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 2, 1998 [ ] 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 of (IRS Employer Identification incorporation or organization) Number) 8233 Baumgart Road, Evansville, Indiana 47711 (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, no par value, 13,146,005 shares outstanding as of June 1, 1998.
SHOE CARNIVAL, INC. INDEX TO FINANCIAL STATEMENTS Page Part I Financial Information Item 1 - Financial Statements (Unaudited) Condensed Balance Sheets ................................ 3 Condensed Statements of Income........................... 4 Condensed Statement of Shareholders' Equity.............. 5 Condensed Statements of Cash Flows....................... 6 Notes to Condensed 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 BALANCE SHEETS Unaudited May 2, January 31, May 3, 1998 1998 1997 --------- ----------- ---------- (In thousands) ASSETS <S> <C> <C> <C> Current Assets: Cash and cash equivalents........... $ 2,080 $ 1,571 $ 1,762 Accounts receivable................. 678 781 780 Notes receivable from shareholders.. 0 22 22 Merchandise inventories............. 66,730 59,444 64,173 Deferred income tax benefit......... 850 933 441 Other............................... 929 834 777 --------- --------- --------- Total Current Assets................... 71,267 63,585 67,955 Property and equipment-net............. 32,263 31,969 30,831 --------- --------- --------- Total Assets........................... $ 103,530 $ 95,554 $ 98,786 ========= ========= ========= LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Accounts payable.................... $ 10,481 $ 9,521 $ 8,637 Accrued and other liabilities....... 7,346 4,487 6,191 Current portion of long-term debt... 647 688 702 --------- --------- --------- Total Current Liabilities.............. 18,474 14,696 15,530 Long-term debt......................... 6,892 6,133 14,939 Deferred lease incentives.............. 1,239 1,308 1,416 Deferred income taxes.................. 1,817 1,808 1,130 --------- --------- --------- Total Liabilities...................... 28,422 23,945 33,015 --------- --------- --------- Shareholders' Equity: Common stock, no par value, 50,000 shares authorized, 13,132, 13,088, 13,037 shares issued and outstanding at May 2, 1998, January 31, 1998 and May 3, 1997... 0 0 0 Additional paid-in capital.......... 62,228 61,844 61,579 Retained earnings................... 12,880 9,765 4,192 --------- --------- --------- Total Shareholders' Equity............. 75,108 71,609 65,771 --------- --------- --------- Total Liabilities and Shareholders' Equity................. $ 103,530 $ 95,554 $ 98,786 ========= ========= ========= </TABLE> See Notes to Condensed Financial Statements 3
<TABLE> <CAPTION> SHOE CARNIVAL, INC. CONDENSED STATEMENTS OF INCOME Unaudited Thirteen Thirteen Weeks Ended Weeks Ended May 2, 1998 May 3, 1997 ------------ ----------- (In thousands, except per share data) <S> <C> <C> Net sales................................ $ 65,694 $ 59,328 Cost of sales (including buying, distribution and occupancy costs)...... 45,020 40,998 ---------- ---------- Gross profit............................. 20,674 18,330 Selling, general and administrative expenses............................... 15,309 15,044 ---------- ---------- Operating income......................... 5,365 3,286 Interest expense, net.................... 174 231 ---------- ---------- Income before income taxes............... 5,191 3,055 Income taxes............................. 2,076 1,237 ---------- ---------- Net income............................... $ 3,115 $ 1,818 ========== ========== Net income per share: Basic................................. $ .24 $ .14 ========== ========== Diluted............................... $ .23 $ .14 ========== ========== Average shares outstanding: Basic................................. 13,108 13,034 ========== ========== Diluted............................... 13,404 13,054 ========== ========== </TABLE> See Notes to Condensed Financial Statements 4
<TABLE> <CAPTION> SHOE CARNIVAL, INC. CONDENSED STATEMENT OF SHAREHOLDERS' EQUITY Unaudited Common Stock Additional ------------- Paid-In Retained Shares Amount Capital Earnings Total ------ ------ ---------- -------- -------- (In thousands) <S> <C> <C> <C> <C> <C> Balance at January 31, 1998.... 13,088 $ 0 $ 61,844 $ 9,765 $ 71,609 Employee stock purchase plan purchases......... 4 32 32 Exercise of stock options... 40 352 352 Net income.................. 3,115 3,115 ------ ---- -------- -------- -------- Balance at May 2, 1998......... 13,132 $ 0 $ 62,228 $ 12,880 $ 75,108 ====== ==== ======== ======== ======== </TABLE> See Notes to Condensed Financial Statements 5
<TABLE> <CAPTION> SHOE CARNIVAL, INC. CONDENSED STATEMENTS OF CASH FLOWS Unaudited Thirteen Thirteen Weeks Ended Weeks Ended May 2, 1998 May 3, 1997 ----------- ----------- (In thousands) <S> <C> <C> Cash flows from operating activities: Net income......................................... $ 3,115 $ 1,818 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization.................... 1,484 1,364 Loss on retirement of assets..................... 13 97 Deferred income taxes............................ 92 33 Compensation for forgiveness of debt............. 0 158 Other .......................................... (69) (41) Changes in operating assets and liabilities: Merchandise inventories........................ (7,286) (4,934) Accounts receivable............................ 103 137 Accounts payable and accrued liabilities....... 3,819 (2,333) Other.......................................... (95) 129 -------- -------- Net cash provided by (used in) operating activities... 1,176 (3,572) -------- -------- Cash flows from investing activities: Purchases of property and equipment................ (1,791) (1,662) Other.............................................. 22 16 -------- -------- Net cash used in investing activities................. (1,769) (1,646) -------- -------- Cash flows from financing activities: Borrowings under line of credit.................... 36,175 35,125 Payments on line of credit......................... (35,275) (29,625) Payments on capital lease obligations.............. (182) (168) Proceeds from issuance of stock.................... 384 23 -------- -------- Net cash provided by financing activities............. 1,102 5,355 -------- -------- Net increase in cash and cash equivalents............. 509 137 Cash and cash equivalents at beginning of period...... 1,571 1,625 -------- -------- Cash and cash equivalents at end of period............ $ 2,080 $ 1,762 ======== ======== Supplemental disclosures of cash flow information: Cash paid during period for interest............... $ 169 $ 219 Cash paid during period for income taxes........... $ 64 $ 244 Supplemental disclosure of noncash investing activities: Capital lease obligations incurred................. $ 0 $ 0 </TABLE> See Notes to Condensed Financial Statements 6
