UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
x
|
Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934
|
|
For the quarterly period ended
October 27, 2012
|
|
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) 867-6471
|
(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.
Indicate by check mark whether the registrant has submitted
electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted 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 and post such files).
Indicate by check mark whether the registrant
is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definitions of
"large accelerated filer", "accelerated filer" and "smaller reporting company" in Rule 12b-2 of
the Exchange Act. (Check one):
¨
Large accelerated filer
|
x
Accelerated filer
|
¨
Non-accelerated filer
|
¨
Smaller reporting company
|
Indicate by check mark whether the registrant
is a shell company (as defined in Rule 12b-2 of the Exchange Act).
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, $.01 par value, outstanding
at November 30, 2012 were 20,430,373.
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 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 of Financial Condition and Results of Operations
|
12
|
|
|
|
|
|
Item 3.
|
Quantitative and Qualitative Disclosures About Market Risk
|
20
|
|
|
|
|
|
Item 4.
|
Controls and Procedures
|
20
|
|
|
|
Part II
|
Other Information
|
|
|
Item 1A.
|
Risk Factors
|
21
|
|
|
|
|
|
Item 2.
|
Unregistered Sales of Equity Securities and Use of Proceeds
|
21
|
|
|
|
|
|
Item 6.
|
Exhibits
|
21
|
|
|
|
|
Signature
|
23
|
SHOE CARNIVAL, INC.
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SHOE CARNIVAL, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
Unaudited
(In thousands)
|
|
October 27,
2012
|
|
|
January 28,
2012
|
|
|
October 29,
2011
|
|
|
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
67,134
|
|
|
$
|
70,602
|
|
|
$
|
52,997
|
|
Accounts receivable
|
|
|
3,174
|
|
|
|
2,621
|
|
|
|
3,029
|
|
Merchandise inventories
|
|
|
277,418
|
|
|
|
237,655
|
|
|
|
245,131
|
|
Deferred income taxes
|
|
|
3,261
|
|
|
|
2,496
|
|
|
|
2,830
|
|
Other
|
|
|
4,675
|
|
|
|
2,887
|
|
|
|
3,664
|
|
Total Current Assets
|
|
|
355,662
|
|
|
|
316,261
|
|
|
|
307,651
|
|
Property and equipment-net
|
|
|
76,907
|
|
|
|
69,232
|
|
|
|
67,899
|
|
Deferred income taxes
|
|
|
153
|
|
|
|
0
|
|
|
|
0
|
|
Other noncurrent assets
|
|
|
880
|
|
|
|
1,069
|
|
|
|
1,252
|
|
Total Assets
|
|
$
|
433,602
|
|
|
$
|
386,562
|
|
|
$
|
376,802
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Shareholders' Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
66,326
|
|
|
$
|
61,238
|
|
|
$
|
54,088
|
|
Accrued and other liabilities
|
|
|
24,828
|
|
|
|
14,522
|
|
|
|
16,722
|
|
Total Current Liabilities
|
|
|
91,154
|
|
|
|
75,760
|
|
|
|
70,810
|
|
Deferred lease incentives
|
|
|
16,355
|
|
|
|
12,964
|
|
|
|
11,576
|
|
Accrued rent
|
|
|
7,100
|
|
|
|
6,029
|
|
|
|
5,759
|
|
Deferred income taxes
|
|
|
0
|
|
|
|
1,930
|
|
|
|
1,566
|
|
Deferred compensation
|
|
|
5,957
|
|
|
|
6,054
|
|
|
|
5,791
|
|
Other
|
|
|
402
|
|
|
|
141
|
|
|
|
892
|
|
Total Liabilities
|
|
|
120,968
|
|
|
|
102,878
|
|
|
|
96,394
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders' Equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock, $.01 par value, 50,000 shares
authorized, 20,465, 20,478 and 20,478 shares issued, respectively
|
|
|
205
|
|
|
|
205
|
|
|
|
205
|
|
Additional paid-in capital
|
|
|
66,576
|
|
|
|
67,574
|
|
|
|
68,438
|
|
Retained earnings
|
|
|
246,317
|
|
|
|
222,235
|
|
|
|
218,960
|
|
Treasury stock, at cost, 28, 391 and 446 shares, respectively
|
|
|
(464
|
)
|
|
|
(6,330
|
)
|
|
|
(7,195
|
)
|
Total Shareholders' Equity
|
|
|
312,634
|
|
|
|
283,684
|
|
|
|
280,408
|
|
Total Liabilities and Shareholders' Equity
|
|
$
|
433,602
|
|
|
$
|
386,562
|
|
|
$
|
376,802
|
|
See notes to condensed consolidated financial statements.
SHOE CARNIVAL,
INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
Unaudited
(In thousands, except per share data)
|
|
Thirteen
Weeks Ended
October 27,
2012
|
|
|
Thirteen
Weeks Ended
October 29,
2011
|
|
|
Thirty-nine
Weeks Ended
October
27,
2012
|
|
|
Thirty-nine
Weeks Ended
October
29,
2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
244,434
|
|
|
$
|
215,472
|
|
|
$
|
649,254
|
|
|
$
|
580,594
|
|
Cost of sales (including buying,
distribution and occupancy costs)
|
|
|
167,999
|
|
|
|
150,317
|
|
|
|
451,951
|
|
|
|
407,306
|
|
Gross profit
|
|
|
76,435
|
|
|
|
65,155
|
|
|
|
197,303
|
|
|
|
173,288
|
|
Selling, general and administrative
expenses
|
|
|
55,875
|
|
|
|
48,276
|
|
|
|
154,074
|
|
|
|
136,160
|
|
Operating income
|
|
|
20,560
|
|
|
|
16,879
|
|
|
|
43,229
|
|
|
|
37,128
|
|
Interest income
|
|
|
(4
|
)
|
|
|
(17
|
)
|
|
|
(29
|
)
|
|
|
(66
|
)
|
Interest expense
|
|
|
69
|
|
|
|
68
|
|
|
|
203
|
|
|
|
200
|
|
Income before income taxes
|
|
|
20,495
|
|
|
|
16,828
|
|
|
|
43,055
|
|
|
|
36,994
|
|
Income tax expense
|
|
|
8,247
|
|
|
|
6,355
|
|
|
|
16,928
|
|
|
|
13,887
|
|
Net income
|
|
$
|
12,248
|
|
|
$
|
10,473
|
|
|
$
|
26,127
|
|
|
$
|
23,107
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.60
|
|
|
$
|
0.52
|
|
|
$
|
1.29
|
|
|
$
|
1.16
|
|
Diluted
|
|
$
|
0.60
|
|
|
$
|
0.52
|
|
|
$
|
1.28
|
|
|
$
|
1.15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
19,951
|
|
|
|
19,597
|
|
|
|
19,922
|
|
|
|
19,471
|
|
Diluted
|
|
|
20,003
|
|
|
|
19,748
|
|
|
|
19,996
|
|
|
|
19,656
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash dividends declared per share
|
|
$
|
0.05
|
|
|
$
|
0.00
|
|
|
$
|
0.10
|
|
|
$
|
0.00
|
|
See notes to condensed consolidated financial statements.
SHOE CARNIVAL,
INC.
CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
Unaudited
|
|
|
|
|
Additional
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
|
Paid-In
|
|
|
Retained
|
|
|
Treasury
|
|
|
|
|
(In thousands)
|
|
Issued
|
|
|
Treasury
|
|
|
Amount
|
|
|
Capital
|
|
|
Earnings
|
|
|
Stock
|
|
|
Total
|
|
Balance at January 28, 2012
|
|
|
20,478
|
|
|
|
(391
|
)
|
|
$
|
205
|
|
|
$
|
67,574
|
|
|
$
|
222,235
|
|
|
$
|
(6,330
|
)
|
|
$
|
283,684
|
|
Stock option exercises
|
|
|
|
|
|
|
208
|
|
|
|
|
|
|
|
(1,355
|
)
|
|
|
|
|
|
|
3,348
|
|
|
|
1,993
|
|
Dividends paid
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,045
|
)
|
|
|
|
|
|
|
(2,045
|
)
|
Stock-based compensation
income tax benefit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,294
|
|
|
|
|
|
|
|
|
|
|
|
1,294
|
|
Employee stock purchase
plan purchases
|
|
|
|
|
|
|
8
|
|
|
|
|
|
|
|
23
|
|
|
|
|
|
|
|
133
|
|
|
|
156
|
|
Restricted stock awards
|
|
|
(13
|
)
|
|
|
229
|
|
|
|
|
|
|
|
(4,260
|
)
|
|
|
|
|
|
|
4,260
|
|
|
|
0
|
|
Shares surrendered by
employees to pay taxes on restricted stock
|
|
|
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(16
|
)
|
|
|
(16
|
)
|
Purchase of common stock
for treasury
|
|
|
|
|
|
|
(81
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,859
|
)
|
|
|
(1,859
|
)
|
Stock-based compensation
expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,300
|
|
|
|
|
|
|
|
|
|
|
|
3,300
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
26,127
|
|
|
|
|
|
|
|
26,127
|
|
Balance at October 27, 2012
|
|
|
20,465
|
|
|
|
(28
|
)
|
|
$
|
205
|
|
|
$
|
66,576
|
|
|
$
|
246,317
|
|
|
$
|
(464
|
)
|
|
$
|
312,634
|
|
See notes to condensed consolidated financial statements.
SHOE CARNIVAL,
INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Unaudited
(In thousands)
|
|
Thirty-nine
Weeks Ended
October
27,
2012
|
|
|
Thirty-nine
Weeks Ended
October
29,
2011
|
|
|
|
|
|
|
|
|
Cash Flows From Operating Activities
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
26,127
|
|
|
$
|
23,107
|
|
Adjustments to reconcile net income to net cash used in operating activities:
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
11,800
|
|
|
|
10,737
|
|
Stock-based compensation
|
|
|
3,557
|
|
|
|
2,413
|
|
Loss on retirement and impairment of assets
|
|
|
485
|
|
|
|
532
|
|
Deferred income taxes
|
|
|
(2,848
|
)
|
|
|
2,342
|
|
Lease incentives
|
|
|
4,692
|
|
|
|
4,128
|
|
Other
|
|
|
(734
|
)
|
|
|
(426
|
)
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(552
|
)
|
|
|
(1,379
|
)
|
Merchandise inventories
|
|
|
(39,763
|
)
|
|
|
(32,202
|
)
|
Accounts payable and accrued liabilities
|
|
|
14,653
|
|
|
|
1,283
|
|
Other
|
|
|
760
|
|
|
|
(430
|
)
|
Net cash provided by operating activities
|
|
|
18,177
|
|
|
|
10,105
|
|
|
|
|
|
|
|
|
|
|
Cash Flows From Investing Activities
|
|
|
|
|
|
|
|
|
Purchases of property and equipment
|
|
|
(20,844
|
)
|
|
|
(17,794
|
)
|
Proceeds from sale of property and equipment
|
|
|
0
|
|
|
|
5
|
|
Proceeds from note receivable
|
|
|
200
|
|
|
|
100
|
|
Net cash used in investing activities
|
|
|
(20,644
|
)
|
|
|
(17,689
|
)
|
|
|
|
|
|
|
|
|
|
Cash Flows From Financing Activities
|
|
|
|
|
|
|
|
|
Proceeds from issuance of stock
|
|
|
2,149
|
|
|
|
1,751
|
|
Dividends paid
|
|
|
(2,045
|
)
|
|
|
0
|
|
Excess tax benefits from stock-based compensation
|
|
|
770
|
|
|
|
1,274
|
|
Purchase of common stock for treasury
|
|
|
(1,859
|
)
|
|
|
0
|
|
Shares surrendered by employees to pay taxes on restricted stock
|
|
|
(16
|
)
|
|
|
(2,637
|
)
|
Net cash (used in) provided by financing activities
|
|
|
(1,001
|
)
|
|
|
388
|
|
Net decrease in cash and cash equivalents
|
|
|
(3,468
|
)
|
|
|
(7,196
|
)
|
Cash and cash equivalents at beginning of period
|
|
|
70,602
|
|
|
|
60,193
|
|
Cash and Cash Equivalents at End of Period
|
|
$
|
67,134
|
|
|
$
|
52,997
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosures of cash flow information:
|
|
|
|
|
|
|
|
|
Cash paid during period for interest
|
|
$
|
202
|
|
|
$
|
197
|
|
Cash paid during period for income taxes
|
|
$
|
16,444
|
|
|
$
|
9,937
|
|
Capital expenditures incurred but not yet paid
|
|
$
|
1,941
|
|
|
$
|
1,110
|
|
See notes to condensed consolidated financial statements.
SHOE CARNIVAL,
INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Unaudited
Note 1 - Basis of Presentation
In our opinion, the accompanying unaudited
condensed consolidated financial statements contain all normal recurring adjustments necessary to present fairly 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 consolidated financial statements have been condensed or omitted according to the rules and regulations
of the Securities and Exchange Commission (the "SEC"), but we believe that the disclosures provided 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 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 28, 2012.
On March 23, 2012, our Board of Directors
authorized a three-for-two stock split of the shares of our common stock, which was effected in the form of a stock dividend.
The stock split entitled each shareholder of record at the close of business on April 13, 2012 to receive one additional share
of common stock for every two shares of common stock owned as of that date, and was paid on April 27, 2012. Upon the completion
of the stock split, our outstanding shares increased from approximately 13.6 million shares to approximately 20.4 million shares.
In accordance with the provisions of our equity award plans, and as determined by our Board of Directors, the following were adjusted
to equitably reflect the effect of the three-for-two stock split:
|
·
|
The
number of shares reserved
and available for issuance;
|
|
·
|
The
number of shares that
may be granted to a
plan participant in
a calendar year;
|
|
·
|
The
number of shares subject
to outstanding equity
awards;
|
|
·
|
The
exercise prices of outstanding
equity awards; and
|
|
·
|
The
annual earnings per
diluted share targets
associated with our
outstanding performance-based
restricted stock awards.
|
All share and per share amounts in this
quarterly report on Form 10-Q give effect to the stock split and have been adjusted retroactively for all periods presented.
