Shoe Carnival(SCVL) - 2023 Q3 - Quarterly Report

Report Information This section details the company's Form 10-Q filing information and the number of common shares outstanding Filing Details This section details the company's Form 10-Q filing as an Accelerated Filer, with common stock traded on Nasdaq - The report is a Quarterly Report on Form 10-Q for the period ended October 29, 2022[2] - Shoe Carnival, Inc. (SCVL) is an Accelerated Filer and its Common Stock is registered on The Nasdaq Stock Market LLC[3][4] Shares Outstanding This section reports Shoe Carnival, Inc.'s common stock shares outstanding as of November 23, 2022 - Number of Shares of Common Stock outstanding at November 23, 2022 was 27,166,175[7] Part I Financial Information This part presents unaudited financial statements and management's discussion on financial condition and operations Item 1. Financial Statements (Unaudited) This section presents the unaudited condensed consolidated financial statements and their accompanying notes Condensed Consolidated Balance Sheets This section presents the company's financial position, including assets, liabilities, and shareholders' equity | (In thousands) | October 29, 2022 | January 29, 2022 | October 30, 2021 | | :--------------- | :--------------- | :--------------- | :--------------- | | Total Assets | $966,336 | $812,264 | $786,509 | | Total Liabilities| $460,751 | $359,731 | $353,963 | | Total Shareholders' Equity | $505,585 | $452,533 | $432,546 | | Merchandise Inventories | $392,286 | $285,205 | $282,014 | Condensed Consolidated Statements of Income This section presents the company's financial performance, including net sales, gross profit, and net income Thirteen Weeks Ended | Metric (in thousands, except per share data) | October 29, 2022 | October 30, 2021 | | :----------------------------------------- | :--------------- | :--------------- | | Net sales | $341,661 | $356,336 | | Gross profit | $130,849 | $144,056 | | Operating income | $43,577 | $62,424 | | Net income | $32,652 | $46,836 | | Diluted Net income per share | $1.18 | $1.64 | Thirty-nine Weeks Ended | Metric (in thousands, except per share data) | October 29, 2022 | October 30, 2021 | | :----------------------------------------- | :--------------- | :--------------- | | Net sales | $971,456 | $1,017,023 | | Gross profit | $356,842 | $409,966 | | Operating income | $117,750 | $179,741 | | Net income | $88,458 | $134,290 | | Diluted Net income per share | $3.17 | $4.69 | Condensed Consolidated Statements of Shareholders' Equity This section outlines changes in shareholders' equity, including treasury stock and dividends declared Shareholders' Equity and Treasury Stock (in thousands) | Metric | October 29, 2022 | January 29, 2022 | October 30, 2021 | | :------------------------------------------------ | :--------------- | :--------------- | :--------------- | | Total Shareholders' Equity | $505,585 | $452,533 | $432,546 | | Treasury stock, at cost (shares) | (211,676) (13,883,015) | (182,045) (12,882,789) | (182,061) (12,883,917) | | Dividends declared (39 weeks ended Oct 29, 2022) | $(7,622) ($0.27/share) | N/A | $(6,043) ($0.21/share) | Condensed Consolidated Statements of Cash Flows This section presents cash inflows and outflows from operating, investing, and financing activities Cash Flows (Thirty-nine Weeks Ended, in thousands) | Metric | October 29, 2022 | October 30, 2021 | | :-------------------------------------- | :--------------- | :--------------- | | Net cash provided by operating activities | $18,947 | $120,478 | | Net cash used in investing activities | $(59,223) | $(37,846) |\n| Net cash used in financing activities | $(39,999) | $(15,800) | | Net (decrease) increase in cash and cash equivalents | $(80,275) | $66,832 | | Cash and cash equivalents at end of period | $37,168 | $173,364 | - The significant decrease in net cash from operating activities was primarily due to increased inventory purchases in 2022 compared to higher earnings in 2021[19] - Investing activities saw increased cash outflow due to higher purchases of property and equipment ($63.6 million in 2022 vs $20.4 million in 2021)[19] Notes to Condensed Consolidated Financial Statements This section provides additional information and explanations for the condensed consolidated financial statements Note 1 – Basis of Presentation This note describes the company's business operations as a family footwear retailer with an omnichannel presence - Shoe Carnival, Inc. is a family footwear retailer operating Shoe Carnival and Shoe Station banners, with an omnichannel presence across 35 U.S. states, Puerto Rico, and e-commerce[21] Note 2 - Acquisition of Shoe Station This note details the acquisition of Shoe Station, including its cost, added locations, and net sales contribution - Acquired Shoe Station on December 3, 2021, for $70.7 million, adding 22 locations by October 29, 2022[23] - Shoe Station contributed $22.2 million in Net Sales for the thirteen weeks ended October 29, 2022, and $75.6 million for the thirty-nine weeks ended October 29, 2022[24] Note 3 - Net Income Per Share This note provides detailed calculations for basic and diluted net income per share for the reported periods Net Income Per Share (Thirteen Weeks Ended) | Metric | October 29, 2022 | October 30, 2021 | | :----- | :--------------- | :--------------- | | Basic EPS | $1.19 | $1.66 | | Diluted EPS | $1.18 | $1.64 | | Basic Shares (thousands) | 27,454 | 28,192 | | Diluted Shares (thousands) | 27,700 | 28,547 | Net Income Per Share (Thirty-nine Weeks Ended) | Metric | October 29, 2022 | October 30, 2021 | | :----- | :--------------- | :--------------- | | Basic EPS | $3.20 | $4.75 | | Diluted EPS | $3.17 | $4.69 | | Basic Shares (thousands) | 27,674 | 28,257 | | Diluted Shares (thousands) | 27,940 | 28,607 | - Approximately 290 thousand (13 weeks) and 253 thousand (39 weeks) unvested stock-based awards were excluded from diluted EPS calculations for October 29, 2022, as their impact would have been anti-dilutive[26] Note 4 - Fair Value Measurements This note details fair value measurements for financial instruments and long-lived assets Fair Value Measurements (in thousands) | Instrument | October 29, 2022 | January 29, 2022 | October 30, 2021 | | :------------------------------------ | :--------------- | :--------------- | :--------------- | | Cash equivalents - money market mutual funds | $28,502 | $115,528 | $165,072 | | Marketable securities - mutual funds | $10,353 | $14,961 | $17,834 | | Total | $38,855 | $130,489 | $182,906 | - Marketable securities, primarily equity-based mutual funds, are held to mitigate income statement volatility from the non-qualified deferred compensation plan, resulting in $3.2 million in unrealized losses as of October 29, 2022[27] - No impairment charges on long-lived assets were recorded during the thirteen and thirty-nine weeks ended October 29, 2022, compared to charges of $15 thousand and $983 thousand in the prior year periods[32] Note 5 - Stock-Based Compensation This note outlines the company's stock-based compensation expense and details share-settled equity awards Total Stock-Based Compensation Expense (in thousands) | Period | October 29, 2022 | October 30, 2021 | | :---------------- | :--------------- | :--------------- | | Thirteen Weeks | $1,795 | $1,432 | | Thirty-nine Weeks | $4,536 | $4,118 | - As of October 29, 2022, approximately $9.3 million of unrecognized compensation expense related to share-settled equity awards remains, expected to be recognized over a weighted average period of 1.4 years[33] Share-Settled Equity Awards (Restricted Stock Units & Performance Stock Units) | Metric | Number of Shares | Weighted Average Grant Date Fair Value | | :----------------------------------- | :--------------- | :------------------------------------- | | Outstanding at January 29, 2022 | 457,038 | $16.54 | | Granted | 345,164 | $30.32 | | Vested | (178,425) | $18.26 | | Outstanding at October 29, 2022 | 598,674 | $23.91 | Note 6 – Revenue This note provides a breakdown of net sales by product category and explains revenue recognition policies Net Sales by Product Category (Thirteen Weeks Ended, in thousands) | Category | Oct 29, 2022 | % of Total | Oct 30, 2021 | % of Total | | :------------ | :----------- | :--------- | :----------- | :--------- | | Non-Athletics | $162,291 | 47% | $138,615 | 39% | | Athletics | $158,289 | 47% | $196,960 | 55% | | Accessories | $19,466 | 6% | $18,372 | 5% | | Other | $1,615 | 0% | $2,389 | 1% | | Total | $341,661 | 100% | $356,336 | 100% | Net Sales by Product Category (Thirty-nine Weeks Ended, in thousands) | Category | Oct 29, 2022 | % of Total | Oct 30, 2021 | % of Total | | :------------ | :----------- | :--------- | :----------- | :--------- | | Non-Athletics | $493,234 | 50% | $439,093 | 44% | | Athletics | $421,453 | 44% | $520,330 | 50% | | Accessories | $51,880 | 5% | $51,265 | 5% | | Other | $4,889 | 1% | $6,335 | 1% | | Total | $971,456 | 100% | $1,017,023 | 100% | - Revenue is recognized at the point of sale for physical stores and 'buy online, pick up in store' transactions, and upon shipment for e-commerce home deliveries[39] - Gift card breakage revenue recognized was $54 thousand (13 weeks) and $162 thousand (39 weeks) for October 29, 2022, while loyalty rewards recognized in Net Sales were $1.5 million (13 weeks) and $4.1 million (39 weeks) for the same period[45][47] Note 7 – Leases This note details the company's operating lease arrangements and associated lease costs - All physical stores, the distribution center, and certain Shoe Station operations are under operating leases[48] Total Lease Costs (in thousands) | Lease Cost Type | 13 