UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(Mark One)
☒
Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the quarterly period ended July 30, 2022
or
☐
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
incorporation or organization)
(IRS Employer
Identification Number)
7500 East Columbia Street
Evansville, IN
47715
(Address of principal executive offices)
(Zip code)
(812) 867-4034
(Registrant’s telephone number, including area code)
NOT APPLICABLE
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading
Symbol(s)
Name of each exchange on which registered
Common Stock, par value $0.01 per share
SCVL
The Nasdaq Stock Market LLC
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 ☐ No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☒ Yes ☐ No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act.
☐ Large accelerated filer
☒ Accelerated filer
☐ Non-accelerated filer
☐ Smaller reporting company
☐ Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes ☒ 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.
Number of Shares of Common Stock, par value $0.01 per share, outstanding at August 26, 2022 was 27,613,894.
SHOE CARNIVAL, INC.
INDEX TO FORM 10-Q
Page
Part I
Financial Information
Item 1.
Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets
3
Condensed Consolidated Statements of Income
4
Condensed Consolidated Statements 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 of Financial Condition and Results of Operations
14
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
20
Item 4.
Controls and Procedures
Part II
Other Information
Item 1A.
Risk Factors
21
Unregistered Sales of Equity Securities and Use of Proceeds
Item 6.
Exhibits
22
Signature
23
2
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED BALANCE SHEETS
Unaudited
(In thousands, except share data)
July 30, 2022
January 29, 2022
July 31, 2021
Assets
Current Assets:
Cash and cash equivalents
$
51,620
117,443
146,506
Marketable securities
10,994
14,961
17,431
Accounts receivable
10,677
14,159
7,871
Merchandise inventories
385,510
285,205
308,141
Other
18,131
10,264
13,131
Total Current Assets
476,932
442,032
493,080
Property and equipment – net
124,789
88,533
65,871
Operating lease right-of-use assets
254,537
220,952
208,472
Intangible assets
32,600
0
Goodwill
10,786
11,384
Deferred income taxes
2,699
4,135
Other noncurrent assets
14,871
14,064
12,498
Total Assets
914,515
812,264
784,056
Liabilities and Shareholders’ Equity
Current Liabilities:
Accounts payable
113,826
69,092
96,494
Accrued and other liabilities
22,893
33,053
50,126
Current portion of operating lease liabilities
52,523
51,563
47,769
Total Current Liabilities
189,242
153,708
194,389
Long-term portion of operating lease liabilities
226,115
194,788
185,555
4,436
Deferred compensation
10,779
10,901
11,440
311
334
2,760
Total Liabilities
430,883
359,731
394,144
Shareholders’ Equity:
Common stock, $0.01 par value, 50,000,000 shares authorized and 41,049,190 shares issued in each period, respectively
410
Additional paid-in capital
80,760
80,681
78,330
Retained earnings
604,192
553,487
490,069
Treasury stock, at cost, 13,435,296 shares, 12,882,789 shares and 12,810,740 shares, respectively
(201,730
)
(182,045
(178,897
Total Shareholders’ Equity
483,632
452,533
389,912
Total Liabilities and Shareholders’ Equity
See notes to Condensed Consolidated Financial Statements.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
ThirteenWeeks Ended July 30, 2022
ThirteenWeeks Ended July 31, 2021
Twenty-sixWeeks Ended July 30, 2022
Twenty-sixWeeks Ended July 31, 2021
Net sales
312,268
332,230
629,795
660,687
Cost of sales (including buying, distribution and occupancy costs)
199,138
196,478
403,802
394,777
Gross profit
113,130
135,752
225,993
265,910
Selling, general and administrative expenses
74,341
76,038
151,820
148,593
Operating income
38,789
59,714
74,173
117,317
Interest income
(138
(2
(170
(6
Interest expense
65
119
160
238
Income before income taxes
38,862
59,597
74,183
117,085
Income tax expense
9,953
15,385
18,377
29,631
Net income
28,909
44,212
55,806
87,454
Net income per share:
Basic
1.05
1.56
2.01
3.09
Diluted
1.04
1.54
1.99
3.05
Weighted average shares:
27,590
28,323
27,784
28,290
27,812
28,652
28,061
28,643
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
Thirteen Weeks Ended
Common Stock
AdditionalPaid-In
Retained
Treasury
Issued
Amount
Capital
Earnings
Stock
Total
Balance at April 30, 2022
41,049
(13,462
79,595
577,823
(202,114
455,714
Dividends declared ($0.09 per share)
(2,540
Employee stock purchase plan purchases
9
39
48
Stock-based compensation awards
26
(383
383
Shares surrendered by employees to pay taxes on stock-based compensation awards
(38
Stock-based compensation expense
1,539
Balance at July 30, 2022
(13,435
Balance at May 1, 2021
(12,703
77,041
447,875
(175,051
350,275
Dividends declared ($0.07 per share)
(2,018
1
15
13
28
8
(112
112
Purchase of common stock for treasury
(117
(3,971
1,386
Balance at July 31, 2021
(12,811
Twenty-six Weeks Ended
Balance at January 29, 2022
(12,883
Dividends declared ($0.18 per share)
(5,101
27
66
93
196
(2,850
2,850
(70
(2,086
(683
(20,515
2,902
Balance at January 30, 2021
(12,839
78,737
406,655
(175,626
310,176
Dividends declared ($0.14 per share)
(4,040
46
92
218
(2,990
2,990
(76
(2,336
2,537
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Twenty-sixWeeks EndedJuly 30, 2022
Twenty-sixWeeks EndedJuly 31, 2021
Cash Flows From Operating Activities
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization
10,416
8,926
Stock-based compensation
2,741
2,686
Loss on retirement and impairment of assets, net
83
1,034
7,135
1,499
Non-cash operating lease expense
23,497
21,214
384
1,845
Changes in operating assets and liabilities:
3,481
(775
(100,305
(74,875
Operating leases
(24,794
(22,140
Accounts payable and accrued liabilities
40,514
53,236
(10,040
(257
Net cash provided by operating activities
8,918
79,847
Cash Flows From Investing Activities
Purchases of property and equipment
(50,198
(12,137
Investments in marketable securities and other
(11
(17,482
Sales of marketable securities and other
3,040
Net cash used in investing activities
(47,169
(29,619
Cash Flows From Financing Activities
Proceeds from issuance of stock
Dividends paid
(5,064
(4,039
Net cash used in financing activities
(27,572
(10,254
Net (decrease) increase in cash and cash equivalents
(65,823
39,974
Cash and cash equivalents at beginning of period
106,532
Cash and cash equivalents at end of period
Supplemental disclosures of cash flow information:
Cash paid during period for interest
164
Cash paid during period for income taxes
13,955
16,784
Capital expenditures incurred but not yet paid
1,899
941
Dividends declared but not yet paid
222
135
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 1 – Basis of Presentation
Shoe Carnival, Inc. is one of the nation’s largest family footwear retailers. We offer customers a broad assortment of dress, casual and athletic footwear and accessories for men, women and children with an emphasis on national name brands through our Shoe Carnival and Shoe Station store banners. We are an omnichannel retailer selling footwear and related products through our retail stores located in 35 states within the continental United States and in Puerto Rico, as well as through our e-commerce platform. We are an Indiana corporation that was initially formed in Delaware in 1993 and reincorporated in Indiana in 1996. References to “Shoe Carnival,” “we,” “us,” “our” and the “Company” in this Quarterly Report on Form 10-Q refer to Shoe Carnival, Inc. and its subsidiaries.
