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 November 3, 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,12,218,127 shares outstanding as of December 1,
2001.
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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
November 3, February 3, October 28,
2001 2001 2000
----------- ----------- -----------
(In thousands)
ASSETS
------
Current Assets:
Cash and cash equivalents........... $ 3,207 $ 3,227 $ 3,071
Accounts receivable................. 1,660 1,067 1,006
Merchandise inventories............. 137,289 123,035 128,770
Deferred income tax benefit......... 703 728 613
Other............................... 2,055 1,434 1,788
---------- ---------- ---------
Total Current Assets................... 144,914 129,491 135,248
Property and equipment-net............. 59,349 57,860 58,458
---------- ---------- ---------
Total Assets........................... $ 204,263 $ 187,351 $ 193,706
========== ========== =========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Current Liabilities:
Accounts payable.................... $ 33,242 $ 33,030 $ 34,949
Accrued and other liabilities....... 10,675 7,896 10,083
Current portion of long-term debt... 945 874 813
---------- ---------- ----------
Total Current Liabilities.............. 44,862 41,800 45,845
Long-term debt......................... 41,176 41,137 45,142
Deferred lease incentives.............. 4,126 3,651 3,243
Deferred income taxes.................. 4,191 4,386 3,946
Other.................................. 275 64 0
---------- ---------- ----------
Total Liabilities...................... 94,630 91,038 98,176
---------- ---------- ----------
Shareholders' Equity:
Common stock, $.01 par value,
50,000 shares authorized,
13,363 shares issued and
outstanding at November 3, 2001,
February 3, 2001 and
October 28, 2000.................. 134 134 134
Additional paid-in capital.......... 64,524 64,288 64,285
Retained earnings................... 53,093 41,676 40,935
Treasury stock, at cost, 1,149,
1,406 and 1,413 shares at
November 3, 2001,
February 3, 2001 and
October 28, 2000.................. (8,118) (9,785) (9,824)
---------- ---------- ----------
Total Shareholders' Equity............. 109,633 96,313 95,530
---------- ---------- ----------
Total Liabilities and Shareholders'
Equity.............................. $ 204,263 $ 187,351 $ 193,706
========== ========== ==========
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
November 3, October 28, November 3, October 28,
2001 2000 2001 2000
----------- ----------- ----------- -----------
(In thousands, except per share data)
Net sales.............. $ 124,778 $ 114,710 $ 355,950 $ 305,726
Cost of sales
(including buying,
distribution and
occupancy costs).... 87,965 80,781 251,927 216,213
----------- ----------- ----------- -----------
Gross profit........... 36,813 33,929 104,023 89,513
Selling, general and
administrative
expenses............ 28,932 26,858 83,844 72,537
----------- ----------- ----------- -----------
Operating income....... 7,881 7,071 20,179 16,976
Interest expense, net.. 480 782 1,911 2,130
----------- ----------- ----------- -----------
Income before
income taxes........ 7,401 6,289 18,268 14,846
Income taxes........... 2,776 2,484 6,851 5,864
----------- ----------- ----------- -----------
Net income............. $ 4,625 $ 3,805 $ 11,417 $ 8,982
=========== =========== =========== ===========
Net income per share:
Basic.............. $ .38 $ .32 $ .95 $ .72
=========== =========== =========== ==========
Diluted............ $ .37 $ .32 $ .92 $ .71
=========== =========== =========== ==========
Average shares
outstanding:
Basic.............. 12,195 11,977 12,077 12,498
=========== =========== =========== ===========
Diluted............ 12,513 11,989 12,431 12,598
=========== =========== =========== ===========
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.... 246 236 1,574 1,810
Employee stock
purchase
plan purchases... 11 93 93
Net income ........ 11,417 11,417
------ ------- ------ -------- ------- ------- --------
Balance at
November 3, 2001. 13,363 (1,149) $ 134 $ 64,524 $53,093 $(8,118) $109,633
====== ======= ====== ======== ======= ======== ========
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
November 3, October 28,
2001 2000
----------- -----------
(In thousands)
Cash flows from operating activities:
Net income..................................... $ 11,417 $ 8,982
Adjustments to reconcile net income to net
cash provided by (used in) operating
activities:
Depreciation and amortization................ 8,291 7,612
