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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Thirteen Weeks Ended May 4, 1996
Commission File Number 1-9647
JAN BELL MARKETING, INC.
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(Exact name of registrant as specified in its charter)
DELAWARE 59-2290953
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(State of Incorporation) (IRS Employer Identification No.)
13801 N.W. 14TH STREET, SUNRISE, FLORIDA 33323
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(Address of principal executive offices) (Zip Code)
(954) 846-2705
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(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.
25,838,424 COMMON SHARES ($.0001 PAR VALUE)
AS OF MAY 23, 1996
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FORM 10-Q
QUARTERLY REPORT
THIRTEEN WEEKS ENDED MAY 4, 1996
TABLE OF CONTENTS
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PART I: FINANCIAL INFORMATION PAGE NO.
Item 1. Consolidated Financial Statements
A. Consolidated Balance Sheets .............................. 3
B. Consolidated Statements of Operations .................... 4
C. Consolidated Statements of Cash Flows .................... 5
D. Notes to Consolidated Financial Statements ............... 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations ......................... 8
PART II: OTHER INFORMATION
Items 1, 2, 3, 4, 5 and 6 have been omitted because they are not
applicable with respect to the current reporting period.
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PART I: FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
JAN BELL MARKETING, INC.
CONSOLIDATED BALANCE SHEETS
(Amounts shown in thousands except share and per share data)
May 4, February 3,
1996 1996
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(Unaudited)
CURRENT ASSETS:
Cash and cash equivalents $ 18,843 $ 14,955
Accounts receivable, net 4,159 5,855
Inventories 99,448 95,486
Other current assets 692 914
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Total current assets 123,142 117,210
Property, net 24,817 25,943
Goodwill 2,639 2,685
Other assets 6,899 7,335
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$157,497 $153,173
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LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 13,486 $ 6,043
Accrued expenses 6,207 4,405
Long-term debt, current portion 10,000 10,000
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Total current liabilities $ 29,693 $ 20,448
Long-term debt 7,500 7,500
STOCKHOLDERS' EQUITY:
Common stock, $.0001 par value,
50,000,000 shares authorized,
25,838,424 and 25,833,541 shares
issued and outstanding 3 3
Additional paid-in capital 180,860 180,716
Accumulated deficit (59,170) (54,099)
Foreign currency translation
adjustment (1,389) (1,395)
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120,304 125,225
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$157,497 $153,173
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See notes to consolidated financial statements.
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JAN BELL MARKETING, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts shown in thousands except share and per share data)
Thirteen Weeks Thirteen Weeks
Ended Ended
May 4, 1996 April 29, 1995
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(Unaudited)
Net sales $ 47,449 $ 50,018
Cost of sales and
occupancy costs 37,739 42,635
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Gross profit 9,710 7,383
Store and warehouse
operating and selling expenses 7,811 7,747
General and administrative expenses 2,760 3,041
Other charges 1,866 ---
Depreciation and amortization 2,226 1,753
Currency exchange loss 5 566
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Operating loss (4,958) (5,724)
Interest and other income 390 610
Interest expense 527 537
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Loss before income taxes (5,095) (5,651)
Income taxes (benefit) (24) 123
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Net loss $ (5,071) $ (5,774)
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Net loss per common share $ (0.20) $ (0.22)
Weighted average shares outstanding 25,838,424 25,743,390
See notes to consolidated financial statements.
