What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2022-08-31 compared with 2022-06-03 · 204 added, 129 removed, 421 unchanged (44% of the section changed)

3 unchanged sentences

(In thousands, except share data)

April 30, 2022

July 30, 2022

January 29, 2022

July 31, 2021

Current Assets:

32 unchanged sentences

(In thousands, except per share data)

April 30, 2022

July 30, 2022

July 31, 2021

July 30, 2022

July 31, 2021

Cost of sales (including buying, distribution

13 unchanged sentences

(In thousands, except per share data)

Balance at April 30, 2022

Dividends declared ($ 0.09 per share)

Employee stock purchase plan purchases

Stock-based compensation awards

Shares surrendered by employees to pay taxes

on stock-based compensation awards

Stock-based compensation expense

Balance at July 30, 2022

Balance at May 1, 2021

Dividends declared ($ 0.07 per share)

Employee stock purchase plan purchases

Stock-based compensation awards

Purchase of common stock for treasury

Stock-based compensation expense

Balance at July 31, 2021

Twenty-six Weeks Ended

(In thousands, except per share data)

Balance at January 29, 2022

6 unchanged sentences

Stock-based compensation expense

Balance at April 30, 2022

Balance at July 30, 2022

Balance at January 30, 2021

4 unchanged sentences

on stock-based compensation awards

Purchase of common stock for treasury

Stock-based compensation expense

Balance at May 1, 2021

Balance at July 31, 2021

See notes to Condensed Consolidated Financial Statements.

2 unchanged sentences

(In thousands)

April 30, 2022

July 30, 2022

July 31, 2021

Cash Flows From Operating Activities

52 unchanged sentences

The unaudited Condensed Consolidated Financial Statements should be read in conjunction with the audited Consolidated Financial Statements and the notes thereto contained in our Annual Report on Form 10-K for the fiscal year ended January 29, 2022 .

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;

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 in this quarterly report on Form 10-Q give effect to the stock split and have been adjusted retroactively for all periods presented.

Note 2 - Acquisition of Shoe Station

5 unchanged sentences

The results of Shoe Station are included in our condensed consolidated financial statements since the acquisition date.

Shoe Station bannered stores contributed Net sales of $ 27.2 million and $ 53.4 million in the thirteen and twenty-six weeks ended July 30, 2022, respectively.

We recorded a preliminary allocation of the purchase price to the assets acquired and liabilities assumed based on the estimated fair values as of December 3, 2021.

There were no material adjustments to our preliminary purchase price allocation recognized during the first quarter of fiscal 2022.

There were no material adjustments to our preliminary purchase price allocation recognized in year-to-date 2022.

The final determination of the fair values and related impacts will be completed as soon as practicable, and within the measurement period of up to one year from the acquisition date.

2 unchanged sentences

Thirteen Weeks Ended

April 30, 2022

July 30, 2022

July 31, 2021

(In thousands, except per share data)

6 unchanged sentences

shares and diluted net income per share

Twenty-six Weeks Ended

July 30, 2022

July 31, 2021

(In thousands, except per share data)

Basic Net Income per Share:

Net income available for basic common shares

and basic net income per share

Diluted Net Income per Share:

Conversion of stock-based compensation

Net income available for diluted common

shares and diluted net income per share

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.

The computation of diluted net income per share for the thirteen weeks ended April 30, 2022 excluded approximately 24,000 unvested stock-based awards that will be settled in shares because the impact would have been anti-dilutive.

During the thirteen weeks ended May 1, 2021, approximately 6,000 unvested stock-based awards that will be settled in shares were excluded from the computation of diluted net income per share because the impact would have been anti-dilutive.

The computation of diluted net income per share for the thirteen and twenty-six weeks ended July 30, 2022 excluded approximately 318,000 and 31,000 , respectively, of unvested stock-based awards that will be settled in shares because the impact would have been anti-dilutive.

No unvested stock-based awards that will be settled in shares were excluded from the computation of diluted net income per share for the thirteen and twenty-six weeks ended July 31, 2021.

Note 4 - Fair Value Measurements

The following table presents financial instruments that are measured at fair value on a recurring basis at April 30, 2022, January 29, 2022 and May 1, 2021:

The following table presents financial instruments that are measured at fair value on a recurring basis at July 30, 2022, January 29, 2022 and July 31, 2021:

Fair Value Measurements

(In thousands)

As of April 30, 2022

As of July 30, 2022

Cash equivalents - money market mutual funds

5 unchanged sentences

deferred compensation

As of May 1, 2021

As of July 31, 2021

Cash equivalents - money market mutual funds

Marketable securities - mutual funds that fund

deferred compensation

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 Condensed Consolidated Statements of Income associated with our non-qualified deferred compensation plan.

