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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 March 31, 2001 or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
----- EXCHANGE ACT OF 1934. For the transition period from to .
----- -----
Commission File No. 015767
THE SPORTSMAN'S GUIDE, INC.
(Exact name of registrant as specified in its charter)
MINNESOTA 41-1293081
(State or other jurisdiction (I.R.S. Employer Identification Number)
of incorporation or organization)
411 FARWELL AVE., SO. ST. PAUL, MINNESOTA 55075
(Address of principal executive offices)
(651) 451-3030
(Registrant's telephone number, including area code)
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
--- ---
As of May 14, 2001, there were 4,748,810 shares of the registrant's Common Stock
outstanding.
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
THE SPORTSMAN'S GUIDE, INC.
BALANCE SHEETS
(UNAUDITED)
(In thousands of dollars)
March 31, December 31,
2001 2000
---- ----
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ -- $ 1,344
Accounts receivable - net 2,747 3,718
Inventory 19,282 22,805
Promotional material 3,942 3,635
Prepaid expenses 1,263 1,522
Income taxes receivable 916 769
-------------- --------------
Total current assets 28,150 33,793
PROPERTY AND EQUIPMENT - NET 4,627 5,067
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Total assets $ 32,777 $ 38,860
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LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Checks written in excess of bank balances $ 2,384 $ --
Notes payable - bank 1,972 5,225
Current maturities of long-term debt 30 30
Accounts payable 10,068 14,104
Accrued expenses 1,644 2,233
Customer deposits and other liabilities 3,253 3,675
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Total current liabilities 19,351 25,267
LONG-TERM LIABILITIES
Long-term debt 3 3
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Total liabilities 19,354 25,270
COMMITMENTS AND CONTINGENCIES -- --
SHAREHOLDERS' EQUITY
Common Stock-$.01 par value; 36,800,000 shares authorized; 4,748,810 shares
issued and outstanding at March 31, 2001 and December 31, 2000 47 47
Additional paid-in capital 11,565 11,565
Stock subscription receivable (238) (238)
Retained earnings 2,049 2,216
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Total shareholders' equity 13,423 13,590
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Total liabilities and shareholders' equity $ 32,777 $ 38,860
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See accompanying condensed notes to financial statements.
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THE SPORTSMAN'S GUIDE, INC.
STATEMENTS OF OPERATIONS
(UNAUDITED)
For the Three Months Ended
March 31, 2001 and 2000
(In thousands, except per share data)
Three Months Ended March 31,
--------------------------------------
2001 2000
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Sales $ 38,931 $ 35,946
Cost of sales 27,191 24,355
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Gross profit 11,740 11,591
Selling, general and administrative expenses 11,754 12,622
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Loss from operations (14) (1,031)
Interest expense (68) (382)
Miscellaneous income (expense), net (64) 5
---------------- ----------------
Loss before income taxes (146) (1,408)
Income tax expense (benefit) 21 (486)
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Net loss $ (167) $ (922)
================ ================
Net loss per share:
Basic $ (.04) $ (.19)
================ ================
Diluted $ (.04) $ (.19)
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Weighted average common and common equivalent shares outstanding:
Basic 4,749 4,748
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Diluted 4,749 4,748
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See accompanying condensed notes to financial statements.
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THE SPORTSMAN'S GUIDE, INC.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
For the Three Months Ended
March 31, 2001 and 2000
(In thousands of dollars)
Three Months Ended March 31,
------------------------------------
2001 2000
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Cash flows from operating activities:
Net loss $ (167) $ (922)
Adjustments to reconcile net loss to net cash provided by (used in) operating
activities:
Depreciation and amortization 480 526
Other 69 --
Changes in assets and liabilities:
Accounts receivable 971 2,065
Inventory 3,523 3,657
Promotional material (307) 1,167
Prepaid expenses 259 (270)
Income taxes (147) (483)
Checks written in excess of bank balances 2,384 (566)
Accounts payable (4,036) (7,511)
Accrued expenses (589) (563)
Customer deposits and other liabilities (422) (1,139)
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Cash flows provided by (used in) operating activities 2,018 (4,039)
Cash flows from investing activities:
Purchases of property and equipment (130) (412)
Other 21 5
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Cash flows used in investing activities (109) (407)
Cash flows from financing activities:
Net proceeds from (payments on) revolving credit line (3,253) 4,443
Proceeds from exercise of stock options and warrants -- 3
----------------- ---------------
Cash flows provided by (used in) financing activities (3,253) 4,446
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Decrease in cash and cash equivalents (1,344) --
Cash and cash equivalents at beginning of the quarter 1,344 --
----------------- ---------------
Cash and cash equivalents at end of the quarter $ -- $ --
================ ===============
Supplemental disclosure of cash flow information
Cash paid during the quarters for:
Interest $ 209 $ 261
Income taxes 176 65
See accompanying condensed notes to financial statements.
