SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_________________
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended September 30, 2000
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 0-23669
SHOE PAVILION, INC.
(Exact name of Registrant as Specified in its Charter)
Delaware 94-3289691
(State or Other Jurisdiction of (IRS Employer
Incorporation or Organization) Identification Number)
3200-F Regatta Boulevard, Richmond, California 94804
(Address of principal executive offices) (Zip Code)
(510) 970-9775
(Registrant's telephone number, including area code)
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 issuer's classes of
common stock, as of the latest practicable date.
As of November 7, 2000 the Registrant had 6,800,000 shares of Common Stock
outstanding.
FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains certain "forward-looking"
statements within the meaning of the Private Securities Litigation Reform Act of
1995 which provides a "safe harbor" for these types of statements. These
forward-looking statements are subject to risks and uncertainties that could
cause the Company's actual results to differ materially from management's
current expectations. These factors include, without limitation, change in the
trend of same store sales, competitive pressures in the footwear industry,
changes in the level of consumer spending on or preferences in footwear
merchandise, the Company's ability to purchase attractive name brand merchandise
at desirable discounts and the availability of desirable store locations and
management's ability to negotiate acceptable lease terms and open new stores in
a timely manner. Other risk factors are detailed in the Company's filings with
the Securities and Exchange Commission. The Company assumes no obligation to
update forward-looking statements.
SHOE PAVILION, INC.
INDEX TO FORM 10-Q
PART I
FINANCIAL INFORMATION
Item 1 - Condensed Consolidated Financial Statements (Unaudited): Page
----
Condensed Consolidated Balance Sheets........................ 3
Condensed Consolidated Statements of Income.................. 4
Condensed Consolidated Statements of Cash Flows.............. 5
Notes to Condensed Consolidated Financial Statements......... 6
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations......................... 7-8
Item 3 - Quantitative and Qualitative Disclosures About Market Risk... 8
PART II
OTHER INFORMATION
Item 4 - Submission of Matters to a Vote of Security Holders.......... 9
Item 6 - Exhibits and Reports on Form 8-K ............................ 9
Signatures............................................................ 10
2
PART I
FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements.
The following financial statements and related financial information are
filed as part of this report:
Shoe Pavilion, Inc.
Condensed Consolidated Balance Sheets
(Unaudited)
(In thousands, except share data) September 30, January 1,
2000 2000
ASSETS
Current assets
Cash $ 682 $ 929
Accounts receivable 520 578
Inventories 43,772 32,985
Prepaid expenses and other 837 609
---------------- ------------
Total current assets 45,811 35,101
Property and equipment, net 5,195 5,540
Other assets 950 971
---------------- ------------
Total assets $51,956 $41,612
================ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable $11,767 $11,139
Accrued expenses 1,772 1,643
Short-term borrowings 16,080 8,000
Current portion of capital lease obligations 14 13
---------------- ------------
Total current liabilities 29,633 20,795
Deferred rent 1,465 1,712
Capital lease obligations, less current portion 51 62
---------------- ------------
Total liabilities 31,149 22,569
---------------- ------------
Stockholders' equity
Preferred stock- $.001 par value; 1,000,000 shares authorized;
no shares issued or outstanding - -
Common stock- $.001 par value; 15,000,000 shares authorized;
6,800,000 issued and outstanding 7 7
Additional paid-in capital 13,967 13,967
Retained earnings 6,833 5,069
---------------- ------------
Total stockholders' equity 20,807 19,043
---------------- ------------
Total liabilities and stockholders' equity $51,956 $41,612
================ ============
See notes to condensed consolidated financial statements.
3
Shoe Pavilion, Inc.
