Search the web
Welcome, Guest
[Sign Out, My Account]
EDGAR_Online

Quotes & Info
Enter Symbol(s):
e.g. YHOO, ^DJI
Symbol Lookup | Financial Search
SCVL > SEC Filings for SCVL > Form 10-K on 10-Apr-2014All Recent SEC Filings

Show all filings for SHOE CARNIVAL INC

Form 10-K for SHOE CARNIVAL INC


10-Apr-2014

Annual Report


ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion of our financial condition and results of operations should be read together with our consolidated financial statements and notes to those statements included in PART II, ITEM 8 of this report.

Overview of Our Business

Shoe Carnival, Inc. is one of the nation's largest family footwear retailers, providing the convenience of shopping at any of our more than 370 store locations or online at shoecarnival.com. Our stores combine competitive pricing with a highly promotional, in-store marketing effort that encourages customer participation and injects fun and surprise into every shopping experience. We believe this highly 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. The same excitement and spontaneity is reflected in our e-commerce site through special promotions and limited time sales, along with relevant fashion 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. Our average store carries approximately 28,800 pairs of shoes in four general categories - women's, men's, children's and athletics. In addition to footwear, our stores carry selected accessory items complementary to the sale of footwear. Our e-commerce site offers customers an opportunity to choose from a large selection of products in all categories with a depth of sizes and colors that may not be available in some of our smaller stores, and introduces our concept to consumers that 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 2013, 2012 and 2011 relate respectively to the fiscal years ended February 1, 2014, February 2, 2013, and January 28, 2012. Fiscal year 2012 consisted of 53 weeks and the other fiscal years consisted of 52 weeks. The 53rd week in fiscal 2012 caused a one-week shift in our fiscal calendar. To minimize the effect of this fiscal calendar shift on comparable store sales, our reported annual comparable store sales results for fiscal 2013, in this Annual Report on Form 10-K and in our other public disclosures, compares the 52-week period ended February 1, 2014 to the 52-week period ended February 2, 2013. Comparable store sales for fiscal 2012 compares the 52-week period ended January 26, 2013 to the 52-week period ended January 28, 2012. As such, changes in comparable store sales are not consistent with changes in net sales reported for the fiscal periods.

Executive Summary

Fiscal 2013

Our business was presented with two significant sales challenges during fiscal 2013 - recurring unseasonable weather patterns and a primary consumer faced with continuing economic uncertainty. While the challenging winter weather experienced by much of the United States during December and January is likely the most memorable, we also experienced a slow start to our first quarter due to unseasonably colder, wetter weather. This negatively affected the early sales of seasonal footwear and athletic shoes and led to a decline in comparable store sales for the first quarter.

The sale of spring and summer product fortunately escalated as more seasonable weather patterns materialized with women's non-athletic and children's footwear serving as primary drivers of our second quarter comparable store sales gains. This momentum continued into August; however, with the negative press surrounding the debt ceiling and the subsequent government shutdown, along with warm weather patterns throughout our geographic footprint, customer traffic in September declined sharply, which in turn negatively affected our sales. The combined arrival of

cooler fall weather in October and the government re-opening helped reverse the negative third quarter trends resulting in us achieving slightly less than a 1% comparable store sales gain for the third quarter.

November was a strong sales month for us, with strong boot sales driving our comparable store sales gain. However, as we entered December, we experienced double-digit traffic declines, which moderated slightly around the holiday and then returned through the balance of fiscal 2013 as bitter cold weather and continuing economic uncertainty plagued our customer. Despite the challenges presented by the fluctuations in consumer demand, we were able to manage our inventories and hold selling, general and administrative expenses flat as a percentage of sales to the prior fiscal year. Our net sales gains for fiscal 2013 were driven by sales at the 63 new stores opened since the beginning of fiscal 2012. Comparable store sales for the 52-week period ended February 1, 2014 were flat compared to the 52-week period ended February 1, 2013.

Notwithstanding these challenges, we remained focused on building on the solid foundation of our brand and made considerable investment of internal resources along with engaging third-party resource assistance to move forward on a number of key initiatives:

Throughout fiscal 2013, analysis was undertaken to drill deeper into the specifics of who our customer is, what drives their purchase decisions, and how we can better communicate with them and thus ultimately capture a greater proportion of their discretionary spending dollars.

As a result of our continuing market expansion, we decided to modify our marketing strategy and implement a new national cable television advertising strategy. The campaign will launch in April 2014 and is intended to leverage national cable television to increase our brand awareness in existing, new and future markets.

We transitioned to new leadership for our e-commerce initiative and moved forward on key initiatives including enhancements to our site to maximize conversion and traffic; enhancements to our mobile experience to keep pace with our growing mobile and tablet customer base; and the exploration of opportunities to use mobile technology to engage our customers while shopping our Shoe Carnival stores. Although our e-commerce operations are not at this time material in relation to our net sales, we believe in e-commerce represents a valuable long-term sales growth vehicle for us.

