7500 East Columbia Street • Evansville, Indiana 47715
812.867.6471 • shoecarnival.com
2016 ANNUAL REPORT
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B U Y
O N L I N E . . .
P I C K U P
I N S T O R E !
CONTINUED
MULTI-CHANNEL
EXPANSION
In 2016, we continued our efforts to provide
customers with more convenient ways to shop through
further expansion of multi-channel initiatives.
Buy Online, Pick Up In Store and Buy Online, Ship To
Store allow customers the fl exibility to pick up shoes
in-store that were ordered online. These initiatives
also generate additional in-store visits.
T E X T
P E R K S
t o
7 2 7 3 7 5
( S C P E R K )
SHOE PERKS
Our Shoe Perks loyalty program grew by over 4 million members
in 2016. Digital marketing programs were also established to
acquire new members, retain existing members and reactivate
members who haven’t shopped with us in two years.
Additionally, SMS messaging makes it easier
for customers to enroll in Shoe Perks,
and enables us to deliver marketing
messages to their mobile devices.
R E W A R D S C L U B
SHOE CARNIVAL’S
S H O P W I T H I N A S H O P C O N C E P T
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inner back cover
OFFICERS AND CORPORATE MANAGEMENT
President and Chief Executive Offi cer
CHRISTOPHER A. ASKINS
J. WAYNE WEAVER**
Chairman
CLIFTON E. SIFFORD**
W. KERRY JACKSON**
Senior Executive Vice President
Chief Operating and Financial Offi cer
and Treasurer
TIMOTHY T. BAKER**
Executive Vice President
Store Operations
CARL N. SCIBETTA**
Executive Vice President
Chief Merchandising Offi cer
TODD A. BEURMAN
Senior Vice President
Marketing
TERRY L. CLEMENTS
Senior Vice President
Chief Information Offi cer
JEFFREY N. FINK
Senior Vice President
Real Estate
SEAN M. GEORGES
Senior Vice President
Human Resources, In-House Counsel
and Assistant Secretary
DAVID A. KAPP
Senior Vice President
Planning/Allocation
Vice President
Loss Prevention
MARC A. CHILTON
Vice President
Store Operations
JOHN W. DODSON
Vice President
Store Operations
TANYA E. GORDON
Vice President
Divisional Merchandising Manager
Women's and Children's Footwear
and Accessories
DAVID M. GROFF
Vice President
Administration and Business
Development
BRADLEY A. GUBSER
Vice President
Store Planning and Development
TARA J. KRULL
Vice President
Marketing
ROGER D. ORTH
Vice President
Controller and Secretary
BOARD OF DIRECTORS
J. WAYNE WEAVER
Chairman of the Board
Shoe Carnival, Inc.
CLIFTON E. SIFFORD
President and Chief Executive Offi cer
Shoe Carnival, Inc.
JAMES A. ASCHLEMAN 1,2*,3
Retired
Indianapolis, Indiana
JEFFREY C. GERSTEL 1,2
Chief Marketing Offi cer
B&H Foto and Electronics Corp.
New York, NY
ANDREA R. GUTHRIE 2,3*
Co-founder, Gyde & Seek
Park City, UT
KENT A. KLEEBERGER 1*,2,3,4
Consultant
Sanibel Island, Florida
CORPORATE INFORMATION
CORPORATE OFFICE
7500 East Columbia Street
Evansville, Indiana
CORPORATE COUNSEL
Faegre Baker Daniels LLP
Indianapolis, Indiana
INDEPENDENT AUDITORS
Deloitte & Touche LLP
Indianapolis, Indiana
CLINT R. PIERCE
Vice President
Divisional Merchandise Manager,
Athletic Footwear
CHARLIE J. TOROK, JR.
Vice President, Distribution
KENT A. ZIMMERMAN
Vice President, Digital
ANTHONY J. CAROSELLO
Assistant Vice President
Real Estate
SARAH B. DAUER
Assistant Vice President
In-House Counsel
JAMES W. JOHNSTON
Assistant Vice President
Infrastructure and Support
CHERYL L. LINDADUER
Assistant Vice President
Application Systems
TUCKER R. ROBINSON
Assistant Vice President
Buyer Men’s Athletics
THOMAS G. VERNARSKY
Assistant Vice President
Buyer Men's Non-Athletics
(**) Executive Offi cers
JOSEPH W. WOOD 1,2,3
Consultant
St. Louis, Missouri
(1) Audit Committee
(2) Compensation Committee
(3) Nominating and Corporate
Governance Committee
(4) Lead Director
(*) Committee Chairman
TRANSFER AGENT
Computershare Trust
Company NA
Chicago, Illinois
(312) 360-5359
LETTER FROM OUR
PRESIDENT AND CEO
YEAR IN REVIEW
opportunity for growth, in both large and smaller
Fiscal 2016 represented a signifi cant corporate
markets, as we work together to achieve our next $1
milestone for Shoe Carnival as our net sales
billion in sales.
exceeded $1 billion. We are very pleased with this
accomplishment, which refl ects the hard work and
From a merchandise perspective, our athletic footwear
dedication of our over 5,100 store and corporate
category was a key driver of sales throughout fi scal
associates.
2016. Our merchants did an excellent job of offering a
broad assortment of athletic brands that appealed to
Over the past several years, we have benefi ted from
our customers on a consistent basis. Moreover, in the
the execution of key strategic initiatives, including a
third quarter of fi scal 2016, we continued to strengthen
disciplined store growth strategy, strong merchandising
our management team by adding athletic footwear
efforts, enhanced multi-channel sales capabilities,
industry veteran, Clint Pierce as Vice President,
expanded digital and national marketing presence and
Divisional Merchandise Manager for Athletic Footwear.
an ongoing focus on our customer loyalty program.
We are very pleased to have the opportunity to leverage
These key strategic initiatives have helped us deliver
Clint’s athletic footwear experience as we strive to
consistent growth as we have fundamentally changed
maintain a strong position as the destination of choice
the way we communicate and interact with our
for athletic footwear for the entire family.
customers to best serve their footwear needs.
During fi scal 2016, we also remained committed to
Our team’s relentless focus on effi ciently managing our
enhancing shareholder value by utilizing approximately
business in both favorable and challenging operating
$48 million in cash to repurchase shares of our
environments has served us well. As of our fi scal year-
common stock under our stock buyback programs and
end on January 28, 2017, we operated stores in 35
pay out cash dividends in each of our four quarters. We
states and Puerto Rico. We believe we have signifi cant
are fortunate to have the fi nancial fl exibility, through
2016 Annual Report
the strength of our balance sheet and consistent cash
send offers and Shoe Perks-related information directly
flow generation, to support our growth and return
to our customer’s mobile devices.
value to shareholders in fiscal 2017 and beyond.
AN ENDLESS AISLE EXPERIENCE
CUSTOMER CONNECTION
As consumer shopping habits continue to evolve, we
During fiscal 2016, we continued to make progress
remain committed to the consistent evolution of our
on our multi-channel sales initiatives. An important
multi-channel efforts. Our team has done an excellent
component of this strategy is our Shoe Perks loyalty
job adapting to rapidly changing consumer behavior
program. Shoe Perks members are our most loyal
and we believe that our ongoing multi-channel
shoppers and accounted for approximately 66% of our
initiatives represent the cornerstone for our long-term
annual net sales in fiscal 2016. Shoe Perks members
growth.
are not only loyal, they love footwear and they show
it by spending on average 19% more per transaction
It has been a priority for us to enhance our digital
than non-members. Even with the success of our Shoe
store experience over the past few years. As we have
Perks loyalty program, we remain committed to finding
discussed in recent quarters, we completed the launch
ways to actively engage our most loyal Shoe Carnival
of our buy online, pick up in-store and buy online, ship-
customers.
to-store initiative in the third quarter of fiscal 2016. We
are pleased with the early results of this program as
Digital media will become more prominent for us in
our customers embraced this opportunity in greater
fiscal 2017 as we expand our Customer Relationship
numbers than anticipated.
Management (CRM) to gain a better understanding
of our customers and their buying habits. Our team
We look forward to our next digital sales enhancement
is focused on leveraging the wealth of customer data
strategies in 2017. This includes the launch of our
available to us through targeted communications
enhanced Shoe Carnival mobile application in the
that appeal to Shoe Perks members. We believe
first half of fiscal 2017 and a new and improved
we can increase shopper frequency, average sales
digital storefront that will provide online shoppers with
per transaction and overall financial performance
the same surprise and delight they experience when
by utilizing customer information in the areas of
shopping at a brick-and-mortar Shoe Carnival store.
marketing, merchandising, E-commerce and even real
During fiscal 2017 we will also be focused on the
estate.
development of a vendor drop-ship program. This
program will allow us to distribute product directly
We are excited about taking our customer engagement
from our vendors, which will provide the benefit of an
activities to the next level. While we remain committed
expanded assortment of key brands without the risk of
to the acquisition of new Shoe Perks members, we
inventory ownership.
believe identifying our high-value customers, how they
shop and how best to retain them will deliver increased
STORE GROWTH
sales and better margins on a long-term basis. In
From a real estate perspective, we ended the year with
addition, we are offering our customers the option of
415 stores in the U.S. and Puerto Rico. We opened 19
enrolling in Shoe Perks through SMS. This allows us to
stores, closed nine stores and relocated three stores
STOCK PRICE PERFORMANCE GRAPH
The performance graphs set forth below compare the cumulative total shareholder return on the Company’s Common
Stock with the Nasdaq Stock Market Index and the Nasdaq Index for Retail Trade Stocks for the period from January
27, 2012 through January 27, 2017. The graphs assume that $100 was invested in our common stock and $100 was
invested in each of the other two indices on January 27, 2012, and assumes reinvestment of dividends. The stock
performance shown in the graphs represents past performance and should not be considered an indication of future
performance. The performance graphs shall not be deemed “soliciting material” or to be “fi led” with the Securities
and Exchange Commission, nor shall such information be incorporated by reference into any future fi ling under the
Securities Act of 1933 or the Securities Exchange Act of 1934, except to the extent we specifi cally incorporate it by
reference into such fi ling.
NASDAQ OMX Global Indexes
Comparison of Cumulative Total Return Among the Company,
Nasdaq Stock Market Index and Nasdaq Index for Retail Trade Stocks
1/27/2012
2/1/2013
1/31/2014
1/30/2015
1/29/2016
1/27/2017
The Nasdaq Stock Market (U.S.)
$
$
$
$
$
$
100
100
100
118
124
126
143
150
145
161
185
137
157
195
137
193
215
149
Nasdaq Retail Trade Stocks
Shoe Carnival, Inc.
S
R
A
L
L
O
D
250
200
150
100
50
0
1/27/2012
2/1/2013
1/31/2014
1/30/2015
1/29/2016
1/27/2017
The Nasdaq Stock Market (U.S.)
Nasdaq Retail Trade Stocks
Shoe Carnival, Inc.
during fi scal 2016. Our store growth plan continued to
key initiatives implemented over the past three years
focus on strong trade areas within our current footprint.
which have helped us achieve positive operating and
It was just a year ago that we discussed our opportunity
fi nancial results. These initiatives have created a strong
to open stores in key small markets across the U.S.
foundation for the future and have positioned us for
Since then, we have opened nine stores in smaller
the opportunities that lie ahead as we continue to
markets which are running well ahead of our fi rst-year
return value to shareholders in 2017 and beyond.
expectations in terms of both sales and margin. We will
We appreciate your continued support of Shoe
continue to roll out these scalable store prototypes that
Carnival.
Sincerely,
Clifton E. Sifford
President and Chief Executive Offi cer
refl ect the diverse population and density of the market
being served. Our anticipated store growth strategy
for fi scal 2017 and fi scal 2018 refl ects approximately
two-thirds of the new stores opening in smaller market
locations.
In fi scal 2017, we plan to open approximately 20 new
stores. It's important to note that the majority of these
new store openings will be fi lling in existing market
areas in which we currently operate. The remaining
stores will serve smaller new markets where we expect
to leverage Shoe Carnival’s strong name brand
recognition. We believe that a continued, disciplined
approach to new market openings is very important
as we leverage our multi-channel sales strategy and
pursue opportunities for brick-and-mortar store growth
across large, mid and smaller markets.
Over the past several years, we have analyzed our
entire portfolio of stores, with a concentration on
underperforming stores to meet our long-term goal
of increasing shareholder value through increasing
operating income. Our objective is to identify
underperforming stores and either renegotiate lease
terms, relocate or close the store.
We believe Shoe Carnival is well positioned for future
growth. Our team has worked diligently over the
past several years to get to where it is today with
over $1 billion in net sales. We continue to focus on
2016 Annual Report
2016 Annual Report
3
2
4
4
4
4
4
2
3
4
7
48
3
17
30
29
20
5
12
20
8
12
17
12
21
11
14
The map identifies the number of our
stores in each state and Puerto Rico
as of January 28, 2017.
3
14
3
1
7
19
11
28
9
INDEX TO EXHIBITS - Continued
Incorporated by Reference To
Form
Exhibit
Filing
Date
Filed
Herewith
Exhibit
No.
32.1
Description
Certification of Chief Executive Officer Pursuant to 18 U.S.C.
Section 1350, as Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
32.2
Certification of Chief Financial Officer Pursuant to 18 U.S.C.
Section 1350, as Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
101
The following materials from Shoe Carnival, Inc.’s Annual
Report on Form 10-K for the year ended January 28, 2017,
formatted
in XBRL
(Extensible Business Reporting
Language): (1) Consolidated Balance Sheets, (2) Consolidated
Statements of
Income,
(3) Consolidated Statement of
Shareholders’ Equity, (4) Consolidated Statements of Cash
Flows, and (5) Notes to Consolidated Financial Statements.
X
X
X
X
The indicated exhibit is a management contract, compensatory plan or arrangement required to be filed
*
+
by Item 601 of Regulation S-K.
SEC File No. 000-21360.
56
56
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
(Mark One)
[X]
Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the fiscal year ended: January 28, 2017
or
[ ]
Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the transition period from ____________________ to ____________________
Commission File Number:
0-21360
Shoe Carnival, Inc.
(Exact name of registrant as specified in its charter)
Indiana
(State or other jurisdiction of
incorporation or organization)
7500 East Columbia Street
Evansville, IN
(Address of principal executive offices)
35-1736614
(IRS Employer Identification Number)
47715
(Zip code)
(812) 867-6471
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Common Stock, $.01 par value
(Title of Each Class)
The NASDAQ Stock Market LLC
(Name of Each Exchange on Which Registered)
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
[ ] Yes
[ X]No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act.
[ ] Yes
[X]No
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
[X] Yes
[ ]No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required
to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period
that the registrant was required to submit and post such files).
[X ] Yes
[ ]No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [X]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See
definition of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
[ ]Large accelerated filer
[X]Accelerated filer
[ ]Non-accelerated filer
[ ]Smaller reporting company
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
[ ]Yes
[X]No
The aggregate market value of the voting stock held by non-affiliates of the registrant based on the last sale price for such stock at July 30, 2016 (the last
business day of the registrant’s most recently completed second fiscal quarter) was approximately $346,446,502 (assuming solely for the purposes of this
calculation that all Directors and executive officers of the registrant are “affiliates”).
Number of Shares of Common Stock, $.01 par value, outstanding at March 24, 2017 was 17,692,686.
Certain information contained in the Definitive Proxy Statement for the Annual Meeting of Shareholders of the Registrant to be held on June 13, 2017 is
incorporated by reference into PART III hereof.
DOCUMENTS INCORPORATED BY REFERENCE
TABLE OF CONTENTS
Business
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
Mine Safety Disclosures
Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities
Selected Financial Data
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Quantitative and Qualitative Disclosures About Market Risk
Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Controls and Procedures
Other Information
Directors, Executive Officers and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
Certain Relationships and Related Transactions, and Director Independence
Principal Accounting Fees and Services
PART I
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
PART II
Item 5.
Item 6.
Item 7.
Item 7A.
Item 8.
Item 9.
Item 9A.
Item 9B.
PART III
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
PART IV
Item 15.
Item 16.
Exhibits and Financial Statement Schedules
Form 10-K Summary
Signatures
2
10
17
17
17
17
18
20
21
31
31
53
53
56
56
56
56
56
56
57
57
58
Shoe Carnival, Inc.
Evansville, Indiana
Annual Report to Securities and Exchange Commission
January 28, 2017
PART I
Cautionary Statement Regarding Forward-Looking Information
This annual report 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: general economic conditions in the areas of the continental United States in which our stores are located
and the impact of the ongoing economic crisis in Puerto Rico on sales at, and cash flows of, our stores located in
Puerto Rico; the effects and duration of economic downturns and unemployment rates; changes in the overall retail
environment and more specifically in the apparel and footwear retail sectors; our ability to generate increased sales
at our stores; the potential impact of national and international security concerns on the retail environment; changes
in our relationships with key suppliers; the impact of competition and pricing; our ability to successfully manage and
execute our marketing initiatives and maintain positive brand perception and recognition; changes in weather
patterns, consumer buying trends and our ability to identify and respond to emerging fashion trends; the impact of
disruptions in our distribution or information technology operations; the effectiveness of our inventory management;
the impact of natural disasters on our stores, as well as on consumer confidence and purchasing in general; 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; our ability to manage our third-party vendor
relationships; our ability to successfully execute our growth strategy, including the availability of desirable store
locations at acceptable lease terms, 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 growth plans; higher than
anticipated costs associated with the closing of underperforming stores; our ability to successfully grow our e-
commerce sales; the inability of manufacturers to deliver products in a timely manner; changes in the political and
economic environments and the continued favorable trade relations in China and the other countries which are the
major manufacturers of footwear; the impact of regulatory changes in the United States and the countries where our
manufacturers are located; the resolution of litigation or regulatory proceedings in which we are or may become
involved; our ability to meet our labor needs while controlling costs; and future stock repurchases under our stock
repurchase program and future dividend payments. For a more detailed discussion of risk factors impacting us, see
ITEM 1A. RISK FACTORS of this report.
ITEM 1. BUSINESS
Our Company
Shoe Carnival, Inc. is one of the nation’s largest family footwear retailers, providing the convenience of shopping at
any of our store locations or online. We offer customers a broad assortment of moderately priced dress, casual and
athletic footwear for men, women and children with emphasis on national and regional name brands. We
differentiate our retail concept from our competitors’ by our distinctive, fun and promotional marketing efforts. On
average, our stores are 11,000 square feet, generate approximately $2.4 million in annual sales and carry inventory
of approximately 27,600 pairs of shoes per location. As of January 28, 2017, we operated 415 stores in 35 states and
Puerto Rico and offered online shopping at www.shoecarnival.com.
We are an Indiana corporation that was initially formed in Delaware in 1993 and reincorporated in Indiana in 1996.
References to “we,” “us,” “our” and the “Company” in this Annual Report on Form 10-K refer to Shoe Carnival,
Inc. and its subsidiaries.
2
Key Competitive Strengths
We believe our financial success is due to a number of key competitive strengths that make Shoe Carnival a
destination of choice for today’s retail consumer.
Distinctive shopping experience
Our stores combine competitive pricing with a promotional, in-store marketing effort that encourages customer
participation and injects fun and surprise into every shopping experience. We promote a high-energy retail
environment by decorating with exciting graphics and bold colors, and by featuring a stage and mic-person as the
focal point in our stores. With a microphone, this mic-person announces current specials supplied by our centralized
merchandising staff, organizes contests and games, and assists and educates customers with the features and location
of merchandise. Our mic-person offers limited-duration promotions throughout the day, encouraging customers to
take immediate advantage of our value pricing. We believe this fun and promotional atmosphere results in 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. A similar customer
experience is reflected in our e-commerce site through special promotions and limited time sales, along with
relevant product stories featured on our home page.
Broad merchandise assortment
Our objective is to be the destination retailer-of-choice for a wide range of consumers seeking value priced, current
season name brand and private label footwear. Our product assortment includes dress and casual shoes, sandals,
boots and a wide assortment of athletic shoes for the entire family. Our average store carries approximately 27,400
pairs of shoes in four general categories – women’s, men’s, children’s and athletics – which are organized within the
store by category and brand, thus fashioning strong brand statements within the aisles. We engage our customers by
presenting creative branded merchandise statements and signage upon entering our stores. Key brands are further
emphasized by prominent displays on end caps, focal walls, and within the aisles. These displays may highlight a
product offering of a single vendor, highlight sales promotions, advertise promotional pricing to meet or beat
competitors’ sale prices or may make a seasonal or lifestyle statement by highlighting similar footwear from
multiple vendors. These visual merchandising techniques make it easier for customers to shop and focus attention
on key name brands. Our e-commerce site offers customers an opportunity to choose from a large selection of
products in all of the same categories of footwear, and introduces our concept to consumers who are new to Shoe
Carnival, in both existing and new markets. Customers who enroll in our loyalty program (“Shoe Perks”) or register
on our website receive periodic personalized e-mail communication from us. This communication affords us
additional opportunity to highlight our broad product assortment and promotions.
Value pricing for our customers
Our marketing effort targets moderate income, value conscious consumers seeking name brand footwear for all age
groups. We believe that by offering a wide selection of popular styles of name brand merchandise at competitive
prices, we generate broad customer appeal. Additionally, the time conscious customer appreciates the convenience
of one stop shopping for the entire family, whether it is at any of our store locations or online at shoecarnival.com.
