16
SECURITIES AND EXCHANGE COMMISSION
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
__________________________
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended Commission File
August 3, 1996 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 (405) 329-4045
(Address of principal executive (Registrant's
offices) telephone number,
(Zip Code) including area
code)
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 .
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
As of September 16, 1996, the registrant had 5,432,452 shares of
Common Stock outstanding.
Harold's Stores, Inc.
Index to
Quarterly Report on Form 10-Q
For the Period Ended August 3, 1996
Part I. - FINANCIAL INFORMATION Page
Item 1. Financial Statements
Consolidated Balance Sheets - August 3, 1996 (unaudited) and
February 3, 1996 3
Consolidated Statements of Earnings -
Thirteen Weeks and Twenty-Six Weeks ended August 3, 1996
(unaudited) and July 29, 1995(unaudited) 5
Consolidated Statements of Stockholders' Equity -
Twenty-Six Weeks ended August 3, 1996 (unaudited) and July
29, 1995 (unaudited) 6
Consolidated Statements of Cash Flows -
Twenty-Six Weeks ended August 3, 1996 (unaudited) and July
29, 1995 (unaudited) 7
Notes to Interim Consolidated Financial Statements 8
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 9
Part II - OTHER INFORMATION
Item 1. Legal Proceedings 12
Item 4. Submission of Matters to a Vote of Security Holders 12
Item 6. Exhibits and Reports on Form 8-K 13
Signature 14
HAROLD'S STORES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
(In Thousands)
August 3, February 3,
1996 1996
(unaudited)
Current assets:
Cash $ 396 2
Trade accounts receivable, less
allowance 4,767 4,687
for doubtful accounts of $200
Other accounts receivable 455 568
Merchandise inventories 23,493 21,647
Prepaid expenses 2,372 1,759
Deferred income taxes 710 710
Total current assets 32,193 29,373
Property and equipment, at cost 21,593 18,999
Less accumulated depreciation and (7,063) (6,097)
amortization
Net property and equipment 14,530 12,902
Other assets 277 334
Total assets $47,000 42,609
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)
August 3, February 3,
1996 1996
(unaudited)
Current liabilities:
Current maturities of long-term debt $ 106 75
Accounts payable 4,589 4,396
Redeemable gift certificates 474 672
Accrued bonuses and payroll expenses 1,525 1,624
Accrued rent expense 142 241
Income taxes payable 65 536
Total current liabilities 6,901 7,544
Long-term debt, net of current maturities 6,332 9,540
Deferred income taxes 226 226
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 54 50
outstanding 5,430,845 in August,
4,958,181 in February
Additional paid-in capital 27,626 20,572
Retained earnings 5,861 4,677
Total stockholders' equity 33,541 25,299
Total liabilities and stockholders' $47,000 42,609
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
August 3, July 29, August 3, July 29,
1996 1995 1996 1995
Sales $22,391 19,069 46,913 40,385
Costs and expenses:
Cost of goods sold
(including occupancy and
central buying 14,343 12,099 30,373 25,967
expenses, exclusive of
items
shown separately
below)
Selling, general and 4,936 4,267 9,651 8,565
administrative expenses
Advertising 1,448 1,243 3,424 2,910
Depreciation and 646 542 1,311 1,054
Amortization
Interest expense 72 180 232
54
21,427 18,223 44,939 38,728
Earnings before income 964 846 1,974 1,657
taxes
Provision for income taxes 386 338 790 663
Net earnings $ 578 508 1,184 994
Net earnings per common $ .11 .10 .23 .20
share
Weighted average number of
common shares 5,347,728 4,992,988 5,222,077 4,988,808
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
August 3, July 29,
1996 1995
(Unaudited)
Common stock:
Balance, beginning of period $ 47
50
Issuance of 460,000 shares in 1996
4 -
Balance, end of period $ 47
54
Additional paid-in capital:
Balance, beginning of period $20,572 17,491
Issuance of 460,000 shares in 1996, 6,863 -
net of issuance costs of $143
Employee Stock Purchase Plan 191 144
Balance, end of period $ 27,626 17,635
Retained earnings:
Balance, beginning of period $ 4,677 4,722
Net earnings 1,184 994
Balance, end of period $ 5,861 5,716
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
August 3, July 29,
1996 1995
(unaudited)
Cash flows from operating activities:
Net earnings $1,184 $ 994
Adjustments to reconcile net earnings
to net cash
provided by operating activities:
Depreciation and amortization 1,311 1,054
Loss (gain) on sale of assets (2) -
Shares issued under employee 191 144
incentive plan
Changes in assets and liabilities:
Decrease (increase) in trade and 33 (941)
other accounts receivable
Increase in merchandise inventories (1,846) (2,508)
Decrease (increase) in other assets 57 (164)
Increase in prepaid expenses (613) (329)
Increase in accounts payable 193 2,287
Increase in income taxes payable (471) (410)
Decrease in accrued expenses (396) (265)
Net cash used in operating activities (359) (138)
Cash flows from investing activities:
Acquisition of property and (3,022) (1,713)
equipment
Proceeds from disposal of property 85 -
and equipment
Net cash used in investing activities (2,937) (1,713)
Cash flows from financing activities:
Advances on note payable 19,137 13,236
Payments of note payable (22,271) (10,811)
Payments of long-term debt (43) (31)
Issuance of common stock 6,867
-
Net cash provided by financing 3,690 2,394
activities
Net increase in cash 394 543
Cash at beginning of period 109
2
Cash at end of period $ 396 $ 652
See accompanying notes to interim consolidated financial statements.
HAROLD'S STORES, INC. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
August 3, 1996 and July 29, 1995
(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 August 3, 1996
and the results of its operations and cash flows for the thirteen week
period and twenty-six week periods ended August 3, 1996 and July 29,
1995. The results of operations for the thirteen week period and twenty-
six week periods ended August 3, 1996 and July 29, 1995 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 February 3, 1996 through February
1, 1997 has been designated as fiscal 1997.
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
five percent stock dividend in fiscal 1996 and includes common stock
equivalents of 140,816 and 48,333 in fiscal 1997, and fiscal 1996,
respectively.
5. Long-term Debt
On May 13, 1996, the Company entered into a long-term (15-year)
financing agreement in the amount of $956,000, bearing a 8.34% fixed rate
of interest, secured by land and buildings.
6. Pre-Opening Expenses
During fiscal 1997, the Company has changed its accounting policy to
amortize over a six month period the costs associated with the opening of
new stores instead of expensing these costs during the first full month
of operation. This change does not have a material effect on the
Company's results of operations.
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
February 3, August 3, July 29,
1996 1996 1995
Sales 100.0% 100.0% 100.0%
Cost of goods sold (64.1) (64.7) (64.3)
Selling, general and (19.9) (20.6) (21.2)
administrative expenses
Advertising expense (8.3) (7.3) (7.2)
Depreciation and (2.3) (2.8) (2.6)
amortization
Interest expense (0.5) (.4) (.6)
Earnings before income 4.9 4.2 4.1
taxes
Provision for income taxes (1.9) (1.7) (1.6)
Net earnings 3.0% 2.5% 2.5%
The following table reflects the sources of the increases in Company
sales for the periods indicated.
13 Weeks Ended 26 Weeks Ended
August 3, July 29, August 3, July
1996 1995 1996 29,
1995
Store sales (000's) $21,192 17,577 43,183 36,360
Catalog sales (000's) 1,199 1,492 3,730 4,025
Net sales (000's) $22,391 19,069 46,913 40,385
Total sales growth 17.4% 23.7% 16.2% 25.5%
Growth in comparable store 3.2% 6.2% 3.5% 7.0%
sales (52 week basis)
Growth in catalog sales (19.6)% 32.0% (7.3)% 33.6%
Store locations:
Existing stores 31 26 29 25
New stores opened 1 0 3 1
Total stores at end of 32 26 32 26
period
The opening of new stores, the expansion of existing stores, as well
as the increase in comparable stores sales contributed to total sales
growth for the first quarter and second quarter of fiscal 1997 and 1996.
