Form 10-Q
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended May 1, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 001-14035
Stage Stores, Inc.
(Exact name of registrant as specified in its charter)
DELAWARE 76-0407711
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identifications No.)
10201 Main Street, Houston, 77025
Texas (Zip Code)
(Address of principal executive
offices)
(713) 667-5601
Registrant's telephone number, including area code
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 The
number of shares of common stock of Stage Stores, Inc.
outstanding as of June 4, 1999 was 26,749,739 shares of
Common Stock and 1,250,584 shares of Class B
Common Stock.
Part I - Financial Information
Item 1. Financial Statements
Stage Stores, Inc.
Consolidated Condensed Balance Sheet
(in thousands, except par values)
(unaudited)
May 1, 1999 January 30, 1999
ASSETS
Cash and cash equivalents $ 8,625 $12,832
Undivided interest in accounts
receivable trust 68,534 69,816
Merchandise inventories, net 363,352 341,316
Prepaid expenses and other current
assets 71,710 84,473
Total current assets 512,221 508,437
Property, equipment and leasehold
improvements, net 233,580 233,263
Goodwill, net 91,828 92,551
Other assets 20,695 23,429
Total assets $ 858,324 $ 857,680
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable $ 79,046 $82,779
Accrued expenses and other current
liabilities 53,364 52,706
Current portion of long-term debt 4,829 4,814
Total current liabilities 137,239 140,299
Long-term debt 495,724 487,968
Other long-term liabilities 25,419 25,021
Total liabilities 658,382 653,288
Preferred stock, par value $1.00, non-
voting,
3 shares authorized, no shares
issued or outstanding -- --
Common stock, par value $0.01, 75,000
shares authorized, 26,747 and 26,718
shares issued and outstanding,
respectively 267 267
Class B common stock, par value
$0.01, non-voting,
3,000 shares authorized, 1,250
shares issued and outstanding 13 13
Additional paid-in capital 265,937 265,716
Accumulated deficit (60,281) (55,610)
Accumulated other comprehensive
income (5,994) (5,994)
Stockholders' equity 199,942 204,392
Commitments and contingencies -- --
Total liabilities and
stockholders' equity $ 858,324 $ 857,680
The accompanying notes are an integral part of this statement.
Stage Stores, Inc.
Consolidated Condensed Statement of Operations
(in thousands, except per share amounts)
(unaudited)
Three Months Ended
May 1, 1999 May 2, 1998
Net sales $ 262,591 $ 272,788
Cost of sales and related
buying, occupancy and distribution
expenses 192,232 185,563
Gross profit 70,359 87,225
Selling, general and
administrative expenses 61,219 61,630
Store opening and closure costs 749 317
Operating income 8,391 25,278
Interest, net 12,111 10,467
Income (loss) before income tax
and cumulative effect of a
change in accounting principle (3,720) 14,811
Income tax expense (benefit) (1,451) 5,776
Income (loss) before cumulative
effect of a change in
accounting principle (2,269) 9,035
Cumulative effect of a change in
accounting principle, net
of tax - reporting costs of
start-up activities (2,402) --
Net income (loss) $ (4,671) $ 9,035
Basic earnings (loss) per common
share data:
Basic earnings (loss) per common
share before
cumulative effect of a change
in accounting principle $ (0.08) $ 0.33
Cumulative effect of a change in
accounting principle, net
of tax - reporting costs of
start-up activities (0.09) --
Basic earnings (loss) per common
share $ (0.17) $ 0.33
Basic weighted average common
shares outstanding 27,987 27,792
Diluted earnings (loss) per
common share data:
Diluted earnings (loss) per
common share before
cumulative effect of a change in
accounting principle $ (0.08) $ 0.32
Cumulative effect of a change in
accounting principle, net
of tax - reporting costs of
start-up activities (0.09) --
Diluted earnings (loss) per
common share $ (0.17) $ 0.32
Diluted weighted average common
shares outstanding 27,987 28,507
The accompanying notes are an integral part of this statement.
Stage Stores, Inc.
Consolidated Condensed Statement of Cash Flows
(in thousands)
(unaudited)
Three Months Ended
May 1, 1999 May 2, 1998
Cash flows from operating activities:
Net income (loss) $ (4,671) $ 9,035
Adjustments to reconcile net income
(loss) to net cash provided by (used in)
Operating activities:
Depreciation and amortization 8,620 6,290
Deferred income taxes (208) 607
Accretion of discount 285 260
Amortization of debt issue costs 759 603
Cumulative effect of a change in
accounting principle 2,402 --
Change in working capital (11,575) (45,785)
Total adjustments 283 (38,025)
Net cash used in operating activities (4,388) (28,990)
Cash flows from investing activities:
Additions to property, equipment and
leasehold improvements (7,526) (28,486)
Net cash used in investing activities (7,526) (28,486)
Cash flows from financing activities:
Proceeds from working capital facility 7,650 54,300
Proceeds from issuance of common stock 221 491
Payments on long-term debt (164) (170)
Net cash provided by financing
activities 7,707 54,621
Net decrease in cash and cash equivalents (4,207) (2,855)
Cash and cash equivalents:
Beginning of period 12,832 23,315
End of period $ 8,625 $ 20,460
Supplemental disclosure of cash flow
information:
Interest paid $ 3,205 $ 840
Income taxes paid (refunded) $ 2 $ (2,825)
The accompanying notes are an integral part of this statement.
Stage Stores, Inc.
