UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM IO-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 April 28, 1996
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 0-27348
K&G Men's Centers, Inc.
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(Exact name of registrant as specified in its charter)
Georgia 58-1989917
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(State or other (I.R.S. Employer incorporation or organization)
jurisdiction of
Identification Number)
1750-A Ellsworth Industrial Blvd., Atlanta Georgia 30318
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(Address of principal executive offices) (Zip Code)
(404) 351-7987
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(Registrant's telephone number, including area code)
None
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(Former name, former address and former fiscal year, 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 [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common Stock, $.01 Par Value, 6,377,500 Shares outstanding as of May 29,
1996.
K&G Men's Center, Inc. and Subsidiaries
Index to Form 10-Q
April 28, 1996
Part I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets........................ 3
Consolidated Statements of Operations.............. 4
Consolidated Statements of Cash Flows.............. 5
Condensed Notes to the Financial Statements........ 6
Item 2. Management's Discussion and Analysis................ 7-10
Part II. Other Information
Item 4. Submission of Matters to a Vote of
Security Holders.................................. 11
Item 6. Exhibits and Reports on Form 8-K.................. 11
Signatures.......................................................... 12
2
K&G Men's Center, Inc. and Subsidiaries
Consolidated Balance Sheets
April 28, 1996 January 28, 1996
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(Unaudited)
Assets
CURRENT ASSETS:
Cash & cash equivalents $12,026,000 $2,504,000
Accounts receivable 1,022,000 728,000
Merchandise inventory 14,447,000 11,148,000
Other assets 948,000 1,069,000
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Total current assets 28,443,000 15,449,000
PROPERTY AND EQUIPMENT, net 1,849,000 1,397,000
OTHER ASSETS, net 379,000 358,000
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Total assets $30,671,000 $17,204,000
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Liabilities and Shareholders' Equity
CURRENT LIABILITIES:
Accounts payable $8,158,000 $5,194,000
Sales tax payable 861,000 603,000
Accrued expenses 734,000 1,219,000
Income taxes payable 427,000 619,000
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Total current liabilities 10,180,000 7,635,000
LONG-TERM DEBT 205,000 205,000
MINORITY INTEREST 267,000 245,000
REDEEMABLE COMMON STOCK, Series B - 6,476,000
SHAREHOLDERS' EQUITY:
Common stock 64,000 41,000
Additional paid-in capital 17,587,000 991,000
Retained earnings 2,368,000 1,611,000
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Total shareholders' equity 20,019,000 2,643,000
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Total liabilities and shareholders' equity $30,671,000 $17,204,000
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See accompanying Condensed Notes to the Financial Statements.
3
K&G Men's Center, Inc. and Subsidiaries
Consolidated Statements of Operations
(Unaudited)
Three Months Ended
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April 28, 1996 April 30, 1995
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NET SALES $17,528,000 $12,437,000
COST OF SALES, including occupancy cost 13,405,000 9,425,000
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GROSS PROFIT 4,123,000 3,012,000
SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES 3,003,000 1,887,000
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OPERATING INCOME 1,120,000 1,125,000
OTHER INCOME (EXPENSES):
Interest expense (11,000) (29,000)
Other income, net 172,000 24,000
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INCOME BEFORE INCOME TAXES AND MINORITY
INTEREST IN (EARNINGS) LOSS OF AFFILIATES 1,281,000 1,120,000
PROVISION FOR INCOME TAXES 490,000 438,000
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INCOME BEFORE MINORITY INTEREST IN
(EARNINGS) LOSS OF AFFILIATES 791,000 682,000
MINORITY INTEREST IN (EARNINGS) LOSS
OF AFFILIATES (22,000) 13,000
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NET INCOME APPLICABLE TO COMMON STOCK $769,000 $695,000
============ ============
NET INCOME PER COMMON AND COMMON
EQUIVALENT SHARES $0.12 $0.13
============ ============
WEIGHTED AVERAGE COMMON AND
COMMON EQUIVALENT SHARES OUTSTANDING 6,377,500 5,250,000
============ ============
See accompanying Condensed Notes to the Financial Statements.
