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 July 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 July 30, 1994, 2,933,562 shares of Common Stock of
Peebles Inc. were outstanding.
<PAGE>
<TABLE>
ITEM 1. FINANCIAL STATEMENTS
CONDENSED BALANCE SHEET
PEEBLES INC.
(dollars in thousands, except per share amounts)
July 30, 1994 January 29, 1994 July 31, 1993
(Unaudited) (Unaudited)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash $ 78 $ 99 $ 67
Accounts receivable, net 24,615 28,386 22,896
Merchandise Inventories 42,896 41,652 41,669
Prepaid expenses 566 246 557
Other 482 848 2,224
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TOTAL CURRENT ASSETS 68,637 71,231 67,413
PROPERTY AND EQUIPMENT, net 26,322 24,903 22,483
BUILDINGS UNDER CAPITAL LEASES, net 1,307 1,400 1,459
OTHER ASSETS
Excess of cost over net assets acquired, net 37,957 38,800 39,633
Other 6,938 7,393 8,359
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44,895 46,193 47,992
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TOTAL ASSETS $141,161 $143,727 $139,347
======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 7,006 $ 7,306 $ 8,831
Accrued compensation and other expenses 3,806 5,627 4,396
Deferred income taxes 4,957 4,957 4,524
Current maturities of long-term debt 7,536 8,538 8,165
Other 426 455 188
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TOTAL CURRENT LIABILITIES 23,731 26,883 26,104
LONG-TERM DEBT 34,102 35,602 36,040
LONG-TERM CAPITAL LEASE OBLIGATIONS 1,997 2,067 2,169
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 shares 293 293 293
Additional capital 64,174 64,174 64,174
Retained earnings:
Accumulated from February 1, 1992, subsequent
to a deficit elimination on that date 12,219 10,063 6,054
------- ------- -------
76,686 74,530 70,521
------- ------- -------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $141,161 $143,727 $139,347
======== ======== ========
See notes to condensed financial statements
</TABLE>
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<TABLE>
CONDENSED STATEMENT OF OPERATIONS
PEEBLES INC.
(dollars in thousands, except per share amounts)
(Unaudited)
Three-Month Period Ended Six-Month Period Ended
July 30, July 31, July 30, July 31,
1994 1993 1994 1993
<S> <C> <C> <C> <C>
NET SALES $ 36,782 $ 33,423 $ 71,549 $ 62,933
COSTS AND EXPENSES
Cost of sales 21,461 19,944 42,552 37,363
Selling, general and administrative
(includes depreciation and amortization
of $1,767, $1,420, $3,505, and $2,840,
respectively) 12,017 10,917 23,411 20,804
--------- --------- --------- ---------
33,478 30,861 65,963 58,167
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OPERATING INCOME 3,304 2,562 5,586 4,766
OTHER INCOME 161 36 337 60
INTEREST EXPENSE 1,110 1,036 2,108 2,035
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INCOME BEFORE INCOME TAXES 2,355 1,562 3,815 2,791
INCOME TAXES
Federal, state and deferred 1,024 719 1,659 1,284
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NET INCOME $ 1,331 $ 843 $ 2,156 $ 1,507
========== ========= ========= =========
EARNINGS PER SHARE $ .45 $ .29 $ .73 $ .51
========== ========= ========= =========
Average common stock and common stock
equivalents outstanding 2,940,048 2,936,567 2,940,048 2,932,891
========== ========= ========= =========
See notes to condensed financial statements
</TABLE>
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<TABLE>
CONDENSED STATEMENT OF CASH FLOWS
PEEBLES INC.
(dollars in thousands)
(Unaudited)
Six-Month Period Ended
July 30, 1994 July 31, 1993
<S> <C> <C>
OPERATING ACTIVITIES
Net Income $ 2,156 $ 1,507
Adjustments to reconcile net income to net cash
provided
Provided by operating activities:
Depreciation 1,869 1,464
Amortization 1,860 1,593
Changes in operating assets and liabilities:
Accounts receivable 3,771 3,970
Merchandise inventories (1,244) (4,675)
Accounts payable (300) (895)
Other assets and liabilities (2,028) 1,976
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NET CASH PROVIDED BY OPERATING ACTIVITIES 6,084 4,940
INVESTING ACTIVITIES
Purchase of property and equipment (3,543) (3,374)
Other (60) 108
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NET CASH USED IN INVESTING ACTIVITIES (1,707) (3,266)
FINANCING ACTIVITIES
Proceeds from revolving line of credit and long-term debt 77,768 71,193
Reduction in revolving line of credit and long-term debt (80,270) (72,893)
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NET CASH USED IN FINANCING ACTIVITIES (2,502) (1,700)
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DECREASE IN CASH AND CASH EQUIVALENTS (21) (26)
Cash and cash equivalents beginning of period 99 93
-------- --------
CASH AND CASH EQUIVALENTS END OF PERIOD $ 78 $ 67
======== ========
See notes to condensed financial statements
</TABLE>
<PAGE>
NOTES TO CONDENSED FINANCIAL STATEMENTS
PEEBLES INC.
