FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Quarterly Report Pursuant to Section 13 or 15 (d)
of the Securities Exchange Act of 1934
For Quarterly Period Ended: October 27, 1996
Commission File Number: 0-24442
GARDEN RIDGE CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 13-3671679
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
19411 Atrium Place, Suite 170, Houston, Texas 77084
(Address of principal executive offices) (Zip Code)
(713) 579-7901
(Registrant's telephone number, including area code)
NONE
(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 the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
CLASS OUTSTANDING AT DECEMBER 9, 1996
Common Stock, $.01 Par Value 17,830,764 shares
1
<PAGE>
GARDEN RIDGE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
January October
28, 27,
ASSETS 1996 1996
-------- ---------
CURRENT ASSETS:
Cash and cash equivalents ........................ $ 7,544 $ 28,036
Accounts receivable .............................. 906 3,219
Notes receivable ................................. 2,582 --
Inventories ........................................... 27,850 61,285
Deferred income taxes ............................ 575 575
Prepaid expenses ................................. 1,114 2,969
-------- ---------
Total current assets ........................ 40,571 96,084
PROPERTY AND EQUIPMENT, at cost:
Land held for sale/leaseback ..................... 478 478
Leasehold improvements ........................... 11,966 16,231
Furniture and fixtures ........................... 6,509 11,235
Equipment ............................................. 9,460 16,113
-------- ---------
Total property and equipment ............... 28,413 44,057
Less - Accumulated depreciation and amortization . (6,823) (10,097)
-------- ---------
Net property and equipment ................. 21,590 33,960
OTHER ASSETS:
Intangibles and deferred charges, net ............ 10,891 10,377
Deferred income taxes ............................ 136 136
Other ................................................. 138 17
======== =========
Total assets ............................... $ 73,326 $ 140,574
======== =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable ................................. $ 10,563 $ 25,781
Accrued liabilities .............................. 3,555 6,090
Federal income taxes payable ..................... 3,377 788
-------- ---------
Total current liabilities .................. 17,495 32,659
LONG-TERM DEBT AND OTHER, net of current portion ...... 300 300
COMMON STOCKHOLDERS' EQUITY:
Common stock, 15,090,102 and 17,810,766 shares
outstanding ................................. 158 182
Paid-in capital .................................. 42,410 92,497
Retained earnings ................................ 13,043 14,978
Less - Treasury stock, 715,114 and 376,950
shares at cost, respectively ................ (80) (42)
-------- ---------
Total common stockholders' equity ......... 55,531 107,615
======== =========
Total liabilities and common
stockholders' equity ................. $ 73,326 $ 140,574
======== =========
The accompanying notes are an integral part of
these consolidated financial statements.
2
<PAGE>
GARDEN RIDGE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
Thirteen Weeks Ended Thirty Nine Weeks Ended
------------------------------ ------------------------------
October October October October
29, 27, 29, 27,
1995 1996 1995 1996
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
SALES ...................................................... $ 37,952 $ 55,631 $ 91,199 $ 139,967
COST OF SALES .............................................. 23,540 35,120 57,629 89,112
------------ ------------ ------------ ------------
Gross profit ......................................... 14,412 20,511 33,570 50,855
OPERATING EXPENSES:
Store operating ........................................ 11,081 16,787 26,030 40,944
General and administrative ............................. 1,195 1,701 3,471 4,821
Amortization of intangibles and deferred charges ....... 153 188 459 529
Preopening costs ....................................... 1,057 1,095 1,395 2,368
------------ ------------ ------------ ------------
Total operating expenses ............................ 13,486 19,771 31,355 48,662
------------ ------------ ------------ ------------
Income from operations .............................. 926 740 2,215 2,193
INTEREST INCOME (EXPENSE) .................................. 120 358 (225) 978
------------ ------------ ------------ ------------
Income before income taxes .......................... 1,046 1,098 1,990 3,171
INCOME TAXES ............................................... 408 428 776 1,236
------------ ------------ ------------ ------------
Net income .......................................... 638 670 1,214 1,935
PREFERRED STOCK DIVIDENDS .................................. -- -- (153) --
============ ============ ============ ============
Net income available to common stockholders ......... $ 638 $ 670 $ 1,061 $ 1,935
============ ============ ============ ============
INCOME PER COMMON AND COMMON
EQUIVALENT SHARE:
Net income ......................................... $ .04 $ .04 $ .09 $ .11
Preferred stock dividends .......................... (.00) (.00) (.01) (00)
------------ ------------ ------------ ------------
Net income available to common stockholders ........ $ .04 $ .04 $ .08 $ .11