In our opinion, the accompanying unaudited Condensed Consolidated Financial Statements and notes have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission (the “SEC”) for interim financial information and contain all normal recurring adjustments necessary to fairly present our financial position and the results of our operations and our cash flows for the periods presented. Certain information and disclosures normally included in the notes to Condensed Consolidated Financial Statements have been condensed or omitted as permitted by the rules and regulations of the SEC although we believe 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. The unaudited Condensed Consolidated Financial Statements should be read in conjunction with the audited Consolidated Financial Statements and the notes thereto contained in our Annual Report on Form 10-K for the fiscal year ended January 29, 2022.
Note 2 - Acquisition of Shoe Station
On December 3, 2021, we acquired the physical stores and substantially all of the other assets and liabilities of Shoe Station, Inc. ("Shoe Station") for total consideration of $70.7 million, net of $77,000 of cash acquired. The purchase price paid is subject to an adjustment for finalization of the value of the net assets acquired and was funded with available cash on hand. Shoe Station was one of the nation's largest independent shoe retailers, with currently 22 locations in Alabama, Florida, Georgia, Mississippi and Louisiana. We believe the addition of a new brand and new retail locations to the Shoe Carnival portfolio creates a complementary retail platform to serve a broader family footwear customer base across both urban and suburban demographics.
The results of Shoe Station are included in our condensed consolidated financial statements since the acquisition date. Shoe Station bannered stores contributed Net sales of $27.2 million and $53.4 million in the thirteen and twenty-six weeks ended July 30, 2022, respectively. We recorded a preliminary allocation of the purchase price to the assets acquired and liabilities assumed based on the estimated fair values as of December 3, 2021. There were no material adjustments to our preliminary purchase price allocation recognized in year-to-date 2022. The final determination of the fair values and related impacts will be completed as soon as practicable, and within the measurement period of up to one year from the acquisition date.
Note 3 - Net Income Per Share
The following tables set forth the computation of basic and diluted net income per share as shown on the face of the accompanying Condensed Consolidated Statements of Income:
Basic Net Income per Share:
NetIncome
Shares
Per ShareAmount
Net income available for basic common shares and basic net income per share
Diluted Net Income per Share:
Conversion of stock-based compensation arrangements
329
Net income available for diluted common shares and diluted net income per share
277
353
The computation of basic net income per share of common stock is based on the weighted average number of common shares outstanding during the period. The computation of diluted net income per share is based on the weighted average number of shares outstanding plus the dilutive incremental shares that would be outstanding assuming the vesting of stock-based compensation arrangements involving restricted stock, restricted stock units and performance stock units. The computation of diluted net income per share for the thirteen and twenty-six weeks ended July 30, 2022 excluded approximately 318,000 and 31,000, respectively, of unvested stock-based awards that will be settled in shares because the impact would have been anti-dilutive. No unvested stock-based awards that will be settled in shares were excluded from the computation of diluted net income per share for the thirteen and twenty-six weeks ended July 31, 2021.
Note 4 - Fair Value Measurements
The following table presents financial instruments that are measured at fair value on a recurring basis at July 30, 2022, January 29, 2022 and July 31, 2021:
Fair Value Measurements
Level 1
Level 2
Level 3
As of July 30, 2022
Cash equivalents - money market mutual funds
41,401
Marketable securities - mutual funds that fund deferred compensation
52,395
As of January 29, 2022
115,528
130,489
As of July 31, 2021
132,514
149,945
During fiscal 2021, we invested in publicly traded mutual funds with readily determinable fair values. These marketable securities are designed to mitigate volatility in our Condensed Consolidated Statements of Income associated with our non-qualified deferred compensation plan. As of July 30, 2022, these marketable securities were principally invested in equity-based mutual funds, consistent with the allocation in our deferred compensation plan. As of July 30, 2022, the balance in our deferred compensation plan was $10.8 million, of which $42,000 was in Accrued and other liabilities based on scheduled payments due within the next 12 months and the remaining balance was in Deferred compensation, a long-term liability. To the extent there are funds in excess of the total non-qualified deferred compensation plan liability, such funds are invested in a stable value mutual fund. We classify these marketable securities as current assets because we have the ability to convert the securities into cash at our discretion and these marketable securities are not held in a rabbi trust. We have recognized unrealized losses of $2.5 million related to equity securities still held at July 30, 2022.
The fair values of cash and cash equivalents, accounts receivable, accounts payable, accrued expenses and other current liabilities approximate their carrying values because of their short-term nature.
Long-Lived Asset Impairment Testing
We periodically evaluate our long-lived assets for impairment if events or circumstances indicate that the carrying value may not be recoverable. The carrying value of long-lived assets is considered impaired when the carrying value of the assets exceeds the expected future cash flows to be derived from their use. Assets are grouped, and the evaluation is performed, at the lowest level for which there are identifiable cash flows, which is generally at a store level. Store level asset groupings typically include property and equipment and operating lease right-of-use assets. If the estimated, undiscounted future cash flows for a store are determined to be less than the carrying value of the store’s assets, an impairment loss is recorded for the difference between estimated fair value and carrying value. Assets subject to impairment are adjusted to estimated fair value and, if applicable, an impairment loss is recorded in selling, general and administrative expenses. If the operating lease right-of-use asset is impaired, we would amortize the remaining right-of-use asset on a straight-line basis over the remaining lease term.
We estimate the fair value of our long-lived assets using store specific cash flow assumptions discounted by a rate commensurate with the risk involved with such assets while incorporating marketplace assumptions. Our estimates are derived from an income-based approach considering the cash flows expected over the remaining lease term for each location. These projections are primarily based on management’s estimates of store-level sales, exercise of future lease renewal options and the store’s contribution to cash flows and, by their nature, include judgments about how current initiatives will impact future performance. We estimate the fair value of operating lease right-of-use assets using the market value of rents applicable to the leased asset, discounted using the remaining lease term.
