# Shoe Station Group Inc: Form 10-Q for the period ended Jul 29, 2023

- Company: [Shoe Station Group Inc](/companies/shoe.md) (CIK 895447)
- Form: 10-Q
- Filed: 2023-09-01
- Accepted by EDGAR: Sep 1, 2023, 13:00 ET
- Period: 2023-07-29
- Accession: 0000950170-23-045928
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/895447/000095017023045928/scvl-20230729.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/895447/000095017023045928/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2023-07-29.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2023-04-30 to 2023-07-29 | $294.6m | us-gaap:Revenues |
| Revenue | 6 months, 2023-01-29 to 2023-07-29 | $575.8m | us-gaap:Revenues |
| Cost of revenue | 3 months, 2023-04-30 to 2023-07-29 | $189.2m | us-gaap:CostOfGoodsAndServicesSold |
| Cost of revenue | 6 months, 2023-01-29 to 2023-07-29 | $371.8m | us-gaap:CostOfGoodsAndServicesSold |
| Gross profit | 3 months, 2023-04-30 to 2023-07-29 | $105.5m | us-gaap:GrossProfit |
| Gross profit | 6 months, 2023-01-29 to 2023-07-29 | $204.0m | us-gaap:GrossProfit |
| Selling, general and administrative | 3 months, 2023-04-30 to 2023-07-29 | $80.8m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Selling, general and administrative | 6 months, 2023-01-29 to 2023-07-29 | $158.4m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Operating income | 3 months, 2023-04-30 to 2023-07-29 | $24.7m | us-gaap:OperatingIncomeLoss |
| Operating income | 6 months, 2023-01-29 to 2023-07-29 | $45.6m | us-gaap:OperatingIncomeLoss |
| Interest expense | 3 months, 2023-04-30 to 2023-07-29 | $71.0k | us-gaap:InterestExpense |
| Interest expense | 6 months, 2023-01-29 to 2023-07-29 | $137.0k | us-gaap:InterestExpense |
| Income tax | 3 months, 2023-04-30 to 2023-07-29 | $5.6m | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 6 months, 2023-01-29 to 2023-07-29 | $10.4m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2023-04-30 to 2023-07-29 | $19.4m | us-gaap:NetIncomeLoss |
| Net income | 6 months, 2023-01-29 to 2023-07-29 | $36.0m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2023-04-30 to 2023-07-29 | $0.71 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 6 months, 2023-01-29 to 2023-07-29 | $1.31 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2023-04-30 to 2023-07-29 | $0.71 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 6 months, 2023-01-29 to 2023-07-29 | $1.32 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2023-04-30 to 2023-07-29 | 27,410,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 6 months, 2023-01-29 to 2023-07-29 | 27,449,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 6 months, 2023-01-29 to 2023-07-29 | $22.4m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 6 months, 2023-01-29 to 2023-07-29 | $30.6m | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Dividends paid | 6 months, 2023-01-29 to 2023-07-29 | $5.7m | us-gaap:PaymentsOfDividends |
| Share repurchases | 6 months, 2023-01-29 to 2023-07-29 | $0 | us-gaap:PaymentsForRepurchaseOfCommonStock |
| Cash and equivalents | at 2023-07-29 | $34.6m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2023-07-29 | $485.4m | us-gaap:AssetsCurrent |
| Total assets | at 2023-07-29 | $1.04bn | us-gaap:Assets |
| Current liabilities | at 2023-07-29 | $154.8m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2023-07-29 | $487.7m | us-gaap:Liabilities |
| Shareholders' equity | at 2023-07-29 | $555.5m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 32,696 characters.

