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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
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SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended April 29, 2000
OR
______ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
EXCHANGE ACT OF 1934
For the transition period from ______ to _______
Commission file number 0-14970
COST PLUS, INC.
(Exact name of registrant as specified in its charter)
California 94-1067973
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
200 Fourth Street, Oakland, California 94607
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (510) 893-7300
Former name, former address and former fiscal year, N/A
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 _____
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The number of shares of Common Stock, with $0.01 par value, outstanding on June
2, 2000 was 20,701,476.
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COST PLUS, INC.
FORM 10-Q
For the Quarter Ended April 29, 2000
INDEX
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PART I. FINANCIAL INFORMATION Page
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ITEM 1. Condensed Consolidated Financial Statements
Balance Sheets (unaudited) as of April 29, 2000,
January 29, 2000 and May 1, 1999 3
Statements of Operations (unaudited)
for the three months ended April 29, 2000
and May 1, 1999 4
Statements of Cash Flows (unaudited)
for the three months ended April 29, 2000
and May 1, 1999 5
Notes to Condensed Consolidated Financial Statements 6-7
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8-10
ITEM 3. Quantitative and Qualitative Disclosure about Market Risk 10
PART II. OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K 11
SIGNATURE PAGE 12
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
COST PLUS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands except share and per share amounts, unaudited)
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April 29, January 29, May 1,
2000 2000 1999
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ASSETS
Current assets:
Cash and cash equivalents $ 26,126 $ 38,411 $ 23,239
Merchandise inventories 87,332 91,402 66,339
Other current assets 7,765 5,654 4,722
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Total current assets 121,223 135,467 94,300
Property and equipment, net 67,666 67,520 60,484
Other assets, net 12,448 11,712 9,725
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Total assets $ 201,337 $ 214,699 $ 164,509
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 17,026 $ 26,061 $ 13,283
Income taxes payable 0 9,237 217
Accrued compensation 8,447 8,909 7,540
Other current liabilities 11,398 10,597 9,962
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Total current liabilities 36,871 54,804 31,002
Capital lease obligations 14,301 14,416 14,944
Other long-term obligations 7,659 7,144 6,201
Shareholders' equity:
Preferred stock, $.01 par value: 5,000,000 shares
authorized; none issued and outstanding -- -- --
Common stock, $.01 par value: 67,500,000 shares
authorized; issued and outstanding 20,687,778,
20,521,884 and 20,232,711 207 205 202
Additional paid-in capital 116,276 113,240 106,248
Retained earnings 26,023 24,890 5,912
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Total shareholders' equity 142,506 138,335 112,362
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Total liabilities and shareholders' equity $ 201,337 $ 214,699 $ 164,509
=========== =========== ===========
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See notes to condensed consolidated financial statements.
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COST PLUS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands except per share amounts, unaudited)
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Three Months Ended
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April 29, May 1,
2000 1999
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Net sales $ 92,238 $ 75,389
Cost of sales and occupancy 60,447 49,525
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Gross profit 31,791 25,864
Selling, general and administrative expenses 28,657 23,543
Store preopening expenses 1,244 994
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Income from operations 1,890 1,327
Net interest expense 32 167
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Income before income taxes 1,858 1,160
Income taxes 725 453
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Net income $ 1,133 $ 707
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Net income per share
Basic $ 0.06 $ 0.04
Diluted $ 0.05 $ 0.03
Weighted average shares outstanding
Basic 20,558 20,057
Diluted 21,325 20,814
</TABLE>
See Notes To Condensed Consolidated Financial Statements.
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COST PLUS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands, unaudited)
Three Months Ended
----------------------
April 29, May 1,
2000 1999
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,133 $ 707
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 3,049 2,655
Change in assets and liabilities:
Merchandise inventories 4,070 4,341
Other assets (3,022) 162
Accounts payable (6,742) (3,808)
Income taxes payable (7,897) (7,963)
Other liabilities 904 790
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Net cash used in operating activities (8,505) (3,116)
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CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (5,313) (4,364)
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Net cash used in investing activities (5,313) (4,364)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on capital lease obligations (165) (133)
Proceeds from the issuance of common stock 1,698 2,252
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Net cash provided by financing activities 1,533 2,119
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Net decrease in cash and cash equivalents (12,285) (5,361)
Cash and cash equivalents:
Beginning of period 38,411 28,600
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End of period $ 26,126 $ 23,239
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SUPPLEMENTAL DISCLOSURES OF CASH
FLOW INFORMATION:
Cash paid for interest $ 31 $ 172
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Cash paid for taxes $ 9,502 $ 8,415
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See notes to condensed consolidated financial statements.
