13
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 March 2, 1996
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 March 21, 1996.
FREDERICK'S OF HOLLYWOOD, INC. AND SUBSIDIARIES
INDEX
Title Page
Index
PART I -- FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Consolidated condensed balance sheets-
March 2, 1996 and September 2, 1995
Consolidated condensed statements of
income - Three and six months ended
March 2, 1996 and March 4, 1995
Consolidated condensed statements of
cash flows - Six months ended
March 2, 1996 and March 4, 1995
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)
ASSETS
March 2 1996 September 2, 1995
<S> <C> <C>
Current assets:
Cash and equivalents $ 13,178 $ 11,441
Accounts receivable 524 658
Income taxes receivable -- 213
Merchandise inventories 17,624 19,862
Deferred income taxes 765 765
Prepaid expenses 2,198 2,615
Total current assets 34,289 35,554
Property and equipment, net 17,585 18,225
Deferred catalog costs 2,140 2,107
Other assets 39 39
$ 54,053 $ 55,925
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 8,812 $ 11,617
Dividends payable 221 221
Current portion:
Capital lease obligations 206 200
ESOP loan guarantee 240 240
Accrued payroll 470 526
Accrued insurance 812 1,018
Income taxes payable 413 --
Other accrued expenses 251 469
Total current liabilities 11,425 14,291
Capital lease obligations 780 884
ESOP loan guarantee 480 480
Deferred rent 747 669
Deferred income taxes 3,002 3,002
Stockholders' equity:
Capital stock $1 par value 8,858 8,858
Additional paid-in capital 727 738
Reduction for ESOP loan guarantee (579) (701)
Treasury stock (6) (5)
Retained earnings 28,619 27,709
Total stockholders' equity 37,619 36,599
$ 54,053 $ 55,925
</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)
Three Months Ended Six Months
Ended
March 2, March 4, March 2, March 4,
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Net sales $44,565 41,427 81,207 77,475
Cost of goods sold,
buying and occupancy costs 25,861 23,574 46,933 44,083
Gross profit 18,704 17,853 34,274 33,392
Selling, general and
administrative expenses 16,654 14,217 32,096 28,027
Operating profit 2,050 3,636 2,178 5,365
Other income and
(expense), net 75 98 130 126
Earnings before income taxes 2,125 3,734 2,308 5,491
Income taxes 882 1,550 958 2,279
Net earnings $ 1,243 2,184 1,350 3,212
Earnings per share
Primary -
Class A & Class B $ .14 .25 .15 .37
Fully diluted -
Class A & Class B .14 .25 .15 .37
Weighted average shares
outstanding
Primary - Class A & Class B 8,715 8,631 8,717 8,631
Fully diluted -
Class A & Class B 8,715 8,637 8,717 8,637
Cash dividend per share -
Class A & Class B $ .025 -- .05 .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)
Six Months Ended
March 2, 1996 March 4, 1995
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net earnings $ 1,350 $ 3,212
Adjustments to reconcile net income to
net cash provided by operating activities:
Provision of store closings -- (1,728)
Depreciation and amortization 2,063 2,058
ESOP compensation 120 97
Loss on sale of fixed assets 1 629
Changes in assets and liabilities
Accounts receivable 134 6
Income tax receivable 213 881
Merchandise inventories 2,238 996
Prepaid expenses 417 216
Deferred catalog costs (33) (855)
Other assets -- (1)
Accounts payable and accrued expenses (3,285) (2,040)
Deferred rent 78 100
Deferred income taxes -- 677
Income tax payable 413 498
NET CASH PROVIDED BY OPERATING ACTIVITIES 3,709 4,746
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of fixed assets 5 10
Capital expenditures (1,429) (1,389)
NET CASH USED FOR INVESTING ACTIVITIES (1,424) (1,379)
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of capital lease obligations (98) (273)
Payment of dividends (435) (216)
Payment of dividends on unearned ESOP shares (8) (6)
Purchase of treasury stock (7) --
Stock split -- (1)
NET CASH USED FOR FINANCING ACTIVITIES (548) (496)
Net increase in cash and cash equivalents 1,737 2,871
Cash and cash equivalents at beginning
of year 11,441 10,556
CASH AND CASH EQUIVALENTS AT END
OF PERIOD $ 13,178 $ 13,427
Supplemental disclosures to consolidated
statements of cash flows:
Interest paid $ 35 $ 31
Income taxes paid $ 339 $ 672
Non-cash investing and financing transactions:
Dividends declared $ 221 $ --
</TABLE>
See accompanying notes to the consolidated financial statements.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
TWENTY-SIX WEEKS ENDED
March 2, 1996 and March 4, 1995
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 March
2, 1996 and March 4, 1995, and the results of operations and
cash flows for the six months ended March 2, 1996 and March 4,
1995.
