SHOE STATION GROUP INC 10-Q

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Factors That May Affect Future Results This Quarterly Report on Form 10-Q contains forward-looking statements, within the meaning of the Private Securities Litigation Reform Act of 1995, that involve a number of risks and uncertainties. A number of factors could cause our actual results, performance, achievements or industry results to be materially different from any future results, performance or achievements expressed or implied by these forward-looking statements. These factors include, but are not limited to: our ability to achieve expected operating results from, and planned growth of, our Shoe Station banner, including our ability to increase our comparable stores Net Sales from rebannering Shoe Carnival locations into Shoe Station locations and our ability to achieve expected cost savings, synergies and inventory reductions from operating principally under one banner, within expected time frames, or at all; the impact of competition and pricing, including our ability to maintain current promotional intensity levels; changes in the political and economic environments in, the status of trade relations with, and the impact of changes in trade policies and tariffs impacting, China and other countries which are the major manufacturers of footwear; our ability to control costs and meet our labor needs in a rising wage, inflationary, and/or supply chain constrained environment; the effects and duration of economic downturns and unemployment rates; the potential impact of national and international security concerns, including those caused by war and terrorism, on the retail environment; general economic conditions in the areas of the continental United States and Puerto Rico where our stores are located; changes in the overall retail environment and more specifically in the apparel and footwear retail sectors; our ability to successfully utilize the e-commerce sales channel and its impact on traffic and transactions in our physical stores; the success of the open-air shopping centers where many of our stores are located and the impact on our ability to attract customers to our stores; our ability to attract customers to our e-commerce platform and to successfully grow our omnichannel sales; the effectiveness of our inventory management, including our ability to manage key merchandise vendor relationships and direct-to-consumer initiatives; changes in our relationships with other key suppliers; our ability to successfully manage and execute our marketing initiatives and maintain positive brand perception and recognition; our ability to successfully manage our current real estate portfolio and leasing obligations; changes in weather, including patterns impacted by climate change; changes in consumer buying trends and our ability to identify and respond to emerging fashion trends; the impact of disruptions in our distribution or information technology operations including at our distribution center located in Evansville, IN; the impact of natural disasters, public health and political crises, civil unrest, and other catastrophic events on our operations and the operations of our suppliers, as well as on consumer confidence and purchasing in general; the duration and spread of a public health crisis and the mitigating efforts deployed, including the effects of government stimulus on consumer spending; risks associated with the seasonality of the retail industry; the impact of unauthorized disclosure or misuse of personal and confidential information about our customers, vendors and employees, including as a result of a cybersecurity breach; our ability to effectively achieve the operating results from, and maintain the synergies, efficiencies and other benefits gained through, our acquisition strategy, including our recent acquisition of Rogan’s; our ability to successfully execute our business strategy, including the availability of desirable store locations at acceptable lease terms, our ability to identify, consummate or effectively integrate future acquisitions, our ability to implement and adapt to new technology and systems, our ability to open new stores in a timely and profitable manner, including our entry into major new markets, and the availability of sufficient funds to implement our business plans; higher than anticipated costs associated with the closing of underperforming stores; the inability of manufacturers to deliver products in a timely manner; an increase in the cost, or a disruption in the flow, of imported goods; the impact of regulatory changes in the United States, including minimum wage laws and regulations, and the countries where our manufacturers