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 26, 1997
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)
(281) 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 8, 1997
- ---------------------------- -------------------------------
Common Stock, $.01 Par Value 17,937,466 shares
1
<PAGE>
GARDEN RIDGE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
January 26, October 26,
ASSETS ......................................................... 1997 1997
--------- ---------
CURRENT ASSETS:
<S> <C> <C>
Cash and cash equivalents ................................. $ 32,494 $ 13,608
Marketable securities ..................................... 5,168 5,915
Accounts receivable ....................................... 1,725 2,699
Inventories ............................................... 43,617 79,336
Deferred income taxes ..................................... 480 480
Prepaid expenses .......................................... 2,950 2,398
Deposits .................................................. 225 80
--------- ---------
Total current assets ................................. 86,659 104,516
PROPERTY AND EQUIPMENT, at cost:
Land held for sale/leaseback .............................. 5,976 356
Leasehold improvements .................................... 16,660 18,367
Furniture and fixtures .................................... 11,327 13,793
Equipment ................................................. 18,015 23,125
--------- ---------
Total property and equipment ........................ 51,978 55,641
Less - Accumulated depreciation and amortization .......... (11,620) (16,206)
--------- ---------
Net property and equipment .......................... 40,358 39,435
OTHER ASSETS:
Intangibles and deferred charges, net ..................... 10,189 9,625
Other ..................................................... 176 --
--------- ---------
Total assets ........................................ $ 137,382 $ 153,576
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable .......................................... $ 15,011 $ 25,310
Accrued liabilities ....................................... 4,377 8,522
Federal income taxes payable .............................. 3,994 2,984
--------- ---------
Total current liabilities ........................... 23,382 36,816
LONG-TERM DEBT AND OTHER, net of current portion ............... 237 237
COMMITMENTS AND CONTINGENCIES
COMMON STOCKHOLDERS' EQUITY:
Common stock, 17,830,764 and 17,936,716 shares outstanding 182 183
Paid-in capital ........................................... 92,542 93,105
Retained earnings ......................................... 21,079 23,274
Less - Treasury stock, 356,952 and 350,492 shares at cost . (40) (39)
--------- ---------
Total common stockholders' equity .................. 113,763 116,523
--------- ---------
Total liabilities and common stockholders' equity .. $ 137,382 $ 153,576
========= =========
</TABLE>
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 27, October 26, October 27, October 26,
1996 1997 1996 1997
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
SALES .............................................. $ 55,631 $ 71,122 $ 139,967 $ 194,250
COST OF SALES ...................................... 35,120 44,762 89,112 126,086
----------- ----------- ----------- -----------
Gross profit ................................. 20,511 26,360 50,855 68,164
OPERATING EXPENSES:
Store operating ................................ 16,787 21,767 40,944 57,261
General and administrative ..................... 1,701 2,564 4,821 6,571
Amortization of intangibles and deferred charges 188 188 529 564
Preopening costs ............................... 1,095 349 2,368 1,122
----------- ----------- ----------- -----------
Total operating expenses .................... 19,771 24,868 48,662 65,518
----------- ----------- ----------- -----------
Income from operations ...................... 740 1,492 2,193 2,646
INTEREST INCOME .................................... 358 163 978 838
----------- ----------- ----------- -----------
Income before income taxes .................. 1,098 1,655 3,171 3,484
INCOME TAXES ....................................... 428 612 1,236 1,289
----------- ----------- ----------- -----------
Net income ................................. $ 670 $ 1,043 $ 1,935 $ 2,195
=========== =========== =========== ===========
INCOME PER COMMON AND COMMON
EQUIVALENT SHARE ............................... $ .04 $ .06 $ .11 $ .12
----------- ----------- ----------- -----------
WEIGHTED AVERAGE NUMBER OF COMMON AND
COMMON EQUIVALENT SHARES OUTSTANDING .......... 18,426,340 18,521,463 17,767,225 18,452,966
=========== =========== =========== ===========
</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)
<TABLE>
<CAPTION>
Thirty Nine Weeks Ended
------------------------
October 27, October 26,
1996 1997
-------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net income ...................................................... $ 1,935 $ 2,195
-------- --------
Adjustments to reconcile net income to net cash used in operating
activities --
Depreciation and amortization of property and equipment ...... 3,274 4,856
Amortization of intangibles and deferred charges ............. 514 564
(Increase) decrease in assets -
Accounts receivable ....................................... (2,313) (974)
Notes receivable .......................................... 2,582 --
Inventories ............................................... (33,435) (35,719)
Prepaid expenses .......................................... (1,855) 552
Deposits and other ........................................ 121 321
Increase (decrease) in liabilities -
Accounts payable .......................................... 15,218 10,299
Accrued liabilities ....................................... 2,535 4,145
Federal income taxes payable .............................. (2,589) (1,010)
-------- --------
Total adjustments ......................................... (15,948) (16,966)
-------- --------
Net cash used in operating activities ..................... (14,013) (14,771)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Marketable securities ........................................... -- (747)
Capital expenditures ............................................ (15,644) (3,933)
-------- --------
Net cash used in investing activities ..................... (15,644) (4,680)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from public offerings of common stock .............. 48,741 --
Proceeds from exercise of stock options and warrants ............ 1,370 564
Common stock reissued from treasury ............................. 38 1
-------- --------
Net cash provided by financing activities ................. 50,149 565
-------- --------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS ..................................................... 20,492 (18,886)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD ..................... 7,544 32,494
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD ........................... $ 28,036 $ 13,608
======== ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for --
Interest ................................................... $ 54 $ 46
Income taxes ............................................... 3,010 2,175
</TABLE>
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 fiscal year ended
January 26, 1997.
