<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 November 2, 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 (I.R.S. Employer incorporation
of 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, 10,127,482 shares outstanding
as of December 12, 1997.
<PAGE>
K&G Men's Center, Inc. and Subsidiaries
Index to Form 10-Q
November 2, 1997
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
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
2
<PAGE>
K&G MEN'S CENTER, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
February 2, 1997 November 2, 1997
---------------- ----------------
(UNAUDITED)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash & cash equivalents $ 6,440,000 $ 7,912,000
Marketable securities 15,794,000 10,435,000
Accounts receivable 999,000 1,892,000
Merchandise inventory 15,839,000 26,615,000
Other assets 817,000 1,083,000
----------- -----------
Total current assets 39,889,000 47,937,000
PROPERTY AND EQUIPMENT, net 2,131,000 2,717,000
OTHER ASSETS, net 364,000 360,000
Total assets $42,384,000 $51,014,000
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 7,410,000 $12,767,000
Sales tax payable 760,000 774,000
Accrued expenses 1,540,000 1,959,000
Income taxes payable 874,000 219,000
----------- -----------
Total current liabilities 10,584,000 15,719,000
LONG-TERM DEBT 205,000 205,000
MINORITY INTEREST 315,000 298,000
SHAREHOLDERS' EQUITY:
Common stock 101,000 101,000
Additional paid-in capital 25,028,000 25,141,000
Retained earnings 6,151,000 9,550,000
----------- -----------
Total shareholders' equity 31,280,000 34,792,000
Total liabilities and shareholders' equity $42,384,000 $51,014,000
=========== ===========
</TABLE>
See accompanying Condensed Notes to the Financial Statements.
<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 November 2, 1997 October 27, 1996 November 2, 1997
---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
NET SALES $19,723,000 $25,981,000 $55,468,000 $73,265,000
COST OF SALES, including occupancy cost 15,119,000 20,052,000 42,588,000 56,547,000
---------------- ---------------- ---------------- ----------------
GROSS PROFIT 4,604,000 5,929,000 12,880,000 16,718,000
SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES 3,282,000 4,203,000 9,386,000 11,779,000
---------------- ---------------- ---------------- ----------------
OPERATING INCOME 1,322,000 1,726,000 3,494,000 4,939,000
OTHER INCOME (EXPENSES):
Interest expense (10,000) (10,000) (30,000) (28,000)
Other income, net 142,000 263,000 460,000 842,000
---------------- ---------------- ---------------- ----------------
INCOME BEFORE INCOME TAXES AND MINORITY
INTEREST IN EARNINGS OF AFFILIATES 1,454,000 1,979,000 3,924,000 5,753,000
PROVISION FOR INCOME TAXES 566,000 776,000 1,511,000 2,256,000
---------------- ---------------- ---------------- ----------------
INCOME BEFORE MINORITY INTEREST IN
EARNINGS OF AFFILIATES 888,000 1,203,000 2,413,000 3,497,000
MINORITY INTEREST IN EARNINGS
OF AFFILIATES (19,000) (36,000) (55,000) (98,000)
---------------- ---------------- ---------------- ----------------
NET INCOME $ 869,000 $ 1,167,000 $ 2,358,000 $ 3,399,000
================ ================ ================ ================
NET INCOME PER COMMON AND COMMON
EQUIVALENT SHARES $ 0.09 $ 0.12 $ 0.25 $ 0.34
================ ================ ================ ================
WEIGHTED AVERAGE COMMON AND
COMMON EQUIVALENT SHARES OUTSTANDING 9,566,250 10,121,482 9,566,250 10,114,947
================ ================ ================ ================
</TABLE>
See accompanying Condensed Notes to the Financial Statements.
