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 July 29, 2000
[ ] 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.
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(Exact name of registrant as specified in its charter)
Indiana 35-1736614
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(State or other jurisdiction of (IRS Employer Identification Number)
incorporation of organization)
8233 Baumgart Road, Evansville, Indiana 47725
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(Address of principal executive offices) (Zip Code)
(812) 867-6471
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(Registrant's telephone number, including area code)
NOT APPLICABLE
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(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, 11,941,066 shares outstanding as of September 1,
2000.
<PAGE>
SHOE CARNIVAL, INC.
INDEX TO FINANCIAL STATEMENTS
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................... 8-11
Part II Other Information
Item 4. Submission of Matters to Vote of Security Holders........ 12
Item 6. Exhibits and Reports on Form 8-K......................... 12
Signature........................................................ 13
2
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<TABLE>
<CAPTION>
SHOE CARNIVAL, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
Unaudited
July 29, January 29, July 31,
2000 2000 1999
---------- ---------- ----------
(In thousands)
ASSETS
------
<S> <C> <C> <C>
Current Assets:
Cash and cash equivalents............... $ 3,358 $ 1,675 $ 2,724
Accounts receivable..................... 631 694 706
Merchandise inventories................. 123,791 104,730 92,637
Deferred income tax benefit............. 701 876 821
Other................................... 1,794 1,168 1,965
--------- --------- ---------
Total Current Assets...................... 130,275 109,143 98,853
Property and equipment-net................ 56,796 53,710 49,759
--------- --------- ---------
Total Assets.............................. $ 187,071 $ 162,853 $ 148,612
========= ========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Current Liabilities:
Accounts payable........................ $ 32,549 $ 33,817 $ 28,770
Accrued and other liabilities........... 7,038 6,266 5,901
Current portion of long-term debt....... 786 714 733
--------- --------- ---------
Total Current Liabilities................. 40,373 40,797 35,404
Long-term debt............................ 45,749 22,338 17,074
Deferred lease incentives................. 3,079 3,077 2,980
Deferred income taxes..................... 3,693 3,296 2,163
--------- --------- ---------
Total Liabilities......................... 92,894 69,508 57,621
--------- --------- ---------
Shareholders' Equity:
Common stock, $.01 par value, 50,000
shares authorized, 13,363, 13,345,
13,326 shares issued at July 29, 2000,
January 29, 2000 and July 31, 1999... 134 133 133
Additional paid-in capital.............. 64,283 63,683 63,558
Retained earnings....................... 37,130 31,953 27,300
Treasury stock, at cost, 1,015 and 292
shares at July 29, 2000 and January 29,
2000................................. (7,370) (2,424)
--------- --------- ---------
Total Shareholders' Equity................ 94,177 93,345 90,991
--------- --------- ---------
Total Liabilities and Shareholders' Equity $ 187,071 $ 162,853 $ 148,612
========= ========= =========
</TABLE>
See Notes to Condensed Consolidated Financial Statements
3
<PAGE>
<TABLE>
<CAPTION>
SHOE CARNIVAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
Unaudited
Thirteen Thirteen Twenty-six Twenty-six
Weeks Ended Weeks Ended Weeks Ended Weeks Ended
July 29, July 31, July 29, July 31,
2000 1999 2000 1999
----------- ----------- ----------- -----------
(In thousands, except per share data)
<S> <C> <C> <C> <C>
Net sales................ $ 95,611 $ 83,206 $ 191,016 $ 161,317
Cost of sales (including
buying, distribution
and occupancy costs)... 68,220 58,112 135,432 111,365
---------- ---------- ---------- ----------
Gross profit............. 27,391 25,094 55,584 49,952
Selling, general and
administrative expenses 23,736 19,464 45,679 37,432
---------- ---------- ---------- ----------
Operating income......... 3,655 5,630 9,905 12,520
Interest expense, net.... 769 190 1,348 340
---------- ---------- ---------- ----------
Income before income taxes 2,886 5,440 8,557 12,180
Income taxes............. 1,140 2,176 3,380 4,872
---------- ---------- ---------- ----------
Net income............... $ 1,746 $ 3,264 $ 5,177 $ 7,308
========== ========== ========== ==========
Net income per share:
Basic................ $ .14 $ .25 $ .41 $ .55
========== ========== ========== ==========
Diluted.............. $ .14 $ .24 $ .40 $ .54
========== ========== ========== ==========
Average shares outstanding:
Basic................ 12,543 13,293 12,758 13,249
========== ========== ========== ==========
Diluted.............. 12,583 13,734 12,880 13,639
========== ========== ========== ==========
</TABLE>
See Notes to Condensed Consolidated Financial Statements
4
<PAGE>
<TABLE>
<CAPTION>
SHOE CARNIVAL, INC.
CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
Unaudited
Common Stock Additional
---------------------- Paid-In Retained Treasury
Issued Treasury Amount Capital Earnings Stock Total
------ -------- ------ --------- -------- -------- --------
(In thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at
January 29, 2000 13,345 (292) $ 133 $ 63,683 $31,953 $ (2,424) $ 93,345
Exercise of
stock options... 18 9 1 600 48 649
Employee stock
purchase
plan purchases.. 12 73 73
Common stock
repurchased..... (744) (5,067) (5,067)
Net income ....... 5,177 5,177
------ ----- ----- -------- ------- -------- --------
Balance at
July 29, 2000 13,363 (1,015) $ 134 $ 64,283 $37,130 $ (7,370) $ 94,177
====== ===== ===== ======== ======= ======== ========
</TABLE>
See Notes to Condensed Consolidated Financial Statements
5
<PAGE>
<TABLE>
<CAPTION>
SHOE CARNIVAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Unaudited
Twenty-six Twenty-six
Weeks Ended Weeks Ended
July 29, July 31,
2000 1999
----------- -----------
(In thousands)
<S> <C> <C>
Cash flows from operating activities:
Net income.................................... $ 5,177 $ 7,308
Adjustments to reconcile net income to net
cash used in operating activities:
Depreciation and amortization............... 4,952 3,866
Loss on retirement of assets................ 26 6
Deferred income taxes....................... 572 53
Other ..................................... (174) (164)
Changes in operating assets and liabilities:
Merchandise inventories.................. (19,061) (17,247)
Accounts receivable...................... 63 (140)
Accounts payable and accrued liabilities. (509) 3,216
Other.................................... (626) (743)
---------- ----------
Net cash used in operating activities........... (9,580) (3,845)
---------- ----------
Cash flows from investing activities:
Purchases of property and equipment........... (7,686) (12,129)
Lease incentives.............................. 186 720
Other......................................... 2
---------- ----------
Net cash used in investing activities........... (7,498) (11,409)
---------- ----------
Cash flows from financing activities:
Borrowings under line of credit............... 198,600 82,150
Payments on line of credit.................... (175,100) (66,650)
Payments on capital lease obligations......... (393) (481)
Proceeds from issuance of stock............... 721 1,015
Purchase of treasury stock.................... (5,067)
---------- ----------
Net cash provided by financing activities....... 18,761 16,034
---------- ----------
Net increase in cash and cash equivalents....... 1,683 780
Cash and cash equivalents at beginning of period 1,675 1,944
---------- ----------
Cash and cash equivalents at end of period...... $ 3,358 $ 2,724
========== ==========
Supplemental disclosures of cash flow information:
Cash paid during period for interest.......... $ 1,341 $ 336
Cash paid during period for income taxes...... $ 2,076 $ 5,133
Supplemental disclosure of noncash investing
activities:
Capital lease obligations incurred............ $ 377 $ 644
</TABLE>
See Notes to Condensed Consolidated Financial Statements
6
<PAGE>
SHOE CARNIVAL, INC.
NOTES TO CONDENSED CONSOLIDATED 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 1999
Annual Report.
Note 2 - Long-Term Debt
At the beginning of 2000, the Company had an unsecured $45 million credit
agreement (the "Credit Agreement") with a bank group. On March 24, 2000, the
Credit Agreement was amended to increase the total credit facility to $55
million and to extend the maturity date to March 31, 2002. Borrowings are based
on eligible inventory and bear interest, at the Company's option, at the agent
bank's prime rate minus 0.5% or the applicable London Inter-Bank Offered Rate
(LIBOR) plus from 0.75% to 1.5%, depending on the Company's achievement of
certain performance criteria. A commitment fee is charged, at the Company's
option, at 0.3% per annum on the unused portion of the bank group's commitment
or 0.15% per annum of the total commitment. The Credit Agreement contains
various restrictive and financial covenants, including the maintenance of
specific financial ratios and a limitation on the payment of dividends.
