SHOE STATION GROUP INC 10-K

ITEM 5. MARKET FOR THE REGISTRANT’S COMMON EQUITY, RELATED S TOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Market Information and Holders Our common stock is quoted on The Nasdaq Stock Market LLC under the trading symbol “SCVL.” As of March 21, 2022, there were approximately 126 holders of record of our common stock. We did not sell any unregistered equity securities during fiscal 2021, 2020 or 2019. On June 21, 2021, our Board of Directors authorized a two-for-one stock split of the shares of our common stock. The stock split entitled each shareholder of record at the close of business on July 6, 2021 to receive one additional share of common stock for each share of common stock owned as of that date and was paid on July 19, 2021. Upon the completion of the stock split, our outstanding shares increased from approximately 14.1 million shares to approximately 28.2 million shares. All share and per share amounts in this Annual Report on Form 10-K give effect to the stock split and have been adjusted retroactively for all periods presented. Cash Dividends During fiscal 2021, we paid quarterly cash dividends of $0.07 per share in all four fiscal quarters. The declaration and payment of any future dividends are at the discretion of the Board of Directors and will depend on our results of operations, financial condition, business conditions and other factors deemed relevant by our Board of Directors. Our credit agreement in place at the end of fiscal 2021 permits the payment of cash dividends as long as no default or event of default exists under the credit agreement both immediately before and immediately after giving effect to the cash dividends, and the aggregate amount of cash dividends for a fiscal year does not exceed $10 million. See Note 9 - "Debt" to our Notes to Consolidated Financial Statements contained in PART II, ITEM 8 of this Annual Report on Form 10-K regarding restrictions in our amended and restated credit facility entered into on March 23, 2022. On March 10, 2022, the Board of Directors increased the quarterly cash dividend from $0.07 to $0.09 per share, an increase of 29%, in the first quarter of fiscal 2022. The quarterly cash dividend of $0.09 per share will be paid on April 18, 2022 to shareholders of record as of the close of business on April 4, 2022. Issuer Purchases of Equity Securities We did not repurchase any shares of our common stock under our Board-approved share repurchase program during the fourth quarter of fiscal 2021. For a discussion of our share repurchase program, see “Share Repurchase Program” in PART II, ITEM 7, “Management's Discussion and Analysis of Financial Condition and Results of Operations – Liquidity and Capital Resources” of this Annual Report on Form 10-K. Throughout fiscal 2021, we issued treasury shares to certain employees upon the vesting of restricted stock units and performance stock units and to our non-employee directors upon the issuance of service-based restricted stock awards. We also repurchased 87,881 shares of common stock as a result of our withholding shares or allowing our employees to deliver shares to us for the income taxes resulting from the vesting of certain share-settled equity awards. We intend to continue issuing shares out of treasury to meet these needs. During the fourth quarter of fiscal 2021, no shares were delivered to or withheld by us in connection with the vesting of equity awards under our equity compensation plans. ITEM 6 . [RESERVED] 27 ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion of our financial condition and results of operations (the "MD&A") should be read together with our consolidated financial statements and notes to those statements included in PART II, ITEM 8 of this Annual Report on Form 10-K. This section of this Annual Report on Form 10-K generally discusses fiscal 2021 and fiscal 2020 and year-over-year comparisons between fiscal 2021 and fiscal 2020. A discussion of fiscal 2019 and year-over-year comparisons between fiscal 2020 and fiscal 2019 that are not included in this Annual Report on Form 10-K can be found in PART II, ITEM 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the fiscal year ended January 30, 2021, filed with the United States Securities and Exchange Commission on March 26, 2021. However, given the significant impact of the COVID-19 pandemic on our fiscal 2020 results, we have included certain comparisons in this MD&A between fiscal 2021 and fiscal 2019 to provide further context regarding our fiscal 2021 results of operations. At the end of this section of this Annual Report on Form 10-K, we have included historical data for the past five fiscal years to facilitate trend analysis of key data reported in our consolidated financial statements and other select operating data. Our fiscal year is a 52/53 week year ending on the Saturday closest to January 31. Unless otherwise stated, references to fiscal years 2021, 2020 and 2019 relate to the fiscal years ended January 29, 2022, January 30, 2021 and February 1, 2020. Fiscal years 2021, 2020, and 2019 all consisted of 52 weeks. Overview of Our Business Shoe Carnival, Inc. is one of the nation’s largest family footwear retailers. On December 3, 2021, we began operating under two banners: Shoe Carnival and Shoe Station. Our objective is to be the omnichannel retailer-of-choice for on-trend branded and private label footwear for the entire family. Our product assortment, whether shopping in a physical store or on our e-commerce platform, includes dress, casual, and work shoes, sandals, boots and a wide assortment of athletic shoes. Our typical physical store carries shoes in two general categories – athletics and non-athletics with subcategories for men's, women's, and children's, as well as a broad range of accessories. In addition to our physical stores, our e-commerce platform offers customers the same assortment of merchandise in all categories of footwear with expanded options in certain instances. Our stores under the Shoe Carnival banner combine competitive pricing with a high-energy in-store environment that encourages customer participation. Footwear in our Shoe Carnival physical stores is organized by category and brand, creating strong brand statements within the aisles. These brand statements are underscored by branded signage on endcaps and in-line signage throughout the store. Our signage may highlight a vendor’s product offerings or sales promotions, or may highlight seasonal or lifestyle statements by grouping similar footwear from multiple vendors. Approximately 160 of our Shoe Carnival stores have athletic shops that highlight leading athletic brands. We expect to continue growing our "athletic shop" in-store concept across our fleet in the years ahead. The addition of the Shoe Station banner and retail locations creates a complementary retail platform to serve a broader family footwear customer base across both urban and suburban demographics. The Shoe Station concept targets a more affluent family footwear customer and has a strong track record of capitalizing on emerging footwear fashion trends and introducing new brands. Due to the larger average size of our Shoe Station stores and the targeted customer, these locations provide for a primary destination shopping experience. We believe our distinctive shopping experiences give us various competitive advantages, including increased multiple unit sales; the building of a loyal, repeat customer base; the creation of word-of-mouth advertising; and enhanced sell-through of in-season goods. Acquisition of Shoe Station On December 3, 2021, we acquired substantially all of the assets of Shoe Station, a privately-held, family-owned shoe retailer. The Shoe Station assets were acquired for $70.7 million, inclusive of customary adjustments which are not yet finalized, and funded with cash on hand. We are continuing to operate the 21 locations acquired under the Shoe Station banner. Shoe Station contributed net sales of $16.6 million during the period from the acquisition date through January 29, 2022. We incurred acquisition and integration-related charges of $4.3 million ($3.2 million after tax, or $0.11 on a diluted per share basis) during fiscal 2021. These charges were comprised of non-recurring expense related 28 to the fair value adjustment to acquisition-date inventory of $1.1 million recorded in cost of goods sold and $3.2 million of transaction costs and integration-related charges recorded in selling, general, and administrative expenses. See Note 3 — “Acquisition of Shoe Station” in our Notes to Consolidated Financial Statements contained in PART II, ITEM 8 of this Annual Report on Form 10-K for additional information on the acquisition. Comparable Store Sales Comparable store sales is a key performance indicator for us. Comparable store sales include stores that have been open for 13 full months after such stores’ acquisition or grand opening prior to the beginning of the period, including those stores that have been relocated or remodeled. Therefore, stores recently opened, acquired or closed are not included in comparable store sales. We generally include e-commerce sales in our comparable store sales as a result of our omnichannel retailer strategy. Due to our omnichannel retailer strategy, we view e-commerce sales as an extension of our physical stores. Similar to our physical stores, e-commerce platforms that are acquired will not be included in comparable store sales for 13 months after the acquisition of the platform. Our method for calculating comparable store sales for fiscal 2021, therefore, does not include any sales activity from Shoe Station. Stock Split The shares outstanding and net income per share information throughout this MD&A has been adjusted retroactively for all periods presented as a result of a two-for-one stock split of the outstanding shares of our common stock held by shareholders of record on July 6, 2021 that was completed on July 19, 2021. See Note 2 — “Summary of Significant Accounting Policies” to our Notes to Consolidated Financial Statements contained in PART II, ITEM 8 of this Annual Report on Form 10-K for additional information on the stock split. Information regarding the COVID-19 Coronavirus Pandemic (“COVID-19”) We continue to closely monitor and manage the impact of the COVID-19 pandemic, and the safety and well-being of our customers, employees and business partners remains a top priority. The COVID-19 pandemic has significantly impacted, and is expected to continue to impact, our operations, supply chains, distribution processes, and overall economic conditions and consumer spending for the foreseeable future. In response to the COVID-19 pandemic, all of our physical stores were temporarily closed effective March 19, 2020. Our e-commerce platform continued to operate, and our e-commerce sales increased significantly in fiscal 2020 as customers shifted purchases to our online channel. We began reopening our physical stores in accordance with applicable public health guidelines in late April 2020. Thus, substantially all of our physical stores were closed for approximately 50% of the first fiscal quarter of 2020. By the beginning of the second quarter of fiscal 2020, approximately 50% of our stores were reopened, and by early June 2020, substantially all of our stores had reopened. We did not have any stores closed as of January 29, 2022 or for extended periods during fiscal 2021 due to the pandemic. Executive Summary Fiscal 2021 was a record-breaking year for us. Results in fiscal 2021 were the highest in terms of net sales, gross profit, operating income and diluted net income per share in our history. For each of these financial metrics, the first three quarters of fiscal 2021 set consecutive all-time records and the fourth quarter of fiscal 2021 set a record for that specific quarter. The diluted net income per share of $5.42 earned in fiscal 2021, which included the Shoe Station acquisition-related charges incurred during the fourth quarter of fiscal 2021, exceeded the diluted net income per share earned during the last six fiscal years combined. Comparable store sales in fiscal 2021 increased 35.3% compared to fiscal 2020 and increased 28.3% compared to fiscal 2019. We believe these record-breaking results were driven by the following: • our inventory selection; • our more focused promotional strategy; • our customer base returning to a more normal lifestyle, including going back to work and in-person learning; and 29 • the economic impact of consumer-based government stimulus. During fiscal 2021, physical store traffic increased 37.5% compared to fiscal 2020 and was slightly above traffic in fiscal 2019. The increased store traffic, combined with increased conversion rates, resulted in an increased number of converted customers, compared to both prior year periods. All of our major product categories had comparable store sale increases ranging from low to mid double digits compared to fiscal 2020 and fiscal 2019. These increases were driven by higher average per unit prices across all categories and, overall, more units sold. Highlights for fiscal 2021 and a brief discussion of some key initiatives follow: • Net sales for fiscal 2021 of $1.33 billion were an all-time record, surpassing the previous record set in fiscal 2019 by 28.3%. • We achieved record annual gross profit of $526.8 million during fiscal 2021. Gross profit margin as a percent of sales increased 10.9 percentage points compared to fiscal 2020 to 39.6% and increased 9.5 percentage points compared to fiscal 2019. • We had no borrowings during fiscal 2021 and ended our fiscal year with $132.4 million of cash, cash equivalents and marketable securities. • In fiscal 2021, we continued to increase membership in our Shoe Perks customer loyalty program. Membership in the program totaled 28.5 million customers as of January 29, 2022. We believe our Shoe Perks program affords us opportunities to communicate, build relationships and engage with our most loyal shoppers, which we believe will result in long-term customer commitment to our brand. • We spent $31.4 million on capital expenditures during fiscal 2021, primarily focused on our store modernization efforts. Through January 29, 2022, we have completed 68 store modernizations. Fiscal 2022 Plans Following is a summary of certain strategic initiatives and goals for fiscal 2022: • Continue modernizing our stores through design enhancements, as we expect to have 100 more stores completed by the end of fiscal 2022 and to complete our modernization program by the end of fiscal 2024. • Leverage our Customer Relationship Management ("CRM") capabilities to increase personalized, segmented marketing, and continue with limited, to no, reliance on broad-based promotional activities, and enhance our vendor relationships. • Continue to grow the recently acquired Shoe Station banner and further integrate its supply chain. • Continue to manage the effect of COVID-19 on our operations and protect the health and safety of our customers, employees and vendor partners. • Continue to navigate and manage supply chain disruption and other macroeconomic uncertainties. • Maintain the growth and market share of our omnichannel platform. • Continue implementation of upgrades to merchandise planning and allocation systems and continue to increase the productivity of other recently implemented systems. 