UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Form 10-Q



|[X]   |                                                                             | Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 
|----- | --------------------------------------------------------------------------- | ----------------------------------------------------------------------------------------
|      | For the quarterly period endedAugust 2, 2003                               
|      | 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
incorporation or organization) |  | (IRS Employer Identification Number)
|                                                               |  |                                     
|8233 Baumgart Road
Evansville, IN                              |  | 47725                               
|                                                               |  |                                     
|(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 an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

| | [X] | Yes |  | [  ] | 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.

Common Stock, $.01 par value, 12,689,188 shares outstanding as of September 12, 2003



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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 - 8                                                                                
|        |                                                          |                                                                                       |       
|        | Item 2.                                                  | Management's Discussion and Analysis of Financial Condition and Results of Operations | 9 - 13
|        |                                                          |                                                                                       |       
|        | Item 3.                                                  | Quantitative and Qualitative Disclosures About Market Risk                            | 13    
|        |                                                          |                                                                                       |       
|        | Item 4.                                                  | Controls and Procedures                                                               | 13    
|        |                                                          |                                                                                      
|Part II | Other Information                                        |                                                                                      
|        |                                                          |                                                                                       |       
|        | Item 4.                                                  | Submission of Matters to Vote of Security Holders                                     | 14    
|        |                                                          |                                                                                       |       
|        | Item 6.                                                  | Exhibits and Reports on Form 8-K                                                      | 14    
|        |                                                          |                                                                                      
|        | Signature                                                | 15                                                                                   



---

SHOE CARNIVAL, INC.
PART I - FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS

SHOE CARNIVAL, INC. 
CONDENSED CONSOLIDATED BALANCE SHEETS



|                                                    |  | August 2, |         | February 1, |   | August 3, |          
|--------------------------------------------------- |  | --------- | ------- | ----------- | - | --------- | ---------
|(In thousands)                                      |  | 2003      |         | 2003        |   | 2002      |          
|                                                    |  |           |         |             |   |           |          
|                                                    |  | Unaudited |         |             |   |           | Unaudited
|                                                    |  |           |         |             |   |           |          
|ASSETS                                             
|Current Assets:                                     |  |           |         |             |   |           |          
|Cash and cash equivalents                           |  | $         | 10,190  |             | $ | 5,782     |          
|Accounts receivable                                 |  |           | 1,772   |             |   | 1,134     |          
|Merchandise inventories                             |  |           | 171,979 |             |   | 146,091   |          
|Deferred income tax benefit                         |  |           | 909     |             |   | 901       |          
|Other                                               |  |           | 3,388   |             |   | 1,890     |          
|                                                    |  |           |         |             |   |           |          
|Total Current Assets                                |  |           | 188,238 |             |   | 155,798   |          
|Property and equipment-net                          |  |           | 67,701  |             |   | 63,477    |          
|                                                    |  |           |         |             |   |           |          
|Total Assets                                        |  | $         | 255,939 |             | $ | 219,275   |          
|                                                    |  |           |         |             |   |           |          
|                                                    |  |           |         |             |   |           |          
|                                                    |  |           |         |             |   |           |          
|LIABILITIES AND SHAREHOLDERS' EQUITY               
|Current Liabilities:                                |  |           |         |             |   |           |          
|Accounts payable                                    |  | $         | 63,906  |             | $ | 49,847    |          
|Accrued and other liabilities                       |  |           | 10,806  |             |   | 9,276     |          
|Current portion of long-term debt                   |  |           | 298     |             |   | 427       |          
|                                                    |  |           |         |             |   |           |          
|Total Current Liabilities                           |  |           | 75,010  |             |   | 59,550    |          
|Long-term debt                                      |  |           | 27,949  |             |   | 15,503    |          
|Deferred lease incentives                           |  |           | 6,992   |             |   | 5,262     |          
|Accrued rent                                        |  |           | 2,623   |             |   | 2,458     |          
|Deferred income taxes                               |  |           | 4,440   |             |   | 4,971     |          
|Other                                               |  |           | 927     |             |   | 640       |          
|                                                    |  |           |         |             |   |           |          
|Total Liabilities                                   |  |           | 117,941 |             |   | 88,384    |          
|                                                    |  |           |         |             |   |           |          
|                                                    |  |           |         |             |   |           |          
|Shareholders' Equity:                               |  |           |         |             |   |           |          
|Common stock, $.01 par value, 50,000                |  |           |         |             |   |           |          
|shares authorized, 13,363 shares                    |  |           |         |             |   |           |          
|issued at August 2, 2003, February 1, 2003          |  |           |         |             |   |           |          
|and August 3, 2002                                  |  |           | 134     |             |   | 134       |          
|Additional paid-in capital                          |  |           | 66,001  |             |   | 65,828    |          
|Retained earnings                                   |  |           | 76,712  |             |   | 70,091    |          
|Treasury stock, at cost 701, 746 and 773 shares at  |  |           |         |             |   |           |          
|August 2, 2003, February 1, 2003 and August 3, 2002 |  |           | (4,849  | )           |   | (5,162    | )        
|                                                    |  |           |         |             |   |           |          
|Total Shareholders' Equity                          |  |           | 137,998 |             |   | 130,891   |          
|                                                    |  |           |         |             |   |           |          
|Total Liabilities and Shareholders' Equity          |  | $         | 255,939 |             | $ | 219,275   |          
|                                                    |  |           |         |             |   |           |          

