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. ☒ 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). ☒ 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.

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 ☒ No

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 ~~May 29,~~December 1, 2020 was ~~14,087,896.~~14,103,570.

(In thousands, except share data)	May 2, 2020			February 1, 2020			May 4, 2019			October 31, 2020			February 1, 2020			November 2, 2019
Assets
Current Assets:
Cash and cash equivalents	$	13,084		$	61,899		$	21,616		$	46,740		$	61,899		$	33,707
Accounts receivable		6,316			2,724			2,003			8,435			2,724			2,470
Merchandise inventories		303,988			259,495			289,356			274,264			259,495			298,002
Other		14,186			5,529			9,769			10,727			5,529			10,868
Total Current Assets		337,574			329,647			322,744			340,166			329,647			345,047
Property and equipment – net		64,928			67,781			72,313			63,434			67,781			69,147
Deferred income taxes		7,249			7,833			8,159			6,283			7,833			7,678
Other noncurrent assets		9,454			8,106			760			11,802			8,106			3,692
Operating lease right-of-use assets		210,345			215,007			224,642			201,658			215,007			222,148
Total Assets	$	629,550		$	628,374		$	628,618		$	623,343		$	628,374		$	647,712

Liabilities and Shareholders’ Equity
Current Liabilities:
Accounts payable	$	90,040		$	60,665		$	56,488		$	50,897		$	60,665		$	66,089
Accrued and other liabilities		12,517			18,695			17,611			25,346			18,695			22,052
Current portion of operating lease liabilities		49,078			43,146			47,089			48,984			43,146			42,481
Total Current Liabilities		151,635			122,506			121,188			125,227			122,506			130,622
Long-term portion of operating lease liabilities		184,896			194,108			202,517			179,335			194,108			202,138
Deferred compensation		12,646			13,345			13,386			14,600			13,345			13,220
Other		915			1,052			24			964			1,052			984
Total Liabilities		350,092			331,011			337,115			320,126			331,011			346,964

Shareholders’ Equity:
Common stock, $.01 par value, 50,000,000 shares authorized, 20,524,601 shares, 20,524,601 shares and 20,527,905 shares issued, respectively		205			205			205
Common stock, $.01 par value, 50,000,000 shares authorized, 20,524,601 shares, 20,524,601 shares and 20,527,244 shares issued, respectively											205			205			205
Additional paid-in capital		76,910			79,914			76,282			78,104			79,914			78,859
Retained earnings		378,352			395,761			370,453			400,505			395,761			393,497
Treasury stock, at cost, 6,436,087 shares, 6,516,875 shares and 5,837,164 shares, respectively		(176,009	)		(178,517	)		(155,437	)
Treasury stock, at cost, 6,421,031 shares, 6,516,875 shares and 6,338,584 shares, respectively											(175,597	)		(178,517	)		(171,813	)
Total Shareholders’ Equity		279,458			297,363			291,503			303,217			297,363			300,748
Total Liabilities and Shareholders’ Equity	$	629,550		$	628,374		$	628,618		$	623,343		$	628,374		$	647,712

(In thousands, except per share data)	Thirteen Weeks Ended May 2, 2020			Thirteen Weeks Ended May 4, 2019			Thirteen Weeks Ended October 31, 2020			Thirteen Weeks Ended November 2, 2019			Thirty-nine Weeks Ended October 31, 2020			Thirty-nine Weeks Ended November 2, 2019
Net sales	$	147,495		$	253,810		$	274,579		$	274,645		$	722,868		$	796,676
Cost of sales (including buying, distribution and occupancy costs)		116,031			178,670			186,818			189,911			521,038			554,707
Gross profit		31,464			75,140			87,761			84,734			201,830			241,969
Selling, general and administrative expenses		54,725			59,532			67,598			66,584			190,530			192,537
Operating (loss)/income		(23,261	)		15,608
Operating income								20,163			18,150			11,300			49,432
Interest income		(89	)		(331	)		(2	)		(163	)		(95	)		(580	)
Interest expense		56			36			119			34			293			155
(Loss)/income before income taxes		(23,228	)		15,903
Income tax (benefit)/expense		(7,038	)		2,030
Net (loss)/income	$	(16,190	)	$	13,873
Net (loss)/income per share:
Income before income taxes								20,046			18,279			11,102			49,857
Income tax expense								5,368			4,553			2,554			10,426
Net income							$	14,678		$	13,726		$	8,548		$	39,431
Net income per share:
Basic	$	(1.16	)	$	0.95		$	1.04		$	0.95		$	0.61		$	2.71
Diluted	$	(1.16	)	$	0.91		$	1.03		$	0.94		$	0.60		$	2.66
Weighted average shares:
Basic		13,992			14,612			14,090			14,404			14,057			14,544
Diluted		13,992			15,192			14,266			14,556			14,225			14,826

																					Thirteen Weeks Ended
	Common Stock								Additional Paid-In			Retained			Treasury						Common Stock								Additional Paid-In			Retained			Treasury
(In thousands, except per share data)	Issued			Treasury			Amount		Capital			Earnings			Stock			Total			Issued			Treasury			Amount		Capital			Earnings			Stock			Total
Balance at February 1, 2020		20,525			(6,517	)	$	205	$	79,914		$	395,761		$	(178,517	)	$	297,363
Dividends declared ($0.085 per share)													(1,219	)					(1,219	)
Balance at August 1, 2020																						20,525			(6,423	)	$	205	$	77,324		$	387,119		$	(175,661	)	$	288,987
Dividends declared ($0.090 per share)																																	(1,292	)					(1,292	)
Employee stock purchase plan purchases					4					(34	)					97			63						2					1						46			47
Restricted stock awards					148					(4,111	)					4,111			0											(27	)					27			0
Shares surrendered by employees to pay taxes on restricted stock					(71	)										(1,700	)		(1,700	)																(9	)		(9	)
Stock-based compensation expense										1,141									1,141											806									806
Net loss													(16,190	)					(16,190	)
Balance at May 2, 2020		20,525			(6,436	)	$	205	$	76,910		$	378,352		$	(176,009	)	$	279,458
Net income																																	14,678						14,678
Balance at October 31, 2020																						20,525			(6,421	)	$	205	$	78,104		$	400,505		$	(175,597	)	$	303,217

Balance at February 2, 2019		20,529			(5,154	)	$	205	$	75,631		$	360,443		$	(131,846	)	$	304,433
Adoption of Accounting Standards Codification Topic 842, Leases													(2,649	)					(2,649	)
Dividends declared ($0.080 per share)													(1,214	)					(1,214	)
Balance at August 3, 2019																						20,528			(5,822	)	$	205	$	77,374		$	381,012		$	(155,031	)	$	303,560
Dividends declared ($0.085 per share)																																	(1,241	)					(1,241	)
Employee stock purchase plan purchases					2					6						57			63						1					1						43			44
Restricted stock awards		(1	)		47					(1,304	)					1,304			0			(1	)		7					(178	)					178			0
Shares surrendered by employees to pay taxes on restricted stock					(321	)										(10,940	)		(10,940	)					(3	)										(100	)		(100	)
Purchase of common stock for treasury					(411	)										(14,012	)		(14,012	)					(522	)										(16,903	)		(16,903	)
Stock-based compensation expense										1,949									1,949											1,662									1,662
Net income													13,873						13,873														13,726						13,726
Balance at May 4, 2019		20,528			(5,837	)	$	205	$	76,282		$	370,453		$	(155,437	)	$	291,503
Balance at November 2, 2019																						20,527			(6,339	)	$	205	$	78,859		$	393,497		$	(171,813	)	$	300,748

	Thirty-nine Weeks Ended
	Common Stock								Additional Paid-In			Retained			Treasury
(In thousands, except per share data)	Issued			Treasury			Amount		Capital			Earnings			Stock			Total
Balance at February 1, 2020		20,525			(6,517	)	$	205	$	79,914		$	395,761		$	(178,517	)	$	297,363
Dividends declared ($0.265 per share)													(3,804	)					(3,804	)
Employee stock purchase plan purchases					7					(37	)					189			152
Restricted stock awards					161					(4,467	)					4,467			0
Shares surrendered by employees to pay taxes on restricted stock					(72	)										(1,736	)		(1,736	)
Stock-based compensation expense										2,694									2,694
Net income													8,548						8,548
Balance at October 31, 2020		20,525			(6,421	)	$	205	$	78,104		$	400,505		$	(175,597	)	$	303,217

Balance at February 2, 2019		20,529			(5,154	)	$	205	$	75,631		$	360,443		$	(131,846	)	$	304,433
Adoption of Accounting Standards Codification Topic 842, Leases													(2,649	)					(2,649	)
Dividends declared ($0.250 per share)													(3,728	)					(3,728	)
Employee stock purchase plan purchases					5					2						146			148
Restricted stock awards		(2	)		67					(1,842	)					1,842			0
Shares surrendered by employees to pay taxes on restricted stock					(324	)										(11,040	)		(11,040	)
Purchase of common stock for treasury					(933	)										(30,915	)		(30,915	)
Stock-based compensation expense										5,068									5,068
Net income													39,431						39,431
Balance at November 2, 2019		20,527			(6,339	)	$	205	$	78,859		$	393,497		$	(171,813	)	$	300,748

