ITEM 1. BUSINESS
GENERAL
We are a nationwide, mall-based specialty retailer of lifestyle sportswear and dresses targeting style-conscious women. Our merchandise offerings extend from elegant eveningwear to sophisticated casual and daytime sportswear, which encompasses a variety of tops, bottoms, dresses and accessories, all of which are sold under our Cache brand. We believe the appeal of our merchandise is enhanced through the intimate boutique-like environment we offer to our customers. This environment is achieved through a high level of customer service combined with our smaller store format, which averages approximately 2,000 square feet. As of December 29, 2007, we operated 297 Cache and Cache Luxe stores, primarily situated in central locations in high traffic, upscale malls, in 43 states, Puerto Rico and the U.S. Virgin Islands.
We target women between the ages of 25 and 45 through our differentiated merchandising mix and Cache and Cache Luxe store environments. Our brand appeals to a woman who has a youthful attitude, is self-confident and fashion-conscious, and requires a missy fit. Our sportswear embodies a mix of lifestyle separates for both day and evening. Our stores carry a range of diverse merchandise, which includes dresses for daytime and evening, and continues to be an important dress resource and destination for our target customers. Our accessories complement the seasonal themes and palettes of our sportswear and dresses.
Our Cache Luxe concept primarily focuses on our daytime and eveningwear merchandise. This concept is expected to broaden our customer base, enable us to offer a larger selection of evening apparel and accessories at higher price points and allow us to leverage our marketing under a single Cache brand. In addition, Cache stores located in malls containing a Cache Luxe store have increased capacity to offer an expanded casual assortment. Almost all of our current Cache Luxe stores are in malls that also contain a Cache store.
During May 2007, the Company launched the Cache Accents program. The Cache Accents program was designed to encourage repeat sales, increase per transaction spending and to create customer loyalty. A customer can enroll in the Cache Accents program without any cost and earn a lifetime discount of 5%, as long as they are a member. We believe the Cache Accents program will significantly improve our ability to leverage our customer database, which contains more than 4.3 million names. We also believe the Cache Accents program will help us achieve higher comparable store sales and improve our margins.
During the second quarter of fiscal 2007, Cache introduced a co-branded customer credit card program. Under this program, the Company receives from the issuing bank a non-refundable credit card activation fee for each new account that is opened and activated. In addition, credit card holders are offered a program whereby points can be earned on net purchases made with the co-branded credit card. The issuing bank bears the cost of the reward program and is responsible for the administration
and management of the program. The Company also receives from the issuing bank and Visa U.S.A Inc. a sales royalty, which is based on a percentage of net purchases made by cardholders at Cache or other businesses.
On July 3, 2007, the Company, through a wholly-owned subsidiary which was created in connection with the acquisition, acquired certain assets of Adrienne Victoria Designs, Inc. ("AVD"), our largest vendor. Under the terms of the agreement, the Company made cash payments totaling $5.7 million, including transaction costs. The agreement also calls for guaranteed installment payments to be paid over 5 years, as well as contingent payments, based upon earn-out provisions to be paid also over 5 years, if certain conditions are met. The Company acquired certain assets of AVD, a design, sourcing and manufacturing company, to increase operating efficiencies and increase shareholder value. The Company also acquired the rights to the "Mary L" trademark. Mary L products are sold in upper tier department stores.
On July 30, 2007, the Company's Board of Directors authorized a share repurchase program, which began in August 2007, pursuant to which the Company may repurchase up to 1,000,000 shares of Company common stock, either through the open market or in privately negotiated transactions in accordance with SEC requirements, in either case, at the prevailing market rates. During the fourth quarter of fiscal 2007, the Board of Directors authorized the repurchase of an additional 1,000,000 shares bringing the Company's total repurchase program to 2,000,000 shares at the end of Fiscal 2007. There is no expiration date governing the period over which the Company may repurchase shares.
On January 2, 2008, the Board of Directors authorized an additional 1,000,000 share repurchase, and on February 5, 2008, the Board of Directors authorized an additional 500,000 share repurchase, bringing the total authorization to 3,500,000 shares.
Recent Developments
On January 24, 2008, Mr. Brian Woolf, previously Chairman and Chief Executive Officer, as well as the principal executive officer of Cache, Inc. resigned from the Company, effective immediately. On January 24, 2008, Mr. Thomas Reinckens, currently Cache Inc.'s President, was appointed as the Company's Chairman and Chief Executive Officer and will serve as the Company's principal executive officer. He will continue in his position as the Company's President, in addition to assuming these new roles.
Merchandising, Design and Production
Our merchandising focuses on providing an edited selection of sportswear and dresses extending from casual and daytime sportswear into elegant eveningwear, as well as a collection of complementary accessories. All of our merchandise is sold under our own Cache label. We employ a constant process of test-and-ordering that allows us to restock popular items during the same season. We also maintain a key item strategy, providing some popular and core items for longer periods to meet ongoing customer demand. New merchandise arrives on a frequent basis at each of our stores, giving our customers a reason to visit often. We introduce new floor sets into each of our stores approximately every six weeks. These new floor sets provide changes in visual merchandising within both our stores and our window presentations.
Merchandise
We design and market three general categories of merchandise:
Sportswear. Sportswear consists of related tops and bottoms, versatile enough to be worn during the day or out for evening events. Price points for sportswear in our Cache stores generally range from $60 to $300.
Dresses. Dresses range from shorter lengths for day-time, cocktail, as well as day-into-evening wear to special occasion long dresses. Price points for dresses in our Cache stores generally range from $125 to $450.
Accessories. Accessories consist primarily of jewelry, belts and handbags selected to complement our sportswear and dress selections. Price points for accessories in our Cache stores generally range from $30 to $150.
While the majority of our merchandise is the same in all of our stores of the same concept, we employ both lower price point merchandise and higher priced merchandise in select Cache locations. Our new Cache Luxe stores generally have higher price points than our Cache stores.
The following table indicates the percentage of net sales by merchandise category at our Cache and Cache Luxe stores for each of the periods indicated below:
The percentage of net sales represented by dresses at our Cache stores is typically higher in the first half of the year, due to the prom season.
Design
Our merchandise offerings are organized around the spring and fall seasons. Our design team consists of seasoned designers who have experience in the apparel industry, and are given a significant amount of creative freedom in the design process. Following the end of a season, our merchandising team reviews data from that season's results as well as market research, retail trends and trade shows. Based on this information, our team develops seasonal themes, which will influence our exclusive designs for the following year.
Prior to each season, our design team selects specific styles that reflect seasonal themes. The design team collaborates with our merchants to adjust test garments for color and style to ensure offerings reflect the appropriate balance between fashion content and marketability. Our team then works with our technical department, fit model and manufacturers to guarantee our missy fit and high-comfort standards are met. Our direct sourcing ability and close relationships with our vendors facilitates a fluid design cycle that enables us to create fashion-forward, exclusive styles and test merchandise in select stores before store roll-outs.
Accessories are manufactured for us by third party vendors, a process that allows our design and merchandising team to focus on our core apparel offerings. We also maintain close relationships with our accessory vendors so that our accessories complement our seasonal themes and palettes.
Planning
We conduct our planning process based on our historical point-of-sale data, economic trends, seasonality and anticipated demand based on market tests. We determine at a corporate level the composition and amount of our merchandise by product, print, color, style and size. We are then able to negotiate bulk material purchases with suppliers, which we believe enables us to obtain better pricing.
Our merchandising and planning teams determine the appropriate level and type of merchandise for each store. The merchandise is drop shipped to each store via independent carriers. Following receipt at our stores, the merchandising staff obtains daily sales information and store-level inventory generated by our POS system. Based upon this data, management makes decisions with respect to re-orders, store transfers and markdowns.
In addition to introducing new merchandise, we employ a key item strategy whereby we maintain an inventory of core items in every store. This provides customers with a level of certainty that these items will be in stock when they visit. In certain situations, a store that is experiencing particularly strong sell-throughs relays the information to our management team and merchandisers, who in turn may add or adjust new merchandise in response to this feedback.
Production, Sourcing and Distribution
Our in-house production team co-ordinates the sourcing and distribution of products to our stores. We drop ship products to our stores, which allows us to respond quickly to fashion preferences and demand, as well as to reduce inventory risk. Due to our recent acquisition of our largest vendor, we currently purchase only a portion of our merchandise from third party agents, who arrange for the manufacture of our apparel overseas. Our five largest vendors, excluding our largest vendor which we recently acquired, accounted for approximately 14% of our purchases during the 52 weeks ended December 29, 2007, and our largest vendor accounted for 4% of our purchases during the 52 weeks ended December 29, 2007.
In July 2007, we purchased certain assets of our largest vendor, AVD. During fiscal 2006, we purchased 27% of our merchandise from AVD. During fiscal 2007, purchases from AVD prior to acquisition totaled 47% of our purchases. We anticipate purchases from third party vendors to approximate 25% of our total purchases in fiscal 2008.
Store Operations
Store Design and Environment
Most of our stores range in size from approximately 1,500 to 2,500 square feet, with our typical store averaging approximately 2,000 square feet. We believe that our relatively smaller store size enables us to create a boutique-like atmosphere by providing a more intimate shopping environment and a higher level of customer service than department stores. Most of our stores are open during the same hours as the malls in which they are located, typically seven days and six nights a week.
We continue to remodel our Cache stores to enhance their appeal to our customers, including increasing access to merchandise, facilitating movement throughout the store and improving our merchandise displays. Our remodeled store design emphasizes a modern, sophisticated and well-lit atmosphere with streamlined exteriors and sleek interiors. In addition, we have moved the dressing rooms from the middle of the store to the rear, and check-out locations from the front of the store to the side. This eliminates barriers to movement throughout the store and permits greater flexibility in merchandise displays, allowing us to more effectively market our clothing.
We began to remodel existing stores using this new design in late fiscal 2001. We generally remodel stores as leases come up for renewal. We remodeled 11 Cache stores in fiscal 2006, remodeled 16 stores in fiscal 2007 and expect to remodel approximately 15 stores in fiscal 2008. By the end of fiscal 2008, we expect to have remodeled approximately 80% of our Cache stores. Most store remodels take from six to eight weeks. During this period, we typically utilize temporary locations in the mall near our existing locations so that customers can continue to shop for our merchandise.
Store Management and Training
We organize our stores into regions and districts, which are overseen by five regional vice presidents and 36 district managers. Each of our district managers is typically responsible for eight to ten stores. We typically staff our stores with two opening employees, three mid-day employees and two closing employees.
We seek to provide our customers with superior customer service. To enhance this part of our strategy, our employees receive in-store training, as well as career path developmental assistance. In addition, our store managers receive both salaries and performance-based incentives bonuses. We pay sales associates and assistant managers on an hourly basis and offer them performance incentives. From time to time, we offer additional incentives, such as sales contests, to both management and sales associates. Additionally, we place special emphasis on the recruitment of fashion-conscious and career-oriented sales personnel. We train most new store managers in designated training stores and train most other new store sales personnel on the job.
Store Locations
As of December 29, 2007, we operated 297 Cache and Cache Luxe stores located in 43 states, as well as Puerto Rico and the U.S. Virgin Islands.
The following table indicates our Cache stores by state as of December 29, 2007:
Alabama
Louisiana
Ohio
Arizona
Maine
Oklahoma
Arkansas
Maryland
Oregon
California
Massachusetts
Pennsylvania
Colorado
Michigan
Rhode Island
Connecticut
Minnesota
South Carolina
Delaware
Mississippi
Tennessee
Florida
Missouri
Texas
Georgia
Nebraska
Utah
Hawaii
Nevada
Virginia
Illinois
New Hampshire
Washington
Indiana
New Jersey
West Virginia
Iowa
New Mexico
Wisconsin
Kansas
New York
Puerto Rico
Kentucky
North Carolina
US Virgin Islands
The following table indicates our Cache Luxe stores by state as of December 29, 2007:
Arizona
Louisiana
North Carolina
Florida
Michigan
Tennessee
Georgia
New Jersey
Texas
The following table indicates the number of Cache stores opened and closed over the past five fiscal years ended December 29, 2007:
The Company opened 16 Cache Luxe stores during fiscal 2006 and closed one Cache Luxe store during fiscal 2007.
New Store Development
During fiscal 2007, we opened 10 Cache stores and closed five Cache stores and one Luxe store. During fiscal 2008, we intend to open approximately 12 new Cache stores.
During fiscal 2006, we opened 17 Cache stores and closed seven Cache stores. During fiscal 2006, we closed 37 Lillie Rubin stores. During the second fiscal quarter of 2006, we purchased five leases from April Cornell and converted these five locations to Cache stores. We also converted one of our Lillie Rubin stores to a Cache store. During fiscal 2006, we closed seven Cache stores as part of our ongoing efforts to eliminate under performing stores.
In connection with the introduction of our Cache Luxe concept in the third fiscal quarter of 2006, we converted 16 Lillie Rubin locations to Cache Luxe stores and combined three Lillie Rubin locations with adjacent Cache stores allowing us to include Cache Luxe merchandise in these three expanded Cache stores. Almost all of our Cache Luxe stores are in malls that also contain a Cache store. We closed one Cache Luxe store in fiscal 2007. We do not expect to open any new Cache Luxe stores during fiscal 2008.
We continually review potential new locations for stores. We locate our new stores primarily in upscale shopping malls. When selecting a new mall site, we target high traffic locations with suitable demographics and favorable lease economics. When evaluating a new mall location, we also look at the principal and anchor stores in the mall, location of our store within the mall and other specialty stores located in the mall.
We currently operate five street locations and one outlet store. We believe that street locations and outlet stores can enhance our potential store base. We plan to expand our openings of street locations and outlet stores.
Marketing and Promotion
Our marketing program currently consists of Direct Marketing through Direct Mail and Email, as well as our customer loyalty program, Cache Accents.
During May 2007, the Company launched the Cache Accents program. The Cache Accents program was designed to encourage repeat sales, increase per transaction spending and to create customer loyalty. A customer can enroll in the Cache Accents program without any cost and earn a lifetime discount of 5%, as long as they are a member. A member is considered to be a "preliminary" member until the customer spends the required $300 over any length of time. Once the customer spends the required $300 they become a "permanent" member and is then eligible for the discount of 5%. As part of the Cache Accents program, the member is also entitled to free shipping and private sales. Most
"permanent" members of the Accent program receive an average of one fashion mailer per month. We believe the Cache Accents program will significantly improve our ability to leverage our customer database, which contains more than 4.3 million names. We believe the Cache Accents program will also help us achieve higher comparable store sales and improve our margins.