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COST PLUS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Three Months Ended April 29, 2000 and May 1, 1999
(Unaudited)
1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have been
prepared from the records of the Company without audit and, in the opinion of
management, include all adjustments (consisting of only normal recurring
accruals) necessary to present fairly the financial position at April 29, 2000
and May 1, 1999; the interim results of operations for the three months ended
April 29, 2000 and May 1, 1999; and changes in cash flows for the three months
then ended. The balance sheet at January 29, 2000, presented herein, has been
derived from the audited financial statements of the Company for the fiscal year
then ended.
Accounting policies followed by the Company are described in Note 1 to the
audited consolidated financial statements for the fiscal year ended January 29,
2000. Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted for purposes of the interim condensed
consolidated financial statements. The condensed consolidated financial
statements should be read in conjunction with the audited consolidated financial
statements, including notes thereto, for the fiscal year ended January 29, 2000.
The results of operations for the three month periods herein presented are not
necessarily indicative of the results to be expected for the full year.
2. REVOLVING LINE OF CREDIT AGREEMENT
On October 12, 1998, the Company entered into a revolving line of credit
agreement with a bank, which was amended on June 15, 1999 and which was replaced
by a new agreement effective May 19, 2000. The October 12, 1998 agreement
allowed for cash borrowings and letters of credit up to $20.0 million from
January 1 through June 30 and up to $40.0 million from July 1 through December
31 of each year. Interest was paid monthly at the bank's reference rate minus
0.5% (8.5% at April 29, 2000) or IBOR plus 1.125%, depending on the nature of
the borrowings. The agreement was secured by the Company's inventory and
receivables. The Company was subject to certain financial covenants customary
with such agreements. At April 29, 2000, the Company had no outstanding
borrowings under the line of credit and $1.8 million outstanding under letters
of credit.
Effective May 19, 2000, the Company entered into a new, unsecured revolving line
of credit agreement with a bank, which expires June 1, 2002. This agreement
replaces the amended October 12, 1998 revolving line of credit agreement. The
new agreement allows for cash borrowings and letters of credit up to $10.0
million from January 1 through June 30 of each year, $40.0 million from July 1,
2000 through December 31, 2000 and $50.0 million from July 1, 2001 through
December 31, 2001. Interest is paid monthly based on the Company's election of
the bank's reference rate minus 0.75% or IBOR/LIBOR plus 0.9%. The Company is
subject to certain financial covenants customary with such agreements.
3. STOCK SPLIT
On February 16, 1999, the Company's Board of Directors authorized a three-for-
two split of its common stock effective March 11, 1999 for shareholders of
record at the close of business on March 1, 1999. On September 16, 1999, the
Company's Board of Directors authorized a three-for-two split of its common
stock effective October 11, 1999 for shareholders of record at the close of
business on October 1, 1999. Fiscal 1999 share and per share data in the
accompanying condensed consolidated financial statements and notes have been
restated to reflect these stock splits.
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4. RECONCILIATION OF BASIC SHARES TO DILUTED SHARES
The following is a reconciliation of the weighted average number of shares (in
thousands) used in the Company's basic and diluted per share computations.
