<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
--------------------------------------
FOR THE QUARTERLY PERIOD ENDED MAY 3, 1997
COMMISSION FILE NUMBER 0-19714
PERFUMANIA, INC.
STATE OF FLORIDA I.R.S. NO. 65-0026340
11701 N.W. 101st ROAD
MIAMI, FLORIDA 33178
TELEPHONE NUMBER: (305) 889-1600
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 TWELVE (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 NINETY (90) DAYS.
YES X NO
----- -----
COMMON STOCK $.01 PAR VALUE
OUTSTANDING SHARES AT MAY 3, 1997 - 7,807,791
<PAGE> 2
TABLE OF CONTENTS
PERFUMANIA, INC.
PART I
FINANCIAL INFORMATION
ITEM 1 FINANCIAL STATEMENTS
Consolidated Balance Sheets................................ 3
Consolidated Statements of Operations...................... 4
Consolidated Statements of Cash Flows...................... 5
Notes to Condensed Consolidated Financial Statements....... 6
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF
CONSOLIDATED FINANCIAL CONDITION AND
RESULTS OF OPERATIONS......................................... 8
2
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PERFUMANIA, INC.
CONSOLIDATED BALANCE SHEETS
May 3, 1997 February 1, 1997
----------- ----------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 1,391,835 $ 1,641,527
Trade receivables, net:
Customers, less allowance for doubtful accounts of
$283,386 and $248,386 8,752,319 12,275,159
Affiliates 1,175,696 653,657
Advances to suppliers 6,903,210 5,023,718
Inventories, net of reserve of $940,000 86,881,847 85,110,423
Prepaid expenses and other current assets 1,449,511 1,899,320
Net deferred tax asset 2,232,627 873,472
Due from related parties 85,613 85,613
------------- -------------
Total current assets 108,872,658 107,562,889
Property and equipment, net 18,189,577 17,709,758
Leased equipment under capital leases, net 1,908,791 2,013,857
Other assets 2,214,937 2,203,442
Due from related parties 457,243 417,763
------------- -------------
$ 131,643,206 $ 129,907,709
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Bank line of credit and current portion of
notes payable $ 36,138,200 $ 31,372,171
Accounts payable 37,109,701 36,128,515
Accrued expenses and other liabilities 3,018,360 3,940,440
Income taxes payable 339,203 1,321,203
Current portion of obligations under capital leases 630,979 873,425
Due to related parties 754,483 770,000
------------- -------------
Total current liabilities 77,990,926 74,405,754
Long term portion of loans payable 4,718,487 4,519,859
Long-term portion of obligations under capital leases 1,187,516 1,187,516
------------- -------------
Total liabilities 83,896,929 80,113,129
------------- -------------
Excess of fair value of assets acquired over cost 616,169 470,000
------------- -------------
Stockholders' equity:
Preferred stock, $.01 par value, 1,000,000 shares
authorized, none issued -- --
Common stock, $.01 par value, 25,000,000 shares
authorized, 7,807,791 shares issued
and outstanding 78,078 78,078
Capital in excess of par 51,900,229 51,900,229
Treasury stock (2,810,849) (2,655,110)
Retained earnings (accumulated deficit) (2,037,350) 1,383
------------- -------------
Total stockholders' equity 47,130,108 49,324,580
------------- -------------
$ 131,643,206 $ 129,907,709
============= =============
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE> 4
PERFUMANIA, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
Thirteen Thirteen
Weeks Ended Weeks Ended
May 3, 1997 May 4, 1996
----------- -----------
Net sales:
Unaffiliated customers $28,946,685 $23,220,473
Affiliates 1,042,039 --
----------- -----------
29,988,724 23,220,473
----------- -----------
Cost of goods sold:
Unaffiliated customers 16,040,684 13,312,526
Affiliates 1,042,039 --
----------- -----------
17,082,723 13,312,526
----------- -----------
Gross profit 12,906,001 9,907,947
----------- -----------
Operating expenses:
Selling, general and administrative 14,111,897 10,278,919
Depreciation and amortization 1,294,004 854,190
----------- -----------
Total operating expenses 15,405,901 11,133,109
----------- -----------
Loss from operations before other expense (2,499,900) (1,225,162)
Other expense (897,988) (724,989)
----------- -----------
Loss before income taxes (3,397,888) (1,950,151)
Benefit for income taxes (1,359,155) (760,559)
----------- -----------
Net loss ($2,038,733) ($1,189,592)
=========== ===========
Loss per common share ($0.28) ($0.16)
=========== ===========
See accompanying notes to consolidated financial statements.
