FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[ X ] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For quarterly period ended June 28, 1997
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)
1460 Broadway, New York, New York 10036
- -------------------------------------------------------------------
(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 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
---- ----
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 9,091,338
- -------------------------- -----------------------------
Class of Stock Outstanding Outstanding at August 4, 1997
CACHE, INC. AND SUBSIDIARIES
INDEX
PAGE
CONSOLIDATED FINANCIAL STATEMENTS
BALANCE SHEETS, JUNE 28, 1997
AND DECEMBER 28, 1996 3
STATEMENTS OF OPERATIONS
TWENTY-SIX WEEKS ENDED JUNE 28, 1997
AND JUNE 29, 1996 4
THIRTEEN WEEKS ENDED JUNE 28, 1997
AND JUNE 29, 1996 5
STATEMENTS OF CASH FLOWS
TWENTY-SIX WEEKS ENDED JUNE 28, 1997
AND JUNE 29, 1996 6
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 7-9
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 9-12
OTHER INFORMATION:
EXHIBIT INDEX AND REPORTS ON FORM 8-K 13
SIGNATURES 14
2
CACHE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
June 28, December 28,
ASSETS 1997 1996
-------------- -------------
Current assets:
Cash and equivalents $ 627,000 $ 2,160,000
Receivables 1,021,000 1,292,000
Notes receivable from related parties 250,000 250,000
Inventories 18,591,000 18,010,000
Deferred income taxes and other assets 735,000 770,000
Prepaid expenses 397,000 542,000
-------------- -------------
Total current assets 21,621,000 23,024,000
Property and equipment, net 16,198,000 16,385,000
Other assets 215,000 198,000
Deferred income taxes 938,000 917,000
-------------- -------------
$ 38,972,000 $ 40,524,000
============== =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 7,950,000 $ 10,875,000
Accrued compensation 641,000 721,000
Accrued liabilities 2,806,000 3,224,000
-------------- -------------
Total current liabilities 11,397,000 14,820,000
Long-term bank debt 1,150,000 ---
Subordinated indebtedness to related party 2,000,000 2,000,000
Other liabilities 2,137,000 2,108,000
Commitments and contingencies
STOCKHOLDERS' EQUITY
Common stock, par value $.01; authorized, 20,000,000
shares; issued and outstanding 9,091,338 shares
at June 28, 1997 and December 28, 1996 91,000 91,000
Additional paid-in capital 19,564,000 19,564,000
Retained earnings 2,633,000 1,941,000
-------------- -------------
Total stockholders' equity 22,288,000 21,596,000
-------------- -------------
$ 38,972,000 $ 40,524,000
============== =============
<FN>
The accompanying Notes to Consolidated Financial Statements are an integral part of these balance sheets.
</FN>
3
CACHE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE TWENTY-SIX WEEKS ENDED
(Unaudited)
June 28, June 29,
1997 1996
------------- -------------
Net sales $ 64,417,000 $ 61,029,000
------------- -------------
Costs and expenses
Cost of sales, including occupancy and buying costs 41,942,000 40,042,000
Selling, general and administrative expenses 21,179,000 19,356,000
------------- -------------
63,121,000 59,398,000
------------- -------------
Operating income 1,296,000 1,631,000
Interest expense
Related party 70,000 70,000
Other 52,000 117,000
------------- -------------
122,000 187,000
------------- -------------
Income before income taxes 1,174,000 1,444,000
Income tax provision 481,000 542,000
------------- -------------
Net income $ 693,000 $ 902,000
============= =============
Net income per share $ .08 $ .10
============= =============
Weighted average number of shares and
share equivalents outstanding 9,091,000 9,091,000
============= =============
<FN>
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
</FN>
4
CACHE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THIRTEEN WEEKS ENDED
(Unaudited)
June 28, June 29,
1997 1996
------------- -------------
Net sales $ 34,111,000 $ 32,722,000
------------- -------------
Costs and expenses
Cost of sales, including occupancy and buying costs 21,897,000 21,503,000
Selling, general and administrative expenses 10,799,000 9,818,000
------------- -------------
32,696,000 31,321,000
------------- -------------
Operating income 1,415,000 1,401,000
Interest expense
Related party 35,000 35,000
Other 17,000 55,000
------------- -------------
52,000 90,000
------------- -------------
Income before income taxes 1,363,000 1,311,000
Income tax provision 559,000 492,000
------------- -------------
Net income $804,000 $819,000
============= =============
Net income per share $ .09 $ .09
============= =============
Weighted average number of shares and
share equivalents outstanding 9,091,000 9,091,000
============= =============
<FN>
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
</FN>
5
CACHE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE TWENTY-SIX WEEKS ENDED
(Unaudited)
June 28, June 29,
1997 1996
------------- -------------
CASH FLOWS FROM OPERATING ACTIVITIES:
-------------------------------------
Net income $ 693,000 $ 902,000
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 1,857,000 1,693,000
Deferred income taxes 14,000 231,000
Accrual of future rent escalations 18,000 91,000
Change in assets and liabilities:
(Increase) decrease in receivables 271,000 (71,000)
(Increase) decrease in inventories (581,000) (1,732,000)
(Increase) decrease in prepaid expenses 145,000 167,000
Increase (decrease) in accounts payable (2,925,000) (2,802,000)
Increase (decrease) in accrued liabilities
and accrued compensation (498,000) (596,000)
------------- -------------
Total changes in assets and liabilities (3,588,000) (5,034,000)
------------- -------------
Net cash used in operating activities (1,006,000) (2,117,000)
------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
-------------------------------------
Payments for property and equipment (1,667,000) (1,436,000)
------------- -------------
Net cash used in investing activities (1,667,000) (1,436,000)
------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
-------------------------------------
Long-term bank debt borrowings 20,000,000 27,200,000
Long-term bank debt payments (18,850,000) (23,950,000)
Other, net (10,000) (21,000)
------------- -------------
Net cash provided by financing activities 1,140,000 3,229,000
------------- -------------
Net increase (decrease) in cash (1,533,000) (324,000)
Cash at beginning of period 2,160,000 1,025,000
------------- -------------
Cash at end of period $ 627,000 $ 701,000
============= =============
<FN>
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
</FN>
6
CACHE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
---------------------
In the opinion of the Company, the accompanying consolidated
financial statements include all adjustments necessary, which are
considered normal and recurring to present fairly the financial
position of the Company at June 28, 1997 and December 28, 1996, and the
results of operations for the twenty-six and thirteen week periods
ended June 28, 1997 and June 29, 1996 and consolidated statements of
cash flows for the twenty-six weeks then ended.
Certain financial information which is normally included in
financial statements prepared in accordance with generally accepted
accounting principles, but which is not required for interim reporting
purposes, has been condensed or omitted. The accompanying consolidated
financial statements should be read in conjunction with the Financial
Statements and notes thereto included in the Company's latest annual
report on Form 10-K for the fiscal year ended December 28, 1996.
Certain amounts reflected in Fiscal 1996 financial statements have been
reclassified to conform with the presentation of similar items in
Fiscal 1997.
2. NET INCOME OR LOSS PER SHARE
----------------------------
Net income or loss per share has been computed based on the
weighted average number of shares of common stock outstanding for the
twenty-six and thirteen week periods ended June 28, 1997 and June 29,
1996.
The approximate number of shares used in the computations of
income per common share were 9,091,000, for the twenty-six and thirteen
week periods ended June 28, 1997 and June 29, 1996, respectively.
3. PROPERTY AND EQUIPMENT
----------------------
June 28, December 28,
1997 1996
----------- -----------
Leasehold improvements $16,717,000 $16,271,000
Furniture, fixtures and
equipment 16,927,000 15,706,000
----------- -----------
33,644,000 31,977,000
Less: accumulated depreciation
and amortization 17,446,000 15,592,000
----------- -----------
$16,198,000 $16,385,000
=========== ===========
7
4. ACCRUED LIABILITIES
-------------------
June 28, December 28,
1997 1996
----------- ------------
Operating expenses $ 845,000 $ 803,000
Taxes, other than income taxes 706,000 1,121,000
Leasehold additions 55,000 107,000
Other customer deposits 1,200,000 1,193,000
---------- ----------
$2,806,000 $3,224,000
========== ==========
5. BANK DEBT
---------
During August 1996, the Company reached an agreement with its bank
to extend the maturity of the Amended Revolving Credit Facility until
January 31, 2000. Pursuant to the Amended Revolving Credit Facility,
$12,000,000 is available until expiration at January 31, 2000. The
amounts outstanding thereunder bear interest at a maximum per annum
rate up to .50% above the bank's prime rate. The agreement contains
selected financial and other covenants including covenants to maintain
a minimum current ratio, a maximum debt to equity and total equity
ratio, a maximum capital expenditure covenant, a minimum earnings to
bank interest coverage ratio and certain restrictions on the repayment
of principal amounts due to related parties. The agreement prohibits
the payment of any dividends on the Company's common stock. 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 outstanding balances on the line of credit at June 28, 1997
was $1,150,000, and there was no outstanding balance on the line of
credit at December 28, 1996. The related party debt is subordinated to
the bank debt and repayment is subject to terms of the Amended
Revolving Credit Facility.
6. INDEBTEDNESS TO RELATED PARTY
-----------------------------
As of June 28, 1997 and December 28, 1996 the Company had
outstanding, (i) a $250,000 long-term loan from a major stockholder
bearing interest payable quarterly with principal due upon demand at
any time after January 31, 2000; and (ii) a $1,750,000 loan made by the
same stockholder bearing interest payable quarterly with principal due
upon demand at any time after January 31, 2000. The interest rate on
both notes is 7% per annum, payable annually. The Company may make
loan repayments of $1,000,000 each on December 31, 1997 and December
31, 1998, subject to the Tangible Net Worth covenant contained in the
Amended Revolving Credit Facility.
8
7. INCOME TAXES
------------
The effective tax rates for Fiscal 1997 and 1996 are 41.0% and 37.5%,
respectively. The Company had available at December 28, 1996 approximately
$281,000 of alternative minimum tax carryforwards for tax reporting purposes,
and an investment tax credit carryforward of approximately $117,000. At June
28, 1997 and December 28, 1996, the Company's deferred tax assets were
$1,771,000 and $1,679,000, respectively, also, there was no deferred tax
liability. The major components of the Company's net deferred taxes at June
28, 1997 are as follows:
June 28, December 28,
1997 1996
---------- ------------
Net operating loss carryforwards ("NOL'S") and
investment tax credit and alternative minimum
tax carryforwards.............................. $ 589,000 $ 529,000
Deferred rent................................... 881,000 852,000
Inventory cost capitalization................... 255,000 233,000
Other........................................... 46,000 65,000
---------- ------------
$1,771,000 $1,679,000
========== ============
8. CONTINGENCIES
-------------
The Company is exposed to a number of asserted and unasserted potential
claims. In the opinion of management, the resolution of these matters is not
presently expected to have a material adverse effect upon the Company's
financial position and results of operations.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
- ------------------------------------------------------------------------
RESULTS OF OPERATIONS
- ---------------------
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
The Company's primary need for capital is to finance new store
merchandise inventories, as well as the construction of new stores. During
the twenty-six weeks ended June 28, 1997, the Company increased bank
borrowings ($1,150,000), and reduced cash ($1,533,000) to partially offset
the cost of inventory purchases ($581,000), and the Company's new store
expansion and remodeling program ($1,667,000). Cash used by operations
decreased to $1,006,000 in 1997 from $2,117,000 in 1996, primarily due to
reduced inventory purchases. Inventories increased $581,000, principally due
to increased average store inventory levels at June 28, 1997, as compared to
fiscal year-end post-holiday inventory levels, as well as due to the addition
of four new stores in 1997. Accounts payable decreased $2,925,000 and
accrued expenses decreased $498,000 during the period, as the Company paid
for merchandise and expenses accrued at the end of Fiscal 1996.
9
The Company plans to open a total of approximately nine new stores
during 1997. The Company opened three stores in March and one store in April
1997. The remaining stores are expected to be opened during late summer and
fall of 1997. After deducting construction allowances paid to the Company by
its landlords, the Company has spent $1,667,000 through June 28, 1997 and
expects to spend an additional $2,000,000 in 1997 for both new store and
existing store construction and remodeling. Approximately $500,000 of the
amount above is slated to be spent for floorset fixtures and signage, to
highlight a new sportswear separates area in the stores. The Company
anticipates that it will finance new store construction and remodeling in
1997 primarily by cash flow from operations and its existing credit
facilities. The Company closed three stores in January 1996, the store
closures had no material effect on net income for the twenty-six week period
in 1996. The Company believes that given the sources of credit discussed
above, its financial resources will be sufficient to meet anticipated
requirements.
RESULTS OF OPERATIONS
- ---------------------
The Company experienced a decrease in net income, for the twenty-six
week period ended June 28, 1997, which was primarily caused by flat
comparative store sales. During the thirteen week period ended June 28,
1997, the additional sales generated by new stores opened in 1996 and 1997,
caused an increase in sales and pre-tax income, as compared to Fiscal 1996.
Certain financial data concerning the Company's results of operations
for the twenty-six and thirteen week periods ended June 28, 1997 and June 29,
1996, expressed as a percentage of net sales, are as follows:
Twenty-six Weeks Ended Thirteen Weeks Ended
---------------------- ---------------------
June 28, June 29, June 28, June 29,
1997 1996 1997 1996
--------- --------- -------- --------
Sales 100.0% 100.0% 100.0% 100.0%
Cost of sales, including
occupancy and buying expenses 65.1% 65.6% 64.2% 65.7%
Selling, general and
administrative expenses 32.9% 31.7% 31.7% 30.0%
Operating income 2.0% 2.7% 4.1% 4.3%
Interest expense 0.2% 0.3% 0.2% 0.3%
Income tax provision 0.7% 0.9% 1.6% 1.5%
Net income 1.1% 1.5% 2.4% 2.5%
10
Sales
- -----
Net sales increased $3,388,000 or 5.6% and $1,389,000 or 4.2%,
respectively, during the twenty-six and thirteen week periods ended June 28,
1997, versus the comparable periods in 1996. The increases were primarily due
to the greater number of stores open during the 1997 periods. Comparable store
sales were relatively flat for the twenty-six and thirteen week periods in 1997,
as compared to the comparable periods in 1996.
Historically, sales at new stores do not achieve the same levels as
existing, established stores. New stores generally begin to perform as well as
existing stores during their second and third year of operation. Sales on a
weighted average basis for the twenty-six and thirteen week periods ended June
28, 1997 and June 29, 1996 were as follows:
Twenty-six Weeks Ended Thirteen Weeks Ended
----------------------- ----------------------
June 28, June 29, June 28, June 29,
1997 1996 1997 1996
----------- --------- ----------- -----------
Sales $64,417,000 $61,029,000 $34,111,000 $32,722,000
Weighted Average Stores
Open During Period 163.3 151.7 164.8 153.8
Net Sales Per Weighted
Average Number of Stores $ 394,000 $ 402,000 $ 207,000 $ 213,000
Net Weighted Average Sales
per square foot $ 189.95 $ 202.88 $ 102.99 $ 107.66
Stores Open at End
of Period 165 155 165 155
Costs and expenses
- ------------------
Cost of sales, including occupancy and buying costs, increased $1,900,000
or 4.7% for the twenty-six weeks ended June 28, 1997, versus the similar period
in 1996. The increase was primarily due to the increase in sales and the
related cost of merchandise for those sales, as well as a $563,000 increase in
occupancy expenses, primarily due to the additional stores in operation during
the 1997 versus 1996. As a percentage of sales, cost of sales, including the
occupancy expenses, decreased 0.5%, (65.1% versus 65.6%) for the twenty-six
week period ended June 28, 1997, versus the comparable period in 1996. The
decrease was primarily due to lower markdowns in 1997, as a percent of sales.
The Company takes markdowns for several reasons such as; changes in customer
preference, seasonal adaptation, changes in style or if it is determined
merchandise in stock will not sell at its currently marked price.
11
Cost of sales, including occupancy and buying costs, increased $394,000 or
1.8% for the thirteen weeks ended June 28, 1997, versus the similar 1996
period. The increase was primarily due to the increase in sales and the
related cost of the merchandise for those sales, and a $243,000 increase in
occupancy, due to the additional stores in operation during 1997 versus 1996.
As a percentage of sales, cost of sales, including occupancy and buying
expenses, decreased 1.5% (64.2% versus 65.7%) for the thirteen weeks ended
June 28, 1997, versus the comparable period in 1997. The decrease was
primarily due to lower markdowns, as a percent of sales, versus the comparable
period in 1996.
Selling, general and administrative expenses
- --------------------------------------------
Selling, general and administrative expenses ("S,G&A") increased $1,823,000
or 9.4% during the twenty-six week period ended June 28, 1997 versus the
comparable period in 1996. The increase was primarily due to greater payroll
and payroll taxes ($1,152,000), credit card fees ($77,000), freight charges
($80,000), depreciation ($161,000) and licenses and taxes ($126,000). As a
percentage of sales, these expenses increased 1.2% (32.9% versus 31.7%) for the
twenty-six weeks ended June 28, 1997 versus the similar 1996 period. The
increase was due primarily to the effect of flat comparable store sales,
experienced in the current twenty-six week period, upon S,G&A expenses, which
are relatively fixed in nature.
Selling, general and administrative expenses increased $981,000 or 10.0%
during the thirteen weeks ended June 28, 1997, versus the comparable period in
1996. The increase was due to greater payroll and payroll taxes ($603,000),
licenses and taxes($60,000)and depreciation($118,000). As a percentage of
sales, these expenses increased 1.7% (31.7% versus 30.0%) for the thirteen weeks
ended June 28, 1997 versus the similar 1996 period. The increase was due
primarily to the effect of flat comparable store sales, experienced in the
current thirteen week period, upon S,G&A expenses, which are relatively fixed
in nature.
Interest expense
- ----------------
Interest expense decreased $65,000 (34.8%) and $38,000 (42.2%),
respectively, for the twenty-six and thirteen week periods ended June 28, 1997
versus the comparable period in 1996, primarily due to lower average borrowing
levels in 1997.
Income taxes
- ------------
The Company's effective tax rate is approximately 41% and 37.5%, for Fiscal
1997 and 1996, respectively. The higher rate in Fiscal 1997 reflects higher
state and local income taxes, as well as a reduction in temporary differences
which previously were more significant.
12
PART II - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) The annual meeting of shareholders of the Company was held on
July 16, 1997.
(b) All members of the current Board of Directors were re-elected as
such for the next ensuing year. The names of each elected
Director are: Andrew M. Saul, Joseph E. Saul, Morton J.
Schrader, Mark E. Goldberg, Mae Soo Hoo, Thomas E. Reinckens and
Roy C. Smith.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
NONE
(b) Reports on Form 8-K
NONE
13
Signature
---------
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.
CACHE, INC.
(Registrant)
August 4, 1997 BY: /s/ Thomas E. Reinckens
------------------------------
Thomas E. Reinckens
On behalf of Cache, Inc.
and in his capacity as
Executive Vice President and
Chief Financial Officer
(Principal Financial and
Principal Accounting Officer)
14
EXHIBIT 11.1
CALCULATION OF PRIMARY AND FULLY DILUTED EARNINGS PER COMMON SHARE
(In thousands except per share data)
TWENTY-SIX THIRTEEN
WEEKS ENDED WEEKS ENDED
------------------------------ -----------------------------
June 28, June 29, June 28, June 29,
1997 1996 1997 1996
------------------------------ -----------------------------
EARNINGS
--------
Net Income Applicable
to Common Stockholders $ 693,000 $ 902,000 $ 804,000 $ 819,000
============================== =============================
PRIMARY SHARES
--------------
Weighted Average Number of
Common Shares Outstanding 9,091,000 9,091,000 9,091,000 9,091,000
Assuming Conversion of
Outstanding Stock Options
and Stock Warrants --- --- --- ---
Less Assumed Repurchase
of Common Stock Pursuant
to the Treasury Stock Method --- --- --- ---
------------------------------ -----------------------------
Weighted Average Number of
Common Shares Outstanding
As Adjusted 9,091,000 9,091,000 9,091,000 9,091,000
============================== =============================
Primary Earnings Per Share $0.08 $0.10 $0.09 $0.09
============================== =============================
FULLY DILUTED EARNINGS PER SHARE
--------------------------------
Weighted Average Number of
Common Shares Outstanding 9,091,000 9,091,000 9,091,000 9,091,000
Assuming Conversion of
Outstanding Stock Options
and Stock Warrants --- --- --- ---
Less Assumed Repurchase
of Common Stock Pursuant
to the Treasury Stock Method --- --- --- ---
Weighted Average Number of
Common Shares Outstanding
As Adjusted 9,091,000 9,091,000 9,091,000 9,091,000
============================== =============================
Fully Diluted Earnings Per Share $0.08 $0.10 $0.09 $0.09
============================== =============================
15