0000912057-01-532456.txt : 20011008
0000912057-01-532456.hdr.sgml : 20011008
ACCESSION NUMBER: 0000912057-01-532456
CONFORMED SUBMISSION TYPE: 10-Q
PUBLIC DOCUMENT COUNT: 2
CONFORMED PERIOD OF REPORT: 20010804
FILED AS OF DATE: 20010917
FILER:
COMPANY DATA:
COMPANY CONFORMED NAME: INTIMATE BRANDS INC
CENTRAL INDEX KEY: 0000945676
STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-APPAREL & ACCESSORY STORES [5600]
IRS NUMBER: 311436998
STATE OF INCORPORATION: DE
FISCAL YEAR END: 0201
FILING VALUES:
FORM TYPE: 10-Q
SEC ACT: 1934 Act
SEC FILE NUMBER: 001-13814
FILM NUMBER: 1738762
BUSINESS ADDRESS:
STREET 1: THREE LIMITED PKWY
STREET 2: PO BOX 16000
CITY: COLUMBUS
STATE: OH
ZIP: 43216
BUSINESS PHONE: 6144797000
MAIL ADDRESS:
STREET 1: THREE LIMITED PARKWAY
STREET 2: PO BOX 16000
CITY: COLUMBUS
STATE: OH
ZIP: 43216
FORMER COMPANY:
FORMER CONFORMED NAME: INTIBRANDS INC
DATE OF NAME CHANGE: 19950524
10-Q
1
a2059273z10-q.txt
10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-------------------------------
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended AUGUST 4, 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 1-13814
INTIMATE BRANDS, INC.
----------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 31-1436998
--------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
THREE LIMITED PARKWAY, P.O. BOX 16000, COLUMBUS, OH 43216
---------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (614) 415-6900
--------------------------
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.
CLASS A COMMON STOCK OUTSTANDING AT AUGUST 31, 2001
---------------------- ----------------------------------
$.01 Par Value 80,646,359 Shares
CLASS B COMMON STOCK OUTSTANDING AT AUGUST 31, 2001
---------------------- ----------------------------------
$.01 Par Value 411,635,902 Shares
INTIMATE BRANDS, INC.
TABLE OF CONTENTS
PAGE NO.
Part I. Financial Information
Item 1. Financial Statements
Consolidated Statements of Income
Thirteen and Twenty-six Weeks Ended
August 4, 2001 and July 29, 2000.............................. 4
Consolidated Balance Sheets
August 4, 2001, February 3, 2001 and July 29, 2000............ 5
Consolidated Statements of Cash Flows
Twenty-six Weeks Ended
August 4, 2001 and July 29, 2000.............................. 6
Notes to Consolidated Financial Statements....................... 7
Item 2. Management's Discussion and Analysis of
Results of Operations and Financial Condition............... 13
Item 3. Quantitative and Qualitative Disclosures About Market Risk.. 18
Part II. Other Information
Item 1. Legal Proceedings........................................... 19
Item 5. Other Information........................................... 20
Item 6. Exhibits and Reports on Form 8-K............................ 21
2
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
The Company cautions that any forward-looking statements (as such term is
defined in the Private Securities Litigation Reform Act of 1995) contained in
this Quarterly Report on Form 10-Q ("Report") or made by management of the
Company involve risks and uncertainties and are subject to change based on
various important factors, many of which may be beyond the Company's control.
Accordingly, the Company's future performance and financial results may differ
materially from those expressed or implied in any such forward-looking
statements. Words such as "estimate", "project", "plan", "believe", "expect",
"anticipate", "intend" and similar expressions may identify forward-looking
statements. The following factors, among others, in some cases have affected and
in the future could affect the Company's financial performance and actual
results and could cause actual results for 2001 and beyond to differ materially
from those expressed or implied in any forward-looking statements included in
this Report or otherwise made by management: changes in consumer spending
patterns, consumer preferences and overall economic conditions; the impact of
competition and pricing; changes in weather patterns; political stability;
postal rate increases and charges; paper and printing costs; risks associated
with the seasonality of the retail industry; risks related to consumer
acceptance of the Company's products and the ability to develop new merchandise;
the ability to retain, hire and train key personnel; risks associated with the
possible inability of the Company's manufacturers to deliver products in a
timely manner; risks associated with relying on foreign sources of production
and availability of suitable store locations on appropriate terms. See the
Company's Annual Report on Form 10-K for a more detailed discussion of these
matters and other risk factors. The Company does not undertake to publicly
update or revise its forward-looking statements even if experience or future
changes make it clear that any projected results expressed or implied therein
will not be realized.
