UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(Mark One)
☒ | Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 | ||
For the quarterly period ended | |||
or | |||
☐ | Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 | ||
For the transition period from |
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) 867-4034 |
(Registrant’s telephone number, including area code) |
NOT APPLICABLE |
(Former name, former address and former fiscal year, if changed since last report) |
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
Common Stock, par value $0.01 per share | SCVL | The Nasdaq Stock Market LLC |
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. ☒ Yes ☐ No
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). ☒ Yes ☐ No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act.
☐ Large accelerated filer | ☒ Accelerated filer | ☐ Non-accelerated filer | ☐ Smaller reporting company | ☐ Emerging growth company |
[ ] 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). ☐ Yes ☒ No
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 $0.01 per share, outstanding at November 30, 2017August 25, 2023 was 16,951,770.27,359,697.
SHOE CARNIVAL, INC.
INDEX TO FORM 10-Q
Page | ||||
Part I | ||||
Item 1. | ||||
3 | ||||
4 | ||||
Condensed Consolidated | 5 | |||
6 | ||||
7 | ||||
Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 13 | ||
Item 3. | 19 | |||
Item 4. | 19 | |||
Part II | ||||
Item 1A. | 20 | |||
Item 2. | 20 | |||
Item | 20 | |||
Item 6. | 20 | |||
21 |
2
SHOE CARNIVAL, INC.
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SHOE CARNIVAL, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
Unaudited
(In thousands, except share data) | October 28, 2017 | January 28, 2017 | October 29, 2016 |
| July 29, 2023 |
|
| January 28, 2023 |
|
| July 30, 2022 |
| ||||||||||||
Assets |
|
|
|
|
|
|
|
|
| |||||||||||||||
Current Assets: |
|
|
|
|
|
|
|
|
| |||||||||||||||
Cash and cash equivalents | $ | 21,050 | $ | 62,944 | $ | 33,509 |
| $ | 34,562 |
|
| $ | 51,372 |
|
| $ | 51,620 |
| ||||||
Marketable securities |
|
| 12,218 |
|
|
| 11,601 |
|
|
| 10,994 |
| ||||||||||||
Accounts receivable | 7,365 | 4,424 | 3,540 |
|
| 3,961 |
|
|
| 3,052 |
|
|
| 10,677 |
| |||||||||
Merchandise inventories | 302,935 | 279,646 | 314,925 |
|
| 409,342 |
|
|
| 390,390 |
|
|
| 385,510 |
| |||||||||
Other | 6,883 | 4,737 | 5,630 |
|
| 25,281 |
|
|
| 13,308 |
|
|
| 18,131 |
| |||||||||
Total Current Assets | 338,233 | 351,751 | 357,604 |
|
| 485,364 |
|
|
| 469,723 |
|
|
| 476,932 |
| |||||||||
Property and equipment - net | 93,041 | 96,216 | 102,932 | |||||||||||||||||||||
Deferred income taxes | 10,769 | 9,600 | 8,163 | |||||||||||||||||||||
Property and equipment – net |
|
| 159,186 |
|
|
| 141,435 |
|
|
| 124,789 |
| ||||||||||||
Operating lease right-of-use assets |
|
| 339,598 |
|
|
| 318,612 |
|
|
| 254,537 |
| ||||||||||||
Intangible assets |
|
| 32,600 |
|
|
| 32,600 |
|
|
| 32,600 |
| ||||||||||||
Goodwill |
|
| 12,023 |
|
|
| 12,023 |
|
|
| 10,786 |
| ||||||||||||
Other noncurrent assets | 663 | 911 | 970 |
|
| 14,433 |
|
|
| 15,388 |
|
|
| 14,871 |
| |||||||||
Total Assets | $ | 442,706 | $ | 458,478 | $ | 469,669 |
| $ | 1,043,204 |
|
| $ | 989,781 |
|
| $ | 914,515 |
| ||||||
|
|
|
|
|
|
|
|
| ||||||||||||||||
Liabilities and Shareholders’ Equity |
|
|
|
|
|
|
|
|
| |||||||||||||||
Current Liabilities: |
|
|
|
|
|
|
|
|
| |||||||||||||||
Accounts payable | $ | 59,355 | $ | 67,808 | $ | 69,986 |
| $ | 77,429 |
|
| $ | 78,850 |
|
| $ | 113,826 |
| ||||||
Accrued and other liabilities | 21,933 | 18,488 | 18,936 |
|
| 19,999 |
|
|
| 20,281 |
|
|
| 22,893 |
| |||||||||
Current portion of operating lease liabilities |
|
| 57,335 |
|
|
| 58,154 |
|
|
| 52,523 |
| ||||||||||||
Total Current Liabilities | 81,288 | 86,296 | 88,922 |
|
| 154,763 |
|
|
| 157,285 |
|
|
| 189,242 |
| |||||||||
Deferred lease incentives | 29,297 | 30,751 | 30,320 | |||||||||||||||||||||
Accrued rent | 10,689 | 11,255 | 11,465 | |||||||||||||||||||||
Long-term portion of operating lease liabilities |
|
| 307,326 |
|
|
| 285,074 |
|
|
| 226,115 |
| ||||||||||||
Deferred income taxes |
|
| 14,631 |
|
|
| 11,844 |
|
|
| 4,436 |
| ||||||||||||
Deferred compensation | 10,974 | 10,465 | 10,171 |
|
| 10,596 |
|
|
| 9,840 |
|
|
| 10,779 |
| |||||||||
Other | 884 | 829 | 767 |
|
| 369 |
|
|
| 170 |
|
|
| 311 |
| |||||||||
Total Liabilities | 133,132 | 139,596 | 141,645 |
|
| 487,685 |
|
|
| 464,213 |
|
|
| 430,883 |
| |||||||||
|
|
|
|
|
|
|
|
| ||||||||||||||||
Shareholders’ Equity: |
|
|
|
|
|
|
|
|
| |||||||||||||||
Common stock, $.01 par value, 50,000,000 shares authorized, 20,535,261 shares, 20,569,198 shares and 20,569,198 shares issued, respectively | 205 | 206 | 206 | |||||||||||||||||||||
Common stock, $0.01 par value, 50,000,000 shares authorized and |
|
| 410 |
|
|
| 410 |
|
|
| 410 |
| ||||||||||||
Additional paid-in capital | 62,609 | 65,272 | 64,957 |
|
| 81,151 |
|
|
| 83,423 |
|
|
| 80,760 |
| |||||||||
Retained earnings | 331,898 | 312,641 | 314,851 |
|
| 683,875 |
|
|
| 653,450 |
|
|
| 604,192 |
| |||||||||
Treasury stock, at cost, 3,583,491 shares, 2,433,925 shares and 2,146,622 shares, respectively | (85,138 | ) | (59,237 | ) | (51,990 | ) | ||||||||||||||||||
Treasury stock, at cost, 13,689,493 shares, 13,883,902 |
|
| (209,917 | ) |
|
| (211,715 | ) |
|
| (201,730 | ) | ||||||||||||
Total Shareholders’ Equity | 309,574 | 318,882 | 328,024 |
|
| 555,519 |
|
|
| 525,568 |
|
|
| 483,632 |
| |||||||||
Total Liabilities and Shareholders’ Equity | $ | 442,706 | $ | 458,478 | $ | 469,669 |
| $ | 1,043,204 |
|
| $ | 989,781 |
|
| $ | 914,515 |
|
See notes to Condensed Consolidated Financial Statements.
3
SHOE CARNIVAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
Unaudited
(In thousands, except per share data) | Thirteen Weeks Ended October 28, 2017 | Thirteen Weeks Ended October 29, | Thirty-nine Weeks Ended October 28, 2017 | Thirty-nine Weeks Ended October 29, 2016 |
| Thirteen |
|
| Thirteen |
|
| Twenty-six |
|
| Twenty-six |
| ||||||||||||||||
Net sales | $ | 287,469 | $ | 274,524 | $ | 775,922 | $ | 766,901 |
| $ | 294,615 |
|
| $ | 312,268 |
|
| $ | 575,799 |
|
| $ | 629,795 |
| ||||||||
Cost of sales (including buying, distribution and occupancy costs) | 201,802 | 192,514 | 549,872 | 542,105 |
|
| 189,150 |
|
|
| 199,138 |
|
|
| 371,817 |
|
|
| 403,802 |
| ||||||||||||
Gross profit | 85,667 | 82,010 | 226,050 | 224,796 |
|
| 105,465 |
|
|
| 113,130 |
|
|
| 203,982 |
|
|
| 225,993 |
| ||||||||||||
Selling, general and administrative expenses | 67,787 | 66,558 | 188,519 | 185,399 |
|
| 80,803 |
|
|
| 74,341 |
|
|
| 158,381 |
|
|
| 151,820 |
| ||||||||||||
Operating income | 17,880 | 15,452 | 37,531 | 39,397 |
|
| 24,662 |
|
|
| 38,789 |
|
|
| 45,601 |
|
|
| 74,173 |
| ||||||||||||
Interest income | (1 | ) | (1 | ) | (3 | ) | (6 | ) |
|
| (433 | ) |
|
| (138 | ) |
|
| (911 | ) |
|
| (170 | ) | ||||||||
Interest expense | 57 | 43 | 248 | 127 |
|
| 71 |
|
|
| 65 |
|
|
| 137 |
|
|
| 160 |
| ||||||||||||
Income before income taxes | 17,824 | 15,410 | 37,286 | 39,276 |
|
| 25,024 |
|
|
| 38,862 |
|
|
| 46,375 |
|
|
| 74,183 |
| ||||||||||||
Income tax expense | 7,127 | 5,738 | 14,462 | 14,839 |
|
| 5,583 |
|
|
| 9,953 |
|
|
| 10,408 |
|
|
| 18,377 |
| ||||||||||||
Net income | $ | 10,697 | $ | 9,672 | $ | 22,824 | $ | 24,437 |
| $ | 19,441 |
|
| $ | 28,909 |
|
| $ | 35,967 |
|
| $ | 55,806 |
| ||||||||
Net income per share: |
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||
Basic | $ | 0.66 | $ | 0.54 | $ | 1.38 | $ | 1.31 |
| $ | 0.71 |
|
| $ | 1.05 |
|
| $ | 1.32 |
|
| $ | 2.01 |
| ||||||||
Diluted | $ | 0.66 | $ | 0.54 | $ | 1.38 | $ | 1.31 |
| $ | 0.71 |
|
| $ | 1.04 |
|
| $ | 1.31 |
|
| $ | 1.99 |
| ||||||||
Weighted average shares: |
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||
Basic | 15,957 | 17,609 | 16,287 | 18,220 |
|
| 27,336 |
|
|
| 27,590 |
|
|
| 27,280 |
|
|
| 27,784 |
| ||||||||||||
Diluted | 15,966 | 17,614 | 16,293 | 18,225 |
|
| 27,410 |
|
|
| 27,812 |
|
|
| 27,449 |
|
|
| 28,061 |
| ||||||||||||
Cash dividends declared per share | $ | 0.075 | $ | 0.07 | $ | 0.22 | $ | 0.205 |
See notes to Condensed Consolidated Financial Statements.
4
SHOE CARNIVAL, INC.
