UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                              Washington, DC 20549
                                    FORM 10-K

(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
    OF 1934

    For the fiscal year ended:        January 30, 1999

                                         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                   (I.R.S. Employer 
      incorporation or organization)                   Identification No.)
 
           8233 Baumgart Road
           Evansville, Indiana                              47711
    (Address of principal executive offices)              (Zip Code)

                                 (812) 867-6471
              (Registrant's telephone number, including area code)

           Securities registered pursuant to Section 12(b) of the Act:

                                      NONE

           Securities registered pursuant to Section 12(g) of the Act:

                          COMMON STOCK, $. 01 PAR VALUE

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. Yes X No ___

Indicate by check mark if disclosure of delinquent  filers  pursuant of Item 405
of Regulation  S-K is not contained  herein,  and will not be contained,  to the
best  of  the  Registrant's   knowledge,  in  definitive  proxy  or  information
statements  incorporated  by  reference  in Part  III of this  Form  10-K or any
amendment to this Form 10-K [ X ]

Aggregate  market  value  of the  voting  stock  held by  non-affiliates  of the
Registrant  based on the last sale  price for such  stock at March 31,  1999 was
approximately $101,308,488 (assuming solely for the purposes of this calculation
that all Directors and executive officers of the Registrant are "affiliates").

Number of Shares of Common Stock, $.01 par value,  outstanding at April 16, 1999
was 13,236,642.

                       DOCUMENTS INCORPORATED BY REFERENCE

Certain  information  contained in the Definitive Proxy Statement for the Annual
Meeting  of  Shareholders  of  Registrant  to  be  held  on  June  15,  1999  is
incorporated by reference into Part III hereof.

<PAGE>


                               Shoe Carnival, Inc.
                               Evansville, Indiana

               Annual Report to Securities and Exchange Commission
                                January 30, 1999

                                     PART I

ITEM 1. BUSINESS

General

Shoe Carnival, Inc. (the "Company") is a high volume, value-oriented retailer of
family footwear operating  predominately in the Midwest,  South and Southeastern
regions of the  United  States.  The  Company  adheres  to a highly  promotional
marketing  concept that enables it to be  competitive  in the retail  markets it
enters.  The  Company's  stores are  characterized  by a high energy  atmosphere
designed to  encourage  customer  participation  and provide a fun and  exciting
shopping experience.

Business Strategy

The Company's goal is to establish  itself as one of the nation's leading family
footwear  retailers and the dominant footwear retailer in each market it serves.
To accomplish its goal, the Company provides a selection and variety of footwear
normally  associated with a "category  killer"  superstore in an exciting retail
environment.  In the 52 week period ended January 30, 1999 ("fiscal 1998"),  the
average size,  annual sales and sales per square foot for Shoe Carnival's stores
open the full year were approximately 11,500 square feet, $2.8 million and $250,
respectively, each substantially above the industry averages.

Management believes that shoppers prefer the value, convenience and selection of
the superstore retail format and that, as a result, superstores will continue to
grow and increase their market share at the expense of department  stores,  mass
merchandisers and traditional  specialty  retailers.  This trend is evidenced by
the  acceptance of  superstores  in other  specialty  niches,  including,  among
others,  toys, office products,  consumer  electronics and  do-it-yourself  home
improvement. Management believes that the Company differentiates itself from its
competitors and gains significant competitive advantage through certain business
strategies which include:

         Distinctive  Retail  Approach.  The  Company's  stores are larger  than
         traditional  shoe stores.  The Company seeks to create a  carnival-like
         atmosphere  in each of its stores by  decorating  with  bright  lights,
         colors and neon  signs,  and by  featuring  an  in-store  "barker"  who
         advertises current specials,  organizes contests and games, and assists
         and educates  customers with the features and location of  merchandise.
         This exciting  in-store  atmosphere  is designed to encourage  customer
         participation  and  spontaneity,  producing  a sense of urgency to buy.
         Management  believes  this  highly  promotional  atmosphere  results in
         various  competitive  advantages,  including  increased  multiple  unit
         sales, the building of a loyal repeat customer base and the creation of
         word-of-mouth advertising.

         Broad Merchandise  Assortment.  The Company's merchandising strategy is
         to  provide  superior  value  to its  customers  by  offering  a  broad
         selection  of  competitively   priced  name  brand  and  private  label
         merchandise.  The average  store  carries over 28,800 pairs of shoes in
         four general  categories -- men's,  women's,  children's and athletics.
         The Company buys dress,  casual and athletic shoes as well as boots and
         sandals from a wide variety of vendors.  In addition to footwear,  Shoe
         Carnival stores also carry selected  accessory items  complimentary  to
         the sale of footwear.

         Emphasis  on Value.  Management  believes  that its wide  selection  of
         popular  styles  of  name  brand  merchandise  at  competitive   prices
         generates  broad  customer   appeal.   To  supplement  its  name  brand
         offerings,  the Company has  established  a private  label program that
         offers the  consumer  quality  footwear at lower prices than name brand
         merchandise.  Sales of private label  merchandise  generally  result in
         higher  gross  profit  margins for the Company than sales of name brand
         merchandise.  The Company  believes that  providing a wide selection of
         competitively  priced name brand and  quality  private  label  footwear
         provides superior value to its customers.


                                       2
<PAGE>


         Low Operating  Costs.  The Company's  operating  methods,  cost control
         programs and store  locations  are all  designed to minimize  operating
         costs.  Merchandise  in the Company's  stores is displayed by style and
         color on the selling floor,  enabling  customers who so choose to serve
         themselves.  This  approach,  in  conjunction  with wage and  inventory
         control  programs,  results in lower labor costs than those incurred by
         department stores and traditional shoe stores. In addition, the Company
         prefers to locate stores  predominantly in strip shopping  centers,  as
         opposed to enclosed  malls,  to take  advantage of the generally  lower
         occupancy costs.

         Competitive Pricing. The Company, as a result of its low-cost operating
         structure and high volume,  is able to price its merchandise below that
         of  traditional  department  stores and shoe store chains.  The Company
         offers  value to customers  with  specialized  promotions,  competitive
         pricing  and  a  vast   selection  of  name  brand  and  private  label
         merchandise.

         Emphasis  on   Information   Technology.   The  Company  has   invested
         significant resources in information technology.  The Company's systems
         are  designed  to  provide   management  with  the  timely  information
         necessary to monitor and control all phases of  operations.  Management
         is   planning   further    technological    enhancements   related   to
         point-of-sale,  purchasing and inventory control,  labor management and
         distribution,  which  should  enable the  Company to better  manage its
         operations.

Expansion Strategy

The majority of the  Company's  sale and  earnings  growth is expected to result
from the  opening of new stores.  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 the areas the  Company  targets for
expansion.  The  Company's  strategy  is to  expand  into  new  markets  and  to
consolidate  and  improve its market  share  position  in its  existing  markets
through the clustering of stores.  Clustering involves the operation of multiple
locations  in a  particular  metropolitan  area or in  several  smaller  markets
located  in  reasonable  proximity  to one  another.  Management  believes  this
strategy  enables  the  Company to obtain  economies  of scale  with  respect to
advertising, distribution and management costs.

The  Company  plans to open 25 to 30 stores  in 1999.  Thereafter,  the  Company
intends to expand at a rate of approximately  20% to 25% per year. During fiscal
1999,  new stores are  expected to be located  primarily  in the North  Central,
Midwest,  Midsouth and  Southeast.  The Company  intends to enter larger markets
(populations   greater   than   400,000)  by  opening  two  or  more  stores  at
approximately  the same time. In smaller  markets that can only support a single
store,  the Company will seek locations in reasonably  close  proximity to other
Company markets.  This strategy allows for more efficient management and reduces
distribution  costs. In addition to new market expansion and consistent with its
clustering  approach,  the Company has targeted  certain of its existing markets
for additional new stores when  appropriate  store locations  become  available.
Although  opening new stores in existing  markets may adversely affect the sales
of existing  stores,  management  believes  that cost  efficiencies  and overall
incremental sales gains should more than offset any detrimental effect.

Prior to entering a new market,  the Company performs a market,  demographic and
competition  analysis to  evaluate  the  suitability  of the  potential  market.
Potential store site selection  criteria  include,  among other factors,  market
demographics,  traffic  counts,  the retail  mix of a  potential  strip  center,
visibility  within  the  center and from  major  thoroughfares,  overall  retail
activity of the area and proposed lease terms. The time required to open a store
after signing a lease depends  primarily upon the landlord's  ability to deliver
the premises to the Company.  Upon acceptance of the premises from the landlord,
the Company can generally open a store within 30 to 45 days.


                                       3
<PAGE>


Merchandising

The  Company's  merchandising  strategy  is  designed  to  provide a very  large
selection of quality  family  footwear at a price  competitive  with or slightly
below that of  competitors.  The  Company's  stores carry a broad  assortment of
current  season name brand  footwear,  supplemented  with the Company's  private
label merchandise and select name brand close-out merchandise.

The  combination  of name brand and private label  footwear  gives the Company a
merchandise  assortment  that  enables  it to  compete  effectively.  The mix of
merchandise and the name brands offered in a particular store are based upon the
demographics of each market,  among other factors.  The Company typically offers
lower prices on both name brand and private label  merchandise  than  department
stores and  traditional  shoe stores.  Furthermore,  the Company  competes  with
off-price retailers,  mass merchandisers and discount stores by offering a wider
and deeper selection of merchandise at competitive  prices. The Company's stores
also carry  selected  other  merchandise  such as handbags,  wallets,  shoe care
items, socks and sports apparel.

Women's.  The women's  department  offers  current  season  name brand,  branded
close-out and private label merchandise providing a wider selection than that of
most of the Company's  competitors.  This  department is further  segmented into
women's dress shoes, casual shoes, sandals, boots and sport shoes, thus covering
all facets of a woman's footwear needs.

Men's.  The  men's  department  offers  primarily  name  brand  footwear  and is
segmented into men's dress shoes, casual shoes, sandals and boots. The Company's
stores offer a complete assortment of men's footwear at affordable prices. As in
the  women's  department,  this  assortment  is  supplemented  with  name  brand
close-outs and private label products.

Children's.  Children's  footwear is segmented  into dress shoes,  casual shoes,
boots,  athletic  shoes,  sandals and infant  shoes,  again  offering a complete
selection  of  footwear  for  the  child.  Approximately  75% of the  children's
business is done in the athletic shoe category.

Athletics.  The men's and women's athletic  business is divided into a number of
buying  groups  representing  a complete  assortment of athletic  footwear.  The
Company carries court shoes,  fitness and aerobic shoes,  leisure shoes, walking
shoes, running shoes and many specialty shoes such as cleats and soccer shoes.

The table below sets forth the Company's percentage of sales by product category
for fiscal 1998, 1997 and 1996.

                                              1998        1997        1996    
                                             ------      ------      ------

Women's                                       27.4%       27.2%       27.2%
Men's                                         17.5        16.9        17.7
Children's                                    16.2        16.4        16.4
Athletic                                      34.2        34.6        34.0
Accessories and Miscellaneous Items            4.7         4.9         4.7    
                                             ------      ------      ------

                                             100.0%      100.0%      100.0%   
                                             ======      ======      ======

Pricing

The Company's  pricing strategy is designed to emphasize value.  Initial pricing
decisions  are guided by gross profit margin  targets which vary by  merchandise
category  and  depend  on  whether  the  item is name  brand  or  private  label
merchandise. Markdowns are centrally managed by the buying staff through the use
of weekly sales and inventory  analysis  generated by the  Company's  management
information system.

