<PAGE>
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 Quarterly Period Ended Commission File Number:
October 31, 1997 0-23570
JUST FOR FEET, INC.
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(Exact name of registrant as specified in its charter)
Alabama 63-0734234
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
7400 Cahaba Valley Road, Birmingham, Alabama 35242
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (205) 408-3000
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N/A
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(Former name, former address and former fiscal year,
if changed since last report)
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 registrant's classes of
common stock, as of the latest practicable date:
Common Stock, par value $.0001 per share 29,991,319
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Class Outstanding at December 10, 1997
<PAGE>
PART I. FINANCIAL INFORMATION
<TABLE>
<CAPTION>
ITEM I. FINANCIAL STATEMENTS
JUST FOR FEET, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
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(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
October 31, January 31,
1997 1997
(UNAUDITED)
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<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 4,461 $138,785
Marketable securities available for sale 2,752 33,961
Accounts receivable, net 12,071 6,553
Merchandise inventories 168,338 133,323
Other current assets 6,731 2,121
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Total current assets 194,353 314,743
PROPERTY AND EQUIPMENT, NET 88,904 54,922
MARKETABLE SECURITIES AVAILABLE FOR SALE 1,337 2,966
FRANCHISE RIGHTS , NET 2,978 3,113
GOODWILL, NET 34,605
OTHER ASSETS 1,741 90
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$323,918 $375,834
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Short-term borrowings $ 538 $100,000
Accounts payable - trade 19,803 38,897
Accrued expenses 11,833 5,486
Income taxes 4,255 425
Obligations under capital leases and long-term
debt due within one year 2,027 2,105
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Total current liabilities 38,456 146,913
LONG-TERM DEBT 15,119 4,449
CAPITAL LEASE OBLIGATIONS 2,462 2,039
DEFERRED LEASE RENTALS 5,238 3,036
DEFERRED INCOME TAXES 798 840
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Total liabilities 62,073 157,277
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SHAREHOLDERS' EQUITY:
Common stock - par value $.0001 per share; authorized
70,000,000 shares; 29,984,319, and 28,494,646 shares issued and
outstanding at October 31, 1997 and January 31, 1997, respectively 3 3
Paid-in capital 218,398 190,492
Retained earnings 43,444 28,062
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Total shareholders' equity 261,845 218,557
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$323,918 $375,834
======== ========
The accompanying notes are an integral part of these unaudited condensed financial statements.
</TABLE>
1
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<TABLE>
<CAPTION>
JUST FOR FEET INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
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(In thousands, except per share amounts)
Three Months Ended Nine Months Ended
October 31, October 31,
------------------------- ---------------------------
1997 1996 1997 1996
-------- ------- -------- --------
<S> <C> <C> <C> <C>
NET SALES $131,033 $69,739 $336,205 $177,268
COST OF SALES 77,466 40,300 196,382 102,264
-------- ------- -------- --------
GROSS PROFIT 53,567 29,439 139,823 75,004
-------- ------- -------- --------
FRANCHISE FEES, ROYALTIES EARNED AND OTHER INCOME 284 161 762 396
-------- ------- -------- --------
OPERATING EXPENSES:
Store operating 37,922 18,116 97,563 47,456
Store opening costs 1,538 2,695 4,610 8,297
General and administrative 5,094 2,240 13,068 5,537
Amortization of intangibles 380 45 706 135
-------- ------- -------- --------
Total operating expenses 44,934 23,096 115,947 61,425
-------- ------- -------- --------
OPERATING INCOME 8,917 6,504 24,638 13,975
INTEREST INCOME 255 1,697 1,327 4,082
INTEREST EXPENSE (359) (299) (1,022) (720)
-------- ------- -------- --------
INCOME BEFORE INCOME TAXES AND CUMULATIVE EFFECT OF
CHANGE IN ACCOUNTING PRINCIPLE 8,813 7,902 24,943 17,337
PROVISION FOR INCOME TAXES 3,437 2,875 9,561 6,204
-------- ------- -------- --------
INCOME BEFORE CUMULATIVE EFFECT OF CHANGE
IN ACCOUNTING PRINCIPLE 5,376 5,027 15,382 11,133
CUMULATIVE EFFECT ON PRIOR YEARS (TO JANUARY 31, 1996)
OF CHANGE IN ACCOUNTING PRINCIPLE, NET OF TAXES - 2,041
-------- ------- -------- --------
NET INCOME $ 5,376 $ 5,027 $ 15,382 $ 9,092
======== ======= ======== ========
NET INCOME PER SHARE:
BEFORE CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING
PRINCIPLE $ 0.18 $ 0.17 $ 0.51 $ 0.39
CUMULATIVE EFFECT ON PRIOR YEARS (TO JANUARY 31, 1996)
OF CHANGE IN ACCOUNTING PRINCIPLE, NET OF TAXES 0.07
-------- ------- -------- --------
NET INCOME PER SHARE $ 0.18 $ 0.17 $ 0.51 $ 0.32
======== ======= ======== ========
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING 30,611 29,763 30,358 28,866
======== ======= ======== ========
</TABLE>
The accompanying notes are an integral part of these
unaudited condensed financial statements.