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JAN BELL MARKETING, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts shown in thousands)
Thirteen Weeks Thirteen Weeks
Ended Ended
May 4, 1996 April 29, 1995
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(Unaudited)
Cash flows from operating activities:
Cash received from customers $ 49,145 $ 53,278
Cash paid to suppliers and employees (45,012) (62,663)
Interest and other income received 390 610
Interest paid (527) (537)
Income taxes refunded 24 389
Net cash provided by (used in) operating activities 4,020 (8,923)
Cash flows from investing activities:
Capital expenditures (132) (154)
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Net cash (used in) investing activities (132) (154)
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Cash flows from financing activities:
Stock purchase plan payments withheld --- 19
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Net cash provided by financing activities --- 19
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Net increase (decrease) in cash and cash equivalents 3,888 (9,058)
Cash and cash equivalents at beginning of period 14,955 28,212
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Cash and cash equivalents at end of period $ 18,843 $ 19,154
======== =========
Reconciliation of net loss to net cash provided by (used
in) operating activities:
Net loss $ (5,071) $ (5,774)
Adjustments to reconcile net loss to net cash provided by
(used in) operating activities:
Depreciation and amortization 2,226 1,753
Foreign currency translation adjustment 5 (197)
(Increase) Decrease in assets:
Accounts receivable (net) 1,696 3,258
Inventories (3,962) (6,338)
Other (119) 256
Increase (Decrease) in liabilities:
Accounts payable 7,443 (378)
Accrued expenses 1,802 (1,503)
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Net cash provided by (used in) operating activities $ 4,020 $ (8,923)
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See notes to consolidated financial statements.
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JAN BELL MARKETING, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
A. Unaudited Financial Statements
The Company's financial statements for the thirteen week periods ended May
4, 1996 and April 29, 1995 have not been audited by certified public
accountants, but in the opinion of management of the Company reflect all
adjustments (which include only normal recurring accruals) necessary to present
fairly the financial position, results of operations and cash flows for those
periods. Results of the thirteen week periods ended May 4, 1996 and April 29,
1995 are not necessarily indicative of annual results because of the
seasonality of the Company's business.
Certain reclassifications have been made to the prior consolidated
financial statements to conform to the current presentation.
The accompanying financial statements should be read in conjunction with
the Company's annual consolidated financial statements and the notes thereto
for the year ended February 3, 1996.
B. Relationship with Sam's Wholesale Club
The Company operates an exclusive leased department at all existing and
future domestic and Puerto Rican Sam's Wholesale Club ("Sam's") locations under
an agreement which expires February 1, 2001. The Company pays Sam's a tenancy
fee of 9% of net sales. During the thirteen weeks ended May 4, 1996,
approximately 91% of the Company's net sales were from Sam's customers and for
the foreseeable future it is expected that the substantial portion of net sales
will be generated through this agreement. Accordingly, the Company is
dependent on Sam's to conduct its business and the loss of the leased
department arrangement with Sam's would have a material adverse effect on the
business of the Company.
During Fiscal 1995, a dispute arose between Sam's and the Company related
to certain wholesale sales and returns, primarily relating to certain claims by
Sam's for credits for certain merchandise returns. The Company considers this
matter to be in nature and magnitude outside the normal course of business.
The total difference between the amount of credits that Sam's originally
claimed and the amount the Company believes is appropriate is approximately
$6.7 million. The Company and Sam's have held discussions and negotiations
regarding this matter; however, no final resolution has been reached. While
the Company believes that no further amounts are owed to Sam's, the outcome
remains uncertain. The financial statements do not include a provision for any
loss that may result from the resolution of this matter.
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JAN BELL MARKETING, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
C. Inventories:
Inventories are summarized as follows:
May 4, February 3,
1996 1996
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(Amounts shown in thousands)
Precious and semi-precious gem jewelry-
related merchandise (and associated gold):
Raw materials $ 7,102 $ 6,488
Finished goods 39,991 42,083
Gold jewelry-related merchandise:
Raw materials 2 2
Finished goods 16,456 15,789
Watches 14,572 13,131
Other consumer products 21,325 17,993
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$99,448 $95,486
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D. Income Taxes
The Company's provision (benefit) for income taxes for 1996 and 1995 is
related to the operations of foreign subsidiaries. Federal and state tax
benefits have not been recognized for the domestic loss for 1996 and 1995 due
to the fact that all loss carrybacks have been fully utilized and, under SFAS
No. 109, "Accounting for Income Taxes," the Company has determined that it is
more likely than not that the deferred tax asset will not be realized.
E. Other Charges
Other charges represent a provision for severance payments to the
Company's former President and CEO. On June 14, 1996, the Company reached a
final agreement with this executive for such payments totaling $2.0 million.
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ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The discussion and analysis below contain trend analysis and other
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933 and Section 21E of the Securities Exchange Act of 1934. The
Company's actual results could differ materially from those anticipated in any
forward-looking statements as a result of certain factors set forth below and
elsewhere in this Report.
