SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended May 4, 1996
Commission File #1-7090
PHARMHOUSE CORP.
(Exact name of registrant as specified in its charter)
New York 13-2634868
(State of other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
860 Broadway, New York, New York 10003
(Address of principal executive offices) (Zip Code)
Registrants telephone number, including area code (212)477-9400
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to
such filing requirements for the past 90 days.
YES X NO
Indicate by check mark whether the Registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15 (d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a
plan confirmed by a court.
YES X NO
Indicate the number of shares outstanding of each of the Registrant's
classes of common stock as of the latest practicable date.
Class Outstanding as of June 1, 1996
Common Shares, 2,231,140
$.01 par value
PHARMHOUSE CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except per share amounts)
Unaudited
<TABLE>
<CAPTION>
May 4, February 3,
1996 1996
----------- -----------
<S>
ASSETS <C> <C>
Current assets
Cash $ 3,636 $ 2,884
Accounts receivable, net
of allowances of $1,044
and $918, respectively 5,025 5,837
Merchandise inventory 57,020 53,778
Prepaid expenses
and other 1,937 1,650
----------- -----------
Total current assets 67,618 64,149
Property, fixtures and
equipment, net 5,885 5,733
Video inventory held
for rental,net 1,937 1,650
Other assets 1,184 1,205
----------- -----------
Total assets $ 76,784 $ 73,210
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Current portion of long-term debt $ 13,893 $ 12,510
Accounts payable 26,594 22,149
Accrued expenses and other 3,618 4,749
----------- -----------
Total current liabilities 44,105 39,408
Long-term debt, net of current
portion 25,800 25,950
Other liabilities 1,047 1,028
----------- -----------
Total liabilities 70,952 66,386
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Preferred stock, $.10 par;
authorized and unissued
2,500,000 shares
Common stock, $.01 par;
authorized 25,000,000
shares; issued
2,245,715 shares 22 22
Additional paid-in capital 21,305 21,305
Accumulated deficit (15,494) (14,502)
----------- -----------
5,833 6,825
Treasury stock, at cost 1 1
----------- -----------
Total shareholders' equity 5,832 6,824
Total liabilities and
shareholders' equity $ 76,784 $ 73,210
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements
PHARMHOUSE CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
Unaudited
<TABLE>
<CAPTION>
May 4, April 29,
1996 1995
<S> <C> <C>
Revenues:
Net store sales $ 55,317 $ 20,947
Video rental, service
and other income 1,801 645
----------- -----------
57,118 21,592
----------- -----------
Costs and Expenses:
Cost of merchandise sold 43,207 16,546
Selling, general and
administrative 13,863 5,568
----------- -----------
57,070 22,114
----------- -----------
Income (loss) from operations 48 (522)
Interest expense 1,040 302
Net loss $ (992) $ (824)
=========== ===========
Per Common Share:
Net loss per Common Share $ (0.45) $ (0.37)
=========== ===========
Average shares outstanding 2,229,18 2,235,62
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
PHARMHOUSE CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Unaudited
<TABLE>
<CAPTION>
May 4, April 29,
1996 1995
<S> <C> <C>
CASH FLOWS PROVIDED BY OPERATING ACTIVITIES:
Net Loss $ (992) $ (824)
Adjustments to reconcile net loss to net cash
flows from operating activities:
Depreciation and amortization 611 326
(Decrease) increase in deferred rent (7) 20
Changes in operating assets and liabilities
exclusive of amounts arising from Acquisition:
(Increase) decrease in:
Accounts receivable, net 812 585
Merchandise inventory (3,242) 1,344
Prepaid expenses and other (288) 213
Other assets 21 -
Increase (decrease) in:
Accounts payable 4,446 (265)
Accrued expenses and other (1,106) 1,271
----------- -----------
NET CASH FLOWS PROVIDED BY OPERATING ACTIVITIES 255 2,670
----------- -----------
CASH FLOWS USED BY INVESTING ACTIVITIES:
Acquired business, net of store cash acquired - (35,640)
Purchase of property, fixtures and equipment (418) (120)
Purchase of video inventory held for rental (319) (77)
----------- -----------
NET CASH FLOWS USED BY INVESTING ACTIVITIES (737) (35,837)
----------- -----------
CASH FLOWS PROVIDED BY FINANCING ACTIVITIES:
Revolver borrowings, net 1,384 -
Borrowings to finance acquisition - 41,392
Retirement of debt - (7,481)
Reduction of Subordinatead Loan (150) -
Proceeds from issuance of common stock
and stock options - 21
----------- -----------
NET CASH FLOWS PROVIDED BY FINANCING ACTIVITIES: 1,234 33,932
----------- -----------
NET INCREASE IN CASH
Cash, beginning of period 752 765
Cash, end of period 2,884 1,313
$ 3,636 $ 2,078
