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 May 3, 1997 COMMISSION FILE NO. 0-17870
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: (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
June 16, 1997: 17,155,086:
LECHTERS, INC. AND SUBSIDIARIES
FORM 10-Q
FOR QUARTER ENDED May 3, 1997
INDEX
Page No.
PART I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets
May 3, 1997 and February 1, 1997 1
Consolidated Statements of Income
for the Thirteen Weeks Ended
May 3, 1997 and May 4, 1996 2
Consolidated Statements of Cash Flows
for the Thirteen Weeks Ended
May 3, 1997 and May 4, 1996 3
Consolidated Statement of Shareholders'
Equity for the Thirteen Weeks Ended
May 3, 1997 4
Notes to Consolidated Financial Statements 5-7
<PAGE> 3
LECHTERS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands, except share and per share
amounts)
<TABLE>
<CAPTION>
May 3, February
1997 1,
1997
<S> <C> <C>
A S S E T S (unaudite
d)
Current Assets:
Cash and Cash Equivalents $ 12,110 $
7,022
Marketable Securities 42,263 54,084
Accounts Receivable 8,240 5,561
Merchandise Inventories 114,384 100,442
Prepaid Expenses
5,985 5,734
Total Current Assets 182,982 172,843
Property and Equipment:
Fixtures and Equipment 67,596 66,828
Leasehold Improvements 103,194 102,912
170,790 169,740
Less Accumulated Depreciation 78,117 74,356
& Amortization
Net Property and Equipment 92,673 95,384
Other Assets
6,142 4,106
Total Assets $281,797 $272,333
LIABILITIES AND SHAREHOLDERS'
EQUITY
Current Liabilities
Accounts Payable $ 16,360 $ 3,264
Dividends Payable - Preferred - 1,010
Stock
Salaries, Wages and Other 15,874 13,318
Accrued Expenses
Taxes, Other Than Income Taxes 2,094 1,318
Income Taxes Payable
250 1,979
Total Current Liabilities 34,578 20,889
Long-Term Debt
5% Convertible Subordinated
Debentures
due September 27, 2001 (Net
of Unamortized 59,132 58,853
Discount of $5,868 and
$6,147, respectively)
Total Long-Term Debt 59,132 58,853
Deferred Income Taxes and 22,393 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 Loss on
Available
for Sales Securities (60) (29)
Additional Paid-In Capital 62,273 62,273
Retained Earnings
83,423 88,106
Total Shareholders' Equity 165,694 170,408
Total Liabilities and $281,797 $272,333
Shareholders' Equity
</TABLE>
See accompanying notes to consolidated financial
statements.
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<PAGE> 4
LECHTERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Amounts in thousands, except share and per share amounts)
<TABLE>
<CAPTION>
Thirteen Weeks Ended
May 3, May 4,
1997 1996
<S> <C> <C>
Net Sales $ 85,129 $ 84,992
Cost of Goods Sold (including
occupancy and indirect costs) 65,152 64,378
Gross Profit 19,977 20,614
Selling, General and
Administrative Expenses 27,491 25,508
Operating Loss (7,514) (4,894)
Other Expenses (Income):
Interest Expense 1,146 1,556
Interest Income (688) (476)
(Gain) Loss on Sale of Government
Securities
(34) 3
Total Other Expenses 424 1,083
Loss Before Income Taxes (7,938) (5,977)
Income Tax Benefit (3,255) (2,451)
Net Loss (4,683) (3,526)
Preferred Stock Dividend Requirement 252
84
Net Loss Applicable to Common ($ 4,935) ($3,610)
Shareholders
Net Loss Per Common Share ($0.29) ($0.21)
Weighted Average Shares Outstanding 17,155,000 17,155,000
</TABLE>
See accompanying notes to consolidated financial statements.
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<PAGE> 5
LECHTERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
<TABLE>
<CAPTION>
Thirteen Weeks Ended
May 3, May 4,
1997 1996
(unaudited)
<S> <C> <C>
Cash Flows From Operating
Activities:
Net (Loss) ($4,683) ($3,526)
Adjustments to Reconcile Net
Loss to Net
Cash (Used In) Provided By
Operating Activities:
Depreciation and Amortization 4,275 4,136
Other 443 136
Changes in Assets and
Liabilities:
Increase in Accounts Receivable (2,679) (2,388)
Increase in Merchandise (13,942) (10,144)
Inventories
Increase in Prepaid Expenses (251) (2,872)
Increase in Accounts Payable,
Accrued Expenses and Taxes
Other 16,428 10,443
Than Income Taxes
Decrease in Income Taxes (1,729) (322)
Payable
Increase in Other Assets (364)
(1,721)
Net Cash Used In Operating (3,859) (4,901)
Activities
Cash Flows From Investing
Activities:
Capital Expenditures (1,812) (1,905)
Decrease in Available for Sale
Securities 11,769 14,531
Net Cash Provided By Investing 9,957 12,626
Activities
Cash Flows From Financing
Activities:
Issuance of Preferred Stock - 20,000
Payment of Senior Notes Payable - (17,625)
Payment of Preferred Stock (1,010)
Dividend -
Net Cash (Used In) Provided by
Financing (1,010) 2,375
Activities
Net Increase in Cash and Cash 5,088 10,100
Equivalents
Cash and Cash Equivalents,
Beginning of 7,022 4,234
Period
Cash and Cash Equivalents, End $12,110 $14,334
of Period
Supplemental Disclosure of Cash
Flows
Information:
Non Cash Investing Activities:
Unrealized Holding Loss
Adjustment ($ 53) ($ 263)
on Available for Sale
Securities
Cash Paid During the Period
for:
Interest $ 84 $ 1,074
Income Taxes $ 1,694 $ 322
</TABLE>
See accompanying notes to consolidated financial
statements.