See notes to condensed consolidated financial statements.



---

SHOE CARNIVAL, INC. 
CONDENSED CONSOLIDATED STATEMENTS OF INCOME 
Unaudited

|                                      | Thirteen       | Thirteen       | Twenty-six     | Twenty-six    
|------------------------------------- | -------------- | -------------- | -------------- | --------------
|                                      | Weeks Ended    | Weeks Ended    | Weeks Ended    | Weeks Ended   
|(In thousands, except per share data) | August 2, 2003 | August 3, 2002 | August 2, 2003 | August 3, 2002
|                                      |                |                |                |               
|Net sales                             |                |                | $              | 134,463       
|Cost of sales (including buying,      |                |                |                |               
|distribution and occupancy costs)     |                |                |                | 97,512        
|                                      |                |                |                |               
|                                      |                |                |                |               
|Gross profit                          |                |                |                | 36,951        
|Selling, general and administrative   |                |                |                |               
|Expenses                              |                |                |                | 34,309        
|                                      |                |                |                |               
|                                      |                |                |                |               
|Operating income                      |                |                |                | 2,642         
|Interest expense-net                  |                |                |                | 176           
|                                      |                |                |                |               
|                                      |                |                |                |               
|Income before income taxes            |                |                |                | 2,466         
|Income tax expense                    |                |                |                | 925           
|                                      |                |                |                |               
|                                      |                |                |                |               
|Net income                            |                |                | $              | 1,541         
|                                      |                |                |                |               
|                                      |                |                |                |               
|Net income per share:                 |                |                |                |               
|Basic                                 |                |                | $              | .12           
|                                      |                |                |                |               
|Diluted                               |                |                | $              | .12           
|                                      |                |                |                |               
|                                      |                |                |                |               
|Average shares outstanding:           |                |                |                |               
|Basic                                 |                |                |                | 12,652        
|                                      |                |                |                |               
|Diluted                               |                |                |                | 13,018        
|                                      |                |                |                |               

See notes to condensed consolidated financial statements.