Weeks Ended Oct 29, 2022 | 13 Weeks Ended Oct 30, 2021 | 39 Weeks Ended Oct 29, 2022 | 39 Weeks Ended Oct 30, 2021 | | :-------------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Operating lease cost | $15,398 | $13,520 | $45,040 | $40,272 | | Variable lease cost (CAM, taxes, insurance) | $4,876 | $4,746 | $14,305 | $14,375 | | Percentage rent and other variable | $479 | $713 | $973 | $2,413 | | Total | $20,753 | $18,979 | $60,318 | $57,060 | Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's analysis of financial condition, operational results, and strategic initiatives Factors That May Affect Future Results This section outlines various risks and factors that may affect the company's future financial results - Future results are subject to risks including cost control, labor needs, COVID-19 impacts, Shoe Station acquisition integration, economic conditions, online competition, supply chain disruptions, and the ability to execute business strategy[50] General This section provides context for financial results, including comparisons to pre-pandemic periods - The MD&A provides context for Q3 and year-to-date 2022 results, including comparisons to pre-pandemic Q3 2019 due to the significant impact of the COVID-19 pandemic on fiscal 2020 and 2021[51] Overview of Our Business This section describes the company's business model as an omnichannel family footwear retailer with two banners - The company operates as an omnichannel family footwear retailer under the Shoe Carnival and Shoe Station banners, offering a broad assortment of branded and private label footwear[53] - Shoe Carnival stores emphasize competitive pricing and a high-energy in-store experience, while Shoe Station targets a more affluent customer base with a focus on emerging fashion trends[54][55] Critical Accounting Policies This section highlights key accounting policies requiring significant judgment, including inventories and leases - Key accounting policies requiring significant judgment include Merchandise Inventories, valuation of long-lived assets, business combinations, leases, and income taxes, with no material changes since the last Annual Report on Form 10-K[57] Results of Operations Summary Information This section summarizes operational results, including store count, comparable store sales, and financial percentages Store Count and Comparable Store Sales | Period | Beginning of Period | Opened | Closed | End of Period | Net Change (Sq Ft) | End of Period (Sq Ft) | Comparable Store Sales | | :---------------- | :------------------ | :----- | :----- | :------------ | :----------------- | :-------------------- | :--------------------- | | Q3 2022 (Oct 29) | 395 | 0 | 0 | 395 | 0 | 4,450,000 | (9.9)% | | YTD 2022 (Oct 29) | 393 | 2 | 0 | 395 | 31,000 | 4,450,000 | (11.4)% | | Q3 2021 (Oct 30) | 378 | 0 | 1 | 377 | (7,000) | 4,105,000 | 30.1% | | YTD 2021 (Oct 30) | 383 | 1 | 7 | 377 | (41,000) | 4,105,000 | 41.6% | - Comparable store sales exclude Shoe Station and recently opened/closed Shoe Carnival physical stores, but include Shoe Carnival e-commerce sales[61] Results as Percentage of Net Sales | Metric | 13 Weeks Ended Oct 29, 2022 | 13 Weeks Ended Oct 30, 2021 | 39 Weeks Ended Oct 29, 2022 | 39 Weeks Ended Oct 30, 2021 | | :------------------------------------------ | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Net sales | 100.0% | 100.0% | 100.0% | 100.0% | | Cost of sales | 61.7% | 59.6% | 63.3% | 59.7% | | Gross profit | 38.3% | 40.4% | 36.7% | 40.3% | | Selling, general and administrative expenses| 25.5% | 22.9% | 24.6% | 22.6% | | Operating income | 12.8% | 17.5% | 12.1% | 17.7% | | Net income | 9.6% | 13.1% | 9.1% | 13.2% | Executive Summary for Third Quarter Ended October 29, 2022 This section provides an executive overview of the company's financial and operational performance for Q3 2022 - Diluted net income per share for Q3 2022 was $1.18, the second highest in company history, representing 151% growth compared to Q3 2019[63] - Net Sales in Q3 2022 were $341.7 million, also the second highest ever, increasing 24.4% compared to pre-pandemic Q3 2019[64] - Comparable store sales declined 9.9% YoY due to reduced discretionary income (post-stimulus, inflation) and athletic inventory delays, but non-athletic sales increased 6.8% YoY[65][66] - Gross profit margin was 38.3% in Q3 2022, a 740 basis point increase over Q3 2019, driven by CRM and promotional strategy enhancements[66] - Shoe Station contributed $22.2 million in Net Sales for Q3 2022, and the Shoe Perks loyalty program grew to 31.5 million members, including over 1 million from Shoe Station[66] - Merchandise Inventories increased by $94.3 million over Q3 2019, with approximately 40% attributed to Shoe Station and higher in-transit inventory[67] - The company ended Q3 2022 with $47.5 million in cash, cash equivalents, and