### Factors That May Affect Future Results

This Quarterly Report on Form 10-Q contains forward-looking statements, within the meaning of the Private Securities Litigation Reform Act of 1995, that involve a number of risks and uncertainties. A number of factors could cause our actual results, performance, achievements or industry results to be materially different from any future results, performance or achievements expressed or implied by these forward-looking statements. These factors include, but are not limited to: our ability to control costs and meet our labor needs in a rising wage, inflationary, and/or supply chain constrained environment; our ability to maintain current promotional intensity levels; the effects and duration of economic downturns and unemployment rates; our ability to achieve expected operating results, synergies, and other benefits from the Shoe Station acquisition within expected time frames, or at all; the potential impact of national and international security concerns, including those caused by war and terrorism, on the retail environment; general economic conditions in the areas of the continental United States and Puerto Rico where our stores are located; changes in the overall retail environment and more specifically in the apparel and footwear retail sectors; our ability to generate increased sales; 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; the success of the open-air shopping centers where many of our stores are located and its impact on our ability to attract customers to our stores; our ability to attract customers to our e-commerce platform and to successfully grow our omnichannel sales; the effectiveness of our inventory management, including our ability to manage key merchandise vendor relationships and direct-to-consumer initiatives; changes in our relationships with other key suppliers; 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; our ability to successfully manage our current real estate portfolio and leasing obligations; changes in weather, including patterns impacted by climate change; changes in consumer buying trends and our ability to identify and respond to emerging fashion trends; the impact of disruptions in our distribution or information technology operations; the impact of natural disasters, public health and political crises, civil unrest, and other catastrophic events on our operations and the operations of our suppliers, as well as on consumer confidence and purchasing in general; the duration and spread of a public health crisis, such as COVID-19, and the mitigating efforts deployed, including the effects of government stimulus on consumer spending; risks associated with the seasonality of the retail industry; the impact of unauthorized disclosure or misuse of personal and confidential information about our customers, vendors and employees, including as a result of a cybersecurity breach; our ability to successfully execute our business strategy, including the availability of desirable store locations at acceptable lease terms, our ability to identify, consummate or effectively integrate future acquisitions, our ability to implement and adapt to new technology and systems, our ability to open new stores in a timely and profitable manner, including our entry into major new markets, and the availability of sufficient funds to implement our business plans; higher than anticipated costs associated with the closing of underperforming stores; the inability of manufacturers to deliver products in a timely manner; an increase in the cost, or a disruption in the flow, of imported goods; the impact of regulatory changes in the United States, including minimum wage laws and regulations, and the countries where our manufacturers are located; the resolution of litigation or regulatory proceedings in which we are or may become involved; continued volatility and disruption in the capital and credit markets; future stock repurchases under our stock repurchase program and future dividend payments. For a more detailed discussion of risk factors impacting us, see the “Risk Factors” section of our Annual Report on Form 10-K for the fiscal year ended January 28, 2023.

### General

Management’s Discussion and Analysis of Financial Condition and Results of Operations is intended to provide information to assist the reader in better understanding and evaluating our financial condition and results of operations. We encourage you to read this in conjunction with our Condensed Consolidated Financial Statements and the notes thereto included in PART I, ITEM 1 of this Quarterly Report on Form 10-Q, as well as our Annual Report on Form 10-K for the fiscal year ended January 28, 2023 as filed with the SEC. This section of this Quarterly Report on Form 10-Q generally discusses our results for second quarter 2023 and second quarter 2022 and year-over-year comparisons between second quarter 2023 and second quarter 2022, as well as year-to-date results for, and comparisons between, the two periods.

Referred to herein, second quarter 2023 is the thirteen weeks ended July 29, 2023 and second quarter 2022 is the thirteen weeks ended July 30, 2022. Also referred to herein, year-to-date 2023 is the twenty-six weeks ended July 29, 2023 and year-to-date 2022 is the twenty-six weeks ended July 30, 2022.

### Overview of Our Business

Shoe Carnival, Inc. is one of the nation’s largest omnichannel family footwear retailers. On December 3, 2021, we began operating under two banners: Shoe Carnival and Shoe Station. Our objective is to be the omnichannel retailer-of-choice for on-trend branded footwear for the entire family. Our product assortment, whether shopping in a physical store or on our e-commerce platform, includes dress, casual, and work shoes, sandals, boots and a wide assortment of athletic shoes. Our typical physical store carries shoes in two general categories – athletics and non-athletics with subcategories for men's, women's and children's, as well as a broad range of accessories. In addition to our physical stores, our e-commerce platform offers customers the same assortment of merchandise in all categories of footwear with expanded options in certain instances.

