SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[ X ] QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended October 30, 1999
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 0-11682 54-0845694
................................................................................
(State or other jurisdiction (Commission File No.) (I.R.S. Employer
of incorporation) Identification No.)
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 30, 1999
4,666,487 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>
------------------------------------ -----------------------------------
Three Months Ended Nine Months Ended
------------------------------------ -----------------------------------
October 30, October 31, October 30, October 31,
1999 1998 1999 1998
---------------- ---------------- --------------- ---------------
<S> <C> <C> <C> <C>
Net sales.................................... $ 37,195 $ 35,120 $ 112,661 $ 106,081
Cost of sales................................ 18,886 17,852 58,231 55,041
---------------- ---------------- --------------- ---------------
Gross profit ................................ 18,309 17,268 54,430 51,040
Other costs and expenses:
Selling, general and administrative........ 16,734 15,312 47,984 43,412
Interest................................... 316 239 818 533
Depreciation and amortization.............. 779 703 2,268 2,043
Other income, net.......................... (41) (36) (61) (77)
---------------- ---------------- --------------- ---------------
Income before income taxes................... 521 1,050 3,421 5,129
Provision for income taxes................... 198 399 1,300 1,949
---------------- ---------------- --------------- ---------------
Net income................................... $ 323 $ 651 $ 2,121 $ 3,180
================ ================ =============== ===============
Net income per common share:
Basic...................................... $ 0.07 $ 0.13 $ 0.45 $ 0.63
================ ================ =============== ===============
Diluted.................................... $ 0.07 $ 0.13 $ 0.45 $ 0.62
================ ================ =============== ===============
Weighted average common shares
outstanding - basic....................... 4,691 5,067 4,739 5,057
================ ================ =============== ===============
Weighted average common shares outstanding
including dilutive potential common shares. 4,694 5,137 4,751 5,152
================ ================ =============== ===============
</TABLE>
See Notes to Financial Statements.
2
<PAGE>
<TABLE>
S & K FAMOUS BRANDS, INC.
Balance Sheets
(in thousands, except par value per share)
<CAPTION>
-------------- -------------- ---------------
October 30, October 31, January 30,
1999 1998 1999
(unaudited) (unaudited)
-------------- -------------- ---------------
Assets
<S> <C> <C> <C>
Current assets:
Cash...................................................... $ 363 $ 510 $ 547
Accounts receivable....................................... 594 570 862
Merchandise inventories................................... 65,766 62,790 50,779
Prepaid income taxes...................................... 861 706 --
Other current assets...................................... 2,914 2,765 3,286
-------------- -------------- ---------------
Total current assets................................... 70,498 67,341 55,474
Property and equipment, at cost:
Land and buildings........................................ 7,235 7,169 7,229
Furniture, fixtures and equipment ........................ 16,011 13,886 14,550
Leasehold improvements.................................... 16,780 14,989 15,699
-------------- -------------- ---------------
40,026 36,044 37,478
Less: Accumulated depreciation and amortization.......... 19,330 17,091 17,765
-------------- -------------- ---------------
20,696 18,953 19,713
Other assets ................................................. 4,696 3,728 4,109
-------------- -------------- ---------------
$ 95,890 $ 90,022 $ 79,296
============== ============== ===============
Liabilities and Shareholders' Equity
Current liabilities:
Current maturities of long-term debt...................... $ 180 $ 180 $ 180
Accounts payable.......................................... 16,029 13,442 6,345
Accrued expenses:
Compensation-related items............................. 1,249 1,335 1,599
Current and deferred income taxes...................... 207 203 624
Other current liabilities.............................. 1,870 1,678 1,705
-------------- -------------- ---------------
Total current liabilities............................ 19,535 16,838 10,453
Industrial Development Revenue Bond........................... 1,665 1,845 1,800
Long-term debt................................................ 20,491 16,546 11,707
Deferred income taxes......................................... 1,650 1,604 1,619
Commitments
Shareholders' equity:
Preferred stock, $1 par value; authorized shares, 500;
issued and outstanding shares, none....................
