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**August 2,
      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 September 4, 2008 were 12,638,282.

---

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 Conditionand Results of Operations | 12 - 19
|             
|              | Item
      3.                                                  | Quantitative and Qualitative Disclosures About Market
      Risk                     | 19     
|             
|              | Item
      4.                                                  | Controls and Procedures                                                              | 20     
|             
|Part
      II | Other
      Information                                        |                                                                                     
|              | Item 1.                                                        | Legal Proceedings                                                                    | 21     
|             
|              | Item
      1A.                                                 | Risk
      Factors                                                                   | 21     
|             
|              | Item
      4.                                                  | Submission of Matter to a Vote of Security Holders                                   | 21     
|             
|              | Item
      6.                                                  | Exhibits                                                                             | 22 - 23
|             
|              | Signature                                                      |                                                                                      | 24     

2

---

SHOE CARNIVAL, INC.PART I -
FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

SHOE CARNIVAL,
INC.CONDENSED CONSOLIDATED BALANCE
SHEETSUnaudited

|                                                              |  | August 2, |         | February 2, |  | August 4,
|------------------------------------------------------------- |  | --------- | ------- | ----------- |  | ---------
|(In
      thousands, except per share data)                   |  | 2008      |         | 2008        |  | 2007     
|Assets                                                        |  |           |         |             |  |          
|Current
      Assets:                                         |  |           |         |             |  |          
|Cash and cash equivalents                                     |  | $         | 16,659  |             |  | $        
|Accounts receivable                                           |  |           | 1,961   |             |  |          
|Merchandise inventories                                       |  |           | 208,409 |             |  |          
|Deferred income tax benefit                                   |  |           | 2,481   |             |  |          
|Other                                                         |  |           | 8,383   |             |  |          
|Total Current
      Assets                                    |  |           | 237,893 |             |  |          
|Property and equipment-net                                    |  |           | 71,014  |             |  |          
|Total
      Assets                                            |  | $         | 308,907 |             |  | $        
|                                                             
|Liabilities and Shareholders' Equity                          |  |           |         |             |  |          
|Current
      Liabilities:                                    |  |           |         |             |  |          
|Accounts payable                                              |  | $         | 74,953  |             |  | $        
|Accrued and other liabilities                                 |  |           | 14,546  |             |  |          
|Total Current Liabilities                                     |  |           | 89,499  |             |  |          
|Deferred lease
      incentives                               |  |           | 4,735   |             |  |          
|Accrued rent                                                  |  |           | 5,626   |             |  |          
|Deferred income
      taxes                                   |  |           | 917     |             |  |          
|Deferred compensation                                         |  |           | 3,395   |             |  |          
|Other                                                         |  |           | 1,410   |             |  |          
|Total Liabilities                                             |  |           | 105,582 |             |  |          
|                                                             
|Shareholders' Equity:                                         |  |           |         |             |  |          
|Common stock, $.01 par value, 50,000 shares                   |  |           |         |             |  |          
|authorized, 13,664, 13,670 and 13,673 shares issued
      at  |  |           |         |             |  |          
|August 2, 2008, February 2, 2008 and August 4,
      2007,    |  |           |         |             |  |          
|respectively                                                  |  |           | 137     |             |  |          
|Additional paid-in capital                                    |  |           | 72,821  |             |  |          
|Retained earnings                                             |  |           | 154,308 |             |  |          
|Treasury stock, at cost, 1,045, 1,205 and 665 shares
      at |  |           |         |             |  |          
|August 2, 2008, February 2, 2008 and August 4,
      2007,    |  |           |         |             |  |          
|respectively                                                  |  |           | (23,941 | )           |  |          
|Total
      Shareholders' Equity                              |  |           | 203,325 |             |  |          
|Total Liabilities and Shareholders' Equity                    |  | $         | 308,907 |             |  | $        

See notes to condensed consolidated
financial statements.

