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 August 1, 1998
Commission File Number 0-28410
LOEHMANN'S, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 22-2341356
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2500 Halsey Street
Bronx, New York 10461
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
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 September 10, 1998; 9,029,370 and 48,431, respectively.
<PAGE>
Loehmann's, Inc.
CONTENTS
PART I--FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Balance Sheets--August 1, 1998 and January 31, 1998......................... 1
Statements of Operations--Quarters and six months ended
August 1, 1998 and August 2, 1997......................................... 2
Statements of Cash Flows--Quarters and six months ended
August 1, 1998 and August 2, 1997......................................... 3
Notes to Financial Statements............................................... 4
Item 2. Management's Discussion and Analysis of Results of Operations
and Financial Condition........................................... 6
PART II--OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders................. 10
Item 5. Other Information................................................... 11
Item 6. Exhibits and Reports on Form 8-K.................................... 12
Signatures.................................................................. 13
<PAGE>
Loehmann's, Inc.
Balance Sheets
<TABLE>
<CAPTION>
AUGUST 1, JANUARY 31,
1998 1998
-------------------------------
UNAUDITED
(IN THOUSANDS, EXCEPT
SHARE DATA)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 1,346 $ 1,767
Accounts receivable and other assets 6,611 5,575
Merchandise inventory 68,593 67,521
-------------------------------
Total current assets 76,550 74,863
Property, equipment and leaseholds, net 71,550 71,612
Deferred debt issuance costs and other assets, net 3,454 3,228
Purchase price in excess of net assets acquired, net 38,874 39,523
-------------------------------
Total assets $ 190,428 $ 189,226
===============================
LIABILITIES AND COMMON STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 22,373 $ 21,570
Accrued expenses 15,850 23,632
Accrued interest 2,762 2,496
Current portion of long-term debt 73 73
-------------------------------
Total current liabilities 41,058 47,771
Long-term debt:
Revolving line of credit 42,125 33,771
11-7/8% senior notes payable 95,000 95,000
Revenue bonds and notes, less current portion 2,553 2,589
-------------------------------
Total long-term debt 139,678 131,360
Other noncurrent liabilities 364 389
Stockholders' equity:
Common stock, $0.01 par value, 25,000,000 shares authorized; 9,029,370
and 8,899,122 shares issued and outstanding, respectively 90 89
Class B convertible common stock, 469,237 shares authorized;
48,431 and 48,431 shares issued and outstanding, respectively 244 244
Additional paid-in capital 81,655 81,597
Accumulated deficit (72,661) (72,224)
-------------------------------
Total stockholders' equity 9,328 9,706
-------------------------------
Total liabilities and stockholders' equity $ 190,428 $ 189,226
===============================
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
1
<PAGE>
Loehmann's, Inc.
Statements of Operations (Unaudited)
<TABLE>
<CAPTION>
QUARTER ENDED SIX MONTHS ENDED
AUGUST 1, AUGUST 2, AUGUST 1, AUGUST 2,
1998 1997 1998 1997
------------------------------------------------------------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Net sales $ 97,058 $ 95,292 $ 207,285 $ 207,887
Cost of sales 65,739 69,671 138,921 147,160
------------------------------------------------------------------
Gross profit 31,319 25,621 68,364 60,727
Selling, general and administrative expenses 26,229 24,393 54,833 53,261
Depreciation and amortization 2,914 2,668 6,049 5,532
------------------------------------------------------------------
Operating income (loss) 2,176 (1,440) 7,482 1,934
Interest expense, net 3,731 3,140 7,271 6,112
------------------------------------------------------------------
(Loss) income before income taxes (1,555) (4,580) 211 (4,178)
Provision for income taxes 64 7 88 29
------------------------------------------------------------------
(Loss) income before extraordinary item (1,619) (4,587) 123 (4,207)
Extraordinary loss on extinguishment of debt 560 - 560 -
------------------------------------------------------------------
Net loss applicable to common stock $ (2,179) $ (4,587) $ (437) $ (4,207)
==================================================================
Basic (loss) earnings per share before
extraordinary item $ (0.18) $ (0.51) $ 0.01 $ (0.47)
==================================================================
Basic loss per share after extraordinary item $ (0.24) $ (0.51) $ (0.05) $ (0.47)
==================================================================
Diluted (loss) earnings per share before
extraordinary item $ (0.18) $ (0.51) $ 0.01 $ (0.47)
==================================================================
Diluted loss per share after extraordinary item $ (0.24) $ (0.51) $ (0.05) $ (0.47)
==================================================================
Weighted average number of common shares
outstanding 9,072 8,934 9,049 8,934
Weighted average number of common shares and
common share equivalents outstanding 9,072 8,934 9,190 8,934
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
2
<PAGE>
Loehmann's, Inc.