3
PART I - FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
INTIMATE BRANDS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Thousands except per share amounts)
(Unaudited)
Thirteen Weeks Ended Twenty-six Weeks Ended
----------------------------- -----------------------------
August 4, July 29, August 4, July 29,
2001 2000 2001 2000
----------- ----------- ----------- -----------
Net sales $ 1,150,940 $ 1,190,888 $ 2,178,848 $ 2,235,630
Costs of goods sold, buying and occupancy (714,840) (724,657) (1,378,915) (1,368,826)
----------- ----------- ----------- -----------
Gross income 436,100 466,231 799,933 866,804
General, administrative and store operating expenses (318,529) (295,563) (621,548) (579,865)
----------- ----------- ----------- -----------
Operating income 117,571 170,668 178,385 286,939
Interest expense (2,361) (5,350) (4,422) (10,700)
Other income (expense), net (884) 872 (1,343) 3,131
----------- ----------- ----------- -----------
Income before income taxes 114,326 166,190 172,620 279,370
Provision for income taxes 45,400 66,400 68,600 111,700
----------- ----------- ----------- -----------
Net income $ 68,926 $ 99,790 $ 104,020 $ 167,670
=========== =========== =========== ===========
Net income per share:
Basic $ 0.14 $ 0.20 $ 0.21 $ 0.34
=========== =========== =========== ===========
Diluted $ 0.14 $ 0.20 $ 0.21 $ 0.33
=========== =========== =========== ===========
Dividends per share $ 0.07 $ 0.07 $ 0.14 $ 0.14
=========== =========== =========== ===========
The accompanying Notes are an integral part of these
Consolidated Financial Statements.
4
INTIMATE BRANDS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Thousands)
August 4, February 3, July 29,
2001 2001 2000
----------- ----------- -----------
(Unaudited) (Unaudited)
ASSETS
Current assets:
Cash and equivalents $ 15,650 $ 8,923 $ 18,043
Accounts receivable 10,805 13,974 16,271
Inventories 609,328 632,389 653,888
Stores supplies 45,465 46,220 41,971
Other 56,035 56,205 81,686
----------- ----------- -----------
Total current assets 737,283 757,711 811,859
Property and equipment, net 583,817 560,451 455,156
Other assets 138,319 139,186 124,134
----------- ----------- -----------
Total assets $ 1,459,419 $ 1,457,348 $ 1,391,149
=========== =========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 102,866 $ 113,080 $ 113,553
Current portion of long-term debt -- -- 150,000
Accrued expenses 229,967 288,985 205,829
Payable to The Limited, Inc. 216,932 113,063 275,765
Income taxes 41,834 120,825 36,773
----------- ----------- -----------
Total current liabilities 591,599 635,953 781,920
Long-term debt 100,000 100,000 100,000
Deferred income taxes -- -- 128
Other long-term liabilities 55,806 56,067 57,412
Shareholders' equity:
Common stock 5,318 5,318 5,318
Paid-in capital 1,208,623 1,215,278 1,209,926
Retained earnings (deficit) 216,365 181,100 (15,027)
----------- ----------- -----------
1,430,306 1,401,696 1,200,217
Less: treasury stock, at average cost (718,292) (736,368) (748,528)
----------- ----------- -----------
Total shareholders' equity 712,014 665,328 451,689
----------- ----------- -----------
Total liabilities and shareholders' equity $ 1,459,419 $ 1,457,348 $ 1,391,149
=========== =========== ===========
The accompanying Notes are an integral part of these
Consolidated Financial Statements.
5
INTIMATE BRANDS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Thousands)
(Unaudited)
Twenty-six Weeks Ended
---------------------------
August 4, July 29,
2001 2000
--------- ---------
Operating activities:
Net income $ 104,020 $ 167,670
Adjustments to reconcile net income to net cash
provided by (used for) operating activities:
Depreciation and amortization 66,782 55,865
Changes in assets and liabilities:
Inventories 23,061 (70,419)
Accounts payable and accrued expenses (69,232) (23,199)
Income taxes (78,991) (132,210)
Other assets and liabilities 9,319 14,584
--------- ---------
Net cash provided by operating activities 54,959 12,291
--------- ---------
Investing activities:
Capital expenditures (93,927) (61,933)
--------- ---------
Financing activities:
Net increase in payable to The Limited, Inc. 103,879 252,024
Repurchase of common stock -- (197,878)
Dividends paid (68,755) (69,630)
Proceeds from exercise of stock options and other 10,571 6,796
--------- ---------
Net cash provided by (used for) financing activities 45,695 (8,688)
--------- ---------
Net increase (decrease) in cash and equivalents 6,727 (58,330)
Cash and equivalents, beginning of year 8,923 76,373
--------- ---------
Cash and equivalents, end of period $ 15,650 $ 18,043
========= =========
The accompanying Notes are an integral part of these
Consolidated Financial Statements.