3

---

SHOE CARNIVAL,
INC.CONDENSED CONSOLIDATED STATEMENTS
OF INCOMEUnaudited

|                                            |  |                   |         |                   |  |                 |         |                   |  | Twenty-six |         |   |  |  
|------------------------------------------- |  | ----------------- | ------- | ----------------- |  | --------------- | ------- | ----------------- |  | ---------- | ------- | - |  | -
|                                            |  | Thirteen          |         | Thirteen          |  | Weeks           |         | Twenty-six       
|                                            |  | Weeks
      Ended |         | Weeks
      Ended |  | Ended           |         | Weeks
      Ended
|                                            |  | August
      2,   |         | August
      4,   |  | August
      2, |         | August
      4,  
|(In Thousands, except
      per share data) |  | 2008              |         | 2007              |  | 2008            |         | 2007             
|Net
      sales                             |  | $                 | 158,480 |                   |  | $               | 154,805 |                   |  | $          | 320,599 |   |  | $
|Cost of sales (including
      buying,      |  |                   |         |                   |  |                 |         |                   |  |            |         |   |  |  
|distribution and occupancy costs)           |  |                   | 116,334 |                   |  |                 | 114,558 |                   |  |            | 231,373 |   |  |  
|Gross
      profit                          |  |                   | 42,146  |                   |  |                 | 40,247  |                   |  |            | 89,226  |   |  |  
|Selling, general and
      administrative   |  |                   |         |                   |  |                 |         |                   |  |            |         |   |  |  
|expenses                                    |  |                   | 40,661  |                   |  |                 | 40,118  |                   |  |            | 79,984  |   |  |  
|Operating income                            |  |                   | 1,485   |                   |  |                 | 129     |                   |  |            | 9,242   |   |  |  
|Interest
      income                       |  |                   | (39     | )                 |  |                 | (176    | )                 |  |            | (76     | ) |  |  
|Interest expense                            |  |                   | 36      |                   |  |                 | 32      |                   |  |            | 69      |   |  |  
|Income before income
      taxes            |  |                   | 1,488   |                   |  |                 | 273     |                   |  |            | 9,249   |   |  |  
|Income tax expense                          |  |                   | 511     |                   |  |                 | 106     |                   |  |            | 3,488   |   |  |  
|Net income                                  |  | $                 | 977     |                   |  | $               | 167     |                   |  | $          | 5,761   |   |  | $
|                                           
|Net
      income per share:                 |  |                   |         |                   |  |                 |         |                   |  |            |         |   |  |  
|Basic                                       |  | $                 | .08     |                   |  | $               | .01     |                   |  | $          | .47     |   |  | $
|Diluted                                     |  | $                 | .08     |                   |  | $               | .01     |                   |  | $          | .46     |   |  | $
|                                           
|Average shares outstanding:                 |  |                   |         |                   |  |                 |         |                   |  |            |         |   |  |  
|Basic                                       |  |                   | 12,367  |                   |  |                 | 13,091  |                   |  |            | 12,360  |   |  |  
|Diluted                                     |  |                   | 12,463  |                   |  |                 | 13,400  |                   |  |            | 12,455  |   |  |  

See notes to condensed consolidated
financial statements.

4

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SHOE CARNIVAL,
INC.CONDENSED CONSOLIDATED STATEMENT
OF SHAREHOLDERS' EQUITYUnaudited

|                                   |  |              |   |          |        |        |         |         |          |          | Additional |        |   |       |   |         |  |   |         |   |  |  
|---------------------------------- |  | ------------ | - | -------- | ------ | ------ | ------- | ------- | -------- | -------- | ---------- | ------ | - | ----- | - | ------- |  | - | ------- | - |  | -
|                                   |  | Common Stock |   |          |        |        | Paid-In |         | Retained |          | Treasury   |        |   |       |  
|(In
      thousands)               |  | Issued       |   | Treasury |        | Amount |         | Capital |          | Earnings |            | Stock  |   | Total
|Balance at February 2, 2008        |  | 13,670       |   |          | (1,205 | )      |         | $       | 137      |          | $          | 75,523 |   |       | $ | 148,547 |  | $ | (27,595 | ) |  | $
|Stock option
      exercises       |  |              |   |          | 27     |        |         |         |          |          |            | (312   | ) |       |   |         |  |   | 604     |   |  |  
|Stock-based compensation           |  |              |   |          |        |        |         |         |          |          |            |        |   |       |   |         |  |   |         |   |  |  
|income tax benefit                 |  |              |   |          |        |        |         |         |          |          |            | (6     | ) |       |   |         |  |   |         |   |  |  
|Employee stock purchase
      plan |  |              |   |          |        |        |         |         |          |          |            |        |   |       |   |         |  |   |         |   |  |  
|purchases                          |  |              |   |          | 10     |        |         |         |          |          |            | (123   | ) |       |   |         |  |   | 230     |   |  |  
|Restricted stock awards            |  | (6           | ) |          | 123    |        |         |         |          |          |            | (2,820 | ) |       |   |         |  |   | 2,820   |   |  |  
|Stock-based
      compensation     |  |              |   |          |        |        |         |         |          |          |            |        |   |       |   |         |  |   |         |   |  |  
|expense                            |  |              |   |          |        |        |         |         |          |          |            | 559    |   |       |   |         |  |   |         |   |  |  
|Net
      income                   |  |              |   |          |        |        |         |         |          |          |            |        |   |       |   | 5,761   |  |   |         |   |  |  
|Balance at August 2,
      2008    |  | 13,664       |   |          | (1,045 | )      |         | $       | 137      |          | $          | 72,821 |   |       | $ | 154,308 |  | $ | (23,941 | ) |  | $

See notes to condensed consolidated
financial statements.