Statements of Cash Flows (Unaudited)
<TABLE>
<CAPTION>
QUARTER ENDED SIX MONTHS ENDED
AUGUST 1, AUGUST 2, AUGUST 1, AUGUST 2,
1998 1997 1998 1997
------------------------------------------------------------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
CASH FLOWS USED IN OPERATING ACTIVITIES
Net loss $ (2,179) $ (4,587) $ (437) $ (4,207)
Adjustments to reconcile net loss to net cash used
in operating activities:
Depreciation and amortization 2,914 2,668 6,049 5,532
Loss on extinguishment of debt 560 - 560 -
Changes in current assets and liabilities:
Accounts receivable and other assets 609 (1,286) (1,036) (3,036)
Merchandise inventory 9,181 8,386 (1,072) (5,855)
Accounts payable (8,999) (6,939) 803 3,852
Accrued expenses (3,689) (3,219) (7,782) (5,564)
Accrued interest (2,569) (2,873) 266 (71)
------------------------------------------------------------------
Net changes in current assets and liabilities: (5,467) (5,931) (8,821) (10,674)
Net change in other noncurrent assets and
liabilities (1,092) (18) (1,153) 69
------------------------------------------------------------------
Total adjustments, net (3,085) (3,281) (3,365) (5,073)
------------------------------------------------------------------
Net cash used in operating activities (5,264) (7,868) (3,802) (9,280)
------------------------------------------------------------------
CASH FLOWS USED IN INVESTING ACTIVITIES
Capital expenditures (2,094) (4,403) (4,984) (6,741)
------------------------------------------------------------------
Net cash used in investing activities (2,094) (4,403) (4,984) (6,741)
------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Borrowings under credit facility, net 6,537 11,014 8,354 14,969
Sale of common stock 59 46 59 63
Other financing activities, net (24) (19) (48) (35)
------------------------------------------------------------------
Net cash provided by financing activities 6,572 11,041 8,365 14,997
------------------------------------------------------------------
Net decrease in cash and cash equivalents (786) (1,230) (421) (1,024)
Cash and cash equivalents at beginning of period 2,132 2,498 1,767 2,292
------------------------------------------------------------------
Cash and cash equivalents at end of period $ 1,346 $ 1,268 $ 1,346 $ 1,268
==================================================================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash interest paid during period $ 6,656 $ 6,138 $ 7,169 $ 6,430
==================================================================
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
3
<PAGE>
Loehmann's, Inc.
Notes to Financial Statements
1. BASIS OF PRESENTATION
The balance sheet at August 1, 1998 and the statements of operations and cash
flows for the quarters and six months ended August 1, 1998 and August 2, 1997
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 August 1, 1998 are not
necessarily indicative of the results that may be expected for the fiscal year
ended January 30, 1999. It is suggested that these unaudited financial
statements be read in conjunction with the financial statements and notes for
the fiscal year ended January 31, 1998 included in the Company's Annual Report
on Form 10-K for such year.
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
from the estimates.