(In thousands)	Thirteen Weeks Ended May 2, 2020			Thirteen Weeks Ended May 4, 2019			Thirty-nine Weeks Ended October 31, 2020			Thirty-nine Weeks Ended November 2, 2019
Cash Flows From Operating Activities
Net (loss)/income	$	(16,190	)	$	13,873
Adjustments to reconcile net (loss)/income to net cash used in operating activities:
Net income							$	8,548		$	39,431
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		3,831			4,277			12,034			12,652
Stock-based compensation		1,054			1,958			2,881			5,207
Loss on retirement and impairment of assets		2,089			164			2,427			767
Deferred income taxes		584			1,463			1,550			1,944
Non-cash operating lease expense		10,250			10,993			31,087			30,932
Other		(1,065	)		1,278			494			1,111
Changes in operating assets and liabilities:
Accounts receivable		(3,592	)		(783	)		(5,711	)		(1,251	)
Merchandise inventories		(44,493	)		(31,817	)		(14,769	)		(40,463	)
Operating lease liabilities		(8,881	)		(11,853	)
Operating leases								(26,673	)		(34,306	)
Accounts payable and accrued liabilities		23,508			4,011			(2,544	)		17,173
Other		(9,958	)		(2,878	)		(9,154	)		(5,165	)
Net cash used in operating activities		(42,863	)		(9,314	)
Net cash provided by operating activities								170			28,032
Cash Flows From Investing Activities
Purchases of property and equipment		(3,189	)		(9,199	)		(10,083	)		(15,081	)
Other		194			3			194			8
Net cash used in investing activities		(2,995	)		(9,196	)		(9,889	)		(15,073	)
Cash Flows From Financing Activities
Borrowings under line of credit		8,691			0			24,903			20,000
Payments on line of credit		(8,691	)		0			(24,903	)		(20,000	)
Proceeds from issuance of stock		63			63			152			148
Dividends paid		(1,320	)		(2,006	)		(3,856	)		(4,466	)
Purchase of common stock for treasury		0			(14,012	)		0			(30,915	)
Shares surrendered by employees to pay taxes on restricted stock		(1,700	)		(10,940	)		(1,736	)		(11,040	)
Net cash used in financing activities		(2,957	)		(26,895	)		(5,440	)		(46,273	)
Net decrease in cash and cash equivalents		(48,815	)		(45,405	)		(15,159	)		(33,314	)
Cash and cash equivalents at beginning of period		61,899			67,021			61,899			67,021
Cash and cash equivalents at end of period	$	13,084		$	21,616		$	46,740		$	33,707
Supplemental disclosures of cash flow information:
Cash paid during period for interest	$	44		$	36		$	276		$	155
Cash (received)/paid during period for income taxes	$	(97	)	$	103
Cash paid during period for income taxes							$	1,812		$	6,277
Capital expenditures incurred but not yet paid	$	1,358		$	575		$	808		$	510
Dividends declared but not yet paid	$	64		$	96		$	113		$	151

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 or online. We offer customers a broad assortment of moderately priced dress, casual and athletic footwear for men, women and children with an emphasis on national name brands. We differentiate our retail concept from our competitors by our distinctive, fun and promotional marketing efforts. We are an Indiana corporation that was initially formed in Delaware in 1993 and reincorporated in Indiana in 1996. References to “Shoe Carnival,” “we,” “us,” “our” and the “Company” in this Quarterly Report on Form 10-Q refer to Shoe Carnival, Inc. and its subsidiaries.

In our opinion, the accompanying ~~Unaudited~~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 fairly present 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~~as permitted by 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~~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 1, 2020.

The following tables set forth the computation of basic and diluted net ~~(loss)/~~income per share as shown on the face of the accompanying Condensed Consolidated Statements of Income:

Thirteen Weeks Ended

May 2, 2020

May 4, 2019

(In thousands, except per share data)

Basic Net (Loss)/Income per Share:

Net
(Loss)/Income

Shares

Per Share
Amount

Net
(Loss)/Income

Shares

Per Share
Amount

Net (loss)/income

$
(16,190
)

$
13,873

Conversion of share-based compensation
   arrangements

0

(44
)

Net (loss)/income available for basic common shares
   and basic net (loss)/income per share

$
(16,190
)

13,992

$
(1.16
)

$
13,829

14,612

$
0.95

Diluted Net (Loss)/Income per Share:

Net (loss)/income

$
(16,190
)

$
13,873

Conversion of share-based compensation
   arrangements

0

0

(43
)

580

Net (loss)/income available for diluted common
   shares and diluted net (loss)/income per share

$
(16,190
)

13,992

$
(1.16
)

$
13,830

15,192

$
0.91

	Thirteen Weeks Ended
	October 31, 2020						November 2, 2019
			(In thousands, except per share data)
Basic Net Income per Share:	Net Income		Shares		Per Share Amount		Net Income			Shares		Per Share Amount
Net income	$	14,678					$	13,726
Conversion of stock-based compensation arrangements		0						(12	)
Net income available for basic common shares and basic net income per share	$	14,678		14,090	$	1.04	$	13,714			14,404	$	0.95
Diluted Net Income per Share:
Net income	$	14,678					$	13,726
Conversion of stock-based compensation arrangements		0		176				(12	)		152
Net income available for diluted common shares and diluted net income per share	$	14,678		14,266	$	1.03	$	13,714			14,556	$	0.94

	Thirty-nine Weeks Ended
	October 31, 2020						November 2, 2019
			(In thousands, except per share data)
Basic Net Income per Share:	Net Income		Shares		Per Share Amount		Net Income			Shares		Per Share Amount
Net income	$	8,548					$	39,431
Conversion of share-based compensation arrangements		0						(66	)
Net income available for basic common shares and basic net income per share	$	8,548		14,057	$	0.61	$	39,365			14,544	$	2.71
Diluted Net Income per Share:
Net income	$	8,548					$	39,431
Conversion of share-based compensation arrangements		0		168				(65	)		282
Net income available for diluted common shares and diluted net income per share	$	8,548		14,225	$	0.60	$	39,366			14,826	$	2.66

The computation of basic net ~~(loss)/~~income per share of common stock is based on the weighted average number of common shares outstanding during the period. The computation of diluted net ~~(loss)/~~income per share is based on the weighted average number of shares outstanding plus the dilutive incremental shares that would be outstanding assuming the vesting of restricted stock awards, restricted stock units and performance stock ~~units, of which a~~units. A small portion ~~have~~of these awards that were outstanding at the beginning of fiscal 2020 and vested during the thirty-nine weeks ended October 31, 2020, had a non-forfeitable right to dividends. The computation of diluted net ~~(loss)/~~income per share excluded approximately ~~198,000~~2,000 unvested share-settled awards for the third quarter of fiscal 2020 and 3,000 unvested share-settled equity awards for the first ~~quarter~~nine months of fiscal 2020 because the impact would be anti-dilutive. ~~During~~For the ~~first quarter of fiscal 2019~~other periods presented, all unvested share-settled equity awards were dilutive.

Our operations ~~are currently experiencing significant disruption associated with~~have been significantly disrupted by the outbreak of a novel strain of coronavirus (“COVID-19”). On March 11, 2020, the World Health Organization declared the ~~COVID 19~~COVID-19 outbreak a pandemic. The U.S. Government, as well as the vast majority of states and local municipalities, have taken unprecedented measures to control the spread of COVID-19 and to provide stimulus as a mitigating measure to deteriorating economic conditions and increasing unemployment.

The COVID-19 pandemic began significantly impacting our ~~store~~ operations, sales and costs beginning in the first quarter of fiscal 2020. Impacts included the temporary closure of our ~~brick-and-mortar~~physical stores effective March 19, 2020, reduced foot traffic and sales, deteriorating economic conditions for our customer base, and some disruption to our global supply chain. As a result, substantially all of our brick-and-mortar stores were closed for approximately 50% of the first quarter of fiscal 2020 and our net sales and gross profit significantly decreased year-over-year. Our website and mobile app continued to process e-commerce orders, which were generally fulfilled at our store locations. We began ~~re-opening~~reopening physical stores in accordance with applicable public health guidelines in late ~~April, and as~~April. By the beginning of ~~June 4, 2020,~~the second fiscal quarter, approximately ~~97%~~50 percent of our stores were reopened, and by early June, substantially all of our stores had reopened. Our website and mobile app have ~~re-opened.The~~been fully operational during the pandemic with digital orders generally fulfilled by our store locations. As of October 31, 2020, we do not have any stores closed due to the pandemic; however, the COVID-19 pandemic will likely continue to impact our financial condition and results of operations for the foreseeable future.

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:

The following table presents financial instruments that are measured at fair value on a recurring basis at ~~May 2,~~October 31, 2020, February 1, 2020 and ~~May 4,~~November 2, 2019.