As of April 30, 2022, these marketable securities were principally invested in equity-based mutual funds, consistent with the allocation in our deferred compensation plan.

As of April 30, 2022, the balance in our deferred compensation plan was $ 10.5 million, of which $ 53,000 was in Accrued and other liabilities based on scheduled payments due within the next 12 months and the remaining balance was in Deferred compensation, a long-term liability.

As of July 30, 2022, these marketable securities were principally invested in equity-based mutual funds, consistent with the allocation in our deferred compensation plan.

As of July 30, 2022, the balance in our deferred compensation plan was $ 10.8 million, of which $ 42,000 was in Accrued and other liabilities based on scheduled payments due within the next 12 months and the remaining balance was in Deferred compensation, a long-term liability.

To the extent there are funds in excess of the total non-qualifi ed 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 $ 2.6 million related to equity securities still held at April 30, 2022.

We have recognized unrealized losses of $ 2.5 million related to equity securities still held at July 30, 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.

15 unchanged sentences

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.

During the thirteen weeks ended May 1, 2021, we recorded impairment charges of $ 724,000 associated with two stores.

These charges were included in selling, general and administrative expenses.

No impairment charges were recorded during the thirteen weeks ended April 30, 2022, and no impairments of operating right-of-use assets have been recorded in either period.

During the thirteen and twenty-six weeks ended July 31, 2021, we recorded impairment charges of $ 243,000 and $ 967,000 associated with one store and three stores, respectively.

These charges were inc luded in selling, general and administrative expenses.

No impairment charges were recorded during the thirteen and twenty-six weeks ended July 30, 2022, and no impairments of operating right-of-use assets have been recorded in any of these periods.

Note 5 - Stock-Based Compensation

Stock-based compensation includes share-settled awards issued pursuant to our 2017 Plan in the form of restricted stock units, performance stock units, and restricted and other stock awards.

Stock-based compensation includes share-settled awards issued pursuant to our 2017 Equity Incentive 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.

For the thirteen weeks ended April 30, 2022 and May 1, 2021, stock-based compensation expense was comprised of the following:

For the thirteen and twenty-six weeks ended July 30, 2022 and July 31, 2021, stock-based compensation expense was comprised of the following:

(In thousands)

Weeks Ended April 30, 2022

Weeks Ended May 1, 2021

July 30, 2022

July 31, 2021

July 30, 2022

July 31, 2021

Share-settled equity awards

4 unchanged sentences

Additional income tax benefit on vesting of share-settled awards

As of April 30, 2022 , approximately $ 11.4 million of unrecognized compensation expense remained related to our share-settled equity awards.

As of July 30, 2022 , approximately $ 10.5 million of unrecognized compensation expense remained related to our share-settled equity awards.

The cost is expected to be recognized over a weighted average period of approximately 1.6 years.

4 unchanged sentences

Outstanding at January 29, 2022

Outstanding at April 30, 2022

The total fair value at grant date of restricted stock units and performance stock units that vested during each of the thirteen weeks ended April 30, 2022 and May 1, 2021 was $ 3.1 million.

The weighted-average grant date fair value of restricted stock units and performance stock units granted during the thirteen weeks ended April 30, 2022 and May 1, 2021 was $ 30.52 and $ 28.21 , respectively.

Outstanding at July 30, 2022

The total fair value at grant date of restricted stock units and performance stock units that vested during the twenty-six weeks ended July 30, 2022 and July 31, 2021 was $ 3.2 million and $ 3.1 million, respectively.

The weighted-average grant date fair value of restricted stock units and performance stock units granted during the twenty-six weeks ended July 31, 2021 was $ 28.21 .

The following table summarizes transactions for our restricted stock and other stock awards:

Average Grant

Date Fair Value

Outstanding at January 29, 2022

Outstanding at July 30, 2022

No restricted stock and other stock awards vested during the twenty-six weeks ended July 30, 2022.

The total fair value at grant date of restricted stock and other stock awards that vested during the twenty-six weeks ended July 31, 2021 was $ 26,000 .

The weighted-average grant date fair value of restricted stock and other stock awards granted during the twenty-six weeks ended July 31, 2021 was $ 32.65 .

Note 6 –

1 unchanged sentence

Revenue is disaggregated by product category below.

Net sales and percentage of Net sales for the thirteen weeks ended April 30, 2022 and May 1, 2021 were as follows:

Net sales and percentage of Net sales for the thirteen and twenty-six weeks ended July 30, 2022 and July 31, 2021 were as follows:

(In thousands)

Thirteen Weeks

Ended April 30, 2022

Ended July 30, 2022

Thirteen Weeks

Ended May 1, 2021

Ended July 31, 2021

Non-Athletics:

3 unchanged sentences

Children’s

A ccounting Policy and Performance Obligations

(In thousands)

Twenty-six Weeks

Ended July 30, 2022

Twenty-six Weeks

Ended July 31, 2021

Non-Athletics:

Women’s

Children’s

Women’s

Children’s

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.

