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 28, 1995
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 ( )
103,131,143 common shares were outstanding as of October 28, 1995.
CHARMING SHOPPES, INC. AND SUBSIDIARIES
INDEX
PAGE
PART I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements (Unaudited)
Consolidated Balance Sheets
October 28, 1995 and January 28, 1995..................1-2
Consolidated Statements of Income
Thirteen weeks ended October 28, 1995 and
October 29, 1994.........................................3
Consolidated Statements of Income
Thirty-nine weeks ended October 28, 1995 and
October 29, 1994.........................................4
Consolidated Statements of Cash Flows
Thirty-nine weeks ended October 28, 1995 and
October 29, 1994.........................................5
Notes to Condensed Consolidated Financial Statements......6-7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.............8-11
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K..................12
CHARMING SHOPPES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
October 28, January 28,
1995 1995
(In Thousands)
ASSETS
Current Assets
Cash and cash equivalents $ 40,932 $ 43,923
Available-for-sale securities 25,762 40,180
Merchandise inventories 359,344 258,552
Prepayments and other 81,648 89,060
-------- --------
Total Current Assets 507,686 431,715
Property, equipment and leasehold improvements 508,298 483,372
Less: accumulated depreciation and amortization 230,958 197,119
-------- --------
Net property, equipment and leasehold
improvements 277,340 286,253
Available-for-sale securities (net of
fair value adjustments of ($4) and $($2,591),
respectively) 8,872 76,988
Other assets 50,394 45,853
-------- ---------
Total Assets $844,292 $840,809
======== =========
See Notes to Condensed Consolidated Financial Statements
(1)
CHARMING SHOPPES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
October 28, January 28,
1995 1995
(In Thousands Except Shares)
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable $194,899 $137,622
Accrued expenses 82,539 97,276
Current portion - long-term debt 720 5,002
-------- --------
Total Current Liabilities 278,158 239,900
Deferred taxes 24,789 24,789
Long-term debt 15,758 17,298
Stockholders' Equity
Common Stock $.10 par value
Authorized 300,000,000 shares
Issued and outstanding 103,131,143 and
102,894,239 shares 10,313 10,289
Additional paid in capital 55,621 55,176
Deferred employee compensation (3,567) (5,025)
Unrealized losses of Available for Sale
Securities (net of income taxes of
$1 and $906, respectively) (3) (1,685)
Retained earnings 463,223 500,067
-------- --------
Total Stockholders' Equity 525,587 558,822
-------- --------
Total Liabilities and Stockholders' Equity $844,292 $840,809
======== ========
See Notes to Condensed Consolidated Financial Statements
(2)
CHARMING SHOPPES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
For Thirteen Weeks Ended
(In Thousands Except Share and October 28, October 29,
Per Share Amounts) 1995 1994
Net sales $267,772 $306,283
Other income 969 2,485
-------- --------
Total Revenue 268,741 308,768
-------- --------
Cost of goods sold, buying and
occupancy expenses 227,481 229,022
Selling, general and administrative expenses 79,423 69,945
Interest expense 435 561
-------- --------
Total Expenses 307,339 299,528
-------- --------
Income (loss) before income taxes (38,598) 9,240
Income tax expense (benefit) (13,892) 1,733
-------- -------
Net Income (Loss) ($24,706) $ 7,507
======== ========
Weighted average number of common shares
outstanding 103,066,745 107,053,574
=========== ===========
Per Share Data:
Net Income (Loss) ($.24) $.07
====== ======
Cash Dividends $.0000 $.0225
====== ======
See Notes to Condensed Consolidated Financial Statements
(3)
CHARMING SHOPPES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
For Thirty-nine Weeks Ended
(In Thousands Except Share and October 28, October 29,
Per Share Amounts) 1995 1994
Net sales $780,562 $927,311
Other income 4,796 7,056
-------- --------
Total Revenue 785,358 934,367
-------- --------
Cost of goods sold, buying and
occupancy expenses 621,989 669,472
Selling, general and administrative expenses 213,448 206,717
Interest expense 1,455 1,712
-------- --------
Total Expenses 836,892 877,901
-------- --------
Income (loss) before income taxes (51,534) 56,466
Income tax expense (benefit) (19,325) 16,940
-------- -------
Net Income (Loss) ($32,209) $39,526
======== ========
Weighted average number of common shares
outstanding 102,996,909 107,571,411
=========== ===========
Per Share Data:
Net Income (Loss) ($.31) $.37
====== ======
Cash Dividends $.0450 $.0675
====== ======
See Notes to Condensed Consolidated Financial Statements
(4)
CHARMING SHOPPES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