Loss on retirement of assets................. 127 146
Deferred income taxes........................ (171) 912
Other ...................................... (151) (264)
Changes in operating assets and liabilities:
Merchandise inventories.................... (14,254) (24,040)
Accounts receivable........................ (594) (312)
Accounts payable and accrued liabilities... 3,007 4,919
Other...................................... (637) (620)
----------- ----------
Net cash provided by (used in) operating
activities..................................... 7,035 (2,665)
----------- ----------
Cash flows from investing activities:
Purchases of property and equipment............ (9,476) (12,006)
Lease incentives............................... 831 456
Other.......................................... 0 2
----------- ----------
Net cash used in investing activities............. (8,645) (11,548)
----------- ----------
Cash flows from financing activities:
Borrowings under line of credit................ 338,350 293,725
Payments on line of credit..................... (337,975) (270,725)
Payments on capital lease obligations.......... (688) (594)
Proceeds from issuance of stock................ 1,903 779
Purchase of treasury stock..................... 0 (7,576)
----------- ----------
Net cash provided by financing activities......... 1,590 15,609
----------- ----------
Net (decrease) increase in cash and cash
equivalents.................................... (20) 1,396
Cash and cash equivalents at beginning of period.. 3,227 1,675
----------- ----------
Cash and cash equivalents at end of period........ $ 3,207 $ 3,071
=========== ==========
Supplemental disclosures of cash flow information:
Cash paid during period for interest........... $ 2,151 $ 2,013
Cash paid during period for income taxes....... $ 5,499 $ 2,915
Supplemental disclosure of noncash investing activities:
Capital lease obligations incurred............. $ 423 $ 497
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 ("FASB") 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.
In August 2001, the FASB issued the Statement of Financial Accounting Standards
No. 144 ("SFAS 144"), "Accounting for the Impairment or Disposal of Long-Lived
Assets" which is effective for financial statements issued for fiscal years
beginning after December 15, 2001. SFAS 144 addresses financial accounting and
reporting for the impairment or disposal of long-lived assets and supercedes
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of" and
APB No. 30, "Reporting the Results of Operations-Reporting the Effects of
Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently
Occurring Events and Transactions".
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
------------------------------ -------------------- Store
Beginning End of Net End 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%
November 3, 2001 178 5 0 183 54,000 2,114,000 2.5%
Year-to-date 165 18 0 183 203,000 2,114,000 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%)
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%
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
November 3, October 28, November 3, October 28,
2001 2000 2001 2000
----------- ----------- ------------ -----------
Net sales................ 100.0% 100.0% 100.0% 100.0%
Cost of sales
(including buying,
distribution and
occupancy costs)...... 70.5 70.4 70.8 70.7
--------- ---------- ---------- ---------
Gross profit............. 29.5 29.6 29.2 29.3
Selling, general and
administrative
expenses.............. 23.2 23.4 23.6 23.7
--------- ---------- ---------- ---------
Operating income......... 6.3 6.2 5.6 5.6
Interest expense......... .4 .7 .5 .8
--------- ---------- ---------- ---------
Income before income
taxes................. 5.9 5.5 5.1 4.8
Income taxes............. 2.2 2.2 1.9 1.9
--------- ---------- ---------- ---------
Net income............... 3.7% 3.3% 3.2% 2.9%
========= ========== ========== =========
Net Sales
Net sales increased $10.1 million to $124.8 million in the third quarter of
2001, an 8.8% increase over net sales of $114.7 million in the comparable prior
year period. The increase was attributable to a 2.5% comparable store sales
increase and the sales generated by the 37 new stores opened since June 2000
(net of five stores closed).
8
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
Net sales increased $50.2 million to $356 million in the first nine months of
2001, a 16.4% increase over net sales of $305.7 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 45 new stores opened in 2000 and 2001
(net of five stores closed).
