The following table sets forth our results of operations expressed as a percentage of net sales for the periods indicated:
Net sales increased $15.2 million to $160.7 million in the first quarter of 2005, a 10.5% increase over net sales of $145.5 million in the first quarter of 2004. The increase was attributable to the sales generated by the 27 new stores opened in 2004 and 2005 (net of four stores closed in fiscal 2004) in addition to a comparable store sales increase of 5.5%. We believe that the first quarter comparable store sales increase is most directly attributable to our continued focus on improving the fashion of our product offering. We are pleased with the introduction of our new “Red Nose” advertising campaign during the first quarter. This campaign playfully captures the vibrant and fun atmosphere of our stores, while also depicting the current fashion and styles a customer can expect from shopping with us. We believe this type of image campaign will yield the long-term benefits we desire.
Gross profit increased $5.2 million to $47.6 million in the first quarter of 2005, a 12.5% increase over gross profit of $42.4 million in the comparable prior year period. Our gross profit margin for the first quarter of 2005 increased to 29.6% from 29.1% in the prior year. This increase in profit margin resulted from a 0.2% increase in the merchandise gross profit margin coupled with a 0.3% reduction in buying, distribution and occupancy costs. The reduction in buying, distribution and occupancy costs was primarily a result of leveraging occupancy costs against a higher sales base.
Selling, general and administrative expenses increased $3.1 million to $37.9 million in the first quarter of 2005 from $34.8 million in the comparable prior year period. As a percentage of sales, these expenses decreased to 23.6% from 23.9% in the prior year primarily driven by the decrease in pre-opening costs and partially offset by higher health care costs. Total pre-opening costs in the first quarter of 2005 were $193,000 or 0.1% of sales, as compared to $729,000 or 0.5% of sales in the first quarter of 2004. We opened five new stores in the first quarter of 2005 versus opening 11 new stores in the first quarter of 2004.
Interest Expense
The decrease in net interest expense to $133,000 in the first quarter of 2005 from $194,000 in the first quarter of 2004 resulted primarily from lower average borrowings.
Income Taxes
The effective income tax rate for the first quarter of 2005 decreased to 38.6% from 39.0% in the first quarter of 2004 due to lower state income taxes. We expect our income tax rate for the fiscal year to be in the range of 38.5% to 39.0%.
Liquidity and Capital Resources
Our primary sources of funds are cash flows from operations and borrowings under our revolving credit facility. Net cash used in operating activities was $5.2 million for the first quarter of 2005 as compared with net cash provided by operating activities of $1.0 million for the first quarter of 2004. The change was primarily due to the timing related to the payment of accounts payable partially offset by the reduction in inventory levels during the first quarter of 2005.
Working capital increased to $129.4 million at April 30, 2005 from $124.2 million at May 1, 2004. The current ratio at April 30, 2005 was 3.4 as compared to 3.3 at May 1, 2004. Long-term debt as a percentage of total capital (long-term debt plus shareholders’ equity) at April 30, 2005 was 7.6% as compared to 14.9% at May 1, 2004.
Currently, we expect to open between 12 and 14 stores during fiscal 2005 and close six. During the first quarter, five stores were opened versus 11 during the first quarter of the prior year. No stores were closed during the first quarter in either the current or prior year. We expect to open five or six stores and close one store in the second quarter.
Our current store prototype uses between 8,000 and 12,000 square feet depending upon, among other factors, the location of the store and the population base the store is expected to service. Capital expenditures for a new store in 2005 are expected to average approximately $350,000 and lease incentives received from landlords are expected to average $22,000. The average inventory investment in a new store is expected to range from $450,000 to $750,000 depending on the size and sales expectation of the store and the timing of the new store opening. Pre-opening expenses, such as advertising, salaries and supplies, are expected to average approximately $47,000 per store in 2005 with individual stores experiencing variances in expenditure levels based on the specific market.
Our unsecured credit facility provides for up to $70 million in cash advances on a revolving basis and commercial letters of credit. Borrowings under the revolving credit line are based on eligible inventory. Borrowings and letters of credit outstanding under the credit facility at April 30, 2005 were $13.5 million and $5.8 million, respectively. As of April 30, 2005, $50.7 million was available to us for additional borrowings under the credit facility.
We anticipate that our existing cash and cash flow from operations, supplemented by borrowings under the credit facility, will be sufficient to fund planned store expansion and other operating cash requirements for at least the next 12 months.
Seasonality
Our quarterly results of operations have fluctuated and are expected to continue to fluctuate in the future primarily as a result of seasonal variances and the timing of sales and costs associated with opening new stores. Non-capital expenditures, such as advertising and payroll, incurred prior to opening a new store are charged to expense as incurred. Therefore, our results of operations may be adversely affected in any quarter in which we incur pre-opening expenses related to the opening of new stores.