4
<PAGE> 5
PERFUMANIA, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Thirteen Thirteen
Weeks Ended Weeks Ended
May 3, 1997 May 4, 1996
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net loss ($2,038,733) ($1,189,592)
Adjustments to reconcile net loss to net cash
used in operating activities:
Capitalized from preopening costs (96,927) (149,489)
Provision for doubtful accounts 35,000 60,000
Deferred tax benefit (1,359,155) (760,559)
Depreciation and amortization 1,294,004 854,190
Loss on disposition 115,000 16,319
Change in assets and liabilities, (Increase) decrease in:
Trade receivables 2,965,801 3,658,950
Advances to suppliers (1,879,492) (2,248,438)
Inventories (1,771,424) (8,021,023)
Other current assets 410,329 54,986
Other assets (79,764) 29,540
Increase (decrease) in:
Accounts payable 982,000 2,486,015
Accrued expenses and other current liabilities (890,911) (40,745)
Income taxes payable (982,000) --
----------- -----------
Total adjustments (1,258,353) (4,060,254)
----------- -----------
Net cash used in operating activities (3,297,086) (5,249,846)
----------- -----------
Cash flows from investing activities:
Additions to property and equipment (1,495,595) (1,268,042)
----------- -----------
Net cash used in investing activities (1,495,595) (1,268,042)
----------- -----------
Cash flows from financing activities:
Net borrowings and repayments under bank
line of credit and notes payable 4,964,657 3,183,935
Issuance of convertible debentures -- 2,935,361
Net repayment to related parties (15,517) (2,236)
Prinicipal payments under capital lease obligations (250,412) (118,462)
Proceeds from issuance of common stock -- 8,250
Purchases of treasury stock (155,739) --
Subscription of stock -- 956,250
----------- -----------
Net cash provided by financing activities 4,542,989 6,963,098
----------- -----------
Increase (decrease) in cash and cash equivalents (249,692) 445,210
Cash and cash equivalents at beginning of period 1,641,527 331,028
----------- -----------
Cash and cash equivalents at end of period $ 1,391,835 $ 776,238
=========== ===========
Supplemental disclosure of cash flow information:
- -------------------------------------------------
Cash paid for:
Interest $ 896,244 $ 797,547
Income Taxes 982,000 25,000
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE> 6
PERFUMANIA, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(1). SIGNIFICANT ACCOUNTING POLICIES
The condensed consolidated financial statements include the accounts of
Perfumania and subsidiaries (the Company). All material intercompany balances
and transactions have been eliminated in consolidation.
The unaudited condensed consolidated financial statements have been prepared
pursuant to the rules and regulations of the Securities and Exchange
Commission. Certain information and note disclosures normally included in
annual financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to those rules
and regulations, although the Company believes that the disclosures made are
adequate to make the information presented not misleading. The financial
information presented herein, which is not necessarily indicative of results to
be expected for the current fiscal year, reflects all adjustments which, in the
opinion of the Company, are necessary for a fair statement of the results for
the periods indicated. It is suggested that these condensed consolidated
financial statements be read in conjunction with the financial statements and
the notes thereto included in the Company's Annual Report on Form 10-K for the
fiscal year ended February 1, 1997.
(2). STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Capital
Common Stock In Excess Treasury Stock Retained
--------------------------- of Par --------------------------- Earnings
Shares Amount Value Shares Amount (Deficit) Total
------------ ------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at
February 1, 1997 7,807,791 $ 78,078 $ 51,900,229 667,900 ($ 2,655,110) $ 1,383 $ 49,324,580
Purchases of
treasury stock -- -- -- 45,400 (155,739) -- (155,739)
Net loss for the
thirteen weeks
ended May 3, 1997 -- -- -- -- -- (2,038,733) (2,038,733)
------------ ------------ ------------ ------------ ------------ ------------ ------------
Balance at
May 3, 1997 7,195,983 $ 78,078 $ 51,900,229 713,300 ($2,810,849) ($2,037,350) $ 47,130,108
------------ ------------ ------------ ------------ ------------ ------------ ------------
</TABLE>
(3). EARNINGS (LOSS) PER COMMON SHARE
Earnings (loss) per common share are computed by dividing net income (loss) by
the weighted average number of common shares outstanding.
