What changed in this filing

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Item 1. Financial Statements

2022-12-02 compared with 2022-08-31 · 173 added, 160 removed, 465 unchanged (42% of the section changed)

3 unchanged sentences

(In thousands, except share data)

July 30, 2022

October 29, 2022

January 29, 2022

July 31, 2021

October 30, 2021

Current Assets:

32 unchanged sentences

(In thousands, except per share data)

July 30, 2022

July 31, 2021

July 30, 2022

July 31, 2021

October 29, 2022

October 30, 2021

October 29, 2022

October 30, 2021

Cost of sales (including buying, distribution

13 unchanged sentences

(In thousands, except per share data)

Balance at April 30, 2022

Balance at July 30, 2022

Dividends declared ($ 0.09 per share)

3 unchanged sentences

on stock-based compensation awards

Purchase of common stock for treasury

Stock-based compensation expense

Balance at October 29, 2022

Balance at July 31, 2021

Balance at May 1, 2021

Dividends declared ($ 0.07 per share)

1 unchanged sentence

Stock-based compensation awards

Shares surrendered by employees to pay taxes

on stock-based compensation awards

Purchase of common stock for treasury

Stock-based compensation expense

Balance at July 31, 2021

Twenty-six Weeks Ended

Balance at October 30, 2021

Thirty-nine Weeks Ended

(In thousands, except per share data)

7 unchanged sentences

Stock-based compensation expense

Balance at July 30, 2022

Balance at October 29, 2022

Balance at January 30, 2021

6 unchanged sentences

Stock-based compensation expense

Balance at July 31, 2021

Balance at October 30, 2021

See notes to Condensed Consolidated Financial Statements.

2 unchanged sentences

(In thousands)

July 30, 2022

July 31, 2021

October 29, 2022

October 30, 2021

Cash Flows From Operating Activities

3 unchanged sentences

Stock-based compensation

Loss on retirement and impairment of assets, net

(Gain)/loss on retirement and impairment of assets, net

Deferred income taxes

8 unchanged sentences

Purchases of property and equipment

Investments in marketable securities and other

Sales of marketable securities and other

Investments in marketable securities

Sales of marketable securities

Net cash used in investing activities

23 unchanged sentences

We are an Indiana corporation that was initially formed in Delaware in 1993 and reincorporated in Indiana in 1996.

References to “Shoe Carnival,”

“we,”

References to “we,”

“us,”

11 unchanged sentences

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 currently 22 locations in 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.

Shoe Station was one of the nation's largest independent shoe retailers prior to the acquisition, and had 22 locations in Alabama, Florida, Georgia, Mississippi and Louisiana as of October 29, 2022.

We believe the addition of a new brand and new retail locations to our 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 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.

Shoe Station bannered stores contributed Net Sales of $ 22.2 million and $ 75.6 million in the thirteen and thirty-nine weeks ended October 29, 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.

4 unchanged sentences

Thirteen Weeks Ended

July 30, 2022

July 31, 2021

October 29, 2022

October 30, 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

Thirty-nine Weeks Ended

October 29, 2022

October 30, 2021

(In thousands, except per share data)

8 unchanged sentences

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 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.

The computation of diluted net income per share for the thirteen and thirty-nine weeks ended October 29, 2022 excluded approximately 290,000 and 253,000 , 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 thirty-nine weeks ended October 30, 2021.

Note 4 - Fair Value Measurements

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:

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

Fair Value Measurements

(In thousands)

As of July 30, 2022

As of October 29, 2022

Cash equivalents - money market mutual funds

5 unchanged sentences

deferred compensation

As of July 31, 2021

As of October 30, 2021

Cash equivalents - money market mutual funds

3 unchanged sentences

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 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.

As of October 29, 2022, these marketable securities were principally invested in equity-based mutual funds, consistent with the allocation in our deferred compensation plan.

As of October 29, 2022, the balance in our deferred compensation plan was $ 10.4 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.

To the extent there is a variation in invested funds compared to the total non-qualifi ed deferred compensation plan liability, such fund variance is 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 $ 2.5 million related to equity securities still held at July 30, 2022.

