SHOE STATION GROUP INC 10-K

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion of our financial condition and results of operations (the “MD&A”) should be read together with our consolidated financial statements and notes to those statements included in PART II, ITEM 8 of this Annual Report on Form 10-K. This section of this Annual Report on Form 10-K generally discusses Fiscal 2024 and Fiscal 2023 and year-over-year comparisons between Fiscal 2024 and Fiscal 2023. A discussion of Fiscal 2022 and year-over-year comparisons between Fiscal 2023 and Fiscal 2022 that are not included in this Annual Report on Form 10-K can be found in PART II, ITEM 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for our fiscal year ended February 3, 2024, filed with the SEC on March 22, 2024. At the end of this section of this Annual Report on Form 10-K, we have included historical data for the past five fiscal years to facilitate trend analysis of key data reported in our consolidated financial statements and other select operating data. Overview of Our Business Shoe Carnival, Inc. is one of the nation’s largest omnichannel sellers of footwear for the family. On December 3, 2021, we began operating under two banners: Shoe Carnival and Shoe Station. We furthered our acquisition strategy by acquiring all of the stock of Rogan Shoes, Incorporated (“Rogan’s”) in February 2024, which added 28 physical stores (25 in Wisconsin, 2 in Minnesota, and 1 in Illinois) to our portfolio, positioned us as the market leader in Wisconsin and established a store base in Minnesota, creating additional expansion opportunities. Our goal is to be the leading family footwear retailer in the United States. Our product assortment, whether shopping in a physical store or through our e-commerce sales channel, is primarily branded footwear and includes dress and casual 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, through our e-commerce sales channel, customers can purchase 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 serve a broader base of footwear customers. The Shoe Station concept targets a more affluent footwear customer, and its product assortment includes higher end athletics and non-athletics shoes and more accessories. Shoe Station has a strong track record of capitalizing on emerging footwear fashion trends and introducing new brands. Recent Acquisition On February 13, 2024, we acquired all of the stock of Rogan's, a privately-held 53-year-old work and family footwear company incorporated in Wisconsin, for an adjusted purchase price of $44.8 million, net of $2.2 million of cash acquired, which was paid with cash on hand. Additional consideration of up to $5.0 million may be paid by the Company subject to the achievement of three-year growth targets. Net sales from our Rogan’s operations were $80.3 million in Fiscal 2024. More information about this acquisition can be found in Note 3 - “Acquisition of Rogan Shoes” in our Notes to Consolidated Financial Statements contained in PART II, ITEM 8 of this Annual Report on Form 10-K. Comparable Stores Net Sales Comparable stores Net Sales is a key performance indicator for us. Comparable stores Net 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, remodeled or rebannered. Therefore, stores recently opened, acquired or permanently closed are not included in comparable stores Net Sales. We generally include e-commerce sales in our comparable stores Net Sales as a result of our omnichannel retailer strategy. Due to our omnichannel retailer 31 strategy, we view e-commerce sales as an extension of our physical stores. E-commerce sales channels associated with a physical store acquisition will not be included in comparable stores Net Sales until the initial physical stores are included. The 21 original Shoe Station stores acquired and the www.shoestation.com e-commerce site that went live in early February 2023 were included in comparable stores Net Sales calculations beginning in first quarter 2023. All of Rogan’s sales are excluded from our comparable stores Net Sales. Our fiscal year is a 52/53 week year ending on the Saturday closest to January 31. Fiscal 2023 consisted of the 53 weeks ended February 3, 2024, while Fiscal 2024 consisted of the 52 weeks ended February 1, 2025. The 53 rd week in Fiscal 2023 caused a one-week shift in our fiscal calendar. To minimize the effect of this fiscal calendar shift on comparable stores Net Sales, our reported annual comparable stores Net Sales results for Fiscal 2024 compare the 52-week period ended February 1, 2025 to the 52-week period ended February 3, 2024. As such, changes in comparable stores Net Sales are not consistent with changes in Net Sales reported for the fiscal period. Stores and Rebanner Strategy We ended Fiscal 2024 with 430 stores, comprised of 360 Shoe Carnival stores, 42 Shoe Station stores and 28 Rogan's stores. During Fiscal 2024 we opened four new Shoe Station stores and permanently closed two Shoe Carnival stores. The 430 stores operated at the end of Fiscal 2024 was an all-time year end high for us. We have been evaluating customer analytics and market data and developing strategies to expand Shoe Station since we acquired the chain in December 2021. We believe that a national expansion opportunity exists in markets where the customer and/or market characteristics align better with the Shoe Station concept, rather than our Shoe Carnival concept. A 10-store in-market test was completed during Fiscal 2024, where we closed underperforming Shoe Carnival stores and opened new Shoe Station stores in those markets. The customer response and business results exceeded our success criteria on an aggregated basis, with sales and profit contribution over 10% higher at the new Shoe Station stores versus Shoe Carnival stores. In March 2025, we announced a new long-term strategy to rapidly scale up Shoe Station into a national footwear and accessories leader. The first investment phase will rebanner 175 stores to the Shoe Station banner over the next 24 months. Once this phase is complete, we expect to operate 218 Shoe Station stores, representing 51% of our present store fleet. During Fiscal 2025, we expect to rebanner between 50 to 75 Shoe Carnival stores to Shoe Station stores. Total capital expenditures are expected to be in a range of $45 million to $60 million in Fiscal 2025 to support the rebanner strategy, compared to $33.2 million, $56.3 million and $77.3 million spent in Fiscal 2024, Fiscal 2023 and Fiscal 2022, respectively. As the rebanner strategy is implemented, it is expected to decrease our Operating Income by between $20 to $25 million in Fiscal 2025 due to store closing costs, amortization of new store construction costs, a four-to-six-week store closure period through each store’s grand opening and customer acquisition costs, with such costs recovered over a two-to-three-year period following a store’s grand opening. More information about the rebanner strategy can be found in PART 1, ITEM 1, “Business—Our Stores—Rebanner Strategy” of this Annual Report on Form 10-K. Executive Summary During Fiscal 2024, our Net Sales of $1.2 billion were up $27.0 million, or 2.3%, compared to Fiscal 2023. Fiscal 2023 contained a 53rd week of Net Sales totaling approximately $15 million, as described above. In Fiscal 2024, Net Sales otherwise increased approximately $42 million, or 3.7%. This increase resulted from continued growth from the Shoe Station banner’s 5.7% Net Sales increase and $80.3 million in Net Sales attributed to Rogan’s. We also grew Net Sales during peak shopping periods throughout the year. These areas of growth were partially offset by a 3.9% comparable stores Net Sales decline, driven primarily by Shoe Carnival declines during non-event periods. Long-term Gross Profit margin expansion has been a key driver of our profit transformation, led by our targeted promotional plans, buying strategies and growth of our customer loyalty program, Shoe Perks. During Fiscal 2024, our Gross Profit margin was above 35% for the fourth consecutive year. Gross profit margin in Fiscal 2024 decreased 20 basis points compared to Fiscal 2023, primarily due to higher buying, distribution and occupancy costs (“BDO”) from operating more stores, partially offset by a 10 basis point increase in merchandise margins. In Fiscal 2024, our Selling, General, and Administrative Expenses (“SG&A”) were higher than Fiscal 2023 by $9.8 million, primarily due to incremental costs associated with Rogan’s. As market conditions softened in the third and 32 fourth quarters of Fiscal 2024 during non-event periods, we lowered selling costs at our comparable stores. These lower selling expenses reflected optimized advertising spend, driven by our digital-first marketing strategy. While Rogan’s costs were an additional expense in Fiscal 2024 compared to Fiscal 2023, those cost increases were mitigated by synergies captured during Fiscal 2024 from our accelerated integration of Rogan’s. Fiscal 2024 Operating Income totaled $91.2 million, a decrease of 2.5% versus Fiscal 2023, primarily due to the extra week of sales in Fiscal 2023 and non-event period declines at Shoe Carnival stores, partially offset by Net Sales growth, principally from our Shoe Station and Rogan’s stores. Primarily as a result of accelerated synergy capture, Rogan’s exceeded our initial $10 million Operating Income target for Fiscal 2024 by more than 20%. Fiscal 2024 Net Income was $73.8 million, or $2.68 per diluted share, compared to Fiscal 2023 Net Income of $73.3 million, or $2.68 per diluted share. The slight increase in Net Income reflected pandemic-related tax credits of $3.0 million associated with our acquisition of Rogan’s, included in Interest and Other Income, partially offset by lower Operating Income and a higher effective tax rate. Capital Management and Inventories Fiscal 2024 marked the 20th consecutive fiscal year end where we ended the fiscal year with no debt. In each of the last four years, we have funded our operations and growth investments, including our acquisitions of Shoe Station and Rogan’s, without drawing on our credit facility. We ended Fiscal 2024 with $123.1 million of Cash, Cash Equivalents and Marketable Securities. Cash flows from operations in Fiscal 2024 totaled $102.6 million. In Fiscal 2024, we paid $44.8 million for Rogan’s with cash on hand. Merchandise Inventories totaled $385.6 million at the end of Fiscal 2024, an increase of $39.2 million compared to the end of Fiscal 2023, primarily reflecting Rogan’s acquired inventory. Merchandise Inventories supporting the Shoe Carnival and Shoe Station stores were slightly down on a unit basis at the end of Fiscal 2024 compared to the end of Fiscal 2023, but additional inventory purchases were made near Fiscal 2024 year end to support rebannering additional stores and, to a lesser extent, as a hedge against potential supply chain disruption from tariffs and port worker strikes. Results of Operations The following table sets forth our results of operations expressed as a percentage of Net Sales for the following fiscal years: 2024 2023 2022 Net sales 100.0 % 100.0 % 100.0 % Cost of sales (including buying, distribution, and occupancy costs) 64.4 64.2 62.9 Gross profit 35.6 35.8 37.1 Selling, general and administrative expenses 28.0 27.8 25.5 Operating income 7.6 8.0 11.6 Interest and other income (0.5 ) (0.2 ) (0.1 ) Interest expense 0.0 0.0 0.0 Income before income taxes 8.1 8.2 11.7 Income tax expense 2.0 2.0 3.0 Net income 6.1 % 6.2 % 8.7 % 33 Fiscal 2024 Compared to Fiscal 2023 Net Sales Net Sales were $1.2 billion in Fiscal 2024 and increased 2.3%, or $27.0 million, compared to Fiscal 2023. The increase was primarily due to continued growth from the Shoe Station banner’s 5.7% Net Sales increase and the acquisition of Rogan's in February 2024, which added Net Sales of $80.3 million. Increases were partially offset by the extra week in the prior year, which reduced Net Sales approximately $15 million, and a 3.9% decrease in comparable stores Net Sales, primarily due to a mid-single digit decline from our Shoe Carnival bannered stores. The comparable stores Net Sales decline resulted primarily from an approximate 5% decrease in traffic in our physical stores resulting in an approximate 6% decrease in units sold. E-commerce sales were approximately 10% of merchandise sales in both Fiscal 2024 and Fiscal 2023. Gross Profit Gross Profit was $428.8 million in Fiscal 2024, an increase of $7.4 million compared to Fiscal 2023, primarily due to the $27.0 million increase in Net Sales. Gross profit margin in Fiscal 2024 was 35.6% compared to 35.8% in Fiscal 2023. This slight decrease was driven by stable merchandise margins that were up 10 basis points in Fiscal 2024 compared to Fiscal 2023 but were more than offset by BDO as a percentage of Net Sales that deleveraged 30 basis points on increased occupancy costs from operating more stores. Selling, General and Administrative Expenses SG&A increased $9.8 million in Fiscal 2024 to $337.6 million compared to $327.9 million in Fiscal 2023. The increase was primarily due to incremental costs associated with Rogan's in Fiscal 2024, partially offset by lower selling costs at Shoe Carnival and Shoe Station stores, which reflected optimized advertising spend driven by our digital-first marketing strategy. While Rogan’s costs were an additional expense in Fiscal 2024 compared to Fiscal 2023, those cost increases were mitigated by synergies captured during Fiscal 2024 from our accelerated integration of Rogan’s. As a percentage of Net Sales, SG&A were 28.0% in Fiscal 2024, compared to 27.8% in Fiscal 2023. Interest and Other Income and Interest Expense Changes in our Interest and Other Income and our Interest Expense increased our Income Before Income Taxes by $3.7 million in Fiscal 2024 compared to Fiscal 2023. This increase was primarily due to pandemic-related tax credits of $3.0 million associated with our acquisition of Rogan's in February 2024 and also higher interest earned on invested cash balances. Income Taxes The effective income tax rate for Fiscal 2024 was 24.3% compared to 23.7% for Fiscal 2023. The higher effective tax rate was due to the decrease in tax benefits from share-settled equity awards in Fiscal 2024 and a state deferred tax benefit included in Fiscal 2023 that did not recur in Fiscal 2024, partially offset by impacts associated with our acquisition of Rogan’s. Liquidity and Capital Resources Our primary sources of liquidity are $123.1 million of Cash, Cash Equivalents and Marketable Securities on hand at the end of Fiscal 2024, 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 rebanners and new stores, remodels and relocations, distribution center initiatives, lease payments associated with our real estate leases, potential dividend payments, potential share repurchases under our share repurchase program and the financing of other capital projects, including investments in new systems. As part of our growth strategy, we have also pursued strategic acquisitions of other footwear retailers. 