6
INTIMATE BRANDS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. Basis of Presentation
Intimate Brands, Inc. (the "Company") includes specialty retail stores and
direct response (catalog and e-commerce) businesses, which offer women's
intimate and other apparel, personal care products and accessories. The
Company consists of Victoria's Secret Stores, Victoria's Secret Direct,
and Bath & Body Works. The Limited, Inc. ("The Limited") owns
approximately 84% of the outstanding common stock of the Company.
The consolidated financial statements include the accounts of the Company
and its subsidiaries. All significant intercompany balances and
transactions have been eliminated in consolidation.
Investments in unconsolidated entities over which the Company exercises
significant influence but does not have control are accounted for using
the equity method. The Company's share of the net income or loss of those
unconsolidated entities is included in other income (expense).
The consolidated financial statements as of and for the thirteen and
twenty-six week periods ended August 4, 2001 and July 29, 2000 are
unaudited and are presented pursuant to the rules and regulations of the
Securities and Exchange Commission. Accordingly, these consolidated
financial statements should be read in conjunction with the consolidated
financial statements and notes thereto contained in the Company's 2000
Annual Report on Form 10-K. In the opinion of management, the accompanying
consolidated financial statements reflect all adjustments (which are of a
normal recurring nature) necessary for a fair statement of the results for
the interim periods, but are not necessarily indicative of the results of
operations for a full fiscal year.
The consolidated financial statements as of and for the thirteen and
twenty-six week periods ended August 4, 2001 and July 29, 2000 included
herein have been reviewed by the independent public accounting firm of
PricewaterhouseCoopers LLP and the report of such firm follows the Notes
to Consolidated Financial Statements. PricewaterhouseCoopers LLP is not
subject to the liability provisions of Section 11 of the Securities Act of
1933 for its report on the consolidated financial statements because that
report is not a "report" within the meaning of Sections 7 and 11 of that
Act.
Certain prior year amounts have been reclassified to conform to the
current year presentation.
2. Earnings Per Share and Shareholders' Equity
Earnings per basic share is computed based on the weighted average number
of outstanding common shares. Earnings per diluted share includes the
weighted average effect of dilutive options and restricted stock on the
weighted average shares outstanding.
7
Weighted average common shares outstanding (thousands):
Thirteen Weeks Ended Twenty-six Weeks Ended
-------------------------- -------------------------
August 4, July 29, August 4, July 29,
2001 2000 2001 2000
---------- ----------- ---------- ----------
Common shares issued 532,572 532,021 532,397 531,939
Treasury shares (40,912) (38,652) (41,105) (35,935)
-------- -------- -------- --------
Basic shares 491,660 493,369 491,292 496,004
Dilutive effect of stock options
and restricted shares 3,282 7,442 3,701 6,828
-------- -------- -------- --------
Diluted shares 494,942 500,811 494,993 502,832
======== ======== ======== ========
The quarterly computation of earnings per diluted share excludes options
to purchase 5.5 million and 0.5 million shares of common stock at August
4, 2001 and July 29, 2000, and the year-to-date computation of earnings
per diluted share excludes options to purchase 5.6 million and 2.3 million
shares, because the options' exercise prices were greater than the average
market price of the common shares during the period.
3. Inventories
The fiscal year of the Company and its subsidiaries is comprised of two
principal selling seasons: spring (the first and second quarters) and fall
(the third and fourth quarters). Inventories are principally valued at the
lower of average cost or market, on a first-in, first-out basis, using the
retail method. Inventory valuation at the end of the first and third
quarters reflects adjustments for inventory markdowns for the total
selling season.
