<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 3, 1998
--------------------------------
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 or organization)
Identification Number)
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, 10,142,420 shares outstanding as of May
28, 1998.
<PAGE>
K&G MEN'S CENTER, INC. AND SUBSIDIARIES
INDEX TO FORM 10-Q
MAY 3, 1998
<TABLE>
Part I. Financial Information
<S> <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 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 1, 1998 May 3, 1998
---------------- -----------
(unaudited)
-----------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash & cash equivalents $ 3,631,000 $ 5,889,000
Marketable securities 17,678,000 13,233,000
Accounts receivable 1,435,000 1,895,000
Merchandise inventory 20,948,000 27,497,000
Other assets 869,000 1,170,000
-------------- -------------
Total current assets 44,561,000 49,684,000
PROPERTY AND EQUIPMENT, net 2,927,000 3,960,000
OTHER ASSETS, net 443,000 450,000
-------------- -------------
Total assets $47,931,000 $54,094,000
============== =============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 5,432,000 $10,567,000
Sales tax payable 863,000 908,000
Accrued expenses 1,880,000 1,471,000
Income taxes payable 1,361,000 505,000
-------------- -------------
Total current liabilities 9,536,000 13,451,000
-------------- -------------
LONG-TERM DEBT 205,000 205,000
-------------- -------------
MINORITY INTEREST 373,000 413,000
-------------- -------------
SHAREHOLDERS' EQUITY:
Common stock 101,000 102,000
Additional paid-in capital 25,182,000 26,067,000
Retained earnings 12,534,000 13,856,000
-------------- -------------
Total shareholders' equity 37,817,000 40,025,000
-------------- -------------
Total liabilities and shareholders' equity $47,931,000 $54,094,000
============== =============
</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
--------------------------------------------------
May 4, 1997 May 3, 1998
----------------------- --------------------
<S> <C> <C>
NET SALES $23,742,000 $30,309,000
COST OF SALES, including occupancy cost 18,290,000 23,428,000
----------------------- --------------------
GROSS PROFIT 5,452,000 6,881,000
SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES 3,792,000 4,937,000
----------------------- --------------------
OPERATING INCOME 1,660,000 1,944,000
OTHER INCOME (EXPENSES):
Interest expense (9,000) (9,000)
Other income, net 292,000 306,000
----------------------- --------------------
INCOME BEFORE INCOME TAXES AND MINORITY
INTEREST IN EARNINGS OF AFFILIATES 1,943,000 2,241,000
PROVISION FOR INCOME TAXES 762,000 879,000
----------------------- --------------------
INCOME BEFORE MINORITY INTEREST IN
EARNINGS OF AFFILIATES 1,181,000 1,362,000
MINORITY INTEREST IN EARNINGS
OF AFFILIATES (35,000) (40,000)
----------------------- --------------------
NET INCOME APPLICABLE TO COMMON STOCK $ 1,146,000 $ 1,322,000
======================= ====================
BASIC EARNING PER SHARE $ 0.11 $ 0.13
======================= ====================
DILUTED EARNING PER SHARE $ 0.11 $ 0.13
======================= ====================
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING 10,105,319 10,132,453
======================= ====================
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING ASSUMING DILUTION 10,166,940 10,157,679
======================= ====================
</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>
Three Months Ended
May 4, 1997 May 3, 1998
----------- -----------
<S> <C> <C>
Cash Flows from Operating Activities:
Net income $ 1,146,000 $ 1,322,000
Adjustments to reconcile net income to net cash
provided by (used for) operating activities:
Minority interest in earnings of affiliates 35,000 40,000
Depreciation and amortization 117,000 152,000
Changes in assets and liabilities:
Accounts receivable (629,000) (460,000)
Merchandise inventory (2,589,000) (6,549,000)
Other assets, net (1,155,000) (301,000)
Accounts payable 1,385,000 5,135,000
Sales tax payable (76,000) 45,000
Accrued expenses (45,000) (409,000)
Income taxes payable (101,000) (70,000)
----------- -----------
Total adjustments (3,058,000) (2,417,000)
----------- -----------
Net cash used in operating
activities (1,912,000) (1,095,000)
----------- -----------
Cash Flows from Investing Activities:
Additions to property and equipment (192,000) (1,180,000)
Sale of marketable securities 3,688,000 12,300,000
Purchase of marketable securities (3,500,000) (7,855,000)
Other assets (7,000) (11,000)
----------- -----------
Net cash (used in) provided by
investing activities (11,000) 3,254,000
----------- -----------
Cash Flows from Financing Activities:
Common stock issued 61,000 99,000
----------- -----------
Net cash provided by financing
activities 61,000 99,000
----------- -----------
Net (Decrease) Increase in Cash and Cash Equivalents (1,862,000) 2,258,000
Cash and Cash Equivalents at Beginning of Period 6,440,000 3,631,000
----------- -----------
Cash and Cash Equivalents at End of Period $ 4,578,000 $ 5,889,000
=========== ===========
Supplemental Disclosure of Cash Paid For:
Interest $ 2,000 $ 12,000
=========== ===========
Income taxes $ 864,000 $ 948,000
=========== ===========
</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 3, 1998 and May 4, 1997, 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. EARNINGS PER SHARE
Effective February 3, 1997, the Company Adopted Statement of Financial
Accounting Standards ("SFAS") No. 128, "Earnings Per Share", which establishes
new standards for computing and presenting earnings per share ("EPS")
information. The adoption of SFAS 128 did not have a material effect on the
Company's currently or previously reported earnings per share.