The Company operates an exclusive leased department at all existing and
future domestic and Puerto Rican Sam's Wholesale Club ("Sam's") locations under
an agreement which expires February 1, 2001. During the thirteen weeks ended
May 4, 1996, approximately 91% of the Company's net sales were from Sam's
customers and for the foreseeable future it is expected that the substantial
portion of net sales will be generated through this agreement.
In late 1994 as part of the Fiscal 1995 planning process, management and
the Board of Directors reviewed the Fiscal 1994 results of all lines of
business and their attendant cost structures. This process resulted in the
closing of all of the Company's domestic manufacturing operations; the
reduction of corporate and field staff levels; the reduction of operational
expenses and redesigning of merchandising programs to better manage retail
sales gross profit and replenishment functions; and the closing of the
Company's unprofitable wholesale watch division.
Results of operations for the thirteen weeks ended May 4, 1996 continue to
reflect the implementation of these decisions in expense savings at all levels.
The Company also put in place merchandise strategies and selection that
allowed the Company to achieve higher gross margins in its leased departments.
In addition, emphasis on cash management and inventory control systems has
allowed the Company to generate positive cash flows from operations and reduce
its reliance on working capital support from third party lenders. Finally, the
Company's efforts to reduce and better balance its inventory levels has
resulted in improved inventory turns and reduced average inventory
requirements.
Net sales were $47.4 million for the thirteen weeks ended May 4, 1996
compared to $50.0 million for the thirteen weeks ended April 29, 1995. The
decline in sales in Fiscal 1996 reflects primarily the closing of the wholesale
division. Net sales in the retail locations for the thirteen weeks ended May
4, 1996 were $43.9 million compared to $39.1 million for the thirteen weeks
ended April 29, 1995. Comparable retail sales for the thirteen weeks ended May
4, 1996 were $42.7 million compared to $38.9 million for the thirteen weeks
ended April 29, 1995.
Gross profit was $9.7 million or 20.5% of net sales for the thirteen weeks
ended May 4, 1996 compared to $7.4 million or 14.8% of net sales for the
thirteen weeks ended April 29, 1995. The increase in gross profit as a
percentage of net sales was primarily attributable to margin improvements that
are being recognized in the Company's retail locations because of a shift in
merchandising strategies that emphasize higher margin gem, gold and watch
products in place of other lower margin products and categories.
Management recognizes that continued improvement in net sales must be
achieved for the Company to return to profitability.
Store and warehouse operating and selling expenses were $7.8 million for
the thirteen weeks ended May 4, 1996 compared to $7.7 million for the thirteen
weeks ended April 29, 1995. The incremental increase in these expenses for the
thirteen weeks ended May 4, 1996 compared to the thirteen weeks ended April 29,
1995 is primarily attributable to the timing of advertising expenses recorded
in connection with Mother's Day sales promotions.
General and administrative expenses were $2.8 million for the thirteen
weeks ended May 4, 1996 compared to $3.0 million for the thirteen weeks ended
April 29, 1995. The decrease in these expenses for the thirteen weeks ended
May 4, 1996 compared to the thirteen weeks ended April 29, 1995 is primarily
attributable to the Company's continued efforts to reduce corporate overhead
expenses.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(continued)
The Company incurred other charges of $1.9 million for the thirteen weeks
ended May 4, 1996 which represent a provision for severance payments to the
Company's former President and Chief Executive Officer. On June 14, 1996, the
Company reached a final agreement with this executive for such payments
totaling $2.0 million.
The increase in depreciation and amortization expense to $2.2 million for
the thirteen weeks ended May 4, 1996 from $1.8 million for the thirteen weeks
ended April 29, 1995 is primarily a result of the amortization of finance costs
incurred in connection with the working capital facility obtained on May 31,
1995.
The instability of the Mexican peso during Fiscal 1995 resulted in a
currency exchange loss of $566,000 for the thirteen weeks ended April 29, 1995.
For the thirteen weeks ended May 4, 1996 the currency exchange loss was $5,000.