30 Results of Operations The following table sets forth our results of operations expressed as a percentage of net sales for the following fiscal years: 2021 2020 2019 Net sales 100.0 % 100.0 % 100.0 % Cost of sales (including buying, distribution, and occupancy costs) 60.4 71.3 69.9 Gross profit 39.6 28.7 30.1 Selling, general and administrative expenses 24.0 26.5 24.9 Operating income 15.6 2.2 5.2 Interest income (0.0 ) 0.0 (0.1 ) Interest expense 0.0 0.0 0.0 Income before income taxes 15.6 2.2 5.3 Income tax expense 4.0 0.6 1.2 Net income 11.6 % 1.6 % 4.1 % Fiscal 2021 Compared to Fiscal 2020 Net Sales Net sales were a record $1.33 billion during fiscal 2021 and increased 36.2% compared to fiscal 2020 and 28.3% compared to fiscal 2019. Comparable stores sales increased 35.3% compared to fiscal 2020. Sales generated from our comparable physical stores increased 45.8% in fiscal 2021 compared to fiscal 2020 and 20.1% compared to fiscal 2019. Sales generated from the Shoe Carnival branded e-commerce platform decreased 10.3% compared to fiscal 2020 due to the return of in-store shopping. E-commerce sales in fiscal 2021 were 146.6% higher than sales in fiscal 2019. E-commerce sales were approximately 12% of merchandise sales in fiscal 2021, compared to 19% in fiscal 2020 and 6% in fiscal 2019. Net sales were positively impacted by continued demand for our merchandise as result of our merchandise selection, the continued easing of COVID-19 restrictions and customers returning to a more normal lifestyle, including going back to work and in-person learning, and the economic impact of consumer-based government stimulus. Net sales in fiscal 2021 were also favorably impacted by increased average transaction price and more units sold compared to fiscal 2020, with store traffic slightly above the pre-pandemic levels experienced in fiscal 2019. The increase in average transaction price was primarily driven by our more focused promotional activity. The temporary closure of our physical stores for approximately 50% of the first quarter of fiscal 2020 as a result of the COVID-19 pandemic, with some stores closed through May 2020, decreased net sales in the prior year. Gross Profit Gross profit was a record $526.8 million during fiscal 2021, an increase of $246.8 million compared to fiscal 2020. Gross profit margin in fiscal 2021 increased to 39.6% compared to 28.7% in fiscal 2020 and 30.1% in fiscal 2019. Merchandise margin increased 8.8 percentage points compared to fiscal 2020 and 8.2 percentage points compared to fiscal 2019. Fewer margin-dilutive promotions and higher average selling prices drove a higher merchandise margin compared to both fiscal 2020 and 2019. We began eliminating broad-based use of the “buy one get one half off” promotional strategy during fiscal 2020 and completely eliminated its broad use during fiscal year 2021. A more standard product mix, with more non-athletic merchandise sold in fiscal 2021 compared to fiscal 2020, further increased margins compared to fiscal 2020. As a percentage of sales, our buying, distribution and occupancy costs decreased 2.2 percentage points compared to fiscal 2020 and 1.3 percentage points compared to fiscal 2019 primarily due to the leveraging effect of increased sales, despite higher supply chain and distribution costs. 31 Selling, General and Administrative Expenses ("SG&A") SG&A increased $61.0 million to $319.1 million in fiscal 2021 compared to $258.1 million in fiscal 2020. As a percentage of net sales, SG&A was leveraged to 24.0% in fiscal 2021 compared to 26.5% in fiscal 2020 and 24.9% in fiscal 2019. Compared to fiscal 2020, the increase in SG&A primarily correlated with our record performance, in terms of increased performance-based incentive compensation, general wages (inclusive of CARES Act payroll retention tax credits recognized in fiscal 2020) and variable costs, such as credit card fees. SG&A also increased due to increased investment in advertising, as well as market return volatility on our deferred compensation plan and higher stock-based compensation. Store level wages, incentives paid to store level employees, and annual performance-based compensation comprised nearly half of the increase compared to the prior year, with advertising being the majority of the remaining increase. Income Taxes The effective income tax rate for fiscal 2021 was 25.3% compared to 25.8% for fiscal 2020. The lower effective rate was primarily attributable to increased benefit from vested stock-based compensation awards. Liquidity and Capital Resources Our primary sources of liquidity are $132. 4 million of cash, cash equivalents and marketable securities on hand at the end of fiscal 2021, cash generated from operations, plus availability under our $100 million credit facility, which was amended and restated on March 23, 2022 to, among other things, extend the term until March 23, 2027 (the “ New Credit Agreement ” ). While the effects of the COVID-19 pandemic and other macroeconomic uncertainty make our operating cash flow less predictable, we believe our resources will be sufficient to fund our cash needs, a s they arise, for at least the next 12 months. Our primary uses of cash are normally for working capital, which are principally inventory purchases, investments in our stores, such as new stores, remodels and relocations, distribution center initiatives, lease payments associated with our real estate leases, potential dividend payments, potential share repurchases under our share repurchase program, and the financing of capital projects, including investments in new systems. As part of our growth strategy, we may also pursue additional strategic acquisitions of other footwear retailers. Cash Flow - Operating Activities Net cash generated from operating activities was $147.9 million in fiscal 2021 compared to $63.4 million during fiscal 2020. The increase in operating cash flow was primarily driven by higher cash receipts on increased sales, partially offset by increased inventory purchases and payments for operating expenses and income taxes. Working capital increased on a year-over-year basis and totaled $288.4 million at January 29, 2022 compared to $224.4 million at January 30, 2021. The increase was primarily attributable to increased cash and marketable securities positions. Our current ratio was 2.9 as of January 29, 2022, compared to 2.7 as of January 30, 2021. Cash Flow - Investing Activities Our cash outflows for investing activities are normally for capital expenditures. During fiscal 2021, we expended $31.4 million for the purchase of property and equipment, primarily related to our store portfolio modernization plan. During fiscal 2020, we expended $12.4 million for the purchase of property and equipment, $5.9 million of which was for new store construction and the remodeling and relocation of existing stores, and $3.1 million was for investments in our distribution center. During fiscal 2021, we acquired substantially all of the assets of Shoe Station for approximately $70.7 million and invested on a net basis approximately $17.2 million in publicly traded mutual funds designed to mitigate income statement volatility associated with our nonqualified deferred compensation plan. Additional information regarding the Shoe Station acquisition can be found in Note 3 -“Acquisition of Shoe Station” and regarding the marketable securities can be found in Note 4 - “Fair Value of Financial Instruments” to our Notes to Consolidated Financial Statements contained in PART II, ITEM 8 of this Annual Report on Form 10-K. 32 Cash Flow - Financing Activities Our cash outflows for financing activities are typically for cash dividend payments, share repurchases or payments on our credit facility. Shares of our common stock can be either acquired as part of a publicly announced repurchase program or withheld by us in connection with employee payroll tax withholding upon the vesting of stock-based compensation awards that are settled in shares. Our cash inflows from financing activities generally reflect stock issuances to employees under our Employee Stock Purchase Plan and borrowings under our credit facility. During fiscal 2021, net cash used in financing activities was $17.7 million compared to $6.7 million during fiscal 2020. The increase in net cash used in financing activities was primarily due to the repurchase of $7.1 million of shares in fiscal 2021 associated with our Board of Directors’ authorized share repurchase program. In fiscal 2021 we also increased our dividend payments and more shares were withheld upon the vesting of stock-based compensation awards. During fiscal 2021, we did not borrow or repay funds under our credit facility. During fiscal 2020, we borrowed and repaid $24.9 million under our credit facility. Letters of credit outstanding were $700,000 at January 29, 2022, and our borrowing capacity was $99.3 million. Our credit facility requires us to maintain compliance with various financial covenants. See Note 9 – “Debt” to our Notes to Consolidated Financial Statements contained in PART II, ITEM 8 of this Annual Report on Form 10-K for a further discussion of our credit facility and its covenants. We were in compliance with these covenants as of January 29, 2022. Store Openings and Closings – Fiscal 2022 Increasing market penetration by adding new stores is expected to reemerge as a key component of our growth strategy. Through a combination of both organic and acquired store growth, we aim to add more than 10 new stores in fiscal 2022, over 20 new stores in fiscal 2023, and over 25 new stores annually by fiscal 2024. We expect limited, if any, store closures over the next several years. Capital Expenditures – Fiscal 2022 Capital expenditures for fiscal 2022 are expected to be between $55 million and $65 million, with approximately $50 million to $55 million to be used for new stores, relocations and remodels and approximately $5 million to $10 million for upgrades to our distribution center and e-commerce platform, various other store improvements, continued investments in technology and normal asset replacement activities. The resources allocated to these projects are subject to near-term changes depending on the impacts associated with the COVID-19 pandemic, ongoing supply chain disruptions, and potential inflationary and other macroeconomic impacts. Furthermore, the actual amount of cash required for capital expenditures for store operations depends in part on the number of stores opened, relocated, and remodeled, and the amount of lease incentives, if any, received from landlords. The number of new store openings and relocations 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. Dividends In fiscal 2021, four quarterly cash dividends of $0.07 per share were approved and paid. During fiscal 2020, the first quarter dividend was in the amount of $0.0425 per share and the dividends for the remaining three quarters were $0.0450 per share. During fiscal years 2021 and 2020, we returned $8.0 million and $5.1 million, respectively, in cash to our shareholders through our quarterly dividends. The declaration and payment of any future dividends are at the discretion of the Board of Directors and will depend on our results of operations, fi nancial condition, business conditions and other factors deemed relevant by our Board of Directors. Our credit facility in place at the end of fiscal 2021 permits the payment of cash dividends as long as no default or event of default exists under the credit agreement both immediately before and immediately after giving effect to the cash dividends, and the aggregate amount of cash dividends for a fiscal year do not exceed $10 million. These restrictions have changed as a result of entering into the New Credit Agreement after our fiscal year end. See Note 9 – “Debt” to our Notes to Consolidated Financial Statements contained in PART II, ITEM 8 of this Annual Report on Form 10-K. 33 Share Repurchase Program On December 16, 2021, our Board of Directors authorized a share repurchase program for up to $50 million of our outstanding common stock, effective January 1, 2022 (the “2022 Share Repurchase Program”). The purchases may be made in the open market or through privately negotiated transactions from time-to-time through December 31, 2022 and in accordance with applicable laws, rules and regulations. The 2022 Share Repurchase Program may be amended, suspended or discontinued at any time and does not commit us to repurchase shares of our common stock. We have funded, and intend to continue to fund, the share repurchase program from cash on hand, and any shares acquired will be available for stock-based compensation awards and other corporate purposes. The actual number and value of the shares to be purchased will depend on the performance of our stock price and other market and economic factors, including impacts caused by the COVID-19 pandemic. The 2022 Share Repurchase Program replaced a $50 million share repurchase program that was authorized in December 2020, became effective January 1, 2021 and expired in accordance with its terms on December 31, 2021. Shares totaling 208,662 were repurchased during fiscal 2021 at a cost of $7.1 million. No repurchases were made in fiscal 2020, and share repurchases pursuant to previously Board-approved share repurchase programs that have now expired were approximately 2,234,000 shares at an aggregate cost of $37.8 million in fiscal 2019. Share repurchase activity in fiscal 2021 and fiscal 2020 was impacted by the COVID-19 pandemic. Our credit facility in place at the end of fiscal 2021 stipulates that distributions in the form of redemptions of Equity Interests (as defined in the credit agreement) could be made solely with cash on hand so long as before and immediately after such distributions there are no revolving loans outstanding under the credit agreement. These restrictions have changed a result of entering into the New Credit Agreement after our fiscal year end. See Note 9 – “Debt” to our Notes to Consolidated Financial Statements contained in PART II, ITEM 8 of this Annual Report on Form 10-K. Leases Rent-related payments made in fiscal 2021 totaled $82.2 million. As we are contractually obligated to make lease payments to landlords, estimated future payments to landlords and lease-related charges are expected to be significant in future years and will increase in future years due to the acquisition of Shoe Station and other expected store growth. These payments include estimates for fixed minimum and contingent rent, estimated reimbursements to landlords for common area maintenance, taxes and insurance and other lease related charges. See Note 10 – “Leases” to our Notes to Consolidated Financial Statements contained in PART II, ITEM 8 of this Annual Report on Form 10-K for further discussion of our lease obligations. Impact of Store Count and Seasonality on Quarterly Results Our 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 and closing underperforming stores. In addition, fiscal 2020 quarterly results were significantly impacted by the COVID-19 pandemic. As illustrated in the chart below, our first quarter fiscal 2020 net sales and earnings significantly declined due to the temporary closure of our physical stores for approximately 50% of the quarter. (Unaudited, In thousands, except per share amounts) Fiscal 2021 First Quarter Second Quarter Third Quarter Fourth Quarter Net sales $ 328,457 $ 332,230 $ 356,336 $ 313,371 Gross profit 130,158 135,752 144,056 116,821 Operating income 57,603 59,714 62,424 27,913 Net income 43,242 44,212 46,836 20,591 Net income per share – Diluted 1 $ 1.51 $ 1.54 $ 1.64 $ 0.72 34 Fiscal 2020 First Quarter Second Quarter Third Quarter Fourth Quarter Net sales $ 147,495 $ 300,794 $ 274,579 $ 253,897 Gross profit 31,464 82,605 87,761 78,152 Operating income/(loss) (23,261 ) 14,398 20,163 10,565 Net income/(loss) (16,190 ) 10,060 14,678 7,443 Net income/(loss) per share – Diluted 1 $ (0.58 ) $ 0.35 $ 0.51 $ 0.26 1) Per share amounts are computed independently for each of the quarters presented. For per share amounts, the sum of the quarters may not equal the total year due to the impact of changes in weighted shares outstanding and differing applications of earnings as prescribed by accounting guidance. Seasonality We have three distinct peak selling periods: Easter, back-to-school and Christmas. Our operating results depend significantly upon the sales generated during these periods. To prepare for our peak shopping seasons, we must order and keep in stock