Our stores under the Shoe Carnival banner combine competitive pricing with a high-energy in-store environment that encourages customer participation. Footwear in our Shoe Carnival physical stores is organized by category and brand, creating strong brand statements within the aisles. These brand statements are underscored by branded signage on endcaps and in-line signage throughout the store. Our signage may highlight a vendor’s product offerings or sales promotions, or may highlight seasonal or lifestyle statements by grouping similar footwear from multiple vendors.

The Shoe Station banner and retail locations are a complementary retail platform for us to serve a broader base of family footwear customers in both urban and suburban demographics. The Shoe Station concept targets a more affluent family footwear customer and has a strong track record of capitalizing on emerging footwear fashion trends and introducing new brands. Due to the larger average size of our Shoe Station stores and the targeted, more affluent customer, these locations provide for a primary destination shopping experience. See Note 3 — “Acquisition of Shoe Station” to our Notes to Consolidated Financial Statements contained in PART II, ITEM 8 of our Annual Report on Form 10-K for the fiscal year ended January 28, 2023, for further discussion.

We believe our distinctive shopping experiences give us various competitive advantages, including increased multiple unit sales; the building of a loyal, repeat customer base; the creation of word-of-mouth advertising; and enhanced sell-through of in-season goods.

### Critical Accounting Policies

We use judgment in reporting our financial results. This judgment involves estimates based in part on our historical experience and incorporates the impact of the current general economic climate and company-specific circumstances. However, because future events and economic conditions are inherently uncertain, our actual results could differ materially from these estimates. Our accounting policies that require more significant judgments include those with respect to Merchandise Inventories, valuation of long-lived assets, valuation of Goodwill and Intangible Assets, leases and income taxes. The accounting policies that require more significant judgment are discussed in our Annual Report on Form 10-K for the fiscal year ended January 28, 2023, and there have been no material changes to those critical accounting policies.

### Results of Operations Summary Information

| Quarter Ended | Number of Stores Beginning Of Period | Opened | Closed | End of Period | Store Square Footage Net Change | End of Period | Comparable Store Sales(1) |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| April 29, 2023 | 397 | 1 | 1 | 397 | 5,000 | 4,510,000 | (11.9)% |
| July 29, 2023 | 397 | 2 | 0 | 399 | 32,000 | 4,542,000 | (6.5)% |
| Year-to-date | 397 | 3 | 1 | 399 | 37,000 | 4,542,000 | (9.3)% |
| April 30, 2022 | 393 | 2 | 0 | 395 | 31,000 | 4,450,000 | (10.6)% |
| July 30, 2022 | 395 | 0 | 0 | 395 | 0 | 4,450,000 | (13.8)% |
| Year-to-date | 393 | 2 | 0 | 395 | 31,000 | 4,450,000 | (12.2)% |

(1) Comparable store sales is a key performance indicator for us. Comparable store sales include stores that have been open for 13 full months after such stores’ grand opening or acquisition prior to the beginning of the period, including those stores that have been relocated or remodeled. Therefore, stores recently opened, acquired or closed are not included in comparable store sales. We generally include e-commerce sales in our comparable store sales as a result of our omnichannel retailer strategy. Due to our omnichannel retailer strategy, we view e-commerce sales as an extension of our physical stores. E-commerce platforms associated with a physical store acquisition will not be included in comparable store sales until the initial physical stores are included. The 21 original Shoe Station stores acquired and the www.shoestation.com e-commerce site that went live in early February 2023 are included in comparable store sales calculations beginning in first quarter 2023.

