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 4, 2002 [ ] 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 35-1736614 - -------------------------------------------------------------------------------- (State or other jurisdiction (IRS Employer Identification Number) of incorporation or organization) 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, 12,553,580 shares outstanding as of June 9, 2002 - --------------------------------------------------------------------------------
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
SHOE CARNIVAL, INC. CONDENSED CONSOLIDATED BALANCE SHEETS Unaudited <TABLE> <CAPTION> May 4, February 2, May 5, 2002 2002 2001 (In thousands) ASSETS <S> <C> <C> <C> Current Assets: Cash and cash equivalents........ $ 3,616 $ 5,459 $ 3,677 Accounts receivable.............. 1,392 1,298 706 Merchandise inventories.......... 129,783 135,648 128,158 Deferred income tax benefit...... 483 449 755 Other............................ 1,584 1,816 3,495 -------- --------- ------- Total Current Assets................ 136,858 144,670 136,791 Property and equipment-net.......... 59,607 57,249 57,636 -------- --------- ------- Total Assets........................ $196,465 $ 201,919 $194,427 ======== ========= ======== LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Accounts payable................. $ 37,787 $ 42,108 $ 31,843 Accrued and other liabilities.... 13,177 10,452 11,665 Current portion of long-term debt........................... 725 834 913 -------- --------- -------- Total Current Liabilities........... 51,689 53,394 44,421 Long-term debt...................... 16,269 27,672 40,976 Deferred lease incentives........... 4,096 4,197 4,035 Deferred income taxes............... 4,078 4,223 4,090 Other............................... 439 331 130 -------- --------- -------- Total Liabilities................... 76,571 89,817 93,652 -------- --------- -------- Shareholders' Equity: Common stock, $.01 par value, 50,000 shares authorized, 13,363 shares issued at May 4, 2002, February 2, 2002 and May 5, 2001...................... 134 134 134 Additional paid-in capital........ 65,264 64,752 64,289 Retained earnings................. 59,912 54,251 45,966 Treasury stock, at cost, 812, 1,000 and 1,379 shares at May 4, 2002, February 2, 2002 and May 5, 2001.................. (5,416) (7,035) (9,614) -------- --------- ------- Total Shareholders' Equity.......... 119,894 112,102 100,775 -------- --------- ------- Total Liabilities and Shareholders' Equity.............. $196,465 $ 201,919 $194,427 ======== ========= ======== </TABLE> See Notes to Condensed Consolidated Financial Statements 3
SHOE CARNIVAL, INC. CONDENSED CONSOLIDATED STATEMENTS OF INCOME Unaudited <TABLE> <CAPTION> Thirteen Thirteen Weeks Ended Weeks Ended May 4, 2002 May 5, 2001 ----------- ----------- (In thousands, except per share data) <S> <C> <C> Net sales...................................... $ 129,384 $ 117,186 Cost of sales (including buying, distribution and occupancy costs)............ 90,302 82,230 ----------- ----------- Gross profit................................... 39,082 34,956 Selling, general and administrative expenses... 29,761 27,287 ----------- ----------- Operating income............................... 9,321 7,669 Interest expense, net.......................... 264 805 ----------- ----------- Income before income taxes..................... 9,057 6,864 Income taxes................................... 3,396 2,574 ----------- ----------- Net income..................................... $ 5,661 $ 4,290 =========== =========== Net income per share: Basic...................................... $ .45 $ .36 =========== =========== Diluted.................................... $ .44 $ .35 =========== =========== Average shares outstanding: Basic...................................... 12,471 11,971 =========== =========== Diluted.................................... 12,932 12,303 =========== =========== </TABLE> See Notes to Condensed Consolidated Financial Statements 4
SHOE CARNIVAL, INC. CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY Unaudited Add'l Common Stock Paid-In Retained Treasury Issued Treasury Amount Capital Earnings Stock Total ------ -------- ------ ------- -------- -------- ----- (In thousands) <TABLE> <CAPTION> <S> <C> <C> <C> <C> <C> <C> <C> Balance at February 2, 2002.. 13,363 (1,000) $ 134 $64,752 $54,251 $(7,035) $112,102 Exercise of stock options..... 185 512 1,575 2,087 Employee stock purchase plan purchases......... 3 44 44 Net income ......... 5,661 5,661 ------ ----- ------ ------- ------- ------ -------- Balance at May 4, 2002........ 13,363 (812) $ 134 $65,264 $59,912 $(5,416) $119,894 ====== ===== ====== ======= ======= ======= ======== </TABLE> See Notes to Condensed Consolidated Financial Statements 5
