BELK INC - 10-Q Quarterly Report

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934.

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934.

Indicate by check þ 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

Indicate by check þ whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

At September 1, 2004, the registrant had issued and outstanding 50,296,681 shares of class A common stock and 1,274,980 shares of class B common stock.


	Page
	Number
PART I. FINANCIAL INFORMATION

Item 1. Financial Statements (unaudited)

Condensed Consolidated Statements of Income for the Three and Six Months Ended July 31, 2004 and August 2, 2003		4

Consolidated Balance Sheets as of July 31, 2004 and January 31, 2004		5

Consolidated Statement of Changes in Stockholders’ Equity and Comprehensive Income for the Six Months Ended July 31, 2004		6

Condensed Consolidated Statements of Cash Flows for the Six Months Ended July 31, 2004 and August 2, 2003		7

Notes to Consolidated Financial Statements		8

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		12

Item 3. Quantitative and Qualitative Disclosures About Market Risk		15

Item 4. Controls and Procedures		15

PART II. OTHER INFORMATION

Item 1. Legal Proceedings		16

Item 2. Changes in Securities, Use of Proceeds and Issuer Repurchases of Equity Securities		16

Item 3. Defaults upon Senior Securities		16

Item 4. Submission of Matters to a Vote of Security Holders		16

Item 5. Other Information		16

Item 6. Exhibits and Reports on Form 8-K		16

Certain statements made in this report, and other written or oral statements made by or on behalf of the Company, may constitute “forward-looking statements” within the meaning of the federal securities laws. Statements regarding future events and developments and the Company’s future performance, as well as our expectations, beliefs, plans, estimates or projections relating to the future, are forward-looking statements within the meaning of these laws. You can identify these forward-looking statements through our use of words such as “may,” “will,” “intend,” “project,” “expect,” “anticipate,” “believe,” “estimate,” “continue” or other similar words. Forward-looking statements include information concerning possible or assumed future results from merchandising, marketing and advertising in our stores and through the internet, our ability to be competitive in the retail industry, our ability to execute profitability and efficiency strategies, our ability to execute our growth strategies and achieve anticipated results in our new and expanded stores, the expected benefit of our new systems and technology, the expected increase in our sales and revenues generated through our proprietary charge card program and anticipated benefits from the consolidation of our merchandising, marketing and merchandise planning and allocation function. These forward-looking statements are subject to certain risks and uncertainties that may cause our actual results to differ significantly from the results we discuss in such forward-looking statements. We believe that these forward-looking statements are reasonable. However, you should not place undue reliance on such statements.

For a detailed description of the risks and uncertainties that might cause our results to differ from those we project in our forward-looking statements, we refer you to the section captioned “This Report Contains Forward-Looking Statements” in our Annual Report on Form 10-K for the fiscal year ended January 31, 2004 that we filed with the Securities and Exchange Commission (“SEC”) on April 15, 2004. Our other filings with the SEC may contain additional information concerning the risks and uncertainties listed above, and other factors you may wish to consider. Upon request, we will provide copies of these filings to you free of charge.

Our forward-looking statements are based on current expectations and speak only as of the date of such statements. We undertake no obligation to publicly update or revise any forward-looking statement, even if future events or new information may impact the validity of such statements.

BELK, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(dollars in thousands, except per share amounts)


	Three Months Ended						Six Months Ended
	July 31,			August 2,			July 31,			August 2,
	2004			2003			2004			2003
Revenues	$	536,375		$	492,087		$	1,086,490		$	994,801
Cost of goods sold (including occupancy and buying expenses)		359,977			333,747			723,200			671,950
Selling, general and administrative expenses		144,197			135,093			284,527			268,042
Store closing costs		—			—			373			—

Operating income		32,201			23,247			78,390			54,809
Interest expense, net		(8,672	)		(9,961	)		(17,740	)		(19,264	)
Gain (loss) on property, equipment and investments		(111	)		827			(271	)		860
Other income, net		68			25			365			164

