UNITED STATES
Form 10-K
(Mark One) | ||
x | Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the fiscal year ended: February 2, 2013 | ||
or | ||
¨ | Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 | |
For the transition period from ____________________ to ____________________ |
Commission File Number: | 0-21360 |
Shoe Carnival, Inc. |
(Exact name of registrant as specified in its charter) |
Indiana | 35-1736614 | |
(State or other jurisdiction of incorporation or organization) | (IRS Employer Identification Number) | |
7500 East Columbia Street Evansville, IN | 47715 | |
(Address of principal executive offices) | (Zip code) |
(812) 867-6471 | ||
(Registrant’s telephone number, including area code) | ||
Securities registered pursuant to Section 12(b) of the Act: |
Common Stock, $.01 par value | The NASDAQ Stock Market LLC | |
(Title of Each Class) | (Name of Each Exchange on Which Registered) | |
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
¨Yes xNo
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act.
¨Yes xNo
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
xYes ¨No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
xYes ¨No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.o¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definition of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer | x | Accelerated filer | Non-accelerated filer | ¨Smaller reporting company |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
¨Yes xNo
The aggregate market value of the voting stock held by non-affiliates of the registrant based on the last sale price for such stock at July 30, 201128, 2012 (the last business day of the registrant’s most recently completed second fiscal quarter) was approximately $291,495,430$318,661,438 (assuming solely for the purposes of this calculation that all Directors and executive officers of the registrant are “affiliates”).
Number of Shares of Common Stock, $.01 par value, outstanding at April 9, 20122013 was 13,618,069.
DOCUMENTS INCORPORATED BY REFERENCE
Certain information contained in the Definitive Proxy Statement for the Annual Meeting of Shareholders of the Registrant to be held on June 14, 201213, 2013 is incorporated by reference into PART III hereof.
PART I | ||
Item 1. | 2 | |
Item 1A. | 9 | |
Item 1B. | 14 | |
Item 2. | 14 | |
Item 3. | 15 | |
Item 4. | 15 | |
PART II | ||
Item 5. | ||
Item 6. | ||
Item 7. | ||
Item 7A. | ||
Item 8. | ||
Item 9. | ||
Item 9A. | ||
Item 9B. |
PART III | ||
Item 10. | ||
Item 11. | ||
Item 12. | ||
Item 13. | ||
Item 14. |
PART IV | ||
Item 15. |
Shoe Carnival, Inc.
Annual Report to Securities and Exchange Commission
PART I
Cautionary Statement Regarding Forward-Looking Information
This annual report contains forward-looking statements, within the meaning of the Private Securities Litigation Reform Act of 1995, that involve a number of risks and uncertainties. A number of factors could cause our actual results, performance, achievements or industry results to be materially different from any future results, performance or achievements expressed or implied by these forward-looking statements. These factors include, but are not limited to: general economic conditions in the areas of the continental United States and Puerto Rico in which our stores are located; the effects and duration of economic downturns and unemployment rates; changes in the overall retail environment and more specifically in the apparel and footwear retail sectors; our ability to generate increased sales at our stores; the potential impact of national and international security concerns on the retail environment; changes in our relationships with key suppliers; the impact of competition and pricing; changes in weather patterns, consumer buying trends and our ability to identify and respond to emerging fashion trends; the impact of disruptions in our distribution or information technology operations; the effectiveness of our inventory management; the impact of hurricanes or other natural disasters on our stores, as well as on consumer confidence and purchasing in general; risks associated with the seasonality of the retail industry; our ability to successfully execute our growth strategy, including the availability of desirable store locations at acceptable lease terms, our ability to open new stores in a timely and profitable manner, including our entry into major new markets, and the availability of sufficient funds to implement our growth plans; higher than anticipated costs associated with the closing of underperforming stores; our ability to successfully grow our e-commerce business; the inability of manufacturers to deliver products in a timely manner; changes in the political and economic environments in China, Brazil, Europe and East Asia, where the primary manufacturers of footwear are located; the impact of regulatory changes in the United States and the countries where our manufacturers are located; and the continued favorable trade relations between the United States and China and the other countries which are the major manufacturers of footwear. See ITEM 1A. RISK FACTORS of this report.
ITEM 1. BUSINESS
Shoe Carnival, Inc. is one of the nation’s largest family footwear retailers, providing the convenience of shopping at any of our 327more than 350 store locations or online. We offer customers a broad assortment of moderately priced dress, casual and athletic footwear for men, women and children with emphasis on national and regional name brands. We differentiate our retail concept from our competitors’ by our distinctive, highly promotional marketing efforts. On average, our stores are 10,80010,900 square feet, generate approximately $2.4$2.5 million in annual sales and carry inventory of approximately 28,50028,200 pairs of shoes per location. As of January 28, 2012,February 2, 2013, we operated 351 stores in 32 states and Puerto Rico and offered online shopping at www.shoecarnival.com.
We are an Indiana corporation that was initially formed in Delaware in 1993 and reincorporated in Indiana in 1996. References to “we,” “us,” “our” and the “Company” in this Annual Report on Form 10-K refer to Shoe Carnival, Inc. and its subsidiaries.
Key Competitive Strengths
We believe our financial success is due to a number of key competitive strengths that have allowed us to make Shoe Carnival a destination of choice for today’s retail consumer.
Distinctive shopping experience
Our stores combine competitive pricing with a highly promotional, in-store marketing effort that encourages customer participation and creates a fun and exciting shopping experience. We promote a high-energy retail environment by decorating with exciting graphics and bold colors, and by featuring a stage and barker as the focal point in each store. With a microphone, this barker, or “mic-person”, announces current specials, organizes contests and games, and assists and educates customers with the features and location of merchandise. Our mic-person offers limited-duration promotions throughout the day, encouraging customers to take immediate advantage of our value pricing. We believe this highly promotional atmosphere results in various competitive advantages, including increased multiple unit sales; the building of a loyal, repeat customer base; the creation of word-of-mouth advertising; and enhanced sell-through of in-season goods. The same excitement and spontaneity is reflected in our e-commerce site through special promotions and limited time sales, along with relevant fashion stories featured on our home page.
Broad merchandise assortment
Our objective is to be the destination retailer-of-choice for a wide range of consumers seeking moderatelyvalue priced, current season name brand and private label footwear. Our product assortment includes dress and casual shoes, sandals, boots and a wide assortment of athletic shoes for the entire family. Our average store carries approximately 28,50028,200 pairs of shoes in four general categories – men’s, women’s, children’s and athletics. In addition to footwear, our stores carry selected accessory items complementary to the sale of footwear. We emphasize name brandengage our customers by presenting creative three dimensional branded merchandise to customers with creativestatements and signage andupon entering our stores. Key brands are further emphasized by prominently displaying selected brands on end caps, focal walls, and within the aisles. These displays may highlight a product offering of a single vendor, highlight sales promotions, advertise promotional pricing to meet or beat competitors’ sale prices or may make a seasonal or lifestyle statement by highlighting similar footwear from multiple vendors. These visual merchandising techniques make it easier for customers to shop and focus attention on key name brands. Our e-commerce site offers customers an opportunity to choose from a large selection of products in all categories with a depth of sizes and colors that may not be available in some of our smaller stores, and introduces our concept to consumers that are new to Shoe Carnival. By offering online exclusives to testCarnival, in both existing and new brands and styles, we anticipate our e-commerce site will help us in the future to merchandise our stores on a customer-centric basis.
Value pricing for our customers
Our marketing effort targets moderate income, value conscious consumers seeking name brand footwear for all age groups. We believe that by offering a wide selection of popular styles of name brand merchandise at competitive prices, we generate broad customer appeal. Additionally, the time conscious customer appreciates the convenience of one stop shopping for the entire family, whether it is at oneany of our more than 300350 store locations or online at shoecarnival.com. We also believe our highly promotional shopping environment contributes to a reputation of value pricing.
Efficient store level cost structure
Our cost efficient store operations and real estate strategy enable us to price products competitively. We achieve low labor costs by housing merchandise directly on the selling floor in an open stock format, allowing customers to serve themselves, if they choose. This reduces the staffing required to assist customers and reduces store level labor costs as a percentage of sales. We prefer to locate stores predominantly in open-air shopping centers in order to take advantage of lower occupancy costs and maximize our exposure to value oriented shoppers.
Heavy reliance on information technology
We have invested significant resources in information technology. Our proprietary inventory management and advanced point-of-sale (“POS”) systems provide corporate management, buyers and store managers with the timely information necessary to monitor and control all phases of operations. The POS provides, in addition to other features, full price management (including price look-up), promotion tracking capabilities (in support of the spontaneous nature of the in-store price promotions), real-time sales and gross margin analysis by product category at the store level and customer tracking. Using the POS, store managers are able to monitor sales and gross profit margins on a real-time basis throughout the day. Reacting to sales trends, our mic-people use POS reports to choose from among a number of product promotions supplied by our centralized merchandising staff.
Our centralized network connects our corporate office to our distribution center and retail stores via a wide area network, providing up-to-date sales and inventory information as required. Our data warehouse enables our merchandising staff to analyze sales, margin and inventory levels by location, by day, down to the size of shoe. Using this information, our merchandise managers meet regularly with vendors to compare their product sales, gross margins and return on inventory investment against previously stated objectives. We believe timely access to key business data has enabled us in the past to drive annual comparable store sales increases, manage our markdown activity and improve inventory turnover.
Growth Strategy
Our goal is to continue to grow our net sales and earnings by opening additional stores throughout the United States and Puerto Rico and growing our e-commerce business. On January 28, 2012,February 2, 2013, we operated 327351 stores located across 32 states. Our stores averaged approximately 10,80010,900 square feet, ranging in size from 6,400 to 26,500 square feet. Our current store prototype utilizes between 8,000 and 12,000 square feet, depending upon, among other factors, the location of the store and the population base we expect the store to service. Our stores are typically located in open-air shopping centers. The sales area of most stores is approximately 85% of the gross store size.
Historical Store Count | ||||||||||||||||||||
Fiscal Years | 2011 | 2010 | 2009 | 2008 | 2007 | |||||||||||||||
Stores open at the beginning of the year | 314 | 311 | 304 | 291 | 271 | |||||||||||||||
New store openings | 17 | 10 | 16 | 24 | 25 | |||||||||||||||
Store closings | 4 | 7 | 9 | 11 | 5 | |||||||||||||||
Stores open at the end of the year | 327 | 314 | 311 | 304 | 291 | |||||||||||||||
Stores relocated | 9 | 3 | 1 | 4 | 2 | |||||||||||||||
Percentage of store base remodeled | 8 | % | 4 | % | 1 | % | 1 | % | 1 | % |
Historical Store Count | ||||||||||||||||||||
Fiscal Years | 2012 | 2011 | 2010 | 2009 | 2008 | |||||||||||||||
Stores open at the beginning of the year | 327 | 314 | 311 | 304 | 291 | |||||||||||||||
New store openings | 31 | 17 | 10 | 16 | 24 | |||||||||||||||
Store closings | 7 | 4 | 7 | 9 | 11 | |||||||||||||||
Stores open at the end of the year | 351 | 327 | 314 | 311 | 304 | |||||||||||||||
Stores relocated | 6 | 9 | 3 | 1 | 4 | |||||||||||||||
Percentage of store base remodeled | 5 | % | 8 | % | 4 | % | 1 | % | 1 | % |
Expanding our store base both in number of stores, as well as geographic footprint
Increasing market penetration by opening new stores is a key component of our growth strategy. We believe our strong unleveraged financial position provides a solid platform for additional growth. For fiscal 2012,2013, we expect to open approximatelybetween 30 to 35 new stores and close five. Over one-third of our fiscal 2012 new stores will be located in two new major markets – Dallas, Texas and Puerto Rico.five to seven stores. The majority of our remaining new store locations will serve to fill-in certain under-penetrated markets with additional stores, thereby increasing the performance of the overall market, as well as represent entry intomarket. The balance of our new store openings will be in new smaller markets that we can fully penetrate with one or two stores.
Critical to the success of opening new stores in larger markets or geographic areas is our ability to cluster stores. In larger markets (populations greater than 400,000), clustering involves opening two or more stores at approximately the same time, and in smaller markets that can only support a single store, clustering involves seeking locations in reasonably close proximity to other existing markets. This strategy creates cost efficiencies by enabling us to leverage store expenses with respect to advertising, distribution and management costs. We believe the advantages of clustering stores in existing markets will lead to cost efficiencies and overall incremental sales gains that should more than offset any adverse effect on sales of existing stores.
We lease all store locations, as we believe the flexibility afforded by leasing allows us to avoid the inherent risks of owning real estate, particularly with respect to under-performing stores. Before entering a new market, we perform a market, demographic and competition analysis to evaluate the suitability of the potential market. Potential store site selection criteria include, among other factors, market demographics, traffic counts, the tenant mix of a potential open-air shopping center, visibility within the center and from major thoroughfares, overall retail activity of the area and proposed lease terms. The time required to open a store after signing a lease depends primarily upon the property owner’s ability to deliver the premises. After we accept the premises from the property owner in turnkey condition, we can generally open a store within 60 days.
E-commerce
To enhance our e-commerce site, duringwhich launched in the fall of fiscal 2011, we added a mobile version in the third quarter of fiscal 2011.2012. By the end of fiscal 2012, traffic from mobile devices accounted for over 30% of our overall e-commerce site traffic. We believe itour e-commerce site represents an additional long-term growth vehicle for Shoe Carnival and, along with our social media efforts, provides us with an opportunity to acquire national brand exposure by introducing Shoe Carnival to new customers and new markets.
Merchandising and Pricing
Our merchandising strategy is designed to provide a large selection of moderatelyvalue priced footwear for the entire family. Our stores carry an average of approximately 28,50028,200 pairs of shoes featuring a broad assortment of current-season name brand footwear, supplemented with private label merchandise. Our stores also carry complementary accessories such as handbags, shoe care items and socks. The mix of merchandise and the brands offered in a particular store reflect the demographics of each market, among other factors. Online, we offer a large selection of product in all categories with a depth of sizes and colors that may not be available in some of our smaller stores.
Our pricing strategy emphasizes value. By combining current season name brand product with promotional pricing, we feel that we create a better value for customers. Initial pricing decisions are guided by gross profit margin targets, which vary by merchandise category and depend on whether the item is name brand or private label merchandise. Our buying staff centrally manages markdowns.
The table below sets forth our percentage of sales by product category:
Fiscal Years | 2011 | 2010 | 2009 | 2008 | 2007 | |||||||||||||||
Women’s | 26 | % | 26 | % | 26 | % | 26 | % | 27 | % | ||||||||||
Men’s | 16 | 16 | 15 | 15 | 15 | |||||||||||||||
Children’s (1) | 17 | 17 | 17 | 17 | 17 | |||||||||||||||
Athletics (2) | 37 | 37 | 38 | 38 | 37 | |||||||||||||||
Accessories and miscellaneous items | 4 | 4 | 4 | 4 | 4 | |||||||||||||||
100 | % | 100 | % | 100 | % | 100 | % | 100 | % |
Fiscal Years | 2012 | 2011 | 2010 | 2009 | 2008 | |||||||||||||||
Women’s | 26 | % | 26 | % | 26 | % | 26 | % | 26 | % | ||||||||||
Men’s | 15 | 16 | 16 | 15 | 15 | |||||||||||||||
Children’s(1) | 17 | 17 | 17 | 17 | 17 | |||||||||||||||
Athletics (2) | 38 | 37 | 37 | 38 | 38 | |||||||||||||||
Accessories and miscellaneous items | 4 | 4 | 4 | 4 | 4 | |||||||||||||||
100 | % | 100 | % | 100 | % | 100 | % | 100 | % |
(1) Children’s includes children’s athletic shoes.
(2) Includes men’s and women’s sizes only.
Women’s, men’s and children’s non-athletic footwear categories are further divided into dress, casual, sport, sandals and boots. We classify athletic shoes by functionality, such as running, basketball or fitness shoes. For the fiscal years presented, athletic styles, including children’s sizes, have represented approximately half of our footwear sales.
Building Brand Awareness
Our goal is to communicate a consistent brand image across all aspects of our operations. We utilize a blend of advertising mediums and marketing methods to communicate who we are and the values we offer. Special emphasis is made to highlight brands as well as specific styles of product, and visual graphics are used extensively in our stores to emphasize the lifestyle aspect of the styles we carry. The use of social media has become an increasingly important medium in our digital marketing efforts, allowing us to directly communicate, as well as advertise, to our core customers. For fiscal 2011,2012, approximately 45%43% of our total advertising budget was directed to television, radio and digital media. Print media (including inserts, direct mail and newspaper advertising) and outdoor advertising accounted for the balance. Easter, back-to-school and the Christmas holiday season are the three key seasonal selling periods, during which we advertise the most heavily. We make a special effort to utilize the cooperative advertising dollars and collateral offered by vendors whenever possible.
Promotions are also a key element in our marketing.marketing efforts. By utilizing both planned and impromptu contests and games, store managers create an environment that encourages customer interaction with store personnel. For example, a customer is enticed to purchase additional merchandise by winning an on-the-spot discount. Online, we create a similar shopping experience by offering special promotions and limited time sales. Promotions of this type exemplifyOur promotions will continue our emphasis on fun and excitement in order to enhance our customers’ total shopping experience.
We strive to make each store opening a major retail event. Major promotions during grand openings and peak selling periods feature contests and prize giveaways. We believe our grand openings help to establish the high-energy, promotional atmosphere that develops a loyal, repeat customer base and generates word-of-mouth advertising.
Distribution
We operate a single 410,000 square foot distribution center located in Evansville, Indiana. Our facility is leased from a third party and can support the processing and distribution needs of a minimum of 460 stores to facilitate future growth. We have the right to expand the facility by 200,000 square feet, which would provide us processing capacity to support approximately 650 stores.
Our distribution center is equipped with state-of-the-art processing and product movement equipment. The facility utilizes cross docking/store replenishment and redistribution methods to fill store product requirements. These methods may include count verification, price and bar code labeling of each unit (when not performed by the manufacturer), redistribution of an order into size assortments (when not performed by the manufacturer) and allocation of shipments to individual stores. Throughout packing, allocating, storing and shipping, our distribution process is essentially paperless. Merchandise is typically shipped to each store location once per week. We utilize a third party fulfillment agent located in southwestern Ohio to provide comprehensive fulfillment services for our e-commerce site. They are supplied with merchandise from our distribution center on a weekly basis. AFor stores within the continental United States, a dedicated carrier, with occasional use of common carriers, handles the majority of shipments to our stores and our fulfillment agent.
Buying Operations
Maintaining fresh, fashionable merchandise is critical to our success. Our buyers stay in touch with evolving trends by shopping fashion-leading markets, attending national trade shows, gathering vendor input and monitoring the current styles shown in leading fashion and lifestyle magazines. Management of the purchasing function is the responsibility of our Executive Vice President - General Merchandise Manager. Management encourages store operations personnel to provide input to our merchandising staff regarding market specific fashion trends.
We purchase merchandise from over 170 footwear vendors. In fiscal 2011,2012, two suppliers, Nike USA, Inc. and Skechers USA, Inc., each accounted for over 10% or more of our net sales and together accounted for over 35%37% of our net sales. A loss of any of our key suppliers in certain product categories could have a material adverse effect on our business. As is common in the industry, we do not have any long-term contracts with suppliers.
Competition
The retail footwear business is highly competitive. We believe the principal competitive factors in our industry are merchandise selection, price, fashion, quality, location, shopping environment and service. We compete with department stores, shoe stores, sporting goods stores, online retailers and mass merchandisers. Our specific competitors vary from market to market. We compete with most department stores and traditional shoe stores by offering lower prices. We compete with off-price retailers, mass merchandisers and discount stores by offering a wider and deeper selection of merchandise.
Many of our competitors are significantly larger and have substantially greater resources. However, we believe that our distinctive retail format, in combination with our wide merchandise selection, competitive prices and low operating costs, enables us to compete effectively.
Store Operations
Management of store operations is the responsibility of our Executive Vice President - Store Operations, who is assisted by divisional managers, regional managers and the individual store general managers. Generally, each store has a general manager and up to three assistant managers, depending on sales volume. Store operations personnel make certain merchandising decisions necessary to maximize sales and profits primarily through merchandise placement, signage and timely clearance of slower selling items. Administrative functions are centralized at the corporate headquarters. These functions include accounting, purchasing, store maintenance, information systems, advertising, human resources, distribution and pricing. Management oversight for e-commerce is also located at our corporate headquarters.
Employees
At January 28, 2012,February 2, 2013, we had approximately 4,5005,000 employees, of which approximately 2,7003,000 were employed on a part-time basis. The number of employees fluctuates during the year primarily due to seasonality. None of our employees are represented by a labor union.
We attribute a large portion of our success in various areas of cost control to our inclusion of virtually all management level employees in incentive compensation plans. We contribute all or a portion of the cost of medical, disability and life insurance coverage for those employees who are eligible to participate in Company-sponsored plans. Additionally, we sponsor a 401(k) retirement planplans that isare open to all employees who have met the minimum age and work hour requirements. All employees are eligible to receive discounts on purchases from our stores. We consider our relationship with our employees to be satisfactory.
Seasonality
Our quarterly results of operations have fluctuated, and are expected to continue to fluctuate in the future, primarily as a result of seasonal variances and the timing of sales and costs associated with opening new stores. Non-capital expenditures, such as advertising and payroll, incurred prior to the opening of a new store are charged to expense as incurred. Therefore, our results of operations may be adversely affected in any quarter in which we incur pre-opening expenses related to the opening of new stores.
We have three distinct peak selling periods: Easter, back-to-school and Christmas.
Trademarks
We own the following federally registered trademarks and service marks: Shoe Carnival® and associated trade dress and related logos, The Carnival®, Donna Lawrence®, Oak Meadow®, Victoria Spenser®, Via Nova®, Innocence®, Y-NOT?®, UNR8ED®, Solanz®, 93 Octane®, Cabrizi®, Shoe Perks®, WHEN YOU WANT 2®, JUMP BACK IN®, STEP OUT OF BORING®, and 93 OctaneLaces for Learning®. We believe these marks are valuable and, accordingly, we intend to maintain the marks and the related registrations. We are not aware of any pending claims of infringement or other challenges to our right to use these marks.
Environmental
Compliance with federal, state and local provisions regulating the discharge of material into the environment or otherwise relating to the protection of the environment has not had a material effect upon our capital expenditures, earnings or competitive position. We believe the nature of our operations have little, if any, environmental impact. We therefore anticipate no material capital expenditures for environmental control facilities for our current fiscal year or for the near future.
Available Information
We make available free of charge through the Investor Relationsinvestor relations portion of our website at www.shoecarnival.com our annual reports on Form 10-K, our quarterly reports on Form 10-Q, our current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934, as amended, as soon as reasonably practicable after we electronically file such material with, or furnish it to, the Securities and Exchange Commission. We have included our website address throughout this filing as textual references only. The information contained on our website is not incorporated into this Form 10-K.
