SHOE STATION GROUP INC 10-Q

ITEM 1. FINANCIAL STATEMENTS SHOE CARNIVAL, INC. CONDENSED CONSOLID ATED BALANCE SHEETS Unaudited (In thousands, except share data) August 3, 2024 February 3, 2024 July 29, 2023 Assets Current Assets: Cash and cash equivalents $ 71,633 $ 99,000 $ 34,562 Marketable securities 12,831 12,247 12,218 Accounts receivable 5,519 2,593 3,961 Merchandise inventories 425,462 346,442 409,342 Other 21,651 21,056 25,281 Total Current Assets 537,096 481,338 485,364 Property and equipment – net 170,717 168,613 159,186 Operating lease right-of-use assets 337,926 333,851 339,598 Intangible assets 40,990 32,600 32,600 Goodwill 15,376 12,023 12,023 Other noncurrent assets 12,922 13,600 14,433 Total Assets $ 1,115,027 $ 1,042,025 $ 1,043,204 Liabilities and Shareholders’ Equity Current Liabilities: Accounts payable $ 73,916 $ 58,274 $ 77,429 Accrued and other liabilities 30,204 16,620 19,999 Current portion of operating lease liabilities 55,870 52,981 57,335 Total Current Liabilities 159,990 127,875 154,763 Long-term portion of operating lease liabilities 304,578 301,355 307,326 Deferred income taxes 15,187 17,341 14,631 Deferred compensation 12,564 11,639 10,596 Other 4,213 426 369 Total Liabilities 496,532 458,636 487,685 Shareholders’ Equity: Common stock, $ 0.01 par value, 50,000,000 shares authorized and 41,049,190 shares issued in each period, respectively 410 410 410 Additional paid-in capital 86,208 83,738 81,151 Retained earnings 746,996 714,647 683,875 Treasury stock, at cost, 13,875,495 shares, 13,919,326 shares and 13,689,493 shares, respectively ( 215,119 ) ( 215,406 ) ( 209,917 ) Total Shareholders’ Equity 618,495 583,389 555,519 Total Liabilities and Shareholders’ Equity $ 1,115,027 $ 1,042,025 $ 1,043,204 See notes to Condensed Consolidated Financial Statements. 3 SHOE CARNIVAL, INC. CONDENSED CONSOLIDATED STATEMENTS OF INCOME Unaudited (In thousands, except per share data) Thirteen Weeks Ended August 3, 2024 Thirteen Weeks Ended July 29, 2023 Twenty-six Weeks Ended August 3, 2024 Twenty-six Weeks Ended July 29, 2023 Net sales $ 332,696 $ 294,615 $ 633,061 $ 575,799 Cost of sales (including buying, distribution and occupancy costs) 212,753 189,150 406,318 371,817 Gross profit 119,943 105,465 226,743 203,982 Selling, general and administrative expenses 89,864 80,803 174,157 158,381 Operating income 30,079 24,662 52,586 45,601 Interest income ( 672 ) ( 433 ) ( 1,475 ) ( 911 ) Interest expense 137 71 273 137 Income before income taxes 30,614 25,024 53,788 46,375 Income tax expense 8,041 5,583 13,929 10,408 Net income $ 22,573 $ 19,441 $ 39,859 $ 35,967 Net income per share: Basic $ 0.83 $ 0.71 $ 1.47 $ 1.32 Diluted $ 0.82 $ 0.71 $ 1.45 $ 1.31 Weighted average shares: Basic 27,159 27,336 27,151 27,280 Diluted 27,500 27,410 27,452 27,449 See notes to Condensed Consolidated Financial Statements. 4 SHOE CARNIVAL, INC. CONDENSED CONSOLIDATED STATE MENTS OF SHAREHOLDERS’ EQUITY Unaudited Thirteen Weeks Ended Common Stock Additional Paid-In Retained Treasury (In thousands, except per share data) Issued Treasury Amount Capital Earnings Stock Total Balance at May 4, 2024 41,049 ( 13,891 ) $ 410 $ 84,576 $ 728,175 $ ( 215,357 ) $ 597,804 Dividends declared ($ 0.135 per share) ( 3,752 ) ( 3,752 ) Employee stock purchase plan purchases 3 13 40 53 Stock-based compensation awards 13 ( 198 ) 198 0 Stock-based compensation expense 1,817 1,817 Net income 22,573 22,573 Balance at August 3, 2024 41,049 ( 13,875 ) $ 410 $ 86,208 $ 746,996 $ ( 215,119 ) $ 618,495 Balance at April 29, 2023 41,049 ( 13,714 ) $ 410 $ 80,361 $ 667,196 $ ( 210,287 ) $ 537,680 Dividends declared ($ 0.10 per share) ( 2,762 ) ( 2,762 ) Employee stock purchase plan purchases 2 12 41 53 Stock-based compensation awards 23 ( 329 ) 329 0 Stock-based compensation expense 1,107 1,107 Net income 19,441 19,441 Balance at July 29, 2023 