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 July 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 September 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)
July 29, January 29, July 31,
2000 2000 1999
--------- ----------- ----------
ASSETS (Unaudited) (Unaudited)
CURRENT ASSETS
Cash $ 286 $ 1,008 $ 87
Accounts receivable, net 32,723 37,949 30,355
Merchandise inventories 75,635 70,181 73,346
Prepaid expenses 957 709 1,555
Income taxes receivable -- 1,201 952
Other 2,593 2,670 2,578
------- ------- -------
TOTAL CURRENT ASSETS 112,194 113,718 108,873
PROPERTY AND EQUIPMENT, NET 51,564 53,063 53,325
OTHER ASSETS
Excess of cost over net assets
acquired, net 38,140 39,100 40,057
Deferred financing cost 1,198 1,895 2,609
Other 2,708 2,441 3,237
------- ------- -------
42,046 43,436 45,903
------- ------- -------
$205,804 $210,217 $208,101
======= ======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 13,310 $ 12,795 $ 12,688
Accrued compensation and other
expenses 4,953 7,268 4,346
Deferred income taxes 2,139 2,139 2,433
Current maturities of long-term debt 3,700 3,700 3,700
Other 3,277 3,582 1,942
------- ------- -------
TOTAL CURRENT LIABILITIES 27,379 29,484 25,109
LONG-TERM DEBT 98,672 102,677 111,557
LONG-TERM CAPITAL LEASE OBLIGATIONS 471 614 777
DEFERRED INCOME TAXES 8,884 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; 11,090 9,251 4,360
------- ------- -------
70,398 68,559 63,668
------- ------- -------
$205,804 $210,217 $208,101
======= ======= =======
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 Six-Month
Period Ended Period Ended
------------------- -----------------
July 29, July 31, July 29, July 31,
2000 1999 2000 1999
------- --------- ------- --------
NET SALES $71,537 $ 70,547 $134,900 $134,969
COSTS AND EXPENSES
Cost of sales 42,906 41,228 81,077 80,291
Selling, general and
administrative expenses 20,795 21,303 39,830 41,016
Depreciation and amortization 2,496 2,140 4,990 4,269
------ ------ ------ ------
66,197 64,671 125,897 125,576
------ ------ ------ ------
OPERATING INCOME 5,340 5,876 9,003 9,393
INTEREST EXPENSE 2,916 2,820 5,719 5,575
------ ------ ------ ------
INCOME BEFORE INCOME TAXES 2,424 3,056 3,284 3,818
INCOME TAXES
Federal, state and deferred 1,067 1,345 1,445 1,680
------ ------ ------ ------
NET INCOME $ 1,357 $ 1,711 $ 1,839 $ 2,138
====== ======== ======= ========
RETAINED EARNINGS
BEGINNING OF PERIOD 9,733 2,649 9,251 2,222
------ ------ ------ ------
RETAINED EARNINGS
END OF PERIOD $11,090 $ 4,360 $11,090 $ 4,360
======= ======== ======= ========
EARNINGS PER SHARE $ 1,357 $ 1,711 $ 1,839 $ 2,138
======= ======== ======= ========
Weighted average common stock 1,000 1,000 1,000 1,000
======= ======== ======= ========
See notes to condensed consolidated financial statements
<PAGE>
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
PEEBLES INC. & SUBSIDIARIES
(in thousands)
(Unaudited)
Six-Month Period Ended
--------------------------
July 29, July 31,
2000 1999
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OPERATING ACTIVITIES
Net income $ 1,839 $ 2,138
Adjustments to reconcile net income to net
cash provided by (used in)
operating activities:
Depreciation 3,845 3,124
Amortization 1,842 1,842
Provision for doubtful accounts 1,446 787
Changes in operating assets and
liabilities:
Accounts receivable 3,780 2,353
Merchandise inventories (5,454) (1,984)
Accounts payable 515 (4,828)
Other assets and liabilities (1,757) (3,690)
------- -------
NET CASH PROVIDED BY (USED IN) OPERATING
ACTIVITIES 6,056 (258)
INVESTING ACTIVITIES
Purchase of property and equipment (2,468) (5,051)
Other (305) --
------- ------
NET CASH USED IN INVESTING ACTIVITIES (2,773) (5,051)
FINANCING ACTIVITIES
Proceeds from revolving line of credit 195,422 183,101
Reduction in revolving line of credit and
long-term debt (199,427) (177,769)
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NET CASH (USED IN) PROVIDED BY FINANCING
ACTIVITIES (4,005) 5,332
-------- --------
(DECREASE) INCREASE IN CASH AND CASH
EQUIVALENTS (722) 23
Cash and cash equivalents beginning of
period 1,008 64
-------- --------
CASH AND CASH EQUIVALENTS END OF PERIOD $ 286 $ 87
======== ========
See notes to condensed consolidated financial statements
<PAGE>
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
PEEBLES INC. & SUBSIDIARIES
July 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 July 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 and six-month periods ended July 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-ACCOUNTS RECEIVABLE
Accounts receivable at July 29, 2000 and July 31, 1999 are
shown net of $2,000 and $1,700, respectively, representing the
allowance for uncollectible accounts. As a service to its
customers, the Company offers credit through the use of its
own charge card and certain major credit cards. The Peebles'
customer usually resides in the local community immediately
surrounding the store location. Peebles stores serve these
local customers in 15 states: Virginia, Tennessee, North
Carolina, Maryland, Kentucky, West Virginia, Alabama,
Pennsylvania, South Carolina, Ohio, Delaware, New York,
Indiana, New Jersey and Missouri. The Company does not require
collateral from its customers.