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
Beginning End of Net End Store Sales
Quarter Ended of Period Opened Closed Period Change of Period Increase
------------- --------- ------ ------ ------ ------ --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
April 29, 2000 138 6 0 144 78,000 1,668,000 1.4%
July 29, 2000 144 10 0 154 120,000 1,788,000 (2.1%)
Year-to-date 138 16 0 154 198,000 1,788,000 (.4%)
May 1, 1999 111 3 0 114 40,000 1,314,000 3.4%
July 31, 1999 114 12 0 126 142,000 1,456,000 .6%
Year-to-date 111 15 0 126 182,000 1,456,000 2.0%
</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 Twenty-six Twenty-six
Weeks Ended Weeks Ended Weeks Ended Weeks Ended
July 29, July 31, July 29, July 31,
2000 1999 2000 1999
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net sales................. 100.0% 100.0% 100.0% 100.0%
Cost of sales (including
buying, distribution
and occupancy costs)... 71.4 69.8 70.9 69.0
----------- ----------- ----------- -----------
Gross profit.............. 28.6 30.2 29.1 31.0
Selling, general and
administrative expenses 24.8 23.4 23.9 23.2
----------- ----------- ----------- -----------
Operating income.......... 3.8 6.8 5.2 7.8
Interest expense.......... .8 .3 .7 .2
----------- ----------- ----------- -----------
Income before income taxes 3.0 6.5 4.5 7.6
Income taxes.............. 1.2 2.6 1.8 3.1
----------- ----------- ----------- -----------
Net income................ 1.8% 3.9% 2.7% 4.5%
=========== =========== =========== ===========
</TABLE>
Net Sales
Net sales increased $12.4 million to $95.6 million in the second quarter of
2000, a 14.9% increase over net sales of $83.2 million in the comparable prior
year period. The increase was attributable to the sales generated by the 41 new
stores opened since April 1999 (net of one store closed) partially offset by a
2.1% decrease in comparable store sales. The decline in comparable sales for the
quarter was due primarily to a decline in sales of men's, women's and children's
sandals. Average footwear unit sales in comparable stores increased 3.8% while
footwear unit prices decreased 6.2%.
8
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
Net sales increased $29.7 million to $191 million in the first half of 2000, an
18.4% increase over net sales of $161.3 million in the comparable prior year
period. The increase was attributable to the sales generated by the 43 new
stores opened in 1999 and 2000 (net of one store closed) partially offset by a
0.4% decrease in comparable store sales. Average footwear unit sales in
comparable stores increased 3.5% and average footwear unit prices decreased
4.1%.
Gross Profit
Gross profit increased $2.3 million to $27.4 million in the second quarter of
2000, a 9.2% increase over gross profit of $25.1 million in the comparable prior
year period. The Company's gross profit margin decreased to 28.6% from 30.2%. As
a percentage of sales, the merchandise gross profit margin decreased 0.8% and
buying, distribution and occupancy costs increased 0.8%. The decrease in the
merchandise gross profit margin was due to a decline in the sales and gross
margin obtained on the sale of sandals for the quarter.
Gross profit increased $5.6 million to $55.6 million in the first half of 2000,
an 11.3% increase over gross profit of $50.0 million in the comparable prior
year period. The Company's gross profit margin decreased to 29.1% from 31.0%. As
a percentage of sales, the merchandise gross profit margin decreased 1.1% and
buying, distribution and occupancy costs increased 0.8%.
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased $4.3 million to $23.7
million in the second quarter of 2000 from $19.5 million in the comparable prior
year period. As a percentage of sales, these expenses increased 1.4% primarily
due to higher advertising costs. Included in second quarter expenses is a
$220,000 charge for expected costs to close one store in September 2000. Total
pre-opening costs in the second quarter of 2000 were $785,000 or 0.8% of sales,
as compared to $727,000 or 0.9% of sales, for the second quarter of 1999.
Pre-opening expenses incurred were primarily for the stores opened in that
quarter. Ten stores were opened in the second quarter of 2000 and twelve
stores were opened in the second quarter of 1999.