4. Property and Equipment, Net
Property and equipment, net, consisted of (thousands):
August 4, February 3, July 29,
2001 2001 2000
----------- ----------- -----------
Property and equipment, at cost $ 1,199,508 $ 1,134,143 $ 990,495
Accumulated depreciation and
amortization (615,691) (573,692) (535,339)
----------- ----------- -----------
Property and equipment, net $ 583,817 $ 560,451 $ 455,156
=========== =========== ===========
5. Income Taxes
The provision for income taxes is based on the current estimate of the
annual effective tax rate. Current income tax obligations are treated as
having been settled through the intercompany accounts as if the Company
was filing its income tax returns on a separate company basis. Such
amounts were $147.3 million and $244.0 million for the twenty-six weeks
ended August 4, 2001 and July 29, 2000. Other current assets included
current deferred tax assets of $12.7 million at August 4, 2001, $12.2
million at February 3, 2001 and $39.4 million at July 29, 2000. Other
assets included long-term deferred tax assets of $18.6 million at August
4, 2001 and February 3, 2001.
8
6. Long-term Debt
Long-term debt consists of notes which represent the Company's
proportionate share of certain long-term debt of The Limited. The interest
rates and maturities of the notes parallel those of the corresponding debt
of The Limited. The 7 1/2% debentures are subject to early redemption
beginning in 2003 at specified declining premiums concurrent with any
prepayment of the corresponding debt by The Limited.
Long-term debt consisted of (thousands):
August 4, February 3, July 29,
2001 2001 2000
----------- ------------- ----------
7 1/2% Debentures due March 2023 $100,000 $100,000 $100,000
9 1/8% Notes due February 2001 -- -- 150,000
-------- -------- --------
100,000 100,000 250,000
Less: current portion of
long-term debt -- -- 150,000
-------- -------- --------
$100,000 $100,000 $100,000
======== ======== ========
Interest paid during the twenty-six weeks ended August 4, 2001 and July
29, 2000, including interest on the intercompany cash management account
(see Note 7), was $4.4 million and $10.7 million.
7. Intercompany Relationship with the Parent
The Limited provides various services to the Company including, among
other things, real estate management, store design and construction
supervision, inbound and outbound transportation, merchandise sourcing,
financial support (certain tax, treasury, accounting and audit), aircraft,
legal, corporate development, risk management, human resources (certain
management and benefit plan administration) and government affairs
services. To the extent expenditures are specifically identifiable, they
are charged to the Company. All other service-related costs not
specifically attributable to an operating business have been allocated to
the Company based upon various allocation methods, which the Company
believes are reasonable. The Company and The Limited have entered into
intercompany agreements which establish the provision of services in
accordance with the terms described above.
The Company participates in The Limited's centralized cash management
system. Under this system, cash received from the Company's operations is
transferred to The Limited's centralized cash accounts and cash
disbursements are funded from the centralized cash accounts on a daily
basis. The intercompany cash management account is an interest-earning
asset or interest-bearing liability of the Company. Interest on the
intercompany cash management account is calculated based on the Federal
Reserve AA Composite 30-day rate.
The Company's proprietary credit card processing is performed by Alliance
Data Systems, which is approximately 20%-owned by The Limited.
9
The Company and The Limited are parties to a corporate agreement under
which the Company granted to The Limited a continuing option to purchase,
under certain circumstances, additional shares of Class B Common Stock or
shares of nonvoting capital stock of the Company. The Corporate Agreement
further provides that, upon request of The Limited, the Company will use
its best efforts to effect the registration of any of the shares of Class
B Common Stock and nonvoting capital stock held by The Limited for sale.
8. Segment Information
The Company identifies operating segments based on a business's operating
characteristics. Reportable segments were determined based on similar
economic characteristics, the nature of products and services, and the
method of distribution. The retail segment includes the store-based
operations of Victoria's Secret Stores and Bath & Body Works. The VS
Direct segment consists of the Victoria's Secret Direct catalog and
e-commerce operations. Sales outside the United States were not
significant.
Segment information as of and for the thirteen and twenty-six weeks ended
August 4, 2001 and July 29, 2000 follows (in millions):
2001 Retail VS Direct Corporate Total
------------------- ------------ ------------- ------------- -----------
THIRTEEN WEEKS:
Net sales $ 922 $ 229 $ -- $ 1,151
Operating income (loss) 135 17 (34) 118
TWENTY-SIX WEEKS:
Net sales 1,724 455 -- 2,179
Operating income (loss) 217 26 (65) 178
Total assets 1,184 183 92 1,459
10
2000 Retail VS Direct Corporate Total
----------------------- ------------- -------------- ------------- ------------
THIRTEEN WEEKS:
Net sales $ 908 $ 283 -- $ 1,191
Operating income (loss) 175 24 ($ 28) 171
TWENTY-SIX WEEKS:
Net sales 1,711 525 -- 2,236
Operating income (loss) 296 45 (54) 287
Total assets 1,115 166 110 1,391
In addition to its operating segments, management also focuses on
Victoria's Secret as a brand. Sales of the Victoria's Secret brand
decreased 5% to $792.1 million for the thirteen weeks ended August 4,
2001, and decreased 5% to $1.498 billion for the twenty-six weeks ended
August 4, 2001.