Our annual report on Form 10-K as filed with the Securities and Exchange Commission is available without charge to shareholders, investment professionals and securities analysts upon written request. Requests should be directed to Investor Relations at our corporate address.
Executive Officers
Name | Age | Position | ||
J. Wayne Weaver | Chairman of the Board and Director | |||
President, Chief Executive Officer, Chief Merchandising Officer and Director | ||||
W. Kerry Jackson | 51 | Senior Executive Vice President - Chief Operating and Financial Officer and Treasurer | ||
Timothy T. Baker | Executive Vice President - Store Operations | |||
Executive Vice President - General Merchandise Manager | ||||
Kathy A. Yearwood | Senior Vice President - Controller and Chief Accounting Officer |
Mr. Weaver
is Shoe Carnival’s largest shareholder and has served as Chairman of the Board since March 1988. From 1978 until February 2, 1993, Mr. Weaver had served as president and chief executive officer of Nine West Group, Inc., a designer, developer and marketer of women’s footwear. He has over 40 years of experience in the footwear industry. Mr. Weaver is a former director of Nine West Group, Inc. Mr. Weaver served as chairman and chief executive officer of Jacksonville Jaguars, LTD until January 2012. He is a member of LC Footwear, LLC.Mr. Lemond
Mr. Jackson
has been employed as Senior Executive Vice President, Chief Operating and Financial Officer and Treasurer since October 2012. From August 2004 to October 2012, Mr. Jackson served as Executive Vice President - Chief Financial Officer andMr. Sifford
Mr. Scibetta has been employed as Executive Vice President - General Merchandise Manager since June 2001. From April 13, 1997 to June 2001, Mr. Sifford served as Senior Vice President - General Merchandise Manager.December 2012. Prior to joining us, Mr. SiffordScibetta served as merchandise manager-shoesVice President, Divisional Merchandise Manager-Footwear for Belk, Store Services, Inc.
Ms. Yearwood
has served as Senior Vice President - Controller since March 2011, principal accounting officer since March 2010 and Chief Accounting Officer since June 2010. From March 2005 through February 2011, Ms. Yearwood served as Vice President - Controller and prior to that served as corporate Controller since joining us in December 2002. Before joining us, Ms. Yearwood served in various financial positions in the radio, newspaper and public accounting industries. She is a Certified Public Accountant.Our executive officers serve at the discretion of the Board of Directors. There is no family relationship between any of our Directors or executive officers.
(Pursuant to General Instruction G (3) of Form 10-K, the foregoing information is included as an unnumbered Item in PART I of this annual report in lieu of being included in our Proxy Statement for our 20122013 Annual Meeting of Shareholders.)
ITEM 1A.Risk Factors
Carefully consider the following risk factors and all other information contained in this annual report before making an investment decision with respect to our common stock. Investing in our common stock involves a high degree of risk. If any of the following risks actually occur, we may not be able to conduct our business as currently planned and our financial condition and operating results could be seriously harmed. See PART I “Cautionary Statement Regarding Forward-Looking Information” at the beginning of this Annual Report on Form 10-K.
Economic conditions and unemployment rates may adversely affect consumer spending and may significantly harm our business.
The success of our business depends to a significant extent upon the level of consumer spending. A number of factors may affect the level of consumer spending on merchandise that we offer, including, among other things:general economic, industry and weather conditions; |
unemployment trends and salaries and wage rates; |
energy costs, which affect gasoline and home heating prices; |
the level of consumer debt; |
consumer credit availability; |
real estate values and foreclosure rates; |
consumer confidence in future economic conditions; |
interest rates; |
tax rates and policies; and |
war, terrorism, other hostilities and security concerns. |
The merchandise we sell generally consists of discretionary items. Adverse economic conditions and unemployment rates, and any related decrease in consumer confidence and spending may result in reduced consumer demand for discretionary items. Any decrease in consumer demand could reduce traffic in our stores, limit the prices we can charge for our products and force us to take inventory markdowns, which could have a material adverse effect on our business, results of operations and financial condition. Reduced demand may also require increased selling and promotional expenses. Reduced demand and increased competition could increase the need to close underperforming stores, which could result in higher than anticipated closing costs.
We face significant competition in our markets and we may be unable to compete favorably.
The retail footwear industry is highly competitive with few barriers to entry. We compete primarily with department stores, shoe stores, sporting goods stores, online retailers and mass merchandisers. Many of our competitors are significantly larger and have substantially greater financial and other resources than we do. Economic pressures on or bankruptcies of our competition could result in increased pricing pressures. This competition could adversely affect our results of operations and financial condition in the future.Our failure to identify fashion trends could result in lower sales, higher markdowns and lower gross profits.
Our success depends upon our ability to anticipate and react to the fashion tastes of our customers and provide merchandise that satisfies consumer demand. Our failure to anticipate, identify or react appropriately to changes in consumer fashion preferences may result in lower sales, higher markdowns to reduce excess inventories and lower gross profits. Conversely, if we fail to anticipate or react to consumer demand for our products, we may experience inventory shortages, which would result in lost sales and could negatively impact our customer goodwill, our brand image and our profitability. Moreover, our business relies on continuous changes in fashion preferences. Stagnating consumer preferences could also result in lower sales and would require us to take higher markdowns to reduce excess inventories.A failure to increase sales at our existing stores may adversely affect our stock price and impact our results of operations.
A number of factors have historically affected, and will continue to affect, our comparable store sales results, including:competition; |
timing of holidays including sales tax holidays; |
general regional and national economic conditions; |
inclement weather; |
consumer trends, such as less disposable income due to the impact of higher prices on consumer goods; |
fashion trends; |
changes in our merchandise mix; |
our ability to efficiently distribute merchandise; |
timing and type of, and customer response to, sales events, promotional activities or other advertising; |
the effectiveness of our inventory management; |
new merchandise introductions; and |
our ability to execute our business strategy effectively. |
Our comparable store sales results have fluctuated in the past, and we believe such fluctuations may continue. The unpredictability of our comparable store sales may cause our revenue and results of operations to vary from quarter to quarter, and an unanticipated decline in revenues or operating income may cause our stock price to fluctuate significantly.
We depend on our key suppliers for merchandise and advertising support and the loss of key suppliers could adversely affect our business.
Our business depends upon our ability to purchase fashionable, name brand and other merchandise at competitive prices from our suppliers. In fiscalAn increase in the cost or a disruption in the flow of our imported goods may decrease our sales and profits.
If imported merchandise becomes more expensive or unavailable, the transition to alternative sources may not occur in time to meet our demands. Products from alternative sources may be of lesser quality and more expensive than those we currently import. Other risks associated with our use of imported goods include:
disruptions in the flow of imported goods because of factors such as electricity or raw material shortages, work stoppages, strikes, political unrest and natural disasters; |
problems with oceanic shipping, including shipping container shortages and piracy; |
economic crises and international disputes; |
currency exchange rate fluctuations; |
increases in the cost of purchasing or shipping foreign merchandise resulting from the failure to maintain normal trade relations with source countries; |
import duties, import quotas and other trade sanctions; |
increases in shipping rates imposed by the trans-Pacific shipping cartel; and |
the impact of regulatory changes in the United States and the countries where our manufacturers are located, including but not limited to requirements relating to shipping security, product safety and testing and environmental requirements. |
We may not be able to successfully execute our growth strategy, which could have a material adverse effect on our business, financial condition and results of operations.
We intend to open new stores as a part of our growth strategy. We may not be able to open all of the new stores contemplated by our growth strategy and the new stores that we open may not be as profitable as existing stores.The complexity of our operations and management responsibilities will increase as we grow. Our growth strategy requires that we continue to expand and improve our operating and financial systems and to expand, train and manage our employee base. In addition, as we open new stores, we may be unable to hire a sufficient number of qualified store personnel or successfully integrate the new stores into our business.
The success of our growth strategy will depend on a number of other factors, many of which are out of our control, including, among other things:
our ability to locate suitable store sites and negotiate store leases (for new stores and renewals) on favorable terms; |
the acceptance of the Shoe Carnival concept in new markets; |
our ability to provide adequate distribution to support growth; |
our ability to source sufficient levels of inventory to meet the needs of new stores; |
11 |
· | particularly in new markets, our ability to open a sufficient number of new stores to provide the critical mass needed for efficient advertising and effective name recognition; |
the availability of financing for capital expenditures and working capital requirements; |
our ability to improve costs and timing associated with opening new stores; and |
the impact of new stores on sales or profitability of existing stores in the same market. |
Due to the risks involved, we may be unable to open new stores at the rates expected. If we fail to successfully implement our growth strategy, it could have a material adverse effect on our business, financial condition or results of operations.
Various risks associated with our e-commerce business may adversely affect our business and results of operations.
We launched our e-commerce business during the third quarter of 2011, selling shoes and related accessories through our website at www.shoecarnival.com. Although our e-commerce operations are not at this time material in relation to our total sales, we anticipate that the percentage of our sales through our e-commerce site will grow and thus the risks associated with these operations could have an impact on our overall operations. Our e-commerce operations are subject to numerous risks, including unanticipated operating problems, reliance on third party computer hardware and software providers and our third party fulfillment agent, and the need to invest in additional computer systems. Any significant interruptions in the operations of these third party providers and fulfillment agent, over which we have no control, could have a material adverse effect on our e-commerce business. Our e-commerce operations also involve other risks that could have an impact on our results of operations including hiring, retaining and training personnel to conduct our e-commerce operations, diversion of sales from our stores, our ability to manage any upgrades or other technological changes, exposure to potential liability for online content, risks related to the failure of the computer systems that operate our e-commerce site and its related support systems, including computer viruses, telecommunication failures and electronic break-ins and similar disruptions, and security risks related to our electronic processing and transmission of confidential customer information. There can be no assurance that our e-commerce operations will achieve growing sales and profitability.We would be adversely affected if our distribution or information technology operations were disrupted.
We currently operate a single, 410,000 square foot distribution center in Evansville, Indiana. Virtually all merchandise received by our stores and our third party fulfillment agent for our e-commerce orders is and will be shipped through our distribution center. Our corporate computer network is essential to our distribution process. If our distribution center is shut down for any reason, such as a natural disaster, power outage or terrorist attack, or if our information technology systems do not operate effectively, or if we are the target of attacks or breaches, we could incur significantly higher costs and longer lead times associated with distributing our products to our stores. Our insurance only covers costs relating to specified, limited matters such as a shutdown due to fire and windstorms, but does not cover other events such as acts of war, terrorist attacks or cyber security incidents. Even in the event of a shutdown due to covered matters, we cannot assure you that our insurance will be sufficient, or that the insurance proceeds will be paid to us in a timely fashion. Shutdowns or information technology disruptions could have an adverse effect on our operating and financial performance.In addition, our stores and our e-commerce site process debit and credit card transactions. We believe we have established appropriate controls to protect our customers’ personal confidential information gathered when a debit or credit card is utilized. However, in the event that such confidential information is misused or obtained by an unauthorized third party or we experience a similar cyber security incident, we could be subject to negative publicity and could be exposed to the risk of litigation that could harmadversely affect our business as well asand reputation, could result in significant costs, fines, litigation or regulatory action against us and could otherwise have a material adverse effect on our financial condition or results of operations.
We will require significant funds to implement our growth strategy and meet our other liquidity needs.
We cannot assure you that we will continue to generate sufficient cash flow from operations or obtain sufficient borrowings under our existing credit agreement to finance our growth strategy and meet our other liquidity needs. In fiscalIf our long-lived assets become impaired, we may need to record significant non-cash impairment charges.Periodically, we review our long-lived assets for impairment whenever economic events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. Significant negative industry or general economic trends, disruptions to our business and unexpected significant changes or planned changes in our use of the assets (such as store relocations or closures) may result in impairment charges. Any such impairment charges, if significant, would adversely impact our financial position and results of operations.
Our failure to retain our existing senior management teammanage key executive succession and retention and to continue to attract qualified personnel could adversely affect our business.
Failure to maintain effective internal control over financial reporting could result in a loss of investor confidence in our financial reports and have a material adverse effect on our stock price.
We must continue to document, test and evaluate our internal control over financial reporting in order to satisfy the requirements of Section 404 of the Sarbanes-Oxley Act of 2002, which requires annual reports by management regarding the effectiveness of our internal control over financial reporting and a report by our independent registered public accounting firm attesting to the effectiveness of our internal control over financial reporting. We have expended, and expect that we will continue to expend, significant management time and resources documenting and testing our internal control over financial reporting. If we conclude in future periods that our internal control over financial reporting is not effective, it could result in lost investor confidence in the accuracy, reliability and completeness of our financial reports. Any such events could have a material adverse effect on our stock price.Our quarterly operating results will fluctuate due to seasonality and other factors.
Our quarterly results of operations have fluctuated in the past and can be expected to continue to fluctuate in the future. Our quarterly results of operations are affected by a variety of factors, including:fashion trends; |
calendar shifts of holiday or seasonal periods; |
the effectiveness of our inventory management; |
weather conditions; |
timing of opening of new stores; |
changes in general economic conditions and consumer spending patterns; and |
actions of competitors or co-tenants. |
We have three distinct peak selling periods: Easter, back-to-school and Christmas. To prepare for our peak shopping seasons, we must order and keep in stock significantly more merchandise than we would carry during other parts of the year. Any unanticipated decrease in demand for our products during these peak shopping seasons could require us to sell excess inventory at a substantial markdown, which could reduce our net sales and gross margins and negatively impact our profitability. Our operating results depend significantly upon the sales generated during these periods.
We also increase our inventory levels to offer styles particularly suited for the relevant season, such as sandals in the early summer season and boots during the winter season. If the weather conditions for a particular season vary significantly from those typical for such season, such as an unusually cold early summer or an unusually warm winter, consumer demand for the seasonally appropriate merchandise that we have available in our stores could be adversely affected and negatively impact net sales and margins. Lower demand for seasonally appropriate merchandise may leave us with an excess inventory of our seasonally appropriate products, forcing us to sell these products at significantly discounted prices and adversely affecting our net sales margins and operating cash flow. Conversely, if weather conditions permit us to sell our seasonal product early in the season, this may reduce inventory levels needed to meet our customers’ needs later in that same season. Consequently, our results of operations are highly dependent on somewhat predictable weather conditions and our ability to react to changes in weather conditions. If our future quarterly results fail to meet the expectations of research analysts, then the market price of our common stock could decline substantially.
Our stock price may be volatile and could decline substantially.
The stock market has, from time to time, experienced extreme price and volume fluctuations. Many factors may cause the market price for our common stock to decline, including:operating results failing to meet the expectations of securities analysts or investors in any quarter; |
downward revisions in securities analysts’ estimates; |
material announcements by us or our competitors; and |
the other risk factors cited in this annual report. |
In the past, companies that have experienced volatility in the market price of their stock have been the subject of securities class action litigation. If we become involved in a securities class action litigation in the future, it could result in substantial costs and diversion of management attention and resources, thus harming our business.
We are controlled by our principal shareholder.
J. Wayne Weaver, our Chairman of the Board of Directors and principal shareholder, and his spouse together own approximatelyProvisions of our organizational documents and Indiana law might deter acquisition bids for us.
Our Restated Articles of Incorporation and Indiana corporate laws contain provisions that may discourage other persons from attempting to acquire control of us, including, without limitation, a Board of Directors that has staggered terms for its members, supermajority voting provisions, restrictions on the ability of shareholders to call a special meeting of shareholders and procedural requirements in connection with shareholder proposals or director nominations. The Board of Directors has the authority to issue preferred stock in one or more series without the approval of the holders of our common stock. Further, Indiana corporate law contains business combination provisions that, in general, prohibit for five years any business combination with a beneficial owner of 10% or more of our common stock unless the holder’s acquisition of the stock was approved in advance by our Board of Directors. Indiana corporate law also contains control share acquisition provisions that limit the ability of certain shareholders to vote their shares unless their control share acquisition is approved. In certain circumstances, the fact that corporate devices are in place that inhibit or discourage takeover attempts could reduce the market value of our common stock.ITEM 1B.Unresolved staff comments
None.
ITEM 2. PROPERTIES
We lease all existing stores and intend to lease all future stores. Approximately 97%99% of the leases for our existing stores provide for fixed minimum rentals and approximately 60% provide for contingent rental payments based upon various specified percentages of sales above minimum levels. Certain leases also contain escalation clauses for increases in minimum rentals, operating costs and taxes.
The following table identifies the number of our stores in each state and Puerto Rico as of January 28, 2012:
State | State | |||
Alabama | 11 | Montana | 1 | |
Arkansas | 9 | North Carolina | 18 | |
Arizona | 2 | North Dakota | 2 | |
Colorado | 3 | Nebraska | 1 | |
Florida | 20 | Ohio | 19 | |
Georgia | 15 | Oklahoma | 7 | |
Idaho | 5 | Pennsylvania | 7 | |
Iowa | 7 | South Carolina | 11 | |
Illinois | 27 | South Dakota | 2 | |
Indiana | 21 | Tennessee | 17 | |
Kansas | 3 | Texas | 39 | |
Kentucky | 12 | Utah | 7 | |
Louisiana | 12 | Virginia | 9 | |
Michigan | 5 | Wisconsin | 2 | |
Missouri | 20 | West Virginia | 5 | |
Mississippi | 7 | Wyoming | 1 | |
Total Stores | 327 |
State/Territory | State/Territory | |||||||||
Alabama | 11 | Montana | 2 | |||||||
Arkansas | 9 | North Carolina | 18 | |||||||
Arizona | 4 | North Dakota | 2 | |||||||
Colorado | 3 | Nebraska | 1 | |||||||
Florida | 23 | Ohio | 19 | |||||||
Georgia | 15 | Oklahoma | 7 | |||||||
Idaho | 5 | Pennsylvania | 9 | |||||||
Iowa | 7 | Puerto Rico | 4 | |||||||
Illinois | 26 | South Carolina | 12 | |||||||
Indiana | 22 | South Dakota | 2 | |||||||
Kansas | 3 | Tennessee | 18 | |||||||
Kentucky | 12 | Texas | 46 | |||||||
Louisiana | 12 | Utah | 9 | |||||||
Michigan | 5 | Virginia | 9 | |||||||
Missouri | 21 | Wisconsin | 2 | |||||||
Mississippi | 7 | West Virginia | 5 | |||||||
Wyoming | 1 | |||||||||
Total Stores | 351 |
In February 2006, we entered into an operating lease with an independent third party to lease our 410,000 square foot distribution center located in Evansville, Indiana. The lease has an initial term of 15 years, commencing on December 1, 2006. We have the right to extend the initial lease term for up to three additional periods of five years each, and to expand the facility by up to 200,000 square feet.
In June 2006, we entered into an operating lease with an independent third party to lease our corporate headquarters for an initial term of 15 years, commencing on June 1, 2007. We have the right to extend the initial lease term for up to three additional periods of five years each, and to expand the facility by up to 30,000 square feet.
For additional information with respect to our properties, see ITEM 1. BUSINESS – “Growth Strategy” and “Distribution” as well as PART II, ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS – “Executive Summary” of this report.
ITEM 3. LEGAL PROCEEDINGS
We are involved in various legal proceedings incidental to the conduct of our business. While the outcome of any legal proceeding is always uncertain, we do not currently expect that any such proceedings will have a material adverse effect on our financial position or results of operations.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
15 |
PART II
ITEM 5. | MARKET FOR THE REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES |
Market Information and Holders
Our common stock has been quoted on The NASDAQ Stock Market, LLC under the trading symbol “SCVL” since March 16, 1993.
The quarterly intraday high and low trading prices, in addition to cash dividends, were as follows:
Fiscal 2011 | High | Low | ||||||
First Quarter | $ | 29.47 | $ | 24.00 | ||||
Second Quarter | 34.05 | 24.36 | ||||||
Third Quarter | 32.74 | 21.00 | ||||||
Fourth Quarter | 27.99 | 19.19 | ||||||
Fiscal 2010 | ||||||||
First Quarter | $ | 28.75 | $ | 17.27 | ||||
Second Quarter | 29.26 | 18.02 | ||||||
Third Quarter | 23.63 | 16.24 | ||||||
Fourth Quarter | 30.09 | 22.65 |
High | Low | Dividends Paid | ||||||||||
Fiscal 2012 | ||||||||||||
First Quarter | $ | 22.61 | $ | 16.40 | $ | 0.00 | ||||||
Second Quarter | 23.58 | 19.05 | 0.05 | |||||||||
Third Quarter | 24.66 | 20.80 | 0.05 | |||||||||
Fourth Quarter | 23.83 | 18.80 | 1.05 | |||||||||
Fiscal 2011 | ||||||||||||
First Quarter | $ | 19.65 | $ | 16.00 | $ | 0.00 | ||||||
Second Quarter | 22.70 | 16.24 | 0.00 | |||||||||
Third Quarter | 21.83 | 14.00 | 0.00 | |||||||||
Fourth Quarter | 18.66 | 12.79 | 0.00 |
As of April 5, 2012,1, 2013, there were approximately 202194 holders of record of our common stock.
No unregistered equity securities were sold by us during fiscal 2011.
On March 23, 2012, our Board of Directors authorized a three-for-two stock split of the shares of our common stock, which will bewas effected in the form of a stock dividend. The stock split will entitleentitled each shareholder of record at the close of business on April 13, 2012 to receive one additional share of common stock for every two shares of common stock owned as of that date, payableand was paid on April 27, 2012. Upon the completion of the stock split, our outstanding shares will increaseincreased from approximately 13.6 million shares to approximately 20.4 million shares. All share and per share amounts in this Annual Report on Form 10-K give effect to the stock split and have been adjusted retroactively for all periods presented.
Cash Dividends
Our historicalBoard of Directors approved the payment of our first-ever quarterly cash dividend to our shareholders during the second quarter of fiscal 2012. The initial dividend was followed by the approval and payment of two additional quarterly dividends during fiscal 2012, each in the amount of $0.05 per share dataof common stock. Additionally, our Board of Directors approved the payment of a special cash dividendof $1.00 per share of common stock during December 2012. In total during fiscal 2012, we returned $23.5 million in cash to our shareholders through our quarterly and special cash dividends.
On March 27, 2013, the Board of Directors approved the payment of a cash dividend to our shareholders in the first quarter of fiscal 2013. The quarterly cash dividend of $0.06 per share will be retroactively adjusted upon the completionpaid on April 26, 2013 to shareholders of record as of the stock split.
The declaration and do not currently intend to pay, cash dividends on our common stock. The payment of any future cash dividends will beare at the discretion of ourthe Board of Directors and will depend upon, among other things, future earnings,on our results of operations, capital requirements, our general financial condition, business conditions and general business conditions.other factors deemed relevant by our Board of Directors. Our credit agreement allowspermits the payment of dividends as long as the dividends distributed do not exceed 30% of our consolidated net income for the preceding fiscal year.
Issuer Purchases of Equity Securities
Throughout fiscal 2011,2012, we issued treasury shares to employees for the exercise of stock options and for the issuance of restricted stock awards. We also repurchased 115,5972,015 shares of common stock as a result of our withholding shares or allowing our employees to deliver shares to us to cover the income taxes resulting from the vesting of certain restricted stock awards. It is our intention to continue these practices as they relate to the issuance of treasury shares.