---

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

|                            |              |  |          |         |        |          |     |          | Additional |          |        |  |       |        |  |       |        |   | 
|--------------------------- | ------------ |  | -------- | ------- | ------ | -------- | --- | -------- | ---------- | -------- | ------ |  | ----- | ------ |  | ----- | ------ | - | 
|                            | Common Stock |  |          | Paid-In |        | Retained |     | Treasury |            |          |        | 
|(In thousands)              | Issued       |  | Treasury |         | Amount |          |     | Capital  |            | Earnings |        |  | Stock |        |  | Total
|                            |              |  |          |         |        |          |     |          |            |          |        |  |       |        |  |       |        |   | 
|                            |              |  |          |         |        |          |     |          |            |          |        |  |       |        |  |       |        |   | 
|                            |              |  |          |         |        |          |     |          |            |          |        |  |       |        |  |       |        |   | 
|Balance at February 1, 2003 | 13,363       |  | (746     | )       |        | $        | 134 |          |            | $        | 65,828 |  | $     | 70,091 |  | $     | (5,162 | ) | 
|Exercise of stock options   |              |  | 37       |         |        |          |     |          |            |          | 128    |  |       |        |  |       | 260    |   | 
|Employee stock purchase     |              |  |          |         |        |          |     |          |            |          |        |  |       |        |  |       |        |   | 
|plan purchases              |              |  | 8        |         |        |          |     |          |            |          | 45     |  |       |        |  |       | 53     |   | 
|Net income                  |              |  |          |         |        |          |     |          |            |          |        |  |       | 6,621  |  |       |        |   | 
|                            |              |  |          |         |        |          |     |          |            |          |        |  |       |        |  |       |        |   | 
|Balance at August 2, 2003   | 13,363       |  | (701     | )       |        | $        | 134 |          |            | $        | 66,001 |  | $     | 76,712 |  | $     | (4,849 | ) | 
|                            |              |  |          |         |        |          |     |          |            |          |        |  |       |        |  |       |        |   | 

See notes to condensed consolidated financial statements.



---

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

|                                                         | Twenty-six     |         | Twenty-six    
|-------------------------------------------------------- | -------------- | ------- | --------------
|                                                         | Weeks Ended    |         | Weeks Ended   
|(In thousands)                                           | August 2, 2003 |         | August 3, 2002
|                                                         |                |         |               
|                                                         |                |         |               
|Cash flows from operating activities:                    |                |         |               
|Net income                                               | $              | 6,621   |               
|Adjustments to reconcile net income to net               |                |         |               
|cash provided by operating activities:                   |                |         |               
|Depreciation and amortization                            |                | 6,808   |               
|Stock option income tax benefit                          |                | 106     |               
|Loss on retirement of assets                             |                | 147     |               
|Deferred income taxes                                    |                | (539    | )             
|Other                                                    |                | 246     |               
|Changes in operating assets and liabilities:             |                |         |               
|Accounts receivable                                      |                | (854    | )             
|Merchandise inventories                                  |                | (25,888 | )             
|Accounts payable and accrued liabilities                 |                | 15,577  |               
|Other                                                    |                | (1,478  | )             
|                                                         |                |         |               
|                                                         |                |         |               
|Net cash provided by operating activities                |                | 746     |               
|                                                         |                |         |               
|                                                         |                |         |               
|Cash flows from investing activities:                    |                |         |               
|Purchases of property and equipment                      |                | (11,337 | )             
|Lease incentives                                         |                | 1,936   |               
|Other                                                    |                | 367     |               
|                                                         |                |         |               
|                                                         |                |         |               
|Net cash used in investing activities                    |                | (9,034) |               
|                                                         |                |         |               
|                                                         |                |         |               
|Cash flows from financing activities:                    |                |         |               
|Net borrowings (payments) under line of credit           |                | 12,575  |               
|Payments on capital lease obligations                    |                | (259    | )             
|Proceeds from issuance of stock                          |                | 380     |               
|                                                         |                |         |               
|                                                         |                |         |               
|Net cash provided by (used in) financing activities      |                | 12,696  |               
|                                                         |                |         |               
|                                                         |                |         |               
|Net increase in cash and cash equivalents                |                | 4,408   |               
|Cash and cash equivalents at beginning of period         |                | 5,782   |               
|                                                         |                |         |               
|                                                         |                |         |               
|Cash and Cash Equivalents at End of Period               | $              | 10,190  |               
|                                                         |                |         |               
|                                                         |                |         |               
|Supplemental disclosures of cash flow information:       |                |         |               
|Cash paid during period for interest                     | $              | 291     |               
|Cash paid during period for income taxes, net of refunds | $              | 4,961   |               
|Capital lease obligations incurred                       | $              | 0       |               

See notes to condensed consolidated financial statements.



