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 October 31, 1998 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. 000-19372
CATHERINES STORES CORPORATION
(exact name of registrant as specified in its charter)
Tennessee 62-1350411
(State or other jurisdiction
of incorporation or organization) (IRS Employer Identification No.)
3742 Lamar Avenue, Memphis, Tennessee, 38118
(Address of principal executive offices)
Registrant's telephone number, including area code (901) 363-3900
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 registrant's classes of
common stock as of the latest practicable date.
As of November 30, 1998 there were 7,266,461 shares of Catherines
Stores Corporation common stock outstanding.
<PAGE>
CATHERINES STORES CORPORATION
FORM 10-Q
October 31, 1998
Table of Contents
Page No.
PART 1 - FINANCIAL INFORMATION
Consolidated Statements of Income ...........................3
Consolidated Balance Sheets .................................4
Consolidated Statements of Cash Flows .......................5
Notes to Consolidated Financial Statements ................6-8
Management's Discussion and Analysis of Financial
Condition and Results of Operations ......................9-12
PART 2 - OTHER INFORMATION ..........................................13
<PAGE>
PART 1 - FINANCIAL INFORMATION
CATHERINES STORES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Thirteen weeks ended Thirty-nine weeks ended
October 31, November 1, October 31, November 1,
1998 1997 1998 1997
<S> <C> <C> <C> <C>
Net sales $ 73,019,529 $ 67,670,046 $224,298,534 $209,301,926
Cost of sales, including
buying and occupancy costs 50,134,942 48,210,195 150,452,408 145,441,565
------------ ------------ ------------ ------------
Gross margin 22,884,587 19,459,851 73,846,126 63,860,361
Selling, general and
administrative expenses 19,816,219 18,088,493 59,561,720 56,283,659
Amortization of intangible
assets 261,031 248,382 790,411 771,643
------------ ------------ ------------ ------------
Operating income before
store closing costs 2,807,337 1,122,976 13,493,995 6,805,059
Store closing costs (Note 7) 67,608 638,980 267,363 813,975
------------ ------------ ------------ ------------
Operating income 2,739,729 483,996 13,226,632 5,991,084
Interest and other, net 158,335 357,611 592,122 1,008,074
------------ ------------ ------------ ------------
Income before income taxes 2,581,394 126,385 12,634,510 4,983,010
Provision for income taxes 949,000 54,000 5,072,000 2,043,000
------------ ------------ ------------ ------------
Net income $ 1,632,394 $ 72,385 $ 7,562,510 $ 2,940,010
============ ============ ============ ============
Net income per common
share (Note 6) $ 0.23 $ 0.01 $ 1.04 $ 0.41
============ ============ ============ ============
Diluted net income per
common share (Note 6) $ 0.22 $ 0.01 $ 1.02 $ 0.40
============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
CATHERINES STORES CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
October 31, January 31,
1998 1998
A S S E T S
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 6,737,217 $ 3,089,290
Receivables 3,557,692 2,580,025
Merchandise inventory 63,303,679 48,310,215
Prepaid expenses and other 3,515,668 4,044,144
Deferred income taxes 2,504,000 2,504,000
------------- -------------
Total current assets 79,618,256 60,527,674
------------- -------------
Property and Equipment, at cost:
Land 500,000 500,000
Buildings and leasehold improvements 24,472,143 23,213,674
Fixtures and equipment 30,401,853 28,573,919
Equipment under capital leases 14,114,407 13,356,177
Improvements in process 1,076,901 830,144
------------- -------------
70,565,304 66,473,914
Less accumulated depreciation and amortization (38,280,570) (32,398,729)
------------- -------------
32,284,734 34,075,185
------------- -------------
Deferred Income Taxes 435,000 435,000