Our brand is also supported by visual merchandising, which consists of window displays, front table layouts and various in-store promotions. Visual merchandising is an important component of our marketing and promotion strategy since our mall locations provide us with significant foot traffic. We make decisions regarding store displays and signage at the corporate level, ensuring a consistent appearance throughout all our stores. In addition, we encourage store management to become involved in community affairs, such as participating in local charity fashion shows, to expand our brand recognition and meet potential customers.
Our web site, http://www.cache.com, allows customers to search for Cache store locations, purchase merchandise online, view currently available styles and schedule private fittings of merchandise at any Cache store. Over the past three years, web site sales have increased from approximately $2.4 million in fiscal 2005 to approximately $4.7 million in fiscal 2007.
Competition
The market for women's sportswear, dresses and accessories is highly competitive. We compete primarily with specialty retailers of women's apparel and department stores located in the same mall or a nearby location. We believe our target customers choose to purchase apparel based on the following factors:
•Style and fashion;
•Fit and comfort;
•Customer service;
•Shopping convenience and environment; and
•Value.
Information Systems
We have historically invested in information systems to improve sales, gain efficiencies and reduce operating costs. Our information systems integrate all major aspects of our business, including sales, finance, distribution, purchasing, inventory control and merchandise planning. Our stores utilize a POS system with price look-up capabilities for both inventory and sales transactions. The Company completed the rollout of a new upgraded POS system to its stores in early fiscal 2007. We also installed a wide area network as part of this upgrade, which allows us to add functionality to our POS system including the ability to process debit card transactions at lower costs, centralize credit authorizations, improve labor scheduling, centralize our customer database, introduce our customer loyalty program, speed up customer transaction time and analyze real-time sales data. In addition, we began to sell gift cards and use merchandise credit cards during the second half of 2006, replacing paper-based gift certificates and merchandise credits.
Trademarks and Service Marks
We are the owner in the United States of the "Cache", "Cache Luxe" and "Mary L" trademarks and service marks. The "Mary L" trademark was acquired in connection with the purchase of Adrienne Victoria Designs, Inc. The marks are registered with the United States Patent and Trademark Office. Each federal registration is renewable indefinitely if the mark is still in use at the time of renewal. Our rights to the aforementioned marks are a significant part of our business. Accordingly, we intend to
maintain these marks and the related registration. We are currently unaware of any material claims of infringement or other challenges to our right to use our marks in the United States.
Employees
As of December 29, 2007, we had approximately 2,860 employees, of whom approximately 1,320 were full-time employees and approximately 1,540 were part-time employees. As of December 29, 2007, we had approximately 2,680 store personnel and approximately 180 non-store personnel. None of these employees are represented by a labor union. We consider our employee relations to be satisfactory.
Available Information
We make available on our website, http://www.cache.com, under "Investor Relations," free of charge, our annual reports on Form 10-K, quarterly reports on Form 10-Q, currents reports on Form 8-K and amendments to those reports as soon as reasonably practicable after we electronically file or furnish such materials to the U.S. Securities and Exchange Commission ("SEC").
Our Code of Business Conduct and Ethics, and Board of Directors' Committee Charters are also available on our website, under "Corporate Governance".
ITEM 1A.
ITEM 1A. RISK FACTORS
Risks Related to Our Business
Our growth will depend on our ability to successfully open and operate new stores. This may strain our ability to manage our business.
Our growth strategy depends on our ability to open and operate new stores on a profitable basis. Opening new stores is dependent on a variety of factors including our ability to:
•Identify suitable markets and sites for store locations;
•Negotiate acceptable lease terms;
•Hire, train and retain competent store personnel;
•Maintain a proportion of new stores to mature stores that does not harm existing sales or profitability;
•Foster current relationships and develop new relationships with vendors that are capable of supplying an increasing volume of merchandise;
•Manage inventory effectively to meet the needs of new and existing stores on a timely basis; and
•Expand our infrastructure to accommodate growth.
During both fiscal 2005 and 2006, we opened 17 Cache stores and during fiscal 2007, we opened 10 Cache stores. In addition, during the third fiscal quarter of fiscal 2006, we converted 16 Lillie Rubin locations to Cache Luxe stores. During fiscal 2008, we intend to open approximately 12 new Cache stores. We intend to continue to open a significant number of new stores in future years and to remodel many of our existing stores as their leases come up for renewal. Our proposed expansion will place demands on our operational, managerial and administrative resources. These increased demands could have a material adverse effect on our ability to manage our business. As we open more stores, our resources may come under greater strain and may prove to be inadequate. If we are unable to open new stores or remodel our existing stores as planned, or if our new stores are unsuccessful, it could have a negative impact on our financial performance. Even if we are able to open new stores as planned, some of our newly opened stores may not be commercially successful, possibly resulting in
their closure at a significant cost to us or a material adverse effect on our financial condition or results of operations.
Our expansion into new markets could adversely affect our financial condition and results of operations.
Some of our new stores will be opened in areas of the United States in which we currently have few or no stores. The expansion into new markets may present competitive, merchandising and administrative challenges that are different from those currently encountered in our existing markets. Any of these challenges could adversely affect our business, financial condition and results of operations. To the extent our new store openings are in existing markets, we may experience reduced net sales volumes in existing stores in those markets.
Our new Cache Luxe concept may not be successful, which could adversely affect our financial condition and results of operations and divert management's time and attention from our core Cache store business.
During the third fiscal quarter of 2006, we opened 16 Cache Luxe stores. We closed one Cache Luxe store during fiscal 2007. Almost all of our Cache Luxe stores are located in malls that also contain a Cache store. As a new concept, Cache Luxe may not be successful. It may detract from our existing Cache brand and/or result in reduced sales at Cache stores that are located in the same mall as a Cache Luxe store. The continued implementation and expansion of the Cache Luxe concept could divert our management's time and resources from our core Cache store business. If the results of operations of our Cache Luxe stores are not significantly better than the Lillie Rubin stores they replaced, there could be a material adverse effect on our business, financial condition and results of operations.
Our ability to attract new customers to our stores depends heavily on the success of the shopping malls in which we are located.
All but a few of our existing stores are located in shopping malls. Sales at these stores are derived in large part from the volume of consumer traffic in these malls. Our stores benefit from the ability of malls and their other tenants to generate traffic. We cannot control the development of new shopping malls, the availability or cost of appropriate locations within existing or new shopping malls, or the continued popularity of malls as shopping destinations. A significant decrease in shopping mall traffic would have a material adverse effect on our results of operations.
Fluctuations in comparable store sales and quarterly results of operations could cause the price of our common stock to decline substantially.
Our quarterly results of operations for our individual stores have fluctuated in the past and will continue to fluctuate in the future. Since the beginning of fiscal 2005, our quarterly comparable sales at Cache stores have ranged from an increase of 9% to a decrease of 7%. We cannot assure you that we will be able to increase comparable store sales in the future over any given period. Our comparable store sales and quarterly results of operations are affected by a variety of factors, including:
•Fashion trends;
•Calendar shifts of holiday or seasonal periods;
•The effectiveness of our inventory management;
•Changes in our merchandise mix;
•The timing of promotional events;
•Weather conditions;
•Changes in general economic conditions and consumer spending patterns; and
•Actions of competitors or mall anchor tenants.
If our future comparable store sales or our quarterly financial results fail to meet market expectations, then the market price of our common stock could decline substantially.
Our success depends in part on the efforts of our management team.
Our success in implementing our business and growth strategies depends on the abilities and experience of our management team. If we were to lose the services of one or more members of this team, and in particular the services of Thomas Reinckens, our Chief Executive Officer, we may be unable to find a suitable replacement on a timely basis. This in turn could adversely affect our business, financial condition and results of operations.
We rely on a relatively small number of domestic vendors, and our success depends on maintaining good relationships with these vendors to source our products.
We drop ship products to our stores, which allows us to respond quickly to fashion preferences and demand, as well as to reduce inventory risk. Due to our recent acquisition of our largest vendor, we currently purchase only a portion of our merchandise from third party agents, who arrange for the manufacture of our apparel overseas. Our five largest vendors, excluding our largest vendor which we recently acquired, accounted for approximately 14% of our purchases during the 52 weeks ended December 29, 2007, and our largest vendor accounted for 4% of our purchases during the 52 weeks ended December 29, 2007.
In July 2007, we purchased certain assets of our largest vendor, AVD. During fiscal 2006, we purchased 27% of our merchandise from AVD. During fiscal 2007, purchases from AVD prior to acquisition totaled 47% of our purchases. We anticipate purchases from third party vendors to approximate 25% of our total purchases in fiscal 2008.
The terms of our relationships with our vendors generally are not contractual and do not assure adequate supply or pricing on a long-term basis. If one or more of these vendors ceased to sell to us or significantly altered the terms of our relationship, we may be unable to obtain merchandise in a timely manner, in the desired styles, fabrics or colors, or at the prices and volumes we wish to purchase. This could hurt our ability to respond to changing fashion trends and thus our sales and profitability. We have been reducing the number of vendors with which we do business and anticipate continuing this process. As we continue to do so, the risks associated with a vendor ceasing to sell to us may increase. In addition, an increase in our direct-sourcing of merchandise from international vendors could cause our existing domestic vendors to reduce or eliminate their sales to us.
Our manufacturers may be unable to manufacture and deliver products in a timely manner or meet our quality standards, which could result in lost sales, cancellation charges or excessive markdowns.
We purchase apparel and accessories from importers and directly from third-party manufacturers. Similar to most other specialty retailers, we have short selling seasons for much of our inventory. Factors outside of our control, such as manufacturing or shipping delays or quality problems, could disrupt merchandise deliveries and result in lost sales, cancellation charges or excessive markdowns, all of which could have a material adverse effect on our financial condition and results of operations.
Substantially all of the materials used to manufacture our merchandise is produced in foreign facilities. This subjects us to the risks of international trade and other risks generally associated with doing business in foreign markets.
Substantially all of our vendors utilize overseas production facilities. The failure of foreign manufacturers to ship materials or products to us in a timely manner could result in our stores lacking needed inventory. Any event causing a disruption of imports, including financial or political instability, currency fluctuations, terrorism or heightened security, trade restrictions in the form of tariffs or quotas or both, political or military conflict involving the United States, or the migration of manufacturers, could negatively affect our business, financial condition or results of operations. These adverse impacts may include an increased cost to us, reductions in the supply of merchandise or delays in our manufacturing lead time.
We rely on our manufacturers to use acceptable ethical business practices, and if they fail to do so, the Cache brand name could suffer reputational harm and our sales could decline or our inventory supply could be interrupted.
We do not control our manufacturers or their labor and other business practices. If one of our manufacturers violates labor or other laws or implements labor or other business practices that are generally regarded as unethical in the United States, the shipment of finished products to us could be interrupted, orders could be canceled, relationships could be terminated and our reputation could be damaged. Any of these events could have a material adverse effect on our revenues and, consequently, our results of operations.
Our plans to increase our direct-sourcing of products sold in our stores may not be successful, which could result in additional costs and manufacturing delays. To the extent that we increase direct-sourcing, interruptions in our direct-sourcing operations could result in lost sales and increased costs.
We have limited experience with direct-sourcing, which can supply us merchandise at lower costs. During fiscal 2007, we purchased certain assets of AVD, which has employees with over 30 years experience in design, production and sourcing. During fiscal 2007, we directly sourced approximately 61% of our merchandise. In fiscal 2008, we anticipate 80% of our receipts will be directly sourced. We cannot assure you that direct-sourcing will result in the cost savings we anticipate. Furthermore, we may not be able to effectively cultivate and manage these direct relationships with manufacturers, which could result in additional costs and manufacturing delays.
To the extent that we are successful in significantly increasing direct-sourcing, we will be further subject to risks associated with doing business in foreign markets. Interruptions in our direct-sourcing operations could disrupt manufacturing, shipment or receipt of our merchandise, which could result in lost sales and increase our costs. Increasing our direct-sourcing could adversely affect our relationships with our existing domestic vendors.
We rely on third parties to distribute our merchandise. If these third parties do not adequately perform this function, our business would be disrupted.
The efficient operation of our business depends on the ability of our vendors to ship merchandise through third party carriers, such as United Parcel Service, directly to our individual stores. These carriers typically employ personnel represented by labor unions and have experienced labor difficulties in the past. Due to our reliance on these parties for our shipments, interruptions in the ability of our vendors to ship our merchandise or the ability of carriers to fulfill the distribution of merchandise to our stores could adversely affect our business, financial condition and results of operations. The increase in fuel prices may also increase our shipping costs, which could adversely affect our business, financial condition and results of operations.
The raw materials used to manufacture our products and our distribution and labor costs are subject to availability constraints and price volatility, which could result in increased costs.
The raw materials used to manufacture our products are subject to availability constraints and price volatility caused by high demand for petroleum-based synthetic fabrics, weather, supply conditions, regulations, economic climate and other unpredictable factors. In addition, our transportation and labor costs are subject to price volatility caused by the price of oil, supply of labor, regulations, economic climate and other unpredictable factors. Increases in demand for, or the price of, raw materials, distribution services and labor could have a material adverse effect on our business, financial condition and results of operations.
Because our Cache brand is associated with all of our merchandise, our success depends heavily on the value associated with our brand. If the value associated with our brand were to diminish, our sales could decrease, causing losses or lower profits.
Our success depends on our Cache brand and its value. The Cache name is integral to our business, as well as to the implementation of our new Cache Luxe concept. The Cache brand could be adversely affected if our public image or reputation were to be tarnished, which could result in a material adverse effect on our business.
We may be unable to protect our trademarks and other intellectual property rights.
We believe that our trademarks and service marks are important to our success and our competitive position due to their name recognition with our customers. There can be no assurance that the actions we have taken to establish and protect our trademarks and service marks will be adequate to prevent imitation of our products by others or to prevent others from seeking to block sales of our products as a violation of the trademarks, service marks and proprietary rights of others. Also, others may assert rights in, or ownership of, our trademarks and other proprietary rights, and we may be unable to successfully resolve those types of conflicts to our satisfaction.
Any material disruption of our information systems could disrupt our business and reduce our sales.
Our information systems integrate all major aspects of our business, including sales, finance, distribution, purchasing, inventory control and merchandise planning. We have completed the rollout of a new upgraded POS system to all of our stores and installation of a wide area network that allows us to add functionality to our POS system, including the ability to process debit card transactions at lower rates, centralize credit authorizations, enhance labor scheduling, centralize our customer database, introduce our customer loyalty program, speed up customer transaction time and analyze real-time sales data. We are increasingly dependent on these information systems for the efficient operation of our business, including our web site, and to facilitate the enhancement of our marketing efforts.
