SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended October 29, 1994
OR
( )TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File No. 0-7258
CHARMING SHOPPES, INC.
Exact name of registrant as specified in its charter)
PENNSYLVANIA 23-1721355
- ------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
450 WINKS LANE BENSALEM, PA 19020
- ------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(215) 245-9100
--------------
(Registrant's telephone number, including Area Code)
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 ( )
102,824,853 common shares were outstanding as of October 29, 1994.
CHARMING SHOPPES, INC. AND SUBSIDIARIES
INDEX
PAGE
PART I. FINANCIAL INFORMATION:
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheets
October 29, 1994 and January 29, 1994.....................1-2
Consolidated Statements of Income
Thirteen weeks ended October 29, 1994 and
October 30, 1993............................................3
Consolidated Statements of Income
Thirty-nine weeks ended October 29, 1994 and
October 30, 1993............................................4
Consolidated Statements of Cash Flows
Thirty-nine weeks ended October 29, 1994 and
October 30, 1993............................................5
Notes to Consolidated Financial Statements...................6-8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations................9-11
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.....................12
CHARMING SHOPPES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
October 29, January 29,
1994 1994
(In Thousands)
ASSETS
Current Assets
Cash and cash equivalents $ 18,466 $ 52,390
Available-for-sale securities 47,689 45,290
Merchandise inventories 333,782 259,527
Prepayments and other 93,229 83,097
-------- --------
Total Current Assets 493,166 440,304
Property, equipment and leasehold improvements 470,845 416,029
Less: accumulated depreciation and amortization 192,084 161,695
-------- --------
Net property, equipment and leasehold
improvements 278,761 254,334
Available-for-sale securities (including
a fair value adjustment of ($1,804) and $0,
respectively) 78,197 83,695
Other assets 52,186 50,900
-------- ---------
Total Assets $902,310 $829,233
======== =========
See Notes to Unaudited Consolidated Financial Statements
(1)
CHARMING SHOPPES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
October 29, January 29,
1994 1994
(In Thousands Except Shares)
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable $193,895 $147,638
Accrued expenses 94,122 97,234
Short-term debt 8,500 0
Income taxes 0 8,521
Current portion - long-term debt 5,006 5,005
-------- --------
Total Current Liabilities 301,523 258,398
Deferred taxes 27,937 26,437
Long-term debt 17,473 22,298
Stockholders' Equity
Common Stock $.10 par value
Authorized 300,000,000 shares
Issued and outstanding 102,824,853 and
102,735,437 shares 10,282 10,274
Additional paid in capital 54,916 54,208
Deferred employee compensation (5,867) (7,015)
Unrealized loss (net of income taxes of
$632 and $0, respectively) (1,172) 0
Retained earnings 497,218 464,633
-------- --------
Total Stockholders' Equity 555,377 522,100
-------- --------
Total Liabilities and Stockholders' Equity $902,310 $829,233
======== ========
See Notes to Unaudited Consolidated Financial Statements
(2)
CHARMING SHOPPES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
For Thirty-nine Weeks Ended
(In Thousands Except Share and October 29, October 30,
Per Share Amounts) 1994 1993
Net sales $927,311 $896,936
Other income 7,056 7,186
-------- --------
Total Revenue 934,367 904,122
-------- --------
Cost of goods sold, buying and
occupancy expenses 669,472 620,730
Selling, general and administrative expenses 206,717 205,216
Interest expense 1,712 1,953
-------- --------
Total Expenses 877,901 827,899
-------- --------
Income before income taxes and cumulative
effect of an accounting change 56,466 76,223
Income taxes 16,940 24,239
-------- -------
Income before cumulative effect
of accounting change 39,526 51,984
Cumulative effect of adoption of SFAS 109 0 3,991
-------- --------
Net Income $ 39,526 $ 55,975
======== ========
Weighted average number of common shares
outstanding 107,571,411 108,498,360
=========== ===========
Per Share Data:
Income before cumulative effect of
accounting change $.37 $.48
Cumulative effect of adoption of SFAS 109 .00 .04
---- ----
Net Income $.37 $.52
==== ====
Cash Dividends $.0675 $.0675
====== ======
See Notes to Unaudited Consolidated Financial Statements
(3)
CHARMING SHOPPES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
For Thirteen Weeks Ended
In Thousands Except Share and October 29, October 30,
Per Share Amounts) 1994 1993
Net sales $306,283 $313,000
Other income 2,485 2,171
-------- --------
Total Revenue 308,768 315,171
-------- --------
Cost of goods sold, buying and
occupancy expenses 229,022 218,630
Selling, general and administrative expenses 69,945 73,694
Interest expense 561 614
-------- --------
Total Expenses 299,528 292,938
