UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended July 2, 2005
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: 0-10345
CACHE, INC.
(Exact name of registrant as specified in its Charter)
Florida 59-1588181
------------------------------- ---------------------------------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
1440 Broadway, New York, New York 10018
---------------------------------------- ----------
(Address of principal executive offices) (zip code)
212-575-3200
------------
(Registrant's telephone number, including area code)
---------------------------------------------------------------------------
(Former name, 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 preceeding 12 months (or for such shorter period than 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 by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).
YES [X] NO [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each issuer's classes of common
stock, as of the latest practicable date.
Common Stock, $.01 15,742,553
-------------------------- -----------------------------
Class of Stock Outstanding Outstanding at August 10, 2005
<page>
CACHE, INC. AND SUBSIDIARIES
INDEX
<table>
<caption>
PART I. FINANCIAL INFORMATION
<s> <c> <c>
Item 1. Financial Statements (unaudited) 2
Condensed Consolidated Balance Sheets 3
Condensed Consolidated Statements of Income 4
Condensed Consolidated Statements of Cash Flows 6
Notes to the Condensed Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 12
Item 3. Quantitative and Qualitative Disclosures About Market Risk 16
Item 4. Controls and Procedures 17
PART II. OTHER INFORMATION
Item 5. Other Information 18
Item 6. Exhibits and Reports on Form 8-K 18
SIGNATURES 19
</table>
2
<page>
<table>
<caption>
CACHE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
June 26,
2004
----
ASSETS July 2, January 1, As restated, see
2005 2005 Note 10
---- ---- -------
<s> <c> <c> <c>
Current assets:
Cash and equivalents $ 17,166,000 $ 16,848,000 $ 16,673,000
Marketable securities 25,964,000 25,874,000 23,960,000
Receivables, net 3,511,000 6,545,000 4,895,000
Inventories 30,165,000 32,296,000 27,491,000
Deferred income taxes 662,000 567,000 750,000
Prepaid expenses and other current assets 1,141,000 1,948,000 776,000
------------ ------------ ------------
Total current assets 78,609,000 84,078,000 74,545,000
Equipment and leasehold improvements, net 49,502,000 47,118,000 39,589,000
Other assets 856,000 832,000 832,000
------------ ------------ ------------
Total assets $128,967,000 $132,028,000 $114,966,000
============ ============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 11,370,000 $ 17,055,000 $ 11,588,000
Income taxes payable --- --- 199,000
Accrued compensation 1,427,000 1,927,000 2,865,000
Accrued liabilities 9,487,000 11,627,000 9,073,000
------------ ------------ ------------
Total current liabilities 22,284,000 30,609,000 23,725,000
Other liabilities 14,557,000 13,556,000 11,442,000
Deferred income taxes, net 2,246,000 3,023,000 973,000
Commitments and contingencies
STOCKHOLDERS' EQUITY
Common stock, par value $.01; authorized, 20,000,000 shares;
15,726,553, 15,655,053 and 15,634,178 shares issued
and outstanding 157,000 157,000 156,000
Additional paid-in capital 34,988,000 34,705,000 34,379,000
Retained earnings 54,735,000 49,978,000 44,291,000
------------ ------------ ------------
Total stockholders' equity 89,880,000 84,840,000 78,826,000
------------ ------------ ------------
Total liabilities and stockholders' equity $128,967,000 $132,028,000 $114,966,000
============ ============ ============
</table>
See accompanying Notes to Condensed Consolidated Financial Statements.
3
<page>
<table>
<caption>
CACHE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
FOR THE TWENTY-SIX WEEKS ENDED
(Unaudited)
July 2, June 26,
2005 2004
------------ ------------
<s> <c> <c>
Net sales $129,763,000 $119,281,000
Cost of sales, including occupancy and buying costs 72,264,000 64,444,000
------------ ------------
Gross profit 57,499,000 54,837,000
------------ ------------
Expenses
Store operating expenses 41,871,000 35,337,000
General and administrative expenses 8,160,000 7,247,000
------------ ------------
Total expenses 50,031,000 42,584,000
------------ ------------
Operating income 7,468,000 12,253,000
Interest income 400,000 202,000
Other income, net --- 20,000
------------ ------------
Income before income taxes 7,868,000 12,475,000
Income tax provision 3,111,000 4,865,000
------------ ------------
Net income $ 4,757,000 $ 7,610,000
============ ============
Basic earnings per share $0.30 $0.49
============ ============
Diluted earnings per share $0.30 $0.48
============ ============
Basic weighted average shares outstanding 15,700,000 15,536,000
============ ============
Diluted weighted average shares outstanding 15,830,000 15,986,000
============ ============
</table>
See accompanying Notes to Condensed Consolidated Financial Statements.
