SECURITIES AND EXCHANGE COMMISSION
WASHINGTON DC 20549
FORM 10-Q
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES
EXCHANGE ACT OF 1934
For quarterly period ended May 2, 1998
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from To
Commission File No. 0-17870
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 07029-2404
(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, without par
value, outstanding at June 8, 1998: 17,176,286:
LECHTERS, INC. AND SUBSIDIARIES
FORM 10-Q
FOR QUARTER ENDED MAY 2, 1998
INDEX
PAGE NO.
PART I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets
May 2, 1998 and January 31, 1998 1
Consolidated Statements of Income
for the Thirteen Weeks Ended
May 2, 1998 and May 3, 1997 2
Consolidated Statements of Cash Flows
for the Thirteen Weeks Ended
May 2, 1998 and May 3, 1997 3
Consolidated Statement of Shareholders'
Equity for the Thirteen Weeks Ended
May 2, 1998 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 on Form 8K
9
- ----------------------------------------------------------------------
- ---------------------------------------------------------
Forward Looking Statements - All statements in this Report on Form 10-
Q, including those incorporated herein by reference, that do not
reflect historical information are forward looking statements made in
reliance upon the "safe harbor" provisions of the Private Securities
Litigation Reform Act of 1995. Important factors that could cause
actual results to differ materially from those discussed in such
forward looking statements include, but are not limited to,
competition, economic downturns, dependence upon product development,
international business risks and seasonality of business.
- ----------------------------------------------------------------------
- ---------------------------------------------------------
<PAGE> 3
LECHTERS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands, except share and per share amounts)
<TABLE>
<CAPTION>
May 2, January
1998 31,
1998
<S> <C> <C>
A S S E T S (unaud
ited)
Current Assets:
Cash and Cash Equivalents $ $
18,386 16,395
Marketable Securities 64,541 74,747
Accounts Receivable 5,658 5,084
Merchandise Inventories 110,12 99,034
9
Prepaid Expenses
4,279 2,145
Total Current Assets 202,99 197,405
3
Property and Equipment:
Fixtures and Equipment 58,396 58,841
Leasehold Improvements 94,769 94,556
153,16 153,397
5
Less Accumulated Depreciation &
Amortization 82,108 79,891
Net Property and 71,057 73,506
Equipment
Other Assets
7,642 6,523
Total Assets $281,6 $277,43
92 4
LIABILITIES AND SHAREHOLDERS'
EQUITY
Current Liabilities
Accounts Payable $ $
17,075 10,127
Dividends Payable - Preferred -- 1,010
Stock
Salaries, Wages and Other 20,849 18,102
Accrued Expenses
Taxes, Other Than Income Taxes 2,092 1,227
Income Taxes Payable 2,941
925
Total Current Liabilities
40,941 33,407
Long-term Debt
5% Convertible Subordinated
Debentures due September 27,
2001 (Net of Unamortized
Discount of $4,702 and $4,999, 60,298 60,001
respectively)
Total Long-Term Debt 60,298
60,001
Deferred Income Taxes and Other 18,337 18,176
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
17,176,286 and 17,174,286, 58 58
respectively
Unrealized Holding (Loss) Gain
on Available
for Sale Securities (20) 84
Additional Paid-in Capital 62,380 62,370
Retained Earnings
79,698 83,338
Total Shareholders' Equity 162,11
6 165,850
Total Liabilities and $281,6 $277,43
Shareholders' Equity 92 4
</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
Ended
May 2, May 3,
1998 1997
(unaud
ited)
<S> <C> <C>
Net Sales $ $
86,194 85,129
Cost of Goods Sold (including
occupancy 65,152
and indirect costs) 64,536
Gross Profit 21,658 19,977
Selling, General and Administrative 27,491
Expenses 28,286
Operating Loss (6,628 (7,514
) )
Other Expenses (Income):
Interest Expense 1,097 1,146
Interest Income (1,421 (688)
)
Net Investment
(Gain/Income) Loss
(141) (34)
Total Other Expenses (Income)
(465) 424
Loss Before Income Taxes (6,163 (7,938
) )
Income Tax Benefit
(2,523 (3,255
) )
Net Loss (3,640
) (4,683
)
Preferred Stock Dividend Requirement
252 252
Net Loss Applicable to Common ($3,89 ($4,93
Shareholders 2) 5)
Net Loss Per Common Share - Basic
($0.23 ($0.29
) )
Net Loss Per Common Share - Diluted
($0.23 ($0.29
) )
Weighted Average Common Shares 17,175 17,155
Outstanding - Basic ,000 ,000
Weighted Average Common Shares 17,175 17,155
Outstanding - Diluted ,000 ,000
</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>
Thirteen Weeks Ended
May 2, May 3,
1998 1997
(unaudited)
<S> <C> <C>
Cash Flows From Operating
Activities:
Net Loss ($3,640) ($4,683)
Adjustments to Reconcile Net
Loss to Net
Cash Used In Operating
Activities:
Depreciation and Amortization 4,162 4,432
Other 287 440
Changes in Assets and
Liabilities:
Increase in Accounts Receivable (574) (2,679)
Increase in Merchandise (11,095) (13,942)
Inventories
Increase in Prepaid Expenses (2,134) (251)