Other Assets and Deferred Charges, less accumulated
amortization of $1,859,961 and $1,716,072 2,339,208 2,506,096
Goodwill, less accumulated amortization of
$5,404,214 and $4,886,858 22,218,652 22,739,081
------------- -------------
$ 136,895,850 $ 120,283,036
============== =============
</TABLE>
<TABLE>
<CAPTION>
L I A B I L I T I E S A N D S T O C K H O L D E R S ' E Q U I T Y
<S> <C> <C>
Current Liabilities:
Accounts payable $ 27,677,862 $ 21,761,405
Accrued expenses (Note 3) 19,954,764 14,750,159
Current maturities of long-term bank and other debt 2,029,449 2,853,585
------------ ------------
Total current liabilities 49,662,075 39,365,149
------------ ------------
Long-Term Bank and Other Debt, less current
maturities (Note 4) 9,412,413 10,788,920
Stockholders' Equity:
Preferred stock, $.01 par value, 1,000,000 shares
authorized, none issued and outstanding -- --
Common stock, $.01 par value, 50,000,000 shares
authorized, 7,251,861 and 7,231,070 shares
issued and outstanding 72,519 72,311
Additional paid-in capital 46,659,101 46,529,424
Retained earnings 31,089,742 23,527,232
------------ ------------
Total stockholders' equity 77,821,362 70,128,967
------------ ------------
$136,895,850 $120,283,036
============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
<PAGE>
CATHERINES STORES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Thirty-nine weeks ended
October 31, 1998 November 1, 1997
Cash Flows from Operating Activities:
Net income $ 7,562,510 $ 2,940,010
------------ -----------
Adjustments to reconcile net income to
net cash provided by operating activities--
Depreciation and amortization 6,827,371 7,273,671
Write-down of closed store assets (Note 7) 47,067 180,561
Change in reserve for store closing
costs (Note 7) 27,249 0
Net change in current assets and
liabilities (Note 2) (5,947,526) (8,079,482)
Change in other noncash reserves 1,598,684 26,447
Change in other assets (75,514) (231,206)
------------ -----------
Total adjustments 2,477,331 (830,009)
------------ -----------
Net cash provided by operating activities 10,039,841 2,110,001
------------ -----------
Cash Flows from Investing Activities:
Capital expenditures (3,660,323) (3,012,106)
------------ -----------
Net cash used in investing activities (3,660,323) (3,012,106)
------------ -----------
Cash Flows from Financing Activities:
Sales of common stock 129,885 108,494
Proceeds from long-term bank
and other debt 6,919,000 3,250,000
Principal payments of long-term bank
and other debt (9,780,476) (2,133,817)
------------ -----------
Net cash (used in) provided by
financing activities (2,731,591) 1,224,677
------------ -----------
Net Increase in Cash and Cash Equivalents 3,647,927 322,572
Cash and Cash Equivalents,
beginning of period 3,089,290 2,992,339
------------ -----------
Cash and Cash Equivalents, end of period $ 6,737,217 $ 3,314,911
============ ===========
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
CATHERINES STORES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) General
In the opinion of management, the accompanying unaudited consolidated
financial statements contain all adjustments (consisting of normal recurring
adjustments) which management considers necessary to present fairly the
consolidated financial position of Catherines Stores Corporation ("Stores") and
its wholly owned subsidiaries as of October 31, 1998 and January 31, 1998, the
consolidated results of their operations for the thirteen and thirty-nine weeks
ended October 31, 1998 and November 1, 1997 and their cash flows for the
thirty-nine weeks ended October 31, 1998 and November 1, 1997. Stores and its
subsidiaries are collectively referred to as the "Company". The results of
operations for the thirteen and thirty-nine week periods may not be indicative
of the results for the entire year.
