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 May 5, 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. - -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) Indiana - -------------------------------------------------------------------------------- (State or other jurisdiction of incorporation or organization) 35-1736614 - -------------------------------------------------------------------------------- (IRS Employer Identification Number) 8233 Baumgart Road, Evansville, Indiana 47725 - -------------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) (812) 867-6471 - -------------------------------------------------------------------------------- (Registrant's telephone number, including area code) NOT APPLICABLE - -------------------------------------------------------------------------------- (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, 12,031,518 shares outstanding as of June 11, 2001. - -------------------------------------------------------------------------------- 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.................... 8-10 Part II Other Information Item 6. Exhibits and Reports on Form 8-K........................ 11 Signature........................................................ 12 2
<TABLE> <CAPTION> SHOE CARNIVAL, INC. CONDENSED CONSOLIDATED BALANCE SHEETS Unaudited May 5, February 3, April 29, 2001 2001 2000 ---------- ---------- ---------- (In thousands) ASSETS -------- <S> <C> <C> <C> Current Assets: Cash and cash equivalents............. $ 3,677 $ 3,227 $ 2,767 Accounts receivable................... 706 1,067 624 Merchandise inventories............... 128,158 123,035 111,980 Deferred income tax benefit........... 755 728 795 Other................................. 3,495 1,434 1,476 ---------- ---------- ---------- Total Current Assets..................... 136,791 129,491 117,642 Property and equipment-net............... 57,636 57,860 55,503 ---------- ---------- ---------- Total Assets............................. $ 194,427 $ 187,351 $ 173,145 ========== ========== ========== LIABILITIES AND SHAREHOLDERS' EQUITY ------------------------------------ Current Liabilities: Accounts payable...................... $ 31,843 $ 33,030 $ 28,781 Accrued and other liabilities......... 11,665 7,896 9,255 Current portion of long-term debt..... 913 874 776 ---------- ---------- ---------- Total Current Liabilities................ 44,421 41,800 38,812 Long-term debt........................... 40,976 41,137 31,331 Deferred lease incentives................ 4,035 3,651 3,187 Deferred income taxes.................... 4,090 4,386 3,487 Other.................................... 130 64 ---------- ---------- ---------- Total Liabilities........................ 93,652 91,038 76,817 ---------- ---------- ---------- Shareholders' Equity: Common stock, $.01 par value, 50,000 shares authorized, 13,363 shares issued at May 5, 2001, February 3, 2001 and April 29, 2000........... 134 134 133 Additional paid-in capital............ 64,289 64,288 64,279 Retained earnings..................... 45,966 41,676 35,384 Treasury stock, at cost, 1,379, 1,406 and 410 shares at May 5, 2001, February 3, 2001 and April 29, 2000........... (9,614) (9,785) (3,468) ---------- ---------- ---------- Total Shareholders' Equity............... 100,775 96,313 96,328 ---------- ---------- ---------- Total Liabilities and Shareholders' Equity................................. $ 194,427 $ 187,351 $ 173,145 ========== ========== ========== </TABLE> See Notes to Condensed Consolidated Financial Statements 3
<TABLE> <CAPTION> SHOE CARNIVAL, INC. CONDENSED CONSOLIDATED STATEMENTS OF INCOME Unaudited Thirteen Thirteen Weeks Ended Weeks Ended May 5, 2001 April 29, 2000 ------------- -------------- (In thousands, except per share data) <S> <C> <C> Net sales................................. $ 117,186 $ 95,405 Cost of sales (including buying, distribution and occupancy costs)...................... 82,230 67,212 ----------- ----------- Gross profit.............................. 34,956 28,193 Selling, general and administrative expenses............... 27,287 21,943 ----------- ----------- Operating income.......................... 7,669 6,250 Interest expense, net..................... 805 579 ----------- ----------- Income before income taxes................ 6,864 5,671 Income taxes.............................. 2,574 2,240 ----------- ----------- Net income................................ $ 4,290 $ 3,431 =========== =========== Net income per share: Basic.................................. $ .36 $ .26 =========== =========== Diluted................................ $ .35 $ .26 =========== =========== Average shares outstanding: Basic.................................. 11,971 12,974 =========== =========== Diluted................................ 12,303 13,149 =========== =========== </TABLE> See Notes to Condensed Consolidated Financial Statements 4
