Shoe Carnival Q3 Net Down 10.3% as Comps Inch Up 0.4%

Shoe Carnival, Inc. announced net earnings for the third quarter ended October 30 were $4.9 million compared with $5.5 million in the third quarter of fiscal 2003. Diluted earnings per share were 38 cents per share compared with 42 cents per share in last year’s third quarter.
Net sales for the third quarter increased 6.8% to $162.7 million from $152.4 million last year. Comparable store sales increased 0.4% for the 13-week period.

The gross profit margin for the third quarter decreased to 29.1 percent from 29.8 percent in the third quarter last year. The 0.7 percent decrease, as a percentage of sales, resulted from a 0.3 percent decrease in the merchandise margin and a 0.4 percent increase in buying, distribution and occupancy expenses. The decrease in the merchandise margin was due to a continued promotional environment in the mid-tier retail sector. The increase in buying, distribution and occupancy costs, as a percentage of sales, was due to a lack of sales leverage on occupancy costs.

Selling, general and administrative expenses, as a percentage of sales, increased to 24.1 percent from 23.9 percent in the third quarter of 2003 primarily due to higher advertising expenses. Store closing and impairment expenses in the third quarter were $425,000 compared with $330,000 incurred in the third quarter last year. New store pre-opening costs incurred in the third quarter of 2004 were $456,000, or 0.3 percent of sales, compared with $646,000, or 0.4 percent of sales last year.

Net earnings for the first nine months of 2004 were $11.4 million, or $0.88 per share on a diluted basis, compared with net earnings of $12.1 million, or $.93 per share on a diluted basis, for the first nine months of last year. Net sales increased 5.3 percent to $446.3 million for the first nine months from sales of $423.7 million last year. Comparable store sales decreased 1.5 percent for the nine-month period. The gross profit margin for the first nine months of 2004 was 28.7 percent compared with 29.1 percent for the first nine months last year. Selling, general and administrative expenses for the first nine months of 2004, as a percentage of sales, were even with last year at 24.4 percent. New store pre-opening costs for the first nine months of 2004 were $1.3 million, or 0.3 percent of sales, compared with $2.25 million, or 0.5 percent of sales last year.

Mark Lemond, president and chief executive officer stated, “The third quarter was one of mixed results. We were pleased to report a comparable store sales increase for the quarter. In addition, were pleased with progress on improving the merchandise mix, particularly our women’s non-athletic product. However, we were disappointed that lower margins and slightly higher selling, general and administrative expenses lead to a decline in net earnings for the third quarter.”

“We are committed to continue to evolve our business by improving the fashion element of our merchandise, enhancing the creative content of our advertising, and improving the customer experience in our stores with better visual displays and store layout. These initiatives are the foundation that should lead to meaningful increases in both sales and earnings as these initiatives mature and the retail environment improves.”

The Company also announced that it expects to earn between $0.01 and $0.04 per diluted share in the fourth quarter of 2004. These estimates are predicated on total sales increasing between seven and eight percent and comparable store sales of flat to up two percent.

The Company opened six stores and closed one store in the third quarter and ended the quarter with 255 stores. For the fourth quarter the Company will open an additional three stores, two of which have opened, and expects to close three. For the full year, the Company expects to open 22 new stores and close four ending the year with 255 stores consisting of 2.9 million square feet of retail space. For fiscal 2005, the Company expects to open approximately 15 new stores and close four.

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

                        Thirteen    Thirteen   Thirty-nine Thirty-nine
                       Weeks Ended Weeks Ended Weeks Ended Weeks Ended
                       October 30, November 1, October 30, November 1,
                          2004        2003        2004        2003
                       ----------- ----------- ----------- -----------

Net sales              $  162,717  $  152,365  $  446,309  $  423,678
Cost of sales
 (including buying,
 distribution and
 occupancy costs)         115,341     107,006     318,227     300,487
                       ----------- ----------- ----------- -----------

Gross profit               47,376      45,359     128,082     123,191
Selling, general and
 administrative
 expenses                  39,149      36,401     108,811     103,297
                       ----------- ----------- ----------- -----------

Operating income            8,227       8,958      19,271      19,894
Interest expense              138         160         509         502
                       ----------- ----------- ----------- -----------

Income before income
 taxes                      8,089       8,798      18,762      19,392
Income tax expense          3,155       3,299       7,317       7,272
                       ----------- ----------- ----------- -----------

Net income             $    4,934  $    5,499  $   11,445  $   12,120
                       =========== =========== =========== ===========

Net income per share:
   Basic               $      .38  $      .43  $      .89  $      .96
                       =========== =========== =========== ===========
   Diluted             $      .38  $      .42  $      .88  $      .93