<PAGE>
FORM 10-Q
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 2, 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 0-5648
OSHMAN'S SPORTING GOODS, INC.
-----------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 74-1031691
- -------------------------------------------------------------------------------
(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification No.)
2302 MAXWELL LANE, HOUSTON, TEXAS
77023
- -------------------------------------------------------------------------------
(Address of principal executive offices)
(Zip Code)
(713) 928-3171
- -------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
NO CHANGE
- -------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since
last report)
INDICATED 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
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common stock, $1.00 par value 5,827,249
----------------------------- ---------
<PAGE>
PART 1 -- FINANCIAL INFORMATION
<PAGE>
ITEM 1 - FINANCIAL STATEMENTS
OSHMAN'S SPORTING GOODS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
MAY 2, 1998, JANUARY 31, 1998 AND MAY 3, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
MAY 2, JANUARY 31, MAY 3,
1998 1998 1997
------------ ---------- ----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS
CASH AND CASH EQUIVALENTS 345 363 467
ACCONTS RECEIVABLE, LESS ALLOWANCE OF
$130 MAY 98, $130 JAN 98 AND $225 MAY 97 1,638 1,729 2,058
MERCHANDISE INVENTORIES 99,892 99,874 102,789
PREPAID EXPENSES AND OTHER 2,683 2,838 5,622
----------- ---------- ---------
TOTAL CURRENT ASSETS 104,558 104,804 110,936
PROPERTY, PLANT AND EQUIPMENT, AT COST 92,312 91,957 94,623
LESS ACCUMULATED DEPRECIATION AND AMORTIZATION 50,267 48,755 50,771
----------- ---------- ---------
NET PROPERTY, PLANT AND EQUIPMENT 42,045 43,202 43,852
OTHER ASSETS 332 344 388
----------- ---------- ---------
146,935 148,350 155,176
=========== ========== =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
CURRENT MATURITIES OF LONG-TERM OBLIGATIONS 27 566 784
TRADE ACCOUNTS PAYABLE 40,014 42,367 35,667
ACCRUED LIABILITIES 14,257 17,141 15,245
INCOME TAXES 243 73 4,529
STORE CLOSING RESERVE 3,741 3,852 6,601
----------- ---------- ---------
TOTAL CURRENT LIABILITIES 58,282 63,999 62,826
LONG-TERM OBLIGATIONS 41,486 35,953 50,083
OTHER NONCURRENT LIABILITIES 6,970 7,085 5,566
STOCKHOLDERS' EQUITY
COMMON STOCK 5,830 5,830 5,830
ADDITIONAL CAPITAL 4,185 4,177 4,097
RETAINED EARNINGS 30,203 31,327 26,795
LESS TREASURY STOCK, AT COST (21) (21) (21)
----------- ---------- ---------
STOCKHOLDERS' EQUITY 40,197 41,313 36,701
----------- ---------- ---------
146,935 148,350 155,176
=========== ========== =========
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<PAGE>
OSHMAN'S SPORTING GOODS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE QUARTERS ENDED
MAY 2, 1998 AND MAY 3, 1997
(in thousands, except per share data)
(UNAUDITED)
1998 1997
-------- --------
NET SALES $ 72,140 $ 88,432
COST OF GOODS SOLD 46,760 58,470
-------- --------
GROSS PROFIT 25,380 29,962
OPERATING EXPENSES
SELLING AND ADMINISTRATIVE EXPENSES 25,874 30,021
PRE-OPENING EXPENSES -- 202
STORE CLOSING PROVISION -- 25
MISCELLANEOUS INCOME (345) (2,258)
-------- --------
OPERATING INCOME (LOSS) (149) 1,972
INTEREST EXPENSE, NET 972 1,029
-------- --------
INCOME (LOSS) BEFORE INCOME TAXES AND
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING
METHOD FOR PRE-OPENING EXPENSES (1,121) 943
INCOME TAX 3 23
-------- --------
INCOME (LOSS) BEFORE CUMULATIVE EFFECT
OF CHANGE IN ACCOUNTING METHOD FOR
PRE-OPENING EXPENSES (1,124) 920
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING
METHOD FOR PRE-OPENING EXPENSES -- (1,299)
-------- --------
NET LOSS $ (1,124) $ (379)
======== ========
EARNINGS (LOSS) PER SHARE
EARNINGS (LOSS) BEFORE CUMULATIVE EFFECT
OF CHANGE IN ACCOUNTING METHOD FOR
PRE-OPENING EXPENSES
BASIC EARNINGS (LOSS) PER SHARE $ (.19) $ .15
======== ========
DILUTED EARNINGS (LOSS) PER SHARE $ (.19) $ .15
======== ========
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING
METHOD FOR PRE-OPENING EXPENSES
BASIC EARNINGS (LOSS) PER SHARE $ -- $ (.22)
======== ========
DILUTED EARNINGS (LOSS) PER SHARE $ -- $ (.22)
======== ========
NET EARNINGS (LOSS)
BASIC EARNINGS (LOSS) PER SHARE $ (.19) $ (.07)
======== ========
DILUTED EARNINGS (LOSS) PER SHARE $ (.19) $ (.07)
======== ========
WEIGHTED AVERAGE SHARES OUTSTANDING 5,830 5,830
DILUTED EFFECT OF STOCK OPTIONS -- --
-------- --------
DILUTED WEIGHTED AVERAGE SHARES OUTSTANDING 5,830 5,830
======== ========
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<PAGE>
OSHMAN'S SPORTING GOODS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MAY 2, 1998 AND MAY 3, 1997
(in thousands)
(UNAUDITED)
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
CASH FLOWS OF OPERATING ACTIVITIES:
NET (LOSS) $(1,124) $ (379)
ADJUSTMENTS TO RECONCILE NET CASH (USED) PROVIDED BY OPERATING ACTIVITIES:
DEPRECIATION AND AMORTIZATION 1,921 1,737
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE FOR PRE-OPENING COSTS -- 1,299
CHARGE TO RESERVE FOR STORE CLOSINGS (237) (4,086)
PROVISION FOR STORE CLOSINGS -- 25
STOCK OPTION AND BONUS PLAN EXPENSE 8 29
GAIN ON DISPOSITION OF FIXED ASSETS (33) (1,922)
AMORTIZATION OF DEFERRED RENTAL ALLOWANCES (115) (89)
CHANGES IN ASSETS AND LIABILITIES:
DECREASE IN ACCOUNTS RECEIVABLE 91 1,713
DECREASE IN MERCHANDISE INVENTORIES 94 8,106
DECREASE (INCREASE) IN PREPAID EXPENSES AND OTHER 50 (1,820)
DECREASE IN TRADE ACCOUNTS PAYABLE (2,353) (10,037)
DECREASE IN ACCRUED LIABILITIES (2,861) (2,986)
INCREASE IN INCOME TAXES 170 --
------- --------
NET CASH USED BY OPERATING ACTIVITIES (4,389) (8,410)
CASH FLOWS OF INVESTING ACTIVITIES:
PROCEEDS FROM SALE OF FIXED ASSETS 36 9
PURCHASE OF PROPERTY, PLANT AND EQUIPMENT (776) (1,280)
PROCEEDS FROM DISPOSITION OF REAL ESTATE AND LEASEHOLDS -- 2,006
PROCEEDS FROM NOTE RECEIVABLE 12 11
PROCEEDS FROM LANDLORDS 105 --
------- --------
NET CASH (USED) PROVIDED BY INVESTING ACTIVITIES (623) 746
CASH FLOWS OF FINANCING ACTIVITIES:
PAYMENTS OF LONG-TERM OBLIGATIONS (146) (210)
PROCEEDS FROM REVOLVING CREDIT FACILITY, NET 5,140 7,904
------- --------
NET CASH PROVIDED BY FINANCING ACTIVITIES 4,994 7,694
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (18) 30
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 363 437
------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 345 $ 467
======= ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
CASH (RECEIVED) PAID DURING THE YEAR FOR
INCOME TAXES $ (255) $ (12)
INTEREST 1,132 1,041
NONCASH FINANCING ACTIVITIES:
BORROWINGS UNDER THE REVOLVING CREDIT FACILITY
TO SETTLE LONG-TERM OBLIGATIONS $ 3,100 $ --
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<PAGE>
OSHMAN'S SPORTING GOODS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 2, 1998 AND MAY 3, 1997
(UNAUDITED)
NOTE A
The financial statements are condensed and should be read in conjunction with
the 1997 annual report. The financial information contained herein is unaudited,
but in the opinion of the management of the Company, includes all adjustments
(consisting of normal recurring adjustments) for a fair presentation of the
results of operations for the periods indicated. The results for the three
months ended May 2, 1998 are not necessarily indicative of the results to be
expected for the full year.
NOTE B
In fiscal 1997, the Company changed its method of accounting for pre-opening
expenses from amortizing such expenses against earnings over a one year period
subsequent to the new store opening to charging such expenses against earnings
in the period in which the new store opens for business. The cumulative effect
to periods prior to February 2, 1997 was $1,299,000. The first quarter of fiscal
1997 has been restated to reflect the change in the method of accounting for
pre-opening expenses resulting in a net reduction of $920,000 to previously
reported results.
<PAGE>
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
Results of Operations
The following table sets forth selected statements of operations data of the
Company expressed as a percentage of net sales for the periods indicated:
PERCENTAGE OF NET SALES
-----------------------
1ST QUARTER
-----------------------
1998 1997
---------- ---------
Net sales 100.0 100.0
Cost of goods sold 64.8 66.1
---------- ---------
Gross profit 35.2 33.9
Operating expenses
Selling and administrative expenses 35.9 34.0
Pre-opening expenses -- .2
Store closing provision -- --
Miscellaneous income (.5) (2.6)
---------- ---------
Operating income (loss) (.2) 2.2
Interest expense, net 1.4 1.2
---------- ---------
Income (loss) before income taxes and
cumulative effect of change in accounting
method for pre-opening expenses (1.6) 1.1
Income taxes -- --
---------- ---------
Income (loss) before cumulative effect of
change in accounting method for
pre-opening expenses (1.6) 1.0
---------- ---------
Cumulative effect of change in accounting
method for pre-opening expenses -- (1.5)
---------- ---------
Net income (loss) (1.6) (.4)
========== =========
Net sales for the first quarter of fiscal 1998 declined 18.4% to $72.1 million
from $88.4 million in the same period last year. The net decrease is primarily
attributable to lost sales from the 51 stores closed in fiscal 1997 (a number of
which were undergoing liquidation sales in the first quarter of fiscal 1997) and
a comparable store sales decline of 4.7% in continuing stores. Management
attributes the decreased comparable sales to reduced inventory levels and to a
change in the timing of the Company's Once A Year Sale which began in May this
year compared to beginning in the last full week of April in fiscal 1997.
Approximately 1.7% of the comparable store sales decline is attributable to the
change in timing of this major promotion event.
<PAGE>
Cost of goods sold as a percentage of net sales was reduced to 64.8% in the
first quarter of fiscal 1998 from 66.1% in the same period of fiscal 1997. The
reduction in cost of goods sold as a percentage of net sales in the first
quarter of fiscal 1998 was attributable to reduced markdowns compared to the
first quarter of the previous year and an improvement in gross margins as a
percentage of sales resulting from the Company's strategy to improve inventory
productivity and reduce promotional costs.
Selling and administrative expenses as a percentage of net sales were 35.9% for
the quarter ended May 2, 1998 compared to 34.0% in the first quarter of fiscal
1997 and 35.8% in the first quarter of fiscal 1996. Selling and administrative
expenses as a percentage of sales in fiscal 1997 were lower than normal
primarily due to the increased sales volumes in discontinued stores which were
undergoing liquidation sales during that period. Selling and administrative
expenses as a percentage of sales in continuing operations increased slightly
(.3%) as a result of lower sales in existing stores as discussed above and due
to the impact of new stores that have not yet grown to expected sales levels.
In fiscal 1997, the Company changed its accounting method for pre-opening
expenses to charge such expenses against earnings in the period in which a new
store opens for business. The cumulative effect to periods prior to February 2,
1997 was $1.3 million. The first quarter of fiscal 1997 has been restated to
reflect the new accounting method, resulting in a net reduction of $920,000 to
previously reported results. No new stores were opened in the first quarter of
fiscal 1998.
Miscellaneous income was $345,000 in the first quarter of fiscal 1998 compared
to $2.3 million in the first quarter of fiscal 1997. The fiscal 1997 results
include a gain of $1.9 million related to the sale of a leasehold interest.
Net interest expense was approximately the same for the first quarters of fiscal
1998 and fiscal 1997.
Income taxes in the first quarters of fiscal 1998 and 1997 are related primarily
to state income taxes. In fiscal 1998, net operating loss carryforwards are
anticipated to be realized, resulting in no Federal income tax expense.
