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Total number of sequentially numbered pages: 12
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UNITED STATES
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 MAY 4, 1996
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: 1-12552
THE TALBOTS, INC.
(Exact name of registrant as specified in its charter)
Delaware 41-1111318
------------------------------ -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
175 Beal Street, Hingham, Massachusetts 02043
--------------------------------------- -------------------
(Address of principal executive offices) (Zip Code)
(617) 749-7600
------------------------------------------------------
(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
--- ---
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Outstanding as of
Class June 13, 1996
----- -------------
Common Stock, $0.01 par value 33,203,142
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<TABLE>
INDEX TO FORM 10-Q
<CAPTION>
Page
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<S> <C>
PART I. FINANCIAL INFORMATION
Item 1: Financial Statements
Condensed Consolidated Statements of Earnings for the Thirteen
Weeks Ended May 4, 1996 and April 29, 1995........................ 3
Condensed Consolidated Balance Sheets as of May 4, 1996,
February 3, 1996 and April 29, 1995............................... 4
Condensed Consolidated Statements of Cash Flows for the Thirteen
Weeks Ended May 4, 1996 and April 29, 1995........................ 5
Notes to Condensed Consolidated Financial Statements................... 6-7
Item 2: Management's Discussion and Analysis of Financial Condition and
Results of Operations............................................. 8-10
PART II. OTHER INFORMATION
Item 6: Exhibits and Reports on Form 8-K....................................... 11
</TABLE>
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PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
THE TALBOTS, INC. AND SUBSIDIARIES
----------------------------------------------------------------------
<TABLE>
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS (UNAUDITED)
FOR THE THIRTEEN WEEKS ENDED MAY 4, 1996 AND APRIL 29, 1995
(Amounts in thousands except per share data)
----------------------------------------------------------------------
<CAPTION>
THIRTEEN WEEKS ENDED
--------------------------
MAY 4, APRIL 29,
1996 1995
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<S> <C> <C>
NET SALES $236,187 $230,578
COSTS AND EXPENSES
Cost of sales, buying and occupancy 133,355 126,454
Selling, general and administrative 67,112 67,315
-------- --------
OPERATING INCOME 35,720 36,809
INTEREST EXPENSE, net 1,088 780
-------- --------
INCOME BEFORE TAXES 34,632 36,029
INCOME TAXES 13,853 14,412
-------- --------
NET INCOME $ 20,779 $ 21,617
======== ========
NET INCOME PER SHARE $ 0.62 $ 0.62
======== ========
CASH DIVIDENDS PER SHARE $ 0.07 $ 0.05
======== ========
WEIGHTED AVERAGE NUMBER OF SHARES OF
COMMON STOCK OUTSTANDING 33,487 34,890
======== ========
</TABLE>
See notes to condensed consolidated financial statements.
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THE TALBOTS, INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
<TABLE>
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
MAY 4, 1996, FEBRUARY 3, 1996 AND APRIL 29, 1995
(Dollar amounts in thousands except per share data)
- -----------------------------------------------------------------------------------------------------------------------------
MAY 4, FEBRUARY 3, APRIL 29,
1996 1996 1995
----------- ------------ ----------
<S> <C> <C> <C>
ASSETS
- ------
CURRENT ASSETS:
- ---------------
Cash and cash equivalents $ 20,837 $ 14,865 $ 13,659
Customer accounts receivable - less allowance for doubtful accounts of
$1,135, $1,135 and $1,090 77,910 73,758 68,611
Merchandise inventories 154,606 143,526 133,356
Deferred catalog costs 7,727 12,757 6,054
Due from affiliates 5,166 4,008 2,499
Deferred income taxes 2,996 3,121 3,353
Prepaid and other current assets 18,844 23,250 18,136
-------- -------- --------
TOTAL CURRENT ASSETS 288,086 275,285 245,668
PROPERTY AND EQUIPMENT - Net of accumulated depreciation of
$132,326, $126,577 and $110,129 162,873 154,160 145,266
GOODWILL - Net of accumulated amortization of $10,519, $10,183 and
$9,175 43,241 43,577 44,585
INTANGIBLES - Net of accumulated amortization of $28,413, $27,813
and $25,067 3,589 4,189 6,935
TRADEMARKS - Net of accumulated amortization of $5,777, $5,181 89,593 90,189 91,977
and $3,393
DEFERRED INCOME TAXES 10,766 4,711 5,825
-------- -------- --------
TOTAL ASSETS $598,148 $572,111 $540,256
======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
CURRENT LIABILITIES:
- --------------------
Notes payable to banks $ 49,000 $ 24,000 $ 25,000
Accounts payable 30,260 44,331 19,465
Accrued liabilities 43,935 45,593 42,411
Income taxes payable 10,221 11,229
-------- -------- --------
TOTAL CURRENT LIABILITIES 133,416 113,924 98,105
LONG-TERM DEBT 50,000 50,000 35,000
DEFERRED RENT UNDER LEASE COMMITMENTS 10,650 10,148 9,466
STOCKHOLDERS' EQUITY:
- ---------------------
Common stock, $0.01 par value; 40,000,000 authorized; 34,925,592
shares, 34,910,826 shares and 34,908,494 shares issued,
respectively, and 33,202,142 shares, 33,637,826 shares and
34,674,533 shares outstanding, respectively 349 349 349
Additional paid-in capital 286,812 286,472 286,412
Retained earnings 173,528 155,092 121,310
Cumulative foreign currency translation adjustment (1,579) (1,337) 110
Deferred pension cost (470) (470) (499)
Restricted stock award (1,642) (1,801) (2,279)
Treasury stock, at cost (52,916) (40,266) (7,718)
-------- -------- --------
TOTAL STOCKHOLDERS' EQUITY 404,082 398,039 397,685
-------- -------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $598,148 $572,111 $540,256
======== ======== ========
</TABLE>
See notes to condensed consolidated financial statements.
