Shoe Station Group (SHOE) Q4 2008 earnings summary

Executive summary

• FY2007 sales and earnings declined amid weak consumer spending, softer store traffic, and lackluster footwear fashion trends. Net sales were $658.7M; net income was $12.8M, or $0.97 diluted EPS.

• Inventory discipline, 25 store openings, and a new distribution center with minimal delivery disruption were key operating positives.

Financial highlights

• FY2007 net sales fell 3.4% to $658.7M; comparable-store sales declined 5.2%. The 2006 fiscal year included a 53rd week, adding $11.5M of sales and ~$0.05 diluted EPS.

• Gross profit declined 6.5% to $185.8M; operating income fell to $19.1M from $37.6M, and net income was $12.8M versus $23.8M.

• Q4 FY2007 sales were $164.3M, gross profit $45.3M, operating income $1.6M, net income $1.1M, and diluted EPS $0.09; Q4 FY2006 diluted EPS was $0.37.

• Operating cash flow was $19.9M; capital expenditures were $18.4M and cash ended at $9.2M, down from $34.8M year earlier.

Outlook and guidance

• FY2008 plans called for 20–25 new stores and capital expenditures of $12M–$14M; anticipated store-opening cost was $5.5M–$6.9M in aggregate.

• Management targeted women's dress and casual merchandise at 28%–30% of sales within two years, versus women's non-athletic merchandise at 27% of sales in FY2007.

• FY2008 priorities included deeper size runs in key styles, narrower assortments, higher average retail prices where feasible, customer research, and improved in-store experience.

• Existing cash and operating cash flow, supplemented by the revolving credit line, were expected to fund expansion, potential repurchases, and operating needs for at least 12 months.