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SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

For the quarterly period ended July 31, 2004

Commission File No. 0-11682

S & K FAMOUS BRANDS, INC.

(Exact name of registrant as specified in its charter)

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 12b-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 July 31, 2004.

2,490,298 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)

See Notes to Financial Statements.

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S & K FAMOUS BRANDS, INC.

Balance Sheets

(In thousands, except per share amounts)

See Notes to Financial Statements.

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S & K FAMOUS BRANDS, INC.

Statements of Cash Flows

Increase (Decrease) in Cash

(In thousands) (unaudited)

See Notes to Financial Statements.

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S & K FAMOUS BRANDS, INC.

Notes to Financial Statements

(unaudited)

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.

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 should not be considered necessarily indicative of the results for the entire fiscal year.

Options to purchase approximately 71,000 shares of common stock at prices ranging from $7.38 to $11.94 per share, and the related effects on income, were excluded from the diluted earnings per share calculation for the three months ended July 31, 2004 because the effect was anti-dilutive.

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 July 31, 2004 and August 2, 2003.

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Since the end of the first quarter the Company has opened three new stores: West Des Moines, Iowa (3,110 square feet), Stafford, Virginia (3,600 square feet) and Charleston, West Virginia (3,600 square feet), relocated one store in Auburn Hills, Michigan (3,500 square feet) and closed six underperforming stores: Dawsonville, Georgia (3,200 square feet); Birch Run, Michigan (3,500 square feet); Buffalo, New York (5,600 square feet); Lancaster, Ohio (3,000 square feet); Memphis, Tennessee (4,000 square feet); and Grapevine, Texas (2,750 square feet).

Year-to-date the Company has opened five new stores, relocated two stores and closed six stores. The profit impact of the closings was not significant to the Company’s financial position or results of operations.

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.

In early 2004, the Financial Accounting Standards Board (“FASB”) adopted FASB Staff Position No. FSP 106-2, “Accounting and Disclosure Requirements Related to the Medicare Prescription Drug, Improvement and Modernization Act of 2003.” This pronouncement does not have any impact on the Company’s financial statements.

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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 Form10-K.

Three Months and Six Months Ended July 31, 2004 Compared to Three Months and Six Months Ended August 2, 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 and six-months ended July 31, 2004 and August 2, 2003.

Net sales in the second quarter of fiscal 2005 decreased 1.6%, or $0.6 million, to $40.5 million compared to $41.1 million for the same period last year. Comparable store sales decreased 4.3% over the same fiscal 2004 period. This decrease was primarily attributable to a reduction in transaction counts and to sluggish sales in the sportcoats and sportswear categories. For the six-month period, net sales increased by 7.3%, or $6.2 million, to $91.4 million compared to $85.1 million last year. Comparable store sales for the six-month period were up 4.6% over last year which was primarily due to stronger sales in suits and to increased average sale. During the second quarter of fiscal 2005 the Company opened two new stores, relocated one store and closed three stores. There were 239 stores in operation at July 31, 2004 and August 2, 2003.

Cost of sales in the second quarter of fiscal 2005 was 55.7% of net sales compared to 54.9% of net sales for the same period last year. The 0.8% of net sales increase in the quarter was primarily due to sales shifting to lower margin categories and to taking higher markdowns to clear seasonal goods, offset in part by lower inventory shrinkage. For the six-month period cost of sales was 55.3% of net sales in fiscal 2005 versus 53.5% of net sales for the same period last year. The 1.8% of net sales increase was primarily due to sales shifting to lower margin categories and to taking higher markdowns designed to increase store traffic and clear seasonal goods.

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Selling, general and administrative expenses in the second quarter of fiscal 2005 were 42.5% of net sales compared to 42.2% of net sales in the same quarter last year. This 0.3% of net sales increase is primarily due to incurring planned occupancy and advertising costs while sales were below expectations. For the first six months in fiscal 2005, selling, general and administrative expenses were 40.0% of net sales compared to 41.2% of net sales last year. The six-month decrease of 1.2% of net sales was due primarily to leveraging planned advertising and occupancy costs on higher sales.

Interest expense in the second quarter of fiscal 2005 was $66,000 or 0.2% of net sales compared to $124,000 or 0.3% of net sales last year. For the six-month period interest expense was $109,000 or 0.1% of net sales versus $218,000 or 0.3% of net sales in fiscal 2004. These decreases were attributable to reductions in long-term debt as the Company repaid over $6.0 million under its Credit Facility in the second half of fiscal 2004.

