UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

Form 10-Q

|[X]        |  | Quarterly
      report pursuant to Section 13 or 15(d) of the Securities Exchange Act of
      1934 
|---------- |  | ----------------------------------------------------------------------------------------------------
|           |  | For the
      quarterly period ended**November 1,
      2008**                                      
|or        
|[ 
      ] |  | Transition
      report pursuant to Section 13 or 15(d) of the Securities Exchange Act of
      1934
|           |  | For the
      transition period from __________________ to__________________                        

Commission File
      Number:
    
    0-21360


Shoe Carnival, Inc.(Exact
      name of registrant as specified in its charter)




Indiana
    
    35-1736614(State or
      other jurisdiction of
    
    (IRS
      Employer Identification Number)incorporation or organization)7500 East
      Columbia StreetEvansville, IN
    
    47715(Address of
      principal executive offices)
    
    (Zip
      code)




(812) 867-6471(Registrants telephone number, including area
      code)**NOT APPLICABLE***(Former name, former
      address and former fiscal year, if changed since last
    report)*


Indicate by check mark whether the
registrant (1) has filed all reports required to be filed by Section 13 or 15(d)
of the Securities Exchange Act of 1934 during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days.

[X]Yes
    [ 
      ]No


Indicate by check mark whether the
registrant is a large accelerated filer, an accelerated filer, a non-accelerated
filer or a smaller reporting company. See definitions of "large accelerated
filer", "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the
Exchange Act. (Check one):

[ 
      ]  Large accelerated filer
    [X] 
      Accelerated filer
    [  ] 
      Non-accelerated filer
    [ 
      ]  Smaller reporting
      company




Indicate by check mark whether the
registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

[ 
      ]Yes
    [X]No




APPLICABLE ONLY TO CORPORATE ISSUERS:

Indicate the number of shares
outstanding of each of the issuer's classes of common stock, as of the latest
practicable date.

Number of Shares of Common Stock, $.01
par value, outstanding at December 8, 2008 were 12,721,810.

---

SHOE CARNIVAL, INC. INDEX TO FORM
10-Q

|              |                                                                | **Page**                                                                                   
|------------- | -------------------------------------------------------------- | -------------------------------------------------------------------------------------------
|Part I        | Financial
      Information                                    |                                                                                            
|              | Item 1.                                                        | Financial Statements
      (Unaudited)                                                     
|              | Condensed Consolidated Balance Sheets                          | 3                                                                                          
|              | Condensed Consolidated Statements of Income                    | 4                                                                                          
|              | Condensed Consolidated Statement of Shareholders'
      Equity | 5                                                                                          
|              | Condensed Consolidated Statements of Cash Flows                | 6                                                                                          
|              | Notes to Condensed Consolidated Financial
      Statements     | 7 - 11                                                                                     
|             
|              | Item 2.                                                        | Management's Discussion and Analysis of Financial Condition and
      Results of Operations
|             
|              | Item 3.                                                        | Quantitative and
      Qualitative Disclosures About Market Risk                           
|             
|              | Item 4.                                                        | Controls and
      Procedures                                                              
|             
|Part
      II | Other
      Information                                        |                                                                                            
|              | Item 1.                                                        | Legal Proceedings                                                                          
|             
|              | Item
      1A.                                                 | Risk
      Factors                                                                         
|             
|              | Item 6.                                                        | Exhibits                                                                                   
|             
|              | Signature                                                      |                                                                                            

2

---

SHOE CARNIVAL, INC. PART I -
FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

SHOE CARNIVAL,
INC.CONDENSED CONSOLIDATED BALANCE
SHEETSUnaudited

|                                                          |  | November 1, |         | February 2, |  | November 3,
|--------------------------------------------------------- |  | ----------- | ------- | ----------- |  | -----------
|(In
      thousands, except per share data)               |  | 2008        |         | 2008        |  | 2007       
|Assets                                                    |  |             |         |             |  |            
|Current
      Assets:                                     |  |             |         |             |  |            
|Cash and cash equivalents                                 |  | $           | 9,143   |             |  | $          
|Accounts receivable                                       |  |             | 1,281   |             |  |            
|Merchandise inventories                                   |  |             | 194,827 |             |  |            
|Deferred income tax benefit                               |  |             | 2,401   |             |  |            
|Other                                                     |  |             | 8,579   |             |  |            
|Total Current
      Assets                                |  |             | 216,231 |             |  |            
|Property and equipment-net                                |  |             | 73,541  |             |  |            
|Total
      Assets                                        |  | $           | 289,772 |             |  | $          
|                                                         
|Liabilities and Shareholders' Equity                      |  |             |         |             |  |            
|Current
      Liabilities:                                |  |             |         |             |  |            
|Accounts payable                                          |  | $           | 51,074  |             |  | $          
|Accrued and other liabilities                             |  |             | 14,777  |             |  |            
|Total Current Liabilities                                 |  |             | 65,851  |             |  |            
|Long-term
      debt                                      |  |             | 0       |             |  |            
|Deferred lease incentives                                 |  |             | 5,012   |             |  |            
|Accrued
      rent                                        |  |             | 5,576   |             |  |            
|Deferred income taxes                                     |  |             | 1,672   |             |  |            
|Deferred
      compensation                               |  |             | 2,795   |             |  |            
|Other                                                     |  |             | 1,458   |             |  |            
|Total
      Liabilities                                   |  |             | 82,364  |             |  |            
|                                                         
|Shareholders' Equity:                                     |  |             |         |             |  |            
|Common stock, $.01 par value, 50,000 shares               |  |             |         |             |  |            
|authorized, 13,664, 13,670 and 13,671 shares
      issued |  |             |         |             |  |            
|at November 1, 2008, February 2, 2008 and                 |  |             |         |             |  |            
|November 3, 2007, respectively                            |  |             | 137     |             |  |            
|Additional paid-in capital                                |  |             | 71,926  |             |  |            
|Retained earnings                                         |  |             | 156,915 |             |  |            
|Treasury stock, at cost, 942, 1,205 and 1,002 shares at   |  |             |         |             |  |            
|November 1, 2008, February 2, 2008 and                    |  |             |         |             |  |            
|November 3, 2007, respectively                            |  |             | (21,570 | )           |  |            
|Total
      Shareholders' Equity                          |  |             | 207,408 |             |  |            
|Total Liabilities and Shareholders' Equity                |  | $           | 289,772 |             |  | $          

See notes to condensed consolidated
financial statements.

3

---

SHOE CARNIVAL,
INC.CONDENSED CONSOLIDATED STATEMENTS
OF INCOME Unaudited

|                                            |  |             |         |             |  | Thirty-nine |         |            
|------------------------------------------- |  | ----------- | ------- | ----------- |  | ----------- | ------- | -----------
|                                            |  | Thirteen    |         | Thirteen    |  | Weeks       |         | Thirty-nine
|                                            |  | Weeks Ended |         | Weeks Ended |  | Ended       |         | Weeks Ended
|                                            |  | November 1, |         | November 3, |  | November 1, |         | November 3,
|(In
      thousands, except per share data) |  | 2008        |         | 2007        |  | 2008        |         | 2007       
|Net sales                                   |  | $           | 170,063 |             |  | $           | 173,881 |            
|Cost of sales
      (including buying,      |  |             |         |             |  |             |         |            
|distribution and occupancy costs)           |  |             | 123,746 |             |  |             | 123,320 |            
|Gross profit                                |  |             | 46,317  |             |  |             | 50,561  |            
|Selling, general
      and administrative   |  |             |         |             |  |             |         |            
|expenses                                    |  |             | 42,389  |             |  |             | 43,627  |            
|Operating income                            |  |             | 3,928   |             |  |             | 6,934   |            
|Interest
      income                       |  |             | (62     | )           |  |             | (101    | )          
|Interest expense                            |  |             | 42      |             |  |             | 115     |            
|Income before
      income taxes            |  |             | 3,948   |             |  |             | 6,920   |            
|Income tax expense                          |  |             | 1,341   |             |  |             | 2,734   |            
|Net
      income                            |  | $           | 2,607   |             |  | $           | 4,186   |            
|                                           
|Net income per share:                       |  |             |         |             |  |             |         |            
|Basic                                       |  | $           | .21     |             |  | $           | .33     |            
|Diluted                                     |  | $           | .21     |             |  | $           | .33     |            
|                                           
|Average shares outstanding:                 |  |             |         |             |  |             |         |            
|Basic                                       |  |             | 12,431  |             |  |             | 12,604  |            
|Diluted                                     |  |             | 12,539  |             |  |             | 12,777  |            

See notes to condensed consolidated
financial statements.