Income before income taxes		23,486			14,138			60,744			36,569
Income taxes		8,550			5,200			22,110			13,550

Net Income	$	14,936		$	8,938		$	38,634		$	23,019


Basic and diluted net income per share	$	0.29		$	0.17		$	0.75		$	0.43


Weighted average shares outstanding		51,705,513			52,376,231			51,829,689			53,497,126


	July 31,			January 31,
	2004			2004
Assets
Current assets:
Cash and cash equivalents	$	150,677		$	166,071
Accounts receivable, net		273,399			311,141
Merchandise inventory		525,545			496,242
Prepaid income taxes		8,645			98
Prepaid expenses and other current assets		18,693			17,188

Total current assets		976,959			990,740
Investment securities		7,028			6,975
Property and equipment, net		732,600			702,682
Pension assets		4,349			4,487
Other assets		28,272			25,379

Total assets	$	1,749,208		$	1,730,263


Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$	174,676		$	160,013
Accrued liabilities		124,057			100,801
Accrued income taxes		—			36,499
Deferred income taxes		1,229			785
Note payable		125,355			—
Current installments of long-term debt and capital lease obligations		8,143			7,848

Total current liabilities		433,460			305,946
Deferred income taxes		29,030			18,540
Long-term debt and capital lease obligations, excluding current installments		172,275			300,640
Interest rate swap liability		20,906			35,367
Deferred compensation and other noncurrent liabilities		105,206			100,271

Total liabilities		760,877			760,764

Stockholders’ equity:
Preferred stock		—			—
Common stock, 51.4 and 51.9 million shares issued and outstanding as of July 31, 2004 and January 31, 2004, respectively		514			519
Paid-in capital		525,467			530,612
Retained earnings		531,656			517,721
Accumulated other comprehensive loss		(69,306	)		(79,353	)

Total stockholders’ equity		988,331			969,499

Total liabilities and stockholders’ equity	$	1,749,208		$	1,730,263

BELK, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY
AND COMPREHENSIVE INCOME
(dollars in thousands)


										Accumulated
										Other
	Common			Paid-in			Retained			Comprehensive
	Stock			Capital			Earnings			Loss			Total
Balance at January 31, 2004	$	519		$	530,612		$	517,721		$	(79,353	)	$	969,499
Comprehensive income:
Net income		—			—			38,634			—			38,634
Unrealized loss on investments, net of $12 income tax benefit		—			—			—			(20	)		(20	)
Unrealized gain on interest rate swaps, net of $3,056 income tax expense		—			—			—			5,508			5,508
Amortization of pension asset adjustment, net of $2,678 income tax expense		—			—			—			4,559			4,559

Total comprehensive income														48,681
Cash dividends		—			—			(24,699	)		—			(24,699	)
Common stock issued		2			2,020			—			—			2,022
Repurchase and retirement of common stock		(7	)		(7,165	)		—			—			(7,172	)

Balance at July 31, 2004	$	514		$	525,467		$	531,656		$	(69,306	)	$	988,331

BELK, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)


	Six Months Ended
	July 31,			August 2,
	2004			2003
Cash flows from operating activities:
Net income	$	38,634		$	23,019
Adjustments to reconcile net income to net cash provided by operating activities:
Store closing costs		373			—
Deferred income taxes		14,450			2,125
Depreciation and amortization		46,203			45,983
(Gain) loss on sale of property, equipment & investments		271			(860	)
(Increase) decrease in:
Accounts receivable, net		37,742			56,148
Merchandise inventory		(29,304	)		13,463
Prepaid expenses and other assets		(13,431	)		(1,624	)
Increase (decrease) in:
Accounts payable and accrued liabilities		37,547			17,105
Accrued income taxes		(36,499	)		(24,636	)
Deferred compensation and other liabilities		(1,144	)		77

