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 26, 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 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 26, 1997.
4,997,508 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 share and per share amounts)
(unaudited)
Three Months Ended Six Months Ended
------------------------------- -------------------------------
July 26, July 27, July 26, July 27,
1997 1996 1997 1996
------------- -------------- ------------- --------------
Net sales.................................... $ 30,788 $ 29,397 $ 64,248 $ 60,845
Cost of sales ............................... 16,407 15,986 33,980 33,035
------------- -------------- ------------- --------------
Gross profit ................................ 14,381 13,411 30,268 27,810
Other costs and expenses:
Selling, general and administrative....... 12,434 11,831 25,822 24,119
Interest.................................. 129 143 212 272
Depreciation and amortization............. 579 580 1,147 1,144
Other, net ............................... (37) (325) (63) (381)
------------- -------------- ------------- --------------
Income before income taxes .................. 1,276 1,182 3,150 2,656
Provision for income taxes .................. 485 337 1,197 898
------------- -------------- ------------- --------------
Net income .................................. $ 791 $ 845 $ 1,953 $ 1,758
============= ============== ============= ==============
Net income per common share ................. $ 0.16 $ 0.17 $ 0.39 $ 0.35
============= ============== ============= ==============
Weighted average common shares............... 5,019 5,066 5,043 5,065
============= ============== ============= ==============
See Notes to Financial Statements.
2
S & K FAMOUS BRANDS, INC.
Balance Sheets
(In thousands, except share and per share amounts)
(unaudited)
July 26, July 27, January 25,
1997 1996 1997
-------------- ------------- -----------------
Assets
Current assets:
Cash.................................................... $ 417 $ 421 $ 537
Accounts receivable..................................... 503 524 398
Merchandise inventories................................. 42,179 40,142 41,511
Other current assets.................................... 2,276 2,345 2,295
-------------- ------------- -----------------
Total current assets................................ 45,375 43,432 44,741
Property and equipment, at cost:
Land and corporate facility............................. 5,123 5,125 5,123
Furniture, fixtures and equipment ...................... 11,979 11,133 11,596
Leasehold improvements.................................. 12,758 11,855 12,396
-------------- ------------- -----------------
29,860 28,113 29,115
Less: Accumulated depreciation and amortization........ 14,973 13,779 14,360
-------------- ------------- -----------------
14,887 14,334 14,755
Other assets ............................................. 3,164 2,461 2,933
-------------- ------------- -----------------
$ 63,426 $ 60,227 $ 62,429
============== ============= =================
Liabilities and Shareholders' Equity
Current liabilities:
Current maturities of long-term debt ................... $ 180 $ 180 $ 180
Accounts payable ....................................... 3,776 4,508 5,699
Accrued expenses:
Compensation-related items.......................... 1,062 952 2,211
Current and deferred income taxes................... 114 194 1,339
Other current liabilities........................... 1,428 1,284 1,508
-------------- ------------- -----------------
Total current liabilities........................ 6,560 7,118 10,937
Industrial Development Revenue Bond....................... 2,070 2,250 2,160
Long-term debt............................................ 7,189 7,429 3,020
Deferred income taxes..................................... 1,225 1,228 1,203
Commitments
Shareholders' equity:
Preferred stock, $1 par value; authorized shares,
500,000; issued and outstanding shares, none
Common stock, $.50 par value, authorized shares,
10,000,000; issued and outstanding shares,
4,997,508, 5,066,371 and 5,066,371, respectively 2,499 2,533 2,533
Capital in excess of par value.......................... 7,155 7,837 7,837
Notes receivable--Stock Purchase Loan Plan.............. (1,341) (1,432) (1,377)
Retained earnings....................................... 38,069 33,264 36,116
-------------- ------------- -----------------
46,382 42,202 45,109
-------------- ------------- -----------------
$ 63,426 $ 60,227 $ 62,429
============== ============= =================
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 26, 1997 July 27, 1996
----------------- ------------------
Cash flows from operating activities:
Net income...................................................... $ 1,953 $ 1,758
Adjustments to reconcile net income to net cash
(used for) provided by operating activities:
Depreciation and amortization................................ 1,330 1,347
Loss on property dispositions, net........................... 43 226
Other........................................................ 101 66
Changes in assets and liabilities:
Accounts receivable....................................... (105) 86
Inventories............................................... (668) (441)
Other current assets...................................... 19 (45)
Other assets.............................................. (231) (85)
Accounts payable and accrued expenses..................... (3,066) (2,078)
Income taxes and deferred income taxes.................... (1,203) (789)
----------------- ------------------
Net cash (used for) provided by operating activities............ (1,827) 45
----------------- ------------------
Cash flows from investing activities:
Capital expenditures............................................ (1,505) (815)
----------------- ------------------
Cash flows from financing activities:
Net borrowings under revolving bank lines of credit............. 4,068 761
Reduction of long-term debt..................................... (90) (90)
Repurchase of common stock...................................... (766) 0
----------------- ------------------
Net cash provided by financing activities....................... 3,212 671
----------------- ------------------
Net decrease in cash............................................... (120) (99)
Cash at beginning of period........................................ 537 520
----------------- ------------------
Cash at end of period.............................................. $ 417 $ 421
================= ==================
Supplemental cash flow information: Cash paid during the period for:
Interest..................................................... $ 193 $ 274
Income taxes................................................. 2,413 1,690
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 the Company in accordance with the regulations of the Securities and Exchange
Commission in regard to quarterly reporting. In the opinion of the Company, 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.
