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 November 30, 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 December 27, 1996.
FREDERICK'S OF HOLLYWOOD, INC. AND SUBSIDIARIES
INDEX
Page No.
Title Page
Index
PART I -- FINANCIAL INFORMATION (Unaudited)
Consolidated condensed balance sheets-
November 30, 1996 and August 31, 1996
Consolidated condensed statements of income -
Three months ended November 30, 1996
and December 2, 1995
Consolidated condensed statements of cash
flows - Three months ended November 30, 1996 and
December 2, 1995
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
November 30, August 31,
1996 1996
<S> <C> <C>
Current assets:
Cash and equivalents $ 8,235 $ 8,379
Short term investments 480 480
Accounts receivable 663 499
Income taxes receivable 852 945
Merchandise inventories 22,675 19,553
Deferred income taxes 843 843
Prepaid expenses 2,079 2,215
Total current assets 35,827 32,914
Property and equipment, net 18,432 18,033
Deferred catalog costs 2,161 1,723
Other assets 39 39
$ 56,459 $ 52,709
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 14,234 $ 10,298
Dividends payable 221 221
Current portion:
Capital lease obligations 215 212
ESOP loan guarantee 240 240
Accrued payroll 264 430
Accrued insurance 824 828
Other accrued expenses 237 238
Total current liabilities 16,235 12,467
Capital lease obligations 617 672
ESOP loan guarantee 240 240
Deferred rent 845 811
Deferred income taxes 2,994 2,994
Stockholders' equity:
Capital stock $1 par value 8,858 8,858
Additional paid-in capital 743 732
Reduction for ESOP loan guarantee (398) (456)
Treasury stock (6) (6)
Retained earnings 26,331 26,397
Total stockholders' equity 35,528 35,525
$ 56,459 $ 52,709
</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
November 30, December 2,
1996 1995
<S> <C> <C>
Net sales $ 36,004 $ 36,642
Cost of goods sold,
buying and occupancy costs 21,045 21,072
Gross profit 14,959 15,570
Selling, general and
administrative expenses 14,693 15,442
Operating profit 266 128
Other income and (expense), net (4) 55
Earnings before income taxes 262 183
Income taxes 109 76
Net earnings $ 153 $ 107
Earnings per share
Primary - Class A & Class B $ .02 $ .01
Fully diluted - Class A & Class B .02 .01
Weighted average shares outstanding
Primary - Class A and Class B 8,760 8,704
Fully diluted - Class A and Class B 8,764 8,704
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
November 30, December 2,
1996 1995
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 153 $ 107
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 1,066 1,035
ESOP Compensation 71 53
Loss on sale of fixed assets 35 --
Changes in assets and liabilities:
Accounts receivable (164) (105)
Income tax receivable 93 50
Merchandise inventories (3,122) (3,955)
Prepaid expenses 136 60
Deferred catalog costs (438) (186)
Accounts payable and accrued expenses 3,765 5,663
Deferred rent 34 42
NET CASH PROVIDED BY OPERATING ACTIVITIES 1,629 2,764
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (1,500) (644)
NET CASH USED FOR INVESTING ACTIVITIES (1,500) (644)
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of capital lease obligations (52) (49)
Payment of dividends (217) (217)
Payment of dividends on unearned ESOP shares (4) (4)
Purchase of treasury stock -- (7)
NET CASH USED FOR FINANCING ACTIVITIES (273) (277)
Net increase/decrease in cash and cash
equivalents (144) 1,843
Cash and cash equivalents at beginning of year 8,379 11,441
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 8,235 $ 13,284
Supplemental disclosure to consolidated
statements of cash flows:
Cash flow information:
Interest paid $ 13 $ 16
Income taxes paid $ 16 $ 33
Non-cash investing and financing transactions:
Dividends declared $ 221 $ 221
</TABLE>
See accompanying notes to the consolidated financial statements.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
THIRTEEN WEEKS ENDED
November 30, 1996 and December 2, 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
November 30, 1996 and August 31, 1996, and the results of
operations and cash flows for the three months ended November
30, 1996 and December 2, 1995.