34 Cash Flow - Operating Activities Net cash generated from operating activities was $102.6 million in Fiscal 2024 compared to $122.8 million during Fiscal 2023. The decrease in operating cash flow was primarily driven by the timing of increased inventory purchases to support our rebanner strategy, new Shoe Station stores and, to a lesser extent, as a hedge against potential supply chain disruption from tariffs and port worker strikes, and the timing of prepaid contracts payments in Fiscal 2024 compared to Fiscal 2023. Working capital increased on a year-over-year basis and totaled $405.7 million at February 1, 2025 compared to $353.5 million at February 3, 2024. The increase was primarily attributable to higher Merchandise Inventories and Accounts Receivable, primarily due to the acquisition of Rogan's, higher cash balances and lower Accounts Payable, partially offset by an increase in Accrued and Other Liabilities. Our current ratio was 4.1 as of February 1, 2025, compared to 3.8 as of February 3, 2024. Cash Flow - Investing Activities Our cash outflows for investing activities are normally for capital expenditures. During Fiscal 2024 and Fiscal 2023, we expended $33.2 million and $56.3 million, respectively, for the purchases of property and equipment, primarily related to store remodels and rebanners and opening four new Shoe Station stores. Our Rogan’s acquisition in first quarter 2024 resulted in the payment of cash consideration of $44.8 million, net of cash acquired in Fiscal 2024. Additional information regarding the Rogan’s acquisition, including information on the additional contingent consideration of up to $5.0 million, can be found in Note 3 — “Acquisition of Rogan Shoes” in our Notes to Consolidated Financial Statements contained in PART II, ITEM 8 of this Annual Report on Form 10-K. We invest in publicly traded mutual funds designed to mitigate income statement volatility associated with our non-qualified deferred compensation plan. The balance of these Marketable Securities was $14.4 million at February 1, 2025, compared to $12.2 million at February 3, 2024. Additional information can be found in Note 4 — “Fair Value Measurements” in our Notes to Consolidated Financial Statements contained in PART II, ITEM 8 of this Annual Report on Form 10-K. Cash Flow - Financing Activities Our cash outflows for financing activities are typically for cash dividend payments, share repurchases or payments on our Credit Agreement. Shares of our common stock can be either acquired as part of a publicly announced repurchase program or withheld by us in connection with employee payroll tax withholding upon the vesting of stock-based compensation awards that are settled in shares. Our cash inflows from financing activities generally reflect stock issuances to employees under our Employee Stock Purchase Plan and borrowings under our Credit Agreement. During Fiscal 2024, net cash used in financing activities was $15.3 million compared to $20.5 million during Fiscal 2023. The decrease in net cash used in financing activities was primarily due to the repurchase of $5.4 million of shares in Fiscal 2023 under our Board of Directors’ authorized share repurchase program compared to none in Fiscal 2024 and the decrease in shares surrendered by employees to pay taxes on stock-based compensation awards, partially offset by increased dividend payments. During Fiscal 2024 and Fiscal 2023, we did not borrow or repay funds under our Credit Agreement. Letters of credit outstanding were $1.0 million at February 1, 2025, and our borrowing capacity was $99.0 million. Our Credit Agreement requires us to maintain compliance with various financial covenants. See Note 10 – “Debt” in our Notes to Consolidated Financial Statements contained in PART II, ITEM 8 of this Annual Report on Form 10-K for a further discussion of our Credit Agreement and its covenants. We were in compliance with these covenants as of February 1, 2025. Store Rebanners, Openings and Closings – Fiscal 2025 As previously discussed, we plan to rebanner between 50 to 75 Shoe Carnival stores into Shoe Station stores in Fiscal 2025 as the first part of the first investment phase. We plan to complete an additional 100 or more rebanners in Fiscal 2026 and early Fiscal 2027 as the second part of the first investment phase. Once this investment phase is complete, 35 we expect to operate 218 Shoe Station stores, representing 51% of our present store fleet. Additional rebanners may follow. Increasing market penetration by adding new stores is also a key component of our growth strategy. We expect limited store closures over the next several years. Future store growth may continue to be impacted by macroeconomic uncertainty, our ability to identify desirable locations and/or acquisition partners and increased focus on our store rebanner strategy. Capital Expenditures – Fiscal 2025 Capital expenditures for Fiscal 2025 are expected to be between $45 million and $60 million, with approximately $35 million to $45 million to be used for new and rebannered stores and remodels and approximately $10 million to $15 million for upgrades to our Evansville 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 potential inflationary, supply chain 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, rebannered, 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. Dividends During Fiscal 2024, four quarterly cash dividends of $0.135 per share were approved and paid. In Fiscal 2023, we paid quarterly cash dividends of $0.10 per share in our first and second fiscal quarters and $0.12 per share in the third and fourth fiscal quarters. During Fiscal 2024 and Fiscal 2023, we returned $14.7 million and $12.2 million, respectively, in cash to our shareholders through our quarterly dividends. The declaration and payment of any future dividends are at the discretion of the Board of Directors and will depend on our results of operations, financial condition, business conditions and other factors deemed relevant by our Board of Directors, subject to the restrictions in our Credit Agreement. See Note 10 – “Debt” in our Notes to Consolidated Financial Statements contained in PART II, ITEM 8 of this Annual Report on Form 10-K for a further discussion of our Credit Agreement and its restrictions. Share Repurchase Program On December 11, 2024, our Board of Directors authorized a share repurchase program for up to $50 million of our outstanding common stock, effective January 1, 2025 (the “2025 Share Repurchase Program”). The purchases may be made in the open market or through privately negotiated transactions from time to time through December 31, 2025 and in accordance with applicable laws, rules and regulations. The 2025 Share Repurchase Program may be amended, suspended or discontinued at any time and does not commit us to repurchase shares of our common stock. We have funded, and intend to continue to fund, the share repurchase program from cash on hand, and any shares acquired will be available for stock-based compensation awards and other corporate purposes. The actual number and value of the shares to be purchased will depend on the performance of our stock price and other market and economic factors, subject to the restrictions in our Credit Agreement. See Note 10 – “Debt” in our Notes to Consolidated Financial Statements contained in PART II, ITEM 8 of this Annual Report on Form 10-K for a further discussion of our Credit Agreement and its restrictions. The 2025 Share Repurchase Program replaced a $50 million share repurchase program that was authorized in December 2023, became effective January 1, 2024 and expired in accordance with its terms on December 31, 2024. No shares were repurchased during Fiscal 2024 and shares totaling 230,696 were repurchased during Fiscal 2023 at a cost of $5.4 million. Leases Rent-related payments made in Fiscal 2024 totaled $97.2 million. As we are contractually obligated to make lease payments to landlords, estimated future payments to landlords and lease-related charges are expected to be significant 36 in future years and will increase in future years due to expected organic and acquired store growth. These payments include estimates for fixed minimum and contingent rent, estimated reimbursements to landlords for common area maintenance, taxes and insurance and other occupancy related charges. See Note 11 – “Leases” in our Notes to Consolidated Financial Statements contained in PART II, ITEM 8 of this Annual Report on Form 10-K for further discussion of our lease obligations. Impact of Store Count and Seasonality on Quarterly Results Our quarterly results of operations have fluctuated and are expected to continue to fluctuate in the future, primarily as a result of seasonal variances and the timing of sales and costs associated with opening new stores and closing underperforming stores. (Unaudited, in thousands, except per share amounts) Fiscal 2024 First Quarter Second Quarter Third Quarter Fourth Quarter Net sales $ 300,365 $ 332,696 $ 306,885 $ 262,939 Gross profit 106,800 119,943 110,382 91,669 Operating income 22,507 30,079 24,529 14,037 Net income 17,286 22,573 19,242 14,665 Net income per share – Diluted 1 $ 0.63 $ 0.82 $ 0.70 $ 0.53 Fiscal 2023 First Quarter Second Quarter Third Quarter Fourth Quarter (2) Net sales $ 281,184 $ 294,615 $ 319,914 $ 280,169 Gross profit 98,517 105,465 117,701 99,707 Operating income 20,939 24,662 27,935 19,969 Net income 16,526 19,441 21,861 15,520 Net income per share – Diluted 1 $ 0.60 $ 0.71 $ 0.80 $ 0.57 1) Per share amounts are computed independently for each of the quarters presented. For per share amounts, the sum of the quarters may not equal the total year due to the impact of changes in weighted shares outstanding and differing applications of earnings as prescribed by accounting guidance. 2) The fourth quarter of Fiscal 2023 consisted of 14 weeks compared to 13 weeks in all other quarters presented. Seasonality We have three distinct peak selling periods: Easter, back-to-school and Christmas. Our operating results depend significantly upon the sales generated during these periods. To prepare for our peak shopping seasons, we must order and keep in stock significantly more merchandise than we would carry during other periods of the year. Any unanticipated decrease in demand for our products or a supply chain disruption that reduces inventory availability during these peak shopping seasons could reduce our Net Sales and Gross Profit and negatively affect our profitability. Store Count We continually analyze our store portfolio and the potential for new stores based on our view of internal and external opportunities and challenges in the marketplace. As part of our long-term growth strategy, we expect to pursue opportunities for store growth across large and mid-size markets as we continue to leverage customer data from our CRM program and more attractive real estate options become available. When we identify a store that produces or may potentially produce low or negative contribution, we either renegotiate lease terms, relocate or close the store. In instances when underperformance indicates the carrying value of a store’s assets may not be recoverable, we impair the store. Although store closings could reduce our overall Net Sales volume, we believe that the store closings we effected in the last several fiscal years resulted in long-term improvements to our Operating Income and Diluted Net Income per Share. Depending upon the results of lease negotiations with certain landlords of underperforming stores, we may increase or decrease the number of store closures in future periods. 