are located; the resolution of litigation or regulatory proceedings in which we are or may become involved; continued volatility and disruption in the capital and credit markets; future stock repurchases under our stock repurchase program and future dividend payments. For a more detailed discussion of risk factors impacting us, see the “Risk Factors” section of our Annual Report on Form 10-K for the fiscal year ended February 1, 2025 and “Risk Factors” in PART II, ITEM 1A of this Quarterly Report on Form 10-Q. General Management’s Discussion and Analysis of Financial Condition and Results of Operations is intended to provide information to assist the reader in better understanding and evaluating our financial condition and results of operations. We encourage you to read this in conjunction with our Condensed Consolidated Financial Statements and the notes thereto included in PART I, ITEM 1 of this Quarterly Report on Form 10-Q, as well as our Annual Report on Form 10-K for the fiscal year ended February 1, 2025 as filed with the SEC. This section of this Quarterly Report on Form 10-Q generally discusses our results for third quarter 2025 and third quarter 2024 and year-over-year comparisons between third quarter 2025 and third quarter 2024, as well as year-to-date results for, and comparisons between, the two periods. Referred to herein, third quarter 2025 is the thirteen weeks ended November 1, 2025 and third quarter 2024 is the thirteen weeks ended November 2, 2024. Also referred to herein, year-to-date 2025 is the thirty-nine weeks ended November 1, 2025 and year-to-date 2024 is the thirty-nine weeks ended November 2, 2024. 17 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. More information about the acquisition of Rogan’s can be found in Note 2 — “Acquisition of Rogan Shoes” to our Notes to Condensed Consolidated Financial Statements contained in PART I, ITEM 1 of this Quarterly Report on Form 10-Q. 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. We believe our distinctive shopping experiences give us various competitive advantages, including increased multiple unit sales; the building of a loyal, repeat customer base; the creation of word-of-mouth advertising; and enhanced sell-through of in-season goods. Critical Accounting Policies We use judgment in reporting our financial results. This judgment involves estimates based in part on our historical experience and incorporates the impact of the current general economic climate and company-specific circumstances. However, because future events and economic conditions are inherently uncertain, our actual results could differ materially from these estimates. Our accounting policies that require more significant judgments include those with respect to Merchandise Inventories, valuation of long-lived assets, valuation of Goodwill and Intangible Assets, leases and income taxes. The accounting policies that require more significant judgment are discussed in our Annual Report on Form 10-K for the fiscal year ended February 1, 2025, and there have been no material changes to those critical accounting policies. Results of Operations Summary Information Number of Stores Store Square Footage Comparable Beginning Permanently End of Net End Stores Net Quarter Ended of Period Opened Acquired Closed Period Change of Period Sales (1) May 3, 2025 430 1 0 2 429 4,000 4,972,000 (8.1 )% August 2, 2025 429 0 0 1 428 (11,000 ) 4,961,000 (7.5 )% November 1, 2025 428 0 0 0 428 0 4,961,000 (2.7 )% Year-to-date 430 1 0 3 428 (7,000 ) 4,961,000 (6.3 )% May 4, 2024 400 2 28 0 430 377,000 4,946,000 (3.4 )% August 3, 2024 430 1 0 1 430 2,000 4,948,000 (2.1 )% November 2, 2024 430 1 0 0 431 28,000 4,976,000 (4.1 )% Year-to-date 400 4 28 1 431 407,000 4,976,000 (3.2 )% (1) 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 18 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 strategy, we view e-commerce sales as an extension of our physical stores. Rogan’s comparable stores Net Sales are included in our comparable stores Net Sales quarterly calculations beginning in the thirteen weeks ended August 2, 2025. Rogan’s comparable stores Net Sales will begin to be included in our comparable stores Net Sales year-to-date and annual calculations beginning in Fiscal 2026. The following table sets forth our results of operations expressed as a percentage of Net Sales for the periods indicated: Thirteen Weeks Ended November 1, 2025 Thirteen Weeks Ended November 2, 2024 Thirty-nine Weeks Ended November 1, 2025 Thirty-nine Weeks Ended November 2, 2024 Net sales 100.0 % 100.0 % 100.0 % 100.0 % Cost of sales (including buying, distribution and occupancy costs) 62.4 64.0 63.0 64.1 Gross profit 37.6 36.0 37.0 35.9 Selling, general