We have recognized unrealized losses of $ 3.2 million related to equity securities still held at October 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.

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 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.

During the thirteen and thirty-nine weeks ended October 30, 2021, we recorded impairment charges of $ 15,000 and $ 983,000 associated with one store and four 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.

No impairment charges were recorded during the thirteen and thirty-nine weeks ended October 29, 2022, and no impairments of operating right-of-use assets have been recorded in any of these periods.

Note 5 - Stock-Based Compensation

1 unchanged sentence

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

For the thirteen and thirty-nine weeks ended October 29, 2022 and October 30, 2021, stock-based compensation expense was comprised of the following:

(In thousands)

July 30, 2022

July 31, 2021

July 30, 2022

July 31, 2021

October 29, 2022

October 30, 2021

October 29, 2022

October 30, 2021

Share-settled equity awards

4 unchanged sentences

Additional income tax benefit on vesting of share-settled awards

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

As of October 29, 2022 , approximately $ 9.3 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 1.4 years.

4 unchanged sentences

Outstanding at January 29, 2022

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 .

Outstanding at October 29, 2022

The total fair value at grant date of restricted stock units and performance stock units that vested during the thirty-nine weeks ended October 29, 2022 and October 30, 2021 was $ 3.3 million and $ 3.7 million, respectively.

The weighted-average grant date fair value of restricted stock units and performance stock units granted during the thirty-nine weeks ended October 30, 2021 was $ 28.21 .

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

2 unchanged sentences

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 .

Outstanding at October 29, 2022

No restricted stock and other stock awards vested during the thirty-nine weeks ended October 29, 2022.

The total fair value at grant date of restricted stock and other stock awards that vested during the thirty-nine weeks ended October 30, 2021 was $ 26,000 .

The weighted-average grant date fair value of restricted stock and other stock awards granted during the thirty-nine weeks ended October 30, 2021 was $ 32.79 .

Note 6 –

1 unchanged sentence

Revenue is disaggregated by product category below.

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:

Net Sales and percentage of Net Sales for the thirteen and thirty-nine weeks ended October 29, 2022 and October 30, 2021 were as follows:

(In thousands)

Thirteen Weeks

Ended July 30, 2022

Ended October 29, 2022

Thirteen Weeks

Ended July 31, 2021

Ended October 30, 2021

Non-Athletics:

4 unchanged sentences

(In thousands)

Twenty-six Weeks

Ended July 30, 2022

Twenty-six Weeks

Ended July 31, 2021

Thirty-nine Weeks

Ended October 29, 2022

Thirty-nine Weeks

Ended October 30, 2021

Non-Athletics:

31 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 July 30, 2022, January 29, 2022 or July 31, 2021.

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

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 October 29, 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 October 30, 2021.

Contract Liabilities

2 unchanged sentences

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

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.

At October 29, 2022, January 29, 2022 and October 30, 2021, approxima tely $ 1.8 million, $ 2.3 million and $ 1.4 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 $ 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.

Breakage revenue associated with our gift cards of $ 54,000 and $ 162,000 was recognized in Net Sales during the thirteen and thirty-nine weeks ended October 29, 2022, respectively.

Breakage revenue associated with our gift cards of $ 41,000 and $ 121,000 was recognized in Net Sales during the thirteen and thirty-nine weeks ended October 30, 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 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.

During the thirteen and thirty-nine weeks ended October 29, 2022, approximately $ 1.5 million and $ 4.1 million, respectively, of loyalty rewards were recognized in Net Sales.

During the thirteen and thirty-nine weeks ended October 30, 2021, approximately $ 1.7 million and $ 4.5 million, respectively, of loyalty rewards were recognized in Net Sales.

At October 29, 2022, January 29, 2022 and October 30, 2021, approxi mately $ 949,000 , $ 852,000 and $ 1.0 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 July 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 and twenty-six weeks ended July 30, 2022 and July 31, 2021:

Thirteen Weeks

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 October 29, 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 and thirty-nine weeks ended October 29, 2022 and October 30, 2021:

(In thousands)

July 30, 2022

July 31, 2021

July 30, 2022

July 31, 2021

October 29, 2022

October 30, 2021

October 29, 2022

October 30, 2021

Operating lease cost

43 unchanged sentences

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 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.

