FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark one)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended October 30, 1999
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 1-7288
THE BOMBAY COMPANY, INC.
(Exact name of registrant as specified in its charter)
Delaware 75-1475223
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
550 Bailey Avenue, Fort Worth, Texas 76107
(Address of principal executive offices) (Zip Code)
(817) 347-8200
(Registrant's telephone number, including area code)
(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
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
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.
Class Number of shares outstanding at October 30,
1999
Common stock, $1 par value 36,299,615
THE BOMBAY COMPANY, INC. AND SUBSIDIARIES
Form 10-Q
Quarter Ended October 30, 1999
TABLE OF CONTENTS
PART I -- FINANCIAL INFORMATION
Item Page No.
1. Financial Statements............................................... 3-6
2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.............................. 7-11
PART II -- OTHER INFORMATION
6. Exhibits and Reports on Form 8-K................................... 12
Signatures......................................................... 13
<TABLE>
THE BOMBAY COMPANY, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
(In thousands, except per share amounts)
(Unaudited)
<CAPTION>
Three Months Ended Nine Months Ended
October 30, October 31, October 30, October 31,
1999 1998 1999 1998
<S> <C> <C> <C> <C>
Net sales $85,256 $75,878 $251,304 $226,232
Costs and expenses:
Cost of sales, buying and store 63,137 56,141 183,859 169,101
occupancy costs
Selling, general and 26,124 24,635 75,467 70,351
administrative expenses
Interest (income), net (84) (311) (787) (1,431)
Total costs and expenses 89,177 80,465 258,539 238,021
Loss before income taxes (3,921) (4,587) (7,235) (11,789)
Benefit for income taxes (1,563) (1,812) (2,859) (4,657)
Net loss ($2,358) ($2,775) ($4,376) ($7,132)
Basic earnings per share ($0.06) ($0.07) ($0.12) ($0.19)
Diluted earnings per share ($0.06) ($0.07) ($0.12) ($0.19)
Average common shares outstanding
and dilutive potential common shares 36,369 37,525 36,533 37,901
Cash dividends per common share -- -- -- --
<FN>
The accompanying notes are an integral part of
these consolidated financial statements.
</TABLE>
<TABLE>
THE BOMBAY COMPANY, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(Dollars in thousands)
<CAPTION>
October 30, January 30, October 31,
1999 1999 1998
ASSETS (Unaudited) (Unaudited)
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents $5,498 $52,809 $9,765
Inventories 112,178 76,659 96,776
Other current assets 12,101 7,303 16,912
Total current assets 129,777 136,771 123,453
Property and equipment, net 48,246 44,412 45,474
Goodwill, less amortization 492 512 519
Other assets 13,389 11,824 10,518
Total assets $191,904 $193,519 $179,964
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C> <C>
Current liabilities:
Notes payable to banks $3,535 $0 $0
Accounts payable and accrued 27,798 23,646 22,384
expenses
Accrued payroll and bonuses 1,883 3,214 1,425
Gift certificates redeemable 3,431 3,487 2,754
Total current liabilities 36,647 30,347 26,563
Accrued rent and other liabilities 7,171 7,029 6,911
Stockholders' equity:
Preferred stock, $1 par value,
1,000,000 shares authorized -- -- --
Common stock, $1 par value,
50,000,000
shares authorized, 38,149,646;
38,149,646 and 38,141,437
shares issued, respectively 38,150 38,150 38,141
Additional paid-in capital 76,154 76,044 76,021
Retained earnings 45,057 49,433 38,291
Accumulated other comprehensive (1,234) (1,501) (1,608)
income
Common shares in treasury, at
cost, 1,850,031;
1,170,930 and 841,936 shares, (9,517) (5,983) (4,355)
respectively
Stock purchase loans (524) -- --
Total stockholders' equity 148,086 156,143 146,490
Total liabilities and stockholders' $191,904 $193,519 $179,964
equity
<FN>
The accompanying notes are an integral part
of these consolidated financial statements.
