SEC Company Response from SHOE CARNIVAL INC (SCVL) (CIK 0000895447) (SCVL) — Aug 19, 2005
SHOE CARNIVAL INC (SCVL) (CIK 0000895447)
Date: Aug. 19, 2005 · CIK: 0000895447 · Accession: 0000895447-05-000062
AI Filing Summary & Sentiment
Referenced dates: July 25, 2005
Letter
United States Securities and Exchange Commission Division of Corporation Finance Attn: Mr. William Choi, Branch Chief Form 10-K for Fiscal Year Ended January 29, 2005, Filed April 14, 2005 Form 10-Q for Fiscal Quarter Ended April 30, 2005, File No. 0-21360
Re: Comment Letter dated July 25, 2005 addressed to Shoe Carnival, Inc.
Dear Mr. Choi:
We are in receipt of your letter as referenced above and have included herewith our response as keyed to your comments and requests for additional information.
Commission's Comment
General
1.
Where a comment below requests additional disclosures or other revisions to be made, these revisions should be included in your future filings, as applicable.
Shoe Carnival, Inc. Response
Unless supplementary information is requested in your letter and contained herein, the additional disclosure requirements will be incorporated into our future filings with the Securities and Exchange Commission beginning with our second quarter ended July 30, 2005.
Commission's Comment
Form 10-K for Fiscal Year Ended January 29, 2005
Selected Financial Data, Page 14
2.
Please disclose how you calculate the change in comparable store sales from period to period. If applicable, please disclose how you treat remodeled stores in these computations, as well as stores that were closed during the period.
Shoe Carnival, Inc. Response
Our calculation of changes in comparable store sales represents the increase or decrease in net sales for the stores that have been open for the same number of months in the indicated period and comparable period in the previous year, including stores that were relocated or remodeled during either period. Any difference in selling square footage due to relocation or remodeling is considered to be immaterial to the calculation. A store is deemed to become comparable in its 14th full month of operation in order to eliminate grand opening sales distortions. Stores scheduled to close are typically excluded from the comparable store base at the point in time in which the store begins its liquidation sales.
In future filings we will disclose our policy on the computation of comparable store sales.
Commission's Comment
Form 10-K for Fiscal Year Ended January 29, 2005
MD&A Results of Operation, Page 15
3.
We note that your selling, general and administrative expenses remained unchanged from fiscal year 2003 to 2004 as a percentage of sales. While we expect that most selling costs track closely with changes in sales, we assume that general and administrative costs (e.g. corporate office overhead) are effectively fixed within certain ranges of sales volume. Therefore, we believe it would be meaningful to discuss the nature and amount of the dollar changes in such costs, if material, and the specific factors driving those changes. Although SG&A expenses increased by $8.2 million, your discussion of asset retirement costs and pre-opening expenses appears to provide explanations for why SG&A expenses decreased.
Shoe Carnival, Inc. Response
We acknowledge your comment that we did not explain the reasons for the dollar increase in SG&A. In future filings we will expand our discussion, as applicable, to discuss material changes in SG&A in both dollar amounts and as a percentage of sales.
Commission's Comment
Form 10-K for Fiscal Year Ended January 29, 2005
MD&A Results of Operation, Page 15
4.
Where you describe two or more business reasons that contributed to a material change in a financial statement line item between periods, please quantify, where possible, the extent to which each change contributed to the overall change in that line item. For example, with respect to the overall change in net sales from fiscal year 2003 to 2004, please quantify the extent to which the changes are attributable to the various contributing factors, such as 2004 store openings, store closings, comparable store fluctuations and the effect of a full year's worth of sales for 2003 store openings. See Item 303(a) of Regulation S-K and SEC Release No. 33-8350.
Shoe Carnival, Inc. Response
In future filings we will provide, where appropriate, definitive quantification of two or more components of a material change.
Commission's Comment
Form 10-K for Fiscal Year Ended January 29, 2005
MD&A Results of Operation, Page 15
5.