Consolidated Statement of Stockholders' Equity
For the Three Months Ended May 1, 1999
(in thousands)
May 1, 1999
Shares Outstanding
Shares of common stock
issued:
Beginning balance 26,718
Issuance of stock 29
Ending balance 26,747
Shares of Class B stock
issued:
Beginning balance 1,250
Ending balance 1,250
Stockholders' Equity
Common stock issued:
Beginning balance $ 267
Issuance of stock --
Ending balance 267
Class B stock issued:
Beginning balance 13
Ending balance 13
Additional Paid-in Capital:
Beginning balance 265,716
Issuance of stock 221
Ending balance 265,937
Accumulated deficit and
accumulated other
comprehensive income:
Beginning balance (61,604)
Comprehensive income
(loss):
Net income (loss) (4,671)
Other comprehensive
income (loss) --
Total comprehensive
income (loss) (4,671)
Ending balance (66,275)
Total Stockholders' Equity $ 199,942
Accumulated other
comprehensive income:
Beginning balance $ (5,994)
Ending balance $ (5,994)
The accompanying notes are an integral part of this statement.
Stage Stores, Inc.
Notes to Unaudited Consolidated Condensed Financial Statements
1. The accompanying unaudited consolidated condensed
financial statements of Stage Stores, Inc. ("Stage Stores") have
been prepared in accordance with Rule 10-01 of Regulation S-X and
do not include all the information and footnotes required by
generally accepted accounting principles for complete financial
statements. Those adjustments, which include only normal
recurring adjustments that are in the opinion of management
necessary for a fair presentation of the results of the interim
periods, have been made. The results of operations for such
interim periods are not necessarily indicative of the results of
operations for a full year. The unaudited consolidated condensed
financial statements should be read in conjunction with the
audited consolidated financial statements and notes thereto for
the year ended January 30, 1999 filed with Stage Stores' Annual
Report on Form 10-K. The fiscal years discussed herein end on the
Saturday nearest to January 31 in the following calendar year.
For example, references to "1999" mean the fiscal year ending
January 29, 2000.
Stage Stores conducts its business primarily through its
wholly owned subsidiary Specialty Retailers, Inc. ("SRI") which,
as of May 1, 1999, operated 688 family apparel stores in thirty-
four states located throughout the United States. Stage Stores
and SRI are collectively referred to herein as the "Company".
2. Pursuant to the accounts receivable securitization
program (the "Accounts Receivable Program"), an indirect wholly
owned subsidiary of the Company, SRI Receivables Purchase Co.,
Inc. ("SRPC") purchases the accounts receivable generated by the
Company's private label credit card program. Such accounts
receivable are transferred to a master trust (the "Trust") which
has issued certain certificates to third parties representing
undivided interests in the Trust. SRPC owns an undivided interest
in the accounts receivable not supporting the certificates issued
to third parties by the Trust as set forth in the accompanying
Consolidated Condensed Balance Sheet. SRPC is a separate
corporate entity from the Company and SRPC's creditors have a
claim on its assets prior to those assets becoming available to
any creditor of the Company.
3. During the first quarter of 1999, the Company adopted
the Accounting Standards Executive Committee's Statement of
Position 98-5, "Reporting on the Costs of Start-Up Activities"
("SOP 98-5") which requires costs of start-up activities and
organization costs be expensed as incurred. The initial adoption
of SOP 98-5 during the quarter, reported as the cumulative effect
of a change in accounting principle, resulted in an after tax
charge of $2.4 million.
4. The consolidating condensed financial information for
Stage Stores and its wholly owned subsidiaries is presented to
satisfy disclosure requirements pursuant to Sections 13 and 15(d)
of the Securities Exchange Act of 1934 with respect to wholly
owned subsidiaries of Stage Stores who are individually
registrants with the Securities Exchange Commission. SRI is the
primary obligor under the 8.5% Senior Notes due 2005 and 9% Senior
Subordinates Notes due 2007 (see Note 5 to the Company's
Consolidated Financial Statements filed with Stage Stores' Annual
Report on Form 10-K). Stage Stores and Specialty Retailers, Inc.
(NV), a wholly owned subsidiary of Stage Stores which was
incorporated during June 1997, are guarantors under such
indebtedness. Stage Stores has not presented separate financial
statements and other disclosures concerning SRI and Specialty
Retailers, Inc. (NV) because management has determined that such
information is not material to investors.
SRPC securitizes the credit receivables of the Company. The
results of operations of SRPC are not indicative of the total
operating performance of the Company's Accounts Receivable
Program. For a summary of the total consolidated operating
performance of the Company's Accounts Receivable Program, see
Note 4 to the Company's Consolidated Financial Statements filed
with Stage Stores' Annual Report on Form 10-K.
The consolidating condensed financial information for Stage
Stores and its wholly-owned subsidiaries, including all
significant intercompany transactions eliminated in
consolidation, are presented below.
Consolidating Condensed Balance Sheet
May 1, 1999
(in thousands, unaudited)
Specialty SRI SRI SRI
Retailers, Receivables Eliminations Consolidated
Inc. Purchase Co.