In-store signage is used extensively to highlight special promotional  markdowns
and to advertise markdowns to meet or beat competitors' sale prices.


                                       4
<PAGE>

Advertising and Promotion

In-store  promotions  are a key  ingredient in the Company's  marketing  effort.
Although most in-store promotions are pre-planned, store managers are encouraged
to use their own creativity in devising on-the-spot promotional activities, such
as customer contests and games. The Company has several standardized promotions,
including a Spin-N-Win(TM)  wheel,  where a customer can win instant  discounts,
and a "Money Machine," where randomly  selected  customers attempt to catch cash
and coupons during a 30-second period inside a transparent  booth where cash and
coupons are blown furiously around them. Both of these promotions  exemplify the
Company's  emphasis on fun and  excitement  in order to enhance  the  customer's
total shopping experience.

The Company uses various  forms of media  advertising  in  conjunction  with its
extensive in-store  promotions.  The focus of the Company's media advertising is
to communicate  the  exceptional  value offered by the Company on name brand and
private label footwear.  Print ads typically display a selection of special sale
items  or  desirable  new  products.  Radio  and  television  spots  utilize  an
entertaining  format to capture the consumers  attention  while  highlighting on
sale items or special promotions.

The  Company  directs  approximately  59% of its  total  advertising  budget  to
television and radio, but also utilizes print media (including newspaper inserts
and direct mail) and outdoor  advertising.  A special  effort is made to utilize
the cooperative  advertising  dollars offered by vendors whenever  possible.  By
widely  advertising  through  newspaper,  television  and radio prior to a grand
opening,  the  Company  strives  to make each new store  opening a major  retail
event. Major promotions during the grand openings and peak selling periods allow
customers to win prizes such as cruises, computers, merchandise or cash.

Store Operations

Management of store  operations is the  responsibility  of the Company's  Senior
Vice  President - Store  Operations,  who is assisted  by  divisional  managers,
regional  managers  and the  individual  store  managers.  The  Company's  store
management structure is flat relative to most other retailers.  This permits the
Company  to reduce  management  expense  by  eliminating  the  district  manager
position and delegating more responsibility to store managers.  Currently, there
are two divisions  designated as the North and South  Divisions.  The divisional
managers are currently responsible for six and eight regions, but ultimately are
expected to manage  between ten and fifteen  regions.  Each regional  manager is
responsible  for the  operation  of  between  five and  thirteen  stores  and is
required  to visit  each  store  periodically,  concentrating  more  heavily  on
underperforming   stores.   Regional  managers   collectively  meet  with  their
respective  divisional  manager on a monthly  basis,  except  during  peak sales
periods,  and quarterly  with the Senior Vice  President - Store  Operations and
other members of senior management to discuss Company  strategies,  merchandise,
advertising, financial performance and personnel requirements.

Each store has a store manager and one to three assistant managers, depending on
the sales  volume of the store.  The sales staff  ranges from 3 to 62  employees
depending on the size of the store and the time of year. Store managers and most
assistant  managers are paid a salary,  while all other store employees are paid
on an hourly  basis.  The Company  provides an incentive  compensation  plan for
virtually all employees.  Regional and store manager  incentive  plans are based
primarily  upon the  sales  and  profitability  of their  respective  stores  as
compared to defined goals.  Assistant  store managers and other store  employees
earn incentive  compensation  based on the store exceeding  inventory  shrinkage
goals.

Administrative  functions are centrally controlled from corporate  headquarters.
These functions include accounting,  purchasing, store maintenance,  information
systems, advertising,  distribution and pricing. Regional and store managers are
expected and  encouraged  to provide  feedback to all corporate  departments  to
improve  efficiencies.  Regional  and store  managers  are  charged  with making
merchandising decisions necessary to maximize sales and profits primarily though
merchandise placement, signage and timely clearance of slower selling items.

The Company  maintains  inventory  shrinkage rates (.4% of sales in fiscal 1998)
substantially  below the retail  industry  average.  Management  attributes this
success to an in-store loss prevention staff, improved information reporting and
surveillance  systems in many of the Company's stores.  Management also believes
that tying  incentive  compensation  for store  employees to the  achievement of
targeted shrinkage levels raises employee awareness of loss prevention.


                                       5
<PAGE>

Store Location and Design

The number of stores opened and closed for fiscal years 1998,  1997 and 1996 are
as follows:

   Fiscal Year                               1998        1997        1996   
                                            ------      ------      ------

   Stores open at beginning of year            92         93          95
   Opened during year                          20          4           5
   Closed during year                           1          5           7 
                                            ------      ------      ------

   Stores open at end of year                 111         92          93   
                                            ======      ======      ======

At January 30, 1999, the Company had 111 stores located in 18 states,  primarily
in the Midwest,  South and Southeastern  regions of the United States.  Although
three stores are located in enclosed  malls,  the Company prefers strip shopping
center  locations,  where  occupancy  costs are typically  lower and the Company
enjoys  greater  operating  freedom  to  implement  its  non-traditional  retail
methods.  Management feels that most consumers enjoy the convenience  offered by
strip shopping centers as opposed to enclosed malls.

All of the Company's  stores are leased rather than owned.  Management  believes
that the  flexibility  afforded  by  leasing  allows  the  Company  to avoid the
inherent   risk  of  owning   real   estate,   particularly   with   respect  to
underperforming  stores. In a particular market,  potential store site selection
criteria include, among other factors, market demographics,  traffic counts, the
retail mix of a potential retail strip center,  visibility within the center and
from major thoroughfares, overall retail activity of the area and proposed lease
terms.

The Company's  stores are designed and fixtured to reflect the high energy level
of its  retail  concept  and to convey a  carnival-like  atmosphere.  Stores are
typically  equipped  with  a  sound  system,  microphone,  "Money  Machine"  and
Spin-N-Win(TM)  wheel.  Open-stock  inventories,  neon signs,  flashing  colored
lights and large mirrors,  striking fixtures and colorful carpet are utilized to
make the  stores  appear  larger and more  exciting.  Merchandise  is  typically
displayed within a store by category,  with athletic footwear (and licensed team
sports apparel in certain stores)  generally  located in the center of the store
to provide a transition  between women's and men's footwear.  Checkout  counters
are  located  at the  front of each  store,  supermarket  style,  to  facilitate
high-volume  throughput and minimize inventory shrinkage.  The average store has
approximately five checkout lanes.

As of January 30, 1999,  the  Company's  stores  averaged  approximately  11,500
square feet,  ranging in size from 6,600 to 26,500  square  feet,  except for an
atypical mall store of approximately 2,100 square feet. Currently, the new store
prototype  calls for  between  12,000 and 15,000  square  feet but stores in the
8,000 square foot range will be considered.  The size of the stores is dependent
upon, among other factors, the location of the store and the population base the
store is expected to service. The sales area of most stores is approximately 85%
of the gross store size.

Capital  expenditures  for new stores  are  expected  to  average  approximately
$350,000,  including point-of-sale equipment which is generally acquired through
equipment leasing transactions. The average inventory in a new store is expected
to range from $550,000 to $850,000,  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,  supplies  and  utilities  are  expected  to average
approximately $80,000 per store.


                                       6
<PAGE>

Distribution

The Company operates a single  distribution  facility in Evansville,  Indiana. A
92,000  square  foot  addition  to the  distribution  center is  expected  to be
completed by mid-1999,  bringing the facility to a total of 200,000 square feet.
Management  anticipates  that  the  expanded  facility  will be able to meet the
distribution needs of up to 400 stores.

The distribution center processes virtually all merchandise prior to shipping to
the stores. At a minimum,  this includes count verification,  price and bar code
labeling  of each unit,  redistribution  of an order into size  assortments  and
allocation of shipments to individual stores.  Once a distribution order form is
received  from the buying  staff,  the  remainder of the  distribution  process,
including packing,  allocating,  storing and shipping is essentially  paperless.
Merchandise is shipped to each store from one to two times a week,  depending on
store  volume,  proximity  to other  stores and  proximity  to the  distribution
center.  The  majority of  shipments  are handled by a dedicated  carrier,  with
occasional use of common carriers.

Management Information Systems

The  Company  has  devoted  significant  resources  to expand its  sophisticated
information  technology  systems.  The corporate mainframe is connected to every
store  via a  Wide  Area  Network,  providing  up-to-date  sales  and  inventory
information as required. Each store has an independent point-of-sale controller,
with two to 13 point-of-sale terminals per store. To provide maximum flexibility
and maintain  data  integrity,  the Company's  mainframe  systems are based upon
relational database technology.  The Company's  distribution facility utilizes a
spread  spectrum  radio  frequency   network  to  assure   accurate,   real-time
information throughout the distribution operation. Each member of the buying and
distribution  staff  has  on-line  access  to  up-to-date  sales  and  inventory
information broken down by store, style, color, size and width.  Additional data
analysis can be quickly  provided on demand by using either a fourth  generation
language  programming tool or personal  computer tools that access the Company's
database.

State of the art  point-of-sales  systems utilize bar code technology to capture
sales, gross margin and inventory information.  The system provides, in addition
to other features, full price management (including price look-up),  promotional
tracking  capabilities  (in support of the  spontaneous  nature of the  in-store
price  promotions),  real-time  margin analysis by product category at the store
level, check approval and customer tracking.

Competition

The retail footwear  business is highly  competitive.  The Company believes that
the principal  competitive  factors in its industry are  merchandise  selection,
price, fashion,  quality,  location,  store environment and service. The Company
competes  primarily with department stores,  shoe stores,  sporting goods stores
and mass merchandisers.

Many  of  the  Company's   competitors   are   significantly   larger  and  have
substantially  greater financial and other resources than the Company.  However,
management  believes that its distinctive retail format, in combination with its
wide merchandise  selection,  competitive prices and low operating costs, enable
the Company to compete effectively in each market that it enters.

Employees

At January 30, 1999, the Company had  approximately  2,027  employees,  of which
approximately  930 were employed on a part-time or seasonal basis. The number of
employees  fluctuates during the year primarily due to seasonality.  None of the
Company's employees is represented by a labor union.

Management  attributes a large portion of the Company's success in various areas
of cost  control to its  inclusion  of  virtually  all  employees  in  incentive
compensation plans. The Company also contributes all or a portion of the cost of
medical,  disability  and life  insurance  coverage for those  employees who are
eligible to participate in Company  sponsored  plans. All employees also receive
discounts on Company  merchandise.  The Company  considers its relationship with
its employees to be satisfactory.

                                       7
<PAGE>

Trademarks

The Company owns the following federally registered trademarks and servicemarks:
Shoe  Carnival(R),  The  Carnival(R),   Nuff  Said(R),  Donna  Lawrence(R),  Oak
Meadow(R),  Victoria  Spenser(R),  Chase and Brittany's(R),  Via Nova(R),  Fresh
Stuff(R), Innocence(R) and Carnival Lites(R). The Company believes its marks are
valuable  and,  accordingly,  intends  to  maintain  its marks  and the  related
registrations. The Company is not aware of any pending claims of infringement or
other challenges to the Company's right to use its marks.


