Securities and Exchange Commission
Washington, D.C. 20549
Form 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended November 1, 1997
Commission File Number 0-28410
LOEHMANN'S, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 22-2341356
- ------------------------------- ----------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2500 Halsey Street
Bronx, New York 10461
- ------------------------------- ----------------------
Registrant's telephone number, including area code (718) 409-2000
----------------------
Indicate by a 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 as 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
------- -------
Number of shares outstanding of Registrant's Common Stock and Class B Common
Stock, as of December 5, 1997; 8,973,918 and 48,430, respectively.
<PAGE>
Loehmann's, Inc.
CONTENTS
PART I--FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheets--November 1, 1997 and February 1, 1997 ........ 1
Consolidated Statements of Operations--Quarters and nine months ended
November 1, 1997 and November 2, 1996 .................................. 2
Consolidated Statements of Cash Flows--Quarters and nine months ended
November 1, 1997 and November 2, 1996 .................................. 3
Notes to Consolidated Financial Statements ................................ 4
Item 2. Management's Discussion and Analysis of Results of Operations
and Financial Condition ......................................... 6
PART II--OTHER INFORMATION
Item 5. Other Information ................................................. 9
Item 6. Exhibits and Reports on Form 8-K .................................. 10
Signatures ....................................................... 11
<PAGE>
Loehmann's, Inc.
Consolidated Balance Sheets (Unaudited)
<TABLE>
<CAPTION>
NOVEMBER 1, FEBRUARY 1,
1997 1997
--------- ---------
(IN THOUSANDS, EXCEPT
SHARE DATA)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 2,094 $ 2,292
Accounts receivable and other assets 6,685 4,400
Merchandise inventory 80,176 58,304
--------- ---------
Total current assets 88,955 64,996
Property, equipment and leaseholds, net 70,069 66,515
Deferred debt issuance costs and other assets, net 3,293 3,870
Purchase price in excess of net assets acquired, net 39,847 40,819
========= =========
Total assets $ 202,164 $ 176,200
========= =========
LIABILITIES AND COMMON STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 34,146 $ 19,634
Accrued expenses 16,993 20,484
Accrued interest 5,335 2,530
Current portion of long-term debt 70 70
--------- ---------
Total current liabilities 56,544 42,718
Long-term debt:
Revolving Line of Credit 22,331 10,188
11-7/8% senior notes payable 95,000 95,000
Revenue bonds and notes, less current portion 2,614 2,662
--------- ---------
Total long-term debt 119,945 107,850
Other noncurrent liabilities 389 389
Common stockholders' equity:
Common stock, $0.01 par value, 25,000,000 shares authorized;
8,965,461 and 8,756,739 shares issued and outstanding, respectively 89 87
Class B convertible common stock, 469,237 shares authorized;
48,430 and 142,277 shares issued, respectively 244 713
Additional paid-in capital 81,590 80,995
Accumulated deficit (56,637) (56,552)
--------- ---------
Total common stockholders' equity 25,286 25,243
========= =========
Total liabilities and common stockholders' equity $ 202,164 $ 176,200
========= =========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
1
<PAGE>
Loehmann's, Inc.
Consolidated Statements of Operations (Unaudited)
<TABLE>
<CAPTION>
QUARTER ENDED NINE MONTHS ENDED
NOVEMBER 1, NOVEMBER 2, NOVEMBER 1, NOVEMBER 2,
1997 1996 1997 1996
--------- --------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Net sales $ 126,495 $ 114,393 $ 334,382 $ 309,165
Cost of sales 86,030 77,044 233,190 209,982
--------- --------- --------- ---------
Gross profit 40,465 37,349 101,192 99,183
Selling, general and administrative expenses 30,053 25,528 83,314 70,215
Depreciation and amortization 2,946 2,845 8,478 8,891
--------- --------- --------- ---------
Operating Income 7,466 8,976 9,400 20,077
Interest expense, net 3,278 2,698 9,390 10,688
--------- --------- --------- ---------
Income before income taxes 4,188 6,278 10 9,389
Provision for income taxes 66 4 95 64
--------- --------- --------- ---------
Income (Loss) before extraordinary item 4,122 6,274 (85) 9,325
Extraordinary loss on early retirement of
debt -- -- 7,101 --
--------- --------- --------- ---------
Net Income (Loss) 4,122 6,274 (85) 2,224
Stock dividends on and normal and
accelerated accretion of preferred stock -- -- -- 5,668
--------- --------- --------- ---------
Net Income (Loss) applicable to common stock
$ 4,122 $ 6,274 $ (85) $ (3,444)
========= ========= ========= =========
Net Income (Loss) per share applicable to
common stock before extraordinary item $ 0.45 $ 0.66 $ (0.01) $ 0.44
========= ========= ========= =========
Net Income (Loss) per share applicable to
common stock $ 0.45 $ 0.66 $ (0.01) $ (0.42)
========= ========= ========= =========
Weighted average number of common shares
and common share equivalents outstanding 9,240 9,470 8,969 8,239
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
2
<PAGE>
Loehmann's, Inc.
