UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended October 28, 2000
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number: 0-21360
Shoe Carnival, Inc.
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(Exact name of registrant as specified in its charter)
Indiana 35-1736614
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(State or other jurisdiction of (IRS Employer Identification Number)
incorporation or organization)
8233 Baumgart Road, Evansville, Indiana 47725
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(Address of principal executive offices) (Zip Code)
(812) 867-6471
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(Registrant's telephone number, including area code)
NOT APPLICABLE
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(Former name, former address and former fiscal year, if changed since last
report)
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 [X] 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.
Common Stock, $.01 par value, 11,950,184 shares outstanding as of December 1,
2000.
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1
SHOE CARNIVAL, INC.
INDEX TO FINANCIAL STATEMENTS
Page
Part I Financial Information
Item 1 - Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets ........................ 3
Condensed Consolidated Statements of Income................... 4
Condensed Consolidated Statement of Shareholders' Equity...... 5
Condensed Consolidated Statements of Cash Flows............... 6
Notes to Condensed Consolidated Financial Statements.......... 7
Item 2 - Management's Discussion and Analysis................... 8-11
Part II Other Information
Item 6. Exhibits and Reports on Form 8-K....................... 12
Signature....................................................... 13
2
SHOE CARNIVAL, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
Unaudited
October 28, January 29, October 30,
2000 2000 1999
---------- ---------- ----------
(In thousands)
ASSETS
--------
Current Assets:
Cash and cash equivalents......... $ 3,071 $ 1,675 $ 2,582
Accounts receivable............... 1,006 694 1,159
Merchandise inventories........... 128,770 104,730 101,983
Deferred income tax benefit....... 613 876 546
Other............................. 1,788 1,168 1,287
---------- ---------- ----------
Total Current Assets................. 135,248 109,143 107,557
Property and equipment-net........... 58,458 53,710 52,628
---------- ---------- ----------
Total Assets......................... $ 193,706 $ 162,853 $ 160,185
========== ========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
--------------------------------------
Current Liabilities:
Accounts payable.................. $ 34,949 $ 33,817 $ 31,121
Accrued and other liabilities..... 10,083 6,266 7,650
Current portion of long-term debt. 813 714 715
---------- ---------- ----------
Total Current Liabilities............ 45,845 40,797 39,486
Long-term debt....................... 45,142 22,338 20,003
Deferred lease incentives............ 3,243 3,077 3,148
Deferred income taxes................ 3,946 3,296 2,245
---------- ---------- ----------
Total Liabilities.................... 98,176 69,508 64,882
---------- ---------- ----------
Shareholders' Equity:
Common stock, $.01 par value, 50,000
shares authorized, 13,363, 13,345,
13,338 shares issued and outstanding
at October 28, 2000, January 29,
2000 and October 30, 1999...... 134 133 133
Additional paid-in capital........ 64,285 63,683 63,637
Retained earnings................. 40,935 31,953 31,533
Treasury stock, at cost, 1,413 and 292
shares at October 28, 2000 and
January 29, 2000............... (9,824) (2,424) 0
---------- ---------- ----------
Total Shareholders' Equity........... 95,530 93,345 95,303
---------- ---------- ----------
Total Liabilities and Shareholders'
Equity............................ $ 193,706 $ 162,853 $ 160,185
========== ========== ==========
See Notes to Condensed Consolidated Financial Statements
3
SHOE CARNIVAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
Unaudited
Thirteen Thirteen Thirty-nine Thirty-nine
Weeks Ended Weeks Ended Weeks Ended Weeks Ended
October 28, October 30, October 28, October 30,
2000 1999 2000 1999
----------- ----------- ----------- -----------
(In thousands, except per share data)
Net sales.................... $ 114,710 $ 94,223 $ 305,726 $ 255,540
Cost of sales (including
buying, distribution and
occupancy costs).......... 80,781 64,768 216,213 176,133
---------- ---------- ---------- ----------
Gross profit................. 33,929 29,455 89,513 79,407
Selling, general and
administrative expenses... 26,858 22,164 72,537 59,596
---------- ---------- ---------- ----------
Operating income............. 7,071 7,291 16,976 19,811
Interest expense, net........ 782 237 2,130 577
---------- ---------- ---------- ----------
Income before income taxes... 6,289 7,054 14,846 19,234
Income taxes................. 2,484 2,821 5,864 7,693
---------- ---------- ---------- ----------
Net income................... $ 3,805 $ 4,233 $ 8,982 $ 11,541
========== ========== ========== ==========
Net income per share:
Basic.................... $ .32 $ .32 $ .72 $ .87
========== ========== ========== ==========
Diluted.................. $ .32 $ .31 $ .71 $ .85
========== ========== ========== ==========
Average shares outstanding:
Basic.................... 11,977 13,333 12,498 13,277
========== ========== ========== ==========
Diluted.................. 11,989 13,564 12,598 13,619
========== ========== ========== ==========
See Notes to Condensed Consolidated Financial Statements
4
SHOE CARNIVAL, INC.
CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
Unaudited
Common Stock Additional
---------------------- Paid-In Retained Treasury
Issued Treasury Amount Capital Earnings Stock Total
------ -------- ------ --------- -------- -------- --------
(In thousands)
Balance at
January 29, 2000 13,345 (292) $ 133 $ 63,683 $ 31,953 $ (2,424) $ 93,345
Exercise of
stock options... 18 14 1 602 76 679
Employee stock
purchase
plan purchases.. 18 100 100
Common stock
repurchased..... (1,153) (7,576) (7,576)
Net income ....... 8,982 8,982
------ ------ ------ -------- -------- ------- --------
Balance at
October 28, 2000 13,363 (1,413) $ 134 $ 64,285 $ 40,935 $ (9,824) $ 95,530
====== ====== ====== ======== ======== ======== ========
See Notes to Condensed Consolidated Financial Statements
5
SHOE CARNIVAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Unaudited
Thirty-nine Thirty-nine
Weeks Ended Weeks Ended
October 28, October 30,
2000 1999
----------- -----------
(In thousands)
Cash flows from operating activities:
Net income.................................. $ 8,982 $ 11,541
Adjustments to reconcile net income to net
cash used in operating activities:
Depreciation and amortization............. 7,612 6,083
Loss on retirement of assets.............. 146 6
Deferred income taxes..................... 912 410
Other ................................... (264) (259)
Changes in operating assets and liabilities:
Merchandise inventories................. (24,040) (26,594)
Accounts receivable..................... (312) (593)
Accounts payable and accrued liabilities 4,919 7,316
Other................................... (620) (64)
----------- -----------
Net cash used in operating activities.......... (2,665) (2,154)
----------- -----------
Cash flows from investing activities:
Purchases of property and equipment......... (12,006) (17,068)
Lease incentives............................ 456 983
Other....................................... 2 0
----------- -----------
Net cash used in investing activities.......... (11,548) (16,085)
----------- -----------
Cash flows from financing activities:
Borrowings under line of credit............. 293,725 120,175
Payments on line of credit.................. (270,725) (101,675)
Payments on capital lease obligations....... (594) (717)
Proceeds from issuance of stock............. 779 1,094
Purchase of treasury stock.................. (7,576) 0
----------- -----------
Net cash provided by financing activities...... 15,609 18,877
----------- -----------
Net increase in cash and cash equivalents...... 1,396 638
Cash and cash equivalents at beginning of period 1,675 1,944
----------- -----------
Cash and cash equivalents at end of period..... $ 3,071 $ 2,582
=========== ===========
Supplemental disclosures of cash flow information:
Cash paid during period for interest........ $ 2,013 $ 537
Cash paid during period for income taxes.... $ 2,915 $ 6,203
Supplemental disclosure of noncash investing
activities:
Capital lease obligations incurred.......... $ 497 $ 791
See Notes to Condensed Consolidated Financial Statements
6
SHOE CARNIVAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Unaudited
Note 1 - Basis of Presentation
In the opinion of management, the accompanying unaudited condensed financial
statements contain all adjustments necessary to present fairly the financial
position of the Company and the results of its operations and its cash flows for
the periods presented. Certain information and disclosures normally included in
notes to financial statements have been condensed or omitted according to the
rules and regulations of the Securities and Exchange Commission, although the
Company believes 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.
