<PAGE>
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 August 3, 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, 10,121,482 shares outstanding as of September
12, 1997.
<PAGE>
K&G Men's Center, Inc. and Subsidiaries
Index to Form 10-Q
August 3, 1997
<TABLE>
<CAPTION>
Part I. Financial Information
<S> <C> <C> <C>
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
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
<PAGE>
K&G MEN'S CENTER, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
February 2, 1997 August 3, 1997
------------------ ---------------
(UNAUDITED)
ASSETS
<S> <C> <C>
CURRENT ASSETS:
Cash & cash equivalents $ 6,440,000 $ 5,379,000
Marketable securities 15,794,000 13,402,000
Accounts receivable 999,000 1,352,000
Merchandise inventory 15,839,000 20,290,000
Other assets 817,000 1,289,000
------------------ -------------
Total current assets 39,889,000 41,712,000
PROPERTY AND EQUIPMENT, net 2,131,000 2,270,000
OTHER ASSETS, net 364,000 364,000
------------------ -------------
Total assets $42,384,000 $44,346,000
================== =============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 7,410,000 $ 7,850,000
Sales tax payable 760,000 498,000
Accrued expenses 1,540,000 1,716,000
Income taxes payable 874,000 196,000
------------------ -------------
Total current liabilities 10,584,000 10,260,000
LONG-TERM DEBT 205,000 205,000
MINORITY INTEREST 315,000 262,000
SHAREHOLDERS' EQUITY:
Common stock 101,000 101,000
Additional paid-in capital 25,028,000 25,135,000
Retained earnings 6,151,000 8,383,000
------------------ -------------
Total shareholders' equity 31,280,000 33,619,000
------------------ -------------
Total liabilities and shareholders' equity $42,384,000 $44,346,000
================== =============
</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 Six Months Ended
------------------------------------- -------------------------------
July 28,1996 August 3,1997 July 28,1996 August 3,1997
--------------------- --------------- ---------------- -------------
<S> <C> <C> <C> <C>
NET SALES $18,217,000 $23,542,000 $35,745,000 $47,284,000
COST OF SALES, including occupancy cost 14,064,000 18,205,000 27,469,000 36,495,000
--------------------- ------------ ------------- -----------
GROSS PROFIT 4,153,000 5,337,000 8,276,000 10,789,000
SELLING, GENERAL, AND ADMINISTRATIVE
EXPENSES 3,101,000 3,784,000 6,104,000 7,576,000
--------------------- ------------ ------------- -----------
OPERATING INCOME 1,052,000 1,553,000 2,172,000 3,213,000
OTHER INCOME (EXPENSES):
Interest expense (9,000) (9,000) (20,000) (18,000)
Other income, net 146,000 286,000 318,000 578,000
--------------------- ------------ ------------- -----------
INCOME BEFORE INCOME TAXES AND MINORITY
INTEREST IN EARNINGS OF AFFILIATES 1,189,000 1,830,000 2,470,000 3,773,000
PROVISION FOR INCOME TAXES 455,000 718,000 945,000 1,480,000
--------------------- ------------ ------------- -----------
INCOME BEFORE MINORITY INTEREST IN
EARNINGS OF AFFILIATES 734,000 1,112,000 1,525,000 2,293,000
MINORITY INTEREST IN EARNINGS
OF AFFILIATES (14,000) (26,000) (36,000) (61,000)
--------------------- ------------ ------------- -----------
NET INCOME APPLICABLE TO COMMON STOCK $ 720,000 $ 1,086,000 $ 1,489,000 $ 2,232,000
===================== ============ ============= ===========
NET INCOME PER COMMON AND COMMON
EQUIVALENT SHARES $0.08 $0.11 $0.16 $0.22
===================== ============ ============= ===========
WEIGHTED AVERAGE COMMON AND
COMMON EQUIVALENT SHARES OUTSTANDING 9,566,250 10,118,063 9,566,250 10,111,681
===================== ============ ============= ===========
</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>
Six Months Ended
July 28, 1996 August 3, 1997
------------------ ------------------
<S> <C> <C>
Cash Flows from Operating Activities:
Net income $ 1,489,000 $ 2,232,000
Adjustments to reconcile net income to net cash
provided by (used for) operating activities:
Minority interest in earnings (loss) of affiliates 36,000 61,000
Depreciation and amortization 196,000 225,000
Changes in assets and liabilities:
Accounts receivable (143,000) (353,000)
Merchandise inventory (2,406,000) (4,451,000)
Other assets, net (102,000) (472,000)
Accounts payable (929,000) 440,000
Sales tax payable (142,000) (262,000)
Accrued expenses (228,000) 176,000
Income taxes payable (619,000) (678,000)
----------------- ---------------
Total adjustments (4,337,000) (5,314,000)
----------------- ---------------
Net cash used in operating
activities (2,848,000) (3,082,000)
----------------- ---------------
Cash Flows from Investing Activities:
Additions to property and equipment (611,000) (356,000)
Proceeds from marketable securites 0 6,270,000
Purchase of marketable securities 0 (3,879,000)
Other assets (210,000) (7,000)
----------------- ---------------
Net cash used in investing
activities (821,000) 2,028,000
----------------- ---------------
Cash Flows from Financing Activities:
Distribution to Minority Investors (55,000) (114,000)
Common stock issued 10,131,000 107,000
----------------- ---------------
Net cash provided by financing
activities 10,076,000 (7,000)
----------------- ---------------
Net Increase in Cash and Cash Equivalents 6,407,000 (1,061,000)
Cash and Cash Equivalents at Beginning of
Period 2,504,000 6,440,000
----------------- ---------------
Cash and Cash Equivalents at End of
Period $ 8,911,000 $ 5,379,000
================= ===============
Supplemental Disclosure of Cash Paid For:
Interest $ 19,000 $ 14,800
================= ===============
Income taxes $ 491,000 $ 2,270,000
================= ===============
</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 August 3, 1997 and July 28, 1996, and for the six 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 than the earnings per share reported.
