UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended November 1, 1997
[ ] 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 (IRS Employer Identification
or organization) Number)
8233 Baumgart Road, Evansville, Indiana 47711
(Address of principal executive offices) (Zip Code)
(812) 867-6471
(Registrant's telephone number, including area code)
NOT APPLICABLE
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common Stock, no par value, 13,055,087 shares outstanding as of December 1,
1997.
<PAGE>
SHOE CARNIVAL, INC.
INDEX TO FINANCIAL STATEMENTS
Page
----
Part I Financial Information
Item 1 - Financial Statements (Unaudited)
Condensed Balance Sheets ............................... 3
Condensed Statements of Income.......................... 4
Condensed Statement of Shareholders' Equity............. 5
Condensed Statements of Cash Flows...................... 6
Notes to Condensed Financial Statements................. 7
Item 2 - Management's Discussion and Analysis.............. 8-11
Part II Other Information
Item 6. Exhibits and Reports on Form 8-K.................. 12
Signature.................................................. 13
2
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<TABLE>
<CAPTION>
SHOE CARNIVAL, INC.
CONDENSED BALANCE SHEETS
Unaudited
November 1, February 1, November 2,
1997 1997 1996
----------- ----------- -----------
(In thousands)
ASSETS
<S> <C> <C> <C>
Current Assets:
Cash and cash equivalents............ $ 1,687 $ 1,625 $ 1,414
Accounts receivable.................. 1,015 916 930
Notes receivable from shareholders... 22 22 40
Merchandise inventories.............. 67,160 59,240 65,759
Deferred income tax benefit.......... 351 400 797
Other................................ 842 906 333
---------- ---------- ----------
Total Current Assets.................... 71,077 63,109 69,273
Property and equipment-net.............. 31,892 30,817 30,686
---------- ---------- ----------
Total Assets............................ $ 102,969 $ 93,926 $ 99,959
========== ========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable..................... $ 10,503 $ 12,159 $ 14,239
Accrued and other liabilities........ 5,556 5,172 6,601
Current portion of long-term debt.... 718 688 676
---------- ---------- ----------
Total Current Liabilities............... 16,777 18,019 21,516
Long-term debt.......................... 12,580 9,621 12,398
Deferred lease incentives............... 1,364 1,458 1,514
Deferred income taxes................... 1,330 1,056 910
---------- ---------- ----------
Total Liabilities....................... 32,051 30,154 36,338
---------- ---------- ----------
Shareholders' Equity:
Common stock, no par value, 50,000
shares authorized, 13,055, 13,032,
13,028 shares issued and outstanding
at November 1, 1997, February 1, 1997
and November 2, 1996................ 0 0 0
Additional paid-in capital........... 61,673 61,398 61,378
Retained earnings.................... 9,245 2,374 2,243
---------- ---------- ----------
Total Shareholders' Equity.............. 70,918 63,772 63,621
---------- ---------- ----------
Total Liabilities and Shareholders'
Equity............................... $ 102,969 $ 93,926 $ 99,959
========== ========== ==========
</TABLE>
See Notes to Condensed Financial Statements
3
<PAGE>
<TABLE>
<CAPTION>
SHOE CARNIVAL, INC.
CONDENSED STATEMENTS OF INCOME
Unaudited
Thirteen Thirteen Thirty-nine Thirty-nine
Weeks Ended Weeks Ended Weeks Ended Weeks Ended
November 1, November 2, November 1, November 2,
1997 1996 1997 1996
----------- ----------- ----------- -----------
(In thousands, except per share data)
<S> <C> <C> <C> <C>
Net sales.................. $ 66,364 $ 63,882 $ 188,085 $ 179,687
Cost of sales (including
buying, distribution
and occupancy costs).... 45,874 44,864 131,143 128,392
---------- ---------- ---------- ----------
Gross profit............... 20,490 19,018 56,942 51,295
Selling, general and
administrative expenses. 15,183 15,047 44,802 43,482
---------- ---------- ---------- ----------
Operating income........... 5,307 3,971 12,140 7,813
Interest expense, net...... 247 248 725 1,019
---------- ---------- ---------- ----------
Income before income taxes. 5,060 3,723 11,415 6,794
Income taxes............... 1,970 1,526 4,544 2,785
---------- ---------- ---------- ----------
Net income................. $ 3,090 $ 2,197 $ 6,871 $ 4,009
========== ========== ========== ==========
Net income per share....... $ .23 $ .17 $ .52 $ .31
========== ========== ========== ==========
Weighted average common
shares and common
equivalent shares
outstanding............. 13,330 13,028 13,223 13,022
========== ========== ========== ==========
</TABLE>
See Notes to Condensed Financial Statements
4
<PAGE>
<TABLE>
<CAPTION>
SHOE CARNIVAL, INC.
