<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark one)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended November 3, 1995.
----------------
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File No.0-13076
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50-OFF STORES, INC.
DELAWARE 74-2640559
- - ---------------------------------- ----------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization Identification No.)
8750 Tesoro Drive, San Antonio, Texas 78217
- - ---------------------------------------- ----------------------------------
(Address of principal executive offices) (Zip Code)
Telephone: (210) 805-9300
----------------------------------------------------
(Registrant's telephone number, including area code)
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:___
---
______________________
12,200,915 shares of the Registrant's common stock were outstanding at November
3, 1995.
______________________
There are 21 pages in the sequentially numbered, manually signed original. The
------
exhibit index is located on page 19 .
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<PAGE>
FORM 10-Q INDEX
<TABLE>
<CAPTION>
PAGE
PART I
<C> <S> <C>
ITEM 1. Financial Statements........................................................ 3
Condensed Consolidated Balance Sheets, November 3, 1995 (unaudited),
February 3, 1995 and October 28, 1994 (unaudited)........................... 3
Condensed Consolidated Statements of Operations, thirteen and thirty-nine
weeks ended November 3, 1995 (unaudited), and thirteen and thirty-nine
weeks ended October 28, 1994 (unaudited).................................... 5
Condensed Consolidated Statements of Cash Flows,
thirty-nine weeks ended November 3, 1995 (unaudited), and thirty-nine
weeks ended October 28, 1994 (unaudited).................................... 6
Notes to Condensed Consolidated Financial Statements (unaudited)............ 8
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations......................................... 10
PART II
ITEM 1. Legal Proceedings........................................................... 17
ITEM 2. Changes in Securities....................................................... 17
ITEM 3. Defaults Upon Senior Securities............................................. 17
ITEM 4. Submission of Matters to a Vote of Security Holders......................... 17
ITEM 5. Other Information........................................................... 17
ITEM 6. Exhibits and Reports on Form 8-K............................................ 17
Signatures.................................................................. 18
Exhibit Index............................................................... 19
</TABLE>
<PAGE>
PART I
ITEM 1. FINANCIAL STATEMENTS
- - ------- --------------------
50-OFF STORES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
ASSETS
<TABLE>
<CAPTION>
November 3, 1995 February 3, 1995 October 28, 1994
---------------- ---------------- ----------------
<S> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 2,148,896 $ 2,062,676 $ 2,140,330
Accounts receivable 2,307,626 1,645,303 2,665,076
Merchandise inventories 40,080,323 31,679,738 43,018,466
Prepaid and other current assets 2,019,990 717,561 2,922,025
---------- ---------- ----------
TOTAL CURRENT ASSETS 46,556,835 36,105,278 50,745,897
PROPERTY AND
EQUIPMENT-NET 25,602,865 25,320,606 26,969,089
OTHER ASSETS 976,772 1,250,043 982,466
---------- ---------- ----------
TOTAL ASSETS $73,136,472 $62,675,927 $78,697,452
========== ========== ==========
</TABLE>
See accompanying notes to these condensed consolidated financial statements.
-3-
<PAGE>
50-OFF STORES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
November 3, 1995 February 3, 1995 October 28, 1994
----------------- ----------------- ----------------
<S> <C> <C> <C>
CURRENT LIABILITIES:
Accounts payable-trade $15,702,086 $10,011,812 $18,480,957
Accounts payable-other 4,291,876 4,896,033 4,355,560
Accrued expenses and
other current liabilities 3,094,264 3,147,679 3,451,871
Current portion of closed store
costs 693,306 747,502 -
Current portion of long-term
debt and revolving credit line 2,027,127 1,303,691 1,281,529
---------- ---------- ----------
TOTAL CURRENT
LIABILITIES 25,808,659 20,106,717 27,569,917
REVOLVING CREDIT LINE,
less current portion 15,804,076 6,955,025 11,841,024
LONG-TERM DEBT, less
current portion 4,162,876 5,069,201 5,403,631
CLOSED STORE COSTS 1,187,000 1,987,692 -
COMMITMENTS AND
CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock 121,884 121,884 103,784
Additional paid-in capital 36,022,389 36,022,389 31,188,915
Subscription receivable (3,991,050) (3,991,050) -
Retained (deficit) earnings (5,979,362) (3,595,931) 2,590,181
---------- ---------- ----------
TOTAL STOCKHOLDERS'
EQUITY 26,173,861 28,557,292 33,882,880
---------- ---------- ----------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $73,136,472 $62,675,927 $78,697,452
========== ========== ==========
</TABLE>
See accompanying notes to these condensed consolidated financial statements.