External factors, such as the local environment in which the store is located, including store traffic and competition, are evaluated in terms of their effect on sales trends. Changes in sales and operating income assumptions or unfavorable changes in external factors can significantly impact the estimated future cash flows. An increase or decrease in the projected cash flow can significantly impact the fair value of these assets, which may have an effect on the impairment recorded. If actual operating results or market conditions differ from those anticipated, the carrying value of certain of our assets may prove unrecoverable and we may incur additional impairment charges in the future.
During the thirteen and twenty-six weeks ended July 31, 2021, we recorded impairment charges of $243,000 and $967,000 associated with one store and three stores, respectively. These charges were included in selling, general and administrative expenses. No impairment charges were recorded during the thirteen and twenty-six weeks ended July 30, 2022, and no impairments of operating right-of-use assets have been recorded in any of these periods.
Note 5 - Stock-Based Compensation
Stock-based compensation includes share-settled awards issued pursuant to our 2017 Equity Incentive Plan in the form of restricted stock units, performance stock units, and restricted and other stock awards. Additionally, we recognize stock-based compensation expense for the discount on shares sold to employees through our Employee Stock Purchase Plan and for cash-settled stock appreciation rights. For the thirteen and twenty-six weeks ended July 30, 2022 and July 31, 2021, stock-based compensation expense was comprised of the following:
Thirteen
Twenty-six
Weeks Ended
Share-settled equity awards
1,530
1,381
2,885
2,521
Stock appreciation rights
74
(161
149
Employee stock purchase plan
17
16
Total stock-based compensation expense
1,501
1,460
Income tax effect at statutory rates
(385
(377
(678
(680
Additional income tax benefit on vesting of share-settled awards
(26
(5
(521
(885
As of July 30, 2022, approximately $10.5 million of unrecognized compensation expense remained related to our share-settled equity awards. The cost is expected to be recognized over a weighted average period of approximately 1.6 years.
Share-Settled Equity Awards
The following table summarizes transactions for our restricted stock units and performance stock units:
Number ofShares
Weighted-Average GrantDate Fair Value
Outstanding at January 29, 2022
457,038
16.54
Granted
345,164
30.32
Vested
(176,425
18.28
Forfeited
(25,103
18.07
Outstanding at July 30, 2022
600,674
23.88
The total fair value at grant date of restricted stock units and performance stock units that vested during the twenty-six weeks ended July 30, 2022 and July 31, 2021 was $3.2 million and $3.1 million, respectively. The weighted-average grant date fair value of restricted stock units and performance stock units granted during the twenty-six weeks ended July 31, 2021 was $28.21.
10
The following table summarizes transactions for our restricted stock and other stock awards:
0.00
19,487
24.12
No restricted stock and other stock awards vested during the twenty-six weeks ended July 30, 2022. The total fair value at grant date of restricted stock and other stock awards that vested during the twenty-six weeks ended July 31, 2021 was $26,000. The weighted-average grant date fair value of restricted stock and other stock awards granted during the twenty-six weeks ended July 31, 2021 was $32.65.
Note 6 – Revenue
Disaggregation of Revenue by Product Category
Revenue is disaggregated by product category below. Net sales and percentage of Net sales for the thirteen and twenty-six weeks ended July 30, 2022 and July 31, 2021 were as follows:
Thirteen WeeksEnded July 30, 2022
Thirteen WeeksEnded July 31, 2021
Non-Athletics:
Women’s
94,013
30
%
83,141
25
Men’s
55,102
18
51,678
Children’s
22,822
22,553
171,937
55
157,372
Athletics:
40,511
49,648
50,776
66,902
30,977
39,925
12
122,264
40
156,475
47
Accessories
16,664
16,266
1,403
2,117
100
11
Twenty-six WeeksEnded July 30, 2022
Twenty-six WeeksEnded July 31, 2021
182,569
29
158,672
24
104,254
95,960
44,231
45,846
331,054
53
300,478
91,545
108,243
103,802
132,626
67,705
82,503
263,052
41
323,372
32,414
32,894
3,275
3,943
Accounting Policy and Performance Obligations
We operate as an omnichannel, family footwear retailer and provide the convenience of shopping at our physical stores or shopping online through our e-commerce platform. As part of our omnichannel strategy, we offer Shoes 2U, a program that enables us to ship product to a customer’s home or selected store if the product is not in stock at a particular store. We also offer “buy online, pick up in store” services for our customers. “Buy online, pick up in store” provides the convenience of local pickup for our customers.
For our physical stores, we satisfy our performance obligation and control is transferred at the point of sale when the customer takes possession of the products. This also includes the “buy online, pick up in store” scenario described above and includes sales made via our Shoes 2U program when customers choose to pick up their goods at a physical store. For sales made through our e-commerce platform in which the customer chooses home delivery, we transfer control and recognize revenue when the product is shipped. This also includes sales made via our Shoes 2U program when the customer chooses home delivery.
We offer our customers sales incentives including coupons, discounts, and free merchandise. Sales are recorded net of such incentives and returns and allowances. If an incentive involves free merchandise, that merchandise is recorded as a zero sale and the cost is included in Cost of sales. Gift card revenue is recognized at the time of redemption. When a customer makes a purchase as part of our rewards program, we allocate the transaction price between the goods purchased and the loyalty reward points and recognize the loyalty revenue based on estimated customer redemptions.
Transaction Price and Payment Terms
The transaction price is the amount of consideration we expect to receive from our customers and is reduced by any stated promotional discounts at the time of purchase. The transaction price may be variable due to terms that permit customers to exchange or return products for a refund. The implicit contract with the customer reflected in the transaction receipt states the final terms of the sale, including the description, quantity, and price of each product purchased. The customer agrees to a stated price in the contract that does not vary over the term of the contract and may include revenue to offset shipping costs. Taxes imposed by governmental authorities such as sales taxes are excluded from Net sales.
We accept various forms of payment from customers at the point of sale typical for an omnichannel retailer. Payments made for products are generally collected when control passes to the customer, either at the point of sale or at the time the customer order is shipped. For Shoes 2U transactions, customers may order the product at the point of sale. For these transactions, customers pay in advance and unearned revenue is recorded as a contract liability. We recognize the related revenue when control has been transferred to the customer (i.e., when the product is picked up by the customer or shipped to the customer). Unearned revenue related to Shoes 2U was not material to our consolidated financial statements at July 30, 2022, January 29, 2022 or July 31, 2021.
