<PAGE>
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 4, 1997
______________________________________
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 Center, Inc.
________________________________________________________________________________
(Exact name of registrant as specified in its charter)
Georgia 58-1898817
________________________________________________________________________________
(State or other jurisdiction of (I.R.S. Employer incorporation
Identification Number) or organization)
1225 Chattahoochee Avenue, N.W. 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, 10,113,686 shares outstanding as of May 31,
1997.
<PAGE>
K&G Men's Center, Inc. and Subsidiaries
Index to Form 10-Q
May 4, 1997
<TABLE>
<CAPTION>
<S> <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.................... 7-9
Item 3. Quantitative and Qualitative Disclosure about
Market Risk............................................. 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
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<TABLE>
<CAPTION>
K & G Men's Center, Inc. and Subsidiaries
Consolidated Balance Sheets
May 4, 1997 February 2, 1997
----------- ----------------
(Unaudited)
<S> <C> <C>
Assets
CURRENT ASSETS:
Cash & cash equivalents $ 4,578,000 $ 6,440,000
Marketable securities 15,606,000 15,794,000
Accounts receivable 1,628,000 999,000
Merchandise inventory 18,428,000 15,839,000
Other assets 1,972,000 817,000
----------- -----------
Total current assets 42,212,000 39,889,000
PROPERTY AND EQUIPMENT, net 2,210,000 2,131,000
OTHER ASSETS, net 367,000 364,000
Total assets $44,789,000 $42,384,000
=========== ===========
Liabilities and Shareholders' Equity
CURRENT LIABILITIES:
Accounts payable $ 8,795,000 $ 7,410,000
Sales tax payable 684,000 760,000
Accrued expenses 1,495,000 1,540,000
Income taxes payable 773,000 874,000
----------- -----------
Total current liabilities 11,747,000 10,584,000
LONG-TERM DEBT 205,000 205,000
MINORITY INTEREST 350,000 315,000
SHAREHOLDERS' EQUITY:
Common stock 101,000 101,000
Additional paid-in capital 25,089,000 25,028,000
Retained earnings 7,297,000 6,151,000
----------- -----------
Total shareholders' equity 32,487,000 31,280,000
Total liabilities and shareholders' equity $44,789,000 $42,384,000
=========== ===========
</TABLE>
See accompanying Condensed Notes to the Financial Statements.
3
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K&G Men's Center, Inc. and Subsidiaries
Consolidated Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
-------------------------------
May 4, 1997 April 28, 1996
-------------- ---------------
<S> <C> <C>
NET SALES $23,742,000 $17,528,000
COST OF SALES, including occupancy cost 18,290,000 13,405,000
-------------- ---------------
GROSS PROFIT 5,452,000 4,123,000
SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES 3,792,000 3,003,000
-------------- ---------------
OPERATING INCOME 1,660,000 1,120,000
OTHER INCOME (EXPENSES):
Interest expense (9,000) (11,000)
Other income, net 292,000 172,000
-------------- ---------------
INCOME BEFORE INCOME TAXES AND MINORITY
INTEREST IN EARNINGS OF AFFILIATES 1,943,000 1,281,000
PROVISION FOR INCOME TAXES 762,000 490,000
-------------- ---------------
INCOME BEFORE MINORITY INTEREST IN
EARNINGS OF AFFILIATES 1,181,000 791,000
MINORITY INTEREST IN EARNINGS
OF AFFILIATES (35,000) (22,000)
-------------- ---------------
NET INCOME APPLICABLE TO COMMON STOCK $1,146,000 $769,000
============== ===============
NET INCOME PER COMMON AND COMMON
EQUIVALENT SHARES $0.11 $0.08
============== ===============
WEIGHTED AVERAGE COMMON AND
COMMON EQUIVALENT SHARES OUTSTANDING
10,105,319 9,566,250
============== ===============
</TABLE>
See accompanying Condensed Notes to the Financial Statements.
4
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K&G Men's Center, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
May 4, 1997 April 28, 1996
-------------- ---------------
<S><C> <C> <C>
Cash Flows from Operating Activities:
Net income $1,146,000 $769,000
Adjustments to reconcile net income to net cash
provided by (used for) operating activities:
Minority interest in earnings (loss) of affiliates 35,000 22,000
Depreciation and amortization 117,000 96,000
Changes in assets and liabilities:
Accounts receivable (629,000) (294,000)
Merchandise inventory (2,589,000) (3,299,000)
Other assets, net (1,155,000) 121,000
Accounts payable 1,385,000 2,964,000
Sales tax payable (76,000) 259,000
Accrued expenses (45,000) (485,000)
Income taxes payable (101,000) (192,000)
-------------- ---------------
Total adjustments (3,058,000) (808,000)
-------------- ---------------
Net cash used in operating
activities (1,912,000) (39,000)
-------------- ---------------
Cash Flows from Investing Activities:
Additions to property and equipment (192,000) (546,000)
Proceeds from marketable securites 3,688,000 0
Purchase of marketable securities (3,500,000) 0
Other assets (7,000) (24,000)
-------------- ---------------
Net cash used in investing
activities (11,000) (570,000)
-------------- ---------------
Cash Flows from Financing Activities:
Common stock issued 61,000 10,131,000
-------------- ---------------
Net cash provided by financing
activities 61,000 10,131,000
-------------- ---------------
Net Increase in Cash and Cash Equivalents (1,862,000) 9,522,000
Cash and Cash Equivalents at Beginning of
Period 6,440,000 2,504,000
-------------- ---------------
Cash and Cash Equivalents at End of
Period $4,578,000 $12,026,000
============== ===============
Supplemental Disclosure of Cash Paid For:
Interest $2,000 $11,000
============== ===============
Income taxes $864,000 $664,000
============== ===============
</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 May 4, 1997 and April 28, 1996, and for the three 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. EFFECT OF NEW ACCOUNTING STANDARDS
In February 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings per
Share." This statement establishes new standards for computing and presenting
earnings per share ("EPS") information. SFAS No. 128 simplifies the computation
of earnings per share currently required by Accounting Principles Board Opinion
No. 15 and its related interpretations. The new statement replaces the
presentation of "primary" (and when required "fully diluted") earnings per share
with "basic" and "diluted" earnings per share. This new statement is effective
for financial statements issued for periods ending after December 15, 1997,
including interim periods; and early application is not permitted. The
Company's earnings per share calculated under SFAS No. 128 is not expected to be
materially different that the earnings per share reported.
6
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Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
GENERAL
During the three months ended May 4, 1997, the Company opened two new
superstores, entering new markets in Cleveland, Ohio, and Cherry Hill, New
Jersey, a suburb of metropolitan Philadelphia.
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
May 4, April 28,
1997 1996
<S> <C> <C>
Net sales 100.0% 100.0%
Cost of sales, including occupancy cost 77.0 76.5
----- -----
Gross profit 23.0 23.5
Selling, general and administrative 16.0 17.1
expenses ----- -----
Operating income 7.0 6.4
Other income (expenses):
Interest expense (0.0) (0.1)
Other income, net 1.2 1.0
----- -----
Income before income taxes and minority
interest in earnings of affiliates 8.2 7.3
Provision for income taxes 3.2 2.8
----- -----
Income before minority interest in
earnings of affiliates 5.0 4.5
Minority interest in earnings of (0.2) (0.1)
affiliates ----- -----
Net income applicable to common stock 4.8% 4.4%
===== =====
</TABLE>
Net sales of $23.7 million for the three month period ended May 4,1997
represents an increase of $6.2 million, or 35.5% over net sales of $17.5
million for the three month period ended April 28, 1996. The increase in net
sales is a result of comparable store growth of 17.7% and the opening of five
new superstores since May of 1996. Two of the five new stores were opened in
the Washington, D.C., area in September of 1996, and the remaining three stores
were opened in new markets in Columbus Ohio, in November 1996, Cherry Hill, New
Jersey, a suburb of Philadelphia, in February 1997, and Cleveland, Ohio in April
1997. Comparable store sales increased 11.9% in the first fiscal quarter of
1996.
Gross profit increased $1.3 million, or 32.2% to $5.5 million in the three
month period ended May 4, 1997. Gross profit as a percentage of sales decreased
to 23.0% in the three month period ended May 4, 1997 from 23.5% in the three
month period ended April 28, 1996. The decrease in gross margin as a percentage
of sales is due to the Company lowering its mark-up on specific goods in order
to lower its selling prices and to enhance its competitive position, and the new
stores having a higher occupancy cost as a percentage of sales and a lower
initial gross margin.
Selling, general and administrative expenses increased $789,000 or 26.3%,
to $3.8 million in the three month period ended May 4, 1997. Selling, general
and administrative expenses as a percentage of net sales decreased to 16.0% in
the three month period ended May 4, 1997, from 17.1% for the three month
7
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period ended April 28, 1996. The decrease in selling, general and administrative
expenses as a percentage of sales is primarily attributable to a lower level
advertising as a percentage of sales and a lower level of pre-opening expenses
as a percentage of sales both of which are due to the timing of new store grand
openings.