4

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SHOE CARNIVAL, INC.CONDENSED CONSOLIDATED STATEMENT OF
SHAREHOLDERS' EQUITY Unaudited

|                                   |  |              |   | Additional |        |          |  |          |     |          |  
|---------------------------------- |  | ------------ | - | ---------- | ------ | -------- |  | -------- | --- | -------- | -
|                                   |  | Common Stock |   | Paid-In    |        | Retained |  | Treasury |     |          |  
|(In
      thousands)               |  | Issued       |   | Treasury   |        | Amount   |  | Capital  |     | Earnings |  
|Balance at February 2, 2008        |  | 13,670       |   |            | (1,205 | )        |  | $        | 137 |          | $
|Stock option
      exercises       |  |              |   |            | 124    |          |  |          |     |          |  
|Stock-based compensation           |  |              |   |            |        |          |  |          |     |          |  
|income tax benefit                 |  |              |   |            |        |          |  |          |     |          |  
|Employee stock
      purchase plan |  |              |   |            |        |          |  |          |     |          |  
|purchases                          |  |              |   |            | 12     |          |  |          |     |          |  
|Restricted stock awards            |  | (6           | ) |            | 127    |          |  |          |     |          |  
|Stock-based
      compensation     |  |              |   |            |        |          |  |          |     |          |  
|expense                            |  |              |   |            |        |          |  |          |     |          |  
|Net income                         |  |              |   |            |        |          |  |          |     |          |  
|Balance at
      November 1, 2008  |  | 13,664       |   |            | (942   | )        |  | $        | 137 |          | $

See notes to condensed consolidated
financial statements.

5

---

SHOE CARNIVAL, INC.CONDENSED CONSOLIDATED STATEMENTS OF
CASH FLOWS Unaudited

|                                                        |  | Thirty-nine |         | Thirty-nine
|------------------------------------------------------- |  | ----------- | ------- | -----------
|                                                        |  | Weeks Ended |         | Weeks Ended
|                                                        |  | November 1, |         | November 3,
|(In
      thousands)                                    |  | 2008        |         | 2007       
|Cash Flows From Operating Activities                    |  |             |         |            
|Net income                                              |  | $           | 8,368   |            
|Adjustments to reconcile net income to
      net        |  |             |         |            
|cash provided by (used in) operating
      activities:  |  |             |         |            
|Depreciation and amortization                           |  |             | 12,585  |            
|Stock-based compensation                                |  |             | 694     |            
|Loss on retirement and impairment of assets             |  |             | 271     |            
|Deferred income taxes                                   |  |             | 1,212   |            
|Lease incentives                                        |  |             | 817     |            
|Other                                                   |  |             | (2,104  | )          
|Changes in operating assets and
      liabilities:      |  |             |         |            
|Accounts receivable                                     |  |             | (870    | )          
|Merchandise inventories                                 |  |             | 5,954   |            
|Accounts payable and accrued liabilities                |  |             | (14,771 | )          
|Other                                                   |  |             | (1,363  | )          
|Net cash provided by (used in) operating activities     |  |             | 10,793  |            
|                                                       
|Cash Flows From Investing Activities                    |  |             |         |            
|Purchases of property and equipment                     |  |             | (12,575 | )          
|Proceeds from sale of property and
      equipment      |  |             | 3       |            
|Other                                                   |  |             | 0       |            
|Net cash used in investing activities                   |  |             | (12,572 | )          
|                                                       
|Cash Flows From Financing Activities                    |  |             |         |            
|Borrowings under line of credit                         |  |             | 6,625   |            
|Payments on line of credit                              |  |             | (6,625  | )          
|Proceeds from issuance of stock                         |  |             | 1,515   |            
|Excess tax benefits from stock-based
      compensation |  |             | 230     |            
|Common stock repurchased                                |  |             | 0       |            
|Net cash provided by (used in) financing activities     |  |             | 1,745   |            
|Net decrease in
      cash and cash equivalents         |  |             | (34     | )          
|Cash and cash equivalents at beginning of period        |  |             | 9,177   |            
|Cash and Cash
      Equivalents at End of Period        |  | $           | 9,143   |            
|                                                       
|Supplemental disclosures of cash flow information:      |  |             |         |            
|Cash paid during period for interest                    |  | $           | 108     |            
|Cash paid during period for income
      taxes          |  | $           | 2,917   |            
|Capital expenditures incurred but not yet paid          |  | $           | 4,205   |            

See notes to condensed consolidated
financial statements.

6

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SHOE CARNIVAL, INC.NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTSUnaudited

Note 1 - Basis of
Presentation

In our opinion, the accompanying
unaudited condensed consolidated financial statements contain all adjustments
necessary to present fairly our financial position and the results of our
operations and our cash flows for the periods presented. Certain information and
disclosures normally included in the notes to consolidated financial statements
have been condensed or omitted according to the rules and regulations of the
Securities and Exchange Commission (the "SEC"), although we believe that the
disclosures are adequate to make the information presented not misleading. The
results of operations for the interim periods are not necessarily indicative of
the results to be expected for the full year. The condensed consolidated
financial statements should be read in conjunction with the audited consolidated
financial statements and the notes thereto contained in our Annual Report on
Form 10-K for the fiscal year ended February 2, 2008.

Note 2 - Net Income Per
Share

Net income per share of common stock is
based on the weighted average number of shares and common share equivalents
outstanding during the period. The following table presents a reconciliation of
our basic and diluted weighted average common shares outstanding as required by
Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings Per
Share":

|                                            |  | Thirteen          |  | Thirteen          |  | Thirty-nine       |  |                  
|------------------------------------------- |  | ----------------- |  | ----------------- |  | ----------------- |  | -----------------
|                                            |  | Weeks             |  | Weeks             |  | Weeks             |  | Thirty-nine      
|                                            |  | Ended             |  | Ended             |  | Ended             |  | Weeks
      Ended
|                                            |  | November
      1, |  | November
      3, |  | November
      1, |  | November
      3,
|(In
      thousands)                        |  | 2008              |  | 2007              |  | 2008              |  | 2007             
|Basic shares                                |  | 12,431            |  | 12,604            |  | 12,383            |  | 13,065           
|Dilutive effect
      of stock-based awards |  | 108               |  | 173               |  | 100               |  | 297              
|Diluted shares                              |  | 12,539            |  | 12,777            |  | 12,483            |  | 13,362           

Options to purchase 196,100 shares of
common stock for the third quarter of fiscal 2008 and options to purchase
219,600 shares of common stock for the first nine months of fiscal 2008 were not
included in the computation of diluted shares because the options' exercise
prices were greater than the average market price for the period. For the
quarter and nine months ended November 3, 2007, there were no anti-dilutive
options.

Note 3  Recently Issued Accounting
Pronouncements

In September 2006, the Financial
Accounting Standards Board (the "FASB") issued SFAS No. 157, "Fair Value
Measurements" ("SFAS No. 157"). SFAS No. 157 defines fair value, establishes a
framework for measuring fair value in generally accepted accounting principles,
and expands disclosures about fair value measurements. The provisions of SFAS
No. 157 are effective for fiscal years beginning after November 15, 2007. In
February 2008, the FASB deferred the implementation of SFAS No. 157 for certain
non-financial assets and liabilities for fiscal years beginning after November
15, 2008. We adopted the provisions of SFAS No. 157 for financial assets and
liabilities on February 3, 2008 and elected to defer adoption for non-financial
assets and liabilities. The adoption of SFAS No. 157 for financial assets did
not have a material impact on our consolidated financial statements. We do not
believe the adoption of SFAS No. 157 for certain non-financial assets and
liabilities will have a material impact on our consolidated financial
statements.

7

---

In February 2007, the FASB issued SFAS
No. 159, "The Fair Value Option for Financial Assets and Financial
LiabilitiesIncluding an Amendment of FASB Statement No. 115" ("SFAS No. 159").
SFAS No. 159 allows companies the choice to measure many financial instruments
and certain other items at fair value. This gives companies the opportunity to
mitigate volatility in reported earnings caused by measuring related assets and
liabilities differently without having to apply complex hedge accounting
provisions. We adopted the provisions of SFAS No. 159 on February 3, 2008. As we
did not elect the fair value measurement option for any of our financial assets
and liabilities, the adoption did not have a material impact on our consolidated
financial statements.

In December 2007, the FASB issued SFAS
No. 141R, "Business Combinations" ("SFAS No. 141R"). SFAS No. 141R requires an
acquirer to recognize the assets acquired, the liabilities assumed, and any
non-controlling interest in the acquired business at the acquisition date,
measured at their full fair values as of that date. SFAS No. 141R is effective
for business combinations occurring after December 31, 2008, with early
application prohibited. We do not believe the adoption of SFAS No. 141R will
have a material impact on our consolidated financial statements.