25 unchanged sentences

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 April 30, 2022, January 29, 2022 or May 1, 2021.

Unearned revenue related to Shoes 2U was not material to our consolidated financial statements at July 30, 2022, January 29, 2022 or July 31, 2021.

Returns and Refunds

1 unchanged sentence

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.

Approximately $ 884,000 of refund liabilities and $ 516,000 o f right of return assets associated with estimated product returns were recorded in Accrued and other liabilities as of April 30, 2022 and January 29, 2022.

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 at May 1, 2021.

The estimated cost of

merchandise inventory is recorded as a reduction to Cost of sales and an increase in Merchandise inventories.

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 at July 31, 2021.

Contract Liabilities

2 unchanged sentences

We do not record breakage revenue when escheat liability to relevant jurisdictions exists.

At April 30, 2022, January 29, 2022 and May 1, 2021, approxima tely $ 2.0 million, $ 2.3 million and $ 1.4 million of contract liabilities associated with unredeemed gift cards were recorded in Accrued and other liabilities, respectively.

At July 30, 2022, January 29, 2022 and July 31, 2021, approxima tely $ 2.0 million, $ 2.3 million and $ 1.5 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 of $ 59,000 and $ 42,000 was recognized in Net sales during the thirteen weeks ended April 30, 2022 and May 1, 2021, respectively.

Breakage revenue associated with our gift cards of $ 49,000 and $ 108,000 was recognized in Net sales during the thirteen and twenty-six weeks ended July 30, 2022, respectively.

Breakage revenue associated with our gift cards of $ 38,000 and $ 80,000 was recognized in Net sales during the thirteen and twenty-six weeks ended July 31, 2021, respectively.

Our Shoe Perks rewards program allows customers to accrue points and provides customers with the opportunity to earn rewards.

4 unchanged sentences

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.

During each of the thirteen weeks ended April 30, 2022 and May 1, 2021, approximately $ 1.3 million of loyalty rewards were recognized in Net sales.

At April 30, 2022, January 29, 2022 and May 1, 2021, approxi mately $ 849,000 , $ 852,000 and $ 1.1 million of contract liabilities associated with loyalty rewards were recorded in Accrued and other liabilities, respectively.

During the thirteen and twenty-six weeks ended July 30, 2022, approximately $ 1.3 million and $ 2.6 million, respectively, of loyalty rewards were recognized in Net sales.

During the thirteen and twenty-six weeks ended July 31, 2021, approximately $ 1.6 million and $ 2.9 million, respectively, of loyalty rewards were recognized in Net sales.

At July 30, 2022, January 29, 2022 and July 31, 2021, approxi mately $ 889,000 , $ 852,000 and $ 1.1 million of contract liabilities associated with loyalty rewards 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 in less than one year.

3 unchanged sentences

All of our leases are operating leases.

Leases with terms of twelve months or less are immaterial and are expensed as incurred, and we did not have any leases with related parties as of April 30, 2022.

Lease costs, including related common area maintenance (“CAM”), property taxes, and insurance, reported in our Condensed Consolidated Statements of Income were as follows for the thirteen weeks ended April 30, 2022 and May 1, 2021:

Leases with terms of twelve months or less are immaterial and are expensed as incurred, and we did not have any leases with related parties as of July 30, 2022.

Thirteen Weeks

1 unchanged sentence

(In thousands)

Ended April 30, 2022

Ended May 1, 2021

July 30, 2022

July 31, 2021

July 30, 2022

July 31, 2021

Operating lease cost

9 unchanged sentences

the duration and spread of the COVID-19 pandemic, mitigating efforts deployed, including the effects of government stimulus on consumer spending, and the pandemic’s overall impact on our operations, including our stores, supply chain and distribution processes, economic conditions, and financial market volatility;

our ability to operate the recently acquired Shoe Station assets, retain Shoe Station employees and achieve expected operating results and other benefits from the Shoe Station acquisition within expected time frames, or at all;

our ability to operate the recently acquired Shoe Station assets, retain Shoe Station employees and achieve expected operating results, synergies, and other benefits from the Shoe Station acquisition within expected time frames, or at all;

risks that the Shoe Station acquisition may disrupt our current plans and operations or negatively impact our relationship with our vendors and other suppliers;

27 unchanged sentences

future stock repurchases under our stock repurchase program and future dividend payments.

For a m ore detailed discussion of risk factors impacting us, see the “Risk Factors”

For a more detailed discussion of risk factors impacting us, see the “Risk Factors”

section of our Annual Report on Form 10-K for the fiscal year ended January 29, 2022.

