which is subject to certain risks, including among others general economic and market conditions, decreased consumer demand for the Company’s products, possible disruptions in the Company’s computer or telephone systems, possible work stoppages, or increases in labor costs, effects of competition, possible disruptions or delays in the opening of new stores or inability to obtain suitable sites for new stores, higher than anticipated store closings or relocation costs, higher interest rates, unanticipated increases in merchandise or occupancy costs and other factors which may be outside the Company’s control. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results or outcomes may vary materially from those described herein as anticipated, believed, estimated, expected, intended or planned. Subsequent written and oral forward-looking statements attributable to the Company or persons acting on its behalf are expressly qualified in their entirety by the cautionary statements in this paragraph and elsewhere described in this Quarterly Report and other reports filed with the Securities and Exchange Commission.
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires the appropriate application of certain accounting policies, many of which require us to make estimates and assumptions about future events and their impact on amounts reported in the financial statements and related notes. Since future events and their impact cannot be determined with certainty, the actual results will inevitably differ from our estimates. Such differences could be material to the consolidated financial statements. The Company believes application of accounting policies, and the estimates inherently required by the policies, are reasonable. These accounting policies and estimates are constantly reevaluated, and adjustments are made when facts and circumstances dictate a change. Historically, the Company has found the application of accounting policies to be appropriate, and actual results have not differed materially from those determined using necessary estimates.
The Company’s accounting policies are more fully described in Note 1 to the Consolidated Financial Statements, located in the Annual Report on Form 10-K for the fiscal year ended February 26, 2005. The Company has identified certain critical accounting policies that are described below.
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in the future, an adjustment to the deferred tax asset would be charged to income in the period such determination was made.
Self-Insurance Accruals – The Company had been self-insured for workers’ compensation liability claims. The Company is responsible for the payment of claims from prior years. In estimating the obligation associated with incurred losses, the Company utilizes loss development factors. These development factors utilize historical data to project incurred losses. Loss estimates are adjusted based upon actual claims settlements and reported claims.
Results of Operations (in thousands)
13 and 39 Weeks Ended November 26, 2005 Compared to 13 and 39 Weeks Ended November 27, 2004
Net sales for the 13 weeks ended November 26, 2005 were $74,694 a decrease of $1,286 (1.7%) as compared to net sales of $75,980 for the 13 weeks ended November 27, 2004. For the 39 weeks ended November 26, 2005 net sales decreased $1,972 (1.0%) to $203,583 as compared to net sales of $205,555 for the 39 weeks ended November 27, 2004. Comparable store net sales decreased 0.2% for the 13 weeks ended November 26, 2005 and increased 2.1% for the 39 weeks ended November 26, 2005 as compared to the comparable periods in the prior fiscal year. In our comparable store computation, we only include stores that have been opened for a period of at least 12 months and stores that were open during both fiscal years. We did not have any relocated stores or expansion in square footage in the 39 weeks ended November 26, 2005.
Gross profit for the 13 weeks ended November 26, 2005 was $29,838, a decrease of $236 (40.0% as a percentage of total net sales) as compared to $30,074 (39.6% as a percentage of total net sales) for the 13 weeks ended November 27, 2004. Gross profit for the 39 weeks ended November 26, 2005 was $82,665, an increase of $1,166 (40.6% as a percentage of total net sales) compared to $81,499 (39.7% as a percentage of total net sales for the 39 weeks ended November 27, 2004. The Company’s gross profit may not be comparable to those of other entities, since other entities may include all of the costs related to their distribution network in cost of goods sold and others, like the Company, exclude a portion of those costs from gross profit and, instead, include them in other line items; such as selling and administrative expenses and occupancy costs. The third quarter and year to date gross margin percentage improvement resulted principally from lower markdowns taken in these periods in 2005 when compared to comparable periods in 2004.
Selling, general and administrative expense was $18,323 (24.5% as a percentage of total net sales) for the 13 weeks ended November 26, 2005, as compared to $18,367 (24.2% as a percentage of total net sales) for the 13 weeks ended November 27, 2004. Selling, general and administrative expense decreased $1,268 to $55,058 (27.0% as a percentage of total net sales) for the 39 weeks ended November 26, 2005 as compared to $56,326 (27.4% as a percentage of total net sales) for the 39 weeks ended November 27, 2004. The closing of three stores located in Charlotte, NC, Baltimore, MD and Lawrenceville, NJ contributed to the reduction in selling, general and administrative expense, which was partially offset by increases in the existing stores, in the 13 and 39 week periods ended November 26, 2005.