Gross Profit
Gross profit increased $2.9 million to $36.8 million in the third quarter of
2001, an 8.5% increase over gross profit of $33.9 million in the comparable
prior year period. The Company's gross profit margin decreased to 29.5% from
29.6%. As a percentage of sales, the merchandise gross profit margin increased
0.4% and buying, distribution and occupancy costs increased 0.5%.
Gross profit increased $14.5 million to $104 million in the first nine months of
2001, a 16.2% increase over gross profit of $89.5 million in the comparable
prior year period. The Company's gross profit decreased to 29.2% from 29.3% last
year. As a percentage of sales, the merchandise gross profit margin was
unchanged from last year and buying, distribution and occupancy costs increased
0.1%.
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased $2.1 million to $28.9
million in the third quarter of 2001 from $26.9 million in the comparable prior
year period. As a percentage of sales, these expenses decreased to 23.2% from
23.4% primarily due to lower pre-opening costs during the quarter. Total
pre-opening costs in the third quarter of 2001 were $342,000, or 0.3% of sales,
as compared to $667,000, or 0.6% of sales, for the third quarter of 2000.
Pre-opening expenses incurred were primarily for the stores opened during the
quarter. Five stores were opened in the third quarter of 2001 and nine stores
were opened in the third quarter of 2000.
Selling, general and administrative expenses increased $11.3 million to $83.8
million in the first nine months of 2001 from $72.5 million in the comparable
prior year period. As a percentage of sales, these expenses decreased to 23.6%
from 23.7% last year. Total pre-opening costs for the first nine months of 2001
was $1.2 million or 0.3% of sales, as compared to $1.9 million or 0.6% of sales,
for the first nine months of 2000. Eighteen stores were opened in the first nine
months of 2001 and twenty-five stores were opened in the first nine months of
2000.
Interest Expense
The decrease in net interest expense in the third quarter and the first nine
months of 2001 as compared with the third quarter and the first nine months of
2000 resulted from a lower effective interest rate.
Income Taxes
The effective income tax rate decreased to 37.5% in the third quarter and the
first nine 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 nine months of
2001, net cash generated by operating activities was $7 million compared with a
net usage of cash of $2.7 million by operations for the first nine months of
last year. The $9.7 million increase in cash provided by operations on a
year-over-year basis resulted primarily from an increase in cash generated by
operations of $2.1 million and inventories, net of payables, increased $11.2
million this year versus an increase of $19.1 million last year. Excluding
changes in operating assets and liabilities, cash provided by operating
activities was $19.5 million in the first nine months of 2001.
Working capital increased to $100.1 million at November 3, 2001 from $89.4
million at October 28, 2001 and the current ratio was 3.2 to 1 at November 3,
2001 as compared with 3.0 to 1 at October 28, 2001. The increase in working
capital was primarily due to the increased inventory necessary for the 21
additional stores operated at the end of the third quarter versus the end of the
third quarter last year. Long-term debt as a percentage of total capital was
27.3% at November 3, 2001, compared to 32.1% at October 28, 2000.
Capital expenditures net of lease incentives were $9.1 million in the first nine
months of 2001 (including $423,000 of capital lease assets). Of these
expenditures, approximately $6.3 million was incurred for new stores and $1
million was incurred for remodeling and relocation of certain stores. The
remaining capital expenditures in the first nine months of 2001 were primarily
for various store improvements, merchandise displays and signage enhancements
and technology.
The Company has completed its store openings for the year having opened 18
stores in 2001. Three stores were opened in the first quarter, ten in the second
quarter and five in the third quarter. During the first nine months of 2000,
twenty-five stores were opened and one store closed. Six stores were opened in
the first quarter, ten in the second quarter and eight in the third quarter (net
of one store closed). Seven stores were opened and four stores closed in the
fourth quarter 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 $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 $70,000 per store.
10
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
The Company's unsecured 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 November 3, 2001 were $40.4 million and $2.1 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 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
None
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended November 3,
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: December 14, 2001 SHOE CARNIVAL, INC.
(Registrant)
By: /s/ W. Kerry Jackson
--------------------------------
W. Kerry Jackson
Senior Vice President and
Chief Financial Officer
13