We also believe our fun and promotional shopping environment contributes to a reputation of value pricing.
Efficient store level cost structure
Our cost efficient store operations and real estate strategy enable us to price products competitively. We achieve
low labor costs by housing merchandise directly on the selling floor in an open stock format, allowing customers to
serve themselves, if they choose. This reduces the staffing required to assist customers and reduces store level labor
costs as a percentage of sales. We locate stores predominantly in open-air shopping centers in order to take
advantage of lower occupancy costs and maximize our exposure to value oriented shoppers.
3
Heavy reliance on information technology
We have invested significant resources in information technology. Our proprietary inventory management and
advanced point-of-sale (“POS”) systems provide corporate management, buyers and store managers with the timely
information necessary to monitor and control all phases of operations. The POS provides, in addition to other
features, full price management (including price look-up), promotion tracking capabilities (in support of the
spontaneous nature of the in-store price promotions), real-time sales and gross margin by product category at the
store level and customer tracking. Using the POS, store managers are able to monitor sales and gross profit margins
on a real-time basis throughout the day. Reacting to sales trends, our mic-people use POS reports to choose from
among a number of product promotions supplied by our centralized merchandising staff.
Our centralized network connects our corporate office to our distribution center and retail stores via a wide area
network, providing up-to-date sales and inventory information as required. Our data warehouse enables our
merchandising and store operations staff to analyze sales, margin and inventory levels by location, by day, down to
the size of shoe. Using this information, our merchandise managers meet regularly with vendors to compare their
product sales, gross margins and return on inventory investment against previously stated objectives. We believe
timely access to key business data has enabled us in the past to drive annual comparable store sales increases,
manage our markdown activity and improve inventory turnover.
Growth Strategy
Our goal is to continue to grow our net sales and earnings by opening additional stores throughout the United States
and growing our multi-channel business. As of January 28, 2017, we operated 415 stores located across 35 states
and Puerto Rico. Our stores averaged approximately 11,000 square feet, ranging in size from 4,000 to 26,500 square
feet. New store sizes typically depend upon location and population base, and our stores are predominantly located
in open-air shopping centers. Although our traditional store prototype utilizes between 8,000 and 11,000 square feet
of leased area, we have begun to roll out scalable store prototypes that reflect the diverse population densities of our
markets. These scalable prototypes utilize a wide range of leased space based on sales potential and opportunistic
space availability. In all of our stores, the sales area is approximately 85% of the gross store footprint.
Fiscal Years
Stores open at the beginning of the year
New store openings
Store closings
Stores open at the end of the year
Stores relocated
Percentage of store base remodeled
Historical Store Count
2016
2015
2014
2013
2012
405
19
(9)
415
3
4%
400
20
(15)
405
2
7%
376
31
(7)
400
3
7%
351
32
(7)
376
9
9%
327
31
(4)
351
6
5%
Expanding our store base both in number of stores, as well as geographic footprint
Increasing market penetration by opening new stores is a key component of our growth strategy. We believe our
strong unleveraged financial position provides a solid platform for additional growth. In fiscal 2016, we opened 19
new stores and closed nine stores. The majority of these new store locations served to fill in existing markets with
additional stores, with the goal of increasing the performance of the overall market. For fiscal 2017, we expect to
open approximately 20 stores and close approximately 15 stores. The majority of the new stores locations will serve
existing markets within our current geographic footprint and the remaining stores will serve smaller, new markets.
Critical to the success of opening new stores in larger markets or geographic areas is our ability to cluster stores. In
large markets (populations greater than 400,000), clustering involves opening two or more stores at approximately
the same time. In smaller markets that can only support a single store, clustering involves seeking locations in
reasonably close proximity to other existing markets. This strategy creates cost efficiencies by enabling us to
leverage store expenses with respect to advertising, distribution and management costs. We believe the advantages
4
of clustering stores in existing markets will lead to cost efficiencies and overall incremental sales gains that should
more than offset any adverse effect on sales of existing stores.
We lease all store locations, as we believe the flexibility afforded by leasing allows us to avoid the inherent risks of
owning real estate, particularly with respect to underperforming stores. Before entering a new market, we perform a
market, demographic and competition analysis to evaluate the suitability of the potential market. Potential store site
selection criteria include, among other factors, market demographics, traffic counts, tenant mix, visibility within the
center and from major thoroughfares, overall retail activity of the area and proposed lease terms. The time required
to open a store after signing a lease depends primarily upon the property owner’s ability to deliver the premises.
After we accept the premises from the property owner, we can generally open a turnkey store within 60 days and
open an ‘as-is’ store within up to 115 days.
Multi-Channel Strategy
We are committed to establishing Shoe Carnival as a world class multi-channel retailer. The foundation of our
multi-channel strategy is connecting customers with our wide assortment of store inventory through multiple
channels, while maintaining a personalized, seamless customer service experience. We believe over time the
majority of our customers will utilize multiple channels to purchase our product offerings based on their needs at the
time, as described below. Our e-commerce business continues to grow and we continue to make enhancements to
capitalize on our increasing website traffic and optimize conversion rates.
Our “ship from store” program is a core element of our multi-channel strategy. This program allows stores to
fulfill online orders and has been implemented on a chain wide basis (with limited exceptions). By fulfilling e-
commerce orders from our store level inventory, we are able to minimize out-of-stocks, offer our customers an
expanded online assortment and leverage store level inventory and overhead. Additionally, during peak sales
periods, e-commerce orders for certain key items and promotional product are fulfilled from our distribution
center.
A growing part of our multi-channel strategy is our Shoes 2U program. This program enables us to ship
product from any store to a customer’s home or store of their choice if they are unable to find the size, color or
style of a shoe in the store in which they are shopping. This creates an endless aisle experience for our
customers in which our chain-wide inventory is accessible to any store customer.
Given our desire to connect with customers anywhere and anytime, an important component of our multi-
channel strategy is our mobile app. Our mobile app was redesigned in fiscal 2015 and introduced e-commerce
functionality directly from the app. Product offerings on the app correspond to our online assortment and
customers now have the ability to scan UPC codes to find sizes that may not be available in our stores. These
products and our entire online assortment can be conveniently purchased directly from our app.
During the third quarter of fiscal 2016, we completed the launch of a new online service, which gives our
customers the option to buy online, pick up in store and buy online, ship to store. This feature provides the
convenience of local pickup for our customers with the added benefit of driving traffic back to our stores. This
launch represents our continued effort to evolve our customer experience.
Overall, we believe that our ongoing multi-channel initiatives represent the cornerstone for our long-term growth
and are in-line with rapidly changing consumer behavior. In fiscal 2017, we plan to upgrade and enhance our e-
commerce and mobile platforms. These steps will be an integral part of expanding our multi-channel footprint and
creating opportunities to connect with our customers in new ways.
5
Merchandise
Critical to our success is maintaining fresh, fashionable merchandise at moderate prices. Our buyers stay in touch
with evolving fashion trends and adjust growth strategies based on these trends. This is accomplished by
subscribing to an industry leading trend service, shopping fashion-leading markets, attending national trade shows,
gathering vendor input and monitoring the current styles shown in leading fashion and lifestyle magazines.
Our buyers and planners have years of experience and in-depth knowledge of our customers and the markets in
which we operate. This helps us select the best assortment and quantities in order to manage and allocate
inventories at the store level. The mix of merchandise and the brands offered in a particular store reflect the
demographics of each market, among other factors. Management encourages store operations personnel to provide
input to our merchandising staff regarding market specific fashion trends. Our e-commerce site offers customers an
opportunity to choose from a large selection of products in all of the same categories of footwear, and introduces our
concept to consumers who are new to Shoe Carnival, in both existing and new markets. Due to our multi-channel
retailer strategy, we view our e-commerce sales as an extension of our physical stores.
Our stores and e-commerce site offer a broad assortment of current-season, name brand footwear, supplemented
with private label merchandise. Our stores carry complementary accessories such as socks, belts, shoe care items,
handbags, sport bags, backpacks, jewelry, scarves and wallets, while our e-commerce site offers certain handbags,
sport bags and backpacks. We purchase merchandise from approximately 170 footwear vendors. Management of
the purchasing function is the responsibility of our Executive Vice President – Chief Merchandising Officer. Our
buyers maintain ongoing communication with our vendors and provide feedback to our vendors on sales,
profitability and current demand for their products. We adjust future purchasing decisions based upon the results of
this analysis. In fiscal 2016, two branded suppliers, Nike, Inc. and Skechers USA, Inc., collectively accounted for
approximately 45% of our net sales. Nike, Inc. accounted for approximately 33% of our net sales and Skechers
USA, Inc. accounted for approximately 12%. Name brand suppliers also provide us with cooperative advertising
and visual merchandising funds. A loss of any of our key suppliers in certain product categories or our inability to
obtain name brand or other merchandise from suppliers at competitive prices could have a material adverse effect on
our business. As is common in the industry, we do not have any long-term contracts with our suppliers.
Initial pricing levels are typically established in accordance with the manufacturer’s suggested retail pricing
structure. Subsequent to this initial pricing, our buying staff manages our markdown cadence based on product-
specific sell-through rates to achieve liquidation of inventory within the natural lifecycle of the product. We
emphasize our value proposition to customers by combining current season name brand product with promotional
pricing. Our promotions include both advertised limited time sale offerings in addition to in-store and online timed
specials.
The table below sets forth our percentage of sales by product category.
Fiscal Years
2016
Non-Athletics:
Women's
Men's
Children's
Total
26%
14
5
45
2015
2014
2013
2012
27%
27%
27%
26%
14
5
46
16
22
12
50
4
14
5
46
16
21
13
50
4
15
5
47
16
21
12
49
4
15
5
46
17
21
12
50
4
16
22
13
51
4
100%
100%
100%
100%
100%
Athletics:
Women's
Men's
Children's
Total
Accessories
Total
Women’s, men’s and children’s non-athletic footwear categories are further divided into dress, casual, sport, sandals
and boots. We classify athletic shoes by functionality, such as running, basketball or fitness shoes.
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Building Brand Awareness
Our goal is to communicate a consistent brand image across all aspects of our operations. We utilize a blend of
advertising mediums and marketing methods to communicate who we are and the values we offer. Special emphasis
is made to highlight brands as well as specific styles of product, and visual graphics are used extensively in our
stores to emphasize the lifestyle aspect of the styles we carry. The use of social media has become an increasingly
important medium in our digital marketing efforts, allowing us to directly communicate with, as well as advertise to,
our core customers. For fiscal 2016, approximately 49% of our total advertising budget was directed to television,
radio and digital media. Print media (including inserts, direct mail and newspaper advertising) and outdoor
advertising accounted for the balance. We make a special effort to utilize the cooperative advertising dollars and
collateral offered by vendors whenever possible. We utilize television advertising to deliver a balanced mix of both
branding and seasonal product messaging across the year beginning with the Easter selling season. Moreover, it
enables us to provide a message of offering value-priced, current season footwear.
In addition to a dynamic, lively and fun shopping experience, we offer our customers our Shoe Perks rewards
program. This loyalty program provides customers with a heightened shopping experience, which includes
exclusive offers and personalized messaging. Rewards are earned by making purchases either in-store or online and
through participating in other point earning opportunities that facilitate engagement with our brand.
We remain highly focused on expanding Shoe Perks enrollment. In fiscal 2016, we added 4.5 million new
members, and purchases from Shoe Perks members increased to 66% of our net sales. We believe our Shoe Perks
program affords us tremendous opportunity to communicate, build relationships, and engage with our most loyal
shoppers and increase our customer touch points, which we believe will result in long-term sales gains.
We strive to make each store opening a major retail event. Major promotions during grand openings and peak
selling periods feature contests and prize giveaways. We believe our grand openings help establish the high-energy,
promotional atmosphere that develops a loyal, repeat customer base and generates word-of-mouth advertising.
Distribution
We operate a single 410,000 square foot distribution center located in Evansville, Indiana. Our facility is leased
from a third party and can support the processing and distribution needs of a minimum of 460 stores to facilitate
future growth. We have the right to expand the facility by 200,000 square feet, which would provide us processing
capacity to support approximately 650 stores.
Our distribution center is equipped with state-of-the-art processing and product movement equipment. The facility
utilizes cross docking/store replenishment and redistribution methods to fill store product requirements. These
methods may include count verification, price and bar code labeling of each unit (when not performed by the
manufacturer), redistribution of an order into size assortments (when not performed by the manufacturer) and
allocation of shipments to individual stores. Throughout packing, allocating, storing and shipping, our distribution
process is essentially paperless. Merchandise is typically shipped to each store location once per week. For stores
within the continental United States, a dedicated carrier, with occasional use of common carriers, handles the
majority of shipments. Our shipments to Puerto Rico are loaded for containerized overseas shipment, with final
delivery by a third party provider.
Competition
The retail footwear business is highly competitive. We believe the principal competitive factors in our industry are
merchandise selection, price, fashion, quality, location, shopping environment and service. We compete with
department stores, shoe stores, sporting goods stores, online retailers and mass merchandisers. Our specific
competitors vary from market to market. We compete with most department stores and traditional shoe stores by
offering competitive prices. We compete with off-price retailers, mass merchandisers and discount stores by
offering a wider and deeper selection of merchandise. Many of our competitors are significantly larger and have
substantially greater resources than we do. However, we believe that our distinctive retail format, in combination
with our wide merchandise selection, competitive prices and low operating costs, enables us to compete effectively.
7
Store Operations
Management of store operations is the responsibility of our Executive Vice President - Store Operations, who is
assisted by divisional managers, regional directors, regional managers and the individual store general managers.
Generally, each store has a general manager and up to three store managers, depending on sales volume. Store
operations personnel make certain merchandising decisions necessary to maximize sales and profits primarily
through merchandise placement, signage and timely clearance of slower selling items. Administrative functions are
centralized at the corporate headquarters. These functions include accounting, purchasing, store maintenance,
information systems, advertising, human resources, distribution and pricing. Management oversight for e-commerce
is also located at our corporate headquarters.
Employees
At January 28, 2017, we had approximately 5,100 employees, of which approximately 2,700 were employed on a
part-time basis. The number of employees fluctuates during the year primarily due to seasonality. No employees
are represented by a labor union.
We attribute a large portion of our success in various areas of cost control to our inclusion of virtually all
management level employees in incentive compensation plans. We contribute all or a portion of the cost of medical,
disability and life insurance coverage for those employees who are eligible to participate in Company-sponsored
plans. Additionally, we sponsor retirement plans that are open to all employees who have met the minimum age and
work hour requirements. All employees are eligible to receive discounts on purchases from our stores. We consider
our relationship with our employees to be satisfactory.
Seasonality
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. Non-capital
expenditures, such as advertising and payroll, incurred prior to the opening of a new store are charged to expense as
incurred. 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.
We have three distinct peak selling periods: Easter, back-to-school and Christmas. To prepare for our peak
shopping seasons, we must order and keep in stock significantly more merchandise than we would carry during
other parts of the year. Any unanticipated decrease in demand for our products during these peak shopping seasons
could require us to sell excess inventory at a substantial markdown, which could reduce our net sales and gross
margins and negatively affect our profitability. Our operating results depend significantly upon the sales generated
during these periods.
Trademarks
We own the following federally registered trademarks and service marks: Shoe Carnival® and associated trade dress
and related logos, The Carnival®, Donna Lawrence®, Innocence®, Y-NOT?®, UNR8ED®, Solanz®, Cabrizi®, Shoe
Perks®, SC Work Wear®, WHEN YOU WANT 2®, JUMP BACK IN®, STEP OUT OF BORING®, A SURPRISE
IN STORE®, SHOES 2U®, Laces for Learning® and Princess Lacey’s Laces®. We believe these marks are valuable
and, accordingly, we intend to maintain the marks and the related registrations. We are not aware of any pending
claims of infringement or other challenges to our right to use these marks.
8
Environmental
Compliance with federal, state and local provisions regulating the discharge of material into the environment or
otherwise relating to the protection of the environment has not had a material effect upon our capital expenditures,
earnings or competitive position. We believe the nature of our operations have little, if any, environmental impact.
We therefore anticipate no material capital expenditures for environmental control facilities for our current fiscal
year or for the near future.
Available Information
We make available free of charge through the investor relations portion of our website at www.shoecarnival.com
our annual reports on Form 10-K, our quarterly reports on Form 10-Q, our current reports on Form 8-K and
amendments to those reports filed or furnished pursuant to Section 13(a) or Section 15(d) of the Securities Exchange
Act of 1934, as amended (the “Exchange Act”), as soon as reasonably practicable after we electronically file such
material with, or furnish it to, the Securities and Exchange Commission. We have included our website address
throughout this filing as textual references only. The information contained on, or accessible through, our website is
not incorporated into this Form 10-K.
This Annual Report on Form 10-K filed with the Securities and Exchange Commission, including the
financial statements and schedules thereto, without the accompanying exhibits, is available without charge to
shareholders, investment professionals and securities analysts upon written request. Requests should be
directed to Investor Relations at our corporate address. A list of exhibits is included in this Annual Report on
Form 10-K, and exhibits are available from us upon payment to us of the cost of furnishing them.
Executive Officers
Name
J. Wayne Weaver
Clifton E. Sifford
W. Kerry Jackson
Timothy T. Baker
Carl N. Scibetta
Age
82
63
55
60
58
Position
Chairman of the Board and Director
President, Chief Executive Officer and Director
Senior Executive Vice President - Chief Operating and Financial Officer
and Treasurer
Executive Vice President - Store Operations
Executive Vice President – Chief Merchandising Officer
Mr. Weaver is Shoe Carnival’s largest shareholder and has served as Chairman of the Board since March 1988.
From 1978 until February 2, 1993, Mr. Weaver had served as president and chief executive officer of Nine West
Group, Inc., a designer, developer and marketer of women’s footwear. He has over 50 years of experience in the
footwear industry. Mr. Weaver is a former director of Nine West Group, Inc. Mr. Weaver served as chairman and
chief executive officer of Jacksonville Jaguars, LTD, a professional football franchise, until January 2012. Mr.
Weaver previously served two terms as a director of Stein Mart, Inc., a publicly traded chain of off-price retail
stores, from June 2014 until March 2016 and from November 2000 until April 2008.
Mr. Sifford has been employed as President and Chief Executive Officer and has served as a Director since October
2012. Mr. Sifford also served as Chief Merchandising Officer from October 2012 to March 2016. From June 2001
to October 2012, Mr. Sifford served as Executive Vice President – General Merchandise Manager and from April
1997 to June 2001, Mr. Sifford served as Senior Vice President – General Merchandise Manager. Prior to joining
us, Mr. Sifford served as merchandise manager – shoes for Belk, Inc.
Mr. Jackson has been employed as Senior Executive Vice President, Chief Operating and Financial Officer and
Treasurer since October 2012. From August 2004 to October 2012, Mr. Jackson served as Executive Vice President
– Chief Financial Officer and Treasurer. From June 2001 to August 2004, Mr. Jackson served as Senior Vice
President – Chief Financial Officer and Treasurer. From September 1996 to June 2001, Mr. Jackson served as Vice
President – Chief Financial Officer and Treasurer. From January 1993 to September 1996, Mr. Jackson served as
Vice President – Controller and Chief Accounting Officer. Prior to January 1993, Mr. Jackson held various
accounting positions with us. Prior to joining us in 1988, Mr. Jackson was associated with a public accounting firm.
He is a Certified Public Accountant.
9
Mr. Baker has been employed as Executive Vice President – Store Operations since June 2001. From March 1994
to June 2001, Mr. Baker served as Senior Vice President – Store Operations. From May 1992 to March 1994, Mr.
Baker served as Vice President – Store Operations. Prior to that time, he served as one of our regional managers.
From 1983 to June 1989, Mr. Baker held various retail management positions with Payless ShoeSource.
Mr. Scibetta has been employed as Executive Vice President – Chief Merchandising Officer since March 2016.
From December 2012 to March 2016, Mr. Scibetta served as General Merchandise Manager. Prior to joining us,
Mr. Scibetta served as Vice President, Divisional Merchandise Manager– Footwear for Belk, Inc. since 2008. From
2004 to 2007, Mr. Scibetta served as Vice President, Divisional Merchandise Manager– Footwear for Parisian
Department Stores. From 1998 to 2000, Mr. Scibetta served as Vice President, Divisional Merchandise Manager for
Shoe Corporation of America. Mr. Scibetta began his retail career with Wohl Shoe Company in 1980.
Our executive officers serve at the discretion of the Board of Directors. There is no family relationship between any
of our Directors or executive officers.
ITEM 1A. RISK FACTORS
Carefully consider the following risk factors and all other information contained in this annual report before making
an investment decision with respect to our common stock. Investing in our common stock involves a high degree of
risk. If any of the following risks actually occur, we may not be able to conduct our business as currently planned
and our financial condition and operating results could be materially and adversely affected. See PART I
“Cautionary Statement Regarding Forward-Looking Information” at the beginning of this Annual Report on Form
10-K.
Economic conditions and unemployment rates may adversely affect consumer spending and may significantly
harm our business. The success of our business depends to a significant extent upon the level of consumer
spending. A number of factors may affect the level of consumer spending on merchandise that we offer, including,
among other things:
general economic, industry and weather conditions;
unemployment trends and salaries and wage rates;
energy costs, which affect gasoline and home heating prices;
the level of consumer debt;
consumer credit availability;
real estate values and foreclosure rates;
consumer confidence in future economic conditions;
interest rates;
health care costs;
tax rates and policies; and
war, terrorism, other hostilities and security concerns.
