-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Fo86NDiawTMGz+1HfRhsFg/ejDSPbOLh5Gdz2FjxxWJERG191rlrSRvrOcZoQFHR +vb6qeoV01GCBZTeuEoLcA== 0000950134-96-004707.txt : 19960910 0000950134-96-004707.hdr.sgml : 19960910 ACCESSION NUMBER: 0000950134-96-004707 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960727 FILED AS OF DATE: 19960906 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: GADZOOKS INC CENTRAL INDEX KEY: 0000924140 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-FAMILY CLOTHING STORES [5651] IRS NUMBER: 742261048 STATE OF INCORPORATION: TX FISCAL YEAR END: 0127 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-26732 FILM NUMBER: 96626787 BUSINESS ADDRESS: STREET 1: 4801 SPRING VALLEY STE 108B CITY: DALLAS STATE: TX ZIP: 75244 BUSINESS PHONE: 2149915500 MAIL ADDRESS: STREET 1: 4801 SPRING VALLEY ROAD SUITE 108B CITY: DALLAS STATE: TX ZIP: 75244 10-Q 1 FORM 10-Q FOR QUARTER ENDED JULY 27. 1996 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 - -------------------------------------------------------------------------------- (X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JULY 27, 1996 OR ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (D) OF SECURITIES EXCHANGE ACTION OF 1934 COMMISSION FILE NUMBER 0-26732 ------- GADZOOKS, INC. - -------------------------------------------------------------------------------- (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) TEXAS 74-2261048 - -------------------------------------------------------------------------------- (STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION INCORPORATION OR ORGANIZATION) NUMBER) 4801 SPRING VALLEY ROAD SUITE 108B DALLAS, TX 75244 - -------------------------------------------------------------------------------- (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE) REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: 214-991-5500 - -------------------------------------------------------------------------------- (FORMER NAME, FORMER ADDRESS AND 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 ( ) ----- ----- As of August 26, 1996, the number of shares outstanding of the registrant's common stock is 8,600,302. 2 GADZOOKS, INC. FORM 10-Q For the Quarter Ended July 27, 1996 INDEX
PAGE ---- PART I. FINANCIAL INFORMATION Item 1. Financial Statements Condensed Balance Sheets as of July 27, 1996 3 and January 27, 1996 Condensed Statements of Operations for the 4 Second Quarter and Six Months Ended July 27, 1996 and July 29, 1995 Condensed Statements of Cash Flows for the 5 Six Months Ended July 27, 1996 and July 29, 1995 Notes to Financial Statements 6 Item 2. Management's Discussion and Analysis 7 - 9 of Financial Condition and Results of Operations PART II. OTHER INFORMATION 10 SIGNATURE PAGE 11
2 3 PART I - FINANCIAL INFORMATION GADZOOKS, INC. CONDENSED BALANCE SHEETS - -------------------------------------------------------------------------------- (In thousands) (Unaudited)
JULY 27, JANUARY 27, 1996 1996 ----------- ----------- ASSETS Current assets: Cash and cash equivalents $ 17,233 $ 13,733 Accounts receivable 1,931 491 Inventory 21,415 18,707 Other current assets 828 1,161 ----------- ----------- 41,407 34,092 ----------- ----------- Leaseholds, fixtures and equipment, net 14,312 11,519 ----------- ----------- $ 55,719 $ 45,611 =========== =========== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable $ 7,850 $ 8,495 Accrued expenses & other current liabilities 3,656 3,775 Income taxes payable 424 1,321 Current portion of long-term obligations -- 133 ----------- ----------- 11,930 13,724 ----------- ----------- Accrued rent & other long-term obligations 1,238 1,122 Shareholders' equity: Common stock 85 78 Additional paid-in capital 38,836 29,442 Retained earnings 3,630 1,245 ----------- ----------- 42,551 30,765 ----------- ----------- $ 55,719 $ 45,611 =========== ===========
The accompanying notes are an integral part of these financial statements. 3 4 GADZOOKS, INC. CONDENSED STATEMENTS OF OPERATIONS - -------------------------------------------------------------------------------- (In thousands, except per share data) (Unaudited)
SECOND QUARTER ENDED SIX MONTHS ENDED -------------------------- --------------------- JULY 27, JULY 29, JULY 27, JULY 29, 1996 1995 1996 1995 -------- --------- --------- -------- Net Sales $ 28,504 $ 18,408 $ 51,990 $ 34,407 Cost of goods sold including buying, distribution and occupancy costs 19,634 12,789 36,173 24,225 -------- --------- --------- -------- Gross Profit 8,870 5,619 15,817 10,182 Selling, general and administrative expenses 6,423 4,339 12,409 8,448 -------- --------- --------- -------- Operating Income 2,447 1,280 3,408 1,734 Interest income (expense), net 168 (159) 397 (239) -------- --------- --------- -------- Income before income taxes 2,615 1,121 3,805 1,495 Provision for income taxes 968 425 1,420 568 -------- --------- --------- -------- Net income $ 1,647 $ 696 $ 2,385 $ 927 -------- --------- --------- -------- Net income per common and common equivalent share $ 0.18 $ 0.11 $ 0.26 $ 0.15 ======== ========= ========= ======== Weighted average common and common equivalent shares outstanding 9,116 6,064 9,074 6,064 ======== ========= ========= ========