CONDENSED STATEMENT OF SHAREHOLDERS' EQUITY
Unaudited
Additional
Common Stock Paid-In Retained
Shares Amount Capital Earnings Total
------ ------ --------- -------- -------
(In thousands)
<S> <C> <C> <C> <C> <C>
Balance at February 1, 1997........... 13,032 $ 0 $ 61,398 $ 2,374 $ 63,772
Employee stock purchase
plan purchases................ 23 117 117
Payment on stock purchase.......... 158 158
Net income......................... 6,871 6,871
------ ---- --------- ------- --------
Balance at November 1, 1997........... 13,055 $ 0 $ 61,673 $ 9,245 $ 70,918
====== ==== ========= ======= ========
</TABLE>
See Notes to Condensed Financial Statements
5
<PAGE>
<TABLE>
<CAPTION>
SHOE CARNIVAL, INC.
CONDENSED STATEMENTS OF CASH FLOWS
Unaudited
Thirty-nine Thirty-nine
Weeks Ended Weeks Ended
November 1, November 2,
1997 1996
------------ ------------
(In thousands)
<S> <C> <C>
Cash flows from operating activities:
Net income.......................................... $ 6,871 $ 4,009
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization..................... 4,167 3,870
Loss on retirement of assets...................... 282 274
Deferred income taxes............................. 323 1,008
Compensation for forgiveness of debt.............. 158 0
Other ........................................... (94) (132)
Changes in operating assets and liabilities:
Merchandise inventories......................... (7,920) (3,060)
Accounts receivable............................. (99) 3,582
Accounts payable and accrued liabilities........ (1,102) 1,765
Other........................................... 63 799
--------- ---------
Net cash provided by operating activities.............. 2,649 12,115
--------- ---------
Cash flows from investing activities:
Purchases of property and equipment................. (5,712) (4,719)
Lease incentives.................................... 0 (303)
Other............................................... 18 2
--------- ---------
Net cash used in investing activities.................. (5,694) (5,020)
--------- ---------
Cash flows from financing activities:
Borrowings under line of credit..................... 105,725 138,900
Payments on line of credit.......................... (102,225) (145,050)
Payments on capital lease obligations............... (510) (472)
Proceeds from issuance of stock..................... 117 41
--------- ---------
Net cash provided by (used in) financing activities.... 3,107 (6,581)
--------- ---------
Net increase in cash and cash equivalents.............. 62 514
Cash and cash equivalents at beginning of period....... 1,625 900
--------- ---------
Cash and cash equivalents at end of period............. $ 1,687 $ 1,414
========= =========
Supplemental disclosures of cash flow information:
Cash paid during period for interest................ $ 715 $ 1,096
Cash paid (refunded) during period for income taxes. $ 3,483 $ (2,207)
Supplemental disclosure of noncash investing activities:
Capital lease obligations incurred.................. $ 162
</TABLE>
See Notes to Condensed Financial Statements
6
<PAGE>
SHOE CARNIVAL, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
Unaudited
Note 1 - Basis of Presentation
In the opinion of management, the accompanying unaudited condensed financial
statements contain all adjustments necessary to present fairly the financial
position of the Company and the results of its operations and its cash flows for
the periods presented. Certain information and disclosures normally included in
notes to financial statements have been condensed or omitted according to the
rules and regulations of the Securities and Exchange Commission, although the
Company believes that the disclosures are adequate to make the information
presented not misleading.
