<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
Quarterly Report Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
For the Quarterly Period Ended: April 28, 1996
Commission File Number: 0-20672
SPORTMART, INC.
----------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 36-2702213
- ------------------------------ --------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1400 South Wolf Road, Wheeling, Illinois 60090
----------------------------------------------------------
(Address of principal executive offices, including zip code)
Registrant's telephone number, including area code: (847) 520-0100
Indicate by check mark whether the registrant 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).
Yes X No
--- ---
Indicate by check mark whether the registrant has been subject to such
filing requirements for the past 90 days.
Yes X No
--- ---
As of June 4, 1996, there were 5,148,833.5 shares of Voting Common Stock,
par value $.01, and 7,686,304.5 shares of Class A Common Stock, par value $.01,
of the registrant outstanding.
<PAGE> 2
SPORTMART, INC.
QUARTERLY PERIOD ENDED APRIL 28, 1996
INDEX
<TABLE>
<CAPTION>
PAGE(S)
<S> <C>
PART I - FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets as of April 28, 1996 and January 28, 1996 .. 1
Consolidated Statements of Operations for the thirteen weeks
ended April 28, 1996 and April 30, 1995 ................................ 2
Consolidated Statements of Stockholders' Equity
for the thirteen weeks ended April 28, 1996 and
the fifty-two weeks ended January 28, 1996 ............................. 3
Consolidated Statements of Cash Flows for the thirteen weeks
ended April 28, 1996 and April 30, 1995 ................................ 4
Notes to Consolidated Financial Statements ............................. 5-7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations .................................... 8-11
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K ....................................... 12
SIGNATURES ........................................................................ 13
</TABLE>
- i -
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
SPORTMART, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
APRIL 28, 1996 AND JANUARY 28, 1996
(AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
ASSETS APRIL 28, JANUARY 28,
1996 1996
------ -------
(unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 6,352 $4,017
Due from related parties 1,207 1,348
Merchandise inventories 186,929 174,952
Prepaid expenses and other assets 10,287 16,442
Advertising co-op receivable 5,822 5,547
Assets held pending sale and leaseback 2,931 2,883
Deferred income taxes 4,347 4,347
-------- --------
Total current assets 217,875 209,536
Property and equipment, net 75,251 72,040
Other assets 3,841 3,745
Deferred income taxes 2,195 2,178
-------- --------
$299,162 $287,499
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable $33,115 $18,213
Current portion of long-term debt and capitalized lease obligations 5,832 7,221
Accounts payable 76,103 67,297
Accrued expenses:
Salaries and wages 3,403 3,297
Taxes other than income 6,449 6,912
Advertising 2,805 7,959
Other 13,458 18,314
-------- --------
Total current liabilities 141,165 129,213
Long-term bank notes payable 30,191 30,000
Long-term debt, net of current portion 18,800 18,800
Capitalized lease obligations, net of current portion 3,895 4,008
Other long-term liabilities 4,951 4,682
-------- --------
199,002 186,703
-------- --------
Commitments and contingencies - -
Stockholders' equity:
Preferred stock; $.01 par value;
5,000,000 shares authorized; none issued - -
Voting common stock; $.01 par value; 50,000,000 shares authorized;
5,148,833 shares issued and outstanding on April 28, 1996
and January 28, 1996 52 52
Class A common stock, non-voting; $.01 par value, 50,000,000
shares authorized; 7,686,304 and 7,625,538 shares issued and
outstanding on April 28, 1996 and January 28, 1996, respectively 76 76
Additional paid-in capital 79,810 79,637
Cumulative translation adjustment 56 (12)
Retained earnings 20,166 21,043
-------- --------
Total stockholders' equity 100,160 100,796
-------- --------
$299,162 $287,499
======== ========
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
1
<PAGE> 4
SPORTMART, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
THIRTEEN WEEKS ENDED
----------------------
APRIL 28, APRIL 30,
1996 1995
---------- ----------
(restated)
<S> <C> <C>
Net sales $116,209 $103,193
Cost of sales, including buying, distribution
and occupancy 90,590 81,167
-------- --------
Gross profit 25,619 22,026
Operating expenses:
Mart 20,270 18,934
General and administrative 4,634 3,771