2
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<TABLE>
<CAPTION>
JUST FOR FEET, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
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(IN THOUSANDS)
Nine Months Ended
October 31,
-----------------------
1997 1996
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<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 15,382 $ 9,092
Adjustments to reconcile net income to
net cash used in operating activities:
Cumulative effect of change in accounting principle 2,041
Depreciation and amortization 5,373 2,823
Amortization of intangibles 706 135
Deferred income taxes (229) (266)
Deferred lease rentals 2,036 866
Changes in assets and liabilities providing (using) cash, net of
effects of acquisitions in 1997:
Accounts receivable (5,147) (3,476)
Merchandise inventories (18,559) (36,162)
Other assets (4,710) (1,036)
Accounts payable - trade (23,963) (8,302)
Accrued expenses 4,824 852
Income taxes 3,266 (1,736)
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Net cash used in operating activities (21,021) (35,169)
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INVESTING ACTIVITIES:
Purchases of marketable securities (14,726) (27,328)
Maturities and sales of marketable securities 47,564 47,052
Purchases of property and equipment (31,649) (23,161)
Acquisitions, net of cash acquired (25,521)
Other (25)
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Net cash used in investing activities (24,332) (3,462)
--------- --------
FINANCING ACTIVITIES:
Net repayments of short-term borrowings (99,462) (55,000)
Proceeds from long-term debt and capital lease obligations 11,848 659
Principal payments on long-term debt and capital lease obligations (2,140) (846)
Net proceeds from issuance of common stock 52,916
Exercise of stock options 783 1,588
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Net cash used in financing activities (88,971) (683)
--------- --------
NET DECREASE IN CASH AND CASH EQUIVALENTS (134,324) (39,314)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 138,785 96,854
--------- --------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 4,461 $ 57,540
========= ========
The accompanying notes are an integral part of these unaudited condensed financial statements.
</TABLE>
3
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JUST FOR FEET, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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NOTE 1 - GENERAL
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions of Form 10-Q. Accordingly, they
do not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. These
unaudited financial statements include all adjustments, consisting of normal,
recurring accruals, which Just For Feet, Inc. (the "Company") considers
necessary for a fair presentation of the financial position and the results of
operations for these periods.
The results of operations for the three months and nine months ended October 31,
1997 are not necessarily indicative of the results to be expected for the full
year ending January 31, 1998. For further information, refer to the financial
statements and notes thereto for the fiscal year ended January 31, 1997 included
in the Company's Form 10-K as filed with the Securities and Exchange Commission.
On June 24, 1997, the Company's shareholders adopted the Company's 1997 Employee
Incentive Plan which reserved and made available 1,400,000 shares of the
Company's common stock for distribution under the plan. At a special
shareholders meeting on August 4, 1997, shareholders approved an increase in the
amount of bonded indebtedness that the Company is authorized to incur to a level
not to exceed $300 million.