41,049 ( 13,689 ) $ 410 $ 81,151 $ 683,875 $ ( 209,917 ) $ 555,519 Twenty-six Weeks Ended Common Stock Additional Paid-In Retained Treasury (In thousands, except per share data) Issued Treasury Amount Capital Earnings Stock Total Balance at February 3, 2024 41,049 ( 13,919 ) $ 410 $ 83,738 $ 714,647 $ ( 215,406 ) $ 583,389 Dividends declared ($ 0.27 per share) ( 7,510 ) ( 7,510 ) Employee stock purchase plan purchases 4 32 60 92 Stock-based compensation awards 59 ( 915 ) 915 0 Shares surrendered by employees to pay taxes on stock-based compensation awards ( 19 ) ( 688 ) ( 688 ) Stock-based compensation expense 3,353 3,353 Net income 39,859 39,859 Balance at August 3, 2024 41,049 ( 13,875 ) $ 410 $ 86,208 $ 746,996 $ ( 215,119 ) $ 618,495 Balance at January 28, 2023 41,049 ( 13,884 ) $ 410 $ 83,423 $ 653,450 $ ( 211,715 ) $ 525,568 Dividends declared ($ 0.20 per share) ( 5,542 ) ( 5,542 ) Employee stock purchase plan purchases 5 29 81 110 Stock-based compensation awards 305 ( 4,644 ) 4,644 0 Shares surrendered by employees to pay taxes on stock-based compensation awards ( 115 ) ( 2,927 ) ( 2,927 ) Stock-based compensation expense 2,343 2,343 Net income 35,967 35,967 Balance at July 29, 2023 41,049 ( 13,689 ) $ 410 $ 81,151 $ 683,875 $ ( 209,917 ) $ 555,519 See notes to Condensed Consolidated Financial Statements. 5 SHOE CARNIVAL, INC. CONDENSED CONSOLIDAT ED STATEMENTS OF CASH FLOWS Unaudited (In thousands) Twenty-six Weeks Ended August 3, 2024 Twenty-six Weeks Ended July 29, 2023 Cash Flows From Operating Activities Net income $ 39,859 $ 35,967 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 15,116 13,822 Stock-based compensation 3,574 2,326 Loss on retirement and impairment of assets, net 215 59 Deferred income taxes ( 486 ) 2,787 Non-cash operating lease expense 28,307 27,627 Other 810 251 Changes in operating assets and liabilities: Accounts receivable ( 561 ) ( 909 ) Merchandise inventories ( 37,177 ) ( 18,952 ) Operating leases ( 29,223 ) ( 27,181 ) Accounts payable and accrued liabilities 20,498 ( 927 ) Other ( 190 ) ( 12,518 ) Net cash provided by operating activities 40,742 22,352 Cash Flows From Investing Activities Purchases of property and equipment ( 15,722 ) ( 30,629 ) Investments in marketable securities ( 35 ) ( 41 ) Acquisition, net of cash acquired ( 44,384 ) 0 Net cash used in investing activities ( 60,141 ) ( 30,670 ) Cash Flows From Financing Activities Proceeds from issuance of stock 92 110 Dividends paid ( 7,372 ) ( 5,675 ) Shares surrendered by employees to pay taxes on stock-based compensation awards ( 688 ) ( 2,927 ) Net cash used in financing activities ( 7,968 ) ( 8,492 ) Net decrease in cash and cash equivalents ( 27,367 ) ( 16,810 ) Cash and cash equivalents at beginning of period 99,000 51,372 Cash and cash equivalents at end of period $ 71,633 $ 34,562 Supplemental disclosures of cash flow information: Cash paid during period for interest $ 269 $ 138 Cash paid during period for income taxes $ 11,570 $ 12,732 Capital expenditures incurred but not yet paid $ 671 $ 2,730 Dividends declared but not yet paid $ 417 $ 183 Contingent consideration related to business acquisition $ 3,600 $ 0 See notes to Condensed Consolidated Financial Statements. 6 SHOE CARNIVAL, INC. NOTES TO CONDENSED CONSOLID ATED FINANCIAL STATEMENTS Unaudited 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 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. and its subsidiaries. Our consolidated financial statements include the accounts of Shoe Carnival, 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 February 3, 2024 . 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 an adjusted preliminary purchase pric e of $ 44.8 million , net of $ 2.2 million of cash acquired, of which $ 44.4 million has been paid to date from cash on hand. The adjusted preliminary purchase price is subject to customary adjustments. 