-------- --------
Income before income taxes 9,240 22,233
Income taxes 1,733 7,070
-------- --------
Net Income $ 7,507 $ 15,163
======== ========
Weighted average number of common shares
outstanding 107,053,574 108,215,066
=========== ===========
Per Share Data:
Net Income $.07 $.14
==== ====
Cash Dividends $.0225 $.0025
====== ======
See Notes to Unaudited Consolidated Financial Statements
(4)
CHARMING SHOPPES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
For Thirty-nine Weeks Ended
October 29, October 30,
(In Thousands) 1994 1993
Operating Activities
Net income $39,526 $55,975
Adjustments to reconcile net income to net
cash provided by operating activities:
Deferred income taxes 1,500 1,500
Depreciation & amortization 34,590 29,498
Amortization of deferred compensation expense 1,910 2,385
Gain on sale of available-for-sale securities (177) (66)
Cumulative effect of accounting change 0 (3,991)
Changes in operating assets and liabilities:
Prepayments & other (10,069) (6,118)
Merchandise inventories (74,255) (90,390)
Accounts payable 46,257 38,304
Accrued expenses (3,112) 7,493
Income taxes payable (8,521) (2,490)
------- -------
Net Cash Provided by Operating Activities 27,649 32,100
-------- --------
Investing Activities
Purchase of accounts receivable 0 (186,857)
Investment in capital assets (54,816) (67,928)
Sales of available-for-sale securities 75,572 59,136
Purchases of available-for-sale securities (74,100) (76,735)
Increase in other assets (5,487) (9,951)
-------- --------
Net Cash Used in Investing Activities (58,831) (282,335)
-------- --------
Financing Activities
Sale of account receivable 0 186,857
Proceeds from long-term borrowings 0 1,200
Proceeds from short-term borrowings 8,500 0
Reduction of long-term debt (4,824) (4,733)
Proceeds from exercise of stock options 523 870
Dividends paid (6,941) (6,925)
-------- --------
Net Cash Provided by (Used in)
Financing Activities (2,742) 177,269
-------- --------
Increase (Decrease) in Cash and Cash Equivalents (33,924) (72,966)
Cash and Cash Equivalents, Beginning of Year 52,390 98,786
-------- --------
Cash and Cash Equivalents, End of Period $ 18,466 $ 25,820
======== ========
See Notes to Unaudited Consolidated Financial Statements
(5)
CHARMING SHOPPES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Consolidated Financial Statements
The consolidated balance sheet as of October 29, 1994, the
consolidated statements of income for the three and nine month periods
ended October 29, 1994 and October 30, 1993 and the consolidated
statements of cash flows for the nine month periods then ended have been
prepared by the Company, without audit. In the opinion of management,
all adjustments (which include only normal recurring adjustments)
necessary to present fairly the financial position, results of
operations and cash flows at October 29, 1994 and for all periods
presented have been made.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted. It is suggested
that these condensed consolidated financial statements be read in
conjunction with the financial statements and notes thereto included in
the Company's January 29, 1994 annual report on Form 10-K. The results
of operations for the periods ended October 29, 1994 and October 30,
1993 are not necessarily indicative of the operating results for the
full year.
2. Stockholders' Equity
During the nine months ended October 29, 1994, shareholders'
equity changed to reflect the following items: net income of
$39,526,000; dividends paid of $6,941,000; amortization of deferred
compensation expense of $1,910,000; an increase in common stock and
additional paid in capital of $416,000 from the exercise of options for
common stock; a reduction of common stock and additional paid-in capital
of $462,000 from the retirement of common stock; an increase in
stockholders' equity of $1,357,000 from the cumulative effect of
adopting Statement of Financial Accounting Standards No. 115; and a
decrease in stockholders' equity of $2,529,000 from the unrealized loss
on available-for-sale securities.
3. Income Taxes
Effective January 31, 1993, the Company adopted Statement of
Financial Accounting Standards No. 109 ("SFAS 109"), "Accounting for
Income Taxes" and has separately reported the cumulative effect of that
change in the Consolidated Statement of Income for the thirty-nine weeks
ended October 30, 1993. SFAS 109 requires a change from the deferred
method of accounting for income taxes under APB Opinion 11 to the
(6)
liability method of accounting for income taxes. Under the liability
method, deferred tax assets and liabilities are adjusted to reflect the
effect of changes in enacted tax rates on expected reversals of
financial statement and income tax carrying value differences. As
permitted by SFAS 109, the Company elected not to restate the financial
statements for any prior years. The cumulative effect of the change for
the thirty-nine weeks ended October 30, 1993 was an increase in net
income of $3,991,000 or $0.04 per share.
