<PAGE>
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 October 27, 1996
------------------------------------------------
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 number 0-27348
K&G Men's Centers, Inc.
- -------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Georgia 58-1989917
- -------------------------------------------------------------------------------
(State or other jurisdiction (I.R.S. Employer incorporation or organization)
of Identification Number)
1750-A Ellsworth Industrial Blvd., Atlanta Georgia 30318
- -------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(404) 351-7987
- -------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
None
- -------------------------------------------------------------------------------
(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, 6,736,350 Shares outstanding as of December 7,
1996.
<PAGE>
K&G Men's Center, Inc. and Subsidiaries
Index to Form 10-Q
October 27, 1996
<TABLE>
<CAPTION>
<S> <C> <C>
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
of Financial Condition and Results of Operations ....... 7-9
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
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
K&G Men's Center, Inc. and Subsidiaries
Consolidated Balance Sheets
<S> <C> <C>
October 27, 1996 January 28, 1996
---------------- ----------------
(UNAUDITED)
ASSETS
CURRENT ASSETS:
Cash & cash equivalents $11,689,000 $ 2,504,000
Accounts receivable 1,454,000 728,000
Merchandise inventory 16,786,000 11,148,000
Other assets 1,484,000 1,069,000
----------- -----------
Total current assets 31,413,000 15,449,000
PROPERTY AND EQUIPMENT, net 2,081,000 1,397,000
OTHER ASSETS, net 372,000 358,000
----------- -----------
Total assets $33,866,000 $17,204,000
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 9,884,000 $ 5,194,000
Sales taxes payable 731,000 603,000
Accrued expenses 1,193,000 1,219,000
Income taxes payable - 619,000
----------- -----------
Total current liabilities 11,808,000 7,635,000
LONG-TERM DEBT 205,000 205,000
MINORITY INTEREST 245,000 245,000
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 3,957,000 1,611,000
----------- -----------
Total shareholders' equity 21,608,000 2,643,000
----------- -----------
Total liabilities and shareholders' equity $33,866,000 $17,204,000
=========== ===========
</TABLE>
See accompanying Condensed Notes to the Financial Statements.
3
<PAGE>
K&G Men's Center, Inc. and Subsidiaries
Consolidated Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
-------------------------------------- -----------------------------------
October 27, 1996 October 29, 1995 October 27, 1996 October 29, 1995
---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
NET SALES $19,723,000 $12,717,000 $55,468,000 $37,820,000
COST OF SALES, including occupancy cost 15,119,000 9,640,000 42,588,000 28,812,000
----------- ----------- ----------- -----------
GROSS PROFIT 4,604,000 3,077,000 12,880,000 9,008,000
SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES 3,282,000 2,087,000 9,386,000 6,104,000
----------- ----------- ----------- -----------
OPERATING INCOME 1,322,000 990,000 3,494,000 2,904,000
OTHER INCOME (EXPENSES):
Interest expense (10,000) 0 (30,000) (54,000)
Other income, net 142,000 71,000 460,000 124,000
----------- ----------- ----------- -----------
INCOME BEFORE INCOME TAXES AND MINORITY
INTEREST IN (EARNINGS) LOSS OF AFFILIATES 1,454,000 1,061,000 3,924,000 2,974,000
PROVISION FOR INCOME TAXES 566,000 417,000 1,511,000 1,166,000
----------- ----------- ----------- -----------
INCOME BEFORE MINORITY INTEREST IN
(EARNINGS) LOSS OF AFFILIATES 888,000 644,000 2,413,000 1,808,000
MINORITY INTEREST IN (EARNINGS) LOSS
OF AFFILIATES (19,000) (13,000) (55,000) 12,000
----------- ----------- ----------- ----------
NET INCOME 869,000 631,000 2,358,000 1,820,000
DIVIDENDS ON REDEEMABLE COMMON STOCK, SERIES B 0 85,000 0 155,000
----------- ----------- ----------- -----------
NET INCOME APPLICABLE TO COMMON STOCK $ 869,000 $ 546,000 $2,358,000 $1,665,000
=========== =========== ========== ==========
NET INCOME PER COMMON AND COMMON
EQUIVALENT SHARES $ 0.14 $ 0.12 $ 0.37 $ 0.35
=========== =========== ========== ==========
WEIGHTED AVERAGE COMMON AND
COMMON EQUIVALENT SHARES OUTSTANDING 6,377,500 5,250,000 6,377,500 5,250,000
=========== =========== ========== ==========
</TABLE>
See accompanying Condensed Notes to the Financial Statements.
4
<PAGE>
K&G Men's Center, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
October 27, 1996 October 29, 1995
---------------- ----------------
<S> <C> <C>
Cash Flows from Operating Activities:
Net income $ 2,358,000 $ 1,820,000
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Minority interest in earnings (loss) of affiliates 55,000 (12,000)
Depreciation and amortization 296,000 213,000
Deferred income tax provision (benefit) 0 (200,000)
Loss on disposal of fixed assets 0 70,000
Changes in assets and liabilities:
Accounts receivable (726,000) (615,000)
Merchandise inventory (5,638,000) (4,108,000)
Other assets, net (415,000) (585,000)
Accounts payable 4,690,000 3,083,000
Sales tax payable 128,000 443,000
Accrued expenses (26,000) 1,362,000
Income taxes payable (619,000) (452,000)
------------ -----------
Total adjustments (2,255,000) (801,000)
------------ -----------
Net cash provided by (used in) operating
activities 103,000 1,019,000
------------ -----------
Cash Flows from Investing Activities:
Additions to property and equipment (969,000) (581,000)
Other assets (25,000) 0
------------ -----------
Net cash used in investing
activities (994,000) (581,000)
------------ -----------
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 (113,000)
Repayment of notes payable to related parties 0 (348,000)
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 (486,000)
------------ -----------
Net Increase in Cash and Cash Equivalents 9,185,000 (48,000)
Cash and Cash Equivalents at Beginning of
Period 2,504,000 2,377,000
------------ -----------
Cash and Cash Equivalents at End of
Period $ 11,689,000 $ 2,329,000
============ ===========
Supplemental Disclosure of Cash Paid For:
Interest $ 27,900 $ 98,000
============ ===========
Income taxes $ 2,217,000 $ 1,618,000
============ ===========
</TABLE>
See accompanying Condensed Notes to the Financial Statements.
5
<PAGE>
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 October 27, 1996 and October 29, 1995, and for the three
months and nine 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 an initial public offering of its Common Stock 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 per share and
raised $10,131,000 after expenses of the offering.
The Company effected a second public offering of its Common Stock on
November 11, 1996, and the transaction closed on November 15, 1996. Pursuant to
this offering, the Company issued an additional 358,850 shares of its common
stock at $22.25 per share and raised approximately $7,446,000 after estimated
expenses. Subsequent to the offering, the Company has issued and outstanding
6,736,350 shares of its common stock.
6
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
This Form 10-Q contains certain forward-looking statements with respect to the
Company's operations, industry, financial condition and liquidity. These
statements reflect the Company's assessment of a number of risk and
uncertainties. The Company's actual results could differ materially from the
results anticipated in these forward-looking statements.
GENERAL
As of October 27, 1996, the Company operated 16 stores in eleven 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, Washington, DC,
and Rahway, New Jersey. Subsequent to October 27, 1996, the Company opened a
store in Columbus, Ohio, bringing its store base to 17 stores.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, statements of
operations data expressed as a percentage of net sales:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
------------------------- -------------------------
October 27, October 29, October 27, October 29,
1996 1995 1996 1995
---------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of sales, including occupancy cost 76.7 75.8 76.8 76.2
----- ----- ----- -----
Gross profit 23.3 24.2 23.2 23.8
Selling, general and administrative
expenses 16.6 16.4 16.9 16.1
----- ----- ----- -----
Operating income 6.7 7.8 6.3 7.7
Other income (expenses):
Interest expense (0.1) - (0.1) (0.1)
Other income, net 0.7 0.5 0.8 0.3
----- ----- ----- -----
Income before income taxes and minority
interest in (earnings) loss of affiliates 7.3 8.3 7.0 7.9
Provision for income taxes 2.8 3.3 2.7 3.1
----- ----- ----- -----
Income before minority interest in
(earnings) loss of affiliates 4.5 5.0 4.3 4.8
Minority interest in (earnings) loss of
affiliates (0.1) 0.1 (0.1) -
----- ----- ----- -----
Net income 4.4 4.9 4.2 4.8
Dividends on redeemable common stock,
Series B - 0.6 - 0.4
----- ----- ----- -----
Net income applicable to common stock 4.4% 4.3% 4.2% 4.4%
===== ===== ===== =====
</TABLE>
THREE MONTHS ENDED OCTOBER 27, 1996 AND OCTOBER 29, 1995.
Net sales of $19.7 million for the three months ended October 27, 1996
represents an increase of $7.0 million, or 55.1% over net sales of $12.7
million in the three months ended October 29, 1995. The increase in net sales is
a result of comparable store growth of 11.1% and the opening of eight new stores
since October of 1995. Comparable store growth was 8.1% for the three months
ended October 29, 1995.
Gross profit increased $1.5 million, or 49.6% to $4.6 million in the three
months ended October 27, 1996. Gross profit as a percentage of sales decreased
to 23.3% in the three months ended October 27, 1996 from 24.2% in the three
months ended October 29, 1995. The decrease in gross margin as a percentage of
sales is due to the Company's new stores having a higher occupancy cost as a
percentage of sales, and the Company has lowered its mark-up on specific goods
in order to lower the selling price and enhance its competitive position.
Selling, general and administrative expenses increased $1.2 million or
57.3%, to $3.3 million in the three months ended October 27, 1996. Selling,
general and administrative expenses as a percentage of net sales increased to
16.6% in
7
<PAGE>
the three months ended October 27, 1996, from 16.4% in the three months ended
October 29, 1995. The increase was a result a higher level of advertising
expenses as a percentage of sales mainly for new 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 October 29, 1995.
As a result of the above factors, operating income was $1.5 million for the
three months ended October 27, 1996 compared to $1.1 million for the three
months ended October 29, 1995. Operating income as a percentage of net sales
decreased to 6.7% in the three months ended October 27, 1996 from 7.8% in the
three months ended October 29, 1995.