On August 23, 2010, our Board of Directors authorized a $25 million share repurchase program, which was to terminate upon the earlier of the repurchase of the maximum amount or December 31, 2011. On December 16, 2011, theSince then, our Board of Directors has extended the date of termination by one year to December 31, 2012.2013. The purchases may be made in the open market or through privately negotiated transactions from time-to-time and in accordance with applicable laws, rules and regulations. The program may be amended, suspended or discontinued at any time and does not commit us to repurchase shares of our common stock. We have funded, and intend to continue to fund, the share repurchase program from cash on hand and any shares acquired will be available for stock-based compensation awards and other corporate purposes. The actual number and value of the shares to be purchased will depend on the performance of our stock price and other market conditions. As required by our credit agreement, consent was obtained from the Agent and the Majority Banks, each as defined in the credit agreement. NoAs of February 2, 2013, approximately 220,000 shares had been repurchased under this program asat an aggregate cost of January 28, 2012.
The following table summarizes repurchase activity during the fourth quarter of fiscal 2011:
Issuer Purchases of Equity Securities | ||||||||||||||||
Total Number | Approximate | |||||||||||||||
Of Shares | Dollar Value | |||||||||||||||
Purchased | of Shares | |||||||||||||||
as Part | that May Yet | |||||||||||||||
Total Number | Average | of Publicly | Be Purchased | |||||||||||||
of Shares | Price Paid | Announced | Under | |||||||||||||
Period | Purchased1 | per Share | Programs2 | Programs | ||||||||||||
October 30, 2011 to November 26, 2011 | 0 | $ | 0.00 | 0 | $ | 25,000,000 | ||||||||||
November 27, 2011 to December 31, 2011 | 0 | $ | 0.00 | 0 | $ | 25,000,000 | ||||||||||
January 1, 2012 to January 28, 2012 | 22,689 | $ | 25.69 | 0 | $ | 25,000,000 | ||||||||||
22,689 | 0 |
Issuer Purchases of Equity Securities | ||||||||||||||||
Total Number | Approximate | |||||||||||||||
Of Shares | Dollar Value | |||||||||||||||
Purchased | of Shares | |||||||||||||||
as Part | that May Yet | |||||||||||||||
Total Number | Average | of Publicly | Be Purchased | |||||||||||||
of Shares | Price Paid | Announced | Under | |||||||||||||
Period | Purchased | per Share | Programs(2) | Programs | ||||||||||||
October 28, 2012 to November 24, 2012 | 27,000 | $ | 20.62 | 27,000 | $ | 22,584,000 | ||||||||||
November 25, 2012 to December 29, 2012 | 111,300 | $ | 20.29 | 111,300 | $ | 20,325,000 | ||||||||||
December 30, 2012 to February 2, 2013(1) | 1,229 | $ | 20.55 | 0 | $ | 20,325,000 | ||||||||||
139,529 | 138,300 |
(1) | Total number of shares purchased represents shares delivered to or withheld by us in connection with employee payroll tax withholding upon the vesting of certain restricted stock awards. |
(2) | On August 23, 2010, our Board of Directors authorized a $25 million share repurchase program, which was to terminate upon the earlier of the repurchase of the maximum amount or December 31, 2011. On December 16, 2011, the Board of Directors extended the date of termination by one year to December 31, 2012. On December 13, 2012, the Board of Directors extended the date of termination by an additional year to December 31, 2013. |
Securities Authorized for Issuance Under Equity Compensation Plans
The information required by this Item concerning securities authorized for issuance under our equity plans has been incorporated by reference into PART III, ITEM 12 of this report.
17 |
ITEM 6. SELECTED FINANCIAL DATA
The following selected financial data should be read in conjunction with Management’s Discussion and Analysis of Financial Condition and Results of Operations as contained in PART II, ITEM 7 along with our consolidated financial statements and notes to those statements included in PART II, ITEM 8 of this report.
(In thousands, except per share and operating data)
Fiscal years (1) | 2011 | 2010 | 2009 | 2008 | 2007 | |||||||||||||||
Income Statement Data: | ||||||||||||||||||||
Net Sales | $ | 762,534 | $ | 739,189 | $ | 682,422 | $ | 647,572 | $ | 658,680 | ||||||||||
Cost of sales (including buying, distribution and occupancy costs) | 537,681 | 517,650 | 488,816 | 473,244 | 472,831 | |||||||||||||||
Gross Profit | 224,853 | 221,539 | 193,606 | 174,328 | 185,849 | |||||||||||||||
Selling, general and administrative expenses | 182,716 | 179,154 | 168,476 | 165,953 | 166,717 | |||||||||||||||
Operating income | 42,137 | 42,385 | 25,130 | 8,375 | 19,132 | |||||||||||||||
Interest income | (79 | ) | (165 | ) | (39 | ) | (148 | ) | (690 | ) | ||||||||||
Interest expense | 266 | 258 | 174 | 153 | 264 | |||||||||||||||
Income before income taxes | 41,950 | 42,292 | 24,995 | 8,370 | 19,558 | |||||||||||||||
Income tax expense | 15,568 | 15,471 | 9,829 | 3,051 | 6,751 | |||||||||||||||
Net income | $ | 26,382 | $ | 26,821 | $ | 15,166 | $ | 5,319 | $ | 12,807 | ||||||||||
Net income per share: | ||||||||||||||||||||
Basic | $ | 1.98 | $ | 2.11 | $ | 1.21 | $ | 0.43 | $ | 0.99 | ||||||||||
Diluted | $ | 1.97 | $ | 2.05 | $ | 1.20 | $ | 0.43 | $ | 0.97 | ||||||||||
Selected Operating Data: | ||||||||||||||||||||
Stores open at end of year | 327 | 314 | 311 | 304 | 291 | |||||||||||||||
Square footage of store space at year end (000’s) | 3,554 | 3,390 | 3,372 | 3,335 | 3,238 | |||||||||||||||
Average sales per store (000’s) | $ | 2,390 | $ | 2,384 | $ | 2,219 | $ | 2,206 | $ | 2,364 | ||||||||||
Average sales per square foot | $ | 221 | $ | 221 | $ | 204 | $ | 198 | $ | 209 | ||||||||||
Comparable store sales (2) | 0.7 | % | 8.2 | % | 3.5 | % | (4.6 | )% | (5.2 | )% | ||||||||||
Balance Sheet Data: | ||||||||||||||||||||
Cash and cash equivalents | $ | 70,602 | $ | 60,193 | $ | 44,168 | $ | 24,817 | $ | 9,177 | ||||||||||
Total assets | $ | 386,562 | $ | 345,145 | $ | 311,641 | $ | 293,074 | $ | 291,616 | ||||||||||
Long-term debt | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | ||||||||||
Total shareholders’ equity | $ | 283,684 | $ | 254,343 | $ | 221,829 | $ | 204,636 | $ | 196,612 |
Fiscal years(1) | 2012 | 2011 | 2010 | 2009 | 2008 | |||||||||||||||
Income Statement Data: | ||||||||||||||||||||
Net Sales | $ | 854,998 | $ | 762,534 | $ | 739,189 | $ | 682,422 | $ | 647,572 | ||||||||||
Cost of sales (including buying, distribution and occupancy costs) | 597,521 | 537,681 | 517,650 | 488,816 | 473,244 | |||||||||||||||
Gross Profit | 257,447 | 224,853 | 221,539 | 193,606 | 174,328 | |||||||||||||||
Selling, general and administrative expenses | 208,983 | 182,716 | 179,154 | 168,476 | 165,953 | |||||||||||||||
Operating income | 48,494 | 42,137 | 42,385 | 25,130 | 8,375 | |||||||||||||||
Interest income | (32 | ) | (79 | ) | (165 | ) | (39 | ) | (148 | ) | ||||||||||
Interest expense | 273 | 266 | 258 | 174 | 153 | |||||||||||||||
Income before income taxes | 48,253 | 41,950 | 42,292 | 24,995 | 8,370 | |||||||||||||||
Income tax expense | 18,915 | 15,568 | 15,471 | 9,829 | 3,051 | |||||||||||||||
Net income | $ | 29,338 | $ | 26,382 | $ | 26,821 | $ | 15,166 | $ | 5,319 | ||||||||||
Net income per share: | ||||||||||||||||||||
Basic | $ | 1.44 | $ | 1.32 | $ | 1.41 | $ | 0.81 | $ | 0.29 | ||||||||||
Diluted | $ | 1.43 | $ | 1.31 | $ | 1.37 | $ | 0.80 | $ | 0.28 | ||||||||||
Weighted average shares: | ||||||||||||||||||||
Basic | 19,911 | 19,524 | 19,085 | 18,770 | 18,609 | |||||||||||||||
Diluted | 19,972 | 19,694 | 19,587 | 18,990 | 18,738 | |||||||||||||||
Dividends declared per share | $ | 1.15 | $ | 0.00 | $ | 0.00 | $ | 0.00 | $ | 0.00 | ||||||||||
Selected Operating Data: | ||||||||||||||||||||
Stores open at end of year | 351 | 327 | 314 | 311 | 304 | |||||||||||||||
Square footage of store space at year end (000’s) | 3,823 | 3,554 | 3,390 | 3,372 | 3,335 | |||||||||||||||
Average sales per store (000’s)(2) | $ | 2,478 | $ | 2,390 | $ | 2,384 | $ | 2,219 | $ | 2,206 | ||||||||||
Average sales per square foot (2) | $ | 227 | $ | 221 | $ | 221 | $ | 204 | $ | 198 | ||||||||||
Comparable store sales(2)(3) | 4.5 | % | 0.7 | % | 8.2 | % | 3.5 | % | (4.6 | )% | ||||||||||
Balance Sheet Data: | ||||||||||||||||||||
Cash and cash equivalents | $ | 45,756 | $ | 70,602 | $ | 60,193 | $ | 44,168 | $ | 24,817 | ||||||||||
Total assets | $ | 407,196 | $ | 386,562 | $ | 345,145 | $ | 311,641 | $ | 293,074 | ||||||||||
Long-term debt | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | ||||||||||
Total shareholders’ equity | $ | 292,368 | $ | 283,684 | $ | 254,343 | $ | 221,829 | $ | 204,636 |
(1) | Our fiscal year is a 52/53 week year ending on the Saturday closest to January 31. Unless otherwise stated, references to years 2012, 2011, 2010, 2009, |
(2) | Selected Operating Data for fiscal 2012 has been adjusted to a comparable 52-week period ended January 26, 2013. |
(3) | Comparable store sales for the periods indicated include stores that have been open for 13 full months prior to the beginning of the period, including those stores that have been relocated or remodeled. Therefore, stores opened or closed during the periods indicated are not included in comparable store sales nor are our e-commerce sales. Our e-commerce sales |
18 |
The following discussion of our financial condition and results of operations should be read together with our consolidated financial statements and notes to those statements included in PART II, ITEM 8 of this report.
Overview of Our Business
Shoe Carnival, Inc. is one of the nation’s largest family footwear retailers, providing the convenience of shopping at any of our 327more than 350 store locations or online at shoecarnival.com. Our stores combine competitive pricing with a highly promotional, in-store marketing effort that encourages customer participation and creates a fun and exciting shopping experience. We believe this highly promotional atmosphere results in various competitive advantages, including increased multiple unit sales; the building of a loyal, repeat customer base; the creation of word-of-mouth advertising; and enhanced sell-through of in-season goods. The same excitement and spontaneity is reflected in our e-commerce site through special promotions and limited time sales, along with relevant fashion stories featured on our home page.
Our objective is to be the destination retailer-of-choice for a wide range of consumers seeking moderatelyvalue priced, current season name brand and private label footwear. Our product assortment includes dress and casual shoes, sandals, boots and a wide assortment of athletic shoes for the entire family. Our average store carries approximately 28,50028,200 pairs of shoes in four general categories - men’s, women’s, children’s and athletics. In addition to footwear, our stores carry selected accessory items complementary to the sale of footwear. Our e-commerce site offers customers an opportunity to choose from a large selection of products in all categories with a depth of sizes and colors that may not be available in some of our smaller stores, and introduces our concept to consumers that are new to Shoe Carnival.
Our fiscal year is a 52/53 week year ending on the Saturday closest to January 31. Unless otherwise stated, references to years 2012, 2011 2010 and 20092010 relate respectively to the fiscal years ended February 2, 2013, January 28, 2012, and January 29, 2011,2011. Fiscal year 2012 consisted of 53 weeks and January 30, 2010.
On March 23, 2012, our Board of Directors authorized a three-for-two stock split of the shares of our common stock, which will bewas effected in the form of a stock dividend. The stock split will entitleentitled each shareholder of record at the close of business on April 13, 2012 to receive one additional share of common stock for every two shares of common stock owned as of that date, payableand was paid on April 27, 2012. Upon the completion of the stock split, our outstanding shares will increaseincreased from approximately 13.6 million shares to approximately 20.4 million shares. Our historicalAll share data will be retroactively adjusted upon the completion ofand per share amounts in this Annual Report on Form 10-K give effect to the stock split.
Executive Summary
Fiscal 2011
We experienced significant fluctuations in consumer demandcontinued to execute on two strategic initiatives during fiscal 20112012, which included capitalizing on the fashion driving consumer footwear demand and aggressively opening stores in new and existing markets.
Unseasonably warm weather patterns early in our first quarter of fiscal 2012 served as compared to fiscal 2010 when strong fashion trends aided us in setting record breaking quarterly results. While toninga catalyst for early sales of sandalized footwear and athletic footwear were key drivers ofshoes for all ages. Coupling this with the traditional period for our sales for fiscal 2010, our non-athletic footwear, particularly sandals and boots, contributed significantlycustomer to ourreceive their income tax refund proved instrumental in driving strong comparable store sales increase as well. During fiscal 2011,growth for February and provided momentum to drive athletic footwear, particularly performance running product, remainedbusiness throughout the first quarter. As we progressed through spring and into the back-to-school season, sales and earnings continued to be strong, with sales gains on a strong performer. However, the popularity of toning footwear continued its significant decline in fiscal 2011 and negatively affected our quarterly comparable store sales and gross profit margin throughoutbasis being driven by an increase in the year.average selling price of our footwear. Consumer traffic increased during the back-to-school season; however, these increases in traffic were of short duration. Salesdemand began to weaken latetemper early in the third quarter and into the fourth quarter as unseasonably warmour moderate-income customer was impacted by the rising economic uncertainties and unfavorable weather was experienced throughoutpatterns for the United States. Aspurchase of seasonal footwear.
During fiscal 2012, we opened 31 new stores, including stores in the Dallas/Fort Worth Metroplex and Puerto Rico, which were new major markets for us. Pre-opening expenses, including distribution, occupancy and selling expenses, were $4.1 million for fiscal 2012, a result, consumer demand for fall footwear, particularly boots, declined significantly. Consequently, heavy promotional activity was required$2.3 million increase over fiscal 2011 during the fourth quarter to effectively sell through this inventory.
Despite the challenges presented by the changes in consumer demand late in fiscal 2012 and a significant increase in new store openings, we were able to manage our inventories and control our costs such that operating income, as a percentage of sales, declined onlyimproved by 0.2% to 5.5%5.7% for fiscal 2011,2012, as compared to the prior year. We achieved earnings per diluted share of $1.97 in fiscal 2011, which is second only to our record earnings per diluted share of $2.05$1.43 in fiscal 2010.
Fiscal 2012 was also a period of senior leadership transition for us. Mark Lemond retired at the end of October 2012 after serving as our President and Chief Executive Officer for the last 16 years. Cliff Sifford, who was then serving as our Executive Vice President – General Merchandise Manager, was appointed as President, Chief Executive Officer and Chief Merchandising Officer.
Additionally for fiscal 2011:
· | Net sales increased |
Inventories at |
· | During the first quarter of fiscal 2012, our Board of Directors authorized a three-for-two stock split of the shares of our |
Our Board of Directors approved the payment of our first-ever quarterly cash dividend to our shareholders during the second quarter of fiscal 2012. The initial dividend was followed by the approval and payment of two additional quarterly dividends during fiscal |
· | During fiscal 2012, we returned additional capital to our |
Fiscal 2012
In fiscal 2013, we remain focused on growing our business as we move into fiscal 2012.both through store expansion and enhancing the Shoe Carnival brand. We expect to open between 30 to 35 new stores and close five to seven stores. The majority of our new store locations will serve to fill in certain under-penetrated markets with additional stores, thereby increasing the performance of the overall market. The balance of our new store openings will be in new smaller markets that we can fully penetrate with one or two stores.
Our fiscal 2013 plans also call for continued reinvestment in our existing brick-and-mortar store base, focusing on in-store graphics, including signage updates to focal walls and end-caps. Dependent upon successful lease negotiations, we plan to remodel approximately 30 new stores with over one-third of these stores located in two new major markets – Dallas, Texas and Puerto Rico. These new major markets, coupled with our e-commerce site which launched instores.
In the third quartersecond half of fiscal 2011, offer2013, we will begin testing the addition of certain women’s non-athletic better brands in approximately 20% of our stores. Our consumer research indicates that this customer is coming into our store and purchasing footwear for her husband and children, but purchasing this better product elsewhere. Our goal is to capture this customer by filling this product void.
We are also introducing a new television campaign in fiscal 2013, which is designed to better communicate to our customers, especially in new markets, what makes shopping at Shoe Carnival a unique and differentiated shopping experience. While this television campaign is expected to help us attract new customers, we believe it will also keep the opportunity to acquire significant additional exposure forattention of our brand.
Critical Accounting Policies
It is necessary for us to include certain judgments in our reported financial results. These judgments involve estimates based in part on our historical experience and incorporate the impact of the current general economic climate and company-specific circumstances. However, because future events and economic conditions are inherently uncertain, our actual results could differ materially from these estimates. The accounting policies that require the more significant judgments are included below.
Merchandise Inventories
– Our merchandise inventories are stated at the lower of cost or market (LCM) as of the balance sheet date and consist primarily of dress, casual and athletic footwear for men, women and children. The cost of our merchandise is determined using the first-in, first-out valuation method (FIFO). For determining market value, we estimate the future demand and related sale price of merchandise in our inventory. The stated value of merchandise inventories contained on our consolidated balance sheets also includes freight, certain capitalized overhead costs and reserves.We review our inventory at the end of each quarter to determine if it is properly stated at LCM. Factors considered include, among others, recent sale prices, the length of time merchandise has been held in inventory, quantities of the various styles held in inventory, seasonality of the merchandise, expected consideration to be received from our vendors and current and expected future sales trends. We reduce the value of our inventory to its estimated net realizable value where cost exceeds the estimated future selling price. Merchandise inventories as of February 2, 2013 totaled $272.3 million, representing approximately 67% of total assets. Merchandise inventories as of January 28, 2012 and January 29, 2011 totaled $237.7 million, and $212.9 million, respectively, representing approximately 62% of total assets for both periods.assets. Given the significance of inventories to our consolidated financial statements, the determination of net realizable value is considered to be a critical accounting estimate. Material changes in the factors noted above could have a significant impact on the actual net realizable value of our inventory and our reported operating results.
Valuation of Long-Lived Assets
– Long-lived assets, such as property and equipment subject to depreciation, are evaluated for impairment on a periodic basis if events or circumstances indicate the carrying value may not be recoverable. This evaluation includes performing an analysis of the estimated undiscounted future cash flows of the long-lived assets. Assets are grouped and the evaluation performed at the lowest level for which there are identifiable cash flows, which is generally at a store level.If the estimated future cash flows for a store are determined to be less than the carrying value of the store’s assets, an impairment loss is recorded for the difference between estimated fair value and carrying value. We estimate the fair value of our long-lived assets using store specific cash flow assumptions discounted by a rate commensurate with the risk involved with such assets while incorporating marketplace assumptions. Our assumptions and estimates used in the evaluation of impairment, including current and future economic trends for stores, are subject to a high degree of judgment. Assets subject to impairment are adjusted to estimated fair value and, if applicable, an impairment loss is recorded in selling, general and administrative expenses. Our long-lived assets as of February 2, 2013 totaled $77.4 million, or 19% of total assets, and as of January 28, 2012 and January 29, 2011 totaled $69.2 million, and $62.4 million, respectively, representing approximatelyor 18% of total assets for both periods.assets. Our evaluations performed during fiscal 20112012 and fiscal 20102011 resulted in non-cash impairment charges of $338,000$425,000 and $1.7 million,$338,000, respectively. If actual operating results or market conditions differ from those anticipated, the carrying value of certain of our assets may prove unrecoverable and we may incur additional impairment charges in the future.
Insurance Reserves
– We self-insure a significant portion of our workers’ compensation, general liability and employee health care costs and also maintain insurance in each area of risk protecting us from individual and aggregate losses over specified dollar values. We review the liability reserved for our self-insured portions on a quarterly basis, taking into consideration a number of factors, including historical claims experience, severity factors, statistical trends and, in certain instances, valuation assistance provided by independent third parties. Our self-insurance reserves include estimates of both claims filed, carried at their expected ultimate settlement value, and claims incurred but not yet reported. As of February 2, 2013 and January 28, 2012,Income Taxes
– As part of the process of preparing our consolidated financial statements we are required to estimate our current and future income taxes for eachWe are also required to make many subjective assumptions and judgments regarding our income tax exposures and account for uncertain tax positions associated with our variousincome tax filings. InterpretationsWe must presume that taxing authorities will examine all uncertain tax positions and that they have full knowledge of andall relevant information. However, interpretations of guidance surrounding income tax laws and regulations are often complex, ambiguous and frequently change over time.time and a number of years may elapse before a particular issue is resolved. As such, changes in our subjective assumptions and judgments can materially affect amounts recognized in our consolidated financial statements. Although we believe that we have adequately provided for all uncertain tax positions, tax authorities could assess tax liabilities greater or less than our accrued positions for open tax periods.
Results of Operations
The following table sets forth our results of operations expressed as a percentage of net sales for the following fiscal years:
2011 | 2010 | 2009 | ||||||||||
Net Sales | 100.0 | % | 100.0 | % | 100.0 | % | ||||||
Cost of sales (including buying, distribution, and occupancy costs) | 70.5 | 70.0 | 71.6 | |||||||||
Gross profit | 29.5 | 30.0 | 28.4 | |||||||||
Selling, general and administrative expenses | 24.0 | 24.3 | 24.7 | |||||||||
Operating income | 5.5 | 5.7 | 3.7 | |||||||||
Interest income | (0.0 | ) | (0.0 | ) | (0.0 | ) | ||||||
Interest expense | 0.0 | 0.0 | 0.0 | |||||||||
Income before income taxes | 5.5 | 5.7 | 3.7 | |||||||||
Income tax expense | 2.0 | 2.1 | 1.5 | |||||||||
Net income | 3.5 | % | 3.6 | % | 2.2 | % |
2012 | 2011 | 2010 | ||||||||||
Net Sales | 100.0 | % | 100.0 | % | 100.0 | % | ||||||
Cost of sales (including buying, distribution, and occupancy costs) | 69.9 | 70.5 | 70.0 | |||||||||
Gross profit | 30.1 | 29.5 | 30.0 | |||||||||
Selling, general and administrative expenses | 24.4 | 24.0 | 24.3 | |||||||||
Operating income | 5.7 | 5.5 | 5.7 | |||||||||
Interest income | (0.0 | ) | (0.0 | ) | (0.0 | ) | ||||||
Interest expense | 0.0 | 0.0 | 0.0 | |||||||||
Income before income taxes | 5.7 | 5.5 | 5.7 | |||||||||
Income tax expense | 2.3 | 2.0 | 2.1 | |||||||||
Net income | 3.4 | % | 3.5 | % | 3.6 | % |
In the regular course of business, we offer our customers sales incentives including coupons, discounts, and free merchandise. Sales are recorded net of such incentives and returns and allowances. If an incentive involves free merchandise, that merchandise is recorded as a zero sale and the cost is included in cost of sales. Comparable store sales for the periods indicated below include stores that have been open for 13 full months prior to the beginning of the period, including those stores that have been relocated or remodeled. Therefore, stores opened or closed during the periods indicated are not included in comparable store sales nor are our e-commerce sales. Our e-commerce sales will bewere included in comparable sales starting with the fourth quarter of fiscal 2012.