ASSETS
Cash and cash equivalents $6,675 $ -- $ -- $6,675
Undivided (10,444) --
interest in 78,978 68,534
accounts
receivable
trust
Merchandise --
inventories, 363,352 -- 363,352
net
Prepaid --
expenses and 64,465 7,245 71,710
other current
assets
Total current --
assets 424,048 86,223 510,271
Property, --
equipment and 231,912 -- 231,912
leasehold
improvements,
net
Goodwill, net 91,828 -- -- 91,828
Other assets 18,359 2,276 -- 20,635
Investment in --
subsidiaries 37,607 -- (37,607)
Total assets $803,754 $ 88,499 $ (37,607) $854,646
LIABILITIES
AND
STOCKHOLDERS'
EQUITY
Accounts $ 79,046 $ -- $ -- $ 79,046
payable
Accrued --
expenses and 49,500 3,841 53,341
other current
liabilities
Current portion
of long-term
debt 4,829 --
-- 4,829
Total current --
liabilities 133,375 3,841 137,216
Long-term debt 465,724 30,000 -- 495,724
Intercompany --
notes/advance 160,502 17,051 177,553
s
Other long- --
term 25,419 -- 25,419
liabilities
Total --
liabilities 785,020 50,892 835,912
Preferred stock -- --
-- --
Common stock -- --
-- --
Class B common -- --
stock -- --
Additional paid-
in capital 3,317 32,664 (32,664) 3,317
Accumulated
earnings 21,411 4,943 (4,943) 21,411
(deficit)
Accumulated --
other (5,994) -- (5,994)
comprehensive
income
Stockholders'
equity 18,734 37,607 (37,607) 18,734
Total $ 803,754 $ 88,499 $ (37,607) $ 854,646
liabilities
and
stockholders'
equity
Consolidating Condensed Balance Sheet
May 1, 1999
(in thousands, unaudited)
Stage Specialty Elimination Stage
Stores, Retailers, s Stores
Inc. Inc. (NV) Consolidate
d
ASSETS
Cash and cash $ 2 $ 1,948 $ -- $ 8,625
equivalents
Undivided -- --
interest in -- 68,534
accounts
receivable
trust
Merchandise -- --
inventories, -- 363,352
net
Prepaid expenses -- --
and other -- 71,710
current assets
Total current 1,948 -- 512,221
assets 2
Property, --
equipment and -- 1,668 233,580
leasehold
improvements,
net
Goodwill, net -- -- -- 91,828
Other assets -- 60 -- 20,695
Investment in -- --
subsidiaries 199,830 (199,830)
Total assets $ 199,832 $ 3,676 $ $ 858,324
(199,830)
LIABILITIES AND
STOCKHOLDERS'
EQUITY
Accounts payable
$ -- $ -- $-- $ 79,046
Accrued expenses -- --
and other 23 53,364
current
liabilities
Current portion -- --
of long-term -- 4,829
debt
Total current -- -- 137,239
liabilities 23
Long-term debt -- -- -- 495,724
Intercompany -- --
notes/advances (133) (177,420)
Other long-term -- -- 25,419
liabilities --
Total --
liabilities (110) (177,420) 658,382
Preferred stock -- -- -- --
Common stock 267 -- -- 267
Class B common -- --
stock 13 13
Additional paid-
in capital 265,937 160,158 (163,475) 265,937
Accumulated
earnings (60,281) 20,938 (42,349) (60,281)
(deficit)
Accumulated --
other (5,994) 5,994 (5,994)
comprehensive
income
Stockholders'
equity 199,942 181,096 (199,830) 199,942
Total $ 199,832 $ 3,676 $ $ 858,324
liabilities and (199,830)
stockholders'
equity
Consolidating Condensed Balance Sheet
January 30, 1999
(in thousands, unaudited)
Specialty SRI SRI SRI
Retailers, Receivables Elimination Consolidate
Inc. Purchase Co. s d
ASSETS
Cash and cash $10,882 $ -- $ -- $10,882
equivalents
Undivided 83,044 -- 69,816
interest in (13,228)
accounts
receivable
trust
Merchandise -- --
inventories, 341,316 341,316
net
Prepaid -- 84,473
expenses and 77,648 6,825
other current
assets
Total current 89,869 --
assets 416,618 506,487
Property, -- --
equipment and 231,499 231,499
leasehold
improvements,
net
Goodwill, net -- -- 92,551
92,551
Other assets 4,402 -- 23,369
18,967
Investment in -- --
subsidiaries 37,886 (37,886)
Total assets $797,521 $94,271 $ $
(37,886) 853,906
LIABILITIES
AND
STOCKHOLDERS'
EQUITY
Accounts $82,779 $ -- $ -- $ 82,779
payable
Accrued 2,888 -- 52,614
expenses and 49,726
other current
liabilities
Current portion -- -- 4,814
of long-term 4,814
debt
Total current 2,888 --
liabilities 137,319 140,207
Long-term debt 30,000 --
457,968 487,968
Intercompany 23,497 --
notes/advances 151,273 174,770
Other long-term -- -- 25,021
liabilities 25,021
Total 56,385 --
liabilities 771,581 827,966
Preferred stock -- -- --
--
Common stock -- -- --
--
Class B common -- -- --
stock --
Additional paid- 32,130 3,317
in capital 3,317 (32,130)
Accumulated 5,756 28,617
earnings 28,617 (5,756)
(deficit)
Accumulated -- --
other (5,994) (5,994)
comprehensive
income
Stockholders' 37,886 25,940
equity 25,940 (37,886)
Total $797,521 $94,271 $ $
liabilities (37,886) 853,906
and
stockholders'
equity
Consolidating Condensed Balance Sheet
January 30, 1999
(in thousands, unaudited)
Stage Specialty Stage Stores
Stores, Retailers, Elimination Consolidated
Inc. Inc. (NV) s
ASSETS
Cash and cash $ 2 $ 1,948 $12,832
equivalents $ --
Undivided - --
interest in -- - 69,816
accounts
receivable
trust
Merchandise - --
inventories, -- - 341,316
net
Prepaid expenses - --
and other -- - 84,473
current assets
Total current -- 5
assets 2 1,948 08,437
Property, --
equipment and -- 1,764 233,263
leasehold
improvements,
net
Goodwill, net - --
-- - 92,551
Other assets --
-- 60 23,429
Investment in - --
subsidiaries 204,349 - (204,349)
Total assets $204,351 $ 3,772 $(204,349) $
857,680
LIABILITIES AND
STOCKHOLDERS'
EQUITY
Accounts payable $ -- $ -- $ -- $82,779
Accrued expenses - --
and other 92 - 52,706
current
liabilities
Current portion - --
of long-term -- - 4,814
debt
Total current - --
liabilities 92 - 140,299
Long-term debt - --
-- - 487,968
Intercompany -- --
notes/advances (133) (174,637)
Other long-term - --
liabilities -- - 25,021
Total --
liabilities (41) (174,637) 653,288
Preferred stock - -- --
-- -
Common stock - --
267 - 267
Class B common - -- 13
stock 13 -
Additional paid-
in capital 265,716 160,040 (163,357) 265,716
Accumulated
earnings (55,610) 18,369 (46,986) (55,610)
(deficit)
Accumulated other - 5,994
comprehensive (5,994) - (5,994)
income
Stockholders'
equity 204,392 178,409 (204,349) 204,392
Total $204,351 $ 3,772 $857,680
liabilities and
stockholders' $(204,349)
equity
Consolidating Condensed Statement of Operations
Three Months Ended May 1, 1999
(in thousands, unaudited)
Specialty SRI SRI SRI
Retailers Receivables Elimination Consolidated
, Inc. Purchase s
Co.