We have three distinct peak selling periods: Easter, back-to-school and Christmas.
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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 facility is based on variable interest rates and therefore is affected by changes in market rates. We do not use interest rate derivative instruments to manage exposure to changes in market interest rates. A 1% change in the weighted average interest rate charged under the credit facility would have resulted in interest expense fluctuating by approximately $21,000 for the first three months of 2005 and $66,000 for the first three months of 2004.
ITEM 4. | CONTROLS AND PROCEDURES |
Our Chief Executive Officer and Chief Financial Officer have concluded, based on their evaluation as of April 30, 2005, 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, is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’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 have been no changes in our internal control over financial reporting that occurred during the quarter ended April 30, 2005 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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SHOE CARNIVAL, INC.
PART II - OTHER INFORMATION
| (a) | | Exhibits |
| | | |
| | 3-A | Restated Articles of Incorporation of Registrant (incorporated herein by reference from the same exhibit number to the Registrant’s Annual Report on Form 10-K for the year ended February 2, 2002) |
| | | |
| | 3-B | By-laws of Registrant, as amended to date (incorporated herein by reference from the same exhibit number to the Registrant’s Annual Report on Form 10-K for the year ended February 2, 2002) |
| | | |
| | 4 | (i) Amended and Restated Credit Agreement and Promissory Notes dated April 16, 1999, between Registrant and Mercantile Bank National Association, First Union National Bank and Old National Bank (incorporated herein by reference from exhibit 4(I) to the Registrant’s Annual Report on Form 10-K for the year ended January 30, 1999) |
| | | |
| | | (ii) Amendment to Amended and Restated Credit Agreement and Promissory Notes dated March 24, 2000, between Registrant and Mercantile Bank National Association, First Union National Bank and Old National Bank (incorporated herein by reference from the same exhibit number to the Registrant’s Annual Report on Form 10-K for the year ended January 29, 2000) |
| | | |
| | | (iii) Second Amendment to Amended and Restated Credit Agreement and Promissory Notes dated November 8, 2000, between Registrant and Firstar Bank N.A., First Union National Bank, Old National Bank and LaSalle Bank National Association (incorporated herein by reference from the same exhibit number to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended October 28, 2000) |
| | | |
| | | (iv) Third Amendment to Amended and Restated Credit Agreement and Promissory Notes dated March 18, 2002, between Registrant and U.S. Bank National Association, First Union National Bank, Old National Bank and LaSalle Bank National Association (incorporated herein by reference from the same exhibit number to the Registrant’s Annual Report on Form 10-K for the year ended February 2, 2002) |
| | | |
| | | (v) Fourth Amendment to Amended and Restated Credit Agreement and Promissory Notes dated March 12, 2003, between Registrant and U.S. Bank National Association, Wachovia Bank National Association, Old National Bank and LaSalle Bank National Association (incorporated herein by reference from the same exhibit number to the Registrant’s Annual Report on Form 10-K for the year ended February 1, 2003) |
| | | |
| | | (vi) Fifth Amendment to Amended and Restated Credit Agreement and Promissory Notes dated April 5, 2004, between Registrant and U.S. Bank National Association, Wachovia Bank National Association, Old National Bank and LaSalle Bank National Association (incorporated herein by reference from the same exhibit number to the Registrant’s Annual Report on Form 10-K for the year ended January 31, 2004) |
| | | |
| | | (vii) Assignment Agreement dated June 1, 2004 among LaSalle Bank National Association as Assignor, Fifth Third Bank (Southern Indiana) as Assignee, Registrant as Borrower and U.S. Bank National Association as Agent relating to the Amended and Restated Credit Agreement as further amended (incorporated herein by reference from the same exhibit number to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended May 1, 2004) |
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| (a) | | Exhibits |
| | | |
| | | (viii) Sixth Amendment to Amended and Restated Credit Agreement and Notes dated April 5, 2005, between Registrant and U.S. Bank National Association, Wachovia Bank National Association, Fifth Third Bank (Southern Indiana) and Old National Bank (incorporated herein by reference from the same exhibit number to the Registrant’s Current Report on Form 8-K filed on April 11, 2005) |
| | | |
| | 31.1 | Certification of Chief Executive Officer Pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
| | | |
| | 31.2 | Certification of Chief Financial Officer Pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
| | | |
| | 32.1 | Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
| | | |
| | 32.2 | Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
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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: June 9, 2005 | SHOE CARNIVAL, INC. |
| (Registrant) |
| |
| By: | /s/ W. KERRY JACKSON |
| |
|
| | W. Kerry Jackson |
| | Executive Vice President and |
| | Chief Financial Officer |
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