SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-Q
Quarterly Report Pursuant to Section 15(d) of the
Securities Exchange Act of 1934
For the Quarter Ended April 29, 2000
Commission file number 33-27126
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PEEBLES INC.
(Exact name of registrant as specified in its charter)
Virginia 54-0332635
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(State of Incorporation) (I.R.S. Employer
Identification No.)
One Peebles Street
South Hill, Virginia 23970-5001 (804) 447-5200
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(Address of principal executive offices) (Telephone Number)
Indicate by check (x) 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
(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 1, 2000, 1,000 shares of Common Stock of Peebles Inc.
were outstanding.
<PAGE>
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
CONDENSED CONSOLIDATED BALANCE SHEETS
PEEBLES INC. & SUBSIDIARIES
(in thousands, except shares and per share amounts)
April 29, January 29, May 1,
2000 2000 1999
-------- ----------- ---------
ASSETS (Unaudited) (Unaudited)
CURRENT ASSETS
Cash $ 288 $ 1,008 $ 109
Accounts receivable, net 32,140 37,949 29,739
Merchandise inventories 81,836 70,181 79,328
Prepaid expenses 1,024 709 1,647
Income taxes receivable 683 1,201 657
Other 828 2,670 1,217
------- ------- -------
TOTAL CURRENT ASSETS 116,799 113,718 112,697
PROPERTY AND EQUIPMENT, NET 51,765 53,063 53,145
OTHER ASSETS
Excess of cost over net assets
acquired, net 38,620 39,100 40,537
Deferred financing cost 1,547 1,895 2,940
Other 2,681 2,441 3,269
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42,848 43,436 46,746
------- ------- -------
$211,412 $210,217 $212,588
======= ======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 13,161 $ 12,795 $ 13,943
Accrued compensation and
other expenses 3,440 7,268 4,168
Deferred income taxes 2,139 2,139 2,433
Current maturities of long-term debt 3,700 3,700 3,700
Other 2,165 3,582 2,057
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TOTAL CURRENT LIABILITIES 24,605 29,484 26,751
LONG-TERM DEBT 108,440 102,677 116,054
LONG-TERM CAPITAL LEASE OBLIGATIONS 443 614 836
DEFERRED INCOME TAXES 8,883 8,883 6,990
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: accumulated from
May 27, 1995; 9,733 9,251 2,649
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69,041 68,559 61,957
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$211,412 $210,217 $212,588
======= ======= =======
See notes to condensed consolidated financial statements
<PAGE>
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
PEEBLES INC. & SUBSIDIARIES
(in thousands, except shares and per share amounts)
(Unaudited)
Three-Month Period Ended
--------------------------------
April 29, 2000 May 1, 1999
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NET SALES $ 63,363 $ 64,422
COSTS AND EXPENSES
Cost of sales 38,171 39,063
Selling, general and administrative
expenses 19,035 19,713
Depreciation and amortization 2,494 2,129
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59,700 60,905
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OPERATING INCOME 3,663 3,517
INTEREST EXPENSE 2,803 2,755
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INCOME BEFORE INCOME TAXES 860 762
INCOME TAXES
Federal, state and deferred 378 335
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NET INCOME $ 482 $ 427
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RETAINED EARNINGS BEGINNING OF PERIOD 9,251 2,222
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RETAINED EARNINGS END OF PERIOD $ 9,733 $ 2,649
======= =======
EARNINGS PER SHARE $ 482 $ 427
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Weighted average common stock
outstanding 1,000 1,000
======= =======
See notes to condensed consolidated financial statements
<PAGE>
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
PEEBLES INC. & SUBSIDIARIES
(in thousands)
(Unaudited)
Three-Month Period Ended
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April 29, May 1,
2000 1999
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OPERATING ACTIVITIES
Net income $ 482 $ 427
Adjustments to reconcile net income to net
Cash used in operating activities:
Depreciation 1,922 1,557
Amortization 921 921
Changes in operating assets and liabilities:
Accounts receivable 5,809 3,756
Merchandise inventories (11,655) (7,966)
Accounts payable 366 (3,573)
Other assets and liabilities (3,616) (1,860)
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NET CASH USED IN OPERATING ACTIVITIES (5,771) (6,738)
INVESTING ACTIVITIES
Purchase of property and equipment (686) (2,854)
Other (26) (92)
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NET CASH USED IN INVESTING ACTIVITIES (712) (2,946)
FINANCING ACTIVITIES
Proceeds from revolving line of credit 97,267 102,567
Reduction in revolving line of credit and
long-term debt (91,504) (92,838)
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NET CASH PROVIDED BY FINANCING ACTIVITIES 5,763 9,729
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(DECREASE) INCREASE IN CASH AND CASH (720) 45
EQUIVALENTS
Cash and cash equivalents beginning of
period 1,008 64
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CASH AND CASH EQUIVALENTS END OF PERIOD $ 288 $ 109
======== ========
See notes to condensed consolidated financial statements
<PAGE>
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
PEEBLES INC. & SUBSIDIARIES
April 29, 2000
(in thousands)
NOTE A-ORGANIZATION AND BASIS OF PRESENTATION
NATURE OF OPERATIONS: Peebles Inc. and subsidiaries ("Peebles"
or the "Company") operate retail department stores offering
predominately fashion merchandise for the entire family and
selected home accessories. At April 29, 2000, the Company was
operating 121 stores located primarily in small and medium sized
communities which typically do not have a mall-based department
store. The stores serve communities in 15 states, located
primarily in the Southeast and Mid-Atlantic.