Note 2 -
Net
Income Per Share
The following tables set forth the computation
of basic and diluted earnings per share as shown on the face of the accompanying Condensed Consolidated Statements of Income:
|
|
Thirteen Weeks Ended
|
|
|
|
October 27, 2012
|
|
|
October 29, 2011
|
|
|
|
(In thousands, except per share data)
|
|
Basic Earnings per Share:
|
|
Net
Income
|
|
|
Shares
|
|
|
Per
Share
Amount
|
|
|
Net
Income
|
|
|
Shares
|
|
|
Per
Share
Amount
|
|
Net income
|
|
$
|
12,248
|
|
|
|
|
|
|
|
|
|
|
$
|
10,473
|
|
|
|
|
|
|
|
|
|
Amount allocated to participating
securities
|
|
|
(249
|
)
|
|
|
|
|
|
|
|
|
|
|
(200
|
)
|
|
|
|
|
|
|
|
|
Net income available for basic
common shares and basic earnings per share
|
|
$
|
11,999
|
|
|
|
19,951
|
|
|
$
|
0.60
|
|
|
$
|
10,273
|
|
|
|
19,597
|
|
|
$
|
0.52
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted Earnings per Share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
12,248
|
|
|
|
|
|
|
|
|
|
|
$
|
10,473
|
|
|
|
|
|
|
|
|
|
Amount allocated to participating securities
|
|
|
(249
|
)
|
|
|
|
|
|
|
|
|
|
|
(200
|
)
|
|
|
|
|
|
|
|
|
Adjustment for dilutive potential
common shares
|
|
|
1
|
|
|
|
52
|
|
|
|
|
|
|
|
0
|
|
|
|
151
|
|
|
|
|
|
Net income available for diluted
common shares and diluted earnings per share
|
|
$
|
12,000
|
|
|
|
20,003
|
|
|
$
|
0.60
|
|
|
$
|
10,273
|
|
|
|
19,748
|
|
|
$
|
0.52
|
|
|
|
Thirty-nine Weeks Ended
|
|
|
|
October 27, 2012
|
|
|
October 29, 2011
|
|
|
|
(In thousands, except per share data)
|
|
Basic Earnings per Share:
|
|
Net
Income
|
|
|
Shares
|
|
|
Per
Share
Amount
|
|
|
Net
Income
|
|
|
Shares
|
|
|
Per
Share
Amount
|
|
Net income
|
|
$
|
26,127
|
|
|
|
|
|
|
|
|
|
|
$
|
23,107
|
|
|
|
|
|
|
|
|
|
Amount allocated to participating
securities
|
|
|
(491
|
)
|
|
|
|
|
|
|
|
|
|
|
(508
|
)
|
|
|
|
|
|
|
|
|
Net income available for basic
common shares and basic earnings per share
|
|
$
|
25,636
|
|
|
|
19,922
|
|
|
$
|
1.29
|
|
|
$
|
22,599
|
|
|
|
19,471
|
|
|
$
|
1.16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted Earnings per Share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
26,127
|
|
|
|
|
|
|
|
|
|
|
$
|
23,107
|
|
|
|
|
|
|
|
|
|
Amount allocated to participating securities
|
|
|
(491
|
)
|
|
|
|
|
|
|
|
|
|
|
(508
|
)
|
|
|
|
|
|
|
|
|
Adjustment for dilutive potential
common shares
|
|
|
2
|
|
|
|
74
|
|
|
|
|
|
|
|
0
|
|
|
|
185
|
|
|
|
|
|
Net income available for diluted
common shares and diluted earnings per share
|
|
$
|
25,638
|
|
|
|
19,996
|
|
|
$
|
1.28
|
|
|
$
|
22,599
|
|
|
|
19,656
|
|
|
$
|
1.15
|
|
Our basic and diluted earnings per share
are computed using the two-class method. The two-class method is an earnings allocation that determines net income per share for
each class of common stock and participating securities according to their participation rights in dividends and undistributed
earnings. Non-vested stock awards that include non-forfeitable rights to dividends are considered participating securities. Per
share amounts are computed by dividing net income available to common shareholders by the weighted average shares outstanding
during each period. No options to purchase shares of common stock were excluded in the computation of diluted shares for the periods
presented.
Note 3 – Recently Issued Accounting Pronouncements
In May 2011, the Financial Accounting
Standards Board (“FASB”) issued guidance which amends certain accounting and disclosure requirements related to fair
value measurements. For fair value measurements categorized as Level 3, a reporting entity should disclose quantitative information
of the unobservable inputs and assumptions, a description of the valuation processes and a narrative description of the sensitivity
of the fair value to changes in unobservable inputs. The guidance became effective for interim and annual reporting periods beginning
on or after December 15, 2011, with early adoption prohibited. We adopted the guidance on January 29, 2012. This adoption
did not have a material impact on our consolidated financial position, results of operations or cash flows.
Note 4 - Fair Value Measurements
The accounting standards related to fair
value measurements define fair value and provide a consistent framework for measuring fair value under the authoritative literature.
Valuation techniques are based on observable and unobservable inputs. Observable inputs reflect readily obtainable data from independent
sources, while unobservable inputs reflect market assumptions. This guidance only applies when other standards require or permit
the fair value measurement of assets and liabilities. The guidance does not expand the use of fair value measurements. A fair
value hierarchy was established, which prioritizes the inputs used in measuring fair value into three broad levels.
|
·
|
Level
1 – Quoted prices
in active markets for
identical assets or
liabilities;
|
|
·
|
Level
2 – Observable
market-based inputs
or unobservable inputs
that are corroborated
by market data;
|
|
·
|
Level
3 –
Significant
unobservable
inputs
that are
not corroborated
by market
data.
Generally,
these
fair value
measures
are model-based
valuation
techniques
such as
discounted
cash flows,
and are
based
on the
best information
available,
including
our own
data.
Fair
values
of our
long-lived
assets
are estimated
using
an income-based
approach
and are
classified
within
Level
3 of the
valuation
hierarchy.
|
The following table presents assets that
are measured at fair value on a recurring basis at October 27, 2012, January 28, 2012 and October 29, 2011. We have no material
liabilities measured at fair value on a recurring or non-recurring basis.
|
|
Fair Value Measurements
|
|
(In thousands)
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
As of October 27, 2012:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash equivalents – money market fund
|
|
$
|
5,257
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
5,257
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of January 28, 2012:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash equivalents– money market fund
|
|
$
|
25,231
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
25,231
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of October 29, 2011:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash equivalents – money market fund
|
|
$
|
25,218
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
25,218
|
|
The fair values of cash, receivables,
accounts payable, accrued expenses and other current liabilities approximate their carrying values because of their short-term
nature. From time to time, we measure certain assets at fair value on a non-recurring basis, specifically long-lived assets
evaluated for impairment. These are typically store specific assets, which are reviewed for impairment whenever events or
changes in circumstances indicate that recoverability of their carrying value is questionable. If the expected future cash
flows related to a store’s assets are less than their carrying value, an impairment loss would be recognized for the difference
between estimated fair value and carrying value and recorded in selling, general and administrative expenses. We estimate the
fair value of store assets using 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, gross margins, direct
expenses, exercise of future lease renewal options and resulting cash flows and, by their nature, include judgments about how
current initiatives will impact future performance. External factors, such as the local environment in which the store resides,
including strip-mall 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 decrease or increase the fair value of these assets, which would have
an effect on the impairment recorded.