Mart pre-opening 117 84
-------- --------
Operating income (loss) 598 (763)
-------- --------
Other income (expense):
Interest expense, net (1,966) (1,150)
Other (expense) income (152) 163
-------- --------
(2,118) (987)
-------- --------
Loss from continuing operations before income taxes (1,520) (1,750)
Income tax benefits (643) (765)
---------- ----------
Loss from continuing operations (877) (985)
Loss from discontinued operations, (net of income tax benefit of
$106 in 1995) - (158)
---------- ----------
Net loss $(877) $(1,143)
========== ==========
Net loss per share from continuing operations $(.07) $(.08)
Net loss per share from discontinued operations - (.01)
---------- ----------
Net loss per share $(.07) $(.09)
========== ==========
Weighted average number of
common shares outstanding 12,800,028 12,782,838
========== ==========
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
2
<PAGE> 5
SPORTMART, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
VOTING CLASS A
COMMON STOCK COMMON STOCK ADDITIONAL CUMULATIVE TOTAL
----------------------- ------------------ PAID-IN TRANSLATION RETAINED STOCKHOLDERS'
SHARES AMOUNT SHARES AMOUNT CAPITAL ADJUSTMENT EARNINGS EQUITY
-------- --------- --------- ------- ---------- ----------- -------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balances, January 29, 1995 5,125,537 $ 52 7,625,538 $ 76 $79,431 - $27,488 $107,047
Issuance of 23,296 common
shares under stock
purchase plan 23,296 - - - 206 - - 206
Cumulative translation adjustment - - - - - $(12) - (12)
Net loss - - - - - - (6,445) (6,445)
-------- ---- --------- ---- ------- ---- ------- --------
Balances, January 28, 1996 5,148,833 52 7,625,538 76 79,637 (12) 21,043 100,796
Issuance of 60,766 of Class A
common shares under
stock purchase plan - - 60,766 - 173 - - 173
Cumulative translation adjustment - - - - - 68 - 68
Net loss - - - - - - (877) (877)
--------- ---- --------- ---- ------- ---- ------- --------
Balances, April 28,
1996 (unaudited) 5,148,833 $ 52 7,686,304 $ 76 $79,810 $ 56 $20,166 $100,160
========== ==== ========= ==== ======= ==== ======= ========
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
3
<PAGE> 6
SPORTMART, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(AMOUNTS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
THIRTEEN WEEKS ENDED
----------------------
APRIL 28, APRIL 30,
1996 1995
--------- ---------
(restated)
<S> <C> <C>
Cash flows from operating activities:
Net loss from continuing operations $(877) $(985)
Loss from discontinued operations - (158)
Adjustments to reconcile net loss to net cash (used in) provided by operating
activities:
Depreciation and amortization 2,681 1,851
Gain on disposition of capital lease - (322)
Other adjustment 68 61
Deferred income tax provision (17) -
Net (increase) decrease in assets:
Merchandise inventories (11,977) (26,144)
Prepaid expenses and other assets 6,155 691
Advertising co-op receivable (275) 1,722
Other assets-noncurrent (96) (325)
Net increase (decrease) in liabilities:
Accounts payable 8,806 31,489
Accrued expenses (10,367) (465)
Other long-term liabilities 269 393
-------- --------
Net cash (used in) provided by operating activities (5,630) 7,808
-------- --------
Cash flows from investing activities:
Purchase of property and equipment (5,892) (3,707)
Purchase of assets held pending sale and leaseback (48) (315)
Advances to related parties (217) (53)
Repayment of advances to related parties 358 -
-------- --------
Net cash used in investing activities (5,799) (4,075)
-------- --------
Cash flows from financing activities:
Proceeds from issuance of common stock 173 206
Principal payments under capital lease obligations and long-term debt (1,502) (1,517)
Advances on lines of credit 58,900 30,600
Repayment on lines of credit (43,807) (30,000)
-------- --------
Net cash provided by (used in) financing activities 13,764 (711)
-------- --------
Net increase in cash and cash equivalents 2,335 3,022
Cash and cash equivalents at beginning of period 4,017 3,165
-------- --------
Cash and cash equivalents at end of period $6,352 $6,187
======== ========
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
4
<PAGE> 7
SPORTMART, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
-------
1. DESCRIPTION OF BUSINESS
Sportmart, Inc. (the "Company") operates in one business segment which
is the retail sporting goods business. As of June 4, 1996, the Company
had 71 superstores ("marts") located in the United States and Canada.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Consolidation
The consolidated financial statements include the accounts of Sportmart,
Inc. and Sportdepot Stores Inc., its wholly-owned subsidiary.