SHOE CARNIVAL, INC. NOTES TO CONDENSED 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 1997 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 ---------------- -------------------- 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 2, 1998 92 3 0 95 46,000 1,067,000 7.0% May 3, 1997 93 0 2 91 (19,000) 1,007,000 4.4% </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 2, 1998 May 3, 1997 ----------- ----------- <S> <C> <C> Net sales................................. 100.0% 100.0% Cost of sales (including buying, distribution and occupancy costs)....... 68.5 69.1 -------- -------- Gross profit.............................. 31.5 30.9 Selling, general and administrative expenses................................ 23.3 25.4 -------- -------- Operating income.......................... 8.2 5.5 Interest expense.......................... .3 .4 -------- -------- Income before income taxes................ 7.9 5.1 Income taxes.............................. 3.2 2.0 -------- -------- Net income................................ 4.7% 3.1% ======== ======== </TABLE> Net Sales Net sales increased $6.4 million to $65.7 million in the first quarter of 1998, a 10.7% increase over net sales of $59.3 million in the comparable prior year period. The increase was attributable to a 7.0% comparable store sales increase and the sales generated by the seven new stores opened in 1997 and 1998, partially offset by the reduction in sales for the four stores closed in 1997. The comparable store sales increase was supported with increases in all major product categories. Average footwear unit prices and footwear unit sales in comparable stores increased 6.0% and 1.1%, respectively. Sales of private label and non-name brand footwear constituted 14.7% of total footwear sales in the first quarter of 1998 as compared with 16.3% in the prior year quarter. Gross Profit Gross profit increased $2.3 million to $20.7 million in the first quarter of 1998, a 12.8% increase over gross profit of $18.3 million in the comparable prior year period. The Company's gross profit margin increased to 31.5% from 30.9% as a result of a 0.6% decrease in buying, distribution and occupancy costs. 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 $265,000 to $15.3 million in the first quarter of 1998 from $15.0 million in the comparable prior year period. As a percentage of sales, these expenses decreased 2.1% primarily as a result of the comparable store sales increase and a non-recurring charge in the first quarter of 1997 of $650,000 related to the retirement of the former chief executive officer. Total pre-opening costs for the three stores opened in the first quarter of 1998 were $245,000 or 0.4% of sales. No stores were opened in the first quarter of 1997. Interest Expense The reduction in net interest expense to $174,000 in the first quarter of 1998 from $231,000 in the first quarter of 1997 resulted from reduced borrowings. Income Taxes The effective income tax rate of 40.0% and 40.5% in the first quarters of 1998 and 1997, respectively, 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 $1.2 million during the first quarter of 1998. Excluding changes in operating assets and liabilities, cash provided by operating activities was $4.6 million in the first quarter of 1998. The net cash provided by operating activities resulted from the cash generated by operations before changes in operating assets and liabilities along with an increase in accounts payable and accrued liabilities of $3.8 million which was partially offset by a $7.3 million increase in merchandise inventories. The increase in merchandise inventories was primarily due to seasonal fluctuations and the addition of three stores in the first quarter of 1998. Working capital increased to $52.8 million at May 2, 1998 from $48.9 million at January 31, 1998 and the current ratio was 3.9 to 1 as compared with 4.3 to 1 at January 31, 1998. Long-term debt as a percentage of total capital was 8.4% at May 2, 1998, compared to 7.9% at January 31, 1998. Capital expenditures were $1.8 million in the first quarter of 1998. Of these expenditures, approximately $1.1 million was incurred for new stores. The remaining capital expenditures in the first quarter of 1998 were primarily for merchandise display and signage enhancements and technological improvements in the stores. The Company intends to open approximately 15 to 20 stores in 1998, including the three stores opened in the first quarter. Seven stores are expected to be opened in the second quarter with the remainder of the new stores opening in the second half of 1998, primarily in the third quarter. No stores were opened in the first half of 1997 and two stores were closed in the first quarter of 1997. 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 12,000 and 18,000 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 is expected to average approximately $400,000, 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 $550,000 to $850,000, 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 $60,000 per store. The Company's $35 million 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 2, 1998 were $6.6 million and $4.0 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 in the month the store is opened. Therefore, the Company's results of operations may be adversely affected in any quarter in which the Company opens new stores. The Company has three distinct selling periods: Easter, back-to-school and Christmas. 10
SHOE CARNIVAL, INC. PART II - OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K (a) Exhibits (27) Financial Data Schedule (b) Reports on Form 8-K No reports on Form 8-K were filed during the quarter ended May 2, 1998 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 11, 1998 SHOE CARNIVAL, INC. (Registrant) By: /s/ W. Kerry Jackson W. Kerry Jackson Vice President and Chief Financial Officer 12