We may experience operational problems with our information systems as a result of system failures, viruses, computer "hackers" or other causes. Any material disruption or slowdown of our systems, including a disruption or slowdown caused by any failure on our part to successfully maintain or perform additional upgrades to our systems, could cause information to be lost or delay our ability to process and make use of that information in our business, which may lead to declines in sales. In addition, if future changes in technology cause our information systems to become obsolete, or if our current information systems prove to be inadequate to support our growth, we could lose customers.
Our marketing efforts rely upon the effective use of customer information. Restrictions on the availability or use of customer information could adversely affect our marketing program, which could result in lost sales and a decrease in profits.
We use our Cache Accents loyalty program database to market to our customers. We expanded the use of our customer database after implementing our customer loyalty program, which occurred during May 2007. Any limitations imposed on the use of such consumer data, whether imposed by federal or state governments or business partners, could have an adverse effect on our future marketing activity. In addition, to the extent our security procedures and protection of customer information prove to be insufficient or inadequate, we may become subject to litigation, which could expose us to liability and cause damage to our reputation or brand.
We are subject to numerous regulations that could affect our operations. Changes in such regulations could impact the operation of our business through delayed shipments of our goods, fines or penalties that could affect our profitability.
We are subject to customs, truth-in-advertising, truth-in-lending and other laws, including consumer protection regulations and zoning and occupancy ordinances, that regulate retailers generally and/or govern the importation, promotion and sale of merchandise, the use of proprietary credit cards and the operation of retail stores and warehouse facilities. Although we undertake to monitor changes in these laws, if these laws change without our knowledge, or are violated by our employees, importers, buying agents, manufacturers or distributors, we could experience delays in shipments and receipt of goods or be subject to fines or other penalties under the controlling regulations, any of which could have a material adverse effect on our business, financial condition and results of operations.
Risks Related to Our Industry
Our success depends on our ability to respond rapidly to ever-changing fashion trends and customer demands.
Customer tastes and fashion trends change rapidly. Our success depends in large part on our ability to anticipate the fashion tastes of our customers, to respond to changing fashion tastes and consumer demands, and to translate market trends into fashionable merchandise on a timely basis. If we are unable to anticipate, identify or react to changing styles or trends, our sales may decline and we may be faced with excess inventories. If this occurs, we may be forced to rely on additional markdowns or promotional sales to dispose of excess or slow moving inventory. This could also cause us to miss opportunities. Both of the foregoing could have a material adverse effect on our business, financial condition and results of operations. In addition, if we misjudge fashion tastes and our customers come to believe that we are no longer able to offer fashions that appeal to them, our brand image may suffer.
We may be adversely impacted at any time by a significant number of competitors.
The women's apparel market is highly competitive, fragmented and characterized by low barriers to entry. We compete against a diverse group of retailers, including traditional department stores, national and local specialty retail stores, internet-based retailers and mail order retailers. Many of our competitors, particularly traditional department stores and national specialty retail stores, are larger and have greater resources to expend on marketing and advertising campaigns. In addition, many of these competitors are already established in markets that we have not yet penetrated and have greater name recognition in general. We cannot assure you that we will continue to be successful in competing against existing or future competitors. Our expansion into markets served by our competitors or entry of new competitors or expansion of existing competitors into our markets could have a material adverse effect on our business, financial condition and results of operations.
Our sales fluctuate on a seasonal basis and are sensitive to economic conditions and consumer spending patterns, leaving our operating results particularly susceptible to changes in shopping patterns.
Our net sales and net income are generally highest each year during our fourth fiscal quarter (October, November and December) and lowest in our third fiscal quarter (July, August and September). Sales during any period cannot be used as an accurate indicator of our annual results. Any significant decrease in sales during the fourth quarter in a given year would hurt our profitability.
Our business is also sensitive to changes in overall economic conditions and consumer spending patterns. Our growth, sales and profitability may be adversely affected by the timing of holidays, unfavorable local, regional, national or international economic and other conditions, including rising energy prices, climatological events such as hurricanes, or the effects of war, terrorism or the threat of either of these events.
If new legislation restricting the importation or increasing the cost of textiles and apparel produced abroad is enacted, our business could be adversely affected.
Legislation that would restrict the importation or increase the cost of textiles and apparel produced abroad has been periodically introduced in Congress. The enactment of new legislation or international trade regulation, or executive action affecting international textile or trade agreements, could adversely affect our business. International trade agreements that can provide for tariffs and/or quotas can increase the cost and limit the amount of product that can be imported.
The quota system established by the World Trade Organization ("WTO") was eliminated on December 31, 2004. We cannot be certain of the full impact that this elimination will have on international trade in general and the apparel industry in particular. We also cannot be certain of the impact of quota elimination on our business, including increased competition that could result from the importation of an increasing amount of lower priced apparel into the United States. Notwithstanding quota elimination, China's accession agreement for membership in the WTO provides that WTO member countries, including the United States, may re-impose safeguard quotas on specific products. In May 2005, the United States imposed unilateral quotas on several product categories, limiting growth in imports of these categories to 7.5% a year. The safeguard quotas in several categories have been extended by the United States government and will likely continue through 2009. These limitations apply to a limited number of products imported by us from China. We are unable to assess the potential for additional action by the United States government with respect to these or other product categories in the event that the quantity of imported apparel significantly disrupts the apparel market in the United States. Additional action by the United States in response to a disruption in its apparel markets could limit our ability to import apparel and increase our costs.
Risks Related to Our Common Stock
Our share price has fluctuated significantly and could continue to fluctuate significantly.
Between January 1, 2006 and December 29, 2007, the market price of our common stock has ranged from $9.70 to $25.72 per share. The stock market has, from time to time, experienced extreme price and volume fluctuations. The market price for our common stock may change significantly in response to various factors, including:
•Periodic variations in the actual or anticipated financial results of our business or other companies in the retail industry;
•A shortfall in net sales or net income from that expected in securities analysts' estimates or from that expected by investors;
•The timing of new store openings and net sales contributed by new stores;
•Material announcements by us or our competitors;
•Public sales of a substantial number of common shares and
•Adverse changes in general market conditions or economic trends.
In the past, companies that have experienced volatility in the market price of their shares have been the subject of securities class action litigation. If we become involved in a securities class action litigation in the future, it could result in substantial costs and diversion of our management's attention and resources, thus harming our business.
Provisions of our governing documents and Florida law could discourage acquisition proposals or delay a change in our control, and this may adversely affect the market price of our common stock or deny our stockholders a chance to realize a premium on their shares.
Our articles of incorporation and by-laws contain anti-takeover provisions, including those listed below, that could make it more difficult for a third party to acquire control of us, even if that change in control would be beneficial to our stockholders:
•our board of directors has the authority to issue common stock and preferred stock and to determine the price, rights and preferences of any new series of preferred stock without further stockholder approval; and
•there are limitations on who can call special meetings of stockholders.
In addition, provisions of Florida law and our stock option plans may also discourage, delay or prevent a change in control of our company or unsolicited acquisition proposals.
ITEM 1B.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 2.
ITEM 2. PROPERTIES
All but a few of our 297 stores are located in shopping malls. The substantial majority of our stores contain between 1,500 and 2,500 square feet of space, with the typical store averaging 2,000 square feet. All of our stores are in leased facilities, and we typically negotiate our rental agreements based on our portfolio of store locations with a particular landlord rather than on an individual basis. Rental terms usually include a fixed minimum rent plus a percentage rent based on sales in excess of a specified amount. In addition, we generally are required to pay a charge for common area maintenance, utility consumption, promotional activities and/or advertising, insurance and real estate taxes. Many leases contain fixed escalation clauses. Most leases contain leasehold improvement reimbursements from landlords and/or rent holidays. In recognizing landlord incentives and minimum rent expenses, the Company amortizes the charges on a straight line basis over the lease term.
Our leases expire at various dates through 2019. In most instances, we have renewal options at increased rents. The following table indicates the periods during which our leases expire.
Our corporate office is a 20,000 square foot facility located at 1440 Broadway in New York City. We lease this space under a 10-year lease through 2013 at a rate of approximately $543,000 per year. In addition, we added 14,500 square feet located at 260 West 39th Street in New York City, as part of the AVD acquisition. The AVD leases run through 2012 at a rate of approximately $345,000 per year.
We contract for space in a warehouse in New York on an as-needed basis to serve as a staging area for new store inventories and fixtures.
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS
We are party to various lawsuits arising in the ordinary course of our business. Management does not believe it is reasonably possible that resolution of these matters will result in a material loss.
ITEM 4.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Cache, Inc. held its annual meeting of shareholders at its headquarters in New York, New York on November 13, 2007. Of the 15,672,329 shares outstanding as of the record date, 14,743,771 shares were represented by proxy at the meeting. Proxies were solicited by Cache pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended. At the meeting, Cache's shareholders voted on the following matters:
(1)Proposal to elect five directors to hold office for a one-year term and until their successors are elected and qualified.
(2)Proposal to ratify the appointment of Mahoney Cohen & Company, CPA, P.C. as the Company's independent auditors for the fiscal year ending December 29, 2007.
For
Against
Abstain
14,737,630
4,900
1,241
PART II
ITEM 5.
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
a.The principal market in which the Company's Common Stock is being traded is the NASDAQ National Market System. The stock symbol is CACH. The price range of the high and low bid information for the Company's Common Stock during 2006 and 2007, by fiscal quarters, are as follows:
Such over-the-counter market quotations reflect inter-dealer prices, without retail mark-up, markdown or commission and may not necessarily represent actual transactions.
b.As of February 29, 2008 there were approximately 300 registered holders of record of the Company's Common Stock.
c.The Company has never paid cash dividends on its common stock. Payment of dividends is within the discretion of the Company's Board of Directors. On June 18, 2004, the Company paid a 3 for 2 stock dividend to holders of record.
d.The following table summarizes our equity compensation plans as of December 29, 2007:
e.Share repurchase program for thirteen weeks ended December 29, 2007:
All purchases were made pursuant to the previously announced share repurchase program approved by our Board on July 30, 2007. Initial approval was for up to 1,000,000 shares, with subsequent increases in the fourth quarter of fiscal 2007 of an additional 1,000,000 shares, and increases on January 2 and February 5, 2008 of 1,000,000 shares and 500,000 shares, respectively, for an overall total of 3,500,000 shares. There is no expiration date for this program.
Shares purchased as part of the share repurchase program were all purchased in open market transactions. These amounts do not take into account the additional repurchases announced on January 2, 2008 and February 5, 2008.
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA
The following Selected Consolidated Financial Data should be read in conjunction with the Company's Consolidated Financial Statements and Notes thereto.
(1)Other income consists of interest income, interest expense and miscellaneous income.
(2)Diluted weighted average shares for the fiscal years ended December 27, 2003, January 1, 2005, December 31, 2005, December 30, 2006 and December 29, 2007 include 465,000, 415,000, 424,000, 369,000 and 234,000 shares respectively, due to the potential exercise of stock options that were outstanding and exercisable during those years.
(3)Average sales per square foot are calculated by dividing net sales by the weighted average store square footage available.
(4)Comparable store sales data is calculated based on the net sales of stores open at least 12 full months at the beginning of the period for which the data are presented.
(5)Includes recognition of $2.5 million of breakage income for previously issued gift cards and merchandise credits.
(6)Includes a charge of $5.7 million for the exit of the Lillie Rubin business.
ITEM 7.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General
We are a nationwide, mall-based specialty retailer of lifestyle sportswear and dresses targeting style-conscious women. Our merchandise offerings extend from elegant eveningwear to sophisticated casual and daytime sportswear, which encompasses a variety of tops, bottoms, dresses and accessories, all of which are sold under our Cache brand. We believe the appeal of our merchandise is enhanced through the intimate boutique-like environment we offer to our customers. This environment is achieved through a high level of customer service combined with our smaller store format, which averages approximately 2,000 square feet.
We target women between the ages of 25 and 45 through our differentiated merchandising mix and exciting Cache and Cache Luxe store environments. Our brand appeals to a woman who has a youthful attitude, is self-confident and fashion-conscious, and requires a missy fit. Our sportswear embodies a mix of lifestyle separates for both day and evening. Our stores carry a diverse range of merchandise, which includes dresses for daytime and evening, and continues to be an important dress resource and destination for our target customers. Our accessories complement the seasonal themes and palettes of our sportswear and dresses.
Our Cache Luxe concept primarily focuses on our daytime and eveningwear merchandise. This concept is expected to broaden our customer base, enable us to offer a larger selection of evening apparel and accessories at higher price points and allow us to leverage our marketing under a single
Cache brand. In addition, Cache stores located in malls containing a Cache Luxe store have increased capacity to offer an expanded casual assortment. Almost all of our current Cache Luxe stores are in malls that also contain a Cache store.
For the fiscal year ended December 29, 2007, sportswear accounted for 58.7%, dresses for 32.1% and accessories for 9.2% of Cache's net sales. Cache's price points range from $60 to $300 for sportswear, $125 to $450 for dresses and $30 to $150 for accessories. Our new Cache Luxe stores generally have higher price points than our Cache stores. As of December 29, 2007, we operated 297 Cache and Cache Luxe stores, primarily situated in central locations in high traffic, upscale shopping malls, in 43 states, Puerto Rico and the U.S. Virgin Islands.
Management Overview
Fiscal 2007 represents the Company's seventeenth consecutive profitable year.
During May 2007, the Company launched the Cache Accents program. The Cache Accents program was designed to encourage repeat sales, increase per transaction spending and to create customer loyalty. A customer can enroll in the Cache Accents program without any cost and earn a lifetime discount of 5%, as long as they are a member. We believe the Cache Accents program will significantly improve our ability to leverage our customer database, which contains more than 4.3 million names. We also believe the Cache Accents program will help us achieve higher comparable store sales and improve our margins.
During the second quarter of fiscal 2007, Cache introduced a co-branded customer credit card program. Under this program, the Company receives from the issuing bank a non-refundable credit card activation fee for each new account that is opened and activated. In addition, credit card holders are offered a program whereby points can be earned on net purchases made with the co-branded credit card. The issuing bank bears the cost of the reward program and is responsible for the administration and management of the program. The Company also receives from the issuing bank and Visa U.S.A Inc. a sales royalty, which is based on a percentage of net purchases made by cardholders at Cache or other businesses.