1 unchanged sentence

We encourage you to read this in conjunction with our Condensed Consolidated Financial Statements and the notes thereto included in PART I, ITEM 1 of this Quarterly Report on Form 10-Q, as well as our Annual Report on Form 10-K for the fiscal year ended January 29, 2022 as filed with the SEC.

This section of this Quarterly Report on Form 10-Q generally discusses the first quarter 2022 and the first quarter 2021 and year-over-year comparisons between the first quarter 2022 and the first quarter 2021.

However, given the significant impact of the COVID-19 pandemic on our fiscal 2021 and fiscal 2020 results, we have included certain comparisons in this MD&A between the first quarter 2022 and the first quarter 2019 to provide further context regarding our first quarter 2022 results of operations.

Referred to herein the first quarter 2022 is the thirteen weeks ended April 30, 2022;

the first quarter 2021 is the thirteen weeks ended May 1, 2021;

the first quarter 2020 is the thirteen weeks ended May 2, 2020;

and the first quarter 2019 is the thirteen weeks ended May 4, 2019.

This section of this Quarterly Report on Form 10-Q generally discusses our results for the second quarter 2022 and the second quarter 2021 and year-over-year comparisons between the second quarter 2022 and the second quarter 2021, as well as year-to-date results between the two periods.

However, given the significant impact of the COVID-19 pandemic on our fiscal 2021 and fiscal 2020 results, we have included certain comparisons in this MD&A between the second quarter 2022 and the second quarter 2019 and respective year-to-date periods to provide further context regarding our second quarter and year-to-date 2022 results of operations.

Referred to herein, the second quarter 2022 is the thirteen weeks ended July 30, 2022;

the second quarter 2021 is the thirteen weeks ended July 31, 2021;

and the second quarter 2019 is the thirteen weeks ended August 3, 2019.

Also referred to herein, year-to-date 2022 is the twenty-six weeks ended July 30, 2022;

year-to-date 2021 is the twenty-six weeks ended July 31, 2021;

and year-to-date 2019 is the twenty-six weeks ended August 3, 2019.

Overview of Our Business

2 unchanged sentences

After our acquisition of the physical stores and substantially all of the assets and liabilities of Shoe Station, Inc.

("Shoe Station") on December 3, 2021, we began operating under two banners:

on December 3, 2021, we began operating under two banners:

Shoe Carnival and Shoe Station.

32 unchanged sentences

April 30, 2022

July 30, 2022

July 31, 2021

(1) Comparable store sales is a key performance indicator for us.

6 unchanged sentences

The following table sets forth our results of operations expressed as a percentage of Net sales for the periods indicated:

April 30, 2022

July 30, 2022

July 31, 2021

July 30, 2022

July 31, 2021

Cost of sales (including buying, distribution and

4 unchanged sentences

Income tax expense

The shares outstanding and net income per share information for the first quarter of 2021 throughout this MD&A has been adjusted retroactively 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 1 —

“Basis of Presentation”

to our Notes to Condensed Consolidated Financial Statements contained in PART I, ITEM 1 of this Quarterly Report on Form 10-Q for additional information on the stock split.

Executive Summary for the First Fiscal Quarter Ended April 30, 2022

During the first quarter 2022, our customers shopped for footwear without the pandemic-related government stimulus received in 2021 and without the pandemic-related retail store closures experienced in 2020.

Our customers returned to a more normal, pre-pandemic shopping pattern, with the mix of sales being more balanced between the athletic and non-athletic categories.

Our first quarter 2022 results demonstrated the structural profit transformation and increased scale our strategic plans have achieved compared to pre-pandemic results.

This quarter we continued to achieve gross profit margins in the mid-thirties, double-digit operating income margin and trailing twelve-month store productivity above $300 per square foot, despite the current economic headwinds and continuing global uncertainty.

For the first quarter 2022, diluted net income per share was $0.95, the second highest first quarter in our history and only surpassed by the stimulus-enhanced first quarter 2021.

The $0.95 per share earned was more than double the amount earned pre-pandemic in the first quarter 2019.

Net sales in the first quarter 2022 were $317.5 million.

Excluding the stimulus-enhanced first quarter 2021, the first quarter 2022 net sales were also the highest in our history, surpassing any other first quarter by more than 20%.

As an indicator of the strength of our first quarter 2022 results against the pre-pandemic first quarter 2019, net sales increased 25.1% and comparable store sales increased 16.8%.

Our physical store comparable store sales increased 9.1% and e-commerce net sales increased 154.4%.

Our first quarter 2022 results were positively impacted by growth in our customer base and the transformation of our gross profit margin.

During the quarter, we surpassed 29 million Shoe Perks loyalty program members, representing an increase in new customers of 10% compared to the first quarter 2021 and growth of over 25% compared to the first quarter 2019.