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SHOE CARNIVAL, INC.

Note 1 - Basis of Presentation

In the opinion of management, the accompanying unaudited condensed consolidated financial statements contain all adjustments necessary to present fairly the financial position of the Company and the results of its operations and its cash flows for the periods presented. Certain information and disclosures normally included in notes to consolidated financial statements have been condensed or omitted according to the rules and regulations of the Securities and Exchange Commission, although the Company believes 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 the Company's Annual Report on Form 10-K for its fiscal year ended February 1, 2003.

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 the Company's basic and diluted weighted average common shares outstanding as required by Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings Per Share":

|                                 | Thirteen       | Thirteen       | Twenty-six     | Twenty-six    
|-------------------------------- | -------------- | -------------- | -------------- | --------------
|                                 | Weeks Ended    | Weeks Ended    | Weeks Ended    | Weeks Ended   
|(In thousands)                   | August 2, 2003 | August 3, 2002 | August 2, 2003 | August 3, 2002
|                                 |                |                |                |               
|Basic shares                     |                | 12,652         |                |               
|Dilutive effect of stock options |                | 366            |                |               
|                                 |                |                |                |               
|Diluted shares                   |                | 13,018         |                |               
|                                 |                |                |                |               

For the quarter ended August 2, 2003 and August 3, 2002, 299,398 and 3,000 options, respectively, 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 six months ended August 2, 2003 and August 3, 2002, 300,424 and 1,714 options, respectively, were not included in the computation of diluted shares because the options' exercise prices were greater than the average market price for the period.

Note 3 - Stock-Based Compensation

SFAS No. 123, "Accounting for Stock-Based Compensation", requires that companies either recognize compensation expense for grants of stock options and other equity instruments based on fair value, or provide pro forma disclosure of net income and net income per share in the notes to the financial statements. At August 2, 2003, the Company had three stock-based compensation plans: the 1993 Stock Option and Incentive Plan, the Outside Directors Stock Option Plan and the 2000 Stock Option and Incentive Plan. The Company accounts for these plans under the recognition and measurement principles of Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees", and related interpretations. Accordingly, no compensation cost has been recognized under SFAS No. 123 for the Company's employee stock option plans. Had compensation cost for the awards under those plans been determined based on the grant date fair values, consistent with the method required



---

under SFAS No. 123, the Company's net income and net income per share would have been reduced to the pro forma amounts indicated below:

|                                        | Thirteen       | Thirteen       | Twenty-six     | Twenty-six    
|--------------------------------------- | -------------- | -------------- | -------------- | --------------
|                                        | Weeks Ended    | Weeks Ended    | Weeks Ended    | Weeks Ended   
|(In thousands, except per share data)   | August 2, 2003 | August 3, 2002 | August 2, 2003 | August 3, 2002
|                                        |                |                |                |               
|                                        |                |                |                |               
|Net income as reported                  | $              | 1,541          |                | $             
|Deduct:  Stock-based employee           |                |                |                |               
|compensation expense determined under   |                |                |                |               
|fair value based method for all awards, |                |                |                |               
|net of related tax effects              |                | (302           | )              |               
|                                        |                |                |                |               
|Pro forma net income                    | $              | 1,239          |                | $             
|                                        |                |                |                |               
|                                        |                |                |                |               
|Basic net income per share              |                |                |                |               
|As reported                             | $              | .12            |                | $             
|Pro forma                               | $              | .10            |                | $             
|                                        |                |                |                |               
|Diluted net income per share            |                |                |                |               
|As reported                             | $              | .12            |                | $             
|Pro forma                               | $              | .10            |                | $             

The weighted-average fair value of options granted was $6.91 for the six months ended August 2, 2003 and $9.65 for the six months ended August 3, 2002. The fair value of these options was estimated at grant date using Black-Scholes option pricing model with the following weighted average assumptions:

|                        | August 2, 2003 | August 3, 2002
|----------------------- | -------------- | --------------
|                        |                |               
|Risk free interest rate |                | 2.6%          
|Expected dividend yield |                | 0.0%          
|Expected volatility     |                | 62.2%         
|Expected term           |                | 5 Years       
|                        |                |               

