Factors That May Affect Future Results
This Quarterly Report on Form 10-Q contains forward-looking statements, within the meaning of the Private Securities Litigation Reform Act of 1995, that involve a number of risks and uncertainties. A number of factors could cause our actual results, performance, achievements or industry results to be materially different from any future results, performance or achievements expressed or implied by these forward-looking statements. These factors include, but are not limited to: the duration and spread of the COVID-19 pandemic, mitigating efforts deployed, including the effects of government stimulus on consumer spending, and the pandemic's overall impact on our operations, including our stores, supply chain and distribution processes, economic conditions, and financial market volatility; general economic conditions in the areas of the continentalUnited States andPuerto Rico where our stores are located; the effects and duration of economic downturns and unemployment rates; changes in the overall retail environment and more specifically in the apparel and footwear retail sectors; our ability to generate increased sales; our ability to successfully navigate the increasing use of online retailers for fashion purchases and the impact on traffic and transactions in our physical stores; the success of the open-air shopping centers where our stores are located and its impact on our ability to attract customers to our stores; our ability to attract customers to our e-commerce platform and to successfully grow our multi-channel sales; the potential impact of national and international security concerns on the retail environment; the effectiveness of our inventory management, including our ability to manage key merchandise vendor relationships and emerging direct-to-consumer initiatives; changes in our relationships with other key suppliers; our ability to control costs and meet our labor needs in a rising wage and/or inflationary environment; changes in the political and economic environments in, the status of trade relations with, and the impact of changes in trade policies and tariffs impacting,China and other countries which are the major manufacturers of footwear; the impact of competition and pricing; our ability to successfully manage and execute our marketing initiatives and maintain positive brand perception and recognition; our ability to successfully manage our current real estate portfolio and leasing obligations; changes in weather, including patterns impacted by climate change; changes in consumer buying trends and our ability to identify and respond to emerging fashion trends; the impact of disruptions in our distribution or information technology operations; the impact of natural disasters, other public health crises, political crises, civil unrest, and other catastrophic events on our operations and the operations of our suppliers, as well as on consumer confidence and purchasing in general; risks associated with the seasonality of the retail industry; the impact of unauthorized disclosure or misuse of personal and confidential information about our customers, vendors and employees, including as a result of a cybersecurity breach; our ability to successfully execute our business strategy, including the availability of desirable store locations at acceptable lease terms, our ability to implement and adapt to new technology and systems, our ability to open new stores in a timely and profitable manner, including our entry into major new markets, and the availability of sufficient funds to implement our business plans; higher than anticipated costs associated with the closing of underperforming stores; the inability of manufacturers to deliver products in a timely manner; an increase in the cost, or a disruption in the flow, of imported goods; the impact of regulatory changes inthe United States , including minimum wage laws and regulations, and the countries where our manufacturers are located; the resolution of litigation or regulatory proceedings in which we are or may become involved; continued volatility and disruption in the capital and credit markets; future stock repurchases under our stock repurchase program and future dividend payments. For a more detailed discussion of risk factors impacting us, see the "Risk Factors" section of our Annual Report on Form 10-K for the fiscal year endedJanuary 30, 2021 , and "Risk Factors" in Part II, Item 1A of our Quarterly Report on Form 10-Q for the quarter endedMay 1, 2021 and in Part II, Item 1A of this Quarterly Report on Form 10-Q. General Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") is intended to provide information to assist the reader in better understanding and evaluating our financial condition and results of operations. We encourage you to read this in conjunction with our Condensed Consolidated Financial Statements and the notes thereto included in Part I, Item 1 of this Quarterly Report on Form 10-Q, as well as our Annual Report on Form 10-K for the fiscal year endedJanuary 30, 2021 as filed with theSEC .
