Shoe Carnival Q2 Net Income Falls 57% on 3.0% Comp Store Decline

Shoe Carnival, Inc. announced net income for the second quarter of fiscal 2003 was $1.5 million, or $0.12 per diluted share, compared with net income of $3.6 million, or $0.27 per diluted share, in the second quarter of fiscal 2002.

Net sales for the second quarter of 2003 increased 7.9 percent to a second quarter Company record of $134.5 million from $124.6 million last year. Comparable store sales decreased by 3.0 percent for the 13-week period.

Gross profit margins for the second quarter of 2003 decreased to 27.5 percent from 28.7 percent last year. Selling, general and administrative expenses, as a percentage of sales, increased to 25.5 percent from 24.0 percent in the second quarter of 2002. New store pre-opening costs incurred in the second quarter of 2003 were $828,000, or 0.6 percent of sales, compared with $663,000, or 0.5 percent of sales last year. Interest costs decreased to $176,000 in the second quarter from $200,000 last year.

Mark Lemond, president and chief executive officer stated, “Our results came in below our expectations due to a decrease in customer traffic during the quarter, which necessitated increased promotional activity in order to liquidate seasonal merchandise. The lower customer traffic, combined with increased promotional activity, resulted in lower comparable stores sales and gross profit margins for the quarter. The increase in selling, general and administrative expenses for the quarter, as a percentage of sales, was primarily due to the deleveraging effect of lower comparable store sales.

“While the first half results were disappointing, it appears that the U.S. economy and retail environment are beginning to show signs of a recovery. We have seen an improved sales trend in the back-to-school selling period, and if these trends continue, we expect to report better results in the second half of 2003.”

Net income for the first half of 2003 was $6.6 million, or $0.51 per diluted share, compared with net income of $9.2 million, or $.71 per diluted share, last year. Net sales increased 6.8 percent to $271.3 million for the first six months from sales of $254.0 million last year. Comparable store sales decreased 4.3 percent for the six-month period. Gross profit margin for the first six months of 2003 decreased to 28.7 percent from 29.5 percent last year. Selling, general and administrative expenses, as a percentage of sales, increased to 24.7 percent in the first six months of 2003 from 23.5 percent last year. Pre-opening costs for first six months of 2003 were $1.6 million, or 0.6 percent of sales, as compared to $1.1 million, or 0.4 percent of sales, in the first half of 2002. Interest expense incurred in the first half of 2003 decreased to $342,000 from $464,000 in the same period in 2002.

The Company also issued guidance for the second half of 2003. With an expectation of an improving sales trend in the second half of 2003, comparable store sales are now expected to be in the range of flat to up two percent for the third and fourth quarters. Earnings per diluted share are expected to range from $0.41 to $0.46 in the third quarter and $0.15 to $0.18 in the fourth quarter.

During the first half of 2003, 24 new stores were opened, 11 of which were opened in the second quarter. An additional 13 stores will be opened in the second half of 2003 bringing the total new stores to 37 for the year.

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


                                  13 Weeks Ended     26 Weeks Ended
                                 Aug. 2,   Aug. 3,   Aug. 2,  Aug. 3,
                                  2003      2002      2003     2002
                                --------- -------- --------- --------
Net sales                        $134,463 $124,626  $271,313 $254,010
Cost of sales (including buying,
 distribution and occupancy
 costs)                            97,512   88,865   193,481  179,167
                                --------- -------- --------- --------
Gross profit                       36,951   35,761    77,832   74,843
Selling, general and
 administrative expenses           34,309   29,873    66,896   59,634
                                --------- -------- --------- --------
Operating income                    2,642    5,888    10,936   15,209
Interest expense                      176      200       342      464
                                --------- -------- --------- --------
Income before income taxes          2,466    5,688    10,594   14,745
Income taxes                          925    2,133     3,973    5,529
                                --------- -------- --------- --------
Net income                       $  1,541 $  3,555  $  6,621 $  9,216
                                ========= ======== ========= ========
Net income per share:
     Basic                       $    .12 $    .28  $    .52 $    .74
                                ========= ======== ========= ========
     Diluted                     $    .12 $    .27  $    .51 $    .71