What changed in this filing

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Item 5. Market for Registrant’s Common Equity

2023-03-24 compared with 2022-03-25 · 296 added, 344 removed, 845 unchanged (43% of the section changed)

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The declaration and payment of any future dividends are at the discretion of the Board of Directors and will depend on our results of operations, financial condition, business conditions and other factors deemed relevant by our Board of Directors.

Our credit agreement in place at the end of fiscal 2021 permits the payment of cash dividends as long as no default or event of default exists under the credit agreement both immediately before and immediately after giving effect to the cash dividends, and the aggregate amount of cash dividends for a fiscal year does not exceed $10 million.

See Note 9 - "Debt" to our Notes to Consolidated Financial Statements contained in PART II, ITEM 8 of this Annual Report on Form 10-K regarding restrictions in our amended and restated credit facility entered into on March 23, 2022.

On March 10, 2022, the Board of Directors increased the quarterly cash dividend from $0.07 to $0.09 per share, an increase of 29%, in the first quarter of fiscal 2022.

On March 14, 2023, the Board of Directors increased the quarterly cash dividend from $0.09 to $0.10 per share, an increase of 11%, for the first quarter of Fiscal 2023.

The quarterly cash dividend of $0.10 per share will be paid on April 17, 2023 to shareholders of record as of the close of business on April 3, 2023.

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We intend to continue issuing shares out of treasury to meet these needs.

During the fourth quarter of fiscal 2021, no shares were delivered to or withheld by us in connection with the vesting of equity awards under our equity compensation plans.

The following table summarizes our repurchase activity during the fourth quarter of Fiscal 2022:

Issuer Purchases of Equity Securities

Purchased (1)

October 30, 2022 to November 26, 2022

November 27, 2022 to December 31, 2022

January 1, 2023 to January 28, 2023

(1) 2,963 shares were withheld by us in connection with employee payroll tax withholding upon the vesting of stock-based compensation awards that were settled in shares.

(2) On December 14, 2022, our Board of Directors authorized the 2023 Share Repurchase Program for up to $50.0 million of our outstanding common stock, effective January 1, 2023 and expiring on December 31, 2023.

The 2023 Share Repurchase Program replaced the prior $50.0 million share repurchase program that was authorized in December 2021 and expired in accordance with its terms on December 31, 2022.

Credit Agreement's Impact on Share Repurchases and Dividends

Our amended and restated credit agreement, dated as of March 23, 2022 (our "Credit Agreement") contains certain restrictions on our ability to pay cash dividends and to repurchase shares of our common stock.

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

The 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.

We are also permitted to pay cash dividends or repurchase shares of our common stock in excess of $15 million in a fiscal year provided that (a) no default or event of default exists before and immediately after the distribution, and (b) on a proforma basis, the ratio of (i) the sum of (A) our consolidated funded indebtedness plus (B) three times our consolidated rental expense to (ii) the sum of (A) our consolidated EBITDA plus (B) our consolidated rental expense is less than 3.5 to 1.0.

See Note 9 - "Debt" in our Notes to Consolidated Financial Statements contained in PART II, ITEM 8 of this Annual Report on Form 10-K for more information regarding the Credit Agreement.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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A discussion of Fiscal 2020 and year-over-year comparisons between Fiscal 2021 and Fiscal 2020 that are not included in this Annual Report on Form 10-K can be found in PART II, ITEM 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations”

in our Annual Report on Form 10-K for the fiscal year ended January 30, 2021, filed with the United States Securities and Exchange Commission on March 26, 2021.

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

in our Annual Report on Form 10-K for our fiscal year ended January 29, 2022, filed with the United States SEC on March 25, 2022.

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 Fiscal 2022 and Fiscal 2019 to provide further context regarding our Fiscal 2022 results of operations.

At the end of this section of this Annual Report on Form 10-K, we have included historical data for the past five fiscal years to facilitate trend analysis of key data reported in our consolidated financial statements and other select operating data.

Our fiscal year is a 52/53 week year ending on the Saturday closest to January 31.

Unless otherwise stated, references to fiscal years 2021, 2020 and 2019 relate to the fiscal years ended January 29, 2022, January 30, 2021 and February 1, 2020.

Fiscal years 2021, 2020, and 2019 all consisted of 52 weeks.

Overview of Our Business

Shoe Carnival, Inc.

is one of the nation’s largest family footwear retailers.

is one of the nation’s largest omnichannel family footwear retailers.

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

Shoe Carnival and Shoe Station.

Our objective is to be the omnichannel retailer-of-choice for on-trend branded and private label footwear for the entire family.

Our objective is to be the omnichannel retailer-of-choice for on-trend branded footwear for the entire family.

Our product assortment, whether shopping in a physical store or on our e-commerce platform, includes dress, casual, and work shoes, sandals, boots and a wide assortment of athletic shoes.

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Our signage may highlight a vendor’s product offerings or sales promotions, or may highlight seasonal or lifestyle statements by grouping similar footwear from multiple vendors.

Approximately 160 of our Shoe Carnival stores have athletic shops that highlight leading athletic brands.

We expect to continue growing our "athletic shop" in-store concept across our fleet in the years ahead.

The addition of the Shoe Station banner and retail locations creates a complementary retail platform to serve a broader family footwear customer base across both urban and suburban demographics.

The addition of the Shoe Station banner and retail locations has created a complementary retail platform for us to serve a broader base of family footwear customers in both urban and suburban demographics.

The Shoe Station concept targets a more affluent family footwear customer and has a strong track record of capitalizing on emerging footwear fashion trends and introducing new brands.

Due to the larger average size of our Shoe Station stores and the targeted customer, these locations provide for a primary destination shopping experience.

Due to the larger average size of our Shoe Station stores and the targeted, more affluent customer, these locations provide for a primary destination shopping experience.

We believe our distinctive shopping experiences give us various competitive advantages, including increased multiple unit sales;

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Acquisition of Shoe Station

On December 3, 2021, we acquired substantially all of the assets of Shoe Station, a privately-held, family-owned shoe retailer.

The Shoe Station assets were acquired for $70.7 million, inclusive of customary adjustments which are not yet finalized, and funded with cash on hand.

We are continuing to operate the 21 locations acquired under the Shoe Station banner.

Shoe Station contributed net sales of $16.6 million during the period from the acquisition date through January 29, 2022.

On December 3, 2021, we acquired the physical stores and substantially all of the other assets and liabilities of Shoe Station, Inc.

("Shoe Station"), a privately-held, family-owned shoe retailer.

The Shoe Station assets were acquired for approximately $70.4 million, funded with cash on hand.

We are continuing to operate the 21 locations acquired under the Shoe Station banner and have opened three new Shoe Station bannered stores since the acquisition.

Shoe Station contributed Net Sales of $16.6 million during the period from the acquisition date through January 29, 2022 in Fiscal 2021 and $99.9 million in Fiscal 2022.

We incurred acquisition and integration-related charges of $4.3 million ($3.2 million after tax, or $0.11 on a diluted per share basis) during Fiscal 2021.

These charges were comprised of non-recurring expense related

to the fair value adjustment to acquisition-date inventory of $1.1 million recorded in cost of goods sold and $3.2 million of transaction costs and integration-related charges recorded in selling, general, and administrative expenses.

These charges were comprised of non-recurring expense related to the fair value adjustment to acquisition-date inventory of $1.1 million recorded in Cost of Goods Sold and $3.2 million of transaction costs and integration-related charges recorded in Selling, General and Administrative Expenses.

See Note 3 —

“Acquisition of Shoe Station”

in our Notes to Consolidated Financial Statements contained in PART II, ITEM 8 of this Annual Report on Form 10-K for additional information on the acquisition.

in our Notes to Consolidated Financial

Statements contained in PART II, ITEM 8 of this Annual Report on Form 10-K for additional information on the acquisition.

Comparable Store Sales

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Due to our omnichannel retailer strategy, we view e-commerce sales as an extension of our physical stores.

Similar to our physical stores, e-commerce platforms that are acquired will not be included in comparable store sales for 13 months after the acquisition of the platform.

Our method for calculating comparable store sales for fiscal 2021, therefore, does not include any sales activity from Shoe Station.

The shares outstanding and net income per share information throughout this MD&A has been adjusted retroactively for all periods presented as a result of a two-for-one stock split of the outstanding shares of our common stock held by shareholders of record on July 6, 2021 that was completed on July 19, 2021.

See Note 2 —

“Summary of Significant Accounting Policies”

to our Notes to Consolidated Financial Statements contained in PART II, ITEM 8 of this Annual Report on Form 10-K for additional information on the stock split.

Information regarding the COVID-19 Coronavirus Pandemic (“COVID-19”)

We continue to closely monitor and manage the impact of the COVID-19 pandemic, and the safety and well-being of our customers, employees and business partners remains a top priority.

The COVID-19 pandemic has significantly impacted, and is expected to continue to impact, our operations, supply chains, distribution processes, and overall economic conditions and consumer spending for the foreseeable future.

In response to the COVID-19 pandemic, all of our physical stores were temporarily closed effective March 19, 2020.

Our e-commerce platform continued to operate, and our e-commerce sales increased significantly in fiscal 2020 as customers shifted purchases to our online channel.

We began reopening our physical stores in accordance with applicable public health guidelines in late April 2020.

Thus, substantially all of our physical stores were closed for approximately 50% of the first fiscal quarter of 2020.

By the beginning of the second quarter of fiscal 2020, approximately 50% of our stores were reopened, and by early June 2020, substantially all of our stores had reopened.

We did not have any stores closed as of January 29, 2022 or for extended periods during fiscal 2021 due to the pandemic.

E-commerce platforms associated with a physical store acquisition will not be included in comparable store sales until the initial physical stores are included.

Our method for calculating comparable store sales in Fiscal 2022 and Fiscal 2021, therefore, does not include any sales activity from Shoe Station.

The 21 original Shoe Station stores acquired and the www.shoestation.com e-commerce site that went live in early February 2023 will be included in comparable store sales calculations beginning in the first quarter of the fiscal year ending February 3, 2024 (Fiscal 2023).

Executive Summary

Fiscal 2021 was a record-breaking year for us.

Results in fiscal 2021 were the highest in terms of net sales, gross profit, operating income and diluted net income per share in our history.

For each of these financial metrics, the first three quarters of fiscal 2021 set consecutive all-time records and the fourth quarter of fiscal 2021 set a record for that specific quarter.

The diluted net income per share of $5.42 earned in fiscal 2021, which included the Shoe Station acquisition-related charges incurred during the fourth quarter of fiscal 2021, exceeded the diluted net income per share earned during the last six fiscal years combined.

Comparable store sales in fiscal 2021 increased 35.3% compared to fiscal 2020 and increased 28.3% compared to fiscal 2019.

We believe these record-breaking results were driven by the following:

our inventory selection;

our more focused promotional strategy;

our customer base returning to a more normal lifestyle, including going back to work and in-person learning;

the economic impact of consumer-based government stimulus.

