What changed in this filing

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Item 1. Business

2024-03-22 compared with 2023-03-24 · 248 added, 278 removed, 453 unchanged (54% of the section changed)

Shoe Carnival, Inc.

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

We operate a retail focused business model that aims to deliver the leading footwear shopping experience with the national name brands desired by our customers.

Our "bricks" first, omnichannel approach provides customers easy access to our wide assortment of branded footwear for work, athletics, daily activities and special events via their choice of delivery channel.

We have a proven track record selling branded footwear, such as Nike, Skechers, adidas, Puma, HEYDUDE, Converse, Vans and Crocs, and generating profits without incurring debt.

Our "bricks" first, omnichannel approach provides customers easy access to our wide assortment of branded footwear for athletics, daily activities and special events via their choice of delivery channel.

We have a proven track record selling branded footwear, such as Nike, Skechers, Crocs, adidas, Puma, HEYDUDE, Converse and Vans, and generating profits without incurring debt.

We have been in business for 45 years and have been a public company subject to SEC reporting requirements since 1993.

Since 1993, we have earned a profit in every year except one.

We have experienced transformational growth in our business over the last two fiscal years, driven primarily by changes in our marketing and pricing strategies and the consummation and integration of our first acquisition.

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.

As of our Fiscal 2022 year end, we operated 397 stores across 35 states and Puerto Rico.

Including e-commerce sales in close proximity to a physical store, our comparable physical stores generated an average of $3.2 million in Net Sales in Fiscal 2022 and over $281 in Net Sales per square foot.

We believe there is room within our existing markets to grow our store count to over 500 stores by 2028 through both organic and acquired store growth.

We believe this opportunity to increase our scale, together with stable double-digit operating income margins, will continue to drive shareholder value and our future earnings potential.

In Fiscal 2022, our Net Sales were $1.26 billion and our goal is to be a multi-billion dollar omnichannel retailer by 2028.

Since 1993, we have earned a profit in every year except 1995.

As part of our long-term growth strategy, we have invested significantly in customer relationship management (“CRM”) capabilities, e-commerce infrastructure, modernization of our store fleet, and acquisitions as key drivers of profitable growth.

Since Fiscal 2019, our Diluted Net Income per Share has increased 84%, Gross Profit margin expanded 570 basis points, and Net Sales grew 13%.

As of our Fiscal 2023 year end, we operated 400 stores across 35 states and Puerto Rico under our Shoe Carnival and Shoe Station banners.

Including e-commerce sales in close proximity to a physical store, our comparable physical stores generated an average of $2.9 million in Net Sales in Fiscal 2023 and approximately $255 in Net Sales per square foot.

We believe there is potential within our existing markets to grow our store count to over 500 stores in 2028 through both organic and acquired store growth.

We believe this opportunity to increase our scale, together with stable operating income margins, will continue to drive shareholder value and our future earnings potential.

Subsequent to year end, on February 13, 2024, we furthered our acquisition strategy by acquiring all of the stock of Rogan Shoes, Incorporated, a Wisconsin corporation ("Rogan's").

Rogan’s adds 28 more physical stores and an additional distribution center to our portfolio.

Rogan's will be integrated into our Shoe Station banner and our current plan is to brand and operate these stores using both the Rogan’s and Shoe Station tradenames.

More information about this subsequent event can be found in Note 16 - “Subsequent Events” in our Notes to Consolidated Financial Statements contained in PART II, ITEM 8 of this Annual Report on Form 10-K.

In Fiscal 2023, our Net Sales were $1.18 billion and our ambition is to achieve omnichannel sales in excess of $2 billion in 2028.

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

Referred to herein, Fiscal 2022 is the fiscal year ended January 28, 2023;

Fiscal 2021 is the fiscal year ended January 29, 2022;

Unless otherwise stated, references to years 2023, 2022 and 2021 relate to the fiscal years ended February 3, 2024 ("Fiscal 2023"), January 28, 2023 ("Fiscal 2022") and January 29, 2022 ("Fiscal 2021"), respectively.

Fiscal 2019 is the fiscal year ended February 1, 2020.

Fiscal 2020 is the fiscal year ended January 30, 2021.

and Fiscal 2019 is the fiscal year ended February 1, 2020.

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

References to our store banners “Shoe Carnival”

and “Shoe Station”

are to the individual banners, not the entire company.

References to “we,”

“us,”

“our”

and the “Company”

in this Annual Report on Form 10-K refer to Shoe Carnival, Inc.

Fiscal 2023 consisted of 53 weeks while all other years presented and discussed consisted of 52 weeks.

References to our store banners “Shoe Carnival” and “Shoe Station” are to the individual banners, not the entire company.

References to “we,” “us,” “our” and the “Company” in this Annual Report on Form 10-K refer to Shoe Carnival, Inc.

and its subsidiaries.

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

References to the “SEC”

refer to the United States Securities and Exchange Commission.

References to the “SEC” refer to the United States Securities and Exchange Commission.

See PART II, ITEM 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations" in this Annual Report on Form 10-K for more information regarding the trends impacting our Fiscal 2023 operating results.

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This acquisition was the first in our history.

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 this banner has created a complementary retail platform for us to serve a broader base of family footwear customers in both urban and suburban demographics.

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 in Fiscal 2021.

As of our Fiscal 2023 year end, we operated 28 stores across six states in the Southeast under the Shoe Station banner, inclusive of the 21 stores acquired and seven additional stores opened since the acquisition.

The Shoe Station e-commerce website, www.shoestation.com, went live on our e-commerce platform in early February 2023.

More information on the acquisition can be found in Note 3 - "Acquisition of Shoe Station" in our Notes to Consolidated Financial Statements contained in PART II, ITEM 8 of this Annual Report on Form 10-K.

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

Net Sales attributed to the Shoe Station banner were $104.5 million in Fiscal 2023, $99.9 million in Fiscal 2022 and $16.6 million from the acquisition date through January 29, 2022 in Fiscal 2021.

The Rogan's acquisition will be included as part of the Shoe Station banner, and with other planned new store growth, we expect our Net Sales from this banner to substantially grow in Fiscal 2024.

More information on the Shoe Station acquisition can be found in Note 3 - "Acquisition of Shoe Station" in our Notes to Consolidated Financial Statements contained in PART II, ITEM 8 of this Annual Report on Form 10-K.

Our Diversified Sales Mix

We sell broadly across the family footwear channel, with balanced distribution among type of customer (men, women and children), product (athletics and non-athletics) and age (senior citizens to infants) with no singular reliance on any particular segment.

The products we offer are a mix of footwear necessities for sport, work, daily activities and special events.

We sell broadly across the family footwear channel, with balanced distribution among type of customer (men, women and children), product (athletics and non-athletics) and age (senior citizens to infants) and with no singular reliance on any particular segment.

The products we offer are a broad mix of footwear for sport, daily activities and special events.

The table below sets forth our percentage of sales by product category over the last five fiscal years.

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Our Strategic Growth Initiatives

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

We are targeting operating at least 500 stores by 2028.

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

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

In Fiscal 2022, we opened four new stores (one Shoe Carnival store and three Shoe Station stores) within existing markets.

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

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

In the near term, our focus is to primarily grow the Shoe Station banner within our existing footprint, and we aim to achieve 100 Shoe Station stores also by 2028.

In Fiscal 2023, we opened five new stores (one Shoe Carnival store and four Shoe Station stores) within existing markets.

We aim to operate approximately 30 new stores in Fiscal 2024, inclusive of integrating the 28 Rogan's stores acquired on February 13, 2024.

We are targeting operating at least 500 stores in 2028.

This increased scale will be accomplished through a combination of both organic and acquired store growth with particular focus on the Shoe Station banner.

Store Modernization

As a key component to increasing comparable store sales, in Fiscal 2021 we began a multiyear project to modernize our store fleet.

In Fiscal 2022 and Fiscal 2021 our capital expenditures were $77.3 million and $31.4 million,

respectively, with a primary focus on store modernization and new stores.

Another key component to growing our Net Sales is the modernization of our Shoe Carnival store fleet.

In Fiscal 2023 and Fiscal 2022 our capital expenditures were $56.3 million and $77.3 million, respectively, with a primary focus on store modernization and new stores.

Our new store design is viewed as a differentiator by certain strategic vendor partners and has provided us an opportunity to increase access to branded merchandise in the near term.

As of Fiscal 2022 year end, 41% of our fleet modernization program has been completed, representing 164 of the 397 stores in our fleet.

Over 60% of our fleet modernization program is expected to be completed by Fiscal 2023 year end.