Advertising expense for the 13 weeks ended November 26, 2005 were $3,266 (4.4% as a percentage of total net sales) as compared to $3,269 (4.3% as a percentage of total net sales) in the 13 week period ended November 27, 2004. Advertising expense for the 39 weeks ended November 26, 2005 was $7,015 (3.5% as a percentage of total net sales) as compared to $6,911 (3.4% as a percentage of total net sales) in the 39 week period ended November 27, 2004.
Occupancy costs were $4,371 (5.9% as a percentage of total net sales) for the 13 week period ended November 26, 2005 as compared to $4,165 (5.5% as a percentage of total net sales) for the 13 week period ended November 27, 2004. Occupancy costs were $12,979 (6.4% as a percentage of total net sales) for the 39 week period ended November 26, 2005, as compared to $12,995 (6.3% as a percentage of total net sales) for the 39 weeks ended November 27, 2004. The increase in occupancy costs in the third quarter 2005 versus 2004 is largely attributable to increased electricity expense.
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Depreciation and amortization expense was $2,179 (2.9% as a percentage of total net sales) for the 13 week period ended November 26, 2005 as compared to $2,291 (3.0% as a percentage of total net sales). Depreciation and amortization expense for the 39 week period ended November 26, 2005 was $6,596 (3.2% as a percentage of total net sales) as compared to $7,316 (3.6% as a percentage of total net sales) for the 39 week period ended November 27, 2004. This decline in depreciation expense resulted from certain computer software becoming fully depreciated in fiscal 2004 and the closing of three stores located in Charlotte, NC, Baltimore, MD and Lawrenceville, NJ.
In the 13 weeks ended November 27, 2004, the Company recorded a gain of $721 from the sale of land in Roseland, NJ. In the 39 weeks ended November 27, 2004, this third quarter gain was offset by a charge of $1,271 resulting from the exercise by the Company of its’ option to purchase the Lawrenceville store and the simultaneous sale of the Lawrenceville store (which was recorded in the second quarter ended August 28, 2004), resulting in a net loss on sales of assets of $550. The Lawrenceville store was closed on October 16, 2004. This action was taken by the Company as part of its continued efforts to improve profitability.
The net income before income taxes for the 13 weeks ended November 26, 2005 was $1,934 a decrease of $884 from the 13 weeks ended November 27, 2004. The net income before income taxes for the 39 weeks ended November 26, 2005 was $1,691 as compared to a loss before income taxes of $2,325 for the 39 weeks ended November 27, 2004. The profit decline in the third quarter 2005 is largely attributable to the gain recorded in the third quarter 2004 on the sale of Roseland, NJ as noted above.
Liquidity and Capital Resources (in thousands)
Working capital as of November 26, 2005 was $79,927, an increase of $2,244 as compared to $77,683 as of November 27, 2004. The ratio of current assets to current liabilities was 2.47 to 1 as of November 26, 2005 as compared to 2.32 to 1 as of November 27, 2004.
Net cash provided by operating activities totaled $11,937 for the 39 weeks ended November 26, 2005, as compared to $8,830 for the 39 weeks ended November 27, 2004.
Net cash used in investment activities was $2,028 for the 39 weeks ended November 26, 2005 as compared to net cash provided by investing activities of $1,061 for the 39 weeks ended November 27, 2004. Expenditures for property and equipment were $2,035 and $2,133 for the 39 weeks ended November 26, 2005 and November 27, 2004, respectively.
Net cash used in financing activities was $17,854 for the 39 weeks ended November 26, 2005, as compared to net cash provided by financing activities of $146 for the 39 weeks ended November 27, 2004. On May 12, 2005, the Company paid a one-time cash dividend to its shareholders of record amounting to $15,028.
The Company has a revolving credit agreement with a bank for a line of credit not to exceed $30,000 through May 1, 2008. The agreement contains financial covenants, with respect to consolidated tangible net worth, as defined as working capital and maximum capital requirements, including dividends (defined to include cash repurchases of capital stock), as well as other financial ratios. The Company is in compliance with all covenants as of November 26, 2005. Except for funds provided from this revolving credit agreement, the Company has satisfied its operating and capital expenditure requirements, including those for the operations and expansion of stores, from internally generated funds. As of November 26, 2005, February 26, 2005 and November 27, 2004, there were no outstanding borrowings under this agreement. At November 26, 2005, February 26, 2005 and November 27, 2004, the Company had $683, $745 and $622 respectively, in outstanding letters of credit under this agreement.
In addition, the Company has a separate $10,000 credit facility with another bank available for the issuance of letters of credit for the purchase of foreign merchandise. This agreement may be canceled at any time by either party. The Company is not currently using this facility.