July 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 (or "Fiscal Quarter") and six-month period
ended July 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 July
30, 1994, January 29, 1994 and July 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_MERCHANDISE INVENTORIES
Merchandise inventories are accounted for by the retail
inventory method applied on a LIFO basis. In connection with
an acquisition of the Company in January, 1989, the recorded
value of merchandise inventories was increased to fair value
(the "Fair Value Adjustment"). The Fair Value Adjustment of
$14,209 is included in the merchandise inventories at July 30,
1994, January 29, 1994 and July 31, 1993, respectively.
Exclusive of the Fair Value Adjustment, current costs exceed
the amounts recorded in inventory by $3,260, $3,020, and
$2,176 at July 30, 1994, January 29, 1994 and July 31, 1993,
respectively.
NOTE D_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 six-month
period ended July 30, 1994, the Company opened one new store
location in Luray, Virginia. Additionally, another new store
location in Georgetown, South Carolina was opened on August 2,
1994, immediately succeeding the close of the Fiscal Quarter.
During the six-month period ended July 30, 1994, four
noncancellable operating leases were signed for store
locations in Norfolk and Stafford, Virginia; Gettysburg,
Pennsylvania; and Marion, North Carolina. The stores in
Norfolk and Gettysburg are scheduled to open in the Fall of
1994. The stores in Marion and Stafford are expected to open
in the Spring of 1995. The total aggregate annual base rent
for these five new store locations is approximately $600, and
the initial lease terms for these locations range between six
and sixteen years.
NOTE E_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 dates of grant,
ii) 69,636 options had vested, and iii) no options had been
exercised or canceled.
NOTE F_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.
During the six-month period ended July 30, 1994, the Company
received several refunds related to prior years' federal
income tax. The interest income portion of these checks
totaled approximately $240,000 and this amount has been
included in other income.
<PAGE>
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 and six-month period ended July 30, 1994 in
comparison with the three-month period and six-month period
ended July 31, 1993.
Net sales for the three-month period ended July 30, 1994
totaled $36,782,000, a 10.1% increase over the total net sales
for the comparable three-month period ended July 31, 1993.
For the six-month period ended July 30, 1994, net sales were
$71,549,000, up 13.7% from the $62,933,000 recorded in the six-
month period ended July 31, 1993. These increases are
attributable to a combination of new store openings and strong
comparable stores sales growth. During the twelve-month
period succeeding July 31, 1993, the Company has opened a
total of seven new stores and closed one store. The net sales
at comparable stores showed increases of 3.5% and 7.0% for the
three month period and six-month period ended July 30, 1994,
respectively, in comparison to the prior year. For the Fiscal
Quarter ended July 30, 1994, the general improvement in the
economic condition of a number of the Company's markets offset
disappointing sales in early May which were adversely affected
by inclement weather. Comparable store sales for the Fiscal
Quarter ended July 30, 1994 exclusive of May sales reflected
an increase of 5.4%. During the six-month period ended July
30, 1994, the comparable stores sales increase is attributable
to, (i) the aforementioned improvement in general economic
conditions; (ii) unseasonably warm weather in the first Fiscal
Quarter, and (iii), the clearance of higher than normal fall
and winter inventory in the first Fiscal Quarter. Sales at
new store locations during the six-month period and three-
month period ended July 30, 1994 totaled $4,374,000 and
$2,305,000, respectively. These sales represent 50.8% and
68.6% of the total sales increase for the six-month period and
three-month period ended July 30, 1994, respectively.
