What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2024-06-07 compared with 2023-12-01 · 155 added, 427 removed, 196 unchanged (75% of the section changed)

3 unchanged sentences

(In thousands, except share data)

October 28, 2023

January 28, 2023

October 29, 2022

February 3, 2024

April 29, 2023

Current Assets:

4 unchanged sentences

Total Current Assets

Property and equipment –

Property and equipment – net

Operating lease right-of-use assets

1 unchanged sentence

Other noncurrent assets

Liabilities and Shareholders’

Liabilities and Shareholders’ Equity

Current Liabilities:

7 unchanged sentences

Total Liabilities

Shareholders’

Shareholders’ Equity:

Common stock, $ 0.01 par value, 50,000,000 shares authorized and

4 unchanged sentences

shares and 13,713,595 shares, respectively

Total Shareholders’

Total Liabilities and Shareholders’

Total Shareholders’ Equity

Total Liabilities and Shareholders’ Equity

See notes to Condensed Consolidated Financial Statements.

2 unchanged sentences

(In thousands, except per share data)

October 28, 2023

October 29, 2022

October 28, 2023

October 29, 2022

April 29, 2023

Cost of sales (including buying, distribution

10 unchanged sentences

SHOE CARNIVAL, INC.

CONDENSED CONSOLIDATED STATE MENTS OF SHAREHOLDERS’

CONDENSED CONSOLIDATED STATE MENTS OF SHAREHOLDERS’ EQUITY

Thirteen Weeks Ended

(In thousands, except per share data)

Balance at July 29, 2023

Dividends declared ($ 0.12 per share)

Employee stock purchase plan purchases

Purchase of common stock for treasury

Stock-based compensation expense

Balance at October 28, 2023

Balance at July 30, 2022

Dividends declared ($ 0.09 per share)

Employee stock purchase plan purchases

Stock-based compensation awards

Shares surrendered by employees to pay taxes

on stock-based compensation awards

Purchase of common stock for treasury

Stock-based compensation expense

Balance at October 29, 2022

Thirty-nine Weeks Ended

(In thousands, except per share data)

Balance at January 28, 2023

Balance at February 3, 2024

Dividends declared ($ 0.135 per share)

3 unchanged sentences

on stock-based compensation awards

Purchase of common stock for treasury

Stock-based compensation expense

Balance at October 28, 2023

Balance at May 4, 2024

Balance at January 28, 2023

4 unchanged sentences

on stock-based compensation awards

Purchase of common stock for treasury

Stock-based compensation expense

Balance at October 29, 2022

Balance at April 29, 2023

See notes to Condensed Consolidated Financial Statements.

2 unchanged sentences

(In thousands)

October 28, 2023

October 29, 2022

April 29, 2023

Cash Flows From Operating Activities

3 unchanged sentences

Stock-based compensation

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

Loss on retirement and impairment of assets, net

Deferred income taxes

9 unchanged sentences

Investments in marketable securities

Sales of marketable securities

Acquisition, net of cash acquired

Net cash used in investing activities

2 unchanged sentences

Dividends paid

Purchase of common stock for treasury

Shares surrendered by employees to pay taxes on stock-based compensation awards

Net cash used in financing activities

Net increase (decrease) in cash and cash equivalents

Net decrease in cash and cash equivalents

Cash and cash equivalents at beginning of period

2 unchanged sentences

Cash paid during period for interest

Cash paid during period for income taxes

Cash (received)/paid during period for income taxes

Capital expenditures incurred but not yet paid

Dividends declared but not yet paid

Contingent consideration related to business acquisition

See notes to Condensed Consolidated Financial Statements.

1 unchanged sentence

NOTES TO CONDENSED CONSOLID ATED FINANCIAL STATEMENTS

Note 1 –

Basis of Presentation

Note 1 – Basis of Presentation

Shoe Carnival, Inc.

is one of the nation’s largest omnichannel family footwear retailers, selling footwear and related products through our retail stores located in 35 states within the continental United States and in Puerto Rico, as well as through our e-commerce platform.

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

is one of the nation’s largest omnichannel family footwear retailers, selling footwear and related products through our retail stores located in 36 states within the continental United States and in Puerto Rico, as well as through our e-commerce sales channels.

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

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

References to “we,”

“us,”

“our”

and the “Company”

in this Quarterly Report on Form 10-Q refer to Shoe Carnival, Inc.

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

and its subsidiaries.

Our consolidated financial statements include the accounts of Shoe Carnival, Inc.

and its wholly-owned subsidiaries SCHC, Inc.

and its wholly-owned subsidiaries Rogan Shoes, Incorporated, SCHC, Inc.

and Shoe Carnival Ventures, LLC, and SCLC, Inc., a wholly-owned subsidiary of SCHC, Inc.

All intercompany accounts and transactions have been eliminated.

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

Certain information and disclosures normally included in the notes to Condensed Consolidated Financial Statements have been condensed or omitted as permitted by the rules and regulations of the SEC although we believe that the disclosures are adequate to make the information presented not misleading.

The results of operations for the interim periods are not necessarily indicative of the results to be expected for the full year.

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

Note 2 - Acquisition of Rogan Shoes

On February 13, 2024, we acquired all of the stock of Rogan Shoes, Incorporated, a privately-held 53-year-old work and family footwear company incorporated in Wisconsin (“Rogan’s”) for a preliminary purchase price of $ 44.6 million, net of $ 2.2 million of cash acquired.