Three Months Ended
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April 29, 2000 May 1, 1999
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Basic shares 20,558 20,057
Effect of diluted stock options 767 757
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Diluted shares 21,325 20,814
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
AN ASTERISK "*" DENOTES A FORWARD-LOOKING STATEMENT REFLECTING CURRENT
EXPECTATIONS THAT INVOLVE RISKS AND UNCERTAINTIES. ACTUAL RESULTS MAY DIFFER
MATERIALLY FROM THOSE DISCUSSED IN SUCH FORWARD-LOOKING STATEMENTS, AND
SHAREHOLDERS OF COST PLUS, INC. (THE "COMPANY" OR "COST PLUS") SHOULD CAREFULLY
REVIEW THE CAUTIONARY STATEMENTS SET FORTH IN THIS FORM 10-Q, INCLUDING,
"FACTORS THAT MAY AFFECT FUTURE RESULTS" BEGINNING ON PAGE 8 HEREOF. THE COMPANY
MAY FROM TIME TO TIME MAKE ADDITIONAL WRITTEN AND ORAL FORWARD-LOOKING
STATEMENTS, INCLUDING STATEMENTS CONTAINED IN THE COMPANY'S FILINGS WITH THE
SECURITIES AND EXCHANGE COMMISSION AND IN ITS REPORTS TO SHAREHOLDERS. THE
COMPANY DOES NOT UNDERTAKE TO UPDATE ANY FORWARD-LOOKING STATEMENT THAT MAY BE
MADE FROM TIME TO TIME BY OR ON BEHALF OF THE COMPANY.
Results of Operations
The three months (first quarter) ended April 29, 2000 as compared to the three
months (first quarter) ended May 1, 1999.
Net Sales. Net sales increased $16.8 million, or 22.3%, to $92.2 million in the
first quarter of fiscal 2000 from $75.4 million in the first quarter of fiscal
1999. This increase in net sales was attributable to new stores and an increase
in comparable store sales. Comparable store sales rose 6.4% in the first quarter
of fiscal 2000, primarily as a result of a larger average transaction size. At
April 29, 2000, the Company operated 109 stores as compared to 90 stores at May
1, 1999.
Gross Profit. As a percentage of net sales, first quarter gross profit was 34.5%
in fiscal 2000 compared with 34.3% in fiscal 1999. The increase in gross profit
resulted from an improvement in merchandise margin percentage, partially offset
by higher occupancy costs in new stores. New stores generally have higher
occupancy costs, as a percentage of net sales, until they reach maturity. The
merchandise margin improvement resulted primarily from an increase in initial
markon.
Selling, General and Administrative ("SG&A") Expenses. As a percentage of net
sales, SG&A expenses decreased to 31.1% in the first quarter of fiscal 2000 from
31.2% in the first quarter of the prior fiscal year. The decrease in the SG&A
expense rate resulted primarily from leveraging store payroll and other store
expenses against higher net sales and an expanding base of stores.
Store Preopening Expenses. Store preopening expenses, which include grand
opening advertising and preopening merchandise setup expenses, were $1.2 million
in the first quarter of fiscal 2000 and $1.0 million in the first quarter of the
prior year. Expenses vary depending on the particular store site and whether it
is located in a new or existing market. The Company opened six stores in the
first quarter of fiscal 2000 compared to five stores in the prior year's first
quarter.
Net Interest Expense. Net interest expense for the first quarter, which includes
interest on capital leases and interest expense net of interest income, was
$32,000 for fiscal 2000 and $167,000 for fiscal 1999. This decrease resulted
primarily from higher cash balances and higher rates on investments.
Income Taxes. The Company's effective tax rate was 39% in the first quarter of
both fiscal 2000 and fiscal 1999.
Factors That May Affect Future Results
The Company's business is highly seasonal, reflecting the general pattern
associated with the retail industry of peak sales and earnings during the
Christmas season. Due to the importance of the Christmas selling season, the
fourth quarter of each fiscal year has historically contributed, and the Company
expects it will continue to contribute, a disproportionate percentage of the
Company's net sales and most of its net income for the entire fiscal year.* Any
factors negatively affecting the Company during the Christmas selling season in
any year, including unfavorable economic conditions, could have a material
adverse effect on the Company's financial condition and results of operations.
The Company generally
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experiences lower sales and earnings during the first three quarters and, as is
typical in the retail industry, may incur losses in these quarters. The results
of operations for interim periods are not necessarily indicative of the results
for a full fiscal year. In addition, the Company makes decisions regarding
merchandise well in advance of the season in which it will be sold, particularly
for the Christmas selling season. Significant deviations from projected demand
for products could have a material adverse effect on the Company's financial
condition and results of operations, either by lost sales due to insufficient
inventory or lost gross margin due to the need to mark down excess inventory.
