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 26, 1996
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 26, 1996
5,066,371 shares of Common Stock, $0.50 par value
<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 26, October 28, October 26, October 28,
1996 1995 1996 1995
------------- ------------ ----------- ------------
<S> <C>
Net sales $30,170,905 $28,236,210 $91,015,953 $84,249,455
Cost of sales 16,185,580 15,602,566 49,220,617 46,579,014
-------------- ------------- ------------ -------------
Gross profit 13,985,325 12,633,644 41,795,336 37,670,441
Other costs and expenses:
Selling, general and administrative 12,717,241 11,601,761 36,836,051 33,437,862
Interest 122,268 204,733 393,841 607,876
Depreciation and amortization 545,889 538,552 1,690,324 1,608,466
Other, net (402,599) 218,918 (783,577) 122,112
-------------- ------------- ------------ -------------
Income before income taxes 1,002,526 69,680 3,658,697 1,894,125
Provision for income taxes 380,900 26,500 1,278,600 719,800
-------------- ------------- ------------ -------------
Net income $ 621,626 $ 43,180 $ 2,380,097 $ 1,174,325
============== ============= ============ =============
Net income per common share $ 0.12 $ 0.01 $ 0.47 $ 0.24
============== ============ ============ ============
Weighted average common shares outstanding
5,066,371 5,058,434 5,065,237 4,966,152
============== ============ ============ ============
</TABLE>
See notes to financial statements.
2
<PAGE>
S & K FAMOUS BRANDS, INC.
Balance Sheets
(unaudited)
<TABLE>
<CAPTION>
October 26, October 28, January 27,
1996 1995 1996
-------------- -------------- ------------
<S> <C>
Assets
Current assets:
Cash $ 396,844 $ 378,380 $ 520,005
Accounts receivable 881,704 535,818 609,194
Merchandise inventories 50,191,800 49,519,489 39,701,702
Other current assets 2,264,821 2,444,755 2,299,519
------------ ------------ ------------
Total current assets 53,735,169 52,878,442 43,130,420
Property and equipment, at cost:
Land and corporate facility 5,123,241 5,125,041 5,125,041
Furniture, fixtures and equipment 11,098,570 10,941,884 10,934,539
Leasehold improvements 11,687,951 10,882,719 11,651,414
------------ ------------ ------------
27,909,762 26,949,644 27,710,994
Less: Accumulated depreciation and amortization 13,766,413 12,561,275 12,619,333
------------ ------------ ------------
14,143,349 14,388,369 15,091,661
Other assets 2,650,582 2,268,414 2,376,115
------------ ------------ ------------
$ 70,529,100 $ 69,535,225 $ 60,598,196
============ ============ ============
Liabilities and Shareholders' Equity
Current liabilities:
Current maturities of long-term debt $ 180,000 $ 180,000 $ 180,000
Accounts payable 14,639,984 14,821,526 6,360,399
Accrued expenses:
Compensation-related items 511,184 458,818 1,273,585
Current and deferred income taxes 313,254 148,529 1,010,152
Other current liabilities 1,473,802 1,245,289 1,260,258
------------ ------------ ------------
Total current liabilities 17,118,224 16,854,162 10,084,394
Industrial Development Revenue Bond 2,205,000 2,385,000 2,340,000
Long-term debt 7,127,726 10,356,581 6,601,276
Deferred income taxes 1,240,797 1,138,293 1,200,811
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,
5,066,371, 5,058,434 and 5,058,434, respectively 2,533,185 2,529,217 2,529,217
Capital in excess of par value 7,836,571 7,795,215 7,795,215
Notes receivable--Stock Purchase Loan Plan (1,418,247) (1,471,856) (1,458,464)
Retained earnings 33,885,844 29,948,613 31,505,747
------------ ------------ ------------
42,837,353 38,801,189 40,371,715
------------ ------------ ------------
$ 70,529,100 $ 69,535,225 $ 60,598,196
============ ============ ============
</TABLE>
See notes to financial statements
<PAGE>
S & K FAMOUS BRANDS, INC.