The entire program is expected to be completed in the Fiscal 2024 - Fiscal 2025 horizon.

As of Fiscal 2023 year end, approximately 60% of our Shoe Carnival store modernization was complete.

We expect to continue to modernize additional Shoe Carnival stores in Fiscal 2024.

Total capital expenditures are expected to be in a range of $25 million to $35 million in Fiscal 2024 and lower than prior years as the store modernization program nears completion.

E-commerce Growth

Our e-commerce platform is an extension of our physical stores and is designed to improve our customer’s shopping experience.

We are committed to providing a personalized, seamless customer experience across all channels, and we believe that our ongoing omnichannel initiatives are aligned with rapidly changing consumer behavior.

Our customers will have new online experiences in Fiscal 2023, as we launched our www.shoestation.com website in February 2023, and we expect to relaunch our www.shoecarnival.com website later in Fiscal 2023.

Our e-commerce platform is an extension of our physical stores and is designed to improve our customer’s shopping experience.

We are committed to providing a personalized, seamless customer experience across all channels, and we believe that our ongoing omnichannel initiatives are aligned with changing consumer behavior.

We delivered a new online experience to our customers in Fiscal 2023.

We launched our www.shoestation.com website in February 2023 and relaunched our www.shoecarnival.com website in late October 2023.

This marked the first major redesign of our Shoe Carnival website since 2016.

We have completed the technology migration for both banners to a single platform hosted by a leading provider.

This marks the first major redesign of our Shoe Carnival website since 2016.

We anticipate these enhancements will increase user conversion, enhance the ease of navigation and improve overall functionality compared to the legacy website design.

We anticipate these enhancements will increase user engagement and conversion, enhance the ease of navigation and improve overall functionality compared to the legacy website design.

We continue to expect our e-commerce platform to be a significant sales channel for us.

Our goal is for our e-commerce sales channel to provide between 10% and 15% of enterprise-wide merchandise sales, versus a pre-pandemic 6% in Fiscal 2019.

E-commerce sales represented approximately 10% of our merchandise sales in Fiscal 2022, 12% in Fiscal 2021 and 19% in Fiscal 2020 as impacted by changes in customer shopping behavior during the peak of the pandemic.

E-commerce sales represented approximately 10% of our merchandise sales in Fiscal 2023 and Fiscal 2022, and 12% in Fiscal 2021.

Customer Relationship Management ("CRM")

Our CRM program continues to provide valuable customer insights to our business, resulting in more efficient and effective marketing outreach.

CRM provides our marketing, merchandising, analytics and real estate teams a better and more complete view of our customer’s shopping behaviors and forms the foundation of our digital marketing efforts and our Shoe Perks loyalty program (“Shoe Perks”).

Our view into customer data allows us to more effectively communicate with our customers on a segmented basis through all owned and paid media channels and tailor the merchandise mix down to a store level.

Through transaction data, we gain useful insights into our customers’

shopping habits, including where, when and how they shop our stores and navigate our online presence.

Additionally, our CRM program allows us to gain a deeper understanding of the brands and categories that our high-value customers consistently purchase so that we can continue to meet this customer need and demand at a geographic and store level.

Our CRM program allows us to drive customer retention by delivering to each customer more individualized shopping opportunities and experiences and aids in gaining a better understanding of our existing customer base as well as identifying new customers.

We expect segmentation and activation of our high-value customers through data analysis and targeting the broader market of ‘look-a-like’

customers to continue to play a key role in our growth.

Our CRM program provides our marketing, merchandising, analytics and real estate teams with a better and more complete view of our customer’s shopping behaviors and forms the foundation of our digital marketing efforts and our Shoe Perks loyalty program (“Shoe Perks”).

Through transaction data, we gain useful insights into our customers’ shopping habits, including where, when and how they shop our stores and navigate our online presence.

Additionally, our CRM program allows us to gain a deeper understanding of the brands and categories that our high-value customers consistently purchase so that we can continue to meet customer needs and demand at a geographic and store level.

identifying new customers.

We expect segmentation and activation of our high-value customers through data analysis and targeting the broader market of ‘look-a-like’ customers to continue to play a key role in our growth.

Once a customer enrolls in Shoe Perks and provides a means for digital communication, the customer will begin receiving personalized communications from us.

These communications afford us additional opportunities to highlight our broad product assortment and promotions.

These communications afford us additional opportunities to highlight our broad product assortment and promotional programs.

Shoe Perks provides customers with a heightened shopping experience, which includes exclusive offers and rewards that are earned by making purchases either in-store or online and through participating in other point earning opportunities that facilitate engagement with our brand and the national name brands we offer.

We are focused on expanding our Shoe Perks enrollment.

In Fiscal 2022, our Shoe Perks membership grew to 32.1 million members, representing an increase in new customers of 34% compared to pre-pandemic 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.

In Fiscal 2022, purchases from Shoe Perks members were approximately 67% of our comparable Net Sales, which does not include Shoe Station activity in Fiscal 2022.

We believe our Shoe Perks program affords us tremendous opportunity to communicate, build relationships and engage with our most loyal shoppers and increase our customer touch points, which we believe will result in long-term sales gains.

Our most loyal customers, those who qualify for our “Gold”

tier, receive additional rewards and incentives.

In Fiscal 2023, our Shoe Perks membership, including Shoe Station customers, grew to 34.5 million members, representing an increase in new customers of 7% compared to Fiscal 2022 year end.

In Fiscal 2023, purchases from Shoe Perks members were approximately 71% of our comparable Net Sales through our Shoe Carnival bannered stores.

We believe our Shoe Perks program provides a tremendous opportunity to communicate, build relationships and engage with our most loyal shoppers and increase our customer touch points, which we believe will result in long-term sales gains.

Our most loyal customers, those who qualify for our “Gold” tier, receive additional rewards and incentives.

The average transaction value for our Gold tier customers was approximately 43% higher than non-Gold tier Shoe Perks members in Fiscal 2023.

Strong and Diversified Vendor Partnerships

In Fiscal 2022, a record number of vendors generated over $15 million in merchandise sales for us.

We continued our long-term relationships with both Nike, Inc.

(“Nike”) and Skechers U.S.A., Inc.

(“Skechers”) and further diversified our merchandise offerings among other vendor partners.

Collectively, Nike and Skechers accounted for 27% of our Net Sales in Fiscal 2022, compared to 39% in Fiscal 2021 and 43% in Fiscal 2020.

Nike accounted for approximately 14% of our Net Sales in Fiscal 2022, 28% in Fiscal 2021 and 33% in Fiscal 2020, and Skechers accounted for approximately 13% of our Net Sales in Fiscal 2022, 11% in Fiscal 2021 and 10% in Fiscal 2020.

We offer merchandise from a broad range of over 270 vendor partners.

In Fiscal 2023, Nike, Inc.

(“Nike”), Skechers U.S.A., Inc.

(“Skechers”) and Crocs, Inc.

("Crocs") collectively accounted for approximately 45% of our Net Sales in Fiscal 2023.

Nike and Skechers collectively accounted for approximately 27% in Fiscal 2022 and 39% in Fiscal 2021.

Nike accounted for approximately 20% of our Net Sales in Fiscal 2023, 14% in Fiscal 2022 and 28% in Fiscal 2021;

Skechers accounted for approximately 14% of our Net Sales in Fiscal 2023, 13% in Fiscal 2022 and 11% in Fiscal 2021;

and Crocs accounted for approximately 11% of our Net Sales in Fiscal 2023.

We continually work to strengthen our brand offerings and our relationships with our key vendors.

While we have no long-term contracts in place with any of our vendors, we anticipate that Nike and Skechers will continue to be high-volume vendors for us in Fiscal 2023.

We also anticipate increased availability of athletic product in Fiscal 2023 as athletic supply chains are expected to return to a more normal cadence.

Stable Gross Profit Margins and Operating Income Margins

We increased our gross profit margin in Fiscal 2021 and generally maintained that margin in Fiscal 2022.

Our promotional model is derived from insights driven by our CRM program and return on investment of our promotional strategies.

We have significantly reduced broad-based promotional activity, such as “buy one-get one half off.”

Our level of promotional intensity decreased by over 17% in Fiscal 2022 compared to our pre-pandemic promotional activity in Fiscal 2019.

Primarily as a result of our change in promotional strategy, our gross profit margin increased to 37.1% in Fiscal 2022 and 39.6% in Fiscal 2021 compared to a pre-pandemic level of 30.1% in Fiscal 2019.

