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: July 26, 1998
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 SEPTEMBER 4, 1998
---------------------------- --------------------------------
Common Stock, $.01 Par Value 18,062,372 shares
1
<PAGE>
GARDEN RIDGE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
JANUARY 25, JULY 26,
1998 1998
----------- ---------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents .................. $ 44,586 $ 24,131
Marketable securities ...................... 3,150 --
Accounts receivable ........................ 1,785 2,506
Inventories ................................ 57,773 76,439
Deferred income taxes ...................... 1,225 1,225
Prepaid expenses ........................... 2,492 3,511
Deposits and other ......................... 80 80
--------- ---------
Total current assets .................. 111,091 107,892
PROPERTY AND EQUIPMENT, at cost:
Land held for sale/leaseback ............... 241 2,756
Leasehold improvements ..................... 18,830 20,815
Furniture and fixtures ..................... 13,832 14,892
Equipment .................................. 24,741 29,030
--------- ---------
Total property and equipment ......... 57,644 67,493
Less - Accumulated depreciation and
amortization .............................. (17,977) (22,055)
--------- ---------
Net property and equipment ........... 39,667 45,438
OTHER ASSETS:
Intangibles and deferred charges, net ...... 9,454 9,156
--------- ---------
Total assets ......................... $ 160,212 $ 162,486
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable ........................... $ 17,448 $ 22,562
Accrued liabilities ........................ 8,529 9,416
Federal income taxes payable ............... 7,587 2,275
--------- ---------
Total current liabilities ............ 33,564 34,253
LONG-TERM DEBT, net ............................. 100 100
DEFERRED INCOME TAXES ........................... 595 595
COMMITMENTS AND CONTINGENCIES
COMMON STOCKHOLDERS' EQUITY:
Common stock, 17,991,890 and 18,062,372
shares outstanding ........................ 183 183
Paid-in capital ............................ 93,293 93,658
Retained earnings .......................... 32,512 33,725
Less - Treasury stock, 322,226 and 261,442
shares at cost ............................ (35) (28)
--------- ---------
Total common stockholders' equity ... 125,953 127,538
--------- ---------
Total liabilities and common
stockholders' equity ............... $ 160,212 $ 162,486
========= =========
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 TWENTY SIX WEEKS ENDED
--------------------------- ---------------------------
JULY 27, JULY 26, JULY 27, JULY 26,
1997 1998 1997 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
SALES .............................................. $ 63,634 $ 69,585 $ 123,127 $ 138,268
COST OF SALES ...................................... 42,431 45,851 81,324 90,243
------------ ------------ ------------ ------------
Gross profit ................................. 21,203 23,734 41,803 48,025
OPERATING EXPENSES:
Store operating ................................ 18,272 20,399 35,494 40,917
General and administrative ..................... 1,944 3,060 4,006 5,659
Amortization of intangibles and deferred charges 188 146 376 290
Preopening costs ............................... -- 369 773 369
------------ ------------ ------------ ------------
Total operating expenses .................... 20,404 23,974 40,649 47,235
------------ ------------ ------------ ------------
Income (loss) from operations ............... 799 (240) 1,154 790
INTEREST INCOME .................................... 284 502 675 1,106
------------ ------------ ------------ ------------
Income before income taxes .................. 1,083 262 1,829 1,896
INCOME TAXES ....................................... 401 94 677 683
------------ ------------ ------------ ------------
Net income .................................. $ 682 $ 168 $ 1,152 $ 1,213
============ ============ ============ ============
INCOME PER COMMON AND COMMON EQUIVALENT
SHARE:
Net income,basic ............................ $ .04 $ .01 $ .06 $ .07
Net income,diluted .......................... $ .04 $ .01 $ .06 $ .07
WEIGHTED AVERAGE SHARES OUTSTANDING,
BASIC ........................................... 17,901,614 18,035,643 17,866,494 18,015,399
============ ============ ============ ============
WEIGHTED AVERAGE SHARES OUTSTANDING,
DILUTED ......................................... 18,472,800 18,625,615 18,389,800 18,632,390
============ ============ ============ ============