significantly more merchandise than we would carry during other periods of the year. Any unanticipated decrease in demand for our products or a supply chain disruption that reduces inventory availability during these peak shopping seasons could reduce our net sales and gross profit and negatively affect our profitability. Store Count We continually analyze our store portfolio and the potential for new stores based on our view of internal and external opportunities and challenges in the marketplace. As part of our long-term growth strategy, we expect to pursue opportunities for store growth across large and mid-size markets as we continue to leverage customer data from our customer relationship management program and more attractive real estate options become available. When we identify a store that produces or may potentially produce, low or negative contribution, we either renegotiate lease terms, relocate or close the store. In instances when underperformance indicates the carrying value of a store’s assets may not be recoverable, we impair the store. Although store closings could reduce our overall net sales volume, we believe this strategy will realize long-term improvement in operating income and diluted net income per share. Depending upon the results of lease negotiations with certain landlords of underperforming stores, we may increase or decrease the number of store closures in future periods. Non-capital expenditures, such as advertising and payroll incurred prior to the opening of a new store, are charged to expense as incurred. The timing and actual amount of expense recorded in closing an individual store can vary significantly depending, in part, on the period in which management commits to a closing plan, the remaining basis in the fixed assets to be disposed of at closing and the amount of any lease buyout. Therefore, our results of operations may be adversely affected in any quarter in which we incur pre-opening expenses related to the opening of new stores or incur store closing costs related to the closure of existing stores. Our future store strategies may continue to be impacted by the current economic uncertainty, including uncertainty associated with the COVID-19 pandemic. Store Openings, Closings and Impairment Charges – Impact on Fiscal 2021 and Fiscal 2020 In fiscal 2021, we opened one new store. The initial inventory investment for the new store in fiscal 2021 was $469,000, capital expenditures were $299,000 and lease incentives received from our landlord were $100,000. In fiscal 2020, we opened four new stores. The initial average inventory investment for the new stores was $578,000, capital expenditures were $973,000 and lease incentives received from our landlord were $448,000. Pre-opening expenses for the one store opened in fiscal 2021 included in cost of sales and SG&A expenses were approximately $77,000. Items classified as pre-opening expenses include rent, freight, advertising, salaries and supplies. During fiscal 2020, we expended $590,000 in pre-opening expenses, or an average of $147,000 per store. Total store closing costs were $1.9 million in fiscal 2021 and $4.0 million in fiscal 2020. We closed 12 stores during fiscal 2021 and 13 stores during fiscal 2020. We recorded non-cash impairment charges on a majority of these stores and also recognized impairment charges on other underperforming stores during these years. Included in store closing costs were non-cash impairment charges of $1.3 million in fiscal 2021 and $3.1 million in fiscal 2020. In addition to 35 non-cash impairment charges, store closing costs can include fixed asset write-offs, employee severance, lease termination fees, store tear-down and clean-up expenses, and acceleration of expenses and deferred lease incentives. In total, store opening and closing costs impacting SG&A expenses were $1.9 million in fiscal 2021 and $4.1 million in fiscal 2020. Store opening and closing costs included in cost of sales was expense of $50,000 in fiscal 2021 and $500,000 in fiscal 2020. Critical Accounting Policies We use judgment in reporting our financial results. This judgment involves estimates based in part on our historical experience and incorporates the impact of the current general economic climate and company-specific circumstances. However, because future events and economic conditions are inherently uncertain, our actual results could differ materially from these estimates. The accounting policies that require more significant judgment are included below. Merchandise Inventories – Our merchandise inventories are stated at the lower of cost or net realizable value as of the balance sheet date and consist primarily of dress, casual and athletic footwear for women, men and children. The cost of our merchandise is determined using the first-in, first-out valuation method (“FIFO”). For determining net realizable value, we estimate the future demand and related sale price of merchandise in our inventory. The stated value of merchandise inventories contained on our consolidated balance sheets also includes freight, certain capitalized overhead costs and reserves. Factors considered when we review our inventory to properly state it at lower of cost or net realizable value include recent sale prices, historical loss rates, the length of time merchandise has been held in inventory, quantities of the various styles held in inventory, seasonality of the merchandise, expected consideration to be received from our vendors and current and expected future sales trends. We reduce the value of our inventory to its estimated net realizable value where cost exceeds the estimated future selling price. Merchandise inventories as of January 29, 2022 totaled $285.2 million, representing approximately 35% of total assets. Merchandise inventories as of January 30, 2021 totaled $233.3 million, representing approximately 36% of total assets. Given the significance of inventories to our consolidated financial statements, the determination of net realizable value is a critical accounting estimate. Material changes in the factors noted above could have a significant impact on the actual net realizable value of our inventory and our reported operating results. Valuation of Long-Lived Assets – Long-lived assets, such as property and equipment subject to depreciation and right-of-use assets arising from our leased properties, are evaluated for impairment on a periodic basis if events or circumstances indicate the carrying value may not be recoverable. This evaluation includes performing an analysis of the estimated undiscounted future cash flows of the long-lived assets. Assets are grouped and the evaluation performed at the lowest level for which there are identifiable cash flows, which is generally at a store leve l. If the estimated future cash flows for a store are determined to be less than the carrying value of the store’s assets, an impairment loss is recorded for the difference between the estimated fair value and the carrying value. We estimate the fair value of our long-lived assets using store-specific cash flow assumptions discounted by a rate commensurate with the risk involved with such assets while incorporating marketplace assumptions. Our assumptions and estimates used in the evaluation of impairment, including current and future economic trends for stores, are subject to a high degree of judgment. Assets subject to impairment are adjusted to estimated fair value and, if applicable, an impairment loss is recorded in selling, general and administrative expenses. If actual operating results or market conditions differ from those anticipated, the carrying value of certain of our assets may prove unrecoverable and we may incur additional impairment charges in the future. Accounting for Business Combinations – We accoun t for acquisitions of other businesses by recording the net assets of the acquired businesses at fair value and making estimates and assumptions to determine the fair value of these acquired assets and liabilities. We will allocate the purchase price of the acquired business based, in part, upon internal estimates of cash flows and considering the report of a third-party valuation expert retained to assist us. Changes to the assumptions used to estimate the fair value could affect the recorded amounts of the assets acquired and the resultant goodwill. We expect there will be changes to the current valuation of the recently acquired Shoe Station assets and liabilities during fiscal 2022. 36 Leases – We lease our retail stores and our single distribution center, which has a current lease term of 15 years, expiring in 2034. We also enter into leases of equipment, copiers and billboards. Prior to the purchase of our corporate headquarters in fiscal 2019, it was also leased. All of our leases are operating leases. Therefore, how operating leases are recognized throughout the financial statements in accordance with applicable accounting guidance can have a significant impact on our financial condition and results of operations and related disclosures. In accordance with Accounting Standards Codification Topic No. 842 – Leases (“ASC 842”), which we adopted in fiscal 2019, on the lease commencement date we recognize a right-of-use asset for the right to use a leased asset and a liability based on the present value of remaining lease payments over the lease term. The weighted average discount rate utilized in fiscal 2021 and fiscal 2020 was 5.2%. As of the date of adoption of ASC 842 and for new leases, renewals or amendments, we make certain estimates and assumptions regarding property values, market rents, property lives, discount rates and probable terms. These estimates and assumptions can impact: (1) lease classification and the related accounting treatment; (2) rent holidays, escalations or deferred lease incentives, which are taken into consideration when calculating straight-line expense; (3) the term over which leasehold improvements for each store are amortized; and (4) the values and lives of adjustments to initial right-of-use assets. The amount of amortized rent expense would vary if different estimates and assumptions were used. Our real estate leases typically include options to extend the lease or to terminate the lease at our sole discretion. Options to extend real estate leases typically include one or more options to renew, with renewal terms that typically extend the lease term for five years or more. Many of our leases also contain “co-tenancy” provisions, including the required presence and continued operation of certain anchor tenants in the adjoining retail space. If a co-tenancy violation occurs, we have the right to a reduction of rent for a defined period after which we have the option to terminate the lease if the violation is not cured. In addition to co-tenancy provisions, certain leases contain “go-dark” provisions that allow us to cease operations while continuing to pay rent through the end of the lease term. When determining the lease term, we include options that are reasonably certain to be exercised. Income Taxes – As part of the process of preparing our consolidated financial statements, we are required to estimate our current and future income taxes for each tax jurisdiction in which we operate. Significant judgment is required in determining our annual tax expense and evaluating our tax positions. As a part of this process, deferred tax assets and liabilities are recognized based on the difference between the consolidated financial statement carrying amounts of existing assets and liabilities and their respective tax basis. Our temporary timing differences relate primarily to inventory, depreciation, accrued expenses, right-of-use assets, operating lease liabilities and stock-based compensation. With the recent acquisition of Shoe Station, we expect the level of temporary timing differences to increase as a result of tax deductible goodwill and trade names. Deferred tax assets and liabilities are measured using the tax rates enacted and expected to be in effect in the years when those temporary differences are expected to reverse. Deferred tax assets are reduced, if necessary, by a valuation allowance to the extent future realization of those tax benefits are uncertain. We are also required to make many subjective assumptions and judgments regarding our income tax exposures when accounting for uncertain tax positions associated with our income tax filings. We must presume that taxing authorities will examine all uncertain tax positions and that they have full knowledge of all relevant information. However, interpretations of guidance surrounding income tax laws and regulations are often complex, ambiguous and frequently change over time, and a number of years may elapse before a particular issue is resolved. As such, changes in our subjective assumptions and judgments can materially affect amounts recognized in our consolidated financial statements. Although we believe we have no uncertain tax positions, tax authorities could assess tax liabilities in open tax periods not presently foreseen. Recent Accounting Pronouncements See Note 2 — “Summary of Significant Accounting Policies” in the accompanying notes included in PART II, ITEM 8 of this Annual Report on Form 10-K for a description of recent accounting pronouncements that may have an impact on our consolidated financial statements when adopted. 37 Historical Financial Data The following historical financial data is included for the convenience of assessing trends in our financial condition and results of operations over the previous five fiscal years. A more detailed description of the fluctuations among fiscal 2017 – fiscal 2020 can be found in our Annual Reports on Form 10-K filed for those previous fiscal years. (In thousands, except per share and operating data) Fiscal years (1) 2021 2020 2019 2018 2017 Income Statement Data: Net sales $ 1,330,394 $ 976,765 $ 1,036,551 $ 1,029,650 $ 1,019,154 Gross profit $ 526,787 $ 279,982 $ 311,869 $ 308,992 $ 296,269 Operating income $ 207,654 $ 21,865 $ 54,209 $ 49,760 $ 37,701 Net income $ 154,881 $ 15,991 $ 42,914 $ 38,135 $ 18,933 Diluted net income per share $ 5.42 $ 0.56 $ 1.46 $ 1.23 $ 0.58 Dividends declared per share $ 0.280 $ 0.178 $ 0.168 $ 0.158 $ 0.148 Balance Sheet Data: Cash and cash equivalents $ 117,443 $ 106,532 $ 61,899 $ 67,021 $ 48,254 Total assets (2) $ 812,264 $ 642,747 $ 628,374 $ 417,999 $ 415,580 Long-term debt $ 0 $ 0 $ 0 $ 0 $ 0 Total shareholders’ equity $ 452,533 $ 310,176 $ 297,363 $ 304,433 $ 307,302 Selected Operating Data: Stores open at end of year 393 383 392 397 408 Comparable store sales (3)(4) 35.3 % -5.3 % 1.9 % 4.3 % 0.3 % Square footage of store space at year end (000’s) 4,419 4,146 4,220 4,268 4,391 Average sales per store (000’s) (3)(5)(7) $ 3,473 $ 2,503 $ 2,475 $ 2,473 $ 2,419 Average sales per square foot (3)(6)(7) $ 321 $ 237 $ 245 $ 236 $ 229 (1) Our fiscal year is a 52/53 week year ending on the Saturday closest to January 31. Unless otherwise stated, references to years 2021, 2020, 2019, 2018, and 2017 relate respectively to the fiscal years ended January 29, 2022, January 30, 2021, February 1, 2020, February 2, 2019, and February 3, 2018. Fiscal year 2017 consisted of 53 weeks and the other fiscal years consisted of 52 weeks. (2) In fiscal 2019, we adopted Accounting Standards Codification No. 842 on a modified retrospective basis, which requires us to recognize leased assets and obligations on our balance sheet. See Note 10 – “Leases” contained in the Notes to Consolidated Financial Statements included in PART II, ITEM 8 of this Annual Report on Form 10-K for further discussion. (3) Data for fiscal 2017 has been adjusted to a comparable 52-week period ended January 27, 2018. The 53rd week in fiscal 2017 caused a one-week shift in our fiscal calendar. To minimize the effect of this fiscal calendar shift on comparable store sales, average sales per store and average sales per square foot, our reported annual comparable store sales results for fiscal 2017 compare the 52-week period ended January 27, 2018 to the 52-week period ended January 28, 2017 and average sales per store and average sales per square foot are calculated for the 52-week period ended January 28, 2017. Comparable store sales results for fiscal 2018 compare the 52-week period ended February 2, 2019 to the 52-week period ended February 3, 2018. (4) Comparable store sales for the periods indicated include stores that have been open for 13 full months after such stores’ acquisition or grand opening prior to the beginning of the period, including those stores that have been relocated or remodeled. Therefore, stores opened, acquired or closed during the periods indicated are not included in comparable store sales. We include e-commerce sales in our comparable store sales. Due to our omnichannel retailer strategy, we view e-commerce sales as an extension of our physical stores. (5) In fiscal years 2021, 2020, 2019, and 2018, average sales per store includes e-commerce sales that are in close proximity to a physical store. (6) Average sales per square foot includes net e-commerce sales. We include e-commerce sales in our average sales per square foot as a result of our omnichannel retailer strategy. Due to our omnichannel retailer strategy, we view e-commerce sales as an extension of our physical stores. (7) Average sales per store and average sales per square foot include only Shoe Carnival banner stores. 