The merchandise we sell generally consists of discretionary items. Adverse economic conditions and
unemployment rates, and any related decrease in consumer confidence and spending may result in reduced
consumer demand for discretionary items. Any decrease in consumer demand could reduce traffic in our stores,
limit the prices we can charge for our products and force us to take inventory markdowns, which could have a
material adverse effect on our business, results of operations and financial condition. Reduced demand may also
require increased selling and promotional expenses. Reduced demand and increased competition could increase the
need to close underperforming stores, which could result in higher than anticipated closing costs.
We face significant competition in our markets and we may be unable to compete favorably. The retail footwear
industry is highly competitive with few barriers to entry. We compete primarily with department stores, shoe stores,
sporting goods stores, online retailers and mass merchandisers. Many of our competitors are significantly larger and
have substantially greater resources than we do. Economic pressures on or bankruptcies of our competition could
result in increased pricing pressures. This competition could adversely affect our results of operations and financial
condition in the future.
10
Failure to successfully manage and execute our marketing initiatives could have a negative impact on our
business. Our success and growth is partially dependent on generating customer traffic in order to gain sales
momentum in our stores and drive traffic to our website. Successful marketing efforts require the ability to reach
customers through their desired mode of communication, utilizing various media outlets. Media placement
decisions are generally made months in advance of the scheduled release date. Our inability to accurately predict
our consumers’ preferences, to utilize their desired mode of communication, or to ensure availability of advertised
products could adversely affect our business and operating results. In addition, our competitors may spend more on
marketing or use different marketing approaches, which would provide them with a competitive advantage.
Our failure to identify fashion trends could result in lower sales, higher markdowns and lower gross profits. Our
success depends upon our ability to anticipate and react to the fashion tastes of our customers and provide
merchandise that satisfies consumer demand. Our failure to anticipate, identify or react appropriately to changes in
consumer fashion preferences may result in lower sales, higher markdowns to reduce excess inventories and lower
gross profits. Conversely, if we fail to anticipate or react to consumer demand for our products, we may experience
inventory shortages, which would result in lost sales and could negatively affect our customer goodwill, our brand
image and our profitability. Moreover, our business relies on continuous changes in fashion preferences. Stagnating
consumer preferences could also result in lower sales and would require us to take higher markdowns to reduce
excess inventories.
A failure to increase sales at our existing stores may adversely affect our stock price and affect our results of
operations. A number of factors have historically affected, and will continue to affect, our comparable store sales
results, including:
competition;
timing of holidays including sales tax holidays;
general regional and national economic conditions;
inclement weather and/or unseasonable weather patterns;
consumer trends, such as less disposable income due to the impact of higher prices on consumer goods;
fashion trends;
changes in our merchandise mix;
our ability to efficiently distribute merchandise;
timing and type of, and customer response to, sales events, promotional activities or other advertising;
the effectiveness of our inventory management;
new merchandise introductions; and
our ability to execute our business strategy effectively.
Our comparable store sales results have fluctuated in the past, and we believe such fluctuations may continue. The
unpredictability of our comparable store sales may cause our revenue and results of operations to vary from quarter
to quarter, and an unanticipated decline in revenues or operating income may cause our stock price to fluctuate
significantly.
Members in our Shoe Perks customer loyalty program account for a significant portion of our sales, and any
material decline in sales from our Shoe Perks members could have an adverse impact on our results of
operations. Our Shoe Perks rewards program provides our customers with a heightened shopping experience, which
includes exclusive offers and personalized messaging. Rewards are earned by making purchases either in-store or
online and through participating in other point earning opportunities that facilitate engagement with our brand. We
remain highly focused on expanding our Shoe Perks enrollment. In fiscal 2016, we added 4.5 million new members,
and purchases from Shoe Perks members increased to 66% of net sales. Shoe Perks members on average spent 19%
more per transaction than non-members in fiscal 2016. If our Shoe Perks members do not continue to shop with us,
our sales may be adversely affected, which could have an adverse impact on our results of operations.
We would be adversely affected if our information technology systems fail to operate effectively, are disrupted or
are compromised. We rely on our existing information technology systems in operating and monitoring all major
aspects of our business, including sales, warehousing, distribution, purchasing, inventory control, merchandise
planning and replenishment, point-of-sale support and financial systems. We regularly make investments to upgrade,
11
enhance or replace these systems, as well as leverage new technologies to support our operational strategies. Any
delays or difficulties transitioning to new systems or integrating them with current systems in an orderly and timely
fashion could have a material adverse effect on our operational results, financial position and cash flows.
The reliability and capacity of our information technology systems, and in particular our distribution technology
operations, are critical to our continued operations. We currently operate a single, 410,000 square foot distribution
center in Evansville, Indiana. Virtually all merchandise received by our stores is and will be shipped through our
distribution center. We fulfill our e-commerce orders primarily from our store locations. During peak sales periods,
e-commerce orders for certain key items and promotional product are fulfilled from our distribution center. Our
corporate computer network is essential to our distribution process.
Despite our precautionary efforts, our information technology systems are vulnerable from time to time to damage
or interruption from, among other things, natural or man-made disasters, technical malfunctions, inadequate systems
capacity, power outages or terrorist attack, computer viruses and security breaches, which may require significant
investment to fix or replace. If our distribution center is shut down for any reason, if our information technology
systems do not operate effectively, or if we are the target of attacks or security breaches, we may suffer the loss of
critical data, we could incur significantly higher costs and longer lead times associated with distributing our products
to our stores, our ability to operate our e-commerce site and mobile app may be impacted, and we could experience
other interruptions or delays to our operations. Our insurance only covers costs relating to specified, limited matters
such as a shutdown due to fire and windstorms, as well as certain cyber security incidents, but does not cover other
events such as acts of war or terrorist attacks. Even in the event of a shutdown due to covered matters our insurance
may not be sufficient, or the insurance proceeds may not be paid to us in a timely fashion. Shutdowns or
information technology disruptions could have an adverse effect on our operating and financial performance.
Failure to protect the integrity and security of individually identifiable data of our customers and employees
could expose us to litigation and damage our reputation. We receive and maintain certain personal, sensitive and
confidential information about our customers, vendors and employees. The collection and use of this information is
regulated at the international, federal and state levels, and is subject to certain contractual restrictions in third party
contracts. Non-compliance with these regulations and contractual restrictions may subject us to fines, penalties,
restrictions and expulsion from credit card acceptance programs and civil liability. Although we have implemented
processes to collect and protect the integrity and security of this personal information, there can be no assurance that
this information will not be obtained by unauthorized persons, or collected or used inappropriately, including as a
result of cyber-security breaches, acts of vandalism, computer viruses, credit card fraud or phishing. Advanced
cyber-security threats are persistent and continue to evolve, making them increasingly difficult to identify and
prevent. If our security and information systems or the systems of our employees or external business associates are
compromised or our employees or external business associates fail to comply with these laws and regulations and
this information is obtained by unauthorized persons, or collected or used inappropriately, it could negatively affect
our reputation, as well as our operations and financial results, and could result in litigation or regulatory action
against us or the imposition of costs, fines or other penalties. As privacy and information security laws and
regulations change, we may incur additional costs to remain in compliance.
We outsource certain business processes to third-party vendors and have certain business relationships that
subject us to risks, including disruptions in business and increased costs. We outsource some of our business
processes to third party vendors. We make a diligent effort to ensure that all providers of these outsourced services
are observing proper internal control practices; however, there are no guarantees that failures will not occur. Failure
of third parties to provide adequate services or our inability to arrange for alternative providers on favorable terms in
a timely manner could disrupt our business, increase our costs or otherwise adversely affect our business and our
financial results.
Failure to maintain positive brand perception and recognition could have a negative impact on our business.
Maintaining a good reputation is critical to our business. The considerable expansion in the use of social media over
recent years has increased the risk that our reputation could be negatively impacted in a short amount of time. If we
are unable to quickly and effectively respond to any incidents negatively impacting our reputation, we may suffer
declines in customer loyalty and traffic and we may experience vendor relationship issues and other issues, all of
which could negatively affect our financial results.
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We will require significant funds to implement our growth strategy and meet our other liquidity needs. We may
not continue to generate sufficient cash flow from operations or obtain sufficient borrowings under our existing
credit facility to finance our growth strategy and meet our other liquidity needs. In fiscal 2017, capital expenditures
are expected to range from $22 million to $23 million. Our actual costs may be greater than anticipated. We also
require working capital to support inventory for our existing stores. Failure to generate or raise sufficient funds may
require us to modify, delay or abandon some of our future growth or expenditure plans. We utilize our existing
credit facility to issue merchandise and special purpose standby letters of credit as well as to fund working capital
requirements, as needed. Significant decreases in cash flow from operations could result in our borrowing under the
credit facility to fund operational needs. If we borrow funds under our credit facility and interest rates materially
increase from present levels, our results could be adversely affected.
Various risks associated with our e-commerce business may adversely affect our business and results of
operations. Digital commerce has been a rapidly growing sales channel, particularly with younger consumers, and
an increasing source of competition in the retail industry. We sell shoes and related accessories through our website
at www.shoecarnival.com. We fulfill e-commerce orders from our store locations and, during peak periods, from
our distribution center. We anticipate that the percentage of our sales through our e-commerce site will continue to
grow and thus the risks associated with these operations could have an impact on our overall operations. Our e-
commerce operations may not, however, achieve growing sales and profitability. Our e-commerce operations are
subject to numerous risks, including unanticipated operating problems, reliance on third party computer hardware,
software and service providers, and the need to invest in additional computer systems. Any significant interruptions
in the operations of these third party providers, over which we have no control, could have a material adverse effect
on our e-commerce business. Our e-commerce operations involve additional potential risks that could have an
impact on our results of operations including hiring, retaining and training personnel to conduct our e-commerce
operations, diversion of sales from our stores, our ability to manage any upgrades or other technological changes,
our ability to provide customer-facing technology systems, including mobile technology solutions, that function
reliably and provide convenient and consistent experience for our customers, exposure to potential liability for
online content, risks related to the failure of the computer systems that operate our e-commerce site and its related
support systems, including computer viruses, telecommunication failures and cyber-attacks and break-ins and
similar disruptions, and security risks related to our electronic processing and transmission of confidential customer
information. Any breach involving our customer information could materially harm our reputation or result in
liability including, but not limited to, fines, penalties and costs of litigation, any of which could have a material
adverse effect on our operating results, financial position and cash flows.
An increase in the cost or a disruption in the flow of imported goods may decrease our sales and profits. We rely
on imported goods to sell in our stores. Substantially all of our footwear product is manufactured overseas,
including the merchandise we import directly from overseas manufacturers and the merchandise we purchase from
domestic vendors. The primary footwear manufacturers are located in China and East Asia. A disruption in the
flow of imported merchandise or an increase in the cost of those goods may decrease our sales and profits. In
addition, we do not control our vendors or their labor and business practices. The violation of labor, product safety
or other laws by one of our vendors could have an adverse effect on our business.
If imported merchandise becomes more expensive or unavailable, the transition to alternative sources may not occur
in time to meet our demands. Products from alternative sources may be of lesser quality and more expensive than
those we currently import. Other risks associated with our use of imported goods include:
disruptions in the flow of imported goods because of factors such as electricity or raw material shortages, work
stoppages, strikes, political unrest and natural disasters;
import duties, import quotas, tariffs, anti-dumping duties, and other trade sanctions;
modifications to international trade policy and/or existing trade agreements and other changes affecting United
States trade relations with other countries;
problems with oceanic shipping, including shipping container shortages and piracy;
port congestion at arrival ports causing delays;
additional oceanic shipping costs to reach non-congested ports;
inland transit costs and delays resulting from port congestion;
economic crises and international disputes;
13
currency exchange rate fluctuations;
increases in the cost of purchasing or shipping foreign merchandise resulting from the failure to maintain
normal trade relations with source countries;
increases in shipping rates imposed by the trans-Pacific shipping cartel; and
compliance with the laws and regulations, and changes to such laws and regulations, in the United States and
the countries where our manufacturers are located, including but not limited to requirements relating to shipping
security, product safety testing, environmental requirements and anti-corruption laws.
We may not be able to successfully execute our growth strategy, which could have a material adverse effect on
our business, financial condition and results of operations. We intend to open new stores as a part of our growth
strategy. We may not be able to open all of the new stores contemplated by our growth strategy and the new stores
that we open may not be as profitable as existing stores.
The complexity of our operations and management responsibilities will increase as we grow. Our growth strategy
requires that we continue to expand and improve our operating and financial systems and expand, train and manage
our employee base. In addition, as we open new stores, we may be unable to hire a sufficient number of qualified
store personnel or successfully integrate the new stores into our business.
The success of our growth strategy will depend on a number of other factors, many of which are out of our control,
including, among other things:
our ability to locate suitable store sites and negotiate store leases (for new stores and renewals) on favorable
terms;
the acceptance of the Shoe Carnival concept in new markets;
our ability to provide adequate distribution to support growth;
our ability to source sufficient levels of inventory to meet the needs of new stores;
particularly in new markets, our ability to open a sufficient number of new stores to provide the critical mass
needed for efficient advertising and effective brand recognition;
the availability of financing for capital expenditures and working capital requirements;
our ability to improve costs and timing associated with opening new stores; and
the impact of new stores on sales or profitability of existing stores in the same market.
Due to the risks involved, we may be unable to open new stores at the rates expected. If we fail to successfully
implement our growth strategy, it could have a material adverse effect on our business, financial condition or results
of operations.
We depend on our key suppliers for merchandise and advertising support and the loss of key suppliers could
adversely affect our business. Our business depends upon our ability to purchase fashionable, name brand and
other merchandise at competitive prices from our suppliers. In fiscal 2016, two branded suppliers, Nike, Inc. and
Skechers USA, Inc., collectively accounted for approximately 45% of our net sales. Nike, Inc. accounted for
approximately 33% of our net sales and Skechers USA, Inc. accounted for approximately 12%. Name brand
suppliers also provide us with cooperative advertising and visual merchandising funds. A loss of any of our key
suppliers in certain product categories or our inability to obtain name brand or other merchandise from suppliers at
competitive prices could have a material adverse effect on our business. As is common in the industry, we do not
have any long-term contracts with our suppliers.
Our quarterly operating results will fluctuate due to seasonality, weather conditions and other factors. Our
quarterly results of operations have fluctuated, and are expected to continue to fluctuate in the future, primarily as a
result of seasonal variances, weather conditions and the timing of sales and costs associated with opening new
stores.
We have three distinct peak selling periods: Easter, back-to-school and Christmas. To prepare for our peak
shopping seasons, we must order and keep in stock significantly more merchandise than we would carry during
other parts of the year. Any unanticipated decrease in demand for our products during these peak shopping seasons
could require us to sell excess inventory at a substantial markdown, which could reduce our net sales and gross
14
margins and negatively affect our profitability. Our operating results depend significantly upon the sales generated
during these periods, and our quarterly results may be impacted by calendar shifts of holiday or seasonal periods.
We also increase our inventory levels to offer styles particularly suited for the relevant season, such as sandals in the
early summer season and boots during the winter season. If the weather conditions for a particular season vary
significantly from those typical for such season, such as an unusually cold early summer or an unusually warm
winter, consumer demand for the seasonally appropriate merchandise that we have available in our stores could be
adversely affected and negatively impact net sales and margins. Lower demand for seasonally appropriate
merchandise may leave us with an excess inventory of our seasonally appropriate products, forcing us to sell these
products at significantly discounted prices and adversely affecting our net sales margins and operating cash flow.
Conversely, if weather conditions permit us to sell our seasonal product early in the season, this may reduce
inventory levels needed to meet our customers’ needs later in that same season. Consequently, our results of
operations are highly dependent on somewhat predictable weather conditions and our ability to react to changes in
weather conditions.
Other factors that may affect our quarterly results of operations include:
fashion trends;
the timing of income tax refunds to customers;
the effectiveness of our inventory management;
changes in general economic conditions and consumer spending patterns; and
actions of competitors or co-tenants.
If our future quarterly results fail to meet the expectations of research analysts, then the market price of our common
stock could decline substantially.
If our long-lived assets become impaired, we may need to record significant non-cash impairment charges.
Periodically, we review our long-lived assets for impairment whenever economic events or changes in
circumstances indicate that the carrying value of an asset may not be recoverable. Significant negative industry or
general economic trends, disruptions to our business and unexpected significant changes or planned changes in our
use of the assets (such as store relocations or closures) may result in impairment charges. Any such impairment
charges, if significant, would adversely affect our financial position and results of operations.
We are subject to periodic litigation and other regulatory proceedings, which could result in the unexpected
expenditure of time and resources. We are a defendant from time to time in lawsuits and regulatory actions relating
to our business. Due to the inherent uncertainties of litigation and regulatory proceedings, we cannot accurately
predict the ultimate outcome of any such proceedings. An unfavorable outcome could have a material adverse
impact on our business, financial condition and results of operations. In addition, regardless of the outcome of any
litigation or regulatory proceedings, such proceedings are expensive and will require that we devote substantial
resources and executive time to defend, thereby diverting management’s attention and resources that are needed to
successfully run our business.
Our failure to manage key executive succession and retention and to continue to attract qualified personnel could
adversely affect our business. Our success depends largely on the continued service of our executive management
team. Our business would be adversely affected if we fail to adequately plan for the succession and retention of our
executive management team. While we have succession plans in place for members of our executive management
team, and continue to review and update those plans, and we have employment agreements with certain key
executive officers, these plans and agreements do not guarantee that the services of our executive officers will
continue to be available to us or that we will be able to find suitable management personnel to replace departing
executives on a timely basis.
Furthermore, our strategy requires us to continue to train, motivate and manage our employees and to attract,
motivate and retain additional qualified managerial and merchandising personnel. The ability to meet our labor
needs while controlling costs is subject to external factors such as unemployment levels, prevailing wage rates,
health care and minimum wage legislation and changing demographics. If we are unable to attract and retain quality
sales associates and management, the ability to meet growth goals or to sustain expected levels of profitability may
be compromised.
15
Our stock price may be volatile and could decline substantially. The stock market has, from time to time,
experienced extreme price and volume fluctuations. Many factors may cause the market price for our common
stock to decline, including:
operating results failing to meet the expectations of securities analysts or investors in any quarter;
downward revisions in securities analysts’ estimates;
material announcements by us or our competitors; and
the other risk factors cited in this annual report.
In the past, companies that have experienced volatility in the market price of their stock have been the subject of
securities class action litigation. If we become involved in a securities class action litigation in the future, it could
result in substantial costs and diversion of management attention and resources, thus harming our business.
We cannot guarantee that we will continue to make dividend payments or that we will continue to repurchase
stock pursuant to our stock repurchase program. Our Board of Directors determines if it is in our best interest to
pay a dividend to our shareholders and the amount of any dividend, and declares all dividend payments. In the
future, our results of operations and financial condition may not allow for a dividend to be declared or the Board of
Directors may decide not to continue to declare dividends. In addition, our current share repurchase program
authorizes the purchase of up to $50 million of our common stock through December 31, 2017. However, we are
not obligated to make any purchases under the share repurchase program and the program may be amended,
suspended or discontinued at any time.
Failure to maintain effective internal control over financial reporting could result in a loss of investor confidence
in our financial reports and have a material adverse effect on our stock price. We must continue to document, test
and evaluate our internal control over financial reporting in order to satisfy the requirements of Section 404 of the
Sarbanes-Oxley Act of 2002, which requires annual reports by management regarding the effectiveness of our
internal control over financial reporting and a report by our independent registered public accounting firm attesting
to the effectiveness of our internal control over financial reporting. We have expended, and expect that we will
continue to expend, significant management time and resources documenting and testing our internal control over
financial reporting. If we conclude in future periods that our internal control over financial reporting is not effective,
it could result in lost investor confidence in the accuracy, reliability and completeness of our financial reports. Any
such events could have a material adverse effect on our stock price.
We are controlled by our principal shareholder. J. Wayne Weaver, our Chairman of the Board of Directors and
principal shareholder, and his spouse together own approximately 27.6% of our outstanding common stock.
Accordingly, Mr. Weaver is able to exert substantial influence over our management and operations. In addition, his
interests may differ from or be opposed to the interests of our other shareholders, and his control may have the effect
of delaying or preventing a change in control that may be favored by other shareholders.
Provisions of our organizational documents and Indiana law might deter acquisition bids for us. Our Restated
Articles of Incorporation, our By-Laws and Indiana corporate laws contain provisions that may discourage other
persons from attempting to acquire control of us, including, without limitation, a Board of Directors that has
staggered terms for its members, supermajority voting provisions, restrictions on the ability of shareholders to call a
special meeting of shareholders and procedural requirements in connection with shareholder proposals or director
nominations. The Board of Directors has the authority to issue preferred stock in one or more series without the
approval of the holders of our common stock. Further, Indiana corporate law contains business combination
provisions that, in general, prohibit for five years any business combination with a beneficial owner of 10% or more
of our common stock unless the holder’s acquisition of the stock was approved in advance by our Board of
Directors. Indiana corporate law also contains control share acquisition provisions that limit the ability of certain
shareholders to vote their shares unless their control share acquisition is approved. In certain circumstances, the fact
that corporate devices are in place that inhibit or discourage takeover attempts could reduce the market value of our
common stock.