4
K&G Men's Center, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(Unaudited)
Three Months Ended
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April 28, 1996 April 30, 1995
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Cash Flows from Operating Activities:
Net income $769,000 $695,000
Adjustments to reconcile net income to net cash
provided by (used for) operating activities:
Minority interest in earnings (loss) 22,000 (13,000)
Depreciation and amortization 96,000 90,000
Changes in assets and liabilities:
Accounts receivable (294,000) 171,000
Merchandise inventory (3,299,000) (2,134,000)
Other assets, net 121,000 (306,000)
Accounts payable 2,964,000 2,095,000
Sales tax payable 259,000 318,000
Accrued expenses (485,000) 92,000
Income taxes payable (192,000) (103,000)
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Total adjustments (808,000) 210,000
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Net cash provided by (used in) operating
activities (39,000) 905,000
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Cash Flows from Investing Activities:
Additions to property and equipment (546,000) (27,000)
Other assets (24,000) 4,000
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Net cash used in investing
activities (570,000) (23,000)
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Cash Flows from Financing Activities:
Repayment of long term-debt 0 (234,000)
Common stock issued 10,131,000 0
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Net cash provided by (used in) financing
activities 10,131,000 (234,000)
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Net Increase in Cash and Cash Equivalents 9,522,000 648,000
Cash and Cash Equivalents at Beginning of
Period 2,504,000 2,377,000
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Cash and Cash Equivalents at End of
Period $12,026,000 $3,025,000
============ ============
Supplemental Disclosure of Cash Paid For:
Interest $11,000 $29,000
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Income taxes $664,000 $73,000
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See accompanying Condensed Notes to the Financial Statements.
5
K&G Men's Center, Inc. and Subsidiaries
Condensed Notes to the Financial Statements
(Unaudited)
1. Unaudited Financial Information
The accompanying financial statements of K&G Men's Center, Inc. and
Subsidiaries as of April 28, 1996 and April 30, 1995, and for the three months
then ended, are unaudited. In the opinion of the Company's management, these
statements include all adjustments considered necessary for a fair presentation
of financial condition and results of operations.
Because of the seasonality of the Company's business, results for any
quarter are not necessarily indicative of the results that may be achieved for
the full year. In addition, quarterly results of operations are affected by the
timing and amount of sales and cost associated with the opening of new stores.
2. Shareholders' Equity
The Company effected its initial public offering on January 24, 1996 and
the transaction closed on January 30, 1996, resulting in the conversion of the
Company's outstanding redeemable Common Stock, Series B and Common Stock,
Series A into common stock $.01 par value. The Company issued an additional
1,127,500 shares of its common stock at $10.00 each and raised $10,131,000 after
expenses of the offering.
6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
General
During the three months ended April 28, 1996, the Company opened new stores
in Atlanta, Georgia, Long Island, New York and Baltimore, Maryland. The
expansion was also continued with the relocation of the Company's original
Atlanta location to a larger site across the street, which increased its selling
space by approximately 30% to 23,000 square feet.
Results of Operations
The following table sets forth, for the periods indicated, statements of
operations data expressed as a percentage of net sales:
Three Months Ended
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April 28, April 30,
1996 1995
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Net sales 100.0% 100.0%
Cost of sales, including occupancy cost 76.5 75.8
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Gross profit 23.5 24.2
Selling, general and administrative expenses 17.1 15.2
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Operating income 6.4 9.0
Other income (expenses):
Interest expense (0.1) (0.2)
Other income, net 1.0 0.2
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Income before income taxes and minority
interest in (earnings) loss of affiliates 7.3 9.0
Provision for income taxes 2.8 3.5
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Income before minority interest in
(earnings) loss of affiliates 4.5 5.5
Minority interest in (earnings)
loss of affiliates (0.1) 0.1
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Net income applicable to common stock 4.4% 5.6%
===== =====
Net sales of $17.5 million for the three month period ended April 28, 1996
represents an increase of $5.1 million, or 40.9% over net sales of $12.4 million
in the three month period ended April 30, 1995. The increase in net sales is a
result of comparable store growth of 11.9% and the opening of six new stores
since October of 1995. Three of the six new stores were opened in March of 1996,
including a third store in Atlanta, Georgia, and stores in Baltimore, Maryland
and Long Island, New York. Comparable store sales increased 15.6% in the first
fiscal quarter of 1995.
