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 December 2, 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 December 27, 1995.
FREDERICK'S OF HOLLYWOOD, INC. AND SUBSIDIARIES
INDEX
Page No.
Title Page
Index
PART I -- FINANCIAL INFORMATION (Unaudited)
Consolidated condensed balance sheets-
December 2, 1995 and September 2, 1995
Consolidated condensed statements of income -
Three months ended December 2, 1995
and December 3, 1994
Consolidated condensed statements of cash
flows - Three months ended December 2, 1995 and
December 3, 1994
Notes to consolidated condensed financial
statements
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
December 2, September 2,
1995 1995
<S> <C> <C>
Current assets:
Cash and equivalents $ 13,284 $ 11,441
Accounts receivable 763 658
Income taxes receivable 163 213
Merchandise inventories 23,817 19,862
Deferred income taxes 765 765
Prepaid expenses 2,555 2,615
Total current assets 41,347 35,554
Property and equipment, net 17,834 18,225
Deferred catalog costs 2,293 2,107
Other assets 39 39
$ 61,513 $ 55,925
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 17,600 $ 11,617
Dividends payable 221 221
Current portion:
Capital lease obligations 203 200
ESOP loan guarantee 240 240
Accrued payroll 422 526
Accrued insurance 1,012 1,018
Other accrued expenses 259 469
Total current liabilities 19,957 14,291
Capital lease obligations 832 884
ESOP loan guarantee 480 480
Deferred rent 711 669
Deferred income taxes 3,002 3,002
Stockholders' equity:
Capital stock $1 par value 8,858 8,858
Additional paid-in capital 726 738
Reduction for ESOP loan guarantee (640) (701)
Treasury stock (6) (5)
Retained earnings 27,593 27,709
Total stockholders' equity 36,531 36,599
$ 61,513 $ 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
December 2, December 3,
1995 1994
<S> <C> <C>
Net sales $ 36,642 $ 36,048
Cost of goods sold,
buying and occupancy costs 21,072 20,509
Gross profit 15,570 15,539
Selling, general and
administrative expenses 15,442 13,810
Operating profit 128 1,729
Other income and (expense), net 55 28
Earnings before income taxes 183 1,757
Income taxes 76 729
Net earnings $ 107 $ 1,028
Earnings per share
Primary - Class A & Class B $ .01 $ .12
Fully diluted - Class A & Class B .01 .12
Weighted average shares outstanding
Primary - Class A and Class B 8,704 8,858
Fully diluted - Class A and Class B 8,704 8,858
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)
Three Months Ended
December 2, December 3,
1995 1994
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 107 $ 1,028
Adjustments to reconcile net income to
net cash provided by operating activities:
Provision for store closing -- (443)
Depreciation and amortization 1,035 1,024
ESOP Compensation 53 --
Loss on sale of fixed assets -- 11
Changes in assets and liabilities:
Accounts receivable (105) (255)
Income tax receivable 50 715
Merchandise inventories (3,955) (1,688)
Prepaid expenses 60 205
Deferred catalog costs (186) 220
Accounts payable and accrued expenses 5,663 1,835
Deferred rent 42 52
NET CASH PROVIDED BY OPERATING ACTIVITIES 2,764 2,724
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of fixed assets -- 8
Capital expenditures (644) (481)
NET CASH USED FOR INVESTING ACTIVITIES (644) (473)
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of capital lease obligations (49) (135)
Payment of dividends (217) (221)
Payment of dividends on unearned ESOP shares (4)
Purchase of treasury stock (7) --
Stock split -- (1)
NET CASH USED FOR FINANCING ACTIVITIES (277) (357)
Net increase in cash and cash equivalents 1,843 1,894
Cash and cash equivalents at beginning of year 11,441 10,556
CASH AND CASH EQUIVALENTS AT END OF YEAR 13,284 12,450
Supplemental disclosure to consolidated
statements of cash flows:
Cash flow information:
Interest paid 16 17
Income taxes paid 33 13
Non-cash investing and financing transactions:
Dividends declared 221 --
</TABLE>
See accompanying notes to the consolidated financial statements.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
THIRTEEN WEEKS ENDED
December 2, 1995 and December 3, 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 December
2, 1995 and September 2, 1995, and the results of operations and
cash flows for the three months ended December 2, 1995 and December
3, 1994.
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).
