<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, 1997 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 0-14577
--------------
Gantos, Inc.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Michigan 38-1414122
- -------------------------------- ----------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1266 E. Main Street, Fifth Floor, Stamford, Connecticut 06902
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (203) 358-0294
--------------------------
3260 Patterson, S.E., Grand Rapids, Michigan 49512
- --------------------------------------------------------------------------------
(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
----------- -----------
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
Yes X No
----------- -----------
Number of shares of common stock outstanding at June 6, 1997: 7,526,930
----------
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GANTOS, INC.
Page
Number
------
PART I. FINANCIAL INFORMATION
Statements of Income 3
Balance Sheets 4
Statements of Cash Flows 5
Notes to Financial Statements 6
Management's Discussion and Analysis of
Results of Operations and Financial Condition 7-9
PART II. OTHER INFORMATION
Exhibits and Reports on Form 8-K 10
Signatures 11
Page 2 of 11 pages.
<PAGE>
GANTOS, INC.
STATEMENTS OF INCOME
(Amounts in thousands, except per share and store data)
13 Weeks Ended
---------------------
May 3, May 4,
1997 1996
------- -------
Net sales $45,564 $50,365
Cost of sales (including buying,
distribution and occupancy costs) (35,216) (38,612)
------- -------
Gross income 10,348 11,753
Selling, general and administrative expense (9,589) (9,744)
Finance charge and other revenue 1,211 1,111
------- -------
Operating income 1,970 3,120
Interest expense (515) (572)
------- -------
Income before income taxes 1,455 2,548
Income taxes - -
------- -------
Net income $ 1,455 $ 2,548
------- -------
------- -------
Net income per share $ 0.19 $ 0.34
------- -------
------- -------
Outstanding Shares 7,526,930 7,577,290
--------- ---------
--------- ---------
Estimated weighted average shares outstanding 7,526,930 7,577,290
--------- ---------
--------- ---------
Stores open at end of period 115 113
--- ---
--- ---
See accompanying notes to financial statements.
Page 3 of 11 pages.
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GANTOS, INC.
BALANCE SHEETS
(Amounts in thousands, except share data)
<TABLE>
<CAPTION>
ASSETS May 3, February 1, May 4,
1997 1997 1996
------- ----------- --------
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents $ 2,749 $ 4,346 $ 2,929
Accounts receivable, less
allowance for doubtful accounts
of $599, $636 and $547 at
May 3, 1997, February 1, 1997
and May 4, 1996, respectively 21,009 21,973 23,381
Merchandise inventories 27,216 22,373 26,695
Prepaid expenses and other 3,341 3,171 2,951
------- ------- --------
Total current assets 54,315 51,863 55,956
------- ------- --------
Property and equipment, at cost:
Leasehold improvements 28,872 30,168 29,086
Furniture and fixtures 29,279 32,159 31,249
Other 618 52 961
------- ------- --------
Total property and equipment 58,769 62,379 61,296
Less - Accumulated depreciation
and amortization (44,983) (48,384) (44,749)
------- ------- --------
Net property and equipment 13,786 13,995 16,547
------- ------- --------
Total assets $68,101 $65,858 $ 72,503
------- ------- --------
------- ------- --------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $14,607 $10,749 $ 15,908
Accrued expenses and other 9,502 10,307 10,878
Current provision for facilities closings 1,044 1,567 2,417
------- ------- --------
Total current liabilities 25,153 22,623 29,203
------- ------- --------
Long-term debt 10,146 11,940 11,940
------- ------- --------
Shareholders' equity:
Preferred stock, $.01 par value, 2,000,000
shares authorized; none issued
Common stock, $.01 par value, 20,000,000
shares authorized; approximately 7,527,000,
7,563,000 and 7,577,000 issued and
outstanding at May 3, 1997, February 1, 1997,
and May 4, 1996, respectively 76 76 76
Additional paid-in capital 40,849 40,798 40,652
Accumulated deficit (8,123) (9,579) (9,368)
------- ------- --------
Total shareholders' equity 32,802 31,295 31,360
------- ------- --------
Commitments - - -
------- ------- --------
Total liabilities and shareholders' equity $68,101 $65,858 $ 72,503
------- ------- --------
------- ------- --------
</TABLE>
See accompanying notes to financial statements.
Page 4 of 11 pages.
<PAGE>
GANTOS, INC.