38 ITEM 7A. QUANTITATIVE AND QUALITA TIVE DISCLOSURES ABOUT MARKET RISK We are exposed to market risk in that the interest payable on our credit facility is based on variable interest rates and therefore is affected by changes in market rates. We do not use interest rate derivative instruments to manage exposure to changes in market interest rates. We had no borrowings under our credit facility during fiscal 2021. ITEM 8. FINANCIAL STATEME NTS The information required by this item follows Deloitte & Touche LLP’s audit opinion, which begins on the following page. 39 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Shareholders and the Board of Directors of Shoe Carnival, Inc. Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of Shoe Carnival, Inc. and subsidiaries (the "Company") as of January 29, 2022 and January 30, 2021, the related consolidated statements of income, shareholders’ equity, and cash flows, for each of the three years in the period ended January 29, 2022, and the related notes (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of January 29, 2022 and January 30, 2021, and the results of its operations and its cash flows for each of the three years in the period ended January 29, 2022, in conformity with accounting principles generally accepted in the United States of America. We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of January 29, 2022, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 25, 2022, expressed an unqualified opinion on the Company's internal control over financial reporting. Basis for Opinion These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matter The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. Merchandise Inventories — Refer to Note 2 to the financial statements Critical Audit Matter Description Merchandise inventories are stated at the lower of cost or net realizable value using the first-in, first-out (“FIFO”) method. Factors considered in determining if inventory is properly stated at the lower of cost or net realizable value include, among others, recent sale prices, the length of time merchandise has been held in inventory, quantities of various styles held in inventory, seasonality of merchandise, expected consideration to be received from vendors and current and expected future sales trends. The Company reduces the value of inventory to its estimated net realizable value where cost exceeds the estimated future selling price. Given the significant judgments made by management to estimate the net realizable value of inventory, such as expected consideration to be received from vendors and current and expected future sales trends, performing audit 40 procedures to evaluate the reasonableness of management’s estimates and assumptions required a high degree of auditor judgment. How the Critical Audit Matter Was Addressed in the Audit Our audit procedures related to the significant judgments made by management to determine net realizable value of inventory included the following procedures, among others: • We tested the effectiveness of the Company’s internal control over the valuation of inventory, including the review and determination of the anticipated net realizable value of merchandise inventories compared to the cost value of inventory on-hand. • We tested the recorded inventory reserve by developing an expectation based on the prior year inventory reserve balance relative to the merchandise inventory balance at the prior year balance sheet date and compared it to the actual reserve recorded in the current year. • We evaluated the reasonableness of management’s determination of the net realizable value of inventory by: • Testing the accuracy of source data used in the calculation, including inventory on hand, aging of inventory, historical losses by product category, sales prices and consideration received from vendors. • Evaluating terms and supporting documentation for consideration expected to be received from vendors. • Recalculating the projected loss for inventory on hand based on the source data used in the calculation. • Making inquiries of management, including merchandise buyers, regarding current and expected future sales trends, and evaluating external communications by analysts. • Evaluating management’s ability to accurately forecast future sales trends by comparing actual results to management’s historical forecasts. • We evaluated management’s ability to accurately project inventory losses by comparing actual results to management’s historical estimates. /s/ Deloitte & Touche LLP Indianapolis, Indiana March 25, 2022 We have served as the Company's auditor since 1988. 41 Shoe Carnival, Inc. Consolidated B alance Sheets (In thousands, except share data) January 29, 2022 January 30, 2021 Assets Current Assets: Cash and cash equivalents $ 117,443 $ 106,532 Marketable securities 14,961 0 Accounts receivable 14,159 7,096 Merchandise inventories 285,205 233,266 Other 10,264 8,411 Total Current Assets 442,032 355,305 Property and equipment – net 88,533 62,325 Operating lease right-of-use assets 220,952 205,639 Intangible assets 32,600 0 Goodwill 11,384 0 Deferred income taxes 2,699 5,635 Other noncurrent assets 14,064 13,843 Total Assets $ 812,264 $ 642,747 Liabilities and Shareholders’ Equity Current Liabilities: Accounts payable $ 69,092 $ 57,717 Accrued and other liabilities 33,053 24,390 Current portion of operating lease liabilities 51,563 48,794 Total Current Liabilities 153,708 130,901 Long-term portion of operating lease liabilities 194,788 182,622 Deferred compensation 10,901 16,008 Other 334 3,040 Total Liabilities 359,731 332,571 Shareholders’ Equity: Common stock, $ 0.01 par value, 50,000,000 shares authorized and 41,049,190 shares issued in each period 410 410 Additional paid-in capital 80,681 78,737 Retained earnings 553,487 406,655 Treasury stock, at cost, 12,882,789 and 12,839,472 shares, respectively ( 182,045 ) ( 175,626 ) Total Shareholders’ Equity 452,533 310,176 Total Liabilities and Shareholders’ Equity $ 812,264 $ 642,747 See notes to consolidated financial statements. 42 Shoe Carnival, Inc. Consolidated Stat ements of Income (In thousands, except per share data) January 29, 2022 January 30, 2021 February 1, 2020 Net sales $ 1,330,394 $ 976,765 $ 1,036,551 Cost of sales (including buying, distribution and occupancy costs) 803,607 696,783 724,682 Gross profit 526,787 279,982 311,869 Selling, general and administrative expenses 319,133 258,117 257,660 Operating income 207,654 21,865 54,209 Interest income ( 24 ) ( 97 ) ( 730 ) Interest expense 478 412 191 Income before income taxes 207,200 21,550 54,748 Income tax expense 52,319 5,559 11,834 Net income $ 154,881 $ 15,991 $ 42,914 Net income per share: Basic $ 5.49 $ 0.57 $ 1.49 Diluted $ 5.42 $ 0.56 $ 1.46 Weighted average shares: Basic 28,233 28,133 28,854 Diluted 28,596 28,496 29,372 See notes to consolidated financial statements. 43 Shoe Carnival, Inc. Consolidated Statements of Shareholders’ Equity (In thousands) Common Stock Issued Treasury Amount Additional Paid-In Capital Retained Earnings Treasury Stock Total Balance at February 2, 2019 41,058 ( 10,308 ) $ 410 $ 75,490 $ 360,443 $ ( 131,910 ) $ 304,433 Adoption of Accounting Standards Codification 842 ( 2,649 ) ( 2,649 ) Dividends ($ 0.168 per share) ( 4,947 ) ( 4,947 ) Employee stock purchase plan purchases 12 7 175 182 Stock-based compensation awards ( 9 ) 144 ( 1,982 ) 1,982 0 Shares surrendered by employees to pay taxes on stock-based compensation awards ( 648 ) ( 11,060 ) ( 11,060 ) Purchase of common stock for Treasury ( 2,234 ) ( 37,768 ) ( 37,768 ) Stock-based compensation expense 6,258 6,258 Net income 42,914 42,914 Balance at February 1, 2020 41,049 ( 13,034 ) $ 410 $ 79,773 $ 395,761 $ ( 178,581 ) $ 297,363 Dividends ($ 0.178 per share) ( 5,097 ) ( 5,097 ) Employee stock purchase plan purchases 16 ( 29 ) 224 195 Stock-based compensation awards 323 ( 4,467 ) 4,467 0 Shares surrendered by employees to pay taxes on stock-based compensation awards ( 144 ) ( 1,736 ) ( 1,736 ) Stock-based compensation expense 3,460 3,460 Net income 15,991 15,991 Balance at January 30, 2021 41,049 ( 12,839 ) $ 410 $ 78,737 $ 406,655 $ ( 175,626 ) $ 310,176 Dividends ($ 0.28 per share) ( 8,049 ) ( 8,049 ) Employee stock purchase plan purchases 5 82 78 160 Stock-based compensation awards 248 ( 3,400 ) 3,400 0 Shares surrendered by employees to pay taxes on stock-based compensation awards ( 88 ) ( 2,750 ) ( 2,750 ) Purchase of common stock for Treasury ( 209 ) ( 7,147 ) ( 7,147 ) Stock-based compensation expense 5,262 5,262 Net income 154,881 154,881 Balance at January 29, 2022 41,049 ( 12,883 ) $ 410 $ 80,681 $ 553,487 $ ( 182,045 ) $ 452,533 See notes to consolidated financial statements. 44 Shoe Carnival, Inc. Consolidated Statem ents of Cash Flows (In thousands) January 29, 2022 January 30, 2021 February 1, 2020 Cash Flows From Operating Activities Net income $ 154,881 $ 15,991 $ 42,914 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 18,752 16,114 16,950 Stock-based compensation 5,531 3,883 6,486 Loss on retirement and impairment of assets, net 1,404 2,807 1,503 Deferred income taxes 2,936 2,198 2,619 Non-cash operating lease expense 43,011 42,008 42,322 Other 4,566 2,035 1,236 Changes in operating assets and liabilities: Accounts receivable ( 6,196 ) ( 4,372 ) ( 1,505 ) Merchandise inventories ( 24,281 ) 26,229 ( 1,956 ) Operating lease liabilities ( 46,562 ) ( 38,477 ) ( 45,933 ) Accounts payable and accrued liabilities 3,781 2,510 9,468 Other ( 9,930 ) ( 7,531 ) ( 7,158 ) Net cash provided by operating activities 147,893 63,395 66,946 Cash Flows From Investing Activities Purchases of property and equipment ( 31,387 ) ( 12,396 ) ( 18,501 ) Investments in marketable securities and other ( 18,975 ) 0 0 Sales of marketable securities and other 1,800 303 750 Acquisition, net of cash acquired ( 70,685 ) 0 0 Net cash used in investing activities ( 119,247 ) ( 12,093 ) ( 17,751 ) Cash Flows From Financing Activities Borrowings under line of credit 0 24,903 20,000 Payments on line of credit 0 ( 24,903 ) ( 20,000 ) Proceeds from issuance of stock 160 195 182 Dividends paid ( 7,998 ) ( 5,128 ) ( 5,671 ) Purchase of common stock for treasury ( 7,147 ) 0 ( 37,768 ) Shares surrendered by employees to pay taxes on stock-based compensation awards ( 2,750 ) ( 1,736 ) ( 11,060 ) Net cash used in financing activities ( 17,735 ) ( 6,669 ) ( 54,317 ) Net increase (decrease) in cash and cash equivalents 10,911 44,633 ( 5,122 ) Cash and cash equivalents at beginning of year 106,532 61,899 67,021 Cash and cash equivalents at end of year $ 117,443 $ 106,532 $ 61,899 Supplemental disclosures of cash flow information: Cash paid during year for interest $ 479 $ 392 $ 192 Cash paid during year for income taxes $ 50,466 $ 3,144 $ 9,805 Capital expenditures incurred but not yet paid $ 5,949 $ 1,440 $ 1,377 Dividends declared but not yet paid $ 184 $ 133 $ 165 See notes to consolidated financial statements. 45 Shoe Carnival, Inc. Notes to Consolidated Financial Statements Note 1 – Organization and Description of Business Our consolidated financial statements include the accounts of Shoe Carnival, Inc. and its wholly-owned subsidiaries SCHC, Inc. and Shoe Carnival Ventures, LLC, and SCLC, Inc., a wholly-owned subsidiary of SCHC, Inc. (collectively referred to as “we”, “our”, “us” or the “Company”). All intercompany accounts and transactions have been eliminated. We are an omnichannel retailer selling footwear and related products through our retail stores located in 35 states within the continental United States and in Puerto Rico, as well as through our e-commerce platform. Note 2 – Summary of Significant Accounting Policies Fiscal Year Our fiscal year is a 52/53 week year ending on the Saturday closest to January 31. Unless otherwise stated, references to years 2021, 2020 and 2019 relate to the fiscal years ended January 29, 2022, January 30, 2021 and February 1, 2020 , respectively. Basis of Presentation Stock Split On June 21, 2021, our Board of Directors authorized a two-for-one stock split of the shares of our common stock. The stock split entitled each shareholder of record at the close of business on July 6, 2021 to receive one additional share of common stock for each share of common stock owned as of that date and was paid on July 19, 2021. Upon the completion of the stock split, our outstanding shares increased from approximately 14.1 million shares to approximately 28.2 million shares. In accordance with the provisions of our 2017 Equity Incentive Plan (the “2017 Plan”) and our Employee Stock Purchase Plan, and as determined by the Compensation Committee of our Board of Directors, the following, among other items, were adjusted to equitably reflect the effect of the two-for-one stock split: • The number of shares reserved and available for issuance; • The number of shares subject to outstanding equity awards under our stock-based compensation programs; • The exercise prices and maximum gain of our outstanding stock appreciation rights; and • The annual diluted net income per share targets associated with our outstanding performance stock units granted under the 2017 Plan. All share and per share amounts herein give effect to the stock split and have been adjusted retroactively for all periods presented. Risk and Uncertainties Associated with the COVID-19 Pandemic Our operations have been significantly disrupted by the outbreak of a novel strain of coronavirus (“COVID-19”). On March 11, 2020, the World Health Organization declared the COVID-19 outbreak a pandemic. The U.S. Government, as well as the vast majority of states and local governments, have taken unprecedented measures to control the spread of COVID-19 and to provide stimulus as a mitigating measure to deteriorating economic conditions and increasing unemployment. The COVID-19 pandemic began significantly impacting our operations, sales and costs beginning in the first quarter of fiscal 2020. Impacts included the temporary closure of our physical stores effective March 19, 2020, reduced foot traffic and sales, deteriorating economic conditions for our customer base, and some disruption to our global supply chain. We began reopening physical stores in accordance with applicable public health guidelines in late April 2020. By the beginning of the second quarter of fiscal 2020, approximately 50 % of our stores were reopened, and by early 46 June 2020, substantially all of our stores had reopened. Our e-commerce platform has been fully operational during the pandemic, with