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 May 2, 1998
Commission file number 33-27126
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 May 2, 1998, 1,000 shares of Common Stock of Peebles
Inc. were outstanding.
<PAGE>
ITEM 1. FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED BALANCE SHEET
PEEBLES INC. & SUBSIDIARY
(dollars in thousands, except per share amounts)
<TABLE>
May 2, 1998 January 31, 1998 May 3, 1997
<S> <C> <C> <C>
ASSETS (Unaudited) (Unaudited)
CURRENT ASSETS
Cash $ 307 $ 432 $ 39
Accounts receivable, net 28,479 31,581 28,015
Merchandise inventories 58,911 57,967 56,737
Prepaid expenses 1,274 1,145 754
Income taxes receivable 788 303 --
Other 701 773 139
-------- -------- --------
TOTAL CURRENT ASSETS 90,460 92,201 85,684
PROPERTY AND EQUIPMENT, net 40,313 38,749 35,582
OTHER ASSETS
Excess of cost over net assets acquired, net 34,904 35,460 35,671
Deferred financing cost 2,605 2,442 2,596
Other 3,625 3,604 3,311
-------- -------- --------
41,134 41,506 41,578
-------- -------- --------
$ 171,907 $ 172,456 $ 162,844
========= ========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 10,593 $ 13,606 $ 9,969
Accrued compensation and other expenses 3,727 5,055 3,152
Income taxes payable -- -- 707
Deferred income taxes 4,592 4,592 2,934
Current maturities of long-term debt 9,795 4,653 12,257
Other 1,114 1,406 390
-------- -------- --------
TOTAL CURRENT LIABILITIES 29,821 29,312 29,409
LONG-TERM DEBT 79,937 81,507 79,450
LONG-TERM CAPITAL LEASE OBLIGATIONS 1,088 1,139 1,278
DEFERRED INCOME TAXES 5,025 5,025 3,235
STOCKHOLDERS' EQUITY
Preferred stock- no par value, authorized
1,000,000 shares, none issued and
outstanding -- -- --
Common stock-- par value $.10 per
share, authorized 5,000,000 shares,
1,000 issued and outstanding. 1 1 1
Additional capital 59,307 59,307 59,307
Retained earnings (deficit):
accumulated from May 27, 1995; (3,272) (3,835) (9,836)
--------- --------- --------
56,036 55,473 49,472
--------- --------- ---------
$ 171,907 $ 172,456 $ 162,844
========== ========== ==========
</TABLE>
See notes to condensed consolidated financial statements
<PAGE>
CONDENSED CONSOLIDATED STATEMENT OF INCOME
PEEBLES INC. & SUBSIDIARY
(dollars in thousands, except per share amounts)
(Unaudited)
<TABLE>
Three-Month Period Ended
May 2, 1998 May 3, 1997
----------- -----------
<S> <C> <C>
NET SALES $ 51,013 $ 45,150
COSTS AND EXPENSES
Cost of sales 31,225 28,262
Selling, general and administrative expenses 14,813 13,137
Depreciation and amortization 1,849 1,559
--------- ---------
47,887 42,958
--------- ---------
OPERATING INCOME 3,126 2,192
OTHER INCOME 13 32
INTEREST EXPENSE 2,200 2,143
--------- ---------
INCOME BEFORE INCOME TAXES 939 81
INCOME TAXES
Federal, state and deferred 376 32
--------- ---------
NET INCOME $ 563 $ 49
========= =========
EARNINGS PER SHARE $ 563 $ 49
========= =========
Weighted average common stock outstanding 1,000 1,000
========= =========
</TABLE>
See notes to condensed consolidated financial statements
<PAGE>
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
PEEBLES INC. & SUBSIDIARY
(dollars in thousands)
(Unaudited)
<TABLE>
Three-Month Period Ended
May 2, 1998 May 3, 1997
----------- -----------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 563 $ 49
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation 1,318 1,089
Amortization 820 701
Changes in operating assets and liabilities:
Accounts receivable 3,102 4,047
Merchandise inventories (944) (2,306)
Accounts payable (3,013) (768)
Other assets and liabilities (2,162) (1,816)
--------- ----------
NET CASH PROVIDED BY (USED IN) OPERATING
ACTIVITIES (316) 996
INVESTING ACTIVITIES
Purchase of property and equipment (2,917) (3,252)
Other (464) (24)
--------- ----------
NET CASH USED IN INVESTING ACTIVITIES (3,381) (3,276)
FINANCING ACTIVITIES
Proceeds from revolving line of credit and
long-term debt 75,876 62,418
Reduction in revolving line of credit and
long-term debt (72,304) (60,327)
--------- ----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 3,572 2,091
DECREASE IN CASH AND CASH EQUIVALENTS (125) (189)
Cash and cash equivalents beginning of period 432 228