Overview of Our Business
Shoe Carnival, Inc. is one of the nation's largest family footwear retailers, providing customers the convenience of shopping at any of our store locations, our mobile app or online at www.shoecarnival.com. Our stores combine competitive pricing with a promotional, high-energy in-store environment that encourages customer participation and injects fun and excitement into every shopping experience. We believe our distinctive shopping experience gives us various competitive advantages, including increased multiple unit sales; the building of a loyal, repeat customer base; the creation of word-of-mouth advertising; and enhanced sell-through of in-season goods. A similar customer experience is reflected in our e-commerce platform through special promotions and limited time sales. Our objective is to be the multi-channel retailer-of-choice for on-trend branded and private label footwear for the entire family. Our product assortment, whether shopping in a physical store or on our e-commerce platform, includes dress and casual shoes, sandals, boots and a wide assortment of athletic shoes. Our average physical store carries shoes in four general categories - women's, men's, children's and athletics, as well as a broad range of accessories. Footwear is organized by category and brand, creating strong brand 15 -------------------------------------------------------------------------------- statements within the aisles. These brand statements are underscored by branded signage on endcaps and in-line signage throughout the store. Our signage may highlight a vendor's product offerings or sales promotions, or may highlight seasonal or lifestyle statements by grouping similar footwear from multiple vendors. Over 100 of our physical stores have strongly branded Nike shops that highlight Nike products within the stores, and we expect to add at least 100 more Nike shops to our physical stores through 2023. Our e-commerce platform offers customers the same assortment of merchandise in all categories of footwear with expanded options in certain instances.
Critical Accounting Policies
We use judgment in reporting our financial results. This judgment involves estimates based in part on our historical experience and incorporates the impact of the current general economic climate and company-specific circumstances. However, because future events and economic conditions are inherently uncertain, our actual results could differ materially from these estimates. Our accounting policies that require more significant judgments include those with respect to merchandise inventories, valuation of long-lived assets, leases, and income taxes. The accounting policies that require more significant judgment are discussed in our Annual Report on Form 10-K for the fiscal year endedJanuary 30, 2021 , and there have been no material changes to those critical accounting policies.
Information regarding the COVID-19 Coronavirus Pandemic ("COVID-19")
We continue to closely monitor and manage the impact of the COVID-19 pandemic, and the safety and well-being of our customers, employees and business partners remains a top priority. The COVID-19 pandemic has significantly impacted, and is expected to continue to impact, our operations, supply chains, distribution processes, and overall economic conditions and consumer spending for the foreseeable future. In response to the COVID-19 pandemic, all of our physical stores were temporarily closed effectiveMarch 19, 2020 . Our e-commerce platform continued to operate, and our e-commerce sales increased significantly in fiscal 2020 as customers shifted purchases to our online channel. We began reopening our physical stores in accordance with applicable public health guidelines in lateApril 2020 . Thus substantially all of our physical stores were closed for approximately 50% of the first fiscal quarter of 2020. By the beginning of the second quarter of fiscal 2020, approximately 50% of our stores were reopened, and by earlyJune 2020 , substantially all of our stores had reopened. We did not have any stores closed as ofJuly 31, 2021 or for extended periods during the first six months of fiscal 2021 due to the pandemic.
Results of Operations Summary Information
Number of Stores Store Square Footage Beginning End of Net End Comparable Quarter Ended Of Period Opened Closed
Period Change of Period Store Sales(1)
383 0 6 377 (46,000 ) 4,100,000 125.8 % July 31, 2021 377 1 0 378 12,000 4,112,000 11.4 % Year-to-date 383 1 6 378 (34,000 ) 4,112,000 48.8 % May 2, 2020 392 0 2 390 (22,000 ) 4,198,000 (42.3 )% August 1, 2020 390 2 10 382 (66,000 ) 4,132,000 12.6 % Year-to-date 392 2 12 382 (88,000 ) 4,132,000 (14.0 )%
(1) Comparable store sales is a key performance indicator for us. Comparable
store sales include stores that have been open for 13 full months after
such stores' grand opening prior to the beginning of the period, including
those stores that have been relocated or remodeled. Therefore, stores
recently opened or closed are not included in comparable store sales. We
include e-commerce sales in our comparable store sales as a result of our
multi-channel retailer strategy. Due to our multi-channel retailer
strategy, we view e-commerce sales as an extension of our physical stores.