Through a focused effort on enrollment at the point-of-sale, our Shoe Perks rewards program membership doubled, with purchases from Shoe Perks members increasing to 20% of our net sales for fiscal 2013. 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.

During fiscal 2013, we renewed our focus on growing our women's category at a rate higher than the balance of our other footwear categories. We believe that development of new brand relationships will play a vital role in achieving this goal, and we were able to successfully introduce a number of better brands into our fall 2013 women's assortment.

During the fall of fiscal 2013, we moved forward on a project to implement sales forecasting and market optimization software to support our work related to the selection of store locations. We made significant progress on this project and anticipate implementing the software during the first quarter of fiscal 2014.

We opened 32 new stores, completed nine relocations and closed seven stores during fiscal 2013. Approximately 80% of these new store locations served to fill-in certain under-penetrated markets with additional stores, with the goal of increasing the performance of the overall market. The remaining 20% of our new store openings were in seven new smaller markets. We continued reinvestment in our existing brick-and-mortar store base, focusing on in-store graphics, including signage updates to focal walls and end-caps. Additionally, we remodeled approximately 9% of our stores.

Fiscal 2014

In fiscal 2014, we continue to remain focused on growing our business both through store expansion and enhancing the Shoe Carnival brand. For fiscal 2014, we expect to open approximately 30 to 35 stores. Our planned new store expansion includes locations serving to fill-in existing markets as well as locations in three new major markets - Buffalo, Detroit and Miami. During fiscal 2014,we also plan to continue to reinvest in our existing brick-and-mortar store base, focusing on in-store graphics, including signage updates to focal walls and end-caps. Dependent upon successful lease negotiations, we plan to remodel approximately 30 stores during the fiscal year.

Select fiscal 2013 initiatives will remain a predominant focus in fiscal 2014, including:

Our new national cable television advertising strategy, which kicks off in April 2014,is intended to leverage national cable television to increase our brand awareness in existing, new and future markets.

During fiscal 2014, we will continue our evolution of the omni-channel shopping experience for our customer and plan to begin fulfilling our e-commerce orders from our own distribution center in addition to a percentage of our store locations and suspend utilization of a third party fulfillment agent for our e-commerce orders.

Growing our Shoe Perks membership will remain a priority, with a fiscal 2014 goal of doubling our membership from the end of fiscal 2013.

We plan to fund the delivery of a meaningful assortment of our new women's better brands through out fiscal 2014 and will continue to work toward our long-term goal of having our women's category represent 30% of our business.

Critical Accounting Policies

It is necessary for us to include certain judgments in our reported financial results. These judgments involve estimates based in part on our historical experience and incorporate the impact of the current general economic climate and company-specific circumstances. However, because future events and economic conditions are inherently uncertain, our actual results could differ materially from these estimates. The accounting policies that require the more significant judgments are included below.

Merchandise Inventories- Our merchandise inventories are stated at the lower of cost or market (LCM) as of the balance sheet date and consist primarily of dress, casual and athletic footwear for women, men and children. The cost of our merchandise is determined using the first-in, first-out valuation method (FIFO). For determining market value, we estimate the future demand and related sale price of merchandise in our inventory. The stated value of merchandise inventories contained on our consolidated balance sheets also includes freight, certain capitalized overhead costs and reserves.

We review our inventory at the end of each quarter to determine if it is properly stated at LCM. Factors considered include, among others, recent sale prices, 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 1, 2014 and February 2, 2013 totaled $284.8 million and $272.3 million, respectively, representing approximately 65%and 67% 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 long-lived assets as of February 1, 2014 and February 2, 2013 totaled $90.2 million and $77.4 million, respectively, representing approximately 21%and 19% of total assets. From our evaluations performed during fiscal 2013 and fiscal 2012, we recorded impairments of long-lived assets of $947,000 and $425,000, respectively. 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 protecting us from individual and aggregate losses over specified dollar values. We review the liability reserved for our self-insured portions on a quarterly basis, taking into consideration a number of factors, including historical claims experience, severity factors, statistical trends and, in certain instances, valuation assistance provided by independent third parties. Our self-insurance reserves include estimates of both claims filed, carried at their expected ultimate settlement value, and claims incurred but not yet reported. As of February 1, 2014 and February 2, 2013, our self-insurance reserves totaled $2.9 million and $2.5 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 basis. Our temporary timing differences relate primarily to inventory, depreciation, accrued expenses, deferred lease incentives and stock-based compensation. Deferred tax assets and liabilities are measured using the tax rates enacted and expected to be in effect in the years when those temporary differences are expected to reverse.

