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 October 28, 2000
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 of incorporation or (I.R.S. Employer Identification No.)
organization)
200 4th 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, $0.01 par value, outstanding on December
1, 2000 was 20,988,595.
COST PLUS, INC.
FORM 10-Q
For the Quarter Ended October 28, 2000
INDEX
PART I. FINANCIAL INFORMATION Page
ITEM 1. Condensed Consolidated Financial Statements (unaudited)
Balance Sheets as of October 28, 2000,
January 29, 2000 and October 30, 1999 3
Statements of Operations
for the three and nine months ended
October 28, 2000 and October 30, 1999 4
Statements of Cash Flows
for the nine months ended October 28, 2000
and October 30, 1999 5
Notes to Condensed Consolidated Financial Statements 6-7
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8-9
ITEM 3. Quantitative and Qualitative Disclosure about Market Risk 10
PART II. OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K 11
SIGNATURE PAGE 12
2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
COST PLUS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share amounts, unaudited)
October 28, January 29, October 30,
2000 2000 1999
----------- ----------- -----------
ASSETS
Current assets:
Cash and cash equivalents $ 1,210 $ 38,411 $ 7,507
Merchandise inventories 137,493 91,402 111,369
Other current assets 11,927 5,654 7,916
----------- ----------- -----------
Total current assets 150,630 135,467 126,792
Property and equipment, net 74,400 67,520 63,364
Other assets, net 12,026 11,712 9,810
----------- ----------- -----------
Total assets $ 237,056 $ 214,699 $ 199,966
=========== =========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 35,606 $ 26,061 $ 34,288
Income taxes payable -- 9,237 --
Accrued compensation 8,680 8,909 8,304
Revolving line of credit 8,400 -- 5,300
Other current liabilities 12,710 10,597 11,497
----------- ----------- -----------
Total current liabilities 65,396 54,804 59,389
Capital lease obligations 13,566 14,416 14,597
Other long-term obligations 8,249 7,144 6,954
Shareholders' equity:
Preferred stock, $0.01 par value: 5,000,000 shares
authorized; none issued and outstanding -- -- --
Common stock, $0.01 par value: 67,500,000 shares
authorized; issued and outstanding 20,976,664,
20,521,884 and 20,460,562 shares 210 205 205
Additional paid-in capital 121,880 113,240 111,323
Retained earnings 27,755 24,890 7,498
----------- ----------- -----------
Total shareholders' equity 149,845 138,335 119,026
----------- ----------- -----------
Total liabilities and shareholders' equity $ 237,056 $ 214,699 $ 199,966
=========== =========== ===========
See notes to condensed consolidated financial statements.
3
COST PLUS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts, unaudited)
Three Months Ended Nine Months Ended
--------------------------- --------------------------
October 28, October 30, October 28, October 30,
2000 1999 2000 1999
------------- ----------- ------------ -----------
Net sales $101,913 $ 82,834 $286,916 $234,779
Cost of sales and occupancy 66,580 53,826 188,159 153,367
-------- -------- -------- --------
Gross profit 35,333 29,008 98,757 81,412
Selling, general and administrative
expenses 32,630 26,995 89,660 74,267
Store preopening expenses 1,896 906 3,930 2,686
-------- -------- -------- --------
Income from operations 807 1,107 5,167 4,459
Net interest expense 344 323 471 699
-------- -------- -------- --------
Income before income taxes 463 784 4,696 3,760
Income taxes 180 306 1,831 1,467
-------- -------- -------- --------
Net income $ 283 $ 478 $ 2,865 $ 2,293
======== ======== ======== ========
Net income per share
Basic $ 0.01 $ 0.02 $ 0.14 $ 0.11
Diluted $ 0.01 $ 0.02 $ 0.13 $ 0.11
Weighted average shares outstanding
Basic 20,933 20,424 20,748 20,261
Diluted 21,711 21,314 21,551 21,130
See notes to condensed consolidated financial statements.
