SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_____________________
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended April 19, 1997
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 Number 0-549
SCHULTZ SAV-O STORES, INC.
(Exact Name of Registrant as Specified in its Charter)
WISCONSIN 39-0600405
(State or other jurisdiction (I.R.S. Employer
of incorporation of organization) Identification No.)
2215 UNION AVENUE 53082-0419
SHEBOYGAN, WISCONSIN (Zip Code)
(Address of principal
executive offices)
Registrant's telephone number
including area code 414-457-4433
Former name, former address and former fiscal year,
if changed since last report
Indicate 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 (of for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
the filing requirements for the past 90 days. Yes [ X ] No [ ]
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate whether the registrant has filed all reports required to be
filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934
subsequent to the distribution of securities under a plan confirmed by a
court. Yes [ ] 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.
As of May 27, 1997, 4,588,598 shares of Common Stock, $0.05 par
value, were issued and outstanding.
<PAGE>
SCHULTZ SAV-O STORES, INC.
FORM 10-Q INDEX
PAGE
NUMBER
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Unaudited Consolidated Balance Sheets 3
Unaudited Consolidated Statements of Earnings 4
Unaudited Consolidated Statements of
Cash Flows 5
Notes to Unaudited Consolidated Financial
Statements 6
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of
Operations 8
PART II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 11
SIGNATURES 11
<PAGE>
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
SCHULTZ SAV-O STORES, INC.
UNAUDITED CONSOLIDATED BALANCE SHEETS
April 19, December 28,
Assets 1997 1996
Current assets:
Cash and equivalents $27,364,000 $7,531,000
Receivables 8,758,000 5,676,000
Inventories 20,421,000 22,316,000
Other current assets 3,895,000 3,367,000
Deferred income taxes 3,824,000 3,824,000
--------- ---------
Total current assets 64,262,000 62,714,000
Noncurrent receivable under
capital subleases 8,071,000 8,239,000
Property under capital leases, net 2,984,000 3,073,000
Other noncurrent assets 2,127,000 2,402,000
Property and equipment, net 20,817,000 21,544,000
----------- -----------
Total Assets $98,261,000 $97,972,000
=========== ===========
Liabilities and Shareholders' Investment
Current liabilities:
Accounts payable $21,235,000 $20,332,000
Accrued salaries and benefits 4,014,000 4,189,000
Accrued insurance 3,482,000 3,328,000
Retail repositioning reserve 881,000 852,000
Other accrued liabilities 2,636,000 3,692,000
Current obligations under capital
leases 702,000 702,000
Current maturities of long-term
debt 340,000 345,000
----------- -----------
Total current liabilities 33,290,000 33,440,000
----------- -----------
Long-term obligations under capital
leases 12,139,000 12,368,000
Long-term debt 3,262,000 3,375,000
Deferred income taxes 1,754,000 1,754,000
Shareholders' investment:
Common stock 292,000 292,000
Additional paid-in capital 13,428,000 13,331,000
Retained earnings 46,776,000 45,654,000
Treasury stock (12,680,000) (12,242,000)
---------- -----------
Total shareholders' investment 47,816,000 47,035,000
Total Liabilities and Shareholders'
Investment $98,261,000 $97,972,000
=========== ===========
<PAGE>
SCHULTZ SAV-O STORES, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF EARNINGS
For the 16-weeks ended
April 19, April 20,
1997 1996
Net sales $138,826,000 $134,079,000
Costs and expenses:
Cost of products sold 116,749,000 112,548,000
Operating and administrative
expenses 19,500,000 19,417,000
----------- -----------
Operating income 2,577,000 2,114,000
Interest expense (263,000) (268,000)
Interest income 266,000 204,000
----------- -----------
Earnings before income taxes 2,580,000 2,050,000
Provision for income taxes 993,000 789,000
----------- -----------
Net earnings $1,587,000 $1,261,000
=========== ===========
Net earnings per share - primary
and fully diluted $0.33 $0.26
=========== ===========
Cash dividends paid per share
of common stock $0.10 $0.08
=========== ===========
Weighted average common shares
outstanding 4,802,000 4.831,000
=========== ===========
<PAGE>
SCHULTZ SAV-O STORES, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the 16-weeks ended
April 19, April 20,
1997 1996
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $1,587,000 $1,261,000
Adjustments to reconcile net
earnings to net cash flows from
operating activities
Depreciation and amortization 1,307,000 1,352,000
Changes in assets and liabilities
Receivables (3,082,000) (1,200,000)
Inventories 1,895,000 (272,000)
Other current assets (285,000) 1,295,000
Accounts payable 903,000 87,000
Accrued liabilities (1,053,000) (810,000)
----------- -----------
Net cash flows from
operating activities 1,272,000 1,713,000
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Expenditures for property and
equipment (487,000) (660,000)
Receipt of principal amounts
under capital sublease
agreements 168,000 176,000
Proceeds from asset sales 125,000 -
----------- -----------
Net cash flows from