4. REVOLVING LINE OF CREDIT
On May 12, 1998, the Company refinanced the indebtedness under its prior credit
facility with borrowings under a new secured credit facility with Congress
Financial Corporation (the "New Credit Facility") and an $8.0 million unsecured
term loan with a bank (the "Unsecured Loan"). The New Credit Facility provides
for a revolving line of credit and a letter of credit facility aggregating $60.0
million. The availability of the revolving line of credit and letters of credit
under the New Credit Agreement is subject to certain inventory-related borrowing
base requirements. The indebtedness under the New Credit Facility bears interest
at variable rates based on LIBOR or the prime rate and matures in three years.
The New Credit Facility contains certain customary covenants (including
limitations on
4
<PAGE>
Loehmann's, Inc.
Notes to Financial Statements (Continued)
indebtedness, liens and restricted payments) but does not contain any financial
covenants. The New Credit Facility is secured by the Company's inventory,
accounts receivable and certain assets. The Unsecured Loan is a three year term
loan that bears interest at a variable rate based on LIBOR. The repayment of the
indebtedness under the Unsecured Loan is supported by a letter of credit issued
under the New Credit Facility. The Company incurred debt issuance costs and
expenses of approximately $1.1 million, of which approximately $0.6 million was
related to the termination of the prior credit facility which is reflected in
the statement of operations as an extraordinary loss on the extinguishment of
debt. The balance of the debt issuance costs and expenses are being amortized
over the three year term of the New Credit Facility.
5. PURCHASE PRICE IN EXCESS OF NET ASSETS ACQUIRED
A significant asset of the Company is "purchase price in excess of net assets
acquired", $38.9 million as of August 1, 1998. This consists of intangible
assets acquired in 1988, including trademark and goodwill. As management deemed
these intangible assets to be of indefinite lives, they have not been separated
on the face of the balance sheet. Based upon a recent appraisal, the Company's
trademark was valued at $55.0 million. Using similar valuation methodology, the
Company's trademark would have been valued at approximately $47.0 million at the
time of acquisition in 1988 and therefore its unamortized balance at August 1,
1998 would have been $35.4 million. Such an allocation would not have had any
effect on the financial condition or results of operations for any prior period.
The Company's "net tangible assets" at August 1, 1998, as defined by Nasdaq
Marketplace Rule 4200 (a)(27) (a rule relating to the listing maintenance
standard for the Nasdaq national market), was $5.8 million.
5
<PAGE>
Loehmann's, Inc.
Management's Discussion and Analysis of Results of Operations
and Financial Condition
RESULT OF OPERATIONS--COMPARISON OF THE QUARTERS ENDED AUGUST 1, 1998 AND AUGUST
2, 1997
Sales for the quarter ended August 1, 1998 were $97.1 million versus $95.3
million for the comparable period in the prior year, an increase of $1.8 million
or 1.9%. Comparable store sales (stores that were in operation for both periods)
increased by 2.9%. The increase in net sales was due to the opening of four new
stores and the increase in comparable stores, partially offset by the closing of
twelve stores during the preceding 52 weeks, including one store closed in June
1998.
Gross profit for the quarter ended August 1, 1998 was $31.3 million as compared
to $25.6 million for the comparable period last year, an increase of $5.7
million or 22.2%. Gross margin increased to 32.3% from 26.9% for the comparable
period last year. The improvement in margin percent was primarily a result of
markdown reductions and the continuing shift in the Company's sales mix towards
merchandise, such as men's, accessories, gifts and intimate apparel, with higher
average gross margins.
Selling, general and administrative expenses for the quarter ended August 1,
1998 were $26.2 million as compared to $24.4 million during the comparable
period last year, an increase of $1.8 million, or 7.5%. The increase in selling,
general and administrative expenses was primarily due to $2.6 million of
additional payroll, occupancy, advertising and other costs related to the four
stores opened and six stores expanded during the preceding 52 weeks, partially
offset by $1.3 million of expense reductions attributable to the closing of
twelve stores during the preceding 52 weeks.
Depreciation and amortization expense for the quarter ended August 1, 1998 was
$2.9 million as compared to $2.7 million for the comparable period last year, an
increase of approximately $0.2 million, or 9.2%.
