UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the thirteen weeks ended May 3, 1997
Commission File No. 1-11161
Nine West Group Inc.
(Exact name of Registrant as specified in its charter)
Delaware 06-1093855
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
9 West Broad Street
Stamford, Connecticut 06902
(Address of principal executive offices) (Zip Code)
(314) 579-8812
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
Number of shares of Common Stock, $.01 par value, outstanding as of the
close of business on May 3, 1997: 35,825,279.
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
Page
----
Item 1 Condensed Consolidated Financial Statements (Unaudited)
Condensed Consolidated Statements of Income - Thirteen weeks
ended May 3, 1997 and May 4, 1996 3
Condensed Consolidated Balance Sheets - May 3, 1997 and
February 1, 1997 4
Condensed Consolidated Statements of Cash Flows - Thirteen
weeks ended May 3, 1997 and May 4, 1996 5
Notes to Condensed Consolidated Financial Statements 6
Item 2 Management's Discussion and Analysis of Financial Condition
and Results of Operations 10
Item 3 Quantitative and Qualitative Disclosures About Market Risk 13
PART II - OTHER INFORMATION
Item 1 Legal Proceedings 14
Item 6 Exhibits and Reports on Form 8-K 14
Signatures 15
NINE WEST GROUP INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands except per share data)
(Unaudited)
Thirteen Weeks Ended
--------------------------
May 3 May 4
1997 1996
----- -----
Net revenues......................... $406,083 $355,911
Cost of goods sold................... 224,242 202,238
-------- --------
Gross profit....................... 181,841 153,673
Selling, general and
administrative expenses............. 138,404 116,233
Amortization of acquisition goodwill
and other intangibles............... 2,334 2,391
-------- --------
Operating income................... 41,103 35,049
Interest expense..................... 12,311 9,967
-------- --------
Income before income taxes......... 28,792 25,082
Income tax expense................... 11,301 10,032
-------- --------
Net income......................... $ 17,491 $ 15,050
======== ========
Weighted average common shares and
common share equivalents:
Primary............................ 36,565 36,572
======== ========
Fully diluted...................... 39,621
========
Earnings Per share:
Primary............................ $ 0.48 $ 0.41
======== ========
Fully diluted...................... $ 0.48
========
The accompanying Notes are an integral part of the Condensed Consolidated
Financial Statements
NINE WEST GROUP INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands except share data)
(Unaudited)
May 3 February 1
1997 1997
---------- ----------
ASSETS
Current Assets:
Cash........................................... $ 29,281 $ 25,176
Accounts receivable - net...................... 106,255 100,718
Inventories - net.............................. 508,748 501,830
Deferred income taxes.......................... 36,711 38,236
Assets held for sale - net..................... 13,464 13,589
Prepaid expenses and other current assets...... 35,997 42,457
---------- ----------
Total current assets........................ 730,456 722,006
Property and equipment - net...................... 125,631 138,249
Deferred income taxes............................. 19,215 18,262
Goodwill - net.................................... 209,511 211,142
Trademarks and trade names - net.................. 142,541 143,494
Other assets...................................... 28,018 27,910
---------- ----------
Total assets............................... $1,255,372 $1,261,063
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable............................... $ 74,945 $ 91,059
Accrued expenses and other current liabilities. 82,467 106,273
Current portion of long-term debt.............. 38,000 33,000
---------- ----------
Total current liabilities................... 195,412 230,332
Long-term debt.................................... 610,574 600,407
Other non-current liabilities..................... 69,837 69,784
---------- ----------
Total liabilities........................... 875,823 900,523
---------- ----------
Stockholders' Equity:
Common stock($0.01 par value, 100,000,000 shares
authorized; 35,825,279 and 35,792,613 shares
issued and outstanding, respectively).......... 358 358
Additional paid-in capital....................... 141,913 140,395
Retained earnings................................ 237,278 219,787
---------- ----------
Total stockholders' equity.................. 379,549 360,540
---------- ----------
Total liabilities and stockholders' equity. $1,255,372 $1,261,063
========== ==========
The accompanying Notes are an integral part of the Condensed Consolidated
Financial Statements
NINE WEST GROUP INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Thirteen Weeks Ended
--------------------
May 3 May 4
1997 1996
------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income............................................ $ 17,491 $ 15,050
Adjustments to reconcile net income to net cash
provided (used) by operating activities:
Depreciation and amortization...................... 9,114 8,176
Loss on disposal of property and equipment......... 189 238
Write-down of assets associated with Restructuring
Charge............................................ 13,782 -
Deferred income taxes.............................. 572 2,128
Changes in assets and liabilities:
Increase in balance of accounts receivable sold. 2,500 11,921
Accounts receivable............................. (8,037) 8,924