CONSOLIDATION: The consolidated financial statements include the
accounts of Peebles Inc. and its wholly owned subsidiaries,
Carlisle Retailers, Inc. and Ira A. Watson Co., (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.
Operating results for the three-month period ended April 29, 2000
are not necessarily indicative of the results that may be
expected for the fiscal year ended February 3, 2001, due to the
seasonal nature of the business of Peebles.
The balance sheet at January 29, 2000 has been derived from the
audited financial statements at that date but does not include
all of the information and footnotes required by generally
accepted accounting principles for complete financial statements.
For further information, refer to the consolidated financial
statements and footnotes thereto included in the Company's annual
report on Form 10-K for the fiscal year ended January 29, 2000.
NOTE B-LONG-TERM DEBT
Long-term debt consisted of the following:
April 29, 2000 May 1, 1999
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Senior Revolving Facility $ 43,000 $ 44,500
Senior Term Note A 9,000 12,000
Senior Term Note B 58,800 59,400
Swingline Facility 1,040 3,354
Other 300 500
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112,140 119,754
Less current maturities: 3,700 3,700
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Long-term debt $ 108,440 $ 116,054
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The total amount available under the Senior Revolving Facility
(the "Revolver") and the Swingline Facility is determined by a
defined asset based formula with maximum borrowings limited to
$75,000, less outstanding amounts under letters of credit. At
April 29, 2000, the total amount available to borrow was $64,043,
of which $44,040 was in use.
NOTE C-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
(in thousands)
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 29, 2000 in
comparison with the Fiscal Quarter ended May 1, 1999. The
consolidated operations of the Company for the Fiscal Quarter
ended April 29, 2000 include the results of 121 stores open the
entire three-month period. In the prior year comparable period
ended May 1, 1999, 117 stores were in operation the entire three-
month period, and 2 new store locations were opened during the
Fiscal Quarter.
The Company defines a comparable store as having operations for
the entire twelve-month period in both the current and previous
fiscal years. For fiscal 2000, 117 stores will have had
operations for the entire twelve- month periods ending February
3, 2001 and ended January 29, 2000.
Three-Month Period Ended
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April 29, May 1, May 2,
(dollars in thousands) 2000 1999 1998
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Net sales $63,363 $64,422 $51,013
% (decrease) increase (1.6)% 26.3% 13.0%
Comparable stores % (decrease)
increase in net sales: (3.6)% (2.6)% 6.2%
Stores in operation at period
period end 121 119 88
Operations as a Percentage
of Net Sales:
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Cost of sales 60.2% 60.6% 61.2%
Selling, general &
administrative expenses 30.1 30.6 29.0
Depreciation and amortization 3.9 3.3 3.7
---- ---- ----
Operating Income 5.8 5.5 6.1
Interest Expense 4.4 4.3 4.3
Provision for income taxes .6 .5 .7
---- ---- ----
Net Income .8% .7% 1.1%
==== ==== ====
Net sales were adversely affected by three primary factors in the
first Fiscal Quarter: a) strong December and January sales which
significantly reduced the clearance merchandise which typically
drives February and early March sales; b) miserable rainy and
unseasonably cold weather throughout March and April in a
majority of the Company's markets; and c) Mother's Day falling
two full weeks after the close of the Fiscal Quarter in the
current year versus only one week in the prior year. As
temperatures quickly warmed in May and with Mother's Day sales
strong, total net sales for the sixteen-week periods ended May
20, 2000 and May 22, 1999 were $81,889 and $81,314, an increase
of .7%. Net sales at comparable stores for the sixteen-week
periods ended May 20, 2000 and May 22, 1999 were $79,358 and
$80,049, a decrease of only .9%.
Cost of sales as a percentage of net sales continued to benefit
from lower inventory levels of clearance merchandise and the
maturation of the significant number of store locations opened in
fiscal 1999 and 1998. New and acquired store locations,
especially those in markets new to the Company, typically run a
higher cost of sales percentage relative to mature stores due to
heavier promotions and the lack of comparable sales history.
After approximately 24 to 36 months of operation, a new location
generally attains the Company's mature store average cost of
sales.
Selling, general and administrative expenses, exclusive of
depreciation and amortization, were 30.1%, 30.6% and 29.0% as a
percentage of net sales in the first Fiscal Quarter of 2000, 1999
and 1998, respectively. New and acquired stores are planned to
have a higher expense structure than mature stores for the first
12 to 18 months of operation as advertising and payroll expenses
are increased to achieve a market presence. In addition, newer
stores typically have higher occupancy costs than mature stores.
In addition, the Company began operating a second distribution
center in June 1998 upon the completion of the Watson Merger and
continues to leverage that expense with economies of scale.