On July 3, 2007, the Company, through a wholly-owned subsidiary which was created in connection with the acquisition, acquired certain assets of Adrienne Victoria Designs, Inc. ("AVD"), our largest vendor. Under the terms of the agreement, the Company made cash payments totaling $5.7 million, including transaction costs. The agreement also calls for guaranteed installment payments to be paid over 5 years, as well as contingent payments, based upon earn-out provisions to be paid also over 5 years, if certain conditions are met. The Company acquired certain assets of AVD, a design, sourcing and manufacturing company, to increase operating efficiencies and increase shareholder value. The Company also acquired the rights to the "Mary L" trademark. Mary L products are sold in upper tier department stores.
On July 30, 2007, the Company's Board of Directors authorized a share repurchase program, which began in August 2007, pursuant to which the Company may repurchase up to 1,000,000 shares of Company common stock, either through the open market or in privately negotiated transactions in accordance with SEC requirements, in either case, at the prevailing market rates. During the fourth quarter of fiscal 2007, the Board of Directors authorized the repurchase of an additional 1,000,000 shares bringing the Company's total repurchase program to 2,000,000 shares at the end of Fiscal 2007. There is no expiration date governing the period over which the Company may repurchase shares.
On January 2, 2008, the Board of Directors authorized an additional 1,000,000 share repurchase, and on February 5, 2008, the Board of Directors authorized an additional 500,000 share repurchase, bringing the total authorization to 3,500,000 shares.
Fiscal 2007 marked a year in which we positioned Cache to report sustained growth in sales and profitability. During the Fall, with our merchandise assortments resonating with our core customers, the acquisition of AVD, the launch of the Cache Accents program and the exit of the Lillie Rubin business completed, we began to implement marketing initiatives aimed at increasing customer loyalty and awareness of our Cache brand. We also extended Cache's reach by appealing to a higher income consumer after the launch of Cache Luxe in fiscal 2006. Finally, we began to take advantage of sourcing opportunities through the acquisition of AVD which will produce higher gross margins for our Company. Nonetheless, we were disappointed in our fourth quarter performance, as we did not experience the expected lift in sales during late December.
The Company opened 10 Cache stores in fiscal 2007 and closed five Cache stores. Operating cash flow funded all store openings. In fiscal 2008, we intend to open approximately 12 Cache stores, also intended to be funded by operating cash flow. In fiscal 2007, the Company remodeled 16 Cache stores, approximately 75% of the chain is now in the new format.
In Fall 2006, the Company introduced an upgrade to its POS system for all locations. The upgraded system, which provides many productivity enhancements, allowed the Company to launch a customer loyalty program, Cache Accents, in May 2007, which complements the Company's direct marketing initiatives.
We use a number of key indicators of financial condition and operating performance to evaluate the performance of our business, some of which are set forth in the following table:
Net sales. Net sales consist of sales from comparable stores and non-comparable stores. A store is not included in comparable store sales until the first day of the fiscal month following the twelfth full month of sales. Non-comparable store sales include sales generated at new stores prior to the period when they are considered comparable stores and sales generated from stores that we have since closed.
In connection with the acquisition of AVD, the Company also acquired the rights to the "Mary L" trademark. Mary L products are sold in upper tier department stores and as a result, Mary L sales are included under net sales. Mary L sales are recorded net of any returns, chargebacks, discounts and allowances.
During the second quarter of fiscal 2007, Cache introduced a co-branded customer credit card program. Under this program, the Company receives from the issuing bank a non-refundable credit card activation fee for each new account that is opened and activated. These fees are initially deferred and recognized in consolidated net sales as revenue over the life of the contract. In addition, the Company receives from the issuing bank and Visa U.S.A Inc. a sales royalty, which is based on a percentage of net purchases made by the cardholder at Cache or other businesses. Sales royalties earned are also recorded under net sales. The amount of fee income recorded in connection with activated credit cards was insignificant in fiscal 2007.
Shipping and handling. Amounts billed to customers for shipping and handling fees are included in net sales at the time of shipment. Costs incurred for shipping and handling are included in cost of sales.
Cost of sales. Cost of sales includes the cost of merchandise, cost of freight and labor from vendors and contractors, costs incurred for shipping and handling, payroll for our design, buying and merchandising personnel, production facility in connection with the acquisition of AVD and store occupancy costs. Store occupancy costs include rent, contingent rents, common area maintenance and real estate taxes.
Store operating expenses. Store operating expenses include payroll, payroll taxes, health benefits, insurance, credit card processing fees, depreciation, licenses and taxes as well as marketing and advertising expenses.
General and administrative expenses. General and administrative expenses include district and regional manager payroll, other corporate personnel payroll and employee benefits, employment taxes, insurance, legal and other professional fees and other corporate level expenses. Corporate level expenses are primarily attributable to our corporate headquarters in New York.
Recent Developments
On January 24, 2008 Mr. Brian Woolf, previously Chairman and Chief Executive Officer, as well as the principal executive officer, of Cache, Inc. resigned from the Company effective immediately. On January 24, 2008, Mr. Thomas Reinckens, currently Cache Inc.'s President, was appointed as the Company's Chairman and Chief Executive Officer and will serve as the Company's principal executive officer. He will continue in his position as the Company's President in addition to assuming these new roles.
Critical Accounting Policies and Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires the appropriate application of certain accounting policies, many of which requires us to make estimates and assumptions about future events and their impact on amounts reported in our financial statements and related notes. Since future events and their impact cannot be determined with certainty, the actual results will inevitably differ from our estimates. Such differences could be material to the financial statements.
Our accounting policies are more fully described in Note 1 to the financial statements, located elsewhere in this document. We have identified certain critical accounting policies which are described below.
Inventories. Our finished goods inventories at our retail stores are valued at the lower of cost or market using the retail inventory method. Under the retail inventory method ("RIM"), the valuation of inventories at cost and the resulting gross margins are calculated by applying a calculated cost to retail ratio to the retail value of inventories. RIM is an averaging method that is widely used in the retail industry due to its practicality. Additionally, it is recognized that the use of RIM will result in valuing inventories at the lower of cost or market if markdowns are currently taken as a reduction of the retail value of inventories. Inherent in the RIM calculation are certain significant management judgments including, among others, merchandise markon, markups, and markdowns, which significantly impact the ending inventory valuation at cost as well as the resulting gross margins. We take markdowns due to changes in fashion and style, based on the following factors: (i) supply on hand, (ii) historical experience and (iii) our expectations as to future sales. We do not anticipate any significant change in our markdown strategy that would cause a significant change in our earnings. We believe that our RIM provides an inventory valuation, which results in a carrying value at the lower of cost or market. For our AVD division, which makes up approximately 10% of total inventory, the raw materials, work in process and finished goods inventories are valued at the lower of cost or market value, using the first-in-first-out valuation method. The Company ensures that the raw materials, work in process and
finished goods are properly valued by taking into account any obsolescence and recording a reserve in accordance with our established policy.
Finite long-lived assets. The Company's judgment regarding the existence of impairment indicators is based on market and operational performance. We assess the impairment of long-lived assets, primarily fixed assets, whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Factors we consider important which could trigger an impairment review include the following:
•significant changes in the manner of our use of assets or the strategy for our overall business;
•significant negative industry or economic trends;
•store closings; or
•underperforming business trends.
In the evaluation of the fair value and future benefits of finite long-lived assets, we perform an analysis by store of the anticipated undiscounted future net cash flows of the related finite long-lived assets. If the carrying value of the related asset exceeds the undiscounted cash flows, the carrying value is reduced to its fair value. Various factors including future sales growth and profit margins are included in this analysis. To the extent these future projections or strategies change, the conclusion regarding impairment may differ from the current estimates. No impairment charges were incurred in fiscal 2005. In fiscal 2006, the Company recorded an impairment charge of $101,000, related to a one store, which the Company closed in early 2007. In fiscal 2007, the Company recorded an impairment charge of $73,000 for one store, which was closed in January 2008.
Goodwill and Intangible Assets. The Company adopted Statement of Financial Accounting Standards ("SFAS") No. 142, "Goodwill and Other Intangible Assets" ("SFAS No. 142") on December 30, 2001. SFAS No. 142 requires that ratable amortization of goodwill be replaced with periodic tests of the goodwill's impairment. During fiscal 2007, in connection with the acquisition of AVD, the Company recorded goodwill and other intangible assets. The Company performs annual impairment testing which considers the Company's fair value to determine whether an impairment charge related to the carrying value of the Company's recorded goodwill and other intangible assets is necessary. As a result of this testing, the Company concluded that there was no such impairment loss necessary in fiscal 2007. This is reevaluated annually during the fourth quarter, or more frequently if necessary, using similar testing.
Self Insurance. We are self-insured for losses and liabilities related primarily to employee health and welfare claims. Losses are accrued based upon our estimates of the aggregate liability for claims incurred using certain actuarial assumptions followed in the insurance industry and based on Company experience. Adjustments to earnings resulting from changes in historical loss trends have been insignificant for fiscal 2005, 2006 and 2007. Further, we do not anticipate any significant change in loss trends, settlements or other costs that would cause a significant change in our earnings. We maintain stop loss insurance coverage which covers us for benefits paid in excess of limits as defined in the plan.
Gift Cards, Gift Certificates and Credits. The Company sells gift cards and gift certificates ("Gift Cards") and issues credits to its customers when merchandise is returned. The Company recognizes sales from Gift Cards when they are redeemed by the customer and income when the likelihood of the Gift Card being redeemed by the customer is remote (Gift Card breakage) since the Company has determined that it does not have a legal obligation to remit the value of unredeemed Gift Cards to the relevant jurisdiction as abandoned property. The Company determines Gift Card breakage income based upon historical redemption patterns. Breakage income represents the balance of Gift Cards, for which the Company believes the likelihood of redemption by the customer is remote. At that time, the Company will recognize breakage income for those Gift Cards.
During the third quarter of fiscal 2006, the Company formed a new subsidiary to handle all Gift Card sales and maintain the liability related to Gift Cards. As a result of transferring all existing obligations to the newly formed subsidiary, the Company recognized $2.4 million of breakage income, within net sales, in the third quarter related to Gift Cards sold/issued since the inception of the Gift Card program. An additional $120,000 of breakage income was recognized in the fourth quarter of 2006. The Company recorded $293,000 of breakage income in fiscal 2007. There was no breakage income recognized in fiscal 2005.
Revenue Recognition. Sales are recognized at the "point of sale," which occurs when merchandise is sold in an "over-the-counter" transaction or upon receipt by a customer. Sales of merchandise via our website are recognized at the expected time of delivery to the customer. Our customers have the right to return merchandise. Sales are reported net of actual and estimated returns. We maintain a reserve for potential product returns and record, as a reduction to sales, a provision for estimated product returns, which is determined based on historical experience. Charges or credits to earnings resulting from revisions to estimates on our sales return provision were approximately ($29,000), $42,000 and ($93,000) for fiscal 2005, 2006 and 2007, respectively. Amounts billed to customers for shipping and handling fees are included in net sales at the time of shipment. Costs incurred for shipping and handling are included in cost of sales. The Company records revenues net of applicable sales tax.
In connection with the acquisition of AVD, the Company also acquired the rights to the "Mary L" trademark. Mary L products are sold in upper tier department stores and as a result, Mary L sales are included under net sales when the merchandise is shipped to the department stores. Mary L sales are recorded net of any returns, chargebacks, discounts and allowances. We also maintain a reserve as a reduction to sales for potential returns, chargebacks, discounts and allowances. The Company reserved $234,000 for such items for fiscal 2007.
During the second quarter of fiscal 2007, Cache introduced a co-branded customer credit card program. Under this program, the Company receives from the issuing bank a non-refundable credit card activation fee for each new account that is opened and activated. These fees are initially deferred and recognized in consolidated net sales as revenue over the life of the contract. During fiscal 2007, the Company received approximately $585,000 in connection with activated cards. The amount of fee income recorded in connection with activated credit cards was insignificant in fiscal 2007.
The Company also offers its credit card holders a program whereby points can be earned on net purchases made with the co-branded credit card. Five reward points are awarded for each dollar spent at Cache and one reward point is awarded for each dollar spent at non-Cache businesses. Cardholders whose credit card account is not delinquent, in default or closed will be automatically eligible to receive a $25 Cache gift card upon accrual of 2,500 reward points. The issuing bank bears the cost of the reward program and is responsible for the administration and management of the program.
The Company also receives from the issuing bank and Visa U.S.A Inc. a sales royalty, which is based on a percentage of net purchases made by cardholders at Cache or other businesses. Cache has determined that since it has not incurred any significant or recurring costs in relation to the co-branded credit card program the sales royalties earned in connection to the agreement will be recorded under net sales. The fees that are incurred by the Company are cardholder incentives, which are funded from the fees paid by the issuing bank and Visa U.S.A Inc. The amount of sales royalty income recorded was insignificant in fiscal 2007.
Income Taxes. The Company accounts for income taxes in accordance with SFAS No. 109, "Accounting for Income Taxes." This statement requires the Company to recognize deferred tax liabilities and assets for the expected future tax consequences of events that have been recognized in the Company's financial statements or tax returns. Under this method, deferred tax liabilities and assets are determined based on the difference between the financial statement carrying amounts and tax bases
of assets and liabilities, using applicable tax rates for the years in which the differences are expected to reverse. When tax contingencies become probable, a liability for the contingent amount is estimated based upon the Company's best estimation of the potential exposures associated with the timing and amount of deductions, as well as various tax filing positions. As of December 29, 2007, the Company does not have any material probable tax contingencies.
Effective December 31, 2006, the Company adopted the provisions of Financial Accounting Standards Board ("FASB") Interpretation No. 48, "Accounting for Uncertainty in Income Taxes" ("FIN 48"). FIN 48 prescribes a comprehensive model of how a company should recognize, measure, present and disclose in its financial statements uncertain tax positions that the company has taken or expects to take on a tax return. FIN 48 states that a tax benefit from an uncertain tax position may be recognized if it is "more likely than not" that the position is sustainable, based upon its technical merits. The tax benefit of a qualifying position is the largest amount of tax benefit that has greater than a 50% likelihood of being realized upon the ultimate settlement with a taxing authority having full knowledge of all relevant information.
The cumulative effect of adoption of FIN 48 did not result in any adjustment in the Company's liability for unrecognized income tax benefits.
Although the Company believes that it has adequately provided for all tax positions, amounts asserted by tax authorities could be greater or less than the Company's accrued position. Accordingly, the Company's provisions on federal, state and local tax-related matters to be recorded in the future may change as revised estimates are made or the underlying matters are settled or otherwise resolved. As of December 29, 2007, the Company does not believe that its estimates, as otherwise provided for, on such tax positions will significantly increase or decrease within the next twelve months.