These statements should be read in conjunction with the Company's audited
financial statements and related notes which have been incorporated by reference
in the Company's Form 10-K for the year ended January 31, 1998. Accordingly,
significant accounting policies and other disclosures necessary for complete
financial statements in conformity with generally accepted accounting principles
have been omitted since such items are reflected in the Company's audited
financial statements and related notes thereto.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make certain estimates and
assumptions that affect the reported amounts of assets and liabilities, and
disclosure of contingent assets and liabilities, at the date of the financial
statements, and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
(2) Statements of Cash Flows
The changes in current assets and liabilities reflected in the statements
of cash flows were as follows:
Thirty-nine weeks ended
October 31, November 1,
1998 1997
Increase (decrease) in cash and cash equivalents-
Receivables $ (1,053,378) $ (460,457)
Merchandise inventory (16,338,018) (6,984,726)
Prepaid expenses and other 528,476 (215,476)
Accounts payable 5,916,457 (673,519)
Accrued expenses 4,998,937 254,696
------------ -----------
Total $ (5,947,526) $(8,079,482)
============ ===========
Interest paid during the thirty-nine weeks ended October 31, 1998 and
November 1, 1997 was approximately $468,000 and $884,000, respectively. Income
taxes paid during the thirty-nine weeks ended October 31, 1998 and November 1,
1997 were approximately $3,902,000 and $1,198,000, respectively.
(3) Accrued Expenses
Accrued expenses consisted of the following:
October 31, January 31,
1998 1998
Payroll and related benefits $ 4,655,519 $ 3,252,177
Taxes other than income taxes 1,887,453 1,059,127
Rent and other related costs 2,375,755 2,252,587
Deferred revenues 1,939,399 1,819,288
Reserve for earned discounts 1,638,575 1,140,000
Reserve for store closing costs 1,142,460 1,115,211
Income taxes 1,536,754 245,161
Other 4,778,849 3,866,608
----------- -----------
Total $19,954,764 $14,750,159
=========== ===========
<PAGE>
(4) Long-Term Bank and Other Debt
Long-term bank and other debt consisted of the following:
October 31, January 31,
1998 1998
Due to banks:
Term notes $ 0 $ 1,250,000
Working capital notes 0 7,000,000
Mortgage note 6,823,104 0
Other:
Capital lease and other obligations 4,618,758 5,392,505
---------- ---------
11,441,862 13,642,505
Less current maturities (2,029,449) (2,853,585)
---------- ---------
Total $ 9,412,413 $ 10,788,920
========== ==========
On February 27, 1998, the Company entered into a new mortgage financing
agreement and amended the existing bank credit agreement. The new mortgage
financing agreement provides a $6,919,000 mortgage facility with a seven-year
term and a 20-year amortization period. The interest rate on the mortgage note
is fixed at 7.5%. Proceeds from the note were used to repay the Company's
outstanding term loan and to reduce amounts outstanding under the working
capital facility. The existing bank credit agreement was amended to reduce the
amount available from $28 million to $25 million, including the swing line of
credit, and to increase the interest rate to the agent bank's prime rate or
LIBOR plus 2 1/4%, at the Company's option. Amounts available under the new
agreement are based on the Company's eligible receivables and inventories.
At October 31, 1998, the Company had approximately $19,800,000 available
under its combined working capital and swing line facility. Outstanding letters
of credit were approximately $4,800,000 at October 31, 1998. During the
thirty-nine weeks ended October 31, 1998, the Company entered into capital lease
agreements for the purpose of obtaining computer equipment, at a cost of
approximately $661,000.
(5) Leases
During the thirty-nine weeks ended October 31, 1998, the Company entered
into new leases for three stores and amended or extended leases for 70 stores,
which increased future minimum rental payments by approximately $12,719,000
since January 31, 1998. Total future minimum rental payments under all
noncancelable operating leases with initial or remaining lease terms of one year
or more are approximately $71,420,000.