=========== ===========
Supplemental information:
Interest payments $ 794 $ 293
</TABLE>
See accompanying notes to consolidiated financial statements
PHARMHOUSE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Three Months Ended May 4, 1996
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements of
Pharmhouse Corp. (the "Company") have been prepared in accordance
with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and
Rule10-01 of Regulation S-X. Accordingly, they do not include
all the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the
opinion of management, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation
have been included. These consolidated financial statements
should be read in conjunction with the audited consolidated
financial statements of the Company and the notes thereto for the
fiscal year ended February 3, 1996 ("Fiscal 1996") included in
the Company's Annual Report on Form 10-K heretofore filed with
the Securities and Exchange Commission. The current period
results of operations reported upon herein reflect revenues and
expenses for the 24 "The Rx Place" deep discount drug stores (the
"Rx Place Stores") acquired on April 28, 1995 (the "Acquisition")
from F.W. Woolworth, Co., a subsidiary of Woolworth Corporation
(collectively, "Woolworth"), pursuant to the terms of an Asset
Purchase Agreement (as amended, the "Acquisition Agreement").
The current period results of operations are not necessarily
indicative of results which ultimately will be reported for the
full fiscal year ending February 1, 1997 ("Fiscal 1997"). The
results of operations for the comparable first quarter period in
Fiscal 1996 reflect revenues and expenses of the Rx Place Stores
for the two day period of April 28 - April 29, 1995.
Certain amounts in the Fiscal 1996 first quarter consolidated
financial statements have been reclassified to be consistent with
the Fiscal 1997 first quarter presentation.
NOTE 2 - ACQUISITION
On April 28, 1995, the Company acquired, and accounted for as a
purchase, the assets and business of 24 "Rx Place" discount drug
stores. The total acquisition cost, net of store cash acquired,
amounted to approximately $39.5 million and consisted of the
following items: $23.5 million in cash; notes issued to Woolworth
amounting to $12.5 million with maturity dates ranging from
January 1996 to April 1998 (the "Purchase Money Notes"); $2.9
million for the related costs of acquisition (includes cost of
issuance of warrants, see Note 4); and $0.6 million in other
liabilities. In June 1995, the Company prepaid approximately
$4.1 million of the Purchase Money Note due in January 1996 at a
discount and recorded an extraordinary gain of $618,000. The
Company has elected to withhold payment of the remaining
installments of principal and interest payable under the Purchase
Money Notes, pending resolution of the Company's claims against
Woolworth (See Note 6 - Woolworth Lawsuit).
The assets acquired by the Company from Woolworth consisted of
merchandise inventory and cash in the Rx Place Stores (and
certain specified merchandise inventory held in one of
Woolworth's distribution centers) plus furniture, fixtures and
equipment, store supplies and related items. In connection with
the Acquisition, the Company assumed Woolworth's obligations
under the leases of the Rx Place Stores as well as certain other
obligations of Woolworth specified in the Acquisition Agreement.
Pursuant to the Acquisition Agreement, the Company did not assume
Woolworth's obligations for trade payables of the Rx Place
Stores, subject to certain minor exceptions, and was granted a
three year non-exclusive license to use the registered service
mark "The Rx Place" in its operation of the Rx Place Stores.
The Acquisition was financed through (a) a senior secured
revolving credit facility (the "Senior Credit Facility") provided
by a financial institution, (b) a $3 million secured subordinated
term loan (the "Subordinated Loan") provided by an unaffiliated
trade supplier which is evidenced and governed by a Promissory
Note and a Security Agreement (the "Subordinated Loan
Agreements") and (c) the Purchase Money Notes. The Senior Credit
Facility is secured by a first priority security interest in the
Company's inventory, accounts receivable and other assets,
including a mortgage on the Company's owned store premises
located in Winchester, Virginia. All of the Company's
indebtedness to the trade supplier is secured by a second
priority security interest in the assets (not including real
property) of the Company. Each of the Senior Credit Facility and
the Subordinated Loan has a term of three years, subject to
extension upon terms and conditions referred to in the Senior
Credit Facility Agreement and the Subordinated Loan Agreements,
respectively.
