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 May 5, 2001
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 Fourth 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, with $0.01 par value, outstanding on June
8, 2001 was 21,409,025.
COST PLUS, INC.
FORM 10-Q
For the Quarter Ended May 5, 2001
INDEX
PART I. FINANCIAL INFORMATION Page
ITEM 1. Condensed Consolidated Financial Statements
Balance Sheets (unaudited) as of May 5, 2001,
February 3, 2001 and April 29, 2000 3
Statements of Operations (unaudited)
for the three months ended May 5, 2001
and April 29, 2000 4
Statements of Cash Flows (unaudited)
for the three months ended May 5, 2001
and April 29, 2000 5
Notes to Condensed Consolidated Financial Statements 6
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 7-8
ITEM 3. Quantitative and Qualitative Disclosure about Market Risk 8
PART II. OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K 9
SIGNATURE PAGE 10
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
COST PLUS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands except share and per share amounts, unaudited)
May 5, February 3, April 29,
2001 2001 2000
------------ ------------- --------------
ASSETS
Current assets:
Cash and cash equivalents $ 26,688 $ 38,815 $ 26,126
Merchandise inventories 108,678 109,829 87,332
Other current assets 12,396 11,107 7,765
------------ ------------- --------------
Total current assets 147,762 159,751 121,223
Property and equipment, net 82,372 78,694 67,666
Other assets, net 14,338 14,420 12,448
------------ ------------- --------------
Total assets $ 244,472 $ 252,865 $ 201,337
============ ============= ==============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 31,204 $ 31,592 $ 17,026
Income taxes payable 484 9,933 0
Accrued compensation 5,539 8,506 8,447
Other current liabilities 11,986 11,719 11,398
------------ ------------- --------------
Total current liabilities 49,213 61,750 36,871
Capital lease obligations 13,370 13,474 14,301
Other long-term obligations 8,378 8,520 7,659
Shareholders' equity:
Preferred stock, $.01 par value: 5,000,000 shares
authorized; none issued and outstanding -- -- --
Common stock, $.01 par value: 67,500,000 shares
authorized; issued and outstanding 21,204,628,
21,005,337 and 20,687,778 212 210 207
Additional paid-in capital 125,504 122,349 116,276
Retained earnings 47,795 46,562 26,023
------------ ------------- --------------
Total shareholders' equity 173,511 169,121 142,506
------------ ------------- --------------
Total liabilities and shareholders' equity $ 244,472 $ 252,865 $ 201,337
============ ============= ==============
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
----------------------------------
May 5, April 29,
2001 2000
-------------- --------------
Net sales $ 112,915 $ 92,238
Cost of sales and occupancy 75,654 60,447
-------------- --------------
Gross profit 37,261 31,791
Selling, general and administrative expenses 34,174 28,657
Store preopening expenses 1,066 1,244
-------------- --------------
Income from operations 2,021 1,890
Net interest (income) expense (1) 32
-------------- --------------
Income before income taxes 2,022 1,858
Income taxes 789 725
-------------- --------------
Net income $ 1,233 $ 1,133
============== ==============
Net income per share
Basic $ 0.06 $ 0.06
Diluted $ 0.06 $ 0.05
Weighted average shares outstanding
Basic 21,097 20,558
Diluted 21,595 21,325
See notes to condensed consolidated financial statements.
4
COST PLUS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands, unaudited)
Three Months Ended
----------------------------------------
May 5, April 29,
2001 2000
---------------- -------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,233 $ 1,133
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 4,035 3,049
Change in assets and liabilities:
Merchandise inventories 1,151 4,070
Other assets (465) (3,022)
Accounts payable (388) (9,035)
Income taxes payable (9,449) (7,897)
Other liabilities (2,833) 904
---------------- -------------
Net cash used in operating activities (6,716) (10,798)
---------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (7,541) (3,020)
---------------- -------------
Net cash used in investing activities (7,541) (3,020)
---------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on capital lease obligations (113) (165)
Proceeds from the issuance of common stock 2,243 1,698
---------------- -------------
Net cash provided by financing activities 2,130 1,533
---------------- -------------
Net decrease in cash and cash equivalents (12,127) (12,285)
Cash and cash equivalents:
Beginning of period 38,815 38,411
---------------- -------------
End of period $ 26,688 $ 26,126
================ =============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for interest $ 73 $ 31
================ =============
Cash paid for taxes $ 7,746 $ 9,502
================ =============
See notes to condensed consolidated financial statements.
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COST PLUS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Three Months Ended May 5, 2001 and April 29, 2000
(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 of only normal recurring
accruals) necessary to present fairly the Company's financial position at May 5,
2001 and April 29, 2000; the interim results of operations for the three months
ended May 5, 2001 and April 29, 2000; and changes in cash flows for the three
months then ended. The balance sheet at February 3, 2001, 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 February 3,
2001. Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted for the interim condensed consolidated
financial statements. Such statements should be read in conjunction with the
audited consolidated financial statements, including notes thereto, for the
fiscal year ended February 3, 2001.
The results of operations for the three-month period presented herein are not
necessarily indicative of the results to be expected for the full year.