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 $ 22.0 million in the thirteen weeks ended August 3, 2024 and $ 41.6 million from February 13, 2024 through August 3, 2024. For the thirteen and twenty-six weeks ended August 3, 2024, acquisition-related costs of $ 97,000 and $ 418,000 , respectively, were expensed as incurred and were included in Selling, General and Administrative Exp enses. 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. 7 (In thousands) Preliminary purchase price: Cash consideration, net of cash acquired $ 44,828 Fair value of contingent consideration 3,600 Total preliminary purchase price $ 48,428 Fair value of identifiable assets and liabilities: Accounts receivable $ 2,365 Merchandise inventories 42,340 Other assets 3,763 Operating lease right-of-use assets 16,891 Identifiable intangible assets 8,400 Goodwill 3,352 Total assets $ 77,111 Accounts payable 6,308 Operating lease liabilities 19,843 Accrued and other liabilities 2,532 Total liabilities $ 28,683 Total fair value allocation of preliminary purchase price $ 48,428 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 The following table sets forth the computation of Basic and Diluted Net Income per Share as shown on the face of the accompanying Condensed Consolidated Statements of Income: Thirteen Weeks Ended August 3, 2024 July 29, 2023 (In thousands, except per share data) Basic Net Income per Share: Net Income Shares Per Share Amount Net Income Shares Per Share Amount Net income available for basic common shares and basic net income per share $ 22,573 27,159 $ 0.83 $ 19,441 27,336 $ 0.71 Diluted Net Income per Share: Net income $ 22,573 $ 19,441 Conversion of stock-based compensation arrangements 0 341 0 74 Net income available for diluted common shares and diluted net income per share $ 22,573 27,500 $ 0.82 $ 19,441 27,410 $ 0.71 8 Twenty-six Weeks Ended August 3, 2024 July 29, 2023 (In thousands, except per share data) Basic Net Income per Share: Net Income Shares Per Share Amount Net Income Shares Per Share Amount Net income available for basic common shares and basic net income per share $ 39,859 27,151 $ 1.47 $ 35,967 27,280 $ 1.32 Diluted Net Income per Share: Net income $ 39,859 $ 35,967 Conversion of stock-based compensation arrangements 0 301 0 169 Net income available for diluted common shares and diluted net income per share $ 39,859 27,452 $ 1.45 $ 35,967 27,449 $ 1.31 The computation of Basic Net Income per Share is based on the weighted average number of common shares outstanding during the period. The computation of Diluted Net Income per Share is based on the weighted average number of shares outstanding plus the dilutive incremental shares that would be outstanding assuming the vesting of stock-based compensation arrangements involving restricted stock, restricted stock units and performance stock units. No u nvested stock-based awards that will be settled in shares were excluded from the computation of Diluted Net Income per Share for the thirteen and twenty-six weeks ended August 3, 2024. During the thirteen and twenty-six weeks ended July 29, 2023 , approximately 134,000 and 1,000 , 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. 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 . 9 Note 5 - Fair Value Measurements Financial Instruments The following table presents financial instruments that are measured at fair value on a recurring basis at August 3, 2024, February 3, 2024 and July 29, 2023: Fair Value Measurements (In thousands) Level 1 Level 2 Level 3 Total As of August 3, 2024 Cash equivalents - money market mutual funds $ 44,072 $ 0 $ 0 $ 44,072 Marketable securities - mutual funds that fund deferred compensation 12,831 0 0 12,831 Total $ 56,903 $ 0 $ 0 $ 56,903 As of February 3, 2024 Cash equivalents - money market mutual funds $ 91,733 $ 0 $ 0 $ 91,733 