The preliminary purchase price was funded entirely with cash on hand and is subject to customary adjustments, and additional consideration of up to $ 5.0 million may be paid by the Company subject to the achievement of three-year performance targets.

At the time of the acquisition, Rogan’s operated 28 store locations in Wisconsin, Minnesota and Illinois.

The Rogan’s acquisition advanced our strategy to be the nation’s leading family footwear retailer.

It immediately positioned us as the market leader in Wisconsin, and it established a store base in Minnesota, creating additional expansion opportunities.

Rogan’s results were included in our consolidated financial statements since the acquisition date.

Net Sales from our newly acquired Rogan’s operations totaled $ 19.6 million from February 13, 2024 through May 4, 2024.

For the thirteen weeks ended May 4, 2024, acquisition-related costs of $ 321,000 were expensed as incurred and were included in Selling, General and Administrative Expenses.

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

We measured these fair values using Level 3 inputs.

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

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

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

(In thousands)

Preliminary purchase price:

Cash consideration, net of cash acquired

Fair value of contingent consideration

Total preliminary purchase price

Fair value of identifiable assets and liabilities:

Accounts receivable

Merchandise inventories

Operating lease right-of-use assets

Identifiable intangible assets

Accounts payable

Operating lease liabilities

Accrued and other liabilities

Total liabilities

Total fair value allocation of preliminary purchase price

Our fair value estimate of the Merchandise Inventories for Rogan’s was determined using the Comparative Sales and Replacement Cost methods.

Our fair value estimate of the contingent consideration for the Rogan’s acquisition was determined using a Monte Carlo simulation and other methods that account for the probabilities of various outcomes and was recorded in Other long-term liabilities.

Significant assumptions used for the valuation include the discount rate, projected cash flows and calculated volatility.

Our fair value estimate related to the identified intangible asset of Rogan’s trade name was determined using the Relief from Royalty method, and the significant assumptions used for the valuation include the royalty rate, estimated projected revenues, long-term growth rate and the discount rate.

Our fair value estimates related to Rogan’s customer relationships were determined using the Multi-Period Excess Earnings method, and the significant assumptions used for the valuation include projected cash flows, the discount rate and customer attrition rate.

Identifiable intangible assets include Rogan’s trade name and customer relationships.

We assigned an indefinite life to Rogan’s trade name;

therefore, Goodwill and Rogan’s trade name will be charged to expense only if impaired.

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

If fair value is less than the carrying amount, an impairment loss would be recognized in Selling, General and Administrative Expenses.

Customer relationships are subject to amortization and will be amortized over a period of 20 years.

Goodwill and the acquisition-related Intangible Assets will not be deductible for tax purposes.

Note 3 - Net Income Per Share

1 unchanged sentence

Thirteen Weeks Ended

October 28, 2023

October 29, 2022

(In thousands, except per share data)

Basic Net Income per Share:

Net income available for basic common shares

and basic net income per share

Diluted Net Income per Share:

Conversion of stock-based compensation

Net income available for diluted common

shares and diluted net income per share

Thirty-nine Weeks Ended

October 28, 2023

October 29, 2022

April 29, 2023

(In thousands, except per share data)

8 unchanged sentences

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

No unvested stock-based awards that will be settled in shares were excluded from the computation of Diluted Net Income per Share for the thirteen and thirty-nine weeks ended October 28, 2023.

During the thirteen and thirty-nine weeks ended October 29, 2022 , approximately 290,000 and 253,000 , respectively, of unvested stock-based awards that will be settled in shares were excluded from the computation of Diluted Net Income per Share because the impact would have been anti-dilutive.

No unvested stock-based awards that will be settled in shares were excluded from the computation of Diluted Net Income per Share for the thirteen weeks ended May 4, 2024.

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

Note 4 - Recently Issued Accounting Pronouncements

In November 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2023-07, Segment Reporting (Topic 280):

Improvements to Reportable Segment Disclosures.

The guidance improves reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses.

In addition, the amendments enhance interim disclosure requirements, clarify circumstances in which an entity can disclose multiple segment measures of profit or loss, provide new segment disclosure requirements for entities with a single reportable segment, and contain other disclosure requirements.

The ASU is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024.

Early adoption is permitted.

The amendments in the ASU will be applied retrospectively to all prior periods presented in the financial statements, using the significant segment expense categories identified and disclosed in the period of adoption.

We are continuing to evaluate the impact of this new guidance but believe the adoption will not have a material impact on our consolidated financial statements.

In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740):

Improvements to Income Tax Disclosures.

The guidance requires disaggregated information about a reporting entity’s effective tax rate reconciliation as well as information on income taxes paid.

The ASU is effective for fiscal years beginning after December 15, 2024.

Early adoption is permitted.

The amendments in the ASU should be applied on a prospective basis, but retrospective application is permitted.

We are continuing to evaluate the impact of this new guidance but believe the adoption will not have a material impact on our consolidated financial statements .