STATEMENTS OF CASH FLOWS
(Thousands)
13 Weeks Ended
--------------------
May 3, May 4,
1997 1996
-------- --------
Cash flows from operating activities:
Net income $ 1,455 $ 2,548
------- -------
Adjustments to reconcile net income to
net cash provided by operating activities:
Cash used for facilities closings (521) -
Depreciation and amortization 1,304 1,258
Restricted stock compensation expense 28 48
Changes in assets and liabilities:
Accounts receivable 964 (762)
Merchandise inventories (4,844) (2,740)
Prepaid expenses and other (174) (100)
Accounts payable 3,858 3,789
Accrued expenses and other (805) (1,838)
-------- --------
Total adjustments (190) (345)
-------- --------
Net cash provided by
operating activities 1,265 2,203
-------- --------
Cash flows from investing activities:
Capital expenditures (1,021) (337)
-------- --------
Net cash used by investing activities (1,021) (337)
-------- --------
Cash flows from financing activities:
Issuance of Common Stock 23 -
Principal payments under capital lease
obligations and other long-term debt (1,795) (455)
Net borrowings under revolving
credit notes payable - -
Other (69) 65
-------- --------
Net cash used by financing activities (1,841) (390)
-------- --------
Net increase (decrease) in cash
and cash equivalents (1,597) 1,476
Cash and cash equivalents at beginning of period 4,346 1,453
-------- --------
Cash and cash equivalents at end of period $ 2,749 $ 2,929
-------- --------
-------- --------
Supplemental Disclosures of Cash
flow information:
Cash paid during the period for:
Interest (net of amount capitalized) $ 435 $ 452
Income taxes $ 65 $ 14
See accompanying notes to financial statements.
Page 5 of 11 pages.
<PAGE>
GANTOS, INC.
NOTES TO FINANCIAL STATEMENTS
1. The interim financial statements included herein have been prepared by the
Company, without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information and footnote
disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been omitted
pursuant to such rules and regulations, although the Company believes that
the disclosures are adequate to make the information presented not
misleading. Nevertheless, it is recommended that these financial
statements be read in conjunction with the financial statements and notes
thereto included in the Company's Annual Report on Form 10-K for the fiscal
year ended February 1, 1997.
The accompanying interim financial statements reflect all adjustments which
are, in the opinion of management, necessary to a fair statement of the
results of the interim periods presented and necessary to present fairly
the financial position as of May 3, 1997, February 1, 1997 and May 4, 1996
and the results of operations and cash flows for the thirteen weeks ended
May 3, 1997 and May 4, 1996. Certain amounts from the prior year have been
reclassified to conform with the presentation used in the current year.
All adjustments are of a normal and recurring nature.
The results of operations for the thirteen week periods ended May 3, 1997
and May 4, 1996 are not necessarily indicative of the results to be
expected for the full year due to the seasonal nature of the business.
2. Inventories are stated at the lower of cost or market. A physical
inventory to determine actual cost of merchandise sold is taken at least
two times per year.
3. Net income per share is computed using the weighted average number of
common shares outstanding during each period.
4. The Company opened one new store on April 11, 1997.
Page 6 of 11 pages.
<PAGE>
GANTOS, INC.
MANAGEMENT'S DISCUSSION AND
ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
RESULTS OF OPERATIONS
THIRTEEN WEEKS ENDED MAY 3, 1997 COMPARED TO THIRTEEN WEEKS ENDED MAY 4, 1996
The following table indicates the percentage relationships to net sales of
various revenue and expense items for the thirteen-week periods ended May 3,
1997 and May 4, 1996.
As a percent of net
sales for the thirteen
weeks ended
----------------------
May 3, May 4,
1997 1996
------- -------
Net sales 100.0% 100.0%
Cost of sales (including buying,
distribution and occupancy costs) (77.3) (76.7)
----- -----
Gross income 22.7 23.3
Selling, general and administrative expense (21.1) (19.3)
Finance charge and other revenue 2.7 2.2
----- -----
Operating income 4.3 6.2
Interest expense (1.1) (1.1)
----- -----
Income before income taxes 3.2 5.1
Income taxes - -
----- -----
Net income 3.2% 5.1%
----- -----
----- -----
Net sales for the thirteen weeks ended May 3, 1997 were approximately $45.6
million, a decrease of approximately $4.8 million, compared to net sales of
approximately $50.4 million in the same period of the prior fiscal year. Net
sales for stores in operation throughout both periods decreased 10%, or $5.0
million, for the first quarter of 1997 compared to the same period in the prior
year. The 10% decrease in comparable store sales is comprised of a 7.8%
decrease in unit sales, a 3.0% decrease in average sales dollars per unit, and
an increase of 0.8% due to a change in merchandise mix. The Company experienced
negative comparable store sales during the first quarter and management expects
this trend to continue into the second quarter. The Company opened one new store
in April 1997.