and administrative expenses 31.3 28.0 30.7 27.7 Operating income 6.3 8.0 6.3 8.2 Interest income, net (0.3 ) (0.3 ) (0.3 ) (0.2 ) Income tax expense 1.7 2.0 1.7 2.1 Net income 4.9 % 6.3 % 4.9 % 6.3 % Executive Summary for Third Quarter Ended November 1, 2025 Our third quarter 2025 Net Income was $14.6 million, or $0.53 per diluted share, and was lower than the $19.2 million, or $0.70 per diluted share, reported in third quarter 2024. Our third quarter 2025 results included $0.22 per diluted share of rebanner strategy investments. Our Net Sales declined 3.2% in third quarter 2025 compared to third quarter 2024, primarily due to a 5.2% decline in Net Sales at our Shoe Carnival banner as we maintained pricing discipline despite pressure on lower-income consumers. In contrast, our Shoe Station banner achieved Net Sales growth of 5.3% in third quarter 2025 compared to third quarter 2024, driven by our rebanner strategy including omnichannel growth. Our Shoe Station banner’s Net Sales growth in third quarter 2025 compared to third quarter 2024 outperformed Shoe Carnival’s by 10.5 percentage points, highlighting the strength of the One Banner Strategy as more fully described below. Our comparable stores Net Sales declined 2.7% and included comparable stores Net Sales growth in Back-to-School August. Our Shoe Station banner grew comparable stores Net Sales mid-single digits in third quarter 2025, while comparable stores Net Sales at our Shoe Carnival banner declined mid-single digits and was the primary driver of our overall comparable stores Net Sales decline. We achieved a Gross Profit margin of 37.6%, up 160 basis points from third quarter 2024. The increase included a 190 basis point increase in our merchandise margin, driven by disciplined pricing across all banners, a favorable mix shift toward Shoe Station’s higher income customers and strategic inventory investments. This more than offset 30 basis points of deleverage in buying, distribution and occupancy costs. As a result, our Gross Profit increased to $111.8 million in third quarter 2025 compared to $110.4 million in third quarter 2024. The Fiscal 2024 year-end marked the 20th consecutive year where we ended a fiscal year with no debt, fully funding our operations, acquisitions and investments from operating cash flow. Through third quarter 2025, we also funded our operations, including our rebanner investments and inventory positions, without incurring any debt and grew our Cash, Cash Equivalents and Marketable Securities by $16.6 million, or 18.2%, compared to the end of third quarter 2024. At the end of third quarter 2025, we had $107.7 million of Cash, Cash Equivalents and Marketable Securities and $99.0 million of available borrowings under our existing credit facility to fund our growth objectives. Our Merchandise Inventories at the end of third quarter 2025 were $435.3 million, up approximately 7% compared to the end of third quarter 2024. We increased our inventory positions this year, taking advantage of opportunistic buys for seasonal and in-demand merchandise. This improved availability of key merchandise drove margin expansion in the second and third quarters of 2025 and positive comparable stores Net Sales during August 2025. We believe our inventory on hand positions us well to navigate any potential supply chain disruptions. 19 One Banner Strategy Earlier this year, we announced our plan to grow our Shoe Station banner from a market leader in the Southeast into a national footwear and accessories leader. As part of this plan, we rebannered 10 Shoe Carnival stores to Shoe Station stores during a test phase in Fiscal 2024. As a result of divergent Net Sales trends between our Shoe Carnival and Shoe Station banners that we have experienced over time, including in third quarter 2025, we have rebannered 100 stores in year-to-date 2025, of which 56 were rebannered in third quarter 2025. We now have 144 Shoe Station stores, inclusive of an additional store that rebannered after third quarter 2025 ended, which represents approximately 34% of our current store fleet, up from 10% of stores at the beginning of Fiscal 2025. Stores rebannered during third quarter 2025 included Rogan’s store locations. Our Rogan's stores are now fully integrated into the Shoe Station banner while continuing to broadly utilize the Rogan’s trade name. Beginning in fourth quarter 2025, we will report Rogan's store results as part of the Shoe Station banner. No additional stores are expected to rebanner in Fiscal 2025. As a result of the rebannering completed in Fiscal 2025, we expect a reduction in our Fiscal 2025 Operating Income of approximately $25 million for store closing costs, amortization of new store construction