7500 East Columbia Street • Evansville, Indiana 47715
812.867.6471 • shoecarnival.com
CELEBRATING
ANNUAL REPORT 2018
outer back cover
outer front cover
1978
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2002
2016
F
1 O F
$
$2 OFF
$1 OFF
1986
2009
F R E E
P RIZ E
F
F
1 O
$
F
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O
5
$
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2
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1 OF
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1995
2002
Celebrating 40 years in the retail shoe industry.
Celebrating 40 years in the retail shoe industry.
2001
1992
2009
2009
1984
2018
inner front cover
1978 - 2018
inner back cover
Human Resources, In-House Counsel
Divisional Merchandise Manager
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
MARK J. WORDEN**
Executive Vice President
Chief Strategy and Marketing Offi cer
MARC A. CHILTON
Senior Vice President
Store Operations Administration
TERRY L. CLEMENTS
Senior Vice President
Chief Information Offi cer
CHRISTOPHER A. ASKINS
JEFFREY N. FINK
Senior Vice President
Real Estate
SEAN M. GEORGES
Senior Vice President
and Secretary
DAVID A. KAPP
Senior Vice President
Planning/Allocation
Vice President
Loss Prevention
TED COLLINS
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
Project Management
DEBORAH S. HANNAH
Vice President
Marketing
CLINT R. PIERCE
Vice President
Athletic Footwear
JEFFREY J. THOMAS
Vice President
Corporate Controller
CHARLES J. TOROK, JR.
Vice President
Supply Chain
KENT A. ZIMMERMAN
Vice President
E-Commerce and CRM
ANTHONY J. CAROSELLO
Assistant Vice President
Real Estate
JAMES W. JOHNSTON
Assistant Vice President
Infrastructure and Support
CHERYL L. LINDAUER
Assistant Vice President
Application Systems
(**) Executive Offi cers
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
CHARLES B. TOMM 1,2
Principal
B&H Foto and Electronics Corp.
Oaklins Heritage Capital Group
New York, NY
Jacksonville, FL
ANDREA R. GUTHRIE 2,3*
Co-founder, Gyde Travel, LLC
Park City, UT
JOSEPH W. WOOD 2,3
Consultant
St. Louis, Missouri
KENT A. KLEEBERGER 1*,2,3,4
(1) Audit Committee
Consultant
Sanibel Island, Florida
(2) Compensation Committee
(3) Nominating and Corporate
Governance Committee
(4) Lead Independent Director
(*) Committee Chair
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
ANNUAL REVIEW
were attained through double-digit growth in digital
Fiscal year 2018 was a great year for Shoe Carnival.
sales and single-digit increase in our brick and
Our customer-centric strategic initiatives, trend-
mortar stores. We also enjoyed increases in all major
right selection of compelling brands and the latest
product categories along with each geographic
fashion along with our exciting in-store environment
region throughout our store chain.
continue to make Shoe Carnival the store of choice
for moderately priced family footwear. Sales of
Our merchants did an outstanding job of identifying
$1.030 billion represented the highest volume in the
key trends, key categories and key items, buying
company’s history, driven by a 4.3% comparable
suffi cient quantities in each to drive comparable
store sales increase, our tenth consecutive year
store sales increases each quarter of the fi scal year.
without a comparable store sales loss. Record sales
This helped us achieve a gross profi t margin 90 basis
2018 Annual Report
points higher than FY 2017. Our store associates
During FY 2018, we analyzed customer data
SIGNATURES
consistently served our customers well which led
which allowed us to identify each customer’s
store sales and once again expand our national
share repurchases. Our balance sheet at year-end
to a 150 basis point increase in conversion. As a
unique identity. Our analyst team is providing rich
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.
data to our marketing, merchant and real estate
result of the efforts of our over 5,000 dedicated
Shoe Carnival, Inc.
SIGNATURES
associates, we are very pleased to have achieved
teams. These teams then utilize this data to better
record earnings of $2.45 per diluted share. We
merchandise each individual store, market to
Date: April 2, 2019
used the strength of our consistent cash fl ow
generation to return the highest amount of value
/s/ Clifton E. Sifford
Clifton E. Sifford
As we move this project forward, we will leverage
President and Chief Executive Officer
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.
customer insights to better serve our customers and
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.
Shoe Carnival, Inc.
further differentiate the Shoe Carnival brand.
specifi c customers, and fi nd new store opportunities.
to our shareholders through dividends and share
repurchases – a corporate milestone we are
By:
incredibly proud to have delivered.
Signature
Date: April 2, 2019
CUSTOMER CENTRICITY
/s/ J. Wayne Weaver
J. Wayne Weaver
Date
STRATEGY FOR GROWTH
/s/ Clifton E. Sifford
Clifton E. Sifford
We strengthened our executive management team
April 2, 2019
President and Chief Executive Officer
with the addition of Mark Worden, Executive Vice
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the
President, Chief Executive Officer and Director
/s/ Clifton E. Sifford
following persons on behalf of the registrant and in the capacities and on the dates indicated.
(Principal Executive Officer)
Clifton E. Sifford
President, Chief Strategy and Marketing Offi cer.
process of creating a holistic approach to Customer
More than a year ago we began the strategic
Chairman of the Board and Director
April 2, 2019
Title
By:
Relationship Management (CRM). We remain
committed to building an industry leading CRM
Director
We immediately began the process of working
Title
through a comprehensive fi ve-year strategy. Our
April 2, 2019
Date
Chairman of the Board and Director
tool, which will be the key building block to
Director
increasingly placing the customer at the center of
goal is to build an incomparable brand and
customer experience. Through our team of the
everything we do. CRM will be a key component
President, Chief Executive Officer and Director
Director
(Principal Executive Officer)
industry’s best people and unmatched capabilities,
April 2, 2019
April 2, 2019
April 2, 2019
April 2, 2019
that will allow us to communicate with our loyal
customers on a one-to-one basis, focused on their
particular family footwear needs and desires. In
addition, we are gaining a better understanding of
our customers’ shopping journeys. Each customer’s
Director
Director
Director
Director
Director
Director
we will assist our customers’ shopping journey,
which we believe is critical as we look toward
April 2, 2019
April 2, 2019
becoming a multi-billion dollar brand.
April 2, 2019
April 2, 2019
Our fi rst imperative was to hire and on-board a
journey is mapped, regardless of how they chose
world-class agency of record for overall creative
to shop with Shoe Carnival, which has allowed our
strategy and all media. We accomplished this
team to identify areas of improvement to make
imperative in 2018 with the hiring of McCann
Director
Senior Executive Vice President - Chief Operating
and Financial Officer and Treasurer (Principal Financial
Director
Officer and Principal Accounting Officer)
Detroit. Their job is to help Shoe Carnival become
April 2, 2019
the most distinctive and compelling brand in the
their shopping experience seamless and enjoyable.
April 2, 2019
April 2, 2019
April 2, 2019
April 2, 2019
Signature
/s/ James A. Aschleman
James A. Aschleman
/s/ J. Wayne Weaver
/s/ Jeffrey C. Gerstel
J. Wayne Weaver
Jeffrey C. Gerstel
/s/ Clifton E. Sifford
/s/ Andrea R. Guthrie
Clifton E. Sifford
Andrea R. Guthrie
/s/ James A. Aschleman
/s/ Kent A. Kleeberger
James A. Aschleman
Kent A. Kleeberger
/s/ Jeffrey C. Gerstel
/s/ Charles B. Tomm
Jeffrey C. Gerstel
Charles B. Tomm
/s/ Andrea R. Guthrie
/s/ Joseph W. Wood
Andrea R. Guthrie
Joseph W. Wood
/s/ Kent A. Kleeberger
/s/ W. Kerry Jackson
Kent A. Kleeberger
W. Kerry Jackson
/s/ Charles B. Tomm
Charles B. Tomm
The pillar of customer centricity is our strong and
Director
/s/ Joseph W. Wood
Joseph W. Wood
growing loyalty program, Shoe Perks. In July, we
Family Footwear Channel. The vast and successful
April 2, 2019
experience they bring to this important initiative
re-launched our Shoe Perks program, creating a
/s/ W. Kerry Jackson
W. Kerry Jackson
Gold tier for our most loyal customers. Gold status
Senior Executive Vice President - Chief Operating
and Financial Officer and Treasurer (Principal Financial
Officer and Principal Accounting Officer)
Motors, Chick-fi l-A and Pure Michigan.
includes work for great companies such as General
April 2, 2019
rewards our most active customers with new and
more valuable Shoe Perks to keep them committed
We believe by combining the expertise of McCann,
to Shoe Carnival as their store of choice for all their
along with our unique and entertaining store
footwear needs.
environment and our customer-centric capabilities,
by returning more than $155 million to them
The Nasdaq Stock Market (U.S.)
through our quarterly cash dividend and share
Nasdaq Retail Trade Stocks
repurchases. In FY 2018, we returned more than
Shoe Carnival, Inc.
69
69
Shoe Carnival will continue to grow comparable
$50 million in the form of cash dividends and
store footprint.
STOCK PRICE PERFORMANCE GRAPH
remains strong with more than $67 million in cash
and cash equivalents and no outstanding debt. In
The performance graphs set forth below compare the cumulative total shareholder return on the Company's Common
December 2018, our Board of Directors authorized
REAL ESTATE STRATEGY
Stock with the Nasdaq Stock Market Index and the Nasdaq Index for Retail Trade Stocks for the period from January
Over the past two years, we have focused our
a new share repurchase program for up to $50
31, 2014 through February 1, 2019. The graphs assume that $100 was invested in our common stock and $100 was
real estate, operations and merchandising
million of our outstanding shares for calendar year
invested in each of the other two indices on January 31, 2014, and assumes reinvestment of dividends. The stock
teams to improve the metrics of stores that are
2019, underscoring their confidence in the future of
performance shown in the graphs represents past performance and should not be considered an indication of future
not performing to expectations. I have been
performance. The performance graphs shall not be deemed "soliciting material" or to be "fi led" with the Securities
very pleased with the success these teams have
and Exchange Commission, nor shall such information be incorporated by reference into any future fi ling under the
delivered so far. When we entered the 2018
Securities Act of 1933 or the Securities Exchange Act of 1934, except to the extent we specifi cally incorporate it by
The investments made in technology and customer
Shoe Carnival.
fiscal year, we identified 25 to 30 stores that we
reference into such fi ling.
expected to close by year-end. Through the hard
engagement are incredibly important to Shoe
Carnival’s continued growth. I am proud of what
work and dedication of these teams, we reduced
the number of store closures from a planned high
Comparison of Cumulative Total Return Among the Company,
our efforts will show continued improvement in FY
of 30 to an actual 14. We are pleased with our
Nasdaq Stock Market Index and Nasdaq Index for Retail Trade Stocks
2019 and beyond. We appreciate your support of
NASDAQ OMX Global Indexes
our team accomplished in FY 2018 and believe
ability to improve key performance metrics across
1/31/2014
1/30/2015
1/29/2016
Shoe Carnival.
1/27/2017
2/2/2018
2/1/2019
these stores and believe it demonstrates that our
The Nasdaq Stock Market (U.S.)
100
$
$
113
$
$
$
$
110
130
94
Sincerely,
135
143
103
165
193
90
165
202
149
Clifton E. Sifford
President and Chief Executive Officer
Shoe Carnival team, working together, can deliver
Nasdaq Retail Trade Stocks
100
123
Shoe Carnival, Inc.
tremendous results.
100
94
For FY 2019, we have identified seven to 10
250
stores for closure; no new stores are currently
planned for the immediate future. However, the
success achieved with the CRM program thus far
200
has aided in the identification of market places
where our core customers live. This will fuel our
efforts to establish future new stores within these
L
markets should favorable real estate be found. We
have established a goal to open 10 new stores in
100
2020 utilizing the robust customer data from our
150
S
R
A
L
O
D
customer analytics team.
50
SHAREHOLDER VALUE
Since 2015, we have stayed true to our
0
commitment to generate value for our shareholders
1/30/2015
1/29/2016
1/27/2017
1/31/2014
2/2/2018
2/1/2019
2018 Annual Report
2018 Annual Report
points higher than FY 2017. Our store associates
During FY 2018, we analyzed customer data
SIGNATURES
consistently served our customers well which led
which allowed us to identify each customer’s
to a 150 basis point increase in conversion. As a
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly
result of the efforts of our over 5,000 dedicated
caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
data to our marketing, merchant and real estate
unique identity. Our analyst team is providing rich
associates, we are very pleased to have achieved
teams. These teams then utilize this data to better
record earnings of $2.45 per diluted share. We
Date: April 2, 2019
used the strength of our consistent cash fl ow
Shoe Carnival, Inc.
SIGNATURES
merchandise each individual store, market to
By:
specifi c customers, and fi nd new store opportunities.
/s/ Clifton E. Sifford
generation to return the highest amount of value
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly
President and Chief Executive Officer
As we move this project forward, we will leverage
to our shareholders through dividends and share
caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
customer insights to better serve our customers and
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the
further differentiate the Shoe Carnival brand.
repurchases – a corporate milestone we are
following persons on behalf of the registrant and in the capacities and on the dates indicated.
Shoe Carnival, Inc.
Clifton E. Sifford
incredibly proud to have delivered.
Date: April 2, 2019
Signature
/s/ J. Wayne Weaver
CUSTOMER CENTRICITY
Chairman of the Board and Director
J. Wayne Weaver
More than a year ago we began the strategic
By:
Title
STRATEGY FOR GROWTH
/s/ Clifton E. Sifford
Date
We strengthened our executive management team
April 2, 2019
President and Chief Executive Officer
with the addition of Mark Worden, Executive Vice
Clifton E. Sifford
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the
President, Chief Strategy and Marketing Offi cer.
President, Chief Executive Officer and Director
process of creating a holistic approach to Customer
/s/ Clifton E. Sifford
April 2, 2019
following persons on behalf of the registrant and in the capacities and on the dates indicated.
(Principal Executive Officer)
Clifton E. Sifford
We immediately began the process of working
Relationship Management (CRM). We remain
/s/ James A. Aschleman
Signature
committed to building an industry leading CRM
Director
James A. Aschleman
through a comprehensive fi ve-year strategy. Our
April 2, 2019
Date
Title
tool, which will be the key building block to
/s/ J. Wayne Weaver
Chairman of the Board and Director
goal is to build an incomparable brand and
customer experience. Through our team of the
April 2, 2019
April 2, 2019
increasingly placing the customer at the center of
/s/ Jeffrey C. Gerstel
J. Wayne Weaver
Jeffrey C. Gerstel
Director
/s/ Clifton E. Sifford
everything we do. CRM will be a key component
President, Chief Executive Officer and Director
industry’s best people and unmatched capabilities,
April 2, 2019
/s/ Andrea R. Guthrie
Clifton E. Sifford
Director
(Principal Executive Officer)
we will assist our customers’ shopping journey,
April 2, 2019
which we believe is critical as we look toward
April 2, 2019
becoming a multi-billion dollar brand.
that will allow us to communicate with our loyal
Andrea R. Guthrie
/s/ James A. Aschleman
customers on a one-to-one basis, focused on their
Director
/s/ Kent A. Kleeberger
James A. Aschleman
particular family footwear needs and desires. In
Kent A. Kleeberger
addition, we are gaining a better understanding of
/s/ Jeffrey C. Gerstel
/s/ Charles B. Tomm
Jeffrey C. Gerstel
/s/ Andrea R. Guthrie
Director
Director
Director
Director
Director
our customers’ shopping journeys. Each customer’s
Charles B. Tomm
Our fi rst imperative was to hire and on-board a
journey is mapped, regardless of how they chose
/s/ Joseph W. Wood
Andrea R. Guthrie
Director
Joseph W. Wood
to shop with Shoe Carnival, which has allowed our
world-class agency of record for overall creative
strategy and all media. We accomplished this
team to identify areas of improvement to make
/s/ W. Kerry Jackson
Senior Executive Vice President - Chief Operating
imperative in 2018 with the hiring of McCann
April 2, 2019
their shopping experience seamless and enjoyable.
and Financial Officer and Treasurer (Principal Financial
Detroit. Their job is to help Shoe Carnival become
Director
Officer and Principal Accounting Officer)
April 2, 2019
/s/ Kent A. Kleeberger
Kent A. Kleeberger
W. Kerry Jackson
/s/ Charles B. Tomm
Charles B. Tomm
April 2, 2019
April 2, 2019
April 2, 2019
April 2, 2019
April 2, 2019
April 2, 2019
the most distinctive and compelling brand in the
Family Footwear Channel. The vast and successful
April 2, 2019
experience they bring to this important initiative
The pillar of customer centricity is our strong and
/s/ Joseph W. Wood
Director
growing loyalty program, Shoe Perks. In July, we
Joseph W. Wood
re-launched our Shoe Perks program, creating a
/s/ W. Kerry Jackson
Senior Executive Vice President - Chief Operating
includes work for great companies such as General
April 2, 2019
Gold tier for our most loyal customers. Gold status
and Financial Officer and Treasurer (Principal Financial
Motors, Chick-fi l-A and Pure Michigan.