Sportmart Canada, Inc. was incorporated in April 1994 and the first mart
in Canada opened in March 1995. In addition Sportdepot Stores Inc. was
incorporated in January 1995 as a wholly-owned subsidiary of Sportmart
Canada, Inc. In October 1995, Sportmart Canada, Inc. was amalgamated into
Sportdepot Stores Inc. All significant intercompany transactions and
balances have been eliminated.
Principles of Presentation
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for
interim financial information. Accordingly, they do not include all of
the information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of
management, the accompanying unaudited consolidated financial statements
contain all adjustments (consisting solely of normal recurring accruals)
necessary to present fairly the consolidated financial position of
Sportmart, Inc. as of April 28, 1996 and January 28, 1996, and the
consolidated results of its operations and its cash flows for the thirteen
week periods ended April 28, 1996 and April 30, 1995. Because of the
seasonal nature of the business, results for interim periods are not
indicative of a full year's operations.
These consolidated financial statements should be read in conjunction with
the Company's audited financial statements for the fiscal year ended
January 28, 1996 included in the Company's Form 10-K as filed on
April 29, 1996 with the Securities and Exchange Commission.
Net Loss Per Share
Net loss per share from continuing operations, net loss per share from
discontinued operations and net loss per share for the thirteen weeks
ended April 28, 1996 are based on 12,800,028 weighted average common
shares outstanding.
5
<PAGE> 8
Net loss per share from continuing operations, net loss per share from
discontinued operations and net loss per share for the thirteen weeks
ended April 30, 1995 are based on 12,782,838 weighted average common
and common equivalent shares outstanding. The 12,782,838 shares
outstanding includes 12,764,534 weighted average shares outstanding and
18,304 weighted average incremental shares resulting from the treasury
stock method of accounting for stock options.
3. FOREIGN CURRENCY TRANSLATION
The consolidated financial statements and transactions of the Company's
Canadian subsidiary are maintained in their functional currency (Canadian
dollars) and translated into U.S. dollars in accordance with Statement of
Financial Accounting Standards No. 52. Foreign currency balance sheet
accounts are translated into United States dollars at the rate of exchange
in effect at the end of the period. Income and expenses are translated at
the average rates of exchange in effect during the year. Translation
adjustments have been accumulated in a separate component of stockholders'
equity. Such adjustments do not affect cash flow and are unrealized.
During the course of operating in Canada, the Company enters into
transactions in currencies other than its Canadian subsidiary's functional
currency. Realized and unrealized gains and losses relating to these
transactions which arise as a result of changes in currency exchange rates
are recognized in income as incurred. The gains and losses on these
transactions for the thirteen weeks of fiscal 1996 were not material. As
of April 28, 1996, the Company had outstanding approximately $7.9 million
in forward exchange contracts with various settlement dates prior to
August 1, 1996.
4. NON-RECURRING CHARGE
During the fourth quarter of fiscal 1995, the Company recorded a pre-tax
charge of $5.7 million associated with non-recurring charges.
Approximately 79% of the charge was related to costs associated with
the closing of a mart in Chicago, Illinois (River North) and a clearance
mart in Wheeling, Illinois. The River North location was closed as of the
end of fiscal 1995 and the Wheeling mart was closed in May of fiscal 1996.
