Shoe Carnival Is A Short-Squeeze In Action We've liked Shoe Carnival (NASDAQ: SCVL) for quite some time because the company seems to be doing everything right. It's growing, it's setting records, it's widening margin, it's making money...

Shoe Carnival Is Doing Everything Right

We've liked Shoe Carnival (NASDAQ: SCVL) for quite some time because the company seems to be doing everything right. It's growing, it's setting records, it's widening margin, it's making money for investors, it has no debt, and returning to capital shareholders. That's why it's so odd the short-interest is so high but there is something else to consider. Supply chain disruptions cut into results for some of the shoe manufacturers so there was cause for concern. The factor short-sellers may have overlooked is that Shoe Carnival is not a manufacturer, does not have direct exposure to the international supply chain, and likes to carry a decent amount of inventory. The takeaway is that results are strong and the company has raised its guidance yet again sparking what we see as a meme-worthy short-squeeze.

Shoe Carnival Has Record-Setting Quarter, Again

Shoe Carnival had a truly amazing 3rd quarter that can be attributed to the total package of company efforts. The $356.34 billion in net revenue is up 29.8% over last year, roughly the same amount versus calendar 2019, and exceeds even our high expectations. This is the 3rd consecutive quarter of record results with gains driven by a 30.1% increase in comp-store sales that was slightly offset by net store closings. Systemwide, sales were driven by another 12.5% increase in omnichannel sales and a double-digit increase in Shoe Perks customers. The Shoe Perks loyalty plan has been a big driver of repeat business and one we see driving business long into the future.

Moving down to the earnings, margin, and earnings were both records as well. The company reported an 840 basis point improvement in gross margin driven by a 670 basis point improvement in merchandise margin that is in turn due to high demand and greatly reduced discounting activity. On the bottom line, the GAAP $1.64 in earnings is more than 3 times last year's earnings and beat the consensus estimate by $0.49 and this isn't the end of the good news.

The company sees strength lingering into the 4th quarter and beyond and has raised its guidance. The company is now expecting revenue for the year to top $1.285 billion with earnings in the range of $5.00 to $5.10. This compares to the prior guidance for revenue of $1.150 and the Marketbeat.com consensus earnings estimate of $0.57.

Shoe Carnival's Capital Return Is No Circus

Shoe Carnival is both a dividend grower and a share repurchaser with a very bright outlook for capital returns. The stock is yielding a relatively low 0.65% but, for those looking to buy and hold, comes with an outlook for aggressive dividend growth. The company has been growing the distribution for the last 9 years and is still only paying out 6% of what we know to be a low-ball consensus estimate. The last dividend increase was worth 40% so we won't be surprised to see another big increase early in 2022. As for the buybacks, the company bought back $3.2 million shares during the quarter and has $42 million left under the buyback allotment. That's worth about 3.75% of the market cap with shares trading at $44.

The Technical Outlook: Shoe Carnival Is In A Strong Uptrend

Shares of Shoe Carnival advanced more than 2.5% in premarket action and gapped up at the open. The move set a new all-time high and we don't think it will be the last. The short-interest on the stock is running near 15% which is enough by itself to keep price action moving higher for several days. Add to that a strong technical backdrop, record-setting results, and increased guidance and we see this stock moving up by several multiples. Trading at only 9X its guidance for earnings it is a deep value as well.