These financial statements should be read in conjunction with
the Company's 1995 annual report on Form 10-K405.
NOTE 2. 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 4).
<TABLE>
Three Months Ended Six Months Ended
(In thousands except per share data) March 2, March 4, March 2, March 4,
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Net earnings $1,243 2,184 1,350 3,212
Earnings per common
and equivalent share
Primary .14 .25 .15 .37
Fully diluted .14 .25 .15 .37
Weighted average
Primary 8,858 8,858 8,858 8,858
Fully diluted 8,858 8,858 8,858 8,858
Dilutive effect of
stock options
Primary -- -- 2 --
Fully diluted -- 6 2 6
Unallocated ESOP shares (136) (227) (136) (227)
Treasury stock (7) -- (7) --
Weighted average used to
calculate earnings per share
Primary 8,715 8,631 8,717 8,631
Fully diluted 8,715 8,637 8,717 8,637
</TABLE>
NOTE 3. 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.
The consolidated statement of income includes sales and
operating losses for ten stores designated in the provision
for store closing that were actually closed. A summary for
the three and six months is as follows:
<TABLE>
Three Months Ended Six Months Ended
March 2, 1996 March 4, 1995 March 2, 1996 March 4, 1995
<S> <C> <C> <C>
Net sales -- 354,000 -- 718,000
Operating loss -- 28,000 -- 112,000
</TABLE>
NOTE 4. 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
compensation expense. ESOP compensation expense was $67,000
and $120,000 respectively for the three and six months ended
March 2, 1996. The ESOP shares as of March 2, 1996 were as
follows:
Allocated shares 206,000
Shares released for allocation 15,000
Unreleased shares 136,000
Total ESOP shares 357,000
Fair value of unreleased
shares as of March 2, 1996 $544,000
NOTE 5. INCOME TAXES
The tax effects of temporary differences that give rise to
significant portions of the deferred tax assets and deferred
tax liabilities at September 2, 1995 are presented below
(000's Omitted):
Deferred tax assets:
Inventories, principally due to
additional cost inventories
for tax purposes pursuant to
the Tax Reform Act of 1986 $ 705
Accrued expense 60
Total deferred tax assets 765
Deferred tax liabilities:
Property and equipment, principally due to
differences in depreciation (3,002)
Net deferred tax liability $(2,237)
The Company has not provided for a valuation allowance against
its deferred tax assets as realization of such assets is
considered to be more likely than not.
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 2, 1995, the end of the preceding fiscal year,
to March 2, 1996 are as follows:
Cash and cash equivalents increased $1,737,000. The
Company had working capital of $22,864,000 at March 2, 1996
and net cash provided by operating activities of $3,709,000
for the six months ended March 2, 1996.
Accounts receivable decreased $134,000. The decrease is
primarily due to decreased credit card receivables.
The decrease in income taxes receivable from $213,000 at
September 2, 1995 to zero at March 2, 1996 is due to the
receivable being applied to the Company's current year's
taxes due.
Inventory decreased $2,238,000. Inventory levels generally
decrease after the holiday and Valentine's Day selling
periods. The Company continues to closely monitor its
inventories and believes its inventory position is
substantially on plan relative to the anticipated sales.
Prepaid expenses decreased $417,000. The decrease is mainly
attributed to the timing differences of invoice payments.
Deferred catalog costs increased $33,000. The increase is
attributable to the timing differences of catalog mailings.
The accounts payable decrease of $2,805,000 is mainly
attributable to the offsetting factors of increased customer
deposits ($693,000), increased payroll and sales taxes
payable ($446,000), and decreased accounts payables
($4,204,000). 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 second quarter; as well as the difference
caused by the timing of the required accruals and the
corresponding payments.
Accrued payroll decreased $56,000. This fluctuation
(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 second quarter.
The decrease in accrued insurance and other accrued expenses
was $424,000. The difference 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
six month periods ending March 2, 1996 and March 4, 1995:
<TABLE>
Net Sales
Three Months Six Months
<S> <C> <C> <C> <C>
(In Thousands)
1996 1995 1996 1995
Retail Stores $24,771 $24,492 $43,085 $43,215
Mail Order 19,794 16,935 38,122 34,260
Total $44,565 $41,427 $81,207 $77,475
******************************************************************
Operating Profit (loss)
1996 1995 1996 1995
Retail Stores $2,395 $2,972 $1,415 $2,664
Mail Order (345) 664 763 2,701
Total $2,050 $3,636 $2,178 $5,365
</TABLE>
The results of the interim period are not necessarily
indicative of results for the entire year.