The results of operations for the interim periods are not necessarily indicative
of the results to be expected for the full year.
It is suggested that these financial statements be read in conjunction with the
financial statements and financial notes thereto included in the Company's 1996
Annual Report.
Note 2 - Restructuring Charge
In the fourth quarters of 1995 and 1994, the Company recorded restructuring
charges related to its plan to close a total of nine unprofitable stores. Eight
stores were closed during fiscal years 1995 and 1996, with the remaining store
being closed in February 1997.
During the first nine months of 1997 the remaining restructuring reserve was
utilized through cash expenditures of $143,000 for store closing costs and
$171,000 for equipment and leasehold improvement write-offs.
7
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<TABLE>
<CAPTION>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
Comparable
Number of Stores Store Square Footage Store Sales
Beginning End of Net End Increase
Quarter Ended Of Period Opened Closed Period Decrease of Period (Decrease)
- ------------- --------- ------ ------ ------ --------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
May 3, 1997 93 0 2 91 (19,000) 1,007,000 4.4%
August 2, 1997 91 0 0 91 5,000 1,012,000 8.8%
November 1, 1997 91 4 1 94 32,000 1,044,000 4.0%
Year-to-date 93 4 3 94 18,000 1,044,000 5.4%
May 4, 1996 95 2 4 93 (2,000) 1,022,000 (4.4%)
August 3, 1996 93 2 2 93 2,000 1,024,000 (3.2%)
November 2, 1996 93 1 1 93 2,000 1,026,000 2.7%
Year-to-date 95 5 7 93 2,000 1,026,000 (1.6%)
</TABLE>
The following table sets forth the Company's results of operations expressed as
a percentage of net sales for the periods indicated:
<TABLE>
<CAPTION>
Thirteen Thirteen Thirty-nine Thirty-nine
Weeks Ended Weeks Ended Weeks Ended Weeks Ended
November 1, November 2, November 1, November 2,
1997 1996 1997 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net sales.................. 100.0% 100.0% 100.0% 100.0%
Cost of sales (including
buying, distribution and
occupancy costs).......... 69.1 70.2 69.7 71.4
--------- --------- --------- ---------
Gross profit............... 30.9 29.8 30.3 28.6
Selling, general and
administrative expenses. 22.9 23.6 23.8 24.2
--------- --------- --------- ---------
Operating income........... 8.0 6.2 6.5 4.4
Interest expense........... .4 .4 .4 .6
--------- --------- --------- ---------
Income before income taxes. 7.6 5.8 6.1 3.8
Income taxes............... 2.9 2.4 2.4 1.6
--------- --------- --------- ---------
Net income................. 4.7% 3.4% 3.7% 2.2%
========= ========= ========= =========
</TABLE>
Net Sales
Net sales increased $2.5 million to $66.4 million in the third quarter of 1997,
a 3.9% increase over net sales of $63.9 million in the comparable prior year
period. The increase was attributable to a 4.0% comparable store sales increase
and the sales generated by the five new stores opened in 1996, partially offset
by the reduction in sales for the nine stores closed in 1996 and 1997. Average
footwear unit prices in comparable stores increased 11.2% while footwear unit
sales decreased 7.1%. Sales of private label and non-name brand footwear
constituted 15.3% of total footwear sales in the third quarter of 1997 as
compared with 16.9% in the prior year quarter.
8
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
Net sales increased $8.4 million to $188.1 million in the first nine months of
1997, a 4.7% increase over net sales of $179.7 million in the comparable prior
year period. The increase was attributable to a 5.4% comparable store sales
increase and the sales generated by the five new stores opened in 1996,
partially offset by the reduction in sales for the nine stores closed in 1996
and 1997. The comparable store sales increase was supported with increases in
the majority of the product categories. Average footwear unit prices in
comparable stores increased 10.7% while footwear unit sales decreased 5.1%.
Sales of private label and non-name brand footwear constituted 16.2% of total
footwear sales in the first nine months of 1997 as compared with 17.4% in the
prior year.