New stores opened during the prior twelve months include a 4,292
square foot ladies' and "Old School" store opened in Louisville, Kentucky
in September 1995 (third quarter), a 5,200 square foot full-line men's
and ladies' store opened in Baton Rouge, Louisiana in November 1995
(third quarter), Harold's second outlet center, a 5,160 square foot
store in Hillsboro, Texas in December 1995 (fourth quarter), a 5,076
square foot ladies' and "Old School" store opened in Greenville, South
Carolina (first quarter) in March 1996, a 5,000 square foot full-line
men's and ladies' store opened in Leawood, Kansas in May 1996 (first
quarter), and a 5,205 square foot ladies' and "Old School" store opened
in Raleigh, North Carolina in June, 1996 (second quarter).
The Company's gross margin decreased during the quarter ended August
3, 1996 compared to the Company's gross margin for the comparable period
in the prior fiscal year. Among the principal factors contributing to the
decrease was an increase in aggregate merchandise markdowns resulting
from lower than anticipated sales volumes in the Company's ladies'
stores.
Selling, general and administrative expenses decreased as a
percentage of sales during the quarter ended August 3, 1996 compared to
the comparable period in the prior fiscal year. This decrease is
primarily the result of costs associated with the opening of new stores
that are expensed during the first six months of operations. Selling,
general and administrative expenses may increase as a percentage of sales
during the remainder of fiscal 1997 as the Company pursues its expansion
plans to open three more stores in fiscal 1997 in addition to the three
new stores opened during the first twenty-six weeks of fiscal 1997.
The average balance on total outstanding debt was $7,102 for the
second quarter ended August 3, 1996 compared to $5,973 for the second
quarter fiscal 1996. This increase in outstanding debt was due primarily
to (i) the Company's entry into a long-term (15-year) financing agreement
in the amount of $956,000, bearing a 8.34% fixed rate of interest,
secured by land and buildings and (ii) borrowings under the Company's
line of credit to finance inventory purchases, store expansion,
remodeling and equipment purchases. Average interest rates on the
Company's line of credit were approximately the same for the quarter
ended August 3, 1996 and the comparable quarter in the prior fiscal year.
As the Company's growth continues, cash flow may require additional
borrowed funds which may cause an increase in interest expense.
Capital Expenditures, Capital Resources and Liquidity
Cash Flows From Operating Activities. For the quarter ended August 3,
1996, net cash used in operating activities was $359,000 as compared to
$138,000 for the same period in fiscal 1996. The increase in net cash
used in operating activities is partially attributable to the timing of
cash receipts and disbursements. Significant changes in the timing of
cash receipts and disbursements included a decrease of $33,000 for the
twenty-six weeks ended August 3, 1996 compared to an increase of $941,000
for the same period ended July 29, 1995 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
$1,846,000 in the Company's merchandise inventories for the quarter ended
August 3, 1996, as compared to the prior fiscal year, during which
inventories increased by $2,508,000 and (ii) an increase of $193,000 in
the Company's accounts payable during the quarter ended August 3, 1996
versus an increase in payables of $2,287,000 for the prior fiscal year.
Management expects the dollar size of its merchandise inventories will
increase as it expands its chain of retail stores, 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 twenty-six weeks ended
August 3, 1996, net cash used in investing activities totaled $2,937,000.
Capital expenditures were invested in new stores, and remodeling and
equipment expenditures in existing operations.
Cash Flows From Financing Activities. During the second quarter of
the current fiscal year, the Company successfully completed an offering
of 460,000 shares of newly issued common stock which resulted in net
proceeds to the Company of approximately $6,867,000. During the twenty-
six weeks ended August 3, 1996, the Company made periodic borrowings
under its revolving credit facility (described below) to finance its
inventory purchases, store expansion, remodeling and equipment purchases
for the fiscal year.
