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 November 1, 1997 COMMISSION
FILE NO. 017870
LECHTERS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
NEW JERSEY No. 13-
2821526
STATE OR OTHER JURISDICTION OF (I.R.S.
EMPLOYER INCORPORATION
IDENTIFICATION NO.)
1 Cape May Street, Harrison, NEW JERSEY 07029
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
Registrant's telephone number, including area code:
(973) 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
s common stock,
without par value, outstanding at December 3, 1997:
17,174,286:
LECHTERS, INC. AND SUBSIDIARIES
FORM 10-Q
FOR QUARTER ENDED
NOVEMBE
R 1,
1997
INDEX
PAGE NO. PART I.
Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets
November 1, 1997 and February 1, 1997 1
Consolidated Statements of Income
for the Thirteen and Thirty-Nine Weeks
Ended
November 1, 1997 and November 2, 1996 2
Consolidated Statements of Cash Flows
for the Thirty-Nine Weeks Ended
November 1, 1997 and November 2, 1996 3
Consolidated Statement of Shareholders'
Equity for the Thirty-Nine Weeks Ended
November 1, 1997
4
Notes to Consolidated Financial Statements
5-6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 7-8
PART II. Other Information
Item 6. Exhibits and Reports
9
<PAGE> 3
LECHTERS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands, except share
and per share
amounts)
<TABLE>
<CAPTION>
November February
1, 1,
1997 1997
<S> <C> <C>
A S S E T S
(unaudite
d)
Current Assets:
Cash and Cash Equivalents $ 3,901 $
7,022 Marketable
Securities 28,762 54,084
Accounts Receivable 14,480 5,561
Merchandise Inventories 140,947 100,442
Prepaid Expenses
8,689
5,734
Total Current Assets 196,779 172,843
Property and Equipment:
Fixtures and Equipment 62,843 66,828
Leasehold Improvements 100,875 102,912
163,718 169,740
Less Accumulated Depreciation 77,378 74,356
& Amortization
Net Property and 86,340 95,384
Equipment
Other Assets 5,896
4,106 Total Assets
$289,015 $272,333
LIABILITIES AND SHAREHOLDERS'
EQUITY
Current Liabilities
Accounts Payable $ 24,412 $ 3,264
Dividends Payable - Preferred -- 1,010
Stock
Salaries, Wages and Other 18,602 13,318
Accrued Expenses
Taxes, Other Than Income Taxes 2,309 1,318
Income Taxes Payable 1,979
799
Total Current Liabilities
46,122 20,889
Long-term Debt
5% Convertible Subordinated
Debentures
due September 27, 2001 (Net
59,706
of Unamortized 58,853
Discount of $5,294 and
$6,147, respectively)
Total Long-Term Debt 59,706 58,853
Deferred Income Taxes and 22,942 22,183
Other Deferred Credits
Shareholders' Equity:
Convertible Preferred Stock,
$100 Par Value
Authorized 1,000,000
Shares,
Issued and Outstanding -
Series A - 149,999
Shares; Series B - 50,001 20,000 20,000
Shares
Common Stock, No Par Value,
Authorized 50,000,000
Shares,
Issued and Outstanding 58 58
17,155,086
Unrealized Holding Gain (Loss)
on Available
for Sales Securities 2 (29)
Additional Paid-in Capital 62,273 62,273
Retained Earnings 77,912
88,106
Total Shareholders' Equity 160,245 170,408
Total Liabilities and $289,015 $272,333
Shareholders'Equity
</TABLE>
See accompanying notes to consolidated
financial statements.
-1 -
<PAGE> 4
LECHTERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Amounts in thousands, except share and per
share data)
<TABLE>
<CAPTION>
Thirteen Weeks
Thirty-Nine Weeks
Ended
Ended
Novembe Novembe
Novembe November r 1, r 2, r 1,
2,
1997 1996
1997 1996
(unaudited)
(unaudited)
<S> <C> <C> <C> <C>
Net Sales $ $
$279,95 $
99,711 98,495 4 276,214
Cost of Goods Sold
(including 73,178 208,405
occupancy and 74,902
212,320
indirect costs)
Gross Profit 24,809 25,317
67,634 67,809
Selling, General and
Administrative 27,989 27,085
83,372 78,446
Expenses
Operating Loss (3,180) (1,768)
(15,738 (10,637)
)
Other Expenses
(Income):
Interest Expense 1,153 1,177 3,433 3,919
Interest Income (412) (307)
(1,718) (1,152)
Net Investment
(Gain/Income) Loss 19
(131) 15 (175)
Total Other Expenses
1,540 2,786
(Income) 610 885
Loss Before Income (3,790) (2,653)
(17,278 (13,423)
Taxes )
Income Tax Benefit (5,504)
(1,554) (1,088)
(7,084)
Net Loss (2,236)
(10,194 (7,919)
(1,565) )
Preferred Stock 589
Dividend Requirement 253 253 758
Net Loss Applicable to
Common ($2,489 ($1,818
($10,95 ($8,508)
Shareholders ) ) 2)
Net Loss Per Common ($0.50)
Share ($0.15) ($0.11)
($0.64)
Weighted Average Common
Shares 17,155, 17,155,
17,155, 17,155,00
Outstanding 000 000 000 0
</TABLE>
See accompanying notes to consolidated financial
statements.