Included in the original charge of store closings was severance, lease
buy-out costs, inventory write-down costs, unamortized portions of
nonrecoverable capital improvements, as well as other miscellaneous exit
costs. The remainder of the non-recurring charge at the end of fiscal
1995 was primarily due to severance for one individual at the corporate
location and mart reorganization severance. As of April 28, 1996, the
reserve is approximately $4.1 million due to the payout of the lease
costs, severance payments and write-off of inventory costs. The Company
believes the original estimates for these non-recurring costs continue to
appear reasonable.
5. DISCONTINUED OPERATIONS
During the fourth quarter of fiscal 1995, the Company announced its
strategic decision to discontinue the operations of its No Contest
Division. The No Contest division is accounted for as discontinued
operations, and accordingly, their operations are segregated in the
accompanying income statements. Net sales, operation costs and expenses,
other income and expense, and income taxes for fiscal year 1995 have been
reclassified for amounts associated with the discontinued units. A
reserve was established for the estimated costs of disposal of the
business segment of $2.9 million ($1.7 million after tax). The reserve
included estimated lease buy-out costs for approximately one year of
occupancy costs
6
<PAGE> 9
per location, severance payments, inventory write-down costs,
unamortized portions of nonrecoverable capital improvements as well as
other miscellaneous exit costs. As of April 30, 1996, the reserve is
approximately $1.3 million due to the payout of the lease costs, severance
payments and write-off of inventory costs. The Company believes the
original estimates for total costs to dispose of the business segment
continue to appear reasonable.
7
<PAGE> 10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, certain income
statement data of the Company expressed as a percentage of net sales and the
number of marts open at the end of each period:
<TABLE>
<CAPTION>
THIRTEEN WEEKS ENDED
----------------------
April 28, April 30,
1996 1995
-------- --------
<S> <C> <C>
Income statement data:
Net sales 100.0 % 100.0 %
Cost of sales, including buying,
distribution and occupancy 78.0 78.7
-------- --------
Gross profit 22.0 21.3
Operating expenses:
Mart expenses 17.4 18.3
General and administrative expenses 4.0 3.6
Mart pre-opening expenses .1 .1
-------- --------
Operating income (loss) .5 (.7)
Interest expense, net (1.7) (1.1)
Other (expense) income, net (.1) .1
-------- --------
Loss from continuing operations before
income taxes (1.3) (1.7)
Income tax benefits (.6) (.7)
-------- --------
Loss from continuing operations (.7)% (1.0)%
======== ========
Number of marts at end of period 70 57
</TABLE>
THIRTEEN WEEKS ENDED APRIL 29, 1996 COMPARED TO THIRTEEN WEEKS ENDED APRIL 30,
1995
Net sales from continuing operations increased from $103.2 million in the
thirteen weeks ended April 30, 1995 to $116.2 million in the thirteen weeks
ended April 28, 1996, a 12.6% increase. The net sales increase in the thirteen
weeks ended April 28, 1996 was primarily attributable to the inclusion of
operating results for the net of thirteen new marts opened (fifteen new marts
less two closed marts) since April 30, 1995. However, the sales volumes in the
nine Canadian locations opened during fiscal 1995 were less than those
typically realized for new marts opened in the United States and less than the
Company's expectations. The Company has recently created a merchandising
position, stationed in Canada, to assist the merchandising decision-making
process in the United States for Canada in order to better address the
differences between the U.S. and Canadian consumer preferences.
Net sales in comparable marts decreased 1.9% during the quarter ended April
28, 1996. Management believes that comparable mart sales were modestly
impacted by cannibalization from new marts which overlapped the customer base
of existing marts as a result of the Company's strategy to dominate certain
markets. Additionally, comparable mart sales were adversely affected by
increased competition and cooler weather in the Midwest than experienced in the
prior year. Several personnel and organizational changes were
made during fiscal 1995 to address the Company's comparable mart sales
performance. These include new senior
8
<PAGE> 11
executives in merchandising, store operations and inventory management and a new
organizational structure of the buying staff.
