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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended April 29, 2000
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COMMISSION FILE NUMBER 333-81307
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G+G RETAIL, INC.
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(Exact name of registrant as specified in its charter)
Delaware 22-3596083
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
520 Eighth Avenue, New York, New York 10018
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(Address of principal executive offices and zip code)
Registrant's telephone number, including area code (212) 279-4961
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
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Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the close of the period covered by this report.
Class B Outstanding at June 9, 2000
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Common $.01 par value 10 shares
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CONTENTS
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NO.
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
Condensed Consolidated Balance Sheets - April 29, 2000 and January 29,
2000 3
Condensed Consolidated Statements of Operations - Three Months Ended
April 29, 2000 and May 1, 1999 4
Condensed Consolidated Statements of Cash Flows - Three Months Ended
April 29, 2000 and May 1, 1999 5
Notes to Unaudited Condensed Consolidated Financial Statements 6
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations 7-11
ITEM 3. Quantitative and Qualitative Disclosures about Market Risk 11
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 12
SIGNATURE PAGE 13
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
G+G Retail, Inc.
Condensed Consolidated Balance Sheets
(Unaudited)
(In thousands)
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APRIL JANUARY
29, 2000 29, 2000
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ASSETS
Current assets:
Cash and short-term investments $ 9,022 $ 19,093
Accounts receivable 1,358 723
Merchandise inventories 23,210 12,868
Prepaid expenses 599 712
Deferred tax assets 504 504
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Total current assets 34,693 33,900
Property and equipment, net 43,184 34,938
Intangible assets, net 115,606 116,816
Deferred tax assets 963 863
Other assets 228 225
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Total assets $194,674 $186,742
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LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Accounts payable $ 16,569 $ 9,721
Accrued expenses 14,464 12,915
Accrued interest 5,460 2,517
Income taxes payable 347 3,250
Current portion of capital lease 720 385
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Total current liabilities 37,560 28,788
Capital lease 3,029 1,747
Long-term debt 99,932 99,733
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Total liabilities 140,521 130,268
Commitments and contingencies
Stockholder's equity:
Class B common stock, par value $.01 per share,
1,000 shares authorized, 10 -- --
shares issued and outstanding
Additional paid-in capital 50,298 50,298
Retained earnings 3,855 6,176
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Total stockholder's equity 54,153 56,474
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Total liabilities and stockholder's equity $194,674 $186,742
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See accompanying notes.
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G+G Retail, Inc.
Condensed Consolidated Statements of Operations
(Unaudited)
(In thousands)
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THREE MONTHS THREE MONTHS
ENDED ENDED
APRIL 29, 2000 MAY 1, 1999
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Net sales $ 74,103 $ 72,733
Cost of sales (including occupancy costs) 47,494 46,374
Selling, general, administrative and buying expenses 24,385 20,728
Depreciation and amortization 3,005 3,173
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Operating income (loss) (781) 2,458
Interest expense 3,451 3,277
Interest income 188 109
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Loss before benefit for income taxes (4,044) (710)
Benefit for income taxes (1,723) (313)
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Net loss $ (2,321) $ (397)
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See accompanying notes.
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G+G Retail, Inc.
Condensed Consolidated Statements of Cash Flow
(Unaudited)
(In thousands)
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THREE MONTHS THREE MONTHS
ENDED APRIL ENDED MAY
29, 2000 1, 1999
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OPERATING ACTIVITIES
Net loss $ (2,321) $ (397)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 3,005 3,173
Amortization of deferred financing costs 433 536
Deferred taxes (100) (375)
Changes in assets and liabilities:
Accounts receivable, prepaid expenses and other assets (524) (2,195)
Merchandise inventories (10,342) (9,319)
Accounts payable, accrued expenses and accrued interest 11,339 4,491
Income taxes payable (2,903) (108)
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Net cash used in operating activities (1,413) (4,194)
INVESTING ACTIVITIES
Capital expenditures, net (10,275) (3,246)
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Net cash used in investing activities (10,275) (3,246)
FINANCING ACTIVITIES
Proceeds from capital lease 1,716 --
Payment of debt issuance costs -- (357)
Payment of capital lease (99) --
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Net cash provided by (used in) financing activities 1,617 (357)
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Net decrease in cash and short-term investments (10,071) (7,797)
Cash and short-term investments, beginning of period 19,093 13,129
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Cash and short-term investments, end of period $ 9,022 $ 5,332
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SUPPLEMENTAL CASH FLOW DISCLOSURES
Cash paid for:
Interest $ 74 $ 3,299
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Income taxes $ 1,281 $ 191
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See accompanying notes
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G+G Retail, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
Note 1 The accompanying financial statements have been prepared in accordance
with generally accepted accounting principles ("GAAP") for interim
financial information and with the instructions to Form 10-Q and Article
10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by GAAP for complete financial
statements. In the opinion of the Company's management, the accompanying
unaudited financial statements contain all adjustments (consisting only
of normal recurring accruals) considered necessary to present fairly: (1)
its financial position as of April 29, 2000, (2) the results of its
operations for the three month period ended April 29, 2000 and May 1,
1999 and (3) its cash flows for the three month period ended April 29,
2000 and May 1, 1999. The balance sheet at January 29, 2000 has been
derived from financial statements at that date but does not include all
of the information and footnotes required by generally accepted
accounting principles for complete financial statements. These financial
statements should be read in conjunction with the consolidated financial
statements and footnotes thereto included in the Company's Form 10-K for
the fiscal year ended January 29, 2000 filed on April 20, 2000. The
interim operating results are not necessarily indicative of the results
that may be expected for an entire year.
Note 2 On May 17, 1999, the Company and G+G Retail Holdings, Inc. ("Holdings" or
the "Parent") completed a private placement of 107,000 units consisting
in the aggregate of $107.0 million face amount of 11% Senior Notes
("Senior Notes") due May 15, 2006 with interest payable semi-annually and
warrants to purchase 8,209 shares of non-voting class D Common Stock of
Holdings at an exercise price of $.01 per share. On November 2, 1999, all
of the Senior Notes were exchanged for an equal amount of exchange notes
that are freely tradable.
Note 3 The Company is a party to a Loan and Security Agreement, which expires
in October 2001, and provides for a revolving credit facility
("Facility"), subject to eligible inventory, not to exceed $20 million,
of which $10 million can be used for letters of credit. There were no
outstanding borrowings under the Facility at April 29, 2000. Outstanding
letters of credit under the Facility totaled approximately $556,000 at
April 29, 2000. Interest on amounts advanced under the Facility accrues
at a rate equal to specified margins over the adjusted Eurodollar Rate or
at the Prime Rate (9.0% at April 29, 2000).
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
We are a leading national mall-based retailer of popular price female junior
apparel. For over 30 years, we and our predecessors have built a reputation for
providing fashion apparel and accessories distinctly targeted primarily at
teenaged women. Our core customers are young women principally between the ages
of 13 to 19 years old. We sell substantially all of our merchandise under
private label names including Rave, Rave Up, In Charge, R4R, Rave City and Rave
Girl, which provide our customers with fashionable, quality apparel and
accessories at lower prices than brand name merchandise. Our emphasis on
sourcing merchandise domestically and our efficient distribution system allow
for short inventory lead times, which facilitates quick response to the latest
fashion trends. As of April 29, 2000, we had 485 operating stores principally
located in major enclosed regional shopping malls throughout the United States,
Puerto Rico, and the U.S. Virgin Islands primarily under the G+G and Rave names.
Our stores average approximately 2,400 gross square feet with approximately 25
feet of mall frontage and are designed to create a lively and exciting shopping
experience for teenaged customers.
In August 1998, we acquired the business of G&G Shops, Inc. and the stores
operated by subsidiaries of Petrie Retail, Inc. and the trademarks and other
assets used in that business. We obtained financing for the acquisition by a net
capital contribution by G+G Retail Holdings, Inc., our parent company, to us of
$49.8 million and by borrowing $90.0 million under senior bridge notes that we
subsequently repaid with the issuance of our senior notes. We accounted for the
acquisition under the purchase method of accounting.
During fiscal 2000, we started our Rave Girl chain of stores, which sells
fashion apparel and accessories targeted at girls aged 6-to-12 years old. At
April 29, 2000, there were twenty-one Rave Girl stores in operation throughout
the United States and Puerto Rico.
RESULTS OF OPERATIONS
COMPARISON OF THE FIRST THREE MONTHS FISCAL 2001 AND THE FIRST THREE MONTHS
FISCAL 2000
Net sales increased $1.4 million or 1.9% to $74.1 million in the first three
months of fiscal 2001 as compared to $72.7 million in the first three months of
fiscal 2000. The increase in net sales was due to the opening of new stores
which contributed $8.8 million to net sales in the first quarter of fiscal 2001,
which was partially offset by a $7.4 million or 10.4% decrease in same store
sales. Average sales per gross square foot decreased 8.6% to $64 in the first
three months of fiscal 2001 from $70 in the first three months of fiscal 2000.
We operated 485 stores at the end of the first quarter of fiscal 2001 as
compared to 456 stores at the end of fiscal 2000, as a result of opening 32
stores and closing 3 stores.
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Cost of sales, including occupancy costs, increased 2.4% to $47.5 million in the
first three months of fiscal 2001 from $46.4 million in the first three months
of fiscal 2000. As a percentage of net sales, cost of sales including occupancy
costs, increased 0.3% from 63.8% in the first three months of fiscal 2000 to
64.1% in the first three months of fiscal 2001. This 0.3% increase resulted from
a 1.1% decrease in the cost of merchandise which was offset by a 1.4% increase
in occupancy costs as a percent of sales. The decrease in the cost of
merchandise as a percentage of net sales was due to an increase in the initial
mark-on. The occupancy cost increase as a percent of sales resulted primarily
from the decrease in same store sales.
In the first three months of fiscal 2001, selling, general, administrative and
buying expenses totaled $24.4 million compared to $20.7 million in the first
three months of fiscal 2000. As a percent of sales, these expenses increased
from 28.5% in the first quarter of fiscal 2000 to 32.9% in the first quarter of
fiscal 2001. Fiscal 2001 expenses reflect additional selling costs related to
new store openings, an increase in same store selling expenses and an increase
in administrative costs.
Depreciation and amortization expense for the first three months fiscal 2001 was
$3.0 million as compared to $3.2 for the first three months of fiscal 2000. The
decrease is mainly attributable to older stores' assets becoming fully
depreciated, which offset the additional depreciation and amortization related
to new stores, remodels and relocations.
Interest expense in the first three months of fiscal 2001 was $3.5 million or
4.7% of net sales as compared to $3.3 million or 4.5% of net sales for the first
three months of fiscal 2001. Interest expense for the first quarter of fiscal
2000 reflects interest on the senior notes and amortization of the $7.3 million
original issue discount, the $470,000 value assigned to the warrants issued by
Holdings, our parent company, and the deferred financing costs. Interest expense
for the first three months of fiscal 2000 reflects interest on the senior bridge
note and amortization of related issuance costs.
The income tax benefit for the first three months of fiscal 2001 was $1.7
million or a 42.6% income tax benefit rate as compared to a benefit of $313,000
or a 44.0% income tax benefit rate for the first three months of fiscal 2000.
The lower income tax benefit rate was due to the mix of income between U.S. and
foreign sources.
The net loss increased from $397,000 in the first three months of fiscal 2000 to
a loss of $2.3 million in the first three months of fiscal 2001 due to the
factors discussed above.
LIQUIDITY AND CAPITAL RESOURCES
Our primary sources of liquidity are cash flow from operating activities and
borrowings under our revolving credit facility. Our primary cash requirements
are for: (i) seasonal working capital, (ii) the construction of new stores,
(iii) the remodeling or upgrading of existing stores as necessary, and (iv)
upgrading and maintaining our computer system. On May 17, 1999, we and Holdings
completed a private placement of an aggregate of $107.0 million face amount of
outstanding notes issued by us and warrants issued by Holdings to purchase 8,209
shares of its nonvoting Class D Common Stock at an exercise price of $0.01 per
share. The net proceeds from this private placement were $93.9
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million, after deducting the original issue discount of $7.3 million and fees of
$5.8 million. We used the net proceeds to repay the senior bridge notes and for
general corporate purposes. On November 2, 1999, our privately placed notes were
exchanged for notes that are freely tradable.
Net cash used in operating activities in the first three months of fiscal 2001
was $1.4 million as compared to $4.2 million in the first three months of fiscal
2000. The decrease in net cash used in operating activities was principally due
to the fact that accounts payable increased $4.4 million more during the first
quarter of fiscal 2001 as compared to the first quarter of fiscal 2000 due to
timing of merchandise receipts within the quarter because of the Easter Holiday
falling in the third week of April in fiscal 2001 versus the last week of March
in fiscal 2000. In addition, interest expense on the senior notes is payable
semi-annually (May 17th and November 17th), while the interest on the senior
bridge notes was paid monthly.