e-commerce orders generally fulfilled by our store locations. We did not have any stores closed as of January 29, 2022 or for extended periods during fiscal 2021 due to the pandemic. The COVID-19 pandemic will likely continue to impact our financial condition and results of operations for the foreseeable future. Use of Estimates in the Preparation of Consolidated Financial Statements The preparation of our consolidated financial statements in conformity with generally accepted accounting principles in the United States of America requires management to make estimates and assumptions that affect the reported amounts of certain assets and liabilities as of the financial statement reporting date in addition to the reported amounts of certain revenues and expenses for the reporting period. The assumptions used by management in future estimates could change significantly due to changes in circumstances and actual results could differ from those estimates. Cash and Cash Equivalents We had cash and cash equivalents of $ 117.4 million at January 29, 2022 and $ 106.5 million at January 30, 2021. Credit and debit card receivables and receivables due from a third party totaling $ 6.7 million and $ 5.3 million were included in cash equivalents at January 29, 2022 and January 30, 2021 , respectively. Credit and debit card receivables generally settle within three days ; receivables due from third parties generally settle within five business days. We consider all short-term investments with an original maturity date of three months or less to be cash equivalents. As of January 29, 2022 and January 30, 2021 , all invested cash was held in money market mutual funds. While investments are not considered by management to be at significant risk, they could be impacted if the underlying financial institutions fail or are subject to other adverse conditions in the financial markets. To date, we have experienced no loss or lack of access to either invested cash or cash held in our bank accounts. Fair Value Measurements The accounting guidance related to fair value measurements defines fair value and provides a consistent framework for measuring fair value. Valuation techniques are based on observable and unobservable inputs. Observable inputs reflect readily obtainable data from independent sources, while unobservable inputs reflect market assumptions. This guidance only applies when other guidance requires or permits the fair value measurement of assets and liabilities. A fair value hierarchy was established, which prioritizes the inputs used in measuring fair value into three broad levels: • Level 1 – Quoted prices in active markets for identical assets or liabilities; • Level 2 – Quoted prices in active or inactive markets for similar assets or liabilities that are either directly or indirectly observable; and • Level 3 – Significant unobservable inputs that are generally model-based valuation techniques such as discounted cash flows, based on the best information available, including our own data. Fair values of our long-lived assets are estimated using an income-based approach and are classified within Level 3 of the valuation hierarchy. Merchandise Inventories and Cost of Sales Merchandise inventories are stated at the lower of cost or net realizable value using the first-in, first-out (“FIFO”) method. For determining net realizable value, we estimate the future demand and related sale price of merchandise contained in inventory as of the balance sheet date. The stated value of merchandise inventories contained on our consolidated balance sheets also includes freight, certain capitalized overhead costs and reserves. Factors considered in determining if our inventory is properly stated at the lower of cost or net realizable value include, among others, recent sale prices, the length of time merchandise has been held in inventory, quantities of various styles held in inventory, seasonality of merchandise, expected consideration to be received from our vendors and current and expected future sales trends. We also review aging trends, which include the historical rate at which merchandise has sold below cost and the value and nature of merchandise currently held in inventory and priced below original cost. We reduce the value of our inventory to its estimated net realizable value where cost exceeds the estimated future 47 selling price. Material changes in the factors previously noted could have a significant impact on the actual net realizable value of our inventory and our reported operating results. Cost of sales includes the cost of merchandise sold, buying, distribution, and occupancy costs, inbound freight expense, provision for inventory obsolescence, inventory shrink and credits and allowances from merchandise vendors. Cost of sales related to our e-commerce orders includes freight expense for delivering merchandise to our customers. In fiscal 2019, cost of sales also included fees paid to a third-party service provider. Leases We evaluate whether a contract is an operating or finance lease at its inception or at its acquisition. All of our leases are classified as operating leases as of January 29, 2022. Leases with terms of twelve months or less were not significant and we have elected to expense them as incurred. On the lease commencement date, we recognize an ROU asset for the right to use a leased asset and a liability based on the present value of remaining lease payments over the lease term. As the rate implicit in our leases is not readily determinable, we utilize an incremental borrowing rate for the initial measurement of ROU assets and liabilities, which is determined through the development of a synthetic credit rating. Operating lease liabilities are increased by interest and reduced by payments each period, and ROU assets are amortized over the lease term. Interest on operating lease liabilities and the amortization of ROU assets results in straight-line rent expense over the lease term. We record variable lease expense associated with contingent rent, reduced rent due to co-tenancy violations, and other variable non-lease components when incurred. In addition to fixed minimum rental payments set forth in our leases, the measurement of ROU assets and liabilities can also include prepaid rent, landlord incentives (such as construction and tenant improvement allowances), fixed payments related to lease components (such as rent escalation payments scheduled at the lease commencement date), fixed payments related to non-lease components (such as taxes, insurance, and common area maintenance (“CAM”) and initial direct costs incurred in conjunction with securing a lease. The measurement of ROU assets and liabilities excludes amounts related to variable payments related to lease components (such as contingent rent payments based on performance), variable payments related to non-lease components (such as real estate taxes, insurance and CAM) and non-store related leases with an initial term of 12 months or less. For new leases, renewals or amendments, we make certain estimates and assumptions regarding property values, market rents, property lives, discount rates and probable terms. These estimates and assumptions can impact: (1) lease classification and the related accounting treatment; (2) rent holidays, escalations or deferred lease incentives, which are taken into consideration when calculating straight-line expense; (3) the term over which leasehold improvements for each store are amortized; and (4) the values and lives of adjustments to initial ROU assets. The amount of amortized rent expense would vary if different estimates and assumptions were used. See Note 10 – “Leases” for additional discussion of our lease policies as well as additional disclosures related to our leases. Revenue Recognition Substantially all of our revenue is for a single performance obligation and is recognized when control passes to customers. We consider control to have transferred when we have a present right to payment, the customer has title to the product, physical possession of the product has been transferred to the customer and the risks and rewards of the product that we retain are minimal. The redemption of loyalty points under our Shoe Perks loyalty rewards program and redemptions of gift cards are accounted for as separate performance obligations. See Note 5 – “Revenue” for additional discussion of our revenue recognition policies as well as additional disclosures on revenue from contracts with customers. 48 Property and Equipment- Net Property and equipment is stated at cost and is depreciated or amortized using the straight-line method over the shorter of the estimated useful lives of the assets or the applicable lease terms. Lives used in computing depreciation and amortization range from two to twenty-five years. Expenditures for maintenance and repairs are charged to expense as incurred. Expenditures that materially increase values, improve capacities or extend useful lives are capitalized. Upon sale or retirement, the costs and related accumulated depreciation or amortization are eliminated from the respective accounts and any resulting gain or loss is included in operations. Cloud Computing Arrangements that are Service Contracts We account for the costs to implement hosted cloud computing arrangements that are considered to be service contracts in current and noncurrent other assets. We capitalize these costs based on the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. We amortize the costs over the related service contract period for the hosted arrangement. For fiscal 2021, fiscal 2020 and fiscal 2019, the amortization of the implementation costs and the related service contract fees are included in selling, general and administrative expenses. Long-Lived Asset Impairment Testing We periodically evaluate our long-lived assets for impairment if events or circumstances indicate that the carrying value may not be recoverable. The carrying value of long-lived assets is considered impaired when the carrying value of the assets exceeds the expected future cash flows to be derived from their use. Assets are grouped, and the evaluation is performed, at the lowest level for which there are identifiable cash flows, which is generally at a store level. Store level asset groupings typically include property and equipment and operating lease ROU assets. If the estimated, undiscounted future cash flows for a store are determined to be less than the carrying value of the store’s assets, an impairment loss is recorded for the difference between estimated fair value and carrying value. Assets subject to impairment are adjusted to estimated fair value and, if applicable, an impairment loss is recorded in selling, general and administrative expenses. If the operating lease ROU asset is impaired, we would amortize the remaining ROU asset on a straight-line basis over the remaining lease term. We estimate the fair value of our long-lived assets using store specific cash flow assumptions discounted by a rate commensurate with the risk involved with such assets while incorporating marketplace assumptions. Our estimates are derived from an income-based approach considering the cash flows expected over the remaining lease term for each location. These projections are primarily based on management’s estimates of store-level sales, exercise of future lease renewal options and the store’s contribution to cash flows and, by their nature, include judgments about how current initiatives will impact future performance. We estimate the fair value of operating lease ROU assets using the market value of rents applicable to the leased asset, discounted using the remaining lease term. External factors, such as the local environment in which the store is located, including store traffic and competition, are evaluated in terms of their effect on sales trends. Changes in sales and operating income assumptions or unfavorable changes in external factors can significantly impact the estimated future cash flows. An increase or decrease in the projected cash flow can significantly impact the fair value of these assets, which may have an effect on the impairment recorded. If actual operating results or market conditions differ from those anticipated, the carrying value of certain of our assets may prove unrecoverable and we may incur additional impairment charges in the future. Insurance Reserves We self-insure a significant portion of our workers’ compensation, general liability and employee health care costs and also maintain insurance in each area of risk to protect us from individual and aggregate losses over specified dollar values. Self-insurance reserves include estimates of claims filed, carried at their expected ultimate settlement value, and claims incurred but not yet reported. These estimates take into consideration a number of factors, including historical claims experience, severity factors, statistical trends and, in certain instances, valuation assistance provided by independent third parties. We record self-insurance expense as a component of Accrued and other liabilities in our consolidated balance sheets and in selling, general and administrative expenses in our consolidated statements of income. While we believe that the recorded amounts are adequate, there can be no assurance that changes to 49 management’s estimates will not occur due to limitations inherent in the estimating process. If actual results are not consistent with our estimates or assumptions, we may be exposed to losses or gains that could be material. Consideration Received From a Vendor Consideration is primarily received from merchandise vendors and includes co-operative advertising/promotion, margin assistance, damage allowances and rebates earned for a specific level of purchases over a defined period. Consideration principally takes the form of credits that we can apply against trade amounts owed. Consideration is recorded as a reduction of the price paid for the vendor’s products and recorded as a reduction of our cost of sales unless the consideration represents a reimbursement of a specific, incremental, identifiable cost; in such a scenario, it is recorded as an offset to the same financial statement line item. Consideration received after the related merchandise has been sold is recorded as an offset to cost of sales in the period negotiations are finalized. For consideration received on merchandise still in inventory, the allowance is recorded as a reduction to the cost of on-hand inventory and recorded as a reduction of our cost of sales at the time of sale. Should the consideration received be related to something other than the vendor’s product and such consideration received exceeds the incremental costs incurred, then the excess consideration is recorded as a reduction to the cost of on-hand inventory and allocated to cost of sales in future periods utilizing an average inventory turn rate. Advertising Costs Digital media, print, television, radio, outdoor media and internal production costs are expensed when incurred. External production costs are expensed in the period the advertisement first takes place. Advertising expenses included in selling, general and administrative expenses were $ 58.7 million, $ 42.1 million and $ 40.0 million in fiscal years 2021, 2020 and 2019 , respectively. Store Opening and Start-up Costs Non-capital expenditures, such as payroll, supplies and rent incurred prior to the opening of a new store, are charged to expense in the period they are incurred. Advertising related to new stores is expensed pursuant to the aforementioned advertising policy. Stock-Based Compensation We recognize compensation expense for stock-based awards using a fair value based method. Stock-based awards may include stock units, restricted stock, stock appreciation rights and other stock-based awards under our stock-based compensation plans. Additionally, we recognize stock-based compensation expense for the discount