<TABLE> <CAPTION> 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) <S> <C> <C> <C> <C> <C> <C> <C> Balance at February 3, 2001. 13,363 (1,406) $ 134 $64,288 $ 41,676 $(9,785) $ 96,313 Exercise of stock options... 23 1 140 141 Employee stock purchase plan purchases... 4 31 31 Net income ........ 4,290 4,290 ------ ------ ------ ------- -------- ------- -------- Balance at May 5, 2001...... 13,363 (1,379) $ 134 $64,289 $ 45,966 $(9,614) $100,775 ====== ======= ====== ======= ======== ======== ======== </TABLE> See Notes to Condensed Consolidated Financial Statements 5
<TABLE> <CAPTION> SHOE CARNIVAL, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS Unaudited Thirteen Thirteen Weeks Ended Weeks Ended May 5, 2001 April 29, 2000 ----------- -------------- (In thousands) <S> <C> <C> Cash flows from operating activities: Net income.................................... $ 4,290 $ 3,431 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization............... 2,670 2,400 Loss on retirement of assets................ 126 Deferred income taxes....................... (323) 272 Other ..................................... (59) (78) Changes in operating assets and liabilities: Merchandise inventories.................. (5,123) (7,251) Accounts receivable....................... 360 70 Accounts payable and accrued liabilities.. 2,582 (2,027) Prepaid expenses and other current assets. (2,061) (326) ----------- ---------- Net cash provided by (used in) operating activities.................................... 2,462 (3,509) ----------- ---------- Cash flows from investing activities: Purchases of property and equipment........... (2,476) (3,959) Lease incentives.............................. 507 186 ----------- ---------- Net cash used in investing activities............ (1,969) (3,773) ----------- ---------- Cash flows from financing activities: Borrowings under line of credit............... 131,725 99,925 Payments on line of credit.................... (131,725) (90,925) Payments on capital lease obligations......... (215) (178) Proceeds from issuance of stock............... 172 596 Purchase of treasury stock.................... (1,044) ----------- ---------- Net cash (used in) provided by financing activities.................................... (43) 8,374 ----------- ---------- Net increase in cash and cash equivalents........ 450 1,092 Cash and cash equivalents at beginning of period. 3,227 1,675 ----------- ---------- Cash and cash equivalents at end of period....... $ 3,677 $ 2,767 =========== ========== Supplemental disclosures of cash flow information: Cash paid during period for interest.......... $ 951 $ 576 Cash paid during period for income taxes...... $ 0 $ 59 Capital lease obligations incurred............ $ 93 $ 232 </TABLE> 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 consolidated 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 consolidated 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. 7
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS <TABLE> <CAPTION> 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 - ------------- --------- ------ ------ ------ ------ --------- ----------- <S> <C> <C> <C> <C> <C> <C> <C> May 5, 2001 165 3 0 168 26,000 1,937,000 2.3% April 29, 2000 138 6 0 144 78,000 1,668,000 1.4% </TABLE> The following table sets forth the Company's results of operations expressed as a percentage of net sales for the periods indicated: <TABLE> <CAPTION> Thirteen Thirteen Weeks Ended Weeks Ended May 5, 2001 April 29, 2000 ----------- -------------- <S> <C> <C> Net sales....................................... 100.0% 100.0% Cost of sales (including buying, distribution and occupancy costs)........... 70.2 70.5 --------- ---------- Gross profit.................................... 29.8 29.5 Selling, general and administrative expenses.................................... 23.3 23.0 --------- ---------- Operating income................................ 6.5 6.5 Interest expense................................ .6 .6 --------- ---------- Income before income taxes...................... 5.9 5.9 Income taxes.................................... 2.2 2.3 --------- ---------- Net income...................................... 3.7% 3.6% ========= ========== </TABLE> Net Sales Net sales increased $21.8 million to $117.2 million in the first quarter of 2001, a 22.8% increase over net sales of $95.4 million in the comparable prior year period. The increase was attributable to a 2.3% comparable store sales increase and the sales generated by the 30 new stores opened in 2000 and 2001 (net of five stores closed). Gross Profit Gross profit increased $6.8 million to $35.0 million in the first quarter of 2001, a 24.0% increase over gross profit of $28.2 million in the comparable prior year period. The Company's gross profit margin increased to 29.8% from 29.5% in the prior year. As a percentage of sales, the merchandise gross profit margin was flat with last year and buying, distribution and occupancy costs decreased 0.3%. 8