In December 2007, the FASB issued SFAS
No. 160, "Noncontrolling Interests in Consolidated Financial Statements  an
amendment of ARB No. 51" ("SFAS No. 160"). SFAS No. 160 establishes accounting
and reporting standards that require (i) noncontrolling interests to be reported
as a component of equity, (ii) changes in a parents ownership interest while
the parent retains its controlling interest to be accounted for as equity
transactions, and (iii) any retained noncontrolling equity investment upon the
deconsolidation of a subsidiary to be initially measured at fair value. SFAS No.
160 is effective for fiscal years and interim periods within those fiscal years,
beginning on or after December 15, 2008, with early adoption prohibited. We do
not believe the adoption of SFAS No. 160 will have a material impact on our
consolidated financial statements.

In March 2008, the FASB issued SFAS No.
161, "Disclosures about Derivative Instruments and Hedging Activitiesan
amendment of FASB Statement No. 133" ("SFAS No. 161"). SFAS No. 161 changes the
disclosure requirements for derivative instruments and hedging activities.
Entities are required to provide enhanced disclosures about how and why an
entity uses derivative instruments, how the instruments are accounted for under
FASB Statement No. 133 ("SFAS No. 133") and its related interpretations, and how
the instruments and related hedged items affect an entitys financial position,
financial performance, and cash flows. We early adopted the disclosure
requirements of SFAS No. 161 on February 3, 2008. The adoption did not have a
material impact on our consolidated financial statements.

In April 2008, the FASB issued Staff
Position No. FAS 142-3, "Determination of the Useful Life of Intangible
Assets"("FSP FAS 142-3"), which amends the factors that should be considered in
developing renewal or extension assumptions used to determine the useful life of
a recognized intangible asset under FASB Statement No. 142, "Goodwill and Other
Intangible Assets". FSP FAS 142-3 allows an entity to use its own historical
experience in renewing or extending similar arrangements, adjusted for specified
entity-specific factors, in developing assumptions about renewal or extension
used to determine the useful life of a recognized intangible asset. Additional
disclosures are required to enable financial statement users to assess the
extent to which the expected future cash flows associated with the asset are
affected by the entitys intent and/or ability to renew or extend the
arrangement. The guidance for determining the useful life of a recognized
intangible asset is to be applied prospectively to intangible assets acquired
after the effective date. The disclosure requirements are to be applied
prospectively to all intangible assets recognized as of, and subsequent to, the
effective date. FSP FAS 142-3 is effective for fiscal years and interim periods
within those fiscal years, beginning on or after December 15, 2008, with early
adoption prohibited. We do not believe the adoption of FSP FAS 142-3 will have a
material impact on our consolidated financial statements.

In May 2008, the FASB issued SFAS No.
162, "The Hierarchy of Generally Accepted Accounting Principles" ("SFAS No.
162"). SFAS No. 162 is intended to improve financial reporting by identifying a
consistent framework, or hierarchy, for selecting accounting principles to be
used in preparing financial statements that are presented in conformity with
U.S. GAAP for nongovernmental entities. SFAS No. 162 was effective beginning
November 15, 2008. We do not believe the adoption of SFAS No. 162 will have a
material impact on our consolidated financial statements.

8

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Note 4 - Stock-Based Compensation

Stock Options

The following table summarizes the
stock option transactions pursuant to the stock-based compensation plans for the
nine months ended November 1, 2008:

|                                         |  |           |   |                |           |              |           | Weighted-       |           |   |      
|---------------------------------------- |  | --------- | - | -------------- | --------- | ------------ | --------- | --------------- | --------- | - | -----
|                                         |  |           |   |                |           |              |           | Average         |           |   |      
|                                         |  |           |   |                | Weighted- |              | Remaining |                 | Aggregate
|                                         |  | Number of |   | Average        |           | Contractual  |           | Intrinsic Value
|                                         |  | Shares    |   | Exercise Price |           | Term (Years) |           | (in thousands) 
|Outstanding at February 2, 2008          |  | 637,709   |   |                | $         | 12.40        |           |                 |           |   |      
|Grants                                   |  | 15,000    |   |                |           | 14.79        |           |                 |           |   |      
|Forfeited or expired                     |  | (5,167    | ) |                |           | 13.66        |           |                 |           |   |      
|Exercised                                |  | (123,874  | ) |                |           | 11.11        |           |                 |           |   |      
|Outstanding November 1, 2008             |  | 523,668   |   |                | $         | 12.77        |           | 4.05            |           | $ | 1,187
|Options
      outstanding at November 1, |  |           |   |                |           |              |           |                 |           |   |      
|2008, net of estimated forfeitures       |  | 517,903   |   |                | $         | 12.77        |           | 3.99            |           | $ | 1,177
|Exercisable at November 1, 2008          |  | 478,668   |   |                | $         | 12.78        |           | 3.56            |           | $ | 1,111

The weighted-average fair value of
options granted was $6.46 during the first nine months of fiscal 2008. No stock
options were granted during the first nine months of fiscal 2007. The fair value
of options granted during the first nine months of fiscal 2008 was estimated at
grant date using a Black-Scholes option-pricing model with the following
weighted-average assumptions:

|                              | 2008   
|----------------------------- | -------
|Risk free interest rate       | 3.1    
|Expected
      dividend yield | 0.0    
|Expected volatility           | 45.39  
|Expected
      term           | 5 Years

The risk free interest rate was based
on the U.S. Treasury yield curve in effect at the time of the grant. We had not
paid and do not anticipate paying cash dividends; therefore, the expected
dividend yield was assumed to be zero. Expected volatility was based on the
historical volatility of our stock. The expected term of the options was based
on our historical option exercise data taking into consideration the exercise
and forfeiture patterns of the class of option holders during the options life.

The following table summarizes
information regarding options exercised during the thirteen and thirty-nine week
periods ended November 1, 2008 and November 3, 2007:

|                                      |  |             |           | Thirteen    |   | Thirty-nine |  |            
|------------------------------------- |  | ----------- | --------- | ----------- | - | ----------- |  | -----------
|                                      |  | Thirteen    |           | Weeks       |   | Weeks       |  | Thirty-nine
|                                      |  | Weeks Ended |           | Ended       |   | Ended       |  | Weeks Ended
|                                      |  | November 1, |           | November 3, |   | November 1, |  | November 3,
|                                      |  | 2008        |           | 2007        |   | 2008        |  | **2007**   
|Total intrinsic value(1)              |  | $           | 613,000   |             | $ | 0           |  | $          
|Total cash
      received             |  | $           | 1,084,000 |             | $ | 0           |  | $          
|Associated excess income tax benefits |  |             |           |             |   |             |  |            
|recorded                              |  | $           | 224,000   |             | $ | 0           |  | $          

(1) Defined as the difference between
the market value at exercise and the grant price of stock options exercised.

9

---

The following table summarizes
information regarding outstanding and exercisable options at November 1, 2008:

|                     |                     |                  | **Options Outstanding** |                      | **Options Exercisable**
|-------------------- | ------------------- | ---------------- | ----------------------- | -------------------- | -----------------------
|                     |                     |                  | Number                  |                      | Weighted               
|Range
      of       |                     | of
      Options |                         | Average              |                        
|Exercise
      Price |                     | Outstanding      |                         | Remaining
      Life |                        
|$                    | 4.38 
        5.75 |                  | 61,162                  |                      | 2.09                   
|$                    | 8.56  12.63        |                  | 109,585                 |                      | 4.53                   
|$                    | 12.67 
      16.30 |                  | 195,301                 |                      | 4.91                   
|$                    | 17.12               |                  | 157,620                 |                      | 3.42                   

The following table summarizes
information regarding stock-based compensation expense for non-vested options
recognized during the thirteen and thirty-nine week periods ended November 1,
2008 and November 3, 2007:

|                                        |             |        | Thirteen    |   | Thirty-nine |  |             |       
|--------------------------------------- | ----------- | ------ | ----------- | - | ----------- |  | ----------- | ------
|                                        | Thirteen    |        | Weeks       |   | Weeks       |  | Thirty-nine
|                                        | Weeks Ended |        | Ended       |   | Ended       |  | Weeks Ended
|                                        | November 1, |        | November 3, |   | November 1, |  | November 3,
|                                        | 2008        |        | 2007        |   | 2008        |  | 2007**(1)**
|Stock-based compensation expense before |             |        |             |   |             |  |             |       
|the recognized
      income tax benefit | $           | 11,000 |             | $ | 22,000      |  | $           | 48,000
|Income tax
      benefit                | $           | 4,000  |             | $ | 9,000       |  | $           | 18,000

|(1) |  | Income tax benefit was
      calculated using an adjusted effective tax rate. The adjusted rate removes
      the tax effect of a reduction in state income taxes from state incentives
      related to the investment in our new distribution
  center.
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

As of November 1, 2008, there was
approximately $164,000 of unrecognized compensation expense, net of estimated
forfeitures, remaining related to non-vested stock options. This expense is
expected to be recognized over a period of 2.4 years.