Returns and Refunds
We have established an allowance based upon historical experience in order to estimate return and refund transactions. This allowance is recorded as a reduction in sales with a corresponding refund liability recorded in Accrued and other liabilities. The estimated cost of
merchandise inventory is recorded as a reduction to Cost of sales and an increase in Merchandise inventories. Approximately $884,000 of refund liabilities and $516,000 of right of return assets associated with estimated product returns were recorded in Accrued and other liabilities as of July 30, 2022 and January 29, 2022. Approximately $740,000 of refund liabilities and $495,000 of right of return assets associated with estimated product returns were recorded in Accrued and other liabilities at July 31, 2021.
Contract Liabilities
The issuance of a gift card is recorded as an increase to contract liabilities and a decrease to contract liabilities when a customer redeems a gift card. Estimated breakage is determined based on historical breakage percentages and recognized as revenue based on expected gift card usage. We do not record breakage revenue when escheat liability to relevant jurisdictions exists. At July 30, 2022, January 29, 2022 and July 31, 2021, approximately $2.0 million, $2.3 million and $1.5 million of contract liabilities associated with unredeemed gift cards were recorded in Accrued and other liabilities, respectively. We expect the revenue associated with these liabilities to be recognized in proportion to the pattern of customer redemptions within two years. Breakage revenue associated with our gift cards of $49,000 and $108,000 was recognized in Net sales during the thirteen and twenty-six weeks ended July 30, 2022, respectively. Breakage revenue associated with our gift cards of $38,000 and $80,000 was recognized in Net sales during the thirteen and twenty-six weeks ended July 31, 2021, respectively.
Our Shoe Perks rewards program allows customers to accrue points and provides customers with the opportunity to earn rewards. Points under Shoe Perks are earned primarily by making purchases through any of our omnichannel points of sale. Once a certain threshold of accumulated points is reached, the customer earns a reward certificate, which is redeemable through any of our sales channels.
When a Shoe Perks customer makes a purchase, we allocate the transaction price between the goods purchased and the loyalty reward points earned based on the relative standalone selling price. The portion allocated to the points program is recorded as a contract liability for rewards that are expected to be redeemed. We then recognize revenue based on an estimate of when customers redeem rewards, which incorporates an estimate of points expected to expire using historical rates. During the thirteen and twenty-six weeks ended July 30, 2022, approximately $1.3 million and $2.6 million, respectively, of loyalty rewards were recognized in Net sales. During the thirteen and twenty-six weeks ended July 31, 2021, approximately $1.6 million and $2.9 million, respectively, of loyalty rewards were recognized in Net sales. At July 30, 2022, January 29, 2022 and July 31, 2021, approximately $889,000, $852,000 and $1.1 million of contract liabilities associated with loyalty rewards were recorded in Accrued and other liabilities, respectively. We expect the revenue associated with these liabilities to be recognized in proportion to the pattern of customer redemptions in less than one year.
Note 7 – Leases
We lease all of our physical stores, our single distribution center, which has a current lease term expiring in 2034, and certain other locations that support the recently acquired Shoe Station operations. We also enter into leases of equipment, copiers and billboards. All of our leases are operating leases. Leases with terms of twelve months or less are immaterial and are expensed as incurred, and we did not have any leases with related parties as of July 30, 2022.
Lease costs, including related common area maintenance (“CAM”), property taxes, and insurance, reported in our Condensed Consolidated Statements of Income were as follows for the thirteen and twenty-six weeks ended July 30, 2022 and July 31, 2021:
Thirteen Weeks
Operating lease cost
14,943
13,489
29,642
26,752
Variable lease cost
CAM, property taxes and insurance
4,667
4,861
9,429
9,629
Percentage rent and other variable lease costs
301
993
494
1,641
19,911
19,343
39,565
38,022
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Factors That May Affect Future Results
This Quarterly Report on Form 10-Q contains forward-looking statements, within the meaning of the Private Securities Litigation Reform Act of 1995, that involve a number of risks and uncertainties. A number of factors could cause our actual results, performance, achievements or industry results to be materially different from any future results, performance or achievements expressed or implied by these forward-looking statements. These factors include, but are not limited to: our ability to control costs and meet our labor needs in a rising wage, inflationary, and/or supply chain constrained environment; the duration and spread of the COVID-19 pandemic, mitigating efforts deployed, including the effects of government stimulus on consumer spending, and the pandemic’s overall impact on our operations, including our stores, supply chain and distribution processes, economic conditions, and financial market volatility; our ability to operate the recently acquired Shoe Station assets, retain Shoe Station employees and achieve expected operating results, synergies, and other benefits from the Shoe Station acquisition within expected time frames, or at all; risks that the Shoe Station acquisition may disrupt our current plans and operations or negatively impact our relationship with our vendors and other suppliers; the potential impact of national and international security concerns, including those caused by war and terrorism, on the retail environment; general economic conditions in the areas of the continental United States and Puerto Rico where our stores are located; the effects and duration of economic downturns and unemployment rates; changes in the overall retail environment and more specifically in the apparel and footwear retail sectors; our ability to generate increased sales; our ability to successfully navigate the increasing use of online retailers for fashion purchases and the impact on traffic and transactions in our physical stores; the success of the open-air shopping centers where many of our stores are located and its impact on our ability to attract customers to our stores; our ability to attract customers to our e-commerce platform and to successfully grow our omnichannel sales; the effectiveness of our inventory management, including our ability to manage key merchandise vendor relationships and emerging direct-to-consumer initiatives; changes in our relationships with other key suppliers; changes in the political and economic environments in, the status of trade relations with, and the impact of changes in trade policies and tariffs impacting, China and other countries which are the major manufacturers of footwear; the impact of competition and pricing; our ability to successfully manage and execute our marketing initiatives and maintain positive brand perception and recognition; our ability to successfully manage our current real estate portfolio and leasing obligations; changes in weather, including patterns impacted by climate change; changes in consumer buying trends and our ability to identify and respond to emerging fashion trends; the impact of disruptions in our distribution or information technology operations; the impact of natural disasters, other public health crises, political crises, civil unrest, and other catastrophic events on our operations and the operations of our suppliers, as well as on consumer confidence and purchasing in general; risks associated with the seasonality of the retail industry; the impact of unauthorized disclosure or misuse of personal and confidential information about our customers, vendors and employees, including as a result of a cybersecurity breach; our ability to successfully execute our business strategy, including the availability of desirable store locations at acceptable lease terms, our ability to identify, consummate or effectively integrate future acquisitions, our ability to implement and adapt to new technology and systems, our ability to open new stores in a timely and profitable manner, including our entry into major new markets, and the availability of sufficient funds to implement our business plans; higher than anticipated costs associated with the closing of underperforming stores; the inability of manufacturers to deliver products in a timely manner; an increase in the cost, or a disruption in the flow, of imported goods; the impact of regulatory changes in the United States, including minimum wage laws and regulations, and the countries where our manufacturers are located; the resolution of litigation or regulatory proceedings in which we are or may become involved; continued volatility and disruption in the capital and credit markets; future stock repurchases under our stock repurchase program and future dividend payments. For a more detailed discussion of risk factors impacting us, see the “Risk Factors” section of our Annual Report on Form 10-K for the fiscal year ended January 29, 2022.
