UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(X) Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended ............ May 4, 1997
OR
( ) Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Commission file Number 0-20269
DUCKWALL-ALCO STORES, INC.
(Exact name of registrant as specified in its charter.)
Kansas 48-0201080
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
401 Cottage Street
Abilene, Kansas 67410-2832
(Address of principal executive offices (Zip Code)
Registrant's telephone number, including area code:
(913) 263-3350
Indicate by check mark whether the registrant(1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES [X] NO [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS:
5,096,979 shares of common stock, $.0001 par value (the issuer's
only class of common stock), were outstanding as of May 4, 1997.
PART I. Financial Information.
ITEM 1. Financial Statements.
Duckwall-ALCO Stores, Inc.
And Subsidiary
Consolidated Balance Sheets
(Dollars in Thousands)
May 4, 1997 February 2, 1997
(Unaudited)
_______________ _______________
ASSETS
Current assets:
Cash on deposit and on hand $3,497 $7,538
Receivables 3,446 3,160
Inventories 96,247 80,359
Other current assets 2,013 1,785
Total current assets 105,203 92,842
Property and equipment:
Land 2,658 2,658
Buildings 21,071 20,991
Furniture, fixtures and equipment 28,608 26,215
Transportation equipment 1,688 1,688
Leasehold improvements 4,774 4,623
Construction in progress 3,736 2,931
Total property and equipment 62,535 59,106
Less accumulated depreciation 27,411 26,527
Net property and equipment 35,124 32,579
Property under capital leases 20,407 20,407
Less accumulated amortization 13,278 13,100
Net property under capital leases 7,129 7,307
Debt financing cost 73 80
Total assets $147,529 $132,808
<FN>
See accompanying notes to unaudited consolidated financial statements.
Duckwall-ALCO Stores, Inc.
And Subsidiary
Consolidated Balance Sheets
(Dollars in Thousands)
May 4, 1997 February 2,1997
(Unaudited)
_______________ _______________
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of:
Long term debt $1,351 $1,242
Capital lease obligations 607 607
Accounts payable 25,503 17,127
Income taxes payable 504 2,345
Accrued salaries and commissions 2,307 3,876
Accrued taxes other than income 2,991 2,929
Other current liabilities 1,788 1,670
Deferred taxes 2,612 2,612
Total current liabilities 37,663 32,408
Notes payable under revolving loan 19,219 12,095
Long term debt
less current maturities 4,736 3,193
Capital lease obligations
less current maturities 8,996 9,148
Other noncurrent liabilities 833 793
Deferred income taxes 2,346 2,346
Total liabilities 73,793 59,983
Stockholders' equity:
Common stock, $.0001 par value, authorized
20,000,000 shares; issued and outstanding
5,096,979 shares and 5,089,823 shares
respectively 1 1
Additional paid-in capital 54,458 54,396
Retained earnings since June 2, 1991 19,277 18,428
Total Stockholders' equity 73,736 72,825
Total liabilities and
Stockholders' equity $147,529 $132,808
<FN>
See accompanying notes to consolidated financial statements.
Duckwall-ALCO Stores, Inc.
And Subsidiary
Consolidated Statement of Operations
(Dollars in Thousands Except Per Share Amounts)
(Unaudited)
For the Thirteen
Week Periods
May 4 April 28
1997 1996
____________ ____________
Net sales ............................... $69,272 $59,348
Cost of sales ........................... 45,537 39,706
Gross margin .................. 23,735 19,642
Selling, general
and administrative ................. 20,611 16,912
Depreciation
and amortization ................... 1,062 864
Total operating expenses ...... 21,673 17,776
Income from operations .................. 2,062 1,866
Interest expense......................... 682 732
Earnings
before income taxes ................. 1,380 1,134
Income tax expense ...................... 531 431
Net earnings ....................... $849 $703
Earnings per common and
common equivalent share ................ $0.17 $0.18
<FN>
See accompanying notes to unaudited consolidated financial statements.
Duckwall-ALCO Stores, Inc.
