SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
________________________
FORM 10-Q
Quarterly Report Pursuant to Section 15(d) of the
Securities Exchange Act of 1934
For the Quarter Ended April 30, 1994
Commission file number 33-27126
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PEEBLES INC.
Virginia 54-0332635
(State of Incorporation) (I.R.S. Employer
Identification No.)
One Peebles Street
South Hill, Virginia 23970-5001 (804) 447-5200
(Address of principal executive offices) (Telephone Number)
Indicate by check (x) 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_____.
As of April 30, 1994, 2,933,562 shares of Common Stock of Peebles
Inc. were outstanding.
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ITEM 1. FINANCIAL STATEMENTS
CONDENSED BALANCE SHEET
PEEBLES INC.
(dollars in thousands, except per share amounts)
April 30, 1994 January 29, May 1, 1993
1994
(Unaudited) (Unaudited)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash $ 89 $ 89 $ 64
Accounts receivable, net 25,542 28,386 24,283
Merchandise Inventories 42,166 41,652 40,117
Prepaid expenses 301 246 527
Other 590 848 1,605
TOTAL CURRENT ASSETS 68,688 71,231 66,596
PROPERTY AND EQUIPMENT, net 25,490 24,903 20,826
BUILDINGS UNDER CAPITAL LEASES, net 1,353 1,400 1,523
OTHER ASSETS
Excess of cost over net assets acquired, net 38,379 38,800 40,055
Other 7,165 7,393 8,589
45,544 46,193 48,644
TOTAL ASSETS $141,075 $143,727 $137,589
======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 6,976 $ 7,306 $ 7,764
Accrued compensation and other expenses 4,007 5,627 4,064
Deferred income taxes 4,957 4,957 4,524
Current maturities of long-term debt 7,958 8,538 7,750
Other 293 455 679
TOTAL CURRENT LIABILITIES 24,191 26,883 24,781
LONG-TERM DEBT 34,852 35,602 36,890
LONG-TERM CAPITAL LEASE OBLIGATIONS 2,032 2,067 2,204
DEFERRED INCOME TAXES 4,481 4,481 4,360
COMMON STOCK WARRANTS 164 164 153
STOCKHOLDERS' EQUITY
Common stock--par value $.10 per share,
authorized 5,000,000 shares,
issued and outstanding 2,933,562, 2,933,562 and
2,913,562 shares, respectively 293 293 293 291
Additional capital 64,174 64,174 63,699
Retained earnings:
Accumulated from February 1, 1992, subsequent
to a deficit
elimination on that date 10,888 10,063 5,211
75,355 74,530 69,201
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $141,075 $143,727 $137,589
======== ======== ========
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See notes to condensed financial statements
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CONDENSED STATEMENT OF OPERATIONS
PEEBLES INC.
(dollars in thousands, except per share amounts)
Three-Month Period Ended
April 30, 1994 May 1,1993
(Unaudited) (Unaudited)
<S> <C> <C>
NET SALES $ 34,767 $ 29,510
COSTS AND EXPENSES
Cost of sales 21,091 17,419
Selling, general and administrative (includes
depreciation and
amortization of $1,743 and $1,420, 11,394 9,887
respectively)
32,485 27,306
OPERATING INCOME 2,282 2,204
OTHER INCOME 176 24
INTEREST EXPENSE 998 999
INCOME BEFORE INCOME TAXES 1,460 1,229
INCOME TAXES
Federal, state and deferred 635 565
NET INCOME $ 825 $ 664
EARNINGS PER SHARE $ .28 $ .23
Average common stock and common stock equivalents 2,940,048 2,929,141
outstanding
See notes to condensed financial statements
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CONDENSED STATEMENT OF CASH FLOWS
PEEBLES INC.
(dollars in thousands)
Three-Month Period Ended
April 30, 1994 May 1, 1993
(Unaudited) (Unaudited)
<S> <C> <C>
OPERATING ACTIVITIES
Net Income $ 825 $ 664
Adjustments to reconcile net income to net cash
provided
by operating activities:
Depreciation 929 732
Amortization 923 797
Changes in operating assets and liabilities:
Accounts receivable 2,844 2,583
Merchandise inventories (514) (3,123)
Accounts payable (330) (1,926)
Other assets and liabilities (1,650) 1,997
NET CASH PROVIDED BY OPERATING ACTIVITIES 3,027 1,724
INVESTING ACTIVITIES
Purchase of property and equipment (1,644) (858)
Other (63) 78
NET CASH USED IN INVESTING ACTIVITIES (1,707) (780)
FINANCING ACTIVITIES
Proceeds from revolving line of credit and long-term 38,696 34,025
debt
Reduction in revolving line of credit and long-term (40,026) (34,998)
debt
NET CASH USED IN FINANCING ACTIVITIES (1,330) (973)
DECREASE IN CASH AND CASH EQUIVALENTS (10) (29)
Cash and cash equivalents beginning of period 99 93
CASH AND CASH EQUIVALENTS END OF PERIOD $ 89 $ 64
======== ========
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See notes to condensed financial statements
NOTES TO CONDENSED FINANCIAL STATEMENTS
PEEBLES INC.