Note 4 - New Accounting Pronouncements

In May 2003, the Financial Accounting Standards Board issued SFAS No. 150, "Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity". SFAS No. 150 establishes standards on the classification and measurement of certain financial instruments with characteristics of both liabilities and equity. The provisions of SFAS No. 150 are effective for financial instruments entered into or modified after May 31, 2003 and to all instruments that exist as of the beginning of the first interim financial reporting period beginning after June 15, 2003. Management has determined that the adoption of this statement will have no impact on the Company's consolidated financial statements.

Note 5 - Reclassifications

Certain amounts in the condensed consolidated financial statements have been reclassified to conform to the current presentation.



---

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

Critical Accounting Policies

It is necessary for management to include certain judgements in the reported financial results of the Company. These judgements involve estimates that are inherently uncertain and actual results could differ materially from these estimates. The accounting policies that require the more significant judgements by management 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, management estimates 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 management's estimates. The Company also estimates 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 - The Company reviews 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. Management evaluates the ongoing value of assets associated with retail stores that have been open longer than one year. When undiscounted cash flows estimated to be generated by those assets are less than the carrying value of those assets, impairment losses are recorded. When events such as these occur, the impaired assets are adjusted to estimated fair value and an impairment loss is recorded in selling, general and administrative expenses. Management's assumptions and estimates used in the evaluation of impairment, including current and future economic trends for stores, are subject to a high degree of judgement and if actual results or market conditions differ from those anticipated, additional losses may be recorded.

Deferred Income Taxes - The Company calculates income taxes in accordance with SFAS No. 109, "Accounting for Income Taxes", which requires the use of the asset and liability method. Under this method, 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 tax rates in effect in the years when those temporary differences are expected to reverse. Inherent in the measurement of these deferred balances are certain judgments and interpretations of existing tax law and other published guidance as applied to the Company's operations. No valuation allowance has been provided for the deferred tax assets. The Company anticipates that future taxable income will be able to recover the full amount of the net deferred tax assets. The Company's effective tax rate considers management's judgment of expected tax liabilities in the various taxing jurisdictions within which it is subject to tax. The Company has also been involved in domestic tax audits. At any given time, multiple tax years are subject to audit by various taxing authorities.



---

Results of Operations

|               |  |                  |  |                      |  |             |  |        |  |         |  |           |  | Comparable
|-------------- |  | ---------------- |  | -------------------- |  | ----------- |  | ------ |  | ------- |  | --------- |  | ----------
|               |  | Number of Stores |  | Store Square Footage |  | Store Sales
|               |  | Beginning        |  |                      |  |             |  | End of |  | Net     |  | End       |  | Increase  
|Quarter Ended  |  | Of  Period       |  | Opened               |  | Closed      |  | Period |  | Change  |  | of Period |  | (Decrease)
|May 3, 2003    |  | 207              |  | 13                   |  | 0           |  | 220    |  | 146,000 |  | 2,547,000 |  | (5.5)%    
|August 2, 2003 |  | 220              |  | 11                   |  | 2           |  | 229    |  | 104,000 |  | 2,651,000 |  | (3.0)%    
|Year-to-date   |  | 207              |  | 24                   |  | 2           |  | 229    |  | 250,000 |  | 2,651,000 |  | (4.3)%    
|               |  |                  |  |                      |  |             |  |        |  |         |  |           |  |           
|May 4, 2002    |  | 182              |  | 6                    |  | 0           |  | 188    |  | 71,000  |  | 2,175,000 |  | 1.1%      
|August 3, 2002 |  | 188              |  | 9                    |  | 0           |  | 197    |  | 112,000 |  | 2,287,000 |  | (0.5)%    
|Year-to-date   |  | 182              |  | 15                   |  | 0           |  | 197    |  | 183,000 |  | 2,287,000 |  | 0.4%      

