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. -------------------------------------------------------------------------------- (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, 12,209,352 shares outstanding as of September 10, 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................... 8-11 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
<TABLE> <CAPTION> SHOE CARNIVAL, INC. CONDENSED CONSOLIDATED BALANCE SHEETS Unaudited August 4, February 3, July 29, 2001 2001 2000 ---------- ----------- -------- (In thousands) ASSETS <S> <C> <C> <C> 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 ========== ========== ========== </TABLE> See Notes to Condensed Consolidated Financial Statements 3
<TABLE> <CAPTION> 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) <S> <C> <C> <C> <C> 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 ========== ========= ========== ========== </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.... 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 ====== ======= ====== ========= ======== ======= ======== </TABLE> See Notes to Condensed Consolidated Financial Statements 5
<TABLE> <CAPTION> 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) <S> <C> <C> 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 </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 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
<TABLE> <CAPTION> 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 ------------- ---------- ------ ------ ------ ------ --------- ---------- <S> <C> <C> <C> <C> <C> <C> <C> 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%) </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 Twenty-six Twenty-six Weeks Ended Weeks Ended Weeks Ended Weeks Ended August 4, July 29, August 4, July 29, 2001 2000 2001 2000 ----------- ----------- ----------- ----------- <S> <C> <C> <C> <C> 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% ======== ========== ========== ========= </TABLE> 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