During fiscal 2021, physical store traffic increased 37.5% compared to fiscal 2020 and was slightly above traffic in fiscal 2019.

The increased store traffic, combined with increased conversion rates, resulted in an increased number of converted customers, compared to both prior year periods.

All of our major product categories had comparable store sale increases ranging from low to mid double digits compared to fiscal 2020 and fiscal 2019.

These increases were driven by higher average per unit prices across all categories and, overall, more units sold.

Highlights for fiscal 2021 and a brief discussion of some key initiatives follow:

Net sales for fiscal 2021 of $1.33 billion were an all-time record, surpassing the previous record set in fiscal 2019 by 28.3%.

We achieved record annual gross profit of $526.8 million during fiscal 2021.

Gross profit margin as a percent of sales increased 10.9 percentage points compared to fiscal 2020 to 39.6% and increased 9.5 percentage points compared to fiscal 2019.

We had no borrowings during fiscal 2021 and ended our fiscal year with $132.4 million of cash, cash equivalents and marketable securities.

In fiscal 2021, we continued to increase membership in our Shoe Perks customer loyalty program.

Membership in the program totaled 28.5 million customers as of January 29, 2022.

We believe our Shoe Perks program affords us opportunities to communicate, build relationships and engage with our most loyal shoppers, which we believe will result in long-term customer commitment to our brand.

We spent $31.4 million on capital expenditures during fiscal 2021, primarily focused on our store modernization efforts.

Through January 29, 2022, we have completed 68 store modernizations.

Fiscal 2022 Plans

Following is a summary of certain strategic initiatives and goals for fiscal 2022:

Continue modernizing our stores through design enhancements, as we expect to have 100 more stores completed by the end of fiscal 2022 and to complete our modernization program by the end of fiscal 2024.

Leverage our Customer Relationship Management ("CRM") capabilities to increase personalized, segmented marketing, and continue with limited, to no, reliance on broad-based promotional activities, and enhance our vendor relationships.

Continue to grow the recently acquired Shoe Station banner and further integrate its supply chain.

Continue to manage the effect of COVID-19 on our operations and protect the health and safety of our customers, employees and vendor partners.

Continue to navigate and manage supply chain disruption and other macroeconomic uncertainties.

Maintain the growth and market share of our omnichannel platform.

Continue implementation of upgrades to merchandise planning and allocation systems and continue to increase the productivity of other recently implemented systems.

In Fiscal 2022, we delivered operating income margins and overall profitability more than double those generated pre-pandemic.

These Fiscal 2022 results demonstrate the sustainability of our business and set the new benchmark for us going forward.

For Fiscal 2022, Diluted Net Income per Share was the second highest year in our history and was only surpassed by Fiscal 2021.

Our Diluted Net Income per Share in Fiscal 2022 grew in each quarter compared to Fiscal 2019's pre-pandemic results with growth compared to Fiscal 2019 of 107%, 160%, 151%, and 558%, respectively.

Our total Diluted Net Income per Share earned over the past two fiscal years of $9.38 ($3.96 in Fiscal 2022 and $5.42 in Fiscal 2021) exceeded the Diluted Net Income per Share earned over the preceding 13 years combined.

Net Sales in Fiscal 2022 were $1.26 billion and were the second highest of any fiscal year in our history, only exceeded by Fiscal 2021.

In a challenging economic environment, our Fiscal 2022 Net Sales increased 21.8% and comparable store sales increased 13.9% compared to pre-pandemic results in Fiscal 2019.

Our physical store comparable store sales increased 8.9% and e-commerce Net Sales increased 85.4% compared to Fiscal 2019.

Our Fiscal 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 in Fiscal 2022 was 37.1%, a 700 basis point increase compared to Fiscal 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 Fiscal 2019 by 220 basis points.

Less promotional intensity resulted in higher average selling prices in Fiscal 2022 compared to Fiscal 2019, and these higher prices were the primary driver for the comparable store sales increase.

Shoe Station bannered stores contributed Net Sales of $99.9 million in Fiscal 2022 and $16.6 million in Fiscal 2021.

The 32.1 million Shoe Perks members as of January 28, 2023 represented an increase in new customers of 34% compared to Fiscal 2019 year end and 13% compared to Fiscal 2021 year end.

Our Shoe Perks loyalty program members now include Shoe Station customers, which added over 1.4 million customers in Fiscal 2022.

Compared to Fiscal 2021, Net Sales were down 5.1% and comparable store sales declined 11.1% on lower traffic and sales volume.

This decrease was due primarily to fluctuations in our customer base's income as impacted by government stimulus in Fiscal 2021, inflation in Fiscal 2022 and continued COVID-19-related manufacturing delays, which decreased availability of athletic inventory and athletic sales in Fiscal 2022.

Comparable store athletic sales were down 21.6% compared to Fiscal 2021 and were flat compared to Fiscal 2019.

On a comparable store basis, non-athletic sales were flat compared to Fiscal 2021 and increased 29.5% compared to Fiscal 2019.

Net Sales attributed to athletic sales were 42% in Fiscal 2022, compared to 50% in Fiscal 2021 and 51% in Fiscal 2019.

Athletic sales began to show some improvement during the second half of Fiscal 2022, as athletic inventory availability began to improve.

We ended Fiscal 2022 with Merchandise Inventories of $390.4 million, an increase of $130.9 million over Fiscal 2019.

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

The remaining increase in inventory was supportive of the Net Sales increases compared to Fiscal 2019 and the expectation of increased sales in Fiscal 2023.

We had no borrowings outstanding under our credit agreement (the "Credit Agreement"), which was amended and restated during the first quarter of Fiscal 2022 and expires on March 23, 2027.

We ended Fiscal 2022 with $63.0 million of Cash, Cash Equivalents and Marketable Securities.

We are currently in the process of modernizing our stores and plan to have over 60% of our stores modernized by the end of Fiscal 2023 and the full program complete in the Fiscal 2024 - Fiscal 2025 horizon.

Through Fiscal 2022, 41% of the stores in our fleet have been remodeled.

We opened two Shoe Station stores in the fourth quarter of Fiscal 2022, ending Fiscal 2022 with 397 total stores, 373 Shoe Carnival stores and 24 Shoe Station stores.

We are on track to operate 400 stores in the third quarter of Fiscal 2023.

Results of Operations

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Fiscal 2022 Compared to Fiscal 2021

Net sales were a record $1.33 billion during fiscal 2021 and increased 36.2% compared to fiscal 2020 and 28.3% compared to fiscal 2019.

Comparable stores sales increased 35.3% compared to fiscal 2020.

Sales generated from our comparable physical stores increased 45.8% in fiscal 2021 compared to fiscal 2020 and 20.1% compared to fiscal 2019.

Sales generated from the Shoe Carnival branded e-commerce platform decreased 10.3% compared to fiscal 2020 due to the return of in-store shopping.

E-commerce sales in fiscal 2021 were 146.6% higher than sales in fiscal 2019.

E-commerce sales were approximately 12% of merchandise sales in fiscal 2021, compared to 19% in fiscal 2020 and 6% in fiscal 2019.

Net sales were positively impacted by continued demand for our merchandise as result of our merchandise selection, the continued easing of COVID-19 restrictions and customers returning to a more normal lifestyle, including going back to work and in-person learning, and the economic impact of consumer-based government stimulus.

Net sales in fiscal 2021 were also favorably impacted by increased average transaction price and more units sold compared to fiscal 2020, with store traffic slightly above the pre-pandemic levels experienced in fiscal 2019.

The increase in average transaction price was primarily driven by our more focused promotional activity.

The temporary closure of our physical stores for approximately 50% of the first quarter of fiscal 2020 as a result of the COVID-19 pandemic, with some stores closed through May 2020, decreased net sales in the prior year.

Gross profit was a record $526.8 million during fiscal 2021, an increase of $246.8 million compared to fiscal 2020.

Gross profit margin in fiscal 2021 increased to 39.6% compared to 28.7% in fiscal 2020 and 30.1% in fiscal 2019.

Merchandise margin increased 8.8 percentage points compared to fiscal 2020 and 8.2 percentage points compared to fiscal 2019.

Fewer margin-dilutive promotions and higher average selling prices drove a higher merchandise margin compared to both fiscal 2020 and 2019.

We began eliminating broad-based use of the “buy one get one half off”

promotional strategy during fiscal 2020 and completely eliminated its broad use during fiscal year 2021.

A more standard product mix, with more non-athletic merchandise sold in fiscal 2021 compared to fiscal 2020, further increased margins compared to fiscal 2020.

As a percentage of sales, our buying, distribution and occupancy costs decreased 2.2 percentage points compared to fiscal 2020 and 1.3 percentage points compared to fiscal 2019 primarily due to the leveraging effect of increased sales, despite higher supply chain and distribution costs.

Net Sales during Fiscal 2021 grew 36.2% compared to Fiscal 2020, with significant government stimulus distributions to our customer base in Fiscal 2021 and COVID-19 related temporary store closures occurring in the first half of Fiscal 2020.

Net Sales decreased 5.1% in Fiscal 2022 versus this stimulus-elevated Fiscal 2021, but maintained growth of 21.8% versus pre-pandemic Fiscal 2019.

The decrease in Net Sales between Fiscal 2022 and Fiscal 2021 was primarily the result of an 11.1% comparable store sales decline due largely to this fluctuation in spending by our customer base as impacted by government stimulus in Fiscal 2021 and inflation in Fiscal 2022 and continued COVID-19 related manufacturing delays, which decreased availability of athletic shoes in Fiscal 2022.

Net Sales attributable to new stores, mostly the Shoe Station stores, partially offset the decrease in comparable store sales.

E-commerce sales were approximately 10% of merchandise sales in Fiscal 2022, compared to 12% in Fiscal 2021.

Gross Profit was $468.2 million in Fiscal 2022, a decrease of $58.6 million compared to Fiscal 2021.

Gross profit margin in Fiscal 2022 was 37.1% compared to 39.6% in Fiscal 2021.

Buying, distribution and occupancy costs increased 1.9 percentage points and merchandise margin decreased 0.6 percentage points as a percentage of Net Sales compared to Fiscal 2021.

These changes were primarily the result of the impact of inflation and supply chain disruption 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 Fiscal 2022.

Selling, General and Administrative Expenses ("SG&A")

SG&A increased $61.0 million to $319.1 million in fiscal 2021 compared to $258.1 million in fiscal 2020.

As a percentage of net sales, SG&A was leveraged to 24.0% in fiscal 2021 compared to 26.5% in fiscal 2020 and 24.9% in fiscal 2019.

Compared to fiscal 2020, the increase in SG&A primarily correlated with our record performance, in terms of increased performance-based incentive compensation, general wages (inclusive of CARES Act payroll retention tax credits recognized in fiscal 2020) and variable costs, such as credit card fees.

