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 August 4, 2001
Commission File No. 0-11682
S & K FAMOUS BRANDS, INC.
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(Exact name of registrant as specified in its charter)
Virginia 54-0845694
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or organization)
11100 West Broad Street, P. O. Box 31800, Richmond, Virginia 23294-1800
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(Address of principal executive offices)
Registrant's telephone number, including area code: (804) 346-2500
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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 _____
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Indicate the number of shares outstanding of each of the Registrant's
classes of common stock as of August 4, 2001.
4,041,563 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)
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Three Months Ended Six Months Ended
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August 4, July 29, August 4, July 29,
2001 2000 2001, 2000
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Net sales.......................................... $ 35,499 $ 36,834 $ 77,319 $ 78,184
Cost of sales...................................... 18,720 19,008 39,915 39,629
--------- --------- ---------- ----------
Gross profit....................................... 16,779 17,826 37,404 38,555
Other costs and expenses:
Selling, general and administrative............. 15,845 16,628 33,282 34,198
Interest........................................ 108 189 219 332
Depreciation and amortization................... 795 803 1,612 1,586
Other, net...................................... 23 (9) (25) (81)
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Income before income taxes......................... 8 215 2,316 2,520
Provision for income taxes......................... 3 82 880 958
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Net income......................................... $ 5 $ 133 $ 1,436 $ 1,562
========= ========= ========== ==========
Net income per common share:
Basic........................................... $ 0.00 $ 0.03 $ 0.35 $ 0.34
========= ========= ========== ==========
Diluted......................................... $ 0.00 $ 0.03 $ 0.35 $ 0.34
========= ========= ========== ==========
Weighted average common shares
outstanding - basic............................. 4,042 4,546 4,065 4,585
========= ========= ========== ==========
Weighted average common shares outstanding
including dilutive potential common shares...... 4,068 4,549 4,079 4,587
========= ========= ========== ==========
See Notes to Financial Statements.
2
S & K FAMOUS BRANDS, INC.
Balance Sheets
(In thousands, except per share amounts)
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August 4, July 29, February 3,
2001 2000 2001
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(unaudited) (unaudited)
Assets
Current assets:
Cash...................................................................... $ 525 $ 502 $ 439
Accounts receivable....................................................... 304 352 255
Merchandise inventories................................................... 51,118 51,261 52,031
Prepaid income taxes...................................................... 1,152 1,029 --
Other current assets...................................................... 2,991 3,777 2,896
-------- -------- --------
Total current assets.................................................. 56,090 56,921 55,621
Property and equipment, at cost:
Land and buildings........................................................ 6,603 6,598 6,601
Furniture, fixtures and equipment......................................... 16,095 15,199 15,358
Leasehold improvements.................................................... 16,705 16,934 16,789
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39,403 38,731 38,748
Less: Accumulated depreciation and amortization.......................... 21,443 19,496 20,226
-------- -------- --------
17,960 19,235 18,522
6,144 5,329 5,805
-------- -------- --------
Other assets................................................................... $ 80,194 $ 81,485 $ 79,948
======== ======== ========
Liabilities and Shareholders' Equity
Current liabilities:
Current maturities of long-term debt...................................... $ 180 $ 180 $ 180
Accounts payable.......................................................... 7,970 6,792 6,691
Accrued expenses and related items........................................ 1,206 754 2,131
Current and deferred income taxes......................................... 141 140 694
Other current liabilities................................................. 1,771 1,784 2,156
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Total current liabilities............................................. 11,268 9,650 11,852
Long-term debt................................................................. 8,545 14,054 9,050
Other long-term liabilities.................................................... 1,534 1,439 1,485
Deferred income taxes.......................................................... 1,698 1,707 1,695
Commitments
Shareholders' equity:
Preferred stock, $1 par value; authorized shares, 500;
issued and outstanding shares, none.....................................
Common stock, $.50 par value, authorized shares, 10,000; issued and
outstanding shares, 4,042, 4,333 and 4,109 respectively................. 2,021 2,166 2,054
Capital in excess of par value................................................. -- 1,830 266
Notes receivable--Stock Purchase Loan Plan..................................... (2,059) (2,405) (2,467)
Retained earnings.............................................................. 57,187 53,044 56,013
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57,149 54,635 55,866
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$ 80,194 $ 81,485 $ 79,948
======== ======== ========
See Notes to Financial Statements
3
S & K FAMOUS BRANDS, INC.
