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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 September 30,
2001 or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934. For the transition period from
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to .
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Commission File No. 015767
THE SPORTSMAN'S GUIDE, INC.
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(Exact name of registrant as specified in its charter)
MINNESOTA 41-1293081
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(State or other jurisdiction (I.R.S. Employer I.D. Number)
of incorporation or organization)
411 FARWELL AVE., SO. ST. PAUL, MINNESOTA 55075
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(Address of principal executive offices)
(651) 451-3030
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(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 November 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
(In thousands of dollars)
(unaudited)
ASSETS September 30, December 31,
2001 2000
------------- ------------
CURRENT ASSETS
Cash and cash equivalents $ 1,642 $ 1,344
Accounts receivable - net 2,329 3,718
Inventory 29,797 22,805
Promotional material 4,476 3,635
Prepaid expenses 1,171 1,522
Income taxes receivable -- 769
--------- ---------
Total current assets 39,415 33,793
PROPERTY AND EQUIPMENT - NET 3,904 5,067
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Total assets $ 43,319 $ 38,860
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Note payable - bank $ 9,127 5,225
Current maturities of long-term debt 5 30
Accounts payable 15,157 14,104
Accrued expenses 1,506 2,233
Customer deposits and other liabilities 4,427 3,675
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Total current liabilities 30,222 25,267
LONG-TERM LIABILITIES
Long-term debt 5 3
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Total liabilities 30,227 25,270
COMMITMENTS AND CONTINGENCIES -- --
SHAREHOLDERS' EQUITY
Common Stock-$.01 par value; 36,800,000 shares
authorized; 4,748,810 shares issued and
outstanding 47 47
Additional paid-in capital 11,565 11,565
Stock subscription receivable (238) (238)
Retained earnings 1,718 2,216
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Total shareholders' equity 13,092 13,590
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Total liabilities & shareholders' equity $ 43,319 $ 38,860
========= =========
See accompanying condensed notes to financial statements
2
THE SPORTSMAN'S GUIDE, INC.
STATEMENTS OF OPERATIONS
(UNAUDITED)
For the Three Months and Nine Months Ended
September 30, 2001 and 2000
(In thousands, except per share data)
Three Months Ended Nine Months Ended
September 30, September 30,
----------------------- ------------------------
2001 2000 2001 2000
--------- --------- --------- ---------
Sales $ 36,472 $ 29,640 $ 107,199 $ 95,930
Cost of sales 24,575 19,639 73,082 63,909
--------- --------- --------- ---------
Gross profit 11,897 10,001 34,117 32,021
Selling, general and administrative
expenses 11,888 10,677 34,260 34,617
--------- --------- --------- ---------
Earnings (loss) from operations 9 (676) (143) (2,596)
Interest expense (135) (427) (283) (1,253)
Miscellaneous income(expense), net 2 5 (51) 22
--------- --------- ---------- ---------
Loss before income taxes (124) (1,098) (477) (3,827)
Income tax expense (benefit) -- (406) 21 (1,337)
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Net loss $ (124) $ (692) $ (498) $ (2,490)
========= ========= ========= =========
Net loss per share:
Basic and Diluted $ (.03) $ (.15) $ (.10) $ (.52)
========= ========= ========= =========
Weighted average common and common
equivalent shares outstanding:
Basic and Diluted 4,749 4,749 4,749 4,749
========= ========= ========= =========
See accompanying condensed notes to financial statements
3
THE SPORTSMAN'S GUIDE, INC.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
For the Nine Months Ended
September 30, 2001 and 2000
(In thousands of dollars)
2001 2000
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Cash flows from operating activities:
Net loss $ (498) $ (2,490)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 1,365 1,608
Other 72 (13)
Changes in assets and liabilities:
Accounts receivable 1,389 2,968
Inventory (6,992) 2,377
Promotional material (841) (830)
Prepaid expenses 351 (2,282)
Income taxes 769 --
Checks written in excess of bank balances -- (793)
Accounts payable 1,053 (2,704)
Accrued expenses (727) (596)
Customer deposits and other liabilities 752 (1,452)
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Cash flows used in operating activities (3,307) (4,207)
Cash flows from investing activities:
Purchases of property and equipment (308) (1,144)
Other 21 --
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Cash flows used in investing activities (287) (1,144)
Cash flows from financing activities:
Net proceeds from revolving credit line 3,902 5,373
Payments on long-term debt (10) (25)
Proceeds from exercise of stock options
and warrants -- 3
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Cash flows provided by financing activities 3,892 5,351
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Increase in cash and cash equivalents 298 --
Cash and cash equivalents at beginning of the period 1,344 --
-------- --------
Cash and cash equivalents at end of the period $ 1,642 $ --
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Supplemental disclosure of cash flow information
Cash paid during the periods for:
Interest $ 366 $ 1,222
Income taxes 176 71
See accompanying condensed notes to financial statements
4
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 $5.0 million
and $4.2 million for the three months ended September 30, 2001 and 2000
and $15.0 million and $13.8 million for the nine months ended September
30, 2001 and 2000.
