14
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
__________________________
Form 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION
13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended July 29, 1995
or
[ ] TRANSITION REPORT PURSUANT TO SECTION
13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934.
For the transition period from _______ to
_______
Commission File No. 1-10892
HAROLD'S STORES, INC.
(Exact name of registrant as specified in its charter)
Oklahoma 73-1308796
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification
No.)
765 Asp Norman, Oklahoma 73069
(Address of principal executive (Zip Code)
offices)
(Zip Code)
Registrant's telephone number, including area code: (405) 329-
4045
NO CHANGE
(Former name, former address and former fiscal year, if
changed since last report.)
Indicate by check 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 .
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the
issuer's classes of common stock, as of the latest practicable
date.
Common Stock 4,713,542
Harold's Stores, Inc. & Subsidiaries
Index to
Quarterly Report on Form 10-Q
For the Period Ended July 29, 1995
Part I. - FINANCIAL INFORMATION Page
Item 1. Financial Statements
Consolidated Balance Sheets - July 29, 1995 (unaudited)
and January 28, 1995 . 3
Consolidated Statements of Earnings -
Thirteen Weeks and Twenty-Six Weeks ended July 29,
1995 (unaudited) and July 30, 1994 (unaudited) 5
Consolidated Statements of Stockholders' Equity -
Twenty-Six Weeks ended July 29, 1995 (unaudited)
and July 30, 1994 (unaudited) 6
Consolidated Statements of Cash Flows -
Twenty-Six Weeks ended July 29, 1995 (unaudited)
and July 30, 1994 (unaudited) 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
Part II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 12
Signature 13
HAROLD'S STORES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
(In Thousands)
July 29, January
1995 28, 1995
(unaudited)
Current assets:
Cash $ 652 109
Trade accounts receivable, less
allowance 4,195 4,238
for doubtful accounts of $175
Other accounts receivable 1,655 671
Merchandise inventories 20,355 17,847
Prepaid expenses 975 646
Deferred income taxes 622 622
Total current assets 28,454 24,133
Property and equipment, at cost 16,352 15,186
Less accumulated depreciation and (5,462) (4,955)
amortization
Net property and equipment 10,890 10,231
Other assets 461 297
Total assets $ 39,805 34,661
See accompanying notes to interim consolidated financial
statements.
HAROLD'S STORES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
(In Thousands Except Share Data)
July 29, January
1995 28, 1995
(unaudited)
Current liabilities:
Note payable to bank $ 7,327 4,902
Current maturities of long-term debt 75 75
Accounts payable 6,441 4,154
Redeemable gift certificates 339 509
Accrued bonuses and payroll expenses 1,219 1,129
Accrued rent expense 72 257
Income taxes payable 173 583
Total current liabilities 15,646 11,609
Long-term debt, net of current maturities 563 594
Deferred income taxes 198 198
Stockholders' equity:
Preferred stock of $.01 par value
Authorized 1,000,000 shares; none - -
issued
Common stock of $.01 par value
Authorized 7,500,000 shares; issued and
outstanding 4,711,990 in July, 47 47
4,698,174 in January
Additional paid-in capital 17,635 17,491
Retained earnings 5,716 4,722
Total stockholders' equity 23,398 22,260
Total liabilities and stockholders' $ 39,805 34,661
equity
See accompanying notes to interim consolidated financial
statements.
HAROLD'S STORES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(In Thousands Except Share Data)
13 Weeks Ended 26 Weeks Ended
July 29, July 30, July 29, July 30,
1995 1994 1995 1994
(unaudited)
Net sales $19,069 40,385 32,168
15,415
Costs and expenses:
Cost of goods sold
(including occupancy and 11,818 10,012 25,686 21,109
central buying
expenses)
Selling, general and 6,333 4,596 12,810 9,850
administrative expenses
Interest expense 72 232
45 71
18,223 38,728 31,030
14,653
Earnings before income 846 762 1,657 1,138
taxes
Provision for income taxes 338 663 467
313
Net earnings $ 508 994 671
449
Net earnings per common .11 .21 .14
share .10
Weighted average number of
common shares 4,728,225 4,687,626 4,724,974 4,684,446
outstanding
See accompanying notes to interim consolidated financial
statements.
HAROLD'S STORES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Dollars in Thousands)
26 Weeks 26 Weeks
Ended Ended
July 29, July 30,
1995 1994
(unaudited)
Common stock:
Balance, beginning and end of $ 47 43
period
Additional paid-in capital:
Balance, beginning of period $ 17,491 13,047
Employee Stock Purchase Plan 144 100
Balance, end of period $ 17,635 13,147
Retained earnings:
Balance, beginning of period $ 4,722 6,906
Net earnings 994 671
Balance, end of period $ 5,716 7,577
See accompanying notes to interim consolidated financial
statements.