Marketable securities - mutual funds that fund deferred compensation 12,247 12,247 Total $ 103,980 $ 0 $ 0 $ 103,980 As of July 29, 2023 Cash equivalents - money market mutual funds $ 22,445 $ 0 $ 0 $ 22,445 Marketable securities - mutual funds that fund deferred compensation 12,218 12,218 Total $ 34,663 $ 0 $ 0 $ 34,663 We invest in publicly traded mutual funds with readily determinable fair values. These Marketable Securities are designed to mitigate volatility in our Consolidated Statements of Income associated with our non-qualified deferred compensation plan. As of August 3, 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. 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) August 3, 2024 February 3, 2024 July 29, 2023 Deferred compensation plan current liabilities $ 193 $ 114 $ 1,617 Deferred compensation plan long-term liabilities 12,564 11,639 10,596 Total deferred compensation plan liabilities $ 12,757 $ 11,753 $ 12,213 Marketable securities - mutual funds that fund deferred compensation $ 12,831 $ 12,247 $ 12,218 (In thousands) Thirteen Weeks Ended August 3, 2024 Thirteen Weeks Ended July 29, 2023 Twenty-six Weeks Ended August 3, 2024 Twenty-six Weeks Ended July 29, 2023 Deferred compensation liabilities Employer contributions, net $ 71 $ 75 $ 152 $ 171 Investment earnings 259 659 582 656 Marketable Securities Mark-to-market gains (1) ( 276 ) ( 683 ) ( 584 ) ( 617 ) Net deferred compensation expense $ 54 $ 51 $ 150 $ 210 (1) Included in the mark-to-market activity related to equity securities still held at quarter-end, we recognized unrealized gains of $ 258,000 and $ 761,000 for the thirteen weeks ended August 3, 2024 and July 29, 2023, respectively, and $ 550,000 and $ 1.1 million for the twenty-six weeks ended August 3, 2024 and July 29, 2023, respectively. 10 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. Long-Lived Asset Impairment Testing We periodically evaluate our long-lived assets for impairment if events or circumstances indicate that the carrying value may not be recoverable. The carrying value of long-lived assets is considered impaired when the carrying value of the assets exceeds the expected future cash flows to be derived from their use. Assets are grouped, and the evaluation is performed, at the lowest level for which there are identifiable cash flows, which is generally at a store level. Store level asset groupings typically include Property and Equipment and Operating Lease 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 twenty-six weeks ended August 3, 2024 or the twenty-six weeks ended July 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”). 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 August 3, 2024, there were 1,698,379 sh ares 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 twenty-six weeks ended August 3, 2024 and July 29, 2023, stock-based compensation expense was comprised of the following: (In thousands) Thirteen Weeks Ended August 3, 2024 Thirteen Weeks Ended July 29, 2023 Twenty-six Weeks Ended August 3, 2024 Twenty-six Weeks Ended July 29, 2023 Share-settled equity awards $ 1,774 $ 1,098 $ 3,303 $ 2,324 Stock appreciation rights 0 10 221 ( 17 ) Employee stock purchase plan 43 9 50 19 Total stock-based compensation expense $ 1,817 $ 1,117 $ 3,574 $ 2,326 Income tax effect at statutory rates $ ( 442 ) $ ( 249 ) $ ( 869 ) $ ( 522 ) Additional income tax expense (benefit) on vesting of share-settled awards $ 0 $ 5 $ ( 109 ) $ ( 616 ) As of August 3, 2024 , approximately $ 11.3 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 1.6 years. 