3 Reasons to Sell SCVL and 1 Stock to Buy Instead

Over the past six months, Shoe Carnival’s shares (currently trading at $19.99) have posted a disappointing 7.2% loss, well below the S&P 500’s 6.6% gain. This may have investors wondering how to approach the situation.

Is now the time to buy Shoe Carnival, or should you be careful about including it in your portfolio? Check out our in-depth research report to see what our analysts have to say, it’s free.

Why Do We Think Shoe Carnival Will Underperform?

Even with the cheaper entry price, we're swiping left on Shoe Carnival for now. Here are three reasons there are better opportunities than SCVL and a stock we'd rather own.

1. Shrinking Same-Store Sales Indicate Waning Demand

Same-store sales is an industry measure of whether revenue is growing at existing stores, and it is driven by customer visits (often called traffic) and the average spending per customer (ticket).

Shoe Carnival’s demand has been shrinking over the last two years as its same-store sales have averaged 5.4% annual declines.

2. Fewer Distribution Channels Limit its Ceiling

With $1.14 billion in revenue over the past 12 months, Shoe Carnival is a small retailer, which sometimes brings disadvantages compared to larger competitors benefiting from economies of scale and negotiating leverage with suppliers.

3. EPS Trending Down

Analyzing the long-term change in earnings per share (EPS) shows whether a company's incremental sales were profitable – for example, revenue could be inflated through excessive spending on advertising and promotions.

Sadly for Shoe Carnival, its EPS declined by 18.6% annually over the last three years, more than its revenue. This tells us the company struggled because its fixed cost base made it difficult to adjust to shrinking demand.

Final Judgment

We see the value of companies helping consumers, but in the case of Shoe Carnival, we’re out. After the recent drawdown, the stock trades at 13.6× forward P/E (or $19.99 per share). This valuation tells us a lot of optimism is priced in - we think there are better stocks to buy right now. Let us point you toward our favorite semiconductor picks and shovels play.

Stocks We Would Buy Instead of Shoe Carnival

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