16
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 2. PROPERTIES
We lease all existing stores and intend to lease all future stores. Approximately 99% of the leases for our existing
stores provide for fixed minimum rentals and approximately 47% provide for contingent rental payments based upon
various specified percentages of sales above minimum levels. Certain leases also contain escalation clauses for
increases in minimum rentals, operating costs and taxes.
The following table identifies the number of our stores in each state and Puerto Rico as of January 28, 2017:
State/Territory
Alabama
Arkansas
Arizona
Colorado
Delaware
Florida
Georgia
Idaho
Iowa
Illinois
Indiana
Kansas
Kentucky
Louisiana
Michigan
Missouri
Mississippi
Montana
Nebraska
State/Territory
New Jersey
New York
North Carolina
North Dakota
Ohio
Oklahoma
Pennsylvania
Puerto Rico
South Carolina
South Dakota
Tennessee
Texas
Utah
Virginia
Wisconsin
West Virginia
Wyoming
Total Stores
12
11
4
4
1
28
17
4
12
30
29
4
12
14
17
21
8
3
3
3
3
19
4
20
7
14
9
11
2
20
48
4
7
3
5
2
415
In February 2006, we entered into an operating lease with an independent third party to lease our 410,000 square
foot distribution center located in Evansville, Indiana. The lease has an initial term of 15 years, expiring in 2021.
We have the right to extend the initial lease term for up to three additional periods of five years each, and to expand
the facility by up to 200,000 square feet.
In June 2006, we entered into an operating lease with an independent third party to lease our corporate headquarters
for an initial term of 15 years, expiring in 2021. We have the right to extend the initial lease term for up to three
additional periods of five years each, and to expand the facility by up to 30,000 square feet.
For additional information with respect to our properties, see ITEM 1. BUSINESS – “Growth Strategy” and
“Distribution” as well as PART II, ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS – “Executive Summary” of this report.
ITEM 3. LEGAL PROCEEDINGS
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 financial position or results of operations.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
17
PART II
ITEM 5. MARKET FOR THE REGISTRANT’S COMMON EQUITY, RELATED
STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Market Information and Holders
Our common stock has been quoted on The NASDAQ Stock Market, LLC under the trading symbol “SCVL” since
March 16, 1993. As of March 24, 2017, there were approximately 152 holders of record of our common stock. We
did not sell any unregistered equity securities during fiscal 2016.
The quarterly intraday high and low trading prices, in addition to dividends per share, were as follows:
Fiscal 2016
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
Fiscal 2015
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
Cash Dividends
High
Low
Dividends Per
Share
$
$
$
$
28.14
27.86
30.13
31.79
29.79
30.00
28.59
25.17
21.26 $
21.16
24.82
23.44
22.20 $
25.51
22.03
17.36
0.065
0.07
0.07
0.07
0.06
0.065
0.065
0.065
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. Our credit agreement permits the payment of cash dividends as long as no default or event of default
exists under the credit agreement and the aggregate amount of cash dividends for a fiscal year do not exceed $10
million.
On March 22, 2017, the Board of Directors approved the payment of a cash dividend to our shareholders in the first
quarter of fiscal 2017. The quarterly cash dividend of $0.07 per share will be paid on April 24, 2017 to shareholders
of record as of the close of business on April 10, 2017.
Issuer Purchases of Equity Securities
Throughout fiscal 2016, we issued treasury shares to employees for the issuance of restricted stock awards. We also
repurchased 15,929 shares of common stock as a result of our withholding shares or allowing our employees to
deliver shares to us for the income taxes resulting from the vesting of certain restricted stock awards. It is our
intention to continue these practices as they relate to the issuance of treasury shares.
On December 6, 2016, our Board of Directors authorized a new share repurchase program for up to $50 million of
outstanding common stock, effective January 1, 2017. The purchases may be made in the open market or through
privately negotiated transactions, from time-to-time through December 31, 2017, and in accordance with applicable
laws, rules and regulations. On January 27, 2017, we entered into a stock repurchase plan for the purpose of
repurchasing shares of our common stock in accordance with guidelines specified under Rule 10b5-1 of the
Exchange Act (the “Rule 10b5-1 Plan”). The Rule 10b5-1 Plan was established pursuant to, and as part of, our share
repurchase program and permits shares to be repurchased in accordance with pre-determined criteria when
repurchases would otherwise be prohibited, such as during self-imposed blackout periods, or under insider trading
laws. The share repurchase program may be amended, suspended or discontinued at any time and does not commit
18
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 conditions. As of January 28, 2017, approximately 284,000 shares
at an aggregate cost of $7.2 million had been repurchased under the new share repurchase program.
The new share repurchase program replaced the prior $50 million share repurchase program that was authorized in
December 2015 and expired in accordance with its terms on December 31, 2016. At its expiration, we had purchased
approximately 1.6 million shares at an aggregate cost of $39.7 million under the prior repurchase program.
The following table summarizes repurchase activity during the fourth quarter of fiscal 2016:
Issuer Purchases of Equity Securities
Period
October 31, 2016 to November 26, 2016
November 27, 2016 to December 31, 2017
January 1, 2017 to January 28, 2017
Total Number
of Shares
Purchased (1)
Average
Price Paid
per Share
Total Number
Of Shares
Purchased
as Part
of Publicly
Announced
Programs (2)
Approximate
Dollar Value
of Shares
that May Yet
Be Purchased
Under
Programs(2)
151
492
288,258
288,901
$ 24.70
$ 27.11
$ 25.22
0
360
284,184
284,544
$10,285,000
$10,275,000
$42,834,000
(1) Total number of shares purchased includes 4,357 shares delivered to or withheld by us in connection with employee payroll tax withholding
upon the vesting of certain restricted stock awards.
(2) On December 6, 2016, our Board of Directors authorized a new share repurchase program for up to $50 million of our outstanding common
stock, effective January 1, 2017 and expiring on December 31, 2017. The new share repurchase program replaced the prior $50 million
share repurchase program that was authorized in December 2015, and expired in accordance with its terms on December 31, 2016.
Securities Authorized for Issuance Under Equity Compensation Plans
The information required by this Item concerning securities authorized for issuance under our equity plans has been
incorporated by reference into PART III, ITEM 12 of this report.
19
ITEM 6. SELECTED FINANCIAL DATA
The following selected financial data should be read in conjunction with Management’s Discussion and Analysis of
Financial Condition and Results of Operations as contained in PART II, ITEM 7 along with our consolidated
financial statements and notes to those statements included in PART II, ITEM 8 of this report.
(In thousands, except per share and operating data)
Fiscal years (1)
Income Statement Data:
Net Sales
Cost of sales (including buying,
distribution and occupancy costs)
Gross Profit
Selling, general and administrative
expenses
Operating income
Interest income
Interest expense
Income before income taxes
Income tax expense
Net income
Net income per share:
Basic
Diluted
Weighted average shares:
Basic
Diluted
2016
2015
2014
2013
2012
$
1,001,102 $
983,968 $
940,162 $
884,785 $
854,998
711,867
289,235
693,452
290,516
666,483
273,679
625,468
259,317
251,323
37,912
(6)
169
37,749
14,232
23,517 $
243,883
46,633
(39)
168
46,504
17,737
28,767 $
231,826
41,853
(14)
165
41,702
16,175
25,527 $
215,650
43,667
(12)
173
43,506
16,635
26,871 $
597,521
257,477
208,983
48,494
(32)
273
48,253
18,915
29,338
1.28 $
1.28 $
1.45 $
1.45 $
1.27 $
1.27 $
1.33 $
1.32 $
1.44
1.43
18,017
18,022
19,417
19,427
19,777
19,791
19,926
19,947
19,911
19,972
$
$
$
Dividends declared per share
$
0.275 $
0.255 $
0.24 $
0.24 $
1.15
Selected Operating Data:
Stores open at end of year
Square footage of store space
at year end (000’s)
Average sales per store (000’s) (2) $
Average sales per square foot (2) (4) $
Comparable store sales (2)(3)
Balance Sheet Data:
Cash and cash equivalents
Total assets
Long-term debt
Total shareholders’ equity
$
$
$
$
415
405
400
376
4,526
2,367 $
224 $
0.5%
4,465
2,407 $
224 $
3.0%
4,419
2,390 $
221 $
1.8%
4,147
2,425 $
223 $
0.0%
351
3,823
2,478
229
4.5%
62,944 $
458,478 $
0 $
318,882 $
68,814 $
481,093 $
0 $
339,802 $
61,376 $
465,016 $
0 $
331,198 $
48,253 $
436,851 $
0 $
316,872 $
45,756
407,196
0
292,368
(1) Our fiscal year is a 52/53 week year ending on the Saturday closest to January 31. Unless otherwise stated, references to years 2016,
2015, 2014, 2013, and 2012 relate respectively to the fiscal years ended January 28, 2017, January 30, 2016, January 31, 2015, February 1,
2014, and February 2, 2013. Fiscal year 2012 consisted of 53 weeks and the other fiscal years consisted of 52 weeks.
(2) Selected Operating Data for fiscal 2012 has been adjusted to a comparable 52-week period ended January 26, 2013. The 53rd week in
fiscal 2012 caused a one-week shift in our fiscal calendar. To minimize the effect of this fiscal calendar shift on comparable store sales,
our reported annual comparable store sales results for fiscal 2013 compare the 52-week period ended February 1, 2014 to the 52-week
period ended February 2, 2013. Comparable store sales for fiscal 2012 compare the 52-week period ended January 26, 2013 to the 52-
week period ended January 28, 2012.
20
(3) Comparable store sales for the periods indicated include stores that have been open for 13 full months after such store’s grand opening
prior to the beginning of the period, including those stores that have been relocated or remodeled. Therefore, stores opened or closed
during the periods indicated are not included in comparable store sales. Our e-commerce sales were included in comparable sales starting
with fiscal 2013. We include e-commerce sales in our comparable store sales. Due to our multi-channel retailer strategy, we view the e-
commerce sales as an extension of our physical stores.
(4) 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 multi-channel retailer strategy. Due to our multi-channel retailer strategy, we view the e-commerce sales as an extension of our
physical stores.
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 should be read together with our
consolidated financial statements and notes to those statements included in PART II, ITEM 8 of this report.
Overview of Our Business
Shoe Carnival, Inc. is one of the nation’s largest family footwear retailers, providing the convenience of shopping at
any of our store locations or online at shoecarnival.com. Our stores combine competitive pricing with a fun and
promotional, in-store marketing effort that encourages customer participation and injects fun and surprise into every
shopping experience. We believe this fun and promotional atmosphere results in 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. A similar customer experience is reflected in our e-
commerce site through special promotions and limited time sales, along with relevant product stories featured on our
home page.
Our objective is to be the destination retailer-of-choice for a wide range of consumers seeking value priced, current
season name brand and private label footwear. Our product assortment includes dress and casual shoes, sandals,
boots and a wide assortment of athletic shoes for the entire family in four general categories - women’s, men’s,
children’s and athletics. In addition to footwear, our stores carry selected accessory items such as socks, belts, shoe
care items, handbags, sport bags, backpacks, jewelry, scarves and wallets. Our e-commerce site offers customers an
opportunity to choose from a large selection of products in all of the same categories of footwear with a depth of
sizes and colors that may not be available in some of our smaller stores, and introduces our concept to consumers
who are new to Shoe Carnival, in both existing and new markets.
Our fiscal year is a 52/53 week year ending on the Saturday closest to January 31. Unless otherwise stated,
references to years 2016, 2015 and 2014 relate respectively to the fiscal years ended January 28, 2017, January 30,
2016, and January 31, 2015, all of which consisted of 52 weeks.
Executive Summary
Overview
Net income decreased to $23.5 million in fiscal 2016, or $1.28 per diluted share, compared to net income of $28.8
million, or $1.45 per diluted share, in fiscal 2015. Despite earnings that were below expectations and a decline in
store traffic, we generated positive comparable store sales and ended fiscal 2016 with a little over $1 billion in sales,
a record and milestone for the Company. We believe progress with our multi-channel strategy helped drive positive
conversion rates at our stores and continued to fuel top-line growth. From a balance sheet perspective, we focused
on effectively managing inventory levels throughout the year, ending fiscal 2016 with inventories down $13.2
million, or 6.8% year-over-year on a per store basis.
Highlights of our performance in fiscal 2016 compared to the prior year are presented below, followed by a more
comprehensive discussion under “Results of Operations”:
Net sales increased $17.1 million, or 1.7%, during fiscal 2016 compared to fiscal 2015. The net sales increase
was driven by sales of $23.3 million from the 39 new stores opened since the beginning of fiscal 2015 and a
21
$4.7 million increase in comparable stores sales. This net sales increase was partially offset by a $10.9 million
loss in sales from the 24 stores closed since the beginning of fiscal 2015. Despite a mid-single digit decline in
store traffic, comparable store sales increased 0.5% for the full fiscal year. We posted a low single-digit
comparable store sales increase in adult athletics and a mid-single digit increase in children’s athletics and
produced positive comparable store sale results with sandals. These gains were partially offset by an overall
comparable store sales decrease in men’s, women’s and children’s non-athletic product, particularly in women’s
boots.
Our gross profit margin decreased to 28.9% in fiscal 2016 from 29.5% in the prior year. Our merchandise
margin decreased 0.6% primarily due to an increase in expenses related to our multi-channel sales initiatives,
while buying, distribution and occupancy costs, as a percentage of sales, remained flat compared to the prior
year.
We repurchased approximately 1.7 million shares of common stock during fiscal 2016 at a total cost of $42.6
million under our share repurchase programs and ended fiscal 2016 with $62.9 million in cash and cash
equivalents. We ended fiscal 2016 with no outstanding interest bearing debt.
During fiscal 2016, we completed the launch of a new online service which gives our customers the option to
buy online, pick up in store and buy online, ship to store. This feature provides the convenience of local pickup
for our customers with the added benefit of driving traffic back to our stores.
In fiscal 2016, we increased membership in our Shoe Perks customer loyalty program by an additional 4.5
million members, which brought total membership to 13.5 million customers at the end of the fiscal year. For
the year, member sales accounted for approximately 66% of our total business and members on average spent
19% more per transaction than non-members. We believe our Shoe Perks program affords us tremendous
opportunity to communicate, build relationships and engage with our most loyal shoppers, which we believe
will result in long-term sales gains.
We opened 19 stores, relocated three stores and closed nine stores during fiscal 2016, ending the year with 415
stores.
During fiscal 2016 we recorded non-cash impairments of long-lived assets totaling $4.5 million, or 0.6% as a
percentage of sales. Of the $4.5 million, $3.6 million related to impairments of long-lived assets recorded on
seven of our stores located in Puerto Rico.
Fiscal 2017
In fiscal 2017, we remain focused on growing our business through store expansion, multi-channel initiatives and by
enhancing the Shoe Carnival brand. We expect to open approximately 20 stores in fiscal 2017, primarily in existing
markets, and we plan to remodel approximately 5% of our existing store base. Consistent with fiscal 2016, we plan
to continue reinvesting in our existing physical store base, focusing on in-store graphics, such as signage updates to
focal walls and end-caps, and the installation of accessories walls and handbag fixturing to further enhance our
offerings. We are also leveraging inward expansion through our brand store concept. We believe this unique ‘shop-
within-a-shop’ concept will drive traffic to our physical stores by offering customers an enhanced shopping
experience, with compelling product offerings from key branded partners.
We will continue certain key initiatives in fiscal 2017, including our commitment to acquiring new Shoe Perks
members and our focus on multi-channel initiatives, such as investment in our website and mobile infrastructure and
diversification of our e-commerce supply chain. Digital media will become more prominent for us in fiscal 2017, as
we focus on using Customer Relationship Management (“CRM”) as a relationship and loyalty management tool.
We believe using CRM strategies will help drive customer retention through segmentation and other analysis and
will aid us in gaining a better understanding of our customer base.
Critical Accounting Policies
It is necessary for us to include certain judgments in our reported financial results. These judgments involve
estimates based in part on our historical experience and incorporate 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 the more significant judgments are included below.
22
Merchandise Inventories – Our merchandise inventories are stated at the lower of cost or market (LCM) 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 market
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.
We review our inventory at the end of each quarter to determine if it is properly stated at LCM. Factors considered
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 reduce the value of our inventory to its estimated net
realizable value where cost exceeds the estimated future selling price. Merchandise inventories as of January 28,
2017, and January 30, 2016, totaled $279.6 million and $292.9 million, respectively, representing approximately
61% of total assets for both fiscal years. Given the significance of inventories to our consolidated financial
statements, the determination of net realizable value is considered to be 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.
Valuation of Long-Lived Assets – Long-lived assets, such as property and equipment subject to depreciation, 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 estimated fair value and 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 selling, general and administrative expenses. Our net long-lived assets as of
January 28, 2017, and January 30, 2016, totaled $96.2 million and $103.4 million, respectively, representing
approximately 21% of total assets for both fiscal years. From our evaluations performed during fiscal 2016 and
fiscal 2015, we recorded impairments of long-lived assets on our domestic stores of $0.9 million and $1.0 million,
respectively. Additionally, during fiscal 2016, we recorded impairments of $3.6 million related to long-lived assets
associated with seven of our stores located in Puerto Rico, which is discussed in further detail below. 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.
We operate nine stores in Puerto Rico. Puerto Rico is experiencing an economic crisis characterized by a deep
recession and defaults on its public sector debt. During the fourth quarter of fiscal 2016, based on our review of the
recoverability of long-lived assets in our Puerto Rico stores, we recorded impairment charges of $3.6 million on
seven of these nine stores. Subsequent to this impairment, the long-lived assets in our nine Puerto Rico stores had a
combined aggregate net book value of $765,000 as of January 28, 2017. We will continue to assess the
recoverability of the long-lived assets in our Puerto Rico stores and continue to monitor further developments in the
economic environment on the island.
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 protecting us from individual and
aggregate losses over specified dollar values. We review the liability reserved for our self-insured portions on a
quarterly basis, taking 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. Our
self-insurance reserves include estimates of both claims filed, carried at their expected ultimate settlement value, and
claims incurred but not yet reported. As of January 28, 2017 and January 30, 2016, our self-insurance reserves
totaled $3.4 million and $3.3 million, respectively. 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
23
estimating process. If actual results are not consistent with our estimates or assumptions, we may be exposed to
future losses or gains that could be material.
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, depreciation, accrued expenses, deferred lease incentives and stock-based
compensation. 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 adequately provided for all uncertain tax positions, tax
authorities could assess tax liabilities greater or less than our accrued positions for open tax periods.
Results of Operations
The following table sets forth our results of operations expressed as a percentage of net sales for the following fiscal
years:
Net Sales
Cost of sales (including buying, distribution, and
occupancy costs)
Gross profit
Selling, general and
administrative expenses
Operating income
Interest income
Interest expense
Income before income taxes
Income tax expense
Net income
2016
100.0%
2015
100.0%
2014
100.0%
71.1
28.9
25.1
3.8
(0.0)
0.0
3.8
1.4
2.4%
70.5
29.5
24.8
4.7
(0.0)
0.0
4.7
1.8
2.9%
70.9
29.1
24.6
4.5
(0.0)
0.0
4.5
1.8
2.7%
In the regular course of business, 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. Comparable store
sales for the periods indicated below include stores that have been open for 13 full months after such store’s grand
opening prior to the beginning of the period, including those stores that have been relocated or remodeled.
Therefore, stores opened or closed during the periods indicated are not included in comparable store sales. We
include e-commerce sales in our comparable store sales as a result of our multi-channel retailer strategy. Due to our
multi-channel retailer strategy, we view the e-commerce sales as an extension of our physical stores.
2016 Compared to 2015
Net Sales
Net sales increased $17.1 million to $1.001 billion for fiscal 2016, a 1.7% increase, from net sales of $984.0 million
for fiscal 2015. Of the $17.1 million increase in net sales, approximately $23.3 million was attributable to the 39
24
new stores we opened since the beginning of fiscal 2015 and $4.7 million was attributable to our 0.5% increase in
comparable store sales. These increases were partially offset by the loss of $10.9 million in sales from the 24 stores
closed since the beginning of fiscal 2015. Contributing to our net sales increase were increases in our conversion
rate, average sales per transaction, average units per transaction and average unit retail, despite a mid-single digit
decline in store traffic.
Gross Profit
Gross profit decreased $1.3 million to $289.2 million in fiscal 2016. Our gross profit margin in fiscal 2016
decreased to 28.9% from 29.5% in the prior fiscal year. Our merchandise margin decreased 0.6% while buying,
distribution and occupancy costs, as a percentage of sales, remained flat compared to prior year. Our merchandise
margin decreased primarily due to an increase in expenses related to our multi-channel sales initiatives.
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased $7.4 million to $251.3 million in fiscal 2016 compared to
$243.9 million in the prior year. As a percentage of sales, these expenses increased to 25.1% in fiscal 2016 from
24.8% in fiscal 2015. Significant changes in expense between the periods included the following:
On an overall basis, the net change in selling, general and administrative expenses was primarily driven by
increases in non-cash impairments and fixed asset write-offs, wages, other employee benefits, advertising and
depreciation expense, partially offset by reductions in incentive compensation and employee health care
expense in addition to an increase in insurance proceeds received in fiscal 2016 compared to the prior year.