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:

                                                     2013           2012           2011
Net Sales                                              100.0 %        100.0 %        100.0 %
Cost of sales (including buying, distribution,
and occupancy costs)                                    70.7           69.9           70.5
Gross profit                                            29.3           30.1           29.5
Selling, general and administrative expenses            24.4           24.4           24.0
Operating income                                         4.9            5.7            5.5
Interest income                                         (0.0 )         (0.0 )         (0.0 )
Interest expense                                         0.0            0.0            0.0
Income before income taxes                               4.9            5.7            5.5
Income tax expense                                       1.9            2.3            2.0
Net income                                               3.0 %          3.4 %          3.5 %

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 prior to the beginning of the period, including those stores that have been relocated or remodeled. Therefore, stores opened or closed during the periods indicated are not included in comparable store sales. Our e-commerce sales were included in comparable sales starting in fiscal 2013.

2013 Compared to 2012

Net Sales

Net sales increased $29.8 million to $884.8 million for fiscal 2013, a 3.5% increase, from net sales of $855.0 million for fiscal 2012. Of the $29.8 million increase in net sales, the 63 new stores we opened since the beginning fiscal 2012 contributed an additional $51.4 million in sales. These increases were partially offset by a $5.5 million decline in sales within our comparable store base along with the loss of $5.4 million in sales from the fourteen stores closed since the beginning of fiscal 2012. Similar to other retailers, we follow the retail calendar, which included an extra week in the fourth quarter of fiscal 2012 (the 53rd week). The loss of this one week of sales in fiscal 2013 negatively affected our net sales comparison, as approximately $10.7 million in net sales were recorded for this extra week in fiscal 2012. Comparable store sales for the 52-week period ended February 1, 2014 remained flat as compared to the 52-week period ended February 2, 2013.

Gross Profit

Gross profit increased $1.8 million to $259.3 million in fiscal 2013. The gross profit margin in fiscal 2013 decreased to 29.3% from 30.1% in the prior fiscal year. Our merchandise margin decreased 0.4% while buying, distribution and occupancy costs, as a percentage of sales, increased 0.4%. Buying, distribution and occupancy costs increased approximately $6.3 million during fiscal 2013 as compared to the prior fiscal year primarily as a result of the operation of additional store locations.

Selling, General and Administrative Expenses

Selling, general and administrative expenses increased $6.7 million in fiscal 2013 to $215.7 million. Significant changes in expense between the comparative periods included the following:

We incurred an additional $10.6 million of expense during fiscal 2013, as compared to the prior fiscal year, in the operation of new stores. This increase was net of expense reductions for stores that have closed since the beginning of fiscal 2012.

Incentive compensation, inclusive of stock-based compensation, decreased $4.5 million in fiscal 2013 as compared to fiscal 2012 when our financial performance drove material increases in performance-based compensation.

In connection with his retirement, we paid a one-time retirement and severance payment of $1.4 million to our former President and Chief Executive Officer in October 2012, which was included as incentive compensation in selling, general and administrative expenses. Also included were incentive compensation expense reductions of approximately $154,000 in fiscal 2012 to reflect the forfeiture of certain of his non-vested restricted stock awards.

In fiscal 2013, pre-opening costs included in selling, general and administrative expenses were $2.1 million, or 0.2% as a percentage of sales, as compared to $2.7 million, or 0.3% as a percentage of sales, for fiscal 2012. We opened 32 stores during fiscal 2013 at an average cost of $66,000 as compared to 31 stores last year at an average cost of $88,000. Pre-opening costs, such as advertising, payroll and supplies, incurred prior to the opening of a new store are charged to expense in the period in which they are incurred. The total amount of pre-opening expense incurred will vary by store depending on the specific market and the promotional activities involved. The decrease in the average expenditures per new store was primarily the result of decreases in the expenditures for onsite training and support and advertising.

The portion of store closing costs and non-cash asset impairment charges included in selling, general and administrative expenses for fiscal 2013 was $1.2 million or 0.1% as a percentage of sales. These costs related to the closing of seven stores, non-cash asset impairment of certain underperforming stores and acceleration of expenses associated with management's determination to close a store in fiscal 2014. The portion of store closing costs and non-cash asset impairment charges included in selling, general and administrative expenses for fiscal 2012 was $646,000, or 0.1% as a percentage of sales. These costs related to the closing of seven stores, non-cash asset impairment of certain underperforming stores and acceleration of expenses associated with management's determination to close certain underperforming stores in future periods. The timing and actual amount of expense recorded in closing a store can vary significantly depending, in part, on the period in which management commits to a closing plan, the remaining basis in the fixed assets to be disposed of at closing and the amount of any lease buyout.

Income Taxes

The effective income tax rate for fiscal 2013 was 38.2% as compared to 39.2% for fiscal 2012. Our provision for income tax expense is based on the current estimate of our annual effective tax rate and is adjusted as necessary for quarterly events. The decrease in our effective tax rate between comparative periods was primarily due to the non-deductible portion of compensation attributable to the retirement of our former President and Chief Executive Officer during fiscal 2012.

