SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
AND EXCHANGE ACT OF 1934
For the quarterly period ended June 3, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES AND EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission File Number 1-8252
FREDERICK'S OF HOLLYWOOD, INC.
(Exact name of registrant as specified in its charter)
Delaware 95-2666265
(State or other jurisdiction of (IRS Employers Identification No.)
incorporation or organization)
6608 Hollywood Boulevard
Los Angeles, California 90028
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (213) 466-5151
Former name, former address and former fiscal year, if change since last
report: Not Applicable.
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes X
No _____.
Indicate the number of shares outstanding for each of the registrant's
classes of Common stock, as of the latest practicable date. 2,955,309
shares of Class A Capital Stock ($1 par value) and 5,903,118 shares of
Class B Capital Stock ($1 par value) at July 7, 1995.
FREDERICK'S OF HOLLYWOOD, INC. AND SUBSIDIARIES
INDEX
Title Page
Index
PART I -- FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Consolidated condensed balance sheets-
June 3, 1995 and September 3, 1994
Consolidated condensed statements of
income - Three and nine months ended
June 3, 1995 and May 28, 1994
Consolidated condensed statements of
cash flows - Nine months ended
June 3, 1995 and May 28, 1994
Notes to consolidated condensed
financial statements
Item 2. Management's Discussion and Analysis
of Financial Condition and
Results of Operations
PART II - OTHER INFORMATION
SIGNATURES
<TABLE>
FREDERICK'S OF HOLLYWOOD, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(UNAUDITED) (IN THOUSANDS)
<CAPTION>
ASSETS
June 3, 1995 September 3, 1994
<S> <C> <C>
Current assets:
Cash and equivalents $ 12,488 $ 10,556
Accounts receivable 517 528
Income taxes receivable -- 881
Merchandise inventories 18,904 18,097
Deferred income taxes 846 1,630
Prepaid expenses 4,091 3,795
Total current assets 36,846 35,487
Property and equipment, net 17,689 19,892
Other assets 38 38
$ 54,573 $ 55,417
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 8,734 $ 11,225
Current portion:
Capital lease obligations 257 434
ESOP loan guarantee 234 240
Accrued payroll 343 619
Accrued insurance 649 755
Provision for store closing 790 2,791
Income taxes payable 593 --
Other accrued expenses 459 354
Total current liabilities 12,059 16,418
Capital lease obligations 78 267
ESOP loan guarantee 720 720
Deferred rent 653 511
Deferred income taxes 3,088 3,088
Stockholders' equity:
Capital stock $1 par value 8,858 8,858
Additional paid-in capital 743 785
Unearned ESOP shares (766) (960)
Treasury stock (5) --
Retained earnings 29,145 25,730
Total stockholders' equity 37,975 34,413
$ 54,573 $ 55,417
</TABLE>
See accompanying notes to the consolidated financial statements.
<TABLE>
FREDERICK'S OF HOLLYWOOD, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(In thousands, except per share data - UNAUDITED)
<CAPTION>
Three Months Ended Nine Months Ended
June 3, 1995 May 28, 1994 June 3, 1995 May 28,1994
<S> <C> <C> <C> <C>
Net sales $33,312 30,455 110,787 100,911
Cost of goods sold,
buying and occupancy costs 19,484 17,638 63,567 57,033
Gross profit 13,828 12,817 47,220 43,878
Selling, general, and
administrative expenses 13,194 12,329 41,221 39,166
Operating profit 634 488 5,999 4,712
Other income and
(expense), net 117 63 243 (230)
Earnings before income taxes 751 551 6,242 4,482
Income taxes 311 229 2,590 1,860
Earnings before cumulative
effect of a change in
accounting principle 440 322 3,652 2,622
Cumulative effect of a change in
accounting principle -- -- -- 120
Net earnings $ 440 322 3,652 2,742
Earnings per share before
cumulative effect of a change
in accounting principle
Primary -
Class A & Class B $ .05 .04 .42 .30
Fully diluted -
Class A & Class B $ .05 .04 .42 .30
Per share cumulative effect
of change in accounting
principle:
Primary -
Class A & Class B $ -- -- -- .01
Fully diluted -
Class A & Class B $ -- -- -- .01
Earnings per share
Primary -
Class A & Class B $ .05 .04 .42 .31
Fully diluted -
Class A & Class B $ .05 .04 .42 .31
Weighted average shares
outstanding
Primary -
Class A & Class B 8,628 8,868 8,627 8,882
Fully diluted -
Class A & Class B 8,630 8,866 8,631 8,883
Cash dividend per share -
Class A & Class B $ -- -- .025 .025
</TABLE>
See accompanying notes to the consolidated financial statements.