Increase in Accounts Payable,
Accrued Expenses and Taxes
Other 10,560 16,428
Than Income Taxes
Decrease in Income Taxes (2,016) (1,729)
Payable
Increase in Other Assets (1,463) (2,238)
Net Cash Used In Operating (5,913) (4,222)
Activities
Cash Flows From Investing
Activities:
Capital Expenditures (1,126) (1,449)
Decrease in Available for Sale
Securities 10,030 11,769
Net Cash Provided by
Investing Activities 8,904 10,320
Cash Flows From Financing
Activities:
Payment of Preferred Stock (1,010)
Dividend (1,010)
Exercise of Stock Options 10
-
Net Cash Used In Financing
Activities (1,000) (1,010)
Net Increase in Cash and Cash 1,991 5,088
Equivalents
Cash and Cash Equivalents,
Beginning of 16,395 7,022
Period
Cash and Cash Equivalents, End $ 18,386 $ 12,110
of Period
Supplemental Disclosure of Cash
Flows
Information:
Cash Paid During the Period
for:
Interest $ $ 84
-
Income Taxes $ 2,017 $ 1,694
</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 (Loss)
Gain
<S> <C> <C> <C> <C> <C> <C>
Balance,
January 31, $58 $20,000 $62,370 $83,338 $ 84 $165,850
1998
Net Loss
Thirteen
Weeks Ended -- -- -- (3,640) -- (3,640)
May 2, 1998
Unrealized
Holding Loss
Adjustment --
-- -- -- (104) (104)
Exercise of - - 10 - - 10
Stock Options
Balance, May 2,
1998 $58 $20,000 $62,380 $ 79,698 $
(unaudited) ($20) 162,116
</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 weeks ended
May 2, 1998 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 1998.
2. NET LOSS PER SHARE
"Basic" 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 2, 1998 and May
3, 1997. With respect to "diluted" net loss per share, stock
options which are potential common shares, were excluded from the
weighted average of outstanding shares because inclusion would
reduce the loss per share. With respect to the Company's 5%
Convertible Subordinated Debentures and the Company's Convertible
Preferred Stock, for the purpose of computing diluted net loss
per share, the assumed conversion of such debentures and such
preferred stock would each have an anti-dilutive effect on
diluted loss per share for the thirteen weeks ended May 2, 1998
and
May 3, 1997.
- 5 -
<PAGE> 8
3. RECENT ACCOUNTING PRONOUNCEMENTS
In June, 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards (SFAS) No. 130,
"Reporting Comprehensive Income." As required by SFAS, No. 130,
the following is a summary of the Company's comprehensive income
for the first quarter of Fiscal 1998:
Thirteen Weeks Ended
May 2, May 3,
1998 1997
Net Loss ($ 3, 640) ($
4, 683)
Components of
Comprehensive Income (Loss):
Unrealized Loss on Available For Sale Securities -
Net of Applicable Income Tax Benefit
(104) (31)
Comprehensive (Loss) Income ($3,744) ($4,714)
The Financial Accounting Standards Board issued SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information",
effective for fiscal years beginning after December 15, 1997. As
provided by SFAS No. 131, disclosures are not required for interim
periods of the initial year of application, but comparative
information will be reported in financial statements for interim
periods during the second year of application.
- 6 -
<PAGE> 9
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
THIRTEEN WEEKS ENDED MAY 2, 1998 IN COMPARISON WITH THIRTEEN WEEKS
ENDED MAY 3, 1997.
Net sales for the thirteen weeks ended May 2, 1998 increased
$1,065,000 to $86,194,000, a 1.3% increase from $85,129,000 reported
for the comparable thirteen week period of the prior fiscal year. The
increase was primarily attributable to additional advertising activity
by the Company in support of its Lechters Housewares stores. For the
first quarter of Fiscal 1998, Lechters Housewares store sales
increased 3.0% while Famous Brands Housewares Outlet store sales
decreased 4.5%. On a comparable store basis, sales for the Company
increased 3.2%. Lechters Housewares comparable store sales
increased 5.7% while Famous Brands Housewares Outlet comparable store
sales decreased 4.8%. During the first quarter of Fiscal 1998, the
Company opened three stores and closed fourteen stores, reducing the
stores in operation at May 2, 1998 to 615 from the 626 open of January
31, 1998. At the close of the first quarter of Fiscal 1997, the
Company operated 648 stores.
Gross Profit for the first quarter increased $1,681,000 to
$21,658,000, 25.1% of sales which was 1.6 percentage points higher
than the 23.5% reported for the comparable thirteen week period of
Fiscal 1997. The higher gross profit rate reflects an improved
merchandise mix in the Lechters Housewares stores partially offset by
the lower initial margins in Famous Brands Housewares Outlet stores
due to the increased proportion of off-price, special purchase
merchandise. Reduced occupancy costs also contributed to the improved
gross profit performances as the Company operated, on average, 28
fewer stores in the first quarter of Fiscal 1998 compared to the
comparable thirteen week period of Fiscal 1997.
