Company Quick10K Filing
Quick10K
Shoe Carnival
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$33.83 15 $520
10-Q 2019-05-04 Quarter: 2019-05-04
10-K 2019-02-02 Annual: 2019-02-02
10-Q 2018-11-03 Quarter: 2018-11-03
10-Q 2018-08-04 Quarter: 2018-08-04
10-Q 2018-05-05 Quarter: 2018-05-05
10-K 2018-02-03 Annual: 2018-02-03
10-Q 2017-10-28 Quarter: 2017-10-28
10-Q 2017-07-29 Quarter: 2017-07-29
10-Q 2017-04-29 Quarter: 2017-04-29
10-K 2017-01-28 Annual: 2017-01-28
10-Q 2016-10-29 Quarter: 2016-10-29
10-Q 2016-07-30 Quarter: 2016-07-30
10-Q 2016-04-30 Quarter: 2016-04-30
10-K 2016-01-30 Annual: 2016-01-30
10-Q 2015-10-31 Quarter: 2015-10-31
10-Q 2015-08-01 Quarter: 2015-08-01
10-Q 2015-05-02 Quarter: 2015-05-02
10-K 2015-01-31 Annual: 2015-01-31
10-Q 2014-11-01 Quarter: 2014-11-01
10-Q 2014-08-02 Quarter: 2014-08-02
10-Q 2014-05-03 Quarter: 2014-05-03
10-K 2014-02-01 Annual: 2014-02-01
8-K 2019-06-13 Shareholder Vote
8-K 2019-05-22 Earnings, Exhibits
8-K 2019-04-26 Regulation FD
8-K 2019-03-26 Earnings, Exhibits
8-K 2019-03-20 Officers, Exhibits
8-K 2019-01-14 Regulation FD, Exhibits
8-K 2018-12-17 Other Events, Exhibits
8-K 2018-11-15 Earnings, Exhibits
8-K 2018-08-28 Earnings, Exhibits
8-K 2018-06-14 Shareholder Vote
8-K 2018-05-24 Earnings, Exhibits
8-K 2018-04-13 Officers, Exhibits
8-K 2018-03-27 Earnings, Exhibits
8-K 2018-01-23 Other Events
KMX Carmax 13,070
HP Helmerich & Payne 6,390
CATY Cathay General Bancorp 2,970
OMAB Central North Airport Group 2,420
MTLS Materialise 812
URGN Urogen Pharma 793
SENS Senseonics Holdings 418
AVID Avid Technology 352
EPSN Epsilon Energy 108
CHPII CNL Healthcare Properties II 0
SCVL 2019-05-04
Item 1. Financial Statements
Note 1 - Basis of Presentation
Note 2 - Net Income per Share
Note 3 - Recently Issued Accounting Pronouncements
Note 4 - Fair Value Measurements
Note 5 - Stock-Based Compensation
Note 6 - Revenue
Note 7 - Leases
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part II - Other Information
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 6. Exhibits
EX-31.1 scvl-ex311_8.htm
EX-31.2 scvl-ex312_9.htm
EX-32.1 scvl-ex321_11.htm
EX-32.2 scvl-ex322_10.htm

Shoe Carnival Earnings 2019-05-04

SCVL 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

10-Q 1 scvl-10q_20190504.htm 10-Q scvl-10q_20190504.htm

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

Form 10-Q

 

[X]

 

Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

 

For the quarterly period ended May 4, 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

 

35-1736614

(State or other jurisdiction of
incorporation or organization)

 

(IRS Employer Identification Number)

 

 

 

7500 East Columbia Street
Evansville, IN

 

47715

(Address of principal executive offices)

 

(Zip code)

 

(812) 867-6471

(Registrant’s telephone number, including area code)

 

NOT APPLICABLE

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

 

Trading

Symbol(s)

 

Name of each exchange on which registered

Common Stock, par value $0.01 per share

 

SCVL

 

The Nasdaq Stock Market, LLC

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  [X] Yes  [  ] No

 

Indicate by check mark whether the registrant has submitted electronically 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 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 [X] Accelerated filer [ ] Non-accelerated filer [ ] Smaller reporting company [ ] Emerging growth company

 

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

 

 

APPLICABLE ONLY TO CORPORATE ISSUERS:

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

 

Number of Shares of Common Stock, par value $0.01 per share, outstanding at June 5, 2019 was 14,690,741.