Inventory - net................................. (6,919) (17,375)
Prepaid expenses and other assets............... 6,463 1,762
Accounts payable................................ (16,114) (13,247)
Accrued expenses and other current liabilities.. (23,770) (14,303)
-------- --------
Net cash (used) provided by operating activities...... (4,729) 3,274
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment................... (7,498) (8,199)
Proceeds from sale of property and equipment.......... - 19,773
Net increase in other assets.......................... (185) (264)
-------- --------
Net cash (used) provided by investing activities...... (7,683) 11,310
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings under financing agreements............. 20,000 18,000
Net repayments of long-term debt...................... (5,000) (35,000)
Net proceeds from issuance of stock................... 1,517 10,118
-------- --------
Net cash provided (used) by financing activities...... 16,517 (6,882)
-------- --------
NET INCREASE IN CASH.................................. 4,105 7,702
CASH, BEGINNING OF PERIOD............................. 25,176 20,782
-------- --------
CASH, END OF PERIOD................................... $ 29,281 $ 28,484
======== ========
The accompanying Notes are an integral part of the Condensed Consolidated
Financial Statements
NINE WEST GROUP INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. BASIS OF PRESENTATION
The condensed consolidated financial statements include the accounts of
Nine West Group Inc. (the "Company"), its wholly-owned subsidiaries and its
controlled-interest joint ventures. The accompanying financial statements have
been prepared in accordance with generally accepted accounting principles. In
the opinion of management, such information contains all adjustments, consisting
only of normal recurring adjustments, necessary for a fair presentation of the
results of such periods. Certain prior year amounts have been reclassified to
conform to the current presentation. All intercompany transactions and balances
have been eliminated from the financial statements for the periods presented.
The results of operations for the 13 weeks ended May 3, 1997 are not necessarily
indicative of the results to be expected for the 52 weeks ending January 31,
1998 ("1997").
Certain information and disclosures normally included in the notes to
consolidated financial statements have been condensed or omitted as permitted by
the rules and regulations of the Securities and Exchange Commission, although
the Company believes the disclosure is adequate to make the information
presented not misleading. The accompanying unaudited financial statements
should be read in conjunction with the financial statements contained in the
Annual Report on Form 10-K of the Company for the 52 weeks ended February 1,
1997 ("1996"), as amended.
2. INVENTORIES
Inventories are valued at the lower of cost or market. Approximately 61%
and 62% of inventory values were determined by using the FIFO (first in, first
out) method of valuation as of May 3, 1997 and February 1, 1997, respectively;
the remainder was determined by using the weighted average cost method.
Inventory is comprised of (in thousands):
May 3 February 1
1997 1997
---- ----
Raw materials................................ $ 27,022 $ 27,969
Work in process.............................. 2,891 3,543
Finished goods............................... 478,835 470,318
-------- --------
Total inventory......................... $508,748 $501,830
======== ========
3. GOODWILL
Goodwill consisted of the following (in thousands):
May 3 February 1
1997 1997
---- ----
Goodwill..................................... $ 221,043 $ 221,291
Accumulated amortization..................... (11,532) (10,149)
--------- ---------
Total goodwill.......................... $ 209,511 $ 211,142
========= =========
4. TRADEMARKS AND TRADE NAMES
Trademarks and trade names consisted of the following (in thousands):
May 3 February 1
1997 1997
---- ----
Trademarks and trade names................... $ 149,784 $ 149,784
Accumulated amortization..................... (7,243) (6,290)
--------- ---------
Total trademarks and trade names........ $ 142,541 $ 143,494
========= =========
5. BUSINESS RESTRUCTURING AND INTEGRATION CHARGES
In the fourth quarter of 1996, the Company recorded a charge of $21.3
million, offset by a reversal of an excess of the Integration Charge (defined
below) of $2.3 million, resulting in a net pretax charge to earnings of $19.0
million (the "Restructuring Charge"), for costs associated with: (1) the
restructuring of North American manufacturing facilities; (2) the consolidation
and relocation of the Company's offices in Stamford, Connecticut and Cincinnati,
Ohio to a new facility in White Plains, New York (the "Relocation"); and (3) the
repositioning of the 9 & Co. brand, which included the evaluation of retail site
locations and the resulting closure of fifteen 9 & Co. stores. The major
components of the Restructuring Charge are: (1) write-down of assets of $13.8
million; (2) accruals for lease and other contract terminations of $4.9 million;
and (3) plant closing costs of $2.6 million. During the first quarter of 1997,
$13.8 million of fixed asset write-downs were charged against the liability for
the Restructuring Charge. Cash outlays related to the Restructuring Charge are
estimated to be $5.2 million and to be paid over a three-year period beginning
in 1997. There were no significant cash expenses charged against the liability
for the Restructuring Charge in the first quarter of 1997.
