Shoe Carnival's Q3 2026: Contradictions in Re-banner Timeline, Boot Sales, and Profit Impact Revealed by CFO and CEO

Business Commentary:

* Brand Transition and Sales Performance: - Shoe Carnival's net sales declined 5.2%, with same-store sales down 2.7%, while Shoe Station's net sales grew 5.3%, with mid-single-digit comparable sales growth. - The disparity is attributed to the strategic shift towards Shoe Station's higher-income customer, leading to better performance in premium athletic categories.

• Gross Profit Margin Expansion:
• Gross profit margin expanded 160 basis points to 37.6%, driven by disciplined pricing, favorable mix shift towards Shoe Station, and strategic inventory investments.
• This improvement reflects the company's focus on higher-margin products and strategic pricing to offset promotional intensity in the broader market.

• Rebanner Initiative and Costs:
• The company converted 101 stores to the Shoe Station format in fiscal 2025 and plans to continue with 70 more in fiscal 2026.

• These conversions are part of a strategy to shift towards the more profitable Shoe Station model, which is expected to be fully dominant by fiscal 2027.

• Challenges and Future Outlook:

• Despite strong back-to-school performance, the overall quarter was marked by challenges in lower-income areas and competitive promotional intensity.
• The company anticipates flat to low single-digit sales growth in the second half of fiscal 2026, with a return to comparable sales growth expected as Shoe Station becomes the dominant banner.

Contradiction Point 1

Rebanner Investment Timeline

It involves a significant change in the timeline and expectations for re-banner investments, which could impact financial planning and investor expectations.

What is the earnings impact from re-bannering in 2024 and 2025? How will re-bannering affect earnings through 2027 and 2028? - Mitch Kmetz (Seaport Research)

2026Q3: For this year, we expect $0.68 to $0.70 of earnings drag from re-banner investments. Next year, we expect $25 million to $30 million in re-banner expenses, front-loaded in the first half as we convert approximately 70 stores. These investments are expected to recover within two to three years post-conversion. - Carrie Jackson(CFO)

Can you clarify the old Shoe Station model, how many stores were in the model, how many will be converted, and how long the conversion will take? - Brad Thomas (D.A. Davidson)

2025Q4: We expect the majority of the re-banner expenses will be concentrated in fiscal 2026 with approximately $40 million in store re-branding costs expected to be incurred in the first half and $25 million to $30 million in the second half. - Carrie Jackson(CFO)

Contradiction Point 2

Boot Business Performance

It affects the reported performance of the boot business, which is a key category for the company's sales and profitability.

How is the boot business performing early in Q4 compared to Q3's slow start? - Mitch Kmetz (Seaport Research)

2026Q3: Boots started slowly but rebounded in October as inventory arrived. We experienced nice double-digit increases across all categories, including tall shaft boots, booties, and combat boots, as well as reptile and fur boots. - Tanya Gordon(CMO)

Can you confirm the full-year guidance is approximately 3% comps? - Jim Chargett (Manassas-Crestby Hart)

2025Q4: The couple of categories that were down for us were boots, which we are focused on trying to improve as we go through this holiday season. - Tanya Gordon(CMO)

Contradiction Point 3

Impact of Re-banner Conversion on Bottom Line

This contradiction relates to the expected timing and distribution of savings resulting from the re-banner conversion, crucial for financial forecasting and investor expectations.

How much of the $20 million savings will contribute to net income vs. reinvestment? - Jim Chargett (Manassas-Crestby Hart)

2026Q3: The $20 million in savings will flow to the bottom line in 2028 as rebanner costs diminish. We may choose to invest more in brand building or other activities, but the significant savings will become evident post-2026. - Mark Worden(CEO)

Can you remind us of the old Shoe Station model, how many stores you had at the end, how many you plan to convert, and how long the conversion will take? - Brad Thomas (D.A. Davidson)

2025Q4: We expect the majority of the re-banner expenses will be concentrated in fiscal 2026 with approximately $40 million in store re-branding costs expected to be incurred in the first half and $25 million to $30 million in the second half. We believe the conversion to the new Shoe Station model will yield annualized gross margins improvements of approximately 200 basis points once fully implemented. - Carrie Jackson(CFO)

Contradiction Point 4

Inventory Strategy and Gross Margin Impact

It involves the company's inventory strategy and its impact on gross margins, which are critical for financial forecasting and investor confidence.

Can you explain the impact on margins from inventory reduction and vendor returns? - Sam Poser (Williams Trading)

2026Q3: We aim to reduce inventory by 20-25% per store by transitioning to Shoe Station's model. This will be driven by strategic buying and selling through non-GoForward product. Some margin pressure is expected as we liquidate non-GoForward Shoe Carnival inventory. - Mark Worden(CEO)

How does the company maintain its high gross margin guidance with $449 million in inventory and projected August COGS of $60–70 million? Won’t the inventory impact margins eventually? - Samuel Poser (Williams Trading, LLC, Research Division)

2025Q2: Inventory is up mid-singles year-over-year, strategically increased for back-to-school. Opportunistic buys include sandals and high-margin athletic items for key seasons. Better pricing and product mix are maintaining margins. - Tanya Gordon(CM)

Contradiction Point 5

Rebanner Investment Impact on Earnings

It involves expectations surrounding the financial impact of re-banner investments, which are critical for understanding the company's earnings trajectory and investor expectations.

What is the earnings drag from re-bannering in 2024 and 2025? How will this impact earnings through 2027 and 2028? - Mitch Kmetz (Seaport Research)

2026Q3: For this year, we expect $0.68 to $0.70 of earnings drag from re-banner investments. Next year, we expect $25 million to $30 million in re-banner expenses, front-loaded in the first half as we convert approximately 70 stores. These investments are expected to recover within two to three years post-conversion. - Carrie Jackson(CFO)

Is the rebannering's impact net neutral on next year's earnings, with first-half drag offset by second-half tailwinds? - Mitchel Kummetz (Seaport Research Partners)

2025Q2: We see comps improving to low single digits company-wide for the second half of the year, which implies that the Shoe Carnival business will be negative but we will offset that with Shoe Station performing properly. - Mark Worden(CEO)