Mark Lemond – President, CEO Cliff Sifford – EVP General Merchandise Manager Kerry Jackson – CFO

John Shanley – Susquehanna Financial Group Jill Caruthers – Johnson Rice & Company Sam Poser – Sterne Agee Jeff Stein – Soleil Securities Heather Boksen – Sidoti & Co. Adam [Kamora] – [Invest] Capital

Good afternoon and welcome to the Shoe Carnival’s fourth quarter earnings conference call. (Operator instructions). This conference may contain forward looking statements that involve a number of risk factors. These risk factors could cause the company’s actual results to be materially different from those projected in such statements. Those forward looking statements should be considered in conjunction with the discussion of risk factors included in the company’s SEC filings and today’s press release. Investors are cautioned not to place undue reliance on these forward looking statements which speak only as of today’s date. The company disclaims any obligation to update any of the risk factors or to publicly announce any revisions to the forward looking statements talked about during this conference call or contained in today’s press release to reflect future events or developments. I would now like to turn the call over to Mr. Mark Lemond, President and Chief Executive Officer of Shoe Carnival for opening comment. Mr. Lamond, please begin.

Thank you Katy. Joining me on the call this afternoon is Kerry Jackson, our Chief Financial Officer, Cliff Sifford, Executive Vice President and General Merchandise Manager and Tim Baker, Executive VP of Store Operations. Fiscal 2007 proved to be a difficult period for us and footwear retailers in general. We believe the constriction of the general economy directly affected our targeted consumer through higher gasoline prices, escalating food costs, housing and mortgage issues as well as increased debt levels. After coming off two strong fashion driven years in the men’s and women’s dress categories of footwear, our core customers did not respond to the style and color direction this past year. Additionally, athletic wholesale companies have been unable to identify a dominant fashion trend in recent years and as a result, sales of athletic footwear retailers have declined. Both the eroding macroeconomic conditions and lackluster fashion trends had a direct negative impact on traffic in our stores and consequently resulted in lower sales and earnings for fiscal 07. Despite the challenges we faced in fiscal 2007, there were a number of positive achievements. First, our merchants did a good job controlling inventories both in terms of quantity and composition. At the end of each quarter during fiscal 2007 our inventories were at or below the prior year on a per store average and we concluded fiscal 2007 down about 5% versus the end of fiscal 2006. Secondly, we continued with new store growth, opening 25 additional stores. Consistent with our real estate strategy, these new stores are located in large and small markets in both new and existing geographic areas. We back filled larger underpenetrated markets with 16 of these new stores to improve the operating performance of the overall market. We also continued to enter smaller markets which we…

Thank you Mark. As Mark mentioned we continue to experience a decline in customer traffic during the fourth quarter and although we experienced a slight decline in conversion rate, our pairs per transaction was up and our average price per pair was relatively flat for the quarter. There truly were no fashion drivers to excite the consumer and as a result we experienced losses in every department. The only categories to show significant increases were women’s flats, weather boots in all genders, fur lined boots, boat shoes, men’s work, skate and performance athletic. Inventories as a whole ended the quarter down 4.9% on a per door basis. As always we have been aggressive in moving through slow selling product. I’m very pleased that aged inventories continue to decline on a per door basis versus last year and more importantly we ended the season at an all time low in all seasonal boot categories. As stated in our last conference call, we are taking a proactive approach to turning around ourselves and have implemented several initiatives to achieve this. First, we continue to work very closely with several of our key vendors to develop and provide product that appeals to an important segment of the Shoe Carnival customer base, specifically the African American and Hispanic consumer. Nike and New Balance have been willing partners in this endeavor. Some of this product has now been delivered and is working very well at retail. We will expand the selection in our key fashion athletic doors for back to school. Second, as most of you know, there have been pricing and manufacturing concerns on the product coming out of China. These issues primarily affect product that was scheduled to be produced after the Chinese New Year. It also appears to be affecting factory direct…