And Subsidiary
Consolidated Statements of Cash Flow
(Dollars in Thousands)
(Unaudited)
For the Thirteen Week
Periods Ended
May 4, 1997 April 28, 1996
---------------- ----------------
Cash flows from operating activities:
Net Earnings $849 703
Adjustments to reconcile
net earnings to net cash
used in operating activities
Amortization of
debt financing costs 7 10
Depreciation and amortization 1,062 864
Increase in inventories (15,888) (9,684)
Increase in accounts payable 8,376 6,062
Decrease (Increase) in receivables (286) (289)
Decrease (Increase)
in other current assets (228) (459)
Decrease in accrued expenses (1,507) (2,531)
(Decrease) in income taxes payable (1,841) (457)
Increase in other liabilities 158 114
Net cash used in
operating activities (9,298) (5,667)
Cash flow from investing activities:
Capital expenditures (3,429) (3,571)
Net cash used in
investing activities (3,429) (3,571)
Cash flow from financing activities:
Proceeds from exercise of
outstanding stock options 62 0
Increase in revolving loan 7,124 9,345
Principal payments on
long term notes (218) (62)
Principal payments on
capital leases (152) (159)
Increase in long term notes 1,870 1,000
Debt issue costs 0 (10)
Net cash provided by
financing activities 8,686 10,114
Net increase in cash (4,041) 876
Cash at beginning of period 7,538 177
Cash at end of period $3,497 $1,053
<FN>
See accompanying notes to unaudited consolidated financial statements.
Duckwall-ALCO Stores, Inc.
And Subsidiary
Notes to Unaudited Consolidated Financial Statements
(1) Basis of Presentation
The accompanying unaudited consolidated financial
statements are for interim periods and, consequently, do not
include all disclosures required by generally accepted
accounting principles for annual financial statements. It is
suggested that the accompanying unaudited consolidated
financial statements be read in conjunction with the
consolidated financial statements included in the Company's
fiscal 1997 Annual Report. In the opinion of management of
Duckwall-ALCO Stores, Inc., the accompanying unaudited
consolidated financial statements reflect all adjustments
(consisting of normal recurring accruals) necessary to present
fairly the financial position of the Company and the results of
its operations and cash flows for the interim periods.
(2) Principles of Consolidation
The consolidated financial statements include the accounts
of Duckwall-ALCO Stores, Inc. and its wholly-owned subsidiary.
All significant intercompany transactions and balances have
been eliminated in consolidation.
(3) Earnings Per Share
Earnings per share has been computed based on the weighted
average number of common shares outstanding during the period
plus common stock equivalents, when dilutive, consisting of
stock options.
The average number of shares used in computing earnings
per share was as follows:
Thirteen Weeks Ending
May 4, 1997 5,135,168
April 28, 1996 4,016,552
Duckwall-ALCO Stores, Inc.
And Subsidiary
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND
RESULTS OF OPERATION.
(Dollars in thousands)
[CAPTION]
The thirteen weeks ended May 4, 1997 and April 28, 1996 are referred
to herein as the first quarter of fiscal 1998 and 1997, respectively.
As used below the term "competitive market" refers to any market wherein
there is one or more national or regional discount stores located in the
market served by the Company. The term "non-competitive market" refers
to any market where there is no national or regional discount store
located in the market served by the Company. Even in a non-competitive
market, the Company faces competition from a variety of sources.
RESULTS OF OPERATIONS
Thirteen Weeks Ended May 4, 1997 Compared to
Thirteen Weeks Ended April 28,1996.
Net earnings increased 20.8% for the first quarter of fiscal 1998
to $849, an increase of $146 over the net earnings of $703 for the first
quarter of fiscal 1997. The Company has had 17 consecutive quarters of
earnings growth (where current quarter earnings have exceeded prior year
earnings for the same quarter).
The Company continues to execute its basic strategy of opening stores in
under-served markets that have no competition from national or regional
discount retailers. During the first quarter of fiscal 1998, the
Company opened 17 stores, 15 of which were in new, non-competitive markets,
resulting in a quarter end total of 202 stores. At quarter end, 152
stores, or 75% of the total stores, were located in non-competitive
markets. Fourteen of the new store openings were ALCO stores in
locations acquired from the Val Corporation.
Net sales for the first quarter of fiscal 1998 increased $9,924 or 16.7%
to $69,272 compared to $59,348 for the first quarter of fiscal 1997.
Net sales for all stores open the full period in both the first quarter
of fiscal 1998 and fiscal 1997 (comparable stores) increased $1,435 or
2.5%. Net sales for these comparable stores in non-competitive markets
increased by $1,226 or 3.4%. Net sales for non-comparable stores
increased $8,489 for the first quarter of fiscal 1998 compared to the
first quarter of fiscal 1997. The same store sales increase was
attributable to increases in a broad spectrum of departments, including
housewares, toys, consumables and outdoor living.