Gross profit increased $1.1 million, or 36.8% to $4.1 million in the three
month period ended April 28, 1996. Gross profit as a percentage of sales
decreased to 23.5% in the three month period ended April 28, 1996 from 24.2% in
the three month period ended April 30, 1995. The decrease in gross margin as a
percentage of sales is mainly due to the new stores having a higher occupancy
cost as a percentage of sales and a lower initial gross margin. In addition, the
Company lowered its mark-up on specific goods in order to lower the selling
prices and to enhance its competitive position.
Selling, general and administrative expenses increased $1.1 million or
59.1%, to $3.0 million in the three month period ended April 28, 1996. Selling,
general and administrative expenses as a percentage of net sales increased to
17.1% in the three month period ended April 28, 1996, from 15.1%
7
for the three month period ended April 30, 1995. The increase was a result of
$105,000 in store pre-opening expenses in the three month period ended April 30,
1996, a higher level of advertising expenses as a percentage of sales due to the
new stores and certain cost associated with being a public company. The Company
did not have any pre-opening expenses in the three month period ended April 30,
1995, and became a public company in January 1996.
As a result of the above factors, operating income was $1.1 million for the
three month period ended April 28, 1996 compared to $1.1 million in the three
months ended April 30, 1995. Operating income as a percentage of net sales
decreased to 6.4% in the three month period ended April 28, 1996 from 9.0% in
the three months ended April 30, 1995.
The factors discussed above resulted in an increase in net income to
$769,000 for the three months ended April 28, 1996 from $695,000 in the three
months ended April 30, 1995.
Quarterly Results, Seasonality and Inflation
The Company's business is seasonal in nature with the fourth quarter, which
includes the holiday selling season, accounting for the largest percentage of
the Company's net sales volume and operating profit in any given year. Because
of the seasonality of the Company's business, results for any quarter are not
necessarily indicative of the results that may be achieved for the full year. In
addition, quarterly results of operations are affected by the timing and amount
of sales and costs associated with the opening of new stores.
Inflation can affect the cost incurred by the Company in the purchases of
its merchandise, the leasing of its stores and certain components of its
selling, general and administrative expenses. To date, inflation has not
adversely affected the Company's business, although there can be no assurance
that inflation will not have a material adverse effect in the future.
Liquidity and Capital Resources
The Company has historically funded its working capital and capital
expenditure requirements from net cash provided by operating activities and
through borrowings from related parties and under its bank credit facilities.
The Company had working capital of $18.1 million and $7.8 million at April 28,
1996 and January 28, 1996, respectively. The principal use of working capital is
to purchase inventory. The Company had $12.0 million in cash and cash
equivalents as of April 28, 1996.
The Company's capital expenditures totaled $546,000, and $27,000 in
the three month periods ended April 28, 1996 and April 30, 1995,
respectively. These capital expenditures were primarily used to open new
stores and upgrade the Company's management information systems.
The Company currently has a bank credit facility, which expires June
30, 1998, and permits borrowings of up to $5.0 million. The interest
rate on this facility is the prime rate less 1% or LIBOR plus 1.5% per
annum, at the option of the Company. As of April 28, 1996, K&G had no
debt outstanding on this facility.
In May 1995, the Company raised gross proceeds of $6.5 million
through the sale of Redeemable Common Stock, Series B, primarily to
institutional investors. The Redeemable Common Stock, Series B, had a 5%
annual dividend and automatically converted into Common Stock on a
one-for-one basis upon consummation of the Company's initial public
offering. The proceeds of this transaction were used to redeem shares of
Common Stock, Series A, from K&G's existing shareholders.
8
On January 24, 1996, the Company effected its initial public offering for
1.7 million common shares at $10.00 per share, of which 1 million were company
shares and 700,000 were offered by certain shareholders. The initial public
offering which closed on January 30, 1996 raised net proceeds of $10.1 million.
Upon completion of the offering, all Redeemable Common Stock, Series B and
Common Stock, Series A were converted on a one-for-one basis into Common Stock.
On February 6, 1996, the underwriter's over-allotment issue was exercised in
full for 255,200 shares of which 127,500 were Company shares.