Thank you Cliff. Let me start by saying that we follow a traditional retail calendar which means the fourth quarter of fiscal 2006 included an extra week and the full year included 53 weeks. With the exception of comparable store sales, all the numbers that I will discuss today will compare 13 weeks of sales and expenses in the fourth quarter of fiscal 07 against 14 weeks of sales and expenses in the fourth quarter of fiscal 06. The extra week of activity in fiscal 06 increased sales by $11.5 million and diluted EPS by $0.05 per share. The extra week is not included in the comparable store sales calculations for the quarter or the year. Our net sales for the fourth quarter decreased $12.9 million to $164.3 million compared to $177.2 million for the fourth quarter of 06. This decrease was primarily due to having one less week in this year’s fourth quarter. The remaining $1.4 million of the decline was due to a comparable store sales loss mostly offset by the sales from the additional stores we operated during the quarter. Our same store sales declined 5.7% for the fourth quarter. Gross margins for the fourth quarter of 07 decreased 0.6% to 27.5% compared to 28.1% in the same period last year. As a percentage of sales, the merchandise margin remained unchanged from last year’s fourth quarter while buying distribution occupancy costs increased 0.6%. While we incurred 2% less expense in buying distribution occupancy costs in Q4 of 07, we deleveraged our buying distribution occupancy costs due to lower sales in the quarter. The decrease in total dollars spent in Q4 of 07 was due to having one additional week’s worth of expense in Q4 of 06 and in current conversion cost for our new distribution center in…

Thank you. (Operator instructions). And we will take our first question from John Shanley with Susquehanna. John Shanley – Susquehanna Financial Group: Thank you and good afternoon folks. Cliff I wondered if you could break out for us the percentage of sales that each of your major merchandise categories had in fiscal 07, I’m particularly interested in athletic, how it faired in 07 versus 06 as a percentage of total revenue.

John, for the entire year of fiscal 07 49% of our business was done in athletic. In 06 it was just over 49.5%, so it lost a little ground. John Shanley – Susquehanna Financial Group: Okay, how about the other major categories?

Women’s non athletic accounted for 27% of our total versus just over 26.5% a year ago. Men’s accounted for just over 15% which was dead on flat to a year ago. And kid’s non athletic accounted for roughly 5%. So the total totaled about 47% on the ground side. John Shanley – Susquehanna Financial Group: So not much of a change then in the merchandise mix between the various sectors?

There really wasn’t John. John Shanley – Susquehanna Financial Group: Okay and then can you give us an idea with the increase in some of the pricing that you’re planning, can you give us an idea of how much your ASPs are likely to increase in fiscal 08 versus 07?

I would think our prices are going to be, we’re planning our prices to be up somewhere between 7 and 10%. Right now our average cost is up just over 4%, but that’s for spring. We don’t have all our costs back you up for fall, especially in the women’s area. You know it’s kind of funny too John is that I mentioned in my prepared remarks, when you look at what’s going on in the athletic arena the prices are not up with the same degree that the prices are up in the direct product we buy from the factory. So it’s really a women’s brand, men’s brand and kid’s brand issue and actually more of the women’s and kid’s issue because we buy more first cost there. But we see price points in our women’s area going up north of 10%. John Shanley – Susquehanna Financial Group: Alright, the price points in the athletic, do you think will stabilize or pretty much hold their own?

Well so far they’ve done pretty well you know Nike had a pretty good increase not too long ago. But so far they’ve been pretty stable. Where our prices will increase in athletic is the way that we buy the product. We’re looking to increase it, right now the strongest area of performance for us is in the performance footwear. I mean when you look at the brands like Asics and Nike and all their performance product and the sell throughs we’re getting on that, we’ll raise our price points just by buying more of that product and having more of that on the shelf for our consumer. And decrease against those vendors that historically drive a lower price point and lower margin. John Shanley – Susquehanna Financial Group: Okay that’s very helpful Cliff I appreciate it. Mark.

John, this is Mark, let me add one thing because we talk a lot about this with the increases that we’re seeing coming out of China particularly that it’s a very daunting task to increase price points in the kind of economy that we expect to see in 2008 particularly in the first half. You know what we intend to do is react very quickly to increased promotional activity in the marketplace. So we can do that we think in 2008. One of the things that we are very, that we’re working very diligently on is taking costs out of the product after it gets to the US. So we’re working very hard on our logistics, particularly with our distributions costs even though we’re facing higher fuels costs we think that there are some areas that we can improve on from a logistics standpoint to take cost out of that product all the way through the pipeline. So you know we’re looking at the cost structure as much as we possibly can to put ourselves in a position that we could be very reactionary in terms of promotional pricing as we go forward. John Shanley – Susquehanna Financial Group: That’s good to hear. Mark I had a question on real estate. Can you give us an idea of the, has there been a change in the store size, either your major metro market locations or your smaller market locations, has store size of the 20-25 stores that you’re planning on opening going to be much different than what you had historically opened?