4. Accounting Changes
In May, 1993, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 115 ("SFAS 115"),
"Accounting for Certain Investments in Debt and Equity Securities." The
Company adopted the provisions of the new standard for investments held
as of or acquired after January 30, 1994. In accordance with SFAS 115,
prior period financial statements have not been restated. Pursuant to
SFAS 115, management has determined that the Company's investments
should be classified as available-for-sale. As available-for-sale
investments, these securities are carried at fair value (previously
carried at amortized cost) and unrealized gains and losses are reported
in a separate component of stockholders' equity. The amortized cost of
investments is adjusted for amortization of premiums and the accretion
of discounts to maturity. Such amortization is included in other
income. Realized gains and losses are also included in other income.
The cost of securities sold is based on the specific identification
method. Interest from investments is included in other income.
The following is a summary of available-for-sale securities as of
October 29, 1994:
(in thousands)
Net
Unrealized Estimated
Cost Gain(Loss) Fair Value
-------- ------- --------
CAFCO, Inc. certificates $ 28,706 $ 0 $ 28,706
Seller certificates 15,082 0 15,082
Municipal bonds 45,938 (740) 45,198
Government agency mortgage
backed securities 11,562 (1,414) 10,148
U.S. Treasury and government
agency bonds 15,352 400 15,752
Low income housing partnerships 3,187 0 3,187
Preferred stocks 3,182 (31) 3,151
Other 4,681 (19) 4,662
-------- ------- --------
$127,690 $(1,804) $125,886
======== ======= ========
(7)
The contractual maturities of available-for-sale securities at October
29, 1994 were:
(in thousands)
Estimated
Cost Fair Value
-------- --------
Due in one year or less $ 47,722 $ 47,722
Due after one year through five years 48,144 48,633
Due after five years 13,893 13,045
-------- --------
109,759 109,400
Mortgage backed securities 11,562 10,148
Equity Securities 6,369 6,338
-------- --------
$127,690 $125,886
======== ========
(8)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(Unaudited)
RESULTS OF OPERATIONS
The following table sets forth, as a percentage of net sales,
certain items appearing in the Consolidated Statements of Income for the
thirteen week and thirty-nine week periods ended October 29, 1994 and
October 30, 1993.
Thirteen Weeks Ended Thirty-nine Weeks Ended
Oct. 29, Oct. 30, Oct. 29, Oct. 30,
1994 1993 1994 1993
-------------------- --------------------
Net Sales 100.0% 100.0% 100.0% 100.0%
-------------------- --------------------
Cost of Goods Sold,
Buying, and Occupancy 74.8 69.8 72.2 69.2
-------------------- --------------------
Selling, General and
Administrative 22.8 23.6 22.3 22.9
-------------------- --------------------
Interest Expense .2 .2 .2 .2
-------------------- --------------------
Income Taxes 0.5 2.3 1.9 2.7
-------------------- --------------------
Income before cumulative
effect of accounting changes N/A N/A N/A 5.8
-------------------- --------------------
Cumulative effect of
adoption of SFAS 109 N/A N/A N/A .4
-------------------- --------------------
Net Income 2.5% 4.8% 4.3% 6.2%
-------------------- --------------------
Thirteen Weeks Ended October 29, 1994 and October 30, 1993
Net sales for the third quarter of the fiscal year ending January
28, 1995 ("Fiscal 1995") totaled $306,283,000 as compared to
$313,000,000 for the corresponding period of the fiscal year ended
January 29, 1994 ("Fiscal 1994"), a 2.2% decrease. The Company had a
9.6% decrease in sales of existing stores compared to Fiscal 1994. 9.8%
of sales for the third quarter of Fiscal 1995 are attributable to stores
opened since the third quarter of Fiscal 1994. Sales for stores closed
since the third quarter of Fiscal 1994 accounted for 2.3% of sales
during that quarter. The decrease in sales from existing stores was
(9)
primarily attributable to the lack of consumer acceptance of the
Company's Fall merchandise assortment and a general weakness in women's
apparel sales. The Company has and continues to make changes in its'
ongoing merchandise strategy so as to endeavor to address this decline
in sales. However, the Company anticipates that same store sales in the
fourth quarter will continue to be below last year's levels.
The number of retail stores increased from 1,287 on October 30,
1993 to 1,390 on October 29, 1994. During the third quarter of Fiscal
1995 the Company opened 33 new stores and closed 11 existing stores.
The Company had a net addition of 95 new stores in Fiscal 1995 and a 13%
expansion of selling square footage.