11
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and
Shareholders of
Intimate Brands, Inc.
We have reviewed the accompanying consolidated balance sheets of Intimate
Brands, Inc. and its subsidiaries (the "Company") as of August 4, 2001 and
July 29, 2000, and the related consolidated statements of income for each of
the thirteen and twenty-six week periods ended August 4, 2001 and July 29,
2000 and the consolidated statement of cash flows for the twenty-six week
periods ended August 4, 2001 and July 29, 2000. These financial statements
are the responsibility of the Company's management.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures
to financial data and making inquiries of persons responsible for financial
and accounting matters. It is substantially less in scope than an audit
conducted in accordance with auditing standards generally accepted in the
United States of America, the objective of which is the expression of an
opinion regarding the financial statements taken as a whole. Accordingly, we
do not express such an opinion.
Based on our review, we are not aware of any material modifications that
should be made to the accompanying consolidated interim financial statements
for them to be in conformity with accounting principles generally accepted in
the United States of America.
We previously audited in accordance with auditing standards generally
accepted in the United States of America, the consolidated balance sheet as
of February 3, 2001, and the related consolidated statements of income, of
shareholders' equity, and of cash flows for the year then ended (not
presented herein), and in our report dated February 27, 2001 we expressed an
unqualified opinion on those consolidated financial statements. In our
opinion, the information set forth in the accompanying consolidated balance
sheet as of February 3, 2001 is fairly stated in all material respects in
relation to the consolidated balance sheet from which it has been derived.
/s/PricewaterhouseCoopers LLP
Columbus, Ohio
August 23, 2001
12
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
RESULTS OF OPERATIONS
Net sales for the second quarter of 2001 were $1.151 billion, a decrease of 3%
from $1.191 billion for the second quarter of 2000. Gross income decreased 6% to
$436.1 million from $466.2 million in 2000, and operating income decreased 31%
to $117.6 million from $170.7 million in 2000. The operating income decline
resulted primarily from a 3% sales decline and from increased store selling and
occupancy expenses. Net income was $68.9 million, a decrease of 31% from $99.8
million in 2000. Earnings per share decreased to $0.14 per share from $0.20 per
share in 2000.
Net sales for the twenty-six weeks ended August 4, 2001 were $2.179 billion, a
decrease of 3% from $2.236 billion in 2000. Gross income decreased 8% to $799.9
million from $866.8 million in 2000, and operating income decreased 38% to
$178.4 million from $286.9 million in 2000. Net income was $104.0 million, a 38%
decrease from $167.7 million in 2000. Earnings per share decreased 36% to $0.21
per share from $0.33 per share in 2000.
FINANCIAL SUMMARY
The following summarized financial and statistical data compares the reported
results for the thirteen and twenty-six-week periods ended August 4, 2001 to the
comparable periods for 2000:
SECOND QUARTER YEAR-TO-DATE
---------------------------------- --------------------------------
2001 2000 CHANGE 2001 2000 CHANGE
------- ------- ------- ------- ------- -------
NET SALES (MILLIONS):
Victoria's Secret Stores $ 563 $ 552 2% $ 1,043 $ 1,048 (1%)
Bath & Body Works 359 350 3% 679 651 4%
Other -- 6 N/M 2 12 N/M
------- ------- ------- ------- ------- -------
Total retail sales 922 908 2% 1,724 1,711 1%
Victoria's Secret Direct 229 283 (19%) 455 525 (13%)
------- ------- ------- ------- ------- -------
Total net sales $ 1,151 $ 1,191 (3%) $ 2,179 $ 2,236 (3%)
======= ======= ======= ======= ======= =======
COMPARABLE STORE SALES:
Victoria's Secret Stores (3%) 12% (5%) 13%
Bath & Body Works (9%) 3% (8%) 5%
------- ------- ------- -------
Total comparable store sales
increase (decrease) (5%) 9% (6%) 10%
======= ======= ======= =======
N/M - Not meaningful
13
SECOND QUARTER YEAR-TO-DATE
--------------------------------- -------------------------------
2001 2000 Change 2001 2000 Change
-------- -------- -------- -------- --------- -------
STORE DATA:
Retail sales increase attributable to net
new and remodeled stores:
