UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(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
Commission file Number 0-20269
DUCKWALL-ALCO STORES, INC.
(Exact name of registrant as specified in its charter.)
Kansas 48-0201080
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
401 Cottage Street
Abilene, Kansas 67410-2832
(Address of principal executive offices (Zip Code)
Registrant's telephone number, including area code:
(913) 263-3350
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:
5,098,261 shares of common stock, $.0001 par value (the issuer's
only class of common stock), were outstanding as of August 3, 1997.
<PAGE>
<TABLE>
PART I. Financial Information.
ITEM 1. Financial Statements.
Duckwall-ALCO Stores, Inc.
And Subsidiary
Consolidated Balance Sheets
(Dollars in Thousands)
<CAPTION>
August 3, February 2,
1997 1997
(Unaudited)
___________ __________
<S> <C> <C>
ASSETS
Current assets:
Cash on deposit and on hand $3,143 $7,538
Receivables 3,184 3,160
Inventories 94,141 80,359
Other current assets 1,973 1,785
Total current assets 102,441 92,842
Property and equipment:
Land 2,658 2,658
Buildings 20,997 20,991
Furniture, fixtures and equipment 31,803 26,215
Transportation equipment 1,703 1,688
Leasehold improvements 5,624 4,623
Construction in progress 1,922 2,931
Total property and equipment 64,707 59,106
Less accumulated depreciation 28,386 26,527
Net property and equipment 36,321 32,579
Property under capital leases 20,407 20,407
Less accumulated amortization 13,456 13,100
Net property under capital leases 6,951 7,307
Debt financing cost 104 80
Total assets $145,817 $132,808
<FN>
See accompanying notes to unaudited consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
Duckwall-ALCO Stores, Inc.
And Subsidiary
Consolidated Balance Sheets
(Dollars in Thousands)
<CAPTION>
August 3, February 2,
1997 1997
(Unaudited)
___________ ____________
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of:
Long term debt $1,347 $1,242
Capital lease obligations 607 607
Accounts payable 20,457 17,127
Income taxes payable 32 2,345
Accrued salaries and commissions 3,028 3,876
Accrued taxes other than income 2,975 2,929
Other current liabilities 1,630 1,670
Deferred taxes 2,612 2,612
Total current liabilities 32,688 32,408
Notes payable under revolving loan 21,520 12,095
Long term debt
less current maturities 4,110 3,193
Capital lease obligations
less current maturities 8,844 9,148
Other noncurrent liabilities 1,026 793
Deferred income taxes 2,346 2,346
Total liabilities 70,534 59,983
Stockholders' equity:
Common stock, $.0001 par value, authorized
20,000,000 shares; issued and outstanding
5,098,261 shares and 5,089,823 shares
respectively 1 1
Additional paid-in capital 54,469 54,396
Retained earnings since June 2, 1991 20,813 18,428
Total stockholders' equity 75,283 72,825
Total liabilities and
stockholders' equity $145,817 $132,808
<FN>
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
Duckwall-ALCO Stores, Inc.
And Subsidiary
Consolidated Statement of Operations
(Dollars in Thousands Except Per Share Amounts)
(Unaudited)
<CAPTION>
For the Thirteen For the Twenty-Six
Week Periods Weeks Periods
August 3, July 28, August 3, July 28,
1997 1996 1977 1996
____________ ____________ __________ __________
<S> <C> <C> <C> <C>
Net sales ............................... $80,463 $68,426 $149,735 $127,774
Cost of sales ........................... 53,795 46,106 99,332 85,812
Gross margin .................. 26,668 22,320 50,403 41,962
Selling, general
and administrative ................. 22,170 18,546 42,781 35,458
Depreciation
and amortization ................... 1,152 925 2,214 1,789
Total operating expenses ...... 23,322 19,471 44,995 37,247
Income from operations .................. 3,346 2,849 5,408 4,715
Interest expense......................... 821 860 1,503 1,592
Earnings
before income taxes ................. 2,525 1,989 3,905 3,123
Income tax expense ...................... 990 765 1,521 1,196
Net earnings ....................... $1,535 $1,224 $2,384 $1,927
Earnings per common and
common equivalent share ................ $0.30 $0.30 $0.46 $0.48
<FN>
See accompanying notes to unaudited consolidated financial statements.
</TABLE>
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<TABLE>
Duckwall-ALCO Stores, Inc.
And Subsidiary
Consolidated Statements of Cash Flow
(Dollars in Thousands)
(Unaudited)
<CAPTION>
For the Twenty-Six Week
Periods Ended
August 3, 1997 July 28, 1996
--------------- ---------------
<S> <C> <C>
Cash flows from operating activities:
Net Earnings $2,384 $1,927
Adjustments to reconcile
net earnings to net cash
used in operating activities
Amortization of
debt financing costs 20 20
Deferred income tax benefit 0 51
Depreciation and amortization 2,214 1,789
LIFO expense 110 90
Increase in inventories (13,892) (8,574)
Increase in accounts payable 3,330 3,680
Increase in receivables (24) (283)
Decrease (increase)
in other current assets (188) (658)
Increase in accrued taxes
other than income 46 227
Increase (decrease) in accrued
salaries and commissions (848) (1,518)
(Decrease) in income taxes payable (2,313) 177
Decrease in other liabilities 193 (468)
Net cash used in
operating activities (8,968) (3,540)
Cash flow from investing activities:
Capital expenditures (5,601) (5,991)
Net cash used in
investing activities (5,601) (5,991)
Cash flow from financing activities:
Proceeds from exercise of
outstanding stock options 74 0
Increase in revolving loan 9,425 9,338
Principal payments on
long term notes (848) (520)
Principal payments on
capital leases (304) (318)
Increase in long term notes 1,870 2,668
Debt issue costs (43) (10)
Net cash provided by
financing activities 10,174 11,158
Net increase (decrease) in cash (4,395) 1,627
Cash at beginning of period 7,538 177
Cash at end of period $3,143 $1,804
<FN>
See accompanying notes to unaudited consolidated financial statements.
</TABLE>
<PAGE>
Duckwall-ALCO Stores, Inc.
And Subsidiary
Notes to Unaudited Consolidated Financial Statements
(1) Basis of Presentation
The accompanying unaudited consolidated financial
statements are for interim periods and, consequently, do not
include all disclosures required by generally accepted
accounting principles for annual financial statements. It is
suggested that the accompanying unaudited consolidated
financial statements be read in conjunction with the
consolidated financial statements included in the Company's
fiscal 1997 Annual Report. In the opinion of management of
Duckwall-ALCO Stores, Inc., the accompanying unaudited
consolidated financial statements reflect all adjustments
(consisting of normal recurring accruals) necessary to present
fairly the financial position of the Company and the results of
its operations and cash flows for the interim periods.
Certain prior year cash flow amounts have been reclassified
to conform with the current year presentation.
(2) Principles of Consolidation
The consolidated financial statements include the accounts
of Duckwall-ALCO Stores, Inc. and its wholly-owned subsidiary.
All significant intercompany transactions and balances have
been eliminated in consolidation.
(3) Earnings Per Share
Earnings per share has been computed based on the weighted
average number of common shares outstanding during the period
plus common stock equivalents, when dilutive, consisting of
stock options.
The average number of shares used in computing earnings
per share was as follows:
Thirteen Weeks Ending
August 3, 1997 5,136,261
July 28, 1996 4,049,620
Twenty-Six Weeks Ending
August 3, 1997 5,135,714
July 28, 1996 4,033,522
<PAGE>
Duckwall-ALCO Stores, Inc.
And Subsidiary
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATION.
(Dollars in thousands)
[CAPTION]
The thirteen weeks ended August 3, 1997 and July 28, 1996 are referred to
herein as the second quarter of fiscal 1998 and 1997, respectively.
As used below the term "competitive market" refers to any market wherein there
is one or more national or regional full-line discount stores located in the
market served by the Company. The term "non-competitive market" refers to any
market where there is no national or regional full-line discount store located
in the market served by the Company. Even in a non-competitive market, the
Company faces competition from a variety of sources.
RESULTS OF OPERATIONS
Net earnings increased 25.4% for the second quarter of fiscal 1998 to
$1,535, an increase of $311 over the net earnings of $1,224 for the second
quarter of fiscal 1997. The Company has had 18 consecutive quarters of
earnings growth (where current quarter earnings have exceeded prior year
earnings for the same quarter). Gross margins improved for the second
quarter of fiscal 1998 to 33.1%, compared to 32.6% in the prior year's
second quarter.
The Company continues to execute its basic strategy of opening stores
in under-served markets that have no competition from national or regional
full-line discount retailers. During the second quarter of fiscal 1998, the
Company opened 2 stores, both of which were in new, non-competitive markets,
resulting in a quarter end total of 204 stores. For the twenty-six week
period ending August 3, 1997, the Company opened 19 stores. As of August 3,
1997, 76% of the stores are in non-competitive markets.
Net sales for the second quarter of fiscal 1998 increased $12,037 or
17.6% to $80,463 compared to $68,426 for the second quarter of fiscal 1997.
Net sales for the prototype Class 18 ALCO stores open the full period in both
the second quarter of fiscal 1998 and fiscal 1997 (comparable stores)
increased $268 or 1.2%. The Duckwall variety stores produced an increase of
$151 or 4.4% compared to the second quarter of the prior fiscal year. Net
sales for all stores open the full period decreased $602 or 1.9% compared to
the second quarter of the prior fiscal year. The same store sales decease
was primarily attributable to a reduction in promotional advertising compared
to the second quarter of the prior fiscal year.
Net sales for the twenty-six week period ending August 3, 1997 increased
$21,961 or 17.2% to $149,735 compared to $127,774 in the comparable twenty-six
week period of the prior fiscal year. Net sales of comparable stores increased
by $833, or .7% for the twenty-six week period ending August 3, 1997 compared
to the twenty-six week period of the prior fiscal year.
Gross margin for the second quarter of fiscal 1998 increased $4,348 or
19.5% to $26,668 compared to $22,320 in the second quarter of fiscal 1997.
Gross margin as a percentage of sales was 33.1% for the second quarter of
fiscal 1998 compared to 32.6% in the second quarter of fiscal 1997. The
improvement in the gross margin percentage was due to a higher markup on
purchases and lower markdowns.
Gross margin for the twenty-six week period ended August 3, 1997 was
$50,403, which was $8,441 or 20.1% higher than last year's twenty-six week
gross margin of $41,962. As a percent of net sales, gross margin for the
twenty-six week period ended August 3, 1997 was 33.7% compared to 32.8% in
the twenty-six week period of the prior fiscal year.
Selling, general and administrative expense increased $3,624 or 19.5%
to $22,170 in the second quarter of fiscal 1998 compared to $18,546 in the
second quarter of fiscal 1997, primarily due to the increase in total stores.
As a percentage of net sales, selling, general and administrative expenses in
the second quarter of fiscal 1998 was 27.6%, compared to 27.1% in the second
quarter of fiscal 1997. The increase was due to increased payroll costs, due
in part to an increase in the minimum wage.
Selling, general and administrative expenses increased $7,323 or 20.7%
to $42,781 for the twenty-six week period ended August 3, 1997 compared to
$35,458 for the comparable twenty-six week period of the prior fiscal year.
Selling, general and administrative expense as a percent of net sales was
28.6% for the twenty-six week period ended August 3, 1997 compared to 27.8%
in the comparable twenty-six week period last year. The increase in selling,
general and administrative expense in fiscal 1998 is primarily due to an
increase in the number of stores.
Depreciation and amortization expense increased $227 or 24.5% to $1,152 in
the second quarter of fiscal 1998 compared to $925 in the second quarter of
fiscal 1997. The increase is due to additional buildings and equipment
associated with the store expansion program.
Income from operations increased $497 or 17.4% to $3,346 in the second
quarter of fiscal 1998 compared to $2,849 in the second quarter of fiscal
1997. Income from operations as a percentage of net sales was 4.2% in the
second quarter of both fiscal years.
Income from operations increased $693 or 14.7% to $5,408 for the
twenty-six week period ended August 3, 1997 compared to $4,715 in the
comparable twenty-six week period of the prior fiscal year.
Interest expense decreased $39 or 4.5% in the second quarter of fiscal
1998 compared to the second quarter of fiscal 1997.
Net earnings for the second quarter of fiscal 1998 were $1,535 an
increase of $311 or 25.4% over the net earnings of $1,224 for the second
quarter of fiscal 1997.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary sources of funds are cash flow from operations,
borrowings under its revolving loan credit facility, mortgage financing, and
vendor trade credit financing (increases in accounts payable).
The Company has temporarily increased its revolving loan credit facility
from $35,000 to $45,000 to meet its credit needs for the approaching holiday
season. The increased line is available for the period September 1, 1997 to
December 31, 1997, and is under the same terms and conditions as the original
credit facility. The Company expects this additional credit line to be
sufficient to meet all of its seasonal credit needs.
At August 3, 1997 working capital (defined as current assets less current
liabilities) was $69,753 compared to $60,434 at the end of fiscal 1997.
Cash used by operating activities in the second quarter of fiscal 1998
and 1997 was $8,968 and $3,540 respectively. The increase in the amount of
cash used by operating activities in the second quarter of fiscal 1998
compared to the second quarter of fiscal 1997 was primarily due to a smaller
increase in the trade accounts payable build up relative to the overall
increase in inventory levels.
