<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: May 2, 1998
Commission File Number: 000-23515
---------
GART SPORTS COMPANY
-------------------
(Exact name of registrant as specified in its charter)
Delaware 84-1242802
- ------------------------------- -------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) No.)
1000 Broadway, Denver, Colorado 80203
------------------------------------------------------------
(Address of principal executive offices, including zip code)
Registrant's telephone number, including area code: (303) 861-1122
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 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 12, 1998, there were outstanding 7,679,550 shares of the
registrant's common stock, $.01 par value, and the aggregate market value of the
shares (based upon the closing price on that date of the shares on the NASDAQ
National Market) held by non-affiliates was approximately $29,302,016.
<PAGE> 2
GART SPORTS COMPANY
QUARTERLY PERIOD ENDED MAY 2, 1998
INDEX
<TABLE>
<S> <C>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets............................. 1
Condensed Consolidated Statements of Operations................... 2
Consolidated Statements of Stockholders' Equity................... 3
Condensed Consolidated Statements of Cash Flows................... 4
Notes to Condensed Consolidated Financial Statements.............. 5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations............................... 7
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.................................. 11
SIGNATURES .................................................................. 12
</TABLE>
<PAGE> 3
GART SPORTS COMPANY
AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands, Except Share Amounts)
<TABLE>
<CAPTION>
May 2, January 31,
1998 1998
------------ ------------
ASSETS (Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents (including restricted cash of
$462 and $5,700, respectively) $ 9,801 16,372
Accounts receivable, net of allowance for doubtful
accounts of $336 and $345, respectively 4,169 4,621
Note receivable 1,404 1,436
Inventories 226,414 214,814
Prepaid expenses 5,273 2,751
Income taxes receivable 772 --
Deferred income taxes 390 390
Assets held for sale 1,759 1,708
------------ ------------
Total current assets 249,982 242,092
Property and equipment, net 55,494 55,990
Favorable leases acquired, net 18,543 19,111
Other assets, net of accumulated amortization of $208 and $147,
respectively 2,216 2,242
------------ ------------
$ 326,235 319,435
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 103,962 79,808
Current portion of capital lease obligations 349 340
Accrued expenses and other current liabilities 34,307 47,734
Income taxes payable -- 2,365
------------ ------------
Total current liabilities 138,618 130,247
------------ ------------
Long-term debt 106,527 105,600
Capital lease obligations, less current portion 2,979 3,069
Deferred rent 2,768 2,377
Deferred income taxes 9,385 9,385
------------ ------------
Total liabilities 260,277 250,678
------------ ------------
Stockholders' equity:
Preferred stock, $.01 par value. Authorized 3,000,000 shares;
none issued -- --
Common stock, $.01 par value. Authorized 22,000,000 shares;
8,025,876 shares issued, 7,679,550 shares outstanding 80 80
Additional paid-in capital 55,651 55,651
Unamortized restricted stock compensation (65) (80)
Retained earnings 12,206 15,038
------------ ------------
67,872 70,689
------------ ------------
Treasury stock, 346,326 common shares, at cost (1,865) (1,865)
Notes receivable from stockholders (49) (67)
------------ ------------
Total stockholders' equity 65,958 68,757
------------ ------------
Commitments and contingencies
$ 326,235 319,435
============ ============
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements.
(1)
<PAGE> 4
GART SPORTS COMPANY
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands, Except Share Amounts)
<TABLE>
<CAPTION>
Thirteen Weeks Ended
------------------------------
May 2, April 5,
1998 1997
------------ ------------
(Unaudited)
<S> <C> <C>
Net sales $ 155,217 $ 47,357
Cost of goods sold, buying, distribution and occupancy 121,052 33,911
------------ ------------
Gross profit 34,165 13,446
------------ ------------
Operating expenses 34,844 11,605
Merger integration costs 1,961 --
------------ ------------
Operating income (loss) (2,640) 1,841
Other income (expense):
Interest expense (2,127) (137)
Other income 124 136
------------ ------------
Income (loss) before income taxes (4,643) 1,840
Income tax (benefit) expense (1,811) 690
------------ ------------
Net income (loss) $ (2,832) $ 1,150
============ ============
Earnings (loss) per share:
Basic and Diluted $ (0.37) $ 0.21
============ ============
Weighted average shares of common
stock outstanding basic and diluted 7,679,550 5,505,677
============ ============
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements.