ITEM 2. PROPERTIES

The Company  leases all existing  stores and intends to lease all future stores.
All leases for  existing  stores  provide  for fixed  minimum  rentals  and most
provide for contingent rental payments based upon various specified  percentages
of sales above minimum levels. Certain leases also contain escalator clauses for
increases in minimum rentals, operating costs and taxes.

The Company owns its headquarters  and distribution  center which are located at
8233 Baumgart Road, Evansville, Indiana. See ITEM 1 "Business--Distribution."


ITEM 3. LEGAL PROCEEDINGS

The Company is involved in various legal  proceedings  incidental to the conduct
of its business.  Management does not expect that any such proceedings will have
a material  adverse  effect on the Company's  financial  position and results of
operations.


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

The Company did not submit any matters to a vote of security  holders during the
fourth quarter of the 1998 fiscal year.



                                       8
<PAGE>


Executive Officers of the Company

     Name               Age                      Position
------------------      ---      -----------------------------------------------

J. Wayne Weaver          64      Chairman of the Board and Director

Mark L. Lemond           44      President, Chief Executive Officer and Director
                                          
Timothy T. Baker         42      Senior Vice President - Store Operations

Clifton E. Sifford       45      Senior Vice President - General Merchandise 
                                 Manager

Larry L. Linville        56      Vice President - Information Systems

W. Kerry Jackson         37      Vice President - Chief Financial Officer and 
                                 Treasurer

David A. Kapp            35      Vice President - Inventory Controller and 
                                 Secretary

Mr. Weaver is the Company's principal  shareholder and has served as Chairman of
the Board of the Company since March 1988. From 1978 until February 2, 1993, Mr.
Weaver had served as president  and chief  executive  officer of Nine West Group
Inc., a designer,  developer  and marketer of women's  footwear.  He has over 40
years of experience in the footwear industry. Mr. Weaver is a former director of
Nine West Group Inc. Mr. Weaver serves as chairman and chief  executive  officer
of  Jacksonville  Jaguars,  LTD and chairman and chief  executive  officer of LC
Footwear, LLC.

Mr.  Lemond has been  employed by the Company as President  and Chief  Executive
Officer since  September  1996.  From March 1988 to September  1996,  Mr. Lemond
served as Executive  Vice  President,  Chief  Financial  Officer,  Treasurer and
Assistant  Secretary.  On  February  3, 1994,  Mr.  Lemond was  promoted  to the
position of Chief Operating Officer.  Mr. Lemond has served as a director of the
Company  since March 1988.  Prior to March  1988,  he served in similar  officer
capabilities  with Russell's Shoe Biz, Inc. Prior to joining Russell's Shoe Biz,
Inc. in 1987,  Mr. Lemond was a partner with a public  accounting  firm. He is a
Certified Public Accountant.

Mr. Baker has been employed by the Company as Vice President - Store  Operations
since May 1992.  Prior to that  time,  he served as a  Regional  Manager  of the
Company. Mr. Baker was promoted to Senior Vice President on March 25, 1994. From
1983 to June  1989,  Mr.  Baker  held  various  retail  positions  with  Payless
ShoeSource.

Mr.  Sifford has been employed by the Company as Senior Vice President - General
Merchandise  Manager since April 13, 1997.  Prior to joining the Company and for
at least the past five years,  Mr. Sifford  served as merchandise  manager-shoes
for Belk Store Services, Inc.

Mr.  Linville  has been  employed by the Company as Vice  President - Management
Information  Systems since August 1994.  From February 1990 to February 1994, he
served as vice president of information systems for Dollar General  Corporation.
Prior to 1990, Mr. Linville was employed in various management  positions within
the information  systems areas of Hecks Department  Stores (2 years) and Service
Merchandise, Inc. (11 years).

Mr. Jackson has been employed by the Company as Vice President - Chief Financial
Officer and Treasurer since September 1996. From January 1993 to September 1996,
Mr. Jackson served as Vice President - Controller and Chief Accounting  Officer.
Prior to January 1993,  Mr. Jackson held various  accounting  positions with the
Company. Prior to joining the Company in 1988, Mr. Jackson was associated with a
public accounting firm. He is a Certified Public Accountant.

Mr. Kapp has been  employed by the Company  since March 1988,  most  recently as
Vice  President - Inventory  Controller  and  Secretary.  Prior to assuming  his
current position, Mr. Kapp held various accounting and retail positions with the
Company and its predecessor. He is a Certified Cash Manager.

                                       9
<PAGE>

Executive  officers  of the  Company  serve at the  discretion  of the  Board of
Directors.  There is no family  relationship  between  any of the  directors  or
executive officers of the Company.

(Pursuant to General Instruction G(3) of Form 10-K, the foregoing information is
included as an unnumbered  Item in Part I of this Annual Report in lieu of being
included  in the  Company's  Proxy  Statement  for its 1999  Annual  Meeting  of
Shareholders.)
                                     PART II

ITEM 5.  MARKET  FOR THE  REGISTRANT'S  COMMON  EQUITY AND  RELATED  STOCKHOLDER
         MATTERS

The Common  Stock has been quoted on the Nasdaq  Stock  Market under the trading
symbol "SCVL" since March 16, 1993.

The quarterly high and low trading prices for 1998 and 1997 are as follows:

                                      High                 Low    
                                    --------            --------

Fiscal Year 1998
First Quarter                       $  12.75            $   8.13
Second Quarter                         15.00               10.06
Third Quarter                          11.06                6.50
Fourth Quarter                         11.31                8.50

Fiscal Year 1997
First Quarter                       $   6.50            $   4.38
Second Quarter                         11.00                6.25
Third Quarter                          11.50                6.88
Fourth Quarter                          9.63                7.50


On March 23,  1993,  the  Company  consummated  its initial  public  offering of
3,622,500 shares of Common Stock at a price to the public of $8.67 per share.

As of April 16,  1999,  there were  approximately  310  holders of record of the
Common Stock.

The Company does not currently  intend to pay cash dividends on its Common Stock
in the foreseeable  future.  The payment of any future  dividends will be at the
discretion of the Company's Board of Directors and will depend upon, among other
things, future earnings, operations, capital requirements, the general financial
condition of the Company and general business conditions.

No unregistered equity securities were sold by the Company during fiscal 1998.


                                       10
<PAGE>

ITEM 6. Selected Financial Data

<TABLE>
<CAPTION>

(In thousands, except share and operating data)

Fiscal years (1)                  1998      1997      1996      1995      1994   
                                --------  --------  --------  --------  --------
<S>                             <C>       <C>       <C>       <C>       <C>
Income Statement Data:
 Net sales                      $280,157  $246,520  $233,945  $228,263  $214,528
 Cost of sales (including 
   buying, distribution and 
   occupancy costs)              196,141   173,953   168,814   176,019   158,614
                                --------  --------  --------  --------  --------

 Gross profit                     84,016    72,567    65,131    52,244    55,914
 Selling, general and
   administrative expenses        66,464    59,438    57,405    58,946    52,907
 Restructuring (credit) charge                          (474)    3,282       267
                                --------  --------  --------  --------  --------

 Operating income (loss)          17,552    13,129     8,200    (9,984)    2,740
 Interest expense                    507       912     1,242     1,626       665
                                --------  --------  --------  --------  --------

Income (loss) before income 
   taxes                          17,045    12,217     6,958   (11,610)    2,075
Income tax expense (benefit)       6,818     4,826     2,818    (4,420)      874
                                --------  --------  --------  --------  --------

Net income (loss)               $ 10,227  $  7,391  $  4,140  $ (7,190) $  1,201
                                ========  ========  ========  ========  ========

Net income (loss) per share:
   Basic (2)                    $    .78  $    .57  $    .32  $   (.55) $    .09    
   Diluted (2)                  $    .76  $    .56  $    .32  $   (.55) $    .09

Average shares outstanding:
   Basic                          13,150    13,049    13,023    13,019    13,024
   Diluted                        13,429    13,238    13,029    13,031    13,051
--------------------------------------------------------------------------------
Selected Operating Data (3):
 Stores open at end of period        111        92        93        95        87
 Square footage of store space
   at year end (000's)             1,274     1,021     1,026     1,024       939
 Average sales per store (000's)$  2,791  $  2,720  $  2,543  $  2,497  $  3,145
 Average sales per square foot  $    250  $    245  $    233  $    230  $    277
 Comparable store sales             3.6%      6.1%     (1.1%)   (10.0%)   (3.4%)
--------------------------------------------------------------------------------
Balance Sheet Data:
 Working capital                $ 47,668  $ 48,889  $ 45,090  $ 50,206  $ 60,766
 Total assets                    120,761    96,201    93,926   102,265   105,155
 Long-term debt and other 
   indebtedness                    1,361     6,133     9,621    18,922    20,597
 Total shareholders' equity       82,667    71,609    63,772    59,571    67,577
--------------------------------------------------------------------------------

<FN>
(1)  On February 9, 1995, the Company's Board of Directors  approved a change in
     the fiscal  year to a 52/53  week year  ending on the  Saturday  closest to
     January 31. Unless otherwise stated,  references to years 1998, 1997, 1996,
     1995 and 1994 relate  respectively  to the fiscal  years ended  January 30,
     1999, January 31, 1998, February 1, 1997, February 3, 1996 and December 31,
     1994.  Fiscal year 1995  consisted  of 53 weeks and the other  fiscal years
     consisted of 52 weeks.  The Company recorded a net loss of $816,000 for the
     four week transition period ended January 28, 1995.

(2)  Per share data have been restated for the adoption of SFAS 128.


(3)  Selected Operating Data has been adjusted to a comparable 52 week basis for
     1995.

</FN>
</TABLE>


                                       11
<PAGE>

ITEM 7. Management's  Discussion and Analysis of Financial Condition and Results
        of Operations

The Company's fiscal year consists of a 52/53 week period ending on the Saturday
closest to January 31. Unless  otherwise  stated,  references to the years 1998,
1997 and 1996 relate  respectively  to the fiscal years ended  January 30, 1999,
January 31, 1998 and February 1, 1997.

Results of Operations

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


                                            1998        1997        1996      
                                          -------     -------     -------

Net sales                                  100.0%      100.0%      100.0%
Cost of sales (including buying,
   distribution and occupancy costs)        70.0        70.6        72.2      
                                          -------     -------     -------

Gross profit                                30.0        29.4        27.8
Selling, general and
   administrative expenses                  23.7        24.1        24.5
Restructuring credit                                                (0.2)     
                                          -------     -------     -------

Operating income                             6.3         5.3         3.5
Interest expense                             0.2         0.3         0.5      
                                          -------     -------     -------

Income before income taxes                   6.1         5.0         3.0
Income tax expense                           2.4         2.0         1.2      
                                          -------     -------     -------

Net income                                   3.7%        3.0%        1.8%     
                                          =======     =======     =======


1998 Compared to 1997

Net Sales

Net sales  increased  $33.6 million to $280.2  million in 1998, a 13.6% increase
over net sales of $246.5 million in 1997. The increase was  attributable  to the
opening of 20 stores in 1998,  four stores in 1997 and a comparable  store sales
increase of 3.6%. Increases in comparable store sales were realized in all major
footwear  categories  with the exception of the women's  category which was even
for the  year.  Average  sales  per  square  foot in  stores  open the full year
increased to $250 in 1998 from $245 in 1997. Sales of private label and non-name
brand footwear  constituted  13.5% and 16.6% of total footwear sales in 1998 and
1997, respectively.

