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OFFON

SHOE CARNIVAL, INC.

(SCVL)
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SHOE CARNIVAL : MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (form 10-Q)

09/03/2021 | 09:26am EDT

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: the duration and spread of the COVID-19 pandemic, mitigating efforts
deployed, including the effects of government stimulus on consumer spending, and
the pandemic's overall impact on our operations, including our stores, supply
chain and distribution processes, economic conditions, and financial market
volatility; general economic conditions in the areas of the continental United
States and Puerto Rico where our stores are located; the effects and duration of
economic downturns and unemployment rates; changes in the overall retail
environment and more specifically in the apparel and footwear retail sectors;
our ability to generate increased sales; 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 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 multi-channel sales; the
potential impact of national and international security concerns on the retail
environment; the effectiveness of our inventory management, including our
ability to manage key merchandise vendor relationships and emerging
direct-to-consumer initiatives; changes in our relationships with other key
suppliers; our ability to control costs and meet our labor needs in a rising
wage and/or inflationary environment; 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, other public health crises,
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; 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 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 30, 2021, and "Risk
Factors" in Part II, Item 1A of our Quarterly Report on Form 10-Q for the
quarter ended May 1, 2021 and in Part II, Item 1A of this Quarterly Report on
Form 10-Q.

General

Management's Discussion and Analysis of Financial Condition and Results of
Operations ("MD&A") 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 30, 2021 as filed with the SEC.

Overview of Our Business


Shoe Carnival, Inc. is one of the nation's largest family footwear retailers,
providing customers the convenience of shopping at any of our store locations,
our mobile app or online at www.shoecarnival.com. Our stores combine competitive
pricing with a promotional, high-energy in-store environment that encourages
customer participation and injects fun and excitement into every shopping
experience. We believe our distinctive shopping experience gives 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. A similar customer experience is
reflected in our e-commerce platform through special promotions and limited time
sales.

Our objective is to be the multi-channel retailer-of-choice for on-trend branded
and private label footwear for the entire family. Our product assortment,
whether shopping in a physical store or on our e-commerce platform, includes
dress and casual shoes, sandals, boots and a wide assortment of athletic
shoes. Our average physical store carries shoes in four general categories -
women's, men's, children's and athletics, as well as a broad range of
accessories. Footwear is organized by category and brand, creating strong brand

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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. Over 100 of our physical stores have strongly branded Nike shops that
highlight Nike products within the stores, and we expect to add at least 100
more Nike shops to our physical stores through 2023. Our e-commerce platform
offers customers the same assortment of merchandise in all categories of
footwear with expanded options in certain instances.

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, 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 30, 2021, and there have been no material changes to those critical
accounting policies.

Information regarding the COVID-19 Coronavirus Pandemic ("COVID-19")


We continue to closely monitor and manage the impact of the COVID-19 pandemic,
and the safety and well-being of our customers, employees and business partners
remains a top priority. The COVID-19 pandemic has significantly impacted, and is
expected to continue to impact, our operations, supply chains, distribution
processes, and overall economic conditions and consumer spending for the
foreseeable future.

In response to the COVID-19 pandemic, all of our physical stores were
temporarily closed effective March 19, 2020. Our e-commerce platform continued
to operate, and our e-commerce sales increased significantly in fiscal 2020 as
customers shifted purchases to our online channel. We began reopening our
physical stores in accordance with applicable public health guidelines in late
April 2020. Thus substantially all of our physical stores were closed for
approximately 50% of the first fiscal quarter of 2020. By the beginning of the
second quarter of fiscal 2020, approximately 50% of our stores were reopened,
and by early June 2020, substantially all of our stores had reopened. We did not
have any stores closed as of July 31, 2021 or for extended periods during the
first six months of fiscal 2021 due to the pandemic.