It is suggested that these financial statements be read in conjunction with the
financial statements and financial notes thereto included in the Company's 1999
Annual Report.
Note 2 - Derivative Instruments and Hedging Activities
In June 1998, the Financial Accounting Standards Board (FASB) issued SFAS
No. 133, "Accounting for Derivative Instruments and Hedging Activities". SFAS
No. 133 reguires that derivative instruments be recognized as assets or
liabilities in the statement of financial position. In June 2000, the FASB
issued SFAS No. 138, which amends and clarifies certain provisions of SFAS
No. 133. The Company will adopt SFAS No. 133 and the corresponding amendments
under SFAS No. 138 for the quarter ended May 5, 2001. SFAS No. 133, as
amended by SFAS No. 138, is not expected to have a material impact on the
Company's consolidated results of operations, financial position or cash flows.
Note 3 - Long-Term Debt
At the beginning of 2000, the Company had an unsecured $45 million credit
agreement (the "Credit Agreement") with a bank group. On March 24, 2000, the
Credit Agreement was amended to increase the total credit facility to $55
million and to extend the maturity date to March 31, 2002. On November 8, 2000,
the Credit Agreement was further amended increasing the total credit facility to
$70 million and extending the maturity date to March 31, 2003. Borrowings are
based on eligible inventory and bear interest, at the Company's option, at the
agent bank's prime rate minus 0.5% or the applicable London Inter-Bank Offered
Rate (LIBOR) plus from 0.75% to 1.5%, depending on the Company's achievement of
certain performance criteria. A commitment fee is charged, at the Company's
option, at 0.3% per annum on the unused portion of the bank group's commitment
or 0.15% per annum of the total commitment. The Credit Agreement contains
various restrictive and financial covenants, including the maintenance of
specific financial ratios and a limitation on the payment of dividends.
7
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
Number of Stores Store Square Footage Comparable
------------------------------ -------------------- Store
Beginning End of Net End Sales
Quarter Ended Of Period Opened Closed Period Change of Period Increase
- ------------- --------- ------ ------ ------ -------- --------- --------
April 29, 2000 138 6 0 144 78,000 1,668,000 1.4%
July 29, 2000 144 10 0 154 120,000 1,788,000 (2.1%)
October 28, 2000 154 9 1 162 85,000 1,873,000 4.9%
Year-to-date 138 25 1 162 283,000 1,873,000 1.4%
May 1, 1999 111 3 0 114 40,000 1,314,000 3.4%
July 31, 1999 114 12 0 126 142,000 1,456,000 0.6%
October 30, 1999 126 10 0 136 108,000 1,564,000 2.0%
Year-to-date 111 25 0 136 290,000 1,564,000 2.1%
The following table sets forth the Company's results of operations expressed as
a percentage of net sales for the periods indicated:
Thirteen Thirteen Thirty-nine Thirty-nine
Weeks Ended Weeks Ended Weeks Ended Weeks Ended
October 28, October 30, October 28, October 30,
2000 1999 2000 1999
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Net sales.................... 100.0% 100.0% 100.0% 100.0%
Cost of sales (including
buying, distribution and
occupancy costs) 70.4 68.7 70.7 68.9
----------- ----------- ----------- -----------
Gross profit................. 29.6 31.3 29.3 31.1
Selling, general and
administrative expenses... 23.4 23.5 23.7 23.3
----------- ----------- ----------- -----------
Operating income............. 6.2 7.8 5.6 7.8
Interest expense............. .7 .3 .8 .3
----------- ----------- ----------- -----------
Income before income taxes... 5.5 7.5 4.8 7.5
Income taxes................. 2.2 3.0 1.9 3.0
----------- ----------- ----------- -----------
Net income................... 3.3% 4.5% 2.9% 4.5%
=========== =========== =========== ===========
Net Sales
Net sales increased $20.5 million to $114.7 million in the third quarter of
2000, a 21.7% increase over net sales of $94.2 million in the comparable prior
year period. The increase was attributable to a 4.9% comparable store sales
increase and the sales generated by the 43 new stores opened since June, 1999,
partially offset by the reduction in sales for the one store closed in 1999 and,
to a lessor extent, a store that closed in September 2000. The increase in
comparable store sales resulted primarily from higher athletic shoe sales.