No we don’t anticipate that. In fact this past year the stores we opened averaged about 9,200 square feet. Part of the reason why is a number of those stores were opened in smaller metropolitan areas or areas that were of larger metropolitan areas that were so green in terms of population base. So you know we’ll continue to rationalize the size of the store to the market area or the population of the market area that those stores are expected to serve. When we go into smaller population bases in smaller markets, we’re going to open between 8,000 square feet and 10,000 square feet. As we go into population bases that are over 250,000 people, that’s when we’ll see the 10-12,000 square foot boxes. So overall we expect 2008 to be somewhere in that 9,500 square foot range. John Shanley – Susquehanna Financial Group: Okay, that’s very helpful, thank you very much I appreciate it.

Thank you, we will take our next question for Jill Caruthers with Johnson Rice. Jill Caruthers – Johnson Rice & Company: Good afternoon. Could you talk about, I know on the last call you had mentioned the addition of a merchandising manager looking to allocate better at the store level, if you could maybe talk about that and maybe some of the improvements you’ve seen there?

We began that process Jill in February, we spent the final quarter of the year last year putting together the business plan to make this switchover successful. So it actually, everything changed as of the first week in February, so maybe a little early for me to give you direct or quantitative results on that. But we believed then and we still believe now that having a very, very strong merchant running that process and watching over the merchandisers who allocate and do the final allocations of product to our stores that’s going to give us a long term benefit. Jill Caruthers – Johnson Rice & Company: Could you maybe talk about how you allocated to stores previous to this new system?

The allocation process actually wasn’t that much different, it’s just the way we supervise that today and the way we break out responsibilities to date has changed. But we try to allocate product differently to each store based on the customer profile of that store. So if a store is heavily African American or Hispanic, then they’ll get a slightly different product mix than a store that has a very strong suburban base, if the store has a strong junior clientele, maybe it’s located in a college town, they’ll get a higher concentration of junior product. And not only do we do it based on product but we also have the ability to do it based on size. So if a store is a very left handed store from a size standpoint due to the customer base their product allocation and size structure is left handed if you would. Jill Caruthers – Johnson Rice & Company: Okay and could you talk about if you’re seeing any new exposure to new brands, I know one of your direct competitors had mentioned that they’re getting you know availability of some new brands in the stores.

You know, I understand which competitor you’re speaking of and I actually understand which brand you’re talking about. That brand, we are not going to add that brand although we are looking and have talked to many brands over the past three of four months. It seems that I guess as business in the department stores continue to slide, those brands are actually coming to our doors also we are adding additional brands to our assortment. Jill Caruthers – Johnson Rice & Company: Okay, thanks a lot.

(Operator instructions). And we’ll go next to Sam Poser with Sterne Agee. Sam Poser – Sterne Agee: Good afternoon everybody. A quick follow up on the question about the athletic assortment and so on. How has what athletic stands for as a mix within itself changed? I mean with the addition of Etnies and what you got, you know it’s held its share but how is the mix itself changed, what is in, what’s out compared to a year ago?

That’s a good question Sam. You know part of the issue is a change in the customer buying habits but you know in some ways our mix has changed because of decisions made by athletic companies themselves. You know the classic product in total has slowed down regular white classic product over the past two or three years. And a lot of that loss or a good portion of that loss is due to the decisions that the vendors made themselves in taking that product out of this channel. So that’s one way the product has changed. The other way the product has changed is that we carry and sell a great deal more of performance, what this grid would consider to be performance athletic. That actually was led by Nike and now all the other or at least most of the other major vendors are jumping in on that program, opening us up to more and more performance product. That has been probably the biggest change over the past two years. Additionally, as you know about three years ago, Sketchers went into the low profile business and caught the athletic industry in my opinion a little flat footed. They have responded to that now and we have low profile product form several vendors that are actually selling very, very well. So as where low profile from a casual standpoint may be flat or post peak, it certainly is enjoying a little resurgence in the athletic arena. Sam Poser – Sterne Agee: And then how is it on the skate business?

