SHOE STATION GROUP INC 10-K

ITEM 5. MARKET FOR THE REGISTRANT’S COMMON EQUITY, RELATED S TOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Market Information and Holders Our common stock is quoted on The Nasdaq Stock Market LLC under the trading symbol “SCVL.” As of March 17, 2023, there were approximately 123 holders of record of our common stock. We did not sell any unregistered equity securities during Fiscal 2022, 2021 or 2020. On June 21, 2021, our Board of Directors authorized a two-for-one stock split of the shares of our common stock. The stock split entitled each shareholder of record at the close of business on July 6, 2021 to receive one additional share of common stock for each share of common stock owned as of that date and was paid on July 19, 2021. Upon the completion of the stock split, our outstanding shares increased from approximately 14.1 million shares to approximately 28.2 million shares. All share and per share amounts in this Annual Report on Form 10-K give effect to the stock split and have been adjusted retroactively for all periods presented. Cash Dividends During Fiscal 2022, we paid quarterly cash dividends of $0.09 per share in all four fiscal quarters. The declaration and payment of any future dividends are at the discretion of the Board of Directors and will depend on our results of operations, financial condition, business conditions and other factors deemed relevant by our Board of Directors. 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. Issuer Purchases of Equity Securities We did not repurchase any shares of our common stock under our Board-approved share repurchase program during the fourth quarter of Fiscal 2022. For a discussion of our share repurchase program, see “Share Repurchase Program” in PART II, ITEM 7, “Management's Discussion and Analysis of Financial Condition and Results of Operations – Liquidity and Capital Resources” of this Annual Report on Form 10-K. Throughout Fiscal 2022, we issued treasury shares to certain employees upon the vesting of restricted stock units and performance stock units and to our non-employee directors upon the issuance of service-based restricted stock awards. We also repurchased 73,817 shares of common stock as a result of our withholding shares or allowing our employees to deliver shares to us for the income taxes resulting from the vesting of certain share-settled equity awards. We intend to continue issuing shares out of treasury to meet these needs. The following table summarizes our repurchase activity during the fourth quarter of Fiscal 2022: Issuer Purchases of Equity Securities Total Number Approximate Of Shares Dollar Value Purchased of Shares Total as Part that May Yet Number Average of Publicly Be Purchased of Shares Price Paid Announced Under Period Purchased (1) per Share Programs (2) Programs (2) October 30, 2022 to November 26, 2022 0 $ 0.00 0 $ 19,485,041 November 27, 2022 to December 31, 2022 0 $ 0.00 0 $ 19,485,041 January 1, 2023 to January 28, 2023 2,963 $ 23.91 0 $ 50,000,000 2,963 0 27 (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. ITEM 6 . [RESERVED] 28 ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion of our financial condition and results of operations (the "MD&A") should be read together with our consolidated financial statements and notes to those statements included in PART II, ITEM 8 of this Annual Report on Form 10-K. This section of this Annual Report on Form 10-K generally discusses Fiscal 2022 and Fiscal 2021 and year-over-year comparisons between Fiscal 2022 and Fiscal 2021. 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 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. Overview of Our Business Shoe Carnival, Inc. 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 footwear for the entire family. Our product assortment, whether shopping in a physical store or on our e-commerce platform, includes dress, casual, and work shoes, sandals, boots and a wide assortment of athletic shoes. Our typical physical store carries shoes in two general categories – athletics and non-athletics with subcategories for men's, women's and children's, as well as a broad range of accessories. In addition to our physical stores, our e-commerce platform offers customers the same assortment of merchandise in all categories of footwear with expanded options in certain instances. Our stores under the Shoe Carnival banner combine competitive pricing with a high-energy in-store environment that encourages customer participation. Footwear in our Shoe Carnival physical stores is organized by category and brand, creating strong brand statements within the aisles. These brand statements are underscored by branded signage on endcaps and in-line signage throughout the store. Our signage may highlight a vendor’s product offerings or sales promotions, or may highlight seasonal or lifestyle statements by grouping similar footwear from multiple vendors. 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, 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; the building of a loyal, repeat customer base; the creation of word-of-mouth advertising; and enhanced sell-through of in-season goods. Acquisition of Shoe Station On December 3, 2021, we acquired 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. See Note 3 — “Acquisition of Shoe Station” in our Notes to Consolidated Financial 29 Statements contained in PART II, ITEM 8 of this Annual Report on Form 10-K for additional information on the acquisition. Comparable Store Sales Comparable store sales is a key performance indicator for us. Comparable store sales include stores that have been open for 13 full months after such stores’ acquisition or grand opening prior to the beginning of the period, including those stores that have been relocated or remodeled. Therefore, stores recently opened, acquired or closed are not included in comparable store sales. We generally include e-commerce sales in our comparable store sales as a result of our omnichannel retailer strategy. Due to our omnichannel retailer strategy, we view e-commerce sales as an extension of our physical stores. 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 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. 30 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 The following table sets forth our results of operations expressed as a percentage of Net Sales for the following fiscal years: 2022 2021 2020 2019 Net sales 100.0 % 100.0 % 100.0 % 100.0 % Cost of sales (including buying, distribution, and occupancy costs) 62.9 60.4 71.3 69.9 Gross profit 37.1 39.6 28.7 30.1 Selling, general and administrative expenses 25.5 24.0 26.5 24.9 Operating income 11.6 15.6 2.2 5.2 Interest income (0.1 ) 0.0 0.0 (0.1 ) Interest expense 0.0 0.0 0.0 0.0 Income before income taxes 11.7 15.6 2.2 5.3 Income tax expense 3.0 4.0 0.6 1.2 Net income 8.7 % 11.6 % 1.6 % 4.1 % Fiscal 2022 Compared to Fiscal 2021 Net Sales 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. 31 Gross Profit 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 $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. Income Taxes The effective income tax rate for Fiscal 2022 was 25.2% compared to 25.3% for Fiscal 2021. Liquidity and Capital Resources 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. Cash Flow - Operating Activities Net cash generated from operating activities was $50.4 million in Fiscal 2022 compared to $147.9 million during Fiscal 2021. 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 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. 32 Cash Flow - Investing Activities Our cash outflows for investing activities are normally for capital expenditures. 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” and regarding the marketable securities can be found in Note 4 - “Fair Value of Financial Instruments” to our Notes to Consolidated Financial Statements contained in PART II, ITEM 8 of this Annual Report on Form 10-K. Cash Flow - Financing Activities 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 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 $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. 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 Agreement requires us to maintain compliance with various financial covenants. 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 covenants. We were in compliance with these covenants as of January 28, 2023. Store Openings and Closings – Fiscal 2023 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 – Fiscal 2023 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. 33 Dividends 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. The declaration and payment of any future dividends are at the discretion of the Board of Directors and will depend on our results of operations, financial condition, business conditions and other factors deemed relevant by our Board of Directors, subject to 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. Share Repurchase Program On December 14, 2022, our Board of Directors authorized a share repurchase program for up to $50 million of our outstanding common stock, effective January 1, 2023 (the “2023 Share Repurchase Program”). 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 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. 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, 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. 