costs, a four-to-six-week store closure period through each store's grand opening, customer acquisition costs and other costs. During third quarter 2025, we estimate these rebannering costs reduced our Operating Income by approximately $8.1 million, or $0.22 per diluted share, and in year-to-date 2025, we estimate rebannering costs reduced our Operating Income by approximately $21.1 million, or $0.58 per diluted share. Third quarter 2025 included an approximate 0.5% reduction in Net Sales due to lost sales and an approximate 2.5% increase in our Selling, General and Administrative Expenses (“SG&A”) as a percent of Net Sales. We continue to estimate the payback of this investment over a two-to-three year period after a store’s grand opening. Capital expenditures supporting the rebanner initiative totaled approximately $31 million in year-to-date 2025. We expect to have 215 Shoe Station stores by Back-to-School 2026, or approximately 51% of the current store base. We revised our rebanner timeline and now expect that well over 90% of our fleet will operate as Shoe Station before the end of Fiscal 2028, compared to the previous expectation that 80% of the fleet would be rebannered by March 2027. Remaining store locations will be evaluated for rebannering, outlet repositioning or closure. To achieve this 51% threshold by Back-to-School in Fiscal 2026, we expect capital expenditures in a range of $25 million to $35 million and rebannering costs decreasing our Operating Income in a range of $25 million to $30 million. Though impacting near-term profitability, we expect these investments will position us for more sustainable performance in the future. As we move toward well over 90% of the store fleet operating as a Shoe Station store, we expect to realize cost savings from reduced dual-brand complexity across merchandising, marketing, systems, supply chain and back office, as well as a reduction in our inventory investment, as Shoe Station’s merchandising model requires less inventory per store to deliver a superior customer experience. We expect full realization of these benefits by the end of Fiscal 2027, with some benefit expected in the second half of Fiscal 2026 after approximately 51% of our current fleet is expected to operate as a Shoe Station store. On November 13, 2025, we announced that our Board of Directors unanimously approved changing our corporate name to Shoe Station Group, Inc., subject to shareholder approval at our Annual Meeting of Shareholders in June 2026. Results of Operations for Third Quarter Ended November 1, 2025 Compared to Third Quarter Ended November 2, 2024 Net Sales Net Sales were $297.2 million during third quarter 2025, a decrease of $9.7 million, or 3.2%, compared to third quarter 2024. The decrease was primarily due to a 5.2% Net Sales decline at our Shoe Carnival banner due to a decline in traffic, as we maintained pricing discipline despite pressure on lower-income consumers, and lost sales as impacted by our rebanner strategy. This decrease was partially offset by continued growth from our Shoe Station banner, which contributed a 5.3% increase in Net Sales compared to third quarter 2024. Our 2.7% comparable stores Net Sales decline included an approximate 11% decrease in units sold, partially offset by pricing increases. Our Shoe Carnival banner comparable stores Net Sales declined mid-single digits, and our Shoe Station banner comparable stores Net Sales increased mid-single digits. E-commerce sales were approximately 10% of merchandise sales in third quarter 2025, compared to 11% in third quarter 2024. Gross Profit Gross Profit was $111.8 million during third quarter 2025, an increase of $1.5 million compared to third quarter 2024. Gross profit margin in third quarter 2025 was 37.6%, an increase of 160 basis points, compared to 36.0% in third quarter 2024. The increase in gross profit margin was driven by a 190 basis point increase in merchandise margin due to disciplined pricing, favorable mix shift toward higher income Shoe Station customers and strategic inventory investments. This increase was partially offset by the deleveraging effect of buying, distribution and occupancy costs due to lower Net Sales in third quarter 2025 compared to third quarter 2024. 