</TABLE>
<TABLE>
THE BOMBAY COMPANY, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Dollars in thousands)
(Unaudited)
<CAPTION>
Nine Months Ended
October 30, October 31,
1999 1998
<S> <C> <C>
Cash flows from operating activities:
Net loss ($4,376) ($7,132)
Adjustments to reconcile net loss
to net cash from operations:
Depreciation and amortization 9,138 7,574
Deferred taxes and other (16) 9
Change in assets and liabilities:
Increase in inventories (35,193) (11,468)
Increase in other current assets (3,694) (8,752)
Increase (decrease) in current liabilities 5,141 (4,803)
(Increase) decrease in noncurrent assets 154 (2,350)
Increase in noncurrent liabilities 339 166
Net cash used by operations (28,507) (26,756)
Cash flows from investing activities:
Purchases of property, equipment and software (14,724) (15,981)
Sales of property and equipment 206 379
Net cash used by investing activities (14,518) (15,602)
Cash flows from financing activities:
Purchase of treasury stock (4,466) (4,378)
Sale of stock to employee benefit plans 159 108
Issuance of stock purchase loans (43) --
Proceeds from the exercise of employee stock 188 35
options
Net cash used by financing activities (4,162) (4,235)
Effect of exchange rate change on cash (124) 248
Net decrease in cash and cash equivalents (47,311) (46,345)
Cash and cash equivalents at beginning of 52,809 56,110
period
Cash and cash equivalents at end of period $5,498 $9,765
<CAPTION>
Supplemental disclosure of cash flow information:
<S> <C> <C>
Income taxes paid $1,688 $2,032
<FN>
The accompanying notes are an integral part o
these consolidated financial statements.
</TABLE>
THE BOMBAY COMPANY, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(1) Accounting Principles
In the opinion of the Company, the accompanying consolidated financial
statements contain all adjustments (consisting of only normal recurring
adjustments) necessary to present fairly the financial position as of October
30, 1999 and October 31, 1998, and the results of operations and cash flows for
the three and nine months then ended. The results of operations for the three
and nine month periods ended October 30, 1999 and October 31, 1998 are not
necessarily indicative of the results to be expected for the full fiscal year.
The consolidated financial statements should be read in conjunction with the
financial statement disclosures contained in the Company's 1998 Annual Report to
Shareholders.
(2) Financing Arrangements
The Company has renewed its unsecured revolving credit agreements with banks,
aggregating $45,000,000, of which $30,000,000 is committed. These credit
facilities, which expire May 13, 2000, are for working capital and letter of
credit purposes, primarily to fund seasonal merchandise purchases, and bear
interest at market rates based on prime. As of October 30, 1999, $3,535,000 in
short term bank borrowings was outstanding under these facilities which is
expected to be repaid during the fourth quarter of Fiscal 1999.
(3) Comprehensive Income
Comprehensive loss was $2,182,000 and $2,959,000 for the three months ended
October 30, 1999 and October 31, 1998, respectively. For the nine months ended
October 30, 1999 and October 31, 1998, comprehensive loss was $4,109,000 and
$7,537,000, respectively.
(4) Stock Buy Back Program
On June 17, 1998, the Company announced that its Board of Directors had
approved a stock buy back program with initial authorization to purchase up to
$10 million of the Company's stock. On August 18, 1999, the Company further
announced that its Board of Directors had approved an increase to the stock buy
back program to purchase up to an additional $5 million of the Company's stock.
The shares may be purchased from time to time, through open market purchases and
privately negotiated transactions. As of October 30, 1999, 2,069,016 shares had
been purchased at a cost aggregating $10,636,000.
(5) Stock Purchase Loans
On August 26, 1999, the Board of Directors elected to offer full recourse
loans in limited amounts to certain Company officers to enable them to increase
their ownership in the Company by purchasing Company stock and further align the
interests of the officers with those of the shareholders. The loans are secured
by the stock purchased, bear interest at Applicable Federal Rates, and are due
three years from the date of borrowings. To date, $524,000 has been borrowed
under these terms, and the notes receivable are reflected as a reduction in
stockholders' equity. Of the total, $481,000 was used to purchase shares from
the Company's treasury at current market prices while the remainder was
purchased through open market transactions.
THE BOMBAY COMPANY, INC. AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Special Note Regarding Forward-Looking Statements
Certain statements in this Form 10-Q under "Management's Discussion and
Analysis of Financial Condition and Results of Operations" constitute "forward-
looking statements" within the meaning of the Private Securities Litigation
Reform Act of 1995. Such forward-looking statements involve known and unknown
risks, uncertainties and other factors which may cause the actual results,
performance or achievements of The Bombay Company, Inc. ("Company") to be
materially different from any future results, performance or achievements
expressed or implied by such forward-looking statements. Such factors include,
among others, the following: competition; seasonality; success of operating
initiatives; new product development and introduction schedules; acceptance of
new product offerings; advertising and promotional efforts; adverse publicity;
expansion of the store chain; availability, locations and terms of sites for
store development; changes in business strategy or development plans;
availability and terms of capital; labor and employee benefit costs; changes in
government regulations; risks associated with international business; regional
weather conditions; the effects of Year 2000 issues; and other factors
referenced in the Company's 1998 Form 10-K Annual Report.