8
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
Net sales increased $50.2 million to $305.7 million in the first nine months of
2000, a 19.6% increase over net sales of $255.5 million in the comparable prior
year period. The increase was attributable to a 1.4% comparable store sales
increase and the sales generated by the 53 new stores opened in 1999 and 2000,
partially offset by the reduction in sales for two closed stores.
Gross Profit
Gross profit increased $4.5 million to $33.9 million in the third quarter of
2000, a 15.2% increase over gross profit of $29.5 million in the comparable
prior year period. The Company's gross profit margin decreased to 29.6% from
31.3%. As a percentage of sales, the merchandise gross profit margin decreased
1.8% and buying, distribution and occupancy costs decreased 0.1%. A promotional
retail environment combined with the clearance of spring and summer product
depressed the gross margins for the quarter. The reduction in buying,
distribution and occupancy costs as a percentage of sales was due to the
leveraging of distribution costs over a larger sales base.
Gross profit increased $10.1 million to $89.5 million in the first nine months
of 2000, a 12.7% increase over gross profit of $79.4 million in the comparable
prior year period. The Company's gross profit decreased to 29.3% from 31.1% last
year. As a percentage of sales, the merchandise gross profit margin decreased
1.4% and buying, distribution and occupancy costs increased 0.4%.
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased $4.7 million to $26.9
million in the third quarter of 2000 from $22.2 million in the comparable prior
year period. As a percentage of sales, these expenses decreased 0.1% primarily
due to the leveraging of the expenses against a higher sales base. Total
pre-opening costs in the third quarter of 2000 were $666,000, or 0.6% of sales,
as compared to $777,000, or 0.8% of sales, for the third quarter of 1999.
Pre-opening expenses incurred were primarily for the stores opened during the
quarter. Nine stores were opened in the third quarter of 2000 and ten stores
were opened in the third quarter of 1999.
Selling, general and administrative expenses increased $12.9 million to $72.5
million in the first nine months of 2000 from $59.6 million in the comparable
prior year period. As a percentage of sales, these expenses increased 0.4% due
to higher operating expenses incurred in the second quarter. Total pre-opening
costs for the first nine months of 2000 was $1.9 million or 0.6% of sales, as
compared to $1.8 million or 0.7% of sales, for the first nine months of 1999.
Twenty-five stores were opened in the first nine months of 2000 and 1999.
Interest Expense
The increase in net interest expense in the third quarter and the first nine
months of 2000 as compared with the third quarter and the first nine months of
1999 resulted from increased borrowings and a higher effective interest rate.
Income Taxes
The effective income tax rate of 39.5% and 40% in the third quarter and the
first nine months of 2000 and 1999, respectively, differed from the statutory
federal rates due primarily to state and local income taxes, net of the federal
tax benefit.
9
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
Liquidity and Capital Resources
The Company's primary sources of funds are cash flows from operations and
borrowings under its revolving credit facility. Net cash used in operating
activities was $2.7 million during the first nine months of 2000. The decrease
resulted from seasonal increases in merchandise inventories and the additional
merchandise inventories for the 24 net stores opened in 2000. Excluding changes
in operating assets and liabilities, cash provided by operating activities was
$17.4 million in the first nine months of 2000.
Working capital increased to $89.4 million at October 28, 2000 from $68.3
million at January 29, 2000 and the current ratio was 3.0 to 1 at October 28,
2000 as compared with 2.7 to 1 at January 29, 2000. Long-term debt as a
percentage of total capital was 32.1% at October 28, 2000, compared to 19.3% at
January 29, 2000. The increase in working capital and long term debt as a
percentage of total capital was primarily due to seasonal fluctuations and the
store expansion program.
