UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended May 4, 1996
OR
- --- TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
EXCHANGE ACT OF 1934
For the transition period from __________ to ___________
Commission file number 0-14970
COST PLUS, INC.
(Exact name of registrant as specified in its charter)
California 94-1067973
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
201 Clay Street, Oakland, California 94607
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (510) 893-7300
Former name, former address and former fiscal year, N/A
if changed since last report.
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
___ ___
The number of shares of Common Stock, with $0.01 par value, outstanding on May
24, 1996 was 8,064,314.
COST PLUS, INC.
FORM 10-Q
FOR THE QUARTER ENDED MAY 4, 1996
INDEX
PAGE
PART I. FINANCIAL INFORMATION
ITEM 1. Condensed Consolidated Financial Statements
Balance Sheets as of May 4, 1996 (unaudited),
February 3, 1996 and April 22, 1995 (unaudited) 3
Statements of Operations (unaudited) for the
three months ended May 4, 1996 and April 22, 1995 4
Statements of Cash Flows (unaudited) for the
three months ended May 4, 1996 and April 22, 1995 5
Notes to Condensed Consolidated Financial Statements 6
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 7
PART II. OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K 8
SIGNATURE PAGE 9
2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
COST PLUS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS)
MAY 4, FEBRUARY 3, APRIL 22,
1996 1996 1995
(UNAUDITED) (SEE NOTE 1) (UNAUDITED)
----------- ------------ -----------
ASSETS
Current assets:
Cash and cash equivalents $ 4,032 $ 2,181 $ 1,797
Merchandise inventories 34,436 35,213 30,288
Other current assets 2,179 1,960 1,169
-------- -------- --------
Total current assets 40,647 39,354 33,254
Property and equipment, net 58,084 58,300 56,268
Other assets 8,240 8,332 8,379
-------- -------- --------
Total assets $106,971 $105,986 $ 97,901
======== ======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 8,182 $ 9,422 $ 11,560
Income taxes payable 763 3,359 1,398
Accrued compensation 5,315 5,373 2,766
Revolving line of credit with related parties -- 3,165 3,549
Other current liabilities 6,490 6,933 5,207
-------- -------- --------
Total current liabilities 20,750 28,252 24,480
Capital lease obligations 14,528 14,633 14,887
Note payable to related parties -- 19,895 19,895
Deferred income taxes 4,455 4,455 4,646
Other long-term obligations 2,194 2,392 2,132
Shareholders' equity:
Preferred stock, $.01 par value: 5,000,000 shares
authorized at May 4, 1996; none issued and outstanding -- -- --
Common stock, $.01 par value: 30,000,000, 6,819,931
and 6,819,931 authorized; issued and outstanding
8,062,574, 5,906,264 and 5,821,928 81 59 58
Additional paid-in capital 90,823 61,765 61,722
Deficit (25,860) (25,465) (29,919)
-------- -------- --------
Total shareholders' equity 65,044 36,359 31,861
-------- -------- --------
Total liabilities and shareholders' equity $106,971 $105,986 $ 97,901
======== ======== ========
See notes to condensed consolidated financial statements.
3
COST PLUS, INC.
STATEMENTS OF CONDENSED CONSOLIDATED OPERATIONS
(IN THOUSANDS EXCEPT PER SHARE AMOUNT, UNAUDITED)
THREE MONTHS ENDED
---------------------
MAY 4, APRIL 22,
1996 1995
-------- --------
Net sales $ 39,127 $ 31,874
Cost of sales and occupancy 25,552 21,124
-------- --------
Gross profit 13,575 10,750
Selling, general and administrative expenses 13,055 10,733
Preopening store expenses 284 83
-------- --------
Income (loss) from operations 236 (66)
Interest expense 905 1,016
-------- --------
Loss before income taxes (669) (1,082)
Benefit from income taxes (274) (444)
-------- --------
Net loss $ (395) $ (638)
======== ========
Net loss per common and common equivalent share $ (.06) $ (.10)
======== ========
Weighted average common and common equivalent shares
outstanding 6,978 6,153
======== ========
See notes to condensed consolidated financial statements.
4
COST PLUS, INC.