Where you identify intermediate causes of changes in your operating results, also describe the reasons underlying the intermediate causes. For example, you indicate that the increase in net sales from fiscal year 2002 to 2003 was partially offset by a 3.0% decrease in comparable store sales. Please explain in reasonable detail the reasons why comparable store sales of men's, women's, and children's non-athletic footwear experienced declines and why comparable store sales of athletic footwear increased. See SEC Release No. 33-8350.
Shoe Carnival, Inc. Response
We acknowledge your request for more definitive identification and disclosure of the reasons underlying intermediate causes of changes in our operating results and will provide such disclosure, as applicable, in future filings. Even with considerable analysis of product categories, we cannot always explain with reasonable certainty why a particular product category under performed or over performed. Whenever we do have an understanding of a change in operating results which is supportable with facts, and is not just a speculation, we will include appropriate disclosure of such in the filing.
Commission's Comment
Form 10-K for Fiscal Year Ended January 29, 2005
MD&A Liquidity and Capital Resources, Page 19
6.
Please revise your tabular disclosure of contractual obligations to include estimated interest payments on your debt. A footnote to the table should provide appropriate disclosure regarding how you computed the payments. Since the table is aimed at increasing transparency of cash flow, we believe these payments should be included in the table. If you choose not to include these payments, a footnote to the table should clearly identify the excluded items and provide any additional information that is material to an understanding of your cash requirements. See Item 303(a)(5) of Regulation S-K.
Shoe Carnival, Inc. Response
Our long-term debt consists of cash advances on our line of credit and capital lease obligations. Our capital lease obligations are inclusive of interest and we refer the user to the applicable long-term debt footnote in the financial statements where this is reconciled in a tabular format. For any future term debt we will continue to disclose the principal and interest portion accordingly.
We acknowledge your comment for increasing the transparency of this disclosure. However, our line of credit is subject to almost daily repayment or borrowing activity and as such does not readily lend itself to computing anticipated interest expense. Accordingly, we will add a footnote to the contractual obligation table in future filings indicating that interest has been excluded due to the above. In addition, we propose to relocate the second paragraph above the table to below the table and expand it to clearly identify to the user the nature of our line of credit and the repayment and borrowing frequency that occurs thus precluding a reliable estimate of future interest expense.
Commission's Comment
Form 10-K for Fiscal Year Ended January 29, 2005
Financial Statements
Consolidated Statements of Income, Page 26
7.
You indicate on pages 18 and 19 that the interest expense balances on your statements of income include interest income. Please revise the interest expense line item in future filings to read "Interest expense, net."
Shoe Carnival, Inc. Response
In future filings we will make your requested change to our line item to read "Interest expense-net".
Commission's Comment
Form 10-K for Fiscal Year Ended January 29, 2005
Financial Statements
Consolidated Statements of Cash Flows, Page 28
8.
We note that borrowings and repayments on your line of credit are shown using a net presentation. Since the borrowings under this credit agreement are classified as a long-term liability on your balance sheet, it does not appear that netting of borrowings and repayments is appropriate under paragraph 13 of SFAS 95. Please either revise your future filings accordingly, or otherwise tell us why you believe net presentation is appropriate.
Shoe Carnival, Inc. Response
In determining the appropriateness of disclosing borrowings and repayments on our line of credit using a net presentation, we considered the applicable authoritative literature in paragraphs 11-13 and 76-79 of SFAS 95 and in Example 1 of Appendix C. While our overall borrowings will increase or decrease moderately at any point on a year-over-year basis, we will borrow or repay on the line of credit on a daily basis based on cash availability and cash needs. The daily borrowing or repayment amounts are not individually significant to the reader, but aggregated together over a quarter of a year can become very large amounts. As such, these large amounts of borrowings and repayments are no more relevant to the user than information about only the net change. Accordingly, we believe that net presentation is appropriate and in compliance with SFAS 95.
Commission's Comment
Form 10-K for Fiscal Year Ended January 29, 2005
Financial Statements
Note 2 - Summary of Significant Accounting Policies, Page 29
9.