Statements of Cash Flows
Increase (Decrease) in Cash
(unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
---------------------------------
October 26, October 28,
1996 1995
------------- -------------
<S> <C>
Cash flows from operating activities:
Net income $ 2,380,097 $ 1,174,325
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization 2,000,587 1,914,348
Loss on property dispositions, (net) 96,426 237,494
Other 99,450 92,083
Changes in assets and liabilities:
Accounts receivable (272,510) (215,619)
Inventories (10,490,098) (9,122,053)
Other current assets 34,698 (180,950)
Other assets (274,467) (293,101)
Accounts payable and accrued expenses 7,816,269 8,972,042
Income taxes and deferred income taxes (656,912) (910,010)
------------ ------------
Net cash provided by operating activities 733,540 1,668,559
------------ ------------
Cash flows from investing activities:
Capital expenditures (1,691,551) (1,746,998)
Proceeds from property dispositions 542,850 5,932
------------ ------------
Net cash used for investing activities (1,148,701) (1,741,066)
------------ ------------
Cash flows from financing activities:
Net borrowings under revolving bank lines of credit 427,000 1,000
Reduction of long-term debt (135,000) (135,000)
------------ ------------
Net cash provided by (used for) financing activities 292,000 (134,000)
------------ ------------
Net decrease in cash (123,161) (206,507)
Cash at beginning of period 520,005 584,887
------------ ------------
Cash at end of period $ 396,844 $ 378,380
============ ============
Supplemental cash flow information:
Cash paid during the period for:
Interest $ 390,000 $ 607,200
Income taxes 1,939,000 1,633,200
</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. Expansion
Since the end of the second quarter, the Company has opened 14 S&K stores
totaling 58,605 square feet and converted two existing S&K stores into
superstores, adding 2,650 square feet. The Company closed five S&K stores
totaling 19,500 square feet and the three remaining Menswear Mega Centers in
Washington, D.C., totaling 57,940 square feet. New stores opened since July 27,
1996, are as follows:
<TABLE>
<CAPTION>
S&K Store Locations Date Opened Square Footage
- - ------------------------------------------------ -------------------- ---------------
<S> <C>
Arkansas: Fort Smith November 17, 1996 3,300
Little Rock December 2, 1996 5,340
Florida: Lakeland November 8, 1996 3,680
Georgia: Macon November 29, 1996 4,800
Indiana: Indianapolis (Castelton Village) November 23, 1996 4,865
(Greenwood Center) November 23, 1996 4,800
(Pike Plaza) November 23, 1996 5,235
Michigan: Howell November 15, 1996 3,000
New York: Cheektowago (Buffalo) October 18, 1996 5,000
North Carolina: Greensboro October 23, 1996 4,920
Pennsylvania: Scranton November 22, 1996 3,365
Tennessee: Jackson November 15, 1996 4,000
Texas: Hillsboro October 28, 1996 3,200
West Virginia: Huntington November 21, 1996 3,100
</TABLE>
S&K stores in Fort Pierce and Kissimmee, Florida, were closed due to not
meeting the Company's sales and profitability expectations. A store in Little
Rock, Arkansas, and a store in Greensboro, North Carolina, were relocated and
converted into superstores. A store located in Columbia, South Carolina
(Richland Fashion Mall), was closed due to the landlord's buyout of the lease to
reconfigure the mall. The three remaining Menswear Mega Centers were closed
because they had not met the Company's sales and earnings expectations. Two of
the Mega Centers' leases were assumed by K&G Men's Centers, Inc.
5
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND FINANCIAL REVIEW
Three Months and Nine Months Ended October 26, 1996, Compared to Three Months
and Nine Months Ended October 28, 1995
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
26, 1996 and October 28, 1995.
<TABLE>
<CAPTION>
Percentage of Net Sales
----------------------------------------------
Three Months Ended Nine Months Ended
--------------------- ---------------------
10/26/96 10/28/95 10/28/95 10/28/95
---------- --------- -------- --------
<S> <C>
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of sales 53.6 55.3 54.1 55.3
----- ----- ----- -----
Gross profit 46.4 44.7 45.9 44.7
Other costs and expenses:
Selling, general and administrative 42.2 41.1 40.5 39.7
Interest .4 .7 .4 .7
Depreciation and amortization 1.8 1.9 1.9 1.9
Other, net (1.3) .8 (.9) .2
----- ----- ----- -----
Income before income taxes 3.3 .2 4.0 2.2
Provision for income taxes 1.2 .1 1.4 .8
----- ----- ----- -----
Net income 2.1% .1% 2.6% 1.4%
===== ===== ===== =====
</TABLE>
Net sales in the third quarter increased by 7%, or $1.9 million, over the
same period last year. This increase is due to the net addition of 11 new S&K
stores since October 28, 1995, and comparable store sales increases of 7% for
the third quarter; both partially offset by reduced sales due to the closing of
the Menswear Mega Centers. For the nine-month period, net sales increased by 8%,
or $6.8 million over the same period last year, with comparable store sales up
5%, both partially offset by reduced sales due to the closing of the Menswear
Mega Centers. These sales increases were attributable to a strong performance in
suits and to an aggressive marketing campaign. During the quarter ended October
26, 1996, the Company opened three new stores, closed seven stores (including
the three remaining Menswear Mega Centers) and remodeled two existing
superstores. There were 183 total stores in operation as of October 26, 1996,
compared to 177 stores at October 28, 1995.
Cost of sales for the third quarter of fiscal 1997 was 53.6% of net sales
compared to 55.3% of net sales for the third quarter last year. For the
nine-month period, cost of sales was 54.1% of net sales compared to 55.3% of net
sales last year. These cost reductions as a percentage of net sales were
primarily due to not having the sales volume from the former Menswear Mega
Centers which had a lower gross margin than the Company's S&K stores
Selling, general and administrative expenses in the third quarter of fiscal
1997 were 42.2% of net sales compared to 41.1% of net sales for the third
quarter of fiscal 1996. This 1.1% of net sales increase is the result of having
higher planned advertising costs associated with an aggressive direct mail
campaign designed to increase market share and not having the sales volume from
the former Menswear Mega Centers which had operated at reduced overhead costs as
a percentage of net sales. For the nine-month period, selling, general and
administrative expenses were 40.5% of net sales versus 39.7% of net sales in the
same period last year. This .8% of net sales increase is attributable to higher
group medical claims and incurring store salary and rent costs at planned levels
while sales fell short of expectations, especially in second quarter.