For Thirty-nine Weeks Ended
October 28, October 29,
(In Thousands) 1995 1994
Operating Activities
Net income (loss) ($32,209) $39,526
Adjustments to reconcile net income to net
cash provided by operating activities:
Deferred income taxes 0 1,500
Depreciation & amortization 37,020 34,590
Amortization of deferred compensation expense 1,478 1,910
Gain on sale of available-for-sale securities (91) (177)
Changes in operating assets and liabilities:
Prepayments & other 6,499 (10,069)
Merchandise inventories (100,792) (74,255)
Accounts payable 57,277 46,257
Accrued expenses (14,737) (3,112)
Income taxes payable 0 (8,521)
------- -------
Net Cash Provided by (Used in) Operating Activities (45,555) 27,649
-------- --------
Investing Activities
Investment in capital assets (24,926) (54,816)
Sales of available-for-sale securities 105,213 75,572
Purchases of available-for-sale securities (20,001) (74,100)
Increase in other assets (7,722) (5,487)
-------- --------
Net Cash Provided by (Used in) Investing Activities 52,564 (58,831)
-------- --------
Financing Activities
Proceeds from short-term borrowings 0 8,500
Reduction of long-term debt (5,822) (4,824)
Proceeds from exercise of stock options 456 523
Dividends paid (4,634) (6,941)
-------- --------
Net Cash Used in Financing Activities (10,000) (2,742)
-------- --------
Decrease in Cash and Cash Equivalents (2,991) (33,924)
Cash and Cash Equivalents, Beginning of Year 43,923 52,390
-------- --------
Cash and Cash Equivalents, End of Period $ 40,932 $ 18,466
======== ========
See Notes to Unaudited Consolidated Financial Statements
(5)
CHARMING SHOPPES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Consolidated Financial Statements
The consolidated balance sheet as of October 28, 1995, the
consolidated statements of income for the three and nine month periods
ended October 28, 1995 and October 29, 1994 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 28, 1995 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 28, 1995 annual report on Form 10-K. The results
of operations for the periods ended October 28, 1995 and October 29,
1994 are not necessarily indicative of the operating results for the
full year.
2. Stockholders' Equity
During the nine months ended October 28, 1995, shareholders'
equity changed to reflect the following items: net loss of $32,209,000;
dividends paid of $4,634,000; amortization of deferred compensation
expense of $1,478,000; an increase in common stock and additional paid
in capital of $448,000 from the exercise of options for common stock;
and an increase in stockholders' equity of $1,682,000 from a reduction
in the unrealized loss on available-for-sale securities.
3. Suspension of Dividend on Common Stock
On October 2, 1995 the Company's Board of Directors announced an
indefinite suspension of dividends on the Company's common stock. In
addition, the payment of dividends is precluded during the entire term
of the financing agreement described in the Subsequent Event footnote
below.
(6)
4. Subsequent Events
Financing Arrangements - On November 30, 1995 the Company entered
into an agreement with a commercial finance company to provide a
revolving credit facility with a maximum availability of $157,000,000
subject to limitations based upon eligible inventory. This agreement,
which expires on June 1, 1998, may be used to obtain revolving loans and
issue letters of credit. These loans are secured by certain assets of
the Company.
At the Company's option the interest rate on revolving loans is
at the prime rate plus 3/4% or the Eurodollar rate plus 3 3/8%. There
is a commitment fee of 3/8% per annum on the unused portion of the
facility and 1 3/8% per annum on the aggregate outstanding letters of
credit. The agreement requires that, among other things, the Company
maintain a minimum net worth and not pay dividends on it's common stock.
In addition to the agreement described above the Company
renegotiated portions of other existing trade and working capital
facilities and outstanding debt. This restructuring will convert
$82,962,000 of trade acceptances which were recorded as accounts payable
on the October 28, 1995 balance sheet into a term loan. The interest
rate on this loan is between 2% and 3 1/2% above the prime rate and is
subject to reduction upon attainment of certain payment provisions. The
Company is required to make payments equal to income tax refunds
available from the carryback of operating losses which will occur in
Fiscal 1996. In the event that the tax refund received by January 31,
1997 is less than $30,000,000 any shortfall will be paid from a letter
of credit up to an amount of $22,000,000. The unpaid portion of the
loan will be due at the agreements termination on June 1, 1998. This
loan is secured by certain assets of the Company.