5

---

SHOE CARNIVAL,
INC.CONDENSED CONSOLIDATED STATEMENTS
OF CASH FLOWSUnaudited

|                                                           |  | Twenty-six        |        | Twenty-six       
|---------------------------------------------------------- |  | ----------------- | ------ | -----------------
|                                                           |  | Weeks
      Ended |        | Weeks
      Ended
|                                                           |  | August
      2,   |        | August
      4,  
|(In
      thousands)                                       |  | 2008              |        | 2007             
|Cash Flows From Operating Activities                       |  |                   |        |                  
|Net
      income                                           |  | $                 | 5,761  |                  
|Adjustments to reconcile net income to net                 |  |                   |        |                  
|cash provided by operating
      activities:               |  |                   |        |                  
|Depreciation and
      amortization                        |  |                   | 8,286  |                  
|Stock-based
      compensation                             |  |                   | 559    |                  
|Loss on retirement and
      impairment of assets          |  |                   | 109    |                  
|Deferred income
      taxes                                |  |                   | 377    |                  
|Lease
      incentives                                     |  |                   | 174    |                  
|Other                                                      |  |                   | (1,135 | )                
|Changes in operating
      assets and liabilities:         |  |                   |        |                  
|Accounts
      receivable                                  |  |                   | (1,550 | )                
|Merchandise
      inventories                              |  |                   | (7,628 | )                
|Accounts payable and
      accrued liabilities             |  |                   | 9,992  |                  
|Other                                                      |  |                   | (1,164 | )                
|Net
      cash provided by operating activities            |  |                   | 13,781 |                  
|                                                          
|Cash Flows From Investing Activities                       |  |                   |        |                  
|Purchases of property and
      equipment                  |  |                   | (6,700 | )                
|Proceeds from sale of property and equipment               |  |                   | 2      |                  
|Other                                                      |  |                   | 0      |                  
|Net
      cash used in investing activities                |  |                   | (6,698 | )                
|                                                          
|Cash Flows From Financing Activities                       |  |                   |        |                  
|Borrowings under line of credit                            |  |                   | 6,625  |                  
|Payments on line of credit                                 |  |                   | (6,625 | )                
|Proceeds from issuance of stock                            |  |                   | 399    |                  
|Excess tax benefits from stock-based
      compensation    |  |                   | 0      |                  
|Common
      stock repurchased                             |  |                   | 0      |                  
|Net
      cash provided by (used in) financing activities  |  |                   | 399    |                  
|Net increase (decrease) in
      cash and cash equivalents |  |                   | 7,482  |                  
|Cash
      and cash equivalents at beginning of period     |  |                   | 9,177  |                  
|Cash and Cash
      Equivalents at End of Period           |  | $                 | 16,659 |                  
|                                                          
|Supplemental disclosures of cash flow
      information:   |  |                   |        |                  
|Cash paid during period for
      interest                 |  | $                 | 66     |                  
|Cash paid during period for income taxes                   |  | $                 | 2,927  |                  
|Capital
      expenditures incurred but not yet paid       |  | $                 | 3,092  |                  

See notes to condensed consolidated
financial statements.

6

---

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  |  | Twenty-six |  | Twenty-six
|------------------------------------------- |  | --------- |  | --------- |  | ---------- |  | ----------
|                                            |  | Weeks     |  | Weeks     |  | Weeks      |  | Weeks     
|                                            |  | Ended     |  | Ended     |  | Ended      |  | Ended     
|                                            |  | August 2, |  | August 4, |  | August 2,  |  | August 4, 
|(In thousands)                              |  | 2008      |  | 2007      |  | 2008       |  | 2007      
|Basic
      shares                          |  | 12,367    |  | 13,091    |  | 12,360     |  | 13,295    
|Dilutive effect of
      stock-based awards |  | 96        |  | 309       |  | 95         |  | 339       
|Diluted shares                              |  | 12,463    |  | 13,400    |  | 12,455     |  | 13,634    

Options to purchase 227,100 shares of
common stock for the second quarter of fiscal 2008 and options to purchase
220,300 shares of common stock for the first six 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 six months ended August 4, 2007, there were no anti-dilutive
options.