Cost of sales for the second Fiscal Quarter was 58.3% of total
net sales, comparing favorably to the 59.7% cost of sales
represented to total net sales for the Fiscal Quarter ended
July 31, 1993. For the six-month periods ended July 30, 1994
and July 31, 1993, cost of sales represented 59.5% and 59.4%,
respectively. During the first Fiscal Quarter ended April 30,
1994, the cost of sales was affected by higher fall and winter
clearance markdowns, taken primarily in March, 1994, to
correct an overstocked inventory position. Subsequently, a
combination of inventory control and the Company's continuing
efforts to lower both initial markon percentage and
promotional markdowns in the everyday fair pricing strategy
resulted in the favorable percentages recorded. The Company
believes its customers are best served by providing the lowest
possible prices for quality merchandise every day, thereby
reducing the emphasis on promotions and increasing
profitability.
Selling, general and administrative expenses, including
depreciation and amortization, for the three-month period and
six-month period ended July 30, 1994 were 32.6% and 32.7% of
total net sales for those periods, respectively. This
compared favorably to the same periods in the prior year,
where these expenses were 32.7% and 33.1% of total net sales,
respectively. The Company was successful in controlling
expenses during a period of overall growth, thereby realizing
the economies of scale. Depreciation and amortization expense
for the three-month period and six-month period ended July 30,
1994 showed increases of $456,000 and $888,000, respectively,
over the comparable prior year periods due primarily to the
new store openings, but this increase was offset by the slower
expense growth in relation to net sales growth.
Interest expense for the three-month period ended July 30,
1994 was $1,110,000 compared to $1,036,000 for the three-month
period ended July 31, 1993. This increase was primarily
attributable to increases in the prime lending rate, which
rose from 6.25% to 7.25% during the current year second Fiscal
Quarter, which compares to 6% during the same period in the
prior year. This increase was offset by a lower average
balance under the Credit Facility due to the Company's
increased liquidity resulting from greater profitability. For
the six-month period ended July 30, 1994, interest expense of
$2,108,000 was up slightly from the $2,035,000 recorded in the
comparable period ended July 31, 1993. This increase is
attributable to the second Fiscal Quarter factors described
above.
As a result of the changes in operating components discussed
above, the income before taxes was $2,355,000 for the
Fiscal Quarter ended July 30, 1994 and $3,815,000 for the six-
month period then ended. This compares favorable with the
$1,562,000 and $2,791,000 recorded in the three-month period
and six-month period ended July 31, 1993, respectively.
The income tax expense for the three-month period and six-
month period ended July 30, 1994 was $1,024,000 and
$1,659,000, respectively. In the prior years comparable
periods, income tax expense was $719,000 and $1,284,000,
respectively. The effective income tax rate for both the
three-month period and six-month period ended July 30, 1994 is
43.5%. versus 46.0% in the comparable prior year periods. 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 discussed above, net income for the
three-month period ended July 30, 1994 was $1,331,000 compared
to net income of $843,000 for the three-month period ended
July 31, 1993. For the six-month periods ended July 30, 1994
and July 31, 1993, net income was $2,156,000 and $1,507,000,
respectively. Earnings per share increased to $.45 and $.73
for the three-month period and six-month period ended July 30,
1994, representing a 55% and 43% increase over the comparable
periods in the prior year, respectively.
Liquidity and Capital Resources
For the six-month period ended July 30, 1994, the cash flow
provided by operating activities increased to $6,084,000 from
$4,940,000 for the comparable period ended July 31, 1993. Net
income in the current year of $2,156,000 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 for 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 feet in the twelve-month period
subsequent to July 31, 1993, and has signed noncancellable
operating leases for an additional 80,000 in new store square
footage due to open in the six-month period ending January 28,
1995. One new store in Georgetown, South Carolina was opened
August 2, 1994, immediately following the close of the second
Fiscal Quarter. 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 new store square footage, including 50,000 square
feet originally planned for the current fiscal year, have not
been specifically identified, and the availability of suitable
locations is not certain. The Company has, however, signed
leases for two new store locations scheduled 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 July 30,
1994, approximately $45,942,000 was available under the
Revolving Facility, of which approximately $28,998,000 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
negotiating with its bank a proposed amendment to the Credit
Agreement which would (i) extend the expiration date, (ii)
reduce the interest rate, (iii) reduce the quarterly principal
payments due under the Term Facility, (iv) increase the
allowed amount of capital expenditures, and (v) increase the
flexibility of certain of the financial covenants.
PART II
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
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: September 8, 1994 By /s/ Michael F. Moorman
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Michael F. Moorman
President and Chief Executive
Officer
(Principal Executive Officer)
By /s/ E. Randolph Lail
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E. Randolph Lail
Chief Financial Officer, Senior
Vice President-Finance,
Treasurer and Secretary
(Principal Financial Officer)
