UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

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.

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, 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).

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company”, and “smaller reporting“emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):

[ ] Large accelerated filer [X] Accelerated filer [ ] Non-accelerated filer [ ] Smaller reporting company [ ] Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [ ]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

APPLICABLE ONLY TO CORPORATE ISSUERS:

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Number of Shares of Common Stock, $.01 par value, outstanding at November 22, 2016August 25, 2017 was 18,422,425.

17,019,769.

SHOE CARNIVAL, INC.
INDEX TO FORM 10-Q

SHOE CARNIVAL, INC.

PART I - FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS

SHOE CARNIVAL, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS

Unaudited

See notes to Condensed Consolidated Financial Statements.

SHOE CARNIVAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
Unaudited

See notes to condensed consolidated financial statements.

Condensed Consolidated Financial Statements.

SHOE CARNIVAL, INC.
CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY
Unaudited

See notes to Condensed Consolidated Financial Statements.

SHOE CARNIVAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Unaudited

See notes to condensed consolidated financial statements.

Condensed Consolidated Financial Statements.

SHOE CARNIVAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Unaudited

Note 1 - Basis of Presentation

In our opinion, the accompanying Unaudited Condensed Consolidated Financial Statements and notes have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission (the "SEC"“SEC”) for interim financial information and contain all normal recurring adjustments necessary to present fairly our financial position and the results of our operations and our cash flows for the periods presented. Certain information and disclosures normally included in the notes to Condensed Consolidated Financial Statements have been condensed or omitted according to the rules and regulations of the SEC, although we believe that the disclosures are adequate to make the information presented not misleading. The results of operations for the interim periods are not necessarily indicative of the results to be expected for the full year. The Unaudited Condensed Consolidated Financial Statements should be read in conjunction with the audited Condensed Consolidated Financial Statements and the notes thereto contained in our AnnualourAnnual Report on Form 10-K for the fiscal year ended January 30, 2016.28, 2017.

Note 2 - Net Income Per Share

The following tables set forth the computation of basic and diluted earnings per share as shown on the face of the accompanying Condensed Consolidated Statements of Income:

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 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. No options to purchase shares of common stock were excluded in the computation of diluted shares for the periods presented.

Note 3 - Recently Issued Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board (“FASB”) issued guidance on the recognition of revenue for all contracts with customers designed to improve comparability and enhance financial statement disclosures. Subsequently, the FASB has also issued accounting standards updates which clarify the guidance. The underlying principle of this comprehensive model is that revenue is recognized to depict the transfer of promised goods or services to customers in an amount that reflects the payment to which the company expects to be entitled in exchange for those goods or services. In August 2015, the FASB subsequently issued guidance which approved a one year deferral of the guidance until annual reporting periods (including interim reporting periods within those periods) beginning after December 15, 2017. Early adoption is permitted as2017, which makes the guidance effective for us at the beginning of the original effective date for annual reporting periods (includingfiscal 2018, including interim reporting periods within those periods) beginning after December 15, 2016. Wethat fiscal year. While we have made progress on our scoping review and assessment phase, we are still evaluating the impact of this guidance will have on our condensed consolidated financial position, resultsstatements and related disclosures, and we are continuing to evaluate the method of operationsadoption we will use when we transition to this guidance. At this time the key areas of focus include timing of recognizing revenue for our multi-channel business, recognition of breakage revenue for unredeemed gift cards, our customer loyalty program, and cash flows.presentation of customer related return reserves on the balance sheet.

In July 2015, the FASB issued guidance on simplifying the measurement of inventory by requiring inventory to be measured at the lower of cost and net realizable value. The new guidance does not apply to inventory currently measured using the last-in-first-out or the retail inventory valuation methods. This guidance is effective for annual reporting periods (including interim reporting periods within those periods) beginning after December 15, 2016. Early adoption is permitted. We do not believeadopted the guidance will have a material impact on our condensed consolidated financial position, resultsprovisions of operations and cash flows.