Note 3  Recently Issued Accounting
Pronouncements

In September 2006, the Financial
Accounting Standards Board (the "FASB") issued Statement of Financial Accounting
Standards ("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 is effective 60 days
following the SEC's approval of the Public Company Accounting Oversight Board
auditing amendments to AU Section 411, "The Meaning of Present Fairly in
Conformity with Generally Accepted Accounting Principles." We will adopt SFASNo. 162 once it is effective and we are currently
evaluating the effect that the adoption will have 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
six months ended August 2, 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                         |  | (2,667          | ) |                |           | 15.33        |           |                       |           |   |      
|Exercised                                    |  | (26,374         | ) |                |           | 11.06        |           |                       |           |   |      
|Outstanding August 2, 2008                   |  | 623,668         |   |                | $         | 12.51        |           | 3.73                  |           | $ | 1,983
|Options outstanding at
      August 2, 2008, |  |                 |   |                |           |              |           |                       |           |   |      
|net of estimated forfeitures                 |  | 617,772         |   |                | $         | 12.51        |           | 3.67                  |           | $ | 1,968
|Exercisable at August 2, 2008                |  | 577,834         |   |                | $         | 12.50        |           | 3.27                  |           | $ | 1,864

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

2008Risk
      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 did 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 twenty-six week
periods ended August 2, 2008 and August 4, 2007:

|                                      |  |                   |   |                 | Thirteen |                 | Twenty-six |                   |         | 
|------------------------------------- |  | ----------------- | - | --------------- | -------- | --------------- | ---------- | ----------------- | ------- | 
|                                      |  | Thirteen          |   | Weeks           |          | Weeks           |            | Twenty-six       
|                                      |  | Weeks
      Ended |   | Ended           |          | Ended           |            | Weeks
      Ended
|                                      |  | August
      2,   |   | August
      4, |          | August
      2, |            | August
      4,  
|                                      |  | 2008              |   | 2007            |          | 2008            |            | 2007             
|Total
      intrinsic value (1)       |  | $                 | 0 |                 | $        | 44,000          |            | $                 | 26,600  | 
|Total cash
      received             |  | $                 | 0 |                 | $        | 41,000          |            | $                 | 291,800 | 
|Associated excess income tax benefits |  |                   |   |                 |          |                 |            |                   |         | 
|recorded                              |  | $                 | 0 |                 | $        | 10,000          |            | $                 | 6,000   | 

|(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 August 2, 2008:

|                     |                    |             | Options
      Outstanding |                      | Options
      Exercisable
|-------------------- | ------------------ | ----------- | ------------------------- | -------------------- | -------------------------
|                     |                    |             | Number                    |                      | Weighted                 
|Range of             |                    | of Options  |                           | Average              |                          
|Exercise
      Price |                    | Outstanding |                           | Remaining
      Life |                          
|$                    | 4.38    5.75      |             | 61,162                    |                      | 2.34                     
|$                    | 8.56 
      12.63 |             | 209,585                   |                      | 2.84                     
|$                    | 12.67  16.30      |             | 195,301                   |                      | 5.16                     
|$                    | 17.12              |             | 157,620                   |                      | 3.67                     

The following table summarizes
information regarding stock-based compensation expense for non-vested options
recognized during the thirteen and twenty-six week periods ended August 2, 2008
and August 4, 2007:

|                                        |             |        |           | Thirteen |           | Twenty-six |             |       
|--------------------------------------- | ----------- | ------ | --------- | -------- | --------- | ---------- | ----------- | ------
|                                        | Thirteen    |        | Weeks     |          | Weeks     |            | Twenty-six 
|                                        | Weeks Ended |        | Ended     |          | Ended     |            | Weeks Ended
|                                        | August 2,   |        | August 4, |          | August 2, |            | August 4,  
|                                        | 2008        |        | 2007      |          | 2008      |            | **2007(1)**
|Stock-based compensation expense before |             |        |           |          |           |            |             |       
|the recognized income tax benefit       | $           | 21,700 |           | $        | 17,000    |            | $           | 37,400
|Income tax
      benefit                | $           | 7,500  |           | $        | 6,000     |            | $           | 14,100

|(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 August 2, 2008, there was
approximately $184,000 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 2.6 years.

Restricted Stock
Awards

The following table summarizes the
restricted share transactions for the twenty-six week period ended August 2,
2008:

|                                   |                     |   |                 | Weighted-
|---------------------------------- | ------------------- | - | --------------- | ---------
|                                   | **Number
      of** |   | Average Grant  
|                                   | Shares              |   | Date Fair Value
|Non-vested at February 2, 2008     | 130,154             |   |                 | $        
|Granted                            | 123,100             |   |                 |          
|Forfeited                          | (5,535              | ) |                 |          
|Non-vested at
      August 2, 2008 | 247,719             |   |                 | $        

No previously non-vested stock awards
vested during the first six months of fiscal 2008. The total fair value at grant
date of previously non-vested stock awards that vested during the first six
months of fiscal 2007 was $831,000. The weighted-average grant date fair values
of stock awards granted during the twenty-six week periods ended August 2, 2008
and August 4, 2007 were $12.50 and $29.42, respectively.