-4-
<PAGE>
50-OFF STORES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Thirteen Weeks Ended Thirty-Nine Weeks Ended
--------------------------------- ---------------------------------
November 3, October 28, November 3, October 28,
1995 1994 1995 1994
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
NET SALES $37,643,782 $45,693,006 $124,919,599 $136,231,876
COST OF SALES 25,013,817 29,684,714 82,721,285 90,262,202
---------- ---------- ----------- -----------
GROSS PROFIT 12,629,965 16,008,292 42,198,314 45,969,674
---------- ---------- ----------- -----------
OPERATING EXPENSES:
Selling, advertising, general
and administrative 12,905,798 15,332,173 41,454,699 44,262,663
Depreciation and
amortization 978,555 983,204 2,941,882 2,800,079
Closed stores - 276,137 - 741,513
---------- ---------- ----------- -----------
TOTAL OPERATING EXPENSES 13,884,353 16,591,514 44,396,581 47,804,255
---------- ---------- ----------- -----------
OTHER EXPENSE (INCOME):
Interest income (24,013) (30,944) (78,759) (84,331)
Interest expense 538,243 441,834 1,524,923 1,145,493
---------- ---------- ----------- -----------
TOTAL OTHER EXPENSE 514,230 410,890 1,446,164 1,061,162
(INCOME) ---------- ---------- ----------- -----------
LOSS BEFORE INCOME TAXES (1,768,618) (994,112) (3,644,431) (2,895,743)
BENEFIT FROM INCOME
TAXES 623,000 358,000 1,261,000 1,057,800
---------- ---------- ----------- -----------
NET LOSS $(1,145,618) $ (636,112) $ (2,383,431) $ (1,837,943)
========== ========== =========== ===========
PRIMARY AND FULLY
DILUTED LOSS PER COMMON
SHARE $ (.09) $ (.06) $ (.20) $ (.18)
========== ========== =========== ===========
</TABLE>
See accompanying notes to these condensed consolidated financial statements.
-5-
<PAGE>
50-OFF STORES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Thirty-Nine Weeks Ended
-------------------------------------------
November 3, 1995 October 28, 1994
------------------ ------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net loss $(2,383,431) $ (1,837,943)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 2,941,882 2,800,079
Deferred income tax (1,261,000) (1,057,800)
Loss on disposition of fixed assets - 558,624
Changes in assets and liabilities:
Accounts receivable (662,323) 322,253
Merchandise inventories (8,400,585) (11,554,618)
Prepaid and other current assets (41,429) (366,429)
Other assets 262,948 433,325
Accounts payable-trade 5,690,274 3,261,132
Accounts payable-other (604,157) (1,334,856)
Accrued expenses and other
current liabilities (53,415) 49,635
Closed store costs (854,888) -
----------- ------------
Net cash used in operating activities (5,366,124) (8,726,598)
----------- ------------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Capital expenditures (3,213,818) (2,641,710)
----------- ------------
Net cash used in investing activities (3,213,818) (2,641,710)
----------- ------------
</TABLE>
See accompanying notes to these condensed consolidated financial statements.
-6-
<PAGE>
50-OFF STORES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(Continued)
<TABLE>
<CAPTION>
Thirty-Nine Weeks Ended
-------------------------------------------
November 3, 1995 October 28, 1994
------------------ ------------------
<S> <C> <C>
CASH FLOWS FROM FINANCING
ACTIVITIES:
Proceeds from revolving credit line 41,091,224 51,748,519
Payments on revolving credit line (31,539,770) (39,917,495)
Payments on long-term debt (885,292) (911,008)
Net proceeds from issuance of common stock - 38,034
----------- -----------
Net cash provided by financing activities 8,666,162 10,958,050
----------- -----------
Increase (decrease) in cash and cash
equivalents 86,220 (410,258)
Cash and cash equivalents at
beginning of period 2,062,676 2,550,588
----------- -----------
Cash and cash equivalents at end of period $ 2,148,896 $ 2,140,330
=========== ===========
SUPPLEMENTAL DISCLOSURES OF
CASH FLOW INFORMATION:
Cash paid/received during the period for:
Interest paid $ 1,525,000 $ 1,063,000
Income taxes paid - -
Income taxes received 408,000 1,658,000
</TABLE>
See accompanying notes to these condensed consolidated financial statements.
-7-
<PAGE>
50-OFF STORES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1: The condensed consolidated balance sheet at February 3, 1995 has been
condensed from the audited consolidated balance sheet at February 3,
1995.