Unaudited
Common Stock | Additional Paid-In | Retained | Treasury Stock | ||||||||||||||||||||||||
(In thousands) | Issued | Treasury | Amount | Capital | Earnings | Stock | Total | ||||||||||||||||||||
Balance at January 28, 2017 | 20,569 | (2,434 | ) | $ | 206 | $ | 65,272 | $ | 312,641 | $ | (59,237 | ) | $ | 318,882 | |||||||||||||
Adoption of Accounting Standards Update No. 2016-09 | (188 | ) | 188 | 0 | |||||||||||||||||||||||
Dividends declared ($0.22 per share) | (3,755 | ) | (3,755 | ) | |||||||||||||||||||||||
Stock option exercises | 4 | (58 | ) | 84 | 26 | ||||||||||||||||||||||
Employee stock purchase plan purchases | 9 | (41 | ) | 211 | 170 | ||||||||||||||||||||||
Restricted stock awards | (34 | ) | 139 | (1 | ) | (4,546 | ) | 4,547 | 0 | ||||||||||||||||||
Shares surrendered by employees to pay taxes on restricted stock | (42 | ) | (945 | ) | (945 | ) | |||||||||||||||||||||
Purchase of common stock for treasury | (1,259 | ) | (29,798 | ) | (29,798 | ) | |||||||||||||||||||||
Stock-based compensation expense | 2,170 | 2,170 | |||||||||||||||||||||||||
Net income | 22,824 | 22,824 | |||||||||||||||||||||||||
Balance at October 28, 2017 | 20,535 | (3,583 | ) | $ | 205 | $ | 62,609 | $ | 331,898 | $ | (85,138 | ) | $ | 309,574 |
|
| Thirteen Weeks Ended |
| |||||||||||||||||||||||||
|
| Common Stock |
|
| Additional |
|
| Retained |
|
| Treasury |
|
|
|
| |||||||||||||
(In thousands, except per share data) |
| Issued |
|
| Treasury |
|
| Amount |
|
| Capital |
|
| Earnings |
|
| Stock |
|
| Total |
| |||||||
Balance at April 29, 2023 |
|
| 41,049 |
|
|
| (13,714 | ) |
| $ | 410 |
|
| $ | 80,361 |
|
| $ | 667,196 |
|
| $ | (210,287 | ) |
| $ | 537,680 |
|
Dividends declared ($0.10 per share) |
|
|
|
|
|
|
|
|
|
|
|
|
|
| (2,762 | ) |
|
|
|
|
| (2,762 | ) | |||||
Employee stock purchase plan purchases |
|
|
|
|
| 2 |
|
|
|
|
|
| 12 |
|
|
|
|
|
| 41 |
|
|
| 53 |
| |||
Stock-based compensation awards |
|
|
|
|
| 23 |
|
|
|
|
|
| (329 | ) |
|
|
|
|
| 329 |
|
|
| 0 |
| |||
Stock-based compensation expense |
|
|
|
|
|
|
|
|
|
|
| 1,107 |
|
|
|
|
|
|
|
|
| 1,107 |
| |||||
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
| 19,441 |
|
|
|
|
|
| 19,441 |
| |||||
Balance at July 29, 2023 |
|
| 41,049 |
|
|
| (13,689 | ) |
| $ | 410 |
|
| $ | 81,151 |
|
| $ | 683,875 |
|
| $ | (209,917 | ) |
| $ | 555,519 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Balance at April 30, 2022 |
|
| 41,049 |
|
|
| (13,462 | ) |
| $ | 410 |
|
| $ | 79,595 |
|
| $ | 577,823 |
|
| $ | (202,114 | ) |
| $ | 455,714 |
|
Dividends declared ($0.09 per share) |
|
|
|
|
|
|
|
|
|
|
|
|
|
| (2,540 | ) |
|
|
|
|
| (2,540 | ) | |||||
Employee stock purchase plan purchases |
|
|
|
|
| 3 |
|
|
|
|
|
| 9 |
|
|
|
|
|
| 39 |
|
|
| 48 |
| |||
Stock-based compensation awards |
|
|
|
|
| 26 |
|
|
|
|
|
| (383 | ) |
|
|
|
|
| 383 |
|
|
| 0 |
| |||
Shares surrendered by employees to pay taxes |
|
|
|
|
| (2 | ) |
|
|
|
|
|
|
|
|
|
|
| (38 | ) |
|
| (38 | ) | ||||
Stock-based compensation expense |
|
|
|
|
|
|
|
|
|
|
| 1,539 |
|
|
|
|
|
|
|
|
| 1,539 |
| |||||
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
| 28,909 |
|
|
|
|
|
| 28,909 |
| |||||
Balance at July 30, 2022 |
|
| 41,049 |
|
|
| (13,435 | ) |
| $ | 410 |
|
| $ | 80,760 |
|
| $ | 604,192 |
|
| $ | (201,730 | ) |
| $ | 483,632 |
|
|
| Twenty-six Weeks Ended |
| |||||||||||||||||||||||||
|
| Common Stock |
|
| Additional |
|
| Retained |
|
| Treasury |
|
|
|
| |||||||||||||
(In thousands, except per share data) |
| Issued |
|
| Treasury |
|
| Amount |
|
| Capital |
|
| Earnings |
|
| Stock |
|
| Total |
| |||||||
Balance at January 28, 2023 |
|
| 41,049 |
|
|
| (13,884 | ) |
| $ | 410 |
|
| $ | 83,423 |
|
| $ | 653,450 |
|
| $ | (211,715 | ) |
| $ | 525,568 |
|
Dividends declared ($0.20 per share) |
|
|
|
|
|
|
|
|
|
|
|
|
|
| (5,542 | ) |
|
|
|
|
| (5,542 | ) | |||||
Employee stock purchase plan purchases |
|
|
|
|
| 5 |
|
|
|
|
|
| 29 |
|
|
|
|
|
| 81 |
|
|
| 110 |
| |||
Stock-based compensation awards |
|
|
|
|
| 305 |
|
|
|
|
|
| (4,644 | ) |
|
|
|
|
| 4,644 |
|
|
| 0 |
| |||
Shares surrendered by employees to pay taxes |
|
|
|
|
| (115 | ) |
|
|
|
|
|
|
|
|
|
|
| (2,927 | ) |
|
| (2,927 | ) | ||||
Stock-based compensation expense |
|
|
|
|
|
|
|
|
|
|
| 2,343 |
|
|
|
|
|
|
|
|
| 2,343 |
| |||||
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
| 35,967 |
|
|
|
|
|
| 35,967 |
| |||||
Balance at July 29, 2023 |
|
| 41,049 |
|
|
| (13,689 | ) |
| $ | 410 |
|
| $ | 81,151 |
|
| $ | 683,875 |
|
| $ | (209,917 | ) |
| $ | 555,519 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Balance at January 29, 2022 |
|
| 41,049 |
|
|
| (12,883 | ) |
| $ | 410 |
|
| $ | 80,681 |
|
| $ | 553,487 |
|
| $ | (182,045 | ) |
| $ | 452,533 |
|
Dividends declared ($0.18 per share) |
|
|
|
|
|
|
|
|
|
|
|
|
|
| (5,101 | ) |
|
|
|
|
| (5,101 | ) | |||||
Employee stock purchase plan purchases |
|
|
|
|
| 5 |
|
|
|
|
|
| 27 |
|
|
|
|
|
| 66 |
|
|
| 93 |
| |||
Stock-based compensation awards |
|
|
|
|
| 196 |
|
|
|
|
|
| (2,850 | ) |
|
|
|
|
| 2,850 |
|
|
| 0 |
| |||
Shares surrendered by employees to pay taxes |
|
|
|
|
| (70 | ) |
|
|
|
|
|
|
|
|
|
|
| (2,086 | ) |
|
| (2,086 | ) | ||||
Purchase of common stock for treasury |
|
|
|
|
| (683 | ) |
|
|
|
|
|
|
|
|
|
|
| (20,515 | ) |
|
| (20,515 | ) | ||||
Stock-based compensation expense |
|
|
|
|
|
|
|
|
|
|
| 2,902 |
|
|
|
|
|
|
|
|
| 2,902 |
| |||||
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
| 55,806 |
|
|
|
|
|
| 55,806 |
| |||||
Balance at July 30, 2022 |
|
| 41,049 |
|
|
| (13,435 | ) |
| $ | 410 |
|
| $ | 80,760 |
|
| $ | 604,192 |
|
| $ | (201,730 | ) |
| $ | 483,632 |
|
See notes to Condensed Consolidated Financial Statements.
5
SHOE CARNIVAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Unaudited
(In thousands) | Thirty-nine Weeks Ended 2017 | Thirty-nine 2016 |
| Twenty-six |
|
| Twenty-six |
| ||||||||
Cash Flows From Operating Activities |
|
|
|
|
|
| ||||||||||
Net income | $ | 22,824 | $ | 24,437 |
| $ | 35,967 |
|
| $ | 55,806 |
| ||||
Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
|
|
|
| ||||||||||
Depreciation and amortization | 17,944 | 17,698 |
|
| 13,822 |
|
|
| 10,416 |
| ||||||
Stock-based compensation | 2,073 | 3,438 |
|
| 2,326 |
|
|
| 2,741 |
| ||||||
Loss on retirement and impairment of assets | 1,831 | 500 | ||||||||||||||
Loss on retirement and impairment of assets, net |
|
| 59 |
|
|
| 83 |
| ||||||||
Deferred income taxes | (1,169 | ) | 56 |
|
| 2,787 |
|
|
| 7,135 |
| |||||
Lease incentives | 3,515 | 1,838 | ||||||||||||||
Non-cash operating lease expense |
|
| 27,627 |
|
|
| 23,497 |
| ||||||||
Other | (5,212 | ) | (3,064 | ) |
|
| 251 |
|
|
| 384 |
| ||||
Changes in operating assets and liabilities: |
|
|
|
|
|
| ||||||||||
Accounts receivable | (2,047 | ) | (1,409 | ) |
|
| (909 | ) |
|
| 3,481 |
| ||||
Merchandise inventories | (23,289 | ) | (22,047 | ) |
|
| (18,952 | ) |
|
| (100,305 | ) | ||||
Operating leases |
|
| (27,181 | ) |
|
| (24,794 | ) | ||||||||
Accounts payable and accrued liabilities | (8,446 | ) | (1,298 | ) |
|
| (927 | ) |
|
| 40,514 |
| ||||
Other | 940 | 1,303 |
|
| (12,518 | ) |
|
| (10,040 | ) | ||||||
Net cash provided by operating activities | 8,964 | 21,452 |
|
| 22,352 |
|
|
| 8,918 |
| ||||||
Cash Flows From Investing Activities |
|
|
|
|
|
| ||||||||||
Purchases of property and equipment | (16,708 | ) | (17,426 | ) |
|
| (30,629 | ) |
|
| (50,198 | ) | ||||
Investments in marketable securities |
|
| (41 | ) |
|
| (11 | ) | ||||||||
Sales of marketable securities |
|
| 0 |
|
|
| 3,040 |
| ||||||||
Net cash used in investing activities | (16,708 | ) | (17,426 | ) |
|
| (30,670 | ) |
|
| (47,169 | ) | ||||
Cash Flows From Financing Activities |
|
|
|
|
|
| ||||||||||
Borrowings under line of credit | 88,600 | 0 | ||||||||||||||
Payments on line of credit | (88,600 | ) | 0 | |||||||||||||
Proceeds from issuance of stock | 196 | 186 |
|
| 110 |
|
|
| 93 |
| ||||||
Dividends paid | (3,603 | ) | (3,780 | ) |
|
| (5,675 | ) |
|
| (5,064 | ) | ||||
Excess tax benefits from stock-based compensation | 0 | 2 | ||||||||||||||
Purchase of common stock for treasury | (29,798 | ) | (35,428 | ) |
|
| 0 |
|
|
| (20,515 | ) | ||||
Shares surrendered by employees to pay taxes on restricted stock | (945 | ) | (311 | ) | ||||||||||||
Shares surrendered by employees to pay taxes on stock-based compensation awards |
|
| (2,927 | ) |
|
| (2,086 | ) | ||||||||
Net cash used in financing activities | (34,150 | ) | (39,331 | ) |
|
| (8,492 | ) |
|
| (27,572 | ) | ||||
Net decrease in cash and cash equivalents | (41,894 | ) | (35,305 | ) |
|
| (16,810 | ) |
|
| (65,823 | ) | ||||
Cash and cash equivalents at beginning of period | 62,944 | 68,814 |
|
| 51,372 |
|
|
| 117,443 |
| ||||||
Cash and Cash Equivalents at End of Period | $ | 21,050 | $ | 33,509 | ||||||||||||
Cash and cash equivalents at end of period |
| $ | 34,562 |
|
| $ | 51,620 |
| ||||||||
Supplemental disclosures of cash flow information: |
|
|
|
|
|
| ||||||||||
Cash paid during period for interest | $ | 250 | $ | 127 |
| $ | 138 |
|
| $ | 164 |
| ||||
Cash paid during period for income taxes | $ | 12,791 | $ | 11,786 |
| $ | 12,732 |
|
| $ | 13,955 |
| ||||
Capital expenditures incurred but not yet paid | $ | 953 | $ | 994 |
| $ | 2,730 |
|
| $ | 1,899 |
| ||||
Dividends declared but not yet paid |
| $ | 183 |
|
| $ | 222 |
|
See notes to Condensed Consolidated Financial Statements.
6
SHOE CARNIVAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Unaudited
Note 1 -– Basis of Presentation
Shoe Carnival, Inc. is one of the nation’s largest omnichannel family footwear retailers, selling footwear and related products through our retail stores located in 35 states within the continental United States and in Puerto Rico, as well as through our e-commerce platform. We offer customers a broad assortment of dress, casual, and work shoes, sandals, boots and athletic footwear and accessories for men, women and children with an emphasis on national name brands through our Shoe Carnival and Shoe Station store banners. 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 Quarterly Report on Form 10-Q refer to Shoe Carnival, Inc. and its subsidiaries.
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. All intercompany accounts and transactions have been eliminated. In our opinion, the accompanying Unauditedunaudited Condensed Consolidated Financial Statements and notes have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission (the “SEC”) for interim financial information and contain all normal recurring adjustments necessary to fairly 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 toas permitted by 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 Unauditedunaudited Condensed Consolidated Financial Statements should be read in conjunction with the audited Consolidated Financial Statements and the notes thereto contained in our Annual Report on Form 10-K for the fiscal year ended January 28, 2017.2023.