2012 Compared to 2011
Net Sales
Net sales increased $92.5 million to $855.0 million for fiscal 2012, a 12.1% increase over net sales for fiscal 2011. Similar to other retailers, we follow the retail 4-5-4 reporting calendar, which included an extra week in the fourth quarter of fiscal 2012 (the 53rd week). Net sales of approximately $10.7 million were recorded for this extra week. Of our $92.5 million increase in net sales, the 48 stores opened since the beginning of fiscal 2011 and our e-commerce operation contributed $59.0 million. Sales increased within our comparable store base by approximately $42.5 million. Comparable store sales for the 52-week period ended January 26, 2013 increased 4.5%, driven by an increase in the average unit selling price of our footwear, which was partially offset by a decline in the number of footwear units sold. These sales increases were partially offset by a decline in sales of $9.1 million from the 11 stores closed since the beginning of fiscal 2011.
Gross Profit
Gross profit increased $32.6 million to $257.5 million in fiscal 2012. The gross profit margin in fiscal 2012 increased to 30.1% from 29.5% in the prior fiscal year. Our merchandise margin increased 0.4% while buying, distribution and occupancy costs, as a percentage of sales, decreased 0.2%. Buying, distribution and occupancy costs increased approximately $8.0 million during fiscal 2012 as compared to the prior fiscal year primarily as a result of the operation of additional store locations. However, our sales gain enabled us to leverage these costs by 0.2% as a percentage of sales.
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased $26.3 million in fiscal 2012 to $209.0 million. Significant changes in expense between the comparative periods included the following:
· | We incurred an additional $17.1 million of expense during fiscal 2012, as compared to the same period last year, in the operation of new stores and our e-commerce initiative. This increase was net of expense reductions for stores that have closed since the beginning of fiscal 2011. |
· | Incentive compensation, inclusive of stock-based compensation, increased $5.2 million in fiscal 2012 as compared to the same period last year primarily due to our improved financial performance. |
· | In connection with his retirement, we paid a one-time retirement and severance payment of $1.4 million to our former President and Chief Executive Officer in October 2012, which was included as incentive compensation in selling, general and administrative expenses. Also included were incentive compensation expense reductions of approximately $154,000 in fiscal 2012 to reflect the forfeiture of certain of his non-vested restricted stock awards. |
· | We experienced a year-over-year increase in self-insured health care costs of $1.8 million in fiscal 2012 as compared to the same period last year. Costs related to our self-insured health care programs are subject to a significant degree of volatility, especially as it relates to the frequency of catastrophic claims. Consequently, we are subject to a risk of material variances between reporting periods. |
In fiscal 2012, pre-opening costs included in selling, general and administrative expenses were $2.7 million, or 0.3% as a percentage of sales, as compared to $1.2 million, or 0.2% as a percentage of sales, for fiscal 2011. We opened 31 stores during fiscal 2012 as compared to 17 stores last year. Pre-opening costs, such as advertising, payroll and supplies, incurred prior to the opening of a new store are charged to expense in the period in which they are incurred. The total amount of pre-opening expense incurred will vary by store depending on the specific market and the promotional activities involved.
The portion of store closing costs and non-cash asset impairment charges included in selling, general and administrative expenses for fiscal 2012 was $646,000, or 0.1% as a percentage of sales. These costs related to the closing of seven stores, non-cash asset impairment of certain underperforming stores and acceleration of expenses associated with management’s determination to close certain underperforming stores in future periods. In fiscal 2011 we incurred store closing costs and non-cash asset impairment charges of $554,000, or 0.1% as a percentage of sales. These costs related to the closing of four stores, non-cash asset impairment of certain underperforming stores and acceleration of expenses associated with management’s determination to close certain underperforming stores in future periods. The timing and actual amount of expense recorded in closing a store can vary significantly depending, in part, on the period in which management commits to a closing plan, the remaining basis in the fixed assets to be disposed of at closing and the amount of any lease buyout.
Income Taxes
The effective income tax rate for fiscal 2012 was 39.2% as compared to 37.1% for fiscal 2011. Our provision for income tax expense is based on the current estimate of our annual effective tax rate and is adjusted as necessary for quarterly events. Approximately 1.3% of the increase in our effective tax rate between comparative periods was due to the non-deductible portion of compensation attributable to the retirement of our former President and Chief Executive Officer. Our fiscal 2011 effective tax rate included benefits related to the favorable resolution of certain tax positions, which lowered the effective tax rate as compared to other historical periods.
2011 Compared to 2010
Net Sales
Net sales increased $23.3 million to $762.5 million in fiscal 2011, a 3.2% increase over the prior year’s net sales of $739.2 million. Of this increase, $22.5 million was attributable to the sales generated by the 17 new stores we opened during fiscal 2011, our e-commerce business which was launched in the third quarter of fiscal 2011 along with the full year effect of sales generated by the ten stores we opened in fiscal 2010. Our comparable stores sales increased 0.7% for fiscal 2011. These increases in sales were partially offset by a decline in sales of $4.7 million from the 11 stores closed during fiscal 2011 and fiscal 2010.
During fiscal 2011, comparable store sales were negatively impacted by a decline in consumer demand within two key product areas, toning footwear and boots. We were able to mitigate our year over year comparable store sales loss in toning footwear as sales within the balance of the athletic category, particularly performance running, remained strong. However, the unseasonably warm weather that was experienced late in the third quarter and throughout the fourth quarter of fiscal 2011 significantly impacted consumer demand for fall footwear, particularly boots. Consequently, heavy promotional activity, including markdowns, was required during the fourth quarter of fiscal 2011 to effectively sell through this inventory.
Gross Profit
Gross profit increased $3.4 million to $224.9 million in fiscal 2011, a 1.5% increase from gross profit of $221.5 million in fiscal 2010. The gross profit margin for fiscal 2011 decreased to 29.5% from 30.0% in fiscal 2010. Our merchandise margin decreased 0.5% while buying, distribution and occupancy costs, as a percentage of sales, remained unchanged. The decrease in our merchandise margin was primarily the result of the heavy promotional activity that was required during the fourth quarter of fiscal 2011 to effectively sell through our fall footwear, particularly boots.
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased $3.5 million in fiscal 2011 to $182.7 million from $179.2 million in fiscal 2010; however, our sales gain enabled us to leverage these costs by 0.3% as a percentage of sales. Significant changes in expense between the comparative periods included the following:
We incurred an additional $7.8 million of incremental expense during fiscal 2011, as compared to the prior year, to support our sales growth, expanded store base and e-commerce initiative. The increase in selling expenses was primarily due to increases in wages and advertising. |
During fiscal 2010, we experienced a significant decrease in the average cost of health claims per participant as compared to recent historical periods. Our average claims per participant returned to a more normalized level in fiscal 2011 and, together with a small increase in covered employees, we experienced a year over year increase in self-insured health care costs of $1.7 million. Costs related to our self-insured health care programs are subject to a significant degree of volatility and will continue to carry the risk of material variances between reporting periods. |
The increases in selling, general and administration expenses were partially offset by a $6.6 million reduction in incentive compensation for fiscal 2011 as compared to the prior year when record-breaking financial performance drove material increases in performance-based compensation. |
Pre-opening costs included in selling, general and administrative expenses were $1.2 million, or 0.2% as a percentage of sales, in fiscal 2011, as compared to $642,000, or 0.1% as a percentage of sales, in fiscal 2010. We opened 17 stores during fiscal 2011 and ten stores in fiscal 2010. Pre-opening costs, such as advertising, payroll and supplies, incurred prior to the opening of a new store are charged in the period they are incurred. The total amount of pre-opening expense incurred will vary by store depending on the specific market and the promotional activities involved.
The portion of store closing costs and non-cash asset impairment charges included in selling, general and administrative expenses for fiscal 2011 was $554,000, or 0.1% as a percentage of sales. These costs related to the closing of four stores, non-cash asset impairment of certain underperforming stores and acceleration of expenses associated with management’s determination to close certain underperforming stores in future periods. In fiscal 2010, we incurred store closing costs and non-cash asset impairment charges of $2.0 million, or 0.3% as a percentage of sales. These costs related to the closing of seven stores, non-cash asset impairment of certain underperforming stores and acceleration of expenses associated with management’s determination to close certain underperforming stores in future periods. The timing and actual amount of expense recorded in closing a store can vary significantly depending, in part, on the period in which management commits to a closing plan, the remaining basis in the fixed assets to be disposed of at closing and the amount of any lease buyout.
Income Taxes
The effective income tax rate was 37.1% for fiscal 2011 and 36.6% for fiscal 2010. Included in income tax expense for both fiscal years were benefits related to the favorable resolution of certain tax positions, which lowered our effective income tax rate as compared to other historical periods.
Liquidity and Capital Resources
Our sources and uses of cash are summarized as follows:
(In thousands) | 2011 | 2010 | 2009 | |||||||||
Net income plus depreciation and amortization | $ | 40,832 | $ | 40,556 | $ | 30,148 | ||||||
Deferred income taxes | 3,040 | (1,403 | ) | (1,042 | ) | |||||||
Lease incentives | 5,903 | 2,974 | 2,211 | |||||||||
Changes in operating assets and liabilities | (20,891 | ) | (19,340 | ) | (4,635 | ) | ||||||
Other operating activities | 1,991 | 6,636 | 1,215 | |||||||||
Net cash provided by operating activities | 30,875 | 29,423 | 27,897 | |||||||||
Net cash used in investing activities | (21,155 | ) | (14,000 | ) | (9,685 | ) | ||||||
Net cash provided by financing activities | 689 | 602 | 1,139 | |||||||||
Net increase in cash and cash equivalents | $ | 10,409 | $ | 16,025 | $ | 19,351 |
(In thousands) | 2012 | 2011 | 2010 | |||||||||
Net income plus depreciation and amortization | $ | 45,293 | $ | 40,832 | $ | 40,556 | ||||||
Deferred income taxes | (3,347 | ) | 3,040 | (1,403 | ) | |||||||
Lease incentives | 7,189 | 5,903 | 2,974 | |||||||||
Changes in operating assets and liabilities | (27,396 | ) | (20,891 | ) | (19,340 | ) | ||||||
Other operating activities | 4,111 | 1,991 | 6,636 | |||||||||
Net cash provided by operating activities | 25,850 | 30,875 | 29,423 | |||||||||
Net cash used in investing activities | (25,777 | ) | (21,155 | ) | (14,000 | ) | ||||||
Net cash (used in) provided by financing activities | (24,919 | ) | 689 | 602 | ||||||||
Net (decrease) increase in cash and cash equivalents | $ | (24,846 | ) | $ | 10,409 | $ | 16,025 |
We anticipate that our existing cash and cash flows from operations will be sufficient to fund our planned store expansion along with other capital expenditures, working capital needs, potential dividend payments, potential share repurchases, and borrowings under our revolving credit facility. For fiscal 2011,various other commitments and obligations, as they arise, for at least the next 12 months.
Cash Flow - Operating Activities
Our net cash provided by operating activities was $25.9 million in fiscal 2012 as compared to $30.9 million compared to net cash provided by operating activities of $29.4 million forin fiscal 2010.2011. These amounts reflect theour income from operations adjusted for non-cash items and working capital changes.
Cash Flow - Investing Activities
Our cash outflows for investing activities were primarily for capital expenditures. During fiscal 2012, we expended $26.0 million for the purchase of property and equipment, of which $21.5 million was 3.9 at January 29, 2011. We had no outstanding interest bearing debt at the endfor construction of either fiscal year.
Cash Flow - Financing Activities
Our cash inflows from financing activities were primarily proceeds from the issuance of shares as a result of stock option exercises. Cash outflows for financing activities were primarily share repurchases and, in fiscal 2012, cash dividend payments. Shares of our common stock can be either acquired as part of a publicly announced repurchase program or withheld by us in connection with employee payroll tax withholding upon the vesting of restricted stock awards.
During fiscal 2012, net cash used in financing activities was $24.9 million as compared to net cash provided by financing activities of $689,000 during fiscal 2011. The increase in cash used in financing activities was primarily attributable to the payment of $23.5 million in dividends during fiscal 2012, which included a $1.00 per share special cash dividend declared and paid in December 2012.
Store Openings and Closings – Fiscal 2012
In fiscal 2012, we opened 31 new stores, including stores in the Dallas/Fort Worth Metroplex and Puerto Rico, which were new major markets for us. On a per-store basis, the initial inventory investment for stores opened in the continental United States averaged $630,000, capital expenditures averaged $355,000 and lease incentives received from landlords were $5.9averaged $170,000. On a per-store basis, the initial inventory investment for our new stores in Puerto Rico averaged $1.1 million, $3.0 millioncapital expenditures averaged $925,000 and $2.2lease incentive received from landlords averaged $305,000.
Pre-opening expenses, including rent, freight, advertising, salaries and supplies, totaled approximately $4.1 million for fiscal years2012, or an average of $133,000 per store. During fiscal 2011, 2010we opened 17 new stores and 2009, respectively.
Capital Expenditures – Fiscal 2013
Capital expenditures are expected to be $22.0$28 million to $23.0$29 million in fiscal 2012.2013. Approximately $10.1$12.5 million of our total capital expenditures are expected to be used for new store construction, $3.0$2.5 million will be used for store relocations and $4.0$8.3 million will be used to remodel approximately 6%10% of our existing store base. Lease incentives to be received from landlords are expected to be approximately $5.0$8 million to $6.0$8.5 million. The remaining capital expenditures are expected to be incurred for various other store improvements, continued investments in technology and normal asset replacement activities. The actual amount of cash required for capital expenditures for store operations depends in part on the number of new stores opened and relocated, the amount of lease incentives, if any, received from landlords and the number of stores remodeled. The openingnumber of new storesstore openings and relocations will be dependent upon, among other things, the availability of desirable locations, and the negotiation of acceptable lease terms and general economic and business conditions affecting consumer spending in areas we target for expansion.
Store Openings and Closings – Fiscal 2013
Our current store prototype for stores located in the continental United States uses between 8,000 and 12,000 square feet depending upon, among other factors, the location of the store and the population base the store is expected to service. Capital invested in these fiscal 20122013 new stores is expected to average approximately $345,000$360,000 with landlord incentives averaging $165,000.$140,000. The average initial inventory investment is expected to range from $450,000$425,000 to $600,000$575,000 depending on the size and sales expectation of the store and the timing of the new store opening. Our new stores opening in Puerto Rico in fiscal 20122013 are expected to be slightly larger with an initial inventory investment of up to $1.5$1.0 million. Capital invested in theseour Puerto Rican stores is expected to average $520,000$870,000 with landlord incentives averaging $135,000.$280,000. During fiscal 2012,2013, we anticipate opening approximately 30 to 35 new stores and relocating tenseven store locations.
Pre-opening expenses, such as rent, freight, advertising, salaries and supplies, are expected to average approximately $179,000$124,000 per store in fiscal 2012.2013. This represents an increasea decrease of $71,000$9,000 over our average fiscal 20112012 expenditure and is primarily the result of a decrease in the costs associated with entering two major new markets, Dallas, Texasaverage expenditure on advertising.
During fiscal 2013, we expect to close between five and Puerto Rico. On a per-store basis, for the 17 stores opened during fiscal 2011, the initial inventory investment averaged $638,000, capital expenditures averaged $320,000 and lease incentives received from landlords averaged $126,000.
Dividends
Our Board of Directors approved the payment of our first-ever quarterly cash dividend to our shareholders during the second quarter of fiscal 2012. The initial dividend was followed by the approval and payment of two additional quarterly dividends during fiscal 2012, each in the amount of $0.05 per share of common stock. Additionally, our Board of Directors approved the payment of a special cash dividendof $1.00 per share of common stock during December 2012. In total during fiscal 2012, we returned $23.5 million in cash to our shareholders through our quarterly and special cash dividends.
The declaration and payment of any future dividends are at the discretion of the Board of Directors and will depend on our results of operations, financial condition, business conditions and other factors deemed relevant by our Board of Directors. Our credit agreement permits the payment of dividends as long as the dividends distributed do not exceed 30% of our consolidated net income for the preceding fiscal year. The lenders under our credit agreement consented to the payment of the special cash dividend in December 2012, which was in excess of the amount of dividends otherwise permitted to be made under our credit agreement.
Share Repurchase Program
On August 23, 2010, our Board of Directors authorized a $25 million share repurchase program, which was to terminate upon the earlier of the repurchase of the maximum amount or December 31, 2011. Since then, our Board of Directors has extended the date of termination to December 31, 2013. The purchases may be made in the open market or through privately negotiated transactions from time-to-time and in accordance with applicable laws, rules and regulations. The program may be amended, suspended or discontinued at any time and does not commit us to repurchase shares of our common stock. We have funded, and intend to continue to fund, the share repurchase program from cash on hand and any shares acquired will be available for stock-based compensation awards and other corporate purposes. The actual number and value of the shares to be purchased will depend on the performance of our stock price and other market conditions. As required by our credit agreement, consent was obtained from the Agent and the Majority Banks, each as defined in the credit agreement. As of February 2, 2013, approximately 220,000 shares had been repurchased at an aggregate cost of $4.7 million. The amount that remained available under the share repurchase authorization at February 2, 2013 was $20.3 million.
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Contractual Obligations
Significant contractual obligations as of January 28, 2012February 2, 2013 and the fiscal years in which payments are due include:
(In thousands) | Payments Due By Fiscal Year | |||||||||||||||||||
Contractual Obligations | Total | 2012 | 2013 & 2014 | 2015 & 2016 | 2017 and after | |||||||||||||||
Letters of credit | $ | 5,954 | $ | 5,954 | $ | - | $ | - | $ | - | ||||||||||
Operating leases | 303,267 | 51,510 | 78,378 | 67,822 | 105,557 | |||||||||||||||
Purchase commitments | 270,320 | 268,681 | 1,497 | 142 | - | |||||||||||||||
Unrecognized tax positions | 69 | - | - | - | 69 | |||||||||||||||
Deferred compensation | 6,054 | 143 | 116 | - | 5,795 | |||||||||||||||
Total contractual obligations | $ | 585,664 | $ | 326,288 | $ | 79,991 | $ | 67,964 | $ | 111,421 |
(In thousands) | Payments Due By Fiscal Year | |||||||||||||||||||
Contractual Obligations | Total | 2013 | 2014 & 2015 | 2016 & 2017 | 2018 and after | |||||||||||||||
Letters of credit | $ | 4,165 | $ | 4,165 | $ | - | $ | - | $ | - | ||||||||||
Operating leases | 356,940 | 51,167 | 89,314 | 86,771 | 129,688 | |||||||||||||||
Purchase commitments | 327,515 | 326,072 | 1,224 | 219 | - | |||||||||||||||
Unrecognized tax positions | 69 | - | - | - | 69 | |||||||||||||||
Deferred compensation | 7,250 | 857 | 10 | - | 6,383 | |||||||||||||||
Total contractual obligations | $ | 695,939 | $ | 382,261 | $ | 90,548 | $ | 86,990 | $ | 136,140 |
Our unsecured credit agreement provides for up to $50.0 million in cash advances and commercial and standby letters of credit with borrowing limits based on eligible inventory. It contains covenants which stipulate: (1) Total Shareholders’ Equity, adjusted for the effect of any share repurchases, will not fall below that of the prior fiscal year-end; (2) the ratio of funded debt plus rent to EBITDA plus rent will not exceed 2.5 to 1.0; and (3) cash dividends for a fiscal year will not exceed 30% of consolidated net income for the immediately preceding fiscal year. We were in compliance with these covenants as of January 28, 2012.February 2, 2013. Should a default condition be reported, the lenders may preclude additional borrowings and call all loans and accrued interest at their discretion. There were no borrowings outstanding under the credit facility and letters of credit outstanding were $6.0$4.2 million at January 28, 2012.February 2, 2013. Estimated interest payments on our line of credit are not included in the above table as our line of credit provides for frequent borrowing and/or repayment activities, which does not lend itself to reliable forecasting for disclosure purposes. As of January 28, 2012, $44.0February 2, 2013, $45.8 million was available to us for additional borrowings under the credit facility.
For purposes of our contractual obligations table above, we have assumed that we will make all payments scheduled or reasonably estimated to be made under those obligations that have a determinable expiration date. We have disregarded the possibility that such obligations may be prematurely terminated or extended, whether automatically by the terms of the obligation or by agreement between us and the counterparty, due to the speculative nature of premature termination or extension. Except for operating leases, the balances included in the “2017“2018 and after” column of the contractual obligations table includes amounts where we are not able to reasonably estimate the timing of the potential future payments.
See Note 5 – “Long-Term Debt”, Note 6 – “Leases”, Note 7 – “Income Taxes” and Note 8 – “Employee Benefit Plans” to our Notes to Consolidated Financial Statements contained in PART II, ITEM 8 of this report for a further discussion of our contractual obligations.
Off-Balance Sheet Arrangements
We did not assign any store operating leases to separate third parties during fiscal 2011.2012. We remain liable on two assignments of operating leases covering two former store locations. We believe that the likelihood of material liability being triggered under these leases is remote, and no liability has been accrued for these contingent lease obligations in our consolidated financial statements as of January 28, 2012.February 2, 2013. See Note 6 – “Leases” to our Notes to Consolidated Financial Statements contained in PART II, ITEM 8 of this report for further discussion.
Except for operating leases entered into in the normal course of business, including leases for stores and equipment, we have not entered into any off-balance sheet arrangements during fiscal 20112012 or fiscal 2010.
Seasonality
Our quarterly results of operations have fluctuated, and are expected to continue to fluctuate in the future, primarily as a result of seasonal variances and the timing of sales and costs associated with opening new stores. Non-capital expenditures, such as advertising and payroll, incurred prior to the opening of a new store are charged to expense as incurred. Therefore, our results of operations may be adversely affected in any quarter in which we incur pre-opening expenses related to the opening of new stores.
We have three distinct peak selling periods: Easter, back-to-school and Christmas.