Results of Operations Summary Information



                                                Number of Stores                         Store Square Footage
                                Beginning                                  End of         Net            End            Comparable
Quarter Ended                   Of Period       Opened        Closed       

Period Change of Period Store Sales(1) May 1, 2021

                            383             0            6          377       (46,000 )     4,100,000                125.8 %
July 31, 2021                          377             1            0          378        12,000       4,112,000                 11.4 %

Year-to-date                           383             1            6          378       (34,000 )     4,112,000                 48.8 %

May 2, 2020                            392             0            2          390       (22,000 )     4,198,000                (42.3 )%
August 1, 2020                         390             2           10          382       (66,000 )     4,132,000                 12.6 %

Year-to-date                           392             2           12          382       (88,000 )     4,132,000                (14.0 )%



(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 prior to the beginning of the period, including

those stores that have been relocated or remodeled. Therefore, stores

recently opened or closed are not included in comparable store sales. We

include e-commerce sales in our comparable store sales as a result of our

multi-channel retailer strategy. Due to our multi-channel retailer

strategy, we view e-commerce sales as an extension of our physical stores.




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



                                         Thirteen             Thirteen           Twenty-six           Twenty-six
                                        Weeks Ended         Weeks Ended          Weeks Ended         Weeks Ended
                                       July 31, 2021       August 1, 2020       July 31, 2021       August 1, 2020
Net sales                                       100.0 %              100.0 %             100.0 %              100.0 %
Cost of sales (including buying,
distribution and
  occupancy costs)                               59.1                 72.5                59.7                 74.6
Gross profit                                     40.9                 27.5                40.3                 25.4
Selling, general and administrative
expenses                                         22.9                 22.7                22.5                 27.4
Operating income/(loss)                          18.0                  4.8                17.8                 (2.0 )
Interest income                                   0.0                  0.0                 0.0                  0.0
Income tax expense/(benefit)                      4.7                  1.5                 4.6                 (0.6 )
Net income/(loss)                                13.3 %                3.3 %              13.2 %               (1.4 )%




Given the significant impact of the COVID-19 pandemic on our fiscal 2020 second
quarter and year-to-date results, we have included certain comparisons in this
MD&A between fiscal 2021 and fiscal 2019 to provide further context regarding
our fiscal 2021 results of operations.

The shares outstanding and net income per share information throughout this MD&A
has been adjusted retroactively for all periods presented as a result of a
2-for-1 stock split that was paid as a dividend on July 19, 2021 to shareholders
of record on July 6, 2021. See Note 1 - "Basis of Presentation" in the
accompanying notes included in Part I, Item 1 of this Quarterly Report on Form
10-Q for additional information on the stock split.

Executive Summary for the Second Fiscal Quarter Ended July 31, 2021




The second quarter of fiscal 2021 was another record-breaking quarter. Results
for the second quarter of fiscal 2021 were the highest in terms of quarterly net
sales, gross profit, operating income and diluted net income per share in our
history, surpassing previous records set in the first quarter of fiscal
2021. Through the first six months of fiscal 2021, our diluted net income per
share of $3.05 exceeded the diluted net income per share earned during the
fiscal years of 2020 and 2019 combined.

Comparable store sales in the second quarter of fiscal 2021 increased 11.4%
compared to the second quarter of fiscal 2020 and increased 25.5% compared to
the second quarter of fiscal 2019. In the second quarter of fiscal 2020, we were
still reopening a portion of our physical stores throughout May that were closed
due to the pandemic. As our physical stores and the U.S. economy reopened, we
experienced a significant increase in sales; however, sales in July 2020 were
negatively impacted by delays in back-to-school shopping. Our sales in fiscal
2020 were also more significantly weighted towards our e-commerce platform due
to the pandemic. Fiscal 2019 is considered a more normal year as it was not
impacted by COVID-19.

We believe our inventory selection, more focused promotional strategy, a
stronger economy (inclusive of the impacts of government stimulus) and the
return of a more normal back-to-school shopping season positively impacted our
fiscal 2021 second quarter results. During the second quarter of fiscal 2021,
physical store traffic increased 23.1% compared to the second quarter of fiscal
2020 and neared the pre-pandemic levels in the second quarter of fiscal
2019. Sales generated from our physical stores increased 25.8% for the second
quarter of fiscal 2021 compared to the second quarter of fiscal 2020 and 19.0%
compared to the second quarter of fiscal 2019. Sales generated from our
e-commerce platform decreased 44.4% compared to the second quarter of fiscal
2020 but increased 140% compared to the second quarter of fiscal
2019. E-commerce sales were approximately 10% of merchandise sales in the second
quarter of fiscal 2021, down from 20% in the second quarter of fiscal 2020, but
up from 5% in the second quarter of fiscal 2019.