Restricted Stock
Awards

The following table summarizes the
restricted share transactions for the thirty-nine week period ended November 1,
2008:

|                                     |           |   | Weighted-      
|------------------------------------ | --------- | - | ---------------
|                                     | Number of |   | Average Grant  
|                                     | Shares    |   | Date Fair Value
|Non-vested at February 2, 2008       | 130,154   |   |                
|Granted                              | 126,850   |   |                
|Forfeited                            | (10,986   | ) |                
|Non-vested at
      November 1, 2008 | 246,018   |   |                

No previously non-vested stock awards
vested during the first nine months of fiscal 2008. The total fair value at
grant date of previously non-vested stock awards that vested during the first
nine months of fiscal 2007 was $831,000. The weighted-average grant date fair
values of stock awards granted during the thirty-nine week periods ended
November 1, 2008 and November 3, 2007 were $12.54 and $29.42, respectively.

10

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The following table summarizes
information regarding stock-based compensation expense for restricted stock
awards recognized during the thirteen and thirty-nine week periods ended
November 1, 2008 and November 3, 2007:

|                                        |  |             |         | Thirteen    |   | Thirty-nine |  |            
|--------------------------------------- |  | ----------- | ------- | ----------- | - | ----------- |  | -----------
|                                        |  | Thirteen    |         | Weeks       |   | Weeks       |  | Thirty-nine
|                                        |  | Weeks Ended |         | Ended       |   | Ended       |  | Weeks Ended
|                                        |  | November 1, |         | November 3, |   | November 1, |  | November 3,
|                                        |  | 2008        |         | 2007        |   | 2008        |  | 2007(1)    
|Stock-based compensation expense before |  |             |         |             |   |             |  |            
|the
      recognized income tax benefit |  | $           | 118,000 |             | $ | 212,000     |  | $          
|Income tax
      benefit                |  | $           | 40,000  |             | $ | 84,000      |  | $          

|(1) |  | Income tax benefit was
      calculated using an adjusted effective tax rate. The adjusted rate removes
      the tax effect of a reduction in state income taxes from state incentives
      related to the investment in our new distribution
  center.
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

As of November 1, 2008, there was
approximately $1.7 million of unrecognized compensation expense remaining
related to non-vested stock awards. The expense is expected to be recognized
over a weighted average period of 3.8 years, incorporating the current
assumptions of the estimated requisite service period required to achieve the
designated performance conditions for performance-based stock awards.

Employee Stock Purchase
Plan

The following table summarizes
information regarding stock-based compensation expense recognized for the
employee stock purchase plan during the thirteen and thirty-nine week periods
ended November 1, 2008 and November 3, 2007:

|                                           |  |             |       | Thirteen    |   | Thirty-nine |  |            
|------------------------------------------ |  | ----------- | ----- | ----------- | - | ----------- |  | -----------
|                                           |  | Thirteen    |       | Weeks       |   | Weeks       |  | Thirty-nine
|                                           |  | Weeks Ended |       | Ended       |   | Ended       |  | Weeks Ended
|                                           |  | November 1, |       | November 3, |   | November 1, |  | November 3,
|                                           |  | 2008        |       | 2007        |   | 2008        |  | 2007(1)    
|Stock-based compensation expense before    |  |             |       |             |   |             |  |            
|the
      recognized income tax benefit(2) |  | $           | 6,000 |             | $ | 7,000       |  | $          
|Income tax
      benefit                   |  | $           | 2,000 |             | $ | 3,000       |  | $          

|(1) |  | Income tax benefit was
      calculated using an adjusted effective tax rate. The adjusted rate removes
      the tax effect of a reduction in state income taxes from state incentives
      related to the investment in our new distribution center.
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(2) |  | Amounts are
      representative of the 15% discount employees are provided for purchases
      under the employee stock purchase plan.                                                                                                                

Note 5 - Litigation Matters

On or about April 22, 2008, an
arbitration claim was filed by SDI Industries, Inc. ("SDI") against us with the
American Arbitration Association Western Case Management Center in Los Angeles,
California,captioned SDI Industries, Inc.
(Claimant and Counter-Respondent) v. Shoe Carnival, Inc. (Respondent and
Counterclaimant), in which SDI seeks payment
of $1.04 million of unpaid retainage, as defined in our contract with SDI
("Contract"), plus additional interest and fees. The retainage was withheld from
progress billings for work performed on our new distribution center and is
recorded in accrued and other liabilities and fixed assets in our consolidated
financial statements. On or about May 21, 2008, we filed a Counterclaim and
Response in this matter, denying SDI's claim, and seeking monetary damages of
more than $3.0 million. We contend that SDI breached the Contract due to their
failure to deliver our distribution center's material handling system pursuant
to the specifications of the Contract. The hearing before the arbitration panel
is currently scheduled for April 2009.

Although the investment we made in the
new distribution center will satisfy our distribution needs throughout fiscal
2009, we have not achieved the productivity that we expect will be required
based on our plan for long-term store growth. We have contracted with a company
to provide recommendations as to system upgrades to improve throughput.
Modifications are tentatively expected to be complete prior to the end of fiscal
2009.

11

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ITEM 2. MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Factors That May Effect Future
Results

This Quarterly Report on Form 10-Q
contains forward-looking statements, within the meaning of the Private
Securities Litigation Reform Act of 1995, that involve a number of risks and
uncertainties. A number of factors could cause our actual results, performance,
achievements or industry results to be materially different from any future
results, performance or achievements expressed or implied by these
forward-looking statements. These factors include, but are not limited to:
general economic conditions in the areas of the United States in which our
stores are located; the effects and duration of the current economic downturn
and the ailing credit markets; changes in the overall retail environment and
more specifically in the apparel and footwear retail sectors; our ability to
generate increased sales at our stores; the potential impact of national and
international security concerns on the retail environment; changes in our
relationships with key suppliers; the impact of competition and pricing; changes
in weather patterns, consumer buying trends and our ability to identify and
respond to emerging fashion trends; the impact of disruptions in our
distribution or information technology operations; the effectiveness of our
inventory management; the impact of hurricanes or other natural disasters on our
stores, as well as on consumer confidence and purchasing in general; risks
associated with the seasonality of the retail industry; our ability to
successfully execute our growth strategy, including the availability of
desirable store locations at acceptable lease terms, our ability to open new
stores in a timely and profitable manner and the availability of sufficient
funds to implement our growth plans; higher than anticipated costs associated
with the closing of underperforming stores; the inability of manufacturers to
deliver products in a timely manner; changes in the political and economic
environments in the Peoples Republic of China, Brazil, Spain and East Asia, the
primary manufacturers of footwear; and the continued favorable trade relations
between the United States and China and the other countries which are the major
manufacturers of footwear. For a more detailed discussion of certain risk
factors see the "Risk Factors" section of our Annual Report on Form 10-K for the
fiscal year ended February 2, 2008.

General

Managements Discussion and Analysis of
Financial Condition and Results of Operations is intended to provide information
to assist the reader in better understanding and evaluating our financial
condition and results of operations. We encourage you to read this in
conjunction with our condensed consolidated financial statements and the notes
to those statements included in PART I, ITEM 1 FINANCIAL STATEMENTS of this
Quarterly Report on Form 10-Q, as well as our Annual Report on Form 10-K for the
fiscal year ended February 2, 2008 as filed with the SEC.

Overview of Our
Business

Shoe Carnival, Inc. is one of the
nations largest family footwear retailers. As of November 1, 2008, we operated
310 stores in 29 states primarily in the Midwest, South and Southeast regions of
the United States. We offer a distinctive shopping experience, a broad
merchandise assortment and value to our customers while maintaining an efficient
store level cost structure.

Our stores combine competitive pricing
with a highly promotional, in-store marketing effort that encourages customer
participation and creates a fun and exciting shopping experience. We believe
this highly promotional atmosphere results in various competitive advantages,
including increased multiple unit sales; the building of a loyal, repeat
customer base; the creation of word-of-mouth advertising; and enhanced sell
through of in-season goods. Our objective is to be the destination
store-of-choice for a wide range of consumers seeking moderately priced, current
season name brand and private label footwear. Our product assortment includes
dress and casual shoes, sandals, boots and a wide assortment of athletic shoes
for the entire family. We believe that by offering a wide selection of both
athletic and non-athletic footwear, we are able to reduce our exposure to shifts
in fashion preferences between those categories.