SG&A also increased due to increased investment in advertising, as well as market return volatility on our deferred compensation plan and higher stock-based compensation.

Store level wages, incentives paid to store level employees, and annual performance-based compensation comprised nearly half of the increase compared to the prior year, with advertising being the majority of the remaining increase.

SG&A increased $2.6 million in Fiscal 2022 to $321.7 million compared to $319.1 million in Fiscal 2021.

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 and advertising expense.

As a percentage of Net Sales, SG&A was 25.5% in Fiscal 2022 compared to 24.0% in Fiscal 2021.

Fiscal 2021 SG&A included $3.2 million of transaction costs and integration related charges related to the Shoe Station acquisition.

Interest Income and Interest Expense

Changes in our interest income and expense increased our income before taxes by $1.1 million in Fiscal 2022 compared to Fiscal 2021.

This increase was primarily due to higher interest earned on invested cash balances and lower unused commitment fees under the Credit Agreement as compared to our prior credit agreement.

The effective income tax rate for Fiscal 2022 was 25.2% compared to 25.3% for Fiscal 2021.

The lower effective rate was primarily attributable to increased benefit from vested stock-based compensation awards.

Liquidity and Capital Resources

Our primary sources of liquidity are $132.

4 million of cash, cash equivalents and marketable securities on hand at the end of fiscal 2021, cash generated from operations, plus availability under our $100 million credit facility, which was amended and restated on March 23, 2022 to, among other things, extend the term until March 23, 2027 (the “

New Credit Agreement ”

While the effects of the COVID-19 pandemic and other macroeconomic uncertainty make our operating cash flow less predictable, we believe our resources will be sufficient to fund our cash needs, a s they arise, for at least the next 12 months.

Our primary uses of cash are normally for working capital, which are principally inventory purchases, investments in our stores, such as new stores, remodels and relocations, distribution center initiatives, lease payments associated with our real estate leases, potential dividend payments, potential share repurchases under our share repurchase program, and the financing of capital projects, including investments in new systems.

Our primary sources of liquidity are $63.0 million of Cash, Cash Equivalents and Marketable Securities on hand at the end of Fiscal 2022, cash generated from operations and availability under our $100 million Credit Agreement.

While the effects of the COVID-19 pandemic and other economic uncertainty associated with inflation and constrained supply chains, 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.

Our primary uses of cash are normally for working capital, which are principally inventory purchases, investments in our stores, such as new stores, remodels and relocations, distribution center initiatives, lease payments associated with our real estate leases, potential dividend payments, potential share repurchases under our share repurchase program and the financing of other capital projects, including investments in new systems.

As part of our growth strategy, we may also pursue additional strategic acquisitions of other footwear retailers.

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Net cash generated from operating activities was $50.4 million in Fiscal 2022 compared to $147.9 million during Fiscal 2021.

The increase in operating cash flow was primarily driven by higher cash receipts on increased sales, partially offset by increased inventory purchases and payments for operating expenses and income taxes.

The change in operating cash flow was primarily driven by increased earnings in Fiscal 2021 and replenishing merchandise inventory levels in Fiscal 2022.

Working capital increased on a year-over-year basis and totaled $312.4 million at January 28, 2023 compared to $288.4 million at January 29, 2022.

The increase was primarily attributable to increased cash and marketable securities positions.

The increase was primarily attributable to higher merchandise inventory levels, partially offset by lower cash balances due to increased investment in property and equipment related to our store portfolio modernization plan and increased share repurchases.

Our current ratio was 3.0 as of January 28, 2023, compared to 2.9 as of January 29, 2022.

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

During fiscal 2021, we expended $31.4 million for the purchase of property and equipment, primarily related to our store portfolio modernization plan.

During fiscal 2020, we expended $12.4 million for the purchase of property and equipment, $5.9 million of which was for new store construction and the remodeling and relocation of existing stores, and $3.1 million was for investments in our distribution center.

During fiscal 2021, we acquired substantially all of the assets of Shoe Station for approximately $70.7 million and invested on a net basis approximately $17.2 million in publicly traded mutual funds designed to mitigate income statement volatility associated with our nonqualified deferred compensation plan.

During Fiscal 2022 and Fiscal 2021, we expended $77.3 million and $31.4 million, respectively, for the purchases of property and equipment, primarily related to our store portfolio modernization plan.

During Fiscal 2021, we acquired the physical stores and substantially all of the assets and liabilities of Shoe Station and finalized the purchase price in Fiscal 2022, paying approximately $70.4 million.

In Fiscal 2021 we also invested on a net basis approximately $17.2 million in publicly traded mutual funds designed to mitigate income statement volatility associated with our nonqualified deferred compensation plan.

The balance of these Marketable Securities, net of sales and mark to market activity, was $11.6 million at January 28, 2023, compared to $15.0 million at January 29, 2022.

Additional information regarding the Shoe Station acquisition can be found in Note 3 -“Acquisition of Shoe Station”

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Cash Flow - Financing Activities

Our cash outflows for financing activities are typically for cash dividend payments, share repurchases or payments on our credit facility.

Our cash outflows for financing activities are typically for cash dividend payments, share repurchases or payments on our Credit Agreement.

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.

Our cash inflows from financing activities generally reflect stock issuances to employees under our Employee Stock Purchase Plan and borrowings under our Credit Agreement.

During Fiscal 2022, net cash used in financing activities was $42.5 million compared to $17.7 million during Fiscal 2021.

The increase in net cash used in financing activities was primarily due to the repurchase of $7.1 million of shares in fiscal 2021 associated with our Board of Directors’

The increase in net cash used in financing activities was primarily due to the repurchase of $30.5 million of shares in Fiscal 2022, compared to the repurchase of $7.1 million of shares in Fiscal 2021, associated with our Board of Directors’

authorized share repurchase program.

In fiscal 2021 we also increased our dividend payments and more shares were withheld upon the vesting of stock-based compensation awards.

During fiscal 2021, we did not borrow or repay funds under our credit facility.

During fiscal 2020, we borrowed and repaid $24.9 million under our credit facility.

During Fiscal 2022 and Fiscal 2021, we did not borrow or repay funds under our Credit Agreement.

Letters of credit outstanding were $700,000 at January 28, 2023, and our borrowing capacity was $99.3 million.

Our credit facility requires us to maintain compliance with various financial covenants.

Our Credit Agreement requires us to maintain compliance with various financial covenants.

See Note 9 –

“Debt”

to our Notes to Consolidated Financial Statements contained in PART II, ITEM 8 of this Annual Report on Form 10-K for a further discussion of our credit facility and its covenants.

in our Notes to Consolidated Financial Statements contained in PART II, ITEM 8 of this Annual Report on Form 10-K for a further discussion of our Credit Agreement and its covenants.

We were in compliance with these covenants as of January 28, 2023.

Store Openings and Closings –

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

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

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 operate approximately 10 to 20 new stores in Fiscal 2023, with additional store growth acceleration in 2024 and beyond.

We expect limited, if any, store closures over the next several years.

Capital Expenditures –

Capital expenditures for fiscal 2022 are expected to be between $55 million and $65 million, with approximately $50 million to $55 million to be used for new stores, relocations and remodels and approximately $5 million to $10 million for upgrades to our distribution center and e-commerce platform, various other store improvements, continued investments in technology and normal asset replacement activities.

The resources allocated to these projects are subject to near-term changes depending on the impacts associated with the COVID-19 pandemic, ongoing supply chain disruptions, and potential inflationary and other macroeconomic impacts.

Capital expenditures for Fiscal 2023 are expected to be between $60 million and $70 million, with approximately $55 million to $60 million to be used for new stores and modernization and approximately $5 million to $10 million for upgrades to our distribution center and e-commerce platform, various other store improvements, continued investments in technology and normal asset replacement activities.

The resources allocated to projects are subject to near-term changes depending on ongoing supply chain disruptions and potential inflationary and other macroeconomic impacts.

Furthermore, the actual amount of cash required for capital expenditures for store operations depends in part on the number of stores opened, relocated, and remodeled, and the amount of lease incentives, if any, received from landlords.

The number of new store openings and relocations will be dependent upon, among other things, the availability of desirable locations, the negotiation of acceptable lease terms and general economic and business conditions affecting consumer spending.

In fiscal 2021, four quarterly cash dividends of $0.07 per share were approved and paid.

During fiscal 2020, the first quarter dividend was in the amount of $0.0425 per share and the dividends for the remaining three quarters were $0.0450 per share.

During fiscal years 2021 and 2020, we returned $8.0 million and $5.1 million, respectively, in cash to our shareholders through our quarterly dividends.

The declaration and payment of any future dividends are at the discretion of the Board of Directors and will depend on our results of operations, fi nancial condition, business conditions and other factors deemed relevant by our Board of Directors.

Our credit facility in place at the end of fiscal 2021 permits the payment of cash dividends as long as no default or event of default exists under the credit agreement both immediately before and immediately after giving effect to the cash dividends, and the aggregate amount of cash dividends for a fiscal year do not exceed $10 million.

These restrictions have changed as a result of entering into the New Credit Agreement after our fiscal year end.

Four quarterly cash dividends of $0.09 per share were approved and paid during Fiscal 2022, and in Fiscal 2021 four quarterly dividends of $0.07 per share were approved and paid.

During Fiscal 2022 and Fiscal 2021, we returned $10.0 million and $8.0 million, respectively, in cash to our shareholders through our quarterly dividends.

See Note 9 –

“Debt”

to our Notes to Consolidated Financial Statements contained in PART II, ITEM 8 of this Annual Report on Form 10-K.

in our Notes to Consolidated Financial Statements contained in PART II, ITEM 8 of this Annual Report on Form 10-K for a further discussion of our Credit Agreement and its restrictions.

Share Repurchase Program

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We have funded, and intend to continue to fund, the share repurchase program from cash on hand, and any shares acquired will be available for stock-based compensation awards and other corporate purposes.

The actual number and value of the shares to be purchased will depend on the performance of our stock price and other market and economic factors, including impacts caused by the COVID-19 pandemic.

The actual number and value of the shares to be purchased will depend on the performance of our stock price and other market and economic factors, subject to the restrictions in our Credit Agreement.

See Note 9 –

"Debt" in our Notes to Consolidated Financial Statements contained in PART II, ITEM 8 of this Annual Report on Form 10-K for a further discussion of our Credit Agreement and its restrictions.

The 2023 Share Repurchase Program replaced a $50 million share repurchase program that was authorized in December 2021, became effective January 1, 2022 and expired in accordance with its terms on December 31, 2022.

Shares totaling 1,134,524 were repurchased during Fiscal 2022 at a cost of $30.5 million.

No repurchases were made in fiscal 2020, and share repurchases pursuant to previously Board-approved share repurchase programs that have now expired were approximately 2,234,000 shares at an aggregate cost of $37.8 million in fiscal 2019.

Shares totaling 208,662 were repurchased during Fiscal 2021 at a cost of $7.1 million and no repurchases were made in Fiscal 2020.