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THE SPORTSMAN'S GUIDE, INC.
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
Note 1: Basis of Presentation
The accompanying financial statements are unaudited and reflect all
adjustments which are normal and recurring in nature, and which, in the
opinion of management, are necessary for a fair presentation thereof.
Reclassifications have been made to prior year financial information
wherever necessary to conform to the current year presentation. Results
of operations for the interim periods are not necessarily indicative of
full-year results.
Amounts billed to customers for shipping and handling are recorded in
revenues. Sales include shipping and handling revenues of $5.5 million
and $5.2 million for the quarters ended March 31, 2001 and 2000.
The Company's fiscal quarter ends on the Sunday nearest March 31 for
2001 and 2000, but for clarity of presentation, all periods are
described as if the quarter end is March 31. Fiscal first quarter 2001
and 2000 consisted of 13 weeks.
In preparing the Company's financial statements, management is required
to make estimates and assumptions that affect reported amounts of
assets and liabilities and related revenues and expenses. Actual
results could differ from the estimates used by management.
Note 2: Net Loss Per Share
The Company's basic net loss per share amounts have been computed by
dividing net loss by the weighted average number of outstanding common
shares.
For the quarter ended March 31, 2001, no common share equivalents were
included in the computation of diluted net loss per share. However, if
the Company would have reported net income in the quarter ended March
31, 2001, the common share equivalents that would have been included in
the computation of diluted net earnings per share were 1,763.
For the quarter ended March 31, 2000, no common share equivalents were
included in the computation of diluted net loss per share. However, if
the Company would have reported net income in the quarter ended March
31, 2000, the common share equivalents that would have been included in
the computation of diluted net earnings per share were 27,480.
Options and warrants to purchase 646,056 and 616,189 shares of common
stock with a weighted average exercise price of $5.83 and $6.29 were
outstanding during the quarters ended March 31, 2001 and 2000, but were
not included in the computation of diluted net earnings per share
because their exercise price was higher than the average market price
of the common shares during the reporting period.
Note 3: Revolving Credit Facility
The Company is a party to a Credit and Security Agreement with Wells
Fargo Bank Minnesota, National Association, f/k/a Norwest Bank
Minnesota, National Association, providing a revolving line of credit
up to $25.0 million, subject to an adequate borrowing base, expiring in
December 2002. Effective April 17, 2001, the Company amended the Credit
and Security Agreement to provide financial covenants for the year
2001. These covenants include (i) the monthly measurement of earnings
(loss) and year-to-date earnings (loss), (ii) the maximum monthly debt
to book net worth ratio, (iii) maximum monthly inventory levels and
(iv) maximum levels of capital expenditures.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Quarter ended March 31, 2001 compared to quarter ended March 31, 2000
SALES. Sales for the quarter ended March 31, 2001 of $38.9 million were $3.0
million or approximately 8% higher than sales of $35.9 million during the same
period last year. The increase in sales, quarter over quarter, was primarily due
to higher sales generated through the Internet. Sales generated through catalogs
were virtually flat compared to the same period a year ago, in spite of a
significant planned reduction in our catalog circulation. Catalog circulation
for the first quarter of 2001 was down approximately 25% in accordance with our
plan. As a result of these reductions in the catalog circulation as well as the
implementation of several marketing and merchandising strategies, overall
customer response rates improved significantly over the previous year. In 2001,
we implemented a more effective and profitable mail plan with the elimination of
catalog mailings to unprofitable customer segments of the house customer file
and combined the clothing & footwear specialty catalogs with the monthly main
catalogs to reduce saturation and produce a more cost effective mail plan. Also,
in the first quarter of 2001, we created and mailed several catalogs exclusively
to our club members to increase overall sales and profitability. As of the end
of the first quarter 2001, the buyer's club membership had increased to 157,000,
up 18% over the 133,000 reported at December 31, 2000 and up 38% over the
membership count one year ago.