As used herein, the terms “we,” “our,” “us” and “Shoe Carnival” refer to Shoe Carnival, Inc. and its subsidiaries.
Note 2 - Net Income Per Share
The following tables settable sets forth the computation of basicBasic and diluted earningsDiluted Net Income per shareShare as shown on the face of the accompanying Condensed Consolidated Statements of Income:
Thirteen Weeks Ended | ||||||||||||||||||||||||
October 28, 2017 | October 29, 2016 | |||||||||||||||||||||||
(In thousands, except per share data) | ||||||||||||||||||||||||
Basic Earnings per Share: | Net Income | Shares | Per Share Amount | Net Income | Shares | Per Share Amount | ||||||||||||||||||
Net income | $ | 10,697 | $ | 9,672 | ||||||||||||||||||||
Amount allocated to participating securities | (162 | ) | (214 | ) | ||||||||||||||||||||
Net income available for basic common shares and basic earnings per share | $ | 10,535 | 15,957 | $ | 0.66 | $ | 9,458 | 17,609 | $ | 0.54 | ||||||||||||||
Diluted Earnings per Share: | ||||||||||||||||||||||||
Net income | $ | 10,697 | $ | 9,672 | ||||||||||||||||||||
Amount allocated to participating securities | (162 | ) | (214 | ) | ||||||||||||||||||||
Adjustment for dilutive potential common shares | 0 | 9 | 0 | 5 | ||||||||||||||||||||
Net income available for diluted common shares and diluted earnings per share | $ | 10,535 | 15,966 | $ | 0.66 | $ | 9,458 | 17,614 | $ | 0.54 |
Thirty-Nine Weeks Ended | ||||||||||||||||||||||||
October 28, 2017 | October 29, 2016 | |||||||||||||||||||||||
(In thousands, except per share data) | ||||||||||||||||||||||||
Basic Earnings per Share: | Net Income | Shares | Per Share Amount | Net Income | Shares | Per Share Amount | ||||||||||||||||||
Net income | $ | 22,824 | $ | 24,437 | ||||||||||||||||||||
Amount allocated to participating securities | (328 | ) | (515 | ) | ||||||||||||||||||||
Net income available for basic common shares and basic earnings per share | $ | 22,496 | 16,287 | $ | 1.38 | $ | 23,922 | 18,220 | $ | 1.31 | ||||||||||||||
Diluted Earnings per Share: | ||||||||||||||||||||||||
Net income | $ | 22,824 | $ | 24,437 | ||||||||||||||||||||
Amount allocated to participating securities | (328 | ) | (515 | ) | ||||||||||||||||||||
Adjustment for dilutive potential common shares | 0 | 6 | 0 | 5 | ||||||||||||||||||||
Net income available for diluted common shares and diluted earnings per share | $ | 22,496 | 16,293 | $ | 1.38 | $ | 23,922 | 18,225 | $ | 1.31 |
|
| Thirteen Weeks Ended |
| |||||||||||||||||||||
|
| July 29, 2023 |
|
| July 30, 2022 |
| ||||||||||||||||||
|
|
|
|
| (In thousands, except per share data) |
|
|
|
| |||||||||||||||
Basic Net Income per Share: |
| Net |
|
| Shares |
|
| Per Share |
|
| Net |
|
| Shares |
|
| Per Share |
| ||||||
Net income available for basic common shares |
| $ | 19,441 |
|
|
| 27,336 |
|
| $ | 0.71 |
|
| $ | 28,909 |
|
|
| 27,590 |
|
| $ | 1.05 |
|
Diluted Net Income per Share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Net income |
| $ | 19,441 |
|
|
|
|
|
|
|
| $ | 28,909 |
|
|
|
|
|
|
| ||||
Conversion of stock-based compensation |
|
| 0 |
|
|
| 74 |
|
|
|
|
|
| 0 |
|
|
| 222 |
|
|
|
| ||
Net income available for diluted common |
| $ | 19,441 |
|
|
| 27,410 |
|
| $ | 0.71 |
|
| $ | 28,909 |
|
|
| 27,812 |
|
| $ | 1.04 |
|
|
| Twenty-six Weeks Ended |
| |||||||||||||||||||||
|
| July 29, 2023 |
|
| July 30, 2022 |
| ||||||||||||||||||
|
|
|
|
| (In thousands, except per share data) |
|
|
|
| |||||||||||||||
Basic Net Income per Share: |
| Net |
|
| Shares |
|
| Per Share |
|
| Net |
|
| Shares |
|
| Per Share |
| ||||||
Net income available for basic common shares |
| $ | 35,967 |
|
|
| 27,280 |
|
| $ | 1.32 |
|
| $ | 55,806 |
|
|
| 27,784 |
|
| $ | 2.01 |
|
Diluted Net Income per Share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Net income |
| $ | 35,967 |
|
|
|
|
|
|
|
| $ | 55,806 |
|
|
|
|
|
|
| ||||
Conversion of stock-based compensation |
|
| 0 |
|
|
| 169 |
|
|
|
|
|
| 0 |
|
|
| 277 |
|
|
|
| ||
Net income available for diluted common |
| $ | 35,967 |
|
|
| 27,449 |
|
| $ | 1.31 |
|
| $ | 55,806 |
|
|
| 28,061 |
|
| $ | 1.99 |
|
Our basic and diluted earnings7
The computation of Basic Net Income per share are computed using the two-class method. The two-class methodShare is an earnings allocation method 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 bybased on the weighted average number of common shares outstanding during eachthe period. No options to purchaseThe computation of Diluted Net Income per Share is based on the weighted average number of shares outstanding plus the dilutive incremental shares that would be outstanding assuming the vesting of commonstock-based compensation arrangements involving restricted stock, restricted stock units and performance stock units. The computation of Diluted Net Income per Share for the thirteen and twenty-six weeks ended July 29, 2023 excluded approximately 134,000 and 1,000, respectively, of unvested stock-based awards that will be settled in shares because the impact would have been anti-dilutive. During the thirteen and twenty-six weeks ended July 30, 2022, approximately 318,000 and 31,000, respectively, of unvested stock-based awards that will be settled in shares were excluded infrom 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. We will adopt this guidance effective February 4, 2018, and plan to use the modified retrospective transition approach, which would result in an adjustment to retained earnings for the cumulative effect, if any, of applying this guidance to contracts in effect as of the adoption date. While we have made progress on our scoping review and assessment phase, we are still evaluatingDiluted Net Income per Share because the impact this guidance willwould have on our financial statements and related disclosures. 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 presentation of customer related return reserves on the balance sheet.been anti-dilutive.
In July 2015, the FASB issued guidance on simplifying the measurement of inventory by requiring inventory to be measured at the lower of cost or net realizable value. We adopted the provisions of this guidance on January 29, 2017. The adoption of this guidance did not have a material impact on our consolidated financial position, results of operations or 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’s leasing arrangements. The guidance will be effective at the beginning of fiscal 2019, including interim periods within that fiscal year, and will be applied on a modified retrospective basis. We are evaluating the impact of this guidance on our 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. We adopted the provisions of this guidance on 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 guidance for 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 at the beginning of fiscal 2018, including interim periods within 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 of fiscal 2018, including interim periods within that fiscal year, with early adoption permitted. The guidance requires adoption on a prospective basis for share-based payment awards modified on or after the adoption date. We do not believe the guidance will have a material impact on our condensed consolidated financial position, results of operations or cash flows.
Note 43 - 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 assetsfinancial instruments that are measured at fair value on a recurring basis at October 28, 2017,
July 29, 2023, January 28, 20172023 and OctoberJuly 30, 2022:
|
| Fair Value Measurements |
| |||||||||||||
(In thousands) |
| Level 1 |
|
| Level 2 |
|
| Level 3 |
|
| Total |
| ||||
As of July 29, 2023 |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Cash equivalents - money market mutual funds |
| $ | 22,445 |
|
| $ | 0 |
|
| $ | 0 |
|
| $ | 22,445 |
|
Marketable securities - mutual funds that fund |
|
| 12,218 |
|
|
| 0 |
|
|
| 0 |
|
|
| 12,218 |
|
Total |
| $ | 34,663 |
|
| $ | 0 |
|
| $ | 0 |
|
| $ | 34,663 |
|
As of January 28, 2023 |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Cash equivalents - money market mutual funds |
| $ | 45,265 |
|
| $ | 0 |
|
| $ | 0 |
|
| $ | 45,265 |
|
Marketable securities - mutual funds that fund |
|
| 11,601 |
|
|
|
|
|
|
|
|
| 11,601 |
| ||
Total |
| $ | 56,866 |
|
| $ | 0 |
|
| $ | 0 |
|
| $ | 56,866 |
|
As of July 30, 2022 |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Cash equivalents - money market mutual funds |
| $ | 41,401 |
|
| $ | 0 |
|
| $ | 0 |
|
| $ | 41,401 |
|
Marketable securities - mutual funds that fund |
|
| 10,994 |
|
|
|
|
|
|
|
|
| 10,994 |
| ||
Total |
| $ | 52,395 |
|
| $ | 0 |
|
| $ | 0 |
|
| $ | 52,395 |
|
We invest in publicly traded mutual funds with readily determinable fair values. These Marketable Securities are designed to mitigate volatility in our Condensed Consolidated Statements of Income associated with our non-qualified deferred compensation plan. As of July 29, 2016.2023, these Marketable Securities were principally invested in equity-based mutual funds, consistent with the allocation in our deferred compensation plan. As of July 29, 2023, the balance in our deferred compensation plan was $12.2 million, of which $1.6 million was in Accrued and Other Liabilities based on scheduled payments due within the next 12 months and the remaining balance was in Deferred Compensation, a long-term liability. To the extent there is a variation in invested funds compared to the total non-qualified deferred compensation plan liability, such fund variance is invested in a stable value mutual fund. We classify these Marketable Securities as current assets because we have the ability to convert the securities into cash at our discretion and these Marketable Securities are not held in a rabbi trust. We have no material liabilities measuredrecognized cumulative unrealized losses of $1.8 million, $2.9 million and $2.5 million related to equity securities still held at fair value on a recurring or non-recurring basis.
Fair Value Measurements | ||||||||||||||||
(In thousands) | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
As of October 28, 2017: | ||||||||||||||||
Cash equivalents– money market account | $ | 0 | $ | 0 | $ | 0 | $ | 0 | ||||||||
As of January 28, 2017: | ||||||||||||||||
Cash equivalents– money market account | $ | 114 | $ | 0 | $ | 0 | $ | 114 | ||||||||
As of October 29, 2016: | ||||||||||||||||
Cash equivalents – money market account | $ | 114 | $ | 0 | $ | 0 | $ | 114 |
July 29, 2023, January 28, 2023 and July 30, 2022, respectively. For the thirteen and twenty-six weeks ended July 29, 2023, we have recognized unrealized gains of $761,000 and $1.1 million, respectively, related to equity securities still held at July 29, 2023. For the thirteen and twenty-six weeks ended July 30, 2022, we have recognized unrealized gains of $34,000 and unrealized losses of $501,000, respectively, related to equity securities still held at July 30, 2022.
The fair values of cash, receivables, accounts payable, accrued expensesCash and other current liabilitiesCash Equivalents, Accounts Receivable, Accounts Payable and Accrued and Other 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 Asset Impairment Testing
We periodically evaluate our long-lived assets evaluated for impairment. These are typically store specific assets, which are reviewed for impairment wheneverif events or changes in circumstances indicate that recoverability of theirthe carrying value may not be recoverable. The carrying value of long-lived assets is questionable. Ifconsidered impaired when the carrying value of the assets exceeds the expected undiscounted future cash flows related to be derived from their use. Assets are grouped, and the evaluation is performed, at the lowest level for which there are identifiable cash flows, which is generally at a store’s assetsstore level. Store level asset groupings typically include Property and Equipment, Operating Lease Right-of-Use Assets, and the current and long-term portions of operating lease liabilities. Assets subject to impairment are less than their carrying value, an impairment loss would be recognized for the difference betweenadjusted to estimated fair value and, carrying value andif applicable, an impairment loss is recorded in selling, generalSelling, General and administrative expenses. We estimateAdministrative Expenses. If the fair value of store assets using an income-based approach consideringOperating Lease Right-of-Use Asset is impaired, we would amortize the cash flows expectedremaining right-of-use asset on a straight-line basis 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 theterm. No impairment recorded.
During the thirteen weeks ended October 28, 2017, wecharges were recorded impairments of $105,000 on long-lived assets. Subsequent to this impairment, these long-lived assets had a remaining unamortized basis of $153,000. During the thirty-nine weeks ended October 28, 2017, we recorded impairments of $1.7 million on long-lived assets. Subsequent to this impairment, these long-lived assets had a remaining unamortized basis of $1.2 million. Duringduring the thirteen and thirty-ninetwenty-six weeks ended OctoberJuly 29, 2016, we recorded impairments of $193,000 on long-lived assets. Subsequent to this impairment, these long-lived assets had a remaining unamortized basis of $337,000.2023 or the thirteen and twenty-six weeks ended July 30, 2022.