This section of this Quarterly Report on Form 10-Q generally discusses our results for third quarter 2022 and third quarter 2021 and year-over-year comparisons between third quarter 2022 and third 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 third quarter 2022 and the third quarter 2019 and respective year-to-date periods to provide further context regarding our third quarter and year-to-date 2022 results of operations.

Referred to herein, third quarter 2022 is the thirteen weeks ended October 29, 2022;

third quarter 2021 is the thirteen weeks ended October 30, 2021;

third quarter 2020 is the thirteen weeks ended October 31, 2020;

and third quarter 2019 is the thirteen weeks ended November 2, 2019.

Also referred to herein, year-to-date 2022 is the thirty-nine weeks ended October 29, 2022;

year-to-date 2021 is the thirty-nine weeks ended October 30, 2021;

year-to-date 2020 is the thirty-nine weeks ended October 31, 2020;

and year-to-date 2019 is the thirty-nine weeks ended November 2, 2019.

Overview of Our Business

38 unchanged sentences

July 30, 2022

October 29, 2022

July 31, 2021

October 30, 2021

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

3 unchanged sentences

In addition, sales related to any Shoe Carnival bannered physical stores recently opened or closed are not included in comparable store sales.

We do include e-commerce sales sold using the Shoe Carnival brand in our comparable store sales as a result of our omnichannel retailer strategy.

We do include e-commerce sales sold using the Shoe Carnival brand in our comparable

store sales as a result of our omnichannel retailer strategy.

We view these e-commerce sales as an extension of our physical stores.

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

July 30, 2022

July 31, 2021

July 30, 2022

July 31, 2021

October 29, 2022

October 30, 2021

October 29, 2022

October 30, 2021

Cost of sales (including buying, distribution and

4 unchanged sentences

Income tax expense

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.

Executive Summary for Third Quarter Ended October 29, 2022

For third quarter 2022, diluted net income per share was $1.18, the second highest third quarter in our history and only surpassed by third quarter 2021.

Our diluted net income per share in 2022 has sequentially grown from $0.95 in the first quarter to $1.04 in the second quarter and $1.18 this quarter, representing growth compared to 2019 quarterly results of 107%, 160% and 151%, respectively.

The $3.17 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 third quarter 2022 were $341.7 million and were the second highest of any quarter in our history, again only exceeded by third quarter 2021.

In a challenging economic environment, our third quarter 2022 Net Sales increased 24.4% and comparable store sales increased 18.3% compared to the pre-pandemic third quarter 2019.

Our physical store comparable store sales increased 13.5% and e-commerce Net Sales increased 102.9% compared to third quarter 2019.

Our third quarter 2022 and year-to-date 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 Shoe Perks loyalty member program.

More detail on each of these factors follows:

Gross profit margin during third quarter 2022 was 38.3%, a 740 basis point increase compared to third quarter 2019.

This increase was due primarily to enhancements to our customer relationship management capabilities and promotional strategies, partially offset by increased distribution and freight costs, which reduced gross profit margin compared to third quarter 2019 by 260 basis points.

Less promotional intensity resulted in higher average selling prices, which were the primary driver for the comparable store sales increase.

Shoe Station bannered stores contributed Net Sales of $22.2 million in third quarter 2022 and $75.6 million in year-to-date 2022.

The 31.5 million Shoe Perks members as of October 29, 2022 represented an increase in new customers of 34.6% compared to third quarter 2019 and 10.4% compared to third quarter 2021.

Our Shoe Perks loyalty program members now include Shoe Station, which added over 1 million customers in third quarter 2022.

Compared to third quarter 2021, Net Sales were down 4.1% and comparable store sales declined 9.9% on 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 delays which decreased availability of athletic inventory and athletic sales in 2022.

Comparable store athletic sales were down 22.2% compared to third quarter 2021 and up 4.4% compared to third quarter 2019.