Sales generated through the Internet for the quarter ended March 31, 2001 were
approximately 20% of total sales compared to approximately 13% of total sales
during the same period last year. Sales generated through the Internet are
defined as sales that are derived from our web sites, catalog orders processed
online and online offers placed by telephone.
Gross returns and allowances for the quarter ended March 31, 2001 were $3.1
million or 7.4% of gross sales compared to $3.6 million or 9.0% of gross sales
during the same period last year. Gross returns and allowances decreased as a
percentage of gross sales in the first quarter of 2001 due to a general
improvement in customer return rates across most product categories.
GROSS PROFIT. Gross profit for the quarter ended March 31, 2001 was $11.7
million or 30.2% of sales compared to $11.6 million or 32.2% of sales during the
same period last year. The decrease in gross profit as a percentage of sales was
primarily due to our strategy to refocus on the product/value relationship which
resulted in the reduction of retail prices selectively to stimulate improved
customer response rates. In addition, in the first quarter of 2001, we
aggressively priced our aged inventory and successfully improved our overall
inventory content.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses for the quarter ended March 31, 2001 were $11.8 million
or 30.2% of sales compared to $12.6 million or 35.1% of sales for the same
period last year. The decrease in dollars, compared to the same period last
year, was primarily due to the planned reduction of the catalog circulation and
lower general and administrative expenses as a result of various organizational
changes throughout 2000. Total circulation during the first quarter of 2001 was
11.1 million catalogs compared to 14.8 million catalogs during the first quarter
of 2000. We mailed ten catalog editions, including seven specialty editions,
during the quarters ended March 31, 2001 and 2000. Advertising expense for the
quarter ended March 31, 2001 was $6.8 million or 17.5% of sales compared to $7.5
million or 20.8% of sales for the same period last year. The decrease in
advertising expense as a percentage of sales, compared to the same period last
year, was primarily due to improved customer response rates and lower general
and administrative costs.
EARNINGS (LOSS) FROM OPERATIONS. Loss from operations for the quarter ended
March 31, 2001 was ($14,000) compared to ($1.0) million for the quarter ended
March 31, 2000.
INTEREST EXPENSE. Interest expense for the quarter ended March 31, 2001 was
$68,000 compared to $382,000 for the same period last year. The decrease in
interest expense was primarily due to lower levels of bank borrowings as a
result of the lower inventory levels throughout the quarter.
INCOME TAX. Income tax expense for the quarter ended March 31, 2001 was $21,000
compared to a $486,000 tax benefit for the quarter ended March 31, 2000. The
income tax expense represents an additional state income tax assessment for the
1999 tax year. The income tax benefit represents recovery of federal taxes paid
in 1999 and 1998. The decrease in the effective rate is due to the establishment
of a valuation allowance for deferred tax assets.
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NET EARNINGS (LOSS). Net loss for the quarter ended March 31, 2001 was
($167,000) compared to ($922,000) for the same period last year.
SEASONALITY AND QUARTERLY RESULTS
The majority of our sales historically occur during the second half of the year.
The seasonal nature of our business is due to our focus on outdoor merchandise
and related accessories for the fall, as well as winter apparel and gifts for
the holiday season. We expect this seasonality will continue in the future. In
anticipation of increased sales activity during the third and fourth quarters,
we incur significant additional expenses for hiring employees and building
inventory levels.
The following table sets forth certain unaudited financial information for each
of the quarters shown.
First Second Third Fourth
Quarter Quarter Quarter Quarter
- ------------------------------------------------------------------------------------------------------------------
2001
Sales $ 38,931
Gross profit 11,740
Loss from operations (14)
Net loss (167)
Net loss per share (.04)
2000
Sales $ 35,946 $ 30,344 $ 29,640 $ 59,008
Gross profit 11,591 10,429 10,001 19,446
Earnings (loss) from operations (1,031) (889) (676) 198
Net loss (922) (876) (692) (699)
Net loss per share (.19) (.18) (.15) (.15)
LIQUIDITY AND CAPITAL RESOURCES
We meet our operating cash requirements through funds generated from operations
and borrowings under our revolving line of credit.