10

---

The following table summarizes
information regarding stock-based compensation expense for restricted stock
awards recognized during the thirteen and twenty-six week periods ended August
2, 2008 and August 4, 2007:

|                                        |             |         |           | Thirteen |           | Twenty-six |             |         | 
|--------------------------------------- | ----------- | ------- | --------- | -------- | --------- | ---------- | ----------- | ------- | 
|                                        | Thirteen    |         | Weeks     |          | Weeks     |            | Twenty-six 
|                                        | Weeks Ended |         | Ended     |          | Ended     |            | Weeks Ended
|                                        | August 2,   |         | August 4, |          | August 2, |            | August 4,  
|                                        | 2008        |         | 2007      |          | 2008      |            | **2007(1)**
|Stock-based compensation expense before |             |         |           |          |           |            |             |         | 
|the recognized income tax benefit       | $           | 296,100 |           | $        | 332,000   |            | $           | 503,000 | 
|Income tax
      benefit                | $           | 101,700 |           | $        | 129,000   |            | $           | 189,700 | 

|(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 August 2, 2008, there was
approximately $3.1 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 2.7 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 twenty-six week periods
ended August 2, 2008 and August 4, 2007:

|                                        |             |       |           | Thirteen |           | Twenty-six |             |        | 
|--------------------------------------- | ----------- | ----- | --------- | -------- | --------- | ---------- | ----------- | ------ | 
|                                        | Thirteen    |       | Weeks     |          | Weeks     |            | Twenty-six 
|                                        | Weeks Ended |       | Ended     |          | Ended     |            | Weeks Ended
|                                        | August 2,   |       | August 4, |          | August 2, |            | August 4,  
|                                        | 2008        |       | 2007      |          | 2008      |            | **2007(1)**
|Stock-based compensation expense before |             |       |           |          |           |            |             |        | 
|the recognized income tax benefit(2)    | $           | 9,500 |           | $        | 7,000     |            | $           | 19,000 | 
|Income tax
      benefit                | $           | 3,300 |           | $        | 3,000     |            | $           | 7,200  | 

|(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.

11

---

Although the investment we made in the
new distribution center will satisfy our distribution needs throughout fiscal
2008, 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 are currently
seeking proposals from other vendors to complete the work that we believe SDI
failed to deliver and tentatively expect to have those modifications completed
prior to the end of fiscal 2009.

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; 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 August 2, 2008, we operated
303 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

---

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.

In fiscal 2006, our Board of Directors
authorized a $50.0 million share repurchase program, which will terminate upon
the earlier of the repurchase of the maximum amount or December 31, 2008. 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 August 2, 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 August 2, 2008 was $21.9 million. No shares were repurchased
during the first half of fiscal 2008.

Critical Accounting Policies

It is necessary for us to include
certain judgements in our reported financial results. 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 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 judgement 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 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 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.

13

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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.

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  | 
|Year-to-date 2008    |  | 291       |  | 14               |  | 2      |  | 303                  |  | 103,000 | 
|                    
|May 5, 2007          |  | 271       |  | 7                |  | 0      |  | 278                  |  | 66,000  | 
|August 4,
      2007 |  | 278       |  | 6                |  | 0      |  | 284                  |  | 59,000  | 
|Year-to-date 2007    |  | 271       |  | 13               |  | 0      |  | 284                  |  | 125,000 | 

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          |       | Twenty-six        |  | Twenty-six       
|-------------------------------------- | ----------------- | - | ----------------- | ----- | ----------------- |  | -----------------
|                                       | Weeks
      Ended |   | Weeks
      Ended |       | Weeks
      Ended |  | Weeks
      Ended
|                                       | August 2, 2008    |   | August 4, 2007    |       | August 2, 2008    |  | August 4, 2007   
|Net sales                              | 100.0             | % |                   | 100.0 | %                 |  | 100.0            
|Cost of sales
      (including buying, |                   |   |                   |       |                   |  |                  
|distribution and occupancy costs)      | 73.4              |   |                   | 74.0  |                   |  | 72.2             
|Gross profit                           | 26.6              |   |                   | 26.0  |                   |  | 27.8             
|Selling, general
      and             |                   |   |                   |       |                   |  |                  
|administrative expenses                | 25.7              |   |                   | 25.9  |                   |  | 24.9             
|Operating income                       | 0.9               |   |                   | 0.1   |                   |  | 2.9              
|Interest
      income                  | 0.0               |   |                   | (0.1  | )                 |  | 0.0              
|Interest expense                       | 0.0               |   |                   | 0.0   |                   |  | 0.0              
|Income before
      income taxes       | 0.9               |   |                   | 0.2   |                   |  | 2.9              
|Income tax expense                     | 0.3               |   |                   | 0.1   |                   |  | 1.1              
|Net
      income                       | 0.6               | % |                   | 0.1   | %                 |  | 1.8              

