FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended May 2, 1998
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 Identification No.)
incorporation or organization)
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
.......................
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 May 2, 1998.
5,054,728 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
-----------------------------------
May 2, April 26,
1998 1997
-------------- --------------
Net sales ......................................................... $ 37,109 $ 33,460
Cost of sales ..................................................... 19,318 17,573
-------------- --------------
Gross profit ...................................................... 17,791
Other costs and expenses:
Selling, general and administrative ............................ 14,512 13,388
Interest ....................................................... 108 83
Depreciation and amortization .................................. 651 568
Other, net ..................................................... (3) (26)
-------------- --------------
Income before income taxes ........................................ 2,523 1,874
Provision for income taxes ........................................ 959 712
-------------- --------------
Net income ........................................................ $ 1,564 $ 1,162
============== ==============
Net income per common share:
Basic........................................................... $ 0.31 $ 0.23
============== ==============
Diluted......................................................... $ 0.30 $ 0.23
============== ==============
Weighted average common shares outstanding - basic................. 5,028 5,068
============== ==============
Weighted average common shares outstanding including dilutive
potential common shares......................................... 5,138 5,121
============== ==============
See notes to financial statements.
2
S & K FAMOUS BRANDS, INC.
Balance Sheets
(In thousands, except per share amounts)
(unaudited)
May 2, April 26, January 31,
1998 1997 1998
------------- ------------- --------------
Assets
Current assets:
Cash ................................................. $ 411 $ 332 $ 593
Accounts receivable.................................... 636 377 554
Merchandise inventories................................ 53,282 49,577 43,896
Other current assets................................... 2,064 2,246 3,170
------------- ------------- --------------
Total current assets.............................. 56,393 52,532 48,213
Property and equipment, at cost:
Land and buildings..................................... 7,174 5,123 6,856
Furniture, fixtures and equipment ..................... 13,225 11,766 12,858
Leasehold improvements................................. 14,352 12,602 13,853
------------- ------------- --------------
34,751 29,491 33,567
Less: Accumulated depreciation and amortization....... 16,214 14,915 15,734
------------- ------------- --------------
18,537 14,576 17,833
Other assets ............................................. 3,497 2,978 3,400
------------- ------------- --------------
$ 78,427 $ 70,086 $ 69,446
============= ============= ==============
Liabilities and Shareholders' Equity
Current liabilities:
Current maturities of long-term debt .................. $ 180 $ 180 $ 180
Accounts payable ...................................... 9,989 13,262 7,561
Accrued compensation and related items................. 1,445 675 2,592
Current and deferred income taxes...................... 877 1,070 983
Other current liabilities.............................. 1,760 1,512 1,897
------------- ------------- --------------
Total current liabilities......................... 14,251 16,699 13,213
Industrial Development Revenue Bond....................... 1,935 2,115 1,980
Long-term debt............................................ 9,233 3,874 3,323
Deferred income taxes..................................... 1,476 1,214 1,409
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: 5,055,
5,056 and 5,014, respectively..................... 2,527 2,528 2,507
Capital in excess of par value......................... 7,528 7,732 7,232
Notes receivable--Stock Purchase Loan Plan............. (1,184) (1,354) (1,315)
Retained earnings...................................... 42,661 37,278 41,097
------------- ------------- --------------
51,532 46,184 49,521
------------- ------------- --------------
$ 78,427 $ 70,086 $ 69,446
============= ============= ==============
See notes to financial statements.
3
S & K FAMOUS BRANDS, INC.
Statements of Cash Flows
Increase (Decrease) in Cash
(in thousands)
Three Months Ended
---------------------------------------
May 2, April 26,
1998 1997
-------------- -------------
Cash flows from operating activities:
Net income...................................................... $ 1,564 $ 1,162
Adjustments to reconcile net income to net cash
used for operating activities:
Depreciation and amortization................................ 756 658
Loss on property dispositions, (net)......................... 45 33
Other........................................................ 22 36
Changes in assets and liabilities:
Accounts receivable....................................... (82) 22
Inventories............................................... (9,386) (8,066)
Other current assets...................................... 1,106 49
Other assets.............................................. (97) (44)
Accounts payable and accrued expenses..................... 1,237 6,103
Income taxes and deferred income taxes.................... 170 (258)
-------------- -------------
Net cash used for operating activities.......................... (4,665) (305)
-------------- -------------
Cash flows from investing activities:
Capital expenditures............................................ (1,505) (513)
-------------- -------------
Cash flows from financing activities:
Net borrowings under revolving bank lines of credit............. 5,888 818
Proceeds from exercise of stock options......................... 27 0
Principal paydown of Stock Purchase Loan Plan................... 118 0
Reduction of long-term debt..................................... (45) (45)
Repurchase of common stock...................................... 0 (160)
-------------- -------------
Net cash provided by financing activities....................... 5,988 613
-------------- -------------
Net decrease in cash............................................... (182) (205)
Cash at beginning of period........................................ 593 537
-------------- -------------
Cash at end of period.............................................. $ 411 $ 332
============== =============
Supplemental cash flow information: Cash paid during the period for:
Interest..................................................... $ 107 $ 84
Income taxes................................................. 842 982
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 January 31, 1998, the Company opened ten new stores totaling 44,178
square feet. The store in Spartanburg, South Carolina was a relocation (3,600
square feet) and conversion into a superstore.