The Company's fiscal quarter ends on the Sunday nearest September 30
for 2001 and 2000, but for clarity of presentation, all periods are
described as if the three and nine month periods end September 30. Each
fiscal third quarter of 2001 and 2000 consisted of thirteen weeks. The
three fiscal quarters of 2001 and 2000 each consisted of thirty-nine
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 three months and nine months ended September 30, 2001, no
common share equivalents were included in the computation of diluted
net loss per share. If the Company would have reported net income in
the three months ended September 30, 2001, 8,758 common share
equivalents would have been included in the computation of diluted net
earnings per share. If the Company would have reported net income in
the nine months ended September 30, 2001, 5,741 common share
equivalents would have been included in the computation of diluted net
earnings per share.
For the three months and nine months ended September 30, 2000, no
common share equivalents were included in the computation of diluted
net loss per share. If the Company would have reported net income in
the three months ended September 30, 2000, no common share equivalents
would have been included in the computation of diluted net earnings per
share. If the Company would have reported net income in the nine months
ended September 30, 2000, 16,610 common share equivalents would have
been included in the computation of diluted net earnings per share.
Options and warrants to purchase 642,156 and 694,669 shares of common
stock with a weighted average exercise price of $5.83 and $5.79 were
outstanding during the three months ended September 30, 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 period.
5
Options and warrants to purchase 643,456 and 640,232 shares of common
stock with a weighted average exercise price of $5.83 and $6.11 were
outstanding during the nine months ended September 30, 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 period.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Three months and nine months ended September 30, 2001 compared to three months
and nine months ended September 30, 2000
SALES. Sales for the three months and nine months ended September 30, 2001 of
$36.5 million and $107.2 million were $6.9 million or 23.0% higher and $11.3
million or 11.7% higher than sales of $29.6 million and $95.9 million during
the same periods last year. The increase in sales for the third quarter was
primarily due to higher sales generated through the catalogs in spite of a
planned reduction in our catalog circulation. The increase in sales for the
nine months ended September 30, 2001 was primarily due to higher sales
generated from both the catalogs and the Internet. Year over year, catalog
circulation for the third quarter and the first nine months of 2001 was down
approximately 14% and 22%, respectively, in accordance with our plans. 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 in the third quarter and the
first nine months of 2001 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. We
also have created and mailed catalogs exclusively to our club members to
increase overall sales and profitability. As of the end of the third quarter
2001, the buyer's club membership had increased to 215,500, up 62% over the
133,000 reported at December 31, 2000 and up 113% over the membership count one
year ago.
Sales generated through the Internet for the third quarter and the nine months
ended September 30, 2001 were approximately 21% of total sales compared to
16% and 14%, respectively, during the same periods last year. We define sales
generated through the Internet as sales that are derived from our web site,
catalog orders processed online and online offers placed by telephone.
Gross returns and allowances for the three months and nine months ended
September 30, 2001 were $2.9 million or 7.4% of gross sales and $8.7 million or
7.5% of gross sales compared to $2.2 million or 6.8% of gross sales and $8.1
million or 7.7% of gross sales during the same periods last year.
GROSS PROFIT. Gross profit for the three months and nine months ended September
30, 2001 was $11.9 million or 32.6% of sales and $34.1 million or 31.8% of
sales compared to $10.0 million or 33.7% of sales and $32.0 million or 33.4% of
sales during the same periods last year.
The decrease in the gross profit percentage for the third quarter and the nine
months ended September 30, 2001 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.
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SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses for the three months and nine months ended September
30, 2001 were $11.9 million or 32.6% of sales and $34.3 million or 32.0% of
sales compared to $10.7 million or 36.0% of sales and $34.6 million or 36.1% of
sales for the same periods last year.
Selling, general and administrative expenses, as a percentage of sales, for the
third quarter and the nine months ended September 30, 2001 were lower compared
to the same periods last year primarily due to a more effective mail plan and
lower general and administrative expenses resulting from various marketing and
organizational changes made in the latter part of 2000.
Total catalog circulation during the third quarter and the first nine months of
2001 was 10.6 million and 31.5 million catalogs compared to 12.2 million and
40.2 million catalogs during the same periods last year. We mailed nine catalog
editions, including six specialty editions, during the three months ended
September 30, 2001 compared to 12 editions, including nine specialty editions,
during the same period last year. Year to date, we mailed 29 catalog editions,
including 20 specialty editions compared to 31 editions, including 22 specialty
editions, during the same period last year.