There were no impairments recorded during
the thirteen weeks ended October 27, 2012. During the thirty-nine weeks ended October 27, 2012, long-lived assets held and used
with a gross carrying amount of $1.2 million were written down to their fair value of $772,000, resulting in an impairment charge
of $350,000, which was included in earnings for the period. Subsequent to this impairment, these long-lived assets had a remaining
unamortized basis of $328,000. During the thirteen weeks ended October 29, 2011, long-lived assets held and used with a gross
carrying amount of $175,000 were written down to their fair value of $136,000, resulting in an impairment charge of $39,000, which
was included in earnings for the period. Subsequent to this impairment, these long-lived assets had no remaining unamortized basis.
During the thirty-nine weeks ended October 29, 2011, long-lived assets held and used with a gross carrying amount of $712,000
were written down to their fair value of $455,000, resulting in an impairment charge of $257,000, which was included in earnings
for the period. Subsequent to this impairment, these long-lived assets had a remaining unamortized basis of $84,000. During the
fifty-two weeks ended January 28, 2012, long-lived assets held and used with a gross carrying amount of $966,000 were written
down to their fair value of $628,000, resulting in an impairment charge of $338,000, which was included in earnings for the period.
Subsequent to this impairment, these long-lived assets had a remaining unamortized basis of $84,000.
Note 5 - Stock-Based Compensation
On April 27, 2012, we completed a three-for-two
stock split of the shares of our common stock, which was effected in the form of a stock dividend. All share and per share amounts
referenced below give effect to the stock split and have been adjusted retroactively for all periods presented.
Stock-based compensation
includes stock options, stock appreciation rights, restricted stock grants and certain transactions under our stock-based compensation
plans. Additionally, we recognize stock-based compensation expense for the discount on shares sold to employees through our employee
stock purchase plan. Stock-based compensation expense for stock options, stock appreciation rights, and the employee stock purchase
plan was $114,000 before the income tax benefit of $45,000 and $285,000 before the income tax benefit of $113,000 for the thirteen
and thirty-nine weeks ended October 27, 2012, respectively. For the thirteen and thirty-nine weeks ended October 29, 2011, stock-based
compensation expense was $58,000 before the income tax benefit of $22,000 and $225,000 before the income tax benefit of $86,000,
respectively.
The following section summarizes the share
transactions for our restricted stock awards:
|
|
Number of
Shares
|
|
|
Weighted-
Average Grant
Date Fair
Value
|
|
Non-vested at January 28, 2012
|
|
|
277,145
|
|
|
$
|
17.31
|
|
Granted
|
|
|
329,154
|
|
|
|
19.39
|
|
Vested
|
|
|
(2,250
|
)
|
|
|
17.66
|
|
Forfeited or expired
|
|
|
(113,015
|
)
|
|
|
17.17
|
|
Non-vested at October 27, 2012
|
|
|
491,034
|
|
|
$
|
18.73
|
|
The weighted-average
grant date fair value of stock awards granted during the thirty-nine week periods ended October 27, 2012 and October 29, 2011
was $19.39 and $17.08, respectively. The total fair value at grant date of previously non-vested stock awards that vested during
the first nine months of fiscal 2012 and the first nine months of fiscal 2011 was $40,000 and $5.8 million, respectively. Of the
113,015 restricted stock awards that were forfeited or that expired during the first nine months of fiscal 2012, 22,539 shares
were restricted stock awards that expired unvested, as the performance measure was not achieved. These awards represented the
third tier of the restricted stock granted on March 13, 2006 that expired in the first quarter of fiscal 2012. An additional 77,500
shares of non-vested restricted stock were forfeited upon the retirement of our former President and Chief Executive Officer on
October 27, 2012.
The following section summarizes information
regarding stock-based compensation expense recognized for restricted stock awards:
(In thousands)
|
|
Thirteen
Weeks Ended
October 27,
2012
|
|
|
Thirteen
Weeks Ended
October 29,
2011
|
|
|
Thirty-nine
Weeks Ended
October
27,
2012
|
|
|
Thirty-nine
Weeks Ended
October
29,
2011
|
|
Stock-based compensation expense before
the recognized income tax benefit
|
|
$
|
555
|
|
|
$
|
533
|
|
|
$
|
3,273
|
|
|
$
|
2,188
|
|
Income tax benefit
|
|
$
|
220
|
|
|
$
|
203
|
|
|
$
|
1,298
|
|
|
$
|
834
|
|
During the fourth quarter
of fiscal 2011, stock-based compensation expense was reduced by $716,000 due to the reversal of cumulative prior period expense
for performance-based awards that management deemed were not probable to vest prior to their expiration. However, based on our
improved financial outlook, a cumulative catch-up of $789,000 in expense was recorded during the second quarter of fiscal 2012
as management deemed that these awards are probable to vest prior to their expiration. During the third quarter of fiscal 2012,
a cumulative reduction in stock-based compensation expense of $835,000 was recorded as we increased our applied forfeiture rate
on the non-vested performance-based awards due to the retirement of our former President and Chief Executive Officer.
As of October 27, 2012,
approximately $5.6 million of unrecognized compensation expense remained related to both our performance-based and service-based
non-vested stock awards. This expense is expected to be recognized over a weighted average period of approximately 1.8 years.
This incorporates our current assumptions with respect to the estimated requisite service period required to achieve the designated
performance conditions for performance-based stock awards.
Note 6 - Dividends
On June 14, 2012, our Board of Directors
approved the payment of our first-ever quarterly cash dividend to our shareholders. The initial dividend of $0.05 per share
was paid on July 16, 2012 to shareholders of record as of the close of business on July 2, 2012. During the third quarter
of fiscal 2012, our Board of Directors approved the payment of a $0.05 per share quarterly cash dividend, which was paid on October
22, 2012 to shareholders of record as of the close of business on October 8, 2012.
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.
|
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: general economic conditions in the areas of the continental United
States and Puerto Rico in which 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 at our stores; the potential impact of national and international security concerns on the retail environment;
changes in our relationships with key suppliers; the impact of competition and pricing; changes in weather patterns, 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 effectiveness of our inventory management; the impact of hurricanes or other natural
disasters on our stores, as well as on consumer confidence and purchasing in general; risks associated with the seasonality of
the retail industry; our ability to successfully execute our growth strategy, including the availability of desirable store locations
at acceptable lease terms, 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 growth plans; higher than anticipated costs associated with
the closing of underperforming stores; our ability to successfully grow our e-commerce business; the inability of manufacturers
to deliver products in a timely manner; changes in the political and economic environments in China, Brazil, Europe and East Asia,
where the primary manufacturers of footwear are located; the impact of regulatory changes in the United States and the countries
where our manufacturers are located; and the continued favorable trade relations between the United States and China and the other
countries which are the major manufacturers of footwear. For a more detailed discussion of certain risk factors see the "Risk
Factors" section of our Annual Report on Form 10-K for the fiscal year ended January 28, 2012.
General
Management’s Discussion and Analysis
of Financial Condition and Results of Operations 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 to those statements included in PART I, ITEM 1. FINANCIAL STATEMENTS of this Quarterly
Report on Form 10-Q, as well as our Annual Report on Form 10-K for the fiscal year ended January 28, 2012 as filed with the SEC.
On March 23, 2012, our Board of Directors
authorized a three-for-two stock split of the shares of our common stock, which was effected in the form of a stock dividend.
The stock split entitled each shareholder of record at the close of business on April 13, 2012 to receive one additional share
of common stock for every two shares of common stock owned as of that date, and was paid on April 27, 2012. Upon the completion
of the stock split, our outstanding shares increased from approximately 13.6 million shares to approximately 20.4 million shares.