Pro Forma Information (unaudited)
The following unaudited pro forma summary information (000's
omitted) for the first quarter of Fiscal 1996 has been prepared
giving effect to the Acquisition and the related financing as if
the Acquisition and related financing had occurred on the first
day of Fiscal 1996. The unaudited pro forma results, however,
are not necessarily indicative of the actual results that may
have been obtained had the Acquisition and the related financing
actually occurred on the first day of Fiscal 1996 nor are they
indicative of future operating results of the Company.
Three Months Ended
April 29, 1995
Unaudited
Revenues $ 65,791
Net loss (13,751) *
Net loss per common share ($ 6.15)
* Approximately 85% of the loss is directly attributable to the
Rx Place stores during the period January 29, 1995 to April 28,
1995 as reported by Woolworth.
THE FOREGOING UNAUDITED PRO FORMA SUMMARY INFORMATION REFLECTS
THE RESULTS OF OPERATIONS OF THE 24 RX PLACE STORES FOR THE
PERIOD PRIOR TO THE ACQUISITION AS FURNISHED TO THE COMPANY BY
WOOLWORTH. THE COMPANY HAS INSTITUTED LEGAL PROCEEDINGS AGAINST
WOOLWORTH WHICH PERTAIN TO, AMONG OTHER MATTERS, THE RESULTS OF
OPERATIONS AND CERTAIN ASSETS OF THE RX PLACE STORES ACQUIRED BY
THE COMPANY FROM WOOLWORTH (SEE NOTE 6 - WOOLWORTH LAWSUIT).
NOTE 3 - BORROWINGS
A summary of the Company's borrowings at May 4, 1996 is as
follows (000's omitted):
Current Noncurrent
Total portion portion
Senior Credit Facility $28,871 $ 4,871* $24,000
Subordinated Loan 2,400 600 1,800
Purchase Money Notes-Woolworth 8,422** 8,422 -
$39,693 $ 13,893 $25,800
* This amount is classified as "current" for financial reporting
purposes and is subject to the same terms and conditions as the
portion which is classified as "non-current".
** In January 1996, the Company instituted legal proceedings
against Woolworth asserting several causes of action arising out
of the Acquisition. Pending resolution of such legal
proceedings, the Company is withholding payment of all remaining
installments of principal and interest arising under the Purchase
Money Notes (See Note 6 - Woolworth Lawsuit). As a result of
management's decision to withhold all remaining installments of
principal and interest to Woolworth, the Purchase Money Notes
have been classified as current liabilities in these financial
statements.
Senior Credit Facility
The borrowing availability under the Senior Credit Facility is
based on the lesser of 60% of eligible inventory (at cost) or $45
million, requires that the Company satisfy minimum net worth
levels and restricts the Company from paying cash dividends. The
three year term of the agreement expires in April 1998 and
provides for borrowing rates at prime plus 1.5% or LIBOR plus
3.5% and facilitiy fees
Subordinated Loan
The Subordinated Loan payable to an unaffiliated supplier,
originally in the amount of $3 million, is being repaid in
monthly installments of $50,000 with a $1.2 million balloon
payment due in April 1998. The loan has a borrowing rate of
prime plus 3% and a commitment fee.
Under the terms of the agreements governing the Senior Credit
Facility and the Subordinated Loan, the lenders thereunder have
been granted security interests in substantially all of the
Company's assets.
NOTE 4 - WARRANTS
In Fiscal 1996, in connection with the Acquisition, the Company
issued 85,867 warrants to Brenner Securities Corporation, the
Company's investment banking firm in such transaction, to
purchase 85,867 of the Company's Common Shares (such amount
being equal to 3% of the Company's issued and outstanding shares,
including Common Share equivalents), subject to certain anti-
dilution protection, for a per share exercise price of $0.94.
The difference between the fair market value of the Company's
common stock on the date of grant and the exercise price was
included in the acquisition cost of the Rx Place Stores. As of
May 4, 1996, none of such warrants were exercised.
In December 1991, the Company issued warrants to its then secured
lender to purchase 209,195 of its Common Shares at varying
exercise prices ranging from $.19 to $1.91. These warrants were
still outstanding as at May 4, 1996.
NOTE 5 - LOSS PER COMMON SHARE
Loss per Common Share for the first quarters of Fiscal 1997 and
Fiscal 1996 is based on the weighted average number of Common
Shares outstanding during the periods. Common Shares issuable
with respect to outstanding warrants and stock options were not
included in the computations since the inclusion of such shares
would anti-dilutive.
