<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarterly Period Ended Oct. 28, 1995 COMMISSION FILE NO. 0-17870
LECHTERS, INC.
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(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
NEW JERSEY No. 13-2821526
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(STATE OR OTHER JURISDICTION OF INCORPORATION) (I.R.S. EMPLOYER
IDENTIFICATION NO.)
1 Cape May Street, Harrison, NEW JERSEY 07029
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(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
Registrant's telephone number, including area code: (201) 481-1100
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, and (2) has been
subject to such filing requirements for the past 90 days.
YES x NO
The number of shares of the Registrant's common stock, without par
value, outstanding at December 1, 1995: 17,155,086
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LECHTERS, INC. AND SUBSIDIARIES
FORM 10-Q
FOR QUARTER ENDED OCTOBER 28, 1995
INDEX
PAGE NO.
PART I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets -
October 28, 1995 and January 28, 1995 1
Consolidated Statements of Income
for the Thirteen and Thirty-Nine Weeks
Ended October 28, 1995 and October 29, 1994 2
Consolidated Statements of Cash Flows
for the Thirty-Nine Weeks Ended
October 28, 1995 and October 29, 1994 3
Consolidated Statement of Shareholders'
Equity for the Thirty-Nine Weeks Ended
October 28, 1995 4
Notes to Consolidated Financial
Statements 5-6
Item 2. Management's Discussion and
Analysis of Financial Condition
and Results of Operations 7-9
PART II. Other Information
Item 6. Exhibits and Reports 10
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<TABLE>
<CAPTION>
LECHTERS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands, except share and per share amounts)
<S> <C> <C>
October 28, January 28,
1995 1995
A S S E T S (unaudited)
Current Assets:
Cash and Cash Equivalents $ 758 $ 14,774
Available for Sale Securities 4,948 43,339
Accounts Receivable 8,155 6,668
Merchandise Inventories 147,858 97,323
Prepaid Expenses 11,789 4,601
Total Current Assets 173,508 166,705
Property and Equipment - at Cost:
Fixtures and Equipment 62,082 53,786
Leasehold Improvements 99,105 92,954
161,187 146,740
Less Accumulated Deprec & Amort 57,345 47,265
103,842 99,475
Other Assets 4,415 4,530
Total Assets $281,765 $270,710
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Current Portion Long-Term Debt $ 3,000 $ 3,000
Accounts Payable 34,099 15,453
Salaries, Wages and Other Accd Exp 10,461 9,906
Taxes, Other Than Income Taxes 2,824 2,806
Federal and State Income Taxes 489 755
Total Current Liabilities 50,873 31,920
Long-term Debt
Notes Payable 17,250 21,000
5% Convertible Subordinated Debentures
due September 27, 2001 (Net of
Unamortized Discount of $7,489 and
$8,222, respectively) 57,511 56,777
Total Long-term Debt 74,761 77,777
Def Income Taxes and Other Def Credits 17,347 17,472
Shareholders' Equity:
Preferred Stock, $100 Par Value
Authorized 1,000,000 Shares,
Issued and Outstanding - None -- --
Common Stock, Without Par Value,
Authorized 50,000,000 Shares,
Issued and Outstanding 17,155,086
and 17,118,646 Shares, Respectively 58 58
Unrealized Holding Loss on Available
for Sales Securities (186) (210)
Additional Paid-in Capital 62,773 62,423
Retained Earnings 76,139 81,270
Total Shareholders' Equity 138,784 143,541
Total Liabilities and Shareholders'
Equity $281,765 $270,710
======== ========
See accompanying notes to consolidated financial statements.
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<TABLE>
<CAPTION>
LECHTERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Amounts in thousands, except share and per share data)
<S> <C> <C> <C> <C>
Thirteen Weeks Ended Thirty-Nine Weeks Ended
October 28, October 29, October 28, October 29,
1995 1994 1995 1994
(unaudited) (unaudited)
Net Sales $ 95,148 $ 91,077 $264,135 $246,351
Cost of Goods Sold (including
occupancy and indirect costs) 70,298 65,534 196,300 178,419
Gross Profit 24,850 25,543 67,835 67,932
Selling, General and
Administrative Expenses 25,142 21,911 73,056 64,212
Restructuring Charge -- -- -- 11,000
Operating (Loss) Income (292) 3,632 (5,221) (7,280)
Other Expenses (Income):
Interest Expense 1,603 1,752 5,059 5,466
Interest Income (313) (263) (1,532) (996)
(Gain) Loss on Sale of
Government Securities (23) 71 (53) 121
Total Other Expenses (Income) 1,267 1,560 3,474 4,591
(Loss) Income Before Income
Taxes (1,559) 2,072 (8,695) (11,871)
Income Tax (Benefit), Provision (638) 850 (3,564) (4,867)
Net (Loss) Income $ (921) $ 1,222 $ (5,131) $ (7,004)
======== ======== ======== ========
Net (Loss) Income Per Share ($0.05) $0.07 ($0.30) ($0.41)
======== ======== ======== ========
Weighted Average Shares
Outstanding 17,238,000 17,171,000 17,322,000 17,012,000
========== ========== ========== ==========
See accompanying notes to consolidated financial statements.