The following table sets forth our results of operations expressed as a percentage of Net Sales for the periods indicated:

|  | Thirteen Weeks Ended July 29, 2023 | Thirteen Weeks Ended July 30, 2022 | Twenty-six Weeks Ended July 29, 2023 | Twenty-six Weeks Ended July 30, 2022 |
| --- | ---: | ---: | ---: | ---: |
| Net sales | 100.0% | 100.0% | 100.0% | 100.0% |
| Cost of sales (including buying, distribution and occupancy costs) | 64.2 | 63.8 | 64.6 | 64.1 |
| Gross profit | 35.8 | 36.2 | 35.4 | 35.9 |
| Selling, general and administrative expenses | 27.4 | 23.8 | 27.5 | 24.1 |
| Operating income | 8.4 | 12.4 | 7.9 | 11.8 |
| Interest income, net | (0.1) | 0.0 | (0.2) | 0.0 |
| Income tax expense | 1.9 | 3.1 | 1.8 | 2.9 |
| Net income | 6.6% | 9.3% | 6.3% | 8.9% |

### Executive Summary for Second Quarter Ended July 29, 2023

For second quarter 2023, Diluted Net Income per Share (“EPS”) was $0.71, compared to $1.04 of EPS in second quarter 2022. The primary driver of the lower EPS in second quarter 2023 compared to second quarter 2022 was a $17.7 million, or 5.7%, decline in Net Sales. The Net Sales decline was primarily due to store traffic declining approximately 7%, which resulted in a comparable store sales decline of 6.5% compared to second quarter 2022. A 5.4% increase in our e-commerce Net Sales and Net Sales from new Shoe Station stores partially offset the decrease. As a result of e-commerce growth and new stores, we grew Net Sales under our Shoe Station banner by low-single digits. Net Sales under the Shoe Carnival banner declined mid-single digits primarily due to a store traffic decline principally from our lower income consumers and within our urban markets.

Second quarter 2023 ranked as the third best second quarter in our history in terms of EPS, only surpassed by the second quarters of fiscal 2022 and fiscal 2021. Our investments in customer relationship management (“CRM”) systems and store modernization have continued to produce sustained higher gross profit margin, increased customer conversion and increased loyalty members compared to our pre-CRM and pre-modernization results in 2019. The benefits of our CRM and store modernization programs were key factors to maintaining the following results with store traffic continuing to be impacted by inflation and higher interest rates:

- Second quarter 2023 marked the tenth consecutive quarter that gross profit margin exceeded 35%;
- Loyalty customers grew over 12% compared to second quarter 2022 to 33.3 million customers; and
- Store conversion was over 400 basis points higher compared to pre-CRM and pre-modernization results in 2019.

In second quarter 2023, we increased our strategic investments in branding, advertising and our in-store experience. These investments resulted in increased Selling, General and Administrative Expenses and occupancy costs in Cost of Sales in second quarter 2023 compared to second quarter 2022.

Significant progress was made in the first half of 2023 to reduce our Merchandise Inventories and optimize our inventory positions for an improved athletic assortment of national named brands. Second quarter 2023 ending inventory was $23.8 million higher than the prior year, compared to first quarter 2023 when ending inventory was $44.5 million higher than the prior year and to fiscal 2022 year end when inventory was $105.2 million higher than the prior year end. We expect our Merchandise Inventories at the end of third quarter 2023 to be lower than the end of third quarter 2022 and to be approximately $40 million lower by year end 2023 compared to year end 2022.

Year end fiscal 2022 marked the 18th consecutive year we ended the year with no debt, and through second quarter 2023 we also funded our operations without debt. As of July 29, 2023, we had $46.8 million of Cash, Cash Equivalents and Marketable Securities and $99.3 million in borrowing capacity.

We ended second quarter 2023 with 399 total stores, 373 Shoe Carnival stores and 26 Shoe Station stores. In second quarter 2023, we opened one Shoe Carnival store and one Shoe Station store. No stores were closed in second quarter 2023. In August 2023, we opened another new store, achieving the 400 store level for the first time since 2018. Over 50% of Shoe Carnival stores have been modernized.