8
Note 54 - Stock-Based Compensation
At our 2017 annual meeting of shareholders held onOn June 13, 2017,20, 2023, our shareholders approved a new equity incentive plan,the Shoe Carnival, Inc. Amended and Restated 2017 Equity Incentive Plan (the “Amended 2017 Plan”), which amended and restated 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 PlanPlan. Among other changes approved by our shareholders, no further awards may be made under the 2000 Plan. A maximumAmended 2017 Plan increased the number of 1,000,000 shares of our common stock that are available for issuance and sale under the 2017 Plan. In addition, anyplan by 1.8 million additional shares. As of July 29, 2023, 1,858,000 shares of our common stock subject to an award grantedwere available for issuance under the Amended 2017 Plan, or to an award granted underassuming that all unmeasured but outstanding performance stock units vest at 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 extentmaximum level of such cancellation, forfeiture, expiration or cash settlement, automatically become available for future awards under the 2017 Plan.performance.
10
Stock-based compensation includes share-settled awards issued pursuant to the Amended 2017 Plan in the form of restricted stock options, cash-settledunits, performance stock appreciation rights (SARs)units, and restricted and other stock awards. Additionally, we recognize stock-based compensation expense for the discount on shares sold to employees through our employeeEmployee Stock Purchase Plan and for cash-settled stock purchase plan. appreciation rights. For the thirteen and thirty-ninetwenty-six weeks ended October 28, 2017,July 29, 2023 and July 30, 2022, stock-based compensation expense for the employee stock purchase plan was $10,000 before the income tax benefit of $4,000 and $30,000 before the income tax benefit of $12,000, respectively. For the thirteen and thirty-nine weeks ended October 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.
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 nine months of fiscal 2017 there were 3,500 options exercised and there were 3,500 options outstanding and exercisable as of October 28, 2017.
The following section summarizes the share transactions for our restricted stock awards:
Number of Shares | Weighted- Average Grant Date Fair Value | |||||||
Restricted stock at January 28, 2017 | 964,858 | $ | 22.63 | |||||
Granted | 274,346 | 24.09 | ||||||
Vested | (119,107 | ) | 24.27 | |||||
Forfeited or expired | (168,937 | ) | 18.46 | |||||
Restricted stock at October 28, 2017 | 951,160 | $ | 23.59 |
The weighted-average grant date fair value of stock awards granted during the thirty-nine week periods ended October 28, 2017, and October 29, 2016, was $24.09 and $24.98, respectively. The total fair value at grant date of restricted stock awards that vested during the first nine months of fiscal 2017 was $2.9 million. The total fair value at grant date of restricted stock awards that vested during the first nine months of fiscal 2016 was $854,000. Of the 168,937 shares of restricted stock that were forfeited or that expired in the first nine 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 table summarizes information regarding stock-based compensation expense recognized for restricted stock awards:
(In thousands) | Thirteen Weeks Ended October 28, 2017 | Thirteen Weeks Ended October 29, 2016 | Thirty-nine Weeks Ended October 28, 2017 | Thirty-nine Weeks Ended October 29, 2016 | ||||||||||||
Stock-based compensation before the recognized income tax effect | $ | 996 | $ | 1,295 | $ | 2,140 | $ | 3,197 | ||||||||
Income tax effect | $ | 398 | $ | 482 | $ | 830 | $ | 1,208 |
The $2.1 million of expense recognized in the first nine months of fiscal 2017 was comprised of compensation expense of $3.1 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 to be no longer probable to vest prior to their expiration.following:
(In thousands) |
| Thirteen |
|
| Thirteen |
|
| Twenty-six |
|
| Twenty-six |
| ||||
Share-settled equity awards |
| $ | 1,098 |
|
| $ | 1,530 |
|
| $ | 2,324 |
|
| $ | 2,885 |
|
Stock appreciation rights |
|
| 10 |
|
|
| (38 | ) |
|
| (17 | ) |
|
| (161 | ) |
Employee stock purchase plan |
|
| 9 |
|
|
| 9 |
|
|
| 19 |
|
|
| 17 |
|
Total stock-based compensation expense |
| $ | 1,117 |
|
| $ | 1,501 |
|
| $ | 2,326 |
|
| $ | 2,741 |
|
Income tax effect at statutory rates |
| $ | (249 | ) |
| $ | (385 | ) |
| $ | (522 | ) |
| $ | (678 | ) |
Additional income tax benefit on vesting of share-settled awards |
| $ | 5 |
|
| $ | (26 | ) |
| $ | (616 | ) |
| $ | (521 | ) |
As of October 28, 2017,July 29, 2023, approximately $4.9$8.4 million of unrecognized compensation expense remained related to both our performance-based and service-based restricted stockshare-settled equity awards. The cost is expected to be recognized over a weighted average period of approximately 1.72.1 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.
Share-Settled Equity Awards
The following table summarizes transactions for our restricted stock units and performance stock units:
|
| Number of |
|
| Weighted- |
| ||
Outstanding at January 28, 2023 |
|
| 560,323 |
|
| $ | 23.27 |
|
Granted |
|
| 370,653 |
|
|
| 24.98 |
|
Vested |
|
| (282,927 | ) |
|
| 16.83 |
|
Forfeited |
|
| (36,526 | ) |
|
| 30.09 |
|
Outstanding at July 29, 2023 |
|
| 611,523 |
|
| $ | 26.87 |
|
The total fair value at grant date of restricted stock units and performance stock units that vested during the SARs activity:
Number of Shares | Weighted- Average Exercise Price | Weighted- Average Remaining Contractual Term (Years) | |||||||||||
Outstanding at January 28, 2017 | 111,300 | $ | 24.26 | ||||||||||
Forfeited | (3,500 | ) | 24.26 | ||||||||||
Exercised | 0 | 0.00 | |||||||||||
Outstanding at October 28, 2017 | 107,800 | $ | 24.26 | 2.4 | |||||||||
Exercisable at October 28, 2017 | 62,991 | $ | 24.26 | 2.4 |
SARs weretwenty-six weeks ended July 29, 2023 and July 30, 2022 was $4.8 million and $3.2 million, respectively. The weighted-average grant date fair value of restricted stock units and performance stock units 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 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 October 28, 2017 and October 29, 2016twenty-six weeks ended July 30, 2022 was $3.22 and $4.53, respectively.$30.32.
The fair value was estimated using a trinomial lattice model with the following assumptions:
October 28, 2017 | October 29, 2016 | |||||||
Risk free interest rate yield curve | 1.01% - 2.06% | 0.18% - 1.33% | ||||||
Expected dividend yield | 1.4 | % | 1.1 | % | ||||
Expected volatility | 37.34 | % | 35.06 | % | ||||
Maximum life | 2.4 Years | 3.4 Years | ||||||
Exercise multiple | 1.34 | 1.34 | ||||||
Maximum payout | $ | 10.00 | $ | 10.00 | ||||
Employee exit rate | 2.2% - 9.0% | 2.2% - 9.0% |
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 compensationtransactions for our restricted stock and other stock awards:
|
| Number of |
|
| Weighted- |
| ||
Outstanding at January 28, 2023 |
|
| 0 |
|
| $ | 0.00 |
|
Granted |
|
| 21,462 |
|
|
| 21.90 |
|
Vested |
|
| 0 |
|
|
| 0.00 |
|
Forfeited |
|
| 0 |
|
|
| 0.00 |
|
Outstanding at July 29, 2023 |
|
| 21,462 |
|
| $ | 21.90 |
|
No restricted stock and other stock awards vested during the twenty-six weeks ended July 29, 2023 or July 30, 2022. The weighted-average grant date fair value of restricted stock and other stock awards granted during the twenty-six weeks ended July 30, 2022 was $24.12.
9
Note 5 – Revenue
Disaggregation of Revenue by Product Category
Revenue is disaggregated by product category below. Net Sales and percentage of Net Sales for the thirteen and twenty-six weeks ended July 29, 2023 and July 30, 2022 were as follows:
(In thousands) |
| Thirteen Weeks |
|
| Thirteen Weeks |
| ||||||||||
Non-Athletics: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Women’s |
| $ | 82,747 |
|
|
| 28 | % |
| $ | 94,013 |
|
|
| 30 | % |
Men’s |
|
| 51,650 |
|
|
| 17 |
|
|
| 55,102 |
|
|
| 18 |
|
Children’s |
|
| 22,318 |
|
|
| 8 |
|
|
| 22,822 |
|
|
| 7 |
|
Total |
|
| 156,715 |
|
|
| 53 |
|
|
| 171,937 |
|
|
| 55 |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Athletics: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Women’s |
|
| 40,598 |
|
|
| 14 |
|
|
| 40,511 |
|
|
| 13 |
|
Men’s |
|
| 49,096 |
|
|
| 17 |
|
|
| 50,776 |
|
|
| 17 |
|
Children’s |
|
| 32,013 |
|
|
| 11 |
|
|
| 30,977 |
|
|
| 10 |
|
Total |
|
| 121,707 |
|
|
| 42 |
|
|
| 122,264 |
|
|
| 40 |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Accessories |
|
| 14,881 |
|
|
| 5 |
|
|
| 16,664 |
|
|
| 5 |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Other |
|
| 1,312 |
|
|
| 0 |
|
|
| 1,403 |
|
|
| 0 |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Total |
| $ | 294,615 |
|
|
| 100 | % |
| $ | 312,268 |
|
|
| 100 | % |
(In thousands) |
| Twenty-six Weeks |
|
| Twenty-six Weeks |
| ||||||||||
Non-Athletics: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Women’s |
| $ | 160,505 |
|
|
| 28 | % |
| $ | 182,569 |
|
|
| 29 | % |
Men’s |
|
| 95,096 |
|
|
| 16 |
|
|
| 104,254 |
|
|
| 17 |
|
Children’s |
|
| 43,846 |
|
|
| 8 |
|
|
| 44,231 |
|
|
| 7 |
|
Total |
|
| 299,447 |
|
|
| 52 |
|
|
| 331,054 |
|
|
| 53 |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Athletics: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Women’s |
|
| 83,386 |
|
|
| 15 |
|
|
| 91,545 |
|
|
| 14 |
|
Men’s |
|
| 97,132 |
|
|
| 17 |
|
|
| 103,802 |
|
|
| 16 |
|
Children’s |
|
| 64,042 |
|
|
| 11 |
|
|
| 67,705 |
|
|
| 11 |
|
Total |
|
| 244,560 |
|
|
| 43 |
|
|
| 263,052 |
|
|
| 41 |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Accessories |
|
| 29,429 |
|
|
| 5 |
|
|
| 32,414 |
|
|
| 5 |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Other |
|
| 2,363 |
|
|
| 0 |
|
|
| 3,275 |
|
|
| 1 |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Total |
| $ | 575,799 |
|
|
| 100 | % |
| $ | 629,795 |
|
|
| 100 | % |
Accounting Policy and Performance Obligations
We operate as an omnichannel, family footwear retailer and provide the convenience of shopping at our physical stores or shopping online through our e-commerce platform. As part of our omnichannel strategy, we offer Shoes 2U, a program that enables us to ship product to a customer’s home or selected store if the product is not in stock at a particular store. We also offer “buy online, pick up in store” services for our customers. “Buy online, pick up in store” provides the convenience of local pickup for our customers.
For our physical stores, we satisfy our performance obligation and control is transferred at the point of sale when the customer takes possession of the products. This also includes the “buy online, pick up in store” scenario described above and includes sales made via our Shoes 2U program when customers choose to pick up their goods at a physical store. For sales made through our e-commerce platform in which the customer chooses home delivery, we transfer control and recognize revenue when the product is shipped. This also includes sales made via our Shoes 2U program when the customer chooses home delivery.
10
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. When a customer makes a purchase as part of our rewards program, we allocate the transaction price between the goods purchased and the loyalty reward points and recognize the loyalty revenue based on estimated customer redemptions.
Transaction Price and Payment Terms
The transaction price is the amount of consideration we expect to receive from our customers and is reduced by any stated promotional discounts at the time of purchase. The transaction price may be variable due to terms that permit customers to exchange or return products for SARs:a refund. The implicit contract with the customer reflected in the transaction receipt states the final terms of the sale, including the description, quantity, and price of each product purchased. The customer agrees to a stated price in the contract that does not vary over the term of the contract and may include revenue to offset shipping costs. Taxes imposed by governmental authorities such as sales taxes are excluded from Net Sales.