------------ ------------ ------------ ------------
WEIGHTED AVERAGE NUMBER OF COMMON AND
COMMON EQUIVALENT SHARES OUTSTANDING ..................... 16,351,228 18,426,340 13,893,956 17,767,225
============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
3
<PAGE>
GARDEN RIDGE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
Thirty Nine Weeks Ended
----------------------
October October
29, 27,
1995 1996
-------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ......................................... $ 1,214 $ 1,935
-------- --------
Adjustments to reconcile net income to net cash
used in operating activities --
Depreciation and amortization of
property and equipment ....................... 1,739 3,274
Amortization of intangibles and deferred charges 459 514
(Increase) decrease in assets -
Accounts receivable .......................... (32) (2,313)
Notes receivable ............................. 46 2,582
Inventories .................................. (21,606) (33,435)
Prepaid expenses ............................. 461 (1,855)
Intangibles and deferred charges ............. (11) --
Deposits and other ........................... 1,236 121
Increase (decrease) in liabilities -
Accounts payable ............................. 12,521 15,218
Accrued liabilities .......................... 2,231 2,535
Federal income taxes payable ................. (1,259) (2,589)
-------- --------
Total adjustments ............................ (4,215) (15,948)
-------- --------
Net cash used in operating activities ........ (3,001) (14,013)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures ............................... (10,667) (15,644)
-------- --------
Net cash used in investing activities ........ (10,667) (15,644)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from public offerings of common stock . 39,495 48,741
Payments on long-term debt to related parties ...... (15,000) --
Redemption of cumulative preferred stock ........... (7,498) --
Borrowings under revolving credit agreement ........ 4,625 --
Payments on revolving credit agreement ............. (6,275) --
Proceeds from exercise of stock options and warrants 1,371 1,370
Common stock reissued from treasury ................ -- 38
Payments on term loan .............................. (96) --
-------- --------
Net cash provided by financing activities .... 16,622 50,149
-------- --------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS ........................................ 2,954 20,492
CASH AND CASH EQUIVALENTS AT BEGINNING OF
PERIOD ............................................. 117 7,544
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD .............. $ 3,071 $ 28,036
======== ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid during the period for --
Interest ...................................... $ 679 $ 54
Income taxes .................................. 2,035 3,010
The accompanying notes are an integral part of
these consolidated financial statements.
4
<PAGE>
GARDEN RIDGE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION:
The accompanying consolidated financial statements have been prepared by
the Company without audit pursuant to the rules and regulations of the
Securities and Exchange Commission. Pursuant to such regulations, certain
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted. In the opinion of the Company, all adjustments necessary
for the fair presentation of the unaudited results for the periods have been
included. Because of the seasonal nature of the Company's business, results for
such interim periods are not necessarily indicative of the results for the full
year. These interim consolidated financial statements should be read in
conjunction with the Company's Annual Report on Form 10-K for the fiscal year
ended January 28, 1996.
Income per common share and common equivalent share were computed using
the treasury stock method and by dividing net income available to common
stockholders by the weighted average number of shares of common stock of the
Company and common stock equivalents, which consist of warrants and options,
outstanding during the period.
In connection with the Company's initial public offering of its common
stock on May 16, 1995 (the "Initial Offering"), the Company's Board of Directors
approved a 4.5 to 1 stock split. In addition, the Company's Board of Directors
approved a 2 to 1 stock split effective June 28, 1996. All share and per share
information in the accompanying consolidated financial statements and notes have
been restated to reflect the stock splits as if they occurred as of the
beginning of the earliest period presented.
2. PUBLIC OFFERINGS:
The Company completed its Initial Offering, pursuant to which the Company
sold 5,800,000 shares of Common Stock at the price of $7.50 per share (including
780,000 shares sold pursuant to the exercise of the underwriters over-allotment
option). Net proceeds of the Initial Offering, after deducting the underwriting
discount and expenses, were approximately $39.5 million. Proceeds of the Initial
Offering were used to (i) redeem all of the Company's preferred stock including
dividends, (ii) repay the Company's fixed rate and floating rate subordinated
notes, and (iii) repay the Company's lines of credit. The remaining proceeds of
approximately $11 million from the Initial Offering were retained to fund
expansion and for general working capital requirements.