Those higher gross profit margins have generated double digit operating income margins in each of the last two fiscal years, at 11.6% in Fiscal 2022 and 15.6% in Fiscal 2021, compared to a pre-pandemic Fiscal 2019 operating income margin of 5.2% and our pre-pandemic record operating income margin of 5.8%.

While we have no long-term contracts in place with any of our vendors, we anticipate that Nike, Skechers and Crocs will continue to be high-volume vendors for us in Fiscal 2024.

Our Competitive Strengths

We believe our financial success is due to a number of key competitive strengths that make our Shoe Carnival and Shoe Station banners destinations of choice for our family channel footwear consumer.

We believe our operational and financial success is due to a number of key competitive strengths that make our Shoe Carnival and Shoe Station banners destinations of choice for our family channel footwear consumer.

Digital Media to Build Brand Awareness

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We highlight our banners and the name brands we carry, including specific styles of product, using lifestyle and product imagery to showcase merchandise brands.

The use of digital media comprises the substantial portion of our marketing mix, particularly as we leverage data that comes directly from our customers as part of our CRM solution, allowing us to directly communicate with our core customers.

Television, radio, print media (including inserts, direct mail and newspaper advertising) and outdoor advertising accounted for the balance of our total advertising budget.

The use of digital media comprises the substantial portion of our marketing investment, particularly as we leverage data that comes directly from our customers as part of our CRM solution, allowing us to directly communicate with our core customers.

Television, radio, print media (including inserts, direct mail and newspaper advertising) and outdoor advertising accounted for the balance of our total advertising investment.

Centralized Distribution Process

Our distribution center is equipped with mechanized processing and product movement equipment.

Our Evansville distribution center is equipped with mechanized processing and product movement equipment.

The facility utilizes cross docking/store replenishment and redistribution methods to fill store product requirements.

methods may include count verification, price and bar code labeling of each unit (when not performed by the manufacturer), redistribution of an order into size assortments (when not performed by the manufacturer) and allocation of shipments to individual stores.

These methods may include count verification, price and bar code labeling of each unit (when not performed by the manufacturer), redistribution of an order into size assortments (when not performed by the manufacturer) and allocation of shipments to individual stores.

Throughout packing, allocating, storing and shipping, our distribution process is essentially paperless.

Merchandise is typically shipped to each store location once per week.

For stores within the continental United States, a dedicated carrier, with occasional use of common carriers, handles the majority of shipments.

within the continental United States, a dedicated carrier, with occasional use of common carriers, handles the majority of shipments.

We leverage these investments with third party managed software tailored to our specific needs to track merchandise during the transportation and distribution process.

During Fiscal 2022, 92% of merchandise was received into our distribution center, with a much smaller percentage of merchandise being either directly drop shipped to customers or sent directly to a store location.

Additional information about our distribution center can be found in PART I, ITEM 2, "Properties" of this Annual Report on Form 10-K.

During Fiscal 2023, 98% of merchandise was received into our Evansville distribution center, with a much smaller percentage of merchandise being either directly drop shipped to customers or sent directly to a store location.

Additional information about our Evansville distribution center can be found in PART I, ITEM 2, "Properties" of this Annual Report on Form 10-K.

Disciplined Approach to Capital Management

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We ended Fiscal 2023 with no debt and $111.2 million of Cash and Cash Equivalents and Marketable Securities.

Over the last five fiscal years, we have had no debt outstanding and Cash, Cash Equivalents, and Marketable Securities of at least $61 million at the end of each fiscal year.

Over the last five fiscal years, we have had no debt outstanding and Cash, Cash Equivalents and Marketable Securities of $61 million to $132 million at the end of each fiscal year.

We believe this approach increases our ability to make impactful long-term decisions and enhances our stakeholder relationships.

Leased Stores

Our stores can be easily found in high traffic shopping areas and are generally located in open-air shopping centers.

Our stores are found in high traffic shopping areas and are generally located in open-air shopping centers.

On average, our Shoe Carnival physical stores are approximately 10,900 square feet and carry inventory of approximately 32,500 pairs of shoes per location.

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These digital screens further enhance the in-store shopping experience and provide another opportunity for our vendors to compete for in-store advertising.

We believe our distinctive shopping experience gives 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.

We believe our distinctive shopping experience gives us important competitive advantages, including the building of a loyal, repeat customer base, the creation of word-of-mouth advertising, and enhanced sell-through of in-season goods.

Broad Merchandise Assortment

Our product assortment is comprised primarily of on-trend branded footwear for the entire family and includes dress and casual shoes, sandals, boots and a wide assortment of athletic shoes.

Our physical stores carry shoes in two general categories –

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

Our physical stores carry shoes in two general categories – athletics and non-athletics with subcategories for men's, women's and children's shoes, as well as a broad range of accessories.

Our e-commerce platform offers customers a large assortment of products in all categories of footwear with an increased depth of sizes and colors that may not be available in all stores.

Although the core merchandise assortment tends to be similar for each store, there are differences between our store banners, and to some extent, there is further differentiation by store under each banner, reflecting each store’s unique demographics and customer interests.

Our knowledge of these interests, combined with our vendor relationships and distribution process, allows us to react quickly to emerging trends or special events.

Our knowledge of these customer preferences, combined with our vendor relationships and distribution process, allows us to react to emerging trends or special events.

Information Technology

Our proprietary inventory management and advanced point-of-sale (“POS”) systems provide us with the timely information necessary to monitor and control all phases of operations.

The POS provides, in addition to other features, full price management, promotion tracking capabilities (in support of the spontaneous nature of the in-store price

promotions), real-time sales and cost of sales by product category at the store level and customer tracking.

Our proprietary inventory management and advanced point-of-sale (“POS”) systems provide us with the timely information necessary to monitor and control all phases of operations.

The POS provides, in addition to other features, full price management, promotion tracking capabilities (in support of the spontaneous nature of the in-store price promotions), real-time sales and cost of sales by product category at the store level and customer tracking.

Using the POS, both store personnel and centralized merchandising staff are able to monitor sales, cost of sales and the success of product promotions in real-time.

Our systems provide up-to-date sales and inventory information.

Our data warehouse enables our merchandising and store operations staff to analyze sales, margin and inventory levels by store.

Our systems provide up-to-date sales and inventory information and our data warehouse enables our merchandising and store operations staff to analyze sales, margin and inventory levels by store.

Using this information, our merchandise managers meet regularly with vendors to compare product sales and margins and return on inventory investment against previously stated objectives.

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Efficient E-commerce Order Management and Fulfillment (Ship-From-Store and Vendor Drop Ship Program)

We recently implemented a third party hosted order management system designed to our specific needs, which has enabled us to meet the complex demands of omnichannel fulfillment and has positioned us for scaling our e-commerce capabilities as we grow.

We have implemented a third party hosted order management system designed to our specific needs, which has enabled us to meet the complex demands of omnichannel fulfillment and has positioned us to further scale our e-commerce capabilities as we grow.

Our Ship-From-Store program is a core element of our omnichannel strategy.

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By fulfilling e-commerce orders principally from our store level inventory and staff, we are able to minimize out-of-stocks, offer our customers an expanded online assortment and leverage store level inventory and overhead.

E-commerce orders can also be fulfilled from our distribution center in Evansville, Indiana and the distribution center is used in times of peak demand.

E-commerce orders can also be fulfilled from our distribution center in Evansville, Indiana and this distribution center is used in times of peak demand.

We also maintain a vendor drop-ship program with select business partners.

This program offers our customers an expanded online assortment of styles and colors that we do not carry in store.

While our customers benefit from expanded item assortment, the functionality of this program is seamless, and our customers’

online experience is not impacted by the vendor drop-ship fulfillment option.

We benefit from this program by not having to make a capital investment in the expanded inventory assortment, which is carried and fulfilled by our business partners participating in this program.

While our customers benefit from expanded item assortment, the functionality of this program is seamless, and our customers’ online experience is not impacted by the vendor drop-ship fulfillment option.

As a benefit of this program, we do not need to make a capital investment in the expanded inventory assortment, which is carried and fulfilled by our business partners participating in this program.

Competitive Pricing For Our Customers

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We believe that by offering a wide selection of popular styles of primarily name brand merchandise at competitive prices, we generate broad customer appeal.

Additionally, the time-conscious customer appreciates the convenience of one-stop shopping for the entire family, whether this occurs at any of our store locations or through our other omnichannel choices.

Additionally, the time-conscious customer appreciates the convenience of one-stop shopping for the entire family, whether this occurs at our store locations or through our other omnichannel choices.

The retail footwear business is highly competitive.