WORKING CAPITAL. We had working capital of $8.8 million as of March 31, 2001
compared to $8.5 million as of December 31, 2000, with current ratios of 1.45 to
1 and 1.34 to 1, respectively. We purchase large quantities of manufacturers'
close-outs and direct imports, particularly in footwear and apparel merchandise
categories. The seasonal nature of the merchandise may require that it be held
for several months before being offered in a catalog. This can result in
increased inventory levels and lower inventory turnover, thereby increasing our
working capital requirements and related carrying costs.
We offer our customers an installment credit plan with no finance fees, known as
the "Easy 4-Pay Plan". Each of the four consecutive monthly installments is
billed directly to customers' credit cards. We had installment receivables of
$1.8 million at March 31, 2001 compared to $2.5 million at December 31, 2000.
The installment plan will continue to require the allocation of working capital
which we expect to fund from operations and availability under our revolving
credit facility.
We have a Credit and Security Agreement with Wells Fargo Bank Minnesota,
National Association, f/k/a Norwest Bank Minnesota, National Association,
providing a revolving line of credit up to $25.0 million, subject to an adequate
borrowing base, expiring in December 2002. The revolving line of credit is for
working capital and letters of credit. Letters of credit may not exceed $10.0
million at any one time. Funding under the credit facility, amended on March 7,
2001, consists of a collateral base of 48% of eligible inventory plus 80% of
eligible trade accounts receivable. Borrowings bear interest at the bank's prime
rate plus 1.25%. The revolving credit line is collateralized by substantially
all of the assets of the Company.
All borrowings are subject to various covenants. The most restrictive covenants
include a limit on monthly pretax loss, monthly measurement of year-to-date
earnings (loss), maximum monthly debt to book net worth ratio, maximum monthly
days inventory levels (as defined) and maximum annual spending levels for
capital assets. The agreement also prohibits the payment of dividends to
shareholders. Effective April 17, 2001, we amended the Credit and Security
Agreement to provide
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financial covenants for the year 2001. As of March 31, 2001, we had borrowed
$2.0 million against the revolving credit line compared to $5.2 million at
December 31, 2000. Outstanding letters of credit were $1.8 million at March 31,
2001 compared to $1.9 million at December 31, 2000.
OPERATING ACTIVITIES. Cash flows provided by operating activities for the
quarter ended March 31, 2001 were $2.0 million compared to cash flows used in
operating activities of $4.0 million for the same period last year. The increase
in cash flows used in operating activities was primarily the result of lower
inventory levels.
INVESTING ACTIVITIES. Cash flows used in investing activities during the quarter
ended March 31, 2001 were $109,000 compared to $407,000 during the same period
last year.
FINANCING ACTIVITIES. Cash flows used in financing activities during the quarter
ended March 31, 2001 were $3.3 million compared to cash flows provided by
financing activities of $4.4 million during the same period last year. Cash
flows used in financing activities in the first quarter of 2001 were comprised
of payments to reduce outstanding borrowings under the revolving line of credit.
Cash flows provided by financing activities in the first quarter of 2000 were
comprised of advances made under the revolving line of credit.
We believe that cash flows from operations and borrowing capacity under our
revolving credit facility will be sufficient to fund our operations for the next
12 months.
FORWARD-LOOKING STATEMENTS
This report may contain forward-looking statements within the meaning of Section
27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act
of 1934. We use words such as "may," "believe," "estimate," "plan," "expect,"
"intend," "anticipate" and similar expressions to identify forward-looking
statements. These forward-looking statements involve risk and uncertainties.
Actual results could differ materially from those projected in the
forward-looking statements due to a number of factors, including general
economic conditions, a changing market environment for our products and the
market acceptance of our product offerings as well as the factors set forth in
Exhibit 99 "Risk Factors" to our Annual Report on Form 10-K for the year ended
December 31, 2000 filed with the Securities and Exchange Commission.
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.1 Fourth Amendment to Credit and Security Agreement between the
Company and Wells Fargo Bank Minnesota, National Association,
f/k/a Norwest Bank Minnesota, National Association, dated April
17, 2001
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the three months ended March
31, 2001.
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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.
THE SPORTSMAN'S GUIDE, INC.
Date: May 14, 2001 /s/ Charles B. Lingen
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Charles B. Lingen
Executive Vice President Finance and
Administration/CFO
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