STATEMENTS OF CONDENSED CONSOLIDATED CASH FLOWS
(IN THOUSANDS, UNAUDITED)
THREE MONTHS ENDED
---------------------
MAY 4, APRIL 22,
1996 1995
-------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (395) $ (638)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization 1,604 1,329
Deferred income taxes -- (1,031)
Change in assets and liabilities:
Merchandise inventories 777 (1,162)
Other assets (259) 1,060
Accounts payable (906) 95
Income taxes payable (2,596) (443)
Other liabilities (720) (2,552)
-------- -------
Net cash used in operating activities (2,495) (3,342)
-------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (1,590) (1,298)
-------- -------
Net cash used in investing activities (1,590) (1,298)
-------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net (payments) borrowings under revolving line of credit (3,165) 3,549
Payment of note payable to related parties (19,895) --
Principal payments on capital lease obligations (84) (18)
Proceeds from issuance of stock, net of related costs 29,080 (409)
-------- -------
Net cash provided by financing activities 5,936 3,122
-------- -------
Net increase (decrease) in cash and cash equivalents 1,851 (1,518)
Cash and cash equivalents:
Beginning of period 2,181 3,315
-------- -------
End of period $ 4,032 $ 1,797
======== =======
See notes to condensed consolidated financial statements.
5
COST PLUS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MAY 4, 1996 AND APRIL 22, 1995
(UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have been
prepared from the records of the Company without audit and, in the opinion of
management, include all adjustments (consisting of only normal recurring
accruals) necessary to present fairly the financial position at May 4, 1996 and
April 22, 1995; the interim results of operations for the three months ended May
4, 1996 and April 22, 1995; and changes in cash flows for the three months then
ended. The balance sheet at February 3, 1996, presented herein, has been
derived from the audited financial statements of the Company for the fiscal year
then ended.
Effective in fiscal 1995, the Company changed its fiscal year-end from the
Saturday closest to the end of February to the Saturday closest to the end of
January to conform to the National Retail Federation ( NRF) calendar. As a
result, the fiscal period-end dates for the prior year may not be comparable to
the current year's fiscal period-end dates.
Accounting policies followed by the Company are described in Note 1 to the
audited consolidated financial statements for the fiscal year ended February 3,
1996. Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted for purposes of the condensed
consolidated interim financial statements. The condensed consolidated financial
statements should be read in conjunction with the audited consolidated financial
statements, including notes thereto, for the year ended February 3, 1996.
The results of operations for the three-month periods herein presented are not
necessarily indicative of the results to be expected for the full year.
2. STATEMENTS OF CASH FLOWS SUPPLEMENTAL DISCLOSURES
Total cash paid for interest and income taxes is as follows:
Three Months Ended
---------------------
May 4, April 22,
1996 1995
------- ---------
($000, unaudited)
Interest $ 1,283 $ 1,046
Income Taxes $ 2,325 $ --
3. INITIAL PUBLIC OFFERING OF COMMON STOCK
The Company sold 2,136,614 shares of its common stock in the Company's initial
public offering of shares of common stock registered on Form S-1 with the
Securities and Exchange Commission. These shares were sold at a price of
$15.00 per share yielding net proceeds of approximately $29.1 million after
deducting underwriting discounts of $2.9 million and operating expenses of $0.7
million related to the offering. As described in the Company's prospectus dated
April 4, 1996, the proceeds were used primarily to retire the Company's note
payable and to pay down outstanding borrowings under its line of credit. All
remaining unused proceeds were invested in short-term, interest bearing
instruments or used for working capital or general corporate purposes.
6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
THE THIRTEEN WEEKS (FIRST QUARTER) ENDED MAY 4, 1996 AS COMPARED TO THE THIRTEEN
WEEKS (FIRST QUARTER) ENDED APRIL 22, 1995.
NET SALES. Net sales increased $7.2 million, or 22.6%, to $39.1 million in the
first quarter of 1996 from $31.9 million in the first quarter of 1995. This
increase in net sales was attributable to new stores and an increase in
comparable stores sales. At May 4, 1996, the Company operated 50 stores as
compared to 43 stores at April 22, 1995. These additional seven stores
contributed $5.1 million of the $7.2 million sales increase. Comparable store
sales, calculated on a comparable, day-to-day basis, increased 4.7% over last
year.