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. Leases 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 expected organic and acquired store growth. These payments include estimates for fixed minimum and contingent rent, estimated reimbursements to landlords for common area maintenance, taxes and insurance and other lease related charges. See Note 10 – “Leases” 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. (Unaudited, in thousands, except per share amounts) Fiscal 2022 First Quarter Second Quarter Third Quarter Fourth Quarter Net sales $ 317,527 $ 312,268 $ 341,661 $ 290,779 Gross profit 112,863 113,130 130,849 111,322 Operating income 35,384 38,789 43,577 28,694 Net income 26,897 28,909 32,652 21,610 Net income per share – Diluted 1 $ 0.95 $ 1.04 $ 1.18 $ 0.79 34 Fiscal 2021 First Quarter Second Quarter Third Quarter Fourth Quarter Net sales $ 328,457 $ 332,230 $ 356,336 $ 313,371 Gross profit 130,158 135,752 144,056 116,821 Operating income 57,603 59,714 62,424 27,913 Net income 43,242 44,212 46,836 20,591 Net income per share – Diluted 1 $ 1.51 $ 1.54 $ 1.64 $ 0.72 1) Per share amounts are computed independently for each of the quarters presented. For per share amounts, the sum of the quarters may not equal the total year due to the impact of changes in weighted shares outstanding and differing applications of earnings as prescribed by accounting guidance. Seasonality We have three distinct peak selling periods: Easter, back-to-school and Christmas. Our operating results depend significantly upon the sales generated during these periods. To prepare for our peak shopping seasons, we must order and keep in stock significantly more merchandise than we would carry during other periods of the year. Any unanticipated decrease in demand for our products or a supply chain disruption that reduces inventory availability during these peak shopping seasons could reduce our Net Sales and Gross Profit and negatively affect our profitability. Store Count We continually analyze our store portfolio and the potential for new stores based on our view of internal and external opportunities and challenges in the marketplace. As part of our long-term growth strategy, we expect to pursue opportunities for store growth across large and mid-size markets as we continue to leverage customer data from our customer relationship management program and more attractive real estate options become available. 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 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. Non-capital expenditures, such as advertising and payroll incurred prior to the opening of a new store, are charged to expense as incurred. The timing and actual amount of expense recorded in closing an individual store can vary significantly depending, in part, on the period in which management commits to a closing plan, the remaining basis in the fixed assets to be disposed of at closing and the amount of any lease buyout. Therefore, our results of operations may be adversely affected in any quarter in which we incur pre-opening expenses related to the opening of new stores or incur store closing costs related to the closure of existing stores. Store Openings, Closings and Impairment Charges – Impact on Fiscal 2022 and Fiscal 2021 In Fiscal 2022, we opened four new stores. 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 2021, we expended $77,000 in pre-opening expenses for the one new store. 35 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 were expenses of $178,000 in Fiscal 2022 and $50,000 in Fiscal 2021. Critical Accounting Policies We use judgment in reporting our financial results. This judgment involves estimates based in part on our historical experience and incorporates the impact of the current general economic climate and company-specific circumstances. However, because future events and economic conditions are inherently uncertain, our actual results could differ materially from these estimates. The accounting policies that require more significant judgment are included below. Merchandise Inventories – Our Merchandise Inventories are stated at the lower of cost or net realizable value as of the balance sheet date and consist primarily of dress, casual and athletic footwear for women, men and children. The cost of our merchandise is determined using the first-in, first-out valuation method (“FIFO”). For determining net realizable value, we estimate the future demand and related sale price of merchandise in our inventory. The stated value of Merchandise Inventories contained on our Consolidated Balance Sheets also includes freight, certain capitalized overhead costs and reserves. Factors considered when we review our inventory to properly state it at lower of cost or net realizable value include recent sale prices, historical loss rates, the length of time merchandise has been held in inventory, quantities of the various styles held in inventory, seasonality of the merchandise, expected consideration to be received from our vendors and current and expected future sales trends. We 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. Merchandise Inventories as of January 28, 2023 totaled $390.4 million, representing approximately 39% of total assets. Merchandise Inventories as of January 29, 2022 totaled $285.2 million, representing approximately 35% of total assets. Given the significance of inventories to our consolidated financial statements, the determination of net realizable value is a critical accounting estimate. Material changes in the factors noted above could have a significant impact on the actual net realizable value of our inventory and our reported operating results. Valuation of Long-Lived Assets – Long-lived assets, such as property and equipment subject to depreciation and right-of-use assets arising from our leased properties, are evaluated for impairment on a periodic basis if events or circumstances indicate the carrying value may not be recoverable. This evaluation includes performing an analysis of the estimated undiscounted future cash flows of the long-lived assets. Assets are grouped and the evaluation performed at the lowest level for which there are identifiable cash flows, which is generally at a store 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. We estimate the fair value of our long-lived assets using store-specific cash flow assumptions discounted by a rate commensurate with the risk involved with such assets while incorporating marketplace assumptions. Our assumptions and estimates used in the evaluation of impairment, including current and future economic trends for stores, are subject to a high degree of judgment. Assets subject to impairment are adjusted to estimated fair value and, if applicable, an impairment loss is recorded in 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. 36 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, our single distribution center and office space for our Southern office. We also enter into leases of equipment, copiers and billboards. All of our leases are operating leases. Therefore, how operating leases are recognized throughout the financial statements in accordance with applicable accounting guidance can have a significant impact on our financial condition and results of operations and related disclosures. In accordance with Accounting Standards Codification Topic No. 842 – Leases (“ASC 842”), which we adopted in Fiscal 2019, on the lease commencement date we recognize a right-of-use asset for the right to use a leased asset and a liability based on the present value of remaining lease payments over the lease term. The weighted average discount rate utilized in Fiscal 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: (1) lease classification and the related accounting treatment; (2) rent holidays, escalations or deferred lease incentives, which are taken into consideration when calculating straight-line expense; (3) the term over which leasehold improvements for each store are amortized; and (4) the values and lives of adjustments to initial and modified right-of-use assets. The amount of amortized rent expense would vary if different estimates and assumptions were used. Our real estate leases typically include options to extend the lease or to terminate the lease at our sole discretion. Options to extend real estate leases typically include one or more options to renew, with renewal terms that typically extend the lease term for five years or more. Many of our leases also contain “co-tenancy” provisions, including the required presence and continued operation of certain anchor tenants in the adjoining retail space. If a co-tenancy violation occurs, we have the right to a reduction of rent for a defined period after which we have the option to terminate the lease if the violation is not cured. In addition to co-tenancy provisions, certain leases contain “go-dark” provisions that allow us to cease operations while continuing to pay rent through the end of the lease term. When determining the lease term, we include options that are reasonably certain to be exercised. Income Taxes – As part of the process of preparing our consolidated financial statements, we are required to estimate our current and future income taxes for each tax jurisdiction in which we operate. Significant judgment is required in determining our annual tax expense and evaluating our tax positions. As a part of this process, deferred tax assets and liabilities are recognized based on the difference between the consolidated financial statement carrying amounts of existing assets and liabilities and their respective tax basis. Our temporary timing differences relate primarily to inventory, 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. Deferred tax assets are reduced, if necessary, by a valuation allowance to the extent future realization of those tax benefits are uncertain. 