(2)
<PAGE> 5
GART SPORTS COMPANY
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Unaudited, in Thousands, Except Share Amounts)
<TABLE>
<CAPTION>
Unamortized Notes
restricted Receivable
Additional stock from Total
Common paid-in compensation Retained Treasury stock- stockholders'
Stock capital awards Earnings Stock holders equity
--------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCES AT
JANUARY 3, 1998 $ 57 $ 21,378 $ -- $ 23,043 $ (1,865) $ -- $ 42,613
--------- --------- --------- --------- --------- --------- ---------
Net loss -- -- -- (8,005) -- -- (8,005)
Issuance of 2,180,656 shares in exchange
for Sportmart shares 22 32,290 (80) -- -- -- 32,232
Redeemable common stock 147,600 shares
reclassified to equity 1 1,983 -- -- -- (80) 1,904
Receipts on notes receivable -- -- -- -- -- 13 13
--------- --------- --------- --------- --------- --------- ---------
BALANCES AT
JANUARY 31, 1998 80 55,651 (80) 15,038 (1,865) (67) 68,757
--------- --------- --------- --------- --------- --------- ---------
Net loss -- -- -- (2,832) -- -- (2,832)
Receipts on notes receivable -- -- -- -- -- 18 18
Amortization of restricted stock -- -- 15 -- -- -- 15
--------- --------- --------- --------- --------- --------- ---------
BALANCES AT
MAY 2, 1998 $ 80 $ 55,651 $ (65) $ 12,206 $ (1,865) $ (49) $ 65,958
========= ========= ========= ========= ========= ========= =========
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements.
(3)
<PAGE> 6
GART SPORTS COMPANY
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
<TABLE>
<CAPTION>
Thirteen weeks ended
----------------------------
May 2, April 5,
1998 1997
------------ ------------
(Unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (2,832) $ 1,150
Adjustments to reconcile net income (loss) to net cash
used in operating activities:
Depreciation and amortization 2,972 803
Deferred income taxes -- 495
(Gain) loss on sale of assets (6) 7
Increase in deferred rent 391 121
Changes in operating assets and liabilities:
Accounts receivable, net 484 552
Inventories (11,600) (4,656)
Prepaid expenses (2,522) (50)
Income taxes receivable (772) --
Other assets (51) --
Accounts payable 24,154 (5,460)
Accrued expenses and other current liabilities (13,427) (5,053)
Income taxes payable (2,365) 160
------------ ------------
Net cash used in operating activities (5,574) (11,931)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (1,814) (248)
Proceeds from sale of property and equipment 14 95
------------ ------------
Net cash used in investing activities (1,800) (153)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt 38,678 17,500
Principal payments of long-term debt (37,751) (11,500)
Principal payments on capital lease obligations (81) --
Purchase of treasury stock -- (4)
Payment of notes receivable from stockholders 18 5
Payment of financing fees (61) --
------------ ------------
Net cash provided by financing activities 803 6,001
------------ ------------
Decrease in cash and cash equivalents (6,571) (6,083)
Cash and cash equivalents at beginning of period 16,372 8,800
------------ ------------
Cash and cash equivalents at end of period $ 9,801 $ 2,717
============ ============
Supplemental disclosures of cash flow information:
Cash paid during the period for interest $ 2,868 $ 157
============ ============
Cash paid during the period for income taxes $ 1,327 $ 35
============ ============
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements.
(4)
<PAGE> 7
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. BUSINESS COMBINATION AND CHANGE IN FISCAL YEAR
Purchase Business Combination
On January 9, 1998, the Company's wholly owned subsidiary, Gart Bros.
