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 the quarterly period ended July 29, 2000
Commission File No. 0-11682
S & K FAMOUS BRANDS, INC.
...............................................................
(Exact name of registrant as specified in its charter)
Virginia 54-0845694
......................................... ............................
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
11100 West Broad Street, P. O. Box 31800, Richmond, Virginia 23294-1800
................................................................................
(Address of principal executive offices)
Registrant's telephone number, including area code: (804) 346-2500
....................
Not Applicable
.........................................................
Former name, former 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
----- -----
Indicate the number of shares outstanding of each of the Registrant's classes of
common stock as of July 29, 2000.
4,332,560 shares of Common Stock, $0.50 par value
PART I. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
S & K FAMOUS BRANDS, INC.
Statements of Income
(In thousands, except per share amounts)
(unaudited)
Three Months Ended Six Months Ended
--------------------------- ------------------------
July 29, July 31, July 29, July 31,
2000 1999 2000 1999
--------- -------- ------- --------
Net sales........................................ $ 36,834 $ 35,667 $78,184 $ 75,466
Cost of sales ................................... 19,008 18,833 39,629 39,345
--------- -------- ------- --------
Gross profit .................................... 17,826 16,834 38,555 36,121
Other costs and expenses:
Selling, general and administrative .......... 16,628 15,201 34,198 31,250
Interest...................................... 189 287 332 502
Depreciation and amortization ................ 803 760 1,586 1,489
Other income, net ............................ (9) (16) (81) (20)
--------- -------- ------- --------
Income before income taxes ...................... 215 602 2,520 2,900
Provision for income taxes ...................... 82 229 958 1,102
--------- -------- ------- --------
Net income ...................................... $ 133 $ 373 $ 1,562 $ 1,798
========== ======== ======= ========
Earnings per common share:
Basic......................................... $ 0.03 $ 0.08 $ 0.34 $ 0.38
========== ======== ======= ========
Diluted....................................... $ 0.03 $ 0.08 $ 0.34 $ 0.38
========== ======== ======= ========
Weighted average common shares
outstanding - basic........................... 4,546 4,747 4,585 4,763
========== ======== ======= ========
Weighted average common shares outstanding
including dilutive potential common shares.... 4,549 4,766 4,587 4,780
========== ======== ======= ========
See Notes to Financial Statements.
2
S & K FAMOUS BRANDS, INC.
Balance Sheets
(In thousands, except per share amounts)
July 29,
2000 July 31, 1999 January 29,
(unaudited) (unaudited) 2000
--------------- -------------- ---------------
Assets
Current assets:
Cash......... ............................................ $ 502 $ 535 $ 619
Accounts receivable....................................... 352 353 420
Merchandise inventories................................... 51,261 53,056 51,538
Prepaid income taxes...................................... 1,029 905 --
Other current assets...................................... 3,777 3,550 2,740
------------- -------------- -------------
Total current assets................................ 56,921 58,399 55,317
Property and equipment, at cost:
Land and buildings........................................ 6,598 7,237 6,598
Furniture, fixtures and equipment ........................ 15,199 15,496 14,754
Leasehold improvements.................................... 16,934 16,447 16,718
------------- -------------- -------------
38,731 39,180 38,070
Less: Accumulated depreciation and amortization.......... 19,496 18,634 18,463
------------- -------------- -------------
19,235 20,546 19,607
Other assets ................................................ 5,329 4,483 4,904
------------- -------------- -------------
$81,485 $83,428 $79,828
============= ============== =============
Liabilities and Shareholders' Equity
Current liabilities:
Current maturities of long-term debt...................... $ 180 $ 180 $ 180
Accounts payable ......................................... 6,792 4,905 7,534
Accrued expenses:
Compensation-related items.............................. 754 735 1,054
Other current liabilities............................... 1,784 1,734 1,917
Current and deferred income taxes......................... 140 200 962
------------- -------------- -------------
Total current liabilities........................... 9,650 7,754 11,647
Industrial Development Revenue Bond.......................... 1,530 1,710 1,620
Long-term debt............................................... 12,524 18,574 8,219
Other long-term liabilities.................................. 1,439 1,341 1,393
Deferred income taxes........................................ 1,707 1,649 1,646
Commitments
Shareholders' equity:
Preferred stock, $1 par value; authorized shares, 500;
issued and outstanding shares, none.....................