We incurred additional selling expense of $2.3 million during fiscal 2016 compared to the prior year related to
the operation of 39 new stores opened since the beginning of fiscal 2015, net of expense reductions associated
with the closure of 24 stores since the beginning of the same period.
Stock-based compensation expense increased $120,000 in fiscal 2016 compared to fiscal 2015. This was
primarily attributable to the expense related to performance and service-based stock awards granted in fiscal
2016, partially offset by management adjustments related to the timing and probability of the vesting of
performance-based stock awards and the net impact of the related adjustments on stock-based compensation
expense.
Incentive compensation decreased $2.0 million in fiscal 2016 compared to the prior year. This decrease was
primarily attributable to lower financial performance against the defined metrics associated with our
performance-based compensation during fiscal 2016.
In fiscal 2016, pre-opening costs included in selling, general and administrative expenses were $886,000, or 0.09%
as a percentage of sales, compared to $1.2 million, or 0.10% as a percentage of sales, for fiscal 2015. We opened 19
stores during fiscal 2016 at an average cost of $47,000 compared to 20 stores last year at an average cost of $60,000.
Pre-opening costs, such as advertising, payroll and supplies, incurred prior to the opening of a new store are charged
to expense in the period in which they are incurred. The total amount of pre-opening expense incurred will vary by
store depending on the specific market and the promotional activities involved.
The portion of store closing costs and non-cash asset impairment charges included in selling, general and
administrative expenses for fiscal 2016 was $5.6 million or 0.6% as a percentage of sales. Store closing costs in
fiscal 2016 were related to the nine stores we closed in fiscal 2016 and acceleration of expenses associated with
management’s determination to close certain underperforming stores in future periods. We recorded impairments of
long-lived assets totaling $4.5 million in fiscal 2016. Of the $4.5 million, $3.6 million related to impairments of
long-lived assets associated with seven of our stores located in Puerto Rico. The portion of store closing costs and
non-cash asset impairment charges included in selling, general and administrative expenses for fiscal 2015 was $2.8
million, or 0.3% as a percentage of sales. Store closing costs in fiscal 2015 were related to the 15 stores we closed
in fiscal 2015 and acceleration of expenses associated with management’s determination to close certain
underperforming stores in future periods. We recorded impairments of long-lived assets totaling $1.0 million in
fiscal 2015. The timing and actual amount of expense recorded in closing a 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.
25
Income Taxes
The effective income tax rate for fiscal 2016 was 37.7% compared to 38.1% for fiscal 2015. Our provision for
income tax expense is based on the current estimate of our annual effective tax rate.
2015 Compared to 2014
Net Sales
Net sales increased $43.8 million to $984.0 million for fiscal 2015, a 4.7% increase, from net sales of $940.2 million
for fiscal 2014. Of the $43.8 million increase in net sales, approximately $36.5 million was attributable to the 51
new stores we opened since the beginning of fiscal 2014 and $26.7 million was attributable to our 3.0% increase in
comparable store sales. These increases were partially offset by the loss of $19.4 million in sales from the 22 stores
closed since the beginning of fiscal 2014. Our increase included high single digit comparable store sales increases
in our women’s fashion boot and sandal categories as well as mid-single digit increases in men’s boots and adult
athletics. Additionally, we benefited from a combination of higher conversion rates, average unit retail, and average
sales per transaction, which were offset by a mid-single digit decline in traffic.
Gross Profit
Gross profit increased $16.8 million to $290.5 million in fiscal 2015. The gross profit margin in fiscal 2015
increased to 29.5% from 29.1% in the prior fiscal year. Our merchandise margin increased 0.1% while buying,
distribution and occupancy costs, as a percentage of sales, decreased 0.3% due to leveraging expenses against a
higher sales base.
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased $12.1 million in fiscal 2015 to $243.9 million, primarily due
to an additional $4.8 million in incremental expense in fiscal 2015 related to the operation of new stores, net of
expense reductions for stores that have closed since the beginning of fiscal 2014. Incentive compensation, inclusive
of stock-based compensation, increased $4.4 million in fiscal 2015 compared to fiscal 2014. Of this increase, $1.8
million was attributable to higher financial performance against the defined metrics associated with our
performance-based cash compensation. The remaining increase of $2.6 million was mainly attributable to additional
expense for performance-based awards granted in fiscal 2015 and our reversal of $2.3 million of cumulative prior
period expense recorded in fiscal 2014 for certain performance-based restricted stock grants that were deemed not
probable to vest prior to their expiration. The reversal of expense recorded in fiscal 2014 did not recur in 2015. We
also experienced an increase in self-insured health care costs of $1.8 million in fiscal 2015 when compared to last
year. Costs related to our self-insured health care programs are subject to a significant degree of volatility.
In fiscal 2015, pre-opening costs included in selling, general and administrative expenses were $1.2 million, or 0.1%
as a percentage of sales, compared to $2.1 million, or 0.2% as a percentage of sales, for fiscal 2014. We opened 20
stores during fiscal 2015 at an average cost of $60,000 compared to 31 stores last year at an average cost of $68,000.
Pre-opening costs, such as advertising, payroll and supplies, incurred prior to the opening of a new store are charged
to expense in the period in which they are incurred. The total amount of pre-opening expense incurred will vary by
store depending on the specific market and the promotional activities involved.
The portion of store closing costs and non-cash asset impairment charges included in selling, general and
administrative expenses for fiscal 2015 was $2.8 million or 0.3% as a percentage of sales. These costs related to the
closing of 15 stores, non-cash asset impairment of certain underperforming stores and acceleration of expenses
associated with management’s determination to close certain underperforming stores in future periods. The portion
of store closing costs and non-cash asset impairment charges included in selling, general and administrative
expenses for fiscal 2014 was $1.5 million or 0.2% as a percentage of sales. These costs related to the closing of
seven stores, non-cash asset impairment of certain underperforming stores and acceleration of expenses associated
with management’s determination to close certain underperforming stores in future periods. The timing and actual
amount of expense recorded in closing a store can vary significantly depending, in part, on the period in which
26
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.
Income Taxes
The effective income tax rate for fiscal 2015 was 38.1% compared to 38.8% for fiscal 2014. Our provision for
income tax expense is based on the current estimate of our annual effective tax rate.
Liquidity and Capital Resources
Our sources and uses of cash are summarized as follows:
(In thousands)
2016
2015
2014
Net income
Depreciation and amortization
Stock-based compensation
Deferred income taxes
Lease incentives
Changes in operating assets and liabilities
Other operating activities
Net cash provided by operating activities
Net cash used in investing activities
Net cash used in financing activities
Net (decrease) increase in cash and cash equivalents
$
$
23,517
23,699
3,822
(1,381)
3,825
10,132
175
63,789
(21,832)
(47,827)
(5,870)
$
$
28,767
23,078
3,702
(3,035)
6,604
2,840
(3,401)
58,555
(27,651)
(23,466)
7,438
$
$
25,527
20,063
1,064
(550)
8,307
3,209
34
57,654
(32,457)
(12,074)
13,123
We anticipate that our existing cash and cash flows from operations will be sufficient to fund our planned store
expansion along with other capital expenditures, working capital needs, potential dividend payments, potential share
repurchases under our share repurchase program, and various other commitments and obligations, as they arise, for
at least the next 12 months.
Cash Flow - Operating Activities
Our net cash provided by operating activities was $63.8 million, $58.6 million and $57.7 million in fiscal years
2016, 2015 and 2014, respectively. These amounts reflect our income from operations adjusted for non-cash items
and working capital changes. Working capital was $265.5 million, $282.1 million and $276.0 million at January 28,
2017, January 30, 2016 and January 31, 2015, respectively. Working capital decreased $16.6 million at January 28,
2017 compared to January 30, 2016 primarily due to a $13.2 million decrease in merchandise inventories. The
current ratio was 4.1, 4.2 and 4.3 at January 28, 2017, January 30, 2016 and January 31, 2015, respectively.
Cash Flow - Investing Activities
Our cash outflows for investing activities were primarily for capital expenditures. During fiscal 2016, we expended
$21.8 million for the purchase of property and equipment, of which $16.4 million was for the construction and
fixturing of new stores, remodeling and relocations. During fiscal 2015, we expended $27.9 million for the purchase
of property and equipment, of which $18.2 million was for the construction and fixturing of new stores, remodeling
and relocations. During fiscal 2014, we expended $33.5 million for the purchase of property and equipment, of
which $27.2 million was for the construction of new stores, remodeling and relocations. The remaining capital
expenditures in all periods were for continued investments in technology and normal asset replacement activities.
Cash Flow - Financing Activities
Cash outflows for financing activities have represented cash dividend payments and share repurchases. 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 restricted stock awards. Our cash inflows
27
from financing activities have represented proceeds from the issuance of shares as a result of stock option exercises
and purchases under our Employee Stock Purchase Plan.
During fiscal 2016, net cash used in financing activities was $47.8 million compared to net cash used in financing
activities of $23.5 million during fiscal 2015 and $12.1 million in fiscal 2014. The increase in cash used in
financing activities in fiscal 2016 was primarily attributable to the $42.6 million of common stock repurchased
under our share repurchase program in fiscal 2016. There was $18.8 million of common stock repurchased under
the share repurchase program in fiscal 2015 and $7.5 million of common stock repurchased under the share
repurchase program during fiscal 2014.
Store Openings and Closings – Fiscal 2016
We aim to realize positive long-term financial performance for our store portfolio. We utilize a formal review
process in our evaluation of potential new store sites as well as for decisions surrounding leases on existing store
locations. Our approach is both qualitative and quantitative in nature. We look to continually enhance this process
with tools such as real estate software used for portfolio analysis that aid in identifying viable locations for future
expansion and identifying potential store closings and relocations.
In fiscal 2016, we opened 19 new stores. On a per-store basis, the initial inventory investment for stores opened
averaged $438,000, capital expenditures averaged $456,000 and lease incentives received from landlords averaged
$188,000.
Pre-opening expenses included in cost of sales and selling, general and administrative expenses totaled
approximately $1.6 million for fiscal 2016, or an average of $85,000 per store. Items classified as pre-opening
expenses include rent, freight, advertising, salaries and supplies. During fiscal 2015 we opened 20 new stores and
expended $1.9 million, or an average of $96,000 per store. The decrease in the average expense per new store was
primarily the result of a decrease in pre-opening advertising expense.
We closed nine stores during fiscal 2016 and 15 stores during fiscal 2015. Store closing costs for these stores
totaled $375,000 in fiscal 2016 and $817,000 in fiscal 2015. These costs included normal costs associated with
closing a store, non-cash asset impairment of certain underperforming stores and acceleration of expenses associated
with management’s determination to close certain underperforming stores in future periods. 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 cost incurred in terminating the lease.
Capital Expenditures – Fiscal 2017
Capital expenditures are expected to be $22 million to $23 million in fiscal 2017. Of our total capital expenditures,
between $10 million and $11 million are expected to be used for new store construction and fixturing,
approximately $2 million will be used for store relocations and approximately $4 million will be used to remodel
approximately 5% of our existing store base. Lease incentives to be received from landlords are expected to range
from approximately $4 million to $5 million. The remaining capital expenditures are expected to be incurred for
various other store improvements, continued investments in technology and normal asset replacement activities.
The actual amount of cash required for capital expenditures for store operations depends in part on the number of
new stores opened and relocated, the amount of lease incentives, if any, received from landlords and the number of
stores remodeled. The number of new store openings and relocations will be dependent upon, among other things,
the availability of desirable locations, and the negotiation of acceptable lease terms and general economic and
business conditions affecting consumer spending in areas we target for expansion.
28
Store Openings and Closings – Fiscal 2017
During fiscal 2017, we anticipate opening approximately 20 new stores and relocating two store locations.
Although our traditional store prototype utilizes between 8,000 and 11,000 square feet of leased area, we have begun
to roll out scalable store prototypes that reflect the diverse population densities of our markets. These scalable
prototypes utilize a wide range of leased space based on sales potential and opportunistic space availability. Capital
invested in new stores in fiscal 2017 is expected to average approximately $436,000 with landlord incentives
averaging $131,000. The average initial inventory investment in our stores is expected to range from $236,000 to
$569,000 depending on the size and sales expectation of the store and the timing of the new store opening.
Pre-opening expenses included in cost of sales and selling, general and administrative expenses are expected to
increase slightly in fiscal 2017 compared to fiscal 2016, averaging approximately $90,000 per store.
As we enter fiscal 2017, we currently expect to close approximately 15 stores. 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. The timing and actual amount of expense recorded in closing a 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 cost incurred in terminating the lease. We will continue to
review our annual store growth rate based on our view of the internal and external opportunities and challenges in
the marketplace.
Dividends
In fiscal 2016 four quarterly cash dividends were approved and paid. The first quarter dividend was in the amount of
$0.065 per share and the dividends paid for the remaining three quarters were increased to $0.07 per share. During
fiscal 2015, the first quarter dividend was in the amount of $0.06 per share and the dividends for the remaining three
quarters were $0.065 per share. During fiscal 2014, four quarterly cash dividends were approved and paid, each in
the amount of $0.06 per share. During fiscal years 2016, 2015 and 2014, we returned $5.0 million, $5.0 million and
$4.8 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. Our credit agreement permits the payment of cash dividends as long as no default or event of default
exists under the credit agreement and the aggregate amount of cash dividends for a fiscal year do not exceed $10
million.
Share Repurchase Program
On December 6, 2016, our Board of Directors authorized a new share repurchase program for up to $50 million of
outstanding common stock, effective January 1, 2017. The purchases may be made in the open market or through
privately negotiated transactions, from time-to-time through December 31, 2017, and in accordance with applicable
laws, rules and regulations. On January 27, 2017, we entered into a stock repurchase plan for the purpose of
repurchasing shares of our common stock in accordance with guidelines specified under Rule 10b5-1 of the
Exchange Act (the “Rule 10b5-1 Plan”). The Rule 10b5-1 Plan was established pursuant to, and as part of, our share
repurchase program and permits shares to be repurchased in accordance with pre-determined criteria when
repurchases would otherwise be prohibited, such as during self-imposed blackout periods, or under insider trading
laws. The 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 conditions. As of January 28, 2017, approximately 284,000 shares
at an aggregate cost of $7.2 million had been repurchased under the new share repurchase program.
The new share repurchase program replaced the prior $50 million share repurchase program that was authorized in
December 2015 and expired in accordance with its terms on December 31, 2016. At its expiration, we had purchased
approximately 1.6 million shares at an aggregate cost of $39.7 million under the prior repurchase program.
29
Contractual Obligations
Significant contractual obligations as of January 28, 2017 and the fiscal years in which payments are due include:
(In thousands)
Payments Due By Fiscal Year
Contractual Obligations
Letters of credit
Operating leases
Purchase commitments
Deferred compensation
Total contractual obligations
Total
$
1,006 $
373,018
401,962
10,465
$
786,451
$
2017
1,006
69,772
394,294
1,030
466,102
2018 &
2019
2020 &
2021
2022 and
after
$
-
117,171
$
4,277
27
$ 121,475
$
- $
-
93,107
18
9,394
$ 102,519
92,968
3,373
14
96,355
For purposes of our contractual obligations table above, we have assumed that we will make all payments scheduled
or reasonably estimated to be made under those obligations that have a determinable expiration date. We have
disregarded the possibility that such obligations may be prematurely terminated or extended, whether automatically
by the terms of the obligation or by agreement between us and the counterparty, due to the speculative nature of
premature termination or extension. Except for operating leases, the balances included in the “2022 and after”
column of the contractual obligations table includes amounts where we are not able to reasonably estimate the
timing of the potential future payments. Estimated interest payments on our credit facility are not included in the
above table as our credit facility provides for frequent borrowing and/or repayment activities, which does not lend
itself to reliable forecasting for disclosure purposes.
On March 27, 2017 we entered into a second amendment of our current unsecured credit agreement (the “Credit
Agreement”) to extend the expiration date by five years and renegotiate certain terms and conditions. The Credit
Agreement, as amended, continues to provide for up to $50.0 million in cash advances and commercial and standby
letters of credit with borrowing limits based on eligible inventory, which amount may be increased from time to time
by up to an additional $50.0 million, without the consent of any lender, if certain conditions are met. The Credit
Agreement contains covenants which stipulate: (1) Total Shareholders’ Equity will not fall below $250.0 million at
the end of each fiscal quarter; (2) the ratio of funded debt plus three times rent to EBITDA plus rent will not exceed
2.5 to 1.0; (3) cash dividends for a fiscal year will not exceed $10 million; and, (4) Distributions in the form of
redemptions of Equity Interests can be made solely with cash on hand so long as before and immediately after such
distributions there are no revolving loans outstanding. Should a default condition be reported, the lenders may
preclude additional borrowings and call all loans and accrued interest at their discretion. The credit facility bears
interest, at our option, at (1) the agent bank’s prime rate as defined in the Credit Agreement plus 1%, with the prime
rate defined as the greater of (a) the Federal Fund rate plus 0.50% or (b) the interest rate announced from time to
time by the agent bank as its “prime rate” or (2) LIBOR plus 1.25% to 2.50%, depending on our achievement of
certain performance criteria. A commitment fee is charged at 0.20% to 0.35% per annum, depending on our
achievement of certain performance criteria, on the unused portion of the bank group’s commitment. The Credit
Agreement expires on March 27, 2022.
Our previously amended Credit Agreement contained covenants which stipulated: (1) Total Shareholders’ Equity,
adjusted for the effect of any share repurchases, will not fall below that of the prior fiscal year-end; (2) the ratio of
funded debt plus three times rent to EBITDA plus rent will not exceed 2.5 to 1.0; and (3) cash dividends for a fiscal
year will not exceed 30% of consolidated net income for the immediately preceding fiscal year, and in no event may
the total distributions in any fiscal year exceed 25% of the prior year’s ending net worth. We were in compliance
with these covenants as of January 28, 2017.
There were no borrowings outstanding under the credit facility and letters of credit outstanding were $1.0 million at
January 28, 2017.
See Note 6 – “Long-Term Debt”, Note 7 – “Leases”, Note 8 – “Income Taxes” and Note 9 – “Employee Benefit
Plans” to our Notes to Consolidated Financial Statements contained in PART II, ITEM 8 of this report for a further
discussion of our contractual obligations.
30
Off-Balance Sheet Arrangements
There were no assignments of operating leases to third parties in fiscal 2016. We assigned four store operating
leases to separate third parties during fiscal 2015. Based on the terms of the assignments, we are not liable to the
landlords for obligations accruing after the date of these assignments in connection with these locations. Except for
operating leases entered into in the normal course business, we did not have any off-balance sheet arrangements as
of January 28, 2017. See Note 7 – “Leases” to our Notes to Consolidated Financial Statements contained in PART
II, ITEM 8 of this report for further discussion of our lease obligations.
Seasonality
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. Non-capital
expenditures, such as advertising and payroll, incurred prior to the opening of a new store are charged to expense as
incurred. 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.
We have three distinct peak selling periods: Easter, back-to-school and Christmas. To prepare for our peak
shopping seasons, we must order and keep in stock significantly more merchandise than we would carry during
other parts of the year. Any unanticipated decrease in demand for our products during these peak shopping seasons
could require us to sell excess inventory at a substantial markdown, which could reduce our net sales and gross
margins and negatively affect our profitability. Our operating results depend significantly upon the sales generated
during these periods.
New Accounting Pronouncements
Recent accounting pronouncements applicable to our operations are contained in Note 2 – “Summary of Significant
Accounting Policies,” contained in the Notes to Consolidated Financial Statements included in PART II, item 8 of
this report.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to market risk in that the interest payable on our credit facility 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 facility during fiscal 2016 or
fiscal 2015.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by this item appears beginning on page 33.
31
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of
Shoe Carnival, Inc.
Evansville, Indiana
We have audited the accompanying consolidated balance sheets of Shoe Carnival, Inc. and subsidiaries
(the "Company") as of January 28, 2017 and January 30, 2016, and the related consolidated statements of
income, shareholders' equity, and cash flows for each of the three years in the period ended January 28,
2017. Our audits also included the financial statement schedule listed in the Index at Item 15. These
financial statements and financial statement schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on the financial statements and financial
statement schedule based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all material respects, the financial
position of Shoe Carnival, Inc. and subsidiaries as of January 28, 2017 and January 30, 2016, and the
results of their operations and their cash flows for each of the three years in the period ended January 28,
2017, in conformity with accounting principles generally accepted in the United States of America. Also,
in our opinion, such financial statement schedule, when considered in relation to the basic consolidated
financial statements taken as a whole, presents fairly, in all material respects, the information set forth
therein.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight
Board (United States), the Company's internal control over financial reporting as of January 28, 2017,
based on the criteria established in Internal Control — Integrated Framework (2013) issued by the
Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 29,
2017 expressed an unqualified opinion on the Company's internal control over financial reporting.
/s/ DELOITTE & TOUCHE LLP
Indianapolis, Indiana
March 29, 2017
32
Shoe Carnival, Inc.