Well as you know skate has been very, very strong this year, close to, very close to triple digit increases both in women’s, all in both women’s, men’s and kid’s and we see that continuing on. But you know skate is a very seasonal business, it works fairly well in spring and it works incredibly well at back to school, but the rest of the year it’s just a good business, it’s not a great business. We did add a one new brand this past fall, Etnies and we’ve been pleased with the performance of that brand in our stores but again it has been a very strong year for skate. Sam Poser – Sterne Agee: You brought up and then in your, can you talk about some of the drivers in you mentioned I believe that the women’s dress business, the women’s flats and boot business and work was strong as well. Can you talk about you know what drove those businesses, was it private label? Was it the brands and so on?

Well it would be in all those strong categories, it would be both branded and private brand. I mean you know flats get high, I don’t care who you buy flats from, you sell them. And you know and I want to be clear on one thing, when we said boots I mentioned strictly weather boots, I mean it was not the best year for the boot category. Two categories of boots sold this year, weather boots and anything that looks like Uggs. Past that, it was a tough boot environment, that’s really the reason we’re so pleased with how clean we came out of the boot season. Sam Poser – Sterne Agee: Okay, well thank you very much, continued success.

And we will take our next question from Jeff Stein with Soleil Securities. Jeff Stein – Soleil Securities: Good afternoon guys, a couple questions. First with regard to the issue on higher costs coming out of China. Given the comments you made Cliff, do you believe that you’ll be able to maintain your merchandise margins or are you even going to try to maintain your merchandise margin given the higher cost structure that you see coming?

We absolutely believe we can maintain our merchandise margins Jeff. Here’s the deal, we think just about a same product we bought last year and charge a higher price is not a good strategy. So if prices are going to go up, we felt that this was a year to add value to the product to give the customer a little something else that they can feel and touch and when they try it on, just understanding that, yeah it may be a little higher price but the quality is there. And we believe and I truly believe this that as long as we plan our business correctly and as long as you recognize up front that you’re probably going to sell fewer pairs on a per door basis, so you buy fewer pairs on a per door basis, you don’t have to be near as promotional and you put more touch and feel into the product and more quality then the customer will reach up and pay for it. Jeff Stein – Soleil Securities: And roughly how are you planning your inventories for spring of this year on a per door basis?

Down between 3-5% depending upon the month. Jeff Stein – Soleil Securities: Okay great and a question relating, this would be more for Kerry and Mark on store expansion. Can you talk a little bit about the timing of openings and how you’re planning your sales for new doors kind of on a per door basis. I know historically you’ve been kind of 85% of a mature store. Do you see 80 and therefore planning 80 or 70, how do you exactly see things from a budgeting standpoint?

Well, first from a sales planning standpoint Jeff, we take a look at each individual store and plan based upon what we feel that store can do. I think given the environment that we’re working on, so more than likely we will probably plan sales south of that 85% that we had seen in the past couple of years, strictly because it’s going to take new stores a little bit longer to ramp up when there’s not the familiarity in particular areas. So it’ll probably be a little bit south of that. We still think it’s a prudent strategy to open stores because when we come out of this economic downturn we’re going to be a bigger, stronger, better company for it. But so we are going to continue opening new stores. It’ll be a slower rate than what we had intended maybe six to nine months ago but that’s primarily because we’re seeing developments move from 2008 to 2009 or fall completely out strictly because the big box retailers are slowing down their growth or moving their store openings form one year to the next. Jeff Stein – Soleil Securities: And Mark how about the timing of openings this year?

Well I think we’re opening two stores in the first quarter Jeff and then I don’t know the exact number but most of the stores that we open are going to be in the second and third quarter and then maybe one or two in the fourth. Jeff Stein – Soleil Securities: Okay and then final question, there were a lot of timing issues last year with regard to, because of the shift in the retail calendar, the shift in back to school days, do you see any events or timing differences this year that could cause sales to shift between quarters?

You know we’ve got an early Easter, that’s not going to impact the quarter it’s going to impact the months of March and April. But as far as quarterly comparisons I really don’t see any. Obviously there are events within the year that could have an impact on sales. And an impact on advertising, obviously the elections are one and the Olympics is another event that could have an impact on retailers, both positive and negative in 2008.

I’d like to add to that Jeff that as of today all of the back to schools and all the tax holidays for that back to school time period have not been decided by the states and local governments so that could have an effect between the second quarter and the third quarter.