Depreciation and amortization expenses as a percentage of net
sales increased for the Fiscal Quarter ended April 29, 2000 in
comparison to the first Fiscal Quarter of 1999, primarily due to
the depreciation of fiscal 1999 capital expenditures required in
the 31 store locations opened during the twelve-month period from
May 2, 1998 to May 1, 1999. Capital expenditures totaled $9,151,
$13,394 and $10,226 for fiscal years 1999, 1998 and 1997
respectively.
Interest expense increased slightly as a percentage of sales in
comparing the 2000 and 1999 first Fiscal Quarters. Lower average
borrowings in 2000 were offset by higher interest rates and lower
sales.
The effective income tax rate is 44.0% for the first Fiscal
Quarters of 2000 and 1999. 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 periods ended April 29, 2000 and May 1, 1999 was $482
and $427, respectively, or .8% and .7% of net sales,
respectively.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary cash requirements are for capital
expenditures in connection with the 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. Merchandise inventory levels typically build
throughout the first Fiscal Quarter and again in the fall,
peaking during the Christmas selling season. Accounts receivable
peak during December and January, decrease during the first and
second Fiscal Quarters, and begin building again in third Fiscal
Quarter. Capital expenditures for existing stores typically
occur evenly throughout the first three Fiscal Quarters of each
year, but can vary by Fiscal Quarter based on new and acquired
stores.
During the first Fiscal Quarter of 2000, operating activities
used cash of $5,771, compared to $6,738 in the prior year
comparable period. Merchandise purchases were greater in the
first Fiscal Quarter of 2000 in comparison to the prior year for
inventory levels to reach plan. With a greater amount of Spring
imported merchandise, primarily in support of the Company's
private label program, paid for via letters of credit in the
fourth Fiscal Quarter of 1999, accounts payable provided cash of
$366 in the first Fiscal Quarter of 2000 versus using cash of
$3,573 in the comparable prior year period. In addition, cash
provided by the reduction in accounts receivable totaled $5,809
in the first Fiscal Quarter of the current year, compared to
$3,756 in the prior year. The Company's working capital at April
29, 2000 and May 1, 1999 was $92,194 and $85,946, respectively.
Capital expenditures are the primary use of cash in investing
activities. In the current Fiscal Quarter, capital expenditures
were $686, down significantly in comparison to $2,854 in the
comparable prior year period. Stores opened in the third and
fourth Fiscal Quarters of 1998, particularly those acquired in
the Watson Merger, required a greater amount of capital
expenditures in the First Fiscal Quarter of the prior year. In
addition, the Company opened 2 new store locations and completed
several remodeling/space reallocations during the three-month
period ended May 1, 1999. In the first Fiscal Quarter of the
current year, capital expenditures were for planned
remodeling/space reallocations at existing stores and routine
fixture upgrades.
The Company currently plans to open a total of 5 new store
locations in fiscal 2000. The Company has signed non-cancelable
leases for 4 new store locations planned to open 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 may also incur
capital expenditures to acquire existing stores.
The Company finances its operations, capital expenditures, and
debt service payments with funds available under its Revolver.
The maximum amount available under the Revolver is $75 million
less amounts outstanding under letters of credit. The actual
amount available is determined by an asset-based formula. In the
three-month periods ended April 29, 2000 and May 1, 1999, the
Company drew a net $5,763 and $9,729, respectively, primarily for
inventory and capital expenditures. The Company believes the
cash flow generated from operating activities together with funds
available under the Revolver will be sufficient to fund its
investing activities and the debt service of 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 four fiscal
years, quarterly sales as a percentage of total sales have been
consistent at approximately 20%, 23%, 24% and 33% 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 generally bolstered by the 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.
MARKET RISK
The Company's interest expense is affected by changes in short-
term interest on the debt outstanding under the Credit Agreement.
The Credit Agreement bears interest at rates based on both the
LIBOR and prime lending rates (the "Borrowing Rates"). Assuming:
i) the Borrowing Rates vary by 100 basis points from their
current levels at any given fiscal month, and ii) the Company
maintains an aggregate outstanding debt balance subject to these
rates of $112,140 during the fiscal month of variance, interest
expense would vary by approximately $94 for that fiscal month.
YEAR 2000 TECHNOLOGICAL ISSUES
The Company experienced no significant disruptions in either
information technology systems or non-information systems as a
result of the date change to the year 2000. The Company
continues to monitor these systems to ensure any latent date-
related matters that may arise are properly addressed. Costs
associated with the evaluation and modification of information
and non-information systems were expensed as incurred and were
not material to the financial position or results of operations
of the Company.
FORWARD-LOOKING STATEMENTS
Certain statements in this quarterly report on 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; v) the Company's ability to continue
to integrate acquired stores into Peebles' overall operations on
a timely basis; and vi) the successful management of inventory
levels, related costs and selling, general and administrative
costs.
<PAGE>
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
The information called for by this item is provided under the
caption "Market Risk" under Item 2 - Management's Discussion and
Analysis of Financial Condition and Results of Operations.
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
<PAGE>
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 7, 2000 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)