SHOE CARNIVAL, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS Unaudited <TABLE> <CAPTION> Thirteen Thirteen Weeks Ended Weeks Ended May 4, 2002 May 5, 2001 (In thousands) <S> <C> <C> Cash flows from operating activities: Net income................................... $ 5,661 $ 4,290 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization............... 2,882 2,670 Loss on retirement of assets............... 6 126 Deferred income taxes...................... (179) (323) Other .................................... 6 (59) Changes in operating assets and liabilities: Merchandise inventories.................. 5,866 (5,123) Accounts receivable...................... (94) 360 Accounts payable and accrued liabilities............................. (1,595) 2,582 Prepaid expenses and other current assets.................................. 231 (2,061) ---------- ---------- Net cash provided by operating activities....... 12,784 2,462 ----------- ---------- Cash flows from investing activities: Purchases of property and equipment.......... (5,198) (2,476) Lease incentives............................. 0 507 ----------- ---------- Net cash used in investing activities........... (5,198) (1,969) ----------- ---------- Cash flows from financing activities: Borrowings under line of credit.............. 58,100 131,725 Payments on line of credit................... (69,400) (131,725) Payments on capital lease obligations........ (260) (215) Proceeds from issuance of stock.............. 2,131 172 ----------- ---------- Net cash used in financing activities........... (9,429) (43) ----------- ---------- Net (decrease) increase in cash and cash equivalents.................................... (1,843) 450 Cash and cash equivalents at beginning of period........................................ 5,459 3,227 ----------- ---------- Cash and cash equivalents at end of period...... $ 3,616 $ 3,677 =========== ========== Supplemental disclosures of cash flow information: Cash paid during period for interest......... $ 387 $ 951 Cash paid during period for income taxes, net of refunds............................. $ (60) $ 0 Capital lease obligations incurred........... $ 47 $ 93 </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 2001 Annual Report. 7
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Results of Operations <TABLE> <CAPTION> Number of Stores Store Square Footage Comparable Beginning End of Net End of Store Sales Quarter Ended Of Period Opened Closed Period Change Period Increase <S> <C> <C> <C> <C> <C> <C> <C> May 4, 2002 182 6 0 188 71,000 2,175,000 1.1% May 5, 2001 165 3 0 168 26,000 1,937,000 2.3% </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 4, 2002 May 5, 2001 <S> <C> <C> Net sales................................. 100.0% 100.0% Cost of sales (including buying, distribution and occupancy costs)....... 69.8 70.2 ---------- ---------- Gross profit.............................. 30.2 29.8 Selling, general and administrative expenses................................ 23.0 23.3 ---------- ---------- Operating income.......................... 7.2 6.5 Interest expense.......................... .2 .6 ---------- ---------- Income before income taxes................ 7.0 5.9 Income taxes.............................. 2.6 2.2 ---------- ---------- Net income................................ 4.4% 3.7% ========== ========== </TABLE> Net Sales Net sales increased $12.2 million to $129.4 million in the first quarter of 2002, a 10.4% increase over net sales of $117.2 million in the comparable prior year period. The increase was attributable to a 1.1% comparable store sales increase and the sales generated by the 23 new stores opened in 2001 and 2002 (net of one store closed). Gross Profit Gross profit increased $4.1 million to $39.1 million in the first quarter of 2002, an 11.8% increase over gross profit of $35.0 million in the comparable prior year period. The Company's gross profit margin increased to 30.2% from 29.8% in the prior year. As a percentage of sales, the merchandise gross profit increased .4% as compared to last year, and buying, distribution and occupancy costs were flat with last year. 