Net sales $ 262,591 $ -- $ -- $ 262,591
Cost of sales
and related 192,232 -- -- 192,232
buying,
occupancy and
distribution
expenses
Gross profit 70,359 -- -- 70,359
Selling,
general and 62,784 (1,675) -- 61,109
administrative
expenses
Store opening
and closure 749 -- -- 749
costs
Operating 6,826 1,675 -- 8,501
income (loss)
Interest
expense, net 15,088 1,051 -- 16,139
Income (loss) (8,262)
before income 624 -- (7,638)
taxes
Income tax (3,065)
expense 231 -- (2,834)
(benefit)
Income (loss) (5,197)
before equity 393 -- (4,804)
in net
earnings of
subsidiaries
and cumulative
effect of a
change in
accounting
principle
Equity in net -- --
earnings of (813) 813
subsidiaries
Income (loss) (6,010)
before 393 813 (4,804)
cumulative
effect of a
change in
accounting
principle
Cumulative
effect of a (1,196) (1,206) -- (2,402)
change in
accounting
principle, net
of tax -
reporting
costs of start-
up activities
Net income $(813) $ 813 $ (7,206)
(loss) $ (7
,206)
Consolidating Condensed Statement of Operations
Three Months Ended May 1, 1999
(in thousands, unaudited)
Stage Specialty Elimination Stage
Stores, Retailers, s Stores
Inc. Inc. (NV) Consolidate
d
Net sales $ -- $ -- $ -- $ 262,591
Cost of sales -- 192,232
and related -- --
buying,
occupancy and
distribution
expenses
Gross profit -- -- -- 70,359
Selling, general 61,219
and 34 76 --
administrative
expenses
Store opening -- 749
and closure -- --
costs
Operating income (34) 8,391
(loss) (76) --
Interest -- (4,028) 12,111
expense, net --
Income (loss) (34) (3,720)
before income 3,952 --
taxes
Income tax -- (1,451)
expense 1,383 --
(benefit)
Income (loss) (34) (2,269)
before equity 2,569 --
in net earnings
of subsidiaries
and cumulative
effect of a
change in
accounting
principle
Equity in net
earnings of (4,637) -- 4,637 --
subsidiaries
Income (loss) (4,671) (2,269)
before 2,569 4,637
cumulative
effect of a
change in
accounting
principle
Cumulative (2,402)
effect of a -- -- --
change in
accounting
principle, net
of tax -
reporting costs
of start-up
activities
Net income $ 2,569 $ 4,637 $
(loss) $ (4,6 (4,671)
71)
Consolidating Condensed Statement of Operations
Three Months Ended May 2, 1998
(in thousands, unaudited)
Specialty SRI SRI SRI
Retailers Receivables Elimination Consolidated
, Inc. Purchase s
Co.
Net sales $272,788 $ -- $ -- $272,788
Cost of sales 185,563 -- -- 185,563
and related
buying,
occupancy and
distribution
expenses
Gross profit 87,225 -- -- 87,225
Selling, general 61,887 (316) -- 61,571
and
administrative
expenses
Store opening 317 -- -- 317
and closure
costs
Operating income 25,021 316 -- 25,337
Interest 14,890 (685) -- 14,205
expense, net
Income (loss)
before income
taxes 10,131 1,001 -- 11,132
Income tax 4,110 371 -- 4,481
expense
Income (loss) 6,021 630 -- 6,651
before equity
in net earnings
of subsidiaries
Equity in net 630 -- (630) --
earnings of
subsidiaries
Net income $6,651 $ 630 $(630) $6,651
Consolidating Condensed Statement of Operations
Three Months Ended May 2, 1998
(in thousands, unaudited)
Stage Specialty Eliminations Stage
Stores, Retailers, Stores
Inc. Inc. (NV) Consolidate
d
Net sales $ -- $ -- $ -- $272,788
Cost of sales -- -- -- 185,563
and related
buying,
occupancy and
distribution
expenses
Gross profit -- -- -- 87,225
Selling, general 21 38 -- 61,630
and
administrative
expenses
Store opening -- -- -- 317
and closure
costs
Operating income (21) (38) -- 25,278
Interest -- (3,738) -- 10,467
expense, net
Income (loss) (21) 3,700 -- 14,811
before income
taxes
Income tax 1,295 -- 5,776
expense
Income (loss) (21) 2,405 -- 9,035
before equity
in net earnings
of subsidiaries
Equity in net 9,056 -- (9,056) --
earnings of
subsidiaries
Net income $9,035 $2,405 $(9,056) $9,035
Consolidating Condensed Statement of Cash Flows
Three Months Ended May 1, 1999
(in thousands, unaudited)
Specialty SRI SRI SRI
Retailers, Receivables Elimination Consolidated
Inc. Purchase s
Co.