The Company has available a long term line of credit with its bank,
which was increased effective February 28, 1996 to a $15 million credit
facility. This line had an average balance outstanding of $7,511,000 and
$5,361,000 for the twenty-six weeks ended August 3, 1996, and July 29,
1995, respectively. During the twenty-six weeks ended August 3, 1996,
this line of credit had a high balance of $10,473,000 and a $4,931,000
balance as of August 3, 1996. The balance as of September 5, 1996 was
$4,259,000.
Liquidity. The Company considers the following as measures of
liquidity and capital resources as of the dates indicated.
February August 3, July 29,
3, 1996 1996 1995
Working capital (000's) $21,829 $25,292 $12,808
Current ratio 3.89:1 4.66:1 1.82:1
Ratio of working capital .51:1 .54:1 .32:1
to total assets
Ratio of total debt to .38:1 .19:1 .34:1
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 1, 1997.
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 1. LEGAL PROCEEDINGS
On September 13, 1996, the Company was served with a summons in an
action filed by 350 W. 19th, Inc., d/b/a "Harold's," in the District
Court of Harris County, Texas, seeking unspecified actual, and punitive
damages, attorney's fees, costs and injunctive relief against the Company
and Harold G. Powell, for alleged breach of contract, misrepresentation
and fraud arising out of the usage of the name "Harold's" in Texas.
Company counsel is currently reviewing the litigation.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The 1996 Annual Meeting of Shareholders of the Company was held on
June 28, 1996. The following matters were submitted to a vote of the
Company's shareholders:
1. The election of eleven directors (constituting the entire board of
directors) for the ensuing year and until their successors are duly elected
and qualified. The results of the election for each director were as
follows:
Director Votes For Votes Withheld
Harold G. Powell 3,574,112 131,657
Rebecca Powell Casey 3,573,858 131,911
H. Rainey Powell 3,573,877 131,892
Kenneth C. Row 3,571,792 133,977
James R. Agar 3,574,112 131,657
Michael T. Casey 3,573,997 131,772
Robert B. Cullum, Jr. 3,571,792 133,977
Lisa Powell Hunt 3,573,858 131,911
W. Howard Lester 3,571,792 133,977
Gary C. Rawlinson 3,574,112 131,657
William F. Weitzel 3,574,112 131,657
2. The amendment of the Company's Certificate of Incorporation to
increase the number of authorized shares of Common Stock of the Company
from 7,500,000 shares to 25,000,000 shares. The results of the vote with
respect to such proposal were as follows:
Votes Against Abstentions and
Votes For or Withheld Broker Non-Votes
Amendment of
Certificate 3,447,072 253,819 4,878
of Incorporation
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits: The following exhibits are filed as part of this
Form 10-Q:
No. Description
27.1 Financial Data Schedule
(b) Reports on Form 8-K; There were no reports on Form 8-K filed by
the Company during the fiscal quarter ended August 3, 1996.
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: September 18, 1996
EXHIBIT INDEX
No. Description
27.1 Financial Data Schedule
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<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> FEB-01-1997
<PERIOD-END> AUG-03-1996
<CASH> 396
<SECURITIES> 0
<RECEIVABLES> 4967
<ALLOWANCES> 200
<INVENTORY> 23,493
<CURRENT-ASSETS> 32,193
<PP&E> 21,593
<DEPRECIATION> 7,063
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<CURRENT-LIABILITIES> 6,901
<BONDS> 6,332
0
0
<COMMON> 54
<OTHER-SE> 33,487
<TOTAL-LIABILITY-AND-EQUITY> 47,000
<SALES> 46,913
<TOTAL-REVENUES> 46,913
<CGS> 30,373
<TOTAL-COSTS> 30,373
<OTHER-EXPENSES> 14,386
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 180
<INCOME-PRETAX> 1974
<INCOME-TAX> 790
<INCOME-CONTINUING> 1184
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