UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended May 2, 1998
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from to
Commission File Number: 0-21360
Shoe Carnival, Inc.
(Exact name of registrant as specified in its charter)
Indiana 35-1736614
(State or other jurisdiction of (IRS Employer Identification
incorporation or organization) Number)
8233 Baumgart Road, Evansville, Indiana 47711
(Address of principal executive offices) (Zip Code)
(812) 867-6471
(Registrant's telephone number, including area code)
NOT APPLICABLE
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common Stock, no par value, 13,146,005 shares outstanding as of June 1, 1998.
<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.............. 8-10
Part II Other Information
Item 6. Exhibits and Reports on Form 8-K.................. 11
Signature.................................................. 12
2
<PAGE>
<TABLE>
<CAPTION>
SHOE CARNIVAL, INC.
CONDENSED BALANCE SHEETS
Unaudited
May 2, January 31, May 3,
1998 1998 1997
--------- ----------- ----------
(In thousands)
ASSETS
<S> <C> <C> <C>
Current Assets:
Cash and cash equivalents........... $ 2,080 $ 1,571 $ 1,762
Accounts receivable................. 678 781 780
Notes receivable from shareholders.. 0 22 22
Merchandise inventories............. 66,730 59,444 64,173
Deferred income tax benefit......... 850 933 441
Other............................... 929 834 777
--------- --------- ---------
Total Current Assets................... 71,267 63,585 67,955
Property and equipment-net............. 32,263 31,969 30,831
--------- --------- ---------
Total Assets........................... $ 103,530 $ 95,554 $ 98,786
========= ========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable.................... $ 10,481 $ 9,521 $ 8,637
Accrued and other liabilities....... 7,346 4,487 6,191
Current portion of long-term debt... 647 688 702
--------- --------- ---------
Total Current Liabilities.............. 18,474 14,696 15,530
Long-term debt......................... 6,892 6,133 14,939
Deferred lease incentives.............. 1,239 1,308 1,416
Deferred income taxes.................. 1,817 1,808 1,130
--------- --------- ---------
Total Liabilities...................... 28,422 23,945 33,015
--------- --------- ---------
Shareholders' Equity:
Common stock, no par value, 50,000
shares authorized, 13,132, 13,088,
13,037 shares issued and
outstanding at May 2, 1998,
January 31, 1998 and May 3, 1997... 0 0 0
Additional paid-in capital.......... 62,228 61,844 61,579
Retained earnings................... 12,880 9,765 4,192
--------- --------- ---------
Total Shareholders' Equity............. 75,108 71,609 65,771
--------- --------- ---------
Total Liabilities and
Shareholders' Equity................. $ 103,530 $ 95,554 $ 98,786
========= ========= =========
</TABLE>
See Notes to Condensed Financial Statements
3
<PAGE>
<TABLE>
<CAPTION>
SHOE CARNIVAL, INC.
CONDENSED STATEMENTS OF INCOME
Unaudited
Thirteen Thirteen
Weeks Ended Weeks Ended
May 2, 1998 May 3, 1997
------------ -----------
(In thousands, except per share data)
<S> <C> <C>
Net sales................................ $ 65,694 $ 59,328
Cost of sales (including buying,
distribution and occupancy costs)...... 45,020 40,998
---------- ----------
Gross profit............................. 20,674 18,330
Selling, general and administrative
expenses............................... 15,309 15,044
---------- ----------
Operating income......................... 5,365 3,286
Interest expense, net.................... 174 231
---------- ----------
Income before income taxes............... 5,191 3,055
Income taxes............................. 2,076 1,237
---------- ----------
Net income............................... $ 3,115 $ 1,818
========== ==========
Net income per share:
Basic................................. $ .24 $ .14
========== ==========
Diluted............................... $ .23 $ .14
========== ==========
Average shares outstanding:
Basic................................. 13,108 13,034
========== ==========
Diluted............................... 13,404 13,054
========== ==========
</TABLE>
See Notes to Condensed Financial Statements
4
<PAGE>
<TABLE>
<CAPTION>
SHOE CARNIVAL, INC.
CONDENSED STATEMENT OF SHAREHOLDERS' EQUITY
Unaudited
Common Stock Additional
------------- Paid-In Retained
Shares Amount Capital Earnings Total
------ ------ ---------- -------- --------
(In thousands)
<S> <C> <C> <C> <C> <C>
Balance at January 31, 1998.... 13,088 $ 0 $ 61,844 $ 9,765 $ 71,609
Employee stock purchase
plan purchases......... 4 32 32
Exercise of stock options... 40 352 352
Net income.................. 3,115 3,115
------ ---- -------- -------- --------
Balance at May 2, 1998......... 13,132 $ 0 $ 62,228 $ 12,880 $ 75,108
====== ==== ======== ======== ========
</TABLE>
See Notes to Condensed Financial Statements
5
<PAGE>
<TABLE>
<CAPTION>
SHOE CARNIVAL, INC.