The condensed consolidated balance sheets at November 3, 1995 and
October 28, 1994 and the condensed consolidated statements of
operations and cash flows for the thirteen and thirty-nine weeks ended
November 3, 1995 and the thirteen and thirty-nine weeks ended October
28, 1994 have been prepared by the Company without audit. In the
opinion of management, all adjustments necessary to present fairly the
condensed consolidated financial position, results of operations and
cash flows have been made. Such adjustments are of a normal and
recurring nature. The results of operations for the thirteen and
thirty-nine week periods ended November 3, 1995 are not necessarily
indicative of the operating results for a full year or of future
operations.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted. These condensed
consolidated financial statements should be read in conjunction with
the consolidated financial statements and notes thereto included in
the Registrant's annual report on Form 10-K for the year ended
February 3, 1995.
Certain reclassifications have been made to the fiscal 1995 condensed
consolidated financial statements to conform to the fiscal 1996
condensed consolidated financial statements.
NOTE 2: In accordance with the Company's store consolidation program the
Company closed nine stores in fiscal 1994, seven stores in fiscal 1995
and 12 stores in fiscal 1996. The store consolidation program involved
exiting certain smaller markets which proved unable to support a store
and certain other markets in which it would have been cost prohibitive
to open the number of stores required to effectively develop such
markets' potential. Store closing costs for the 12 stores closed in
fiscal 1996 of approximately $4,942,000 were charged to fiscal 1995
operations. The Company had recorded approximately $2,735,000 of
liability associated with estimated monthly lease payments and other
closed store costs as of February 3, 1995.
For the thirteen and thirty-nine weeks ended November 3, 1995,
approximately $300,000 and $855,000 of lease payments and other closed
store costs were paid and charged against the liability, respectively.
The remaining closed store costs liability is approximately $1,880,000
as of November 3, 1995 of which approximately $693,000, $387,000,
$106,000 and $694,000 are to be used in fiscal years 1996, 1997, 1998
and 1999, respectively.
-8-
<PAGE>
The 12 stores closed in fiscal 1996 contributed approximately $63,000
and $4,171,000 of net sales, $2,000 and $230,000 of operating income
during the thirteen and thirty-nine weeks ended November 3, 1995,
respectively, and approximately $3,364,000 and $9,277,000 of net sales
and $167,000 and $549,000 of operating losses during the thirteen and
thirty-nine weeks ended October 28, 1994, respectively. For the fifty-
three weeks ended February 3, 1995, the 12 stores closed in fiscal
1996 contributed approximately $13,954,000 of net sales and $1,422,000
of operating losses.
NOTE 3: A loan agreement with a financial institution provides the Company a
revolving credit line through January 1998 of up to $20,000,000
including letters of credit of $4,000,000. Borrowings under the line
are limited to a borrowing base equal to the lesser of (i) 45% of
eligible inventory or (ii) 80% of liquidation value of inventory, both
minus a permanent block of $1,500,000. Interest under the line is
charged on funds borrowed at the lender's prime rate plus 1.75%. The
lender's prime rate at November 3, 1995 was 9.0%. The agreement
contains various restrictions on the Company, including prohibitions
on the payment of common stock dividends without lender's permission.
The agreement contains minimum tangible net worth, minimum working
capital and minimum pre-tax profit financial covenants. The revolving
credit line is secured by inventory, certain accounts receivable and
other assets. At November 3, 1995, $16,506,479 was outstanding under
the revolving credit line, and approximately $148,000 in import
letters of credit were outstanding and approximately $461,000 was
available under the line. As of December 8, 1995, the Company had
approximately $4,127,000 available for use under its line.
NOTE 4: On February 21, 1995, the Company filed a lawsuit [50-Off Stores, Inc.