4
COST PLUS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands, unaudited)
Nine Months Ended
-------------------------------
October 28, October 30,
2000 1999
------------ --------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 2,865 $ 2,293
Adjustments to reconcile net income to net cash provided
by (used in) operating activities:
Depreciation and amortization 9,626 8,288
Changes in assets and liabilities:
Merchandise inventories (46,091) (40,689)
Other assets (3,468) (321)
Accounts payable 12,011 17,208
Income taxes payable (9,237) (8,180)
Other liabilities 3,426 3,783
----------- ------------
Net cash used in operating activities (30,868) (17,618)
----------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (19,505) (12,650)
----------- ------------
Net cash used in investing activities (19,505) (12,650)
----------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings under revolving line of credit 8,400 5,300
Principal payments on capital lease obligations (510) (421)
Proceeds from issuance of common stock 5,282 4,296
----------- ------------
Net cash provided by financing activities 13,172 9,175
----------- ------------
Net decrease in cash and cash equivalents (37,201) (21,093)
Cash and cash equivalents:
Beginning of period 38,411 28,600
----------- ------------
End of period $ 1,210 $ 7,507
=========== ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for interest $ 361 $ 697
=========== ============
Cash paid for taxes $ 11,473 $ 9,644
=========== ============
See notes to condensed consolidated financial statements.
5
COST PLUS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Three and Nine Months Ended October 28, 2000 and October 30, 1999
(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 only of normal recurring
accruals) necessary to present fairly the Company's financial positions at
October 28, 2000 and October 30, 1999; the interim results of operations for the
three and nine months ended October 28, 2000 and October 30, 1999; and the
changes in cash flows for the nine months then ended. The balance sheet at
January 29, 2000, presented herein, has been derived from the audited financial
statements of the Company for the fiscal year then ended.
Accounting policies followed by the Company are described in Note 1 to the
audited consolidated financial statements for the fiscal year ended January 29,
2000. 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 interim condensed
consolidated financial statements. The condensed consolidated financial
statements should be read in conjunction with the audited consolidated financial
statements, including notes thereto, for the fiscal year ended January 29, 2000.
The results of operations for the three and nine month periods herein presented
are not necessarily indicative of the results to be expected for the full year.
2. STOCK SPLIT
On February 16, 1999, the Company's Board of Directors authorized a
three-for-two split of its common stock effective March 11, 1999 for
shareholders of record at the close of business on March 1, 1999. On September
16, 1999, the Company's Board of Directors authorized a three-for-two split of
its common stock effective October 11, 1999 for shareholders of record at the
close of business on October 1, 1999. Fiscal 1999 share and per share data in
the accompanying condensed financial statements and notes have been restated to
reflect these stock splits.
3. STOCK OPTION PLANS
In June 2000, pursuant to a vote of its shareholders, the Company amended its
1995 Stock Option Plan to increase by 350,000 the number of shares available for
grant to a total of 4,718,006 shares, less the aggregate number of shares issued
or subject to options outstanding under the 1994 Stock Option Plan.
Additionally, pursuant to a vote of its shareholders, the Company amended its
1996 Director Option Plan to increase by 100,000 the shares reserved for
issuance to a total of 253,675 shares.
6
COST PLUS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
4. RECONCILIATION OF BASIC SHARES TO DILUTED SHARES
The following is a reconciliation of the weighted average number of shares (in
thousands) used in the Company's basic and diluted per share computations.
Three Months Ended Nine Months Ended
--------------------------------- --------------------------------
October 28, October 30, October 28, October 30,
2000 1999 2000 1999
------------ ------------ ------------- --------------
Basic Shares 20,933 20,424 20,748 20,261
Effect of dilutive stock options 778 890 803 869
------------ ------------ ------------- --------------
Diluted shares 21,711 21,314 21,551 21,130
============ ============ ============= ==============
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
AN ASTERISK "*" DENOTES A FORWARD-LOOKING STATEMENT REFLECTING CURRENT
EXPECTATIONS THAT INVOLVE RISKS AND UNCERTAINTIES. ACTUAL RESULTS MAY DIFFER
MATERIALLY FROM THOSE DISCUSSED IN SUCH FORWARD-LOOKING STATEMENTS, AND
SHAREHOLDERS OF COST PLUS, INC. (THE "COMPANY" OR "COST PLUS") SHOULD CAREFULLY
REVIEW THE CAUTIONARY STATEMENTS SET FORTH IN THIS FORM 10-Q, INCLUDING,
"FACTORS THAT MAY AFFECT FUTURE RESULTS" BEGINNING ON PAGE 9 HEREOF. THE COMPANY
MAY FROM TIME TO TIME MAKE ADDITIONAL WRITTEN AND ORAL FORWARD-LOOKING
STATEMENTS, INCLUDING STATEMENTS CONTAINED IN THE COMPANY'S FILINGS WITH THE
SECURITIES AND EXCHANGE COMMISSION AND IN ITS REPORTS TO SHAREHOLDERS. THE
COMPANY DOES NOT UNDERTAKE TO UPDATE ANY FORWARD-LOOKING STATEMENT THAT MAY BE
MADE FROM TIME TO TIME BY OR ON BEHALF OF THE COMPANY.