12

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Our marketing effort targets moderate
income, value-conscious consumers seeking name brand footwear for all age
groups. We believe that by offering a wide selection of popular styles of name
brand merchandise at competitive prices, we generate broad customer appeal. Our
cost-efficient store operations and real estate strategy enable us to price
products competitively. Low labor costs are achieved by housing merchandise
directly on the selling floor in an open-stock format, enabling customers to
serve themselves, if they choose. This reduces the staffing required to assist
customers and reduces store level labor costs as a percentage of sales. We
locate stores predominantly in strip shopping centers in order to take advantage
of lower occupancy costs and maximize our exposure to value-oriented shoppers.

Critical Accounting Policies

It is necessary for us to include
certain judgments in our reported financial results. These judgments involve
estimates that are inherently uncertain and actual results could differ
materially from these estimates. The accounting policies that require the more
significant judgments are:

Merchandise
Inventories- Merchandise inventories are
stated at the lower of cost or market using the first-in, first-out (FIFO)
method. In determining market value, we estimate the future sales price of items
of merchandise contained in the inventory as of the balance sheet date. Factors
considered in this determination include, among others, current and recently
recorded sales prices, the length of time product has been held in inventory and
quantities of various product styles contained in inventory. The ultimate amount
realized from the sale of certain product could differ materially from our
estimates. We also estimate a shrinkage reserve for the period between the last
physical count and the balance sheet date. The estimate for the shrinkage
reserve can be affected by changes in merchandise mix and changes in actual
shrinkage trends.

Valuation of Long-Lived
Assets- We review long-lived assets whenever
events or circumstances indicate the carrying value of an asset may not be
recoverable and annually when no such event has occurred. We evaluate the
ongoing value of assets associated with retail stores that have been open longer
than one year. When events such as these occur, the assets subject to impairment
are adjusted to estimated fair value and, if applicable, an impairment loss is
recorded in selling, general and administrative expenses. Our assumptions and
estimates used in the evaluation of impairment, including current and future
economic trends for stores, are subject to a high degree of judgment and if
actual results or market conditions differ from those anticipated, additional
losses may be recorded.

Income Taxes- We calculate income taxes in accordance with Statement of
Financial Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes"
("SFAS No. 109") and account for uncertain tax positions in accordance with
Interpretation No. 48, "Accounting for Uncertainty in Income Taxes  an
interpretation of Financial Accounting Standards Board ("FASB") Statement No.
109" ("FIN 48"). Under SFAS No. 109, deferred tax assets and liabilities are
recognized based on the difference between the consolidated financial statement
carrying amounts of existing assets and liabilities and their respective tax
basis. Deferred tax assets and liabilities are measured using the estimated tax
rates in effect in the years when those temporary differences are expected to
reverse. Under FIN 48, we are required to make many subjective assumptions and
judgments regarding our income tax exposures. Interpretations of and guidance
surrounding income tax laws and regulations are often complex, ambiguous and
change over time. As such, changes in our subjective assumptions and judgments
can materially affect amounts recognized in the consolidated financial
statements.

Insurance Reserves -We use a combination of self-insurance and
third-party insurance for workers' compensation, employee medical and general
liability insurance. These plans have stop-loss provisions that protect us from
individual and aggregate losses over specified dollar values. When estimating
our self-insured liabilities, we consider a number of factors, including
historical claims experience, severity factors, statistical trends and, in
certain instances, valuation assistance provided by independent third-parties.
We will continue to evaluate our self-insured liabilities and the underlying
assumptions on a quarterly basis and make adjustments as needed. The ultimate
cost of these claims may be greater than or less than the established accruals.
While we believe that the recorded amounts are adequate, there can be no
assurance that changes to management's estimates will not occur due to
limitations inherent in the estimating process. In the event we determine an
accrual should be increased or reduced, we will record such adjustments in the
period in which such determination is made.

13

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Results of Operations Summary
Information

|                  |  |           |           | Number of
    Stores |        |   |            | Store Square Footage |        |         |       
|----------------- |  | --------- | --------- | -------------------- | ------ | - | ---------- | -------------------- | ------ | ------- | ------
|                  |  | Beginning |           |                      |        |   |            | End of               |        | Net     |       
|Quarter
Ended     |  |           | Of Period |                      | Opened |   | **Closed** |                      | Period |         | Change
|May
      3, 2008 |  | 291       |           | 2                    |        | 0 |            | 293                  |        | 16,000  |       
|August 2, 2008    |  | 293       |           | 12                   |        | 2 |            | 303                  |        | 87,000  |       
|November 1, 2008  |  | 303       |           | 8                    |        | 1 |            | 310                  |        | 62,000  |       
|Year-to-date 2008 |  | 291       |           | 22                   |        | 3 |            | 310                  |        | 165,000 |       
|                 
|May
      5, 2007 |  | 271       |           | 7                    |        | 0 |            | 278                  |        | 66,000  |       
|August 4, 2007    |  | 278       |           | 6                    |        | 0 |            | 284                  |        | 59,000  |       
|November 3, 2007  |  | 284       |           | 11                   |        | 2 |            | 293                  |        | 78,000  |       
|Year-to-date 2007 |  | 271       |           | 24                   |        | 2 |            | 293                  |        | 203,000 |       

Comparable store sales for the periods
indicated include stores that have been open for 13 full months prior to the
beginning of the period, including those stores that have been relocated or
remodeled. Therefore, stores opened or closed during the periods indicated are
not included in comparable store sales.

The following table sets forth our
results of operations expressed as a percentage of net sales for the periods
indicated:

|                                        |  | Thirteen                   |   | Thirteen                   |       | Thirty-nine                |  | Thirty-nine               
|--------------------------------------- |  | -------------------------- | - | -------------------------- | ----- | -------------------------- |  | --------------------------
|                                        |  | Weeks
      Ended          |   | Weeks
      Ended          |       | Weeks
      Ended          |  | Weeks
      Ended         
|                                        |  | **November
      1, 2008** |   | **November
      3, 2007** |       | **November
      1, 2008** |  | **November
      3, 2007**
|Net
      sales                         |  | 100.0                      | % |                            | 100.0 | %                          |  | 100.0                     
|Cost of sales (including
      buying,  |  |                            |   |                            |       |                            |  |                           
|distribution and
      occupancy costs) |  | 72.8                       |   |                            | 70.9  |                            |  | 72.4                      
|Gross
      profit                      |  | 27.2                       |   |                            | 29.1  |                            |  | 27.6                      
|Selling, general
    and                |  |                            |   |                            |       |                            |  |                           
|administrative
      expenses           |  | 24.9                       |   |                            | 25.1  |                            |  | 24.9                      
|Operating income                        |  | 2.3                        |   |                            | 4.0   |                            |  | 2.7                       
|Interest income                         |  | 0.0                        |   |                            | (0.1  | )                          |  | 0.0                       
|Interest expense                        |  | 0.0                        |   |                            | 0.1   |                            |  | 0.0                       
|Income before income
      taxes        |  | 2.3                        |   |                            | 4.0   |                            |  | 2.7                       
|Income tax expense                      |  | 0.8                        |   |                            | 1.6   |                            |  | 1.0                       
|Net income                              |  | 1.5                        | % |                            | 2.4   | %                          |  | 1.7                       

Operational Summary

Labor Day marked the end of our all
important back-to-school season. While we generated slightly positive comparable
store sales in August, sales for the balance of the third quarter declined as
the consumer once again retreated to a conservative shopping pattern. This trend
led to lower customer traffic and a comparable store sales decrease of 5.0%
during the third quarter of fiscal 2008.

Despite the challenging economic
climate, we achieved an increase in the average net price of our footwear and
achieved higher average purchases per ticket, both in terms of dollars spent and
units purchased. Our merchants remained focused on inventory control and were
able to decrease our per store inventory levels by 8% compared to the prior
year. The anticipated increase in the cost of footwear materialized in the third
quarter and we were successful in passing most of these costs through to the
consumer. However, due to the promotional nature of the footwear industry during
the third quarter, these increased costs outweighed the higher average net price
we were able to achieve on our footwear sales. This
contributed to lower merchandise margins during the third quarter as compared to
the prior year.

14

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During the fourth quarter, we will
react to the pricing and promotional cadence of our competitors in the footwear
marketplace. Consequently, our stated initiative of increasing the average
retail price on footwear sales may be difficult as we expect the holiday retail
environment to become increasingly promotional and price-sensitive. We fully
expect to continue to lower inventory levels, especially on seasonal product.
While we will invest heavily in advertising during peak sales periods, we do not
believe the consumer is reacting to advertising in non-peak periods. Just as we
reduced our advertising in the second and third quarters, we plan to continue
this strategy in the fourth quarter, concentrating our advertising efforts on
weeks in which we expect the consumer to make the majority of their holiday
purchases.