Consolidated Statements of Cash Flows (Unaudited)
<TABLE>
<CAPTION>
QUARTER ENDED NINE MONTHS ENDED
NOVEMBER 1, NOVEMBER 2, NOVEMBER 1, NOVEMBER 2,
1997 1996 1997 1996
--------- --------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ 4,122 $ 6,274 $ (85) $ 2,224
Adjustments to reconcile net income (loss) to
net cash provided by (used in) operating
activities:
Depreciation and amortization 2,946 2,845 8,478 8,891
Accretion of 10-1/2% senior secured notes -- -- -- 510
Loss on early retirement of senior notes -- -- -- 7,101
Changes in current assets and liabilities:
Accounts receivable and other assets 751 (1,236) (2,285) (2,131)
Merchandise inventory (16,017) (22,124) (21,872) (24,963)
Accounts payable 10,660 23,476 14,512 20,514
Accrued expenses 2,072 2,782 (3,491) 2,716
Accrued interest 2,876 2,866 2,805 (1,316)
--------- --------- --------- ---------
Net changes in current assets and
liabilities 342 5,764 (10,331) (5,180)
Net change in other noncurrent assets and
liabilities 18 (200) 87 (3,608)
--------- --------- --------- ---------
Total adjustments, net 3,306 8,409 (1,766) 7,714
--------- --------- --------- ---------
Net cash provided by (used in) operating
activities 7,428 14,683 (1,851) 9,938
--------- --------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (3,829) (6,043) (10,570) (9,770)
--------- --------- --------- ---------
Net cash used in investing activities (3,829) (6,043) (10,570) (9,770)
--------- --------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
(Payments) borrowings under credit facility,
net (2,826) (2,791) 12,143 --
Purchase of senior notes -- -- -- (139,395)
Sale of 11-7/8% senior secured notes, net of
issuance costs -- -- -- 100,000
Redemption of Series A Preferred Stock -- -- -- (20,947)
Sale of common stock 69 113 128 55,534
Other financing activities, net (16) (16) (48) (42)
--------- --------- --------- ---------
Net cash (used in) provided by financing
activities (2,773) (2,694) 12,223 (4,850)
--------- --------- --------- ---------
Net increase (decrease) in cash and cash
equivalents 826 5,946 (198) (4,682)
Cash and cash equivalents at beginning of
period 1,268 1,884 2,292 12,512
--------- --------- --------- ---------
Cash and cash equivalents at end of period $ 2,094 $ 7,830 $ 2,094 $ 7,830
========= ========= ========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION
Cash interest paid during period $ 477 $ 53 $ 6,905 $ 12,943
========= ========= ========= =========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
3
<PAGE>
Loehmann's, Inc.
Notes to Consolidated Financial Statements (Unaudited)
November 1, 1997
1. BASIS OF PRESENTATION
The accompanying consolidated financial statements include the accounts of
Loehmann's, Inc. and its wholly-owned subsidiaries, collectively referred to
hereafter as the Company. All significant intercompany items have been
eliminated in consolidation.
The balance sheet at November 1, 1997 and the statements of operations and cash
flows for the quarters ended November 1, 1997 and November 2, 1996 include, in
the opinion of management, all adjustments (consisting of only normal recurring
adjustments) considered necessary for a fair presentation.