- 2 -
<PAGE> 5
LECHTERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
<TABLE>
<CAPTION>
Thirty-Nine
Weeks Ended
November 1,
November 2,
1997 1996
(unaudited)
<S> <C>
<C>
Cash Flows From Operating
Activities:
Net Loss ($10,194)
($7,919)
Adjustments to Reconcile Net
Loss to Net
Cash Used In Operating
Activities:
Depreciation and Amortization 12,917 12,609
Deferred Rent 694 625
Other 982 1,256
Changes in Assets and
Liabilities:
Increase in Accounts Receivable (8,919) (5,632)
Increase in Merchandise (40,505) (35,947)
Inventories
Increase in Prepaid Expenses (2,955) (6,074)
Increase in Accounts Payable,
Accrued Expenses and Taxes
Other 27,423 26,109
Than Income Taxes
Decrease in Income Taxes (1,180) (861)
Payable
(Increase) Decrease in Other (1,251) 152
Assets
Net Cash Used In Operating (22,988) (15,682)
Activities
Cash Flows From Investing
Activities:
Capital Expenditures (4,499) (6,624)
Decrease in Available for Sale
Securities 25,376 25,836
Net Cash Provided by
Investing Activities 20,877 19,212
Cash Flows From Financing
Activities:
Issuance of Preferred Stock -- 20,000
Payment of Senior Notes Payable -- (20,250)
Payment of Preferred Stock --
Dividend (1,010)
Net Cash Used In Financing
Activities (1,010) (250)
Net (Decrease) Increase in
Cash and (3,121) 3,280
Cash Equivalents
Cash and Cash Equivalents,
Beginning of 7,022 4,234
Period
Cash and Cash Equivalents, End $ 3,901 $ 7,514
of Period
Supplemental Disclosure of Cash
Flows
Information:
Non Cash Investing Activities:
Unrealized Holding Loss
Adjustment $ 54 ($ 144)
on Available for Sale
Securities
Cash Paid During the Period
for:
Interest $ 3,378 $ 4,546
Income Taxes $ 2,061 $ 847
</TABLE>
See accompanying notes to consolidated financial
statements.
- 3 -
<PAGE> 6
LECHTERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(Amounts in thousands)
<TABLE>
<CAPTION>
Common Preferre Addition Unrealiz
Stock d al Retained ed
Issued Stock Paid-In Earnings Holding Total
Issued Capital Gain
(Loss)
<S> <C> <C> <C> <C> <C> <C>
Balance, $58 $20,000 $62,273 $88,106 ($ 29) $170,408
February 1, 1997
Net Loss Thirty-
Nine Weeks -- -- -- (10,194) -- (10,194)
Ended
November 1, 1997
Unrealized
Holding Loss -- 31 31
Adjustment -- -- --
Balance,
November 1, 1997 $58 $20,000 $62,273 $ 77,912 $ 2 $
(unaudited) 160,245
</TABLE>
See accompanying notes to consolidated financial statements.
- 4 -
<PAGE> 7
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 November 1, 1997 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 classifications
used for Fiscal 1997.
2. NET LOSS PER SHARE
Net loss per share data were computed by dividing net loss,
reduced by the Convertible Preferred Stock Dividend requirement,
by the weighted average number of common shares outstanding during
the thirteen and thirty-nine weeks ended November 1, 1997 and
November 2, 1996.
Stock options, which are common stock equivalents, were excluded
from the weighted average of outstanding shares because inclusion
would reduce the loss per share.
Neither the Company's 5% Convertible Subordinated Debentures
issued in September 1991 nor the Convertible Preferred Stock
issued in April 1996 qualified as common stock equivalents at the
time of issuance. Consequently, both were excluded from the
calculations of primary net loss per share for the periods ended
November 1, 1997 and November 2, 1996.