Gross Profit

Gross profit  increased $11.4 million to $84.0 million in 1998, a 15.8% increase
from gross profit of $72.6 million in 1997.  The  Company's  gross profit margin
increased to 30.0% from 29.4%. As a percentage of sales,  the merchandise  gross
profit margin  increased by 0.4% while buying,  distribution and occupancy costs
decreased 0.2%. The increase in the merchandise  gross profit margin was largely
the result of the increased margin realized on the sale of athletic footwear.


                                       12
<PAGE>

Selling, General and Administrative Expenses

Selling,  general and  administrative  expenses  increased $7.0 million to $66.4
million in 1998 from $59.4  million in 1997.  As a  percentage  of sales,  these
expenses  decreased  0.4% in 1998. An  increasing  sales base helped to leverage
administrative  and hourly  payroll  expenses and reduce  overall  expenses as a
percent of sales in spite of increases in advertising and pre-opening costs.

The Company's policy is to expense all non-capital  expenditures  incurred prior
to the  opening  of a new  store  in the  month of  opening.  The  aggregate  of
pre-opening  expenses for 20 new stores in 1998 was approximately  $1.7 million,
or 0.6% of sales, and $211,000, or 0.1% of sales for four new stores in 1997.

Interest Expense

Net  interest  expense of $507,000 in 1998  resulted  from  interest  expense of
$553,000 and  interest  income of $46,000.  Net interest  expense of $912,000 in
1997 resulted from interest  expense of $946,000 and interest income of $34,000.
The decrease in interest expense was attributable to lower average debt balances
in 1998. The weighted  average  interest rate on total debt was 8.5% in 1998 and
7.7% in 1997.

Income Taxes

The increase in the effective  income tax rate for 1998 to 40.0%, as compared to
39.5% in 1997 was primarily due to an increase in the statutory  rate  resulting
from higher taxable income.  The effective income tax rate in 1998 differed from
the statutory  rate due  primarily to state and local income  taxes,  net of the
federal tax benefit.

1997 Compared to 1996

Net Sales

Net sales  increased  $12.6  million to $246.5  million in 1997, a 5.4% increase
over net sales of $233.9 million in 1996. The increase was  attributable  to the
opening of four stores in 1997, five stores in 1996 and a comparable store sales
increase of 6.1%,  partially  offset by the closing of five stores in 1997.  All
major product categories  recorded increases in comparable store sales resulting
from increases in the average price realized on the sale of merchandise. Average
sales per square  foot in stores  open the full year  increased  5.2% to $245 in
1997 from  $233 in 1996.  The  increase  was a result  of the  comparable  store
increase and the closing of low productivity  stores. Sales of private label and
non-name brand footwear  constituted  16.6% and 17.3% of total footwear sales in
1997 and 1996, respectively.

Gross Profit

Gross profit  increased $7.4 million to $72.6 million in 1997, an 11.4% increase
from gross profit of $65.1 million in 1996.  The  Company's  gross profit margin
increased to 29.4% from 27.8%.  As a percentage of sales,  buying,  distribution
and occupancy  costs  decreased 0.3% while the  merchandise  gross profit margin
increased by 1.3%.  The increase in the gross profit margin was broad based with
all major product categories improving over the prior year.

During 1996,  certain  initiatives  were  undertaken to improve the gross profit
margin.  These  initiatives  included raising the average sale price realized on
the sale of footwear by reducing the discounting allowed on merchandise sold and
improving the quality of footwear sold.


                                       13
<PAGE>

Selling, General and Administrative Expenses

Selling,  general and  administrative  expenses  increased $2.0 million to $59.4
million in 1997 from $57.4  million in 1996.  As a  percentage  of sales,  these
expenses  decreased  0.4% in 1997.  The Company  implemented  a new  advertising
campaign and consequently  increased advertising  expenditures in 1997. However,
an increase in comparable store sales combined with cost control  initiatives in
payroll  and other cost areas  resulted  in a decrease  in total  expenses  as a
percent  of  sales.   

The Company's policy is to expense all non-capital  expenditures  incurred prior
to the opening of a new store in the month of opening.  Pre-opening expenses for
new  stores  aggregated  approximately  $211,000,  or 0.1% of sales for four new
stores in 1997, and $427,000, or 0.2% of sales for five new stores in 1996.

Interest Expense

Net  interest  expense of $912,000 in 1997  resulted  from  interest  expense of
$946,000 and interest income of $34,000. Net interest expense of $1.2 million in
1996  resulted  from  interest  expense of $1.3 million and  interest  income of
$43,000. The decrease in interest expense was attributable to lower average debt
balances in 1997 and a decrease in the weighted  average  interest rate on total
debt to 7.7% in 1997 from 8.3% in 1996.

Income Taxes

The reduction in the effective income tax rate for 1997 to 39.5%, as compared to
40.5% in 1996 was primarily due to lower  effective  income tax rates in certain
states.  The effective  income tax rate in 1997 differed from the statutory rate
due primarily to state and local income taxes, net of the federal tax benefit.

Restructuring

During the fourth quarter of 1995, the Company  recorded a restructuring  charge
of $3.3 million to close eight unprofitable stores. The results of operations in
the fourth  quarter of 1996  includes a credit of  $474,000  resulting  from the
partial  reversal of the  restructuring  expense  recorded in 1995.  The expense
reversal was  primarily due to the favorable  negotiation  of lease  termination
costs for the stores closed in 1996.

Liquidity and Capital Resources

The Company's sources and uses of cash are summarized as follows:

(000's)
Fiscal years                                         1998      1997      1996  
                                                   --------  --------  --------

Net income plus depreciation and amortization      $ 16,795  $ 13,145  $  9,376
Restructuring credit                                                       (474)
Deferred income taxes                                   414       219     1,550
Working capital decreases (increases)                 1,326    (3,149)    6,059
Other operating activities                               80       400       117
                                                   --------   -------  --------
Net cash provided by operating activities            18,615    10,615    16,628
Net cash used in investing activities               (12,487)   (7,469)   (6,577)
Net cash used in financing activities                (5,755)   (3,200)   (9,326)
                                                   --------   -------  --------
Net increase (decrease) in cash and cash 
  equivalents                                           373       (54)      725
Cash and cash equivalents at beginning of year        1,571     1,625       900
                                                   --------   -------  --------
Cash and cash equivalents at end of year           $  1,944   $ 1,571  $  1,625
                                                   ========   =======  ========

The  Company's  primary  sources  of funds are cash flows  from  operations  and
borrowings  under its revolving  credit  facility.  Cash provided from operating
activities was $18.6 million,  $10.6 million and $16.6 million in 1998, 1997 and
1996, respectively. Excluding changes in operating assets and liabilities, $17.3
million, $13.8 million and $10.6 million was provided by operating activities in
1998,  1997 and 1996,  respectively.  Merchandise  inventories  increased  $15.3
million to $75.4  million at January 30,  1999  compared  with $60.1  million at
January 31, 1998. The increase in  merchandise  inventories  resulted  primarily
from the 19  additional  stores  operated at January 30, 1999.  Cash provided by
operating  activities was used during 1998 to fund capital  expenditures  and to
reduce long-term debt by $4.7 million.


                                       14
<PAGE>

Working  capital  was $47.7  million at January  30,  1999 and $48.9  million at
January 31, 1998.  The current  ratio at January 30, 1999 was 2.5 as compared to
4.3 at January 31, 1998. The decrease from the prior year was primarily a result
of an increase in accounts payable due to higher receipts of spring  merchandise
in January  1999 as compared to the prior  year.  As a result of a $4.7  million
reduction in debt,  long-term  debt as a percentage of total capital  (long-term
debt plus  shareholders'  equity)  was  reduced to 1.6% at January  30,  1999 as
compared to 7.9% at January 31, 1998.

Capital  expenditures  net of lease  incentives were $14.6 million in 1998, $7.5
million in 1997 and $6.2 million in 1996. These amounts include $1.9 million and
$162,000 of capital lease obligations  incurred in 1998 and 1996,  respectively.
No capital lease  obligations  were incurred in 1997. Of the 1998  expenditures,
$6.9  million was  incurred  for new stores,  $2.3  million was incurred for the
expansion of the existing  distribution center and $2.2 million was incurred for
a major upgrade to the point-of-sale  system. The remaining capital expenditures
in 1998 were primarily for various store improvements,  enhancements to computer
systems and distribution equipment.

Capital expenditures, including assets acquired through leasing arrangements but
net of lease incentives, are expected to be $19 million to $21 million in fiscal
1999.  The actual  amount of cash required for capital  expenditures  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 the Company targets for
expansion.

In 1999,  the  Company  intends  to open  approximately  25 to 30  stores  at an
expected aggregate cost of between $9 million and $11 million. In addition,  the
completion of a 92,000 square foot addition to the existing  distribution system
is  expected  to  cost  approximately   $4.6  million.   The  remaining  capital
expenditures  are expected to be incurred  for various  store  improvements  and
visual  presentation   enhancements  and  upgrades  to  administrative  computer
systems.

The Company's current store prototype  utilizes between 12,000 and 15,000 square
feet  depending  upon,  among other  factors,  the location of the store and the
population base the store is expected to service. Net capital expenditures for a
new store is expected to average approximately $350,000, including point-of-sale
equipment which is generally  acquired through equipment  leasing  transactions.
The  average  inventory  investment  in a new store is  expected  to range  from
$550,000 to $850,000,  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,   supplies  and  utilities,  are  expected  to  average
approximately  $80,000 per store. On a per-store basis, for the 20 stores opened
during  1998,  the  initial  inventory  investment  averaged  $617,000,  capital
expenditures averaged $403,000 and pre-opening expenses averaged $83,000.

At January 31, 1998, the Company's  credit facility  provided for $35 million in
cash  advances  and  letters of credit  issuances.  Borrowings  under the credit
facility are based on eligible  inventory.  At January 30,  1999,  there were no
cash advances outstanding on the credit facility.  Letters of credit outstanding
at January 30, 1999, were $6.9 million.  On April 16, 1999, the credit agreement
was  amended to allow for up to $45  million  in cash  advances  and  letters of
credit  and to extend  the  maturity  date to March 31,  2001.  Additionally,  a
covenant limiting the payment of dividends was eliminated.

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

                                       15
<PAGE>

Impact of Year 2000

The "Year 2000 Issue"  generally  refers to computer  systems that were designed
and  developed  using two digits,  rather than four,  to specify the year.  As a
result,  such  systems  that  utilize  a two  digit  date  may  not be  able  to
distinguish  the year 2000 from the year 1900.  This could  result in  erroneous
data or complete failure of some systems unless corrective actions are taken.

Management  initiated  a company  wide  program in 1998 to address the Year 2000
issue.  The phases of the program  include (1) creating  awareness of the issues
through  education  and  training;  (2)  assessing the extent of the problem and
determining resource  requirements;  (3) renovation of the systems by modifying,
upgrading or replacing  affected  systems;  (4)  validation  of the  renovations
through testing and implementation;  and (5) contingency  planning.  The Company
has completed the  awareness  and  assessment  phases and is 75% complete on the
renovation phase. The testing phase is ongoing as hardware or system software is
modified,  upgraded or replaced  but is  expected to be  completed  by the third
quarter of 1999. Revisions to existing business  interruption  contingency plans
to  address  specific  issues  related  to the Year  2000  problem  will also be
completed in the third quarter of 1999.