<TABLE>
FREDERICK'S OF HOLLYWOOD, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED) (IN THOUSANDS)
<CAPTION>
Nine Months Ended
June 3, 1995 May 28, 1994
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 3,652 $ 2,742
Adjustments to reconcile net income to
net cash provided by operating activities:
Cumulative effect of change in
accounting principle -- (120)
Provision for store closings (2,001) --
Depreciation and amortization 3,081 3,085
ESOP compensation 153 --
Loss on sale of fixed assets 717 132
Changes in assets and liabilities
Accounts receivable 11 (50)
Income tax receivable 881 --
Merchandise inventories (807) (373)
Prepaid expenses (296) (874)
Other assets -- 1
Accounts payable and accrued expenses (2,768) (123)
Deferred rent 142 161
Deferred income taxes 784 --
Income tax payable 593 489
NET CASH PROVIDED BY OPERATING ACTIVITIES 4,142 5,070
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of fixed assets 160 1
Capital expenditures (1,755) (2,101)
NET CASH USED FOR INVESTING ACTIVITIES (1,595) (2,100)
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of capital lease obligations (366) (374)
Payment of dividends (216) (221)
Payment of dividends on unearned ESOP shares (6) --
Purchase of FOH Class A Capital Stock (26) --
Proceeds from exercise of stock options -- 94
Stock split (1) (5)
NET CASH USED FOR FINANCING ACTIVITIES (615) (506)
Net increase in cash and cash equivalents 1,932 2,464
Cash and cash equivalents at beginning
of year 10,556 7,136
CASH AND CASH EQUIVALENTS AT END
OF PERIOD $ 12,488 $ 9,600
Supplemental cash flow disclosures:
Interest paid $ 41 $ 81
Income taxes paid $ 782 $ 1,584
</TABLE>
See accompanying notes to the consolidated financial statements.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL
THIRTY-NINE WEEKS ENDED
June 3, 1995 and May 28, 1994
NOTE 1. BASIS OF PRESENTATION
In the opinion of the Company, the accompanying unaudited
consolidated condensed financial statements contain all
adjustments, consisting of only normal recurring adjustments,
necessary to present fairly the financial position as of June 3,
1995 and September 3, 1994, and the results of operations and cash
flows for the nine months ended June 3, 1995 and May 28, 1994.
These financial statements should be read in conjunction with the
Company's 1994 annual report on Form 10-K.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
In February 1992, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 109, Accounting for
Income Taxes. Statement 109 required a change from the deferred
method accounting for income taxes of APB Opinion 11 to the asset
and liability method of accounting for income taxes. Under the
asset and liability method of Statement 109, deferred tax assets
and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their
respective tax bases. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are
expected to be recovered or settled. Under Statement 109, the
effect on deferred tax assets and liabilities of a change in tax
rates is recognized in income in the period that includes the
enactment date.
Effective August 29, 1993, the Company adopted Statement 109 and
has reported the cumulative effect of that change in the method of
accounting for income taxes in the 1994 consolidated statement of
operations.