April 30, 1994
(dollars in thousands, except per share amounts)
NOTE A_BASIS OF PRESENTATION
The accompanying unaudited condensed financial statements have
been prepared in accordance with generally accepted accounting
principles for interim financial information and with
instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management,
all adjustments (consisting of normal and recurring accruals)
considered necessary for a fair presentation have been included.
Operating results for the three-month period ended April 30, 1994
are not necessarily indicative of the results that may be
expected for the fiscal year ended January 28, 1995, due to the
seasonal nature of the business of Peebles Inc. ("Peebles" or the
"Company"). For further information, refer to the financial
statements and footnotes thereto included in Peebles' annual
report on Form 10-K for the fiscal year ended January 29, 1994.
NOTE B_ACCOUNTS RECEIVABLE
Accounts receivable are shown net of $950, $950 and $1,100
representing the allowance for uncollectible accounts at April
30, 1994, January 29, 1994 and May 31, 1993, respectively. As a
service to its customers, the Company offers credit through the
use of its own charge card, certain major credit cards and a
layaway plan. The Peebles' customer is usually a local resident
of the community, located in either Virginia, Maryland, North
Carolina, South Carolina, Tennessee, Kentucky, Delaware or New
Jersey, the states served by Peebles. The Company does not
require collateral from its customers.
NOTE C_LEASES
The Company leases substantially all of its store locations under
capital and operating leases with initial terms ranging from 1 to
25 years and renewal options of 1 to 5 years expiring at various
dates through 2033. During the three-month period ended April
30, 1994, the Company opened a new store location in Luray,
Virginia, and signed two noncancellable operating leases for
store locations in Norfolk, Virginia and Gettysburg,
Pennsylvania. The stores in Norfolk and Gettysburg, as well as
a store in Georgetown, South Carolina, are due to open in the
Fall of 1994. The total annual base rent for these four new
store locations is approximately $387 and the initial lease
terms for these locations range between six and sixteen years.
Additionally, on May 11, 1994, the Company signed a
noncancellable operating lease for a new store location in
Marion, North Carolina, due to open in the Spring of 1995 with an
annual base rent of $102.
NOTE D_STOCK OPTION PLAN
Under the 1993 Stock Option Plan, options for the purchase of up
to 450,000 shares of Common Stock may be granted to key personnel
at the discretion of the Board of Directors. On April 20, 1994,
the Board of Directors granted to certain key employees of the
Company 218,206 options to purchase one share of Common Stock at
an exercise price of $23.75 per share, the estimated fair value
of the common stock on the date of grant. These options vest ratably
over a three-year period beginning April 19, 1995 and expire
on April 19, 2004.
On April 30, 1994, i) a total of 450,000 options had been
granted, all at an exercise price of $23.75 per share, the
estimated fair value of the common stock on the date of grant,
ii) 69,636 options had vested, and iii) no options had been
exercised or canceled.
NOTE E_INCOME TAXES
Differences between the effective rate of income taxes and the
statutory rate arise principally from the state income taxes and
non-deductible amortization related to certain purchase
accounting adjustments.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following management's discussion and analysis provides
information with respect to the results of operations for the
three-month period (or "Fiscal Quarter") ended April 30, 1994 in
comparison with the Fiscal Quarter ended May 1, 1993.
Net sales for the three-month period ended April 30, 1994 totaled
$34,767,000, a 17.8% increase over the total net sales for the
comparable three-month period ended May 1, 1993. During the
twelve-month period succeeding May 1, 1993, the Company opened
six new stores, closing none, with the latest opening on April
29, 1994. These stores accounted for net sales of approximately
$2,069,000 (39% of the total increase) in the current year Fiscal
Quarter, with the remaining increase in net sales attributable to
comparable store sales, which increased approximately 11%
during the three-month period ended April 30, 1994. The
comparable stores sales increase is attributable to, (i) the
improvement in general economic conditions in a number of the
Company's markets; (ii) unseasonably warm weather, and (iii), the
clearance of higher than normal fall and winter inventory. In addition,
adverse weather conditions in the prior year's Fiscal Quarter ended May 1,
1993 contributed to generally poorer sales in that quarter.
Cost of sales for the three-month period ended April 30, 1994 was
60.7% of total net sales for the same period. Comparatively,
cost of sales as a percentage of total net sales for the Fiscal
Quarter ended May 1, 1993 was 59.0%. This increase in cost of
sales percentage in the current Fiscal Quarter is caused by the
Company's continuing efforts to lower initial markon percentage
in the everyday fair pricing strategy, but more importantly was
affected by higher winter clearance markdowns, taken primarily in March,
1994. The Company believes its customers are best served by
providing the lowest possible prices for quality merchandise and
profitability will increase through volume. Management believes
the markdowns taken in March 1994 corrected the Company's
inventory position as merchandise inventories at April 30, 1994
were at planned levels.
Selling, general and administrative expenses, including
depreciation and amortization, for the Fiscal Quarter ended April
30, 1994 were 32.8% of total net sales during the same
period. This compared favorably to the same period in the prior
year, when these expenses were 33.5% of total net sales, as
the Company was successful in controlling expenses during a
period of growth, thereby realizing the economies of scale.