GROSS PROFIT. Gross profit increased $2.8 million, or 25.9%, to $13.6 million
in the first quarter of 1996 from $10.8 million in the first quarter of 1995.
As a percentage of net sales, gross profit increased to 34.7% from 33.7% as a
result of lower markdowns and a sales mix which was more heavily weighted to
higher margin goods.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased $2.4 million to $13.1 million in the first
quarter of 1996 from $10.7 million in the first quarter of 1995. As a percentage
of net sales, selling, general and administrative expenses decreased to 33.4%
from 33.7%. This decrease, as a percentage of net sales, resulted from
leveraging store and corporate payroll expenses and was partially offset by an
increase in advertising. Advertising was higher, as a percentage of net sales,
primarily due to advertising costs being shifted to the first quarter to support
the important Easter season.
PREOPENING STORE EXPENSES. Preopening expenses, which include grand opening
advertising and preopening merchandising expenses, increased to 0.7% of net
sales for the first quarter of 1996 from 0.3% of net sales for the first quarter
of 1995. During the first quarter of 1996, the Company opened one store and
incurred both grand opening advertising and preopening merchandising expenses.
In comparison, during the first quarter of 1995, only preopening merchandising
expenses were incurred for one store which opened in the second quarter of 1995.
INTEREST EXPENSE. Interest expense decreased to $0.9 million from $1.0 million
due to the repayment of borrowings in April, 1996 with the proceeds from the
Company's initial public offering of shares of its common stock.
PROVISION FOR INCOME TAXES. The Company's effective tax rate for each of the
first quarters of 1995 and 1996 was 41%.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash needs are primarily for working capital to support its
inventory requirements and for store expansion. Historically, the Company has
financed its operations primarily with borrowings under the Company's credit
facilities and internally generated funds. Working capital as of May 4, 1996
increased to $19.9 million from $11.1 million at February 3, 1996 primarily due
to the pay down of short-term debt from the proceeds of the public offering and
the payment of income taxes payable during the first quarter of fiscal 1996.
In April 1996, as a result of the Company's initial public offering, the
Company's cash balance increased approximately $29.1 million. The proceeds were
used to retire the $19.9 million long-term note payable and pay down the $3.2
million balance outstanding on the revolving credit line. All remaining unused
proceeds were invested in short-term, interest bearing instruments or used for
working capital or general corporate purposes.
The Company ended the period with $4.0 million in total cash and investments
compared with $1.8 million at April 22, 1995. Cash used in investing
activities, primarily for the purchase of property and equipment for new
store expansion, totaled $1.6 million for the first quarter ended May 4, 1996
compared to $1.3 million used during the same period in fiscal 1995.
7
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8K
(a) Exhibits
(11) Statement re: Computation of Per Share Earnings
(27) Financial Data Schedule (submitted for SEC use only)
(b) Reports on Form 8-K
No reports on Form 8-K were filed by the Company during the three-
month period ended May 4, 1996.
8
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.
COST PLUS, INC.
----------------------------------------
Registrant
Date: June 10, 1996 By: /s/ Alan E. Zimtbaum
-------------------------------
Alan E. Zimtbaum
Executive Vice President
and Chief Financial Officer
9
(Exhibit 11)
COST PLUS, INC.
COMPUTATION OF NET LOSS PER SHARE
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS, UNAUDITED)
THREE MONTHS ENDED
---------------------
MAY 4, APRIL 22,
1996 1995
-------- --------
NET LOSS $ (395) $ (638)
-------- --------
Weighted average shares outstanding
during the period:
Common Stock 6,640 5,849
Add incremental shares from assumed
exercise of stock options 338 304
-------- --------
Weighted average common and common
equivalent shares outstanding 6,978 6,153
-------- --------
PRIMARY NET LOSS PER SHARE $ (.06) $ (.10)
-------- --------
Weighted average shares outstanding
during the period:
Common Stock 6,640 5,849
Add incremental shares from assumed
exercise of stock options 426 304
-------- --------
Weighted average common and common
equivalent shares outstanding 7,066 6,153
-------- --------
FULLY DILUTED NET LOSS PER SHARE $ (.06) $ (.10)
-------- --------
10