The weighted average number of common shares for the period ended May 3, 1997
and May 4, 1996 were 7,195,983 and 7,489,818.
6
<PAGE> 7
4). SEGMENT INFORMATION
The Company operates in two industry segments, specialty retail sale and
wholesale distribution of fragrances and related products. Financial
information for these segments is summarized in the following table.
Thirteen Weeks Thirteen Weeks
Ended Ended
May 3, 1997 May 4, 1996
----------- -----------
Sales
Wholesale $ 6,541,323 $ 5,028,257
Retail 23,447,401 18,192,216
----------- -----------
Total net sales $29,988,724 $23,220,473
----------- -----------
Cost of goods sold
Wholesale $ 5,084,973 $ 3,839,397
Retail 11,997,750 9,473,129
----------- -----------
Total cost of goods sold $17,082,723 $13,312,526
----------- -----------
Gross profit
Wholesale $ 1,456,350 $ 1,188,860
Retail 11,449,651 8,719,087
----------- -----------
Total gross profit $12,906,001 $ 9,907,947
----------- -----------
Number of stores 270 195
May 3, 1997 February 1, 1997
----------- ----------------
Inventory
- ---------
Wholesale $33,954,792 $32,051,346
Retail 52,927,055 53,059,077
----------- -----------
$86,881,847 $85,110,423
----------- -----------
An unaffiliated customer of the wholesale segment accounted for approximately
6% and 9% of the consolidated net sales for the thirteen weeks ended May 3,
1997 and May 4, 1996, respectively, and 59% and 72% of the consolidated net
trade accounts receivable balance at May 3, 1997 and February 1, 1997,
respectively.
7
<PAGE> 8
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
CONSOLIDATED FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
SEASONALITY
The Company's operations have historically been seasonal, with generally higher
retail sales in the third and fourth fiscal quarters than in the first and
second fiscal quarters. Significantly higher fourth fiscal quarter retail sales
result from increased purchases of fragrances as gift items during the
Christmas holiday season. Wholesale sales also vary by fiscal quarter as a
result of the selection of merchandise available for sale as well as the need
for the Company to stock its retail stores for the Christmas holiday season.
Therefore, the results of any interim period are not necessarily indicative of
the results that might be expected during a full fiscal year.
LIQUIDITY AND CAPITAL RESOURCES
At May 3, 1997 working capital was $30.9 million compared to $33.2 million at
February 1, 1997. The decrease was primarily due to the current period loss.
Net cash used in operating activities during the thirteen weeks ended May 3,
1997 was approximately $3.3 million, principally as a result of the net change
in the Company's trade receivables, advances to suppliers, inventories and
accounts payable. At May 3, 1997, approximately $0.7 million of the Company's
trade receivables were considered past due compared to $0.2 million at February
1, 1997. Of the $9.9 million in trade receivables, $6.1 million was due from
one customer which also accounted for 27.1% of the Company's wholesale sales
during the thirteen weeks ended May 3, 1997. The Company's sales to this
customer are made on an open account terms and since late 1991 the Company has
extended credit terms to this customer of up to one year. The Company has not
experienced any write-offs of accounts receivable from this customer due to
collectibility.
Net cash used in investing activities during the current period was $1.5
million. This represents purchases of furniture, fixtures and equipment for
store openings and renovations of existing stores during the first and second
quarters.
Net cash provided by financing activities during the current period was
approximately $4.5 million, which was primarily the result of an increase in
the Company's use of its line of credit. On April 16, 1997, the Company's $30
million line of credit, which expires on April 30, 1999, was increased to $35
million.
During the thirteen weeks ended May 3, 1997, the Company opened nine stores and
closed one store. At May 3, 1997, the Company operated 270 stores. The Company
plans to open approximately 40 stores during the remainder of fiscal 1997.
