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 May 1, 2004
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 incorporation or organization) |
(I.R.S. Employer 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
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 by check mark whether the registrant is an accelerated filer (as defined in Rule 12 b-2 of the Act.) Yes ¨ No x
Indicate the number of shares outstanding of each of the Registrant’s classes of common stock as of May 1, 2004.
2,489,711 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 1, 2004 |
May 3, 2003 |
|||||||
| Net sales |
$ | 50,910 | $ | 44,019 | ||||
| Cost of sales |
27,946 | 22,983 | ||||||
| Gross profit |
22,964 | 21,036 | ||||||
| Other costs and expenses: |
||||||||
| Selling, general and administrative |
19,351 | 17,743 | ||||||
| Interest |
43 | 94 | ||||||
| Depreciation and amortization |
750 | 758 | ||||||
| Other income, net |
(38 | ) | (25 | ) | ||||
| Income before income taxes |
2,858 | 2,466 | ||||||
| Provision for income taxes |
1,086 | 937 | ||||||
| Net income |
$ | 1,772 | $ | 1,529 | ||||
| Earnings per common share : |
||||||||
| Basic |
$ | 0.71 | $ | 0.62 | ||||
| Diluted |
$ | 0.67 | $ | 0.61 | ||||
| Weighted average common shares outstanding – basic |
2,493 | 2,473 | ||||||
| Weighted average common shares outstanding including dilutive potential common shares |
2,657 | 2,504 | ||||||
See Notes to Financial Statements.
2
S & K FAMOUS BRANDS, INC.
Balance Sheets
(In thousands, except per share amounts)
| May 1, 2004 |
May 3, 2003 |
January 31, 2004 |
||||||||||
| (unaudited) | (unaudited) | |||||||||||
| Assets |
||||||||||||
| Current assets: |
||||||||||||
| Cash and cash equivalents |
$ | 2,787 | $ | 3,193 | $ | 2,384 | ||||||
| Accounts receivable |
328 | 258 | 407 | |||||||||
| Merchandise inventories |
57,212 | 55,017 | 48,477 | |||||||||
| Other current assets |
4,162 | 3,081 | 3,981 | |||||||||
| Total current assets |
64,489 | 61,549 | 55,249 | |||||||||
| Property and equipment, at cost: |
||||||||||||
| Land and buildings |
6,607 | 6,607 | 6,607 | |||||||||
| Furniture, fixtures and equipment |
18,521 | 17,353 | 18,227 | |||||||||
| Leasehold improvements |
18,329 | 17,322 | 18,038 | |||||||||
| 43,457 | 41,282 | 42,872 | ||||||||||
| Less: Accumulated depreciation and amortization |
28,083 | 25,727 | 27,275 | |||||||||
| 15,374 | 15,555 | 15,597 | ||||||||||
| Other assets |
3,969 | 7,184 | 3,994 | |||||||||
| $ | 83,832 | $ | 84,288 | $ | 74,840 | |||||||
| Liabilities and Shareholders’ Equity |
||||||||||||
| Current liabilities: |
||||||||||||
| Current maturities of long-term debt |
$ | 403 | $ | 2,346 | $ | 403 | ||||||
| Bank overdrafts |
2,762 | 2,674 | 1,977 | |||||||||
| Accounts payable |
18,757 | 17,068 | 11,686 | |||||||||
| Accrued compensation and related items |
1,049 | 893 | 2,887 | |||||||||
| Current and deferred income taxes |
1,167 | 821 | 92 | |||||||||
| Other current liabilities |
2,380 | 2,215 | 2,264 | |||||||||
| Total current liabilities |
26,518 | 26,017 | 19,309 | |||||||||
| Long-term debt |
4,060 | 8,832 | 4,161 | |||||||||
| Other long-term liabilities |
2,410 | 1,735 | 2,250 | |||||||||
| Deferred income taxes |
1,227 | 1,503 | 1,292 | |||||||||
| 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, 2,490, 2,452 and 2,490, respectively |
1,245 | 1,226 | 1,245 | |||||||||
| Capital in excess of par value |
284 | — | 277 | |||||||||
| Notes receivable—Stock Purchase Loan Plan |
(894 | ) | (985 | ) | (904 | ) | ||||||
| Retained earnings |
48,982 | 45,960 | 47,210 | |||||||||
| 49,617 | 46,201 | 47,828 | ||||||||||
| $ | 83,832 | $ | 84,288 | $ | 74,840 | |||||||
See Notes to Financial Statements.
3
S & K FAMOUS BRANDS, INC.