The Company's primary capital requirements are for the opening of
new stores. The Company estimates that the total cash required to open a
15,000 to 20,000 square foot prototype store, including inventory, store
fixtures and equipment, leasehold improvements, other net working
capital and pre-opening costs (primarily stocking and training),
typically ranges from $625,000 to $900,000 depending on landlord
assistance and vendor financing. The Company anticipates opening an
additional three stores in the remainder of fiscal 1996 and six to eight
new stores in fiscal 1997. The Company believes that the proceeds of
this offering, internally generated funds, cash on hand and its bank
credit facility will be adequate to fund its anticipated needs for the
foreseeable future.
"Safe Harbor" Statement
The following "Safe Harbor Statement" is made pursuant to the
Private Securities Litigation Reform Act of 1995. Certain of the
statements contained in the body of this Report are forward-looking
statements (rather than historical facts) that are subject to risks and
uncertainties that could cause actual results to differ materially from
those described in the forward-looking statements. With respect to such
forward-looking statements, the Company seeks the protection afforded by
the Private Securities Litigation Reform Act of 1995. The list set
forth below is intended to identify certain of the principal factors
that could cause actual results to differ materially form those
described in the forward-looking statements included elsewhere herein.
These factors are not intended to represent a complete list of all risks
and uncertainties inherent in the Company's business.
Small Store Base. The Company has a relatively limited history of
opening and operating stores, and also has previously closed two stores.
Moreover, the Company's operating profits have historically been
disproportionately generated by stores that have been operating for
longer periods of time. Due to these factors, the results achieved to
date by the Company's relatively small store base may not be indicative
of the results that may be achieved from a larger number of stores.
Expansion. The Company's future operating results will depend
largely upon its ability to open and operate new stores successfully and
to manage a larger business profitably. The success of K&G's planned
expansion strategy is dependent upon many factors, including suitable
markets and sites for new stores. In addition, the Company must be
able to continue to hire, train and retain competent managers and store
personnel. The failure of the Company to achieve its expansion goals on
a timely basis, obtain acceptance in markets in which it currently has
limited or no presence, attract and retain qualified management and
other personnel. Appropriately upgrade its systems and controls or
manage operating expenses could adversely affect the Company's future
operating results.
Merchandise and Market Trends. The Company's success depends in
part on its ability to anticipate and respond to changing merchandise
trends and consumer demands in a timely manner. If the Company
miscalculates either the market for merchandise in its stores or its
customers' purchasing habits, it may be required to sell a significant
amount of inventory at below average mark-ups over the Company's cost,
or below cost, which could adversely affect the Company's financial
conditions and results of operations.
9
Vendor Relationships. The Company's business is dependent upon
its ability to purchase first-quality, current-season, brand name and
private label merchandise at competitive prices. A disruption of vendor
relationships could adversely affect the Company's business.
10
K&G Men's Center, Inc. and Subsidiaries
Part II - Other Information
Item 4. Submission of Matters to a Vote of Security Holders
On June 7, 1996, subsequent to the quarter covered by this Form 10-Q,
the Company held its 1996 Annual Meeting of Shareholders. The shareholders of
record approved the following matters at the meeting:
1. Elected Mr. Campbell B. Lanier, III as a member of the Company's Class I
directors to serve a three year term expiring in 1999 in accordance with the
Company's Articles of Incorporation, with the following votes: 6,176,700 for,
2,850 abstentions;
2. Adopted K&G Men's Center, Inc. Director Stock Option Plan pursuant to which
a total of 50,000 shares of Common Stock will be reserved for future grants of
options to non-management directors, with the following votes: 6,119,377 for,
29,895 against, 5,093 abstentions;
3. Ratified the appointment of Arthur Andersen LLP by the Board of Directors of
the Company as the independent auditors of the Company, with the following
votes: 6,146,120 for, 31,800 against, 1,700 abstentions.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits - None
(b) Reports on Form 8-K - None
11
K&G Men's Center, Inc. and Subsidiaries
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.
K&G Men's Center, Inc.
(Registrant)
Date: /s/ Stephen H. Greenspan
-------------------- ----------------------------
Stephen H. Greenspan
Chairman of the Board,
President and Chief Executive Officer
(principal executive officer)
Date: /s/ John C. Dancu
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John C. Dancu
Chief Financial Officer
(principal financial and
accounting officer)
12