### Results of Operations for Second Quarter Ended July 29, 2023 Compared to Second Quarter Ended July 30, 2022

#### Net Sales

Net Sales were $294.6 million during second quarter 2023 and decreased 5.7% compared to second quarter 2022. The decrease was due to a 6.5% comparable store sales decline resulting from an approximate 7% decrease in physical store traffic, which we believe was primarily due to persistent inflation and higher interest rates impacting our lower income consumers and our urban markets, partially offset by a 5.4% increase in e-commerce Net Sales and Net Sales from new Shoe Station stores. E-commerce sales were favorably impacted by the February 2023 launch of shoestation.com and increased sales through shoecarnival.com. E-commerce sales were approximately 9% of merchandise sales in both second quarter 2023 and second quarter 2022. With an improved brand name assortment this year, sales of athletic merchandise in second quarter 2023 were flat compared to second quarter 2022 despite lower store traffic.

#### Gross Profit

Gross Profit was $105.5 million during second quarter 2023, a decrease of $7.7 million compared to second quarter 2022. Gross profit margin in second quarter 2023 was 35.8% compared to 36.2% in second quarter 2022. Merchandise margin decreased 20 basis points. Buying, distribution and occupancy (“BDO") costs were lower in the quarter compared to second quarter 2022; however, BDO costs decreased gross profit margin by 20 basis points due to the lower Net Sales in second quarter 2023. The BDO costs were lower in second quarter 2023 as freight and distribution costs declined versus 2022 through active management, contract renegotiation and normalization, partially offset by our investments in store modernization and by rent associated with operating more stores.

#### Selling, General and Administrative Expenses (“SG&A”)

SG&A increased $6.5 million in second quarter 2023 to $80.8 million compared to $74.3 million in second quarter 2022. Approximately $6.2 million of the increase was evenly split between (1) advertising and brand initiatives, supporting new store growth and e-commerce growth and (2) sustaining our in-store experience, which included higher payroll expense and depreciation of newly modernized stores. As a percentage of Net Sales, SG&A were 27.4% in second quarter 2023, consistent with first quarter 2023 when SG&A was 27.6% of Net Sales. In second quarter 2022, SG&A was 23.8% of Net Sales.

#### Income Taxes

The effective income tax rate for second quarter 2023 was 22.3% compared to 25.6% for second quarter 2022. Our provision for income taxes is based on the current estimate of our annual effective tax rate and is adjusted as necessary for quarterly events. The lower effective tax rate in second quarter 2023 compared to the prior year quarter was reflective of discrete adjustments recognized during the second quarter 2023. For the full 2023 fiscal year, we expect our tax rate to be between 24% and 25% compared to the 25.2% effective tax rate recognized during the full 2022 fiscal year.

### Results of Operations Year-to-Date Through July 29, 2023 Compared to Year-to-Date Through July 30, 2022

#### Net Sales

Net Sales were $575.8 million in year-to-date 2023 and decreased 8.6% compared to year-to-date 2022. The decrease was due to a 9.3% comparable store sales decline resulting from an approximate 8% decrease in traffic in our physical stores and lower Net Sales through our e-commerce sales channel. We believe the lower store traffic was primarily due to persistent inflation, higher interest rates and a reduction in first quarter 2023 federal tax refunds compared to 2022 impacting our lower income consumers and our urban markets. The decrease was partially offset by Net Sales attributable to new stores, mostly new Shoe Station stores. E-commerce sales were approximately 8% of merchandise sales in year-to-date 2023 compared to 10% in year-to-date 2022.

#### Gross Profit

Gross Profit was $204.0 million during year-to-date 2023, a decrease of $22.0 million compared to year-to-date 2022. Gross profit margin in year-to-date 2023 was 35.4% compared to 35.9% in year-to-date 2022. Merchandise margin decreased 30 basis points, reflecting an increase in promotional intensity. BDO costs were lower year-to-date compared to year-to-date 2022; however, BDO decreased gross profit margin by 20 basis points due to the lower Net Sales in year-to-date 2023. The BDO costs were lower in year-to-date 2023 as freight and distribution costs declined versus 2022 through active management, contract renegotiation and normalization, partially offset by our investments in store modernization and by rent associated with operating more stores.