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THE TALBOTS, INC. AND SUBSIDIARIES
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<TABLE>
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE THIRTEEN WEEKS ENDED MAY 4, 1996 AND APRIL 29, 1995
(Dollar amounts in thousands)
- -----------------------------------------------------------------------------------
<CAPTION>
THIRTEEN WEEKS ENDED
------------------------
MAY 4, APRIL 29,
1996 1995
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CASH FLOWS FROM OPERATING ACTIVITIES:
- -------------------------------------
<S> <C> <C>
Net income $ 20,779 $ 21,617
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 8,041 8,082
Deferred rent 500 445
Amortization of restricted stock award 159 159
Loss on disposal of property and equipment 44 264
Deferred income taxes (5,930) (829)
Changes in current assets and liabilities:
Customer accounts receivable (4,148) (3,303)
Merchandise inventories (11,059) (9,651)
Deferred catalog costs 5,030 2,715
Due from affiliates (1,158) 72
Prepaid and other current assets 4,107 (160)
Accounts payable (14,076) (38,375)
Accrued liabilities (1,661) (2,309)
Income taxes payable 10,273 10,781
-------- --------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 10,901 (10,492)
CASH FLOWS FROM INVESTING ACTIVITIES:
- -------------------------------------
Additions to property and equipment (15,239) (10,447)
-------- --------
NET CASH USED IN INVESTING ACTIVITIES (15,239) (10,447)
CASH FLOWS FROM FINANCING ACTIVITIES:
- -------------------------------------
Borrowings under notes payable to banks 25,000 25,000
Proceeds from options exercised, including tax benefit 287
Cash dividend (2,343) (1,745)
Purchase of treasury stock (12,650) (7,718)
-------- --------
NET CASH PROVIDED BY FINANCING ACTIVITIES 10,294 15,537
EFFECT OF EXCHANGE RATE CHANGES ON CASH 16 68
-------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 5,972 (5,334)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 14,865 18,993
-------- --------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 20,837 $ 13,659
======== ========
</TABLE>
See notes to condensed consolidated financial statements.
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THE TALBOTS, INC. AND SUBSIDIARIES
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
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1. OPINION OF MANAGEMENT
With respect to the unaudited condensed consolidated financial
statements set forth herein, it is the opinion of management of The
Talbots, Inc. and its subsidiaries (hereinafter referred to as the
"Company") that all adjustments, which consist only of normal recurring
adjustments, necessary to present a fair statement of the results for such
interim periods have been included. These financial statements should be
read in conjunction with the Company's audited Consolidated Financial
Statements for the year ended February 3, 1996, included in the Company's
Annual Report on Form 10-K filed with the Securities and Exchange
Commission. All significant intercompany accounts and transactions have
been eliminated.
The February 3, 1996, Condensed Consolidated Balance Sheet amounts
have been derived from the Company's audited consolidated balance sheet
accounts.
2. NEW ACCOUNTING STANDARDS
In March 1995 the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standard ("SFAS") No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed Of." The Company adopted SFAS No. 121 during the first fiscal
quarter of 1996. The implementation of SFAS No. 121 had no impact on the
financial statements for the fiscal quarter ended May 4, 1996.