General
The Bombay Company, Inc. is a specialty retailer which markets traditional and
classic furniture, prints and accessories through its 424 locations of The
Bombay Company ("Bombay") retail stores in 42 states in the United States and
nine Canadian provinces, through mail order and over the internet at
www.bombayco.com.
The largest percentage of the Company's sales and operating income is realized
in the fiscal quarter that includes December (Christmas season). Merchandise is
manufactured to Company specification through a network of contract
manufacturers located principally in Asia and North America. Because the
majority of the Company's products are proprietary, the impact of inflation on
operating results is typically not significant. The Company attempts to
alleviate inflationary pressures by increasing selling prices (subject to
competitive conditions), improving designs and finding alternative production
sources in lower cost countries.
Results of Operations
Quarters Ended October 30, 1999 and October 31, 1998
Net sales were $85,256,000 for the quarter ended October 30, 1999 compared to
$75,878,000 for the same period last year, an increase of 12%. The increase is
attributable to a same store sales increase of 6% as well as there being 9 more
stores than at October 31, 1998. Sales increases are primarily related to the
increased focus on accessories and impulse items, designed to attract more
customers and grow our customer base. Accessories represented 27% of the sales
during the quarter
compared to 23% in the third fiscal quarter of last year, and accounted for
virtually all of the sales increase for the period. During the quarter ended
October 30, 1999, the transaction count increased by almost 35% over the
comparable quarter last year, while the average transaction declined from $109
to $89 during the applicable periods. Sales per square foot increased 7% to $63
per square foot from $59 per square foot for the prior year quarter.
Cost of sales, including buying and occupancy costs, was $63,137,000 for the
third fiscal quarter compared to $56,141,000 for the same period last year. As
a percentage of sales, cost of sales remained almost constant at 74.1% for the
quarter compared to 74.0% for the prior year period. This is comprised of an 80
basis point decline in product margin offset by an improvement in buying and
occupancy costs of 70 basis points. The decline in product margin is primarily
related to the mix of promotional and non promotional merchandise.
Specifically, the promotional mix was impacted by the need to discount special
purchases that proved to be too experimental for our core customer, as well as
deep discounts on clearance merchandise to make room for new product for Fall.
In addition, the Company experienced some delays in deliveries of key product in
the bedroom furniture category which resulted in less sales of non promotional
merchandise. Buying and store occupancy costs increased by almost $1.7 million
to $20.2 million for the quarter, a function of increased store square footage,
higher construction costs associated with new stores and increased depreciation
on the new point-of-sale equipment now in stores. However, as a percentage of
sales, buying and occupancy costs improved, leveraged on the higher sales
volume.
Selling, general and administrative expenses were $26,124,000 or 30.6% of
sales for the quarter compared to $24,635,000 or 32.5% of sales for the
comparable prior year period. The dollar increase is largely the result of
higher payroll costs driven by higher store pay rates in the tight labor market.
Advertising and visual merchandising costs decreased from the prior year due to
differences in timing and economies of scale which partially offset the higher
payroll costs. As a percentage of sales, selling, general and administrative
expenses declined primarily related to advertising costs.
Nine Months Ended October 30, 1999 and October 31, 1998
Net sales were $251,304,000 for the nine months ended October 30, 1999
compared to $226,232,000 for the same period last year, an increase of 11%.
Same store sales increased 6% for the year to date. Sales increases are
primarily attributable to the increased focus on accessories and impulse items,
designed to attract more customers and grow our customer base. For the year to
date, accessories account for approximately 75% of the growth in sales.
Cost of sales, including buying and occupancy costs, was $183,859,000 or 73.2%
of sales for the nine months compared to $169,101,000 or 74.7% of sales for the
comparable prior year period. The 150 basis point improvement is due primarily
to higher product margins (120 basis points) as well as a slight improvement in
buying and occupancy costs (30 basis points) as fixed costs are leveraged on the
higher sales base. The higher product margins are the result of continued
improvement in product offering which involved less clearance merchandise, more
selective promotions and higher initial margins.
Selling, general and administrative expenses were $75,467,000 or 30.0% of
sales for the nine months compared to $70,351,000 or 31.1% of sales for the same
period last year. The dollar increase results primarily from higher payroll
costs driven by higher store pay rates in the tight labor market. The decrease
in selling, general and administrative expenses as a percentage of sales is due
partially to lower advertising costs and also to continued efforts to exercise
strong controls and leverage costs on the higher sales base.