Gross profit margin during the first quarter 2022 was 35.5%, a near 600 basis point increase compared to the first quarter 2019, driven primarily by changes to our customer relationship management and promotional strategies, offset by increased transportation and fuel costs.

Compared to the stimulus-enhanced first quarter 2021, net sales were down 3.3% and comparable store sales declined 10.6%.

These results compared to a net sales increase of 122.7% and a comparable store sales increase of 125.8% in the first quarter 2021 compared to the first quarter 2020 when our stores were closed for about half of the quarter.

Due to the current global supply chain issues and inflation, we incurred significantly higher transportation and fuel costs in the first quarter 2022 compared to the first quarter 2021, which reduced our merchandise margin by 150 basis points and increased our distribution costs by 190 basis points.

Excluding the 150 basis point increase in transportation and fuel costs, our merchandise margin would have increased in the first quarter 2022 compared to the first quarter 2021.

Also compared to the first quarter 2021, these additional costs decreased our diluted net income per share by $0.29.

We ended the first quarter 2022 with inventory of $345.0 million, an increase of $76.4 million compared to the first quarter 2021, or 22.6% on a per store basis.

The majority of the increase was due to accelerated receipts of merchandise in an effort to mitigate supply chain issues for the back-to-school shopping period, and approximately 40% of the increase was due to the addition of Shoe Station stores.

We had no borrowings outstanding under our credit facility, which was amended and restated during the first quarter 2022, and we ended the first quarter 2022 with $97.1 million of cash, cash equivalents and marketable securities.

Executive Summary for the Second Quarter Ended July 30, 2022

For the second quarter 2022, diluted net income per share was $1.04, the second highest second quarter in our history and only surpassed by the second quarter 2021.

The $1.04 per diluted share earned was more than double the amount earned pre-pandemic in the second quarter 2019, and the $1.99 per share earned year-to-date 2022 is greater than any full year earnings in our 44 years of operation except for last year.

Net sales in the second quarter 2022 were $312.3 million and were also the highest second quarter Net sales in our history except for last year.

In a challenging economic environment, our second quarter 2022 Net sales increased 16.4% and comparable store sales increased 8.0% compared to the pre-pandemic second quarter 2019.

Our physical store comparable store sales increased 4.2% and e-commerce Net sales increased 75.3% compared to second quarter 2019.

Our second quarter 2022 results were positively impacted by sustained higher gross profit margin compared to pre-pandemic results, new growth provided from the Shoe Station acquisition and growth in our customer base.

Gross profit margin during the second quarter 2022 was 36.2%, a 560 basis point increase compared to the second quarter 2019, due primarily to enhancements to our customer relationship management capabilities and promotional strategies which increased average selling prices.

This was the primary driver for the comparable store sales increase and was partially offset by increased transportation and fuel costs.

Shoe Station bannered stores contributed Net sales of $27.2 million in the quarter and $53.4 million year-to-date.

During the quarter we continued growing our Shoe Perks loyalty program members.

The 29.7 million Shoe Perks members as of July 30, 2022 represented an increase in new customers of 6.9% compared to the second quarter 2021 and 28.0% compared to the second quarter 2019.

Compared to the second quarter 2021, Net sales were down 6.0% and comparable store sales declined 13.8% due to lower traffic and sales volume.

This decrease was due primarily to fluctuations in our customer base's discretionary income as impacted by government stimulus in 2021 and inflation in 2022 and continued COVID-19-related manufacturing and supply chain disruptions decreasing the availability of athletic inventory in 2022.

Lower athletic inventory levels contributed to the decrease in comparable store athletic sales in the quarter.

Comparable store athletic sales were down 25.6% compared to 2021 and down 12.9% compared to 2019.

On a comparable store basis, non-athletic sales decreased 1.9% compared to 2021 and increased 30.8% compared to 2019.

Net sales attributed to athletic sales were 40% in the second quarter 2022, compared to 47% in the second quarter 2021 and 50% in the second quarter 2019.

We also incurred higher transportation and fuel costs in the second quarter 2022 compared to the second quarter 2021 and the second quarter 2019.

The higher transportation and fuel costs reduced our gross profit margin by 270 basis points compared to the second quarter 2021 and by 300 basis points compared to the second quarter 2019.

We ended the second quarter 2022 with Inventory of $385.5 million, an increase of $48.6 million over the second quarter 2019.

Approximately 59% of the increase is inventory for the Shoe Station stores acquired last year or opened this year.

The 14.4% increase in Inventory is supportive of the 20.6% increase in Net sales year-to-date 2022 compared to year-to-date 2019 and the expectation of increases in Net sales compared to 2019 for the remainder of the fiscal year.

We had no borrowings outstanding under our credit facility, which was amended and restated during the first quarter 2022, and we ended the second quarter 2022 with $62.6 million of cash, cash equivalents and marketable securities.