All of our non-athletic product categories had comparable store sale increases
ranging from double digits to low triple-digits compared to the second quarter
of fiscal 2020. As expected, decreases in the men's and women's athletic
categories occurred. Athletic categories were elevated in the second quarter of
fiscal 2020 consistent with more active life-style choices responsive to the
COVID-19 pandemic. Compared to the second quarter of fiscal 2019, all product
categories, including athletics and children's non-athletics, showed double
digit comparable store sale increases. This increase was driven by higher
average per unit prices across all categories, and overall, more units sold.



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Highlights for the second quarter of fiscal 2021 and a brief discussion of some key initiatives are as follows:

• Net sales for the second quarter of fiscal 2021 set another all-time

quarterly record of $332.2 million, eclipsing the previous all-time record

set last quarter (first quarter of fiscal 2021).

• Net income for the second quarter of fiscal 2021 was $44.2 million, or $1.54

per diluted share, compared to net income of $10.1 million, or $0.35 per

diluted share in the second quarter of fiscal 2020. Earnings in the second

quarter of fiscal 2021 exceeded any previous quarterly or full-year record,

including exceeding results recognized in the first quarter of fiscal 2021,

which were a record at that point in time.

• We achieved record quarterly gross profit of $135.8 million during the

second quarter of fiscal 2021. Gross profit margin as a percent of sales

increased 13.4 percentage points compared to the second quarter of fiscal

2020 to a record 40.9% and increased 10.3 percentage points compared to the

second quarter of fiscal 2019, driven by a strong merchandise selection and

more focused promotional activity.

• We had no borrowings during the second quarter of fiscal 2021 and ended the

      quarter with $163.9 million of cash, cash equivalents and marketable
      securities.

• In the second quarter of fiscal 2021, we continued to increase membership in

our Shoe Perks customer loyalty program, which grew over 10% compared to the

prior year second quarter. This brought total membership in the program to

over 27.7 million customers as of July 31, 2021. We believe our Shoe Perks

      program affords us opportunities to communicate, build relationships and
      engage with our most loyal shoppers, which we believe will result in
      long-term customer commitment to our brand.

• We are continuing to modernize our stores and expect to have 100 stores

modernized by the spring of fiscal 2022, within our plan to modernize

two-thirds of our store portfolio over the next three to five years.

Results of Operations for the Second Quarter Ended July 31, 2021

Net Sales


Net sales were a record $332.2 million during the second quarter of fiscal 2021
and increased 10.5% compared to the second quarter of fiscal 2020. Comparable
stores sales increased 11.4% compared to the second quarter of fiscal
2020. Compared to the second quarter of fiscal 2020, physical store sales
increased 25.8%, and e-commerce sales decreased 44.4%. E-commerce sales
represented approximately 10% of merchandise sales in the second quarter of
fiscal 2021.

Net sales were positively impacted by continued demand for our merchandise, a
more normal beginning to the back-to-school shopping season, and a stronger
economy (including impacts from consumer-based government
stimulus). Additionally, a portion of our stores were closed during May 2020 due
to the pandemic. Net sales in the second quarter of fiscal 2021 were favorably
impacted by increased conversion and average transaction price compared to the
second quarter fiscal 2020, with traffic nearing the pre-pandemic levels in the
second quarter of fiscal 2019. The increase in average transaction price was
primarily driven by our more focused promotional activity.