The other obvious big event that’s happening produced by the Federal government is the tax rebate checks beginning in May I believe, so that remains to be seen how much that flows through to the retail economy, so. Jeff Stein – Soleil Securities: Do you guys have any strategies, I know some retailers are trying to figure out ways to monetize that tax rebate by cashing checks in the store and so forth, do you guys have any specific plan to capitalize on it or just hope you get your fair share?

We’re pretty much putting our heads in the sand and saying if it comes it comes. Of course Jeff we are trying, just like we do with tax free days and you know the early distribution of tax refund checks at the beginning of the year, we do try to develop strategies to get our share of that money, no question. Jeff Stein – Soleil Securities: And finally, do you care to comment at all on sales trends in the first quarter?

We’re not talking about sales in the first quarter yet. Jeff Stein – Soleil Securities: Got it. Okay, thanks.

We will take our next question from Heather Boksen with Sidoti & Company. Heather Boksen – Sidoti & Co.: Good afternoon guys. A lot of my questions have been answered actually, I had one question left on the tax rebate checks people are going to be getting soon. The last time the government did this did it have any impact on your sales?

It did, it impacted it positively. Don’t ask me to quantify that number though I don’t have that in front of me. Heather Boksen – Sidoti & Co.: Okay, thanks and one housekeeping question for you, you said you were going to open 20-25 stores in 08, is that a net number and if not, how many closures are we looking at?

Right now we’re looking at around 8-10 store closings and no it is not a net number it will be 20-25 new stores. It looks like the number is going to be pretty close to 23 new stores unless developers move a couple of dates on us. But it’s, you know, we began this process, well not began the process but about five or six weeks ago it looked like we had 38 or 37 stores that we were going to open in 2008 and between moves from developers or strip centers not being built because of the economic conditions, it’s now down to around 20-25 and it looks like the number may be close to the middle of that. We think that somewhere around 20-25 is pretty solid right now, the way we’re looking at construction and the way we’re looking at the retail developments. So we think that new stores will be in that range and again we expect to close between 8-10 stores this year. Heather Boksen – Sidoti & Co.: Okay and with respect to these lease agreements when you sign them, you have kick outs right for if an anchor chooses to not move into a center?

We typically are able to negotiate a kick out based upon either a sales number per square foot or [toll] tenancy provisions, yes. Heather Boksen – Sidoti & Co.: Alright, okay thanks.

(Operator instructions). We will take our next question from Adam [Kamora] with [Invest] Capital. Adam [Kamora] – [Invest] Capital: Hi, great, thanks. My first question is a follow up to Kerry I think you said that SG&A was going to increase no more than 3.5% from 2007, that’s on an absolute dollar amount?

Yes it is. Adam [Kamora] – [Invest] Capital: Alright so in theory if we have 5% additional square footage, does that mean we’re going to leverage SG&A on a basically flat comp?

Yes it would. One thing we recognize is that we’ve got a very difficult economy and one thing we can control is our expenses so we’ve been very aggressive about managing those expense in 08 and we could on a flat comp we’d be leveraged. Adam [Kamora] – [Invest] Capital: Okay. And in terms of when you guys were talking about I guess this is Cliff and whoever, if ASPs are going to be up 7-10% in the back half and you guys said you were going to be starting to plan units down, are you planning units down that kind of magnitude as well or are you planning units down low singles so in theory you know if you sell through what you’re buying we’re going to have a natural lift to comps from that ASP?

Adam, we’re planning our units down mid singles. Adam [Kamora] – [Invest] Capital: Okay, okay and last question is store closing costs, I think you closed five stores last year and it cost you $1.6 million. Any idea what the 8-10 could cost this year, it sounds like it’s probably more than the $1.6 million.

No, we took, the charge we took in the fourth quarter of $1.2 million for the impairment covered the majority of those costs. And we will incur some cost but not to that magnitude. Adam [Kamora] – [Invest] Capital: Okay so it sounds like it’s significantly less than the $1.6 million we did in 07.

Yes. Keeping in mind that included in the $1.6 million was $1.2 for the impairment of those stores we were going to close in 08 and beyond. Adam [Kamora] – [Invest] Capital: Got it, terrific, thanks a lot guys.

Thank you and with no additional questions in the queue I’d like to turn the conference back over to Mark Lemond.

Well we’d just like to thank you for being on the call today and we look forward to speaking to you next quarter. Thank you.

Thank you that does conclude our conference call today, we appreciate your participation, you may disconnect at this time.