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 1, 1997
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 20, 1997.
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 1, 1997 and August 31, 1996
Consolidated condensed statements of
income - Three and six months ended
March 1, 1997 and March 2, 1996
Consolidated condensed statements of
cash flows - Six months ended
March 1, 1997 and March 2, 1996
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
<S> <C> <C>
March 1, 1997 August 31, 1996
Current assets:
Cash and equivalents $ 13,452 $ 8,379
Short term investments 480 480
Accounts receivable 595 499
Income taxes receivable -- 945
Merchandise inventories 18,283 19,553
Deferred income taxes 843 843
Prepaid expenses 2,116 2,215
Total current assets 35,769 32,914
Property and equipment, net 18,394 18,033
Deferred catalog costs 1,339 1,723
Other assets 39 39
$ 55,541 $ 52,709
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 9,363 $ 10,298
Dividends payable 221 221
Current portion:
Capital lease obligations 218 212
ESOP loan guarantee 240 240
Accrued payroll 407 430
Accrued insurance 843 828
Income taxes payable 1,332 --
Other accrued expenses 204 238
Total current liabilities 12,828 12,467
Capital lease obligations 562 672
ESOP loan guarantee 240 240
Deferred rent 904 811
Deferred income taxes 2,994 2,994
Stockholders' equity:
Capital stock $1 par value 8,858 8,858
Additional paid-in capital 746 732
Reduction for ESOP loan guarantee (340) (456)
Treasury stock (20) (6)
Retained earnings 28,769 26,397
Total stockholders' equity 38,013 35,525
$ 55,541 $ 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 Six Months Ended
<S> <C> <C> <C> <C>
March 1, March 2, March 1, March 2,
1997 1996 1997 1997
Net sales $46,358 44,565 82,362 81,207
Cost of goods sold,
buying and occupancy costs 26,157 25,861 47,202 46,933
Gross profit 20,201 18,704 35,160 34,274
Selling, general and
administrative expenses 15,578 16,654 30,271 32,096
Operating profit 4,623 2,050 4,889 2,178
Other income and
(expense), net 10 75 6 130
Earnings before income taxes 4,633 2,125 4,895 2,308
Income taxes 1,923 882 2,032 958
Net earnings $ 2,710 1,243 2,863 1,350
Earnings per share
Primary -
Class A & Class B $ .31 .14 .33 .15
Fully diluted -
Class A & Class B .31 .14 .33 .15
Weighted average shares
outstanding
Primary - Class A & Class B $ 8,760 8,715 8,759 8,717
Fully diluted -
Class A & Class B 8,764 8,715 8,762 8,717
Cash dividend per share -
Class A & Class B $ .025 .025 .05 .05
</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
<S> <C> <C>
March 1, March 2,
1997 1996
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 2,863 $ 1,350
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 2,138 2,063
ESOP compensation 136 120
Loss on sale of fixed assets 61 1
Changes in assets and liabilities
Accounts receivable (96) 134
Income tax receivable 945 213
Merchandise inventories 1,270 2,238
Prepaid expenses 99 417
Deferred catalog costs 384 (33)
Other assets -- --
Accounts payable and accrued expenses (977) (3,285)
Deferred rent 93 78
Deferred income taxes -- --
Income tax payable 1,332 413
NET CASH PROVIDED BY OPERATING ACTIVITIES 8,248 3,709
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of fixed assets -- 5
Capital expenditures (2,560) (1,429)
NET CASH USED FOR INVESTING ACTIVITIES (2,560) (1,424)
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of capital lease obligations (104) (98)
Payment of dividends (436) (435)
Payment of dividends on unearned ESOP shares (7) (8)
Purchase of treasury stock (68) (7)
NET CASH USED FOR FINANCING ACTIVITIES (615) (548)
Net increase in cash and cash equivalents 5,073 1,737
Cash and cash equivalents at beginning
of year 8,379 11,441
CASH AND CASH EQUIVALENTS AT END
OF PERIOD $ 13,452 $ 13,178
Supplemental disclosures to consolidated
statements of cash flows:
Interest paid $ 24 $ 35
Income taxes paid $ 160 $ 339
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
TWENTY-SIX WEEKS ENDED
March 1, 1997 and March 2, 1996
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
1, 1997 and March 2, 1996, and the results of operations and
cash flows for the six months ended March 1, 1997 and March 2,
1996.
These financial statements should be read in conjunction with
the Company's 1996 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
<S> <C> <C> <C> <C>
(In thousands except per share data) March 1, March 2, March 1, March 2,
1997 1996 1997 1996
Net earnings $2,710 1,243 2,863 1,350
Earnings per common
and equivalent share
Primary .31 .14 .32 .15
Fully diluted .31 .14 .32 .15
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 1 -- -- 2
Fully diluted 5 -- 3 2
Unallocated ESOP shares (79) (136) (79) (136)
Treasury stock (20) (7) (20) (7)
Weighted average used to
calculate earnings per share
Primary 8,760 8,715 8,759 8,717
Fully diluted 8,764 8,715 8,762 8,717
</TABLE>
NOTE 3. 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 $64,000
and $136,000 respectively for the three and six months ended
March 1, 1997. The ESOP shares as of March 1, 1997 were as
follows:
Allocated shares 239,731
Shares released for allocation 13,798
Unreleased shares 79,569
Total ESOP shares 333,098
Fair value of unreleased
shares as of February 28, 1997 $318,276
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
March 1, 1997 are as follows:
* Accounts receivable increased $96,000. The increase is
primarily due to increased list rental receivables.