	Fair Value Measurements								Fair Value Measurements
(In thousands)	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
As of May 2, 2020
As of October 31, 2020
Cash equivalents - money market mutual funds	$	3,128	$	0	$	0	$	3,128	$	48,883	$	0	$	0	$	48,883
As of February 1, 2020
Cash equivalents - money market mutual funds	$	48,080	$	0	$	0	$	48,080	$	48,080	$	0	$	0	$	48,080
As of May 4, 2019
As of November 2, 2019
Cash equivalents - money market mutual funds	$	28,779	$	0	$	0	$	28,779	$	21,046	$	0	$	0	$	21,046

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. ~~We have no material liabilities measured at fair value on a recurring or non-recurring basis.~~

We periodically evaluate our long-lived assets if events or circumstances indicate that the carrying value may not be recoverable. The carrying value of long-lived assets is considered impaired when the carrying value of the assets exceeds the expected future cash flows to be derived from their use. Assets are grouped, and the evaluation is performed, at the lowest level for which there are identifiable cash flows, which is generally at a store level. Store level asset groupings typically include property and equipment and operating lease right-of-use assets. If the estimated, undiscounted future cash flows for a store are determined to be less than the carrying value of the store’s assets, an impairment loss is recorded for the difference between estimated fair value and carrying value. Assets subject to impairment are adjusted to estimated fair value and, if applicable, an impairment loss is recorded in selling, general and administrative expenses. If the operating lease right-of-use asset is impaired, we would amortize the remaining right-of-use asset on a straight-line basis over the remaining lease term.

We estimate the fair value of our long-lived assets using store specific cash flow assumptions discounted by a rate commensurate with the risk involved with such assets while incorporating marketplace assumptions. Our estimates are derived from 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~~the store’s contribution to cash flows and, by their nature, include judgments about how current initiatives will impact future performance. We estimate the fair value of operating lease right-of-use assets using the market value of rents applicable to the leased asset, discounted using the remaining lease term.

External factors, such as the local environment in which the store ~~resides,~~is located, including store 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~~impact the fair value of these assets, which may have an effect on the impairment recorded. If actual operating results or market conditions differ from those anticipated, the carrying value of certain of our assets may prove unrecoverable and we may incur additional impairment charges in the future.

During the thirteen weeks ended ~~May~~October 31, 2020, we recorded an impairment charge of $211,000 associated with one store. During the thirty-nine weeks ended October 31, 2020, we recorded impairment charges of $2.7 million associated with nine stores. During the thirteen weeks ended November 2 ~~2020 and May 4,~~, 2019, we recorded impairment charges of ~~$2.3 million and $40,000~~$561,000 related to three stores. During the thirty-nine weeks ended November 2, 2019, we recorded an impairment charges of $604,000 associated with ~~seven stores and one store, respectively.~~four stores. These charges were included in selling, general and administrative expenses. NaN impairments of operating right-of-use assets ~~were~~have been recorded in ~~either period.~~any of these periods.

At our 2017 annual meeting of shareholders, 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”). Under the 2017 Plan, we may issue stock units, restricted stock, stock appreciation rights, stock options and other stock-based awards to eligible participants. According to the terms of the 2017 Plan, 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 restricted stock units and performance stock units, restricted stock awards, and cash-settled stock appreciation ~~rights (“SARs”).~~rights. Additionally, we recognize stock-based compensation expense for the discount on shares sold to employees through our employee stock purchase plan. ~~Stock-based~~For the thirteen and thirty-nine weeks ended October 31, 2020, stock-based compensation expense for the employee stock purchase plan was ~~$11,000~~$8,000 before the income tax benefit of ~~$3,000~~$2,000 and ~~$11,000~~$27,000 before the income tax benefit of ~~$1,000~~$6,000, respectively. For the thirteen and thirty-nine weeks ended November 2, 2019, stock-based compensation expense for the ~~thirteen weeks ended May 2, 2020~~employee stock purchase plan was $8,000 before the income tax benefit of $2,000 and ~~May 4, 2019,~~$25,000 before the income tax benefit of $5,000, respectively.

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

	Number of Shares			Weighted- Average Grant Date Fair Value		Number of Shares			Weighted- Average Grant Date Fair Value
Restricted stock units and performance stock units at February 1, 2020		263,135		$	29.44		263,135		$	29.44
Granted		158,439			14.88		158,439			14.88
Vested		(163,099	)		26.76		(164,099	)		26.80
Forfeited		(1,717	)		31.94
Restricted stock units and performance stock units at May 2, 2020		256,758		$	22.14
Forfeited or expired							(1,717	)		31.94
Restricted stock units and performance stock units at October 31, 2020							255,758		$	22.10

The total fair value at grant date of restricted stock units and performance stock units that vested during the ~~thirteen-week periods~~thirty-nine weeks ended ~~May 2,~~October 31, 2020 and ~~May 4,~~November 2, 2019 was $4.4 million and ~~$2.0~~$2.3 million, respectively. The weighted-average grant date fair value of restricted stock units and performance stock units granted during the ~~thirteen-week periods~~thirty-nine weeks ended ~~May 2,~~October 31, 2020 and ~~May 4,~~November 2, 2019 was $14.88 and ~~$31.36,~~$31.29, respectively.

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		Number of Shares			Weighted- Average Grant Date Fair Value
Restricted stock at February 1, 2020		67,435		$	24.23		67,435		$	24.23
Granted							12,045			24.91
Vested		(49,619	)		24.36		(52,619	)		24.20
Forfeited or expired		(14,816	)		24.37		(14,816	)		24.37
Restricted stock at May 2, 2020		3,000		$	21.46
Restricted stock at October 31, 2020							12,045		$	24.91

~~There were no restricted stock awards granted during the thirteen-week periods ended May 2, 2020 or May 4, 2019.~~ The total fair value at grant date of restricted stock awards that vested during the ~~thirteen-week periods~~thirty-nine weeks ended ~~May 2,~~October 31, 2020 and ~~May 4,~~November 2, 2019 was ~~$1.2~~$1.3 million and ~~$16.9~~$17.0 million, respectively. The weighted-average grant date fair value of restricted stock awards granted during the thirty-nine weeks ended October 31, 2020 and November 2, 2019 was $24.91 and $26.58, respectively.

The following table summarizes information regarding stock-based compensation expense recognized for all share-settled equity awards (restricted stock units, performance stock units and restricted stock awards):

(In thousands)

Thirteen

Weeks Ended May 2, 2020

Thirteen

Weeks Ended May 4, 2019

Thirteen

Weeks Ended October 31, 2020

Thirteen

Weeks Ended November 2, 2019

Thirty-nine

Weeks Ended October 31, 2020

Thirty-nine

Weeks Ended November 2, 2019

Stock-based compensation expense before the

recognized income tax effect

1,130

1,938

797

1,655

2,667

5,043

Income tax effect

342

247

213

412

613

1,055

Included in the ~~thirteen-week~~thirty-nine week period ended ~~May 2,~~October 31, 2020 was a tax expense of ~~$45,000~~$81,000 in connection with the vesting of ~~equity-based~~stock-based compensation. The ~~thirteen-week~~thirty-nine week period ended ~~May 4,~~November 2, 2019 included a tax benefit in connection with the vesting of ~~equity-based~~stock-based compensation of approximately ~~$1.9~~$2.0 million. As of ~~May 2,~~October 31, 2020, ~~there was~~ approximately ~~$3.8~~$2.6 million of unrecognized compensation expense ~~remaining~~remained related to ~~both~~ our restricted stock units, ~~and~~ performance stock units ~~and performance-based~~ and service-based restricted stock awards. The cost is expected to be recognized over a weighted average period of approximately ~~1.9~~1.4 years.~~This incorporates our current assumptions with respect to the estimated requisite service period required to achieve the designated performance conditions for performance-based stock awards.~~

Cash-settled stock appreciation rights (“SARs”) are granted to certain non-executive employees. Each SAR entitles ~~the holder,~~holders, 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 2020 will vest and become fully exercisable on March 31, 2021 and any unexercised SARs will expire on March 31, 2023. SARs granted during the first quarter of fiscal 2019 vested and became fully exercisable on March 31, 2020 and any unexercised SARs will expire on March 31, 2022. The SARs issued have a defined maximum gain of $10.00 over the exercise price of $13.79 for awards granted in fiscal 2020 and over the exercise price of $34.95 for awards granted in fiscal 2019.

	Number of Shares			Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Term (Years)		Number of Shares			Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Term (Years)
Outstanding at February 1, 2020		43,200		$	34.95				43,200		$	34.95
Granted		43,000			13.79				43,000			13.79
Forfeited		(2,100	)		34.95
Forfeited or expired									(3,400	)		32.46
Exercised		0			0.00				(2,400	)		34.95
Outstanding at May 2, 2020		84,100		$	24.13		2.4
Outstanding at October 31, 2020									80,400		$	23.74		1.9

The fair value of these liability awards are 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 2,~~October 31, 2020 was ~~$4.27.~~$8.54.