On November 9, 1995, the Company opened its first "Jewelry Depot", a 6,071
square foot value-oriented jewelry and luxury gift store in Framingham,
Massachusetts. Subsequently, the Company also opened two "Jewelry Depot
Outlets", a 2,207 square foot facility in Vero Beach, Florida and an 891 square
foot store in Worcester, Massachusetts. The "Jewelry Depot" and "Jewelry Depot
Outlets" each were opened as prototypes for potential stand-alone jewelry
operations that the Company will continue to evaluate as possible long term
sources of additional revenue growth. The Company currently is unable to
determine the impact of these potential stand-alone jewelry operations on its
future operating results or capital requirements.
The retail jewelry business is seasonal in nature with a higher proportion
of sales and significant portion of earnings generated during the fourth
quarter holiday selling season. As a result, operating results for the
thirteen weeks ended May 4, 1996 are not necessarily indicative of results of
operations for the entire fiscal year.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
As of May 4, 1996, cash and cash equivalents totaled $18.8 million, an
increase of $3.9 million from February 3, 1996 which resulted primarily from
the timing of vendor payments for inventory. The Company had no short-term
borrowings under its working capital facility outstanding as of May 4, 1996.
The Company's working capital requirements are directly related to the
amount of inventory required to support its retail operations. During the
thirteen weeks ended May 4, 1996, the inventory increase of $4.0 million
reflected a build up in anticipation of Mother's Day sales.
For the remainder of Fiscal 1996, based on discussions with Sam's, the
Company expects a very limited increase in the number of leased departments it
operates, and consequently does not foresee a need for a significant increase
in retail inventory. Capital expenditures for Fiscal 1996 are projected not to
exceed $6 million.
The Company's business is highly seasonal, with seasonal working capital
needs peaking in October and November before the holiday selling season.
The Company believes that its cash on hand, projected cash from operations
and availability under the Working Capital Facility will be sufficient to meet
its debt service requirements and anticipated working capital and capital
expenditure needs for the remainder of Fiscal 1996. There can be no assurance
that the Company's future operating results will be sufficient to sustain such
debt service and working capital needs.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(continued)
FUTURE OPERATING RESULTS
The future operating results of the Company may be affected by a number of
factors, including without limitation the following:
The Company markets its products principally through Sam's Club, a
division of Wal-Mart, Inc., pursuant to an arrangement whereby the Company
operates an exclusive leased department at all of Sam's existing and future
domestic and Puerto Rican locations through February 1, 2001. For the thirteen
weeks ended May 4, 1996, sales through Sam's accounted for approximately 91% of
the Company's net sales. Accordingly, the Company is dependent on Sam's to
conduct its business, and the loss of the leased department arrangement with
Sam's would have a material adverse effect on the business of the Company.
During Fiscal 1995, the Company opened its first "Jewelry Depot", a 6,071
square foot value oriented jewelry and luxury gift store in Framingham,
Massachusetts. Subsequently, the Company also opened two "Jewelry Depot
Outlets", a 2,207 square foot facility in Vero Beach, Florida and a 891 square
foot store in Worcester, Massachusetts. The "Jewelry Depot" and "Jewelry Depot
Outlets" each were opened as prototypes for potential stand-alone jewelry
operations that the Company will evaluate as possible long term sources of
additional revenue growth. The Company currently is unable to determine the
impact of these potential stand-alone jewelry operations on its future
operating results or capital requirements.
In 1992, the Company signed an agreement to be the primary supplier of
fine jewelry, watches and fragrances with the Club Aurrera, a warehouse club
joint venture in Mexico between Wal-Mart Stores and Cifra S.A. Due to the peso
devaluation, the Company's sales by its Mexican subsidiary were significantly
lower in 1995 than in 1994 reflecting the overall reduction in the Mexican
consumer's disposable income. In this marketplace, the Company faces the risk
of foreign currency fluctuations, local economic and political conditions and
competitors.
The Company's retail operation requires expertise in the areas of
merchandising, sourcing, selling, personnel, training, systems and accounting.
The Company must look to increases in the number of retail locations to occur,
thereby increasing the Company's customer base, for expansion. The retail
jewelry market is particularly subject to the level of consumer discretionary
income and the subsequent impact on the type and value of goods purchased.