--------- ----------
CASH AND CASH EQUIVALENTS END OF PERIOD $ 307 $ 39
========= ==========
</TABLE>
See notes to condensed consolidated financial statements
<PAGE>
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
PEEBLES INC. & SUBSIDIARY
May 2, 1998
(dollars in thousands, except per share amounts)
NOTE A_ORGANIZATION AND BASIS OF PRESENTATION
Consolidation: The consolidated financial statements include
the accounts of Peebles Inc. and its wholly owned subsidiary,
Carlisle Retailers, Inc. (together "Peebles" or the
"Company"). All significant intercompany balances and
transactions have been eliminated.
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. In addition, the operating
results for the current fiscal periods are not necessarily
indicative of the results that may be expected for the fiscal
year ended January 30, 1999, due to the seasonal nature of the
business of Peebles. For further information, refer to the
financial statements and footnotes thereto included in the
Company's annual report on Form 10-K for the fiscal year ended
January 31, 1998.
NOTE B_ACCOUNTS RECEIVABLE
Accounts receivable are shown net of $1,400, $1,400 and $1,224
representing the allowance for uncollectible accounts at May
2, 1998, January 31, 1998 and May 3, 1997, 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 usually resides in the
local community immediately surrounding the store location.
Peebles stores serve these local customers in Virginia,
Maryland, North Carolina, South Carolina, Tennessee, Kentucky,
Alabama, Delaware, New Jersey, Ohio, Pennsylvania and New
York. 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 last in, first out ("LIFO")
basis. Due to an acquisition in 1995 accounted for using the purchase
method, the recorded value of merchandise inventories was
increased to fair value (the "Fair Value Adjustment"). The
net effect of the LIFO and market reserves adjusts inventory
to lower of LIFO cost or market.
Merchandise inventories consisted of the following:
May 2, 1998 January 31, 1998 May 3, 1997
----------- ---------------- -----------
Merchandise inventories at FIFO cost $ 52,323 $ 51,234 $ 49,854
Fair Value Adjustment 7,436 7,436 7,436
LIFO/market reserve (848) (703) (553)
---------- --------- ---------
Merchandise inventories at lower
of cost or market $ 58,911 $ 57,967 $ 56,737
========== ========= =========
<PAGE>
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
PEEBLES INC. & SUBSIDIARY
May 2, 1998
NOTE D _ LONG-TERM DEBT
Long-term debt consisted of the following:
May 2, 1998 January 31, 1998 May 3, 1997
----------- ---------------- -----------
Senior Revolving Facility $ 37,000 $ 32,000 $ 43,000
Senior Term Note A 14,356 15,275 17,300
Senior Term Note B 36,992 37,094 27,400
Swingline Facility 1,384 1,791 4,007
--------- --------- --------
89,732 86,160 91,707
Less current maturities:
Senior Term Notes A & B 4,632 4,083 2,750
Senior Revolving & Swingline
Facilities 5,163 570 9,507
--------- --------- --------
Total current maturities 9,795 4,653 12,257
--------- --------- --------
$ 79,937 $ 81,507 $ 79,450
========= ========= =========
The Company has a $127 million credit facility (the "Credit
Agreement") which provides a Senior Term Facility, a Senior
Revolving Facility, and a Swingline Facility. Restrictive
covenants prohibit the payment of cash dividends in any fiscal
year and the Credit Agreement is secured by a first priority
security interest in substantially all the personal property
and certain real property of Peebles. The Credit Agreement
was amended on July 30, 1997, primarily to allow for the
transfer of $10 million from the Senior Revolving Facility to
Senior Term Note B. The Credit Agreement was again amended on
April 9, 1998 (the "1998 Amendment"), primarily to i) reduce
principal payments on the senior term debt; ii) reduce the
interest rates on the senior debt; iii) increase the maximum
borrowings under the Senior Revolving Facility to $75 million
(from $65 million), and iv) extend the maturity dates of
Senior Term Note A and the Senior Revolving Facility from June
9, 2000 to January 31, 2002 and June 9, 2002, respectively.
