What changed in this filing

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Item 1. Financial Statements

2023-06-02 compared with 2022-12-02 · 172 added, 292 removed, 346 unchanged (57% of the section changed)

3 unchanged sentences

(In thousands, except share data)

October 29, 2022

April 29, 2023

January 28, 2023

October 30, 2021

April 30, 2022

Current Assets:

7 unchanged sentences

Intangible assets

Deferred income taxes

Other noncurrent assets

22 unchanged sentences

(In thousands, except per share data)

October 29, 2022

October 30, 2021

October 29, 2022

October 30, 2021

April 29, 2023

April 30, 2022

Cost of sales (including buying, distribution

13 unchanged sentences

(In thousands, except per share data)

Balance at July 30, 2022

Dividends declared ($ 0.09 per share)

Employee stock purchase plan purchases

Stock-based compensation awards

Shares surrendered by employees to pay taxes

on stock-based compensation awards

Purchase of common stock for treasury

Stock-based compensation expense

Balance at October 29, 2022

Balance at July 31, 2021

Dividends declared ($ 0.07 per share)

Employee stock purchase plan purchases

Stock-based compensation awards

Shares surrendered by employees to pay taxes

on stock-based compensation awards

Purchase of common stock for treasury

Stock-based compensation expense

Balance at October 30, 2021

Thirty-nine Weeks Ended

(In thousands, except per share data)

Balance at January 28, 2023

4 unchanged sentences

on stock-based compensation awards

Purchase of common stock for treasury

Stock-based compensation expense

Balance at October 29, 2022

Balance at April 29, 2023

Balance at January 29, 2022

6 unchanged sentences

Stock-based compensation expense

Balance at October 30, 2021

Balance at April 30, 2022

See notes to Condensed Consolidated Financial Statements.

2 unchanged sentences

(In thousands)

October 29, 2022

October 30, 2021

April 29, 2023

April 30, 2022

Cash Flows From Operating Activities

3 unchanged sentences

Stock-based compensation

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

Loss on retirement and impairment of assets, net

Deferred income taxes

17 unchanged sentences

Net cash used in financing activities

Net (decrease) increase in cash and cash equivalents

Net decrease in cash and cash equivalents

Cash and cash equivalents at beginning of period

11 unchanged sentences

Shoe Carnival, Inc.

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

We offer customers a broad assortment of dress, casual and athletic footwear and accessories for men, women and children with an emphasis on national name brands through our Shoe Carnival and Shoe Station store banners.

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.

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

We offer customers a broad assortment of dress, casual, and work shoes, sandals, boots and athletic footwear and accessories for men, women and children with an emphasis on national name brands through our Shoe Carnival and Shoe Station store banners.

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

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and its subsidiaries.

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.

All intercompany accounts and transactions have been eliminated.

In our opinion, the accompanying unaudited Condensed Consolidated Financial Statements and notes have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission (the “SEC”) for interim financial information and contain all normal recurring adjustments necessary to fairly present our financial position and the results of our operations and our cash flows for the periods presented.

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The unaudited Condensed Consolidated Financial Statements should be read in conjunction with the audited Consolidated Financial Statements and the notes thereto contained in our Annual Report on Form 10-K for the fiscal year ended January 28, 2023 .

Note 2 - 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") for total consideration of $ 70.7 million, net of $ 77,000 of cash acquired.

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

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

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

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

Shoe Station bannered stores contributed Net Sales of $ 22.2 million and $ 75.6 million in the thirteen and thirty-nine weeks ended October 29, 2022, respectively.

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

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

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

Note 2 - Net Income Per Share

The following tables set forth the computation of basic and diluted net income per share as shown on the face of the accompanying Condensed Consolidated Statements of Income:

The following table sets forth the computation of basic and diluted net income per share as shown on the face of the accompanying Condensed Consolidated Statements of Income:

Thirteen Weeks Ended

October 29, 2022

October 30, 2021

(In thousands, except per share data)

Basic Net Income per Share:

Net income available for basic common shares

and basic net income per share

Diluted Net Income per Share:

Conversion of stock-based compensation

Net income available for diluted common

shares and diluted net income per share

Thirty-nine Weeks Ended

October 29, 2022

October 30, 2021

April 29, 2023

April 30, 2022

(In thousands, except per share data)

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shares and diluted net income per share

The computation of basic net income per share of common stock is based on the weighted average number of common shares outstanding during the period.

