15
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
No. May 4, 1996 0-6131
HAROLD'S STORES, INC.
(Exact name of registrant as specified in its charter)
Delaware 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
.
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 4,965,245
Harold's Stores, Inc. &
Subsidiaries Index
to
Quarterly Report on Form 10-Q
For the Period Ended May 4, 1996
Part I. - FINANCIAL INFORMATION
Page
Item 1. Financial Statements
Consolidated Balance Sheets - May 4, 1996 (unaudited)
and February 3, 1996. 3
Consolidated Statements of Earnings -
Thirteen Weeks ended May 4, 1996 (unaudited) and
April 29, 1995 (unaudited) 5
Consolidated Statements of Stockholders' Equity -
Thirteen Weeks ended May 4, 1996 (unaudited) and
April 29, 1995 (unaudited) 6
Consolidated Statements of Cash Flows -
Thirteen Weeks ended May 4, 1996 (unaudited) and
April 29, 1995 (unaudited) 7
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 6. Exhibits and Reports on Form 8-K:
There were no reports on Form 8-K for the quarter ended
May 4, 1996
Signature 13
HAROLD'S STORES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
(In Thousands)
May 4, 1996 February 3,
1996
(unaudited)
Current assets:
Cash $ 249 2
Trade accounts receivable, less
allowance 5,170 4,687
for doubtful accounts of $200
Other accounts receivable 534 568
Merchandise inventories 20,631 21,647
Prepaid expenses 2,162 1,759
Deferred income taxes 710 710
Total current assets 29,456 29,373
Property and equipment, at cost 20,061 18,999
Less accumulated depreciation and (6,684) (6,097)
amortization
Net property and equipment 13,377 12,902
Other assets 103 334
Total assets $42,936 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)
May 4, 1996 February
3, 1996
(unaudited)
Current liabilities:
Current maturities of long-term debt $ 75
75
Accounts payable 4,175 4,396
Redeemable gift certificates 488 672
Accrued bonuses and payroll expenses 1,728 1,624
Accrued rent expense 180 241
Income taxes payable 640 536
Total current liabilities 7,286 7,544
Long-term debt, net of current maturities 9,418 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
outstanding 4,965,245 in May, 50 50
4,958,181 in February
Additional paid-in capital 20,673 20,572
Retained earnings 5,283 4,677
Total stockholders' equity 26,006 25,299
Total liabilities and stockholders' $42,936 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 13 Weeks
Ended Ended
May 4, 1996 April 29,
1995
(Unaudited)
Sales $24,522 21,316
Costs and expenses:
Cost of goods sold
(including occupancy and 15,891 13,868
central buying expenses,
exclusive of items shown
separately below)
Selling, general and 4,854 4,298
administrative expenses
Advertising 1,976 1,667
Depreciation and 665 512
Amortization
Interest expense 126 160
23,512 20,505
Earnings before income 1,010 811
taxes
Provision for income taxes 404 325
Net earnings $ 606 486
Earnings per common share $ .12 .10
Weighted average number of
common shares 5,097,483 4,984,616
outstanding
See accompanying notes to interim consolidated financial
statements.
HAROLD'S STORES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Dollars in Thousands)
13 Weeks 13 Weeks
Ended Ended
May 4, 1996 April 29,1995
(Unaudited)
Common stock:
Balance, beginning and end of $ 50 47
period
Additional paid-in capital:
Balance, beginning of period $ 20,572 17,491
Employee Stock Purchase Plan 101 73
Balance, end of period $ 20,673 17,564
Retained earnings:
Balance, beginning of period $ 4,677 4,722
Net earnings 606 486
Balance, end of period $ 5,283 5,208
See accompanying notes to interim consolidated financial
statements.
HAROLD'S STORES, INC. AND SUBSIDIARIES CONSOLIDATED
STATEMENTS OF CASH FLOWS
(In Thousands)
13 Weeks 13 Weeks
Ended Ended
May 4, 1996 April 29,1995
(Unaudited)
Cash flows from operating activities:
Net earnings $ 606 486
Adjustments to reconcile net earnings
to net cash
provided by operating activities:
Depreciation and amortization 665 512
Loss (gain) on sale of assets (1) -
Shares issued under employee 101 73
incentive plan
Changes is assets and liabilities:
Increase in trade and other (449) (916)
accounts receivable
Decrease (increase) in merchandise 1,016 1,260
inventories
Decrease (increase) in other assets 231 (99)
Increase in prepaid expenses (403) (199)
Increase (decrease) in accounts (221) (80)
payable
Increase (decrease) income taxes 104 (238)
payable
Increase (decrease) in accrued (141) 118
expenses
Net cash provided by operating 1,508 917
activities
Cash flows from investing activities:
Acquisition of property and (1,224) (1,135)
equipment
Proceeds from disposal of property 85 (70)
and equipment
Net cash used in investing activities (1,139) (1,205)
Cash flows from financing activities:
Advances on note payable 6,537 5,790
Payments of note payable (6,640) (5,032)
Payments of long-term debt (19) (19)
Net cash provided by (used in) (122) 739
financing activities
Net increase in cash 247 451
Cash at beginning of year 2 109
Cash at end of period $ 249 560
See accompanying notes to interim consolidated financial
statements.
HAROLD'S STORES, INC. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
May 4, 1996 and April 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 May 4, 1996 and the results of its
operations and cash flows for the thirteen week periods ended
May 4, 1996 and April 29, 1995. The results of operations for
the thirteen weeks ended May 4, 1996 and April 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 4,
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 136,643 and 47,135 in
fiscal 1997, and fiscal 1996, respectively.