The Company and certain of its subsidiaries are subject to U.S. federal income tax as well as income tax of multiple state and local jurisdictions.
The Company had previously reached agreement with the IRS and closed the audit of fiscal year 2004, with no change to the tax return. The IRS is currently finalizing its audit of the fiscal 2005 tax return. The Company anticipates there will be no change to the tax return.
As for state and local income taxes, with few exceptions, the Company is no longer subject to state and local income tax examinations by taxing authorities for years prior to 2003.
Seasonality. We experience seasonal and quarterly fluctuations in net sales and operating income. Quarterly results of operations may fluctuate significantly as a result of a variety of factors, including the timing of new store openings, fashion trends and shifts in timing of certain holidays. Our business is subject to seasonal influences, characterized by highest sales during the fourth quarter (October, November and December) and lowest sales during the third quarter (July, August and September).
Results of Operations
The following table sets forth our operating results, expressed as a percentage of net sales.
52 Weeks Ended December 29, 2007 (Fiscal 2007) Compared to 52 Weeks Ended December 30, 2006 (Fiscal 2006)
Net sales. Net sales decreased to $274.5 million from $279.0 million, a decrease of $4.5 million, or 1.6%, below the prior fiscal year. The decrease in fiscal 2007 net sales, as compared to fiscal 2006 reflects $1.5 million reduction in net sales primarily due to a 1% decrease in comparable store sales. Comparable store sales declined 7% in the fourth quarter, which caused comparable store sales for the year to decrease. The fiscal 2006 sales included $13.1 million in sales from the former Lillie Rubin Stores. The decrease in sales was offset by additional net sales from non-comparable stores and wholesale sales recorded by the AVD division.
Gross profit. Gross profit decreased to $127.0 million from $133.1 million, a decrease of $6.1 million, or 4.6%, below the prior fiscal year. As a percentage of net sales, gross profit decreased to 46.3% from 47.7%. This decrease in gross profit was the combined result of lower net sales and an increase in markdowns, which was partially offset by an increase in initial markup as compared to fiscal 2006. Also reducing gross profit was an increase in freight charges and our production facility costs, which rose 27.6% and 100.0% respectively in fiscal 2007, as compared to fiscal 2006. This increase was offset by a decrease in our buying costs, which declined 10.3% in fiscal 2007, as compared to fiscal 2006.
Store operating expenses. Store operating expenses increased to $97.0 million from $94.6 million, an increase of $2.4 million, or 2.6% above the prior fiscal year. As a percentage of net sales, store operating expenses increased to 35.4% from 33.9%, primarily due to an increase in payroll expense of $817,000, an increase in advertising expense of $677,000 (rising to 4.6% of net sales in fiscal 2007, compared to 4.3% in fiscal 2006) and an increase in depreciation expense of $1.0 million (rising to 4.2% of net sales in fiscal 2007, as compared to 3.8% in fiscal 2006). The increase in depreciation expense is partially attributable to the increase in new stores, as well as an increase in store remodels. We anticipate store operating expenses will decrease, as a percent of net sales in future years, as comparable store sales rise in our newer locations.
General and administrative expenses. General and administrative expenses increased to $22.7 million from $21.2 million, an increase of $1.5 million or 7.0% from the prior fiscal year. As a percentage of net sales, general and administrative expenses increased to 8.3% from 7.6%. This increase was primarily attributable to increases in corporate level payroll expense of $539,000, professional fees and legal settlements of $924,000 and was partially offset by a reduction in freight expense of $407,000, as well as a reduction in telephone expense of $287,000, due to the implementation of the new store communication system.
Other income/expense. Other income increased to $2.6 million from $2.5 million. The increase is attributable to a legal settlement award and a landlord reimbursement for a store closing totaling $299,000, partially offset by lower interest income of $70,000 and interest expense charges of $151,000, related to the note payable recorded in connection with the acquisition of AVD. Interest income decreased due to lower interest rates and lower average cash balances.
Income taxes. Income taxes decreased to $3.4 million from $5.9 million, a decrease of $2.5 million, below the same period last year. The overall effective tax rate decreased to 34.2% in fiscal 2007 from 41.5% in fiscal 2006. The decrease in the overall effective income tax rate is primarily attributable to an increase in tax-free interest from municipal bond investments, in fiscal 2007. Also contributing to the reduction in effective rate during fiscal 2007 was lower taxable income in fiscal 2007. Several non-recurring charges in fiscal 2006, such as stock offering costs and non-deductible incentive stock options caused the fiscal 2006 tax rate to be higher than our historical tax rate. We anticipate the fiscal 2008 effective tax rate to approximate 39.0%. Refer to Note 11 to the Consolidated Financial Statements for additional details of the income tax provision.
Net income. As a result of the foregoing, net income decreased to $6.5 million from $8.3 million, as compared to the same period last year.
52 Weeks Ended December 30, 2006 (Fiscal 2006) Compared to 52 Weeks Ended December 31, 2005 (Fiscal 2005)
Net sales. Net sales increased to $279.0 million from $266.3 million, an increase of $12.7 million, or 4.8%, over the prior fiscal year. The sales increase reflects $9.5 million of additional net sales as a result of a 5% increase in comparable store sales, excluding the comparable sales decline for Lillie Rubin sales. The increase also included $2.5 million of breakage income, as a result of the conversion of our Gift Card system from a paper-based to a card-based system. The remainder of the increase was the result of additional net sales from non-comparable new Cache and Cache Luxe store sales, partially offset by a decrease in Lillie Rubin sales, due to the exit from this business. The improvement in net sales was driven by an increase in dress sales, primarily shorter length dresses, as dress sales increased to 24.5% of total sales from 21.7% in fiscal 2005. Accessory sales continued to improve, increasing to 9.8% of net sales in fiscal 2006 from 9.6% in fiscal 2005.
Gross profit. Gross profit increased to $133.1 million from $121.4 million, an increase of $11.7 million, or 9.6%, over the prior fiscal year. This increase was the combined result of higher net sales and increased gross profit margins. As a percentage of net sales, gross profit increased to 47.7% from 45.6%. This increase as a percentage of net sales was primarily due to higher initial margins, resulting from sourcing improvements. Also contributing to higher gross margins in fiscal 2006 was a decrease in buying and occupancy expenses of 0.4%, as a percent of sales, as compared to fiscal 2005.
Store operating expenses. Store operating expenses increased to $94.6 million from $85.5 million, an increase of $9.1 million, or 10.6%, over the prior fiscal year. As a percentage of net sales, store operating expenses increased to 33.9% from 32.1%. The increase in store operating expenses, as a percentage of net sales was primarily due to the increase in stores opened over the past two years, as well as due to an increase in marketing and advertising expenses of $4.2 million. Store operating expenses in Fiscal 2006 were also higher than Fiscal 2005, due to higher depreciation expense of $1.2 million, payroll and related expenses increased $1.4 million, insurance expense increased $830,000, licenses and taxes increased $509,000 and utilities increased $508,000.
General and administrative expenses. General and administrative expenses increased to $21.2 million from $15.8 million, an increase of $5.4 million or 34.2%, above the prior fiscal year. As a percentage of net sales, general and administrative expenses increased to 7.6% from 5.9%, primarily due to higher professional and consulting fees of $2.0 million in Fiscal 2006. Payroll related expenses rose approximately $1.2 million, primarily due to stock based compensation expense of $1.4 million, resulting from our adoption of FASB 123(R). The Company did not record any stock based compensation expense in Fiscal 2005. General and administrative expenses in Fiscal 2006 also increased over Fiscal 2005 levels, due to higher travel costs of $445,000 and telephone expense of $331,000, primarily due to expenses associated with the new POS Lan network.
Other income. Other income increased to $2.5 million from $1.1 million, in the prior fiscal year, primarily attributable to higher average cash balances and higher interest rates during fiscal 2006, as compared to fiscal 2005.
Income taxes. Income taxes decreased to $5.9 million from $7.7 million, a decrease of $1.8 million, below the prior fiscal year. This decrease was attributable to lower taxable income, and was partially offset by an increase in the effective tax rate from 36.4% in fiscal 2005 to 41.5% in fiscal 2006. The higher tax rate was in fiscal 2006, primarily due to a net increase in permanent non-deductible operating expenses recorded in Fiscal 2006, due to reduced investment in municipal bonds, as well as non-deductible incentive stock options and offering costs..
Net income. As a result of the foregoing, net income decreased to $8.3 million from $13.4 million, a decrease of $5.1 million or 38.1%, below the same period last year.
Quarterly Results and Seasonality
We experience seasonal and quarterly fluctuations in our net sales and operating income. Our quarterly results of operations may fluctuate significantly as a result of a variety of factors, including the timing of new store openings, fashion trends and shifts in timing of certain holidays. Our business is subject to seasonal influences, characterized by highest sales during our fourth fiscal quarter (October, November and December) and lowest sales during our third fiscal quarter (July, August and September).
The following table includes our unaudited quarterly results of operations data for each of the eight quarters during the two-year period ended December 29, 2007. We derived this data from our unaudited quarterly consolidated financial statements. We believe that we have prepared this information on the same basis as our audited consolidated financial statements and that we have included all necessary adjustments, consisting only of normal recurring adjustments, to present fairly the selected quarterly information when read in conjunction with our audited annual consolidated financial statements and the notes to those statements included elsewhere in this document. The operating
results for any particular quarter are not necessarily indicative of the operating results for any future period.
(1)Includes recognition of $2.4 million of breakage income for previously issued gift cards and merchandise credits.
(2)Includes a charge of $5.7 million for the exit of the Lillie Rubin business. Liquidity and Capital Resources
Our cash requirements are primarily for the construction of new stores and inventory for new stores as well as the remodeling of existing stores. We have historically satisfied our cash requirements principally through cash flow from operations.
As of December 29, 2007, we had working capital of $59.7 million, which included cash and marketable securities of $50.1 million.
The following table sets forth our cash flows for the period indicated (in thousands):
During fiscal 2007, we generated $30.4 million in cash from operating activities due primarily to net income, depreciation of $12.1 million; a decrease in inventories of $5.3 million was primarily due to reduced inventory levels on hand in stores; a decrease in prepaid expenses of $4.7 million was primarily due to a reduction in prepaid rents as compared to fiscal 2006; an increase in accrued liabilities of $6.3 million was primarily due to higher customer credits and share repurchase liability, as compared to fiscal 2006 and $835,000 from non-cash stock-based compensation expense, which were partially offset by an decrease in accounts payable of $1.2 million, reversal of deferred rent of $1.9 million was primarily from new store openings and a decrease in deferred income taxes of $1.9 million was primarily due to timing of depreciation.
During fiscal 2006, we generated $12.7 million in cash from operating activities due primarily to net income, depreciation of $11.0 million, $3.8 million from non-cash Lillie Rubin exit costs, an increase in accrued liabilities of $2.4 million, $1.4 million from non-cash stock-based compensation and a decrease in accounts receivable of $184,000 million, partially offset by accounts payable decrease of $6.7 million, primarily due to reduction in the number of vendors and the increase in direct purchases paid via letter of credit. Inventories increased $2.3 million, while we reversed deferred rent of $1.1 million and recorded in non-cash gift card breakage of $2.5 million.
During fiscal 2005, we generated $25.5 million in cash from operating activities due primarily to net income, depreciation of $9.8 million, an increase in accrued liabilities and compensation of $5.3 million, an increase in accounts payable of $1.3 million, partially offset by a decrease of $1.0 million in deferred taxes and, an increase in prepaid expenses of $2.8 million.
Cash used in investing activities was approximately $18.6 million in fiscal 2007, $17.8 million in fiscal 2006 and $26.1 million in fiscal 2005. These amounts were used for the purchase of marketable securities, the payment for equipment and leasehold improvements in new and remodeled stores, as well as improvements to the POS system and for the acquisition of our largest vendor, AVD. Our capital requirements depend primarily on the number of new stores we open, the number of existing stores we remodel and the timing of these expenditures. Projected capital expenditures for fiscal 2008 to fund new store openings and remodelings are approximately $8 to $9 million.
Based on our experience with new store openings, we estimate that the average net investment to open new stores is approximately $225,000 to $375,000, which includes new store opening expenses and initial inventory, net of landlord contributions. We estimate that the average net investment to remodel an existing store is approximately $200,000 to $300,000, net of landlord contributions.
Cash used by financing activities in fiscal 2007 was $24.0 million, primarily for the repurchase of our common stock of $24.2 million. During fiscal 2006, we received net proceeds of $6.0 million from stock issuances and stock option exercises, as well as excess tax benefits from option exercises of $1.8 million. Cash provided by financing activities was approximately $591,000 in fiscal 2005, primarily due to cash provided from the proceeds of common stock issuances.
We have a line of credit with Bank of America, N.A., (successor in interest to Fleet Bank, N.A.) permitting us to borrow up to $17.5 million on a revolving basis. At December 29, 2007, there was no outstanding balance under this credit facility. Amounts outstanding under the credit facility bear interest at a maximum annual rate equal to the bank's prime rate, currently 6.00% at February 29, 2008, less 0.25%. The agreement relating to this facility contains certain financial and other covenants. In addition, the credit facility contains restrictions on our ability to make capital expenditures, incur indebtedness or create or incur liens on our assets. While this facility is unsecured, if a default occurs under the facility, we are required to grant the lender a security interest in our inventory and accounts receivable. We have been in compliance with all financial loan covenants, during the fiscal periods presented. This facility currently expires in November 2008.
We believe that cash flow from operations, our current available cash and funds available under our revolving credit facility will be sufficient to meet our working capital needs and contemplated new store opening expenses for at least the next 12 months. If our cash flow from operations should decline significantly or if we should accelerate our store expansion or remodeling program, it may be necessary for us to seek additional sources of capital.
Contractual Obligations and Commercial Commitments
The following tables summarize our minimum contractual obligations and commercial commitments as of December 29, 2007:
We issue standby letters of credit primarily for the importation of merchandise inventories. The operating leases included in the table on the page do not include contingent rent based upon sales volume, which represented approximately 0.9% of minimum rent expense in fiscal 2007, or variable costs such as maintenance, insurance and taxes, which represented approximately 46.3% of minimum rent expense in fiscal 2007.
Off Balance Sheet Arrangements
Other than operating lease commitments set forth in the table above, we are not a party to any material off-balance sheet financing arrangements.
ITEM 7A.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our market risk relates primarily to changes in interest rates. We bear the risk in two specific ways. First, the revolving credit facility carries a variable interest rate that is tied to market indices and, therefore, the statement of income and cash flows will be exposed to changes in interest rates. As of December 29, 2007, we had no borrowing under our credit facility. However, we may borrow funds under the revolving credit facility, as needed.
