FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
[ X ] QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended October 28, 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 No. 0-11682
S & K FAMOUS BRANDS, INC.
...............................
(Exact name of registrant as specified in its charter)
Virginia 54-0845694
.................................. ...............................
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
11100 West Broad Street, P. O. Box 31800, Richmond, Virginia 23294-1800
.........................................................................
(Address of principal executive offices)
Registrant's telephone number, including area code: (804) 346-2500
..............
Not Applicable
...............................................................
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.
Yes X No _____
Indicate the number of shares outstanding of each of the Registrant's
classes of common stock as of October 28, 1995
5,058,434 shares of Common Stock, $0.50 par value
1
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
S & K FAMOUS BRANDS, INC.
Statements of Income
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
October 28, October 29, October 28, October 29,
1995 1994 1995 1994
As restated As restated
--------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Net sales.................................. $28,236,210 $27,157,991 $84,249,455 $76,667,971
Cost of sales.............................. 15,602,566 15,530,842 46,579,014 43,670,606
--------------- ----------------- ----------------- -----------------
Gross profit ............................. 12,633,644 11,627,149 37,670,441 32,997,365
Other costs and expenses:
Selling, general and administrative..... 11,601,761 10,532,029 33,437,862 29,672,551
Interest ............................... 204,733 201,877 607,876 505,102
Depreciation and amortization........... 538,552 505,555 1,608,466 1,477,631
Other, net.............................. 218,918 (65,811) 122,112 (194,296)
--------------- ----------------- ----------------- -----------------
Income before income taxes................. 69,680 453,499 1,894,125 1,536,377
Provision for income taxes................. 26,500 165,200 719,800 576,500
--------------- ----------------- ----------------- -----------------
Net income................................. $ 43,180 $ 288,299 $1,174,325 $ 959,877
=============== ================= ================= =================
Net income per common share................ $ 0.01 $ 0.06 $ 0.24 $ 0.20
=============== ================= ================= =================
Weighted average common shares
outstanding............................. 5,058,434 4,838,445 4,966,152 4,831,841
=============== ================= ================= =================
</TABLE>
See notes to financial statements.
2
<PAGE>
S & K FAMOUS BRANDS, INC.
Balance Sheets
(unaudited)
<TABLE>
<CAPTION>
As restated
-------------------------------------------
October 28, October 29, January 28,
1995 1994 1995
------------------ ------------------ ------------------
<S> <C> <C> <C>
Assets
Current assets:
Cash ................................................ $ 378,380 $ 399,179 $ 584,887
Accounts receivable.................................... 535,818 466,515 320,199
Merchandise inventories................................ 49,519,489 50,530,051 40,397,436
Other current assets................................... 2,444,755 2,235,420 2,263,805
------------------ ------------------ ------------------
Total current assets................................ 52,878,442 53,631,165 43,566,327
Property and equipment, at cost:
Land and corporate facility............................ 5,125,041 5,121,909 5,130,826
Furniture, fixtures and equipment ..................... 10,941,884 10,320,101 10,415,365
Leasehold improvements................................. 10,882,719 10,039,940 10,227,203
------------------ ------------------ ------------------
26,949,644 25,481,950 25,773,394
Less: Accumulated depreciation and amortization........ 12,561,275 10,552,782 10,974,249
------------------ ------------------ ------------------
14,388,369 14,929,168 14,799,145
Other assets ............................................. 2,268,414 1,854,679 1,975,313
------------------ ------------------ ------------------
$ 69,535,225 $ 70,415,012 $ 60,340,785
================== ================== ==================
Liabilities and Shareholders' Equity
Current liabilities:
Current maturities of long-term debt $ 180,000 $ 180,000 $ 180,000
Accounts payable ...................................... 14,821,526 16,228,337 5,632,133
Accrued expenses:
Compensation-related items.......................... 458,818 418,640 980,365