On a comparable store basis, non-athletic sales increased 6.8% compared to third quarter 2021 and increased 35.1% compared to third quarter 2019.

Net Sales attributed to athletic sales were 47% in third quarter 2022, compared to 55% in third quarter 2021 and 54% in third quarter 2019.

Athletic sales began to show some improvement during third quarter 2022, compared to second quarter 2022, as athletic inventory availability began to improve.

We ended third quarter 2022 with Merchandise Inventories of $392.3 million, an increase of $94.3 million over third quarter 2019.

Approximately 40% of the increase was inventory in Shoe Station stores acquired last year or opened this year and higher in-transit inventory.

Net of these increases, inventory was 19% higher than the end of third quarter 2019.

The increase in Merchandise Inventories is supportive of the Net Sales increase 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 2022 fiscal year.

We had no borrowings outstanding under our credit facility, which was amended and restated during first quarter 2022, and we ended third quarter 2022 with $47.5 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.

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.

Through third quarter 2022, 41% of the stores have been remodeled.

We expect to open three Shoe Station stores in our fourth quarter, ending the fiscal year with 25 Shoe Station stores, 373 Shoe Carnival stores and 398 total stores.

We are on track to operate 400 stores during the first half of 2023.

Results of Operations for Third Quarter Ended October 29, 2022 Compared to Third Quarter Ended October 30, 2021

Net Sales in third quarter 2021 grew 29.8% compared to third quarter 2020, with significant government stimulus distributions enhancing discretionary income in 2021.

Net Sales decreased 4.1% in third quarter 2022 versus this stimulus-elevated third quarter 2021, maintaining growth of 24.4% versus pre-pandemic third quarter 2019.

The decrease in Net Sales between third quarter 2022 and third quarter 2021 was primarily the result of a 9.9% comparable store sales decline due largely to this fluctuation in the discretionary income of our customer base as impacted by government stimulus in 2021 and inflation in 2022 and continued COVID-19-related manufacturing delays which decreased availability of athletic shoes in third 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 third quarter 2022, compared to 12% in third quarter 2021.

Gross Profit was $130.8 million during third quarter 2022, a decrease of $13.2 million compared to third quarter 2021.

Gross profit margin in third quarter 2022 was 38.3% compared to 40.4% in third quarter 2021.

Buying, distribution and occupancy costs increased 1.4 percentage points and merchandise margin decreased 0.7 percentage points as a percentage of Net Sales compared to third quarter 2021.

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

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

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.

SG&A increased $5.7 million in third quarter 2022 to $87.3 million compared to $81.6 million in third quarter 2021.

The increase was primarily attributable to our Shoe Station operations and increased depreciation expense resulting from our investment in property and equipment related to our store portfolio modernization plan.

These increases were partially offset by lower advertising expense.

As a percentage of Net Sales, SG&A was 25.5% in the third quarter 2022 compared to 22.9% in the third quarter 2021.

The effective income tax rate for the third quarter 2022 was 25.6% compared to 24.8% for the third 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.

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.

Results of Operations Year-to-Date Through October 29, 2022 Compared to Year-to-Date Through October 30, 2021

Net Sales in year-to-date 2021 grew 40.7% compared to year-to-date 2020, with significant government stimulus distributions enhancing discretionary income in 2021 and COVID-19 related temporary store closures occurring in the first half of 2020.

Net Sales decreased 4.5% in year-to-date 2022 versus this stimulus-elevated year-to-date 2021, maintaining growth of 21.9% versus pre-pandemic year-to-date 2019.

The decrease in Net Sales between year-to-date 2022 and year-to-date 2021 was primarily the result of an 11.4% comparable store sales decline due largely to this fluctuation in the discretionary income of our customer base as impacted by government stimulus in 2021 and inflation in 2022 and continued COVID-19-related manufacturing delays which decreased 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 9% of merchandise sales in year-to-date 2022, compared to 11% in year-to-date 2021.

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Gross profit margin in year-to-date 2022 was 36.7% 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.

Buying, distribution and occupancy costs increased 2.0 percentage points and merchandise margin decreased 1.6 percentage points as a percentage of Net Sales compared to year-to-date 2021.