The  Company  estimates  the total cost of the two year Year 2000  project to be
approximately  $280,000,  of  which  approximately  $142,000  was  incurred  and
expensed  in  1998.   Allocating   existing   resources  rather  than  incurring
incremental costs should fund the majority of the estimated Year 2000 compliance
costs. The above costs do not include expenditures of approximately $2.2 million
for a major upgrade to the Company's  point-of-sale  systems,  which upgrade was
not made for Year 2000 compliance purposes.

The Company does not  anticipate  the costs of the Year 2000 project will have a
material  adverse  effect  on  the  Company's  financial  position,  results  of
operations or cash flows in future periods.  The anticipated impact and costs of
the Year 2000  project,  as well as the date on which  the  Company  expects  to
complete the project, are based on management's best estimates using information
currently available and numerous assumptions about future events. However, there
can be no guarantee that the estimates will be achieved and actual results could
differ materially from those planned.

Formal  inquiries are being made by the Company of its major suppliers and other
third-party  entities with which it has business  relations to obtain assurances
of their Year 2000 compliance.  Appropriate  contingency plans will be developed
in  the  event  that  a  significant  exposure  is  identified  relative  to the
dependencies on third-party systems. However, there can be no assurance that the
systems of other companies on which the Company relies upon will be corrected in
a timely  manner,  or that any such  failure  would not have a material  adverse
effect on the Company.

Seasonality and Inflation

The Company's quarterly results of operations have fluctuated,  and are expected
to  continue  to  fluctuate  in the  future,  primarily  as a result of seasonal
variances and the timing of sales and costs  associated with opening new stores.
Non-capital expenditures, such as advertising and payroll, incurred prior to the
opening of a new store are  charged to expense in the month the store is opened.
Therefore,  results of  operations  may be adversely  affected in any quarter in
which the Company opens new stores.

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

Factors That May Effect Future Results

This Annual Report contains  certain  forward looking  statements that involve a
number of risks and  uncertainties.  Among the factors  that could cause  actual
results to differ materially are the following:  general economic  conditions in
the areas of the  United  States  in which the  Company's  stores  are  located;
changes in the overall retail  environment and more  specifically in the apparel
and  footwear  retail  sectors;  the impact of  competition,  weather  patterns,
consumer buying trends and the ability of the Company to identify and respond to
emerging  fashion  trends;  the  availability  of desirable  store locations and
management's  ability to negotiate acceptable lease terms and open new stores in
a timely manner;  and changes in the political and economic  environments in the
People's  Republic of China,  where most of the Company's private label products
are manufactured,  and the continued favorable trade relationships between China
and the United States.


ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company is not currently subject to any material market risk.


                                       16
<PAGE>

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Report of Management

Management  of the Company is  responsible  for the  preparation,  integrity and
objectivity of the financial  information  included in this Annual  Report.  The
financial  statements have been prepared in conformity  with generally  accepted
accounting  principles  and  necessarily  include  amounts  which are based upon
estimates and judgments by management.

Management  maintains  internal  accounting  control systems designed to provide
reasonable  assurance that assets are safeguarded,  transactions are executed in
accordance with  management's  authorization  and the accounting  records may be
relied upon for the  preparation  of financial  statements  and other  financial
information.  This  system  of  internal  controls  has  been  designed  and  is
maintained in  recognition  of the concept that the cost of controls  should not
exceed the benefit derived therefrom.

The Audit Committee of the Board of Directors meets periodically with management
and the  independent  auditors  to  review  matters  relating  to the  Company's
financial reporting,  the adequacy of internal control systems and the scope and
results of the annual audit.  Representatives  of the independent  auditors have
free access to the Audit Committee and the Board of Directors.

The Company's  financial  statements have been audited by Deloitte & Touche LLP,
whose report, which follows, expresses an opinion as to the fair presentation of
the  financial  statements  and is based on an  independent  audit  performed in
accordance with generally accepted auditing standards.


Independent Auditors' Report

To the Board of Directors and Shareholders of Shoe Carnival, Inc.:

We have audited the  accompanying  balance sheets of Shoe Carnival,  Inc., as of
January 30, 1999 and  January  31,  1998 and the related  statements  of income,
shareholders'  equity  and cash  flows for the years  ended  January  30,  1999,
January 31, 1998 and February 1, 1997.  Our audits also  included the  financial
statement  schedule listed in the Index at Item 14. These  financial  statements
and  financial  statement  schedule  are  the  responsibility  of the  Company's
management.  Our  responsibility  is to express  an  opinion on these  financial
statements based on our audits.

We  conducted  our  audits  in  accordance  with  generally   accepted  auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe our audits provide a reasonable basis for our opinion.

In our  opinion,  such  financial  statements  present  fairly,  in all material
respects, the financial position of Shoe Carnival, Inc., at January 30, 1999 and
January 31, 1998,  and the results of its  operations and its cash flows for the
years  ended  January 30,  1999,  January  31,  1998 and  February  1, 1997,  in
conformity with generally accepted accounting principles.  Also, in our opinion,
such  financial  statement  schedule,  when  considered in relation to the basic
financial statements taken as a whole,  presents fairly in all material respects
the information set forth.



/s/ Deloitte & Touche LLP

Deloitte & Touche LLP
Stamford, Connecticut
March 5, 1999 (April 16, 1999 as to Note 5)

                                       17
<PAGE>

<TABLE>
<CAPTION>

Shoe Carnival, Inc.
Balance Sheets
                                                    January 30,      January 31,
(In thousands)                                         1999             1998      
                                                    -----------      -----------
<S>                                                 <C>              <C>  
Assets
Current Assets:
   Cash and cash equivalents                        $     1,944      $     1,571
   Accounts receivable                                      567              781
   Notes receivable from shareholders                                         22
   Merchandise inventories                               75,390           60,091
   Deferred income tax benefit                              782              933
   Other                                                  1,222              834
                                                    -----------      -----------

Total Current Assets                                     79,905           64,232
Property and equipment-net                               40,856           31,969
                                                    -----------      -----------

Total Assets                                        $   120,761      $    96,201
                                                    ===========      ===========

Liabilities and Shareholders' Equity
Current Liabilities:
   Accounts payable                                 $    25,698      $    10,168
   Accrued and other liabilities                          5,757            4,487
   Current portion of long-term debt                        782              688
                                                    -----------      -----------

Total Current Liabilities                                32,237           15,343
Long-term debt                                            1,361            6,133
Deferred lease incentives                                 2,424            1,308
Deferred income taxes                                     2,072            1,808
                                                    -----------      -----------

Total Liabilities                                        38,094           24,592
                                                    -----------      -----------

Shareholders' Equity:
   Common stock, $. 01 and no par value, 
      50,000 shares authorized 13,179 and
      13,088 shares issued and outstanding                  132                
   Additional paid-in capital                            62,543           61,844
   Retained earnings                                     19,992            9,765
                                                    -----------      -----------

Total Shareholders' Equity                               82,667           71,609
                                                    -----------      -----------

Total Liabilities and Shareholders' Equity          $   120,761      $    96,201
                                                    ===========      ===========

</TABLE>

See notes to financial statements


                                       18
<PAGE>

<TABLE>
<CAPTION>

Shoe Carnival, Inc.
Statements of Income



(In thousands, except per share data)
For fiscal years ended                    January 30,  January 31,  February 1,
                                             1999         1998         1997     
                                          -----------  -----------  -----------
<S>                                       <C>          <C>          <C> 
Net sales                                 $   280,157  $   246,520  $   233,945
Cost of sales (including buying,
   distribution and occupancy costs)          196,141      173,953      168,814
                                          -----------  -----------  -----------

Gross profit                                   84,016       72,567       65,131
Selling, general and administrative 
   expenses                                    66,464       59,438       57,405
Restructuring credit                                                       (474)
                                          -----------  -----------  -----------

Operating income                               17,552       13,129        8,200
Interest expense                                  507          912        1,242
                                          -----------  -----------  -----------

Income before income taxes                     17,045       12,217        6,958
Income tax expense                              6,818        4,826        2,818
                                          -----------  -----------  -----------

Net income                                $    10,227  $     7,391  $     4,140
                                          ===========  ===========  ===========

Net income per share:
   Basic                                  $       .78  $       .57  $       .32
   Diluted                                $       .76  $       .56  $       .32

Average shares outstanding:
   Basic                                       13,150       13,049       13,023
   Diluted                                     13,429       13,238       13,029

</TABLE>

See notes to financial statements


                                       19
<PAGE>

<TABLE>
<CAPTION>

Shoe Carnival, Inc.
Statements of Shareholders' Equity

(In thousands)
                                                   Additional Retained
                                    Common Stock    Paid-In   Earnings
                                   Shares   Amount  Capital   (Deficit)   Total 
                                  ---------------- ---------- --------- --------
<S>                               <C>     <C>      <C>        <C>       <C> 
Balance at February 3, 1996       13,019  $ 1,302  $ 60,035   $ (1,766) $ 59,571
Employee stock purchase plan 
  purchases                           13                 61                   61
Elimination of par value                   (1,302)    1,302
Net income                                                       4,140     4,140
                                  ------  -------  --------   --------  --------

Balance at February 1, 1997       13,032        0    61,398      2,374    63,772
Compensation from stock option 
  grant                                                 158                  158
Exercise of stock options             41                191                  191
Employee stock purchase plan 
  purchases                           15                 97                   97
Net income                                                       7,391     7,391
                                  ------  -------  --------   --------  --------

Balance at January 31, 1998       13,088        0    61,844      9,765    71,609
Exercise of stock options             76                690                  690
Employee stock purchase plan 
  purchases                           15                141                  141
Increase in par value                         132      (132)
Net income                                                      10,227    10,227
                                  ------  -------  --------   --------  --------
Balance at January 30, 1999       13,179  $   132  $ 62,543   $ 19,992  $ 82,667
                                  ======  =======  ========   ========  ========
</TABLE>