The second component of interest rate risk involves the short-term investment of excess cash in short-term, investment-grade interest-bearing securities. These investments are included in cash and equivalents as well as marketable securities on our balance sheet, if there are changes in interest rates, those changes would affect the investment income we earn on these investments and, therefore, impact our cash flows and results of operations.
Recent Accounting Developments
See the section "Recent Accounting Developments" included in Note 1 in the Notes to the Consolidated Financial Statements for a discussion of recent accounting developments and their impact on our consolidated financial statements.
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Company's unaudited selected quarterly financial data is incorporated herein by reference to Note 14 to the Company's consolidated financial statements on page. The Company's consolidated financial statements and the report of independent public accountants are listed at Item 15 of this Report and are included in this Form 10-K on pages through.
ITEM 9.
ITEM 9. CHANGES IN AND/OR DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
ITEM 9A.
ITEM 9A. CONTROLS AND PROCEDURES
(1) Disclosure Controls and Procedures-The Company maintains a system of disclosure controls and procedures that are designed to ensure that information required to be disclosed in the Company's reports under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms, and that such information is accumulated and communicated to management, including the Company's Chief Executive Officer ("CEO") and the Chief Financial Officer ("CFO"), as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, as the Company's are designed to do, and management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.
In connection with the preparation of this Annual Report on Form 10-K, as of December 29, 2007, an evaluation was performed under the supervision and with the participation of the Company's management, including the CEO and CFO, of the effectiveness of the design and operation of the Company's disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act).
Based on that evaluation, the Company's CEO and CFO concluded that the Company's disclosure controls and procedures were effective as of December 29, 2007.
(2) Management's Annual Report on Internal Control over Financial Reporting-Management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rules 13a-15(f). A system of internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation and fair presentation of financial statements for external purposes in accordance with generally accepted accounting principles. All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Under the supervision and with the participation of our management, including our CEO and CFO, we conducted an assessment of the effectiveness of our internal control over financial reporting as of December 29, 2007, except that we have not conducted an assessment of the internal controls over financial reporting of Adrienne Victoria Designs, Inc., of whom we acquired certain assets during July 2007. Based on this assessment, management concluded that our internal control over financial reporting was effective as of December 29, 2007.
The Company's independent registered public accounting firm, Mahoney Cohen & Company, CPA, P.C., has issued an attestation report on management's assessment of the Company's internal control over financial reporting. This report appears on page through.
(4) Change in Internal Control Over Financial Reporting-Through ongoing process improvements, the implementation of enhanced policies and hiring additional personnel during the Company's last fiscal quarter of fiscal 2007, the Company remediated the material weaknesses identified during fiscal 2006.
/s/ THOMAS E. REINCKENS Thomas E. Reinckens
Chairman and Chief Executive Officer
March 13, 2008
/s/ MARGARET FEENEY Margaret Feeney
Executive Vice President and Chief Financial Officer
March 13, 2008
ITEM 9B.
ITEM 15. EXHIBITS and FINANCIAL STATEMENT SCHEDULE
(1)Incorporated by reference to the Company's Registration Statement on Form S-18, dated December 29, 1980.
(2)Incorporated by reference to the Company's Current Report on Form 8-K, dated September 15, 1993.
(3)Incorporated by reference to the Company's Registration statement on Form S-3, dated November 14, 2006.
(4)Incorporated by reference to the Company's Annual Report on Form 10-K for the fiscal year ended December 28, 1996.
(5)Incorporated by reference to the Company's Annual Report on Form 10-K for the fiscal year ended January 2, 1999.
(6)Incorporated by reference to the Company's Annual Report on Form 10-K for the fiscal year ended January 1, 2000.
(7)Incorporated by reference to the Company's Definitive Proxy Statement filed on September 18, 2001.
(8)Incorporated by reference to the Company's Annual Report on Form 10-K for the fiscal year ended December 29, 2001.
(9)Incorporated by reference to the Company's Definitive Proxy Statement filed on October 6, 2003.
(10)Incorporated by reference to the Company's Annual Report on Form 10-K for the fiscal year ended December 27, 2003.
(11)Incorporated by reference to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2005.
(12)Incorporated by reference to the Company's Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2007.
(13)Exhibits 10.2 through 10.5, 10.13 through 10.16 are management contracts or compensatory plans or arrangements, which are required to be filed as an exhibit pursuant to Item 15(b) of this Annual Report on Form 10-K.
A Stockholder may obtain a copy of any of the exhibits included in the Annual Report on Form 10-K upon payment of a fee to cover the reasonable expenses of furnishing such exhibits, by written request to CACHE, Inc., at 1440 Broadway, 5th Floor, New York, New York 10018 Attention: Chief Financial Officer.
(b)Reports on Form 8-K None.
Signatures
Pursuant to the requirement of Section 13 or 15(d) 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.
Date: March 13, 2008
CACHE, INC.
(Registrant)
By:
/s/ THOMAS E. REINCKENS Thomas E. Reinckens
Chairman of the Board and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
Signature
Title
Date
/s/ THOMAS E. REINCKENS Thomas E. Reinckens
Chairman of the Board
March 13, 2008
/s/ MARGARET FEENEY Margaret Feeney
Executive Vice President
(Chief Financial Officer)
March 13, 2008
/s/ GENE GAGE Gene Gage
Director
March 13, 2008
/s/ ARTHUR S. MINTZ Arthur S. Mintz
Director
March 13, 2008
/s/ ANDREW M. SAUL Andrew M. Saul
Director
March 13, 2008
/s/ MORTON J. SCHRADER Morton J. Schrader
Director
March 13, 2008
CACHE, INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
FISCAL YEARS ENDED DECEMBER 29, 2007,
DECEMBER 30, 2006,
AND
DECEMBER 31, 2005
CACHE, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
INDEX
PAGE
Reports of Independent Registered Public Accounting Firms
Consolidated Balance Sheets
Consolidated Statements of Income
Consolidated Statements of Stockholders' Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
Valuation and Qualifying Accounts
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
Cache, Inc.
New York, New York
We have audited the accompanying consolidated balance sheet of Cache, Inc. and subsidiaries as of December 29, 2007 and the related consolidated statements of income, stockholders' equity and cash flows for the year then ended. We also have audited Cache, Inc.'s internal control over financial reporting as of December 29, 2007, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. In addition, our audit included the financial statement schedule listed in the Index at Item 15 for the year ended December 29, 2007. Cache, Inc.'s management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management's Annual Report on Internal Control over Financial Reporting, and for the financial statement schedule. Our responsibility is to express opinions on these consolidated financial statements, on the company's internal control over financial reporting and on the financial statement schedule based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audit of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. Cache Inc.'s management has not conducted an assessment of internal control over financial reporting for Adrienne Victoria Designs, Inc., which was acquired in July 2007. As such, our audit of internal control over financial reporting did not include this acquisition. We believe that our audit provides a reasonable basis for our opinions.
A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Cache, Inc. and subsidiaries as of December 29, 2007, and
the results of their operations and their cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, Cache, Inc. maintained, in all material respects, effective internal control over financial reporting as of December 29, 2007, based upon criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. In addition, in our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly in all material respects the information set forth therein.
/s/ Mahoney Cohen and Company, CPA, P.C.
New York, New York
March 10, 2008
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
Cache, Inc.
New York, New York
We have audited the accompanying consolidated balance sheet of Cache, Inc. and subsidiaries (the "Company") as of December 30, 2006, and the related consolidated statements of income, stockholders' equity, and cash flows for each of the years in the two year period ended December 30, 2006. Our audit also included financial statement schedule listed in the Index at Item 15 for the 52 weeks ended December 31, 2005 and December 30, 2006, respectively. These consolidated financial statements and financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements and financial statement schedule based on our audits.
We conducted our audits in accordance with standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 30, 2006, and the results of their operations and their cash flows for each of the years in the two year period ended December 30, 2006, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, such consolidated financial statement schedule for the 52 weeks ended December 31, 2005 and December 30, 2006, respectively, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.
As discussed in Note 1 to the consolidated financial statements, in 2006 the Company adopted Statement of Financial Accounting Standards No. 123(R), "Share-Based Payment," as revised, effective January 1, 2006.
/s/ Deloitte & Touche LLP
New York, New York
March 15, 2007
CACHE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
CACHE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
CACHE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
CACHE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
CACHE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business
Cache, Inc. (together with its subsidiaries, the "Company") owns and operates two chains of women's apparel specialty stores, of which 282 stores (as of December 29, 2007) are operated under the trade name "Cache" and 15 stores are operated under the trade name "Cache Luxe". The Company specializes in the sale of high fashion women's apparel and accessories in the better to expensive price range.
Basis of Consolidation
The consolidated financial statements include the accounts of the Company and its subsidiaries, all of which are wholly owned. All significant intercompany balances and transactions have been eliminated.
Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and use assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
The most significant estimates made by management include those made in the areas of inventory; deferred taxes; contingencies; self insurance reserves; and sales returns and allowances. Management periodically evaluates estimates used in the preparation of the consolidated financial statements for continued reasonableness. Appropriate adjustments, if any, to the estimates used are made prospectively based on such periodic evaluations.
Fiscal Reporting Period
The Company reports its annual results of operations based on fiscal periods comprised of 52 or 53 weeks, which is in accordance with industry practice. Results for fiscal 2005, 2006 and 2007 include 52 weeks.
Fair Value of Financial Instruments
The carrying amounts of accounts receivable, accounts payable and accrued liabilities approximate their estimated fair values due to their short-term nature. The Company's note payable due to a related party (previous owners from AVD acquisition and employees of the Company) includes imputed interest at 5% as the fair market value of this note is not readily determinable because comparable instruments do not exist. The 5% imputed interest represents the Company's average return on its investment portfolio.
Cash and Equivalents
The Company considers all highly liquid investments that mature within three months or less when purchased to be cash equivalents.
Marketable Securities
Marketable securities at December 30, 2006 and December 29, 2007 primarily consist of short-term United States Treasury bills and tax-exempt municipal bonds. The Company classifies its short-term
investments as held-to-maturity. Held-to-maturity securities are those securities in which the Company has the ability and intent to hold the securities until maturity. Because the Company's held-to-maturity securities mature within one year of the purchase date, the securities are classified as short-term marketable securities. Held-to-maturity debt securities are recorded at amortized cost, adjusted for the amortization or accretion of premiums or discounts and such carrying values approximate fair value. A decline in the market value of any held-to-maturity security below cost that is deemed to be other than temporary results in a reduction in carrying amount to fair value. The impairment is charged to earnings and a new cost basis for the security is established. No impairment has occurred for the fiscal periods presented herein. Premiums and discounts are amortized or accreted over the life of the related held-to-maturity as an adjustment to yield using the effective interest method. Interest income is recognized when earned.
Inventories
Our finished goods inventories at our retail stores are valued at the lower of cost or market using the retail inventory method. Under the retail inventory method ("RIM"), the valuation of inventories at cost and the resulting gross margins are calculated by applying a calculated cost to retail ratio to the retail value of inventories. RIM is an averaging method that is widely used in the retail industry due to its practicality. Additionally, it is recognized that the use of RIM will result in valuing inventories at the lower of cost or market if markdowns are currently taken as a reduction of the retail value of inventories. Inherent in the RIM calculation are certain significant management judgments including, among others, merchandise markon, markups, and markdowns, which significantly impact the ending inventory valuation at cost as well as the resulting gross margins. We take markdowns due to changes in fashion and style, based on the following factors: (i) supply on hand, (ii) historical experience and (iii) our expectations as to future sales. We do not anticipate any significant change in our markdown strategy that would cause a significant change in our earnings. We believe that our RIM provides an inventory valuation, which results in a carrying value at the lower of cost or market. For our Adrienne Victoria Designs ("AVD") division (see Note 5), which makes up approximately 10% of total inventory, the raw materials, work in process and finished goods inventories are valued at the lower of cost or market value, using the first-in-first-out valuation method. The Company ensures that the raw materials, work in process and finished goods are properly valued by taking into account any obsolescence and recording a reserve in accordance with our established policy.
Equipment and Leasehold Improvements
Equipment and leasehold improvements are stated at cost. Depreciation and amortization are computed using the straight-line method over the estimated useful lives of the related assets which generally range from three to 10 years. For income tax purposes, accelerated methods are generally used. Leasehold improvements are amortized over the shorter of their useful life or lease term.
The Company evaluates finite-lived assets in accordance with Statement of Financial Accounting Standards ("SFAS") No.144, "Accounting for the Impairment or Disposal of Long-lived Assets" ("SFAS No. 144"). Finite-lived assets are evaluated for recoverability in accordance with SFAS No. 144 whenever events or changes in circumstances indicate that an asset may have been impaired. In evaluating an asset for recoverability, the Company estimates the future cash flows expected to result from the use of the asset and eventual disposition. If the sum of the expected future cash flows (undiscounted and without interest charges) is less than the carrying amount of the asset, an impairment loss, equal to the excess of the carrying amount over the fair market value of the asset is recognized. The Company evaluated its finite-lived assets during fiscal 2005, 2006, and 2007. No impairment charges were incurred in fiscal 2005. In fiscal 2006, the Company recorded an impairment charge of $101,000, related to one store, which the Company closed in early 2007. In fiscal 2007, the Company recorded an impairment charge of $73,000 for one store, which was closed in January 2008.
Goodwill and Intangible Assets
The Company adopted SFAS No. 142, "Goodwill and Other Intangible Assets" ("SFAS No. 142") on December 30, 2001. SFAS No. 142 requires that ratable amortization of goodwill be replaced with periodic tests of the goodwill's impairment. During fiscal 2007, in connection with the acquisition of AVD, the Company recorded goodwill and other intangible assets. The Company performs annual impairment testing which considers the Company's fair value to determine whether an impairment charge related to the carrying value of the Company's recorded goodwill and other intangible assets is necessary. As a result of this testing, the Company concluded that there was no such impairment loss necessary in fiscal 2007. This is reevaluated annually during the fourth quarter, or more frequently if necessary, using similar testing.
Self Insurance
We are self-insured for losses and liabilities related primarily to employee health and welfare claims. Losses are accrued based upon our estimates of the aggregate liability for claims incurred using certain actuarial assumptions followed in the insurance industry and based on Company experience. Adjustments to earnings resulting from changes in historical loss trends have been insignificant for Fiscal 2005, 2006 and 2007. Further, we do not anticipate any significant change in loss trends, settlements or other costs that would cause a significant change in our earnings. We maintain stop loss insurance coverage which covers us for benefits paid in excess of limits as defined in the plan.