EARNINGS PER SHARE
Statement of Financial Accounting Standards No. 128, Earnings Per Share, is
effective for financial statements issued for periods ending after December 15,
1997, including interim periods. The statement requires the presentation of
basic and diluted net income per share. Basic net income per share excludes
common stock equivalents such as options, while diluted net income per share
considers the possible effect of all common shares which can be potentially
issued. Basic earnings per share for the quarter and nine months ended October
31, 1997 was $.18 and $.52 per share, respectively. Diluted net income per
share for the quarter and nine months ended October 31, 1997 would be the same
as the currently reported net income per share for the period.
NOTE 2 - CHANGE IN ACCOUNTING PRINCIPLE
Effective February 1, 1996, the Company changed its method for accounting for
store opening costs, which are costs principally for pre-opening salaries and
travel that are incremental and directly attributable to the opening of a new
store. Under the new method of accounting, the Company charges store opening
costs to operations in the month that the store opens. Previously, store
opening costs were capitalized and amortized over the twelve months following
the store opening. The cumulative effect of this change in accounting principle
resulted in a $2.0 million ($0.07 per share) charge to operations for the effect
on prior years (to January 31,1996), net of income taxes of $1.1 million.
4
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NOTE 3 - ACQUISITIONS
On March 17, 1997, the Company acquired Athletic Attic for approximately $9.7
million in cash, net of cash acquired, the repayment of approximately $1.3
million of Athletic Attic's debt, and approximately $5.6 million of common stock
(297,267 shares). On May 14, 1997, the Company acquired Imperial Sports for
approximately $5.8 million in cash, net of cash acquired, the repayment of
approximately $8.7 million of Imperial Sports' debt, and approximately $21.5
million of common stock (1,076,956 shares). These acquisitions have been
accounted for as purchases and, accordingly, the purchase price of Athletic
Attic and Imperial Sports (collectively "specialty stores") has been allocated
to assets acquired and liabilities assumed based upon their estimated fair
values as of the acquisition dates of each of these companies. The accompanying
consolidated statements of income for the three months and nine months ended
October 31, 1997 include the results of operations of Athletic Attic and
Imperial Sports from their respective acquisition dates. Goodwill which
resulted from these acquisitions, representing cost in excess of the fair market
value of net assets of the acquired businesses, is being amortized on a
straight-line basis over 30 years. The common stock issued in connection with
these acquisitions represents non-cash investing and financing activities for
the purpose of the statement of cash flows for the nine months ended October 31,
1997. Pro forma results of operations have not been presented because the
effects of the acquisitions of the specialty stores were not significant.
NOTE 4 - SHAREHOLDER SUIT
In July 1997, the Company announced that one of its shareholders filed a lawsuit
against the Company, certain of its officers and directors, certain shareholders
who sold shares in the Company's June 1996 public offering of common stock and
two of the four managing underwriters in such offering. The shareholder
purports to represent a class consisting of all persons who purchased common
stock of the Company on or traceable to the June 1996 offering. The suit
alleges that the Company's Registration Statement and Prospectus used in such
offering contained materially misleading financial statements. The Company, its
named officers and its named directors believe the claims are without merit,
deny any liability on those claims and intend to vigorously defend this suit.
5
<PAGE>
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
GENERAL
Just For Feet, Inc. is a rapidly growing operator of superstores specializing
in brand-name athletic and outdoor footwear. The Company's goal is to become
the leading athletic and outdoor footwear retailer in each of its markets by
offering in its superstores the largest selection of brand-name shoes, superior
customer service and technical sales assistance in a high-energy, entertaining
store environment. The Company, which began with a single mall-based store in
1977, opened its first superstore in 1988, and since that time has focused on
developing and refining its superstore concept. At October 31, 1997, there were
74 Just For Feet superstores operating in 18 states, including eight superstores
operated by the Company's only franchisee. Of the 66 Company operated
superstores, 23 were opened in fiscal 1996 and 16 superstores were opened during
the first nine months of fiscal 1997. The Company expects to open a total of 23
to 25 new superstores during fiscal 1997 and approximately 25 superstores in
fiscal 1998. The Company may accelerate the opening of new stores in any one
fiscal quarter.