For the purpose of computing fully diluted net loss per share, the
assumed conversion of such debentures would have an antidilutive
effect on fully diluted loss per share for the thirteen and thirty-
nine weeks ended November 1, 1997 and November 2, 1996. With
respect to the Convertible Preferred Stock, conversion of such
preferred stock would have an anti-dilutive effect on the
calculation of fully diluted loss per share for the thirteen and
thirty-nine weeks ended November 1, 1997 and November 2, 1996.
- 5 -
<PAGE> 8
3. RECENT ACCOUNTING PRONOUNCEMENTS
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards (SFAS No. 128)
"Earnings per Share." The statement is effective for financial
statements for periods ending after December 15, 1997, and changes
the method in which net income per share will be determined.
Adoption of this statement by the Company will not have a material
impact on net income per share.
4. AMENDMENT OF THE AMENDED AND RESTATED CREDIT AGREEMENT
On September 11, 1997, the Company and a group of banks executed
Amendment No. 1 of the Amended and Restated Credit Agreement
(Credit Agreement) dated May 23, 1996. The significant terms of
Amendment No. 1 included the authorization of the Company to
purchase, redeem or retire up to one million shares in aggregate of
its common stock, to make loans to employees, and allows letters of
credit to have extended expiration dates rather than automatically
expiring 90 days after issuance. The termination date of the
Credit Agreement remains May 22, 1998. The Board of Directors of
the Company, at its Meeting held September 11, 1997, authorized the
purchase, redemption or retirement by the Company of its common
stock to the extent permitted under the Credit Agreement.
- 6 -
<PAGE> 9
PAGE> 9
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
THIRTEEN WEEKS ENDED NOVEMBER 1, 1997 IN COMPARISON WITH THIRTEEN WEEKS
ENDED NOVEMBER 2, 1996.
Net sales for the thirteen weeks ended November 1, 1997 increased
$1,216,000 to $99,711,000, a 1.2% increase over $98,495,000 reported
for the comparable thirteen week period of the prior fiscal year. The
sales increase was in part attributable to increased advertising
activity by the Company in support of the Lechters Housewares stores.
For the third quarter of Fiscal 1997, the Company's comparable store
sales increased 0.4% versus the prior year. By division, comparable
store sales for Lechters Housewares increased 2.8% and Famous Brands
Housewares Outlets decreased 6.4%. During the third quarter of Fiscal
1997, the Company opened one store and closed four.
Gross Profit for the quarter decreased $508,000 to $24,809,000 and was
24.9% as a percent of net sales, which was 0.8 percentage points below
the gross profit rate for the third quarter of the prior year. The
decrease in gross margin was primarily attributable to an increase in
cost of goods sold expense. The increase was a result of additional
price reductions related to a merchandise mix shift and assortment
transition occurring primarily in the Company's Famous Brands
Housewares Outlets division.
Selling, general and administrative expenses totaled $27,989,000, an
increase of $904,000 over the same period of the prior year. At 28.1%
as a percent of net sales, the expense rate for the third quarter was
0.6 percentage points higher than the rate for comparable period of
Fiscal 1996. The increase in selling, general and administrative
expenses was due to the planned increase in payroll, particularly in
the Service Office, and additional advertising expenditures for
promotion of the Company's Lechters Housewares division.
Other Expenses for the quarter were $610,000, a $275,000 decrease from
the comparable period of the prior year. As a percent of sales, other
expenses declined 0.3% to 0.6%. The decrease was primarily attributable
to higher interest income and investment income, primarily dividends,
which were the result of higher balances of invested cash and
marketable securities.
THIRTY-NINE WEEKS ENDED NOVEMBER 1, 1997 IN COMPARISON WITH THIRTYNINE
WEEKS ENDED NOVEMBER 2, 1996.
Net sales for the thirty-nine weeks ended November 1, 1997 increased
$3,740,000 to $279,954,000, a 1.4% increase over $276,214,000 reported
for the comparable thirty-nine week period of the prior fiscal year.
The sales increase was primarily attributable to additional promotional
activities of the Company. Through the first three quarters of Fiscal
1997, the Company's comparable store sales increased 0.2% versus the
prior year. By division, comparable store sales for Lechters
Housewares increased 2.6% and Famous Brands Housewares Outlets
decreased 7.3%. Year to date, the Company has opened four stores and
closed eleven stores. The net decrease of seven stores for the year has
reduced the Company's retail selling space by 39,500 square feet to
approximately 2,406,500. As of November 1, 1997, the Company operated
642 stores as compared with 647 stores at November 2, 1996, a decrease
of 0.8%.