Gross Profit




Gross profit was a record $135.8 million during the second quarter of fiscal
2021, an increase of $53.1 million compared to the second quarter of fiscal
2020. Gross profit margin in the second quarter of fiscal 2021 increased to
40.9% compared to 27.5% in the second quarter of fiscal 2020 and 30.6% in the
second quarter of fiscal 2019. Merchandise margin increased 13.3 percentage
points compared to the second quarter of fiscal 2020 and 9.6 percentage points
compared to the second quarter of fiscal 2019. Our more focused promotional
strategy drove a higher merchandise margin compared to both fiscal 2020 and
2019. A more standard product mix sold during the second quarter of fiscal 2021
further increased merchandise margin compared to fiscal 2020. With respect to
product mix, the second quarter of fiscal 2020 had a heavier mix of adult
athletic sales, which typically sell at lower margins compared to other footwear
categories.

As a percentage of sales, our buying, distribution and occupancy costs were slightly down compared to the second quarter of fiscal 2020 as higher freight and distribution labor costs mostly offset the leveraging effect of higher sales.

Selling, General and Administrative Expenses ("SG&A")


SG&A increased $7.8 million in the second quarter of fiscal 2021 to $76.0
million compared to $68.2 million in the second quarter of fiscal 2020. As a
percentage of net sales, SG&A was relatively consistent at 22.9% in the second
quarter of fiscal 2021 compared to 22.7% in the second quarter of fiscal 2020
and lower than the 24.8% recorded in the second quarter of fiscal 2019. The
increase in SG&A in the second quarter of fiscal 2021 compared to the second
quarter of fiscal 2020 correlates with our continued record performance, with
increases in store level wages and store level incentive compensation comprising
a majority of the increase.

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Income Taxes


The effective income tax rate for the second quarter of fiscal 2021 was 25.8%
compared to 29.6% for the same period in fiscal 2020. 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 higher tax rate in the prior
year was primarily due to a reversal of a net operating loss carryback recorded
in the first quarter of fiscal 2020 due to improved financial performance. For
the full 2021 fiscal year, we expect our tax rate to be comparable to the 25.8%
effective tax rate recognized during the full 2020 fiscal year.

Results of Operations for the Six-Month Period Ended July 31, 2021

Net Sales


Net sales were $660.7 million year-to-date in fiscal 2021, a 47.4% increase over
the prior year's year-to-date net sales of $448.3 million. The overall increase
in net sales was primarily due to the temporary closure of our physical stores
for approximately 50% of the first quarter of fiscal 2020 as a result of the
COVID-19 pandemic, with some stores closed through May 2020. Comparable stores
sales increased 48.8% compared to the first six months of fiscal 2020 and
increased 28.1% compared to the first six months of fiscal 2019.

Gross Profit


Gross profit was $265.9 million during the first six months of fiscal 2021, an
increase of $151.8 million compared to the first six months of fiscal
2020. Gross profit margin in the first six months of fiscal 2021 increased to
40.3% compared to 25.4% in fiscal 2020 and 30.1% in fiscal 2019. Merchandise
margin increased 11.9 percentage points compared to fiscal 2020 and 8.8
percentage points compared to fiscal 2019. Our more focused promotional
strategies throughout fiscal 2021 drove a higher merchandise margin compared to
both fiscal 2020 and 2019. A more standard product mix sold principally during
the second quarter of fiscal 2021 further increased our merchandise margin
compared to fiscal 2020.



As a percentage of sales, our buying, distribution and occupancy costs decreased
2.9 percentage points compared to fiscal 2020 and 1.4 percentage points compared
to fiscal 2019 primarily due to the leveraging effect of increased sales.

Selling, General and Administrative Expenses


SG&A increased $25.7 million to $148.6 million in the first six months of fiscal
2021 compared to $122.9 million in fiscal 2020. As a percentage of net sales,
SG&A was leveraged to 22.5% in the first six months of fiscal 2021 compared to
27.4% in fiscal 2020 and 24.1% in fiscal 2019.