In March 1997, the Company entered the smaller specialty store segment of the
athletic and outdoor footwear and apparel market with the acquisition of
Athletic Attic, a privately owned, athletic and outdoor footwear and apparel
retailer based in Gainesville, Florida. In May 1997, the Company also acquired
Imperial Sports, a privately owned, Flint, Michigan-based athletic and outdoor
footwear and apparel retailer. As a result of the acquisitions of the
specialty stores, at October 31, 1997 the Company operated 87 company and 52
franchised specialty stores in 18 states and Puerto Rico. The acquired stores
have a higher general and administrative expense structure and slightly higher
store expense margin than the Company's superstores. The Company plans to open
approximately ten new specialty stores during fiscal 1997 since the dates of
acquisition and approximately 25 new specialty stores during fiscal 1998.
To accommodate the Company's superstore expansion strategy and the development
of the smaller specialty store concept, the Company has invested in expanding
and upgrading its corporate staff. As a result, the Company's general and
administrative costs (including amortization of intangibles) increased to 4.2%
of net sales during the third quarter of 1997 from 3.3% in the comparable prior
year period. The Company expects general and administrative expenses will
continue to increase as a percentage of sales over the prior year period as a
result of this investment and the higher general and administrative cost
structure in the acquired specialty stores.
The minimum wage increases have resulted in an increase in the Company's
payroll expense. As a result, store operating expenses as a percentage of net
sales have increased over prior year periods. The Company has implemented new
scheduling policies and practices to help mitigate the overall impact of the
increase. However, there can be no assurance that additional increases in the
minimum wage will not affect store operating expenses in future periods.
In recent years, the Company has achieved positive comparable superstore sales
growth on an annual basis. During the three and nine month periods ended
October 31, 1997, comparable store sales increased 4.9% and 4.7%, respectively.
There can be no assurance that comparable store sales will continue to increase
at historical rates, or at all. The specialty stores will not be included in
the comparable store base until such stores have been owned and operated by the
Company for twelve full months.
The Company's fiscal year ends on January 31. References to fiscal year by
date refer to the fiscal year beginning February 1 of that calendar year; for
example "fiscal 1997" began on February 1, 1997 and will end on January 31,
1998.
6
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, income statement data
expressed as a percentage of net sales:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
October 31, October 31,
----- ----- ----- -----
1997 1996 1997 1996
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<S> <C> <C> <C> <C>
`NET SALES 100.0% 100.0% 100.0% 100.0%
COST OF SALES 59.1 57.8 58.4 57.7
----- ----- ----- -----
GROSS PROFIT 40.9 42.2 41.6 42.3
FRANCHISE FEES, ROYALTIES EARNED AND OTHER INCOME 0.2 0.2 0.2 0.2
OPERATING EXPENSES:
Store operating 28.9 26.0 29.0 26.8
s Store opening costs 1.2 3.9 1.4 4.7
General and administrative 3.9 3.2 3.9 3.1
Amortization of intangibles 0.3 0.1 0.2 0.1
----- ----- ----- -----
OPERATING INCOME 6.8 9.2 7.3 7.8
INTEREST INCOME - NET (0.1) 2.0 0.1 1.9
----- ----- ----- -----
INCOME BEFORE INCOME TAXES AND CUMULATIVE EFFECT OF
CHANGE IN ACCOUNTING PRINCIPLE 6.7 11.2 7.4 9.7
PROVISION FOR INCOME TAXES 2.6 4.1 2.8 3.5
----- ----- ----- -----
INCOME BEFORE CUMULATIVE EFFECT OF CHANGE IN
ACCOUNTING PRINCIPLE 4.1 7.1 4.6 6.2
CUMULATIVE EFFECT ON PRIOR YEARS (TO JANUARY 31, 1996) OF CHANGE
IN ACCOUNTING PRINCIPLE, NET OF TAXES 0.0 0.0 0.0 1.2
----- ----- ----- -----
NET INCOME 4.1% 7.1% 4.6% 5.0%
----- ----- ----- -----
</TABLE>
7
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THREE MONTHS ENDED OCTOBER 31, 1997 COMPARED TO THREE MONTHS ENDED OCTOBER 31,
1996
Net Sales - Net sales increased $61.3 million, or approximately 87.9%, to
$131.0 million in the third quarter of fiscal 1997 compared to net sales of
$69.7 million for the third quarter of fiscal 1996. This increase was primarily
attributable to 22 new superstores opened since October 31, 1996, an increase in
comparable store sales of 4.9% and additional sales of $19.0 million from the
specialty stores acquired in 1997. The calculation of comparable superstore
sales included 39 superstores at October 31, 1997.
