10
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 August 4, 2001
[ ] 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
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(State or other jurisdiction of incorporation or organization)
35-1736614
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(IRS Employer Identification Number)
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, 12,209,352 shares outstanding as of September 10,
2001.
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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 4. Submission of Matters to Vote of Security Holders....... 12
Item 6. Exhibits and Reports on Form 8-K........................ 12
Signature ..................................................... 13
2
SHOE CARNIVAL, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
Unaudited
August 4, February 3, July 29,
2001 2001 2000
---------- ----------- --------
(In thousands)
ASSETS
Current Assets:
Cash and cash equivalents................ $ 6,748 $ 3,227 $ 3,358
Accounts receivable...................... 714 1,067 631
Merchandise inventories.................. 142,528 123,035 123,791
Deferred income tax benefit.............. 687 728 701
Other.................................... 2,871 1,434 1,794
---------- ---------- ----------
Total Current Assets........................ 153,548 129,491 130,275
Property and equipment-net.................. 59,233 57,860 56,796
---------- ---------- ----------
Total Assets................................ $ 212,781 $ 187,351 $ 187,071
========== ========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable......................... $ 42,535 $ 33,030 $ 32,549
Accrued and other liabilities............ 11,092 7,896 7,038
Current portion of long-term debt........ 946 874 786
---------- ---------- ----------
Total Current Liabilities................... 54,573 41,800 40,373
Long-term debt.............................. 45,798 41,137 45,749
Deferred lease incentives................... 4,229 3,651 3,079
Deferred income taxes....................... 3,660 4,386 3,693
Other....................................... 192 64 0
---------- ---------- ----------
Total Liabilities........................... 108,452 91,038 92,894
---------- ---------- ----------
Shareholders' Equity:
Common stock, $.01 par value, 50,000
shares authorized, 13,363 shares
issued at August 4, 2001,
February 3, 2001 and
July 29, 2000......................... 134 134 134
Additional paid-in capital............... 64,289 64,288 64,283
Retained earnings........................ 48,468 41,676 37,130
Treasury stock, at cost, 1,218, 1,406
and 1,015 shares at August 4, 2001,
February 3, 2001 and July 29, 2000 ... (8,562) (9,785) (7,370)
---------- ---------- ----------
Total Shareholders' Equity.................. 104,329 96,313 94,177
---------- ---------- ----------
Total Liabilities and Shareholders' Equity.. $ 212,781 $ 187,351 $ 187,071
========== ========== ==========
See Notes to Condensed Consolidated Financial Statements
3
SHOE CARNIVAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
Unaudited
Thirteen Thirteen Twenty-six Twenty-six
Weeks Ended Weeks Ended Weeks Ended Weeks Ended
August 4, July 29, August 4, July 29,
2001 2000 2001 2000
----------- ----------- ----------- -----------
(In thousands, except per share data)
Net sales................... $ 113,986 $ 95,611 $ 231,172 $ 191,016
Cost of sales (including
buying, distribution
and occupancy costs)..... 81,732 68,220 163,962 135,432
---------- --------- ---------- ----------
Gross profit................ 32,254 27,391 67,210 55,584
Selling, general and
administrative expenses.. 27,625 23,736 54,912 45,679
---------- --------- ---------- ----------
Operating income............ 4,629 3,655 12,298 9,905
Interest expense, net....... 626 769 1,431 1,348
---------- --------- ---------- ----------
Income before income taxes.. 4,003 2,886 10,867 8,557
Income taxes................ 1,501 1,140 4,075 3,380
---------- --------- ---------- ----------
Net income.................. $ 2,502 $ 1,746 $ 6,792 $ 5,177
========== ========= ========== ==========
Net income per share:
Basic................... $ .21 $ .14 $ .57 $ .41
========== ========= ========== ==========
Diluted................. $ .20 $ .14 $ .55 $ .40
========== ========= ========== ==========
Average shares outstanding:
Basic................... 12,066 12,543 12,018 12,758
========== ========= ========== ==========
Diluted................. 12,467 12,583 12,389 12,880
========== ========= ========== ==========
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
February 3, 2001. 13,363 (1,406) $ 134 $ 64,288 $ 41,676 $(9,785) $ 96,313
Exercise of
stock options.... 181 1 1,158 1,159
Employee stock
purchase
plan purchases... 7 65 65
Net income ........ 6,792 6,792
------ ------- ------ --------- -------- ------- --------
Balance at
August 4, 2001... 13,363 (1,218) $ 134 $ 64,289 $ 48,468 $(8,562) $104,329
====== ======= ====== ========= ======== ======= ========
See Notes to Condensed Consolidated Financial Statements
5
SHOE CARNIVAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Unaudited
Twenty-six Twenty-six
Weeks Ended Weeks Ended
August 4, July 29,
2001 2000
----------- -----------
(In thousands)
Cash flows from operating activities:
Net income........................................ $ 6,792 $ 5,177
Adjustments to reconcile net income to net
cash provided by (used in) operating activities:
Depreciation and amortization................... 5,414 4,952