Capital expenditures net of lease incentives were $12.0 million in the first
nine months of 2000 (including $497,000 of capital lease assets). Of these
expenditures, approximately $9.2 million was incurred for new stores and $1.3
million was incurred for the remodeling of certain stores. The remaining capital
expenditures in the first nine months of 2000 were primarily for various store
improvements, merchandise displays and signage enhancements and technology.
The Company has opened 25 stores and closed one store in 2000. Six stores were
opened in the first quarter, ten in the second quarter and nine in the third
quarter. Additionally, one store was closed in the third quarter. Twenty-eight
stores were opened in 1999. Three stores were opened in the first quarter,
twelve in the second quarter and ten in the third quarter. The Company will open
six additional stores in the fourth quarter of 2000 and close four. Last year
during the fourth quarter three stores were opened and one store was closed. In
2001, the Company anticipates opening approximately 15 stores.
The actual amount of the Company's cash requirements for capital expenditures
depends in part on the number of new stores opened, the amount of lease
incentives, if any, received from landlords and the number of stores remodeled.
The opening of new stores 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 in
areas the Company targets for expansion. The Company's current prototype
utilizes between 8,000 and 15,000 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 are expected to average
approximately $350,000, including point-of-sale equipment, which is generally
acquired through equipment leasing transactions. 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, supplies
and utilities, are expected to average approximately $80,000 per store.
On January 7, 2000, the Company's Board of Directors authorized a share
repurchase program that allowed the Company to purchase up to $10 million of the
outstanding common stock. In January 2000, the Company purchased 291,900 shares
at a cost of $2.4 million. 123,100 shares were purchased during the first
quarter at a cost of $1.1 million and 620,600 shares were purchased during the
second quarter for $4.0 million. The share repurchase program was completed in
August with the purchase of 409,750 shares at a cost of $2.5 million. Total
shares acquired under the program were 1,445,350 at a cost of $10.0 million. The
treasury shares may be reissued in connection with possible future stock
offerings, dividends, stock based compensation programs and other general
corporate uses.
10
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
The Company's credit facility provides for a combination of cash advances on a
revolving basis and the issuance of commercial letters of credit. Borrowings
under the revolving credit line are based on eligible inventory. Borrowings and
letters of credit outstanding under this facility at October 28, 2000 were $44.0
million and $3.8 million, respectively. On April 16, 1999, the credit agreement
was amended to increase the facility by $10 million to allow for up to $45
million in cash advances and commercial letters of credit. The maturity date was
also extended to March 31, 2001. On November 8, 2000, the credit agreement was
further amended to increase the total credit facility to $70 million and to
extend the maturity date to March 31, 2003.
The Company anticipates that its existing cash and cash flow from operations,
supplemented by borrowings under the credit facility, will be sufficient to fund
its planned expansion and other operating cash requirements for at least the
next 12 months.
Seasonality
The Company's 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, the Company's
results of operations may be adversely affected in any quarter in which the
Company incurs pre-opening expenses related to the opening of new stores.
The Company has three distinct selling periods: Easter, back-to-school and
Christmas.
Factors That May Effect Future Results
This report contains certain forward looking statements that involve a number of
risks and uncertainties. Among the factors that could cause actual results to
differ materially are the following: general economic conditions in the areas of
the United States in which the Company's stores are located; changes in the
overall retail environment and more specifically in the apparel and footwear
retail sectors; the impact of competition, weather patterns, consumer buying
trends and the ability of the Company to identify and respond to emerging
fashion trends; the availability of desirable store locations and management's
ability to negotiate acceptable lease terms and open new stores in a timely
manner; and changes in the political and economic environments in the People's
Republic of China, where most of the Company's private label products are
manufactured, and the continued favorable trade relationships between China and
the United States.
11
SHOE CARNIVAL, INC.
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
4 (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
27 Financial Data Schedule
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended October 28,
2000.
12
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: December 8, 2000 SHOE CARNIVAL, INC.
(Registrant)
By: /s/ W. Kerry Jackson
----------------------------
W. Kerry Jackson
Vice President and
Chief Financial Officer
13