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We compete with off-price retailers, mass merchandisers and discount stores by offering a wider and deeper selection of merchandise.

Many of our competitors are significantly larger and have substantially greater resources than we do.

Many of our competitors are significantly larger than we are in terms of Net Sales, and many can access the capital markets with greater speed and efficiency than we can.

Culture and Human Capital Management

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Workforce Diversity

We serve a diverse customer base and seek diversity in and among our workforce in all areas, from our stores to our distribution center and our corporate offices.

We serve a diverse customer base and seek diversity in and among our workforce in all areas, from our stores to our Evansville distribution center and our corporate offices.

We are firmly committed to providing equal opportunities in all aspects of employment and believe that all individuals should be treated with respect and dignity.

Diversity is an important

element in our ongoing annual mandatory training for all employees and managers.

Diversity is an

important element in our ongoing annual mandatory training for all employees and managers.

We do not tolerate harassment or unlawful discrimination of any kind.

We have clear policies encouraging strong relationships and protecting open lines of communication with management at every level.

This, coupled with our non-retaliation policy, encourages employees to raise issues and seek immediate redress of those issues if they should arise.

This, coupled with our non-retaliation policy, encourages employees to communicate issues and seek immediate redress of those issues if they should arise.

We understand the value of diversity at all levels, whether of gender, race, ethnicity, background or experience.

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With respect to ethnicity, our leadership team identified as 60% Caucasian and 40% non-Caucasian.

The diversity of our leadership team trends with the diversity of our customer base, which based on recent data from our Shoe Perks customer loyalty program, approximates 70% Caucasian and 30% African American, Hispanic or Asian and is more female than male.

In our corporate leadership roles (senior director-level employees through our named executive officers), the percentage identifying as female has significantly increased over the last five years from 5% to 18% with several departments, such as human resources, merchandising and technology, being led by those that identify as female.

In our corporate leadership roles (senior director-level employees through our named executive officers), the percentage identifying as female has significantly increased over the last five years from 5% to 24% with several departments, such as human resources, buying and merchandising, technology and accounting, being led by those that identify as female.

We are also focused on the diversity of our Board.

Currently, two of four of our non-employee Board members and two of seven of our total Board identify as female.

We are continuing to refresh our Board and assess long-term succession as well as the diversity of the Board’s collective skill set.

Over the last three years, three board members have transitioned, creating opportunity for new directors who have enhanced our diversity.

We are continuing to refresh our Board and assess long-term succession as well as the diversity of the Board’s collective skill set.

Over the last four years, three board members have transitioned, creating opportunity for new directors who have enhanced our diversity.

We believe our employee-centric culture not only supports higher levels of execution and performance, but also has led to increased retention of key talent.

During the height of the pandemic when other retailers furloughed or laid off employees, we took a different route, finding innovative ways to retain and pay our full-time associates.

We believe this decision had a positive impact on our employees and the communities we serve.

This decision also allowed for us to reopen quickly to meet the in-store needs of our customer base and other stakeholders.

Our store-level training programs provide the foundation for long-term careers and our ability to promote from within.

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Individuals who comprise our leadership team, which includes our named executive officers, vice presidents and senior director-level employees, have been employed by Shoe Carnival or Shoe Station for an average of 18 years.

Annually we survey a cross-section of employees on matters involving policy and procedure, organizational structure, operating style, commitment to hiring a competent workforce and commitment to integrity and ethical values.

Since 2004, responses to this survey have had an average score of 4.2 to 4.3, with 5 being “strongly agree.”

Employee Benefits

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Our broad-based training program also engages and educates our employees on the following key topics:

Code of Business Conduct and Ethics (“Code of Ethics”);

• Code of Business Conduct and Ethics (“Code of Ethics”);

• Insider trading;

• Non-discrimination and anti-harassment;

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More information regarding our approach to conducting business responsibly, including our guidelines on discrimination and harassment, can be found in our Code of Ethics.

Our Code of Ethics applies to all of our Board members, officers and employees, including our principal executive officer, our principal financial officer and our principal accounting officer.

Our Code of Ethics applies to all of our Board members, officers and employees, including our principal executive officer and our principal financial and accounting officer.

Our Code of Ethics is posted on our website at investors.shoecarnival.com/governance/governance-documents.

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Our technology department monitors and regularly tests compliance with our protocols, provides regular updates to employees and management and conducts annual training.

More information on our cybersecurity processes can be found in PART I, ITEM 1C, "Cybersecurity" of this Annual Report on Form 10-K.

Number of Employees

As of our Fiscal 2023 year end, we had approximately 5,300 employees, of which approximately 3,000 were employed on a part-time basis.

The Rogan's acquisition added approximately 600 additional employees as of February 13, 2024.

The number of employees fluctuates during the year primarily due to seasonality.

None of our employees are represented by a labor union.

For a discussion of the impact of seasonality on our operating results and our business, see PART II, ITEM 7, “Management's Discussion and Analysis of Financial Condition and Results of Operations - Impact of Store Count and Seasonality on Quarterly Results.”

We own the following federally registered trademarks and service marks:

As of our Fiscal 2023 year end, we own the following federally registered trademarks and service marks:

Shoe Carnival ® and associated trade dress and related logos, Y-NOT?

® , UNR8ED ® , Solanz ® , Shoe Perks ® , SC Work Wear ® , A Surprise In Store ® , Shoes 2U ® , Laces for Learning ® , Princess Lacey’s Laces ® , Shoe Station ® , Shoe Station Super Store ® and Shoe Station Select ® .

We believe these marks are valuable and, accordingly, we intend to maintain the marks and the related registrations.

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We seek to minimize our impact on the environment and reduce our carbon footprint by actively implementing environmentally-friendly processes throughout our business, including energy efficiency initiatives, waste minimization and the use of recycled materials within our supply chain.

Our most significant areas of focus are fuel

and packaging material used to deliver merchandise to our distribution center and stores;

the HVAC and lighting systems in our stores, distribution center and corporate office;

Our most significant areas of focus are fuel and packaging material used to deliver merchandise to our Evansville distribution center and stores;

the HVAC and lighting systems in our stores, Evansville distribution center and corporate office;

and recycling methods.

Compliance with current federal, state and local provisions regulating the discharge of materials into the environment or otherwise relating to the protection of the environment has not had a material effect upon our capital expenditures, earnings or competitive position.

We anticipate no material capital expenditures for environmental control facilities for our current fiscal year or for the near future.

We anticipate no material capital expenditures for environmental control facilities for Fiscal 2024 or for the near future.

Available Information

We make available free of charge through the investor relations portion of our website at www.shoecarnival.com our Annual Reports on Form 10-K, our Quarterly Reports on Form 10-Q, our Current Reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC.

We have included our website address throughout this filing as textual references only.

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President and Chief Executive Officer and Director

Kerry Jackson

Senior Executive Vice President - Chief Financial and Administrative Officer and Treasurer

Senior Executive Vice President - Chief Merchandising Officer

Executive Vice President - Chief Operating Officer

Vice President, Chief Accounting Officer, Corporate Controller and Secretary

Senior Vice President, Chief Financial Officer, Treasurer and Secretary

Weaver has served as Chairman of the Board since March 1988.

From 1978 until February 1993, Mr.

Weaver had served as President and Chief Executive Officer of Nine West Group Inc., a designer, developer and marketer of women’s footwear.

He has over 50 years of experience in the footwear industry.

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Weaver served as Chairman and Chief Executive Officer of Jacksonville Jaguars, LTD, a professional football franchise, until January 2012.

Weaver previously served two terms as a Director of Stein Mart, Inc., a publicly traded chain of off-price retail stores, from June 2014 until March 2016 and from November 2000 until April 2008.

Sifford has been employed as Vice Chairman of the Board since October 2021.

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From June 2001 to October 2012, Mr.

Sifford served as Executive Vice President –

General Merchandise Manager and from April 1997 to June 2001, Mr.

Sifford served as Senior Vice President –

General Merchandise Manager.

Sifford served as Executive Vice President – General Merchandise Manager and from April 1997 to June 2001, Mr.

Sifford served as Senior Vice President – General Merchandise Manager.

Prior to joining us, Mr.

Sifford served as Merchandise Manager –

Shoes for Belk, Inc.

Sifford served as Merchandise Manager – Shoes for Belk, Inc.

Worden has been employed as President and Chief Executive Officer and a Director of the Company since October 2021.

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Worden served as President and Chief Customer Officer and from September 2018 to September 2019, Mr.

Worden served as Executive Vice President –

Chief Strategy and Marketing Officer.