--------------------
v. Banque Paribas (Suisse) S.A. Betafid, S.A., Yanni Koutsoubos,
----------------------------------------------------------------
Andalucian Villas (Forty Eight) Limited, Arnass Limited, Brocimast
------------------------------------------------------------------
Enterprises Ltd., Dennis Morris, Howard White, and Morris &
-----------------------------------------------------------
Associates, Case No. SA-95-CA-0159] in United States District Court in
----------
San Antonio, Texas against defaulting foreign purchasers in an
international offering by the Company under Regulation S under the
Securities Act of 1933. A Regulation S offering of up to 2,000,000
shares of Common Stock was commenced by the Company in October 1994
with the assistance of Jefferies International, Ltd. as its selling
agent. Two non-defaulting foreign institutional investors did purchase
an aggregate of 310,000 shares in such offering in November 1994, for
net proceeds of approximately $861,000. The Company filed the lawsuit
against Banque Paribas (Suisse) S.A., Betafid, S.A., three offshore
purchaser entities and certain affiliated individuals in connection
with the breach by certain of the defendants of their contractual
obligation to purchase an aggregate of 1,500,000 shares of the
Company's Common Stock at $3.65 per share pursuant to November 1994
signed purchase agreements. The lawsuit also includes securities
fraud, fraud and conversion claims. The conversion claim relates to
actions of the defendants in misappropriating and removing the shares
from an escrow account with the purchasers' Toronto attorney, Morris &
Associates, even though the defendants have never paid for such
shares. The shares had been issued into such escrow account for the
purposes of authentication by Chase Manhattan Bank, N.A. on behalf of
the purchasers and eventual release to the purchasers upon receipt by
Morris & Associates of the proceeds for the shares on behalf of the
Company. The defendants to date have not responded to the Company's
demands for either the return of such shares or the agreed upon
proceeds. The Company intends to vigorously prosecute such matter and
to pursue all available avenues to obtain all appropriate remedies,
including either the agreed upon proceeds for the shares, or the
shares themselves, as well as the Company's actual and punitive
damages. The Company,
-9-
<PAGE>
based upon advice of counsel, believes that it will obtain a judgment
against one or more defendants in this case, however, the
collectibility of any such judgment is uncertain at this time. Until
the matter has been resolved, the Company will treat the 1,500,000
shares of Common Stock as outstanding with no proceeds recognized from
their sale. If the Company is unable to collect amounts due and the
shares are not ultimately returned, an extraordinary non-cash charge
to earnings for the amount of the uncollected subscription receivable
will be recorded in the consolidated financial statements. Damages
awarded to the Company in excess of proceeds ultimately received for
the issuance of these shares would be credited to earnings.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
- - ------- ---------------------------------------------------------------
RESULTS OF OPERATIONS
---------------------
Overview
- - --------
50-OFF Stores, Inc. achieved strong growth in stores, sales and
earnings for a number of years after its development of the 50-OFF store concept
in fiscal 1987. When the Company began to experience declines in comparable
store sales and operating results, management made significant changes to its
operations, including closing underperforming stores and limiting new store
openings to existing markets, recruiting new merchandising management and
increasing sales of non-apparel merchandise as a percentage of total sales.
These changes resulted in improved financial performance for the Company;
however, certain external factors, including the December 1994 Mexican
devaluation of the peso and unseasonal weather in its market areas had a
negative effect on the Company's operating performance.
In response, the Company took additional steps to achieve a more
disciplined cost structure, to lessen its vulnerability to external factors and
to attain profitability. These steps included closing additional stores and
implementing cost and personnel reductions which resulted in an over $1 million
decrease in fixed costs at the Company's headquarters. As a result of these and
other actions taken in fiscal 1996 (see below), the Company's financial
performance continued to improve in certain areas during the first 26 weeks of
fiscal 1996 compared to the same period in fiscal 1995:
. while a 5.5% decrease in the number of stores in operation (the
weighted average number of stores open during the fiscal 1996
period was 106.6 compared to 112.8 during the comparable fiscal
1995 period) contributed to a decline in total net sales, net
sales per average store increased 7.6%, excluding the border
stores (1.7%, including them);
. merchandise sales per comparable store increased 4.2%, excluding
the border stores (decreased 2.6% , including them);
. non-apparel sales increased to 37.4% of merchandise sales from
35.2%;
. gross margin on merchandise sales increased to 33.9% from 33.2%,
principally due to the change in merchandise mix and a decrease in
markdowns to 6.6% of merchandise sales from 6.8% in the fiscal
1995 period; and
. selling, advertising, general and administrative expenses,
excluding pre-opening store costs, decreased to approximately
$28.2 million from $29.2 million in the fiscal 1995 period.
-10-
<PAGE>
During the first 39 weeks of fiscal 1996, however, certain factors
negatively affected operating results, especially late in the third quarter when
the Company's credit requirements were highest:
. the breach of certain foreign purchasers in an international
offering by the Company of their contractual obligation to
purchase in aggregate 1,500,000 shares of Common Stock at $3.65
per share ($5,475,000 in aggregate) led to a continuing increase
in borrowings by the Company under its line of credit loan
facility (and a decrease in availability under the line) and
contributed to an increase in the interest rate on borrowings
under the line; therefore, the Company experienced an
approximately $385,000 increase in net interest expense for the
first 39 weeks of fiscal 1996 compared to the same period in
fiscal 1995;
. such breach, and the resulting lack of the planned equity infusion
and decrease in availability under the line of credit loan
facility, negatively impacted the Company's perceived credit
worthiness with sources of trade credit, which, in some cases, led
to shorter payment terms and/or less credit support from such
sources;
. concerns of sources of trade credit with the financial stability
of the retail industry, generally, and with the continuing
negative impact of the economic turmoil in Mexico on retailers
with border exposure similarly affected payment terms and credit
support from such sources; and
. because of the continuing economic turmoil in Mexico, the
Company's 13 border stores experienced an approximately $6.7
million (31.0%) drop in sales for first 39 weeks of fiscal 1996
compared to the same period in fiscal 1995.