20 Selling, General and Administrative Expenses SG&A increased $7.4 million in third quarter 2025 to $93.2 million compared to $85.9 million in third quarter 2024. The increase was due primarily to expenses associated with our rebanner strategy. As a percent of Net Sales, SG&A were 31.3% in third quarter 2025 compared to 28.0% in third quarter 2024, with the increase being due primarily to the rebanner costs incurred in third quarter 2025 and lower Net Sales. Income Taxes The effective income tax rate for third quarter 2025 was 25.5% compared to 24.7% for third quarter 2024. Our provision for income taxes is based on the current estimate of our annual effective tax rate and is adjusted as necessary for quarterly events. The higher effective tax rate in third quarter 2025 compared to third quarter 2024 was primarily due to impacts of the Rogan’s acquisition in Fiscal 2024. For the full 2025 fiscal year, we expect our tax rate to be approximately 26% compared to the 24.3% effective tax rate recognized during the full 2024 fiscal year. Results of Operations Year-to-Date Through November 1, 2025 Compared to Year-to-Date Through November 2, 2024 Net Sales Net Sales were $881.3 million during year-to-date 2025, a decrease of $58.7 million, or 6.2%, compared to year-to-date 2024. The decrease was primarily due to an 8.5% Net Sales decline at our Shoe Carnival banner due to a decline in traffic and lost sales as impacted by our rebanner strategy. This decrease was partially offset by continued growth from our Shoe Station banner, which contributed a 3.8% increase in Net Sales compared to year-to-date 2024. Our 6.3% comparable stores Net Sales decline included an approximate 13% decrease in units sold, partially offset by pricing increases. Our Shoe Carnival banner comparable stores Net Sales declined high-single digits, and our Shoe Station banner comparable stores Net Sales increased low-single digits. E-commerce sales were approximately 9% of merchandise sales in year-to-date 2025, compared to 10% in year-to-date 2024. Gross Profit Gross Profit was $326.4 million during year-to-date 2025, a decrease of $10.7 million compared to year-to-date 2024. Gross profit margin in year-to-date 2025 was 37.0% compared to 35.9% in year-to-date 2024. The increase in gross profit margin was driven by a 220 basis point increase in merchandise margin due to disciplined pricing, favorable mix shift toward higher income Shoe Station customers and strategic inventory investments. This increase was partially offset by 110 basis points from buying, distribution and occupancy costs, primarily due to deleveraging on lower Net Sales in year-to-date 2025 compared to year-to-date 2024. Selling, General and Administrative Expenses SG&A increased $10.6 million in year-to-date 2025 to $270.6 million compared to $260.0 million in year-to-date 2024. The increase was due primarily to expenses associated with our rebanner strategy, partially offset by decreases in selling expenses impacting our other stores in year-to-date 2025 compared to year-to-date 2024. As a percent of Net Sales, SG&A were 30.7% in year-to-date 2025 compared to 27.7% in year-to-date 2024, with the increase being due primarily to the rebanner costs incurred in year-to-date 2025 and lower Net Sales. Interest Income and Interest Expense Changes in our interest income and expense increased our income before taxes by $542,000 in year-to-date 2025 compared to year-to-date 2024. This increase was primarily due to higher interest earned on invested cash balances. Income Taxes The effective income tax rate for year-to-date 2025 was 26.2% compared to 25.5% for year-to-date 2024. The higher effective tax rate in year-to-date 2025 compared to year-to-date 2024 was due to discrete adjustments recorded in both Fiscal 2025 and Fiscal 2024 related to share-settled equity awards. Liquidity and Capital Resources Our primary sources of liquidity are $107.7 million of Cash, Cash Equivalents and Marketable Securities on hand at the end of third quarter 2025, 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 21 repurchases under our share repurchase program and the financing of capital projects, including investments in new systems. As part of our growth strategy, we have also pursued strategic acquisitions of other footwear retailers. Cash Flow - Operating Activities Net cash generated from operating activities was $37.3 million in year-to-date 2025 compared to $58.1 million in year-to-date 2024. The decrease in operating cash flow was primarily driven by increased inventory purchases and reduction in Net Income to support our rebanner strategy. Working capital increased on a year-over-year basis and totaled $431.7 million at November 1, 2025 compared to $391.3 million at November 2, 2024. The increase was primarily attributable to higher Merchandise Inventories and a higher cash balance, partially offset by higher Accounts Payable. Our current ratio was 4.1 as of November 1, 2025 compared to 3.9 as of November 2, 2024. On July 4, 2025, President Trump signed into law the One Big Beautiful Bill Act (the "OBBB"). The OBBB makes key elements of the Tax Cuts and Jobs Act permanent, including 