These financial statements should be read in conjunction with
the Company's 1996 annual report on Form 10-K.
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>
First Quarter First Quarter
1997 1996
(In thousands except per share data)
<S> <C> <C>
Net Earnings $ 153 $ 107
Earnings per common
and equivalent share
Primary $ .02 $ .01
Fully Diluted .02 .01
Common and common
equivalent shares
(weighted average)
Primary 8,760 8,704
Fully Diluted 8,764 8,704
</TABLE>
NOTE 3. EMPLOYEE STOCK OWNERSHIP PLAN
In accordance with Statement of Position 93-6 (Employers'
Accounting for Employee Stock Ownership Plans). The debt of
an 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 $71,000 for the three months ended November 30, 1996. The
ESOP shares as of November 30, 1996 were as follows:
Allocated shares 241,495
Shares released for allocation 13,798
Unreleased shares 93,369
Total ESOP shares 348,662
Fair value of unreleased
shares as of November 30, 1996 $514,000
NOTE 4. INCOME TAXES
The tax effects of temporary differences that give rise to
significant portions of the deferred tax assets and deferred
tax liabilities at August 31, 1996 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 $ 655
Accrued expense 138
Other 50
Total deferred tax assets 843
Deferred tax liabilities:
Property and equipment, principally due to
differences in depreciation (2,994)
Net deferred tax liability $(2,151)
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.
NOTE 5. RECENT ACCOUNTING PRONOUNCEMENT
During October 1995, the Financial Accounting Standards Board issued
SFAS No. 123, "Accounting for Stock-Based Compensation." The Company
adopted this Standard as of the beginning of fiscal 1997, electing the
disclosure method of accounting.
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 August 31, 1996, the end of the preceding fiscal year to
November 30, 1996 are as follows:
Cash and cash equivalents decreased $144,000. The
Company had working capital of $19,592,000 and net cash
provided by operating activities of $1,629,000 for the three
months ended November 30, 1996.
Accounts receivable increased $164,000. The increase is
primarily attributable to increased credit card and list
rental receivables.
The decrease in income taxes receivable from $945,000 at
August 31, 1996 to $852,000 at November 30, 1996 is due to the
receivable being applied to the Company's current year's taxes
due.
Inventory increased $3,122,000 from $19,553,000 to
$22,675,000. 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 $136,000. The decrease is
mainly attributed to the timing differences of invoice
payments.
Deferred catalog costs increased $438,000. The increase
is attributed to the timing differences of catalog mailings.
Accounts payable rose $3,936,000. The major factor
causing the increase was the purchase of inventory for the
holiday selling season.
Accrued payroll decreased $166,000. 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 is caused by the timing of the required accruals and
the corresponding payments.
LIQUIDITY AND CAPITAL RESOURCES
The Company had working capital of $19,592,000 and net cash provided
by operating activities of $1,629,000 for the three months ended
November 30, 1996.
Design modifications and a general reduction in the size of our large
format stores will be made on stores to be remodeled during the
remaining fiscal year in order to increase their sales per square
foot. We will be reducing the number of new and remodeled stores
planned for fiscal 1997. The Company has not at this writing
determined the extent of any reduction in its capital expenditures
plan for fiscal 1997.
Currently, the Company has certain tax returns under audit and
any assessment levied by the Internal Revenue Service would be
covered by current operations or it's cash on hand.
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 November 30, 1996 and December 2, 1995:
<TABLE>
Net Sales Operating Profit (Loss)
1997 1996 1997 1996
<S> <C> <C> <C> <C>
(In Thousands)
Retail Stores $18,664 18,314 (1,211) (980)
Mail Order 17,340 18,328 1,477 1,108
Total $36,004 $36,642 266 128
</TABLE>
The results of the interim period are not necessarily
indicative of results for the entire year.