In the first quarter of fiscal 1998, the Company had a pretax loss of $1.1
million compared to income of $943,000, before income taxes and cumulative
effect of change in accounting method for pre-opening expenses, in the same
period last year. The results in the first quarter of fiscal 1997 include a gain
from the sale of a leasehold interest of $1.9 million and direct store
contributions from discontinued stores, some of which were in liquidation as
discussed above, of approximately $1.5 million. The absence of these
non-recurring items in the first quarter of fiscal 1998 were somewhat offset by
improved results from the Company's ongoing operations through improved gross
margins and relatively flat expenses as a percentage of sales, even though
comparable store sales declined.
<PAGE>
Liquidity and Capital Resources
In the first quarter of fiscal 1998, operating activities used cash totaling
$4.4 million. Cash totaling $623,000 was used primarily for the purchase of
property, plant and equipment. Financing activities provided net cash of $5.0
million through the utilization of the Company's credit facility. The Company,
at its option and without penalty, pre-paid a $3.1 million mortgage note
secured by land and a building where it operates a SuperSports USA megastore.
Merchandise inventories remained relatively flat to the beginning of the fiscal
year. Comparable store inventories were reduced approximately 9% from year ago
levels primarily as a result of the Company's strategy to improve inventory
productivity by lowering average inventory levels and improving turnover rates.
These reductions offset the normal seasonal buildup of inventories in
anticipation of the Company's annual Once A Year Sale which began in May.
Net additions to property, plant and equipment of $623,000 during the first
quarter of 1998 were related primarily to renovations and refurbishment in
existing locations. The Company expects to open only one new SuperSports USA
megastore in fiscal 1998, during the fourth quarter.
The Company's primary source of liquidity in the first quarter of fiscal 1998
was the Company's credit facility, under which average borrowings were $43.7
million compared to $43.0 million in the first quarter of fiscal 1997.
Long-term obligations increased to $41.5 million from $36.0 million at the
beginning of the fiscal 1998 as the Company utilized its credit facility to meet
its working capital requirements. In May 1998, the Company sold land and a
building in California, which had been leased to a third party, for $3.8 million
in cash. The Company believes that its revolving credit facility together with
cash provided by operations will be adequate to meet anticipated capital needs
for fiscal 1998.
The information discussed herein includes "forward-looking statements" within
the meaning of the federal securities laws. Although the Company believes that
the expectations reflected in such forward-looking statements are reasonable,
the Company's actual results could differ materially as a result of certain
factors, including: the Company's ability to manage its expansion efforts in
existing and new markets, availability of suitable new store locations at
acceptable terms, levels of discretionary consumer spending, availability of
merchandise to meet fluctuating consumer demands, customer response to the
Company's merchandise offerings, fluctuating sales margins, increasing
competition in sporting goods and apparel retailing, the results of financing
efforts and financial market conditions, as well as other factors described from
time to time in the Company's periodic reports filed with the Securities and
Exchange Commission.
<PAGE>
PART II -- OTHER INFORMATION
<PAGE>
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.
OSHMAN'S SPORTING GOODS, INC.
Date: 6/12/98 By: /s/ A. LYNN BOERNER
--------------------- ------------------------
A. Lynn Boerner
Vice-President and Chief
Accounting Officer
<PAGE>
ITEM 6. EXHIBITS
Exhibit Index
27.1 Financial Data Schedule
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAY-02-1998
<PERIOD-START> FEB-01-1998
<PERIOD-END> JAN-30-1999
<CASH> 345
<SECURITIES> 0
<RECEIVABLES> 1,638
<ALLOWANCES> 0
<INVENTORY> 99,892
<CURRENT-ASSETS> 104,558
<PP&E> 92,312
<DEPRECIATION> 50,267
<TOTAL-ASSETS> 146,935
<CURRENT-LIABILITIES> 58,282
<BONDS> 41,486
0
0
<COMMON> 5,830
<OTHER-SE> 34,367
<TOTAL-LIABILITY-AND-EQUITY> 146,935
<SALES> 72,140
<TOTAL-REVENUES> 72,140
<CGS> 46,760
<TOTAL-COSTS> 46,760
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 972
<INCOME-PRETAX> (1,121)
<INCOME-TAX> 3
<INCOME-CONTINUING> (1,124)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,124)
<EPS-PRIMARY> (0.19)
<EPS-DILUTED> (0.19)
</TABLE>