Current and deferred income taxes................... 148,529 514,759 1,120,887
Other current liabilities........................... 1,245,289 1,106,240 1,009,159
------------------ ------------------ ------------------
Total current liabilities....................... 16,854,162 18,447,976 8,922,544
Industrial Development Revenue Bond....................... 2,385,000 2,565,000 2,520,000
Long-term debt............................................ 10,356,581 12,233,079 10,263,498
Deferred income taxes..................................... 1,138,293 1,000,148 1,075,945
Commitments
Shareholders' equity:
Preferred stock, $1 par value; authorized shares,
500,000; issued and outstanding shares, none
Common stock, $.50 par value, authorized shares,
10,000,000; issued and outstanding shares,
5,058,434, 4,838,445 and 4,838,445, respectively 2,529,217 2,419,223 2,419,223
Capital in excess of par value......................... 7,795,215 6,365,287 6,365,287
Notes receivable--Stock Purchase Loan Plan (1,471,856) - -
Retained earnings...................................... 29,948,613 27,384,299 28,774,288
------------------ ------------------ ------------------
38,801,189 36,168,809 37,558,798
------------------ ------------------ ------------------
$ 69,535,225 $ 70,415,012 $ 60,340,785
================== ================== ==================
</TABLE>
See notes to financial statements.
3
<PAGE>
S & K FAMOUS BRANDS, INC.
Statements of Cash Flows
Increase (Decrease) in Cash
(unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
------------------------------------------------
October 29,
October 28, 1994
1995 As restated
------------------ ------------------
<S> <C> <C>
Cash flows from operating activities:
Net income.................................................. $ 1,174,325 $ 959,877
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization............................ 1,914,348 1,734,069
Loss on property dispositions, (net)..................... 237,494 32,466
Other.................................................... 92,083 85,262
Changes in assets and liabilities:
Accounts receivable................................... (215,619) (22,215)
Inventories........................................... (9,122,053) (11,935,240)
Other current assets.................................. (180,950) (567,787)
Other assets.......................................... (293,101) (315,199)
Accounts payable and accrued expenses................. 8,972,042 11,817,943
Income taxes and deferred income taxes................ (910,010) (575,380)
------------------ ------------------
Net cash provided by operating activities................... 1,668,559 1,213,796
------------------ ------------------
Cash flows from investing activities:
Capital expenditures........................................ (1,746,998) (2,872,457)
Proceeds from property dispositions......................... 5,932 7,475
------------------ ------------------
Net cash used for investing activities...................... (1,741,066) (2,864,982)
------------------ ------------------
Cash flows from financing activities:
Net borrowings under revolving bank lines of credit 1,000 1,685,001
Proceeds from exercise of stock options..................... - 95,438
Reduction of long-term debt................................. (135,000) (135,000)
------------------ ------------------
Net cash (used for) provided by financing activities (134,000) 1,645,439
------------------ ------------------
Net decrease in cash........................................... (206,507) (5,747)
Cash at beginning of period.................................... 584,887 404,926
------------------ ------------------
Cash at end of period.......................................... $ 378,380 $ 399,179
================== ==================
Supplemental cash flow information:
Cash paid during the period for:
Interest................................................. $ 607,200 $ 481,900
Income taxes............................................. 1,633,200 1,242,600
</TABLE>
See notes to financial statements.
4
<PAGE>
S & K FAMOUS BRANDS, INC.
Notes to Financial Statements
(unaudited)
A. Accounting Policies
The accompanying unaudited interim financial statements have been prepared
by the Company in accordance with the regulations of the Securities and Exchange
Commission in regard to quarterly reporting. In the opinion of the Company, the
statements include all adjustments, consisting only of normal recurring
adjustments, which are necessary for a fair representation of the financial
position and results of operations for interim periods.
B. Interim Results of Operations
The Company's business is highly seasonal, with peak sales periods
occurring during its fourth fiscal quarter which includes the Christmas season.