Our new credit facility expires on March 23, 2027.

We are currently in the process of modernizing our stores and plan to have over 50% of our stores modernized by the summer of 2023 and the full program complete by the end of fiscal 2024.

Through the first quarter 2022, 31% of the fleet is complete.

Two new stores were opened in the first quarter 2022 and no stores were closed.

We aim to open approximately 10 new stores in fiscal 2022 and expect no store closures and for store count to exceed 400 stores by the end of fiscal 2022.

Results of Operations for the First Quarter Ended April 30, 2022 Compared to the First Quarter Ended May 1, 2021

Net sales were $317.5 million during the first quarter 2022 and decreased 3.3% compared to the first quarter 2021.

The change in net sales was primarily a result of a 10.6% comparable store sales decline due primarily to the impact of government stimulus dollars in the first quarter 2021 offset by revenues attributable to new stores, including the Shoe Station stores.

E-commerce sales were approximately 11% of merchandise sales in the first quarter 2022, compared to 12% in the first quarter 2021.

Gross profit was $112.9 million during the first quarter 2022, a decrease of $17.3 million compared to the first quarter 2021.

Gross profit margin in the first quarter 2022 was 35.5% compared to 39.6% in the first quarter 2021.

Merchandise margin decreased 1.3% and buying, distribution and occupancy costs increased 2.8% as a percentage of net sales compared to the first quarter 2021.

The changes were primarily a result of inflation on transportation and fuel costs in the first quarter 2022.

Two new stores were opened in year-to-date 2022 and no stores were closed.

Store count is on track to reach 400 stores by the end of fiscal 2022.

No store closures during fiscal 2022 are anticipated.

Results of Operations for the Second Quarter Ended July 30, 2022 Compared to the Second Quarter Ended July 31, 2021

Net sales were $312.3 million during the second quarter 2022 and decreased 6.0% compared to the second quarter 2021.

The decrease in Net sales was primarily the result of a 13.8% comparable store sales decline due largely to fluctuations in the discretionary income of our customer base and reduced availability of athletic shoes in the second quarter 2022, partially offset by Net sales attributable to new stores, mostly the Shoe Station stores.

E-commerce sales were approximately 9% of merchandise sales in the second quarter 2022, compared to 10% in the second quarter 2021.

Gross profit was $113.1 million during the second quarter 2022, a decrease of $22.6 million compared to the second quarter 2021.

Gross profit margin in the second quarter 2022 was 36.2% compared to 40.9% in the second quarter 2021.

Merchandise margin decreased 2.8 percentage points and buying, distribution and occupancy costs increased 1.8 percentage points as a percentage of Net sales compared to the second quarter 2021.

These changes were primarily the result of the impact of inflation on transportation and fuel costs, other merchandise cost increases and the de-leveraging of other buying, distribution and occupancy costs due to lower Net sales in the second quarter 2022.

Selling, General and Administrative Expenses (“SG&A”)

SG&A increased $4.9 million in the first quarter 2022 to $77.5 million compared to $72.6 million in the first quarter 2021.

The overall increase in SG&A during the first quarter 2022 was primarily attributable to continued investment in advertising and store level wages, partially offset by lower levels of incentive compensation.

As a percentage of net sales, SG&A was 24.4% in the first quarter 2022 compared to 22.1% in the first quarter 2021.

The effective income tax rate for the first quarter 2022 was 23.8% compared to 24.8% for the first quarter 2021.

SG&A decreased $1.7 million in the second quarter 2022 to $74.3 million compared to $76.0 million in the second quarter 2021.

The decrease was primarily attributable to reduced incentive compensation expense as a result of maximum performance achieved last year, partially offset by increased depreciation expense resulting from investment in property and equipment related to our store portfolio modernization plan.

As a percentage of Net sales, SG&A was 23.8% in the second quarter 2022 compared to 22.9% in the second quarter 2021.

The effective income tax rate for the second quarter 2022 was 25.6% compared to 25.8% for the second quarter 2021.

Our provision for income taxes is based on the current estimate of our annual effective tax rate and is adjusted as necessary for quarterly events.

The lower quarterly effective tax rate was primarily due to a lower level of expected non-deductible compensation in fiscal 2022.

For the full 2022 fiscal year, we expect our tax rate to be between 25% and 26% compared to the 25.3% effective tax rate recognized during the full 2021 fiscal year.

Results of Operations Year-to-Date Through July 30, 2022 Compared to Year-to-Date Through July 31, 2021

Net sales were $629.8 million in year-to-date 2022, a decrease of 4.7% compared to year-to-date 2021.

The decrease in Net sales was primarily the result of a 12.2% comparable store sales decline due largely to fluctuations in the discretionary income of our customer base and reduced availability of athletic shoes in year-to-date 2022, partially offset by Net sales attributable to new stores, mostly the Shoe Station stores.