37 We are also required to make many subjective assumptions and judgments regarding our income tax exposures when accounting for uncertain tax positions associated with our income tax filings. We must presume that taxing authorities will examine all uncertain tax positions and that they have full knowledge of all relevant information. However, interpretations of guidance surrounding income tax laws and regulations are often complex, ambiguous and frequently change over time, and a number of years may elapse before a particular issue is resolved. As such, changes in our subjective assumptions and judgments can materially affect amounts recognized in our consolidated financial statements. Although we believe we have no uncertain tax positions, tax authorities could assess tax liabilities in open tax periods not presently foreseen. Recent Accounting Pronouncements See Note 2 — “Summary of Significant Accounting Policies” in 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. A more detailed description of the fluctuations among Fiscal 2018 – Fiscal 2021 can be found in our Annual Reports on Form 10-K filed for those previous fiscal years. (In thousands, except per share and operating data) Fiscal years (1) 2022 2021 2020 2019 2018 Income Statement Data: Net sales $ 1,262,235 $ 1,330,394 $ 976,765 $ 1,036,551 $ 1,029,650 Gross profit $ 468,164 $ 526,787 $ 279,982 $ 311,869 $ 308,992 Operating income $ 146,444 $ 207,654 $ 21,865 $ 54,209 $ 49,760 Net income $ 110,068 $ 154,881 $ 15,991 $ 42,914 $ 38,135 Diluted net income per share $ 3.96 $ 5.42 $ 0.56 $ 1.46 $ 1.23 Dividends declared per share $ 0.360 $ 0.280 $ 0.178 $ 0.168 $ 0.158 Balance Sheet Data: Cash and cash equivalents $ 51,372 $ 117,443 $ 106,532 $ 61,899 $ 67,021 Total assets (2) $ 989,781 $ 812,264 $ 642,747 $ 628,374 $ 417,999 Long-term debt $ 0 $ 0 $ 0 $ 0 $ 0 Total shareholders’ equity $ 525,568 $ 452,533 $ 310,176 $ 297,363 $ 304,433 Operating Data: Stores open at end of year 397 393 383 392 397 Comparable store sales (3) -11.1 % 35.3 % -5.3 % 1.9 % 4.3 % Square footage of store space at year end (000’s) 4,505 4,419 4,146 4,220 4,268 Average sales per store (000’s) (4)(6) $ 3,159 $ 3,473 $ 2,503 $ 2,475 $ 2,473 Average sales per square foot (5)(6) $ 281 $ 321 $ 237 $ 245 $ 236 (1) Our fiscal year is a 52/53 week year ending on the Saturday closest to January 31. 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” 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’ acquisition or grand opening prior to the beginning of the period, including those stores that have been relocated or remodeled. Therefore, stores opened, acquired or closed during the periods indicated are not included in comparable store sales. We include e-commerce sales in our comparable store sales. Due to our omnichannel retailer strategy, we view e-commerce sales as an extension of our physical stores. (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. We include e-commerce sales in our average sales per square foot as a result of our omnichannel retailer strategy. Due to our omnichannel retailer strategy, we view e-commerce sales as an extension of our physical stores. (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. 38 ITEM 7A. QUANTITATIVE AND QUALITA TIVE DISCLOSURES ABOUT MARKET RISK We are exposed to market risk in that the interest payable on our credit 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 agreement during Fiscal 2022. ITEM 8. FINANCIAL STATEME NTS The information required by this item follows Deloitte & Touche LLP’s audit opinion, which begins on the following page. 39 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Shareholders and the Board of Directors of Shoe Carnival, Inc. Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of Shoe Carnival, Inc. and subsidiaries (the "Company") as of January 28, 2023 and January 29, 2022, the related consolidated statements of income, shareholders’ equity, and cash flows, for each of the three years in the period ended January 28, 2023, and the related notes (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of January 28, 2023 and January 29, 2022, and the results of its operations and its cash flows for each of the three years in the period ended January 28, 2023, in conformity with accounting principles generally accepted in the United States of America. We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of January 28, 2023, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 24, 2023, expressed an unqualified opinion on the Company's internal control over financial reporting. Basis for Opinion These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matter The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. Merchandise Inventories — Refer to Note 2 to the financial statements Critical Audit Matter Description Merchandise inventories are stated at the lower of cost or net realizable value using the first-in, first-out (“FIFO”) method. Factors considered in determining if inventory is properly stated at the lower of cost or net realizable value include, among others, recent sale prices, the length of time merchandise has been held in inventory, quantities of various styles held in inventory, seasonality of merchandise, expected consideration to be received from vendors and current and expected future sales trends. The Company 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. 40 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 Our audit procedures related to the significant judgments made by management to determine net realizable value of inventory included the following procedures, among others: • We tested the effectiveness of the Company’s internal control over the valuation of inventory, including the review and determination of the anticipated net realizable value of merchandise inventories compared to the cost value of inventory on-hand. • We tested the recorded inventory reserve by developing an expectation based on the prior year inventory reserve balance relative to the merchandise inventory balance at the prior year balance sheet date and compared it to the actual reserve recorded in the current year. • We evaluated the reasonableness of management’s determination of the net realizable value of inventory by: • Testing the accuracy of source data used in the calculation, including inventory on hand, aging of inventory, historical losses by product category, sales prices and consideration received from vendors. • Recalculating the projected loss for inventory on hand based on the source data used in the calculation. • 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 Indianapolis, Indiana March 24, 2023 We have served as the Company's auditor since 1988. 41 Shoe Carnival, Inc. Consolidated B alance Sheets (In thousands, except share data) January 28, 2023 January 29, 2022 Assets Current Assets: Cash and cash equivalents $ 51,372 $ 117,443 Marketable securities 11,601 14,961 Accounts receivable 3,052 14,159 Merchandise inventories 390,390 285,205 Other 13,308 10,264 Total Current Assets 469,723 442,032 Property and equipment – net 141,435 88,533 Operating lease right-of-use assets 318,612 220,952 Intangible assets 32,600 32,600 Goodwill 12,023 11,384 Deferred income taxes 0 2,699 Other noncurrent assets 15,388 14,064 Total Assets $ 989,781 $ 812,264 Liabilities and Shareholders’ Equity Current Liabilities: Accounts payable $ 78,850 $ 69,092 Accrued and other liabilities 20,281 33,053 Current portion of operating lease liabilities 58,154 51,563 Total Current Liabilities 157,285 153,708 Long-term portion of operating lease liabilities 285,074 194,788 Deferred income taxes 11,844 0 Deferred compensation 9,840 10,901 Other 170 334 Total Liabilities 464,213 359,731 Shareholders’ Equity: Common stock, $ 0.01 par value, 50,000,000 shares authorized and 41,049,190 shares issued in each period 410 410 Additional paid-in capital 83,423 80,681 Retained earnings 653,450 553,487 Treasury stock, at cost, 13,883,902 and 12,882,789 shares, respectively ( 211,715 ) ( 182,045 ) Total Shareholders’ Equity 525,568 452,533 Total Liabilities and Shareholders’ Equity $ 989,781 $ 812,264 See notes to consolidated financial statements. 42 Shoe Carnival, Inc. Consolidated Stat ements of Income (In thousands, except per share data) January 28, 2023 January 29, 2022 January 30, 2021 Net sales $ 1,262,235 $ 1,330,394 $ 976,765 Cost of sales (including buying, distribution and occupancy costs) 794,071 803,607 696,783 Gross profit 468,164 526,787 279,982 Selling, general and administrative expenses 321,720 319,133 258,117 Operating income 146,444 207,654 21,865 Interest income ( 972 ) ( 24 ) ( 97 ) Interest expense 294 478 412 Income before income taxes 147,122 207,200 21,550 Income tax expense 37,054 52,319 5,559 Net income $ 110,068 $ 154,881 $ 15,991 Net income per share: Basic $ 4.00 $ 5.49 $ 0.57 Diluted $ 3.96 $ 5.42 $ 0.56 Weighted average shares: Basic 27,543 28,233 28,133 Diluted 27,812 28,596 28,496 See notes to consolidated financial statements. 