Net cash provided by operating activities		94,842			130,800

Cash flows from investing activities:
Purchases of investments		(167	)		—
Proceeds from sales of investments		80			2,450
Purchases of property and equipment		(74,544	)		(35,002	)
Proceeds from sales of property and equipment		—			1,421

Net cash used by investing activities		(74,631	)		(31,131	)

Cash flows from financing activities:
Principal payments on notes payable and capital lease obligations		(4,074	)		(5,819	)
Net proceeds from lines of credit		340			—
Dividends paid		(24,699	)		(15,029	)
Repurchase of common stock		(7,172	)		(26,685	)

Net cash used by financing activities		(35,605	)		(47,533	)

Net (decrease) increase in cash and cash equivalents		(15,394	)		52,136
Cash and cash equivalents at beginning of period		166,071			91,286

Cash and cash equivalents at end of period	$	150,677		$	143,422

Supplemental schedule of noncash investing and financing activities:
Increase in property and equipment through assumption of capital leases	$	1,019		$	—

BELK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands)

The accompanying unaudited consolidated financial statements of Belk, Inc. and subsidiaries (the “Company”) have been prepared in accordance with the instructions to Form 10-Q promulgated by the Securities and Exchange Commission and should be read in conjunction with the Notes to Consolidated Financial Statements (pages 28-44) in our Annual Report on Form 10-K for the fiscal year ended January 31, 2004. In the opinion of management, this information is fairly presented and all adjustments (consisting only of normal recurring adjustments) necessary for a fair presentation of the results for the interim periods have been included; however, certain items are included in these statements based on estimates for the entire year. Also, operating results in periods which exclude the Christmas season may not be indicative of the operating results that may be expected for the full fiscal year.

Certain prior period amounts have been reclassified to conform with current year presentation.


	Three Months Ended					Six Months Ended
	July 31,		August 2,			July 31,			August 2,
	2004		2003			2004			2003
Net income	$	14,936	$	8,938		$	38,634		$	23,019
Other comprehensive income (loss):
Net change in fair value of interest rate swaps, net of $496 and $3,146 income tax expense for the three months and six months ended July 31, 2004, respectively and $5,462 and $4,446 income tax expense for the three and six months ended August 2, 2003, respectively		844		9,300			5,356			7,570
Interest rate swap losses reclassified into interest expense from other comprehensive income, net of $45 and $90 income tax benefit for the three and six months ended July 31, 2004, respectively and $56 and $112 income tax benefit for the three and six months ended August 2, 2003, respectively		76		96			152			192
Unrealized gain (loss) on investments, net of $55 income tax expense and $12 income tax benefit for the three and six months ended July 31, 2004, respectively and $140 and $280 income tax expense for the three and six months ended August 2, 2003, respectively		94		238			(20	)		477
Reclassification adjustment for investment gains included in net income, net of $77 income tax expense for the three and six months ended August 2, 2003		—		(131	)		—			(131	)
Amortization of pension asset adjustment, net of $1,339 and $2,678 income tax expense for the three and six months ended July 31, 2004, respectively		2,280		—			4,559			—

Other comprehensive income		3,294		9,503			10,047			8,108

Total comprehensive income	$	18,230	$	18,441		$	48,681		$	31,127

BELK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands)

The following table sets forth the components of accumulated other comprehensive loss:


	July 31,			January 31,
	2004			2004
Unrealized loss on interest rate swaps, net of $6,062 and $9,926 income tax benefit as of July 31, 2004 and January 31, 2004, respectively	$	(10,322	)	$	(15,831	)
Unrealized gains on investments, net of $937 and $948 income tax expense as of July 31, 2004 and January 31, 2004, respectively		1,618			1,640
Pension asset adjustment, net of $35,592 and $38,269 income tax expense as of July 31, 2004 and January 31, 2004, respectively		(60,602	)		(65,162	)

Accumulated other comprehensive loss	$	(69,306	)	$	(79,353	)

Customer receivables arise primarily under open-end revolving credit accounts used to finance purchases of merchandise from the Company. These accounts have various billing and payment structures, including varying minimum payment levels. Installments of deferred payment accounts receivable maturing after one year are included in current assets in accordance with industry practice.