#### Selling, General and Administrative Expenses

SG&A increased $6.6 million, or 4.3%, in year-to-date 2023 to $158.4 million compared to $151.8 million in year-to-date 2022. The increase was nearly evenly split between (1) brand initiatives, supporting new store growth and the launch of shoestation.com and (2) sustaining our in-store experience, which included higher payroll expense and depreciation of newly modernized stores. These increases were partially offset by lower advertising expense. As a percentage of Net Sales, SG&A were 27.5% in year-to-date 2023 compared to 24.1% in year-to-date 2022.

#### Interest Income and Interest Expense

Changes in our interest income and expense increased our income before taxes by $764,000 in year-to-date 2023 compared to year-to-date 2022. This increase was primarily due to higher interest earned on invested cash balances and lower unused commitment fees under our current credit agreement as compared to our prior credit agreement.

#### Income Taxes

The effective income tax rate for year-to-date 2023 was 22.4% compared to 24.8% for year-to-date 2022. The lower effective tax rate in year-to-date 2023 compared to the prior year-to-date was reflective of discrete adjustments recognized during second quarter 2023.

### Liquidity and Capital Resources

Our primary sources of liquidity are $46.8 million of Cash, Cash Equivalents and Marketable Securities on hand at the end of the second quarter 2023, cash generated from operations and availability under our $100 million credit agreement. We believe our resources will be sufficient to fund our cash needs, as they arise, for at least the next 12 months. Our primary uses of cash are normally for working capital, which are principally inventory purchases, investments in our stores, such as new stores, modernization/remodels and relocations, distribution center initiatives, lease payments associated with our real estate leases, potential dividend payments, potential share repurchases under our share repurchase program and the financing of capital projects, including investments in new systems. As part of our growth strategy, we may also pursue strategic acquisitions of other footwear retailers.

#### Cash Flow - Operating Activities

Net cash generated from operating activities was $22.4 million in year-to-date 2023 compared to $8.9 million during year-to-date 2022. The change in operating cash flow was primarily driven by inventory reductions, partially offset by decreased Net Sales in year-to-date 2023.

Working capital increased on a year-over-year basis and totaled $330.6 million at July 29, 2023 compared to $287.7 million at July 30, 2022. The increase was primarily attributable to lower Accounts Payable and higher Merchandise Inventories levels, partially offset by lower cash balances due to investment in Property and Equipment related to our store modernization program. Our current ratio was 3.1 as of July 29, 2023 compared to 2.5 as of July 30, 2022.

#### Cash Flow – Investing Activities

Our cash outflows for investing activities are normally for capital expenditures. During year-to-date 2023 and 2022, we expended $30.7 million and $50.2 million, respectively, for the purchase of Property and Equipment, primarily related to our store modernization program.

We invest in publicly traded mutual funds designed to mitigate income statement volatility associated with our nonqualified deferred compensation plan. The balance of these Marketable Securities was $12.2 million at July 29, 2023, compared to $11.6 million at January 28, 2023 and $11.0 million at July 30, 2022. Additional information can be found in Note 3 — “Fair Value Measurements” to our Notes to Condensed Consolidated Financial Statements contained in PART I, ITEM 1 of this Quarterly Report on Form 10-Q.

#### Cash Flow – Financing Activities

Our cash outflows for financing activities are typically for cash dividend payments, share repurchases or payments on our credit agreement. Shares of our common stock can be either acquired as part of a publicly announced repurchase program or withheld by us in connection with employee payroll tax withholding upon the vesting of stock-based compensation awards that are settled in shares. Our cash inflows from financing activities generally reflect stock issuances to employees under our Employee Stock Purchase Plan and borrowings under our credit agreement.