investing activities (194,000) (484,000)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment for acquisition of treasury
stock (602,000) (1,065,000)
Payment of cash dividends (465,000) (373,000)
Principal payments under capital lease
obligations (229,000) (239,000)
Proceeds from exercise of stock
options 164,000 -
Principal payments on long-term
debt (113,000) (88,000)
---------- ----------
Net cash flows from
financing activities (1,245,000) (1,765,000)
---------- ----------
CASH AND EQUIVALENTS:
Net decrease (167,000) (536,000)
Balance, beginning of period 27,531,000 21,593,000
---------- ----------
Balance, end of period $27,364,000 $21,057,000
========== ==========
<PAGE>
SCHULTZ SAV-O STORES, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(1) Basis of Presentation
The financial statements included herein have been prepared by the
Company, without audit. Certain information and footnote disclosures
normally included in financial statements prepared in accordance with
generally accepted accounting principles have been condensed or omitted,
although the Company believes that the disclosures are adequate to make
the information presented not misleading. The interim financial statements
furnished with this report reflect all adjustments of a normal recurring
nature, which are, in the opinion of management, necessary for a fair
statement of the results for the interim periods presented. It is
suggested that these financial statements be read in conjunction with the
audited financial statements and the notes thereto included in the
Company's 1996 annual report to shareholders, as incorporated by reference
in the Company's Form 10-K for the fiscal year ended December 28, 1996.
(2) Interest Expense
Interest expense consists of the For the 16-weeks ended
following: April 19, April 20,
1997 1996
Interest expense:
Long-term debt $ 110,000 $120,000
Imputed - capital leases 153,000 148,000
--------- ----------
Interest expense $263,000 $268,000
========= ==========
(3) Other Current Assets
Other current assets consist of April 19, December 28,
following: 1997 1996
Property held for resale $1,789,000 $940,000
Retail systems for resale and
other assets 956,000 1,308,000
Prepaid expenses 646,000 615,000
Receivable under capital sublease 504,000 504,000
---------- ----------
Other current assets $3,895,000 $3,367,000
========== ==========
(4) Supplementary Disclosure of Cash Flow
Information
Interest and taxes paid included in the Company's
cash flow from operations were as follows:
April 19, April 20,
1997 1996
Interest paid $ 295,000 $297,000
Taxes paid 1,990,000 959,000
(5) Earnings per Share
In the first quarter of 1997, the Financial Accounting Standards Board
(FASB) issued the Statement of Financial Accounting Standards (SFAS) No.
128, "Earnings per Share," which is effective for fiscal years ending
after December 15, 1997. The Company does not anticipate that the
adoption of this statement will have any material impact on its
consolidated financial statements.
(6) Reclassification
Certain 1996 amounts previously reported have been reclassified to conform
to the 1997 presentation.
<PAGE>
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
Special Note Regarding Forward-Looking Statements
Certain matters discussed in this Form 10-K are "forward-looking
statements" intended to qualify for the safe harbors from liability
established by the Private Securities Litigation Reform Act of 1995.
These forward-looking statements can generally be identified as such
because the context of the statement will include words such as the
Company "believes," "anticipates," "expects" or words of similar import.
Similarly, statements that describe the Company's future plans, objectives
or goals are also forward-looking statements. Such forward-looking
statements are subject to certain risks and uncertainties which are
described in close proximity to such statements and which could cause
actual results to differ materially from those currently anticipated.
Shareholders, potential investors and other readers are urged to consider
these factors carefully in evaluating the forward-looking statements and
are cautioned not to place undue reliance on such forward-looking
statements. The forward-looking statements made herein are only made as
of the date of this report and the Company undertakes no obligation to
publicly update such forward-looking statements to reflect subsequent
events or circumstances.
Results of Operations
Selected costs and results as a percent of net sales:
For the 16-weeks ended
April 19, April 20,
1997 1996
Cost of products sold . . . . . . . . . 84.1% 83.9%
Operating and administrative expenses . 14.0 14.5
Earnings before income taxes . . . . . 1.9 1.5
Net earnings . . . . . . . . . . . . . 1.1 0.9
Net Sales
Net sales for the 16-week period ended April 19, 1997 were $138,826,000
compared to the 16-week period ended April 20, 1996 net sales of
$134,079,000. The increase of $4,747,000, or 3.5%, was due primarily to
the continuing emphasis on wholesale sales, coupled with increases in
same-store franchise and corporate retail sales. The increased wholesale
business volume resulted primarily from the continuing roll-out of the
Piggly Wiggly Preferred Club electronic card marketing program and
completion of four major franchise facility projects since August 1996.