Sporting Goods Company, acquired all of the outstanding common stock of
Sportmart, Inc. ("Sportmart"), a sporting goods retailer operating in the
midwest and western United States.
Change in Fiscal Year
The Company has a 52-53 week fiscal reporting year ending on the Saturday
closest to the end of January. Prior to the Sportmart acquisition on
January 9, 1998, the Company ended its 52-53 week fiscal year on the first
Saturday in January. The fiscal quarters referred to in these unaudited
condensed consolidated financial statements are the 13 weeks ended May 2,
1998 and the 13 weeks ended April 5, 1997.
The Company has not recast it's historical financial data to conform to the
current fiscal year because the accounting systems in place at that time
required a certain level of procedural techniques in order for financial
data to be prepared for external reporting purposes. These procedures were
implemented on a quarterly basis only because the Company was not publicly
held during the prior fiscal year. Consequently, to recast the prior fiscal
year would be impractical and would require significant judgmental
estimates.
2. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements do
not include all information and footnotes necessary for the annual
presentation of financial position, results of operations and cash flows in
conformity with generally accepted accounting principles, and should be
read in conjunction with the 1997 Annual Report on Form 10-K. In the
opinion of management, all adjustments (consisting of normal recurring
adjustments) necessary for a fair presentation of the results of operations
for the interim periods have been included. The results for the thirteen
weeks ended May 2, 1998 are not necessarily indicative of the results to be
expected for the full year.
Reclassifications
Certain prior period amounts have been reclassified to conform to the
current period presentation.
3. ACQUISITION
The Company acquired Sportmart on January 9, 1998. Sportmart operated 59
stores in the midwest and western United States. The Company operates
Sportmart as a wholly owned subsidiary. The acquisition was accounted for
as a purchase and the operations of Sportmart are consolidated after that
date.
The following unaudited pro forma financial information presents the
combined results of operations of Gart Sports Company and Sportmart as if
the acquisition had occurred as of the beginning of 1997, after giving
effect to certain adjustments, including amortization of favorable leases,
depreciation expense, and related income tax effects. No adjustments have
been made to the pro forma statement of operations to conform accounting
policies and practices or to recognize anticipated cost savings and
synergies.
(5)
<PAGE> 8
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The pro forma financial information does not necessarily reflect the
results of operations that would have occurred had Gart Sports Company and
Sportmart constituted a single entity during such periods.
<TABLE>
<CAPTION>
First Quarter 1997(a)
---------------------
(Unaudited, in thousands except per share amounts)
<S> <C>
Net sales $151,289
========
Net income from continuing operations $ 472
========
Basic earnings per share from continuing operations (b) $ 0.06
========
</TABLE>
(a) Includes the 13 weeks ended April 5, 1997 for Gart Sports Company and the
13 weeks ended May 4, 1997 for Sportmart.
(b) Pro forma basic earnings per share have been computed based on the pro
forma net income and the pro forma weighted average common shares
outstanding of approximately 7,625,822 for the period presented. The pro
forma weighted average common shares outstanding have been computed by
adjusting the Company's weighted average common shares outstanding by the
shares of the Company's common stock that were issued to the stockholders
of Sportmart. The dilutive effect of outstanding options to purchase shares
of common stock of the Company on the calculation of pro forma earnings per
share is not material.
(6)
<PAGE> 9
GART SPORTS COMPANY AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with the
Company's condensed consolidated financial statements and notes thereto included
elsewhere within this report and with the 1997 Annual Report on Form 10-K.
In 1995, the Company adopted an annual fiscal reporting period that
ended on the first Saturday in January. Accordingly, fiscal 1997 began on
January 5, 1997 and ended on January 3, 1998. In conjunction with the Sportmart
acquisition in January 1998, the Company adopted an annual fiscal reporting
period that ends on the Saturday closest to the end of January. Accordingly,
fiscal 1998 began on February 1, 1998 and will end on January 30, 1999. The 28
day period following the end of fiscal 1997 through January 31, 1998 was
reported as a transition period in the Company's 1997 Annual Report on Form
10-K.