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

	May 2, 2020		May 4, 2019		October 31, 2020		November 2, 2019
Risk free interest rate yield curve	0.10% - 0.36%		2.30% - 2.42%		0.08% - 0.38%		1.53% - 1.58%
Expected dividend yield	1.5%		0.9%		1.2%		1.0%
Expected volatility	62.95%		47.95%		64.09%		50.03%
Maximum life	1.91 - 2.91 Years		2.9 Years		1.9 Years		2.4 Years
Exercise multiple		1.29		1.29		1.29		1.29
Maximum payout	$	10.00	$	10.00	$	10.00	$	10.00
Employee exit rate	2.2% - 9.0%		2.2% - 9.0%		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 calculated based on historical option data.

The following table summarizes information regarding stock-based compensation ~~(benefit)/~~expense recognized for SARs:

(In thousands)	Thirteen Weeks Ended May 2, 2020			Thirteen Weeks Ended May 4, 2019		Thirteen Weeks Ended October 31, 2020		Thirteen Weeks Ended November 2, 2019		Thirty-nine Weeks Ended October 31, 2020		Thirty-nine Weeks Ended November 2, 2019
Stock-based compensation (benefit)/expense before the recognized income tax effect	$	(87	)	$	8
Stock-based compensation expense before the recognized income tax effect						$	183	$	104	$	187	$	139
Income tax effect	$	(26	)	$	1	$	49	$	26	$	43	$	29

As of ~~May 2,~~October 31, 2020, approximately ~~$219,000~~$145,000 in unrecognized compensation expense remained related to non-vested SARs. This expense is expected to be recognized over a period of approximately ~~0.9~~0.4 years.

Revenue is disaggregated by product category below. Net sales and percentage of net sales for the thirteen and thirty-nine weeks ended ~~May 2,~~October 31, 2020 and ~~May 4,~~November 2, 2019 were as follows:

(In thousands)	Thirteen Weeks Ended May 2, 2020				Thirteen Weeks Ended May 4, 2019				Thirteen Weeks Ended October 31, 2020				Thirteen Weeks Ended November 2, 2019
Non-Athletics:
Women’s	$	28,921	20	%	$	60,431	24	%	$	54,164	20	%	$	61,126	22	%
Men’s		18,715	13			35,863	14			34,676	13			35,446	13
Children’s		7,009	5			12,368	5			15,145	5			14,713	5
Total		54,645	38			108,662	43			103,985	38			111,285	40

Athletics:
Women’s		32,912	22			49,687	20			50,935	19			46,742	17
Men’s		31,460	21			53,304	21			59,355	22			56,112	20
Children’s		20,664	14			30,818	12			43,662	16			46,081	17
Total		85,036	57			133,809	53			153,952	57			148,935	54

Accessories and Other		7,814	5			11,339	4			16,642	5			14,425	6

Total	$	147,495	100	%	$	253,810	100	%	$	274,579	100	%	$	274,645	100	%

(In thousands)	Thirty-nine Weeks Ended October 31, 2020				Thirty-nine Weeks Ended November 2, 2019
Non-Athletics:
Women’s	$	148,252	21	%	$	187,834	24	%
Men’s		95,710	13			111,417	14
Children’s		38,698	5			40,649	5
Total		282,660	39			339,900	43

Athletics:
Women’s		139,808	19			139,457	18
Men’s		163,757	23			166,253	21
Children’s		95,743	13			112,605	14
Total		399,308	55			418,315	53

Accessories and Other		40,900	6			38,461	4

Total	$	722,868	100	%	$	796,676	100	%

We operate as a multi-channel, family footwear retailer and provide the convenience of shopping at our ~~brick-and-mortar~~physical 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.~~stock at a particular store. 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.

For our ~~brick-and-mortar~~physical 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 sales made via our Shoes 2U program when customers choose to pick up their goods ~~in-store.~~at a physical 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 sales made via our Shoes 2U program when the customer chooses home delivery.

We offer our customers sales incentives including coupons, discounts, and free merchandise. Sales are recorded net of such incentives and returns and allowances. If an incentive involves free merchandise, that merchandise is recorded as a zero sale and the cost is included in cost of sales. Gift card revenue is recognized at the time of redemption. When a customer makes a purchase as part of our rewards program, we allocate the transaction price between the goods purchased and the loyalty reward points and recognize the loyalty revenue based on estimated customer redemptions.

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 and may include revenue to offset shipping costs. Taxes imposed by governmental authorities such as sales taxes are excluded from net sales.

Our ~~brick-and-mortar~~physical 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, Apple Pay, Klarna and gift cards ~~and a third-party installment payment option~~ 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 our Shoes 2U program was not material to our Condensed Consolidated Financial Statements at ~~May 2,~~October 31, 2020, February 1, 2020 and ~~May 4,~~November 2, 2019.

Customers can 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. Approximately $718,000 of refund liabilities and $500,000 of right of return assets associated with estimated product returns were recorded in ~~our Condensed Consolidated Balance Sheets~~accrued and other liabilities at each of ~~May 2,~~October 31, 2020 and February 1, 2020. 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 Sheet~~accrued and other liabilities at ~~May 4,~~November 2, 2019.

We ~~sell~~offer gift cards in our ~~brick-and-mortar~~ stores and through our e-commerce and mobile platforms. ~~Gift~~When a gift card ~~purchases are~~is issued, the issuance is recorded as an increase to contract liabilities at the time of ~~purchase~~issuance 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 2,~~October 31, 2020, February 1, 2020 and ~~May 4,~~November 2, 2019, approximately ~~$1.3~~$1.2 million, $1.5 million and ~~$1.3~~$1.1 million of contract liabilities associated with unredeemed gift cards were recorded in ~~our Condensed Consolidated Balance Sheets,~~accrued and other liabilities, respectively. We expect the revenue associated with these liabilities to be recognized in proportion to the pattern of customer redemptions within two years. Breakage revenue associated with our gift cards of ~~$19,000~~$27,000 and ~~$33,000~~$69,000 was recognized in net sales during the ~~thirteen-weeks~~thirteen and thirty-nine weeks ended ~~May~~October 31, 2020, respectively. Breakage revenue associated with our gift cards of $29,000 and $91,000 was recognized in net sales during the thirteen and thirty-nine weeks ended November 2, ~~2020 and May 4,~~ 2019, respectively.

Our Shoe Perks rewards program allows customers to accrue 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 purchased and the loyalty reward points earned based on the relative standalone selling price. The portion allocated to the points program 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 redeem rewards, which incorporates an estimate of points expected to expire using historical rates. During the ~~thirteen-weeks~~thirteen and thirty-nine weeks ended ~~May~~October 31, 2020, approximately $1.3 million and $3.2 million, respectively, of loyalty rewards were recognized in net sales. During the thirteen and thirty-nine weeks ended November 2, ~~2020 and May 4,~~ 2019, approximately ~~$957,000~~$632,000 and ~~$406,000,~~$1.5 million, respectively, of loyalty rewards were recognized in net sales. At ~~May 2,~~October 31, 2020, February 1, 2020 and ~~May 4,~~November 2, 2019, approximately ~~$406,000,~~$828,000, $679,000 and ~~$293,000,~~$533,000, respectively, of contract liabilities associated with loyalty rewards were recorded in ~~our Condensed Consolidated Balance Sheets, respectively.~~accrued and other liabilities. We expect the revenue associated with these liabilities to be recognized in proportion to the pattern of customer redemptions in less than one year.

On April 16, 2020, we entered into a third amendment (the “Third Amendment”) of our existing credit agreement (the “Credit Agreement”). Pursuant to the Third Amendment, we (1) exercised the full $50.0 million accordion feature, which increased the revolving commitment under the Credit Agreement from $50.0 million to $100.0 million, and increased the swing line sublimit from $10.0 million to $15.0 million; (2) granted a security interest in our inventory to the lenders; and (3) increased the maximum ratio of funded debt plus three times rent expense to EBITDA (as defined in the Credit Agreement) plus rent expense from 2.5 to 1.0 to 3.0 to 1.0. In addition, the Third Amendment, among other things, increased certain LIBOR margins applicable to borrowings under the Credit Agreement, increased the commitment fee charged on the unused portion of the lenders’ commitment and made customary updates to certain representations, covenants and other terms contained in the Credit Agreement.

On July 20, 2020, we entered into a fourth amendment (the “Fourth Amendment”) to our Credit Agreement. ~~The~~Pursuant to the Fourth Amendment, we (1) eliminated the covenant involving the ratio of funded debt plus three times rent expense to EBITDA (as defined in the Credit ~~Agreement expires~~Agreement) plus rent expense for the fiscal quarters ending on ~~March 27, 2022.~~or about July 31, 2020; October 31, 2020; and January 31, 2021; (2) amended the definition of LIBOR to establish a minimum LIBOR rate of 0.75% per annum; and (3) established increased reporting requirements to the lenders through January 31, 2021.

The Credit Agreement, as amended, contains covenants which stipulate: (1) Total Shareholders’ Equity (as defined in the Credit Agreement) will not fall below $250.0 million at the end of each fiscal quarter; (2) the ratio of funded debt plus three times rent expense to EBITDA (as defined in the Credit Agreement) plus rent expense will not exceed 3.0 to ~~1.0;~~1.0, except for the fiscal quarters ending on or about July 31, 2020; October 31, 2020; and January 31, 2021; (3) the aggregate amount of cash dividends for a fiscal year will not exceed $10.0 million; and (4) distributions in the form of redemptions of Equity Interests (as defined in the Credit Agreement) can be made solely with cash on hand so long as before and immediately after such distributions there are no revolving loans outstanding under the Credit Agreement. Should a default condition be reported, the lenders may preclude additional borrowings and call all loans and accrued interest at their discretion. We were in compliance with these covenants at ~~May 2,~~October 31, 2020.