W. Kerry Jackson
rewards our most active customers with new and
Officer and Principal Accounting Officer)
more valuable Shoe Perks to keep them committed
We believe by combining the expertise of McCann,
to Shoe Carnival as their store of choice for all their
along with our unique and entertaining store
footwear needs.
environment and our customer-centric capabilities,
69
69
Shoe Carnival will continue to grow comparable
$50 million in the form of cash dividends and
store sales and once again expand our national
share repurchases. Our balance sheet at year-end
store footprint.
STOCK PRICE PERFORMANCE GRAPH
remains strong with more than $67 million in cash
and cash equivalents and no outstanding debt. In
REAL ESTATE STRATEGY
a new share repurchase program for up to $50
The performance graphs set forth below compare the cumulative total shareholder return on the Company's Common
December 2018, our Board of Directors authorized
Stock with the Nasdaq Stock Market Index and the Nasdaq Index for Retail Trade Stocks for the period from January
Over the past two years, we have focused our
31, 2014 through February 1, 2019. The graphs assume that $100 was invested in our common stock and $100 was
real estate, operations and merchandising
invested in each of the other two indices on January 31, 2014, and assumes reinvestment of dividends. The stock
teams to improve the metrics of stores that are
2019, underscoring their confidence in the future of
performance shown in the graphs represents past performance and should not be considered an indication of future
not performing to expectations. I have been
performance. The performance graphs shall not be deemed "soliciting material" or to be "fi led" with the Securities
very pleased with the success these teams have
and Exchange Commission, nor shall such information be incorporated by reference into any future fi ling under the
delivered so far. When we entered the 2018
Securities Act of 1933 or the Securities Exchange Act of 1934, except to the extent we specifi cally incorporate it by
The investments made in technology and customer
fiscal year, we identified 25 to 30 stores that we
reference into such fi ling.
expected to close by year-end. Through the hard
million of our outstanding shares for calendar year
engagement are incredibly important to Shoe
Shoe Carnival.
Carnival’s continued growth. I am proud of what
work and dedication of these teams, we reduced
the number of store closures from a planned high
NASDAQ OMX Global Indexes
Comparison of Cumulative Total Return Among the Company,
Nasdaq Stock Market Index and Nasdaq Index for Retail Trade Stocks
our efforts will show continued improvement in FY
our team accomplished in FY 2018 and believe
2019 and beyond. We appreciate your support of
1/29/2016
Shoe Carnival.
1/27/2017
2/1/2019
2/2/2018
of 30 to an actual 14. We are pleased with our
ability to improve key performance metrics across
1/31/2014
1/30/2015
these stores and believe it demonstrates that our
The Nasdaq Stock Market (U.S.)
113
Shoe Carnival team, working together, can deliver
123
Nasdaq Retail Trade Stocks
Shoe Carnival, Inc.
94
tremendous results.
100
100
100
$
$
For FY 2019, we have identified seven to 10
250
stores for closure; no new stores are currently
planned for the immediate future. However, the
success achieved with the CRM program thus far
200
has aided in the identification of market places
150
S
R
A
L
L
O
D
where our core customers live. This will fuel our
efforts to establish future new stores within these
markets should favorable real estate be found. We
have established a goal to open 10 new stores in
100
2020 utilizing the robust customer data from our
customer analytics team.
50
SHAREHOLDER VALUE
Since 2015, we have stayed true to our
0
1/29/2016
commitment to generate value for our shareholders
1/31/2014
1/30/2015
$
110
130
$
94
Sincerely,
135
143
103
$
165
193
90
$
165
202
149
Clifton E. Sifford
President and Chief Executive Officer
1/27/2017
2/2/2018
2/1/2019
by returning more than $155 million to them
The Nasdaq Stock Market (U.S.)
through our quarterly cash dividend and share
Nasdaq Retail Trade Stocks
repurchases. In FY 2018, we returned more than
Shoe Carnival, Inc.
2018 Annual Report
2018 Annual Report
1
1
2
4
4
4
4
2
3
5
7
46
3
16
30
29
20
5
12
20
6
11
16
11
22
10
9
The map identifies the number of our
stores in each state and Puerto Rico
as of February 2, 2019.
3
16
3
1
7
18
10
30
6
Exhibit
Exhibit
No.
No.
101
101
Exhibit
No.
101
INDEX TO EXHIBITS - Continued
INDEX TO EXHIBITS - Continued
INDEX TO EXHIBITS - Continued
INDEX TO EXHIBITS - Continued
Description
Description
The following materials from Shoe Carnival, Inc.’s Annual Report on
The following materials from Shoe Carnival, Inc.’s Annual Report on
Form 10-K for the year ended February 2, 2019, formatted in XBRL
Form 10-K for the year ended February 2, 2019, formatted in XBRL
Description
(Extensible Business Reporting Language): (1) Consolidated Balance
(Extensible Business Reporting Language): (1) Consolidated Balance
The following materials from Shoe Carnival, Inc.’s Annual Report on
Sheets, (2) Consolidated Statements of Income, (3) Consolidated
Sheets, (2) Consolidated Statements of Income, (3) Consolidated
Form 10-K for the year ended February 2, 2019, formatted in XBRL
Statement of Shareholders’ Equity, (4) Consolidated Statements of
Statement of Shareholders’ Equity, (4) Consolidated Statements of
(Extensible Business Reporting Language): (1) Consolidated Balance
Cash Flows, and (5) Notes to Consolidated Financial Statements.
Cash Flows, and (5) Notes to Consolidated Financial Statements.
Sheets, (2) Consolidated Statements of Income, (3) Consolidated
Statement of Shareholders’ Equity, (4) Consolidated Statements of
Incorporated by Reference To
Incorporated by Reference To
Form Exhibit
Form Exhibit
Incorporated by Reference To
Filing
Filing
Date
Date
Filing
Date
Form Exhibit
Filed
Filed
Herewith
Herewith
X
X
Filed
Herewith
X
*
* The indicated exhibit is a management contract, compensatory plan or arrangement required to be filed by Item
The indicated exhibit is a management contract, compensatory plan or arrangement required to be filed by Item
Cash Flows, and (5) Notes to Consolidated Financial Statements.
*
The indicated exhibit is a management contract, compensatory plan or arrangement required to be filed by Item
601 of Regulation S-K.
601 of Regulation S-K.
+
+ SEC File No. 000-21360.
SEC File No. 000-21360.
601 of Regulation S-K.
ITEM 16. FORM 10-K SUMMARY
ITEM 16. FORM 10-K SUMMARY
SEC File No. 000-21360.
+
ITEM 16. FORM 10-K SUMMARY
None.
None.
None.
68
68
68
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: February 2, 2019
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)
Securities registered pursuant to Section 12(b) of the Act:
(812) 867-6471
(Registrant’s telephone number, including area code)
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.
[ ] No
[X] Yes
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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
such files).
[X ] Yes
[ ] No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405) 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, a smaller reporting company,
or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company”, and “emerging
growth company” in Rule 12b-2 of the Exchange Act.
[ ] Large accelerated filer
[ ] Smaller reporting company
[ ] Emerging growth company
[ ] Non-accelerated filer
[X] Accelerated filer
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with
any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [ ]
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 August 3, 2018
(the last business day of the registrant’s most recently completed second fiscal quarter) was approximately $395,489,636 (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 25, 2019 was 15,374,819.
DOCUMENTS INCORPORATED BY REFERENCE
Certain information contained in the Definitive Proxy Statement for the Annual Meeting of Shareholders of the Registrant to be held on June 13,
2019 is incorporated by reference into PART III hereof.
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
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19
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20
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24
35
35
61
61
64
64
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69
Shoe Carnival, Inc.
Evansville, Indiana
Annual Report to Securities and Exchange Commission
For the Fiscal Year Ended February 2, 2019
PART I
Cautionary Statement Regarding Forward-Looking Information
This Annual Report on Form 10-K 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; our ability to successfully navigate the increasing use of online
retailers for fashion purchases and the impact on traffic and transactions in our physical stores; our ability to attract
customers to our e-commerce website and to successfully grow our e-commerce sales; the potential impact of
national and international security concerns on the retail environment; changes in our relationships with key
suppliers; changes in the political and economic environments in, the status of trade relations with, and the impact of
changes in trade policies and tariffs impacting, China and other countries which are the major manufacturers of
footwear; the impact of competition and pricing; our ability to successfully manage and execute our marketing
initiatives and maintain positive brand perception and recognition; 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, including as a result of a cyber-security breach; our
ability to manage our third-party vendor relationships; our ability to successfully execute our business 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 business plans; higher than anticipated costs associated with the closing of underperforming stores;
the inability of manufacturers to deliver products in a timely manner; 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 Annual Report on Form 10-K.
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 an emphasis on national name brands. We differentiate our
retail concept from our competitors by our distinctive, fun and promotional marketing efforts. On average, our stores
are approximately 10,800 square feet, generate approximately $2.5 million in annual sales and carry inventory of
approximately 27,800 pairs of shoes per location. As of February 2, 2019, we operated 397 stores in 35 states and
Puerto Rico and offered online shopping at www.shoecarnival.com.
2
We are an Indiana corporation that was initially formed in Delaware in 1993 and reincorporated in Indiana in 1996.
References to “Shoe Carnival,” “we,” “us,” “our” and the “Company” in this Annual Report on Form 10-K refer to
Shoe Carnival, Inc. and its subsidiaries.
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 shoe 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
27,800 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 creatively 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 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. Customers who enroll in our loyalty program (“Shoe Perks”) or register on our
website receive periodic personalized e-mail communications from us. These communications afford us additional
opportunities to highlight our broad product assortment and promotions.
Value pricing for our customers
Our marketing efforts attract 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, online at shoecarnival.com or
through our mobile app. We also believe our fun and promotional shopping environment contributes to a reputation
of value pricing.
3
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.
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 the POS 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 to drive annual comparable store sales increases, manage our
markdown activity and improve inventory turnover.
Growth Strategy
Store portfolio
Increasing market penetration by opening new stores has historically been a key component of our growth strategy.
While our focus continues to be on generating positive long-term financial performance for our store portfolio, we
only opened three new stores in fiscal 2018 and do not expect to open any new stores in fiscal 2019. As we leverage
customer data from our Customer Relationship Management (“CRM”) program, and as more attractive real estate
opportunities become available, we will continue to pursue opportunities for brick-and-mortar store growth across
large, mid-size and smaller markets in fiscal 2020. Our CRM program is more fully described below under, “Multi-
Channel Strategy – Customer Relationship Management.”
Critical to the success of opening new stores in larger markets or geographic areas has been 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 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.
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 and address underperforming stores that produce low or negative contribution
and either renegotiate lease terms, relocate or close those stores. Based on this analysis, we closed 14 stores in fiscal
2018, and we currently expect to close seven to 10 stores in fiscal 2019. Even though this could reduce our overall
net sales volume, we believe this strategy will realize long-term improvement in operating income and diluted
earnings per share.
4
As of February 2, 2019, we operated 397 stores located across 35 states and Puerto Rico. Our stores averaged
approximately 10,800 square feet, ranging in size from 4,000 to 26,000 square feet. New store sizes typically
depend upon location and population base, and our stores are predominantly located in open-air shopping centers.
Our traditional store prototype typically utilizes between 7,000 and 10,000 square feet of leased area. During the
past several years, we began 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. The sales area is approximately 85% of the typical 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
2018
2017
2016
2015
2014
Historical Store Count
408
3
(14 )
397
1
1 %
415
19
(26 )
408
3
3 %
405
19
(9 )
415
3
4 %
400
20
(15 )
405
2
7 %
376
31
(7 )
400
3
7 %
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 in up to 115 days. A turnkey store is generally available for immediate use from the landlord,
as the landlord performs nearly all aspects of construction and delivers the store in a condition ready for fixtures.
There are typically minimal tenant improvement allowances negotiated with landlords for turnkey stores. An “as-is”
store typically requires more significant capital investment by us, as the landlord performs minimal construction and
delivers the space “as-is” while representing that the location is free of hazardous materials. There are typically
significant tenant improvement allowances negotiated with landlords for “as-is” stores.
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. The Shoe Carnival customer’s
shopping journey is complex and rapidly evolving, bridging multiple devices and touchpoints. We are committed to
providing an incomparable customer experience across all channels and believe that our ongoing multi-channel
initiatives represent the cornerstone for our long-term growth and are aligned with rapidly changing consumer
behavior. These initiatives are an integral part of expanding our multi-channel footprint and creating opportunities
to connect with our customers in new ways.
Customer Relationship Management
In fiscal 2018 we continued to invest in our CRM strategy, which is intended to focus our entire organization on a
more customer-centric model. We engaged with a strategic partner that specializes in creating holistic CRM
strategies for large and mid-sized retail organizations to provide discovery, implementation, launch and ongoing
support for our customer-centric, multi-channel CRM Solution. This new platform will form the foundation of our
CRM program and will also serve as the systemic framework for our Shoe Perks loyalty program and CRM
campaign manager. We expect this initiative will give us an improved view into customer data, allowing us to more
effectively communicate with consumers on a personalized basis. Using primarily transaction data, we are gaining
useful insights into our customers’ shopping habits, including where, when and how they shop our stores and
navigate our online presence. Additionally, we are gaining a deeper understanding of the brands and categories our
high-value customers consistently purchase so that we can continue to deliver strong performance at a geographic
and store level.
5
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 existing customer base as well as identifying new customers. As
we segment our high-value customers through data analysis and target the broader market of customers with similar
characteristics, we expect this to play a key role in our growth. We believe the data received as a result of our CRM
program will allow us to better merchandise each individual store, market to specific customers and aid in
identifying new store opportunities. Although a large part of customer data comes from our loyalty program, we
take a holistic view of CRM. We believe this approach should help drive continued Company growth in fiscal 2019
as we continue to enhance our loyalty program and CRM capabilities through exclusive offers and personalized
messaging and build even greater loyalty and a deeper relationship with our Shoe Perks customers.
We expect to officially launch our CRM Solution in the third quarter of fiscal 2019. This launch represents the
implementation of our production CRM database to support customer information, identity management and our
CRM campaign management software.
Ship-From-Store
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, e-commerce orders for certain key items
and promotional product are fulfilled from our distribution center in Evansville, Indiana.
Shoes 2U
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.
Buy Online, Pick Up In Store
Another key element of our multi-channel strategy is our buy online, pick up in store program. This program
provides the convenience of local pickup for our customers with the added benefit of driving traffic back to our
stores.
E-commerce and Mobile
In fiscal 2017, we relaunched our e-commerce and mobile storefronts on a new platform designed to improve the
customer journey and allow us to provide a more relevant and personalized shopping experience for our customers.
We continue to build upon this foundation and plan to add new functionality, including mobile payment options and
the ability to shop a specific Shoe Carnival store location, which are planned for launch in the first half of fiscal
2019.
Given our desire to connect with customers anywhere and anytime, our mobile strategy is an important component
of the customer’s journey and our overall multi-channel strategy. A majority of our customers are accessing our e-
commerce site on their mobile devices, and we continue to enhance our mobile web experience to better serve the
unique needs of our customers. In addition, our mobile app offers native e-commerce functionality directly from the
app and provides Shoe Perks members easy access to their rewards. Customers also have the ability to scan bar
codes in-store to access product ratings and reviews and find extended sizes.
6
Expanded Online Assortment
We implemented a Vendor Drop-Ship program with select vendor partners prior to the fiscal 2018 back-to-school
season. This important program offers our customers an expanded online assortment of styles and colors that we do
not carry in-store, and we expect to continue to expand this program in the future. While our customers benefit from
expanded item assortment, the functionality of this program is seamless, and our customers’ online experience is not
impacted by the Vendor Drop-Ship fulfillment option. We benefit from this program by not having to make a
capital investment in the expanded inventory assortment, which is carried and fulfilled by the vendors participating
in this program.
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 our 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, climate and seasonality, 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, scarves and wallets, while our e-commerce site offers certain handbags, sport bags
and backpacks. We purchase merchandise from approximately 160 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 2018, two branded suppliers, Nike, Inc. and Skechers USA, Inc., collectively accounted for
approximately 43% of our net sales. Nike, Inc. accounted for approximately 32% and Skechers USA, Inc.
accounted for approximately 11% of our net sales, respectively. 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.
7
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 merchandise sales by product category.
Fiscal Years
Non-Athletics:
Women's
Men's
Children's
Total
Athletics:
Women's
Men's
Children's
Total
Accessories
Total
2018
2017
2016
2015
2014
24 %
14
5
43
18
21
14
53
4
100 %
24 %
14
5
43
17
22
14
53
4
100 %
26 %
14
5
45
16
22
13
51
4
100 %
27 %
14
5
46
16
22
12
50
4
100 %
27 %
14
5
46
16
21
13
50
4
100 %
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.