4
<page>
<table>
<caption>
CACHE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
FOR THE THIRTEEN WEEKS ENDED
(Unaudited)
July 2, June 26,
2005 2004
------------ ------------
<s> <c> <c>
Net sales $ 66,970,000 $ 62,087,000
Cost of sales, including occupancy and buying costs 36,604,000 32,938,000
------------ ------------
Gross profit 30,366,000 29,149,000
------------ ------------
Expenses
Store operating expenses 21,278,000 18,448,000
General and administrative expenses 4,371,000 3,599,000
------------ ------------
Total expenses 25,649,000 22,047,000
------------ ------------
Operating income 4,717,000 7,102,000
Interest income 243,000 107,000
Other income, net --- 20,000
------------ ------------
Income before income taxes 4,960,000 7,229,000
Income tax provision 1,960,000 2,868,000
------------ ------------
Net income $ 3,000,000 $ 4,361,000
============ ============
Basic earnings per share $0.19 $0.28
============ ============
Diluted earnings per share $0.19 $0.27
============ ============
Basic weighted average shares outstanding 15,712,000 15,634,000
============ ============
Diluted weighted average shares outstanding 15,950,000 16,100,000
============ ============
</table>
See accompanying Notes to Condensed Consolidated Financial Statements.
5
<page>
<table>
<caption>
CACHE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE TWENTY-SIX WEEKS ENDED
(Unaudited)
June 26,
2004
July 2, As restated, see
2005 Note 10
CASH FLOWS FROM OPERATING ACTIVITIES: ------------ ------------
- -------------------------------------
<s> <c> <c>
Net income $ 4,757,000 $ 7,610,000
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 4,606,000 3,621,000
(Decrease) increase in deferred income taxes (872,000) 472,000
Deferred rent, net (599,000) (488,000)
Change in assets and liabilities:
Decrease (increase) in receivables 3,034,000 (281,000)
Decrease (increase) in inventories 2,131,000 (767,000)
Decrease in prepaid expenses and other current assets 807,000 463,000
Decrease in accounts payable (5,685,000) (2,774,000)
Increase in income taxes payable --- 1,544,000
Decrease in accrued liabilities
and accrued compensation (1,057,000) (758,000)
------------ ------------
Net cash provided by operating activities 7,122,000 8,642,000
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
- -------------------------------------
Maturities of marketable securities 15,971,000 8,495,000
Purchases of marketable securities (16,061,000) (12,709,000)
Purchases of equipment and leasehold improvements (6,973,000) (9,412,000)
------------ ------------
Net cash used in investing activities (7,063,000) (13,626,000)
------------ -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
- -------------------------------------
Proceeds from the issuance of common stock 283,000 4,729,000
Other, net (24,000) 41,000
------------ -------------
Net cash provided by financing activities 259,000 4,770,000
------------ -------------
Net increase (decrease) in cash and equivalents 318,000 (214,000)
Cash and equivalents, at beginning of period 16,848,000 16,887,000
------------ -------------
Cash and equivalents, at end of period $ 17,166,000 $ 16,673,000
============ =============
Supplemental disclosure of cash flow information:
Income taxes paid $ 3,410,000 $ 2,563,000
Income tax benefit from stock option exercises 36,000 1,345,000
</table>
See accompanying Notes to Condensed Consolidated Financial Statements.
6
<page>
CACHE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
References to the "Company," "we," "us," or "our" means Cache, Inc., together
with its wholly-owned subsidiaries, except as expressly indicated or unless
the context otherwise requires. We operate two chains of women's apparel
specialty stores of which 259 stores are operated under the trade name "Cache"
and 38 stores are operated under the trade name "Lillie Rubin", as of July 2,
2005.
The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with Rule 10-01 of Regulation S-X and do not
include all of the information and footnotes required by accounting principles
generally accepted in the United States. However, in the opinion of our
management, all known adjustments necessary for a fair presentation of the
results of the interim periods have been made. These adjustments consist
primarily of normal recurring accruals and estimates that impact the carrying
value of assets and liabilities. Actual results may materially differ from these
estimates.
These condensed consolidated financial statements should be read in
conjunction with the Company's audited consolidated financial statements for the
year ended January 1, 2005, which are included in the Company's Annual Report on
Form 10-K with respect to such period filed with the Securities and Exchange
Commission. All significant intercompany accounts and transactions have been
eliminated. The January 1, 2005 condensed consolidated balance sheet amounts
are derived from the Company's audited consolidated financial statements.
The Company's Fiscal Year ("Fiscal Year" or "Fiscal") refers to the 52 or 53
weeks, as applicable, ending the Saturday nearest to December 31. The year ended
December 31, 2005 ("Fiscal 2005") is a 52 week year as compared to the years
ended January 1, 2005 ("Fiscal 2004") and December 27, 2003 ("Fiscal 2003"),
that are a 53 and 52 week years, respectively.
The Company's significant accounting policies are described in Note 1 to the
consolidated financial statements included in the 2004 10-K.
2. COMMON STOCK SPLIT
On June 18, 2004, we completed a three-for-two stock split for holders of record
on May 21, 2004. All share amounts have been retroactively restated to reflect
the stock split.
3. STOCK BASED COMPENSATION
We periodically grant stock options to our employees, and we account for these
stock options in accordance with the provisions of Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB No. 25"). We
have also adopted the disclosure-only provisions of Statement of Financial
Accounting Standards ("SFAS") No. 148, "Accounting for Stock-Based
Compensation - Transition and Disclosure" ("SFAS No. 148"). In accordance with
the provisions of SFAS No. 148 and APB No. 25, we have not recognized
compensation expense related to stock options. If the options are granted to
employees below fair market value, compensation expense is recognized. If we
would have elected to recognize compensation expense based on the fair value
of options at grant date, as prescribed by SFAS No. 148, our net income and
earnings per share would have been reduced to the pro forma amounts indicated
in the following table:
7
<page>
<table>
13 Weeks Ended 26 Weeks Ended
------------------------- --------------------------
July 2, June 26, July 2, June 26,
2005 2004 2005 2004
----------- ----------- ----------- -----------
<s> <c> <c> <c> <c>
Net income:
As reported $ 3,000,000 $ 4,361,000 $ 4,757,000 $ 7,610,000
Deduct: Total stock based employee
compensation expense determined under fair
value based method, net of taxes (249,000) (106,000) (497,000) (213,000)
----------- ----------- ----------- -----------
Pro forma net income $ 2,751,000 $ 4,255,000 $ 4,260,000 $ 7,397,000
=========== =========== =========== ===========
Basic earnings per share:
As reported $0.19 $0.28 $0.30 $0.49
Pro forma $0.18 $0.27 $0.27 $0.48
Diluted earnings per share:
As reported $0.19 $0.27 $0.30 $0.48
Pro forma $0.17 $0.26 $0.27 $0.46
</table>
There were 105,000 option grants in the 26 week period ended July 2, 2005.
For the 26 week period ended June 26, 2004, stock options totaling 105,000
were granted.
The weighted average fair value of the Company's stock options was calculated
using the Black-Scholes Option Pricing Model with the following weighted
average assumptions used for grants in their respective periods. For the second
quarter of 2005: no dividend yield; expected volatility of 54%; risk free
interest rate of 4.00%; and expected life of 5.0 years. For the second quarter
of 2004: no dividend yield; expected volatility of 71%; risk free interest rate
of 3.64%; and expected life of 5.0 years.
4. BASIC AND DILUTED EARNINGS
In accordance with SFAS No. 128, "Earnings Per Share", basic earnings per share
has been computed based upon the weighted average of common shares outstanding.
Diluted earnings per share gives effect to outstanding stock options.
Earnings per common share has been computed as follows:
<table>
13 Weeks Ended 26 Weeks Ended
------------------------- --------------------------
July 2, June 26, July 2, June 26,
2005 2004 2005 2004
----------- ----------- ----------- -----------
<s> <c> <c> <c> <c>
Net income $ 3,000,000 $ 4,361,000 $ 4,757,000 $ 7,610,000
Basic weighted number of average
shares outstanding 15,712,000 15,634,000 15,700,000 15,536,000
Incremental shares from assumed issuances
of stock options 238,000 466,000 130,000 450,000
Diluted weighted average number of shares
outstanding 15,950,000 16,100,000 15,830,000 15,986,000
Net income per share - Basic $0.19 $0.28 $0.30 $0.49
- Diluted $0.19 $0.27 $0.30 $0.48
</table>
8
<page>
Options to purchase 1,567,750 common shares with exercise prices ranging from
$1.73 to $15.17 per share were outstanding at July 2, 2005, and options to
purchase 1,758,625 common shares with exercise prices ranging from $1.73 to
$15.17 per share were outstanding at June 26, 2004 and, in each case, were
included in the computation of diluted earnings per share for the 26 and 13
week periods ended July 2, 2005 and June 26, 2004, respectively.
5. RECENT ACCOUNTING PRONOUNCEMENTS
In December 2004, the FASB published SFAS No. 123R, pursuant to which all forms
of share-based payments to employees, including employee stock options, would be
treated as compensation and recognized in the income statement. SFAS No. 123R is
effective beginning the first quarter of Fiscal 2006. The Company currently
accounts for stock options under APB No. 25. The Company is continuing to
evaluate the full impact of SFAS No. 123R for its adoptions in the first quarter
of Fiscal 2006.
In December 2004, the FASB published Statement of Financial Accounting Standards
No. 151, "Inventory Costs" ("SFAS No. 151"), an amendment of Accounting
Research Bulletin (ARB) No. 43, Chapter 4, which clarifies that abnormal amounts
of idle facility expense, freight, handling costs, and wasted materials
(spoilage) should be recognized as current-period charges. In addition, SFAS No.
151 requires that allocation of fixed production overheads to the costs of
conversion be based on the normal capacity of the production facilities. The
Company has determined that SFAS No. 151 will not have a material impact on its
condensed consolidated results of operations, financial position or cash flows.
In May 2005, the FASB issued Statement of Financial Accounting Standards No.
154, "Accounting Changes and Error Corrections-A Replacement of APB Opinion
No. 20 and FASB Statement No. 3." SFAS 154 requires retrospective application
to prior periods' financial statements for changes in accounting principle,
unless it is impracticable to determine either the period-specific effects or
the cumulative effect of the change. SFAS 154 also requires that retrospective
application of a change in accounting principle be limited to the direct
effects of the change. Indirect effects of a change in accounting principle,
such as a change in non-discretionary profit-sharing payments resulting from
an accounting change, should be recognized in the period of the accounting
change. SFAS 154 also requires that a change in depreciation, amortization, or
depletion method for long-lived non-financial assets be accounted for as a
change in accounting estimate affected by a change in accounting principle.
SFAS 154 is effective for accounting changes and corrections of errors made in
fiscal years beginning after December 15, 2005. Early adoption is permitted for
accounting changes and corrections of errors made in fiscal years beginning
after the date this Statement is issued. The Statement is effective for
accounting changes and corrections of errors made in fiscal years beginning
after December 15, 2005. The Company does not believe that the adoption of
SFAS 154 will have a significant effect on its financial statements.
FASB Interpretation No. 47, Accounting for Conditional Asset Retirement
Obligations ("FIN 47"), was issued in March 2005. This interpretation will be
effective for the Company in the fourth quarter of 2005 and clarifies that
an entity is required to recognize a liability for the fair value of a
conditional asset retirement obligation when incurred if the liability's fair
value can be reasonably estimated. The Company does not believe that the
adoption of FIN 47 will have a significant effect on its financial statements.
9
<page>
6. EQUIPMENT AND LEASEHOLD IMPROVEMENTS
<table>
July 2, January 1, June 26,
2005 2005 2004
------------ ------------ ------------
<s> <c> <c> <c>
Leasehold improvements $ 48,553,000 $ 45,349,000 $ 40,052,000
Furniture, fixtures and equipment 48,144,000 45,049,000 40,404,000
------------ ------------ ------------
96,697,000 90,398,000 80,456,000
Less: accumulated depreciation
and amortization 47,195,000 43,280,000 40,867,000
------------ ------------ ------------
$ 49,502,000 $ 47,118,000 $ 39,589,000
============ ============ ============
</table>
7. ACCRUED LIABILITIES
<table>
July 2, January 1, June 26,
2005 2005 2004
------------ ------------ ------------
<s> <c> <c> <c>
Operating expenses $ 2,733,000 $ 3,315,000 $ 2,357,000
Taxes, other than income taxes 1,124,000 2,185,000 1,652,000
Group insurance 558,000 509,000 513,000
Sales return reserve 443,000 832,000 435,000
Leasehold additions 945,000 928,000 1,129,000
Other customer deposits 3,684,000 3,858,000 2,987,000
------------ ------------ ------------
$ 9,487,000 $ 11,627,000 $ 9,073,000
============ ============ ============
</table>
8. BANK DEBT
During November 2002, the Company reached an agreement with its bank to extend
the maturity of the Amended Revolving Credit Facility until November 30, 2005.
Pursuant to the newly Amended Revolving Credit Facility, $17,500,000 is
available until expiration at November 30, 2005. The amounts outstanding
thereunder bear interest at a maximum per annum rate equal to the bank's prime
rate. The agreement contains selected financial and other covenants. Effective
upon the occurrence of an Event of Default under the Amended Revolving Credit
Facility, the Company grants to the bank a security interest in the Company's
inventory and certain receivables. The Company has, at all times, been in
compliance with all loan covenants.
There have been no borrowings against the line of credit during fiscal 2005 and
fiscal 2004. There were outstanding letters of credit of $3.0 million, $3.1
million and $739,000, pursuant to the Revolving Credit Facility, at July 2,
2005, January 1, 2005 and June 26, 2004, respectively.
9. CONTINGENCIES
The Company is exposed to a number of asserted and unasserted potential claims.
Management does not believe it is reasonably possible that resolution of these
matters will result in a material loss. We have not provided any third party
financial guarantees as of and for the twenty-six week period ended July 2,
2005.
10
<page>
10. RESTATEMENT OF BALANCE SHEET AND STATEMENT OF CASH FLOWS
Subsequent to the issuance of the condensed consolidated financial statements
for the period ended June 26, 2004, we determined that our lease incentives
should have been classified within other liabilities rather than equipment
and leaseholds on the condensed consolidated balance sheet and lease incentives
received in the condensed consolidated statement of cash flows changed from cash
flows used in investing activities to cash flows provided by operating
activities. In addition, we determined that several marketable securities were
misclassified as cash and equivalents at June 26, 2004.
As a result, the condensed consolidated balance sheet and the condensed
consolidated statement of cash flows as of and for the twenty-six week period
ended June 26, 2004 have been restated to reflect the lease incentives within
other liabilities, rather than within equipment and leaseholds on the condensed
consolidated balance sheet and from cash flows used in investing activities to
cash flows provided by operating activities in the condensed consolidated
statement of cash flows changed. The Company restated marketable securities to
reflect a reduction in investing activity. A summary of the effect of the
restatement on the condensed consolidated balance sheet and condensed
consolidated cash flow provided by (used in) operating and investing activities
is as follows:
<table>
As Previously
Reported As Restated
----------- -----------
<s> <c> <c>
For the twenty-six weeks ended June 26, 2004:
Cash flow provided by operating activities
($2,766,000 lease restatement impact) $ 5,876,000 $ 8,642,000
Cash flow used in investing activities
($2,766,000 lease and $4,773,000 investment
restatement impact) (6,087,000) (13,626,000)
As of June 26, 2004:
Cash and Cash equivalents 21,446,000 16,673,000
Marketable securities 19,187,000 23,960,000
Equipment and leasehold improvements 29,310,000 39,589,000
Other liabilities 1,163,000 11,442,000
</table>
11
<page>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
- -------------------------------------------------------------------------------
OF OPERATIONS
- -------------
Except for the historical information and current statements contained in this
Form 10-Q, certain matters discussed herein, including, without limitation,
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" are forward looking statements that involve risks and uncertainties,
including, without limitation, the effect of economic and market conditions and
competition, the ability to open new stores and expand into new markets, and
risks relating to foreign importing operations, which would cause actual results
to differ materially.
RESULTS OF OPERATIONS
- ---------------------
The following table sets forth our results of operations for the 13 and 26 week
periods ended July 2, 2005 and June 26, 2004, expressed as a percentage of net
sales.
<table>
13 Weeks Ended 26 Weeks Ended
--------------- ----------------
July 2, June 26, July 2, June 26,
2005 2004 2005 2004
------ ------ ------ ------
<s> <c> <c> <c> <c>
Sales 100.0% 100.0% 100.0% 100.0%
Cost of sales 54.7 53.1 55.7 54.0
Gross profit 45.3 46.9 44.3 46.0
Store operating expenses 31.8 29.7 32.3 29.6
General and administrative expenses 6.5 5.8 6.3 6.1
Operating income 7.0 11.4 5.8 10.3
Other income 0.4 0.2 0.3 0.2
Income before income taxes 7.4 11.6 6.1 10.5
Income tax provision 2.9 4.6 2.4 4.1
Net income 4.5 7.0 3.7 6.4
</table>
We use a number of key indicators of financial condition and operating
performance to evaluate the performance of our business, some of which are
set forth in the following table:
<table>
13 Weeks Ended 26 Weeks Ended
-----------------------------------
July 2, June 26, July 2, June 26,
2005 2004 2005 2004
------ ------- ------ ------
<s> <c> <c> <c> <c>
Total store count at end of period 297 269 297 269
Net sales growth 7.9% 10.5% 8.8% 14.4%
Comparable store sales growth 5.0% 3.0% 3.0% 7.0%
Net sales per average square foot $114 $119 $222 $231
Total square footage (in thousands) 600 549 600 549
</table>
Net sales
- ---------
Net sales increased to $129.8 million from $119.3 million, an increase of $10.5
million or 8.8%, over the prior year 26 week period. Comparable store sales
(sales for stores open at least one year or more) increased $3.5 million or 3%,
during the 26 week period. Net sales from new stores and non-comparable stores
were $7.0 million, during the current 26 week period.
12
<page>
Net sales increased to $67.0 million from $62.1 million, an increase of $4.9
million, or 7.9%, over the same 13 week period last year. This reflects $2.8
million of additional net sales as a result of 5% increase in comparable store
sales. Net sales increased $2.1 million as a result of additional sales from
non-comparable stores, during the current 13 week period.
Gross profit
- ------------
Gross profit increased to $57.5 million from $54.8 million, an increase of $2.7
million or 4.9%, over the prior year 26 week period. This increase was primarily
due to higher net sales. As a percentage of net sales, gross profit decreased to
44.3% from 46.0%. The decrease in gross profit as a percentage of net sales was
primarily due to greater promotional activity and increased occupancy costs
related to our store expansion program and was partially offset by higher
initial markup.
Gross profit increased to $30.4 million from $29.1 million, an increase of $1.2
million, or 4.0%, over the same 13 week period last year. This increase was
primarily due to higher net sales. As a percentage of net sales, gross profit
decreased to 45.3% from 46.9%. The decrease in gross profit as a percentage of
net sales was primarily due to the same factors as for the 26 week period.
Store operating expenses
- ------------------------
Store operating expenses increased to $41.9 million from $35.3 million, an
increase of $6.5 million or 18.5%, over the prior year 26 week period. This
increase is primarily attributable to the increase in the number of stores open.
As a percentage of net sales, store operating expenses increased to 32.3% from
29.6% for the 26 week period, primarily due to higher payroll, depreciation,
insurance and advertising expenses.
Store operating expenses increased to $21.3 million from $18.4 million, an
increase of $2.8 million or 15.3% over the same 13 week period last year.
This increase is primarily due to an increase in the number of stores open.
As a percentage of sales, store operating expenses increased to 31.8% from 29.7%
primarily due to the same factors as for the 26 week period.
General and administrative expenses
- -----------------------------------
General and administrative expenses increased to $8.2 million from $7.2 million,
an increase of $913,000 or 12.6%, over the same 13 week period last year. As a
percentage of net sales, general and administrative expenses increased to 6.3%
from 6.1%, primarily due higher payroll and professional fees and were partially
offset by lower incentive bonus accruals, as compared to last year.
General and administrative expenses increased to $4.4 million from $3.6 million,
an increase of $772,000 or 21.5%, above the same 13 week period last year. As
a percentage of net sales, general and administrative expenses increased to 6.5%
from 5.8% for the 13 week period, primarily due to the same factors as for the
26 week period.
Income taxes
- ------------
Income taxes decreased to $3.1 million from $4.9 million, as compared to the 26
week period last year. The decrease was primarily attributable to lower taxable
income in fiscal 2005. The estimated effective tax rate for fiscal 2005 and
fiscal 2004 were 39.5% and 39.0%, respectively, including state and local income
taxes.
Income taxes decreased to $2.0 million from $2.9 million, as compared to the
same 13 week period last year. The effective rate decreased from 39.7% to
39.5%.
13
<page>
Interest Income
- ---------------
Interest income increased to $400,000 from $202,000, an increase of $198,000
over the prior period, primarily due to higher average cash balances, as well
as higher interest rates.
Interest income increased to $243,000 from $107,000 in the same 13 week period
last year for the same reasons as the 26 week period.
Net income
- ----------
As a result of the factors discussed above, net income decreased to $4.8 million
from $7.6 million for the prior year 26 week period.
Net income decreased to $3.0 million from $4.4 million below the same 13 week
period last year.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
Our cash requirements are primarily for working capital, the construction of
new stores, the remodeling of existing stores, and to improve and enhance our
information technology systems. Due to the seasonality of our business, we
have historically realized a significant portion of our cash flows from
operating activities during the second half of the fiscal year. Most recently,
our cash requirements have been met primarily through cash and cash equivalents
on hand during the first half of the year, and through cash flows from operating
activities during the second half of the year. We expect to continue to meet
our cash requirements primarily through cash flows from operating activities,
existing cash and cash equivalents, and short-term investments. In addition, we
have available a $17.5 million revolving credit facility (the "credit facility")
with Bank of America Retail Finance, although we have not had outstanding
borrowings under the credit facility for several years. At July 2, 2005, we
had working capital of $56.4 million, cash and cash equivalents of $17.2
million, short-term investments of $26.0 million, and no third party debt
outstanding.
The following table sets forth our cash flows for the period indicated:
<table>
-----------------------
Twenty-six weeks ended
-----------------------
July 2, June 26,
2005 2004
---------- ----------
<s> <c> <c>
Net cash from operating activities.................... $7,122,000 $8,642,000
Net cash from investing activities.................... (7,063,000) (13,626,000)
Net cash from financing activities.................... 259,000 4,770,000
---------- ----------
Net increase (decrease) in cash and cash equivalents.. $318,000 ($214,000)
========== ==========
</table>
During the twenty-six weeks ended July 2, 2005, we increased our cash and cash
equivalents by $0.3 million, primarily due to net income of $4.8 million,
depreciation of $4.6 million and decreases in receivables of $3.0 million and
inventories of $2.1 million, which were partially offset by accounts payable
repayments of $5.7 million and expenditures for our new store expansion and
remodeling program totaled $7.0 million.
We plan to open approximately 20 to 25 new stores during fiscal 2005. Five new
stores were opened in the first quarter and four new stores opened in second
quarter. We anticipate opening the remaining new stores during the balance of
2005. We renovated three existing stores in the first quarter and seven
existing stores in the second quarter. We spent $7.0 million through July 2,
2005 and expect to spend an additional $8 million to $10 million in 2005, for
both new store and existing store construction and remodeling.
14
<page>
Inflation
- ---------
We do not believe that our sales revenue or operating results have been
materially impacted by inflation during the past three fiscal years. There can
be no assurance, however, that our sales revenue or operating results will not
be impacted by inflation in the future.
Off-Balance Sheet Arrangements
- ------------------------------
We do not have any off-balance sheet arrangements or transactions with
unconsolidated, limited purpose entities. In the normal course of its
business, we enter into operating leases for store locations and utilize letters
of credit principally for the importation of merchandise. We do not have any
undisclosed material transactions or commitments involving related persons or
entities.
Critical Accounting Policies and Estimates
- ------------------------------------------
Our accounting policies are more fully described in Note 1 of Notes to
Consolidated Financial Statements in our fiscal 2004 10-K. As disclosed in
Note 1 of Notes to Consolidated Financial Statements, the preparation of
financial statements in conformity with accounting principles generally accepted
in the United States of America ("GAAP") requires management to make estimates
and assumptions about future events that affect the amounts reported in the
consolidated financial statements and accompanying notes. Since future events
and their effects cannot be determined with absolute certainty, actual results
will differ from those estimates. We evaluate our estimates and judgments on an
ongoing basis and predicate those estimates and judgments on historical
experience and on various other factors that are believed to be reasonable under
the circumstances. Actual results will differ from these under different
assumptions or conditions.
Our management believes the following critical accounting policies, among
others, affect its more significant judgments and estimates used in preparation
of the Consolidated Financial Statements.
Inventories. Our inventories are valued at lower of cost or market using the
retail inventory method. Under the retail inventory method ("RIM"), the
valuation of inventories at cost and the resulting gross margins are calculated
by applying a calculated cost to retail ratio to the retail value of
inventories. RIM is an averaging method that has been widely used in the retail
industry due to its practicality. Additionally, it is recognized that the use
of RIM will result in valuing inventories at the lower of cost or market if
markdowns are currently taken as a reduction of the retail value of inventories.
Inherent in the RIM calculation are certain significant management judgments
including, among others, merchandise markon, markups, and markdowns, which
significantly impact the ending inventory valuation at cost as well as the
resulting gross margins. Management believes that our RIM provides an inventory
valuation which results in a carrying value at the lower of cost or market.
Finite-lived assets. We evaluate the fair value and future benefits of
finite-lived assets whenever events and changes in circumstances suggest. We
peform an analysis of the anticipated undiscounted future net cash flows of the
related finite-lived assets. If the carrying value of the related asset exceeds
the undiscounted cash flows, the carrying value is reduced to its fair value.
Various factors including future sales growth and profit margins are included in
this analysis. To the extent these future projections of our strategies change,
the conclusion regarding impairment may differ from the current estimates.
Revenue recognition. Sales are recognized at the "point of sale," which occurs
when merchandise is sold in an "over-the-counter" transaction or upon receipt
by a customer. Sales of merchandise via our website are recognized at the time
of delivery to the customer. Our customers have the right to return
merchandise. Sales are reported net of actual and estimated returns. We
maintain a reserve for potential product returns and record, as a reduction to
sales, a provision for estimated product returns, which is determined based on
historical experience.
15
<page>
Amounts billed to customers for shipping and handling fees are included in net
sales at the time of shipment. Costs incurred for shipping and handling are
included in cost of sales.
Income Taxes. Temporary differences arising from differing treatment of income
and expense items for tax and financial reporting purposes result in deferred
tax assets and liabilities that are recorded on the balance sheet. These
balances, as well as income tax expense, are determined through management's
estimations, interpretation of tax law for multiple jurisdictions and tax
planning. If our actual results differ from estimated results due to changes in
tax laws, new store locations or tax planning, our effective tax rate and tax
balances could be affected. As such these estimates may require adjustment in
the future as additional facts become known or as circumstances change.
Seasonality. We experience seasonal and quarterly fluctuations in net sales and
operating income. Quarterly results of operations may fluctuate significantly as
a result of a variety of factors, including the timing of new store openings,
fashion trends and shifts in timing of certain holidays. Our business is
subject to seasonal influences, characterized by highest sales during the fourth
quarter (October, November and December) and lowest sales during the third
quarter (July, August and September).
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
- ------------------------------------------------------------------
We are exposed to the following types of market risk-fluctuations in the
purchase price of merchandise, as well as other goods and services: the value of
foreign currencies in relation to the U.S. dollar; and changes in interest
rates. Due to our inventory turn rate and its historical ability to pass through
the impact of any generalized changes in its cost of goods sold to its customers
through pricing adjustments, commodity and other product risks are not expected
to be material. We purchase substantially all merchandise in U.S. dollars.
Our exposure to market risk for changes in interest rates relates to cash, cash
equivalents and marketable securities. As of July 2, 2005, our cash, cash
equivalents and marketable securities consisted primarily of funds invested in
money market accounts, which bear interest at a variable rate, U.S. treasury
instruments and tax exempt municipal bonds rated AA or better, which bear
interest at a fixed rate. Due to the average maturity and the conservative
nature of our investment portfolio, we believe a sudden change in interest rates
would not have a material effect on the value of our investment portfolio. As
the interest rates on a material portion of our cash, cash equivalents and
marketable securities are variable, a change in interest rates earned on our
investment portfolio would impact interest income along with cash flows, but
would not materially impact the fair market value of the related underlying
instruments.
16
<page>
ITEM 4. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
- ----------------------------------
We maintain a set of disclosure controls and procedures (as defined in Rules
13a-15(e) and 15d-15(e)) of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), designed to provide reasonable assurance that information
required to be disclosed in our filings under the Exchange Act is recorded,
processed, summarized and reported within the time periods specified in the
Securities and Exchange Commission's rules, regulations and forms. The Company
conducted an evaluation, under the supervision and with the participation of
the Company's management, including the Chief Executive Officer and the Chief
Operating Officer and Chief Financial Officer, of the effectiveness of the
design and operation of its disclosure controls and procedures (as such term is
defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act) as of the end of
the period covered by this report. There are inherent limitations to the
effectiveness of any system of disclosure controls and procedures, including
the possibility of human error and the circumvention or overriding of the
controls and procedures. Accordingly, even effective disclosure controls and
procedures can only provide reasonable assurance of achieving their control
objectives. Based on their evaluation, the Chief Executive Officer and the Chief
Operating Officer and Chief Financial Officer concluded that the Company's
disclosure controls and procedures were effective as of the end of the period
covered by this report in providing reasonable assurance of achieving the
Company's control objectives.
Changes in Internal Control over Financial Reporting
- ----------------------------------------------------
We also maintain a system of internal control over financial reporting (as
defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act). No changes in
our internal control over financial reporting occurred during the quarter ended
July 2, 2005 that have materially affected, or are reasonably likely to
materially affect, our internal control over financial reporting.
17
<page>
PART II - OTHER INFORMATION
ITEM 5. OTHER INFORMATION
NONE
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
11.1 Calculation of Basic and Diluted Earnings per Common Share.
31.1 Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2 Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1 Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
(b) Reports on Form 8-K
18
<page>
Signatures
Pursuant to the requirement of section 13 or 15 (d) of the Securities and
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned thereunto duly authorized.
Dated: August 10, 2005
CACHE, INC.
BY: /s/ Brian Woolf
---------------
Brian Woolf
Chairman and Chief
Executive Officer
(Principal Executive
Officer)
BY: /s/ Margaret Feeney
-------------------
Margaret Feeney
Executive Vice President and
Chief Financial Officer
(Principal Financial and
Accounting Officer)
19
<page>
<table>
<caption>
EXHIBIT 11.1
CALCULATION OF BASIC AND DILUTED EARNINGS PER COMMON SHARE
(In thousands except per share data)
13 WEEKS ENDED 26 WEEK PERIOD
---------------------- ---------------------
July 2, June 26, July 2, June 26,
2005 2004 2005 2004
<s> <c> <c> <c> <c>
EARNINGS PER SHARE
Net Income Applicable to Common
Stockholders $ 3,000,000 $ 4,361,000 $ 4,757,000 $ 7,610,000
=========== =========== =========== ===========
BASIC EARNINGS PER SHARE
Weighted Average Number of Common
Shares Outstanding 15,712,000 15,634,000 15,700,000 15,536,000
=========== =========== =========== ===========
Basic Earnings Per Share $0.19 $0.28 $0.30 $0.49
=========== =========== =========== ===========
DILUTED EARNINGS PER SHARE
Weighted Average Number of
Common Shares Outstanding 15,712,000 15,634,000 15,700,000 15,536,000
Assuming Conversion of
Outstanding Stock Options 1,549,000 1,765,000 1,524,000 1,765,000
Less Assumed Repurchase
of Common Stock Pursuant
to the Treasury Stock Method (1,311,000) (1,299,000) (1,394,000) (1,315,000)
=========== =========== =========== ===========
Weighted Average Number of
Common Shares Outstanding 15,950,000 16,100,000 15,830,000 15,986,000
=========== =========== =========== ===========
Diluted Earnings Per Share $0.19 $0.27 $0.30 $0.48
=========== =========== =========== ===========
</table>
20
<page>
EXHIBIT 31.1
CERTIFICATION
-------------
I, Brian Woolf, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Cache, Inc. (Cache),
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of Cache as of, and for, the periods presented in this quarterly
report;
4. Cache's other certifying officer and I are responsible for establishing
and maintaining disclosure controls and procedures (as defined in Exchange
Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial
reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for
the registrant and have:
a) designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to Cache,
including its consolidated subsidiaries, is made known to us by
others within those entities, particularly during the period which
this quarterly report is being prepared;
b) designed such internal control over financial reporting, or caused
such internal control over financial reporting to be designed under
our supervision, to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally
accepted accounting principles;
c) evaluated the effectiveness of Cache's disclosure controls and
procedures and presented in this quarterly report our conclusions
about the effectiveness of the disclosure controls and procedures as
of the end of the period covered by this quarterly report based on
such evaluation; and
d) disclosed in this report any changes in Cache's internal control over
financial reporting that occurred during Cache's second quarter that
has materially affected, or is reasonably likely to materially
affect, the registrant's internal control over financial reporting;
5. Cache's other certifying officer and I have disclosed, based on our most
recent evaluation of internal control over financial reporting, to Cache's
auditors and the audit committee of Cache's Board of Directors;
a) all significant deficiencies and material weaknesses in the design
or operation of internal control over financial reporting which are
reasonably likely to adversely affect Cache's ability to record,
process, summarize and report financial information; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in Cache's internal control
over financial reporting.
August 10, 2005 By: /s/ Brian Woolf
---------------
Brian Woolf
Chairman and Chief
Executive Officer
(Principal Executive
Officer)
21
<page>
EXHIBIT 31.2
CERTIFICATION
-------------
I, Margaret Feeney, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Cache, Inc. (Cache),
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the period
covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of Cache as of, and for, the periods presented in this quarterly
report;
4. Cache's other certifying officer and I are responsible for establishing
and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over
financial reporting (as defined in Exchange Act Rules 13a-15(f) and
15d-15(f)) for the registrant and have:
a) designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to Cache,
including its consolidated subsidiaries, is made known to us by
others within those entities, particularly during the period which
this quarterly report is being prepared;
b) designed such internal control over financial reporting, or caused
such internal control over financial reporting to be designed under
our supervision, to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally
accepted accounting principles;
c) evaluated the effectiveness of Cache's disclosure controls and
procedures and presented in this quarterly report our conclusions
about the effectiveness of the disclosure controls and procedures
as of the end of the period covered by this quarterly report based
on such evaluation; and
d) disclosed in this report any changes in Cache's internal control
over financial reporting that occurred during Cache's second quarter
that has materially affected, or is reasonably likely to materially
affect, the registrant's internal control over financial reporting;
5. Cache's other certifying officer and I have disclosed, based on our most
recent evaluation of internal control over financial reporting, to Cache's
auditors and the audit committee of Cache's Board of Directors;
a) all significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are
reasonably likely to adversely affect Cache's ability to record,
process, summarize and report financial information; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in Cache's internal control
over financial reporting.
August 10, 2005 By: /s/ Margaret Feeney
-------------------
Margaret Feeney
Executive Vice President and
Chief Financial Officer
(Principal Financial and
Accounting Officer)
22
<page>
EXHIBIT 32.1
CERTIFICATION PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Pursuant to and solely for the purposes of, 18 U.S.C. Section 1350 (Section 906
of the Sarbanes-Oxley Act of 2002, each of the undersigned hereby certifies in
the capacity and on the date indicated below that:
1. The Quarterly Report of Cache, Inc. on Form 10-Q for the period
ending July 2, 2005 as filed with Securities and Exchange Commission
on the date hereof (the "Report") fully complies with the
requirements of Section 13(a) or 15(d) of the Securities Exchange Act
of 1934; and
2. The information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations
of Cache, Inc.
August 10, 2005 BY: /s/ Brian Woolf
---------------
Brian Woolf
Chairman and Chief
Executive Officer
(Principal Executive
Officer)
August 10, 2005 By: /s/ Margaret Feeney
-------------------
Margaret Feeney
Executive Vice President and
Chief Financial Officer
(Principal Financial and
Accounting Officer)
23