The Company had accrued dividends payable on its Series B redeemable common
stock of $85,000 for the three months ended October 29, 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 October 27, 1996.
The factors discussed above resulted in an increase in net income
applicable to common stock of $323,000 or 59.2% to $869,000 for the three months
ended October 27, 1996 from $546,000 in the three months ended October 29,
1995.
NINE MONTHS ENDED OCTOBER 27, 1996 AND OCTOBER 29, 1995.
Net sales of $55.5 million for the nine months ended October 27, 1996
represents an increase of $17.6 million, or 46.7% over net sales of $37.8
million in the nine months ended October 29, 1995. The increase in net sales
is a result of comparable store growth of 11.1% and the opening of eight new
stores since October of 1995. Through October of the current fiscal year, the
Company opened five of the eight new stores, including in March of 1996 a third
store in Atlanta, Georgia, and stores in Baltimore, Maryland and Long Island,
New York, and in September 1996, two stores in the Washington, DC area.
Comparable store sales increased 12.8% in the nine months ended September 29,
1995.
Gross profit increased $3.9 million, or 43.0% to $12.9 million in the nine
months ended October 27, 1996. Gross profit as a percentage of sales decreased
to 23.2% in the nine months ended October 27, 1996 from 23.8% in the nine months
ended October 29, 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, and the Company has lowered its mark-up on specific goods in order to
lower the selling prices and enhance its competitive position.
Selling, general and administrative expenses increased $3.3 million or
53.8%, to $9.4 million in the nine months ended October 27, 1996. Selling,
general and administrative expenses as a percentage of net sales increased to
16.9% in the nine months ended October 27, 1996, from 16.1% in the nine months
ended October 29, 1995. The increase was a result of 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 become a
public company until January 1996.
Operating income was $3.9 million for the nine months ended October 27,
1996 compared to $3.0 million in the nine months ended October 29, 1995.
Operating income as a percentage of net sales decreased to 6.3% in the nine
months ended October 27, 1996 from 7.7% in the nine months ended October 29,
1995.
The factors discussed above resulted in an increase in net income
applicable to common stock of $693,000, or 41.6% to $2,358,000 in the nine
months ended October 27, 1996 from $1,665,000 in the nine months ended October
29, 1995.
8
<PAGE>
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 $19.6 million and $7.8 million at October 27,
1996 and January 28, 1996, respectively. The principal use of working capital is
to purchase inventory. The Company had $11.7 million in cash and cash
equivalents as of October 27, 1996.
The Company's capital expenditures totaled $969,000, and $581,000 in the
nine months ended October 27, 1996 and October 29, 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 October 27, 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 approximately
$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 255,000 additional shares of Common Stock which 127,500
were Company shares.
The Company effected a second public offering on November 11, 1996 and the
transaction closed on November 15, 1996. Pursuant to this offering, the Company
issued an additional 358,850 shares of its common stock at $22.25 per share
and raised approximately $7,446,000 after estimated expenses of this offering.
Subsequent to this offering, the Company has issued and outstanding 6,736,350
shares of its common stock.
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 eight new stores in fiscal 1997, and eight to ten new store
in fiscal 1998. Although management believes that it has carefully planned for
implementation of this store opening expansion program, there can be no
assurance that such openings can be executed as envisioned or that these
openings will not have an adverse effect on the results of operations. The
Company believes that the proceeds of its public offerings, internally generated
funds, cash on hand and its bank credit facility will be adequate to fund its
anticipated needs for the foreseeable future.
9
<PAGE>
K&G Men's Center, Inc. and Subsidiaries
Part II - Other Information
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits - None
(b) Reports on Form 8-K - None
10
<PAGE>
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: December 7, 1996 /s/ Steven H. Greenspan
--------------------------- ----------------------------------------
Stephen H. Greenspan
Chairman of the Board,
President and Chief Executive Officer
(principal executive officer)
Date: December 7, 1996 /s/ John C. Dancu
---------------------------- ----------------------------------------
John C. Dancu
Chief Financial Officer
(principal financial and
accounting officer)
11
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> FEB-02-1997
<PERIOD-START> JAN-29-1996
<PERIOD-END> OCT-27-1996
<CASH> 11,689,000
<SECURITIES> 0
<RECEIVABLES> 1,454,000
<ALLOWANCES> 0
<INVENTORY> 16,786,000
<CURRENT-ASSETS> 31,413,000
<PP&E> 3,259,000
<DEPRECIATION> (1,178,000)
<TOTAL-ASSETS> 33,866,000
<CURRENT-LIABILITIES> 11,808,000
<BONDS> 205,000
0
0
<COMMON> 64,000
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 33,866,000
<SALES> 19,723,000
<TOTAL-REVENUES> 19,723,000
<CGS> 15,119,000
<TOTAL-COSTS> 18,401,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 10,000
<INCOME-PRETAX> 1,454,000
<INCOME-TAX> 566,000
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 869,000
<EPS-PRIMARY> .12
<EPS-DILUTED> 0
</TABLE>