Results of Operations
The three months (third quarter) and nine months (year-to-date) ended October
28, 2000 as compared to the three months (third quarter) and nine months
(year-to-date) ended October 30, 1999.
Net Sales. Net sales increased $19.1 million, or 23.0%, to $101.9 million in the
third quarter of fiscal 2000 from $82.8 million in the third quarter of fiscal
1999. Year-to-date, net sales were $286.9 million compared to $234.8 million for
the same period of fiscal 1999, an increase of $52.1 million, or 22.2%. The
increases in net sales for the three and nine months of fiscal 2000 were
attributable to new stores and an increase in comparable store sales. Comparable
store sales rose 5.6% in the third quarter and 6.4% in the nine months,
principally as a result of a larger average transaction size. As of October 28,
2000, the Company operated 122 stores in 19 states compared to 99 stores in 16
states as of October 30, 1999.
Gross Profit. As a percentage of net sales, third quarter gross profit was 34.7%
in fiscal 2000 and was 35.0% in fiscal 1999. Year-to-date gross profit, as a
percentage of net sales, was 34.4% this fiscal year compared to 34.7% last
fiscal year. The decrease in gross profit rate resulted from a slight decrease
in merchandise margin rate and an increase in occupancy costs from new stores.
New stores generally have higher occupancy costs, as a percentage of net sales,
until they reach maturity.* The merchandise margin rate decrease resulted from a
sales mix shift to lower margin goods and increases in fuel and freight costs.
Selling, General and Administrative ("SG&A") Expenses. As a percentage of net
sales, SG&A expenses decreased to 32.0% in the third quarter of fiscal 2000 from
32.6% in the third quarter of the prior fiscal year. Year-to-date, SG&A expenses
decreased to 31.2% in the current fiscal year from 31.7% last fiscal year. The
decrease in the SG&A rates resulted primarily from leveraging store payroll and
corporate overhead against higher sales and an expanding base of stores.
Store Preopening Expenses. Store preopening expenses, which include grand
opening advertising and preopening merchandise set up expenses, were $1.9
million in the third quarter of fiscal 2000 and $906,000 in the third quarter of
the prior fiscal year. Expenses vary depending on the particular store site and
whether it is located in a new or existing market. The Company opened nine
stores in the third quarter of fiscal 2000 compared to five stores in the prior
fiscal year's third quarter. Year-to-date, store preopening expenses were $3.9
million in fiscal 2000 and were $2.7 million in fiscal 1999, primarily as a
result of opening 19 stores versus 14 stores, respectively.
Net Interest Expense. Net interest expense for the third quarter, which includes
interest on capital leases net of interest income, was $344,000 for fiscal 2000
and $323,000 for fiscal 1999. For the nine months, net interest expense was
$471,000 in fiscal 2000 compared to $699,000 in fiscal 1999. The decrease in
year-to-date net interest expense was due to slightly higher interest income on
investments, partially offset by slightly higher borrowings.
Provision for Income Taxes. The Company's effective tax rate was 39.0% in fiscal
2000 and fiscal 1999.