Pursuant to the deferred method under APB Opinion 11, which was
applied in 1993 and prior years, deferred income taxes are
recognized for income and expense items that are reported in
different years for financial reporting purposes and income tax
purposes using the tax rate applicable for the years of the
calculation. Under the deferred method, deferred taxes are not
adjusted for subsequent changes in tax rates.
NOTE 3. EARNINGS PER SHARE
Earnings per share calculations are based on the weighted average
number of shares of both Class A and Class B capital stock
outstanding during each period plus capital stock equivalents.
Capital stock equivalents reflect the assumed exercise of dilutive
employees' stock options less the number of treasury shares assumed
to be purchased from the proceeds using the average market price
or, for fully diluted earnings per share, the greater of the
average market price or period end market price of the Company's
common stock. ESOP shares that have not been committed to be
released are not considered outstanding (See Note 5).
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
(In thousands
except per share data) June 3, 1995 May 28, 1994 June 3, 199 May 28, 1994
<S> <C> <C> <C> <C>
Net earnings $ 440 322 3,652 2,742
Common and common
equivalent shares:
Weighted average
Primary 8,858 8,858 8,858 8,855
Fully diluted 8,858 8,858 8,858 8,855
Dilutive effect of
stock options
Primary 1 9 -- 27
Fully diluted 3 7 4 28
Treasury stock (4) -- (4) --
Unallocated ESOP shares (227) -- (227) --
Weighted average used to
calculate earnings per share
Primary 8,628 8,868 8,627 8,882
Fully diluted 8,630 8,866 8,631 8,883
Earnings per share before
cumulative effect of a change
in accounting principle
Primary .05 .04 .42 .30
Fully diluted .05 .04 .42 .30
Per share cumulative effect of
change in accounting
principle
Primary -- -- -- .01
Fully diluted -- -- -- .01
Earnings per common
and equivalent share
Primary .05 .04 .42 .31
Fully diluted .05 .04 .42 .31
</TABLE>
NOTE 4. PROVISION FOR STORE CLOSING
In the fourth quarter of Fiscal 1994, the Company recorded a
provision for closing twelve stores and the write down of certain
display fixtures of $3,442,000. The provision reflects anticipated
costs associated with lease buyouts of $1,703,000, the non-
recoverable investment in property, equipment and inventory of
$1,651,000, and other expenses directly related to the store
closings of $88,000.
Charges against the store closing reserve for the three and nine
months ended June 3, 1995, were $273,000 and $2,001,000,
respectively. The summary for these charges are as follows:
<TABLE>
<CAPTION>
Three Months Nine Months
<S> <C> <C>
Lease buyouts $ 63,000 $1,055,000
Fixed assets/inventory 209,000 939,000
Other expenses 1,000 7,000
TOTAL $ 273,000 $2,001,000
</TABLE>
The consolidated statement of income includes sales and operating
losses for stores designated in the provision for store closing. A
summary for the three and nine months is as follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
June 3, 1995 May 28, 1994 June 3, 1995 May 28, 1994
<S> <C> <C> <C> <C>
Net sales $ 98,000 465,000 $1,034,000 1,754,000
Operating loss 47,000 151,000 162,000 320,000
</TABLE>
NOTE 5. EMPLOYEE STOCK OWNERSHIP PLAN
Effective September 4, 1994, the Company adopted Statement of Position
(SOP) 93-6 (Employers' Accounting for Employee Stock Ownership Plans).
Under SOP 93-6 the debt of the ESOP is recorded as debt of the Company and
the shares pledged as collateral are reported as unearned ESOP shares in
the statement of financial position. As shares are released from
collateral, the company reports compensation expense equal to the current
market price of the shares, and the shares become outstanding for earnings-
per-share computations. Dividends on allocated ESOP shares are recorded as
a reduction of retained earnings; dividends on unallocated ESOP shares are
recorded as a reduction of debt and the ESOP loan guarantee. ESOP
compensation expense was $57,000 for the three months ended June 3, 1995.