Note 5 - Fair Value Measurements

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

Financial Instruments

The following table presents financial instruments that are measured at fair value on a recurring basis at May 4, 2024, February 3, 2024 and April 29, 2023:

Fair Value Measurements

(In thousands)

As of October 28, 2023

As of May 4, 2024

Cash equivalents - money market mutual funds

1 unchanged sentence

deferred compensation

As of January 28, 2023

As of February 3, 2024

Cash equivalents - money market mutual funds

1 unchanged sentence

deferred compensation

As of October 29, 2022

As of April 29, 2023

Cash equivalents - money market mutual funds

2 unchanged sentences

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

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

As of October 28, 2023, these Marketable Securities were principally invested in equity-based mutual funds, consistent with the allocation in our deferred compensation plan.

As of October 28, 2023, the balance in our deferred compensation plan was $ 11.4 million, of which $ 1.6 million was in Accrued and Other Liabilities based on scheduled payments due within the next 12 months and the remaining balance was in Deferred Compensation, a long-term liability.

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

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

As of May 4, 2024, these Marketable Securities were principally invested in equity-based mutual funds, consistent with the allocation in our deferred compensation plan.

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

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

We have recognized cumulative unrealized losses of $ 2.7 million, $ 2.9 million and $ 3.2 million related to equity securities still held at October 28, 2023, January 28, 2023 and October 29, 2022, respectively.

For the thirteen and thirty-nine weeks ended October 28, 2023, we have recognized unrealized losses of $ 919,000 and unrealized gains of $ 141,000 , respectively, related to equity securities still held at October 28, 2023.

For the thirteen and thirty-nine weeks ended October 29, 2022, we have recognized unrealized losses of $ 647,000 and $ 1.1 million, respectively, related to equity securities still held at October 29, 2022.

Changes in these Marketable Securities and deferred compensation plan liabilities are charged to Selling, General and Administrative Expenses.

Deferred Compensation Plan Liabilities and Related Marketable Securities

The following tables present the balances and activity of the Company’s deferred compensation plan liabilities and related Marketable Securities:

(In thousands)

February 3, 2024

April 29, 2023

Deferred compensation plan current liabilities

Deferred compensation plan long-term liabilities

Total deferred compensation plan liabilities

Marketable securities - mutual funds that fund deferred compensation

(In thousands)

April 29, 2023

Deferred compensation liabilities

Employer contributions, net

Investment earnings (losses)

Marketable Securities

Mark-to-market (gains) losses (1)

Net deferred compensation expense

(1) Included in the mark-to-market activity, we recognized unrealized gains of $ 292,000 and $ 299,000 related to equity securities still held at May 4, 2024 and April 29, 2023, respectively.

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

3 unchanged sentences

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

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

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

Assets subject to impairment are adjusted to estimated fair value and, if applicable, an impairment loss is recorded in Selling, General and Administrative Expenses.

If the Operating Lease Right-of-Use Asset is impaired, we would amortize the remaining right-of-use asset on a straight-line basis over

the remaining lease term.

No impairment charges were recorded during the thirteen and thirty-nine weeks ended October 28, 2023 or the thirteen and thirty-nine weeks ended October 29, 2022.

If the Operating Lease Right-of-Use Asset is impaired, we would amortize the remaining right-of-use asset on a straight-line basis over the remaining lease term.

No impairment charges were recorded during the thirteen weeks ended May 4, 2024 or the thirteen weeks ended April 29, 2023.

Note 6 - Stock-Based Compensation

On June 20, 2023, our shareholders approved the Shoe Carnival, Inc.

Amended and Restated 2017 Equity Incentive Plan (the “Amended 2017 Plan”), which amended and restated the Shoe Carnival, Inc.

2017 Equity Incentive Plan.

Among other changes approved by our shareholders, the Amended 2017 Plan increased the number of shares of our common stock that are available for issuance under the plan by 1.8 million additional shares.

As of October 28, 2023, 1,905,372 shares were available for issuance under the Amended 2017 Plan, assuming that all unmeasured but outstanding performance stock units vest at the maximum level of performance.

Amended and Restated 2017 Equity Incentive Plan (the “Amended 2017 Plan”).

Pursuant to the amendment and restatement, the number of shares of our common stock that are available for issuance under the Amended 2017 Plan was increased by 1.8 million additional shares, the term of the plan was extended by an additional ten years from the date of shareholder approval, and certain other design changes were made to the plan.

As of May 4, 2024, there were 1,721,139 shares available for issuance under the Amended 2017 Plan, assuming that all outstanding performance stock units where the performance condition has not been satisfied vest at the maximum level of performance.

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

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

For the thirteen and thirty-nine weeks ended October 28, 2023 and October 29, 2022, stock-based compensation expense was comprised of the following:

For the thirteen weeks ended May 4, 2024 and April 29, 2023, stock-based compensation expense was comprised of the following:

(In thousands)

October 28, 2023

October 29, 2022

October 28, 2023

October 29, 2022

April 29, 2023

Share-settled equity awards

4 unchanged sentences

Additional income tax benefit on vesting of share-settled awards

As of October 28, 2023 , approximately $ 6.4 million of unrecognized compensation expense remained related to our share-settled equity awards.

As of May 4, 2024 , approximately $ 13.5 million of unrecognized compensation expense remained related to our share-settled equity awards.

The cost is expected to be recognized over a weighted average period of approximately 1.9 years.