Gift Cards, Gift Certificates and Credits
The Company sells gift cards and gift certificates ("Gift Cards") and issues credits to its customers when merchandise is returned. The Company recognizes sales from Gift Cards when they are redeemed by the customer and income when the likelihood of the Gift Card being redeemed by the customer is remote (Gift Card breakage) since the Company has determined that it does not have a legal obligation to remit the value of unredeemed Gift Cards to the relevant jurisdiction as abandoned property. The Company determines Gift Card breakage income based upon historical redemption patterns. Breakage income represents the balance of Gift Cards, for which the Company believes the likelihood of redemption by the customer is remote. At that time, the Company will recognize breakage income for those Gift Cards.
During the third quarter of fiscal 2006, the Company formed a new subsidiary to handle all Gift Card sales and maintain the liability related to Gift Cards. As a result of transferring all existing obligations to the newly formed subsidiary, the Company recognized $2.4 million of breakage income, within net sales, in the third quarter related to Gift Cards sold/issued since the inception of the Gift Card program. An additional $120,000 of breakage income was recognized in the fourth quarter of 2006. The Company recorded $293,000 of breakage income in fiscal 2007. There was no breakage income recognized in fiscal 2005.
Revenue Recognition
Sales are recognized at the "point of sale," which occurs when merchandise is sold in an "over-the-counter" transaction or upon receipt by a customer. Sales of merchandise via our website are recognized at the expected time of delivery to the customer. Our customers have the right to return merchandise. Sales are reported net of actual and estimated returns. We maintain a reserve for potential product returns and record, as a reduction to sales, a provision for estimated product returns, which is determined based on historical experience. Charges or credits to earnings resulting from revisions to estimates on our sales return provision were approximately ($29,000), $42,000 and ($93,000) for fiscal 2005, 2006, and 2007 respectively. Amounts billed to customers for shipping and handling fees are included in net sales at the time of shipment. Costs incurred for shipping and handling are included in cost of sales. The Company records revenues net of applicable sales tax.
In connection with the acquisition of AVD, the Company also acquired the rights to the "Mary L" trademark. Mary L products are sold in upper tier department stores and as a result, Mary L sales are included under net sales when the merchandise is shipped to the department stores. Mary L sales are recorded net of any returns, chargebacks, discounts and allowances. We also maintain a reserve as a reduction to sales for potential returns, chargebacks, discounts and allowances. The Company reserved $234,000 for such items for fiscal 2007.
During the second quarter of fiscal 2007, Cache introduced a co-branded customer credit card program. Under this program, the Company receives from the issuing bank a non-refundable credit card activation fee for each new account that is opened and activated. These fees are initially deferred and recognized in consolidated net sales as revenue over the life of the contract. During fiscal 2007, the Company received approximately $585,000 in connection with activated cards. The amount of fee income recorded in connection with activated credit cards was insignificant in fiscal 2007.
The Company also offers its credit card holders a program whereby points can be earned on net purchases made with the co-branded credit card. Five reward points are awarded for each dollar spent at Cache and one reward point is awarded for each dollar spent at non-Cache businesses. Cardholders whose credit card account is not delinquent, in default or closed will be automatically eligible to receive a $25 Cache gift card upon accrual of 2,500 reward points. The issuing bank bears the cost of the reward program and is responsible for the administration and management of the program.
The Company also receives from the issuing bank and Visa U.S.A Inc. a sales royalty, which is based on a percentage of net purchases made by cardholders at Cache or other businesses. Cache has determined that since it has not incurred any significant or recurring costs in relation to the co-branded credit card program the sales royalties earned in connection to the agreement will be recorded under net sales. The fees that are incurred by the Company are cardholder incentives, which are funded from the fees paid by the issuing bank and Visa U.S.A Inc. The amount of sales royalty income recorded was insignificant in fiscal 2007.
Operating Leases
The Company leases retail stores and office space under operating leases. Most leases contain construction allowance reimbursements by landlords, rent holidays, rent escalation clauses and/or contingent rent provisions. The Company recognizes the related rental expense on a straight-line basis over the lease term and records the difference between the amounts charged to expense and the rent paid as a deferred rent liability.
To account for construction allowance reimbursements from landlords and rent holidays, the Company records a deferred rent liability included in accrued liabilities and other long-term liabilities on the consolidated balance sheets and amortizes the deferred rent over the lease term, as a reduction to rent expense on the consolidated income statements. For leases containing rent escalation clauses, the Company records minimum rent expense on a straight-line basis over the lease term on the consolidated income statement. The lease term used for lease evaluation includes option periods only in instances in which the exercise of the option period can be reasonably assured and failure to exercise such options would result in an economic penalty.
Advertising costs
Costs associated with advertising are charged to store operating expense when the advertising first takes place. The Company spent $7.7 million, $11.9 million and $12.6 million on advertising in fiscal 2005, 2006, and 2007 respectively.
Pre-Opening Store Expenses
Expenses associated with the opening of new stores are expensed as incurred.
Employee Benefit Plan
Employees are eligible to participate in the Company's 401(k) plan if they have been employed by the Company for one year, have reached age 21, and work at least 1,000 hours annually. Generally, employees can defer up to 18% of their gross wages up to the maximum limit allowable under the Internal Revenue Code. The Company can make a discretionary matching contribution for the employee. Employer contributions to the plan for fiscal 2005, 2006 and 2007 were $227,000, $236,000 and $403,000, respectively.
Income Taxes
The Company accounts for income taxes in accordance with SFAS No. 109, "Accounting for Income Taxes." This statement requires the Company to recognize deferred tax liabilities and assets for the expected future tax consequences of events that have been recognized in the Company's financial statements or tax returns. Under this method, deferred tax liabilities and assets are determined based on the difference between the financial statement carrying amounts and tax bases of assets and liabilities, using applicable tax rates for the years in which the differences are expected to reverse. When tax contingencies become probable, a liability for the contingent amount is estimated based upon the Company's best estimation of the potential exposures associated with the timing and amount of deductions, as well as various tax filing positions. As of December 29, 2007, the Company does not have any material probable tax contingencies.
Effective December 31, 2006, the Company adopted the provisions of Financial Accounting Standards Board ("FASB") Interpretation No. 48, "Accounting for Uncertainty in Income Taxes" ("FIN 48"). FIN 48 prescribes a comprehensive model of how a company should recognize, measure, present and disclose in its financial statements uncertain tax positions that the company has taken or expects to take on a tax return. FIN 48 states that a tax benefit from an uncertain tax position may be recognized if it is "more likely than not" that the position is sustainable, based upon its technical merits. The tax benefit of a qualifying position is the largest amount of tax benefit that has greater than a 50% likelihood of being realized upon the ultimate settlement with a taxing authority having full knowledge of all relevant information.
The cumulative effect of adoption of FIN 48 did not result in any adjustment in the Company's liability for unrecognized income tax benefits.
Although the Company believes that it has adequately provided for all tax positions, amounts asserted by tax authorities could be greater or less than the Company's accrued position. Accordingly, the Company's provisions on federal, state and local tax-related matters to be recorded in the future may change as revised estimates are made or the underlying matters are settled or otherwise resolved. As of December 29, 2007, the Company does not believe that its estimates, as otherwise provided for, on such tax positions will significantly increase or decrease within the next twelve months.
The Company and certain of its subsidiaries are subject to U.S. federal income tax as well as income tax of multiple state and local jurisdictions.
The Company had previously reached agreement with the IRS and closed the audit of fiscal year 2004, with no change to the tax return. The IRS is currently finalizing its audit of the fiscal 2005 tax return. The Company anticipates there will be no change to the tax return.
As for state and local income taxes, with few exceptions, the Company is no longer subject to state and local income tax examinations by taxing authorities for years prior to 2003.
Stock-Based Compensation
On January 1, 2006, the Company adopted SFAS No. 123(R) "Share-Based Payment" requiring the recognition of compensation expense in the Consolidated Statements of Income related to the fair
value of employee share-based awards. Determining the fair value of options at the grant date requires judgment, including estimating the expected term that stock options will be outstanding prior to exercise, the associated volatility and the expected dividends. Prior to adopting SFAS No. 123(R), the Company applied Accounting Principles Board ("APB") Opinion No. 25, and related Interpretations, in accounting for its share-based compensation plans. All employee stock options were granted at or above the grant date market price. Accordingly, no compensation cost was recognized for fixed stock option grants in prior periods. In accordance with SFAS No. 123(R), judgment is required in estimating the amount of share-based awards expected to be forfeited prior to vesting. If actual forfeitures differ significantly from these estimates, share-based compensation expense could be materially impacted. (See Note 12).
Earnings Per Share
Basic earnings per share is computed by dividing net income by the weighted-average number of common shares outstanding for the period. Diluted earnings per share also includes the dilutive effect of potential common shares (dilutive stock options) outstanding during the period.
Comprehensive Income
The Company reports comprehensive income in accordance with the provisions of SFAS No. 130, "Reporting Comprehensive Income" ("SFAS No. 130"). SFAS No. 130 established standards for the reporting and display of comprehensive income. Components of comprehensive income could include net income, foreign currency translation adjustments and gains or losses associated with investments available for sale. There was no difference between net income and comprehensive income for any of the periods presented.
Segment Reporting
SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information," establishes standards for reporting information about a company's operating segments. It also establishes standards for related disclosures about products and services, geographic areas and major customers. We report in a single operating segment-the operation of specialty retail stores. Revenues from external customers are derived from merchandise sales and we do not rely on any major customers as a source of revenue.
The Company performed an analysis of its wholesale division, Mary L, which it acquired in connection with the acquisition of AVD and has determined that the results of operations of the Mary L division were insignificant in fiscal 2007.
Concentration
The Company has five major suppliers, excluding our largest supplier that was recently acquired, which accounted for approximately 14% of our purchases during the 52 weeks ended December 29, 2007, and our largest supplier accounted for 4% of our purchases during the 52 weeks ended December 29, 2007. The loss of any of these suppliers could adversely affect the Company's operations.
Recent Accounting Developments
During September 2006, the FASB issued SFAS No. 157, Fair Value Measurements ("SFAS No. 157"). SFAS No. 157 defines fair value, establishes a framework for measuring fair value in accordance with generally accepted accounting principles, and expands disclosures about fair value measurements. SFAS No. 157 does not require any new fair value measurements; rather, it applies under other accounting pronouncements that require or permit fair value measurements. The provisions of SFAS No. 157 are to be applied prospectively as of the beginning of the fiscal year in which it is initially applied, with any transition adjustment recognized as a cumulative-effect adjustment to the opening balance of retained earnings. SFAS No. 157 is effective for fiscal years beginning after November 15, 2007. We are currently evaluating the standard, but do not expect it to have a material impact on our consolidated financial statements upon adoption.
During February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities-Including an Amendment of FASB Statement No. 115 ("SFAS No. 159"). SFAS No. 159 allows companies the choice to measure many financial instruments and certain other items at fair value. This gives a company the opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply complex hedge accounting provisions. SFAS No. 159 is effective for fiscal years beginning after November 15, 2007. We are currently reviewing the impact of SFAS No. 159 on our consolidated financial statements and expect to complete this evaluation in 2008.
During December 2007, the FASB issued SFAS No. 160, Noncontrolling interests in Consolidated Financial Statements-an amendment of ARB No. 51 ("SFAS No. 160"). SFAS No. 160 requires expanded disclosures in the consolidated financial statements that clearly identify and distinguish between the interests of the parent's owners and the interests of noncontrolling owners of a subsidiary. SFAS No. 160 is effective for fiscal years beginning on or after December 15, 2008. We are currently evaluating the standard, but do not expect it to have a material impact on our consolidated financial statements upon adoption.
During December 2007, the FASB issued SFAS No. 141R, Business Combinations ("SFAS No. 141R"). Under Statement 141R, an acquiring entity will be required to recognize all the assets acquired and liabilities assumed in a transaction at the acquisition-date fair value with limited exceptions. In addition, acquisition costs will generally be expensed as incurred. The revised statement also includes a substantial number of new disclosure requirements. SFAS 141R is effective prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008.
Supplemental Statements of Cash Flow Information
The Company paid no interest charges in fiscal 2005 and 2006. In Fiscal 2007, the Company accrued $151,000 and paid $78,000 in interest charges. During fiscal 2005, 2006 and 2007 the Company paid $8.2 million, $5.9 million and $3.8 million in income taxes, respectively. During fiscal 2005, 2006 and 2007 the Company accrued equipment and leasehold improvements of $859,000, $2.0 million and $752,000, respectively. In connection with the acquisition of AVD, the Company issued a note for $6.3 million during fiscal 2007.
Reclassification
A reclassification has been made to the 2006 Consolidated Balance Sheet to segregate intangible assets, net, as a separate line item to conform to the 2007 presentation.
NOTE 2. RECEIVABLES
Accounts receivable, net includes sales from Mary L, which are recorded net of any returns, chargebacks, discounts and allowances. The Company recorded $234,000 for such items for fiscal 2007.
NOTE 3. INVENTORIES
NOTE 4. EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Store operating and general and administrative expenses include depreciation and amortization of $9.8 million $11.0 million and $12.1 million in fiscal years 2005, 2006 and 2007, respectively.
NOTE 5. ACQUISITION OF ADRIENNE VICTORIA DESIGNS, INC.
On July 3, 2007, the Company, through a wholly-owned subsidiary which was created in connection with the acquisition, acquired certain assets of Adrienne Victoria Designs, Inc. ("AVD"), our largest vendor. Under the terms of the agreement, the Company made cash payments totaling $5.7 million, including transaction costs. The agreement also calls for the payment of a note payable of $7.0 million ($6.3 million net of imputed interest of 5%) to be paid over 5 years, as well as contingent payments, not to exceed $5.5 million, based upon earn-out provisions to be paid also over 5 years, if certain conditions are met. The Company acquired certain assets of AVD, a design, sourcing and manufacturing company, in order to increase operating efficiencies and increase shareholder value. The acquisition was accounted for in the third quarter of fiscal 2007, using the purchase method in accordance with SFAS No. 141, "Business Combinations". Accordingly, the assets acquired were recorded at their fair values and operating results were included in our financial statements from the date of acquisition. The purchase price was allocated based upon an independent third party appraisal.