The computation of 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.

The computation of diluted net income per share for the thirteen and thirty-nine weeks ended October 29, 2022 excluded approximately 290,000 and 253,000 , respectively, of unvested stock-based awards that will be settled in shares because the impact would have been anti-dilutive.

No unvested stock-based awards that will be settled in shares were excluded from the computation of diluted net income per share for the thirteen and thirty-nine weeks ended October 30, 2021.

The computation of Diluted Net Income per Share for the thirteen weeks ended April 29, 2023 excluded approximately 1,000 unvested stock-based awards that will be settled in shares because the impact would have been anti-dilutive.

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

Note 3 - Fair Value Measurements

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

The following table presents financial instruments that are measured at fair value on a recurring basis at April 29, 2023, January 28, 2023 and April 30, 2022:

Fair Value Measurements

(In thousands)

As of October 29, 2022

As of April 29, 2023

Cash equivalents - money market mutual funds

5 unchanged sentences

deferred compensation

As of October 30, 2021

As of April 30, 2022

Cash equivalents - money market mutual funds

1 unchanged sentence

deferred compensation

During fiscal 2021, we invested in publicly traded mutual funds with readily determinable fair values.

W e invest in publicly traded mutual funds with readily determinable fair values.

These Marketable Securities are designed to mitigate volatility in our Condensed Consolidated Statements of Income associated with our non-qualified deferred compensation plan.

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

As of October 29, 2022, the balance in our deferred compensation plan was $ 10.4 million, of which $ 53,000 was in Accrued and Other Liabilities based on scheduled payments due within the next 12 months and the remaining balance was in Deferred Compensation, a long-term liability.

As of April 29, 2023, these Marketable Securities were principally invested in equity-based mutual funds, consistent with the allocation in our deferred compensation plan.

As of April 29, 2023, the balance in our deferred compensation plan was $ 11.7 million, of which $ 1.9 million was in Accrued and Other Liabilities based on scheduled payments due within the next 12 months and the remaining balance was in Deferred Compensation, a long-term liability.

To the extent there is a variation in invested funds compared to the total non-qualifi ed deferred compensation plan liability, such fund variance is invested in a stable value mutual fund.

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

We have recognized unrealized losses of $ 3.2 million related to equity securities still held at October 29, 2022.

We have recognized cumulative unrealized losses of $ 2.6 million, $ 2.9 million and $ 2.6 million related to equity securities still held at April 29, 2023, January 28, 2023 and April 30, 2022, respectively.

For the thirteen weeks ended April 29, 2023 and April 30, 2022, we have recognized unrealized gains of $ 299,000 and unrealized losses of $ 535,000 related to equity securities still held at April 29, 2023 and April 30, 2022, respectively.

The fair values of Cash and Cash Equivalents, Accounts Receivable, Accounts Payable, Accrued Expenses and Other Current Liabilities approximate their carrying values because of their short-term nature.

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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 right-of-use 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.

Store level asset groupings typically include Property and Equipment, Operating Lease Right-of-Use Assets, and the current and long-term portions of operating lease liabilities.

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 Right-of-Use Asset is impaired, we would amortize the remaining right-of-use 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 right-of-use 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.

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

These charges were inc luded in Selling, General and Administrative expenses.

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

During the thirteen weeks ended April 29, 2023 and April 30, 2022, no impairment charges were recorded.

Note 4 - Stock-Based Compensation

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

Stock-based compensation includes share-settled awards issued pursuant to the Shoe Carnival, Inc.

2017 Equity Incentive Plan in the form of restricted stock units, performance stock units, and restricted and other stock awards.

Additionally, we recognize stock-based compensation expense for the discount on shares sold to employees through our Employee Stock Purchase Plan and for cash-settled stock appreciation rights.