2012 Compared to 2011

Net Sales

Net sales increased $92.5 million to $855.0 million for fiscal 2012, a 12.1% increase over net sales for fiscal 2011. Similar to other retailers, we follow the retail reporting calendar, which included an extra week in the fourth quarter of fiscal 2012 (the 53rd week). Net sales of approximately $10.7 million were recorded for this extra week. Of our $92.5 million increase in net sales, the 48 stores opened during fiscal 2011 and fiscal 2012 and our e-commerce

operation contributed $59.0 million. Sales increased within our comparable store base by approximately $42.5 million. Comparable store sales for the 52-week period ended January 26, 2013 increased 4.5%, driven by an increase in the average unit selling price of our footwear, which was partially offset by a decline in the number of footwear units sold. These sales increases were partially offset by a decline in sales of $9.1 million from the 11 stores closed during fiscal 2011 and fiscal 2012.

Gross Profit

Gross profit increased $32.6 million to $257.5 million in fiscal 2012. The gross profit margin in fiscal 2012 increased to 30.1% from 29.5% in fiscal 2011. Our merchandise margin increased 0.4% while buying, distribution and occupancy costs, as a percentage of sales, decreased 0.2%. Buying, distribution and occupancy costs increased approximately $8.0 million during fiscal 2012 as compared to fiscal 2011 primarily as a result of the operation of additional store locations. However, our sales gain enabled us to leverage these costs by 0.2% as a percentage of sales.

Selling, General and Administrative Expenses

Selling, general and administrative expenses increased $26.3 million in fiscal 2012 to $209.0 million. Significant changes in expense between the comparative periods included the following:

We incurred an additional $17.1 million of expense during fiscal 2012, as compared to fiscal 2011, in the operation of new stores and our e-commerce initiative. This increase was net of expense reductions for stores that closed during fiscal 2011 and fiscal 2012.

Incentive compensation, inclusive of stock-based compensation, increased $5.2 million in fiscal 2012 as compared to fiscal 2011 primarily due to our improved financial performance.

In connection with his retirement, we paid a one-time retirement and severance payment of $1.4 million to our former President and Chief Executive Officer in October 2012, which was included as incentive compensation in selling, general and administrative expenses. Also included were incentive compensation expense reductions of approximately $154,000 in fiscal 2012 to reflect the forfeiture of certain of his non-vested restricted stock awards.

We experienced a year-over-year increase in self-insured health care costs of $1.8 million in fiscal 2012 as compared to fiscal 2011. Costs related to our self-insured health care programs are subject to a significant degree of volatility, especially as it relates to the frequency of catastrophic claims. Consequently, we are subject to a risk of material variances between reporting periods.

In fiscal 2012, pre-opening costs included in selling, general and administrative expenses were $2.7 million, or 0.3% as a percentage of sales, as compared to $1.2 million, or 0.2% as a percentage of sales, for fiscal 2011. We opened 31 stores during fiscal 2012 as compared to 17 stores in fiscal 2011. Pre-opening costs, such as advertising, payroll and supplies, incurred prior to the opening of a new store are charged to expense in the period in which they are incurred. The total amount of pre-opening expense incurred will vary by store depending on the specific market and the promotional activities involved.

The portion of store closing costs and non-cash asset impairment charges included in selling, general and administrative expenses for fiscal 2012 was $646,000, or 0.1% as a percentage of sales. These costs related to the closing of seven stores, non-cash asset impairment of certain underperforming stores and acceleration of expenses associated with management's determination to close certain underperforming stores in future periods. In fiscal 2011 we incurred store closing costs and non-cash asset impairment charges of $554,000, or 0.1% as a percentage of sales. These costs related to the closing of four stores, non-cash asset impairment of certain underperforming stores and acceleration of expenses associated with management's determination to close certain underperforming stores in future periods. The timing and actual amount of expense recorded in closing a store can vary significantly depending, in part, on the period in which management commits to a closing plan, the remaining basis . . .

  Add SCVL to Portfolio     Set Alert         Email to a Friend  
Get SEC Filings for Another Symbol: Symbol Lookup
Quotes & Info for SCVL - All Recent SEC Filings
Copyright © 2014 Yahoo! Inc. All rights reserved. Privacy Policy - Terms of Service
SEC Filing data and information provided by EDGAR Online, Inc. (1-800-416-6651). All information provided "as is" for informational purposes only, not intended for trading purposes or advice. Neither Yahoo! nor any of independent providers is liable for any informational errors, incompleteness, or delays, or for any actions taken in reliance on information contained herein. By accessing the Yahoo! site, you agree not to redistribute the information found therein.