Back to GetFilings.com

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended October 30, 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 October 30, 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 earnings per share)

(unaudited)

See Notes to Financial Statements.

2

S & K FAMOUS BRANDS, INC.

Balance Sheets

(In thousands, except per share amounts)

See Notes to Financial Statements.

3

S & K FAMOUS BRANDS, INC.

Statements of Cash Flows

Increase (Decrease) in Cash

(In thousands) (unaudited)

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 judgments and estimates, 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 should not be considered necessarily indicative of the results for the entire fiscal year.

C. Deferred Compensation Agreement

The Company’s Board of Directors, upon the recommendation of the Compensation Committee, adopted a Deferred Compensation Plan to provide deferred compensation benefits beginning calendar 2004 to three executive officers of the Company. The Compensation Committee had been considering appropriate alternative benefit arrangements for these executives in light of the termination of their split dollar life insurance arrangements in fiscal 2004 due to the Sarbanes-Oxley Act of 2002 and new IRS positions on such arrangements.

As of October 30, 2004, the Company has accrued $213,000 in expense related to this plan. The Company has also established a trust to provide the deferred compensation benefits to the executives. The payment to the trust of $278,000 for this year is included in Other Assets.

D. 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 October 30, 2004 and November 1, 2003.

5

E. Expansion

Since the end of the second quarter, the Company has opened five new stores:

During the same period the Company also relocated a total of four stores: in Durham, North Carolina (3,280 square feet), Camp Hill, Pennsylvania (3,750 square feet), Memphis, Tennessee (3,780 square feet), and Madison, Wisconsin (3,500 square feet). Additionally, the Company closed another three under-performing stores in the following cities: Buffalo, New York (5,600 square feet), Germantown (Memphis), Tennessee (4,000 square feet), and West Lancaster, Ohio (3,000 square feet).

Year-to-date, the Company has opened nine new stores, relocated a total of six stores and closed another six stores which had not met sales and earnings expectations. The profit impact of the closings was not significant to the Company’s financial position or results of operations.

F. 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.

6

G. New Accounting Pronouncements

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.

Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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 and Nine Months Ended October 30, 2004 Compared to Three Months and Nine Months Ended November 1, 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 nine months ended October 30, 2004 and November 1, 2003.

Net sales in the third quarter of fiscal 2005 increased 5.6%, or $2.3 million, compared to the same period last year. Comparable store sales increased 2.5%. For the nine-month period, net sales increased 6.8%, or $8.5 million, compared to the same period last year. Comparable store sales for the nine-month period increased 3.9%. The increases for the three- and nine-month periods were due to growth in average sale and to higher sales of suits and furnishings. During the third quarter of fiscal 2005, the Company opened four new stores, relocated two others and closed two under-performing stores. There were 239 stores in operation as of October 30, 2004 and 237 stores as of November 1, 2003.

7

Cost of sales in the third quarter of fiscal 2005 was 55.1% of net sales compared to 54.0% of net sales for the same period last year. This 1.1% of net sales increase in the quarter was primarily due to higher buying and occupancy costs as a component of cost of sales because of an increase in expenses related to purchasing and higher promotional markdowns designed to increase store traffic. To a lesser degree, the cost of alterations as a component of cost of sales increased over last year due to higher suit sales. For the nine-month period, cost of sales was 55.2% of net sales compared to 53.7% of net sales last year. The 1.5% of net sales increase in the nine-month period was primarily due to higher markdowns designed to increase store traffic and clear seasonal goods, and to a lesser degree, higher buying and occupancy costs and the cost of alterations as previously discussed.

Selling, general and administrative expenses in the third quarter of fiscal 2005 were 42.3% of net sales compared to 43.2% of net sales last year. For the nine-month period, selling, general and administrative expenses were 40.8% of net sales versus 41.8% of net sales last year. These reductions of 0.9% and 1.0%, respectively, of net sales were due primarily to leveraging of store payroll costs and fixed occupancy costs on higher sales compared to last year.

Interest expense in the third quarter of fiscal 2005 was $116,000, or 0.3% of net sales, compared to $140,000, or 0.4% of net sales, last year. For the nine-month period interest expense was $225,000, or 0.2% of net sales, compared to $357,000, or 0.3% of net sales, last year. These decreases are due to reductions in long-term debt as the Company repaid over $6.0 million under its Credit Facility in fiscal 2004.

Other, net in the third quarter of fiscal 2005 was an expense of $1,000 compared to $62,000 in fiscal 2004, primarily related to lower costs associated with stores which have been closed. Other, net for the nine-month period of fiscal 2005 was an expense of $30,000 compared to $8,000 in fiscal 2004. Year-to-date, the costs associated with stores which have been closed is $137,000 compared with $123,000 last year.

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 year, the Company has opened nine new stores and relocated six stores. The Company has also closed six other locations which were performing below the Company’s sales and profitability expectations. The Company does not expect this activity to significantly impact liquidity or capital resources, including its debt covenants.

Operating activities in the first nine months of fiscal 2005 and 2004 used net cash of approximately $2.7 million and $3.8 million, respectively. This $1.1 million reduction was primarily due to reduced inventory growth this year and, to a lesser degree, an increase in other long-term liabilities associated with long-term compensation plans.

Net cash used for investing activities was primarily for the purpose of store expansion, and to a lesser degree, remodeling and technology. Capital expenditures for the first nine months of fiscal 2005 and 2004 approximated $2.9 million and $2.3 million, respectively. Capital expenditures for fiscal 2005 included the costs of building eight new stores, relocating five stores and remodeling 12 stores while fiscal 2004 capital expenditures included the costs for building five new stores, relocating four stores and remodeling 12 stores.

Financing activities for the first nine months of fiscal 2005 provided net cash of approximately $5.5 million as a result of borrowing $5.9 million under revolving bank loans offset by repayments of approximately $0.3 million on the real estate debt and by $0.1 million used to repurchase 7,800 shares of common stock. During the first nine months of fiscal 2004 financing activities provided net cash of approximately $3.6 million which was the result of borrowing $5.6 million under revolving bank loans offset by repayments of approximately $1.3 million on the line of credit and real estate debt and by $0.7 million used to repurchase approximately 70,000 shares of common stock. As of October 30, 2004, the Company had net unused commitments of approximately $20.1 million under the Credit Facility and was in compliance with all covenants.

8

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 ($ in 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 October 30, 2004, the Company does not have transactions, arrangements or relationships with “special purpose” entities, and does not have any off balance sheet arrangements.

Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

During the first nine 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.

Item 4. CONTROLS AND PROCEDURES

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.

9

PART II. OTHER INFORMATION

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

(e) Issuer Purchases of Equity Securities

Item 6. EXHIBITS

10

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.

11