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 June 30, 2001
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 Incorporation (IRS Employer
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 July 31, 2001 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...................................................................... 6-8
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) June 30, December 30,
2001 2000
ASSETS
Current assets
Cash $ 1,066 $ 814
Accounts receivable 293 740
Inventories 33,635 38,187
Prepaid expenses and other 1,054 941
---------------- ------------
Total current assets 36,048 40,682
Property and equipment, net 4,796 5,284
Other assets 949 949
---------------- ------------
Total assets $ 41,793 $ 46,915
================ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable $ 5,843 $ 8,750
Accrued expenses 2,362 2,028
Current portion of capital lease obligations 54 15
---------------- ------------
Total current liabilities 8,259 10,793
Long-term debt 10,600 13,975
Deferred rent 1,800 1,930
---------------- ------------
Total liabilities 20,659 26,698
---------------- ------------
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 7,160 6,243
---------------- ------------
Total stockholders' equity 21,134 20,217
---------------- ------------
Total liabilities and stockholders' equity $ 41,793 $ 46,915
================ ============
See notes to condensed consolidated financial statements.
3
Shoe Pavilion, Inc.
Condensed Consolidated Statements of Income
(Unaudited)
(In thousands, except per share amounts and number of stores)
Thirteen weeks ended Twenty-six weeks ended
----------------------------- ------------------------------
June 30, July 1, June 30, July 1,
2001 2000 2001 2000
Net sales $ 23,604 $ 24,951 $ 42,967 $ 44,273
Cost of sales and related occupancy expenses 15,760 16,400 29,468 29,635
-------------- ------------- --------------- ------------
Gross profit 7,844 8,551 13,499 14,638
Selling, general and administrative expenses 6,078 6,392 11,493 11,913
-------------- ------------- --------------- ------------
Income from operations 1,766 2,159 2,006 2,725
Interest expense 207 233 502 423
Other expense (Income) (18) 31 (24) 30
-------------- ------------- --------------- ------------
Income before taxes 1,577 1,895 1,528 2,272
Income tax provision 631 749 611 897
-------------- ------------- --------------- ------------
Net income $ 946 $ 1,146 $ 917 $ 1,375
============== ============= =============== ============
Earnings per share:
Basic $ 0.14 $ 0.17 $ 0.13 $ 0.20
Diluted $ 0.14 $ 0.17 $ 0.13 $ 0.20
Weighted average shares outstanding:
Basic 6,800 6,800 6,800 6,800
Diluted 6,800 6,801 6,800 6,802
Stores operated at end of period 115 112
See notes to condensed consolidated financial statements.
4
Shoe Pavilion, Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(In thousands)
Twenty-six weeks ended
---------------------------------------
June 30, July 1,
2001 2000
Operating activities:
Net income $ 917 $ 1,375
Adjustments to reconcile net income to net cash
provided (used) by operating activities
Depreciation and amortization 767 693
Loss on disposal of fixed assets 1 40
Effect of changes in:
Inventories 4,552 (6,476)
Accounts receivables 447 431
Prepaid expenses and other (113) (286)
Accounts payable (2,907) (105)
Accrued expenses 251 479
Deferred rent 0 (174)
------------ -----------
Net cash provided (used ) by operating activities 3,915 (4,023)
------------ -----------
Investing activity-
Purchase of property and equipment (280) (447)
Financing activities:
Proceeds from (payments on) line of credit, net (3,375) 4,186
Principal payments on capital leases (8) (7)
------------ -----------
Net cash provided (used) by financing activities (3,383) 4,179
------------ -----------
Net increase (decrease) in cash 252 (291)
Cash, beginning of period 814 929
------------ -----------
Cash, end of period $ 1,066 $ 638
============ ===========
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 December 30, 2000 presented herein has been derived from the
audited financial statements of the Company as of December 30, 2000.
Accounting policies followed by the Company are described in Note 2 to the
audited consolidated financial statements for the year ended December 30, 2000.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with accounting principles generally accepted
in the United States of America 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 December 30, 2000 on Form 10-K.
The results of operations for the thirteen weeks and twenty-six weeks ended June
30, 2001 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. Recently Issued Accounting Standards
On December 31, 2000 the Company adopted Statement of Financial Accounting
Standards No. 133 ("SFAS 133"), "Accounting for Derivative Instruments and
Hedging Activities", as amended by SFAS 137 and SFAS 138. SFAS 133 requires all
derivative financial instruments to be recognized on the balance sheet at fair
value. The effect of adopting SFAS 133 was immaterial. The Company periodically
enters into forward contracts to hedge specific purchases denominated in
currencies other than United States dollars. At June 30, 2001 the Company had no
such contracts outstanding.
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 June 30, 2001, the Company operated 77 retail stores in
California, Washington and Oregon and 38 licensed shoe departments in Colorado,
Illinois, Iowa, Kansas, Missouri, Nebraska, North Dakota, Oklahoma and South
Dakota.
The Company operates and manages the 38 shoe departments pursuant to a licensing
agreement entered into in July 1999 with Gordmans, Inc., a Midwestern department
store chain. The initial term of the agreement shall expire, unless terminated
sooner as provided by the agreement, on June 29, 2002. Upon the expiration of
the initial term, the agreement shall automatically renew for an additional term
of three years, expiring on July 2, 2005 unless either the Company or Gordmans
gives the other party written notice on or before January 1, 2002, that they do
not intend to renew the agreement.
