Shoe Carnival, Inc. (SCVL) Earnings

Management highlights

### Completed Strategic Review Outcomes - The Shoe Carnival and Shoe Station banners serve distinct consumer segments, and will remain permanent independent components of the company's portfolio; a single combined banner strategy is no longer being pursued. - Only a limited number of additional Shoe Carnival locations meet the criteria for conversion to Shoe Station, so very few rebanners are expected over the next 2 years, a sharp downward shift from prior plans. All planned 2026 fiscal year rebanners have already been completed. - The company will close 12 to 14 underperforming stores in fiscal 2026, with a further 6 to 10 closures planned for fiscal 2027. These closures and related review activities drove $8 million in strategic review charges recorded in Q1 2026. ### Corrective Actions by Banner - **Shoe Carnival**: The brand drifted toward higher price points that underserved its core value-focused, younger fast-fashion family customer base. Management has rebalanced marketing investment and restored traditional in-store promotional cadence, narrowing the year-over-year sales decline to 2.2%. Plans are in place to restore the traditional product mix with competitive opening price points, with changes expected to be reflected in results starting with back-to-school season for athletic categories and fall 2026 for nonathletic categories. - **Shoe Station**: After conversions, a uniform premium assortment was applied to all new Shoe Station locations, which did not resonate in markets with a legacy Shoe Carnival customer base. The merchandising team will tailor assortments for each converted store to match local trade area demand by the back-to-school season, with no plans to reverse prior conversions. Shoe Station remains the company's premium concept. ### Long-Term Growth Plan - Selective new store growth will begin in fiscal 2027, with 3 to 5 new stores planned for 2027, expanding to 8 to 10 new stores in 2028. Almost all new stores will be Shoe Station locations, focused on suburban trade areas within the existing 35-state footprint that align with the banner's higher-income, more mature customer profile. ### Financial Position - The company ended Q1 2026 with $129.3 million in cash, cash equivalents and marketable securities, a 39% increase year-over-year, and operates with no debt, giving it full financial flexibility to execute planned actions from operating cash flow. Inventory declined 11 million year-over-year, and management remains on track to reduce total inventory by $50 million to $65 million by the end of fiscal 2026. The company returned $12 million to shareholders in Q1 via dividend increases and share repurchases, marking the 12th consecutive year of dividend increases.

Guidance

- Management reaffirmed the full fiscal 2026 guidance originally issued in March 2026, with no upward or downward revisions. The guidance range is: net sales of $1.125 billion to $1.147 billion (a change of between -1% and +1% compared to fiscal 2025); adjusted diluted earnings per share of $1.40 to $1.60; gross profit margin of approximately 34%, representing 260 to 270 basis points of compression year-over-year, with the majority of compression weighted to the first half of 2026; adjusted SG&A expense reduction of $12 million to $14 million compared to fiscal 2025; and an adjusted effective income tax rate of approximately 26%. - Management expects the first half of fiscal 2026 to be down year-over-year, with performance improving to an up second half, with the bulk of annual earnings generated from the back-to-school and fall selling seasons. - Management expects gross margins to rebound to a normalized level of approximately 35% in fiscal 2027, after the inventory correction and pricing rebalancing is completed in 2026.

Segment performance

Shoe Carnival has two permanent product/brand banners: 1. Shoe Carnival banner: Net sales of $177.3 million, representing 65% of total first quarter 2026 net sales. This represents a 2.2% year-over-year decline, with a comparable store sales decline of approximately 1.7% (a meaningful improvement from the mid- to high single-digit comparable sales decline reported in fiscal 2025). 2. Shoe Station banner: Net sales of $93.4 million, representing 35% of total first quarter 2026 net sales. This represents a 3.1% year-over-year decline, with a comparable store sales decline of approximately 2.9%. The decline was driven by a moderation in e-commerce sales growth, partially offset by improved performance at recently converted rebanner stores.

Risks & headwinds

- Persistent macroeconomic pressure on moderate-income households (the core customer base for the Shoe Carnival banner), driven by rising costs for fuel, food, and other essentials, exacerbated by recent geopolitical developments, has driven low single-digit sales declines across all four major footwear categories (adult athletic, men's nonathletic, women's nonathletic, children's). This soft demand trend has continued into May 2026, the start of Q2 2026. - Uncertainty around the timing and severity of ongoing macroeconomic consumer pressure makes near-term Q2 sales performance unpredictable, as a sustained weak environment could require more aggressive promotional activity that impacts margins and earnings. - Product positioning misalignment at both banners, including misaligned assortments at converted Shoe Station locations and drift away from the core value proposition at Shoe Carnival, has negatively impacted recent performance, and corrective changes will not be fully reflected in results until the back half of 2026.

Analyst Q&A

• Q: What is the current store count split between the two banners, what types of stores are planned for closure in 2026, and are any more rebanners planned this year? /

  A: There are currently 281 Shoe Carnival stores and 145 Shoe Station stores, for a total of 426 stores. Most of the 12 to 14 planned 2026 closures are Shoe Carnival stores, with only one Shoe Station currently scheduled for closure. All planned 2026 rebanners have been completed, with no additional conversions planned for the remainder of the fiscal year. New Shoe Station growth will come from new store openings, not conversions, in trade areas that match its customer profile.

• Q: How do the two target customer segments for Shoe Carnival and Shoe Station differ? /

  A: Shoe Carnival targets a younger, diverse customer base of value-focused families just starting their careers, with a core customer base including large urban populations and a focus on opening price points and fast fashion. Shoe Station targets a more mature, higher-income diverse customer base seeking premium branded products. The two-banner model allows the company to serve customers across all income levels, retaining Shoe Carnival customers as they increase their income and move to the Shoe Station proposition.

• Q: What should we expect for Q2 gross margin, given the full-year guidance that most margin compression is weighted to the first half? /

  A: Last year's Q2 saw a nearly 400 basis point increase in merchandise margin, driven by price hikes implemented ahead of expected cost increases, which were not sustainable and hurt competitiveness. This year, Q2 will give back that 400 basis point gain, with additional compression from planned promotional liquidation of inventory to improve inventory position. While the year-over-year decline will be large, it will not reach 500 basis points due to leverage from fixed operating costs.

• Q: Can you share Q1 monthly comparable sales trends and early Q2 2026 trends? /

  A: Q1 2026 started with low single-digit positive comparable sales in February, but slowed as the quarter went on due to the Easter timing shift and worsening macro consumer pressure. The soft demand trend has continued into May 2026, the start of Q2. Management expects softness to continue until the back-to-school season, when corrective product changes will launch, and remains comfortable with full-year guidance because the majority of annual earnings come in the second half.