HAROLD'S STORES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
26 Weeks 26 Weeks
Ended Ended
July 29, July 30,
1995 1994
(unaudited)
Cash flows from operating activities:
Net earnings $ 994 671
Adjustments to reconcile net earnings
to net cash
provided by operating activities:
Depreciation and amortization 1,054 790
Shares issued under employee 144 100
incentive plan
Changes is assets and liabilities:
Decrease (increase) in trade and (941) 119
other accounts receivable
Increase in merchandise inventories (2,508) (2,323)
Decrease in income taxes receivable - (5)
Increase in other assets (164) (387)
Increase in prepaid expenses (329) (543)
Increase in accounts payable 2,287 971
Decrease income taxes payable (410) -
Decrease in accrued expenses (265) (41)
Net cash provided by (used in) 657 (648)
operating activities
Cash flows from investing activities:
Acquisition of property and (1,713) (1,353)
equipment
Proceeds from disposal of property -
and equipment 15
Net cash used in investing activities (1,713) (1,338)
Cash flows from financing activities:
Advances on note payable 13,236 10,984
Payments of note payable (10,811) (8,942)
Payments of long-term debt (31) (38)
Net cash provided by financing 2,394 2,004
activities
Net increase in cash 543 18
Cash at beginning of year 109 143
Cash at end of year $ 652 161
See accompanying notes to interim consolidated financial
statements.
HAROLD'S STORES, INC. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
July 29, 1995 and July 30, 1994
(Unaudited)
1. Unaudited Interim Periods
In the opinion of the Company's management, all
adjustments (all of which are normal and recurring) have been
made which are necessary to fairly state the financial position
of the Company as of July 29, 1995 and the results of its
operations and cash flows for the thirteen week and twenty-six
week periods ended July 29, 1995 and July 30, 1994. The
results of operations for the thirteen week and twenty-six week
periods ended July 29, 1995 and July 30, 1994 are not
necessarily indicative of the results of operations that may be
achieved for the entire fiscal year.
2. Definition of Fiscal Year
The Company has a 52-53 week fiscal year which ends on the
Saturday closest to January 31. The period from January 29,
1995 through February 3, 1996, has been designated as fiscal
1996.
3. Reclassifications
Certain comparative prior year amounts in the consolidated
financial statements have been reclassified to conform with the
current year presentation.
4. Net Earnings Per Common Share
Net earnings per common share are based upon the weighted
average number of common shares outstanding during the period
restated for the ten percent stock dividend in fiscal 1995.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
The following table sets forth for the periods indicated,
the percentage of net sales represented by items in the
Company's statement of earnings.
52 Weeks 26 Weeks 26 Weeks
Ended Ended Ended
January 28, July 29, July 30, 1994
1995 1995
Net sales 100.0% 100.0% 100.0%
Cost of goods sold (65.2) (63.6) (65.6)
Selling, general and (29.8) (31.7) (30.6)
administrative expenses
Interest expense (0.3) (.6) (0.3)
Earnings before income 4.7 4.1 3.5
taxes
Provision for income taxes (1.9) (1.6) (1.4)
Net earnings 2.8% 2.5% 2.1%
The following table reflects the sources of the increases
in Company sales for the periods indicated.
13 Weeks Ended 26 Weeks Ended
July July July 29, July 30,
29, 30, 1995 1994
1995 1994
Store sales (000's) $17,577 $ $36,360 $ 29,156
14,284
Catalog sales (000's) 1,492 1,131 4,025 3,012
Net sales (000's) $ $ $40,385 $ 32,168
19,069 15,415
Total sales growth 23.7% 20.4% 25.5% 28.2%
Growth in comparable store 6.2% 10.6% 7.0% 15.2%
sales (52 week basis)
Growth in catalog sales 32.0% 20.5% 33.6% 51.8%
Store locations:
Existing stores 27 22 26 22
New stores opened 0 1 1 1
27 23 27 23
The opening of new stores, the expansion of existing
stores, as well as the increase in comparable stores sales and
the growth in catalog sales contributed to total sales growth
for the first quarters of fiscal 1996 and 1995.
New stores opened during the prior 12 months include a
3,300 square foot ladies' store opened in Austin, Texas in
September 1994 (third quarter), a 5,500 square foot men's and
ladies' store opened in Plano, Texas in October 1994 (third
quarter), a 5,000 square foot men's and ladies' store opened
in Phoenix, Arizona in November 1994 (fourth quarter), and a
4,200 square foot men's and ladies' store opened in St. Louis,
Missouri in March 1995 (first quarter of the fiscal year ended
February 3, 1996).
Significant increases in mail order catalog sales are the
direct result of the Company's expansion of this segment of the
business. The Company has continued to expand its regular
catalog to include six seasonal issues throughout the year.
For the previous fiscal year, the Company's catalog averaged 65
pages per issue with an aggregate mailing (including abridged
issues) of approximately 4.7 million catalogs.
The Company's gross margin increased for the current
thirteen week period compared to the same period in the prior
fiscal year. This increase is the result of reduced markdowns
in the current fiscal year related to increased store sales.
Selling, general and administrative expenses increased as
a percentage of sales. These increases were primarily the
result of expenses relating to the Company's commencement of
operations in new stores opened during the previous twelve
months and related increases in advertising and catalog
production costs. Management anticipates that selling, general
and administrative expenses will continue to increase as a
result of the Company's expansion plans, with improvement in
net operating profits, if any, coming from new store sales and
improvements in maintained gross margins.