Earnings 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 periods.
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards (SFAS) No. 128, "Earnings per
Share." The new standard simplifies the computation of earnings per share (EPS)
and increases comparability to international standards. Under SFAS No. 128,
primary EPS is replaced by "Basic" EPS, which excludes dilution and is computed
by dividing income available to common shareholders by the weighted-average
number of common shares outstanding for the period. "Diluted" EPS, which is
computed similarly to fully diluted EPS, reflects the potential dilution that
could occur if securities or other contracts to issue common stock were
exercised or converted into common stock. Management believes the adoption of
SFAS No. 128 in the fiscal year ended January 25, 1998 financial statements will
have no material impact on the Company's EPS.
The Company's Board of Directors approved a 2 for 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 split as if it occurred as of the beginning of the earliest period
presented.
2. PUBLIC OFFERING:
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
1998" refers to the fiscal year ending January 25, 1998.
RESULTS OF OPERATIONS
The following table sets forth for the periods indicated income
statement data expressed as a percentage of sales.
<TABLE>
<CAPTION>
Thirteen Weeks Ended Thirty Nine Weeks Ended
------------------------ ------------------------
October 27, October 26, October 27, October 26,
1996 1997 1996 1997
----- ----- ----- -----
<S> <C> <C> <C> <C>
Sales ............................................. 100.0% 100.0% 100.0% 100.0%
Cost of sales ..................................... 63.1 62.9 63.7 64.9
----- ----- ----- -----
Gross profit ................................. 36.9 37.1 36.3 35.1
Operating expenses:
Store operating .............................. 30.2 30.6 29.2 29.5
General and administrative ................... 3.1 3.6 3.4 3.3
Amortization of intangibles & deferred charges 0.3 0.3 0.4 0.3
Preopening costs ............................. 2.0 0.5 1.7 0.6
----- ----- ----- -----
Income from operations .................. 1.3 2.1 1.6 1.4
Interest income ................................... 0.6 0.3 0.7 0.4
Income taxes ...................................... (0.7) (0.9) (0.9) (0.7)
----- ----- ----- -----
Net income ......................... 1.2% 1.5% 1.4% 1.1%
===== ===== ===== =====
</TABLE>
THIRD QUARTER ENDED OCTOBER 26, 1997 COMPARED TO THIRD QUARTER ENDED OCTOBER 27,
1996
Sales in the third quarter of fiscal 1998 increased $15.5 million, or
27.8%, to $71.1 million from $55.6 million in the third quarter of fiscal 1997.
The increase was primarily attributable to the opening of two stores in the
first quarter and one store in the third quarter of fiscal 1998. In addition,
comparable store sales increased 8% over the same period last year.
Gross profit as a percentage of sales increased to 37.1% in the third
quarter of fiscal 1998 as compared to 36.9% for the comparable period in fiscal
1997. This increase in gross profit as a percentage of sales was primarily a
result of higher product margins offset by an increased reserve for shrinkage
(from 2% to 3% of sales).
6
<PAGE>
Store operating expenses increased $5.0 million, or 29.7%, in the third
quarter of fiscal 1998 primarily as a result of operating 21 stores in the third
quarter of fiscal 1998 compared to operating 18 stores in the third quarter of
fiscal 1997.