 

 

 


 

SHOE CARNIVAL, INC.

INDEX TO FORM 10-Q

 

 

 

 

Page

Part I

Financial Information

 

 

Item 1.

Financial Statements (Unaudited)

 

 

 

Condensed Consolidated Balance Sheets

3

 

 

Condensed Consolidated Statements of Income

4

 

 

Condensed Consolidated Statements of Shareholders’ Equity

5

 

 

Condensed Consolidated Statements of Cash Flows

6

 

 

Notes to Condensed Consolidated Financial Statements

7

 

 

 

 

 

Item 2.

Management’s Discussion and Analysis of Financial Condition
and Results of Operations

15

 

 

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

20

 

 

 

 

 

Item 4.

Controls and Procedures

20

 

 

 

Part II

Other Information

 

 

Item 1A.

Risk Factors

21

 

 

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

21

 

 

 

 

 

Item 6.

Exhibits

21

 

 

 

 

Signature

22

2


 

SHOE CARNIVAL, INC.
PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

SHOE CARNIVAL, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
Unaudited

 

(In thousands, except share data)

 

May 4,

2019

 

 

February 2,

2019

 

 

May 5,

2018

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

Current Assets:

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

21,616

 

 

$

67,021

 

 

$

35,347

 

Accounts receivable

 

 

2,003

 

 

 

1,219

 

 

 

3,199

 

Merchandise inventories

 

 

289,356

 

 

 

257,539

 

 

 

295,921

 

Other

 

 

9,769

 

 

 

11,534

 

 

 

13,175

 

Total Current Assets

 

 

322,744

 

 

 

337,313

 

 

 

347,642

 

Property and equipment – net

 

 

72,313

 

 

 

70,605

 

 

 

81,644

 

Deferred income taxes

 

 

8,159

 

 

 

9,622

 

 

 

8,221

 

Other noncurrent assets

 

 

760

 

 

 

459

 

 

 

408

 

Operating lease right-of-use assets

 

 

224,642

 

 

0

 

 

0

 

Total Assets

 

$

628,618

 

 

$

417,999

 

 

$

437,915

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities and Shareholders’ Equity

 

 

 

 

 

 

 

 

 

 

 

 

Current Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

Accounts payable

 

$

56,488

 

 

$

48,715

 

 

$

62,593

 

Accrued and other liabilities

 

 

17,611

 

 

 

22,069

 

 

 

24,235

 

Current portion of operating lease liabilities

 

 

47,089

 

 

 

0

 

 

 

0

 

Total Current Liabilities

 

 

121,188

 

 

 

70,784

 

 

 

86,828

 

Long-term portion of operating lease liabilities

 

 

202,517

 

 

 

0

 

 

 

0

 

Deferred lease incentives

 

 

0

 

 

 

22,171

 

 

 

27,289

 

Accrued rent

 

 

0

 

 

 

8,436

 

 

 

9,754

 

Deferred compensation

 

 

13,386

 

 

 

12,108

 

 

 

11,433

 

Other

 

 

24

 

 

 

67

 

 

 

1,101

 

Total Liabilities

 

 

337,115

 

 

 

113,566

 

 

 

136,405

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shareholders’ Equity:

 

 

 

 

 

 

 

 

 

 

 

 

Common stock, $.01 par value, 50,000,000 shares authorized, 20,527,905

   shares, 20,529,227 shares and 20,529,227 shares issued, respectively

 

 

205

 

 

 

205

 

 

 

205

 

Additional paid-in capital

 

 

76,282

 

 

 

75,631

 

 

 

67,410

 

Retained earnings

 

 

370,453

 

 

 

360,443

 

 

 

339,073

 

Treasury stock, at cost, 5,837,164 shares, 5,154,243

   shares and 4,452,661 shares, respectively

 

 

(155,437

)

 

 

(131,846

)

 

 

(105,178

)

Total Shareholders’ Equity

 

 

291,503

 

 

 

304,433

 

 

 

301,510

 

Total Liabilities and Shareholders’ Equity

 

$

628,618

 

 

$

417,999

 

 

$

437,915

 

 

See notes to Condensed Consolidated Financial Statements.