<PAGE>
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-Continued
PEEBLES INC. & SUBSIDIARIES
(in thousands)
NOTE C-LONG-TERM DEBT
Long-term debt consisted of the following:
July 29, January 29, July 31,
2000 2000 1999
-------- ---------- --------
Senior Revolving
Facility $ 40,912 $ 34,000 $ 44,000
Senior Term Note A 7,488 9,750 11,250
Senior Term Note B 53,672 58,950 59,250
Swingline Facility -- 3,277 357
Other 300 400 400
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102,372 106,377 115,257
Less current
maturities: 3,700 3,700 3,700
------- ------- --------
Long-term debt $ 98,672 $102,677 $111,557
======== ======== ========
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
July 29, 2000, the total amount available to borrow was
$61,436, of which $40,912 was in use.
On July 17, 2000, in accordance with certain provisions of the
Credit Agreement, the Company reduced the outstanding
principal amount of its Senior Term Notes A and B by $761 and
$4,978, respectively. The prepayment amount (the "ECF
Prepayment Amount") represents excess cash flow as defined by
the Credit Agreement. The ECF Prepayment Amount is an annual
calculation based on the Company's operations from the
previous fiscal year. The ECF Prepayment Amount was funded
through the Revolver.
NOTE D-INCOME TAXES
Differences between the effective rate of income taxes and the
statutory rate arise principally from 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") and six-month period
ended July 29, 2000 in comparison with the Fiscal Quarter and
six-month period ended July 31, 1999. The consolidated
operations of the Company for the Fiscal Quarter and six-month
period ended July 29, 2000 include the results of 121 store
locations. During the twelve-month period ended July 29,
2000, the Company opened two new store locations and closed
one marginally profitable store.
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 January 29, 2000.
Three-Month Six-Month
Period Ended Period Ended
-------------------- --------------------
July 29, July 31, July 29, July 31,
(dollars in thousands) 2000 1999 2000 1999
-------- -------- --------- --------
Net sales $71,537 $70,547 $134,900 $134,969
% increase (decrease) 1.4% 22.3% (.1%) 24.2%
Comparable stores % increase:
(decrease) in net sales 1.0% 3.6% (1.3%) .5%
Stores in operation at period end 121 120 121 120
Total stores opened during period 0 1 0 3
Operations as a Percentage
of Net Sales:
---------------------------
Cost of sales 60.0% 58.4% 60.1% 59.5%
Selling, general &
administrative expenses 29.0 30.2 29.5 30.4
Depreciation and amortization 3.5 3.1 3.7 3.1
---- ---- ---- ----
Operating Income 7.5 8.3 6.7 7.0
Interest Expense 4.1 4.0 4.2 4.2
Provision for income taxes 1.5 1.9 1.1 1.2
---- ---- ---- ----
Net Income 1.9% 2.4% 1.4% 1.6%
===== ==== ==== ====
Net sales for the three-month period ended July 29, 2000
increased 1.4% over the prior year, due primarily to strong
sales in the two-week periods preceding both Mother's Day and
Father's Day. Mother's Day fell a week later in the second
Fiscal Quarter than in the prior year, positively impacting
net sales. For the six-month period ended July 29, 2000, net
sales were $134,900, down $69 in comparison to the prior year
comparable period. Net sales at comparable stores were up
1.0% for the second Fiscal Quarter and down 1.3% year to date.