Liquidity and Capital Resources
The primary sources of liquidity and capital resources are cash flows from
operations and bank lines of credit. Bank borrowings are utilized to fund
seasonal inventory purchases. In addition, the bank credit lines are used for
overseas merchandise purchases under letters of credit. Bank lines total $45
million, of which $30 million is committed, under revolving credit agreements
expiring May 13, 2000. Borrowings of $3,535,000, which are expected to be
repaid during the fourth quarter of Fiscal 1999, and letters of credit totaling
$16,424,000 were outstanding at October 30, 1999.
The primary uses of cash flows have been inventory purchases, expansion of the
store base and information technology systems upgrades as well as purchases of
treasury stock. At October 30, 1999, inventory levels were $15.4 million higher
than at the same time last year. The increase is in line with Company plans and
reflects the higher sales levels, increased focus on accessories and additional
Christmas merchandise offerings. Limited early purchasing for Spring has also
been done in anticipation of potential Year 2000 shipping delays.
The store expansion plan for the remainder of the fiscal year anticipates
approximately 3 new stores and 1 conversion to the large format, all in the
newer store design. Capital expenditures for the year to date, totaling
$14,724,000, included nine new stores, seven new outlets and 11 conversions as
well as store point-of-sale equipment replacement, software and other routine
furniture and equipment purchases. The total estimated capital expenditures for
Fiscal 1999 are $19 million.
The Company also continues a stock buy back program approved by the Board of
Directors in June 1998 and extended in August 1999. As of October 30, 1999, of
the total $15 million approved under the program, the Company has used $10.6
million to purchase 2,069,016 shares of the Company's common stock.
The Company believes that its current cash position, cash flows from
operations and credit line facilities will be more than sufficient to fund its
current operations, stock buy back and capital expenditure programs.
Year 2000 Conversion
The Company recognizes the need to ensure that it will be prepared for Year
2000 issues and is engaged in an ongoing and comprehensive effort to mitigate
such risks. The impact of Year 2000 has been addressed not only on information
technology but also on other functional areas of the Company. Remediation
efforts have been in process since 1997 and contingency plans continue to be
developed. The overall objective of the Company's efforts has been to identify
and remediate Year 2000 related conditions that could reasonably be expected to
cause a mission critical failure if not addressed. Efforts related to this
objective have focused on a review of all proprietary and third-party systems
and software, as well as an analysis of the risks inherent in significant
business partner
and vendor relationships. The Company's Year 2000 program and associated
resources are primarily directed toward ensuring that the Company will be able
to effect sales, order and receive merchandise, and pay its vendors and
employees.
The Company's merchandising system was implemented in 1994 and was designed to
be Year 2000 compliant; however, testing was not performed at that time to
determine its readiness. An eight-tiered project, the Company's most extensive
effort related to Year 2000, to identify, remediate and test Year 2000 issues
with this software and other ancillary systems began in Summer 1997 and was
completed in October 1999.
During Fiscal 1999, the Company replaced its store hardware and operating
software including the polling systems. The new store infrastructure upgrade,
which included the roll out of Year 2000 compliant hardware and operating
systems, began in May 1999 and was completed in October 1999. The back office
polling system and the Company's existing proprietary point-of-sale application
software have also been made compliant.
During Fiscal 1998, the existing financial accounting and reporting software
was upgraded by its vendor. The vendor has certified that, with this upgrade,
the system is Year 2000 compliant.
During Fiscal 1998, the Company also implemented new payroll and human
resources systems, each of which is certified by the respective vendor to be
Year 2000 compliant and which replaced a non-compliant system.
For those systems which the respective vendor has certified as Year 2000
compliant, the Company has elected selective testing to be performed throughout
the remainder of 1999. The Company has also engaged a third party to perform a
due diligence review of remediation efforts in the information technology area.
The Company has also been communicating with its significant business partners
and vendors in an effort to identify those that will not or may not be Year 2000
compliant. They include landlords, international and domestic vendors who supply
merchandise to the Company for resale, suppliers of services such as banks and
financial services, data processing services, advertising services,
telecommunications services, utilities and transportation. The strategy for
addressing our vendors is risk based. Each functional area of the Company
ranked each of its vendors as "critical", "essential" or "non-essential".