Athletic Attic was acquired on March 17, 1997 and Imperial Sports was acquired
on May 14, 1997. Both acquisitions have been accounted for as purchases and,
accordingly, the results of operations of these acquired businesses are included
in the Company's consolidated statement of income from their respective
acquisition dates.
Gross Profit - Gross profit increased in the third quarter of fiscal 1997 $24.1
million or 82.0% as a result of increased sales. As a percentage of net sales,
gross profit declined in the third quarter of fiscal 1997 to 40.9% from 42.2% in
the third quarter of fiscal 1996 primarily as a result of promotional programs
utilized to increase sales and to reduce inventory levels.
Store Operating Expenses. Store operating expenses increased $19.8 million or
approximately 109.3% to $37.9 million in the third quarter of fiscal 1997 from
$18.1 million in the third quarter of fiscal 1996. The increase was primarily
attributable to the operating expenses of the 22 superstores opened since
October 31, 1996, and the operating expenses of the acquired specialty stores.
As a percentage of net sales, store operating expenses increased to 28.9% from
26.0% in the third quarter of last year primarily as a result of increased
superstore regional management payroll and related expenses and the increase in
superstore level payroll as a result of the impact of the minimum wage increases
in September 1996 and September 1997, as well as the higher store operating cost
structure in the specialty stores.
Store Opening Costs. Store opening costs are charged to operations in the month
the applicable store opens. These costs decreased approximately $1.2 million to
approximately $1.5 million in the third quarter of fiscal 1997 from
approximately $2.7 million in the third quarter of fiscal 1996. During each of
the current and prior year fiscal quarters, five superstores were opened. The
reduction in per store opening costs was a result of increased focus on
controlling costs in this area.
General and Administrative Expenses. General and administrative expenses
increased to approximately $5.1 million, or approximately 127.4%, in the third
quarter of fiscal 1997 from approximately $2.2 million in the third quarter of
fiscal 1996. As a percentage of net sales, general and administrative expenses
increased to approximately 3.9% in the third quarter of fiscal 1997 from
approximately 3.2% in the third quarter of fiscal 1996. This increase was
primarily attributable to increased corporate staff to support the Company's
planned growth and the acquisitions of the specialty stores which have higher
general and administrative expenses as a percentage of net sales than the
Company had experienced prior to the acquisitions.
Amortization of Intangibles. Amortization of intangibles, which includes
amortization of goodwill and franchise rights, increased to approximately
$380,000 for the third quarter of fiscal 1997 from approximately $45,000 in the
third quarter of fiscal 1996. This increase was primarily attributable to the
amortization of goodwill resulting from the acquisitions of Athletic Attic and
Imperial Sports.
Operating Income. Operating income increased 37.1% to $8.9 million in the third
quarter of fiscal 1997 from $6.5 million in the third quarter of fiscal 1996.
Operating income, as a percentage of net sales, decreased to 6.8% in the third
quarter of fiscal 1997 from 9.2% in the third quarter of fiscal 1996 primarily
due to the decrease in gross profit percentage and increases in store operating
expenses, general and administrative expenses and amortization of intangibles,
as discussed above.