The Senior Term Facility includes two notes, Senior Term Note
A and Senior Term Note B, with original principal balances of
$20 million and $30 million, respectively. Senior Term Note A
and Senior Term Note B bore interest during 1997 at LIBOR plus
2.75% and LIBOR plus 3.25%, respectively. Under the 1998
Amendment, Senior Term Note A and Senior Term Note B bear
interest at LIBOR plus 2.25% and LIBOR plus 2.75%,
respectively. Scheduled principal payments and interest are
payable quarterly in arrears. Senior Term Note A matures
January 31, 2002 and Senior Term Note B matures June 9, 2002.
The amount available under the Senior Revolving Facility (the
"Revolver") is determined by a defined asset based formula
with maximum borrowings limited to $75 million less
outstanding amounts under letters of credit. The Revolver
matures on June 9, 2002. The Revolver has no specific paydown
provisions. The Company classifies a portion of the Revolver
outstanding balance as short-term, if based on the projected
operations during the next twelve-month period, the Revolver
outstanding balance is expected to be less at any fiscal month
end than the outstanding balance at the end of the current fiscal period.
The Company pays a fee of 1/2 of 1% per annum on any unused
portion of the Senior Revolving Facility. The Revolving
Facility bore interest at LIBOR plus 2.75%. Under the 1998
Amendment, the interest rate is LIBOR plus 2.25%.
The Company has a three-year interest rate protection
agreement, expiring June, 1998, covering a principal amount of
$40,000 against increases in the prime rate above 7.5% per
annum.
Loans under the Swingline Facility are drawn and repaid daily
based on the operating activity of the Company. Aggregate
amounts outstanding under the Swingline Facility cannot exceed
$5 million. Excess borrowings or funding outside these
amounts revert to the Senior Revolving Facility. The
Swingline Facility bears interest at prime plus 1-1/2% and has
no LIBOR conversion option.
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.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(dollars in thousands, except per share amounts)
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 May 2, 1998 in
comparison with the Fiscal Quarter ended May 3, 1997.
Three-Month Period Ended
May 2, 1998 May 3, 1997
(dollars in thousands) ----------- -----------
Net sales $ 51,013 $ 45,150
% increase 13.0% 18.6%
Comparable stores % increase
in net sales: 6.2% 4.8%
Operations as a Percentage of Net Sales:
- ----------------------------------------
Cost of sales 61.2% 62.6%
Selling, general & administrative
expenses 29.0 29.1
Depreciation and amortization 3.7 3.5
------- -------
Operating Income 6.1 4.8
Interest Expense 4.3 4.6
Other income -- --
Provision for income taxes .7 .1
------- -------
Net Income (Loss) 1.1% .1%
Net sales for the three-month period ended May 2, 1998 totaled
$51,013, an increase of $5,863, or 13.0%, over the comparable
three-month period ended May 3, 1997. Net sales at comparable
stores, totaling $47,017 in the current year were up 6.2%, or
$2,759. Comparable store sales benefited from strong consumer
demand for soft apparel, resulting from the favorable economic
conditions and milder than normal weather in a number of the
Company's markets. The remaining increase in net sales,
$3,104, was provided by a net 8 new store locations opened in
the twelve-month period subsequent to May 3, 1997. The
Company opened four of these new stores in the first Fiscal
Quarter of 1998, which contributed $698. The remaining $2,406
increase came from the four remaining locations opened
subsequent to May 3, 1997, and the operation of three stores,
opened during the three-month period ended May 3, 1997, for the
entire current Fiscal Quarter.