Gross Profit
Gross profit increased $1.5 million to $20.5 million in the third quarter of
1997, a 7.7% increase over gross profit of $19.0 million in the comparable prior
year period. The Company's gross profit margin increased to 30.9% from 29.8%. As
a percentage of sales, buying, distribution and occupancy costs decreased 0.2%.
The increase in merchandise gross profit margin of 0.9% of sales was broad based
with all major product categories improving over the comparable prior year
period.
Gross profit increased $5.6 million to $56.9 million in the first nine months of
1997, an 11% increase over gross profit of $51.3 million in the comparable prior
year period. The Company's gross profit margin increased to 30.3% from 28.6%. As
a percentage of sales, buying, distribution and occupancy costs decreased 0.3%.
The increase in merchandise gross profit margin of 1.4% of sales was broad based
with all major product categories improving over the comparable prior year
period.
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased $136,000 to $15.2 million
in the third quarter of 1997 from $15.0 million in the comparable prior year
period. As a percentage of sales, these expenses decreased 0.7% primarily due to
the increase in comparable store sales. Total pre-opening costs for the four
stores opened in the third quarter of 1997 were $211,000 or 0.3% of sales, as
compared to $56,000 or 0.1% of sales, for the one store opened in the third
quarter of 1996.
Selling, general and administrative expenses increased $1.3 million to $44.8
million in the first nine months of 1997 from $43.5 million in the comparable
prior year period. As a percentage of sales, these expenses decreased 0.4%.
Total pre-opening costs for the four stores opened in the first nine months of
1997 was $211,000 or 0.1% of sales, as compared to $427,000 or 0.2% of sales,
for the five stores opened in the first nine months of 1996.
Interest Expense
The reduction in net interest expense in the first nine months of 1997 as
compared with the first nine months of 1996 resulted from a combination of
reduced borrowings and lower interest rates.
Income Taxes
The effective income tax rate of 38.9% and 39.8% for the third quarter and the
first nine months of 1997 respectively and 41% for the third quarter and first
nine months of 1996 differed from the statutory federal rates due primarily to
state and local income taxes, net of the federal tax benefit. The decrease in
the effective income tax rate for 1997 as compared to 1996 is a result of the
favorable effect of lower tax rates at higher income levels in certain states.
9
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
Liquidity and Capital Resources
The Company's primary sources of funds are cash flows from operations and
borrowings under its revolving credit facility. Net cash provided by operating
activities was $2.6 million during the first nine months of 1997. Excluding
changes in operating assets and liabilities, cash provided by operating
activities was $11.7 million in the first nine months of 1997. An increase in
merchandise inventories of $7.9 million and an increase in accounts payable and
accrued liabilities of $1.1 million were partially offset by the $11.7 million
in cash generated by operations before changes in operating assets and
liabilities. The increase in merchandise inventories was primarily due to
seasonal fluctuations.
Working capital increased to $54.3 million at November 1, 1997 from $45.1
million at February 1, 1997 and the current ratio improved to 4.2 to 1 from 3.5
to 1. Long-term debt as a percentage of total capital was 15.1% at November 1,
1997, compared to 13.1% at February 1, 1997 and 16.3% at November 2, 1996.
Capital expenditures were $5.7 million in the first nine months of 1997. Of
these expenditures, approximately $680,000 was incurred for new stores and $3.5
million was incurred for the remodeling of certain stores. The remaining capital
expenditures in the first nine months of 1997 were primarily for technological
improvements in the stores and distribution center.
During 1997 the Company has opened four stores, all in the third quarter, and
has closed three stores, two of which were in the first half. Three additional
lower volume stores are anticipated to be closed in January 1998 at the
expiration of their leases. The Company intends to end fiscal 1997 with 91
stores. The Company opened five stores in the first nine months of 1996 and
closed seven stores.
The actual amount of the Company's cash requirements for capital expenditures
depends in part on the number of new stores opened, the amount of lease
incentives, if any, received from landlords and the number of stores remodeled.