3 unchanged sentences

Date Fair Value

Outstanding at January 28, 2023

Outstanding at October 28, 2023

The total fair value at grant date of restricted stock units and performance stock units that vested during the thirty-nine weeks ended October 28, 2023 and October 29, 2022 was $ 4.8 million and $ 3.3 million, respectively.

The weighted-average grant date fair value of restricted stock units and performance stock units granted during the thirty-nine weeks ended October 29, 2022 was $ 30.32 .

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

Average Grant

Date Fair Value

Outstanding at January 28, 2023

Outstanding at October 28, 2023

No restricted stock and other stock awards vested during the thirty-nine weeks ended October 28, 2023 or October 29, 2022.

The weighted-average grant date fair value of restricted stock and other stock awards granted during the thirty-nine weeks ended October 29, 2022 was $ 24.12 .

Note 5 –

Disaggregation of Revenue by Product Category

Revenue is disaggregated by product category below.

Net Sales and percentage of Net Sales for the thirteen and thirty-nine weeks ended October 28, 2023 and October 29, 2022 were as follows:

Outstanding at February 3, 2024

Outstanding at May 4, 2024

The total fair value at grant date of restricted stock units and performance stock units that vested during the thirteen weeks ended May 4, 2024 and April 29, 2023 was $ 1.4 million and $ 4.8 million, respectively.

The weighted-average grant date fair value of restricted stock units and performance stock units granted during the thirteen weeks ended April 29, 2023 was $ 24.98 .

There were 159,954 shares that were not earned because the performance condition for performance stock units granted in Fiscal 2023 was not satisfied.

Note 7 – Revenue

Disaggregation of Net Sales by Product Category

Net Sales and percentage of Net Sales, disaggregated by product category, for the thirteen weeks ended May 4, 2024 and April 29, 2023 were as follows:

(In thousands)

Thirteen Weeks

Ended October 28, 2023

Ended May 4, 2024

Thirteen Weeks

Ended October 29, 2022

Non-Athletics:

Women’s

Children’s

Women’s

Children’s

(In thousands)

Thirty-nine Weeks

Ended October 28, 2023

Thirty-nine Weeks

Ended October 29, 2022

Ended April 29, 2023

Non-Athletics:

Women’s

Children’s

Women’s

Children’s

Accounting Policy and Performance Obligations

We operate as an omnichannel, family footwear retailer and provide the convenience of shopping at our physical stores or shopping online through our e-commerce platform.

As part of our omnichannel strategy, we offer Shoes 2U, a program that enables us to ship product to a customer’s home or selected store if the product is not in stock at a particular store.

We also offer “buy online, pick up in store”

services for our customers.

“Buy online, pick up in store”

provides the convenience of local pickup for our customers.

We operate as an omnichannel, family footwear retailer and provide the convenience of shopping at our physical stores or shopping online through our e-commerce sales channels.

As part of our omnichannel strategy, we offer Shoes 2U, a program that enables us to ship product to a customer’s home or selected store if the product is not in stock at a particular store.

We also offer “buy online, pick up in store” services for our customers.

“Buy online, pick up in store” provides the convenience of local pickup for our customers.

For our physical stores, we satisfy our performance obligation and control is transferred at the point of sale when the customer takes possession of the products.

This also includes the “buy online, pick up in store”

scenario described above and includes sales made via our Shoes 2U program when customers choose to pick up their goods at a physical store.

For sales made through our e-commerce platform in which the customer chooses home delivery, we transfer control and recognize revenue when the product is shipped.

This also includes the “buy online, pick up in store” scenario described above and includes sales made via our Shoes 2U program when customers choose to pick up their goods at a physical store.

For sales made through our e-commerce sales channels in which the customer chooses home delivery, we transfer control and recognize revenue when the product is shipped.

This also includes sales made via our Shoes 2U program when the customer chooses home delivery.

15 unchanged sentences

We recognize the related revenue when control has been transferred to the customer (i.e., when the product is picked up by the customer or shipped to the customer).

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

Unearned revenue related to Shoes 2U was not material to our consolidated financial statements at May 4, 2024, February 3, 2024 or April 29, 2023.

Returns and Refunds

1 unchanged sentence

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

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

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

Approximately $ 884,000 of refund liabilities and $ 516,000 of right of return assets associated with estimated product returns were recorded in Accrued and Other Liabilities and Merchandise Inventories, respectively, at October 29, 2022.

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

Approximately $ 962,000 of refund liabilities and $ 618,000 of right of return assets associated with estimated product returns were recorded in Accrued and Other Liabilities and Merchandise Inventories, respectively, as of May 4, 2024 and February 3, 2024.

Approximately $ 866,000 of refund liabilities and $ 503,000 of rig ht of return assets associated with estimated product returns were recorded in Accrued and Other Liabilities and Merchandise Inventories, respectively, at April 29, 2023.

Contract Liabilities

2 unchanged sentences

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

At October 28, 2023, January 28, 2023 and October 29, 2022, approxima tely $ 1.8 million, $ 2.4 million and $ 1.8 million of contract liabilities associated with unredeemed gift cards were recorded in Accrued and Other Liabilities, respectively.

At May 4, 2024, February 3, 2024 and April 29, 2023 , approximately $ 2.7 million, $ 2.4 million and $ 2.0 m illion of contract liabilities associated with unredeemed gift cards were recorded in Accrued and Other Liabilities, respectively.