Selling, general and administrative expenses increased $795,000 to
$28,286,000. At 32.8% of net sales the expense rate was 0.5
percentage points higher than the rate for the comparable period of
the prior fiscal year. While store operating expenses declined due to
fewer stores in operation, expenses in the Service Office increased
primarily in the merchandise group in support of the Company's off-
price merchandise strategy and in the information technology group in
support of new initiatives including Year 2000 compliance.
Other (Income)/Expense for the first quarter increased $889,000 to an
income of $465,000, 0.5% of sales compared to an expense of $424,000,
0.5% of sales, for the first quarter of the prior fiscal year. The
increase was due to higher invested balances as well as higher market
rates and interest income received as part of federal income tax
refunds for prior fiscal years.
-7-
<PAGE> 10
LIQUIDITY AND CAPITAL RESOURCES.
Cash, cash equivalents and marketable securities increased $28,554,000
over the balances at the close of the first quarter of Fiscal 1997.
Cash flow during the thirteen weeks ended May 2, 1998 as reflected on
the Statements of Cash Flows, was a net increase in cash and cash
equivalents of $1,991,000. Operating activities, comprised of the
operating loss of $3,640,000 adjusted for non-cash expenses such as
depreciation and amortization and by changes in operating assets,
utilized $5,913,000 of cash during Fiscal 1998 to date. Significant
components of operating activities for the first quarter included
depreciation and amortization which provided cash of $4,162,000,
merchandise inventories which increased using $11,095,000 of cash and
accounts payable, accrued expenses and taxes other than income taxes
which increased and provided cash of $10,560,000. The increases in
inventory and accounts payable were normal as the Company has
increased its inventories from their low year-end balances. Total
merchandise inventories were $4,255,000 lower at May 2, 1998 than at
May 3, 1997. Investing activities, capital expenditures and
reductions in marketable (available for sale) securities produced
$8,904,000 in cash. Capital expenditures used $1,126,000 of cash
while the decrease in available for sale securities provided
$10,030,000 of cash.
Capital expenditures were primarily for construction of and fixtures
for new stores, renovations and remodels of existing stores. Financing
activities utilized $1,010,000 of cash as the Company paid the
dividend on the convertible preferred stock issued in April 1996.
During the first quarter of Fiscal 1998, the Company entered into a
new $40,000,000 Credit Agreement with a syndicate of banks led by the
Chase Manhattan Bank. The new facility consists of a $20,000,000 line
of credit for direct borrowings and a $20,000,000 line for the
issuance of letters of credit. The term of the new agreement is for
three years, with the letter of credit component renewable annually
during that period.
-8-
<PAGE> 11
Item 6- Exhibits and Reports on Form 8-K
a. Exhibits.
3.1 Restated Certificate of Incorporation of the Company
(Incorporated herein by reference to Exhibit 3.2 to the Company's
Registration Statement on Form S-1 File No. 33-29465 (the
"Registration Statement")).
3.2 By-laws of the Company (Incorporated herein by
reference to Exhibit 3.2 to the Company's Registration Statement on
Form S-1 File No. 33-40372).
4.1 Preferred Stock Purchase Agreement dated April 5,
1996. (Incorporated herein by reference to the Company's Annual
Report on Form 10-K for the year ended
February 1, 1997).
4.2 Indenture, dated as of September 27, 1991, between
the Company and Chemical Bank, as Trustee. (Incorporated herein by
reference to the Company's Annual Report on Form
10-K for the year ended January 25, 1992).
27 Financial Data Schedule
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/ James J. Sheppard
James J. Sheppard
Senior Vice President and
Chief Financial Officer
Date: June 12, 1998
- 9 -
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-30-1999
<PERIOD-START> FEB-01-1998
<PERIOD-END> MAY-02-1998
<CASH> 18,386
<SECURITIES> 64,541
<RECEIVABLES> 5,658
<ALLOWANCES> 0
<INVENTORY> 110,129
<CURRENT-ASSETS> 202,993
<PP&E> 153,165
<DEPRECIATION> 82,108
<TOTAL-ASSETS> 281,692
<CURRENT-LIABILITIES> 40,941
<BONDS> 60,298
0
20,000
<COMMON> 58
<OTHER-SE> 142,058
<TOTAL-LIABILITY-AND-EQUITY> 281,692
<SALES> 86,194
<TOTAL-REVENUES> 86,194
<CGS> 64,356
<TOTAL-COSTS> 28,286
<OTHER-EXPENSES> (465)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,097
<INCOME-PRETAX> (6,163)
<INCOME-TAX> (2,523)
<INCOME-CONTINUING> (3,640)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,640)
<EPS-PRIMARY> ($0.23)
<EPS-DILUTED> ($0.23)
</TABLE>