Victoria's Secret Stores 5% 3% 4% 3%
Bath & Body Works 12% 14% 12% 13%
Retail sales per average selling square foot:
Victoria's Secret Stores $ 132 $ 138 (4%) $ 245 $ 263 (7%)
Bath & Body Works $ 112 $ 132 (15%) $ 215 $ 250 (14%)
Retail sales per average store (thousands):
Victoria's Secret Stores $ 578 $ 615 (6%) $ 1,075 $ 1,166 (8%)
Bath & Body Works $ 238 $ 274 (13%) $ 457 $ 518 (12%)
Average store size at end of quarter (selling square feet):
Victoria's Secret Stores 4,391 4,443 (1%)
Bath & Body Works 2,136 2,087 2%
Selling square feet at end of quarter (thousands):
Victoria's Secret Stores 4,312 4,008 8%
Bath & Body Works 3,287 2,719 21%
NUMBER OF STORES:
Beginning of period 2,439 2,144 2,390 2,110
Opened 83 64 134 102
Closed (1) (3) (3) (7)
------- ------- ------- -------
End of period 2,521 2,205 2,521 2,205
======= ======= ======= =======
NUMBER OF STORES SELLING SQ. FT. (THOUSANDS)
----------------------------- ------------------------------
AUGUST 4, JULY 29, AUGUST 4, JULY 29,
2001 2000 2001 2000
---------- --------- ---------- ----------
Victoria's Secret Stores 982 902 4,312 4,008
Bath & Body Works 1,539 1,303 3,287 2,719
----- ----- ----- -----
Total stores and selling
square feet 2,521 2,205 7,599 6,727
===== ===== ===== =====
14
NET SALES
Net sales for the second quarter of 2001 decreased 3% to $1.151 billion from
$1.191 billion in 2000. The net sales decline was primarily due to a 5% decrease
in comparable store sales and a 19% decrease in sales at Victoria's Secret
Direct. These declines were partially offset by an increase from the net
addition of 316 new stores (872,000 selling square feet).
Retail sales of $921.8 million for the second quarter of 2001 increased 2% from
$908.4 million in 2000. Victoria's Secret Stores' sales increased 2% to $563.0
million due to the net addition of 80 stores (304,000 selling square feet),
partially offset by a 3% decrease in comparable store sales. Bath & Body Works'
sales increased 3% to $358.9 million, due to the net addition of 236 new stores
(568,000 selling square feet), partially offset by a 9% decrease in comparable
store sales. Net sales at Victoria's Secret Direct decreased 19% to $229.1
million due to an acceleration of catalog mailings into the first quarter as
compared to last year, as well as unfavorable results in the clothing,
sleepwear, shoes and accessory categories, partially offset by an increase in
e-commerce sales.
Year-to-date net sales in 2001 decreased 3% to $2.179 billion from $2.236
billion in 2000. The decrease was primarily due to a 6% decrease in comparable
store sales and a 13% decline in sales at Victoria's Secret Direct. These
declines were partially offset by the net addition of 316 new stores (872,000
selling square feet).
GROSS INCOME
For the second quarter of 2001, the gross income rate (expressed as a percentage
of net sales) decreased to 37.9% from 39.1% for the same period in 2000. The
rate decrease was principally due to an increase in the buying and occupancy
expense rate due to the inability to achieve leverage on store-related costs as
comparable store sales decreased 5%. In addition, the buying and occupancy
expense rate increase was due to the continuing expansion of Bath & Body Works'
stores into non-mall locations, which, although profitable, typically have
higher occupancy costs as a percentage of net sales.
The year-to-date gross income rate decreased to 36.7% from 38.8% in 2000,
primarily due to the factors discussed above.
GENERAL, ADMINISTRATIVE AND STORE OPERATING EXPENSES
The general, administrative and store operating expense rate (expressed as a
percentage of net sales) increased to 27.7% in the second quarter of 2001 from
24.8% for the same period in 2000. General, administrative and store operating
expenses increased 8% primarily due to higher store selling expenses resulting
from the net addition of 316 new stores. At Victoria's Secret Stores, the
general, administrative and store operating expense rate was relatively flat as
lower marketing expenses offset the deleveraging impact of a comparable store
sales decrease of 3%. At Bath & Body Works, the general, administrative and
store operating expense rate increased significantly due to the inability to
achieve leverage on a comparable store sales decrease of 9%. Bath & Body Works'
general, administrative and store operating expenses increased due to higher
store selling expenses resulting from a 21% increase in selling square feet.