In accordance with the provisions of our equity award plans, and as determined by our Board of Directors, the following were adjusted
to equitably reflect the effect of the three-for-two stock split:
|
·
|
The
number of shares reserved
and available for issuance;
|
|
·
|
The
number of shares that
may be granted to a
plan participant in
a calendar year;
|
|
·
|
The
number of shares subject
to outstanding equity
awards;
|
|
·
|
The
exercise prices of outstanding
equity awards; and
|
|
·
|
The
annual earnings per
diluted share targets
associated with our
outstanding performance-based
restricted stock awards.
|
All share and per share amounts in this
quarterly report on Form 10-Q give effect to the stock split and have been adjusted retroactively for all periods presented.
Overview of Our Business
Shoe Carnival, Inc. is one of the nation’s
largest family footwear retailers, providing the convenience of shopping at any of our 352 store locations or online at shoecarnival.com.
During fiscal 2012, we expanded our operations outside of the continental United States by opening four new stores in Puerto Rico.
Our stores combine competitive pricing with a highly promotional, in-store marketing effort that encourages customer participation
and creates a fun and exciting shopping experience. We believe this highly promotional atmosphere results in 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. The same excitement and spontaneity is reflected in our e-commerce
site through special promotions and limited time sales, along with relevant fashion stories featured on our home page.
Our objective is to be the destination
retailer-of-choice for a wide range of consumers seeking value priced, current season name brand and private label footwear. Our
product assortment includes dress and casual shoes, sandals, boots and a wide assortment of athletic shoes for the entire family.
Our average store carries approximately 28,500 pairs of shoes in four general categories - men’s, women’s,
children’s and athletics. In addition to footwear, our stores carry selected accessory items complementary to the sale of
footwear. Our e-commerce site offers customers an opportunity to choose from a large selection of products in all categories with
a depth of sizes and colors that may not be available in some of our smaller stores. Our e-commerce site also serves to introduce
our concept to consumers that are new to Shoe Carnival both in existing and new markets.
Critical Accounting Policies
It is necessary for us to include certain
judgments in our reported financial results. These judgments involve estimates based in part on our historical experience
and incorporate 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.
The accounting policies that require the more significant judgments are included below.
Merchandise Inventories
–
Our merchandise inventories are stated at the lower of cost or market (LCM) as of the balance sheet date and consist primarily
of dress, casual and athletic footwear for men, women and children. The cost of our merchandise is determined using the
first-in, first-out valuation method (FIFO). For determining market value, we estimate the future demand and related sale
price of merchandise in our inventory. The stated value of merchandise inventories contained on our consolidated balance
sheets also includes freight, certain capitalized overhead costs and reserves.
We review our inventory at the end of
each quarter to determine if it is properly stated at LCM. Factors considered include, among others, recent sale prices,
the length of time merchandise has been held in inventory, quantities of the various styles held in inventory, seasonality of
the merchandise, expected consideration to be received from our vendors and current and expected future sales trends. We
reduce the value of our inventory to its estimated net realizable value where cost exceeds the estimated future selling price.
Merchandise inventories as of October 27, 2012 and October 29, 2011 totaled $277.4 million and $245.1 million, respectively. These
amounts represented approximately 65% of total assets for both periods. Given the significance of inventories to our consolidated
financial statements, the determination of net realizable value is considered to be a critical accounting estimate. Material
changes in the factors noted above could have a significant impact on the actual net realizable value of our inventory and our
reported operating results.
Valuation of Long-Lived Assets
– Long-lived assets, such as property and equipment subject to depreciation, are evaluated for impairment on a periodic
basis if events or circumstances indicate the carrying value may not be recoverable. This evaluation includes performing an analysis
of the estimated undiscounted future cash flows of the long-lived assets. 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.
If the estimated 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. 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 assumptions and estimates used in the evaluation of impairment, including current and future economic trends
for stores, are subject to a high degree of judgment. Assets subject to impairment are adjusted to estimated fair value and, if
applicable, an impairment loss is recorded in selling, general and administrative expenses. Our long-lived assets as of October
27, 2012 and October 29, 2011 totaled $76.9 million and $67.9 million, respectively, representing approximately 18% of total assets
for both periods. From our evaluations performed during the first nine months of fiscal 2012 and fiscal 2011, we recorded impairments
of long-lived assets of $350,000 and $257,000, respectively. If actual operating results or market conditions differ from those
anticipated, the carrying value of certain assets may prove unrecoverable and we may incur additional impairment charges in the
future.
Insurance Reserves
– We self-insure
a significant portion of our workers’ compensation, general liability and employee health care costs and also maintain insurance
in each area of risk protecting us from individual and aggregate losses over specified dollar values. We review the liability
reserved for our self-insured portions on a quarterly basis, taking into consideration a number of factors, including historical
claims experience, severity factors, statistical trends and, in certain instances, valuation assistance provided by independent
third parties. Our self-insurance reserves include estimates of both claims filed, carried at their expected ultimate settlement
value, and claims incurred but not yet reported. Our self-insurance reserves totaled approximately $2.7 million at the end of
both October 27, 2012 and October 29, 2011. While we believe that the recorded amounts are adequate, there can be no assurance
that changes to management’s estimates will not occur due to limitations inherent in the estimating process. If actual results
are not consistent with our estimates or assumptions, we may be exposed to future losses or gains that could be material.
Income Taxes
– As part of
the process of preparing our consolidated financial statements, we are required to estimate our income taxes for each of the tax
jurisdictions in which we operate. As a result of this process, deferred tax assets and liabilities are recognized based on the
difference between the consolidated financial statement carrying amounts of existing assets and liabilities and their respective
tax bases. Our temporary timing differences relate primarily to inventory, depreciation, accrued expenses, deferred lease incentives
and stock-based compensation. Deferred tax assets and liabilities are measured using the estimated tax rates in effect in the
years when those temporary differences are expected to reverse.
We are also required to make many subjective
assumptions and judgments regarding our income tax exposures and account for uncertain tax positions associated with our various
filings. Interpretations of and guidance surrounding income tax laws and regulations are often complex, ambiguous and change over
time. As such, changes in our subjective assumptions and judgments can materially affect amounts recognized in our consolidated
financial statements. Although we believe that we have adequately provided for all uncertain tax positions, tax authorities could
assess tax liabilities greater or less than our accrued positions for open tax periods.