3


 

SHOE CARNIVAL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

Unaudited

 

(In thousands, except per share data)

 

Thirteen

Weeks Ended

May 4,

2019

 

 

Thirteen

Weeks Ended

May 5,

2018

 

Net sales

 

$

253,810

 

 

$

257,445

 

Cost of sales (including buying, distribution and occupancy costs)

 

 

178,670

 

 

 

180,118

 

Gross profit

 

 

75,140

 

 

 

77,327

 

Selling, general and administrative expenses

 

 

59,532

 

 

 

60,011

 

Operating income

 

 

15,608

 

 

 

17,316

 

Interest income

 

 

(331

)

 

 

(2

)

Interest expense

 

 

36

 

 

 

40

 

Income before income taxes

 

 

15,903

 

 

 

17,278

 

Income tax expense

 

 

2,030

 

 

 

4,323

 

Net income

 

$

13,873

 

 

$

12,955

 

Net income per share:

 

 

 

 

 

 

 

 

Basic

 

$

0.95

 

 

$

0.83

 

Diluted

 

$

0.91

 

 

$

0.83

 

Weighted average shares:

 

 

 

 

 

 

 

 

Basic

 

 

14,612

 

 

 

15,526

 

Diluted

 

 

15,192

 

 

 

15,528

 

Cash dividends declared per share

 

$

0.080

 

 

$

0.075

 

 

See notes to Condensed Consolidated Financial Statements.

4


 

SHOE CARNIVAL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

Unaudited

 

 

 

Common Stock

 

 

Additional

Paid-In

 

 

Retained

 

 

Treasury

 

 

 

 

 

(In thousands)

 

Issued

 

 

Treasury

 

 

Amount

 

 

Capital

 

 

Earnings

 

 

Stock

 

 

Total

 

Balance at February 3, 2018

 

 

20,529

 

 

 

(3,582

)

 

$

205

 

 

$

65,458

 

 

$

326,738

 

 

$

(85,099

)

 

$

307,302

 

Adoption of Accounting Standards

   Codification 606

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

620

 

 

 

 

 

 

 

620

 

Dividends declared ($0.075 per share)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,240

)

 

 

 

 

 

 

(1,240

)

Employee stock purchase plan purchases

 

 

 

 

 

 

3

 

 

 

 

 

 

 

(11

)

 

 

 

 

 

 

76

 

 

 

65

 

Restricted stock awards

 

 

 

 

 

 

(52

)

 

 

 

 

 

 

837

 

 

 

 

 

 

 

(837

)

 

 

0

 

Shares surrendered by employees to pay taxes

   on restricted stock

 

 

 

 

 

 

(11

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(275

)

 

 

(275

)

Purchase of common stock for treasury

 

 

 

 

 

 

(811

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(19,043

)

 

 

(19,043

)

Stock-based compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,126

 

 

 

 

 

 

 

 

 

 

 

1,126

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

12,955

 

 

 

 

 

 

 

12,955

 

Balance at May 5, 2018

 

 

20,529

 

 

 

(4,453

)

 

$

205

 

 

$

67,410

 

 

$

339,073

 

 

$

(105,178

)

 

$

301,510

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at February 2, 2019

 

 

20,529

 

 

 

(5,154

)

 

$

205

 

 

$

75,631

 

 

$

360,443

 

 

$

(131,846

)

 

$

304,433

 

Adoption of Accounting Standards Codification

   842 (see Note 7)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(2,649

)

 

 

 

 

 

 

(2,649

)

Dividends declared ($0.08 per share)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,214

)

 

 

 

 

 

 

(1,214

)

Employee stock purchase plan purchases

 

 

 

 

 

 

2

 

 

 

 

 

 

 

6

 

 

 

 

 

 

 

57

 

 

 

63

 

Restricted stock awards

 

 

(1

)

 

 

47

 

 

 

 

 

 

 

(1,304

)

 

 

 

 

 

 

1,304

 

 

 

0

 

Shares surrendered by employees to pay taxes

   on restricted stock

 

 

 

 

 

 

(321

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(10,940

)

 

 

(10,940

)

Purchase of common stock for treasury

 

 

 

 

 

 

(411

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(14,012

)

 

 

(14,012

)

Stock-based compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,949

 

 

 

 

 

 

 

 

 

 

 

1,949

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

13,873

 

 

 

 

 

 

 

13,873

 

Balance at May 4, 2019

 

 

20,528

 

 

 

(5,837

)

 

$

205

 

 

$

76,282

 

 

$

370,453

 

 

$

(155,437

)

 

$

291,503

 

 

See notes to Condensed Consolidated Financial Statements.