The year-to-date general, administrative and store operating expense rate
increased to 28.5% from 25.9% in 2000, primarily due to the factors discussed
above.
15
OPERATING INCOME
The second quarter operating income rate (expressed as a percentage of net
sales) decreased to 10.2% from 14.3% for the same period in 2000. The rate
decrease was due to the 1.2% decrease in the gross income rate and the 2.9%
increase in the general, administrative and store operating expense rate.
The year-to-date operating income rate was 8.2% in 2001 and 12.8% in 2000. The
rate decrease was due to the 2.1% decrease in the gross income rate and the 2.6%
increase in the general, administrative and store operating expense rate.
INTEREST EXPENSE AND OTHER INCOME (EXPENSE)
Second quarter and year-to-date interest expense was $2.4 million and $4.4
million, respectively, in 2001 compared to $5.4 million and $10.7 million in
2000. Interest expense is primarily related to the Company's long-term debt. The
decrease in interest expense was primarily due to the repayment of $150 million
in debt in February 2001.
The Company incurred other expense of $0.9 million and $1.3 million in the
second quarter and year-to-date periods in 2001 compared to earnings of $0.9
million and $3.1 million for the same periods in 2000. The decrease in other
income (expense) was primarily due to the use of previously invested cash to
repay $150 million in debt.
FINANCIAL CONDITION
LIQUIDITY AND CAPITAL RESOURCES
Cash provided by operating activities and borrowings from The Limited provide
the resources to support current operations, projected growth, seasonal funding
requirements and capital expenditures. A summary of the Company's working
capital position and capitalization follows (millions):
August 4, February 3, July 29,
2001 2001 2000
---------- ------------ ------------
Working capital $ 146 $ 122 $ 30
======== ======== ========
Capitalization:
Long-term debt $ 100 $ 100 $ 100
Shareholders' equity 712 665 452
-------- -------- --------
Total capitalization $ 812 $ 765 $ 552
======== ======== ========
Net cash provided by operating activities totaled $55 million for the twenty-six
weeks ended August 4, 2001, compared to $12 million for the same period in 2000.
The change in net cash provided by operating activities was primarily driven by
lower net income, a reduction in inventory during the period compared to
inventory growth during 2000, partially offset by a reduction in accounts
payable and accrued expenses.
16
Investing activities represent capital expenditures, which were primarily for
new and remodeled stores.
Financing activities for the twenty-six weeks ended August 4, 2001 included cash
dividend payments of $0.14 per share and a $104 million net increase in The
Limited's intercompany cash management account payable (see Note 7 to the
Consolidated Financial Statements).
In 2000, financing activities included cash dividend payments of $0.14 per
share, the repurchase of 1.4 million shares of the Company's common stock from
its public shareholders for $31.4 million and the repurchase of 7.4 million
shares from The Limited for $166.5 million. The cash dividend payment and stock
repurchases were offset by a $252 million net increase in The Limited's
intercompany cash management account payable (see Note 7 to the Consolidated
Financial Statements).
CAPITAL EXPENDITURES
Capital expenditures, primarily for new and remodeled stores, totaled $94
million for the twenty-six weeks ended August 4, 2001, compared to $62
million for the comparable period of 2000. The increase is primarily related
to the timing of capital expenditures associated with new and remodeled
stores. The Company accelerated the timing of these projects to complete the
stores prior to the key fall selling period. The Company anticipates spending
approximately $250 million in 2001 for capital expenditures, of which
approximately $200 million will be for new stores and for remodeling of and
improvements to existing stores. The Company expects that capital
expenditures will be funded principally by net cash provided by operating
activities.
The Company intends to add approximately 825,000 selling square feet in 2001,
which will represent an 11% increase over year-end 2000. It is anticipated the
increase will result from the addition of approximately 260 new stores and the
expansion of 70 stores, partially offset by the closing of 12 stores.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
EITF Issue No. 00-14, "Accounting for Certain Sales Incentives," will be
effective in the first quarter of 2002 and addresses the accounting for, and
classification of, various sales incentives. The Company has determined that
adopting the provisions of the EITF Issue will not have a material impact on its
results of operations or its financial position.
