Shoe Station Group (SHOE) Q4 2012 earnings summary

Executive summary

• FY2011 net sales rose 3.2% to $762.5M; comparable-store sales increased 0.7%, while diluted EPS was $1.97 versus $2.05 in FY2010.

• Earnings held near record FY2010 levels despite weaker toning-shoe demand and warm-weather-driven boot markdowns; operating income margin was 5.5%.

Financial highlights

• Gross profit rose 1.5% to $224.9M; gross margin fell to 29.5% from 30.0%, primarily due to Q4 promotions on fall footwear.

• Operating income was $42.1M versus $42.4M; net income was $26.4M versus $26.8M; diluted EPS was $1.97 versus $2.05.

• Net cash from operations totaled $30.9M; cash and equivalents ended at $70.6M, with no interest-bearing debt.

• Inventories increased $24.7M YoY to $237.7M; approximately one-third of the increase supported store growth and e-commerce, with the balance reflecting planned category inventory and early athletic-product arrivals.

Outlook and guidance

• FY2012 comparable-store sales are expected to rise in the low single digits; SG&A is expected to increase and rise slightly as a percentage of sales.

• Plans call for ~30 store openings, 10 relocations, five closures and remodels at ~6% of stores; over one-third of openings target Dallas and Puerto Rico.

• FY2012 capital expenditures are forecast at $22M–$23M; pre-opening costs are expected to increase $3.5M YoY, including $2.5M in SG&A and $1.0M in cost of sales.

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