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 2018, approximately 47% of our total advertising budget was directed to digital
media, television and radio. 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 2018, we added 2.4 million new
members, and purchases from Shoe Perks members were approximately 68% 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
relaunched our Shoe Perks program just prior to the back-to-school selling period in fiscal 2018 to better reward our
high-value customers and incentivize all of our members in order to encourage brand loyalty. As part of this
relaunch, we added a new “Gold” tier for our high-value customers. Our customers who qualify for our Gold tier
receive additional rewards and incentives. The Gold tier represents approximately 35% of our active members and
the average transaction value for these customers is 20% higher than non-Gold Shoe Perks members.
8
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.
Although we do not anticipate any new store openings in fiscal 2019, we expect to continue to pursue opportunities
for brick-and-mortar store growth in fiscal 2020.
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 for up to 460 stores based on our current
configuration. 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.
Store Operations
Management of store operations is the responsibility of our Executive Vice President - Store Operations, who is
assisted by a Senior Vice President of Operations, divisional managers, regional directors, district 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 February 2, 2019, we had approximately 5,200 employees, of which approximately 2,900 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.
9
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 and closing
underperforming stores. Non-capital expenditures, such as advertising and payroll incurred prior to the opening of a
new store, are charged to expense as incurred. The timing and actual amount of expense recorded in closing 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. Therefore, our
results of operations may be adversely affected in any quarter in which we incur pre-opening expenses related to the
opening of new stores or incur closing costs related to the closure of existing 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 To 2®, 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.
Environmental
Compliance with federal, state and local provisions regulating the discharge of materials 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 Annual Report on 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.
10
Executive Officers
Name
J. Wayne Weaver
Clifton E. Sifford
W. Kerry Jackson
Timothy T. Baker
Carl N. Scibetta
Mark J. Worden
Age
84
65
57
62
60
45
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
Executive Vice President - Chief Strategy and Marketing Officer
Mr. Weaver 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.
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.
Mr. Worden has been employed as Executive Vice President – Chief Strategy and Marketing Officer since
September 2018. Prior to joining us, Mr. Worden led the Northern European region for S. C. Johnson & Son, Inc.
(“SC Johnson”), a manufacturer of household cleaning supplies and products, and was responsible for revenue and
share growth objectives across six countries from May 2014 to July 2018. Prior to that, Mr. Worden served as
Assistant to the Chairman and Chief Executive Officer of SC Johnson from May 2012 to May 2014 and as a Senior
Marketing Director from 2009 to 2012. Mr. Worden also served as a Senior Brand Manager at Kimberly-Clark
Corporation and held multiple marketing roles across their flagship brands during his tenure there from 2003
through 2009.
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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 on Form 10-
K 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, policies and timing and amounts of tax refunds; and
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• 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 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.
Failure to successfully manage and execute our marketing initiatives could have a negative impact on our
business. Our success and growth are 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 could 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
12
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:
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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.
In addition, consumers are increasingly using online retailers for their fashion purchases, shifting sales away from
brick-and-mortar stores to e-commerce channels. This shift in shopping preference has resulted, and may continue
to result, in decreased traffic in our physical stores, which could reduce sales at our physical stores and, in turn,
negatively affect our business and financial results.
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. We believe 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 2018, we added 2.4 million
new members, and purchases from Shoe Perks members were 68% of net sales. Shoe Perks members on average
spent 19% more per transaction than non-members in fiscal 2018. 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,
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. 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.
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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.
We will require significant funds to implement our business 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 business strategy and meet our other liquidity needs. In fiscal 2019, capital
expenditures are expected to range from $21 million to $22 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.
14
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 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 a material impact on our overall operations. However, our e-commerce
operations may not 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 a
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. Our primary footwear manufacturers are located in China. 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 and reputation.
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
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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;
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. As part of our growth strategy, we intend to continue
to invest in our multi-channel initiatives, which will require substantial investment in technology. Although we do
not expect any new store openings in fiscal 2019, we expect to open new stores in fiscal 2020. When we resume
new store growth in the future, 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.
15
The complexity of our operations and management responsibilities will increase as we execute our growth strategy.
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 create more opportunities to connect with our
customers through our multi-channel initiatives and as we open new stores, we may be unable to hire a sufficient
number of qualified personnel or successfully integrate the multi-channel initiatives or new stores into our business.
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. 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:
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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 and for our Ship From Store,
Shoes 2U and Buy Online Pick Up In Stores services;
our ability to resolve downtime or technical issues related to our e-commerce site, our mobile app, our third-
party order management and fulfillment systems, and all other related systems that support our multi-channel
strategy;
our ability to execute multi-channel advertising and marketing campaigns to effectively communicate our
message to our customers and our employees;
our ability to locate suitable store sites and negotiate store leases (for new stores and renewals) on favorable
terms;
particularly if we expand into 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.
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 2018, two branded suppliers, Nike, Inc. and
Skechers USA, Inc., collectively accounted for approximately 43% of our net sales. Nike, Inc. accounted for
approximately 32% and Skechers USA, Inc. accounted for approximately 11% of our net sales, respectively. 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
and closing existing 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, 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.
16
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:
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fashion trends;
the timing and amount 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) have resulted, and in the future 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 us to 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.
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;
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• material announcements by us or our competitors; and
•
the other risk factors cited in this Annual Report on Form 10-K.
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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 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, 2019. 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 shareholders. J. Wayne Weaver, our Chairman of the Board of Directors, and
his spouse together beneficially own approximately 19.5% of our outstanding common stock. Mr. Weaver’s adult
son is the sole trustee of the J. Wayne Weaver 2018 Grantor Retained Annuity Trust for Bradley Wayne Weaver,
and, as a result, beneficially owns the approximately 6.5% of our outstanding common stock held by such trust. Mr.
Weaver’s adult daughter is the sole trustee of the J. Wayne Weaver 2018 Grantor Retained Annuity Trust for Leigh
Anne Weaver, and, as a result, beneficially owns the approximately 6.5% of our outstanding common stock held by
such trust. Accordingly, the Weaver family is able to exert substantial influence over our management and
operations. In addition, their interests may differ from or be opposed to the interests of our other shareholders, and
their ownership 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.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
18
ITEM 2. PROPERTIES
We lease all existing stores and intend to lease all future stores. Approximately 98% of the leases for our existing
stores provide for fixed minimum rentals and approximately 49% 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 February 2, 2019:
State/Territory
Alabama
Arkansas
Arizona
Colorado
Delaware
Florida
Georgia
Idaho
Iowa
Illinois
Indiana
Kansas
Kentucky
Louisiana
Michigan
Missouri
Mississippi
Montana
Nebraska
State/Territory
11 New Jersey
10 New York
4 North Carolina
4 North Dakota
1 Ohio
30 Oklahoma
16 Pennsylvania
4 Puerto Rico
11 South Carolina
30 South Dakota
29 Tennessee
5 Texas
12 Utah
9 Virginia
16 Wisconsin
22 West Virginia
6 Wyoming
1 Total Stores
3
3
3
18
4
20
7
16
6
10
2
20
46
2
7
3
5
1
397
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. As of the date of this
Annual Report on Form 10-K, we have not exercised our right to extend the lease term, but we are presently in
negotiations to purchase our corporate headquarters for approximately $7 million.
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 Annual Report on
Form 10-K.
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.
19
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 25, 2019, there were approximately 138 holders of record of our common stock. We
did not sell any unregistered equity securities during fiscal 2018.
Cash Dividends
During fiscal 2018, we paid quarterly cash dividends of $0.075 per share in the first quarter and $0.08 per share in
the second, third and fourth quarters. 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 both immediately before and
immediately after giving effect to the cash dividends, and the aggregate amount of cash dividends for a fiscal year
do not exceed $10 million.
On March 21, 2019, the Board of Directors approved the payment of a cash dividend to our shareholders in the first
quarter of fiscal 2019. The quarterly cash dividend of $0.08 per share will be paid on April 22, 2019 to shareholders
of record as of the close of business on April 8, 2019.
Issuer Purchases of Equity Securities
Throughout fiscal 2018, we issued treasury shares to certain employees and our non-employee directors in the form
of restricted stock awards and upon the vesting of restricted stock units. We also repurchased 12,842 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 13, 2018, our Board of Directors authorized a new share repurchase program for up to $50 million of
outstanding common stock, effective January 1, 2019. The purchases may be made in the open market or through
privately negotiated transactions from time-to-time through December 31, 2019 and in accordance with applicable
laws, rules and regulations. 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 February 2, 2019, no shares 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 2017 and expired in accordance with its terms on December 31, 2018. At its expiration, we had purchased
approximately 1.5 million shares at an aggregate cost of $46.0 million under the prior repurchase program.
20
The following table summarizes repurchase activity during the fourth quarter of fiscal 2018:
Issuer Purchases of Equity Securities
Total
Number
Of Shares
Purchased of Shares
Approximate
Dollar Value
Period
Total
Average
Number
of Shares
Price Paid
Purchased(1) per Share
as Part
that May Yet
of Publicly Be Purchased
Announced
Programs(2) Programs(2)
Under
November 4, 2018 to December 1, 2018
December 2, 2018 to January 5, 2019
January 6, 2019 to February 2, 2019
137,427 $
60,300 $
0 $
197,727
36.50
33.14
0.00
137,056 $ 5,952,000
60,300 $ 50,000,000
0 $ 50,000,000
197,356
(1) Total number of shares purchased includes 371 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 13, 2018, our Board of Directors authorized a new share repurchase program for up to $50 million of our outstanding
common stock, effective January 1, 2019 and expiring on December 31, 2019. The new share repurchase program replaced the prior $50
million share repurchase program that was authorized in December 2017 and expired in accordance with its terms on December 31, 2018.
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 Annual Report on Form 10-K.
21
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 Annual Report on Form 10-
K.
(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
2018
2017
2016
2015
2014
$ 1,029,650 $ 1,019,154 $ 1,001,102 $ 983,968 $ 940,162
720,658 722,885 711,867 693,452 666,483
308,992 296,269 289,235 290,516 273,679
259,232 258,568 251,323 243,883 231,826
37,912 46,633 41,853
(14 )
165
37,749 46,504 41,702
14,232 17,737 16,175
23,517 $ 28,767 $ 25,527
37,701
(4 )
292
37,413
18,480
18,933 $
49,760
(747 )
150
50,357
12,222
38,135 $
(6 )
169
(39 )
168
$
$
$
2.51 $
2.45 $
1.15 $
1.15 $
1.28 $
1.28 $
1.45 $
1.45 $
1.27
1.27
15,111
15,499
16,220
16,227
18,017 19,417 19,777
18,022 19,427 19,791
Dividends declared per share
$
0.315 $
0.295 $
0.275 $ 0.255 $
0.24
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
397
408
415
405
400
$
$
4,268
2,473 $
236 $
4.3 %
4,391
2,419 $
229 $
0.3 %
4,465
4,526
4,419
2,367 $ 2,407 $ 2,390
221
1.8 %
224 $
0.5 %
224 $
3.0 %
48,254 $
67,021 $
62,944 $ 68,814 $ 61,376
$
$ 417,999 $ 415,580 $ 458,478 $ 481,093 $ 465,016
$
0
$ 304,433 $ 307,302 $ 318,882 $ 339,802 $ 331,198
0 $
0 $
0 $
0 $
(1) Our fiscal year is a 52/53 week year ending on the Saturday closest to January 31. Unless otherwise stated, references to years 2018, 2017,
2016, 2015, and 2014 relate respectively to the fiscal years ended February 2, 2019, February 3, 2018, January 28, 2017, January 30, 2016,
and January 31, 2015. Fiscal year 2017 consisted of 53 weeks and the other fiscal years consisted of 52 weeks.
(2) Selected Operating Data for fiscal 2017 has been adjusted to a comparable 52-week period ended January 27, 2018. The 53rd week in fiscal
2017 caused a one-week shift in our fiscal calendar. To minimize the effect of this fiscal calendar shift on comparable store sales, average
sales per store and average sales per square foot, our reported annual comparable store sales results for fiscal 2017 compare the 52-week
period ended January 27, 2018 to the 52-week period ended January 28, 2017 and average sales per store and average sales per square foot
are calculated for the 52-week period ended January 28, 2017. Comparable store sales results for fiscal 2018 compare the 52-week period
ended February 2, 2019 to the 52-week period ended February 3, 2018.
22
(3) Comparable store sales for the periods indicated include stores that have been open for 13 full months after such stores’ 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. Due to our multi-
channel retailer strategy, we view 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 e-commerce sales as an extension of our physical
stores.
23
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 Annual Report
on Form 10-K.
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, 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 2018, 2017 and 2016 relate respectively to the fiscal years ended February 2, 2019, February 3,
2018, and January 28, 2017. Fiscal year 2017 consisted of 53 weeks and the other fiscal years consisted of 52 weeks.
Executive Summary
Overview
Net income increased to $38.1 million in fiscal 2018, or $2.45 per diluted share, compared to net income of $18.9
million, or $1.15 per diluted share, in fiscal 2017. Despite a low-single digit decline in store traffic, comparable
store sales increased by 4.3% in fiscal 2018, and we generated a low-single digit improvement in our conversion
rate, primarily due to continued progress with our multi-channel strategy. Our balance sheet remains strong as of
February 2, 2019, with inventory down $3.0 million year-over-year, $67.0 million in cash and cash equivalents and
no outstanding debt.
Highlights of our performance in fiscal 2018 compared to the prior year are presented below, followed by a more
comprehensive discussion under “Results of Operations”:
• Net sales increased $10.5 million, or 1.0%, during the 52-week fiscal 2018 compared to a 53-week fiscal 2017.
Of the $10.5 million increase in net sales, approximately $8.9 million was attributable to the 22 new stores we
opened since the beginning of fiscal 2017 and $28.5 million was attributable to the stores in our comparable
store sales base. This net sales increase was partially offset by the loss of $26.9 million in sales from the 40
stores closed since the beginning of fiscal 2017. Similar to other retailers, we follow the retail 4-5-4 reporting
calendar, which included an extra week in the fourth quarter of fiscal 2017 (the 53rd week). The loss of this
one week of sales in fiscal 2018 negatively affected our net sales comparison, as approximately $13.0 million in
net sales were recorded for this extra week in fiscal 2017.
24
• Comparable store sales for the 52-week period ended February 2, 2019 increased 4.3% compared to the 52-
week period ended February 3, 2018, despite a low-single digit decline in store traffic. Customers responded
well to our product assortment and marketing efforts throughout the year, and we posted comparable store sales
increases in all major product categories. Seasonal product categories, such as women’s and children’s sandals
and men’s boots, all posted double-digit comparable store sales increases. We continue to offer our customers
fresh new styles and colors from brands that drive the athletic and athleisure trend. Adult athletics posted a
low-single digit comparable store sales increase during the year led by women’s athletics, which posted a mid-
single digit sales increase during fiscal 2018.
• Our gross profit margin increased to 30.0% in fiscal 2018 from 29.1% in the prior year. Our merchandise
margin increased 0.3% primarily due to higher margins achieved in the women’s non-athletic category.
Buying, distribution and occupancy costs, as a percentage of sales, decreased 0.6% compared to the prior year
primarily as a result of lower occupancy expenses during the year and the leveraging effect of higher sales.
In December 2017, the U.S. Tax Cuts and Jobs Act (the “Tax Act”) was enacted, which reduced our maximum
corporate tax rate from 35% to 21%, effective January 1, 2018. Our effective tax rate decreased to 24.3% in
fiscal 2018 compared to 49.4% in fiscal 2017 primarily due to the change in the corporate tax rate. We also
recorded additional income tax expense of $4.4 million in fiscal 2017 related to the one-time remeasurement of
certain deferred tax assets and liabilities using the new, lower corporate tax rate.
•
•
•
• We repurchased approximately 1.5 million shares of common stock during fiscal 2018 at a total cost of $46.0
million under our share repurchase programs and ended fiscal 2018 with $67.0 million in cash and cash
equivalents, and we ended fiscal 2018 with no outstanding debt.
In fiscal 2018, we continued to invest in our CRM strategy, which is intended to focus our entire organization
on a more customer-centric model. We engaged with a strategic partner that specializes in creating holistic
CRM strategies for large and mid-sized retail organizations to provide discovery, implementation, launch and
ongoing support for our customer-centric, multi-channel CRM Solution. This new platform will form the
foundation of our CRM program and will also serve as the systemic framework for our Shoe Perks loyalty
program.