Advertising expense for the third quarter and the first nine months of 2001 was
$7.2 million or 19.7% of sales and $20.3 million or 18.9% of sales compared to
$6.0 million or 20.1% of sales and $19.8 million or 20.7% of sales for the same
periods last year. The decrease in advertising expense for the third quarter
and the first nine months of 2001, as a percentage of sales, compared to the
same periods last year was primarily due to improved customer response rates
and higher sales generated through the Internet. Advertising expenses, in terms
of dollars, for the third quarter and nine months ended September 30, 2001 were
higher compared to the same periods last year primarily as a result of higher
sales and higher costs of catalogs stemming largely from increased page counts
and postal and paper rate increases offset somewhat by the planned reduction in
catalog circulation.
EARNINGS (LOSS) FROM OPERATIONS. Earnings from operations for the three months
ended September 30, 2001 was $9,000 compared to a loss from operations of
($676,000) during the same period last year. Loss from operations for the nine
months ended September 30, 2001 was ($143,000) compared to ($2.6) million for
the same period last year.
INTEREST EXPENSE. Interest expense for the three months and nine months ended
September 30, 2001 was $135,000 and $283,000 compared to $427,000 and $1.3
million for the same periods last year. The decrease in interest expense for
the quarter and year to date was due to lower average levels of bank borrowings
primarily as a result of lower inventory levels.
NET LOSS. Net loss for the three months and nine months ended September 30,
2001 was ($124,000) and ($498,000) compared to ($692,000) and ($2.5) million
for the same periods last year.
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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 fourth fiscal
quarter, 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
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2001
Sales $38,931 $31,796 $36,472
Gross profit 11,740 10,480 11,897
Earnings (loss) from operations (14) (138) 9
Net loss (167) (207) (124)
Net loss per share (.04) (.04) (.03)
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 $9.2 million as of September 30, 2001
compared to $8.5 million as of December 31, 2000, with current ratios of 1.30 to
1 and 1.34 to 1, respectively. The increase in working capital was primarily due
to the increase in the inventory levels to support the fall catalogs. We
purchase large quantities of manufacturers' closeouts 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. Effective with our November main
catalog, the Easy 4-pay Plan will only be offered to our club members. We had
installment receivables of approximately $1.5 million at September 30, 2001
compared to approximately $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 $20.0 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 consists of a
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collateral base of 45% of eligible inventory plus 80% of eligible trade accounts
receivable. Borrowings bear interest at the bank's prime rate plus 1.25%. The
revolving line of credit 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 level for capital
assets. The agreement also prohibits the payment of dividends to shareholders.
As of September 30, 2001, we were in compliance with all applicable covenants
under the revolving line of credit agreement. As of September 30, 2001, we had
borrowed $9.1 million against the revolving credit line compared to $5.2 million
at December 31, 2000. Outstanding letters of credit were $1.3 million at
September 30, 2001 compared to $1.9 million at December 31, 2000.
OPERATING ACTIVITIES. Cash flows used in operating activities for the nine
months ended September 30, 2001 were $3.3 million compared to $4.2 million for
the same period last year. The decrease in cash flows used in operating
activities was primarily the result of lower net losses for the first nine
months of 2001.
INVESTING ACTIVITIES. Cash flows used in investing activities for the nine
months ended September 30, 2001 were $287,000 compared to $1.1 million for the
same period last year.
FINANCING ACTIVITIES. Cash flows provided by financing activities during the
nine months ended September 30, 2001 were $3.9 million compared to $5.4 million
during the same period last year. The change in cash flows provided by financing
activities during the nine months ended September 30, 2001 compared to the prior
year was largely due to a lower amount of advances required 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 operations and future
growth for the next twelve 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. 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 the Company's Annual Report on Form 10-K for the
year ended December 31, 2000 filed with the Securities and Exchange Commission.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK.
The Company does not have any material, near-term, market rate risk.
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
The Sportsman's Guide, Inc. (the "Company") along with approximately 60 firearms
wholesalers/distributors were named as defendants in a lawsuit filed by the
National Association for the Advancement of Colored People ("NAACP") in May 2001
pending in the United States District Court for the Eastern District of New York
(Case No. 99 CV 7037). The NAACP alleges the defendants' firearms distribution
practices are resulting in a public nuisance and seeks $20 million to abate the
alleged nuisance by modifying the defendants' distribution practices. The
Company denies all allegations of misconduct and intends to vigorously defend
the case.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
None.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the three months ended
September 30, 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: November 14, 2001 /s/ Charles B. Lingen
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Charles B. Lingen
Executive Vice President of Finance
and Administration/CFO
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