2. 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
------------------------------
May 5, 2001 April 29, 2000
-------------- --------------
Basic shares 21,097 20,558
Effect of dilutive stock options 498 767
-------------- --------------
Diluted shares 21,595 21,325
============== ==============
For the three months ended May 5, 2001 and April 29, 2000, options to purchase
333,824 and 293,574 shares of common stock were outstanding but were not
included in the computation of diluted earnings per share because the effect
would be anti dilutive.
3. IMPACT OF NEW ACCOUNTING STANDARD
Statement of Financial Accounting Standards No. 133 ("SFAS 133"), Accounting for
Derivative Instruments and Hedging Activities, is effective for all fiscal years
beginning after June 15, 2000. SFAS 133, as amended, established accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts and for hedging activities. Under SFAS
133, certain contracts that were not formerly considered derivatives may now
meet the definition of a derivative. The Company adopted SFAS 133 effective
February 4, 2001; however, the Company does not utilize derivative instruments.
Therefore, the adoption of SFAS 133 has not had a significant impact on the
financial position, results of operations, or cash flows of the Company.
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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 7 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 (first quarter) ended May 5, 2001 as compared to the three
months (first quarter) ended April 29, 2000.
Net Sales. Net sales increased $20.7 million, or 22.4%, to $112.9 million in
the first quarter of fiscal 2001 from $92.2 million in the first quarter of
fiscal 2000. This increase in net sales was attributable to new stores and an
increase in comparable store sales. Comparable store sales rose 4.4% in the
first quarter of fiscal 2001, as a result of a larger average transaction and an
increase in customer count. At May 5, 2001, the Company operated 132 stores as
compared to 109 stores as of April 29, 2000.
Gross Profit. As a percentage of net sales, first quarter gross profit was 33.0%
in fiscal 2001 compared with 34.5% in fiscal 2000. The decrease in gross profit
primarily resulted from a decrease in merchandise margin percentage. The
merchandise margin percentage decrease resulted primarily from the absorption of
Easter clearance markdowns in the first quarter this year versus the second
quarter last year, a sales mix shift toward lower margin consumables to increase
foot traffic, a more aggressive promotional strategy to drive sales and
increased fuel and transportation costs.
Selling, General and Administrative ("SG&A") Expenses. As a percentage of net
sales, SG&A expenses decreased to 30.3% in the first quarter of fiscal 2001 from
31.1% in the first quarter of the prior fiscal year. The decrease in the SG&A
expense rate resulted primarily from leveraging store payroll, advertising,
corporate overhead and general store operating expenses against higher net sales
and an expanding base of stores.
Store Preopening Expenses. Store preopening expenses, which include grand
opening advertising and preopening merchandise setup expenses, were $1.1 million
in the first quarter of fiscal 2001 and $1.2 million in the first 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 five
stores in the first quarter of fiscal 2001 compared to six stores in the prior
fiscal year's first quarter.
Net Interest Income/Expense. Net interest income for the first quarter, which
includes interest on capital leases and interest income net of interest expense,
was $1,000 for fiscal 2001 compared to $32,000 of interest expense for fiscal
2000. The change resulted primarily from higher cash balances invested in short
term interest bearing accounts in fiscal 2001.
Income Taxes. The Company's effective tax rate was 39.0% in the first quarter of
both fiscal 2001 and fiscal 2000.
Factors That May Affect Future Results
The Company's business is highly seasonal, reflecting the pattern generally
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 entire fiscal year.* Any
factors negatively affecting the Company during the Christmas selling season in
any year, including unfavorable economic conditions, could
7
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 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 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, increases in utility costs in California and other states where
the Company has operations and general economic conditions.
Liquidity and Capital Resources
The Company's primary uses of 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 at least the next 12
months. *
Net cash used in operating activities in the first quarter ended May 5, 2001,
totaled $6.7 million, which was $4.1 million lower than the prior year. This
decrease resulted primarily from higher accounts payable balances in the current
year, partially offset by increased merchandise inventories to support a larger
number of stores and a decrease in other accrued liabilities.
Net cash used in investing activities totaled $7.5 million in the first quarter
of 2001 compared to $3.0 million in the prior year. This increase was primarily
due to increased capital expenditures for improvements made in fiscal 2001 in
the Company's distribution infrastructure. The Company estimates that fiscal
2001 capital expenditures will approximate $33.5 million.*
Net cash provided by financing activities was $2.1 million in the first quarter
of fiscal 2001 and $1.5 million in the first quarter of fiscal 2000, and was
primarily related to proceeds from the issuance of common stock in connection
with the Company's stock option and stock purchase plans.
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 February 3, 2001.
8
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.19 Lease agreement between the Company and GEM 460 Associates
I, LLC for a storage and distribution warehouse located in
Isle of Wight County, Virginia.
(b) Reports on Form 8-K
No reports on Form 8-K were filed by the Company during the period
covered by this report.
9
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.
COST PLUS, INC.
--------------------------------------------
Registrant
/s/ John F. Hoffner
============================================
Date: June 19, 2001 By: John F. Hoffner
Executive Vice President,Administration
Chief Financial Officer
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