CONDENSED STATEMENTS OF CASH FLOWS
Unaudited
Thirteen Thirteen
Weeks Ended Weeks Ended
May 2, 1998 May 3, 1997
----------- -----------
(In thousands)
<S> <C> <C>
Cash flows from operating activities:
Net income......................................... $ 3,115 $ 1,818
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization.................... 1,484 1,364
Loss on retirement of assets..................... 13 97
Deferred income taxes............................ 92 33
Compensation for forgiveness of debt............. 0 158
Other .......................................... (69) (41)
Changes in operating assets and liabilities:
Merchandise inventories........................ (7,286) (4,934)
Accounts receivable............................ 103 137
Accounts payable and accrued liabilities....... 3,819 (2,333)
Other.......................................... (95) 129
-------- --------
Net cash provided by (used in) operating activities... 1,176 (3,572)
-------- --------
Cash flows from investing activities:
Purchases of property and equipment................ (1,791) (1,662)
Other.............................................. 22 16
-------- --------
Net cash used in investing activities................. (1,769) (1,646)
-------- --------
Cash flows from financing activities:
Borrowings under line of credit.................... 36,175 35,125
Payments on line of credit......................... (35,275) (29,625)
Payments on capital lease obligations.............. (182) (168)
Proceeds from issuance of stock.................... 384 23
-------- --------
Net cash provided by financing activities............. 1,102 5,355
-------- --------
Net increase in cash and cash equivalents............. 509 137
Cash and cash equivalents at beginning of period...... 1,571 1,625
-------- --------
Cash and cash equivalents at end of period............ $ 2,080 $ 1,762
======== ========
Supplemental disclosures of cash flow information:
Cash paid during period for interest............... $ 169 $ 219
Cash paid during period for income taxes........... $ 64 $ 244
Supplemental disclosure of noncash investing activities:
Capital lease obligations incurred................. $ 0 $ 0
</TABLE>
See Notes to Condensed Financial Statements
6
<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
Results of Operations
<TABLE>
<CAPTION>
Number of Stores Store Square Footage Comparable
---------------- -------------------- Store
Beginning End of Net End Sales
Quarter Ended Of Period Opened Closed Period Change of Period Increase
- ------------- --------- ------ ------ ------ ------ --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
May 2, 1998 92 3 0 95 46,000 1,067,000 7.0%
May 3, 1997 93 0 2 91 (19,000) 1,007,000 4.4%
</TABLE>
The following table sets forth the Company's results of operations expressed as
a percentage of net sales for the periods indicated:
<TABLE>
<CAPTION>
Thirteen Thirteen
Weeks Ended Weeks Ended
May 2, 1998 May 3, 1997
----------- -----------
<S> <C> <C>
Net sales................................. 100.0% 100.0%
Cost of sales (including buying,
distribution and occupancy costs)....... 68.5 69.1
-------- --------
Gross profit.............................. 31.5 30.9
Selling, general and administrative
expenses................................ 23.3 25.4
-------- --------
Operating income.......................... 8.2 5.5
Interest expense.......................... .3 .4
-------- --------
Income before income taxes................ 7.9 5.1
Income taxes.............................. 3.2 2.0
-------- --------
Net income................................ 4.7% 3.1%
======== ========
</TABLE>
Net Sales
Net sales increased $6.4 million to $65.7 million in the first quarter of 1998,
a 10.7% increase over net sales of $59.3 million in the comparable prior year
period. The increase was attributable to a 7.0% comparable store sales increase
and the sales generated by the seven new stores opened in 1997 and 1998,
partially offset by the reduction in sales for the four stores closed in 1997.
The comparable store sales increase was supported with increases in all major
product categories. Average footwear unit prices and footwear unit sales in
comparable stores increased 6.0% and 1.1%, respectively. Sales of private label
and non-name brand footwear constituted 14.7% of total footwear sales in the
first quarter of 1998 as compared with 16.3% in the prior year quarter.
Gross Profit
Gross profit increased $2.3 million to $20.7 million in the first quarter of
1998, a 12.8% increase over gross profit of $18.3 million in the comparable
prior year period. The Company's gross profit margin increased to 31.5% from
30.9% as a result of a 0.6% decrease in buying, distribution and occupancy
costs.
8
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased $265,000 to $15.3 million
in the first quarter of 1998 from $15.0 million in the comparable prior year
period. As a percentage of sales, these expenses decreased 2.1% primarily as a
result of the comparable store sales increase and a non-recurring charge in the
first quarter of 1997 of $650,000 related to the retirement of the former chief
executive officer. Total pre-opening costs for the three stores opened in the
first quarter of 1998 were $245,000 or 0.4% of sales. No stores were opened in
the first quarter of 1997.
Interest Expense
The reduction in net interest expense to $174,000 in the first quarter of 1998
from $231,000 in the first quarter of 1997 resulted from reduced borrowings.