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

6 unchanged sentences

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

During the thirteen and thirty-nine weeks ended October 28, 2023 , approximately $ 1.6 million and $ 4.3 million, respectively, of loyalty rewards were recognized in Net Sales.

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

At October 28, 2023, January 28, 2023 and October 29, 2022, approxi mately $ 956,000 , $ 844,000 and $ 949,000 , respectively, of contract liabilities associated with loyalty rewards were recorded in Accrued and Other Liabilities.

During the thirteen weeks ended May 4, 2024 and April 29, 2023 , approximately $ 761,000 and $ 1.3 million, respectively, of loyalty rewards were recognized in Net Sales.

At May 4, 2024, February 3, 2024 and April 29, 2023 , approximately $ 501,000 , $ 481,000 and $ 884,000 , respectively, of contract liabilities associated with loyalty rewards were recorded in Accrued and Other Liabilities.

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

Note 6 –

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

Note 8 – Leases

We lease all of our physical stores, our Evansville distribution center, which has a current lease term expiring in 2034 , and other warehousing and office space.

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

All of our leases are operating leases.

Leases with terms of twelve months or less are immaterial and are expensed as incurred, and we did not have any leases with related parties as of October 28, 2023.

Lease costs, including other related occupancy costs, reported in our Condensed Consolidated Statements of Income were as follows for the thirteen and thirty-nine weeks ended October 28, 2023 and October 29, 2022:

Substantially all of our leases are operating leases;

however, as a result of the acquisition of Rogan’s, we also acquired certain assets subject to finance leases.

The finance lease assets and related current liabilities and noncurrent liabilities were recorded in Other Noncurrent Assets, Accrued and Other Liabilities and Other long-term liabilities, respectively.

Leases with terms of twelve months or less are immaterial and are expensed as incurred, and we did not have any leases with related parties as of May 4, 2024.

Lease costs, including other related occupancy costs, reported in our Condensed Consolidated Statements of Income were as follows for the thirteen weeks ended May 4, 2024 and April 29, 2023:

(In thousands)

October 28, 2023

October 29, 2022

October 28, 2023

October 29, 2022

April 29, 2023

Operating lease cost

2 unchanged sentences

Percentage rent and other variable lease costs

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

Factors That May Affect Future Results

This Quarterly Report on Form 10-Q contains forward-looking statements, within the meaning of the Private Securities Litigation Reform Act of 1995, that involve a number of risks and uncertainties.

A number of factors could cause our actual results, performance, achievements or industry results to be materially different from any future results, performance or achievements expressed or implied by these forward-looking statements.

These factors include, but are not limited to:

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

our ability to maintain current promotional intensity levels;

the effects and duration of economic downturns and unemployment rates;

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

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

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

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

our ability to generate increased sales;

our ability to successfully navigate the increasing use of online retailers for fashion purchases and the impact on traffic and transactions in our physical stores;

the success of the open-air shopping centers where many of our stores are located and its impact on our ability to attract customers to our stores;

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

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

changes in our relationships with other key suppliers;

changes in the political and economic environments in, the status of trade relations with, and the impact of changes in trade policies and tariffs impacting, China and other countries which are the major manufacturers of footwear;

the impact of competition and pricing;

our ability to successfully manage and execute our marketing initiatives and maintain positive brand perception and recognition;

our ability to successfully manage our current real estate portfolio and leasing obligations;

changes in weather, including patterns impacted by climate change;

changes in consumer buying trends and our ability to identify and respond to emerging fashion trends;

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

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

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

risks associated with the seasonality of the retail industry;

the impact of unauthorized disclosure or misuse of personal and confidential information about our customers, vendors and employees, including as a result of a cybersecurity breach;

our ability to successfully execute our business strategy, including the availability of desirable store locations at acceptable lease terms, our ability to identify, consummate or effectively integrate future acquisitions, our ability to implement and adapt to new technology and systems, our ability to open new stores in a timely and profitable manner, including our entry into major new markets, and the availability of sufficient funds to implement our business plans;

higher than anticipated costs associated with the closing of underperforming stores;

the inability of manufacturers to deliver products in a timely manner;

an increase in the cost, or a disruption in the flow, of imported goods;

the impact of regulatory changes in the United States, including minimum wage laws and regulations, and the countries where our manufacturers are located;

the resolution of litigation or regulatory proceedings in which we are or may become involved;

continued volatility and disruption in the capital and credit markets;

future stock repurchases under our stock repurchase program and future dividend payments.

For a more detailed discussion of risk factors impacting us, see the “Risk Factors”

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

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

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

This section of this Quarterly Report on Form 10-Q generally discusses our results for third quarter 2023 and third quarter 2022 and year-over-year comparisons between third quarter 2023 and third quarter 2022, as well as year-to-date results for, and comparisons between, the two periods.

Referred to herein, third quarter 2023 is the thirteen weeks ended October 28, 2023 and third quarter 2022 is the thirteen weeks ended October 29, 2022.

Also referred to herein, year-to-date 2023 is the thirty-nine weeks ended October 28, 2023 and year-to-date 2022 is the thirty-nine weeks ended October 29, 2022.

Overview of Our Business

Shoe Carnival, Inc.

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

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

Shoe Carnival and Shoe Station.