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
|
|
April 28, 2012
|
|
|
327
|
|
|
|
13
|
|
|
|
3
|
|
|
|
337
|
|
|
|
115,000
|
|
|
|
3,669,000
|
|
|
|
7.3
|
%
|
July 28, 2012
|
|
|
337
|
|
|
|
11
|
|
|
|
2
|
|
|
|
346
|
|
|
|
92,000
|
|
|
|
3,761,000
|
|
|
|
3.0
|
%
|
October 27, 2012
|
|
|
346
|
|
|
|
6
|
|
|
|
0
|
|
|
|
352
|
|
|
|
67,000
|
|
|
|
3,828,000
|
|
|
|
6.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year-to-date 2012
|
|
|
327
|
|
|
|
30
|
|
|
|
5
|
|
|
|
352
|
|
|
|
274,000
|
|
|
|
3,828,000
|
|
|
|
5.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
April 30, 2011
|
|
|
314
|
|
|
|
4
|
|
|
|
0
|
|
|
|
318
|
|
|
|
39,000
|
|
|
|
3,429,000
|
|
|
|
3.4
|
%
|
July 30, 2011
|
|
|
318
|
|
|
|
5
|
|
|
|
2
|
|
|
|
321
|
|
|
|
55,000
|
|
|
|
3,484,000
|
|
|
|
-1.1
|
%
|
October 29, 2011
|
|
|
321
|
|
|
|
7
|
|
|
|
1
|
|
|
|
327
|
|
|
|
70,000
|
|
|
|
3,554,000
|
|
|
|
2.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year-to-date 2011
|
|
|
314
|
|
|
|
16
|
|
|
|
3
|
|
|
|
327
|
|
|
|
164,000
|
|
|
|
3,554,000
|
|
|
|
1.9
|
%
|
Comparable store sales for the periods
indicated include stores that have been open for 13 full months prior to the beginning of the period, including those stores that
have been relocated or remodeled. Therefore, stores opened or closed during the periods indicated are not included in comparable
store sales nor are our e-commerce sales. Our e-commerce sales will be included in comparable sales starting with the fourth quarter
of fiscal 2012.
The following table sets forth our results
of operations expressed as a percentage of net sales for the periods indicated:
|
|
Thirteen
Weeks Ended
October 27, 2012
|
|
|
Thirteen
Weeks Ended
October 29, 2011
|
|
|
Thirty-nine
Weeks Ended
October 27, 2012
|
|
|
Thirty-nine
Weeks Ended
October 29, 2011
|
|
Net sales
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
Cost of sales (including buying,
distribution and occupancy costs)
|
|
|
68.7
|
|
|
|
69.8
|
|
|
|
69.6
|
|
|
|
70.2
|
|
Gross profit
|
|
|
31.3
|
|
|
|
30.2
|
|
|
|
30.4
|
|
|
|
29.8
|
|
Selling, general and administrative
expenses
|
|
|
22.9
|
|
|
|
22.4
|
|
|
|
23.7
|
|
|
|
23.4
|
|
Operating income
|
|
|
8.4
|
|
|
|
7.8
|
|
|
|
6.7
|
|
|
|
6.4
|
|
Interest (income) expense, net
|
|
|
0.0
|
|
|
|
0.0
|
|
|
|
0.0
|
|
|
|
0.0
|
|
Income before income taxes
|
|
|
8.4
|
|
|
|
7.8
|
|
|
|
6.7
|
|
|
|
6.4
|
|
Income tax expense
|
|
|
3.4
|
|
|
|
2.9
|
|
|
|
2.7
|
|
|
|
2.4
|
|
Net income
|
|
|
5.0
|
%
|
|
|
4.9
|
%
|
|
|
4.0
|
%
|
|
|
4.0
|
%
|
Executive Summary for Third Quarter
Ended October 27, 2012
|
·
|
Net
sales increased $29.0
million to $244.4 million
in the third quarter
of fiscal 2012, a 13.4%
increase over the third
quarter of the prior
year. Our comparable
store sales increased
6.2%, driven by an increase
in the average selling
price of our footwear.
|
|
·
|
Our
record quarterly earnings
per diluted share of
$0.60 represented a
15.4% increase over
earnings per diluted
share of $0.52 achieved
in the third quarter
of fiscal 2011.
|
|
·
|
We
opened six stores during
the third quarter this
year as compared to
seven stores during
the third quarter of
last year. Pre-opening
expenses for the quarter
were $830,000, a $475,000
increase over the third
quarter of last year.
|
|
·
|
The
effective income tax
rate for the third quarter
of fiscal 2012 was 40.2%
as compared to 37.8%
for the same period
in fiscal 2011. The
increase in the effective
income tax rate between
comparative periods
was primarily due to
the non-deductibility
of compensation attributable
to the retirement of
our former President
and Chief Executive
Officer.
|
|
·
|
Inventories
at the end of the third
quarter increased $32.3
million as compared
to the end of the third
quarter of last year.
Approximately one-half
of this increase was
attributable to our
store growth and the
addition of our e-commerce
business. The remainder
of the increase was
primarily attributable
to the higher average
cost of footwear held
in our inventory.
|
|
·
|
Our
Board of Directors approved
the payment of a $0.05
quarterly cash dividend,
which was paid on October
22, 2012 to shareholders
of record as of the
close of business on
October 8, 2012.
|
Results of Operations for the Third
Quarter Ended October 27, 2012
Net Sales
Net sales increased $29.0 million to $244.4
million during the third quarter of fiscal 2012, a 13.4% increase over the prior year's third quarter net sales as our customer
continued to respond favorably to our athletic and women’s casual product assortment. Of this increase in net sales, $18.9
million in sales were generated by the stores opened since the beginning of the third quarter of fiscal 2011 and our e-commerce
operation. Comparable store sales increased 6.2%, or approximately $13.0 million. Our comparable store sales gains were driven
by an increase in the average unit selling price of our footwear, which was partially offset by a decline in the number of footwear
units sold. These sales increases were partially offset by a $2.9 million decline in sales from the seven stores closed since
the beginning of the third quarter of fiscal 2011.
Gross Profit
Gross profit increased $11.3 million to
$76.4 million in the third quarter of fiscal 2012. The gross profit margin increased to 31.3% from 30.2% as compared to the third
quarter of fiscal 2011. The merchandise margin increased 0.6%, due in part to less clearance activity. Buying, distribution and
occupancy costs increased $1.5 million during the third quarter of fiscal 2012 as compared to the same period last year primarily
as a result of the operation of additional store locations. However, our sales gain enabled us to leverage these costs by 0.5%,
as a percentage of sales. Included in buying, distribution and occupancy costs was a $130,000 increase in pre-opening distribution
and occupancy costs for new stores.
Selling, General and Administrative Expenses
Selling, general
and administrative expenses increased $7.6 million in the third quarter of fiscal 2012 to $55.9 million.
Significant changes
in expenses between the comparative periods included the following:
|
·
|
We
incurred an additional
$5.1 million of
expense during
the third quarter
of fiscal 2012,
as compared to
the third quarter
of last year, in
the operation of
new stores and
our e-commerce
initiative. This
increase was net
of expense reductions
for stores that
have closed since
the beginning of
the third quarter
of fiscal 2011.
|
|
·
|
Incentive
compensation, inclusive
of stock-based
compensation, increased
$1.8 million in
the third quarter
of fiscal 2012
as compared to
the same period
last year due to
our improved financial
performance.
|
|
·
|
In connection with his retirement, we paid a one-time retirement and severance payment
of $1.4 million to our former President and Chief Executive Officer, which was included as incentive compensation in selling,
general and administrative expenses for the third quarter of fiscal 2012. Also included were incentive compensation
expense reductions for amounts previously accrued for him under our performance-based executive compensation plan and to
reflect the forfeiture of his non-vested stock awards.
|
Pre-opening costs included in selling,
general and administrative expenses were $523,000, or 0.2% as a percentage of sales, in the third quarter of fiscal 2012, as compared
to $178,000, or 0.1% as a percentage of sales, in the third quarter of last year. We opened six stores during the third quarter
of fiscal 2012 and seven stores in the third quarter of last year. Pre-opening costs, such as advertising, payroll and supplies,
incurred prior to the opening of a new store are charged to expense in the period in which they are incurred. The total amount
of pre-opening expense incurred will vary by store depending on the specific market and the promotional activities involved.