11 Share-Settled Equity Awards The following table summarizes transactions for our restricted stock units and performance stock units: Number of Shares Weighted- Average Grant Date Fair Value Outstanding at February 3, 2024 579,307 $ 27.04 Granted 338,773 32.06 Vested ( 46,333 ) 30.17 Unearned ( 159,954 ) 24.87 Outstanding at August 3, 2024 711,793 $ 29.72 The total fair value at grant date of restricted stock units and performance stock units that vested during the twenty-six weeks ended August 3, 2024 and July 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 twenty-six weeks ended July 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. The following table summarizes transactions for our restricted stock and other stock awards: Number of Shares Weighted- Average Grant Date Fair Value Outstanding at February 3, 2024 0 $ 0.00 Granted 12,760 36.84 Vested 0 0.00 Forfeited 0 0.00 Outstanding at August 3, 2024 12,760 $ 36.84 No restricted stock or other stock awards vested during the twenty-six weeks ended August 3, 2024 or July 29, 2023. The weighted average grant date fair value of restricted stock awards granted during the twenty-six weeks ended July 29, 2023 was $ 21.90 . Note 7 – Revenue Disaggregation of Net Sales by Product Category Net Sales and percentage of Net Sales, disaggregated by product category, for the thirteen and twenty-six weeks ended August 3, 2024 and July 29, 2023 were as follows: (In thousands) Thirteen Weeks Ended August 3, 2024 Thirteen Weeks Ended July 29, 2023 Non-Athletics: Women’s $ 84,285 25 % $ 82,747 28 % Men’s 58,663 18 51,650 17 Children’s 23,243 7 22,318 8 Total 166,191 50 156,715 53 Athletics: Women’s 49,649 15 40,598 14 Men’s 56,636 17 49,096 17 Children’s 39,971 12 32,013 11 Total 146,256 44 121,707 42 Accessories 18,872 6 14,881 5 Other 1,377 0 1,312 0 Total $ 332,696 100 % $ 294,615 100 % 12 (In thousands) Twenty-six Weeks Ended August 3, 2024 Twenty-six Weeks Ended July 29, 2023 Non-Athletics: Women’s $ 161,813 25 % $ 160,505 28 % Men’s 107,856 17 95,096 16 Children’s 44,639 7 43,846 8 Total 314,308 49 299,447 52 Athletics: Women’s 99,831 16 83,386 15 Men’s 108,785 17 97,132 17 Children’s 73,536 13 64,042 11 Total 282,152 46 244,560 43 Accessories 33,884 5 29,429 5 Other 2,717 0 2,363 0 Total $ 633,061 100 % $ 575,799 100 % Accounting Policy and Performance Obligations We operate as an omnichannel, family footwear retailer and provide the convenience of shopping at our physical stores or shopping online through our e-commerce 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 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. We offer our customers sales incentives including coupons, discounts and free merchandise. Sales are recorded net of such incentives and returns and allowances. If an incentive involves free merchandise, that merchandise is recorded as a zero sale and the cost is included in Cost of Sales. Gift card revenue is recognized at the time of redemption. When a customer makes a purchase as part of our rewards program, we allocate the transaction price between the goods purchased and the loyalty reward points and recognize the loyalty revenue based on estimated customer redemptions. Transaction Price and Payment Terms The transaction price is the amount of consideration we expect to receive from our customers and is reduced by any stated promotional discounts at the time of purchase. The transaction price may be variable due to terms that permit customers to exchange or return products for a refund. The implicit contract with the customer reflected in the transaction receipt states the final terms of the sale, including the description, quantity, and price of each product purchased. The customer agrees to a stated price in the contract that does not vary over the term of the contract and may include revenue to offset shipping costs. Taxes imposed by governmental authorities, such as sales taxes, are excluded from Net Sales. We accept various forms of payment from customers at the point of sale typical for an omnichannel retailer. Payments made for products are generally collected when control passes to the customer, either at the point of sale or at the time the customer order is shipped. For Shoes 2U transactions, customers may order the product at the point of sale. For these transactions, customers pay in advance and unearned revenue is recorded as a contract liability. We recognize the related revenue when control has been transferred to the customer (i.e., when the product is picked up by the customer or shipped to the customer). Unearned revenue related to Shoes 2U was not material to our consolidated financial statements at August 3, 2024, February 3, 2024 or July 29, 2023. 