In October 1995, the FASB issued SFAS No. 123, "Accounting for
Stock-Based Compensation," which was effective for the Company beginning
February 4, 1996. SFAS No. 123 requires expanded disclosures of stock-based
compensation arrangements with employees and encourages (but does not
require) compensation costs to be measured based upon the fair value of the
equity instrument awarded. Companies are permitted, however, to continue to
apply Accounting Principles Board ("APB") Opinion No. 25, which recognizes
compensation cost based on the intrinsic value of the equity instrument
awarded. The Company will continue to apply APB Opinion No. 25 to its stock
based compensation awards to employees and will disclose the required pro
forma effect on net income and earnings per share in the Company's year
ended February 1, 1997 financial statements.
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3. SEASONAL VARIATIONS IN BUSINESS
Due to the seasonal variations in the retail industry, the results of
operations for any interim period are not necessarily indicative of the
results expected for the full fiscal year.
4. FEDERAL AND STATE INCOME TAXES
The Company has provided for income taxes based on the estimated
annual effective rate method.
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ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS 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 appearing elsewhere in this document.
<TABLE>
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, the percentage
relationship to net sales of certain items in the Company's condensed
consolidated statements of earnings for the fiscal periods shown below:
<CAPTION>
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Thirteen Weeks Ended
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May 4, Apr. 29,
1996 1995
(unaudited) (unaudited)
- ----------------------------------------------------------------------------------------
<S> <C> <C>
Net sales 100.0% 100.0%
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Cost of sales, buying and occupancy expenses 56.5% 54.8%
- ----------------------------------------------------------------------------------------
Selling, general and administrative expenses 28.4% 29.2%
- ----------------------------------------------------------------------------------------
Operating income 15.1% 16.0%
- ----------------------------------------------------------------------------------------
Interest expense, net 0.5% 0.3%
- ----------------------------------------------------------------------------------------
Income before income taxes 14.7% 15.6%
- ----------------------------------------------------------------------------------------
Income taxes 5.9% 6.2%
- ----------------------------------------------------------------------------------------
Net income 8.8% 9.4%
========================================================================================
</TABLE>
THE THIRTEEN WEEKS ENDED MAY 4, 1996 COMPARED TO THE THIRTEEN WEEKS ENDED APRIL
29, 1995 (FIRST QUARTER)
Net sales in the first quarter of 1996 increased by $5.6 million to $236.2
million, or 2.4% over the first quarter of 1995. Operating income was $35.7
million in the first quarter of 1996 compared to $36.8 million in the first
quarter of 1995, a decrease of 3.0%.
Retail store sales in the first quarter of 1996 increased by $8.9 million
to $188.1 million, or 5.0%, over the first quarter of 1995. The percentage of
the Company's net sales derived from its retail stores increased to 79.6% in the
first quarter of 1996 from 77.7% in the first quarter of 1995. The increase in
retail store sales as a percentage of the Company's total net sales was due to
the growth in retail store sales and the decline in catalog sales. The increase
in retail store
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sales was attributable to the 21 new stores opened in the first quarter of 1996
and the 46 non-comparable stores that opened in the last three quarters of 1995
offset by a decrease of $6.8 million in comparable stores sales, or 4.6%, from
the same period for the previous year. Comparable stores are those which were
open for at least one full fiscal year. When a new Talbots Petites store or a
new Talbots Accessories & Shoes store is opened adjacent to or in close
proximity to an existing Misses store which would qualify as a comparable store,
such Misses store is excluded from the computation of comparable store sales for
a period of 13 months so that the performance of the full Misses assortment may
be properly compared.
Catalog sales in the first quarter of 1996 decreased by $3.3 million, to
$48.1 million, a decrease of 6.4% from the first quarter of 1995. The percentage
of the Company's net sales derived from its catalogs decreased to 20.4% in the
first quarter of 1996 from 22.3% in the first quarter of 1995. Although the
Company mailed 29% fewer catalogs during the first quarter this year compared to
the first quarter of 1995, the improved productivity of the catalogs largely
offset this reduction in circulation. The reduction in catalog circulation
continues a strategic initiative to better target the distribution of catalogs
to known customers.
Because the Company sells a wide range of products which by their nature
are subject to constantly changing business strategies and competitive
positioning, it is not possible to attribute changes in retail sales or catalog
sales to specific changes in prices, changes in volume or changes in product
mix.
Cost of sales, buying and occupancy expenses increased as a percentage of
net sales to 56.5% in the first quarter of 1996 from 54.8% in the first quarter
of 1995 due to buying and occupancy costs rising at a greater rate than sales.
Selling, general and administrative expenses decreased as a percentage of net
sales to 28.4% in the first quarter of 1996 from 29.2% in the first quarter of
1995 due primarily to savings in catalog production costs associated with
reduced circulation.