The Company generated cash from financing activities in the second
quarter of fiscal 1998 and 1997 of $10,174 and $11,158, respectively. This
was generated by borrowing under the revolving loan credit facility, as well
as a $1,870 mortgage secured by certain company fixed assets in fiscal 1998,
and a $1,000 mortgage secured by certain company fixed assets and a $1,668
leaseback of computer equipment in fiscal 1997.
Cash used for acquisition of property and equipment in the second quarters
of fiscal 1998 and 1997 totaled $5,601 and $5,991, respectively. Total
anticipated cash payments for acquisition of property and equipment in fiscal
1998, principally for store buildings and store and warehouse fixtures and
equipment, are $13,869.
IMPACT OF NEW ACCOUNTING PRONOUNCEMENT
The Financial Accounting Standards Board has issued SFAS No. 128, Earnings Per
Share ("Statement 128") which replaces the current accounting standard
regarding computation of earnings per share. Statement 128 requires a dual
presentation of basic earnings per share (based on the weighted average number
of common shares outstanding) and diluted earnings per share which reflects
the potential dilution that could occur if contracts to issue securities
(such as stock options) were exercised. Statement 128 is effective for
financial statements issued for periods ending after December 15, 1997. If
Statement 128 had been adopted, on a pro-forma basis, for the 13 weeks and 26
weeks ended August 3, 1997 and July 28, 1996, there would have been no effect
on the amount of earnings per share as presented in the accompanying financial
statements.
In April 1997, the American Institute of Certified Public Accountants issued
a proposed Statement of Position (SOP) REPORTING ON THE COSTS OF START-UP
ACTIVITIES. The proposed SOP requires that entities expense costs of start-up
activities as they are incurred. The proposed SOP, if approved, would be
effective for financial statements for fiscal years beginning after
December 15, 1997, with earlier application encouraged. The initial
application of the SOP is to be reported as a cumulative effect of a change
in accounting principle. The Company currently capitalizes store pre-opening
costs and amortizes such costs over the initial twelve months of a store's
operations. Pre-opening costs capitalized, net of accumulated amortization,
at August 3, 1997 are $1,773. While the one-time recording of the cumulative
effect of the change in accounting principle could be material, the ongoing
effect of the proposed new accounting principle would be dependent upon the
number and timing of new stores opened. Generally, pre-opening costs would
be recognized during the two months prior to a store commencing operation
under the proposed new accounting principle versus over the twelve months
subsequent to commencing operation under the existing principle.
<PAGE>
OTHER INFORMATION
PART II
Item 1. Legal Proceedings
No legal proceedings except those covered by insurance occurred
during the thirteen week period ended August 3, 1997.
Item 2. Changes in Securities
Not applicable
Item 3. Defaults Upon Senior Securities
Not Applicable
Item 4. Submission of Matters to a Vote of Security Holders
Not Applicable
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) None
(b) Reports on Form 8-K
No reports filed
<PAGE>
Duckwall-ALCO Stores, Inc.
And Subsidiary
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.
DUCKWALL-ALCO STORES, INC.
(Registrant)
Date, September 16, 1997 /s/Richard A. Mansfield
Richard A. Mansfield
Vice President - Finance
Chief Financial Officer
Signing on behalf of the
registrant and as principal
financial officer
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> Year 3-MOS
<FISCAL-YEAR-END> Feb-02-1997 Feb-01-1998
<PERIOD-START> Jan-29-1996 Feb-03-1997
<PERIOD-END> Feb-02-1997 Aug-03-1997
<CASH> 7,538 3,143
<SECURITIES> 0 0
<RECEIVABLES> 3,160 3,184
<ALLOWANCES> 0 0
<INVENTORY> 80,359 94,141
<CURRENT-ASSETS> 92,842 102,441
<PP&E> 59,106 64,707
<DEPRECIATION> (26,527) (28,386)
<TOTAL-ASSETS> 132,808 145,817
<CURRENT-LIABILITIES> 32,408 32,688
<BONDS> 0 0
<COMMON> 1 1
0 0
0 0
<OTHER-SE> 72,824 75,282
<TOTAL-LIABILITY-AND-EQUITY> 132,808 145,817
<SALES> 278,819 80,463
<TOTAL-REVENUES> 278,819 80,463
<CGS> 186,531 53,795
<TOTAL-COSTS> 186,531 53,795
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 3,033 821
<INCOME-PRETAX> 9,852 2,525
<INCOME-TAX> 3,794 990
<INCOME-CONTINUING> 6,058 1,535
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 6,058 1,535
<EPS-PRIMARY> 1.40 .30
<EPS-DILUTED> 1.39 .30
</TABLE>