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The following table sets forth our results of operations expressed as a percentage of net sales for the periods indicated:
Thirteen Thirteen Twenty-six Twenty-six Weeks Ended Weeks Ended Weeks Ended Weeks Ended July 31, 2021 August 1, 2020 July 31, 2021 August 1, 2020 Net sales 100.0 % 100.0 % 100.0 % 100.0 % Cost of sales (including buying, distribution and occupancy costs) 59.1 72.5 59.7 74.6 Gross profit 40.9 27.5 40.3 25.4 Selling, general and administrative expenses 22.9 22.7 22.5 27.4 Operating income/(loss) 18.0 4.8 17.8 (2.0 ) Interest income 0.0 0.0 0.0 0.0 Income tax expense/(benefit) 4.7 1.5 4.6 (0.6 ) Net income/(loss) 13.3 % 3.3 % 13.2 % (1.4 )% Given the significant impact of the COVID-19 pandemic on our fiscal 2020 second quarter and year-to-date results, we have included certain comparisons in this MD&A between fiscal 2021 and fiscal 2019 to provide further context regarding our fiscal 2021 results of operations. The shares outstanding and net income per share information throughout this MD&A has been adjusted retroactively for all periods presented as a result of a 2-for-1 stock split that was paid as a dividend onJuly 19, 2021 to shareholders of record onJuly 6, 2021 . See Note 1 - "Basis of Presentation" in the accompanying notes included in Part I, Item 1 of this Quarterly Report on Form 10-Q for additional information on the stock split.
Executive Summary for the Second Fiscal Quarter Ended
The second quarter of fiscal 2021 was another record-breaking quarter. Results for the second quarter of fiscal 2021 were the highest in terms of quarterly net sales, gross profit, operating income and diluted net income per share in our history, surpassing previous records set in the first quarter of fiscal 2021. Through the first six months of fiscal 2021, our diluted net income per share of$3.05 exceeded the diluted net income per share earned during the fiscal years of 2020 and 2019 combined. Comparable store sales in the second quarter of fiscal 2021 increased 11.4% compared to the second quarter of fiscal 2020 and increased 25.5% compared to the second quarter of fiscal 2019. In the second quarter of fiscal 2020, we were still reopening a portion of our physical stores throughout May that were closed due to the pandemic. As our physical stores and theU.S. economy reopened, we experienced a significant increase in sales; however, sales inJuly 2020 were negatively impacted by delays in back-to-school shopping. Our sales in fiscal 2020 were also more significantly weighted towards our e-commerce platform due to the pandemic. Fiscal 2019 is considered a more normal year as it was not impacted by COVID-19. We believe our inventory selection, more focused promotional strategy, a stronger economy (inclusive of the impacts of government stimulus) and the return of a more normal back-to-school shopping season positively impacted our fiscal 2021 second quarter results. During the second quarter of fiscal 2021, physical store traffic increased 23.1% compared to the second quarter of fiscal 2020 and neared the pre-pandemic levels in the second quarter of fiscal 2019. Sales generated from our physical stores increased 25.8% for the second quarter of fiscal 2021 compared to the second quarter of fiscal 2020 and 19.0% compared to the second quarter of fiscal 2019. Sales generated from our e-commerce platform decreased 44.4% compared to the second quarter of fiscal 2020 but increased 140% compared to the second quarter of fiscal 2019. E-commerce sales were approximately 10% of merchandise sales in the second quarter of fiscal 2021, down from 20% in the second quarter of fiscal 2020, but up from 5% in the second quarter of fiscal 2019. All of our non-athletic product categories had comparable store sale increases ranging from double digits to low triple-digits compared to the second quarter of fiscal 2020. As expected, decreases in the men's and women's athletic categories occurred. Athletic categories were elevated in the second quarter of fiscal 2020 consistent with more active life-style choices responsive to the COVID-19 pandemic. Compared to the second quarter of fiscal 2019, all product categories, including athletics and children's non-athletics, showed double digit comparable store sale increases. This increase was driven by higher average per unit prices across all categories, and overall, more units sold. 17
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Highlights for the second quarter of fiscal 2021 and a brief discussion of some key initiatives are as follows:
• Net sales for the second quarter of fiscal 2021 set another all-time
quarterly record of
set last quarter (first quarter of fiscal 2021).