5


 

SHOE CARNIVAL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

Unaudited

 

(In thousands)

 

Thirteen

Weeks Ended

May 4,

2019

 

 

Thirteen

Weeks Ended

May 5,

2018

 

Cash Flows From Operating Activities

 

 

 

 

 

 

 

 

Net income

 

$

13,873

 

 

$

12,955

 

Adjustments to reconcile net income to net cash (used in) provided by

   operating activities:

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

4,277

 

 

 

5,633

 

Stock-based compensation

 

 

1,958

 

 

 

1,191

 

Loss on retirement and impairment of assets

 

 

164

 

 

 

52

 

Deferred income taxes

 

 

1,463

 

 

 

(39

)

Non-cash operating lease expense

 

 

10,993

 

 

 

0

 

Lease incentives

 

 

0

 

 

 

10

 

Other

 

 

1,278

 

 

 

(2,097

)

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

(783

)

 

 

3,071

 

Merchandise inventories

 

 

(31,817

)

 

 

(35,421

)

Operating lease liabilities

 

 

(11,853

)

 

 

0

 

Accounts payable and accrued liabilities

 

 

4,011

 

 

 

25,484

 

Other

 

 

(2,878

)

 

 

(2,361

)

Net cash (used in) provided by operating activities

 

 

(9,314

)

 

 

8,478

 

Cash Flows From Investing Activities

 

 

 

 

 

 

 

 

Purchases of property and equipment

 

 

(9,199

)

 

 

(963

)

Proceeds from sales of property and equipment

 

 

3

 

 

 

0

 

Net cash used in investing activities

 

 

(9,196

)

 

 

(963

)

Cash Flows From Financing Activities

 

 

 

 

 

 

 

 

Proceeds from issuance of stock

 

 

63

 

 

 

65

 

Dividends paid

 

 

(2,006

)

 

 

(1,169

)

Purchase of common stock for treasury

 

 

(14,012

)

 

 

(19,043

)

Shares surrendered by employees to pay taxes on restricted stock

 

 

(10,940

)

 

 

(275

)

Net cash used in financing activities

 

 

(26,895

)

 

 

(20,422

)

Net decrease in cash and cash equivalents

 

 

(45,405

)

 

 

(12,907

)

Cash and cash equivalents at beginning of period

 

 

67,021

 

 

 

48,254

 

Cash and cash equivalents at end of period

 

$

21,616

 

 

$

35,347

 

Supplemental disclosures of cash flow information:

 

 

 

 

 

 

 

 

Cash paid during period for interest

 

$

36

 

 

$

40

 

Cash paid during period for income taxes

 

$

103

 

 

$

57

 

Capital expenditures incurred but not yet paid

 

$

575

 

 

$

258

 

 

See notes to Condensed Consolidated Financial Statements.

6


 

SHOE CARNIVAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Unaudited

Note 1 - Basis of Presentation

In our opinion, the accompanying Unaudited Condensed Consolidated Financial Statements and notes have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission (the “SEC”) for interim financial information and contain all normal recurring adjustments necessary to present fairly our financial position and the results of our operations and our cash flows for the periods presented. Certain information and disclosures normally included in the notes to Condensed Consolidated Financial Statements have been condensed or omitted according to the rules and regulations of the SEC, although we believe that the disclosures are adequate to make the information presented not misleading. The results of operations for the interim periods are not necessarily indicative of the results to be expected for the full year. The Unaudited Condensed Consolidated Financial Statements should be read in conjunction with the audited Consolidated Financial Statements and the notes thereto contained in our Annual Report on Form 10-K for the fiscal year ended February 2, 2019.

Note 2 - Net Income Per Share

The following tables set forth the computation of basic and diluted earnings per share as shown on the face of the accompanying Condensed Consolidated Statements of Income:

 

 

 

Thirteen Weeks Ended

 

 

 

May 4, 2019

 

 

May 5, 2018

 

 

 

 

 

 

 

(In thousands, except per share data)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic Earnings per Share:

 

Net

Income

 

 

Shares

 

 

Per

Share

Amount

 

 

Net

Income

 

 

Shares

 

 

Per

Share

Amount

 

Net income

 

$

13,873

 

 

 

 

 

 

 

 

 

 

$

12,955

 

 

 

 

 

 

 

 