Retail sales in January were particularly strong and were attributable, in
part, to the success of the Green Bay Packers throughout the playoffs and
Super Bowl. Additionally, performance improvements continued within
corporate retail operations resulting in increased sales at nearly all
stores. The total sales increase was attained despite the sale and
conversion of one corporate store to a franchise unit in February 1996 and
the closure of two smaller, outdated and underperforming corporate retail
supermarkets in September and October, respectively. As of April 19,
1997, the Company had 68 franchised and 16 corporate supermarkets compared
to 67 franchised and 18 corporate supermarkets at April 20, 1996.
Consistent with the Company's business strategy to expand its wholesale
business volume, the Company expects that the level of its wholesale sales
will continue to increase relative to its total sales for the remainder of
1997. Since the end of the first quarter, the Company has converted one
existing retail store in Milton, Wisconsin served by a wholesale
competitor into a Piggly Wiggly franchise. Additionally, the Company has
also opened one new market franchise supermarket in DePere, Wisconsin in
May. These two new market stores combined totaled more than 53,000 square
feet of aggregate selling space. Currently, there are expansion or
renovation projects at 12 retail projects in various phases of planning or
construction, with completions scheduled throughout 1997 and 1998. These
projects involve two franchise remodeling, three franchise replacement
stores, four franchise expansions, one new market franchise and one new
market corporate store. These retail facility projects will yield an
increase of approximately 150,000 square feet of aggregate selling space,
or an increase of more than 100% of the current aggregate selling space.
Additionally, the Company continues to implement its new electronic card
marketing program designed to increase customer savings without negatively
impacting retail store gross margin. This program is designed to reward
current customers and attract new customers through the offering of
"clipless coupons" on weekly advertised specials and "automatic" savings
on monthly store specials. The current success of the card marketing
program has translated into additional sales for participating retail
stores and, as a result, increased wholesale volume. As of May 20, 1997,
the Piggly Wiggly Preferred Club card is operational in 72 stores, with
the remaining units scheduled to be fully operational by September 1997.
Cost of Products Sold
Cost of products sold, as a percent of sales, increased 0.2% to 84.1% for
the 16-week period ended April 19, 1997, compared to the same period in
1996. This minimal increase was principally attributable to the
increasing amount of lower margin wholesale sales relative to total sales.
The Company expects this sales mix trend resulting from its greater
emphasis on lower margin wholesale sales compared to higher margin retail
sales to continue throughout 1997. This continuing emphasis is expected
to result in a nominal decrease in gross margin for the rest of 1997
compared to 1996 levels.
Operating and Administrative Expenses
Operating and administrative expenses amounted to 14.0% of net sales for
the 16-weeks ended April 19,1997, compared to 14.5% for the same period in
1996. While the percentage decreased, total operating and administrative
expenses increased nominally by $83,000, or 0.4%, between periods. Due to
the increased sales, certain variable expenses such as wages and salaries
increased. These incremental variable expenses, however, were offset by
the elimination of certain operating expenses resulting from the sale and
conversion of one corporate store into a franchise supermarket in February
1996 and the closure of two smaller, outdated and underperforming
corporate stores in September and October, respectively.
Net Earnings
After applying an effective tax rate of 38.5% to earnings before income
taxes, net earnings for the 16-week ended April 19, 1997, increased 25.9%
to $1,587,000 compared with net earnings of $1,261,000 for the same period
in 1996. With improvements in sales and productivity, the Company's net
earnings-to-sales ratio for the 16-weeks ended April 19, 1997 improved to
1.14%, compared to 0.94% for the same period in 1996. This is the first
time the Company has exceeded 1.0% in net margin for the first quarter.
Additionally, the first quarter 1997 earnings per share increased 26.9% to
$0.33 from $0.26 for the same period in 1996. The number of consecutive
quarters showing increases in net earnings over the prior year's quarter
has been extended to 17. On a percentage basis, earnings per share
increased slightly more than net earnings due to additional share
repurchases, net of stock option exercises, during the first 16 weeks of
1997 which reduced the number of weighted average shares outstanding.
Due to the highly competitive nature of the industry, certain of the
Company's franchise operators and corporate retail stores continue to
experience operational difficulties in their respective marketplaces. As
a result, the Company continues to incur receivable realization charges
from its underperforming franchise operators. Additionally, the Company
continues to evaluate various business alternatives relating to the
operations of its underperforming corporate retail stores. The Company's
business alternatives include the sale and subsequent conversion of these
stores into franchise units, the closing of noncompetitive stores or the
implementation of other operational changes. Similar to prior years,
implementation of these changes may result in the Company incurring
certain repositioning or restructuring charges involving the termination
costs of replaced, closed or sold stores. These actions can negatively
impact net earnings in the short-term, but management believes that such
actions will help improve the Company's long-term profitability.
