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 25, 1997
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 25, 1997
5,012,105 shares of Common Stock, $0.50 par value
<PAGE>
<TABLE>
PART I. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
S & K FAMOUS BRANDS, INC.
Statements of Income
(in thousands, except earnings per share)
(unaudited)
<CAPTION>
<S> <C>
Three Months Ended Nine Months Ended
------------------------------------ -------------------------------------
October 25, October 26, October 25, October 26,
1997 1996 1997 1996
--------------- -------------- -------------- --------------
Net sales.................................. $ 33,705 $ 30,171 $ 97,954 $ 91,016
Cost of sales.............................. 17,467 16,186 51,447 49,221
--------------- -------------- -------------- --------------
Gross profit .............................. 16,238 13,985 46,507 41,795
Other costs and expenses:
Selling, general and administrative..... 14,422 12,717 40,245 36,836
Interest................................ 141 122 353 394
Depreciation and amortization........... 614 546 1,761 1,690
Other, net.............................. (16) (403) (79) (784)
--------------- -------------- -------------- --------------
Income before income taxes................. 1,077 1,003 4,227 3,659
Provision for income taxes................. 409 381 1,606 1,279
--------------- -------------- -------------- --------------
Net income................................. $ 668 $ 622 $ 2,621 $ 2,380
=============== ============== ============== ==============
Net income per common share................ $ 0.13 $ 0.12 $ 0.52 $ 0.47
=============== ============== ============== ==============
Weighted average common shares
outstanding............................. 5,006 5,066 5,031 5,065
=============== ============== ============== ==============
See notes to financial statements.
2
<PAGE>
S & K FAMOUS BRANDS, INC.
Balance Sheets
(in thousands)
(unaudited)
<CAPTION>
October 25, October 26, January 25,
1997 1996 1997
--------------- -------------- --------------
Assets
Current assets:
Cash .................................................... $ 387 $ 397 $ 537
Accounts receivable........................................ 833 881 398
Merchandise inventories.................................... 57,336 50,192 41,511
Other current assets....................................... 2,258 2,265 2,295
--------------- -------------- --------------
Total current assets.................................... 60,814 53,735 44,741
Property and equipment, at cost:
Land and corporate facility................................ 6,022 5,123 5,123
Furniture, fixtures and equipment ......................... 12,647 11,099 11,596
Leasehold improvements..................................... 13,330 11,688 12,396
--------------- -------------- --------------
31,999 27,910 29,115
Less: Accumulated depreciation and amortization........... 15,314 13,767 14,360
--------------- -------------- --------------
16,685 14,143 14,755
Other assets ................................................. 3,329 2,651 2,933
--------------- -------------- --------------
$ 80,828 $ 70,529 $ 62,429
=============== ============== ==============
Liabilities and Shareholders' Equity
Current liabilities:
Current maturities of long-term debt....................... $ 180 $ 180 $ 180
Accounts payable........................................... 16,792 14,640 5,699
Accrued expenses:
Compensation-related items.............................. 1,055 511 2,211
Current and deferred income taxes....................... 82 313 1,339
Other current liabilities............................... 1,759 1,474 1,508
--------------- -------------- --------------
Total current liabilities........................... 19,868 17,118 10,937
Industrial Development Revenue Bond........................... 2,025 2,205 2,160
Long-term debt................................................ 10,532 7,128 3,020
Deferred income taxes......................................... 1,264 1,241 1,203
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,
5,012,105, 5,066,371 and 5,066,371, respectively...... 2,506 2,533 2,533
Capital in excess of par value............................. 7,225 7,836 7,837
Notes receivable--Stock Purchase Loan Plan................. (1,328) (1,418) (1,377)
Retained earnings.......................................... 38,736 33,886 36,116
--------------- -------------- --------------
47,139 42,837 45,109
--------------- -------------- --------------
$ 80,828 $ 70,529 $ 62,429
=============== ============== ==============
See notes to financial statements.