Capital expenditures for the first three months of fiscal 2001 and the first
three months of fiscal 2000 were $10.3 million and $3.2 million, respectively.
Management estimates that capital expenditures for the remaining nine months of
fiscal 2001 will be $9.2 million, of which, $1.1 million will be used for new
point-of-sale equipment and software and $8.1 million will be used to open an
additional 31 new stores and to upgrade existing stores. We reduced our original
capital expenditure budget for fiscal 2001 by $3.0 million, to $19.5 million, in
response to the decrease in same store sales.
We have an agreement from a lending institution for $5.0 million of capital
lease financing for the purchase of the point of sale equipment and software.
The lease provides for monthly payments that depend on the volume of equipment
leased. The lease terms include a variable interest rate based on the purchase
date and expire five years from the date of the initial equipment financed. As
of April 29, 2000, $3.9 million of lease financing was incurred under this
arrangement. The $1.1 million needed to purchase new point of sale equipment for
the balance of the fiscal year will be financed with the use of proceeds from
the capital lease.
We review the operating performance of our stores on an ongoing basis to
determine which stores, if any, to expand or close. We closed fourteen stores in
fiscal 2000, three stores in the first three months of fiscal 2001 and
anticipate closing an additional seven stores during fiscal 2001. No stores were
closed in the first three months of fiscal 2000.
As of April 29, 2000, we had $9.0 million in cash. We historically have
maintained negligible accounts receivable balances since our customers primarily
pay for their purchases with cash, checks and third-party credit cards which are
promptly converted to cash.
As of April 29, 2000, our indebtedness under our senior notes totaled $99.9
million, which reflects the aggregate face amount of the notes of $107.0
million, net of $6.7 of unamortized original issue discount, and approximately
$440,000 of unamortized value assigned to the warrants issued by Holdings. The
interest on the notes is 11% per annum, payable semi-annually.
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Our revolving credit facility provides for a line of credit in an amount of up
to $20.0 million (including a sublimit of $10.0 million for letters of credit)
and matures in October 2001. We may use the revolving credit facility for
general operating, working capital and other proper corporate purposes. Amounts
available under the revolving credit facility are subject to the value of our
eligible inventory and to the satisfaction of certain conditions. The borrowing
base provides for seasonal fluctuations in inventory. Peak borrowing periods
occur in July, August, October and November. Interest on outstanding borrowings
under the revolving credit facility is payable at 1.75% over the adjusted
Eurodollar Rate or at the prime rate (9.0% at April 29, 2000). The revolving
credit facility subjects us to a minimum tangible net worth covenant (as
defined) of $39.0 million and contains other customary restrictive covenants. As
of April 29, 2000, minimum tangible net worth (as defined) was $54.2 million.
Our obligations under the revolving credit facility are secured by a lien on all
or substantially all of our assets. As of April 29, 2000, we had no borrowings
outstanding under the revolving credit facility, but had $556,000 of letters of
credit outstanding, and $16.6 million of availability thereunder.
We have minimum annual rental commitments of approximately $22.2 million in
fiscal 2001 under existing store leases and the leases for our corporate
headquarters and distribution center.
We believe that our cash flow from operating activities, cash on hand and
borrowings available under the revolving credit facility will be sufficient to
meet our operating and capital expenditure requirements through the end of
fiscal 2001. In addition, we believe that cash flow from operations will be
sufficient to cover the interest expense arising from the revolving credit
facility and our long-term debt. However, the sufficiency of our cash flow is
affected by numerous factors affecting our operations, including factors beyond
our control. See the statement regarding forward looking disclosures.
If a "change of control" (as defined in the indenture agreement for our senior
notes) occurs, we will be required under the indenture to offer to repurchase
all the notes. However, we may not have sufficient funds at the time of the
change of control to make the required repurchases, or restrictions in our
revolving credit facility may prohibit the repurchases. We may not be able to
raise enough money to finance the change of control offer required by the
indenture related to the notes. If there is a change in control, we could be in
default under the indenture. In addition, upon a change of control (as defined
in the Holdings Certificate of Incorporation), Holdings may be required to
redeem its Series A preferred stock. Holdings may not have sufficient funds to
redeem the preferred stock unless we pay a dividend of such amount to them.
SEASONALITY AND QUARTERLY OPERATING RESULTS
Our fourth fiscal quarter historically accounts for the largest percentage of
our annual net sales. Our first fiscal quarter historically accounts for the
smallest percentage of annual net sales. In fiscal 2000, our first quarter and
fourth quarter accounted for approximately 22.8% and 28.6% of annual net sales,
respectively.
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Our quarterly results of operations may also fluctuate significantly as a result
of a variety of factors, including the timing of store openings, the amount of
revenue contributed by new stores, changes in the mix of products sold, the
timing and level of markdowns, the timing of store closings and expansions,
competitive factors and general economic conditions.
INFLATION
We do not believe that inflation has had a material effect on the results of
operations during the past three fiscal years. However, our business may be
affected by inflation in the future.
STATEMENT REGARDING FORWARD LOOKING DISCLOSURE
Certain sections of this Report, including the preceding "Management's
Discussion and Analysis of Financial Condition and Results of Operations,"
contain various forward looking statements within the meaning of Section 27A of
the Securities Act of 1933, and Section 21E of the Securities Exchange Act of
1934, which represent our expectations or beliefs concerning future events. We
caution that these statements are further qualified by important factors that
could cause actual results to differ materially from those in the forward
looking statements, including, without limitation, our ability to expand and to
increase comparable store sales, the sufficiency of our working capital and cash
flows from operating activities, a decline in the demand for our merchandise,
our ability to locate and obtain acceptable store sites and lease terms or renew
existing leases, our ability to gauge the fashion tastes of our customers and
provide merchandise that satisfies customer demand, our management's ability to
manage expansion, the effect of economic conditions, the effect of severe
weather or natural disasters and the effect of competitive pressures from other
retailers. For a discussion of these and other factors that could cause results
to differ from the expectations and projections expressed in this report, see
the Forward Looking Statements and Factors Affecting Future Performance section
of the Company's Annual Report on Form 10-K for the fiscal year ended January
29, 2000, filed with the Securities and Exchange Commission on April 20, 2000.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable
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PART II. OTHER INFORMATION
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K:
(a) Exhibits
3.01 Certificate of Incorporation of G+G Retail, Inc., incorporated by
reference to the registrant's Registration Statement of Form S-4,
declared effective by the SEC on October 4, 1999 (File No.
333-81307) (the "S-4").
3.02 Amended and Restated By-Laws of G+G Retail, Inc., incorporated by
reference to the S-4.
4.01 Indenture, dated as of May 17, 1999, by and between G+G Retail,
Inc., as issuer, and U.S. Bank Trust National Association, as
trustee, incorporated by reference to the S-4.
4.02 Form of 11% Senior Note due 2006 of G+G Retail, Inc., incorporated
by reference to the S-4.
4.03 A/B Exchange Registration Rights Agreement, dated as of May 17,
1999, by and between G+G Retail, Inc. and U.S. Bancorp Libra,
incorporated by reference to the S-4.
27.01 Financial data schedule.
(b) Reports on Form 8-K
None
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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.
G+G RETAIL, INC.
Date June 9, 2000 By /s/ Michael Kaplan
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Michael Kaplan, Chief Financial Officer
(signing on behalf of the registrant and
as principal financial officer)
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EXHIBIT INDEX
EXHIBIT DESCRIPTION
3.01 Certificate of Incorporation of G+G Retail, Inc., incorporated by
reference to the registrant's Registration Statement of Form S-4,
declared effective by the SEC on October 4, 1999 (File No.
333-81307) (the "S-4").
3.02 Amended and Restated By-Laws of G+G Retail, Inc., incorporated by
reference to the S-4.
4.01 Indenture, dated as of May 17, 1999, by and between G+G Retail,
Inc., as issuer, and U.S. Bank Trust National Association, as
trustee, incorporated by reference to the S-4.
4.02 Form of 11% Senior Note due 2006 of G+G Retail, Inc., incorporated
by reference to the S-4.
4.03 A/B Exchange Registration Rights Agreement, dated as of May 17,
1999, by and between G+G Retail, Inc. and U.S. Bancorp Libra,
incorporated by reference to the S-4.
27.01 Financial data schedule.
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