NOTE 6 - WOOLWORTH LAWSUIT
In January 1996, the Company instituted legal proceedings against
Woolworth in the Supreme Court of the State of New York seeking,
among other relief, damages and indemnification arising out of
Woolworth's alleged fraud and breach of certain covenants,
representations and warranties made by Woolworth in connection
with the Acquisition. The Company's claims in such action are
based upon its belief that material misrepresentations were made
by Woolworth regarding the inventory as well as the results of
operations and gross profit margins of the acquired stores and
that the Company has been damaged as a result thereof.
Pending resolution of the Company's claims in the above-described
action, the Company is withholding payment of all further
installments of principal and interest arising under the Purchase
Money Notes. The Company's senior secured and subordinated
secured lenders have consented to the withholding by the Company
of payment of the installments of principal and interest under
the Purchase Money Note due in January 1996 and have granted
waivers of the relevant cross-default provisions of the
agreements evidencing the Company's indebtedness to such lenders
through July 28, 1996. Management has no reason to believe that,
upon expiration of the waivers now in effect, the senior secured
and subordinated secured lenders will not grant additional
waivers.
In May 1996, a stay of the lawsuit was issued by a judge of New
York State Supreme Court who ruled that the Company's complaint
should be resolved through arbitration. The Company's management
believes that arbitration applies only to the "post-closing"
adjustment portion of the Acquisition Agreement and that
arbitration does not apply to the broader issues of fraud,
misrepresentation and breach of contract. After consultation
with counsel, the Company's management has determined to appeal
the arbitration decision and make a motion to stay the
arbitration pending determination of the appeal. As of the date
of this report, management cannot predict the ultimate outcome or
resolution of the pending legal proceedings against Woolworth.
Whether or not the Company prevails in its claims against
Woolworth in these proceedings, the outcome or resolution of such
proceedings could have a material impact upon the Company's
financial condition.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION
General
Pharmhouse Corp. (the "Company" ) operates a chain of 38 deep
discount drug stores, 14 of which are operated under the name
Pharmhouse (the "Pharmhouse Stores") and 24 of which are operated
under the name The Rx Place (the "Rx Place Stores"). The
Company's stores are located primarily in the mid-Atlantic and
New England states and emphasize a pricing policy of everyday
deep discount prices on all merchandise which includes health and
beauty care products, cosmetics, prescription drugs, stationery,
housewares, pet supplies, greeting cards, food, snacks beverages
and other merchandise, including seasonal products. The
Pharmhouse Stores are approximately 35,000 square feet in size
and the Rx Place Stores are approximately 25,000 square feet.
During early February 1996, the Company moved its distribution
operation into a 100,000 square foot cross-docking distribution
facility located in Pottstown, Pennsylvania. This facility is
geographically closer to a greater number of the Company's stores
and, as a result, management anticipates a substantial savings in
freight costs. In addition, this facility will provide the added
benefit of processing freight more quickly and efficiently due to
the larger size and layout compared to the previous facility.
Unfortunately, the start-up of the new distribution facility
caused problems in the merchandise supply to stores and disrupted
business for the entire first quarter of fiscal 1997. By the end
of May 1996, these merchandise supply problems were substantially
eliminated and the Company's stores have since been receiving
ample flows of merchandise.
Results of Operations
The following table sets forth, as a percentage of revenues,
certain items appearing in the Company's Consolidated Statements
of Operations for the first quarters of Fiscal 1997 and Fiscal
1996, respectively:
FIRST QUARTER
--------------------
Fiscal Fiscal
1997 1996
-------- --------
Revenues 100.0% 100.0%
Cost of merchandise sold 75.6 76.6
Gross profit 24.4 23.4
Selling, general and
administrative expense 24.3 25.8
Income (loss) from operations 0.1 (1.4)
Interest expense 1.8 1.4
Net loss ( 1.7)% ( 3.8)%
FIRST QUARTER OF FISCAL 1997 VS. FIRST QUARTER OF FISCAL 1996
Revenues
In the first quarter of Fiscal 1997, revenues (including video
rental, service and other income) were $57.1 million compared
with revenues of $21.6 million in the first quarter of Fiscal
1996, an increase of $35.5 million, or 164.5%. The revenue
growth is attributable to the Company's operation of 24
additional stores during the Fiscal 1997 first quarter (the Rx
Place Stores were acquired on April 28, 1995, one day prior to
the end of the Company's Fiscal 1996 first quarter). The Company
has since been operating a significantly larger store base (38
stores compared to 14 stores.)