Basic earnings per share was computed by dividing net income by the
weighted average number of shares of common stock outstanding during the year.
Diluted earnings per share for the three months ended May 3, 1998 and May 4,
1997 were determined on the assumption that the net weighted average outstanding
stock options granted under the Company's plans (the Company's only potentially
dilutive shares) of 25,226 and 61,621 shares, respectively, had been exercised
on May 3, 1998 and May 4, 1997, respectively. Such calculations were not
dilutive to earnings for the periods presented.
6
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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
-------------------------------
May 4, May 3,
1997 1998
------- -------
<S> <C> <C>
Net sales 100.0% 100.0%
Cost of sales, including occupancy cost 77.0 77.3
----- -----
Gross profit 23.0 22.7
Selling, general and administrative expenses 16.0 16.3
----- -----
Operating income 7.0 6.4
Other income (expenses):
Interest expense (0.0) (0.0)
Other income, net 1.2 1.0
----- -----
Income before income taxes and minority interest
in earnings of affiliates 8.2 7.4
Provision for income taxes 3.2 2.9
----- -----
Income before minority interest in earnings of
affiliates 5.0 4.5
Minority interest in earnings of affiliates (0.2) (0.1)
----- -----
Net income 4.8% 4.4%
===== =====
</TABLE>
Net sales of $30.3 million for the three months ended May 3,1998
represents an increase of $6.6 million, or 27.7% over net sales of $23.7
million for the three months ended May 4, 1997. On a comparable store basis,
net sales increased 8.8% for the three months ended May 3, 1998, compared to
11.9% for the three months ended May 4, 1997. The increase in net sales is a
result of the Company's strong comparable store sales and the opening of three
new stores during the three months ended May 3, 1998 and store openings that
occurred in 1997. One of the new stores was opened in Philadelphia in March
1998 and the other two stores were opened in Houston in April 1998.
Gross profit increased $1.4 million, or 26.2% to $6.9 million for the three
months ended May 3, 1998. Gross profit as a percentage of sales decreased to
22.7% for the three months ended May 3, 1998 from 23.0% for the three months
ended May 4, 1997. The decrease in gross profit, as a percentage of sales, is
mainly due to the Company's new stores having a higher occupancy cost as a
percentage of net sales.
Selling, general and administrative expenses increased $1.1 million or
30.2%, to $4.9 million for the three months ended May 3, 1998. Selling, general
and administrative expenses as a percentage of net sales increased to 16.3% for
the three months ended May 3, 1998, from 16.0% for the three months ended May 4,
1997. The increase in selling, general and administrative expenses as a
percentage of net sales is due to increased advertising cost as a percentage of
net sales due to new store openings partially offset by a decrease in payroll
cost as a percentage of net sales. In addition, store opening costs were higher
as a percentage of net sales as the Company opened three stores in the three
months ended May 3,
7
<PAGE>
1998 compared to two stores in the three months ended May 4, 1997. Store
opening cost is expensed in the quarter in which the store is opened.
Operating income increased to $1.9 million for the three months ended May
3, 1998 compared to $1.7 million for the three months ended May 4, 1997.
Operating income as a percentage of net sales decreased to 6.4% for the three
months ended May 3, 1998 from 7.0% for the three months ended May 4, 1997.
The factors discussed above resulted in an increase in net income to $1.3
million for the three months ended May 3, 1998 from $1.1 million for the three
months ended May 4, 1997.
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
$36.2 million and $35.0 million at May 3, 1998 and February 1, 1998,
respectively. The principal use of working capital is to purchase inventory. The
Company had $19.1 million in cash and marketable securities as of May 3, 1998.
The Company's capital expenditures totaled $1,180,000, and $192,000 for the
three months ended May 3, 1998 and May 4, 1997, 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,
2000, 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 3, 1998, K&G had no debt outstanding on this facility.
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
intends to open an additional seven stores in the remainder of fiscal 1998 and
10 to 12 new stores in fiscal 1999. In addition, the Company will spend
approximately $1.5 million on its point-of-sale and management information
systems over the next year. The Company believes that the proceeds of its
securities offerings, internally generated funds, existing
8
<PAGE>
cash balances and its bank credit facility will be adequate to fund its
anticipated needs for the foreseeable future.
The Company has completed a preliminary evaluation of its management
information systems to determine their readiness in terms of Year 2000 issues,
and has determined that its point-of-sale cash register systems are the only
application that will require significant modification in order to be Year 2000
ready. The Company has developed a plan to replace its current registers with a
new PC-based register system. The costs to purchase and implement these
register systems are estimated to total approximately $1.5 million. Under the
Company's plan, the PC registers will be fully implemented and operational at
all of its store locations prior to December 31, 1999. The Company does not
believe that the costs to modify any of its other current systems to be Year
2000 ready will be material to its financial condition or results of operations.
However, the Company does not currently have any information concerning the Year
2000 readiness of its suppliers or other third parties with which the Company
conducts business, and in the event that any of the Company's significant
suppliers or other third parties with which the Company conducts business do not
successfully and timely achieve Year 2000 readiness, the Company's business or
operations could be adversely affected.
"SAFE HARBOR" STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF
1995:
Certain statements contained in the body of this Report are "forward-
looking statements" within the meaning of the Reform Act. When used herein, the
words "anticipates," "intends," "plans," "believes," "estimates," "expects" and
similar expressions are intended to identify forward-looking statements. Such
forward-looking statements involve known and unknown risks and uncertainties,
and other factors that may cause the actual results, performance or achievements
of the Company to be materially different from any future results, performance
or achievements expressed or implied by such forward-looking statements. Such
factors include, but are not limited to, (i) the youth of the Company's store
base; (ii) risks related to the Company's expansion strategy; (iii) potential
inability to sustain comparable store sales growth; (iv) merchandise and market
trends; (v) vendor relationships; (vi) reliance on key personnel and (vii) the
impact of economic conditions. These and other factors affecting the Company's
future performance are further detailed in publicly available reports filed from
time to time by the Company with the Securities and Exchange Commission, such as
the Company's Annual Report on Form 10-K for the fiscal year ended February 1,
1998. Further, any forward-looking statements speaks only as of the date on
which such statement is made, and the Company undertakes no obligation to update
any forward-looking statement or statements to reflect events or circumstances
after the date on which such statement is made or to reflect the occurrence of
unanticipated events. New factors emerge from time to time, and it is not
possible for management to predict all of such factors. Further, management
cannot assess the impact of each such factor on the Company's business or the
extent to which any factor, or combination of factors, may cause actual results
to differ materially from those contained in any forward-looking statements.
Item 3. Quantitative and Qualitative Disclosure about Market Risk.
None.
9
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K&G MEN'S CENTER, INC.
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
Exhibit 27. Financial Date Schedule
(b) Reports on Form 8-K - None
10
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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: June 3, 1998 /s/ Stephen H. Greenspan
--------------- --------------------------------
Stephen H. Greenspan
Chairman of the Board,
President and Chief Executive Officer
(principal executive officer)
Date: June 3, 1998 /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> JAN-31-1999
<PERIOD-START> FEB-02-1998
<PERIOD-END> MAY-03-1998
<CASH> 5,889,000
<SECURITIES> 13,233,000
<RECEIVABLES> 1,895,000
<ALLOWANCES> 0
<INVENTORY> 27,497,000
<CURRENT-ASSETS> 49,684,000
<PP&E> 5,859,000
<DEPRECIATION> 1,899,000
<TOTAL-ASSETS> 54,094,000
<CURRENT-LIABILITIES> 13,451,000
<BONDS> 0
0
0
<COMMON> 102,000
<OTHER-SE> 39,923,000
<TOTAL-LIABILITY-AND-EQUITY> 54,094,000
<SALES> 30,309,000
<TOTAL-REVENUES> 30,309,000
<CGS> 23,428,000
<TOTAL-COSTS> 4,937,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (9,000)
<INCOME-PRETAX> 2,241,000
<INCOME-TAX> 879,000
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,322,000
<EPS-PRIMARY> $0.13
<EPS-DILUTED> $0.13
</TABLE>
