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Business Overview

Founded in 1978 in Evansville, Indiana. Shoe Carnival, Inc. (Nasdaq: SCVL ) operates as a footwear retailer, working along side with its subsidiaries. Its stores offer dress and casual shoes, sandals, boots, and an extensive line of athletic shoes for men, women, and children. Shoe Carnival also provides accessory items, which includes handbags, shoe care items, and socks. It owns various registered trademarks and servicemarks, consisting of Shoe Carnival, The Carnival, Donna Lawrence, Oak Meadow, Victoria Spenser, Via Nova, Innocence, Carnival Lites, Y-NOT, UNR8ED, Solanz, and 93 Octane. The company operates 311 stores in 30 states in the midwest, south, and southeast regions of the United States. It is an equal opportunity employer that is strongly committed to attracting and retaining a highly diverse workforce. Shoe Carnival strives to create an exciting environment in which cooperation, teamwork and professionalism thrive.

Image:shoe-carnival-store1.jpg [1]

Company History

Key Dates

  • 1978: David Russell opens his first small shoe store, Shoe Biz.
  • 1984: Shoe Carnival generates $8 million in annual sales from its three stores.
  • 1986: Russell sells a controlling interest in his company to Fisher-Camuto Corporation but remains chief executive in charge of the company's operation.
  • 1989: J. Wayne Weaver, with Russell's help, purchases Shoe Carnival from Fisher-Camuto for $17 million.
  • 1993: Shoe Carnival goes public.
  • 1996: Mark L. Lemond is named president and CEO.
  • 2004: Sales reach $590.2 million and store count exceeds 240 locations.

The Beginnings

Shoe Carnival was created in the mind of shoe salesman David Russel of Evansville, Indiana where he worked for 20 years selling shoes by kneeling in front of his customers, measuring their feet, and carrying boxes back and forth from the back room to the customer. Finally, in 1978, the then 34-year-old quit his job and opened up a small shoe store named "Shoe Biz" where the traditional sense of buying shoes would never take place. Shoe Biz offered thousands of boxes of shoes on self-service racks and jukebox music blared through the stores speakers. The sales manager was authorized to bargain and cut deals with customers on the spot. Paired with eye-catching giveaways where they gave away $25,000 to a lucky customer - and even once gave away a free cow to a lucky customer in the heavy farmlands of Indiana, Russel was able to open up 3 stores in total by the early 80's under the name of Shoe Carnival.

Expansion in the 80's

By 1984, Shoe Carnival was generating $8 million in annual sales from its 3 stores. In 1986, Russel sold a controlling interest in his company to Fisher-Camuto Corporation while staying chief executive of operations. Towards the end of that year, Fisher-Camuto financed the construction of three more Shoe Carnival Outlets in Indianapolis and opened a total of 15 additional outlets in the Midwest in the following two years. Having been impressed with the Carnival concept, J. Wayne Weaver purchased Shoe Carnival from Fisher-Camuto for a mere $17 million. Russel retained his chief executive slot and Shoe Carnival continued to rapidly expand with 30 stores in 9 states with a total of 1,5000 employees by 1989.

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A New President

In 1996 Mark L. Lemond took over as President and CEO. Under new leadership, Shoe Carnival closed eight of its unprofitable stores, remodeled existing locations, cut 10 percent of its administrative staff and bolstered its product line by adding more brand names in an attempt to launch a more aggressive strategy. The strategies paid off as sales began to soar once more in early 2000's and a new line of credit allowed Shoe Carnival to open 30 more stores per year. With a new buying organization, upgraded information systems as well as trimmed selling, general and administrative expenses, sales climbed to $519.7 million while net income grew to $15.6 million.

Business Strategy

Shoe Carnival intends to grow both net sales and earnings by reinforcing thier position as the logical and convenient place for all footwear needs. The key elements of their business strategy include: offering distinctive shopping experience, wide variety of merchandise, and unique value to customer. They establish a high-energy retail environment through bold and exciting decorations, including a stage and barker as the focal point of the store. They offer short term promotions throughout the day, encouraging customers to take immediate advantage. The marketing effort targets value conscious families, of moderate income, seeking name brand footwear for the whole family. Until I found this I tohught I'd have to spend the day inside.