Gross Profit
The Fiscal 1997 first quarter gross profit (total revenues less
costs of merchandise and services sold and freight/distribution
services provided) was $13.9 million compared to $5.0 million in
the prior year, an increase of $8.9 million, or 175.7%. The
increase in gross profit dollars is primarily attributable to the
contribution made by the 24 additional Rx Place Stores operated
by the Company during the first quarter of Fiscal 1997. As a
percentage of revenues, gross profit during the Fiscal 1997 first
quarter increased to 24.4% from 23.4% for the same quarter in the
prior year, primarily resulting from an improvement in the gross
profit percentage generated by the Pharmhouse Stores offset by a
lower gross profit percentage generated by the Rx Place Stores.
On a same-store basis (consisting of 14 Pharmhouse stores), the
gross profit margin increased to 25.4% in the first quarter of
Fiscal 1997 compared with 22.8% for the comparable quarter in
the prior year as a result of several factors, including
increased initial markups on merchandise purchases through better
buying opportunities, the selective increase of prices within
certain merchandise categories and bulk rate purchase discounts
negotiated as a result of increased buying capacity. The gross
profit for the 14 Pharmhouse stores during the first quarter of
Fiscal 1997 increased approximately $384,000 compared with the
first quarter of Fiscal 1996 despite a same-store revenue decline
for these stores of $601,000, or 2.9%. Approximately 64% of the
same-store revenue decline resulted from increased competition in
the market served by one Pharmhouse store.
Selling, General and Administrative
Selling, general and administrative ("SG&A") expense was $13.9
million for the first quarter of Fiscal 1997 compared to $5.6
million in the prior year's first quarter, an increase of
approximately $8.3 million, or 149.0%. The increase in SG&A is
primarily attributable to store expenses incurred in connection
with operating 24 additional stores during the first quarter of
Fiscal 1997 and, to a lesser extent, certain additional
managerial and clerical payroll costs resulting from the
operation of a greater number of stores during the Fiscal 1997
first quarter. As a percentage of revenues, SG&A expense was
24.3% for the first quarter of Fiscal 1997 compared to 25.8% for
the comparable quarter of the prior year. The percentage
decrease is primarily attributable to increased revenues
generated by a greater number of stores from which to absorb SG&A
expense. During the first quarter of Fiscal 1997, the Company
also phased-in substantial store payroll reductions which has
better aligned store payroll expenses with store revenues. By
the end of May 1996, substantially all of the scheduled store
payroll reductions were implemented.
Operating Income
Operating income generated by the Company in the first quarter of
Fiscal 1997 was $48,000 compared with an operating loss of
$522,000 for the comparable quarter in the prior year, an
improvement of $570,000. The improvement in operating income is
attributable to increased gross profit of $8,865,000 offset by
increased SG&A expense of $8,295,000, all of which is primarily
attributable to operating a greater number of stores.
Interest Expense
Interest expense in the first quarter of Fiscal 1997 was
$1,040,000 compared with $302,000 in the comparable quarter of
the prior year. The increased interest expense in the first
quarter of Fiscal 1997 resulted from higher levels of borrowing
which were required primarily to finance the Acquisition and to
fund the increased working capital requirements for the operation
of 24 additional stores.
Provision for Income Taxes
Although the Company is not subject to federal income taxes due
to the loss incurred in the first quarter of Fiscal 1997 (the
Company also has significant net operating loss carry-forwards),
in certain states the Company is subject to state and local taxes
which are computed on a basis other than income (e.g., capital
stock, etc.). Such state and local taxes are not material and
are included in SG&A expense.
Net Loss
The Company reported a net loss of $992,000 for the first quarter
of Fiscal 1997 compared with a net loss of $824,000 for the first
quarter of the prior year. The Company's operating income
improved by $570,000 during the first quarter of Fiscal 1997
compared to the comparable quarter in Fiscal 1996, however,
higher interest expense related to the Acquisition and increased
working capital requirements to operate the Rx Place Stores more
than offset the additional operating income generated by these
stores.
Liquidity and Capital Resources
The Company generated cash flows from operating activities of
$255,000 in the first quarter of Fiscal 1997. A $4.5 million
increase in accounts payable (vendor trade credit) , a $0.8
million reduction in accounts receivable and depreciation and
amortization charges of $0.6 million were substantially offset by
an increase in inventory of $3.2 million, a decrease in accrued
expenses and other of $1.1 million and the funding of the net
loss of $992,000. Capital expenditures amounted to $737,000,
consisting of $418,000 for property and equipment and $319,000
for the purchase of video inventory held for rental. During the
first quarter of Fiscal 1997, a temporary hold in major capital
improvements was instituted until such time as the Company
achieves profitability. Net borrowings under the Company's
Senior Credit Facility increased approximately $1.4 million
during the first quarter of Fiscal 1997. As of May 4, 1996,
outstanding borrowings under the Senior Credit Facility were
$28.9 million.