37 Non-capital expenditures, such as advertising and payroll incurred prior to the opening of a new store, are charged to expense as incurred. The timing and actual amount of expense recorded in closing an individual store can vary significantly depending, in part, on the period in which management commits to a closing plan, the remaining basis in the fixed assets to be disposed of at closing and the amount of any lease buyout. Therefore, our results of operations may be adversely affected in any quarter in which we incur pre-opening expenses related to the opening of new stores or incur store closing costs related to the closure of existing stores. Store Openings, Closings and Impairment Charges – Impact on Fiscal 2024 and Fiscal 2023 In Fiscal 2024, we opened four new stores. The initial average inventory investment for the new stores in Fiscal 2024 was $1.2 million, capital expenditures were $1.3 million and lease incentives received from our landlords were $425,000. In Fiscal 2023, we opened five new stores. The initial average inventory investment for the new stores was $1.0 million, capital expenditures were $1.7 million and lease incentives received from our landlord were $480,000. Pre-opening expenses for the four stores opened in Fiscal 2024 included in Cost of Sales and SG&A were approximately $786,000, or an average of $197,000 per store. Items classified as pre-opening expenses include rent, freight, advertising, salaries and supplies. During Fiscal 2023, we expended $1.2 million, or an average of $237,000 per store, in pre-opening expenses for the five new stores. Total store closing costs were $128,000 associated with the closing of two stores in Fiscal 2024 and $83,000 associated with the closing of two stores in Fiscal 2023. There were no non-cash impairment charges recognized in Fiscal 2024 and Fiscal 2023. In addition to non-cash impairment charges, store closing costs can include fixed asset write-offs, employee severance, lease termination fees, store tear-down and clean-up expenses and acceleration of expenses and deferred lease incentives. In total, store opening and closing costs impacting SG&A were $616,000 in Fiscal 2024 and $891,000 in Fiscal 2023. Store opening and closing costs included in Cost of Sales were expenses of $298,000 in Fiscal 2024 and $376,000 in Fiscal 2023. Critical Accounting Policies We use judgment in reporting our financial results. This judgment involves estimates based in part on our historical experience and incorporates the impact of the current general economic climate and company-specific circumstances. However, because future events and economic conditions are inherently uncertain, our actual results could differ materially from these estimates. The accounting policies that require more significant judgment are included below. Merchandise Inventories – Our Merchandise Inventories are stated at the lower of cost or net realizable value as of the balance sheet date and consist primarily of dress, casual and athletic footwear for women, men and children. The cost of our merchandise is determined using the first-in, first-out valuation method (“FIFO”). For determining net realizable value, we estimate the future demand and related sale price of merchandise in our inventory. The stated value of Merchandise Inventories contained on our Consolidated Balance Sheets also includes freight, certain capitalized overhead costs and reserves. Factors considered when we review our inventory to properly state it at lower of cost or net realizable value include recent sale prices, historical loss rates, the length of time merchandise has been held in inventory, quantities of the various styles held in inventory, seasonality of the merchandise, expected consideration to be received from our vendors and current and expected future sales trends. We also review aging trends, which include the historical rate at which merchandise has sold below cost and the value and nature of merchandise currently held in inventory and priced below original cost. We reduce the value of our inventory to its estimated net realizable value where cost exceeds the estimated future selling price. Merchandise Inventories as of February 1, 2025 totaled $385.6 million, representing approximately 34% of total assets. Merchandise Inventories as of February 3, 2024 totaled $346.4 million, representing approximately 33% of total assets. Given the significance of inventories to our consolidated financial statements, the determination of net realizable value is a critical accounting estimate. Material changes in the factors noted above could have a significant impact on the actual net realizable value of our inventory and our reported operating results. 38 Valuation of Long-Lived Assets – Long-lived assets, such as Property and Equipment subject to depreciation and right-of-use assets arising from our leased properties, are evaluated for impairment on a periodic basis if events or circumstances indicate the carrying value may not be recoverable. This evaluation includes performing an analysis of the estimated undiscounted future cash flows of the long-lived assets. Assets are grouped and the evaluation performed at the lowest level for which there are identifiable cash flows, which is generally at a store level. If the estimated future cash flows for a store are determined to be less than the carrying value of the store’s assets, an impairment loss is recorded for the difference between the estimated fair value and the carrying value. We estimate the fair value of our long-lived assets using store-specific cash flow assumptions discounted by a rate commensurate with the risk involved with such assets while incorporating marketplace assumptions. Our assumptions and estimates used in the evaluation of impairment, including current and future economic trends for stores, are subject to a high degree of judgment. Assets subject to impairment are adjusted to estimated fair value and, if applicable, an impairment loss is recorded in SG&A. If actual operating results or market conditions differ from those anticipated, the carrying value of certain of our assets may prove unrecoverable and we may incur additional impairment charges in the future. Valuation of Goodwill and Intangible Assets – Our indefinite-lived assets include Goodwill and non-amortizing Intangible Assets (trade names) resulting from the acquisitions of Shoe Station in Fiscal 2021 and Rogan's in Fiscal 2024. Goodwill represents the purchase price in excess of fair values assigned to the underlying identifiable net assets of the acquired business. Goodwill and indefinite-lived Intangible Assets are reviewed annually for impairment unless circumstances dictate the need for more frequent assessment. We perform our annual impairment testing as of the first day of the fourth fiscal quarter. Goodwill is reviewed for impairment at our single reporting unit level. We have the option to either first perform a qualitative assessment to determine whether it is “more likely than not” that the reporting unit's fair value is less than its carrying value, or to proceed directly to the quantitative assessment, which requires a comparison of the reporting unit's fair value to its carrying value. Qualitative factors may include, but are not limited to, economic conditions, industry and market considerations, expense factors, overall financial performance, entity specific and reporting unit events, capital markets and pricing and breakeven multiples. If we determine that the fair value of our reporting unit is less than its carrying value, we recognize an impairment charge equal to the difference, not to exceed the total amount of goodwill allocated to the reporting unit. In performing an impairment test for our Goodwill in Fiscal 2024, we completed the qualitative assessment on November 3, 2024. We determined that it was not “more likely than not” that the fair value of our reporting unit was less than the carrying value; therefore, no quantitative assessment was performed and no impairment was recorded. With respect to the trade names, we tested their carrying amounts for impairment in Fiscal 2024 at the Shoe Station store set and Rogan’s store set levels using respective revenue growth and discount rate assumptions and assumed royalty rates. Significant changes in our estimates and assumptions could affect our fair value calculations. We performed these assessments on November 3, 2024 and our estimate of fair values exceeded the carrying amounts; therefore, no impairments were recorded. Leases – We lease our retail stores, our Evansville distribution center and office space for our Southern office. We also enter into leases of equipment and other assets. Substantially all of our leases are operating leases. Therefore, how operating leases are recognized throughout the financial statements in accordance with applicable accounting guidance can have a significant impact on our financial condition and results of operations and related disclosures. In accordance with Accounting Standards Codification Topic No. 842 – Leases (“ASC 842”), on the lease commencement date we recognize a right-of-use asset for the right to use a leased asset and a liability based on the present value of remaining lease payments over the lease term. The weighted average discount rate utilized in Fiscal 2024 and Fiscal 2023 was 4.7% and 4.2%, respectively. For new leases, renewals or amendments and when we make material investments in leased properties pursuant to our emerging rebanner strategy or store modernization plan, we make certain estimates and assumptions regarding property values, market rents, property lives, discount rates and probable terms. These estimates and assumptions can impact: (1) lease classification and the related accounting treatment; (2) rent holidays, escalations or deferred lease incentives, which are taken into consideration when calculating straight-line expense; (3) the term over which leasehold improvements for each store are amortized; and (4) the values and lives of adjustments to initial and 39 modified right-of-use assets. The amount of amortized rent expense would vary if different estimates and assumptions were used. Our real estate leases typically include options to extend the lease or to terminate the lease at our sole discretion. Options to extend real estate leases typically include one or more options to renew, with renewal terms that typically extend the lease term for five years or more. Many of our leases also contain “co-tenancy” provisions, including the required presence and continued operation of certain anchor tenants in the adjoining retail space. If a co-tenancy violation occurs, we have the right to a reduction of rent for a defined period after which we have the option to terminate the lease if the violation is not cured. In addition to co-tenancy provisions, certain leases contain “go-dark” provisions that allow us to cease operations while continuing to pay rent through the end of the lease term. When determining the lease term, we include options that are reasonably certain to be exercised. Income Taxes – As part of the process of preparing our consolidated financial statements, we are required to estimate our current and future income taxes for each tax jurisdiction in which we operate. Significant judgment is required in determining our annual tax expense and evaluating our tax positions. As a part of this process, deferred tax assets and liabilities are recognized based on the difference between the consolidated financial statement carrying amounts of existing assets and liabilities and their respective tax basis. Our temporary timing differences relate primarily to inventory, property and equipment, right-of-use assets, operating lease liabilities, goodwill and non-amortizing intangible assets. Deferred tax assets and liabilities are measured using the tax rates enacted and expected to be in effect in the years when those temporary differences are expected to reverse. Deferred tax assets are reduced, if necessary, by a valuation allowance to the extent future realization of those tax benefits are uncertain. We are also required to make many subjective assumptions and judgments regarding our income tax exposures when accounting for uncertain tax positions associated with our income tax filings. We must presume that taxing authorities will examine all uncertain tax positions and that they have full knowledge of all relevant information. However, interpretations of guidance surrounding income tax laws and regulations are often complex, ambiguous and frequently change over time, and a number of years may elapse before a particular issue is resolved. As such, changes in our subjective assumptions and judgments can materially affect amounts recognized in our consolidated financial statements. Although we believe we have no uncertain tax positions, tax authorities could assess tax liabilities in open tax periods not presently foreseen. Recent Accounting Pronouncements See Note 2 — “Summary of Significant Accounting Policies” in our Notes to Consolidated Financial Statements contained in PART II, ITEM 8 of this Annual Report on Form 10-K for a description of recent accounting pronouncements and related impacts. 40 Historical Financial and Operating Data The following historical financial data is included for the convenience of assessing trends in our financial condition and results of operations over the previous five fiscal years. A more detailed description of the fluctuations among Fiscal 2020 – Fiscal 2023 can be found in our Annual Reports on Form 10-K filed for those previous fiscal years. (In thousands, except per share and operating data) Fiscal years (1) (7) 2024 2023 2022 2021 2020 Income Statement Data: Net sales $ 1,202,885 $ 1,175,882 $ 1,262,235 $ 1,330,394 $ 976,765 Gross profit $ 428,794 $ 421,390 $ 468,164 $ 526,787 $ 279,982 Operating income $ 91,152 $ 93,505 $ 146,444 $ 207,654 $ 21,865 Net income $ 73,766 $ 73,348 $ 110,068 $ 154,881 $ 15,991 Diluted net income per share $ 2.68 $ 2.68 $ 3.96 $ 5.42 $ 0.56 Dividends declared per share $ 0.540 $ 0.440 $ 0.360 $ 0.280 $ 0.178 Balance Sheet Data: Cash and cash equivalents $ 108,680 $ 99,000 $ 51,372 $ 117,443 $ 106,532 Total assets $ 1,124,133 $ 1,042,025 $ 989,781 $ 812,264 $ 642,747 Long-term debt $ 0 $ 0 $ 0 $ 0 $ 0 Total shareholders’ equity $ 648,996 $ 583,389 $ 525,568 $ 452,533 $ 310,176 Operating Data: Stores open at end of year 430 400 397 393 383 Comparable stores net sales (2)(3) -3.9 % -8.8 % -11.1 % 35.3 % -5.3 % Square footage of store space at year end (000’s) 4,968 4,569 4,505 4,419 4,146 Average sales per store (000’s) (2)(4)(6) $ 2,766 $ 2,897 $ 3,159 $ 3,473 $ 2,503 Average sales per square foot (2)(5)(6) $ 246 $ 255 $ 281 $ 321 $ 237 (1) Our fiscal year is a 52/53 week year ending on the Saturday closest to January 31. Unless otherwise stated, references to years 2024, 2023, 2022, 2021 and 2020 relate respectively to the fiscal years ended February 1, 2025, February 3, 2024, January 28, 2023, January 29, 2022 and January 30, 2021. Fiscal 2023 consisted of 53 weeks and fiscal years 2024, 2022, 2021 and 2020 all consisted of 52 weeks. (2) Selected Operating Data for Fiscal 2023 has been adjusted to a comparable 52-week period ended January 27, 2024. The 53rd week in Fiscal 2023 caused a one-week shift in our fiscal calendar. To minimize the effect of this fiscal calendar shift on comparable stores Net Sales, our reported annual comparable stores Net Sales results for Fiscal 2023 compare the 52-week period ended January 27, 2024 to the 52-week period ended January 28, 2023, and our comparable stores Net Sales results for fiscal 2024 compare the 52-week period ended February 1, 2025 to the 52-week period ended February 3, 2024. (3) Comparable stores Net Sales for the periods indicated include stores that have been open for 13 full months after such stores’ acquisition or grand opening prior to the beginning of the period, including those stores that have been rebannered, relocated or remodeled. Therefore, stores opened, acquired or closed during the periods indicated are not included in comparable stores Net Sales. We include e-commerce sales in our comparable stores Net Sales. Due to our omnichannel retailer strategy, we view e-commerce sales as an extension of our physical stores. (4) Average sales per store includes e-commerce sales that are in close proximity to a physical store. (5) Average sales per square foot includes net e-commerce sales. We include e-commerce sales in our average sales per square foot as a result of our omnichannel retailer strategy. Due to our omnichannel retailer strategy, we view e-commerce sales as an extension of our physical stores. (6) In fiscal years 2021 and 2020, average sales per store and average sales per square foot include only Shoe Carnival banner stores. (7) On June 21, 2021, our Board of Directors authorized a two-for-one stock split of the shares of our common stock. All share and per share amounts have been adjusted retroactively for all periods presented. 