marketable securities, with no outstanding credit facility borrowings[68] - 41% of stores have been remodeled as part of a modernization plan, targeting over 50% by summer 2023 and full completion by end of fiscal 2024[69] Results of Operations for Third Quarter Ended October 29, 2022 Compared to Third Quarter Ended October 30, 2021 This section analyzes operational results for Q3 2022 compared to Q3 2021 - Net Sales decreased 4.1% to $341.7 million, primarily due to a 9.9% comparable store sales decline driven by fluctuations in discretionary income and athletic shoe availability, partially offset by new Shoe Station stores[70] - Gross Profit decreased by $13.2 million to $130.8 million, with gross profit margin falling to 38.3% from 40.4% due to increased buying, distribution, and occupancy costs and decreased merchandise margin[71] - SG&A expenses increased $5.7 million to $87.3 million, mainly due to Shoe Station operations and higher depreciation from store modernization, leading to an increase as a percentage of Net Sales from 22.9% to 25.5%[72] - The effective income tax rate for Q3 2022 was 25.6%, up from 24.8% in Q3 2021, with the full year 2022 tax rate expected between 25% and 26%[73] Results of Operations Year-to-Date Through October 29, 2022 Compared to Year-to-Date Through October 30, 2021 This section analyzes year-to-date operational results through October 29, 2022 versus the prior year - Net Sales decreased 4.5% to $971.5 million, primarily due to an 11.4% comparable store sales decline, influenced by reduced discretionary income and athletic shoe availability, partially offset by new Shoe Station stores[74][75] - Gross Profit decreased by $53.1 million to $356.8 million, with gross profit margin falling to 36.7% from 40.3% due to increased buying, distribution, and occupancy costs and decreased merchandise margin[76] - SG&A expenses increased $8.9 million to $239.1 million, mainly due to Shoe Station operations and higher depreciation from store modernization, partially offset by lower incentive compensation, increasing as a percentage of Net Sales to 24.6% from 22.6%[77] - The effective income tax rate remained consistent at 25.1% for both year-to-date periods[78] Liquidity and Capital Resources This section discusses the company's sources of liquidity, cash flow activities, and working capital position - Primary liquidity sources include $47.5 million in cash, cash equivalents, and marketable securities, and a $100 million credit facility[79] - Net cash from operating activities significantly decreased to $18.9 million (YTD 2022) from $120.5 million (YTD 2021), primarily due to increased inventory purchases in 2022[80] - Working capital decreased to $300.7 million (Oct 29, 2022) from $333.8 million (Oct 30, 2021), driven by lower cash balances, increased property/equipment investment, and higher share repurchases[81] - Net cash used in investing activities increased to $59.2 million (YTD 2022) from $37.8 million (YTD 2021), mainly due to $63.6 million in property and equipment purchases for store modernization[82] - Net cash used in financing activities increased to $40.0 million (YTD 2022) from $15.8 million (YTD 2021), primarily due to $30.5 million in share repurchases in 2022[86] Capital Expenditures This section outlines projected capital expenditures for fiscal year 2022, categorized by purpose - Fiscal 2022 capital expenditures are projected to be $70-$75 million, with $59-$62 million allocated to new stores, relocations, and remodels, and $11-$13 million for e-commerce, technology, and asset replacement[87] Store Portfolio This section details the company's current store count, future expansion plans, and rationalization strategy - The company expects to operate 398 stores (373 Shoe Carnival, 25 Shoe Station) by the end of fiscal 2022 and 400 stores in the first half of 2023[88] - A long-term goal is to operate at least 500 stores within the next three to five years (2026-2028), with the Shoe Station banner targeted to grow to over 100 stores[88] - The store rationalization plan is complete, and no further significant store closures are anticipated in the coming years[89] Credit Facility This section describes the company's $100 million credit facility, its terms, and compliance with covenants - A new $100 million Amended and Restated Credit Agreement was established on March 23, 2022, expiring March 23, 2027, collateralized by inventory[90] - The company had no borrowings outstanding under its credit facility during Q3 or YTD 2022, with a borrowing capacity of $99.3 million as of October 29, 2022[92] - The company was in compliance with all credit facility covenants, including maintaining a minimum net worth of $250 million and a consolidated interest coverage ratio of not less than 3.0 to 1.0[90] Dividends This section reports the cash dividends declared