The accompanying financial statements have been prepared in accordance with
generally accepted accounting principles for interim financial information.
Certain information and footnote disclosures normally included in financial
statements required by generally accepted accounting principles have been
omitted. Operating results for the quarter ended November 1, 1997 are not
necessarily indicative of the results that may be expected for the fiscal year
ended January 31, 1998. It is intended that these unaudited consolidated
financial statements be read in conjunction with the financial statements and
notes for the fiscal year ended February 1, 1997 included in the Company's
Annual Report on Form 10-K for such year.
Net income per share amounts were determined by dividing net income (after
deducting dividends on and accretion of preferred stock) by the weighted average
number of common shares and common stock equivalents outstanding during the
period. Options to purchase common stock were not considered in the calculation
of net loss per share applicable to common stock as their effect was
antidilutive.
2. INCOME TAXES
The provision for income taxes primarily represents alternative minimum tax and
state and local taxes for states that do not allow net operating loss
carryforwards.
3. USE OF ESTIMATES
The preparation of the financial statements in conformity with generally
accepted accounting principles for interim financial information requires
management to make estimates and assumptions that affect the amounts reported in
the financial statements and accompanying notes. Actual amounts could differ.
4
<PAGE>
Loehmann's, Inc.
Notes to Consolidated Financial Statements (Unaudited) (continued)
November 1, 1997
4. EARNINGS PER SHARE
Effective December 31, 1997, the Company will adopt Statement of Financial
Accounting Standard No. 128, EARNINGS PER SHARE, ("FAS 128") which will simplify
the calculation and presentation of earnings per share data and require the
restatement of earnings per share data for all periods presented. Earlier
adoption is not permitted.
Upon adoption of FAS 128 at the end of 1997, reported primary earnings per share
of $0.45 and $0.66 for the quarters ended November 1, 1997 and November 2, 1996,
respectively, will be restated to reflect basic earnings per share of $0.46 and
$0.71 and diluted income per share of $0.45 and $0.66 per common share and
common share equivalent. For the nine months ended November 1, 1997 and November
2, 1996, reported primary loss per share of $0.01 and $0.42 will be restated to
reflect basic loss per share of $0.01 and $0.45, respectively, upon adoption of
FAS 128 at the end of 1997.
5. EQUITY AND DEBT OFFERING
On May 10, 1996, the Company sold 3,572,000 shares of Common Stock and $100.0
million principal amount of 11-7/8% Senior Notes due 2003 (the "Senior Notes").
The net proceeds received from such offerings were used (i) to redeem in full
$52.5 million face amount of the Company's 10-1/2% Senior Secured Notes due
1997, at a redemption price of 103.5% of the face amount of such notes, plus
accrued and unpaid interest, (ii) to redeem in full $77.6 million face amount of
the Company's 13-3/4% Senior Subordinated Notes due 1999 at a redemption price
of 101.0% of the face amount of such notes, plus accrued and unpaid interest and
(iii) to redeem all issued and outstanding shares of the Company's Series A
Preferred Stock at its liquidation price of $0.56 per share for a total of $20.9
million.
As a result of these transactions, the Company incurred approximately $4.7
million in extraordinary losses on the early extinguishment of debt, $2.0
million in losses from the write-off of related deferred financing costs
associated with such indebtedness and a $5.1 million charge to accumulated
deficit from the accelerated accretion of the Series A Preferred Stock to its
liquidation price of $0.56 per share.
5
<PAGE>
Loehmann's, Inc.
Management's Discussion and Analysis of Financial Condition
and Results of Operations
RESULT OF OPERATIONS--COMPARISON OF THE QUARTERS ENDED NOVEMBER 1, 1997 AND
NOVEMBER 2, 1996
Sales for the quarter ended November 1, 1997, were $126.5 million versus $114.4
million for the comparable period in the prior year, an increase of $12.1
million or 10.6%. Comparable store sales (stores that were in operation for both
periods) decreased by 4.2%. The increase in net sales was due to the sales
contribution from eight new stores opened during the preceding 52 weeks,
partially offset by the closure of six stores during the same period and the
decrease in comparable store results.