You indicate on page 30 that you have one business segment and the financial information presented is in compliance with SFAS 131. Please tell us in detail how you determined that the company has only one SFAS 131 reportable segment. Please address each of the following points in your response. Tell us specifically each component of the company that has been identified as an operating segment as defined in paragraph 10 of SFAS 131. In your case, it appears that operating segments could be identified on a geographic region basis as well as a product basis (e.g., women's, men's, and children's product categories). When there are overlapping segments such as these, paragraph 15 of SFAS 131 indicates that the components based on products would constitute the operating segments. Since you indicate on page 3 that "women's product has historically achieved the highest gross margin," it does not appear that the economic characteristics of your product groupings are similar, which would preclude aggregation under paragraph 17 of SFAS 131. In addition, based on your gross margin statement and your increased emphasis on displaying and showcasing your women's merchandise, it appears that discrete financial information is available and reported to the chief operating decision maker for each product category for purposes of resource allocation and assessing performance. Notwithstanding the preceding, please provide the disclosures required by paragraph 26 of SFAS 131.
Shoe Carnival, Inc. Response
We have determined through our interpretation of paragraph 10 of SFAS 131 that each of our 260+ stores represents an operating segment and that pursuant to paragraphs 16 and 18 of SFAS 131 our stores meet the applicable qualitative and quantitative criteria for aggregation, Accordingly, we have concluded that we have one reportable segment, retail sale of family footwear. The following is a detailed discussion of our considerations and conclusions regarding this comment.
Chief Operating Decision Maker ("CODM")
Pursuant to paragraph 12 of SFAS 131, our chief operating decision maker or management team is actually an executive management team comprised of the CEO, CFO, EVP of Operations, EVP of Merchandising along with the Board of Directors. This group meets regularly to discuss our business and is principally charged with making and approving resource allocation decisions, which include the opening and closing of stores. Input is also gathered from the review of the same data by the respective managers within the store operations group and throughout applicable departments within the corporate headquarters; however, final decisions rest with the executive management team and the Board of Directors.
Operating Segments
In assessing operating segments, we considered the guidance contained in paragraphs 10-15 of SFAS 131. We believe our identification of each store as an operating segment is supported by our interpretation of paragraph 10 of SFAS 131 as follows:
(a)
Each store represents a separate and distinct component engaging in business activities for which revenues are earned and expenses incurred.
(b)
Store level operating results including sales, gross margin, controllable expense, non-controllable expense and overall store contribution are reviewed periodically by the executive management team. This information is used by the executive management team to assess the performance of stores and to make decisions regarding resource allocations. Such resource allocation decisions may include advertising, inventory, merchandising or other operating decisions at the store level. The Board of Directors has access to information regarding individual store sales, contribution and cashflow. Regular discussions are held between the Board of Directors and executive management regarding overall store performance. Individual store discussions are typically related to new and under performing stores.
(c)
As described in (b) above, separate and discrete financial information is readily available to the executive management team and the Board of Directors at a store level. Our financial information system was specifically designed to report on each store individually with respect to discrete sales, cost of sales, gross margin, individual controllable expense, individual non-controllable expense and store contribution.
Our stores are merchandised based on the season, store capacity and the demographics specific to each location. Our merchandisers work directly with each store in order to place product that will enable the store to achieve its operating goals. Just as any large retailer, our merchandising system, which is a separate system from our financial information system, allows us to track product sales and store based gross margin at the SKU level, and we consolidate this information at various buying group levels and at the product category level (e.g., women's, men's, and children's product categories). However, our merchandising system does not apply the corporate level expense and income items (e.g. inbound freight, inventory reserves, shrink, etc.) to "load" each SKU in order to provide discrete financial information necessary to reconcile to our consolidated financial statements on a product category basis. Accordingly, we do not provide fully loaded gross margin or other operating results for review by the executive management team or the Board of Directors on a product category basis.