and paid to shareholders during the reported periods - A Q3 2022 cash dividend of $0.090 per share was paid, an increase from $0.070 per share in Q3 2021[94] - Year-to-date 2022, $7.5 million was returned to shareholders through dividends, compared to $6.0 million in the prior year period[94] Share Repurchase Program This section details the company's share repurchase program, including authorized amounts and shares repurchased - A $50.0 million share repurchase program was authorized by the Board of Directors, effective January 1, 2022, and expiring December 31, 2022[96] - During Q3 2022, 451,638 shares were repurchased for $10.0 million, and year-to-date 2022, approximately 1.1 million shares were repurchased for $30.5 million[97] - As of October 29, 2022, $19.5 million remained available for future repurchases under the program[97] Seasonality This section explains the impact of seasonal peak selling periods on operating results and inventory - The company experiences three distinct peak selling periods: Easter, back-to-school, and Christmas, which significantly impact operating results and require higher merchandise inventory levels[98] Item 3. Quantitative and Qualitative Disclosures About Market Risk The company is exposed to market risk from variable interest rates on its credit facility but does not use derivative instruments to manage this exposure. No borrowings were outstanding during the reported periods - The company is exposed to market risk from variable interest rates on its credit facility but does not use interest rate derivative instruments[100] - No borrowings were outstanding under the credit facility during the third quarter or year-to-date 2022[100] Item 4. Controls and Procedures Management concluded that disclosure controls and procedures were effective as of October 29, 2022. The acquired Shoe Station operations were excluded from the internal control assessment for fiscal year 2022 but will be included in the next annual report - The CEO and CFO concluded that disclosure controls and procedures were effective as of October 29, 2022[101] - Shoe Station operations were excluded from management's assessment of internal control over financial reporting for the year ended January 29, 2022, but will be included in the Annual Report on Form 10-K for the year ending January 28, 2023[102] - There have been no significant changes in internal control over financial reporting during the quarter ended October 29, 2022[103] Part II Other Information This part includes disclosures on risk factors, equity security sales, exhibits, and the report's official signature Item 1A. Risk Factors There have been no material changes to the risk factors previously disclosed in the company's Annual Report on Form 10-K for the fiscal year ended January 29, 2022 - No material changes to the risk factors set forth in the Annual Report on Form 10-K for the fiscal year ended January 29, 2022[106] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This section details the company's share repurchase activities during the third quarter of 2022 under its authorized program, including the number of shares purchased and the remaining dollar value available for repurchases Issuer Purchases of Equity Securities (Q3 2022) | Period | Total Number of Shares Purchased | Average Price Paid per Share | Total Number Of Shares Purchased as Part of Publicly Announced Programs | Approximate Dollar Value of Shares that May Yet Be Purchased Under Programs | | :-------------------------------- | :----------------------------- | :--------------------------- | :-------------------------------------------------------------------- | :------------------------------------------------------------------------- | | Aug 28, 2022 to Oct 1, 2022 | 275,379 | $21.76 | 274,500 | $23,511,888 | | Oct 2, 2022 to Oct 29, 2022 | 177,138 | $22.73 | 177,138 | $19,485,041 | | Total (Q3) | 452,517 | | 451,638 | | - 879 shares were withheld by the company for employee payroll tax withholding upon the vesting of stock-based compensation awards[111] - As of October 29, 2022, $19.5 million remained available under the $50.0 million 2022 Share Repurchase Program[97][111] Item 6. Exhibits This section lists all exhibits filed with the Form 10-Q, including corporate governance and financial statements - Exhibits include Amended and Restated Articles of Incorporation, By-laws, CEO and CFO certifications (pursuant to Sarbanes-Oxley Act), and XBRL formatted financial statements[110] Signature The report was duly signed on behalf of Shoe Carnival, Inc. by W. Kerry Jackson, Senior Executive Vice President, Chief Financial and Administrative Officer and Treasurer, on December 2, 2022 - The report was signed by W. Kerry Jackson, Senior Executive Vice President, Chief Financial and Administrative Officer and Treasurer, on December 2, 2022[114]