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 sales represented by items in the Company's
statement of earnings.
52 Weeks 13 Weeks 13 Weeks
Ended Ended Ended
February 3, May 4, 1996 April 29,1996
Sales 100.0% 100.0% 100.0%
Cost of goods sold (63.5) (64.8) (65.1)
Selling, general and (20.5) (19.8) (20.1)
administrative expenses
Advertising expense (8.3) (8.1) (7.8)
Depreciation and (2.3) (2.7) (2.4)
amortization
Interest expense (0.5) (0.5) (0.8)
Earnings before income 4.9 4.1 3.8
taxes
Provision for income taxes (1.9) (1.6) (1.5)
Net earnings 3.0% 2.5% 2.3%
The following table reflects the sources of the increases
in Company sales for the periods indicated.
13 Weeks 13 Weeks
Ended Ended
May 4, 1996 April 29, 1995
Store sales (000's) $ 21,990 $18,783
Catalog sales (000's) 2,532 2,533
Net sales (000's) $ 24,522 $21,316
Total sales growth 15.0% 27.2%
Growth in comparable store 3.8% 7.8%
sales (52 week basis)
Growth in catalog sales - 34.6%
Store locations:
Existing stores beginning of 29 25
period
New stores opened during 2 1
period
Total stores at end of 31 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 quarters 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 in March 1996 and a 5,000 square foot full-line men's
and ladies' store opened in Leawood, Kansas in May 1996 (first
quarter).
The Company's gross margin increased during the quarter
ended May 4, 1996 compared to the Company's gross margin for
the comparable period in the prior fiscal year. Among the
principal factors contributing to the increase was reduction in
aggregate merchandise markdowns due to increased sales volumes
in the Company's stores.
Selling, general and administrative expenses decreased as
a percentage of sales during the quarter ended May 4, 1996
compared to the comparable period in the prior fiscal year.
This decrease resulted primarily from the leveling of catalog
expenses and sales salaries as a percentage of sales during
such quarter compared to prior periods. However, 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 four more stores in
fiscal 1997 in addition to the two new stores opened during the
first quarter of fiscal 1997.
The average balance on total outstanding debt was
$9,942,000 for the quarter ended May 4, 1996 compared to
$6,040,000 for the comparable period in the prior fiscal year.
This increase in outstanding debt was due primarily to
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 May 4,
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
May 4, 1996, net cash provided by operating activities was
$1,508,000 as compared to $917,000 for the same period in
fiscal 1996. The increase is partially attributable to the
timing of cash receipts and disbursements. Significant changes
in the timing of cash receipts and disbursements between the
first quarters ended May 4, 1996 and April 29, 1995, included
an increase of $449,000 and $916,000 respectively in trade and
other accounts receivable. The increase in trade and other
accounts receivable is the result of management's decision to
promote sales using the Company's credit card. These
promotions are in conjunction with new store openings, as well
as existing stores, and are designed to provide a convenient
source of credit for the Company's customers at all Harold's
locations and to increase the Company's finance charge
revenues.
In addition, the difference in cash flows from operating
activities between the two fiscal periods is partially due to a
decrease of $1,016,000 in the Company's merchandise inventories
for the quarter ended May 4, 1996, as compared to the first
quarter of fiscal 1996,during which inventories decreased
by $1,260,000, and a decrease of $221,000 in the Company's
accounts payable during the quarter ended May 4, 1996, compared
to a decrease in payables of $80,000 for the first quarter of
fiscal 1996.
Management expects that 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 fiscal 1996 net
cash used in investing activities was $4,857,000 as compared to
$3,952,000 for fiscal 1995. For the quarter ended May 4, 1996,
net cash used in investing activities was $1,139,000 as
compared to $1,250,000 for the first quarter ended April 29,
1995. Capital expenditures totaled $5,159,000 for fiscal 1996
compared to $3,994,000 for fiscal 1995, and $1,224,000 for the
quarter ended May 4, 1996 compared to $1,135,000 for the
quarter ended April 29, 1995. Capital expenditures during such
periods were invested principally in new stores and in
remodeling and equipment expenditures at existing facilities.
Cash Flows From Financing Activities. During the quarter
ended May 4, 1996, the Company made periodic borrowings under
its revolving credit facility (described below) to finance its
inventory purchases, store expansion, remodeling and equipment
purchases. Effective February 20, 1996, the Company increased
the above line of credit to $15,000,000.
During the quarters ended May 4, 1996, the line of credit
had an average balance of $9,259,000 and $5,390,000,
respectively. During the quarter ended May 4, 1996, the line
of credit had a high balance of $0,473,000 and a balance of
$8,918,000 as of the end of such quarter. The balance at June
6, 1996 was $8,926,000.
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
of $9,259,000 and $5,390,000 for the first quarter of fiscal
1997 and 1996, respectively. During the first quarter ended
May 4, 1996, this line of credit had a high balance of
$10,473,000 and a $8,918,000 balance as of May 4, 1996. The
balance as of May 29, 1996 was $8,906,000.
Liquidity. The Company considers the following as measures
of liquidity and capital resources as of the dates indicated.
February May 4, April 29,
3, 1996 1996 1995
Working capital (000's) $21,829 22,170 $12,272
Current ratio 3.89:1 4.04:1 2.01:1
Ratio of working capital .51:1 .52:1 .34:1
to total assets
Ratio of total debt to .38:1 .37:1 .28:1
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 the holiday 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
NONE
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: June 7, 1996
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