Surveys were sent primarily to critical and essential vendors with exceptions
made for selected non-critical vendors that may serve in a contingency role. As
responses have been received, they have been evaluated as to the vendor's degree
of Year 2000 readiness. As vendors who are unable or unwilling to provide
certification of Year 2000 readiness have been identified, alternatives and
contingencies intended to mitigate Year 2000 risks perceived to be material have
been developed.
Primary attention is being given to the Company's overseas vendors, purchasing
agents and the environments in which they operate. Significant emphasis in this
area is vital as many of our primary vendors are concentrated in regions of the
world that are commonly perceived to be potentially less
prepared for the Year 2000. A group comprised of representatives from the
merchandising, logistics, distribution and finance areas of the Company have
addressed such issues as the continuity of merchandise production, merchandise
transportation, the operation of foreign ports and the ability of foreign banks
to effect payment to vendors. The group has been evaluating survey responses
received from our foreign vendors. As they have identified potential Year 2000
issues, they have formulated various contingency plans and work-around plans
where contingency plans were not feasible. We will continue to monitor Year
2000 issues as they relate to our overseas relationships and make adjustments to
our contingency and work-around plans as the circumstances warrant.
During Fiscal 1998, the Company spent approximately $1.0 million on the
installation of its new payroll and human resources systems. Total costs for the
implementation of the new store environment technology totaled approximately
$7.3 million in Fiscal 1998 and 1999. In addition to the cost of purchasing and
implementing compliant replacement systems, the Company incurred approximately
$.4 million in Fiscal 1998 and expects to incur approximately $.9 million in
Fiscal 1999 for ancillary testing and remediation of Year 2000 issues,
consisting primarily of normal salaries paid to existing employees through the
redirection of internal programming resources. These costs and expenditures were
included in the Company's operating budget and have not had a material effect on
the results of operations, liquidity or financial position. Purchased hardware,
software and the costs of their implementation are capitalized and amortized
over their useful lives while other costs of remediation associated with the
Year 2000 conversion are being expensed as incurred.
The Company is actively engaged in the process of developing contingency plans
to address situations that may result if the Company is unable to achieve Year
2000 readiness of its critical operations. Operational and information
technology functions have been identified and classified according to their
degree of risk. Contingency plans have been developed and are in the process of
being fully documented. There can be no assurance that the Company will be able
to develop a contingency plan that will adequately address issues that may arise
in Year 2000 or that the failure to develop such a plan will not have a material
impact on the operations of the Company.
Because of the pervasiveness of potential Year 2000 impact, there can be no
assurance that all associated issues have been fully identified and addressed.
In fact, reliance on the technical skills of employees and independent
contractors and on the representations of third parties are among the factors
that could cause the Company's efforts to be less than fully effective. While it
has realistically examined its exposure to Year 2000 issues and has taken steps
to address those issues over which it has direct control, the Company
acknowledges that there are considerable risks that are beyond its reasonable
control. These risks include the potential failure of domestic and international
utility companies to deliver power, of domestic and international
telecommunications companies to render voice and data services, of financial
institutions to process transactions or transfer funds, and of vendors to
deliver merchandise ordered or to perform services required by the Company.
Additionally, the Company acknowledges that it is vulnerable to the impact that
Year 2000 may have on domestic and international economies to the extent that
such economies may negatively impact the Company's vendors, business partners,
customers or agents. Although the Company believes that it has taken appropriate
and reasonable actions to identify and mitigate risks associated with the Year
2000 issues that are within its ability to control, there can be no assurance
that its efforts will be fully effective. Furthermore, there can be no assurance
that the systems of other companies and agencies on which the Company relies
will be timely converted or that such failure to convert by another entity would
not have an adverse impact on the Company's operations.
THE BOMBAY COMPANY, INC. AND SUBSIDIARIES
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) No Exhibits have been filed as a part of this report.
(b) No reports on Form 8-K were filed during the quarter ended October 30,
1999.
THE BOMBAY COMPANY, INC. AND SUBSIDIARIES
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 BOMBAY COMPANY, INC.
(Registrant)
/s/ Robert S. Jackson
Robert S. Jackson
Chief Executive Officer
/s/ Elaine D. Crowley
Elaine D. Crowley
Vice President, Finance
and Treasurer
Date: December 14, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from The
Bombay Company, Inc. quarterly report on Form 10-Q for the nine months
ended October 30, 1999 and is qualified in its entirety by reference to
such 10-Q.
</LEGEND>
<CIK> 0000096287
<NAME> THE BOMBAY COMPANY, INC.
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JAN-29-2000
<PERIOD-START> JAN-31-1999
<PERIOD-END> OCT-30-1999
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