Loss on retirement of assets.................... 127 26
Deferred income taxes........................... (685) 572
Other ......................................... (130) (174)
Changes in operating assets and liabilities:
Merchandise inventories...................... (19,493) (19,061)
Accounts receivable........................... 353 63
Accounts payable and accrued liabilities...... 12,719 (509)
Other......................................... (1,455) (626)
---------- ----------
Net cash provided by (used in) operating activities.. 3,642 (9,580)
---------- ----------
Cash flows from investing activities:
Purchases of property and equipment............... (6,735) (7,686)
Lease incentives.................................. 831 186
Other............................................. 0 2
---------- ----------
Net cash used in investing activities................ (5,904) (7,498)
---------- ----------
Cash flows from financing activities:
Borrowings under line of credit................... 259,525 198,600
Payments on line of credit........................ (254,525) (175,100)
Payments on capital lease obligations............. (441) (393)
Proceeds from issuance of stock................... 1,224 721
Purchase of treasury stock........................ 0 (5,067)
---------- ----------
Net cash provided by financing activities............ 5,783 18,761
---------- ----------
Net increase in cash and cash equivalents............ 3,521 1,683
Cash and cash equivalents at beginning of period..... 3,227 1,675
---------- ----------
Cash and cash equivalents at end of period........... $ 6,748 $ 3,358
========== ==========
Supplemental disclosures of cash flow information:
Cash paid during period for interest.............. $ 1,599 $ 1,341
Cash paid during period for income taxes.......... $ 5,206 $ 2,076
Supplemental disclosure of noncash investing activities:
Capital lease obligations incurred................ $ 174 $ 377
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 2000
Annual Report.
Note 2 - New Accounting Pronoucements
In June 2001, the Financial Accounting Standards Board issued two new
pronouncements: Statement of Financial Accounting Standards ("SFAS") No. 141,
"Business Combinations" and SFAS No. 142 "Goodwill and Other Intangibles." SFAS
No. 141 requires that the purchase method of accounting be used for all business
combinations initiated after June 30, 2001 and that the use of the pooling-of-
interest method is no longer allowed. SFAS No. 142 requires that upon adoption,
amortization of goodwill will cease and instead, the carrying value of goodwill
be evaluated for impairment on an annual basis. Identifiable intangible assets
will continue to be amortized over their useful lives and reviewed for
impairment in accordance with SFAS No. 121 "Accounting for the Impairment of
Long-Lived Assets to be Disposed Of". SFAS No. 142 is effective for fiscal years
beginning after December 15, 2001. The Company is evaluating the impact of the
adoption of these standards but does not anticipate the adoption will have any
material effect on its financial position and results of operations.
7
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
Number of Stores Store Square Footage
------------------------------- -------------------- Comparable
Beginning End of Net End Store Sales
Quarter Ended of Period Opened Closed Period Change of Period Increase
------------- ---------- ------ ------ ------ ------ --------- ----------
May 5, 2001 165 3 0 168 26,000 1,937,000 2.3%
August 4, 2001 168 10 0 178 123,000 2,060,000 2.1%
Year-to-date 165 13 0 178 149,000 2,060,000 2.1%
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%)
Year-to-date 138 16 0 154 198,000 1,788,000 (.4%)
The following table sets forth the Company's results of operations expressed as
a percentage of net sales for the periods indicated:
Thirteen Thirteen Twenty-six Twenty-six
Weeks Ended Weeks Ended Weeks Ended Weeks Ended
August 4, July 29, August 4, July 29,
2001 2000 2001 2000
----------- ----------- ----------- -----------
Net sales................... 100.0% 100.0% 100.0% 100.0%
Cost of sales (including
buying, distribution and
occupancy costs)........... 71.7 71.4 70.9 70.9
-------- ---------- ---------- ---------
Gross profit................ 28.3 28.6 29.1 29.1
Selling, general and
administrative expenses.. 24.2 24.8 23.8 23.9
-------- ---------- ---------- ---------
Operating income............ 4.1 3.8 5.3 5.2
Interest expense............ .6 .8 .6 .7
-------- ---------- ---------- ---------
Income before income taxes.. 3.5 3.0 4.7 4.5
Income taxes................ 1.3 1.2 1.8 1.8
-------- ---------- ---------- ---------
Net income.................. 2.2% 1.8% 2.9% 2.7%
======== ========== ========== =========
Net Sales
Net sales increased $18.4 million to $114 million in the second quarter of 2001,
a 19.2% increase over net sales of $95.6 million in the comparable prior year
period. The increase was attributable to a 2.1% comparable store sales increase
and the sales generated by the 38 new stores opened since March 2000 (net of
five stores closed).
8
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
Net sales increased $40.2 million to $231.2 million in the first half of 2001, a
21% increase over net sales of $191 million in the comparable prior year period.
The increase was attributable to a 2.1% comparable store sales increase and the
sales generated by the 40 new stores opened in 2000 and 2001 (net of five stores
closed).