• Net income for the second quarter of fiscal 2021 was
per diluted share, compared to net income of
diluted share in the second quarter of fiscal 2020. Earnings in the second
quarter of fiscal 2021 exceeded any previous quarterly or full-year record,
including exceeding results recognized in the first quarter of fiscal 2021,
which were a record at that point in time.
• We achieved record quarterly gross profit of
second quarter of fiscal 2021. Gross profit margin as a percent of sales
increased 13.4 percentage points compared to the second quarter of fiscal
2020 to a record 40.9% and increased 10.3 percentage points compared to the
second quarter of fiscal 2019, driven by a strong merchandise selection and
more focused promotional activity.
• We had no borrowings during the second quarter of fiscal 2021 and ended the
quarter with$163.9 million of cash, cash equivalents and marketable securities.
• In the second quarter of fiscal 2021, we continued to increase membership in
our Shoe Perks customer loyalty program, which grew over 10% compared to the
prior year second quarter. This brought total membership in the program to
over 27.7 million customers as of
program affords us opportunities to communicate, build relationships and engage with our most loyal shoppers, which we believe will result in long-term customer commitment to our brand.
• We are continuing to modernize our stores and expect to have 100 stores
modernized by the spring of fiscal 2022, within our plan to modernize
two-thirds of our store portfolio over the next three to five years.
Results of Operations for the Second Quarter Ended
Net sales were a record$332.2 million during the second quarter of fiscal 2021 and increased 10.5% compared to the second quarter of fiscal 2020. Comparable stores sales increased 11.4% compared to the second quarter of fiscal 2020. Compared to the second quarter of fiscal 2020, physical store sales increased 25.8%, and e-commerce sales decreased 44.4%. E-commerce sales represented approximately 10% of merchandise sales in the second quarter of fiscal 2021. Net sales were positively impacted by continued demand for our merchandise, a more normal beginning to the back-to-school shopping season, and a stronger economy (including impacts from consumer-based government stimulus). Additionally, a portion of our stores were closed duringMay 2020 due to the pandemic. Net sales in the second quarter of fiscal 2021 were favorably impacted by increased conversion and average transaction price compared to the second quarter fiscal 2020, with traffic nearing the pre-pandemic levels in the second quarter of fiscal 2019. The increase in average transaction price was primarily driven by our more focused promotional activity.
Gross Profit
Gross profit was a record$135.8 million during the second quarter of fiscal 2021, an increase of$53.1 million compared to the second quarter of fiscal 2020. Gross profit margin in the second quarter of fiscal 2021 increased to 40.9% compared to 27.5% in the second quarter of fiscal 2020 and 30.6% in the second quarter of fiscal 2019. Merchandise margin increased 13.3 percentage points compared to the second quarter of fiscal 2020 and 9.6 percentage points compared to the second quarter of fiscal 2019. Our more focused promotional strategy drove a higher merchandise margin compared to both fiscal 2020 and 2019. A more standard product mix sold during the second quarter of fiscal 2021 further increased merchandise margin compared to fiscal 2020. With respect to product mix, the second quarter of fiscal 2020 had a heavier mix of adult athletic sales, which typically sell at lower margins compared to other footwear categories.
As a percentage of sales, our buying, distribution and occupancy costs were slightly down compared to the second quarter of fiscal 2020 as higher freight and distribution labor costs mostly offset the leveraging effect of higher sales.
Selling, General and Administrative Expenses ("SG&A")
SG&A increased$7.8 million in the second quarter of fiscal 2021 to$76.0 million compared to$68.2 million in the second quarter of fiscal 2020. As a percentage of net sales, SG&A was relatively consistent at 22.9% in the second quarter of fiscal 2021 compared to 22.7% in the second quarter of fiscal 2020 and lower than the 24.8% recorded in the second quarter of fiscal 2019. The increase in SG&A in the second quarter of fiscal 2021 compared to the second quarter of fiscal 2020 correlates with our continued record performance, with increases in store level wages and store level incentive compensation comprising a majority of the increase. 18
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Income Taxes
The effective income tax rate for the second quarter of fiscal 2021 was 25.8% compared to 29.6% for the same period in fiscal 2020. Our provision for income taxes is based on the current estimate of our annual effective tax rate and is adjusted as necessary for quarterly events. The higher tax rate in the prior year was primarily due to a reversal of a net operating loss carryback recorded in the first quarter of fiscal 2020 due to improved financial performance. For the full 2021 fiscal year, we expect our tax rate to be comparable to the 25.8% effective tax rate recognized during the full 2020 fiscal year.