The average balance on total outstanding debt was
$5,973,000 for the second quarter of fiscal 1996 compared to
$2,005,000 for the second quarter of fiscal 1995. Average
interest rates on the Company's lines of credit were
approximately the same in both the current and prior fiscal
years. As the Company's growth continues, cash flow may
require additional borrowed funds which may cause an increase
in interest expense.
The Company's income tax rate decreased to 40% for the
second quarter of fiscal 1996 compared to 44% in fiscal 1995.
This decreased tax rate is attributable to the Company's
estimation of lower tax rates on temporary differences in the
second quarter of fiscal 1996 compared to the tax rates in
prior period.
Capital Expenditures, Capital Resources and Liquidity
Cash Flows From Operating Activities. For the quarter ended
July 29, 1995, net cash provided by operating activities was
$657,000 as compared to net cash used in operating activities
of $648,000 for the same period in fiscal 1995. The increase
is partially attributable to the timing of cash receipts and
disbursements. Significant changes in the timing of cash
receipts and disbursements included an increase of $941,000 for
the twenty-six weeks ended July 29, 1995 compared to a decrease
of $119,000 for the same period ended July 30, 1994 in trade
and other accounts receivable.
In addition, the difference in cash flows from operating
activities between the two fiscal periods is partially due to
(i) an increase of $2,508,000 in the Company's merchandise
inventories for the quarter ended July 29, 1995, as compared to
the prior fiscal year, during which inventories increased by
$2,323,000 and (ii) an increase of $2,287,000 in the Company's
accounts payable during the quarter ended July 29, 1995, versus
an increase in payables of $971,000 for the prior fiscal year.
Management expects the dollar size of its merchandise
inventories will increase as it expands its chain of retail
stores and catalog operation, with related increases in trade
accounts payable, and that period-to-period differences in
timing of inventory purchases and deliveries will affect
comparability of cash flows from operating activities.
Cash Flows From Investing Activities. For the quarter
ended July 29, 1995, net cash used in investing activities
totaled $1,713,000. Capital expenditures were invested in new
stores, and remodeling and equipment expenditures in existing
operations.
Cash Flows From Financing Activities. During the quarter
ended July 29, 1995, the Company made periodic borrowings under
its revolving credit facility (described below) to finance its
inventory purchases, store expansion, remodeling and equipment
purchases.
The Company has available a short term line of credit with
its bank, which was increased effective November 9, 1994 to a
$10 million credit facility. This line had an average balance
of $5,331,000 and $1,288,000 for the second quarter of fiscal
1996 and 1995, respectively. During the second quarter ended
July 29, 1995, this line of credit had a high balance of
$7,327,000 and a $3,517,000 balance as of July 30, 1994. The
balance as of August 30, 1995 was $6,662,000.
Liquidity. The Company considers the following as
measures of liquidity and capital resources as of the dates
indicated.
January July 29, July 30,
28, 1995 1995 1994
Working capital (000's) $12,524 $12,808 $12,570
Current ratio 2.08:1 1.82:1 2.46:1
Ratio of working capital .36:1 .32:1 .42:1
to total assets
Ratio of total debt to .25:1 .34:1 .20:1
stockholders' equity
The Company's primary needs for liquidity are to finance
its inventories and revolving charge accounts and to invest in
new stores, remodeling, fixtures and equipment.
Management believes that cash flow from operations and its
existing banking arrangements should be sufficient to meet its
operating needs and capital requirements through the fiscal
year ending February 3, 1996.
Seasonality
The Company's business is subject to seasonal influences,
with the major portion of sales realized during the fall season
(third and fourth quarters) of each fiscal year, which includes
the back-to-school and Christmas selling season. In light of
this pattern, selling, general and administrative expenses are
typically higher as a percentage of sales during the spring
season (first and second quarters) of each fiscal year.
Inflation
Inflation affects the costs incurred by the Company in its
purchase of merchandise and in certain components of its
selling, general and administrative expenses. The Company
attempts to offset the effects of inflation through price
increases and control of expenses, although the Company's
ability to increase prices is limited by competitive factors in
its markets. Inflation has had no meaningful effect on the
other assets of the Company.
PART II
ITEM 6. Exhibits and Reports on Form 8-K.
(a) Exhibits. See Exhibit Index immediately preceding
exhibits.
(b) Reports on Form 8-K. The company filed no reports
on Form 8-K during the quarter ended July 29, 1995.
SIGNATURE
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, hereunto duly
authorized.
HAROLD'S STORES, INC.
By: /s/H. Rainey Powell
H. Rainey Powell
Chief Financial Officer
Date: August 30, 1995
EXHIBIT TABLE
Copies of the following documents are filed as exhibits to this
report:
NO. DESCRIPTION OF EXHIBIT
(11) Statement re computation of per share earnings
(15) Letter re unaduited interim financial information
(18) Letter re change in accounting principles
(27) Financial Data Schedule
(99) Additional Exhibits
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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