13 Returns and Refunds We have established an allowance based upon historical experience in order to estimate return and refund transactions. This allowance is recorded as a reduction in sales with a corresponding refund liability recorded in Accrued and Other Liabilities. The estimated cost of Merchandise 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 August 3, 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 July 29, 2023. Contract Liabilities The issuance of a gift card is recorded as an increase to contract liabilities and a decrease to contract liabilities when a customer redeems a gift card. Estimated breakage is determined based on historical breakage percentages and recognized as revenue based on expected gift card usage. We do not record breakage revenue when escheat liability to relevant jurisdictions exists. At August 3, 2024, February 3, 2024 and July 29, 2023 , approximately $ 2.6 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. Breakage revenue associated with our gift cards recognized in Net Sales was no t material to any of the periods presented. Our Shoe Perks rewards program allows customers to accrue points and provides customers with the opportunity to earn rewards. Points under Shoe Perks are earned primarily by making purchases through any of our omnichannel points of sale. Once a certain threshold of accumulated points is reached, the customer earns a reward certificate, which is redeemable through any of our sales channels. When a Shoe Perks customer makes a purchase, we allocate the transaction price between the goods purchased and the loyalty reward points earned based on the relative standalone selling price. The portion allocated to the points program is recorded as a contract liability for rewards that are expected to be redeemed. We then recognize revenue based on an estimate of when customers redeem rewards, which incorporates an estimate of points expected to expire using historical rates. During the thirteen and twenty-six weeks ended August 3, 2024 , approximately $ 790,000 and $ 1.6 million, respectively, of loyalty rewards were recognized in Net Sales. During the thirteen and twenty-six weeks ended July 29, 2023 , approximately $ 1.4 million and $ 2.7 million, respectively, of loyalty rewards were recognized in Net Sales. At August 3, 2024, February 3, 2024 and July 29, 2023 , approximately $ 574,000 , $ 481,000 and $ 950,000 , 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 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. 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 August 3, 2024. Lease costs, including other related occupancy costs, reported in our Condensed Consolidated Statements of Income were as follows for the thirteen and twenty-six weeks ended August 3, 2024 and July 29, 2023: (In thousands) Thirteen Weeks Ended August 3, 2024 Thirteen Weeks Ended July 29, 2023 Twenty-six Weeks Ended August 3, 2024 Twenty-six Weeks Ended July 29, 2023 Operating lease cost $ 17,311 $ 15,952 $ 34,486 $ 31,824 Variable lease cost Occupancy costs 5,742 5,370 $ 11,502 $ 10,722 Percentage rent and other variable lease costs 308 381 $ 273 $ 624 Finance lease cost Amortization of leased assets 8 0 15 0 Interest on lease liabilities 3 0 5 0 Total $ 23,372 $ 21,703 $ 46,281 $ 43,170 14