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

For the thirteen weeks ended April 29, 2023 and April 30, 2022, stock-based compensation expense was comprised of the following:

(In thousands)

October 29, 2022

October 30, 2021

October 29, 2022

October 30, 2021

April 29, 2023

April 30, 2022

Share-settled equity awards

4 unchanged sentences

Additional income tax benefit on vesting of share-settled awards

As of October 29, 2022 , approximately $ 9.3 million of unrecognized compensation expense remained related to our share-settled equity awards.

As of April 29, 2023 , approximately $ 10.9 million of unrecognized compensation expense remained related to our share-settled equity awards.

The cost is expected to be recognized over a weighted average period of approximately 2.4 years.

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Outstanding at January 28, 2023

Outstanding at October 29, 2022

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

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

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

Average Grant

Date Fair Value

Outstanding at January 29, 2022

Outstanding at October 29, 2022

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

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

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

Outstanding at April 29, 2023

The total fair value at grant date of restricted stock units and performance stock units that vested during the thirteen weeks ended April 29, 2023 and April 30, 2022 was $ 4.8 million and $ 3.1 million, respectively.

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

Note 5 –

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Revenue is disaggregated by product category below.

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

Net Sales and percentage of Net Sales for the thirteen weeks ended April 29, 2023 and April 30, 2022 were as follows:

(In thousands)

Thirteen Weeks

Ended October 29, 2022

Ended April 29, 2023

Thirteen Weeks

Ended October 30, 2021

Non-Athletics:

Women’s

Children’s

Women’s

Children’s

(In thousands)

Thirty-nine Weeks

Ended October 29, 2022

Thirty-nine Weeks

Ended October 30, 2021

Ended April 30, 2022

Non-Athletics:

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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 October 29, 2022, January 29, 2022 or October 30, 2021.

Unearned revenue related to Shoes 2U was not material to our consolidated financial statements at April 29, 2023, January 28, 2023 or April 30, 2022.

Returns and Refunds

1 unchanged sentence

This allowance is recorded as a reduction in sales with a corresponding refund liability recorded in Accrued and Other Liabilities.

The estimated cost

of Merchandise Inventory is recorded as a reduction to Cost of sales and an increase in Merchandise Inventories.

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

Approximately $ 740,000 of refund liabilities and $ 495,000 of right of return assets associated with estimated product returns were recorded in Accrued and Other Liabilities at October 30, 2021.

The estimated cost of Merchandise Inventory is recorded as a reduction to Cost of Sales and an increase in Merchandise Inventories.

Approximately $ 866,000 of refund liabilities and $ 503,000 o f right of return assets associated with estimated product returns were recorded in Accrued and Other Liabilities as of April 29, 2023 and January 28, 2023.

Approximately $ 884,000 of refund liabilities and $ 516,000 of right of return assets associated with estimated product returns were recorded in Accrued and Other Liabilities at April 30, 2022.

Contract Liabilities

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

At October 29, 2022, January 29, 2022 and October 30, 2021, approxima tely $ 1.8 million, $ 2.3 million and $ 1.4 million of contract liabilities associated with unredeemed gift cards were recorded in Accrued and Other Liabilities, respectively.

At April 29, 2023, January 28, 2023 and April 30, 2022, approxima tely $ 2.0 million, $ 2.4 million and $ 2.0 million of contract liabilities associated with unredeemed gift cards were recorded in Accrued and Other Liabilities, respectively.

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

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

Breakage revenue associated with our gift cards of $ 41,000 and $ 121,000 was recognized in Net Sales during the thirteen and thirty-nine weeks ended October 30, 2021, respectively.

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

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

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We then recognize revenue based on an estimate of when customers redeem rewards, which incorporates an estimate of points expected to expire using historical rates.

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

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

At October 29, 2022, January 29, 2022 and October 30, 2021, approxi mately $ 949,000 , $ 852,000 and $ 1.0 million of contract liabilities associated with loyalty rewards were recorded in Accrued and Other Liabilities, respectively.