In fiscal 2018, we increased membership in our Shoe Perks customer loyalty program by an additional 2.4
million members, which brought total membership to 21.7 million customers at the end of the fiscal year. For
the fiscal year, member sales accounted for approximately 68% of our total business and members on average
spent 19% more per transaction than non-members. The Gold tier represents approximately 35% of our active
Shoe Perks members and the average transaction value for these customers is 20% higher than non-Gold Shoe
Perks 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 began fiscal 2018 expecting to close approximately 25 to 30 stores. Our management team was focused on
improving the metrics of certain stores expected for closure and was successful in making them productive
contributors to our store base. As a result, we closed 14 stores during the year, opened three stores and
relocated one store. We ended the year with 397 stores.
Fiscal 2019
Fiscal 2019 will continue to be a year of innovation for Shoe Carnival. In the third quarter, we expect to officially
launch our CRM Solution. This launch represents the official implementation of our production CRM database to
support customer information, identity management and our CRM campaign management software. In fiscal 2019
we will continue to invest in our CRM strategy, which is intended to focus our entire organization on a more
customer-centric model. We will continue to work with our strategic partner that specializes in creating holistic
CRM strategies for large and mid-sized retail organizations to provide discovery, implementation, launch and
ongoing support for our customer-centric, multi-channel CRM Solution. This new platform will form the
foundation of our CRM program and will also serve as the systemic framework for our Shoe Perks loyalty program
and CRM campaign manager. We expect this initiative will give us an improved view into customer data, allowing
us to effectively communicate with consumers on a personalized basis. Using primarily transaction data, we are
gaining useful insights into our customers’ shopping habits, including where, when and how they shop our stores
and navigate our online presence. Additionally, we are gaining a deeper understanding of the brands and categories
our high-value customers consistently purchase so that we can continue to deliver strong performance at a
geographic and store level. Although a large part of customer data comes from our loyalty program, we take a
holistic view of CRM. We believe this approach should help drive continued Company growth in fiscal 2019 as we
continue to enhance our loyalty program and CRM capabilities through exclusive offers and personalized messaging
and build even greater loyalty and a deeper relationship with our Shoe Perks customers.
25
Increasing market penetration by opening new stores has historically been a key component of our growth strategy.
While our focus continues to be on generating positive long-term financial performance for our store portfolio, we
do not expect to open any new stores in fiscal 2019. As we leverage customer data from our CRM program, and as
more attractive real estate opportunities become available, we will continue to pursue opportunities for brick-and-
mortar store growth across large, mid-size and smaller markets in fiscal 2020.
Over the past several years, we have analyzed our entire portfolio of stores, with a concentration on
underperforming stores, in order to identify and address stores that produce low or negative contribution and either
renegotiate lease terms, relocate or close those stores. Based on this analysis, we currently expect to close
approximately seven to 10 stores in fiscal 2019.
In fiscal 2019, we will also be evaluating key processes underlying our supply chain, order management and
fulfillment competencies in order to build a more efficient supply chain, position ourselves for new growth and
ultimately enhance customer satisfaction and convenience in an increasingly competitive environment. We are also
partnering with a new marketing agency, who we believe will help us deliver new and unique messaging to our
customers and fortify our brand as a distinct and compelling family footwear retailer.
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 more significant judgments are included below.
Merchandise Inventories – Our merchandise inventories are stated at the lower of cost or net realizable value as of
the balance sheet date and consist primarily of dress, casual and athletic footwear for women, men and children.
The cost of our merchandise is determined using the first-in, first-out valuation method (FIFO). For determining
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 the lower of cost or net
realizable value. 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 February 2, 2019, totaled $257.5 million, representing approximately 62% of total
assets. Merchandise inventories as of February 3, 2018, totaled $260.5 million, representing approximately 63% of
total assets. 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
February 2, 2019, and of February 3, 2018, totaled $70.6 million and $86.3 million, respectively, representing
26
approximately 17% and 21% of total assets, respectively, for both fiscal years. There were no impairments of long-
lived assets recorded in fiscal 2018. From our evaluations performed during fiscal 2017, we recorded impairments
of long-lived assets of $5.1 million on 47 underperforming domestic stores. 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.
Insurance Reserves – We self-insure a significant portion of our workers’ compensation, general liability and
employee health care costs and also maintain insurance in each area of risk to protect us from individual and
aggregate losses over specified dollar values. 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 February 2, 2019 and February 3, 2018, our self-insurance reserves
totaled $3.4 million and $3.6 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
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 bases. 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
2018
2017
2016
100.0 %
100.0 %
100.0 %
70.0
30.0
25.2
4.8
(0.1 )
0.0
4.9
1.2
3.7 %
70.9
29.1
25.4
3.7
(0.0 )
0.0
3.7
1.8
1.9 %
71.1
28.9
25.1
3.8
(0.0 )
0.0
3.8
1.4
2.4 %
27
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 stores’ 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 e-commerce sales as an extension of our physical stores.
2018 Compared to 2017
Net Sales
Net sales increased $10.5 million to $1.030 billion for fiscal 2018, a 1.0% increase from net sales of $1.019 billion
for fiscal 2017. Of the $10.5 million increase in net sales, approximately $8.9 million was attributable to the 22 new
stores we opened since the beginning of fiscal 2017 and $28.5 million was attributable to the stores in our
comparable store sales base. Comparable store sales for the 52-week period ended February 2, 2019, increased
4.3% compared to the 52-week period ended February 3, 2018. Despite a low-single digit decline in store traffic, we
experienced increases in our conversion rate, average sales per transaction and average units per transaction.
Average unit retail was flat year-over-year. This net sales increase was partially offset by the loss of $26.9 million
in sales from the 40 stores closed since the beginning of fiscal 2017. Similar to other retailers, we follow the retail
4-5-4 reporting calendar, which included an extra week in the fourth quarter of fiscal 2017 (the 53rd week). The
loss of this one week of sales in fiscal 2018 negatively affected our net sales comparison, as approximately $13.0
million in net sales were recorded for this extra week in fiscal 2017.
Gross Profit
Gross profit increased $12.7 million to $309.0 million in fiscal 2018, primarily because of the increase in net sales
and lower occupancy costs. Our gross profit margin in fiscal 2018 increased to 30.0% from 29.1% in the prior fiscal
year. Our merchandise margin increased 0.3% primarily due to higher margins achieved in the women’s non-
athletic category. Buying, distribution and occupancy costs, as a percentage of sales, decreased 0.6% compared to
the prior year primarily as a result of lower occupancy expenses during the year and the leveraging effect of higher
sales.
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased $664,000 to $259.2 million in fiscal 2018 compared to
$258.6 million in the prior year. As a percentage of sales, these expenses decreased to 25.2% in fiscal 2018 from
25.4% in fiscal 2017. Significant changes in expense between the periods are as follows:
• On an overall basis, the net change in selling, general and administrative expenses was primarily driven by
increases in incentive and stock-based compensation expense, partially offset by expense reductions associated
with store closings, as described below, as well as reduced costs associated with our deferred compensation plan
in fiscal 2018 due to plan performance.
• We realized cost savings of $8.8 million during fiscal 2018 compared to fiscal 2017 related to the closure of 40
stores since the beginning of fiscal 2017, net of additional selling expense associated with the operation of 22
new stores opened since the beginning of fiscal 2017.
Incentive compensation expense increased $7.1 million in fiscal 2018 compared to fiscal 2017. This increase
was primarily attributable to the achievement of certain goals associated with our performance-based
compensation during fiscal 2018.
•
• Stock-based compensation expense increased $5.1 million in fiscal 2018 compared to fiscal 2017 primarily due
to the anticipated vesting of a greater number of performance-based equity awards as a result of our financial
performance in fiscal 2018.
28
Pre-Opening Costs
In fiscal 2018, pre-opening costs included in selling, general and administrative expenses were $208,000, or 0.02%
as a percentage of sales, compared to $827,000, or 0.08% as a percentage of sales, for fiscal 2017. We opened three
stores during fiscal 2018 at an average pre-opening cost of $69,000 compared to 19 stores in fiscal 2017 at an
average pre-opening cost of $44,000. 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.
Store Closing Costs
The portion of store closing costs included in selling, general and administrative expenses for fiscal 2018 was $2.8
million, or 0.3% as a percentage of sales. Store closing costs in fiscal 2018 were related to the 14 stores we closed
during the year and acceleration of expenses associated with management’s determination to close certain
underperforming stores in future periods. There were no impairments of long-lived assets recorded in fiscal 2018.
The portion of store closing costs and non-cash asset impairment charges included in selling, general and
administrative expenses for fiscal 2017 was $7.7 million, or 0.8% as a percentage of sales. Store closing costs in
fiscal 2017 were related to the 26 stores we closed during the year 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 $5.1 million on 47 underperforming, domestic stores in fiscal 2017.
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.
Income Taxes
The effective income tax rate for fiscal 2018 was 24.3% compared to 49.4% for fiscal 2017. Our effective tax rate
decreased 25.1 percentage points in fiscal 2018 primarily due to the change in the corporate tax rate under the Tax
Act and the additional income tax expense of $4.4 million recorded in fiscal 2017 related to the one-time
remeasurement of certain deferred tax assets and liabilities as a result of the reduction in the corporate tax rate. Our
provision for income tax expense is based on the current estimate of our annual effective tax rate.
2017 Compared to 2016
Net Sales
Net sales increased $18.1 million to $1.019 billion for fiscal 2017, a 1.8% increase from net sales of $1.001 billion
for fiscal 2016. Of the $18.1 million increase in net sales, approximately $23.3 million was attributable to the 38
new stores we opened since the beginning of fiscal 2016 and $16.1 million was attributable to the stores in our
comparable store sales base. Comparable store sales for the 52-week period ended January 27, 2018 increased
0.3%. Despite a mid-single digit decline in store traffic, we experienced increases in our conversion rate, average
sales per transaction, average units per transaction and average unit retail. The $18.1 million increase in net sales
was partially offset by the loss of $21.3 million in sales from the 35 stores closed since the beginning of fiscal 2016.
Similar to other retailers, we follow the retail 4-5-4 reporting calendar, which included an extra week in the fourth
quarter of fiscal 2017 (the 53rd week). Net sales of approximately $13.0 million were recorded in this extra week,
which are included in the total net sales increase of $18.1 million described above.
Gross Profit
Gross profit increased $7.0 million to $296.3 million in fiscal 2017, primarily because of the increase in net sales.
Our gross profit margin in fiscal 2017 increased to 29.1% from 28.9% in the prior fiscal year. Our merchandise
margin increased 0.2% while buying, distribution and occupancy costs, as a percentage of sales, remained flat
compared to the prior year. Our merchandise margin increased primarily due to a $3.3 million gain on insurance
proceeds recorded to cost of sales related to hurricane affected stores. This gain was partially offset by an increase
in shipping expense related to our multi-channel sales initiatives.
29
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased $7.2 million to $258.6 million in fiscal 2017 compared to
$251.3 million in the prior year. As a percentage of sales, these expenses increased to 25.4% in fiscal 2017 from
25.1% in fiscal 2016. Significant changes in expense between the periods are as follows:
• On an overall basis, the net change in selling, general and administrative expenses was primarily driven by
increases in contracted services, wages, stock-based compensation, employee health care and incentive
compensation, partially offset by reductions in advertising expense and security personnel.
• We incurred additional selling expense of $929,000 during fiscal 2017 compared to the prior year related to the
operation of 38 new stores opened since the beginning of fiscal 2016, net of expense reductions associated with
the closure of 35 stores since the beginning of the same period.
• Contracted services expense increased $1.4 million in fiscal 2017 primarily due to consulting fees related to our
CRM initiative.
• Stock-based compensation expense increased $1.2 million in fiscal 2017 compared to fiscal 2016 primarily due
•
to the impact of the Tax Act on anticipated vesting of performance-based restricted stock.
Incentive compensation increased $937,000 in fiscal 2017 compared to the prior year. This increase was
primarily attributable to achieving certain goals associated with our performance-based compensation during
fiscal 2017.
Pre-Opening Costs
In fiscal 2017, pre-opening costs included in selling, general and administrative expenses were $827,000, or 0.08%
as a percentage of sales, compared to $886,000, or 0.09% as a percentage of sales, for fiscal 2016. We opened 19
stores during fiscal 2017 at an average pre-opening cost of $44,000 compared to 19 stores in fiscal 2016 at an
average pre-opening cost of $47,000. 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.
Store Closing Costs
The portion of store closing costs and non-cash asset impairment charges included in selling, general and
administrative expenses for fiscal 2017 was $7.7 million, or 0.8% as a percentage of sales. Store closing costs in
fiscal 2017 were related to the 26 stores we closed during the year 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 $5.1 million on 47 underperforming, domestic stores in fiscal 2017.
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 during the year 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 on 19 stores in fiscal 2016. This included $3.6 million of impairments of
long-lived assets associated with seven of our stores located in Puerto Rico.
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.
Income Taxes
In December 2017, the Tax Act was enacted, which reduced our maximum corporate tax rate from 35% to 21%.
This rate change primarily impacted selling, general and administrative expenses and income tax expense in fiscal
2017. In selling, general and administrative expenses, we recorded a $1.9 million increase in stock-based
compensation expense due to the change in anticipated vesting of performance-based restricted stock awards.
Additionally, we re-measured our deferred tax assets and liabilities using the new, lower tax rate, which resulted in a
$4.4 million charge to income tax expense recorded in the fourth quarter of fiscal 2017. Primarily due to this
30
adjustment to deferred tax assets and liabilities, our effective income tax rate increased 11.7 percentage points to
49.4% in fiscal 2017 compared to 37.7% in fiscal 2016. 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)
Net income
Depreciation and amortization
Stock-based compensation
(Gain) loss on retirement and impairment of assets, net
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 increase (decrease) in cash and cash equivalents
$
2018
2017
2016
38,135 $
21,843
10,162
(1,264 )
(1,440 )
634
14,721
(8,650 )
74,141
(4,415 )
(50,959 )
18,933 $
23,804
5,017
5,511
1,418
4,818
(12,160 )
(6,993 )
40,348
(19,653 )
(35,385 )
23,517
23,699
3,822
4,794
(1,381 )
3,825
10,132
(4,619 )
63,789
(21,832 )
(47,827 )
$
18,767 $
(14,690 ) $
(5,870 )
Our primary sources of liquidity are cash and cash equivalents on hand, cash generated from operations and
availability under our credit facility. We believe these resources will be sufficient to fund our cash needs, as they
arise, for at least the next 12 months. Our primary uses of cash are for working capital, which are principally
inventory purchases, store initiatives, potential dividend payments, potential share repurchases under our share
repurchase program, the financing of capital projects, including investments in new systems, and various other
commitments and obligations.
Cash Flow - Operating Activities
Our net cash provided by operating activities was $74.1 million, $40.3 million and $63.8 million in fiscal years
2018, 2017 and 2016, respectively. These amounts reflect our income from operations adjusted for non-cash items
and working capital changes. Working capital was $266.5 million, $263.8 million and $265.5 million at February 2,
2019, February 3, 2018 and January 28, 2017, respectively. Working capital increased $2.7 million at February 2,
2019 compared to February 3, 2018 primarily due to an $18.8 million increase in cash and cash equivalents partially
offset by a $7.0 million increase in accounts payable and a $7.0 million increase in accrued and other liabilities.
Working capital decreased $1.7 million at February 3, 2018 compared to January 28, 2017 primarily due to a $19.1
million decrease in merchandise inventories and a $14.7 million decrease in cash and cash equivalents partially
offset by a $26.1 million decrease in accounts payable and a $3.4 million decrease in accrued and other liabilities.
The current ratio was 4.8, 5.7 and 4.1 at February 2, 2019, February 3, 2018 and January 28, 2017, respectively.
The current ratio decreased 16% at February 2, 2019 compared to February 3, 2018 primarily due to a $14.0 million
increase year-over-year in accounts payable and accrued and other liabilities.
Cash Flow - Investing Activities
Our cash outflows for investing activities were primarily for capital expenditures. During fiscal 2018, we expended
$7.4 million for the purchase of property and equipment, of which $2.5 million was for the construction and
fixturing of new stores, remodeling and relocations. During fiscal 2017, we expended $19.7 million for the purchase
of property and equipment, of which $13.5 million was for the construction and fixturing of new stores, remodeling
and relocations. 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. The
remaining capital expenditures in all periods were for continued investments in technology and normal asset
replacement activities.
31
Cash Flow - Financing Activities
Our cash outflows for financing activities were primarily for cash dividend payments, share repurchases, and, in
fiscal 2017, payments on our credit facility. 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 from financing activities have represented proceeds from the
issuance of shares as a result of stock option exercises, purchases under our Employee Stock Purchase Plan, and
borrowings under our credit facility.
During fiscal 2018, net cash used in financing activities was $51.0 million compared to $35.4 million during fiscal
2017 and $47.8 million in fiscal 2016. The fluctuations in cash used in financing activities during fiscal 2018, 2017
and 2016 was primarily attributable to changes in share repurchases in each fiscal year. There was $46.0 million of
common stock repurchased under our share repurchase program in fiscal 2018 compared to $29.8 million of
common stock repurchased under the share repurchase program in fiscal 2017 and $42.6 million of common stock
repurchased under the share repurchase program during fiscal 2016.