8
<PAGE> 9
RESULTS OF OPERATIONS
Comparison of the Thirteen Weeks Ended May 3, 1997 with the Thirteen Weeks
Ended May 4, 1996.
Net sales increased 29.1% from $23.2 million in the first thirteen weeks of
1997 to $30.0 million in the first thirteen weeks of 1997. The increase in net
sales was the result of a 30.1% increase in wholesale sales (from $5.0 million
to $6.5 million), and a 28.9% increase in retail sales (from $18.2 million to
$23.4 million). The increase in wholesale sales was primarily due to a
difficult wholesale market last year. The increase in retail sales was
principally due to the increase in the number of stores operated during the
first thirteen weeks of 1997 compared to the first thirteen weeks of 1996.
Comparable store sales during the current period increased 4.5% when compared
to last year.
Gross profit increased 30.3% from $9.9 million in the first thirteen weeks of
1996 (42.7% of total net sales) to $12.9 million in the first thirteen weeks of
1997 (43.0% of net sales) primarily due to an increase in gross profit for both
the retail and wholesale divisions.
Gross profit for the wholesale division increased from $1.2 million in the
first thirteen weeks of 1996 to $1.5 million in the first thirteen weeks of
1997 as a result of higher wholesale sales. As a percentage of net sales, gross
profit for the wholesale division decreased from 23.6% in the first thirteen
weeks of 1996 to 22.3% in the first thirteen weeks of 1997.
Gross profit for the retail division increased to $11.4 million in the first
thirteen weeks of 1997 from $8.7 million in the first thirteen weeks of 1996 as
a result of higher retail sales. As a percentage of net sales, gross profit for
the retail division increased from 47.9% in the first thirteen weeks of 1996 to
48.8% in the thirteen weeks of 1997 primarily as a result of less promotional
sales of merchandise at lower margins.
Operating expenses, which include selling, general and administrative expenses
as well as depreciation, increased 38.6% from $11.1 million in the first
thirteen weeks of 1996 to $15.4 million in the first thirteen weeks of 1997.
The increase was primarily due to costs associated with the operation of 73
additional stores during the current period.
The Company had a net loss of $2,038,733, or $0.28 per share, in the first
thirteen weeks of 1997 compared to a net loss of $1,189,592 or $0.16 per share,
in the first thirteen weeks of 1996. The weighted average number of common
shares outstanding were 7,195,983 for the first thirteen weeks of 1997 and
7,489,818 for the first thirteen weeks of 1996.
9
<PAGE> 10
PERFUMANIA, INC.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused the report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Perfumania, Inc.
-----------------------------------------
(Registrant)
Date: June 13, 1997 By: /s/ SIMON FALIC
-----------------------------------------
Simon Falic
Chairman of the Board and
Chief Executive Officer
(Principal Executive Officer)
By: /s/ RON A. FRIEDMAN
-----------------------------------------
Ron A. Friedman
President, Chief Financial Officer,
Treasurer and Secretary
(Principal Financial and
Accounting Officer)
10
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-31-1998
<PERIOD-START> FEB-02-1997
<PERIOD-END> MAY-03-1997
<CASH> 1,391,835
<SECURITIES> 0
<RECEIVABLES> 8,752,319
<ALLOWANCES> 0
<INVENTORY> 86,881,847
<CURRENT-ASSETS> 108,872,658
<PP&E> 18,189,577
<DEPRECIATION> 0
<TOTAL-ASSETS> 131,643,206
<CURRENT-LIABILITIES> 77,990,926
<BONDS> 0
0
0
<COMMON> 78,078
<OTHER-SE> 47,263,353
<TOTAL-LIABILITY-AND-EQUITY> 131,643,206
<SALES> 29,988,724
<TOTAL-REVENUES> 29,988,724
<CGS> 17,082,723
<TOTAL-COSTS> 17,082,723
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (3,397,888)
<INCOME-TAX> (1,359,155)
<INCOME-CONTINUING> (2,038,733)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,038,733)
<EPS-PRIMARY> 0.28
<EPS-DILUTED> 0.28
</TABLE>