The credit facility bears interest, at our option, at (1) the agent bank’s prime rate as defined in the Credit Agreement plus 1.0%, with the prime rate defined as the greater of (a) the Federal Fund rate plus 0.50% or (b) the interest rate announced from time to time by the agent bank as its “prime rate” or (2) LIBOR plus 1.50% to 2.50%, depending on our achievement of certain performance criteria. If the stated LIBOR rate is less than 0.75%, the LIBOR rate for purposes of calculating the interest rate under the credit facility shall be 0.75%. A commitment fee is charged at 0.30% to 0.40% per annum, depending on our achievement of certain performance criteria, on the unused portion of the lenders’ commitment. The Credit Agreement expires on March 27, 2022.

NoNaN borrowings were outstanding under the Credit Agreement as of ~~May 2,~~October 31, 2020, February 1, 2020 or ~~May 4,~~November 2, 2019. There were 0 borrowings outstanding during the thirteen weeks ended October 31, 2020 and November 2, 2019. The maximum borrowings outstanding during the ~~thirteen~~thirty-nine weeks ended ~~May~~October 31, 2020 and November 2, ~~2020 was~~2019 were $8.7 million and ~~no borrowings were outstanding during the thirteen weeks ended May 4, 2019.~~$20.0 million, respectively. As of ~~May 2,~~October 31, 2020, there were $1.2 million in letters of credit outstanding and ~~$94.9~~$98.8 million available to us for borrowing under the Credit Agreement. ~~Our ratio of funded debt plus three times rent to EBITDA plus rent is currently limiting our utilization of the Credit Agreement’s full capacity.~~

We lease all of our ~~retail~~physical stores and our single distribution center, which has a current lease term of 15 years, expiring in 2034. We also enter into leases of equipment, copiers and billboards. All of our leases are operating leases. Leases with terms of twelve months or less are immaterial and are expensed as incurred, and we did not have any leases with related parties as of ~~May 2,~~October 31, 2020.

In response to the COVID-19 pandemic and related government restrictions impacting our operations, we began seeking relief from our landlords while our stores were temporarily closed to customers. On April 10, 2020, the Financial Accounting Standards Board staff issued a question-and-answer document providing guidance for lease concessions provided to lessees in response to the effects of COVID-19. Such guidance allows lessees to make an election to forgo the evaluation of the enforceable rights and obligations of the original lease contract and whether a lease concession provided by a lessor should be accounted for as a lease modification in the event the concession does not result in a substantial increase in the rights of the lessor or the obligations of the lessee. Based on the nature of the agreements reached with many of our landlords, we have accounted for ~~rent~~lease concessions as if they were part of the enforceable rights and obligations of the existing lease contracts and did not account for the concessions as lease modifications. When agreements with landlords to defer rent payments were reached, amounts that would have otherwise been due were reclassified as operating lease liabilities, all of which are reflected in the current portion of operating lease liabilities on our Condensed Consolidated Balance Sheet as of ~~May 2,~~October 31, 2020. For negotiations with landlords that did not result in ~~rent~~lease concessions, we have increased accounts payable for rents that are due. We have continued to recognize lease expense on a straight-line basis for our leases over the related lease terms.

Lease costs, including related common area maintenance (“CAM”), property taxes, and insurance, reported in our Condensed Consolidated Statements of Income were as follows for the thirteen and thirty-nine weeks ended ~~May 2,~~October 31, 2020 and ~~May 4, 2019, respectively:~~November 2, 2019:

(In thousands)	Thirteen Weeks Ended May 2, 2020		Thirteen Weeks Ended May 4, 2019		Thirteen Weeks Ended October 31, 2020		Thirteen Weeks Ended November 2, 2019		Thirty-nine Weeks Ended October 31, 2020		Thirty-nine Weeks Ended November 2, 2019
Operating lease cost	$	13,226	$	13,898	$	13,432	$	13,700	$	40,047	$	41,094
Variable lease cost		187		234		490		447		1,464		874
CAM, property taxes and insurance		4,989		5,249		4,888		4,935		15,023		15,119
Total	$	18,402	$	19,381	$	18,810	$	19,082	$	56,534	$	57,087

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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 outbreak, mitigating efforts deployed by government agencies and the public at large, and the overall impact from such outbreak on the operations of our stores, economic conditions, financial market volatility, consumer spending and our supply chain and distribution processes; general economic conditions in the areas of the continental United States in which our stores are located and the impact of the ongoing economic crisis in Puerto Rico on sales at, and cash flows of, our stores located in Puerto Rico; the effects and duration of economic downturns and unemployment rates; changes in the overall retail environment and more specifically in the apparel and footwear retail sectors; our ability to generate increased sales at our stores; our ability to successfully navigate the increasing use of online retailers for fashion purchases and the impact on traffic and transactions in our physical stores; 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 website and mobile app and to successfully grow our ~~e-commerce~~multi-channel sales; the potential impact of national and international security concerns on the retail environment; changes in our relationships with key suppliers; our ability to control costs and meet our labor needs in a rising wage 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 effectiveness of our inventory management; the impact of natural disasters, other public health crises, political crises, civil unrest, and other catastrophic events on our stores and 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 cyber-security breach; our ability to manage our third-party vendor relationships; our ability to successfully execute our business strategy, including the availability of desirable store locations at acceptable lease terms, our ability to open new stores in a timely and profitable manner, including our entry into major new markets, and the availability of sufficient funds to implement our business plans; higher than anticipated costs associated with the closing of underperforming stores; the inability of manufacturers to deliver products in a timely manner; the impact of regulatory changes in the United States and the countries where our manufacturers are located; the resolution of litigation or regulatory proceedings in which we are or may become involved; continued volatility and disruption in the capital and credit markets; and 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 February 1, 2020, ~~and~~ “Risk Factors” in Part II, Item 1A of our Quarterly Reports on Form 10-Q for the quarters ended May 2, 2020 and August 1, 2020, and in Part II, Item 1A of this Quarterly Report on Form 10-Q.

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 February 1, 2020 as filed with the SEC.

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 site and mobile app through special promotions and limited time sales.

Our objective is to be the destination retailer-of-choice for value-priced, on-trend branded and private label footwear. Our product assortment includes dress and casual shoes, sandals, boots and a wide assortment of athletic shoes for the entire family. Our average store carries shoes in four general categories – women’s, men’s, children’s and athletics, as well as a broad range of accessories such as socks, belts, shoe care items, handbags, hats, sport bags, backpacks and wallets. Footwear 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. Our e-commerce site offers customers a large assortment of products in all categories of footwear with an increased depth of sizes and colors that may not be available in all stores.

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, insurance reserves 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 February 1, 2020. There have been no material changes to our critical accounting policies and estimates discussed in our Annual Report on Form 10-K for the fiscal year ended February 1, 2020.

	Number of Stores								Store Square Footage								Number of Stores								Store Square Footage
	Beginning						End of		Net			End		Comparable			Beginning						End of		Net			End		Comparable
Quarter Ended	Of Period		Opened		Closed		Period		Change			of Period		Store Sales			Of Period		Opened		Closed		Period		Change			of Period		Store Sales
May 2, 2020		392		0		2		390		(22,000	)		4,198,000		(42.3	)%		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	%
October 31, 2020																		382		1		0		383		10,000			4,142,000		0.9	%

Year-to-date																		392		3		12		383		(78,000	)		4,142,000		(8.8	)%

May 4, 2019		397		0		2		395		(22,000	)		4,246,000		(0.2	)%		397		0		2		395		(22,000	)		4,246,000		(0.2	)%
August 3, 2019																		395		0		2		393		(16,000	)		4,230,000		1.4	%
November 2, 2019																		393		1		1		393		1,000			4,231,000		3.5	%

Year-to-date																		397		1		5		393		(37,000	)		4,231,000		1.6	%

Comparable store sales for the periods indicated include stores that have been open for 13 full months after such store’s grand opening prior to the beginning of the period, including those stores that have been relocated or remodeled. Therefore, stores opened or closed during the periods indicated are not included in comparable store sales. We include e-commerce sales in our comparable store sales. Due to our multi-channel ~~retailer~~ strategy, we view e-commerce sales as an extension of our physical stores.