3
<PAGE>
S & K FAMOUS BRANDS, INC.
Statements of Cash Flows
Increase (Decrease) in Cash
(in thousands)
(unaudited)
<CAPTION>
Nine Months Ended
------------------------------------------------
October 25, October 26,
1997 1996
------------------ ------------------
Cash flows from operating activities:
Net income................................................. $ 2,621 $ 2,380
Adjustments to reconcile net income to net cash
(used for) provided by operating activities:
Depreciation and amortization........................... 2,035 2,001
Loss on property dispositions, net...................... 104 96
Other................................................... 152 100
Changes in assets and liabilities:
Accounts receivable.................................. (435) (273)
Merchandise inventories.............................. (15,825) (10,490)
Other current assets................................. 37 35
Other assets......................................... (396) (274)
Accounts payable and accrued expenses................ 10,288 7,816
Income taxes and deferred income taxes............... (1,197) (657)
------------------ ------------------
Net cash (used for) provided by operating activities....... (2,616) 734
------------------ ------------------
Cash flows from investing activities:
Capital expenditures....................................... (4,084) (1,692)
Proceeds from property dispositions........................ 15 543
------------------ ------------------
Net cash used for investing activities.................... (4,069) (1,149)
------------------ ------------------
Cash flows from financing activities:
Net borrowings under revolving bank lines of credit....... 7,360 427
Proceeds from exercise of stock options................... 76 0
Reduction of long-term debt................................ (135) (135)
Repurchase of common stock................................. (766) 0
------------------ ------------------
Net cash provided by financing activities.................. 6,535 292
------------------ ------------------
Net decrease in cash.......................................... (150) (123)
Cash at beginning of period................................... 537 520
------------------ ------------------
Cash at end of period......................................... $ 387 $ 397
================== ==================
Supplemental cash flow information:
Cash paid during the period for:
Interest................................................ $ 326 $ 390
Income taxes............................................ 2,739 1,939
</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 or relocated
18 new stores totaling 81,656 square feet as follows:
<TABLE>
<CAPTION>
<S> <C>
S&K Store Locations Date Opened Square Footage
- ------------------------------------------------------- ---------------------------- --------------------
Georgia:Lake Park (1) August 22, 1997 5,160
Savannah (1) October 19, 1997 5,500
Florida:Tallahassee November 15, 1997* 4,148
Tampa November 19, 1997* 4,800
Indiana:Carmel November 15, 1997* 4,047
Lafayette September 28, 1997 3,900
Muncie August 30, 1997 4,000
Michigan:Grand Rapids (1) November 12, 1997* 5,500
North Carolina:Charlotte (University Park) August 22, 1997 5,000
Charlotte (Independence Blvd) September 15, 1997 6,337
Hickory November 4, 1997* 3,428
Oklahoma:Tulsa November 8, 1997* 4,500
Pennsylvania:York November 18, 1997* 3,028
South Carolina:Columbia September 15, 1997 5,000
Myrtle Beach September 29, 1997 3,153
Virginia:Fredericksburg August 26, 1997 5,000
Virginia Beach (1) August 30, 1997 5,575
West Virginia:Martinsburg August 16, 1997 3,580
</TABLE>
* Stores which opened in fourth quarter.
(1)This new store was relocated from a previous location which has closed (3,000
square feet - Lake Park, Georgia; 4,800 square feet - Savannah, Georgia; 3,450
square feet - Grand Rapids, Michigan; 3,500 - Virginia Beach, Virginia). Total
net square footage opened during the period is 66,906.