<PAGE>
K&G Men's Center, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
October 27, 1996 November 2, 1997
---------------- ----------------
<S> <C> <C>
Cash Flows from Operating Activities:
Net income $ 2,358,000 $ 3,399,000
Adjustments to reconcile net income to net cash
provided by (used for) operating activities:
Minority interest in earnings (loss) of affiliates 55,000 98,000
Depreciation and amortization 296,000 342,000
Changes in assets and liabilities:
Accounts receivable (726,000) (893,000)
Merchandise inventory (5,638,000) (10,776,000)
Other assets, net (415,000) (266,000)
Accounts payable 4,690,000 5,357,000
Sales tax payable 128,000 14,000
Accrued expenses (26,000) 419,000
Income taxes payable (619,000) (655,000)
----------- ------------
Total adjustments (2,255,000) (6,360,000)
----------- ------------
Net cash provided by (used in)
operating activities 103,000 (2,961,000)
----------- ------------
Cash Flows from Investing Activities:
Additions to property and equipment (969,000) (918,000)
Proceeds from marketable securites 0 10,236,000
Purchase of marketable securities 0 (4,877,000)
Other assets (25,000) (7,000)
----------- ------------
Net cash provided by (used in)
investing activities (994,000) 4,434,000
----------- ------------
Cash Flows from Financing Activities:
Distribution to Minority Investors (55,000) (114,000)
Common stock issued 10,131,000 113,000
----------- ------------
Net cash provided by (used in)
financing activities 10,076,000 (1,000)
----------- ------------
Net Increase in Cash and Cash Equivalents 9,185,000 1,472,000
Cash and Cash Equivalents at Beginning of
Period 2,504,000 6,440,000
----------- ------------
Cash and Cash Equivalents at End of
Period $11,689,000 $ 7,912,000
=========== ============
Supplemental Disclosure of Cash Paid For:
Interest $ 28,000 $ 15,500
=========== ============
Income taxes $ 2,217,000 $ 3,022,000
=========== ============
</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 November 2, 1997 and October 27, 1996, and for the 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. 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 Nine Months Ended
----------------------------- -------------------------
October 27, November 2, October 27, November 2,
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 76.7 77.2 76.8 77.2
----- ------ ----- -----
Gross profit 23.3 22.8 23.2 22.8
Selling, general and administrative expenses 16.6 16.2 16.9 16.1
----- ------ ----- -----
Operating income 6.7 6.6 6.3 6.7
Other income (expenses):
Interest expense (0.1) (0.0) (0.1) (0.1)
Other income, net 0.7 1.0 0.8 1.2
----- ------ ----- -----
Income before income taxes and minority interest
in earnings of affiliates 7.3 7.6 7.0 7.8
Provision for income taxes 2.8 3.0 2.7 3.1
----- ------ ----- -----
Income before minority interest in earnings of affiliates 4.5 4.6 4.3 4.7
Minority interest in earnings of affiliates (0.1) (0.1) (0.1) (0.1)
----- ------ ----- -----
Net income 4.4% 4.5% 4.2% 4.6%
===== ====== ===== =====
</TABLE>
THREE MONTHS ENDED NOVEMBER 2, 1997 AND OCTOBER 27, 1996.
Net sales of $26.0 million for the three month period ended November 2,
1997 represents an increase of $6.3 million, or 31.7% over net sales of $19.7
million in the three month period ended October 27, 1996. The increase in net
sales is a result of comparable store growth of 19.9% and the opening of six new
store since October of 1996. These new stores were all opened in new markets in
Columbus, Ohio in November 1996, Cherry Hill, New Jersey in February 1997,
Cleveland, Ohio in April 1997, Minneapolis, Minnesota in August 1997, Seattle,
Washington in September 1997 and Charlotte, North Carolina in October 1997.
Comparable store growth was 11.1% in the third fiscal quarter of 1996.
Gross profit increased $1.3 million, or 28.8% to $5.9 million in the three
month period ended November 2, 1997. Gross profit as a percentage of sales
decreased to 22.8% in the three month period ended November 2, 1997 from 23.3%
in the three month period ended October 27, 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 $921,000 or 28.1%,
to $4.2 million in the three month period ended November 2, 1997. Selling,
general and administrative expenses as a percentage of net sales decreased to
16.2% in the three month period ended November 2, 1997, from 16.6% in the three
month period ended October 27, 1996. The decrease in selling, general and
administrative expense as a percentage of sales is attributable to the following
factors. Store expenses, for comparable stores, as a percentage of revenue
decreased as the percentage increase in store expenses for comparable stores
was less than the comparable sales increases of 19.9%. Additionally, the
Company had lower levels of payroll as a percentage of sales. These factors
were partially offset by the Company's new stores having a higher level of store
expenses as a percentage of sales.
7
<PAGE>
As a result of the above factors, operating income was $1.7 million for the
three month period ended November 2, 1997 compared to $1.3 million in the three
month period ended October 27, 1996. Operating income as a percentage of net
sales decreased to 6.6% in the three month period ended November 2, 1997 from
6.7% in the three month period ended October 27, 1996.
The factors discussed above resulted in an increase in net income of
$298,000, or 34.3% to $1.2 million for the three month period ended November 2,
1997 from $869,000 in the three month period ended October 27, 1996.
NINE MONTHS ENDED NOVEMBER 2, 1997 AND OCTOBER 27, 1996.
Net sales of $73.3 million for the nine month period ended November 2,
1997 represents an increase of $17.8 million, or 32.1% over net sales of $55.5
million in the nine month period ended October 27, 1996. The increase in net
sales is a result of comparable store growth of 17.6% and the opening of six new
store since October of 1996. These new stores were all opened in new markets in
Columbus, Ohio in November 1996, Cherry Hill, New Jersey in February 1997,
Cleveland, Ohio in April 1997, Minneapolis, Minnesota in August 1997, Seattle,
Washington in September 1997 and Charlotte, North Carolina in October 1997.
Comparable store growth was 11.1% for the nine month period ended October 27,
1996.
Gross profit increased $3.8 million, or 29.8% to $16.7 million in the nine
month period ended November 2, 1997. Gross profit as a percentage of sales
decreased to 22.8% in the nine month period ended November 2, 1997 from 23.2% in
the nine month period ended October 27, 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 $2.4 million or
25.5%, to $11.8 million in the nine month period ended November 2, 1997.
Selling, general and administrative expenses as a percentage of net sales
decreased to 16.1% for the nine month period ended November 2, 1997 from 16.9%
in the nine month period ended October 27, 1996. The decrease in selling,
general and administrative expense as a percentage of sales is attributable to
the following factors. Store expenses, for comparable stores, as a percentage
of revenue decreased as the percentage increase in store expenses for comparable
stores was less that the comparable sales increases of 17.6%. Additionally, the
Company had lower levels of payroll and advertising as a percentage of sales.
These factors were partially offset by the Company's new stores having a higher
level of store expenses as a percentage of sales.
As a result of the above factors, operating income was $4.9 million for the
nine month period ended November 2, 1997 compared to $3.5 million in the nine
month period ended October 27, 1996. Operating income as a percentage of net
sales increased to 6.7% in the nine month periods ended November 2, 1997, from
6.3% in the nine month period ended October 27, 1996.
The factors discussed above resulted in an increase in net income of $1.0
million, or 44.2% to $3.4 million for the nine month period ended November 2,
1997 from $2.4 million in the nine month period ended October 27, 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 $32.2 million and
$29.3 million at November 2, 1997 and February 2, 1997, respectively. The
principal use of working capital is to purchase inventory. The Company had $7.9
million in cash and cash equivalents and $10.4 million in marketable securities
as of November 2, 1997.
The Company's capital expenditures totaled $918,000 and $969,000 in the
nine months ended November 2, 1997 and October 27, 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 November 2, 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 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
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.
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 12, 1997 /s/ Stephen H. Greenspan
------------------- ------------------------
Stephen H. Greenspan
Chairman of the Board,
President and Chief Executive Officer
(principal executive officer)
Date: December 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> AUG-04-1997
<PERIOD-END> NOV-02-1997
<CASH> 7,912,000
<SECURITIES> 10,435,000
<RECEIVABLES> 1,892,000
<ALLOWANCES> 0
<INVENTORY> 26,615,000
<CURRENT-ASSETS> 47,937,000
<PP&E> 4,335,000
<DEPRECIATION> (1,618,000)
<TOTAL-ASSETS> 51,014,000
<CURRENT-LIABILITIES> 15,719,000
<BONDS> 0
0
0
<COMMON> 101,000
<OTHER-SE> 34,691,000
<TOTAL-LIABILITY-AND-EQUITY> 51,014,000
<SALES> 25,981,000
<TOTAL-REVENUES> 25,981,000
<CGS> 20,052,000
<TOTAL-COSTS> 20,052,000
<OTHER-EXPENSES> 4,203,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 10,000
<INCOME-PRETAX> 1,979,000
<INCOME-TAX> 776,000
<INCOME-CONTINUING> 1,167,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,167,000
<EPS-PRIMARY> 0.12
<EPS-DILUTED> 0
</TABLE>