S & K Store Locations Date Opened Square Footage
- ----------------------------------- ------------------ -----------------
Illinois: Decatur* May 9, 1998 3,369
Pennsylvania: Wilkes-Barre April 18, 1998 4,312
South Carolina: Anderson* May 23, 1998 3,036
Hilton Head April 5, 1998 3,803
Spartanburg April 3, 1998 4,516
Tennessee: Knoxville* May 22, 1998 5,400
Texas: Austin April 9, 1998 5,000
Ft. Worth May 1, 1998 4,692
Virginia: Richmond March 13, 1998 6,500
Wisconsin: Johnson Creek* May 16, 1998 3,550
* Stores opened in second quarter.
Since the beginning of the year, the Company also closed stores in Williamsburg,
Iowa (2,900 square feet), Lawrence, Kansas (3,000 square feet) and Slidel,
Louisiana (3,600 square feet), all of which had not met the Company's sales and
profitability expectations.
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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 1999 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 Annual Report on Form 10-K.
Three Months Ended May 2, 1998, Compared to Three Months Ended April 26, 1997
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 ended May 2, 1998 and April
26, 1997.
Percentage of Net Sales
-----------------------------
Three Months Ended
-----------------------------
5/2/98 4/26/97
----------- -----------
Net sales.................................... 100.0% 100.0%
Cost of sales................................ 52.1 52.5
----------- -----------
Gross profit................................. 47.9 47.5
Other costs and expenses:
Selling, general and administrative...... 39.1 40.0
Interest................................. 0.3 0.3
Depreciation and amortization............ 1.7 1.7
Other, net............................... 0.0 (0.1)
----------- -----------
Income before income taxes................... 6.8 5.6
Provision for income taxes................... 2.6 2.1
----------- -----------
Net income................................... 4.2% 3.5%
=========== ===========
Net sales in the first quarter of fiscal 1999 increased 11%, or $3.6
million, over the same period last year, and reflects the net addition of 18 new
stores. Comparable store sales were up 1%. During the first quarter the Company
opened six new stores and closed three (one of which was a relocation). There
were 214 stores in operation as of May 2, 1998, compared to 196 stores at April
26, 1997.
Cost of sales in the first quarter of fiscal 1999 was 52.1% of net sales
compared to 52.5% of net sales for the same period last year. This 0.4% of net
sales reduction was primarily due to lower promotional markdowns being incurred
this year.
Selling, general and administrative expenses in the first quarter of
fiscal 1999 were 39.1% of net sales compared to 40.0% of net sales in the
previous year. This 0.9% of net sales decrease was due to improved leverage of
fixed expenses including headquarters compensation and group health costs, and
due to increased net alterations income. Additionally, over the last 18 months
the Company has opened the majority of its new stores in existing markets which
also provides better leveraging of various selling, general and administrative
expense line items.
6
Interest expense was 0.3% of net sales in the first quarter of both fiscal
1999 and 1998. While interest expense increased due to higher interest rates and
higher average borrowing levels, sales leveraging kept the percentage to net
sales flat.
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. During the three months ended May 2, 1998, the Company
opened six new stores and closed three. The Company plans to open a total of 20
- - 25 new stores in fiscal 1999, while also remodeling 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 net cash of $4.7 million and $.3 million during
the first quarter of fiscal 1999 and 1998, respectively. This fluctuation was
primarily attributable to earlier payments on inventory purchases this year
versus last year, which resulted in lower payables at quarter end.
Net cash used for investing activities was primarily for the purpose of
store openings and remodelings. Capital expenditures for the first quarter of
fiscal 1999 and 1998 approximated $1.5 million and $.5 million, respectively.
The Company opened six new stores, coverted one to its superstore format and
remodeled another three stores in the first quarter of fiscal 1999 compared to
opening three new stores during the comparable period last year.
Financing activities for the first quarter of fiscal 1999 and 1998
provided net cash of approximately $6.0 million and $.6 million, respectively .
Financing activities primarily relate to fluctuations in the borrowing levels
under the Company's revolving credit agreements. The Company's revolving credit
agreements with two banks aggregate $30.0 million. As of May 2, 1998 the Company
had net unused commitments of approximately $22.0 million under the agreements.
7
PART II. OTHER INFORMATION
Item 2. Changes in Securities
(c) During the quarter ended May 2, 1998, the Company contributed
4,885 shares of its common stock to the S&K Famous Brands
Employees' Profit Sharing/Savings Plan. The contribution was
exempt from registration pursuant to section 3 (a) 2 of the
Securities Act of 1933, as amended, because the Plan does not
permit employee contributions to be invested in the Company's
securities.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
(27) Financial Data Schedule
(b) There were no reports filed on Form 8-K during the three months
ended May 2, 1998
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: May 29, 1998 /s/ Robert E. Knowles
---------------------
Robert E. Knowles
Executive Vice President,
Chief Financial Officer,
Secretary and Treasurer
(Principal Financial Officer)
Date: May 29, 1998 /s/ Janet L. Jorgensen
----------------------
Janet L. Jorgensen
Vice President and Controller
(Principal Accounting Officer)
8