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 September 27, 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 October 27th, 1997
CACHE, INC. AND SUBSIDIARIES
INDEX
PAGE
CONSOLIDATED FINANCIAL STATEMENTS
BALANCE SHEETS, SEPTEMBER 27, 1997
AND DECEMBER 28, 1996 3
STATEMENTS OF OPERATIONS
THIRTY-NINE WEEKS ENDED SEPTEMBER 27, 1997
AND SEPTEMBER 28, 1996 4
THIRTEEN WEEKS ENDED SEPTEMBER 27, 1997
AND SEPTEMBER 28, 1996 5
STATEMENTS OF CASH FLOWS
THIRTY-NINE WEEKS ENDED SEPTEMBER 27, 1997
AND SEPTEMBER 28, 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)
September 27, December 28,
1997 1996
ASSETS ---------------- ----------------
Current assets:
Cash and equivalents $ 1,507,000 $ 2,160,000
Receivables 1,505,000 1,292,000
Notes receivable from related parties 250,000 250,000
Inventories 20,199,000 18,010,000
Deferred income taxes and other assets 1,159,000 770,000
Prepaid expenses 288,000 542,000
---------------- ----------------
Total current assets 24,908,000 23,024,000
Property and equipment, net 15,910,000 16,385,000
Other assets 236,000 198,000
Deferred income taxes 875,000 917,000
---------------- ----------------
$ 41,929,000 $ 40,524,000
================ ================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 11,676,000 $ 10,875,000
Accrued compensation 1,176,000 721,000
Accrued liabilities 3,203,000 3,224,000
---------------- ----------------
Total current liabilities 16,055,000 14,820,000
Subordinated indebtedness to related party 2,000,000 2,000,000
Other liabilities 2,022,000 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 September 27, 1997 and December 28, 1996 91,000 91,000
Additional paid-in capital 19,564,000 19,564,000
Retained earnings 2,197,000 1,941,000
---------------- ----------------
Total stockholders' equity 21,852,000 21,596,000
---------------- ----------------
$ 41,929,000 $ 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 THIRTY-NINE WEEKS ENDED
(Unaudited)
September 27, September 28,
1997 1996
---------------- ----------------
Net sales $ 94,654,000 $ 90,015,000
---------------- ----------------
Costs and expenses
Cost of sales, including occupancy and buying costs 62,532,000 60,572,000
Selling, general and administrative expenses 31,518,000 29,062,000
---------------- ----------------
94,050,000 89,634,000
---------------- ----------------
Operating income 604,000 381,000
Interest expense
Related party 105,000 105,000
Other 65,000 191,000
---------------- ----------------
170,000 296,000
---------------- ----------------
Income before income taxes 434,000 85,000
Income tax provision 178,000 32,000
---------------- ----------------
Net income $ 256,000 $ 53,000
================ ================
Net income per share $ .03 $ .01
================ ================
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)
September 27, September 28,
1997 1996
---------------- ----------------
Net sales $ 30,237,000 $ 28,986,000
---------------- ----------------
Costs and expenses
Cost of sales, including occupancy and buying costs 20,590,000 20,530,000
Selling, general and administrative expenses 10,339,000 9,706,000
---------------- ----------------
30,929,000 30,236,000
---------------- ----------------
Operating loss (692,000) (1,250,000)
Interest expense
Related party 35,000 35,000
Other 13,000 74,000
---------------- ----------------
48,000 109,000
---------------- ----------------
Loss before income taxes (740,000) (1,359,000)
Income tax benefit (303,000) (510,000)
---------------- ----------------
Net loss $ (437,000) $ (849,000)
================ ================
Net loss per share ($ .05) ($ .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 THIRTY-NINE WEEKS ENDED
(Unaudited)
September 27, September 28,
1997 1996
---------------- ----------------
CASH FLOWS FROM OPERATING ACTIVITIES:
-------------------------------------
Net income $ 256,000 $ 53,000
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 2,848,000 2,572,000
Accrual (reversal) of future rent escalations (54,000) 169,000
Change in assets and liabilities:
---------------------------------
Increase in receivables (213,000) (427,000)
Increase in inventories (2,189,000) (1,318,000)
Increase in deferred income taxes (347,000) (284,000)
Decrease in prepaid expenses 254,000 217,000
Increase (decrease) in accounts payable 801,000 (47,000)
Increase in accrued liabilities and accrued compensation 434,000 208,000
---------------- ----------------
Total changes in assets and liabilities (1,260,000) (1,651,000)
---------------- ----------------
Net cash provided by operating activities 1,790,000 1,143,000
---------------- ----------------
CASH FLOWS FROM INVESTING ACTIVITIES:
-------------------------------------
Proceeds from property and equipment disposals 41,000 20,000
Payments for property and equipment (2,410,000) (2,668,000)
---------------- ----------------
Net cash used in investing activities (2,369,000) (2,648,000)
---------------- ----------------
CASH FLOWS FROM FINANCING ACTIVITIES:
-------------------------------------
Long-term bank debt additional borrowings 23,700,000 36,150,000
Long-term bank debt principal repayments (23,700,000) (34,900,000)
Other, net (74,000) (165,000)
---------------- ----------------
Net cash provided by(used in) financing activities (74,000) 1,085,000
---------------- ----------------
Net decrease in cash (653,000) (420,000)
Cash at beginning of period 2,160,000 1,025,000
---------------- ----------------
Cash at end of period $ 1,507,000 $ 605,000
================ ================
<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 September 27, 1997 and December 28, 1996,
and the results of operations for the thirty-nine and thirteen week
periods ended September 27, 1997 and September 28, 1996 and
consolidated statements of cash flows for the thirty-nine 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
thirty-nine and thirteen week periods ended September 27, 1997 and
September 28, 1996.
The approximate number of shares used in the computations of
income per common share were 9,091,000, for the thirty-nine and
thirteen week periods ended September 27, 1997 and September 28, 1996,
respectively.
3. PROPERTY AND EQUIPMENT
----------------------
September 27, December 28,
1997 1996
------------- ------------
Leasehold improvements $16,666,000 $16,271,000
Furniture, fixtures and
equipment 17,532,000 15,706,000
------------- ------------
34,198,000 31,977,000
Less: accumulated depreciation
and amortization 18,288,000 15,592,000
------------- ------------
$15,910,000 $16,385,000
============= ============
7
4. ACCRUED LIABILITIES
-------------------
September 27, December 28,
1997 1996
------------- ------------
Operating expenses $ 943,000 $ 803,000
Taxes, other than income taxes 929,000 1,121,000
Leasehold additions 56,000 107,000
Other customer deposits 1,275,000 1,193,000
------------- ------------
$3,203,000 $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.
There was no outstanding balance on the line of credit at
September 27, 1997 and December 28, 1996, respectively. 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 September 27, 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
$351,000 of alternative minimum tax carryforwards for tax reporting purposes,
and an investment tax credit carryforward of approximately $19,000. At
September 27, 1997 and December 28, 1996, the Company's deferred tax assets
were $1,679,000 and $1,679,000, respectively, also, there was no deferred tax
liability. The major components of the Company's net deferred taxes at
September 27, 1997 are as follows:
September 27, December 28,
1997 1996
------------- ------------
Net operating loss carryforwards ("NOL'S") and
investment tax credit and alternative minimum
tax carryforwards.............................. $ 651,000 $ 529,000
Deferred rent................................... 851,000 852,000
Inventory cost capitalization................... 153,000 233,000
Other........................................... 24,000 65,000
------------- ----------
$1,679,000 $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 thirty-nine weeks ended September 27, 1997, the Company reduced cash on
hand ($653,000)and used cash provided by operations ($1,790,000)to fund the
Company's new store expansion and remodeling program ($2,410,000). Cash
provided by operations increased to $1,790,000 in 1997 from $1,143,000 in
1996, primarily due to higher net income and higher depreciation expense.
Inventories increased $2,189,000, principally due to increased average store
inventory levels at September 27, 1997, as compared to fiscal year-end post-
holiday inventory levels, as well as due to the addition of five new stores
in 1997. Deferred income taxes increased by $347,000, due to estimated tax
payments made in Fiscal 1997.
9
The Company plans to open a total of approximately eight new stores
during 1997. The Company has already opened five stores as of September 27,
1997 and three additional stores will open in the fourth quarter. After
deducting construction allowances paid to the Company by its landlords, the
Company has spent $2,410,000 through September 27, 1997 and expects to spend
an additional $1,000,000 in 1997 for both new store and existing store
construction and remodeling. Approximately $450,000 of the amount above was
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, one store in July 1996, and one store in September
1996. The store closures had no material effect on net income. The Company
believes that given the sources of credit discussed above, its financial
resources will be sufficient to meet anticipated requirements.
RESULTS OF OPERATIONS
- ---------------------
Net income increased for the thirty-nine week period ended September 27,
1997, which was primarily caused by an approximately one percent increase in
comparative store sales. Lower markdowns, both in dollars and as a percent
of sales, contributed to increased gross margins for the current thirty-nine
week period as compared to Fiscal 1996. During the thirteen week period
ended September 27, 1997, the additional sales generated by new stores opened
in 1996 and 1997 more than offset the increase in operating expenses related
to these new stores, resulting in a decrease in net loss as compared to
Fiscal 1996. Lower markdowns, incurred during the current thirteen week
period, also contributed to increased gross margins as compared to the Fiscal
1996 period.
Certain financial data concerning the Company's results of operations
for the thirty-nine and thirteen week periods ended September 27, 1997 and
September 28, 1996, expressed as a percentage of net sales, are as follows:
Thirty-nine Weeks Ended Thirteen Weeks Ended
----------------------- --------------------
Sept. 27, Sept. 28, Sept. 27, Sept. 28,
1997 1996 1997 1996
--------- ---------- --------- ---------
Sales 100.0% 100.0% 100.0% 100.0%
Cost of sales, including
occupancy and buying expenses 66.1% 67.3% 68.1% 70.8%
Selling, general and
administrative expenses 33.3% 32.3% 34.2% 33.5%
Operating income (loss) 0.6% 0.4% (2.3%) (4.3%)
Interest expense 0.2% 0.3% 0.2% 0.4%
Pre-tax income (loss) 0.5% 0.1% (2.4%) (4.7%)
Income tax (benefit) 0.2% -- (1.0%) (1.8%)
Net income (loss) 0.3% 0.1% (1.4%) (2.9%)
10
Sales
- -----
Net sales increased $4,639,000 or 5.2% and $1,251,000 or 4.3%,
respectively, during the thirty-nine and thirteen week periods ended September
27, 1997, versus the comparable periods in 1996. The increases were primarily
due to the greater number of stores open during the 1997 periods. Same store
sales (sales for stores open at least one year or more) increased approximately
1% as compared to the comparable thirty-nine week period in 1996, and increased
approximately 1% as compared to the comparable thirteen week period 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 thirty-nine and thirteen week periods ended
September 27, 1997 and September 28, 1996 were as follows:
Thirty-nine Weeks Ended Thirteen Weeks Ended
------------------------- -------------------------
Sept. 27, Sept. 28, Sept. 27, Sept. 28,
1997 1996 1997 1996
------------ ------------ ------------ ------------
Sales $ 94,654,000 $ 90,015,000 $ 30,237,000 $ 28,986,000
Weighted Average Stores
Open During Period 164.2 153.2 165.7 156.3
Net Sales Per Weighted
Average Number of Stores $ 576,000 $ 587,000 $ 182,000 $ 185,000
Net Weighted Average Sales
per square foot $ 278.00 $ 283.00 $ 88.00 $ 89.00
Stores Open at End
of Period 166 158 166 158
Costs and expenses
- ------------------
Cost of sales, including occupancy and buying costs, increased $1,960,000
or 3.2% for the thirty-nine weeks ended September 27, 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, and a $689,000 increase in
occupancy expenses, primarily due to the additional stores in operation during
1997 versus 1996. As a percentage of sales, cost of sales, including the
occupancy expenses, decreased 1.2%, (66.1% versus 67.3%) for the thirty-nine
week period ended September 27, 1997, versus the comparable period in 1996. The
decrease is primarily due to lower markdowns, both in dollars and as a
percentage of sales, as compared to the 1996 period. The Company takes
markdowns for several reasons such as; changes in customer preference, 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 $60,000 or
0.3% for the thirteen weeks ended September 27, 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, a $126,000 increase in occupancy
expenses due to the additional stores in operation during 1997 versus 1996, and
is partially offset by lower markdowns. As a percentage of sales, cost of
sales, including occupancy and buying expenses, decreased 2.7% (68.1% versus
70.8%) for the thirteen weeks ended September 27, 1997, versus the comparable
period in 1996. The decrease is primarily due to lower markdowns, both in
dollars and as a percent of sales, as compared to the comparable period in
1996.
Selling, general and administrative expenses
- --------------------------------------------
Selling, general and administrative expenses ("S,G&A") increased $2,456,000
or 8.5% during the thirty-nine week period ended September 27, 1997, versus the
comparable period in 1996. The increase was primarily due to greater payroll
and payroll taxes ($1,483,000), insurance ($215,000), credit card fees
($69,000), freight charges ($73,000), depreciation ($274,000) and licenses and
taxes ($145,000). As a percentage of sales, these expenses increased 1.0%
(33.3% versus 32.3%) for the thirty-nine weeks ended September 27, 1997 versus
the similar 1996 period. The increase, as a percent of sales, was due primarily
to a small (1%) comparable store sales increase, in the current thirty-nine
week period, as compared to higher store selling expenses.
Selling, general and administrative expenses increased $633,000 or 6.5%
during the thirteen weeks ended September 27, 1997, versus the comparable period
in 1996. The increase was primarily due to greater payroll and payroll taxes
($331,000), insurance ($155,000), and depreciation ($113,000). As a percentage
of sales, these expenses increased .7% (34.2% versus 33.5%)for the thirteen
weeks ended September 27, 1997 versus the similar 1996 period.
Interest expense
- ----------------
Interest expense decreased $126,000 (42.6%) and $61,000 (56.0%),
respectively, for the thirty-nine and thirteen week periods ended September 27,
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 41.0% and 37.5%, for
Fiscal 1997 and 1996, respectively. The higher rate in Fiscal 1997 reflects
higher state and local income tax accruals, 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
NONE
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)
October 27, 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)
THIRTY- NINE THIRTEEN
WEEKS ENDED WEEKS ENDED
---------------------------- ----------------------------
September 27, September 28, September 27, September 28,
1997 1996 1997 1996
---------------------------- ----------------------------
EARNINGS
Net Income (Loss) Applicable
to Common Stockholders $ 256,000 $ 53,000 $ (437,000) $ (849,000)
============ ============= ============ =============
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(Loss)Per Share $0.03 $0.01 ($0.05) ($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 $0.03 $0.01 ($0.05) ($0.09)
============================ =========================
15