Share repurchase activity in Fiscal 2021 and Fiscal 2020 was impacted by the COVID-19 pandemic.

Our credit facility in place at the end of fiscal 2021 stipulates that distributions in the form of redemptions of Equity Interests (as defined in the credit agreement) could be made solely with cash on hand so long as before and immediately after such distributions there are no revolving loans outstanding under the credit agreement.

These restrictions have changed a result of entering into the New Credit Agreement after our fiscal year end.

See Note 9 –

“Debt”

to our Notes to Consolidated Financial Statements contained in PART II, ITEM 8 of this Annual Report on Form 10-K.

Rent-related payments made in Fiscal 2022 totaled $83.9 million.

As we are contractually obligated to make lease payments to landlords, estimated future payments to landlords and lease-related charges are expected to be significant in future years and will increase in future years due to the acquisition of Shoe Station and other expected store growth.

These payments include estimates for fixed minimum and contingent rent, estimated reimbursements to landlords for common area maintenance, taxes and insurance and other lease related charges.

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“Leases”

to our Notes to Consolidated Financial Statements contained in PART II, ITEM 8 of this Annual Report on Form 10-K for further discussion of our lease obligations.

in our Notes to Consolidated Financial Statements contained in PART II, ITEM 8 of this Annual Report on Form 10-K for further discussion of our lease obligations.

Impact of Store Count and Seasonality on Quarterly Results

Our quarterly results of operations have fluctuated and are expected to continue to fluctuate in the future, primarily as a result of seasonal variances and the timing of sales and costs associated with opening new stores and closing underperforming stores.

In addition, fiscal 2020 quarterly results were significantly impacted by the COVID-19 pandemic.

As illustrated in the chart below, our first quarter fiscal 2020 net sales and earnings significantly declined due to the temporary closure of our physical stores for approximately 50% of the quarter.

(Unaudited, in thousands, except per share amounts)

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Net income per share –

Operating income/(loss)

Net income/(loss)

Net income/(loss) per share –

Operating income

Net income per share –

1) Per share amounts are computed independently for each of the quarters presented.

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As part of our long-term growth strategy, we expect to pursue opportunities for store growth across large and mid-size markets as we continue to leverage customer data from our customer relationship management program and more attractive real estate options become available.

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

As part of the plan, which was completed in Fiscal 2021, we identified underperforming stores and worked to address these stores' performance through renegotiation of lease terms, relocation, or closure.

We closed 45 stores from Fiscal 2018 through Fiscal 2021.

While we continue to actively monitor the store portfolio, we do not expect any further significant closures over the next several years.

When we identify a store that produces or may potentially produce low or negative contribution, we either renegotiate lease terms, relocate or close the store.

In instances when underperformance indicates the carrying value of a store’s assets may not be recoverable, we impair the store.

Although store closings could reduce our overall net sales volume, we believe this strategy will realize long-term improvement in operating income and diluted net income per share.

Although store closings could reduce our overall Net Sales volume, we believe that the store closings we effected in the last several fiscal years resulted in long-term improvements to our Operating Income and Diluted Net Income per Share.

Depending upon the results of lease negotiations with certain landlords of underperforming stores, we may increase or decrease the number of store closures in future periods.

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Therefore, our results of operations may be adversely affected in any quarter in which we incur pre-opening expenses related to the opening of new stores or incur store closing costs related to the closure of existing stores.

Our future store strategies may continue to be impacted by the current economic uncertainty, including uncertainty associated with the COVID-19 pandemic.

Store Openings, Closings and Impairment Charges –

Impact on Fiscal 2022 and Fiscal 2021

In fiscal 2021, we opened one new store.

The initial inventory investment for the new store in fiscal 2021 was $469,000, capital expenditures were $299,000 and lease incentives received from our landlord were $100,000.

In Fiscal 2022, we opened four new stores.

The initial average inventory investment for the new stores was $578,000, capital expenditures were $973,000 and lease incentives received from our landlord were $448,000.

Pre-opening expenses for the one store opened in fiscal 2021 included in cost of sales and SG&A expenses were approximately $77,000.

The initial average inventory investment for the new stores in Fiscal 2022 was $1.4 million, capital expenditures were $1.6 million and lease incentives received from our landlords were $212,000.

In Fiscal 2021, we opened one new store.

The initial inventory investment for the new store was $469,000, capital expenditures were $299,000 and lease incentives received from our landlord were $100,000.

Pre-opening expenses for the four stores opened in Fiscal 2022 included in Cost of Sales and SG&A expenses were approximately $1.3 million, or an average of $320,000 per store.

Items classified as pre-opening expenses include rent, freight, advertising, salaries and supplies.

During fiscal 2020, we expended $590,000 in pre-opening expenses, or an average of $147,000 per store.

Total store closing costs were $1.9 million in fiscal 2021 and $4.0 million in fiscal 2020.

We closed 12 stores during fiscal 2021 and 13 stores during fiscal 2020.

We recorded non-cash impairment charges on a majority of these stores and also recognized impairment charges on other underperforming stores during these years.

Included in store closing costs were non-cash impairment charges of $1.3 million in fiscal 2021 and $3.1 million in fiscal 2020.

In addition to

non-cash impairment charges, store closing costs can include fixed asset write-offs, employee severance, lease termination fees, store tear-down and clean-up expenses, and acceleration of expenses and deferred lease incentives.

During Fiscal 2021, we expended $77,000 in pre-opening expenses for the one new store.

There were no store closing costs in Fiscal 2022 and total store closing costs were $1.9 million associated with closing 12 stores in Fiscal 2021.

We recorded non-cash impairment charges on a majority of these stores and also recognized impairment charges on other underperforming stores in Fiscal 2021.

There were no non-cash impairment charges recognized in Fiscal 2022, while non-cash impairment charges of $1.3 million were included in store closing costs in Fiscal 2021.

In addition to non-cash impairment charges, store closing costs can include fixed asset write-offs, employee severance, lease termination fees, store tear-down and clean-up expenses and acceleration of expenses and deferred lease incentives.

In total, store opening and closing costs impacting SG&A expenses were $1.0 million in Fiscal 2022 and $1.9 million in Fiscal 2021.

Store opening and closing costs included in cost of sales was expense of $50,000 in fiscal 2021 and $500,000 in fiscal 2020.

Store opening and closing costs included in Cost of Sales were expenses of $178,000 in Fiscal 2022 and $50,000 in Fiscal 2021.

Critical Accounting Policies

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Factors considered when we review our inventory to properly state it at lower of cost or net realizable value include recent sale prices, historical loss rates, the length of time merchandise has been held in inventory, quantities of the various styles held in inventory, seasonality of the merchandise, expected consideration to be received from our vendors and current and expected future sales trends.

We also review aging trends, which include the historical rate at which merchandise has sold below cost and the value and nature of merchandise currently held in inventory and priced below original cost.

We reduce the value of our inventory to its estimated net realizable value where cost exceeds the estimated future selling price.

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This evaluation includes performing an analysis of the estimated undiscounted future cash flows of the long-lived assets.

Assets are grouped and the evaluation performed at the lowest level for which there are identifiable cash flows, which is generally at a store leve l.

Assets are grouped and the evaluation performed at the lowest level for which there are identifiable cash flows, which is generally at a store level.

If the estimated future cash flows for a store are determined to be less than the carrying value of the store’s assets, an impairment loss is recorded for the difference between the estimated fair value and the carrying value.

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Our assumptions and estimates used in the evaluation of impairment, including current and future economic trends for stores, are subject to a high degree of judgment.

Assets subject to impairment are adjusted to estimated fair value and, if applicable, an impairment loss is recorded in selling, general and administrative expenses.

Assets subject to impairment are adjusted to estimated fair value and, if applicable, an impairment loss is recorded in SG&A.

If actual operating results or market conditions differ from those anticipated, the carrying value of certain of our assets may prove unrecoverable and we may incur additional impairment charges in the future.

Accounting for Business Combinations –

We accoun t for acquisitions of other businesses by recording the net assets of the acquired businesses at fair value and making estimates and assumptions to determine the fair value of these acquired assets and liabilities.

We will allocate the purchase price of the acquired business based, in part, upon internal estimates of cash flows and considering the report of a third-party valuation expert retained to assist us.

Changes to the assumptions used to estimate the fair value could affect the recorded amounts of the assets acquired and the resultant goodwill.

We expect there will be changes to the current valuation of the recently acquired Shoe Station assets and liabilities during fiscal 2022.

Valuation of Goodwill and Intangible Assets –

Our indefinite-lived assets include Goodwill and non-amortizing Intangible Assets (trade name) resulting from the acquisition of Shoe Station in Fiscal 2021.

Goodwill represents the purchase price in excess of fair values assigned to the underlying identifiable net assets of the acquired business.

Goodwill and indefinite-lived Intangible Assets are reviewed annually for impairment unless circumstances dictate the need for more frequent assessment.

We performed our annual impairment testing as of the first day of the fourth fiscal quarter, beginning in Fiscal 2022.

In performing impairment tests for our Goodwill in Fiscal 2022, we opted to complete a quantitative assessment at the Shoe Station banner level as opposed to relying on a qualitative assessment as permitted in the guidance.

This quantitative assessment required that the estimated fair value of a reporting unit’s net assets, including Goodwill, be calculated and compared to its carrying amount.

If that estimated fair value is in excess of the carrying amount, no impairment is recognized.

We performed this assessment on October 30, 2022.

We estimated the fair value of the net assets tested using a discounted cash flow model.

This income-based approach required significant judgment to estimate future cash flows, including revenue growth inclusive of long-term growth rate assumptions and the discount rate.

With respect to the trade name, we also tested its carrying amount for impairment at the Shoe Station banner level using the same revenue growth and discount rate assumptions and an assumed royalty rate.

Significant changes in our estimates and assumptions could affect our fair value calculations.

Our estimate of fair value exceeded the carrying amounts and therefore resulted in no impairment.

Leases –

We lease our retail stores and our single distribution center, which has a current lease term of 15 years, expiring in 2034.

We lease our retail stores, our single distribution center and office space for our Southern office.

We also enter into leases of equipment, copiers and billboards.

Prior to the purchase of our corporate headquarters in fiscal 2019, it was also leased.

All of our leases are operating leases.

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Leases (“ASC 842”), which we adopted in Fiscal 2019, on the lease commencement date we recognize a right-of-use asset for the right to use a leased asset and a liability based on the present value of remaining lease payments over the lease term.

The weighted average discount rate utilized in fiscal 2021 and fiscal 2020 was 5.2%.

As of the date of adoption of ASC 842 and for new leases, renewals or amendments, we make certain estimates and assumptions regarding property values, market rents, property lives, discount rates and probable terms.

The weighted average discount rate utilized in Fiscal 2022 and Fiscal 2021 was 4.2% and 5.2%, respectively.