See notes to financial statements


                                       20
<PAGE>

<TABLE>
<CAPTION>

Shoe Carnival, Inc.
Statements of Cash Flows

(In thousands)
Fiscal years ended

                                         January 30,   January 31,   February 1,
                                            1999          1998          1997     
                                         -----------   -----------   -----------
<S>                                      <C>           <C>           <C> 
Cash Flows From Operating Activities
Net income                               $    10,227   $     7,391   $    4,140
Adjustments to reconcile net income
   to net cash provided by operating 
   activities:
     Depreciation and amortization             6,568         5,754        5,236
     Restructuring credit                                                  (474)
     Loss on retirement of assets                380           392          305
     Deferred income taxes                       414           219        1,550
     Compensation for forgiveness of debt                      158
     Other                                      (300)         (150)        (188)
     Changes in operating assets and 
     liabilities:
       Merchandise inventories               (15,299)         (851)       3,459
       Accounts receivable                       214           137           69
       Accounts payable and accrued 
         liabilities                          16,801        (2,506)      (1,221)
       Other                                    (390)           71        3,752
                                         -----------   -----------   ----------
Net cash provided by operating activities     18,615        10,615       16,628
                                         -----------   -----------   ----------
Cash Flows From Investing Activities
   Purchases of property and equipment       (14,061)       (7,493)      (6,294)
   Notes from shareholders                                                   18
   Lease incentives                            1,416                       (303)
   Other                                         158            24            2
                                         -----------   -----------   ----------
Net cash used in investing activities        (12,487)       (7,469)      (6,577)
                                         -----------   -----------   ----------
Cash Flows From Financing Activities
   Borrowings under line of credit           102,675       141,600      174,450
   Payments on line of credit               (108,375)     (144,400)    (183,200)
   Payments on long-term debt                   (886)         (688)        (637)
   Proceeds from issuance of stock               831           288           61
                                         -----------   -----------   ----------
Net cash used in financing activities         (5,755)       (3,200)      (9,326)
                                         -----------   -----------   ----------
Net increase (decrease) in cash and cash 
   equivalents                                   373           (54)         725
Cash and cash equivalents at beginning 
   of year                                     1,571         1,625          900
                                         -----------   -----------   ----------
Cash and Cash Equivalents at End of Year $     1,944   $     1,571   $    1,625
                                         ===========   ===========   ==========
Supplemental disclosures of cash flow 
  information:
   Cash paid during year for interest    $       580   $       953   $    1,337
   Cash paid (refunded) during year for 
     income taxes                              6,651         4,350       (2,150)
   Capital lease obligations incurred          1,908                        162

</TABLE>

See notes to financial statements


                                       21
<PAGE>

Shoe Carnival, Inc.
Notes to Financial Statements

Note 1 - Organization and Description of Business

Shoe Carnival, Inc. (the "Company"), was incorporated on February 25, 1988 under
the name of DAR Group  Investments,  Inc.  The Company  changed its name to Shoe
Carnival,  Inc., on January 15, 1993. The Company's primary activity is the sale
of footwear and related products through  Company-operated  retail stores in the
Midwest, South and Southeastern regions of the United States.

Note 2 - Summary of Significant Accounting Policies

Fiscal Year

The Company's fiscal year consists of a 52/53 week period ending on the Saturday
closest to January 31. Unless  otherwise  stated,  references to the years 1998,
1997 and 1996 relate  respectively  to the fiscal years ended  January 30, 1999,
January 31, 1998 and February 1, 1997.  All three  fiscal years  consisted of 52
weeks.

Cash and Cash Equivalents

The  Company   considers  all  certificates  of  deposit  and  other  short-term
investments  with an original  maturity  date of three months or less to be cash
equivalents.

Merchandise Inventories

Merchandise  inventories  are  stated at the  lower of cost or market  using the
first-in,  first-out  (FIFO)  method.  In determining  market value,  management
estimates  the  future  sales  price of items of  merchandise  contained  in the
inventory as of the balance sheet date. Factors considered in this determination
include among others,  current and recently recorded sales prices, the length of
time product has been held in inventory and quantities of various product styles
contained in inventory.  The ultimate  amount  realized from the sale of certain
product could differ materially from management's estimates.

Property and Equipment

Property  and  equipment is stated at cost.  Depreciation  and  amortization  of
property, equipment and leasehold improvements are provided on the straight-line
method  over the  shorter  of the  estimated  useful  lives of the assets or the
applicable  lease terms.  Lives used in computing  depreciation and amortization
range from two to 30 years. Expenditures for maintenance and repairs are charged
to expense as incurred.  Expenditures which materially increase values,  improve
capacities or extend useful lives are capitalized.  Upon sale or retirement, the
costs and related  accumulated  depreciation or amortization are eliminated from
the  respective  accounts  and  any  resulting  gain  or  loss  is  included  in
operations.

Deferred Lease Incentives

All incentives received from landlords for leasehold  improvements and fixturing
of new stores are recorded as deferred income and amortized over the life of the
lease on a straight-line basis as a reduction of rental expense.

Revenue Recognition

Sales are recorded net of an estimate for returns and allowances.


                                       22
<PAGE>

Shoe Carnival, Inc.
Notes to Financial Statements - Continued

Store Opening Costs

Non-capital  expenditures incurred prior to the opening of a new store have been
charged  to expense  in the month the store was  opened  during  1998 and prior.
Statement  of Position  98-5,  "Reporting  on the Costs of Start-up  Activities"
requires that  beginning in 1999 all  pre-opening  and other  start-up  costs be
expensed in the period incurred.  Accordingly,  with the adoption of SOP 98-5 in
1999, all future pre-opening costs will be expensed in the period incurred. This
change will not have a material impact on the Company's financial statements.

Advertising Costs

Print,  radio and  television  communication  costs are generally  expensed when
incurred.  Internal  production  costs are expensed  when  incurred and external
production costs are expensed in the year the  advertisement  first takes place.
Advertising  expenses included in selling,  general and administrative  expenses
were $11.5 million in 1998, $9.0 million in 1997 and $7.9 million in 1996.

Comprehensive Income

In June 1997,  the  Financial  Accounting  Standards  Board issued SFAS No. 130,
"Comprehensive  Income," which was adopted by the Company in 1998.  SFAS No. 130
requires the presentation of comprehensive  income,  in addition to the existing
income statement. Comprehensive income is defined as the change in equity during
a period from  transactions and other events,  excluding  changes resulting from
investments  by owners and  distributions  to owners.  For all years  presented,
there  are no items  requiring  separate  disclosure  in  accordance  with  this
statement.

Segments of an Enterprise and Related Information

In June 1997,  the  Financial  Accounting  Standards  Board issued SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information".  SFAS No.
131  requires  the  disclosure  of  segment  related  information  based  on how
management makes decisions about allocating  resources to segments and measuring
their  performance.  The Company has one  business  segment that offers the same
principal  product and service  throughout the Midwest,  South and  Southeastern
regions of the United States. Based on the current  organizational  structure of
the Company,  the financial  information  presented is in  compliance  with this
accounting pronouncement.

Derivative Instruments and Hedging Activities

In June 1998,  the  Financial  Accounting  Standards  Board issued SFAS No. 133,
"Accounting  for Derivative  Instruments and Hedging  Activities".  SFAS No. 133
requires that  derivative  instruments be recognized as assets or liabilities in
the  statement of financial  position.  The Company is currently  assessing  the
effect  of the  adoption  of SFAS No.  133 in  fiscal  year  2000,  but does not
anticipate a material impact on its financial position.

Use of Management Estimates

The preparation of financial  statements in conformity  with generally  accepted
accounting  principles  requires  that  management  make certain  estimates  and
assumptions  that  affect the  reported  amounts of assets and  liabilities  and
disclosure of  contingent  assets and  liabilities  at the date of the financial
statements.  The reported  amounts of revenues and expenses during the reporting
period may be affected by the estimates and  assumptions  management is required
to make. Actual results could differ from those estimates.


                                       23
<PAGE>

Shoe Carnival, Inc.
Notes to Financial Statements - Continued

Reclassifications

Certain  reclassifications  to the 1997 financial  statements  have been made to
conform to the current year's presentation.

Note 3 - Property and Equipment-net

The following is a summary of property and equipment:

(000's)                                     January 30,            January 31,
                                               1999                   1998    
                                            -----------            -----------

Land                                        $       205            $       205
Buildings                                         5,863                  5,845
Furniture, fixtures and equipment                32,389                 25,674
Leasehold improvements                           22,848                 18,558
Equipment under capital leases                    5,242                  3,737
Construction in progress                          2,263                      
                                            -----------            -----------

Total                                            68,810                 54,019
Less accumulated depreciation
  and amortization                               27,954                 22,050
                                            -----------            -----------

Property and equipment-net                  $    40,856            $    31,969
                                            ===========            ===========

Note 4 - Accrued and Other Liabilities

Accrued and other liabilities consisted of the following:

(000's)                                     January 30,            January 31,
                                               1999                   1998    
                                            -----------            -----------

Employee compensation and benefits          $     2,009            $     1,919
Accrued rent                                      1,060                    884
Other                                             2,688                  1,684
                                            -----------            -----------
Total accrued and other liabilities         $     5,757            $     4,487
                                            ===========            ===========

Note 5 - Long-Term Debt

Long-term debt consisted of the following:

(000's)                                     January 30,            January 31,
                                               1999                   1998    
                                            -----------            -----------

Revolving line of credit                                           $     5,700
Capital lease obligations (see Note 6)      $     2,143                  1,121
                                            -----------            -----------
Total                                             2,143                  6,821
Less current portion                                782                    688
                                            -----------            -----------
Total long-term debt, net of
  current portion                           $     1,361            $     6,133
                                            ===========            ===========


                                       24
<PAGE>

Shoe Carnival, Inc.
Notes to Financial Statements - Continued

During 1998,  the Company had an unsecured  $35 million  credit  agreement  (the
"Credit  Agreement")  with  a bank  group.  Borrowings  are  based  on  eligible
inventory and bear interest,  at the Company's option, at the agent bank's prime
rate (7.75% at January 30, 1999) or the  applicable  London  Inter-Bank  Offered
Rate (LIBOR) plus from 0.75% to 2%,  depending on the Company's  achievement  of
certain performance  criteria. A commitment fee of 0.25% per annum is charged on
the unused portion of the first $30 million of the bank group's commitment.  The
Credit Agreement contains various restrictive and financial covenants, including
the maintenance of specific  financial ratios and a limitation on the payment of
dividends. At January 30, 1999, outstanding letters of credit were approximately
$6.9 million.

On April 16, 1999, the Credit Agreement was amended to increase the total credit
facility to $45 million and to extend the maturity  date to March 31, 2001.  The
amendment  also  adjusted  certain  economic  terms  and  financial   covenants.
Borrowings will now bear interest,  at the Company's option, at the agent bank's
prime  rate  minus  0.5% or LIBOR  plus  from  0.75% to 1.5%,  depending  on the
Company's  achievement of certain performance criteria. A commitment fee will be
charged, at the Company's option, at 0.3% per annum on the unused portion of the
bank  group's  commitment  or 0.15% per annum of the total  commitment.  Certain
adjustments  were made to the financial  covenants  including the elimination of
the limitation on the payment of dividends.

Note 6 - Leases

The  Company  leases all of its retail  locations  and certain  equipment  under
operating  leases expiring at various dates through 2015.  Ninety leases provide
for contingent rental payments of between 2% and 5% of sales in excess of stated
amounts. Certain leases also contain escalation clauses for increases in minimum
rentals,  operating costs and taxes. In addition,  the Company leases  equipment
under capitalized leases expiring at various dates through 2002.

Rental expense for the Company's operating leases consisted of:

(000's)
Fiscal years                              1998        1997        1996     
                                        --------    --------    --------

Rentals for real property               $ 13,822    $ 12,210    $ 12,208
Equipment rentals                            437         393         411
                                        --------    --------    --------

Total                                   $ 14,259    $ 12,603    $ 12,619
                                        ========    ========    ========


                                       25
<PAGE>

Shoe Carnival, Inc.
Notes to Financial Statements - Continued

Future minimum lease payments at January 30, 1999 are as follows:

(000's)                                      Operating             Capital
Fiscal years                                   Leases              Leases   
                                             ---------             -------

1999                                         $  14,658             $   932
2000                                            14,217                 619
2001                                            13,637                 546
2002                                            13,466                 336
2003                                            12,069
Thereafter to 2015                              34,363                         
                                             ---------             -------

Minimum lease payments                       $ 102,410               2,433
                                             =========   
Less imputed interest at rates
  ranging from 7.5% to 11.9%                                           290
                                                                   -------
Present value of net minimum lease
  payments of which $782 is
  included in current liabilities                                  $ 2,143
                                                                   =======

The present value of minimum lease payments for equipment under capital lease is
included in long-term debt (see Note 5).