Common stock, $.50 par value, authorized shares, 10,000;
issued and outstanding shares, 4,333,
4,695 and 4,656 respectively............................ 2,166 2,347 2,328
Capital in excess of par value............................... 1,830 4,209 3,950
Notes receivable--Stock Purchase Loan Plan................... (2,405) (2,537) (2,457)
Retained earnings............................................ 53,044 48,381 51,482
------------- -------------- -------------
54,635 52,400 55,303
------------- -------------- -------------
$81,485 $83,428 $79,828
============= ============== =============
See Notes to Financial Statements.
3
S & K FAMOUS BRANDS, INC.
Statements of Cash Flows
Increase (Decrease) in Cash
(In thousands)
(unaudited)
Six Months Ended
---------------------------------------
July 29, 2000 July 31, 1999
----------------- -----------------
Cash flows from operating activities: $ 1,562 $ 1,798
Net income.............................................
Adjustments to reconcile net income to net cash ....
used for operating activities:
Depreciation and amortization....................... 1,794 1,702
Loss on property dispositions, net.................. 52 88
Other............................................... 46 31
Changes in assets and liabilities:
Accounts receivable.............................. 68 509
Merchandise Inventories.......................... 277 (2,277)
Other current assets............................. (1,037) (264)
Other assets..................................... (425) (374)
Accounts payable and accrued expenses............ (1,063) (2,147)
Current and deferred income taxes................ (1,790) (1,299)
----------------- -----------------
Net cash used for operating activities................. (516) (2,233)
----------------- -----------------
Cash flows from investing activities:
Capital expenditures................................... (1,474) (2,623)
----------------- -----------------
Cash flows from financing activities:
Net borrowings of long-term debt....................... 4,305 8,177
Repurchase of common stock............................. (2,342) (3,279)
Reduction of Industrial Development Revenue Bond (90) (90)
Principal paid on notes receivable - Stock Purchase ...
Loan Plan............................................ -- 36
----------------- -----------------
Net cash provided by financing activities.............. 1,873 4,844
----------------- -----------------
Net decrease in cash...................................... (117) (12)
Cash at beginning of period............................... 619 547
----------------- -----------------
Cash at end of period..................................... $ 502 $ 535
================= =================
Supplemental disclosure of cash flow information:
Cash paid during the period for interest............. $ 335 $ 462
Cash paid during the period for income taxes......... 2,752 2,400
Non-cash financing activity - notes receivable....... 0 1,500
See Notes to Financial Statements.
4
S & K FAMOUS BRANDS, INC.
Notes to Financial Statements
(unaudited)
A. Accounting Policies
The accompanying unaudited interim financial statements have been prepared
by S&K Famous Brands, Inc. (the "Company") in accordance with the regulations of
the Securities and Exchange Commission in regard to quarterly reporting. In the
opinion of the Company's management, the statements include all adjustments,
consisting only of normal recurring adjustments, which are necessary for a fair
representation of the financial position and results of operations for interim
periods. These financial statements should be read in conjunction with the
financial statements and notes thereto included in the Company's 1999 Annual
Report and Form 10-K.
B. Interim Results of Operations
The Company's business is highly seasonal, with peak sales periods
occurring during its fourth fiscal quarter which includes the Christmas season.
The net earnings of any interim quarter are seasonally disproportionate to net
sales since administrative and certain operating expenses remain relatively
constant during the year. Consequently, interim results should not be considered
necessarily indicative of the results for the entire fiscal year.
C. Expansion
Since the end of the first quarter, the Company has opened five new stores
totaling 18,157 square feet, two of which were relocations.