The Company has not recast its historical financial data to conform to
the current fiscal year because the accounting systems in place at that time
required a certain level of procedural techniques in order for financial data to
be prepared for external reporting purposes. These procedures were implemented
on a quarterly basis only because the Company was not publicly held during the
prior fiscal year. Consequently, to recast the prior fiscal year would be
impracticable and require significant judgmental estimates. The Company
estimates however, that due to seasonality, on a combined pro forma basis,
utilizing comparable fiscal periods, the year-ago period would have resulted in
a net loss of approximately $0.07 per share from continuing operations. See - -
Seasonality and Inflation.
RESULTS OF OPERATIONS
The following table sets forth the Company's statement of operations data as a
percentage of net sales and the number of stores open at the end of each period
for the periods indicated:
<TABLE>
<CAPTION>
Thirteen weeks ended
---------------------------------------------
May 2, 1998 April 5, 1997
Dollars % Dollars %
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net sales $ 155.2 100.0% $ 47.4 100.0%
Cost of goods sold, buying,
distribution and occupancy (121.0) (78.0) (33.9) (71.5)
-------- -------- -------- --------
Gross profit 34.2 22.0 13.5 28.5
Operating expenses (34.8) (22.4) (11.6) (24.5)
Merger integration costs (2.0) (1.3) -- --
-------- -------- -------- --------
Operating income (loss) (2.6) (1.7) 1.9 4.0
Interest expense, net (2.1) (1.4) (0.1) (0.2)
Other income 0.1 0.1 0.1 0.2
-------- -------- -------- --------
Income (loss) before income taxes (4.6) (3.0) 1.9 4.0
Income tax (benefit) expense (1.8) (1.2) 0.7 1.5
======== ======== ======== ========
Net income (loss) $ (2.8) (1.8)% $ 1.2 2.5%
======== ======== ======== ========
Number of stores at end of period 121 60
======== ========
</TABLE>
THIRTEEN WEEKS ENDED MAY 2, 1998 COMPARED TO THIRTEEN WEEKS ENDED APRIL 5, 1997
Net Sales. Net sales increased $107.8 million in the thirteen weeks
ended May 2, 1998, from $47.4 million to $155.2 million. The increase in net
sales is primarily attributable to the acquisition of Sportmart on January 9,
1998. The Sportmart stores increased the Company's sales by $99.7 million. Newly
opened stores increased sales by $6.2 million offset by $1.6
(7)
<PAGE> 10
million in lost sales from closed stores. Comparable store sales increased 0.4%
for the Company. Comparable store sales consist of an increase of 6.9% at the
Company's Gart Sports stores offset by a decline of 2.5% at the Sportmart
stores. Comparable store sales increases were partly due to strong sales in
skates, ski soft and hard goods and licensed apparel, in the Gart Sports stores,
related to the Denver Bronco's Superbowl win. During the thirteen weeks ended
May 2, 1998, the Company closed two stores. New stores enter the comparable
store sales base at the beginning of their 14th month of operation. The
Sportmart acquired stores are included in comparable store sales bases utilizing
historical Sportmart comparable store data.
Gross Profit. Gross profit for the thirteen weeks ended May 2, 1998 was
$34.2 million, or 22.0% of net sales, as compared to $13.5 million, or 28.5% of
net sales, for the thirteen weeks ended April 5, 1997. Management attributes the
decline as a percentage of net sales to various factors including: the impact of
the Sportmart stores historically reporting lower gross profit than Gart Sports
stores, lower margins in ski goods and licensed apparel, and higher occupancy
costs classified as cost of goods sold.
Operating Expenses. Operating expenses for the period ended May 2, 1998
were $34.8 million, or 22.4% of net sales, compared to $11.6 million, or 24.5%
of net sales, for the period ended April 5, 1997. The period ended May 2, 1998
includes approximately $1.1 million of internal costs to operate the Sportmart
corporate headquarters in Wheeling, Illinois until substantially all of the
corporate functions were transferred to Colorado. The Company closed the
Wheeling facility May 29, 1998, and all corporate functions have been
consolidated to the Company's Denver, Colorado location. The decrease as a
percentage of net sales is due primarily to declines in corporate overhead
expenses as synergies have been achieved.