The Company completed a secondary public offering of its common stock on April
30, 1996 (the "Secondary Offering"), pursuant to which the Company sold
2,000,000 shares of Common Stock at the price of $25.88 per share (including
420,000 shares sold pursuant to the exercise of the underwriters' over-allotment
option). Net proceeds of the Secondary Offering, after deducting the
underwriting discount and expenses were approximately $48.7 million. Proceeds
were retained to fund expansion and for general working capital purposes.
5
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The Company's fiscal year ends on the last Sunday in January in each year
resulting in either a 52 or 53 week year. References to fiscal years by date
refer to the fiscal year ending in that calendar year; for example, "fiscal
1997" refers to the fiscal year ending January 26, 1997.
RESULTS OF OPERATIONS
The following table sets forth for the periods indicated income statement
data expressed as a percentage of sales.
Thirteen Weeks Thirty Nine Weeks
Ended Ended
---------------- -------------------
October October October October
29, 27, 29, 27,
1995 1996 1995 1996
----- ----- ----- -----
Sales .................................. 100.0% 100.0% 100.0% 100.0%
Cost of sales .......................... 62.0 63.1 63.2 63.7
----- ----- ----- -----
Gross profit ...................... 38.0 36.9 36.8 36.3
Operating expenses:
Store operating ................... 29.2 30.2 28.6 29.2
General and administrative ........ 3.1 3.1 3.8 3.4
Amortization of intangibles
and deferred charges ........... 0.4 0.3 0.5 0.4
Preopening costs .................. 2.8 2.0 1.5 1.7
----- ----- ----- -----
Income from operations ....... 2.5 1.3 2.4 1.6
Interest income (expense) .............. 0.3 0.6 (0.2) 0.7
Income
taxes .................................. (1.1) (0.7) (0.9) (0.9)
===== ===== ===== =====
Net income .............. 1.7% 1.2% 1.3% 1.4%
===== ===== ===== =====
THIRD QUARTER ENDED OCTOBER 27, 1996 COMPARED TO THIRD QUARTER ENDED OCTOBER 29,
1995
Sales in the third quarter of fiscal 1997 increased $17.7 million, or
46.6%, to $55.6 million from $37.9 million in the third quarter of fiscal 1996.
The increase was primarily attributable to the opening of the St. Louis,
Greenville and Richmond stores during the third quarter, two stores opened in
the second quarter and two stores opened in the first quarter of fiscal 1997.
Comparable store sales, those stores open a full fourteen months, decreased 3%
over the same period last year.
Gross profit as a percentage of sales decreased to 36.9% in the third
quarter of fiscal 1997 as compared to 38.0% for the comparable period in fiscal
1996. This decrease in gross profit as a percentage of sales was a result of
higher buying and occupancy costs as a percentage of sales.
6
<PAGE>
Store operating expenses increased $5.7 million, or 51.5%, in the third
quarter of fiscal 1997 primarily as a result of eighteen stores operating during
the quarter compared to eleven stores operating in the same quarter of the prior
year.
General and administrative expenses increased $506,000, or 42.3%, to $1.7
million in the third quarter of fiscal 1997 as compared to $1.2 million in the
third quarter of fiscal 1996. This increase generally relates to corporate
personnel additions. General and administrative expenses as a percentage of
sales remained the same as the comparable period of fiscal 1996.
Preopening costs of $1.1 million in the third quarter of fiscal 1997
relate to the opening of the St. Louis, Greenville and Richmond stores during
the quarter. The Company's policy is to expense preopening costs in the month a
store commences operations.
Interest income was $358,000, or 0.6% of sales in the third quarter of
fiscal 1997, as compared to $120,000, or 0.3% of sales in the comparable period
of fiscal 1996. This change was a result of the investment of excess cash from
the Company's Secondary Offering.
Income taxes were $428,000, representing an effective tax rate of 39.0%
for the third quarter of fiscal 1997, as compared to $408,000, or 39.0%, in the
comparable period of fiscal 1996.