Net interest expense for the quarter ended August 1, 1998 was $3.7 million
versus $3.1 million for the comparable period last year, an increase of
approximately $0.6 million or 18.8%. The increase in net interest expense
primarily resulted from interest expense incurred on increased average
borrowings under the Company's revolving line of credit. (See "Liquidity and
Capital Resources").
6
<PAGE>
Loehmann's, Inc.
Management's Discussion and Analysis of Results of Operations
and Financial Condition (Continued)
RESULT OF OPERATIONS--COMPARISON OF THE SIX MONTHS ENDED AUGUST 1, 1998 AND
AUGUST 2, 1997
Sales for the six month period ended August 1, 1998 were $207.3 million versus
$207.9 million during the comparable period last year, a decrease of $0.6
million, or 0.3%. Comparable store sales (stores that were in operation for both
periods) decreased by 0.7%. The decrease in net sales was due to the closing of
twelve stores during the preceding 52 weeks, including one store closed in June
1998, partially offset by the opening of four new stores during the preceding 52
weeks and by the decrease in comparable store sales.
Gross profit for the six month period ended August 1, 1998 was $68.4 million, as
compared to $60.7 million for the comparable period last year, an increase of
$7.7 million, or 12.6%. Gross margin increased to 33.0% from 29.2% in the
comparable period last year. The improvement in margin percent was primarily a
result of markdown reductions and the continuing shift in the Company's sales
mix towards merchandise, such as men's, accessories, gifts, and intimate
apparel, with higher average gross margins.
Selling, general and administrative expenses for the six month period ended
August 1, 1998 were $54.8 million as compared to $53.3 million during the
comparable period last year, an increase of approximately $1.5 million, or 3.0%.
As a percentage of net sales, selling, general and administrative expenses was
26.5% versus 25.6% during the comparable period last year. The increase in
selling, general and administrative expenses was due to $4.9 million of
additional payroll, occupancy, advertising and other costs related to the four
stores opened and six stores expanded during the preceding 52 weeks, partially
offset by (i) $1.0 million of expense reductions related to comparable stores
and corporate, and (ii) $2.4 million of expense reductions attributable to the
twelve stores closed during the preceding 52 weeks.
Depreciation and amortization for the six month period ended August 1, 1998 was
$6.0 million as compared to $5.5 million for the comparable period last year, an
increase of approximately $0.5 million, or 9.3%.
Net interest expense for the six month period ended August 1, 1998 was $7.3
million versus $6.1 million for the comparable period last year, an increase of
$1.2 million, or 19.0%. The increase in net interest expense primarily resulted
from interest expense incurred on increased average borrowings under the
revolving line of credit. (See "Liquidity and Capital Resources").
7
<PAGE>
Loehmann's, Inc.
Management's Discussion and Analysis of Results of Operations
and Financial Condition (Continued)
LIQUIDITY AND CAPITAL RESOURCES
During the second quarter ended August 1, 1998 net cash used in operating
activities totaled $5.3 million, of which cash of $1.3 million was provided by
operations, after adding back non-cash charges, offset by the use of net working
capital of approximately $6.6 million. Net cash used in investing activities
totaled $2.1 million during the quarter ended August 1, 1998. These expenditures
were principally related to capital expenditures for leasehold improvements and
fixtures primarily associated with the completion of the 1997/1998 new store and
expansion program. Net cash provided by financing activities was approximately
$6.6 million during the quarter ended August 1, 1998, and reflects the proceeds
from borrowings under the Company's revolving line of credit.
Net cash used in operating activities totaled $3.8 million for the six months
ended August 1, 1998, of which cash of $6.2 million was provided from operations
after adding back non-cash charges, offset by the use of net working capital of
approximately $10.0 million primarily related to the closing of stores, such
amounts were previously accrued. Net cash used in investing activities totaled
$5.0 million for leasehold improvements and fixtures primarily associated with
the completion of the 1997/1998 new store and expansion program. Net cash
provided by financing activities was approximately $8.4 million during the six
months ended August 1, 1998, and reflects the proceeds from borrowings under the
Company's revolving line of credit.