5
<PAGE>
D. New Accounting Standards
Statement of Financial Accounting Standards No. 128 "Earnings per Share"
(FASB 128), will be required to be adopted by the Company in the fourth quarter
of fiscal 1998 and will require disclosure of basic earnings per share ("EPS")
and diluted EPS. Basic EPS excludes all dilution caused by any common stock
equivalents, while diluted EPS is calculated including the dilutive effect of
common stock equivalents using the average price of the Company's stock during
the accounting period. If FASB 128 had been in effect during the first nine
months of fiscal 1998, the Company would have reported basic EPS of $.13 and
diluted EPS of $.13 for the three month period ended October 25, 1997 and basic
EPS of $.52 and diluted EPS of $.51 for the nine month period.
Item 2. MANAGEMENT'S DISCUSSION AND FINANCIAL REVIEW
Three Months and Nine Months Ended October 25, 1997, Compared to Three Months
and Nine Months Ended October 26, 1996
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
25, 1997 and October 26, 1996.
<TABLE>
<CAPTION>
<S> <C>
Percentage of Net Sales
------------------------------------------------------------------------
Three Months Ended Nine Months Ended
------------------------------ ------------------------------
10/25/97 10/26/96 10/25/97 10/26/97
--------------- -------------- -------------- ---------------
Net sales.................................. 100.0% 100.0% 100.0% 100.0%
Cost of sales.............................. 51.8 53.6 52.5 54.1
------ ------ ------ ------
Gross profit............................... 48.2 46.4 47.5 45.9
Other costs and expenses:
Selling, general and administrative..... 42.8 42.2 41.1 40.5
Interest................................ .4 .4 .4 .4
Depreciation and amortization........... 1.8 1.8 1.8 1.9
Other, net.............................. 0.0 (1.3) (.1) (.9)
------ ------ ------- -------
Income before income taxes................. 3.2 3.3 4.3 4.0
Provision for income taxes................. 1.2 1.2 1.6 1.4
------ ------- ------ ------
Net income................................. 2.0% 2.1% 2.7% 2.6%
====== ======= ====== ======
</TABLE>
Net sales in the third quarter increased by 12%, or $3.5 million, over the
same period last year and reflects the net addition of 23 new S&K stores since
October 26, 1996. Excluding the sales volume on the three former Menswear Mega
Centers (MMC) which were closed in August 1996, third quarter net sales
increased 14%. Comparable store sales increased 4%. For the nine-month period,
net sales increased by 8%, or $6.9 million over the same period last year, with
comparable store sales up 5%. These sales increases were mostly attributable to
suit sales growth. During the quarter ended October 25, 1997, the Company opened
eleven new stores, three of which were relocations and conversions to the
superstore format, and also converted an existing traditional store to a
superstore format. There were 206 total stores in operation as of October 25,
1997, compared to 183 stores at October 26, 1996.
Cost of sales for the third quarter of fiscal 1998 was 51.8% of net sales
compared to 53.6% of net sales for the third quarter last year. This cost
reduction as a percentage of net sales was primarily due to a reduction in
markdowns in S&K stores, and to a lesser degree, not having the sales volume
from the former MMC which
6
<PAGE>
had a lower gross margin than the Company's S&K stores. For the nine-month
period, cost of sales was 52.5% of net sales compared to 54.1% of net sales last
year. This cost reduction as a percentage of net sales was primarily due to not
having the sales volume from the former MMC which had a lower gross margin than
the Company's S&K stores, and to a lesser degree, was the result of reduced
markdowns in the S&K stores.
Selling, general and administrative expenses in the third quarter of
fiscal 1998 were 42.8% of net sales compared to 42.2% of net sales for the third
quarter of fiscal 1997. For the nine-month period, selling, general and
administrative expenses were 41.1% of net sales versus 40.5% of net sales in the
same period last year. These increases as a percentage of net sales were
primarily the result of not having the lower overhead sales this year associated
with the former MMC operations.
Other, net in the third quarter of fiscal 1997 was 1.3% of net sales and
included $336,000, or 1.1% of net sales ($208,000 after tax, or $0.04 per share)
in one-time proceeds associated with a lease buyout. On a nine-month basis,
other, net was .1% of net sales this year compared to .9% last year. Last year,
other, net included the lease buyout discussed above and a $295,000 gain ($.06
per share) related to non-recurring, non-taxable insurance proceeds.
