FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
rk one)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended May 1, 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 May 1, 1999
Common stock, $1 par value 36,586,921
THE BOMBAY COMPANY, INC. AND SUBSIDIARIES
Form 10-Q
Quarter Ended May 1, 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.............................. 7-10
PART II -- OTHER INFORMATION
6. Exhibits and Reports on Form 8-K................................... 11
Signatures......................................................... 12
<TABLE>
THE BOMBAY COMPANY, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
(In thousands, except per share amounts)
(Unaudited)
<CAPTION>
Three Months Ended
May 1, May 2,
1999 1998
<S> <C> <C>
Net sales $75,286 $68,343
Costs and expenses:
Cost of sales, buying and store occupancy costs 55,680 52,634
Selling, general and administrative expenses 23,999 22,738
Interest income, net (374) (617)
Total costs and expenses 79,305 74,755
Loss before income taxes (4,019) (6,412)
Income tax benefit (1,588) (2,531)
Net loss ($2,431) ($3,881)
Basic earnings per share ($0.07) ($0.10)
Diluted earnings per share ($0.07) ($0.10)
Average common shares outstanding and
dilutive potential common shares 36,737 38,121
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>
May 1, January 30, May 2,
1999 1999 1998
ASSETS (Unaudited) (Unaudited)
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents $34,632 $52,809 $40,666
Inventories 89,503 76,659 87,787
Other current assets 14,382 7,303 15,613
Total current assets 138,517 136,771 144,066
Property and equipment, net 43,222 44,412 38,887
Goodwill, less amortization 505 512 533
Other assets 12,556 11,824 9,415
Total assets $194,800 $193,519 $192,901
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C> <C>
Current liabilities:
Accounts payable and accrued expenses $28,899 $23,646 $25,260
Accrued payroll and bonuses 3,126 3,214 3,371
Gift certificates redeemable 3,351 3,487 2,737
Total current liabilities 35,376 30,347 31,368
Accrued rent and other liabilities 6,999 7,029 6,904
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 38,128,556
shares issued, respectively 38,150 38,150 38,129
Additional paid-in capital 76,055 76,044 75,960
Retained earnings 47,002 49,433 41,542
Accumulated other comprehensive loss (1,195) (1,501) (1,002)
Common shares in treasury, at
cost, 1,562,725; 1,170,930 and
0 shares, respectively (7,587) (5,983) --
Total stockholders' equity 152,425 156,143 154,629
Total liabilities and
stockholders' equity $194,800 $193,519 $192,901
<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>
Three Months Ended
May 1, May 2,
1999 1998
<S> <C> <C>
Cash flows from operating activities:
Net loss ($2,431) ($3,881)
Adjustments to reconcile net loss
to net cash from operations:
Depreciation and amortization 2,852 2,350
Deferred taxes and other (197) 7
Change in assets and liabilities:
Increase in inventories (12,461) (1,686)
Increase in other current assets (6,847) (8,160)
Increase in current liabilities 4,950 586
Increase in noncurrent assets (1,100) (599)
Increase in noncurrent liabilities 67 82
Net cash used by operations (15,167) (11,301)
Cash flows from investing activities:
Purchases of property and equipment (1,224) (4,262)
Sales of property and equipment 114 106
Net cash used by investing activities (1,110) (4,156)
Cash flows from financing activities:
Purchases of treasury stock (1,762) --
Sale of stock to employee benefit plans 43 50
Proceeds from the exercise of employee stock options 5 18
Net cash provided (used) by financing activities (1,714) 68
Effect of exchange rate change on cash (186) (55)
Net decrease in cash and cash equivalents (18,177) (15,444)
Cash and cash equivalents at beginning of period 52,809 56,110
Cash and cash equivalents at end of period $34,632 $40,666
<CAPTION>
Supplemental disclosure of cash flow information:
<S> <C> <C>
Income taxes paid $1,588 $1,861
<FN>
The accompanying notes are an integral part of
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 May 1,
1999 and May 2, 1998, and the results of operations and cash flows for the three
months then ended. The results of operations for the three month periods ended
May 1, 1999 and May 2, 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. There were no borrowings under these
revolving credit facilities during the quarter ended May 1, 1999.
(3) Comprehensive Income
Comprehensive loss for the three months ended May 1, 1999 and May 2, 1998 was
$2,125,000 $3,680,000, respectively. Other comprehensive income consists of the
cumulative effect of foreign currency translation adjustments.
(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. The shares may be purchased from time to
time, through open market purchases and privately negotiated transactions. As
of May 1, 1999, 1,631,200 shares had been purchased at a cost aggregating
$7,932,000.
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 reference
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 419 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 May 1, 1999 and May 2, 1998
Net sales were $75,286,000 for the quarter ended May 1, 1999 compared to
$68,343,000 for the same period last year, an increase of 10%. The increase is
attributable to a same store sales increase of 6% as well as there being 11 more
stores than at May 2, 1998. Sales increases are largely related to the
increased emphasis on accessories and impulse items, designed to attract more
customers. During the quarter ended May 1, 1999, the transaction count
increased by almost 20% over the first fiscal quarter of last year, while the
average transaction declined from $106 to $98 during the applicable periods.
Cost of sales, including buying and occupancy costs, was $55,680,000 for the
first fiscal quarter compared to $52,634,000 for the same period last year. As
a percentage of sales, cost of sales decreased to 74.0% for the quarter compared
to 77.0% for the prior year period. The 300 basis point improvement is due to
higher product margin (290 basis points) as well as a slight improvement in
buying and occupancy costs (10 basis points) as fixed costs are leveraged on the
higher sales base. The higher product margins reflect the improved product
offering, more selective promotions and selected retail price increases.
Selling, general and administrative expenses were $23,999,000 or 31.9% of
sales for the quarter compared to $22,738,000 or 33.3% of sales for the
comparable prior year period. The dollar increase is primarily the result of
higher payroll costs driven by the higher sales volume and higher store pay
rates in the tight labor market. As a percentage of sales, selling, general and
administrative expenses have declined as the Company continues to exercise
strong controls and leverage costs such as advertising and insurance 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. Based upon available cash balances at May 1, 1999 of
over $34 million and cash forecasts for the year, the Company does not presently
expect to be in a borrowing position at any time during Fiscal 1999. Letters of
credit totaling $19,560,000 were outstanding at May 1, 1999.
The store expansion plan for the remainder of the fiscal year anticipates
approximately 11 new stores and 12 conversions to the large format, all in the
newer store design. Capital expenditures for the quarter included construction
costs on six new stores, three new outlets and four conversions as well as
routine purchases of furniture and equipment. The total estimated capital
expenditures for Fiscal 1999 are $22 million and include approximately $6
million for the replacement of store point-of-sale equipment.
The Company also continues a stock buy back program approved by the Board of
Directors in June 1998. As of May 1, 1999, $7.9 million of the $10 million
approved under the program has been used to purchase 1,631,200 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 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. While the Year 2000 impact on information technology has been
addressed and remediation efforts have been in process since 1997, during Fiscal
1998 a "Y2K" team consisting of key employees representing all functional areas
of the Company was developed to address all other potential areas of Year 2000
impact, investigate solutions and develop contingency plans. The overall
objective of the Company's efforts to date 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 is
scheduled for completion by Fall 1999.
The Company is in the process of replacing its store hardware and operating
software including the polling systems. The new store infrastructure upgrade,
which includes the roll out of Year 2000 compliant hardware and operating
systems, began in May 1999 and is scheduled for completion in the third quarter
of Fiscal 1999. The back office polling system has been made compliant and is
currently in use for those stores on the new infrastructure. The Company's
existing proprietary point-of-sale application software is approximately 90%
compliant and is expected to be 100% compliant by July 1999.
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 replaces a non-compliant system.
For those systems which the respective vendor has certified as Year 2000
compliant, the Company is still assessing what additional testing is needed to
ensure their readiness. The Company has also engaged a third party to perform a
due diligence review of remediation efforts in the information technology area.
The Company is also in the process of 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 and utilities. The strategy
for addressing our vendors is risk based. Each functional area of the Company
has ranked each of its vendors as "critical", "essential" or "non-essential".
Surveys have been sent primarily to critical and essential vendors with
exceptions made for selected non-critical vendors that may serve in a
contingency role. As responses are received, they are being 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 are identified, alternatives and
contingencies intended to mitigate Year 2000 risks perceived to be material are
being 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 are addressing 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 is evaluating survey responses received from our foreign vendors,
formulating contingency plans and work-around plans where contingency plans are
not feasible. These efforts will continue through the remainder of 1999.
During Fiscal 1998, the Company spent approximately $1.0 million on the
installation of its new payroll and human resources systems and has incurred
approximately $.7 million in connection with the design and testing of its new
store environment systems. The Company expects to incur an additional $6.0
million in Fiscal 1999 in connection with the implementation of the new store
environment technology. 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 $.8 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 are being identified and classified according to their
degree of risk. Development of contingency plans is expected to continue
through the third quarter of Fiscal 1999. 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
No reports on Form 8-K have been filed during the quarter ended May 1, 1999. No
exhibits have been filed as a part of this report.
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: June 15, 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 three months
ended May 1, 1999 and is qualified in its entirety by reference to such
10-Q.
</LEGEND>
<CIK> 0000096287
<NAME> THE BOMBAY COMPANY, INC.
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</TABLE>