Consolidated Balance Sheets
(In thousands, except share data)
Assets
Current Assets:
Cash and cash equivalents
Accounts receivable
Merchandise inventories
Deferred income taxes
Other
Total Current Assets
Property and equipment – net
Deferred income taxes
Other noncurrent assets
Total Assets
Liabilities and Shareholders’ Equity
Current Liabilities:
Accounts payable
Accrued and other liabilities
Total Current Liabilities
Deferred lease incentives
Accrued rent
Deferred compensation
Other
Total Liabilities
Shareholders’ Equity:
Common stock, $.01 par value, 50,000,000 shares authorized,
20,569,198 and 20,604,178 shares issued, respectively
Additional paid-in capital
Retained earnings
Treasury stock, at cost, 2,433,925 and 955,612 shares, respectively
Total Shareholders’ Equity
Total Liabilities and Shareholders’ Equity
See notes to consolidated financial statements.
January 28,
2017
January 30,
2016
$
$
$
$
$
$
$
62,944
4,424
279,646
0
4,737
351,751
96,216
9,600
911
458,478
67,808
18,488
86,296
30,751
11,255
10,465
829
139,596
68,814
2,131
292,878
1,061
5,193
370,077
103,386
7,158
472
481,093
72,086
15,848
87,934
31,971
11,224
9,612
550
141,291
206
65,272
312,641
(59,237)
318,882
458,478
$
206
66,805
294,308
(21,517)
339,802
481,093
33
Shoe Carnival, Inc.
Consolidated Statements of Income
(In thousands, except per share data)
Net sales
Cost of sales (including buying,
distribution and occupancy costs)
Gross profit
Selling, general and administrative expenses
Operating income
Interest income
Interest expense
Income before income taxes
Income tax expense
Net income
Net income per share:
Basic
Diluted
Weighted average shares:
Basic
Diluted
See notes to consolidated financial statements.
January 28,
2017
January 30,
2016
January 31,
2015
$
1,001,102
$
983,968
$
940,162
711,867
693,452
666,483
289,235
251,323
37,912
(6)
169
37,749
14,232
290,516
243,883
46,633
(39)
168
46,504
17,737
273,679
231,826
41,853
(14)
165
41,702
16,175
23,517
$
28,767
$
25,527
1.28
1.28
$
$
1.45
1.45
$
$
1.27
1.27
18,017
18,022
19,417
19,427
19,777
19,791
$
$
$
34
Shoe Carnival, Inc.
Consolidated Statements of Shareholders’ Equity
(In thousands)
Balance at
February 1, 2014
Stock option exercises
Dividends ($0.24 per share)
Stock-based compensation
income tax benefit
Employee stock purchase
plan purchases
Restricted stock awards
Shares surrendered by employees
to pay taxes on restricted stock
Purchase of common stock for
Treasury
Stock-based compensation
expense
Net income
Balance at
January 31, 2015
Stock option exercises
Dividends ($0.255 per share)
Stock-based compensation
income tax benefit
Employee stock purchase
plan purchases
Restricted stock awards
Shares surrendered by employees
to pay taxes on restricted stock
Purchase of common stock for
Treasury
Stock-based compensation
expense
Net income
Balance at
January 30, 2016
Dividends ($0.275 per share)
Stock-based compensation
income tax benefit
Employee stock purchase
plan purchases
Restricted stock awards
Shares surrendered by employees
to pay taxes on restricted stock
Purchase of common stock for
Treasury
Stock-based compensation
expense
Net income
Balance at
January 28, 2017
Issued
20,482
6
2
183
Total
316,872
77
(4,911)
68
210
0
(55)
173
258
(55)
Common Stock
Treasury Amount
Additional
Paid-In Capital
Retained
Earnings
Treasury
Stock
0 $
4
205 $
66,600
1
$
250,070 $
(3) $
76
(4,911)
2
9
13
(2)
(405)
68
37
(260)
943
20,673
(381)
15
207
67,389
(125)
120
20
(3,980)
(1)
(69)
10
212
(3)
(809)
25,527
270,686
(5,145)
(7,533)
(7,533)
943
25,527
331,198
155
(5,145)
120
236
0
(86)
(7,084)
280
216
3,981
(86)
(18,824)
(18,824)
3,381
28,767
3,381
28,767
20,604
(956)
206
66,805
294,308
(5,184)
(21,517)
339,802
(5,184)
(35)
10
225
(16)
(1,697)
3
(10)
(5,072)
233
5,072
3
223
0
(421)
(421)
(42,604)
(42,604)
3,546
23,517
3,546
23,517
20,569
(2,434) $
206 $
65,272
$
312,641 $
(59,237) $
318,882
See notes to consolidated financial statements.
35
Shoe Carnival, Inc.
Consolidated Statements of Cash Flows
(In thousands)
Cash Flows From Operating Activities
Net income
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization
Stock-based compensation
Loss on retirement and impairment of assets, net
Deferred income taxes
Lease incentives
Other
Changes in operating assets and liabilities:
Accounts receivable
Merchandise inventories
Accounts payable and accrued liabilities
Other
Net cash provided by operating activities
Cash Flows From Investing Activities
Purchases of property and equipment
Proceeds from sale of property and equipment
Proceeds from note receivable
Net cash used in investing activities
Cash Flow From Financing Activities
Proceeds from issuance of stock
Dividends paid
Excess tax benefits from stock-based compensation
Purchase of common stock for treasury
Shares surrendered by employees to pay taxes on restricted stock
Net cash used in financing activities
Net (decrease) increase in cash and cash equivalents
Cash and cash equivalents at beginning of year
January 28,
2017
January 30,
2016
January 31,
2015
$
23,517
$
28,767
$
25,527
23,699
3,822
4,794
(1,381)
3,825
(4,619)
(2,293)
13,232
(982)
175
63,789
(21,832)
0
0
(21,832)
223
(5,028)
3
(42,604)
(421)
(47,827)
(5,870)
68,814
23,078
3,702
1,770
(3,035)
6,604
(5,171)
588
(5,001)
6,530
723
58,555
20,063
1,064
1,104
(550)
8,307
(1,070)
1,409
(3,076)
6,838
(1,962)
57,654
(27,901)
0
250
(27,651)
(33,543)
836
250
(32,457)
391
(5,037)
90
(18,824)
(86)
(23,466)
7,438
61,376
287
(4,828)
55
(7,533)
(55)
(12,074)
13,123
48,253
Cash and Cash Equivalents at End of Year
$
62,944
$
68,814
$
61,376
Supplemental disclosures of cash flow information:
Cash paid during year for interest
Cash paid during year for income taxes
Capital expenditures incurred but not yet paid
See notes to consolidated financial statements.
$
$
$
170
14,696
168
$
$
$
168
20,020
677
$
$
$
166
17,618
1,596
36
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
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 “Company”). All intercompany accounts and transactions have been
eliminated. Our primary activity is the sale of footwear and related products through our retail stores in 35 states
within the continental United States and in Puerto Rico. We also offer online shopping on our e-commerce site at
www.shoecarnival.com.
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 2016, 2015 and 2014 relate to the fiscal years ended January 28, 2017, January 30, 2016 and
January 31, 2015, respectively.
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 $62.9 million at January 28, 2017 and $68.8 million at January 30, 2016.
Credit and debit card receivables and receivables due from a third-party totaling $4.9 million and $5.5 million were
included in cash equivalents at January 28, 2017 and January 30, 2016, respectively. Credit and debit card
receivables generally settle within three days; receivables due from a third-party generally settle within 15 days.
We consider all short-term investments with an original maturity date of three months or less to be cash equivalents.
As of January 28, 2017, and January 30, 2016, all invested cash was held in a money market account. 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 of Financial Instruments and Non-Financial Assets
Our financial assets as of January 28, 2017 and January 30, 2016 included cash and cash equivalents. The carrying
value of cash and cash equivalents approximates fair value due to its short-term nature. We did not have any
financial liabilities measured at fair value for these periods. Non-financial assets measured at fair value included on
our consolidated balance sheet as of January 28, 2017 and of January 30, 2016 were those long-lived assets for
which an impairment charge has been recorded. We did not have any non-financial liabilities measured at fair value
for these periods. See Note 3 – “Fair Value Measurements” for further discussion.
37
Shoe Carnival, Inc.
Notes to Consolidated Financial Statements – continued
Merchandise Inventories and Cost of Sales
Merchandise inventories are stated at the lower of cost or market (LCM) using the first-in, first-out (FIFO) method.
For determining market 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 LCM includes, among others, recent sale prices, 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 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 include charges paid to a third party service provider in
addition to the freight expense for delivering merchandise to our customer.
Property and Equipment-Net
Property and equipment is stated at cost. Depreciation and amortization of property, equipment and leasehold
improvements are taken on 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 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.
We periodically evaluate our long-lived assets if events or circumstances indicate 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
performed, at the lowest level for which there are identifiable cash flows, which is generally at a store level. 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
selling, general and administrative expenses. 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. 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. Our evaluations resulted in the
recording of non-cash impairment charges of approximately $4.5 million and $1.0 million in fiscal years 2016 and
2015, respectively.
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, protecting us from individual and aggregate losses over specified
dollar values. We review the liability reserved for our self-insured portions on a quarterly basis, taking 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. Self-insurance reserves include
estimates of claims filed, carried at their expected ultimate settlement value, and claims incurred but not yet
reported. As of January 28, 2017 and January 30, 2016, our self-insurance reserves totaled $3.4 million and $3.3
38
Shoe Carnival, Inc.
Notes to Consolidated Financial Statements - continued
million, respectively. We record self-insurance reserves as a component of selling, general and administrative
expenses 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.
Deferred Lease Incentives
All cash incentives received from landlords are recorded as deferred income and amortized over the life of the lease
on a straight-line basis as a reduction of rental expense.
Accrued Rent
We are party to various lease agreements, which require scheduled rent increases over the initial lease term. Rent
expense for such leases is recognized on a straight-line basis over the initial lease term beginning the earlier of the
start date of the lease or when we take possession of the property. The difference between rent based upon
scheduled monthly payments and rent expense recognized on a straight-line basis is recorded as accrued rent.
Revenue Recognition
Revenue from sales of merchandise at our store locations is recognized at the time of sale. We record revenue from
our e-commerce sales, including shipping and handling fees, based on an estimated customer receipt date. Our sales
are recorded exclusive of sales tax. In the regular course of business, 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.
Consideration Received From a Vendor
Consideration is primarily received from merchandise vendors. Consideration is either recorded as a reduction of
the price paid for the vendor’s products and recorded as a reduction of our cost of sales, or if the consideration
represents a reimbursement of a specific, incremental and identifiable cost, then it is recorded as an offset to the
same financial statement line item.
Consideration received from our vendors 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 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 allowances received exceed the incremental cost 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 utilizing an average
inventory turn rate.
Store Opening and Start-up Costs
Non-capital expenditures, such as advertising, payroll, supplies and rent, incurred prior to the opening of a new store
are charged to expense in the period they are incurred.
39
Shoe Carnival, Inc.
Notes to Consolidated Financial Statements - continued
Advertising Costs
Print, television, radio, outdoor and digital media costs are generally expensed when incurred. Internal production
costs are expensed when incurred and external production costs are expensed in the period the advertisement first
takes place. Advertising expenses included in selling, general and administrative expenses were $42.9 million,
$42.1 million and $41.6 million in fiscal years 2016, 2015 and 2014, respectively.
Stock-Based Compensation
We recognize compensation expense for stock-based awards based on a fair value based method. Stock-based
awards may include stock options, stock appreciation rights, and restricted stock 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 selling, general
and administrative expense.
We apply an estimated forfeiture rate in calculating the stock-based compensation expense for the period. Forfeiture
estimates are adjusted periodically based on the extent to which actual forfeitures differ, or are expected to differ,
from previous estimates.
Segment Information
We have identified each retail store and our e-commerce store as individual operating segments. Our operating
segments have been aggregated and are reported as one reportable segment based on the similar nature of products
sold, merchandising and distribution processes involved, target customers and economic characteristics. Due to our
multi-channel retailer strategy, we view our e-commerce sales as an extension of our physical stores.
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 account for uncertain tax positions in accordance with current authoritative guidance and
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.
40
Shoe Carnival, Inc.
Notes to Consolidated Financial Statements - continued
Net Income Per Share
The following table sets forth the computation of basic and diluted earnings per share as shown on the face of the
accompanying consolidated statements of income.
January 28, 2017
Fiscal Year Ended
January 30, 2016
January 31, 2015
(In thousands except per share data)
Basic Earnings per Share:
Net
Income
Shares
Per
Share
Amount
Net income
Amount allocated to participating
securities
Net income available for basic
common shares and basic earnings
per share
$ 23,517
(487)
Net
Income
$ 28,767
(566)
Per
Share
Amount
Shares
Net
Income
$ 25,527
(461)
Per
Share
Amount
Shares
$ 23,030
18,017 $
1.28 $ 28,201
19,417 $
1.45 $ 25,066
19,777 $
1.27
Diluted Earnings per Share:
Net income
Amount allocated to participating
securities
Adjustment for dilutive potential
common shares
Net income available for diluted
common shares and diluted
earnings per share
$ 23,517
$ 28,767
(487)
(566)
$ 25,527
(461)
0
5
0
10
0
14
$ 23,030
18,022 $
1.28 $28,201
19,427 $
1.45 $ 25,066
19,791 $
1.27
Our basic and diluted earnings per share are computed using the two-class method. The two-class method is an
earnings allocation that determines net income per share for each class of common stock and participating securities
according to their participation rights in dividends and undistributed earnings or losses. Non-vested restricted stock
awards that include non-forfeitable rights to dividends are considered participating securities. During periods of
undistributed losses however, no effect is given to our participating securities since they do not share in the losses.
Per share amounts are computed by dividing net income available to common shareholders by the weighted average
shares outstanding during each period. No options to purchase shares of common stock were excluded in the
computation of diluted shares for the periods presented.
New Accounting Pronouncements
In May 2014, the Financial Accounting Standards Board (“FASB”) issued guidance on the recognition of revenue
for all contracts with customers designed to improve comparability and enhance financial statement disclosures.
Subsequently, the FASB has also issued accounting standards updates which clarify the guidance. The underlying
principle of this comprehensive model is that revenue is recognized to depict the transfer of promised goods or
services to customers in an amount that reflects the payment to which the company expects to be entitled in
exchange for those goods or services. In August 2015, the FASB subsequently issued guidance which approved a
one year deferral of the guidance until annual reporting periods (including interim reporting periods within those
periods) beginning after December 15, 2017, which makes the guidance effective for us at the beginning of fiscal
2018, including interim periods within that fiscal year. Upon adoption, we will apply the provisions of the guidance
either on a retrospective or modified retrospective basis. We are evaluating the impact of this guidance on our
consolidated financial position, results of operations and cash flows.
In July 2015, the FASB issued guidance on simplifying the measurement of inventory by requiring inventory to be
measured at the lower of cost and net realizable value. The new guidance does not apply to inventory currently
measured using the last-in-first-out or the retail inventory valuation methods. The guidance will be effective at the
41
Shoe Carnival, Inc.
Notes to Consolidated Financial Statements - continued
beginning of fiscal 2017, including interim periods within that fiscal year, and will be applied on a prospective basis.
We do not believe the guidance will have a material impact on our consolidated financial position, results of
operations and cash flows.
In November 2015, the FASB issued guidance which simplifies the classification of deferred taxes by requiring an
entity to classify deferred tax liabilities and assets as noncurrent within a classified statement of financial position.
We early adopted this guidance in the third quarter of fiscal 2016 and are applying this change prospectively. Prior
consolidated balance sheets have not been retrospectively adjusted. The adoption resulted in a $2.7 million
reclassification of net deferred tax assets from current to noncurrent on our consolidated balance sheet as of October
29, 2016. The adoption did not have a material impact on our results of consolidated operations and cash flows.
In February 2016, the FASB issued guidance which will replace most existing lease accounting guidance. This
update requires an entity to recognize leased assets and the rights and obligations created by those leased assets on
the balance sheet and to disclose key information about the entity's leasing arrangements. The guidance will be
effective at the beginning of fiscal 2019, including interim periods within that fiscal year, and will be applied on a
modified retrospective basis. We are evaluating the impact of this guidance on our consolidated financial position,
results of operations and cash flows. However, we expect that the adoption of the guidance will require us to
recognize right-of-use assets and lease liabilities that will be material to our consolidated balance sheet.
In March 2016, the FASB issued guidance intended to simplify several areas of accounting for share-based
compensation arrangements, including the income tax impact, classification in the statement of cash flows and
forfeitures. The guidance will be effective at the beginning of fiscal 2017, including interim periods within that
fiscal year, and can be applied either prospectively, retrospectively or using a modified retrospective transition
method. We are still evaluating the effect of the guidance, but the adoption may create volatility in our effective tax
rate. Upon adoption, all tax-related cash flows resulting from share-based payments will be reported as operating
activities on the statements of cash flows, a change from the current presentation of presenting tax benefits as an
inflow from financing activities and an outflow from operating activities.
In November 2016, the FASB issued guidance for restricted cash classification and presentation of the statement of
cash flows requiring cash to be included within cash and cash equivalents on the statement of cash flows. The
guidance will be effective at the beginning of fiscal 2018, including interim periods within that fiscal year, and will
be applied on a retrospective basis. We are evaluating the impact of this guidance on our condensed consolidated
statement of cash flows.
Note 3 – Fair Value Measurements
The accounting standards related to fair value measurements define fair value and provide a consistent framework
for measuring fair value under the authoritative literature. 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 standards require or permit
the fair value measurement of assets and liabilities. The guidance does not expand the use of fair value
measurements. 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 – Observable market-based inputs or unobservable inputs that are corroborated by market data;
Level 3 – Significant unobservable inputs that are not corroborated by market data. Generally, these fair value
measures are model-based valuation techniques such as discounted cash flows, and are based on the best
information available, including our own data. Fair values of our long-lived assets are estimated using an
income-based approach and are classified within Level 3 of the valuation hierarchy.
The following table presents assets that are measured at fair value on a recurring basis at January 28, 2017 and
42
Shoe Carnival, Inc.
Notes to Consolidated Financial Statements - continued
January 30, 2016. We have no material liabilities measured at fair value on a recurring or non-recurring basis.
(In thousands)
As of January 28, 2017:
Fair Value Measurements
Level 1
Level 2
Level 3
Total
Cash equivalents – money market account
$
114
As of January 30, 2016:
Cash equivalents– money market account
$
5,386
$
$
0
0
$
$
0
0
$
$
114
5,386
The fair values of cash, receivables, accounts payable, accrued expenses and other current liabilities approximate
their carrying values because of their short-term nature.
From time to time, we measure certain assets at fair value on a non-recurring basis, specifically long-lived assets
evaluated for impairment. These are typically store specific assets, which are reviewed for impairment whenever
events or changes in circumstances indicate that recoverability of their carrying value is questionable. If the
expected undiscounted future cash flows related to a store’s assets are less than their carrying value, an impairment
loss would be recognized for the difference between estimated fair value and carrying value and recorded in selling,
general and administrative expenses. We estimate the fair value of store assets using 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, gross margins, direct expenses, exercise of future
lease renewal options and resulting cash flows and, by their nature, include judgments about how current initiatives
will impact future performance. External factors, such as the local environment in which the store resides, including
strip-mall 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 decrease or increase the fair
value of these assets, which would have an effect on the impairment recorded.
During the fifty-two weeks ended January 28, 2017, we recorded an impairment charge of $4.5 million on long-
lived assets held and used, which was included in earnings for the period. Subsequent to this impairment, these
long-lived assets had a remaining unamortized basis of $4.7 million. During the fifty-two weeks ended January 30,
2016, we recorded an impairment charge of $1.0 million on long-lived assets held and used, which was included in
earnings for the period. Subsequent to this impairment, these long-lived assets had a remaining unamortized basis of
$1.0 million.
Note 4 – Property and Equipment-Net
The following is a summary of property and equipment:
(In thousands)
Furniture, fixtures and equipment
Leasehold improvements
Total
Less accumulated depreciation and amortization
Property and equipment – net
January 28,
2017
January 30,
2016
$
$
154,391
110,787
265,178
(168,962)
96,216
$
$
149,341
104,220
253,561
(150,175)
103,386
43
Shoe Carnival, Inc.
Notes to Consolidated Financial Statements - continued
Note 5 – Accrued and Other Liabilities
Accrued and other liabilities consisted of the following:
(In thousands)
Employee compensation and benefits
Self-insurance reserves
Gift cards
Sales and use tax
Other
Total accrued and other liabilities
Note 6 – Long-Term Debt
January 28,
2017
January 30,
2016
$
$
4,829
3,411
2,355
1,362
6,531
18,488
$
$
6,075
3,305
2,211
1,902
2,355
15,848
On March 27, 2017 we entered into a second amendment of our current unsecured credit agreement (the “Credit
Agreement”) to extend the expiration date by five years and renegotiate certain terms and conditions. The Credit
Agreement continues to provide for up to $50.0 million in cash advances and commercial and standby letters of
credit with borrowing limits based on eligible inventory.
The Credit Agreement contains covenants which stipulate: (1) Total Shareholders’ Equity will not fall below $250.0
million at the end of each fiscal quarter; (2) the ratio of funded debt plus three times rent to EBITDA plus rent will
not exceed 2.5 to 1.0; (3) cash dividends for a fiscal year will not exceed $10 million; and, (4) Distributions in the
form of redemptions of Equity Interests can be made solely with cash on hand so long as before and immediately
after such distributions there are no revolving loans outstanding. Should a default condition be reported, the lenders
may preclude additional borrowings and call all loans and accrued interest at their discretion. As of January 28,
2017, there were $1.0 million in letters of credit outstanding and $49.0 million available to us for borrowing under
the Credit Agreement.