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

Our product assortment, whether shopping in a physical store or on our e-commerce platform, includes

dress, casual, and work shoes, sandals, boots and a wide assortment of athletic shoes.

Our typical physical store carries shoes in two general categories –

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

In addition to our physical stores, our e-commerce platform offers customers the same assortment of merchandise in all categories of footwear with expanded options in certain instances.

Our stores under the Shoe Carnival banner combine competitive pricing with a high-energy in-store environment that encourages customer participation.

Footwear in our Shoe Carnival physical stores is organized by category and brand, creating strong brand statements within the aisles.

These brand statements are underscored by branded signage on endcaps and in-line signage throughout the store.

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

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

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

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

See Note 3 —

“Acquisition of Shoe Station”

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

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

the building of a loyal, repeat customer base;

the creation of word-of-mouth advertising;

and enhanced sell-through of in-season goods.

Critical Accounting Policies

We use judgment in reporting our financial results.

This judgment involves estimates based in part on our historical experience and incorporates the impact of the current general economic climate and company-specific circumstances.

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

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

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

Results of Operations Summary Information

Number of Stores

Store Square Footage

Quarter Ended

Store Sales (1)

April 29, 2023

July 29, 2023

October 28, 2023

April 30, 2022

July 30, 2022

October 29, 2022

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

Comparable store sales include stores that have been open for 13 full months after such stores’

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

Therefore, stores recently opened, acquired or closed are not included in comparable store sales.

We generally include e-commerce sales in our comparable store sales as a result of our omnichannel retailer strategy.

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

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

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

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

October 28, 2023

October 29, 2022

October 28, 2023

October 29, 2022

Cost of sales (including buying, distribution and

occupancy costs)

Selling, general and administrative expenses

Operating income

Interest income, net

Income tax expense

Executive Summary for Third Quarter Ended October 28, 2023

For third quarter 2023, Diluted Net Income per Share (“EPS”) was $0.80, compared to $1.18 of EPS in third quarter 2022.

The primary driver of the lower EPS in third quarter 2023 compared to third quarter 2022 was a $21.7 million, or 6.4%, decline in Net Sales.

The Net Sales decline was primarily due to physical store traffic declining approximately 11%, which resulted in a comparable store sales decline of 7.4% for the quarter.

In August, our comparable store sales decline improved compared to the comparable store sales declines experienced earlier in fiscal 2023, driven by growth in children’s athletics during our back-to-school season.

However, in September and October, comparable Net Sales declines accelerated to high-single digits due to softness in our seasonal and fall merchandise sales, including boots.

We believe these declines were primarily due to unseasonable hot, dry weather and the impact of persistent inflation and higher interest rates, particularly on our lower income customers and more urban markets.

A 9.3% year-over-year increase in our e-commerce Net Sales and Net Sales from new Shoe Station stores partially offset the decrease in Net Sales for the quarter.

As a result of e-commerce growth and new stores, we grew Net Sales under our Shoe Station banner low-double digits versus third quarter 2022 and operating income margin for the banner was accretive to our overall operating income margin for the quarter.

Net Sales under the Shoe Carnival banner declined mid-single digits primarily due to the lower September and October Net Sales described above.

Third quarter 2023 ranked as the third best third quarter in our history in terms of EPS and Net Sales, only surpassed by the third quarters of fiscal 2022 and fiscal 2021.

Compared to a longer-term horizon, our third quarter 2023 EPS of $0.80 was more than any full year EPS prior to 2018.

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

The benefits of our CRM and store and e-commerce modernization programs were key factors to maintaining the following results with store traffic impacted by weather, inflation, higher interest rates and macro-economic uncertainty:

While gross profit margin in third quarter 2023 was lower compared to third quarter 2022, third quarter 2023 marked the 11th consecutive quarter that gross profit margin exceeded 35%;

Total loyalty customers grew nearly 8% compared to third quarter 2022 and Shoe Station loyalty members grew 18%;

Store conversion was over 400 basis points higher compared to pre-CRM and pre-modernization results in 2019.

Similar to second quarter 2023, in third quarter 2023 we invested aggressively in advertising and marketing campaigns to support back-to-school shopping and new fall merchandise.

This advertising investment was the primary driver to increased Selling, General and Administrative Expenses (“SG&A”) compared to third quarter 2022.

Operating more total stores and more modernized stores also increased SG&A and occupancy costs in Cost of Sales in third quarter 2023 compared to third quarter 2022.

Buying, distribution and occupancy costs (“BDO”) in Cost of Sales were lower in third quarter 2023 compared to third quarter 2022, as distribution costs have moderated from the supply chain issues experienced in 2022 and 2021, which more than offset the increase in occupancy costs.

Significant progress has been made throughout fiscal 2023 to reduce our Merchandise Inventories and optimize our inventory positions for an improved athletic assortment of national named brands.

We continued reducing and optimizing inventory in third quarter 2023 to drive operational efficiencies and cash flow benefits.

Third quarter 2023 ending inventory was $23.9 million, or 6%, lower than the prior year, compared to fiscal 2022 year end when inventory was $105.2 million higher than the prior year end.

We expect our Merchandise Inventories to be approximately $40 million, or 10%, lower by year end 2023 compared to year end 2022.

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

As of October 28, 2023, we had $71.1 million of Cash, Cash Equivalents and Marketable Securities and $99.3 million in borrowing capacity.