During each of the thirteen weeks ended April 29, 2023 and April 30, 2022 , approximately $ 1.3 million of loyalty rewards were recognized in Net Sales.

At April 29, 2023, January 28, 2023 and April 30, 2022, approxi mately $ 884,000 , $ 844,000 and $ 849,000 of contract liabilities associated with loyalty rewards were recorded in Accrued and Other Liabilities, respectively.

We expect the revenue associated with these liabilities to be recognized in proportion to the pattern of customer redemptions in less than one year.

Note 6 –

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

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

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

All of our leases are operating leases.

Leases with terms of twelve months or less are immaterial and are expensed as incurred, and we did not have any leases with related parties as of October 29, 2022.

Lease costs, including related common area maintenance (“CAM”), property taxes, and insurance, reported in our Condensed Consolidated Statements of Income were as follows for the thirteen and thirty-nine weeks ended October 29, 2022 and October 30, 2021:

Leases with terms of twelve months or less are immaterial and are expensed as incurred, and we did not have any leases with related parties as of April 29, 2023.

Lease costs, including related common area maintenance (“CAM”), property taxes and insurance, reported in our Condensed Consolidated Statements of Income were as follows for the thirteen weeks ended April 29, 2023 and April 30, 2022:

(In thousands)

October 29, 2022

October 30, 2021

October 29, 2022

October 30, 2021

April 29, 2023

April 30, 2022

Operating lease cost

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our ability to control costs and meet our labor needs in a rising wage, inflationary, and/or supply chain constrained environment;

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

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

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

our ability to maintain current promotional intensity levels;

the effects and duration of economic downturns and unemployment rates;

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

the potential impact of national and international security concerns, including those caused by war and terrorism, on the retail environment;

general economic conditions in the areas of the continental United States and Puerto Rico where our stores are located;

the effects and duration of economic downturns and unemployment rates;

changes in the overall retail environment and more specifically in the apparel and footwear retail sectors;

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our ability to attract customers to our e-commerce platform and to successfully grow our omnichannel sales;

the effectiveness of our inventory management, including our ability to manage key merchandise vendor relationships and emerging direct-to-consumer initiatives;

the effectiveness of our inventory management, including our ability to manage key merchandise vendor relationships and direct-to-consumer initiatives;

changes in our relationships with other key suppliers;

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the impact of disruptions in our distribution or information technology operations;

the impact of natural disasters, other public health crises, political crises, civil unrest, and other catastrophic events on our operations and the operations of our suppliers, as well as on consumer confidence and purchasing in general;

the impact of natural disasters, public health and political crises, civil unrest, and other catastrophic events on our operations and the operations of our suppliers, as well as on consumer confidence and purchasing in general;

the duration and spread of a public health crisis, such as COVID-19, and the mitigating efforts deployed, including the effects of government stimulus on consumer spending;

risks associated with the seasonality of the retail industry;

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section of our Annual Report on Form 10-K for the fiscal year ended January 28, 2023.

Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is intended to provide information to assist the reader in better understanding and evaluating our financial condition and results of operations.

Management’s Discussion and Analysis of Financial Condition and Results of Operations is intended to provide information to assist the reader in better understanding and evaluating our financial condition and results of operations.

We encourage you to read this in conjunction with our Condensed Consolidated Financial Statements and the notes thereto included in PART I, ITEM 1 of this Quarterly Report on Form 10-Q, as well as our Annual Report on Form 10-K for the fiscal year ended January 28, 2023 as filed with the SEC.

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

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

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

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

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

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

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

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

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

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

This section of this Quarterly Report on Form 10-Q generally discusses our results for first quarter 2023 and first quarter 2022 and year-over-year comparisons between first quarter 2023 and first quarter 2022.

Referred to herein, first quarter 2023 is the thirteen weeks ended April 29, 2023 and first quarter 2022 is the thirteen weeks ended April 30, 2022.

Overview of Our Business

Shoe Carnival, Inc.

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

After our acquisition of the physical stores and substantially all of the assets and liabilities of Shoe Station, 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 and private label footwear for the entire family.