14

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Operational Summary

The second quarter found us again
challenged by the slowdown in consumer spending. We believe the federal economic
stimulus program helped to mitigate our year-over-year decline in comparable
store traffic during June and early July. However, as the influx of this
additional disposable income tapered off, the consumer once again retreated to a
very conservative shopping pattern in the last two weeks of July.

Total comparable store sales decreased
1% for the second quarter and decreased 3% for the first six months of fiscal
2008 when compared to the same periods in the prior year. The decline for both
periods came from our women's non-athletic department due in part to the lack of
fashion direction for the spring season and the reduction in discretionary
spending by our targeted moderate income consumer.

We were able to achieve a
year-over-year net realized price increase on our footwear sales during both the
first and second quarters, particularly within our adult and children's athletic
categories. These athletic price increases have been primarily driven by
performance running, which is continuing to play a larger part of our overall
athletic business. Despite a decline in consumer traffic through our doors which
resulted in selling fewer footwear units, these price increases enabled us to
generate positive comparable store sales of athletic footwear in both
quarters.

We realize the current level of
economic uncertainty within the US marketplace is altering the spending habits
of all consumers. We believe our targeted moderate income consumers will
continue to experience a negative effect on their disposable income as a result
of rising fuel and food prices, issues in the home mortgage industry, and rising
unemployment in many regions of the US. Additionally, the footwear industry is
one of many industries facing the rising cost of Chinese imports. Our strategy
for mitigating the effect of these challenges will include tightly controlling
our inventories, continuing to increase the net realized price of our footwear,
maintaining a low cost structure and enhancing delivery of our value and fashion
proposition to our customer. We believe these strategies will enable us to
continue to maintain profitable operations in addition to differentiating
ourselves from our competitors and increasing market share.

Results of Operations for the Second
Quarter Ended August 2, 2008

Net Sales

Net sales increased $3.7 million to
$158.5 million during the second quarter ended August 2, 2008, a 2.4% increase
from net sales of $154.8 million in the second quarter ended August 4, 2007. The
increase in net sales was primarily due to the $5.2 million increase in sales
generated by the 33 new stores opened since April of fiscal 2007, net of sales
lost from the seven stores which were closed during this same period. This
increase was partially offset by a comparable store sales decline of
1.0%.

Gross Profit

Gross profit increased $1.9 million to
$42.1 million in the second quarter of fiscal 2008 from gross profit of $40.2
million in the comparable prior year period. Our gross profit margin in the
second quarter of fiscal 2008 increased to 26.6% from 26.0% in the comparable
prior year period. As a percentage of sales, the merchandise margin increased
0.9%, while buying, distribution and occupancy costs increased 0.3%. The
increase in merchandise margin, as a percentage of sales, was largely related to
a more balanced markdown rate between the first and second quarters as compared
to the prior year where the second quarter saw markdowns accelerate considerably
in order to sell through slow moving product. We experienced a 0.4% 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 second quarter of 2008.

Selling, General and Administrative
Expenses

In the second quarter of fiscal 2008,
selling, general and administrative expenses increased $543,000 to $40.7
million, or 25.7% of sales, from $40.1 million, or 25.9% of sales, in the
comparable prior year period. The $543,000 increase was primarily the result of
the $1.5 million of additional costs incurred from the operation and support of
the net new stores opened since April of fiscal 2007, along with a $700,000
increase in self-insured health care costs resulting predominantly from several
large medical claims. These increases were partially offset by a $2.0 million
decrease in advertising costs. The decrease in advertising resulted from changes
in our media mix and a market level analysis whereby we revised the level of
advertising for each location based on current market trends and store
performance.

15

---

Pre-opening costs were $406,000, or
0.3% of sales, for the second quarter of fiscal 2008 as compared to $268,000, or
0.2% of sales, for the second quarter of fiscal 2007. We opened 12 stores in the
second quarter of fiscal 2008 as compared to six stores in the second 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.