6
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
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 Six Months Ended
-------------------- --------------------
July 28, August 3, July 28, August 3,
1996 1997 1996 1997
-------- -------- -------- ---------
<S> <C> <C> <C> <C>
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of sales, including occupancy cost 77.2 77.3 76.8 77.2
----- ----- ----- -----
Gross profit 22.8 22.7 23.2 22.8
Selling, general and administrative 17.0 16.1 17.1 16.0
expenses ----- ----- ----- -----
Operating income 5.8 6.6 6.1 6.8
Other income (expenses):
Interest expense (0.1) (0.1) (0.1) (0.1)
Other income, net 0.8 1.2 0.9 1.2
----- ----- ----- -----
Income before income taxes and minority
interest in earnings of affiliates 6.5 7.7 6.9 7.9
Provision for income taxes 2.5 3.0 2.6 3.1
----- ----- ----- -----
Income before minority interest in
earnings of affiliates 4.0 4.7 4.3 4.8
Minority interest in earnings of affiliates (0.1) 0.1 (0.1) 0.1
----- ----- ----- -----
Net income 3.9% 4.6% 4.2% 4.7%
===== ===== ===== =====
</TABLE>
THREE MONTHS ENDED AUGUST 3, 1997 AND JULY 28, 1996.
Net sales of $23.5 million for the three month period ended August 3, 1997
represents an increase of $5.3 million, or 29.2% over net sales of $18.2 million
in the three month period ended July 28, 1996. The increase in net sales is a
result of comparable store growth of 15.0% and the opening of five new store
since July 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 growth was 10.3% in the second fiscal quarter of 1996.
Gross profit increased $1.2 million, or 28.5% to $5.3 million in the three
month period ended August 3, 1997. Gross profit as a percentage of sales
decreased to 22.7% in the three month period ended August 3, 1997 from 22.8% in
the three month period ended July 28, 1996. The decrease in gross margin as a
percentage of sales is primarily due to the Company's new stores having a higher
occupancy cost as a percentage of sales and a lower initial gross margin.
Selling, general and administrative expenses increased $700,000 or 22.0%,
to $3.8 million in the three month period ended August 3, 1997. Selling, general
and administrative expenses as a percentage of net sales decreased to 16.1% in
the three month period ended August 3, 1997, from 17.0% in the three month
period ended July 28, 1996. The decrease in selling, general and administrative
expense as a percentage of sales is primarily attributable to lower levels of
advertising and payroll as a percentage of sales as the Company had strong
comparable store sales, while its store expenses in comparable stores remained
relatively stable.
As a result of the above factors, operating income was $1.6 million for the
three month period ended August 3, 1997 compared to $1.1 million in the three
month period ended July 28, 1996. Operating income as a percentage of net
7
<PAGE>
sales increased to 6.6% in the three month period ended August 3, 1997 from 5.8%
in the three month period ended July 28, 1996.
The factors discussed above resulted in an increase in net income
applicable to common stock of $366,000, or 50.8% to $1.1 million for the three
month period ended August 3, 1997 from $720,000 in the three month period ended
July 28, 1996.
SIX MONTHS ENDED AUGUST 3, 1997 AND JULY 28, 1996.
Net sales of $47.3 million for the six month period ended August 3, 1997
represents an increase of $11.5 million, or 32.3% over net sales of $35.7
million in the six month period ended July 28, 1996. The increase in net sales
is a result of comparable store growth of 16.2% and the opening of five new
store since July 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 growth was 11.1% in the six month period ended July 28,
1996.
Gross profit increased $2.5 million, or 30.4% to $10.8 million in the six
month period ended August 3, 1997. Gross profit as a percentage of sales
decreased to 22.8% in the six month period ended August 3, 1997 from 23.2% in
the six month period ended July 28, 1996. The decrease in gross margin as a
percentage of sales is primarily due to the Company lowering its margin 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 $1.5 million or
24.1%, to $7.6 million in the six month period ended August 3, 1997. Selling,
general and administrative expenses as a percentage of net sales decreased to
16.0% in the six month period ended August 3, 1997, from 17.1% in the six month
period ended July 28, 1996. The decrease in selling, general and administrative
expense as a percentage of sales is primarily attributable to lower pre-
opening expenses as a percentage of sales, a lower level of advertising and
payroll as a percentage of sales as the Company had strong comparable store
sales in the six months. Additionally, the Company opened two stores in the six
month period ended August 3, 1997 compared to three stores in the six month
period ended July 28, 1996. New stores typically have a higher level of selling
and administrative expenses as a percentage of sales compared to existing
stores.
As a result of the above factors, operating income was $3.2 million for the
six month period ended August 3, 1997 compared to $2.2 million in the three
month period ended July 28, 1996. Operating income as a percentage of net sales
increased to 6.8% in the six month period ended August 3, 1997 from 6.1% in the
six month period ended July 28, 1996.
The factors discussed above resulted in an increase in net income
applicable to common stock of $743,000, or 49.9% to $2.2 million for the six
month period ended August 3, 1997 from $1.5 million in the six month period
ended July 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.
8
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Company has historically funded its working capital and capital
expenditure requirements from the sale of equity securities, net cash provided
by operating activities, through borrowings from related parties and under its
bank credit facilities. The Company had working capital of $31.5 million and
$29.3 million at August 3, 1997 and February 2, 1997, respectively. The
principal use of working capital is to purchase inventory. The Company had $5.4
million in cash and cash equivalents and $13.4 million in marketable securities
as of August 3, 1997.
The Company's capital expenditures totaled $356,000 and $611,000 in the six
months ended August 3, 1997 and July 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 August 3, 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 common stock a $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 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. 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
<PAGE>
K&G Men's Center, Inc.
Part II - Other Information
Item 4. Submission of Matters to a Vote of Security Holders
One June 6, 1997, the Company held its 1997 Annual Meeting of
Shareholders. The shareholders of record approved the following matters at the
meeting:
1. Elected Mr. W. Scott Miller as a member of the Company's Board of Directors
as a Class II director to serve a three-year term expiring in 2000 in
accordance with the Company's Articles of Incorporation, with the following
votes: 9,734,423 for, 11,719 abstentions;
2. Elected Mr. John C. Dancu as a member of the Company's Board of Directors
as a Class II director to serve a three-year term expiring in 2000 in
accordance with the Company's Articles of Incorporation, with the following
votes: 9,732,923 for, 13,219 abstentions;
3. Ratified the appointment of Arthur Andersen LLP by the Board of Directors
of the Company as the independent auditors of the Company, with the
following votes: 9,736,997 for, 3,600 against, 5,565 abstentions.
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.
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: September 12, 1997 /s/ Stephen H. Greenspan
------------------- --------------------------------------
Stephen H. Greenspan
Chairman of the Board,
President and Chief Executive Officer
(principal executive officer)
Date: September 12, 1997 /s/ John C. Dancu
------------------- -------------------------------------
John C. Dancu
Chief Operating 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> MAY-05-1997
<PERIOD-END> AUG-03-1997
<CASH> 5,379,000
<SECURITIES> 13,402,000
<RECEIVABLES> 1,352,000
<ALLOWANCES> 0
<INVENTORY> 20,290,000
<CURRENT-ASSETS> 41,712,000
<PP&E> 3,774,000
<DEPRECIATION> (1,504,000)
<TOTAL-ASSETS> 44,346,000
<CURRENT-LIABILITIES> 10,260,000
<BONDS> 0
0
0
<COMMON> 101,000
<OTHER-SE> 33,518,000
<TOTAL-LIABILITY-AND-EQUITY> 44,346,000
<SALES> 23,542,000
<TOTAL-REVENUES> 23,542,000
<CGS> 18,205,000
<TOTAL-COSTS> 18,205,000
<OTHER-EXPENSES> 3,784,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 9,000
<INCOME-PRETAX> 1,830,000
<INCOME-TAX> 718,000
<INCOME-CONTINUING> 1,112,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,086,000
<EPS-PRIMARY> 0.11
<EPS-DILUTED> 0
</TABLE>