During year-to-date 2023, net cash used in financing activities was $8.5 million compared to $27.6 million during year-to-date 2022. The decrease in net cash used in financing activities was primarily due to the repurchase of $20.5 million of shares in year-to-date 2022 under our Board of Directors’ authorized share repurchase program. No share repurchases were made in year-to-date 2023.

#### Capital Expenditures

Capital expenditures for fiscal 2023, including actual expenditures in year-to-date 2023, are expected to be between $55 million and $65 million, with approximately $45 million to $50 million to be used for new stores and modernization and approximately $10 million to $15 million for upgrades to our distribution center and e-commerce platform, various other store improvements, continued investments in technology and normal asset replacement activities. The resources allocated to projects are subject to near-term changes depending on ongoing supply chain disruptions and potential inflationary and other macroeconomic impacts. Furthermore, the actual amount of cash required for capital expenditures for store operations depends in part on the number of stores opened, relocated, and remodeled, and the amount of lease incentives, if any, received from landlords. The number of new store openings and relocations will be dependent upon, among other things, the availability of desirable locations, the negotiation of acceptable lease terms and general economic and business conditions affecting consumer spending.

#### Store Portfolio

We opened two Shoe Station branded stores, opened one Shoe Carnival branded store and closed one Shoe Carnival branded store in year-to-date 2023. Increasing market penetration by adding new stores is a key component of our growth strategy. We opened our 400th store in August 2023 and are targeting operating over 500 stores in 2028. This increased scale will be accomplished through a combination of both organic and acquired store growth. We believe our current store footprint provides for growth in new markets within the United States as well as fill-in opportunities within existing markets. In the near term, we expect to pursue fill-in opportunities for store growth across large and mid-size markets as we continue to leverage customer data from our CRM program. We believe more attractive real estate options will be available with the addition of the Shoe Station retail concept to our portfolio and aim to grow the Shoe Station banner to over 100 stores over the same time period. However, our future store growth may continue to be impacted by macroeconomic uncertainty and our ability to identify desirable locations and/or acquisition partners.

#### Credit Agreement

On March 23, 2022, we entered into a $100 million Amended and Restated Credit Agreement (the “Credit Agreement”), which replaced our prior credit agreement. The Credit Agreement is collateralized by our inventory, expires on March 23, 2027, and uses a Secured Overnight Financing Rate ("SOFR") as quoted by The Federal Reserve Bank of New York as the basis for financing charges. Material covenants associated with the Credit Agreement require that we maintain a minimum net worth of $250 million and a consolidated interest coverage ratio of not less than 3.0 to 1.0. We were in compliance with these covenants as of July 29, 2023.

The Credit Agreement contains certain restrictions. However, as long as our consolidated EBITDA is positive and there are either no or low borrowings outstanding, we expect these restrictions would have no impact on our ability to pay cash dividends, execute share repurchases or facilitate acquisitions from cash on hand. The Credit Agreement stipulates that cash dividends and share repurchases of $15 million or less per fiscal year can be made without restriction as long as there is no default or event of default before and immediately after such distributions. We are also permitted to make acquisitions and pay cash dividends or repurchase shares in excess of $15 million in a fiscal year provided that (a) no default or event of default exists before and immediately after the transaction and (b) on a proforma basis, the ratio of (i) the sum of (A) our consolidated funded indebtedness plus (B) three times our consolidated rental expense to (ii) the sum of (A) our consolidated EBITDA plus (B) our consolidated rental expense is less than 3.5 to 1.0. Among other restrictions, the Credit Agreement also limits our ability to incur additional secured or unsecured debt to $20 million.

The Credit Agreement bears interest, at our option, at (1) the agent bank’s base rate plus 0.0% to 1.0% or (2) Adjusted Term SOFR plus 0.9% to 1.9%, depending on our achievement of certain performance criteria. A commitment fee is charged at 0.2% to 0.3% per annum, depending on our achievement of certain performance criteria, on the unused portion of the lenders’ commitment. During year-to-date 2023, we did not borrow or repay funds under the Credit Agreement. Letters of credit outstanding were $700,000 at July 29, 2023 and our borrowing capacity was $99.3 million.