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The Company has planned capital expenditures of approximately $5,000 for the fiscal year ended February 25, 2006. Through the 39 week period ended November 26, 2005, the Company has incurred $2,035 of capital expenditures.
On April 22, 2004, the Company’s Board of Directors approved the repurchase by the Company through June 7, 2006 of up to an additional 3,100 shares of common stock at prevailing market prices. All shares repurchased will be held as treasury stock. During the 39 weeks ended November 26, 2005, the Company purchased 273 shares which represented 1.8% of its outstanding shares at a total cost of $3,636.
Management believes that existing cash, internally generated funds, trade credit and funds available from the revolving credit agreement will be sufficient for working capital and capital expenditure requirements for the fiscal year ending February 25, 2006.
Impact of Inflation and Changing Prices
Although the Company cannot accurately determine the precise effect of inflation on its operations, it does not believe inflation has had a material effect on sales or results of operations.
Recent Accounting Pronouncements
See Note 7 of the Consolidated Financial Statements for a full description of the Recent Accounting Pronouncements including the respective dates of adoption and the effects on Results of Operation and Financial Condition.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
The Company’s operations are not currently subject to material market risks for interest rates, foreign currency rates or other market price risks.
Item 4. Controls and Procedures
(a) Evaluation of Disclosure Controls and Procedures
Based on the evaluation of the Company's disclosure controls and procedures as of the end of the period covered by this Quarterly Report, each of Marcy Syms, the Chief Executive Officer of the Company, and Antone F. Moreira, the Chief Financial Officer of the Company, have concluded that the Company's disclosure controls and procedures are effective in ensuring that information required to be disclosed by the Company in the reports that it files or submits under the Securities and Exchange Act of 1934, as amended (the “Exchange Act”), is recorded, processed, summarized and reported, within the time period specified by the Securities and Exchange Commission's rules and forms. Notwithstanding the foregoing, a control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that it will detect or uncover failures within the Company to disclose material information otherwise required to be set forth in the Company’s periodic reports.
(b) Internal Control Over Financial Reporting
There have not been any changes in the Company’s internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the fiscal quarter to which this report relates that have materially affected, or are reasonably likely to materially affect the Company’s internal control over financial reporting.
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| Part II. Other Information |
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| Item 1. | LEGAL PROCEEDINGS - None |
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| Item 2. | UNREGISTERED SALE OF EQUITY SECURITIES AND USE OF PROCEEDS |
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| Issuer Purchases of Equity Securities |
| Period | Total Number of
Shares Purchased | Average Price Paid
per Share | Total Number of
Shares Purchased
as Part of Publicly
Announced Plans
or Programs | Maximum Number
of Shares that May
Yet Be Purchased
Under the Plans or
Programs (1) |
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| August 28, 2005 - | 7,500 | $13.75 | 7,500 | 2,738,000 |
| October 1, 2005 | | | | |
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| October 2, 2005 – | 55,300 | $13.40 | 55,300 | 2,682,700 |
| October 29, 2005 | | | | |
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| October 30, 2005 – | 15,700 | $13.63 | 15,700 | 2,667,000 |
| November 26, 2005 | | | | |
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| Total | 78,500 | $13.48 | 78,500 | 2,667,000 |
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(1) On April 22, 2004, the Company’s Board of Directors approved the repurchase of up to an additional 3,100,000 shares of common stock at prevailing market prices through June 7, 2006. All shares repurchased will be held as treasury stock.
| Item 3. | DEFAULTS UPON SENIOR SECURITIES - None |
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| Item 4. | SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS – None |
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| Item 5. | OTHER INFORMATION - None |
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| Item 6. | EXHIBITS |
| | Exhibits filed with this Form 10-Q |
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| | 31.1 | Certification of Chief Executive Officer pursuant to Rule 13a-14(a) under the Securities and Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
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| | 31.2 | Certification of Chief Financial Officer pursuant to Rule 13a-14(a) under the Securities and Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
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| | 32.1 | Certification of Chief Executive Officer pursuant to Rule 13a-14(b) under the Securities and Exchange Act of 1934 and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
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| | 32.2 | Certification of Chief Financial Officer pursuant to Rule 13a-14(b) under the Securities and Exchange Act of 1934 and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
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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.
| | SYMS CORP |
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| Date: January 5, 2006 | By: | /s/ Marcy Syms |
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| | | MARCY SYMS |
| | | CHIEF EXECUTIVE OFFICER |
| | SYMS CORP |
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| Date: January 5, 2006 | By: | /s/ Antone F. Moreira |
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| | | ANTONE F. MOREIRA |
| | | VICE PRESIDENT, CHIEF FINANCIAL OFFICER |
| | | (Principal Financial and Accounting Officer) |
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