Gross profit for the quarter ended November 1, 1997, was $40.5 million as
compared to $37.3 million for the same period in the prior year, an increase of
$3.2 million or 8.6%. Gross margin decreased to 32.0% from 32.6% in the prior
year period. The decline in margin percent was primarily a result of an increase
in markdowns as a percentage of sales.
Selling, general and administrative expenses for the quarter ended November 1,
1997, were $30.1 million as compared to $25.5 million during the same period in
the prior year, an increase of $4.6 million, or 18.0%. As a percentage of net
sales, selling, general and administrative expenses were 23.8% versus 22.3%
during the same period in the prior year. The increase in selling, general and
administrative expenses of $4.6 million was due to additional payroll,
occupancy, advertising and other costs related to the eight new stores opened
since the third quarter of 1996, offset by expense reductions attributable to
the closing of six stores since the third quarter of 1996.
Depreciation and amortization expense for the quarter ended November 1, 1997,
was $2.9 million as compared to $2.8 million for the same period in the prior
year, an increase of approximately $0.1 million, or 3.6%. The increase was
primarily due to fixed asset additions related to new stores and expansions of
existing stores, offset by the effect of fixed asset retirements.
Net interest expense for the quarter ended November 1, 1997 was $3.3 million
versus $2.7 million for the same period in the prior year, an increase of
approximately $0.6 million or 22.2%. The increase was primarily due to increased
borrowings under the revolving line of credit.
6
<PAGE>
Loehmann's, Inc.
RESULT OF OPERATIONS--COMPARISON OF THE NINE MONTHS ENDED NOVEMBER 1, 1997 AND
NOVEMBER 2, 1996
Sales for the nine month period ended November 1, 1997 were $334.4 million
versus $309.2 million during the same period in the prior year, an increase of
$25.2 million, or 8.2%. Comparable store sales (stores that were in operation
for both periods) decreased by 7.2%. The increase in net sales was due to the
sales contribution from eight new stores opened during the preceding 52 weeks
and the incremental sales contribution from the six stores opened during the
first nine months of fiscal 1996. These increases were partially offset by the
closure of seven stores during the same period and the decrease in comparable
stores results.
Gross profit for the nine month period ended November 1, 1997 was $101.2
million, as compared to $99.2 million for the comparable period in the prior
year, an increase of $2.0 million, or 2.0%. Gross margin decreased to 30.3% from
32.1% in the prior year period. The decline in margin percent was a result of an
increase in markdowns as a percentage of sales.
Selling, general and administrative expenses for the nine month period ended
November 1, 1997 were $83.3 million as compared to $70.2 million during the
comparable period in the prior year, an increase of approximately $13.1 million,
or 18.7%. As a percentage of net sales, selling, general and administrative
expenses were 24.9% versus 22.7% during the same period in the prior year. The
increase in selling, general and administrative expenses of $13.1 million was
due to additional payroll, occupancy, advertising and other costs related to the
eight new stores opened during the preceding 52 weeks and the incremental
expenses from the six stores opened during the first nine months of fiscal 1996.
These increases were partially offset by expense reductions attributable to the
closing of seven stores since the third quarter of 1996.
Depreciation and amortization for the nine month period ended November 1, 1997,
was $8.5 million as compared to $8.9 million for the same period in the prior
year, a decrease of approximately $0.4 million, or 4.5%. This decrease was due
to a change in estimate of useful lives of certain leasehold improvements
related to lease extensions, and the reduction in amortization expense
associated with the refinancing of debt completed on May 20, 1996, partially
offset by additional depreciation on fixed asset additions related to new stores
and expansions of existing stores.
Net interest expense for the nine month period ended November 1, 1997 was $9.4
million versus $10.7 million for the comparable period in the prior year, a
decrease of $1.3 million, or 12.1%. The reduction in net interest expense
primarily resulted from the Company's reduction of approximately $35.0 million
of senior notes and a reduction of the average interest rate paid on the long
term debt by approximately 60 basis points, partially offset by interest expense
incurred on increased borrowings under the revolving line of credit. In May
1996, the Company redeemed its 10-1/2% Senior Secured Notes and 13-3/4% Senior
Subordinated
7
<PAGE>
Loehmann's, Inc.