The terms “net worth”, “consolidated interest coverage ratio”, “consolidated funded indebtedness”, “consolidated rental expense”, “consolidated EBITDA”, “base rate” and “Adjusted Term SOFR” are defined in the Credit Agreement.

#### Dividends

On June 20, 2023, the Board of Directors approved the payment of a second quarter 2023 cash dividend to our shareholders. The quarterly cash dividend of $0.10 per share was paid on July 19, 2023 to shareholders of record as of the close of business on July 5, 2023. In second quarter 2022, the dividend paid was $0.09 per share. During year-to-date 2023 and 2022, we returned $5.7 million and $5.1 million, respectively, to our shareholders through our quarterly cash dividends.

The declaration and payment of any future dividends are at the discretion of the Board of Directors and will depend on our results of operations, financial condition, business conditions and other factors deemed relevant by our Board of Directors, subject to restrictions as outlined above in the “Credit Agreement” discussion. See Note 9 — “Debt” to our Notes to Consolidated Financial Statements contained in PART II, ITEM 8 of our Annual Report on Form 10-K for the fiscal year ended January 28, 2023 for a further discussion of the Credit Agreement.

#### Share Repurchase Program

On December 14, 2022, our Board of Directors authorized a share repurchase program for up to $50.0 million of our outstanding common stock, effective January 1, 2023 (the “2023 Share Repurchase Program”). The purchases may be made in the open market or through privately negotiated transactions from time-to-time through December 31, 2023 and in accordance with applicable laws, rules and regulations. The 2023 Share Repurchase Program may be amended, suspended or discontinued at any time and does not commit us to repurchase shares of our common stock. We have funded, and intend to continue to fund, share repurchases from cash on hand, and any shares acquired will be available for stock-based compensation awards and other corporate purposes. The actual number and value of the shares to be purchased will depend on the performance of our stock price and other market and economic factors and are subject to restrictions as outlined above in the “Credit Agreement” discussion. See Note 9 — “Debt” to our Notes to Consolidated Financial Statements contained in PART II, ITEM 8 of our Annual Report on Form 10-K for the fiscal year ended January 28, 2023 for a further discussion of the Credit Agreement.

No share repurchases have been made to date in fiscal 2023. During year-to-date 2022, we repurchased 682,886 shares of common stock at a total cost of $20.5 million.

#### Seasonality

We have three distinct peak selling periods: Easter, back-to-school and Christmas. Our operating results depend significantly upon the sales generated during these periods. To prepare for our peak shopping seasons, we must order and keep in stock significantly more merchandise than we would carry during other periods of the year. Any unanticipated decrease in demand for our products or a supply chain disruption that reduces inventory availability during these peak shopping seasons could reduce our Net Sales and Gross Profit and negatively affect our profitability.

## Market risk

As filed, 343 characters.

We are exposed to market risk in that the interest payable under the Credit Agreement is based on variable interest rates and therefore is affected by changes in market rates. We do not use interest rate derivative instruments to manage exposure to changes in market interest rates. We had no borrowings outstanding during second quarter 2023.

## Controls and procedures

As filed, 1,038 characters.

Our Chief Executive Officer and Chief Financial Officer have concluded, based on their evaluation as of July 29, 2023, 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 (the "Exchange Act"), is recorded, processed, summarized and reported within the time periods specified in the SEC’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 have been no significant changes in our internal control over financial reporting that occurred during the quarter ended July 29, 2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

## Risk factors

As filed, 143 characters.

There have been no material changes to the risk factors set forth in our Annual Report on Form 10-K for the fiscal year ended January 28, 2023.

Filed Sep 1, 2023.
Source: SEC EDGAR, the filing index for accession 0000950170-23-045928. Last ingested by Listed: Oct 24, 2026, 14:59 ET. No prices; not investment advice.