As a result of the above factors, operating income was $1.7 million for the
three month period ended May 4, 1997 compared to $1.1 million in the three
month period ended April 28, 1996. Operating income as a percentage of net
sales increased to 7.0% in the three month period ended May 4, 1997 from 6.4%
in the three month period ended April 28, 1996.
The factors discussed above resulted in an increase in net income to $1.1
million for the three month period ended May 4, 1997 from $769,000 in the three
month period ended April 28, 1996.
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 proceeds from the sale of equity securities, net
cash provided by operating activities and through borrowings from related
parties and under its bank credit facilities. The Company had working capital of
$30.5 million and $29.3 million at May 4, 1997 and February 2, 1997,
respectively. The principal use of working capital is to purchase inventory. The
Company had $4.6 million in cash and cash equivalents, and $15.6 million in
marketable securities as of May 4, 1997.
The Company's capital expenditures totaled $192,000, and $546,000 in the
three month periods ended May 4, 1997 and April 28, 1996, 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 May 4, 1997, K&G had no debt outstanding on this facility.
The Company effected its initial public offering on January 24, 1996 and
the transaction closed on January 30, 1996. The Company issued approximately
1,691,250 shares of its common stock at $6.67 per share and raised approximately
$10,132,000 after estimated 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 538,275 shares of its
8
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common stock at $14.83 per share and raised approximately $7,446,000 after
estimated expenses of the offering.
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 an additional six stores in the remainder of fiscal 1997 and
eight to ten new stores in fiscal 1998. The Company believes that the proceeds
of its offerings, internally generated funds, cash on hand and its bank credit
facility will be adequate to fund its anticipated needs for the foreseeable
future. The success of this planned expansion strategy is dependent upon many
factors, including identifying suitable markets and sites for new stores. In
addition, the Company must be able to continue to hire, train and retain
competent managers and store personnel. The failure of the Company in these
areas could adversely affect its planned expansion strategy.
"SAFE HARBOR" STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM
ACT OF 1995: Certain of the statements contained in the body of this Report are
forward-looking statements (rather than historical facts) that are subject to
risks and uncertainties that could cause actual results to differ materially
from those described in the forward-looking statements. Such forward-looking
statements are typically identified by statements to the effect that the
Company "believes," "estimates," "intends," "expects," or "anticipates" a
certain state of affairs. In the preparation of this Report, where such
forward-looking statements appear, the Company has sought to accompany such
statements with meaningful cautionary statements identifying important factors
that could cause actual results to differ materially from those described in the
forward-looking statements.
Item 3. Quantitative and Qualitative Disclosure about Market Risk.
None.
9
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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
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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: June 6, 1997 /s/ Stephen H. Greenspan
------------------- ------------------------------------------------
Stephen H. Greenspan
Chairman of the Board,
President and Chief Executive Officer
(principal executive officer)
Date: June 6, 1997 /s/ John C. Dancu
------------------- ------------------------------------------------
John C. Dancu
Chief Operation and Financial Officer (principal
financial and accounting officer)
11
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> FEB-01-1998
<PERIOD-START> FEB-03-1997
<PERIOD-END> MAY-04-1997
<CASH> 4,578,000
<SECURITIES> 15,606,000
<RECEIVABLES> 1,628,000
<ALLOWANCES> 0
<INVENTORY> 18,428,000
<CURRENT-ASSETS> 42,212,000
<PP&E> 3,610,000
<DEPRECIATION> (1,400,000)
<TOTAL-ASSETS> 44,789,000
<CURRENT-LIABILITIES> 11,747,000
<BONDS> 0
0
0
<COMMON> 101,000
<OTHER-SE> 32,386,000
<TOTAL-LIABILITY-AND-EQUITY> 44,789,000
<SALES> 23,742,000
<TOTAL-REVENUES> 23,742,000
<CGS> 18,290,000
<TOTAL-COSTS> 18,290,000
<OTHER-EXPENSES> 3,792,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 9,000
<INCOME-PRETAX> 1,943,000
<INCOME-TAX> 762,000
<INCOME-CONTINUING> 1,146,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,146,000
<EPS-PRIMARY> 0.11
<EPS-DILUTED> 0
</TABLE>