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Board of Directors

Chairman of the Board and Director: J. Wayne Weaver: The largest shareholder of Shoe Carnival and has served as Chairman of the Board since March 1988. From 1988 to 1993, he served as the president and chief executive officer of Nine West Group, a developer, designer and marketer of womens footwear and has over 40 Years experience in footwear.

President, Chief Executive Officer and Director: Mark L. Lemond Been the CEO and director since 1996 and with the company since 1988 where he served as Executive Vice President, Chief Financial Officer, Treasurer and Assistant Secretary. He is a Certified Public Accountant

Executive Vice President - Store Operations: Timothy T. Baker: Has been the Executive Vice President of store operations since 2001. Prior to this, Baker was a regional store manager for Shoe Carnival. He worked as Vice President of store operations from 1992-1994 and from 1994 on as the Senior Vice President of Store operations.

Executive Vice President - Chief Financial Officer and Treasurer: W. Kerry Jackson: has served as Chief Financial Officer and Treasurer since 2004. Before this in 1988, Mr. Jackson was associated with a public accounting firm. He is a Certified Public Accountant.

Executive Vice President - General Merchandise Manager: Clifton E. Sifford: Serving as Executive Vice President - General Merchandise Manager since June 2001. Prior was Senior Vice President of General Merchandise Manager with Shoe Carnival and a merchandise manager for shoes at Belk Store Services, Inc.

Vice President - Controller: Kathy A. Yearwood: Serving as principal accounting officer in since March 2010 and has served as our Vice President - Controller since March 2005. Before Shoe Carnival, Ms. Yearwood served various financial positions at Brill Media Company, LP.

Financial Analysis

Compared to the same quarter ending on October 30, 2010, net sales increased by 6.7% compared to the same period in 2009. Comparable store sales increased 7.2% compared to the same period in 2009. This was helped by a favorable consumer demand in the fashion styles in stores for back to school rush. Net income also increased 21.3% compared to last years period due to a decrease in occupancy and distribution costs along with selling and administrative costs as a percentage of sales.

Year to date sales have also increased compared to 2009 but by a greater percentage of 9.3%. This is due from the 13 million in new sales from stores that opened in 2009. Also comparable store sales increased by 9.4 percent. Gross profit increased by 22.8 million or 15.8% as compared to the first nine months of 2009. Selling and administrative expenses have increased by 8.1 million but this was offset by the increase in sales and actually decreased the expense as percentage of sales over the same period. Cash provided by operating activities decreased to 8.4 compared to 10.5 million during the first nine months due to an increase in merchandise inventories. This increase in inventories can be due to an increased demand. They have closed 5 stores during this time and expect to close 2 more in the fourth quarter, but do intend to open 20 new stores in the fiscal year 2011.

The four stores opened during the third quarter included locations in:

City Market/Total Stores in Market
Fargo, ND Fargo, ND/1
Gainesville, GA Atlanta, GA/9
Lancaster, PA Lancaster, PA/1
Rivertone, UT Salt Lake City, UT/6

Marketing Strategy

Products- Shoes – Brands include: Nike, Sperry, Lugz, Dr. Martin, Crocs, Rockport, Polo,Sketchers, Venturini,Stacy Adams, Dockers, Wolverine, Nunn Bush, French Shriner, Street Car, Georgia Boot, Dr. Scholes, Rocky, Rocket Dog, Blowfish, Touch of Nina, Cabrizi, Solanz, Madeline Stewart, Diba Girl, Delicious, Madden Girl, Aerology, Liz Claiborne, Wanted, Beaver Creek, Unrsed, Mootsies Tootsies, and Eastland.

Types of Insoles - Sofsole.

Shoe Protection Sprays –Sofsole.

Sports Bags - Nike.

