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 October 31, 1998
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from to
Commission File Number: 0-21360
Shoe Carnival, Inc.
(Exact name of registrant as specified in its charter)
Indiana 35-1736614
(State or other jurisdiction of (IRS Employer Identification
incorporation or organization) Number)
8233 Baumgart Road, Evansville, Indiana 47711
(Address of principal executive offices) (Zip Code)
(812) 867-6471
(Registrant's telephone number, including area code)
NOT APPLICABLE
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X ] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common Stock, $.01 par value, 13,173,055 shares outstanding as of December 1,
1998.
<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
<PAGE>
<TABLE>
<CAPTION>
SHOE CARNIVAL, INC.
CONDENSED BALANCE SHEETS
Unaudited
October 31, January 31, November 1,
1998 1998 1997
----------- ----------- -----------
(In thousands)
ASSETS
<S> <C> <C> <C>
Current Assets:
Cash and cash equivalents................ $ 2,036 $ 1,571 $ 1,687
Accounts receivable...................... 710 781 1,015
Notes receivable from shareholders....... 0 22 22
Merchandise inventories.................. 76,126 59,444 67,160
Deferred income tax benefit.............. 797 933 351
Other.................................... 995 834 842
--------- --------- ---------
Total Current Assets........................ 80,664 63,585 71,077
Property and equipment-net.................. 37,806 31,969 31,892
--------- --------- ---------
Total Assets................................ $ 118,470 $ 95,554 $ 102,969
========= ========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable......................... $ 16,485 $ 9,521 $ 10,503
Accrued and other liabilities............ 6,544 4,487 5,556
Current portion of long-term debt........ 863 688 718
--------- --------- ---------
Total Current Liabilities................... 23,892 14,696 16,777
Long-term debt.............................. 8,843 6,133 12,580
Deferred lease incentives................... 1,926 1,308 1,364
Deferred income taxes....................... 1,991 1,808 1,330
--------- --------- ---------
Total Liabilities........................... 36,652 23,945 32,051
--------- --------- ---------
Shareholders' Equity:
Common stock, $.01 and no par value,
50,000 shares authorized, 13,173,
13,088, 13,055 shares issued and
outstanding at October 31, 1998,
January 31, 1998 and November 1, 1997... 132 0 0
Additional paid-in capital............... 62,364 61,844 61,673
Retained earnings........................ 19,322 9,765 9,245
--------- --------- ---------
Total Shareholders' Equity.................. 81,818 71,609 70,918
--------- --------- ---------
Total Liabilities and Shareholders' Equity.. $ 118,470 $ 95,554 $ 102,969
========= ========= =========
</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
October 31, November 1, October 31, November 1,
1998 1997 1998 1997
----------- ----------- ----------- ------------
(In thousands, except per share data)
<S> <C> <C> <C> <C>
Net sales.................. $ 76,442 $ 66,364 $ 210,240 $ 188,085
Cost of sales (including
buying, distribution and
occupancy costs)......... 52,225 45,874 144,799 131,143
----------- ----------- ----------- -----------
Gross profit............... 24,217 20,490 65,441 56,942
Selling, general and
administrative expenses.. 18,078 15,183 49,127 44,802
----------- ----------- ----------- -----------
Operating income........... 6,139 5,307 16,314 12,140
Interest expense, net...... 106 247 386 725
----------- ----------- ----------- -----------
Income before income taxes. 6,033 5,060 15,928 11,415
Income taxes............... 2,413 1,970 6,371 4,544
----------- ----------- ----------- -----------
Net income................. $ 3,620 $ 3,090 $ 9,557 $ 6,871
=========== =========== =========== ===========
Net income per share:
Basic.................. $ .27 $ .23 $ .73 $ .52
=========== =========== =========== ===========
Diluted................ $ .27 $ .23 $ .71 $ .52
=========== =========== =========== ===========
Average shares outstanding:
Basic.................. 13,170 13,051 13,142 13,042
=========== ========== =========== ===========
Diluted................ 13,380 13,330 13,432 13,223
=========== ========== =========== ===========
</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 January 31, 1998... 13,088 $ 0 $ 61,844 $ 9,765 $ 71,609
Employee stock purchase
plan purchases........ 11 101 101
Exercise of stock options.. 74 551 551
Increase in par value...... 132 (132)
Net income................. 9,557 9,557
------- ------ -------- -------- ---------