The guidance in paragraph 13 of SFAS 131 supports that if more than one set of segment information is utilized by the executive management team that other factors may identify a single set of components as constituting an enterprise's operating segments, including the nature of the business activities of each component, the existence of managers responsible for them and information presented to the board of directors. In the facts presented above, we believe it is clear that to manage a retail operation of 260+ stores located in 24 states that there is no single one report that can provide the executive management team with the insight necessary to allocate resources and assess performance; however, the identifying factor within our operation is the manner in which we have selected to assess performance and allocate resources and that clearly is at the individual store level. Accordingly, we have conclud
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CORRESP
1
filename1.htm
July 27, 2005
August 19, 2005
United States Securities and Exchange Commission
Division of Corporation Finance
100 F Street, N.E.
Washington, D.C. 20549
Attn: Mr. William Choi, Branch Chief
Re: Comment Letter dated July 25, 2005 addressed to Shoe Carnival, Inc.
Form 10-K for Fiscal Year Ended January 29, 2005, Filed April 14, 2005
Form 10-Q for Fiscal Quarter Ended April 30, 2005, File No. 0-21360
Dear Mr. Choi:
We are in receipt of your letter as referenced above and have included herewith our response as keyed to your comments and requests for additional information.
Commission's Comment
General
1.
Where a comment below requests additional disclosures or other revisions to be made, these revisions should be included in your future filings, as applicable.
Shoe Carnival, Inc. Response
Unless supplementary information is requested in your letter and contained herein, the additional disclosure requirements will be incorporated into our future filings with the Securities and Exchange Commission beginning with our second quarter ended July 30, 2005.
Commission's Comment
Form 10-K for Fiscal Year Ended January 29, 2005
Selected Financial Data, Page 14
2.
Please disclose how you calculate the change in comparable store sales from period to period. If applicable, please disclose how you treat remodeled stores in these computations, as well as stores that were closed during the period.
Shoe Carnival, Inc. Response
Our calculation of changes in comparable store sales represents the increase or decrease in net sales for the stores that have been open for the same number of months in the indicated period and comparable period in the previous year, including stores that were relocated or remodeled during either period. Any difference in selling square footage due to relocation or remodeling is considered to be immaterial to the calculation. A store is deemed to become comparable in its 14th full month of operation in order to eliminate grand opening sales distortions. Stores scheduled to close are typically excluded from the comparable store base at the point in time in which the store begins its liquidation sales.
In future filings we will disclose our policy on the computation of comparable store sales.
Commission's Comment
Form 10-K for Fiscal Year Ended January 29, 2005
MD&A Results of Operation, Page 15
3.
We note that your selling, general and administrative expenses remained unchanged from fiscal year 2003 to 2004 as a percentage of sales. While we expect that most selling costs track closely with changes in sales, we assume that general and administrative costs (e.g. corporate office overhead) are effectively fixed within certain ranges of sales volume. Therefore, we believe it would be meaningful to discuss the nature and amount of the dollar changes in such costs, if material, and the specific factors driving those changes. Although SG&A expenses increased by $8.2 million, your discussion of asset retirement costs and pre-opening expenses appears to provide explanations for why SG&A expenses decreased.
Shoe Carnival, Inc. Response
We acknowledge your comment that we did not explain the reasons for the dollar increase in SG&A. In future filings we will expand our discussion, as applicable, to discuss material changes in SG&A in both dollar amounts and as a percentage of sales.
Commission's Comment
Form 10-K for Fiscal Year Ended January 29, 2005
MD&A Results of Operation, Page 15
4.
Where you describe two or more business reasons that contributed to a material change in a financial statement line item between periods, please quantify, where possible, the extent to which each change contributed to the overall change in that line item. For example, with respect to the overall change in net sales from fiscal year 2003 to 2004, please quantify the extent to which the changes are attributable to the various contributing factors, such as 2004 store openings, store closings, comparable store fluctuations and the effect of a full year's worth of sales for 2003 store openings. See Item 303(a) of Regulation S-K and SEC Release No. 33-8350.
Shoe Carnival, Inc. Response
In future filings we will provide, where appropriate, definitive quantification of two or more components of a material change.
Commission's Comment
Form 10-K for Fiscal Year Ended January 29, 2005
MD&A Results of Operation, Page 15
5.
Where you identify intermediate causes of changes in your operating results, also describe the reasons underlying the intermediate causes. For example, you indicate that the increase in net sales from fiscal year 2002 to 2003 was partially offset by a 3.0% decrease in comparable store sales. Please explain in reasonable detail the reasons why comparable store sales of men's, women's, and children's non-athletic footwear experienced declines and why comparable store sales of athletic footwear increased. See SEC Release No. 33-8350.