The ESOP shares as of June 3, 1995 were as follows:
Allocated shares 125,000
Shares released for allocation 46,000
Unreleased shares 181,000
Total ESOP shares 352,000
Fair value of unreleased
shares as of June 3, 1995 $928,000
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FINANCIAL CONDITION
The most significant changes in the Company's balance sheet from
September 3, 1994, the end of the preceding fiscal year, to June 3,
1995 are as follows:
Cash and cash equivalents increased $1,932,000 to $12,488,000 at
June 3, 1995 from $10,556,000 at September 3, 1994.
The Company had working capital of $24,787,000 at June 3, 1995
and net cash provided by operating activities of $4,142,000 for
the nine months ended June 3, 1995.
Accounts receivable decreased $11,000 to $517,000 from $528,000.
The decrease is primarily attributable to decreased credit card
receivables which is caused by the timing of the required
accounting entries as they relate to two different points in
time; the end of the fiscal year and the end of the third
quarter.
Inventory increased $807,000 to $18,904,000 from $18,097,000.
The increase in inventory is necessary to support increased mail
order sales. The Company continues to closely monitor its
inventories and believes its inventory position is substantially
on plan relative to the anticipated sales
Prepaid expenses increased $296,000. The increase is mainly
attributed to the timing differences of catalog mailings.
The accounts payable decrease of $2,491,000 is mainly
attributable to the offsetting factors of increased customer
deposits ($624,000), increased payroll taxes payable ($134,000),
and decreased trade payables ($3,413,000). These fluctuations
are caused by the timing of the required accounting entries as
they relate to two different points in time; the end of the
fiscal year, and the end of the third quarter; as well as the
difference caused by the timing of the required accruals and the
corresponding payments.
Accrued payroll decreased $276,000. This decrease is
attributable to the difference in the length of time between the
end of the pay period (accrual of estimated payroll) and the
payment of that payroll as it relates to two different points in
time; the end of the fiscal year and the end of the third
quarter.
The fluctuation in accrued insurance and other accrued expenses
is caused by the timing of the required accruals and the
corresponding payments.
RESULTS OF OPERATIONS
The following table summarizes the Company's net sales and
operating profit (loss) by business segment for the three and nine
month periods ending June 3, 1995 and May 28, 1994:
<TABLE>
<CAPTION>
Net Sales
Three Months Nine Months
(In Thousands)
1995 1994 1995 1994
<S> <C> <C> <C> <C>
Retail Stores $16,129 $15,380 $ 59,344 $ 54,970
Mail Order 17,183 15,075 51,443 45,941
Total $33,312 $30,455 $110,787 $100,911
******************************************************************
Operating Profit/(Loss)
1995 1994 1995 1994
<S> <C> <C> <C> <C>
Retail Stores $(1,003) $ (965) $1,661 $1,224
Mail Order 1,637 1,453 4,338 3,488
Total $ 634 $ 488 $5,999 $4,712
</TABLE>
The results of the interim period are not necessarily indicative of
results for the entire year.
Net sales increased $2,857,000 (9.4%) for the three months and
increased $9,876,000 (9.8%) for the nine months ended June 3, 1995,
as compared with the prior year. The factors contributing to the
increase in each segment were as follows:
Retail store sales volume increased $749,000 (4.9%) for the three
months and increased $4,374,000 (8.0%) for the nine months ended
June 3, 1995, as compared with the similar periods last year.
Comparable store sales volume increased 5.1% and 7.4% for the
three and nine months ended June 3, 1995. No stores were opened
and two were closed during the quarter for a total of 200 stores
in 39 states.
The increase in retail store sales volume is due to the response
to our value pricing program which was implemented late in fiscal
1994. To further improve sales and operating profits we are
currently in the process of refining our merchandise mix.