The credit facility bears interest, at our option, at (1) the agent bank’s prime rate as defined in the Credit Agreement
plus 1.0% with the prime rate defined as the greater of (a) the Federal Fund rate plus 0.50% or (b) the interest rate
announced from time to time by the agent bank as its “prime rate” or (2) LIBOR plus 1.25% to 2.50%, depending on
our achievement of certain performance criteria. A commitment fee is charged at 0.20% to 0.35% per annum,
depending on our achievement of certain performance criteria, on the unused portion of the bank group’s
commitment. The Credit Agreement expires on March 27, 2022.
Note 7 – Leases
We lease all of our retail locations and certain equipment under operating leases expiring at various dates through
fiscal 2031. Various lease agreements require scheduled rent increases over the initial lease term. Rent expense for
such leases is recognized on a straight-line basis over the initial lease term beginning the earlier of the start date of
the lease or when we take possession of the property. The difference between rent based upon scheduled monthly
payments and rent expense recognized on a straight-line basis is recorded as accrued rent. All incentives received
from landlords are recorded as deferred income and amortized over the life of the lease on a straight-line basis as a
reduction of rental expense.
Certain leases provide for contingent rents that are not measurable at inception. These contingent rents are primarily
based on a percentage of sales that are in excess of a predetermined level. These amounts are excluded from
minimum rent and are included in the determination of total rent expense when it is probable that the expense has
been incurred and the amount is reasonably estimable. Certain leases also contain escalation clauses for increases in
operating costs and taxes.
44
Shoe Carnival, Inc.
Notes to Consolidated Financial Statements - continued
There were no assignments of operating leases to third parties in fiscal 2016. We assigned four store operating
leases to separate third parties during fiscal 2015. Based on the terms of the assignments, we are not liable to the
landlords for any future obligations that should arise in connection with these locations.
Rental expense for our operating leases consisted of:
(In thousands)
Rentals for real property
Contingent rent
Equipment rentals
Total
2016
2015
2014
$
$
65,900
92
62
66,054
$
$
64,244
83
59
64,386
$
$
62,727
59
66
62,852
Future minimum lease payments at January 28, 2017 were as follows:
(In thousands)
2017
2018
2019
2020
2021
Thereafter to 2031
Total
Note 8 – Income Taxes
The provision for income taxes consisted of:
(In thousands)
Current:
Federal
State
Puerto Rico
Total current
Deferred:
Federal
State
Puerto Rico
Total deferred
Valuation allowance
Total provision
Operating
Leases
$
$
69,772
61,041
56,130
47,483
45,485
93,107
373,018
2016
2015
2014
$
$
13,366
1,997
250
15,613
(153)
(1,228)
(1,494)
(2,875)
1,494
$
14,232 $
$
18,366
2,267
249
20,882
(3,000)
(145)
(318)
(3,463)
318
17,737
$
14,575
1,800
350
16,725
(1,229)
(115)
(1,149)
(2,493)
1,943
16,175
We realized a tax benefit of $2,900, $120,000 and $68,000 in fiscal years 2016, 2015 and 2014, respectively, as a
result of the exercise of stock options and the vesting of restricted stock, which is recorded in shareholders’ equity.
45
Shoe Carnival, Inc.
Notes to Consolidated Financial Statements - continued
Reconciliation between the statutory federal income tax rate and the effective income tax rate is as follows:
Fiscal years
2016
2015
2014
U.S. Federal statutory tax rate
State and local income taxes, net of federal tax
benefit
Puerto Rico
Valuation allowance
Tax benefit of foreign losses
Other
Effective income tax rate
35.0%
35.0%
2.1
0.2
4.0
(3.6)
0.0
37.7%
2.7
0.3
0.7
(0.6)
0.0
38.1%
35.0%
3.1
0.2
4.7
(4.3)
0.1
38.8%
We recorded $224,000, $327,000 and $300,000 in federal employment related tax credits in fiscal 2016, 2015 and
2014, respectively.
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)
Deferred tax assets:
Accrued rent
Accrued compensation
Accrued employee benefits
Inventory
Self-insurance reserves
Lease incentives
Net operating loss carry forward
Other
Total deferred tax assets
Valuation allowance
Total deferred tax assets – net of valuation allowance
Deferred tax liabilities:
Property and equipment
Capitalized costs
Other
Total deferred tax liabilities
Net deferred tax asset
Less current deferred income tax benefit
Long-term deferred income taxes
January 28,
2017
January 30,
2016
$
$
4,333
8,552
555
1,125
758
11,996
3,719
638
31,676
(3,717)
27,959
17,256
1,103
0
18,359
9,600
0
9,600
$
$
4,321
6,911
532
737
641
12,522
2,261
411
28,336
(2,261)
26,075
16,671
1,153
32
17,856
8,219
(1,061)
7,158
At the end of fiscal 2016, we estimated foreign net operating loss carry forwards of $9.8 million, which expire
between fiscal 2023 and fiscal 2026. At January 28, 2017, we had a valuation allowance of $3.7 million against
these net operating losses that would be realizable only upon the generation of future taxable income in the
jurisdiction in which the losses were incurred.
46
Shoe Carnival, Inc.
Notes to Consolidated Financial Statements - continued
Our unrecognized tax liabilities relate to tax years encompassing our fiscal years 1999 through 2016 for the tax
years that remain subject to examination by major tax jurisdictions as of January 28, 2017. At January 28, 2017,
January 30, 2016 and January 31, 2015, there were no unrecognized tax liabilities or related accrued penalties or
interest in Other liabilities on the Consolidated Balance Sheets.
Note 9 – Employee Benefit Plans
Retirement Savings Plans
On February 24, 1994, our Board of Directors approved the Shoe Carnival Retirement Savings Plan (the “Domestic
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 us matching the first 4% at a rate of 50%. Our contributions to
the participants’ accounts become fully vested when the participant reaches their third anniversary of employment
with us. Contributions charged to expense were $695,000, $656,000, and $639,000 in fiscal years 2016, 2015, and
2014, respectively.
On March 19, 2012, our Board of Directors approved the Shoe Carnival Puerto Rico Savings Plan (the “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 us matching the first 4% at a rate of 50%. Contributions charged to expense were $15,000, $10,000
and $12,000 in fiscal years 2016, 2015 and 2014, respectively.
Stock Purchase Plan
On May 11, 1995, our shareholders approved the Shoe Carnival, Inc. Employee Stock Purchase Plan (the “Stock
Purchase Plan”) as adopted by our Board of Directors on February 9, 1995. 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 the 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, 10,000,
10,000 and 11,000 shares of common stock were purchased by participants in the plan and proceeds to us for the
sale of those shares were approximately $223,000, $236,000 and $209,000 for fiscal years 2016, 2015 and 2014,
respectively. At January 28, 2017, there were 94,000 shares of unissued common stock reserved for future purchase
under the Stock Purchase Plan.
The following table summarizes information regarding stock-based compensation expense recognized for the Stock
Purchase Plan:
(In thousands)
2016
2015
2014
Stock-based compensation expense before
the recognized income tax benefit (1)
Income tax benefit
$
$
39
15
$
$
41
$
16 $
37
14
(1) Amounts are representative of the 15% discount employees are provided for purchases under the Stock Purchase Plan.
47
Shoe Carnival, Inc.
Notes to Consolidated Financial Statements - continued
Deferred Compensation Plan
In fiscal 2000, we established 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 elect on an annual basis to defer, on a pre-tax basis, portions of their current compensation until
retirement, or earlier if so elected. While not required to, we can match a portion of the employees’ contributions,
which would be 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 plan is currently
unfunded. Compensation expense for our match and earnings on the deferred amounts was $1.5 million for fiscal
2016 and $856,000 for fiscal 2014. Compensation income for our match and earnings on the deferred amounts was
$6,000 for fiscal 2015. The total deferred compensation liability at January 28, 2017 and January 30, 2016 was
$10.5 million and $9.6 million, respectively.
Note 10 – Stock Based Compensation
Compensation Plan Summaries
The 2000 Stock Option and Incentive Plan (the “2000 Plan”) was approved by our Board of Directors and
shareholders effective June 8, 2000. On June 14, 2012, the 2000 Plan was amended to increase the number of shares
reserved for issuance from 3,000,000 to 3,900,000 (subject to adjustment for subsequent stock splits, stock
dividends and certain other changes in the common stock). The 2000 Plan was also amended to revise the provision
governing the payment of dividends on shares of restricted stock. No further awards may be made under the 2000
Plan after the later of ten years from date of adoption, or ten years from the approval of any amendment. At
January 28, 2017, there were 380,000 shares of unissued common stock reserved for future grants under the 2000
Plan.
Stock options currently outstanding under the 2000 Plan typically were granted such that one-third of the shares
underlying the stock options granted would vest and become fully exercisable on each of the first three anniversaries
of the date of the grant and were assigned a 10-year term from the date of grant. Restricted stock awards issued to
employees under the 2000 Plan are classified as either performance-based or service-based. Performance-based
restricted stock awards historically were granted such that they vest upon the achievement of specified levels of
annual earnings per diluted share during a six-year period starting from the grant date. Should the annual earnings
per diluted share criteria not be met within the six-year period from the grant date, any shares still restricted will be
forfeited. In fiscal 2016, we granted performance-based restricted stock awards that vest on March 31, 2019 if we
achieve a specified level of annual earnings per diluted share in any of fiscal 2016, 2017 or 2018. Should the annual
earnings per diluted share criteria not be met in any of three fiscal years, the restricted stock awards will be forfeited
on March 31, 2019. Service-based restricted stock awards typically are granted under one of four vesting periods:
(a) one-third of the shares would vest on each of the first three anniversaries subsequent to the date of the grant; (b)
the full award would vest at the end of a 5-year service period subsequent to date of grant; (c) the full award would
vest at the end of a 2-year service period subsequent to date of grant; or (d) for our Directors, all restricted stock
awards are issued to vest on January 2nd. of the year following the year of the grant. Awards that contain both
performance and service based conditions require that the performance target is met during the required service
period. Non-vested performance-based restricted stock granted before June 14, 2012, and all shares of non-vested
service-based restricted stock provide non-forfeitable rights to all dividends declared by the Company. Dividends
on non-vested performance-based restricted stock granted after June 14, 2012, are subject to deferral until such
times as the shares vest and are released.
Plan Specific Activity and End of Period Balance Summaries
Stock Options
No stock options have been granted since fiscal 2008. All outstanding options had vested as of the end of fiscal
2011, therefore no unrecognized compensation expense remains.
48
Shoe Carnival, Inc.
Notes to Consolidated Financial Statements - continued
The following table summarizes the stock option transactions pursuant to the stock-based compensation plans:
Outstanding at January 30, 2016
Granted
Forfeited or expired
Exercised
Outstanding and exercisable at
January 28, 2017
Weighted-
Average
Remaining
Contractual
Term (Years)
Aggregate
Intrinsic
Value (in
thousands)
Weighted-
Average
Exercise Price
7.63
$
7,000
$
0.00
7.63
0.98
$
124
Number of
Shares
7,000
0
0
0
The following table summarizes information regarding options exercised:
(In thousands)
Total intrinsic value (1)
Total cash received
Associated excess income tax benefits recorded
2016
2015
2014
$
$
$
0
0
0
$
$
$
229 $
155 $
57 $
146
77
43
(1) Defined as the difference between the market value at exercise and the grant price of stock options exercised.
Restricted Stock Awards
The following table summarizes the restricted share transactions pursuant to the 2000 Plan:
Restricted stock at January 30, 2016
Granted
Vested
Forfeited
Restricted stock at January 28, 2017
Number of
Shares
829,492
225,003
(54,657)
(34,980)
964,858
$
$
Weighted-
Average Grant
Date Fair Value
22.13
24.98
25.38
21.55
22.63
The total fair value at grant date of restricted stock awards that vested during fiscal 2016, 2015 and 2014 was $1.4
million, $478,000 and $351,000, respectively. The weighted-average grant date fair value of stock awards granted
during fiscal 2015 and fiscal 2014 was $24.43 and $25.50, respectively.
The following table summarizes information regarding stock-based compensation expense recognized for restricted
stock awards:
(In thousands)
2016
2015
2014
Stock-based compensation expense before
the recognized income tax benefit
Income tax benefit
$
$
3,507
1,322
$
$
3,340
$
1,274 $
906
351
The $906,000 of expense recognized in fiscal 2014 was comprised of stock-based compensation expense of $3.2
million, partially offset by an expense reversal of $2.3 million. The reduction in expense was attributable to the
third quarter reversal of the cumulative prior period expense for performance-based awards, which were deemed by
49
Shoe Carnival, Inc.
Notes to Consolidated Financial Statements - continued
management as not probable of vesting prior to their expiration.
As of January 28, 2017, there was approximately $7.4 million of unrecognized compensation expense remaining
related to both our performance-based and service-based restricted stock awards. The cost is expected to be
recognized over a weighted average period of approximately 1.9 years. This incorporates our current assumptions
with respect to the estimated requisite service period required to achieve the designated performance conditions for
performance-based stock awards.
Cash-Settled Stock Appreciation Rights (SARs)
Our outstanding Cash-Settled Stock Appreciation Rights (SARs) were granted during the first quarter of fiscal 2015
to certain non-executive employees, such that one-third of the shares underlying the SARs will vest and become
fully exercisable on each of the first three anniversaries of the date of the grant and were assigned a five-year term
from the date of grant, after which any unexercised SARs will expire. Each SAR entitles the holder, 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
2015 were issued with a defined maximum gain of $10.00 over the exercise price of $24.26. In accordance with
current authoritative guidance, cash-settled SARs are accounted for as liability awards and classified as Other
liabilities on the Consolidated Balance Sheets.
The following table summarizes the SARs activity:
Outstanding at January 30, 2016
Granted
Forfeited
Exercised
Outstanding at January 28, 2017
Number of
Shares
147,550
0
(6,500)
(29,750)
111,300
Weighted-
Average
Exercise Price
24.26
$
24.26
24.26
24.26
24.26
$
Weighted-
Average
Remaining
Contractual
Term (Years)
3.1
The fair value of liability awards are remeasured, using a trinomial lattice model, at each reporting period until the
date of settlement. Increases or decreases in stock-based compensation expense is recognized over the vesting
period, or immediately for vested awards.
The fair value was estimated using a trinomial lattice model with the following assumptions:
Risk free interest rate yield curve
Expected dividend yield
Expected volatility
Maximum life
Exercise multiple
Maximum payout
Employee exit rate
January 28, 2017
0.49% - 1.94%
1.1%
35.51%
3.1 Years
1.34
$10.00
2.2% - 9.0%
January 30, 2016 January 31, 2015
0.01% - 1.18%
0.22% - 1.33%
1.0%
36.05%
4.1 Years
1.34
$10.00
1.0%
37.82%
2.0 Years
1.31
$6.67
2.2% - 9.0%
2.2% - 9.0%
The risk free interest rate was based on the U.S. Treasury yield curve in effect at the end of the reporting period.
The expected dividend yield was based on our quarterly cash dividends in fiscal 2016, with the assumption that
quarterly dividends would continue at the current rate. Expected volatility was based on the historical volatility of
our stock. The exercise multiple and employee exit rate are based on historical option data.
50
Shoe Carnival, Inc.
Notes to Consolidated Financial Statements - continued
The following table summarizes information regarding stock-based compensation expense recognized for SARs:
(In thousands)
2016
2015
2014
Stock-based compensation expense before
the recognized income tax benefit
Income tax benefit
$
$
276
104
$
$
321
$
123 $
121
47
As of January 28, 2017, approximately $110,000 in unrecognized compensation expense remained related to non-
vested SARs. This expense is expected to be recognized over a weighted-average period of approximately 0.7
years.
Note 11 – Business Risk
We purchase merchandise from approximately 170 footwear vendors. In fiscal 2016, two branded suppliers, Nike,
Inc. and Skechers USA, Inc., collectively accounted for approximately 45% of our net sales. Nike, Inc. accounted
for approximately 33% of our net sales and Skechers USA, Inc. accounted for approximately 12%. 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 12 – Litigation Matters
The accounting standard related to loss contingencies provides guidance in regards to 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. No accrual or disclosure is required for losses that are remote.
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.
51
Shoe Carnival, Inc.
Notes to Consolidated Financial Statements - continued
Note 13 – Quarterly Results (Unaudited)
Quarterly results are determined in accordance with the accounting policies used for annual data and include certain
items based upon estimates for the entire year. All fiscal quarters in 2016 and 2015 include results for 13 weeks.
(In thousands, except per share data)
Fiscal 2016
Net sales
Gross profit
Operating income (loss)
Net income (loss)
Net income (loss) per share – Basic (1)
Net income (loss) per share – Diluted (1)
Fiscal 2015
Net sales
Gross profit
Operating income
Net income
Net income per share – Basic (1)
Net income per share – Diluted (1)
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
$
$
$
$
$
$
260,470
75,556
17,285
10,661
0.56
0.56
First
Quarter
252,767
74,689
17,030
10,396
0.52
0.52
$
$
$
$
$
$
231,907
67,230
6,660
4,104
0.22
0.22
Second
Quarter
227,822
66,274
7,877
4,817
0.24
0.24
$
$
$
$
$
$
274,524
82,010
15,452
9,672
0.54
0.54
$
$
$
234,201
64,439
(1,485)
(920)
(0.05)
(0.05)
Third
Quarter
Fourth
Quarter
269,713
81,317
15,173
9,386
0.47
0.47
$
$
$
233,666
68,236
6,553
4,168
0.21
0.21
(1) Per share amounts are computed independently for each of the quarters presented. 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 under the two-class method.
Note 14 – Subsequent Events
On March 22, 2017, the Board of Directors approved the payment of a cash dividend to our shareholders in the first
quarter of fiscal 2017. The quarterly cash dividend of $0.07 per share will be paid on April 24, 2017 to shareholders
of record as of the close of business on April 10, 2017.
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 March 27, 2017, we entered into a second amendment of our Credit Agreement to extend the expiration date by
five years and renegotiate certain terms and conditions. The Credit Agreement continues to provide for up to $50.0
million in cash advances and commercial and standby letters of credit with borrowing limits based on eligible
inventory. The details of the amended Credit Agreement are contained in Note 6 – “Long –Term Debt.”
52
SHOE CARNIVAL, INC.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
(In thousands)
Reserve for sales returns and allowances
Balance at
Beginning
of Period
Charged to
Cost and
Expenses
Credited to
Costs and
Expenses
Balance at
End of
Period
Year ended January 31, 2015
Year ended January 30, 2016
Year ended January 28, 2017
$
$
$
131
147
178
$
$
$
104,511
105,258
102,826
$
$
$
104,495 $
105,227 $
102,802 $
147
178
202
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
ITEM 9A. CONTROLS AND PROCEDURES
Management’s Report on Internal Control Over Financial Reporting
The Company’s management is responsible for establishing and maintaining adequate internal control over financial
reporting as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934. Internal control over financial
reporting is a process designed by, or under the supervision of, the Company’s principal executive and principal
financial officers and effected by the Company’s board of directors, management and other personnel to provide
reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting principles and includes those policies and
procedures that:
Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and
dispositions of the assets of the Company;
Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting principles, and that receipts and expenditures of
the Company are being made only in accordance with authorizations of management and directors of the
Company; and
Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or
disposition of the Company’s assets that could have a material effect on the financial statements.
Because of inherent limitations, internal control over financial reporting may not prevent or detect misstatements.
Projections of any evaluation of effectiveness to future periods are subject to the risks that controls may become
inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may
deteriorate.
Management assessed the effectiveness of the Company’s internal control over financial reporting as of
January 28, 2017. In making this assessment, management used the criteria set forth by the Committee of
Sponsoring Organizations (“COSO”) of the Treadway Commission in Internal Control-Integrated Framework
(2013). Based on its assessment, management believes that the Company’s internal control over financial reporting
was effective as of January 28, 2017.
The Company’s internal control over financial reporting as of January 28, 2017 has been audited by its independent
registered public accounting firm, Deloitte & Touche LLP, as stated in their report, which is included herein.
53
Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures and Changes in Internal
Control over Financial Reporting
Our Chief Executive Officer and Chief Financial Officer have concluded, based on their evaluation as of
January 28, 2017, that our disclosure controls and procedures are effective to ensure that information required to be
disclosed by us in the reports filed or submitted by us under the Securities Exchange Act of 1934, as amended, is
recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange
Commission’s rules and forms, and include controls and procedures designed to ensure that information required to
be disclosed by us in such reports is accumulated and communicated to our management, including the Chief
Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required
disclosure.
There has been no significant change in our internal control over financial reporting that occurred during the quarter
ended January 28, 2017 that has materially affected, or is reasonably likely to materially affect, our internal control
over financial reporting.
54
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of
Shoe Carnival, Inc.
Evansville, Indiana
We have audited the internal control over financial reporting of Shoe Carnival, Inc. and subsidiaries (the
"Company") as of January 28, 2017, based on criteria established in Internal Control — Integrated Framework
(2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. The Company's
management is responsible for maintaining effective internal control over financial reporting and for its assessment
of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report
on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company's internal
control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about
whether effective internal control over financial reporting was maintained in all material respects. Our audit
included obtaining an understanding of internal control over financial reporting, assessing the risk that a material
weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the
assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe
that our audit provides a reasonable basis for our opinion.
