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Shoe Carnival: A Cinderella Reopening Play With 25% Upside

The Bulls Bay profile picture
The Bulls Bay


  • Shoe Carnival is a mispriced, well-managed footwear specialty retailer with a pristine balance sheet and high insider ownership.
  • The market is ignoring the $164 million of cash and marketable securities that Shoe Carnival holds without debt, representing nearly 20% of its market capitalization.
  • We anticipate Shoe Carnival will return capital to shareholders with substantial increases in share buybacks and quarterly dividends, and possibly issue a special dividend.
  • Shoe Carnival has limited direct competition, an extremely loyal customer base, and a strategic partnership with NIKE.
  • We anticipate shares will appreciate by at least 25% over the next 12 months to $43, as shares re-rate higher.

Variety of women"s fashion comfortable shoes of all seasons on a light background, top view

OksanaKiian/iStock via Getty Images

Investment Thesis

Shoe Carnival (NASDAQ:SCVL), a footwear specialty retailer, has nearly 20% of its market capitalization in cash on its debt-free balance sheet yet trades at a discount to its peers, due to minimal analyst coverage. With record quarterly

This article was written by

The Bulls Bay profile picture
The Bulls Bay is the founder and portfolio manager of a family office. Previously, he was a sell-side equity research analyst covering consumer/retail and later a senior analyst at a long/short, special situations hedge fund. He is particularly attracted to value, deep value, and special situations equities across industries, while specializing in consumer/retail. In addition, The Bulls Bay sells covered calls as an opportunistic options strategy.

Analyst’s Disclosure: I/we have a beneficial long position in the shares of SCVL either through stock ownership, options, or other derivatives. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (16)