41 ITEM 7A. QUANTITATIVE AND QUALITA TIVE DISCLOSURES ABOUT MARKET RISK We are exposed to market risk in that the interest payable on our credit agreement is based on variable interest rates and therefore is affected by changes in market rates. We do not use interest rate derivative instruments to manage exposure to changes in market interest rates. We had no borrowings under our credit agreement during Fiscal 2024. ITEM 8. FINANCIAL STATEME NTS The information required by this item follows Deloitte & Touche LLP’s audit opinion, which begins on the following page. 42 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Shareholders and the Board of Directors of Shoe Carnival, Inc. Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of Shoe Carnival, Inc. and subsidiaries (the "Company") as of February 1, 2025 and February 3, 2024, the related consolidated statements of income, shareholders’ equity, and cash flows, for each of the three years in the period ended February 1, 2025, and the related notes (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of February 1, 2025 and February 3, 2024, and the results of its operations and its cash flows for each of the three years in the period ended February 1, 2025, in conformity with accounting principles generally accepted in the United States of America. We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of February 1, 2025, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 21, 2025, expressed an unqualified opinion on the Company's internal control over financial reporting. Basis for Opinion These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matter The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. Merchandise Inventories — Refer to Note 2 to the financial statements Critical Audit Matter Description Merchandise inventories are stated at the lower of cost or net realizable value using the first-in, first-out (“FIFO”) method. Factors considered in determining if inventory is properly stated at the lower of cost or net realizable value include, among others, recent sale prices, historical loss rates, the length of time merchandise has been held in inventory, quantities of various styles held in inventory, seasonality of merchandise, expected consideration to be received from vendors and current and expected future sales trends. The Company also reviews aging trends, which include the historical rate at which merchandise has sold below cost and the value and nature of merchandise currently held in inventory and priced below original cost. The Company reduces the value of inventory to its estimated net realizable value where cost exceeds the estimated future selling price. 43 Given the significant judgments made by management to estimate the net realizable value of inventory, such as expected consideration to be received from vendors and current and expected future sales trends, performing audit procedures to evaluate the reasonableness of management’s estimates and assumptions required a high degree of auditor judgment. How the Critical Audit Matter Was Addressed in the Audit Our audit procedures related to the significant judgments made by management to determine net realizable value of inventory included the following procedures, among others: • We tested the operating effectiveness of the Company’s internal control over the valuation of inventory, including the review and determination of the anticipated net realizable value of merchandise inventories compared to the cost value of inventory on-hand. • We tested the recorded inventory reserve by developing an expectation based on the prior year inventory reserve balance relative to the merchandise inventory balance at the prior year balance sheet date and compared it to the actual reserve recorded in the current year. • We evaluated the reasonableness of management’s determination of the net realizable value of inventory by: • Testing the accuracy of source data used in the calculation, including inventory on hand, historical losses by product category, sales prices and consideration received from vendors. • Recalculating the projected loss for inventory on hand based on the source data used in the calculation. • Making inquiries of management regarding current and expected future sales trends and evaluating external communications by analysts. • Evaluating management’s ability to accurately forecast future sales trends and inventory losses by comparing actual results to management’s historical forecasts. /s/ Deloitte & Touche LLP Indianapolis, Indiana March 21, 2025 We have served as the Company's auditor since 1988. 44 Shoe Carnival, Inc. Consolidated B alance Sheets (In thousands, except share data) February 1, 2025 February 3, 2024 Assets Current Assets: Cash and cash equivalents $ 108,680 $ 99,000 Marketable securities 14,432 12,247 Accounts receivable 9,018 2,593 Merchandise inventories 385,605 346,442 Other 18,409 21,056 Total Current Assets 536,144 481,338 Property and equipment – net 172,806 168,613 Operating lease right-of-use assets 343,547 333,851 Intangible assets 40,968 32,600 Goodwill 18,018 12,023 Other noncurrent assets 12,650 13,600 Total Assets $ 1,124,133 $ 1,042,025 Liabilities and Shareholders’ Equity Current Liabilities: Accounts payable $ 52,030 $ 58,274 Accrued and other liabilities 25,382 16,620 Current portion of operating lease liabilities 53,013 52,981 Total Current Liabilities 130,425 127,875 Long-term portion of operating lease liabilities 314,974 301,355 Deferred income taxes 18,879 17,341 Deferred compensation 10,011 11,639 Other 848 426 Total Liabilities 475,137 458,636 Shareholders’ Equity: Common stock, $ 0.01 par value, 50,000,000 shares authorized and 41,049,190 shares issued in each period 410 410 Additional paid-in capital 90,371 83,738 Retained earnings 773,353 714,647 Treasury stock, at cost, 13,874,787 and 13,919,326 shares, respectively ( 215,138 ) ( 215,406 ) Total Shareholders’ Equity 648,996 583,389 Total Liabilities and Shareholders’ Equity $ 1,124,133 $ 1,042,025 See notes to consolidated financial statements. 45 Shoe Carnival, Inc. Consolidated Stat ements of Income (In thousands, except per share data) February 1, 2025 February 3, 2024 January 28, 2023 Net sales $ 1,202,885 $ 1,175,882 $ 1,262,235 Cost of sales (including buying, distribution and occupancy costs) 774,091 754,492 794,071 Gross profit 428,794 421,390 468,164 Selling, general and administrative expenses 337,642 327,885 321,720 Operating income 91,152 93,505 146,444 Interest and other income ( 6,648 ) ( 2,917 ) ( 972 ) Interest expense 314 282 294 Income before income taxes 97,486 96,140 147,122 Income tax expense 23,720 22,792 37,054 Net income $ 73,766 $ 73,348 $ 110,068 Net income per share: Basic $ 2.72 $ 2.69 $ 4.00 Diluted $ 2.68 $ 2.68 $ 3.96 Weighted average shares: Basic 27,157 27,231 27,543 Diluted 27,524 27,407 27,812 See notes to consolidated financial statements. 46 Shoe Carnival, Inc. Consolidated Statements of Shareholders’ Equity (In thousands) Common Stock Issued Treasury Amount Additional Paid-In Capital Retained Earnings Treasury Stock Total Balance at January 29, 2022 41,049 ( 12,883 ) $ 410 $ 80,681 $ 553,487 $ ( 182,045 ) $ 452,533 Dividends ($ 0.36 per share) ( 10,105 ) ( 10,105 ) Employee stock purchase plan purchases 9 47 140 187 Stock-based compensation awards 198 ( 2,880 ) 2,880 0 Shares surrendered by employees to pay taxes on stock-based compensation awards ( 74 ) ( 2,175 ) ( 2,175 ) Purchase of common stock for Treasury ( 1,134 ) ( 30,515 ) ( 30,515 ) Stock-based compensation expense 5,575 5,575 Net income 110,068 110,068 Balance at January 28, 2023 41,049 ( 13,884 ) $ 410 $ 83,423 $ 653,450 $ ( 211,715 ) $ 525,568 Dividends ($ 0.44 per share) ( 12,151 ) ( 12,151 ) Employee stock purchase plan purchases 9 53 130 183 Stock-based compensation awards 306 ( 4,667 ) 4,667 0 Shares surrendered by employees to pay taxes on stock-based compensation awards ( 119 ) ( 3,037 ) ( 3,037 ) Purchase of common stock for Treasury ( 231 ) ( 5,451 ) ( 5,451 ) Stock-based compensation expense 4,929 4,929 Net income 73,348 73,348 Balance at February 3, 2024 41,049 ( 13,919 ) $ 410 $ 83,738 $ 714,647 $ ( 215,406 ) $ 583,389 Dividends ($ 0.54 per share) ( 15,060 ) ( 15,060 ) Employee stock purchase plan purchases 6 72 97 169 Stock-based compensation awards 59 ( 915 ) 915 0 Shares surrendered by employees to pay taxes on stock-based compensation awards ( 21 ) ( 744 ) ( 744 ) Stock-based compensation expense 7,476 7,476 Net income 73,766 73,766 Balance at February 1, 2025 41,049 ( 13,875 ) $ 410 $ 90,371 $ 773,353 $ ( 215,138 ) $ 648,996 See notes to consolidated financial statements. 47 Shoe Carnival, Inc. Consolidated Statem ents of Cash Flows (In thousands) February 1, 2025 February 3, 2024 January 28, 2023 Cash Flows From Operating Activities Net income $ 73,766 $ 73,348 $ 110,068 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 31,065 28,794 23,196 Stock-based compensation 7,697 4,887 5,434 (Gain) Loss on retirement and impairment of assets, net ( 158 ) 130 ( 501 ) Deferred income taxes 564 5,497 14,543 Non-cash operating lease expense 56,493 54,998 47,766 Other ( 1,144 ) 728 962 Changes in operating assets and liabilities: Accounts receivable ( 4,060 ) 459 11,410 Merchandise inventories 2,183 43,948 ( 106,192 ) Operating lease liabilities ( 55,490 ) ( 59,129 ) ( 48,992 ) Accounts payable and accrued liabilities ( 10,529 ) ( 22,214 ) 925 Other 2,251 ( 8,690 ) ( 8,181 ) Net cash provided by operating activities 102,638 122,756 50,438 Cash Flows From Investing Activities Purchases of property and equipment ( 33,161 ) ( 56,281 ) ( 77,293 ) Investments in marketable securities ( 1,161 ) ( 403 ) ( 976 ) Sales of marketable securities and other 1,412 2,045 3,850 Acquisition, net of cash acquired ( 44,762 ) 0 385 Net cash used in investing activities ( 77,672 ) ( 54,639 ) ( 74,034 ) Cash Flows From Financing Activities Proceeds from issuance of stock 169 183 187 Dividends paid ( 14,711 ) ( 12,190 ) ( 9,972 ) Purchase of common stock for treasury 0 ( 5,445 ) ( 30,515 ) Shares surrendered by employees to pay taxes on stock-based compensation awards ( 744 ) ( 3,037 ) ( 2,175 ) Net cash used in financing activities ( 15,286 ) ( 20,489 ) ( 42,475 ) Net increase (decrease) in cash and cash equivalents 9,680 47,628 ( 66,071 ) Cash and cash equivalents at beginning of year 99,000 51,372 117,443 Cash and cash equivalents at end of year $ 108,680 $ 99,000 $ 51,372 Supplemental disclosures of cash flow information: Cash paid during year for interest $ 283 $ 279 $ 303 Cash paid during year for income taxes, net of refunds $ 21,194 $ 19,232 $ 23,933 Capital expenditures incurred but not yet paid $ 1,356 $ 1,472 $ 3,157 Dividends declared but not yet paid $ 628 $ 278 $ 316 Contingent consideration related to business acquisition $ 3,600 $ 0 $ 0 See notes to consolidated financial statements. 48 Shoe Carnival, Inc. Notes to Consolidated Financial Statements Note 1 – Organization and Description of Business Our consolidated financial statements include the accounts of Shoe Carnival, Inc. and its wholly-owned subsidiaries Rogan Shoes, Incorporated (“Rogan’s”), SCHC, Inc. and Shoe Carnival Ventures, LLC, and SCLC, Inc., a wholly-owned subsidiary of SCHC, Inc. (collectively referred to as “we”, “our”, “us” or the “Company”). All intercompany accounts and transactions have been eliminated. We are 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 channel. Note 2 – Summary of Significant Accounting Policies Fiscal Year Our fiscal year is a 52/53 week year ending on the Saturday closest to January 31. Unless otherwise stated, references to years 2024, 2023 and 2022 relate to the fiscal years ended February 1, 2025 (“Fiscal 2024”), February 3, 2024 (“Fiscal 2023”) and January 28, 2023 (“Fiscal 2022”), respectively. Fiscal 2023 consisted of 53 weeks while Fiscal 2024 and Fiscal 2022 consisted of 52 weeks. Use of Estimates in the Preparation of Consolidated Financial Statements The preparation of our consolidated financial statements in conformity with generally accepted accounting principles in the United States of America requires management to make estimates and assumptions that affect the reported amounts of certain assets and liabilities as of the financial statement reporting date in addition to the reported amounts of certain revenues and expenses for the reporting period. The assumptions used by management in future estimates could change significantly due to changes in circumstances and actual results could differ from those estimates. Cash and Cash Equivalents We had Cash and Cash Equivalents of $ 108.7 million at February 1, 2025 and $ 99.0 million at February 3, 2024. Credit and debit card receivables and receivables due from a third party totaling $ 6.9 million and $ 7.2 million were included in cash equivalents at February 1, 2025 and February 3, 2024 , respectively. Credit and debit card receivables generally settle within three days ; receivables due from third parties generally settle within five business days. We consider all short-term investments with an original maturity date