During third quarter 2023, we increased our quarterly cash dividend by 20%, from $0.10 per share to $0.12 per share.

Since third quarter 2020, our quarterly cash dividend per share has increased 166%.

We also repurchased 230,696 shares in the quarter at a total repurchase price of $5.4 million.

We ended third quarter 2023 with 401 total stores, 373 Shoe Carnival stores and 28 Shoe Station stores.

In third quarter 2023, we opened two Shoe Station stores.

No stores were closed in third quarter 2023.

Approximately 55% of our total stores have been modernized.

As an extension of our store modernization program, the Company modernized and relaunched its shoecarnival.com website in late October 2023 and earlier in the year launched the shoestation.com website.

Combined with advanced CRM capabilities, these investments enhance our customers' omnichannel interaction with us and support our ability to drive long-term, sustainable growth.

The relaunched shoecarnival.com website incorporates improvements in search capability, use of predictive analytics and improved product imagery and speed of operation.

Results of Operations for Third Quarter Ended October 28, 2023 Compared to Third Quarter Ended October 29, 2022

Net Sales were $319.9 million during third quarter 2023 and decreased 6.4% compared to third quarter 2022.

The decrease was due to a 7.4% comparable store sales decline resulting from an approximate 11% decrease in physical store traffic.

We believe this lower traffic was primarily due to unseasonable hot, dry weather and the impact of persistent inflation and higher interest rates, particularly on our lower income customers and more urban markets.

The decrease in Net Sales was partially offset by a 9.3% increase in e-commerce Net Sales and Net Sales from new Shoe Station stores.

August comparable Net Sales declined mid-single digits during the back-to-school season, with substantially all merchandise categories declining, partially offset by growth in children's athletics.

September and October comparable Net Sales slowed to a high-single digit decline due to softness in seasonal and fall merchandise sales, including boot sales.

E-commerce sales were favorably impacted by the February 2023 launch of shoestation.com and increased sales through shoecarnival.com.

E-commerce sales were approximately 10% of merchandise sales in third quarter 2023, compared to 9% in third quarter 2022.

Gross Profit was $117.7 million during third quarter 2023, a decrease of $13.1 million compared to third quarter 2022.

Gross profit margin in third quarter 2023 was 36.8% compared to 38.3% in third quarter 2022.

Merchandise margin decreased 120 basis points primarily due to increased promotions on seasonal and fall merchandise in September and October.

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

however, BDO costs decreased gross profit margin by 30 basis points due to the lower Net Sales in third quarter 2023.

The BDO costs were lower in third quarter 2023 as freight and distribution costs declined versus third quarter 2022 through active management, contract renegotiation and normalization, partially offset by our investments in store modernization and by rent associated with operating more stores.

Selling, General and Administrative Expenses

SG&A increased $2.5 million in third quarter 2023 to $89.8 million compared to $87.3 million in third quarter 2022.

The increase was primarily due to an increase in advertising investment during the back-to-school shopping season.

As a percentage of Net Sales, SG&A were 28.1% in third quarter 2023 compared to 25.5% in third quarter 2022.

The effective income tax rate for third quarter 2023 was 23.8% compared to 25.6% for third quarter 2022.

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

The lower effective tax rate in third quarter 2023 compared to the prior year quarter was reflective of discrete adjustments recognized during the third quarter 2023.

For the full 2023 fiscal year, we expect our tax rate to be between 23% and 24% compared to the 25.2% effective tax rate recognized during the full 2022 fiscal year.

Results of Operations Year-to-Date Through October 28, 2023 Compared to Year-to-Date Through October 29, 2022

Net Sales were $895.7 million in year-to-date 2023 and decreased 7.8% compared to year-to-date 2022.

The decrease was due to an 8.6% comparable store sales decline resulting from an approximate 9% decrease in traffic in our physical stores, with the most significant decreases in physical stores that serve a lower income demographic and more urban market.

Net Sales through our e-commerce sales channel were also lower.

We believe the lower store traffic was primarily due to unseasonable weather in third quarter 2023, persistent inflation, higher interest rates and a reduction in first quarter 2023 federal tax refunds compared to 2022.

The decrease was partially

offset by Net Sales attributable to new stores, mostly new Shoe Station stores.

E-commerce sales were approximately 9% of merchandise sales in both year-to-date 2023 and year-to-date 2022.

Gross Profit was $321.7 million during year-to-date 2023, a decrease of $35.2 million compared to year-to-date 2022.

Gross profit margin in year-to-date 2023 was 35.9% compared to 36.7% in year-to-date 2022.

Merchandise margin decreased 60 basis points, reflecting an increase in promotional intensity.

BDO costs were lower year-to-date compared to year-to-date 2022;

however, BDO decreased gross profit margin by 20 basis points due to the lower Net Sales in year-to-date 2023.

The BDO costs were lower in year-to-date 2023 as freight and distribution costs declined versus 2022 through active management, contract renegotiation and normalization, partially offset by our investments in store modernization and by rent associated with operating more stores.

Selling, General and Administrative Expenses

SG&A increased $9.0 million, or 3.8%, in year-to-date 2023 to $248.1 million compared to $239.1 million in year-to-date 2022.

The increase was primarily attributable to increased advertising expense and new and modernized store costs.