8
<PAGE>
Net Interest Income(Expense). Net interest expense was approximately $100,000
in the third quarter of fiscal 1997, compared to net interest income of
approximately $1.4 million in the third quarter of fiscal 1996. The decrease
was primarily due to the decrease in cash available for investment as a result
of the financing of the acquisitions of the specialty stores and the cash
outlays for opening 22 superstores since October 31, 1996.
Income Taxes. The Company's effective combined federal and state income tax
rate increased to 39% in the quarter ending October 31, 1997 compared to 36.4%
in the third quarter of the prior year. The increase in the effective tax rate
resulted primarily from the impact in 1997 of lower tax free interest income
which is not included in taxable income, higher goodwill amortization from the
acquisitions which is not deductible in the computation of taxable income, and
the expansion of the Company's operations into higher tax rate states.
Net Income. As a result of the above factors, net income increased 6.9% to
approximately $5.4 million in the third quarter of fiscal 1997 from $5.0 million
in the third quarter of fiscal 1996.
NINE MONTHS ENDED OCTOBER 31, 1997 COMPARED TO NINE MONTHS ENDED OCTOBER 31,
1996
Net Sales - Net sales increased $158.9 million, or approximately 89.7%, to
$336.2 million in the first nine months of fiscal 1997 compared to net sales of
$177.3 million for the first nine months of fiscal 1996. This increase was
primarily attributable to 22 new superstores opened since October 31, 1996, an
increase in comparable store sales of 4.7%, and additional sales of $38.2
million from the specialty stores acquired in 1997. The calculation of
comparable store sales included 39 superstores at October 31, 1997.
Athletic Attic was acquired on March 17, 1997 and Imperial Sports was acquired
on May 14, 1997. Both acquisitions have been accounted for as purchases and,
accordingly, the results of operations of these acquired businesses are included
in the Company's consolidated statement of income from their respective
acquisition dates.
Gross Profit - Gross profit increased $64.8 million or 86.4% for the nine month
period in fiscal 1997 as a result of increased sales. As a percentage of net
sales, gross profit declined to 41.6% for the nine month period in fiscal 1997
from 42.3% in the comparable nine month period of the prior year primarily as a
result of promotional programs utilized to increase sales and to reduce
inventory levels.
Store Operating Expenses. Store operating expenses increased $50.1 million, or
approximately 105.6%, to $97.6 million in the first nine months of fiscal 1997
from $47.5 million in the first nine months of fiscal 1996. The increase was
primarily attributable to the operating expenses of the 22 superstores opened
since October 31, 1996, and the operating expenses of the acquired specialty
stores. As a percentage of net sales, store operating expenses increased to
29.0% for the nine month period ended October 31, 1997 from 26.8% for the first
nine months of fiscal 1996 primarily as a result of increased superstore
regional management payroll and related expenses and the increase in superstore
level payroll as a result of the impact of the minimum wage increase in
September 1996 and September 1997, as well as the higher store operating cost
structure at the specialty store group.
Store Opening Costs. Store opening costs are charged to operations in the month
the applicable store opens. Sixteen superstores were opened in the nine month
period ended October 31, 1997 compared to 17 superstores opened in the nine
month period ended October 31, 1996. These costs decreased approximately $3.7
million to approximately $4.6 million in the first nine months of fiscal 1997
from approximately $8.3 million in the first nine months of fiscal 1996,
reflecting a reduction in per store opening costs as a result of increased focus
on controlling costs in this area.
9
<PAGE>
General and Administrative Expenses. General and administrative expenses
increased to $13.1 million, or approximately 136.0%, in the first nine months of
fiscal 1997 from $5.5 million in the first nine months of fiscal 1996. As a
percentage of net sales, general and administrative expenses increased to
approximately 3.9% in the first nine months of fiscal 1997 from approximately
3.1% in the first nine months of fiscal 1996. This increase was primarily
attributable to increased corporate staff to support the Company's planned
growth and the acquisitions of the specialty stores which have higher general
and administrative expenses as a percentage of net sales than the Company had
experienced prior to the acquisitions.