on shares sold to employees through our employee stock purchase plan. This discount represents the difference between the market price and the employee purchase price. Stock-based compensation expense is included in selling, general and administrative expenses. We account for forfeitures as they occur in calculating stock-based compensation expense for the period. For performance-based stock awards, we estimate the probability of vesting based on the likelihood that the awards will meet their performance goals. Segment Information We are a family footwear retailer that offers a broad assortment of dress, casual and athletic footwear for men, women and children with emphasis on national name brands. We operate our business as one reportable segment based on the similar nature of products sold; merchandising, distribution, and marketing processes involved; target customers; and economic characteristics of our stores and e-commerce platform. Due to our omnichannel retailer strategy, we view e-commerce sales as an extension of our physical stores. Income Taxes We compute income taxes using the asset and liability method, under which deferred income taxes are provided for the temporary differences between the financial reporting basis and the tax basis of our assets and liabilities. Deferred 50 tax assets are reduced, if necessary, by a valuation allowance to the extent future realization of those tax benefits are uncertain. We report a liability for unrecognized tax benefits resulting from uncertain tax positions taken or expected to be taken in a tax return. We recognize interest expense and penalties, if any, related to uncertain tax positions in income tax expense. Net Income Per Share The following table sets forth the computation of basic and diluted net income per share as shown on the face of the accompanying consolidated statements of income: Fiscal Year Ended January 29, 2022 January 30, 2021 February 1, 2020 (In thousands, except per share data) Basic Net Income per Share: Net Income Shares Per Share Amount Net Income Shares Per Share Amount Net Income Shares Per Share Amount Net income $ 154,881 $ 15,991 $ 42,914 Conversion of share-based compensation arrangements 0 0 ( 63 ) Net income available for basic common shares and basic net income per share $ 154,881 28,233 $ 5.49 $ 15,991 28,133 $ 0.57 $ 42,851 28,854 $ 1.49 Diluted Net Income per Share: Net income $ 154,881 $ 15,991 $ 42,914 Conversion of share-based compensation arrangements 0 363 0 363 ( 62 ) 518 Net income available for diluted common shares and diluted net income per share $ 154,881 28,596 $ 5.42 $ 15,991 28,496 $ 0.56 $ 42,852 29,372 $ 1.46 The computation of basic net income per share of common stock is based on the weighted average number of common shares outstanding during the period. The computation of diluted net income per share is based on the weighted average number of shares outstanding plus the dilutive incremental shares that would be outstanding assuming the vesting of stock-based compensation arrangements involving restricted stock, restricted stock units and performance stock units. A small portion of these awards that were outstanding at the beginning of fiscal 2020 had a non-forfeitable right to dividends. The computation of diluted net income per share excluded approximately 2,000 unvested stock-based awards for fiscal 2020 because the impact would be anti-dilutive. For the other periods presented, all unvested stock-based awards were dilutive. New Accounting Pronouncements The Financial Accounting Standards Board ("FASB") issued guidance related to reference rate reform, which addresses contract modifications that may be necessary due to the expected discontinuance of LIBOR as a broadly used reference rate. The guidance was effective immediately but is only available for contract modifications made through December 31, 2022. Our credit facility that was in place at the end of fiscal 2021 allows for LIBOR-based borrowings and, as amended in 2020, contains provisions providing for a benchmark replacement in the event LIBOR is discontinued. See Note 9 - "Debt" for additional information on that credit facility and our amended and restated credit agreement, which was entered into subsequent to our fiscal year end. We will adopt this guidance when LIBOR is discontinued and do not expect the adoption will have a material impact on our consolidated financial statements or related disclosures. In October 2021, the FASB issued guidance related to accounting for contract assets and contract liabilities from contracts with customers in a business combination. Companies will be required to apply the definition of a performance obligation under ASC Topic 606 to recognize and measure contract assets and contract liabilities relating to contracts with customers that are acquired in a business combination. The guidance is effective for fiscal years beginning after December 15, 2022, with early adoption permitted. We are currently evaluating the impact the adoption of this guidance may have on prospective acquisitions if and when pursued. 51 Note 3 – Acquisition of Shoe Station On December 3, 2021, we acquired the physical stores and substantially all of the other assets of Shoe Station, Inc. ("Shoe Station") for total consideration of $ 70.7 million, net of $ 77,000 of cash acquired. The purchase price paid is subject to an adjustment for finalization of the value of the net assets acquired and was funded with available cash on hand. Shoe Station was one of the nation's largest independent shoe retailers, with 21 locations in five Southeastern states - Alabama, Florida, Georgia, Mississippi, and Louisiana. We believe the addition of a new brand and new retail locations to the Shoe Carnival portfolio creates a complementary retail platform to serve a broader family footwear customer base across both urban and suburban demographics. The results of Shoe Station are included in our consolidated financial statements since the acquisition date. Sales from our newly acquired Shoe Station banner totaled $ 16.6 million from December 4, 2021, through the end of fiscal 2021. Acquisition-related costs of $ 3.2 million were expensed as incurred and are included in selling, general and administrative expenses in our consolidated statements of income. The following table summarizes the preliminary allocation of the purchase price to the fair value of the assets acquired and liabilities assumed. The excess purchase price over the fair value of net assets acquired was allocated to goodwill. The allocation of the purchase price shown in the table below is preliminary and subject to change based on the finalization of our detailed valuations and any subsequent change in the purchase price. (In thousands) Fair value of identifiable assets and liabilities: Merchandise inventories $ 28,714 Other assets 3,048 Property and equipment, net 6,451 Operating lease ROU assets 14,174 Shoe Station trade names 32,600 Goodwill 11,384 Total assets $ 96,371 Accounts payable 6,109 Operating lease liabilities 17,346 Accrued and other liabilities 2,231 Total liabilities $ 25,686 Purchase Price: Total consideration, net of cash acquired $ 70,685 We are treating Shoe Station trade names as indefinite-lived intangible assets; therefore, goodwill and the Shoe Station trade names will be charged to expense only if impaired. Impairment reviews will be conducted at least annually beginning in fiscal 2022 and involve a comparison of fair value to the carrying amount. If fair value is less than the carrying amount, an impairment loss would be recognized in selling, general, and administrative expenses. Goodwill and the indefinite-lived intangible assets are expected to be fully deductible for tax purposes over 15 years. 52 Note 4 – Fair Value of Financial Instruments The following table presents financial instruments that are measured at fair value on a recurring basis at January 29, 2022 and January 30, 2021: Fair Value Measurements (In thousands) Level 1 Level 2 Level 3 Total As of January 29, 2022: Cash equivalents – money market mutual funds $ 115,528 $ 0 $ 0 $ 115,528 Marketable securities - mutual funds that fund deferred compensation 14,961 0 0 14,961 Total $ 130,489 $ 0 $ 0 $ 130,489 As of January 30, 2021: Cash equivalents – money market mutual funds $ 97,519 $ 0 $ 0 $ 97,519 During fiscal 2021, we invested in publicly traded mutual funds with readily determinable fair values. These marketable securities are designed to mitigate volatility in our Consolidated Statements of Income associated with our non-qualified deferred compensation plan. As of January 29, 2022, these marketable securities were principally invested in equity-based mutual funds, consistent with the allocation in our deferred compensation plan. As of January 29, 2022, the balance in our deferred compensation plan was $ 14.6 million, of which $ 3.7 million was in Accrued and other liabilities based on scheduled payments due within the next 12 months and $ 10.9 million was in Deferred compensation, a long-term liability. To the extent there are funds in excess of the total non-qualified deferred compensation plan liability, such funds are invested in a stable value mutual fund. We classify these marketable securities as current assets because we have the ability to convert the securities into cash at our discretion and these marketable securities are not held in a rabbi trust. We have recognized unrealized losses of $ 2.0 million related to equity securities still held at January 29, 2022. The fair values of cash and cash equivalents, accounts receivable, accounts payable, accrued expenses and other current liabilities approximate their carrying values because of their short-term nature. 53 Note 5 – Revenue Disaggregation of Revenue by Product Category Revenue is disaggregated by product category below. Net sales and percentage of net sales for fiscal years 2021, 2020 and 2019 are as follows: (In thousands) January 29, 2022 January 30, 2021 February 1, 2020 Non-Athletics: Women's $ 317,144 24 % $ 213,095 22 % $ 255,773 25 % Men's 189,294 14 132,057 14 149,075 14 Children's 87,926 6 54,706 5 54,707 5 Total 594,364 44 399,858 41 459,555 44 Athletics: Women's 212,669 16 180,664 18 175,298 17 Men's 264,417 20 214,010 22 210,157 20 Children's 183,211 14 125,728 13 139,625 14 Total 660,297 50 520,402 53 525,080 51 Accessories 67,168 5 48,282 5 48,402 5 Other 8,565 1 8,223 1 3,514 0 Total $ 1,330,394 100 % $ 976,765 100 % $ 1,036,551 100 % Accounting Policy and Performance Obligations We operate as an omnichannel, family footwear retailer and provide the convenience of shopping at our physical stores or shopping online through our e-commerce platform. As part of our omnichannel strategy, we offer Shoes 2U, a program that enables us to ship product to a customer’s home or selected store if the product is not in stock at a particular store. We also offer “buy online, pick up in store” services for our customers. “Buy online, pick up in store” provides the convenience of local pickup for our customers. For our physical stores, we satisfy our performance obligation and control is transferred at the point of sale when the customer takes possession of the products. This also includes the “buy online, pick up in store” scenario described above and includes sales made via our Shoes 2U program when customers choose to pick up their goods at a physical store. For sales made through our e-commerce platform in which the customer chooses home delivery, we transfer control and recognize revenue when the product is shipped. This also includes sales made via our Shoes 2U program when the customer chooses home delivery. We offer our customers sales incentives including coupons, discounts, and free merchandise. Sales are recorded net of such incentives and returns and allowances. If an incentive involves free merchandise, that merchandise is recorded as a zero sale and the cost is included in cost of sales. Gift card revenue is recognized at the time of redemption. When a customer makes a purchase as part of our rewards program, we allocate the transaction price between the goods purchased and the loyalty reward points and recognize the loyalty revenue based on estimated customer redemptions. Transaction Price and Payment Terms The transaction price is the amount of consideration we expect to receive from our customers and is reduced by any stated promotional discounts at the time of purchase. The transaction price may be variable due to terms that permit customers to exchange or return products for a refund. The implicit contract with the customer reflected in the transaction receipt states the final terms of the sale, including the description, quantity, and price of each product purchased. The customer agrees to a stated price in the contract that does not vary over the term of the contract and may include revenue to offset shipping costs. Taxes imposed by governmental authorities such as sales taxes are excluded from Net sales. 54 We accept various forms of payment from customers at the point of sale typical for an omnichannel retailer. Payments made for products are generally collected when control passes to the customer, either at the point of sale or at the time the customer order is shipped. For Shoes 2U transactions, customers may order the product at the point of sale. For these transactions, customers pay in advance and unearned revenue is recorded as a contract liability. We recognize the related revenue when control has been transferred to the customer (i.e., when the product is picked up by the customer or shipped to the customer). Unearned revenue related to Shoes 2U was not material to our consolidated financial statements at January 29, 2022 and January 30, 2021. Returns and Refunds We have established an allowance based upon historical experience in order to estimate return and refund transactions. This allowance is recorded as a reduction in sales with a corresponding refund liability recorded in Accrued and other liabilities. The estimated cost of merchandise inventory is recorded as a reduction to Cost of sales and an increase in Merchandise inventories. At January 29, 2022 , approximately $ 884,000 of refund liabilities and $ 516,000 of right of return assets associated with estimated product returns were recorded in Accrued and other liabilities. At January 30, 2021 , approximately $ 740,000 of refund liabilities and $ 495,000 of right of return assets associated with estimated product returns were recorded in Accrued and other liabilities. Contract Liabilities The issuance of a gift card is recorded as an increase to contract liabilities and a decrease to contract liabilities when a customer redeems a gift card. Estimated breakage is determined based on historical breakage percentages and recognized as revenue based on expected gift card usage. We do not record breakage revenue when escheat liability to relevant jurisdictions exists. At January 29, 2022 and January 30, 2021 , approximately $ 2.3 million and $ 1.7 million of contract liabilities associated with unredeemed gift cards were recorded in Accrued and other liabilities, respectively. We expect the revenue associated with these liabilities to be recognized in proportion to the pattern of customer redemptions within two years. Breakage revenue associated with our gift cards recognized in Net sales was $ 189,000 , $ 132,000 and $ 143,000 during fiscal years 2021, 2020 and 2019, respectively. Our Shoe Perks rewards program allows customers to accrue points and provides customers with the opportunity to earn rewards. Points under Shoe Perks are earned primarily by making purchases through any of our omnichannel points of sale. Once a certain threshold of accumulated points is reached, the customer earns a reward certificate, which is redeemable through any of our sales channels. When a Shoe Perks customer makes a purchase, we allocate the transaction price between the goods purchased and the loyalty reward points earned