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<TABLE>
<CAPTION>
LECHTERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
<S> <C> <C>
Thirty-Nine Weeks Ended
October 28, October 29,
1995 1994
(unaudited)
Cash Flows From Operating Activities:
Net Loss ($5,131) ($7,004)
Adjustments to Reconcile Net Loss to Net
Cash Used In Operating Activities:
Restructuring Charge -- 11,000
Depreciation and Amortization 11,876 10,731
Other 1,015 886
Changes in Assets and Liabilities, Net of
Effects of Restructuring:
Increase in Accounts Receivable (1,487) (4,582)
Increase in Merchandise Inventories (50,535) (29,708)
Increase in Prepaid Expenses (7,188) (4,912)
Increase in Accounts Payable,
Accrued Expenses and Taxes Other
Than Income Taxes 19,219 12,556
Decrease in Income Taxes Payable (266) (199)
Increase in Other Assets (21) (753)
Net Cash Used In Operating Activities: (32,518) (11,985)
Cash Flows From Investing Activities:
Capital Expenditures (16,530) (14,766)
Decrease in Available for Sale
Securities 38,432 24,814
Net Cash Provided By Investing
Activities 21,902 10,048
Cash Flows From Financing Activities:
(Decrease) in Notes Payable (3,750) (2,000)
Exercise of Stock Options 350 2,176
Net Cash (Used In) Provided by
Financing Activities (3,400) 176
Net Decrease in Cash and Cash Equivalents (14,016) (1,761)
Cash and Cash Equivalents, Beginning of
Period 14,774 8,963
Cash and Cash Equivalents, End of Period $ 758 $ 7,202
======= =======
Supplemental Disclosure of Cash Flows
Information:
Non Cash Investing Activities:
Unrealized Holding Loss Adjustment
on Available for Sale Securities $ 41 $ 429
======= =======
Cash Paid During the Period for:
Interest Paid $ 4,931 $ 5,689
======= =======
Income Taxes (Refunded)/Paid ($1,001) $ 267
======= =======
See accompanying notes to consolidated financial statements.
</TABLE>
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<TABLE>
<CAPTION>
LECHTERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(Amounts in thousands)
<S> <C> <C> <C> <C> <C>
Common Additional Unrealized
Stock Paid-In Retained Holding
Issued Capital Earnings Gain(Loss)Total
Balance, January 28, 1995 $58 $62,423 $81,270 $(210) $143,541
Net Loss Thirty-Nine Weeks
Ended October 28, 1995 -- -- (5,131) -- (5,131)
Unrealized Holding Loss
Adjustment -- -- -- 24 24
Exercise of Stock Options -- 350 -- -- 350
Balance, October 28, 1995
(unaudited) $58 $62,773 $76,139 $(186) $138,784
===== ======= ======= ===== ========
See accompanying notes to consolidated financial statements.
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LECHTERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. General
The accompanying unaudited Consolidated Financial Statements have
been prepared in accordance with the instructions for Form 10-Q
and do not include all the information and footnotes required by
generally accepted accounting principles for complete financial
statements. In the opinion of management, all adjustments
(consisting of normal recurring accruals) considered necessary
for a fair presentation for interim periods have been included.
The Company's results of operations for the thirteen and thirty-
nine weeks ended October 28, 1995 are not necessarily indicative
of the operating results for the full year.
Certain reclassifications have been made to the financial
statements of the prior year to conform with the classification
used for fiscal 1995.
