UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 1O-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 July 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 jurisdiction of (I.R.S. Employer incorporation
Indemnification Number) or organization)
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 September 6,
1996.
K&G Men's Center, Inc. and Subsidiaries
Index to Form 10-Q
July 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
Part II. Other Information
Item 4. Submission of Matters to a Vote of Security Holders..................... 10
Item 6. Exhibits and Reports on Form 8-K........................................ 10
Signatures ...................................................................................... 11
2
K&G Men's Center, Inc. and Subsidiaries
Consolidated Balance Sheets
July 28, 1996 January 28, 1996
-------------- ----------------
(Unaudited)
Assets
CURRENT ASSETS:
Cash & cash equivalents $8,911,000 $2,504,000
Accounts receivable 873,000 728,000
Merchandise inventory 13,554,000 11,148,000
Other assets 1,171,000 1,069,000
-------------- --------------
Total current assets 24,509,000 15,449,000
PROPERTY AND EQUIPMENT, net 1,820,000 1,397,000
OTHER ASSETS, net 561,000 358,000
Total assets $26,890,000 $17,204,000
============= =============
Liabilities and Shareholders' Equity
CURRENT LIABILITIES:
Accounts payable $4,267,000 $5,194,000
Sales taxes payable 461,000 603,000
Accrued expenses 992,000 1,219,000
Income taxes payable - 619,000
-------------- --------------
Total current liabilities 5,720,000 7,635,000
LONG-TERM DEBT 205,000 205,000
MINORITY INTEREST 226,000 245,000
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 3,088,000 1,611,000
-------------- --------------
Total shareholders' equity 20,739,000 2,643,000
Total liabilities and shareholders' equity $26,890,000 $17,204,000
============= =============
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 Six Months Ended
---------------- ---------------- -------------- ---------------
July 28, 1996 July 30, 1995 July 28, 1996 July 30, 1995
---------------- ---------------- -------------- ---------------
NET SALES $18,217,000 $12,666,000 $35,745,000 $25,103,000
COST OF SALES, including occupancy cost 14,064,000 9,747,000 27,469,000 19,172,000
---------------- ---------------- -------------- ---------------
GROSS PROFIT 4,153,000 2,919,000 8,276,000 5,931,000
SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES 3,101,000 2,130,000 6,104,000 4,017,000
---------------- ---------------- -------------- ---------------
OPERATING INCOME 1,052,000 789,000 2,172,000 1,914,000
OTHER INCOME (EXPENSES):
Interest expense (9,000) (30,000) (20,000) (59,000)
Other income, net 146,000 35,000 318,000 59,000
---------------- ---------------- -------------- ---------------
INCOME BEFORE INCOME TAXES AND MINORITY
INTEREST IN (EARNINGS) LOSS OF AFFILIATES 1,189,000 794,000 2,470,000 1,914,000
PROVISION FOR INCOME TAXES 455,000 311,000 945,000 749,000
---------------- ---------------- -------------- ---------------
INCOME BEFORE MINORITY INTEREST IN
(EARNINGS) LOSS OF AFFILIATES 734,000 483,000 1,525,000 1,165,000
MINORITY INTEREST IN (EARNINGS) LOSS
OF AFFILIATES (14,000) 11,000 (36,000) 24,000
---------------- ---------------- -------------- ---------------
NET INCOME 720,000 494,000 1,489,000 1,189,000
DIVIDENDS ON REDEEMABLE COMMON STOCK, SERIES B 0 70,000 0 70,000
---------------- ---------------- -------------- ---------------
NET INCOME APPLICABLE TO COMMON STOCK $720,000 $424,000 $1,489,000 $1,119,000
================ ================ ============== ===============
NET INCOME PER COMMON AND COMMON
EQUIVALENT SHARES $0.11 $0.09 $0.23 $0.23
================ ================ ============== ===============
WEIGHTED AVERAGE COMMON AND
COMMON EQUIVALENT SHARES OUTSTANDING 6,377,500 5,250,000 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)
Six Months Ended
July 28, 1996 July 30, 1995
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Cash Flows from Operating Activities:
Net income $1,489,000 $1,119,000
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Minority interest in earnings (loss) of affiliates 36,000 (24,000)
Depreciation and amortization 196,000 180,000
Changes in assets and liabilities:
Accounts receivable (143,000) 402,000