The Restructuring Charge reflects plans to close three domestic factories
and discontinue or reconfigure certain operations at two other domestic
manufacturing facilities. Domestic footwear production is expected to decrease
from a current level of 7.5 million pairs to 5.0 million pairs by the end of
1997, as the Company pursues global sourcing opportunities in an effort to
reduce overall product cost. This action will affect 1,025 employees, or
approximately 50% of the Company's domestic manufacturing work force. Total
severance and termination benefit costs associated with this action are $9.6
million, which relate to benefits provided by the Company's existing severance
plans. As of May 3, 1997, the Company had closed two factories, begun
reconfiguring operations at two other facilities and terminated approximately
920 employees, with approximately $2.0 million of severance and termination
benefits being paid and charged against the liabilities recorded under the
Company's existing severance plans. The remaining closures, reconfigurations
and separations will be substantially completed during 1997. The Restructuring
Charge balance is included in accrued expenses and other current liabilities.
On May 23, 1995, the Company consummated the acquisition of the Footwear
Division of The United States Shoe Corporation (the "Acquisition"). During the
fourth quarter of 1995, the Company incurred and accrued expenses for
restructuring and integration costs of $51.9 million associated with the
Acquisition (the "Integration Charge"). The major components of the Integration
Charge were: (1) severance and termination benefits of $7.7 million; (2) write-
down of assets, principally leasehold improvements, of $14.6 million; (3)
inventory valuation adjustments of $10.4 million; (4) accruals for lease and
other contract terminations of $7.0 million; and (5) other integration and
consolidation costs of $12.2 million.
The following table summarizes the activity of the Integration Charge
through May 3, 1997:
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Other
Lease and Integration
Severance and Asset Contract Inventory and
Termination Write- Termination Valuation Consolidation
(in thousands) Benefits Downs Costs Adjustments Costs Total
-------- ------ ----- ----------- ----- -----
1995 provision........... $7,650 $14,620 $7,046 $10,423 $12,161 $51,900
1995 activity............ (836) (14,620) (235) (-) (4,253) (19,944)
------ ------- ------ ------- ------- -------
February 3, 1996 balance. 6,814 - 6,811 10,423 7,908 31,956
1996 activity............ (5,388) (-) (4,866) (10,423) (7,540) (28,217)
Reversal of excess
Integration Charge...... (335) (-) (1,795) (-) (133) (2,263)
------ ------- ------ ------- ------- -------
February 1, 1997 balance. $1,091 $ - $ 150 $ - $ 235 $ 1,476
First Quarter
1997 activity........... (133) (-) (16) (-) (-) (149)
------ ------- ------ ------- ------- -------
May 3, 1997 balance...... $ 958 $ - $ 134 $ - $ 235 $ 1,327
====== ======= ====== ======= ======= =======
</TABLE>
Severance and termination benefits relate to approximately 475 employees,
of which 420 were store managers and associates, 50 were engaged in
manufacturing positions, principally related to the liquidation of the Company's
Far East office as a result of entering into a new agency arrangement, and five
were management employees. As of May 3, 1997, substantially all of the 475
employees had been terminated, with $6.7 million of severance and termination
benefits being paid and charged against the liability for the Integration
Charge.
Total cash outlays related to this charge are expected to be approximately
$20.3 million, of which $18.9 million was paid through May 3, 1997 ($0.1 and
$3.3 million was paid during the first quarters of 1997 and 1996, respectively.
The remaining liability for the Integration Charge is included in accrued
expenses and other current liabilities.
In connection with the Acquisition, the Company assumed and included in the
allocation of the Acquisition cost accruals for involuntary severance and
termination benefits of $8.6 million and relocation costs of $8.2 million.