100% bonus depreciation and domestic research cost expensing. We estimate that the OBBB will decrease our cash taxes to be paid for Fiscal 2025 by approximately 30%. We expect no material change in our effective income tax rate for Fiscal 2025 as a result of the OBBB. Cash Flow – Investing Activities Our cash outflows for investing activities are normally for capital expenditures. During year-to-date 2025 and 2024, we expended $38.3 million and $24.8 million, respectively, for the purchase of Property and Equipment, primarily related to store rebanners and remodels and opening new Shoe Station stores. Our Rogan’s acquisition in first quarter 2024 resulted in the payment of initial cash consideration of $44.6 million, net of cash acquired. Additional information regarding the Rogan’s acquisition can be found in Note 2 — “Acquisition of Rogan Shoes” to our Notes to Condensed Consolidated Financial Statements contained in PART I, ITEM 1 of this Quarterly Report on Form 10-Q. 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 $13.3 million at November 1, 2025, compared to $14.4 million at February 1, 2025 and $13.9 million at November 2, 2024. Additional information can be found in Note 5 — “Fair Value Measurements” to our Notes to Condensed Consolidated Financial Statements contained in PART I, ITEM 1 of this Quarterly Report on Form 10-Q. Cash Flow – Financing Activities Our cash outflows for financing activities are typically for cash dividend payments, share repurchases or payments on our Credit Agreement. Shares of our common stock can be either acquired as part of a publicly announced repurchase program or withheld by us in connection with employee payroll tax withholding upon the vesting of stock-based compensation awards that are settled in shares. Our cash inflows from financing activities generally reflect stock issuances to employees under our Employee Stock Purchase Plan and borrowings under our Credit Agreement. During year-to-date 2025, net cash used in financing activities was $14.7 million compared to $11.6 million during year-to-date 2024. The increase in net cash used in financing activities was primarily due to increased dividend payments and the increase in shares surrendered by employees to pay taxes on stock-based compensation awards. Credit Agreement On March 23, 2022, we entered into a $100 million Amended and Restated Credit Agreement (the “Credit Agreement”). The Credit Agreement is collateralized by our inventory, expires on March 23, 2027, and uses a Secured Overnight Financing Rate (“SOFR”) as quoted by The Federal Reserve Bank of New York as the basis for financing charges. Material covenants associated with the Credit Agreement require that we maintain a minimum net worth of $250 million and a consolidated interest coverage ratio of not less than 3.0 to 1.0. We were in compliance with these covenants as of November 1, 2025. The Credit Agreement contains certain restrictions. However, as long as our consolidated EBITDA is positive and there are either no or low borrowings outstanding, we expect these restrictions would have no impact on our ability to pay cash dividends, execute share repurchases or facilitate acquisitions from cash on hand. The Credit Agreement stipulates that cash dividends and share repurchases of $15 million or less per fiscal year can be made without restriction as long as there is no default or event of default before and immediately after such distributions. We are also permitted to make acquisitions and pay cash dividends or repurchase shares in excess of $15 million in a fiscal year provided that (a) no default or event of default exists before and immediately after the transaction and (b) on a proforma basis, the ratio of (i) the sum of (A) our consolidated funded indebtedness plus (B) three times our consolidated rental expense to (ii) 22 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. During year-to-date 2025, we did not borrow or repay funds under the Credit Agreement. Letters of credit outstanding were $1.0 million at November 1, 2025 and our borrowing capacity was $99.0 million. The terms “net worth”, “consolidated interest coverage ratio”, “consolidated funded indebtedness”, “consolidated rental expense”, “consolidated EBITDA”, “base rate” and “Adjusted Term SOFR” are defined in the Credit Agreement. See Note 10 – “Debt” in our Notes to Consolidated Financial Statements contained in PART II, ITEM 8 of our Annual Report on Form 10-K for the fiscal year ended February 1, 2025 for a further discussion of our Credit Agreement and its covenants. Capital Expenditures Capital expenditures for Fiscal 2025, inclusive of the approximate $31 million of rebanner capital expenditures in year-to-date 2025, are expected to be between $45 million and $55 million. 