The Company’s note purchase agreement among the Company, The Belk Center, Inc., Enterprise Funding Corporation and Bank of America, as amended, (the “Note Payable”) expires on April 5, 2005 and, accordingly, the outstanding balance as of July 31, 2004 of $125 million has been included in current liabilities. However, the Note Payable may be renewed by mutual consent of the parties, and it is the Company’s intent to renew the facility and utilize it as long-term financing.

In December 2003, the Financial Accounting Standards Board (“FASB”) revised Statement of Financial Accounting Standards No. 132, “Employers’ Disclosures about Pensions and Other Postretirement Benefits” (“Revised Statement 132”). Revised Statement 132 revises employers’ required disclosures about pension plans and other postretirement benefit plans. It does not change the measurement or recognition of those plans required by FASB Statements No. 87, “Employers’ Accounting for Pensions,” No. 88, “Employers’ Accounting for Settlements and Curtailments of Defined Benefit Pension Plans and for Termination Benefits” and No. 106, “Employers’ Accounting for Postretirement Benefits Other Than Pensions” (“Statement 106”). Revised Statement 132 requires disclosures in addition to those in the original FASB Statement No. 132. The interim-period disclosures required by Revised Statement 132 are effective for interim periods beginning after

BELK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands)

December 15, 2003. The Company adopted the interim disclosure requirements set forth in Revised Statement 132 for the first quarter of fiscal year 2005.

In May 2004, the FASB issued Staff Position FAS 106-2, “Accounting and Disclosure Requirements Relating to the Medicare Prescription Drug, Improvement and Modernization Act of 2003.” The Company offers an access-only prescription drug plan to retirees and therefore the adoption of the provisions under Staff Position FAS 106-2 did not have an impact on the Company’s consolidated financial position or results of operations.

The Company has a defined benefit pension plan covering substantially all of its employees. The benefits are based on years of service and the employee’s compensation. The Company also has a defined benefit health care plan that provides postretirement medical and life insurance benefits to certain retired full-time employees.


	Three Months Ended
	Pension Plan						Postretirement Plan
	July 31,			August 2,			July 31,			August 2,
	2004			2003			2004			2003
Service cost	$	2,763		$	2,880		$	53		$	73
Interest cost		5,319			5,158			384			483
Expected return on plan assets		(6,558	)		(6,634	)		—			—
Amortization of transition obligation		—			—			65			65
Amortization of prior service cost		69			69			—			—
Amortization of the net (gain) loss		2,095			918			(124	)		(69	)

Net periodic benefit expense	$	3,688		$	2,391		$	378		$	552


	Six Months Ended
	Pension Plan						Postretirement Plan
	July 31,			August 2,			July 31,			August 2,
	2004			2003			2004			2003
Service cost	$	5,526		$	5,760		$	107		$	145
Interest cost		10,637			10,316			768			965
Expected return on plan assets		(13,117	)		(13,268	)		—			—
Amortization of transition obligation		—			—			131			131
Amortization of prior service cost		138			138			—			—
Amortization of the net (gain) loss		4,191			1,836			(249	)		(138	)

Net periodic benefit expense	$	7,375		$	4,782		$	757		$	1,103

The Company previously disclosed in its financial statements for the fiscal year ended January 31, 2004, that it did not expect to contribute to its pension plan in fiscal year 2005. As of July 31, 2004, there have been no contributions to the pension plan, and the Company does not anticipate any contributions for the remainder of the current fiscal year.