Worden served as Executive Vice President – Chief Strategy and Marketing Officer.

Prior to joining the Company, Mr.

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Johnson & Son, Inc.

(“SC Johnson”), a manufacturer of household cleaning supplies and products, and was responsible for revenue and share growth objectives across six countries from May 2014 to July 2018.

Prior to that, Mr.

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Worden also served as a Senior Brand Manager at Kimberly-Clark Corporation and held multiple marketing roles across its flagship brands during his tenure there from 2003 through 2009.

Jackson has been employed as Senior Executive Vice President, Chief Financial and Administrative Officer and Treasurer since September 2019.

From October 2012 to September 2019, Mr.

Jackson served as Senior Executive Vice President –

Chief Operating and Financial Officer and Treasurer.

From August 2004 to October 2012, Mr.

Jackson served as Executive Vice President –

Chief Financial Officer and Treasurer.

From June 2001 to August 2004, Mr.

Jackson served as Senior Vice President –

Chief Financial Officer and Treasurer.

From September 1996 to June 2001, Mr.

Jackson served as Vice President –

Chief Financial Officer and Treasurer.

From January 1993 to September 1996, Mr.

Jackson served as Vice President –

Controller and Chief Accounting Officer.

Prior to January 1993, Mr.

Jackson held various accounting positions with us.

Prior to joining us in 1988, Mr.

Jackson was associated with a public accounting firm.

He is a Certified Public Accountant.

We announced on September 22, 2022 that Mr.

Jackson will be retiring, effective May 2023.

Scibetta has been employed as Senior Executive Vice President –

Chief Merchandising Officer since March 2021.

Scibetta has been employed as Senior Executive Vice President – Chief Merchandising Officer since March 2021.

From March 2016 to March 2021, Mr.

Scibetta serviced as Executive Vice President –

Chief Merchandising Officer.

Scibetta served as Executive Vice President – Chief Merchandising Officer.

From December 2012 to March 2016, Mr.

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Prior to joining us, Mr.

Scibetta served as Vice President, Divisional Merchandise Manager–

Footwear for Belk, Inc.

Scibetta served as Vice President, Divisional Merchandise Manager– Footwear for Belk, Inc.

From 2004 to 2007, Mr.

Scibetta served as Vice President, Divisional Merchandise Manager –

Footwear for Parisian Department Stores.

Scibetta served as Vice President, Divisional Merchandise Manager – Footwear for Parisian Department Stores.

From 1998 to 2000, Mr.

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Scibetta began his retail career with Wohl Shoe Company in 1980.

Chilton has been employed as Executive Vice President –

Chief Operating Officer since February 2023.

Chilton has been employed as Executive Vice President – Chief Operating Officer since February 2023.

From April 2021 to February 2023, Mr.

Chilton served as our Executive Vice President –

Chief Retail Operations Officer.

Chilton served as our Executive Vice President – Chief Retail Operations Officer.

From February 2020 to April 2021, Mr.

Chilton served as our Senior Vice President –

Store Administration and Development and from March 2019 to February 2020 served as our Senior Vice President –

Store Operations and Administration.

Chilton served as our Senior Vice President – Store Administration and Development and from March 2019 to February 2020 served as our Senior Vice President – Store Operations and Administration.

Chilton started with the Company in 1994 as a store manager and has served in roles of increasing responsibility in store management and operations since that time, including serving as the Vice President of our Northern Division, with approximately one-third of our stores reporting to him, from April 2012 until March 2019.

Edwards has been employed as Vice President, Chief Accounting Officer, Corporate Controller since March 2021.

He has also served as our Secretary since June 2021 and as our Assistant Secretary from December 2019 to June 2021.

From October 2019 to March 2021, Mr.

Edwards served as our Vice President and Corporate Controller.

Edwards has been employed as Senior Vice President, Chief Financial Officer and Treasurer since September 2023.

He has also served as our Secretary since June 2021 and served as our Assistant Secretary from December 2019 to June 2021.

Edwards served as our Vice President and Corporate Controller from October 2019 until September 2023 and was appointed an executive officer in March 2021 as our Chief Accounting Officer, serving in that role until September 2023.

Prior to joining us, Mr.

Edwards was Vice President of Accounting for CenterPoint Energy, Inc.

from February 2019 to August 2019 following its acquisition of Vectren Corporation (“Vectren”).

Edwards was Vice President of Accounting for CenterPoint Energy, Inc., a publicly traded utility company, from February 2019 to August 2019 following its acquisition of Vectren Corporation (“Vectren”), also a publicly traded utility company.

For Vectren, Mr.

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Investing in our common stock involves a high degree of risk.

If any of the following risks actually occur, we may not be able to conduct our business as

currently planned and our financial condition and operating results could be materially and adversely affected.

See PART I, “Cautionary Statement Regarding Forward-Looking Information”

at the beginning of this Annual Report on Form 10-K.

If any of the following risks actually occur, we may not be able to conduct our business as currently planned and our financial condition and operating results could be materially and adversely affected.

See PART I, “Cautionary Statement Regarding Forward-Looking Information” at the beginning of this Annual Report on Form 10-K.

Our risk factors are categorized as follows:

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Any of these factors, including becoming more promotional, could have an adverse effect on our business, results of operations and financial condition.

The COVID-19 pandemic has impacted, and may continue to impact, our business and our results of operations.

Our operations and the markets in which we operate, procure merchandise and raise capital have experienced, and may continue to experience, disruption and financial market volatility associated with the remaining effects of the COVID-19 pandemic.

Governments took, and may continue to take, unprecedented measures to control the spread of COVID-19 and to provide stimulus as a mitigating measure to deteriorating economic conditions.

Our business and results of operations were impacted by the temporary closure of our physical stores in Fiscal 2020, government stimulus in Fiscal 2021 and impacts of inflation potentially sparked by the government stimulus and supply chain disruptions in Fiscal 2022.

Federal stimulus payments made directly to consumers as a result of the COVID-19 pandemic likely had a positive impact on our Net Sales, including in Fiscal 2021.

The amount of any future stimulus payments and duration of the impact of such payments is uncertain.

Our sales and profitability have been volatile based on the amount of government stimulus and could be further impacted by stimulus in future periods.

We did not have any stores closed as of our Fiscal 2022 and Fiscal 2021 year ends or for extended periods during Fiscal 2022 or Fiscal 2021 due to the pandemic.

As guidance and mandates from governments and public health officials continue to evolve, closures to some, or all, of our store and other operations may reoccur.

The extent of the continued impact of the COVID‑19 pandemic on our operational and financial performance will depend on future developments, including, but not limited to:

the duration and spread of COVID-19 and its variants in the areas in which we operate and whether there are additional periods of increases or spikes in the number of such cases in future periods;

mitigating efforts deployed by government agencies and the public at large, including vaccine, testing and masking mandates;

the development, pace of distribution and effectiveness of vaccines and therapeutic treatments;

the general perception of those mitigating efforts where we operate, procure merchandise and raise capital.

Should the COVID-19 pandemic and/or its related after effects lead to further temporary closures of our physical stores;

financial market volatility;

adverse changes in economic conditions;

adverse changes in consumer spending;

increased operational risks;

and/or further disruptions to our supply chain and distribution processes, our costs may increase, our sales and gross profit may decline and our stock price may decrease, any of which could negatively impact our results of operations, cash flows and financial condition.

Our customers and store employees are exposed to certain COVID-19-related safety risks at our physical stores.

While we have taken measures to control these risks, the unpredictable nature of COVID-19 may result in unexpected outcomes.

For example, if the established protocols cease to be effective, or are not followed, the health and safety of our employees and customers could be at risk.

A future outbreak in our stores, distribution center or corporate headquarters could result in temporary or sustained workforce shortages or store or facility closures.

Inadequate response by us, perceived or otherwise, could impact our costs, our reputation, and/or our ability to recruit a qualified workforce.

Failure to successfully manage and execute our marketing and pricing strategies could have a negative impact on our business .

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Effective use of CRM data and successful marketing efforts are necessary for us to reach customers through their desired mode of communication.

Our inability to accurately predict our customers’

preferences, to utilize their desired mode of communication, or to ensure availability of advertised products at effective price points could adversely affect our business and results of operations.

Our inability to accurately predict our customers’ preferences, to utilize their desired mode of communication, or to ensure availability of advertised products at effective price points could adversely affect our business and results of operations.

An increase in the cost, or a disruption in the flow, of imported goods may decrease our sales and profits.

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Our primary footwear manufacturers are located in China.

Currently, most retailers, including us, are experiencing some form of disruption in their supply chains involving goods imported from Asian countries.