Investment in equipment  under capital lease,  which is included in property and
equipment, was:

(000's)                                     January 30,            January 31,
                                               1999                   1998    
                                            -----------            ----------- 

Equipment                                   $     5,242            $     3,737
Less accumulated amortization                     3,037                  2,758
                                            -----------            -----------
Equipment under capital
  lease-net                                 $     2,205            $       979
                                            ===========            ===========

Note 7 - Restructuring Charge

In the fourth  quarters  of 1995 and 1994,  the Company  recorded  restructuring
charges  aggregating  $3.5 million  related to its plan to close a total of nine
unprofitable  stores. At February 1, 1997, eight stores had been closed with the
final store closing in February 1997. The components of the restructuring charge
and an analysis of the amounts  charged  against the reserve are outlined in the
following table:

(000's)                                     January 31,            February 1,
                                               1998                   1997 
                                            -----------            -----------  

Beginning restructuring reserve             $       318            $     3,468
Restructuring credit:
  Store closing and lease termination costs                               (474)
                                            -----------            -----------
  Total restructuring credit                          0                   (474)
Costs applied against reserve:
  Store closing and lease termination costs        (147)                (1,418)
  Equipment and leasehold improvement
    write-offs                                     (171)                (1,258)
                                            -----------            -----------
Ending restructuring reserve                $         0            $       318
                                            ===========            ===========


                                       26
<PAGE>

Shoe Carnival, Inc.
Notes to Financial Statements - Continued

In the  aggregate,  the eight  stores  closed in fiscal 1996 and  February  1997
generated sales of $3.9 million and an operating loss of $1.7 million (including
depreciation  expense of $127,000)  during 1996.  Cash outlays for 1997 and 1996
were $147,000 and $1.7 million, respectively. The 1996 cash outlays consisted of
$1.4 million for lease  termination,  store  closing  costs and the repayment of
$293,000 of lease  incentives which were recorded as a deferred  liability.  The
restructuring  credit recorded in the fourth quarter of 1996 resulted  primarily
from favorable negotiation of lease termination costs.

Note 8 - Income Taxes

The provision for income taxes consisted of:

(000's)
Fiscal years                              1998        1997        1996   
                                        --------    --------    --------

Current:
   Federal                              $  5,591    $  3,965    $    976
   State                                     813         641         292
                                        --------    --------    --------

 Total current                             6,404       4,606       1,268
                                        --------    --------    --------

Deferred:
   Federal                                   375         189       1,390
   State                                      39          31         160
                                        --------    --------    --------

 Total deferred                              414         220       1,550
                                        --------    --------    --------

 Total provision                        $  6,818    $  4,826    $  2,818
                                        ========    ========    ========

Included in other current  assets are income tax  receivables  in the amounts of
$159,000,  $29,000 and  $285,000 as of January  30,  1999,  January 31, 1998 and
February 1, 1997, respectively.

A reconciliation between the statutory federal income tax rate and the effective
income tax rate is as follows:

Fiscal years                              1998        1997        1996     
                                        --------    --------    --------

U.S. Federal statutory tax rate           35.0%       34.0%       34.0%
State and local income taxes,
   net of federal tax benefit              5.1         5.1         5.5
Other                                     (0.1)        0.4         1.0     
                                        --------    --------    --------

Effective income tax rate                 40.0%       39.5%       40.5%    
                                        ========    ========    ========


                                       27
<PAGE>

Shoe Carnival, Inc.
Notes to Financial Statements - Continued

Deferred income taxes are the result of temporary differences in the recognition
of revenue and expense for tax and financial reporting purposes.  The sources of
these differences and the tax effect of each are as follows:

(000's)                                     January 30,            January 31,
                                               1999                   1998   
                                            -----------            -----------

Deferred tax assets:
   Accrued rent                             $       421            $       348
   Accrued compensation                             203                    173
   Federal net operating loss carryforward          176                    218
   Lease incentives                                  14                     33
   Inventory valuation                                                     264
   Other                                            137                    107
                                            -----------            -----------

   Total deferred tax assets                $       951            $     1,143
                                            ===========            ===========

Deferred tax liabilities:
   Depreciation                             $     1,378            $     1,052
   Purchase accounting adjustments                  852                    966
   Inventory valuation                               11                         
                                            -----------            -----------

   Total deferred tax liabilities           $     2,241            $     2,018
                                            ===========            ===========

Note 9 - Employee Benefit Plans

Retirement Savings Plan

On February  24,  1994,  the  Company's  Board of  Directors  approved  the Shoe
Carnival Retirement Savings Plan (the "Retirement Plan"). The Retirement Plan is
open to all employees who have been employed for one year, are at least 21 years
of age and who work at least 1,000 hours per year. The primary savings mechanism
under  the  Retirement  Plan is a  401(k)  plan  under  which  an  employee  may
contribute  up to 15% of earnings  with the Company  matching  the first 4% at a
rate of 50%.

Employee and Company  contributions  are paid to a trustee and invested in up to
16 investment options at the participants'  direction. The Company contributions
to the participants'  accounts become fully vested upon completion of five years
of  participation in the Retirement  Plan.  Contributions  charged to expense in
1998, 1997 and 1996 were $199,000, $214,000 and $198,000, respectively.

Stock Purchase Plan

On May 11, 1995, the Company's  shareholders  approved the Shoe  Carnival,  Inc.
Employee  Stock  Purchase  Plan (the  "Stock  Purchase  Plan") as adopted by the
Company's  Board of  Directors  on February  9, 1995.  The Stock  Purchase  Plan
reserves 300,000 shares of the Company's common stock (subject to adjustment for
any subsequent  stock splits,  stock  dividends and certain other changes in the
common  stock) for issuance  and sale to any employee who has been  employed for
more than a year at the  beginning  of the calendar  year,  and who is not a 10%
owner of the  Company's  stock,  at 85% of the then  fair  market  value up to a
maximum of $5,000 in any calendar  year.  During 1998,  14,966  shares of common
stock were purchased by participants in the plan and proceeds to the Company for
the sale of those shares totaled approximately $141,000.


                                       28
<PAGE>

Shoe Carnival, Inc.
Notes to Financial Statements - Continued

Note 10 - Stock Option and Incentive Plans

1989 Stock Option Plan

Non-qualified stock options for a total of 1,500,000 shares of common stock were
granted to certain officers, directors and other key employees prior to 1993. On
November 1, 1992, the participants  exercised all outstanding  stock options and
the plan was effectively  terminated.  Net proceeds to the Company from the sale
of such shares were $239,000.  In November 1992, the Company loaned an aggregate
of $633,000 on a fully recourse basis to the  participants to permit them to pay
an  estimated  amount  of  income  taxes  due as a result  of the  stock  option
exercise.  Of this  amount,  $239,000 was  classified  as a reduction to paid-in
capital and $158,000 was recorded as a current asset.  The notes evidencing such
loans bear  interest at a rate of 6% per annum and were  originally  due in four
equal  annual  installments,  the  first  of which  was  paid in 1993.  The 1995
principal  payment was extended for one year for participants who were employees
of the  Company on the date the  payment was  originally  due. In 1996,  certain
participants  paid an aggregate of $18,000 in principal (plus accrued  interest)
to the Company to retire their  outstanding  notes.  The 1995 and 1996 principal
payment for the remaining  participants  was extended for one year. In May 1997,
an  outstanding  balance of $158,000  for the  Company's  former vice  chairman,
president  and chief  executive  officer was  forgiven  as part of a  retirement
package.  The  aggregate  principal  balance  outstanding  on the  loans  to the
participants  was $103,000 as of January 31,  1998.  The  outstanding  principal
balance for the remaining participants was paid in March 1998.

1993 Stock Option and Incentive Plan

Effective  January 15, 1993, the Company's  Board of Directors and  shareholders
approved the 1993 Stock Option and Incentive  Plan (the "1993  Plan").  The 1993
Plan  reserves  for  issuance  1,500,000  shares of the  Company's  common stock
(subject to adjustment  for any  subsequent  stock splits,  stock  dividends and
certain  other changes in the common  stock)  pursuant to any  incentive  awards
granted  by  the  Stock  Option  Committee  of  the  Board  of  Directors  which
administers  the 1993 Plan.  The 1993 Plan  provides  for the grant of incentive
awards in the form of stock  options or  restricted  stock to officers and other
key employees of the Company. Stock options granted under the plan may be either
options  intended to qualify for federal income tax purposes as "incentive stock
options" or options not qualifying  for favorable tax treatment  ("non-qualified
stock options").  At January 30, 1999, options to purchase 517,842 common shares
were  exercisable  and 508,578 shares of unissued common stock were reserved for
future grants under the plan.

On March 4, 1999, the Stock Option Committee granted options for an aggregate of
275,250  shares  of the  Company's  common  stock to  certain  officers  and key
employees.  The options were granted at an exercise  price of $11.125 per share,
and have a term of 10 years. The options become exercisable in thirds on each of
the first three anniversaries of the grant date.

The Company applies Accounting  Principles Board Opinion No. 25, "Accounting for
Stock  Issued to  Employees"  (APB No. 25), in  accounting  for  employee  stock
options.  Accordingly,  no compensation expense has been recognized for the 1993
Plan.

Pro forma information regarding net income and earnings per share is required by
SFAS No. 123, "Accounting for Stock-Based Compensation," and has been determined
as if the Company had  accounted for its stock options under SFAS No. 123's fair
value method.  The fair value of these options was estimated at grant date using
Black-Scholes   option  pricing  model  with  the  following   weighted  average
assumptions:

Fiscal years                              1998       1997        1996     
                                        --------   --------    --------

Risk free interest rate                   5.6%       6.8%        6.8%
Expected dividend yield                   0.0%       0.0%        0.0%
Expected volatility                      74.3%      53.4%       50.5%
Expected term                           5 Years    5 Years     5 Years


                                       29
<PAGE>

Shoe Carnival, Inc.
Notes to Financial Statements - Continued

For the  purpose  of pro forma  disclosures,  the  estimated  fair  value of the
options is amortized to expense over the options' vesting period.  The Company's
pro forma information follows:


(000's, except per share data)
Fiscal years                                 1998       1997        1996     
                                           --------   --------    --------

Pro forma net income                       $  9,832   $  6,789    $  3,984
Pro forma net income per share-Basic       $    .75   $    .52    $    .31
Pro forma net income per share-Diluted     $    .73   $    .51    $    .31

The  weighted-average  fair value of options granted was $7.12,  $3.29 and $2.79
for 1998, 1997 and 1996, respectively.

The following  table  summarizes the  transactions  pursuant to the stock option
plans for the three-year period ended January 30, 1999:
                                                               Weighted Average
                                            Shares              Exercise Price
                                           --------            ----------------

Balance at February 3, 1996                 558,300                 $ 9.27
    Granted                                 339,500                   5.31
    Cancelled                              (253,875)                 11.94
                                           --------                 ------
Balance at February 1, 1997                 643,925                   6.15
    Granted                                 208,500                   6.10
    Cancelled                               (73,836)                  5.73
    Exercised                               (51,121)                  5.70
                                           --------                 ------
Balance at January 31, 1998                 727,468                   6.21
    Granted                                 212,500                  11.00
    Cancelled                                (2,767)                  9.39
    Exercised                               (79,927)                  6.68
                                           --------                 ------
Balance at January 30, 1999                 857,274                 $ 7.34
                                           ========                 ======


Note 11 - Contingencies

Litigation

The Company is involved in various routine legal  proceedings  incidental to the
conduct of its  business,  none of which is expected to have a material  adverse
effect on the Company's financial position.

Note 12 - Other Related Party Transactions

The  Company's  Chairman and  Principal  Shareholder  and his son are  principal
shareholders of LC Footwear,  LLC. and PL Footwear, Inc. The Chairman's son also
owns and operates Weaver International Footwear, Inc. ("Weaver  International").
The Company  purchases  name brand  merchandise  from LC Footwear,  LLC.,  while
Weaver  International  and PL  Footwear,  Inc.  serve as import  agents  for the
Company. Weaver International and PL Footwear, Inc. have represented the Company
on a commission  basis in dealings with shoe factories in mainland China,  where
most of the Company's private label shoes are manufactured.


                                       30
<PAGE>

Shoe Carnival, Inc.
Notes to Financial Statements - Continued

The Company purchased  approximately $138,000 and $34,000 of merchandise from LC
Footwear,  LLC.  in 1998 and  1997,  respectively.  Commissions  paid to  Weaver
International  were  $730,000  and  $915,000  in 1997  and  1996,  respectively.
Commissions  paid to PL  Footwear,  Inc.  were  $912,000 and $26,000 in 1998 and
1997, respectively.

Note 13 - Quarterly Results (Unaudited)

Quarterly results are determined in accordance with the accounting policies used
for annual data and include  certain  items based upon  estimates for the entire
year.  All fiscal  quarters in 1998 and 1997 include  results for 13 weeks.  The
following table summarizes results for 1998 and 1997:

(000's, except per share data)
                                    First       Second      Third       Fourth
1998                                Quarter     Quarter     Quarter     Quarter
                                    --------    --------    --------    --------

Net sales                           $ 65,694    $ 68,104    $ 76,442    $ 69,917
Gross profit                          20,674      20,550      24,217      18,575
Operating income                       5,365       4,810       6,139       1,238
Net income                             3,115       2,822       3,620         670
Net income per share - Basic        $    .24    $    .21    $    .27    $    .05
Net income per share - Diluted      $    .23    $    .21    $    .27    $    .05

(000's, except per share data)
                                    First       Second      Third       Fourth
1997                                Quarter     Quarter     Quarter     Quarter
                                    --------    --------    --------    --------

Net sales                           $ 59,328    $ 62,393    $ 66,364    $ 58,435
Gross profit                          18,330      18,122      20,490      15,625
Operating income                       3,286       3,547       5,307         989
Net income                             1,818       1,963       3,090         520
Net income per share - Basic        $    .14    $    .15    $    .24    $    .04
Net income per share - Diluted      $    .14    $    .15    $    .23    $    .04



                                       31
<PAGE>

                               SHOE CARNIVAL, INC.
                 SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS

                                                        Charged
                                      Balance at     (Credited) to    Balance at
                                      Beginning        Costs and        End of
           Descriptions               of Period         Expenses        Period  
           ------------              -----------     -------------   -----------

Year ended February 1, 1997
    Reserve for sales returns 
      and allowances                 $   114,492     $          0    $   114,492
    Inventory reserve                $ 4,300,000     $ (3,000,000)   $ 1,300,000

Year ended January 31, 1998
    Reserve for sales returns 
      and allowances                 $   114,492     $          0    $   114,492
    Inventory reserve                $ 1,300,000     $    125,000    $ 1,425,000

Year ended January 30, 1999
    Reserve for sales returns  
      and allowances                 $   114,492     $          0    $   114,492
    Inventory reserve                $ 1,425,000     $    175,000    $ 1,600,000


ITEM  9.  CHANGES  IN AND  DISAGREEMENTS  WITH  ACCOUNTANTS  ON  ACCOUNTING  AND
          FINANCIAL DISCLOSURE

There have been no changes in or  disagreements  with the Company's  independent
accountants on accounting or financial disclosures.


                                       32
<PAGE>


                                    PART III

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The information  required by this Item concerning the Directors and nominees for
Director of the Company and concerning  any  disclosure of delinquent  filers is
incorporated herein by reference to the Company's definitive Proxy Statement for
its  1999  Annual  Meeting  of  Shareholders,  to be filed  with the  Commission
pursuant to Regulation 14A within 120 days after the end of the Company's fiscal
year.  Information  concerning the executive officers of the Company is included
under the caption  "Executive  Officers of the  Company" at the end of Part I of
this Annual Report.  Such  information is incorporated  herein by reference,  in
accordance with General  Instruction G(3) to Form 10-K and Instruction 3 to Item
401(b) of Regulation S-K.


ITEM 11.  EXECUTIVE COMPENSATION

The information  required by this Item concerning  remuneration of the Company's
officers  and  Directors  and  information   concerning  material   transactions
involving such officers and Directors is incorporated herein by reference to the
Company's definitive Proxy Statement for its 1999 Annual Meeting of Shareholders
which will be filed  pursuant to Regulation 14A within 120 days after the end of
the Company's fiscal year.


ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The  information  required  by this  Item  concerning  the  stock  ownership  of
management  and  five  percent  beneficial  owners  is  incorporated  herein  by
reference  to the  Company's  definitive  Proxy  Statement  for its 1999  Annual
Meeting of  Shareholders  which will be filed  pursuant to Regulation 14A within
120 days after the end of the Company's last fiscal year.

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The  information  required by this Item  concerning  certain  relationships  and
related  transactions  is  incorporated  herein by  reference  to the  Company's
definitive  Proxy  Statement for its 1999 Annual Meeting of  Shareholders  which
will be filed  pursuant to  Regulation  14A within 120 days after the end of the
Company's last fiscal year.


                                       33
<PAGE>

                                     PART IV

ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

  (a).1.  Financial Statements:

          The  following  financial  statements  of the Company are set forth in
          Part II, Item 8.

          Report of Management

          Independent Auditors' Report

          Balance Sheets at January 30, 1999 and January 31, 1998

          Statements of Income for the years ended January 30, 1999, January 31,
          1998 and February 1, 1997

          Statements  of  Shareholders'  Equity for the years ended  January 30,
          1999, January 31, 1998 and February 1, 1997

          Statements of Cash Flows for the years ended January 30, 1999, January
          31, 1998 and February 1, 1997

          Notes to Financial Statements

      2.  Financial Statement Schedules:

          The following financial statement schedule of the Company is set forth
          in Part II, Item 8.

          Schedule II    Valuation and Qualifying Accounts

      3.  Exhibits:

          A list of exhibits  required to be filed as part of this report is set
          forth in the  Index  to  Exhibits,  which  immediately  precedes  such
          exhibits, and is incorporated herein by reference.

  (b)     Reports on Form 8-K

          No reports on Form 8-K were filed during the quarter ended January 30,
          1999.


                                       34
<PAGE>

                                   SIGNATURES


Pursuant to the  requirements of Section 13 or 15(d) 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.

                                        Shoe Carnival, Inc.


Date:    April 27, 1999                 By: /s/ Mark L. Lemond                  
                                           --------------------
                                           Mark L. Lemond
                                           President and Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following  persons on behalf of the  registrant and
in the capacities and on the dates indicated.

      Signature                        Title                           Date
      ---------                        -----                           ---- 


/s/ J. Wayne Weaver        Chairman of the Board and Director     April 27, 1999
-------------------
J. Wayne Weaver

/s/ Mark L. Lemond         President, Chief Executive Officer     April 27, 1999
-------------------        and Director 
Mark L. Lemond             (Principal Executive Officer)         
                                    

/s/ William E. Bindley     Director                               April 27, 1999
----------------------
William E. Bindley

/s/ Gerald W. Schoor       Director                               April 27, 1999
--------------------
Gerald W. Schoor

/s/ W. Kerry Jackson       Vice President - Chief Financial       April 27, 1999
--------------------       Officer and Treasurer 
W. Kerry Jackson           (Principal Financial and Accounting 
                           Officer)        
                                            


                                       35
<PAGE>

                                INDEX TO EXHIBITS


Exhibit
  No.                                  Description                        
-------                                -----------
  3-A       (7) (i)Restated Articles of Incorporation of Registrant
            
            (6) (ii)Articles of Amendment of Restated Articles of Incorporation 
                of Registrant

  3-B       (3) By-laws of Registrant, as amended to date

    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

 10-D*      (1) 1989 Stock Option Plan of Registrant and amendments to such Plan

 10-E*      (2) 1993 Stock Option and Incentive Plan of Registrant, as amended

 10-F*      (1) Executive Incentive Compensation Plan of Registrant

 10-I       (1) Non-competition Agreement dated as of January 15, 1993, between 
                Registrant J. Wayne Weaver

 10-K       (1) Form of stock option  exercise  documents  dated  November 1, 
                1992, between  Registrant and each of fourteen  executive  
                officers and key employees, including:  (I) Exercise Notice; 
                (ii) Subscription  Agreement;  (iii) Promissory Note; (iv) 
                Pledge Agreement; (v) Stock Power

 10-L*      (2) Employee Stock Purchase Plan of Registrant, as amended

 10-M*      (4) Consulting agreement dated May 28, 1997, between Registrant and 
                David H. Russell

 10-N*      (5) Employment agreement dated April 14, 1997, between Registrant 
                and Clifton E. Sifford

   23           Written consent of Deloitte & Touche LLP

   27           Financial Data Schedule

*    The  indicated  exhibit  is a  management  contract,  compensatory  plan or
     arrangement required to filed by Item 601 of Regulation S-K.

(1)  The copy of this exhibit filed as the same exhibit  number to the Company's
     Registration   Statement  on  Form  S-1   (Registration  No.  33-57902)  is
     incorporated herein by reference.

(2)  The copy of this exhibit filed as the same exhibit  number to the Company's
     Quarterly  Report  on Form  10-Q for the  quarter  ended  August 2, 1997 is
     incorporated herein by reference.

(3)  The copy of this exhibit filed as the same exhibit  number to the Company's
     Quarterly  Report on Form 10-Q for the  quarter  ended  November 2, 1996 is
     incorporated herein by reference.

(4)  The copy of this exhibit filed as the same exhibit  number to the Company's
     current  Report on Form 8-K dated  June 9, 1997 is  incorporated  herein by
     reference.

(5)  The copy of this exhibit filed as the same exhibit  number to the Company's
     Quarterly  Report  on  Form  10-Q  for the  quarter  ended  May 3,  1997 is
     incorporated herein by reference.

(6)  The copy of this exhibit filed as the same exhibit  number to the Company's
     Quarterly  Report  on Form  10-Q for the  quarter  ended  August 1, 1998 is
     incorporated herein by reference.

(7)  The copy of this  exhibit  filed as  exhibit  number  3.1 to the  Company's
     current  Report on Form 8-K dated July 17,  1996 is  incorporated  herin by
     reference.

                                       36
<PAGE>