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

|                                  | Thirteen       | Thirteen       | Twenty-six     | Twenty-six    
|--------------------------------- | -------------- | -------------- | -------------- | --------------
|                                  | Weeks Ended    | Weeks Ended    | Weeks Ended    | Weeks Ended   
|                                  | August 2, 2003 | August 3, 2002 | August 2, 2003 | August 3, 2002
|                                  |                |                |                |               
|Net sales                         |                | 100.0          | %              |               
|Cost of sales (including buying,  |                |                |                |               
|distribution and occupancy costs) |                | 72.5           |                |               
|                                  |                |                |                |               
|                                  |                |                |                |               
|Gross profit                      |                | 27.5           |                |               
|Selling, general and              |                |                |                |               
|administrative expenses           |                | 25.5           |                |               
|                                  |                |                |                |               
|                                  |                |                |                |               
|Operating income                  |                | 2.0            |                |               
|Interest expense-net              |                | .1             |                |               
|                                  |                |                |                |               
|                                  |                |                |                |               
|Income before income taxes        |                | 1.9            |                |               
|Income taxes                      |                | .8             |                |               
|                                  |                |                |                |               
|                                  |                |                |                |               
|Net income                        |                | 1.1            | %              |               
|                                  |                |                |                |               

Net Sales

Net sales increased $9.9 million to $134.5 million in the second quarter of 2003, a 7.9% increase over net sales of $124.6 million in the comparable prior year period. The increase was attributable to the 46 stores opened since April 2002 (net of two store closings), partially offset by a comparable store sales decrease of 3.0%.

Net sales increased $17.3 million to $271.3 million in the first half of 2003, a 6.8% increase over net sales of $254.0 million in the comparable prior year period. The increase was attributable to the sales generated by the 49 new stores opened in 2002 and 2003 (net of two store closings), partially offset by a 4.3% decrease in comparable store sales.



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Gross Profit

Gross profit increased $1.2 million to $37.0 million in the second quarter of 2003, a 3.3% increase over gross profit of $35.8 million in the comparable prior year period. The Company's gross profit margin decreased to 27.5% from 28.7%. As a percentage of sales, the merchandise gross profit margin decreased 0.4% and buying, distribution and occupancy costs increased 0.8% as compared to the same period last year. The decrease in the merchandise gross profit margin was primarily due to higher promotional activity during the quarter. The increase in buying, distribution and occupancy costs as a percentage of sales was primarily due to the deleveraging effect of negative comparable store sales.

Gross profit increased $3.0 million to $77.8 million in the first half of 2003, a 4.0% increase over gross profit of $74.8 million in the comparable prior year period. The Company's gross profit margin decreased to 28.7% from 29.5% for the first six months of 2002. As a percentage of sales, the merchandise gross profit margin decreased 0.1% and buying, distribution and occupancy costs increased 0.7%. The increase in buying, distribution and occupancy costs as a percentage of sales was primarily due to the deleveraging effect of negative comparable store sales.

Selling, General and Administrative Expenses

Selling, general and administrative expenses increased $4.4 million to $34.3 million in the second quarter of 2003 from $29.9 million in the comparable prior year period. As a percentage of sales, these expenses increased to 25.5% from 24.0% last year. During the second quarter of 2003, the Company opened 11 stores as compared to nine stores opened in the second quarter of 2002. Total pre-opening costs in the second quarter of 2003 were $828,000 or 0.6% of sales, as compared to $663,000 or 0.5% of sales, for the second quarter of 2002. The increase in selling, general and administrative expenses as a percentage of sales was primarily due to the general deleveraging effect of the negative comparable store sales and higher advertising expense.

Selling, general and administrative expenses increased $7.3 million to $66.9 million in the first half of 2003 from $59.6 million in the comparable prior year period. As a percentage of sales, these expenses increased to 24.7% from 23.5% last year. Total pre-opening costs in the first half of 2003 were $1.6 million or 0.6% of sales, as compared to $1.1 million or 0.4% of sales, in the first half of 2002. Twenty-four stores were opened in the first half of 2003 and 15 stores were opened in the first half of 2002. The increase in selling, general and administrative expenses as a percentage of sales was primarily due to higher advertising and pre-opening costs along with the deleveraging effect from negative same store sales.