based on the relative standalone selling price. The portion allocated to the points program is recorded as a contract liability for rewards that are expected to be redeemed. We then recognize revenue based on an estimate of when customers redeem rewards, which incorporates an estimate of points expected to expire using historical rates. Loyalty awards recognized in Net sales were $ 6.1 million, $ 4.4 million and $ 2.4 million during fiscal years 2021, 2020 and 2019, respectively. At January 29, 2022 and January 30, 2021 , approximately $ 852,000 and $ 755,000 of contract liabilities associated with loyalty rewards were recorded in Accrued and other liabilities, respectively. We expect the revenu e associated with these liabilities to be recognized in proportion to the pattern of customer redemptions in less than one year. 55 Note 6 – Property and Equipment The following is a summary of property and equipment: (In thousands) January 29, 2022 January 30, 2021 Land $ 1,564 $ 1,564 Buildings 7,525 6,783 Furniture, fixtures and equipment 170,321 156,202 Leasehold improvements 129,550 107,405 Total 308,960 271,954 Less accumulated depreciation and amortization ( 220,427 ) ( 209,629 ) Property and equipment – net $ 88,533 $ 62,325 Total depreciation expense associated with property and equipment was $ 14.7 million in fiscal 2021 , $ 14.8 million in fiscal 2020 and $ 16.8 million in fiscal 2019. In fiscal years 2021, 2020 and 2019 , we recorded impairment charges of $ 1.3 million, $ 3.1 million and $ 1.2 million on long-lived assets held and used, respectively. Impairment charges are included in selling, general and administrative expenses in our consolidated statements of income. Note 7 – Cloud Computing Arrangements that are Service Contracts Since fiscal 2019, we have engaged third-party providers to host software for us, including our customer relationship management (“CRM”) platform, merchandise financial planning platform and our transportation, warehouse and order management systems. These platforms are cloud computing arrangements that are software-as-a-service (“SaaS”) contracts. Net capitalized costs related to cloud computing arrangements as of January 29, 2022 and January 30, 2021 were $ 15.6 million and $ 14.2 million, respectively. Total expense included in selling, general, and administrative expenses related to these arrangements was $ 4.0 million during fiscal year 2021, $ 1.3 million during fiscal year 2020 and $ 122,000 during fiscal year 2019. As of January 29, 2022 , approximately $ 2.8 million of net capitalized costs related to cloud computing arrangements were classified in other current assets and $ 12.8 million were classified as other noncurrent assets in our consolidated balance sheets. As of January 30, 2021 , approximately $ 3.0 million of net capitalized costs related to cloud computin g arrangements were classified in other current assets and $ 11.2 million were classified as other noncurrent assets in our consolidated balance sheets. Note 8 – Accrued and Other Liabilities Accrued and other liabilities consisted of the following: (In thousands) January 29, 2022 January 30, 2021 Employee compensation and benefits $ 15,454 $ 9,582 Current portion of non-qualified deferred compensation 3,725 393 Self-insurance reserves 3,585 3,405 Gift cards 2,323 1,680 Sales and use tax 2,270 3,172 Other 5,696 6,158 Total accrued and other liabilities $ 33,053 $ 24,390 56 Note 9 – Debt On April 16, 2020, we entered into a third amendment (the “Third Amendment”) of our existing credit agreement (the “Credit Agreement”). Pursuant to the Third Amendment, we (1) exercised the full $ 50 million accordion feature, which increased the revolving commitment under the Credit Agreement from $ 50 million to $ 100 million, and increased the swing line sublimit from $ 10 million to $ 15 million; (2) granted a security interest in our inventory to the lenders; and (3) increased the maximum ratio of funded debt plus three times rent expense to EBITDA (as defined in the Credit Agreement) plus rent expense from 2.5 to 1.0 to 3.0 to 1.0. In addition, the Third Amendment, among other things, increased certain LIBOR margins applicable to borrowings under the Credit Agreement, increased the commitment fee charged on the unused portion of the lenders’ commitment and made customary updates to certain representations, covenants and other terms contained in the Credit Agreement. On July 20, 2020, we entered into a fourth amendment (the “Fourth Amendment”) to our Credit Agreement. Pursuant to the Fourth Amendment, we (1) eliminated the covenant involving the ratio of funded debt plus three times rent expense to EBITDA (as defined in the Credit Agreement) plus rent expense for the fiscal quarters ending on or about July 31, 2020; October 31, 2020; and January 31, 2021; (2) amended the definition of LIBOR to establish a minimum LIBOR rate of 0.75% per annum; and (3) established increased reporting requirements to the lenders through January 31, 2021. On November 30, 2021, we entered into a fifth amendment (the "Fifth Amendment") to our Credit Agreement. Pursuant to the Fifth Amendment, the aggregate dollar amount of acquisitions we could make in a 12-month period was increased from $ 10 million to $ 75 million. The Credit Agreement, as amended, contains covenants which stipulate: (1) Total Shareholders’ Equity (as defined in the Credit Agreement) will not fall below $250 million at the end of each fiscal quarter; (2) the ratio of funded debt plus three times rent expense to EBITDA (as defined in the Credit Agreement) plus rent expense will not exceed 3.0 to 1.0, except for the fiscal quarters ending on or about July 31, 2020; October 31, 2020; and January 31, 2021; (3) the aggregate amount of cash dividends for a fiscal year will not exceed $10 million; and (4) distributions in the form of redemptions of Equity Interests (as defined in the Credit Agreement) can be made solely with cash on hand so long as before and immediately after such distributions there are no revolving loans outstanding under the Credit Agreement. Should a default condition be reported, the lenders may preclude additional borrowings and call all loans and accrued interest at their discretion. We were in compliance with these covenants at January 29, 2022 . The Credit Agreement bears interest, at our option, at (1) the agent bank’s prime rate as defined in the Credit Agreement plus 1.0%, with the prime rate defined as the greater of (a) the Federal Fund rate plus 0.50% or (b) the interest rate announced from time to time by the agent bank as its “prime rate” or (2) LIBOR plus 1.50% to 2.50%, depending on our achievement of certain performance criteria. If the stated LIBOR rate is less than 0.75%, the LIBOR rate for purposes of calculating the interest rate under the credit facility shall be 0.75%. A commitment fee is charged at 0.30 % to 0.40 % per annum, depending on our achievement of certain performance criteria, on the unused portion of the lenders’ commitment. No borrowings were outstanding under the Credit Agreement as of January 29, 2022 and January 30, 2021. The maximum borrowings outstanding during fiscal 2020 was $ 8.7 million. We did no t borrow under the Credit Agreement during fiscal 2021. As of January 29, 2022 , there were $ 700,000 in letters of credit outstanding and $ 99.3 million available to us for borrowing under the Credit Agreement. The Credit Agreement was to expire in March 27, 2022 . However, on March 23, 2022 we entered into an Amended and Restated Credit Agreement (the “New Credit Agreement”), which replaced the Credit Agreement. This new $ 100 million amended and restated credit facility is collateralized by our inventory, expires on March 23, 2027 , and contains a swingline sublimit of $ 15 million. Material covenants associated with the New Credit Agreement require that we maintain a minimum net worth of $ 250 million and a consolidated interest coverage ratio of not less than 3.0 to 1.0. The New Credit Agreement also provides that cash dividends and share repurchases of $ 15 million or less per fiscal year can be made without restriction as long as there is no default or event of default before and immediately after such distributions. We are also permitted to make acquisitions and pay cash dividends or repurchase shares in excess of $ 15 million in a fiscal year provided that (a) no default or event of default exists before and immediately after the transaction and (b) on a proforma basis, the ratio of (i) the sum of (A) our consolidated funded indebtedness plus (B) 57 three times our consolidated rental expense to (ii) the sum of (A) our consolidated EBITDA plus (B) our consolidated rental expense is less than 3.5 to 1.0. Among other restrictions, the New Credit Agreement also limits our ability to incur additional secured or unsecured debt to $ 20 million. The New Credit Agreement bears interest, at our option, at (1) the agent bank’s base rate plus 0.0 % to 1.0 % or (2) Adjusted Term SOFR plus 0.9 % to 1.9 %, depending on our achievement of certain performance criteria. A commitment fee is charged at 0.2 % to 0.3 % per annum, depending on our achievement of certain performance criteria, on the unused portion of the lenders’ commitment. The terms “net worth”, “consolidated interest coverage ratio”, “consolidated funded indebtedness”, “consolidated rental expense”, “consolidated EBITDA”, “base rate” and “Adjusted Term SOFR” are defined in the New Credit Agreement. Note 10 – Leases We lease all of our physical stores, our single distribution center, which has a current lease term expiring in 2034 , and certain other locations that support the recently acquired Shoe Station operations. We also enter into leases of equipment, copiers and billboards. Prior to the purchase of our corporate headquarters in fiscal 2019, it was also leased. W e do not have any leases with related parties. In addition, we do not have any sublease arrangements with any related party or third party. Our lease agreements do not contain any material residual value guarantees or material restrictive covenants. Our real estate leases typically include options to extend the lease or to terminate the lease at our sole discretion. Options to extend real estate leases typically include one or more options to renew, with renewal terms that typically extend the lease term for five years or more. Many of our leases also contain “co-tenancy” provisions, including the required presence and continued operation of certain anchor tenants in the adjoining retail space. If a co-tenancy violation occurs, we have the right to a reduction of rent for a defined period after which we have the option to terminate the lease if the violation is not cured. In addition to co-tenancy provisions, certain leases contain “go-dark” provisions that allow us to cease operations while continuing to pay rent through the end of the lease term. When determining the lease term, we include options that are reasonably certain to be exercised. Our leases typically provide for fixed minimum rental payments, and certain leases provide for contingent rental payments based upon various specified percentages of sales above minimum levels. In addition to rental payments, we are required to pay certain non-lease components, such as real estate taxes, insurance and CAM, on most of our real estate leases. Such non-lease components are typically variable in nature. Certain real estate leases also contain escalation clauses for increases in minimum rentals, operating costs and taxes. Lease-related costs reported in our consolidated statements of income were as follows: (In thousands) 2021 2020 Operating lease cost $ 54,417 $ 53,418 Variable lease cost CAM, property taxes and insurance 18,914 19,805 Percentage rent and other variable lease costs 2,723 2,008 Total $ 76,054 $ 75,231 During fiscal 2020, we deferred lease payments of approximately $ 3.1 million during April, May, and June pursuant to arrangements reached with various landlords. These deferrals were substantially repaid over the remainder of fiscal 2020. We accounted for these arrangements as if they were part of the enforceable rights and obligations of the existing contracts, not as lease modifications. Rent continued to be recognized on a straight line basis for contracts with these deferrals. 58 Other information related to leases, including supplemental cash flow information, consists of: (In thousands) 2021 2020 Cash paid for amounts included in the measurement of operating lease liabilities $ 46,562 $ 38,477 ROU assets obtained in exchange for operating lease liabilities 1 $ 64,058 $ 36,290 As of As of January 29, 2022 January 30, 2021 Weighted-average remaining lease term for operating leases (in years) 6.0 6.1 Weighted-average discount rate for operating leases 5.2 % 5.2 % 1) Includes ROU assets added as part of the Shoe Station acquisition described in Note 3 - "Acquisition of Shoe Station" The following table reconciles the undiscounted cash flows for each of the first five years and the total of the remaining years to our operating lease liabilities as of January 29, 2022: (In thousands) Operating Leases 2022 $ 62,777 2023 58,678 2024 44,188 2025 31,946 2026 27,834 Thereafter to 2050 62,271 Total undiscounted lease payments 287,694 Less: Imputed interest 41,343 Total operating lease liabilities 246,351 Less: Current portion of operating lease liabilities 51,563 Long-term portion of operating lease liabilities $ 194,788 Note 11 – Income Taxes The provision for income taxes consisted of: (In thousands) 2021 2020 2019 Current: Federal $ 38,576 $ 2,233 $ 6,799 State 8,076 887 2,175 Puerto Rico 2,730 241 241 Total current 49,382 3,361 9,215 Deferred: Federal 1,296 2,122 2,749 State 390 ( 294 ) 3 Puerto Rico - 133 246 Total deferred 1,686 1,961 2,998 Valuation allowance 1,251 237 ( 379 ) Total provision $ 52,319 $ 5,559 $ 11,834 59 Reconciliation between the statutory federal income tax rate and the effective income tax rate is as follows: Fiscal years 2021 2020 2019 U.S. Federal statutory tax rate 21.0 % 21.0 % 21.0 % State and local income taxes, net of federal tax benefit 3.6 2.4 3.2 Puerto Rico 0.6 1.7 0.5 Valuation allowance 0 0 ( 0.7 ) Tax effect of foreign losses 0 0 0.4 Excess tax benefit on stock-based compensation ( 0.5 ) 0.4 ( 3.6 ) Other 0.6 0.3 0.8 Effective income tax rate 25.3 % 25.8 % 21.6 % Deferred income taxes are the result of temporary differences in the recognition of revenue and expense for tax and financial reporting purposes. The sources of these differences and the tax effect of each are as follows: (In thousands) January 29, 2022 January 30, 2021 Deferred tax assets: Lease obligations $ 55,126 $ 56,287 Accrued compensation 3,917 4,957 Inventory 1,018 32 Other 3,719 1,886 Total deferred tax assets 63,780 63,162 Valuation allowance ( 1,682 ) ( 431 ) Total deferred tax assets – net of valuation allowance 62,098 62,731 Deferred tax liabilities: Lease ROU assets 50,363 50,609 Property and equipment 6,767 5,064 Other 2,269 1,423 Total deferred tax liabilities 59,399 57,096 Long-term deferred income taxes, net $ 2,699 $ 5,635 We have tax credit carryforwards associated with our Puerto Rico operations totaling $ 1.7 million at January 29, 2022 and $ 431,000 at January 30, 2021. These credits expire at various times over the next ten years . We have taken a full valuation allowance against these credits given they are not expected to be utilized due to the current differential between U.S. and Puerto Rico tax rates. As of January 29, 2022 and January 30, 2021 , there were no unrecognized tax liabilities or related accrued penalties or interest in other liabilities on the consolidated balance sheets. Note 12 – Employee Benefit Plans Retirement Savings Plans Our Board of Directors-approved Shoe Carnival Retirement Savings Plan (the “Domestic Savings Plan”) is open to all employees working in the continental United States who have been employed for at least one year , are at least 21 years of age