6
Results of Operations
Net sales for the thirteen weeks ended June 30, 2001 decreased 5.4% to $23.6
million, from net sales of $25.0 million for the same period last year. Net
sales for the twenty-six weeks ended June 30, 2001 decreased 2.9% to $43.0
million, from net sales of $44.3 million for the same period last year. The
decrease in net sales for these periods is principally attributable to the
decline in comparable store net sales of 7.5% or $1.6 million and 5.3% or $2.0
million for the thirteen weeks and twenty-six ended June 30, 2001, respectively.
These decreases were partially offset by the increase in new store net sales.
Gross profit for the thirteen weeks ended June 30, 2001 decreased 8.3% to $7.8
million from gross profit of $8.6 million for the same period last year. Gross
profit as a percentage of net sales decreased to 33.2% for the thirteen weeks
ended June 30, 2001 from 34.3% for the same period last year. For the twenty-six
weeks ended June 30, 2001 gross profit decreased 7.8% to $13.5 million, from
gross profit of $14.6 million for the comparable period last year. Gross profit
as a percentage of net sales decreased to 31.4% for the twenty-six weeks ended
June 30, 2001 from 33.1% for the comparable period last year. The decrease in
gross profit as a percentage of net sales for the thirteen weeks and twenty-six
weeks ended June 30, 2001 is principally attributable to the increase in
occupancy costs coupled with the decrease in net sales.
Selling, general and administrative expenses for the thirteen weeks ended June
30, 2001 decreased by $314,000 or 4.9% compared to the same period last year,
but remained relatively unchanged as a percentage of net sales at 25.7% from
25.6%. For the twenty-six weeks ended June 30, 2001, selling, general and
administrative expenses decreased by $420,000 or 3.5% compared to the same
period last year, but remained relatively unchanged as a percentage of net sales
at 26.7% from 26.9%. The decrease in selling, general and administrative
expenses for the thirteen weeks and twenty-six weeks ended June 30, 2001 is
principally due to the reduction in advertising expense and freight, as well as
an overall reduction in selling, general and administrative expenses. During the
twenty-six weeks ended June 30, 2001 these decreases were partially offset by an
increase in sales payroll.
Interest expense decreased 11.1% to $207,000 for the thirteen weeks ended June
30, 2001 from $233,000 for the comparable period in 2000. This decrease was
attributable to a lower average interest rate on the Company's revolving line of
credit. For the twenty-six weeks ended June 30, 2001 interest expense increased
18.7% to $502,000 from $423,000 for the comparable period in 2000. The increase
was attributable to higher average borrowings on the Company's revolving line of
credit.
Liquidity and Capital Resources
The Company has historically funded its cash requirements primarily through cash
flows from operations and borrowings under its credit facility. Net cash
provided by operating activities during the twenty-six weeks ended June 30, 2001
totaled $3.9 million and was primarily generated from a reduction in inventory.
Merchandise inventory decreased $4.6 million to $33.6 million at June 30, 2001
from $38.2 million at December 30, 2000. This decrease in inventory is the
result of the Company's efforts to improve liquidity. Net cash used by financing
activities for the twenty-six weeks ended June 30, 2001 totaled $3.4 million
consisting principally of net payments on the Company's line of credit. Working
capital decreased to $27.8 million at June 30, 2001 from $29.9 million at
December 30, 2000.
7
Capital expenditures for the twenty-six weeks ended June 30, 2001 were $280,000.
These expenditures were principally related to the purchase of fixtures and the
remodeling of existing stores. During the remainder of the Company's fiscal
year 2001, the Company anticipates that cash will be used primarily to acquire
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. On June 1, 2001 the
Commercial bank extended the maturity date of the revolver to June 1, 2003. As
of June 30, 2001, the unused and available portion of the credit facility was
approximately $5.6 million.
The Company believes that operating cash flow and borrowings under its credit
facility will satisfy its cash requirements for at least the next 12 months.
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 year ended December 30, 2000.
8
PART II
OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders.
In April 2001, the Company submitted to shareholders two matters both
of which were approved at the annual meeting held on May 30, 2001. The matters
were: (1) to elect four directors to serve on the board of directors until the
next annual meeting of stockholders and until their successors shall have been
elected; and (2) to ratify the selection of Deloitte & Touche LLP as independent
auditors for the Company.
At the annual meeting, the following directors received the following
votes:
FOR WITHHELD
----- ---------
Dmitry Beinus 5,300,133 169,800
Denise Ellwood 5,300,133 169,800
David H. Folkman 5,300,133 169,800
Peter G. Hanelt 5,300,133 169,800
The shareholders ratified the selection of Deloitte & Touche LLP as independent
auditors for the Company for the fiscal year ending December 29, 2001 with
voting as follows: 5,464,033 For, 4,700 Against, and 1,200 Abstain.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits required to be filed by Item 601 of Regulation S-K:
None
(b) Reports on Form 8-K filed during the quarter ended June 30, 2001:
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 10th day of August 2001.
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