Shifting Priorities and Tariff Woes: Earnings Call Contradictions on Pricing, Gross Margins, and Sales Revealed

The above is the analysis of the conflicting points in this earnings call

Date of Call: September 4, 2025

Financials Results

• Revenue: $306.4M, down 7.9% YOY (vs $332.7M prior year)
• EPS: $0.70 per diluted share, down 15% YOY (vs $0.82 prior year)
• Gross Margin: 38.8%, up 270 basis points YOY

Guidance:

• FY25 net sales expected $1.12–$1.15B; comps to improve to down low-single digits in H2.
• FY25 EPS raised to $1.70–$2.10 (low end +$0.10).
• FY25 gross margin outlook increased to 36.5%–37.5% (+150 bps).
• FY25 SG&A expected $355–$360M.
• FY25 capex $45–$55M; $30–$35M for rebanners; rebanner impact ≈$0.70 EPS (~$25M OI).
• Q3 net sales $290–$300M (down 2%–5%); comps similar.
• Q3 EPS $0.50–$0.55.
• Q3 gross margin expected 37%–37.5% (up 100–150 bps YOY).
• Q3 SG&A ≈$95M.

Business Commentary:

• Earnings and Gross Margin Expansion:
• Shoe Carnival reported an earnings beat of over 20% for the second quarter, with a gross margin expansion of 270 basis points to 38.8%.

• This growth in earnings and margin expansion was driven by disciplined pricing, improved product mix, and strategic inventory investments.

• Rebanner Strategy Success:

• The rebanner strategy exceeded targets, with Shoe Station's sales up 8% year-to-date through August, while Carnival's comps declined high singles.

• The shift towards a more affluent customer base at Shoe Station contributed to a 270 basis points increase in product margins.

• Back-to-School Performance:

• Shoe Station achieved high single-digit sales growth during the back-to-school period, with both adult and children's categories performing well.

• The strong performance was attributed to ruthless simplicity in branding and pricing strategy, which resonated with families in key markets.

• Inventory and Margin Management:

• The company's inventory levels were strategically managed to deliver improved in-stock rates and positive comparable sales growth during back-to-school.

• The carrying of extra inventory at a lower cost basis allowed for margin expansion and contributed to the Q2 earnings beat.

• Financial Position and Growth Strategy:

• Cash and securities ended the quarter at nearly $150 million, double digits higher year-over-year, with zero debt.
• This strong financial position is being leveraged to invest in the rebanner strategy, with an expected 2- to 3-year ROI payback period.

Sentiment Analysis:

• “Gross margins reached 38.8%, up 270 bps YOY, our strongest Q2 margin in years.” “We returned to positive comparable sales growth for [August] back-to-school.” “We raised our annual EPS guidance… Net sales guidance is now $1.12B–$1.15B… EPS $1.70–$2.10.” “Following our strong August performance, cash and securities exceeded $148 million… and we continue to operate debt-free.”

Q&A:

• Question from Mitchel Kummetz (Seaport Research Partners): Sales were a bit below plan but gross margins beat—did you change priorities or was something unexpected?
  Response: Margin beat came from opportunistic low-cost inventory and growing Shoe Station mix while maintaining pricing discipline amid competitor discounting.

• Question from Mitchel Kummetz (Seaport Research Partners): Can you add detail on Q3 comps, gross margin, and SG&A?
  Response: Q3 sales down 2%–5% (comps similar); gross margin 37%–37.5%; SG&A about $95M.

• Question from Mitchel Kummetz (Seaport Research Partners): How does the rest of Q3 need to perform to land down 2%–5%?
  Response: Low end assumes high-single-digit declines; high end near flat; midpoint ~-3%, an improvement vs 1H.

• Question from Mitchel Kummetz (Seaport Research Partners): What do you mean by managing Shoe Carnival as a cash generator?
  Response: They won’t discount to chase low-income traffic; will protect margins and use Carnival cash to fund the Shoe Station transition.

• Question from Mitchel Kummetz (Seaport Research Partners): With Shoe Station at 51% next year, how does rebannering impact next year’s earnings?
  Response: Expect H2 FY26 to turn slightly positive comps as mix shifts; rebanner drag concentrated in H1; more details later.

• Question from Samuel Poser (Williams Trading, LLC, Research Division): How can gross margins remain high with $449M+ inventory?
  Response: Inventory is intentionally elevated in opportunistic buys and key items that support margins; no FY margin erosion expected; normalization targeted in 2026.

• Question from Samuel Poser (Williams Trading, LLC, Research Division): What is the actual August-end inventory number?
  Response: They won’t provide an interim number; inventory is above ideal but in good-margin product with no expected FY margin pressure.

• Question from Samuel Poser (Williams Trading, LLC, Research Division): Are premium brands driving results vs low-end/private label? Any Jordan in Spring ’26?
  Response: Not disclosing specific launches; premium brands are driving sales and margins; private label de-emphasized.

• Question from Samuel Poser (Williams Trading, LLC, Research Division): What are you seeing on brand price increases given tariffs?
  Response: Expect 5%–7% price increases into spring due to added Vietnam tariffs; China at 30% on a 90-day pause.