Despite the protracted economic
downturn, we believe we have the management discipline, correct operating
strategies and financial strength to maintain profitable operations on an annual
basis. We also believe these strengths will enable us to continue expanding our
market share to enhance shareholder value. Raising the net realized price of our
footwear, putting downward pressure on inventory levels to improve turnover,
controlling expenses and continuing to maintain a strong balance sheet with a
healthy cash position will remain our priorities through fiscal 2009.

Results of Operations for the Third
Quarter Ended November 1, 2008

Net Sales

Net sales decreased $3.8 million to
$170.1 million during the third quarter ended November 1, 2008, a 2.2% decrease
from net sales of $173.9 million in the third quarter ended November 3, 2007.
The decrease in net sales was primarily due to a 5.0% decrease in comparable
store sales, which was partially offset by a $4.6 million increase in sales
generated by the 38 new stores opened since July of fiscal 2007, net of sales
lost from the eight stores which were closed during this same period.

Gross Profit

Gross profit decreased $4.3 million to
$46.3 million in the third quarter of fiscal 2008 from gross profit of $50.6
million in the comparable prior year period. Our gross profit margin in the
third quarter of fiscal 2008 decreased to 27.2% from 29.1% in the comparable
prior year period. During the quarter, heavy promotions were necessary in the
women's non-athletic category to keep inventory turning at an acceptable level.
This was the primary cause of the 1.1% decrease in our merchandise margin
compared to the prior year. Additionally, we experienced a 0.8% increase in
occupancy costs, as a percentage of sales, primarily as a result of the lower
comparable store sales and an increase in costs due to the additional stores we
operated in the third quarter of 2008.

Selling, General and Administrative
Expenses

In the third quarter of fiscal 2008,
selling, general and administrative expenses decreased $1.2 million to $42.4
million, or 24.9% of sales, from $43.6 million, or 25.1% of sales, in the
comparable prior year period. The $1.2 million in savings was primarily the
result of a $1.5 million reduction in advertising costs from our decision to
decrease advertising during non-peak periods along with a $1.0 million decrease
in the expense for employee incentives and benefits. These decreases were
partially offset by $1.6 million of additional costs incurred from the operation
and support of the net new stores opened since July of fiscal 2007.

Pre-opening costs were $386,000, or
0.2% of sales, for the third quarter of fiscal 2008 as compared to $407,000, or
0.2% of sales, for the third quarter of fiscal 2007. We opened eight stores in
the third quarter of fiscal 2008 as compared to 11 stores in the third quarter
of fiscal 2007. Pre-opening costs, such as advertising, payroll and supplies,
incurred prior to the opening of a new store are charged to expense in the
period they are incurred. The total amount of pre-opening expense incurred will
vary by store depending on the specific market and the promotional activities
involved.

15

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Store closing costs included in
selling, general and administrative expenses were $417,000, or 0.2% of sales,
for the third quarter of fiscal 2008 as compared to $96,000, or 0.1% of sales,
for the third quarter of fiscal 2007. One store was closed during the third
quarter of fiscal 2008 and two stores were closed during the third quarter of
fiscal 2007. The timing and actual amount of expense recorded in closing a store
can vary significantly depending in part on the period in which management
commits to a closing plan, the remaining basis in the fixed assets to be
disposed of at closing and the amount of any lease buyout.

Interest (Income) Expense, Net

We recorded net interest income of
$20,000 in the third quarter of fiscal 2008 as compared to net interest expense
of $14,000 in the third quarter of the prior year. This increase in interest
income was primarily the result of an increase in the cash available for
short-term investment.

Income Taxes

The effective income tax rate for the
third quarter of fiscal 2008 decreased to 34.0% from 39.5% for the same time
period in fiscal 2007. The reduction in rate was primarily due to the decrease
in our federal taxable rate from the maximum of 35% to approximately 33.6% based
on our projected reduction in taxable income. This adjustment to lower the
year-to-date federal rate was reflected in our third quarter income tax expense.

Net Income

Net income for the third quarter of
fiscal 2008 decreased to $2.6 million, or $0.21 per diluted share, from $4.2
million, or $0.33 per diluted share, in the third quarter of fiscal
2007.

Our average diluted shares outstanding
at the end of the third quarter of fiscal 2008 were 12.5 million or
approximately 1.9% lower than the 12.8 million average diluted shares
outstanding at the end of the third quarter last year. This decrease was
primarily due to the 1.2 million shares repurchased in fiscal 2007 as part of
our $50.0 million share repurchase program.

Results Of Operations for the Nine Months Ended November 1, 2008

Net Sales

Net sales decreased $3.6 million to
$490.7 million during the nine months ended November 1, 2008, from net sales of
$494.3 million in the comparable prior year period. The decrease in net sales
was primarily due to a 3.7% decrease in comparable store sales, which was
partially offset by a $13.5 million increase in sales generated by the 47 new
stores opened since February 3, 2007, net of sales lost from the eight stores
which were closed during this same period.

Gross Profit

Gross profit decreased $5.1 million to
$135.5 million in the first nine months of fiscal 2008 from gross profit of
$140.6 million in the comparable prior year period. Our gross profit margin in
the first nine months of fiscal 2008 decreased to 27.6% from 28.5% in the
comparable prior year period. The merchandise margin decreased 0.4%, while
buying, distribution and occupancy costs increased 0.5% as a percentage of
sales. We experienced a 0.6% increase in occupancy costs, as a percentage of
sales, primarily as a result of the lower comparable store sales and an increase
in costs due to the additional stores we operated throughout the year. This
increase, as a percentage of sales, was partially offset by a 0.2% decline in
distribution costs. Our distribution costs, both as a percentage of sales and in
dollars, declined primarily as a result of costs associated with the conversion
to our new distribution center during the first quarter of the prior
year.

16

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Selling, General and Administrative
Expenses

Selling, general and administrative
expenses decreased $697,000 to $122.4 million in the first nine months of fiscal
2008 from $123.1 million in the comparable prior year period. For both periods,
selling, general and administrative expenses represented 24.9% of sales. The
$697,000 in savings was primarily the result of a $4.2 million reduction in
advertising costs along with a $1.3 million decrease in expense for employee
incentives and benefits. Our decision to lower advertising costs was based on
current market trends, store performance and an overall decrease in advertising
during non-peak periods. These decreases were partially offset by $4.1 million
of additional costs incurred from the operation and support of the net new
stores opened since February of fiscal 2007.

Pre-opening costs were $826,000, or
0.2% of sales, for the first nine months of fiscal 2008 as compared to $963,000,
or 0.2% of sales, for the first nine months of fiscal 2007. We opened 22 stores
in the first nine months of fiscal 2008 as compared to 24 stores in the first
nine months of fiscal 2007. Pre-opening costs, such as advertising, payroll and
supplies, incurred prior to the opening of a new store are charged to expense in
the period they are incurred. The total amount of pre-opening expense incurred
will vary by store depending on the specific market and the promotional
activities involved.

Store closing costs included in
selling, general and administrative expenses were $1.1 million, or 0.2% of
sales, for the first nine months of fiscal 2008 as compared to $525,000, or 0.1%
of sales, for the first nine months of fiscal 2007. Three stores were closed
during the first nine months of fiscal 2008 and two stores were closed during
the first nine months of fiscal 2007. We expect to close nine stores during the
remainder of fiscal 2008 as compared to three stores in the last quarter of
fiscal 2007. We will continue to evaluate underperforming stores for possible
closing on a routine basis, which may result in the identification of additional
store closings for the current or future fiscal years. The timing and actual
amount of expense recorded in closing a store can vary significantly depending
in part on the period in which management commits to a closing plan, the
remaining basis in the fixed assets to be disposed of at closing and the amount
of any lease buyout.

Interest (Income) Expense, Net

We recorded net interest income of
$27,000 in the first nine months of fiscal 2008 as compared to net interest
income of $432,000 in the first nine months of the prior year. This decrease in
interest income was primarily the result of a decline in the cash available for
short-term investment.

Income Taxes

The effective income tax rate for the
first nine months of fiscal 2008 increased to 36.6% from 35.0% compared to the
same time period in 2007. Our federal income tax rate was lower than last year
due to lower taxable income while our state tax rate was higher than last year
because during fiscal 2007 we experienced a one-time reduction in state income
taxes from state incentives related to the investment in our new distribution
center.

Net Income

For the first nine months of fiscal
2008, net income decreased to $8.4 million, or $0.67 per diluted share, from
$11.7 million, or $0.87 per diluted share, in the first nine months of fiscal
2007.