43 Shoe Carnival, Inc. Consolidated Statements of Shareholders’ Equity (In thousands) Common Stock Issued Treasury Amount Additional Paid-In Capital Retained Earnings Treasury Stock Total Balance at February 1, 2020 41,049 ( 13,034 ) $ 410 $ 79,773 $ 395,761 $ ( 178,581 ) $ 297,363 Dividends ($ 0.178 per share) ( 5,097 ) ( 5,097 ) Employee stock purchase plan purchases 16 ( 29 ) 224 195 Stock-based compensation awards 323 ( 4,467 ) 4,467 0 Shares surrendered by employees to pay taxes on stock-based compensation awards ( 144 ) ( 1,736 ) ( 1,736 ) Stock-based compensation expense 3,460 3,460 Net income 15,991 15,991 Balance at January 30, 2021 41,049 ( 12,839 ) $ 410 $ 78,737 $ 406,655 $ ( 175,626 ) $ 310,176 Dividends ($ 0.28 per share) ( 8,049 ) ( 8,049 ) Employee stock purchase plan purchases 5 82 78 160 Stock-based compensation awards 248 ( 3,400 ) 3,400 0 Shares surrendered by employees to pay taxes on stock-based compensation awards ( 88 ) ( 2,750 ) ( 2,750 ) Purchase of common stock for Treasury ( 209 ) ( 7,147 ) ( 7,147 ) Stock-based compensation expense 5,262 5,262 Net income 154,881 154,881 Balance at January 29, 2022 41,049 ( 12,883 ) $ 410 $ 80,681 $ 553,487 $ ( 182,045 ) $ 452,533 Dividends ($ 0.36 per share) ( 10,105 ) ( 10,105 ) Employee stock purchase plan purchases 9 47 140 187 Stock-based compensation awards 198 ( 2,880 ) 2,880 0 Shares surrendered by employees to pay taxes on stock-based compensation awards ( 74 ) ( 2,175 ) ( 2,175 ) Purchase of common stock for Treasury ( 1,134 ) ( 30,515 ) ( 30,515 ) Stock-based compensation expense 5,575 5,575 Net income 110,068 110,068 Balance at January 28, 2023 41,049 ( 13,884 ) $ 410 $ 83,423 $ 653,450 $ ( 211,715 ) $ 525,568 See notes to consolidated financial statements. 44 Shoe Carnival, Inc. Consolidated Statem ents of Cash Flows (In thousands) January 28, 2023 January 29, 2022 January 30, 2021 Cash Flows From Operating Activities Net income $ 110,068 $ 154,881 $ 15,991 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 23,196 18,752 16,114 Stock-based compensation 5,434 5,531 3,883 (Gain) Loss on retirement and impairment of assets, net ( 501 ) 1,404 2,807 Deferred income taxes 14,543 2,936 2,198 Non-cash operating lease expense 47,766 43,011 42,008 Other 962 4,566 2,035 Changes in operating assets and liabilities: Accounts receivable 11,410 ( 6,196 ) ( 4,372 ) Merchandise inventories ( 106,192 ) ( 24,281 ) 26,229 Operating lease liabilities ( 48,992 ) ( 46,562 ) ( 38,477 ) Accounts payable and accrued liabilities 925 3,781 2,510 Other ( 8,181 ) ( 9,930 ) ( 7,531 ) Net cash provided by operating activities 50,438 147,893 63,395 Cash Flows From Investing Activities Purchases of property and equipment ( 77,293 ) ( 31,387 ) ( 12,396 ) Investments in marketable securities and other ( 976 ) ( 18,975 ) 0 Sales of marketable securities and other 3,850 1,800 303 Acquisition, net of cash acquired 385 ( 70,685 ) 0 Net cash used in investing activities ( 74,034 ) ( 119,247 ) ( 12,093 ) Cash Flows From Financing Activities Borrowings under line of credit 0 0 24,903 Payments on line of credit 0 0 ( 24,903 ) Proceeds from issuance of stock 187 160 195 Dividends paid ( 9,972 ) ( 7,998 ) ( 5,128 ) Purchase of common stock for treasury ( 30,515 ) ( 7,147 ) 0 Shares surrendered by employees to pay taxes on stock-based compensation awards ( 2,175 ) ( 2,750 ) ( 1,736 ) Net cash used in financing activities ( 42,475 ) ( 17,735 ) ( 6,669 ) Net (decrease) increase in cash and cash equivalents ( 66,071 ) 10,911 44,633 Cash and cash equivalents at beginning of year 117,443 106,532 61,899 Cash and cash equivalents at end of year $ 51,372 $ 117,443 $ 106,532 Supplemental disclosures of cash flow information: Cash paid during year for interest $ 303 $ 479 $ 392 Cash paid during year for income taxes $ 23,933 $ 50,466 $ 3,144 Capital expenditures incurred but not yet paid $ 3,157 $ 5,949 $ 1,440 Dividends declared but not yet paid $ 316 $ 184 $ 133 See notes to consolidated financial statements. 45 Shoe Carnival, Inc. Notes to Consolidated Financial Statements Note 1 – Organization and Description of Business Our consolidated financial statements include the accounts of Shoe Carnival, Inc. and its wholly-owned subsidiaries SCHC, Inc. and Shoe Carnival Ventures, LLC, and SCLC, Inc., a wholly-owned subsidiary of SCHC, Inc. (collectively referred to as “we”, “our”, “us” or the “Company”). All intercompany accounts and transactions have been eliminated. We are an omnichannel retailer selling footwear and related products through our retail stores located in 35 states within the continental United States and in Puerto Rico, as well as through our e-commerce platform. Note 2 – Summary of Significant Accounting Policies Fiscal Year Our fiscal year is a 52/53 week year ending on the Saturday closest to January 31. Unless otherwise stated, references to years 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. The U.S. 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. Impacts included the temporary closure of our physical stores effective March 19, 2020, reduced foot traffic and sales, deteriorating economic conditions for our customer base, and some disruption to our global supply chain. We began reopening physical stores in accordance with applicable public health guidelines in late April 2020. By the beginning of the second quarter of Fiscal 2020, approximately 50 % of our stores were reopened, and by early 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 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 The preparation of our consolidated financial statements in conformity with generally accepted accounting principles in the United States of America requires management to make estimates and assumptions that affect the reported amounts of certain assets and liabilities as of the financial statement reporting date in addition to the reported amounts of certain revenues and expenses for the reporting period. The assumptions used by management in future estimates could change significantly due to changes in circumstances and actual results could differ from those estimates. Cash and Cash Equivalents We had Cash and Cash Equivalents of $ 51.4 million at January 28, 2023 and $ 117.4 million at January 29, 2022. Credit and debit card receivables and receivables due from a third party totaling $ 6.3 million and $ 6.7 million were included in cash equivalents at January 28, 2023 and January 29, 2022 , respectively. Credit and debit card receivables generally settle within three days ; receivables due from third parties generally settle within five business days. We consider all short-term investments with an original maturity date of three months or less to be cash equivalents. As of January 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 46 financial institutions fail or are subject to other adverse conditions in the financial markets. To date, we have experienced no loss or lack of access to either invested cash or cash held in our bank accounts. Fair Value Measurements The accounting guidance related to fair value measurements defines fair value and provides a consistent framework for measuring fair value. Valuation techniques are based on observable and unobservable inputs. Observable inputs reflect readily obtainable data from independent sources, while unobservable inputs reflect market assumptions. This guidance only applies when other guidance requires or permits the fair value measurement of assets and liabilities. A fair value hierarchy was established, which prioritizes the inputs used in measuring fair value into three broad levels: • Level 1 – Quoted prices in active markets for identical assets or liabilities; • Level 2 – Quoted prices in active or inactive markets for similar assets or liabilities that are either directly or indirectly observable; and • Level 3 – Significant unobservable inputs that are generally model-based valuation techniques such as discounted cash flows, based on the best information available, including our own data. Fair values of our long-lived assets are estimated using an income-based approach and are classified within Level 3 of the valuation hierarchy. Merchandise Inventories and Cost of Sales Merchandise Inventories are stated at the lower of cost or net realizable value using the first-in, first-out (“FIFO”) method. For determining net realizable value, we estimate the future demand and related sale price of merchandise contained in inventory as of the balance sheet date. The stated value of Merchandise Inventories contained on our Consolidated Balance Sheets also includes freight, certain capitalized overhead costs and reserves. Factors considered in determining if our inventory is properly stated at the lower of cost or net realizable value include, among others, recent sale prices, the length of time merchandise has been held in inventory, quantities of various styles held in inventory, seasonality of merchandise, expected consideration to be received from our vendors and current and expected future sales trends. We also review aging trends, which include the historical rate at which merchandise has sold below cost and the value and nature of merchandise currently held in inventory and priced below original cost. We reduce the value of our inventory to its estimated net realizable value where cost exceeds the estimated future selling price. Material changes in the factors previously noted could have a significant impact on the actual net realizable value of our inventory and our reported operating results. Cost of Sales includes the cost of merchandise sold, buying, distribution, and occupancy costs, inbound freight expense, provision for inventory obsolescence, inventory shrink and credits and allowances from merchandise vendors. Cost of Sales related to our e-commerce orders includes freight expense for delivering merchandise to our customers. Leases We evaluate whether a contract is an operating or finance lease at its inception or at its acquisition. All of our leases are classified as operating leases as of January 28, 2023. 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 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. Interest on operating lease liabilities and the amortization of ROU assets results in straight-line rent expense over the lease term. We record variable lease expense associated with contingent rent, reduced rent due to co-tenancy violations, and other variable non-lease components when incurred. 