Cash flows from operating
activities:
Net cash used $ 89 $ (4,256) $ -- $ (4,167)
in operating
activities
Cash flows from investing
activities:
Investment in --
subsidiary -- -- --
Additions to --
property, (7,526) -- (7,526)
equipment and
leasehold
improvements
Proceeds from
the sales of (4,256) 4,256 -- --
accounts
receivable, net
Net cash --
provided by (11,782) 4,256 (7,526)
(used in)
investing
activities
Cash flows from financing
activities:
Proceeds from --
working capital 7,650 -- 7,650
facility
Proceeds from -- --
issuance of -- --
common stock
Proceeds from -- -- --
capital --
contribution
Payments on long-(164) -- -- (164)
term debt
Net cash
provided by 7,486 -- -- 7,486
(used in)
financing
activities
Net decrease in (4,207) --
cash and cash -- (4,207)
equivalents
Cash and cash
equivalents:
Beginning of --
period 10,882 -- 10,882
End of period $ 6,675 $ -- $ -- $ 6,675
Consolidating Condensed Statement of Cash Flows
Three Months Ended May
1, 1999
(in thousands, unaudited)
Stage Specialty Stage Stores
Stores, Retailers, Elimination Consolidated
Inc. Inc. (NV) s
Cash flows from operating
activities:
Net cash used
in operating
activities $ (103) $(118) $ -- $(4,388)
Cash flows from investing
activities:
Investment in -- 118
subsidiary (118) --
Additions to -- -- --
property, (7,526)
equipment and
leasehold
improvements
Proceeds from -- -- --
the sales of --
accounts
receivable, net
Net cash -- 118
provided by (118) (7,526)
(used in)
investing
activities
Cash flows from financing
activities:
Proceeds from -- -- --
working capital 7,650
facility
Proceeds from -- -
issuance of 221 - 221
common stock
Proceeds from -- 118
capital (118)
contribution
Payments on long- -- -- --
term debt (164)
Net cash -- --
provided by 221 7,707
(used in)
financing
activities
Net decrease in --
cash and cash -- -- (4,207)
equivalents
Cash and cash
equivalents:
Beginning of 1,948 --
period 2 12,832
End of period $ 2 $1,948 $ -- $ 8,625
Consolidating Condensed Statement of Cash Flows
Three Months Ended May 2, 1998
(in thousands, unaudited)
Specialty SRI SRI SRI
Retailers Receivable Elimination Consolidated
, Inc. s Purchase s
Co.
Cash flows from operating
activities:
Net cash used $(24,265) $(4,711) $ -- $(28,976)
in operating
activities
Cash flows from investing
activities:
Intercompany 491 -- -- 491
notes/advances
Additions to (28,486) -- -- (28,486)
property,
equipment and
leasehold
improvements
Proceeds from (5,718) 5,718 (1,007) --
the sales of 1,007 --
accounts
receivable, net
Dividend from
subsidiary
Net cash (32,706) 5,718 (1,007) (27,995)
provided by
(used in)
investing
activities
Cash flows from financing
activities:
Proceeds from 54,300 -- -- 54,300
working capital
facility
Proceeds from -- -- -- --
issuance of
common stock
Payments on long-(170) -- -- (170)
term debt
Dividend paid -- (1,007) 1,007 --
Net cash 54,130 (1,007) 1,007 54,130
provided by
(used in)
financing
activities
Net decrease in (2,841) -- -- (2,841)
cash and cash
equivalents
Cash and cash
equivalents:
Beginning of 23,299 -- -- 23,299
period
End of period $20,458 $ -- $ -- $20,458
Consolidating Condensed Statement of Cash Flows
Three Months Ended May 2, 1998
(in thousands, unaudited)
Stage Specialty Stage
Stores, Retailers, Elimination Stores
Inc. Inc. (NV) s Consolidate
d
Cash flows from operating
activities:
Net cash used $(14) $ -- $ -- $(28,990)
in operating
activities
Cash flows from investing
activities:
Intercompany (491) -- -- --
notes/advances
Additions to -- -- -- (28,486)
property,
equipment and
leasehold
improvements
Proceeds from -- -- -- --
the sales of
accounts
receivable, net
Dividend from
subsidiary
Net cash (491) -- -- (28,486)
provided by
(used in)
investing
activities
Cash flows from financing
activities:
Proceeds from -- -- -- 54,300
working capital
facility
Proceeds from 491 - 491
issuance of -
common stock
Payments on long- -- -- -- (170)
term debt
Dividend paid -- -- -- --
Net cash 491 -- -- 54,621
provided by
(used in)
financing
activities
Net decrease in (14) -- -- (2,855)
cash and cash
equivalents
Cash and cash
equivalents:
Beginning of 16 -- -- 23,315
period
End of period $ 2 $ -- $ -- $20,460
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
"Safe Harbor" Statement under the Private Securities Litigation
Reform Act of 1995.