(In thousands) | Thirteen Weeks Ended October 28, | Thirteen Weeks Ended October 29, | Thirty-nine Weeks Ended October 28, | Thirty-nine Weeks Ended October 29, | ||||||||||||
Stock-based compensation before the recognized income tax effect | $ | 140 | $ | 12 | $ | (97 | ) | $ | 208 | |||||||
Income tax effect | $ | 56 | $ | 4 | $ | (38 | ) | $ | 79 |
AsWe accept various forms of October 28, 2017, approximately $23,000payment from customers at the point of sale typical for an omnichannel retailer. Payments made for products are generally collected when control passes to the customer, either at the point of sale or at the time the customer order is shipped. For Shoes 2U transactions, customers may order the product at the point of sale. For these transactions, customers pay in unrecognized compensation expense remainedadvance and unearned revenue is recorded as a contract liability. We recognize the related revenue when control has been transferred to the customer (i.e., when the product is picked up by the customer or shipped to the customer). Unearned revenue related to non-vested SARs.Shoes 2U was not material to our consolidated financial statements at July 29, 2023, January 28, 2023 or July 30, 2022.
Returns and Refunds
We have established an allowance based upon historical experience in order to estimate return and refund transactions. This expenseallowance is recorded as a reduction in sales with a corresponding refund liability recorded in Accrued and Other Liabilities. The estimated cost of Merchandise Inventory is recorded as a reduction to Cost of Sales and an increase in Merchandise Inventories. Approximately $866,000 of refund liabilities and $503,000 of right of return assets associated with estimated product returns were recorded in Accrued and Other Liabilities and Merchandise Inventories, respectively, as of July 29, 2023 and January 28, 2023. Approximately $884,000 of refund liabilities and $516,000 of right of return assets associated with estimated product returns were recorded in Accrued and Other Liabilities and Merchandise Inventories, respectively, at July 30, 2022.
Contract Liabilities
The issuance of a gift card is recorded as an increase to contract liabilities and a decrease to contract liabilities when a customer redeems a gift card. Estimated breakage is determined based on historical breakage percentages and recognized as revenue based on expected gift card usage. We do not record breakage revenue when escheat liability to relevant jurisdictions exists.At July 29, 2023, January 28, 2023 and July 30, 2022, approximately $2.0 million, $2.4 million and $2.0 million of contract liabilities associated with unredeemed gift cards were recorded in Accrued and Other Liabilities, respectively. We expect the revenue associated with these liabilities to be recognized in proportion to the pattern of customer redemptions within two years. Breakage revenue associated with our gift cards recognized in Net Sales was not material to any of the periods presented.
Our Shoe Perks rewards program allows customers to accrue points and provides customers with the opportunity to earn rewards. Points under Shoe Perks are earned primarily by making purchases through any of our omnichannel points of sale. Once a certain threshold of accumulated points is reached, the customer earns a reward certificate, which is redeemable through any of our sales channels.
When a Shoe Perks customer makes a purchase, we allocate the transaction price between the goods purchased and the loyalty reward points earned based on the relative standalone selling price. The portion allocated to the points program is recorded as a contract liability for rewards that are expected to be redeemed. We then recognize revenue based on an estimate of when customers redeem rewards, which incorporates an estimate of points expected to expire using historical rates. During the thirteen and twenty-six weeks ended July 29, 2023, approximately $1.4 million and $2.7 million, respectively, of loyalty rewards were recognized overin Net Sales. During the five month period followingthirteen and twenty-six weeks ended July 30, 2022, approximately $1.3 million and $2.6 million, respectively, of loyalty rewards were recognized in Net Sales. At July 29, 2023, January 28, 2023 and July 30, 2022, approximately $950,000, $844,000 and $889,000, respectively, of contract liabilities associated with loyalty rewards were recorded in Accrued and Other Liabilities. We expect the third quarterrevenue associated with these liabilities to be recognized in proportion to the pattern of fiscal 2017.customer redemptions in less than one year.
11
Note 6 – Leases
We lease all of our physical stores, our single distribution center, which has a current lease term expiring in 2034, and office space for our Southern office. We also enter into leases of equipment, copiers and billboards. All of our leases are operating leases. Leases with terms of twelve months or less are immaterial and are expensed as incurred, and we did not have any leases with related parties as of July 29, 2023.
Lease costs, including related common area maintenance (“CAM”), property taxes and insurance, reported in our Condensed Consolidated Statements of Income were as follows for the thirteen and twenty-six weeks ended July 29, 2023 and July 30, 2022:
(In thousands) |
| Thirteen |
|
| Thirteen |
|
| Twenty-six |
|
| Twenty-six |
| ||||
Operating lease cost |
| $ | 15,952 |
|
| $ | 14,943 |
|
| $ | 31,824 |
|
| $ | 29,642 |
|
Variable lease cost |
|
|
|
|
|
|
|
|
|
|
|
| ||||
CAM, property taxes and insurance |
|
| 5,370 |
|
|
| 4,667 |
|
|
| 10,722 |
|
|
| 9,429 |
|
Percentage rent and other variable lease costs |
|
| 381 |
|
|
| 301 |
|
|
| 624 |
|
|
| 494 |
|
Total |
| $ | 21,703 |
|
| $ | 19,911 |
|
| $ | 43,170 |
|
| $ | 39,565 |
|
12
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Factors That May Affect Future Results
This quarterly reportQuarterly 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: our ability to control costs and meet our labor needs in a rising wage, inflationary, and/or supply chain constrained environment; our ability to maintain current promotional intensity levels; the effects and duration of economic downturns and unemployment rates; our ability to achieve expected operating results, synergies, and other benefits from the Shoe Station acquisition within expected time frames, or at all; the potential impact of national and international security concerns, including those caused by war and terrorism, on the retail environment; general economic conditions in the areas of the continental United States in whichand Puerto Rico where our stores are located and the impact of the ongoing economic crisis and hurricane recovery 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;located; 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;sales; our ability to successfully navigate the increasing use of on-lineonline retailers for fashion purchases and the impact on traffic and transactions in our physical stores; the success of the open-air shopping centers where many of our stores are located and its impact on our ability to attract customers to our stores; our ability to attract customers to our e-commerce websiteplatform and to successfully grow our e-commerceomnichannel sales; the potential impacteffectiveness of nationalour inventory management, including our ability to manage key merchandise vendor relationships and international security concerns on the retail environment;direct-to-consumer initiatives; changes in our relationships with other key suppliers; changes in the political and economic environments in, the status of trade relations with, and the impact of changes in trade policies and tariffs impacting, China and other countries which are the major manufacturers of footwear; the impact of competition and pricing; our ability to successfully manage and execute our marketing initiatives and maintain positive brand perception and recognition; our ability to successfully manage our current real estate portfolio and leasing obligations; changes in weather, including patterns impacted by climate change; changes in 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 natural disasters, public health and political crises, civil unrest, and other catastrophic events on our stores,operations and the operations of our suppliers, as well as on consumer confidence and purchasing in general; the duration and spread of a public health crisis, such as COVID-19, and the mitigating efforts deployed, including the effects of government stimulus on consumer spending; 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;employees, including as a result of a cybersecurity breach; our ability to successfully execute our business strategy, including the availability of desirable store locations at acceptable lease terms, our ability to identify, consummate or effectively integrate future acquisitions, our ability to implement and adapt to new technology and systems, 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 business plans; higher than anticipated costs associated with the closing of underperforming stores; the inability of manufacturers to deliver products in a timely manner; changesan increase in the political and economic environmentscost, or a disruption in and continued favorable trade relations with, China and other countries which are the major manufacturersflow, of footwear;imported goods; the impact of regulatory changes in the United States, including minimum wage laws and regulations, and the countries where our manufacturers are located; 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;continued volatility and disruption in the impact of any tax reform;capital and credit markets; future stock repurchases under our stock repurchase program and future dividend payments. For a more detailed discussion of certain risk factors impacting us, see the “Risk Factors” section of our Annual Report on Form 10-K for the fiscal year ended January 28, 2017.2023.
General
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, ItemITEM 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 28, 2017,2023 as filed with the SEC. This section of this Quarterly Report on Form 10-Q generally discusses our results for second quarter 2023 and second quarter 2022 and year-over-year comparisons between second quarter 2023 and second quarter 2022, as well as year-to-date results for, and comparisons between, the two periods.
Referred to herein, second quarter 2023 is the thirteen weeks ended July 29, 2023 and second quarter 2022 is the thirteen weeks ended July 30, 2022. Also referred to herein, year-to-date 2023 is the twenty-six weeks ended July 29, 2023 and year-to-date 2022 is the twenty-six weeks ended July 30, 2022.
Overview of Our Business
Shoe Carnival, Inc. is one of the nation’s largest omnichannel family footwear retailers, providingretailers. On December 3, 2021, we began operating under two banners: Shoe Carnival and Shoe Station. Our objective is to be the convenienceomnichannel retailer-of-choice for on-trend branded footwear for the entire family. Our product assortment, whether shopping in a physical store or on our e-commerce platform, includes
13
dress, casual, and work shoes, sandals, boots and a wide assortment of shopping at anyathletic shoes. Our typical physical store carries shoes in two general categories – athletics and non-athletics with subcategories for men's, women's and children's, as well as a broad range of accessories. In addition to our store locations or online at shoecarnival.com. physical stores, our e-commerce platform offers customers the same assortment of merchandise in all categories of footwear with expanded options in certain instances.
Our stores under the Shoe Carnival banner combine competitive pricing with a promotional,high-energy in-store marketing effortenvironment that encourages customer participationparticipation. Footwear in our Shoe Carnival physical stores is organized by category and injects funbrand, creating strong brand statements within the aisles. These brand statements are underscored by branded signage on endcaps and surprise into everyin-line signage throughout the store. Our signage may highlight a vendor’s product offerings or sales promotions, or may highlight seasonal or lifestyle statements by grouping similar footwear from multiple vendors.
The Shoe Station banner and retail locations are a complementary retail platform for us to serve a broader base of family footwear customers in both urban and suburban demographics. The Shoe Station concept targets a more affluent family footwear customer and has a strong track record of capitalizing on emerging footwear fashion trends and introducing new brands. Due to the larger average size of our Shoe Station stores and the targeted, more affluent customer, these locations provide for a primary destination shopping experience. See Note 3 — “Acquisition of Shoe Station” to our Notes to Consolidated Financial Statements contained in PART II, ITEM 8 of our Annual Report on Form 10-K for the fiscal year ended January 28, 2023, for further discussion.
We believe this fun and promotional atmosphere results inour distinctive shopping experiences give us 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 product 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, which we classify in four general categories - women’s, men’s, children’s and athletics. 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 judgmentsWe use judgment in reporting our reported financial results. These judgments involveThis judgment involves estimates based in part on our historical experience and incorporateincorporates 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,Merchandise Inventories, valuation of long-lived assets, insurance reservesvaluation of Goodwill and Intangible Assets, leases and income taxes andtaxes. The accounting policies that require more significant judgment are discussed in our Annual Report on Form 10-K for the fiscal year ended January 28, 2017.
There2023, and there have been no material changes to ourthose critical accounting policies and estimates disclosed in our Annual Report on Form 10-K for the fiscal year ended January 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.policies.