In November 2015, the FASB issued guidance which simplifies the classification of deferred taxes by requiring an entity to classify deferred tax liabilities and assets as noncurrent within a classified statement of financial position. We early adopted this guidance in the third quarter of fiscal 2016 and are applying this change prospectively. Prior condensed consolidated balance sheets have not been retrospectively adjusted.on January 29, 2017. The adoption resulted in a $2.7 million reclassification of net deferred tax assets from current to noncurrent on our consolidated balance sheet as of October 29, 2016. The adoptionthis guidance did not have a material impact on our consolidated financial position, results of condensed consolidated operations andor cash flows.

In February 2016, the FASB issued guidance which will replace most existing lease accounting guidance. This update requires an entity to recognize leased assets and the rights and obligations created by those leased assets on the balance sheet and to disclose key information about the entity'sentity’s leasing arrangements. ThisThe guidance iswill be effective for annual reporting periods (includingat the beginning of fiscal 2019, including interim reporting periods within those periods) beginning after December 15, 2018. Early adoption is permitted.that fiscal year, and will be applied on a modified retrospective basis. We are evaluating the impact of this guidance on our condensed consolidated financial position, results of operations and cash flows. The adoption of the guidance will require us to recognize right-of-use assets and lease liabilities that will be material to our consolidated balance sheet.

In March 2016, the FASB issued guidance intended to simplify several areas of accounting for share-based compensation arrangements, including the income tax impact, classification in the statement of cash flows and forfeitures. ThisWe adopted the provisions of this guidance ison January 29, 2017. As a result of this adoption, all tax-related cash flows resulting from share-based payments in fiscal 2017 are presented as operating activities on the statements of cash flows, as we elected to adopt this portion of the guidance on a prospective basis. Additionally, we made an accounting policy election to account for forfeitures when they occur rather than estimating the number of awards that are expected to vest. As a result of this election, we recorded a cumulative-effect benefit of $188,000 to retained earnings as of the date of adoption.

In November 2016, the FASB issued guidancefor restricted cash classification and presentation on the statement of cash flows, requiring restricted cash to be included within cash and cash equivalents on the statement of cash flows. The guidance will be effective for annual reporting periods (includingat the beginning of fiscal 2018, including interim reporting periods within those periods)that fiscal year, and will be applied on a retrospective basis. We do not believe the guidance will have a material impact on our condensed consolidated statement of cash flows.

In May 2017, the FASB issued guidance which clarifies what constitutes a modification of a share-based payment award. The guidance will be effective at the beginning after December 15, 2016. Earlyof fiscal 2018, including interim periods within that fiscal year, and early adoption is permitted. The guidance requires adoption on a prospective basis for share-based payment awards modified on or after the adoption date We are evaluatingdo not believe the guidance will have a material impact of this guidance on our condensed consolidated financial position, results of operations andor cash flows.

In August 2016, the FASB issued guidance addressing eight specific cash flow issues in an effort to reduce diversity in practice. The amended guidance is effective for annual reporting periods (including interim reporting periods within those periods) beginning after December 31, 2017. Early adoption is permitted. We are evaluating the impact of this guidance on our condensed consolidated financial position, results of operations and cash flows.

Note 4 - Fair Value Measurements

The accounting standards related to fair value measurements define fair value and 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. The 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:

The following table presents assets that are measured at fair value on a recurring basis at OctoberJuly 29, 2016, 2017,
January 28, 2017 and July 30, 2016 and October 31, 2015.2016. We have no material liabilities measured at fair value on a recurring or non-recurring basis.

The fair values of cash, receivables, accounts payable, accrued expenses and other current liabilities approximate their carrying values because of their short-term nature. In addition, we believe that our credit facility obligation, which is recorded at historical cost and is classified as long-term debt on our condensed consolidated balance sheet as of July 29, 2017, approximates fair value as the interest rate is adjusted based on current market rates.

