Shoe Carnival, Inc. Q1 FY2026 earnings call

### Strategic Review Outcomes - The Shoe Carnival and Shoe Station banners serve distinct consumer segments and will remain permanent independent brands; management is abandoning the prior single-banner strategy. - Only a limited number of additional locations meet the criteria for rebanner conversion, so almost no store rebanners are expected over the next 2 years, a major change from prior expectations. - 12 to 14 underperforming stores will be closed in fiscal 26, with a further 6 to 10 closures planned for fiscal 27. Strategic review charges of approximately $8 million related to these actions were recorded in Q1.

### Shoe Carnival Banner Corrective Actions - Rebalanced marketing investment and restored a deliberate in-store promotional cadence, narrowing the YoY net sales decline to 2.2% from worse declines in fiscal 25. - Management will restore the product mix to deliver the competitive opening price points that value-focused family and fast fashion customers expect, after merchandising drifted toward higher price points that underserved core customer segments in fiscal 25. - Product mix corrections will be visible in results starting with back-to-school season for athletic categories, and fall 26 for nonathletic categories. Reengaging core customers will take multiple quarters, with back-to-school 26 expected to be the first clear demonstration of the brand's restored value proposition.

### Shoe Station Banner Corrective Actions - A uniform premium assortment applied to all recently converted Shoe Station locations performed well only in markets with aligned demographics. The company will not reverse conversions, and will instead tailor assortments at each converted location to match the local trade area demand profile: more accessible pricing in markets with a legacy Shoe Carnival customer base, and deeper premium branding in aligned markets. - Localized assortment adjustment is the top operational priority for the merchandising team, with completion targeted ahead of the back-to-school selling period.

### New Store Growth Plan - Selective new store growth will begin in fiscal 27, with 3 to 5 new stores planned for fiscal 27, expanding to 8 to 10 new stores in fiscal 28. New stores will primarily be Shoe Station locations in suburban trade areas within the existing 35-state footprint where demographics support the premium concept.

### Financial Position - The company ended Q1 with $129.3 million in cash equivalents and marketable securities, up $36.4 million YoY, and operates with no debt, providing full financial flexibility to fund planned actions from operating cash flows and existing reserves. - GAAP diluted loss per share was $0.21, reflecting $13.6 million in pretax one-time charges for CEO transition and strategic review costs. Non-GAAP adjusted diluted earnings per share was $0.23, in line with consensus analyst expectations. - Gross profit margin was 33.3%, in line with consensus, a 120 basis point decline YoY driven by higher promotional activity and e-commerce shipping costs, partially offset by lower buying, distribution, and occupancy costs. - Inventories declined $11 million YoY to $417.2 million, on track to hit the full-year target of a $50 million to $65 million inventory reduction by the end of fiscal 26.

Total company net sales for Q1 fiscal 26 were $270.7 million, with a 2.1% comparable store sales decline year-over-year. - Shoe Carnival banner: Net sales of $177.3 million, representing 65% of total net sales. Net sales declined 2.2% YoY, with a 1.7% comparable store sales decline, a meaningful improvement from the mid-to-high single digit comparable sales declines seen throughout fiscal 25. - Shoe Station banner: Net sales of $93.4 million, representing 35% of total net sales. Net sales declined 3.1% YoY, with a 2.9% comparable store sales decline. The decline reflects marketing rebalancing toward Shoe Carnival and underperformance of a uniform assortment in converted locations with misaligned trade area demographics.

• Management reaffirmed the full fiscal 26 guidance issued in March, which projects net sales in the range of $1.125 billion to $1.147 billion, equal to a change of -1% to +1% compared to fiscal 25. • Adjusted diluted earnings per share guidance is maintained at $1.40 to $1.60, and gross margin is projected at approximately 34%, representing 260 basis points of compression compared to fiscal 25, with the majority of compression weighted to the first half of the year, consistent with prior communication. • The guidance maintains a forecast for 12 to 14 million reduction in adjusted SG&A compared to fiscal 25, and an effective adjusted income tax rate of approximately 26%. • Management expects gross margins will rebound to normalized levels in the mid-35% range in fiscal 27 after inventory cleanup and pricing repositioning are completed in fiscal 26.

• The consumer macro environment remains challenging, with moderate and lower income households (the core customer base for the Shoe Carnival banner) facing continued pressure from higher food, fuel, and essential costs, exacerbated by recent geopolitical developments. • Soft consumer demand was broad-based across all four major footwear categories (adult athletic, men's nonathletic, women's nonathletic, children's) in Q1, and soft demand trends continued into May of Q2. • Prior product positioning misalignment at both banners, where assortments did not match core local customer demand, created performance headwinds that will take multiple quarters to fully correct. • Gross margin compression is expected to be significant in Q2 fiscal 26 as the company liquidates unwanted inventory and restores competitive pricing, reversing unsustainable margin gains from 2025. • Uncertainty around the duration of macro consumer pressure creates variability in near-term sales and margin outcomes.

Q: What is the current split of Shoe Carnival vs Shoe Station stores, what types of stores are planned for closure in fiscal 26, how many rebanners are left to complete this year, and how do the two brands' target customer segments differ? / A: The current store count is 281 Shoe Carnival and 145 Shoe Station. Most of the 12 to 14 fiscal 26 closures are Shoe Carnival stores, with only 1 Shoe Station closure planned. All rebanners scheduled for fiscal 26 are now complete. Shoe Carnival targets younger, value-focused, often diverse working families starting out, while Shoe Station targets older, more affluent customers seeking premium branded products. The two brands allow the company to retain customers as their income grows, and expand into underserved suburban sections of existing markets.

Q: What is the timeline for rolling out localized assortments across both banners, and what changes are being made? / A: Localization changes for back-to-school season are complete, with additional changes rolling out through the back half of fiscal 26. 60-65% of the national brand assortment is shared across banners, but the penetration of value vs premium offerings is adjusted: Shoe Carnival leans heavily into lower-priced, fast-fashion merchandise and has restored urban brand assortments that were previously cut back, while Shoe Station focuses on premium branded products for mature customers, priced competitively. All changes will be fully implemented by the fall 26 selling season.

Q: What is the outlook for comparable sales and gross margin in Q2, and why did management reaffirm full-year guidance amid continued macro weakness? / A: The Q1 sales trend started positive but softened through the quarter, and weak demand continued into May. Management expects first-half results to be negative, with second-half results improving as corrective actions take effect, which is the core assumption built into the full-year guidance. Gross margin will see a large year-over-year decline in Q2, driven by the reversal of 2025's unsustainable pricing-driven margin gains and promotional inventory liquidation, in line with prior guidance that the majority of full-year margin compression would fall in the first half.

Q: Is Shoe Station able to expand broadly across Shoe Carnival's existing 35-state footprint, or are there geographic limitations? / A: There is no inherent geographic limitation to Shoe Station's expansion across the existing footprint. The only constraint is finding locations in suburban trade areas with the higher-income demographic that aligns with the Shoe Station concept. Shoe Carnival allows the company to serve dense urban markets, while Shoe Station enables expansion into underserved higher-income areas of the same existing markets, creating a full-market coverage opportunity that did not exist with a single brand.