Total rent expense for all operating leases was as follows:
Thirty-nine Weeks Ended
October 31, November 1,
1998 1997
Minimum rentals $15,615,066 $15,912,678
Contingent rentals 216,850 211,496
----------- -----------
Total $15,831,916 $16,124,174
=========== ===========
<PAGE>
(6) Net Income Per Common Share
The reconciliation of net income per common share and diluted net income
per common share is as follows:
Diluted
Net Income Net Income
Per Stock Per
Common Share Options Common Share
Thirteen weeks ended October 31, 1998:
Net income $1,632,394 0 $1,632,394
Weighted average shares 7,248,457 126,770 7,375,227
--------- ----------
Per share amount $ 0.23 $ 0.22
======= ========
Thirteen weeks ended November 1, 1997:
Net income $ 72,385 0 $ 72,385
Weighted average shares 7,217,294 78,421 7,295,715
--------- ----------
Per share amount $ 0.01 $ 0.01
======= ========
Thirty-nine weeks ended October 31, 1998:
Net income $7,562,510 0 $7,562,510
Weighted average shares 7,241,376 137,916 7,379,292
--------- ----------
Per share amount $ 1.04 $ 1.02
======= ========
Thirty-nine weeks ended November 1, 1997:
Net income $2,940,010 0 $2,940,010
Weighted average shares 7,207,881 63,821 7,271,702
--------- ----------
Per share amount $ 0.41 $ 0.40
======= ========
(7) Store Closing Costs
The Company closed eight unprofitable stores during the third quarter of
1997. The Company closed one store during the third quarter of fiscal 1998,
bringing the total number of stores closed in fiscal 1998 to eight and the total
number of stores closed in fiscal 1997 to fifteen. Seven additional stores are
scheduled to close prior to the end of fiscal 1998. Terminations of the
remaining stores' leases are still being negotiated with the landlords.
Store closing costs were as follows:
<TABLE>
<CAPTION>
Thirteen weeks ended Thirty-nine weeks ended
October 31, November 1, October 31, November 1,
1998 1997 1998 1997
<S> <C> <C> <C> <C>
Costs incurred to close
stores $20,540 $638,980 $104,695 $813,975
Estimated costs of future
store closings 47,068 0 162,668 0
------- -------- -------- --------
Total $67,608 $638,980 $267,363 $813,975
======= ======== ======== ========
</TABLE>
During the thirty-nine weeks ended October 31, 1998, approximately $190,000
of cash payments were made related to the stores closed.
<PAGE>
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Forward-Looking Statements
This outlook contains forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995. Such forward-looking
statements are based on current expectations that are subject to known and
unknown risks, uncertainties and other factors that could cause actual results
to differ materially from those contemplated by the forward-looking statements.
Such factors include, but are not limited to, the following: general economic
conditions; competitive factors and pricing pressures; the Company's ability to
predict fashion trends; consumer apparel buying patterns; adverse weather
conditions and inventory risks due to shifts in market demand. The Company does
not undertake to publicly update or revise the forward-looking statements even
if experience or future changes make it clear that projected results expressed
or implied therein will not be realized.
Overview
The Company's net income for the thirteen week period ended October 31,
1998 was $1,632,000 compared to $72,000 in the thirteen week period ended
November 1, 1997. Operating income margins were 3.8% for the third quarter of
1998 compared to 0.7% in 1997. The Company incurred store closing costs of
$68,000 and $639,000, during the third quarter of 1998 and 1997, respectively.
Before store closing costs, operating income margins would have been 3.8% and
1.7% in 1998 and 1997, respectively.
Net income for the thirty-nine week period ended October 31, 1998 was
$7,563,000 compared to $2,940,000 in the thirty-nine week period ended November
1, 1997. Operating income margins were 5.9% for the first three quarters of 1998
compared to 2.9% for the first three quarters of 1997. Operating income margins,
before store closing costs of $267,000 and $814,000, were 6.0% and 3.3%,
respectively, for the first nine months of 1998 and 1997.
Liquidity and Capital Resources
The Company's cash provided by operations was $10,040,000 during the
thirty-nine weeks ended October 31, 1998, compared to cash provided by
operations of $2,110,000 during the thirty-nine weeks ended November 1, 1997.