Page 7 of 11 pages.
<PAGE>
Cost of sales for the thirteen weeks ended May 3, 1997, decreased $3.4 million,
while increasing as a percent of net sales to 77.3% compared to 76.7% in the
thirteen weeks ended May 4, 1996. The increase in cost of sales, as a
percentage of net sales, is primarily the result of decreased sales volume with
consistent buying, distribution and occupancy costs and lower vendor allowances,
partially offset by lower markdowns, all as a percentage of net sales.
Selling, general and administrative (SG&A) expense for the thirteen weeks ended
May 3, 1997 decreased approximately $155,000, compared to the same period in the
prior fiscal year. The decrease is primarily due to continued cost control
measures at the store and corporate levels. As a percent of net sales, SG&A
expense increased from 19.3% to 21.1% for the thirteen weeks ended May 3, 1997,
primarily as a result of lower sales.
Finance charge and other revenue increased approximately $100,000 in the first
quarter of 1997 compared to the first quarter of 1996. The increase is
primarily the result of an increased late fee policy implemented on the Gantos
charge card in March 1997, partially offset by a decrease in finance charge
income during the first quarter of 1997 due to a lower average outstanding
balance of Gantos credit card receivables compared to the same period in the
prior fiscal year. The decrease in the receivable balances is primarily the
result of lower sales and lower use of the Gantos charge card. Finance charge
income is expected to remain lower than last year due to sales volume.
Interest expense decreased approximately $57,000 during the thirteen weeks ended
May 3, 1997, compared to the same period in the prior fiscal year. The decrease
is primarily the result of payments made on the long-term debt during 1996 and
the first quarter of 1997.
The effective income tax rate varies from the statutory rate of 35% due to the
effect of the graduated tax rate and the reversal of valuation allowances during
the quarter.
These factors resulted in net income of approximately $1.5 million, or $0.19 per
share, in the first quarter of 1997 compared to net income of $2.5 million, or
$0.34 per share, in the first quarter of 1996.
Page 8 of 11 pages.
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities was $1.3 million in the first quarter
of 1997 compared to $2.2 million in the same period a year ago. The decrease
was primarily due to lower net income in 1997 compared to 1996, an increase in
cash used for facilities closings during the first quarter of 1997 compared to
1996, and a larger increase in merchandise inventories in 1997 compared to 1996,
due to the beginning of the year inventory levels in 1997 being lower than the
beginning of the year inventory levels in 1996. As of May 3, 1997, merchandise
inventory levels per store are consistent with prior year levels. These uses of
cash are partially offset by a decrease in accounts receivable compared to an
increase in the prior year due to decreased sales volume on the Gantos charge
card in 1997 and a smaller decrease in accrued items due primarily to the timing
of payments.
Net cash used by financing activities in the first quarter of 1997 was
approximately $1.8 million compared to net cash used of approximately $390,000
in the same period a year ago. The increase in cash used is the result of a
payment of $1.8 million made in April 1997 with respect to the long-term Notes.
The Company has a revolving credit agreement expiring March 31, 2000, with Fleet
Bank N.A. (formerly NatWest Bank N.A.) and LaSalle National Bank with a maximum
commitment of $40 million, subject to a borrowing base formula and lender
reserves. As of June 6, 1997, the Company had $1.2 million in borrowings and
$2.1 million in letters of credit outstanding under this facility. As of June
6, 1997, approximately $28.4 million was available for borrowing under this
facility. During the first quarter of 1997, the weighted average interest rate
under this facility was 9.5%.
The Company expects its cash on hand, cash flow from operations and borrowings
under the Fleet facility to be sufficient to meet its capital expenditure,
working capital and other liquidity needs during the remainder of 1997. Capital
expenditures for 1997 are estimated to be $6.0 million. These amounts are
expected to be used primarily to remodel and refixture approximately one to five
existing stores in 1997, build out the new Grand Rapids support and distribution
facilities, open one to five new stores and make various computer enhancements.
