<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 August 2, 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 August 2, 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
PERFUMANIA, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
AUGUST 2, 1997 FEBRUARY 1, 1997
-------------- ----------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 2,030,464 $ 1,641,527
Trade receivables, less allowance for doubtful accounts of
$1,010,591 and $248,386:
Customers 9,211,601 12,275,159
Affiliates 1,444,725 653,657
Advances to suppliers 8,981,774 5,023,718
Inventories, net of reserve of $940,000 82,273,949 85,110,423
Prepaid expenses and other current assets 1,401,723 1,899,320
Net deferred tax asset 2,564,557 873,472
Due from related parties 85,613 85,613
------------- -------------
Total current assets 107,994,406 107,562,889
Property and equipment, net 17,902,402 17,709,758
Leased equipment under capital leases, net 1,779,844 2,013,857
Other assets 2,337,615 2,203,442
Due from related parties 457,243 417,763
------------- -------------
$ 130,471,510 $ 129,907,709
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Bank line of credit and current portion of
notes payable $ 36,580,192 $ 31,372,171
Accounts payable 35,013,656 36,128,515
Accrued expenses and other liabilities 3,895,212 3,940,440
Income taxes payable 308,509 1,321,203
Current portion of obligations under capital leases 873,425 873,425
Due to related parties 754,483 770,000
------------- -------------
Total current liabilities 77,425,477 74,405,754
Long term portion of loans payable 5,085,942 4,519,859
Long-term portion of obligations under capital leases 746,208 1,187,516
------------- -------------
Total liabilities 83,257,627 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 (2,845,349) (2,655,110)
Retained earnings (accumulated deficit) (2,535,244) 1,383
------------- -------------
Total stockholders' equity 46,597,714 49,324,580
------------- -------------
$ 130,471,510 $ 129,907,709
============= =============
</TABLE>
See accompanying notes to consolidated financial statements
3
<PAGE> 4
PERFUMANIA, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THIRTEEN THIRTEEN TWENTY-SIX TWENTY-SIX
WEEKS ENDED WEEKS ENDED WEEKS ENDED WEEKS ENDED
AUGUST 2, 1997 AUGUST 3, 1996 AUGUST 2, 1997 AUGUST 3, 1996
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net sales:
Unaffiliated customers $ 36,095,848 $ 28,870,964 $ 65,042,533 $ 52,091,437
Affiliates 1,188,682 -- 2,230,721 --
------------ ------------ ------------ ------------
37,284,530 28,870,964 67,273,254 52,091,437
------------ ------------ ------------ ------------
Cost of goods sold:
Unaffiliated customers 20,648,699 16,045,773 36,689,383 29,358,299
Affiliates 1,007,553 -- 2,049,592 --
------------ ------------ ------------ ------------
21,656,252 16,045,773 38,738,975 29,358,299
------------ ------------ ------------ ------------
Gross profit 15,628,278 12,825,191 28,534,279 22,733,138
------------ ------------ ------------ ------------
Operating Expenses:
Selling, general and administrative 14,136,500 10,919,296 28,248,397 21,189,279
Depreciation and amortization 1,366,001 856,237 2,660,005 1,710,427
------------ ------------ ------------ ------------
Total operating expenses 15,502,501 11,775,533 30,908,402 22,899,706
------------ ------------ ------------ ------------
Income (loss) from operations
before other expense 125,777 1,049,658 (2,374,123) (166,568)
Other expense (955,601) (720,085) (1,853,589) (1,454,010)
------------ ------------ ------------ ------------
Income (loss) before income taxes (829,824) 329,573 (4,227,712) (1,620,578)
Provision (benefit) for income taxes (331,930) 129,636 (1,691,085) (630,923)
------------ ------------ ------------ ------------
Net income (loss) $ (497,894) $ 199,937 $ (2,536,627) $ (989,655)
============ ============ ============ ============
Earnings (loss) per common share $ (0.07) $ 0.03 $ (0.35) $ (0.13)
============ ============ ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE> 5
PERFUMANIA, INC
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
TWENTY-SIX TWENTY-SIX
WEEKS ENDED WEEKS ENDED
AUGUST 2, 1997 AUGUST 3, 1996
-------------- --------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $(2,536,627) $ (989,655)
Adjustments to reconcile net loss to net cash
used in operating activities:
Benefit for deferred taxes (1,691,085) (630,923)
Capitalized preopening costs (237,910) (354,522)
Provision for doubtful accounts 510,000 150,000
Depreciation and amortization 2,660,005 1,710,427
Loss on disposition 138,350 26,070
Change in assets and liabilities,
(Increase) decrease in:
Trade receivables 1,762,490 1,801,926
Advances to suppliers (3,958,056) (3,767,207)
Inventories 2,836,474 (8,858,754)
Other current assets 497,597 (331,784)
Other assets (310,282) (189,924)
Increase (decrease)in:
Accounts payable (1,114,859) 5,990,409