The increase in cash flow provided by operations is primarily attributable to an
increase in net income and a favorable change in working capital. The Company's
working capital, net of cash and cash equivalents, was $23,219,000 at October
31, 1998 compared to $18,073,000 at January 31, 1998. The Company's internally
generated cash flow financed its operating requirements, capital expenditures
and debt service during the thirty-nine week period ended October 31, 1998.
The Company maintains a merchant services agreement with a third party
credit processor. This agreement provides for the Company to sell, without
recourse, accounts receivable from private label credit card sales. The third
party provides all authorization, billing and collection services for these
accounts. The five-year agreement, which expires in January 2000, automatically
renews unless terminated by either party or by mutual agreement.
Capital Expenditures
The Company has incurred approximately $2,600,000 to relocate, remodel or
expand approximately 28 existing stores during the first nine months of fiscal
1998. An additional $234,000 has been incurred for the opening of three new
locations. The Company estimates that total fiscal 1998 capital expenditures
will be approximately $6,500,000, of which an estimated $4,700,000 will be used
for the opening of three new locations and the remodeling, relocation and
expansion of approximately 28 other locations. An additional $1,000,000 will be
used to purchase new information technology to upgrade the merchandise planning
and allocation systems and the customer profile database system. The remainder
of capital expenditures are to upgrade existing computer systems, add additional
software technology and to maintain existing facilities.
<PAGE>
Banking Arrangements
In February 1998, the Company entered into a new mortgage financing
agreement and amended the existing bank credit agreement. The Company's prior
bank credit agreement provided a $5,000,000 term loan, a working capital
facility of $25,000,000 and a swing line of credit of $3,000,000 with the
Company's agent bank. The term loan required quarterly principal payments of
$250,000. The working capital facility could have been used for letters of
credit. The interest rate was the bank's prime rate or LIBOR plus 1 1/4%, at the
Company's option.
The new mortgage financing agreement provides a $6,919,000 mortgage
facility with a seven-year term and a 20-year amortization period. The interest
rate on the mortgage note is fixed at 7.5%. Proceeds from the note were used to
repay the term loan and to reduce the amounts outstanding under the working
capital facility. The existing bank credit facility was amended to reduce the
amount available from $28,000,000 to $25,000,000, including the swing line of
credit, and to increase the interest rate to the agent bank's prime rate or
LIBOR plus 2 1/4%, at the Company's option. The new agreement expires June 30,
2001.
At October 31, 1998, the Company had approximately $19,800,000 available
under its combined working capital and swing line facility and approximately
$4,800,000 in outstanding letters of credit.
The Company believes that its internally generated cash flow, together with
borrowings under the bank credit agreement, will be adequate to finance the
Company's operating requirements, debt repayments and capital needs during the
foreseeable future.
Results of Operations
Thirteen Weeks Ended October 31, 1998 Compared to Thirteen Weeks Ended November
1, 1997
Net sales in the third quarter of 1998 increased 7.9% to $73,020,000 from
$67,670,000 in the third quarter of 1997. Comparable stores' sales increased
10.2%, primarily due to an increase in the number of saleschecks generated and
an increase in the number of units per salescheck, offset by a small decrease in
average unit price. During the third quarter, one store was closed and three
stores were opened, increasing the number of stores operated by the Company on
October 31, 1998 to 438. At November 1, 1997, the Company operated 448 stores.
Gross margin, after buying and occupancy costs, increased as a percentage
of sales to 31.3% from 28.8% in the third quarter of 1997. The increase is
attributable to both leveraged buying and occupancy costs and improved
merchandise margins. Buying and occupancy costs deceased as a percentage of
sales by 147 basis points. Additionally, merchandise margin increased as a
percentage of sales by 111 basis points. The increase in merchandise margin was
driven primarily by an increase in merchandise markup and controlled merchandise
markdowns.
Selling, general and administrative expenses increased to $19,816,000 in
the third quarter of 1998 compared to $18,088,000 in the third quarter of 1997.