Gross margin for the first quarter of fiscal 1998 increased $4,093 or
20.8% to $23,735 compared to $19,642 in the first quarter of fiscal 1997.
Gross margin as a percentage of sales was 34.3% for the first quarter of
fiscal 1998 compared to 33.1% in the first quarter of fiscal 1997. The
increase in the margin percentage was due to an increase in vendor
partnerships and new store opening discounts, as well as a reduction in
shrinkage.
Selling, general and administrative expense increased $3,699 or 21.9% to
$20,611 in the first quarter of fiscal 1998 compared to $16,912 in the
first quarter of fiscal 1997, primarily due to the increase in total
stores. As a percentage of net sales, selling, general and
administrative expenses in the first quarter of fiscal 1998 increased by
1.3% from the first quarter of fiscal 1997. This increase was due to
store opening costs (opening 15 ALCO stores and 2 Duckwall stores in the
current quarter compared to 5 ALCO stores and 5 Duckwall store openings in
the first quarter of fiscal 1997), and an increase in payroll costs, due
in part to an increase in the minimum wage.
Depreciation and amortization expense increased $198 or 22.9% to $1,062
in the first quarter of fiscal 1998 compared to $864 in the first quarter
of fiscal 1997. The increase is due to additional buildings and equipment
associated with the store expansion program.
Income from operations increased $196 or 10.5% to $2,062 in the first
quarter of fiscal 1998 compared to $1,866 in the first quarter of fiscal
1997. Income from operations as a percentage of net sales decreased
slightly to 3.0% in the first quarter of fiscal 1998 compared to 3.1% in
the first quarter of fiscal 1997.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary sources of funds are cash flow from operations,
borrowings under its revolving loan credit facility and vendor trade
credit financing (increases in accounts payable).
At May 4, 1997 working capital (defined as current assets less current
liabilities) was $67,540 compared to $60,434 at the end of fiscal 1997.
Cash used by operating activities in the first quarter of fiscal 1998
and 1997 was $9,298 and $5,667 respectively. The increase in the
amount of cash used by operating activities in the first quarter of
fiscal 1998 compared to the first quarter of fiscal 1997 was primarily
due to a smaller increase in the trade accounts payable build up
relative to the overall increase in inventory levels.
The Company generated cash from financing activities in the first
quarter of fiscal 1998 and 1997 of $8,686 and $10,114, respectively.
This was generated by borrowing under the revolving loan credit facility,
as well as a $1,870 and $1,000 mortgage secured by certain company fixed
assets in fiscal 1998 and 1997, respectively.
Cash used for acquisition of property and equipment in the first quarters
of fiscal 1998 and 1997 totaled $3,429 and $3,571, respectively. Total
anticipated cash payments for acquisition of property and equipment in
fiscal 1998, principally for store buildings and store and warehouse
fixtures and equipment, are $13,869.
IMPACT OF NEW ACCOUNTING PRONOUNCEMENT
The Financial Accounting Standards Board has issued SFAS No. 128,
Earnings Per Share ("Statement 128") which replaces the current
accounting standard regarding computation of earnings per share.
Statement 128 requires a dual presentation of basic earnings per share
(based on the weighted average number of common shares outstanding) and
diluted earnings per share which reflects the potential dilution that
could occur if contracts to issue securities (such as stock options)
were exercised. Statement 128 is effective for financial statements
issued for periods ending after December 15, 1997. If Statement 128 had
been adopted, on a pro-forma basis, for the 13 weeks ended May 4, 1997
and April 28, 1996, there would have been no effect on the amount of
earnings per share as presented in the accompanying financial statements.
OTHER INFORMATION
PART II
Item 1. Legal Proceedings
No legal proceedings except those covered by insurance occurred
during the thirteen week period ended May 4, 1997.
Item 2. Changes in Securities
Not applicable
Item 3. Defaults Upon Senior Securities
Not Applicable
Item 4. Submission of Matters to a Vote of Security Holders
Not Applicable
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) None
(b) Reports on Form 8-K
No reports filed
Duckwall-ALCO Stores, Inc.
And Subsidiary
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934
the registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
DUCKWALL-ALCO STORES, INC.
(Registrant)
Date, June 16, 1997 /s/Richard A. Mansfield
Richard A. Mansfield
Vice President - Finance
Chief Financial Officer
Signing on behalf of the
registrant and as principal
financial officer