Store Openings and Closings – Fiscal 2018
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, as well as additional information we learn about
customers as we implement our CRM program.
In fiscal 2018, we opened three new stores. On a per-store basis, the initial inventory investment for stores opened
averaged $409,000, capital expenditures averaged $278,000 and lease incentives received from landlords averaged
$74,000.
Pre-opening expenses included in cost of sales and selling, general and administrative expenses totaled
approximately $288,000 for fiscal 2018, or an average of $96,000 per store. Items classified as pre-opening
expenses include rent, freight, advertising, salaries and supplies. During fiscal 2017, we opened 19 new stores and
expended $1.3 million on pre-opening expenses, or an average of $70,000 per store. The increase in the average
expense per new store was primarily the result of an increase in advertising expense.
We closed 14 stores during fiscal 2018 and 26 stores during fiscal 2017. Total store closing costs were $554,000 in
fiscal 2018 and $6.5 million in fiscal 2017. Store closing costs include impairments of long-lived assets, fixed asset
write-offs, employee severances, lease termination fees and store tear-down and clean-up expenses associated with
closing a store and acceleration of expenses associated with management’s determination to close certain
underperforming stores in future periods. In fiscal 2017, store closing costs included non-cash impairment charges
on fixed assets of $5.1 million. There were no impairments of long-lived assets recorded in fiscal 2018. The timing
and actual amount of expense recorded in closing an individual store can vary significantly depending, in part, on
the period in which management commits to a closing plan, the remaining basis in the fixed assets to be disposed of
at closing and the amount of any lease buyout.
Capital Expenditures – Fiscal 2019
Capital expenditures are expected to be $21 million to $22 million in fiscal 2019. Of our total capital expenditures,
approximately $7 million is expected to be used for the purchase of our corporate headquarters, approximately $3
million is expected to be used to relocate existing stores and approximately $6 million is expected to be used to
remodel approximately 5% of our existing store base. Lease incentives to be received from landlords are expected
to total approximately $1.6 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 stores
opened, if any, the number of stores 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, the negotiation of acceptable lease terms and general economic
and business conditions affecting consumer spending.
32
Store Openings and Closings – Fiscal 2019
Increasing market penetration by opening new stores has historically been a key component of our growth strategy.
While our focus continues to be on generating positive long-term financial performance for our store portfolio, we
do not expect to open any new stores in fiscal 2019. As we leverage customer data from our CRM program, and as
more attractive real estate opportunities become available, we will continue to pursue opportunities for brick-and-
mortar store growth across large, mid-size and smaller markets in fiscal 2020.
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 and address underperforming stores that produce low or negative contribution
and either renegotiate lease terms, relocate or close the stores. Based on this analysis, we currently expect to close
approximately seven to 10 stores in fiscal 2019. Even though this could reduce our overall net sales volume, we
believe this strategy will realize long-term improvement in operating income and diluted earnings per share.
Depending upon the results of lease negotiations with certain landlords of underperforming stores, we may increase
or decrease the number of store closures in future periods. 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. We
will continue to review our store portfolio based on our view of the internal and external opportunities and
challenges in the marketplace.
Dividends
In fiscal 2018, four quarterly cash dividends were approved and paid. The first quarter dividend was in the amount
of $0.075 per share and the dividends paid for the remaining three quarters were increased to $0.08 per share.
During fiscal 2017, the first quarter dividend was in the amount of $0.07 per share and the dividends for the
remaining three quarters were $0.075 per share. During fiscal 2016, the first quarter dividend was in the amount of
$0.065 per share and the dividends for the remaining three quarters were $0.07 per share. During fiscal years 2018,
2017 and 2016, we returned $4.8 million, $4.8 million and $5.0 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 (described below) permits the payment of cash dividends as long as no default or
event of default exists under the credit agreement both immediately before and immediately after giving effect to the
cash dividends, and the aggregate amount of cash dividends for a fiscal year do not exceed $10 million.
Share Repurchase Program
On December 13, 2018, our Board of Directors authorized a new share repurchase program for up to $50 million of
outstanding common stock, effective January 1, 2019. The purchases may be made in the open market or through
privately negotiated transactions from time-to-time through December 31, 2019 and in accordance with applicable
laws, rules and regulations. 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 February 2, 2019, no repurchases
had been made under the new share repurchase program, and we had $50 million available for future repurchases.
The new share repurchase program replaced the prior $50 million share repurchase program that was authorized in
December 2017 and expired in accordance with its terms on December 31, 2018. At its expiration, we had purchased
approximately 1.5 million shares at an aggregate cost of $46.0 million under the prior repurchase program.
33
Contractual Obligations
Significant contractual obligations as of February 2, 2019 and the fiscal years in which payments are due include:
(In thousands)
Contractual Obligations
Letters of credit
Operating leases
Purchase commitments
Deferred compensation
Total contractual obligations
Payments Due By Fiscal Year
2020 &
2021
2022 &
2023
2024 and
after
2019
1,200 $
1,200 $
Total
$
-
295,439 60,807 102,624 75,571 56,437
402,268 398,507
-
12,115
12 11,950
37
$ 711,022 $ 460,551 $ 105,454 $ 76,630 $ 68,387
2,714
116
1,047
- $
- $
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 “2024 and after”
column of the contractual obligations table include amounts for which 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 to March 27, 2022 and to 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 (as
defined in the Credit Agreement) 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 (as defined in the Credit Agreement) plus rent will not exceed 2.5 to
1.0; (3) the aggregate amount of cash dividends for a fiscal year will not exceed $10 million; and (4) distributions in
the form of redemptions of Equity Interests (as defined in the Credit Agreement) can be made solely with cash on
hand so long as before and immediately after such distributions there are no revolving loans outstanding under the
Credit Agreement. We were in compliance with these covenants as of February 2, 2019. 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. There were no borrowings outstanding under the credit facility and letters of credit outstanding were
$1.2 million at February 2, 2019. As of February 2, 2019, $48.8 million was available to us for additional
borrowings under the credit facility.
See Note 7 – “Long-Term Debt”, Note 8 – “Leases”, Note 9 – “Income Taxes” and Note 10 – “Employee Benefit
Plans” to our Notes to Consolidated Financial Statements contained in PART II, ITEM 8 of this Annual Report on
Form 10-K for a further discussion of our contractual obligations.
34
Off-Balance Sheet Arrangements
There were no assignments of operating leases to third parties in fiscal 2018, 2017 or 2016. Except for operating
leases entered into in the normal course of business, we did not have any off-balance sheet arrangements as of
February 2, 2019. See Note 8 – “Leases” to our Notes to Consolidated Financial Statements contained in PART II,
ITEM 8 of this Annual Report on Form 10-K for further discussion of our lease obligations.
Seasonality and Quarterly Results
Our quarterly results of operations have fluctuated, and are expected to continue to fluctuate in the future, primarily
as a result of seasonal variances and the timing of sales and costs associated with opening new stores and closing
underperforming stores. Non-capital expenditures, such as advertising and payroll incurred prior to the opening of a
new store, are charged to expense as incurred. The timing and actual amount of expense recorded in closing an
individual store can vary significantly depending, in part, on the period in which management commits to a closing
plan, the remaining basis in the fixed assets to be disposed of at closing and the amount of any lease buyout.
Therefore, our results of operations may be adversely affected in any quarter in which we incur pre-opening
expenses related to the opening of new stores or incur store closing costs related to the closure of existing stores.
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 Annual Report on Form 10-K.
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 2018. A
1% change in the weighted average interest rate charged under the credit facility would have resulted in interest
expense fluctuating by approximately $24,000 for fiscal 2017.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by this item appears beginning on page 36.
35
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the shareholders and the Board of Directors of Shoe Carnival, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Shoe Carnival, Inc. and subsidiaries (the
"Company") as of February 2, 2019 and February 3, 2018, the related consolidated statements of income,
shareholders' equity, and cash flows for each of the three years in the period ended February 2, 2019, and the related
notes and the schedule listed in the Index at Item 15 (collectively referred to as the "financial statements"). In our
opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of
February 2, 2019 and February 3, 2018, and the results of its operations and its cash flows for each of the three years
in the period ended February 2, 2019, in conformity with accounting principles generally accepted in the United
States of America.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United
States) (PCAOB), the Company's internal control over financial reporting as of February 2, 2019, based on criteria
established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring
Organizations of the Treadway Commission and our report dated April 2, 2019, expressed an unqualified opinion on
the Company's internal control over financial reporting.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an
opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with
the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal
securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the
PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial statements are free of material
misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of
material misstatement of the financial statements, whether due to error or fraud, and performing procedures that
respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and
disclosures in the financial statements. Our audits also included evaluating the accounting principles used and
significant estimates made by management, as well as evaluating the overall presentation of the financial statements.
We believe that our audits provide a reasonable basis for our opinion.
/s/ DELOITTE & TOUCHE LLP
Indianapolis, Indiana
April 2, 2019
We have served as the Company's auditor since 1988.
36
February 2,
2019
February 3,
2018
$
$
$
67,021 $
1,219
257,539
11,534
337,313
70,605
9,622
459
417,999 $
48,715 $
22,069
70,784
22,171
8,436
12,108
67
113,566
48,254
6,270
260,500
5,562
320,586
86,276
8,182
536
415,580
41,739
15,045
56,784
29,024
10,132
11,372
966
108,278
205
65,458
326,738
(85,099 )
307,302
415,580
Shoe Carnival, Inc.
Consolidated Balance Sheets
(In thousands, except share data)
Assets
Current Assets:
Cash and cash equivalents
Accounts receivable
Merchandise inventories
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,
20,529,227 and 20,529,227 shares issued, respectively
Additional paid-in capital
Retained earnings
Treasury stock, at cost, 5,154,243 and 3,582,068 shares, respectively
Total Shareholders’ Equity
Total Liabilities and Shareholders’ Equity
See notes to consolidated financial statements.
205
75,631
360,443
(131,846 )
304,433
417,999 $
$
37
February 2,
2019
February 3,
2018
$ 1,029,650 $ 1,019,154 $ 1,001,102
January 28,
2017
720,658
308,992
259,232
49,760
(747 )
150
50,357
12,222
38,135 $
722,885
296,269
258,568
37,701
(4 )
292
37,413
18,480
18,933 $
711,867
289,235
251,323
37,912
(6 )
169
37,749
14,232
23,517
2.51 $
2.45 $
1.15 $
1.15 $
1.28
1.28
15,111
15,499
16,220
16,227
18,017
18,022
$
$
$
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.
38
Shoe Carnival, Inc.
Consolidated Statements of Shareholders’ Equity
(In thousands)
Common Stock
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
Adoption of Accounting Standards
Update No. 2016-09
Stock option exercises
Dividends ($0.295 per share)
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 February 3, 2018
Adoption of Accounting Standards
Codification 606
Dividends ($0.315 per share)
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 February 2, 2019
Issued Treasury Amount
20,604
(956 ) $
(35 )
10
225
(16 )
(1,697 )
20,569 (2,434 )
Additional
Paid-In
Capital
Retained
Earnings
Treasury
Stock
Total
206 $ 66,805 $ 294,308 $ (21,517 ) $ 339,802
(5,184 )
(5,184 )
3
(10 )
(5,072 )
3
223
0
233
5,072
(421 )
(421 )
(42,604 ) (42,604 )
3,546
23,517
65,272 312,641 (59,237 ) 318,882
23,517
3,546
206
7
(188 )
(114 )
188
(5,024 )
168
0
54
(5,024 )
(40 )
10
139
(44 )
(4,545 )
(1 )
249
4,546
205
0
(45 )
(1,259 )
20,529 (3,582 )
7
(39 )
(13 )
(1,527 )
20,529 (5,154 ) $
(1,027 )
(1,027 )
(29,798 ) (29,798 )
5,077
18,933
65,458 326,738 (85,099 ) 307,302
18,933
5,077
205
620
(5,050 )
620
(5,050 )
8
543
169
(543 )
177
0
(327 )
(327 )
(46,046 ) (46,046 )
9,622
38,135
205 $ 75,631 $ 360,443 $ (131,846 ) $ 304,433
38,135
9,622
See notes to consolidated financial statements.
39
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
(Gain)/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
Other
Net cash used in investing activities
Cash Flow From Financing Activities
Borrowings under line of credit
Payments on line of credit
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 increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and Cash Equivalents at End of Year
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.
February 2,
2019
February 3,
2018
January 28,
2017
$
38,135 $
18,933 $
23,517
21,843
10,162
(1,264 )
(1,440 )
634
(8,650 )
3,905
2,961
12,688
(4,833 )
74,141
23,804
5,017
5,511
1,418
4,818
(6,993 )
(951 )
19,146
(30,132 )
(223 )
40,348
(7,413 )
2,998
(4,415 )
(19,653 )
0
(19,653 )
0
0
177
(4,763 )
0
(46,046 )
(327 )
(50,959 )
18,767
48,254
67,021 $
88,600
(88,600 )
259
(4,819 )
0
(29,798 )
(1,027 )
(35,385 )
(14,690 )
62,944
48,254 $
23,699
3,822
4,794
(1,381 )
3,825
(4,619 )
(2,293 )
13,232
(982 )
175
63,789
(21,832 )
0
(21,832 )
0
0
223
(5,028 )
3
(42,604 )
(421 )
(47,827 )
(5,870 )
68,814
62,944
150 $
13,419 $
130 $
292 $
16,832 $
783 $
170
14,696
168
$
$
$
$
40
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 the “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 2018, 2017 and 2016 relate to the fiscal years ended February 2, 2019, February 3, 2018 and
January 28, 2017, respectively. Fiscal year 2017 consisted of 53 weeks and the other fiscal years consisted of 52
weeks.
Use of Estimates in the Preparation of Consolidated Financial Statements
The preparation of our consolidated financial statements in conformity with generally accepted accounting
principles in the United States of America requires management to make estimates and assumptions that affect the
reported amounts of certain assets and liabilities as of the financial statement reporting date in addition to the
reported amounts of certain revenues and expenses for the reporting period. The assumptions used by management
in future estimates could change significantly due to changes in circumstances and actual results could differ from
those estimates.
Cash and Cash Equivalents
We had cash and cash equivalents of $67.0 million at February 2, 2019 and $48.3 million at February 3, 2018.
Credit and debit card receivables and receivables due from a third party totaling $8.2 million and $5.4 million were
included in cash equivalents at February 2, 2019 and February 3, 2018, 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 February 2, 2019, all invested cash was held in money market mutual funds. There was no invested cash as of
February 3, 2018. 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 February 2, 2019 and February 3, 2018 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 sheets as of February 2, 2019 and February 3, 2018 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.
41
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 net realizable value using the first-in, first-out (FIFO)
method. For determining net 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 the lower of cost or net realizable value 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-five years.
Expenditures for maintenance and repairs are charged to expense as incurred. Expenditures that materially increase
values, improve capacities or extend useful lives are capitalized. Upon sale or retirement, the costs and related
accumulated depreciation or amortization are eliminated from the respective accounts and any resulting gain or loss
is included in operations.
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. There were no impairments of long-
lived assets recorded in fiscal 2018. We recorded non-cash impairment charges of approximately $5.1 million and
$4.5 million in fiscal years 2017 and 2016, 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 to protect 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 February 2, 2019 and February 3, 2018, our self-insurance reserves totaled $3.4 million and $3.6
million, respectively. We record self-insurance expense 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.
42
Shoe Carnival, Inc.
Notes to Consolidated Financial Statements - continued
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
Substantially all of our revenue is for a single performance obligation and is recognized when control passes to
customers. We consider control to have transferred when we have a present right to payment, the customer has title
to the product, physical possession of the product has been transferred and the risks and rewards of the product that
we retain are minimal. For our brick-and-mortar stores, we satisfy our performance obligation and control is
transferred at the point of sale when the customer takes possession of the products. This also includes the “buy
online, pick up in store” scenario and includes Shoes 2U if the customer chooses the option of picking up their
goods in-store. For sales made through our e-commerce site or mobile app in which the customer chooses home
delivery, we transfer control and recognize revenue when the product is shipped from our stores or distribution
center. This also includes Shoes 2U if the customer chooses the option of having goods delivered to their home.
The redemption of loyalty points under our Shoe Perks loyalty rewards program and redemptions of gift cards may
be part of any transaction. These situations represent separate performance obligations that are embedded in the
contract and are more fully described below.
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.
See Note 4 – “Revenue” for additional discussion of our revenue recognition policies as well as additional
disclosures on revenue from contracts with customers.
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.
43
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 $41.2 million,
$40.1 million and $42.9 million in fiscal years 2018, 2017 and 2016, 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, restricted stock, stock units and other stock-based
awards under our stock-based compensation plans. Additionally, we recognize stock-based compensation expense
for the discount on shares sold to employees through our employee stock purchase plan. This discount represents
the difference between the market price and the employee purchase price. Stock-based compensation expense is
included in selling, general and administrative expense.