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 eight more new
stores totaling 38,955 square feet. The new stores in Lake Park, Georgia, and
Wilmington, North Carolina, were relocations.
S&K Store Locations Date Opened Square Footage
- -------------------------------------- ----------------- --------------
Georgia: Lake Park(1) August 22, 1997* 5,160
Michigan: Okemos (E. Lansing) May 21, 1997 5,685
North Carolina: Charlotte August 22, 1997* 5,000
Wilmington(1) July 26, 1997 4,844
Pennsylvania: Reading July 26, 1997 4,486
Tennessee: Memphis June 6, 1997 5,200
Virginia: Fredericksburg August 26, 1997* 5,000
West Virginia: Martinsburg August 16, 1997* 3,580
*Store opened in third quarter.
(1) This new store was relocated from a previous location which has closed
(3,000 square feet - Lake Park, Georgia, and 4,069 square feet - Wilmington,
North Carolina.)
During the second quarter, the Company closed the Beaufont Mall store (3,600
square feet) in Richmond, Virginia, which was at the end of the lease term,
since it was not meeting the Company's sales and profitability expectations.
5
Item 2. MANAGEMENT'S DISCUSSION AND FINANCIAL REVIEW
Three Months and Six Months Ended July 26, 1997 Compared to Three Months and Six
Months Ended July 27, 1996
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 26,
1997 and July 27, 1996.
Percentage of Net Sales
-------------------------------------------------------------------
Three Months Ended Six Months Ended
------------------------------- -------------------------------
7/26/97 7/27/96 7/26/97 7/27/96
-------------- ------------ ------------ --------------
Net sales............................................ 100.0 % 100.0 % 100.0 % 100.0 %
Cost of sales ....................................... 53.3 54.4 52.9 54.3
-------------- ------------ ------------ --------------
Gross profit ........................................ 46.7 45.6 47.1 45.7
Other costs and expenses:
Selling, general and administrative............... 40.4 40.2 40.2 39.6
Interest ......................................... .4 .5 .3 .4
Depreciation and amortization .................... 1.9 2.0 1.8 1.9
Other, net ....................................... (.1) (1.1) (.1) (.6)
-------------- ------------ ------------ --------------
Income before incomes taxes ......................... 4.1 4.0 4.9 4.4
Provision for income taxes .......................... 1.5 1.1 1.9 1.5
-------------- ------------ ------------ --------------
Net income .......................................... 2.6 % 2.9 % 3.0 % 2.9 %
============== ============ ============ ==============
Net sales in the second quarter increased by 5%, or $1.4 million, over the
same period last year, and reflects the net addition of ten new stores since
July 27, 1996. Excluding the sales volume in three former Menswear Mega Centers
(MMC) which were closed in August, 1996, second quarter net sales increased 11%.
Comparable store sales were up 5%. For the six-month period, net sales increased
by 6% or $3.4 million over the same period last year with comparable stores
sales up 5%. These sales increases were mostly attributable to growth in suit
sales. During the quarter ended July 26, 1997, the Company opened four new
stores, one of which was a relocation and conversion to the superstore format,
and closed one store. There were 198 stores in operation as of July 26, 1997,
compared to 188 stores at July 27, 1996.
Cost of sales in the second quarter of fiscal 1998 was 53.3% of net sales
compared to 54.4% of net sales for the same period last year. For the six-month
period, cost of sales was 52.9% of net sales compared to 54.3% last year. These
decreases were primarily due to the lack of lower margin MMC sales this year. To
a lesser degree, the cost of sales decreases were the result of reduced
markdowns in the S&K stores.
Selling, general and administrative expenses in the second quarter of
fiscal 1998 were 40.4% of net sales compared to 40.2% of net sales for the
second quarter of fiscal 1997. For the six-month period, selling, general and
administrative expenses were 40.2% of net sales compared to 39.6% of net sales
last year. These increases were due to not having the lower overhead MMC sales
this year, offset for the most part by reduced advertising and occupancy costs
as a percentage of net sales in the S&K stores.