As of the date of adoption of ASC 842, for new leases, renewals or amendments and when we make material investments in leased properties pursuant to our store modernization plan, we make certain estimates and assumptions regarding property values, market rents, property lives, discount rates and probable terms.

These estimates and assumptions can impact:

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(3) the term over which leasehold improvements for each store are amortized;

and (4) the values and lives of adjustments to initial right-of-use assets.

and (4) the values and lives of adjustments to initial and modified right-of-use assets.

The amount of amortized rent expense would vary if different estimates and assumptions were used.

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As a part of this process, deferred tax assets and liabilities are recognized based on the difference between the consolidated financial statement carrying amounts of existing assets and liabilities and their respective tax basis.

Our temporary timing differences relate primarily to inventory, depreciation, accrued expenses, right-of-use assets, operating lease liabilities and stock-based compensation.

With the recent acquisition of Shoe Station, we expect the level of temporary timing differences to increase as a result of tax deductible goodwill and trade names.

Our temporary timing differences relate primarily to inventory, property and equipment, right-of-use assets, operating lease liabilities, goodwill and non-amortizing intangible assets.

Deferred tax assets and liabilities are measured using the tax rates enacted and expected to be in effect in the years when those temporary differences are expected to reverse.

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“Summary of Significant Accounting Policies”

in the accompanying notes included in PART II, ITEM 8 of this Annual Report on Form 10-K for a description of recent accounting pronouncements that may have an impact on our consolidated financial statements when adopted.

Historical Financial Data

in our Notes to Consolidated Financial Statements contained in PART II, ITEM 8 of this Annual Report on Form 10-K for a description of recent accounting pronouncements and related impacts.

Historical Financial and Operating Data

The following historical financial data is included for the convenience of assessing trends in our financial condition and results of operations over the previous five fiscal years.

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Total shareholders’

Selected Operating Data:

Operating Data:

Stores open at end of year

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(1) Our fiscal year is a 52/53 week year ending on the Saturday closest to January 31.

Unless otherwise stated, references to years 2021, 2020, 2019, 2018, and 2017 relate respectively to the fiscal years ended January 29, 2022, January 30, 2021, February 1, 2020, February 2, 2019, and February 3, 2018.

Fiscal year 2017 consisted of 53 weeks and the other fiscal years consisted of 52 weeks.

(2) In fiscal 2019, we adopted Accounting Standards Codification No.

842 on a modified retrospective basis, which requires us to recognize leased assets and obligations on our balance sheet.

Unless otherwise stated, references to years 2022, 2021, 2020, 2019 and 2018 relate respectively to the fiscal years ended January 28, 2023, January 29, 2022, January 30, 2021, February 1, 2020 and February 2, 2019.

Fiscal years 2022, 2021, 2020, 2019 and 2018 all consisted of 52 weeks.

(2) In Fiscal 2019, we adopted ASC 842 on a modified retrospective basis, which required us to recognize leased assets and obligations on our balance sheet.

See Note 10 –

“Leases”

contained in the Notes to Consolidated Financial Statements included in PART II, ITEM 8 of this Annual Report on Form 10-K for further discussion.

(3) Data for fiscal 2017 has been adjusted to a comparable 52-week period ended January 27, 2018.

The 53rd week in fiscal 2017 caused a one-week shift in our fiscal calendar.

To minimize the effect of this fiscal calendar shift on comparable store sales, average sales per store and average sales per square foot, our reported annual comparable store sales results for fiscal 2017 compare the 52-week period ended January 27, 2018 to the 52-week period ended January 28, 2017 and average sales per store and average sales per square foot are calculated for the 52-week period ended January 28, 2017.

Comparable store sales results for fiscal 2018 compare the 52-week period ended February 2, 2019 to the 52-week period ended February 3, 2018.

in our Notes to Consolidated Financial Statements included in PART II, ITEM 8 of this Annual Report on Form 10-K for further discussion.

(3) Comparable store sales for the periods indicated include stores that have been open for 13 full months after such stores’

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Due to our omnichannel retailer strategy, we view e-commerce sales as an extension of our physical stores.

(5) In fiscal years 2021, 2020, 2019, and 2018, average sales per store includes e-commerce sales that are in close proximity to a physical store.

(4) Average sales per store includes e-commerce sales that are in close proximity to a physical store.

(5) Average sales per square foot includes net e-commerce sales.

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Due to our omnichannel retailer strategy, we view e-commerce sales as an extension of our physical stores.

(7) Average sales per store and average sales per square foot include only Shoe Carnival banner stores.

(6) In fiscal years 2021, 2020, 2019 and 2018, average sales per store and average sales per square foot include only Shoe Carnival banner stores.

QUANTITATIVE AND QUALITA TIVE DISCLOSURES ABOUT MARKET RISK

We are exposed to market risk in that the interest payable on our credit facility is based on variable interest rates and therefore is affected by changes in market rates.

We are exposed to market risk in that the interest payable on our credit agreement is based on variable interest rates and therefore is affected by changes in market rates.

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

We had no borrowings under our credit facility during fiscal 2021.

We had no borrowings under our credit agreement during Fiscal 2022.

FINANCIAL STATEME NTS

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Factors considered in determining if inventory is properly stated at the lower of cost or net realizable value include, among others, recent sale prices, the length of time merchandise has been held in inventory, quantities of various styles held in inventory, seasonality of merchandise, expected consideration to be received from vendors and current and expected future sales trends.

The Company also reviews aging trends, which include the historical rate at which merchandise has sold below cost and the value and nature of merchandise currently held in inventory and priced below original cost.

The Company reduces the value of inventory to its estimated net realizable value where cost exceeds the estimated future selling price.

procedures to evaluate the reasonableness of management’s estimates and assumptions required a high degree of auditor judgment.

Given the significant judgments made by management to estimate the net realizable value of inventory, such as expected consideration to be received from vendors and current and expected future sales trends, performing audit procedures to evaluate the reasonableness of management’s estimates and assumptions required a high degree of auditor judgment.

How the Critical Audit Matter Was Addressed in the Audit

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Testing the accuracy of source data used in the calculation, including inventory on hand, aging of inventory, historical losses by product category, sales prices and consideration received from vendors.

Evaluating terms and supporting documentation for consideration expected to be received from vendors.

Recalculating the projected loss for inventory on hand based on the source data used in the calculation.

Making inquiries of management, including merchandise buyers, regarding current and expected future sales trends, and evaluating external communications by analysts.

Evaluating management’s ability to accurately forecast future sales trends by comparing actual results to management’s historical forecasts.

We evaluated management’s ability to accurately project inventory losses by comparing actual results to management’s historical estimates.

Making inquiries of management regarding current and expected future sales trends and evaluating external communications by analysts.

Evaluating management’s ability to accurately forecast future sales trends and inventory losses by comparing actual results to management’s historical forecasts.

/s/ Deloitte & Touche LLP

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Long-term portion of operating lease liabilities

Deferred income taxes

Deferred compensation

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Balance at February 1, 2020

Adoption of Accounting

Standards Codification 842

Dividends ($ 0.178 per share)

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compensation awards

Purchase of common stock for

Stock-based compensation

Balance at February 1, 2020

Balance at January 30, 2021

Dividends ($ 0.28 per share)

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compensation awards

Purchase of common stock for

Stock-based compensation

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Stock-based compensation

Loss on retirement and impairment of assets, net

(Gain) Loss on retirement and impairment of assets, net

Deferred income taxes

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Net cash used in financing activities

Net increase (decrease) in cash and cash equivalents

Net (decrease) increase in cash and cash equivalents

Cash and cash equivalents at beginning of year

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Our fiscal year is a 52/53 week year ending on the Saturday closest to January 31.

Unless otherwise stated, references to years 2021, 2020 and 2019 relate to the fiscal years ended January 29, 2022, January 30, 2021 and February 1, 2020 , respectively.

Basis of Presentation

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 herein give effect to the stock split and have been adjusted retroactively for all periods presented.

Risk and Uncertainties Associated with the COVID-19 Pandemic

Our operations have been significantly disrupted by the outbreak of a novel strain of coronavirus (“COVID-19”).

Unless otherwise stated, references to years 2022, 2021 and 2020 relate to the fiscal years ended January 28, 2023 ("Fiscal 2022"), January 29, 2022 ("Fiscal 2021") and January 30, 2021 ("Fiscal 2020"), respectively.

Fiscal years 2022, 2021 and 2020 all consisted of 52 weeks.

Impact of the COVID-19 Pandemic on Fiscal 2020 Results

Our operations were significantly disrupted by the outbreak of a novel strain of coronavirus (“COVID-19”).

On March 11, 2020, the World Health Organization declared the COVID-19 outbreak a pandemic.

Government, as well as the vast majority of states and local governments, have taken unprecedented measures to control the spread of COVID-19 and to provide stimulus as a mitigating measure to deteriorating economic conditions and increasing unemployment.

Government, as well as the vast majority of states and local governments, took unprecedented measures to control the spread of COVID-19 and to provide stimulus as a mitigating measure to deteriorating economic conditions and increasing unemployment.

The COVID-19 pandemic began significantly impacting our operations, sales and costs beginning in the first quarter of Fiscal 2020.

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We began reopening physical stores in accordance with applicable public health guidelines in late April 2020.

By the beginning of the second quarter of fiscal 2020, approximately 50 % of our stores were reopened, and by early

June 2020, substantially all of our stores had reopened.

By the beginning of the second quarter of Fiscal 2020, approximately 50 % of our stores were reopened, and by early June 2020, substantially all of our stores had reopened.

Our e-commerce platform has been fully operational during the pandemic, with e-commerce orders generally fulfilled by our store locations.

We did not have any stores closed as of January 29, 2022 or for extended periods during fiscal 2021 due to the pandemic.

The COVID-19 pandemic will likely continue to impact our financial condition and results of operations for the foreseeable future.

We did not have any stores closed as of January 28, 2023, or for extended periods during Fiscal 2022 or Fiscal 2021 due to the pandemic.

Use of Estimates in the Preparation of Consolidated Financial Statements

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As of January 28, 2023 and January 29, 2022 , all invested cash was held in money market mutual funds.

While investments are not considered by management to be at significant risk, they could be impacted if the underlying financial institutions fail or are subject to other adverse conditions in the financial markets.

While investments are not considered by management to be at significant risk, they could be impacted if the underlying

financial institutions fail or are subject to other adverse conditions in the financial markets.

To date, we have experienced no loss or lack of access to either invested cash or cash held in our bank accounts.

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We reduce the value of our inventory to its estimated net realizable value where cost exceeds the estimated future

selling price.

We reduce the value of our inventory to its estimated net realizable value where cost exceeds the estimated future selling price.

Material changes in the factors previously noted could have a significant impact on the actual net realizable value of our inventory and our reported operating results.

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Cost of Sales related to our e-commerce orders includes freight expense for delivering merchandise to our customers.

In fiscal 2019, cost of sales also included fees paid to a third-party service provider.