Amortization of Intangibles. Amortization of intangibles, which includes
amortization of goodwill and franchise rights, increased to approximately
$706,000 for the first nine months of fiscal 1997 from approximately $135,000
for the first nine months of fiscal 1996. This increase was primarily
attributable to the amortization of goodwill resulting from the acquisitions of
Athletic Attic and Imperial Sports.
Operating Income. Operating income increased to $24.6 million in the first nine
months of fiscal 1997 from $14.0 million in the first nine months of fiscal
1996. Operating income, as a percentage of net sales, decreased to 7.3% in the
first nine months of fiscal 1997 from 7.8% in the first nine months of fiscal
1996 primarily due to the decrease in gross profit percentage and increases in
store operating expenses, general and administrative expenses and amortization
of intangibles, as discussed above.
Net Interest Income(Expense). Net interest income was approximately $300,000 in
the first nine months of fiscal 1997, compared to net interest income of
approximately $3.4 million in the first nine months of fiscal 1996. The
decrease was primarily due to the decrease in cash available for investment as a
result of the financing the acquisitions of the specialty stores and the cash
outlays for opening 22 superstores since October 31, 1996.
Income Taxes. The Company's effective combined federal and state income tax
rate increased to 38.3% for the nine months ending October 31, 1997 versus 35.8%
for the nine months ending October 31, 1996. The increase in the effective tax
rate resulted primarily from the impact in 1997 of lower tax free interest
income which is not included in taxable income, higher goodwill amortization
from the acquisitions which is not deductible in the computation of taxable
income, and the expansion of the Company's operations into higher tax rate
states.
Net Income. As a result of the above factors, net income increased to $15.4
million in the first nine months of fiscal 1997 from net income before
cumulative effect of change in accounting principle of $11.1 million in the
first nine months of fiscal 1996.
LIQUIDITY AND CAPITAL RESOURCES
Primary sources of working capital of the Company are cash flows from
operations and borrowings under its line of credit. The Company had working
capital of $155.9 million and $167.8 million at October 31, 1997 and January
31, 1997, respectively. The principal use of working capital has been to
purchase inventory, equipment and fixtures. During the first nine months of
fiscal 1997, the Company acquired approximately $31.6 million of property and
equipment, including spending approximately $15.4 million to construct and open
new stores, approximately $3.7 million for improvements to existing locations,
approximately $7.9 million on the construction of its new corporate headquarters
facility, and approximately $4.6 million on corporate management information
systems and store level systems and equipment. The Company also paid cash
totaling $15.5 million, net of cash acquired, and repaid approximately $10.0
million of debt in connection with the acquisitions of specialty stores. The
Company's short-term operational cash requirements are not highly seasonal. The
Company had approximately $8.6 million in cash and marketable securities as of
October 31, 1997.
As of October 31, 1997, the Company had borrowed $538,000 under its revolving
bank line of credit. The line of credit, which expires July 1, 1998, permits
10
<PAGE>
the Company to borrow up to $20.0 million for general working capital purposes.
Borrowings under the line of credit bear interest at either the bank's prime
rate or at the LIBOR rate plus 1.25% (6.9% at October 31, 1997) and are
unsecured. The line of credit contains certain financial covenants and other
restrictions. The Company also has several financing arrangements that are
utilized to finance certain store fixtures, point-of-sale ("POS") equipment and
management information systems.
Just For Feet's future capital requirements are primarily for the opening and
of new Just For Feet superstores and new specialty stores, for remodeling and
for the purchase of new POS equipment. The Company estimates that the total
cash required to remodel and restock one of the smaller acquired specialty
stores should range from $25,000 to $250,000, depending on the amount of
remodeling which will be required and the mix and quantity of each of the
acquired store's inventory. The Company estimates that the total cash required
to open a new 15,000 to 20,000 square foot prototype superstore, including store
fixtures and equipment, leasehold improvements, net working capital and pre-
opening costs, typically ranges from $1.8 million to $2.4 million, depending on
the amount of vendor and landlord assistance. The Company currently expects to
open approximately 25 superstores and approximately 25 specialty stores in
fiscal 1998.