Merchandise inventory (2,406,000) (722,000)
Other assets, net (102,000) (478,000)
Accounts payable (929,000) (433,000)
Sales tax payable (142,000) 305,000
Accrued expenses (228,000) 532,000
Income taxes payable (619,000) (654,000)
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Total adjustments (4,337,000) (892,000)
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Net cash provided by (used in) operating
activities (2,848,000) 227,000
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Cash Flows from Investing Activities:
Additions to property and equipment (611,000) (70,000)
Other assets (210,000) 4,000
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Net cash used in investing
activities (821,000) (66,000)
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Cash Flows from Financing Activities:
Redemption of Common Stock, Series A 0 (6,501,000)
Issuance of Redeemable Common Stock, Series B 0 6,476,000
Repayment of long term-debt 0 (243,000)
Distributions to Minority Investors (55,000) 0
Common stock issued 10,131,000 0
-------------- -------------
Net cash provided by (used in) financing
activities 10,076,000 (268,000)
-------------- -------------
Net Increase in Cash and Cash Equivalents 6,407,000 (107,000)
Cash and Cash Equivalents at Beginning of
Period 2,504,000 2,377,000
-------------- -------------
Cash and Cash Equivalents at End of
Period $8,911,000 $2,270,000
============= ============
Supplemental Disclosure of Cash Paid For:
Interest $19,000 $57,000
============= ============
Income taxes $491,000 $910,000
============= ============
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 July 28, 1996 and July 30, 1995, and for the three months and
six 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
As of July 28, 1996, the Company operated 14 stores in ten states. The
Company has stores in Atlanta, Georgia, Dallas, Texas, Boston, Massachusetts,
Long Island, New York, Baltimore, Maryland, Cincinnati, Ohio, Denver, Colorado,
Kansas City, Kansas, Indianapolis, Indiana, and Rahway, New Jersey. Subsequent
to July 28, 1996, the Company signed leases for two store locations that are
projected to open during the third quarter of 1996. These stores will be
located in the greater Washington, DC area.
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 Six Months Ended
-------------------- ------------------
July 28, July 30, July 28, July 30,
1996 1995 1996 1995
--------- -------- -------- --------
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of sales, including occupancy cost 77.2 77.0 76.8 76.4
----- ----- ----- -----
Gross profit 22.8 23.0 23.2 23.6
Selling, general and administrative 17.0 16.8 17.1 16.0
expenses ----- ----- ----- -----
Operating income 5.8 6.2 6.1 7.6
Other income (expenses):
Interest expense (0.1) (0.2) (0.1) (0.2)
Other income, net 0.8 0.3 0.9 0.2
----- ----- ----- -----
Income before income taxes and minority
interest
in (earnings) loss of affiliates 6.5 6.3 6.9 7.6
Provision for income taxes 2.5 2.5 2.6 3.0
----- ----- ----- -----
Income before minority interest in 4.0 3.8 4.3 4.6
(earnings) loss of affiliates
Minority interest in (earnings) loss of (0.1) 0.1 (0.1) 0.1
affiliates ----- ----- ----- -----
Net income 3.9 3.9 4.2 4.7
Dividends on redeemable common stock, - 0.5 - 0.3
Series B ----- ----- ----- -----
Net income applicable to common stock 3.9% 3.4% 4.2% 4.4%
===== ===== ===== =====
THREE MONTHS ENDED JULY 28, 1996 AND JULY 30, 1995.
Net sales of $18.2 million for the three months ended July 28, 1996
represents an increase of $5.6 million, or 43.8% over net sales of $12.7
million in the three month period ended July 30, 1995. The increase in net sales
is a result of comparable store growth of 10.3% and the opening of six new
stores since October of 1995. Comparable store growth was 15.5% for the three
months ended July 30, 1995.
Gross profit increased $1.2 million, or 42.3% to $4.2 million in the three
months ended July 28, 1996. Gross profit as a percentage of sales decreased to
22.8% in the three months ended July 28, 1996 from 23.0% in the three months
ended July 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. In addition, the Company lowered its mark-up on specific goods in order
to lower the selling price and to enhance its competitive position.