We evaluate whether a contract is an operating or finance lease at its inception or at its acquisition.

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Leases with terms of twelve months or less were not significant and we have elected to expense them as incurred.

On the lease commencement date, we recognize an ROU asset for the right to use a leased asset and a liability based on the present value of remaining lease payments over the lease term.

As the rate implicit in our leases is not readily determinable, we utilize an incremental borrowing rate for the initial measurement of ROU assets and liabilities, which is determined through the development of a synthetic credit rating.

On the lease commencement date, we recognize a right-of-use ("ROU") asset for the right to use a leased asset and a liability based on the present value of remaining lease payments over the lease term.

As the rate implicit in our leases is not readily determinable, we utilize an incremental borrowing rate for the initial measurement and any subsequent remeasurements of ROU assets and liabilities, which is determined through the development of a synthetic credit rating.

Operating lease liabilities are increased by interest and reduced by payments each period, and ROU assets are amortized over the lease term.

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We record variable lease expense associated with contingent rent, reduced rent due to co-tenancy violations, and other variable non-lease components when incurred.

In addition to fixed minimum rental payments set forth in our leases, the measurement of ROU assets and liabilities can also include prepaid rent, landlord incentives (such as construction and tenant improvement allowances), fixed payments related to lease components (such as rent escalation payments scheduled at the lease commencement date), fixed payments related to non-lease components (such as taxes, insurance, and common area maintenance (“CAM”) and initial direct costs incurred in conjunction with securing a lease.

The measurement of ROU assets and liabilities excludes amounts related to variable payments related to lease components (such as contingent rent payments based on performance), variable payments related to non-lease components (such as real estate taxes, insurance and CAM) and non-store related leases with an initial term of 12 months or less.

For new leases, renewals or amendments, we make certain estimates and assumptions regarding property values, market rents, property lives, discount rates and probable terms.

In addition to fixed minimum rental payments set forth in our leases, the measurement of ROU assets and liabilities can also include prepaid rent, landlord incentives (such as construction and tenant improvement allowances), fixed payments related to lease components (such as rent escalation payments scheduled at the lease commencement date), fixed payments related to non-lease components (such as common area maintenance (“CAM”), real estate taxes and insurance) and initial direct costs incurred in conjunction with securing a lease.

The measurement of ROU assets and liabilities excludes amounts related to variable payments related to lease components (such as contingent rent payments based on performance), variable payments related to non-lease components (such as CAM, real estate taxes and insurance) and non-store related leases with an initial term of 12 months or less.

For new leases, renewals or amendments, or when we make material investments in leased properties pursuant to our modernization plan, we make certain estimates and assumptions regarding property values, market rents, property lives, discount rates and probable terms.

These estimates and assumptions can impact:

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We amortize the costs over the related service contract period for the hosted arrangement.

For fiscal 2021, fiscal 2020 and fiscal 2019, the amortization of the implementation costs and the related service contract fees are included in selling, general and administrative expenses.

Long-Lived Asset Impairment Testing

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Goodwill and Intangible Asset Impairment Testing

Goodwill recorded on our Consolidated Balance Sheets resulted from our acquisition of substantially all of the assets and liabilities of Shoe Station, Inc.

("Shoe Station") and is based on a fair value allocation of the purchase price at the time of acquisition.

Goodwill is charged to expense only when it is impaired.

We test for Goodwill impairment at the Shoe Station banner level.

This test is performed at least annually and is performed at the beginning of our fiscal fourth quarter.

No goodwill impairments were recognized in Fiscal 2022.

We also annually test non-amortizing Intangible Assets for impairment.

Tradenames acquired as part of the Shoe Station acquisition are our primary non-amortizing Intangible Assets.

No impairments were recognized in Fiscal 2022.

Insurance Reserves

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We record self-insurance expense as a component of Accrued and Other Liabilities in our Consolidated Balance Sheets and in Selling, General and Administrative Expenses in our Consolidated Statements of Income.

While we believe that the recorded amounts are adequate, there can be no assurance that changes to

management’s estimates will not occur due to limitations inherent in the estimating process.

While we believe that the recorded amounts are adequate, there can be no assurance that changes to management’s estimates will not occur due to limitations inherent in the estimating process.

If actual results are not consistent with our estimates or assumptions, we may be exposed to losses or gains that could be material.

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We compute income taxes using the asset and liability method, under which deferred income taxes are provided for the temporary differences between the financial reporting basis and the tax basis of our assets and liabilities.

tax assets are reduced, if necessary, by a valuation allowance to the extent future realization of those tax benefits are uncertain.

Deferred tax assets are reduced, if necessary, by a valuation allowance to the extent future realization of those tax benefits are uncertain.

We report a liability for unrecognized tax benefits resulting from uncertain tax positions taken or expected to be taken in a tax return.

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January 29, 2022

February 1, 2020

January 30, 2021

(In thousands, except per share data)

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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 Basic Net Income per Share is based on the weighted average number of common shares outstanding during the period.

The computation of Diluted Net Income per Share is based on the weighted average number of shares outstanding plus the dilutive incremental shares that would be outstanding assuming the vesting of stock-based compensation arrangements involving restricted stock, restricted stock units and performance stock units.

A small portion of these awards that were outstanding at the beginning of Fiscal 2020 had a non-forfeitable right to dividends.

The computation of diluted net income per share excluded approximately 2,000 unvested stock-based awards for fiscal 2020 because the impact would be anti-dilutive.

For the other periods presented, all unvested stock-based awards were dilutive.

The computation of Diluted Net Income per Share excluded approximately 7,000 unvested stock-based awards for Fiscal 2022 and approximately 2,000 unvested stock-based awards for Fiscal 2020 because the impact would be anti-dilutive.

For Fiscal 2021, all unvested stock-based awards were dilutive.

Litigation Matters

The accounting standard related to loss contingencies provides guidance regarding our disclosure and recognition of loss contingencies, including pending claims, lawsuits, disputes with third parties, investigations and other actions that are incidental to the operation of our business.

The guidance utilizes the following defined terms to describe the likelihood of a future loss:

(1) probable –

the future event or events are likely to occur, (2) remote –

the chance of the future event or events is slight and (3) reasonably possible –

the chance of the future event or events occurring is more than remote but less than likely.

The guidance also contains certain requirements with respect to how we accrue for and disclose information concerning our loss contingencies.

We accrue for a loss contingency when we conclude that the likelihood of a loss is probable and the amount of the loss can be reasonably estimated.

When the reasonable estimate of the loss is within a range of amounts, and no amount in the range constitutes a better estimate than any other amount, we accrue for the amount at the low end of the range.

We adjust our accruals from time to time as we receive additional information, but the loss we incur may be significantly greater than or less than the amount we have accrued.

We disclose loss contingencies if there is at least a reasonable possibility that a loss has been incurred.

No accrual or disclosure is required for losses that are remote.

New Accounting Pronouncements

The Financial Accounting Standards Board ("FASB") issued guidance related to reference rate reform, which addresses contract modifications that may be necessary due to the expected discontinuance of LIBOR as a broadly used reference rate.

The guidance was effective immediately but is only available for contract modifications made through December 31, 2022.

Our credit facility that was in place at the end of fiscal 2021 allows for LIBOR-based borrowings and, as amended in 2020, contains provisions providing for a benchmark replacement in the event LIBOR is discontinued.

See Note 9 - "Debt" for additional information on that credit facility and our amended and restated credit agreement, which was entered into subsequent to our fiscal year end.

We will adopt this guidance when LIBOR is discontinued and do not expect the adoption will have a material impact on our consolidated financial statements or related disclosures.

The guidance was effective immediately and is available for contract modifications made through December 31, 2024.

We adopted the guidance at the beginning of Fiscal 2022.

This adoption did not have any impact on our consolidated financial position, results of operations or cash flows.

In October 2021, the FASB issued guidance related to accounting for contract assets and contract liabilities from contracts with customers in a business combination.

Companies will be required to apply the definition of a performance obligation under ASC Topic 606 to recognize and measure contract assets and contract liabilities relating to contracts with customers that are acquired in a business combination.

The guidance is effective for fiscal years beginning after December 15, 2022, with early adoption permitted.

We are currently evaluating the impact the adoption of this guidance may have on prospective acquisitions if and when pursued.

Companies will be required to apply the definition of a

performance obligation under Accounting Standards Codification Topic 606 to recognize and measure contract assets and contract liabilities relating to contracts with customers that are acquired in a business combination.

The guidance became effective for fiscal years beginning after December 15, 2022, with early adoption permitted.

We adopted the guidance at the beginning of Fiscal 2022.

This adoption did no t have any impact on our consolidated financial position, results of operations or cash flows.

Note 3 –

Acquisition of Shoe Station

On December 3, 2021, we acquired the physical stores and substantially all of the other assets of Shoe Station, Inc.

("Shoe Station") for total consideration of $ 70.7 million, net of $ 77,000 of cash acquired.

The purchase price paid is subject to an adjustment for finalization of the value of the net assets acquired and was funded with available cash on hand.

Shoe Station was one of the nation's largest independent shoe retailers, with 21 locations in five Southeastern states - Alabama, Florida, Georgia, Mississippi, and Louisiana.

We believe the addition of a new brand and new retail locations to the Shoe Carnival portfolio creates a complementary retail platform to serve a broader family footwear customer base across both urban and suburban demographics.

On December 3, 2021, we acquired the physical s tores and substantially all of the other assets of Shoe Station for total consideration of $ 70.3 million, net of $ 77,000 of cash acquired.

The purchase price paid was funded with available cash on hand.

As of our Fiscal 2022 year end, we operated 24 stores across five states in the Southeast under the Shoe Station banner, inclusive of the 21 stores acquired and three additional stores opened since the acquisition.

The addition of a new brand and new retail locations to the Shoe Carnival portfolio has created a complementary retail platform for us to serve a broader base of family footwear customers in both urban and suburban demographics.

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

Sales from our newly acquired Shoe Station banner totaled $ 16.6 million from December 4, 2021, through the end of fiscal 2021.

Acquisition-related costs of $ 3.2 million were expensed as incurred and are included in selling, general and administrative expenses in our consolidated statements of income.

The following table summarizes the preliminary allocation of the purchase price to the fair value of the assets acquired and liabilities assumed.

Net Sales attributed to the Shoe Station banner were $ 99.9 million in Fiscal 2022 and $ 16.6 million from the acquisition date through January 29, 2022 .

Acquisition-related costs o f $ 3.2 million were expensed as incurred and are included in Selling, General and Administrative Expenses in our Consolidated Statements of Income in Fiscal 2021.

The following table summarizes the final allocation of the purchase price to the fair value of the assets acquired and liabilities assumed and reflects minor adjustments to the preliminary purchase price allocation as of January 29, 2022.

The excess purchase price over the fair value of net assets acquired was allocated to Goodwill.