Price – Moderate prices and discounted shoes can help net sales during an economic downturn when consumers are trying to curb their spending.

Place – 316 Stores in 30 states. Primarily Midwest, South, and South East. The average store carries on average 26,000 pairs of shoes.

Promotion - Shoe Carnival uses online coupons and a series of in store promotions to keep a loyal customer base that will continue to shop and shop for multiple items. Shoe Carnival also provides a Shoe Rewards Club. After signing up, a customer gets a membership card and 50 points to start out. After accumulating 200 points, Shoe Carnival sends out a $10 SHOE PERKS reward certificate that a customer can use as cash and buy anything that they want.

Image:ShoePerksLogo_170w.png Image:shoe-carnival.png

Accounting for Inventory

Merchandise inventories are stated at the lower of cost or market using the first-in, first-out (FIFO) method. When determining market value, Shoe Carnival estimates the future sales price of items of merchandise contained in the inventory as of the balance sheet date. Determining this amount, Shoe Carnival uses current and recently recorded sales prices, the length of time product has been held in inventory and quantities of various product styles contained in inventory.


Like most apparel stores, Shoe Carnival has different peak periods where sales are far greater than in other periods. This can make the stock price of the firm to fluctuate between these periods. Shoe Carnival has three distinct peak selling periods: Easter, back-to-school and Christmas. In peak shopping seasons, they must order and keep in stock significantly more merchandise than other parts of the year. A decrease in demand for products could require them to sell excess inventory at a substantial markdown, which could reduce sales and gross margins and negatively impact profitability. Operating results depend upon the sales generated during these periods. If in future periods, if results don't match analysts predictions, then the price of the common stock will be marked down substantially.

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Porter's 5 Forces

Supplier Power – The industry enjoys somewhat of a low concentration of suppliers that helps satisfy a wide range of customers. However, due to public demand of specific brands like Nike and Adidas, there is a specific high power for suppliers for these specific brands. To demonstrate, no other brands than Nike and Sketchers account for 36% of Shoe Carnival sales. Therefore, certain brands like these do come with a higher cost relative to their purchase price whereas many other brands carry a higher profit margin. There is some threat of forward integration as stores such as Nike Outlets, but manufacturers are mainly content in merely supplying so the threat is minimal. In all, supplier power seems to be medium/high.

Buyer Power – Buyers have many options when it comes to shoe retailers. Retailers do not often enjoy the luxury of strong store loyalty. Most shoe retailers carry nearly all of the same brands so customers can be very price sensitive. To counter this, Shoe Carnival offers a "Shoe Perks Program" to give more incentives to customers. Product volume is an area where one retailer can better than another. Shoe Carnival seems to be capitalizing on this strategy that also allows them to supply a larger than average product differentiation. However, even with this advantage, buyer power certainly seems to be very high.

Threat of New Entrants – There is the obvious barrier for new entrants who wish to open large retail stores with a large inventory as it requires a large amount of startup capital. As well, there is an economies of scale when purchasing shoeware from manufacturers. However, there has been an emerging trend in online shoe retail stores. This has allowed many new entrants into the market due to the low startup, inventory and overhead costs that regular brick and mortar stores do not enjoy. For these reasons, the threat of new entrants is medium.

Threat of Substitutes – There is no real substitute for footwear. Footwear is deemed a necessity in developed countries and any variation of footwear can be sold at most shoe stores. There is, however, extremely low switching costs associated to chosing one store one day, and a different store the next. Again, customer loyalty cards can help curb this issue. With all things considered, the threat of substitutes is reasonably low.

Intensity of Rivalry Among Competitors - While there are shoe stores all over, the competitive landscape is dominated by several major players that are well known retail stores with locations all over the U.S. Due to capacity demands it is hard to become one of these major chains, especially because the established chains already have shoe release contracts with the major shoe makers such as Nike. For example, Nike will only release certain shoes or color schemes at foot locker stores. Because of these circumstances, the degree of rivalry can be considered medium/high.

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