As of May 3, 1997, approximately $7.2 million of severance and termination
benefits ($0.9 million and $2.2 million in the first quarter of 1997 and 1996,
respectively) and $7.8 million of relocation costs ($0.2 million and $0.4
million in the first quarter of 1997 and 1996, respectively) were paid and
charged against these liabilities. The remaining liabilities at May 3, 1997
were $1.4 million for severance and termination benefits ($2.3 million at
February 1, 1997) and $0.4 million for relocation costs ($0.6 million at
February 1, 1997) and are included in accrued expenses and other current
liabilities.
6. FINANCIAL INSTRUMENTS
As of May 3, 1997, the Company had outstanding interest rate swaps and
collars in order to manage exposure to the fluctuation of interest rates. The
fair value of these instruments was a favorable $2.6 million based on a commonly
accepted pricing methodology using market prices as of May 3, 1997.
7. LONG TERM DEBT
On May 3, 1997, the Company had a $317.0 million quarterly amortizing term
loan, and could borrow up to $225.0 million under a revolving credit facility,
including letters of credit up to $100.0 million. The Credit Agreement expires
on November 1, 2001. As of May 3, 1997, $150.0 million of borrowings and $37.1
million of letters of credit were outstanding on a revolving basis and $37.9
million was available for future borrowing.
8. CASH FLOWS
Cash paid for income taxes was $0.4 million and $6.4 million for the 13
weeks ended May 3, 1997 and May 4, 1996, respectively. Cash paid for interest
was $10.2 million and $9.9 million for the 13 weeks ended May 3, 1997 and May 4,
1996, respectively.
9. EARNINGS PER SHARE
The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standards ("SFAS") No. 128, "Earnings Per Share," which is required
to be adopted for financial statements for interim and annual periods ending
after December 15, 1997. SFAS No. 128 requires that primary and fully diluted
earnings per share be replaced by "basic" and "diluted" earnings per share,
respectively. The basic calculation computes earnings per share based only on
the weighted average number of common shares outstanding as compared to primary
earnings per share which includes common stock equivalents. The diluted
earnings per share calculation is computed similarly to fully diluted earnings
per share. For the respective thirteen week periods ended May 3, 1997 and May
4, 1996, primary and fully diluted earnings per share are not materially
different than basic and diluted earnings per share.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
The following discussion and analysis should be read in conjunction with
the Condensed Consolidated Financial Statements of the Company and the Notes
thereto included in Item 1 of this report.
RESULTS OF OPERATIONS
Net income for the first quarter of 1997 was $17.5 million, or $0.48 per
share on a fully diluted basis, a 16.2% increase from net income of $15.1
million, or $0.41 per share, for the first quarter of 1996.
The following tables set forth certain items in the Company's condensed
consolidated statements of income in millions of dollars and as a percentage of
net revenues for the first quarter of 1997 and 1996.
Thirteen Weeks Ended
----------------------------------
(Dollars in millions) May 3, 1997 May 4, 1996
--------------- ---------------
Net revenues............................. $406.1 100.0% $355.9 100.0%
Cost of goods sold....................... 224.3 55.2 202.2 56.8
------ ----- ------ -----
Gross profit.......................... 181.8 44.8 153.7 43.2
Selling, general and
administrative expenses................. 138.4 34.1 116.2 32.7
Amortization of acquisition goodwill and
other intangibles....................... 2.3 0.6 2.4 0.7
------ ----- ------ -----
Operating income...................... 41.1 10.1 35.1 9.8
Interest expense......................... 12.3 3.0 10.0 2.8
------ ----- ------ -----
Income before income taxes............ 28.8 7.1 25.1 7.0
Income tax expense....................... 11.3 2.8 10.0 2.8
------ ----- ------ -----
Net income............................ $ 17.5 4.3% $ 15.1 4.2%
====== ===== ====== =====
THIRTEEN WEEKS ENDED MAY 3, 1997 COMPARED
TO THIRTEEN WEEKS ENDED MAY 4, 1996
NET REVENUES. Net revenues were $406.1 million in the first quarter of
1997 compared to $355.9 million in the first quarter of 1996, an increase of
$50.2 million, or 14.1%. Net revenues of the Company's wholesale operations
increased by $35.7 million, or 18.1%, due primarily to increased revenues from
the Company's international sales and the initial sales of the Company's
cK/Calvin Klein Shoes and Bags division footwear and accessories. Sales through
the Company's retail locations increased by $14.5 million, or 9.1%, primarily
attributable to the opening of 125 additional domestic and 72 additional
international retail locations. The increase in retail revenues was offset, in
part, by a comparable store sales decrease of 4.5%, with cool weather dominating
the period and a generally soft retail climate. Comparable store sales include
the net revenues of all stores open for an entire month during the comparable
current year and prior year periods. During the first quarter of 1997,
wholesale operations accounted for 57% of the Company's consolidated net
revenues, while retail operations, which produce greater gross margins,
accounted for the remaining 43%. During the first quarter of 1996, wholesale
operations accounted for 55% of consolidated net revenues, while retail
operations accounted for the remaining 45%.