General
Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is intended to provide information to assist the reader in better understanding and evaluating our financial condition and results of operations. We encourage you to read this in conjunction with our Condensed Consolidated Financial Statements and the notes thereto included in PART I, ITEM 1 of this Quarterly Report on Form 10-Q, as well as our Annual Report on Form 10-K for the fiscal year ended January 29, 2022 as filed with the SEC. This section of this Quarterly Report on Form 10-Q generally discusses our results for the second quarter 2022 and the second quarter 2021 and year-over-year comparisons between the second quarter 2022 and the second quarter 2021, as well as year-to-date results between the two periods. However, given the significant impact of the COVID-19 pandemic on our fiscal 2021 and fiscal 2020 results, we have included certain comparisons in this MD&A between the second quarter 2022 and the second quarter 2019 and respective year-to-date periods to provide further context regarding our second quarter and year-to-date 2022 results of operations.
Referred to herein, the second quarter 2022 is the thirteen weeks ended July 30, 2022; the second quarter 2021 is the thirteen weeks ended July 31, 2021; and the second quarter 2019 is the thirteen weeks ended August 3, 2019. Also referred to herein, year-to-date 2022 is the twenty-six weeks ended July 30, 2022; year-to-date 2021 is the twenty-six weeks ended July 31, 2021; and year-to-date 2019 is the twenty-six weeks ended August 3, 2019.
Overview of Our Business
Shoe Carnival, Inc. is one of the nation’s largest family footwear retailers. After our acquisition of the physical stores and substantially all of the assets and liabilities of Shoe Station, Inc. on December 3, 2021, we began operating under two banners: Shoe Carnival and Shoe Station. Our objective is to be the omnichannel retailer-of-choice for on-trend branded and private label footwear for the entire family. Our product assortment, whether shopping in a physical store or on our e-commerce platform, includes dress, casual, and work shoes, sandals, boots and a wide assortment of athletic shoes. Our typical physical store carries shoes in two general categories – athletics and non-athletics with subcategories for men's, women's, and children's, as well as a broad range of accessories. In addition to our physical stores, our e-commerce platform offers customers the same assortment of merchandise in all categories of footwear with expanded options through direct-ship arrangements with certain vendors.
Our stores under the Shoe Carnival banner combine competitive pricing with a high-energy in-store environment that encourages customer participation. Footwear in our Shoe Carnival physical stores is organized by category and brand, creating strong brand statements within the aisles. These brand statements are underscored by branded signage on endcaps and in-line signage throughout the store. Our signage may highlight a vendor’s product offerings or sales promotions, or may highlight seasonal or lifestyle statements by grouping similar footwear from multiple vendors. Certain of our Shoe Carnival stores have athletic shops that highlight leading athletic brands, and we expect to continue growing our "athletic shop" in-store concept and other shop-in-shop concepts across our fleet in the years ahead.
The addition of the Shoe Station banner and retail locations creates a complementary retail platform to serve a broader family footwear customer base across both urban and suburban demographics. The Shoe Station concept targets a more affluent family footwear customer and has a strong track record of capitalizing on emerging footwear fashion trends and introducing new brands. See Note 2 — “Acquisition of Shoe Station” to our Notes to Condensed Consolidated Financial Statements contained in PART I, ITEM 1 of this Quarterly Report on Form 10-Q and Note 3 — “Acquisition of Shoe Station” to our Notes to Consolidated Financial Statements contained in PART II, ITEM 8 of our Annual Report on Form 10-K for the fiscal year ended January 29, 2022, for further discussion.
We believe our distinctive shopping experiences give us various competitive advantages, including increased multiple unit sales; the building of a loyal, repeat customer base; the creation of word-of-mouth advertising; and enhanced sell-through of in-season goods.
Critical Accounting Policies
We use judgment in reporting our financial results. This judgment involves estimates based in part on our historical experience and incorporates the impact of the current general economic climate and company-specific circumstances. However, because future events and economic conditions are inherently uncertain, our actual results could differ materially from these estimates. Our accounting policies that require more significant judgments include those with respect to merchandise inventories, valuation of long-lived assets, accounting for business combinations, leases, and income taxes. The accounting policies that require more significant judgment are discussed in our Annual Report on Form 10-K for the fiscal year ended January 29, 2022, and there have been no material changes to those critical accounting policies.
Results of Operations Summary Information
Number of Stores
Store Square Footage
Beginning
End of
Net
End
Comparable
Quarter Ended
Of Period
Opened
Closed
Period
Change
of Period
Store Sales(1)
April 30, 2022
393
395
31,000
4,450,000
(10.6
)%
(13.8
Year-to-date
(12.2
May 1, 2021
377
(46,000
4,100,000
125.8
378
12,000
4,112,000
11.4
(34,000
48.8
The following table sets forth our results of operations expressed as a percentage of Net sales for the periods indicated:
100.0
63.8
59.1
64.1
59.7
36.2
40.9
35.9
40.3
23.8
22.9
24.1
22.5
12.4
18.0
11.8
17.8
Interest expense (income), net
0.0
3.1
4.7
2.9
4.6
9.3
13.3
8.9
13.2
Executive Summary for the Second Quarter Ended July 30, 2022
For the second quarter 2022, diluted net income per share was $1.04, the second highest second quarter in our history and only surpassed by the second quarter 2021. The $1.04 per diluted share earned was more than double the amount earned pre-pandemic in the second quarter 2019, and the $1.99 per share earned year-to-date 2022 is greater than any full year earnings in our 44 years of operation except for last year.
Net sales in the second quarter 2022 were $312.3 million and were also the highest second quarter Net sales in our history except for last year. In a challenging economic environment, our second quarter 2022 Net sales increased 16.4% and comparable store sales increased 8.0% compared to the pre-pandemic second quarter 2019. Our physical store comparable store sales increased 4.2% and e-commerce Net sales increased 75.3% compared to second quarter 2019.
