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 April 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 or 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, 12,627,718 shares outstanding as of June 1, 2000.
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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.................... 8-10
Part II Other Information
Item 6. Exhibits and Reports on Form 8-K........................ 11
Signature........................................................ 12
2
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<TABLE>
<CAPTION>
SHOE CARNIVAL, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
Unaudited
April 29, January 29, May 1,
2000 2000 1999
--------- --------- ---------
(In thousands)
ASSETS
<S> <C> <C> <C>
Current Assets:
Cash and cash equivalents......... $ 2,767 $ 1,675 $ 2,598
Accounts receivable............... 624 694 688
Merchandise inventories........... 111,980 104,730 79,722
Deferred income tax benefit....... 795 876 798
Other............................. 1,476 1,168 845
--------- --------- ---------
Total Current Assets................. 117,642 109,143 84,651
Property and equipment-net........... 55,503 53,710 45,367
--------- --------- ---------
Total Assets......................... $ 173,145 $ 162,853 $ 130,018
========= ========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable.................. $ 28,781 $ 33,817 $ 19,119
Accrued and other liabilities..... 9,255 6,266 9,337
Current portion of long-term debt. 776 714 671
--------- --------- ---------
Total Current Liabilities............ 38,812 40,797 29,127
Long-term debt....................... 31,331 22,338 9,202
Deferred lease incentives............ 3,187 3,077 2,348
Deferred income taxes................ 3,487 3,296 2,106
--------- --------- ---------
Total Liabilities.................... 76,817 69,508 42,783
--------- --------- ---------
Shareholders' Equity:
Common stock, $.01 par value, 50,000
shares authorized, 13,363, 13,345,
13,253 shares issued at April 29,
2000, January 29, 2000 and
May 1, 1999.................... 133 133 133
Additional paid-in capital........ 64,279 63,683 63,066
Retained earnings................. 35,384 31,953 24,036
Treasury stock, at cost, 410 and 292
shares at April 29, 2000 and
January 29, 2000............... (3,468) (2,424)
--------- --------- ---------
Total Shareholders' Equity........... 96,328 93,345 87,235
--------- --------- ---------
Total Liabilities and Shareholders'
Equity.................... $ 173,145 $ 162,853 $ 130,018
========= ========= =========
</TABLE>
See Notes to Condensed Consolidated Financial Statements
3
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<TABLE>
<CAPTION>
SHOE CARNIVAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
Unaudited
Thirteen Thirteen
Weeks Ended Weeks Ended
April 29, 2000 May 1, 1999
-------------- -----------
(In thousands, except per share data)
<S> <C> <C>
Net sales............................... $ 95,405 $ 78,111
Cost of sales (including buying,
distribution and occupancy costs)... 67,212 53,253
----------- -----------
Gross profit............................ 28,193 24,858
Selling, general and administrative
expenses............................ 21,943 17,968
----------- -----------
Operating income........................ 6,250 6,890
Interest expense, net................... 579 150
----------- -----------
Income before income taxes.............. 5,671 6,740
Income taxes............................ 2,240 2,696
----------- -----------
Net income.............................. $ 3,431 $ 4,044
=========== ===========
Net income per share:
Basic................................ $ .26 $ .31
=========== ===========
Diluted.............................. $ .26 $ .30
=========== ===========
Average shares outstanding:
Basic................................ 12,974 13,206
=========== ===========
Diluted.............................. 13,149 13,532
=========== ===========
</TABLE>
See Notes to Condensed Consolidated Financial Statements
4
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<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... 18 596 596
Employee stock
purchase
plan purchases.. 5 35 35
Common stock
repurchased..... (123) (1,079) (1,079)
Net income ....... 3,431 3,431
------ ----- ----- -------- -------- --------- ---------
Balance at
April 29, 2000 13,363 (410) $ 133 $ 64,279 $ 35,384 $ (3,468) $ 96,328
====== ===== ===== ======== ======== ========= =========
</TABLE>
See Notes to Condensed Consolidated Financial Statements
5
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<TABLE>
<CAPTION>
SHOE CARNIVAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Unaudited
Thirteen Thirteen
Weeks Ended Weeks Ended
April 29, 2000 May 1, 1999
-------------- -----------
(In thousands)
<S> <C> <C>
Cash flows from operating activities:
Net income.................................. $ 3,431 $ 4,044
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization............. 2,400 1,877
Loss on retirement of assets.............. 6
Deferred income taxes..................... 272 19
Other ................................... (78) (76)
Changes in operating assets and liabilities:
Merchandise inventories................ (7,251) (4,333)
Accounts receivable..................... 70 (121)
Accounts payable and accrued liabilities (2,027) (2,999)
Other................................... (326) 378
---------- ----------
Net cash used in operating activities.......... (3,509) (1,205)
---------- ----------
Cash flows from investing activities:
Purchases of property and equipment......... (3,959) (6,394)
Lease incentives............................ 186
---------- ----------
Net cash used in investing activities.......... (3,773) (6,394)
---------- ----------
Cash flows from financing activities:
Borrowings under line of credit............. 99,925 39,650
Payments on line of credit.................. (90,925) (31,675)
Payments on capital lease obligations....... (178) (246)
Proceeds from issuance of stock............. 596 524
Purchase of treasury stock.................. (1,044)
---------- ----------
Net cash provided by financing activities...... 8,374 8,253
---------- ----------
Net increase in cash and cash equivalents...... 1,092 654
Cash and cash equivalents at beginning of period 1,675 1,944
---------- ----------
Cash and cash equivalents at end of period..... $ 2,767 $ 2,598
========== ==========
Supplemental disclosures of cash flow information:
Cash paid during period for interest........ $ 576 $ 118
Cash paid during period for income taxes.... $ 59 $ 74
Capital lease obligations incurred.......... $ 232
</TABLE>
See Notes to Condensed Consolidated Financial Statements
6
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SHOE CARNIVAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Unaudited
Note 1 - Basis of Presentation
In the opinion of management, the accompanying unaudited condensed consolidated
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 consolidated 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 1999, the Company had an unsecured $35 million credit
agreement (the "Credit Agreement") with a bank group. On April 16, 1999, the
Credit Agreement was amended to increase the total credit facility to $45
million. 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 2%, 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.