2. Net Loss Per Share
Net loss income per share data was computed by dividing net loss
income by the weighted average number of common shares and common
share equivalents outstanding during the thirteen and thirty-nine
weeks ended October 28, 1995 and October 29, 1994. Common stock
equivalents include outstanding stock options. The Company's 5%
Convertible Subordinated Debentures issued in September 1991 did
not qualify as a common stock equivalent at the time of issue and
were not included in the calculation of primary net loss income
per share for the periods ended October 28, 1995 and October 29,
1994. For the purpose of computing fully diluted net loss income
per share, the assumed conversion of such debentures would have
an anti-dilutive effect on the thirteen and thirty-nine weeks
ended October 28, 1995 and October 29, 1994.
3. Restructuring Charge
During June 1994, the Company recorded a pretax restructuring
charge of approximately $11,000,000 (approximately $6,500,000
after tax or $0.38 per share) related to its initial plan to
close 15 unprofitable stores and discontinue various unprofitable
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merchandise lines. The plan called for the termination of the
employment of approximately 19 associates from store operations,
the service office and distribution centers. During the fourth
quarter of Fiscal 1994, the Company revised its estimate of the
number of store closings to 10 stores and reduced the related
store closing provision by $3,000,000. However, the Company also
increased its estimate of the provision to markdown discontinued
merchandise by a similar amount. The revised estimated
restructuring charge includes the following:
Inventory writedown $ 7,400,000
Store closing:
Property and equipment writeoffs 1,800,000
Store closing and lease
termination costs 1,200,000
Severance costs 600,000
$11,000,000
===========
During Fiscal 1994, the Company used approximately $6,800,000 to
markdown discontinued merchandise lines, approximately $1,500,000
to close five of the 10 stores, and approximately $300,000 to pay
related severance costs.
During the thirty-nine weeks ended October 28, 1995 the Company
used approximately $700,000 to markdown discontinued merchandise
lines, approximately $500,000 to pay costs related to the five
stores closed and approximately $30,000 to pay related severance
costs. The remaining restructuring reserve as of October 28,
1995 was approximately $1,170,000, and it is estimated by
management to be necessary and sufficient for any obligations
still outstanding relating to the Company's restructuring plan.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
Thirteen Weeks Ended October 28, 1995 in Comparison with Thirteen
Weeks Ended October 29, 1994
Net sales of $95,148,000 for the thirteen weeks ended October 28,
1995 increased by $4,071,000 (4.5%) over net sales of $91,077,000 for
the thirteen weeks ended October 29, 1994. This increase was
primarily attributable to an increase in the number of stores open
during the period and partially attributable to the Company's
remodeling program. During the thirteen weeks ended October 28,1995,
the Company's comparable store sales decreased 4.3%, as compared to
prior year's comparable period. There were 635 stores open on October
28, 1995 compared with 600 stores open at the end of the comparable
period of the prior year, an increase of 35 stores (5.8%). During the
thirteen weeks ended October 28, 1995, the Company opened 18 new
stores, remodeled an additional three stores and closed one store.
Gross profit for the thirteen weeks ended October 28, 1995 was
$24,850,000, or 26.1% of net sales, compared with $25,543,000, or
28.0% of net sales, during the prior year's comparable period. The
decrease in gross profit as a percentage of sales is primarily due to
the under-absorption of allocated fixed expenses due to the decline in
the Company's comparable store sales together with the repositioning
of the Company's merchandise mix, which was converted during the third
quarter.
Selling, general and administrative expenses increased as a
percentage of net sales to 26.4% during the thirteen weeks ended
October 28, 1995 from 24.1% during the thirteen weeks ended October
29, 1994. This increase was primarily attributable to sales being
less than planned while service office expenses were incurred as
planned.
Other expenses decreased by $293,000 to $1,267,000 for the
thirteen weeks ended October 28, 1995. This decrease was primarily
attributable to a decrease in interest expense of $149,000 resulting
from the Company reducing its debt by repaying $6,000,000 of 10.5%
Notes during the third quarter of 1994, and the additional repayment
during the third quarter of 1995 of $3,750,000 together with the
increase in interest income of $50,000. The Company also realized a
gain on the sale of marketable securities of $23,000 versus a loss on
the sale of marketable securities during the prior year of $71,000.
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Thirty-Nine Weeks Ended October 28, 1995 in Comparison with Thirty-
Nine Weeks Ended October 29, 1994
Net sales of $264,135,000 for the thirty-nine weeks ended October
28, 1995 increased by $17,784,000 (7.2%) over net sales of
$246,351,000 for the thirty-nine weeks ended October 29, 1994. This
increase was primarily attributable to an increase in the number of
stores open during the period and partially attributable to the
Company's remodeling program. During the thirty-nine weeks ended
October 28, 1995, the Company's comparable store sales decreased 1.8%,
as compared to prior year's comparable period. There were 635 stores
open on October 28, 1995 compared with 600 stores open at the end of
the comparable period of the prior year, an increase of 35 stores
(5.8%). During the thirty-nine weeks ended October 28, 1995, the
Company opened 34 new stores, closed four stores, and remodeled an
additional 10 stores. This resulted in a net addition of 140,301
square feet, bringing the Company's total retail space to 2,368,496
square feet.