Cost of sales as a percentage of net sales for the three-month
periods ended May 2, 1998 and May 3, 1997 were 61.2% and
62.6%, respectively. The primary factor for this decrease in
the cost of sales percentage results from the overall strong
consumer demand for soft apparel and a more favorable
inventory position throughout the first Fiscal Quarter of 1998
compared to the 1997 first Fiscal Quarter. Stronger net sales
in the fourth fiscal quarter of 1997 and the earlier delivery
of Spring 1998 merchandise resulted in fewer clearance
markdowns and a greater proportion of non-promotional seasonal
sales, which typically yield a higher margin. Partially
offsetting these positive influences over cost of sales were
the new store locations which typically run a higher cost of
sales percentage relative to mature stores, especially those
in markets new to the Company, due to heavier promotions and
the lack of comparable sales history.
Selling, general and administrative expenses, exclusive of
depreciation and amortization, improved slightly to 29.0% of
net sales for the Fiscal Quarter ended May 2, 1998, from 29.1%
for the comparable prior year period. Reductions came from
the Company's ability to successfully leverage its selling,
general and administrative expenses as the economies of scale
are realized in the central office and distribution
facilities. Offsetting these reductions in selling, general
and administrative expenses, are the new stores higher
occupancy, payroll, and advertising expenses as a percentage
of net sales as compared to mature stores. The Company has
been successful in controlling these expenses during growth
periods, and expects to realize further efficiencies through
economies of scale in succeeding Fiscal Quarters.
Depreciation and amortization in the Fiscal Quarters ended May
2, 1998 and May 3, 1997 was 3.7% and 3.5% of net sales,
respectively. The increase is primarily attributable to the
depreciation of capital expenditures totaling $9,891 during the
twelve-month period subsequent to May 3, 1997.
Interest expense for the three-month periods ended May 2, 1998
and May 3, 1997 was $2,200 and $2,143, respectively, or 4.3%
and 4.6% of net sales, respectively. Interest expense was
slightly higher than the prior fiscal year primarily due to
the transfer of $10 million from the Senior Revolving Facility
to Senior Term Note B on July 30, 1997. Senior Term Note B
bears interest 50 basis points greater than the Senior
Revolving Facility. This increase in interest expense,
however, was offset by a lower average debt outstanding during
the current Fiscal Quarter compared to the prior year and lower
annual interest rates under an amendment to the Credit Agreement
effective April 9, 1998.
The income tax expense for the three-month period ended May 2,
1998 was $376 compared to $32 for the comparable period ended
May 3, 1997. The effective income tax rate for the current
Fiscal Quarter is 40.0% versus 39.5% for the comparable prior
year period. The effective tax rate differs from the
statutory rate primarily due to state income taxes and
nondeductible amortization relating to certain acquisition
related assets.
As a result of the changes discussed above, net income for the
three-month period ended May 2, 1998 was $563 compared to net
income of $49 for the three-month period ended May 3, 1997.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary cash requirements are for capital
expenditures in connection with both the Company's new store
expansion and remodeling program and for working capital
needs. The Company's primary sources of funds are cash flow
from continuing operations, borrowings under the Credit
Agreement and trade accounts payable. The Company's inventory
levels typically build throughout the fall, peaking during the
Christmas selling season, while accounts receivable peak
during December and decrease during the first quarter.
Capital expenditures typically occur evenly throughout the
first three quarters of each year.
During the first Fiscal Quarter of 1998, operating activities
used cash of $316, as cash generated by the reduction in
accounts receivable was offset by the increase in merchandise
inventory, the increases in current operating assets, and the
decrease in accounts payable. In the prior year, operating
activities provided cash of $996, due primarily to a lesser
reduction in accounts payable. The Company had working
capital of $60.6 million and $56.3 million at May 2, 1998 and
May 3, 1997, respectively.
Capital expenditures are the primary use of cash in investing
activities. In the current Fiscal Quarter, capital
expenditures totaled $2,917, down slightly from $3,252 in the
comparable prior year period. New store locations accounted
for the majority of the capital expenditures in both the
current and prior years, but in the prior year, three
relocations of existing stores were also underway. The
Company expects fiscal 1998 capital expenditures to total
approximately $11.5 million, up from $10.2 million in fiscal
1997.
