SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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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 March 31, 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 April 30, 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
Page
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Item 1 - Condensed Consolidated Financial Statements (Unaudited):
Condensed Consolidated Balance Sheets.................................................. 3
Condensed Consolidated Statements of Operations........................................ 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.......................................................................... 6-7
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
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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) March 31, December 30,
2001 2000
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ASSETS
Current assets
Cash $ 779 $ 814
Accounts receivable 622 740
Inventories, net 38,845 38,187
Prepaid expenses and other 1,268 941
------------- -------------
Total current assets 41,514 40,682
Property and equipment, net 5,149 5,284
Other assets 949 949
------------- -------------
Total assets $47,612 $46,915
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable $ 9,069 $ 8,750
Accrued expenses 1,721 2,028
Current portion of capital lease obligations 15 15
------------- -------------
Total current liabilities 10,805 10,793
Long-term debt 14,695 13,975
Deferred rent 1,881 1,883
Capital lease obligations, less current portion 43 47
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Total liabilities 27,424 26,698
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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 6,214 6,243
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Total stockholders' equity 20,188 20,217
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Total liabilities and stockholders' equity $47,612 $46,915
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See notes to condensed consolidated financial statements.
3
Shoe Pavilion, Inc.
Condensed Consolidated Statements of Operations
(Unaudited)
(In thousands, except per share and number of stores)
First Quarter Ended
--------------------------------
March 31, April 1,
2001 2000
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Net sales $19,363 $19,322
Cost of sales and related occupancy expenses 13,708 13,235
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Gross profit 5,655 6,087
Selling, general and administrative expenses 5,415 5,521
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Income from operations 240 566
Interest expense 295 190
Other (income) expense, net (6) (1)
-------------- --------------
Income (loss) before taxes (49) 377
Income tax provision (benefit) (20) 148
-------------- --------------
Net income (loss) $ (29) $ 229
============== ==============
Earnings (loss) per share:
Basic $ 0.00 $ 0.03
Diluted $ 0.00 $ 0.03
Weighted average shares outstanding:
Basic 6,800 6,800
Diluted 6,800 6,801
Stores operated at end of period 118 111
See notes to condensed consolidated financial statements.
4
Shoe Pavilion, Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(In thousands)
First Quarter Ended
------------------------------------
March 31, April 1,
2001 2000
----------- -----------
Operating activities:
Net income (loss) $ (29) $ 229
Adjustments to reconcile net income (loss) to net cash
used by operating activities
Depreciation and amortization 385 347
Effect of changes in:
Inventories (658) (6,027)
Accounts receivables 118 53
Prepaid expenses and other (327) (252)
Accounts payable 319 3,957
Accrued expenses and deferred rent (309) (553)
----------- -----------
Net cash used by operating activities (501) (2,246)
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Investing activity:
Purchase of property and equipment (250) (249)
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Financing activities:
Borrowings on credit facility, net 720 2,334
Principal payments on capital leases (4) (4)
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Net cash provided by financing activities 716 2,330
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Net decrease in cash (35) (165)
Cash, beginning of period 814 929
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Cash, end of period $ 779 $ 764
=========== ===========
See notes to condensed consolidated financial statements.
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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 first quarter ended March 31, 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 March 31, 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 March 31, 2001, the Company operated 80 retail stores
in California, Washington, Oregon and Oklahoma 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
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Company or Gordmans gives the other party written notice on or before January 1,
2002, that they do not intend to renew the agreement.
Results of Operations
Net sales increased 0.2% to $19.4 million for the quarter ended March 31, 2001
from $19.3 million for the comparable period in 2000. This increase in net sales
is attributable to the increase in new store net sales of $1.1 million which was
substantially offset by the decrease in comparable store net sales of 2.4% and
store closings.
Gross profit decreased 7.1% to $5.7 million for the quarter ended March 31, 2001
from $6.1 million for the same period in 2000 and decreased as a percentage of
net sales to 29.2% from 31.5%. The decrease in gross profit as a percentage of
net sales was primarily attributable to an increase in inventory reserves, and
higher merchandise costs and base rent expense as a percentage of net sales.
Selling, general and administrative expenses decreased 1.9% to $5.4 million for
the quarter ended March 31, 2001 from $5.5 million for the comparable period in
2000 and decreased as a percentage of net sales to 28.0% from 28.6%. The
decrease in selling, general and administrative expenses is principally due to a
reduction in advertising expense as well as an overall reduction in selling,
general and administrative expenses, offset slightly by an increase in sales
payroll. Sales payroll increased during the quarter principally due to the
increase in the number of new stores.
Interest expense increased 55.3% to $295,000 for the quarter ended March 31,
2001 from $190,000 for the comparable period in 2000. The increase was
attributable to higher average borrowings on the Company's revolving line of
credit to support increased inventory levels.
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 quarter ended March 31, 2001 totaled $501,000
and was primarily used to fund increased inventory levels. Net cash, provided by
financing activities, for the quarter ended March 31, 2001 totaled $716,000
consisting principally of net borrowings on the Company's line of credit.
Capital expenditures for the quarter ended March 31, 2001 were $250,000. These
expenditures were principally related to the build-out of two new stores and two
leased departments and the remodeling of three stores. During the remainder of
the Company's fiscal year 2001, 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 June 1, 2002.
As of March 31, 2001, the unused and available portion of the credit facility
was approximately $4.1 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.
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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.
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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:
None.
(b) Reports on Form 8-K filed during the quarter ended March 31, 2001:
None.
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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 11th day of May 2001.
SHOE PAVILION, INC., as Registrant
By /s/ Dmitry Beinus
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Dmitry Beinus
Chairman and Chief Executive Officer
By /s/ John D. Hellmann
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John D. Hellmann
Vice President and Chief Financial Officer
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