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

	Thirteen Weeks Ended May 2, 2020			Thirteen Weeks Ended May 4, 2019			Thirteen Weeks Ended October 31, 2020			Thirteen Weeks Ended November 2, 2019			Thirty-nine Weeks Ended October 31, 2020			Thirty-nine Weeks Ended November 2, 2019
Net sales		100.0	%		100.0	%		100.0	%		100.0	%		100.0	%		100.0	%
Cost of sales (including buying, distribution and occupancy costs)		78.7			70.4			68.0			69.1			72.1			69.6
Gross profit		21.3			29.6			32.0			30.9			27.9			30.4
Selling, general and administrative expenses		37.1			23.4			24.7			24.3			26.3			24.2
Operating (loss)/income		(15.8	)		6.2
Operating income								7.3			6.6			1.6			6.2
Interest income		0.0			(0.1	)		0.0			(0.1	)		0.0			(0.1	)
Income tax (benefit)/expense		(4.8	)		0.8
Net (loss)/income		(11.0	)%		5.5	%
Income tax expense								1.9			1.7			0.4			1.3
Net income								5.4	%		5.0	%		1.2	%		5.0	%

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 ~~our primary concern.~~a top priority. The COVID-19 pandemic has significantly impacted, and is expected to continue to impact, our operations, supply chains, overall economic conditions, and consumer spending for the foreseeable future. As guidance and mandates from governments and health officials continue to evolve, closures of some or all our stores may ~~continue or increase,~~reoccur, and sales, including e-commerce sales, may be reduced. AtThe COVID-19 pandemic delayed and extended the back-to-school shopping period and, at this time, ~~considerable~~ uncertainty ~~exists~~remains regarding how the COVID-19 pandemic may affect the ~~back-to-school and~~ Christmas ~~peak~~ shopping ~~seasons.~~period.

In response to the COVID-19 pandemic, all of our physical stores were closed effective March 19, ~~2020 and substantially all of our stores were closed for approximately 50% of the first quarter.~~2020. Our website and mobile app continued to accept orders after March 19, 2020, and our e-commerce sales have increased significantly in fiscal 2020 as ~~customer buying habits~~customers shifted to our online channel. AsWe began reopening our physical stores in accordance with applicable public health guidelines in late April. By the beginning of ~~June 4, 2020,~~our second fiscal quarter, approximately ~~97%~~50 percent of our stores ~~have re-opened in states that have relaxed or cancelled stay-at-home orders.~~were reopened, and by early June, substantially all of our stores had reopened. As stores have ~~re-opened,~~reopened, we ~~have~~ experienced ~~higher~~increases in conversion ~~ratios~~ and ~~higher per unit transactions, offset by~~total average transaction despite reduced traffic ~~compared~~due to ~~historical trends. Generally, since~~ the ~~re-opening~~COVID-19 pandemic. In our markets, back-to-school shopping continued into October, as many school districts in our markets delayed their back-to-school start dates. We do not have any stores closed due to the pandemic as of certain stores in late April, sales have exceeded our original fiscal 2020 plan, with some stores exceeding plan and other stores showing declines. E-commerce sales continue to trend higher than in the prior fiscal year and above our original plan for fiscalOctober 31, 2020.

We ~~undertook~~have undertaken a number of actions ~~during the quarter~~ to mitigate the financial impact of the COVID-19 pandemic, preserve capital and keep our customers and employees safe. ~~In the first quarter we have:~~These actions include:

~~As a result of continuing to straight-line lease expense and pay our employees, our operating expenses~~Year-to-date in ~~the first quarter of~~ fiscal 2020, ~~were generally consistent with the first quarter of the prior fiscal year. However, market volatility principally caused by the COVID-19 pandemic reduced our deferred compensation liabilities~~we impaired nine and ~~decreased our overall operating expenses. We also~~closed 12 physical stores and recorded ~~a $2.3~~$3.5 million in impairment ~~charge on long-lived assets for seven underperforming stores.~~charges and closing costs. Given the uncertainties surrounding the COVID-19 pandemic, additional impairments and closures may result in future periods.

Executive Summary for ~~First~~the Third Fiscal Quarter Ended ~~May 2,~~October 31, 2020

~~Under normal circumstances, like many other retailers, our first~~Our third quarter sales have historically ~~represented a shift in~~been impacted by back-to-school shopping and the transition to fall seasonal footwear from cold weather boots to more warm weather categories, such as sandals. Weather can be volatile during this period and impact customer behavior. In addition, the timing and size of tax refunds can also impact our rate ofshopping. Our sales ~~growth~~patterns in the ~~beginning of the fiscal year. However, in the first~~third quarter of fiscal 2020 ~~normal seasonal effects were completely overshadowed~~have been significantly impacted by the ~~temporary closure~~COVID-19 pandemic, which caused a delay in the timing of back-to-school start dates in the markets we serve. As a result, we saw sales shift from August into September and October, and we ended the third quarter with a 0.9 percent increase in comparable store sales. We achieved this comparable store sales gain despite approximately 10 percent of schools in our ~~stores effective March 19,~~markets not having returned to in-person learning at the end of the period. Our third quarter comparable store increase was primarily driven by a high-single digit increase in adult athletics and increases in seasonal sandals and men’s work boots. In the third quarter of fiscal 2020, ~~due to the COVID-19 pandemic.~~we posted record levels of gross profit, net income and diluted net income per share.

Highlights for the ~~first~~third quarter of fiscal 2020 and a brief discussion of some key initiatives are as follows:

Results of Operations for the ~~First~~Third Quarter Ended ~~May 2,~~October 31, 2020

Net sales were ~~$147.5~~$274.6 million during the ~~first~~third quarter of fiscal 2020 ~~a 41.9% decrease over~~and were generally flat compared to the third quarter of the prior ~~year’s first quarter net~~year. Comparable stores sales ~~of $253.8 million. The decrease in net~~increased 0.9 percent, with e-commerce sales ~~was primarily due~~increasing over 150 percent compared to the ~~temporary closure~~prior year and representing 13 percent of ~~our brick-and-mortar stores for approximately 50% of~~total sales in the ~~quarter as a result of the COVID-19 pandemic. E-commerce sales increased over 160% year-over-year as our customers began to use that sales channel more frequently.~~third quarter.

Gross profit ~~margin for~~was a record $87.8 million during the ~~first~~third quarter, an increase of ~~fiscal 2020 decreased to 21.3%~~$3.0 million compared to ~~29.6%~~the prior year. Gross profit margin in the ~~first~~third quarter increased to 32.0 percent compared to 30.9 percent in the third quarter of fiscal 2019. The ~~decrease~~increase in gross profit was primarily due to ~~higher shipping~~our broad assortment of inventory and our ability to effectively replenish fast-selling product, such as sandals and athletics, during the quarter, which enabled us to be less promotional. Merchandise margin as a percentage of net sales increased 1.6 percent compared to the prior year quarter due to the lower promotional activity. This 1.6 percent increase included offsetting shipping-related costs associated with ~~the increased~~ e-commerce sales ~~and~~that were higher as a percentage of sales in the ~~deleveraging effect of lower sales, principally on our~~current year compared to the prior year. Our buying, distribution and occupancy costs ~~which are~~increased 0.5 percent as a percentage of net sales compared to the third quarter of fiscal 2019 primarily ~~fixed costs.~~due to higher distribution expense. Investments in our distribution center during fiscal 2020 resulted in higher implementation costs related to software, depreciation and labor during the third quarter of fiscal 2020 compared to the prior year quarter.

~~Selling, general and administrative expenses decreased $4.8~~SG&A expense was $67.6 million induring the ~~first~~third quarter, an increase of $1.0 million compared to the third quarter of fiscal ~~2020~~2019 primarily due to ~~$54.7 million compared to $59.5 million in the first quarter of fiscal 2019. The primary factors causing the decrease were as follows:~~higher advertising and e-commerce related operating expenses.

The effective income tax rate for the ~~first~~third quarter of fiscal 2020 was ~~30.3%~~26.8 percent as compared to ~~12.8%~~24.9 percent for the same period in fiscal 2019. Our provision for income ~~tax (benefit)/expense~~taxes is based on the current estimate of our annual effective tax rate and is adjusted as necessary for quarterly events. The lower tax rate in the prior year quarter was primarily driven by the reversal of a valuation allowance associated with our Puerto Rico operations. For the full fiscal year of 2020, we expect our tax rate to be approximately 25 percent compared to our 21.6 percent effective tax rate in fiscal 2019.

Year-to-date net sales were $722.9 million, a 9.3 percent decrease compared to the prior year’s year-to-date net sales of $796.7 million. The decrease in net sales was primarily due to the temporary closure of our physical stores for approximately 50 percent of the first quarter of fiscal 2020 as a result of the COVID-19 pandemic. The decrease in physical store sales was partially offset by a more than 200 percent increase in year-to-date e-commerce sales as our customers shifted to online shopping amid government mandated stay-at-home orders and continued health concerns.

Year-to-date gross profit margin in fiscal 2020 decreased to 27.9 percent compared to 30.4 percent in fiscal 2019. The decrease was primarily due to higher shipping-related costs associated with the increase in e-commerce sales, increased distribution costs resulting from our investments in our distribution center, and the deleveraging effect of lower sales, primarily on occupancy costs, which are generally fixed in nature.

SG&A expense was $190.5 million on a year-to-date basis, a decrease of $2.0 million compared to fiscal 2019. The primary factors attributable to the decrease were lower store wages as a result of employee payroll retention tax credits related to the CARES Act and reductions in stock-based compensation expense and depreciation and amortization expense. This overall decrease in SG&A expense was partially offset by increases in contracted services associated with e-commerce fulfillment, impairment charges on long-lived assets and advertising expense.