General and administrative expenses increased $863,000, or 50.7%, to
$2.6 million in the third quarter of fiscal 1998 as compared to $1.7 million in
the third quarter of fiscal 1997. This increase generally relates to corporate
personnel additions. General and administrative expenses as a percentage of
sales increased 0.5% for the comparable period of fiscal 1997.
Preopening costs of $349,000 in the third quarter of fiscal 1998 relate
to the opening of the Lewisville, Texas store during the quarter. The Company's
policy is to expense preopening costs in the month a store commences operations.
Interest income was $163,000, or 0.3% of sales in the third quarter of
fiscal 1998, as compared to $358,000, or 0.6% of sales in the comparable period
of fiscal 1997. This decrease is primarily due to less cash being invested
because of the capital expenditures on three new stores, corporate capital
expenditures, and inventory investments in all stores.
Income taxes were $612,000, representing an effective tax rate of 37.0%
for the third quarter of fiscal 1998, as compared to $428,000, or 39.0%, in the
comparable period of fiscal 1997. The Company's lower effective tax rate is
attributable to the Company's geographic expansion resulting in a lower
effective state tax rate.
THIRTY NINE WEEKS ENDED OCTOBER 26, 1997 COMPARED TO THIRTY NINE WEEKS ENDED
OCOTBER 27, 1996
Sales in the first three quarters of fiscal 1998 increased $54.3
million, or 38.8%, to $194.3 million from $140.0 million in the first three
quarters of fiscal 1997. The increase was primarily attributable to the opening
of the St. Louis, Greenville and Richmond stores during the third quarter of
fiscal 1997, two stores opened in the first quarter and one store opened in the
third quarter of fiscal 1998. Comparable store sales increased 9% over the same
period last year.
Gross profit as a percentage of sales decreased to 35.1% in the first
three quarters of fiscal 1998, as compared to 36.3% for the comparable period in
fiscal 1997. This decrease in gross profit as a percentage of sales was due to
the increased reserve for shrinkage.
Store operating expenses increased $16.4 million, or 40.0%, in the
first three quarters of fiscal 1998 due to the opening of new stores.
General and administrative expenses increased $1.7 million, or 34.6%,
to $6.5 million in the first three quarters of fiscal 1998 as compared to $4.8
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 3.3% for the first three quarters of fiscal
1998 compared to 3.4% for the same period last year.
Interest income decreased $140,000 to $838,000 for the first three
quarters of fiscal 1998, as compared to interest income of $978,000 for the same
period last year.
7
<PAGE>
Income taxes were $1.3 million, an effective tax rate of 37.0% for the
first three quarters of fiscal 1998 compared to 39.0% in the comparable period
of the prior year. The Company's lower effective tax rate is attributable to the
Company's geographic expansion resulting in a lower effective state tax rate.
LIQUIDITY AND CAPITAL RESOURCES
The Company completed its Secondary Offering in April 1996 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 $67.7 million at October 26, 1997. The Company currently has a $15
million line of credit which has no outstanding borrowings under it. 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 8, 1997 GARDEN RIDGE CORPORATION
(Registrant)
By: JANE L. ARBUTHNOT
Jane L. Arbuthnot
Chief Financial Officer
10
<PAGE>
EXHIBIT INDEX
Sequential
Exhibit Number Description Page Number
27 Financial Data Schedule 12
11
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM ITEM 8.,
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JAN-26-1998
<PERIOD-END> OCT-26-1997
<CASH> 13,608
<SECURITIES> 5,915
<RECEIVABLES> 2,699
<ALLOWANCES> 0
<INVENTORY> 79,336
<CURRENT-ASSETS> 104,516
<PP&E> 55,641
<DEPRECIATION> (16,206)
<TOTAL-ASSETS> 153,576
<CURRENT-LIABILITIES> 36,816
<BONDS> 0
0
0
<COMMON> 183
<OTHER-SE> 116,340
<TOTAL-LIABILITY-AND-EQUITY> 153,576
<SALES> 71,122
<TOTAL-REVENUES> 71,122
<CGS> 44,762
<TOTAL-COSTS> 24,868
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 163
<INCOME-PRETAX> 1,655
<INCOME-TAX> 612
<INCOME-CONTINUING> 1,043
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,043
<EPS-PRIMARY> .06
<EPS-DILUTED> .06
</TABLE>
