Shoe Carnival(SCVL) - 2023 Q2 - Quarterly Report

Part I - Financial Information Item 1. Financial Statements The unaudited condensed consolidated financial statements for Q2 2022 detail the company's financial position, operations, and cash flows, showing decreased net sales and income, increased inventories, and reduced operating cash flow, incorporating the Shoe Station acquisition Condensed Consolidated Balance Sheets Total assets increased to $914.5 million driven by higher merchandise inventories, while cash and cash equivalents decreased, and total liabilities and shareholders' equity grew Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | July 30, 2022 | January 29, 2022 | July 31, 2021 | | :--- | :--- | :--- | :--- | | Assets | | | | | Cash and cash equivalents | $51,620 | $117,443 | $146,506 | | Merchandise inventories | $385,510 | $285,205 | $308,141 | | Total Current Assets | $476,932 | $442,032 | $493,080 | | Total Assets | $914,515 | $812,264 | $784,056 | | Liabilities & Equity | | | | | Total Current Liabilities | $189,242 | $153,708 | $194,389 | | Total Liabilities | $430,883 | $359,731 | $394,144 | | Total Shareholders' Equity | $483,632 | $452,533 | $389,912 | Condensed Consolidated Statements of Income For Q2 2022, net sales decreased to $312.3 million, leading to a decline in gross profit and net income to $28.9 million, or $1.04 per diluted share Income Statement Summary (in thousands, except per share data) | Metric | Thirteen Weeks Ended July 30, 2022 | Thirteen Weeks Ended July 31, 2021 | | :--- | :--- | :--- | | Net sales | $312,268 | $332,230 | | Gross profit | $113,130 | $135,752 | | Operating income | $38,789 | $59,714 | | Net income | $28,909 | $44,212 | | Diluted EPS | $1.04 | $1.54 | Condensed Consolidated Statements of Shareholders' Equity Shareholders' equity increased to $483.6 million by July 30, 2022, driven by net income, partially offset by $20.5 million in stock repurchases and $5.1 million in dividends - For the twenty-six weeks ended July 30, 2022, the company repurchased $20.5 million of its common stock for treasury[18] - Dividends declared for the first half of 2022 amounted to $5.1 million, or $0.18 per share[18] Condensed Consolidated Statements of Cash Flows Net cash provided by operating activities sharply decreased to $8.9 million for the first half of 2022 due to increased inventories, while investing and financing activities used $47.2 million and $27.6 million respectively Cash Flow Summary (in thousands) | Cash Flow Activity | Twenty-six Weeks Ended July 30, 2022 | Twenty-six Weeks Ended July 31, 2021 | | :--- | :--- | :--- | | Net cash provided by operating activities | $8,918 | $79,847 | | Net cash used in investing activities | ($47,169) | ($29,619) | | Net cash used in financing activities | ($27,572) | ($10,254) | | Net (decrease) increase in cash | ($65,823) | $39,974 | Notes to Condensed Consolidated Financial Statements The notes detail financial statement policies, the Shoe Station acquisition contributing $27.2 million in Q2 2022 net sales, and revenue disaggregation showing a shift from athletic to non-athletic footwear - The acquisition of Shoe Station on December 3, 2021, contributed net sales of $27.2 million in Q2 2022 and $53.4 million in the first half of 2022[26][27] Revenue by Product Category - Q2 2022 vs Q2 2021 (as % of Net Sales) | Category | Q2 2022 % | Q2 2021 % | | :--- | :--- | :--- | | Non-Athletics | 55% | 48% | | Athletics | 40% | 47% | | Accessories | 5% | 5% | Total Lease Costs (in thousands) | Period | Thirteen Weeks Ended July 30, 2022 | Thirteen Weeks Ended July 31, 2021 | | :--- | :--- | :--- | | Total Lease Cost | $19,911 | $19,343 | Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses Q2 2022 financial results, noting decreased sales and earnings from 2021 due to inflation and supply chain issues, yet remaining above pre-pandemic levels, while highlighting the Shoe Station acquisition and ongoing store modernization Results of Operations Q2 2022 net sales decreased 6.0% to $312.3 million due to a 13.8% comparable store sales decline, while gross profit margin fell to 36.2% due to higher costs and deleveraging - Q2 2022 net sales decreased 6.0% YoY, driven by a 13.8% decline in comparable store sales[75] - Gross profit margin decreased by 470 basis points to 36.2% in Q2 2022, primarily due to a 280 basis point drop in merchandise margin and a 180 basis point increase in buying, distribution, and occupancy costs as a percentage of sales[76] - Compared to pre-pandemic Q2 2019, Q2 2022 net sales increased 16.4% and comparable store sales increased 8.0%[68] Liquidity and Capital Resources The company maintains strong liquidity with $62.6 million in cash and no credit facility borrowings, projecting $63-73 million in capital expenditures for fiscal 2022, while operating cash flow decreased due to inventory increases - Primary sources of liquidity are $62.6 million in cash and securities, cash from operations, and a $100 million credit facility with no outstanding borrowings[83] - Fiscal 2022 capital expenditures are expected to be between $63 million and $73 million, primarily for new stores, relocations, and remodels[90] - Year-to-date 2022, the company repurchased $20.5 million of common stock and had $29.5 million remaining under its authorization[101] Store Portfolio and Strategy The company is modernizing its store fleet by fiscal 2024 and plans to expand to 400 stores by the end of fiscal 2022, accelerating new openings to over 25 annually by fiscal 2024 - A store modernization program is underway, with a goal to complete the entire fleet by the end of fiscal 2024[74] - The company plans to reach 400 stores by the end of fiscal 2022 and add over 25 new stores annually by fiscal 2024[92] Item 3. Quantitative and Qualitative Disclosures About Market Risk The company's market risk from variable interest rates on its credit facility is currently immaterial due to no outstanding borrowings and no use of derivative instruments - The primary market risk is from variable interest rates on the credit facility, but there were no borrowings outstanding in Q2 2022[103] Item 4. Controls and Procedures Management concluded that disclosure controls and procedures were effective as of July 30, 2022, with the Shoe Station acquisition excluded from internal control assessment for this period - Disclosure controls and procedures were deemed effective as of July 30, 2022[104] - The acquired Shoe Station business was excluded from the assessment of internal control over financial reporting for the period, as permitted by SEC rules[105] Part II - Other Information Item 1A. Risk Factors No material changes to the company's risk factors were reported from those disclosed in the most recent Form 10-K - There were no material changes to the company's risk factors from those disclosed in the most recent Form 10-K[109] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company did not repurchase shares under its public program in Q2 2022, but withheld 1,580 shares for employee tax obligations, with $29.5 million remaining for future repurchases Issuer Purchases of Equity Securities (Q2 2022) | Period | Total Shares Purchased | Avg. Price Paid | Shares Purchased as Part of Program | Value Remaining in Program | | :--- | :--- | :--- | :--- | :--- | | May 2022 | 0 | $0 | 0 | $29,485,035 | | June 2022 | 1,580 | $24.07 | 0 | $29,485,035 | | July 2022 | 0 | $0 | 0 | $29,485,035 | - The 1,580 shares purchased were withheld for employee payroll tax withholding upon vesting of stock-based awards and were not part of the public repurchase program[111] Item 6. Exhibits This section lists exhibits filed with the Form 10-Q, including CEO and CFO certifications and Inline XBRL formatted financial data - Exhibits filed include: * Form of Restricted Stock Award Agreement * CEO and CFO Certifications (Sections 302 and 906 of Sarbanes-Oxley Act) * Inline XBRL formatted financial statements[113]