Each of the above statements regarding future revenues, expenses or business
plans (including statements regarding the sufficiency of the Company's cash
resources to meet future liquidity needs) may be a "forward looking statement"
within the meaning of the Securities Exchange Act of 1934. Such statements are
subject to important factors and uncertainties that could cause actual results
to differ materially from those in the forward-looking statement, including the
continued support of the Company's trade creditors and factors, general trends
in retail clothing apparel purchasing, especially during the Christmas season,
and the factors set forth in this Management's Discussion and Analysis of
Financial Condition and Results of Operations.
Page 9 of 11 pages.
<PAGE>
PART II. OTHER INFORMATION
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
10.1 1997 Gantos, Inc. Executive Bonus Plan, adopted May 20,
1997.
27 Financial Data Schedule
(b) No reports on Form 8-K were filed by the Registrant during the
quarter for which this report is filed.
Page 10 of 11 pages.
<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.
Date: June 16, 1997
GANTOS, INC.
-----------------------------------
(Registrant)
By: /S/ ARLENE H. STERN
-------------------------------
ARLENE H. STERN
ITS PRESIDENT AND CHIEF EXECUTIVE
OFFICER (DULY AUTHORIZED OFFICER
AND PRINCIPAL FINANCIAL OFFICER)
Page 11 of 11 pages.
<PAGE>
EXHIBIT INDEX
DOCUMENT NUMBER AND DESCRIPTION
10.1 1997 Gantos, Inc. Executive Bonus Plan, adopted May 20, 1997.
27 Financial Data Schedule
<PAGE>
EXHIBIT A
1997 Gantos, Inc. Executive Bonus Plan(1)
1. DEFINITIONS. As used in this Executive Bonus Plan, the following
terms have the following meanings:
"BOARD" is the Board of Directors of Corporation.
"COMMITTEE" is the Compensation Committee of the Board or any other
committee appointed by the Board to administer the Plan or, at the
Board's discretion, the Board itself.
"CORPORATION" is Gantos, Inc., a Michigan corporation, or any
successor thereto.
"EFFECTIVE DATE" is February 2, 1997.
"FISCAL 1997" is Corporation's fiscal year ending January 31, 1998.
"FISCAL 1997 TARGET" is the Fiscal 1997 Profit target which has been
determined by the Board or the Committee and announced to the
Participants.
"PARTICIPANT" means any participant in the Plan pursuant to paragraph
3 below.
"PLAN" is this Executive Bonus Plan.
"PROFIT" is Corporation's income
(i) before deductions for (1) federal, state and local income
taxes, (2) extraordinary items, and (3) all bonuses payable under
this Plan,
(ii) plus or minus any gain or loss resulting from the relocation
of people, facilities or both from Grand Rapids to Stamford,
Connecticut or Kraft Road in Grand Rapids in connection with the
relocation of the Company's office/distribution center, and
(iii) plus or minus any items not included in the projections
from which the Fiscal 1997 Profit was determined and that
otherwise decreased or increased Profit, at the discretion of the
Compensation Committee.
Profit will be determined by Corporation's regular independent public
accountants (1) in accordance with generally accepted accounting
principles and (2) using amounts obtained as part of the annual audit
of Corporation's Fiscal 1997 financial statements.
2. ADMINISTRATION. The Plan will be administered by the Committee.
Subject to the provisions of the Plan, the Committee is authorized to interpret
the Plan, to make, amend and rescind rules and regulations relating to the Plan,
to make bonus awards under the Plan and to make
- --------------------
(1) Adopted by the Gantos, Inc. Board of Directors on May 20, 1997.
<PAGE>
all other determinations necessary or advisable for its administration. All
Plan determinations made by the Committee, and the Committee's interpretation
and construction of any provision of the Plan, will be final and conclusive.
3. PARTICIPANTS; TERMINATION OF A PARTICIPANT'S EMPLOYMENT.
(a) The initial persons covered by the Plan are Arlene H. Stern, Dennis
Horstman, Joseph Giudice, Neal Gottfried, Kenneth Green, David Rodgers, Vicki
Boudreaux and Hope Grey. The Committee or the Corporation's Chief Executive
Officer will determine and designate from time to time, in its, his or her
discretion, any additional officers hired by the Corporation during Fiscal 1997
to be covered by the Plan. The Committee will determine and designate from time
to time, in its discretion, any other key employees of Corporation to be covered
by the Plan.