Additionally, an outstanding term loan included in the October
28, 1995 balance sheet as Long-term debt in the amount of $12,857,000
has been paid down to $9,488,000 with the balance due June 1, 1998.
This note originally had scheduled annual amortizations through 1998 and
carried an interest rate of 9.3%. These notes carry an interest rate of
11.8% and are secured by certain assets of the Company.
Restructuring Plan - On December 7, 1995, the Company's Board of
Directors approved a restructuring plan that will result in a fourth
quarter pretax charge of approximately $65,000,000 related to a decision
to close 290 under-performing Fashion Bug and Fashion Bug Plus stores.
The charge includes an estimate for the write-down of fixed assets,
lease termination costs and severance benefits.
This restructuring plan will be expanded to include
administrative and sourcing areas which will require additional one-time
charges in the fourth quarter.
(7)
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 28, 1995 and
October 29, 1994.
Thirteen Weeks Ended Thirty-nine Weeks Ended
October 28, October 29, October 28, October 29,
1995 1994 1995 1994
-------------------- --------------------
Net Sales 100.0% 100.0% 100.0% 100.0%
-------------------- --------------------
Cost of Goods Sold,
Buying, and Occupancy 85.0 74.8 79.7 72.2
-------------------- --------------------
Selling, General and
Administrative 29.7 22.8 27.3 22.3
-------------------- --------------------
Interest Expense .2 .2 .2 .2
-------------------- --------------------
Income Tax Expense (Benefit) (5.2) 0.5 (2.4) 1.9
-------------------- --------------------
Net Income (Loss) (9.2%) 2.5% (4.1%) 4.3%
-------------------- --------------------
Thirteen Weeks Ended October 28, 1995 and October 29, 1994
Net sales for the third quarter of the fiscal year ending
February 3, 1996 ("Fiscal 1996") totaled $267,772,000 as compared to
$306,283,000 for the corresponding period of the fiscal year ended
January 28, 1995 ("Fiscal 1995"), a 12.6% decrease. The Company had a
15.6% decrease in sales of existing stores compared to Fiscal 1995.
5.4% of sales for the third quarter of Fiscal 1996 are attributable to
stores opened since the third quarter of Fiscal 1995. Sales for stores
closed since the third quarter of Fiscal 1995 accounted for 2.4% of
sales during that quarter. The decrease in sales from existing stores
was primarily attributable to the lack of consumer acceptance of the
Company's Fall merchandise assortment and a general weakness in women's
apparel sales.
(8)
The number of retail stores increased from 1,390 on October 29,
1994 to 1,417 on October 28, 1995. During the third quarter of Fiscal
1996 the Company opened 18 new stores and closed 16 existing stores.
The Company has opened 47 stores during Fiscal 1996 and will have closed
52 stores prior to Christmas.
Cost of goods sold, buying and occupancy expenses expressed as a
percentage of sales increased 10.2% in the third quarter of Fiscal 1996
as compared with the corresponding period of Fiscal 1995. The cost of
goods sold portion of the gross margin increased 6.8% over last year as
aggressive promotions were initiated due to lack of consumer acceptance
of the Company's fall merchandise assortment. This resulted in
markdowns being taken earlier and more frequently than planned.
Additonally, the decline in sales caused occupancy expenses expressed as
a percentage of sales to increase 3.0%
The decline in sales caused selling, general and administrative
expenses expressed as a percentage of sales to increase 6.9% in the
third quarter. Expressed in dollar terms the increase in these expenses
was 13.6% as compared to the corresponding period of Fiscal 1995.
Payroll expenses were reduced both at the stores and main office.
However, these reduced expenses were more than offset by a significant
increase in advertising expenses related to a more aggressive
advertising campaign and professional and bank fees associated with the
negotiation and implementation of the Company's financing arrangements.