The allocation of the purchase price shown in the table below is preliminary and subject to change based on the finalization of our detailed valuations and any subsequent change in the purchase price.

The purchase price allocation was considered complete as of December 3, 2022.

(In thousands)

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We are treating Shoe Station trade names as indefinite-lived Intangible Assets;

therefore, goodwill and the Shoe Station trade names will be charged to expense only if impaired.

Impairment reviews will be conducted at least annually beginning in fiscal 2022 and involve a comparison of fair value to the carrying amount.

If fair value is less than the carrying amount, an impairment loss would be recognized in selling, general, and administrative expenses.

therefore, Goodwill and the Shoe Station trade names are charged to expense only if impa ired.

Goodwill and the indefinite-lived Intangible Assets are expected to be fully deductible for tax purposes over 15 years.

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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.

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We classify these Marketable Securities as current assets because we have the ability to convert the securities into cash at our discretion and these marketable securities are not held in a rabbi trust.

We have recognized unrealized losses of $ 2.0 million related to equity securities still held at January 29, 2022.

We have recognized cumulative unrealized losses of $ 2.9 million related to equity securities still held at January 28, 2023.

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.

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We expect the revenue associated with these liabilities to be recognized in proportion to the pattern of customer redemptions within two years.

Breakage revenue associated with our gift cards recognized in Net sales was $ 189,000 , $ 132,000 and $ 143,000 during fiscal years 2021, 2020 and 2019, respectively.

Breakage revenue associated with our gift cards recognized in Net Sales was no t material to any of the periods presented.

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

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Total depreciation expense associated with Property and Equipment was $ 20.9 million in Fiscal 2022 , $ 14.7 million in Fiscal 2021 and $ 14.8 million in Fiscal 2020 .

In fiscal years 2021, 2020 and 2019 , we recorded impairment charges of $ 1.3 million, $ 3.1 million and $ 1.2 million on long-lived assets held and used, respectively.

As of both January 28, 2023 and January 29, 2022, there was approximately $ 13.3 million of construction work in process included in Property and Equipment, primarily related to store remodel and new store construction activity.

No impairment charges were recorded in Fiscal 2022.

In fiscal years 2021 and 2020 , we recorded impairment charges of $ 1.3 million and $ 3.1 million on long-lived assets held and used, respectively.

Impairment charges are included in Selling, General and Administrative Expenses in our Consolidated Statements of Income.

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Cloud Computing Arrangements that are Service Contracts

Since fiscal 2019, we have engaged third-party providers to host software for us, including our customer relationship management (“CRM”) platform, merchandise financial planning platform and our transportation, warehouse and order management systems.

We have engaged third-party providers to host software for us, including our customer relationship management (“CRM”) platform, merchandise financial planning platform and our transportation, warehouse and order management systems.

These platforms are cloud computing arrangements that are software-as-a-service (“SaaS”) contracts.

Net capitalized costs related to cloud computing arrangements as of January 28, 2023 and January 29, 2022 were $ 16.7 million and $ 15.6 million, respectively.

Total expense included in selling, general, and administrative expenses related to these arrangements was $ 4.0 million during fiscal year 2021, $ 1.3 million during fiscal year 2020 and $ 122,000 during fiscal year 2019.

Total amortization expense related to these arrangements was $ 2.3 million during Fiscal 2022, $ 4.0 million during Fiscal 2021 and $ 1.3 million during Fiscal 2020.

As of January 28, 2023 , approximately $ 3.0 million of net capitalized costs related to cloud computing arrangements were classified in Other Current Assets and $ 13.7 million were classified as Other Noncurrent Assets in our Consolidated Balance Sheets.

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Employee compensation and benefits

Current portion of non-qualified deferred compensation

Self-insurance reserves

Sales and use tax

Self-insurance reserves

Current portion of non-qualified deferred compensation

Total accrued and other liabilities

Note 9 –

On April 16, 2020, we entered into a third amendment (the “Third Amendment”) of our existing credit agreement (the “Credit Agreement”).

Pursuant to the Third Amendment, we (1) exercised the full $ 50 million accordion feature, which increased the revolving commitment under the Credit Agreement from $ 50 million to $ 100 million, and increased the swing line sublimit from $ 10 million to $ 15 million;

(2) granted a security interest in our inventory to the lenders;

and (3) increased the maximum ratio of funded debt plus three times rent expense to EBITDA (as defined in the Credit Agreement) plus rent expense from 2.5 to 1.0 to 3.0 to 1.0.

In addition, the Third Amendment, among other things, increased certain LIBOR margins applicable to borrowings under the Credit Agreement, increased the commitment fee charged on the unused portion of the lenders’

commitment and made customary updates to certain representations, covenants and other terms contained in the Credit Agreement.

On July 20, 2020, we entered into a fourth amendment (the “Fourth Amendment”) to our Credit Agreement.

Pursuant to the Fourth Amendment, we (1) eliminated the covenant involving the ratio of funded debt plus three times rent expense to EBITDA (as defined in the Credit Agreement) plus rent expense for the fiscal quarters ending on or about July 31, 2020;

October 31, 2020;

and January 31, 2021;

(2) amended the definition of LIBOR to establish a minimum LIBOR rate of 0.75% per annum;

and (3) established increased reporting requirements to the lenders through January 31, 2021.

On November 30, 2021, we entered into a fifth amendment (the "Fifth Amendment") to our Credit Agreement.

Pursuant to the Fifth Amendment, the aggregate dollar amount of acquisitions we could make in a 12-month period was increased from $ 10 million to $ 75 million.

The Credit Agreement, as amended, contains covenants which stipulate:

On March 23, 2022 we entered into an Amended and Restated Credit Agreement (the “Credit Agreement”), which replaced our existing credit agreement (the "Previous Credit Agreement").

This $ 100 million amended and restated credit agreement is collateralized by our inventory, expires on March 23, 2027 and contains a swingline sublimit of $ 15 million.

Material covenants associated with the Credit Agreement require that we maintain a minimum net worth of $ 250 million and a consolidated interest coverage ratio of not less than 3.0 to 1.0.

The Credit Agreement also provides that cash dividends and share repurchases of $ 15 million or less per fiscal year can be made without restriction as long as there is no default or event of default before and immediately after such distributions.

We are also permitted to make acquisitions and pay cash dividends or repurchase shares in excess of $ 15 million in a fiscal year provided that (a) no default or event of default exists before and immediately after the transaction and (b) on a proforma basis, the ratio of (i) the sum of (A) our consolidated funded indebtedness plus (B) three times our consolidated rental expense to (ii) the sum of (A) our consolidated EBITDA plus (B) our consolidated rental expense is less than 3.5 to 1.0.

We were in compliance with these covenants at January 28, 2023.

Among other restrictions, the Credit Agreement also limits our ability to incur additional secured or unsecured debt to $ 20 million.

The Credit Agreement bears interest, at our option, at (1) the agent bank’s base rate plus 0.0 % to 1.0 % or (2) Adjusted Term SOFR plus 0.9 % to 1.9 %, depending on our achievement of certain performance criteria.

A commitment fee is charged at 0.2 % to 0.3 % per annum, depending on our achievement of certain performance criteria, on the unused portion of the lenders’

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

and “Adjusted Term SOFR”

are defined in the Credit Agreement.

The Previous Credit Agreement was terminated on March 23, 2022.

At its termination, the Previous Credit Agreement contained covenants which stipulated:

(1) Total Shareholders’

Equity (as defined in the Credit Agreement) will not fall below $250 million at the end of each fiscal quarter;

(2) the ratio of funded debt plus three times rent expense to EBITDA (as defined in the Credit Agreement) plus rent expense will not exceed 3.0 to 1.0, except for the fiscal quarters ending on or about July 31, 2020;

Equity (as defined in the Previous Credit Agreement) could not fall below $250 million at the end of each fiscal quarter;

(2) the ratio of funded debt plus three times rent expense to EBITDA (as defined in the Previous Credit Agreement) plus rent expense could not exceed 3.0 to 1.0, except for the fiscal quarters ending on or about July 31, 2020;

October 31, 2020;

and January 31, 2021;

(3) the aggregate amount of cash dividends for a fiscal year will not exceed $10 million;

and (4) distributions in the form of redemptions of Equity Interests (as defined in the Credit Agreement) can be made solely with cash on hand so long as before and immediately after such distributions there are no revolving loans outstanding under the Credit Agreement.

Should a default condition be reported, the lenders may preclude additional borrowings and call all loans and accrued interest at their discretion.

(3) the aggregate amount of cash dividends for a fiscal year could not exceed $10 million;

and (4) distributions in the form of redemptions of Equity Interests (as defined in the Previous Credit Agreement) could be made solely with cash on hand so long as before and immediately after such distributions there were no revolving loans outstanding under the Previous Credit Agreement.

We were in compliance with these covenants at January 29, 2022.

The Credit Agreement bears interest, at our option, at (1) the agent bank’s prime rate as defined in the Credit Agreement plus 1.0%, with the prime rate defined as the greater of (a) the Federal Fund rate plus 0.50% or (b) the interest rate announced from time to time by the agent bank as its “prime rate”

At its termination, the Previous Credit Agreement bore interest, at our option, at (1) the agent bank’s prime rate as defined in the Previous Credit Agreement plus 1.0%, with the prime rate defined as the greater of (a) the Federal Fund rate plus 0.50% or (b) the interest rate announced from time to time by the agent bank as its “prime rate”

or (2) LIBOR plus 1.50% to 2.50%, depending on our achievement of certain performance criteria.

If the stated LIBOR rate is less than 0.75%, the LIBOR rate for purposes of calculating the interest rate under the credit facility shall be 0.75%.

A commitment fee is charged at 0.30 % to 0.40 % per annum, depending on our achievement of certain performance criteria, on the unused portion of the lenders’

No borrowings were outstanding under the Credit Agreement as of January 29, 2022 and January 30, 2021.

The maximum borrowings outstanding during fiscal 2020 was $ 8.7 million.

We did no t borrow under the Credit Agreement during fiscal 2021.

If the stated LIBOR rate was less than 0.75%, the LIBOR rate for purposes of calculating the interest rate under the Previous Credit Agreement would have been 0.75%.

A commitment fee was charged at 0.30 % to 0.40 % per annum, depending on our achievement of certain performance criteria, on the unused portion of the lenders’

No borrowings were outstanding under the credit agreements as of January 28, 2023 and January 29, 2022 and we did no t borrow under the credit agreements during Fiscal 2022 or Fiscal 2021.

As of January 28, 2023 , there were $ 700,000 in letters of credit outstanding and $ 99.3 million available to us for borrowing under the Credit Agreement.

The Credit Agreement was to expire in March 27, 2022 .

However, on March 23, 2022 we entered into an Amended and Restated Credit Agreement (the “New Credit Agreement”), which replaced the Credit Agreement.

This new $ 100 million amended and restated credit facility is collateralized by our inventory, expires on March 23, 2027 , and contains a swingline sublimit of $ 15 million.