Common stock, $.50 par value, authorized shares, 10,000;
issued and outstanding shares, 4,666, 5,064 and 4,874,
respectively........................................... 2,333 2,532 2,437
Capital in excess of par value............................ 4,023 7,514 5,819
Notes receivable--Stock Purchase Loan Plan................ (2,511) (1,134) (1,122)
Retained earnings......................................... 48,704 44,277 46,583
-------------- -------------- ---------------
52,549 53,189 53,717
-------------- -------------- ---------------
$ 95,890 $ 90,022 $ 79,296
============== ============== ===============
</TABLE>
See Notes to Financial Statements.
3
<PAGE>
<TABLE>
S & K FAMOUS BRANDS, INC.
Statements of Cash Flows
Increase (Decrease) in Cash
(in thousands)
(unaudited)
<CAPTION>
-------------------------------------------
Nine Months Ended
-------------------------------------------
October 30, October 31,
1999 1998
---------------- -----------------
<S> <C> <C>
Cash flows from operating activities:
Net income................................................. $ 2,121 $ 3,180
Adjustments to reconcile net income to net cash
(used for) provided by operating activities:
Depreciation and amortization........................... 2,588 2,359
Loss on property dispositions, net...................... 104 70
Other .................................................. 47 67
Changes in assets and liabilities:
Accounts receivable.................................. 267 (16)
Merchandise inventories.............................. (14,987) (18,894)
Other current assets................................. 372 405
Other assets......................................... (587) (328)
Accounts payable and accrued expenses................ 9,653 4,521
Income taxes and deferred income taxes............... (1,247) (910)
---------------- -----------------
Net cash used for operating activities..................... (1,669) (9,546)
---------------- -----------------
Cash flows from investing activities:
Capital expenditures....................................... (3,674) (3,550)
---------------- -----------------
Cash flows from financing activities:
Net borrowings under revolving bank lines of credit........ 8,737 13,156
Proceeds from exercise of stock options.................... -- 242
Principal paydown on Stock Purchase Loan Plan.............. 36 145
Reduction of long-term debt................................ (135) (135)
Repurchase of common stock................................. (3,479) (395)
---------------- -----------------
Net cash provided by financing activities.................. 5,159 13,013
---------------- -----------------
Net decrease in cash.......................................... (184) (83)
Cash at beginning of period................................... 547 593
---------------- -----------------
Cash at end of period......................................... $ 363 $ 510
================ =================
Supplemental cash flow information:
Cash paid during the period for:
Interest................................................ $ 771 $ 473
Income taxes............................................ 2,546 2,922
</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. These financial
statements should be read in conjunction with the financial statements and notes
thereto included in the Company's 1999 Annual report & Form 10-K.
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 13 new stores
totaling 47,886 square feet as follows:
<TABLE>
<CAPTION>
S&K Store Locations Date Opened Square Footage
-------------------------------------------------------- ------------------------------- ------------------------
<S> <C> <C> <C>
Florida: Jacksonville (Orange Park)* November 4, 1999 3,637
Largo October 4, 1999 3,750
Georgia: Dawsonville* November 12, 1999 3,002
Kentucky: Louisville October 22, 1999 4,547
Indiana: Clarksville* November 24, 1999 4,156
Michigan Benton Harbor October 20, 1999 4,528
Muskegon* November 19, 1999 2,885
New York: Saratoga September 25, 1999 3,045
North Carolina: Concord September 16, 1999 3,467
Ohio: Columbus September 21, 1999 4,000
Tennessee: Murfreesboro October 4, 1999 4,000
Texas: Grapevine* November 1, 1999 2,734
Virginia: Lynchburg August 3, 1999 4,135
</TABLE>
* Opened in fourth quarter.
Additionally, during the third quarter, the Company closed an underperforming
store in Florida City, Florida (3,017 square feet) which had not met sales and
profitability expectations. Year-to-date, the Company has closed ten stores.