Condensed Consolidated Statements of Income
(Unaudited)
(In thousands, except per share and number of stores)
Thirteen weeks ended Thirty-nine weeks ended
--------------------------------- -------------------------------
September 30, October 2, September 30, October 2,
2000 1999 2000 1999
Net sales $23,148 $18,469 $67,421 $49,912
Cost of sales and related occupancy expenses 15,527 12,508 45,162 33,271
--------------- --------------- --------------- ------------
Gross profit 7,621 5,961 22,259 16,641
Selling, general and administrative expenses 6,602 5,418 18,515 13,556
--------------- --------------- --------------- ------------
Income from operations 1,019 543 3,744 3,085
Interest expense 349 156 772 432
Other expense 28 12 58 7
--------------- --------------- --------------- ------------
Income before taxes 642 375 2,914 2,646
Income tax provision 253 130 1,150 1,016
--------------- --------------- --------------- ------------
Net income $ 389 $ 245 $ 1,764 $ 1,630
=============== =============== =============== ============
Earnings per share:
Basic $ 0.06 $ 0.04 $ 0.26 $ 0.24
Diluted $ 0.06 $ 0.04 $ 0.26 $ 0.24
Weighted average shares outstanding:
Basic 6,800 6,800 6,800 6,800
Diluted 6,845 6,800 6,810 6,801
Stores operated at end of period 113 111
See notes to condensed consolidated financial statements
4
Shoe Pavilion, Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(In thousands)
Thirty-nine Weeks Ended
---------------------------------------------
September 30, October 2,
2000 1999
Operating activities:
Net income $ 1,764 $ 1,630
Adjustments to reconcile net income to net cash
used by operating activities
Depreciation and amortization 1,055 877
Deferred taxes - (46)
Loss on disposal of fixed assets 79 -
Effect of changes in:
Inventories (10,787) (6,936)
Accounts receivables 58 (451)
Prepaid expenses and other (207) (183)
Accounts payable 628 4,827
Accrued expenses 129 (846)
Deferred rent (247) 364
--------------------- ------------
Net cash used by operating activities (7,528) (764)
--------------------- ------------
Investing activity-
Purchase of property and equipment (789) (2,193)
Financing activities:
Proceeds from line of credit, net 8,080 1,618
Principal payments on capital leases (10) (9)
--------------------- ------------
Net cash provided by financing activities 8,070 1,609
--------------------- ------------
Net decrease in cash (247) (1,348)
Cash, beginning of period 929 1,922
--------------------- ------------
Cash, end of period $ 682 $ 574
===================== ============
See notes to condensed consolidated financial statements.
5
Shoe Pavilion, Inc.
Notes to Condensed Consolidated Financial Statements
1. Basis of Presentation
General - The accompanying unaudited condensed consolidated financial statements
have been prepared from the records of Shoe Pavilion, Inc. (the "Company")
without audit, and in the opinion of management, include all adjustments
necessary to present fairly the financial position of the Company and the
results of its operations and its cash flows for the periods presented. The
balance sheet as of January 1, 2000 presented herein has been derived from the
audited financial statements of the Company as of January 1, 2000.
Accounting policies followed by the Company are described in Note 2 to the
audited consolidated financial statements for the year ended January 1, 2000.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted for purposes of the condensed consolidated
interim financial statements. The condensed consolidated financial statements
should be read in conjunction with the audited consolidated financial
statements, including the notes thereto, for the year ended January 1, 2000 on
Form 10-K.
The results of operations for the thirteen weeks and thirty-nine weeks periods
presented herein are not necessarily indicative of the results to be expected
for the full year.
Comprehensive Income and net income are the same.
2. New Accounting Standards
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities," which defines
derivatives, requires that derivatives be carried at fair value and provides for
hedge accounting when certain conditions are met. This statement is effective
for the Company beginning in the year 2001. The Company believes adoption of
this statement will not have a material impact on its consolidated financial
statements.
In December 1999, the Securities and Exchange Commission issued Staff Accounting
Bulletin (SAB) NO. 101, "Revenue Recognition in Financial Statements," which
provides the SEC staff's views on selected revenue recognition issues. The
guidance in SAB 101 must be adopted during the Company's quarter ended December
30, 2000 and the effects, if any, are required to be recorded through a
retroactive, cumulative-effect adjustment as of the beginning of the fiscal
year, with a restatement of all prior interim quarters in the year. Management
does not believe that the adoption of the provisions of SAB 101 will have a
material impact on the Company's consolidated financial statements.
6
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Overview
Shoe Pavilion is the largest independent off-price footwear retailer on the West
Coast that offers a broad selection of women's and men's designer label and name
brand merchandise. As of September 30, 2000, the Company operated 78 retail
stores in California, Washington, Oregon and Oklahoma and 35 licensed shoe
departments in Colorado, Illinois, Iowa, Kansas, Missouri, Nebraska, Oklahoma
and South Dakota.
The Company operates and manages the 35 shoe departments pursuant to a licensing
agreement with Gordmans, Inc., a midwestern department store chain. The Company
entered into the Gordmans license agreement in July 1999 and began to operate
and manage the shoe departments shortly thereafter.