Statements of Cash Flows
Increase (Decrease) in Cash
(in thousands) (unaudited)
| Three Months Ended |
||||||||
| May 1, 2004 |
May 3, 2003 |
|||||||
| Cash flows from operating activities: |
||||||||
| Net income |
$ | 1,772 | $ | 1,529 | ||||
| Adjustments to reconcile net income to net cash provided by (used for) operating activities: |
||||||||
| Depreciation and amortization |
924 | 907 | ||||||
| (Gain) loss on property dispositions, net |
(2 | ) | 10 | |||||
| Changes in assets and liabilities: |
||||||||
| Accounts receivable |
79 | 56 | ||||||
| Merchandise inventories |
(8,735 | ) | (8,944 | ) | ||||
| Other current and non-current assets |
(163 | ) | 219 | |||||
| Accounts payable and accrued expenses |
6,295 | 4,449 | ||||||
| Current and deferred income taxes |
1,010 | 964 | ||||||
| Other long-term liabilities |
160 | 46 | ||||||
| Net cash provided by (used for) operating activities |
1,340 | (764 | ) | |||||
| Cash flows from investing activities: |
||||||||
| Capital expenditures |
(689 | ) | (341 | ) | ||||
| Premium payments under life insurance policies |
(4 | ) | (38 | ) | ||||
| Net cash used for investing activities |
(693 | ) | (379 | ) | ||||
| Cash flows from financing activities: |
||||||||
| Repayment under line of credit and real estate debt |
(101 | ) | (100 | ) | ||||
| Purchase of common stock |
(143 | ) | (678 | ) | ||||
| Net cash used for financing activities |
(244 | ) | (778 | ) | ||||
| Net increase (decrease) in cash & cash equivalents |
403 | (1,921 | ) | |||||
| Cash & cash equivalents at beginning of period |
2,384 | 5,114 | ||||||
| Cash & cash equivalents at end of period |
$ | 2,787 | $ | 3,193 | ||||
| Supplemental cash flow information: |
||||||||
| Cash paid during the period for interest |
$ | 42 | $ | 67 | ||||
| Cash paid during the period for income taxes, net |
75 | — | ||||||
| Non-cash financing activity – |
||||||||
| Principal forgiveness on Stock Purchase Loan Plan |
10 | 10 | ||||||
| Issuances of common stock |
150 | 155 | ||||||
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 most recent annual report to shareholders (the “2003 Annual Report”) and its Annual Report on Form 10-K for the fiscal year ended January 31, 2004 (the “10-K”).
The Company’s significant accounting policies are described in Note 1 to the Financial Statements contained in the 2003 Annual Report. The application of these policies may require management to make judgments and estimates about the amounts reflected in the financial statements. Management uses historical experience and all available information to make these estimates and judgments, and different amounts could be reported using different assumptions and estimates.
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 are not necessarily indicative of the results for the entire fiscal year.
C. Stock Based Compensation
In the fourth quarter of fiscal 2004, the Company adopted the fair value provisions of Statement of Financial Accounting Standards (SFAS) No. 123, “Accounting for Stock-Based Compensation,” on a prospective basis for all new grants of equity instruments (which would include performance awards and stock options) effective February 2, 2003. Prior to fiscal 2004, the Company accounted for those plans under the recognition and measurement provisions of Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees” (APB No. 25) and related interpretations. The following table illustrates the effect on net income and earnings per share if the fair value based method had been applied to all outstanding and unvested awards for the three months ended May 1, 2004 and May 3, 2003.
5
| 3 months ended |
||||||||
| (in thousands except per share amounts)
|
May 1, 2004 |
May 3, 2003 |
||||||
| Net income, as reported |
$ | 1,772 | $ | 1,529 | ||||
| Add: Stock-based compensation expense included in reported net income, net of taxes |
91 | 32 | ||||||
| Deduct: Total stock-based compensation expense determined under the fair value based method for all awards, net of taxes |
(104 | ) | (57 | ) | ||||
| Pro forma net income |
$ | 1,759 | $ | 1,504 | ||||
| Basic earnings per share: |
||||||||
| As reported |
$ | 0.71 | $ | 0.62 | ||||
| Pro forma |
0.71 | 0.61 | ||||||
| Diluted earnings per share: |
||||||||
| As reported |
$ | 0.67 | $ | 0.61 | ||||
| Pro forma |
0.66 | 0.60 | ||||||
D. Expansion
Since January 31, 2004, the Company has opened four new stores: Tuscaloosa, Alabama (3,535 square feet); Durham, North Carolina (3,726 square feet); Myrtle Beach, South Carolina (3,513 square feet); and Stafford, Virginia (3,600 square feet) and closed one store in Tuscaloosa, Alabama (3,300 square feet), which was a relocation. The profit impact of the closing was not significant to the Company’s financial position or results of operations.
E. Other Matters
During the first quarter of fiscal 2005, the Company issued 7,816 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 $150,000. This $150,000 expense was accrued in fiscal 2004.
F. New Accounting Pronouncements
In early 2004, the Financial Accounting Standards Board (“FASB”) proposed FASB Staff Position No. FAS 106-b, “Accounting and Disclosure Requirements Related to the Medicare Prescription Drug, Improvement and Modernization Act of 2003.” Should this proposal be approved, it is not expected to have any impact on the Company’s financial statements.
6
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 2005 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 1, 2004 Compared to Three Months Ended May 3, 2003
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 1, 2004 and May 3, 2003.
| Percentage of Net Sales |
||||||