The net earnings of any interim quarter are seasonally disproportionate to net
sales since administrative and certain operating expenses remain relatively
constant during the year. Consequently, interim results should not be considered
necessarily indicative of the results for the entire fiscal year.
C. Accounting Change
During the first quarter of fiscal 1996, the Company changed its method of
determining the cost of the majority of its inventories to the average cost
method. The Company had previously determined the cost of the majority of its
inventories using the last-in, first-out (LIFO) retail inventory method. Under
the retail LIFO inventory method, the Company had experienced no significant
inflation in retail prices in recent years. At the same time, the Company had
experienced cost reductions for certain goods as a result of volume and
inventory sourcing efficiencies. Using the average cost method, the Company will
track inventory costs for approximately 130 inventory categories which are used
to classify the Company's inventory. Management believes that reporting
inventories using the average cost method will result in better matching of
revenues and costs and reporting on a basis more consistent with other companies
in its industry.
The change in the method of valuing inventories has been applied
retroactively and the effect on net income per share as previously reported is
as follows:
<TABLE>
<CAPTION>
Decrease In
Fiscal 1995 Quarter Ended
---------------------------------------------------------------------------
April July October January
------------------ ------------------ ------------------ ------------------
<S> <C> <C> <C> <C>
Net income ........................ $43,530 $43,709 $47,865 $63,036
Net income per share .............. $.01 $.01 $.01 $.01
</TABLE>
<TABLE>
<CAPTION>
Decrease In
Years Ended January
---------------------------------------------------------------------------
1995 1994
------------------------------------- -------------------------------------
<S> <C> <C>
Net income ........................ $198,140 $404,301
Net income per share .................. $.04 $.09
</TABLE>
The balances of retained earnings for fiscal 1995 and 1994 have been adjusted
for the effect (net of income taxes) of applying retroactively the new method of
accounting.
5
<PAGE>
D. Expansion
The Company has opened nineteen new stores totaling 91,210 square feet
since July 29, 1995.
<TABLE>
<CAPTION>
S&K Store Locations Date Opened Square Footage
- - ----------------------------------------------------------- -------------------------------- -------------------------
<S> <C> <C> <C>
Florida: Clearwater November 9, 1995 4,020
Jacksonville October 21, 1995 6,120
Pensacola November 1, 1995 3,000
St. Petersburg November 9, 1995 3,520
Tampa November 3, 1995 5,040
Tampa (Brandon) October 25, 1996 10,000
Illinois: Peoria October 1, 1995 4,120
Iowa: Des Moines November 15, 1995 6,000
Louisiana: Baton Rouge October 19, 1995 3,530
New York: Buffalo (Hamburg) November 16, 1995 3,500
Buffalo (Williamsville) November 24, 1995 5,550
Buffalo (Williamsville) November 24, 1995 5,600
Niagara Falls November 15, 1995 3,070
Syracuse (Clay) September 14, 1995 4,300
Syracuse (Dewitt) September 14, 1995 3,580
Ohio: Dayton (W. Carrollton) November 17, 1995 5,500
Oklahoma: Tulsa November 20, 1995 6,000
Pennsylvania: Erie November 9, 1995 3,660
Texas: Austin November 3, 1995 5,100
</TABLE>
The Company closed a store in Brunswick, Georgia, (3,150 square feet) on
November 25, 1995 due to its not meeting the Company's sales and earnings
expectations.
E. Stock Purchase Loan Plan
On May 25, 1995, the shareholders approved the Company's Stock Purchase
Loan Plan. Under this Plan, the Company issued 214,275 shares of stock to
seventeen Company officers and has loans with these officers approximating $1.5
million.
6
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND FINANCIAL REVIEW
Three Months and Nine Months Ended October 28, 1995, Compared to Three Months
and Nine Months Ended October 29, 1994
RESULTS OF OPERATIONS
The following table sets forth certain items in the Statements of Income
as a percentage of net sales for the three months and nine months ended October
28, 1995 and October 29, 1994.