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.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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
------------- --------- ------ ------ ------ ------ --------- ----------
April 29, 2000 138 6 0 144 78,000 1,668,000 1.4%
May 1, 1999 111 3 0 114 40,000 1,314,000 3.4%
The following table sets forth the Company's results of operations expressed as
a percentage of net sales for the periods indicated:
Thirteen Thirteen
Weeks Ended Weeks Ended
April 29, 2000 May 1, 1999
-------------- -----------
Net sales........................... 100.0% 100.0%
Cost of sales (including buying,
distribution and occupancy costs) 70.4 68.2
-------------- -----------
Gross profit........................ 29.6 31.8
Selling, general and administrative
expenses........................ 23.0 23.0
-------------- -----------
Operating income.................... 6.6 8.8
Interest expense.................... .6 .2
-------------- -----------
Income before income taxes.......... 6.0 8.6
Income taxes........................ 2.4 3.4
-------------- -----------
Net income.......................... 3.6% 5.2%
============== ===========
Net Sales
Net sales increased $17.3 million to $95.4 million in the first quarter of 2000,
a 22.1% increase over net sales of $78.1 million in the comparable prior year
period. The increase was attributable to a 1.4% comparable store sales increase
and the sales generated by the 33 new stores opened in 1999 and 2000 (net of one
store closed). Footwear unit sales in comparable stores increased 3.3% while
average footwear unit prices decreased 2.1% for the quarter.
Gross Profit
Gross profit increased $3.3 million to $28.2 million in the first quarter of
2000, a 13.4% increase over gross profit of $24.9 million in the comparable
prior year period. The Company's gross profit margin decreased to 29.6% from
31.8%. As a percentage of sales, the merchandise gross profit margin decreased
1.5% and buying, distribution and occupancy costs increased .7%.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
Sales of high-margin seasonal product, primarily sandals and opened-up dress
shoes, were below expectations for the quarter. This weakness in sales resulted
in a decrease in the merchandise gross profit margin due to a more promotional
environment as markdowns of the seasonal product were accelerated in order to
manage inventory levels.
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased $3.9 million to $21.9
million in the first quarter of 2000 from $18.0 million in the comparable prior
year period. As a percentage of sales, these expenses were unchanged from the
prior year at 23.0%. Total pre-opening costs for the six stores opened in the
first quarter of 2000 were $451,000 or 0.5% of sales, as compared to $267,000 or
0.3% of sales, for the three stores opened in the first quarter of 1999.
Interest Expense
The increase in net interest expense to $579,000 in the first quarter of 2000
from $150,000 in the first quarter of 1999 resulted from increased borrowings.
Income Taxes
The effective income tax rate of 39.5% and 40% in the first quarter 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.
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 $3.5 million during the first quarter of 2000. The decrease
resulted primarily from an increase in inventories and a decrease in accounts
payable and accrued liabilities. Excluding changes in operating assets and
liabilities, cash provided by operating activities was $6.0 million in the first
quarter of 2000. The increase in merchandise inventories was primarily due to
seasonal fluctuations and the addition of six stores in the first quarter of
2000.
Working capital increased to $78.8 million at April 29, 2000 from $68.3 million
at January 29, 2000 and the current ratio was 3.0 to 1 as compared with 2.7 to 1
at January 29, 2000. Long-term debt as a percentage of total capital was 24.5%
at April 29, 2000 and 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.
Capital expenditures, net of lease incentives, were $4.0 million in the first
quarter of 2000. Of these expenditures, $2.4 million was incurred for new stores
and $800,000 was incurred for the remodeling of certain stores. The remaining
capital expenditures in the first quarter of 2000 were primarily for merchandise
display and signage enhancements and improvements to computer systems.
The Company intends to open approximately 30 stores in 2000, including the six
stores opened in the first quarter. Eight stores are expected to be opened in
the second quarter. The remaining store openings will occur primarily in the
third quarter with certain stores opening early in the fourth quarter. Three
stores were opened in the first quarter 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
9
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
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 store 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 will allow the Company to purchase up to $10 million of
the outstanding common stock. As of January 29, 2000, the Company had purchased
291,900 shares at an approximate cost of $2.4 million. An additional 123,100
shares were purchased during the first quarter at a cost of $1.1 million. Share
repurchases will continue as market conditions allow and will be funded by
borrowings under the line of credit. The treasury shares may be reissued in
connection with possible future stock offerings, dividends, stock based
compensation programs and other general corporate uses.
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 April 29, 2000 were $30.0
million and $4.1 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.
10
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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 April 29,
2000
11
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SHOE CARNIVAL, INC.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed, on its behalf by the
undersigned thereunto duly authorized.
Date: June 9, 2000 SHOE CARNIVAL, INC.
(Registrant)
By: /s/ W. Kerry Jackson
----------------------------
W. Kerry Jackson
Vice President and
Chief Financial Officer
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