GROSS PROFIT. Gross profit was $181.8 million in the first quarter of 1997
compared to $153.7 million in the first quarter of 1996, an increase of $28.1
million, or 18.3%. Gross profit as a percentage of net revenues was 44.8% in
the first quarter of 1997, compared to 43.2% in the first quarter of 1996, and
increased in both the wholesale and retail operations. This increase is
primarily the result of reduced product costs associated with increased global
sourcing and overall higher margins from the Company's wholesale operations,
including those of the cK/Calvin Klein Shoes and Bags division.
SELLING, GENERAL & ADMINISTRATIVE EXPENSES. Selling, general and
administrative ("SG&A") expenses were $138.4 million in the first quarter of
1997, compared to $116.2 million in the first quarter of 1996, an increase of
$22.2 million, or 19.1%. SG&A expense expressed as a percentage of net revenues
rose to 34.1% in the first quarter of 1997 from 32.7% in the first quarter of
1996. The increase in SG&A expenses as a percentage of net revenues is due
primarily to brand building activities associated with advertising and
marketing, costs related to the expansion of the Company's international and
cK/Calvin Klein Shoes and Bags divisions, and one-time period costs related to
the restructuring of the Company's North American manufacturing facilities and
the relocation of the Company's offices in Stamford, Connecticut and Cincinnati,
Ohio to a new facility in White Plains, New York (the "Relocation").
INTEREST EXPENSE. Interest expense was $12.3 million in the first quarter
of 1997, compared to $10.0 million in the first quarter of 1996, an increase of
$2.3 million, or 23.5%. The increased expense relates principally to the
additional resources needed to expand both domestic and international businesses
as evidenced by an increase in the weighted average debt outstanding from
approximately $510 million in the first quarter of 1996 to approximately $650
million (including $185.7 million principal amount of 5.5% convertible notes
issued by the Company in June 1996) in the first quarter of 1997, offset in part
by a decrease in the Company's weighted average interest rate to 6.2% for the
first quarter of 1997, from 7.1% for the first quarter of 1996.
LIQUIDITY AND CAPITAL RESOURCES
The Company relies primarily upon cash flow from operating activities and
borrowings under the Company's credit agreement (the "Credit Agreement") to
finance its operations and expansion. Cash used by operating activities was
$4.7 million for the first quarter of 1997, compared to cash provided by
operating activities of $3.3 million for the first quarter of 1996. This
decrease of cash flow from operating activities is due primarily to additional
working capital used to finance the Company's wholesale and retail expansion.
Working capital was $535.0 million at May 3, 1997, compared to $491.7 million at
February 3, 1997. Working capital increased during the first quarter of 1997
due, in part, to: (1) a $5.5 million increase in accounts receivable due to
increased sales volume; (2) a $6.9 million increase in inventory in connection
with the opening of new retail stores; (3) a $6.5 million decrease in prepaid
expenses and other current assets; (4) a $16.1 million decrease in accounts
payable; and (5) a $23.8 million decrease in accrued expenses and other current
liabilities. Working capital may vary from time to time as a result of seasonal
requirements, the timing of factory shipments and the Company's "open stock" and
"quick response" wholesale programs, which require an increased investment in
inventories.
Cash outlays related to the Restructuring Charge are estimated to be $5.2
million and to be paid over a three-year period beginning in 1997. There were
no significant cash expenses charged against the liability for the Restructuring
Charge in the first quarter of 1997.
Cash outlays for severance and termination benefits, primarily associated
with facility closures outlined in the Restructuring Charge, are estimated to be
$9.6 million, of which $2.0 million was paid and charged against the liabilities
recorded under the Company's existing severance plans during the first quarter
of 1997.