E-commerce sales were approximately 10% of merchandise sales in year-to-date 2022, compared to 11% in year-to-date 2021.

Gross profit was $226.0 million in year-to-date 2022, a decrease of $39.9 million compared to year-to-date 2021.

Gross profit margin in year-to-date 2022 was 35.9% compared to 40.3% in year-to-date 2021.

Merchandise margin decreased 2.0 percentage points and buying, distribution and occupancy costs increased 2.4 percentage points as a percentage of Net sales compared to year-to-date 2021.

Selling, General and Administrative Expenses

SG&A increased $3.2 million in year-to-date 2022 to $151.8 million compared to $148.6 million in year-to-date 2021.

The overall increase in SG&A during year-to-date 2022 was primarily attributable to continued investment in store level wages and advertising and increased depreciation resulting from investment in property and equipment related to our store portfolio modernization plan.

The increases were partially offset by lower levels of incentive compensation.

As a percentage of Net sales, SG&A was 24.1% in year-to-date 2022 compared to 22.5% in year-to-date 2021.

The effective income tax rate for year-to-date 2022 was 24.8% compared to 25.3% for year-to-date 2021.

Liquidity and Capital Resources

Our primary sources of liquidity are $97.1 million of cash, cash equivalents and marketable securities on hand at the end of the first quarter 2022, cash generated from operations and availability under our $100 million credit facility.

Our primary sources of liquidity are $62.6 million of cash, cash equivalents and marketable securities on hand at the end of the second quarter 2022, cash generated from operations and availability under our $100 million credit facility.

While the effects of the COVID-19 pandemic and other economic uncertainty associated with inflation, constrained supply chains and the Eastern European conflict, among other macroeconomic uncertainty, make our operating cash flow less predictable, we believe our resources will be sufficient to fund our cash needs, as they arise, for at least the next 12 months.

2 unchanged sentences

Cash Flow - Operating Activities

Net cash generated from operating activities was $17.7 million in the first quarter 2022 compared to $76.5 million during the first quarter 2021.

The change in operating cash flow was primarily driven by increased earnings in the first quarter 2021 and timing of inventory purchases.

Working capital increased on a year-over-year basis and totaled $271.8 million at April 30, 2022 compared to $262.3 million at May 1, 2021.

The increase was primarily attributable to higher merchandise inventory levels offset by lower cash balances due to the acquisition of Shoe Station and share repurchases.

Our current ratio was 2.4 as of April 30, 2022 compared to 2.3 as of May 1, 2021.

Net cash generated from operating activities was $8.9 million in year-to-date 2022 compared to $79.8 million during year-to-date 2021.

The change in operating cash flow was primarily driven by increased earnings in year-to-date 2021 and timing of inventory purchases.

Working capital decreased on a year-over-year basis and totaled $287.7 million at July 30, 2022 compared to $298.7 million at July 31, 2021.

The decrease was primarily attributable to lower cash balances due to the acquisition of Shoe Station in December 2021 and share repurchases, partially offset by higher merchandise inventory levels.

Our current ratio was 2.5 as of July 30, 2022 and July 31, 2021.

Cash Flow –

1 unchanged sentence

Our cash outflows for investing activities are normally for capital expenditures.

During the first quarters of 2022 and 2021, we expended $26.9 million and $4.1 million, respectively, for the purchase of property and equipment, primarily related to our store portfolio modernization plan.

During year-to-date 2022 and 2021, we expended $50.2 million and $12.1 million, respectively, for the purchase of property and equipment, primarily related to our store portfolio modernization plan.

We invest in publicly traded mutual funds designed to mitigate income statement volatility associated with our nonqualified deferred compensation plan.

The balance of these marketable securities was $11.0 million at April 30, 2022.

The balance of these marketable securities was $11.0 million at July 30, 2022.

Additional information can be found in Note 4 —

6 unchanged sentences

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 the first quarter 2022, net cash used in financing activities was $25.1 million compared to $4.3 million during the first quarter 2021.

The increase in net cash used in financing activities was primarily due to the repurchase of $20.5 million of shares in the first quarter 2022 associated with our Board of Directors’

During year-to-date 2022, net cash used in financing activities was $27.6 million compared to $10.3 million during year-to-date 2021.

The increase in net cash used in financing activities was primarily due to the repurchase of $20.5 million of shares in year-to-date 2022, compared to the repurchase of $4.0 million of shares in year-to-date 2021, associated with our Board of Directors’

authorized share repurchase program .

Capital Expenditures

Capital expenditures for fiscal 2022, including actual expenditures in the first quarter 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 e-commerce platform, various other store improvements, continued investments in technology and normal asset replacement activities.