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

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

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 through direct-ship arrangements with certain vendors.

athletics and non-athletics with subcategories for men's, women's and children's, as well as a broad range of

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.

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

Certain of our Shoe Carnival stores have athletic shops that highlight leading athletic brands, and we expect to continue growing our "athletic shop" in-store concept and other shop-in-shop concepts across our fleet in the years ahead.

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

The Shoe Station banner and retail locations are 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.

See Note 3 —

“Acquisition of Shoe Station”

to our Notes to Condensed Consolidated Financial Statements contained in PART I, ITEM 1 of this Quarterly Report on Form 10-Q and Note 3 —

“Acquisition of Shoe Station”

to our Notes to Consolidated Financial Statements contained in PART II, ITEM 8 of our Annual Report on Form 10-K for the fiscal year ended January 28, 2023, for further discussion.

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However, because future events and economic conditions are inherently uncertain, our actual results could differ materially from these estimates.

Our accounting policies that require more significant judgments include those with respect to Merchandise Inventories, valuation of long-lived assets, accounting for business combinations, leases, and income taxes.

Our accounting policies that require more significant judgments include those with respect to Merchandise Inventories, valuation of long-lived assets, valuation of Goodwill and Intangible Assets, leases and income taxes.

The accounting policies that require more significant judgment are discussed in our Annual Report on Form 10-K for the fiscal year ended January 28, 2023, and there have been no material changes to those critical accounting policies.

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April 29, 2023

July 30, 2022

October 29, 2022

July 31, 2021

October 30, 2021

April 30, 2022

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

1 unchanged sentence

grand opening or acquisition prior to the beginning of the period, including those stores that have been relocated or remodeled.

Therefore, all Shoe Station sales (physical store and e-commerce) are excluded from our comparable store sales.

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

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

store sales as a result of our omnichannel retailer strategy.

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

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.

The 21 original Shoe Station stores acquired and the www.shoestation.com e-commerce site that went live in early February 2023 are included in comparable store sales calculations beginning in first quarter 2023.

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

October 29, 2022

October 30, 2021

October 29, 2022

October 30, 2021

April 29, 2023

April 30, 2022

Cost of sales (including buying, distribution and

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Operating income

Interest expense (income), net

Interest income, net

Income tax expense

Executive Summary for Third Quarter Ended October 29, 2022

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

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

The $3.17 per share earned year-to-date 2022 is greater than any full year earnings in our 44 years of operation except for last year.

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

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

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

Our third quarter 2022 and year-to-date 2022 results were positively impacted by sustained higher gross profit margin compared to pre-pandemic results, new growth provided from the Shoe Station acquisition and growth in our Shoe Perks loyalty member program.

More detail on each of these factors follows:

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

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

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

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

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

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

Compared to third quarter 2021, Net Sales were down 4.1% and comparable store sales declined 9.9% on lower traffic and sales volume.

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

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

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

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

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

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

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

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

The increase in Merchandise Inventories is supportive of the Net Sales increase year-to-date 2022 compared to year-to-date 2019 and the expectation of increases in Net Sales compared to 2019 for the remainder of the 2022 fiscal year.

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

Our new credit facility expires on March 23, 2027.

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

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

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

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

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

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

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

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

E-commerce sales were approximately 9% of merchandise sales in third quarter 2022, compared to 12% in third quarter 2021.

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

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

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

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

Executive Summary for First Quarter Ended April 29, 2023

For first quarter 2023, diluted net income per share (“EPS”) was $0.60, compared to $0.95 of EPS in first quarter 2022.

The decrease in EPS was primarily driven by reduced Net Sales, which were down $36.3 million, or 11.4%.

Store traffic was down approximately 10% and e-commerce traffic was down approximately 13% compared to first quarter 2022.

We believe the reduced demand for footwear, and the decrease in volume sold by us, was primarily due to persistent inflation, a nearly 9% reduction in federal tax refunds compared to refunds in first quarter 2022 and unfavorable weather.

Sales of spring seasonal product were down approximately 23% compared to first quarter 2022.