To date, such disruption has increased our costs and negatively impacted our access to merchandise, particularly athletic footwear.

Should the disruption continue or worsen, it may further increase the cost of the goods we purchase, limit our ability to acquire merchandise and decrease our sales and profits.

Any disruption in the supply chain may increase the cost of the goods we purchase, limit our ability to acquire merchandise and decrease our sales and profits.

If imported merchandise becomes more expensive or unavailable, the transition to alternative sources may not occur in time to meet our demands.

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• compliance with the laws and regulations, and changes to such laws and regulations, in the United States and the countries where our manufacturers are located, including but not limited to requirements relating to shipping security, product safety testing, environmental requirements and anti-corruption laws.

We may not realize the expected operating results, growth opportunities and other benefits of the Shoe Station acquisition.

A significant portion of our growth strategy is based on growing the Shoe Station banner.

Our ability to achieve our strategies will depend, in part, on our ability to realize the expected operating results, growth opportunities and other benefits from acquiring the Shoe Station assets.

We may not realize these operating results, growth opportunities or other benefits within the expected time frames, or at all.

The acquired Shoe Station banner may underperform relative to our expectations.

Any of these impacts could have an adverse effect on our growth opportunities, business, results of operations and financial condition.

We may not realize the expected operating results from, and planned growth of, our Shoe Station banner.

A significant portion of our growth strategy is based on growing our Shoe Station banner.

Our ability to achieve our strategies will depend, in part, on our ability to realize the expected operating results from, and planned growth of, our Shoe Station banner, which we may not realize within our expected time frames, or at all.

The Shoe Station banner may underperform relative to our expectations.

Any of these impacts could have an adverse effect on our growth, business, results of operations and financial condition.

We face significant competition in our markets, and we may be unable to compete favorably.

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All of our stores are subject to leases and are primarily located in open-air shopping centers.

If we fail to effectively implement our real estate strategies or negotiate appropriate lease terms or if unforeseen changes arise, the consequences could have an adverse effect on our profitability, cash flows and liquidity.

If we fail to effectively implement our real estate strategies or negotiate appropriate lease terms or if unforeseen changes arise, the consequences could have an adverse effect on our

profitability, cash flows and liquidity.

The financial impact of exiting a leased location can vary greatly depending on, among other factors, the terms of the lease, the condition of the local real estate market, demand for the specific property and our relationship with the landlord, and influencing these factors is difficult.

In addition to rent, we could still be responsible for the maintenance, taxes, insurance and common area maintenance (“CAM”) charges for vacant properties until the lease commitment expires or is terminated.

We locate our stores primarily in open-air shopping centers where we believe our customers and potential customers shop.

The success of an individual store can depend on favorable placement within a given open-air shopping center and the volume of traffic generated by the other destination retailers and the anchor stores in the open-air shopping centers where our stores are located.

We cannot control the development of alternative shopping destinations near

our existing stores or the availability or cost of real estate within existing or new shopping destinations.

We cannot control the development of alternative shopping destinations near our existing stores or the availability or cost of real estate within existing or new shopping destinations.

If one or more of the destination retailers or anchor stores located in the open-air shopping centers where our stores are located close or leave, or if there is significant deterioration of the surrounding areas in which our stores are located, our business may be adversely affected.

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Various risks associated with our e-commerce platform may adversely affect our business and results of operations.

E-commerce has been a rapidly growing sales channel and an increasing source of competition in the retail industry.

We sell shoes and related accessories through our websites at www.shoecarnival.com and www.shoestation.com and through our related mobile app.

We fulfill substantially all e-commerce orders from our store locations and from our distribution center.

E-commerce has been an important sales channel for us.

We sell shoes and related accessories through websites that we control, including www.shoecarnival.com and www.shoestation.com and through our related mobile app.

We fulfill substantially all e-commerce orders from our store locations and from our Evansville distribution center.

If we are unable to continue to grow our e-commerce sales, our sales, comparable store sales and gross profit may decline, and our stock price may decrease, any of which could negatively impact our results of operations, cash flows and financial condition.

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A number of factors have historically affected, and will continue to affect, our comparable store sales results, including:

• competition;

• timing of holidays, including sales tax holidays;

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• consumer trends, including the impact of higher prices on consumer goods;

• the impact of and government response to pandemics;

• fashion trends;

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We remain focused on expanding our Shoe Perks enrollment.

In Fiscal 2023, purchases from Shoe Perks members were approximately 71% of our comparable Net Sales through our Shoe Carnival bannered stores.

If our Shoe Perks members do not continue to shop with us, our sales may be adversely affected, which could have an adverse impact on our results of operations.

We may not be able to successfully execute our growth strategy, which could have an adverse effect on our business, financial condition and results of operations.

We intend to continue to invest in omnichannel initiatives, which requires substantial investment in technology.

Our growth strategy requires that we continue to expand and improve our operating and financial systems and expand, train and manage our employee base.

Our growth strategy requires that we continue to invest in omnichannel initiatives, which requires substantial investment in technology, to expand and improve our operating and financial systems and expand, train and manage our employee base.

In addition, as we create more opportunities to connect with our customers through our omnichannel initiatives and as we grow the number of our physical stores, we may be unable to hire a sufficient number of qualified personnel or successfully integrate the omnichannel initiatives or new or acquired stores into our business.

If we fail to successfully implement our growth strategy, our business, financial condition or results of operations could be adversely affected.

The success of our growth strategy will depend on a number of other factors, many of which are out of our control, including, among other things:

The success of our growth strategy will depend on a number of other factors, some of which are out of our control, including, among other things:

• the acceptance of our banners and concepts in new markets;

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Our business depends upon our ability to purchase fashionable, name brand and other merchandise at competitive prices from our suppliers.

Two branded suppliers, Nike, Inc.

Three branded suppliers, Nike, Inc., Skechers U.S.A., Inc.

and Crocs, Inc.

collectively accounted for approximately 45% of our Net Sales in Fiscal 2023.

and Skechers U.S.A., Inc.

collectively accounted for approximately 27% of our Net Sales in Fiscal 2022, 39% of our Net Sales in Fiscal 2021 and 43% in Fiscal 2020 (Nike, Inc.

accounted for approximately 14% of our Net Sales in Fiscal 2022, 28% in Fiscal 2021 and 33% in Fiscal 2020 and Skechers U.S.A., Inc.

accounted for approximately 13% of our Net Sales in Fiscal 2022, 11% in Fiscal 2021 and 10% in Fiscal 2020).

collectively accounted for approximately 27% of our Net Sales in Fiscal 2022 and 39% of our Net Sales in Fiscal 2021.

Name brand suppliers also provide us with cooperative advertising and visual merchandising funds.

Certain key suppliers’

business models are changing and such changes include, but are not limited to, increased direct-to-consumer initiatives, changes in planned product allocations and reductions in the number of retailers with which they are choosing to do business.

Certain key suppliers’ business models are changing and such changes include, but are not limited to, increased direct-to-consumer initiatives, changes in planned product allocations and reductions in the number of retailers with which they are choosing to do business.

A loss of any of our key suppliers in certain product categories or our inability to obtain name brand or other merchandise from suppliers at competitive prices could have an adverse effect on our business.

As is common in the industry, we do not have any long‑term contracts with our suppliers.

We may experience difficulties in integrating Rogan’s and realizing the expected operating results, synergies, growth opportunities and other benefits of the acquisition.

The success of the Rogan’s acquisition will depend, in part, on our ability to realize the expected operating results, synergies, growth opportunities and other benefits from acquiring Rogan’s.

We may not realize these operating results, synergies, growth opportunities or other benefits within the expected time frames, or at all.

The acquisition may disrupt our current plans and operations and may negatively impact our relationship with our vendors and other key suppliers.

We may not be able to successfully integrate Rogan’s operations, logistics, information technologies, communications, purchasing, accounting, marketing, administration and other systems, establish internal controls into Rogan’s operations or retain key Rogan’s employees.

Rogan’s may underperform relative to our expectations.

Any of these impacts could have an adverse effect on our growth opportunities, business, results of operations and financial condition.

We may not be able to identify or consummate future acquisitions or achieve expected benefits from or effectively integrate future acquisitions.

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• unexpected liabilities resulting from the acquisition for which we may not be adequately indemnified;

the integration of the personnel, operations, logistics, information technologies, communications, purchasing, accounting, marketing, administration and other systems and the establishment of internal controls into the acquired company’s operations;

• the integration of the personnel, operations, logistics, information technologies, communications, purchasing, accounting, marketing, administration and other systems and the establishment of internal controls into the acquired company’s operations;

• the diversion of management attention and financial resources from our current operations;

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Natural disasters, public health crises, political crises and other catastrophic events or other events outside of our control may damage our facilities or the facilities of third parties on which we depend and could impact our supply chain and access to customers.