47 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: (1) lease classification and the related accounting treatment; (2) rent holidays, escalations or deferred lease incentives, which are taken into consideration when calculating straight-line expense; (3) the term over which leasehold improvements for each store are amortized; and (4) the values and lives of adjustments to initial ROU assets. The amount of amortized rent expense would vary if different estimates and assumptions were used. See Note 10 – “Leases” for additional discussion of our lease policies as well as additional disclosures related to our leases. Revenue Recognition Substantially all of our revenue is for a single performance obligation and is recognized when control passes to customers. We consider control to have transferred when we have a present right to payment, the customer has title to the product, physical possession of the product has been transferred to the customer and the risks and rewards of the product that we retain are minimal. The redemption of loyalty points under our Shoe Perks loyalty rewards program and redemptions of gift cards are accounted for as separate performance obligations. See Note 5 – “Revenue” for additional discussion of our revenue recognition policies as well as additional disclosures on revenue from contracts with customers. Property and Equipment- Net Property and Equipment is stated at cost and is depreciated or amortized using the straight-line method over the shorter of the estimated useful lives of the assets or the applicable lease terms. Lives used in computing depreciation and amortization range from two to twenty-five years. Expenditures for maintenance and repairs are charged to expense as incurred. Expenditures that materially increase values, improve capacities or extend useful lives are capitalized. Upon sale or retirement, the costs and related accumulated depreciation or amortization are eliminated from the respective accounts and any resulting gain or loss is included in operations. Cloud Computing Arrangements that are Service Contracts We account for the costs to implement hosted cloud computing arrangements that are considered to be service contracts in current and noncurrent other assets. We capitalize these costs based on the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. We amortize the costs over the related service contract period for the hosted arrangement. 48 Long-Lived Asset Impairment Testing We periodically evaluate our long-lived assets for impairment if events or circumstances indicate that the carrying value may not be recoverable. The carrying value of long-lived assets is considered impaired when the carrying value of the assets exceeds the expected future cash flows to be derived from their use. Assets are grouped, and the evaluation is performed, at the lowest level for which there are identifiable cash flows, which is generally at a store level. Store level asset groupings typically include property and equipment and operating lease ROU assets. If the estimated, undiscounted future cash flows for a store are determined to be less than the carrying value of the store’s assets, an impairment loss is recorded for the difference between estimated fair value and carrying value. Assets subject to impairment are adjusted to estimated fair value and, if applicable, an impairment loss is recorded in Selling, General and Administrative Expenses. If the operating lease ROU asset is impaired, we would amortize the remaining ROU asset on a straight-line basis over the remaining lease term. We estimate the fair value of our long-lived assets using store specific cash flow assumptions discounted by a rate commensurate with the risk involved with such assets while incorporating marketplace assumptions. Our estimates are derived from an income-based approach considering the cash flows expected over the remaining lease term for each location. These projections are primarily based on management’s estimates of store-level sales, exercise of future lease renewal options and the store’s contribution to cash flows and, by their nature, include judgments about how current initiatives will impact future performance. We estimate the fair value of operating lease ROU assets using the market value of rents applicable to the leased asset, discounted using the remaining lease term. External factors, such as the local environment in which the store is located, including store traffic and competition, are evaluated in terms of their effect on sales trends. Changes in sales and operating income assumptions or unfavorable changes in external factors can significantly impact the estimated future cash flows. An increase or decrease in the projected cash flow can significantly impact the fair value of these assets, which may have an effect on the impairment recorded. If actual operating results or market conditions differ from those anticipated, the carrying value of certain of our assets may prove unrecoverable and we may incur additional impairment charges in the future. 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 We self-insure a significant portion of our workers’ compensation, general liability and employee health care costs and also maintain insurance in each area of risk to protect us from individual and aggregate losses over specified dollar values. Self-insurance reserves include estimates of claims filed, carried at their expected ultimate settlement value, and claims incurred but not yet reported. These estimates take into consideration a number of factors, including historical claims experience, severity factors, statistical trends and, in certain instances, valuation assistance provided by independent third parties. We record self-insurance expense as a component of Accrued and Other Liabilities in our Consolidated Balance Sheets and in Selling, General and Administrative Expenses in our Consolidated Statements of Income. While we believe that the recorded amounts are adequate, there can be no assurance that changes to management’s estimates will not occur due to limitations inherent in the estimating process. If actual results are not consistent with our estimates or assumptions, we may be exposed to losses or gains that could be material. Consideration Received From a Vendor Consideration is primarily received from merchandise vendors and includes co-operative advertising/promotion, margin assistance, damage allowances and rebates earned for a specific level of purchases over a defined period. Consideration principally takes the form of credits that we can apply against trade amounts owed. 49 Consideration is recorded as a reduction of the price paid for the vendor’s products and recorded as a reduction of our Cost of Sales unless the consideration represents a reimbursement of a specific, incremental, identifiable cost; in such a scenario, it is recorded as an offset to the same financial statement line item. Consideration received after the related merchandise has been sold is recorded as an offset to Cost of Sales in the period negotiations are finalized. For consideration received on merchandise still in inventory, the allowance is recorded as a reduction to the cost of on-hand inventory and recorded as a reduction of our Cost of Sales at the time of sale. Should the consideration received be related to something other than the vendor’s product and such consideration received exceeds the incremental costs incurred, then the excess consideration is recorded as a reduction to the cost of on-hand inventory and allocated to Cost of Sales in future periods utilizing an average inventory turn rate. Advertising Costs Digital media, print, television, radio, outdoor media and internal production costs are expensed when incurred. External production costs are expensed in the period the advertisement first takes place. Advertising expenses included in Selling, General and Administrative Expenses were $ 55.9 million, $ 58.7 million and $ 42.1 million in fiscal years 2022, 2021 and 2020 , respectively. Store Opening and Start-up Costs Non-capital expenditures, such as payroll, supplies and rent incurred prior to the opening of a new store, are charged to expense in the period they are incurred. Advertising related to new stores is expensed pursuant to the aforementioned advertising policy. Stock-Based Compensation We recognize compensation expense for stock-based awards using a fair value based method. Stock-based awards may include stock units, restricted stock, stock appreciation rights and other stock-based awards under our stock-based compensation plans. Additionally, we recognize stock-based compensation expense for the discount on shares sold to employees through our employee stock purchase plan. This discount represents the difference between the market price and the employee purchase price. Stock-based compensation expense is included in Selling, General and Administrative Expenses. We account for forfeitures as they occur in calculating stock-based compensation expense for the period. For performance-based stock awards, we estimate the probability of vesting based on the likelihood that the awards will meet their performance goals. Segment Information We are a family footwear retailer that offers a broad assortment of dress, casual and athletic footwear for men, women and children with emphasis on national name brands. We operate our business as one reportable segment based on the similar nature of products sold; merchandising, distribution, and marketing processes involved; target customers; and economic characteristics of our stores and e-commerce platform. Due to our omnichannel retailer strategy, we view e-commerce sales as an extension of our physical stores. Income Taxes We compute income taxes using the asset and liability method, under which deferred income taxes are provided for the temporary differences between the financial reporting basis and the tax basis of our assets and liabilities. Deferred tax assets are reduced, if necessary, by a valuation allowance to the extent future realization of those tax benefits are uncertain. We report a liability for unrecognized tax benefits resulting from uncertain tax positions taken or expected to be taken in a tax return. We recognize interest expense and penalties, if any, related to uncertain tax positions in Income Tax Expense. 