of three months or less to be cash equivalents. As of February 1, 2025 and February 3, 2024 , all invested cash was held in money market mutual funds. While investments are not considered by management to be at significant risk, they could be impacted if the underlying financial institutions fail or are subject to other adverse conditions in the financial markets. To date, we have experienced no loss or lack of access to either invested cash or cash held in our bank accounts. Fair Value Measurements The accounting guidance related to fair value measurements defines fair value and provides a consistent framework for measuring fair value. Valuation techniques are based on observable and unobservable inputs. Observable inputs reflect readily obtainable data from independent sources, while unobservable inputs reflect market assumptions. This guidance only applies when other guidance requires or permits the fair value measurement of assets and liabilities. A fair value hierarchy was established, which prioritizes the inputs used in measuring fair value into three broad levels: • Level 1 – Quoted prices in active markets for identical assets or liabilities; • Level 2 – Quoted prices in active or inactive markets for similar assets or liabilities that are either directly or indirectly observable; and • Level 3 – Significant unobservable inputs that are generally model-based valuation techniques such as discounted cash flows, based on the best information available, including our own data. Fair values of 49 our long-lived assets are estimated using an income-based approach and are classified within Level 3 of the valuation hierarchy. Merchandise Inventories and Cost of Sales Merchandise Inventories are stated at the lower of cost or net realizable value using the first-in, first-out (“FIFO”) method. For determining net realizable value, we estimate the future demand and related sale price of merchandise contained in inventory as of the balance sheet date. The stated value of Merchandise Inventories contained on our Consolidated Balance Sheets also includes freight, certain capitalized overhead costs and reserves. Factors considered in determining if our inventory is properly stated at the lower of cost or net realizable value include, among others, recent sale prices, historical loss rates, the length of time merchandise has been held in inventory, quantities of various styles held in inventory, seasonality of merchandise, expected consideration to be received from our vendors and current and expected future sales trends. We also review aging trends, which include the historical rate at which merchandise has sold below cost and the value and nature of merchandise currently held in inventory and priced below original cost. We reduce the value of our inventory to its estimated net realizable value where cost exceeds the estimated future selling price. Material changes in the factors previously noted could have a significant impact on the actual net realizable value of our inventory and our reported operating results. Cost of Sales includes the cost of merchandise sold, buying, distribution, and occupancy costs, inbound freight expense, provision for inventory obsolescence, inventory shrink and credits and allowances from merchandise vendors. Cost of Sales related to our e-commerce orders includes shipping expense to deliver merchandise to our customers. Leases We account for our leases in accordance with Accounting Standards Codification Topic No. 842 - Leases (“ASC 842”). We evaluate whether a contract is an operating or finance lease at its inception or at its acquisition. Substantially all of our leases are operating leases as of February 1, 2025, 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 were not significant and we have elected to expense them as incurred. On the lease commencement date, we recognize a right-of-use (“ROU”) asset for the right to use a leased asset and a liability based on the present value of remaining lease payments over the lease term. As the rate implicit in our leases is not readily determinable, we utilize an incremental borrowing rate for the initial measurement and any subsequent remeasurements of ROU assets and liabilities, which is determined through the development of a synthetic credit rating. Operating lease liabilities are increased by interest and reduced by payments each period, and ROU assets are amortized over the lease term. Interest on operating lease liabilities and the amortization of ROU assets results in straight-line rent expense over the lease term. We record variable lease expense associated with contingent rent, reduced rent due to co-tenancy violations, and other variable non-lease components when incurred. In addition to fixed minimum rental payments set forth in our leases, the measurement of ROU assets and liabilities can also include prepaid rent, landlord incentives (such as construction and tenant improvement allowances), fixed payments related to lease components (such as rent escalation payments scheduled at the lease commencement date), fixed payments related to non-lease components (such as common area maintenance (“CAM”), real estate taxes and insurance) and initial direct costs incurred in conjunction with securing a lease. The measurement of ROU assets and liabilities excludes amounts related to variable payments related to lease components (such as contingent rent payments based on performance), variable payments related to non-lease components (such as CAM, real estate taxes and insurance) and leases with an initial term of 12 months or less. For new leases, renewals or amendments, or when we make material investments in leased properties pursuant to our emerging rebanner strategy or modernization plan, we make certain estimates and assumptions regarding property values, market rents, property lives, discount rates and probable terms. These estimates and assumptions can impact: 50 (1) lease classification and the related accounting treatment; (2) rent holidays, escalations or deferred lease incentives, which are taken into consideration when calculating straight-line expense; (3) the term over which leasehold improvements for each store are amortized; and (4) the values and lives of adjustments to initial ROU assets. The amount of amortized rent expense would vary if different estimates and assumptions were used. See Note 11 – “Leases” for additional discussion of our lease policies as well as additional disclosures related to our leases. Revenue Recognition Substantially all of our revenue is for a single performance obligation and is recognized when control passes to customers. We consider control to have transferred when we have a present right to payment, the customer has title to the product, physical possession of the product has been transferred to the customer and the risks and rewards of the product that we retain are minimal. The redemption of loyalty points under our Shoe Perks loyalty rewards program and redemptions of gift cards are accounted for as separate performance obligations. See Note 5 – “Revenue” for additional discussion of our revenue recognition policies as well as additional disclosures on revenue from contracts with customers. Property and Equipment- Net Property and Equipment is stated at cost and is depreciated or amortized using the straight-line method over the shorter of the estimated useful lives of the assets or the applicable lease terms. Lives used in computing depreciation and amortization range from two to twenty-five years. Expenditures for maintenance and repairs are charged to expense as incurred. Expenditures that materially increase values, improve capacities or extend useful lives are capitalized. Upon sale or retirement, the costs and related accumulated depreciation or amortization are eliminated from the respective accounts and any resulting gain or loss is included in operations. Cloud Computing Arrangements that are Service Contracts We account for the costs to implement hosted cloud computing arrangements that are considered to be service contracts in current and noncurrent other assets. We capitalize these costs based on the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. We amortize the costs over the anticipated service contract period for the hosted arrangement, which is recorded in Selling, General and Administrative Expenses (“SG&A”) . Long-Lived Asset Impairment Testing We periodically evaluate our long-lived assets for impairment if events or circumstances indicate that the carrying value may not be recoverable. The carrying value of long-lived assets is considered impaired when the carrying value of the assets exceeds the expected future cash flows to be derived from their use. Assets are grouped, and the evaluation is performed, at the lowest level for which there are identifiable cash flows, which is generally at a store level. Store level asset groupings typically include property and equipment and operating lease ROU assets. If the estimated, undiscounted future cash flows for a store are determined to be less than the carrying value of the store’s assets, an impairment loss is recorded for the difference between estimated fair value and carrying value. Assets subject to impairment are adjusted to estimated fair value and, if applicable, an impairment loss is recorded in SG&A. If the operating lease ROU asset is impaired, we would amortize the remaining ROU asset on a straight-line basis over the remaining lease term. We estimate the fair value of our long-lived assets using store specific cash flow assumptions discounted by a rate commensurate with the risk involved with such assets while incorporating marketplace assumptions. Our estimates are derived from an income-based approach considering the cash flows expected over the remaining lease term for each location. These projections are primarily based on management’s estimates of store-level sales, exercise of future lease renewal options and the store’s contribution to cash flows and, by their nature, include judgments about how current initiatives will impact future performance. We estimate the fair value of operating lease ROU assets using the market value of rents applicable to the leased asset, discounted using the remaining lease term. 51 External factors, such as the local environment in which the store is located, including store traffic and competition, are evaluated in terms of their effect on sales trends. Changes in sales and operating income assumptions or unfavorable changes in external factors can significantly impact the estimated future cash flows. An increase or decrease in the projected cash flow can significantly impact the fair value of these assets, which may have an effect on the impairment recorded. If actual operating results or market conditions differ from those anticipated, the carrying value of certain of our assets may prove unrecoverable and we may incur additional impairment charges in the future. Goodwill and Intangible Asset Impairment Testing Goodwill recorded on our Consolidated Balance Sheets resulted from our acquisitions of Shoe Station, Inc. (“Shoe Station”) and Rogan's and is based on a fair value allocation of the purchase price at the time of the respective acquisitions. Goodwill is charged to expense only when it is impaired. This test is performed at least annually and is performed at the beginning of our fiscal fourth quarter. No goodwill impairments were recognized in Fiscal 2024, Fiscal 2023 or Fiscal 2022. We also annually test non-amortizing Intangible Assets for impairment. Trade names acquired as part of the Shoe Station and Rogan's acquisitions are our primary non-amortizing Intangible Assets. No impairments of non-amortizing Intangible Assets were recognized in Fiscal 2024, Fiscal 2023 or Fiscal 2022. Insurance Reserves We self-insure a significant portion of our workers’ compensation, general liability and employee health care costs and also maintain insurance in each area of risk to protect us from individual and aggregate losses over specified dollar values. Self-insurance reserves include estimates of claims filed, carried at their expected ultimate settlement value, and claims incurred but not yet reported. These estimates take into consideration a number of factors, including historical claims experience, severity factors, statistical trends and, in certain instances, valuation assistance provided by independent third parties. We record self-insurance expense as a component of Accrued and Other Liabilities in our Consolidated Balance Sheets and in SG&A in our Consolidated Statements of Income. While we believe that the recorded amounts are adequate, there can be no assurance that changes to management’s estimates will not occur due to limitations inherent in the estimating process. If actual results are not consistent with our estimates or assumptions, we may be exposed to losses or gains that could be material. Consideration Received From a Vendor Consideration is primarily received from merchandise vendors and includes co-operative advertising/promotion, margin assistance, damage allowances and rebates earned for a specific level of purchases over a defined period. Consideration principally takes the form of credits that we can apply against trade amounts owed. Consideration is recorded as a reduction of the price paid for the vendor’s products and recorded as a reduction of our Cost of Sales unless the consideration represents a reimbursement of a specific, incremental, identifiable cost; in such a scenario, it is recorded as an offset to the same financial statement line item. Consideration received after the related merchandise has been sold is recorded as an offset to Cost of Sales in the period negotiations are finalized. For consideration received on merchandise still in inventory, the allowance is recorded as a reduction to the cost of on-hand inventory and recorded as a reduction of our Cost of Sales at the time of sale. Should the consideration received be related to something other than the vendor’s product and such consideration received exceeds the incremental costs incurred, then the excess consideration is recorded as a reduction to the cost of on-hand inventory and