Other, net in the second quarter was an expense of $67,000 or 0.2% of net sales in fiscal 2005 compared to income of $28,000 or (0.1)% of net sales in fiscal 2004. For the six-month period, other, net was expense of $29,000 in fiscal 2005 versus income of $53,000 in fiscal 2004. Fiscal 2005 amounts included higher costs associated with stores closed.

LIQUIDITY AND CAPITAL RESOURCES

The Company historically has funded its operating activities, including capital expenditures for the opening of new stores, from internally generated funds and from bank borrowings. During the six months ended July 31, 2004, the Company opened four new stores, relocated two stores and closed three other locations, which were performing below the Company’s sales and profitability expectations. Since July 31, 2004 the Company has opened one new store and closed three other locations. For the remainder of fiscal 2005, the Company believes it will open four to five more new stores and close/relocate four to five under-performing stores. The Company does not expect this activity to significantly impact liquidity or capital resources, including its debt covenants.

Operating activities in the first six months of fiscal 2005 and 2004 used net cash of approximately $5.3 million and $6.3 million, respectively. This $1.0 million improvement was primarily due to this year’s slower growth of payables, and reduced inventory growth, offset in part by increased estimated income tax payments.

Net cash used for investing activities was primarily for the purpose of store expansion, and to a lesser degree, remodeling and technology-related purchases. Capital expenditures for the first six months of fiscal 2005 and 2004 approximated $1.5 million and $1.1 million, respectively. Capital expenditures for fiscal 2005 included the costs of building five new stores and remodeling twelve stores while fiscal 2004 included the costs for building two new stores and remodeling twelve stores.

Financing activities for the first six months of fiscal 2005 and 2004 provided net cash of approximately $6.5 million and $4.8 million, respectively. Approximately $6.9 million and $6.2 million respectively, was generated from the Company’s revolving bank loans. In the fiscal 2005 period, the Company used approximately $0.2 million to repay the term loan debt and used $0.1 million to repurchase 7,800 shares of its common stock. In the fiscal 2004 period the Company used approximately $0.7 million to repay the line of credit and term loan debt and used $0.7 million to repurchase approximately 70,000 shares of its common stock. As of July 31, 2004, the Company had net unused commitments of approximately $19.2 million under the Credit Facility and was in compliance with all covenants.

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Contractual Obligations

The Company’s contractual obligations to make future payments under its Credit Facility and lease obligations are summarized as follows:

Payments due by Period ($ millions)

Other Matters

Critical Accounting Policies

In conformity with accounting principles generally accepted in the United States of America, the preparation of our financial statements requires management to make estimates and assumptions that affect the amounts reported in our financial statements and accompanying notes. Although the estimates are based on our knowledge of current events and actions we may undertake in the future, actual results could differ from those estimates. Significant accounting policies used in the preparation of the Company’s financial statements are summarized in Note 1 to the Financial Statements in the 2003 Annual Report. The Company’s most critical accounting policies, which are those most important to the presentation of the Company’s financial condition and results of operation, and require management’s subjective or complex judgment, pertain to revenue recognition, inventories and stock-based compensation.

Off Balance Sheet Arrangements

At July 31, 2004, the Company does not have transactions, arrangements or relationships with “special purpose” entities and does not have any off balance sheet arrangements except for Letters of Credit approximating $0.3 million expiring September 2004.

During the first six months of fiscal 2005 there were no material changes in the Company’s market risk exposure or in management strategy as stated in the Company’s 2003 Annual Report.

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The Company’s principal executive officer and principal financial officer have evaluated the effectiveness of the Company’s “disclosure controls and procedures,” as such term is defined in Rule 13a-15(e) of the Securities Exchange Act of 1934, as amended, as of the end of the period covered by this Quarterly Report on Form 10-Q. The evaluation process, including the inherent limitations on the effectiveness of such controls and procedures is more fully discussed in Item 14 of the Company’s Annual Report on Form 10-K for the fiscal year ended January 31, 2004. Based upon their evaluation, the principal executive officer and principal financial officer concluded that the Company’s disclosure controls and procedures are effective. There were no changes in the Company’s internal control over financial reporting during the Company’s most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II.  OTHER INFORMATION

Information regarding the matters submitted to shareholders at the annual meeting on May 20, 2004 and related voting results was included in the Company’s Form 10-Q for the quarterly period ended May 1, 2004.

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Form 8-K furnished to the Securities and Exchange Commission on May 20, 2004 to record, under Item 12, the Company’s issuance of a release relating to financial results for the first quarter ended May 1, 2004.

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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.

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