6
Interest expense in the second quarter of fiscal 1998 was .4% of net sales
compared to .5% of net sales for the second quarter of fiscal 1997. For the
six-month period, interest expense was .3% of net sales compared to .4% of net
sales last year. These decreases are primarily attributable to reduced average
borrowings this year.
Other, net in the second quarter of fiscal 1998 was income of (.1)% of net
sales compared to (1.1)% of net sales for the same period last year. For the
six-month period, other, net was income of (.1)% of net sales compared to (.6)%
last year. Last year, other, net included a $295,000 gain ($.06 per share)
related to nonrecurring, nontaxable insurance proceeds.
Provision for income taxes in the second quarter of fiscal 1998 was 38.0%
of income before income taxes compared to 28.6% for the same quarter last year.
On a year-to-date basis, provision for income taxes was 38.0% of income before
income taxes compared to 33.8% last year. The lower effective tax rate in fiscal
1997 is attributable to the nontaxable, nonrecurring insurance proceeds
disclosed in other, net above.
LIQUIDITY AND CAPITAL RESOURCES
The Company has funded its operating activities, including capital
expenditures for the opening of new stores, from internally generated funds and
from bank borrowings. Through the first six months of fiscal 1998, the Company
opened eight new S&K stores, closed three stores (one of which was a relocation)
and remodeled ten others. By Thanksgiving 1997, the Company plans to open
additional new stores and remodel several others. 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 used $1.8 million and provided $45,000 of net cash
during the first six months of fiscal 1998 and 1997, respectively. Excluding the
effects of changes in working capital, net cash provided by operating activities
in the first six months of both years was approximately $3.4 million.
Net cash used in investing activities in fiscal 1998 and fiscal 1997 was
primarily for the purpose of store expansion and remodelings. Capital
expenditures for the first six months of fiscal 1998 and 1997 approximated $1.5
million and $.8 million, respectively. In the first six months of fiscal 1998,
the Company opened eight new stores and remodeled ten others. For the same
period last year, the Company opened four new stores and converted two others to
its superstore format.
Financing activities provided net cash of approximately $3.2 million in
the first six months of fiscal 1998 compared with $.7 million in the same fiscal
1997 period. During the first two quarters of fiscal 1998, the Company used
approximately $766,000 to repurchase 74,000 shares of its common stock. During
the quarter ended July 26, 1997, the Company renewed its credit agreements to
May 31, 2000, which, at the Company's option, are convertible to term loans
expiring May 31, 2004. Financing activities primarily relate to fluctuations in
the borrowing levels under the Company's revolving credit agreements which have
an aggregate borrowing capacity of $30.0 million. As of July 26, 1997, the
Company had net unused commitments of approximately $23.9 million under the
agreements.
7
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
(a) The annual meeting of the Company's shareholders was held on May 29,
1997.
(b) & (c) At the annual meeting, the shareholders elected eight directors,
approved an amendment to the Company's 1991 Stock Option Plan and
ratified the selection of independent accountants. The results of
the voting were as follows:
Election of Directors
Director For Withheld Abstain
--------------------- --------- -------- -------
Stuart C. Siegel 4,627,363 276,450 0
Robert L. Burrus, Jr. 4,623,269 280,544 0
Donald W. Colbert 4,627,363 276,450 0
Selwyn S. Herson 4,264,312 639,501 0
Andrew M. Lewis 4,624,258 279,555 0
Steven A. Markel 4,627,463 276,350 0
Troy A. Peery 4,264,512 639,301 0
Marshall B. Wishnack 4,626,063 277,750 0
Approval of amendment to 1991 Stock Option Plan to increase the
number of common shares reserved for issuance under the Plan by
200,000 shares
For Against Abstain
------------ ------- -------
4,081,541 802,120 4,913
Ratification of Price Waterhouse LLP as Independent Accountants
For Against Abstain
------------ ------- -------
4,896,642 4,285 2,886
8
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
(4) a. Amendment to Credit Agreement dated April 30, 1997,
between the registrant and Crestar Bank.
(4) b. Amended and Restated Credit Agreement dated as of
May 31, 1997, between registrant and Signet Bank.
(27) Financial Data Schedule
(b) There were no reports filed on Form 8-K during the three months
ended July 26, 1997.
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 4, 1997 /s/ Robert E. Knowles
---------------------
Robert E. Knowles
Executive Vice President,
Chief Financial Officer,
Secretary and Treasurer
(Principal Financial Officer)
Date: September 4, 1997 /s/ Janet L. Jorgensen
----------------------
Janet L. Jorgensen
Vice President and Controller
(Principal Accounting Officer)
9