As a percentage of Net Sales, SG&A were 27.7% in year-to-date 2023 compared to 24.6% in year-to-date 2022.

Interest Income and Interest Expense

Changes in our interest income and expense increased our income before taxes by $1.2 million in year-to-date 2023 compared to year-to-date 2022.

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

The effective income tax rate for year-to-date 2023 was 23.0% compared to 25.1% for year-to-date 2022.

The lower effective tax rate in year-to-date 2023 compared to the prior year-to-date was reflective of discrete adjustments recognized during year-to-date 2023.

Liquidity and Capital Resources

Our primary sources of liquidity are $71.1 million of Cash, Cash Equivalents and Marketable Securities on hand at the end of the third quarter 2023, cash generated from operations and availability under our $100 million credit agreement.

We believe our resources will be sufficient to fund our cash needs, as they arise, for at least the next 12 months.

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

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

Cash Flow - Operating Activities

Net cash generated from operating activities was $69.4 million in year-to-date 2023 compared to $18.9 million during year-to-date 2022.

The change in operating cash flow was primarily driven by reduced inventory purchases, partially offset by decreased Net Sales in year-to-date 2023.

Working capital increased on a year-over-year basis and totaled $340.6 million at October 28, 2023 compared to $300.7 million at October 29, 2022.

The increase was primarily attributable to lower Accounts Payable and higher cash balances, partially offset by lower Merchandise Inventories levels.

Our current ratio was 3.8 as of October 28, 2023 compared to 2.8 as of October 29, 2022.

Cash Flow –

Investing Activities

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

During year-to-date 2023 and 2022, we expended $43.6 million and $63.6 million, respectively, for the purchase of Property and Equipment, primarily related to our store modernization program.

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

The balance of these Marketable Securities was $11.2 million at October 28, 2023, compared to $11.6 million at January 28, 2023 and $10.4 million at October 29, 2022.

Additional information can be found in Note 3 —

“Fair Value Measurements”

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

Cash Flow –

Financing Activities

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

Shares of our common stock can be either acquired as part of a publicly announced repurchase program or withheld by us in connection with employee payroll tax withholding upon the vesting of stock-based compensation awards that are settled in shares.

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

During year-to-date 2023, net cash used in financing activities was $17.2 million compared to $40.0 million during year-to-date 2022.

The decrease in net cash used in financing activities was primarily due to the repurchase of $5.4 million shares in year-to-date 2023, compared to the repurchase of $30.5 million of shares in year-to-date 2022 under our Board of Directors’

authorized share repurchase program.

Capital Expenditures

Capital expenditures for fiscal 2023, including actual expenditures in year-to-date 2023, are expected to be between $48 million and $53 million, with approximately $35 million to $38 million to be used for new stores and modernization and approximately $13 million to $15 million for upgrades to our distribution center and e-commerce platform, various other store improvements, continued investments in technology and normal asset replacement activities.

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

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

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

Store Portfolio

We opened four Shoe Station branded stores, opened one Shoe Carnival branded store and closed one Shoe Carnival branded store in year-to-date 2023.

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

We currently have 401 stores and are targeting operating over 500 stores in 2028.

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

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

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

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

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

Credit Agreement

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

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

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

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

The Credit Agreement contains certain restrictions.

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

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

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

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

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

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

During year-to-date 2023, we did not borrow or repay funds under the Credit Agreement.

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

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

and “Adjusted Term SOFR”

are defined in the Credit Agreement.

On September 21, 2023, the Board of Directors approved a 20% increase in our cash dividend paid to shareholders in third quarter 2023.

The quarterly cash dividend of $0.12 per share was paid on October 17, 2023 to shareholders of record as of the close of business on October 3, 2023.

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

During year-to-date 2023 and year-to-date 2022, we returned $8.9 million and $7.5 million, respectively, to our shareholders through our quarterly cash dividends.

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

See Note 9 —

“Debt”

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

Share Repurchase Program

On December 14, 2022, our Board of Directors authorized a share repurchase program for up to $50.0 million of our outstanding common stock, effective January 1, 2023 (the “2023 Share Repurchase Program”).

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

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

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

The actual number and value of the shares to be purchased will depend on the performance of our stock price and other market and economic factors and are subject to restrictions as outlined above in the “Credit Agreement”

See Note 9 —

“Debt”

During third quarter 2023, we repurchased 230,696 shares of common stock at a total cost of $5.4 million under the 2023 Share Repurchase Program.

As of October 28, 2023, we had $44.6 million available for future repurchases.

During year-to-date 2022, we repurchased 1.1 million shares of common stock at a total cost of $30.5 million.

We have three distinct peak selling periods:

Easter, back-to-school and Christmas.

Our operating results depend significantly upon the sales generated during these periods.

To prepare for our peak shopping seasons, we must order and keep in stock significantly more merchandise than we would carry during other periods of the year.

Any unanticipated decrease in demand for our products or a supply chain disruption that reduces inventory availability during these peak shopping seasons could reduce our Net Sales and Gross Profit and negatively affect our profitability.

QUANTITATIVE AND QUALITATI VE DISCLOSURES ABOUT MARKET RISK

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

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

We had no borrowings outstanding during third quarter 2023.

Finance lease cost

Amortization of leased assets

Interest on lease liabilities

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

What changed 10-Q

Item 1. Financial Statements