Balance at October 31, 1998... 13,173 $ 132 $ 62,364 $ 19,322 $ 81,818
======= ====== ======== ======== =========
</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
October 31, November 1,
1998 1997
----------- -----------
(In thousands)
<S> <C> <C>
Cash flows from operating activities:
Net income.......................................... $ 9,557 $ 6,871
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization..................... 4,647 4,167
Loss on retirement of assets...................... 342 282
Deferred income taxes............................. 318 323
Compensation for forgiveness of debt.............. 0 158
Other ........................................... (218) (94)
Changes in operating assets and liabilities:
Merchandise inventories......................... (16,682) (7,920)
Accounts receivable............................. 71 (99)
Accounts payable and accrued liabilities........ 9,022 (1,102)
Other........................................... (162) 63
----------- ----------
Net cash provided by operating activities.............. 6,895 2,649
----------- ----------
Cash flows from investing activities:
Purchases of property and equipment................. (9,202) (5,712)
Lease incentives.................................... 835 0
Other............................................... 25 18
----------- ----------
Net cash used in investing activities.................. (8,342) (5,694)
----------- ----------
Cash flows from financing activities:
Borrowings under line of credit..................... 88,050 105,725
Payments on line of credit.......................... (86,250) (102,225)
Payments on capital lease obligations............... (540) (510)
Proceeds from issuance of stock..................... 652 117
----------- ----------
Net cash provided by financing activities.............. 1,912 3,107
----------- ----------
Net increase in cash and cash equivalents.............. 465 62
Cash and cash equivalents at beginning of period....... 1,571 1,625
----------- ----------
Cash and cash equivalents at end of period............. $ 2,036 $ 1,687
=========== ==========
Supplemental disclosures of cash flow information:
Cash paid during period for interest................ $ 420 $ 715
Cash paid during period for income taxes............ $ 5,434 $ 3,483
Supplemental disclosure of noncash investing activities:
Capital lease obligations incurred.................. $ 2,099
</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 1997
Annual Report.
7
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
Results of Operations
Number of Stores Store Square Footage Comparable
---------------- -------------------- Store
Beginning End of Net End Sales
Quarter Ended Of Period Opened Closed Period Change of Period Increase
- ------------- --------- ------ ------ ------ ------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
May 2, 1998 92 3 0 95 46,000 1,067,000 7.0%
August 1, 1998 95 7 0 102 85,000 1,152,000 2.9%
October 31, 1998 102 8 0 110 101,000 1,253,000 2.2%
Year-to-date 92 18 0 110 232,000 1,253,000 3.9%
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%
</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
October 31, November 1, October 31, November 1,
1998 1997 1998 1997
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net sales.................... 100.0% 100.0% 100.0% 100.0%
Cost of sales (including
buying, distribution and
occupancy costs)........... 68.3 69.1 68.9 69.7
----------- ----------- ----------- -----------
Gross profit................. 31.7 30.9 31.1 30.3
Selling, general and
administrative expenses... 23.7 22.9 23.4 23.8
----------- ----------- ----------- -----------
Operating income............. 8.0 8.0 7.7 6.5
Interest expense............. .1 .4 .2 .4
----------- ----------- ----------- -----------
Income before income taxes... 7.9 7.6 7.5 6.1
Income taxes................. 3.2 2.9 3.0 2.4
----------- ----------- ----------- -----------
Net income................... 4.7% 4.7% 4.5% 3.7%
=========== =========== =========== ===========
</TABLE>
Net Sales
Net sales increased $10.1 million to $76.4 million in the third quarter of 1998,
a 15.2% increase over net sales of $66.4 million in the comparable prior year
period. The increase was attributable to a 2.2% comparable store sales increase
and the sales generated by the 22 new stores opened in 1997 and 1998, partially
offset by the reduction in sales for three stores closed in 1997. The comparable
store sales increase was supported with increases in the majority of the product
categories. Average footwear unit prices and footwear unit sales in comparable
stores increased 1.7% and .9%, respectively.