and who work at least 1,000 hours in a defined year. The primary savings mechanism under the Domestic Savings Plan is a 401(k) plan under which an employee may contribute up to 20 % of annual earnings with a matching Company contribution up to the first 4 % at a rate of 50 %. Our contributions to the participants’ accounts become fully vested when participants reach their third anniversary of employment with us. Our Board of Directors-approved Shoe Carnival Puerto Rico Savings Plan (the “Puerto Rico Savings Plan”) is open to all employees working in Puerto Rico who have been employed for at least one year , are at least 21 years of age 60 and who work at least 1,000 hours in a defined year. This plan is similar to our Domestic Savings Plan, whereby an employee may contribute up to 20 % of his or her annual earnings, with a matching Company contribution up to the first 4 % at a rate of 50 %. Contributions charged to expense associated with these plans were $ 949,000 , $ 851,000 and $ 818,000 in fiscal years 2021, 2020 and 2019, respectively. Deferred Compensation Plan We have a non-qualified deferred compensation plan for certain key employees who, due to Internal Revenue Service guidelines, cannot take full advantage of the employer-sponsored 401(k) plan. Participants in the plan may elect on an annual basis to defer, on a pre-tax basis, portions of their current compensation until retirement, or earlier if so elected. We voluntarily match a portion of the employees’ contributions, which is subject to vesting requirements. The compensation deferred under this plan is credited with earnings or losses measured by the rate of return on investments elected by plan participants. Compensation expense for our match and earnings on the deferred amounts was $ 1.3 million for fiscal 2021 and $ 2.0 million for both fiscal 2020 and fiscal 2019. The total deferred compensation liability at January 29, 2022 and January 30, 2021 was $ 14.6 million and $ 16.4 million, respectively, of which $ 3.7 million and $ 393,000 was classified as accrued and other liabilities at January 29, 2022 and January 30, 2021 , respectively. Note 13 – Stock-Based Compensation Stock-based compensation includes share-settled awards issued pursuant to our shareholder approved Shoe Carnival, Inc. 2017 Equity Incentive Plan (the “2017 Plan”) in the form of restricted stock units, performance stock units, and restricted and other stock awards. Additionally, we recognize stock-based compensation expense for the discount on shares sold to employees through our Employee Stock Purchase Plan and for cash-settled stock appreciation rights (SARs). For fiscal years 2021, 2020 and 2019, stock-based compensation expense was comprised of the following: (In thousands) 2021 2020 2019 Share-settled equity awards $ 5,234 $ 3,426 $ 6,226 Stock appreciation rights 269 423 228 Employee stock purchase plan 28 34 32 Total stock-based compensation expense $ 5,531 $ 3,883 $ 6,486 Income tax benefit at statutory rates $ 1,399 $ 1,002 $ 1,402 Additional income tax (benefit)/expense on vesting of share-settled awards $ ( 992 ) $ 81 $ ( 1,950 ) As of January 29, 2022, there was approximately $ 3.4 million of unrecognized compensation expense remaining related to our share-settled equity awards. The cost is expected to be recognized over a weighted average period of approximately 0.9 years. As of January 29, 2022, approximately $ 41,000 in unrecognized compensation expense remained related to non-vested SARs. This expense is expected to be recognized over a period of approximately 0.2 years. Under the 2017 Plan, we may issue stock units, restricted stock, stock appreciation rights, stock options and other stock-based awards to eligible participants. According to the terms of the 2017 Plan, no further awards may be made from any previously approved equity plans. As of January 29, 2022 , there were approximately 847,000 shares of our common stock available for future issuances under the 2017 Plan. Equity awards issued to employees are classified as either performance-based or service-based. Our outstanding performance-based equity awards were granted such that vesting depended on whether diluted net income per share met an established threshold, target, or maximum level of performance. Diluted net income per share below the threshold level of performance would have resulted in complete forfeiture of the award. Our service-based restricted stock units and restricted stock awards vest under different scenarios based on the year they were granted, as determined and approved by our Board of Directors. Typical vesting scenarios are as follows: (a) one-third of the award vests on each of the first three anniversaries subsequent to the date of the grant; (b) one-half of the award vests after one year and one-half vests after two years; (c) one-third of the award vests after two years 61 and two-thirds of the award vests after three years; (d) the full award vests at the end of a 2-year service period subsequent to the date of grant; or (e) for our non-employee Board members, all restricted stock awards are issued to vest on January 2 nd of the year following the year of the grant. Awards that contain both performance and service-based conditions require that the performance target be met during the required service period. Under the 2017 Plan, recipients of restricted stock units and performance stock units are entitled to receive dividend equivalents, based on dividends actually declared and paid, on the restricted stock units and performance stock units, and such dividend equivalents are subject to the same restrictions and risk of forfeiture as the restricted stock units and performance stock units. Dividends paid with respect to shares subject to the non-vested portion of a restricted stock award are also subject to the same restrictions and risk of forfeiture as the shares of restricted stock to which such dividends relate. Share-Settled Equity Awards The following table summarizes transactions for our restricted stock units and performance stock units: Number of Shares Weighted- Average Grant Date Fair Value Outstanding at January 30, 2021 513,016 $ 11.07 Granted 217,472 28.25 Vested ( 238,964 ) 15.50 Forfeited ( 34,486 ) 16.17 Outstanding at January 29, 2022 457,038 $ 16.54 The total fair value at grant date of restricted stock units and performance stock units that vested during fiscal 2021, 2020 and 2019 was $ 3.7 million, $ 4.4 million and $ 2.4 million, respectively. The weighted-average grant date fair value of restricted stock units and performance stock units granted during fiscal 2020 and fiscal 2019 was $ 7.48 and $ 15.65 , respectively. Restricted Stock Awards The following table summarizes transactions for our restricted stock and other stock awards: Number of Shares Weighted- Average Grant Date Fair Value Outstanding at January 30, 2021 0 $ 0.00 Granted 8,702 32.79 Vested ( 8,702 ) 32.79 Outstanding at January 29, 2022 0 $ 0.00 The total fair value at grant date of restricted stock and other stock awards that vested during fiscal 2021, 2020 and 2019 was $ 0.3 million , $ 1.6 million and $ 17.4 million, respectively. The weighted-average grant date fair value of restricted stock and other stock awards granted during fiscal 2020 and fiscal 2019 was $ 12.46 and $ 13.29 , respectively. Cash-Settled Stock Appreciation Rights Cash-settled SARs are granted to certain non-executive employees. Each SAR entitles holders, upon exercise of their vested shares, to receive cash in an amount equal to the closing price of our stock on the date of exercise less the exercise price, with a maximum amount of gain defined. The SARs granted during the first quarter of fiscal 2021 will vest and become fully exercisable on March 31, 2022 and any unexercised SARs will expire on March 31, 2024. The SARs issued in fiscal 2021 have a defined maximum gain of $ 5.00 over the exercise price of $ 30.94 . 62 SARs granted during the first quarter of fiscal 2020 vested and became fully exercisable on March 31, 2021 and have all been exercised. SARs granted during the first quarter of fiscal 2019 vested and became fully exercisable on March 31, 2020 and have all been exercised. The following table summarizes SARs activity: Number of Shares Weighted- Average Exercise Price Weighted- Average Remaining Contractual Term (Years) Outstanding at January 30, 2021 88,400 $ 7.61 Granted 93,800 30.94 Forfeited ( 9,000 ) 30.94 Exercised ( 88,400 ) 7.61 Outstanding at January 29, 2022 84,800 $ 30.94 2.2 The fair value of these liability awards are remeasured, using a trinomial lattice model, at each reporting period until the date of settlement. Increases or decreases in stock-based compensation expense are recognized over the vesting period, or immediately for vested awards. The weighted-average fair value of outstanding, non-vested SAR awards as of January 29, 2022 , was $ 2.87 . The fair value was estimated using a trinomial lattice model with the following assumptions: January 29, 2022 January 30, 2021 Risk free interest rate yield curve 0.04 %- 1.61 % 0.07 %- 0.45 % Expected dividend yield 0.8 % 0.8 % Expected volatility 63.31 % 63.11 % Maximum life 2.2 Years 2.1 Years Exercise multiple 1.03 1.29 Maximum payout $ 5.00 $ 5.00 Employee exit rate 2.2 % - 9.0 % 2.2 % - 9.0 % The risk-free interest rate was based on the U.S. Treasury yield curve in effect at the end of the reporting period. The expected dividend yield was based on our quarterly cash dividends, with the assumption that quarterly dividends would continue at that rate. Expected volatility was based on the historical volatility of our common stock. The exercise multiple and employee exit rate were based on historical data. Stock Purchase Plan In 1995, our Board of Directors and shareholders approved the Shoe Carnival, Inc. Employee Stock Purchase Plan (the “Stock Purchase Plan”). The Stock Purchase Plan reserves 450,000 shares of our common stock (subject to adjustment for any subsequent stock splits, stock dividends and certain other changes in our common stock) for issuance and sale to any employee who has been employed for more than a year at the beginning of the calendar year, and who is not a 10 % owner of our common stock, at 85 % of the then fair market value up to a maximum of $ 5,000 in any calendar year. Under the Stock Purchase Plan, 6,000 , 16,000 and 13,000 shares of common stock were purchased by plan participants and proceeds to us for the sale of those shares were approximately $ 159,000 , $ 195,000 and $ 182,000 for fiscal years 2021, 2020 and 2019, respectively. At January 29, 2022 , there were 118,000 shares of unissued common stock reserved for future purchase under the Stock Purchase Plan. Note 14 – Share Repurchase Program On December 16, 2021, our Board of Directors authorized a share repurchase program for up to $ 50 million of our outstanding common stock, effective January 1, 2022 (the “2022 Share Repurchase Program”). The purchases may be made in the open market or through privately negotiated transactions from time-to-time through December 31, 2022 and in accordance with applicable laws, rules and regulations. The 2022 Share Repurchase Program may be amended, 63 suspended or discontinued at any time and does not commit us to repurchase shares of our common stock. We have funded, and intend to continue to fund, the share repurchase program from cash on hand, and any shares acquired will be available for stock-based compensation awards and other corporate purposes. The actual number and value of the shares to be purchased will depend on the performance of our stock price and other market and economic factors, including impacts caused by the COVID-19 pandemic. The 2022 Share Repurchase Program replaced a $ 50 million share repurchase program that was authorized in December 2020, became effective January 1, 2021 and expired in accordance with its terms on December 31, 2021 . Shares totaling 208,662 were repurchased during fiscal 2021 at a cost of $ 7.1 million. No repurchases were made in fiscal 2020, and share repurchases pursuant to previously Board-approved share repurchase programs that have now expired were approximately 2,234,000 shares at an aggregate cost of $ 37.8 million in fiscal 2019. Share repurchases activity in fiscal 2021 and fiscal 2020 was impacted by the COVID-19 pandemic. Our credit facility in place at the end of fiscal 2021 stipulates that distributions in the form of redemptions of Equity Interests (as defined in the credit agreement) can be made solely with cash on hand so long as before and immediately after such distributions there are no revolving loans outstanding under the credit agreement. These restrictions have changed as a result of entering into the New Credit Agreement after our fiscal year end. See Note 9 – “Debt.” Note 15 – Business Risk Two branded suppliers, Nike, Inc. and Skechers USA, Inc., collectively accounted for approximately 39 % of our net sales in fiscal 2021 and approximately 43 % in fiscal 2020. Nike, Inc. accounted for approximately 28 % in fiscal 2021 and 33 % in fiscal 2020. Skechers USA, Inc. accounted for approximately 11 % in fiscal 2021 and 10 % in fiscal 2020. A loss of any of our key suppliers in certain product categories could have a material adverse effect on our business. As is common in the industry, we do not have any long-term contracts with suppliers. Note 16 – Litigation Matters The accounting standard related to loss contingencies provides guidance regarding our disclosure and recognition of loss contingencies, including pending claims, lawsuits, disputes with third parties, investigations and other actions that are incidental to the operation of our business. The guidance utilizes the following defined terms to describe the likelihood of a future loss: (1) probable – the future event or events are likely to occur, (2) remote – the chance of the future event or events is slight and (3) reasonably possible – the chance of the future event or events occurring is more than remote but less than likely. The guidance also contains certain requirements with respect to how we accrue for and disclose information concerning our loss contingencies. We accrue for a loss contingency when we conclude that the likelihood of a loss is probable and the amount of the loss can be reasonably estimated. When the reasonable estimate of the loss is within a range of amounts, and no amount in the range constitutes a better estimate than any other amount, we accrue for the amount at the low end of the range. We adjust our accruals from time to time as we receive additional information, but the loss we incur may be significantly greater than or less than the amount we have accrued. We disclose loss contingencies if there is at least a reasonable possibility that a loss has been incurred. No accrual or disclosure is required for losses that are remote. 64 From time to time, we are involved in certain legal proceedings in the ordinary course of conducting our business. While the outcome of any legal proceeding is uncertain, we do not currently expect that any such proceedings will have a material adverse effect on our consolidated balance sheets, statements of income, or cash flows. Note 17 – Subsequent Events On March 10, 2022 , the Board of Directors approved the payment of a cash dividend to our shareholders in the first quarter of fiscal 2022. The quarterly cash dividend of $ 0.09 per share will be paid on April 18, 2022 to shareholders of record as of the close of business on April 4, 2022 . The declaration and payment of any future dividends are at the discretion of the Board of Directors and will depend on our results of operations, financial condition, business conditions and other factors deemed relevant by our Board of Directors. See Note 9 - "Debt" regarding our amended and restated credit facility entered into on March 23, 2022. 65 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCO UNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None.