8
Factors That May Affect Future Results
The Company's business is highly seasonal, reflecting the general pattern
associated with the retail industry of peak sales and earnings during the
Christmas season. Due to the importance of the Christmas selling season, the
fourth quarter of each fiscal year has historically contributed, and the Company
expects it will continue to contribute, a disproportionate percentage of the
Company's net sales and most of its net income for the fiscal year*. Any factors
negatively affecting the Company during the Christmas selling season in any
year, including unfavorable economic conditions, could have a material adverse
effect on the Company's financial condition and results of operations. The
Company generally experiences lower sales and earnings during the first three
quarters and, as is typical in the retail industry, may incur losses in these
quarters. The results of operations for these interim periods are not
necessarily indicative of the results for a full fiscal year. In addition, the
Company makes decisions regarding merchandise well in advance of the season in
which it will be sold, particularly for the Christmas selling season.
Significant deviations from projected demand for products could have a material
adverse effect on the Company's financial condition and results of operations,
either by lost gross sales due to insufficient inventory or lost gross margin
due to the need to mark down excess inventory.
The Company's quarterly results of operations may also fluctuate based upon such
factors as the number and timing of store openings and related store preopening
expenses, the amount of net sales contributed by new and existing stores, the
mix of products sold, the timing and level of markdowns, store closings,
refurbishments or relocations, competitive factors, changes in fuel and other
shipping costs and general economic conditions.
Liquidity and Capital Resources
The Company's primary uses for cash are to fund operating expenses, inventory
requirements and new store expansion. Historically, the Company has financed its
operations primarily from internally generated funds and borrowings under the
Company's revolving credit facilities. The Company believes that the combination
of its cash and cash equivalents, internally generated funds and available
borrowings under its revolving line of credit will be sufficient to finance its
working capital and capital expenditure requirements for the next 12 months.*
Net cash used in operating activities for the nine months ending October 28,
2000 totaled $30.9 million, an increase of $13.3 million from the comparable
period of the prior fiscal year. The increased use of cash resulted primarily
from increased inventories to support a larger number of stores, higher income
tax payments due to higher net income and the timing of payments for merchandise
inventory.
Net cash used in investing activities, the majority of which is for new stores,
totaled $19.5 million for the nine months ending October 28, 2000 compared to
$12.7 million in the comparable period of the prior fiscal year. The Company
opened 19 stores through the third quarter of fiscal 2000 versus 14 last year.
The Company estimates that capital expenditures will approximate $27.0 million
in fiscal 2000.*
Net cash provided by financing activities was $13.2 million in the first nine
months of fiscal 2000 and was $9.2 million in the comparable period of fiscal
1999, both of which were primarily due to net borrowings under the Company's
revolving line of credit and proceeds from the issuance of common stock in
connection with the Company's stock option and stock purchase plans.
Effective May 19, 2000, the Company entered into a new, unsecured revolving line
of credit agreement with a bank, which expires June 1, 2002. This agreement
replaced the amended October 12, 1998 revolving line of credit agreement. The
new agreement allows for cash borrowings and letters of credit up to $10.0
million from January 1 through June 30 of each year, $40.0 million from July 1,
2000 through December 31, 2000 and $50.0 million from July 1, 2001 through
December 31, 2001. Interest is paid monthly based on the Company's election of
the bank's reference rate minus 0.75% (8.75% at October 28, 2000) or IBOR/LIBOR
plus 0.9%. The Company is subject to certain financial covenants customary with
such agreements. At October 28, 2000, the Company had $8.4 million in
outstanding borrowings under the line of credit and $3.2 million outstanding
under letters of credit.
Impact of New Accounting Standard
In June 1998, the Financial Accounting Standard Board ("FASB") issued Statement
of Financial Accounting Standards ("SFAS")
9
No. 133, "Accounting for Derivative Instruments and Hedging Activities." This
statement establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in either assets
or liabilities. As amended in June 1999 by SFAS No. 137, this statement is
effective for all fiscal years beginning after June 15, 2000. Since the Company
does not engage in derivative or hedging activities, application of the standard
is not expected to have a material effect on the Company's consolidated
financial position, results of operations or cash flows.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
There are no material changes to our market risk as disclosed in the Company's
report on Form 10-K filed for the fiscal year ended January 29, 2000.
10
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
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 period
covered by this report.
11
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
COST PLUS, INC.
-------------------------------------------------
Registrant
/s/ John F. Hoffner
-------------------------------------------------
Date: December 11, 2000 By: John F. Hoffner
Executive Vice President, Administration
Chief Financial Officer
12