Other current liabilities (14,059) 937,935
Income taxes payable (1,012,694) (25,000)
----------- -----------
Total adjustments 65,971 (3,541,347)
----------- -----------
Net cash used in operating activities (2,470,656) (4,531,002)
----------- -----------
Cash flows from investing activities:
Additions to property and equipment (2,231,648) (2,040,882)
----------- -----------
Net cash used in investing activities (2,231,648) (2,040,882)
----------- -----------
Cash flows from financing activities:
Borrowings and repayments under loan payable 5,774,104 6,832,786
Borrowings and repayments from related parties -- 60,000
Repayments and loans to related parties (15,517) (2,236)
Principal payments under capital lease obligations (477,107) (217,414)
Purchases of treasury stock (190,239) (241,875)
Proceeds from issuance of common stock -- 964,500
----------- -----------
Net cash provided by financing activities 5,091,241 7,395,761
----------- -----------
Increase in cash and cash equivalents 388,937 823,877
Cash and cash equivalents at beginning of period 1,641,527 331,028
----------- -----------
Cash and cash equivalents at end of period $ 2,030,464 $ 1,154,905
=========== ===========
Supplemental disclosure of cash flow information:
Cash paid for:
Interest $ 2,323,228 $ 1,770,109
Income Taxes 1,012,694 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>
COMMON STOCK CAPITAL IN TREASURY STOCK
---------------------------- EXCESS ---------------------------- RETAINED
SHARES AMOUNT OF PAR SHARES AMOUNT EARNINGS TOTAL
------------ ------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at
February 1, 1997 7,807,791 $ 78,078 $ 51,900,229 667,000 ($ 2,655,110) $ 1,383 $ 49,324,580
Purchases of
treasury stock -- -- -- 56,400 (190,239) -- (190,239)
Net loss for the
twenty-six weeks
ended
August 2, 1997 -- -- -- -- -- (2,536,627) $ 2,536,627
------------ ------------ ------------ ------------ ------------ ------------ ------------
Balance at
August 2, 1997 7,807,791 $ 78,078 $ 51,900,229 723,400 ($ 2,845,349) ($ 2,535,244) $ 46,597,714
------------ ------------ ------------ ------------ ------------ ------------ ------------
</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.
If the Company were required to calculate earnings per share under Statement of
Financial Accounting Standards No. 128, which is effective for periods after
December 15, 1997, basic and diluted earnings per share for the first two
quarters of 1997 and 1996, respectively, would not have been materially
different than the earnings per share reported in the accompanying consolidated
statements of income.
The weighted average number of common shares for the thirteen and twenty-six
weeks ended August 2, 1997 were 7,164,348 and 7,178,261, respectively. The
weighted average number of common shares for the thirteen and twenty-six weeks
ended August 3,1996 was 7,800,589 and 7,567,541, respectively.
6
<PAGE> 7
(4). SEGMENT INFORMATION
- ------------------------
The Company operates in two industry segments, specialty retail and wholesale
distribution of fragrances and related products. Financial information for these
segments is summarized in the following table.
<TABLE>
<CAPTION>
THIRTEEN WEEKS THIRTEEN WEEKS TWENTY-SIX TWENTY-SIX
ENDED ENDED WEEKS ENDED WEEKS ENDED
AUGUST 2, 1997 AUGUST 3, 1996 AUGUST 2, 1997 AUGUST 3,1996
-------------- -------------- -------------- -------------
<S> <C> <C> <C> <C>
Sales
Wholesale $ 8,332,664 $ 6,116,339 $14,873,987 $11,144,596
Retail 28,951,866 22,754,625 52,399,267 40,946,841
----------- ----------- ----------- -----------
Total net sales $37,284,530 $28,870,964 $67,273,254 $52,091,437
----------- ----------- ----------- -----------
Cost of goods sold
Wholesale $ 6,168,258 $ 4,399,570 $11,253,231 $ 8,238,967
Retail 15,487,994 11,646,203 27,485,744 21,119,332
----------- ----------- ----------- -----------
Total cost of goods sold $21,656,252 $16,045,773 $38,738,975 $29,358,299
----------- ----------- ----------- -----------
Gross profit
Wholesale $ 2,164,406 $ 1,716,769 $ 3,620,756 $ 2,905,629
Retail 13,463,872 11,108,422 24,913,523 19,827,509
----------- ----------- ----------- -----------
Total gross profit $15,628,278 $12,825,191 $28,534,279 $22,733,138
----------- ----------- ----------- -----------
Number of stores 271 195
</TABLE>
<TABLE>
<CAPTION>
August 2, February 1,
1997 1997
----------- -----------
<S> <C> <C>
INVENTORY
- ---------
Wholesale $28,677,740 $32,051,346
Retail 53,596,209 53,059,077
----------- -----------
$82,273,949 $85,110,423
----------- -----------
</TABLE>
An unaffiliated customer of the wholesale segment accounted for approximately 7%
and 5% of the consolidated net sales for the twenty-six weeks ended August 2,
1997 and August 3, 1996, respectively, and 53% and 70% of the consolidated net
trade accounts receivable balance at August 2, 1997 and August 3, 1996,
respectively.