Results of Operations
Net sales for the thirteen weeks ended September 30, 2000 increased 25.3% to
$23.1 million, from net sales of $18.5 million in the comparable period last
year. Net sales for the thirty-nine weeks ended September 30, 2000 increased
35.1% to $67.4 million, from net sales of $49.9 million in the comparable period
last year. The increases in net sales for the thirteen weeks and thirty-nine
weeks ended September 30, 2000 are principally attributable to the increase in
new stores net sales of $3.8 million and $17.1 million, respectively. In
addition, the Company's comparable stores net sales increased 13.4% and 10.7%
for the thirteen weeks and thirty-nine weeks ended September 30, 2000,
respectively. Increases during the periods were partially offset by store
closings.
Gross profit for the thirteen weeks ended September 30, 2000 increased 27.8% to
$7.6 million from gross profit of $6.0 million for the same period last year.
Gross profit as a percent of net sales increased to 32.9% for the thirteen weeks
ended September 30, 2000 from 32.3% for the same period last year. For the
thirty-nine weeks ended September 30, 2000, gross profit increased 33.8% to
$22.3 million, from gross profit of $16.6 million for the comparable period last
year. Gross profit as a percent of net sales decreased slightly to 33.0% for the
thirty-nine weeks ended September 30, 2000 from 33.3% for the comparable period
last year. The increase in gross margin dollars for the thirteen weeks and
thirty-nine weeks ended September 30, 2000 is principally attributable to the
increased sales during these periods. The increase in gross margin as a
percentage of net sales for the thirteen weeks ended September 30, 2000 is
partially attributable to the reduction in occupancy costs as a percentage of
net sales.
Selling, general and administrative expenses increased by $1.2 million or 21.9 %
for the thirteen weeks ended September 30, 2000 as compared with the same period
last year but decreased as a percentage of net sales to 28.5% from 29.3% for the
same period last year. Selling, general and administrative expenses increased by
$5.0 million or 36.6% for the thirty-nine weeks ended September 30, 2000 as
compared with the same period last year and increased slightly as a percentage
of net sales to 27.5% from 27.2% for the same period last year. The increases in
selling, general and administrative expenses during the thirteen weeks and
thirty-nine weeks ended September 30, 2000 are principally attributable to
increased sales payroll and related benefits, other selling costs, additional
advertising and freight out related to the increased sales during these periods.
In addition, administrative expenses increased during the thirty-nine weeks
ended September 30, 2000 as the result of hiring additional staff to support the
increased sales and costs associated with a new information system.
Interest expense increased $193,000 and $340,000 for the thirteen weeks and
thirty-nine weeks ended September 30, 2000, respectively, as compared with the
same periods in 1999. These increases are principally attributable to higher
average borrowings on the Company's revolving line of credit to support
increased inventory levels related in part to the higher sales in 2000. In
addition, interest rates during the thirteen weeks and thirty-nine weeks ended
September 30, 2000 increased compared to the same periods in 1999.
7
Liquidity and Capital Resources
The Company has historically funded its cash requirements primarily through cash
flow from operations and borrowings under its credit facility. Net cash used by
operating activities during the thirty-nine week period ended September 30, 2000
totaled $7.5 million and was primarily used to fund increased inventory levels.
Net cash, provided by financing activities, for the thirty-nine week period
ended September 30, 2000 totaled $8.1 million and was drawn down from the
Company's line of credit.
Capital expenditures for the thirty-nine week period ended September 30, 2000
were $789,000. These expenditures were principally related to the build-out of
five new stores and two leased departments, the remodeling of five stores and
the purchase of equipment for the Company's distribution facility. During the
remainder of the Company's fiscal year 2000, the Company anticipates that cash
will be used primarily for merchandise inventory and to a lesser degree for
capital expenditures.
The Company has a credit facility agreement with a commercial bank, which
includes a revolving line of credit for $20.0 million expiring on May 30, 2001.
As of September 30, 2000, the unused and available portion of the credit
facility was approximately $3.6 million.
New Accounting Standards
See Note 2 of the Notes to Condensed Consolidated Financial Statements for a
description of new accounting standards.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
There have been no material changes from the information reported in the
Company's Form 10-K for the fiscal year ended January 1, 2000.
8
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 required to be filed by Item 601 of Regulation S-K:
27.1 Financial Data Schedule
(b) Reports on Form 8-K filed during the quarter ended September
30, 2000:
None.
9
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 on the 13th day of November 2000.
SHOE PAVILION, INC., as Registrant
By /s/ Dmitry Beinus
--------------------------------------------
Dmitry Beinus
Chairman and Chief Executive Officer
By /s/ John D. Hellmann
--------------------------------------------
John D. Hellmann
Vice President and Chief Financial Officer
10
INDEX TO EXHIBITS
Exhibit Number Description
- -------------- -----------
27.1 Financial Data Schedule