Our facilities, including our distribution center, our corporate headquarters and other offices and our retail stores, and the facilities of our third-party vendors and service providers could suffer if affected by:

Our facilities, including our Evansville distribution center, our corporate headquarters and other offices and our retail stores, and the facilities of our third-party vendors and service providers could suffer if affected by:

• natural disasters, such as fires, earthquakes, explosions, hurricanes, power shortages or outages, floods, monsoons, ice storms or tornadoes;

other public health crises such as pandemics and epidemics;

• public health crises such as pandemics and epidemics;

• political crises such as terrorism, war, political instability, civil unrest or other conflict;

• other events outside of our control.

Disasters occurring at our distribution center, our corporate headquarters and other offices, our retail stores or the infrastructure of a key third-party vendor or service provider also could result in us being unable to deliver

merchandise to our stores or directly to customers for a prolonged period and could impact our reputation and our customers’

perception of our brand.

We currently operate a primary distribution center located in Evansville, Indiana.

Virtually all merchandise received by our physical stores is, and will be, shipped through this distribution center.

A disaster occurring at this distribution center would be significant and we could be unable to effectively deliver merchandise to our stores for an extended period.

Disasters occurring at our distribution center located in Evansville, Indiana, our corporate headquarters and other offices, our retail stores or the infrastructure of a key third-party vendor or service provider also could impact our reputation and our customers’ perception of our brand.

In the event of a severe disruption resulting from such events, we have contingency plans and employ crisis management to respond and recover operations.

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The reliability and capacity of our information technology systems, and in particular our distribution technology operations, are critical to our continued operations.

We currently operate a single distribution center in Evansville, Indiana.

Virtually all merchandise received by our physical stores is, and will be, shipped through our distribution center.

We fulfill substantially all of our e-commerce orders from our store locations and our distribution center.

We currently operate a primary distribution center in Evansville, Indiana.

Virtually all merchandise received by our physical stores is, and will be, shipped through this distribution center.

We fulfill substantially all of our e-commerce orders from our store locations and our primary distribution center.

Given that we have one primary distribution center, virtually any technology disruption there could be significant to our operations.

Our corporate computer network is essential to our distribution process.

Despite our precautionary efforts, our information technology systems are vulnerable from time to time to damage or interruption from, among other things, natural or man-made disasters, technical malfunctions, inadequate systems capacity, power outages, terrorist attacks, computer viruses and security breaches, which may require significant investment to fix or replace.

If our distribution center is shut down for any reason, if our information technology systems do not operate effectively or if we are the target of attacks or security breaches, we may suffer the loss of critical data, we could incur significantly higher costs and longer lead times associated with distributing our products to our stores, our ability to operate our e-commerce platform may be impacted and we could experience other interruptions or delays to our operations, which could have an adverse effect on our operating and financial performance.

If our primary distribution center is shut down for any reason, if our information technology systems do not operate effectively or if we are the target of attacks or security breaches, we may suffer the loss of critical data, we could incur significantly higher costs and longer lead times associated with distributing our products to our stores, our ability to operate our e-commerce platform may be impacted and we could experience other interruptions or delays to our operations, which could have an adverse effect on our operating and financial performance.

We outsource certain business processes to third-party vendors and have certain business relationships that subject us to risks, including disruptions to our business and increased costs.

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These include, but are not limited to:

changes in the public’s perception of the reputation and brand of the business partner as a result of matters such as its labor and wage standards, business practices or marketing campaigns;

• changes in the public’s perception of the reputation and brand of the business partner as a result of matters such as its labor and wage standards, business practices or marketing campaigns;

• our inability to properly manage a business partner;

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In recent years, there has been a marked increase in the use of social media platforms, including blogs, chat platforms, social media websites and other forms of internet-based communications that provide access to a broad audience of consumers and other persons.

The rising popularity of

social media and other consumer-oriented technologies has increased the speed and accessibility of information dissemination.

If we are unable to quickly and effectively respond to the dissemination of negative information about us via social media or any other incidents negatively impacting our reputation and brand, we may suffer declines in customer loyalty and traffic and we may experience vendor relationship issues and other issues, regardless of the information’s accuracy, all of which could negatively affect our financial results.

The popularity of social media and other consumer-oriented technologies has increased the speed and accessibility of information dissemination.

In addition, we frequently use social media to communicate with customers and the public in general.

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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.

Reductions in demand for our merchandise during these peak shopping seasons could require us to sell excess inventory at a substantial markdown, which could reduce our Net Sales and margins and negatively affect our profitability.

profitability.

Our operating results depend significantly upon the sales generated during these periods, and our quarterly results may be impacted by calendar shifts of holiday or seasonal periods.

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Lower demand for seasonally appropriate merchandise may leave us with an excess inventory of our seasonally appropriate products, forcing us to sell these products at significantly discounted prices and adversely affecting our Net Sales, margins and operating cash flow.

Conversely, if weather conditions permit us to sell our seasonal product early in the season, this may reduce inventory levels needed to meet our customers’

needs later in that same season.

Conversely, if weather conditions permit us to sell our seasonal product early in the season, this may reduce inventory levels needed to meet our customers’ needs later in that same season.

Consequently, our results of operations are highly dependent on somewhat predictable weather conditions and our ability to react to changes in weather conditions.

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Advanced cybersecurity threats are persistent and continue to evolve, making them increasingly difficult to identify and prevent.

If our security and information systems or the systems of our employees or external business partners are compromised or our employees or external business partners fail to comply with these laws and regulations and this information is obtained by unauthorized persons, or collected or used inappropriately, our reputation, as well as our operations and financial results, could be negatively affected and litigation or regulatory action against us or the imposition of costs, fines or other penalties could also occur.

If our security and information systems or the

systems of our employees or external business partners are compromised or our employees or external business partners fail to comply with these laws and regulations and this information is obtained by unauthorized persons, or collected or used inappropriately, our reputation, as well as our operations and financial results, could be negatively affected and litigation or regulatory action against us or the imposition of costs, fines or other penalties could also occur.

As privacy and information security laws and regulations change, we may incur additional costs to remain in compliance.

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We are a defendant from time to time in lawsuits and regulatory actions relating to our business.

Due to the inherent uncertainties of litigation and regulatory proceedings, we cannot accurately predict the ultimate outcome of any such proceedings.

Due to the inherent uncertainties of litigation and regulatory proceedings, we cannot accurately predict the ultimate outcome of such proceedings.

An unfavorable outcome could have an adverse effect on our business, financial condition and results of operations.

In addition, regardless of the outcome of any litigation or regulatory proceedings, such proceedings are expensive and will require us to devote substantial resources and executive time to defend, thereby diverting management’s attention and resources that are needed to successfully run our business.

Human Capital Risks

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Our business would be adversely affected if we fail to retain key executives, or to adequately plan for the succession of members of our executive management team.

continue to be available to us or that we will be able to find suitable management personnel to replace departing executives on a timely basis.

Our failure to attract and retain qualified personnel could adversely affect our business.

While we have succession plans in place for members of our executive management team, and continue to review and update those plans, and we have employment agreements with certain key executive officers, these plans and agreements do not guarantee that the services of our executive officers will continue to be available to us or that we will be able to find suitable management personnel to replace departing executives on a timely basis.

Our failure to attract and retain qualified personnel and control labor costs could adversely affect our business.

Our business model requires us to train, motivate and manage our employees and to attract, motivate and retain additional qualified managerial and merchandising personnel.

Our ability to control costs and meet our labor needs in a rising wage and inflationary environment is subject to external factors such as unemployment levels, prevailing wage rates paid by those with whom we compete for talent, health care and minimum wage legislation, and changing demographics.

If we are unable to attract and retain quality sales associates and management, embrace automation, such as robot and self-checkout technology, as necessary, or if market conditions or changes to minimum wage laws result in the need for higher wages paid to employees, our ability to meet our growth goals or to sustain expected levels of profitability may be compromised and our financial condition, results of operations and cash flows may be adversely affected.

If we are unable to attract and retain quality sales associates and management, embrace automation, such as robot, artificial intelligence, and self-checkout technology, as necessary, or if market conditions or changes to minimum wage laws result in the need for higher wages paid to employees, our ability to meet our growth goals or to sustain expected levels of profitability may be compromised and our financial condition, results of operations and cash flows may be adversely affected.