(5). SUBSEQUENT EVENT
- --------------------
In August 1997, one of the Company's wholesale customers who is affiliated via
common ownership filed for relief under Chapter 11 of the United States
Bankruptcy Code. The Company is an unsecured creditor of the customer and as of
August 2, 1997, had outstanding receivables net of accounts payable from the
customer of approximately $1.4 million. Depending on the resolution of the
customer's bankruptcy case, the Company may not be paid the full amount due from
the customer. Due to the above, the Company recorded a bad debt reserve of
$500,000 during the second quarter of 1997, increasing the allowance for
doubtful accounts to $1.0 million as of August 2, 1997.
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 August 2, 1997 working capital was $30.6 million compared to $33.2 million at
February 1, 1997. The decrease was primarily due to the loss for the twenty-six
weeks ended August 2, 1997.
Net cash used in operating activities during the twenty-six weeks ended August
2, 1997 was approximately $2.5 million, principally as a result of the net
change in the Company's inventory, trade receivables, and accounts payable, as
well as the net loss for the twenty-six week period. At August 2, 1997,
approximately $1.9 million of the Company's trade receivables were considered
past due compared to $0.2 million at February 1, 1997. Of the $9.2 million in
trade receivables due from unaffiliated customers, $5.6 million was due from one
customer which also accounted for 34% of the Company's wholesale sales during
the thirteen weeks ended August 2, 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 $2.2
million. This represents purchases of furniture, fixtures and equipment for new
store openings and the renovation of existing stores during the first three
quarters.
Net cash provided by financing activities during the current period was
approximately $5.1 million, which was primarily the result of an increase in the
Company's use of its line of credit. The Company's $35 million line of credit
expires on April 30, 1999.
During the thirteen weeks ended August 2, 1997, the Company opened 5 stores and
closed 4 stores. At August 2, 1997, the Company operated 271 stores. The Company
plans to open approximately 30 stores during the remainder of fiscal 1997.
8
<PAGE> 9
RESULTS OF OPERATIONS
- ---------------------
COMPARISON OF THE THIRTEEN WEEKS ENDED AUGUST 2, 1997 WITH THE THIRTEEN WEEKS
ENDED AUGUST 3, 1996.
Net sales increased from $28.9 million in the thirteen weeks ended August
3,1996, to $37.3 million in the thirteen weeks ended August 2, 1997. Wholesale
sales increased by 36.2% (from $6.2 million to $8.3 million) and retail sales
increased by 27.2% (from $22.8 million to $29.0 million). The increase in retail
sales was principally due to the increase in the number of stores operated
during the thirteen weeks ended August 2, 1997 compared to the thirteen weeks
ended August 3, 1996. Comparable store sales during the current period increased
1.9% when compared to last year.
Gross profit increased 21.9% from $12.8 million in the thirteen weeks ended
August 3, 1996 (44.4% of net sales) to $15.6 million in the thirteen weeks ended
August 2, 1997 (41.9% of net sales) due to an increase in gross profit for both
the retail and wholesale divisions.
Gross profit for the wholesale division increased from $1.7 million in the
thirteen weeks ended August 3, 1996 to $2.2 million in the thirteen weeks ended
August 2, 1997. As a percentage of net sales, gross profit for the wholesale
division decreased from 28.1% in the thirteen weeks ended August 3, 1996 to
26.0% in the thirteen weeks ended August 2, 1997, primarily as a result of lower
margin sales.