Our second quarter 2022 results were positively impacted by sustained higher gross profit margin compared to pre-pandemic results, new growth provided from the Shoe Station acquisition and growth in our customer base. Gross profit margin during the second quarter 2022 was 36.2%, a 560 basis point increase compared to the second quarter 2019, due primarily to enhancements to our customer relationship management capabilities and promotional strategies which increased average selling prices. This was the primary driver for the comparable store sales increase and was partially offset by increased transportation and fuel costs. Shoe Station bannered stores contributed Net sales of $27.2 million in the quarter and $53.4 million year-to-date. During the quarter we continued growing our Shoe Perks loyalty program members. The 29.7 million Shoe Perks members as of July 30, 2022 represented an increase in new customers of 6.9% compared to the second quarter 2021 and 28.0% compared to the second quarter 2019.
Compared to the second quarter 2021, Net sales were down 6.0% and comparable store sales declined 13.8% due to lower traffic and sales volume. This decrease was due primarily to fluctuations in our customer base's discretionary income as impacted by government stimulus in 2021 and inflation in 2022 and continued COVID-19-related manufacturing and supply chain disruptions decreasing the availability of athletic inventory in 2022. Lower athletic inventory levels contributed to the decrease in comparable store athletic sales in the quarter. Comparable store athletic sales were down 25.6% compared to 2021 and down 12.9% compared to 2019. On a comparable store basis, non-athletic sales decreased 1.9% compared to 2021 and increased 30.8% compared to 2019. Net sales attributed to athletic sales were 40% in the second quarter 2022, compared to 47% in the second quarter 2021 and 50% in the second quarter 2019.
We also incurred higher transportation and fuel costs in the second quarter 2022 compared to the second quarter 2021 and the second quarter 2019. The higher transportation and fuel costs reduced our gross profit margin by 270 basis points compared to the second quarter 2021 and by 300 basis points compared to the second quarter 2019.
We ended the second quarter 2022 with Inventory of $385.5 million, an increase of $48.6 million over the second quarter 2019. Approximately 59% of the increase is inventory for the Shoe Station stores acquired last year or opened this year. The 14.4% increase in Inventory is supportive of the 20.6% increase in Net sales year-to-date 2022 compared to year-to-date 2019 and the expectation of increases in Net sales compared to 2019 for the remainder of the fiscal year.
We had no borrowings outstanding under our credit facility, which was amended and restated during the first quarter 2022, and we ended the second quarter 2022 with $62.6 million of cash, cash equivalents and marketable securities. Our new credit facility expires on March 23, 2027.
We are currently in the process of modernizing our stores and plan to have over 50% of our stores modernized by the summer of 2023 and the full program complete by the end of fiscal 2024.
Two new stores were opened in year-to-date 2022 and no stores were closed. Store count is on track to reach 400 stores by the end of fiscal 2022. No store closures during fiscal 2022 are anticipated.
Results of Operations for the Second Quarter Ended July 30, 2022 Compared to the Second Quarter Ended July 31, 2021
Net Sales
Net sales were $312.3 million during the second quarter 2022 and decreased 6.0% compared to the second quarter 2021. The decrease in Net sales was primarily the result of a 13.8% comparable store sales decline due largely to fluctuations in the discretionary income of our customer base and reduced availability of athletic shoes in the second quarter 2022, partially offset by Net sales attributable to new stores, mostly the Shoe Station stores. E-commerce sales were approximately 9% of merchandise sales in the second quarter 2022, compared to 10% in the second quarter 2021.
Gross Profit
Gross profit was $113.1 million during the second quarter 2022, a decrease of $22.6 million compared to the second quarter 2021. Gross profit margin in the second quarter 2022 was 36.2% compared to 40.9% in the second quarter 2021. Merchandise margin decreased 2.8 percentage points and buying, distribution and occupancy costs increased 1.8 percentage points as a percentage of Net sales compared to the second quarter 2021. These changes were primarily the result of the impact of inflation on transportation and fuel costs, other merchandise cost increases and the de-leveraging of other buying, distribution and occupancy costs due to lower Net sales in the second quarter 2022.
Selling, General and Administrative Expenses (“SG&A”)
SG&A decreased $1.7 million in the second quarter 2022 to $74.3 million compared to $76.0 million in the second quarter 2021. The decrease was primarily attributable to reduced incentive compensation expense as a result of maximum performance achieved last year, partially offset by increased depreciation expense resulting from investment in property and equipment related to our store portfolio modernization plan. As a percentage of Net sales, SG&A was 23.8% in the second quarter 2022 compared to 22.9% in the second quarter 2021.
Income Taxes
The effective income tax rate for the second quarter 2022 was 25.6% compared to 25.8% for the second quarter 2021. Our provision for income taxes is based on the current estimate of our annual effective tax rate and is adjusted as necessary for quarterly events. For the full 2022 fiscal year, we expect our tax rate to be between 25% and 26% compared to the 25.3% effective tax rate recognized during the full 2021 fiscal year.
Results of Operations Year-to-Date Through July 30, 2022 Compared to Year-to-Date Through July 31, 2021
Net sales were $629.8 million in year-to-date 2022, a decrease of 4.7% compared to year-to-date 2021. The decrease in Net sales was primarily the result of a 12.2% comparable store sales decline due largely to fluctuations in the discretionary income of our customer base and reduced availability of athletic shoes in year-to-date 2022, partially offset by Net sales attributable to new stores, mostly the Shoe Station stores. E-commerce sales were approximately 10% of merchandise sales in year-to-date 2022, compared to 11% in year-to-date 2021.
Gross profit was $226.0 million in year-to-date 2022, a decrease of $39.9 million compared to year-to-date 2021. Gross profit margin in year-to-date 2022 was 35.9% compared to 40.3% in year-to-date 2021. Merchandise margin decreased 2.0 percentage points and buying, distribution and occupancy costs increased 2.4 percentage points as a percentage of Net sales compared to year-to-date 2021. These changes were primarily the result of the impact of inflation on transportation and fuel costs, other merchandise cost increases and the de-leveraging of other buying, distribution and occupancy costs due to lower Net sales in year-to-date 2022.
Selling, General and Administrative Expenses
SG&A increased $3.2 million in year-to-date 2022 to $151.8 million compared to $148.6 million in year-to-date 2021. The overall increase in SG&A during year-to-date 2022 was primarily attributable to continued investment in store level wages and advertising and increased depreciation resulting from investment in property and equipment related to our store portfolio modernization plan. The increases were partially offset by lower levels of incentive compensation. As a percentage of Net sales, SG&A was 24.1% in year-to-date 2022 compared to 22.5% in year-to-date 2021.
The effective income tax rate for year-to-date 2022 was 24.8% compared to 25.3% for year-to-date 2021.