Interest expense, net, increased by $0.3 million, to $1.1 million in the
first quarter of 1996, or 37.5%, over the first quarter of 1995 due to higher
average debt levels, which were partially offset by lower interest rates. The
average total debt level, including short-term and long-term bank borrowings,
was $93.6 million in the first quarter of 1996 compared to $57.9 million in the
first quarter of 1995. The increase in average total debt is primarily due to
the funding of the stock repurchase plans. The average interest rate, including
interest on short-term and long-term bank borrowings, was 6.0% in the first
quarter of 1996 compared to 7.2% in the first quarter of 1995.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary sources of working capital are cash flows from
operating activities and a line-of-credit facility from five banks, with maximum
available short-term borrowings of $125.0 million. At May 4, 1996 and April 29,
1995, the Company had $49.0
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million and $25.0 million of outstanding borrowings under this line-of-credit
facility, respectively. Additionally, the Company has a revolving credit
facility with maximum available borrowings of $50.0 million. At May 4, 1996 and
April 29, 1995, the Company's borrowings under the revolving credit facility
were $50.0 million and $35.0 million, respectively. The Company's working
capital needs are typically at their lowest in the spring and peak during the
fall selling season.
In the first quarter of 1996 cash increased $6.0 million compared to a
decrease of $5.3 million in the first quarter of 1995. The major changes were a
smaller decrease in accounts payable, offset by an increase in deferred taxes,
an increase in property and equipment additions and purchases of treasury stock
pursuant to the Company's extended stock repurchase plan. The extended stock
repurchase plan was established in November 1995 and authorizes the Company to
utilize up to $40 million to purchase shares of its common stock from time to
time over a two year period. During the quarter, the Company repurchased 450,450
shares of its common stock at an average price of approximately $28 per share.
Capital expenditures for the first quarter of fiscal 1996 were $15.2
million. The Company used approximately $14.8 million for opening new stores and
expanding and renovating existing stores. For the remainder of the fiscal year,
the Company currently anticipates an approximate additional $34.8 million of
capital expenditures primarily for the opening of new stores and expanding and
renovating existing stores. The actual amount of such capital expenditures will
depend on the number and type of stores being opened, expanded and renovated,
and the schedule of such activity during the remainder of fiscal 1996.
The Company's primary ongoing cash requirements will be to finance working
capital buildups during peak selling seasons, to fund new stores and expansions
and renovations of existing stores, to fund the stock repurchase plan and to pay
any dividends that may be declared from time to time. The Company anticipates
that cash from operating activities and from its borrowing facilities will be
sufficient to meet these current requirements.
The payment of dividends and the amount of any dividends will be determined
by the Board of Directors and will depend on many factors, including earnings,
operations, financial condition, capital requirements and general business
outlook. On May 23, 1996, the Company announced that the Board of Directors
approved an increase in the quarterly dividend to $.09 per share from $.07 per
share payable on June 17, 1996 to shareholders of record as of June 3, 1996.
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PART II - OTHER INFORMATION
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(b) REPORTS ON FORM 8-K
The Company filed a Current Report on Form 8-K on
February 7, 1996 pursuant to which the Company reported a
change its fiscal year end.
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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.
THE TALBOTS, INC.
Dated: June 14, 1996 By: /s/ Edward L. Larsen
--------------------
Edward L. Larsen
Duly authorized officer and Senior
Vice President of Finance, Chief
Financial Officer, and Treasurer
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<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CONDENSED
CONSOLIDATED STATEMENT OF EARNINGS AND CONDENSED CONSOLIDATED BALANCE SHEETS
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FORM 10Q FOR THE FISCAL
QUARTER ENDED MAY 4, 1996.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> FEB-01-1997
<PERIOD-START> FEB-04-1996
<PERIOD-END> MAY-04-1996
<CASH> 20,837
<SECURITIES> 0
<RECEIVABLES> 77,910
<ALLOWANCES> 1,135
<INVENTORY> 154,606
<CURRENT-ASSETS> 288,086
<PP&E> 162,873
<DEPRECIATION> 132,326
<TOTAL-ASSETS> 598,148
<CURRENT-LIABILITIES> 133,416
<BONDS> 0
<COMMON> 349
0
0
<OTHER-SE> 403,733
<TOTAL-LIABILITY-AND-EQUITY> 598,148
<SALES> 236,187
<TOTAL-REVENUES> 236,187
<CGS> 133,355
<TOTAL-COSTS> 200,467
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,088
<INCOME-PRETAX> 34,632
<INCOME-TAX> 13,853
<INCOME-CONTINUING> 20,779
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 20,779
<EPS-PRIMARY> 0.62
<EPS-DILUTED> 0
</TABLE>