New Accounting Pronouncements
Recent accounting pronouncements applicable to our operations are contained in Note 2 – “Summary of Significant Accounting Policies,” contained in the Notes to Consolidated Financial Statements included in PART II, ITEM 8 of this report.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to market risk in that the interest payable on our credit facility is based on variable interest rates and therefore is affected by changes in market rates. We do not use interest rate derivative instruments to manage exposure to changes in market interest rates. We had no borrowings under our credit facility during fiscal 20112012 or fiscal 2010.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by this item appears beginning on page 28.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of
Shoe Carnival, Inc.
Evansville, Indiana
We have audited the accompanying consolidated balance sheets of Shoe Carnival, Inc. and subsidiaries (the “Company”) as of February 2, 2013 and January 28, 2012, and January 29, 2011, and the related consolidated statements of income, shareholders’ equity, and cash flows for the years ended February 2, 2013, January 28, 2012, and January 29, 2011, and January 30, 2010.2011. Our audits also included the financial statement schedule listed in the Index at Item 15. These financial statements and financial statement schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on thesethe financial statements and financial statement schedule based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Shoe Carnival, Inc. and subsidiaries as of February 2, 2013 and January 28, 2012, and January 29, 2011, and the results of their operations and their cash flows for the years ended February 2, 2013, January 28, 2012, and January 29, 2011, and January 30, 2010, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company’sCompany's internal control over financial reporting as of January 28, 2012,February 2, 2013, based on the criteria established inInternal Control—Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated April 12, 201215, 2013 expressed an unqualified opinion on the Company’sCompany's internal control over financial reporting.
/s/ DELOITTE & TOUCHE LLP
Indianapolis, Indiana
April 12, 2012
Shoe Carnival, Inc.
Consolidated Balance Sheets
(In thousands)
January 28, 2012 | January 29, 2011 | |||||||
Assets | ||||||||
Current Assets: | ||||||||
Cash and cash equivalents | $ | 70,602 | $ | 60,193 | ||||
Accounts receivable | 2,621 | 1,550 | ||||||
Merchandise inventories | 237,655 | 212,929 | ||||||
Deferred income tax benefit | 2,496 | 4,275 | ||||||
Other | 2,887 | 2,407 | ||||||
Total Current Assets | 316,261 | 281,354 | ||||||
Property and equipment – net | 69,232 | 62,391 | ||||||
Other | 1,069 | 1,400 | ||||||
Total Assets | $ | 386,562 | $ | 345,145 | ||||
Liabilities and Shareholders’ Equity | ||||||||
Current Liabilities: | ||||||||
Accounts payable | $ | 61,238 | $ | 55,219 | ||||
Accrued and other liabilities | 14,522 | 15,457 | ||||||
Total Current Liabilities | 75,760 | 70,676 | ||||||
Deferred lease incentives | 12,964 | 8,211 | ||||||
Accrued rent | 6,029 | 5,082 | ||||||
Deferred income taxes | 1,930 | 669 | ||||||
Deferred compensation | 6,054 | 4,907 | ||||||
Other | 141 | 1,257 | ||||||
Total Liabilities | 102,878 | 90,802 | ||||||
Shareholders’ Equity: | ||||||||
Common stock, $.01 par value, 50,000 shares authorized, 13,652 and 13,655 shares issued at January 28, 2012 and January 29, 2011 | 137 | 137 | ||||||
Additional paid-in capital | 67,642 | 68,833 | ||||||
Retained earnings | 222,235 | 195,853 | ||||||
Treasury stock, at cost, 261 and 456 shares at January 28, 2012 and January 29, 2011 | (6,330 | ) | (10,480 | ) | ||||
Total Shareholders’ Equity | 283,684 | 254,343 | ||||||
Total Liabilities and Shareholders’ Equity | $ | 386,562 | $ | 345,145 |
February 2, 2013 | January 28, 2012 | |||||||
Assets | ||||||||
Current Assets: | ||||||||
Cash and cash equivalents | $ | 45,756 | $ | 70,602 | ||||
Accounts receivable | 2,152 | 2,621 | ||||||
Merchandise inventories | 272,282 | 237,655 | ||||||
Deferred income taxes | 2,914 | 2,496 | ||||||
Other | 4,918 | 2,887 | ||||||
Total Current Assets | 328,022 | 316,261 | ||||||
Property and equipment – net | 77,364 | 69,232 | ||||||
Deferred income taxes | 999 | 0 | ||||||
Other noncurrent assets | 811 | 1,069 | ||||||
Total Assets | $ | 407,196 | $ | 386,562 | ||||
Liabilities and Shareholders’ Equity | ||||||||
Current Liabilities: | ||||||||
Accounts payable | $ | 65,026 | $ | 61,238 | ||||
Accrued and other liabilities | 16,995 | 14,522 | ||||||
Total Current Liabilities | 82,021 | 75,760 | ||||||
Deferred lease incentives | 18,426 | 12,964 | ||||||
Accrued rent | 7,475 | 6,029 | ||||||
Deferred income taxes | 0 | 1,930 | ||||||
Deferred compensation | 6,412 | 6,054 | ||||||
Other | 494 | 141 | ||||||
Total Liabilities | 114,828 | 102,878 | ||||||
Shareholders’ Equity: | ||||||||
Common stock, $.01 par value, 50,000 shares authorized, 20,465 and 20,478 shares issued, respectively | 205 | 205 | ||||||
Additional paid-in capital | 66,533 | 67,574 | ||||||
Retained earnings | 228,113 | 222,235 | ||||||
Treasury stock, at cost, 124 and 391 shares, respectively | (2,483 | ) | (6,330 | ) | ||||
Total Shareholders’ Equity | 292,368 | 283,684 | ||||||
Total Liabilities and Shareholders’ Equity | $ | 407,196 | $ | 386,562 |
See notes to consolidated financial statements.
Shoe Carnival, Inc.
Consolidated Statements of Income
(In thousands, except per share data)
January 28, 2012 | January 29, 2011 | January 30, 2010 | ||||||||||
Net sales | $ | 762,534 | $ | 739,189 | $ | 682,422 | ||||||
Cost of sales (including buying, distribution and occupancy costs) | 537,681 | 517,650 | 488,816 | |||||||||
Gross profit | 224,853 | 221,539 | 193,606 | |||||||||
Selling, general and administrative expenses | 182,716 | 179,154 | 168,476 | |||||||||
Operating income | 42,137 | 42,385 | 25,130 | |||||||||
Interest income | (79 | ) | (165 | ) | (39 | ) | ||||||
Interest expense | 266 | 258 | 174 | |||||||||
Income before income taxes | 41,950 | 42,292 | 24,995 | |||||||||
Income tax expense | 15,568 | 15,471 | 9,829 | |||||||||
Net income | $ | 26,382 | $ | 26,821 | $ | 15,166 | ||||||
Net income per share: | ||||||||||||
Basic | $ | 1.98 | $ | 2.11 | $ | 1.21 | ||||||
Diluted | $ | 1.97 | $ | 2.05 | $ | 1.20 |
February 2, 2013 | January 28, 2012 | January 29, 2011 | ||||||||||
Net sales | $ | 854,998 | $ | 762,534 | $ | 739,189 | ||||||
Cost of sales (including buying, distribution and occupancy costs) | 597,521 | 537,681 | 517,650 | |||||||||
Gross profit | 257,477 | 224,853 | 221,539 | |||||||||
Selling, general and administrative expenses | 208,983 | 182,716 | 179,154 | |||||||||
Operating income | 48,494 | 42,137 | 42,385 | |||||||||
Interest income | (32 | ) | (79 | ) | (165 | ) | ||||||
Interest expense | 273 | 266 | 258 | |||||||||
Income before income taxes | 48,253 | 41,950 | 42,292 | |||||||||
Income tax expense | 18,915 | 15,568 | 15,471 | |||||||||
Net income | $ | 29,338 | $ | 26,382 | $ | 26,821 | ||||||
Net income per share: | ||||||||||||
Basic | $ | 1.44 | $ | 1.32 | $ | 1.41 | ||||||
Diluted | $ | 1.43 | $ | 1.31 | $ | 1.37 | ||||||
Weighted average shares: | ||||||||||||
Basic | 19,911 | 19,524 | 19,085 | |||||||||
Diluted | 19,972 | 19,694 | 19,587 | |||||||||
Cash dividends declared per share | $ | 1.15 | $ | 0.00 | $ | 0.00 |
See notes to consolidated financial statements.
Shoe Carnival, Inc.
Consolidated Statements of Shareholders’ Equity
(In thousands)
Common Stock | Additional Paid-In | Retained | Treasury | |||||||||||||||||||||||||
Issued | Treasury | Amount | Capital | Earnings | Stock | Total | ||||||||||||||||||||||
Balance at January 31, 2009 | 13,664 | (745 | ) | $ | 137 | $ | 67,686 | $ | 153,866 | $ | (17,053 | ) | $ | 204,636 | ||||||||||||||
Stock option exercises | 125 | (1,853 | ) | 2,851 | 998 | |||||||||||||||||||||||
Stock-based compensation income tax benefit | 376 | 376 | ||||||||||||||||||||||||||
Employee stock purchase plan purchases | 13 | (157 | ) | 307 | 150 | |||||||||||||||||||||||
Restricted stock awards | (9 | ) | 4 | (98 | ) | 98 | 0 | |||||||||||||||||||||
Common stock repurchased | (19 | ) | (394 | ) | (394 | ) | ||||||||||||||||||||||
Stock-based compensation expense | 897 | 897 | ||||||||||||||||||||||||||
Net income | 15,166 | 15,166 | ||||||||||||||||||||||||||
Balance at January 30, 2010 | 13,655 | (622 | ) | 137 | 66,851 | 169,032 | (14,191 | ) | 221,829 | |||||||||||||||||||
Stock option exercises | 50 | (568 | ) | 1,146 | 578 | |||||||||||||||||||||||
Stock-based compensation income tax benefit | 626 | 626 | ||||||||||||||||||||||||||
Employee stock purchase plan purchases | 9 | (30 | ) | 190 | 160 | |||||||||||||||||||||||
Restricted stock awards | 133 | (3,031 | ) | 3,031 | 0 | |||||||||||||||||||||||
Common stock repurchased | (26 | ) | (656 | ) | (656 | ) | ||||||||||||||||||||||
Stock-based compensation expense | 4,985 | 4,985 | ||||||||||||||||||||||||||
Net income | 26,821 | 26,821 | ||||||||||||||||||||||||||
Balance at January 29, 2011 | 13,655 | (456 | ) | 137 | 68,833 | 195,853 | (10,480 | ) | 254,343 | |||||||||||||||||||
Stock option exercises | 162 | (1,449 | ) | 3,913 | 2,464 | |||||||||||||||||||||||
Stock-based compensation income tax benefit | 1,586 | 1,586 | ||||||||||||||||||||||||||
Employee stock purchase plan purchases | 8 | (12 | ) | 202 | 190 | |||||||||||||||||||||||
Restricted stock awards | (3 | ) | 141 | (3,254 | ) | 3,254 | 0 | |||||||||||||||||||||
Common stock repurchased | (116 | ) | (3,219 | ) | (3,219 | ) | ||||||||||||||||||||||
Stock-based compensation expense | 1,938 | 1,938 | ||||||||||||||||||||||||||
Net income | 26,382 | 26,382 | ||||||||||||||||||||||||||
Balance at January 28, 2012 | 13,652 | (261 | ) | $ | 137 | $ | 67,642 | $ | 222,235 | $ | (6,330 | ) | $ | 283,684 |
Common Stock | Additional Paid-In | Retained | Treasury | |||||||||||||||||||||||||
Issued | Treasury | Amount | Capital | Earnings | Stock | Total | ||||||||||||||||||||||
Balance at January 30, 2010 | 20,483 | (932 | ) | $ | 205 | $ | 66,783 | $ | 169,032 | $ | (14,191 | ) | $ | 221,829 | ||||||||||||||
Stock option exercises | 75 | (568 | ) | 1,146 | 578 | |||||||||||||||||||||||
Stock-based compensation income tax benefit | 626 | 626 | ||||||||||||||||||||||||||
Employee stock purchase plan purchases | 12 | (30 | ) | 190 | 160 | |||||||||||||||||||||||
Restricted stock awards | 199 | (3,031 | ) | 3,031 | 0 | |||||||||||||||||||||||
Shares surrendered by employees to pay taxes on restricted stock | (39 | ) | (656 | ) | (656 | ) | ||||||||||||||||||||||
Stock-based compensation expense | 4,985 | 4,985 | ||||||||||||||||||||||||||
Net income | 26,821 | 26,821 | ||||||||||||||||||||||||||
Balance at January 29, 2011 | 20,483 | (685 | ) | 205 | 68,765 | 195,853 | (10,480 | ) | 254,343 | |||||||||||||||||||
Stock option exercises | 243 | (1,449 | ) | 3,913 | 2,464 | |||||||||||||||||||||||
Stock-based compensation income tax benefit | 1,586 | 1,586 | ||||||||||||||||||||||||||
Employee stock purchase plan purchases | 12 | (12 | ) | 202 | 190 | |||||||||||||||||||||||
Restricted stock awards | (5 | ) | 212 | (3,254 | ) | 3,254 | 0 | |||||||||||||||||||||
Shares surrendered by employees to pay taxes on restricted stock | (173 | ) | (3,219 | ) | (3,219 | ) | ||||||||||||||||||||||
Stock-based compensation expense | 1,938 | 1,938 | ||||||||||||||||||||||||||
Net income | 26,382 | 26,382 | ||||||||||||||||||||||||||
Balance at January 28, 2012 | 20,478 | (391 | ) | 205 | 67,574 | 222,235 | (6,330 | ) | 283,684 | |||||||||||||||||||
Stock option exercises | 233 | (1,598 | ) | 3,817 | 2,219 | |||||||||||||||||||||||
Dividends paid ($1.15 per share) | (23,460 | ) | (23,460 | ) | ||||||||||||||||||||||||
Stock-based compensation income tax benefit | 1,402 | 1,402 | ||||||||||||||||||||||||||
Employee stock purchase plan purchases | 11 | 16 | 185 | 201 | ||||||||||||||||||||||||
Restricted stock awards | (13 | ) | 244 | (4,561 | ) | 4,561 | 0 | |||||||||||||||||||||
Shares surrendered by employees to pay taxes on restricted stock | (2 | ) | (41 | ) | (41 | ) | ||||||||||||||||||||||
Purchase of common stock for treasury | (219 | ) | (4,675 | ) | (4,675 | ) | ||||||||||||||||||||||
Stock-based compensation expense | 3,700 | 3,700 | ||||||||||||||||||||||||||
Net income | 29,338 | 29,338 | ||||||||||||||||||||||||||
Balance at February 2, 2013 | 20,465 | (124 | ) | $ | 205 | $ | 66,533 | $ | 228,113 | $ | (2,483 | ) | $ | 292,368 |
See notes to consolidated financial statements.
Shoe Carnival, Inc.
Consolidated Statements of Cash Flows
(In thousands)
January 28, 2012 | January 29, 2011 | January 30, 2010 | ||||||||||
Cash Flows From Operating Activities | ||||||||||||
Net income | $ | 26,382 | $ | 26,821 | $ | 15,166 | ||||||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||||||
Depreciation and amortization | 14,450 | 13,735 | 14,982 | |||||||||
Stock-based compensation | 2,135 | 5,468 | 1,648 | |||||||||
Loss on retirement and impairment of assets | 666 | 1,995 | 228 | |||||||||
Deferred income taxes | 3,040 | (1,403 | ) | (1,042 | ) | |||||||
Lease incentives | 5,903 | 2,974 | 2,211 | |||||||||
Other | (810 | ) | (827 | ) | (661 | ) | ||||||
Changes in operating assets and liabilities: | ||||||||||||
Accounts receivable | (971 | ) | (804 | ) | 961 | |||||||
Merchandise inventories | (24,726 | ) | (15,477 | ) | (7,958 | ) | ||||||
Accounts payable and accrued liabilities | 3,960 | (2,669 | ) | 40 | ||||||||
Other | 846 | (390 | ) | 2,322 | ||||||||
Net cash provided by operating activities | 30,875 | 29,423 | 27,897 | |||||||||
Cash Flows From Investing Activities | ||||||||||||
Purchases of property and equipment | (21,260 | ) | (14,412 | ) | (9,794 | ) | ||||||
Proceeds from sale of property and equipment | 5 | 312 | 9 | |||||||||
Proceeds from note receivable | 100 | 100 | 100 | |||||||||
Net cash used in investing activities | (21,155 | ) | (14,000 | ) | (9,685 | ) | ||||||
Cash Flow From Financing Activities | ||||||||||||
Proceeds from issuance of stock | 2,654 | 738 | 1,148 | |||||||||
Excess tax benefits from stock-based compensation | 1,254 | 520 | 385 | |||||||||
Common stock repurchased | (3,219 | ) | (656 | ) | (394 | ) | ||||||
Net cash provided by financing activities | 689 | 602 | 1,139 | |||||||||
Net increase in cash and cash equivalents | 10,409 | 16,025 | 19,351 | |||||||||
Cash and cash equivalents at beginning of year | 60,193 | 44,168 | 24,817 | |||||||||
Cash and Cash Equivalents at End of Year | $ | 70,602 | $ | 60,193 | $ | 44,168 | ||||||
Supplemental disclosures of cash flow information: | ||||||||||||
Cash paid during year for interest | $ | 264 | $ | 252 | $ | 181 | ||||||
Cash paid during year for income taxes | $ | 10,930 | $ | 17,433 | $ | 7,216 | ||||||
Capital expenditures incurred but not yet paid | $ | 2,825 | $ | 2,123 | $ | 264 | ||||||
Supplemental disclosures of non-cash operating and investing activities: | ||||||||||||
Forgiveness of accounts payable from litigation settlement (1) | $ | 0 | $ | 0 | $ | 1,160 | ||||||
Recording of note receivable from litigation settlement (1) | $ | 0 | $ | 0 | $ | 1,200 |
February 2, 2013 | January 28, 2012 | January 29, 2011 | ||||||||||
Cash Flows From Operating Activities | ||||||||||||
Net income | $ | 29,338 | $ | 26,382 | $ | 26,821 | ||||||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||||||
Depreciation and amortization | 15,955 | 14,450 | 13,735 | |||||||||
Stock-based compensation | 4,049 | 2,135 | 5,468 | |||||||||
Loss on retirement and impairment of assets | 628 | 666 | 1,995 | |||||||||
Deferred income taxes | (3,347 | ) | 3,040 | (1,403 | ) | |||||||
Lease incentives | 7,189 | 5,903 | 2,974 | |||||||||
Other | (566 | ) | (810 | ) | (827 | ) | ||||||
Changes in operating assets and liabilities: | ||||||||||||
Accounts receivable | 470 | (971 | ) | (804 | ) | |||||||
Merchandise inventories | (34,627 | ) | (24,726 | ) | (15,477 | ) | ||||||
Accounts payable and accrued liabilities | 9,269 | 3,960 | (2,669 | ) | ||||||||
Other | (2,508 | ) | 846 | (390 | ) | |||||||
Net cash provided by operating activities | 25,850 | 30,875 | 29,423 | |||||||||
Cash Flows From Investing Activities | ||||||||||||
Purchases of property and equipment | (25,977 | ) | (21,260 | ) | (14,412 | ) | ||||||
Proceeds from sale of property and equipment | 0 | 5 | 312 | |||||||||
Proceeds from note receivable | 200 | 100 | 100 | |||||||||
Net cash used in investing activities | (25,777 | ) | (21,155 | ) | (14,000 | ) | ||||||
Cash Flow From Financing Activities | ||||||||||||
Proceeds from issuance of stock | 2,420 | 2,654 | 738 | |||||||||
Dividends paid | (23,460 | ) | 0 | 0 | ||||||||
Excess tax benefits from stock-based compensation | 837 | 1,254 | 520 | |||||||||
Purchase of common stock for treasury | (4,675 | ) | 0 | 0 | ||||||||
Shares surrendered by employees to pay taxes on restricted stock | (41 | ) | (3,219 | ) | (656 | ) | ||||||
Net cash (used in) provided by financing activities | (24,919 | ) | 689 | 602 | ||||||||
Net (decrease) increase in cash and cash equivalents | (24,846 | ) | 10,409 | 16,025 | ||||||||
Cash and cash equivalents at beginning of year | 70,602 | 60,193 | 44,168 | |||||||||
Cash and Cash Equivalents at End of Year | $ | 45,756 | $ | 70,602 | $ | 60,193 | ||||||
Supplemental disclosures of cash flow information: | ||||||||||||
Cash paid during year for interest | $ | 270 | $ | 264 | $ | 252 | ||||||
Cash paid during year for income taxes | $ | 22,793 | $ | 10,930 | $ | 17,433 | ||||||
Capital expenditures incurred but not yet paid | $ | 1,562 | $ | 2,825 | $ | 2,123 |
See notes to consolidated financial statements.
34 |
Shoe Carnival, Inc.
Notes to Consolidated Financial Statements
Note 1 – Organization and Description of Business
Our consolidated financial statements include the accounts of Shoe Carnival, Inc. and its wholly-owned subsidiaries SCHC, Inc. and Shoe Carnival Ventures, LLC, and SCLC, Inc., a wholly-owned subsidiary of SCHC, Inc. (collectively referred to as “we”, “our” or “us”). All intercompany accounts and transactions have been eliminated. Our primary activity is the sale of footwear and related products through our retail stores in 32 states within the continental United States and in addition toPuerto Rico. We also offer online shopping on our e-commerce site which we launched in the third quarter of fiscal 2011.
Note 2 – Summary of Significant Accounting Policies
Fiscal Year
Our fiscal year is a 52/53 week year ending on the Saturday closest to January 31. Unless otherwise stated, references to years 2012, 2011, 2010, and 20092010 relate respectively to the fiscal years ended February 2, 2013, January 28, 2012, and January 29, 2011,2011. Fiscal year 2012 consisted of 53 weeks and January 30, 2010.
Use of Estimates in the Preparation of Consolidated Financial Statements
The preparation of our consolidated financial statements in conformity with generally accepted accounting principles, in the United States of America, requires management to make estimates and assumptions that affect the reported amounts of certain assets and liabilities as of the financial statement reporting date in addition to the reported amounts of certain revenues and expenses for the reporting period. The assumptions used by management in future estimates could change significantly due to changes in circumstances and actual results could differ from those estimates.
Cash and Cash Equivalents
We had cash and cash equivalents of $45.8 million at February 2, 2013 and $70.6 million at January 28, 2012 and $60.2 million at January 29, 2011.2012. Credit and debit card receivables (which generally settle within three days) totaling $4.5$4.7 million and $5.3$4.5 million were included in cash equivalents at February 2, 2013 and January 28, 2012, and January 29, 2011, respectively.
We consider all certificates of deposit and other short-term investments with an original maturity date of three months or less to be cash equivalents. As of January 28, 2012,February 2, 2013, all invested cash was held in twoa money market accounts.account. While these investments are not considered by management to be at significant risk, they could be impacted if the underlying financial institutions fail or are subject to other adverse conditions in the financial markets. To date, we have experienced no loss or lack of access to either invested cash or cash held in our bank operating accounts.