Net sales increased $3,138,000 (7.6%) for the three months and
$3,732,000 (4.8%) for the six months ended March 2, 1996 as compared
with the prior year. The factors contributing to the increase in each
segment were as follows:
Retail store sales volume increased $279,000 (1.1%) for the
three months and decreased $130,000 (0.3%) for the six
months ended March 2, 1996 as compared with the similar
periods last year. Comparable store sales volume increased
0.4% for the three months and decreased 0.8% for the six
months ended March 2, 1996. One store was opened and one
was closed during the quarter for a total of 204 stores in
39 states.
The minimal increase in sales for the three months as well as
the decrease for the six months is attributed to the softness
in the specialty store environment during the holiday season.
Despite the disappointing holiday selling season; January and
February, which includes Valentine's Day, showed an
improvement over the previous year.
Mail Order sales volume increased $2,859,000 (16.9%) and
$3,862,000 (11.3%) for the three and six months ended March
2, 1996 as compared with the similar periods last year. The
gain is attributable to an increase in the number of
catalogs distributed.
Gross profit amounted to $18,704,000 (42.0% of sales) and
$34,274,000 (42.2% of sales) for the three and six months
ended March 2, 1996. This compared with $17,853,000 (43.1% of
sales) and $33,392,000 (43.1% of sales) for the same periods
in the prior year. The decrease in gross profit percentage is
mainly attributable to additional markdowns in retail stores
to liquidate slow selling merchandise and to stimulate sales.
The increase in gross profit dollars for both the three and
six months is attributable to increased sales.
Selling, general and administrative expenses increased
$2,437,000 (17.1%) and $4,069,000 (14.5%) for the three and
six months ended March 2, 1996. For both the three and six
month periods the increase in selling, general, and
administrative expense is attributable mainly to our mail
order subsidiary. The increase was due to costs associated
with the test mailing of a new swimwear catalog (which is
still being evaluated), increased paper, postage, along with
increased costs for our catalog toll-free telephone line, due
to the implementation of telephone operators having access to
inventory availability while speaking with the customer.
The decrease in other income (expense) for the three months
was caused by reduced interest income.
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 six
months ended March 2, 1996 and March 4, 1995 was 41.5%.
PART II - OTHER INFORMATION
Items 1 - 3
Items 1 - 3 are omitted because they are not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
The Company held its Annual Meeting of Stockholders on
February 1, 1996.
At the annual meeting the following Directors were elected for fiscal
1996:
Votes For Votes Withheld
George W. Townson 2,850,041 5,190
William J. Barrett 2,854,460 771
Morton R. Field 2,842,677 12,554
Richard O. Starbird 2,852,845 2,386
Hugh V. Hunter 2,853,812 1,419
Sylvan Lefcoe 2,852,643 2,588
Merle A. Johnston 2,852,208 3,023
At the Annual Meeting, the shareholders ratified the Company's
selection of KPMG Peat Marwick as the independent certified public
accountant for fiscal 1996 by an affirmative vote of 2,835,965 with
6,019 shares voting against and 13,247 shares abstaining.
Only shares of Class A Capital Stock are entitled to vote. Class B
Capital Stock does not have voting rights.
Item 5. Other Information
Not applicable.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits 27 - Financial Data Schedule (EDGAR filing only).
(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: April 12, 1996 By: /s/George W. Townson
George W. Townson
Chairman of the Board, President
and Chief Executive Officer
Date: April 12, 1996 By: /s/John B. Hatfield
John B. Hatfield
Executive Vice President,
Secretary, Treasurer,
Chief Financial, Accounting
and Administrative Officer
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> AUG-31-1996
<PERIOD-END> MAR-02-1996
<CASH> 13,178
<SECURITIES> 0
<RECEIVABLES> 524
<ALLOWANCES> 0
<INVENTORY> 17,624
<CURRENT-ASSETS> 34,289
<PP&E> 36,000
<DEPRECIATION> 2,063
<TOTAL-ASSETS> 54,053
<CURRENT-LIABILITIES> 11,425
<BONDS> 1,260
0
0
<COMMON> 8,858
<OTHER-SE> 28,761
<TOTAL-LIABILITY-AND-EQUITY> 54,053
<SALES> 81,207
<TOTAL-REVENUES> 81,207
<CGS> 46,933
<TOTAL-COSTS> 46,933
<OTHER-EXPENSES> 31,912
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 54
<INCOME-PRETAX> 2,308
<INCOME-TAX> 958
<INCOME-CONTINUING> 1,350
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,350
<EPS-PRIMARY> .15
<EPS-DILUTED> .15
</TABLE>
