Shoe Carnival Inc (NASDAQ:SCVL) saw its stock price plummet 5.97% in pre-market trading on Friday following the release of its fourth quarter 2024 earnings report and fiscal 2025 guidance. The footwear retailer's announcement of a costly rebanner strategy and weak outlook for the coming year appear to have spooked investors.

Despite reporting a 2.3% increase in net sales to $1.2 billion for fiscal 2024 and adjusted earnings per share of $2.72, up from $2.70 in the previous year, Shoe Carnival's forward-looking statements painted a cautious picture. The company provided a wide guidance range for fiscal 2025, with net sales expected between $1.15 billion to $1.23 billion, representing a potential decline of 4% to a modest increase of 2%.

The primary factors contributing to the stock's decline include:

1. Costly Rebanner Strategy: Shoe Carnival announced an aggressive plan to rebanner 50 to 75 stores from Shoe Carnival to Shoe Station in fiscal 2025. This strategy is expected to result in a significant $0.65 reduction in EPS for the year due to store closures and reopening costs. Mark Worden, President and CEO, stated, "It is a significant near term investment that pays back quickly and is expected to drive over a 20% increase in profitability at the rebannered stores."

2. Weak Outlook for Non-Event Periods: The company anticipates continued pressure on sales from lower-income customers during non-event periods in 2025. Worden noted, "Looking at these first months of 2025, which are non-event shopping months, I can share the trends have not changed, and we expect this down trend persists this year with lower income customers in non-event months."

3. Uncertain Economic Environment: Shoe Carnival highlighted potential headwinds from tariffs, inflation, and geopolitical factors that could impact consumer confidence and spending. Patrick Edwards, CFO, commented on the wider guidance range, saying it "reflects impacts from our rebanner strategy at the midpoint and assumes customer behavior in non-event periods resembles similar down trends last year."

4. Disappointing Q4 Performance: The company reported a 6.3% decline in comparable store sales for the fourth quarter, primarily due to weakness in non-event periods and a disappointing boot season.

While Shoe Carnival's management remains optimistic about the long-term benefits of their rebanner strategy and the growth potential of the Shoe Station banner, investors appear to be focusing on the near-term costs and uncertainties. The company's ability to successfully execute its transformation plan and navigate the challenging retail environment will be crucial in determining its future performance.