On May 12, 1998, the Company completed a refinancing of its existing credit
facility with the New Credit Facility with Congress Financial and the $8.0
million Unsecured Loan. The New Credit Facility provides for a revolving line of
credit and a letter of credit facility aggregating $60.0 million. The Unsecured
Loan is supported by a letter of credit issued under the New Credit Facility.
The terms of the loans are for three years and do not contain any financial
covenants. The New Credit Facility, together with the cash generated from
operations is expected to be sufficient to satisfy the Company's working capital
and capital expenditure requirements over the next twelve months. Furthermore,
the Company's capital expenditure requirements for the next twelve months are
primarily related to opening of one new store and infrastructure improvements.
8
<PAGE>
Loehmann's, Inc.
Management's Discussion and Analysis of Results of Operations
and Financial Condition (Continued)
YEAR 2000
The Company presently believes that the year 2000 issue will not pose
significant operational problems for its computer systems. The Company has
outside service contracts to maintain its computer software programs and expects
that all modifications and conversions will be completed on a timely basis. The
total dollar amount that the Company estimates will be spent to address its year
2000 issues is not expected to have a material financial impact. However, if
such modifications and conversions are not made, or are not completed in a
timely manner, the year 2000 issue could have a material adverse impact upon
Company operations.
9
<PAGE>
Loehmann's, Inc.
PART II--OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the Annual Meeting of the Company's Stockholders on July 30, 1998, the
stockholders elected both of the nominees for director for three-year terms. The
nominees for directors received the following votes:
Against or Broker Non-
For Withheld Abstentions Votes
----------------------------------------------------------
Cynthia R. Cohen 8,251,763 122,370 655,237 0
Arthur E. Reiner 8,251,263 122,870 655,237 0
Continuing directors of the Company are: Norman S. Matthews, Robert N. Friedman,
Robert Glass, Philip Kaplan, Lorrence T. Kellar, Richard E. Kroon, Christina A.
Mohr.
Also, the appointment of Ernst & Young as independent accountants for the
Company for the fiscal year ending January 30, 1999 was approved by the
Company's stockholders at the annual meeting by vote of 8,296,358 shares were
voted in favor of, 43,280 shares were voted against and 689,732 shares abstained
from such proposal.
10
<PAGE>
Loehmann's, Inc.
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". 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 and borrowings;
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.
11
<PAGE>
Loehmann's, Inc.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27.0 Financial Data Schedule (for SEC use only)
(b) No reports on Form 8-K were filed during the quarter ended August 1, 1998.
12
<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: September 14, 1998
Loehmann's, Inc.
By: /s/ Robert Glass
--------------------
Robert Glass
President, Chief Operating Officer and Director
By: /s/ Dennis Hernreich
------------------------
Dennis Hernreich
Vice President Finance, Chief Financial Officer,
Treasurer, and Assistant Secretary
13
<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> 3-MOS
<FISCAL-YEAR-END> JAN-30-1999
<PERIOD-START> MAY-3-1998
<PERIOD-END> AUG-1-1998
<CASH> 1,346
<SECURITIES> 0
<RECEIVABLES> 6,611
<ALLOWANCES> 0
<INVENTORY> 68,593
<CURRENT-ASSETS> 76,550
<PP&E> 71,550
<DEPRECIATION> 0
<TOTAL-ASSETS> 190,428
<CURRENT-LIABILITIES> 41,058
<BONDS> 95,000
0
0
<COMMON> 90
<OTHER-SE> 9,238
<TOTAL-LIABILITY-AND-EQUITY> 190,428
<SALES> 97,058
<TOTAL-REVENUES> 97,058
<CGS> 65,739
<TOTAL-COSTS> 65,739
<OTHER-EXPENSES> 26,229
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,731
<INCOME-PRETAX> (1,555)
<INCOME-TAX> 64
<INCOME-CONTINUING> (1,555)
<DISCONTINUED> 0
<EXTRAORDINARY> (560)
<CHANGES> 0
<NET-INCOME> (2,179)
<EPS-PRIMARY> (0.24)
<EPS-DILUTED> (0.24)
</TABLE>