We account for forfeitures as they occur in calculating stock-based compensation expense for the period. For
performance-based stock awards, we estimate the probability of vesting based on the likelihood that the awards will
meet their performance goals.
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.
44
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:
February 2, 2019
Net
Income Shares
$ 38,135
Fiscal Year Ended
February 3, 2018
(In thousands, except per share data)
Per
Share
Amount
Per
Share
Amount
Net
Net
Income Shares
$ 18,933
Per
Share
Amount
Income Shares
$ 23,517
January 28, 2017
(152 )
(250 )
(487 )
$ 37,983 15,111 $ 2.51 $ 18,683 16,220 $ 1.15 $ 23,030 18,017 $ 1.28
$ 38,135
$ 18,933
$ 23,517
(152 )
(250 )
(487 )
4 388
0
7
0
5
$ 37,987 15,499 $ 2.45 $ 18,683 16,227 $ 1.15 $ 23,030 18,022 $ 1.28
Basic Earnings per Share:
Net income
Amount allocated to participating
securities
Net income available for basic
common shares and basic
earnings per share
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
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 because 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 also issued accounting standards updates which clarify this 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. We adopted the new revenue guidance on February 4, 2018, using a modified
retrospective transition approach. We recorded an increase in retained earnings of $620,000 as a cumulative effect
of the adoption based on our evaluation of incomplete contracts as of the adoption date. This increase to retained
earnings included pre-tax adjustments in connection with e-commerce revenue of $171,000 and recognition of
breakage revenue for unredeemed gift cards of $649,000, partially offset by a $200,000 adjustment related to the tax
impact of the cumulative effect adjustments. The cumulative effect e-commerce adjustment is related to recognizing
revenue when products are shipped from our stores or distribution center under the new guidance rather than
recognizing revenue when the shipments were delivered under the previous revenue guidance. The cumulative
effect gift card breakage adjustment is related to the unredeemed portion of our gift cards, which are now estimated
using historical breakage percentages and recognized based on expected gift card usage, rather than waiting until the
likelihood of redemption becomes remote. In addition to these changes, we also now record a right of return asset in
inventory for the estimated cost of the inventory expected to be returned. Under the previous revenue guidance, we
45
Shoe Carnival, Inc.
Notes to Consolidated Financial Statements - continued
recorded a net returns reserve in accrued and other liabilities. The adoption of this guidance did not have a material
impact on our consolidated financial statements. See Note 4 – “Revenue” for additional discussion of this adoption
as well as additional disclosures on revenue from contracts with customers.
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. This guidance was
updated in July 2018. This update, among other things, added a transition option allowing entities to initially apply
the requirements by recognizing a cumulative-effect adjustment to the opening balance of retained earnings in the
period of adoption rather than the earliest period presented. This guidance became effective for us on February 3,
2019 and will include interim periods in fiscal 2019. We have elected the optional transition method to apply the
standard as of the effective date and therefore, we will not apply the standard to the comparative periods presented
in our financial statements. We did not elect the transition package of practical expedients that is permitted by the
guidance, so we were required to reassess previous accounting conclusions regarding whether existing arrangements
are or contain leases, the classification of existing leases and the treatment of initial direct costs. We also did not
elect the transition practical expedients that permits entities to use hindsight when determining lease term and
impairment of right-of-use assets or that permits entities to account for lease and non-lease components as a single
lease component. We did elect the practical expedient that permits us not to recognize right-of-use assets and
related liabilities that arise from short-term leases (i.e., leases with terms of twelve months or less). We are
finalizing the impact of the standard to our accounting policies, processes, disclosures, and internal control over
financial reporting and have implemented necessary upgrades to our existing lease system. Substantially all of our
retail store locations, our distribution center and our corporate headquarters are subject to operating lease accounting
under the new guidance. Therefore, the adoption of standard will have a material impact on our consolidated
balance sheet. While we are continuing to assess all potential impacts of the standard, we expect to record lease
liabilities of approximately $240 million to $260 million based on the present value of the remaining minimum
rental payments using incremental borrowing rates as of the effective date. The right-of-use assets will be based
upon the lease liabilities adjusted for accrued rent, unamortized deferred lease incentives and impairment charges of
right-of-use assets recognized at transition, if applicable. We do not expect a material impact on our consolidated
statement of income or our consolidated statement of cash flows.
In May 2017, the FASB issued guidance which clarifies what constitutes a modification of a share-based payment
award. We adopted the provisions of this guidance on February 4, 2018. The adoption of this guidance did not have
a material impact on our consolidated financial statements.
In March 2018, the FASB issued guidance on the income tax accounting implications of the U.S. Tax Cuts and Jobs
Act (the “Tax Act”), to address the application of guidance in situations when a company does not have the
necessary information available, prepared, or analyzed to complete the accounting for certain income tax effects of
the Tax Act. The guidance provides a one-year measurement period to assess the Tax Act, which began in the
reporting period of the enactment date of the Tax Act. Due to the timing of the enactment and the complexity
involved in applying the provisions of the Tax Act, we initially made reasonable estimates of the effects and
recorded provisional amounts in our financial statements. We recorded $4.4 million of additional income tax
expense in the fourth quarter of fiscal 2017 and an income tax benefit of $0.1 million during fiscal 2018 related to
the remeasurement of certain deferred tax assets and liabilities based on the rates at which they were expected to
reverse in the future. As of the end of fiscal 2018, we have filed our fiscal 2017 federal income tax return and have
completed our assessment of the final impact of the Tax Act.
In August 2018, the FASB issued guidance that addressed the diversity in practice surrounding the accounting for
costs incurred to implement a cloud computing hosting arrangement that is a service contract by establishing a
model for capitalizing or expensing such costs, depending on their nature and the stage of the implementation
project during which they are incurred. Any capitalized costs are to be amortized over the reasonably certain term
of the hosting arrangement and presented in the same line as the service arrangement's fees within the consolidated
statements of operations. This guidance also requires enhanced qualitative and quantitative disclosures surrounding
hosting arrangements that are service contracts. We are presently in the process of implementing a cloud computing
hosting arrangement that is a service contract in connection with our Customer Relationship Management (“CRM”)
program. The costs incurred during the application-development stage of our CRM program are being capitalized in
accordance with this new guidance and amortized over the term of the contract with our third-party service provider,
46
Shoe Carnival, Inc.
Notes to Consolidated Financial Statements - continued
and because our CRM program is a significant component of our strategic plan, these costs have a material impact
on our consolidated financial statements and related disclosures. We early adopted this guidance on a prospective
basis on November 4, 2018.
In August 2018, the FASB issued guidance which modifies the disclosure requirements on fair value measurements,
including the consideration of costs and benefits. This guidance is effective for annual reporting periods and interim
periods within those annual periods beginning after December 15, 2019. We are in the process of evaluating the
impact of this guidance on our consolidated financial statements.
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 February 2, 2019 and
February 3, 2018. We have no material liabilities measured at fair value on a recurring or non-recurring basis.
(In thousands)
As of February 2, 2019:
Fair Value Measurements
Level 1 Level 2 Level 3 Total
Cash equivalents – money market mutual fund
$ 68,500 $
As of February 3, 2018:
Cash equivalents – money market mutual fund
$
- $
- $
- $
- $ 68,500
- $
-
The fair values of cash and cash equivalents, 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 estimated future
cash flows. An increase or decrease in projected cash flow can significantly decrease or increase the fair value of
these assets, which would have an effect on the impairment recorded.
There were no impairments of long-lived assets recorded during the 52 weeks ended February 2, 2019. During the
53 weeks ended February 3, 2018, we recorded an impairment charge of $5.1 million on long-lived assets held and
used, which was included in selling, general and administrative expenses for the period. Subsequent to this
47
Shoe Carnival, Inc.
Notes to Consolidated Financial Statements - continued
impairment, these long-lived assets had a remaining unamortized basis of $4.7 million. During the 52 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 selling, general and administrative expenses for the period. Subsequent to this impairment, these long-
lived assets had a remaining unamortized basis of $4.7 million.
Note 4 – Revenue
Revenue Recognition Adoption and Practical Expedients
We adopted and applied the new revenue guidance in Accounting Standards Codification 606 (“ASC 606”) as of
February 4, 2018 using the modified retrospective transition approach. Based on this approach, the consolidated
financial statements for prior fiscal years were not restated and are reported under the prior revenue guidance in
effect for the fiscal years presented. We elected the practical expedient to treat shipping and handling activities
associated with freight charges that occur after control of the product transfers to the customer as fulfillment
activities. These costs are expensed as incurred and included in cost of sales in our consolidated statements of
income. We also elected the practical expedient for sales tax collected, which allows us to exclude from our
transaction price any amounts collected from customers for sales tax and other similar taxes. There were no changes
to our comparative reporting of shipping and handling costs included in cost of sales or accounting for sales tax as a
result of the adoption of ASC 606.
Accounting Policy and Performance Obligations
We operate as a multi-channel, family footwear retailer and provide the convenience of shopping at our brick-and-
mortar stores or shopping online through our e-commerce and mobile platforms. As part of our multi-channel
strategy, we offer Shoes 2U, a program that enables us to ship product to a customer’s home or selected store if the
product is not in stock. We also offer “buy online, pick up in store” services for our customers. “Buy online, pick
up in store” provides the convenience of local pickup for our customers.
Substantially all of our revenue is for a single performance obligation and is recognized when control passes to
customers. We consider control to have transferred when we have a present right to payment, the customer has title
to the product, physical possession of the product has been transferred and the risks and rewards of the product that
we retain are minimal. For our brick-and-mortar stores, we satisfy our performance obligation and control is
transferred at the point of sale when the customer takes possession of the products. This also includes the “buy
online, pick up in store” scenario described above and includes Shoes 2U if the customer chooses the option of
picking up their goods in-store. For sales made through our e-commerce site or mobile app in which the customer
chooses home delivery, we transfer control and recognize revenue when the product is shipped from our stores or
distribution center. This also includes Shoes 2U if the customer chooses the option of having goods delivered to
their home.
The redemption of loyalty points under our Shoe Perks loyalty rewards program (“Shoe Perks”) and redemptions of
gift cards may be part of any transaction. These situations represent separate performance obligations that are
embedded in the contract.
Transaction Price and Payment Terms
The transaction price is the amount of consideration we expect to receive from our customers and is reduced by any
stated promotional discounts at the time of purchase. The transaction price may be variable due to terms that permit
customers to exchange or return products for a refund within a limited period of time. The implicit contract with the
customer reflected in the transaction receipt states the final terms of the sale, including the description, quantity, and
price of each product purchased. The customer agrees to a stated price in the contract that does not vary over the
term of the contract. Taxes imposed by governmental authorities such as sales taxes are excluded from net sales.
Our brick-and-mortar stores accept various forms of payment from customers at the point of sale. These include
cash, checks, credit/debit cards and gift cards. Our e-commerce and mobile platforms accept credit/debit cards,
PayPal and gift cards as forms of payment. Payments made for products are generally collected when control passes
to the customer, either at the point of sale or at the time the customer order is shipped. For Shoes 2U transactions,
48
Shoe Carnival, Inc.
Notes to Consolidated Financial Statements - continued
customers may order the product at the point of sale. For these transactions, customers pay in advance and unearned
revenue is recorded as a contract liability. We recognize the related revenue when control has been transferred to
the customer (i.e., when the product is picked up by the customer or shipped to the customer). Unearned revenue
related to Shoes 2U was not material to our consolidated financial statements at February 2, 2019.
Returns and Refunds
It is our policy to allow brick-and-mortar and online customers to exchange or return products for a refund within a
limited period of time. We have established a returns allowance based upon historical experience in order to
estimate these transactions. This allowance is recorded as a reduction in sales with a corresponding refund liability
recorded in accrued and other liabilities. The estimated cost of merchandise inventory is recorded as a reduction to
cost of sales and an increase in merchandise inventories. At February 2, 2019, approximately $600,000 of refund
liabilities and $410,000 of right of return assets associated with estimated product returns were recorded in our
consolidated balance sheet.
Contract Liabilities
We sell gift cards in our brick-and-mortar stores and through our e-commerce and mobile platforms. Gift card
purchases are recorded as an increase to contract liabilities at the time of purchase and a decrease to contract
liabilities when a customer redeems a gift card. Under the previous revenue guidance, when a customer did not use
the entire value of their gift card, we recorded this unredeemed portion of the gift card as revenue when the
likelihood of redemption became remote (i.e., breakage). Under ASC 606, estimated breakage is determined based
on historical breakage percentages and recognized as revenue based on expected gift card usage. This new policy
results in earlier recognition of breakage revenue compared to the previous guidance. Consistent with the previous
guidance, we do not record breakage revenue when escheat liability to relevant jurisdictions exists. At February 2,
2019, approximately $1.6 million of contract liabilities associated with unredeemed gift cards were recorded in our
consolidated balance sheet. We expect the revenue associated with these liabilities to be recognized in proportion to
the pattern of customer redemptions within two years.
We offer our customers the opportunity to enroll in our Shoe Perks program, which accrues points and provides
customers with the opportunity to earn rewards. Points under Shoe Perks are earned primarily by making purchases
either in-store or through our online platform. Once a certain threshold of accumulated points is reached, the
customer earns a reward certificate, which is redeemable at any of our stores or online. Under the previous
guidance, after the certificates were batched, issued and awarded to customers at the end of the month, we recorded
a liability for the estimated cost of the reward certificates expected to be redeemed. This liability was immaterial at
the adoption date and all related certificates expired prior to May 5, 2018 in accordance with the terms of the
awards. Under ASC 606, when a Shoe Perks customer makes a purchase, we allocate the transaction price between
the goods and the loyalty reward points based on the relative standalone selling price. The portion allocated to the
material right is recorded as a contract liability for rewards that are expected to be redeemed. We then recognize
revenue based on an estimate of when customers exercise their rights to redeem the rewards, which incorporates an
estimate of points expected to expire using historical rates. At February 2, 2019, approximately $245,000 of
contract liabilities associated with loyalty rewards were recorded in our consolidated balance sheet. We expect the
revenue associated with these liabilities to be recognized in proportion to the pattern of customer redemptions in less
than one year.
We are a multi-channel retailer that provides our customers with the convenience of home delivery. Our customers
may choose this delivery method when purchasing products online, through our mobile app or via Shoes 2U. These
products are picked up at our stores or distribution center and delivered by third-party freight companies. Under the
previous guidance, which was primarily based on a risks and rewards approach, when product was shipped to our
customers, we recognized revenue based on an estimated customer receipt date. Since we collect payment upon
shipment, this resulted in deferred revenue, which was recognized when the customer took receipt of the product.
Under ASC 606, which is control-based, we transfer control and recognize revenue when the product is shipped
from our stores or distribution center. This change had the effect of eliminating the deferred revenue accounting
treatment under the previous guidance, and we no longer record an initial liability when sales are shipped to our
customers.
49
Shoe Carnival, Inc.
Notes to Consolidated Financial Statements - continued
Impact of Adoption
The impact of the new guidance on our consolidated balance sheet as of February 2, 2019 is below. In the table, the
adjustments for merchandise inventories relate to: (1) the classification of the right of return assets associated with
product returns previously recorded net of the refund liability in accrued and other liabilities, and (2) the cost basis
of inventory for product shipped to customers not yet received under the previous revenue guidance. The
adjustment for deferred income taxes relates to the tax effect of the cumulative effect adjustments. The adjustments
to accrued and other liabilities relate to: (1) the classification of the right of return assets from accrued and other
liabilities to merchandise inventories, (2) recognition of deferred revenue for product shipped to customers not yet
received, and (3) the adjustment to contract liabilities for unredeemed gift cards and award certificates.
(In thousands)
Merchandise inventories
Deferred income taxes
Accrued and other liabilities
As Reported
February 2, 2019
Adjustments
As Adjusted
$
$
257,539
9,622
(22,069)
(253) $
100
(363)
257,286
9,722
(22,432)
The impact of the new guidance on our consolidated statement of income for the fiscal year ended February 2, 2019
is below. In the table, the adjustments to net sales relate to: (1) deferred revenue for product shipped to customers
not yet received, (2) breakage revenue for unredeemed gift cards, and (3) adjustments associated with our rewards
program. The adjustment to cost of sales relates to the cost associated with product shipped to customers not yet
received under the previous revenue guidance. The impact of the new guidance on income tax expense was
immaterial for the fiscal year ended February 2, 2019.