The accompanying notes are an integral part of these financial statements. 4 5 GADZOOKS, INC. CONDENSED STATEMENTS OF CASH FLOWS - -------------------------------------------------------------------------------- (In thousands) (Unaudited)
SIX MONTHS ENDED --------------------- JULY 27, JULY 29, 1996 1995 --------- -------- Cash flows from operating activities: Net Income $ 2,385 $ 927 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 1,006 645 Changes in operating assets and liabilities (5,089) (1,860) --------- -------- Net cash used in operating activities (1,698) (288) --------- -------- Cash flows from investing activities: Capital expenditures, net (3,799) (2,942) --------- -------- Net cash used in investing activities (3,799) (2,942) --------- -------- Cash flows from financing activities: Proceeds from line of credit, net -- 2,275 Payments on long-term obligations (45) (519) Proceeds from term note -- 1,572 Issuance of common stock, net 9,041 143 --------- -------- Net cash provided by financing activities 8,996 3,471 --------- -------- Net increase in cash and cash equivalents 3,499 241 Cash and cash equivalents at beginning of period 13,733 321 --------- -------- Cash and cash equivalents at end of period $ 17,232 $ 562 ========= ========
The accompanying notes are an integral part of these financial statements. 5 6 GADZOOKS, INC. NOTES TO FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- (UNAUDITED) 1. BASIS OF PRESENTATION The accompanying condensed financial statements contain all adjustments (consisting of only normal recurring accruals) necessary to present fairly the financial position as of July 27, 1996 and July 29, 1995, and the results of operations and cash flows for the interim periods presented. The results of operations for the second quarter ended July 27, 1996 and July 29, 1995 are not necessarily indicative of the results to be expected for the full fiscal year. The condensed balance sheet as of January 27, 1996 is derived from audited financial statements. The condensed financial statements should be read in conjunction with the financial statement disclosures contained in the Company's Report to Shareholders for the year ended January 27,1996. 2. COMMON STOCK OFFERING On January 31, 1996, the Company completed a secondary offering of 600,000 shares of its common stock, while an additional 1,987,500 shares were sold by selling shareholders (after giving effect to the stock split described in Note 3). The Company's portion of the net proceeds, after deducting expenses associated with the offering, totaled $9.0 million and will be used to finance new store openings, store remodelings, and for other general corporate purposes. 3. STOCK SPLIT On May 1, 1996, the Board of Directors declared a three-for-two split of the Company's common stock in the form of a 50 percent stock dividend. The stock split was payable on May 30, 1996 to holders of record on May 16, 1996, and has been given retroactive effect in these financial statements. 6 7 Management's Discussion and Analysis of Financial Condition and Results of Operations GENERAL Gadzooks is a rapidly growing, mall-based specialty retailer of casual apparel and related accessories for young men and women principally between the ages of 13 and 19. The Company opened its first store in 1983, and had 160 stores in operation at July 27, 1996, located in 23 states throughout the Southwestern, Midwestern, and Southeastern regions of the United States. The Company accelerated its expansion program in late fiscal 1992 and opened 10 new stores in the second six months of that fiscal year, followed by 23 new stores in fiscal 1993, 26 new stores in fiscal 1994, and 39 new stores in fiscal 1995. The Company has opened 34 new stores since the beginning of fiscal 1996. The Company's business is subject to seasonal influences with slightly higher sales during the Christmas holiday, back- to-school, and spring break seasons. Management's discussion and analysis should be read in conjunction with the Company's financial statements and the notes related thereto. RESULTS OF OPERATIONS Second Quarter Ended July 27, 1996 Compared to Second Quarter Ended July 29, 1995 Net sales increased approximately $10.1 million, or 54.8 percent to $28,504,000 during the second quarter of fiscal 1996 from $18,408,000 during the comparable quarter of fiscal 1995. Comparable store sales increased 8.6 percent for the second quarter of fiscal 1996. The balance of the sales increase was attributable to new stores not yet included in the comparable store sales base. A