Compared to the first six months of fiscal 2020, the increase in SG&A primarily
correlated with our record performance, in terms of increased performance-based
incentive compensation, general wages and variable costs that change with sales,
such as credit card fees. SG&A also increased due to market return volatility on
our deferred compensation plan, higher stock-based compensation, and the CARES
Act payroll retention tax credits recognized in fiscal 2020. Store level wages,
incentives paid to store level employees, and annual performance-based
compensation comprised the majority of the increase. Our performance
year-to-date has exceeded annual fiscal 2021 performance targets; therefore,
virtually all annual performance-based compensation expected for the full year
has been recognized.

Income Taxes

The effective income tax rate year-to-date for fiscal 2021 was 25.3%. In fiscal
2020, income taxes were a benefit as a result of a year-to-date pre-tax loss and
the timing of favorable discrete tax adjustments.

Liquidity and Capital Resources


Our primary sources of liquidity are $163.9 million of cash, cash equivalents
and marketable securities on hand at the end of the second fiscal quarter of
2021, cash generated from operations, and availability under our $100 million
credit facility. While the continued economic uncertainty and future effects on
customer behavior caused by the COVID-19 pandemic makes our operating cash flow
less predictable, 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 for working capital, which are principally inventory purchases, investments
in our stores, such as new stores, 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.

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Cash Flow - Operating Activities


Net cash generated from operating activities was $79.8 million in the first six
months of fiscal 2021 compared to $26.2 million during the first six months of
fiscal 2020. The increase in operating cash flow was primarily driven by higher
cash receipts on increased sales, partially offset by inventory purchases and
payments for operating expenses and income taxes.



Working capital increased on a year-over-year basis, totaling $298.7 million at
July 31, 2021 and $200.1 million at August 1, 2020. The increase was primarily
attributable to increased cash and marketable securities positions. Our current
ratio was 2.5 as of July 31, 2021 compared to 2.0 as of August 1, 2020.

Cash Flow - Investing Activities


Our cash outflows for investing activities are normally for capital
expenditures. During the first six months of fiscal 2021, we expended $12.1
million for the purchase of property and equipment, primarily related to our
store portfolio modernization plan. During the first six months of fiscal 2020,
we expended $7.2 million for the purchase of property and equipment, primarily
related to investments in technology and normal asset replacement activities.

During the second quarter of fiscal 2021, we also invested approximately $17.5
million in publicly traded mutual funds designed to mitigate income statement
volatility associated with our nonqualified deferred compensation plan. As of
July 31, 2021, the balance in our deferred compensation plan was $17.5 million,
of which $6.1 million was classified as a current liability in Accrued and other
liabilities.

Cash Flow - Financing Activities


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

During the first six months of fiscal 2021, net cash used in financing
activities was $10.3 million compared to $4.2 million during the first six
months of fiscal 2020. The increase in net cash used in financing activities was
primarily due to the repurchase of $4.0 million of shares in the second quarter
of fiscal 2021 associated with our Board of Directors' authorized share
repurchase program. In fiscal 2021 we also increased our dividend payments and
more shares were withheld upon the vesting of equity awards. During the first
six months of fiscal 2021, we did not borrow or repay funds under our credit
facility. Letters of credit outstanding were $700,000 at July 31, 2021, and our
borrowing capacity was $99.3 million.

Our credit facility requires us to maintain compliance with various financial
covenants. See Note 7 - "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 30, 2021 for a further discussion of our credit facility and
its covenants. We were in compliance with these covenants as of July 31, 2021.

Capital Expenditures



Capital expenditures for fiscal 2021, including actual expenditures for the
first six months of fiscal 2021, are expected to be between $30 million and $35
million, with approximately $24 million to $26 million to be used for a new
store, relocations and remodels and approximately $2 million to $4 million for
upgrades to our distribution center and e-commerce platform. The remaining
capital expenditures are expected to be incurred for various other store
improvements, continued investments in technology and normal asset replacement
activities. The resources allocated to these projects are subject to near-term
changes depending on the impacts associated with the COVID-19 pandemic and
ongoing supply chain disruptions. Furthermore, the actual amount of cash
required for capital expenditures for store operations depends in part on the
number of stores opened, the number of stores relocated, the amount of lease
incentives, if any, received from landlords and the number of stores
remodeled. The number of new store openings and relocations will be dependent
upon, among other things, the availability of desirable locations, the
negotiation of acceptable lease terms and general economic and business
conditions affecting consumer spending.