Liquidity and Capital Resources
Our primary sources of liquidity are $62.6 million of cash, cash equivalents and marketable securities on hand at the end of the second quarter 2022, cash generated from operations and availability under our $100 million credit facility. While the effects of the COVID-19 pandemic and other economic uncertainty associated with inflation, constrained supply chains and the Eastern European conflict, among other macroeconomic uncertainty, make our operating cash flow less predictable, we believe our resources will be sufficient to fund our cash needs, as they arise, for at least the next 12 months. Our primary uses of cash are normally for working capital, which are principally inventory purchases, investments in our stores, such as new stores, remodels and relocations, distribution center initiatives, lease payments associated with our real estate leases, potential dividend payments, potential share repurchases under our share repurchase program and the financing of capital projects, including investments in new systems. As part of our growth strategy, we may also pursue strategic acquisitions of other footwear retailers.
Cash Flow - Operating Activities
Net cash generated from operating activities was $8.9 million in year-to-date 2022 compared to $79.8 million during year-to-date 2021. The change in operating cash flow was primarily driven by increased earnings in year-to-date 2021 and timing of inventory purchases.
Working capital decreased on a year-over-year basis and totaled $287.7 million at July 30, 2022 compared to $298.7 million at July 31, 2021. The decrease was primarily attributable to lower cash balances due to the acquisition of Shoe Station in December 2021 and share repurchases, partially offset by higher merchandise inventory levels. Our current ratio was 2.5 as of July 30, 2022 and July 31, 2021.
Cash Flow – Investing Activities
Our cash outflows for investing activities are normally for capital expenditures. During year-to-date 2022 and 2021, we expended $50.2 million and $12.1 million, respectively, for the purchase of property and equipment, primarily related to our store portfolio modernization plan.
We invest in publicly traded mutual funds designed to mitigate income statement volatility associated with our nonqualified deferred compensation plan. The balance of these marketable securities was $11.0 million at July 30, 2022. Additional information can be found in Note 4 — “Fair Value Measurements” to our Notes to Condensed Consolidated Financial Statements contained in PART I, ITEM 1 of this Quarterly Report on Form 10-Q.
Cash Flow – Financing Activities
Our cash outflows for financing activities are typically for cash dividend payments, share repurchases or payments on our credit facility. Shares of our common stock can be either acquired as part of a publicly announced repurchase program or withheld by us in connection with employee payroll tax withholding upon the vesting of stock-based compensation awards that are settled in shares. Our cash inflows from financing activities generally reflect stock issuances to employees under our Employee Stock Purchase Plan and borrowings under our credit facility.
During year-to-date 2022, net cash used in financing activities was $27.6 million compared to $10.3 million during year-to-date 2021. The increase in net cash used in financing activities was primarily due to the repurchase of $20.5 million of shares in year-to-date 2022, compared to the repurchase of $4.0 million of shares in year-to-date 2021, associated with our Board of Directors’ authorized share repurchase program .
Capital Expenditures
Capital expenditures for fiscal 2022, including actual expenditures in year-to-date 2022, are expected to be between $63 million and $73 million, with approximately $53 million to $58 million to be used for new stores, relocations and remodels and approximately $10
million to $15 million for upgrades to our e-commerce platform, various other store improvements, continued investments in technology and normal asset replacement activities. The resources allocated to these projects are subject to near-term changes depending on the impacts associated with COVID-19, ongoing supply chain disruptions, and other macroeconomic uncertainty. Furthermore, the actual amount of cash required for capital expenditures for store operations depends in part on the number of stores opened, the number of stores relocated, the amount of lease incentives, if any, received from landlords and the number of stores remodeled. The number of new store openings and relocations 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.
Store Portfolio
We opened one Shoe Carnival branded store and one Shoe Station branded store in year-to-date 2022. Increasing market penetration by adding new stores is a key component of our growth strategy. We are on track to achieve 400 stores by the end of fiscal 2022 and aim to add over 20 new stores in fiscal 2023 and over 25 new stores annually by fiscal 2024, across both banners. These store objectives will be accomplished through a combination of both organic and acquired store growth. We believe our current store footprint provides for growth in new markets within the United States as well as fill-in opportunities within existing markets. In the near term, we expect to pursue fill-in opportunities for store growth across large and mid-size markets as we continue to leverage customer data from our customer relationship management program. We believe more attractive real estate options will be available with the addition of the Shoe Station retail concept to our portfolio. However, our future store growth may continue to be impacted by the COVID-19 pandemic and other macroeconomic uncertainty.
Over the last several years, we performed a store rationalization and performance improvement plan. As part of the plan, which is now complete, we identified underperforming stores and worked to address the performance of these stores through renegotiation of lease terms, relocation or closure. While we continue to actively monitor the store portfolio, we do not expect any further significant closures over the next several years.
Credit Facility
On March 23, 2022, we entered into a new $100 million Amended and Restated Credit Agreement (the “New Credit Agreement”), which replaced our existing credit agreement. The New Credit Agreement is collateralized by our inventory, expires on March 23, 2027, and uses a Secured Overnight Financing Rate ("SOFR") as quoted by The Federal Reserve Bank of New York as the basis for financing charges. Material covenants associated with the New Credit Agreement require that we maintain a minimum net worth of $250 million and a consolidated interest coverage ratio of not less than 3.0 to 1.0. We were in compliance with these covenants as of July 30, 2022.
The New Credit Agreement contains certain restrictions. However, as long as our consolidated EBITDA is positive and there are either no or low borrowings outstanding, we expect these restrictions would have no impact on our ability to pay cash dividends, execute share repurchases or facilitate acquisitions from cash on hand. The New Credit Agreement stipulates that cash dividends and share repurchases of $15 million or less per fiscal year can be made without restriction as long as there is no default or event of default before and immediately after such distributions. We are also permitted to make acquisitions and pay cash dividends or repurchase shares in excess of $15 million in a fiscal year provided that (a) no default or event of default exists before and immediately after the transaction and (b) on a proforma basis, the ratio of (i) the sum of (A) our consolidated funded indebtedness plus (B) three times our consolidated rental expense to (ii) the sum of (A) our consolidated EBITDA plus (B) our consolidated rental expense is less than 3.5 to 1.0. Among other restrictions, the New Credit Agreement also limits our ability to incur additional secured or unsecured debt to $20 million.
The New Credit Agreement bears interest, at our option, at (1) the agent bank’s base rate plus 0.0% to 1.0% or (2) Adjusted Term SOFR plus 0.9% to 1.9%, depending on our achievement of certain performance criteria. A commitment fee is charged at 0.2% to 0.3% per annum, depending on our achievement of certain performance criteria, on the unused portion of the lenders’ commitment. During year-to-date 2022, we did not borrow or repay funds under our prior credit facility or the New Credit Agreement. Letters of credit outstanding were $700,000 at July 30, 2022 and our borrowing capacity was $99.3 million.