Results of Operations for the Six-Month Period Ended
Net sales were$660.7 million year-to-date in fiscal 2021, a 47.4% increase over the prior year's year-to-date net sales of$448.3 million . The overall increase in net sales was primarily due to the temporary closure of our physical stores for approximately 50% of the first quarter of fiscal 2020 as a result of the COVID-19 pandemic, with some stores closed throughMay 2020 . Comparable stores sales increased 48.8% compared to the first six months of fiscal 2020 and increased 28.1% compared to the first six months of fiscal 2019.
Gross Profit
Gross profit was$265.9 million during the first six months of fiscal 2021, an increase of$151.8 million compared to the first six months of fiscal 2020. Gross profit margin in the first six months of fiscal 2021 increased to 40.3% compared to 25.4% in fiscal 2020 and 30.1% in fiscal 2019. Merchandise margin increased 11.9 percentage points compared to fiscal 2020 and 8.8 percentage points compared to fiscal 2019. Our more focused promotional strategies throughout fiscal 2021 drove a higher merchandise margin compared to both fiscal 2020 and 2019. A more standard product mix sold principally during the second quarter of fiscal 2021 further increased our merchandise margin compared to fiscal 2020. As a percentage of sales, our buying, distribution and occupancy costs decreased 2.9 percentage points compared to fiscal 2020 and 1.4 percentage points compared to fiscal 2019 primarily due to the leveraging effect of increased sales.
Selling, General and Administrative Expenses
SG&A increased$25.7 million to$148.6 million in the first six months of fiscal 2021 compared to$122.9 million in fiscal 2020. As a percentage of net sales, SG&A was leveraged to 22.5% in the first six months of fiscal 2021 compared to 27.4% in fiscal 2020 and 24.1% in fiscal 2019. Compared to the first six months of fiscal 2020, the increase in SG&A primarily correlated with our record performance, in terms of increased performance-based incentive compensation, general wages and variable costs that change with sales, such as credit card fees. SG&A also increased due to market return volatility on our deferred compensation plan, higher stock-based compensation, and the CARES Act payroll retention tax credits recognized in fiscal 2020. Store level wages, incentives paid to store level employees, and annual performance-based compensation comprised the majority of the increase. Our performance year-to-date has exceeded annual fiscal 2021 performance targets; therefore, virtually all annual performance-based compensation expected for the full year has been recognized. Income Taxes The effective income tax rate year-to-date for fiscal 2021 was 25.3%. In fiscal 2020, income taxes were a benefit as a result of a year-to-date pre-tax loss and the timing of favorable discrete tax adjustments.
Liquidity and Capital Resources
Our primary sources of liquidity are$163.9 million of cash, cash equivalents and marketable securities on hand at the end of the second fiscal quarter of 2021, cash generated from operations, and availability under our$100 million credit facility. While the continued economic uncertainty and future effects on customer behavior caused by the COVID-19 pandemic makes our operating cash flow less predictable, we believe our resources will be sufficient to fund our cash needs, as they arise, for at least the next 12 months. Our primary uses of cash are for working capital, which are principally inventory purchases, investments in our stores, such as new stores, remodels and relocations, distribution center initiatives, lease payments associated with our real estate leases, potential dividend payments, potential share repurchases under our share repurchase program, and the financing of capital projects, including investments in new systems. 19
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Cash Flow - Operating Activities
Net cash generated from operating activities was$79.8 million in the first six months of fiscal 2021 compared to$26.2 million during the first six months of fiscal 2020. The increase in operating cash flow was primarily driven by higher cash receipts on increased sales, partially offset by inventory purchases and payments for operating expenses and income taxes. Working capital increased on a year-over-year basis, totaling$298.7 million atJuly 31, 2021 and$200.1 million atAugust 1, 2020 . The increase was primarily attributable to increased cash and marketable securities positions. Our current ratio was 2.5 as ofJuly 31, 2021 compared to 2.0 as ofAugust 1, 2020 .