Despite the reduction in top-line sales and bottom-line earnings, first quarter 2023 ranked as a top-three first quarter in our history, only surpassed by the first quarters of fiscal 2022 and fiscal 2021.

Our investments in customer relationship management (“CRM”) systems have continued to produce sustained higher gross profit margin, increased customer conversion and increased loyalty members compared to pre-CRM and pre-pandemic results in 2019.

The benefits of our CRM program were key factors to maintaining the following results with traffic down and consumer spending delayed by weather and stressed by inflation and lower tax refunds:

First quarter 2023 marked the ninth consecutive quarter gross profit margin exceeded 35%;

Loyalty customers grew over 12% compared to first quarter 2022 to 32.7 million customers;

Store conversion climbed to the highest level in seven consecutive quarters.

We also progressed our plan to lower Merchandise Inventories.

As of April 29, 2023, Merchandise Inventories were $44.5 million higher than as of April 30, 2022, down from $105.2 million higher at year end fiscal 2022 compared to year end fiscal 2021, just three months ago.

Our goal is that by year end fiscal 2023, Merchandise Inventories will be approximately $40 million lower than year end fiscal 2022.

We also began to rebalance Merchandise Inventories and expect to carry a broader assortment of footwear for the back-to-school shopping season with an improved selection of athletic inventory.

Last year, athletic footwear availability and related sales in the back-to-school time frame were significantly impacted by a constrained supply chain.

Year end fiscal 2022 marked the 18th consecutive year we ended the year with no debt, and through first quarter 2023, we also funded our operations without debt.

As of April 29, 2023, we had $44.1 million of Cash, Cash Equivalents and Marketable Securities and $99.3 million in borrowing capacity.

We ended first quarter 2023 with 397 total stores, 372 Shoe Carnival stores and 25 Shoe Station stores.

In first quarter 2023, we opened one Shoe Station store, went live with the Shoe Station e-commerce site, www.shoestation.com, and closed one Shoe Carnival store.

We expect to operate over 400 stores in third quarter 2023.

Results of Operations for First Quarter Ended April 29, 2023 Compared to First Quarter Ended April 30, 2022

Net Sales were $281.2 million during first quarter 2023 and decreased 11.4% compared to first quarter 2022, due to an 11.9% comparable store sales decline resulting from decreased traffic in our physical stores and our e-commerce sites.

We believe the lower traffic resulted from persistent inflation and a reduction in federal tax refunds compared to first quarter 2022.

Unfavorable weather also impacted Net Sales, with sales of spring seasonal product down approximately 23% in first quarter 2023 compared to first quarter 2022.

The decrease was partially offset by Net Sales attributable to new stores, mostly new Shoe Station stores.

E-commerce sales were approximately 8% of merchandise sales in first quarter 2023, compared to 11% in first quarter 2022.

Gross Profit was $98.5 million during first quarter 2023, a decrease of $14.3 million compared to first quarter 2022.

Gross profit margin in first quarter 2023 was 35.0% compared to 35.5% in first quarter 2022.

Merchandise margin decreased 30 basis points, reflecting an increase in promotional intensity in first quarter 2023 compared to first quarter 2022 on lower volumes sold.

Buying, distribution and occupancy (“BDO") costs were lower in the quarter compared to first quarter 2022;

however, BDO decreased gross profit margin by 20 basis points.

The BDO costs were lower in first quarter 2023 as freight and distribution costs declined versus 2022 through active management, contract renegotiation and normalization.

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

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

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

These increases were partially offset by lower advertising expense.

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

The effective income tax rate for the third quarter 2022 was 25.6% compared to 24.8% for the third quarter 2021.

SG&A were $77.6 million in first quarter 2023, near flat compared to $77.5 million in first quarter 2022, with higher depreciation and healthcare costs offset by reduced selling costs.

The higher depreciation resulted from our store modernization program.

As a percentage of Net Sales, SG&A were 27.6% in first quarter 2023 compared to 24.4% in first quarter 2022.