Results of Operations Summary Information
Number of Stores | Store Square Footage | |||||||||||||||||||||||||||
Beginning | End of | Net | End | Comparable | ||||||||||||||||||||||||
Quarter Ended | Of Period | Opened | Closed | Period | Change | of Period | Store Sales | |||||||||||||||||||||
April 29, 2017 | 415 | 7 | 5 | 417 | 7,000 | 4,533,000 | (3.9 | )% | ||||||||||||||||||||
July 29, 2017 | 417 | 5 | 4 | 418 | (12,000 | ) | 4,521,000 | 0.4 | % | |||||||||||||||||||
October 28, 2017 | 418 | 7 | 1 | 424 | 37,000 | 4,558,000 | 4.4 | % | ||||||||||||||||||||
Year-to-date 2017 | 415 | 19 | 10 | 424 | 32,000 | 4,558,000 | 0.4 | % | ||||||||||||||||||||
April 30, 2016 | 405 | 3 | 4 | 404 | (13,000 | ) | 4,452,000 | 2.7 | % | |||||||||||||||||||
July 30, 2016 | 404 | 9 | 0 | 413 | 79,000 | 4,531,000 | 0.5 | % | ||||||||||||||||||||
October 29, 2016 | 413 | 3 | 1 | 415 | 10,000 | 4,541,000 | (0.4 | )% | ||||||||||||||||||||
Year-to-date 2016 | 405 | 15 | 5 | 415 | 76,000 | 4,541,000 | 0.9 | % |
|
| Number of Stores |
|
| Store Square Footage |
|
|
|
| |||||||||||||||||||
|
| Beginning |
|
|
|
|
|
|
|
| End of |
|
| Net |
|
| End |
|
| Comparable |
| |||||||
Quarter Ended |
| Of Period |
|
| Opened |
|
| Closed |
|
| Period |
|
| Change |
|
| of Period |
|
| Store Sales(1) |
| |||||||
April 29, 2023 |
|
| 397 |
|
|
| 1 |
|
|
| 1 |
|
|
| 397 |
|
|
| 5,000 |
|
|
| 4,510,000 |
|
|
| (11.9 | )% |
July 29, 2023 |
|
| 397 |
|
|
| 2 |
|
|
| 0 |
|
|
| 399 |
|
|
| 32,000 |
|
|
| 4,542,000 |
|
|
| (6.5 | )% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Year-to-date |
|
| 397 |
|
|
| 3 |
|
|
| 1 |
|
|
| 399 |
|
|
| 37,000 |
|
|
| 4,542,000 |
|
|
| (9.3 | )% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
April 30, 2022 |
|
| 393 |
|
|
| 2 |
|
|
| 0 |
|
|
| 395 |
|
|
| 31,000 |
|
|
| 4,450,000 |
|
|
| (10.6 | )% |
July 30, 2022 |
|
| 395 |
|
|
| 0 |
|
|
| 0 |
|
|
| 395 |
|
|
| 0 |
|
|
| 4,450,000 |
|
|
| (13.8 | )% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Year-to-date |
|
| 393 |
|
|
| 2 |
|
|
| 0 |
|
|
| 395 |
|
|
| 31,000 |
|
|
| 4,450,000 |
|
|
| (12.2 | )% |
14
The following table sets forth our results of operations expressed as a percentage of net salesNet Sales for the periods indicated:
Thirteen Weeks Ended October 28, 2017 | Thirteen Weeks Ended October 29, 2016 | Thirty-nine Weeks Ended October 28, 2017 | Thirty-nine Weeks Ended October 29, 2016 | Thirteen |
|
| Thirteen |
|
| Twenty-six |
|
| Twenty-six |
| |||||||||||||||||
Net sales | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % |
| 100.0 | % |
|
| 100.0 | % |
|
| 100.0 | % |
|
| 100.0 | % | ||||||||
Cost of sales (including buying, distribution and occupancy costs) | 70.2 | 70.1 | 70.9 | 70.7 |
| 64.2 |
|
|
| 63.8 |
|
|
| 64.6 |
|
|
| 64.1 |
| ||||||||||||
Gross profit | 29.8 | 29.9 | 29.1 | 29.3 |
| 35.8 |
|
|
| 36.2 |
|
|
| 35.4 |
|
|
| 35.9 |
| ||||||||||||
Selling, general and administrative expenses | 23.6 | 24.3 | 24.3 | 24.2 |
| 27.4 |
|
|
| 23.8 |
|
|
| 27.5 |
|
|
| 24.1 |
| ||||||||||||
Operating income | 6.2 | 5.6 | 4.8 | 5.1 |
| 8.4 |
|
|
| 12.4 |
|
|
| 7.9 |
|
|
| 11.8 |
| ||||||||||||
Interest (income) expense, net | 0.0 | 0.0 | 0.0 | 0.0 | |||||||||||||||||||||||||||
Income before income taxes | 6.2 | 5.6 | 4.8 | 5.1 | |||||||||||||||||||||||||||
Interest income, net |
| (0.1 | ) |
|
| 0.0 |
|
|
| (0.2 | ) |
|
| 0.0 |
| ||||||||||||||||
Income tax expense | 2.5 | 2.1 | 1.9 | 1.9 |
| 1.9 |
|
|
| 3.1 |
|
|
| 1.8 |
|
|
| 2.9 |
| ||||||||||||
Net income | 3.7 | % | 3.5 | % | 2.9 | % | 3.2 | % |
| 6.6 | % |
|
| 9.3 | % |
|
| 6.3 | % |
|
| 8.9 | % |
Executive Summary for ThirdSecond Quarter Ended October 28, 2017July 29, 2023
We were pleased with the startFor second quarter 2023, Diluted Net Income per Share (“EPS”) was $0.71, compared to $1.04 of EPS in second quarter 2022. The primary driver of the thirdlower EPS in second quarter of fiscal 2017 as our back-to-school selections resonated well with our customers. We stocked key items and styles that helped us achieve high single-digit comparable store sales early in the quarter. As the2023 compared to second quarter progressed, we experienced traffic declines particularly in the hurricane affected areas of Texas, Florida and Puerto Rico. However, despite2022 was a low single-digit$17.7 million, or 5.7%, decline in Net Sales. The Net Sales decline was primarily due to store traffic for the quarter, we posted increasesdeclining approximately 7%, which resulted in units per transaction, average sales per transaction and conversion, and ended the quarter with a comparable store sales increasedecline of 4.4 percent. These increases, combined with our ongoing commitment and ability6.5% compared to effectively manage expenses and the decrease in shares outstanding due to our share repurchases, resulted in a 22 percentsecond quarter 2022. A 5.4% increase in quarterly earnings per diluted share. Highlights for the third quarter of fiscal 2017 are as follows:
Results of Operations for the Third Quarter Ended October 28, 2017
Net Sales
Net sales increased $12.9 million to $287.5 million during the third quarter of fiscal 2017, a 4.7% increase over the prior year’s third quarter net sales of $274.5 million. Of this increase in net sales, $11.9 million was attributable to the 4.4% increase in comparable store sales and $6.6 million was attributable to sales generated by the 26 new stores opened since the beginning of the third quarter of fiscal 2016. These increases were partially offset by a loss in sales of $5.5 million from the 15 stores closed since the beginning of the third quarter of fiscal 2016.
Gross Profit
Gross profit increased $3.7 million to $85.7 million during the third quarter of fiscal 2017Shoe Carnival banner declined mid-single digits primarily due to the increase in net sales. Our gross profit margin fora store traffic decline principally from our lower income consumers and within our urban markets.
Second quarter 2023 ranked as the third best second quarter in our history in terms of EPS, only surpassed by the second quarters of fiscal 2017 decreased to 29.8 percent compared to 29.9 percent2022 and fiscal 2021. Our investments in the third quarter of fiscal 2016. The merchandise margin decreased 0.8 percent and was partially offset by buying, distribution and occupancy expenses, which decreased 0.7 percent as a percentage of net sales compared to the third quarter of fiscal 2016. Our merchandise margin decreased primarily due to promotional selling during the quarter and a shift in merchandise sold from boots to athletic footwear. Historically, our boot categories have driven higher margins than our athletic footwear. The decrease in buying, distribution and occupancy expenses as a percentage of sales was primarily due to lower occupancy costs and the leveraging effect of higher comparable store sales. The decrease in occupancy costs was primarily due to the stores we have closed since the third quarter of fiscal 2016 or plan to close in future periods.
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased $1.2 million in the third quarter of fiscal 2017 to $67.8 million compared to $66.6 million in the third quarter of fiscal 2016. As a percentage of sales, these expenses decreased to 23.6% in the third quarter of fiscal 2017 from 24.3% in the third quarter of fiscal 2016. The overall increase in selling, general and administrative expenses during the third quarter of fiscal 2017 was primarilydue to increases in incentive compensation, consulting fees related to our customer relationship management (“CRM”) initiativesystems and store modernization have continued to produce sustained higher gross profit margin, increased customer conversion and increased loyalty members compared to our pre-CRM and pre-modernization results in 2019. The benefits of our CRM and store modernization programs were key factors to maintaining the following results with store traffic continuing to be impacted by inflation and higher interest rates:
In second quarter 2023, we increased our strategic investments in branding, advertising and our retirement savings plans.in-store experience. These increasesinvestments resulted in increased Selling, General and Administrative Expenses and occupancy costs in Cost of Sales in second quarter 2023 compared to second quarter 2022.
Significant progress was made in the first half of 2023 to reduce our Merchandise Inventories and optimize our inventory positions for an improved athletic assortment of national named brands. Second quarter 2023 ending inventory was $23.8 million higher than the prior year, compared to first quarter 2023 when ending inventory was $44.5 million higher than the prior year and to fiscal 2022 year end when inventory was $105.2 million higher than the prior year end. We expect our Merchandise Inventories at the end of third quarter 2023 to be lower than the end of third quarter 2022 and to be approximately $40 million lower by year end 2023 compared to year end 2022.
Year end fiscal 2022 marked the 18th consecutive year we ended the year with no debt, and through second quarter 2023 we also funded our operations without debt. As of July 29, 2023, we had $46.8 million of Cash, Cash Equivalents and Marketable Securities and $99.3 million in borrowing capacity.
We ended second quarter 2023 with 399 total stores, 373 Shoe Carnival stores and 26 Shoe Station stores. In second quarter 2023, we opened one Shoe Carnival store and one Shoe Station store. No stores were partially offset by lower advertising expenseclosed in second quarter 2023. In August 2023, we opened another new store, achieving the 400 store level for the quarter.first time since 2018. Over 50% of Shoe Carnival stores have been modernized.
15
Pre-opening costs included in selling, generalResults of Operations for Second Quarter Ended July 29, 2023 Compared to Second Quarter Ended July 30, 2022
Net Sales
Net Sales were $294.6 million during second quarter 2023 and administrative expenses were $209,000 in the third quarter of fiscal 2017decreased 5.7% compared to $351,000 in the thirdsecond quarter last year. We opened seven new stores in the third quarter of fiscal 2017 compared to three new stores in the third quarter of fiscal 2016.2022. The decrease was due to a 6.5% comparable store sales decline resulting from an approximate 7% decrease in pre-opening costsphysical store traffic, which we believe was primarily due to persistent inflation and higher advertising expense incurredinterest rates impacting our lower income consumers and our urban markets, partially offset by a 5.4% increase in e-commerce Net Sales and Net Sales from new Shoe Station stores. E-commerce sales were favorably impacted by the February 2023 launch of shoestation.com and increased sales through shoecarnival.com. E-commerce sales were approximately 9% of merchandise sales in both second quarter 2023 and second quarter 2022. With an improved brand name assortment this year, sales of athletic merchandise in second quarter 2023 were flat compared to second quarter 2022 despite lower store traffic.
Gross Profit
Gross Profit was $105.5 million during second quarter 2023, a decrease of $7.7 million compared to second quarter 2022. Gross profit margin in second quarter 2023 was 35.8% compared to 36.2% in second quarter 2022. Merchandise margin decreased 20 basis points. Buying, distribution and occupancy (“BDO") costs were lower in the prior quarter relatedcompared to opening stores in larger markets. Pre-openingsecond quarter 2022; however, BDO costs such as advertising, payroll and supplies, incurred priordecreased gross profit margin by 20 basis points due to the openinglower Net Sales in second quarter 2023. The BDO costs were lower in second quarter 2023 as freight and distribution costs declined versus 2022 through active management, contract renegotiation and normalization, partially offset by our investments in store modernization and by rent associated with operating more stores.
Selling, General and Administrative Expenses (“SG&A”)
SG&A increased $6.5 million in second quarter 2023 to $80.8 million compared to $74.3 million in second quarter 2022. Approximately $6.2 million of athe increase was evenly split between (1) advertising and brand initiatives, supporting new store are charged togrowth and e-commerce growth and (2) sustaining our in-store experience, which included higher payroll expense in the period in which they are incurred. The total amountand depreciation 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 $519,000, or 0.2% asnewly modernized stores. As a percentage of sales,Net Sales, SG&A were 27.4% in the thirdsecond quarter 2023, consistent with first quarter 2023 when SG&A was 27.6% of fiscal 2017. Store closing costs were $335,000 in the thirdNet Sales. In second quarter last year. One store2022, SG&A was closed in the third quarter23.8% of fiscal 2017 compared to one store closing in the third quarter of fiscal 2016. Store closing costs increased in the third quarter compared to the prior year third quarter primarily due to an increase in expected future store closings of underperforming stores.Net Sales.
Income Taxes
The effective income tax rate for the thirdsecond quarter of fiscal 20172023 was 40.0% as22.3% compared to 37.2%25.6% for the same time period in fiscal 2016.second quarter 2022. Our provision for income tax expensetaxes is based on the current estimate of our annual effective tax rate and is adjusted as necessary for quarterly events. The increase in thelower effective tax rate in second quarter 2023 compared to the prior year quarter was reflective of discrete adjustments recognized during the second quarter 2023. For the full 2023 fiscal year, we expect our tax rate to be between periods24% and 25% compared to the 25.2% effective tax rate recognized during the full 2022 fiscal year.