D. Stock Repurchases
During the nine months ended October 30, 1999, the Company repurchased
approximately 392,900 shares of its common stock for $3.5 million; 175,800 of
these shares were purchased by 16 Company officers in March of this year for
$1.5 million under the Company's Stock Purchase Loan Plan. In the same period in
1998 the Company repurchased 30,600 shares for $0.4 million.
5
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND FINANCIAL REVIEW
Information regarding forward-looking statements.
The statements contained in this quarterly report that are not historical
facts, including statements about management's expectation for fiscal 1999 and
beyond, may be forward-looking statements. The forward-looking statements are
subject to certain risks and uncertainties which could cause actual results to
differ materially from historical results or those anticipated. Readers are
cautioned not to place undue reliance on these forward-looking statements.
Factors that could cause the Company's actual results to differ materially from
management's projections, forecasts, estimates and expectations include, but are
not limited to, those discussed in the Company's Annual Report on Form 10-K.
Three Months and Nine Months Ended October 30, 1999 Compared to Three Months and
Nine Months Ended October 31, 1998
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
30, 1999 and October 31, 1998.
<TABLE>
<CAPTION>
Percentage of Net Sales
--------------------------------------------------------------------
Three Months Ended Nine Months Ended
10/30/99 10/31/98 10/30/99 10/31/98
----------------------------- ---------------------------------
<S> <C> <C> <C> <C>
Net sales................................... 100.0% 100.0% 100.0% 100.0%
Cost of sales............................... 50.8 50.8 51.7 51.9
------------ ------------- ------------ -------------
Gross profit................................ 49.2 49.2 48.3 48.1
Other costs and expenses:
Selling, general and administrative...... 45.0 43.6 42.6 40.9
Interest................................. 0.8 0.6 0.7 0.5
Depreciation and amortization............ 2.1 2.0 2.0 1.9
Other, net............................... (0.1) -- -- --
------------ ------------- ------------ -------------
Income before income taxes.................. 1.4 3.0 3.0 4.8
Provision for income taxes.................. 0.5 1.1 1.1 1.8
============ ============= ============ =============
Net income.................................. 0.9% 1.9% 1.9% 3.0%
============ ============= ============ =============
</TABLE>
Net sales in the third quarter increased by 6%, or $2.1 million, over the
same period last year and reflects the net addition of 16 new stores since
October 31, 1998. For the nine-month period, net sales increased by 6%, or $6.6
million over the same period last year. Comparable store sales for the quarter
decreased 1% and for the nine months were down 1% due primarily to continued
reduction of customer traffic in a group of outlet stores, lower than planned
sales in sportscoats and the openings of new stores in existing markets. During
the quarter ended October 30, 1999, the Company opened eight new stores. There
were 240 total stores in operation as of October 30, 1999, compared to 224
stores at October 31, 1998.
Cost of sales in the third quarters ended October 30, 1999 and October 31,
1998 were 50.8% of net sales. For the nine-month period, cost of sales was 51.7%
of net sales compared to 51.9% of net sales last year, and this change was due
to the combined effects of taking fewer markdowns as a percentage of net sales
and improved initial mark-up on merchandise sold.
6
<PAGE>
Selling, general and administrative expenses in the third quarter ended
October 30, 1999 were 45.0% of net sales compared to 43.6% of net sales for the
same quarter last year. For the nine-month period, selling, general and
administrative expenses were 42.6% of net sales versus 40.9% of net sales in the
same period last year. Higher percentages of net sales variances in the third
quarter and the nine-month period of 1.4% and 1.7%, respectively, were due to
incurring planned store payroll and rent costs while sales were less than plan,
and to a lesser degree, higher group health claims.
Interest expense in the third quarter of this year was 0.8% of net sales
compared to 0.6% of net sales for the same quarter of last year. For the
nine-month period, interest expense was 0.7% of net sales compared to 0.5% of
net sales last year. These increases are primarily attributable to higher
average borrowings this year.
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 ended October 30, 1999, the
Company opened 18 new S&K stores, closed ten under-performing stores, converted
one store to the superstore format and remodeled several others. In the
comparable prior year period, the Company opened 18 new stores, closed five
stores (two of which were relocations), converted one store to the superstore
format and remodeled 16 others. Since October 30, 1999, the Company has opened
five new stores. The Company believes that its sources of liquidity and capital
resources will continue to be sufficient to fund its operations, capital
expenditures and stock repurchase initiatives.