Store closing costs included in
selling, general and administrative expenses were $387,000, or 0.2% of sales,
for the second quarter of fiscal 2008 as compared to $375,000, or 0.2% of sales,
for the second quarter of fiscal 2007. Two stores were closed during the second
quarter of fiscal 2008 and no stores were closed during the second 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
$3,000 in the second quarter of fiscal 2008 as compared to net interest income
of $144,000 in the second quarter 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
second quarter of fiscal 2008 decreased to 34.3% from 38.7% for the same time
period in fiscal 2007. The change in effective income tax rates between the two
periods was primarily due to lower state income taxes.

Net Income

Net income for the second quarter of
fiscal 2008 increased to $977,000 from $167,000 in the second quarter of fiscal
2007. Diluted earnings per share increased to $0.08 in the second quarter of
fiscal 2008 from $0.01 in the second quarter of fiscal 2007.

Our average diluted shares outstanding
at the end of the second quarter of fiscal 2008 were 12.5 million or
approximately 7.0% lower than the 13.4 million average diluted shares
outstanding at the end of the second 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 Six
Months Ended August 2, 2008

Net Sales

Net sales increased $141,000 to $320.6
million during the six months ended August 2, 2008, from net sales of $320.5
million in the comparable prior year period. We experienced a $9.4 million
increase as a result of the sales generated by the 39 new stores opened since
February 3, 2007, net of sales lost from the seven stores which were closed
during this same period. This increase was mostly offset by a 3.0% decline in
comparable store sales.

16

---

Gross Profit

Gross profit decreased $812,000 to
$89.2 million in the first six months of fiscal 2008 from gross profit of $90.0
million in the comparable prior year period. Our gross profit margin in the
first half of fiscal 2008 decreased to 27.8% from 28.1% in the comparable prior
year period. As a percentage of sales, the merchandise margin remained flat,
while buying, distribution and occupancy costs increased 0.3%. Occupancy costs,
as a percentage of sales, increased 0.5% primarily as a result of lower
comparable store sales and an increase in costs due to the additional stores we
operated. This increase, as a percentage of sales, was partially offset by a
0.3% decline in distribution costs. Our distribution costs, both as a percentage
of sales and in dollars, declined predominantly as a result of costs associated
with the conversion to our new distribution center during the first quarter of
the prior year. These additional costs incurred in the first quarter of fiscal
2007 totaled $936,000, or $0.04 per diluted share.

Selling, General and Administrative
Expenses

Selling, general and administrative
expenses increased $541,000 to $80.0 million or 24.9% of sales in the first half
of fiscal 2008 from $79.4 million or 24.8% of sales in the comparable prior year
period. The increase was primarily the result of the $2.8 million of additional
costs incurred as a result of the operation and support of the net new stores
opened since February of fiscal 2007, along with a $800,000 increase in
self-insured health care costs resulting primarily from several large medical
claims. These increases were partially offset by a $2.6 million decrease in
advertising costs. The decrease in advertising resulted from changes in our
media mix and a market level analysis whereby we revised the level of
advertising for each location primarily during the second quarter based on
current market trends and store performance. We do not expect to significantly
reduce our advertising spending, as compared to the prior year, during the
remainder of fiscal 2008.

Pre-opening costs were $440,000, or
0.1% of sales, for the first half of fiscal 2008 as compared to $556,000, or
0.2% of sales, for the first six months of fiscal 2007. We opened 14 stores in
the first six months of fiscal 2008 as compared to 13 stores in the first six
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 $672,000, or 0.2% of sales,
for the first half of fiscal 2008 as compared to $430,000, or 0.1% of sales, for
the first half of fiscal 2007. Two stores were closed during the first half of
fiscal 2008 and no stores were closed during the first half of fiscal 2007. We
expect to close nine stores during the remainder of fiscal 2008 as compared to
five stores in the second half 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
$7,000 in the first half of fiscal 2008 as compared to net interest income of
$446,000 in the first half 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 six months of fiscal 2008 increased to 37.7% from 32.1% compared to the
same time period in 2007. The change in effective income tax rates between the
two periods was primarily due to the fiscal 2007 reduction in state income taxes
from state incentives related to the investment in our new distribution center.
The reduction in income tax expense related to the tax incentives resulted in an
increase of approximately $0.05 in earnings per diluted share for the first six
months of fiscal 2007.

17

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Net Income

For the first six months of fiscal
2008, net income decreased to $5.8 million from $7.5 million in the first six
months of fiscal 2007. Diluted earnings per share decreased to $0.46 in the
first six months of fiscal 2008 from $0.55 in the first six months of fiscal
2007.