The terms “net worth”, “consolidated interest coverage ratio”, “consolidated funded indebtedness”, “consolidated rental expense”, “consolidated EBITDA”, “base rate” and “Adjusted Term SOFR” are defined in the New Credit Agreement.
Dividends
On June 23, 2022, the Board of Directors approved the payment of a second quarter 2022 cash dividend to our shareholders. The quarterly cash dividend of $0.090 per share was paid on July 25, 2022 to shareholders of record as of the close of business on July 11, 2022. In the second quarter 2021, the dividend paid was $0.070 per share. During the first half of 2022 and 2021, we returned $5.1 million and $4.0 million, respectively, to our shareholders through our quarterly cash dividends.
19
The declaration and payment of any future dividends are at the discretion of the Board of Directors and will depend on our results of operations, financial condition, business conditions and other factors deemed relevant by our Board of Directors, subject to restrictions as outlined above in the “Credit Facility” discussion. See Note 9 — “Debt” to our Notes to Consolidated Financial Statements contained in PART II, ITEM 8 of our Annual Report on Form 10-K for the fiscal year ended January 29, 2022 for a further discussion of our credit facility.
Share Repurchase Program
On December 16, 2021, our Board of Directors authorized a share repurchase program for up to $50.0 million of outstanding common stock, effective January 1, 2022 (the “2022 Share Repurchase Program”). The purchases may be made in the open market or through privately negotiated transactions from time-to-time through December 31, 2022 and in accordance with applicable laws, rules and regulations. The 2022 Share Repurchase Program may be amended, suspended or discontinued at any time and does not commit us to repurchase shares of our common stock. We have funded, and intend to continue to fund, share repurchases from cash on hand, and any shares acquired will be available for stock-based compensation awards and other corporate purposes. The actual number and value of the shares to be purchased will depend on the performance of our stock price and other market and economic factors and are subject to restrictions as outlined above in the “Credit Facility” discussion. See Note 9 — “Debt” to our Notes to Consolidated Financial Statements contained in PART II, ITEM 8 of our Annual Report on Form 10-K for the fiscal year ended January 29, 2022 for a further discussion of our credit facility.
No shares were repurchased during the second quarter of 2022 under the 2022 Share Repurchase Program. During year-to-date 2022, we repurchased 682,886 shares of common stock at a total cost of $20.5 million under the 2022 Share Repurchase Program. As of July 30, 2022, we had $29.5 million available for future repurchases. Due to uncertainty related to the COVID-19 pandemic, share repurchases were limited in fiscal 2021. In year-to-date 2021, we repurchased 117,068 shares of common stock at a total cost of $4.0 million.
Seasonality
We have three distinct peak selling periods: Easter, back-to-school and Christmas. Our operating results depend significantly upon the sales generated during these periods. To prepare for our peak shopping seasons, we must order and keep in stock significantly more merchandise than we would carry during other periods of the year. Any unanticipated decrease in demand for our products or a supply chain disruption that reduces inventory availability during these peak shopping seasons in future periods could reduce our Net sales and gross profit and negatively affect our profitability.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to market risk in that the interest payable under our credit facility is based on variable interest rates and therefore is affected by changes in market rates. We do not use interest rate derivative instruments to manage exposure to changes in market interest rates. We had no borrowings outstanding during the second quarter 2022.
ITEM 4. CONTROLS AND PROCEDURES
Our Chief Executive Officer and Chief Financial Officer have concluded, based on their evaluation as of July 30, 2022, that our disclosure controls and procedures are effective to ensure that information required to be disclosed by us in the reports filed or submitted by us under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and include controls and procedures designed to ensure that information required to be disclosed by us in such reports is accumulated and communicated to our management, including the Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
On December 3, 2021, we acquired the physical stores and substantially all of the other assets and liabilities of Shoe Station, a privately held, family-owned shoe retailer. Under the rules and regulations of the SEC, we elected to exclude Shoe Station during the year ended January 29, 2022 from management's assessment of the effectiveness of our internal control over financial reporting as of January 29, 2022. In our Annual Report on Form 10-K for the year ending January 28, 2023, management and our independent registered public accounting firm will be required to provide an assessment as to the effectiveness of our internal control over financial reporting, inclusive of the acquired assets of Shoe Station.
There have been no significant changes in our internal control over financial reporting that occurred during the quarter ended July 30, 2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II - OTHER INFORMATION
ITEM 1A. RISK FACTORS
There have been no material changes to the risk factors set forth in our Annual Report on Form 10-K for the fiscal year ended January 29, 2022.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Issuer Purchases of Equity Securities
Total Numberof SharesPurchased(1)
AveragePrice Paidper Share
Total NumberOf SharesPurchasedas Partof PubliclyAnnouncedPrograms (2)
ApproximateDollar Valueof Sharesthat May YetBe PurchasedUnderPrograms (2)
May 1, 2022 to May 28, 2022
29,485,035
May 29, 2022 to July 2, 2022
1,580
24.07
July 3, 2022 to July 30, 2022
ITEM 6. EXHIBITS
EXHIBIT INDEX
Incorporated by Reference To
Exhibit
No.
Description
Form
Filing Date
Filed
Herewith
3-A
Amended and Restated Articles of Incorporation of Registrant
8-K
06/27/2022
3-B
By-laws of Registrant, as amended to date
10.1
Form of Restricted Stock Award Agreement under the Registrant's 2017 Equity Incentive Plan (Employee Directors)
X
10.2
Employment Agreement dated July 7, 2022 between the Company and Patrick C. Edwards
07/11/2022
31.1
Certification of Chief Executive Officer Pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2
Certification of Chief Financial Officer Pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1
Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2
Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101
The following materials from Shoe Carnival, Inc.’s Quarterly Report on Form 10-Q for the quarter ended July 30, 2022, formatted in Inline XBRL (Inline Extensible Business Reporting Language): (1) Condensed Consolidated Balance Sheets, (2) Condensed Consolidated Statements of Income, (3) Condensed Consolidated Statements of Shareholders’ Equity, (4) Condensed Consolidated Statements of Cash Flows, and (5) Notes to Condensed Consolidated Financial Statements.
104
Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101)
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: August 31, 2022
(Registrant)
By: /s/ W. Kerry JacksonW. Kerry JacksonSenior Executive Vice President,Chief Financial and Administrative Officer and Treasurer
(Duly Authorized Officer and Principal Financial Officer)