50 Net Income Per Share The following table sets forth the computation of Basic and Diluted Net Income per Share as shown on the face of the accompanying Consolidated Statements of Income: Fiscal Year Ended January 28, 2023 January 29, 2022 January 30, 2021 (In thousands, except per share data) Basic Net Income per Share: Net Income Shares Per Share Amount Net Income Shares Per Share Amount Net Income Shares Per Share Amount Net income $ 110,068 $ 154,881 $ 15,991 Conversion of share-based compensation arrangements 0 0 0 Net income available for basic common shares and basic net income per share $ 110,068 27,543 $ 4.00 $ 154,881 28,233 $ 5.49 $ 15,991 28,133 $ 0.57 Diluted Net Income per Share: Net income $ 110,068 $ 154,881 $ 15,991 Conversion of share-based compensation arrangements 0 269 0 363 0 363 Net income available for diluted common shares and diluted net income per share $ 110,068 27,812 $ 3.96 $ 154,881 28,596 $ 5.42 $ 15,991 28,496 $ 0.56 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 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 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 51 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 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. 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 purchase price allocation was considered complete as of December 3, 2022. (In thousands) Fair value of identifiable assets and liabilities: Merchandise inventories $ 27,708 Other assets 3,404 Property and equipment, net 6,045 Operating lease ROU assets 14,620 Shoe Station trade names 32,600 Goodwill 12,023 Total assets $ 96,400 Accounts payable 6,104 Operating lease liabilities 18,235 Accrued and other liabilities 1,761 Total liabilities $ 26,100 Purchase Price: Total consideration, net of cash acquired $ 70,300 We are treating Shoe Station trade names as indefinite-lived Intangible Assets; 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. 52 Note 4 – Fair Value of Financial Instruments The following table presents financial instruments that are measured at fair value on a recurring basis at January 28, 2023 and January 29, 2022: Fair Value Measurements (In thousands) Level 1 Level 2 Level 3 Total As of January 28, 2023: Cash equivalents – money market mutual funds $ 45,265 $ 0 $ 0 $ 45,265 Marketable securities - mutual funds that fund deferred compensation 11,601 0 0 11,601 Total $ 56,866 $ 0 $ 0 $ 56,866 As of January 29, 2022: Cash equivalents – money market mutual funds $ 115,528 $ 0 $ 0 $ 115,528 Marketable securities - mutual funds that fund deferred compensation 14,961 0 0 14,961 Total $ 130,489 $ 0 $ 0 $ 130,489 During Fiscal 2021, we invested in publicly traded mutual funds with readily determinable fair values. These Marketable Securities are designed to mitigate volatility in our Consolidated Statements of Income associated with our non-qualified deferred compensation plan. As of January 28, 2023, these Marketable Securities were principally invested in equity-based mutual funds, consistent with the allocation in our deferred compensation plan. As of January 28, 2023, the balance in our deferred compensation plan was $ 11.3 million, of which $ 1.5 million was in Accrued and Other Liabilities based on scheduled payments due within the next 12 months and $ 9.8 million was in Deferred compensation, a long-term liability. To the extent there are funds in excess of the total non-qualified deferred compensation plan liability, such funds are invested in a stable value mutual fund. We classify these Marketable Securities as current assets because we have the ability to convert the securities into cash at our discretion and these marketable securities are not held in a rabbi trust. We have recognized 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. 53 Note 5 – Revenue Disaggregation of Revenue by Product Category Revenue is disaggregated by product category below. Net Sales and percentage of Net Sales for fiscal years 2022, 2021 and 2020 are as follows: (In thousands) January 28, 2023 January 29, 2022 January 30, 2021 Non-Athletics: Women's $ 348,632 28 % $ 317,144 24 % $ 213,095 22 % Men's 208,756 17 189,294 14 132,057 14 Children's 92,664 7 87,926 6 54,706 5 Total 650,052 52 594,364 44 399,858 41 Athletics: Women's 181,348 14 212,669 16 180,664 18 Men's 204,766 16 264,417 20 214,010 22 Children's 150,622 12 183,211 14 125,728 13 Total 536,736 42 660,297 50 520,402 53 Accessories 68,757 5 67,168 5 48,282 5 Other 6,690 1 8,565 1 8,223 1 Total $ 1,262,235 100 % $ 1,330,394 100 % $ 976,765 100 % Accounting Policy and Performance Obligations We operate as an omnichannel, family footwear retailer and provide the convenience of shopping at our physical stores or shopping online through our e-commerce platform. As part of our omnichannel strategy, we offer Shoes 2U, a program that enables us to ship product to a customer’s home or selected store if the product is not in stock at a particular store. We also offer “buy online, pick up in store” services for our customers. “Buy online, pick up in store” provides the convenience of local pickup for our customers. For our physical stores, we satisfy our performance obligation and control is transferred at the point of sale when the customer takes possession of the products. This also includes the “buy online, pick up in store” scenario described above and includes sales made via our Shoes 2U program when customers choose to pick up their goods at a physical store. For sales made through our e-commerce platform in which the customer chooses home delivery, we transfer control and recognize revenue when the product is shipped. This also includes sales made via our Shoes 2U program when the customer chooses home delivery. We offer our customers sales incentives including coupons, discounts, and free merchandise. Sales are recorded net of such incentives and returns and allowances. If an incentive involves free merchandise, that merchandise is recorded as a zero sale and the cost is included in Cost of Sales. Gift card revenue is recognized at the time of redemption. When a customer makes a purchase as part of our rewards program, we allocate the transaction price between the goods purchased and the loyalty reward points and recognize the loyalty revenue based on estimated customer redemptions. Transaction Price and Payment Terms The transaction price is the amount of consideration we expect to receive from our customers and is reduced by any stated promotional discounts at the time of purchase. The transaction price may be variable due to terms that permit customers to exchange or return products for a refund. The implicit contract with the customer reflected in the transaction receipt states the final terms of the sale, including the description, quantity, and price of each product purchased. The customer agrees to a stated price in the contract that does not vary over the term of the contract and may include revenue to offset shipping costs. Taxes imposed by governmental authorities such as sales taxes are excluded from Net Sales. 54 We accept various forms of payment from customers at the point of sale typical for an omnichannel retailer. Payments made for products are generally collected when control passes to the customer, either at the point of sale or at the time the customer order is shipped. For Shoes 2U transactions, customers may order the product at the point of sale. For these transactions, customers pay in advance and unearned revenue is recorded as a contract liability. We recognize the related revenue when control has been transferred to the customer (i.e., when the product is picked up by the customer or shipped to the customer). Unearned revenue related to Shoes 2U was not material to our consolidated financial statements at January 28, 2023 and January 29, 2022. Returns and Refunds We have established an allowance based upon historical experience in order to estimate return and refund transactions. This allowance is recorded as a reduction in sales with a corresponding refund liability recorded in Accrued and Other Liabilities. The estimated cost of Merchandise Inventory is recorded as a reduction to Cost of Sales and an increase in Merchandise Inventories. At January 28, 2023 , approximately $ 866,000 of refund liabilities and $ 503,000 of right of return assets associated with estimated product returns were recorded in Accrued and Other Liabilities. At January 29, 2022 , approximately $ 884,000 of refund liabilities and $ 516,000 of right of return assets associated with estimated product returns were recorded in Accrued and Other Liabilities. Contract Liabilities The issuance of a gift card is recorded as an increase to contract liabilities and a decrease to contract liabilities when a customer redeems a gift card. Estimated breakage is determined based on historical breakage percentages and recognized as revenue based on expected gift card usage. We do not record breakage revenue when escheat liability to relevant jurisdictions exists. At January 28, 2023 and January 29, 2022 , approximately $ 2.4 million and $ 2.3 million of contract liabilities associated with unredeemed gift