Fair Value of Financial Instruments
Our financial assets as of February 2, 2013 and January 28, 2012 and January 29, 2011 included cash and cash equivalents. The carrying value of cash and cash equivalents approximates fair value due to its short-term nature. We did not have any financial liabilities measured at fair value for these periods. Non-financial assets measured at fair value included on our consolidated balance sheet as of January 28, 2012February 2, 2013 were those long-lived assets for which an impairment charge has been recorded. We did not have any non-financial liabilities measured at fair value for this period. See Note 3 – “Fair Value Measurements” for further discussion.
35 |
Shoe Carnival, Inc.
Notes to Consolidated Financial Statements – continued
Merchandise Inventories and Cost of Sales
Merchandise inventories are stated at the lower of cost or market (LCM) using the first-in, first-out (FIFO) method. For determining market value, we estimate the future demand and related sale price of merchandise contained in inventory as of the balance sheet date. The stated value of merchandise inventories contained on our consolidated balance sheets also includes freight, certain capitalized overhead costs and reserves. Factors considered in determining if our inventory is properly stated at LCM includes, among others, recent sale prices, the length of time merchandise has been held in inventory, quantities of various styles held in inventory, seasonality of merchandise, expected consideration to be received from our vendors and current and expected future sales trends. We reduce the value of our inventory to its estimated net realizable value where cost exceeds the estimated future selling price. Material changes in the factors previously noted could have a significant impact on the actual net realizable value of our inventory and our reported operating results.
Cost of sales includes the cost of merchandise sold, buying, distribution, and occupancy costs, inbound freight expense, provision for inventory obsolescence, inventory shrink and credits and allowances from merchandise vendors. With the launch of our e-commerce site in the third quarter of fiscal 2011, cost of sales now also includes the charges related to our utilization of a third party fulfillment agent in addition to the freight expense for delivering merchandise to our customer.
Property and Equipment-Net
Property and equipment is stated at cost. Depreciation and amortization of property, equipment and leasehold improvements are taken on the straight-line method over the shorter of the estimated useful lives of the assets or the applicable lease terms. Lives used in computing depreciation and amortization range from two to twenty years. Expenditures for maintenance and repairs are charged to expense as incurred. Expenditures, which materially increase values, improve capacities or extend useful lives are capitalized. Upon sale or retirement, the costs and related accumulated depreciation or amortization are eliminated from the respective accounts and any resulting gain or loss is included in operations.
We periodically evaluate our long-lived assets if events or circumstances indicate the carrying value may not be recoverable. The carrying value of long-lived assets is considered impaired when the carrying value of the assets exceeds the expected future cash flows to be derived from their use. Assets are grouped, and the evaluation performed, at the lowest level for which there are identifiable cash flows, which is generally at a store level. If the estimated future cash flows for a store are determined to be less than the carrying value of the store’s assets, an impairment loss is recorded for the difference between estimated fair value and carrying value. Assets subject to impairment are adjusted to estimated fair value and, if applicable, an impairment loss is recorded in selling, general and administrative expenses. We estimate the fair value of our long-lived assets using store specific cash flow assumptions discounted by a rate commensurate with the risk involved with such assets while incorporating marketplace assumptions. Our assumptions and estimates used in the evaluation of impairment, including current and future economic trends for stores, are subject to a high degree of judgment. If actual operating results or market conditions differ from those anticipated, the carrying value of certain of our assets may prove unrecoverable and we may incur additional impairment charges in the future. Our evaluations resulted in the recording of non-cash impairment charges of $425,000, $338,000 and $1.7 million and $90,000 in fiscal years 2012, 2011 and 2010, and 2009, respectively.
Insurance Reserves
We self-insure a significant portion of our workers’ compensation, general liability and employee health care costs and also maintain insurance in each area of risk, protecting us from individual and aggregate losses over specified dollar values. We review the liability reserved for our self-insured portions on a quarterly basis, taking into consideration a number of factors, including historical claims experience, severity factors, statistical trends and, in certain instances, valuation assistance provided by independent third parties. Self-insurance reserves include estimates of claims filed, carried at their expected ultimate settlement value, and claims incurred but not yet reported. As of February 2, 2013 and January 28, 2012, and January 29, 2011, our self-insurance reserves totaled $2.4$2.5 million and $2.5$2.4 million, respectively. While we believe that the recorded amounts are adequate, there can be no assurance that changes to management’s estimates will not occur due to limitations inherent in the estimating process. If actual results are not consistent with our estimates or assumptions, we may be exposed to losses or gains that could be material.
Shoe Carnival, Inc.
Notes to Consolidated Financial Statements -– continued
Deferred Lease Incentives
All cash incentives received from landlords are recorded as deferred income and amortized over the life of the lease on a straight-line basis as a reduction of rental expense.
Accrued Rent
We are party to various lease agreements, which require scheduled rent increases over the initial lease term. Rent expense for such leases is recognized on a straight-line basis over the initial lease term beginning the earlier of the start date of the lease or when we take possession of the property. The difference between rent based upon scheduled monthly payments and rent expense recognized on a straight-line basis is recorded as accrued rent.
Revenue Recognition
Revenue from sales of merchandise at our store locations is recognized at the time of sale. We record revenue from our e-commerce sales, including shipping and handling fees, based on an estimated customer receipt date. Our sales are recorded exclusive of sales tax. In the regular course of business, we offer our customers sales incentives including coupons, discounts, and free merchandise. Sales are recorded net of such incentives and returns and allowances. If an incentive involves free merchandise, that merchandise is recorded as a zero sale and the cost is included in cost of sales. Gift card revenue is recognized at the time of redemption.
Consideration Received From a Vendor
Consideration is primarily received from merchandise vendors. Consideration is either recorded as a reduction of the price paid for the vendor’s products and recorded as a reduction of our cost of sales or if the consideration represents a reimbursement of a specific, incremental and identifiable cost then it is recorded as an offset to the same financial statement line item.
Consideration received from our vendors includes co-operative advertising/promotion, margin assistance, damage allowances and rebates earned for a specific level of purchases over a defined period. Consideration principally takes the form of credits that we can apply against trade amounts owed.
Consideration received after the related merchandise has been sold is recorded as an offset to cost of sales in the period negotiations are finalized. For consideration received on merchandise still in inventory, the allowance is recorded as a reduction to the cost of on-hand inventory and recorded as a reduction of our cost of sales at the time of sale. Allowances received from vendors representing a reimbursement of specific, incremental and identifiable costs are offset to the same financial statement line item. Should the allowances received exceed the incremental cost then the excess consideration is recorded as a reduction to the cost of on-hand inventory and allocated to cost of sales in future periods utilizing an average inventory turn rate.
Store Opening and Start-up Costs
Non-capital expenditures, such as advertising, payroll and supplies, incurred prior to the opening of a new store are charged to expense in the period they are incurred.
Advertising Costs
Print, television, radio, outdoor and digital media costs are generally expensed when incurred. Internal production costs are expensed when incurred and external production costs are expensed in the period the advertisement first takes place. Advertising expenses included in selling, general and administrative expenses were $37.4 million, $33.5 million $31.1 million and $29.1$31.1 million in fiscal years 2012, 2011 and 2010, and 2009, respectively.
Shoe Carnival, Inc.
Notes to Consolidated Financial Statements -– continued
Stock-Based Compensation
We recognize compensation expense for stock-based awards based on the fair value of the awards. Stock-based awards may include stock option grants, stock appreciation rights, restricted stock grants and certain transactions under our stock-based compensation plans. Additionally, we recognize stock-based compensation expense for the discount on shares sold to employees through our employee stock purchase plan. This discount represents the difference between the market price and the employee purchase price. Stock-based compensation expense is included in selling, general and administrative expense.
We apply an estimated forfeiture rate in calculating the stock-based compensation expense for the period. Forfeiture estimates are adjusted periodically based on the extent to which actual forfeitures differ, or are expected to differ, from previous estimates.
Segment Information
We have identified each retail store and our e-commerce site as individual operating segments. Our operating segments have been aggregated and are reported as one reportable segment based on the similar nature of products sold, merchandising and distribution processes involved, target customers and economic characteristics.
Income Taxes
We compute income taxes using the asset and liability method, under which deferred income taxes are provided for the temporary differences between the financial reporting basis and the tax basis of our assets and liabilities. We account for uncertain tax positions in accordance with current authoritative guidance and report a liability for unrecognized tax benefits resulting from uncertain tax positions taken or expected to be taken in a tax return. We recognize interest expense and penalties, if any, related to uncertain tax positions in income tax expense.
Stock Split
On March 23, 2012, our Board of Directors authorized a three-for-two stock split of the shares of our common stock, which was effected in the form of a stock dividend. The stock split entitled each shareholder of record at the close of business on April 13, 2012 to receive one additional share of common stock for every two shares of common stock owned as of that date, and was paid on April 27, 2012. Upon the completion of the stock split, our outstanding shares increased from approximately 13.6 million shares to approximately 20.4 million shares. In accordance with the provisions of our equity award plans, and as determined by our Board of Directors, the following were adjusted to equitably reflect the effect of the three-for-two stock split:
· | The number of shares reserved and available for issuance; |
· | The number of shares that may be granted to a plan participant in a calendar year; |
· | The number of shares subject to outstanding equity awards; |
· | The exercise prices of outstanding equity awards; and |
· | The annual earnings per diluted share targets associated with our outstanding performance-based restricted stock awards. |
All share and per share amounts in this Annual Report on Form 10-K give effect to the stock split and have been adjusted retroactively for all periods presented.
38 |
Shoe Carnival, Inc.
Notes to Consolidated Financial Statements – continued
Net Income Per Share
The following table sets forth the computation of basic and diluted earnings per share as shown on the face of the accompanying condensed consolidated statements of income.
(In thousands except per share data) | 2011 | 2010 | 2009 | |||||||||
Numerator | ||||||||||||
Net income | $ | 26,382 | $ | 26,821 | $ | 15,166 | ||||||
Less amount allocable to participating securities | 554 | 0 | 0 | |||||||||
Net income available for basic common shares | 25,828 | 26,821 | 15,166 | |||||||||
Adjustment for dilutive potential common shares | 0 | 0 | 0 | |||||||||
Net income available for diluted common shares | $ | 25,828 | $ | 26,821 | $ | 15,166 | ||||||
Denominator | ||||||||||||
Weighted average common shares – basic | 13,016 | 12,724 | 12,513 | |||||||||
Adjustment for dilutive potential common shares | 113 | 336 | 147 | |||||||||
Weighted average common shares – diluted | 13,129 | 13,060 | 12,660 | |||||||||
Net income per common share | ||||||||||||
Basic | $ | 1.98 | $ | 2.11 | $ | 1.21 | ||||||
Diluted | $ | 1.97 | $ | 2.05 | $ | 1.20 |
Fiscal Year Ended | ||||||||||||||||||||||||||||||||||||
February 2, 2013 | January 28, 2012 | January 29, 2011 | ||||||||||||||||||||||||||||||||||
(In thousands except per share data) | ||||||||||||||||||||||||||||||||||||
Basic Earnings per Share: | Net Income | Shares | Per Share Amount | Net Income | Shares | Per Share Amount | Net Income | Shares | Per Share Amount | |||||||||||||||||||||||||||
Net income | $ | 29,338 | $ | 26,382 | $ | 26,821 | ||||||||||||||||||||||||||||||
Amount allocated to participating securities | (698 | ) | (554 | ) | 0 | |||||||||||||||||||||||||||||||
Net income available for basic common shares and basic earnings per share | $ | 28,640 | 19,911 | $ | 1.44 | $ | 25,828 | 19,524 | $ | 1.32 | $ | 26,821 | 19,085 | $ | 1.41 | |||||||||||||||||||||
Diluted Earnings per Share: | ||||||||||||||||||||||||||||||||||||
Net income | $ | 29,338 | $ | 26,382 | $ | 26,821 | ||||||||||||||||||||||||||||||
Amount allocated to participating securities | (698 | ) | (554 | ) | 0 | |||||||||||||||||||||||||||||||
Adjustment for dilutive potential common shares | 61 | 170 | 502 | |||||||||||||||||||||||||||||||||
Net income available for diluted common shares and diluted earnings per share | $ | 28,640 | 19,972 | $ | 1.43 | $ | 25,828 | 19,694 | $ | 1.31 | $ | 26,821 | 19,587 | $ | 1.37 |
Our basic and diluted earnings per share are computed using the two-class method. The two-class method is an earnings allocation that determines net income per share for each class of common stock and participating securities according to their participation rights in dividends and undistributed earnings.earnings or losses. Non-vested restricted stock awards that include non-forfeitable rights to dividends are considered participating securities. During periods of undistributed losses however, no effect is given to our participating securities since they do not share in the losses. Per share amounts are computed by dividing net income available to common shareholders by the weighted average shares outstanding during each period. OptionsNo options to purchase 224,700 shares of common stock for fiscal 2009 were not includedexcluded in the computation of diluted shares because the options’ exercise prices were greater than the average market price of our common stock for the period. There were no anti-dilutive options in fiscal 2011 or fiscal 2010.
New Accounting Pronouncements
In May 2011, the Financial Accounting Standards Board (“FASB”) issued guidance which amends certain accounting and disclosure requirements related to fair value measurements. For fair value measurements categorized as Level 3, a reporting entity should disclose quantitative information of the unobservable inputs and assumptions, a description of the valuation processes and a narrative description of the sensitivity of the fair value to changes in unobservable inputs. The guidance isbecame effective for interim and annual reporting periods beginning on or after December 15, 2011, with early adoption prohibited. We do not believeadopted the guidance willon January 29, 2012. This adoption did not have a material impact on our consolidated financial position, results of operations or cash flows.
Shoe Carnival, Inc.
Notes to Consolidated Financial Statements - continued
Note 3 – Fair Value Measurements
The FASB has established guidance for usingaccounting standards related to fair value to measure assetsmeasurements define fair value and liabilities.provide a consistent framework for measuring fair value under the authoritative literature. Valuation techniques are based on observable and unobservable inputs. Observable inputs reflect readily obtainable data from independent sources, while unobservable inputs reflect market assumptions. This guidance only applies when other standards require or permit the fair value measurement of assets and liabilities. ItThe guidance does not expand the use of fair value measurements. A fair value hierarchy was established, which prioritizes the inputs used in measuring fair value into three broad levels.
· | Level 1 – Quoted prices in active markets |
· | Level 2 – |
· | Level 3 – |
The following table summarizes our cash and cash equivalentspresents assets that are measured at fair value on a recurring basis:
(In thousands) | Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | Total Fair Value | ||||||||||||
As of January 28, 2012 | ||||||||||||||||
Cash and short-term investments (1) | $ | 66,110 | $ | 0 | $ | 0 | $ | 66,110 | ||||||||
Credit and debit card receivables (2) | 4,492 | 0 | 0 | 4,492 | ||||||||||||
$ | 70,602 | $ | 0 | $ | 0 | $ | 70,602 | |||||||||
As of January 29, 2011 | ||||||||||||||||
Cash and short-term investments (1) | $ | 54,915 | $ | 0 | $ | 0 | $ | 54,915 | ||||||||
Credit and debit card receivables (2) | 5,278 | 0 | 0 | 5,278 | ||||||||||||
$ | 60,193 | $ | 0 | $ | 0 | $ | 60,193 |
Fair Value Measurements | ||||||||||||||||
(In thousands) | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
As of February 2, 2013: | ||||||||||||||||
Cash equivalents – money market fund | $ | 5,259 | $ | 0 | $ | 0 | $ | 5,259 | ||||||||
As of January 28, 2012: | ||||||||||||||||
Cash equivalents– money market fund | $ | 25,231 | $ | 0 | $ | 0 | $ | 25,231 |
The fair values of cash, receivables, accounts payable, accrued expenses and other current liabilities approximate their carrying values because of their short-term nature. From time to time, we measure certain assets at fair value on a non-recurring basis, specifically long-lived assets evaluated for impairment. Long-livedThese are typically store specific assets, which are reviewed for impairment in accordance with current authoritative literature whenever events or changes in circumstances indicate that full recoverability of their carrying value is questionable. If the expected future cash flows related to the long-liveda store’s assets are less than the assets’their carrying value, an impairment loss would be recognized for the difference between estimated fair value and carrying value. Assets subject to impairment are adjusted to estimated fair value and if applicable, an impairment loss is recorded in selling, general and administrative expenses.
During the fifty-three weeks ended February 2, 2013, long-lived assets held and used with a gross carrying amount of $1.7 million were written down to their fair value of $1.3 million, resulting in an impairment charge of $425,000, which was included in earnings for the period. Subsequent to this impairment, these long-lived assets had a remaining unamortized basis of $328,000. During the fifty-two weeks ended January 28, 2012, long-lived assets held and used with a gross carrying amount of $966,000 were written down to their fair value of $628,000, resulting in an impairment charge of $338,000, which was included in earnings for the period. Subsequent to this impairment, these long-lived assets had a remaining unamortized basis of $84,000. During the fifty-two weeks ended January 29, 2011, long-lived assets held and used with a gross carrying amount of $8.8 million were written down
Shoe Carnival, Inc.
Notes to their fair value of $7.1 million, resulting in an impairment charge of $1.7 million, which was included in earnings for the period. Subsequent to this impairment, these long-lived assets had a remaining unamortized basis of $500,000.
Note 4 – Property and Equipment-Net
The following is a summary of property and equipment:
(In thousands) | January 28, 2012 | January 29, 2011 | ||||||
Furniture, fixtures and equipment | $ | 116,034 | $ | 108,936 | ||||
Leasehold improvements | 68,246 | 63,391 | ||||||
Total | 184,280 | 172,327 | ||||||
Less accumulated depreciation and amortization | (115,048 | ) | (109,936 | ) | ||||
Property and equipment – net | $ | 69,232 | $ | 62,391 |
(In thousands) | February 2, 2013 | January 28, 2012 | ||||||
Furniture, fixtures and equipment | $ | 124,511 | $ | 116,034 | ||||
Leasehold improvements | 75,796 | 68,246 | ||||||
Total | 200,307 | 184,280 | ||||||
Less accumulated depreciation and amortization | (122,943 | ) | (115,048 | ) | ||||
Property and equipment – net | $ | 77,364 | $ | 69,232 |
Note 5 – Long-Term Debt
On April 10, 2013 we amended our current unsecured credit agreement (the “Credit Agreement”) effective January 20, 2010, which providesto extend the expiration date by five years and renegotiated certain terms and conditions. The Credit Agreementcontinues to provide for up to $50.0 million in cash advances and commercial and standby letters of credit with borrowing limits based on eligible inventory.
The Credit Agreement containscontinues to contain covenants which stipulate: (1) Total Shareholders’ Equity, adjusted for the effect of any share repurchases, will not fall below that of the prior fiscal year-end; (2) the ratio of funded debt plus rent to EBITDA plus rent will not exceed 2.5 to 1.0; and, (3) cash dividends for a fiscal year will not exceed 30% of consolidated net income for the immediately preceding fiscal year. We were in compliance with these covenants as of January 28, 2012.February 2, 2013. Should a default condition be reported, the lenders may preclude additional borrowings and call all loans and accrued interest at their discretion. As of January 28, 2012,February 2, 2013, there were $6.0$4.2 million in letters of credit outstanding and $44.0$45.8 million available to us for borrowingsborrowing under the Credit Agreement.
The credit facility bears interest, at our option, at (1) the agent bank’s prime rate as defined in the Credit Agreement plus 1% with the prime rate defined as the lesser of (a) the Federal Fund rate plus 0.50% or (b) the interest rate announced from time to time by the agent bank as its “prime rate” on commercial loans or (2) LIBOR plus 2.25%1.50% to 3.75%3.0%, depending on our achievement of certain performance criteria. A commitment fee is charged at 0.40%0.25% to 0.55%0.40% per annum, depending on our achievement of certain performance criteria, on the unused portion of the bank group’s commitment. The Credit Agreement expires April 30, 2013.
Note 6 – Leases
We lease all of our retail locations and certain equipment under operating leases expiring at various dates through fiscal 2023.2024. Various lease agreements require scheduled rent increases over the initial lease term. Rent expense for such leases is recognized on a straight-line basis over the initial lease term beginning the earlier of the start date of the lease or when we take possession of the property. The difference between rent based upon scheduled monthly payments and rent expense recognized on a straight-line basis is recorded as accrued rent. All cash incentives received from landlords are recorded as deferred income and amortized over the life of the lease on a straight-line basis as a reduction of rental expense.
Certain leases provide for contingent rents that are not measurable at inception. These contingent rents are primarily based on a percentage of sales that are in excess of a predetermined level. These amounts are excluded from minimum rent and are included in the determination of total rent expense when it is probable that the expense has been incurred and the amount is reasonably estimable. Certain leases also contain escalation clauses for increases in operating costs and taxes.
Shoe Carnival, Inc.
Notes to Consolidated Financial Statements - continued
We did not assign any store operating leases during fiscal 2011.2012. We remain liable on two assignments of operating leases covering former store locations, which were assigned to third parties in prior years. The assignments require us to make payments under the lease agreements in certain events of default. The maximum potential amount of future payments (undiscounted) that we could be required to make under all assignments was approximately $543,000$133,000 at January 28, 2012.February 2, 2013. Both of the assignments remain in effect until the leases expire in fiscal year 2013. We believe that the likelihood of material liability being triggered under these leases is remote, and no liability has been accrued for these contingent lease obligations in our consolidated financial statements as of January 28, 2012.