Cash Flow - Investing Activities
Our cash outflows for investing activities are normally for capital expenditures. During the first six months of fiscal 2021, we expended$12.1 million for the purchase of property and equipment, primarily related to our store portfolio modernization plan. During the first six months of fiscal 2020, we expended$7.2 million for the purchase of property and equipment, primarily related to investments in technology and normal asset replacement activities. During the second quarter of fiscal 2021, we also invested approximately$17.5 million in publicly traded mutual funds designed to mitigate income statement volatility associated with our nonqualified deferred compensation plan. As ofJuly 31, 2021 , the balance in our deferred compensation plan was$17.5 million , of which$6.1 million was classified as a current liability in Accrued and other liabilities.
Cash Flow - Financing Activities
Our cash outflows for financing activities are typically for cash dividend payments, share repurchases or payments on our credit facility. Shares of our common stock can be either acquired as part of a publicly announced repurchase program or withheld by us in connection with employee payroll tax withholding upon the vesting of equity awards. Our cash inflows from financing activities generally reflect stock issuances to employees under our Employee Stock Purchase Plan and borrowings under our credit facility. During the first six months of fiscal 2021, net cash used in financing activities was$10.3 million compared to$4.2 million during the first six months of fiscal 2020. The increase in net cash used in financing activities was primarily due to the repurchase of$4.0 million of shares in the second quarter of fiscal 2021 associated with our Board of Directors' authorized share repurchase program. In fiscal 2021 we also increased our dividend payments and more shares were withheld upon the vesting of equity awards. During the first six months of fiscal 2021, we did not borrow or repay funds under our credit facility. Letters of credit outstanding were$700,000 atJuly 31, 2021 , and our borrowing capacity was$99.3 million . Our credit facility requires us to maintain compliance with various financial covenants. See Note 7 - "Debt" to our Notes to Consolidated Financial Statements contained in PART II, ITEM 8 of our Annual Report on Form 10-K for the fiscal year endedJanuary 30, 2021 for a further discussion of our credit facility and its covenants. We were in compliance with these covenants as ofJuly 31, 2021 . Capital Expenditures Capital expenditures for fiscal 2021, including actual expenditures for the first six months of fiscal 2021, are expected to be between$30 million and$35 million , with approximately$24 million to$26 million to be used for a new store, relocations and remodels and approximately$2 million to$4 million for upgrades to our distribution center and e-commerce platform. The remaining capital expenditures are expected to be incurred for various other store improvements, continued investments in technology and normal asset replacement activities. The resources allocated to these projects are subject to near-term changes depending on the impacts associated with the COVID-19 pandemic and ongoing supply chain disruptions. Furthermore, the actual amount of cash required for capital expenditures for store operations depends in part on the number of stores opened, the number of stores relocated, the amount of lease incentives, if any, received from landlords and the number of stores remodeled. The number of new store openings and relocations 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.
Store Portfolio
We continually analyze our store portfolio and the potential for new stores based on our view of internal and external opportunities and challenges in the marketplace. Increasing market penetration by opening new stores has historically been a key component of our long-term growth strategy, and we continue to focus on generating positive long-term financial performance from our store portfolio. We expect to pursue opportunities for store growth across large and mid-size markets as we leverage customer data from our customer relationship management program and more attractive real estate options become available. In fiscal 2021, we opened one new store 20
-------------------------------------------------------------------------------- within our existing geographic footprint and do not anticipate opening any more stores this fiscal year. We anticipate store growth will return after fiscal 2021. When we identify a store that produces, or may potentially produce, low or negative contribution, we either renegotiate lease terms, relocate or close the store. In instances when underperformance indicates the carrying value of a store's assets may not be recoverable, we impair the store. Although store closings could reduce our overall net sales volume, we believe this strategy will realize long-term improvement in operating income and diluted net income per share. Depending upon the results of lease negotiations with certain landlords of underperforming stores, we may increase or decrease the number of store closures in future periods. We closed six stores in the first six months of fiscal 2021 and expect to close three additional stores by the end of the current fiscal year.
