Thursday, March 18, 2010

A simple business model at Shoe Carnival (SCVL)

Discount footwear retailer Shoe Carnival (SCVL) reported earnings per share of 20cents for the 4th quarter of fiscal 2009.  That beat the consensus estimate of 12cents, while revenues came in slightly below expectations, and shares are trading up nearly 9% on the news.  Despite light sales, a focus on full-priced selling drove gross margin up to 28.7% versus 24.7% a year earlier.

Lean inventories at the start of the quarter led to a higher mix of full-priced selling...


In 2009, SCVL did about $200 per square foot in sales, compared with $220 in it's peak profit year of 2006.  Based on 2010's 2-3 net new store openings, I see Free Cash Flow in the $25million range, for a Free Cash Flow Yield( FCFY) of about 10%.  This is a hugely cyclical company, with a demographic that is the first to feel the pinch in economic downturns.  You can currently buy the world's best-run companies for similar valuations, so I see little reason to risk that money on this stock...



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