Selling, General and Administrative Expenses

SG&A increased $8.9 million in year-to-date 2022 to $239.1 million compared to $230.2 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.

This increase was primarily attributable to our Shoe Station operations and increased depreciation expense resulting from our investment in property and equipment related to our store portfolio modernization plan.

These increases were partially offset by lower incentive compensation.

As a percentage of Net Sales, SG&A was 24.6% in year-to-date 2022 compared to 22.6% 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.

The effective income tax rate was 25.1% for both year-to-date 2022 and year-to-date 2021.

Liquidity and Capital Resources

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.

Our primary sources of liquidity are $47.5 million of Cash, Cash Equivalents and Marketable Securities on hand at the end of the third 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.

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Net cash generated from operating activities was $18.9 million in year-to-date 2022 compared to $120.5 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.

The change in operating cash flow was primarily driven by increased earnings in year-to-date 2021 and inventory purchases in year-to-date 2022.

Working capital decreased on a year-over-year basis and totaled $300.7 million at October 29, 2022 compared to $333.8 million at October 30, 2021.

The decrease was primarily attributable to lower cash balances due to the acquisition of Shoe Station in December 2021, increased investment in property and equipment related to our store portfolio modernization plan and increased share repurchases, partially offset by higher merchandise inventory levels.

Our current ratio was 2.8 as of October 29, 2022 compared to 3.1 as of October 30, 2021.

Cash Flow –

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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 July 30, 2022.

The balance of these Marketable Securities was $10.4 million at October 29, 2022, compared to $15.0 million at January 29, 2022 and $17.8 million at October 30, 2021.

Additional information can be found in Note 4 —

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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.

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.

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Capital Expenditures

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.

Capital expenditures for fiscal 2022, including actual expenditures in year-to-date 2022, are expected to be between $70 million and $75 million, with approximately $59 million to $62 million to be used for new stores, relocations and remodels and approximately $11 million to $13 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.

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

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 expect to operate 398 stores by the end of fiscal 2022 (373 Shoe Carnival stores and 25 Shoe Station stores) and are on track to operate 400 stores during the first half of 2023.

We are targeting operating at least 500 stores within the next three to five years (2026 –

2028) and aim to add approximately 10 new stores throughout fiscal 2023, with additional store growth acceleration in 2024 and beyond.

This increased scale 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.

In the near term, we expect to pursue fill-in opportunities for store growth across large and mid-size markets as we continue to leverage customer data from our customer relationship management program.

We believe more attractive real estate options will be available with the addition of the Shoe Station retail concept to our portfolio.

However, our future store growth may continue to be impacted by the COVID-19 pandemic and other macroeconomic uncertainty.

We believe more attractive real estate options will be available with the addition of the Shoe Station retail concept to our portfolio and aim to grow the Shoe Station banner to over 100 stores over the same three to five year time period.

However, our future store growth may continue to be impacted by the COVID-19 pandemic, other macroeconomic uncertainty and our ability to identify desirable locations and/or acquisition partners.

Over the last several years, we performed a store rationalization and performance improvement plan.

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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 July 30, 2022.

We were in compliance with these covenants as of October 29, 2022.

The New Credit Agreement contains certain restrictions.

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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.

Letters of credit outstanding were $700,000 at October 29, 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”

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are defined in the New Credit Agreement.

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.

On September 22, 2022, the Board of Directors approved the payment of a third quarter 2022 cash dividend to our shareholders.

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

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

During the first nine months of 2022 and 2021, we returned $7.5 million and $6.0 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”

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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.

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.

During the third quarter of 2022, we repurchased 451,638 shares of common stock at a total cost of $10.0 million under the 2022 Share Repurchase Program.

During year-to-date 2022, we repurchased approximately 1.1 million shares of common stock at a total cost of $30.5 million under this share repurchase program.

As of October 29, 2022, we had $19.5 million available for future repurchases.

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

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

We had no borrowings outstanding during the second quarter 2022.

We had no borrowings outstanding during the third quarter 2022 or year-to-date 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