Certain items discussed or incorporated by reference herein
contain forward-looking statements that involve risks and
uncertainties including, but not limited to, the seasonality of
demand for apparel which can be affected by weather patterns,
levels of competition, competitors' marketing strategies, changes
in fashion trends and availability of product on normal payment
terms and the failure to achieve the expected results of
merchandising and marketing plans and store opening or closing
plans. The occurrence of any of the above could have a material
adverse impact on the Company's operating results. See additional
risk factors discussed in the Company's Annual Report on Form 10-
K. Certain information herein contains estimates which represent
management's best judgement as of the date hereof based on
information currently available; however, the Company does not
intend to update this information to reflect developments or
information obtained after the date hereof and disclaims any
legal obligation to the contrary.
General
Overview. The Company operates the store of choice for
nationally recognized brand name family apparel, accessories,
cosmetics and footwear in over 500 small towns and communities
throughout the United States. The Company has recognized the high
level of brand awareness and demand for fashionable, quality
apparel by consumers in small markets and has identified these
markets as a profitable and underserved niche. The Company has
developed a unique franchise focused on these small markets,
differentiating itself from the competition by offering a broad
range of brand name merchandise with a high level of customer
service in convenient locations.
The financial information, discussion and analysis that
follow should be read in conjunction with the Company's
Consolidated Financial Statements included in the Company's 1998
Annual Report on Form 10-K.
Results of Operations
Sales for the first quarter of 1999 decreased 3.7% to $262.6
million from $272.8 million in the comparable period of 1998.
Comparable store sales decreased 10.1% for the first quarter of
1999. Sales results for the first quarter of 1999 reflect the
impact of the heavy promotional and inventory management
activities which were put into place during the fall of 1998.
These initiatives negatively impacted the Company's merchandise
mix and to a lesser extent the Company's customer base. As a
result, the Company began the quarter with significantly lower
levels of inventory compared to the prior year first quarter on a
comparable store basis, particularly with respect to clearance
merchandise. The lower levels of clearance inventory, as well as
continued aggressive pricing on this clearance merchandise
throughout February was a significant contributor to the decline
in comparable store sales for the quarter. In addition, sales for
the Easter selling period were softer than expected as a result
of a lower than planned inventory level during the Easter selling
season. The Company focused on transitioning and rebuilding
merchandise assortments as well as improving the merchandise mix
across all merchandise categories. Although the Company made
significant improvements in its merchandise mix during the first
quarter, this process will continue into the second quarter and
into the early part of the third quarter in certain merchandise
categories.
Gross profit decreased 19.3% to $70.4 million for the first
quarter of 1999 from $87.2 million in the comparable period of
1998. Gross profit as a percent of sales decreased to 26.8% for
the first quarter of 1999 from 32.0% in 1998. The decline in
gross margin as a percent of sales reflects the continued
aggressive pricing on clearance inventory in February, lower
vendor discounts on new store inventory purchases, reduced levels
of store grand opening sales which typically carry a higher level
of gross margin and negative sales leverage associated with the
Company's fixed buying, occupancy and distribution expenses which
are included in cost of goods sold.
Selling, general and administrative expenses for the first
quarter of 1999 decreased 0.7% to $61.2 million from $61.6
million in the comparable period of 1998. Selling, general and
administrative expenses as a percentage of sales for the first
quarter of 1999 increased to 23.3% from 22.6% in the comparable
period of 1998 due primarily to the lower level of sales referred
to above. Selling, general and administrative expenses for the
first quarter of 1999 benefited from the positive impact of the
Company's credit card bank which became operational in the third
quarter of 1998 as well as reduced payroll and payroll related
costs.
Store opening and closure costs for the first quarter of
1999 increased to $0.7 million from $0.3 million for the same
period of 1998 as a result of the adoption of SOP 98-5 which
requires that store opening costs be expensed as incurred. Prior
to the adoption of SOP 98-5, the Company expensed pre-opening
costs over the year in which a store was opened.
Operating income for the first quarter of 1999 decreased
66.8% to $8.4 million from $25.3 million for the first quarter of
1998 as a result of the factors discussed above. Operating
income as a percent of sales for the first quarter of 1999 was
3.2% as compared to 9.3% for the first quarter of 1998.
Net interest expense for the first quarter of 1999 increased
15.2% to $12.1 million from $10.5 million for the comparable
period in 1998 due to higher levels of borrowings associated with
the Company's expansion program and poor operating results in the
fall of 1998 and the first quarter of 1999.
As a result of the foregoing, the Company's net loss before
cumulative effect of a change in accounting principle for the
first quarter of 1999 was $2.3 million as compared to net income
of $9.0 million for the comparable period in 1998.
In connection with the adoption of SOP 98-5, the Company recorded
a cumulative effect of a change in accounting principle, net of
tax charge of $2.4 million. The charge reflects the write-off of
the unamortized organizational costs associated with the
Company's accounts receivable trust and the recently formed
credit card bank.
Seasonality and Inflation
The Company's business is seasonal and its quarterly sales
and profits are traditionally lower during the first three
quarters (February through October) and higher during the fourth
quarter (November through January). During 1998, the Company
experienced poor sales and results of operations beginning in the
second quarter. In addition, working capital requirements
fluctuate throughout the year, increasing substantially in
October and November due to requirements for significantly higher
inventory levels in anticipation of the holiday season.