cards were recorded in Accrued and Other Liabilities, respectively. We expect the revenue associated with these liabilities to be recognized in proportion to the pattern of customer redemptions within two years. Breakage revenue associated with our gift cards recognized in Net Sales was 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. Points under Shoe Perks are earned primarily by making purchases through any of our omnichannel points of sale. Once a certain threshold of accumulated points is reached, the customer earns a reward certificate, which is redeemable through any of our sales channels. When a Shoe Perks customer makes a purchase, we allocate the transaction price between the goods purchased and the loyalty reward points earned based on the relative standalone selling price. The portion allocated to the points program is recorded as a contract liability for rewards that are expected to be redeemed. We then recognize revenue based on an estimate of when customers redeem rewards, which incorporates an estimate of points expected to expire using historical rates. Loyalty awards recognized in Net Sales were $ 5.5 million, $ 6.1 million and $ 4.4 million during fiscal years 2022, 2021 and 2020, respectively. At January 28, 2023 and January 29, 2022 , approximately $ 844,000 and $ 852,000 of contract liabilities associated with loyalty rewards were recorded in Accrued and Other Liabilities, respectively. We expect the revenu e associated with these liabilities to be recognized in proportion to the pattern of customer redemptions in less than one year. 55 Note 6 – Property and Equipment The following is a summary of Property and Equipment: (In thousands) January 28, 2023 January 29, 2022 Land $ 1,564 $ 1,564 Buildings 7,670 7,525 Furniture, fixtures and equipment 202,790 170,321 Leasehold improvements 163,929 129,550 Total 375,953 308,960 Less accumulated depreciation and amortization ( 234,518 ) ( 220,427 ) Property and equipment – net $ 141,435 $ 88,533 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 . 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. Note 7 – Cloud Computing Arrangements that are Service Contracts 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 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. As of January 29, 2022 , approximately $ 2.8 million of net capitalized costs related to cloud computin g arrangements were classified in Other Current Assets and $ 12.8 million were classified as Other Noncurrent Assets in our Consolidated Balance Sheets. Note 8 – Accrued and Other Liabilities Accrued and Other Liabilities consisted of the following: (In thousands) January 28, 2023 January 29, 2022 Employee compensation and benefits $ 8,474 $ 15,454 Sales and use tax 2,416 2,270 Gift cards 2,399 2,323 Self-insurance reserves 1,721 3,585 Current portion of non-qualified deferred compensation 1,514 3,725 Other 3,757 5,696 Total accrued and other liabilities $ 20,281 $ 33,053 56 Note 9 – Debt 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’ commitment. The terms “net worth”, “consolidated interest coverage ratio”, “consolidated funded indebtedness”, “consolidated rental expense”, “consolidated EBITDA”, “base rate” and “Adjusted Term SOFR” are defined in the 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 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 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. 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 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’ commitment. 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. Note 10 – Leases 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. W e do not have any leases with related parties. In addition, we do not have any sublease arrangements with any related party or third party. Our lease agreements do not contain any material residual value guarantees or material restrictive covenants. Our real estate leases typically include options to extend the lease or to terminate the lease at our sole discretion. Options to extend real estate leases typically include one or more options to renew, with renewal terms that typically 57 extend the lease term for five years or more. Many of our leases also contain “co-tenancy” provisions, including the required presence and continued operation of certain anchor tenants in the adjoining retail space. If a co-tenancy violation occurs, we have the right to a reduction of rent for a defined period after which we have the option to terminate the lease if the violation is not cured. In addition to co-tenancy provisions, certain leases contain “go-dark” provisions that allow us to cease operations while continuing to pay rent through the end of the lease term. When determining the lease term, we include options that are reasonably certain to be exercised. Our leases typically provide for fixed minimum rental payments, and certain leases provide for contingent rental payments based upon various specified percentages of sales above minimum levels. In addition to rental payments, we are required to pay certain non-lease components, such as real estate taxes, insurance and CAM, on most of our real estate leases. Such non-lease components are typically variable in nature. Certain real estate leases also contain escalation clauses for increases in minimum rentals, operating costs and taxes. Lease-related costs reported in our Consolidated Statements of Income were as follows: (In thousands) 2022 2021 2020 Operating lease cost $ 60,777 $ 54,417 $ 53,418 Variable lease cost CAM, property taxes and insurance 19,001 18,914 19,805 Percentage rent and other variable lease costs 1,231 2,723 2,008 Total $ 81,009 $ 76,054 $ 75,231 During Fiscal 2020, we deferred lease payments of approximately $ 3.1 million during April, May and June pursuant to arrangements reached with various landlords. These deferrals were substantially repaid over the remainder of Fiscal 2020. We accounted for these arrangements as if they were part of the enforceable rights and obligations of the existing contracts, not as lease modifications. Rent continued to be recognized on a straight line basis for contracts with these deferrals. Other information related to leases, including supplemental cash flow information, consists of: (In thousands) 2022 2021 2020 Cash paid for amounts included in the measurement of operating lease liabilities $ 48,991 $ 46,562 $ 38,477 ROU assets obtained in exchange for operating lease liabilities 1 $ 146,996 $ 64,058 $ 36,290 As of As of As of January 28, 2023 January 29, 2022 January 30, 2021 Weighted-average remaining lease term for operating leases (in years) 7.3 6.0 6.1 Weighted-average discount rate for operating leases 4.2 % 5.2 % 5.2 % 1) Includes ROU assets added as part of the Shoe Station acquisition described in Note 3 - "Acquisition of Shoe Station" 58 The following table reconciles the undiscounted cash flows for each of the first five years and the total of the remaining years to our operating lease liabilities as of January 28, 2023: (In thousands) Operating Leases 2023 $ 71,596 2024 61,821 2025 50,619 2026 49,713 2027 42,946 Thereafter to 2034 119,396 Total undiscounted lease payments 396,091 Less: Imputed interest 52,863 Total operating lease liabilities 343,228 Less: Current portion of operating lease liabilities 58,154 Long-term portion of operating lease liabilities $ 285,074 Note 11 – Income Taxes The provision for income taxes consisted of: (In thousands) 2022 2021 2020 Current: Federal $ 15,542 $ 38,576 $ 2,233 State 4,919 8,076 887 Puerto Rico 2,050 2,730 241 Total current 22,511 49,382 3,361 Deferred: Federal 11,712 1,296 2,122 State 1,878 390 ( 294 ) Puerto Rico - - 133 Total deferred 13,590 1,686 1,961 Valuation allowance 953 1,251 237 Total provision $ 37,054 $ 52,319 $ 5,559 Reconciliation between the statutory federal income tax rate and the effective income tax rate is as follows: Fiscal years 2022 2021 2020 U.S. Federal statutory tax rate 21.0 % 21.0 % 21.0 % State and local income taxes, net of federal tax benefit 3.5 3.6 2.4 Puerto Rico 0.6 0.6 1.7 Excess tax benefit on stock-based compensation ( 0.4 ) ( 0.5 ) 0.4 Other 0.5 0.6 0.3 Effective income tax rate 25.2 % 25.3 % 25.8 % 59 Deferred income taxes are the result of temporary differences in the recognition of revenue and expense for tax and financial reporting purposes. The sources of these differences and the tax effect of each are as follows: (In thousands) January 28, 2023 January 29, 2022 Deferred tax assets: Lease obligations $ 83,473 $ 55,126 Accrued compensation 4,496 3,917 Inventory 767 1,018 Other 4,639 3,719 Total deferred tax assets 93,375 63,780 Valuation allowance ( 2,635 ) ( 1,682 ) Total deferred tax assets – net of valuation allowance 90,740 62,098 Deferred tax liabilities: Lease ROU assets 78,627 50,363 Property and equipment 19,673 6,767 Other 4,284 2,269 Total deferred tax liabilities 102,584 59,399 Net long-term (liability) / asset $ ( 11,844 ) $ 2,699 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 . We have taken a full valuation allowance against these credits given they are not expected to be utilized due to the current differential between U.S. and Puerto Rico tax rates. As of January 28, 2023 and January 29, 2022 , there were no unrecognized tax liabilities or related accrued penalties or interest. Note 12 – Employee Benefit Plans Retirement Savings Plans Our Board of Directors-approved Shoe Carnival Retirement Savings Plan (the “Domestic Savings Plan”) is open to all employees working in the continental United States who have been employed for at least one year , are at least 21 years of age and who work at least 1,000 hours in a defined year. The primary savings mechanism under the