From time to time, we measure certain assets at fair value on a non-recurring basis, specifically long-lived assets evaluated for impairment.  These are typically store specific assets, which are reviewed for impairment whenever events or changes in circumstances indicate that recoverability of their carrying value is questionable.  If the expected, undiscounted future cash flows related to a store’s assets are less than their carrying value, an impairment loss would be recognized for the difference between estimated fair value and carrying value and recorded in selling, general and administrative expenses. We estimate the fair value of store assets using an income-based approach considering the cash flows expected over the remaining lease term for each location. These projections are primarily based on management’s estimates of store-level sales, gross margins, direct expenses, exercise of future lease renewal options and resulting cash flows and, by their nature, include judgments about how current initiatives will impact future performance. External factors, such as the local environment in which the store resides, including strip-mall traffic and competition, are evaluated in terms of their effect on sales trends. Changes in sales and operating income assumptions or unfavorable changes in external factors can significantly impact the estimated future cash flows. An increase or decrease in the projected cash flow can significantly decrease or increase the fair value of these assets, which would have an effect on the impairment recorded.

During the thirteen and thirty-nine weeks ended OctoberJuly 29, 2016,2017, we recorded an impairment charge of $193,000$916,000 on long-lived assets held and used.assets. Subsequent to this impairment, these long-lived assets had a remaining unamortized basis of $337,000.$286,000. During the thirteentwenty-six weeks ended October 31, 2015,July 29, 2017, we recorded an impairment charge of $161,000$1.6 million on long-lived assets held and used.assets. Subsequent to this impairment, these long-lived assets had a remaining unamortized basis of $69,000. During the thirty-nine weeks ended October 31, 2015, we recorded an impairment charge of $212,000 on long-lived assets held and used. Subsequent to this impairment, these long-lived assets had a remaining unamortized basis of $211,000.

We operate nine stores in Puerto Rico with combined net book value$1.3 million. There were no impairments of long-lived assets of $4.5 million. Puerto Rico is experiencing an economic crisis characterized by a deep recession and defaults on its public sector debt. Our estimate of undiscounted cash flows indicates thatrecorded during the carrying amounts of long-lived assets are expected to be recovered. Our estimate of cash flows might change in future periods pending further developments in the economic environment in Puerto Rico.thirteen or twenty-six weeks ended July 30, 2016.

Note 5 - Stock-Based Compensation

At our 2017 annual meeting of shareholders held on June 13, 2017, our shareholders approved a new equity incentive plan, the Shoe Carnival, Inc. 2017 Equity Incentive Plan (the “2017 Plan”), which replaces our 2000 Stock Option and Incentive Plan, as amended (the “2000 Plan”). According to the terms of the 2017 Plan, upon approval of the 2017 Plan by our shareholders, no further awards may be made under the 2000 Plan. A maximum of 1,000,000 shares of our common stock are available for issuance and sale under the 2017 Plan. In addition, any shares of our common stock subject to an award granted under the 2017 Plan, or to an award granted under the 2000 Plan that was outstanding on the date our shareholders approved the 2017 Plan, that expires, is cancelled or forfeited, or is settled for cash will, to the extent of such cancellation, forfeiture, expiration or cash settlement, automatically become available for future awards under the 2017 Plan.

Stock-based compensation includes stock options, cash-settled stock appreciation rights (SARs) and restricted stock awards. Additionally, we recognize stock-based compensation expense for the discount on shares sold to employees through our employee stock purchase plan. For the thirteen and thirty-ninetwenty-six weeks ended OctoberJuly 29, 2016, stock-based compensation expense for the employee stock purchase plan was $9,000 before the income tax benefit of

$3,000 and $33,000 before the income tax benefit of $12,000, respectively. For the thirteen and thirty-nine weeks ended October 31, 2015,2017, stock-based compensation expense for the employee stock purchase plan was $9,000 before the income tax benefit of $3,000 and $32,000$20,000 before the income tax benefit of $12,000,$8,000, respectively. For the thirteen and twenty-six weeks ended July 30, 2016, stock-based compensation expense for the employee stock purchase plan was $11,000 before the income tax benefit of $4,000 and $24,000 before the income tax benefit of $9,000, respectively.