(b) If a Participant's employment with Corporation terminates before the
end of Fiscal 1997 because of such Participant's death or disability, such
Participant will be eligible to receive a bonus under the Plan. If a
Participant's employment with Corporation terminates before the end of Fiscal
1997 for any other reason, such Participant will receive no bonus under the
Plan.
4. FISCAL 1997 ANNUAL BONUS.
(a) If Corporation's Fiscal 1997 Profit exceeds the Fiscal 1997 Target,
the Fiscal 1997 cash bonus pool will equal 50% of such excess, up to a maximum
cash bonus pool equal to 35% of the actual salaries of all Participants in the
Plan with respect to services performed in Fiscal 1997 for Corporation (the
"Bonus Pool").
(b) Fifty percent of the Bonus Pool will be automatically earned and
payable upon achievement of Fiscal 1997 Profits in excess of the Fiscal 1997
Target. This 50% portion will be paid to each Participant in proportion to the
1997 base salary actually paid to such Participant. The Committee shall
determine, in its discretion, what portion, if any, of the remaining Bonus Pool
will be payable to each Participant, based on its evaluation of senior
management's recommendations, the individual's achievement of his or her
Performance Plan/Objectives and such other factors as the Committee deems
relevant. The Committee, in its discretion, may determine that all, any portion
or none of the remaining Bonus Pool will be payable to any particular
Participant, and the Committee is not required to award the entire amount of the
remaining Bonus Pool to the Participants. Bonuses will be paid promptly after
the Committee certifies the amount of Fiscal 1997 Profit and the calculation of
the portion of the Bonus Pool automatically payable to each Participant
receiving bonuses under the Plan and makes its decisions regarding the merit
portion of the bonus, if any.
The Board reserves the right to pay bonuses to Participants beyond
those, if any, called for by the Plan.
5. BASE SALARIES. The Plan does not cover Participants' salaries.
6. STOCK OPTIONS. The Plan does not cover stock option grants, which
will be subject to the Board's discretion.
7. NONTRANSFERABILITY OF RIGHTS UNDER THE PLAN. A Participant's rights
under the Plan may not be transferred, assigned or pledged.
-2-
<PAGE>
8. EMPLOYMENT AGREEMENT/CONTINUATION OF EMPLOYMENT. Nothing contained in
the Plan nor any action taken by the Committee in connection with the Plan will
confer upon any Participant any right to continuation of employment by
Corporation or any subsidiary of Corporation, nor interfere in any way with the
right of Corporation or any subsidiary to terminate such Participant's
employment at any time. Notwithstanding the preceding sentence, nothing in the
Plan affects the rights of any Participant under any written employment
agreement between such Participant and Corporation.
9. WITHHOLDING PAYMENTS. Participants will be responsible for all taxes
on bonuses awarded to them under the Plan, and Corporation will be entitled to
make all appropriate withholding from amounts due to Participants under the
Plan.
10. EFFECTIVENESS OF PLAN. This Plan becomes effective on the Effective
Date and will remain in effect through the end of Fiscal 1997.
-3-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FINANCIAL
STATEMENTS OF GANTOS, INC. AS OF, AND FOR THE THREE-MONTH PERIOD ENDED, MAY 3,
1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS
AND ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-31-1998
<PERIOD-END> MAY-03-1997
<CASH> 2,749
<SECURITIES> 0
<RECEIVABLES> 21,608
<ALLOWANCES> (599)
<INVENTORY> 27,216
<CURRENT-ASSETS> 54,315
<PP&E> 58,769
<DEPRECIATION> (44,983)
<TOTAL-ASSETS> 68,101
<CURRENT-LIABILITIES> 25,153
<BONDS> 10,146
0
0
<COMMON> 76
<OTHER-SE> 32,726
<TOTAL-LIABILITY-AND-EQUITY> 68,101
<SALES> 45,564
<TOTAL-REVENUES> 45,564
<CGS> 35,216
<TOTAL-COSTS> 35,216
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 515
<INCOME-PRETAX> 1,455
<INCOME-TAX> 0
<INCOME-CONTINUING> 1,455
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,455
<EPS-PRIMARY> .19
<EPS-DILUTED> .19
</TABLE>