allocated to Cost of Sales in future periods as the inventory is estimated to be sold. 52 Advertising Costs Digital media, print, television, radio, outdoor media and internal production costs are expensed when incurred. External production costs are expensed in the period the advertisement first takes place. Advertising expenses included in SG&A were $ 50.5 million, $ 56.3 million and $ 55.9 million in fiscal years 2024, 2023 and 2022 , respectively. Store Opening and Start-up Costs Non-capital expenditures, such as payroll, supplies and rent incurred prior to the opening of a new store, are charged to expense in the period they are incurred. Advertising related to new stores is expensed pursuant to the aforementioned advertising policy. Stock-Based Compensation We recognize compensation expense for stock-based awards using a fair value based method. Stock-based awards may include stock units, restricted stock, stock appreciation rights and other stock-based awards under our stock-based compensation plans. Additionally, we recognize stock-based compensation expense for the discount on shares sold to employees through our employee stock purchase plan. This discount represents the difference between the market price and the employee purchase price. Stock-based compensation expense is included in SG&A. We account for forfeitures as they occur in calculating stock-based compensation expense for the period. For performance-based stock awards, we estimate the probability of vesting based on the likelihood that the awards will meet their performance goals. Income Taxes We compute income taxes using the asset and liability method, under which deferred income taxes are provided for the temporary differences between the financial reporting basis and the tax basis of our assets and liabilities. Deferred tax assets are reduced, if necessary, by a valuation allowance to the extent future realization of those tax benefits are uncertain. We report a liability for unrecognized tax benefits resulting from uncertain tax positions taken or expected to be taken in a tax return. We recognize interest expense and penalties, if any, related to uncertain tax positions in Income Tax Expense. Net Income Per Share The following table sets forth the computation of Basic and Diluted Net Income per Share as shown on the face of the accompanying Consolidated Statements of Income: Fiscal Year Ended February 1, 2025 February 3, 2024 January 28, 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 Shares Per Share Amount Net income $ 73,766 $ 73,348 $ 110,068 Conversion of share-based compensation arrangements 0 0 0 Net income available for basic common shares and basic net income per share $ 73,766 27,157 $ 2.72 $ 73,348 27,231 $ 2.69 $ 110,068 27,543 $ 4.00 Diluted Net Income per Share: Net income $ 73,766 $ 73,348 $ 110,068 Conversion of share-based compensation arrangements 0 367 0 176 0 269 Net income available for diluted common shares and diluted net income per share $ 73,766 27,524 $ 2.68 $ 73,348 27,407 $ 2.68 $ 110,068 27,812 $ 3.96 53 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 unvested stock-based awards were excluded from the computation of Diluted Net Income per Share for Fiscal 2024 or Fiscal 2023, and approximately 7,000 unvested stock-based awards were excluded for Fiscal 2022 because the impact would be anti-dilutive. Litigation Matters The accounting standard related to loss contingencies provides guidance regarding our disclosure and recognition of loss contingencies, including pending claims, lawsuits, disputes with third parties, investigations and other actions that are incidental to the operation of our business. The guidance utilizes the following defined terms to describe the likelihood of a future loss: (1) probable – the future event or events are likely to occur, (2) remote – the chance of the future event or events is slight and (3) reasonably possible – the chance of the future event or events occurring is more than remote but less than likely. The guidance also contains certain requirements with respect to how we accrue for and disclose information concerning our loss contingencies. We accrue for a loss contingency when we conclude that the likelihood of a loss is probable and the amount of the loss can be reasonably estimated. When the reasonable estimate of the loss is within a range of amounts, and no amount in the range constitutes a better estimate than any other amount, we accrue for the amount at the low end of the range. We adjust our accruals from time to time as we receive additional information, but the loss we incur may be significantly greater than or less than the amount we have accrued. We disclose loss contingencies if there is at least a reasonable possibility that a loss has been incurred and such loss may be material. No accrual or disclosure is required for losses that are remote. New 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 became effective for fiscal years beginning after December 15, 2023. We adopted ASU 2023-07 for Fiscal 2024 retrospectively to all periods presented in the financial statements. See Note 6 – ''Segment Reporting'' for additional information. 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. In November 2024, the FASB issued ASU 2024-03, Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses. The guidance requires new financial statement disclosures in tabular format, disaggregating information about prescribed categories underlying any relevant income statement expense caption. The guidance is effective for fiscal years beginning after December 15, 2026, and interim periods within fiscal years beginning after December 15, 2027. Early adoption is permitted. The amendments in the ASU should be applied on a prospective basis, but retrospective application is permitted. We are evaluating the impact of this new guidance but believe the adoption will not have a material impact on our consolidated financial statements. Note 3 – Acquisition of Rogan Shoes On February 13, 2 024, we acquired all of the stock of Rogan Shoes, Incorporated, a privately-held 53-year-old work and family footwear company incorporated in Wisconsin, for a purchase price of $ 44.8 million, net of $ 2.2 million of cash acquired, which was paid with cash on hand . This included $ 378,000 of purchase accounting adjustments which 54 were paid in November 2024. Additional consideration of up to $ 5.0 million may be paid by the Company subject to the achievement of three-year growth 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 Rogan’s operations were $ 80.3 million in Fiscal 2024 . Acquisition-related costs of $ 570,000 and $ 806,000 were expensed as incurred and were included in SG&A in Fiscal 2024 and Fiscal 2023, respectively. Supplemental pro forma results of operations reflecting the acquisition are not presented as the impact on our consolidated financial results was not material. The following table summarizes the purchase price and the allocation of the 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. (In thousands) Purchase Price: Cash consideration, net of cash acquired $ 44,762 Fair value of contingent consideration 3,600 Total purchase price $ 48,362 Fair value of identifiable assets and liabilities: Accounts receivable $ 2,365 Merchandise inventories 42,340 Other assets 2,000 Operating lease right-of-use assets 16,891 Identifiable intangible assets: Trade name 7,500 Customer relationships 900 Goodwill 5,994 Total assets $ 77,990 Accounts payable 6,308 Operating lease liabilities 19,843 Deferred income taxes 974 Accrued and other liabilities 2,503 Total liabilities $ 29,628 Total fair value allocation of purchase price $ 48,362 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 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. 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. It will be remeasured on a recurring basis at fair value. As of February 1, 2025, the fair value of the contingent consideration liability was $ 395,000 , with the resulting $ 3.2 million adjustment recorded as a reduction in SG&A in Fiscal 2024. 55 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. Customer relationships are subject to amortization and will be amortized over a period of 20 years. Goodwill and the acquisition-related Intangible Assets are not deductible for tax purposes. Note 4 – Fair Value of Financial Instruments The following table presents financial instruments that are measured at fair value on a recurring basis at February 1, 2025 and February 3, 2024: Fair Value Measurements (In thousands) Level 1 Level 2 Level 3 Total As of February 1, 2025: Cash equivalents – money market mutual funds $ 95,963 $ 0 $ 0 $ 95,963 Marketable securities - mutual funds that fund deferred compensation 14,432 0 0 14,432 Total $ 110,395 $ 0 $ 0 $ 110,395 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 0 0 12,247 Total $ 103,980 $ 0 $ 0 $ 103,980 See Note 13 – “Employee Benefit Plans” for additional discussion and additional disclosures related to our Marketable Securities that fund deferred compensation. The fair values of Cash and Cash Equivalents, Accounts Receivable, Accounts Payable, Accrued Expenses and Other Current Liabilities approximate their carrying values because of their short-term nature. The fair value of the Shoe Station and Rogan’s brands were estimated using a relief-from-royalty method. The estimates and assumptions used in the determination of the fair value of each brand included their respective projected revenue growth, long-term growth rate, the royalty rate and discount rate. 56 Note 5 – Revenue Disaggregation of Net Sales by Product Category Net Sales and percentage of Net Sales, disaggregated by product category, for fiscal years 2024, 2023 and 2022 were as follows: (In thousands) February 1, 2025 February 3, 2024 January 28, 2023 Non-Athletics: Women's $ 295,776 25 % $ 310,280 26 % $ 348,632 28 % Men's 214,273 18 191,476 16 208,756 17 Children's 83,358 7 87,986 7 92,664 7 Total 593,407 50 589,742 49 650,052 52 Athletics: Women's 186,682 15 170,938 15 181,348 14 Men's 203,991 17 195,315 17 204,766 16 Children's 147,203 12 150,422 13 150,622 12 Total 537,876 44 516,675 45 536,736 42 Accessories 65,356 5 63,446 5 68,757 5 Other 6,246 1 6,019 1 6,690 1 Total $ 1,202,885 100 % $ 1,175,882 100 % $ 1,262,235 100 % Accounting Policy and Performance Obligations We operate as an omnichannel, family footwear retailer and provide the convenience of shopping at our physical stores or shopping online through our e-commerce platform. As part of our omnichannel strategy, we offer Shoes 2U, a program that enables us to ship product to a customer’s home or selected store if the product is not in stock at a particular store. We also offer “buy online, pick up in store” services for our customers. “Buy online, pick up in store” provides the convenience of local pickup for our customers. For our physical stores, we satisfy our performance obligation and control is transferred at the point of sale when the customer takes possession of the products. This also includes the “buy online, pick up in store” scenario described above and includes sales made via our Shoes 2U program when customers choose to pick up their goods at a physical store. For sales made through our e-commerce sales channel 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. 57 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 February 1, 2025 or February 3, 2024. Returns and Refunds We have established an allowance based upon historical experience in order to estimate return and refund transactions. This allowance is recorded as a reduction in sales with a corresponding refund liability recorded in Accrued and Other Liabilities. The estimated cost of Merchandise Inventory is recorded as a reduction to Cost of Sales and an increase in Merchandise Inventories. At February 1, 2025 , approximately $ 1.1 million of refund liabilities and $ 726,000 of right of return assets associated with estimated product returns were recorded in Accrued and Other Liabilities and Merchandise Inventories, respectively. At February 3, 2024 , 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. 