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. - -------------------------------------------------------------------------------- (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,12,218,127 shares outstanding as of December 1, 2001. - --------------------------------------------------------------------------------
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
<TABLE> <CAPTION> SHOE CARNIVAL, INC. CONDENSED CONSOLIDATED BALANCE SHEETS Unaudited November 3, February 3, October 28, 2001 2001 2000 ----------- ----------- ----------- (In thousands) ASSETS ------ <S> <C> <C> <C> 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 ========== ========== ========== </TABLE> See Notes to Condensed Consolidated Financial Statements 3
<TABLE> <CAPTION> 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) <S> <C> <C> <C> <C> 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 =========== =========== =========== =========== </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.... 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 ====== ======= ====== ======== ======= ======== ======== </TABLE> See Notes to Condensed Consolidated Financial Statements 5
<TABLE> <CAPTION> 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) <S> <C> <C> 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 </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 ("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 <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% 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% </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 Thirty-nine Thirty-nine Weeks Ended Weeks Ended Weeks Ended Weeks Ended November 3, October 28, November 3, October 28, 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)...... 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% ========= ========== ========== ========= </TABLE> 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