Interest Income and Interest Expense

Changes in our interest income and expense increased our income before taxes by $0.5 million in first quarter 2023 compared to first quarter 2022.

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

The effective income tax rate for first quarter 2023 was 22.6% compared to 23.8% for first quarter 2022.

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

The lower quarterly effective tax rate was primarily due to one discrete item related to a higher stock-based compensation benefit, leveraged over lower pre-tax income.

For the full 2023 fiscal year, we expect our tax rate to be between 24% and 26% compared to the 25.2% effective tax rate recognized during the full 2022 fiscal year.

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

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

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

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

year-to-date 2022, partially offset by Net Sales attributable to new stores, mostly the Shoe Station stores.

E-commerce sales were approximately 9% of merchandise sales in year-to-date 2022, compared to 11% in year-to-date 2021.

Gross Profit was $356.8 million in year-to-date 2022, a decrease of $53.1 million compared to year-to-date 2021.

Gross profit margin in year-to-date 2022 was 36.7% compared to 40.3% in year-to-date 2021.

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

Selling, General and Administrative Expenses

SG&A increased $8.9 million in year-to-date 2022 to $239.1 million compared to $230.2 million in year-to-date 2021.

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

These increases were partially offset by lower incentive compensation.

As a percentage of Net Sales, SG&A was 24.6% in year-to-date 2022 compared to 22.6% in year-to-date 2021.

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

Liquidity and Capital Resources

Our primary sources of liquidity are $47.5 million of Cash, Cash Equivalents and Marketable Securities on hand at the end of the third quarter 2022, cash generated from operations and availability under our $100 million credit facility.

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

Our primary sources of liquidity are $44.1 million of Cash, Cash Equivalents and Marketable Securities on hand at the end of the first quarter 2023, cash generated from operations and availability under our $100 million credit agreement.

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 capital projects, including investments in new systems.

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Cash Flow - Operating Activities

Net cash generated from operating activities was $18.9 million in year-to-date 2022 compared to $120.5 million during year-to-date 2021.

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

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

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

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

Net cash generated from operating activities was $2.1 million in first quarter 2023 compared to $17.7 million during first quarter 2022.

The change in operating cash flow was primarily driven by decreased Net Sales in first quarter 2023.

Working capital increased on a year-over-year basis and totaled $318.3 million at April 29, 2023 compared to $271.8 million at April 30, 2022.

The increase was primarily attributable to lower Accounts Payable and higher Merchandise Inventory levels, partially offset by lower cash balances due to investment in Property and Equipment related to our store portfolio modernization plan.

Our current ratio was 3.4 as of April 29, 2023 compared to 2.4 as of April 30, 2022.

Cash Flow –

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

During year-to-date 2022 and 2021, we expended $63.6 million and $20.4 million, respectively, for the purchase of property and equipment, primarily related to our store portfolio modernization plan.

During the first quarters of 2023 and 2022, we expended $15.0 million and $26.9 million, respectively, for the purchase of Property and Equipment, primarily related to our store portfolio modernization plan.

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

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

The balance of these Marketable Securities was $11.5 million at April 29, 2023, compared to $11.6 million at January 28, 2023 and $11.0 million at April 30, 2022.

Additional information can be found in Note 3 —

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Financing Activities

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

Shares of our common stock can be either acquired as part of a publicly announced repurchase program or withheld by us in connection

with employee payroll tax withholding upon the vesting of stock-based compensation awards that are settled in shares.

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

During year-to-date 2022, net cash used in financing activities was $40.0 million compared to $15.8 million during year-to-date 2021.

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

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 first quarter 2023, net cash used in financing activities was $5.8 million compared to $25.1 million during first quarter 2022.

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

authorized share repurchase program.

No share repurchases were made in first quarter 2023.

Capital Expenditures

Capital expenditures for fiscal 2022, including actual expenditures in year-to-date 2022, are expected to be between $70 million and $75 million, with approximately $59 million to $62 million to be used for new stores, relocations and remodels and approximately $11 million to $13 million for upgrades to our e-commerce platform, various other store improvements, continued investments in technology and normal asset replacement activities.