On June 29, 2001 the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 141, "Business
Combinations," and No. 142, "Goodwill and Other Intangible Assets." SFAS No. 141
requires that the purchase method of accounting be used for all business
combinations initiated after June 30, 2001, and also addresses the accounting
for goodwill and other intangible assets. SFAS No. 142 addresses the accounting
for goodwill and other intangible assets subsequent to their acquisition, and
will be effective in the first quarter of 2002. The Company is currently
evaluating the impact of adopting SFAS No. 141 and SFAS No. 142.
IMPACT OF INFLATION
The Company's results of operations and financial condition are presented based
on historical cost. While it is difficult to accurately measure the impact of
inflation due to the imprecise nature of the estimates required, the Company
believes the effects of inflation, if any, on the results of operations and
financial condition have been minor.
17
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The market risk of the Company's financial instruments as of August 4, 2001 has
not significantly changed since February 3, 2001. Information regarding the
Company's financial instruments and market risk as of February 3, 2001 is
disclosed in the Company's 2000 Annual Report on Form 10-K.
18
PART II - OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
The Company is a defendant in a variety of lawsuits arising in the
ordinary course of business.
On January 13, 1999, two complaints were filed against the Company, as
well as other defendants, including many national retailers. Both
complaints relate to labor practices allegedly employed on the island of
Saipan, Commonwealth of the Northern Mariana Islands, by apparel
manufacturers unrelated to the Company (some of which have sold goods to
the Company) and seek injunctions, unspecified monetary damages, and other
relief. One complaint, on behalf of a class of unnamed garment workers,
was filed in the United States District Court for the Central District of
California, Western Division and subsequently transferred to the United
States District Court for the Northern Mariana Islands. It alleged
violations of federal statutes, the United States Constitution, and
international law. On April 12, 1999, a motion to dismiss that complaint
for failure to state a claim upon which relief can be granted was filed,
and it remains pending. A first amended complaint was filed on April 28,
2000, which added additional defendants but did not otherwise
substantively alter either the claims alleged or relief sought. The second
complaint, filed by a national labor union and other organizations in the
Superior Court of the State of California, San Francisco County, and which
alleges unfair business practices under California law, remains pending.
Although it is not possible to predict with certainty the eventual outcome
of any litigation, in the opinion of management, the foregoing proceedings
are not expected to have a material adverse effect on the Company's
financial position or results of operations.
19
Item 5. OTHER INFORMATION
The Company's Certificate of Incorporation includes provisions relating to
potential conflicts of interest that may arise between the Company and The
Limited. Such provisions were adopted in light of the fact that the
Company and The Limited and its subsidiaries are engaged in retail
businesses and may pursue similar opportunities in the ordinary course of
business. Among other things, these provisions generally eliminate the
liability of directors and officers of the Company with respect to certain
matters involving The Limited and its subsidiaries, including matters that
may constitute corporate opportunities of The Limited, its subsidiaries or
the Company. Any person purchasing or acquiring an interest in shares of
capital stock of the Company will be deemed to have consented to such
provisions relating to conflicts of interest and corporate opportunities,
and such consent may restrict such person's ability to challenge
transactions carried out in compliance with such provisions. Investors
should review the Company's Certificate of Incorporation before making any
investment in shares of the Company's capital stock.
20
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
15. Letter re: Unaudited Interim Financial Information to Securities and
Exchange Commission re: Incorporation of Report of Independent
Accountants.
(b) REPORTS ON FORM 8-K
None.
21
SIGNATURE
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.
INTIMATE BRANDS, INC.
(Registrant)
By /s/ TRACEY THOMAS TRAVIS
--------------------------------------
Tracey Thomas Travis, Vice President,
Finance and Chief Financial Officer
of Intimate Brands, Inc.*
Date: September 17, 2001
--------------------------------
*Ms. Travis is the principal financial officer and has been duly authorized to
sign on behalf of the Registrant.
22
EX-15
3
a2059273zex-15.txt
EXHIBIT 15
EXHIBIT 15
September 17, 2001
Securities and Exchange Commission 450 5th Street, N.W.
Washington, D.C. 20549
Commissioners:
We are aware that our report dated August 23, 2001 on our review of interim
financial information of Intimate Brands, Inc. and Subsidiaries (the "Company")
as of and for the period ended August 4, 2001 and included in the Company's
quarterly report on Form 10-Q for the quarter then ended is incorporated by
reference in its registration statement on Form S-3, Registration No. 333-78485,
and its registration statements on Form S-8, Registration Nos. 333-04921 and
333-04923.
Very truly yours,
/s/PricewaterhouseCoopers LLP
Columbus, Ohio