Operating results for the third fiscal quarter were disappointing with
net sales of $37.6 million (102.1 stores) as compared to $45.7 million (110.7
stores) and sales on a comparable store basis down 12.8% (7.7%, excluding the
border stores). For the 39 weeks ended November 3, 1995, net sales were $124.9
million (105.1 stores) as compared to $136.2 million (112.0 stores), and sales
on a comparable store basis were down 6.2% (flat, excluding the border stores).
During fiscal 1996, the Company has taken the following affirmative
steps in its continuing efforts to achieve a more disciplined cost structure, to
lessen vulnerability to external factors and to attain profitability:
. filed a lawsuit against the defaulting foreign purchasers and
others involved in the international offering by the Company and
began settlement negotiations with them and others in an effort to
obtain appropriate remedies, including either the agreed upon
proceeds, or the shares themselves, as well as the Company's
actual and punitive damages (see Note 4 to the Condensed
Consolidated Financial Statements, above);
. negotiated amendments to the Company's line of credit, including a
seasonal increase in the advance rate, an extension of the line to
January 12, 1998 and changes in the financial covenants;
. completed its store consolidation program by closing 12 stores
located primarily in smaller markets unable to support a store or
in markets in which it would have been cost prohibitive to open
the number of stores required to effectively develop such market's
potential at this time [anticipated store closing costs totaling
approximately $4,942,000, including approximately $835,000 for
related inventory liquidation write-downs, were charged to
operating results for fiscal 1995 (the Company currently expects a
reversal of a portion of this charge in the fourth quarter of
fiscal 1996)];
-11-
<PAGE>
. opened five stores;
. negotiated 12 month rent reductions in a significant number of its
102 continuing stores with the cooperation of its landlords;
. implemented additional cost and personnel reductions to achieve
permanent efficiencies without compromising performance;
. made "relationship marketing" a key part of the Company's
advertising and marketing program to achieve continuing
relationships with and direct access to its customers so it can
better provide them with merchandise they need;
. recently engaged a new, San Antonio-based marketing and
advertising agency;
. made significant changes in merchandising management, instituting
a team approach to merchandising and replacing a layer of
management, to contribute to the flexibility it seeks in its
product offering mix; and
. made an alliance with a food wholesaler to expand its offering of
shelf-stable food product through its neighborhood stores in
fiscal 1997 (to lessen seasonality and to increase store traffic),
a logical extension of its merchandising commitment to offer its
customers the products they need, conveniently and at the best
prices.
The Company's current focus is to increase sales and operating profits
in its existing stores and to continue to improve its merchandising operations
with a strategy that targets merchandise to its customer base. The Company's
merchandise strategy is to offer a mix of products (principally family apparel
and home decor and furnishings) that fluctuates by category, by season and by
store based on its targeted, lower income customers' needs and buying trends.
The Company has made significant strides in reducing costs and in repositioning
for future growth (the Company has no plans to open more new stores in fiscal
1996, but plans to open a store in fiscal 1997 in an existing market and in
future years plans to continue its growth with new stores in markets where it
believes it has significant opportunities). The Company expects to realize a
profit in the fourth quarter of fiscal 1996.
In the third fiscal quarter ended November 3, 1995, the Company closed
its Louisville, Kentucky store. The number of stores in operation at the end of
the listed fiscal quarters and the changes from period to period are as follows:
<TABLE>
<CAPTION>
Number of Stores
------------------
Fiscal 1996* Fiscal 1995
------------ -----------
<S> <C> <C>
Beginning of Year 109 111
First Quarter Additions 5 3
First Quarter Closings (7) (1)
Second Quarter Additions - -
Second Quarter Closings (4) (3)
Third Quarter Additions - 1
Third Quarter Closings (1) (1)
Fourth Quarter Additions - 1
Fourth Quarter Closings - (2)
--- ---
End of Year 102 109
</TABLE>
*Through December 8, 1995.
-12-
<PAGE>
Results of Operations
- - ---------------------
The following tables set forth (i) certain items in the condensed
consolidated statements of operations as a percentage of net sales for the
periods indicated, and (ii) the percentage change in such items from the prior
period.