First Quarter First Quarter
1996 1995
(In thousands
except per share data)
Net Earnings $ 107 1,028
Earnings per common
and equivalent share
Primary $ .01 .12
Fully Diluted .01 .12
Common and common
equivalent shares
(weighted average)
Primary 8,704 8,858
Fully Diluted 8,704 8,858
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 months is as
follows:
Three Months Ended
December 2, December 3,
1995 1994
Net sales $ -0- 364,000
Operating loss -0- 84,000
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 $53,000 for the three months ended
December 2, 1995. The ESOP shares as of December 2, 1995 were as
follows:
Allocated shares 191,000
Shares released for allocation 15,000
Unreleased shares 151,000
Total ESOP shares 357,000
Fair value of unreleased
shares as of December 2, 1995 $735,000
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 December
2, 1995 are as follows:
Cash and cash equivalents increased $1,843,000. The Company
had working capital of $21,390,000 and net cash provided by
operating activities of $2,764,000 for the three months ended
December 2, 1995.
Accounts receivable increased $105,000. The increase is
primarily attributable to increased credit card receivables.
The decrease in income taxes receivable from $213,000 at
September 2, 1995 to $163,000 at December 2, 1995 is due to the
receivable being applied to the Company's current year's taxes due.
Inventory increased $3,955,000 from $19,862,000 to
$23,817,000. Inventory levels generally peak at the end of the
first quarter in preparation for the increased sales volume during
the holiday season. 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 $60,000. The decrease is mainly
attributed to the timing differences of invoice payments.
Deferred catalog costs increased $186,000. The decrease is
attributed to the timing differences of catalog mailings.
Accounts payable rose $5,938,000. The major factor causing
the increase was the purchase of inventory for the holiday selling
season.
Accrued payroll decreased $104,000. 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 first
quarter.
The decrease in accrued insurance and other accrued expenses
was $216,000. 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 month
period ending December 2, 1995 and December 3, 1994:
Net Sales Operating Profit (Loss)
1996 1995 1996 1995
(In Thousands)
Retail Stores $18,314 18,723 (980) (308)
Mail Order 18,328 17,325 1,108 2,037
Total $36,642 36,048 128 1,729
The results of the interim period are not necessarily indicative of
results for the entire year.
Net sales rose $594,000 (1.6%) for the three months ended December
2, 1995 as compared with the prior year. The factors contributing
to the increase in each segment were as follows:
Retail store sales volume decreased $409,000 (2.2%) for the three
months ended December 2, 1995 as compared with the similar period
last year. Comparable store sales volume decreased 2.5% for the
three months ended December 2, 1995. There were no stores opened
or closed during the quarter for a total of 204 stores in 39
states.
The decrease in retail store sales is attributed to the continued
softness in the specialty store environment.
Mail Order sales volume increased $1,003,000 (5.8%) for the three
months ended December 2, 1995 as compared with the similar period
last year. The gain is attributable to an increase in the number
of catalogs distributed.
Gross profit amounted to $15,570,000 (42.5% of sales) for the three
months ended December 2, 1995. This compares with $15,539,000
(43.1% of sales) for the same period in the prior year. The
increase in gross profit is mainly attributable to the increased
sales volume.
Selling, general and administrative expenses increased $1,632,000
(11.8%) to $15,442,000 (42.1% of sales) from $13,810,000 (38.3% of
sales) for the three months ended December 2, 1995 as compared to
the similar period last year. The increase is primarily
attributable to increased advertising and increased catalog costs
related to price increases in paper and postage.
The increased operating loss of $672,000 for Frederick's of
Hollywood retail stores is attributable to reduced sales and
increased advertising and promotional expenses. The decline in
mail order operating profit was primarily due to postage increases
and significantly higher paper costs. The Company has implemented
several methods in order to mitigate the impact of the increased
paper and postage costs.
The increase in other income of $27,000 reflects increased 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 first quarter of
1996 and 1995 was 41.5%.
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) Not applicable.
(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: January 9, 1996 By:/s/ George W. Townson
George W. Townson
Chairman of the Board, President
and Chief Executive Officer
Date: January 9, 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> 3-MOS
<FISCAL-YEAR-END> AUG-31-1996
<PERIOD-END> DEC-02-1995
<CASH> 13,284
<SECURITIES> 0
<RECEIVABLES> 926
<ALLOWANCES> 0
<INVENTORY> 23,817
<CURRENT-ASSETS> 41,347
<PP&E> 35,352
<DEPRECIATION> 1,035
<TOTAL-ASSETS> 61,513
<CURRENT-LIABILITIES> 19,957
<BONDS> 1,312
<COMMON> 8,858
0
0
<OTHER-SE> 27,673
<TOTAL-LIABILITY-AND-EQUITY> 61,513
<SALES> 36,642
<TOTAL-REVENUES> 36,642
<CGS> 21,072
<TOTAL-COSTS> 21,072
<OTHER-EXPENSES> 15,360
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 27
<INCOME-PRETAX> 183
<INCOME-TAX> 76
<INCOME-CONTINUING> 107
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 107
<EPS-PRIMARY> 0.01
<EPS-DILUTED> 0.01
</TABLE>