Gross profit after buying, distribution and occupancy costs increased $3.6
million during the period ended April 28, 1996 to $25.6 million, a 16.4%
increase, due primarily to a higher level of sales. Gross profit as a
percentage of net sales increased .7% primarily due to a lower merchandise
costs of sales resulting from fewer markdowns due to continued emphasis on
controlling inventory levels.
Mart expenses increased from $18.9 million in the period ended April 30, 1995
to $20.3 million in the period ended April 28, 1996, a 7.4% increase. This
increase was primarily due to the inclusion of operating expenses in the
thirteen weeks ended April 28, 1996 for the new marts opened since April 30,
1995. As a percentage of net sales, mart expenses decreased from 18.3% in the
period ended April 30, 1995 to 17.4% in the period ended April 28, 1996 due
primarily to decreases in advertising and insurance expenses as well as
improved efficiencies in overall regional expense categories.
General and administrative expenses increased from $3.8 million in the thirteen
weeks ended April 30, 1995 to $4.6 million in the thirteen weeks ended April
28, 1996, a 21.1% increase. This increase was due primarily to additional
computer equipment depreciation and lease costs and additional personnel
related costs for employees added during fiscal 1995. As a percentage of net
sales, general and administrative expenses increased from 3.6% in the period
ended April 30, 1995 to 4.0% in the period ended April 28, 1996 due to the
additional expenditures discussed above and the comparable mart sales declines.
Operating income increased from an operating loss of $763,000 for the thirteen
weeks ended April 30, 1995 to an operating profit of $598,000 for the thirteen
weeks ended April 28, 1996. Operating income also increased as a percentage of
sales from (.7)% to .5% in the thirteen weeks ended April 28, 1996 primarily
due to the improved gross margin rate and the decrease in direct mart expenses.
Net interest expense as a percentage of net sales increased from 1.1% to 1.7%
due to higher average borrowings and increased interest rates over the prior
year. Total borrowings were higher than the previous year primarily due to the
capital expenditures related to the opening of new marts since May, 1995.
Other expense increased as a percentage of net sales from (.1)% to .1% for the
thirteen weeks ended April 28, 1996 due to decreased commission income,
increased miscellaneous charges and the recognition of the Company's portion of
the loss in its joint venture in Israel for the first quarter.
For the periods ended April 28, 1996 and April 30, 1995, the statements of
income reflect a provision for federal, state and provincial income taxes
based on the Company's expected annual tax rates.
LIQUIDITY AND CAPITAL RESOURCES
As of April 28, 1996, the Company had working capital of $76.7 million
as compared to $80.3 million as of January 28, 1996. Net cash used in
operating activities was $5.6 million for the thirteen weeks ended April 28,
1996, versus $7.8 million provided by operations for the thirteen weeks ended
April 30, 1995. The primary difference between the $5.6 million net cash used
in operations during the thirteen weeks ended April 28, 1996 and the $7.8
million provided by operations in the prior year is related to changes in
merchandise inventories and accounts payable. The $12.0 million increase in
merchandise inventories from January 28, 1996 to April 28, 1996 is less than
the $26.1 million increase during the same period in the prior year due to the
Company's efforts to reduce average per mart inventory levels. In addition,
the $8.8 million increase in accounts payable from January 28, 1996 to April
28, 1996 is less than the $31.5 million increase during the same period in the
prior year due primarily to the impact of the Company's efforts, beginning in
the thirteen weeks ended April 30, 1995, to improve payment terms with
vendors. Net cash used during the thirteen weeks ended April 28, 1996 also
reflects a $10.4 million decrease in accrued expenses from January 28, 1996
primarily related to reductions in amounts accrued for advertising, fixed
assets and the reserve for store closings.
9
<PAGE> 12
Net cash used in investing activities increased from $4.1 million in fiscal
1995 to $5.8 million in fiscal 1996. The net cash used in investing activities
in both fiscal years was primarily the result of $5.9 million in capital
expenditures made in fiscal 1996 and $3.7 million in capital expenditures
during fiscal 1995.
Net cash provided by financing activities for the first thirteen weeks of
fiscal 1996 of $13.8 million was primarily due to $15.1 million net advances
on the lines of credit partially offset by a $1.4 million payment on the Xerox
loan. The net cash used in financing activities in fiscal 1995 was primarily
due to a $1.4 million payment on the Xerox loan partially offset by $600,000
net advances on the line of credit.