The effective income tax rate year-to-date for fiscal 2020 was 23.0 percent as compared to 20.9 percent for the same period in fiscal 2019. The primary reason for the change in our effective tax rate was the $1.9 million tax benefit related to the vesting of ~~equity-based~~stock-based compensation recognized in the first quarter of fiscal ~~2019. This benefit reduced~~2019 and the ~~first quarter fiscal 2019~~timing of other tax ~~rate by approximately 50%.~~adjustments.

Our primary sources of liquidity are cash and cash equivalents on hand, receipts from customers and availability under our credit facility. While the ~~impact of the COVID-19 pandemic, including the temporary closure of our brick-and-mortar stores,~~ economic uncertainty and future effects on customer behavior caused by the COVID-19 pandemic make 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 working capital needs, which are principally inventory purchases, store initiatives, dividend payments, the financing of capital projects, including investments in new systems, and various other commitments and obligations. We have voluntarily suspended repurchases under our share repurchase program to preserve liquidity during the COVID-19 pandemic.

~~Our net~~Net cash ~~used in~~generated from operating activities was ~~$42.9~~$0.2 million on a year-to-date basis in ~~the first quarter of~~ fiscal 2020 compared to net cash ~~used in~~generated from operating activities of ~~$9.3~~$28.0 million induring the ~~first quarter of fiscal 2019.~~same prior year period. The decrease in operating cash flow was primarily driven by ~~reduced cash receipts on~~ lower sales and our continued investment in software as a service hosted arrangements, partially offset by the timing of payments for inventory and other items for the quarter ended May 2, 2020 compared to the quarter ended May 4, 2019.earnings.

Working capital ~~decreased to $185.9~~was nearly flat on a year-over-year basis, totaling $214.9 million at ~~May 2,~~October 31, 2020 ~~from $201.6~~and $214.4 million at ~~May 4, 2019, primarily due to lower cash positions and increased accounts payable compared to the first quarter of fiscal~~November 2, 2019. Our current ratio was ~~2.2~~2.7 as of ~~May 2,~~October 31, 2020 compared to ~~2.7~~2.6 as of ~~May 4,~~November 2, 2019.

Our cash outflows for investing activities are primarily for capital expenditures. ~~During the first quarter of~~We expended $10.1 million on a year-to-date basis in fiscal 2020 ~~we expended $3.2 million~~ for the purchase of property and equipment, primarily related to investments in ~~technology~~our distribution center, new stores and remodels and normal asset replacement activities. ~~During~~For the ~~first quarter of fiscal 2019,~~same prior year period, we expended ~~$9.2~~$15.1 million for the purchase of property and equipment, of which approximately $7.0 million was for the purchase of our corporate headquarters and the remainder was for continued investments in technology and normal asset replacement activities.

Our cash outflows for financing activities are primarily for cash dividend payments, share repurchases and 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 have represented purchases under our Employee Stock Purchase Plan and borrowings under our credit facility.

~~During the first quarter of fiscal 2020, net~~Net cash used in financing activities was ~~$3.0~~$5.4 million on a year-to-date basis in fiscal 2020 compared to ~~$26.9~~$46.3 million in the ~~first quarter of fiscal 2019.~~ same prior year period. The decrease in net cash used in financing activities was primarily due to ~~the suspension of repurchases~~reduced stock buybacks under our share repurchase program and fewer shares withheld upon the vesting of equity awards during the first quarter of fiscal 2020 compared to the first quarter of fiscal 2019. ~~During the first quarter of~~Year-to-date in fiscal 2020, we borrowed and repaid ~~$8.7~~$24.9 million under our credit facility. We had no outstanding borrowings under our credit facility at October 31, 2020. During the ~~end of the quarter.~~same period in fiscal 2019, we borrowed and repaid $20.0 million under our credit facility.

Letters of credit outstanding were $1.2 million at ~~May 2,~~October 31, 2020. Our credit facility requires us to maintain compliance with various financial covenants, the most restrictive of which are disclosed in Note 7 – “Debt” to our Notes to Condensed Consolidated Financial Statements contained in Part I, Item 1 of this Quarterly Report on Form 10-Q. We were in compliance with these covenants as of ~~May 2,~~October 31, 2020.

Capital expenditures for fiscal 2020, including actual expenditures ~~during~~for the ~~first quarter,~~nine months ended October 31, 2020, are expected to be ~~$15~~between $14 million ~~to $20~~and $15 million, with approximately $8 million to ~~$10~~$9 million to be used for new stores, relocations and remodels and approximately ~~$2 million to $3~~$4 million for upgrades to our distribution center. 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. ~~Further,~~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.

Increasing market penetration by opening new stores has historically been a key component of our growth strategy, and we continue to focus on generating positive long-term financial performance for our store portfolio. In fiscal 2020, we ~~expect to open~~opened four new stores within our existing 35-state geographic footprint, ~~and we also expect to close seven to ten stores, two~~three of which were opened by the end of the third quarter and the remaining store was opened in November. We closed 12 stores during the nine months ended October 31, 2020 and closed one additional store in ~~the first quarter of~~November. No additional store openings or closings are expected for fiscal 2020. We expect to pursue opportunities for brick-and-mortar 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. Further, our future store growth may continue to be impacted by the current economic uncertainty associated with the COVID-19 pandemic.

We continually analyze our portfolio of stores, with a concentration on underperforming stores, to meet our long-term goal of increasing shareholder value. Our objective is to identify and address underperforming stores that produce low or negative contribution and either renegotiate lease terms, relocate or close the stores. Even though 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. The timing and actual amount of expense recorded in closing a store can vary significantly depending, in part, on the period in which management commits to a closing plan, the remaining basis in the fixed assets to be disposed of at closing and the amount of any lease buyout. We will continue to review our store portfolio based on our view of the internal and external opportunities and challenges in the marketplace.

On ~~March 18,~~September 15, 2020, our Board of Directors approved the payment of our ~~first~~third quarter cash dividend to our shareholders. The ~~first~~third quarter dividend of ~~$0.085~~$0.090 per share was paid on ~~April 20,~~October 19, 2020 to our shareholders of record as of the close of business on ~~April 6,~~October 5, 2020. ~~During~~In fiscal 2019, the ~~first~~third quarter dividend was ~~in the amount of $0.080~~$0.085 per share. During the ~~first quarters of fiscal~~nine months ended October 31, 2020 and November 2, 2019, we returned ~~$1.3~~$3.9 million and ~~$2.0~~$4.5 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 facility permits the payment of cash dividends as long as no default or event of default exists under the credit agreement both immediately before and immediately after giving effect to the cash dividends, and the aggregate amount of cash dividends for a fiscal year do not exceed $10.0 million. See Note 7 – “Debt” to our Notes to Condensed Consolidated Financial Statements contained in Part I, Item 1 of this Quarterly Report on Form 10-Q for a further discussion of our credit facility and its covenants.

On December 12, 2019, our Board of Directors authorized a new share repurchase program for up to $50.0 million of outstanding common stock, effective January 1, 2020. The purchases may be made in the open market or through privately negotiated transactions from time-to-time through December 31, 2020 and in accordance with applicable laws, rules and regulations. The share repurchase program may be amended, suspended or discontinued at any time and does not commit us to repurchase shares of our common stock. We have funded, and intend to continue to fund, the share repurchase program from cash on hand, and any shares acquired will be available for stock-based compensation awards and other corporate purposes. The actual number and value of the shares to be purchased will depend on the performance of our stock price and other market conditions. ~~As of May 2, 2020, we had~~We purchased approximately 184,000 shares at an aggregate cost of $6.9 million under this share repurchase program ~~and we had $43.1 million available for future repurchases.~~ in fiscal 2019.

No share repurchases have been made in ~~the first quarter of~~ fiscal 2020, and given the uncertainty associated with the COVID-19 pandemic, we do not anticipate repurchasing any shares under our share repurchase program in fiscal 2020. However, we expect to reevaluate further share repurchases on an ongoing basis. As of October 31, 2020, we had $43.1 million available for future repurchases.

The new share repurchase program replaced the prior $50.0 million share repurchase program that was authorized in December 2018 and expired in accordance with its terms on December 31, 2019. At its expiration, we had purchased approximately 933,000 shares at an aggregate cost of $30.9 million under the prior repurchase ~~program, including 411,168 shares of common stock at a total cost of $14.0 million during the first quarter of fiscal 2019.~~program.

Our credit facility stipulates that distributions in the form of redemptions of Equity Interests (as defined in the ~~Credit Agreement)~~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~~credit agreement. See Note 7 – “Debt” to our Notes to Consolidated Financial Statements contained in Part I, Item 1 of this Quarterly Report on Form 10-Q for a further discussion of our credit facility and its covenants.

Our quarterly results of operations have fluctuated and are expected to continue to fluctuate in the future, primarily as a result of seasonal variances and the timing of sales and costs associated with opening new stores and closing underperforming stores.