 

Amount allocated to participating securities

 

 

(44

)

 

 

 

 

 

 

 

 

 

 

(65

)

 

 

 

 

 

 

 

 

Net income available for basic common shares and

   basic earnings per share

 

$

13,829

 

 

 

14,612

 

 

$

0.95

 

 

$

12,890

 

 

 

15,526

 

 

$

0.83

 

Diluted Earnings per Share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

$

13,873

 

 

 

 

 

 

 

 

 

 

$

12,955

 

 

 

 

 

 

 

 

 

Amount allocated to participating securities

 

 

(44

)

 

 

 

 

 

 

 

 

 

 

(65

)

 

 

 

 

 

 

 

 

Adjustment for dilutive potential common shares

 

 

1

 

 

 

580

 

 

 

 

 

 

 

0

 

 

 

2

 

 

 

 

 

Net income available for diluted common shares and

   diluted earnings per share

 

$

13,830

 

 

 

15,192

 

 

$

0.91

 

 

$

12,890

 

 

 

15,528

 

 

$

0.83

 

 

Our basic and diluted earnings per share are computed using the two-class method. The two-class method is an earnings allocation that determines net income per share for each class of common stock and participating securities according to their participation rights in dividends and undistributed earnings or losses. Non-vested restricted stock awards that include non-forfeitable rights to dividends are considered participating securities. During periods of undistributed losses, however, no effect is given to our participating securities since they do not share in the losses. Per share amounts are computed by dividing net income available to common shareholders by the weighted average shares outstanding during each period. No options to purchase shares of common stock were excluded in the computation of diluted shares for the periods presented.

Note 3 - Recently Issued Accounting Pronouncements

In February 2016, the Financial Accounting Standards Board (“FASB”) issued guidance which replaced most existing lease accounting guidance. This guidance 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 became effective for us on February 3, 2019 and includes interim periods in fiscal 2019.  We adopted the new guidance using the effective date as the date of initial application; therefore, the comparative period has not been adjusted and continues to be reported under the previous lease guidance.  All of our retail store locations and our distribution center are subject to operating lease accounting under the new guidance.  As a result, the adoption of this guidance had a material impact on our condensed consolidated balance sheets but did not have a material impact on our condensed consolidated statements of income or our condensed consolidated statements of cash flow.  We also updated our lease administration software for the implementation of the guidance and developed and mapped new and existing controls in our control environment.  The adoption of the guidance resulted in the initial recognition of operating lease liabilities of $251.7 million as of February 3, 2019.  This amount was based on the present value of fixed lease payments using our incremental borrowing rate.  We recorded corresponding operating lease right-of-use assets based on the operating lease liabilities, reduced by net accrued rent, unamortized deferred lease incentives and prepaid rent totaling $25.8 million upon adoption.  Under the new guidance, companies may

7


 

elect certain optional practical expedients.  We elected 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 did not elect the transition practical expedients that permit companies to use hindsight when determining lease term and impairment of right-of-use assets or that permit companies to account for lease and non-lease components as a single lease component.  We also did not elect the transition package of practical expedients that is permitted by the guidance; therefore, 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.  As of the adoption date, we recorded $2.6 million of lease-related capitalized costs to beginning retained earnings, net of tax, that did not meet the definition of initial direct costs in accordance with the guidance.  See Note 7 for additional disclosures required as a result of the adoption of this guidance.

In August 2018, the FASB issued guidance that adds, removes, and modifies the disclosure requirements related to fair value measurements.  This accounting update is effective for fiscal years beginning after December 15, 2019 and interim periods within those fiscal years, with early adoption permitted. We are evaluating the impact of this new guidance and believe the adoption will not have a material impact on our condensed consolidated financial statements.

 

Note 4 - Fair Value Measurements

The accounting guidance related to fair value measurements defines fair value and provides 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 guidance requires or permits 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; and

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 May 4, 2019, February 2, 2019 and May 5, 2018.  We have no material liabilities measured at fair value on a recurring or non-recurring basis.

 

 

 

Fair Value Measurements

 

(In thousands)

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

As of May 4, 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash equivalents - money market mutual funds

 

$

28,779

 

 

$

0

 

 

$

0

 

 

$

28,779

 

As of February 2, 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash equivalents - money market mutual funds

 

$

68,500

 

 

$

0

 

 

$

0

 

 

$

68,500

 

As of May 5, 2018

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash equivalents - money market mutual funds

 

$

0

 

 

$

0

 

 

$

0

 

 

$

0

 

The fair values of cash and cash equivalents, accounts receivable, accounts payable, accrued expenses and other current liabilities approximate their carrying values because of their short-term nature.

