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 03, 1998
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:
(785) 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:
5,119,761 shares of common stock, $.0001 par value (the issuer's
only class of common stock), were outstanding as of May 3, 1998.
PART I. Financial Information.
ITEM 1. Financial Statements.
Duckwall-ALCO Stores, Inc.
And Subsidiary
Consolidated Balance Sheets
(Dollars in Thousands)
May 3, February 1,
1998 1998
(Unaudited)
___________ __________
ASSETS
Current assets:
Cash on deposit and on hand $6,620 $2,555
Receivables 4,086 3,158
Inventories 114,149 103,445
Other current assets 2,154 2,131
Total current assets 127,009 111,289
Property and equipment 73,923 70,774
Less accumulated depreciation 31,861 30,627
Net property and equipment 42,062 40,147
Property under capital leases 20,407 20,407
Less accumulated amortization 13,966 13,811
Net property under capital leases 6,441 6,596
Debt financing cost 351 82
Total assets $175,863 $158,114
<FN>
See accompanying notes to unaudited consolidated financial statements.
Duckwall-ALCO Stores, Inc.
And Subsidiary
Consolidated Balance Sheets
(Dollars in Thousands)
May 3, February 1,
1998 1998
(Unaudited)
___________ ____________
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of:
Long term debt $1,336 $1,333
Capital lease obligations 540 518
Accounts payable 28,418 19,009
Income taxes payable 847 2,272
Accrued salaries and commissions 2,956 4,884
Accrued taxes other than income 3,624 3,159
Other current liabilities 1,292 1,804
Deferred taxes 2,324 2,324
Total current liabilities 41,337 35,303
Notes payable under revolving loan 36,509 25,591
Long term debt
less current maturities 3,443 3,646
Capital lease obligations
less current maturities 8,478 8,630
Other noncurrent liabilities 833 782
Deferred revenue 1,210 1,272
Deferred income taxes 2,496 2,496
Total liabilities 94,306 77,720
Stockholders' equity:
Common stock, $.0001 par value, authorized
20,000,000 shares; issued and outstanding
5,119,761 shares and 5,098,761 shares
respectively 1 1
Additional paid-in capital 54,631 54,474
Retained earnings since June 2, 1991 26,925 25,919
Total stockholders' equity 81,557 80,394
Total liabilities and
stockholders' equity $175,863 $158,114
<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 3, May 4,
1998 1997
____________ ____________
Net sales ............................... $81,052 $69,272
Cost of sales ........................... 52,902 45,537
Gross margin .................. 28,150 23,735
Selling, general
and administrative ................. 24,130 20,611
Depreciation
and amortization ................... 1,389 1,062
Total operating expenses ...... 25,519 21,673
Income from operations .................. 2,631 2,062
Interest expense......................... 1,026 682
Earnings
before income taxes ................. 1,605 1,380
Income tax expense ...................... 599 531
Net earnings ....................... $1,006 $849
Earnings per share:
Basic ............................. $0.20 $0.17
Diluted ............................ $0.20 $0.17
<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 3, 1998 May 4, 1997
----------------- ----------------
Cash flows from operating activities:
Net Earnings $1,006 $849
Adjustments to reconcile
net earnings to net cash
used in operating activities
Amortization of
debt financing costs 51 7
Depreciation and amortization 1,389 1,062
Increase in inventories (10,704) (15,888)
Increase in accounts payable 9,409 8,376
Decrease (increase) in receivables (928) (286)
Decrease (increase)
in other current assets ( 23) (228)
Decrease in accrued expenses (1,463) (1,507)
(Decrease) in income taxes payable (1,425) (1,841)
Increase (decrease)in other
liabilities (523) 158
Net cash used in
operating activities (3,211) (9,298)
Cash flow from investing activities:
Capital expenditures (3,149) (3,429)
Net cash used in
investing activities (3,149) (3,429)
Cash flow from financing activities:
Proceeds from exercise of
outstanding stock options 157 62
Increase in revolving loan 10,918 7,124
Principal payments on
long term notes (200) (218)
Principal payments on
capital leases (130) (152)
Increase in long term notes 0 1,870
Debt issue costs (320) 0
Net cash provided by
financing activities 10,425 8,686
Net increase (decrease) in cash 4,065 (4,041)
Cash at beginning of period 2,555 7,538
Cash at end of period $6,620 $3,497
<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 1998 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 Basic Diluted
May 3, 1998 5,100,974 5,156,695
May 4, 1997 5,090,845 5,135,168
Duckwall-ALCO Stores, Inc.
And Subsidiary
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATION.
(Dollars in thousands)
[CAPTION]
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATION
(Dollars in thousands)
The thirteen weeks ended May 3, 1998 and May 4, 1997 are referred to herein
as the first quarter of fiscal 1999 and 1998, respectively.
As used below the term "competitive market" refers to any market wherein
there is one or more national or regional full-line 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 full-line
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 3, 1998 Compared to Thirteen Weeks ended May 4,
1997.
Net earnings increased 18.4% for the first quarter of fiscal 1999 to
$1,006, an increase of $157 over the net earnings of $849 for the
first quarter of fiscal 1998. The Company has had 21 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 full-line discount retailers. During the first quarter of
fiscal 1999, the Company opened 21 stores and closed 3 stores,
resulting in a quarter end total of 243 stores. Nineteen of the
stores opened were in new, non-competitive markets. The 2 ALCO
stores closed were in competitive markets, and the Duckwall store
closed was replaced by an ALCO store in an existing non-competitive
market. At quarter end, 195 stores, or 80% of the total stores,
were located in non-competitive markets. Thirteen of the new store
openings were Duckwall stores in locations acquired from Perry
Brothers, Inc.