The increase is primarily attributable to store and management performance
bonuses. As a percentage of sales, the selling, general and administrative
expenses increased to 27.1% from 26.7% in the third quarter of 1997.
The Company closed one unprofitable store during the third quarter of 1998
at a cost of approximately $20,000. The Company also wrote-off approximately
$47,000 of store assets on stores anticipated to be closed in the near future.
The Company closed eight stores during the third quarter of fiscal 1997 at a
cost of approximately $639,000.
<PAGE>
Interest expense was approximately $158,000 in the third quarter of 1998
compared to $358,000 in the third quarter of 1997. The decrease is primarily
attributable to the decrease in working capital borrowings.
Income taxes were provided at effective rates of 36.8% and 42.7% for the
thirteen weeks ended October 31, 1998 and November 1, 1997, respectively. The
statutory rate is affected primarily by non-deductible goodwill amortization and
state income taxes. The increase in pre-tax net income over last year reduces
the effect of the non-deductible goodwill amortization. The third quarter rate
was adjusted to reflect the expected annual effective rate of 40.1%
Net income for the third quarter of 1998 was $1,632,000 compared to $72,000
for the third quarter of 1997. Diluted net income per common share ("Net income
per common share") was $0.22 per share in the third quarter of 1998 and $0.01
per share in the third quarter of 1997. Before store closing charges, the
Company's net income per common share would have been $0.23 and $0.07 for the
third quarter of 1998 and 1997, respectively.
Thirty-Nine Weeks Ended October 31, 1998 Compared to Thirty-Nine Weeks Ended
November 1, 1997
Net sales in the first nine months of 1998 increased 7.2% to $224,299,000
from $209,302,000 in the first nine months of 1997. Comparable stores' sales
increased 9.9%, primarily due to an increase in the number of saleschecks
generated. The average unit selling price and the average number of units per
salescheck also increased. During the first nine months of 1998, eight stores
were closed and three stores were opened, bringing the number of stores operated
by the Company on October 31, 1998 to 438. At November 1, 1997, the Company
operated 448 stores.
Gross margin, after buying and occupancy costs, increased as a percentage
of sales to 32.9% from 30.5% in the first nine months of 1997. The increase is
attributable to both leveraged buying and occupancy costs and improved
merchandise margin. Buying and occupancy costs decreased as a percentage of
sales by 129 basis points. Additionally, merchandise margin increased as a
percentage of sales by 112 basis points. The increase in merchandise margin was
driven primarily by a decrease in merchandise markdowns.
Selling, general and administrative expenses increased to $59,562,000 in
the first nine months of 1998 compared to $56,284,000 in the first nine months
of 1997. The increase is primarily attributable to store and management
performance bonuses, profit sharing increases and consultant services incurred
to re-engineer the merchandise assortment and planning and distribution
functions. As a percentage of sales, the selling, general and administrative
expenses decreased to 26.6% from 26.9% in the first nine months of 1997.
The Company reviewed its store base in late fiscal 1997 and committed to a
flexible plan to close approximately 30 underperforming stores upon lease
termination or by settlement with the landlords. During the first nine months of
fiscal 1998 and 1997, the Company closed eight and 15 underperforming stores,
respectively. Below are the year to date store closing charges:
Thirty-nine weeks ended
October 31, November 1,
1998 1997
Costs incurred to close stores $104,695 $813,975
Estimated costs of future store closings 162,668 0
-------- --------
Total $267,363 $813,975
======== ========
Interest expense was approximately $592,000 in the first nine months of
1998 compared to $1,008,000 in the first nine months of 1997. The decrease is
primarily attributable to the decrease in working capital borrowings.
Income taxes were provided at an effective rate of 40.1% and 41.0% in the
first nine months of 1998 and 1997, respectively. The statutory rate is affected
primarily by non-deductible goodwill amortization and state income taxes. The
increase in pre-tax net income over last year reduces the effect of the
non-deductible goodwill amortization.