Our average diluted shares outstanding
at the end of the first nine months of fiscal 2008 were 12.5 million or
approximately 6.6% lower than the 13.4 million average diluted shares
outstanding at the end of the first nine months last year. This decrease was
primarily due to the 1.2 million shares repurchased in fiscal 2007 as part of
our $50.0 million share repurchase program.

17

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Liquidity and Capital
Resources

Our primary sources of funds are cash
flows from operations and borrowings under our revolving credit facility. Our
net cash provided by operations was $10.8 million in the first nine months of
fiscal 2008 as compared to net cash used in operations of $2.3 million in the
first nine months of 2007, for an increase of net cash provided by operations of
$13.1 million. This difference, when comparing the two periods of each year, was
primarily due to a reduction in inventory on a per store basis and the timing of
payments for accounts payable and accrued liabilities partially offset by a
decrease in net income.

Working capital decreased to $150.4
million at November 1, 2008 from $154.5 million at November 3, 2007 primarily as
a result of our reduction in inventory. The current ratio at November 1, 2008
was 3.3 compared to 3.4 at November 3, 2007. We had no long-term debt at
November 1, 2008 compared to $14.2 million at November 3, 2007.

We expended $12.6 million in cash
during the first nine months of fiscal 2008 for the purchase of property and
equipment. Of this amount, $10.2 million was used for new stores, store
remodeling and store relocation projects. The remaining capital expenditures
were used primarily for information technology and miscellaneous equipment
purchases. Additional capital expenditures of approximately $5.0 million will be
made over the course of fiscal 2008 for the opening of new stores, store
remodels and various other store improvements. During the nine months ended
November 1, 2008, we received $817,000 in lease incentives from our landlords
and we anticipate receiving a total of $2.0 million in lease incentives from our
landlords for fiscal 2008.

During the first nine months of fiscal
2008, we opened 22 new stores. This compares to 24 store openings in the first
nine months of fiscal 2007. We anticipate opening two additional stores and
closing nine stores during the remainder of fiscal 2008. Throughout the year,
our actual amount of cash required for capital expenditures for store operations
depends in part on the number of new stores opened, the amount of lease
incentives, if any, received from landlords and the number of stores remodeled.
The opening of new stores will be dependent upon, among other things, the
availability of desirable locations, the negotiation of acceptable lease terms
and general economic and business conditions affecting consumer spending in
areas we target for expansion.

Our current store prototype uses
between 6,500 and 12,000 square feet depending upon, among other factors, the
location of the store and the population base the store is expected to service.
For fiscal 2008, our new stores will average approximately 8,900 square feet.
Capital expenditures for a new store in fiscal 2008 are expected to average
approximately $290,000 and tenant improvement allowances are expected to average
$30,000. The average inventory investment in a new store is expected to range
from $300,000 to $550,000 depending on the size and sales expectation of the
store and the timing of the new store opening. Pre-opening expenses, such as
advertising, salaries and supplies, are expected to average approximately
$40,000 per store in fiscal 2008, with individual stores experiencing variances
in expenditure levels based on the specific market.

As of November 1, 2008, our unsecured
credit facility provided for up to $95.0 million in cash advances on a revolving
basis and commercial letters of credit. Borrowings under the revolving credit
line are based on eligible inventory. The agreement governing the credit
facility stipulates a minimum threshold for net worth, a maximum ratio of funded
debt plus rent to EBITDA plus rent, and a maximum of total distributions for
stock repurchases and cash dividends. We were in compliance with these
requirements as of November 1, 2008. Should a default condition be reported, the
lenders may preclude additional borrowings and call all loans and accrued
interest at their discretion. At November 1, 2008, there were no borrowings
outstanding under the credit facility and $2.9 million in letters of credit were
outstanding. As of November 1, 2008, $92.1 million was available to us for
additional borrowings under the credit facility.

During fiscal 2006, our Board of
Directors authorized a $50.0 million share repurchase program, which would
terminate upon the earlier of the repurchase of the maximum amount or December
31, 2008. On October 8, 2008, the Board of Directors extended the date of
termination one year to December 31, 2009. Share repurchases under this
authorization may be made in the open market or in privately negotiated
transactions. The timing and actual number of shares repurchased will depend on
a variety of factors including price, corporate and regulatory requirements and other market conditions. As of November 1, 2008,
approximately 1.2 million shares had been repurchased at an aggregate cost of
$28.1 million. The amount that remained available under the existing repurchase
authorization at November 1, 2008 was $21.9 million. No shares have been
repurchased during fiscal 2008.

18

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On or about April 22, 2008, an
arbitration claim was filed by SDI Industries, Inc. ("SDI") against us with the
American Arbitration Association Western Case Management Center in Los Angeles,
California,captioned SDI Industries, Inc.
(Claimant and Counter-Respondent) v. Shoe Carnival, Inc. (Respondent and
Counterclaimant), in which SDI seeks payment
of $1.04 million of unpaid retainage, as defined in our contract with SDI
("Contract"), plus additional interest and fees. The retainage was withheld from
progress billings for work performed on our new distribution center and is
recorded in accrued and other liabilities and fixed assets in our consolidated
financial statements. On or about May 21, 2008, we filed a Counterclaim and
Response in this matter, denying SDI's claim, and seeking monetary damages of
more than $3.0 million. We contend that SDI breached the Contract due to their
failure to deliver our distribution center's material handling system pursuant
to the specifications of the Contract. The hearing before the arbitration panel
is currently scheduled for April 2009.

Although the investment we made in the
new distribution center will satisfy our distribution needs throughout fiscal
2009, we have not achieved the productivity that we expect will be required in
three to five years, based on our long-term store growth plan. We have
contracted with a company to provide recommendations as to system upgrades to
improve throughput. Modifications are tentatively expected to be complete prior
to the end of fiscal 2009.

We anticipate that our existing cash
and cash flow from operations, supplemented by borrowings under our revolving
credit line, will be sufficient to fund our planned store expansion along with
other capital expenditures, any future repurchase of our common stock under our
current repurchase plan and working capital requirements for at least the next
12 months.

Seasonality

Our quarterly results of operations
have fluctuated and are expected to continue to fluctuate in the future
primarily as a result of seasonal variances and the timing of sales and costs
associated with opening new stores. Non-capital expenditures, such as
advertising and payroll, incurred prior to opening a new store are charged to
expense as incurred. Therefore, our results of operations may be adversely
affected in any quarter in which we incur pre-opening expenses related to the
opening of new stores.

We have three distinct peak selling
periods: Easter, back-to-school and Christmas.

New Accounting Pronouncements

Recent accounting pronouncements
applicable to our operations are contained in Note 3  "Recently Issued
Accounting Pronouncements" contained in the Notes to Condensed Consolidated
Financial Statements included in PART I, ITEM 1. FINANCIAL STATEMENTS of this
Quarterly Report on Form 10-Q.

19

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ITEM 3. QUANTITATIVE AND QUALITATIVE
DISCLOSURES ABOUT MARKET RISK

We are exposed to market risk in that
the interest payable under our credit facility is based on variable interest
rates and therefore is affected by changes in market rates. We do not use
interest rate derivative instruments to manage exposure to changes in market
interest rates. A 1% change in the weighted average interest rate charged under
the credit facility would have resulted in interest expense fluctuating by less
than $1,000 for the first nine months of fiscal 2008.

ITEM 4. CONTROLS AND PROCEDURES

Our Chief Executive Officer and Chief
Financial Officer have concluded, based on their evaluation as of November 1,
2008, that our disclosure controls and procedures are effective to ensure that
information required to be disclosed by us in the reports filed or submitted by
us under the Securities Exchange Act of 1934, as amended, is recorded,
processed, summarized and reported within the time periods specified in the
Securities and Exchange Commission's rules and forms, and include controls and
procedures designed to ensure that information required to be disclosed by us in
such reports is accumulated and communicated to our management, including the
Chief Executive Officer and Chief Financial Officer, as appropriate to allow
timely decisions regarding required disclosure.

Management is continuously seeking to
improve the efficiency and effectiveness of our operations and internal
controls. This results in refinements to processes throughout the company. As
part of our continued strategy to grow our store base and increase capacity, we
are in the process of redesigning certain elements of the material handling
system in our distribution center. The internal controls impacted by this
project are mainly automated and operational in nature. See our Notes to
Condensed Consolidated Financial Statements, Note 5  "Litigation Matters"
included in PART I, ITEM 1. FINANCIAL STATEMENTS of this Quarterly Report on
Form 10-Q for further details on this matter. There have been no other changes
in our internal control over financial reporting that occurred during the
quarter ended November 1, 2008 that have materially affected, or are reasonably
likely to materially affect, our internal control over financial reporting.