Our future store strategies may continue to be impacted by the current economic uncertainty associated with the COVID-19 pandemic.
Dividends
OnJune 10, 2021 , the Board of Directors approved the payment of our second quarter cash dividend to our shareholders. The quarterly cash dividend of$0.070 per share was paid onJuly 19, 2021 to shareholders of record as of the close of business onJuly 6, 2021 . In fiscal 2020, the second quarter dividend was$0.045 per share. During the first half of fiscal 2021 and 2020, we returned$4.0 million and$2.6 million , respectively, to our shareholders through our quarterly cash dividends. The declaration and payment of any future dividends are at the discretion of the Board of Directors and will depend on our results of operations, financial condition, business conditions and other factors deemed relevant by our Board of Directors. Our credit agreement permits the payment of cash dividends as long as no default or event of default exists under the credit agreement both immediately before and immediately after giving effect to the cash dividends, and the aggregate amount of cash dividends for a fiscal year does not exceed$10 million . See Note 7 - "Debt" to our Notes to Consolidated Financial Statements contained in PART II, ITEM 8 of our Annual Report on Form 10-K for the fiscal year endedJanuary 30, 2021 for a further discussion of our credit facility and its covenants. Share Repurchase Program OnDecember 15, 2020 , our Board of Directors authorized a share repurchase program for up to$50.0 million of outstanding common stock, effectiveJanuary 1, 2021 (the "2021 Share Repurchase Program"). The purchases may be made in the open market or through privately negotiated transactions from time-to-time throughDecember 31, 2021 and in accordance with applicable laws, rules and regulations. The 2021 Share Repurchase Program may be amended, suspended or discontinued at any time and does not commit us to repurchase shares of our common stock. We have funded, and intend to continue to fund, share repurchases from cash on hand, and any shares acquired will be available for stock-based compensation awards and other corporate purposes. The actual number and value of the shares to be purchased will depend on the performance of our stock price and other market conditions. Due to uncertainty related to the COVID-19 pandemic, share repurchases have been limited in fiscal 2021 and no repurchases were made in fiscal 2020. Shares totaling 117,068 shares were repurchased during the second quarter of fiscal 2021 at a cost of$4.0 million . We will continue to evaluate the repurchase of shares under the 2021 Share Repurchase Program given the uncertainty. Our credit facility stipulates that distributions in the form of redemptions of Equity Interests (as defined in the credit agreement) can be made solely with cash on hand so long as before and immediately after such distributions there are no revolving loans outstanding under the credit agreement. See Note 7 - "Debt" to our Notes to Consolidated Financial Statements contained in PART II, ITEM 8 of our Annual Report on Form 10-K for the fiscal year endedJanuary 30, 2021 for a further discussion of our credit facility and its covenants.
Seasonality
We have three distinct peak selling periods: Easter, back-to-school and Christmas. Our operating results depend significantly upon the sales generated during these periods. To prepare for our peak shopping seasons, we must order and keep in stock significantly more merchandise than we would carry during other periods of the year. Any unanticipated decrease in demand for our products during these peak shopping seasons in future periods could require us to sell excess inventory at a substantial markdown, which could reduce our net sales and gross profit and negatively affect our profitability. Whether Christmas shopping will be impacted by COVID-19 remains uncertain given the recent increase in cases, increased discussion of social distancing and mask mandates, and continued supply chain disruptions. The Christmas shopping season impacts our fourth quarter sales and earnings results. 21
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Recent Accounting Pronouncements
See Note 3 - "Recently Issued Accounting Pronouncements" in the accompanying notes included in Part I, Item 1 of this Quarterly Report on Form 10-Q for a description of recent accounting pronouncements that may have an impact on our condensed consolidated financial statements when adopted.
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