Statements of Cash Flows
Increase (Decrease) in Cash
(In thousands)
(unaudited)
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Six Months Ended
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August 4, July 29,
2001 2000
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Cash flows from operating activities:
Net income......................................................... $ 1,436 $ 1,562
Adjustments to reconcile net income to net cash
provided by (used for) operating activities:
Depreciation and amortization................................ 1,832 1,794
Loss on property dispositions, net........................... 73 52
Other........................................................ 49 46
Changes in assets and liabilities:
Accounts receivable......................................... (49) 68
Merchandise inventories..................................... 913 277
Other current assets........................................ (95) (1,037)
Other assets................................................ (339) (425)
Accounts payable and accrued expenses....................... 90 (1,063)
Current and deferred income taxes........................... (1,683) (1,790)
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Net cash provided by (used for) operating activities............... 2,227 (516)
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Cash flows from investing activities:
Capital expenditures.......................................... (1,400) (1,481)
Proceeds from property disposition............................ 58 7
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Net cash used for investing activities........................ (1,342) (1,474)
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Cash flows from financing activities:
Net (paydowns) borrowings under revolving bank
lines of credit............................................ (415) 4,305
Repurchase of common stock.................................... (661) (2,342)
Reduction of long term debt................................... (90) (90)
Principal paid on notes receivable -
Stock Purchase Loan Plan................................. 367 --
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Net cash (used for) provided by financing activities.......... (799) 1,873
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Net increase (decrease) in cash.................................... 86 (117)
Cash at beginning of period........................................ 439 619
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Cash at end of period.............................................. $ 525 $ 502
========= ========
Supplemental disclosure of cash flow information:
Cash paid during the period for interest...................... $ 238 $ 335
Cash paid during the period for income taxes.................. 2,582 2,752
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 2000 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 three new
stores totaling 13,200 square feet.
S & K Store Locations Date Opened Square Footage
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Virginia: Richmond (Gold Crest Center) August 24, 2001 4,800
Richmond (Creeks at Virginia Center) August 24, 2001 4,800
Ohio: Toledo August 31, 2001 3,600
During the second quarter, the Company closed four stores-- one in Locust Grove,
Georgia, (3,000 square feet), one in Clarksville, Indiana (4,200 square feet),
one in Saginaw, Michigan (4,000 square feet) and one in Columbus, Ohio (7,200
square feet). These stores had not met the Company's sales and profitability
expectations, and the loss on the closings was not significant.
Year-to-date, the Company has opened three new stores and relocated three
others, totaling approximately 25,000 square feet, while also closing five other
stores.
D. Other Matters
During the first quarter of fiscal 2002, the Company issued 11,035 shares
of its common stock to the S&K Famous Brands Employees' Savings/Profit Sharing
Plan, which resulted in an increase in Shareholders' Equity of $80,000. This
$80,000 expense was accrued in fiscal 2001.
5
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 expectations for fiscal 2002 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 2000 Annual Report on Form
10-K.
Three Months and Six Months Ended August 4, 2001 Compared to Three Months and
Six Months Ended July 29, 2000
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 August 4,
2001 and July 29, 2000.
Percentage of Net Sales
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Three Months Ended Six Months Ended
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8/4/01 7/29/00 8/4/01 7/29/00
------ -------- ------ -------
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of sales............................ 52.7 51.6 51.6 50.7
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Gross profit............................. 47.3 48.4 48.4 49.3
Other costs and expenses:
Selling, general and administrative.. 44.7 45.1 43.0 43.8
Interest............................. 0.3 0.5 0.3 0.4
Depreciation and amortization........ 2.2 2.2 2.1 2.0
Other, net........................... 0.1 -- -- (0.1)
------ ------- ------ -------
Income before incomes taxes.............. -- 0.6 3.0 3.2
Provision for income taxes............... -- 0.2 1.1 1.2
------ ------- ------ -------
Net income............................... -- 0.4% 1.9% 2.0%
====== ======= ====== =======
Net sales in the second quarter of fiscal 2002 decreased 3.6%, or $1.3
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million, compared to the same period last year, reflecting a net reduction of
seven stores and a reduction in comparable store sales of 3%. For the six-month
period, net sales decreased by 1.1%, or $0.9 million, compared to the same
period last year. Comparable store sales for the six-month period were down 1%.