Notes totaling $130.0 million face value and issued $100.0 million face value of
11-7/8% Senior Notes, of which, $5.0 million was repurchased during fiscal 1996.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided as a result of operating activities totaled $7.4 million
during the quarter ended November 1, 1997 of which, cash of $7.1 million was
provided by operations after adding back non-cash charges and net working
capital changes generated $0.3 million. The Company used this cash to decrease
its borrowings under its credit facility by $2.8 million and fund capital
expenditures of $3.8 million.
Net cash used as a result of operating activities totaled $1.9 million during
the nine months ended November 1, 1997, of which, cash of $8.4 million was
provided from operations after adding back non-cash charges and net working
capital changes used $10.3 million. The Company increased its borrowings under
its credit facility by approximately $12.1 million while funding capital
expenditures of $10.6 million.
On August 15, 1997, the Company increased the amount of available borrowings
under its credit facility from $35.0 million to $45.0 million. The increase is
effective for peak borrowing periods from August 15, 1997 through December 31,
1997 and from March 1, 1998 through May 31, 1998.
The Company believes that cash generated from operations and funds available
under its revolving credit agreement will be sufficient to satisfy its cash
requirements through fiscal 1997 and 1998.
8
<PAGE>
Loehmann's, Inc.
PART II--OTHER INFORMATION
ITEM 5. OTHER INFORMATION
Certain statements in this quarterly report on Form 10-Q under the caption
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and elsewhere in this quarterly report and in future filings by the
Company with the Securities and Exchange Commission, constitute "forward looking
statements" within the meaning of the Reform Act. Such forward looking
statements involve known and unknown risks, uncertainties, and other factors
which may cause the actual results, performance or achievements of the Company
to be materially different from any future results, performance or achievements
expressed or implied by such forward looking statements. Such factors include,
among others, the following: general economic and business conditions;
competition; success of operating initiatives; development and operating costs;
advertising and promotional efforts; brand awareness; the existence or adherence
to development schedules; the existence or absence of adverse publicity;
availability, locations and terms of sites for store development; changes in
business strategy or development plans; quality of management; availability,
terms and deployment of capital; business abilities and judgment of personnel;
availability of qualified personnel; labor and employee benefit costs; changes
in, or the failure to comply with, government regulations; construction costs
and other factors referenced in this quarterly report.
9
<PAGE>
Loehmann's, Inc.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27. Financial Data Schedule (for SEC use only)
(b) No reports on Form 8-K were filed during the quarter ended
November 1, 1997.
10
<PAGE>
Loehmann's, Inc.
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Dated: December 15, 1997
Loehmann's, Inc.
By /S/ Philip Kaplan
---------------------------------------------------
Philip Kaplan
President, Chief Operating Officer and Director
By /S/ Robert Glass
---------------------------------------------------
Robert Glass
Senior Vice President, Chief Financial Officer, and
Assistant Secretary
11
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM SEC FORM
10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JAN-31-1998
<PERIOD-START> AUG-03-1997
<PERIOD-END> NOV-01-1997
<CASH> 2,094
<SECURITIES> 0
<RECEIVABLES> 6,685
<ALLOWANCES> 0
<INVENTORY> 80,176
<CURRENT-ASSETS> 88,955
<PP&E> 142,390
<DEPRECIATION> (72,321)
<TOTAL-ASSETS> 202,164
<CURRENT-LIABILITIES> 56,544
<BONDS> 95,000
0
0
<COMMON> 89
<OTHER-SE> 25,197
<TOTAL-LIABILITY-AND-EQUITY> 202,164
<SALES> 126,495
<TOTAL-REVENUES> 126,495
<CGS> 86,030
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 30,053
<INTEREST-EXPENSE> 3,278
<INCOME-PRETAX> 4,188
<INCOME-TAX> 4,188
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<NET-INCOME> 4,122
<EPS-PRIMARY> 0.45
<EPS-DILUTED> 0.45
</TABLE>