<TABLE>
<CAPTION>
Percentage of Net Sales
------------------------------------------------------------------------
Three Months Ended Nine Months Ended
------------------------------ ------------------------------
10/28/95 10/29/94 10/28/95 10/29/94
------------------------------ ------------------------------
<S> <C> <C> <C> <C>
Net sales ................................ 100.0% 100.0% 100.0% 100.0%
Cost of sales ............................ 55.3 57.2 55.3 57.0
-------- -------- ------- ------
Gross profit ............................. 44.7 42.8 44.7 43.0
Other costs and expenses:
Selling, general and administrative .... 41.1 38.8 39.7 38.7
Interest ............................... .7 .7 .7 .7
Depreciation and amortization .......... 1.9 1.8 1.9 1.9
Other, net ............................. .8 (.2) .2 (.3)
-------- -------- ------- -----
Income before income taxes ............... .2 1.7 2.2 2.0
Provision for income taxes ............... .1 .6 .8 .7
-------- -------- ------- ------
Net income ............................... .1% 1.1% 1.4% 1.3%
======== ======== ======= ======
</TABLE>
Net sales in the third quarter increased by 4%, or $1.1 million, over the
same period last year. This increase is primarily due to the net addition of
nine stores since October 29, 1994. Comparable store sales were approximately
the same as last year's third quarter. During August and September, net sales
were impacted by a general softness in consumer demand in the Company's trading
areas, despite the Company's continued aggressive marketing campaign. In the
month of October, net sales were up 12% as a result of improved customer traffic
and the infusion of fall merchandise. For the nine-month period, net sales
increased by 10%, or $7.6 million over the same period last year with comparable
store sales up 4%. These sales increases were attributable to a strong
performance in suits and to an aggressive marketing campaign. During the quarter
ended October 28, 1995, the Company opened six new stores and remodeled two
existing superstores. There were 177 stores in operation as of October 28, 1995,
compared to 168 stores at October 29, 1994.
Cost of sales in the third quarter of fiscal 1996 was 55.3% of net sales
compared to 57.2% of net sales for the third quarter last year. This 1.9% of net
sales cost reduction was primarily the result of improved initial markup on
inventory, and to a lesser degree the result of increased capitalization of
buying and occupancy costs to inventory due to increased growth in quarter over
quarter inventory levels. For the nine-month period, cost of sales was 55.3% of
net sales compared to 57.0% of net sales last year. This 1.7% of net sales cost
reduction was primarily the result of improved initial markup on inventory
purchased and to a lesser degree the result of reduced markdowns associated with
the clearance of seasonal merchandise.
7
<PAGE>
Selling, general and administrative expenses in the third quarter of
fiscal 1996 were 41.1% of net sales compared to 38.8% of net sales for the third
quarter of fiscal 1995. This 2.3% of net sales increase was due primarily to
incurring expenses, including advertising, at planned levels while experiencing
sales less than anticipated, and to a lesser degree to higher costs of benefits.
For the nine-month period, selling, general and administrative expenses were
39.7% of net sales versus 38.7% of net sales in the same period last year. This
increase was attributable to higher planned advertising costs initiated to
increase market share and higher store salaries, offset in part by the
leveraging of fixed overhead on higher sales.
Interest expense was .7% of net sales in the third quarter of both fiscal
1996 and 1995 as well as in both respective nine-month periods. Even though
average borrowing rates have increased approximately 36% year over year, the
Company's 12% decrease in average borrowings have mitigated that impact.
Other, net consists of other expense of .8% of net sales in the third
quarter of fiscal 1996 compared to other income of .2% of net sales for the same
period last year. This 1.0% of net sales increase in costs is primarily due to
the expensing of estimated closing costs of $265,000 related to the Company's
decision in the third quarter of fiscal 1996 to close the two Menswear Mega
Center locations in Chicago, Illinois in December 1995. On a nine-month basis,
other expense was .2% of net sales compared to other income of .3% last year.