Our average diluted shares outstanding
at the end of the first half of fiscal 2008 were 12.5 million or approximately
8.7% lower than the 13.6 million average diluted shares outstanding at the end
of the first half 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.

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 $13.8 million in the first six months of
fiscal 2008 as compared to $10.4 million in the first six months of 2007, for an
increase of net cash provided by operations of $3.4 million. This difference,
when comparing the two periods of each year, was primarily due to a reduction in
the use of cash for the payment of income taxes partially offset by the timing
of payments for accounts payable (net of the change in inventory) and accrued
liabilities.

Working capital increased to $148.4
million at August 2, 2008 from $141.2 million at August 4, 2007. The current
ratio at August 2, 2008 was 2.7 as compared to 2.4 at August 4, 2007. We had no
long-term debt as of the end of either period.

We expended $6.7 million in cash during
the first half of fiscal 2008 for the purchase of property and equipment. Of
this amount, $5.8 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.

During the first half of fiscal 2008,
we opened 14 new stores. This compares to 13 store openings in the first half of
fiscal 2007. We anticipate opening an additional ten stores and closing nine
stores during the remainder of fiscal 2008. Additional capital expenditures of
approximately $10.5 million to $11.0 million will be made over the course of
fiscal 2008 for the opening of new stores, store remodels and various other
store improvements, along with continued investments in technology and normal
asset replacement activities. The 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 proximately 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
$48,000 per store in fiscal 2008, with individual stores experiencing variances
in expenditure levels based on the specific market.

As of August 2, 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 August 2, 2008. Should a default condition be reported, the
lenders may preclude additional borrowings and call all loans and accrued
interest at their discretion. At August 2, 2008, there were no borrowings
outstanding under the credit facility and $9.9 million in letters of credit
outstanding. As of August 2, 2008, $85.1 million was available to us for
additional borrowings under the credit facility.

18

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On June 10, 2008, we entered into an
amendment to our credit agreement with our bank group which increased our credit
facility by $25.0 million for a total of $95.0 million available for both cash
advances and the issuance of commercial letters of credit. No other changes to
the existing terms of the credit agreement were made in connection with the June
10, 2008 amendment. The credit agreement and amendments thereto are incorporated
by reference in this Quarterly Report on Form 10-Q.

During fiscal 2006, our Board of
Directors authorized a $50.0 million share repurchase program, which will
terminate upon the earlier of the repurchase of the maximum amount or December
31, 2008. 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 August
2, 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 August 2, 2008 was $21.9 million. No shares have
been repurchased during fiscal 2008.

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
2008, 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 are currently
seeking proposals from other vendors to complete the work that we believe SDI
failed to deliver and tentatively expect to have those modifications 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.

19

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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.

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 half of fiscal 2008.

ITEM 4. CONTROLS AND PROCEDURES

Our Chief Executive Officer and Chief
Financial Officer have concluded, based on their evaluation as of August 2,
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 August 2, 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.

ITEM 4. SUBMISSION OF MATTERS TO A
VOTE OF SECURITY HOLDERS

The annual meeting of our common
shareholders was held June 12, 2008.

Election of Directors

J. Wayne Weaver and Gerald W. Schoor
were elected at the annual meeting to serve as our Directors for three-year
terms. Mr. Weaver received 11,554,066 votes in favor of his election and 115,094
votes were withheld. Mr. Schoor received 11,591,053 votes in favor of his
election and 78,107 votes were withheld.

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

|William E.
      Bindley | 2009
|------------------------ | ----
|Kent A.
      Kleeberger | 2009
|Mark L.
      Lemond     | 2010

Other Matters Voted Upon at the
Meeting

The appointment of Deloitte &
Touche LLP as our independent registered public accounting firm for 2008 was
ratified. Votes of 11,651,651 were cast in favor, 13,610 votes were cast
against, 3,899 abstentions were recorded, and no broker non-votes were recorded
with respect to such ratification.

The amendment to the Shoe Carnival,
Inc. 2000 Stock Option and Incentive Plan was approved. This amendment increased
the number of shares of our common stock subject to issuance under the Plan from
1,500,000 to 2,000,000. This amendment also extended the term of the Plan until
the later of ten years from date of adoption of the plan by our shareholders or
the approval of any amendment of the plan by our shareholders. Votes of
7,848,098 were cast in favor, 2,457,322 votes were cast against, 4,094
abstentions were recorded, and 1,359,646 broker non-votes were recorded with
respect to the amendment.

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)                                                                                                                                                                                                                                                                                                                                                                          
|--- |  | ---- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |  |      |  |                                                                                                                                                                                                                                                                                                                                                                                               
|    |  |      |  | (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)
|    |  |     
|    |  | 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: | June 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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