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) Selling, General and Administrative Expenses Selling, general and administrative expenses increased $5.3 million to $27.3 million in the first quarter of 2001 from $21.9 million in the comparable prior year period. As a percentage of sales, these expenses increased to 23.3% from 23.0% in the prior year. Excluding a charge for store relocation costs of $388,000 in the first quarter of 2001, selling, general and administrative expenses as a percentage of sales remained unchanged from last year at 23.0%. Total pre-opening costs in the first quarter of 2001 were $187,000 or 0.2% of sales, as compared to $451,000 or 0.5%, of sales in the first quarter of 2000. Interest Expense The increase in net interest expense to $805,000 in the first quarter of 2001 from $579,000 in the first quarter of 2000 resulted from increased borrowings. Income Taxes The effective income tax rate of 37.5% in the first quarter of 2001 and 39.5% in the first quarter of 2000 differed from the statutory federal rates due primarily to state and local income taxes, net of the federal tax benefit. 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 provided by operating activities was $2.5 million during the first quarter of 2001. Excluding changes in operating assets and liabilities, cash provided by operating activities was $6.7 million in the first quarter of 2001. Merchandise inventories increased $5.1 million to $128.2 million at May 5, 2001 from $123.0 million at February 3, 2001. The increase in merchandise inventories was primarily due to seasonal fluctuations and the addition of three stores in the first quarter of 2001. Working capital increased to $92.4 million at May 5, 2001 from $87.7 million at February 3, 2001. The current ratio was 3.1 to 1 at May 5, 2001 and February 3, 2001. Long-term debt as a percentage of total capital was 28.9% at May 5, 2001 compared with 29.9% at February 3, 2001. The increase in working capital was primarily due to seasonal fluctuations. Capital expenditures, net of lease incentives, were $2.1 million in the first quarter of 2001. Of these expenditures, $1.2 million was incurred for new stores and $500,000 was incurred for the relocation of two stores. The remaining capital expenditures in the first quarter of 2001 were primarily for the remodeling of certain stores, merchandise display and signage enhancements and improvements to computer systems. The Company intends to open 17 or 18 stores in 2001, including the three stores opened in the first quarter. Six or seven stores are expected to be opened in the second quarter with the remaining store openings in the third quarter. Six stores were opened in the first 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. 9
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) The Company's current store 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 $75,000 per store. 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 May 5, 2001 were $40.0 million and $2.8 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. 10
SHOE CARNIVAL, INC. PART II - OTHER INFORMATION Item 4. Submission of Matters to Vote of Security Holders The annual meeting of the common shareholders of the Company was held June 14, 2001. Election of Directors Mark L. Lemond and James A. Aschleman were each elected at the annual meeting to serve as a Director of the Company for a three year term. Messrs. Lemond and Aschleman received 11,325,256 and 11,437,461 votes, respectively, in favor of their election. No votes were cast against the election of either nominee. Other Matters Voted Upon at the Meeting Deloitte & Touche LLP was appointed as auditor for the Company for 2001. 11,481,275 votes were cast in favor, 3,272 votes were cast against and 18,699 abstentions were recorded with respect to such appointment. 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 May 5, 2001 11
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 18, 2001 SHOE CARNIVAL, INC. (Registrant) By: /s/ W. Kerry Jackson ------------------------------ W. Kerry Jackson Senior Vice President and Chief Financial Officer 12