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. Store Portfolio We currently have 428 stores and we believe our current store footprint provides for growth in new markets within the United States as well as fill-in opportunities within existing markets. In Fiscal 2025, we rebannered 24 Shoe Carnival stores in the first quarter and 20 Shoe Carnival stores in the second quarter. In third quarter 2025, we rebannered 28 Shoe Carnival stores and all 28 Rogan’s locations. One store was rebannered after the end of third quarter 2025, and we expect no additional rebanners in Fiscal 2025. We also opened new Shoe Station stores and closed Shoe Carnival stores in the thirty-nine weeks ended November 1, 2025 and November 2, 2024 as follows: Thirty-nine Weeks Ended November 1, 2025 Beginning Permanently End of Banner of Period Opened Acquired Closed Rebannered Period Shoe Carnival 360 0 0 (3 ) (72 ) 285 Shoe Station 42 1 0 0 100 143 Rogan's 28 0 0 0 (28 ) 0 Thirty-nine Weeks Ended November 2, 2024 Beginning Permanently End of Banner of Period Opened Acquired Closed Rebannered Period Shoe Carnival 372 0 0 (1 ) (10 ) 361 Shoe Station 28 4 0 0 10 42 Rogan's 0 0 28 0 0 28 We expect limited store openings and closures in the near term as we execute our One Banner Strategy and increase our scale through acquisitions. We expect to have 215 Shoe Station stores by Back-to-School 2026, or approximately 51% of our current store base. We have revised our rebanner timeline and now expect that well over 90% of our fleet will operate as Shoe Station before the end of Fiscal 2028, compared to our previous expectation that 80% of our fleet would be rebannered by March 2027. The remaining locations will be evaluated for rebannering, outlet repositioning or closure. To achieve this 51% threshold by Back-to-School 2026, we expect capital expenditures in Fiscal 2026 to be similar to Fiscal 2025 in a range of $25 to $35 million. 23 Dividends and Share Repurchases On September 23, 2025, the Board of Directors approved the payment of a third quarter cash dividend paid to our shareholders. The quarterly cash dividend of $0.15 per share was paid on October 20, 2025 to shareholders of record as of the close of business on October 6, 2025. In third quarter 2024, the dividend paid was $0.135 per share. During year-to-date 2025 and 2024, we returned $12.6 million and $11.0 million, respectively, to our shareholders through our quarterly cash dividends. The declaration and payment of any future dividends are at the discretion of the Board of Directors and will depend on our results of operations, financial condition, business conditions and other factors deemed relevant by our Board of Directors. On December 11, 2024, our Board of Directors authorized a share repurchase program for up to $50.0 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, share repurchases from cash on hand, and any shares acquired will be available for stock-based compensation awards and other corporate purposes. The actual number and value of the shares to be purchased will depend on the performance of our stock price and other market and economic factors. No share repurchases have been made to date in Fiscal 2025 and no share repurchases were made during year-to-date 2024. Our Credit Agreement permits the payment of dividends and repurchase of shares, subject to certain covenants and restrictions. See “Credit Agreement” above and Note 10 — “Debt” to our Notes to Consolidated Financial Statements contained in PART II, ITEM 8 of our Annual Report on Form 10-K for the fiscal year ended February 1, 2025 for a further discussion of the Credit Agreement, its covenants and restrictions regarding dividends and share repurchases and other matters. The Credit Agreement’s covenants and restrictions did not change during year-to-date 2025. 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. Recent Accounting Pronouncements See Note 4 — “Recently Issued Accounting Pronouncements and Tax Legislation” to our Notes to Condensed Consolidated Financial Statements contained in PART I, ITEM 1 of this Quarterly Report on Form 10-Q for a description of recent accounting pronouncements that may have an impact on our condensed consolidated financial statements when adopted. ITEM 3. QUANTITATIVE AND QUALITATI VE DISCLOSURES ABOUT MARKET RISK We are exposed to market risk in that the interest payable under the Credit Agreement is based on variable interest rates and therefore is affected by changes in market rates. We do not use interest rate derivative instruments to manage exposure to changes in market interest rates. We had no borrowings outstanding during year-to-date 2025.