Income Taxes
The effective income tax rate for the
third quarter of fiscal 2012 was 40.2% as compared to 37.8% for the same period in fiscal 2011. Our provision for income tax expense
is based on the current estimate of our annual effective tax rate and is adjusted as necessary for quarterly events. The increase
in the effective income tax rate between comparative periods was primarily due to the non-deductibility of compensation attributable
to the retirement of our former President and Chief Executive Officer.
Results of Operations for Nine Month
Period Ended October 27, 2012
Net Sales
Net sales increased $68.7 million to $649.3
million during the first nine months of fiscal 2012, an 11.8% increase over net sales in the same period last year, as our customer
has responded favorably to our athletic and casual product assortments. Sales generated by the 47 stores opened since the beginning
of fiscal 2011 and our e-commerce operation have contributed $43.0 million of the net sales increase. Comparable store sales increased
5.7%, or approximately $32.2 million. Our comparable store sales gains were primarily driven by an increase in the average unit
selling price of our footwear. These sales increases were partially offset by a decline in sales of $6.6 million from the nine
stores closed since the beginning of fiscal 2011.
Gross Profit
Gross profit increased $24.0 million to
$197.3 million in the first nine months of fiscal 2012. The gross profit margin for the first nine months of fiscal 2012 increased
to 30.4% from 29.8% in the comparable prior year period. The merchandise margin increased 0.2% compared to the first nine months
of last year. Buying, distribution and occupancy costs increased $4.5 million during the first nine months of fiscal 2012 as compared
to the same period last year primarily as a result of the operation of additional store locations. However, ours sales gain enabled
us to leverage these costs by 0.4%, as a percentage of sales. Included in buying, distribution and occupancy costs were pre-opening
costs of $1.3 million as compared to $415,000 in same period last year. Partially offsetting the $843,000 increase in pre-opening
distribution and occupancy costs for new stores was a $380,000 decline in store closing costs.
Selling, General and Administrative Expenses
Selling, general
and administrative expenses increased $17.9 million in the first nine months of fiscal 2012 to $154.1 million.
Significant
changes in expense between the comparative periods included the following:
|
·
|
We
incurred an additional
$12.3 million of
expense during
the first nine
months of fiscal
2012, as compared
to the same period
last year, in the
operation of new
stores and our
e-commerce initiative.
This increase was
net of expense
reductions for
stores that have
closed since the
beginning of fiscal
2011.
|
|
·
|
Incentive compensation,
inclusive of stock-based
compensation, increased
$4.1 million in
first nine months
of fiscal 2012
as compared to
the same period
last year due to
our improved financial
performance.
|
|
·
|
We
experienced a year-over-year
increase in self-insured
health care costs
of $1.5 million
in the nine months
of fiscal 2012
as compared to
the same period
last year. Costs
related to our
self-insured health
care programs are
subject to a significant
degree of volatility,
and, consequently,
this produces a
risk of material
variances between
reporting periods.
|
In the first nine months of fiscal 2012,
pre-opening costs included in selling, general and administrative expenses were $2.4 million, or 0.4% as a percentage of sales,
as compared to $907,000, or 0.2% as a percentage of sales, in the same period last year. We opened 30 stores during the first
nine months of fiscal 2012 as compared to 16 stores in the comparable period last year. Pre-opening costs, such as advertising,
payroll and supplies, incurred prior to the opening of a new store are charged to expense in the period in which they are incurred.
The total amount of pre-opening expense incurred will vary by store depending on the specific market and the promotional activities
involved.
Income Taxes
The effective income tax rate for the
first nine months of fiscal 2012 was 39.3% as compared to 37.5% for the same period in fiscal 2011. Our provision for income tax
expense is based on the current estimate of our annual effective tax rate and is adjusted as necessary for quarterly events. The
increase in the effective income tax rate between comparative periods was primarily attributable to the non-deductibility of compensation
attributable to the retirement of our former President and Chief Executive Officer.
Liquidity and Capital Resources
We anticipate that our existing cash and
cash flows from operations will be sufficient to fund our planned store expansion along with other capital expenditures, working
capital needs, potential dividend payments, potential share repurchases, and various other commitments and obligations, as they
arise, for at least the next 12 months.
Cash Flow - Operating Activities
Our net cash provided by operating activities
was $18.2 million in the first nine months of fiscal 2012 as compared to $10.1 million in the first nine months of fiscal 2011.
These amounts reflect our income from operations adjusted for non-cash items and working capital changes.
Working capital increased to $264.5 million
at October 27, 2012 from $236.8 million at October 29, 2011. This $27.7 million increase resulted primarily from an increase in
inventory to support new stores and planned sales increases. The current ratio was 3.9 at October 27, 2012 and 4.3 at October
29, 2011.
Cash Flow - Investing Activities
Our cash outflows for investing activities
were primarily for capital expenditures. During the first nine months of fiscal 2012, we expended $20.8 million for the purchase
of property and equipment, of which $17.7 million was for construction of new stores, remodeling and relocations. During the first
nine months of fiscal 2011, we expended $17.8 million for the purchase of property and equipment, of which $13.6 million was for
construction of new stores, remodeling and relocations. Approximately $1.7 million was used in developing our e-commerce platform.
The remaining capital expenditures in both periods were for continued investments in technology and normal asset replacement activities.
Cash Flow - Financing Activities
Our cash inflows from financing activities
were primarily proceeds from the issuance of shares as a result of stock option exercises. Cash outflows for financing activities
were primarily cash dividend payments and share repurchases. 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 restricted
stock awards.
During the first nine months of fiscal
2012, net cash used in financing activities was $1.0 million as compared to net cash provided by financing activities of $388,000
during the first nine months of fiscal 2011. The increase in cash used in financing activities was primarily attributable to the
payment of dividends during the second and third quarters of fiscal 2012, partially offset by a reduction in share repurchases
as compared to the prior year.
Capital Expenditures
Capital expenditures for fiscal 2012,
including actual expenditures during the first nine months, are expected to be between $25.0 million and $26.0 million. Approximately
$13.6 million of our total capital expenditures are expected to be used for new store construction and $7.6 million will be used
for store relocations and remodels. The remaining capital expenditures are expected to be incurred for various other store improvements,
continued investments in technology and normal asset replacement activities. The actual amount of cash required for capital expenditures
for store operations 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. Lease incentives to be received from landlords during fiscal 2012, including actual
amounts received during the first nine months, are expected to be approximately $6.0 million.
Store Openings and Closings
In fiscal 2012, we will open a total of
31 new stores, including stores in the Dallas/Fort Worth Metroplex and Puerto Rico, which are new major markets for us. Pre-opening
expenses, including rent, freight, advertising, salaries and supplies, are expected to total approximately $4.2 million for fiscal
2012, or an average of $135,000 per store. During fiscal 2011, we opened 17 new stores and expended $1.8 million on pre-opening
expenses, or an average of $108,000 per store. The increase in the average expenditures per new store is primarily the result
of increases in pre-opening rent, freight and advertising. The opening of new stores is 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 we target for expansion.
We closed five stores during the first
nine months of fiscal 2012 and will close two additional stores in the fourth quarter this year. Depending upon the results of
lease negotiations with certain landlords of underperforming stores, we may increase or decrease the number of store closures
in future periods. The timing and actual amount of expense recorded in closing a store can vary significantly depending, in part,
on the period in which management commits to a closing plan, the remaining basis in the fixed assets to be disposed of at closing
and the cost incurred in terminating the lease. Store closing costs totaled $140,000 during the first nine months of fiscal 2012.