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<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 -
Thirteen Weeks -- -- -- (4,683) -- (4,683)
Ended May 3,
1997
Unrealized
Holding Loss -- (31)
Adjustment -- -- -- (31)
Balance, May 3,
1997 $58 $20,000 $62,273 $83,423 ($60) $165,694
(unaudited)
</TABLE>
See accompanying notes to consolidated financial statements.
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<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 weeks ended
May 3, 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 weeks ended May 3, 1997 and May 4, 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. 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 per share for the
periods ended May 3, 1997 and May 4, 1996. The Company's
Convertible Preferred Stock issued on April 5, 1996 also did not
qualify as a common stock equivalent at the time of issue and was
not included in the calculation of primary net loss per share for
the periods ended May 3, 1997 and May 4, 1996. For the purpose
of computing fully diluted net loss per share, the assumed
conversion of such debentures would have an anti-dilutive effect
on the thirteen weeks ended May 3, 1997 and May 4, 1996. With
respect to the Convertible Preferred Stock, conversion of such
preferred stock would have an anti-dilutive effect on fully
diluted loss per share for the thirteen weeks ended May 3, 1997
and May 4, 1996.
3. RECENT ACCOUNTING PRONOUNCEMENTS
Recent Accounting Pronouncements - In February 1997, the
Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 128, "Earning per
Share." The statement is effective for financial statements for
periods ending after December 15, 1997, and changes the method in
which net income will be determined. Adoption of this statement
by the Company will not have a material impact on net income per
share.
- 5 -
<PAGE> 8
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
THIRTEEN WEEKS ENDED MAY 3, 1997 IN COMPARISON WITH THIRTEEN WEEKS
ENDED MAY 4, 1996.
Net sales for the thirteen weeks ended May 3, 1997 increased $137,000
to $85,129,000, a 0.2% increase over $84,992,000 reported for the
comparable thirteen week period of the prior year. The sales increase
was attributable to the increase in the number of stores open over the
prior year. For the first quarter of Fiscal 1997, the Company's
comparable store sales decreased 1.3% versus the prior year. Stores
open as of May 3, 1997 totaled 648 compared to a total of 641 stores
open at May 4, 1996.
Gross Profit for the quarter decreased $637,000 to $19,977,000 and was
23.5% as a percent of net sales which was 0.8 percentage points below
the gross profit rate of the prior year. The decrease in gross margin
was primarily attributable to the under-absorption of occupancy
expenses given the decline of comparable store sales.
Selling, general and administrative expenses totaled $27,491,000, an
increase of $1,983,000 over the prior year. At 32.3% as a percent of
net sales, the expense rate for the first quarter was 2.3 percentage
points higher than the rate for first quarter of Fiscal 1996. The
increase in selling, general and administrative expenses was due to
the increased operating expenses associated with seven net new stores,
additional advertising expenditures and asset write-offs associated
with store closings.
Other Expenses for the quarter were $424,000, a $659,000 decrease from
the comparable period of the prior year. As a percent of sales, other
expenses declined 0.8% to 0.5%. The decrease was attributable to the
lower interest expense due to the repayment of $17,625,000 of Senior
Notes Payable in April 1996 and higher current quarter interest income
which was the result of higher balances of invested cash and
marketable securities coupled with higher market interest rates.
- 6 -
<PAGE> 9
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents increased $5,088,000 during the first
quarter of Fiscal 1997. Operating activities as reflected on the
Statements of Cash Flows were comprised of the net loss adjusted for
non-cash expenses such as depreciation and amortization and by changes
in operating assets. Operating activities utilized $3,859,000 of cash
during the first quarter of Fiscal 1997. Significant components of
operating activities for the first quarter included the net loss of
$4,683,000, depreciation and amortization of $4,275,000, an increase
in merchandise inventories of $13,942,000 and a $16,428,000 increase
in current liabilities, specifically accounts payable, accrued
expenses and taxes. The inventory and accounts payable increases were
normal as the Company builds its inventory from its low year end
levels. 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 compared to the same
period of the prior year although total merchandise inventories were
$5,658,000 lower at May 3, 1997 than at May 4, 1996. Investing
activities produced $9,957,000 in cash. Capital expenditures,
primarily for the construction of and fixtures for new stores, used
$1,812,000 of cash while the decrease in available for sale securities
provided $11,769,000 of cash. Financing activities utilized
$1,010,000 of cash as the Company paid its initial dividend on the
convertible preferred stock issued in April 1996.
- 7 -
<PAGE> 10
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: June 16, 1997
- 8 -
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-31-1998
<PERIOD-START> FEB-02-1997
<PERIOD-END> MAY-03-1997
<CASH> 12110
<SECURITIES> 42263
<RECEIVABLES> 8240
<ALLOWANCES> 0
<INVENTORY> 114384
<CURRENT-ASSETS> 182982
<PP&E> 170790
<DEPRECIATION> 78117
<TOTAL-ASSETS> 281797
<CURRENT-LIABILITIES> 34578
<BONDS> 59132
0
20000
<COMMON> 58
<OTHER-SE> 145636
<TOTAL-LIABILITY-AND-EQUITY> 281797
<SALES> 85129
<TOTAL-REVENUES> 85129
<CGS> 65152
<TOTAL-COSTS> 27491
<OTHER-EXPENSES> 424
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1146
<INCOME-PRETAX> (7938)
<INCOME-TAX> (3255)
<INCOME-CONTINUING> (4683)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4683)
<EPS-PRIMARY> (0.29)
<EPS-DILUTED> (0.29)
</TABLE>