Shoe Carnival, Inc. Response
We acknowledge your request for more definitive identification and disclosure of the reasons underlying intermediate causes of changes in our operating results and will provide such disclosure, as applicable, in future filings. Even with considerable analysis of product categories, we cannot always explain with reasonable certainty why a particular product category under performed or over performed. Whenever we do have an understanding of a change in operating results which is supportable with facts, and is not just a speculation, we will include appropriate disclosure of such in the filing.
Commission's Comment
Form 10-K for Fiscal Year Ended January 29, 2005
MD&A Liquidity and Capital Resources, Page 19
6.
Please revise your tabular disclosure of contractual obligations to include estimated interest payments on your debt. A footnote to the table should provide appropriate disclosure regarding how you computed the payments. Since the table is aimed at increasing transparency of cash flow, we believe these payments should be included in the table. If you choose not to include these payments, a footnote to the table should clearly identify the excluded items and provide any additional information that is material to an understanding of your cash requirements. See Item 303(a)(5) of Regulation S-K.
Shoe Carnival, Inc. Response
Our long-term debt consists of cash advances on our line of credit and capital lease obligations. Our capital lease obligations are inclusive of interest and we refer the user to the applicable long-term debt footnote in the financial statements where this is reconciled in a tabular format. For any future term debt we will continue to disclose the principal and interest portion accordingly.
We acknowledge your comment for increasing the transparency of this disclosure. However, our line of credit is subject to almost daily repayment or borrowing activity and as such does not readily lend itself to computing anticipated interest expense. Accordingly, we will add a footnote to the contractual obligation table in future filings indicating that interest has been excluded due to the above. In addition, we propose to relocate the second paragraph above the table to below the table and expand it to clearly identify to the user the nature of our line of credit and the repayment and borrowing frequency that occurs thus precluding a reliable estimate of future interest expense.
Commission's Comment
Form 10-K for Fiscal Year Ended January 29, 2005
Financial Statements
Consolidated Statements of Income, Page 26
7.
You indicate on pages 18 and 19 that the interest expense balances on your statements of income include interest income. Please revise the interest expense line item in future filings to read "Interest expense, net."
Shoe Carnival, Inc. Response
In future filings we will make your requested change to our line item to read "Interest expense-net".
Commission's Comment
Form 10-K for Fiscal Year Ended January 29, 2005
Financial Statements
Consolidated Statements of Cash Flows, Page 28
8.
We note that borrowings and repayments on your line of credit are shown using a net presentation. Since the borrowings under this credit agreement are classified as a long-term liability on your balance sheet, it does not appear that netting of borrowings and repayments is appropriate under paragraph 13 of SFAS 95. Please either revise your future filings accordingly, or otherwise tell us why you believe net presentation is appropriate.
Shoe Carnival, Inc. Response
In determining the appropriateness of disclosing borrowings and repayments on our line of credit using a net presentation, we considered the applicable authoritative literature in paragraphs 11-13 and 76-79 of SFAS 95 and in Example 1 of Appendix C. While our overall borrowings will increase or decrease moderately at any point on a year-over-year basis, we will borrow or repay on the line of credit on a daily basis based on cash availability and cash needs. The daily borrowing or repayment amounts are not individually significant to the reader, but aggregated together over a quarter of a year can become very large amounts. As such, these large amounts of borrowings and repayments are no more relevant to the user than information about only the net change. Accordingly, we believe that net presentation is appropriate and in compliance with SFAS 95.
Commission's Comment
Form 10-K for Fiscal Year Ended January 29, 2005
Financial Statements
Note 2 - Summary of Significant Accounting Policies, Page 29
9.