The following table shows certain unaudited financial
information for the Company by quarter (dollars in thousands):
1999 1998
Q1 Q1 Q2 Q3 Q4
Net sales $262,591 $272, $271,805 $271,60 $357,349
788 5
Gross profit 70,359 87, 82,239 75,252 89,593
225
Operating income8,391 25, 12,678 7,226 7,458
278
Quarters' 48% 24% 14% 14%
operating
income as a --
percent of
total
Income (loss)
before
cumulative
effect of a
change in
accounting
principle $(2,269) $ 9, $ 765 $(3,15 $(2,934)
035 2)
Net income
(loss) $(4,671) $ 9, $ 765 $(3,15 $(2,934)
035 2)
The Company does not believe that inflation had a material
effect on its results of operations during the past two years.
However, there can be no assurance that the Company's business
will not be affected by inflation in the future.
Liquidity and Capital Resources
Total working capital increased $6.9 million to
$375.0 million at May 1, 1999 from $368.1 million at January 30,
1999. The most significant changes in working capital were
associated with the seasonal increase in merchandise inventories.
The Company's primary capital requirements are for working
capital, debt service and capital expenditures. Based upon the
current capital structure, management anticipates cash interest
payments to be approximately $44.0 million during each of 1999
and 2000. Capital expenditures are generally for new store
openings, remodeling of existing stores and facilities and
customary store maintenance. Capital expenditures for the first
three months of 1999 were $7.5 million as compared to $28.5
million for the comparable period of 1998. The reduction was a
result of a decrease in the number of new stores opened as well
as the conversion of the remaining CR Anthony stores to the
Company's format and trade names, which occurred during the first
quarter of 1998. Management expects capital expenditures to be
approximately $23.0 million during 1999, consisting primarily of
10 new store openings, remodeling of existing stores and the
implementation of a new merchandising system. Required aggregate
principal payments on existing debt, excluding the $100 million
working capital and letter of credit facility and the $100
million expansion revolving credit facility (the "Credit
Facility"), total $4.8 million and $34.8 million for 1999 and
2000, respectively. Included in the $34.8 million for 2000 are
the $30.0 million in aggregate principle amount 12.5% Trust
Certificate-Backed Notes ("SRPC Notes"). The SRPC Notes are
collateralized by the retained interest in the Accounts
Receivable Program. Principle repayments are scheduled to begin
during December 2000.
The Company's current short-term liquidity needs are provided by
(i) existing cash balances, (ii) operating cash flows, (iii) the
Accounts Receivable Program, (iv) the Credit Facility (v) and
normal trade credit terms from the vendor and factor community.
The Company expects to fund its long-term liquidity needs from
its operating cash flows, the issuance of debt and/or equity
securities, the securitization of its accounts receivable and
bank borrowings. Outstanding borrowings under the Credit Facility
were $149.7 million at May 1, 1999 as compared to $142.0 million
at January 30, 1999. The Company had $40.7 million of
availability under the Credit Facility at May 1, 1999. The
outstanding balances under the revolving certificates associated
with the Accounts Receivable Program were $97.8 million and
$115.6 million at May 1, 1999 and January 30, 1999, respectively,
while outstanding balances under term certificates were $165.0
million at both May 1, 1999 and January 30, 1999. Principal
repayments under the term certificates commence on December 31,
1999. However, the Company currently expects to refinance these
certificates prior to that date. Therefore, the Company does not
believe this will have an impact on its liquidity or cash flow
for 1999 although there can be no assurances that the Company
will successfully refinance the Accounts Receivable Program or as
to the terms of any such refinancing.
The Company continually monitors its liquidity position and
compliance with its various debt agreements. During the third
and fourth quarters of 1998, the Company's Credit Facility was
amended to lessen certain covenant requirements and clarify
certain defined terms contained in the Credit Facility. In
addition, the Credit Facility was modified to allow a maximum of
$170.0 million of borrowings to be outstanding for thirty days
during the period from January 27, 1999 through July 31, 1999.
As of February 25, 1999, this requirement had been satisfied. The
Company believes the current covenant levels provide sufficient
flexibility to allow the Company to execute its business plan.
Management believes that funds provided by operations,
together with funds available under the Credit Facility, the
Accounts Receivable Program and the normal trade credit terms
from the vendor and factor community will be adequate to meet the
Company's anticipated requirements for working capital, interest
payments, planned capital expenditures and principal payments on
debt. Estimates as to working capital needs and other
expenditures may be materially affected if the foregoing sources
are not available or do not otherwise provide sufficient funds to
meet the Company's obligations.
During May 1999, the Company adopted a store closure plan
and will close approximately thirty-five underperforming stores
which had sales in aggregate of approximately $21.0 million. The
majority of these stores will close over the next six months upon
the completion of an inventory liquidation program. In connection
with this store closure program, the Company expects to record a
pre-tax charge to operations of approximately $20.3 million in
the second quarter of 1999. The store closure program is expected
to be accretive to the Company on a cash basis inclusive of the
inventory liquidation and any excess cash will be applied to
reducing borrowings under the Company's Credit Facility.
Year 2000
The Year 2000 issue relates to the way computer systems and
programs define calendar dates. They could fail or make
miscalculations due to interpreting a date including "00" to mean
1900, not 2000. Also, other systems and equipment may contain
imbedded hardware or software that may have a time element and
affect their operation. The Company began working on the Year
2000 compliance issue in 1996 and heightened its focus and
resource commitment in 1997 with the establishment of a
formalized project plan and management oversight function. The
Company has divided its Year 2000 risk assessment and remediation
efforts into the following three categories: information
systems, peripheral systems and hardware, and third party
vendors.