No stock options have been granted since fiscal 2008. All outstanding options had vested as of the end of fiscal 2011; therefore no unrecognized compensation expense remains. In the first six months of fiscal 2017 there were 3,500 options exercised and there were 3,500 options outstanding and exercisable as of July 29, 2017.

The following section summarizes the share transactions for our restricted stock awards:

The weighted-average grant date fair value of stock awards granted during the thirty-ninetwenty-six week periods ended OctoberJuly 29, 2017 and July 30, 2016 was $24.10 and October 31, 2015 was $24.98 and $24.43,$24.94, respectively. The total fair value at grant date of previously non-vestedrestricted stock awards that vested during the first ninesix months of fiscal 20162017 was $854,000.$782,000. The total fair value at grant date of previously non-vestedrestricted stock awards that vested during the first ninesix months of fiscal 20152016 was $106,000.$854,000. Of the 151,953 shares of restricted stock that were forfeited or that expired in the first six months of fiscal 2017, 135,000 shares were restricted stock awards that expired unvested in the first quarter of fiscal 2017, as the performance measures were not achieved. These awards represented the three tiers of the restricted stock awards granted on March 15, 2011.

The following sectiontable summarizes information regarding stock-based compensation expense recognized for restricted stock awards:

The $1.1 million of expense recognized in the first six months of fiscal 2017 was comprised of compensation expense of $2.1 million, partially offset by income of $916,000. The income was attributable to the reversal of the cumulative prior period expense for performance-based awards, which were deemed by management as no longer probable to vest prior to their expiration.

As of OctoberJuly 29, 2016,2017, approximately $8.7$6.2 million of unrecognized compensation expense remained related to both our performance-based and service-based restricted stock awards. The cost is expected to be recognized over a weighted average period of approximately 2.01.6 years. This incorporates our current assumptions with respect to the estimated requisite service period required to achieve the designated performance conditions for performance-based stock awards.

The following table summarizes the SARs activity:

SARs were granted during the first quarter of fiscal 2015 to certain non-executive employees, such that one-third of the shares underlying the SARs will vest and become fully exercisable on each of the first three anniversaries of the date of the grant and were assigned a five-year term from the date of grant, after which any unexercised SARs will

expire. Each SAR entitles the holder, upon exercise of their vested shares, to receive cash in an amount equal to the closing price of our common stock on the date of exercise less the exercise price, with a maximum amount of gain defined. The SARs granted during the first quarter of fiscal 2015 were issued with a defined maximum gain of $10.00 over the exercise price of $24.26.

The fair value of these liability awards are remeasured,re-measured, using a trinomial lattice model, at each reporting period until the date of settlement. Increases or decreases in stock-based compensation expense are recognized over the vesting period, or immediately for vested awards. The weighted-average fair value of outstanding, non-vested SAR awards as of OctoberJuly 29, 2017 and July 30, 2016 was $1.97 and October 31, 2015 was $4.53 and $3.70,$4.86, respectively.

The fair value was estimated using a trinomial lattice model with the following assumptions:

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 historical quarterly cash dividends, with the assumption that quarterly dividends would continue at that rate. Expected volatility was based on the historical volatility of our common stock. The exercise multiple and employee exit rate were based on historical option data.

The following table summarizes information regarding stock-based compensation expense recognized for SARs:

As of OctoberJuly 29, 2016,2017, approximately $155,000$23,000 in unrecognized compensation expense remained related to non-vested SARs. This expense is expected to be recognized over a weighted-average period of approximately 0.90.7 years.

ITEM 2.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

Factors That May Affect Future Results

This quarterly report on Form 10-Q 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 in which our stores are located and the impact of the ongoing economic crisis in Puerto Rico on sales at, and cash flows of, our stores located in Puerto Rico; 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; our ability to successfully navigate the increasing use of on-line retailers for fashion purchases and the impact on traffic and transactions in our physical stores; our ability to attract customers to our e-commerce website and to successfully grow our e-commerce sales; 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;