Selling, general and administrative expenses increased $8.2 million to $45.7
million in the first half of 2000 from $37.4 million in the comparable prior
year period. As a percentage of sales, these expenses increased 0.7%. Total
pre-opening costs in the first half of 2000 were $1.2 million or 0.6% of sales,
as compared to $994,000 or 0.6% of sales, in the first half of 1999. Sixteen
stores were opened in the first half of 2000 and fifteen stores were opened in
the first half of 1999.
Interest Expense
The increase in net interest expense in the second quarter and the first six
months of 2000 as compared with the second quarter and the first six months of
1999 resulted from increased borrowings and a higher effective interest rate.
Income Taxes
The effective income tax rate of 39.5% and 40% in the second quarter and the
first six months of 2000 and 1999, 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 used in operating
activities was $9.6 million during the first half of 2000. The decrease resulted
primarily from seasonal increases in inventories and the additional inventories
for the 16 stores opened in the first half of 2000. Excluding changes in
operating assets and liabilities, cash provided by operating activities was
$10.6 million in the first half of 2000.
Working capital increased to $89.9 million at July 29, 2000 from $68.3 million
at January 29, 2000 and the current ratio was 3.2 to 1 at July 29, 2000 as
compared with 2.7 to 1 at January 29, 2000. Long-term debt as a percentage of
total capital was 32.7% at July 29, 2000, compared to 19.3% at January 29, 2000.
The increase in working capital and long term debt as a percent of total capital
was primarily due to seasonal fluctuations and the store expansion program.
Capital expenditures net of lease incentives were $7.9 million in the first half
of 2000 (including $377,000 of capital lease assets). Of these expenditures,
approximately $5.4 million was incurred for new stores and $1.3 was incurred for
the remodeling of certain stores. The remaining capital expenditures in the
first half of 2000 were primarily for various store improvements, merchandise
display and signage enhancements and technology.
The Company intends to open approximately 32 stores in 2000, including the 16
stores opened in the first half. Six stores were opened in the first quarter and
ten in the second quarter of 2000. Of the remaining 16 stores for 2000, 8 are
expected to open in the third quarter with the remaining 8 opening in November.
Fifteen stores were opened in the first half of 1999.
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 8,000 and 15,000 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 $350,000, 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
$450,000 to $750,000, 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.
On January 7, 2000, the Company's Board of Directors authorized a share
repurchase program that allowed the Company to purchase up to $10 million of the
outstanding common stock. In January 2000, the Company purchased 291,900 shares
at a cost of $2.4 million. 123,100 shares were purchased during the first
quarter at a cost of $1.1 million and 620,600 shares were purchased during the
second quarter for $4.0 million. The share repurchase program was completed in
August with the purchase of 409,750 shares at a cost of $2.5 million. Total
shares acquired under the program were 1,445,350 at a cost of $10.0 million. The
treasury shares may be reissued in connection with possible future stock
offerings, dividends, stock based compensation programs and other general
corporate uses.
10
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
The Company's 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 July 29, 2000 were $44.5
million and $7.7 million, respectively. On March 24, 2000, the credit agreement
was amended to increase the facility by $10 million to allow for up to $55
million in cash advances and commercial letters of credit. The maturity date was
also extended to March 31, 2002.
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 as incurred. Therefore, the
Company's results of operations may be adversely affected in any quarter in
which the Company incurs pre-opening expenses related to the opening of 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 4. Submission of Matters to Vote of Security Holders
The annual meeting of the common shareholders of the Company was held
June 8, 2000.
Election of Directors
William E. Bindley was elected at the annual meeting to serve as a
Director of the Company for a three year term. Mr. Bindley received
12,049,497 votes in favor of his election. No votes were cast against
the election of Mr. Bindley.
Other Matters Voted Upon at the Meeting
Deloitte & Touche LLP was appointed as auditor for the Company for
2000. 12,068,778 votes were cast in favor, 3,339 votes were cast
against and 2,730 abstentions were recorded with respect to such
appointment.
The Company's 2000 Stock Option and Incentive Plan was approved.
9,458,043 votes were cast in favor and 851,218 votes were cast against.
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 July 29,
2000.
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: September 11, 2000 SHOE CARNIVAL, INC.
(Registrant)
By: /s/ W. Kerry Jackson
----------------------
W. Kerry Jackson
Vice President and
Chief Financial Officer
13
<PAGE>