The Company's quarterly results of operations may also fluctuate based upon such
factors as the number and timing of store openings and related store preopening
expenses, the amount of net sales contributed by new and existing stores, the
mix of products sold, the timing and level of promotional activity, store
closings, refurbishments or relocations, competitive factors and general
economic conditions.
Liquidity and Capital Resources
The Company's primary uses of cash are to fund operating expenses, inventory
requirements and new store expansion. Historically, the Company has financed its
operations primarily from internally generated funds and borrowings under its
credit facilities. The Company believes that the combination of its cash and
cash equivalents, internally generated funds and available borrowings under its
revolving line of credit will be sufficient to finance its working capital and
capital expenditure requirements for at least the next 12 months. *
Net cash used in operating activities in the first quarter ended April 29, 2000,
totaled $8.5 million, an increase of $5.4 million from the prior year. This
increase resulted primarily from the timing of payments for merchandise
inventory and the collection of construction allowances on new stores opened in
the first quarter.
Net cash used in investing activities, primarily for new stores, totaled $5.3
million in the first quarter of 2000 compared to $4.4 million in the prior year.
This increase is due to spending for six stores which opened in the first
quarter of fiscal 2000 compared to five stores which opened in the first quarter
last year. The Company estimates that fiscal 2000 capital expenditures will
approximate $25.5 million.*
Net cash provided by financing activities was $1.5 million in the first quarter
of fiscal 2000 and $2.1 million in the first quarter of fiscal 1999, which was
primarily proceeds from the issuance of common stock in connection with the
Company's stock option and stock purchase plans.
On October 12, 1998, the Company entered into a revolving line of credit
agreement with a bank, which was amended on June 15, 1999 and which was replaced
by a new agreement effective May 19, 2000. The October 12, 1998 agreement
allowed for cash borrowings and letters of credit up to $20.0 million from
January 1 through June 30 and up to $40.0 million from July 1 through December
31 of each year. Interest was paid monthly at the bank's reference rate minus
0.5% (8.5% at April 29, 2000) or IBOR plus 1.125%, depending on the nature of
the borrowings. The agreement was secured by the Company's inventory and
receivables. The Company was subject to certain financial covenants customary
with such agreements. At April 29, 2000, the Company had no outstanding
borrowings under the line of credit and $1.8 million outstanding under letters
of credit.
Effective May 19, 2000, the Company entered into a new, unsecured revolving line
of credit agreement with a bank, which expires June 1, 2002. This agreement
replaces the amended October 12, 1998 revolving line of credit agreement. The
new agreement allows for cash borrowings and letters of credit up to $10.0
million from January 1 through June 30 of each year, $40.0 million from July 1,
2000 through December 31, 2000 and $50.0 million from July 1, 2001 through
December 31, 2001. Interest is paid monthly based on the Company's election of
the bank's reference rate minus 0.75% or IBOR/LIBOR plus 0.9%. The Company is
subject to certain financial covenants customary with such agreements.
Impact of New Accounting Standard
In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities." This statement establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in either assets or liabilities. As amended in June 1999 by
SFAS No. 137, this statement is effective for fiscal years beginning after June
15, 2000 and is not to be applied retroactively to financial statements for
prior periods. Since the Company does not engage in derivative or hedging
activities, application of the standard would not have a material effect on the
Company's
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consolidated financial position, results of operations or cash flows.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
There are no material changes to our market risk as disclosed in the Company's
report on Form 10-K filed for the fiscal year ended January 29, 2000.
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PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.1 Business Loan Agreement, dated May 19, 2000, between the
Company and Bank of America, N.A.
27 Financial Data Schedule (submitted for SEC use only).
(b) Reports on Form 8-K
No reports on Form 8-K were filed by the Company during the period
covered by this report.
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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.
COST PLUS, INC.
-----------------------------------
Registrant
/s/ John F. Hoffner
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Date: June 13, 2000 By: John F. Hoffner
Executive Vice President,
Administration
Chief Financial Officer
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