The acquisition consideration and allocation of that consideration are as follows:
The Company completed its valuation of the assets acquired and has calculated the value of goodwill and intangible assets to be approximately $11.5 million. Goodwill is recognized as the excess of the purchase price paid over the fair market value of the net assets acquired. The excess payment, which resulted in goodwill, was due to the Company purchasing the talent, experience and organization of a sourcing and production team, which Cache did not have prior to the acquisition. Consequently, due to the acquisition, Cache has positioned itself to increase its gross margin. The total goodwill recorded is expected to be deducted for tax purposes over the applicable period. The Company has determined that this is not a significant subsidiary in accordance with Regulation S-X and as such, pro-forma financial information is not required. The Company also has entered into employment agreements with Adrienne Kantor and Robert Kantor, the principal officers of AVD. These agreements will cover a period of 5 years, providing compensation and employee benefits.
During the period ended December 29, 2007, the Company recorded a note payable to Robert Kantor and Adrienne Kantor, related to the acquisition of Adrienne Victoria Designs. The $6.3 million note, which will be paid over five years, has an imputed five percent interest rate. The note is payable in quarterly installments ranging from $163,000 to $475,000. As of December 29, 2007, maturities of the note payable are as follows:
Goodwill and Intangible Assets
The Company's goodwill and its indefinite-lived intangible assets are reviewed annually for impairment or more frequently if impairment indicators arise. The annual valuation is performed
during the fourth quarter of each year. The carrying amounts of intangible assets as of December 30, 2006 and December 29, 2007 are as follows:
Store operating and general and administrative expenses include amortization expense of $59,000, in fiscal year 2007.
The Company has determined that the lives of the reported intangibles, Customer relationships, Non-Compete agreements and Favorable market lease are 10, 7 and 3.5 years respectively. The following schedule lists the amortization amounts the Company will record over the next five years:
NOTE 6. ACCRUED LIABILITIES
Leasehold additions generally represent a liability to general contractors for a final 10% payable on construction contracts for store construction or renovations.
NOTE 7. BANK DEBT
During November 2005, the Company reached an agreement with its bank to amend the amount available under the Amended Revolving Credit Facility. Pursuant to the newly Amended Revolving Credit Facility, $17,500,000 is available until expiration at November 30, 2008. The amounts outstanding under the credit facility bear interest at a maximum per annum rate equal to the bank's prime rate, currently 6.00% at February 29, 2008, less 0.25%. The agreement contains certain financial and other covenants. Effective upon the occurrence of an event of default under the Amended Revolving Credit Facility, the Company grants to the bank a security interest in the Company's inventory and certain receivables. The Company has been in compliance with all financial loan covenants during the fiscal periods presented.
There have been no borrowings against the line of credit during fiscal 2006 and 2007. There were outstanding letters of credit of $1.1 million and $0.8 million pursuant to the Amended Revolving Credit Facility at December 30, 2006 and December 29, 2007, respectively.
NOTE 8. LILLIE RUBIN EXIT COSTS
During fiscal 2006, the Company recorded a pre-tax charge of $5.7 million for asset impairment and store closing costs for the exit of the Lillie Rubin business. Included in the exit costs was a write down of leasehold improvements, furniture and fixtures on 19 stores in the amount of $4.4 million, write down of intangibles of $455,000, write down of supplies of $275,000, severance accrual of $400,000, as well as an accrual of $1.5 million for contractual termination costs negotiated prior to year-end. These costs were partially offset by the reversal of $1.3 million of deferred rent accruals. The Company closed 16 of the stores as of December 30, 2006. The Company closed the last three Lillie Rubin stores during the first fiscal quarter of fiscal 2007. The Company did not incur significant additional exit costs upon the closing of these remaining properties. The reversal in fiscal 2007 was due to the Company's conversion of one Lillie Rubin store into a Cache store.
The following is a summary of the activity in the reserve for exit costs in fiscal 2007:
NOTE 9. OTHER LIABILITIES
Other liabilities primarily consist of accruals of future rent escalations and unamortized landlord construction allowances.
NOTE 10. COMMITMENTS AND CONTINGENCIES
Leases
At December 29, 2007, the Company was obligated under operating leases for various store locations expiring at various times through 2019. The terms of the leases generally provide for the payment of minimum annual rentals, contingent rentals based on a percentage of sales in excess of a stipulated amount, and a portion of real estate taxes, insurance and common area maintenance. Most leases contain leasehold improvement reimbursements from landlords and/or rent holidays. In recognizing landlord incentives and minimum rent expenses, the Company amortizes the charges on a straight line basis over the lease term.
Store rental expense related to these leases, included in cost of sales, consisted of the following:
Future minimum payments under non-cancelable operating leases consisted of the following at December 29, 2007:
The operating leases included in the above table do not include contingent rent based upon sales volume, which represented approximately 0.9% of minimum rent expense in fiscal 2007, or variable costs such as maintenance, insurance and taxes, which represented approximately 46.3% of minimum rent expense in fiscal 2007.
Other Commitments
The following tables summarize our other commitments as of December 29, 2007:
We issue standby letters of credit primarily for the importation of merchandise inventories. The Company does not have any off balance sheet financing arrangements.
Contingencies
The Company is exposed to a number of asserted and unasserted potential claims. Management does not believe it is reasonably possible that resolution of these matters will result in a material loss. The Company had no guarantees, subleases or assigned lease obligations as of December 30, 2006 and December 29, 2007.
NOTE 11. INCOME TAXES
The provision for income taxes includes:
The Company's effective tax rate, as a percent of income before income taxes, differs from the statutory federal tax rates as follows:
The major components of the Company's net deferred tax assets (liabilities) at December 30, 2006 and December 29, 2007 are as follows:
NOTE 12. STOCK BASED COMPENSATION
Effective January 1, 2006, the Company began recording compensation expense associated with stock options in accordance with Statement of Financial Accounting Standards ("SFAS") No. 123(R), "Share-Based Payment," as interpreted by SEC Staff Accounting Bulletin No. 107. Prior to January 1, 2006, the Company had accounted for stock options according to the provisions of Accounting Principles Board ("APB") Opinion No. 25, Accounting for Stock Issued to Employees, and related interpretations, and therefore no related compensation expense was recorded for awards granted with no intrinsic value. We adopted the modified prospective transition method provided for under SFAS No. 123(R), and, consequently, have not retroactively adjusted results from prior periods. Under this transition method, compensation cost associated with stock options recognized in Fiscal 2006 includes: 1) quarterly amortization related to the remaining unvested portion of all stock option awards granted prior to January 1, 2006, based on the grant date fair value estimated in accordance with the original provisions of SFAS No. 123; and 2) quarterly amortization related to all stock option awards granted subsequent to January 1, 2006, when granted, based on the grant-date fair value estimated in accordance with the provisions of SFAS No. 123(R).
The Company's 2000 Stock Option Plan provides for the granting of either incentive stock options ("ISO's") or non-qualified options to purchase up to 825,000 shares of common stock. As of December 29, 2007, there were no shares under the 2000 plan available for future grant. The Company's 2003 Stock Option Plan provides for the granting of either ISO's or non-qualified options to purchase up to 1,350,000 shares of common stock. As of December 29, 2007, there were 117,282 shares under the 2003 plan available for future grant. All of the Company's prior stock option plans have expired as to the ability to grant new options.
Stock awards outstanding under the Company's current plans have generally been granted at prices which are equal to the market value of our stock on the date of grant, generally vest over four years and expire no later than ten years after the grant date. Effective January 1, 2006, we recognized compensation expense ratably over the vesting period, net of estimated forfeitures. As of December 29, 2007, there was $783,000 of total unrecognized compensation cost related to non-vested options, which is expected to be recognized over a remaining weighted-average vesting period of 3.00 years. The total intrinsic value of options exercised during the 52 week period ended December 29, 2007 was approximately $205,000.
The following table details the effect on net income and earnings per share "as reported" as if compensation expense had been recorded for the year ended December 31, 2005 based on the fair value method under SFAS No. 123, "Accounting for Stock-Based Compensation". The reported and pro forma net income and earnings per share for the year ended December 30, 2006 and December 29,
is the same since share-based compensation expense is calculated under the provisions of SFAS No. 123(R).
In accordance with SFAS No. 123(R), the fair value of each option grant is estimated on the date of grant using the Black-Scholes option pricing model using the assumptions below for grants in the respective periods:
The weighted average fair value of options granted during fiscal years ended December 31, 2005 and December 29, 2007 were $12.83 and $14.38. There were no options granted during fiscal 2006.
Stock Plans
On October 4, 2000, the Company adopted the 2000 Stock Option Plan. The plan is administered by the Compensation and Plan Administration Committee of the Company's Board of Directors. Under the option plan the Company reserved 550,000 shares of the Company's authorized common stock for issuance to officers and key employees of the Company.
On July 22, 2003, the Company adopted the 2003 Stock Option Plan. The plan is administered by the Compensation and Plan Administration Committee of the Company's Board of Directors. Under the option plan the Company reserved 900,000 shares of the Company's authorized common stock for issuance to officers and key employees of the Company.
On June 18, 2004, the Company paid a 3 for 2 stock dividend to holders of record.
Options granted under the plans have a ten-year term and may be either incentive stock options or non-qualified stock options. The options are granted at an exercise price equal to the fair market value on the date of grant and generally vest over a four year period. The granted options generally become exercisable at the maximum rate of 25% per annum, to the extent the Company's earning plan, as approved by the Compensation and Plan Administration Committee, is achieved. The price is payable in cash at the time of the exercise or, at the discretion of the Administrators, through the delivery of
shares of Common Stock or the Company's withholding of shares otherwise deliverable to the employee, or a combination thereof.
The following table summarizes all stock option transactions for the three fiscal years ended December 29, 2007:
Significant option groups outstanding at December 29, 2007 and related weighted average price and life information follows:
A summary of the changes in stock options outstanding during the 52-week period ended December 29, 2007 is presented below:
(1)Weighted-average exercise price.
(2)Weighted-average contractual life remaining in years.
(3)The aggregate intrinsic values in the table above are based on the Company's closing stock price as of the last business day of the periods ended December 30, 2006 and December 29, 2007, which was $25.24 and $9.92, respectively. A summary of the activity for the non-vested share awards during the 52-week period ended December 29, 2007 is presented below:
We anticipate approximately 158,000 shares will vest in future periods.
Prior to the adoption of SFAS No. 123(R), we presented all tax benefits resulting from the exercise of stock options as operating cash flows in the Condensed Consolidated Statement of Cash Flows. SFAS No. 123(R) requires that cash flows resulting from tax deductions in excess of the cumulative compensation cost recognized for options exercised ("excess tax benefits") be classified as financing cash flows. For the 52-week period ended December 30, 2006 and December 29, 2007, there was $1.8 million and $92,000 respectively, of excess tax benefits realized from the exercise of stock options.
As of December 29, 2007, there was approximately $783,000 of future compensation cost related to nonvested share-based compensation awards granted under the stock option plans. That cost is expected to be recognized over a weighted average period of 3.00 years. The total fair value of shares
vested during the year ended December 29, 2007 was $835,000. The following table represents as of December 29, 2007 the share-based compensation expense to be recognized in future periods:
Secondary Offering
On November 21, 2006, the Company completed a secondary offering of the Company's Common Stock. The Company issued 200,000 shares of Common Stock and received net proceeds of $4.4 million. The funds will be used for general corporate purposes. In addition, 1,675,000 shares were sold by officers and controlling shareholders.
Repurchase Program
On July 30, 2007, the Company's Board of Directors authorized a share repurchase program pursuant to which the Company may repurchase up to 1,000,000 shares of Company common stock, either through the open market or in privately negotiated transactions in accordance with SEC requirements, in either case, at the prevailing market rate. The program began in August 2007. There is no expiration date governing the period over which the Company can repurchase shares. On November 6, 2007, the Company's Board of Directors authorized an additional 500,000 share repurchase. On December 26, 2007, the Board of Directors authorized an additional 500,000 share repurchase, bringing the total authorization to 2,000,000 shares. During the second half of fiscal 2007, the Company repurchased, in the open market, 1,695,032 shares at a cost of $24.2 million or $14.28 per share.
On January 2, 2008, the Board of Directors authorized an additional 1,000,000 million share repurchase, and on February 5, 2008, the Board of Directors authorized an additional 500,000 share repurchase, bringing the total authorization to 3,500,000 million shares.
NOTE 13. EARNINGS PER SHARE
The following table sets forth the computations of basic and diluted earnings per share:
Options to purchase 25,000 and 10,000 common shares at exercise prices of $16.40 and $18.30 per share, respectively, were outstanding, during fiscal 2005 and fiscal 2006, but were not included in the computation of dilutive earnings per share because to do so would have been anti-dilutive.
NOTE 14. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
(1)Includes recognition of $2.4 million of breakage income for previously issued gift cards and merchandise credits.
(2)Includes a charge of $5.7 million for the exit of the Lillie Rubin business. Per share amounts are calculated independently for each quarter. The sum of the quarters may not equal the full year per share amounts.
NOTE 15. SUBSEQUENT EVENTS
On January 24, 2008, Mr. Brian Woolf, previously Chairman and Chief Executive Officer, as well as the principal executive officer of Cache, Inc. resigned from the Company, effective immediately. On January 24, 2008, Mr. Thomas Reinckens, currently Cache Inc.'s President, was appointed as the Company's Chairman and Chief Executive Officer and will serve as the Company's principal executive officer. He will continue in his position as the Company's President, in addition to assuming these new roles. As a result of Mr. Woolf's resignation, the Company will a record a severance expense of $604,000, during the first quarter of fiscal 2008.
Cache, Inc and Subsidiaries
Valuation and Qualifying Accounts
ITEM 1. BUSINESS
ITEM 1A. RISK FACTORS
ITEM 1B. UNRESOLVED STAFF COMMENTS
ITEM 2. PROPERTIES
ITEM 3. LEGAL PROCEEDINGS
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
ITEM 6. SELECTED FINANCIAL DATA
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
ITEM 9. CHANGES IN AND/OR DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
ITEM 9A. CONTROLS AND PROCEDURES
ITEM 9B. OTHER INFORMATION
PART III
PART IV
ITEM 15. EXHIBITS and FINANCIAL STATEMENT SCHEDULE
CACHE, INC. AND SUBSIDIARIES CONSOLIDATED FINANCIAL STATEMENTS FISCAL YEARS ENDED DECEMBER 29, 2007, DECEMBER 30, 2006, AND DECEMBER 31, 2005
CACHE, INC. AND SUBSIDIARIES INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
CACHE, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
CACHE, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME
CACHE, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
CACHE, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
CACHE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Cache, Inc and Subsidiaries Valuation and Qualifying Accounts