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 include property and equipment and operating right-of-use 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 property and equipment using an income-based approach considering the cash flows expected over the remaining lease term for each location. These projections are primarily based on management’s estimates of store-level sales, gross margins, direct expenses, exercise of future lease renewal options and resulting cash flows and, by their nature, include judgments about how current initiatives will impact future performance. External factors, such as the local environment in which the store resides, including strip-mall traffic and competition, are evaluated in terms of their effect on sales trends. Changes in sales and operating income assumptions or unfavorable changes in external factors can significantly impact the estimated future cash flows. An increase or decrease in the projected cash flow can significantly decrease or increase the fair value of these assets, which would have an effect on the impairment recorded.  We estimate the fair value of operating right-of-use assets using the market value of rents applicable to the leased asset, discounted using the remaining lease term.  If the operating right-of-use asset is impaired, we would amortize the remaining right-of-use asset in accordance with the subsequent-measurement guidance that applies to finance leases — typically, on a

8


 

straight-line basis over the remaining lease term. Thus, the leased asset would no longer qualify for the straight-line treatment of lease expense. However, in periods after the impairment, we would continue to present the right-of-use asset reduction and interest accretion related to the operating lease liability in selling, general and administrative expenses on the income statement.  See Note 7 for additional information on our accounting treatment for leases.  

During the thirteen weeks ended May 4, 2019, we recorded an impairment charge of $40,000 on property and equipment related to one store, 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 $3,000. There were no impairments of operating right-of-use assets recorded during the thirteen weeks ended May 4, 2019.  There were no impairments of long-lived assets recorded during the thirteen weeks ended May 5, 2018.

Note 5 - Stock-Based Compensation

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 replaced 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, restricted stock awards, restricted stock units and performance stock units. Additionally, we recognize stock-based compensation expense for the discount on shares sold to employees through our employee stock purchase plan. Stock-based compensation expense for the employee stock purchase plan was $11,000 before the income tax benefit of $1,000 and $11,000 before the income tax benefit of $3,000 for the thirteen weeks ended May 4, 2019, and May 5, 2018, respectively.

Restricted Stock

The following table summarizes transactions for our restricted stock awards pursuant to our stock-based compensation plans:

 

 

 

Number of

Shares

 

 

Weighted-

Average Grant

Date Fair Value

 

Restricted stock at February 2, 2019

 

 

825,281

 

 

$

23.94

 

Vested

 

 

(708,367

)

 

 

23.88

 

Forfeited or expired

 

 

(40,859

)

 

 

24.26

 

Restricted stock at May 4, 2019

 

 

76,055

 

 

$

24.27

 

 

There were no restricted stock awards granted during the thirteen-week periods ended May 4, 2019 or May 5, 2018. The total fair value at grant date of restricted stock awards that vested during the first quarter of fiscal 2019 was $16.9 million. The total fair value at grant date of restricted stock awards that vested during the first quarter of fiscal 2018 was $887,000.

As of May 4, 2019, approximately $460,000 of unrecognized compensation expense remained related to both our performance-based and service-based restricted stock awards. The cost is expected to be recognized over a weighted average period of approximately 0.9 years.

The following table summarizes transactions for our restricted stock units and performance stock units pursuant to the 2017 Plan:

 

 

 

Number of

Shares

 

 

Weighted-

Average Grant

Date Fair Value

 

Restricted stock units and performance stock units at February 2, 2019

 

 

202,667

 

 

$

24.98

 

Granted

 

 

181,300

 

 

 

31.36

 

Vested

 

 

(86,093

)

 

$

23.27

 

Forfeited

 

 

(2,376

)

 

 

23.27

 

Restricted stock units and performance stock units at May 4, 2019

 

 

295,498

 

 

$

29.41

 

 

9


 

As of May 4, 2019, approximately $7.2 million of unrecognized compensation expense remained related to both our restricted stock units and performance stock units. The cost is expected to be recognized over a weighted average period of approximately 1.4 years.