The Company is not currently planning any material major expenditures other
than those mentioned above, and believes that internally generated funds, cash
on hand and its line of credit will be adequate to fund its anticipated needs
through at least the end of fiscal 1998.
SEASONALITY
The Company's business is subject to some seasonal fluctuations with slightly
heavier concentrations of sales during the spring, back-to-school and Christmas
selling seasons. The Company also generally experiences lower margins during
January and February due to retail markdowns taken to clear seasonal
merchandise. Quarterly results may fluctuate as new stores open.
IMPACT OF INFLATION
The Company does not believe that inflation has had a material, adverse effect
on net sales or results of operations. The Company has generally been able to
pass on increased costs through increases in selling prices.
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS
Certain statements contained in this filing are "forward-looking statements"
within the meaning of the Private Securities Litigation Reform Act of 1995, such
as statements relating to financial results and plans for future business
development activities, and are thus prospective. Such forward-looking
statements are subject to risks, uncertainties and other factors which could
cause actual results to differ materially from future results expressed or
implied by such forward-looking statements. Potential risks and uncertainties
include, but are not limited to, general economic conditions, competition and
other uncertainties detailed from time to time in the Company's Securities and
Exchange Commission filings.
PART II
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
- ------- ----------------------------------------------------
On August 4, 1997, the Company held a special meeting of shareholders. At the
meeting, the Company's shareholders approved a proposal to increase the amount
of bonded indebtedness the Company is authorized to incur to a level not to
exceed $300 million. The number of votes cast in favor of such proposal was
22,149,736, the number of votes cast against the proposal was 111,994. There
were 132,513 abstentions and no broker non-votes.
11
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
- ------- ---------------------------------
(a) Exhibits. No exhibits are required to be filed with this Report.
(b) Reports on Form 8-K. No Reports on Form 8-K were filed during the three
months ended October 31, 1997.
12
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
JUST FOR FEET, INC.
Dated: December 12, 1997 By: /s/ Harold Ruttenberg
-----------------------------------
Harold Ruttenberg
Chairman, President and Chief
Executive Officer
Dated: December 12, 1997 By: /s/ Eric L. Tyra
-----------------------------------
Eric L. Tyra
Executive Vice President and
Chief Financial Officer
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 9-MOS 9-MOS
<FISCAL-YEAR-END> JAN-31-1998 JAN-31-1997
<PERIOD-START> FEB-01-1997 FEB-01-1996
<PERIOD-END> OCT-31-1997 OCT-31-1996
<CASH> 4,461 138,785
<SECURITIES> 4,089 36,927
<RECEIVABLES> 12,071 6,553
<ALLOWANCES> 0 0
<INVENTORY> 168,338 133,323
<CURRENT-ASSETS> 194,353 314,743
<PP&E> 100,810 61,482
<DEPRECIATION> 11,906 6,560
<TOTAL-ASSETS> 323,918 375,834
<CURRENT-LIABILITIES> 38,456 146,913
<BONDS> 0 0
0 0
0 0
<COMMON> 3 3
<OTHER-SE> 261,842 218,554
<TOTAL-LIABILITY-AND-EQUITY> 323,918 375,834
<SALES> 336,205 177,268
<TOTAL-REVENUES> 338,294<F1> 181,746<F1>
<CGS> 196,382 102,264
<TOTAL-COSTS> 298,555<F2> 158,017<F2>
<OTHER-EXPENSES> 13,774<F3> 5,672<F3>
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 1,022 720
<INCOME-PRETAX> 24,943 17,337
<INCOME-TAX> 9,561 6,204
<INCOME-CONTINUING> 15,382 11,133
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 2,041
<NET-INCOME> 15,382 9,092
<EPS-PRIMARY> $0.51 $0.32
<EPS-DILUTED> $0.51 $0.32
<FN>
<F1> Includes sales, franchise fees and royalties earned and interest income.
<F2> Includes CGS, store operating and store opening costs.
<F3> Includes general and administrative and amortization of goodwill and Franchise Rights.
</FN>
</TABLE>