-7-
<PAGE> 10
<PAGE> 10
Gross Profit for the year to date decreased $175,000 to $67,634,000
and was 24.2% as a percent of net sales and was 0.3 percentage points
below the gross profit rate for the comparable year to date period of
the prior year. The slight decrease in the gross margin rate was
primarily attributable to higher levels of price reductions in support
of the Company's increased advertising, a shift in merchandise mix and
an assortment transition in the Company's Famous Brands Housewares
Outlets division.
Selling, general and administrative expenses totaled $83,372,000, an
increase of $4,926,000 over the prior year. At 29.8% as a percent of
net sales, the expense rate for the year to date was 1.4 percentage
points higher than the rate for comparable thirty-nine week period of
Fiscal 1996. The increase in selling, general and administrative
expenses was due to planned increases in payroll expenses both at the
stores and Service Office and additional advertising expenditures for
promotion of the Company's Lechters Housewares division.
Other Expenses for the fiscal year to date were $1,540,000, a
$1,246,000 decrease from $2,786,000 reported for the comparable period
of the prior year. As a percent of sales, other expenses declined 0.4%
to 0.6%. The decrease was attributable to the lower interest expense
due to the repayment of the Company's senior notes during the prior
fiscal year. The Company also earned higher interest income and
increased investment income, primarily dividends, which were the result
of higher balances of invested cash and marketable securities.
LIQUIDITY AND CAPITAL RESOURCES.
Cash, cash equivalents and marketable securities increased $13,523,000
over the balances at the close of the third quarter of Fiscal 1996.
This increase was a significant reason for the aforementioned
improvement in Other Expenses.
Cash flow during the thirty-nine weeks ended November 1, 1997 as
reflected on the Statements of Cash Flows, was a net decrease in cash
and cash equivalents of $3,121,000. Operating activities, comprised of
the operating loss of $10,194,000 adjusted for non-cash expenses such
as depreciation and amortization and by changes in operating assets,
has utilized $22,988,000 of cash during Fiscal 1997 to date.
Significant components of operating activities for the year to date
included depreciation and amortization which provided cash of
$12,917,000, merchandise inventories which increased using $40,505,000
of cash and accounts payable, accrued expenses and taxes other than
income taxes which increased and provided cash of $27,423,000. The
increases in inventory and accounts payable were normal as the Company
has rebuilt its inventories in preparation for the upcoming holiday
sales period. Due to inventory management programs instituted during
Fiscal 1996, inventory levels at February 1, 1997 were significantly
lower resulting in the higher change in this asset for the year to
date, although total merchandise inventories were $4,898,000 lower at
November 1, 1997 than at November 2, 1996. Investing activities,
capital expenditures and reductions in marketable (available for sale)
securities produced $20,877,000 in cash. Capital expenditures used
$4,499,000 of cash while the decrease in available for sale securities
provided $25,376,000 of cash.
Capital expenditures were primarily for construction of and fixtures
for new locations and for enhancements to the information technology
infrastructure. Financing activities utilized $1,010,000 of cash as the
Company paid its initial dividend on the convertible preferred stock
issued in April 1996.
-8-
<PAGE> 11
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: /s/ John W. Smolak
John W. Smolak
Senior Vice President and
Chief Financial Officer
Date: December 5, 1997
- 9 -
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 9-MOS
<FISCAL-YEAR-END> FEB-01-1998 FEB-01-1998
<PERIOD-START> FEB-01-1997 FEB-01-1997
<PERIOD-END> NOV-01-1997 NOV-01-1997
<CASH> 3,901 0
<SECURITIES> 28,762 0
<RECEIVABLES> 14,480 0
<ALLOWANCES> 0 0
<INVENTORY> 140,947 0
<CURRENT-ASSETS> 196,779 0
<PP&E> 163,718 0
<DEPRECIATION> 77,378 0
<TOTAL-ASSETS> 289,015 0
<CURRENT-LIABILITIES> 46,122 0
<BONDS> 59,706 0
0 0
20,000 0
<COMMON> 58 0
<OTHER-SE> 140,187 0
<TOTAL-LIABILITY-AND-EQUITY> 289,015 0
<SALES> 99,711 279,954
<TOTAL-REVENUES> 99,711 279,954
<CGS> 74,902 212,320
<TOTAL-COSTS> 27,989 83,372
<OTHER-EXPENSES> 610 1,540
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 1,153 3,433
<INCOME-PRETAX> (3,790) (17,278)
<INCOME-TAX> (1,554) (7,084)
<INCOME-CONTINUING> (2,236) (10,194)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (2,236) (10,194)
<EPS-PRIMARY> ($0.15) ($0.64)
<EPS-DILUTED> ($0.15) ($0.64)
</TABLE>