Net income for the first nine months of 1998 was $7,563,000 compared to
$2,940,000 for the first nine months of 1997. Net income per common share was
$1.02 compared to $0.40 per share reported in the first nine months of 1997.
Before store closing charges, the Company's net income per common share would
have been $1.04 and $0.47 for the first nine months of 1998 and 1997,
respectively.
<PAGE>
Year 2000 Compliance
The Company has developed a plan to ensure its systems are compliant with
the requirements to process transactions in the year 2000. The majority of the
Company's information systems are serviced by outside vendors who are in the
process of completing all necessary updates to ensure they will continue to be
effective in the year 2000. Management does not currently believe it has other
minor technological equipment which, if not year 2000 compliant, will have a
material impact on the Company's business operations.
The Company has requested from its key third-party providers certifications
of year 2000 compliance. The Company expects to complete the third-party
compliance certifications by the end of fiscal 1998. Once this assessment is
complete, the Company will begin to identify and assess the remaining risks and
costs of year 2000 scenarios. Contingency plans to address unexpected year 2000
scenarios will be prepared as material risks and uncertainties are identified.
The Company expects the majority of its information systems to be year 2000
compliant by 1999, however, no assurances can be given that the efforts by the
Company and its third-parties will be successful. The Company does not currently
have an estimate of the cost to remedy year 2000 noncompliant technologies;
however, management does not expect that the costs to achieve year 2000
compliance will be material to its consolidated financial position or results of
operations.
<PAGE>
PART 2 - OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Changes in the Rights of the Company's Security Holders
Not applicable
Item 3. Defaults by the Company on its Senior Securities
Not applicable
Item 4. Submission of Matters to a vote of Security Holder
See Quarterly Report on Form 10-Q for the period ended May 2, 1998 for
the results of the Company's Annual Meeting of Stockholders held on
June 3, 1998.
Item 5. Other Information
Not applicable
Item 6. Exhibits and Reports on Form 8-K
(A) 27.1 Financial Data Schedule (for EDGAR filing only)
(B) Amendments to Executive Employment Agreements, filed on
October 22, 1998.
Pursuant to the requirements of the Securities and Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SIGNATURES
December 2, 1998 /s/ David C. Forell
(Date) -----------------
David C. Forell,
Executive Vice President,
Chief Financial Officer
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000875194
<NAME> CATHERINES STORES CORPORATION
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 9-MOS
<FISCAL-YEAR-END> JAN-30-1999 JAN-30-1999
<PERIOD-START> AUG-02-1998 FEB-01-1998
<PERIOD-END> OCT-31-1998 OCT-31-1998
<CASH> 6,737 6,737
<SECURITIES> 0 0
<RECEIVABLES> 3,558 3,558
<ALLOWANCES> 0 0
<INVENTORY> 63,304 63,304
<CURRENT-ASSETS> 79,618 79,618
<PP&E> 70,565 70,565
<DEPRECIATION> (38,281) (38,281)
<TOTAL-ASSETS> 136,896 136,896
<CURRENT-LIABILITIES> 49,662 49,662
<BONDS> 0 0
0 0
0 0
<COMMON> 46,732 46,732
<OTHER-SE> 0 0
<TOTAL-LIABILITY-AND-EQUITY> 136,896 136,896
<SALES> 73,020 224,299
<TOTAL-REVENUES> 73,020 224,299
<CGS> 50,135 150,452
<TOTAL-COSTS> 50,135 150,452
<OTHER-EXPENSES> 20,146 60,620
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 158 592
<INCOME-PRETAX> 2,581 12,635
<INCOME-TAX> 949 5,072
<INCOME-CONTINUING> 1,632 7,563
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 1,632 7,563
<EPS-PRIMARY> $0.23 $1.04
<EPS-DILUTED> $0.22 $1.02
</TABLE>