our ability to successfully manage and execute our marketing initiatives and maintain positive brand perception and recognition; 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; the impact of unauthorized disclosure or misuse of personal and confidential information about our customers, vendors and employees; our ability to manage our third-party vendor relationships; our ability to successfully execute our growthbusiness 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 growthbusiness plans; higher than anticipated costs or impairment charges associated with the closing of underperforming stores; our ability to successfully grow our e-commerce sales; the inability of manufacturers to deliver products in a timely manner; changes in the political and economic environments in, and continued favorable trade relations with China, Brazil, Europe and East Asia, whereother countries which are the primarymajor manufacturers of footwear are located;footwear; the impact of regulatory changes in the United States and the countries where our manufacturers are located; the continued favorable trade relations between the United States and China and the other countries which are the major manufacturers of footwear; the resolution of litigation or regulatory proceedings in which we are or may become involved; our ability to meet our labor needs while controlling costs; and future stock repurchases under our stock repurchase program and future dividend payments. For a more detailed discussion of certain risk factors, see the “Risk Factors” section of our Annual Report on Form 10-K for the fiscal year ended January 30, 2016.28, 2017.

General

Management’s Discussion and Analysis of Financial Condition and Results of Operations is intended to provide information to assist the reader in better understanding and evaluating our financial condition and results of operations. We encourage you to read this in conjunction with our Condensed Consolidated Financial Statements and the notes thereto included in PARTPart I, ITEM 1. FINANCIAL STATEMENTSItem 1 of this Quarterly Report on Form 10-Q, as well as our Annual Report on Form 10-K for the fiscal year ended January 30, 201628, 2017, as filed with the SEC.

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 over 400 store locations or online at shoecarnival.com. Our stores combine competitive pricing with a fun and promotional, in-store marketing effort that encourages customer participation and injects fun and surprise into every shopping experience. We believe this fun and 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. A similar customer experience is reflected in our e-commerce site through special promotions and limited time sales, along with relevant fashionproduct stories featured on our home page.

Our objective is to be the destination retailer-of-choice for a wide range of consumers seeking value 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 in four general categories - women’s, men’s, children’s and athletics. In addition to footwear, our stores carry selected accessory items such as socks, belts, shoe care items, handbags, jewelry, scarves and wallets. Our e-commerce site offers customers an opportunity to choose from a large selection of products in all of the same categories of footwear with a depth of sizes and colors that may not be available in some of our smaller stores, and introduces our concept to consumers who are new to Shoe Carnival, in both existing and new markets.

In addition to footwear, our stores carry complementary accessories such as socks, belts, shoe care items, handbags, sport bags, backpacks, jewelry, scarves and wallets. Our e-commerce site also carries certain accessories such as handbags, sport bags and backpacks.

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.  Our accounting policies that require more significant judgments include those with respect to merchandise inventories, valuation of long-lived

assets, insurance reserves and income taxes and are discussed in our Annual Report on Form 10-K for the fiscal year ended January 30, 2016.28, 2017.

There have been no material changes to our critical accounting policies and estimates disclosed in our Annual Report on Form 10-K for the fiscal year ended January 30, 2016.28, 2017. See Note 3 to the Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q for information on recently issued accounting pronouncements.

Results of Operations Summary Information

Comparable store sales for the periods indicated include stores that have been open for 13 full months after such store’s grand opening 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. We include e-commerce sales in our comparable store sales. Due to our multi-channel retailer strategy, we view the e-commerce sales as an extension of our physical stores.

The following table sets forth our results of operations expressed as a percentage of net sales for the periods indicated:

Executive Summary for ThirdSecond Quarter Ended OctoberJuly 29, 20162017

Our third quarter operating results were below our expectations due to slower salesWe had positive momentum early in the second halfquarter of the quarter. While we recordedfiscal 2017 with comparable store sales increasesup low single-digits in athletic merchandise in each month ofMay. As the third quarter sales of our fallprogressed and winter merchandise were not as strong aswe started to enter the prior year, resulting in a high single-digit decline in

important back-to-school selling period, comparable store sales flattened as certain markets experienced later back-to-school dates, which shifted sales from the second quarter to the third quarter. As a result, we ended the quarter with a 0.4% increase in comparable store sales. Faced with an uncertain retail environment, we continue to remain focused on effectively managing inventory and maintaining tight controls over our boot categoriescost structure in fiscal 2017. Highlights for the quarter. Additional highlights for the thirdsecond quarter of fiscal 20162017 are as follows:

Results of Operations for the ThirdSecond Quarter Ended OctoberJuly 29, 20162017

Net Sales

Net sales increased $4.8$3.2 million to $274.5$235.1 million during the thirdsecond quarter of fiscal 2016,2017, a 1.8%1.4% increase over the prior year's thirdyear’s second quarter net sales of $269.7$231.9 million. Of this increase in net sales, $7.4$800,000 was attributable to the 0.4% increase in comparable store sales and $5.7 million was attributable to the sales generated by the 2328 new stores we opened since the beginning of the thirdsecond quarter of fiscal 2015. This increase was2016. These increases were partially offset by a 0.4%, or $0.7 million, decrease in comparable store sales and a $1.9 million loss in sales of $3.3 million from the eight14 stores closed since the beginning of the thirdsecond quarter of fiscal 2015. Slower than anticipated sales in non-athletic footwear, particularly boots, and a mid single-digit decline in store traffic were the primary factors in our comparable store sales decrease during the third quarter.2016.

Gross Profit

Gross profit increased to $82.0$68.2 million during the thirdsecond quarter of fiscal 20162017, compared to gross profit of $81.3$67.2 million for the thirdsecond quarter of fiscal 2015.2016, primarily due to the increase in net sales. Our gross profit margin decreased to 29.9%remained flat at 29.0% compared to 30.1% in the thirdsecond quarter of fiscal 2015.2016. Our merchandise margin, increased 0.1% primarily due to margin increases on the sales of both our athletic and non-athletic product for the quarter partially offset by an increase in expense related to our multi-channel sales initiatives. Buying,along with buying, distribution and occupancy costs however, increased 0.3% as a percentage of sales, duringremained flat compared to the third

second quarter of fiscal 2016 compared to the same period last year primarily due to the deleveraging effect of lower same store sales and new store growth.2016.

Selling, General and Administrative Expenses

Selling, general and administrative expenses increased $414,000$1.2 million in the thirdsecond quarter of fiscal 20162017 to $66.6$61.8 million compared to $60.6 million in the same prior year period.second quarter of fiscal 2016. As a percentage of sales, these expenses decreasedincreased to 24.3%26.3% in the thirdsecond quarter of fiscal 20162017 from 24.5%26.1% in the thirdsecond quarter of fiscal 2015. Significant changes2016. The overall increase in selling, general and administrative expenses during the second quarter of fiscal 2017 was primarily due to a $1.0 million increase in expenses between the comparative periods included the following:

for new stores net of expense reductions for stores that have closed and a $916,000 increase in impairments of long-lived assets. These increases were partially offset by decreases in stock-based compensation and incentive compensation expense totaling $849,000.

Pre-opening costs included in selling, general and administrative expenses were $351,000$234,000 in the thirdsecond quarter of fiscal 20162017 compared to $500,000$353,000 in the thirdsecond quarter last year. We opened threefive new stores in the thirdsecond quarter of fiscal 20162017 compared to sixnine new stores in the thirdsecond quarter of fiscal 2015.2016. 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.

Store closing costs included in selling, general and administrative expenses were $335,000,$1.6 million, or 0.1%0.7% as a percentage of sales, in the thirdsecond quarter of fiscal 2017. Store closing costs were $74,000 in the second quarter last year. Four stores were closed in the second quarter of fiscal 2017 compared to no store closings in the second quarter of fiscal 2016. StoreIncluded in store closing costs were $611,000, or 0.2% as a percentage of sales, in the third quarter last year. One store was closed in the thirdsecond quarter of fiscal 2016 compared to two stores in2017 were impairments of long-lived assets of $916,000. There were no impairments of long-lived assets recorded during the thirdsecond quarter of fiscal 2015.2016.

Income Taxes

The effective income tax rate for the thirdsecond quarter of fiscal 20162017 was 37.2%37.9% as compared to 38.0% for the same time period in fiscal 2015.2016. 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.