(8) Curtailment and Settlement of Defined Benefit Supplemental Executive Retirement Plan

On April 1, 2004, certain participants elected to waive their benefits in the Company’s non-qualified defined benefit supplemental executive retirement plan in exchange for participation in the Company’s new non-qualified defined contribution 2004 Supplemental Executive Retirement Plan. This election resulted in the curtailment and settlement of their benefits in the defined benefit plan. The Company recognized a net charge of $1.9 million in selling, general and administrative expenses in the first quarter of fiscal year 2005 related to the curtailment and settlement.

BELK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands)

During the first quarter of fiscal year 2005, the Company terminated two interest rate swaps with a total notional value of $50 million. The interest rate swaps had previously been dedesignated as cash flow hedges during the third quarter of fiscal year 2004.

On June 14, 2004, the Company repurchased 643,071 shares of outstanding Class A common stock at a cost of $7.2 million.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations:

Belk, together with its subsidiaries, is the largest privately owned department store business in the United States, with total revenues of approximately $2.26 billion for the fiscal year ended January 31, 2004. The Company and its predecessors have been successfully operating department stores since 1888 by seeking to provide superior service and merchandise that meets customers’ needs for fashion, value and quality.

The Company’s fiscal year ends on the Saturday closest to each January 31. All references to “fiscal year 2005” refer to the fiscal year ending January 29, 2005 and all references to “fiscal year 2004” refer to the period ended January 31, 2004.

As of the end of its second quarter of fiscal year 2005, the Company operated 225 retail department stores in 13 states primarily in the southeastern United States. Belk stores seek to provide customers the convenience of one-stop shopping, with an appealing merchandise mix and extensive offerings of brands, styles, assortments and sizes. Belk stores sell top national brands of fashion apparel, shoes and accessories for women, men and children, as well as cosmetics, home furnishings, housewares, gifts and other types of quality merchandise. The Company also sells exclusive private label brands, which offer customers differentiated merchandise selections at better values. Larger Belk stores may include hair salons, spas, restaurants, optical centers and other amenities.

Belk’s mission is to be the dominant department store in its markets by selling merchandise to customers that meets their needs for fashion, selection, value, quality and service. To achieve this mission, Belk’s business strategy includes five key elements: (1) a target customer focus; (2) focused merchandise assortments; (3) compelling sales promotions; (4) distinctive customer service; and (5) a winning store and market strategy.

The Company operates retail department stores in the highly competitive retail apparel industry. The Company’s primary competitors are traditional department stores, mass merchandisers, national apparel chains, individual specialty apparel stores and direct merchant firms. In addition to intense competition, the retail industry has experienced downward sales pressure in recent years due primarily to national, regional and local economic conditions.

Management believes that significant opportunities for growth exist in Belk markets where the Belk name and reputation are well known and in contiguous markets where Belk can distinguish its stores from the competition. Although the Company will continue to take advantage of prudent opportunities to expand into large markets, the Company will focus its expansion in medium-sized markets with store units in the 50,000 to 80,000 square-foot size range. One of the more significant challenges currently facing the Company’s management is to continue to identify new Belk markets and to effectively increase the Company’s net store selling square footage. In fiscal year 2004, the Company increased net store selling square footage by 343,700 square feet, or 2.4%, and plans to expand by an additional 644,600 square feet, or 4.4%, in fiscal year 2005.

The Company focuses on four key indicators to assess performance and growth. These key indicators are: (1) comparable store sales, (2) gross profit rate, (3) expense rate, and (4) net square footage growth.

The following table sets forth, for the periods indicated, the percentage relationship to revenues of certain items in the Company’s condensed consolidated statements of income, as well as a period comparison of changes in comparable store net revenue.