As of June 4, 1996, the Company has available revolving lines of credit of
$125.0 million with a syndicate of banks in the United States and Canada.
These revolving lines of credit expire on August 16, 1998, and fund both
seasonal and general capital requirements. As of June 4, 1996, approximately
$73.0 million was outstanding under these revolving lines of credit.
In addition, the Company has an unsecured loan of $4.2 million from Allstate
Life Insurance Company as successor in interest to Xerox Financial Services
Life Insurance Company. Principal payments of $1.4 million are required on
January 30th of each year. As of June 4, 1996, the Company also has a
unsecured loan of $16.0 million from Allstate Life Insurance Company. Annual
principal payments of $4.0 million are required on May 15th of each year.
The Company's primary on-going cash requirements relate to planned new store
expansion including inventory, capital expenditures and pre-opening costs, and
to the improvement of existing operations. The Company anticipates investing
approximately $4.6 million in capital expenditures related to opening four to
six new marts in fiscal 1996 (including the four marts which recently opened in
Wisconsin and Vancouver). As of April 28, 1996, the Company has invested
approximately $3.8 million in capital expenditures related to these new mart
openings. In addition, the Company plans to invest, during fiscal 1996,
approximately $4.9 million in the renovation of existing marts and distribution
centers and approximately $2.8 million to upgrade its management information
systems. The Company expects to be able to fund its working capital
requirements and expansion plans with a combination of anticipated cash flow
from operations, bank borrowings, normal trade credit agreements, the long-term
debt as discussed above and the continued use of lease financing.
FOREIGN CURRENCY AND INTEREST RATE RISK MANAGEMENT
Derivative financial instruments are utilized by the Company to reduce interest
rate and foreign currency exchange risks. The Company does not use derivatives
for speculative trading purposes.
10
<PAGE> 13
In March 1995, the Company entered into an interest rate swap agreement, a form
of derivative, with a major financial institution. This agreement became
effective in August 1995 and expires in August 1998. This agreement
effectively converts $10.0 million of its floating rate bank debt (based on
LIBOR plus a fee determined by financial performance) to a fixed rate of 7.54%
(plus the same fee) and requires settlement on a quarterly basis. The
difference in interest between the fixed rate and effective LIBOR interest rate
is recognized as an adjustment to interest expense in the period incurred.
During the course of operating in Canada, the Company enters into forward
exchange contracts to hedge intercompany loans and other commitments in
currencies other than its Canadian subsidiary's functional currency. Realized
and unrealized gains and losses arising from these forward exchange contracts
are recognized in income as offsets to gains and losses resulting from the
underlying hedged transaction. As of April 28, 1996, the Company had
approximately $7.9 million of open forward exchange contracts with various
settlement dates prior to August 1, 1996.
SEASONALITY AND INFLATION
The second and fourth fiscal quarters, which respectively include Father's Day
and Christmas, have historically contributed the greatest volume of net sales
and income before taxes. For fiscal years 1995 and 1994, the second and fourth
fiscal quarters combined accounted for approximately 58% and 57%, respectively,
of the Company's fiscal year net sales. The loss before taxes was
significantly impacted in the fourth quarter of fiscal 1995 by the charges
which resulted primarily from closing the No Contest operations and two
Sportmart locations, however, typically, the second and fourth quarters account
for substantially all of the Company's income before taxes. In contrast, the
Company has consistently experienced net losses in the third quarter and it
anticipates that such trend may continue through fiscal 1996. Inventory
levels, which gradually increase beginning in February, generally reach their
peak in November and then fall to their lowest level following the December
holiday season. Although the operations of the Company are influenced by
general economic conditions, the Company does not believe that inflation has
had a material effect on the results of operations during the thirteen weeks
ended April 28, 1996.