Interest Expense

Net interest expense decreased to $176,000 in the second quarter of 2003 from $200,000 in the second quarter of the prior year. For the first six months of 2003, net interest expense decreased to $342,000 from $464,000 for the first six months of 2002. The decrease experienced in both periods was primarily as a result of a lower effective interest rate.

Income Taxes

The effective income tax rate was 37.5% in the second quarter and the first six months of 2003 and for the same time periods in 2002. The effective income tax rate differed from the statutory federal rates due primarily to state and local income taxes, net of the federal tax benefit.

Liquidity and Capital Resources

The Company's primary sources of funds are cash flows from operations and borrowings under its revolving credit facility. For the first six months of 2003, cash generated by operating activities was $746,000 compared with an increase in cash from operations of $13.5 million for the first six months of last year. The decrease in cash generated from operations resulted from a $2.6 million decrease in net income, a $1.2 million increase in accounts receivable and a $9.0 million increase in inventory net of accounts payable. In 2002, given the difficult retail environment, the Company limited the growth of inventory to 2.9% even though the store base grew by 10.7% as of the end of the second quarter. This resulted in a decrease in inventory of 7.1% on a per-store basis. In 2003, the Company has continued to maintain the lower per-store inventories established in 2002. As of the end of the second quarter of 2003, the 17.3% increase in merchandise inventories was just slightly faster than the increase in the number of stores operated at the end of the quarter of 16.2%, resulting in an inventory increase on a per-store basis of 0.9%. It is management's intention to maintain this lower per-store inventory position until a consistently stronger retail environment materializes.



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Working capital increased to $113.2 million at August 2, 2003 from $96.7 million at August 3, 2002 and the current ratio was 2.5 to 1 at August 2, 2003 as compared with 2.6 to 1 at August 3, 2002. Long-term debt as a percentage of total capital (long-term debt plus shareholders' equity) increased to 16.8% at the end of the first half of 2003 from 15.9% at the end of the first half of 2002. The increase in working capital was primarily due to the increase in merchandise inventory partially offset by the increase in accounts payable.

Capital expenditures, net of lease incentives of $1.9 million, were $9.4 million in the first half of 2003. Of these expenditures, $7.3 million was incurred for new stores, $1.1 million for store remodeling and all other expenditures totaled $1.0 million.

During the first half of 2003, the Company has opened 24 new stores with 11 of these opening in the second quarter. Two stores closed during the second quarter, thus bringing the total stores in operation to 229. With the anticipation of opening 13 stores in the second half of the year and closing an additional three, the Company expects to finish the year with 239 stores. Of the 15 stores opened during the first half of 2002, nine stores were opened in the second quarter.

The Company currently anticipates opening 35 to 40 new stores in 2004, focusing primarily on a number of larger markets the Company has entered in the past few years. By penetrating larger markets with multiple store locations, the Company intends to enhance its advertising efforts as well as leverage other operating expenses.

The actual amount of the Company's cash requirements for capital expenditures depends in part on the number of new stores it opens, the amount of lease incentives, if any, received from landlords and the number of stores it remodels. 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 the Company targets for expansion.

The Company's current store prototype utilizes between 8,000 and 15,000 square feet depending upon, among other factors, the location of the store and the population base the store is expected to service. Net capital expenditures for new stores in 2003 are expected to average approximately $320,000. An updated store design, which will be utilized in all new stores in 2003 and beyond, will lower the cost to build a store by approximately 10% from historical levels. The average inventory investment in a new store is expected to range from $450,000 to $750,000, 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 $67,000 per store.

The Company's unsecured credit facility provides for up to $70 million in cash advances on a revolving basis and commercial letters of credit. Borrowings under the revolving credit line are based on eligible inventory. Borrowings and letters of credit outstanding under the credit facility at August 2, 2003 were $27.8 million and $10.9 million, respectively. As of August 2, 2003, $31.3 million was available to the Company for additional borrowings under the credit facility.