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 parts of the year. We experienced reduced sales during the fiscal 2020 Easter season as a result of the COVID-19 pandemic. We canceled any seasonal merchandise that had a short selling window and moved seasonal merchandise with longer selling periods to later shipping dates, as applicable. The back-to-school shopping period in fiscal 2020 started later and lasted longer than previous years in many of our markets. In addition, approximately 10 percent of school districts in the markets where we operate have not yet returned to in-person learning, which decreased our sales in those markets. Any other unanticipated decrease in demand for our products during these peak shopping seasons could require us to sell excess inventory at a substantial markdown, which could reduce our net sales and gross margins and negatively affect our profitability.

We continually analyze our store portfolio and the potential for new stores based on our view of the internal and external opportunities and challenges in the marketplace. In fiscal 2021 and beyond, 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.

When stores are identified that produce, or may potentially in the future produce, low or negative contribution, we either renegotiate lease terms, relocate it, or close it. Even though 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.

Non-capital expenditures, such as advertising and payroll incurred prior to the opening of a new store, are charged to expense as incurred. The timing and actual amount of expense recorded in closing an individual store can vary significantly depending, in part, on the period in which management commits to a closing plan, the remaining basis in the fixed assets to be disposed of at closing and the amount of any lease buyout. Therefore, our results of operations may be adversely affected in any quarter in which we incur pre-opening expenses related to the opening of new stores or incur store closing costs related to the closure of existing stores.

~~We have three distinct peak selling periods: Easter, back-to-school and Christmas.~~ Our ~~operating results depend significantly upon~~future store strategies may also continue to be impacted by 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 parts of the year. We experienced reduced sales during the fiscal 2020 Easter season as a result ofcurrent economic uncertainty associated with the COVID-19 pandemic. We canceled any seasonal merchandise that had a short selling window and moved seasonal merchandise with longer selling periods to later shipping dates, as applicable. Any other unanticipated decrease in demand for our products during these peak shopping seasons could require us to sell excess inventory at a substantial markdown, which could reduce our net sales and gross margins and negatively affect our profitability.

We are exposed to market risk in that the interest payable under our credit facility is based on variable interest rates and therefore is affected by changes in market rates. We do not use interest rate derivative instruments to manage exposure to changes in market interest rates. ~~We had no borrowings under our credit facility during the first quarter of fiscal 2019.~~ For the first ~~quarter~~nine months of fiscal 2020, the weighted average borrowings outstanding were approximately ~~$235,000.~~ $341,000. Based upon our average borrowing rates under the credit facility during the first ~~quarter~~nine months of fiscal 2020, an increase of 100 basis points (one percentage point) in such rates would have increased interest expense by ~~less than $1,000.~~approximately $3,000.

Our Chief Executive Officer and Chief Financial Officer have concluded, based on their evaluation as of ~~May 2,~~October 31, 2020, that our disclosure controls and procedures are effective to ensure that information required to be disclosed by us in the reports filed or submitted by us under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the 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 ~~May 2,~~October 31, 2020 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Except as set forth below, 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 February 1, 2020 and our Quarterly Reports on Form 10-Q for the first and second quarters of fiscal 2020. In addition, the COVID-19 pandemic could exacerbate or trigger other risks discussed in our Annual Report on Form 10-K for the fiscal year ended February 1, 2020, any of which could materially affect our business, financial condition and results of operations.

The risk factor entitled “The COVID-19 pandemic may further adversely affect our operations” in our Annual Report on Form-10-K has been updated to read as follows:

The COVID-19 pandemic has adversely impacted, and may continue to adversely impact, our business and our results of operations.

Our operations and the markets in which we operate, procure merchandise and raise capital are currently experiencing significant disruption and financial market volatility associated with an outbreak of a novel strain of coronavirus (“COVID-19”). The World Health Organization has declared COVID‑19 a pandemic. The U.S. Government, as well as state and local governments, have taken unprecedented measures to control the ~~virus’~~ spread of COVID-19 and to provide stimulus as a mitigating measure to deteriorating economic conditions and increasing unemployment. Many businesses, schools, and other institutions have closed to further the practice of “social distancing” as a method to slow the outbreak. ~~While our supply chain has not experienced significant disruption, our~~Our business and results of operations have been significantly impacted by the temporary closure of our ~~brick-and-mortar~~physical stores effective March 19, 2020 and reduced foot traffic and sales prior to such time. Beginning in late April, we began ~~re-opening~~reopening stores in accordance with applicable health guidelines, and asby the end of ~~June 4,~~the second quarter of fiscal 2020, ~~approximately 97%~~all of our stores ~~have re-opened.~~were reopened. As guidance and mandates from governments and public health officials continue to evolve, closures to some, or all, of our store and other operations may reoccur. Our stock price and the stock prices of our peer companies have been volatile. The extent of the impact of the COVID‑19 pandemic on our operational and financial performance will depend on future developments, including, but not limited to:

~~Now that a significant percentage of~~Since our stores have ~~re-opened~~reopened to our customers, our customers and store employees are exposed to certain safety risks. While we have taken measures to control these risks, the unpredictable nature of COVID-19 may result in unexpected outcomes. For example, if the protocols established ~~do not~~cease to work, or are not followed, the health and safety of our employees and customers could be at risk. A future outbreak in our stores, distribution center, or corporate headquarters could result in temporary or sustained workforce shortages or store or facility closures. Inadequate response by us, perceived or otherwise, could impact our costs, our reputation, and/or our ability to recruit a qualified workforce.

Should the COVID-19 pandemic continue to cause financial market volatility and/or adverse changes in economic conditions and consumer ~~spending,~~spending; increased operational risks and disruptions to our supply chain and distribution ~~processes~~processes; or ~~should~~ periods of temporary closures of our stores to reoccur, our costs may increase, our sales and gross profit may decline and our stock price may decrease, any of which could negatively impact our results of operations, cash flows, and financial condition.

Incorporated by Reference To

Exhibit

No.

Description

Form

Exhibit

Filing Date

Filed

Herewith

Description

Form

Exhibit

Filing Date

Filed

Herewith

3-A

Amended and Restated Articles of Incorporation of Registrant

8-K

3-A

06/14/2013

Amended and Restated Articles of Incorporation of Registrant

8-K

3-A

06/14/2013

3-B

By-laws of Registrant, as amended to date

8-K

3-B

06/14/2013

By-laws of Registrant, as amended to date

8-K

3-B

06/14/2013

4.1

Third Amendment to Credit Agreement, dated as of April 16, 2020, by and among the Company, the financial institutions from time to time party thereto as Banks, and Wells Fargo Bank, N.A., as successor-by-merger to Wachovia Bank, National Association, as Agent

8-K

4.1

04/20/2020

4.2

Security Agreement, dated as of April 16, 2020, by and among the Company, SCHC, Inc. and SCLC, Inc., as Grantors, and Wells Fargo Bank, N.A., as administrative agent

8-K

4.2

04/20/2020

10.1

Shoe Carnival, Inc. Amended and Restated 2016 Executive Incentive Compensation Plan

8-K

10.1

09/17/2020

31.1

Certification of Chief Executive Officer Pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2

Certification of Chief Financial Officer Pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32.1

Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

32.2

Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

101

The following materials from Shoe Carnival, Inc.’s Quarterly Report on Form 10-Q for the quarter ended May 2, 2020, formatted in Inline XBRL (Inline Extensible Business Reporting Language): (1) Condensed Consolidated Balance Sheets, (2) Condensed Consolidated Statements of Income, (3) Condensed Consolidated Statements of Shareholders’ Equity, (4) Condensed Consolidated Statements of Cash Flows, and (5) Notes to Condensed Consolidated Financial Statements.

The following materials from Shoe Carnival, Inc.’s Quarterly Report on Form 10-Q for the quarter ended October 31, 2020, formatted in Inline XBRL (Inline Extensible Business Reporting Language): (1) Condensed Consolidated Balance Sheets, (2) Condensed Consolidated Statements of Income, (3) Condensed Consolidated Statements of Shareholders’ Equity, (4) Condensed Consolidated Statements of Cash Flows, and (5) Notes to Condensed Consolidated Financial Statements.

104

Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101)

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed, on its behalf by the undersigned thereunto duly authorized.

☒		Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
		For the quarterly period ended ~~May 2,~~October 31, 2020
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)

			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	1516

	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	2123

	Item 4.	Controls and Procedures	2123

Part II	Other Information

	Item 1A.	Risk Factors	2224

	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	2224

	Item 6.	Exhibits	2325

	Signature		2426

Period	Total Number of Shares Purchased⁽¹⁾		Average Price Paid per Share		Total Number Of Shares Purchased as Part of Publicly Announced Programs ⁽²⁾		Approximate Dollar Value of Shares that May Yet Be Purchased Under Programs ⁽²⁾
February 2, 2020 to February 29, 2020		0	$	0		0	$	43,148,000
March 1, 2020 to April 4, 2020		68,796	$	23.98		0	$	43,148,000
April 5, 2020 to May 2, 2020		2,251	$	22.44		0	$	43,148,000
		71,047				0

Date: ~~June~~December 4, 2020	SHOE CARNIVAL, INC.
	(Registrant)