	Three Months Ended						Six Months Ended
	July 31,			August 2,			July 31,			August 2,
	2004			2003			2004			2003
SELECTED FINANCIAL DATA
Revenues		100.0	%		100.0	%		100.0	%		100.0	%
Cost of goods sold		67.1			67.8			66.6			67.6
Selling, general and administrative expenses		26.9			27.5			26.2			26.9
Operating income		6.0			4.7			7.2			5.5
Interest expense, net		1.6			2.0			1.6			1.9
Income taxes		1.6			1.1			2.0			1.4
Net income		2.8			1.8			3.6			2.3
Comparable store net revenue increase (decrease)		4.9			(2.4	)		5.3			(4.6	)

Comparison of the Three and Six Months Ended July 31, 2004 and August 2, 2003

Revenues. The Company’s revenues for the three months ended July 31, 2004 increased 9.0%, or $44.3 million, to $536.4 million from $492.1 million over the same period in fiscal year 2004. The increase is attributable to a 4.9% increase in revenues from comparable stores and $21.8 million of additional sales from new stores.

The Company’s revenues for the six months ended July 31, 2004 increased 9.2%, or $91.7 million, to $1,086.5 million from $994.8 million over the same period in fiscal year 2004. The increase is attributable to a 5.3% increase in revenues from comparable stores and $44.4 million of additional sales from new stores.

As disclosed in the Company’s Annual Report on Form 10-K for the fiscal year ended January 31, 2004, which was filed on April 15, 2004, comparable store sales no longer exclude replacement and expansion stores. Non-comparable stores include only closing stores and new stores that have not reached the one-year anniversary of their opening prior to the beginning of the fiscal year in which they were constructed. The Company believes this revised measure is a more accurate indicator of existing store performance and is a common basis used by other retailers in the reporting of their results. The Company has revised the previous year’s comparable store net revenue decrease to conform with this new definition.

Cost of goods sold. As a percentage of revenues, cost of goods sold decreased to 67.1% and 66.6% for the three months and six months ended July 31, 2004, respectively, compared to 67.8% and 67.6% for the same periods in fiscal year 2004. The decrease is primarily attributable to improved margin on inventory purchases, a 0.16% and 0.17% reduction in buying expenses as a percentage of revenues for the three and six months ended July 31, 2004, respectively, and a 0.03% and 0.11% reduction in occupancy expenses as a percentage of revenues over the same time period in fiscal year 2004. Although the majority of expenses included in cost of goods sold are variable with sales, increasing sales volumes, improved expense leverage and certain non-variable costs, primarily the buying and occupancy expenses noted above, did not increase to the same extent as revenues.

Selling, general and administrative expenses. As a percent of revenues, selling, general and administrative (“SG&A”) expenses decreased to 26.9% for the three months ended July 31, 2004 compared to 27.5% for the same period in fiscal year 2004. The decrease resulted primarily from a decrease in depreciation expense as a percentage of revenues of approximately 0.29%, an increase in credit and finance charge income as a percentage of revenues of 0.18% and a decrease in bad debt expense as a percentage of revenues of 0.15%

As a percentage of revenues, selling, general and administrative (“SG&A”) expenses decreased to 26.2% for the six months ended July 31, 2004 compared to 26.9% for the same period in fiscal year 2004. The decrease resulted primarily from a decrease in depreciation expense as a percentage of revenues of approximately 0.38%, a decrease in payroll as a percentage of revenues of 0.24% and a decrease in bad

debt expense as a percentage of revenues of 0.23%. These decreases were partially offset by a $1.9 million charge recognized in the first quarter of fiscal year 2005 for the curtailment and settlement of the Company’s defined benefit supplemental executive retirement plan.

Store closing costs. The Company incurred $0.4 million in store closing costs in the first quarter of fiscal year 2005 related to the post-closing real estate holding costs for three stores located in Lenoir, North Carolina and Beaufort and Myrtle Beach, South Carolina.

Net income. As a percentage of revenues, net income increased to 2.8% and 3.6% for the three months and six months ended July 31, 2004, respectively, compared to 1.8% and 2.3% for the same periods in fiscal year 2004. The increase was primarily due to the changes discussed above.