<TABLE>
<CAPTION>
Percentage of Sales
-----------------------------------------------------------
Thirteen Weeks Ended Thirty-Nine Weeks Ended
November 3, October 28, November 3, October 28,
1995 1994 1995 1994
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net sales ......................... 100.0% 100.0% 100.0% 100.0%
Cost of sales ..................... 66.4 65.0 66.2 66.2
Selling, advertising, general and
administrative ................... 34.3 33.5 33.2 32.5
Depreciation and amortization ..... 2.6 2.2 2.3 2.1
Closed stores ..................... - .6 - .5
----- ----- ----- -----
Total ............................ 103.3 101.3 101.7 101.3
Other expense, net ................ 1.4 .9 1.2 .8
----- ----- ----- -----
Total expenses .................... 104.7 102.2 102.9 102.1
----- ----- ----- -----
Loss before income taxes .......... (4.7) (2.2) (2.9) (2.1)
Benefit from income taxes ......... 1.7 .8 1.0 .8
Net loss .......................... (3.0)% (1.4)% (1.9)% (1.3)%
===== ===== ===== =====
</TABLE>
<TABLE>
<CAPTION>
Percentage Change
---------------------------------------------------------------
Thirteen Weeks Ended Thirty-Nine Weeks Ended
November 3, 1995 compared to November 3, 1995 compared to
Thirteen Weeks Ended Thirty-Nine Weeks Ended
October 28, 1994 October 28, 1994
------------------------------ ------------------------------
<S> <C> <C>
Net sales ....................... (17.6)% (8.3)%
Cost of sales ................... (15.7) (8.4)
Selling, advertising, general
and administrative ............. (15.8) (6.3)
Depreciation and amortization ... (.5) 5.1
Loss before income taxes ........ 77.9 25.9
Benefit from income taxes ....... 74.0 19.2
Net loss ........................ 80.1% 29.7%
</TABLE>
-13-
<PAGE>
Thirteen weeks ended November 3, 1995 compared to thirteen weeks ended
- - ----------------------------------------------------------------------
October 28, 1994:
- - -----------------
The net sales decrease of 17.6% for the thirteen weeks ended November
3, 1995 compared to the comparable period of the prior year is attributable to a
7.8% decrease in the weighted average number of stores in operation and a 12.8%
decrease in comparable store sales (stores closed during the period are not
included in comparable store net sales). Excluding the Company's 13 Texas/Mexico
border stores (which have been adversely affected by a peso devaluation since
December 1994), net sales on a comparable store basis decreased 7.7% for the
thirteen weeks ended November 3, 1995.
Cost of sales as a percentage of net sales increased from 65% for the
thirteen weeks ended October 28, 1994 to 66.4% for the thirteen weeks ended
November 3, 1995, due primarily to a lower initial mark-up on merchandise and
higher markdowns as a percentage of net sales as compared to the comparable
period of the prior year.
Selling, advertising, general and administrative expenses increased
from 33.5% of net sales for the thirteen weeks ended October 28, 1994 to 34.3%
of net sales for the thirteen weeks ended November 3, 1995. The 15.8% decrease
in the amount of selling, advertising, general and administrative expenses
compared to the prior period is attributable to a 7.8% decrease in the weighted
average number of stores open and the implementation of cost and personnel
reductions.
Depreciation and amortization were approximately equal as a percentage
of sales in the thirteen weeks ended November 3, 1995 compared to the comparable
period of the prior year.
Other expense, net, increased to approximately $514,000 in the
thirteen weeks ended November 3, 1995 compared to approximately $411,000 in the
comparable period of the prior year, due primarily to increased interest expense
attributable to a higher interest rate and increased borrowings under the
Company's revolving credit line.
The increase in the Company's loss before income taxes for the
thirteen weeks ended November 3, 1995 compared to the thirteen weeks ended
October 28, 1994 is primarily due to decrease in net sales, offset in part by a
decrease in selling, advertising, general and administrative expenses.
-14-
<PAGE>
Thirty-nine weeks ended November 3, 1995 compared to thirty-nine weeks ended
- - ----------------------------------------------------------------------------
October 28, 1994:
- - ----------------
The net sales decrease of 8.3% for the thirty-nine weeks ended
November 3, 1995 compared to the thirty-nine weeks ended October 28, 1994 is
attributable to a 6.2% decrease in the weighted average number of stores in
operation and a 6.2% decrease in comparable store sales (stores closed during
the period are not included in comparable store net sales). These decreases were
partially offset by increased net sales pertaining to liquidations of inventory
at ten stores in the process of closing during the thirteen weeks ended May 5,
1995. Excluding the Company's 13 Texas/Mexico border stores (which have been
adversely affected since December 1994 by a peso devaluation), net sales on a
comparable store basis were relatively unchanged for the thirty-nine weeks ended
November 3, 1995.