A company's internal control over financial reporting is a process designed by, or under the supervision of, the
company's principal executive and principal financial officers, or persons performing similar functions, and effected
by the company's board of directors, management, and other personnel to provide reasonable assurance regarding
the reliability of financial reporting and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles. A company's internal control over financial reporting includes those
policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that
transactions are recorded as necessary to permit preparation of financial statements in accordance with generally
accepted accounting principles, and that receipts and expenditures of the company are being made only in
accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance
regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that
could have a material effect on the financial statements.
Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion
or improper management override of controls, material misstatements due to error or fraud may not be prevented or
detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control over
financial reporting to future periods are subject to the risk that the controls may become inadequate because of
changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting
as of January 28, 2017, based on the criteria established in Internal Control — Integrated Framework (2013) issued
by the Committee of Sponsoring Organizations of the Treadway Commission.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United
States), the consolidated financial statements and financial statement schedule as of and for the year ended January
28, 2017, of the Company and our report dated March 29, 2017, expressed an unqualified opinion on those financial
statements and financial statement schedule.
/s/ DELOITTE & TOUCHE LLP
Indianapolis, Indiana
March 29, 2017
55
ITEM 9B. OTHER INFORMATION
None
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The information required by this Item concerning our Directors, nominees for Director, Code of Ethics, designation
of the Audit Committee financial expert and identification of the Audit Committee, and concerning any disclosure of
delinquent filers under Section 16(a) of the Exchange Act, is incorporated herein by reference to our definitive
Proxy Statement for the 2017 Annual Meeting of Shareholders, to be filed with the Securities and Exchange
Commission pursuant to Regulation 14A within 120 days after the end of our last fiscal year. Information
concerning our executive officers is included under the caption “Executive Officers” at the end of PART I, ITEM 1.
BUSINESS of this Annual Report on Form 10-K. Such information is incorporated herein by reference.
We have adopted a Code of Business Conduct and Ethics (the “Code”) that applies to all of our Directors, officers
and employees, including our principal executive officer, principal financial officer, principal accounting officer and
controller. The Code is posted on our website at www.shoecarnival.com. We intend to disclose any amendments to
the Code by posting such amendments on our website. In addition, any waivers of the Code for our Directors or
executive officers will be disclosed in a report on Form 8-K.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item concerning remuneration of our officers and Directors and information
concerning material transactions involving such officers and Directors and Compensation Committee interlocks,
including the Compensation Committee Report and the Compensation Discussion and Analysis, is incorporated
herein by reference to our definitive Proxy Statement for the 2017 Annual Meeting of Shareholders which will be
filed pursuant to Regulation 14A within 120 days after the end of our last fiscal year.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The information required by this Item concerning the stock ownership of management and five percent beneficial
owners and securities authorized for issuance under equity compensation plans is incorporated herein by reference to
our definitive Proxy Statement for the 2017 Annual Meeting of Shareholders which will be filed pursuant to
Regulation 14A within 120 days after the end of our last fiscal year.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE
The information required by this Item concerning certain relationships and related transactions and the independence
of our Directors is incorporated herein by reference to our definitive Proxy Statement for the 2017 Annual Meeting
of Shareholders, which will be filed pursuant to Regulation 14A within 120 days after the end of our last fiscal year.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
The information required by this Item concerning principal accountant fees and services is incorporated herein by
reference to our definitive Proxy Statement for the 2017 Annual Meeting of Shareholders, which will be filed
pursuant to Regulation 14A within 120 days after the end of our last fiscal year.
56
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
PART IV
1.
Financial Statements:
The following financial statements of Shoe Carnival, Inc. are set forth in PART II, ITEM 8 of this
report:
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets at January 28, 2017 and January 30, 2016
Consolidated Statements of Income for the years ended January 28, 2017, January 30, 2016, and
January 31, 2015.
Consolidated Statements of Shareholders’ Equity for the years ended January 28, 2017,
January 30, 2016, and January 31, 2015
Consolidated Statements of Cash Flows for the years ended January 28, 2017, January 30, 2016,
and January 31, 2015
Notes to Consolidated Financial Statements
2.
Financial Statement Schedule:
The following financial statement schedule of Shoe Carnival, Inc. is set forth in PART II, ITEM 8
of this report.
Schedule II Valuation and Qualifying Accounts
3.
Exhibits:
A list of exhibits required to be filed as part of this report is set forth in the Index to Exhibits,
which immediately precedes such exhibits, and is incorporated herein by reference.
ITEM 16. FORM 10-K SUMMARY
None.
57
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Date: March 29, 2017
Shoe Carnival, Inc.
By:
/s/ Clifton E. Sifford
Clifton E. Sifford
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the dates indicated.
Signature
Title
Date
/s/ J. Wayne Weaver
J. Wayne Weaver
/s/ Clifton E. Sifford
Clifton E. Sifford
/s/ James A. Aschleman
James A. Aschleman
/s/ Jeffrey C. Gerstel
Jeffrey C. Gerstel
/s/ Andrea R. Guthrie
Andrea R. Guthrie
/s/ Kent A. Kleeberger
Kent A. Kleeberger
/s/ Joseph W. Wood
Joseph W. Wood
/s/ W. Kerry Jackson
W. Kerry Jackson
Chairman of the Board and Director
March 29, 2017
President, Chief Executive Officer and Director
(Principal Executive Officer)
March 29, 2017
Director
Director
Director
Director
Director
March 29, 2017
March 29, 2017
March 29, 2017
March 29, 2017
March 29, 2017
Senior Executive Vice President - Chief Operating March 29, 2017
and Financial Officer and Treasurer (Principal
Financial Officer and Principal Accounting Officer)
58
INDEX TO EXHIBITS
Exhibit
No.
Description
Form
Exhibit
Filing
Date
Filed
Herewith
Incorporated by Reference To
3-A
3-B
4-A
4-B
4-C
10-A
10-B
Amended and Restated Articles of Incorporation of Registrant
8-K
3-A
6/14/2013
8-K
8-K
3-B
6/14/2013
4.1
1/26/2010+
10-K
4-B
4/15/2013
By-laws of Registrant, as amended to date
Credit Agreement, dated as of January 20, 2010, among
Registrant, the financial institutions from time to time party
thereto as Banks, and Wachovia Bank, National Association,
as Agent
First Amendment to Credit Agreement dated as of April 10,
2013, by and among Registrant, the financial institutions from
time to time party thereto as Banks, and Wells Fargo Bank,
N.A., as successor-by-merger to Wachovia Bank, National
Association, as Agent
Second Amendment to Credit Agreement dated as of March
27, 2017, by and among Registrant, the financial institutions
from time to time party thereto as Banks, and Wells Fargo
Bank, N.A., as successor-by-merger to Wachovia Bank,
National Association, as Agent
Lease, dated as of February 8, 2006, by and between
Registrant and Big-Shoe Properties, LLC
10-K
10-A
4/13/2006+
Lease, dated as of June 22, 2006, by and between Registrant
and Outback Holdings, LLC
8-K
10-D
6/28/2006+
10-C*
Summary Compensation Sheet
10-D*
Non-competition Agreement dated as of January 15, 1993,
between Registrant and J. Wayne Weaver
S-1
10-I
2/4/1993
10-E*
Employee Stock Purchase Plan of Registrant, as amended
10-Q
10-L
9/15/1997+
10-F*
2006 Executive Incentive Compensation Plan, as amended
10-G*
2016 Executive Incentive Compensation Plan
10-H*
10-I*
10-J*
2000 Stock Option and Incentive Plan of Registrant, as
amended
Form of Notice of Grant of Stock Options and Option
Agreement for incentive stock options granted under the
Registrant’s 2000 Stock Option and Incentive Plan
Form of Notice of Grant of Stock Options and Option
Agreement for non-qualified stock options granted under the
Registrant’s 2000 Stock Option and Incentive Plan
8-K
8-K
10-B
6/17/2011+
10.1
6/17/2016
10-Q
10.1
6/10/2015
8-K
10-A
9/2/2004+
8-K
10-B
9/2/2004+
10-K*
Form of Award Agreement for restricted stock granted under
the Registrant’s 2000 Stock Option and Incentive Plan
8-K
10-C
3/24/2005+
X
X
59
INDEX TO EXHIBITS - Continued
Description
Form
Exhibit
Filing
Date
Filed
Herewith
Incorporated by Reference To
Form of Award Agreement for time-based restricted stock
with cliff vesting granted under the Registrant’s 2000 Stock
Option and Incentive Plan
8-K
10.2
10/19/2012
Exhibit
No.
10-L*
10-M*
Form of Award Agreement for performance-based restricted
stock with deferred cash dividends granted under
the
Registrant’s 2000 Stock Option and Incentive Plan
10-Q
10.1
6/13/13
10-N*
10-O*
10-P*
10-Q*
10-R*
10-S*
10-T*
Form of Award Agreement for time-based restricted stock
granted to executive officers under the Registrant’s 2000
Stock Option and Incentive Plan
8-K
10.1
3/21/2016
Form of Award Agreement for restricted stock with both
performance-based and time-based restrictions granted under
the Registrant’s 2000 Stock Option and Incentive Plan
Amended and Restated Employment and Noncompetition
Agreement dated December 11, 2008, between Registrant and
Timothy Baker
Amended and Restated Employment and Noncompetition
Agreement dated December 11, 2008, between Registrant and
Clifton E. Sifford
Amended and Restated Employment and Noncompetition
Agreement dated December 11, 2008, between Registrant and
W. Kerry Jackson
8-K/A
10.2
4/25/2016
8-K
10.2
12/17/2008+
8-K
10.3
12/17/2008+
8-K
10.4
12/17/2008+
Employment and Noncompetition Agreement dated April 7,
2011, between Registrant and Kathy A. Yearwood
10-K
10-X
4/14/2011+
Employment and Noncompetition Agreement dated
December 4, 2012, between Registrant and Carl N. Scibetta
10-K
10-U
4/15/2013
10-U*
Shoe Carnival, Inc. Deferred Compensation Plan, as amended
10-K
10-S
4/10/2014
21
23
31.1
31.2
A list of subsidiaries of Shoe Carnival, Inc.
Written consent of Deloitte & Touche LLP
Certification of Chief Executive Officer Pursuant to Rule 13a-
14(a)/15d-14(a) of the Securities Exchange Act of 1934, as
Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of
2002
Certification of Chief Financial Officer Pursuant to Rule 13a-
14(a)/15d-14(a) of the Securities Exchange Act of 1934, as
Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of
2002
60
X
X
X
X
Exhibit
No.
32.1
32.2
101
*
+
Description
Form
Exhibit
Filing
Date
Filed
Herewith
Incorporated by Reference To
Certification of Chief Executive Officer Pursuant to 18 U.S.C.
Section 1350, as Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
Certification of Chief Financial Officer Pursuant to 18 U.S.C.
Section 1350, as Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
in XBRL
The following materials from Shoe Carnival, Inc.’s Annual
Report on Form 10-K for the year ended January 28, 2017,
formatted
(Extensible Business Reporting
Language): (1) Consolidated Balance Sheets, (2) Consolidated
(3) Consolidated Statement of
Statements of
Shareholders’ Equity, (4) Consolidated Statements of Cash
Flows, and (5) Notes to Consolidated Financial Statements.
Income,
X
X
X
The indicated exhibit is a management contract, compensatory plan or arrangement required to be filed
by Item 601 of Regulation S-K.
SEC File No. 000-21360.
61
STOCK PRICE PERFORMANCE GRAPH
The performance graphs set forth below compare the cumulative total shareholder return on the Company’s Common
Stock with the Nasdaq Stock Market Index and the Nasdaq Index for Retail Trade Stocks for the period from January
27, 2012 through January 27, 2017. The graphs assume that $100 was invested in our common stock and $100 was
invested in each of the other two indices on January 27, 2012, and assumes reinvestment of dividends. The stock
performance shown in the graphs represents past performance and should not be considered an indication of future
performance. The performance graphs shall not be deemed “soliciting material” or to be “fi led” with the Securities
and Exchange Commission, nor shall such information be incorporated by reference into any future fi ling under the
Securities Act of 1933 or the Securities Exchange Act of 1934, except to the extent we specifi cally incorporate it by
reference into such fi ling.
NASDAQ OMX Global Indexes
Comparison of Cumulative Total Return Among the Company,
Nasdaq Stock Market Index and Nasdaq Index for Retail Trade Stocks
1/27/2012
2/1/2013
1/31/2014
1/30/2015
1/29/2016
1/27/2017
The Nasdaq Stock Market (U.S.)
$
Nasdaq Retail Trade Stocks
Shoe Carnival, Inc.
100
100
100
$
118
124
126
$
143
150
145
$
161
185
137
$
157
195
137
$
193
215
149
S
R
A
L
L
O
D
250
200
150
100
50
0
1/27/2012
2/1/2013
1/31/2014
1/30/2015
1/29/2016
1/27/2017
The Nasdaq Stock Market (U.S.)
Nasdaq Retail Trade Stocks
Shoe Carnival, Inc.
during fi scal 2016. Our store growth plan continued to
key initiatives implemented over the past three years
focus on strong trade areas within our current footprint.
which have helped us achieve positive operating and
It was just a year ago that we discussed our opportunity
fi nancial results. These initiatives have created a strong
to open stores in key small markets across the U.S.
foundation for the future and have positioned us for
Since then, we have opened nine stores in smaller
the opportunities that lie ahead as we continue to
markets which are running well ahead of our fi rst-year
return value to shareholders in 2017 and beyond.
expectations in terms of both sales and margin. We will
We appreciate your continued support of Shoe
continue to roll out these scalable store prototypes that
Carnival.
Sincerely,
Clifton E. Sifford
President and Chief Executive Offi cer
refl ect the diverse population and density of the market
being served. Our anticipated store growth strategy
for fi scal 2017 and fi scal 2018 refl ects approximately
two-thirds of the new stores opening in smaller market
locations.
In fi scal 2017, we plan to open approximately 20 new
stores. It's important to note that the majority of these
new store openings will be fi lling in existing market
areas in which we currently operate. The remaining
stores will serve smaller new markets where we expect
to leverage Shoe Carnival’s strong name brand
recognition. We believe that a continued, disciplined
approach to new market openings is very important
as we leverage our multi-channel sales strategy and
pursue opportunities for brick-and-mortar store growth
across large, mid and smaller markets.
Over the past several years, we have analyzed our
entire portfolio of stores, with a concentration on
underperforming stores to meet our long-term goal
of increasing shareholder value through increasing
operating income. Our objective is to identify
underperforming stores and either renegotiate lease
terms, relocate or close the store.
We believe Shoe Carnival is well positioned for future
growth. Our team has worked diligently over the
past several years to get to where it is today with
over $1 billion in net sales. We continue to focus on
2016 Annual Report
2016 Annual Report
OFFICERS AND CORPORATE MANAGEMENT
J. WAYNE WEAVER**
Chairman
CLIFTON E. SIFFORD**
President and Chief Executive Offi cer
W. KERRY JACKSON**
Senior Executive Vice President
Chief Operating and Financial Offi cer
and Treasurer
TIMOTHY T. BAKER**
Executive Vice President
Store Operations
CARL N. SCIBETTA**
Executive Vice President
Chief Merchandising Offi cer
TODD A. BEURMAN
Senior Vice President
Marketing
TERRY L. CLEMENTS
Senior Vice President
Chief Information Offi cer
JEFFREY N. FINK
Senior Vice President
Real Estate
SEAN M. GEORGES
Senior Vice President
Human Resources, In-House Counsel
and Assistant Secretary
DAVID A. KAPP
Senior Vice President
Planning/Allocation
CHRISTOPHER A. ASKINS
Vice President
Loss Prevention
MARC A. CHILTON
Vice President
Store Operations
JOHN W. DODSON
Vice President
Store Operations
TANYA E. GORDON
Vice President
Divisional Merchandising Manager
Women's and Children's Footwear
and Accessories
DAVID M. GROFF
Vice President
Administration and Business
Development
BRADLEY A. GUBSER
Vice President
Store Planning and Development
TARA J. KRULL
Vice President
Marketing
ROGER D. ORTH
Vice President
Controller and Secretary
BOARD OF DIRECTORS
J. WAYNE WEAVER
Chairman of the Board
Shoe Carnival, Inc.
CLIFTON E. SIFFORD
President and Chief Executive Offi cer
Shoe Carnival, Inc.
JAMES A. ASCHLEMAN 1,2*,3
Retired
Indianapolis, Indiana
JEFFREY C. GERSTEL 1,2
Chief Marketing Offi cer
B&H Foto and Electronics Corp.
New York, NY
ANDREA R. GUTHRIE 2,3*
Co-founder, Gyde & Seek
Park City, UT
KENT A. KLEEBERGER 1*,2,3,4
Consultant
Sanibel Island, Florida
CLINT R. PIERCE
Vice President
Divisional Merchandise Manager,
Athletic Footwear
CHARLIE J. TOROK, JR.
Vice President, Distribution
KENT A. ZIMMERMAN
Vice President, Digital
ANTHONY J. CAROSELLO
Assistant Vice President
Real Estate
SARAH B. DAUER
Assistant Vice President
In-House Counsel
JAMES W. JOHNSTON
Assistant Vice President
Infrastructure and Support
CHERYL L. LINDADUER
Assistant Vice President
Application Systems
TUCKER R. ROBINSON
Assistant Vice President
Buyer Men’s Athletics
THOMAS G. VERNARSKY
Assistant Vice President
Buyer Men's Non-Athletics
(**) Executive Offi cers
JOSEPH W. WOOD 1,2,3
Consultant
St. Louis, Missouri
(1) Audit Committee
(2) Compensation Committee
(3) Nominating and Corporate
Governance Committee
(4) Lead Director
(*) Committee Chairman
CORPORATE INFORMATION
CORPORATE OFFICE
7500 East Columbia Street
Evansville, Indiana
CORPORATE COUNSEL
Faegre Baker Daniels LLP
Indianapolis, Indiana
INDEPENDENT AUDITORS
Deloitte & Touche LLP
Indianapolis, Indiana
TRANSFER AGENT
Computershare Trust
Company NA
Chicago, Illinois
(312) 360-5359
LETTER FROM OUR
PRESIDENT AND CEO
YEAR IN REVIEW
opportunity for growth, in both large and smaller
Fiscal 2016 represented a signifi cant corporate
markets, as we work together to achieve our next $1
milestone for Shoe Carnival as our net sales
billion in sales.
exceeded $1 billion. We are very pleased with this
accomplishment, which refl ects the hard work and
From a merchandise perspective, our athletic footwear
dedication of our over 5,100 store and corporate
category was a key driver of sales throughout fi scal
associates.
2016. Our merchants did an excellent job of offering a
broad assortment of athletic brands that appealed to
Over the past several years, we have benefi ted from
our customers on a consistent basis. Moreover, in the
the execution of key strategic initiatives, including a
third quarter of fi scal 2016, we continued to strengthen
disciplined store growth strategy, strong merchandising
our management team by adding athletic footwear
efforts, enhanced multi-channel sales capabilities,
industry veteran, Clint Pierce as Vice President,
expanded digital and national marketing presence and
Divisional Merchandise Manager for Athletic Footwear.
an ongoing focus on our customer loyalty program.
We are very pleased to have the opportunity to leverage
These key strategic initiatives have helped us deliver
Clint’s athletic footwear experience as we strive to
consistent growth as we have fundamentally changed
maintain a strong position as the destination of choice
the way we communicate and interact with our
for athletic footwear for the entire family.
customers to best serve their footwear needs.
During fi scal 2016, we also remained committed to
Our team’s relentless focus on effi ciently managing our
enhancing shareholder value by utilizing approximately
business in both favorable and challenging operating
$48 million in cash to repurchase shares of our
environments has served us well. As of our fi scal year-
common stock under our stock buyback programs and
end on January 28, 2017, we operated stores in 35
pay out cash dividends in each of our four quarters. We
states and Puerto Rico. We believe we have signifi cant
are fortunate to have the fi nancial fl exibility, through
2016 Annual Report
SHOE CARNIVAL’S
S H O P W I T H I N A S H O P C O N C E P T
B U Y
O N L I N E . . .
P I C K U P
I N S T O R E !
CONTINUED
MULTI-CHANNEL
EXPANSION
In 2016, we continued our efforts to provide
customers with more convenient ways to shop through
further expansion of multi-channel initiatives.
Buy Online, Pick Up In Store and Buy Online, Ship To
Store allow customers the fl exibility to pick up shoes
in-store that were ordered online. These initiatives
also generate additional in-store visits.
T E X T
P E R K S
t o
7 2 7 3 7 5
( S C P E R K )
SHOE PERKS
Our Shoe Perks loyalty program grew by over 4 million members
in 2016. Digital marketing programs were also established to
acquire new members, retain existing members and reactivate
members who haven’t shopped with us in two years.
Additionally, SMS messaging makes it easier
for customers to enroll in Shoe Perks,
and enables us to deliver marketing
messages to their mobile devices.
R E W A R D S C L U B
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7500 East Columbia Street • Evansville, Indiana 47715
812.867.6471 • shoecarnival.com
2016 ANNUAL REPORT
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