Summary of Borrowings
In late April 1995, the Company entered into the Senior Credit
Facility which provides for borrowing availability equal to the
lower of sixty percent (60%) of eligible inventory at cost or $45
million at borrowing rates of prime plus 1.5% or LIBOR plus 3.5%
and facility fees. The initial borrowings under the Senior
Credit Facility were used to finance a portion of the
Acquisition, as previously described, to repay in full the
indebtedness of the Company under its then existing senior and
subordinated secured loans in the amount of approximately $7.5
million and to provide working capital to the Company for the
operation of its 38 stores. The indebtedness under the Senior
Credit Facility is secured by substantially all of the Company's
assets, prohibits the payment of dividends and requires that the
Company maintain minimum net worth levels.
In connection with the Acquisition, the Company received a $3.0
million Subordinated Loan from an unaffiliated supplier and $1.0
million in extended dating of certain accounts payable for 12 to
18 months, $333,333 of which amount was paid in April 1996.
Furthermore, the Company issued Purchase Money Notes to Woolworth
in an aggregate principal amount of $12.5 million, of which $4.1
million were retired on June 28, 1995 at a discount in the amount
of approximately $0.6 million for which the Company recorded an
extraordinary gain. In light of its pending legal action against
Woolworth, the Company has elected to withhold payment of the
remaining installments of principal and interest payable under
the Purchase Money Notes pending resolution of the Company's
claims therein. The Company's senior secured and subordinated
secured lenders have consented to the withholding by the Company
of payment of the installments of principal and interest under
the Purchase Money Note due in January 1996 and have granted
waivers of the relevant cross-default provisions of the
agreements evidencing the Company's indebtedness to such lenders
through July 28, 1996. Management has no reason to believe that,
upon expiration of the waivers now in effect, the senior secured
and subordinated secured lenders will not grant additional
waivers.
Working Capital
Working capital amounted to $23.5 million at May 4, 1996 compared
to $24.7 million at February 3, 1996. The ratio of current assets
to current liabilities was 1.5 and 1.6 at the end of the first
quarter of Fiscal 1997 and the end of Fiscal 1996, respectively.
Assuming the continuing availability of trade credit at the
current level and the combination of the financing made
available through the Senior Credit Facility and cash generated
by the Company's operations, in the opinion of management, the
Company will be able to meet its estimated working capital
requirements for at least the balance of Fiscal 1997.
PART II.
OTHER INFORMATION
None.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
Pharmhouse Corp.
(Registrant)
Date: June 14, 1996 By:/s/ Kenneth A. Davis
Kenneth A. Davis
President, Chief Executive
Officer and Chief Operating
Officer
Date: June 14, 1996 By:/s/ Richard A. Davis
Richard A. Davis
Senior Vice President-Finance
and Chief Financial Officer
Same-store revenues (stores open for the full quarter in both
fiscal years - consisting of 14 Pharmhouse stores) decreased
$601,000 during the first quarter of fiscal 1997, or 2.9%
compared to the first quarter in fiscal 1996. Approximately 64%
of the same-store revenue decline resulted from increased
competition in the market served by one Pharmhouse store; decline
in same-store revenues also resulted from increased competition
in other markets to a lesser extent than the market described
above. (Despite the decline in same-store store revenues, the
gross profit achieved by the Pharmhouse Stores for the first
quarter in fiscal 1997 increased approximately $384,000, or 2.6
percentage points, compared with the same quarter of the prior
year).
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> FEB-01-1997
<PERIOD-END> MAY-04-1996
<CASH> 3,636
<SECURITIES> 0
<RECEIVABLES> 5,025
<ALLOWANCES> 0
<INVENTORY> 57,020
<CURRENT-ASSETS> 67,618
<PP&E> 7,982
<DEPRECIATION> 611
<TOTAL-ASSETS> 76,784
<CURRENT-LIABILITIES> 44,105
<BONDS> 0
<COMMON> 23
0
0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 76,784
<SALES> 55,317
<TOTAL-REVENUES> 57,118
<CGS> 43,207
<TOTAL-COSTS> 57,070
<OTHER-EXPENSES> 13,863
<LOSS-PROVISION> 0
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