Despite the increase in retail store sales, the operating profits
for the third quarter declined $38,000. This decrease in
operating profits was caused by an increase in selling, general,
and administrative expenses.
Mail Order sales volume increased $2,108,000 (14.0%) and $5,502,000
(12.0%) for the three and nine months ended June 3, 1995, as compared
with the similar periods last year. The gain is attributable to an
increase in the number of catalogs distributed as well as an increase in
catalog productivity.
Gross profit amounted to $13,828,000 (41.5% of sales) and
$47,220,000 (42.6% of sales) for the three and nine months ended
June 3, 1995. This compared with $12,817,000 (42.1% of sales) and
$43,878,000 (43.5% of sales) for the same periods in the prior
year. The decrease in gross profit percentage is mainly
attributable to increased markdowns in both retail and mail order
which was more than offset by increased sales. The increase in
gross profit dollars for both the three and nine months is
attributable to increased sales.
Selling, general, and administrative expenses increased $865,000
(7.0%) and $2,055,000 (5.2%) for the three and nine months ended
June 3, 1995. The increases are primarily attributable to
increased payroll, advertising, and catalog toll-free line costs.
The increases in paper and postage costs did not have a material
impact on the Company during the first nine months of fiscal 1995
due to expense reduction efforts and increased productivity per
catalog. The Company continues to monitor its paper and postage
costs and does not expect the increases to have a material adverse
effect on the balance of fiscal 1995.
The change for the nine months in other income (expense) from an
expense to an income was caused by increased interest income and a
$110,000 deductible on the Company's earthquake insurance being
recorded in the second quarter of last year. The increase of
$54,000 for the three months is primarily attributable to the final
disposition of earthquake related items at less than the insurance
settlement.
The Company's business is seasonal in nature with the Holiday
Season and Valentine's Day (which both fall within the second
quarter) historically accounting for the largest percentage of
sales volume. In the Company's three most recent fiscal years, the
second quarter accounted for approximately 30% of the Company's
annual sales.
Income taxes are provided on the basis of estimated federal and
state taxes for each year. The rate used for the nine months ended
June 3, 1995, and May 28, 1994 was 41.5%.
Net earnings increased $118,000 and $910,000 for the three and nine
months ended June 3, 1995 as compared with the similar periods of
the previous year. The increase can be attributed to the reasons
enumerated above.
PART II - OTHER INFORMATION
Items 1 - 5
Items 1 - 5 are omitted because they are not applicable.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
27. Financial Data Schedule
(b) No reports on Form 8-K were filed for this quarter.
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
FREDERICK'S OF HOLLYWOOD, INC.
(Registrant)
Date: July 10, 1995 By: George W. Townson
George W. Townson
Chairman of the Board, President
and Chief Executive Officer
Date: July 10, 1995 By: John B. Hatfield
John B. Hatfield
Executive Vice President,
Secretary, Treasurer,
Chief Financial, Accounting
and Administrative Officer
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-02-1995
<PERIOD-END> JUN-03-1995
<CASH> 12,488
<SECURITIES> 0
<RECEIVABLES> 517
<ALLOWANCES> 0
<INVENTORY> 18,904
<CURRENT-ASSETS> 36,846
<PP&E> 33,915
<DEPRECIATION> 16,226
<TOTAL-ASSETS> 54,573
<CURRENT-LIABILITIES> 12,059
<BONDS> 798
<COMMON> 8,858
0
0
<OTHER-SE> 29,117
<TOTAL-LIABILITY-AND-EQUITY> 54,573
<SALES> 110,787
<TOTAL-REVENUES> 110,787
<CGS> 63,567
<TOTAL-COSTS> 63,567
<OTHER-EXPENSES> 40,890
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 88
<INCOME-PRETAX> 6,242
<INCOME-TAX> 2,590
<INCOME-CONTINUING> 3,652
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,652
<EPS-PRIMARY> .42
<EPS-DILUTED> .42
</TABLE>