Results of Operations Year-to-Date Through July 29, 2023 Compared to Year-to-Date Through July 30, 2022
Net Sales
Net Sales were $575.8 million in year-to-date 2023 and decreased 8.6% compared to year-to-date 2022. The decrease was due to a 9.3% comparable store sales decline resulting from an approximate 8% decrease in traffic in our physical stores and lower Net Sales through our e-commerce sales channel. We believe the lower store traffic was primarily due to the accounting change adoptedpersistent inflation, higher interest rates and a reduction in the first quarter 2023 federal tax refunds compared to 2022 impacting our lower income consumers and our urban markets. The decrease was partially offset by Net Sales attributable to new stores, mostly new Shoe Station stores. E-commerce sales were approximately 8% of fiscal 2017, which requires usmerchandise sales in year-to-date 2023 compared to record the tax effects10% in year-to-date 2022.
Gross Profit
Gross Profit was $204.0 million during year-to-date 2023, a decrease of stock awards$22.0 million compared to the income statement when awards vest or are settled, andyear-to-date 2022. Gross profit margin in year-to-date 2023 was 35.4% compared to 35.9% in year-to-date 2022. Merchandise margin decreased 30 basis points, reflecting an increase in permanent items relatedpromotional intensity. BDO costs were lower year-to-date compared to year-to-date 2022; however, BDO decreased gross profit margin by 20 basis points due to the vesting of service-based restricted stock awards.
16
Results of Operations for Nine Month Period Ended October 28, 2017
lower Net Sales in year-to-date 2023. The BDO costs were lower in year-to-date 2023 as freight and distribution costs declined versus 2022 through active management, contract renegotiation and normalization, partially offset by our investments in store modernization and by rent associated with operating more stores.
16
Net salesSelling, General and Administrative Expenses
SG&A increased $9.0$6.6 million, or 4.3%, in year-to-date 2023 to $775.9$158.4 million for the nine-month period ended October 28, 2017, a 1.2% increase compared to net sales$151.8 million in year-to-date 2022. The increase was nearly evenly split between (1) brand initiatives, supporting new store growth and the launch of $766.9 million for the nine-month period ended October 29, 2016. Of this increase in net sales, $3.2 million was attributable to the 0.4% increase in comparable store salesshoestation.com and $18.3 million was attributable to sales generated by the 38 new stores opened since the beginning(2) sustaining our in-store experience, which included higher payroll expense and depreciation of fiscal 2016.newly modernized stores. These increases were partially offset by a loss in sales of $12.5 million from the 19 stores closed since the beginning of fiscal 2016.
Gross Profit
Gross profit increased $1.3 million to $226.1 million in the first nine months of fiscal 2017 primarily due to the increase in net sales. Our gross profit margin for the nine months of fiscal 2017 decreased to 29.1% compared to 29.3% in the first nine months of fiscal 2016. The merchandise margin decreased 0.2%, while buying, distribution and occupancy costs remained flat as a percentage of sales compared to the same period last year. Our merchandise margin decreased primarily due to an increase in expense related to our multi-channel sales initiatives.
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased $3.1 million in the first nine months of fiscal 2017 to $188.5 million compared to the same period last year.lower advertising expense. As a percentage of sales, these expensesNet Sales, SG&A were 27.5% in year-to-date 2023 compared to 24.1% in year-to-date 2022.
Interest Income and Interest Expense
Changes in our interest income and expense increased our income before taxes by $764,000 in year-to-date 2023 compared to 24.3% in the first nine months of fiscal 2017 from 24.2% in the first nine months of fiscal 2016. The overallyear-to-date 2022. This increase in selling, general and administrative expenses during the first nine months of fiscal 2017 was primarily due to increases in impairments of long-lived assets, employee health care, consultinghigher interest earned on invested cash balances and lower unused commitment fees relatedunder our current credit agreement as compared to our CRM initiative and incentive compensation. These increases were partially offset by decreases in stock-based compensation and advertising expense.prior credit agreement.
In the first nine months of fiscal 2017, pre-opening costs included in selling, general and administrative expenses were $726,000, or 0.1% as a percentage of sales, compared to $815,000, or 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 included in selling, general and administrative expenses were $3.2 million, or 0.4% as a percentage of sales, in the first nine months of fiscal 2017. Store closing costs were $631,000, or 0.1% as a percentage of sales, in the first nine months of last year. We closed ten stores in the first nine months of fiscal 2017 and five stores were closed in the first nine months of fiscal 2016. Included in the store closing costs in the first nine months of fiscal 2017 and fiscal 2016 were impairments of long-lived assets of $1.7 million and $193,000, respectively, as more stores were impaired in fiscal 2017 compared to fiscal 2016.
Income Taxes
The effective income tax rate for the first nine months of fiscal 2017year-to-date 2023 was 38.8%22.4% compared to 37.8%24.8% for the same period in fiscal 2016. Our provision for income tax expense is based on the current estimate of our annualyear-to-date 2022. The lower effective tax rate and is adjusted as necessary for quarterly events.in year-to-date 2023 compared to the prior year-to-date was reflective of discrete adjustments recognized during second quarter 2023.
Liquidity and Capital Resources
Our primary sources of liquidity are cash$46.8 million of Cash, Cash Equivalents and cash equivalentsMarketable Securities on hand at the end of the second quarter 2023, cash generated from operations and availability under our $100 million credit facility.agreement. We believe theseour resources will be sufficient to fund our cash needs, as they arise, for at least the next 12 months. Our primary uses of cash are normally for working capital, which are principally inventory purchases, storeinvestments in our stores, such as new stores, modernization/remodels and relocations, distribution center initiatives, lease payments associated with our real estate leases, potential dividend payments, potential share repurchases under our share repurchase program and the financing of capital projects, including investments in new systems, and varioussystems. As part of our growth strategy, we may also pursue strategic acquisitions of other commitments and obligations.
17
footwear retailers.
Cash Flow - Operating Activities
Our netNet cash provided bygenerated from operating activities was $9.0$22.4 million in the first nine months of fiscal 2017year-to-date 2023 compared to $21.5$8.9 million in the first nine months of fiscal 2016. These amounts reflect our income from operations adjusted for non-cash items and working capital changes.during year-to-date 2022. The year-over-year decreasechange in operating cash flow was primarily driven by the timing of payments for accounts payable and accrued liabilities.
Working capital decreased to $256.9 million at October 28, 2017 from $268.7 million at October 29, 2016, primarily due to decreases in cash and cash equivalents and merchandise inventory reductions, partially offset by decreased Net Sales in year-to-date 2023.
Working capital increased on a decrease in accounts payableyear-over-year basis and totaled $330.6 million at July 29, 2023 compared to the end of the third quarter of the prior year.$287.7 million at July 30, 2022. The increase was primarily attributable to lower Accounts Payable and higher Merchandise Inventories levels, partially offset by lower cash balances due to investment in Property and Equipment related to our store modernization program. Our current ratio was 4.23.1 as of October 28, 2017,July 29, 2023 compared to 4.0 at October 29, 2016.2.5 as of July 30, 2022.
Cash Flow -– Investing Activities
Our cash outflows for investing activities are primarilynormally for capital expenditures. During the first nine months of fiscal 2017,year-to-date 2023 and 2022, we expended $16.7$30.7 million and $50.2 million, respectively, for the purchase of propertyProperty and equipment,Equipment, primarily related to our store modernization program.
We invest in publicly traded mutual funds designed to mitigate income statement volatility associated with our nonqualified deferred compensation plan. The balance of whichthese Marketable Securities was $12.2 million at July 29, 2023, compared to $11.6 million at January 28, 2023 and $11.0 million was for new stores, remodeling and relocations. During the first nine monthsat July 30, 2022. Additional information can be found in Note 3 — “Fair Value Measurements” to our Notes to Condensed Consolidated Financial Statements contained in PART I, ITEM 1 of fiscal 2016, we expended $17.4 million for the purchase of property and equipment, of which $12.9 million was for new stores, remodeling and relocations. The remaining capital expenditures in both periods were for continued investments in technology and normal asset replacement activities.this Quarterly Report on Form 10-Q.
Cash Flow -– Financing Activities
CashOur cash outflows for financing activities have representedare typically for cash dividend payments, share repurchases andor payments on our credit facility.agreement. Shares of our common stock can be either acquired as part of a publicly announced share repurchase program or withheld by us in connection with employee payroll tax withholding upon the vesting of restricted stock awards.stock-based compensation awards that are settled in shares. Our cash inflows from financing activities have represented proceeds from the issuance of shares as a result ofgenerally reflect stock option exercises, purchasesissuances to employees under our Employee Stock Purchase Plan and borrowings under our credit facility.agreement.
17
During the first nine months of fiscal 2017,year-to-date 2023, net cash used in financing activities was $34.2$8.5 million compared to $27.6 million during year-to-date 2022. The decrease in net cash used in financing activities of $39.3 million in the first nine months of fiscal 2016. The decrease in cash used in financing activities between the two respective periods was primarily attributabledue to a decreasethe repurchase of $5.6$20.5 million of shares in common stock repurchasedyear-to-date 2022 under our Board of Directors’ authorized share repurchase program compared to the first nine months of fiscal 2016.program. No share repurchases were made in year-to-date 2023.
Capital Expenditures
Capital expenditures for fiscal 2017,2023, including actual expenditures during the first nine months,in year-to-date 2023, are expected to be between $20$55 million and $21$65 million, with approximately $13$45 million to $50 million to be used for new stores relocations and remodels. The remaining capital expenditures are expectedmodernization and approximately $10 million to be incurred$15 million for upgrades to our distribution center and e-commerce platform, various other store improvements, continued investments in technology and normal asset replacement activities. Lease incentivesThe resources allocated to be received from landlords during fiscal 2017, including actual amounts received duringprojects are subject to near-term changes depending on ongoing supply chain disruptions and potential inflationary and other macroeconomic impacts. Furthermore, the first nine months, are expected to be approximately $4 to $5 million. The actual amount of cash required for capital expenditures for store operations depends in part on the number of new stores opened, relocated, and relocated,remodeled, and the amount of lease incentives, if any, received from landlords and thelandlords. The number of stores remodeled.
Store Openings and Closings
We aim to realize positive long-term financial performance for our store portfolio. We utilize a formal review process in our evaluation of potential new store sitesopenings and relocations will be dependent upon, among other things, the availability of desirable locations, the negotiation of acceptable lease terms and general economic and business conditions affecting consumer spending.
Store Portfolio
We opened two Shoe Station branded stores, opened one Shoe Carnival branded store and closed one Shoe Carnival branded store in year-to-date 2023. Increasing market penetration by adding new stores is a key component of our growth strategy. We opened our 400th store in August 2023 and are targeting operating over 500 stores in 2028. This increased scale will be accomplished through a combination of both organic and acquired store growth. We believe our current store footprint provides for growth in new markets within the United States as well as for decisions surrounding leases onfill-in opportunities within existing store locations. Our approach is both qualitative and quantitative in nature. We look to continually enhance this process with tools such as real estate software used for portfolio analysis that aid in identifying viable locations for future expansion and identifying potential store closings and relocations.
We opened 19 stores inmarkets. In the first nine months of fiscal 2017 and do notnear term, we expect to open any stores in the fourth quarter of fiscal 2017. Pre-opening expenses, including rent, freight, advertising, salariespursue fill-in opportunities for store growth across large and supplies, are expected to total approximately $1.5 million for fiscal 2017, or an average of $79,000 per store. During fiscal 2016, we opened 19 new stores and expended $1.6 million on pre-opening expenses, or an average of $85,000 per store.
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We anticipate closing 26 stores in fiscal 2017. We closed ten stores during the first nine months of fiscal 2017. Five stores were closed during the first nine months of fiscal 2016. 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 long-lived assets to be disposed of at closing and the cost incurred in terminating the lease.
We believe that a continued, disciplined approach to new store openings is very importantmid-size markets as we continue to leverage customer data from our multi-channel strategy and pursue opportunities for brick-and-mortar stores across large, mid and smaller markets. Over the past several years, we have analyzed our entire portfolio of stores, with a concentration on underperforming stores, to meet our long-term goal of increasing shareholder value through increasing operating income. Our objective is to identify and address underperforming stores that produce low or negative contribution and either renegotiate lease terms, relocate or close the store. Based on this analysis, we have identified 30 to 35 stores that we plan to close in fiscal 2018 if we cannot improve the performance of those stores to meet our minimum contribution level. Even though this would reduce our overall net sales volume, we believe this strategy would realize long-term improvement in operating income and diluted earnings per share.CRM program. We expect new store openings for fiscal 2018 will be in the low single digit range. We remain committed to long-term strategic store growth; however, with the changing landscape in brick-and-mortar stores, we believe more attractive real estate opportunitiesoptions will becomebe available with the addition of the Shoe Station retail concept to our portfolio and aim to grow the Shoe Station banner to over 100 stores over the same time period. However, our future store growth may continue to be impacted by macroeconomic uncertainty and our ability to identify desirable locations and/or acquisition partners.