Merger Integration Costs. Merger integration expenses were $2.0
million, or 1.3% of net sales for the thirteen week period ended May 2, 1998.
These costs consist primarily of $509,000 of professional fees, $1,077,000 of
stay bonuses to employees at the Sportmart corporate headquarters, $186,000 of
travel expense, $141,000 of human resource costs and other costs of $48,000. The
Company expects to incur approximately an additional $2.5 million for consulting
fees related to the integration of systems, final stay bonuses, and merchandise
re-ticketing in Sportmart stores to conform SKU's during the remainder of this
fiscal year.
Operating Income. As a result of the factors described above, the
Company recorded an operating loss for the thirteen weeks ended May 2, 1998 of
$2.6 million compared to operating income of $1.9 million for the thirteen week
period ended April 5, 1997.
Interest Expense. Interest expense for the period ending May 2, 1998
increased to $2.1 million, or 1.4% of net sales, from $0.1 million, or 0.2% of
net sales, in the period ended April 5, 1997. The increase is primarily due to
an increase in average interest-bearing debt for the period due to the
refinancing of the Sportmart acquired debt of $86.2 million on January 9, 1998,
partially offset by more favorable interest rates for the period.
Other Income. Other income was $0.1 million for each of the periods
ended May 2, 1998 and April 5, 1997. Other income consists primarily of sales
tax handling fees.
Income Taxes. The Company's income tax benefit for the period ended May
2, 1998 was $1.8 million compared to an income tax expense of $0.7 million for
the period ended April 5, 1997. The Company's effective tax rate increased to
39.0% for the period ended May 2, 1998 from 37.5% for the thirteen week period
ended April 5, 1997. This increase is primarily attributable to a 1.0% increase
in the federal statutory rate and a 0.5% anticipated increase in the effective
state tax rates due to the acquisition as Sportmart stores are located in
certain higher tax rate states.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary capital requirements are for inventory, capital
improvements, and pre-opening expenses to support the Company's expansion plans,
as well as for various investments in store remodeling, store fixtures and
ongoing infrastructure improvements.
The Company had working capital of $111.4 million and $111.8 million
for the periods ended May 2, 1998 and January 31, 1998, respectively.
(8)
<PAGE> 11
Cash flows from operating, investing, and financing activities as
reported in the unaudited condensed consolidated Statement of Cash Flows for the
thirteen weeks ended May 2, 1998 are summarized below. The net decrease in cash
and cash equivalents for thirteen weeks ended May 2, 1998 was $6.6 million
versus $6.1 million in April 1997. In the first quarter of fiscal 1998,
operating activities used cash totaling $5.6 million compared to $11.9 million
in the prior year. Accounts payable net of inventory increased $12.6 million due
to improved payment terms with vendors. Accrued expenses decreased by $13.4
million, primarily due to payments being made during the quarter for accrued
management and stay bonuses, sales taxes and store closings. Net cash used in
investing activities, which primarily represent purchases of property and
equipment was $1.8 million for the thirteen week period ended May 2, 1998
compared to $0.2 million for the thirteen weeks ended April 5, 1997. Net cash
provided by financing activities was $0.8 million for the thirteen weeks ended
May 2, 1998 compared to $6.0 million for the thirteen weeks ended April 5, 1997.
Financing activities are primarily related to the utilization of the Company's
credit facility to meet day to day operating needs and increase its inventory
levels in anticipation of the summer selling season.
Historically, the Company's liquidity and capital needs have been met
by cash from operations and borrowings under a revolving line of credit with
CIT/Business Credit, Inc. ("CIT"). In connection with the Sportmart acquisition,
this agreement was replaced with a new revolving line of credit facility (the
"Credit Agreement") with a group of lenders including CIT as agent. The
long-term debt currently consists of the Credit Agreement, which allows the
Company to borrow up to 70% of its eligible inventories (as defined in the
credit agreement) during the year and up to 75% of eligible inventories for any
consecutive 90 day period in a fiscal year. The credit agreement also contains
certain restrictive financial covenants such as a minimum net worth requirement.