Rental expense for our operating leases consisted of:
(In thousands) | 2011 | 2010 | 2009 | |||||||||
Rentals for real property | $ | 49,328 | $ | 47,745 | $ | 47,292 | ||||||
Contingent rent | 156 | 136 | 52 | |||||||||
Equipment rentals | 113 | 133 | 334 | |||||||||
Total | $ | 49,597 | $ | 48,014 | $ | 47,678 |
(In thousands) | 2012 | 2011 | 2010 | |||||||||
Rentals for real property | $ | 53,832 | $ | 49,328 | $ | 47,745 | ||||||
Contingent rent | 189 | 156 | 136 | |||||||||
Equipment rentals | 110 | 113 | 133 | |||||||||
Total | $ | 54,131 | $ | 49,597 | $ | 48,014 |
Future minimum lease payments at January 28, 2012 areFebruary 2, 2013 were as follows:
(In thousands) | Operating Leases | |||
2012 | $ | 51,510 | ||
2013 | 43,908 | |||
2014 | 34,470 | |||
2015 | 34,762 | |||
2016 | 33,060 | |||
Thereafter to 2023 | 105,557 | |||
Total | $ | 303,267 |
(In thousands) | Operating Leases | |||
2013 | $ | 51,167 | ||
2014 | 43,726 | |||
2015 | 45,588 | |||
2016 | 44,142 | |||
2017 | 42,629 | |||
Thereafter to 2024 | 129,688 | |||
Total | $ | 356,940 |
Note 7 – Income Taxes
The provision for income taxes consisted of:
(In thousands) | 2011 | 2010 | 2009 | |||||||||
Current: | ||||||||||||
Federal | $ | 11,318 | $ | 15,514 | $ | 9,188 | ||||||
State | 1,210 | 1,360 | 1,683 | |||||||||
Total current | 12,528 | 16,874 | 10,871 | |||||||||
Deferred: | ||||||||||||
Federal | 2,918 | (1,220 | ) | (1,134 | ) | |||||||
State | 122 | (183 | ) | 92 | ||||||||
Total deferred | 3,040 | (1,403 | ) | (1,042 | ) | |||||||
Total provision | $ | 15,568 | $ | 15,471 | $ | 9,829 |
(In thousands) | 2012 | 2011 | 2010 | |||||||||
Current: | ||||||||||||
Federal | $ | 19,581 | $ | 11,318 | $ | 15,514 | ||||||
State | 2,601 | 1,210 | 1,360 | |||||||||
Puerto Rico | 79 | 0 | 0 | |||||||||
Total current | 22,261 | 12,528 | 16,874 | |||||||||
Deferred: | ||||||||||||
Federal | (2,692 | ) | 2,918 | (1,220 | ) | |||||||
State | (304 | ) | 122 | (183 | ) | |||||||
Puerto Rico | (350 | ) | 0 | 0 | ||||||||
Total deferred | (3,347 | ) | 3,040 | (1,403 | ) | |||||||
Total provision | $ | 18,915 | $ | 15,568 | $ | 15,471 |
We realized a tax benefit of $1.4 million, $1.6 million $626,000 and $376,000$626,000 in fiscal years 2012, 2011 2010 and 2009,2010, respectively, as a result of the exercise of stock options and the vesting of restricted stock, which is recorded in shareholders’ equity.
Shoe Carnival, Inc.
Notes to Consolidated Financial Statements - continued
Reconciliation between the statutory federal income tax rate and the effective income tax rate is as follows:
Fiscal years | 2011 | 2010 | 2009 | |||||||||
U.S. Federal statutory tax rate | 35.0 | % | 35.0 | % | 35.0 | % | ||||||
State and local income taxes, net of federal tax benefit | 3.2 | 2.8 | 7.1 | |||||||||
Other | (1.1 | ) | (1.2 | ) | (2.8 | ) | ||||||
Effective income tax rate | 37.1 | % | 36.6 | % | 39.3 | % |
Fiscal years | 2012 | 2011 | 2010 | |||||||||
U.S. Federal statutory tax rate | 35.0 | % | 35.0 | % | 35.0 | % | ||||||
State and local income taxes, net of federal tax benefit | 4.8 | 2.1 | 1.6 | |||||||||
Puerto Rico | (0.6 | ) | 0.0 | 0.0 | ||||||||
Effective income tax rate | 39.2 | % | 37.1 | % | 36.6 | % |
We recorded $162,000, $328,000 $222,000 and $304,000$222,000 in federal employment related tax credits in fiscal 2012, 2011 2010 and 2009,2010, respectively. Each of these credits reduced our effective tax rate in the respective years. InFor fiscal 2012, approximately 1.3% of the increase in our effective tax rate as compared to fiscal 2011 was due to the non-deductible portion of compensation attributable to the retirement of our former President and Chief Executive Officer. Additionally, in both fiscal 2011 and fiscal 2010, we recognized a decrease in our state and local income tax rate due to favorable settlements with certain taxing authorities.
Deferred income taxes are the result of temporary differences in the recognition of revenue and expense for tax and financial reporting purposes. The sources of these differences and the tax effect of each are as follows:
(In thousands) | January 28, 2012 | January 29, 2011 | ||||||
Deferred tax assets: | ||||||||
Accrued rent | $ | 2,301 | $ | 1,956 | ||||
Accrued compensation | 2,849 | 2,393 | ||||||
Accrued employee benefits | 1,092 | 3,013 | ||||||
Inventory | 862 | 875 | ||||||
Self-insurance reserves | 587 | 551 | ||||||
Lease incentives | 4,941 | 2,892 | ||||||
Unrecognized tax benefits | 39 | 328 | ||||||
State bonus depreciation add-back | 426 | 279 | ||||||
Other | 367 | 296 | ||||||
Total deferred tax assets | 13,464 | 12,583 | ||||||
Deferred tax liabilities: | ||||||||
Depreciation | 12,058 | 8,217 | ||||||
Capitalized costs | 840 | 760 | ||||||
Total deferred tax liabilities | 12,898 | 8,977 | ||||||
Net deferred tax asset | 566 | 3,606 | ||||||
Less current deferred income tax benefit | (2,496 | ) | (4,275 | ) | ||||
Long-term deferred income taxes | $ | (1,930 | ) | $ | (669 | ) |
(In thousands) | February 2, 2013 | January 28, 2012 | ||||||
Deferred tax assets: | ||||||||
Accrued rent | $ | 2,878 | $ | 2,301 | ||||
Accrued compensation | 5,191 | 2,849 | ||||||
Accrued employee benefits | 479 | 1,092 | ||||||
Inventory | 916 | 862 | ||||||
Self-insurance reserves | 494 | 587 | ||||||
Lease incentives | 7,438 | 4,941 | ||||||
Unrecognized tax benefits | 0 | 39 | ||||||
State bonus depreciation add-back | 0 | 426 | ||||||
Net operating loss carry forward | 359 | 0 | ||||||
Other | 337 | 367 | ||||||
Total deferred tax assets | 18,092 | 13,464 | ||||||
Deferred tax liabilities: | ||||||||
Depreciation | 12,801 | 12,058 | ||||||
Capitalized costs | 1,017 | 840 | ||||||
Puerto Rico net operating loss carry forward impact to federal taxes | 350 | 0 | ||||||
Other | 11 | 0 | ||||||
Total deferred tax liabilities | 14,179 | 12,898 | ||||||
Net deferred tax asset | 3,913 | 566 | ||||||
Less current deferred income tax benefit | (2,914 | ) | (2,496 | ) | ||||
Long-term deferred income taxes | $ | 999 | $ | (1,930 | ) |
At the end of fiscal 2012 we estimated state net operating loss carry forwards of $294,000 which expire between fiscal 2013 and fiscal 2023 and net operating loss carry forwards of $350,000 for Puerto Rico which expire in fiscal 2019. As of January 28, 2012,February 2, 2013, we had no available state tax credits that could be carried forward.
Shoe Carnival, Inc.
Notes to Consolidated Financial Statements - continued
Our unrecognized tax liabilities, as discussed below, relate to tax years encompassing our fiscal years 1999 through 2011,2012, the tax years that remain subject to examination by major tax jurisdictions as of January 28, 2012.February 2, 2013. A reconciliation of the beginning and ending amount for our unrecognized tax positions, which exclude interest and penalties, is as follows:
(In thousands) | 2011 | 2010 | 2009 | |||||||||
Beginning balance | $ | 693 | $ | 1,357 | $ | 1,135 | ||||||
Increases – tax positions in prior period | 0 | 0 | 150 | |||||||||
Decreases – tax positions in prior period | (339 | ) | (617 | ) | 0 | |||||||
Gross increases – current period tax positions | 0 | 100 | 179 | |||||||||
Decreases related to settlements with taxing authorities | (285 | ) | (147 | ) | (107 | ) | ||||||
Ending balance | $ | 69 | $ | 693 | $ | 1,357 |
(In thousands) | 2012 | 2011 | 2010 | |||||||||
Beginning balance | $ | 69 | $ | 693 | $ | 1,357 | ||||||
Increases – tax positions in prior period | 0 | 0 | 0 | |||||||||
Decreases – tax positions in prior period | 0 | (339 | ) | (617 | ) | |||||||
Gross increases – current period tax positions | 0 | 0 | 100 | |||||||||
Decreases related to settlements with taxing authorities | 0 | (285 | ) | (147 | ) | |||||||
Ending balance | $ | 69 | $ | 69 | $ | 693 |
We have recorded $142,000$145,000 in unrecognized tax liabilities as of January 28, 2012February 2, 2013 in Other liabilities on the Consolidated Balance Sheets. This liability is comprised of $69,000 related to unrecognized tax positions, $38,000$41,000 related to accrued interest and $35,000 related to accrued penalties. Our policy is to record interest and penalty expense related to income taxes as a component of income tax expense in the Consolidated Statements of Income. If our uncertain tax positions become recognizable, the amount would affect our effective tax rate.
Note 8 – Employee Benefit Plans
Retirement Savings Plan
On February 24, 1994, our Board of Directors approved the Shoe Carnival Retirement Savings Plan (the “Retirement“Domestic Savings Plan”). The RetirementDomestic Savings Plan is open to all employees working in the continental United States who have been employed for at least one year, are at least 21 years of age and who work at least 1,000 hours in a defined year. The primary savings mechanism under the RetirementDomestic Savings Plan is a 401(k) plan under which an employee may contribute up to 20% of annual earnings with us matching the first 4% at a rate of 50%.
On March 19, 2012, our Board of Directors approved the Shoe Carnival Puerto Rico Savings Plan (the “Puerto Rico Savings Plan”). The Puerto Rico Savings Plan is open to all employees working in Puerto Rico who have been employed for at least one year, are at least 21 years of age and 2009, respectively.
Stock Purchase Plan
On May 11, 1995, our shareholders approved the Shoe Carnival, Inc. Employee Stock Purchase Plan (the “Stock Purchase Plan”) as adopted by our Board of Directors on February 9, 1995. The Stock Purchase Plan reserves 300,000450,000 shares of our common stock (subject to adjustment for any subsequent stock splits, stock dividends and certain other changes in the common stock) for issuance and sale to any employee who has been employed for more than a year at the beginning of the calendar year, and who is not a 10% owner of our common stock, at 85% of the then fair market value up to a maximum of $5,000 in any calendar year. Under the plan, 8,400, 8,300Stock Purchase Plan, 11,000, 12,500 and 13,40012,500 shares of common stock were purchased by participants in the plan and proceeds to us for the sale of those shares were approximately $201,000, $190,000 $160,000 and $150,000$160,000 for fiscal years 2012, 2011 2010 and 2009,2010, respectively. At
Shoe Carnival, Inc.
Notes to Consolidated Financial Statements - continued
The following table summarizes information regarding stock-based compensation expense recognized for the Stock Purchase Plan:
(In thousands) | 2011 (1) | 2010 (1) | 2009 | |||||||||
Stock-based compensation expense before the recognized income tax benefit (2) | $ | 34 | $ | 28 | $ | 26 | ||||||
Income tax benefit | $ | 13 | $ | 11 | $ | 10 |
(In thousands) | 2012 | 2011(1) | 2010(1) | |||||||||
Stock-based compensation expense before the recognized income tax benefit(2) | $ | 36 | $ | 34 | $ | 28 | ||||||
Income tax benefit | $ | 14 | $ | 13 | $ | 11 |
(1) | Income tax benefit was calculated using an adjusted effective tax rate. The adjusted rate removes the tax effects from the favorable resolution of certain tax positions. |
(2) | Amounts are representative of the 15% discount employees are provided for purchases under the Stock Purchase Plan. |
Deferred Compensation Plan
In fiscal 2000, we established a non-qualified deferred compensation plan for certain key employees who, due to Internal Revenue Service guidelines, cannot take full advantage of the employer sponsored 401(k) plan. Participants in the plan elect on an annual basis to defer, on a pre-tax basis, portions of their current compensation until retirement, or earlier if so elected. While not required to, we can match a portion of the employees’ contributions, which would be subject to vesting requirements. The compensation deferred under this plan is credited with earnings or losses measured by the rate of return on investments elected by plan participants. The plan is currently unfunded. Compensation expense for our match and earnings on the deferred amounts was $867,000, $432,000 $879,000 and $621,000$879,000 for fiscal 2012, 2011 2010 and 2009,2010, respectively. The total deferred compensation liability at February 2, 2013 and January 28, 2012 was $7.2 million and January 29, 2011 was $6.1 million, and $4.9 million, respectively.
Note 9 – Stock Based Compensation
Compensation Plan Summaries
On April 27, 2012, we completed a three-for-two stock split of the shares of our common stock, which was effected in the form of a stock dividend. All share and per share amounts referenced below give effect to the stock split and have been adjusted retroactively for all periods presented.
We have three stock-based compensation plans: the 1993 Stock Option and Incentive Plan (the “1993 Plan”), the Outside Directors Stock Option Plan (the “Directors Plan”) and the 2000 Stock Option and Incentive Plan (the “2000 Plan”).
The 1993 Plan was approved by our Board of Directors and shareholders effective January 15, 1993, and amended at the 1997 annual meeting of shareholders. The 1993 Plan reserved 1,500,0002,250,000 shares of common stock for stock option grants (subject to adjustment for subsequent stock splits, stock dividends and certain other changes in the common stock). On January 14, 2003, the 1993 Plan expired. Previously issued stock options cancould be exercised for up to ten years from their date of grant. At January 28,During fiscal 2012 there were 50,000 fully vestedall remaining stock options outstanding under the 1993 Plan.
The Directors Plan was approved by our Board of Directors on March 4, 1999. The plan reserves for issuance 25,00037,500 shares of common stock (subject to adjustment for stock splits, stock dividends and certain other changes to the common stock). No grants have been made under this plan since fiscal 2006, and it is currently the intention of the Board of Directors not to grant stock options under this plan in the future. At January 28, 2012, 11,000February 2, 2013, 16,500 shares of unissued common stock were reserved for possible future grants and there were 7,0003,000 fully vested stock options outstanding under the Directors Plan.
Shoe Carnival, Inc.
Notes to Consolidated Financial Statements - continued
The 2000 Plan was approved by our Board of Directors and shareholders effective June 8, 2000. Currently,On June 14, 2012, the 2000 Plan reserves 2,000,000was amended to increase the number of shares of common stockreserved for stock option and restricted stock grantsissuance from 3,000,000 to 3,900,000 (subject to adjustment for subsequent stock splits, stock dividends and certain other changes in the common stock). The 2000 Plan was also amended to revise the provision governing the payment of dividends on shares of restricted stock. At January 28, 2012, 274,544February 2, 2013, there were 1.1 million shares of unissued common stock were reserved for future grants under the 2000 Plan.
Stock options currently outstanding under the 2000 Plan typically were granted such that one-third of the shares underlying the stock options granted would vest and become fully exercisable on each of the first three anniversaries of the date of the grant and were assigned a 10-year term from the date of grant. Restricted stock awards issued to employees under the 2000 Plan are classified as either performance-based or service-based. Performance-based restricted stock awards typically are granted such that they vest upon the achievement of specified levels of annual earnings per diluted share during a six-year period starting from the grant date or were granted such that one-third of the shares would vest on each of the first three anniversaries subsequent to the date of the grant. For the performance-based awards, shoulddate. Should the annual earnings per diluted share criteria not be met within the six-year period from the grant date, any shares still restricted will be forfeited. Under the 2000 Plan, both service and performance based awards contain nonforefeitable rights to any dividends received. AllService-based restricted stock awards typically are granted under one of three vesting periods: (a) one-third of the shares would vest on each of the first three anniversaries subsequent to the date of the grant; (b) the full award would vest at the end of a 5-year service period subsequent to date of grant; or (c) for our Directors, all restricted stock awards are issued to date to non-employee Directors vestedvest on January 2 of the year following the year of the grant.
Plan Specific Activity and End of Period Balance Summaries
Stock Options
The following table summarizes the stock option transactions pursuant to the stock-based compensation plans:
Number of Shares | Weighted- Average Exercise Price | Weighted- Average Remaining Contractual Term (Years) | Aggregate Intrinsic Value (in thousands) | |||||||||||||
Outstanding at January 29, 2011 | 342,718 | $ | 14.70 | |||||||||||||
Granted | 0 | |||||||||||||||
Forfeited or expired | 0 | |||||||||||||||
Exercised | (161,687 | ) | 15.24 | |||||||||||||
Outstanding and exercisable at January 28, 2012 | 181,031 | $ | 14.22 | 1.51 | $ | 2,089 |
Number of Shares | Weighted- Average Exercise Price | Weighted- Average Remaining Contractual Term (Years) | Aggregate Intrinsic Value (in thousands) | |||||||||||||
Outstanding at January 28, 2012 | 271,546 | $ | 9.48 | |||||||||||||
Granted | 0 | |||||||||||||||
Forfeited or expired | 0 | |||||||||||||||
Exercised | (232,974 | ) | 9.53 | |||||||||||||
Outstanding and exercisable at February 2, 2013 | 38,572 | $ | 9.21 | 3.59 | $ | 436 |
The following table summarizes information regarding options exercised:
(In thousands) | 2011 | 2010 | 2009 | |||||||||
Total intrinsic value (1) | $ | 1,624 | $ | 656 | $ | 1,290 | ||||||
Total cash received | $ | 2,464 | $ | 578 | $ | 998 | ||||||
Associated excess income tax benefits recorded | $ | 399 | $ | 220 | $ | 385 |
(In thousands) | 2012 | 2011 | 2010 | |||||||||
Total intrinsic value(1) | $ | 2,473 | $ | 1,624 | $ | 656 | ||||||
Total cash received | $ | 2,219 | $ | 2,464 | $ | 578 | ||||||
Associated excess income tax benefits recorded | $ | 465 | $ | 399 | $ | 220 |
(1) | Defined as the difference between the market value at exercise and the grant price of stock options exercised. |
The following table summarizes information regarding outstanding and exercisable options at January 28, 2012:
Options Outstanding | Options Exercisable | |||||||||||||||||||
Range of Exercise Price | Number of Options Outstanding | Weighted Average Remaining Life | Weighted Average Exercise Price | Number of Options Exercisable | Weighted Average Exercise Price | |||||||||||||||
$11.44 – 12.67 | 102,531 | 1.62 | $ | 12.54 | 102,531 | $ | 12.54 | |||||||||||||
$13.68 – 17.12 | 78,500 | 1.38 | $ | 16.41 | 78,500 | $ | 16.41 |
Options Outstanding | Options Exercisable | |||||||||||||||||||||
Range of Exercise Price | Number of Options Outstanding | Weighted Average Remaining Life | Weighted Average Exercise Price | Number of Options Exercisable | Weighted Average Exercise Price | |||||||||||||||||
$ | 7.63 – 10.73 | 38,572 | 3.59 | $ | 9.21 | 38,572 | $ | 9.21 |
Shoe Carnival, Inc.
Notes to Consolidated Financial Statements - continued
The following table summarizes information regarding stock-based compensation expense recognized for non-vested options:
(In thousands) | 2011 (1) | 2010 (1) | 2009 | |||||||||
Stock-based compensation expense before the recognized income tax benefit | $ | 22 | $ | 82 | $ | 84 | ||||||
Income tax benefit | $ | 8 | $ | 31 | $ | 33 |
(In thousands) | 2012 | 2011(1) | 2010(1) | |||||||||
Stock-based compensation expense before the recognized income tax benefit | $ | 0 | $ | 22 | $ | 82 | ||||||
Income tax benefit | $ | 0 | $ | 8 | $ | 31 |
(1) | Income tax benefit was calculated using an adjusted effective tax rate. The adjusted rate removes the tax effects from the favorable resolution of certain tax positions. |
No stock options werehave been granted duringsince fiscal years 2011, 2010 or 2009. As of January 28, 2012, all2008. All outstanding options had vested andas of the end of fiscal 2011, therefore no unrecognized compensation expense remained.
Restricted Stock Awards
The following table summarizes the restricted share transactions pursuant to the 2000 Plan:
Number of Shares | Weighted- Average Grant Date Fair Value | |||||||
Non-vested at January 29, 2011 | 391,346 | $ | 19.91 | |||||
Granted | 141,393 | 25.62 | ||||||
Vested | (345,310 | ) | 18.97 | |||||
Forfeited | (2,668 | ) | 25.72 | |||||
Non-vested at January 28, 2012 | 184,761 | $ | 25.96 |
Number of Shares | Weighted- Average Grant Date Fair Value | |||||||
Restricted stock at January 28, 2012 | 277,145 | $ | 17.31 | |||||
Granted | 344,354 | 19.51 | ||||||
Vested | (8,954 | ) | 17.88 | |||||
Forfeited or expired | (113,265 | ) | 17.18 | |||||
Restricted stock at February 2, 2013 | 499,280 | $ | 18.84 |
The total fair value at grant date of previously non-vestedrestricted stock awards that vested during fiscal 2012, 2011 and 2010 and 2009 was $160,000, $6.5 million and $1.3 million, and $764,000, respectively. The weighted-average grant date fair value of stock awards granted during fiscal 20102011 and fiscal 20092010 was $21.65$17.08 and $12.26,$14.43, respectively.
The following table summarizes information regarding stock-based compensation expense recognized for restricted stock awards:
(In thousands) | 2011 (1) | 2010 (1) | 2009 | |||||||||
Stock-based compensation expense before the recognized income tax benefit | $ | 1,882 | $ | 4,875 | $ | 787 | ||||||
Income tax benefit | $ | 712 | $ | 1,851 | $ | 309 |
(In thousands) | 2012 | 2011(1) | 2010(1) | |||||||||
Stock-based compensation expense before the recognized income tax benefit | $ | 3,663 | $ | 1,882 | $ | 4,875 | ||||||
Income tax benefit | $ | 1,436 | $ | 712 | $ | 1,851 |
(1) | Income tax benefit was calculated using an adjusted effective tax rate. The adjusted rate removes the tax effects from the favorable resolution of certain tax positions. |
The $1.9 million of expense recognized in fiscal 2011 was comprised of compensation expense of $2.6 million offset by income of $716,000. The income was attributable to the fourth quarter reversal of the cumulative prior period expense for performance-based awards, which were deemed by management as not probable of vesting.
Shoe Carnival, Inc.
Notes to Consolidated Financial Statements - continued
As of January 28, 2012,February 2, 2013, there was approximately $2.5$4.7 million of unrecognized compensation expense remaining related to both the performance-based and service-based non-vestedrestricted stock awards. The cost is expected to be recognized over a weighted average period of approximately 2.11.9 years. This incorporates theour current assumptions ofwith respect to the estimated requisite service period required to achieve the designated performance conditions for performance-based stock awards.
Cash-Settled Stock Appreciation Rights (SARs)
Our outstanding Cash-Settled Stock Appreciation Rights (SARs) were granted to certain non-executive employees in fiscal 2008. One-thirdsuch that one-third of the shares ofunderlying the underlying SARs vested and became fully exercisable on each of the first three grant date anniversaries andwould vest annually. The SARs were assigned a five-year term from the date of grant.grant, after which any unexercised SARs will expire. Each SAR entitledentitles the holder, upon exercise of their vested shares, to receive cash in thean amount equal to the closing price of our stock on the date of exercise less the exercise price. Theprice, with a maximum amount paid, however, could not exceed 100% of gain defined. SARs were granted during the first quarter of fiscal 2012 and issued with a defined maximum gain of $6.67 over the exercise price.price of $17.17. In accordance with current authoritative guidance, cash-settled SARs wereare classified as Other liabilities on the Condensed Consolidated Balance Sheets.