Operating activities during the nine months ended October 30, 1999 and
1998 used net cash of $1.7 million and $9.5 million, respectively. This
fluctuation is due primarily to increased accounts payable balances resulting
from earlier payments in the prior year on inventory purchases and due to the
timing of inventory purchases.
Net cash used in investing activities is primarily for the purpose of
store expansion and remodeling. Capital expenditures approximated $3.7 million
and $3.6 million during the nine months ended October 30, 1999 and 1998
respectively. In the first nine months of this year, the Company opened 18 new
stores, converted one store to its superstore format, remodeled three others and
converted approximately 150 stores to its new POS register. For the same period
last year, the Company opened 18 new stores, converted one store to its
superstore format, remodeled 16 others and converted approximately 70 stores to
its new POS register.
Financing activities for the nine months ended October 30, 1999 and 1998
provided net cash of $5.2 million and $13.0 million, respectively. 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. During the first nine months of fiscal years 2000 and 1999,
the Company used approximately $3.5 million and $.4 million respectively, for
the repurchase of its common stock. As of October 30, 1999, the Company had net
unused commitments of approximately $10.9 million available under these
agreements.
OTHER MATTERS
Year 2000 (Y2K)
Since 1997, the Company has followed a comprehensive plan designed to ensure
that all of its computer systems are Year 2000 compliant in advance of December
31, 1999. Because of the substantial use of computers and embedded systems
throughout the Company's business and the business of its vendors, if failures
occur; they could have a material impact. The Company's plan has incorporated
the Company's mainframe hardware and back office systems, personal computers,
point-of-sale equipment, distribution center systems, phone and security systems
and other non-critical applications. Preparation for Y2K compliance has required
modifications to existing software costing less than $100,000, most of which was
spent in 1998. The Company has completed its testing and installation of Y2K
changes on all internal systems and believes it is Y2K compliant.
7
<PAGE>
The Y2K issue may impact vendors that provide products or services to the
Company. The Company has circulated a business partner survey to its significant
vendors and has evaluated responses. The Company's significant vendors have
responded that they believe themselves to be Y2K ready.
In the opinion of management, the most likely worst-case scenario of the
failure of the Company or its vendors to be Y2K compliant would be the inability
to obtain or distribute products from significant vendors. This would require
the Company to seek alternative sources which could have gross margin
implications.
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 30, 1999.
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 8, 1999 /s/ Robert E. Knowles
----------------------------------------
Robert E. Knowles
Executive Vice President, Chief Financial
Officer, Secretary and Treasurer
(Principal Financial Officer)
Date: December 8, 1999 /s/ Janet L. Jorgensen
----------------------------------------
Janet L. Jorgensen
Vice President and Controller
Chief Accounting Officer
(Principal Accounting Officer)
8
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JAN-29-2000
<PERIOD-START> JAN-31-1999
<PERIOD-END> OCT-30-1999
<CASH> 363
<SECURITIES> 0
<RECEIVABLES> 594
<ALLOWANCES> 0
<INVENTORY> 65,766
<CURRENT-ASSETS> 70,498
<PP&E> 40,026
<DEPRECIATION> 19,330
<TOTAL-ASSETS> 95,890
<CURRENT-LIABILITIES> 19,535
<BONDS> 0
<COMMON> 2,333
0
0
<OTHER-SE> 50,216
<TOTAL-LIABILITY-AND-EQUITY> 95,890
<SALES> 112,661
<TOTAL-REVENUES> 112,661
<CGS> 58,231
<TOTAL-COSTS> 58,231
<OTHER-EXPENSES> 50,191
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 818
<INCOME-PRETAX> 3,421
<INCOME-TAX> 1,300
<INCOME-CONTINUING> 2,121
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,121
<EPS-BASIC> 0.45
<EPS-DILUTED> 0.45
</TABLE>