7
Selling, general and administrative expenses increased $1.0 million or
45.6%, to $3.1 million in the three months ended July 28, 1996. Selling,
general and administrative expenses as a percentage of net sales increased to
17.0% in the three months ended July 28, 1996, from 16.8% in the three months
ended July 30, 1995. The increase was a result a higher level of advertising
expenses as a percentage of sales for certain new and existing stores, and
certain costs associated with being a public company. The Company became a
public company in January 1996, and therefore did not have any costs associated
with being a public company during the three months ended July 30, 1995.
As a result of the above factors, operating income was $1.2 million for the
three months ended July 28, 1996 compared to $794,000 in the three months ended
July 30, 1995. Operating income as a percentage of net sales decreased to 5.8%
in the three months ended July 28, 1996 from 6.2% in the three months ended July
30, 1995.
The Company had accrued dividends payable on its Series B redeemable common
stock of $70,000 as of July 30, 1995. The consummation of the Company's initial
public offering in January 1996 resulted in the conversion of all of the
outstanding Series B shares. As a result, the Company did not have any accrued
dividends related to these shares for the three months ended July 28, 1996.
The factors discussed above resulted in an increase in net income
applicable to common stock of $296,000, or 69.8% to $720,000 for the three
months ended July 28, 1996 from $424,000 in the three months ended July 30,
1995.
SIX MONTHS ENDED JULY 28, 1996 AND JULY 30, 1995.
Net sales of $35.7 million for the six months ended July 28, 1996
represents an increase of $10.6 million, or 42.4% over net sales of $25.1
million in the six months ended July 30, 1995. The increase in net sales is a
result of comparable store growth of 11.1% 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 15.5% in
the six months ended July 30, 1995.
Gross profit increased $2.3 million, or 39.5% to $8.3 million in the six
months ended July 28, 1996. Gross profit as a percentage of sales decreased to
23.2% in the six months ended July 28, 1996 from 23.6% in the six months ended
July 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.
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 $2.1 million or
52.0%, to $6.1 million in the six months ended July, 1996. Selling, general and
administrative expenses as a percentage of net sales increased to 17.1% in the
six months ended July 28, 1996, from 16.0% in the six months ended July 30,
1995. The increase was a result of $105,000 in store pre-opening expenses in
the six months ended July 28, 1996, a higher level of advertising expenses as a
percentage of sales due to the new stores, and certain costs associated with
being a public company. The Company did not have any pre-opening expenses in
the six months ended July 30, 1995 and became a public company in January 1996.
Operating income was $2.2 million for the six months ended July 28, 1996
compared to $1.9 million in the six months ended July 30, 1995. Operating
income as a percentage of net sales decreased to 6.1% in the six months ended
July 28, 1996 from 7.6% in the six months ended July 30, 1995.
The factors discussed above resulted in an increase in net income
applicable to common stock of $370,000, or 33.1% to $1,489,000 in the six months
ended July 28, 1996 from $1,119,000 in the six months ended July 30, 1995.
8
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, through
borrowings from related parties and under its bank credit facilities, and
recently from capital received from its initial public offering in January 1996.
The Company had working capital of $18.8 million and $7.8 million at July 28,
1996 and January 28, 1996, respectively. The principal use of working capital is
to purchase inventory. The Company had $8.9 million in cash and cash equivalents
as of July 28, 1996.
The Company's capital expenditures totaled $611,000, and $70,000 in the six
months ended July 28, 1996 and July 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,
1999, 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 July 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.
On January 24, 1996, the Company effected its initial public offering for
1.7 million common shares at $10.00 per share, of which one 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 its recent initial public offering, internally generated funds, cash
on hand and its bank credit facility will be adequate to fund its anticipated
needs for the foreseeable future.
9
K&G Men's Center, Inc. and Subsidiaries
Part II - Other Information
Item 4. Submission of Matters to a Vote of Security Holders
As previously reported , the Company held its 1996 Annual Meeting of
Shareholders on June 7, 1996. 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
10
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: September 11, 1996 /s/ Steven H. Greenspan
------------------ -------------------------
Stephen H. Greenspan
Chairman of the Board,
President and Chief Executive Officer
(principal executive officer)
Date: September 11, 1996 /s/ John C. Dancu
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John C. Dancu
Chief Financial Officer (principal financial and
accounting officer)
11