* The decrease in income taxes receivable from $945,000 at
August 31, 1996 to zero at March 1, 1997 is caused by the
receivable being applied to the Company's current year's
taxes due.
* Inventory decreased $1,270,000. 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 $99,000. The decrease is mainly
attributed to the timing differences of invoice payments.
* Deferred catalog costs decreased $384,000. The decrease is
attributable to the timing differences of catalog mailings.
* The accounts payable decrease of $935,000 is mainly
attributable to the offsetting factors of increased customer
deposits ($750,000), increased payroll and sales taxes
payable ($443,000), and decreased accounts payables
($2,444,000). 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 $23,000. 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 $19,000. The difference is caused by the timing of the
required accruals and the corresponding payments.
LIQUIDITY AND CAPITAL RESOURCES
* Cash and cash equivalents increased $5,073,000. The Company
had working capital of $22,941,000 at March 1, 1997 and net
cash provided by operating activities of $8,248,000 for the
six months ended March 1, 1997.
Design modifications and a general reduction in the size of
our large format stores have been made on stores to be
remodeled during the remaining fiscal year in order to
increase their sales per square foot. We have reduced the
number of new and remodeled stores planned for fiscal 1997,
which has resulted in a capital expenditure reduction of
$5,000,000 from our original $10,000,000 plan.
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 its 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 and
six month periods ending March 1, 1997 and March 2, 1996:
<TABLE>
Net Sales
<S> <C> <C> <C> <C>
Three Months Six Months
(In Thousands)
1997 1996 1997 1996
Retail Stores $28,156 $24,771 $46,820 $43,085
Mail Order 18,202 19,794 35,542 38,122
Total $46,358 $44,565 $82,362 $81,207
******************************************************************
Operating Profit (loss)
1997 1996 1997 1996
Retail Stores $4,340 $2,395 $3,129 $1,415
Mail Order 283 (345) 1,760 763
Total $4,623 $2,050 $4,889 $2,178
</TABLE>
The results of the interim period are not necessarily
indicative of results for the entire year.
Net sales increased $1,793,000 (4.0%) for the three months and
$1,155,000 (1.4%) for the six months ended March 1, 1997 as compared
with the prior year. The factors contributing to the increase in each
segment were as follows:
* Retail store sales volume increased $3,385,000 (13.7%) for
the three months and $3,735,000 (8.7%) for the six months
ended March 1, 1997 as compared with the similar periods
last year. Comparable store sales volume increased 10.6%
for the three months and 6.1% for the six months ended March
1, 1997. One store was opened and four were closed during
the quarter for a total of 204 stores in 39 states.
The increase in retail sales is primarily attributable to
the Valentine's Day selling period. This improvement is
attributable to planned increased inventory levels, as well
as an improved selection of merchandise during the quarter.
The stores continue to show positive comparable store
increases, although not at the same level as in the second
quarter.
* Mail Order sales volume decreased $1,592,000 (8.0%) and
$2,580,000 (6.8%) for the three and six months ended March
1, 1997 as compared with the similar periods last year. For
the three months the decrease is attributable to 1) a
general softness in response to our December sale catalogs
caused by a 10% reduction in the number of catalog
offerings, and 2) the elimination of a swimwear catalog
which was tested during this period last year.
Contributing to the overall decrease for the six-month
period was the 9.5% page count reduction in our Fall and
Christmas catalogs.
We are encouraged by the response to our Spring Catalog
based on the increased merchandise offering.
Gross profit amounted to $20,201,000 (43.6% of sales) and
$35,160,000 (42.7% of sales) for the three and six months
ended March 1, 1997. This compared with $18,704,000 (42.0% of
sales) and $34,274,000 (42.2% of sales) for the same periods
in the prior year. The increase in gross profit percentage is
mainly attributable to reduced markdowns in retail stores.
The increase in gross profit dollars for both the three and
six months is attributable to increased sales.
Selling, general and administrative expenses decreased
$1,076,000 (6.5%) and $1,825,000 (5.7%) for the three and six
months ended March 1, 1997. For both the three and six month
periods the decrease in selling, general, and administrative
expense is attributable mainly to our mail order subsidiary.
The decrease was due to the nonrecurrence of the costs
associated with the eliminated swimwear catalog plus reduced
catalog advertising.
The decrease in other income (expense) for the three months
was caused by reduced interest income and increased loss on
disposal of fixed assets.
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 1, 1997 and March 2, 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 - 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
January 30, 1997.
At the annual meeting the following Directors were elected for fiscal
1997:
Votes For Votes Withheld
George W. Townson 2,806,916 32,354
William J. Barrett 2,811,954 27,316
Morton R. Field 2,811,990 27,280
Richard O. Starbird 2,810,637 28,633
Hugh V. Hunter 2,811,064 28,206
Sylvan Lefcoe 2,810,357 28,913
Merle A. Johnston 2,811,870 27,400
At the Annual Meeting, the shareholders ratified the Company's
selection of KPMG Peat Marwick as the independent certified public
accountant for fiscal 1997 by an affirmative vote of 2,772,879 with
5,990 shares voting against and 60,400 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 9, 1997 By:/s/ George W. Townson
George W. Townson
Chairman of the Board, President
and Chief Executive Officer
Date: April 9, 1997 By:/s/ John B. Hatfield
John B. Hatfield
Executive Vice President,
Secretary, Treasurer,
Chief Financial, Accounting
and Administrative Officer
<TABLE> <S> <C>
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<INVENTORY> 18283
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0
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</TABLE>