Cash outlays for the Integration Charge are expected to be $20.3 million,
of which $18.9 million was paid through May 3, 1997 ($0.1 million was paid and
charged during the first quarter of 1997). In connection with the Acquisition,
the Company assumed and included in the allocation of Acquisition cost accruals
for involuntary severance and termination benefits of $8.6 million and
relocation costs of $8.2 million. As of May 3, 1997, approximately $7.2 million
and $7.8 million of severance and termination benefits, and relocation costs,
respectively, were paid and charged against these liabilities, of which $0.9
million and $0.2 million, respectively, were paid during 1996. The Company
anticipates that the remaining $3.2 million in cash outlays for Acquisition-
related severance and termination benefits and relocation costs, and the
Integration Charge will be substantially paid in the remainder of 1997.
On May 3, 1997, the Company had a $317.0 million quarterly amortizing term
loan facility and could borrow up to $225.0 million under a revolving credit
facility, including letters of credit up to $100.0 million. The Credit
Agreement expires on November 1, 2001. As of May 3, 1997, $150.0 million of
borrowings and $37.1 million of letters of credit were outstanding on a
revolving basis and $37.9 million was available for future borrowing.
Capital expenditures totaled $7.5 million and $8.2 million in the first
quarters of 1997 and 1996, respectively. Capital expenditures in the first
quarter of 1997 relate primarily to the Company's retail store expansion and
remodeling programs. The Company estimates that its capital expenditures for
1997 will be between $75.0 million and $85.0 million, relating primarily to the
ongoing expansion of its domestic and retail operations (approximately $50.0
million), equipment for its distribution and manufacturing facilities
(approximately $5.0 million) and leasehold improvements, furniture and fixtures,
and equipment associated with the Relocation (approximately $20.0 million). The
actual amount of the Company's capital expenditures depends, in part, on the
number of new stores opened, the number of stores remodeled, the amount of any
construction allowances the Company may receive from the landlords of its new
stores and any unexpected costs incurred in connection with the Relocation. The
opening and success of new stores will be dependent upon, among other things,
general economic and business conditions affecting consumer spending, the
availability of desirable locations and the negotiation of acceptable lease
terms for new locations. As of May 3, 1997, the Company had commitments for
approximately $18.7 million of capital expenditures, related to commitments as
of such date to open 145 retail stores, 127 of which are intended to be opened
during the remainder of 1997.
The Company expects that its current cash balances, cash flows anticipated
to be generated from operations and availability under its revolving credit
facility will be sufficient to fund the Relocation and business restructuring
and integration activities and other operating cash needs and growth
opportunities (including planned domestic and international retail store
openings for 1997) for at least the next 12 months; however, given the Company's
current growth initiatives, financing alternatives are continually evaluated.
From time to time, the Company evaluates potential acquisitions of businesses
which complement the business of the Company. Depending on the cash
consideration required in such potential acquisitions, the Company may determine
to finance such transactions with its cash flows from operations, or may pursue
raising additional funds through various financing vehicles, such as additional
bank financing or one or more public or private offerings of the Company's
securities, or both.
SEASONALITY
The Company's footwear and accessories are marketed primarily for each of
the four seasons, with the highest volume of products sold during the last three
fiscal quarters. Because the timing of shipments of products for any season may
vary from year to year, the results for any particular quarter may not be
indicative of results for the full year. The Company has not had significant
overhead and other costs generally associated with large seasonal variations.
INFLATION
The Company believes that the relatively moderate rate of inflation over
the past few years has not had a significant impact on the Company's revenues or
profitability. In the past, the Company has been able to maintain its profit
margins during inflationary periods.
FORWARD-LOOKING STATEMENTS
Certain statements contained in this Report which are not historical facts
contain forward-looking information with respect to the Company's plans,
projections or future performance, the occurrence of which involve certain risks
and uncertainties that could cause the Company's actual results or plans to
differ materially from those expected by the Company. Certain of such risks and
uncertainties relate to competition in the industry; changes in the prevailing
costs of leather and other raw materials, labor and advertising; changes in
consumer demands and preferences; retail store construction delays; the
availability of desirable retail locations and the negotiation of acceptable
lease terms for such locations; the ability of the Company to place its products
in desirable sections of its department store customers; and unexpected costs
incurred in connection with the Relocation.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Interim information is not required until after the first fiscal year end
in which this item is effective.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On May 1, 1997, the Company learned that on April 10, 1997, the United
States Securities and Exchange Commission (the "SEC") entered a formal order of
investigation with respect to, among other things, the Company's revenue
recognition policies and practices. The Company had been cooperating fully with
the Staff of the SEC when the investigation was informal, and intends to
continue cooperating with the SEC. The Company does not anticipate that the
investigation will have a material adverse financial effect on the Company.