The following table summarizes the SARs activity:
Number of Shares | Weighted- Average Exercise Price | Weighted- Average Remaining Contractual Term (Years) | |||||||||
Outstanding at January 29, 2011 | 50,686 | $ | 9.72 | ||||||||
Granted | 0 | 0.00 | |||||||||
Forfeited or expired | (3,168 | ) | 9.72 | ||||||||
Exercised | (47,518 | ) | 9.72 | ||||||||
Outstanding and exercisable at January 28, 2012 | 0 | $ | 0.00 | 0.00 |
Number of Shares | Weighted- Average Exercise Price | Weighted- Average Remaining Contractual Term (Years) | ||||||||||
Outstanding at January 28, 2012 | 0 | $ | 0.00 | |||||||||
Granted | 135,375 | 17.17 | ||||||||||
Forfeited | (11,625 | ) | 17.17 | |||||||||
Exercised | 0 | 0.00 | ||||||||||
Outstanding at February 2, 2013 | 123,750 | $ | 17.17 | 3.99 |
The fair value of liability awards wereare remeasured, using a trinomial lattice model, at each reporting period until the date of settlement. Increases or decreases in stock-based compensation expense wasis recognized over the vesting period, or immediately for vested awards. There were no SARsThe weighted-average fair value of outstanding, non-vested SAR awards was $4.18 as of January 28, 2012.
The fair value was estimated using a trinomial lattice model with the following assumptions:
February 2, 2013 | ||||
Risk free interest rate yield curve | 0.02% - 0.88 | % | ||
Expected dividend yield | 1.0 | % | ||
Expected volatility | 57.16 | % | ||
Maximum life | 3.99 Years | |||
Exercise multiple | 1.38 | |||
Maximum payout | $ | 6.67 | ||
Employee exit rate | 2.2% - 9.0 | % |
Shoe Carnival, Inc.
Notes to Consolidated Financial Statements - continued
The risk free interest rate was based on the U.S. Treasury yield curve in effect at the end of the reporting period. The expected dividend yield was based on our quarterly cash dividends in fiscal 2012, with the assumption that quarterly dividends would continue at the current rate. Expected volatility was based on the historical volatility of our stock. The exercise multiple and employee exit rate are based on historical option data.
The following table summarizes information regarding stock-based compensation expense recognized for SARs:
(In thousands) | 2011 (1) | 2010 (1) | 2009 | |||||||||
Stock-based compensation expense before the recognized income tax benefit | $ | 197 | $ | 483 | $ | 751 | ||||||
Income tax benefit | $ | 74 | $ | 183 | $ | 295 |
(In thousands) | 2012 | 2011(1) | 2010(1) | |||||||||
Stock-based compensation expense before the recognized income tax benefit | $ | 349 | $ | 197 | $ | 483 | ||||||
Income tax benefit | $ | 137 | $ | 74 | $ | 183 |
(1) Income tax benefit was calculated using an adjusted effective tax rate. The adjusted rate removes the tax effects from the favorable resolution of certain tax positions.
As of February 2, 2013, approximately $187,000 in fiscal 2011, therefore as of January 28, 2012 no unrecognized compensation expense remained.
Note 10 – Business Risk
We purchase merchandise from over 170 footwear vendors. In fiscal 2012, two suppliers each accounted for 10% or more of our net sales and together accounted for over 37% of our net sales. A loss of any of our key suppliers in certain product categories could have a material adverse effect on our business. As is common in the industry, we do not have any long-term contracts with suppliers.
Note 1011 – Litigation Matters
We are involved in various legal proceedings incidental to the conduct of our business. While the outcome of any legal proceeding is always uncertain, we do not currently expect that any such proceedings will have a material adverse effect on our consolidated balance sheets, statements of income, or cash flows.
Note 1112 – Related Party Transactions
Our Chairman and principal shareholder and his son are members of LC Footwear, LLC. They also were shareholders of PL Footwear, Inc., which during December 2007 became a wholly owned subsidiary of LC Footwear, LLC. We purchaseHistorically, we have purchased name brand merchandise from LC Footwear, LLC, and PL Footwear, Inc. serveshas served as an import agent for us. PL Footwear, Inc. representsrepresented us on a commission basis in dealings with shoe factories in mainland China, where most of our private label shoes are manufactured.
Shoe Carnival, Inc.
Notes to Consolidated Financial Statements - continued
Note 1213 – Quarterly Results (Unaudited)
Quarterly results are determined in accordance with the accounting policies used for annual data and include certain items based upon estimates for the entire year. All fiscal quarters in 20112012 and 20102011 include results for 13 weeks except for the fourth quarter of 2012, which includes results for 14 weeks.
(In thousands, except per share data)
Fiscal 2011 | First Quarter | Second Quarter | Third Quarter | Fourth Quarter | ||||||||||||
Net sales | $ | 198,450 | $ | 166,672 | $ | 215,472 | $ | 181,940 | ||||||||
Gross profit | 61,760 | 46,373 | 65,155 | 51,565 | ||||||||||||
Operating income | 16,135 | 4,114 | 16,879 | 5,009 | ||||||||||||
Net income | 9,919 | 2,715 | 10,473 | 3,275 | ||||||||||||
Net income per share – Basic | $ | 0.77 | $ | 0.20 | $ | 0.79 | $ | 0.24 | ||||||||
Net income per share – Diluted | $ | 0.75 | $ | 0.20 | $ | 0.78 | $ | 0.24 |
Fiscal 2010 | First Quarter | Second Quarter | Third Quarter | Fourth Quarter | ||||||||||||
Net sales | $ | 189,457 | $ | 165,394 | $ | 204,443 | $ | 179,895 | ||||||||
Gross profit | 59,272 | 46,747 | 61,510 | 54,010 | ||||||||||||
Operating income | 14,991 | 5,989 | 14,414 | 6,991 | ||||||||||||
Net income | 9,247 | 4,118 | 9,096 | 4,360 | ||||||||||||
Net income per share – Basic | $ | 0.73 | $ | 0.32 | $ | 0.71 | $ | 0.34 | ||||||||
Net income per share – Diluted | $ | 0.72 | $ | 0.32 | $ | 0.70 | $ | 0.33 |
Fiscal 2012 | First Quarter | Second Quarter | Third Quarter | Fourth Quarter (1) | ||||||||||||
Net sales | $ | 222,613 | $ | 182,207 | $ | 244,434 | $ | 205,744 | ||||||||
Gross profit | 68,539 | 52,329 | 76,435 | 60,174 | ||||||||||||
Operating income | 17,977 | 4,692 | 20,560 | 5,265 | ||||||||||||
Net income | 11,020 | 2,859 | 12,248 | 3,211 | ||||||||||||
Net income per share – Basic(2) | $ | 0.54 | $ | 0.14 | $ | 0.60 | $ | 0.13 | ||||||||
Net income per share – Diluted(2) | $ | 0.54 | $ | 0.14 | $ | 0.60 | $ | 0.13 |
Fiscal 2011 | First Quarter | Second Quarter | Third Quarter | Fourth Quarter(1) | ||||||||||||
Net sales | $ | 198,450 | $ | 166,672 | $ | 215,472 | $ | 181,940 | ||||||||
Gross profit | 61,760 | 46,373 | 65,155 | 51,565 | ||||||||||||
Operating income | 16,135 | 4,114 | 16,879 | 5,009 | ||||||||||||
Net income | 9,919 | 2,715 | 10,473 | 3,275 | ||||||||||||
Net income per share – Basic(2) | $ | 0.51 | $ | 0.14 | $ | 0.52 | $ | 0.16 | ||||||||
Net income per share – Diluted(2) | $ | 0.50 | $ | 0.14 | $ | 0.52 | $ | 0.16 |
(1) | The fourth quarter of fiscal 2012 included 14 weeks compared to 13 weeks in the fourth quarter of fiscal 2011. |
(2) | Per share amounts are computed independently for each of the quarters presented. The sum of the quarters may not equal the total year due to the impact of changes in weighted shares outstanding and differing applications of earnings under the two-class method. Additionally, during the fourth quarter of fiscal 2012 there was a $0.03 reduction in earnings per diluted share due to the application of the two-class method of computing earnings per share in connection with the $1.00 per share special cash dividend paid in December 2012. |
Note 1314 – Subsequent Events
On March 23, 2012, our27, 2013, the Board of Directors authorizedapproved the payment of a three-for-two stock splitcash dividend to shareholders in the first quarter of the sharesfiscal 2013. The quarterly cash dividend of our common stock, which$0.06 per share will be effected in the form of a stock dividend. The stock split will entitle each shareholderpaid on April 26, 2013 to shareholders of record atas of the close of business on April 13, 201212, 2013.
Future declarations of dividends are subject to receive one additional share of common stock for every two shares of common stock owned as of that date, payable on April 27, 2012. Upon the completionapproval of the stock split,Board of Directors and will depend on the Company's results of operations, financial condition, business conditions and other factors deemed relevant by the Board of Directors.
On April 10, 2013 we amended our outstanding shares will increase from approximately 13.6Credit Agreement to extend the expiration date by five years and renegotiated certain terms and conditions. The Credit Agreementcontinues to provide for up to $50.0 million shares to approximately 20.4 million shares. Our historical share data will be retroactively adjusted upon the completionin cash advances and commercial and standby letters of credit with borrowing limits based on eligible inventory. The details of the stock split.
Pre-stock split (in thousands except per share data) | 2011 | 2010 | 2009 | |||||||||
Numerator | ||||||||||||
Net income available for basic common shares | $ | 25,828 | $ | 26,821 | $ | 15,166 | ||||||
Net income available for diluted common shares | $ | 25,828 | $ | 26,821 | $ | 15,166 | ||||||
Denominator | ||||||||||||
Weighted average common shares – basic | 13,016 | 12,724 | 12,513 | |||||||||
Weighted average common shares – diluted | 13,129 | 13,060 | 12,660 | |||||||||
Net income per common share | ||||||||||||
Basic | $ | 1.98 | $ | 2.11 | $ | 1.21 | ||||||
Diluted | $ | 1.97 | $ | 2.05 | $ | 1.20 |
Post-stock split, unaudited (in thousands except per share data) | 2011 | 2010 | 2009 | |||||||||
Numerator | ||||||||||||
Net income available for basic common shares | $ | 25,828 | $ | 26,821 | $ | 15,166 | ||||||
Net income available for diluted common shares | $ | 25,828 | $ | 26,821 | $ | 15,166 | ||||||
Denominator | ||||||||||||
Weighted average common shares – basic | 19,524 | 19,086 | 18,770 | |||||||||
Weighted average common shares – diluted | 19,694 | 19,590 | 18,991 | |||||||||
Net income per common share | ||||||||||||
Basic | $ | 1.32 | $ | 1.41 | $ | 0.81 | ||||||
Diluted | $ | 1.31 | $ | 1.37 | $ | 0.80 |
SHOE CARNIVAL, INC.
(In thousands) Reserve for sales returns and allowances | Balance at Beginning of Period | Charged to Cost and Expenses | Credited to Costs and Expenses | Balance at End of Period | ||||||||||||
Year ended January 30, 2010 | $ | 94 | $ | 69,621 | $ | 69,609 | $ | 106 | ||||||||
Year ended January 29, 2011 | $ | 106 | $ | 80,337 | $ | 80,339 | $ | 104 | ||||||||
Year ended January 28, 2012 | $ | 104 | $ | 83,816 | $ | 83,811 | $ | 109 |
(In thousands) Reserve for sales returns and allowances | Balance at Beginning of Period | Charged to Cost and Expenses | Credited to Costs and Expenses | Balance at End of Period | ||||||||||||
Year ended January 29, 2011 | $ | 106 | $ | 80,337 | $ | 80,339 | $ | 104 | ||||||||
Year ended January 28, 2012 | $ | 104 | $ | 83,816 | $ | 83,811 | $ | 109 | ||||||||
Year ended February 2, 2013 | $ | 109 | $ | 94,379 | $ | 94,377 | $ | 111 |
ITEM 9. | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE |
None.
The Company’s management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934. Internal control over financial reporting is a process designed by, or under the supervision of, the Company’s principal executive and principal financial officers and effected by the Company’s board of directors, management and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that:
Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the Company; |
Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and |
Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements. |
Because of inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risks that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Management assessed the effectiveness of the Company’s internal control over financial reporting as of
The Company’s internal control over financial reporting as of January 28, 2012February 2, 2013 has been audited by its independent registered public accounting firm, Deloitte & Touche LLP, as stated in their report, which is included herein.
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Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures and Changes in Internal Control over Financial Reporting
Our Chief Executive Officer and Chief Financial Officer have concluded, based on their evaluation as of
There has been no significant change in our internal controls over financial reporting that occurred during the quarter ended January 28, 2012February 2, 2013 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of
Shoe Carnival, Inc.
Evansville, Indiana
We have audited the internal control over financial reporting of Shoe Carnival, Inc. and subsidiaries (the “Company”) as of January 28, 2012,February 2, 2013, based on criteria established inInternal Control — Integrated Frameworkissued by the Committee of Sponsoring Organizations of the Treadway Commission. The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
A company’s internal control over financial reporting is a process designed by, or under the supervision of, the company’s principal executive and principal financial officers, or persons performing similar functions, and effected by the company’s board of directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of January 28, 2012,February 2, 2013, based on the criteria established inInternal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated financial statements and financial statement schedule as of and for the year ended January 28, 2012February 2, 2013 of the Company and our report dated April 12, 201215, 2013 expressed an unqualified opinion on those financial statements and financial statement schedule.
/s/Deloitte & Touche LLP
Indianapolis, Indiana
April 12, 2012
None
PART III
The information required by this Item concerning our Directors, nominees for Director, Code of Ethics, designation of the Audit Committee financial expert and identification of the Audit Committee, and concerning any disclosure of delinquent filers under Section 16(a) of the Exchange Act, is incorporated herein by reference to our definitive Proxy Statement for the 20122013 Annual Meeting of Shareholders, to be filed with the Securities and Exchange Commission pursuant to Regulation 14A within 120 days after the end of our last fiscal year. Information concerning our executive officers is included under the caption “Executive Officers” at the end of PART I, ITEM 1. BUSINESS of this Annual Report on Form 10-K. Such information is incorporated herein by reference, in accordance with General Instruction G(3) to Form 10-K and Instruction 3 to Item 401(b) of Regulation S-K.
We have adopted a Code of Business Conduct and Ethics (the “Code”) that applies to all of our Directors, officers and employees, including our principal executive officer, principal financial officer, principal accounting officer and controller. The Code is posted on our website at www.shoecarnival.com. We intend to disclose any amendments to the Code by posting such amendments on our website. In addition, any waivers of the Code for our Directors or executive officers will be disclosed in a report on Form 8-K.
ITEM 11. | EXECUTIVE COMPENSATION |
The information required by this Item concerning remuneration of our officers and Directors and information concerning material transactions involving such officers and Directors and Compensation Committee interlocks, including the Compensation Committee Report and the Compensation Discussion and Analysis, is incorporated herein by reference to our definitive Proxy Statement for the 20122013 Annual Meeting of Shareholders which will be filed pursuant to Regulation 14A within 120 days after the end of our last fiscal year.
ITEM 12. | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS |
The information required by this Item concerning the stock ownership of management, five percent beneficial owners and securities authorized for issuance under equity compensation plans is incorporated herein by reference to our definitive Proxy Statement for the 20122013 Annual Meeting of Shareholders which will be filed pursuant to Regulation 14A within 120 days after the end of our last fiscal year.
The information required by this Item concerning certain relationships and related transactions and the independence of our Directors is incorporated herein by reference to our definitive Proxy Statement for the 20122013 Annual Meeting of Shareholders, which will be filed pursuant to Regulation 14A within 120 days after the end of our last fiscal year.
ITEM 14. | PRINCIPAL ACCOUNTANT FEES AND SERVICES |
The information required by this Item concerning principal accountant fees and services is incorporated herein by reference to our definitive Proxy Statement for the 20122013 Annual Meeting of Shareholders, which will be filed pursuant to Regulation 14A within 120 days after the end of our last fiscal year.
PART IV
1. | Financial Statements: | |
The following financial statements of Shoe Carnival, Inc. are set forth in PART II, ITEM 8 of this report: | ||
Report of Independent Registered Public Accounting Firm | ||
Consolidated Balance Sheets at February 2, 2013 and January 28, 2012 | ||
Consolidated Statements of Income for the years ended February 2, 2013, January 28, 2012, and January 29, 2011 | ||
Consolidated Statements of | ||
Consolidated Statements of Cash Flows for the years ended February 2, 2013, January 28, 2012, and January 29, 2011 | ||
Notes to Consolidated Financial Statements | ||
2. | Financial Statement Schedule: | |
The following financial statement schedule of Shoe Carnival, Inc. is set forth in PART II, ITEM 8 of this report. | ||
Schedule II Valuation and Qualifying Accounts | ||
3. | Exhibits: | |
A list of exhibits required to be filed as part of this report is set forth in the Index to Exhibits, which immediately precedes such exhibits, and is incorporated herein by reference. |
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Shoe Carnival, Inc.
Date: April | By: | /s/ | Clifton E. Sifford |
Clifton E. Sifford | |||
President and Chief Executive Officer |
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Signature | Title | Date | ||
/s/ J. Wayne Weaver | Chairman of the Board and Director | April | ||
J. Wayne Weaver |
/s/ | President, Chief Executive Officer, | |||
Clifton E. Sifford | Merchandising Officer and Director (Principal | |||
Executive Officer) | ||||
/s/ James A. Aschleman | Director | April | ||
James A. Aschleman | ||||
/s/ Kent A. Kleeberger | Director | April | ||
Kent A. Kleeberger | ||||
/s/ Gerald W. Schoor | Director | April | ||
Gerald W. Schoor |
/s/ Joseph W. Wood | Director | April 15, 2013 | ||
Joseph W. Wood | ||||
/s/ W. Kerry Jackson | Senior Executive Vice President - Chief | April | ||
W. Kerry Jackson | and Financial Officer and Treasurer (Principal Financial Officer) |
/s/ Kathy A. Yearwood | Senior Vice President – Controller and Chief | April | ||
Kathy A. Yearwood | Accounting Officer (Principal Accounting Officer) |
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INDEX TO EXHIBITS
Incorporated by Reference To | ||||||||||
Exhibit No. | Description | Form | Exhibit | Filing Date | Filed Herewith | |||||
3-A | Restated Articles of Incorporation of Registrant | 10-K | 3-A | 4/25/2002 | ||||||
3-B | By-laws of Registrant, as amended to date | 10-Q | 3-B | 12/09/2010 | ||||||
4-A | Credit Agreement, dated as of January 20, 2010, among Shoe Carnival, Inc., the financial institutions from time to time party thereto as Banks, and Wachovia Bank, National Association, as Agent | 8-K | 4.1 | 1/26/2010 | ||||||
4-B | Amendment to Credit Agreement dated April 10, 2013, between Registrant and the financial institutions from time to time party thereto as Banks, and Wachovia Bank, National Association, as Agent | X | ||||||||
10-A | Lease, dated as of February 8, 2006, by and between Registrant and Big-Shoe Properties, LLC | 10-K | 10-A | 4/13/2006 | ||||||
10-B* | 2006 Executive Incentive Compensation Plan, as amended | 8-K | 10-B | 6/17/2011 | ||||||
10-C* | Form of Award Agreement for restricted stock granted under the Shoe Carnival, Inc. 2000 Stock Option and Incentive Plan | 8-K | 10-C | 3/24/2005 | ||||||
10-D | Lease, dated as of June 22, 2006, by and between the Registrant and Outback Holdings, LLC | 8-K | 10-D | 6/28/2006 | ||||||
10-E* | 1993 Stock Option and Incentive Plan of Registrant, as amended | 10-Q | 10-E | 9/15/1997 | ||||||
10-F* | Outside Directors Stock Option Plan | S-8 | 4.4 | 7/14/1999 | ||||||
Summary Compensation Sheet | X | |||||||||
10-H | Non-competition Agreement dated as of January 15, 1993, between Registrant and J. Wayne Weaver | S-1 | 10-I | 2/4/1993 | ||||||
10-I* | Employee Stock Purchase Plan of Registrant, as amended | 10-Q | 10-L | 9/15/1997 | ||||||
10-J* | Form of Notice of Grant of Stock Options and Option Agreement for incentive stock options granted under the Registrant’s 2000 Stock Option and Incentive Plan | 8-K | 10-A | 9/2/2004 | ||||||
10-K* | Form of Notice of Grant of Stock Options and Option Agreement for non-qualified stock options granted under the Registrant’s 2000 Stock Option and Incentive Plan | 8-K | 10-B | 9/2/2004 | ||||||
10-L* | 2000 Stock Option and Incentive Plan of Registrant, as amended | 10-L | 6/15/2012 | |||||||
10-M* | Amended and Restated Employment and Noncompetition Agreement dated December 11, 2008, between Registrant and Mark L. Lemond | 8-K | 10.1 | 12/17/2008 |
57 |
INDEX TO EXHIBITS - Continued
Incorporated by Reference To | ||||||||||
Exhibit No. | Description | Form | Exhibit | Filing Date | Filed Herewith | |||||
10-N* | Amended and Restated Employment and Noncompetition Agreement dated December 11, 2008, between Registrant and Timothy Baker | 8-K | 10.2 | 12/17/2008 |
10-O* | Amended and Restated Employment and Noncompetition Agreement dated December 11, 2008, between Registrant and Clifton E. Sifford | 8-K | 10.3 | 12/17/2008 | ||||||
10-P* | Amended and Restated Employment and Noncompetition Agreement dated December 11, 2008, between Registrant and W. Kerry Jackson | 8-K | 10.4 | 12/17/2008 | ||||||
10-Q* | Shoe Carnival, Inc. Deferred Compensation Plan | 8-K | 10.1 | 10/14/2008 | ||||||
10-R* | Employment and Noncompetition Agreement dated April 7, 2011, between Registrant and Kathy A. Yearwood | 10-K | 10-X | 4/14/2011 | ||||||
10-S* | Separation and Release Agreement, dated October 17, 2012, by and between the Company and Mark L. Lemond | 8-K | 10.1 | 10/19/2012 | ||||||
10-T* | Form of | 8-K | 10.2 | 10/19/2012 | ||||||
10-U* | Employment and Noncompetition Agreement dated December 4, 2012, between Registrant and Carl N. Scibetta | X | ||||||||
21 | A list of | X | ||||||||
Written consent of Deloitte & Touche LLP | X | |||||||||
31.1 | Certification of Chief Executive Officer Pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | X | ||||||||
Certification of Chief Financial Officer Pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | X | |||||||||
Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | X | |||||||||
Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | X |
INDEX TO EXHIBITS - Continued
Incorporated by Reference To | ||||||||||
Exhibit No. | Description | Form | Exhibit | Filing Date | Filed Herewith | |||||
101 | The following materials from Shoe Carnival, Inc.’s Annual Report on Form 10-K for the year ended | X |
* | The indicated exhibit is a management contract, compensatory plan or arrangement required to be filed by Item 601 of Regulation S-K. |
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