Results of Operations for NineSix Month Period Ended OctoberJuly 29, 20162017

Net Sales

Net sales increased $16.6decreased $3.9 million to $766.9$488.5 million duringfor the nine-monthsix-month period ended OctoberJuly 29, 2016,2017, a 2.2% increase0.8% decrease compared to net sales of $750.3$492.4 million for the nine-monthsix-month period ended October 31, 2015.July 30, 2016. Of the $16.6 million increasethis decrease in net sales, approximately $18.6$8.9 million was attributable to the 35 new stores we opened since the beginning of fiscal 20151.9% decrease in comparable store sales and $7.2$6.8 million was attributable to our 0.9% increase in comparable store sales for the nine-month period ended October 29, 2016. These increases were partially offset by a loss of $9.2 million in sales from the 2018 stores closed since the beginning of fiscal 2015.2016. These decreases were partially offset by an increase in sales of $11.8 million generated by the 31 new stores opened since the beginning of fiscal 2016.

Gross Profit

Gross profit increaseddecreased $2.4 million to $224.8 million during the first nine months of fiscal 2016 compared to gross profit of $222.3$140.4 million in the first ninesix months of fiscal 2015. Our2017 primarily due to the decrease in net sales. The gross profit margin decreased to 29.3% compared to 29.6% infor the first ninesix months of fiscal 2015. Our2017 decreased to 28.7% from 29.0% as reported in the comparable prior year period. The merchandise margin decreased 0.4% primarily due to expenses related to our multi-channel sales initiatives. Buying,increased 0.2%, but buying, distribution and occupancy costs decreased 0.1%increased 0.5% as a percentage of sales during the first nine months of fiscal 2016 compared to the same period last year primarily due a decrease in outbound freightto the deleveraging effect of lower same store sales on occupancy costs.

Selling, General and Administrative Expenses

Selling, general and administrative expenses increased $3.2$1.9 million in the first ninesix months of fiscal 20162017 to $185.4$120.7 million compared to the same prior year period.period last year. As a percentage of sales, these expenses decreasedincreased to 24.2%24.7% in the first ninesix months of fiscal 20162017 from 24.3%24.1% in the third quarterfirst six months of fiscal 2015. Significant changes2016. The overall increase in selling, general and administrative expenses during the first six months of fiscal 2017 was primarily due to a $2.2 million increase in expenses between the comparative periods included the following:for new stores net of expense reductions for stores that have closed, a $1.6 million increase in impairments of long-lived assets and a $1.1 million increase in employee healthcare expense. These increases were partially offset by a $2.2 million decrease in selling expenses associated with our comparable store base and decreases in stock-based compensation and incentive compensation expense totaling $1.4 million.

In the first ninesix months of fiscal 2016,2017, pre-opening costs included in selling, general and administrative expenses were $815,000,$517,000, or 0.1% as a percentage of sales, compared to $1.1 million,463,000, or 0.2%0.1% as a percentage of sales, in the same period 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.

Store closing costs and non-cash impairment charges included in selling, general and administrative expenses were $631,000,$2.7 million, or 0.5% as a percentage of sales, in the first six months of fiscal 2017. Store closing costs were $296,000, or 0.1% as a percentage of sales, in the first nine months of fiscal 2016. Store closing costs and non-cash impairment charges of long-lived assets were $1.8 million, or 0.2% as a percentage of sales, in the first ninesix months of last year. We closed fivenine stores in the first ninesix months of fiscal 20162017 and 14four stores were closed in the first ninesix months of fiscal 2015.2016. Included in the store closing costs in the first six months of fiscal 2017 were impairments of long-lived assets of $1.6 million. There were no impairments of long-lived assets recorded during the first six months of fiscal 2016.

Income Taxes

The effective income tax rate for the first ninesix months of fiscal 20162017 was 37.8%37.7% compared to 38.5%38.1% for the same period in fiscal 2015.2016. 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. The decrease in the effective income tax rate between periods was primarily due to changes in state tax rates.