Store Portfolio




We continually analyze our store portfolio and the potential for new stores
based on our view of internal and external opportunities and challenges in the
marketplace.  Increasing market penetration by opening new stores has
historically been a key component of our long-term growth strategy, and we
continue to focus on generating positive long-term financial performance from
our store portfolio. We expect to pursue opportunities for store growth across
large and mid-size markets as we leverage customer data from our customer
relationship management program and more attractive real estate options become
available.  In fiscal 2021, we opened one new store

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within our existing geographic footprint and do not anticipate opening any more
stores this fiscal year. We anticipate store growth will return after fiscal
2021.



When we identify a store that produces, or may potentially produce, low or
negative contribution, we either renegotiate lease terms, relocate or close the
store.  In instances when underperformance indicates the carrying value of a
store's assets may not be recoverable, we impair the store. Although store
closings could reduce our overall net sales volume, we believe this strategy
will realize long-term improvement in operating income and diluted net income
per share.  Depending upon the results of lease negotiations with certain
landlords of underperforming stores, we may increase or decrease the number of
store closures in future periods.  We closed six stores in the first six months
of fiscal 2021 and expect to close three additional stores by the end of the
current fiscal year.


Our future store strategies may continue to be impacted by the current economic uncertainty associated with the COVID-19 pandemic.

Dividends


On June 10, 2021, the Board of Directors approved the payment of our second
quarter cash dividend to our shareholders.  The quarterly cash dividend of
$0.070 per share was paid on July 19, 2021 to shareholders of record as of the
close of business on July 6, 2021. In fiscal 2020, the second quarter dividend
was $0.045 per share. During the first half of fiscal 2021 and 2020, we returned
$4.0 million and $2.6 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. Our credit agreement permits the payment of cash dividends as long as
no default or event of default exists under the credit agreement both
immediately before and immediately after giving effect to the cash dividends,
and the aggregate amount of cash dividends for a fiscal year does not exceed $10
million. See Note 7 - "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 30, 2021 for a further discussion of our credit facility and
its covenants.

Share Repurchase Program

On December 15, 2020, our Board of Directors authorized a share repurchase
program for up to $50.0 million of outstanding common stock, effective January
1, 2021 (the "2021 Share Repurchase Program"). The purchases may be made in the
open market or through privately negotiated transactions from time-to-time
through December 31, 2021 and in accordance with applicable laws, rules and
regulations. The 2021 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 conditions.

Due to uncertainty related to the COVID-19 pandemic, share repurchases have been
limited in fiscal 2021 and no repurchases were made in fiscal 2020. Shares
totaling 117,068 shares were repurchased during the second quarter of fiscal
2021 at a cost of $4.0 million. We will continue to evaluate the repurchase of
shares under the 2021 Share Repurchase Program given the uncertainty.

Our credit facility stipulates that distributions in the form of redemptions of
Equity Interests (as defined in the credit agreement) can be made solely with
cash on hand so long as before and immediately after such distributions there
are no revolving loans outstanding under the credit agreement. See Note 7 -
"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 30,
2021 for a further discussion of our credit facility and its covenants.

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 during these peak shopping seasons in future periods could require us
to sell excess inventory at a substantial markdown, which could reduce our net
sales and gross profit and negatively affect our profitability.

Whether Christmas shopping will be impacted by COVID-19 remains uncertain given
the recent increase in cases, increased discussion of social distancing and mask
mandates, and continued supply chain disruptions. The Christmas shopping season
impacts our fourth quarter sales and earnings results.

                                       21

--------------------------------------------------------------------------------

Recent Accounting Pronouncements


See Note 3 - "Recently Issued Accounting Pronouncements" in the accompanying
notes included in Part I, Item 1 of this Quarterly Report on Form 10-Q for a
description of recent accounting pronouncements that may have an impact on our
condensed consolidated financial statements when adopted.

© Edgar Online, source Glimpses

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