The Company has completed the evaluation of its critical
information systems infrastructure for Year 2000 compliance and
has developed detailed work plans to achieve compliance prior to
possible system failures. The systems have been segregated into
the following five logical, manageable groups: (1) human
resource, time keeping, and payroll systems (2) point-of-sale and
sales audit systems (3) credit systems (4) financial reporting
and accounts payable systems and (5) merchandising systems. Year
2000 remediation is being addressed through a combination of
modifications or upgrades to existing applications or
replacement. The Company has dedicated in-house resources and
has contracted with third party vendors to complete the necessary
coding changes, testing and installation. The five groups of
systems are in various stages of completion. The Company
estimates Year 2000 readiness related to information systems is
85% complete and anticipates will be substantially complete by
the end of the second quarter of fiscal year 1999.
The Company has substantially completed an inventory of its
major peripheral systems and hardware and is in the process of
assessing and remediating Year 2000 non-compliance issues. These
include, but are not limited to, mainframe computer hardware and
operating systems, communications networks, personal computers
and network systems, printers, store register systems and
processors, scanners, and emergency power systems. The Company
estimates Year 2000 readiness related to peripheral systems and
hardware is 80% complete and anticipates will be substantially
complete by the end of the second quarter of fiscal year 1999.
The Company is installing a new merchandising system which
is anticipated to be completed during the first half of 1999. If
installation is not complete, the Company has made arrangements
with the third party presently working on the Company's Year 2000
compliance issues to remediate the legacy system. To the extent
there are unforeseen issues associated with the implementation of
the new system, the Company's business could be adversely
impacted.
The Company's plan is to have addressed its significant
Year 2000 issues prior to being affected by them. However, if the
Company identifies additional risks related to Year 2000
compliance or its progress in planned remediation efforts
deviates from the anticipated timeline, the Company will develop
contingency plans as deemed necessary at that time. It is
currently estimated that the aggregate cost of the Company's Year
2000 efforts paid to third parties to assist in remediation will
be approximately $2.3 million, of which approximately $2.1
million has been spent. These costs are being expensed as
incurred. These amounts do not include any costs associated with
the implementation of contingency plans or the cost associated
with the replacement of information systems, hardware or
equipment, substantially all of which would be capitalized. The
failure to correct a material Year 2000 problem could result in
an interruption in certain normal business activities or
operations. Presently, the Company does not anticipate any
material disruption in its operations as a result of any failure
by the Company to be in compliance.
The Company has limited information concerning Year 2000
compliance status of its suppliers. The Company has, however,
identified its major suppliers and has sent a survey letter which
is being used to evaluate the potential risk to the Company if
these vendors fail to remedy their Year 2000 issues. In the event
that the Company or any of its significant suppliers does not
successfully and timely achieve Year 2000 compliance, the
Company's business or operations could be adversely affected.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 2. Changes in Securities
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
27.1 Financial Data Schedule.
(b) Reports on Form 8-K
The Company filed a News Release on Form 8-K dated February
4, 1999 related to Stage Stores, Inc. fourth quarter 1998
sales results.
The Company filed a News Release on Form 8-K dated February
19, 1999 related to Stage Stores, Inc. naming a new
executive vice president, chief merchandising officer.
The Company filed a News Release on Form 8-K dated March 11,
1999 related to Stage Stores, Inc. fourth quarter and full
year 1998 results of operations.
The Company filed a News Release on Form 8-K dated April 1,
1999 related to Stage Stores, Inc.'s denial of allegations
of securities laws violations.
The Company filed a News Release on Form 8-K dated May 6,
1999 related to Stage Stores, Inc. first quarter 1999 sales
results.
The Company filed a News Release on Form 8-K dated May 20,
1999 related to Stage Stores, Inc. first quarter 1999
results of operations.
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.
STAGE STORES, INC.
June 14, 1999 /s/ Carl E. Tooker
(Date) Carl E. Tooker
Chairman, Chief Executive
Officer
and President
(principal executive
officer)
June 14, 1999 /s/ James A. Marcum
(Date) James A. Marcum
Vice Chairman and
Chief Financial Officer
(principal financial and
accounting officer)
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
[TYPE] EXHIBIT 27.1
<ARTICLE> 5
<LEGEND>
THE FINANCIAL DATA
SCHEDULE CONTAINS SUMMARY
FINANCIAL INFORMATION
EXTRACTED FROM THE STAGE
STORES, INC.
CONSOLIDATED FINANCIAL
STATEMENTS
AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO
SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1000
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> 1/29/2000
<PERIOD-END> 5/1/1999
<CASH> 8,625
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 363,352
<CURRENT-ASSETS> 512,221
<PP&E> 233,580
<DEPRECIATION> 0
<TOTAL-ASSETS> 858,324
<CURRENT-LIABILITIES> 137,239
<BONDS> 495,724
<COMMON> 280
0
0
<OTHER-SE> 199,942
<TOTAL-LIABILITY-AND-EQUITY> 858,324
<SALES> 262,591
<TOTAL-REVENUES> 262,591
<CGS> 192,232
<TOTAL-COSTS> 192,232
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 12,111
<INCOME-PRETAX> (3,720)
<INCOME-TAX> (1,451)
<INCOME-CONTINUING> (2,269)
<DISCONTINUED> 0
<EXTRAORDINARY> (2,402)
<CHANGES> 0
<NET-INCOME> (4,671)
<EPS-BASIC> (0.17)
<EPS-DILUTED> (0.17)
</TABLE>