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

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

Capital expenditures for Fiscal 2023, including actual expenditures in first quarter 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.

Store Portfolio

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

We opened one Shoe Station branded store and closed one Shoe Carnival branded store in first quarter 2023.

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

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

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

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

We are on track to operate over 400 stores in third quarter 2023 and are targeting operating over 500 stores in 2028.

This increased scale will be accomplished through a combination of both organic and acquired store growth.

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

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

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

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

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

As part of the plan, which is now complete, we identified underperforming stores and worked to address the performance of these stores through renegotiation of lease terms, relocation or closure.

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

Credit Facility

On March 23, 2022, we entered into a new $100 million Amended and Restated Credit Agreement (the “New Credit Agreement”), which replaced our existing credit agreement.

The New Credit Agreement is collateralized by our inventory, expires on March 23, 2027, and uses a Secured Overnight Financing Rate ("SOFR") as quoted by The Federal Reserve Bank of New York as the basis for financing charges.

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

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

The New Credit Agreement contains certain restrictions.

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

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

Credit Agreement

On March 23, 2022, we entered into a $100 million Amended and Restated Credit Agreement (the “Credit Agreement”), which replaced our prior credit agreement.

The Credit Agreement is collateralized by our inventory, expires on March 23, 2027, and uses a Secured Overnight Financing Rate ("SOFR") as quoted by The Federal Reserve Bank of New York as the basis for financing charges.

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.

We were in compliance with these covenants as of April 29, 2023.

The Credit Agreement contains certain restrictions.

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

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

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 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.

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

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

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’

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

Letters of credit outstanding were $700,000 at October 29, 2022 and our borrowing capacity was $99.3 million.

During first quarter 2023, we did not borrow or repay funds under the Credit Agreement.

Letters of credit outstanding were $700,000 at April 29, 2023 and our borrowing capacity was $99.3 million.

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

and “Adjusted Term SOFR”

are defined in the New Credit Agreement.

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

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

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

During the first nine months of 2022 and 2021, we returned $7.5 million and $6.0 million, respectively, to our shareholders through our quarterly cash dividends.

The declaration and payment of any future dividends are at the discretion of the Board of Directors and will depend on our results of operations, financial condition, business conditions and other factors deemed relevant by our Board of Directors, subject to restrictions as outlined above in the “Credit Facility”

are defined in the Credit Agreement.

On March 14, 2023, the Board of Directors approved the payment of a first quarter 2023 cash dividend to our shareholders.

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

In first quarter 2022, the dividend paid was $0.09 per share.

During the first quarters of 2023 and 2022, we returned $2.9 million and $2.6 million, respectively, to our shareholders through our quarterly cash dividends.

See Note 9 —

“Debt”

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

to our Notes to Consolidated Financial Statements contained in PART II, ITEM 8 of our Annual Report on Form 10-K for the fiscal year ended January 28, 2023 for a further discussion of the Credit Agreement.

Share Repurchase Program

On December 16, 2021, our Board of Directors authorized a share repurchase program for up to $50.0 million of outstanding common stock, effective January 1, 2022 (the “2022 Share Repurchase Program”).

On December 14, 2022, our Board of Directors authorized a share repurchase program for up to $50.0 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.

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We have funded, and intend to continue to fund, share repurchases 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 and are subject to restrictions as outlined above in the “Credit Facility”

See Note 9 —

“Debt”

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

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

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

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

In year-to-date 2021, we repurchased 208,662 shares of common stock at a total cost of $7.1 million.

No share repurchases have been made to date in Fiscal 2023.

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

We have three distinct peak selling periods:

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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 in future periods could reduce our Net Sales and Gross Profit and negatively affect our profitability.

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.

QUANTITATIVE AND QUALITATI VE DISCLOSURES ABOUT MARKET RISK

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

We are exposed to market risk in that the interest payable under the 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 outstanding during the third quarter 2022 or year-to-date 2022.

We had no borrowings outstanding during first quarter 2023.

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

What changed 10-Q

Item 1. Financial Statements