During the second quarter the Company closed four stores which had not met sales
and profitability expectations. There were 233 stores in operation as of August
4, 2001, compared to 240 stores at July 29, 2000.
Cost of sales in the second quarter of fiscal 2002 was 52.7% of net sales
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compared to 51.6% of net sales for the same period last year. The 1.1% of net
sales increase in the quarter and 0.9% of net sales increase in the first six
months was primarily due to higher markdowns to clear older season merchandise,
offset in part by higher capitalization of buying and occupancy costs to
inventory.
6
Selling, general and administrative expenses in the second quarter of
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fiscal 2002 were 44.7% of net sales compared to 45.1% of net sales in the same
quarter of the previous year. For the first six months in fiscal 2002, selling,
general and administrative expenses were 43.0% of net sales compared to 43.8% of
net sales last year. These three- and six-month reductions of 0.4% and 0.8% of
net sales, respectively, were due primarily to lower advertising expense which
was generally in-line with levels experienced in fiscal 2000. During the first
half of fiscal 2001 the Company incurred higher cost and frequency of
advertising in a one-time branding message campaign. These reductions in
advertising were offset in part by higher store payroll costs and group health
claims.
Interest expense in the second quarter of fiscal 2002 was 0.3% of net
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sales compared to 0.5% of net sales last year while for the six-month period it
was 0.3% of net sales in fiscal 2002 versus 0.4% of net sales in fiscal 2001.
The lower expense for the three- and six-month periods was primarily the result
of lower rates compared to the previous year and to a lesser degree, lower
average borrowings.
LIQUIDITY AND CAPITAL RESOURCES
The Company historically has funded its operating activities, including
capital expenditures for the opening of new stores, from internally generated
funds and from bank borrowings. The Company planned to open approximately 10 new
stores in fiscal 2002, and planned to close or relocate approximately 10
under-performing locations. During the six months ended August 4, 2001, the
Company relocated three stores and closed five other locations, which had not
met the Company's sales and profitability expectations. The Company believes
that its sources of liquidity and capital resources will continue to be
sufficient to fund its operations and capital expenditures.
Operating activities provided net cash of $2.2 million in the first six
months of fiscal 2002 while it used net cash of $0.5 million in the same period
of fiscal 2001. This $2.7 million improvement was due primarily to fluctuations
in working capital.
Net cash used for investing activities was primarily for the purpose of
store expansion. Capital expenditures for the first six months of fiscal 2002
and 2001 approximated $1.3 million and $1.5 million, respectively. Capital
expenditures for the first six months of fiscal 2002 includes the costs to open
three new stores while in fiscal 2001 it included five new stores and costs to
develop the Company's Internet store.
Financing activities for the first six months of fiscal 2002 used net cash
of approximately $0.8 million while it provided net cash of $1.9 million in the
same period of fiscal 2001. Financing activities primarily relate to
fluctuations in the borrowing levels under the Company's revolving credit
agreements. During the first six months of fiscal 2002, the Company used
approximately $0.7 million for the repurchase of 84,450 shares of its common
stock compared to $2.3 million for 331,380 shares in the same period last year.
Additionally, during the first six months of fiscal 2002 a former officer paid
off notes receivable under the Stock Purchase Loan Plan approximating $0.4
million. The Company's revolving credit agreements with two banks aggregate
$40.0 million. As of August 4, 2001, the Company had net unused commitments of
approximately $32.8 million under the agreements.
7
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ON MARKET RISK
During the first six months of fiscal 2002 there were no material changes in the
Company's market risk exposure or in management strategy as stated in the
Company's 2000 Annual Report.
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
None
(b) There were no reports filed on Form 8-K during the three months ended
August 4, 2001.
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.
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(Registrant)
Date: September 17, 2001 /s/ Robert E. Knowles
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Robert E. Knowles
Executive Vice President,
Chief Financial Officer,
Secretary and Treasurer
(Principal Financial Officer)
Date: September 17, 2001 /s/ Janet L. Jorgensen
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Janet L. Jorgensen
Vice President and Controller
Chief Accounting Officer
(Principal Accounting Officer)
8