Cost of sales as a percentage of net sales was relatively unchanged
for the thirty-nine weeks ended November 3, 1995 compared to the comparable
period of the prior year.
Selling, advertising, general and administrative expenses increased
from 32.5% of net sales for the thirty-nine weeks ended October 28, 1994 to
33.2% of net sales for the thirty-nine weeks ended November 3, 1995. The 6.3%
decrease in the amount of selling, advertising, general and administrative
expenses compared to the prior period was comparable to the 6.2% decrease in the
weighted average number of stores open.
Depreciation and amortization increased by 5.1% in the thirty-nine
weeks ended November 3, 1995 compared to the comparable period of the prior
year, due primarily to the increased number of the Company's stores having a
full thirty-nine weeks of depreciation in the fiscal 1996 period as compared to
the comparable period of the prior year.
Other expense, net, increased to approximately $1,446,000 in the
thirty-nine weeks ended November 3, 1995 compared to approximately $1,061,000 in
the comparable period of the prior year, due primarily to increased interest
expense attributable to a higher interest rate and increased borrowings under
the Company's revolving credit line.
The increase in the Company's loss before income taxes for the thirty-
nine weeks ended November 3, 1995 compared to the thirty-nine weeks ended
October 28, 1994 is primarily due to the Company's decrease in net sales, offset
in part by a decrease in selling, advertising, general and administrative
expenses.
-15-
<PAGE>
Liquidity and Capital Resources
- - -------------------------------
During the thirty-nine weeks ended November 3, 1995, the Company's
cash on hand and borrowings under its revolving credit line provided funds used
for operating activities of approximately $5,366,000, representing primarily an
increase in inventories necessary for the Christmas selling season and
merchandise for five new stores opened during the period and approximately
$3,214,000 for funding of capital expenditures related primarily to such five
new stores. As of December 8, 1995, the Company had approximately $4,127,000
available for use under its revolving credit line. See Note 3 to the Condensed
Consolidated Financial Statements.
There are no other store openings planned for fiscal 1996. One store
is scheduled to open in April 1996 (fiscal 1997) in Atlanta, Georgia, an
existing market.
Closed store costs liability of approximately $1,880,000 pertains to
the twelve stores closed in fiscal 1996 and includes primarily estimated lease
payments to be disbursed over an estimated four year period: approximately
$693,000, $387,000, $106,000 and $694,000 in fiscal 1996, 1997, 1998 and 1999,
respectively. See Note 2 to the Condensed Consolidated Financial Statements.
As discussed in Item 1, Part II of this Form 10-Q, the Company has
filed a lawsuit related to certain parties' breaches of contractual obligations
to purchase 1,500,000 shares of the Company's common stock and actions in
misappropriating and removing these shares from an escrow account without
effecting payment for such shares. The Company intends to vigorously prosecute
this matter and to pursue all available avenues to effect either the receipt of
payment for such shares or the return of the shares themselves, plus actual and
punitive damages. The Company, based upon advice of counsel, believes that it
will obtain a judgment against one or more defendants in this case; however, the
collectibility of any such judgment is uncertain at this time.
The Company believes its operating cash flow, its revolving credit
line and its cash on hand will be adequate to finance its operations through
fiscal 1996.
-16-
<PAGE>
PART II
ITEM 1. LEGAL PROCEEDINGS
- - ------- -----------------
See Note 4 to the Condensed Consolidated Financial Statements
regarding lawsuit filed in February 1995. Such lawsuit was also reported in the
Company's annual report on Form 10-K for the fiscal year ended February 3, 1995.
There have been no material developments with regard to the lawsuit during the
quarter reported upon.
ITEM 2. CHANGES IN SECURITIES
- - ------- ---------------------
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
- - ------- -------------------------------
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- - ------- ---------------------------------------------------
An annual meeting of the stockholders of the Company was held on
September 26, 1995. At such meeting Charles Siegel, Charles J. Fuhrmann II,
Joseph Lehrman, James Raines, Cecil Schenker and Richard Sherman were re-elected
as Directors of the Registrant. The results of such voting were as follows:
<TABLE>
<CAPTION>
Voting for election of directors
Nominee For Withheld
------- --- --------
<S> <C> <C>
Charles Siegel 10,213,088 44,170
Charles J. Fuhrmann II 9,791,448 465,810
Joseph Lehrman 10,217,363 39,895
James Raines 9,774,823 482,435
Cecil Schenker 9,786,923 470,335
Richard Sherman 10,216,723 40,535
</TABLE>
ITEM 5. OTHER INFORMATION
- - ------- -----------------
The Registrant reports no information, not previously reported in a
report on Form 8-K, in lieu of filing a report on Form 8-K with respect to such
information.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
- - ------- --------------------------------
(a) Exhibits:
Exhibit 15 - Review Report of Deloitte & Touche LLP
No other exhibits are required to be filed by the Registrant under
Item 601 of Regulation S-K with this report on Form 10-Q.