(In thousands)
Net sales
Cost of sales (including buying,
distribution and occupancy costs)
Disaggregation of Revenue by Product Category
As Reported
February 2, 2019
Adjustments
As Adjusted
$
1,029,650
$
47
$
1,029,697
720,658
(73)
720,585
Revenue is disaggregated by product category below. Net sales and percentage of net sales for the fiscal years
ended February 2, 2019, February 3, 2018 and January 28, 2017 were as follows:
(In thousands)
Non-Athletics:
Women's
Men's
Children's
Total
Athletics:
Women's
Men's
Children's
Total
Accessories
Other
Total
February 2,
2019
February 3,
2018
January 28,
2017
$
$
250,320
144,628
51,963
446,911
179,411
215,796
138,686
533,893
45,100
3,746
1,029,650
24 % $
14
5
43
18
21
14
53
4
-
100 % $
244,945
141,295
50,255
436,495
177,627
219,224
138,074
534,925
43,606
4,128
1,019,154
24 % $
14
5
43
17
22
14
53
4
-
100 % $
256,271
137,729
51,496
445,496
165,179
217,969
127,858
511,006
41,259
3,341
1,001,102
26 %
14
5
45
16
22
13
51
4
-
100 %
50
Shoe Carnival, Inc.
Notes to Consolidated Financial Statements - continued
Note 5 – 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
Note 6 – Accrued and Other Liabilities
Accrued and other liabilities consisted of the following:
$
February 2,
2019
156,596 $
110,824
267,420
(196,815 )
70,605 $
February 3,
2018
154,844
111,967
266,811
(180,535 )
86,276
$
(In thousands)
Employee compensation and benefits
Self-insurance reserves
Gift cards
Sales and use tax
Other
Total accrued and other liabilities
February 2,
2019
February 3,
2018
$
$
9,771 $
3,447
1,558
2,131
5,162
22,069 $
3,231
3,565
2,382
1,797
4,070
15,045
Note 7 – Long-Term Debt
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) the aggregate amount of 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 under the Credit
Agreement. Should a default condition be reported, the lenders may preclude additional borrowings and call all
loans and accrued interest at their discretion. As of February 2, 2019, there were $1.2 million in letters of credit
outstanding and $48.8 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 8 – 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
51
Shoe Carnival, Inc.
Notes to Consolidated Financial Statements - continued
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. There were no assignments of operating leases to third parties in fiscal 2018, fiscal 2017
or fiscal 2016.
Rental expense for our operating leases consisted of:
(In thousands)
Rentals for real property
Contingent rent
Equipment rentals
Total
2018
2016
2017
$ 61,127 $ 66,835 $ 65,900
92
62
$ 61,228 $ 66,946 $ 66,054
46
55
70
41
Future minimum lease payments at February 2, 2019 were as follows:
(In thousands)
2019
2020
2021
2022
2023
Thereafter to 2031
Total
Note 9 – 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
$
60,807
51,937
50,687
41,536
34,035
56,437
$ 295,439
2018
2017
2016
$ 11,468 $ 14,579 $ 13,366
1,997
250
15,613
2,241
242
17,062
1,693
700
13,861
(894 )
(745 )
643
(996 )
(643 )
(153 )
(1,228 )
(1,494 )
(2,875 )
1,494
$ 12,222 $ 18,480 $ 14,232
2,383
(965 )
2,500
3,918
(2,500 )
We realized a tax benefit of $26,100 in fiscal year 2018, tax expense of $17,800 in fiscal year 2017, and a tax
benefit of $2,900 in fiscal year 2016 as a result of the exercise of stock options and the vesting of restricted stock.
These amounts were recorded in tax expense in fiscal 2018 and shareholder’s equity in fiscal 2017 and fiscal 2016.
52
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
U.S. Federal statutory tax rate
State and local income taxes, net of federal tax
benefit
Puerto Rico
Valuation allowance
Tax impact of foreign losses
Remeasurement of deferred tax assets and liabilities
due to the Tax Act
Other
Effective income tax rate
2018
2017
2016
21.0 %
33.7 %
35.0 %
3.0
4.2
(1.3 )
(2.7 )
0.0
0.1
24.3 %
3.0
0.7
(6.7 )
6.3
11.6
0.8
49.4 %
2.1
0.2
4.0
(3.6 )
0.0
0.0
37.7 %
We recorded $310,000, $223,000 and $224,000 in federal employment-related tax credits in fiscal 2018, 2017 and
2016, 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
Long-term deferred income taxes, net
$
February 2,
2019
February 3,
2018
$
2,051 $
7,843
129
787
510
5,429
563
288
17,600
(574 )
2,464
5,752
349
699
518
7,145
1,218
488
18,633
(1,217 )
17,026
17,416
6,484
636
284
7,404
9,622 $
8,588
646
0
9,234
8,182
At the end of fiscal 2018, we estimated foreign net operating loss carry forwards of $1.5 million, which expire
between fiscal 2024 and fiscal 2027. At February 2, 2019, we had a valuation allowance of $574,000 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.
At February 2, 2019 and February 3, 2018, there were no unrecognized tax liabilities or related accrued penalties or
interest in other liabilities on the consolidated balance sheets.
On December 22, 2017, the U.S. government enacted the Tax Act, which made significant changes to the Internal
Revenue Code of 1986, as amended, including, but not limited to, reducing the U.S. corporate statutory tax rate from
35% to 21%, and eliminating or limiting deduction of several expenses which were previously deductible. In
connection with the Tax Act, the Securities and Exchange Commission staff issued Staff Accounting Bulletin 118
53
Shoe Carnival, Inc.
Notes to Consolidated Financial Statements - continued
(“SAB 118”), which provides guidance on accounting for the tax effects of the Tax Act. SAB 118 provided a
measurement period of one year from the Tax Act’s enactment date for companies to complete their accounting
under the income tax guidance. For our initial analysis of the impact of the Tax Act, we recorded additional income
tax expense of $4.4 million for the fiscal year ended February 3, 2018, which was related to the remeasurement of
certain deferred tax assets and liabilities based on the rates at which they were expected to reverse in the future. We
also calculated our fiscal 2017 income tax expense using a blended rate of 33.7%, which is based on the applicable
tax rates before and after the Tax Act and the number of days in the fiscal year that the respective tax rates were in
effect. We have determined that these provisions were the only provisions of the Tax Act that impacted fiscal 2017
results. In fiscal 2018, we obtained additional information and recorded an income tax benefit of $0.1 million. As
of the end of fiscal 2018, we have filed our fiscal 2017 federal income tax return and have completed our assessment
of the final impact of the Tax Act.
Note 10 – 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 $738,000, $733,000, and $695,000 in fiscal years 2018, 2017, and
2016, 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 $16,000, $18,000
and $15,000 in fiscal years 2018, 2017 and 2016, 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 our common stock) for issuance and sale to any employee who has been employed for more
than a year at the beginning of the calendar year, and who is not a 10% owner of our common stock, at 85% of the
then fair market value up to a maximum of $5,000 in any calendar year. Under the Stock Purchase Plan, 7,000,
10,000 and 10,000 shares of common stock were purchased by participants in the plan and proceeds to us for the
sale of those shares were approximately $177,000, $205,000 and $223,000 for fiscal years 2018, 2017 and 2016,
respectively. At February 2, 2019, there were 77,000 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)
Stock-based compensation expense before the
recognized income tax benefit (1)
Income tax benefit
2018
2017
2016
$
$
31 $
8 $
36 $
18 $
39
15
(1) Amounts are representative of the 15% discount employees are provided for purchases under the Stock Purchase Plan.
54
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 $154,000 for fiscal 2018, $1.8 million
for fiscal 2017 and $1.5 million for fiscal 2016. The total deferred compensation liability at February 2, 2019 and
February 3, 2018 was $12.1 million and $11.6 million, respectively.
Note 11 – Stock Based Compensation
Compensation Plan Summaries
At our 2017 annual meeting of shareholders held on June 13, 2017, our shareholders approved a new equity incentive
plan, the Shoe Carnival, Inc. 2017 Equity Incentive Plan (the “2017 Plan”), which replaces our 2000 Stock Option
and Incentive Plan, as amended (the “2000 Plan”). We may issue stock options, stock appreciation rights, restricted
stock, stock units and other stock-based awards to eligible participants under the 2017 Plan. According to the terms
of the 2017 Plan, upon approval of the 2017 Plan by our shareholders, no further awards may be made under the 2000
Plan. A maximum of 1,000,000 shares of our common stock are available for issuance and sale under the 2017 Plan.
In addition, any shares of our common stock subject to an award granted under the 2017 Plan, or to an award granted
under the 2000 Plan that was outstanding on the date our shareholders approved the 2017 Plan, that expires, is
cancelled or forfeited, or is settled for cash will, to the extent of such cancellation, forfeiture, expiration or cash
settlement, automatically become available for future awards under the 2017 Plan.
Stock-based compensation includes stock options, cash-settled stock appreciation rights (SARs), restricted stock
awards, restricted stock units and performance stock units. Stock options that were 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. During fiscal 2017, all remaining stock options were exercised.
Equity awards issued to employees 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 the three specified fiscal years, the restricted stock awards will be
forfeited on March 31, 2019. In fiscal 2017, we granted performance-based restricted stock awards with two-thirds
vesting on March 31, 2019, and one-third vesting on March 31, 2020. The number of shares vesting depends on
whether the cumulative diluted earnings per share for fiscal 2017 and fiscal 2018 meet the threshold, target, or
maximum levels of performance. If performance goals are not achieved, the restricted stock will be forfeited. In fiscal
2018, we granted performance stock units with one-half vesting on March 31, 2019, and one-half vesting on March
31, 2020. The number of units that will vest depends on whether the diluted earnings per share for fiscal 2018 meet
the established threshold, target, or maximum level of performance. If diluted earnings per share for fiscal 2018 does
not exceed the threshold level of performance, all of the performance stock units will be forfeited. If diluted earnings
per share for fiscal 2018 is between the threshold and target level of performance, any performance stock units that
are determined not to be earned will be forfeited.
Service-based restricted stock awards and restricted stock units 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 the date of grant; (c) the full award would
vest at the end of a 2-year service period subsequent to the 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 be met during the required service
period.
55
Shoe Carnival, Inc.
Notes to Consolidated Financial Statements - continued
Under the 2017 Plan, all dividends paid with respect to shares subject to the non-vested portion of a restricted stock
award are subject to the same restrictions and risk of forfeiture as the shares of restricted stock to which such
dividends relate. Recipients of restricted stock units and performance stock units will be entitled to receive dividend
equivalents, based on dividends actually declared and paid, on the restricted stock units and performance stock units,
and such dividend equivalents will be subject to the same restrictions and risk of forfeiture as the restricted stock
units and performance stock units. For awards granted under the 2000 Plan, all shares of non-vested service-based
restricted stock provide non-forfeitable rights to all dividends declared by the Company, and dividends on non-
vested performance-based restricted stock 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.
The following table summarizes information regarding options exercised:
(In thousands)
Total intrinsic value (1)
Total cash received
Associated excess income tax benefits recorded
2018
2017
2016
$
$
$
0 $
0 $
0 $
127 $
54 $
0 $
0
0
0
(1) Defined as the difference between the market value at exercise and the grant price of stock options exercised.
Restricted Stock
The following table summarizes transactions for our restricted stock awards pursuant to our stock-based
compensation plans:
Restricted stock at February 3, 2018
Granted
Vested
Forfeited
Restricted stock at February 2, 2019
Weighted-
Average
Grant Date
Fair Value
23.62
32.74
26.61
17.65
23.94
Number of
Shares
915,925 $
10,998
(49,992 )
(51,650 )
825,281 $
The total fair value at grant date of restricted stock awards that vested during fiscal 2018, 2017 and 2016 was $1.3
million, $3.5 million and $1.4 million, respectively. The weighted-average grant date fair value of stock awards
granted during fiscal 2017 and fiscal 2016 was $24.09 and $24.98, respectively.
56
Shoe Carnival, Inc.
Notes to Consolidated Financial Statements - continued
The following table summarizes transactions for our restricted stock units and performance stock units pursuant to
our stock-based compensation plans:
Restricted stock units and performance stock units at February 3, 2018
Granted
Vested
Forfeited
Restricted stock units and performance stock units at February 2, 2019
Weighted-
Average
Grant Date
Fair Value
19.55
25.05
19.55
0.00
24.98
Number of
Shares
4,000 $
200,000
(1,333 )
0
202,667 $
The following table summarizes information regarding stock-based compensation expense recognized for restricted
stock awards, restricted stock units and performance stock units:
(In thousands)
Stock-based compensation expense before the
recognized income tax benefit
Income tax benefit
2018
2017
2016
$
$
9,591 $
2,328 $
5,041 $
2,490 $
3,507
1,322
The $9.6 million of expense recognized in fiscal 2018 included a $2.2 million cumulative catch-up of expense
recorded in the third quarter of fiscal 2018. This cumulative catch-up expense was related to performance-based
restricted stock awards, which management had previously determined were not probable to vest prior to their
expiration, but given our financial performance in fiscal 2018, in the third quarter of fiscal 2018, such awards were
deemed by management as probable to vest.
As of February 2, 2019, there was approximately $4.3 million of unrecognized compensation expense remaining
related to both our performance-based and service-based restricted stock awards, restricted stock units and
performance stock units. The cost is expected to be recognized over a weighted average period of approximately 0.4
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
Our 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 vested and became 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 would expire. Each SAR entitled 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. During the second
quarter of fiscal 2018, all remaining SARs granted during the first quarter of fiscal 2015 were exercised.
The following table summarizes SARs activity:
Weighted-
Average
Exercise
Price
Number of
Shares
Weighted-
Average
Remaining
Contractual
Term (Years)
24.26
24.26
0.00
0.0
Outstanding at February 3, 2018
Exercised
Outstanding at February 2, 2019
103,475 $
(103,475 )
0 $
57
Shoe Carnival, Inc.
Notes to Consolidated Financial Statements - continued
The fair value of liability awards was remeasured, using a trinomial lattice model at each reporting period until the
date of settlement. Increases or decreases in stock-based compensation expense were recognized over the vesting
period, or immediately for vested awards. As of February 2, 2019, all outstanding SARs were exercised.
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
February 3,
2018
January 28,
2017
1.40% - 2.58 % 0.49% - 1.94 %
1.1 %
35.51 %
1.3 %
39.21 %
2.1 Years
1.34
$ 10.00
2.2% - 9.0 %
3.1 Years
1.34
$ 10.00
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, with the assumption that quarterly
dividends would continue at that rate. Expected volatility was based on the historical volatility of our common
stock. The exercise multiple and employee exit rate were based on historical option data.
The following table summarizes information regarding stock-based compensation recognized for SARs:
(In thousands)
Stock-based compensation before the
recognized income tax effect
Income tax effect
2018
2017
2016
$
$
540 $
131 $
(61 ) $
(30 ) $
276
104
As of February 2, 2019, no unrecognized compensation expense remained related to the SARs.
Note 12 – Business Risk
We purchase merchandise from approximately 160 footwear vendors. In fiscal 2018, two branded suppliers, Nike,
Inc. and Skechers USA, Inc., collectively accounted for approximately 43% of our net sales. Nike, Inc. accounted
for approximately 32% and Skechers USA, Inc. accounted for approximately 11% of our net sales, respectively. 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.
58
Shoe Carnival, Inc.
Notes to Consolidated Financial Statements - continued
Note 13 – Litigation Matters
The accounting standard related to loss contingencies provides guidance regarding 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.
Note 14 – 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 2018 and 2017 include results for 13 weeks,
except for the fourth quarter of 2017, which includes results for 14 weeks.
(In thousands, except per share data)
Fiscal 2018
Net sales
Gross profit
Operating income
Net income
Net income per share – Basic (1)
Net income per share – Diluted (1)
Fiscal 2017
Net sales
Gross profit
Operating income
Net income (loss)
Net income (loss) per share – Basic (1)
Net income (loss) per share – Diluted (1)
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
$ 257,445 $ 268,366 $ 269,181 $ 234,658
66,666
1,497
1,359
0.09
0.09
83,781
14,931
11,775
0.77 $
0.76 $
81,218
16,016
12,046
0.80 $
0.76 $
77,327
17,316
12,955
0.83 $
0.83 $
$
$
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
(2)(3)
$ 253,389 $ 235,064 $ 287,469 $ 243,232
70,219
170
(3,891 )
(0.24 )
(0.24 )
85,667
17,880
10,697
0.66 $
0.66 $
68,227
6,424
3,896
0.24 $
0.24 $
72,156
13,227
8,231
0.48 $
0.48 $
$
$
(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.
(2) Our gross profit, operating income and net loss for the fourth quarter of fiscal 2017 were impacted by the following items recorded in such
quarter: gain on insurance proceeds related to hurricane affected stores of $3.3 million, or $0.13 per diluted share, net of tax, non-cash
impairment charges for underperforming stores of $3.4 million, or $0.13 per diluted share, net of tax, additional stock-based compensation
expense resulting from the enactment of the Tax Act and its impact on the anticipated vesting of outstanding performance-based restricted
stock of $1.9 million, or $0.08 per diluted share, net of tax, and additional income tax expense resulting from the enactment of the Tax Act
and our remeasurement of deferred tax assets and liabilities of $4.4 million, or $0.27 per diluted share.