Double J Investments profile picture
Another footwear retailer worth a look: seekingalpha.com/...
Regarding competitors, don't forget Rack Room Shoes, Inc. (headquartered in Charlotte, NC) - a member of the DEICHMANN group, the largest footwear retailer in Europe?
The Bulls Bay profile picture
@obspar Thanks for adding another competitor to the list. While I am sure that Rack Room Shoes and Off Broadway Shoe Warehouse (both concepts of Rack Room Shoes) compete with Shoe Carnival in overlapping markets, I would note that merely selling footwear does not indicate the extent to which they compete with SCVL. With that said, given that both Rack Room store concepts are discount retailers, I would agree that they are more serious competition for Shoe Carnival than are DSW or Famous Footwear. However, the mitigating factors for Shoe Carnival are its customer relationship management, that nurtures a highly loyal customer base, and its fun, unique "carnival" shopping experience. You can also find me on Twitter at this handle: bullsbayretail
@The Bulls Bay I do not think we’re talking about different markets, both for customers and merchandise. Family footwear retailing is very competitive. The points you’ve mentioned to distinguish SCVL are not really distinguishing among the family shoe store competitors in the middle-class to upper middle class demographic. From an investor perspective the first consideration for me is what the competitive environment is and does a company have a significant edge. The applicable aspects are all very close in the category. FOR EXAMPLE, another direct competitor not mentioned in your article is independent shoe retailer Shoe Show, Inc., based in Concord, NC. I appreciate your article.
The Bulls Bay profile picture
@obspar We can certainly agree to disagree. Notwithstanding a highly competitive general retail market, SCVL has carved out a special niche by catering to working class families, an underserved demographic. (There is much more competition for middle-class and upper middle class consumers.) SCVL customers have responded to that niche with incredible brand loyalty, which is a powerful antidote to a competitive environment. The best 10% of its Shoe Perks members (Gold level) generate more than 40% of overall sales.
TLCVI profile picture
01 Nov. 2021
Possible Questions for SCVL’s Approximate 127 Stockholders to Consider, Investigate and/or Raise with Management:
1. Are any Directors or EOs founders/co-founders of the Company?
2. Why does Management’s discussion in Item 7. not include comments directly pertaining to the net income attributable to Shareholders?
3. On account of Item 1A. Risk Factors constantly mentioning such, has the Company failed to maintain effective internal control over financial reporting in the past?
4. Is the changing of inventory’s percentage as a percentage of total assets over the last decade related to any changes in the Company’s business strategy?
5. The Company constantly references single digit changes in certain numerical shifts but it is not clear if it is speaking in absolute terms or relative terms, say as a percentage. Can further elucidation be supplied?
6. Has the Company considered or attempted to enter into long term contracts with Nike and Skechers?
7. Towards the latter part of this fiscal decade the Company stopped specifying how many stores they expected to open, instead opting to say they plan on opening a “limited number” of new stores. Why was this change made?
8. The Company has said their “information technology systems are vulnerable from time to time” [5, 7, 9, 11], which considering some of the points we mentioned in the first subsection could be a concern. When the Company says this, are they speaking in general terms or can they cite specific instances relative to SCVL? If it is the latter can they provide further details?
9. Is the fiscal amount expended for all of the Company’s property and equipment the entirety of their ‘capital expenditures’?
10. Where did the tax credit carryforwards associated with the Company’s Puerto Rico operations recently emerge from and can their provenance be fully explained?
11. Can the Company elaborate on the nature of the ‘marketable securities’ they’ve reported?
12. What were the “other noncurrent assets” listed on the latest balance sheet?
13. What were the “other” assets listed on the latest balance sheet?
14. Is there any possibility for more special dividends in the future or even a general increase in the dividends paid per share considering the ratio of earnings per share and dividends paid per share?
15. Why does the Company’s credit agreement contain a covenant that the aggregate amount of cash dividends for a fiscal year is not to exceed $10 million?
16. What are the estimated useful lives of the Company’s property and equipment, by group?
17. Were the depreciation and amortization charges accounted for on the Company’s income statement?
18. Why was it that from the 2017 to 2018 annual report, the depreciation and amortization related depreciation rate(s) range went from 2 - 20 years, to 2 - 25 years?
19. Is the 25-year life (formerly 20) used in computing depreciation, referencing building assets and if so is this not a bit short?
20. Can the Company explain the historic stock splits?
21. Have the latest proxy statements stopped reporting on Section 16(a) of the Exchange Act because there has been no wrongdoing? And if not, why the lack of reporting?
22. Does the noncompetition agreement with J. Wayne Weaver, entered into in January 15, 1993, have an expiration date?
23. Has the Company considered placing an age restriction on Directors and/or EOs, or is one already in place?
Pablo profile picture
Competition........and online sales. Seems like a tough alley fight.
The Bulls Bay profile picture
@Pablo Thanks for your comments. Who do you think are the primary competitors for SCVL? The online business is already one of SCVL's key growth drivers and nearly 20% of total sales. In addition, there are few direct competitors, as the alternatives for the core customer demographic are off-price retailers with very limited inventory (if at all) of the national brands that SCVL customers truly value. Moreover, SCVL is prepared for this "tough alley fight" with its incredibly loyal customer base. Gold level Shoe Perks members generate more than 40% of total sales.
Pablo profile picture
@The Bulls Bay Foot Locker, DSW, Payless, Famous Footwear, shoes.com .......wife just mentioned one, can't think of the name, something like Discount shoes......point being Shoe Carnival is not a household name for us. NOT saying that's a bad thing though.

I buy my Nike from Amazon. My hiking boots direct, (Merrell, for example), mud boots from farm store or Wal Mart. Bike shoes from specialty shops (Lake Cycling). Dress shoes used to be Nordstrom's. Now retired, never wear fancy shoes much, sometimes I will wear my Ecco shoes.
The Bulls Bay profile picture
@Pablo Thanks for continuing this conversation, however I think we're talking about different markets, both for customers and merchandise. The premise for my investment thesis is SCVL is a unique footwear retailer that caters to the working class who value a one-stop shop for the entire family. 30% of SCVL customers have a household income $30,000 or less and 86% of customers $100,000 or less. Foot Locker is a full-priced retailer for sneakers. DSW and Famous Footwear are specialty footwear retailers that cater to a middle-class to upper middle class demographic. Payless ShoeSource filed for bankruptcy, and even when it emerged from BK totally exited the U.S. market. Payless was probably the largest competitor for Shoe Carnival, and therefore SCVL has benefited from its market exit. Shoe Carnival customers cannot afford to shop at Nordstrom. In addition, maybe you haven't heard of Shoe Carnival previously because its stores are in only 35 states.
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