Net sales decreased $638,000 (1.7%) for the three months ended
November 30, 1996 as compared with the prior year. The
factors contributing to the decrease in each segment were as
follows:
Retail store sales volume increased $350,000 (1.9%) for the
three months ended November 30, 1996 as compared with the
similar period last year. Comparable store sales volume
increased 0.8% for the three months ended November 30, 1996.
Comparable stores sales included nine stores converted into
a large-format store in the past year. Excluding these
large-format stores, comparable store sales increased 0.3%.
There were two stores opened and one closed during the
quarter for a total of 207 stores in 39 states.
Mail Order sales volume decreased $988,000 (5.4%) for the
three months ended November 30, 1996 as compared with the
similar period last year. The decrease is attributable to a
general softness in response to our Fall and Christmas
catalogs caused primarily by a 9.5% reduction in catalog
page count which reduced the number of merchandise
offerings.
Gross profit amounted to $14,959,000 (41.5% of sales) for the
three months ended November 30, 1996. This compares with
$15,570,000 (42.5% of sales) for the same period in the prior
year. The decrease in gross profit is mainly attributable to
the decreased sales volume and increased buying and occupancy
costs.
Selling, general and administrative expenses decreased
$749,000 (4.9%) to $14,693,000 (40.8% of sales) from
$15,442,000 (42.1% of sales) for the three months ended
November 30, 1996 as compared to the similar period last year.
The decrease is primarily attributable to decreased catalog
costs.
The increased operating loss of $231,000 for Frederick's of
Hollywood retail stores is primarily attributable to increased
rent expenses. The increase in mail order operating profit
was primarily due to lower catalog paper costs.
The decrease in other income of $59,000 reflects decreased
interest income ($41,000) and a loss on disposal of fixed
assets of $35,000.
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 1997 and 1996 was 41.5%.
STATEMENT REGARDING FORWARD LOOKING DISCLOSURE
The preceding Management's Discussion and Analysis contains
various forward looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended (the
"Securities Act"), and Section 21E of the Exchange Act, which
represent the Company's expectations or beliefs concerning
future events. The Company cautions that these statements are
further qualified by important factors that could cause actual
results to differ materially from those in the forward looking
statements, including, the sufficiency of the Company's
working capital and cash flows from operating activities. In
addition, these statements are further qualified by important
factors that could cause actual results to differ materially
from those in the forward looking statements, including,
without limitation, a decline in demand for the merchandise
offered by the Company, the ability of the Company to locate
and obtain acceptable store sites and lease terms or renew
existing leases, the ability of the company to gauge the
fashion tastes of its customers and ability to manage the
Company's expansion, the effect of economic conditions, the
effect of severe weather or natural disasters and the effect
of competitive pressures from other retailers.
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: January 7, 1997 By:/s/George W. Townson
George W. Townson
Chairman of the Board, President
and Chief Executive Officer
Date: January 7, 1997 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-30-1997
<PERIOD-END> NOV-30-1996
<CASH> 8,235
<SECURITIES> 480
<RECEIVABLES> 1,515
<ALLOWANCES> 0
<INVENTORY> 22,675
<CURRENT-ASSETS> 35,827
<PP&E> 38,186
<DEPRECIATION> 19,704
<TOTAL-ASSETS> 56,459
<CURRENT-LIABILITIES> 16,235
<BONDS> 857
0
0
<COMMON> 8,858
<OTHER-SE> 26,670
<TOTAL-LIABILITY-AND-EQUITY> 56,459
<SALES> 36,004
<TOTAL-REVENUES> 36,004
<CGS> 21,045
<TOTAL-COSTS> 21,045
<OTHER-EXPENSES> 14,676
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 21
<INCOME-PRETAX> 262
<INCOME-TAX> 109
<INCOME-CONTINUING> 153
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 153
<EPS-PRIMARY> .02
<EPS-DILUTED> .02
</TABLE>