(3) The fourth quarter of fiscal 2017 consisted of 14 weeks compared with 13 weeks in the fourth quarter of fiscal 2018.
59
Shoe Carnival, Inc.
Notes to Consolidated Financial Statements - continued
Note 15 – Subsequent Events
On March 21, 2019, the Board of Directors approved the payment of a cash dividend to our shareholders in the first
quarter of fiscal 2019. The quarterly cash dividend of $0.08 per share will be paid on April 22, 2019 to shareholders
of record as of the close of business on April 8, 2019.
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.
60
SHOE CARNIVAL, INC.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
(In thousands)
Reserve for sales returns and allowances
Year ended January 28, 2017
Year ended February 3, 2018
Year ended February 2, 2019
Balance at
Beginning
of Period
$
178
202
$
706 (1) $
$
$
$
Charged to
Cost and
Expenses
Credited to
Costs and
Expenses
Balance at
End of
Period
102,826 $
102,701 $
110,314 $
102,802 $
102,672 $
110,420 $
202
231
600
(1) As a result of the implementation of ASC 606 on February 4, 2018, the accounting treatment for the reserve
for sales returns and allowances was changed from a net to a gross basis. Under the previous revenue
guidance, we recorded a net returns reserve. Under the new guidance, we record estimated sales returns at
the gross sales price with a corresponding adjustment to inventory for the estimated cost of the product.
The difference between the balance at the end of the fiscal year ended February 3, 2018 and the beginning
of the fiscal year ended February 2, 2019 reflects this change in accounting policy.
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, as amended. 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 February 2,
2019. In making this assessment, management used the criteria set forth by the Committee of Sponsoring
Organizations 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
February 2, 2019.
The Company’s internal control over financial reporting as of February 2, 2019 has been audited by its independent
registered public accounting firm, Deloitte & Touche LLP, as stated in their report, which is included herein.
61
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 February 2,
2019, 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 February 2, 2019 that has materially affected, or is reasonably likely to materially affect, our internal control
over financial reporting.
62
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the shareholders and the Board of Directors of Shoe Carnival, Inc.
Opinion on Internal Control over Financial Reporting
We have audited the internal control over financial reporting of Shoe Carnival, Inc. and subsidiaries (the
“Company”) as of February 2, 2019, based on criteria established in Internal Control — Integrated Framework
(2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion,
the Company maintained, in all material respects, effective internal control over financial reporting as of February 2,
2019, based on criteria established in Internal Control — Integrated Framework (2013) issued by COSO.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United
States) (PCAOB), the consolidated financial statements and financial statement schedule as of and for the year
ended February 2, 2019, of the Company and our report dated April 2, 2019, expressed an unqualified opinion on
those financial statements and financial statement schedule.
Basis for Opinion
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 are a public accounting firm
registered with the PCAOB and are required to be independent with respect to the Company in accordance with the
U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and
the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. 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.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed 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 its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may
deteriorate.
/s/ DELOITTE & TOUCHE LLP
Indianapolis, Indiana
April 2, 2019
63
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 2019 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 2019 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 2019 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 2019 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 2019 Annual Meeting of Shareholders, which will be filed
pursuant to Regulation 14A within 120 days after the end of our last fiscal year.
64
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
1. Financial Statements:
PART IV
The following financial statements of Shoe Carnival, Inc. are set forth in PART II, ITEM 8 of this
Annual Report on Form 10-K:
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets at February 2, 2019 and February 3, 2018
Consolidated Statements of Income for the years ended February 2, 2019, February 3, 2018, and
January 28, 2017.
Consolidated Statements of Shareholders’ Equity for the years ended February 2, 2019, February 3,
2018, and January 28, 2017
Consolidated Statements of Cash Flows for the years ended February 2, 2019, February 3, 2018, and
January 28, 2017
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 Annual Report on Form 10-K.
Schedule II Valuation and Qualifying Accounts
3. Exhibits:
65
INDEX TO EXHIBITS
Description
Incorporated by Reference To
Form Exhibit
Filing
Date
Filed
Herewith
Amended and Restated Articles of Incorporation of Registrant
8-K 3-A 06/14/2013+
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
8-K 3-B 06/14/2013+
8-K 4.1 01/26/2010+
10-K 4-B 04/15/2013+
10-K 4-C 03/29/2017
Lease, dated as of February 8, 2006, by and between Registrant and
Big-Shoe Properties, LLC
10-K 10-A 04/13/2006+
Lease, dated as of June 22, 2006, by and between Registrant and
Outback Holdings, LLC
8-K 10-D 06/28/2006+
Exhibit
No.
3-A
3-B
4-A
4-B
4-C
10-A
10-B
10-C*
Summary Compensation Sheet
X
10-D*
Non-competition Agreement dated as of January 15, 1993, between
Registrant and J. Wayne Weaver (P)
S-1 10-I 02/04/1993
10-E*
Employee Stock Purchase Plan of Registrant, as amended
10-Q 10-L 09/15/1997+
10-F*
2016 Executive Incentive Compensation Plan
8-K 10.1 06/17/2016
10-G*
2000 Stock Option and Incentive Plan of Registrant, as amended
10-Q 10.1 06/10/2015
10-H*
Form of Award Agreement for restricted stock granted under the
Registrant’s 2000 Stock Option and Incentive Plan
Form of Award Agreement for time-based restricted stock with cliff
vesting granted under the Registrant’s 2000 Stock Option and
Incentive Plan
Form of Award Agreement for performance-based restricted stock
with deferred cash dividends granted under the Registrant’s 2000
Stock Option and Incentive Plan
8-K 10-C 03/24/2005+
8-K 10.2 10/19/2012+
10-Q 10.1 06/13/2013+
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 03/21/2016
Form of Award Agreement
restricted stock with both
for
performance-based and time-based restrictions granted under the
Registrant’s 2000 Stock Option and Incentive Plan
8-
10.2 04/25/2016
K/A
66
10-I*
10-J*
10-K*
10-L*
INDEX TO EXHIBITS - Continued
Exhibit
No.
10-M*
10-N*
Description
Form of 2017 Award Agreement for service-based restricted stock
granted to executive officers under the Registrant’s 2000 Stock
Option and Incentive Plan
Incorporated by Reference To
Form Exhibit
Filing
Date
Filed
Herewith
8-K 10.1 04/24/2017
Form of 2017 Award Agreement for restricted stock with both
performance-based and service-based restrictions granted to executive
officers under the Registrant’s 2000 Stock Option and Incentive Plan
8-K 10.2 04/24/2017
10-O*
2017 Equity Incentive Plan of Registrant
8-K 10.1 06/15/2017
10-P*
Form of Restricted Stock Award Agreement under the Registrant’s
2017 Equity Incentive Plan (Non-employee Directors)
10-Q 10-B 08/31/2017
10-Q* Form of Service-Based Restricted Stock Unit Award Agreement
10-Q 10-C 08/31/2017
under the Registrant’s 2017 Equity Incentive Plan (Executive
Officers)
10-R*
Form of 2018 Performance Stock Unit Award Agreement under the
8-K 10.1 04/13/2018
Registrant’s 2017 Equity Incentive Plan (Executive Officers)
10-S*
10-T*
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
10-U*
Amended and Restated Employment and Noncompetition Agreement
dated December 11, 2008, between Registrant and W. Kerry Jackson
10-V*
Employment and Noncompetition Agreement dated December 4,
2012, between Registrant and Carl N. Scibetta
10-W*
Employment and Noncompetition Agreement dated September 10,
2018, between Registrant and Mark S. Worden
8-K 10.2 12/17/2008+
8-K 10.3 12/17/2008+
8-K 10.4 12/17/2008+
10-K 10-U 04/15/2013+
10-X*
Shoe Carnival, Inc. Deferred Compensation Plan, as amended
10-K 10-S 04/10/2014
21
23
31.1
31.2
32.1
32.2
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
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
67
X
X
X
X
X
X
X
INDEX TO EXHIBITS - Continued
Exhibit
No.
101
Description
The following materials from Shoe Carnival, Inc.’s Annual Report on
Form 10-K for the year ended February 2, 2019, 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.
Incorporated by Reference To
Form Exhibit
Filing
Date
Filed
Herewith
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.
ITEM 16. FORM 10-K SUMMARY
None.
68
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: April 2, 2019
By:
Shoe Carnival, Inc.
/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
/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/ Charles B. Tomm
Charles B. Tomm
/s/ Joseph W. Wood
Joseph W. Wood
/s/ W. Kerry Jackson
W. Kerry Jackson
Title
Date
Chairman of the Board and Director
April 2, 2019
President, Chief Executive Officer and Director
(Principal Executive Officer)
Director
Director
Director
Director
Director
Director
Senior Executive Vice President - Chief Operating
and Financial Officer and Treasurer (Principal Financial
Officer and Principal Accounting Officer)
April 2, 2019
April 2, 2019
April 2, 2019
April 2, 2019
April 2, 2019
April 2, 2019
April 2, 2019
April 2, 2019
69
points higher than FY 2017. Our store associates
During FY 2018, we analyzed customer data
SIGNATURES
consistently served our customers well which led
which allowed us to identify each customer’s
to a 150 basis point increase in conversion. As a
unique identity. Our analyst team is providing rich
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly
result of the efforts of our over 5,000 dedicated
caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
data to our marketing, merchant and real estate
associates, we are very pleased to have achieved
teams. These teams then utilize this data to better
record earnings of $2.45 per diluted share. We
Shoe Carnival, Inc.
merchandise each individual store, market to
Date: April 2, 2019
used the strength of our consistent cash fl ow
By:
specifi c customers, and fi nd new store opportunities.
/s/ Clifton E. Sifford
generation to return the highest amount of value
to our shareholders through dividends and share
As we move this project forward, we will leverage
Clifton E. Sifford
President and Chief Executive Officer
customer insights to better serve our customers and
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the
further differentiate the Shoe Carnival brand.
repurchases – a corporate milestone we are
following persons on behalf of the registrant and in the capacities and on the dates indicated.
incredibly proud to have delivered.
Signature
Title
STRATEGY FOR GROWTH
Date
/s/ J. Wayne Weaver
CUSTOMER CENTRICITY
Chairman of the Board and Director
We strengthened our executive management team
April 2, 2019
J. Wayne Weaver
More than a year ago we began the strategic
with the addition of Mark Worden, Executive Vice
process of creating a holistic approach to Customer
/s/ Clifton E. Sifford
President, Chief Executive Officer and Director
President, Chief Strategy and Marketing Offi cer.
April 2, 2019
Clifton E. Sifford
Relationship Management (CRM). We remain
(Principal Executive Officer)
We immediately began the process of working
/s/ James A. Aschleman
committed to building an industry leading CRM
Director
James A. Aschleman
tool, which will be the key building block to
/s/ Jeffrey C. Gerstel
increasingly placing the customer at the center of
Director
Jeffrey C. Gerstel
everything we do. CRM will be a key component
that will allow us to communicate with our loyal
/s/ Andrea R. Guthrie
Andrea R. Guthrie
Director
customers on a one-to-one basis, focused on their
/s/ Kent A. Kleeberger
Director
particular family footwear needs and desires. In
Kent A. Kleeberger
addition, we are gaining a better understanding of
/s/ Charles B. Tomm
Director
our customers’ shopping journeys. Each customer’s
Charles B. Tomm
journey is mapped, regardless of how they chose
/s/ Joseph W. Wood
Director
to shop with Shoe Carnival, which has allowed our
Joseph W. Wood
through a comprehensive fi ve-year strategy. Our
April 2, 2019
goal is to build an incomparable brand and
customer experience. Through our team of the
April 2, 2019
industry’s best people and unmatched capabilities,
we will assist our customers’ shopping journey,
April 2, 2019
which we believe is critical as we look toward
becoming a multi-billion dollar brand.
April 2, 2019
Our fi rst imperative was to hire and on-board a
April 2, 2019
world-class agency of record for overall creative
April 2, 2019
strategy and all media. We accomplished this
team to identify areas of improvement to make
/s/ W. Kerry Jackson
Senior Executive Vice President - Chief Operating
imperative in 2018 with the hiring of McCann
April 2, 2019
W. Kerry Jackson
their shopping experience seamless and enjoyable.
and Financial Officer and Treasurer (Principal Financial
Detroit. Their job is to help Shoe Carnival become
Officer and Principal Accounting Officer)
the most distinctive and compelling brand in the
The pillar of customer centricity is our strong and
Family Footwear Channel. The vast and successful
growing loyalty program, Shoe Perks. In July, we
experience they bring to this important initiative
re-launched our Shoe Perks program, creating a
includes work for great companies such as General
Gold tier for our most loyal customers. Gold status
Motors, Chick-fi l-A and Pure Michigan.
rewards our most active customers with new and
more valuable Shoe Perks to keep them committed
We believe by combining the expertise of McCann,
to Shoe Carnival as their store of choice for all their
along with our unique and entertaining store
footwear needs.
environment and our customer-centric capabilities,
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
31, 2014 through February 1, 2019. The graphs assume that $100 was invested in our common stock and $100 was
invested in each of the other two indices on January 31, 2014, 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
1/31/2014
1/30/2015
1/29/2016
1/27/2017
2/2/2018
2/1/2019
The Nasdaq Stock Market (U.S.)
$
Nasdaq Retail Trade Stocks
Shoe Carnival, Inc.
100
100
100
$
113
123
94
$
110
130
94
$
135
143
103
$
165
193
90
$
165
202
149
250
200
S
R
A
L
L
O
D
150
100
50
0
1/31/2014
1/30/2015
1/29/2016
1/27/2017
2/2/2018
2/1/2019
The Nasdaq Stock Market (U.S.)
Nasdaq Retail Trade Stocks
Shoe Carnival, Inc.
69
2018 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
MARK J. WORDEN**
Executive Vice President
Chief Strategy and Marketing Offi cer
MARC A. CHILTON
Senior Vice President
Store Operations Administration
TERRY L. CLEMENTS
Senior Vice President
Chief Information Offi cer
JEFFREY N. FINK
Senior Vice President
Real Estate
DEBORAH S. HANNAH
Vice President
Marketing
SEAN M. GEORGES
Senior Vice President
Human Resources, In-House Counsel
and Secretary
CLINT R. PIERCE
Vice President
Divisional Merchandise Manager
Athletic Footwear
DAVID A. KAPP
Senior Vice President
Planning/Allocation
CHRISTOPHER A. ASKINS
Vice President
Loss Prevention
TED COLLINS
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
Project Management
JEFFREY J. THOMAS
Vice President
Corporate Controller
CHARLES J. TOROK, JR.
Vice President
Supply Chain
KENT A. ZIMMERMAN
Vice President
E-Commerce and CRM
ANTHONY J. CAROSELLO
Assistant Vice President
Real Estate
JAMES W. JOHNSTON
Assistant Vice President
Infrastructure and Support
CHERYL L. LINDAUER
Assistant Vice President
Application Systems
(**) Executive Offi cers
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 Travel, LLC
Park City, UT
KENT A. KLEEBERGER 1*,2,3,4
Consultant
Sanibel Island, Florida
CHARLES B. TOMM 1,2
Principal
Oaklins Heritage Capital Group
Jacksonville, FL
JOSEPH W. WOOD 2,3
Consultant
St. Louis, Missouri
(1) Audit Committee
(2) Compensation Committee
(3) Nominating and Corporate
Governance Committee
(4) Lead Independent Director
(*) Committee Chair
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
ANNUAL REVIEW
were attained through double-digit growth in digital
Fiscal year 2018 was a great year for Shoe Carnival.
sales and single-digit increase in our brick and
Our customer-centric strategic initiatives, trend-
mortar stores. We also enjoyed increases in all major
right selection of compelling brands and the latest
product categories along with each geographic
fashion along with our exciting in-store environment
region throughout our store chain.
continue to make Shoe Carnival the store of choice
for moderately priced family footwear. Sales of
Our merchants did an outstanding job of identifying
$1.030 billion represented the highest volume in the
key trends, key categories and key items, buying
company’s history, driven by a 4.3% comparable
suffi cient quantities in each to drive comparable
store sales increase, our tenth consecutive year
store sales increases each quarter of the fi scal year.
without a comparable store sales loss. Record sales
This helped us achieve a gross profi t margin 90 basis
2018 Annual Report
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1995
2002
Celebrating 40 years in the retail shoe industry.
Celebrating 40 years in the retail shoe industry.
2001
1992
2009
2009
1984
2018
inner front cover
1978 - 2018
inner back cover
7500 East Columbia Street • Evansville, Indiana 47715
812.867.6471 • shoecarnival.com
CELEBRATING
ANNUAL REPORT 2018
outer back cover
outer front cover