Provision for income taxes in the third quarter of both fiscal 1998 and
1997 was 38.0% of income before income taxes. On a year-to-date basis, the
provision for income taxes was 38.0% of income before income taxes this year
compared to 34.9% last year. The lower effective tax rate in fiscal 1997 is
attributable to the non-taxable, insurance proceeds discussed 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 1998, the Company
opened eighteen new S&K stores, converted one existing store to its superstore
format and remodeled fourteen other S&K stores. In the comparable fiscal 1997
period, the Company opened six new stores, converted four to the superstore
format and remodeled eight others. Since the end of the fiscal 1998 third
quarter, the Company has opened seven new S&K stores. The Company believes that
its sources of liquidity and capital resources will continue to be sufficient to
fund its operations and capital expenditures.
Operating activities used net cash of $2.6 million during the first nine
months of fiscal 1998 compared to providing $.7 million for the same 1997
period. This fluctuation is due primarily to increased inventory purchases
associated with the increase in the number of stores. Excluding the effects of
changes in working capital, net cash provided by operating activities in the
first nine months increased $.3 million to $4.9 million this year compared to
$4.6 million last year.
Net cash used in investing activities is primarily for the purpose of
store expansion and remodelings. Capital expenditures approximated $4.1 million
and $1.7 million during the first nine months of fiscal 1998 and 1997,
respectively. The Company has opened seven additional stores since the end of
the fiscal 1998 third quarter. Additionally, expenditures this year included
$1.0 million to acquire land and begin development of a new superstore, adjacent
to the Company's headquarters facility, anticipated to open Spring 1998. Net
cash used for investing activities in fiscal 1997, included proceeds of $375,000
in connection with the buyout of a lease in Columbia, South Carolina, and
$169,000 in connection with the sale of certain fixed assets.
Financing activities provided net cash of $6.5 million in the nine-month
period this year compared to $.3 million in the same period last year. Financing
activities primarily relate to fluctuations in the borrowing levels under the
Company's revolving credit agreements which have an aggregate borrowing capacity
of $30.0 million. As of October 25, 1997, the Company had net unused commitments
of approximately $20.6 million available under these agreements. The Company had
previously repurchased 74,000 shares of its common stock aggregating $766,000
during the first two quarters of fiscal 1998.
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 25, 1997.
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 4, 1997 /s/ Robert E. Knowles
---------------- ---------------------------------
Robert E. Knowles
Executive Vice President,
Chief Financial Officer,
Secretary and Treasurer
(Principal Financial Officer)
Date: December 4, 1997 /s/ Janet L. Jorgensen
---------------- ---------------------------------
Janet L. Jorgensen
Vice President and Controller
(Principal Accounting Officer)
8
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JAN-25-1997
<PERIOD-START> JAN-26-1997
<PERIOD-END> OCT-25-1997
<CASH> 387
<SECURITIES> 0
<RECEIVABLES> 833
<ALLOWANCES> 0
<INVENTORY> 57,336
<CURRENT-ASSETS> 60,814
<PP&E> 31,999
<DEPRECIATION> 15,314
<TOTAL-ASSETS> 80,828
<CURRENT-LIABILITIES> 19,868
<BONDS> 0
<COMMON> 2,506
0
0
<OTHER-SE> 44,633
<TOTAL-LIABILITY-AND-EQUITY> 80,828
<SALES> 97,954
<TOTAL-REVENUES> 97,954
<CGS> 51,447
<TOTAL-COSTS> 51,447
<OTHER-EXPENSES> 41,927
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 353
<INCOME-PRETAX> 4,227
<INCOME-TAX> 1,606
<INCOME-CONTINUING> 2,621
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,621
<EPS-PRIMARY> 0.52
<EPS-DILUTED> 0.52
</TABLE>