The following table summarizes information regarding stock-based compensation expense recognized for restricted stock awards, restricted stock units and performance stock units:

 

(In thousands)

 

Thirteen Weeks

Ended May 4,

2019

 

 

Thirteen Weeks

Ended May 5,

2018

 

Stock-based compensation expense before the recognized

   income tax benefit

 

$

1,938

 

 

$

1,115

 

Income tax benefit

 

$

247

 

 

$

279

 

Cash-Settled Stock Appreciation Rights

Our cash-settled stock appreciation rights (“SARs”) were granted during the first quarter of fiscal 2019 to certain non-executive employees and will vest and become fully exercisable on March 31, 2020. Any unexercised SARs will expire on March 31, 2022.  Each SAR entitles the holder, upon exercise of their vested shares, to receive cash in an amount equal to the closing price of our stock on the date of exercise less the exercise price, with a maximum amount of gain defined.  The SARs granted during the first quarter of fiscal 2019 were issued with a defined maximum gain of $10.00 over the exercise price of $34.95.  

During the first quarter of fiscal 2015, SARs were granted 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 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 the SARs activity:

 

 

 

Number of

Shares

 

 

Weighted-

Average

Exercise Price

 

 

Weighted-

Average

Remaining

Contractual Term (Years)

 

Outstanding at February 2, 2019

 

 

0

 

 

$

0.00

 

 

 

 

 

Granted

 

 

43,900

 

 

 

34.95

 

 

 

 

 

Forfeited

 

 

0

 

 

 

0.00

 

 

 

 

 

Exercised

 

 

0

 

 

 

0.00

 

 

 

 

 

Outstanding at May 4, 2019

 

 

43,900

 

 

$

34.95

 

 

 

0.9

 

The fair value of these liability awards will be remeasured, using a trinomial lattice model, at each reporting period until the date of settlement. Increases or decreases in stock-based compensation expense are recognized over the vesting period, or immediately for vested awards. The weighted-average fair value of outstanding, non-vested SAR awards as of May 4, 2019 was $5.55.

The fair value was estimated using a trinomial lattice model with the following assumptions:

 

 

 

May 4, 2019

 

 

May 5, 2018

 

Risk free interest rate yield curve

 

2.30% - 2.42%

 

 

1.67% - 2.78%

 

Expected dividend yield

 

0.9%

 

 

1.3%

 

Expected volatility

 

47.95%

 

 

39.74%

 

Maximum life

 

2.9 Years

 

 

1.9 Years

 

Exercise multiple

 

 

1.29

 

 

 

1.34

 

Maximum payout

 

$

10.00

 

 

$

10.00

 

Employee exit rate

 

2.2% - 9.0%

 

 

2.2% - 9.0%

 

 

The risk free interest rate was based on the U.S. Treasury yield curve in effect at the end of the reporting period. The expected dividend yield was based on our historical 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.

10


 

The following table summarizes information regarding stock-based compensation expense recognized for SARs:

 

(In thousands)

 

Thirteen Weeks

Ended May 4,

2019

 

 

Thirteen Weeks

Ended May 5,

2018

 

Stock-based compensation expense before the recognized

   income tax benefit

 

$

8

 

 

$

65

 

Income tax benefit

 

$

1

 

 

$

16

 

 

Note 6 – Revenue

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, 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 condensed consolidated financial statements at May 4, 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 each of May 4, 2019 and 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 condensed consolidated balance sheets.

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.  Estimated breakage is determined based on historical breakage percentages and recognized as revenue based on expected gift card usage.  We do not record breakage revenue when escheat liability to relevant jurisdictions exists. At May 4, 2019 and February 2, 2019,

11


 

approximately $1.3 million and $1.6 million, respectively, of contract liabilities associated with unredeemed gift cards were recorded in our condensed consolidated balance sheets. 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.  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 May 4, 2019 and February 2, 2019, approximately $293,000 and $245,000, respectively, of contract liabilities associated with loyalty rewards were recorded in our condensed consolidated balance sheets. 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.  We transfer control and recognize revenue when the product is shipped from our stores or distribution center.  

 

Disaggregation of Revenue by Product Category

 

Revenue is disaggregated by product category below. Net sales and percentage of net sales for the thirteen weeks ended May 4, 2019 and May 5, 2018 were as follows:

 

(In thousands)

 

Thirteen Weeks

Ended May 4, 2019

 

 

Thirteen Weeks

Ended May 5, 2018

 

Non-Athletics: