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 April 3, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from............... to ...............
Commission File Number: 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 May 7, 1999
CACHE, INC. AND SUBSIDIARIES
INDEX
PAGE
CONSOLIDATED FINANCIAL STATEMENTS
BALANCE SHEETS, APRIL 3, 1999
AND JANUARY 2, 1999 3
STATEMENTS OF OPERATIONS
THIRTEEN WEEKS ENDED APRIL 3, 1999
AND MARCH 28, 1998 4
STATEMENTS OF CASH FLOWS
THIRTEEN WEEKS ENDED APRIL 3, 1999
AND MARCH 28, 1998 5
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 6-8
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 9-11
OTHER INFORMATION:
EXHIBIT INDEX AND REPORTS ON FORM 8-K 12
SIGNATURES 13
2
CACHE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
April 3, January 2,
1999 1999
ASSETS ------------- -------------
Current assets:
Cash and equivalents $ 13,426,000 $ 13,720,000
Receivables 2,054,000 1,525,000
Notes receivable from related parties 250,000 295,000
Inventories 21,673,000 18,911,000
Deferred income taxes and other assets 197,000 193,000
Prepaid expenses 651,000 629,000
------------- -------------
Total current assets 38,251,000 35,273,000
Property and equipment, net 15,019,000 14,776,000
Other assets 775,000 764,000
Deferred income taxes 742,000 745,000
------------- -------------
$ 54,787,000 $ 51,558,000
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 17,196,000 $ 13,178,000
Income taxes payable 689,000 943,000
Accrued compensation 669,000 1,447,000
Accrued liabilities 3,881,000 4,331,000
------------- -------------
Total current liabilities 22,435,000 19,899,000
Subordinated indebtedness to related party 2,000,000 2,000,000
Other liabilities 1,704,000 1,763,000
Commitments and contingencies
STOCKHOLDERS' EQUITY
Common stock, par value $.01; authorized,
20,000,000 shares; issued and outstanding
9,091,338 shares at April 3, 1999 and
January 2, 1999 91,000 91,000
Additional paid-in capital 19,564,000 19,564,000
Retained earnings 8,993,000 8,241,000
------------- -------------
Total stockholders' equity 28,648,000 27,896,000
------------- -------------
$ 54,787,000 $ 51,558,000
============= =============
<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 THIRTEEN WEEKS ENDED
(Unaudited)
April 3, March 28,
1999 1998
------------- -------------
Net sales $ 36,486,000 $ 31,334,000
------------- -------------
Costs and expenses
Cost of sales, including occupancy and buying costs 23,716,000 20,779,000
Selling, general and administrative expenses 11,549,000 10,444,000
------------- -------------
35,265,000 31,223,000
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Operating income 1,221,000 111,000
------------- -------------
Interest expense
Related party (35,000) (35,000)
Other --- (12,000)
------------- -------------
(35,000) (47,000)
------------- -------------
Interest income 89,000 33,000
------------- -------------
Income before income taxes 1,275,000 97,000
Income tax provision 523,000 40,000
------------- -------------
Net income $ 752,000 $ 57,000
============= =============
Basic and diluted earnings per share $0.08 $0.01
========== ==========
Weighted average number of shares and
share equivalents outstanding 9,235,000 9,105,000
========== =========
<FN>
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
</FN>
4
CACHE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THIRTEEN WEEKS ENDED
(Unaudited)
April 3, March 28,
1999 1998
------------- -------------
CASH FLOWS FROM OPERATING ACTIVITIES:
-------------------------------------
Net income $ 752,000 $ 57,000
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 1,032,000 969,000
Deferred income taxes 65,000 5,000
Accrual (reversal) of future rent escalations (30,000) 9,000
Change in assets and liabilities:
Increase in receivables (529,000) (168,000)
Decrease in notes receivable from related parties 45,000 ---
Increase in inventories (2,762,000) (2,560,000)
Decrease (increase) in prepaid expenses (22,000) 19,000
Increase in accounts payable 4,018,000 349,000
Decrease in income taxes payable (320,000) (323,000)
Decrease in accrued liabilities and accrued
compensation (1,257,000) (308,000)
------------- -------------
Total changes in assets and liabilities (827,000) (2,991,000)
------------- -------------
Net cash provided by (used in) operating activities 992,000 (1,951,000)
------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
-------------------------------------
Payments for property and equipment (1,268,000) (817,000)
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Net cash used in investing activities (1,268,000) (817,000)
------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
-------------------------------------
Proceeds from long-term bank debt --- 550,000
Repayment of long-term bank debt --- (550,000)
Other, net (18,000) (50,000)
------------- -------------
Net cash used in financing activities (18,000) (50,000)
------------- -------------
Net decrease in cash and equivalents (294,000) (2,818,000)
Cash and equivalents, at beginning of period 13,720,000 5,892,000
------------- -------------
Cash and equivalents, at end of period $ 13,426,000 $ 3,074,000
============= =============
<FN>
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
</FN>
5
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 April 3,
1999 and January 2, 1999, and the results of operations for the thirteen week
periods ended April 3, 1999 and March 28, 1998 and consolidated statements of
cash flows for the thirteen 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 January 2, 1999. Certain amounts reflected in Fiscal 1998 financial
statements have been reclassified to conform with the presentation of similar
items in Fiscal 1999.
Net income includes all sources of comprehensive income. There were no
adjustments for foreign currency translation, unrealized gains(losses)on
investments or deferred compensation expense incurred in Fiscal 1999 or Fiscal
1998 results.
2. BASIC AND DILUTED EARNINGS
--------------------------
Basic and diluted earnings per share has been computed based on the
weighted average number of shares of common stock outstanding for the thirteen
weeks ended April 3, 1999 and March 28, 1998.
The approximate number of shares used in the computations of basic and
diluted earnings per share were 9,235,000 and 9,105,000, for the thirteen week
periods ended April 3, 1999 and March 28, 1998, respectively.
6
3. PROPERTY AND EQUIPMENT
----------------------
April 3, January 2,
1999 1999
----------- -----------
Leasehold improvements $17,316,000 $16,912,000
Furniture, fixtures and
equipment 20,728,000 19,864,000
----------- -----------
38,044,000 36,776,000
Less: accumulated depreciation
and amortization 23,025,000 22,000,000
----------- -----------
$15,019,000 $14,776,000
=========== ===========
4. ACCRUED LIABILITIES
-------------------
April 3, January 2,
1999 1999
---------- ----------
Operating Expenses $ 863,000 $1,193,000
Taxes, other than income taxes 1,174,000 1,396,000
Leasehold additions 170,000 30,000
Other customer deposits 1,674,000 1,712,000
---------- ----------
$3,881,000 $4,331,000
========== ==========
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 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 April 3, 1999,
and January 2, 1999. The related party debt is subordinated to the bank debt
and repayment is subject to terms of the Amended Revolving Credit Facility.
The Company is currently in compliance with all covenant requirements. The
Company is presently negotiating with it's lead bank to extend the Line of
Credit, which is due to expire on January 31, 2000.
7
NOTE 6. INDEBTEDNESS TO/FROM RELATED PARTIES
As of April 3, 1999 and January 2, 1999 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. Interest on both notes accrue at 7% per year through January 31, 2000.
The Company is also evaluating whether it will repay the $2,000,000 related
party indebtedness on January 31, 2000. The related party has agreed to
extend the maturity date of the notes if the Company deems it necessary.
7. INCOME TAXES
------------
The effective tax rates for Fiscal 1999 and 1998 are 41.0%. At April 3,
1999 and January 2, 1999, the Company's deferred tax assets were $939,000 and
$938,000, respectively, also, there was no deferred tax liability. The major
components of the Company's net deferred taxes at April 3, 1999 are as
follows:
April 3, January 2,
1999 1999
------------ ------------
Net operating loss carryforwards ("NOL'S)....... $ 40,000 $ 40,000
Deferred rent................................... 826,000 837,000
Other........................................... 73,000 61,000
------------ ------------
$ 939,000 $ 938,000
============ ============
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.
8
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 thirteen
weeks ended April 3, 1999, the Company used cash ($294,000), cash flow from
non-cash depreciation expenses ($1,032,000)as well as increase in accounts
payable ($4,018,000) to offset the cost of, inventory purchases ($2,762,000),
payment of accrued liabilities and compensation ($1,257,000), and to fund the
Company's new store expansion and remodeling program ($1,268,000).
The Company plans to open approximately ten to fifteen new stores during
1999. The Company opened four new stores in March 1999, and one new store in
April 1999. The remaining stores are expected to be opened during the summer
and fall of 1999. After deducting construction allowances paid to the Company
by its landlords, the Company has spent $1,268,000 through April 3, 1999 and
expects to spend an additional $3,000,000 in 1999 for both new store and
existing store construction and remodeling.
The Company has completed a comprehensive review of its computer systems
and is currently modifying existing software and converting to new software,
where necessary, in preparation for the Year 2000. The Company expects this
process to be completed in 1999. During 1999, the Company will incur internal
staff expenses as well as external consulting and other additional expenses
related to the project. To date, the Company has spent approximately $50,000
for external consulting, software and hardware improvements. The total costs
associated with modifying current systems and new software cost is not
anticipated to have a material impact on results of operations, cash flows or
financial condition in any given year. However, no assurances can be given
that the Company will be able to completely identify or address all year 2000
compliance issues, or that third parties with whom the Company does business
will not experience system failures as a result of the year 2000 issue, nor
can the Company fully predict the consequences of noncompliance.
Management believes that the Company's internally generated cash flows
will be sufficient to meet anticipated requirements for operations and planned
expansion during Fiscal 1999.
RESULTS OF OPERATIONS
- ---------------------
For the thirteen weeks ended April 3, 1999, the 5% increase in
comparative store sales along with improved gross margins, was partially
offset by slightly higher occupancy costs, as well as selling, general &
administrative expenses, resulting in an increase in net profit in Fiscal 1999
as compared to Fiscal 1998. The increase in general and administrative
expenses was partially offset by reductions in net interest expense, as well
as an increase in interest income.
9
Certain financial data concerning the Company's results of operations for
the thirteen week periods ended April 3, 1999 and March 28, 1998, expressed as
a percentage of net sales, are as follows:
Thirteen Weeks Ended
--------------------
April 3, March 28,
1999 1998
--------- ---------
Sales 100.0% 100.0%
Cost of sales, including
occupancy and buying expenses 65.0% 66.3%
Selling, general and
administrative expenses 31.7% 33.3%
Income before taxes 3.5% .3%
Income tax provision 1.4% .1%
Net income 2.1% .2%
Sales
- -----
Net sales increased $5,152,000 or 16.4% during the thirteen week period
ended April 3, 1999, versus the comparable period in 1998. The increase was
primarily due to the greater number of stores open during the 1999 period,
approximately 188 stores in operation in 1999 versus approximately 170 in
1998, as well as an increase in comparable store sales (sales for stores open
at least one year or more) which increased 5% during 1999, as compared to the
1998 period.
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 thirteen week periods ended April 3, 1999 and
March 28, 1998 were as follows:
Thirteen Weeks Ended
--------------------
April 3, March 28,
1999 1998
----------- -----------
Sales $36,486,000 $31,334,000
Weighted Average Stores
Open During Period 184.7 169.2
Net Sales Per Weighted
Average Number of Stores $ 198,000 $ 185,000
Net Weighted Average Sales
per Square Foot $ 93.1 $ 89.1
Stores Open at End
of Period 188 170
10
Costs and expenses
- ------------------
Cost of sales including occupancy and buying costs, increased $2,937,000
or 14.1% for the thirteen weeks ended April 3, 1999 versus the similar period
in 1998. The increase was primarily due to the increase in sales and the
related cost of merchandise for those sales, as well as a $587,000 increase in
occupancy expenses, primarily due to the additional stores in operation during
1999 versus 1998. As a percentage of sales, cost of sales including occupancy
and buying expenses, decreased 1.3%, (65.0% versus 66.3%) for the thirteen
weeks ended April 3, 1999 versus the comparable period in 1998, primarily due
to the increase in sales volume.
Selling, general and administrative expenses
- --------------------------------------------
Selling, general and administrative expenses increased $1,105,000 or
10.6% during the thirteen weeks ended April 3, 1999 versus the comparable
period in 1998. The increase was primarily due to the greater number of
stores open in 1999 (approximately 15 more than fiscal 1998), and is reflected
in greater payroll and payroll taxes ($871,000), credit card fees ($116,000),
and depreciation ($63,000). These increases were partially offset by
reductions in freight charges ($68,000), and advertising expense ($81,000), as
well as savings in other expense categories. As a percentage of sales, S,G &
A expenses decreased to 31.7% in Fiscal 1999 from 33.3% in Fiscal 1998.
Interest expense
- ----------------
Interest expense decreased $12,000 or (26%) for the thirteen week period
ended April 3, 1999, versus the comparable period in 1998, due to no
borrowings on the bank line in Fiscal 1999.
Interest income
- ---------------
Interest income increased to $89,000 from $33,000 in Fiscal 1999 as
compared to the Fiscal 1998 quarter. The increase is primarily due to the
higher cash flow levels the Company is currently generating.
Income taxes
- ------------
The Company's effective tax rate is approximately 41%, for Fiscal 1999
and 1998, respectively.
11
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
12
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)
May 7, 1999 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)
13
EXHIBIT 11.1
CALCULATION OF BASIC AND DILUTED EARNINGS PER COMMON SHARE
(In thousands except per share data)
THIRTEEN WEEKS ENDED
-----------------------------------
April 3, March 28,
1999 1998
------------- -------------
EARNINGS PER SHARE
------------------
Net Income Applicable to Common Stockholders $ 752,000 $ 57,000
============= =============
BASIC EARNINGS PER SHARE
------------------------
Weighted Average Number of
Common Shares Outstanding 9,091,000 9,091,000
============= =============
Basic Earnings Per Share $0.08 $0.01
============= =============
DILUTED EARNINGS PER SHARE
--------------------------
Weighted Average Number of
Common Shares Outstanding 9,091,000 9,091,000
Assuming Conversion of
Outstanding Stock Options 476,000 476,000
Less Assumed Repurchase
of Common Stock Pursuant
to the Treasury Stock Method (332,000) (462,000)
------------- -------------
Weighted Average Number of
Common Shares Outstanding
As Adjusted 9,235,000 9,105,000
============= =============
Diluted Earnings Per Share $0.08 $0.01
============= =============
14