20

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SHOE CARNIVAL, INC. PART II -
OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

The information set forth in Note 5 
"Litigation Matters" contained in the Notes to Condensed Consolidated Financial
Statement included in PART I, ITEM 1. FINANCIAL STATEMENTS of this Quarterly
Report on Form 10-Q is incorporated herein by reference.

ITEM 1A. RISK FACTORS

You should carefully consider the risks
and uncertainties we describe both in this Quarterly Report on Form 10-Q and in
the "Risk Factors" section of our Annual Report on Form 10-K for the fiscal year
ended February 2, 2008 before deciding to invest in, or retain, shares of our
common stock. These are not the only risks and uncertainties that we face.
Additional risks and uncertainties that we do not currently know about, we
currently believe are immaterial or we have not predicted may also harm our
business operations or adversely affect us. If any of these risks or
uncertainties actually occur, our business, financial condition, results of
operations or cash flows could be materially adversely affected. There have been
no material changes to the risk factors set forth in our Annual Report on Form
10-K for the fiscal year ended February 2, 2008.

21

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ITEM 6. EXHIBITS

| | (a) |  |     |  | Exhibits                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | --- |  | --- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |  |     |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |     |  | 3-A |  | Restated Articles of Incorporation
      of Registrant (incorporated herein by reference from the same exhibit
      number to the Registrant's Annual Report on Form 10-K for the year ended
      February 2, 2002)                                                                                                                                                                                                                                                                    
| |     |  |     |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |     |  | 3-B |  | By-laws of Registrant, as amended
      to date (incorporated herein by reference from the same exhibit number to
      our Current Report on Form 8-K filed on March 19, 2007)                                                                                                                                                                                                                                                                                                          
| |     |  |     |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |     |  | 4   |  | (i) Amended and
      Restated Credit Agreement and Promissory Notes dated April 16, 1999,
      between Registrant and Mercantile Bank National Association, First Union
      National Bank and Old National Bank (incorporated herein by reference from
      Exhibit 4(I) to the Registrant's Annual Report on Form 10-K for the year
      ended January 30, 1999)                                                                                                                  
| |     |  |    
| |     |  |     |  | (ii) Amendment to
      Amended and Restated Credit Agreement and Promissory Notes dated March 24,
      2000, between Registrant and Mercantile Bank National Association, First
      Union National Bank and Old National Bank (incorporated herein by
      reference from the same exhibit number to the Registrant's Annual Report
      on Form 10-K for the year ended January 29, 2000)                                                                                         
| |     |  |    
| |     |  |     |  | (iii) Second Amendment
      to Amended and Restated Credit Agreement and Promissory Notes dated
      November 8, 2000, between Registrant and Firstar Bank N.A., First Union
      National Bank, Old National Bank and LaSalle Bank National Association
      (incorporated herein by reference from the same exhibit number to the
      Registrant's Quarterly Report on Form 10-Q for the quarter ended October
      28, 2000)                                                   
| |     |  |    
| |     |  |     |  | (iv) Third Amendment
      to Amended and Restated Credit Agreement and Promissory Notes dated March
      18, 2002, between Registrant and U.S. Bank National Association, First
      Union National Bank, Old National Bank and LaSalle Bank National
      Association (incorporated herein by reference from the same exhibit number
      to the Registrant's Annual Report on Form 10-K for the year ended February
      2, 2002)                                                
| |     |  |    
| |     |  |     |  | (v) Fourth Amendment
      to Amended and Restated Credit Agreement and Promissory Notes dated March
      12, 2003, between Registrant and U.S. Bank National Association, Wachovia
      Bank National Association, Old National Bank and LaSalle Bank National
      Association (incorporated herein by reference from the same exhibit number
      to the Registrant's Annual Report on Form 10-K for the year ended February
      1, 2003)                                       
| |     |  |    
| |     |  |     |  | (vi) Fifth Amendment
      to Amended and Restated Credit Agreement and Promissory Notes dated April
      5, 2004, between Registrant and U.S. Bank National Association, Wachovia
      Bank National Association, Old National Bank and LaSalle Bank National
      Association (incorporated herein by reference from the same exhibit number
      to the Registrant's Annual Report on Form 10-K for the year ended January
      31, 2004)                                        
| |     |  |    
| |     |  |     |  | (vii) Assignment
      Agreement dated June 1, 2004 among LaSalle Bank National Association as
      Assignor, Fifth Third Bank (Southern Indiana) as Assignee, Registrant as
      Borrower and U.S. Bank National Association as Agent relating to the
      Amended and Restated Credit Agreement as further amended (incorporated
      herein by reference from the same exhibit number to the Registrant's
      Quarterly Report on Form 10-Q for the quarter ended May 1,
  2004)

22

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| | (a) |  |      |  | Exhibits (continued)                                                                                                                                                                                                                                                                                                                                                                                                        
| | --- |  | ---- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |  |      |  |                                                                                                                                                                                                                                                                                                                                                                                                                             
| |     |  |      |  | (viii) Sixth Amendment to Amended
      and Restated Credit Agreement and Notes dated April 5, 2005, between
      Registrant and U.S. Bank National Association, Wachovia Bank National
      Association, Fifth Third Bank (Southern Indiana) and Old National Bank
      (incorporated herein by reference from the same exhibit number to the
      Registrant's Current Report on Form 8-K filed on April 11,
    2005)
| |     |  |      |  |                                                                                                                                                                                                                                                                                                                                                                                                                             
| |     |  |      |  | (ix) Seventh Amendment to Amended
      and Restated Credit Agreement and Notes dated March 31, 2006, between
      Registrant and U.S. Bank National Association, Wachovia Bank, National
      Association and Fifth Third Bank (incorporated herein by reference from
      the same exhibit number to the Registrant's Current Report on Form 8-K
      filed on April 4, 2006)                                         
| |     |  |      |  |                                                                                                                                                                                                                                                                                                                                                                                                                             
| |     |  |      |  | (x) Eighth Amendment to Amended
      and Restated Credit Agreement and Notes dated December 15, 2006, between
      Registrant and U.S. Bank National Association, Wachovia Bank, National
      Association and Fifth Third Bank (incorporated herein by reference from
      the same exhibit number to the Registrant's Current Report on Form 8-K
      filed on December 11, 2006)                                    
| |     |  |      |  |                                                                                                                                                                                                                                                                                                                                                                                                                             
| |     |  |      |  | (xi) Ninth Amendment to
      Amended and Restated Credit Agreement and Notes dated June 10, 2008,
      between Registrant and U.S. Bank National Association, Wachovia Bank,
      National Association and Fifth Third Bank (incorporated herein by
      reference from the same exhibit number to the Registrant's Quarterly
      Report on Form 10-Q for the quarter ended May 3, 2008)                              
| |     |  |     
| |     |  | 10.1 |  | Shoe Carnival, Inc.
      Deferred Compensation Plan (incorporated herein by reference from the same
      exhibit number to the Registrants' Current Report on Form 8-K filed on
      October 14, 2008)                                                                                                                                                                                                                   
| |     |  |     
| |     |  | 10.2 |  | 2000 Stock Option and Incentive
      Plan of Registrant, as amended                                                                                                                                                                                                                                                                                                                                                        
| |     |  |     
| |     |  | 31.1 |  | Certification of Chief
      Executive Officer Pursuant to Rule 13a-14(a)/15d-14(a) of the Securities
      Exchange Act of 1934, as Adopted Pursuant to Section 302 of the
      Sarbanes-Oxley Act of 2002                                                                                                                                                                                                                
| |     |  |     
| |     |  | 31.2 |  | Certification of Chief
      Financial Officer Pursuant to Rule 13a-14(a)/15d-14(a) of the Securities
      Exchange Act of 1934, as Adopted Pursuant to Section 302 of the
      Sarbanes-Oxley Act of 2002                                                                                                                                                                                                                
| |     |  |     
| |     |  | 32.1 |  | Certification of Chief
      Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant
      to Section 906 of the Sarbanes-Oxley Act of 2002                                                                                                                                                                                                                                                               
| |     |  |     
| |     |  | 32.2 |  | Certification of Chief Financial
      Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section
      906 of the Sarbanes-Oxley Act of
2002                                                                                                                                                                                                                                                               

23

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SHOE CARNIVAL, INC.SIGNATURE

Pursuant to the requirements of the
Securities Exchange Act of 1934, the registrant has duly caused this report to
be signed, on its behalf by the undersigned thereunto duly authorized.

|Date: December 11,
      2008 | SHOE CARNIVAL, INC.           | 
|----------------------------- | ----------------------------- | 
|                              | (Registrant)                  | 
|                              |                              
|                              |                              
|                              | By:/s/ W. Kerry
      Jackson | 
|                              | W. Kerry Jackson              | 
|                              | Executive Vice President and  | 
|                              | Chief Financial Officer       | 

24

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