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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A
Amendment No. 1
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended April 30, 1995
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: 0-17868
KRAUSE'S FURNITURE, INC.
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(Exact name of registrant as specified in its charter)
Delaware 77-0310773
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(State or other jurisdiction of incorporation) (I.R.S. Employer
Identification No.)
5980 Stoneridge Drive, Suite 109, Pleasanton, California 94588
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(Address of principal executive offices) (Zip Code)
(510) 460-6201
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(Registrant's telephone number, including area code)
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(Former name, former address and former fiscal year, if changed since last
report)
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. [x] Yes [ ] No
As of June 1, 1995 the Registrant had 12,244,953 shares of common stock
outstanding.
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PART 1
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULT OF OPERATIONS
RESULTS OF OPERATIONS
Quarter Ended April 30, 1995 Compared to Quarter Ended May 1, 1994
Results for the first quarter 1995 reflect both an industry-wide softness
in retail sales and the initial costs associated with the Company's efforts to
reengineer its business.
Soft consumer demand caused retail inventories to become inflated
throughout the industry and resulted in heavy promotional price discounting at
the retail level. Krause's made-to-order strategy minimized the inventory
impact on the Company, but did not insulate it from the sales softness and
competitive promotional pricing pressures. Higher levels of discounting versus
last year adversely impacted margins by approximately three percentage points.
In addition the Company has undertaken an aggressive program to improve
customer service and perceptions, increase operating efficiencies, reduce cycle
times, reduce inventory levels and reduce overhead. While management expects
this "reengineering" effort to increase sales, improve operating margins and
increase cash flow, the initial costs of this program adversely impacted first
quarter results by approximately $600,000.
Net furniture sales for the first fiscal quarter 1995 were $32,251,000
which was an increase of approximately 16.1% from net sales in the comparable
first quarter of 1994. The sales increase was primarily attributable to sales
from new stores and an 8% increase in same-store sales in the first quarter 1995
compared to the first quarter 1994.
Gross margin was 53.1% of net sales in the first quarter 1995 compared to
56.2% in the first quarter 1994. The lower gross margins resulted from higher
product promotions (price discounts) and higher freight costs associated with
proportionately higher sales in the East. In addition, improved response time
to customer return and repair requests caused these costs to exceed rates last
year. Also there was a positive impact on gross margins due to a favorable
product mix.
Selling expenses as a percentage of sales decreased to 45.7% in the first
quarter 1995 from 45.9% in the comparable period last year. Selling expenses
were $14,730,000 in the first quarter 1995 and $12,749,000 in the first quarter
1994. The increase in total selling expenses was principally because of
variable selling expenses attributable to higher sales, increased occupancy
costs, payroll and operating expenses associated with five additional showrooms
open this year. Advertising expenses also increased this year because of media
cost inflation and the additional number of showrooms.
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General administrative expenses, exclusive of employee termination costs
of $415,000 in the first quarter 1995, decreased as a percentage of sales to
9.2% from 10.3%. General and administrative expenses were higher in the 1995
period by $517,000 principally because of the previously mentioned employee
termination expenses.
Interest expense decreased by $616,000 in the first quarter 1995 compared
to the first quarter 1994 due principally to significantly less debt outstanding
in 1995.
The Company's investment in Mr. Coffee, inc. was accounted for by the
equity method which resulted in equity in earnings of $171,000 in the first
quarter 1994. The Company sold its investment in Mr. Coffee in August 1994.
As a result of the above factors, net loss was $991,000 in the quarter
ended April 30, 1995 compared to a loss of $608,000 in the first quarter 1994.
Net loss per share in the first quarter 1995 was $.09 based on 11,054,953
average shares outstanding. In the comparable 1994 quarter the net loss per
share was $.06 on 10,469,036 average shares outstanding.
No tax benefits were available for 1995 or 1994 operating losses.
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LIQUIDITY AND CAPITAL RESOURCES
As of April 30, 1995, the Company had $2,407,000 in cash and cash
equivalents compared to $1,952,000 as of January 29, 1995.
Cash Flow - Thirteen Weeks Ended April 30, 1995
Cash and cash equivalents increased by $455,000 during the period.
Operating activities used net cash of $1,460,000 principally from a $391,000
cash loss from operations, an increase in inventories of $211,000 and a
decrease in current liabilities of $1,110,000, offset by an increase in
prepaid expenses and other assets of $274,000. Investing activities were
capital expenditures of $790,000 principally for costs of construction of a
showroom in Dallas and for additions to leasehold improvements of new
showrooms. The Dallas showroom was sold for approximately $1 million cash in
May 1995 and leased back. This sale and leaseback resulted in a $.4 million
deferred profit to be amortized over the term of the lease. Financing
activities included $2,712,000 of net borrowings under a revolving credit
agreement (see Note 4).
Cash Flow - Thirteen Weeks Ended May 1, 1994
Cash and cash equivalents increased by $48,000 during the period.
Operating activities provided net cash of $355,000, principally from an
increase in accounts payable and other liabilities of $1,270,000 offset by an
increase in inventories of $923,000. Investing activities during the period
were capital expenditures of $203,000, principally for additions to leasehold
improvements of retail showrooms. Financing activities during the period were
$104,000 of payments on short-term notes.
Outlook
The Company's cash, expected cash flow from operations and credit line are
considered adequate to meet short-term cash requirements for operations and
capital expenditures. As of April 30, 1995 there were no significant long-term
capital expenditure commitments.
The industry-wide softness in sales which began early this year has
continued into May and early June. The Company's same-store sales in May 1995
were approximately 12.1% below comparable store sales in May last year.
Industry analysts expect a continuation of sales softness through the summer
with improvements later this year.
Management believes that the reengineering program described above will
begin to produce improved results in the third and fourth quarters this year.
These improvements should buffer any short-term continuation of the softness in
retail sales.
In order to support working capital requirements, sustain growth and reduce
liabilities, the Company may raise additional equity or debt in the future.
Management has no knowledge of any trends or events that are likely to
substantially increase or decrease liquidity needs in the near future other
than as noted above or for acquisitions and expansion of the business that the
Company may undertake.
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SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
KRAUSE'S FURNITURE, INC.
(Registrant)
Date: June 16, 1995 /s/ Robert G. Sharpe
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Robert G. Sharpe
Executive Vice President