6
<PAGE>
Interest expense was .4% of net sales for both the third quarter and
nine-month periods of fiscal 1997 compared to .7% of net sales in the same two
periods last year. These decreases are primarily attributable to reductions in
average borrowing levels from $9.7 million in fiscal 1996 to $6.3 million this
year.
Other, net consists of other income of 1.3% of net sales in the third
quarter of fiscal 1997 compared to other expense of .8% of net sales for the
same period last year. This year includes $336,000, or 1.1% of net sales,
representing a net gain associated with a landlord's buyout of the lease of an
S&K store in Columbia, South Carolina. Last year includes the expensing of
estimated closing costs of $265,000, or .9% of net sales, associated with two
Menswear Mega Center locations in Chicago, Illinois. On a nine-month basis,
other income was .9% of net sales compared to other expense of .2% last year.
This 1.1% of net sales increase in income is equally the result of the two
fluctuations discussed above and the second quarter fiscal 1997 receipt of
nonrecurring, nontaxable proceeds from a life insurance policy on a former
officer.
Provision for income taxes in the third quarter of both fiscal 1997 and
1996 was 38.0% of income before income taxes. On a year-to-date basis, the
provision for income taxes was 34.9% of income before income taxes compared to
38.0% last year. This reduction is solely attributable to the nontaxable,
nonrecurring insurance proceeds disclosed in Other, net above.
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 1997, the Company
opened six new S&K stores, converted four existing stores to its superstore
format and remodeled eight other S&K stores. Since the end of the third quarter,
the Company has opened 12 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 $.7 million during the first nine
months of fiscal 1997 compared to $1.7 million for the same 1996 period. The
decrease is due primarily to higher net income being more than offset by
increased inventory purchases and reductions in accounts payable and accrued
expenses. Excluding the effects of changes in working capital, net cash provided
by operating activities in the first nine months was $4.6 million this year
compared to $3.4 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 both fiscal 1997 and fiscal 1996. The Company has
opened 12 additional stores since the end of the fiscal 1997 third quarter. In
fiscal 1997, $375,000 was received as proceeds in connection with the buyout of
a lease in Columbia, South Carolina, and $169,000 was received in connection
with the sale of certain fixed assets.
Financing activities provided net cash of $.3 million in the nine-month
period this year compared to using $.1 million in the same period last year.
Financing activities relate to fluctuations in the borrowing levels under the
Company's revolving credit agreements. During fiscal 1997, the Company amended
those agreements to extend the date of its option to convert to term loans from
May 31, 1997, to May 31, 1998. The Company's revolving credit agreements with
two banks aggregate $24.0 million. As of October 26, 1996, the Company had net
unused commitments of approximately $17.9 million available under these
agreements.
OTHER MATTERS
In connection with the lessor's buyout of the Rockville, Maryland, Menswear
Mega Center lease, the Company will receive $1.0 million subject to the
landlord's ability to obtain permanent financing to redevelop the center and the
Company will incur certain expenses. Management has not recorded any gain on
this transaction due to the uncertainty of the availability and timing of the
lessor's permanent financing.
7
<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 26, 1996.
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 9, 1996 /s/ Robert E. Knowles
----------------------------
Robert E. Knowles
Executive Vice President,
Chief Financial Officer,
Secretary and Treasurer
(Principal Financial Officer)
Date: December 9, 1996 /s/ Janet L. Jorgensen
------------------------------
Janet L. Jorgensen
Vice President and Controller
(Principal Accounting Officer)
8
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JAN-27-1996
<PERIOD-START> JAN-28-1996
<PERIOD-END> OCT-26-1996
<CASH> 396,844
<SECURITIES> 0
<RECEIVABLES> 881,704
<ALLOWANCES> 0
<INVENTORY> 50,191,800
<CURRENT-ASSETS> 53,735,169
<PP&E> 27,909,762
<DEPRECIATION> 13,766,413
<TOTAL-ASSETS> 70,529,100
<CURRENT-LIABILITIES> 17,118,224
<BONDS> 0
<COMMON> 2,533,185
0
0
<OTHER-SE> 40,304,168
<TOTAL-LIABILITY-AND-EQUITY> 70,529,100
<SALES> 91,015,953
<TOTAL-REVENUES> 91,015,953
<CGS> 49,220,617
<TOTAL-COSTS> 49,220,617
<OTHER-EXPENSES> 37,742,798
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 393,841
<INCOME-PRETAX> 3,658,697
<INCOME-TAX> 1,278,600
<INCOME-CONTINUING> 2,380,097
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,380,097
<EPS-PRIMARY> 0.47
<EPS-DILUTED> 0.47
</TABLE>