Gross profit for the thirty-nine weeks ended October 28, 1995 was
$67,835,000, or 25.7% of net sales, compared with $67,932,000, or
27.6% of net sales, during the prior year's comparable period. The
decrease in gross profit as a percentage of sales is primarily due to
a transitional imbalance in its product mix and under-absorption of
fixed allocated costs due to lower comparable store sales.
Selling, general and administrative expenses increased as a
percentage of net sales to 27.7% during the thirty-nine weeks ended
October 28, 1995 from 26.1% during the thirty-nine weeks ended October
29, 1994 excluding for the prior year an $11,000,000 pre-tax
restructuring charge, the effect of which was a ($0.38) per share
loss. This increase was primarily attributable to an increase in
general administrative expenses and store salaries associated with the
additional stores in operation during the thirty-nine week period
ended October 28, 1995 and under-absorption of fixed expenses due to
the aforementioned decrease in comparable store sales.
Other expenses decreased by $1,117,000 to $3,474,000 for the
thirty-nine weeks ended October 28, 1995. This decrease was primarily
attributable to a decrease in interest expense of $407,000 resulting
from the Company reducing its debt by repaying $6,000,000 and
$3,750,000 of 10.5% Notes during the third quarters of 1994 and 1995,
respectively, and the increase in interest income of $536,000,
together with a realized gain on the sale of marketable securities of
$53,000 versus a loss on the sale of marketable securities of $121,000
during the prior year.
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Liquidity and Capital Resources
Cash and cash equivalents and available for sale securities
decreased by $52,448,000 and $26,575,000 respectively for the thirty-
nine weeks ended October 28, 1995 and October 29, 1994.
Net cash used in operating activities was $32,518,000 for the
thirty-nine weeks ended October 28, 1995 versus net cash used in
operating activities of $11,985,000 for the thirty-nine weeks ended
October 29, 1994. The increase in net cash used in operating
activities of $20,533,000 was mainly attributable to an increase in
the growth of merchandise inventory of $20,827,000.
Capital expenditures of $16,530,000 primarily consisted of the
costs of construction and fixtures for 34 new stores, and the
remodeling of 10 existing stores. Capital expenditures were funded by
available cash and sale of marketable securities. Capital
expenditures for the comparable 1994 period were $14,766,000.
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LECHTERS, INC. AND SUBSIDIARIES
PART II - OTHER INFORMATION
Item 6 - Exhibits and Reports on Form 8-K.
None
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.
LECHTERS, INC.
By:________________________________
John W. Smolak
Vice President and
Chief Financial Officer
Date: December 11, 1995
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<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from SEC Form
10-Q and is qualified in its entirety by reference to such financial statement.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 9-MOS
<FISCAL-YEAR-END> JAN-27-1996 JAN-27-1996
<PERIOD-END> OCT-28-1995 OCT-28-1995
<CASH> 758 0
<SECURITIES> 4,948 0
<RECEIVABLES> 8,155 0
<ALLOWANCES> 0 0
<INVENTORY> 147,858 0
<CURRENT-ASSETS> 173,508 0
<PP&E> 103,842 0
<DEPRECIATION> 4,108 11,876
<TOTAL-ASSETS> 281,765 0
<CURRENT-LIABILITIES> 50,873 0
<BONDS> 57,511 0
<COMMON> 58 0
0 0
0 0
<OTHER-SE> (186) 0
<TOTAL-LIABILITY-AND-EQUITY> 281,765 0
<SALES> 95,148 264,135
<TOTAL-REVENUES> 95,148 264,135
<CGS> 70,298 196,300
<TOTAL-COSTS> 25,142 73,056
<OTHER-EXPENSES> 1,267 3,474
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 1,603 5,059
<INCOME-PRETAX> (1,559) (8,695)
<INCOME-TAX> (638) (3,564)
<INCOME-CONTINUING> (921) (5,131)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (921) (5,131)
<EPS-PRIMARY> (0.05) (0.30)
<EPS-DILUTED> 0 0
</TABLE>