The Company currently plans to open 11 new store locations in
fiscal 1998, adding approximately 250,000 of gross square
footage. Four new store locations, total gross square footage
of approximately 78,000, were opened in the first Fiscal
Quarter of 1998. The Company has signed non-cancelable leases
for an additional four new store locations, totaling some
102,000 gross square feet, due to begin operations in the third
and fourth Fiscal Quarters. Based on historical experience, the
Company estimates that the cost of opening a new store will
include capital expenditures of approximately $425 for
leasehold improvements and fixtures and approximately $425 for
initial inventory, approximately one-third of which is normally
financed through vendor credit. Accounts receivable for new
stores typically build to 15% of net sales or approximately
$300 within 24 months of the store opening. The Company is
actively evaluating acquisitions of both individual stores and
groups of stores for opportunities to compliment or expand existing
markets.
The Company finances its operations, capital expenditures, and
debt service payments with funds available under the Senior
Revolving Facility. The maximum amount available under the
Senior Revolving Facility is $75 million less amounts
outstanding under letters of credit. The actual amount
available is determined by an asset-based formula, adjusted
for seasonal working capital requirements. The Company
believes the cash flow generated from operating activities
together with funds available under the Senior Revolving Facility
will be sufficient to fund the investing activities and the
required payments under the Credit Agreement.
SEASONALITY AND INFLATION
As a retailer offering predominately soft-apparel and selected
home accessories, the Company's business is seasonal, although
less heavily weighted in the fourth quarter than retailers
with comparable offerings of merchandise. Over the past three
fiscal years, quarterly sales as a percentage of total sales
have been consistent at approximately 20%, 22%, 24% and 34%
for the first through fourth quarters, respectively. Peebles'
positioning of its stores in small to medium sized communities
with limited competition, along with the Company's less-
promotional, every day fair value, pricing strategy, produces
operations less dependent on the fourth quarter. However, the
third and fourth quarters are bolstered by the important back-
to-school and Christmas holiday selling seasons.
The Company does not believe that inflation has had a material
effect on its results of operations during the past three
fiscal years. Peebles uses the retail inventory method
applied on a LIFO basis in accounting for its inventories.
Under this method, the cost of products sold reported in the
financial statements approximates current costs and thus
reduces the likelihood of a material impact that increases
costs. However, there can be no assurance that the Company's
business will not be impacted by inflation in the future.
YEAR 2000 TECHNOLOGICAL ISSUES
In 1997, the Company began a comprehensive analysis of its
information systems to determine the impact of date-related
processing when the year changes to 2000 and the systems do
not recognize this year as greater than 1999. The Company's
primary information systems are on two IBM AS400 mainframes,
with the majority of the software developed internally.
Packaged software and certain PC systems serve as supplemental
support to the mainframe systems. The costs associated with
this evaluation, and the costs of any necessary modifications
to the software will be expensed as incurred. Although the
comprehensive analysis will not be completed until the second
quarter of 1998, management currently anticipates the costs to
ensure year 2000 compliance will primarily be in the form of
additional payroll cost and will not be material to the
operations of the Company. Year 2000 compliance is expected by
the first quarter of 1999.
FORWARD-LOOKING STATEMENTS
Certain statements in this quarterly reporton Form 10-Q are
forward-looking, based on the Company's evaluation of historical
information and judgments on future events, based on the best
information available at the time. Underlying these statements
are risks and uncertainties which could cause actual results to
differ materially from those forward-looking statements. These risks
and uncertainties include, but are not limited to: i) consumer
demand for the Company's soft-apparel merchandise; ii)
competitive and consumer demographic shifts within the
Company's markets; iii) the Company's access to, and cost of,
capital; iv) the Company's ability to locate and open new
store locations on a timely and profitable basis; and v) the
successful management of inventory levels, related costs and
selling, general and administrative costs.
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
27. Financial Data Schedule
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: May 21, 1998 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)
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-30-1999
<PERIOD-END> MAY-02-1998
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<ALLOWANCES> 1400
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<BONDS> 79937
0
0
<COMMON> 1
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