Domestic Savings Plan is a 401(k) plan under which an employee may contribute up to 20 % of annual earnings with a matching Company contribution up to the first 4 % at a rate of 50 %. Our contributions to the participants’ accounts become fully vested when participants reach their third anniversary of employment with us. Our Board of Directors-approved Shoe Carnival Puerto Rico Savings Plan (the “Puerto Rico Savings Plan”) is open to all employees working in Puerto Rico who have been employed for at least one year , are at least 21 years of age 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 $ 1.0 million, $ 949,000 and $ 851,000 in fiscal years 2022, 2021 and 2020, respectively. Deferred Compensation Plan We have a non-qualified deferred compensation plan for certain key employees who, due to Internal Revenue Service guidelines, cannot take full advantage of the employer-sponsored 401(k) plan. Participants in the plan may elect on an annual basis to defer, on a pre-tax basis, portions of their current compensation until retirement, or earlier if so elected. We voluntarily match a portion of the employees’ contributions, which is subject to vesting requirements. The compensation deferred under this plan is credited with earnings or losses measured by the rate of return on 60 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 – Stock-Based Compensation Stock-based compensation includes share-settled awards issued pursuant to our shareholder approved Shoe Carnival, Inc. 2017 Equity Incentive Plan (the “2017 Plan”) in the form of restricted stock units, performance stock units, and restricted and other stock awards. Additionally, we recognize stock-based compensation expense for the discount on shares sold to employees through our Employee Stock Purchase Plan and for cash-settled stock appreciation rights (SARs). For fiscal years 2022, 2021 and 2020, stock-based compensation expense was comprised of the following: (In thousands) 2022 2021 2020 Share-settled equity awards $ 5,542 $ 5,234 $ 3,426 Stock appreciation rights ( 141 ) 269 423 Employee stock purchase plan 33 28 34 Total stock-based compensation expense $ 5,434 $ 5,531 $ 3,883 Income tax benefit at statutory rates $ 1,368 $ 1,399 $ 1,002 Additional income tax (benefit)/expense on vesting of share-settled awards $ ( 562 ) $ ( 992 ) $ 81 As of January 28, 2023, there was approximately $ 6.8 million of unrecognized compensation expense remaining related to our share-settled equity awards. The cost is expected to be recognized over a weighted average period of approximately 1.1 years. Under the 2017 Plan, we may issue stock units, restricted stock, stock appreciation rights, stock options and other stock-based awards to eligible participants. According to the terms of the 2017 Plan, no further awards may be made from any previously approved equity plans. As of January 28, 2023 , there were approximately 546,000 shares of our common stock available for future issuances under the 2017 Plan. Equity awards issued to employees are classified as either performance-based or service-based. Our outstanding performance-based equity awards were granted such that vesting depended on whether Diluted Net Income per Share met an established threshold, target, or maximum level of performance. Diluted Net Income per Share below the threshold level of performance would have resulted in complete forfeiture of the award. Our service-based restricted stock units and restricted stock awards vest under different scenarios based on the year they were granted, as determined and approved by our Board of Directors. Typical vesting scenarios are as follows: (a) one-third of the award vests on each of the first three anniversaries subsequent to the date of the grant; (b) one-half of the award vests after one year and one-half vests after two years; (c) one-third of the award vests after two years 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 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, 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. 61 Share-Settled Equity Awards The following table summarizes transactions for our restricted stock units and performance stock units: Number of Shares Weighted- Average Grant Date Fair Value Outstanding at January 29, 2022 457,038 $ 16.54 Granted 345,164 30.32 Vested ( 178,425 ) 18.26 Forfeited ( 63,454 ) 27.26 Outstanding at January 28, 2023 560,323 $ 23.27 The total fair value at grant date of restricted stock units and performance stock units that vested during Fiscal 2022, 2021 and 2020 was $ 3.3 million, $ 3.7 million and $ 4.4 million, respectively. 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. The following table summarizes transactions for our restricted stock and other stock awards: Number of Shares Weighted- Average Grant Date Fair Value Outstanding at January 29, 2022 0 $ 0.00 Granted 19,487 24.12 Vested ( 19,487 ) 24.12 Outstanding at January 28, 2023 0 $ 0.00 The total fair value at grant date of restricted stock and other stock awards that vested during Fiscal 2022, 2021 and 2020 was $ 0.5 million , $ 0.3 million and $ 1.6 million, respectively. The weighted-average grant date fair value of restricted stock and other stock awards granted during Fiscal 2021 and Fiscal 2020 was $ 32.79 and $ 12.46 , respectively. Cash-Settled Stock Appreciation Rights Cash-settled SARs are granted to certain non-executive employees. Each SAR entitles holders, upon exercise of their vested shares, to receive cash in an amount equal to the closing price of our stock on the date of exercise less the exercise price, with a maximum amount of gain defined. The SARs granted during the first quarter of Fiscal 2021 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 . SARs granted during the first quarter of Fiscal 2020 vested and became fully exercisable on March 31, 2021 and have all been exercised. SARs granted during the first quarter of Fiscal 2019 vested and became fully exercisable on March 31, 2020 and have all been exercised. 62 The following table summarizes SARs activity: Number of Shares Weighted- Average Exercise Price Weighted- Average Remaining Contractual Term (Years) Outstanding at January 29, 2022 84,800 $ 30.94 Granted 0 0.00 Forfeited ( 8,800 ) 30.94 Exercised 0 0.00 Outstanding at January 28, 2023 76,000 $ 30.94 1.2 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 SAR awards as of January 28, 2023 , was $ 0.81 . The fair value was estimated using a trinomial lattice model with the following assumptions: January 28, 2023 January 29, 2022 Risk free interest rate yield curve 3.62 %- 4.68 % 0.04 %- 1.61 % Expected dividend yield 1.3 % 0.8 % Expected volatility 65.42 % 63.31 % Maximum life 1.2 Years 2.2 Years Exercise multiple 1.03 1.03 Maximum payout $ 5.00 $ 5.00 Employee exit rate 2.2 % - 9.0 % 2.2 % - 9.0 % The risk-free interest rate was based on the U.S. Treasury yield curve in effect at the end of the reporting period. The expected dividend yield was based on our quarterly cash dividends, with the assumption that quarterly dividends would continue at that rate. Expected volatility was based on the historical volatility of our common stock. The exercise multiple and employee exit rate were based on historical data. Stock Purchase Plan In 1995, our Board of Directors and shareholders approved the Shoe Carnival, Inc. Employee Stock Purchase Plan (the “Stock Purchase Plan”). The Stock Purchase Plan reserves 450,000 shares of our common stock (subject to adjustment for any subsequent stock splits, stock dividends and certain other changes in our common stock) for issuance and sale to any employee who has been employed for more than a year at the beginning of the calendar year, and who is not a 10 % owner of our common stock, at 85 % of the then fair market value up to a maximum of $ 5,000 in any calendar year. Under the Stock Purchase Plan, 9,000 , 6,000 and 16,000 shares of common stock were purchased by plan participants and proceeds to us for the sale of those shares were approximately $ 187,000 , $ 160,000 and $ 195,000 for fiscal years 2022, 2021 and 2020, respectively. At January 28, 2023 , there were 109,000 shares of unissued common stock reserved for future purchase under the Stock Purchase Plan. Note 14 – Share Repurchase Program On December 14, 2022, our Board of Directors authorized a share repurchase program for up to $ 50 million of our outstanding common stock, effective January 1, 2023 (the “2023 Share Repurchase Program”). 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 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. 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. 63 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. 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 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. Nike, Inc. accounted for approximately 14 % in Fiscal 2022, 28 % in Fiscal 2021 and 33 % in Fiscal 2020. Skechers USA, Inc. 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. As is common in the industry, we do not have any long-term contracts with suppliers. Note 16 – Subsequent Events On March 14, 2023, the Board of Directors approved the payment of a cash dividend to our shareholders in 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 . The declaration and payment of any future dividends are at the discretion of the Board of Directors and will depend on our results of operations, financial condition, business conditions and other factors deemed relevant by our Board of Directors. See Note 9 – "Debt" for a discussion of our Credit Agreement and its restrictions regarding dividend payments. 64 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCO UNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None.