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 February 1, 2025 and February 3, 2024, $ 2.3 million and $ 2.4 million of contract liabilities associated with unredeemed gift cards were recorded in Accrued and Other Liabilities, respectively. We expect the revenue associated with these liabilities to be recognized in proportion to the pattern of customer redemptions within two year s. Breakage revenue associated with our gift cards recognized in Net Sales was $ 845,000 in Fiscal 2024, primarily related to Rogan’s as well as increasing breakage rates. Breakage revenue associated with our gift cards recognized in Net Sales was not material in Fiscal 2023 or Fiscal 2022. Our Shoe Perks rewards program allows customers to accrue points and provides customers with the opportunity to earn rewards. Points under Shoe Perks are earned primarily by making purchases through any of our omnichannel points of sale. Once a certain threshold of accumulated points is reached, the customer earns a reward certificate, which is redeemable through any of our sales channels. When a Shoe Perks customer makes a purchase, we allocate the transaction price between the goods purchased and the loyalty reward points earned based on the relative standalone selling price. The portion allocated to the points program is recorded as a contract liability for rewards that are expected to be redeemed. We then recognize revenue based on an estimate of when customers redeem rewards, which incorporates an estimate of points expected to expire using historical rates. Loyalty awards recognized in Net Sales were $ 3.5 million, $ 6.1 million and $ 5.5 million during fiscal years 2024, 2023 and 2022, respectively. At February 1, 2025 and February 3, 2024 , approximately $ 564,000 and $ 481,000 of contract liabilities associated with loyalty rewards were recorded in Accrued and Other Liabilities, respectively. We expect the revenu e associated with these liabilities to be recognized in proportion to the pattern of customer redemptions in less than one year. Note 6 – Segment Reporting Shoe Carnival, Inc. has a single operating and reportable segment that sells footwear and related merchandise for the family across our retail banners and sales channels. With respect to our omnichannel strategy, our e-commerce sales channel is integrated with our Shoe Carnival, Shoe Station and Rogan’s physical store locations across 36 states and Puerto Rico and is fundamentally inseparable in how we serve our target customers. Our chief operating decision maker (“CODM”) is our President and Chief Executive Officer . The CODM assesses performance and decides how to allocate resources based on Net Income that also is reported on the income statement as our consolidated Net Income. The CODM uses Net Income to evaluate performance in deciding whether to reinvest 58 profits, facilitate acquisitions or return funds to shareholders through dividends or share repurchases. Net Income is used to monitor budget versus actual results and in competitive analysis by benchmarking to our peers and competitors. The benchmarking analysis and the monitoring of budgeted versus actual results are used in assessing our performance and in establishing management’s compensation. We have concluded that, on the basis of the principles in ASC 280, the expenses below require disclosure under the significant expense principle. The CODM does not review assets in evaluating results. Therefore, such information is not provided. Operating financial results of our segment for fiscal years 2024, 2023 and 2022 are as follows: (In thousands) February 1, 2025 February 3, 2024 January 28, 2023 Net sales $ 1,202,885 $ 1,175,882 $ 1,262,235 Less: Merchandise & delivery costs (1) 683,816 669,629 715,516 Store occupancy costs 90,275 84,863 78,555 Store expenses (2) 163,398 157,581 158,583 E-commerce expenses (3) 19,104 19,430 17,886 Advertising 50,533 56,272 55,902 Store depreciation and other selling expenses (4) 39,947 35,034 30,994 General and administrative expenses (5) 64,660 59,568 58,355 Other segment items (6) ( 3,043 ) 0 0 Interest income ( 3,605 ) ( 2,917 ) ( 972 ) Interest expense 314 282 294 Income tax expense 23,720 22,792 37,054 Net income $ 73,766 $ 73,348 $ 110,068 (1) Merchandise & delivery costs include the cost of merchandise and other buying and distribution costs. (2) Store expenses include selling expenses generally controlled operationally at the store level, such as store level payroll. (3) E-commerce expenses include primarily website maintenance costs and other selling expenses. (4) See Note 7 – Property and Equipment for more information. Other selling expenses include store-related health care, other insurance, licensing/tax costs and Property and Equipment write-offs. (5) General and administrative expenses include departmental and corporate expenses, including incentive and share-based compensation and merger and integration expenses. (6) Other segment items represent non-operating income resulting from pandemic-related tax credits associated with our acquisition of Rogan's in February 2024. Note 7 – Property and Equipment The following is a summary of Property and Equipment: (In thousands) February 1, 2025 February 3, 2024 Land $ 1,564 $ 1,564 Buildings 7,735 7,690 Furniture, fixtures and equipment 243,435 227,749 Leasehold improvements 201,674 188,946 Total 454,408 425,949 Less accumulated depreciation and amortization ( 281,602 ) ( 257,336 ) Property and equipment – net $ 172,806 $ 168,613 59 Total depreciation expense associated with Property and Equipment was $ 28.3 million in Fiscal 2024 , $ 25.8 million in Fiscal 2023 and $ 20.9 million in Fiscal 2022. As of February 1, 2025 and February 3, 2024 , there was $ 11.4 million and $ 15.5 million, respectively, of construction work in process included in Property and Equipment, primarily related to store rebanners/remodels and new store construction activity. No impairment charges on long-lived assets held and used were recorded in Fiscal 2024, Fiscal 2023 or Fiscal 2022 . Impairment charges would be included in SG&A in our Consolidated Statements of Income. Note 8 – Cloud Computing Arrangements that are Service Contracts We have engaged third-party providers to host software for us, including our customer relationship management (“CRM”) platform, merchandise financial planning platform and our transportation, warehouse and order management systems. These platforms are cloud computing arrangements that are software-as-a-service (“SaaS”) contracts. Net capitalized costs related to cloud computing arrangements as of February 1, 2025 and February 3, 2024 were $ 14.4 million and $ 15.9 million, respectively. Total amortization expense related to these arrangements was $ 2.7 million during Fiscal 2024, $ 3.0 million during Fiscal 2023 and $ 2.3 million during Fiscal 2022. As of February 1, 2025 , $ 3.2 million of net capitalized costs related to cloud computing arrangements were classified in Other Current Assets and $ 11.2 million were classified as Other Noncurrent Assets in our Consolidated Balance Sheets. As of February 3, 2024 , $ 3.4 million of net capitalized costs related to cloud computin g arrangements were classified in Other Current Assets and $ 12.5 million were classified as Other Noncurrent Assets in our Consolidated Balance Sheets. Note 9 – Other Consolidated Balance Sheets and Consolidated Statements of Income Information Accrued and Other Liabilities consisted of the following: (In thousands) February 1, 2025 February 3, 2024 Employee compensation and benefits $ 10,476 $ 6,033 Current portion of non-qualified deferred compensation 4,259 114 Sales and use tax 2,420 2,344 Gift cards 2,341 2,371 Self-insurance reserves 2,290 1,954 Other 3,596 3,804 Total accrued and other liabilities $ 25,382 $ 16,620 Interest and Other Income consisted of the following: (In thousands) February 1, 2025 February 3, 2024 January 28, 2023 Interest income $ ( 3,605 ) $ ( 2,917 ) $ ( 972 ) Other non-operating income ( 3,043 ) 0 0 Interest and other income $ ( 6,648 ) $ ( 2,917 ) $ ( 972 ) 60 Note 10 – Debt On March 23, 2022 we entered into an Amended and Restated Credit Agreement (the “Credit Agreement”), which replaced our then-existing credit agreement. This $ 100 million amended and restated credit agreement is collateralized by our inventory, expires on March 23, 2027 and contains a swingline sublimit of $ 15 million. Material covenants associated with the Credit Agreement require that we maintain a minimum net worth of $ 250 million and a consolidated interest coverage ratio of not less than 3.0 to 1.0. The Credit Agreement also provides that cash dividends and share repurchases of $ 15 million or less per fiscal year can be made without restriction as long as there is no default or event of default before and immediately after such distributions. We are also permitted to make acquisitions and pay cash dividends or repurchase shares in excess of $ 15 million in a fiscal year provided that (a) no default or event of default exists before and immediately after the transaction and (b) on a proforma basis, the ratio of (i) the sum of (A) our consolidated funded indebtedness plus (B) three times our consolidated rental expense to (ii) the sum of (A) our consolidated EBITDA plus (B) our consolidated rental expense is less than 3.5 to 1.0. Among other restrictions, the Credit Agreement also limits our ability to incur additional secured or unsecured debt to $ 20 million. The Credit Agreement bears interest, at our option, at (1) the agent bank’s base rate plus 0.0 % to 1.0 % or (2) Adjusted Term SOFR plus 0.9 % to 1.9 %, depending on our achievement of certain performance criteria. A commitment fee is charged at 0.2 % to 0.3 % per annum, depending on our achievement of certain performance criteria, on the unused portion of the lenders’ commitment. The terms “net worth”, “consolidated interest coverage ratio”, “consolidated funded indebtedness”, “consolidated rental expense”, “consolidated EBITDA”, “base rate” and “Adjusted Term SOFR” are defined in the Credit Agreement. No borrowings were outstanding under the Credit Agreement as of February 1, 2025 or February 3, 2024 , and we did no t borrow under the Credit Agreement during Fiscal 2024 or Fiscal 2023. As of February 1, 2025 , there were $ 1.0 million in letters of credit outstanding and $ 99.0 million available to us for borrowing under the Credit Agreement. Note 11 – 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 and other assets. 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 or any sublease arrangements with any related party or third party as of February 1, 2025. Our lease agreements do not contain any material residual value guarantees or material restrictive covenants. Our real estate leases typically include options to extend the lease or to terminate the lease at our sole discretion. Options to extend real estate leases typically include one or more options to renew, with renewal terms that typically extend the lease term for five years or more. Many of our leases also contain “co-tenancy” provisions, including the required presence and continued operation of certain anchor tenants in the adjoining retail space. If a co-tenancy violation occurs, we have the right to a reduction of rent for a defined period after which we have the option to terminate the lease if the violation is not cured. In addition to co-tenancy provisions, certain leases contain “go-dark” provisions that allow us to cease operations while continuing to pay rent through the end of the lease term. When determining the lease term, we include options that are reasonably certain to be exercised. Our leases typically provide for fixed minimum rental payments, and certain leases provide for contingent rental payments based upon various specified percentages of sales above minimum levels. In addition to rental payments, we are required to pay certain non-lease components, such as real estate taxes, insurance and common area maintenance, on most of our real estate leases. Such non-lease components are typically variable in nature. Certain real estate leases also contain escalation clauses for increases in minimum rentals, operating costs and taxes. 61 Lease costs , including other related occupancy costs, reported in our Consolidated Statements of Income were as follows: (In thousands) 2024 2023 2022 Operating lease cost $ 70,596 $ 65,244 $ 60,777 Variable lease cost Occupancy costs 23,046 21,243 19,001 Percentage rent and other variable lease costs 448 1,257 1,231 Finance lease cost Amortization of leased assets 21 0 0 Interest on lease liabilities 10 0 0 Total $ 94,121 $ 87,744 $ 81,009 Other information related to leases, including supplemental cash flow information, consists of: (In thousands) 2024 2023 2022 Cash paid for amounts included in the measurement of operating lease liabilities $ 55,490 $ 59,129 $ 48,991 ROU assets obtained in exchange for operating lease liabilities 1 $ 53,113 $ 72,772 $ 146,996 As of As of As of February 1, 2025 February 3, 2024 January 28, 2023 Weighted-average remaining lease term for operating leases (in years) 7.0 7.6 7.3 Weighted-average discount rate for operating leases 4.7 % 4.2 % 4.2 % 1) Includes ROU assets added as part of the Rogan's acquisition described in Note 3 – “Acquisition of Rogan Shoes” The following table reconciles the undiscounted cash flows for each of the next five years and the total of the remaining years to our operating lease liabilities as of February 1, 2025: (In thousands) Operating Leases 2025 $ 68,885 2026 71,858 2027 65,801 2028 61,265 2029 47,877 Thereafter to 2041 124,789 Total undiscounted lease payments 440,475 Less: Imputed interest 72,488 Total operating lease liabilities 367,987 Less: Current portion of operating lease liabilities 53,013 Long-term portion of operating lease liabilities $ 314,974 62 Note 12 – Income Taxes The provision for income taxes consisted of: (In thousands) 2024 2023 2022 Current: Federal $ 18,513 $ 13,290 $ 15,542 State 3,828 2,623 4,919 Puerto Rico 815 1,382 2,050 Total current 23,156 17,295 22,511 Deferred: Federal 453 4,862 11,712 State and Puerto Rico ( 227 ) 21 1,878 Total deferred 226 4,883 13,590 Valuation allowance 338 614 953 Total provision $ 23,720 $ 22,792 $ 37,054 Reconciliation between the statutory federal income tax rate and the effective income tax rate is as follows: Fiscal years 2024 2023 2022 U.S. Federal statutory tax rate 21.0 % 21.0 % 21.0 % State and local income taxes, net of federal tax benefit 3.1 2.7 3.5 Puerto Rico 0.4 0.6 0.6 Excess tax benefit on stock-based compensation ( 0.1 ) ( 0.9 ) ( 0.4 ) Other ( 0.1 ) 0.3 0.5 Effective income tax rate 24.3 % 23.7 % 25.2 % Deferred income taxes are the result of temporary differences in the recognition of revenue and expense for tax and financial reporting purposes. The sources of these differences and the tax effect of each are as follows: (In thousands) February 1, 2025 February 3, 2024 Deferred tax assets: Lease obligations $ 89,495 $ 86,175 Accrued compensation 6,465 4,513 Inventory 438 639 Other 4,970 4,641 Total deferred tax assets 101,368 95,968 Valuation allowance ( 3,588 ) ( 3,250 ) Total deferred tax assets – net of valuation allowance 97,780 92,718 Deferred tax liabilities: Lease ROU assets 84,602 82,350 Property and equipment 23,997 22,769 Other 8,060 4,940 Total deferred tax liabilities 116,659 110,059 Net deferred tax liability $ ( 18,879 ) $ ( 17,341 ) We have tax credit carryforwards associated with our Puerto Rico operations totaling $ 3.6 million at February 1, 2025 and $ 3.3 million at February 3, 2024. These credits expire at various times over the next nine years . We have taken 63 a full valuation allowance against these credits given they are not expected to be utilized due to the current differential between U.S. and Puerto Rico tax rates. As of February 1, 2025 and February 3, 2024 , there were no unrecognized tax liabilities or related accrued penalties or interest. Note 13 – Employee Benefit Plans Retirement Savings Plans Our Board of Directors-approved Shoe Carnival Retirement Savings Plan (the “Domestic Savings Plan”) is open to all employees working in the continental United States who have been employed for at least one year , are at least 21 years of age and who work at least 1,000 hours in a defined year. The primary savings mechanism under the Domestic Savings Plan is a 401(k) plan under which an employee may contribute up to 20 % of annual earnings with a matching Company contribution up to the first 4 % at a rate of 50 %. Our contributions to the participants’ accounts become fully vested when participants reach their third anniversary of employment with us. Our Board of Directors-approved Shoe Carnival Puerto Rico Savings Plan (the “Puerto Rico Savings Plan”) is open to all employees working in Puerto Rico who have been employed for at least one year , are at least 21 years of age and who work at least 1,000 hours in a defined year. This plan is similar to our Domestic Savings Plan, whereby an employee may contribute up to 20 % of his or her annual earnings, with a matching Company contribution up to the first 4 % at a rate of 50 %. Contributions charged to expense associated with these plans were $ 1.1 million, $ 1.0 million and $ 1.0 million in fiscal years 2024, 2023 and 2022, respectively. Deferred Compensation Plan We have a non-qualified deferred compensation plan for certain key employees who, due to Internal Revenue Service guidelines, cannot take full advantage of the employer-sponsored 401(k) plan. Participants in the plan may elect on an annual basis to defer, on a pre-tax basis, portions of their current compensation until retirement, or earlier if so elected. We voluntarily match a portion of the employees’ contributions, which is subject to vesting requirements. The compensation deferred under this plan is credited with earnings or losses measured by the rate of return on investments elected by plan participants. The liabilities of our deferred compensation plan are presented in Deferred Compensation, a long-term liability, or in Accrued and Other Liabilities if scheduled payments are due within the next 12 months. 