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 $2.5 million to $29.8 million in the first quarter of 2002 from $27.3 million in the comparable prior year period. As a percentage of sales, these expenses decreased to 23.0% from 23.3% in the prior year. Total pre-opening costs in the first quarter of 2002 were $432,000 or 0.3% of sales, as compared to $187,000 or 0.2%, of sales in the first quarter of 2001. Interest Expense The decrease in net interest expense to $264,000 in the first quarter of 2002 from $805,000 in the first quarter of 2001 resulted from a 45% reduction in average borrowings and a lower effective interest rate. Income Taxes The effective income tax rate of 37.5% in the first quarter of 2002 and 2001 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 increased $10.3 million to $12.8 million during the first quarter of 2002 from $2.5 million for the first quarter of 2001. Excluding changes in operating assets and liabilities, cash provided by operating activities was $8.4 million in the first quarter of 2002 versus $6.7 million in the comparable prior year period. Merchandise inventories increased $1.6 million to $129.8 million at May 4, 2002 from $128.2 million at May 5, 2001. In 2002, the key merchandise strategy is centered on lowering merchandise inventory levels of seasonal fashion product in order to increase the overall gross profit margin. Leaner inventories in the seasonal fashion categories, particularly women's product, are expected to reduce our exposure to markdowns and increase cash flow. While the number of stores operated at the end of the first quarter increased 11.9%, merchandise inventories only increased 1.3%. This resulted in a decrease in merchandise inventories on a per-store basis at the end of the first quarter of 9.5% compared with the end of the first quarter of last year. Decreases in merchandise inventories on a per-store basis at quarter-end for the remainder of the year are expected to range from 4% to 6%. Working capital decreased to $85.2 million at May 4, 2002 from $92.4 million at May 5, 2001. The current ratio was 2.6 to 1 at May 4, 2002 and 3.1 to 1 at May 5, 2001. Long-term debt as a percentage of total capital was 11.9% at May 4, 2002 compared with 28.9% at May 5, 2001. The decrease in working capital was primarily due to an increase in accounts payable and accrued liabilities. Capital expenditures were $5.2 million in the first quarter of 2002. Of these expenditures, $2.8 million was incurred for new stores and $1.8 was incurred for purchase of our existing point-of-sale software from the vendor. All other capital additions totaled $700,000. The Company intends to open 25 stores in 2002, including the six stores opened in the first quarter. Seven stores are expected to open in the second quarter with the remaining store openings in the third and fourth quarter. Three stores were opened in the first quarter of 2001. 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 9
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) 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 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 $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 $75,000 per store. The Company's unsecured credit facility provides for up to $70 million in cash advances on a revolving basis and commercial letters of credit. Borrowings under the revolving credit line are based on eligible inventory. Cash generated by operations in the first quarter of 2002 was primarily used to reduce the outstanding borrowings under this facility by $11.3 million. Borrowings and letters of credit outstanding under the credit facility at May 4, 2002 were $15.7 million and $2.6 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 5, 2002. Election of Directors J. Wayne Weaver and Gerald W. Schoor were each elected at the annual meeting to serve as a Director of the Company for a three- year term. Messrs. Weaver and Schoor received 11,021,919 and 11,543,766 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 2002. 11,643,624 votes were cast in favor, 9,230 votes were cast against and 11,930 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 4, 2002. 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, 2002 SHOE CARNIVAL, INC. (Registrant) By: /s/ W. Kerry Jackson W. Kerry Jackson Senior Vice President and Chief Financial Officer 12