You indicate on page 30 that you have one business segment and the financial information presented is in compliance with SFAS 131. Please tell us in detail how you determined that the company has only one SFAS 131 reportable segment. Please address each of the following points in your response. Tell us specifically each component of the company that has been identified as an operating segment as defined in paragraph 10 of SFAS 131. In your case, it appears that operating segments could be identified on a geographic region basis as well as a product basis (e.g., women's, men's, and children's product categories). When there are overlapping segments such as these, paragraph 15 of SFAS 131 indicates that the components based on products would constitute the operating segments. Since you indicate on page 3 that "women's product has historically achieved the highest gross margin," it does not appear that the economic characteristics of your product groupings are similar, which would preclude aggregation under paragraph 17 of SFAS 131. In addition, based on your gross margin statement and your increased emphasis on displaying and showcasing your women's merchandise, it appears that discrete financial information is available and reported to the chief operating decision maker for each product category for purposes of resource allocation and assessing performance. Notwithstanding the preceding, please provide the disclosures required by paragraph 26 of SFAS 131.
Shoe Carnival, Inc. Response
We have determined through our interpretation of paragraph 10 of SFAS 131 that each of our 260+ stores represents an operating segment and that pursuant to paragraphs 16 and 18 of SFAS 131 our stores meet the applicable qualitative and quantitative criteria for aggregation, Accordingly, we have concluded that we have one reportable segment, retail sale of family footwear. The following is a detailed discussion of our considerations and conclusions regarding this comment.
Chief Operating Decision Maker ("CODM")
Pursuant to paragraph 12 of SFAS 131, our chief operating decision maker or management team is actually an executive management team comprised of the CEO, CFO, EVP of Operations, EVP of Merchandising along with the Board of Directors. This group meets regularly to discuss our business and is principally charged with making and approving resource allocation decisions, which include the opening and closing of stores. Input is also gathered from the review of the same data by the respective managers within the store operations group and throughout applicable departments within the corporate headquarters; however, final decisions rest with the executive management team and the Board of Directors.
Operating Segments
In assessing operating segments, we considered the guidance contained in paragraphs 10-15 of SFAS 131. We believe our identification of each store as an operating segment is supported by our interpretation of paragraph 10 of SFAS 131 as follows:
(a)
Each store represents a separate and distinct component engaging in business activities for which revenues are earned and expenses incurred.
(b)
Store level operating results including sales, gross margin, controllable expense, non-controllable expense and overall store contribution are reviewed periodically by the executive management team. This information is used by the executive management team to assess the performance of stores and to make decisions regarding resource allocations. Such resource allocation decisions may include advertising, inventory, merchandising or other operating decisions at the store level. The Board of Directors has access to information regarding individual store sales, contribution and cashflow. Regular discussions are held between the Board of Directors and executive management regarding overall store performance. Individual store discussions are typically related to new and under performing stores.
(c)
As described in (b) above, separate and discrete financial information is readily available to the executive management team and the Board of Directors at a store level. Our financial information system was specifically designed to report on each store individually with respect to discrete sales, cost of sales, gross margin, individual controllable expense, individual non-controllable expense and store contribution.
Our stores are merchandised based on the season, store capacity and the demographics specific to each location. Our merchandisers work directly with each store in order to place product that will enable the store to achieve its operating goals. Just as any large retailer, our merchandising system, which is a separate system from our financial information system, allows us to track product sales and store based gross margin at the SKU level, and we consolidate this information at various buying group levels and at the product category level (e.g., women's, men's, and children's product categories). However, our merchandising system does not apply the corporate level expense and income items (e.g. inbound freight, inventory reserves, shrink, etc.) to "load" each SKU in order to provide discrete financial information necessary to reconcile to our consolidated financial statements on a product category basis. Accordingly, we do not provide fully loaded gross margin or other operating results for review by the executive management team or the Board of Directors on a product category basis.
The guidance in paragraph 13 of SFAS 131 supports that if more than one set of segment information is utilized by the executive management team that other factors may identify a single set of components as constituting an enterprise's operating segments, including the nature of the business activities of each component, the existence of managers responsible for them and information presented to the board of directors. In the facts presented above, we believe it is clear that to manage a retail operation of 260+ stores located in 24 states that there is no single one report that can provide the executive management team with the insight necessary to allocate resources and assess performance; however, the identifying factor within our operation is the manner in which we have selected to assess performance and allocate resources and that clearly is at the individual store level. Accordingly, we have conclud