In addition to the four new marts the Company has opened in fiscal 1996 (as of
June 4, 1996), the Company may open up to two more marts during the remainder
of the fiscal year. Accordingly, because the Company charges noncapital
expenditures incurred prior to the opening of a new mart to expense ratably
from the date the mart is opened through the end of the corresponding fiscal
year (approximately $230,000 per new mart), the Company's results of operations
in the third and fourth quarter of fiscal 1996 may be disproportionately
affected by pre-opening expenses.
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
The statements which are not historical facts contained in this document are
forward looking statements that involve risks and uncertainties, including, but
not limited to, product demand and market acceptance risks, the effect of
economic conditions, the impact of competitive products and pricing, product
development, commercialization and technological difficulties, capacity and
supply constraints or difficulties, the results of financing efforts, actual
purchases under agreements, the effect of the Company's accounting policies,
and other risks detailed in the Company's Securities and Exchange Commission
filings.
11
<PAGE> 14
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
A. EXHIBITS.
Exhibit 11 - Statement regarding computation
of loss per share.
Exhibit 27 - Financial Data Schedule
B. REPORTS ON FORM 8-K.
None.
12
<PAGE> 15
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.
SPORTMART, INC.
Date: 6/11/96 By: /s/ ANDREW S. HOCHBERG
-----------------------------
Andrew S. Hochberg, President
(Principal Executive Officer)
Date: 6/11/96 By: /S/ THOMAS T. HENDRICKSON
----------------------------
Thomas T. Hendrickson, Senior
Vice President and Chief
Financial Officer
13
<PAGE> 1
EXHIBIT 11
<PAGE> 2
EXHIBIT 11
SPORTMART, INC. AND SUBSIDIARY
COMPUTATION OF LOSS PER SHARE
(AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
Thirteen Weeks Ended
--------------------
April 28, April 30,
1996 1995
---- ----
<S> <C> <C>
Financial statement computations:
Loss from continuing operations before income taxes $ (1,520) $ (1,750)
Income tax benefit (643) (765)
-------- --------
Loss from continuing operations (877) (985)
Loss from discontinued operations - (158)
-------- --------
Net loss $ (877) $ (1,143)
======== ========
Net loss per share:
Shares used in primary loss per share computation:
Weighted average shares outstanding 12,800 12,765
Net additional shares assuming options exercised and
proceeds used to purchase treasury shares (1) - 18
-------- --------
Common and common equivalent shares 12,800 12,783
======== ========
Primary loss per share from continuing operations $ (.07) $ (.08)
Primary loss per share from discontinued operations (.01)
-------- --------
Primary loss per share $ (.07) $ (.09)
======== ========
Shares used in fully diluted loss per share computation:
Weighted average shares outstanding 12,800 12,765
Net additional shares assuming options exercised and
proceeds used to purchase treasury shares (1) - 18
-------- --------
Common and common equivalent shares 12,800 12,783
======== ========
Fully diluted loss per share from continuing operations $ (.07) $ (.08)
Fully diluted loss per share from discontinued operations - (.01)
-------- --------
Fully diluted loss per share $ (.07) $ (.09)
======== ========
</TABLE>
(1) Certain common stock equivalents are antidilutive and therefore are not
included in the calculation.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> FEB-02-1997
<PERIOD-END> APR-28-1996
<CASH> 6,351,655
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 186,929,247
<CURRENT-ASSETS> 217,874,623
<PP&E> 109,138,733
<DEPRECIATION> (33,887,570)
<TOTAL-ASSETS> 299,162,215
<CURRENT-LIABILITIES> 141,165,426
<BONDS> 52,886,226
<COMMON> 128,353
0
0
<OTHER-SE> 100,031,503
<TOTAL-LIABILITY-AND-EQUITY> 299,162,215
<SALES> 116,064,178
<TOTAL-REVENUES> 116,209,438
<CGS> 77,788,046
<TOTAL-COSTS> 90,589,739
<OTHER-EXPENSES> 25,173,676
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,965,956
<INCOME-PRETAX> (1,519,933)
<INCOME-TAX> (642,754)
<INCOME-CONTINUING> (877,179)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (877,179)
<EPS-PRIMARY> .07
<EPS-DILUTED> .07
</TABLE>