The opening of new stores will be dependent upon, among other things, the
availability of desirable locations, the negotiation of acceptable lease terms
and general economic and business conditions affecting consumer spending in
areas the Company targets for expansion. As part of the Company's effort to
upgrade the image of its stores, a new prototype design has been utilized in all
new and remodeled stores since the fourth quarter of 1995. The size of stores
utilizing the new prototype design has increased from 10,000 square feet to
between 12,000 and 18,000 square feet depending upon, among other factors, the
location of the store and the population base the store is expected to service.
Accordingly, capital expenditures for new stores are expected to average
approximately $450,000, including point-of-sale equipment which is generally
acquired through equipment leasing transactions. The average inventory
investment in a new store is expected to range from $550,000 to $850,000,
depending on the size and sales expectation of the store and the timing of the
new store opening. Pre-opening expenses, such as advertising, salaries, supplies
and utilities, are expected to average $60,000 to $80,000 per-store.
The Company's $35 million credit facility provides for a combination of cash
advances on a revolving basis and the issuance of commercial letters of credit.
Borrowings under the revolving credit line are based on eligible inventory. The
credit agreement limits capital expenditures in 1997 to $12 million. Borrowings
and letters of credit outstanding under this facility at November 1, 1997 were
$12 million and $2.9 million, respectively.
The Company anticipates that its existing cash and cash flow from operations,
supplemented by borrowings under the credit facility will be sufficient to fund
its planned expansion and other operating cash requirements for at least the
next 12 months.
10
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
Seasonality
The Company's quarterly results of operations have fluctuated, and are expected
to continue to fluctuate in the future primarily as a result of seasonal
variances and the timing of sales and costs associated with opening new stores.
Non-capital expenditures, such as advertising and payroll, incurred prior to
opening of a new store are charged to expense in the month the store is opened.
Therefore, the Company's results of operations may be adversely affected in any
quarter in which the Company opens new stores.
The Company has three distinct selling periods: Easter, back-to-school and
Christmas.
Factors That May Effect Future Results
This report contains certain forward looking statements that involve a number of
risks and uncertainties. Among the factors that could cause actual results to
differ materially are the following: general economic conditions in the areas of
the United States in which the Company's stores are located; changes in the
overall retail environment and more specifically in the apparel and footwear
retail sectors; the impact of competition, weather patterns, consumer buying
trends and the ability of the Company to identify and respond to emerging
fashion trends; the availability of desirable store locations and management's
ability to negotiate acceptable lease terms and open new stores in a timely
manner; and changes in the political and economic environments in the People's
Republic of China, where most of the Company's private label products are
manufactured, and the continued favorable trade relationships between China and
the United States.
11
<PAGE>
SHOE CARNIVAL, INC.
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
(27) Financial Data Schedule
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended November 1,
1997.
12
<PAGE>
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 15, 1997 SHOE CARNIVAL, INC.
(Registrant)
By: /s/ W. Kerry Jackson
W. Kerry Jackson
Vice President and
Chief Financial Officer
13
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS FOR THE PERIOD ENDED NOVEMBER 1, 1997, AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JAN-31-1998
<PERIOD-START> FEB-02-1997
<PERIOD-END> NOV-01-1997
<CASH> 1,687
<SECURITIES> 0
<RECEIVABLES> 1,037
<ALLOWANCES> 0
<INVENTORY> 67,160
<CURRENT-ASSETS> 71,077
<PP&E> 52,922
<DEPRECIATION> 21,030
<TOTAL-ASSETS> 102,969
<CURRENT-LIABILITIES> 16,777
<BONDS> 12,580
0
0
<COMMON> 0
<OTHER-SE> 70,918
<TOTAL-LIABILITY-AND-EQUITY> 102,969
<SALES> 188,085
<TOTAL-REVENUES> 188,085
<CGS> 131,143
<TOTAL-COSTS> 131,143
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 725
<INCOME-PRETAX> 11,415
<INCOME-TAX> 4,544
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,871
<EPS-PRIMARY> .52
<EPS-DILUTED> .52
</TABLE>