The Company anticipates existing cash and cash flow from operations, supplemented by borrowings under the credit facility, will be sufficient to fund planned expansion and other operating cash requirements for at least the next 12 months.

Seasonality

The Company's 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 of a new store are charged to expense as incurred. Therefore, the Company's results of operations may be adversely affected in any quarter in which the Company incurs pre-opening expenses related to the opening of new stores.

The Company has three distinct selling periods: Easter, back-to-school and Christmas.



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Factors That May Effect Future Results

This report on Form 10-Q contains certain forward looking statements that involve a number of risks and uncertainties. Among the factors that could cause actual results to differ materially are the following: general economic conditions in the areas of the United States in which the Company's stores are located; changes in the overall retail environment and more specifically in the apparel and footwear retail sectors; the potential impact of national and international security concerns on the retail environment; the impact of competition and pricing; changes in weather patterns, consumer buying trends and the ability of the Company to identify and respond to emerging fashion trends; risks associated with the seasonality of the retail industry; the availability of desirable store locations at acceptable lease terms and the ability of the Company to open new stores in a timely manner; higher than anticipated costs associated with the closing of underperforming stores; the inability of manufacturers to deliver products in a timely manner; and changes in the political and economic environments in the People's Republic of China, a major manufacturer of footwear, and the continued favorable trade relations between China and the United States.

ITEM  3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company is exposed to market risk in that the interest payable on the Company's Credit Agreement is based on variable interest rates and therefore is affected by changes in market rates. The Company does 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 Agreement would have resulted in interest expense fluctuating by approximately $109,000 for the first six months of 2003 and $100,000 for the first six months of 2002.

ITEM 4.  CONTROLS AND PROCEDURES

The Chief Executive Officer and the Chief Financial Officer of the Company have concluded, based on their evaluation as of August 2, 2003, that the Company's disclosure controls and procedures are effective to ensure that information required to be disclosed by the Company in the reports filed or submitted by it 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 the Company in such reports is accumulated and communicated to the Company's management, including the Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

There have been no changes in the Company's internal control over financial reporting that occurred during the quarter ended August 2, 2003 that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.





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SHOE CARNIVAL, INC.
PART II - OTHER INFORMATION

ITEM 4.  SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS

The annual meeting of the common shareholders of the Company was held June 12, 2003.

Election of a Director

Mr. William E. Bindley was elected at the annual meeting to serve as a Director of the Company for a three-year term. Mr. Bindley received 11,941,379 votes in favor, no votes were cast against and 365,783 abstentions were recorded with respect to such appointment.

In addition, the following Directors continue in office until the annual meeting of shareholders in the year indicated:

|Mark L. Lemond
James A. Aschleman
J. Wayne Weaver
Gerald W. Schoor
Kent A. Kleeberger | 2004
2004
2005
2005
2006
|------------------------------------------------------------------------------------- | ------------------------

Other Matters Voted Upon at the Meeting

Deloitte & Touche LLP was appointed as auditor for the Company for 2003. Votes of 12,193,022 were cast in favor, 24,966 votes were cast against, 89,174 abstentions were recorded, and no broker non-votes were recorded with respect to such appointment.

ITEM 6.   EXHIBITS AND REPORTS ON FORM 8-K

|(a) |  | Exhibits                                                                                                                                                                                                               
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |  | 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                                                     
|(b) |  | Reports on Form 8-K                                                                                                                                                                                                    
|    |  | On August 19, 2003, the Company furnished a Form 8-K reporting under Item 12 the issuance of a press release announcing the Company's operating and financial results for the quarter ended August 2, 2003.            



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SHOE CARNIVAL, INC.



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:  September 12, 2003 | SHOE CARNIVAL, INC.
(Registrant)
|------------------------- | --------------------------------



| | By:   /s/ W. Kerry JacksonW. Kerry Jackson
Senior Vice President and
Chief Financial Officer
| | --------------------------------------------------------------------------------------------



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