Shoe Carnival, Inc. announced sales and preliminary earnings for the fourth quarter and fiscal year ended January 29, 2005. Like numerous other retailers, the Company has undertaken a comprehensive review of its accounting treatment for leases and lease-related items. In consultation with its independent registered public accounting firm, the Company decided to change its accounting practices in this area, and to restate its historical financial statements. The results in this preliminary report include the adjustments related to these changes in lease accounting.

Based on the company's preliminary review, the correction of the lease accounting is expected to decrease net earnings by approximately $150,000, or approximately a penny per share, in fiscal 2004 and $300,000, or approximately two cents per share, in fiscal 2003. The change in accounting for lease transactions will not affect historical or future cash flows or the timing or amounts of payments under related leases.

These estimates are still preliminary, and may change pending a final review by management and the company's independent auditors. The company anticipates completing this review in conjunction with the filing of its Form 10-K for the period ended January 29, 2005.

Fourth Quarter Results

Net earnings for the 13-week fourth quarter increased to $1.2 million from net earnings of $111,000 in the fourth quarter last year. Diluted earnings per share increased to $0.09 per share from $0.01 per share last year.

Net sales for the fourth quarter increased 7.2% to $143.9 million from $134.2 million last year. Comparable store sales increased 1.4% for the 13-week period.

The gross profit margin for the fourth quarter of 2004 increased to 27.3% from 26.4% in the fourth quarter of 2003. Selling, general and administrative expenses for the fourth quarter, as apercentage of sales, increased to 26.1% from 26.0% in last year's fourth quarter.

Prior to the fourth quarter, the estimated effective income tax rate was 39%. The effective income tax rate for the full year is now expected to be the same as last year at 38%. A year-to-date adjustment was included in the fourth quarter income tax expense reducing the effective income tax rate for the fourth quarter to 26.4%. The effective income tax rate for last year's fourth quarter was 66.7% due to an adjustment to raise the effective income tax rate for the year.

Fiscal 2004 Results

Net earnings for the 52-week 2004 fiscal year increased to $12.5 million, or 96 cents per diluted share, from $12.0 million, or 92 cents per diluted share, for the 2003 fiscal year.

For the 52-week 2004 fiscal year, net sales increased 5.8% to $590.2 million from sales of $557.9 million for fiscal 2003. Comparable store sales decreased 0.8% for the 52-week period.

Commenting on the results, Mark Lemond, president and chief executive officer said, “Fiscal 2004 was a year of change for Shoe Carnival. We slowed the growth of new stores, electing to only open stores in existing markets or geographic areas. Our primary focus has been on improving the operating performance of our stores by enhancing the fashion content of our merchandise offering, improving the way we advertise to our customers and the message we are communicating, and initiating a program to update our stores with the latest store design. We believe these changes were partly responsible for the comparable stores sales gains in the third and fourth quarters of 2004, our first back-to-back quarterly gains since fiscal 2001.”

Store Growth

The Company opened 22 new stores in fiscal 2004 and closed 4 to end the year with 255 stores. Total gross retail selling square footage increased 6.6% to end the year at 2.9 million square feet.

Store growth in fiscal 2005 is expected to range from 8 to 10 stores, net of closings. Five stores are expected to open in the first quarter.

2005 EPS Outlook

Earnings per diluted share in the first quarter of fiscal 2005 are expected to range from 40 cents to 44 cents. This assumes a total sales increase of between 7% and 10% and comparable store sales ranging from an increase of 2% to 4%. Earnings per diluted share for the first quarter of 2004 were 35 cents.

For the full year of 2005, earnings per diluted share are expected to range from $1.15 to $1.30.