The retail business is highly seasonal with approximately one-third of annual revenues being generated in the fourth quarter, which includes the Christmas selling season. As a result, a disproportionate amount of the Company’s operating and net income is realized during the fourth quarter and significant variations can occur when comparing the Company’s financial condition between quarters.

The Company’s primary sources of liquidity are cash on hand, cash flow from operations, and borrowings under debt facilities. The Company’s debt facilities consist of a $250 million variable rate note, a $125 million ten-year variable rate bond facility, a $200 million revolving line of credit and a $126.8 million standby letter of credit.

The $250 million variable rate note is governed by a note payable agreement that expires on April 5, 2005 and, accordingly, the outstanding balance as of July 31, 2004 of $125.4 million has been included in current liabilities. However, the note payable agreement is renewable by mutual consent of the parties, and the Company intends to renew the facility and utilize it as long-term financing. The $200 million revolving line of credit is governed by a credit agreement that expires on July 31, 2005. The $126.8 million standby letter of credit also expires on July 31, 2005. Prior to July 31, 2005, the Company intends to replace the existing revolving line of credit and standby letter of credit with a facility that provides a comparable source of liquidity.

Net cash provided by operating activities decreased $36.0 million to $94.8 million for the six months ended July 31, 2004 from $130.8 million for the six months ended August 2, 2003. The decrease in cash provided by operating activities for the first six months of fiscal year 2005 was principally due to higher levels of inventory purchases, attributable to the addition of new stores and higher comparable store sales during the first six months of fiscal year 2005, and increased income tax payments, due to higher net income in fiscal year 2004.

Expenditures for property and equipment increased $39.5 million to $74.5 million for the six months ended July 31, 2004 from $35.0 million for the same time period in fiscal year 2004. The increase was principally due to the addition of four new stores and three replacement stores in the first six months of fiscal year 2005, as compared to the addition of one new store during the same time period in fiscal year 2004.

During the six months ended July 31, 2004, the Company opened seven new stores in Waco, Kerrville, and Sherman, Texas; Beaufort and Myrtle Beach, South Carolina; Mandeville, Louisiana; and Lenoir, North Carolina. The Texas and Louisiana stores are in new markets for the Company and the other new stores are replacements of stores in existing markets. The Company also completed the expansion of two stores in Corinth, Mississippi and Cullman, Alabama during the first six months of fiscal year 2005.

Net cash used by financing activities decreased $11.9 million to $35.6 million for the six months ended July 31, 2004 from $47.5 million for the six months ended August 2, 2003. This decrease resulted from lower levels of common stock repurchases in the first six months of fiscal year 2005 compared to the same period in fiscal year 2004, partially offset by a higher dividend per share amount attributable to a special one-time dividend paid in fiscal 2004.

Management of the Company believes that cash flows from operations and the existing credit facilities will be sufficient to cover working capital needs, capital expenditures and debt service requirements for at least the next twelve months.

A table representing the scheduled maturities of the Company’s contractual obligations and commercial commitments as of January 31, 2004 was included under the heading “Contractual Obligations and Commercial Commitments” on page 17 of the Company’s fiscal year 2004 Annual Report on Form 10-K filed with the Securities and Exchange Commission on April 15, 2004. To facilitate an understanding of the significant changes in the Company’s commercial commitments, which occur in the normal course of business, the following data has been updated as of July 31, 2004.


	Amount of Commitment Expiration per Period (in thousands)
	Total Amounts
Other Commercial Commitments	Committed		Within 1 Year		2 - 3 Years		4 - 5 Years		After 5 Years
Standby Letters of Credit (a)	$	133,849	$	133,849	$	—	$	—	$	—
Import Letters of Credit		40,982		40,982		—		—		—

Total Commercial Commitments	$	174,831	$	174,831	$	—	$	—	$	—

(a) Standby letters of credit include a $126.8 million facility that supports the ten-year bonds (accrued principal and interest) due July 2008.