Liquidity and Capital Resources
The Company's operating results continue to enhance its strong financial
position. The primary source of liquidity for the 16-weeks ended April
19, 1997 was cash generated from operations. Cash provided by operating
activities during the first 16 weeks was $1,272,000, compared to
$1,713,000 for the same period in 1996. The decreases in cash flow from
operations between periods was due principally to three factors: (a) the
Company's receivable balance increased significantly due to timing of cash
receipts and increase in short-term financing to its wholesale customers
for the purchases of new store equipment; (b) the Company incurred
substantial estimated tax payments during the first quarter of 1997; and
(c) the Company incurred land acquisition and building construction costs
for the new market corporate store scheduled to be completed by the end of
1997. The cash flow from operations has enabled the Company to internally
fund its capital expenditures and pay for cash dividends.
Net cash outflows from investing activities for the first 16 weeks of 1997
totaled $194,000, compared to net cash outflows of $484,000 during the
same period in 1996. The decrease in cash outflows was due primarily to
lower capital expenditures for the first 16 weeks of 1997 compared to the
same period in 1996. The Company has a 1997 capital budget of $5,200,000,
of which approximately $4,713,000 remain for future expenditures in 1997.
The Company anticipates financing these needs from internally generated
capital.
Net cash outflows from financing activities for the 16-week period ended
April 19, 1997 were $1,245,000, compared to $1,765,000 during the same
period in 1996. The decrease in cash outflows was due principally to a
the reduction in common stock repurchased by the Company during the first
quarter of 1997, compared to the first quarter of 1996. Total cash
dividend payout increased 25% from $0.08 per share or $373,000 for the
first quarter of 1996 to $0.10 per share or $465,000 for the same period
in 1997. As of April 19, 1997, the Company had available the entire
amount of unsecured revolving bank credit facilities totaling $16,000,000.
The Company has obtained an amendment to its loan agreement increasing the
available accumulated earnings base amount to $12,263,000. This amendment
allows the Company to carry out its 1997 stock repurchase plan of up to
$5,000,000 of its outstanding Common Stock. At April 19, 1997, under the
Company's loan agreements, $8,926,000 of retained earnings were available
for the payment of cash dividends and other restricted payments.
In summary, cash and equivalents decreased $167,000 during the 16-weeks
ended April 19, 1997, compared to an increase of $500,000 during the same
period in 1996. In view of the Company's significant cash and other
liquid assets, its consistent ability to generate cash flows from
operations and the availability of external financing, the Company
foresees no difficulty in providing financing necessary to fund its
capital commitments and working capital needs for the foreseeable future.
<PAGE>
PART II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
Exhibit 27 Financial Data Schedule.
(b) No reports of Form 8-K were filed by the Company during the
first quarter of fiscal 1997.
<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.
SCHULTZ SAV-O STORES, INC.
(Registrant)
May 28, 1997 /s/ John H. Dahly
(Date) John H. Dahly, Executive Vice President,
Chief Financial Officer and Treasurer
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> OTHER <F3>
<FISCAL-YEAR-END> JAN-03-1998
<PERIOD-START> DEC-29-1996
<PERIOD-END> APR-19-1997
<CASH> 27,364,000
<SECURITIES> 0
<RECEIVABLES> 8,758,000 <F1>
<ALLOWANCES> 0 <F1>
<INVENTORY> 20,421,000
<CURRENT-ASSETS> 64,262,000
<PP&E> 54,162,000
<DEPRECIATION> 33,345,000
<TOTAL-ASSETS> 98,261,000
<CURRENT-LIABILITIES> 33,290,000
<BONDS> 3,262,000
0
0
<COMMON> 292,000
<OTHER-SE> 47,524,000
<TOTAL-LIABILITY-AND-EQUITY> 98,261,000
<SALES> 138,826,000
<TOTAL-REVENUES> 138,826,000
<CGS> 116,749,000
<TOTAL-COSTS> 0 <F2>
<OTHER-EXPENSES> 19,500,000 <F2>
<LOSS-PROVISION> 0 <F2>
<INTEREST-EXPENSE> 263,000
<INCOME-PRETAX> 2,580,000
<INCOME-TAX> 993,000
<INCOME-CONTINUING> 1,587,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,587,000
<EPS-PRIMARY> 0.33
<EPS-DILUTED> 0.33
<FN>
<F1> Net of "Allowances for doubtful accounts".
<F2> Amounts included in "Other costs and expenses".
<F3> 16 weeks
</TABLE>