Gross profit for the retail division increased to $13.5 million in the thirteen
weeks ended August 2, 1997 from $11.1 million in the thirteen weeks ended August
3, 1996 as a result of higher retail sales. As a percentage of net sales, gross
profit for the retail division decreased from 48.8% in the thirteen weeks ended
August 3, 1996 to 46.5% in the thirteen weeks ended August 2, 1997 primarily as
a result of increased promotional sales of merchandise at lower margins.
Operating expenses, which include selling, general and administrative expenses
as well as depreciation, increased 31.7% from $11.8 million in the thirteen
weeks ended August 3, 1996 to $15.5 million in the thirteen weeks ended August
2, 1997. The increase was primarily due to costs associated with the operation
of 75 additional stores during the current period.
The Company had a net loss of $497,894, or ($0.07) per share, in the thirteen
weeks ended August 2, 1997 compared to a net income of $199,937, or $0.03 per
share, in the thirteen weeks ended August 3, 1996. The weighted average number
of common shares outstanding were 7,164,348 for the thirteen weeks ended August
2, 1997 and 7,800,589 for the thirteen weeks ended August 3, 1996.
COMPARISON OF THE TWENTY-SIX WEEKS ENDED AUGUST 2, 1997 WITH THE TWENTY-SIX
WEEKS ENDED AUGUST 3, 1996
Net sales increased 29.1% from $52.1 million in the twenty-six weeks ended
August 3, 1996 to $67.3 million in the twenty-six weeks ended August 2, 1997.
The increase in net sales was due to a 28.0% increase in retail sales (from
$40.9 million to $52.4 million), and a 33.5% increase in wholesale sales (from
$11.1 million to $14.9 million).
The increase in wholesale sales was primarily attributable 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 twenty-six weeks ended
August 2, 1997 compared to the twenty-six weeks ended August 3, 1996. Comparable
store sales during the twenty-six weeks ended August 2, 1997 increased 3.0% when
compared to last year.
Gross profit increased 25.5% from $22.7 million in the twenty-six weeks ended
August 3, 1996 (40.5% of net sales) to $28.5 million in the twenty-six weeks
ended August 2, 1997 (43.6% of net sales) as a result of increases in both
retail and wholesale sales.
Gross profit for the wholesale division increased 24.6% from $2.9 million in the
twenty-six weeks ended August 3, 1996 to $3.6 million in the twenty-six weeks
ended August 2, 1997, primarily as a result of higher
9
<PAGE> 10
wholesale sales. As a percentage of net sales, gross profit for the wholesale
division decreased from 26.1% in the twenty-six weeks ended August 3, 1996 to
24.3% in the twenty-six weeks ended August 2, 1997.
Gross profit for the retail division increased 25.7% from $19.8 million in the
twenty-six weeks ended August 3, 1996 to $24.9 million in the twenty-six weeks
ended August 2, 1997. The retail division's gross margin decreased from 48.4% in
the twenty-six weeks ended August 3, 1996 to 47.5% in the twenty-six weeks ended
August 2, 1997 as a result of increased promotional sales of merchandise at
lower margins.
Operating expenses increased $8.0 million in the twenty-six weeks ended August
2, 1997 compared to the twenty-six weeks ended August 3, 1996. The increase was
primarily due to costs associated with the operation of 74 additional stores.
During the twenty-six weeks ended August 2, 1997 the Company had a net loss of
$2,536,627 or ($0.35) per share (based on 7,178,261 average common shares
outstanding), compared to a net loss of $989,655 or ($0.13) per share (based on
7,567,541 average common shares outstanding) during the twenty-six weeks ended
August 3, 1996.
10
<PAGE> 11
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: September 10, 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)
11
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JAN-31-1998
<PERIOD-START> MAY-04-1997
<PERIOD-END> AUG-02-1997
<CASH> 2,030,464
<SECURITIES> 0
<RECEIVABLES> 10,656,326
<ALLOWANCES> 0
<INVENTORY> 82,273,949
<CURRENT-ASSETS> 107,994,406
<PP&E> 17,902,402
<DEPRECIATION> 0
<TOTAL-ASSETS> 130,471,510
<CURRENT-LIABILITIES> 77,425,477
<BONDS> 0
0
0
<COMMON> 78,078
<OTHER-SE> 47,052,030
<TOTAL-LIABILITY-AND-EQUITY> 130,471,510
<SALES> 67,273,254
<TOTAL-REVENUES> 67,273,254
<CGS> 38,738,975
<TOTAL-COSTS> 38,738,975
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (4,227,712)
<INCOME-TAX> (1,691,085)
<INCOME-CONTINUING> (2,536,627)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,536,627)
<EPS-PRIMARY> (0.35)
<EPS-DILUTED> (0.35)
</TABLE>