S&K Store Locations Date Opened Square Footage
------------------- ----------- --------------
Florida: Jacksonville June 2, 2000 2,457
Sarasota June 8, 2000 4,000
Iowa: Des Moines* August 4, 2000 4,894
South Carolina: Myrtle Beach* August 25, 2000 3,179
Tennessee: Nashville May 11, 2000 3,627
* Store opened in the third quarter.
Since January 29, 2000 the Company has opened seven new stores totaling
approximately 26,500 square feet.
During the second quarter the Company closed two under-performing stores,
Columbus, Ohio (5,350 sq. ft) and Kenosha, Wisconsin (4,000 sq. ft) as these
stores had not met the Company's sales and profitability expectations. In
addition, the Company relocated a store in Jacksonville, Florida (5,200 sq. ft)
and in August relocated a store in Myrtle Beach, South Carolina (3,200 sq. ft).
Year-to-date, the Company has closed a total of six stores.
Item 2. MANAGEMENT'S DISCUSSION AND FINANCIAL REVIEW
Information regarding forward-looking statements.
The statements contained in this quarterly report that are not historical
facts, including statements about management's expectation for fiscal 2001 and
beyond, may be forward-looking statements. The forward-looking statements are
subject to certain risks and uncertainties which could cause actual results to
differ materially from historical results or those anticipated. Readers are
cautioned not to place undue reliance on these forward-looking statements.
Factors that could cause the Company's actual results to differ materially from
management's projections, forecasts, estimates and expectations include, but are
not limited to, those discussed in the Company's 1999 Annual Report on Form
10-K.
5
Three Months and Six Months Ended July 29, 2000 Compared to Three Months and Six
Months Ended July 31, 1999.
RESULTS OF OPERATIONS
The following table sets forth certain items in the Statements of Income
as a percentage of net sales for the three months and six months ended July 29,
2000 and July 31, 1999.
Percentage of Net Sales
---------------------------------------------------------------
Three Months Ended Six Months Ended
---------------------------------------------------------------
7/29/00 7/31/99 7/29/00 7/31/99
----------- ---------- ---------- ----------
Net sales............................................ 100.0 % 100.0 % 100.0 % 100.0 %
Cost of sales........................................ 51.6 52.8 50.7 52.1
----------- ---------- ---------- ----------
Gross profiit........................................ 48.4 47.2 49.3 47.9
Other costs and expenses:
Selling, general and administrative.............. 45.1 42.6 43.8 41.4
Interest......................................... 0.5 0.8 0.4 0.7
Depreciation and amortization.................... 2.2 2.1 2.0 2.0
Other income, net................................ -- --- (0.1) --
----------- ---------- ---------- ----------
Income before incomes taxes.......................... 0.6 1.7 3.2 3.8
Provision for income taxes........................... 0.2 0.6 1.2 1.4
----------- ---------- ---------- ----------
Net income........................................... 0.4 % 1.1 % 2.0 % 2.4 %
=========== ========== ========== ==========
Net sales in the second quarter ended July 29 , 2000 increased by 3%, or
$1.2 million, over the same period last year, and reflect the net addition of
seven new stores. For the six-month period, net sales increased by 4%, or $2.7
million, over the same period last year. Comparable store sales for the second
quarter and the first six months were even with the same periods last year.
During the second quarter, the Company opened three new stores including one
relocation and closed two stores which were not meeting the Company's sales and
earnings expectations. There were 240 stores in operation as of July 29, 2000,
compared to 233 stores at July 31, 1999.
Cost of sales in the second quarter of fiscal 2001 was 51.6% of net sales
compared to 52.8 % of net sales last year. For the six-month period, cost of
sales was 50.7% of net sales compared to 52.1% last year. The three- and
six-month reductions of 1.2% and 1.4% of net sales, respectively, were primarily
a change in the mix of merchandise sold to inventory with higher initial markup
and, to a lesser extent, not needing to take as many markdowns, both offset to a
small degree by increased inventory shrinkage.
Selling, general and administrative expenses in the second quarter of
fiscal 2001 were 45.1% of net sales compared to 42.6% of net sales last year.