8
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
Sales of private label and non-name brand footwear constituted 11.5% of total
footwear sales in the third quarter of 1998 as compared with 15.3% in the prior
year quarter. Net sales increased $22.2 million to $210.2 million in the first
nine months of 1998, an 11.8% increase over net sales of $188.1 million in the
comparable prior year period. The increase was attributable to a 3.9% comparable
store sales increase and the sales generated by the 22 new stores opened in 1997
and 1998, partially offset by the reduction in sales for the five stores closed
in 1997. The comparable store sales increase was supported with increases in all
major shoe categories. Average footwear unit prices in comparable stores
increased 5.5% while footwear unit sales decreased 1.3%. Sales of private label
and non-name brand footwear constituted 13.6% of total footwear sales in the
first nine months of 1998 as compared with 16.2% in the prior year.
Gross Profit
Gross profit increased $3.7 million to $24.2 million in the third quarter of
1998, an 18.2% increase over gross profit of $20.5 million in the comparable
prior year period. The Company's gross profit margin increased to 31.7% from
30.9%. As a percentage of sales, the merchandise gross profit margin increased
0.7% and buying, distribution and occupancy costs decreased 0.1%.
Gross profit increased $8.5 million to $65.4 million in the first nine months of
1998, a 14.9% increase over gross profit of $56.9 million in the comparable
prior year period. The Company's gross profit margin increased to 31.1% from
30.3%. As a percentage of sales, the merchandise gross profit margin increased
0.6% and buying, distribution and occupancy costs decreased 0.2%.
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased $2.9 million to $18.1
million in the third quarter of 1998 from $15.2 million in the comparable prior
year period. As a percentage of sales, these expenses increased 0.8% primarily
due to the increase in store opening costs, slightly higher advertising
expenditures for new stores and the higher ratio of costs relative to sales for
those stores open for only a short period during the quarter. Total pre-opening
costs for the eight stores opened in the third quarter of 1998 were $641,000 or
0.8% of sales, as compared to $211,000 or 0.3% of sales, for the four stores
opened in the third quarter of 1997.
Selling, general and administrative expenses increased $4.3 million to $49.1
million in the first nine months of 1998 from $44.8 million in the comparable
prior year period. As a percentage of sales, these expenses decreased 0.4%.
Total pre-opening costs for the 18 stores opened in the first nine months of
1998 was $1.5 million or 0.7% of sales, as compared to $211,000 or 0.1% of
sales, for the four stores opened in the first nine months of 1997.
Interest Expense
The reduction in net interest expense in the third quarter and the first nine
months of 1998 as compared with the third quarter and the first nine months of
1997 resulted from a combination of reduced borrowings and lower interest rates.
Income Taxes
The effective income tax rate of 40.0% for the third quarter and the first nine
months of 1998 and 38.9% and 39.8% for the third quarter and first nine months
of 1997, respectively, differed from the statutory federal rates due primarily
to state and local income taxes, net of the federal tax benefit.
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 $6.9 million during the first nine months of 1998. Excluding
changes in operating assets and liabilities, cash provided by operating
activities was $14.6 million in the first nine months of 1998. An increase in
merchandise inventories of $16.7 million was partially offset by a $9 million
increase in accounts payable and accrued liabilities. The increase in
merchandise inventories was primarily due to seasonal fluctuations and the
additional 18 stores opened in 1998.
