletic inventory arrived ahead of the back-to-school season. Adult athletic sales moved from a low-single-digit decline in the second quarter to a low-single-digit increase in August, she said.
Non-athletic categories also improved, though Gordon said the company sees a larger opportunity there as localized product arrives. She said children’s non-athletic sales rose by the mid-single digits in August, while children’s athletic sales declined by the mid-single digits.
Sifford and Gordon highlighted the company’s fall boot assortment as a key component of its recovery plans. They said the assortment has a more localized mix of fashion and basic products, along with a better balance of tall boots and lower-profile styles. Sifford said the company expects boot average selling prices to increase as newer and more differentiated product reaches stores.
Guidance Lowered for Fiscal 2026
Management lowered its fiscal 2026 outlook to reflect second-quarter results and ongoing promotional pressure. The company expects second-half comparable-store sales to range from a decline of 1% to an increase of 1%, including August.
- Full-year net sales are expected to be $1.1 billion to $1.111 billion, down about 2% to 3% from fiscal 2025.
- GAAP earnings per share are projected at $0.32 to $0.47.
- Adjusted earnings per share are projected at $0.75 to $0.90.
- Gross profit margin is expected to be approximately 32.5% to 32.7%, representing 390 to 410 basis points of compression from fiscal 2025.
- GAAP SG&A is expected to be roughly flat from fiscal 2025, while adjusted SG&A is expected to decline by about $14 million, including incremental advertising investment.
Jackson said the guidance does not assume that promotional conditions or margins improve in the second half. Instead, it assumes continued sales improvement supported by localized fall assortments, advertising, boot sales and easier comparisons later in the year.
The company ended the quarter with $131.6 million in cash equivalents and marketable securities, up $39.7 million from a year earlier, and no debt outstanding. It had $99 million available under its $100 million credit facility. Shoe Station Group also said it paid its 57th consecutive quarterly dividend during the quarter.
About Shoe Carnival (NASDAQ:SHOE)
Shoe Carnival, Inc (NASDAQ: SCVL) is a U.S.-based specialty retailer offering a broad assortment of footwear, apparel and accessories for the entire family. Through its network of brick-and-mortar stores and e-commerce platform, the company provides casual, athletic and dress shoes for men, women and children, as well as complementary apparel, handbags, socks and other accessories designed to deliver value and variety. Its distinctive in-store carnival host service model aims to create an engaging shopping experience and foster customer loyalty.
Founded in 1978 and headquartered in Evansville, Indiana, Shoe Carnival has expanded over four decades to operate more than 350 retail locations across over 30 states.