Throughout the six-month period ended July 29, 2000, net sales
have been driven more by promotional and clearance events than
in the comparable prior year period.
Cost of sales as a percentage of net sales was 60.0% and 58.4%
for the three-month periods ended July 29, 2000 and July 31,
1999, respectively, and 60.1% and 59.5%, respectively, for the
six-month periods then ended. The current year increases in
comparing both the three-month periods and six-month periods
are primarily a result of greater promotional markdowns and
clearance markdowns taken after Father's Day.
Selling, general and administrative expenses ("SG&A") as a
percentage of net sales, exclusive of depreciation and
amortization, were 29.0% and 30.2%, respectively, for Fiscal
Quarters ended July 29, 2000 and July 31, 1999 and 29.5% and
30.4%, respectively, for the six-month periods then ended.
SG&A expenses as a percentage of net sales continue to benefit
from the maturation of stores opened in fiscal 1999 and 1998.
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.
Depreciation and amortization expenses as a percentage of net
sales were 3.5% and 3.1% for the three-month periods ended
July 29, 2000 and July 31, 1999, respectively, and 3.7% and
3.1% for the six-month periods then ended. The increases are
primarily a result of depreciation expense associated with
capital expenditures required in store locations opened in
fiscal 1999 and 1998. Capital expenditures totaled $9,151 and
$13,394 in 1999 and 1998, respectively.
Interest expense was 4.1% and 4.0% of net sales for the Fiscal
Quarters ended July 29, 2000 and July 31, 1999, respectively,
and 4.2% for each of the six-month periods then ended. For
both the three and six-month periods ended July 29, 2000,
average borrowings were lower in comparison to the prior year.
These lower average borrowings, however, were offset by higher
average interest rates in comparing the current year to the
prior.
The effective income tax rate for the three and six-month
periods ended July 29, 2000 and July 31, 1999 was 44.0%. 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 and six-month periods ended July 29, 2000 was 1.9%
and 1.4% of net sales, respectively. For the prior year three
and six-month periods ended July 31, 1999, net income as a
percentage of net sales was 2.4% and 1.6%, 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 the third Fiscal Quarter. Capital expenditures for
existing stores typically occur evenly throughout the first
three quarters of each year, but can vary by Fiscal Quarter
based on new and acquired stores.
The Company's operating activities provided cash of $6,056 in
the six-month period ended July 29, 2000. In the six-month
period ended July 31, 1999, operating activities used cash of
$258. In the current six-month period, the seasonal increase
in merchandise inventories, using net cash of $5,454, was
financed to a greater degree by vendor credit than in the
prior year comparable period. Current year operating cash
flow was further enhanced in comparison to the prior year by a
greater realization of accounts receivable. The timing of the
aggregate realization of certain other operating assets and
the payment of certain liabilities used less cash in the
current six-month period than in the comparable prior year
period. Working capital grew to $84,815 at July 29, 2000 from
$83,764 at July 31, 1999.
Capital expenditures are the primary use of cash in investing
activities. In the six-month periods ended July 29, 2000 and
July 31, 1999, capital expenditures totaled $2,468 and $5,051,
respectively. In the current year, capital expenditures were
primarily for 2 new store locations opening early in the third
Fiscal Quarter, planned remodeling/space reallocations and
routine fixture upgrades. During the six-month period ended
July 31, 1999, capital expenditures were necessary in the
opening of 3 new store locations, as well as for the store
locations acquired in 1998. The Company did not open any new
store locations in the third Fiscal Quarter of 1999.
The Company currently plans to open a total of 5 new store
locations in fiscal 2000, adding approximately 100,000 gross
square feet. The Company has signed non-cancelable leases for
4 new store locations, two of which will open in the third
Fiscal Quarter. 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 an average of approximately 11% of
net sales or approximately $275 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 $75,000
less amounts outstanding under letters of credit. The actual
amount available is determined by an asset-based formula. In
the six-month period ended July 29, 2000, the Company reduced
outstanding borrowings by $4,005. During the six-month period
ended July 31, 1999, the Company drew a net $5,332, primarily
for working capital 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.
<PAGE>
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 $102,372 during the fiscal
month of variance, interest expense would vary by
approximately $85 for that fiscal month.
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: September 6, 2000 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)