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 February 1, 2025, 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 SG&A. The following tables present the balances and activity of the Company's deferred compensation plan liabilities and related Marketable Securities: (In thousands) February 1, 2025 February 3, 2024 Deferred compensation plan current liabilities $ 4,259 $ 114 Deferred compensation plan long-term liabilities 10,011 11,639 Total deferred compensation plan liabilities $ 14,270 $ 11,753 Marketable securities - mutual funds that fund deferred compensation $ 14,432 $ 12,247 64 (In thousands) 2024 2023 2022 Deferred compensation liabilities Employer contributions, net $ 305 $ 302 $ 346 Investment earnings (losses) 1,787 1,266 ( 681 ) Marketable Securities Mark-to-market (gains) losses (1) ( 1,735 ) ( 1,246 ) 806 Net deferred compensation expense $ 357 $ 322 $ 471 (1) Included in the mark-to-market gains in Fiscal 2024 and Fiscal 2023, we recognized unrealized gains of $ 1.0 million and $ 1.4 million related to equity securities still held at February 1, 2025 and February 3, 2024, respectively. Included in the mark-to-market losses in Fiscal 2022, we recognized unrealized losses of $ 833,000 related to equity securities still held at January 28, 2023. Note 14 – Stock-Based Compensation On June 20, 2023, our shareholders approved an amendment and restatement of the Shoe Carnival, Inc. 2017 Equity Incentive Plan (as amended and restated, the “2017 Equity Plan”). Pursuant to the amendment and restatement, the number of shares of our common stock available for issuance under the 2017 Equity Plan was increased by an additional 1.8 million shares, the term of the 2017 Equity Plan was extended an additional ten years from the date of shareholder approval, and certain other design changes were made to the plan. Stock-based compensation includes share-settled awards issued pursuant to our 2017 Equity Plan in the form of restricted stock units, performance stock units, and restricted and other stock awards. Additionally, we recognize stock-based compensation expense for the discount on shares sold to employees through our Employee Stock Purchase Plan and for cash-settled stock appreciation rights (SARs). For fiscal years 2024, 2023 and 2022, stock-based compensation expense was comprised of the following: (In thousands) 2024 2023 2022 Share-settled equity awards $ 7,413 $ 4,897 $ 5,542 Stock appreciation rights 221 ( 42 ) ( 141 ) Employee stock purchase plan 63 32 33 Total stock-based compensation expense $ 7,697 $ 4,887 $ 5,434 Income tax benefit at statutory rates $ 1,142 $ 1,189 $ 1,368 Additional income tax benefit on vesting of share-settled awards $ 109 $ 846 $ 562 As of February 1, 2025 , there was approximately $ 9.5 million of unrecognized compensation expense remaining related to our share-settled equity awards. The cost is expected to be recognized over a weighted average period of approximately 1.2 years. Under the 2017 Equity Plan, we may issue stock units, restricted stock, stock appreciation rights, stock options and other stock-based awards to eligible participants. According to the terms of the 2017 Equity Plan, no further awards may be made from any previously approved equity plans. As of February 1, 2025, there were approximately 1.7 million shares of our common stock available for issuance under the 2017 Equity Plan, assuming that all unmeasured but outstanding performance stock units vest at the maximum level of performance. Equity awards issued to employees are classified as either performance-based or service-based. Our outstanding performance-based equity awards were granted such that vesting depended on whether Diluted Net Income per Share met an established threshold, target, or maximum level of performance. Diluted Net Income per Share below the threshold level of performance results in complete forfeiture of the award. None of the performance stock units granted in Fiscal 2023 were earned. Any performance stock units granted in Fiscal 2024 that are earned based on our actual performance vest in full on March 31, 2027. The performance stock units granted in Fiscal 2022 that were earned based on our actual performance vest in full on March 31, 2025. Other vesting scenarios have been used in prior years and for awards used to incentivize specific employee performance. Our service-based restricted stock units and restricted stock awards vest under different scenarios based on the year they were granted, as determined and approved by our Board of Directors. The restricted stock units granted in Fiscal 2024 vest one-half after two years and the remaining half after three years. Restricted stock units granted in Fiscal 65 2023 and Fiscal 2022 vest one-third after two years and two-thirds after three years. For our non-employee Board members and Vice Chairman, all restricted stock awards are issued to vest on January 2 nd of the year following the year of the grant. Awards that contain both performance and service-based conditions require that the performance target be met during the required service period. Other vesting scenarios have been used for employees in prior years and for sign-on awards granted to newly hired employees. Under the 2017 Equity Plan, recipients of restricted stock, restricted stock units and performance stock units are entitled to receive dividend equivalents, based on dividends actually declared and paid, on such awards, and such dividend equivalents are subject to the same restrictions and risk of forfeiture as the restricted stock, restricted stock units and performance stock units. 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 Forfeited ( 176,488 ) 25.33 Outstanding at February 1, 2025 695,259 $ 29.71 The total fair value at grant date of restricted stock units and performance stock units that vested during Fiscal 2024, Fiscal 2023 and Fiscal 2022 was $ 1.4 million, $ 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 Fiscal 2023 and Fiscal 2022 was $ 24.99 and $ 30.32 , respectively. The following table summarizes transactions for our restricted stock and other stock awards: Number of Shares Weighted- Average Grant Date Fair Value Outstanding at February 3, 2024 0 $ 0.00 Granted 12,760 36.84 Vested ( 12,760 ) 36.84 Outstanding at February 1, 2025 0 $ 0.00 The total fair value at grant date of restricted stock and other stock awards that vested during each of Fiscal 2024, Fiscal 2023 and Fiscal 2022 was $ 0.5 million . The weighted-average grant date fair value of restricted stock and other stock awards granted during Fiscal 2023 and Fiscal 2022 was $ 21.90 and $ 24.12 , respectively. Cash-Settled Stock Appreciation Rights Cash-settled SARs were granted to certain non-executive employees. Each SAR entitles holders, upon exercise of their vested shares, to receive cash in an amount equal to the closing price of our stock on the date of exercise less the exercise price, with a maximum amount of gain defined. The SARs granted during the first quarter of Fiscal 2021 vested and became fully exercisable on March 31, 2022 and any unexercised SARs expired on March 31, 2024. The SARs issued in Fiscal 2021 had a defined maximum gain of $ 5.00 over the exercise price of $ 30.94 . 66 The following table summarizes SARs activity: Number of Shares Weighted- Average Exercise Price Weighted- Average Remaining Contractual Term (Years) Outstanding at February 3, 2024 68,200 $ 30.94 Granted 0 0.00 Forfeited ( 1,000 ) 30.94 Exercised ( 67,200 ) 30.94 Outstanding at February 1, 2025 0 $ 0.00 0.0 The fair value of these liability awards were remeasured, using a trinomial lattice model, at each reporting period until the date of settlement. Increases or decreases in stock-based compensation expense were recognized over the vesting period, or immediately for vested awards. Stock Purchase Plan In 1995, our Board of Directors and shareholders approved the Shoe Carnival, Inc. Employee Stock Purchase Plan (the “Stock Purchase Plan”). The Stock Purchase Plan reserves 450,000 shares of our common stock (subject to adjustment for any subsequent stock splits, stock dividends and certain other changes in our common stock) for issuance and sale to any employee who has been employed for more than a year at the beginning of the calendar year, and who is not a 10 % owner of our common stock, at 85 % of the then fair market value up to a maximum of $ 5,000 in any calendar year. Under the Stock Purchase Plan, 6,000 , 9,000 and 9,000 shares of common stock were purchased by plan participants and proceeds to us for the sale of those shares were approximately $ 169,000 , $ 183,000 and $ 187,000 for fiscal years 2024, 2023 and 2022, respectively. At February 1, 2025 , there were approximately 94,000 shares of unissued common stock reserved for future purchase under the Stock Purchase Plan. Note 15 – Share Repurchase Program On December 11, 2024, our Board of Directors authorized a share repurchase program for up to $ 50 million of our outstanding common stock, effective January 1, 2025 (the “2025 Share Repurchase Program”). The purchases may be made in the open market or through privately negotiated transactions from time to time through December 31, 2025 and in accordance with applicable laws, rules and regulations. The 2025 Share Repurchase Program may be amended, suspended or discontinued at any time and does not commit us to repurchase shares of our common stock. We have funded, and intend to continue to fund, the share repurchase program from cash on hand, and any shares acquired will be available for stock-based compensation awards and other corporate purposes. The actual number and value of the shares to be purchased will depend on the performance of our stock price and other market and economic factors. The 2025 Share Repurchase Program replaced a $ 50 million share repurchase program that was authorized in December 2023, became effective January 1, 2024 and expired in accordance with its terms on December 31, 2024 . No shares were repurchased during Fiscal 2024. Shares totaling 230,696 were repurchased during Fiscal 2023 at a cost of $ 5.4 million and shares totaling 1,134,524 were repurchased during Fiscal 2022 at a cost of $ 30.5 million. See Note 10 – “Debt” for a discussion of our Credit Agreement and its restrictions regarding share repurchases. Note 16 – Litigation and Business Risk Litigation Risk From time to time, we are involved in certain legal proceedings in the ordinary course of conducting our business. While the outcome of any legal proceeding is uncertain, we do not currently expect that any such proceedings will have a material adverse effect on our consolidated balance sheets, statements of income, or cash flows. 67 Business Risk Three branded suppliers, Nike, Inc. (“Nike”), Skechers U.S.A., Inc. (“Skechers”) and Crocs, Inc. (“Crocs”), collectively accounted for approximately 48 % of our Net Sales in Fiscal 2024 and 45 % of our Net Sales in Fiscal 2023. Nike accounted for approximately 24 % of our Net Sales in Fiscal 2024, 20 % in Fiscal 2023 and 14 % in Fiscal 2022; Skechers accounted for approximately 13 % of our Net Sales in Fiscal 2024, 14 % in Fiscal 2023 and 13 % in Fiscal 2022; and Crocs accounted for approximately 11 % of our Net Sales in both Fiscal 2024 and Fiscal 2023. A loss of any of our key suppliers in certain product categories could have a material adverse effect on our business. As is common in the industry, we do not have any long-term contracts with suppliers. Note 17 – Subsequent Events Dividends On March 12, 2025, the Board of Directors approved the payment of a cash dividend to our shareholders in the first quarter of Fiscal 2025. The quarterly cash dividend of $ 0.15 per share will be paid on April 21, 2025 to shareholders of record as of the close of business on April 7, 2025 . The declaration and payment of any future dividends are at the discretion of the Board of Directors and will depend on our results of operations, financial condition, business conditions and other factors deemed relevant by our Board of Directors. See Note 10 – “Debt” for a discussion of our Credit Agreement and its restrictions regarding dividend payments and acquisitions. 68 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCO UNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None.