(b) Reports on Form 8-K.
There were no reports on Form 8-K filed during the quarter ended
November 3, 1995.
-17-
<PAGE>
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:
50-OFF STORES, INC.
By:CHARLES M. SIEGEL
--------------------------------
Charles M. Siegel, President and
Chief Executive Officer
By:JAMES G. SCOGIN
--------------------------------
James G. Scogin, Controller and
Chief Accounting Officer
-18-
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
PAGE
----
DESCRIPTION
-----------
<S> <C> <C>
Exhibit 15 Review Report of Deloitte & Touche LLP 20
Exhibit 27 Financial Data Schedule 21
</TABLE>
-19-
<PAGE>
EXHIBIT 15
INDEPENDENT ACCOUNTANTS' REPORT
Board of Directors and Stockholders
50-OFF Stores, Inc.
San Antonio, Texas
We have reviewed the accompanying condensed consolidated balance sheet of 50-OFF
Stores, Inc. and subsidiaries (the Company) as of November 3, 1995, and the
related condensed consolidated statements of operations for the thirteen and
thirty-nine week periods ended November 3, 1995 and October 28, 1994 and the
consolidated statements of cash flows for the thirty-nine week periods ended
November 3, 1995 and October 28, 1994. These financial statements are the
responsibility of the Company's management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and of making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in accordance
with generally accepted auditing standards, the objective of which is the
expression of an opinion regarding the financial statements taken as a whole.
Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to such condensed consolidated financial statements for them to be in
conformity with generally accepted accounting principles.
As discussed in Note 4 of Notes to Condensed Consolidated Financial Statements,
the Company has filed a lawsuit related to certain parties' breach of
contractual obligations to purchase 1,500,000 shares of the Company's common
stock and actions in misappropriating and removing these shares from an escrow
account prior to payment for such shares. The Company intends to vigorously
prosecute this matter and to pursue all available avenues to effect either the
receipt of payment for such shares or the return of the shares themselves, plus
actual and punitive damages. The Company, based upon advice of counsel, believes
that it will obtain a judgment against one or more defendants in this case;
however, the collectibility of any such judgment is uncertain at this time.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet of 50-OFF Stores, Inc. and
subsidiaries as of February 3, 1995, and the related consolidated statements of
operations, stockholders' equity, and cash flows for the year then ended (not
presented herein); and in our report dated April 20, 1995, we expressed an
unqualified opinion on those consolidated financial statements and included an
explanatory paragraph concerning those matters discussed in the preceding
paragraph. In our opinion, the information set forth in the accompanying
condensed consolidated balance sheet as of February 3, 1995 is fairly stated, in
all material respects, in relation to the consolidated balance sheet from which
it has been derived.
DELOITTE & TOUCHE LLP
San Antonio, Texas
December 5, 1995
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM 50-OFF
STORES, INC.'S FINANCIAL STATEMENTS AS OF AND FOR THE THIRTEEN WEEKS ENDED
NOVEMBER 3, 1995, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> NOV-03-1995
<PERIOD-END> NOV-03-1995
<CASH> 2,149
<SECURITIES> 0
<RECEIVABLES> 2,308
<ALLOWANCES> 0
<INVENTORY> 40,080
<CURRENT-ASSETS> 46,557
<PP&E> 42,650
<DEPRECIATION> 17,047
<TOTAL-ASSETS> 73,136
<CURRENT-LIABILITIES> 25,809
<BONDS> 19,967
<COMMON> 122
0
0
<OTHER-SE> 26,052
<TOTAL-LIABILITY-AND-EQUITY> 73,136
<SALES> 37,644
<TOTAL-REVENUES> 37,644
<CGS> 25,014
<TOTAL-COSTS> 25,014
<OTHER-EXPENSES> 13,884
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 514
<INCOME-PRETAX> (1,769)
<INCOME-TAX> 623
<INCOME-CONTINUING> (1,146)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,146)
<EPS-PRIMARY> (.09)
<EPS-DILUTED> (.09)
</TABLE>