Income Taxes
The effective income tax rate of 40.0% and 40.5% in the first quarters of 1998
and 1997, respectively, differed from the statutory federal rates due primarily
to state and local income taxes, net of the federal tax benefit.
Liquidity and Capital Resources
The Company's primary sources of funds are cash flows from operations and
borrowings under its revolving credit facility. Net cash provided by operating
activities was $1.2 million during the first quarter of 1998. Excluding changes
in operating assets and liabilities, cash provided by operating activities was
$4.6 million in the first quarter of 1998. The net cash provided by operating
activities resulted from the cash generated by operations before changes in
operating assets and liabilities along with an increase in accounts payable and
accrued liabilities of $3.8 million which was partially offset by a $7.3 million
increase in merchandise inventories. The increase in merchandise inventories was
primarily due to seasonal fluctuations and the addition of three stores in the
first quarter of 1998.
Working capital increased to $52.8 million at May 2, 1998 from $48.9 million at
January 31, 1998 and the current ratio was 3.9 to 1 as compared with 4.3 to 1 at
January 31, 1998. Long-term debt as a percentage of total capital was 8.4% at
May 2, 1998, compared to 7.9% at January 31, 1998.
Capital expenditures were $1.8 million in the first quarter of 1998. Of these
expenditures, approximately $1.1 million was incurred for new stores. The
remaining capital expenditures in the first quarter of 1998 were primarily for
merchandise display and signage enhancements and technological improvements in
the stores.
The Company intends to open approximately 15 to 20 stores in 1998, including the
three stores opened in the first quarter. Seven stores are expected to be opened
in the second quarter with the remainder of the new stores opening in the second
half of 1998, primarily in the third quarter. No stores were opened in the first
half of 1997 and two stores were closed in the first quarter of 1997.
The actual amount of the Company's cash requirements for capital expenditures
depends in part on the number of new stores opened, the amount of lease
incentives, if any, received from landlords and the number of stores remodeled.
The opening of new stores will be dependent upon, among other things, the
availability of desirable locations, the negotiation of acceptable lease terms
and general economic and business conditions affecting consumer spending in
areas the Company targets for expansion.
9
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
The Company's current store prototype utilizes between 12,000 and 18,000 square
feet depending upon, among other factors, the location of the store and the
population base the store is expected to service. Capital expenditures for a new
store is expected to average approximately $400,000, including point-of-sale
equipment which is generally acquired through equipment leasing transactions.
The average inventory investment in a new store is expected to range from
$550,000 to $850,000, depending on the size and sales expectation of the store
and the timing of the new store opening. Pre-opening expenses, such as
advertising, salaries, supplies and utilities, are expected to average
approximately $60,000 per store.
The Company's $35 million credit facility provides for a combination of cash
advances on a revolving basis and the issuance of commercial letters of credit.
Borrowings under the revolving credit line are based on eligible inventory.
Borrowings and letters of credit outstanding under this facility at May 2, 1998
were $6.6 million and $4.0 million, respectively.
The Company anticipates that its existing cash and cash flow from operations,
supplemented by borrowings under the credit facility will be sufficient to fund
its planned expansion and other operating cash requirements for at least the
next 12 months.
Seasonality
The Company's quarterly results of operations have fluctuated, and are expected
to continue to fluctuate in the future primarily as a result of seasonal
variances and the timing of sales and costs associated with opening new stores.
Non-capital expenditures, such as advertising and payroll, incurred prior to
opening of a new store are charged to expense in the month the store is opened.
Therefore, the Company's results of operations may be adversely affected in any
quarter in which the Company opens new stores.
The Company has three distinct selling periods: Easter, back-to-school and
Christmas.
10
<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 May 2, 1998
11
<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: June 11, 1998 SHOE CARNIVAL, INC.
(Registrant)
By: /s/ W. Kerry Jackson
W. Kerry Jackson
Vice President and
Chief Financial Officer
12
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS FOR THE PERIOD ENDED MAY 2, 1998, AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-30-1999
<PERIOD-START> FEB-01-1998
<PERIOD-END> MAY-02-1998
<CASH> 2,080
<SECURITIES> 0
<RECEIVABLES> 678
<ALLOWANCES> 0
<INVENTORY> 66,730
<CURRENT-ASSETS> 71,267
<PP&E> 55,764
<DEPRECIATION> 23,501
<TOTAL-ASSETS> 103,530
<CURRENT-LIABILITIES> 18,474
<BONDS> 6,892
0
0
<COMMON> 0
<OTHER-SE> 75,108
<TOTAL-LIABILITY-AND-EQUITY> 103,530
<SALES> 65,694
<TOTAL-REVENUES> 65,694
<CGS> 45,020
<TOTAL-COSTS> 45,020
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 174
<INCOME-PRETAX> 5,191
<INCOME-TAX> 2,076
<INCOME-CONTINUING> 3,115
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,115
<EPS-PRIMARY> .24
<EPS-DILUTED> .23
</TABLE>
