While its lower income consumers are taking a hit due to inflation, Shoe Carnival is optimistic that it can continue to grow its presence among higher earning households.
In the second quarter, the footwear retailer saw softness among its consumers with household income under $30,000, due to their outsized impact from inflation. However, Shoe Carnival also welcomed an influx of higher income, more profitable customers concentrated in the Shoe Station banner and online channels. Whereas more than 50 percent of Shoe Carnival customers were previously from households with income under $50,000, more than half of its consumers are currently in households with income above that. This includes a “significant percentage increase” in households with an income of more than $75,000, said Mark Worden, president and CEO of Shoe Carnival, in a call with analysts on Tuesday.
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“As part of our long-term strategy, we continue to invest to build our brand and acquire these higher income, more affluent customers to expand our customer base,” Worden said.
The executive added that the retailer’s resonance with consumers from households making over $75,000 in income this quarter is partly due to these higher income shoppers trading down from specialty retail and department stores.
“We’re capturing, as part of our strategy, the former department store shopper through the brand assortments and the depth of product that Carl [Scibetta, chief merchandising officer] and his organization are bringing in,” Worden said, explaining how he is confident that Shoe Carnival will retain these consumers due to their broad assortment that includes department store and family footwear store styles.
When it comes to the lower income consumers, Worden said the “broader inflationary environment” makes these consumers less willing to spend.
“Until the households under $30,000 have better economic conditions, we’re going to see a headwind in our urban markets, offset by the things that are working in the non-urban markets,” Worden said.
He noted that while consumers from household incomes under $50,000 and $30,000 are still engaging with the retailer, they are not converting at the same levels as last year and 2021.
However, he said that the back to school period, which has already been a strong holiday for Shoe Carnival this year, is one opportunity for the brand to re-engage these consumers.
In its earnings release, Shoe Carnival also provided an inter-quarter update and said that market conditions improved more dramatically in the start of the third quarter, with August sales and profits hitting among the highest rates of any month in the company’s 45-year history. The bump was driven by the back-to-school season, which typically accounts for half of Shoe Carnival’s Q3 gross profit.
Overall, Shoe Carnival lowered its guidance for the full year and now expects net sales for the full year between $1.19 billion to $1.21 billion, with earnings per share between $3.10 to $3.25. This is down from previous guidance, which indicated an expected net sales range of $1.23 billion to $1.25 billion and earnings per share between $3.60 to $3.85 for the year.
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