There have been no other material changes to the Company’s quantitative and qualitative market risk disclosures during the six months ended July 31, 2004 from the disclosures contained in the Company’s Annual Report on Form 10-K for the fiscal year ended January 31,2004.

Disclosure controls and procedures are the Company’s controls and other procedures that are designed to ensure that information required to be disclosed in the reports that the Company files or submits under the Securities Exchange Act of 1934, as amended, (the “Exchange Act”) is recorded, processed, summarized and reported, within the time periods specified in SEC rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in the reports that the Company files under the Exchange Act is accumulated and communicated to management, including the Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

As of the end of the period covered by this report, the Company has evaluated under the supervision and with the participation of the Company’s management, including the Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Exchange Act). Based on the evaluation, the CEO and CFO have concluded that the Company’s disclosure controls and procedures are effective to ensure that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms.

During the period covered by this report, there were no changes or corrective actions in the Company’s internal control over financial reporting that materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

In the ordinary course of business, the Company is subject to various legal proceedings and claims. The Company believes that the ultimate outcome of these matters will not have a material effect on its financial statements.

Item 2. Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities

The following table contains information about our purchases of our equity securities during the second quarter of fiscal year 2005.


						Total Number of		Approximate Dollar
						Shares Purchased		Value of Shares
						as Part of		that May Yet Be
	Total Number of			Average Price Paid		Publicly Announced		Purchased Under the
Period	Shares Purchased			per Share		Plans or Programs		Plans or Programs
May 2 - May 29, 2004		—		$	—		—		—
May 30 - July 3, 2004		643,071	⁽¹⁾		11.15		—		—
July 4 - July 31, 2004		—			—		—		—

Total		643,071		$	11.15		—		—

(1) The Company repurchased 643,071 shares from Davidson College in connection with the retirement of John M. Belk.


3.1		Form of Amended and Restated Certificate of Incorporation of the Company (incorporated by reference to pages B-24 to B-33 of the Company’s Registration Statement on Form S-4, filed on March 5, 1998 (File No. 333-42935)).

3.2		Form of Second Amended and Restated Bylaws of the Company (incorporated by reference to Exhibit 3.2 of the Company’s Annual Report on Form 10-K for the fiscal year ended January 31, 2004).


4.1		Articles Fourth, Fifth and Seventh of the Amended and Restated Certificate of Incorporation of the Company (incorporated by reference to pages B-24 to B-33 of the Company’s Registration Statement on Form S-4, filed on March 5, 1998 (File No. 333-42935)).

4.2		Articles I and IV of the Second Amended and Restated Bylaws of the Company (incorporated by reference to Exhibit 3.2 of the Company’s Annual Report on Form 10-K for the fiscal year ended January 31, 2004).

31.1		Certification of the Chief Executive Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934, as amended, as adopted under Section 302 of the Sarbanes-Oxley Act of 2002.

31.2		Certification of the Chief Financial Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934, as amended, as adopted under Section 302 of the Sarbanes-Oxley Act of 2002.

32.1		Certification of the Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2		Certification of the Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

A current report on Form 8-K dated May 26, 2004, contained disclosure under Item 5, “Other Events and Required FD Disclosure”, Item 7, “Financial Statements, Pro Forma Financial Information and Exhibits”, and Item 12, “Results of Operations and Financial Condition.”

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


Delaware		56-2058574

(State or Other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification No.)

2801 West Tyvola Road, Charlotte, NC		28217-4500

(Address of Principal Executive Offices)		(Zip Code)


	BELK, INC.

Dated: September 9, 2004	By:	/s/ Ralph A. Pitts

		Ralph A. Pitts
		Executive Vice President, General Counsel and
		Corporate Secretary
		(Authorized Officer of the Registrant)

	By:	/s/ Brian T. Marley

		Brian T. Marley
		Executive Vice President and
		Chief Financial Officer