Gross Profit
Gross profit increased $4.9 million to $32.3 million in the second quarter of
2001, a 17.8% increase over gross profit of $27.4 million in the comparable
prior year period. The Company's gross profit margin decreased to 28.3% from
28.6%. As a percentage of sales, the merchandise gross profit margin decreased
0.3% and buying, distribution and occupancy costs was flat with last year. The
decrease in the merchandise gross profit margin was due to a decline in the
sales and gross margin obtained on the sale of sandals and opened-up women's
footwear for the quarter.
Gross profit increased $11.6 million to $67.2 million in the first half of 2001,
a 20.9% increase over gross profit of $55.6 million in the comparable prior year
period. The Company's gross profit margin was consistent with last year at
29.1%. As a percentage of sales, the merchandise gross profit margin decreased
0.2% and buying, distribution and occupancy costs decreased 0.2%.
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased $3.9 million to $27.6
million in the second quarter of 2001 from $23.7 million in the comparable prior
year period. As a percentage of sales, these expenses decreased 0.6 percent to
24.2 percent from 24.8 percent last year. Selling, general and administrative
expenses for the second quarter of last year included a charge of $220,000, or
0.2 percent of sales, for the closing of one store. Although the same number of
stores were opened in the second quarter of 2001 as were opened in the second
quarter of 2000, pre-opening expenses declined by $118,000 or 0.2 percent of
sales. This reduction resulted principally from lower grand opening advertising
costs and lower pre-opening payroll costs. A combination of other efficiencies
constituted the remainder of the cost savings. Total pre-opening costs in the
second quarter of 2001 were $667,000 or 0.6% of sales, as compared to $785,000
or 0.8% of sales, for the second quarter of 2000.
Selling, general and administrative expenses increased $9.2 million to $54.9
million in the first half of 2001 from $45.7 million in the comparable prior
year period. As a percentage of sales, these expenses decreased to 23.8% from
23.9% last year. Total pre-opening costs in the first half of 2001 were $854,000
or 0.4% of sales, as compared to $1.2 million or 0.6% of sales, in the first
half of 2000. Thirteen stores were opened in the first half of 2001 and sixteen
stores were opened in the first half of 2000.
Interest Expense
The decrease in net interest expense in the second quarter of 2001 as compared
with the second quarter of 2000 resulted from a lower effective interest rate.
The increase in net interest expense in the first six months of 2001 as compared
with the first six months of 2000 resulted from higher borrowings in the first
quarter partially offset by a lower effective interest rate in the second
quarter.
Income Taxes
The effective income tax rate decreased to 37.5% in the second quarter and the
first six months of 2001 from 39.5% for the same time periods in 2000. The
decrease resulted from lower state income taxes. The effective income tax rate
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. For the first six months of
2001, cash generated by operating activities was $3.6 million compared with a
net usage of cash of $9.6 million by operations for the first six months of last
year. The $13.2 million increase in cash provided by operations on a
year-over-year basis resulted primarily from an increase in cash generated by
operations of $1 million and increases in accounts payable and accrued
liabilities. Excluding changes in working capital, cash provided by operating
activities was $11.5 million in the first half of 2001.
Working capital increased to $99 million at August 4, 2001 from $89.9 million at
July 29, 2000 and the current ratio was 2.8 to 1 at August 4, 2001 as compared
with 3.2 to 1 at July 29, 2000. Long-term debt as a percentage of total capital
reduced to 30.5% at the end of the first half of 2001 from 32.7% at the end of
the first half of 2000. The increase in working capital was primarily due to the
store expansion program.
Capital expenditures net of lease incentives were $6.1 million in the first half
of 2001 (including $174,000 of capital lease assets). Of these expenditures,
approximately $4.5 million was incurred for new stores and $720,000 was incurred
for the remodeling of certain stores. The remaining capital expenditures in the
first half of 2001 were primarily for various store improvements, merchandise
display and signage enhancements and technology.
The Company opened ten stores in the second quarter bringing the total number of
stores opened in 2001 to 13. With the expected opening of five stores in the
third quarter, 18 new stores will be opened during 2001. Of the sixteen stores
opened during the first half of 2000 ten stores were opened in the second
quarter. Sixteen stores were opened and five stores were closed in the second
half of 2000.
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 $330,000, 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 $70,000 per store.
10
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
The Company's credit facility provides for up to $70 million in cash advances
and letters of credit. Borrowings under the revolving credit line are based on
eligible inventory. Borrowings and letters of credit outstanding under this
facility at August 4, 2001 were $45 million and $8.1 million, respectively. 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 of 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
10-P Employment and Noncompetition agreement dated August 1, 2001,
between Registrant and Timothy T. Baker
10-Q Employment and Noncompetition agreement dated August 1, 2001,
between Registrant and Clifton E. Sifford
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended August 4,
2001.
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: September 14, 2001 SHOE CARNIVAL, INC.
(Registrant)
By: /s/ W. Kerry Jackson
---------------------
W. Kerry Jackson
Senior Vice President and
Chief Financial Officer
13