With the consolidation of the retail industry, the Company believes that
competition both within the warehouse club industry and with other competing
general and specialty retailers and discounters will continue to increase.
Further consolidation of the warehouse club industry due to geographic
constraints and market consolidation might also adversely affect the Company's
existing relationship with Sam's and the Company's business. The opening and
success of the leased locations and locations to be opened in later years, if
any, will depend on various factors, including general economic and business
conditions affecting consumer spending, the performance of the Company's retail
programs and concepts, and the ability of the Company to manage the leased
operations and future expansion and hire and train personnel.
The Company purchases diamonds and other gemstones directly in
international markets located in Tel Aviv, New York, Antwerp and elsewhere.
The Company seeks to meet its diamond requirements with purchases on a systemic
basis throughout the year. Hedging is not available with respect to possible
fluctuations in the price of gemstones. If such fluctuations should be
unusually large or rapid and result in prolonged higher or lower prices, there
is no assurance that the necessary price adjustments could be made quickly
enough to prevent the Company from being adversely affected. Further, the
continued availability of diamonds to the Company is dependent, to some degree,
upon the political and economic situation in South Africa and Russia, which
have been unstable. Several other countries also are major suppliers of
diamonds, including Botswana and Zaire. In the event of an interruption of
diamond supplies, or a material or prolonged reduction in the world supply of
finished diamonds, the Company could be adversely affected.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(continued)
Although purchases of several critical raw materials, notably gold and
gemstones, are made from a limited number of sources, the Company believes that
there are numerous alternative sources for all raw materials used in the
manufacture of its finished jewelry, and the failure of any principal supplier
would not have a material adverse effect on operations. Any changes in
foreign or domestic laws and policies affecting international trade may have a
material adverse effect on the availability or price on the diamonds, other
gemstones, precious metals and non-jewelry products purchased by the Company.
Because supplies of parallel marketed products are not always readily
available, it can be a difficult process to match the customer demand to market
availability.
The Company utilizes the services of independent suppliers and customs
agents to comply with U.S. customs laws in connection with its purchases of
gold, diamonds and other raw materials from foreign sources. The Company bears
certain risks in purchasing parallel marketed goods which includes certain
watches and other products such as fragrances and collectibles. Parallel
marketed goods are products to which trademarks are legitimately applied but
which were not necessarily intended by their foreign manufacturers to be
imported and sold in the United States. The laws and regulations governing
transactions involving such goods lack clarity in significant respects. From
time to time, trademark or copyright holders and their licensees initiate
private suits or administrative agency proceedings seeking damages or
injunctive relief based on alleged trademark or copyright infringement by
purchasers and sellers of parallel marketed goods. While the Company believes
that its practices and procedures with respect to the purchase of parallel
marketed goods lessen the risk of significant litigation or liability, the
Company is from time to time involved in such proceedings and there can be
assurance that additional claims or suits will not be initiated against the
Company or any of its affiliates, and there can be no assurances regarding the
results of any pending or future claims or suits. Further, legislation has
been introduced in Congress in recent years and is currently pending regarding
parallel marketed goods. Certain legislative or regulatory proposals, if
enacted, could materially limit the Company's ability to sell parallel marketed
goods in the United States. There can be no assurances as to whether or when
any such proposals might be acted upon by Congress or that future judicial,
legislative or administrative agency action will restrict or eliminate these
sources of supply. The Company has identified alternate sources of supply,
although the cost of certain products may increase or their availability may be
lessened.
The agreements related to the Company's amended senior notes and the
Working Capital Facility contain covenants which require the Company to
maintain financial ratios related to earnings, working capital, inventory
turnover, trade payables and tangible net worth, limit capital expenditures and
the incurrence of additional debt, and prohibit the payment of dividends.
There can be no assurance that the Company's future operating results will be
sufficient to meet the requirements of the foregoing covenants.
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PART II: OTHER INFORMATION
NONE
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.
JAN BELL MARKETING, INC.
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(Registrant)
By: /s/ David P. Boudreau
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David P. Boudreau
Senior Vice President of Finance
and Treasurer
Date: June 18, 1996
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