store becomes comparable after it has been open for 14 full fiscal months. Gross profit increased approximately $3.3 million to $8,870,000 during the second quarter of fiscal 1996 from $5,619,000 during the comparable quarter of fiscal 1995. As a percentage of net sales, gross profit increased to 31.1 percent compared to 30.5 percent in the comparable quarter of last year. The Company's merchandise margin was higher in the current quarter due to additional markdowns taken in certain merchandise categories in the prior year's quarter as part of a plan implemented to eliminate these stock-keeping units. Additionally, in the prior year, the Company decided to close its two outlet stores resulting in markdowns being taken during the second quarter on end-of-season and slow- moving merchandise, which was previously sold through the outlets 7 8 over a longer period of time. Store occupancy costs, included in cost of goods sold, increased slightly as a percentage of sales as a result of the large number of new stores opened in recent periods, but was offset by a reduction in buying and distribution costs as a percentage of sales, as a result of the Company's larger store base. Selling, general and administrative expenses increased approximately $2.1 million to $6,423,000 during the second quarter of 1996 from $4,339,000 during the comparable quarter of fiscal 1995. The increase was primarily due to the increase in the number of stores to 160 stores at the end of the second quarter of fiscal 1996 from 111 at the end of the comparable period last year. As a percentage of net sales, selling, general and administrative expenses decreased to 22.5 percent of sales during the second quarter of fiscal 1996 from 23.6 percent of sales during the comparable quarter of last year. The decrease as a percentage of net sales was due to leveraging of certain store expenses as a percentage of sales as a result of the comparable store sales increases achieved during the quarter. Operating income increased approximately $1.2 million to $2,447,000, during the second quarter of fiscal 1996 from $1,280,000 during the comparable quarter of last year. As a percentage of net sales, operating income increased to 8.6 percent of sales from 7.0 percent of sales during the comparable quarter of last year. Net interest income increased approximately $0.3 million to $168,000 during the second quarter of fiscal 1996 from $159,000 net interest expense in the comparable period of last year. The Company's interest income increased due to temporary investments of cash available from the two public stock offerings completed in October, 1995 and January, 1996. Six Months Ended July 27, 1996 Compared to Six Months Ended July 29, 1995 Net sales increased approximately $17.6 million, or 51.1 percent to $51,990,000 during the first six months of fiscal 1996 from $34,407,000 during the comparable period of fiscal 1995. Comparable store sales increased 8.0 percent for the first six months of fiscal 1996. The balance of the sales increase was attributable to new stores not yet included in the comparable store sales base. A store becomes comparable after it has been open for 14 full fiscal months. Gross profit increased approximately $5.6 million to $15,817,000 during the first six months of fiscal 1996 from $10,182,000 during the comparable period of fiscal 1995. As a percentage of net sales, gross profit increased to 30.4 percent compared to 29.6 percent in the comparable period of last year. The Company's merchandise margin for the first six months of fiscal 1996 was higher than the prior year's margin due to fewer price-based promotional activities during fiscal 1996. The Company began fiscal 1996 with less markdown merchandise to clear from its store system after the 1995 Christmas 8 9 holiday season. Additionally, the first six months of 1995 had lower merchandise margins due to editing certain merchandise categories and closing the Company's two outlet stores. Store occupancy costs, included in cost of goods sold, increased slightly as a percentage of sales as a result of opening 34 new stores during the first six months of fiscal 1996 as compared to opening 21 stores during the comparable period of fiscal 1995. The increase in store occupancy costs was offset by a reduction in buying and distribution costs as a percentage of sales, as a result of the Company's larger store base. Selling, general and administrative expenses increased approximately $4.0 million to $12,409,000 during the first six months of 1996 from $8,447,000 during the comparable period of fiscal 1995. The increase was primarily due to the increase in the number of stores to 160 stores at the end of the second quarter of fiscal 1996 from 111 at the end of the comparable period last year. As a percentage of net sales, selling, general and administrative expenses decreased to 23.9 percent of sales during the first