Cost of goods sold, buying and occupancy expenses expressed as a
percentage of sales increased 5.0% in the third quarter of Fiscal 1995
as compared with the corresponding period of Fiscal 1994. The increase
in cost of goods sold was attributable to aggressive promotions which
were initiated to stimulate consumer demand. This caused markdowns to
be taken earlier and more frequently then planned. Buying and occupancy
expenses increased as a percent of sales due to lower comparative sales
on relatively fixed buying and occupancy costs.
Selling, general and administrative expenses expressed as a
percentage of sales decreased 0.8% in the third quarter of Fiscal 1995
as compared to the corresponding period of Fiscal 1994. The primary
reason for this decrease was the October, 1993 purchase and resale of
private label credit card receivables previously owned and administered
by BancOhio National Bank. This transaction lowered the cost of
servicing the Company's private label credit card program as compared
to the corresponding period of the prior fiscal year. This was
partially offset by the effect of lower comparative store sales on
relatively fixed general and administrative costs.
The effective rate of income taxes as a percent of income before
income taxes decreased to 18.8% for the third quarter of Fiscal 1995 as
compared to 31.8% for the corresponding period of Fiscal 1994. This
reduction is attributable to the cumulative annual effect of permanent
tax benefits applied to lower pretax income.
Thirty-nine Weeks Ended October 29, 1994 and October 30, 1993
Net sales for the first three quarters of Fiscal 1995 totaled
$927,311,000 as compared to $896,936,000 for the corresponding period of
Fiscal 1994, a 3.4% increase. The Company had a 4.8% decrease in sales
of existing stores compared to Fiscal 1994. 10.8% of sales for the
first three quarters of Fiscal 1995 are attributable to stores opened
since the third quarter of Fiscal 1994. Sales for stores closed since
the third quarter of Fiscal 1994 accounted for 2.6% of sales during the
first three quarters of Fiscal 1994.
(10)
Cost of goods sold, buying and occupancy expenses expressed as a
percentage of sales increased 3.0% in the first three quarters of Fiscal
1995 as compared with the corresponding period of Fiscal 1994. The
primary reasons for this increase were the effect of lower comparative
store sales on relatively fixed buying and occupancy costs and a decline
in merchandise margins as compared to the prior year.
Selling, general and administrative expenses expressed as a
percentage of sales decreased 0.6% in the first three quarters of Fiscal
1995 as compared to the corresponding period of Fiscal 1994. The
primary reason for this decrease was the favorable effect of the lower
cost of servicing the Company's private label credit card program as
compared to the corresponding period of the prior year. This was
partially offset by the effect of lower comparative store sales on
relatively fixed general and administrative costs.
The effective rate of income taxes as a percent of income before
income taxes decreased to 30.0% for the first three quarters of Fiscal
1995 as compared to 31.8% for the corresponding period of Fiscal 1994.
This reduction is attributable to the effect of permanent tax benefits
applied to lower pretax income.
LIQUIDITY AND CAPITAL RESOURCES
At October 29, 1994, the Company had working capital of
$191,643,000 as compared with $181,906,000 at January 29, 1994. The
ratio of current assets to current liabilities was 1.6 to 1 at October
29, 1994 and 1.7 to 1 at January 29, 1994.
Cash provided by operating activities was $27,649,000 during the
first nine months of Fiscal 1995 as compared to $32,100,000 during the
corresponding period of Fiscal 1994. This $4,451,000 decrease was
primarily due to lower net income which was offset by the relative
decrease in the Company's net investment in inventory (inventory
increase less accounts payable increase).
Through October 29, 1994, capital expenditures amounted to
$54,816,000. During Fiscal 1995, the Company anticipates incurring
capital expenditures of approximately $75 million primarily for the
construction of 126 new stores, the remodeling and expansion of 60
existing stores, and the expansion of the distribution facility in
Greencastle, Indiana. It is anticipated that the capital required for
expenditures will be financed principally through internally generated
funds.
Cash dividends were $6,941,000 for the nine months ended October
29, 1994 as compared to $6,925,000 for the comparable period of Fiscal
1994.
(11)
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
None
(b) Reports on Form 8-K
No reports on Form 8-K were filed by the Company during the
quarter ended October 29, 1994
(12)
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
CHARMING SHOPPES, INC.
----------------------------------
(Registrant)
Date: December 12, 1994 S/David V. Wachs
------------------ -----------------------------------
David V. Wachs
(Chairman of the Board)
Date: December 12, 1994 S/Ivan Szeftel
------------------ ------------------------------------
Ivan Szeftel-Executive Vice
President Finance (Chief Financial
Officer)
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<FISCAL-YEAR-END> JAN-28-1995
<PERIOD-END> OCT-29-1994
<CASH> 18,466
<SECURITIES> 47,689
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<INVENTORY> 333,782
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