Shoe Carnival Q2 Earnings Climb on Slowing Sales

Shoe Carnival, Inc. net earnings for the second quarter increased 5.8% to $2.9 million as compared with net earnings of $2.7 million in 2005. Diluted earnings per share increased 5% to 21 cents per share compared with 20 cents per share last year. Net sales for the second quarter decreased 1.2% to $146.9 million from $148.7 million last year. Comparable store sales decreased 1.0%.

The gross profit margin for the second quarter of 2006 was 27.8% compared to 27.9% for the second quarter of 2005. While the merchandise gross profit margin, as a percentage of sales, was 0.3% better than last year, buying, distribution and occupancy costs rose by 0.4% due to the decline in comparable store sales. Selling, general and administrative expenses for the second quarter, as a percentage of sales, decreased to 24.8% from 24.9% in last year’s second quarter. Consequently, the Company’s operating margin was unchanged from the prior year at 3.0%.

Speaking on the results for the quarter, Mark Lemond, chief executive officer and president said, “We continue to see the back-to-school customer shopping closer to the actual back-to-school date. We have observed this trend in the prior two years as well as in fiscal 2006. Our men’s and women’s athletic sales were below plan in the second quarter, particularly in the last week of July. However our children’s product, including children’s athletics, and our men’s and women’s dress and casual product continue to sell very well.”

Net income for the first half of 2006 was $10.3 million, or $0.75 per diluted share, compared with net income of $8.6 million, or $0.64 per diluted share, last year. Net sales increased 1.9% to $315.4 million for the first six months from sales of $309.4 million last year. Comparable store sales increased 1.8% for the six-month period. Gross profit margin for the first six months of 2006 increased to 29.3% from 28.8% last year. Selling, general and administrative expenses, as a percentage of sales, decreased to 24.1% in the first six months of 2006 from 24.2% last year.

Mr. Lemond continued “Our early results so far in the third quarter have been encouraging. In the areas of the country where schools are already back in session, our stores have experienced early comparable store sales increases. It is clearly apparent to us that the customer continues to shop closer to need for their back-to-school purchases.”

Earnings per diluted share in the third quarter of fiscal 2006 are expected to range from 55 cents to 57 cents. This assumes a comparable store sales increase of 1 to 2 percent.

For the full year of 2006, SCVL expects diluted earnings per share to range from $1.65 to $1.70.

Currently, the Company expects to open 14 or 15 stores in fiscal 2006 and close seven stores. Store openings and closings by quarter and for the year are planned as follows:

                           New Stores         Stores Closed
                      -----------------------------------------
1st Quarter 2006               0                    0
2nd Quarter 2006               4                    2
3rd Quarter 2006               8                    3
4th Quarter 2006             2 or 3                 2
                      -----------------------------------------
Fiscal 2006                 14 or 15                7

The four stores opened during the second quarter included locations in:

          City                        Market/Total Stores in Market
          -----------------           -----------------------------  
          McAllen, TX                 McAllen/2
          Pearland, TX                Houston/4
          Oxford, AL                  Birmingham/3
          Johnson City, TN            Johnson City/1
          

                          SHOE CARNIVAL, INC.
              CONDENSED CONSOLIDATED STATEMENTS OF INCOME
                   (In thousands, except per share)

                         Thirteen    Thirteen  Twenty-six  Twenty-six
                       Weeks Ended Weeks Ended Weeks Ended Weeks Ended
                         July 29,    July 30,    July 29,   July 30,
                           2006        2005        2006       2005
                       ----------- ----------- ----------- -----------

Net sales              $   146,886  $  148,658  $ 315,355  $  309,371
Cost of sales
 (including buying,
 distribution and
 occupancy costs)          106,045     107,200    223,064     220,274
                       ------------ ----------- ---------- -----------


Gross profit                40,841      41,458     92,291      89,097
Selling, general and
 administrative
   expenses                 36,421      36,980     76,055      74,844
                       ------------ ----------- ---------- -----------


Operating income             4,420       4,478     16,236      14,253
Interest income               (302)        (24)      (510)        (35)
Interest expense                42         152         74         296
                       ------------ ----------- ---------- -----------


Income before income
 taxes                       4,680       4,350     16,672      13,992
Income tax expense           1,818       1,646      6,410       5,367
                       ------------ ----------- ---------- -----------


Net income             $     2,862  $    2,704  $  10,262  $    8,625
                       ------------ ----------- ---------- -----------


Net income per share:
   Basic               $       .21  $      .21  $     .77  $      .66
                       ------------ ----------- ---------- -----------

   Diluted             $       .21  $      .20  $     .75  $      .64
                       ------------ ----------- ---------- -----------


Average shares
 outstanding:
   Basic                    13,353      13,112     13,300      13,018
                       ------------ ----------- ---------- -----------

   Diluted                  13,715      13,511     13,684      13,394
                       ------------ ----------- ---------- -----------