THIRTY NINE WEEKS ENDED OCTOBER 27, 1996 COMPARED TO THIRTY NINE WEEKS ENDED
OCTOBER 29, 1995
Sales in the first three quarters of fiscal 1997 increased $48.8 million,
or 53.5%, to $139.9 million from $91.2 million in the first three quarters of
fiscal 1996. The increase was primarily attributable to the opening of the St.
Louis, Greenville and Richmond stores during the third quarter, two stores
opened in the second quarter and two stores opened in the first quarter of
fiscal 1997. Comparable store sales decreased 2% over the same period last year.
Gross profit as a percentage of sales decreased to 36.3% in the first
three quarters of fiscal 1997, as compared to 36.8% in the comparable period in
fiscal 1996. This was due to increased occupancy and buying costs as a
percentage of sales in the first quarter of fiscal 1997 offset by higher product
margins in the second quarter of fiscal 1997.
Store operating expenses increased $14.9 million, or 57.3%, in the first
three quarters of fiscal 1997 due to eighteen stores operating during the first
three quarters compared to eleven stores in the same period of the prior year.
General and administrative expenses increased $1.4 million, or 38.9%, to
$4.8 million in the first three quarters of fiscal 1997 as compared to $3.5
million in the same period last year. This increase principally relates to
corporate personnel additions. As a percentage of sales, general and
administrative expenses decreased to 3.4% for the first three quarters of fiscal
1997 compared to 3.8% for the same period last year.
7
<PAGE>
Interest income increased $1.2 million, or 534.6% to $1.0 million in the
first three quarters of fiscal 1997 as compared to interest expense of $225,000
in the same period last year. The increase is a result of the repayment of all
of the Company's long-term debt as a result of the Initial Offering and
investment of excess cash from the Company's Secondary Offering.
Income taxes were $1.2 million, an effective tax rate of 39.0% for the
first three quarters of fiscal 1997 compared to 39.0% in the comparable period
of the prior year.
LIQUIDITY AND CAPITAL RESOURCES
The Company completed its Secondary Offering pursuant to which the Company
sold 2,000,000 shares of Common Stock at the price of $25.88 per share
(including 420,000 shares sold pursuant to the exercise of the underwriters'
over-allotment option). Net proceeds of the Secondary Offering, after deducting
the underwriting discount and expenses were approximately $48.7 million.
Proceeds were retained to fund expansion and for general working capital
purposes.
The Company's primary sources of working capital are cash flow from
operations and borrowings under its lines of credit. The Company had working
capital of $63.4 million at October 27, 1996. The Company currently has a $15
million unsecured line of credit of which there are no outstanding borrowings.
Management believes the Company has sufficient working capital, cash flow from
operating activities and available unused credit capacity to sustain current
growth plans.
8
<PAGE>
GARDEN RIDGE CORPORATION
PART II - OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27. Financial Data Schedule
(b) Reports on Form 8-K
No reports on Form 8-K were filed by the Company during the period
covered by this report.
9
<PAGE>
GARDEN RIDGE CORPORATION
SIGNATURE
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: December 10, 1996 GARDEN RIDGE CORPORATION
(Registrant)
By: JANE L. ARBUTHNOT
Jane. L. Arbuthnot
Chief Financial Officer
<PAGE>
10
EXHIBIT INDEX
SEQUENTIAL
EXHIBIT NUMBER DESCRIPTION PAGE NUMBER
27 Financial Data Schedule 12
11
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
jjj
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 1-MO
<FISCAL-YEAR-END> OCT-27-1996
<PERIOD-END> OCT-27-1996
<CASH> 28,036
<SECURITIES> 0
<RECEIVABLES> 3,219
<ALLOWANCES> 0
<INVENTORY> 61,285
<CURRENT-ASSETS> 96,084
<PP&E> 44,057
<DEPRECIATION> (10,097)
<TOTAL-ASSETS> 140,574
<CURRENT-LIABILITIES> 32,659
<BONDS> 0
0
0
<COMMON> 91
<OTHER-SE> 107,524
<TOTAL-LIABILITY-AND-EQUITY> 140,574
<SALES> 55,631
<TOTAL-REVENUES> 55,631
<CGS> 35,120
<TOTAL-COSTS> 19,771
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (358)
<INCOME-PRETAX> 1,098
<INCOME-TAX> 428
<INCOME-CONTINUING> 670
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 670
<EPS-PRIMARY> .04
<EPS-DILUTED> .04
</TABLE>