Approximately half of this change was attributable to the planned Chicago
closing discussed above while the balance is due to other income related to an
insured loss last year in which claim proceeds exceeded the net book value of
the Company's assets.
LIQUIDITY AND CAPITAL RESOURCES
The Company has funded its operating activities, including capital
expenditures for the opening of new stores, from internally generated funds and
from bank borrowings. Through the first nine months of fiscal 1996, the Company
opened seven new S&K stores, 1 new Menswear Mega Center and remodeled 12 other
S&K stores including two existing superstores. Since the end of the third
quarter, the Company has opened 13 more new S&K stores. The Company believes
that its sources of liquidity and capital resources will continue to be
sufficient to fund its operations.
Operating activities provided net cash of $1.7 million during the first
nine months of fiscal 1996 compared to providing $1.2 million for the same 1995
period with the increase coming primarily from higher net income and
depreciation. The Company reduced it's inventory growth and ended the nine-month
period $2.8 million below last year's increase while experiencing a similar
decrease in accounts payable. Excluding the effects of changes in working
capital, net cash provided by operating activities in the first nine months was
$3.4 million this year compared to $2.8 million last year.
Net cash used in investing activities is primarily for the purpose of
store expansion and remodelings. Capital expenditures approximated $1.7 million
for the first nine months of fiscal 1996 compared to $2.9 million last year
which included $.4 million related to the Distribution Center enhancements. The
Company has opened 13 additional stores since the end of the fiscal 1996 third
quarter versus eight opened in the same period last year.
Financing activities used net cash of $.1 million in the nine-month period this
year compared to providing net cash of $1.6 million in the same period last
year. This change is primarily due to a $1.3 million reduction in the growth of
year over year borrowing levels under the Company's unsecured revolving credit
agreements. As of October 28, 1995, the Company had net unused commitments of
approximately $13.5 million available under these agreements which aggregate
$23.0 million.
8
<PAGE>
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
(27) Financial Data Schedule
(b) There were no reports filed on Form 8-K during the three
months ended October 28, 1995.
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.
S & K FAMOUS BRANDS, INC.
(Registrant)
Date: December 5, 1995 /s/ Robert E. Knowles
------------------ ----------------------
Robert E. Knowles
Executive Vice President,
Chief Financial Officer,
Secretary and Treasurer
(Principal Financial Officer)
Date: December 5, 1995 /s/ Janet L. Jorgensen
------------------- -----------------------
Janet L. Jorgensen
Vice President and Controller
(Principal Accounting Officer)
9
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JAN-28-1995
<PERIOD-START> JAN-29-1995
<PERIOD-END> OCT-28-1995
<CASH> 378,380
<SECURITIES> 0
<RECEIVABLES> 535,818
<ALLOWANCES> 0
<INVENTORY> 49,519,489
<CURRENT-ASSETS> 52,878,442
<PP&E> 26,949,644
<DEPRECIATION> 12,561,275
<TOTAL-ASSETS> 69,535,225
<CURRENT-LIABILITIES> 16,854,162
<BONDS> 0
<COMMON> 2,529,217
0
0
<OTHER-SE> 36,217,972
<TOTAL-LIABILITY-AND-EQUITY> 69,535,225
<SALES> 84,249,455
<TOTAL-REVENUES> 84,249,455
<CGS> 46,579,014
<TOTAL-COSTS> 46,579,014
<OTHER-EXPENSES> 35,168,440
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 607,876
<INCOME-PRETAX> 1,894,125
<INCOME-TAX> 719,800
<INCOME-CONTINUING> 1,174,325
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,174,325
<EPS-PRIMARY> 0.24
<EPS-DILUTED> 0.24
</TABLE>