Capital expenditures for fiscal 2022, including actual expenditures in year-to-date 2022, are expected to be between $63 million and $73 million, with approximately $53 million to $58 million to be used for new stores, relocations and remodels and approximately $10

million to $15 million for upgrades to our 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 COVID-19, ongoing supply chain disruptions, and other macroeconomic uncertainty.

2 unchanged sentences

Store Portfolio

We opened one Shoe Carnival branded store and one Shoe Station branded store in the first quarter 2022.

We opened one Shoe Carnival branded store and one Shoe Station branded store in year-to-date 2022.

Increasing market penetration by adding new stores is a key component of our growth strategy.

Through a combination of both organic and acquired store growth, we aim to add approximately 10 new stores in fiscal 2022, over 20 new stores in fiscal 2023, and over 25 new stores annually by fiscal 2024, across both banners.

We are on track to achieve 400 stores by the end of fiscal 2022 and aim to add over 20 new stores in fiscal 2023 and over 25 new stores annually by fiscal 2024, across both banners.

These store objectives will be accomplished through a combination of both organic and acquired store growth.

We believe our current store footprint provides for growth in new markets within the United States as well as fill-in opportunities within existing markets.

9 unchanged sentences

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.

We were in compliance with these covenants as of April 30, 2022.

We were in compliance with these covenants as of July 30, 2022.

The New Credit Agreement contains certain restrictions.

However, as long as our consolidated EBITDA is positive and there are either no or low borrowings outstanding, we expect these restrictions would have no impact on our ability pay cash dividends, execute share

repurchases or facilitate acquisitions from cash on hand.

However, as long as our consolidated EBITDA is positive and there are either no or low borrowings outstanding, we expect these restrictions would have no impact on our ability to pay cash dividends, execute share repurchases or facilitate acquisitions from cash on hand.

The New Credit Agreement stipulates 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.

3 unchanged sentences

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’

During the first quarter 2022, we did not borrow or repay funds under our prior credit facility or the New Credit Agreement.

Letters of credit outstanding were $700,000 at April 30, 2022 and our borrowing capacity was $99.3 million.

During year-to-date 2022, we did not borrow or repay funds under our prior credit facility or the New Credit Agreement.

Letters of credit outstanding were $700,000 at July 30, 2022 and our borrowing capacity was $99.3 million.

The terms “net worth”, “consolidated interest coverage ratio”, “consolidated funded indebtedness”, “consolidated rental expense”, “consolidated EBITDA”, “base rate”

1 unchanged sentence

are defined in the New Credit Agreement.

On March 10, 2022, the Board of Directors approved the payment of a first quarter 2022 cash dividend to our shareholders.

The quarterly cash dividend of $0.090 per share was paid on April 18, 2022 to shareholders of record as of the close of business on April 4, 2022.

In the first quarter 2021, the dividend paid was $0.070 per share.

During the first quarters of 2022 and 2021, we returned $2.6 million and $2.1 million, respectively, to our shareholders through our quarterly cash dividends.

On June 23, 2022, the Board of Directors approved the payment of a second quarter 2022 cash dividend to our shareholders.

The quarterly cash dividend of $0.090 per share was paid on July 25, 2022 to shareholders of record as of the close of business on July 11, 2022.

In the second quarter 2021, the dividend paid was $0.070 per share.

During the first half of 2022 and 2021, we returned $5.1 million and $4.0 million, respectively, to our shareholders through our quarterly cash 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, financial condition, business conditions and other factors deemed relevant by our Board of Directors, subject to restrictions as outlined above in the “Credit Facility”

11 unchanged sentences

to our Notes to Consolidated Financial Statements contained in PART II, ITEM 8 of our Annual Report on Form 10-K for the fiscal year ended January 29, 2022 for a further discussion of our credit facility.

During the first quarter 2022, we repurchased 682,886 shares of common stock at a total cost of $20.5 million under the 2022 Share Repurchase Program.

As of April 30, 2022, we had $29.5 million available for future repurchases.

Due to uncertainty related to the COVID-19 pandemic, share repurchases were limited in fiscal 2021 and no repurchases were made in the first quarter 2021.

No shares were repurchased during the second quarter of 2022 under the 2022 Share Repurchase Program.

During year-to-date 2022, we repurchased 682,886 shares of common stock at a total cost of $20.5 million under the 2022 Share Repurchase Program.

As of July 30, 2022, we had $29.5 million available for future repurchases.

Due to uncertainty related to the COVID-19 pandemic, share repurchases were limited in fiscal 2021.

In year-to-date 2021, we repurchased 117,068 shares of common stock at a total cost of $4.0 million.

We have three distinct peak selling periods:

6 unchanged sentences

We do not use interest rate derivative instruments to manage exposure to changes in market interest rates.

We had no borrowings outstanding during the first quarter 2022.

We had no borrowings outstanding during the second quarter 2022.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements