<PAGE> 1
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 April 30, 1995
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 or 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number 0-6672
MAC FRUGAL'S BARGAINS o CLOSE-OUTS INC.
(Exact name of registrant as specified in its charter)
Delaware 95-2745285
- ---------------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
2430 East Del Amo Boulevard
Dominguez, California 90220-6306
- ---------------------------------------- ------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (310) 537-9220
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.
/X/ Yes / / No
Indicate the number of shares outstanding of each of the issuer's classes of
Common Stock, as of the latest practicable date.
Common Shares Outstanding at May 28, 1995 25,541,218
<PAGE> 2
MAC FRUGAL'S BARGAINS o CLOSE-OUTS INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(Amounts in thousands except par value)
<TABLE>
<CAPTION>
April 30, January 29,
1995 1995
--------- -----------
<S> <C> <C>
Assets
Current Assets :
Cash and cash equivalents $ 7,971 $ 6,674
Merchandise inventories 245,156 182,102
Other current assets 14,401 14,883
--------- ---------
Total current assets 267,528 203,659
Property, Equipment and Improvements :
Land 33,966 33,876
Buildings and improvements 81,410 80,762
Automobiles and trucks 2,778 2,778
Furniture, fixtures and equipment 93,327 89,225
Leasehold improvements 75,621 73,931
Construction in progress 1,651 2,987
--------- ---------
288,753 283,559
Less: Accumulated depreciation
and amortization (109,690) (105,339)
--------- ---------
179,063 178,220
Deferred Income Tax Asset 782 780
Deferred Financing Costs and Other Assets 3,497 3,717
Total Assets $ 450,870 $ 386,376
========= =========
Liabilities and Stockholders' Equity
Current Liabilities :
Checks outstanding $ 16,136 $ 11,098
Loan payable to bank 136,100 80,500
Current portion of long-term debt 64 63
Accounts payable 29,823 9,359
Accrued expenses 33,669 37,096
Income taxes payable 1,248 12,154
Sales tax payable 3,507 9,377
-------- --------
Total current liabilities 220,547 159,647
Long-Term Debt 4,751 4,491
Deferred Income Taxes 5,357 5,357
Stockholders' Equity :
Preferred stock, $1 par value;
authorized, 500 shares; issued, none
Common stock, $.02778 par value;
authorized, 100,000 shares;
issued 25,541 shares (April 30, 1995)
and 29,854 shares (January 29, 1995) 710 829
Additional paid-in capital - 3,216
Retained earnings 219,505 294,917
-------- --------
220,215 298,962
Less: Treasury stock, at cost, 4,313 shares
( January 29,1995) - (82,081)
-------- --------
Total Stockholders' Equity 220,215 216,881
Total Liabilities and Stockholders' Equity $450,870 $386,376
======== ========
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE> 3
MAC FRUGAL'S BARGAINS o CLOSE-OUTS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
( UNAUDITED )
( Amounts in thousands except per share amounts )
<TABLE>
<CAPTION>
For the three months ended
--------------------------
April 30, May 1,
1995 1994
-------- --------
<S> <C> <C>
NET SALES $154,250 $142,095
Cost of sales 83,535 75,325
-------- --------
GROSS PROFIT 70,715 66,770
Store expenses 46,218 41,357
Warehouse and administrative
expenses 16,787 14,605
-------- --------
TOTAL OPERATING EXPENSES 63,005 55,962
OPERATING INCOME 7,710 10,808
Interest expense, net 2,231 958
-------- --------
EARNINGS BEFORE INCOME TAXES 5,479 9,850
INCOME TAX EXPENSE 2,164 3,940
-------- --------
NET EARNINGS $ 3,315 $ 5,910
======== ========
EARNINGS PER COMMON SHARE $ 0.13 $ 0.20
AVERAGE SHARES OUTSTANDING 25,747 29,726
======== ========
</TABLE>
- ---------------
See Notes to Consolidated Financial Statements.
<PAGE> 4
MAC FRUGAL'S BARGAINS o CLOSE-OUTS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(UNAUDITED)
( Amounts in thousands )
<TABLE>
<CAPTION>
Common Stock Additional Treasury Stock
------------------ Paid-in Retained ----------------------
Shares Amount Capital Earnings Shares Amount Total
------ ------ ---------- -------- ------ -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, January 29, 1995 29,854 $ 829 $ 3,216 $294,917 4,313 $(82,081) $216,881
Non-cash compensation
expense 19 19
Treasury stock retired (4,313) (119) (3,235) (78,727) (4,313) 82,081 0
Net earnings for three months 3,315 3,315
------ ----- ------- -------- ------ -------- --------
Balance, April 30, 1995 25,541 $ 710 $ 0 $219,505 0 $ 0 $220,215
====== ===== ======= ======== ====== ======== ========
</TABLE>
- ----------------------
See Notes to Consolidated Financial Statements.
<PAGE> 5
MAC FRUGAL'S BARGAINS o CLOSE-OUTS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
UNAUDITED
(Amounts in thousands)
<TABLE>
<CAPTION>
For the three months ended
-----------------------------------------------
April 30, May 1,
1995 1994
------------ ------------
<S> <C> <C>
INCREASE IN CASH AND CASH EQUIVALENTS
Cash flows from operating activities:
Cash received from customers $ 154,250 $ 142,095
Cash paid to suppliers and employees (188,637) (151,936)
Income taxes paid (13,073) (51)
Interest paid (net of amount capitalized) (1,880) (805)
Interest received 66 26
--------- ---------
Net cash used in operating activities (49,274) (10,671)
Cash flows from investing activities:
Capital expenditures (5,290) (3,177)
Proceeds from sale of fixed assets - 471
--------- ---------
Net cash used in investing activities (5,290) (2,706)
Cash flows from financing activities:
Net borrowings under line of credit agreements 55,600 20,100
Payment of long-term debt (15) (39)
Proceeds from sale of stock options - 211
Repurchase of treasury stock - (6,092)
Other (net) 276 109
--------- ---------
Net cash provided by financing activities 55,861 14,289
--------- ---------
Increase in cash and cash equivalents 1,297 912
Cash and cash equivalents, beginning of period 6,674 12,445
--------- ---------
Cash and cash equivalents, end of period $ 7,971 $ 13,357
========= =========
</TABLE>
- ----------------------
See Notes to Consolidated Financial Statements.
<PAGE> 6
MAC FRUGAL'S BARGAINS o CLOSE-OUTS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
UNAUDITED
(Amounts in thousands)
(continued)
<TABLE>
<CAPTION>
For the three months ended
------------------------------------------------
April 30, May 1,
1995 1994
------------ ------------
<S> <C> <C>
Reconciliation of Net Income to Net Cash Used
In Operating Activities:
- -----------------------------------------------------------
Net income $ 3,315 $ 5,910
Adjustments to reconcile net income to net cash
used in operating activities:
Depreciation and amortization 4,431 3,805
Loss (gain) on sale of fixed assets 16 (219)
Non-cash compensation expense 19 19
Changes in assets and liabilities:
Increase in inventory (63,054) (19,236)
Decrease in other assets 702 687
Increase in deferred income tax asset (2) -
Increase (decrease) in checks outstanding, accounts payable, accrued
expenses and sales tax payable 16,205 (4,599)
(Decrease) increase in federal and state income taxes (10,906) 2,962
-------- --------
Total adjustments (52,589) (16,581)
-------- --------
Net cash used in operating activities $(49,274) $(10,671)
======== ========
</TABLE>
- ----------------------
See Notes to Consolidated Financial Statements.
<PAGE> 7
MAC FRUGAL'S BARGAINS o CLOSE-OUTS INC. AND SUBSIDIARIES
PART I - ITEM I - FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 The information furnished was prepared internally by the Company and
has not been independently verified. However, it reflects all
adjustments which are, in the opinion of Management, necessary to
present a fair statement of results for the interim period. All
adjustments are of a normal, recurring nature.
Note 2 Earnings per Common Share is based on the weighted average number of
Common Shares outstanding, adjusted for dilutive effects of stock
options, if applicable.
Note 3 The Company's effective tax rate for fiscal 1994 and the first three
months ended April 30, 1995 was 39.5%. The provision for income tax
expense for the three months ended April 30, 1995 was $2,164,000. For
interim reporting purposes the entire provision for income tax expense
was classified as current.
Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amount of assets and
liabilities for financial reporting purposes and the amounts
used for income tax purposes. The Company had a net deferred
tax asset of $803,000 at April 30, 1995 and $800,000 at
January 29, 1995. This change in the net deferred tax asset
is due to a reclassification from deferred income taxes to
current income taxes payable. Other current assets on the
balance sheet includes $5,378,000 and $5,377,000 of current
deferred assets at April 30, 1995 and January 29, 1995,
respectively.
The Company provided no valuation allowance against its
deferred tax assets recorded as of April 30, 1995 and January
29, 1995.
Note 4 The Company retired all of its treasury shares (4,313,200) during the
first quarter of the current year.
Note 5 Certain reclassifications have been made to prior year amounts
to conform to the current year presentation.
<PAGE> 8
PART I - ITEM II MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITIONS AND INTERIM RESULTS OF OPERATIONS
SALES
Total sales increased 8.6% and comparable store sales decreased 4.1% for the
three months ended April 30, 1995 as compared to the same period a year ago.
The total sales increase was a result of opening 43 net new stores since May 1,
1994, partially offset by the comparable store sales decrease noted above. The
comparable store sales decrease was primarily due to the low inventory position
in the warehouses at year end which impaired fresh merchandise from flowing to
the stores early in the quarter. At April 30, 1995, 285 stores were in
operation compared to 242 stores at May 1, 1994. The Company opened 7 new
stores during the current quarter.
Sales from the 160 California stores open at April 30, 1995 were approximately
64% of the Company's current year first quarter sales. California stores
experienced comparable store sales decreases during the first quarter which
were consistent with the company wide experience noted above.
The Company opened two stores in Chicago, Illinois in April 1995 marking its
entry into the midwestern markets.
GROSS PROFIT RATE
The gross profit rate of 45.8% for the first quarter this year decreased from
47.0% for the first quarter last year. The decrease is due primarily to higher
markdowns as a percent of sales which were taken to attract customers into the
stores and clear selected merchandise as well as an increase in the reserve
rate for inventory shrinkage based on the Company's fiscal 1994 year-end
results. However, these items were partially offset by a higher initial markup
on beginning store inventory in the current quarter versus the same quarter in
the prior year.
OPERATING EXPENSE RATES
Operating expenses were 40.8% of sales for the current year first quarter.
Prior year first quarter operating expenses were 39.4% of sales. Operating
expenses as a percentage of sales increased in both the stores and the
warehouse and administrative areas.
The increase in store expenses was mainly due to higher rent, depreciation,
advertising and payroll as a percentage of sales, offset partially by
efficiencies in workers' compensation insurance as a percentage of sales. The
increases in rent, depreciation and payroll are driven by new stores and are
expected during a phase of expansion. The increased percentages were also
adversely affected by the decrease in comparable store sales for the current
year first quarter. The increase in advertising expense as a percentage of
sales is due to one additional circular in the current quarter and additional
institutional advertising for the Company's new market in Chicago, Illinois.
<PAGE> 9
General cost containment at the warehouses kept most expenses constant as a
percentage of sales. However, increases in payroll were commensurate with the
increase in inventory levels from the fiscal 1994 year end and the Company's
effort to supply the stores with fresh merchandise in the current year first
quarter.
Similarly, cost containment in the administrative areas kept most expenses
constant as a percentage of sales. However, the Company incurred approximately
$1,100,000 in severance charges during the first quarter of the current year
as a result of eliminating a number of administrative positions.