six months of fiscal 1996 from 24.6 of sales during the comparable period of last year. The decrease as a percentage of net sales was due to leveraging of certain store expenses as a percentage of sales as a result of the comparable store sales increases achieved during the six months. Operating income increased approximately $1.7 million to $3,408,000 during the first six months of fiscal 1996 from $1,734,000 during the comparable period of last year. As a percentage of net sales, operating income increased to 6.6 percent of sales from 5.0 percent of sales during the comparable six months of last year. Net interest income increased approximately $0.6 million to $397,000 during the first six months of fiscal 1996 from $239,000 net interest expense in the comparable period of last year. The Company's interest income increased due to temporary investments of cash available from the two public stock offerings completed in October, 1995 and January, 1996. LIQUIDITY AND CAPITAL RESOURCES General. The Company's primary uses of cash are financing new store openings and purchasing merchandise inventories. The Company is currently meeting its cash requirements through cash flow from operations and from proceeds of its initial public offering completed in October, 1995, and a secondary public offering completed in January, 1996. Cash Flows. At July 27, 1996, cash and cash equivalents were $17.2 million, an increase of $3.5 million since January 27, 1996. Sources of cash for the first six months of fiscal 1996 were primarily proceeds from the issuance of common stock of $9.0 million and net cash from operations of $3.4 million. The primary uses of cash were increased inventory levels of $2.7 million, reductions in liabilities of $1.3 million, 9 10 increases in other assets of $1.1 million, and capital expenditures of $3.8 million. The Company opened 14 new stores during the second quarter of 1996 as compared with 10 new stores in the same period of the prior year. Credit Facility. The Company currently has a loan agreement with a bank that provides a revolving line of credit of $7.0 million. Amounts borrowed under the Revolving Line bear interest at the bank's prime rate minus 0.65 percent. The Company pays a commitment fee of 0.35 percent per annum on the unused portion of the revolving line. As of July 27, 1996, no amounts were outstanding under the revolving line. The Revolving Line credit facility is subject to certain financial covenants and conditions with which the Company was in compliance as of July 27, 1996. Capital Expenditures. The Company anticipates opening approximately 23 new stores during the remaining quarters of fiscal 1996. The Company estimates that its average capital expenditures to open a new store, including leasehold improvements and furniture and fixtures, will be approximately $155,000 (approximately $100,000 net of all landlord allowances). The cost of initial inventory for a new store is approximately $100,000; however, the immediate cash requirement for inventory is partially financed through the Company's payment terms with its vendors. After a store has been constructed, pre-opening costs range from $8,000 to $10,000 for travel, hiring and training, and other miscellaneous costs associated with the setup of a new store prior to its opening for business. Pre-opening costs are expensed in the period when the store opens. STATEMENT REGARDING FORWARD LOOKING DISCLOSURE Certain sections of this Quarterly Report on Form 10-Q, including the preceding "Management's Discussion and Analysis of Financial Condition and Results of Operations," contain various forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the "Securities Act"), and Section 21E of the Exchange Act, which represent the Company's expectations or beliefs concerning future events. These forward-looking statements involve risks and uncertainties, and the Company cautions that these statements are further qualified by important factors that could cause actual results to differ materially from those in the forward-looking statements, including, without limitation, those set forth in the "Risk Factors" section of the Company's Annual Report on Form 10-K for the fiscal year ended January 27, 1996. PART II - OTHER INFORMATION Items 1-6 are not applicable. 10 11 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. GADZOOKS, INC. (Registrant) DATE: September 6, 1996 By: /s/ MONTY R. STANDIFER ------------------------------------ Monty R. Standifer Senior Vice President and Chief Financial Officer 11 12 EXHIBIT INDEX EXHIBIT NUMBER DESCRIPTION - ------- ----------- 27 Financial Data Schedule EX-27 2 FINANCIAL DATA SCHEDULE
5 1,000 6-MOS JAN-25-1997 JAN-28-1996 JUL-27-1996 17,233 0 1,931 0 21,415 828 19,115 4,803 55,719 13,168 0 85 0 0 42,466 42,551 28,504 0 19,634 0 6,423 0 (168) 2,615 968 0 0 0 0 1,647 .18 0
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