The Company has been named as a defendant in various actions and
proceedings, including actions brought by certain terminated employees, arising
from its ordinary business activities. Although the liability that could arise
with respect to these actions cannot be accurately predicted, in the opinion of
the Company, any such liability will not have a material adverse financial
effect on the Company.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits:
Exhibit
Number Exhibit
- ------ -------
11 Computation of earnings per share, filed herewith.
27 Financial Data Schedule, filed herewith.
(b) Reports on 8-K:
None
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Nine West Group Inc.
(Registrant)
By: /s/ Robert C. Galvin
---------------------------
Robert C. Galvin
Executive Vice President,
Chief Financial Officer and
Treasurer (Principal Financial
Officer and Principal Accounting
Officer)
Date: June 12, 1997
<TABLE>
EXHIBIT 11
NINE WEST GROUP INC. AND SUBSIDIARIES
Computation of Earnings Per Share
(In thousands except per share data)
(Unaudited)
<S> <C> <C>
Thirteen Weeks Ended
-------------------
May 3 May 4
1997 1996
------- -------
COMPUTATION FOR CONDENSED CONSOLIDATED STATEMENTS OF INCOME
- -----------------------------------------------------------
PRIMARY EARNINGS PER SHARE
--------------------------
Net income..................................................... $17,491 $15,050
======= =======
Shares:
Weighted average number of common shares outstanding......... 35,806 35,402
Net effect of dilutive stock options based on the
treasury stock method....................................... 759 1,170
------- -------
Weighted average number of shares outstanding
including common stock equivalents.......................... 36,565 36,572
======= =======
Primary earnings per share..................................... $ 0.48 $ 0.41
======= =======
FULLY DILUTED EARNINGS PER SHARE (1)
------------------------------------
Reconciliation of net income to amount used for fully diluted
computation in Condensed Consolidated Statements of Income:
Net income per primary calculation above....................... $17,491
Add:
Interest on 5.5% convertible notes, net of tax effect........ 1,669
-------
Adjusted net income.......................................... $19,160
=======
Reconciliation of weighted average common shares outstanding to
amount used for fully diluted computation in Condensed
Consolidated Statements of Income:
Weighted average number of common shares outstanding........ 35,806
Weighted average shares issuable from assumed exercise of
5.5% convertible notes..................................... 3,056
Net effect of dilutive stock options based on the treasury
stock method............................................... 759
-------
Fully diluted shares outstanding........................ 39,621
=======
Fully diluted earnings per share............................... $ 0.48
=======
(1) Fully diluted earnings per share reflect the impact of the convertible notes issued
in June 1996.
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
NINE WEST GROUP INC. CONDENSED CONSOLIDATED BALANCE SHEET AS OF MAY 3,
1997, AND THE CONDENSED CONSOLIDATED STATEMENT OF INCOME AND CONDENSED
CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE THIRTEEN WEEKS ENDED MAY 3,
1997, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-31-1998
<PERIOD-END> MAY-03-1997
<CASH> 29,281
<SECURITIES> 0
<RECEIVABLES> 106,255
<ALLOWANCES> 0
<INVENTORY> 508,748
<CURRENT-ASSETS> 730,456
<PP&E> 197,297
<DEPRECIATION> (71,666)
<TOTAL-ASSETS> 1,255,372
<CURRENT-LIABILITIES> 195,412
<BONDS> 610,574
0
0
<COMMON> 358
<OTHER-SE> 379,191
<TOTAL-LIABILITY-AND-EQUITY> 1,255,372
<SALES> 406,083
<TOTAL-REVENUES> 406,083
<CGS> 224,242
<TOTAL-COSTS> 224,242
<OTHER-EXPENSES> 140,738
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 12,311
<INCOME-PRETAX> 28,792
<INCOME-TAX> 11,301
<INCOME-CONTINUING> 17,491
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 17,491
<EPS-PRIMARY> 0.48
<EPS-DILUTED> 0.48
</TABLE>