Financial and Liquidity Risks

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Failure to generate or raise sufficient funds may require us to modify, delay or abandon some of our future growth or expenditure plans.

We utilize our credit agreement to fund working capital, including inventory purchases, and special purpose standby letters of credit, as needed.

Significant decreases in cash flow from operations could result in our borrowing under the credit agreement to fund operational needs.

If we borrow funds under our credit agreement and interest rates materially increase from present levels, our financial results could be adversely affected.

We may utilize our credit agreement to fund working capital, including inventory purchases, and special purpose standby letters of credit, as needed.

Significant decreases in cash flow from operations could result in our borrowing under the credit agreement to fund

operational needs.

If we borrow funds under our credit agreement and interest rates materially increase, our financial results could be adversely affected.

Continued financial market volatility could have an adverse effect on the sources and costs of financing available to us.

The capital and credit markets have recently experienced, and may continue to experience, volatility and disruption, which could have the following impacts, among other things:

The capital and credit markets have experienced, and may continue to experience, volatility and disruption, which could have the following impacts, among other things:

• make obtaining other sources of debt more difficult;

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This evolution and structural change has resulted in the bankruptcy and/or reorganization of various footwear specific and other publicly traded retailers.

Despite our best efforts to differentiate our business model and processes, our stock price has fluctuated as

a result of perceptions of the overall retail environment and investor confidence in the retail sector.

The volatility in our stock price could be exacerbated by macroeconomic conditions that affect the market generally or our industry in particular and could have the effect of diverting management’s attention and could harm our business.

Despite our best efforts to differentiate our business model and processes, our stock price has fluctuated as a result of perceptions of the overall retail environment and investor confidence in the retail sector.

We cannot provide any assurance that perception of the retail industry overall and other macroeconomic conditions will not continue to impact our stock price or our ability to engage business partners on terms acceptable to us.

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• operating results failing to meet the expectations of securities analysts or investors in any quarter;

downward revisions in securities analysts’

• downward revisions in securities analysts’ estimates;

• material announcements by us or our competitors;

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In the past, companies that have experienced volatility in the market price of their stock have been the subject of securities class action litigation.

If we become involved in securities class action litigation in the future, it could result in substantial costs and diversion of management attention and resources, thus harming our business.

If we become involved in securities class action

litigation in the future, it could result in substantial costs and diversion of management attention and resources, thus harming our business.

We cannot guarantee that we will continue to make dividend payments or that we will continue to repurchase stock pursuant to our stock repurchase program.

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Wayne Weaver, our Chairman of the Board of Directors, and his spouse together beneficially own approximately 32.8% of our outstanding common stock.

Weaver's adult daughter is the sole trustee of several grantor retained annuity trusts and, as a result, beneficially owns approximately 4.5% of our outstanding common stock held by such trusts.

In addition, Mr.

Weaver's adult daughter is the sole trustee of several grantor retained annuity trusts and, as a result, beneficially owns less than 5% of our outstanding common stock held by such trusts.

Accordingly, the Weaver family is able to exert substantial influence over our management and operations.

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The Board of Directors has the authority to issue preferred stock in one or more series without the approval of the holders of our common stock.

Further, Indiana corporate law contains business combination provisions that, in general, prohibit for five years any business combination with a beneficial owner of 10% or more of our common stock unless the holder’s acquisition of the stock was approved in advance by our Board of Directors.

Indiana corporate law also contains control share acquisition provisions that limit the ability of certain shareholders to vote their shares unless their control share acquisition is approved.

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Unresolv ed staff comments

CYBE RSECURITY

Risk Management and Strategy

Daily, we are threatened by system intrusions, social engineering attempts and web application attacks.

These threats and attempts are directed at payment data, employee credentials, system passwords and personal information.

We have developed and implemented a risk-based framework to address them.

We consider cybersecurity a top risk within our enterprise risk management protocol, which is subject to oversight by our Board of Directors.

Our risk-based processes, as designed, seek to maintain physical, administrative and technical controls that protect the confidentiality, integrity and availability of our information systems and information stored on our network, including customer information, personal information, intellectual property and proprietary information.

We use the National Institute of Standards and Technology Cybersecurity Framework (the "NIST CSF") as a guideline for our cybersecurity framework.

This does not imply that we meet any technical standards, specifications or requirements under the NIST CSF, only that we use the NIST CSF as a framework to help us identify, assess and manage cybersecurity risks related to our business.

Our policies for overall general information technology controls are also influenced by the Control Objectives for Information and Related Technologies, which align with the NIST CST.

Our key cybersecurity processes are organized into four primary categories:

• Outage and access:

these processes address system intrusion and credential and password threats and risks;

• Payment and loyalty rewards:

these processes protect the information of our customers;

• Personal data:

these processes protect the payroll and healthcare data of our current and former employees and vendor information.

• Vendor partner security:

these processes review the infrastructure and security processes of vendor partners that process transactions, provide cloud-based solutions and provide the backbone for our data flow.

Key elements of our cybersecurity processes include, but are not limited to, the following:

• Firewalls, data encryption and tokenization, multifactor authentication and data backup, among other safeguarding tactics;

• Routine tests of our back up processes, the physical security of our data storage and access to systems via penetration testing;

• A security team principally responsible for managing (1) our cybersecurity risk assessment processes, (2) our security controls, and (3) our response to cybersecurity incidents;

• Training and testing of the diligence and awareness of our employees regarding social engineering email and other cybersecurity schemes and risks;

• Engaging third-party cybersecurity companies periodically to assess our cybersecurity posture and assist with identifying and remediating cybersecurity risks;

• Contractual commitments from vendor partners and a review of controls at vendor partners via System and Organization Controls reports.

Our Board of Directors oversees and guides our business and oversees our exposure to major risks.

As stated in its charter, our Board of Directors has delegated to the Audit Committee the responsibility for Board-level oversight of cybersecurity risk.

As part of its oversight role, the Audit Committee receives reports about our protocols, material threats or incidents and other developments related to cybersecurity.

When these discussions occur, Board members with cybersecurity acumen that are not on the Audit Committee are present and active in those discussions.

These cybersecurity reports are provided to our Audit Committee at least annually, and these reports are delivered by our Senior Vice President and Chief Information Officer (“CIO”).

Our CIO has over 30 years of experience with our information systems and is versed in cybersecurity frameworks and best practices.

A security committee assists the CIO with developing controls, selecting vendor partners, identifying emerging threats and implementing best practices within our risk-based framework.

Our security team is comprised of professionals with cybersecurity certifications and specialized training.

The CIO addresses how we allocate capital resources to our cybersecurity processes with our executive leadership team, which includes our Chief Executive Officer, Chief Operating Officer, Chief Merchandising Officer and Chief Financial Officer.

The CIO reports directly to our Chief Operating Officer.

Process to Access, Identify and Manage Material Risks from Cybersecurity Threats

When a cybersecurity incident occurs or we identify a vulnerability, our CIO and our security committee, which is described in more detail under "Governance" above, are responsible for leading the initial risk assessment, and external experts may also be engaged and our Audit Committee or full Board may also be consulted.

If a breach of our control structure were to occur, our executive leadership team, Audit Committee and counsel would be briefed by the CIO and a determination would be made on whether such issue is material to warrant disclosure.

As of February 3, 2024, we have not identified any risks from cybersecurity threats that have materially affected or are reasonably likely to materially affect us, including our operations, business strategy, results of operations, cash flow or financial condition.

Even with our current control processes and a continuous improvement mindset, cybersecurity threats constantly evolve.

If the measures we have employed were to fail, or if a breach were to occur, it could result in impairment or loss of critical functions, such as the operation of our e-commerce websites, our Evansville distribution center, our corporate network and/or our point-of-sale systems, as examples.

Additionally, confidential information could be compromised or we could be defrauded or ransomed for a material amount of funds.

Any of these outcomes could negatively affect our reputation and customer loyalty.

The ultimate effects of a breach or loss in function or confidential information are difficult to quantify with any certainty, but such loss may be partially limited through insurance.

See "Risk Factors—We could be adversely affected if our inventory technology systems fail to operate effectively, are disrupted or are compromised", "—Various risks associated with our e-commerce platform may adversely affect our business and results of operations" and "—We outsource certain business processes to third-party vendors and have certain business relationships that subject us to risks, including disruptions to our business and increased costs" in PART I, ITEM 1A of this Annual Report on Form 10-K, which risk factors are incorporated by reference into this section of this Annual Report on Form 10-K.

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-K

Item 1. Business