Borrowings are limited to the lesser of $175 million or the amount calculated in
accordance with the borrowing base ($213,598,000 at May 2, 1998), and are
secured by substantially all trade receivables, inventories and intangible
assets. Interest rates will be based on the prime rate or the LIBOR rate, at the
option of the Company, plus margins of 25 basis points for prime borrowings and
175 basis points for LIBOR borrowings. The margin rates on prime and LIBOR
borrowings can be reduced beginning in February 1999 to as low as 0.0% and 1.5%,
respectively, based upon certain criteria. There was $113 million outstanding
under the Credit Agreement at June 12, 1998, and $37 million was available for
borrowing (based upon 70% of eligible inventories).
The Internal Revenue Service has proposed adjustments to the 1992 and
1993 consolidated federal income tax returns of the Company and its former
parent, now Thrifty PayLess Holdings, Inc., a subsidiary of RiteAid Corporation,
due to the manner in which LIFO inventories were characterized on such returns.
These adjustments could result in up to approximately $9.7 million of a
long-term deferred tax liability being accelerated, which would have a negative
impact on liquidity in the near term.
Capital expenditures to support all of the Company's expansion plans as
well as various investments in store remodeling, store fixtures, ski rentals and
ongoing infrastructure improvements are projected to be $12.9 million for fiscal
1998. These capital expenditures will be for new store openings, fixturing,
refurbishing the Sportmart stores acquired, remodeling of existing stores,
information systems and distribution center facilities. The Company leases all
of its store locations and intends to continue to finance its new stores with
long-term operating leases. Pre-opening costs, which include grand opening
advertising, are expensed on a straight-line basis during the remaining periods
of the fiscal reporting year in which the store opens. The Company expects
similar trends in new store investment for the foreseeable future.
The Company believes that cash generated from operations, combined with
funds available under the credit facility, will be sufficient to fund
transaction fees and costs, integration costs (estimated at $4.5 million),
projected capital expenditures (estimated at $12.9 million) and other working
capital requirements during fiscal 1998. The Company intends to utilize its
credit facilities to meet seasonal fluctuations in cash flow requirements.
Generally, the Company reaches its peak borrowing level in November.
FOREIGN CURRENCY AND INTEREST RATE RISK MANAGEMENT
In connection with the Sportmart acquisition, the Company acquired
contracts for certain off-balance sheet derivative financial instruments that
Sportmart had utilized to reduce interest rate risks. The Company does not use
derivatives for speculative trading purposes.
The Company has an interest rate cap agreement for a notional amount
totaling $25.0 million that places an interest rate ceiling on LIBOR at 6.0%.
The agreement covers the revolving line of credit and expires in August 1999.
(9)
<PAGE> 12
SEASONALITY AND INFLATION
The first and fourth quarters have historically been the strongest
quarters for the Company. The Company believes that two primary factors
contribute to this seasonality. First, the largest percentages of the Company's
stores have historically been based in the Rocky Mountain region, resulting in a
heavier concentration of winter sporting equipment and apparel. The winter
product lines are characterized by a short selling season, with the month of
January being a significant operating income contribution month. The Company's
customers traditionally make purchases of ski and snowboard merchandise during
these quarters. Management expects the Sportmart acquisition to mitigate the
Company's dependency on cold weather sporting goods. As is the case with most
retailers, holiday sales contribute significantly to the Company's operating
results.
Due to the above factors, the change in the Company's fiscal year could
have a material impact on earnings reported in the first and fourth quarters.
The fiscal year change causes the first quarter of each year to encompass the
winter selling season as it is concluding, which generally results in a lower
gross profit, but will result in the fourth quarter having a longer winter
product selling season. The Company does not believe that the fiscal year change
will have an impact on its annual earnings, but could cause material variances
for historical quarterly compared data. As a result of these factors, inventory
levels, which gradually increase beginning in April, generally reach their peak
in November and then decline to their lowest level following the December
holiday season. Any decrease in sales for the fourth quarter, whether due to a
slow holiday selling season, poor snowfall in ski areas near the Company's
markets or otherwise, could have a material adverse effect on the Company's
business, financial condition and operating results for the entire fiscal year.
Although the operations of the Company are influenced by general
economic conditions, the Company does not believe that inflation has a material
impact on the Company's results of operations. The Company believes that it is
generally able to pass along any inflationary increases in costs to its
customers.
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
The information discussed herein includes "forward-looking statements"
within the meaning of the federal securities laws. Although the Company believes
that the expectations reflected in such forward looking statements are
reasonable, the Company's actual results could differ materially as a result of
certain factors, including, but not limited to: the Company's ability to manage
its expansion efforts in existing and new markets, availability of suitable new
store locations at acceptable terms, general economic conditions, and retail and
sporting goods business conditions specifically, availability of merchandise to
meet fluctuating consumer demands, fluctuating sales margins, increasing
competition in sporting goods and apparel retailing, as well as other factors
described from time to time in the Company's periodic reports filed with the
Securities and Exchange Commission.
(10)
<PAGE> 13
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
A. EXHIBITS.
Exhibit 11.1 - Statement Regarding Computation of Per Share Earnings
Exhibit 27.1 - Financial Data Schedule
B. REPORTS ON FORM 8-K
The following report on Form 8-K on April 21, 1998:
Item 5 - Other Events -Announcing new Senior Vice-President - Store
Operations Item 7 - Financial Statements -Announcing fourth quarter and
year end 1997 financial results
(11)
<PAGE> 14
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on June 12,
1998 on its behalf by the undersigned thereunto duly authorized.
GART SPORTS COMPANY
By: /s/ JOHN DOUGLAS MORTON
-----------------------------------------
John Douglas Morton,
Chairman of the Board of Directors,
President and Chief Executive Officer
By: /s/ THOMAS T. HENDRICKSON
-----------------------------------------
Thomas T. Hendrickson,
Executive Vice President, Chief Financial
Officer and Treasurer
(12)
<PAGE> 15
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
<S> <C>
11.1 Statement Regarding Computation of Per Share Earnings
27.1 Financial Data Schedule
</TABLE>
<PAGE> 1
EXHIBIT 11.1
GART SPORTS COMPANY
Statement Regarding Computation of Per Share Earnings
<TABLE>
<CAPTION>
Thirteen weeks ended
May 2, April 5,
Earnings (loss) per share: 1998 1997
------------ ------------
<S> <C> <C>
Net income (loss) attributable to common stock $ (2,832) $ 1,150
Common and common equivalent shares outstanding:
Historical common shares outstanding at beginning of period 7,679,550 5,505,944
Weighted average treasury stock purchased -- (267)
Weighted average shares of common and common
equivalent shares outstanding 7,679,550 5,505,677
Earnings (loss) per share $ (0.37) $ 0.21
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-30-1999
<PERIOD-START> FEB-01-1998
<PERIOD-END> MAY-02-1998
<CASH> 9,801
<SECURITIES> 0
<RECEIVABLES> 5,909
<ALLOWANCES> 336
<INVENTORY> 226,414
<CURRENT-ASSETS> 249,982
<PP&E> 69,991
<DEPRECIATION> 14,497
<TOTAL-ASSETS> 326,235
<CURRENT-LIABILITIES> 138,618
<BONDS> 0
0
0
<COMMON> 80
<OTHER-SE> 65,878
<TOTAL-LIABILITY-AND-EQUITY> 326,235
<SALES> 155,217
<TOTAL-REVENUES> 155,217
<CGS> 121,052
<TOTAL-COSTS> 157,857
<OTHER-EXPENSES> (124)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,127
<INCOME-PRETAX> (4,643)
<INCOME-TAX> (1,811)
<INCOME-CONTINUING> (2,832)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,832)
<EPS-PRIMARY> (0.37)
<EPS-DILUTED> (0.37)
</TABLE>