Material covenants associated with the New Credit Agreement require that we maintain a minimum net worth of $ 250 million and a consolidated interest coverage ratio of not less than 3.0 to 1.0.

The New Credit Agreement also provides that cash dividends and share repurchases of $ 15 million or less per fiscal year can be made without restriction as long as there is no default or event of default before and immediately after such distributions.

three times our consolidated rental expense to (ii) the sum of (A) our consolidated EBITDA plus (B) our consolidated rental expense is less than 3.5 to 1.0.

Among other restrictions, the New Credit Agreement also limits our ability to incur additional secured or unsecured debt to $ 20 million.

The New Credit Agreement bears interest, at our option, at (1) the agent bank’s base rate plus 0.0 % to 1.0 % or (2) Adjusted Term SOFR plus 0.9 % to 1.9 %, depending on our achievement of certain performance criteria.

A commitment fee is charged at 0.2 % to 0.3 % per annum, depending on our achievement of certain performance criteria, on the unused portion of the lenders’

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

and “Adjusted Term SOFR”

are defined in the New Credit Agreement.

Note 10 –

We lease all of our physical stores, our single distribution center, which has a current lease term expiring in 2034 , and certain other locations that support the recently acquired Shoe Station operations.

We lease all of our physical stores, our single distribution center, which has a current lease term expiring in 2034 , and office space for our Southern office.

We also enter into leases of equipment, copiers and billboards.

Prior to the purchase of our corporate headquarters in fiscal 2019, it was also leased.

W e do not have any leases with related parties.

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Our real estate leases typically include options to extend the lease or to terminate the lease at our sole discretion.

Options to extend real estate leases typically include one or more options to renew, with renewal terms that typically extend the lease term for five years or more.

Options to extend real estate leases typically include one or more options to renew, with renewal terms that typically

extend the lease term for five years or more.

Many of our leases also contain “co-tenancy”

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January 29, 2022

January 30, 2021

Weighted-average remaining lease term for operating leases

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State and local income taxes, net of federal tax

Valuation allowance

Tax effect of foreign losses

Excess tax benefit on stock-based compensation

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Total deferred tax liabilities

Long-term deferred income taxes, net

We have tax credit carryforwards associated with our Puerto Rico operations totaling $ 1.7 million at January 29, 2022 and $ 431,000 at January 30, 2021.

Net long-term (liability) / asset

We have tax credit carryforwards associated with our Puerto Rico operations totaling $ 2.6 million at January 28, 2023 and $ 1.7 million at January 29, 2022.

These credits expire at various times over the next ten years .

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and Puerto Rico tax rates.

As of January 29, 2022 and January 30, 2021 , there were no unrecognized tax liabilities or related accrued penalties or interest in other liabilities on the consolidated balance sheets.

As of January 28, 2023 and January 29, 2022 , there were no unrecognized tax liabilities or related accrued penalties or interest.

Note 12 –

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accounts become fully vested when participants reach their third anniversary of employment with us.

Our Board of Directors-approved Shoe Carnival Puerto Rico Savings Plan (the “Puerto Rico Savings Plan”) is open to all employees working in Puerto Rico who have been employed for at least one year , are at least 21 years of age

and who work at least 1,000 hours in a defined year.

This plan is similar to our Domestic Savings Plan, whereby an employee may contribute up to 20 % of his or her annual earnings, with a matching Company contribution up to the first 4 % at a rate of 50 %.

Contributions charged to expense associated with these plans were $ 949,000 , $ 851,000 and $ 818,000 in fiscal years 2021, 2020 and 2019, respectively.

Contributions charged to expense associated with these plans were $ 1.0 million, $ 949,000 and $ 851,000 in fiscal years 2022, 2021 and 2020, respectively.

Deferred Compensation Plan

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contributions, which is subject to vesting requirements.

The compensation deferred under this plan is credited with earnings or losses measured by the rate of return on investments elected by plan participants.

Compensation expense for our match and earnings on the deferred amounts was $ 1.3 million for fiscal 2021 and $ 2.0 million for both fiscal 2020 and fiscal 2019.

The total deferred compensation liability at January 29, 2022 and January 30, 2021 was $ 14.6 million and $ 16.4 million, respectively, of which $ 3.7 million and $ 393,000 was classified as accrued and other liabilities at January 29, 2022 and January 30, 2021 , respectively.

The compensation deferred under this plan is credited with earnings or losses measured by the rate of return on

investments elected by plan participants.

Loss on the deferred amounts, net of c ompensation expense for our match, was $ 330,000 for Fiscal 2022 .

Compensation expense for our match and earnings on the deferred amounts was $ 1.3 million for Fiscal 2021 and $ 2.0 million for Fiscal 2020.

The total deferred compensation liability at January 28, 2023 and January 29, 2022 was $ 11.3 million and $ 14.6 million, respectively, of which $ 1.5 million and $ 3.7 million was classified as Accrued and Other Liabilities at January 28, 2023 and January 29, 2022 , respectively.

Note 13 –

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The cost is expected to be recognized over a weighted average period of approximately 1.1 years.

As of January 29, 2022, approximately $ 41,000 in unrecognized compensation expense remained related to non-vested SARs.

This expense is expected to be recognized over a period of approximately 0.2 years.

Under the 2017 Plan, we may issue stock units, restricted stock, stock appreciation rights, stock options and other stock-based awards to eligible participants.

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(b) one-half of the award vests after one year and one-half vests after two years;

and two-thirds of the award vests after three years;

(d) the full award vests at the end of a 2-year service period subsequent to the date of grant;

or (e) for our non-employee Board members, all restricted stock awards are issued to vest on January 2 nd of the year following the year of the grant.

or (e) for our non-employee Board members and Vice Chairman, all restricted stock awards are issued to vest on January 2 nd of the year following the year of the grant.

Awards that contain both performance and service-based conditions require that the performance target be met during the required service period.

Under the 2017 Plan, recipients of restricted stock units and performance stock units are entitled to receive dividend equivalents, based on dividends actually declared and paid, on the restricted stock units and performance stock units, and such dividend equivalents are subject to the same restrictions and risk of forfeiture as the restricted stock units and performance stock units.

Dividends paid with respect to shares subject to the non-vested portion of a restricted stock award are also subject to the same restrictions and risk of forfeiture as the shares of restricted stock to which such dividends relate.

Under the 2017 Plan, recipients of restricted stock, restricted stock units and performance stock units are entitled to receive dividend equivalents, based on dividends actually declared and paid, on such awards, and such dividend equivalents are subject to the same restrictions and risk of forfeiture as the restricted stock, restricted stock units and performance stock units.

Share-Settled Equity Awards

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The weighted-average grant date fair value of restricted stock units and performance stock units granted during Fiscal 2021 and Fiscal 2020 was $ 28.25 and $ 7.48 , respectively.

Restricted Stock Awards

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

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Each SAR entitles holders, upon exercise of their vested shares, to receive cash in an amount equal to the closing price of our stock on the date of exercise less the exercise price, with a maximum amount of gain defined.

The SARs granted during the first quarter of fiscal 2021 will vest and become fully exercisable on March 31, 2022 and any unexercised SARs will expire on March 31, 2024.

The SARs granted during the first quarter of Fiscal 2021 vested and became fully exercisable on March 31, 2022 and any unexercised SARs will expire on March 31, 2024.

The SARs issued in Fiscal 2021 have a defined maximum gain of $ 5.00 over the exercise price of $ 30.94 .

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Outstanding at January 28, 2023

The fair value of these liability awards are remeasured, using a trinomial lattice model, at each reporting period until the date of settlement.

The fair value of these liability awards is remeasured, using a trinomial lattice model, at each reporting period until the date of settlement.

Increases or decreases in stock-based compensation expense are recognized over the vesting period, or immediately for vested awards.

The weighted-average fair value of outstanding, non-vested SAR awards as of January 29, 2022 , was $ 2.87 .

The weighted-average fair value of outstanding SAR awards as of January 28, 2023 , was $ 0.81 .

The fair value was estimated using a trinomial lattice model with the following assumptions:

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The purchases may be made in the open market or through privately negotiated transactions from time-to-time through December 31, 2023 and in accordance with applicable laws, rules and regulations.

The 2022 Share Repurchase Program may be amended,

suspended or discontinued at any time and does not commit us to repurchase shares of our common stock.

The 2023 Share Repurchase Program may be amended, suspended or discontinued at any time and does not commit us to repurchase shares of our common stock.

The actual number and value of the shares to be purchased will depend on the performance of our stock price and other market and economic factors, including impacts caused by the COVID-19 pandemic.

The actual number and value of the shares to be purchased will depend on the performance of our stock price and other market and economic factors.

The 2023 Share Repurchase Program replaced a $ 50 million share repurchase program that was authorized in December 2021, became effective January 1, 2022 and expired in accordance with its terms on December 31, 2022 .

Shares totaling 1,134,524 were repurchased during Fiscal 2022 at a cost of $ 30.5 million.

Shares totaling 208,662 were repurchased during Fiscal 2021 at a cost of $ 7.1 million and no repurchases were made in Fiscal 2020.

Share repurchases activity in Fiscal 2021 and Fiscal 2020 was impacted by the COVID-19 pandemic.

Our credit facility in place at the end of fiscal 2021 stipulates that distributions in the form of redemptions of Equity Interests (as defined in the credit agreement) can be made solely with cash on hand so long as before and immediately after such distributions there are no revolving loans outstanding under the credit agreement.

These restrictions have changed as a result of entering into the New Credit Agreement after our fiscal year end.

See Note 9 –

“Debt”

for a discussion of our Credit Agreement and its restrictions regarding share repurchases.

Note 15 –

Litigation and Business Risk

Litigation Risk

From time to time, we are involved in certain legal proceedings in the ordinary course of conducting our business.

While the outcome of any legal proceeding is uncertain, we do not currently expect that any such proceedings will have a material adverse effect on our consolidated balance sheets, statements of income, or cash flows.

Business Risk

Two branded suppliers, Nike, Inc.

and Skechers USA, Inc., collectively accounted for approximately 39 % of our net sales in fiscal 2021 and approximately 43 % in fiscal 2020.

accounted for approximately 28 % in fiscal 2021 and 33 % in fiscal 2020.

and Skechers U.S.A., Inc., collectively accounted for approximately 27 % of our Net Sales in Fiscal 2022, 39 % in Fiscal 2021 and 43 % in Fiscal 2020.

accounted for approximately 14 % in Fiscal 2022, 28 % in Fiscal 2021 and 33 % in Fiscal 2020.

Skechers USA, Inc.

accounted for approximately 11 % in fiscal 2021 and 10 % in fiscal 2020.

accounted for approximately 13 % in Fiscal 2022, 11 % in Fiscal 2021 and 10 % in Fiscal 2020.

A loss of any of our key suppliers in certain product categories could have a material adverse effect on our business.

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Note 16 –