Working capital increased to $56.8 million at October 31, 1998 from $48.9
million at January 31, 1998 and the current ratio was 3.4 to 1 at October 31,
1998 as compared with 4.3 to 1 at January 31, 1998. Long-term debt as a
percentage of total capital was 9.8% at October 31, 1998, compared to 7.9% at
January 31, 1998. The increase in working capital and long term debt as a
percent of total capital was primarily due to seasonal fluctuations.
Capital expenditures were $11.3 million in the first nine months of 1998
(including $2.1 million of capital lease assets). Of these expenditures,
approximately $7.6 million was incurred for new stores and the relocation of two
existing stores. The remaining capital expenditures in the first nine months of
1998 were primarily for merchandise display and signage enhancements and
technological improvements in the stores.
The Company has opened 20 stores in 1998, including two stores opened early in
the fourth quarter. Three stores were opened in the first quarter, seven in the
second quarter, eight in the third quarter and two in the fourth quarter. Four
stores were opened in the third quarter of 1997 and one store was closed. Two
additional stores were closed in the first quarter of 1997. In 1999 the Company
anticipates opening between 25 and 30 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. The Company's current prototype
utilizes between 12,000 and 18,000 square feet depending upon, among other
factors, the location of the store and the population base the store is expected
to service. Capital expenditures for a new store are expected to average
approximately $400,000, including point-of-sale equipment, which is generally
acquired through equipment leasing transactions. The average inventory
investment in a new store is expected to range from $550,000 to $850,000,
depending on the size and sales expectation of the store and the timing of the
new store opening. Pre-opening expenses, such as advertising, salaries, supplies
and utilities, are expected to average approximately $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.
Borrowings and letters of credit outstanding under this facility at October 31,
1998 were $7.5 million and $5.2 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)
Impact of Year 2000
The Company has invested significant resources in the latest information
technologies over the past five years and therefore has minimized the effect of
the Year 2000 problem. Management initiated a company wide program to evaluate
all computer systems and applications and has determined the adjustments
necessary to become Year 2000 compliant. It is anticipated that existing
internal resources will be sufficient to correct any internal systems
deficiencies by the end of fiscal 1998 at an estimated cost of $150,000. The
Company is currently making inquiries of its major suppliers and other
third-party entities with which it has business relations and is obtaining
assurances of their Year 2000 compliance. However, there can be no assurance
that the systems of other companies, on which the Company's systems rely, will
also be corrected in a timely manner, or that any such failure to correct such
systems by another company would not have a material adverse effect on the
Company's systems. Contingency plans are currently being developed to be
implemented in the event any information technology system, non-information
technology system, third party or supplier is not Year 2000 compliant in a
timely manner.
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 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 October 31,
1998.
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 11, 1998 SHOE CARNIVAL, INC.
(Registrant)
By: /s/ W. Kerry Jackson
W. Kerry Jackson
Vice President and
Chief Financial Officer
13
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS FOR THE PERIOD ENDED OCTOBER 31, 1998, 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-30-1999
<PERIOD-START> FEB-01-1998
<PERIOD-END> OCT-31-1998
<CASH> 2,036
<SECURITIES> 0
<RECEIVABLES> 710
<ALLOWANCES> 0
<INVENTORY> 76,126
<CURRENT-ASSETS> 80,664
<PP&E> 64,136
<DEPRECIATION> 26,330
<TOTAL-ASSETS> 118,470
<CURRENT-LIABILITIES> 23,892
<BONDS> 8,843
0
0
<COMMON> 132
<OTHER-SE> 81,686
<TOTAL-LIABILITY-AND-EQUITY> 118,470
<SALES> 210,240
<TOTAL-REVENUES> 210,240
<CGS> 144,799
<TOTAL-COSTS> 144,799
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 386
<INCOME-PRETAX> 15,928
<INCOME-TAX> 6,371
<INCOME-CONTINUING> 9,557
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 9,557
<EPS-PRIMARY> .73
<EPS-DILUTED> .71
</TABLE>