Credit Agreement
On March 23, 2022, we entered into a $100 million Amended and Restated Credit Agreement (the “Credit Agreement”), which replaced our prior credit agreement. The Credit Agreement is collateralized by our inventory, expires on March 23, 2027, and uses a Secured Overnight Financing Rate ("SOFR") as quoted by The Federal Reserve Bank of New York as the basis for financing charges. Material covenants associated with the Credit Agreement require that we maintain a minimum net worth of $250 million and a consolidated interest coverage ratio of not less than 3.0 to 1.0. We were in compliance with these covenants as of July 29, 2023.
The Credit Agreement contains certain restrictions. However, as long as our consolidated EBITDA is positive and there are either no or low borrowings outstanding, we expect these restrictions would have no impact on our ability to pay cash dividends, execute share repurchases or facilitate acquisitions from cash on hand. The Credit Agreement stipulates that cash dividends and share repurchases of $15 million or less per fiscal year can be made without restriction as long as there is no default or event of default before and immediately after such distributions. We are also permitted to make acquisitions and pay cash dividends or repurchase shares in excess of $15 million in a fiscal year provided that (a) no default or event of default exists before and immediately after the transaction and (b) on a proforma basis, the ratio of (i) the sum of (A) our consolidated funded indebtedness plus (B) three times our consolidated rental expense to (ii) the sum of (A) our consolidated EBITDA plus (B) our consolidated rental expense is less than 3.5 to 1.0. Among other restrictions, the Credit Agreement also limits our ability to incur additional secured or unsecured debt to $20 million.
The Credit Agreement bears interest, at our option, at (1) the agent bank’s base rate plus 0.0% to 1.0% or (2) Adjusted Term SOFR plus 0.9% to 1.9%, depending on our achievement of certain performance criteria. A commitment fee is charged at 0.2% to 0.3% per annum, depending on our achievement of certain performance criteria, on the unused portion of the lenders’ commitment. During year-to-date 2023, we did not borrow or repay funds under the Credit Agreement. Letters of credit outstanding were $700,000 at July 29, 2023 and our borrowing capacity was $99.3 million.
The terms “net worth”, “consolidated interest coverage ratio”, “consolidated funded indebtedness”, “consolidated rental expense”, “consolidated EBITDA”, “base rate” and “Adjusted Term SOFR” are defined in the marketplace if we remain diligent in our approach.Credit Agreement.
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Dividends
Dividends
On September 7, 2017, ourJune 20, 2023, the Board of Directors approved the payment of our thirda second quarter 2023 cash dividend to our shareholders. The quarterly cash dividend of $0.075$0.10 per share was paid on October 16, 2017,July 19, 2023 to shareholders of record as of the close of business on October 2, 2017.July 5, 2023. In second quarter 2022, the dividend paid was $0.09 per share. During year-to-date 2023 and 2022, we returned $5.7 million and $5.1 million, respectively, to our shareholders through our quarterly 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 (described below) permitsDirectors, subject to restrictions as outlined above in the payment“Credit Agreement” discussion. See Note 9 — “Debt” to our Notes to Consolidated Financial Statements contained in PART II, ITEM 8 of cash dividends as long as no default or event of default exists underour Annual Report on Form 10-K for the credit agreement both immediately before and immediately after giving effect to the cash dividends, and the aggregate amount of cash dividendsfiscal year ended January 28, 2023 for a fiscal year do not exceed $10.0 million.
Credit Facility
On March 27, 2017, we entered into a second amendmentfurther discussion of our current unsecured credit agreement (as amended, the “Credit Agreement”) to extend the expiration date by five years to March 27, 2022, and to renegotiate certain terms and conditions. The Credit Agreement continues 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, which amount may be increased from time to time by up to an additional $50.0 million, without the consent of any lender, if certain conditions are met. The Credit Agreement contains covenants which stipulate: (1) Total Shareholders’ Equity (as defined in the Credit Agreement) will not fall below $250.0 million at the end of each fiscal quarter; (2) the ratio of funded debt plus three times rent to EBITDA (as defined in the Credit Agreement) plus rent will not exceed 2.5 to 1.0; (3) the aggregate amount of cash dividends for a fiscal year will not exceed $10.0 million; and (4) distributions in the form of redemptions of our common stock may be made solely with cash on hand so long as before and immediately after such distributions there are no revolving loans outstanding under the Credit Agreement. We were in compliance with these covenants as of October 28, 2017. Should a default condition be reported, the lenders may preclude additional borrowings and call all loans and accrued interest at their discretion. 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 greater of (a) the Federal Funds rate plus 0.50% or (b) the interest rate announced from time to time by the agent bank as its “prime rate” or (2) LIBOR plus 1.25% to 2.50%, depending on our achievement of certain performance criteria. A commitment fee is charged at 0.20% to 0.35% per annum, depending on our achievement of certain performance criteria, on the unused portion of the bank group’s commitment. As of October 28, 2017, there were no borrowings outstanding under the credit facility and letters of credit outstanding were $1.2 million. As of October 28, 2017, $48.8 million was available to us for additional borrowings under the credit facility.
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Share Repurchase Program
On December 6, 2016,14, 2022, our Board of Directors authorized a new share repurchase program for up to $50$50.0 million of our outstanding common stock, effective January 1, 2017.2023 (the “2023 Share Repurchase Program”). The purchases may be made in the open market or through privately negotiated transactions from time-to-time through December 31, 2017,2023 and in accordance with applicable laws, rules and regulations. On January 27, 2017, we entered into a stock repurchase plan for the purpose of repurchasing shares of our common stock in accordance with guidelines specified under Rule 10b5-1 of the Securities Exchange Act of 1934, as amended (the “Rule 10b5-1 Plan”). The Rule 10b5-1 Plan was established pursuant to, and as part of, our share repurchase program and permitted shares to be repurchased in accordance with pre-determined criteria when repurchases would otherwise be prohibited, such as during self-imposed blackout periods, or under insider trading laws. The Rule 10b5-1 Plan was to expire on May 26, 2017, but we terminated the plan on May 17, 2017, to ensure we remained in compliance with the covenant in our Credit Agreement regarding redemptions of our common stock described above. Under the terms of our Credit Agreement, we are not permitted to repurchase any shares of our common stock while there are outstanding borrowings under the Credit Agreement. Our share repurchase program2023 Share Repurchase 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 programrepurchases 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.and economic factors and are subject to restrictions as outlined above in the “Credit Agreement” discussion. See Note 9 — “Debt” to our Notes to Consolidated Financial Statements contained in PART II, ITEM 8 of our Annual Report on Form 10-K for the fiscal year ended January 28, 2023 for a further discussion of the Credit Agreement.
No share repurchases have been made to date in fiscal 2023. During the third quarter of fiscal 2017,year-to-date 2022, we repurchased 24,000682,886 shares of common stock at a total cost of $455,000 under the new share repurchase program. As of October 28, 2017, approximately 1.5 million shares at an aggregate cost of $37.0 million had been repurchased under the new share repurchase program. The amount that remained available under the share repurchase program at October 28, 2017, was $13.0$20.5 million.
Seasonality
Seasonality and Quarterly Results
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 and closing underperforming stores. Non-capital expenditures, such as advertising and payroll, incurred prior to the opening of a new store are charged to expense as incurred. The timing and actual amount of expense recorded in closing an individual 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 cost incurred in terminating the lease. 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 or incur store closing costs related to the closure of underperforming stores.
We have three distinct peak selling periods: Easter, back-to-school and Christmas. Our operating results depend significantly upon the sales generated during these periods. To prepare for our peak shopping seasons, we must order and keep in stock significantly more merchandise than we would carry during other partsperiods of the year. Any unanticipated decrease in demand for our products or a supply chain disruption that reduces inventory availability during these peak shopping seasons could require us to sell excess inventory at a substantial markdown, which could reduce our net salesNet Sales and gross marginsGross Profit and negatively affect our profitability. Our operating results depend significantly upon the sales generated during these periods.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to market risk in that the interest payable under our credit facilitythe Credit Agreement 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. A 1% change in the weighted average interest rate charged under the
credit facility would have resulted in interest expense fluctuating by approximately $3,000 for the thirdWe had no borrowings outstanding during second quarter of fiscal 2017.2023.
ITEM 4. CONTROLS AND PROCEDURES
Our Chief Executive Officer and Chief Financial Officer have concluded, based on their evaluation as of October 28, 2017,July 29, 2023, that our disclosure controls and procedures are effective to ensure that information required to be disclosed by us in the reports filed or submitted by us under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and include controls and procedures designed to ensure that information required to be disclosed by us in such reports is accumulated and communicated to our management, including the Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
There hashave been no significant changechanges in our internal control over financial reporting that occurred during the quarter ended October 28, 2017July 29, 2023 that hashave materially affected, or isare reasonably likely to materially affect, our internal control over financial reporting.
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SHOE CARNIVAL, INC.19
PART II - OTHER INFORMATION
ITEM 1A.RISK FACTORS
You should carefully consider the risks and uncertainties we describe both in this Quarterly Report on Form 10-Q and in the “Risk Factors” section of our Annual Report on Form 10-K for the fiscal year ended January 28, 2017 before deciding to invest in, or retain, shares of our common stock. If any of these risks or uncertainties actually occur, we may not be able to conduct our business as currently planned and our financial condition, results of operations or cash flows could be materially and adversely affected. There have been no material changes to the risk factors set forth in our Annual Report on Form 10-K for the fiscal year ended January 28, 2017.2023.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Issuer Purchases of Equity Securities
Period |
| Total Number |
|
| Average |
|
| Total Number |
|
| Approximate |
| ||||
April 30, 2023 to May 27, 2023 |
|
| 0 |
|
| $ | 0.00 |
|
|
| 0 |
|
| $ | 50,000,000 |
|
May 28, 2023 to July 1, 2023 |
|
| 0 |
|
| $ | 0.00 |
|
|
| 0 |
|
| $ | 50,000,000 |
|
July 2, 2023 to July 29, 2023 |
|
| 0 |
|
| $ | 0.00 |
|
|
| 0 |
|
| $ | 50,000,000 |
|
|
| 0 |
|
|
|
|
|
| 0 |
|
|
|
|
ITEM 5. OTHER INFORMATION
During second quarter 2023, no members of our Board of Directors or officers (as defined in Rule 16a-1(f) of the Exchange Act) adopted, amended or terminated any contract, instruction or written plan for the purchase or sale of our securities intended to satisfy the affirmative defense conditions of Rule 10b5-1(c) of the Exchange Act or any non-Rule 10b5-1 trading arrangement, as defined in the SEC’s rules.
Period | Total Number of Shares Purchased(1) | Average Price Paid per Share | Total Number Of Shares Purchased as Part of Publicly Announced Programs(2) | Approximate Dollar Value of Shares that May Yet Be Purchased Under Programs(2) | ||||||||||||
July 30, 2017 to August 26, 2017 | 0 | $ | 0.00 | 0 | $ | 13,491,000 | ||||||||||
August 27, 2017 to September 30, 2017 | 24,402 | $ | 18.99 | 23,979 | $ | 13,037,000 | ||||||||||
October 1, 2017 to October 28, 2017 | 29,619 | $ | 21.97 | 0 | $ | 13,037,000 | ||||||||||
54,021 | 23,979 |
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ITEM 6.EXHIBITS
EXHIBIT INDEX
|
|
|
| Incorporated by Reference To | ||||||
Exhibit No. | Description |
| Form |
| Exhibit |
| Filing Date |
| Filed Herewith | |
3-A | Amended and Restated Articles of Incorporation of Registrant |
| 8-K |
| 3-A |
| 06/27/2022 |
| ||
3-B |
| 8-K |
| 3.B |
| 03/17/2023 |
| |||
10.1 |
| Shoe Carnival, Inc. Amended and Restated 2017 Equity Incentive Plan |
| 8-K |
| 10.1 |
| 06/22/2023 |
|
|
10.2 |
|
|
|
|
|
|
|
| X | |
10.3 |
|
|
|
|
|
|
|
| X | |
31.1 |
|
|
|
| X | |||||
31.2 |
|
|
|
| X | |||||
32.1 |
|
|
|
| X | |||||
32.2 |
|
|
|
| X | |||||
101 | The following materials from Shoe Carnival, Inc.’s Quarterly Report on Form 10-Q for the quarter ended July 29, 2023, formatted in Inline XBRL (Inline Extensible Business Reporting Language): (1) Condensed Consolidated Balance Sheets, (2) Condensed Consolidated Statements of Income, (3) Condensed Consolidated Statements of Shareholders’ Equity, (4) Condensed Consolidated Statements of Cash Flows, and (5) Notes to Condensed Consolidated Financial Statements. |
|
|
|
| X | ||||
104 | Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101) |
|
|
|
| X |
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SHOE CARNIVAL, INC.
SIGNATURE
Pursuant to the requirements 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.
Date: | SHOE CARNIVAL, INC. |
(Registrant) |
By: /s/ (Duly Authorized Officer and Principal Financial Officer) |
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