Net sales for the first quarter of fiscal 1999 increased $11,780 or
17.0% to $81,052 compared to $69,272 for the first quarter of fiscal
1998. Net sales for all stores open the full period in both the
first quarter of fiscal 1999 and fiscal 1998 (comparable stores)
increased $862 or 1.3%. Net sales for these comparable stores in
the prototype class 18 ALCO stores increased $698 or 3.0%. Net sales
for non-comparable stores increased $10,918 for the first quarter of
fiscal 1999 compared to the first quarter of fiscal 1998. The same
store sales increase was attributable to increases in a broad spectrum
of departments, including housewares, ladies wear and outdoor living.
Gross margin for the first quarter of fiscal 1999 increased $4,415 or
18.6% to $28,150 compared to $23,735 in the first quarter of fiscal
1998. Gross margin as a percentage of sales was 34.7% for the first
quarter of fiscal 1999 compared to 34.3% in the first quarter of
fiscal 1998. The increase in the margin percentage was due to an
increase in vendor partnerships.
Selling, general and administrative expense increased $3,519 or
17.1% to $24,130 in the first quarter of fiscal 1999 compared to
$20,611 in the first quarter of fiscal 1998, primarily due to the
increase in total stores. As a percentage of net sales, selling,
general and administrative expenses were 29.8% in the first quarter
of both fiscal years.
Depreciation and amortization expense increased $327 or 30.8% to
$1,389 in the first quarter of fiscal 1999 compared to $1,062 in the
first quarter of fiscal 1998. The increase is due to additional
buildings and equipment associated with the store expansion program.
Income from operations increased $569 or 27.6% to $2,631 in the first
quarter of fiscal 1999 compared to $2,062 in the first quarter of
fiscal 1998. Income from operations as a percentage of net sales
increased to 3.3% in the first quarter of fiscal 1999 compared to 3.0%
in the first quarter of fiscal 1998.
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 3, 1998 working capital (defined as current assets less
current liabilities) was $85,672 compared to $75,986 at the end of
fiscal 1998.
Cash used by operating activities in the first quarter of fiscal
1999 and 1998 was $3,211 and $9,298 respectively. The decrease in
the amount of cash used by operating activities in the first quarter
of fiscal 1999 compared to the first quarter of fiscal 1998 was
primarily due to a smaller increase in the inventory build up
relative to the overall increase in trade accounts payable levels.
The Company generated cash from financing activities in the first
quarter of fiscal 1999 and 1998 of $10,425 and $8,686, respectively.
This was generated by borrowing under the revolving loan credit
facility, as well as a $1,870 mortgage secured by certain company
fixed assets in fiscal 1998.
The Company's revolving loan credit facility was amended in April
1998 to increase its available line of credit to $85 million from $45
million. The revolving loan credit facility, which has more
favorable terms than the previous facility, provides financing in the
form of notes payable and letters of credit, and will expire in April
2001. The Company's inventory, receivables, and intangible assets
provide the security for this line of credit.
Cash used for acquisition of property and equipment in the first
quarters of fiscal 1999 and 1998 totaled $3,149 and $3,429,
respectively. Total anticipated cash payments for acquisition of
property and equipment in fiscal 1999, principally for store buildings
and store and warehouse fixtures and equipment, are $13,308.
IMPACT OF NEW ACCOUNTING PRONOUNCEMENT
In April 1998, the American Institute of Certified Public Accountants
adopted a Statement of Position (SOP) REPORTING ON THE COSTS OF
START-UP ACTIVITIES. The SOP requires that entities expense costs of
start-up activities as they are incurred. The SOP is effective for
financial statements for fiscal years beginning after December 15,
1998, with earlier application encouraged. The initial application of
the SOP is to be reported as a cumulative effect of a change in
accounting principle. The Company currently capitalizes store pre-
opening costs and amortizes such costs over the initial twelve months
of a store's operations. Pre-opening costs capitalized, net of
accumulated amortization, at May 3, 1998 and February 1, 1998 are
$1,643 and $1,567, respectively. While the one-time recording of the
cumulative effect of the change in accounting principle could be
material, the ongoing effect of the proposed new accounting principle
would be dependent upon the number and timing of new stores opened.
Generally, pre-opening costs would be recognized during the two months
prior to a store commencing operation under the proposed new accounting
principle versus over the twelve months subsequent to commencing
operation under the existing principle.
THE YEAR 2000 ISSUE
The Company is aware of the issues associated with the programming
code in existing computer systems as the year 2000 approaches. The
Company has commenced, for all of its systems, a year 2000 date
conversion project to address all necessary code changes, testing and
implementation. The "Year 2000" problem is the result of computer
programs being written using two digits rather than four to define
the applicable year. Any of the Company's programs that have time-
sensitive software may recognize a date using "00" as the year 1900
rather than the year 2000. This could result in a major system
failure or miscalculations. The Company presently believes that,
with modifications to existing software and converting to new
software, the year 2000 problem will not pose significant operational
problems for the Company's computer systems as so modified and
converted. However, if such modifications and conversions are not
completed timely, the year 2000 problem may have a material impact on
the operation of the Company. At this time, the Company estimates
that the total cost to modify or replace existing systems to solve
the year 2000 problem will not exceed $1,000,000.
OTHER INFORMATION
PART II
Item 1. Legal Proceedings
No legal proceedings except those covered by insurance occurred
during the thirteen week period ended May 3, 1998.
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 11, 1998 /s/Richard A. Mansfield
Richard A. Mansfield
Vice President - Finance
Chief Financial Officer
Signing on behalf of the
registrant and as principal
financial officer