Since the third quarter of Fiscal 1996, sales of existing stores
compared to the corresponding period of Fiscal 1995 have continued to
decline. Sales of existing stores during November, 1995 declined 13% as
compared to the corresponding period of Fiscal 1995. The Company
intends to pursue an aggressive promotional sales plan to address these
declining sales and anticipates this will result in a loss from
operations in the fourth quarter. In addition the Company will take a
$65,000,000 charge in the fourth quarter to close 290 stores and an
additional charge to restructure its' sourcing and administrative areas.
Thirty-nine Weeks Ended October 28, 1995 and October 29, 1994
Net sales for the first three quarters of Fiscal 1996 totaled
$780,562,000 as compared to $927,311,000 for the corresponding period of
Fiscal 1995, a 15.8% decrease. The Company had a 19.7% decrease in
sales of existing stores compared to Fiscal 1995. 6.0% of sales for the
first three quarters of Fiscal 1996 are attributable to stores opened
since the third quarter of Fiscal 1995. Sales for stores closed since
the third quarter of Fiscal 1995 accounted for 2.1% of sales during the
first three quarters of Fiscal 1995.
(9)
Cost of goods sold, buying and occupancy expenses expressed as a
percentage of sales increased 7.5% in the first three quarters of Fiscal
1996 as compared with the corresponding period of Fiscal 1995. The
primary reasons for this increase were a lack of consumer acceptance of
the Company's merchandise offerings which resulted in a decline in gross
margins as well as the effect of lower comparative store sales on
relatively fixed buying and occupancy costs.
Selling, general and administrative expenses expressed as a
percentage of sales increased 5.0% in the first three quarters of Fiscal
1996 as compared to the corresponding period of Fiscal 1995. The
primary reason for this increase was the effect of lower comparative
store sales on relatively fixed general and administrative costs.
The Company has recorded an income tax benefit of $19,325,000 for
the nine month period ended October 28, 1995. This benefit is the
result of an estimated pretax loss for Fiscal 1996 and permanent tax
benefits and credits.
LIQUIDITY AND CAPITAL RESOURCES
At October 28, 1995, the Company had working capital of
$229,528,000 as compared with $191,815,000 at January 28, 1995. The
ratio of current assets to current liabilities was 1.8 to 1 at October
28, 1995 and 1.8 to 1 at January 28, 1995.
Cash used in operating activities was $45,555,000 during the
first nine months of Fiscal 1996 as compared to cash provided by
operating activities of $27,649,000 during the corresponding period of
Fiscal 1995. This $73,204,000 decrease was primarily due to the decline
in net income. An increase in the Company's net investment in inventory
(inventory increase less accounts payable increase) was offset by a
decrease in prepaid expenses and other current assets. This reduction
was achieved by withdrawing the cash value of certain Company owned
life insurance policies as well as reducing the prepaid portion of other
employee benefit related expenses.
Through October 28, 1995, capital expenditures amounted to
$24,926,000 for the construction of 47 new stores, the remodeling and
expansion of existing stores, and completing the expansion of the
distribution facility in Greencastle, Indiana. The capital required for
these expenditures was provided through internally generated funds.
On November 30, 1995 the Company entered into a new secured
$157,000,000 revolving credit agreement and restructured, on a secured
basis, a portion of existing credit facilities and outstanding debt.
The Company is required to make payments equal to income tax refunds
available from the carryback of operating losses which will occur in
Fiscal 1996. In the event that the tax refund received by January 31,
(10)
1997 is less than $30,000,000 any shortfall will be paid from a letter
of credit up to an amount of $22,000,000. On December 7, 1995 the
Company announced a charge of approximately $65,000,000 to close 290
stores. An additional amount anticipated to cover the restructuring of
its sourcing and administrative areas will occur during the fourth
quarter. It is anticipated that the funding to execute these plans will
be provided by the new credit facility.
Cash dividends were $4,634,000 for the nine months ended October
28, 1995 as compared to $6,941,000 for the comparable period of Fiscal
1995. On October 2, 1995 the Company's Board of Directors announced an
indefinite suspension of dividends on the Company's common stock.
(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 28, 1995
(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 11, 1995 S/Philip Wachs
------------------ -----------------------------------
Philip Wachs
(Chairman of the Board)
Date: December 11, 1995 S/Ivan Szeftel
------------------ ------------------------------------
Ivan Szeftel-Executive Vice
President Finance (Chief Financial
Officer)
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