INTEREST EXPENSE
Net interest expense of $958,000 in the first quarter of fiscal 1994 increased
to $2,231,000 for the same period in 1995. Factors contributing to the increase
are higher average debt levels coupled with higher interest rates. The
increase in average debt levels are the combined result of larger inventory
growth in the first quarter of 1995 compared to the same period in 1994 and the
treasury shares repurchased last year.
INCOME TAX RATE
The income tax rate for the current year first quarter was 39.5%, and for
interim purposes, the entire provision for income taxes is classified as
current. The current rate of 39.5% is consistent with the fiscal 1994 rate.
Income taxes were provided at a rate of 40.0% in the prior year first quarter.
The Company had a net deferred tax asset of $803,000 at April 30, 1995 and
$800,000 at January 29, 1995. This change in the net deferred tax asset
resulted from a reclassification from deferred income taxes to current income
taxes payable. Other current assets on the balance sheet includes $5,378,000
and $5,377,000 of current deferred assets at April 30, 1995 and January 29,
1995, respectively.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents increased $1,297,000 in the first three months of
fiscal 1995 compared to an increase of $912,000 in the first three months of
fiscal 1994. The major factors influencing the increase of cash and cash
equivalents in the first three months of the current year were an increase in
accounts payable and higher net borrowings, partially offset by an increase in
inventory and increased income tax payments.
The Company's long-term debt was 2.2% of equity and its total debt was 64.0% of
equity at the end of the first three months of fiscal 1995 compared to 1.5% and
22.9%, respectively, at May 1, 1994. At January 29, 1995, long-term debt was
2.1% of equity and total debt was 39.2% of equity. These changes reflect the
Company's financing of higher merchandise inventory levels. In addition, the
changes from May 1, 1994 reflect the partial bank financing of repurchases of
treasury stock during the last nine months of fiscal 1994.
<PAGE> 10
The Company believes its present lines of credit are adequate to meet any
seasonal or temporary liquidity needs that cannot be met with cash flow from
operating activities. At April 30, 1995, the Company had $136,100,000 of
outstanding revolving debt. Of this outstanding debt, $120,000,000 was borrowed
under committed credit lines and $16,100,000 was borrowed under uncommitted
credit lines.
The Company's current ratio at the end of the first three months was 1.21
versus 1.28 at fiscal year end 1994 and 1.92 at May 1, 1994. The change since
May 1, 1994 is primarily due to the use of short-term borrowings to finance a
portion of the repurchases of treasury stock during the last nine months of
fiscal 1994.
For the three months ended April 30, 1995, inventory turnover remained constant
at .39 compared to the three months ended May 1, 1994.
<PAGE> 11
PART II - OTHER INFORMATION
Item 6 Exhibits and Reports on Form 8-K
(a) Exhibits -- Exhibit 27 -- Financial Data Schedule.
(b) Reports on Form 8-K - No reports on Form 8-K have been filed
during the quarter ended April 30, 1995.
<PAGE> 12
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.
MAC FRUGAL'S BARGAINS o CLOSE-OUTS INC.
/s/ Philip L. Carter
-------------------------------------
Philip L. Carter
President and Chief Executive Officer
(Principal Executive Officer and
Principal Accounting Officer)
June 8, 1995
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-28-1996
<PERIOD-START> JAN-30-1995
<PERIOD-END> APR-30-1995
<CASH> 7,971
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 245,156
<CURRENT-ASSETS> 267,528
<PP&E> 288,753
<DEPRECIATION> 109,690
<TOTAL-ASSETS> 450,870
<CURRENT-LIABILITIES> 220,547
<BONDS> 0
<COMMON> 710
0
0
<OTHER-SE> 219,505
<TOTAL-LIABILITY-AND-EQUITY> 450,870
<SALES> 154,250
<TOTAL-REVENUES> 154,250
<CGS> 83,535
<TOTAL-COSTS> 83,535
<OTHER-EXPENSES> 63,005
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,231
<INCOME-PRETAX> 5,479
<INCOME-TAX> 2,164
<INCOME-CONTINUING> 3,315
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,315
<EPS-PRIMARY> .13
<EPS-DILUTED> 0
</TABLE>