Depreciation and amortization expense for the three-month period
ended April 30, 1994 was approximately $320,000 higher than
in the prior year comparable period due to the opening of the six
new stores, but this increase was offset by the slower expense
growth in relation to net sales growth in the three-month period.
Interest expense for the three-month period ended April 30, 1994
was $998,000 compared to $999,000 for the three-month period
ended May 1, 1993. These amounts are nearly equivalent as
balances outstanding under the Credit Agreement and the prime
rate during the current Fiscal Quarter are similar to those in
the comparable prior year period.
As a result of the changes in operating components discussed
above, the net income before taxes was $1,460,000 for the Fiscal
Quarter ended April 30, 1994 compared with $1,229,000 for the
comparable period ended May 1, 1993.
The income tax expense for the three-month period ended
April 30, 1994 was $635,000 compared to $565,000 for the comparable
period ended May 1, 1993. The effective income tax rate for the
current Fiscal Quarter is 43.5% versus 45.9% in the comparable prior
year period. The effective tax rate differs from the statutory rate
primarily due to nondeductible amortization relating to certain acquisition
related assets.
As a result of the changes discusses above, net income for the
three-month period ended April 30, 1994 was $825,000 compared to
net income of $664,000 for the three-month period ended May 1,
1993.
Liquidity and Capital Resources
For the Fiscal Quarter ended April 30, 1994, the cash flow
provided by operating activities increased to $3,027,000 from
$1,724,000 for the comparable period ended May 1, 1993. Net
income of $825,000 was increased by noncash adjustments such as
depreciation and amortization, and additionally by the net change
in operating assets and liabilities. Net collections of accounts
receivable were greater than the funding needed for the increase
in merchandise inventories and certain cash bonuses accrued at
January 29, 1994 and paid during the first Fiscal Quarter. The
Company believes the cash flow generated from operating
activities together with funds available under the Credit
Agreement will be sufficient to fund the investing activities and
the required payments under the Credit Agreement.
Anticipated business growth, both in terms of increased sales in
existing stores and as a result of new store openings, will also
require funding of additional working capital of which the
Company must depend on internally generated funds and borrowings
under the Credit Agreement as discussed below. The Company
opened six new stores with an aggregate total of 169,000 gross
square footage in the twelve-month period subsequent to May 1,
1993 and plans to open approximately 130,000 in new store square
footage in the nine-month period ending January 28, 1995 with a
combination of new store locations as well as the relocation of
existing stores. Noncancellable operating leases have been
signed to open three additional new store locations and relocate
two existing store locations during the nine-month period ended
January 28, 1995, accounting for approximately 100,000 in net new
square footage. The Company currently plans to open a total of
150,000 in new store square footage in each of the fiscal years
ending 1995, 1996 and 1997. The remaining locations for
anticipated openings have not been specifically identified, and
the availability of suitable locations is not certain. The
Company, however, has signed a lease for one new store location
in Marion, North Carolina due to open in the Spring of 1995. The
prototypical Peebles store is approximately 30,000 to 35,000
square feet. Due to the buildup of inventory for Christmas,
Easter, and back-to-school seasons, the Company also has seasonal
working capital requirements.
In order to finance its operations and capital needs, including
its debt service payments, the Company expects to use funds
available to it under the Revolving Facility and internally
generated funds. Under the Revolving Facility, the Company may
borrow up to the lesser of (i) $76,000,000 less the aggregate
amount outstanding under the Term Facility and the aggregate
amount of outstanding letter of credit obligations or (ii) a
borrowing base which is a percentage of eligible accounts
receivable and inventory. As of April 30, 1994, approximately
$44,100,000 was available under the Revolving Facility, of which
approximately $29,400,000 was drawn as of such date. The Company
has seasonal working capital requirements, which it anticipates
financing with borrowings under the Revolving Facility. The
borrowing base formula for the Revolving Facility is adjusted to
accommodate seasonal working capital requirements. The Credit
Agreement expires on February 1, 1996. The Company is currently
discussing with its bank a proposed amendment to the Credit
Agreeement which would extend the expiration date.
PART II
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
A meeting of the Company's shareholders was held on April 20,
1994. At the meeting, Michael F. Moorman, Wellford L. Sanders,
Jr., William C. DeRusha and Malcolm S. McDonald were elected as
directors to serve until their respective successors are duly
elected and qualified. The directors were elected by an
affirmative vote of 2,135,008 shares. No shares were voted
against the directors elected. Additionally, the appointment of
Ernst & Young was ratified as the independent accountants of the
Company. The appointment was ratified by an affirmative vote of
2,133,916 shares. No shares were voted against the appointment.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits
None.
b. 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.
PEEBLES INC.
Date: June 6, 1994 By /s/ Michael F. Moorman
-----------------------------------
Michael F. Moorman
President and Chief Executive Officer
(Principal Executive Officer)
By /s/ E. Randolph Lail
-----------------------------------
E. Randolph Lail
Chief Financial Officer, Senior Vice President-
Finance, Treasurer and Secretary
(Principal Financial Officer)