For the six-month period, selling, general and administrative expenses were
43.8% of net sales compared to 41.4% of net sales last year. The three- and
six-month increases of 2.5% and 2.4% of net sales, respectively, were primarily
due to higher cost and frequency of advertising related to the Company's heavier
emphasis on marketing which included the launch of a branding message campaign.
The Company anticipates that second half fiscal 2001 marketing costs will be in
line with second half fiscal 2000 levels.
Interest expense in the second quarter of fiscal 2001 was .5% of net sales
compared to .8% of net sales for the second quarter last year. For the six-month
period, interest expense was .4% of net sales compared to .7% of net sales last
year. These reductions of .3% of net sales were primarily attributable to lower
average borrowing levels this year offset in part by average interest rates
which increased from 5.4% to 6.9% in the quarter and from 5.4% to 6.7% in the
first six months.
LIQUIDITY AND CAPITAL RESOURCES
The Company historically has funded its operating activities, including
capital expenditures for the openings of new stores, from internally generated
funds and from bank borrowings. The Company plans to open approximately 15 new
stores in fiscal 2001 and plans to close or relocate approximately 15
under-performing locations. The Company also expects to continue to repurchase
the Company's common stock in the open market. The Company believes that its
sources of liquidity and capital resources will continue to be sufficient to
fund its operations, capital expenditures and stock repurchase initiatives.
6
Operating activities during the first six months of fiscal years 2001 and
2000 used net cash of $.5 million and $2.2 million, respectively. This
fluctuation was primarily attributable to higher leveraging of trade payables
and to a reduction in inventory growth year over year.
Net cash used in investing activities in fiscal 2001 was primarily for the
purpose of store expansion and the development of the Company's internet store
while fiscal 2000 was primarily for store expansion, re-modelings, and purchases
of upgraded point-of-sale (POS) systems. Capital expenditures for the first six
months of fiscal years 2001 and 2000 approximated $1.5 million and $2.6 million,
respectively. In the first six months of fiscal 2001, the Company opened five
new stores, three of which were relocations, remodeled one store and developed
it's internet store. For the same period last year, the Company opened ten new
stores, converted one to its superstore format, remodeled two others and
upgraded approximately 100 stores to new POS systems.
Financing activities for the first six months of fiscal years 2001 and
2000 provided net cash of approximately $1.9 million and $4.8 million,
respectively. Financing activities primarily relate to fluctuations in the
borrowing levels under the Company's revolving credit agreements which have an
aggregate borrowing capacity of $40.0 million. During the quarter ended July 29,
2000, the Company renewed its credit agreements to May 31, 2003, which, at the
Company's option, are convertible to term loans expiring May 31, 2007. During
the first six months of fiscal years 2001 and 2000, the Company used
approximately $2.3 million and $3.3 million, respectively, for repurchases of
its common stock. As of July 29, 2000, the Company had net unused commitments of
approximately $27.5 million under its revolving credit agreements.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ON MARKET RISK
During the first six months of fiscal 2001 there were no material changes in the
Company's market risk exposure or in management strategy as stated in the
Company's 1999 Annual Report.
PART II. OTHER INFORMATION
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
(4) a. Credit Agreement dated as of May 31, 2000 between
the registrant and SunTrust Bank.
b. Third Amendment dated May 31, 2000 to Amended and
Restated Credit Agreement dated May 31, 1997
between registrant and First Union National Bank
as successor-in-interest to Signet Bank/Virginia.
(27) Financial Data Schedule (quarter ended July 29,
2000)
(b) There were no reports filed on Form 8-K during the three
months ended July 29, 2000.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
S & K FAMOUS BRANDS, INC.
-------------------------
(Registrant)
Date: September 7, 2000 /s/ Robert E. Knowles
------------------ ---------------------
Robert E. Knowles
Executive Vice President,
Chief Financial Officer,
Secretary and Treasurer
(Principal Financial Officer)
Date: September 7, 2000 /s/ Janet L. Jorgensen
------------------ ----------------------
Janet L. Jorgensen
Vice President and Controller
Chief Accounting Officer
(Principal Accounting Officer)
7