We expect to incur an additional $60,000 in the fourth quarter of fiscal 2012.
Dividends
On June 14, 2012, our Board of Directors
approved the payment of our first-ever quarterly cash dividend to our shareholders. The initial dividend of $0.05 per share
was paid on July 16, 2012 to shareholders of record as of the close of business on July 2, 2012. During the third quarter
of fiscal 2012, our Board of Directors approved the payment of a $0.05 per share quarterly cash dividend to our shareholders,
which was paid on October 22, 2012 to shareholders of record as of the close of business on October 8, 2012.
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.
Credit Facility
Our unsecured credit agreement provides
for up to $50.0 million in cash advances and commercial and standby letters of credit with borrowing limits based on eligible
inventory. It contains covenants which stipulate: (1) Total Shareholders' Equity, adjusted for the effect of any share repurchases,
will not fall below that of the prior fiscal year-end; (2) the ratio of funded debt plus rent to EBITDA plus rent will not exceed
2.5 to 1.0; and (3) cash dividends for a fiscal year will not exceed 30% of consolidated net income for the immediately preceding
fiscal year. We were in compliance with these covenants as of October 27, 2012. Should a default condition be reported, the lenders
may preclude additional borrowings and call all loans and accrued interest at their discretion. As of October 27, 2012, there
was $2.6 million in letters of credit outstanding and $47.4 million available to us under the credit facility. We had no outstanding
interest bearing debt as of the end of, or during, either the first nine months of fiscal 2012 or fiscal 2011.
Share Repurchase Program
On August 23, 2010, our Board of
Directors authorized a $25 million share repurchase program, which was to terminate upon the earlier of the repurchase of
the maximum amount or December 31, 2011. On December 16, 2011, the Board of Directors extended the date of termination by one
year to December 31, 2012. The purchases may be made in the open market or through privately negotiated transactions from time-to-time
and in accordance with applicable laws, rules and regulations. The 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 will continue to fund, the share repurchase
program from cash on hand, and any shares acquired will be available for stock-based compensation awards and other corporate purposes.
The total number and value of the shares to be purchased will depend on the performance of our stock price and other market conditions.
As required by our credit agreement, consent was obtained from the Agent and the Majority Banks, each as defined in the credit
agreement. As of October 27, 2012, 81,300 shares had been repurchased at an aggregate cost of $1.9 million. The amount that remained
available under the repurchase authorization at October 27, 2012 was $23.1 million.
Seasonality and Quarterly Results
Our 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 the opening of a new store are charged to expense in the period in which they are incurred. Therefore, our results
of operations may be adversely affected in any quarter in which we incur pre-opening expenses related to the opening of new stores.
We have three distinct peak selling periods:
Easter, back-to-school and Christmas.
New Accounting Pronouncements
Recent accounting pronouncements applicable
to our operations are contained in Note 3 – "Recently Issued Accounting Pronouncements" contained in the Notes
to Condensed Consolidated Financial Statements included in PART I, ITEM 1. FINANCIAL STATEMENTS of this Quarterly Report on Form
10-Q.
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
under our credit facility during the first nine months of fiscal 2012 or fiscal 2011.
ITEM 4. CONTROLS AND PROCEDURES
Our Chief Executive Officer and Chief
Financial Officer have concluded, based on their evaluation as of October 27, 2012, 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.
There has been no significant change in
our internal control over financial reporting that occurred during the quarter ended October 27, 2012 that has materially affected,
or is reasonably likely to materially affect, our internal control over financial reporting.
SHOE CARNIVAL,
INC.
PART II - OTHER INFORMATION
ITEM 1A.
RISK FACTORS
You should carefully consider the risks
and uncertainties we describe both in this Quarterly Report on Form 10-Q and in the "Risk Factors" section of our Annual
Report on Form 10-K for the fiscal year ended January 28, 2012 before deciding to invest in, or retain, shares of our common stock.
These are not the only risks and uncertainties that we face. Additional risks and uncertainties that we do not currently know
about, we currently believe are immaterial or we have not predicted may also harm our business operations or adversely affect
us. If any of these risks or uncertainties actually occur, our business, financial condition, results of operations or cash flows
could be materially adversely affected. 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 28, 2012.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE
OF PROCEEDS
Issuer Purchases of Equity Securities
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Total Number
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Approximate
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Of Shares
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Dollar Value
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Purchased
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of Shares
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as Part
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that May Yet
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Total Number
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Average
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of Publicly
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Be Purchased
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of Shares
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Price Paid
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Announced
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Under
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Period
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Purchased
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per Share
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Programs
(1)
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Programs
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July 29, 2012 to August 25, 2012
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0
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$
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0.00
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0
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$
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25,000,000
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August 26, 2012 to September 29, 2012
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81,300
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$
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22.87
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81,300
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$
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23,141,000
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September 30, 2012 to October 27, 2012
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0
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$
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0.00
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0
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$
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23,141,000
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81,300
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81,300
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(1)
On August 23, 2010, our Board of Directors authorized a $25 million share
repurchase program, which was to terminate upon the earlier of the repurchase of the maximum amount or December 31, 2011. On December
16, 2011, the Board of Directors extended the date of termination by one year to December 31, 2012.
ITEM 6.
EXHIBITS
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Incorporated
by Reference To
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Exhibit
No.
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Description
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Form
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Exhibit
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Filing
Date
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Filed
Herewith
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3-A
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Restated Articles of Incorporation of Registrant
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10-K
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3-A
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4/25/2002
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3-B
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By-laws of Registrant, as amended to date
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10-Q
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3-B
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12/9/2010
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10.1
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Separation and Release Agreement, dated October 17, 2012, by and between the Company and Mark
L. Lemond
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8-K
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10.1
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10/19/2012
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10.2
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Form of Award Agreement for time-based restricted stock with cliff vesting granted under the
Shoe Carnival, Inc. 2000 Stock Option and Incentive Plan, as amended
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8-K
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10.2
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10/19/2012
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EXHIBITS - Continued
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Exhibit
No.
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Incorporated by Reference To
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Description
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Form
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Exhibit
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Filing
Date
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Filed
Herewith
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31.1
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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
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X
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31.2
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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
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X
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32.1
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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
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X
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32.2
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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
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X
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101
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The following materials from Shoe Carnival, Inc.'s Quarterly Report on Form 10-Q
for the quarter ended October 27, 2012, formatted in XBRL (Extensible Business Reporting Language): (1) Condensed Consolidated
Balance Sheets, (2) Condensed Consolidated Statements of Income, (3) Condensed Consolidated Statement of Shareholders'
Equity, (4) Condensed Consolidated Statements of Cash Flows, and (5) Notes to Condensed Consolidated Financial Statements.
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X
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SHOE CARNIVAL,
INC.
SIGNATURE
Pursuant to the requirements of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed, on its behalf by the undersigned thereunto duly
authorized.
Date: December 6, 2012
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SHOE CARNIVAL, INC.
(Registrant)
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By:
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/s/ W. Kerry Jackson
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W. Kerry Jackson
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Senior Executive Vice President
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Chief Operating and Financial Officer and Treasurer
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(Duly Authorized Officer and Principal Financial Officer)
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