</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>
TWENTY SIX WEEKS
ENDED
----------------------
JULY 27, JULY 26,
1997 1998
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ............................................ $ 1,152 $ 1,213
-------- --------
Adjustments to reconcile net income to net cash used in
operating activities --
Depreciation and amortization of property and
equipment ......................................... 3,165 4,078
Amortization of intangibles and deferred
charges ........................................... 376 298
(Increase) decrease in assets -
Accounts receivable ............................. (492) (721)
Inventories ..................................... (27,534) (18,666)
Prepaid expenses ................................ 112 (1,019)
Deposits and other .............................. 321 --
Increase (decrease) in liabilities -
Accounts payable ................................ 2,676 5,114
Accrued liabilities ............................. 2,975 888
Federal income taxes payable .................... (1,583) (5,312)
-------- --------
Total adjustments ............................... (19,984) (15,340)
-------- --------
Net cash used in operating
activities ..................................... (18,832) (14,127)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Marketable securities ................................. 3,198 3,150
Capital expenditures .................................. (4,234) (7,334)
Purchase of land held for sale/leaseback .............. -- (2,515)
-------- --------
Net cash used in investing
activities ..................................... (1,036) (6,699)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from sale of common stock ................ -- 166
Proceeds from exercise of stock options and
warrants ............................................. 500 205
-------- --------
Net cash provided by financing
activities ..................................... 500 371
-------- --------
NET DECREASE IN CASH AND CASH EQUIVALENTS .................. (19,368) (20,455)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD ........... 32,494 44,586
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD ................. $ 13,126 $ 24,131
======== ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid during the period for --
Interest ......................................... $ 32 $ 25
Income taxes ..................................... 2,175 5,400
</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 25, 1998.
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.
In April 1998, the AICPA issued SOP 98-5, "Reporting on the Costs of
Start-Up Activities." At adoption, SOP 98-5 requires the Company to write-off
any unamortized start-up costs as a cumulative change in accounting principle
and, going forward, expense all start-up activity costs as they are incurred.
The Company is required to and will adopt SOP 98-5 in the first quarter of
fiscal 2000 and believes that adoption will not have a significant effect on its
consolidated financial statements.
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
1999" refers to the fiscal year ending January 31, 1999.
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 Twenty Six Weeks Ended
-------------------- ----------------------
July 27, July 26, July 27, July 26,
1997 1998 1997 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Sales .............................. 100.0% 100.0% 100.0% 100.0%
Cost of sales ...................... 66.7 65.9 66.0 65.3
----- ----- ----- -----
Gross profit .................. 33.3 34.1 34.0 34.7
Operating expenses:
Store operating ............... 28.7 29.3 28.8 29.6
General and administrative .... 3.0 4.4 3.3 4.1
Amortization of intangibles and
deferred charges ............. 0.3 0.2 0.3 0.2
Preopening costs .............. 0.0 0.5 0.6 0.2
----- ----- ----- -----
Income (loss) from
operations .............. 1.3 (0.3) 1.0 0.6
Interest income .................... 0.4 0.7 0.5 0.8
Income taxes ....................... (0.6) (0.2) (0.5) (0.5)
----- ----- ----- -----
Net income .......... 1.1% 0.2% 1.0% 0.9%
===== ===== ===== =====
</TABLE>
SECOND QUARTER ENDED JULY 26, 1998 COMPARED TO SECOND QUARTER ENDED
JULY 27, 1997
Sales in the second quarter of fiscal 1999 increased $5.9 million, or
9.4%, to $69.6 million from $63.6 million in the second quarter of fiscal 1998.
The increase was primarily attributable to (i) one store opened in the second
quarter of fiscal 1999 and (ii) one store opened in the third quarter of fiscal
1998. In addition, comparable store sales were 3% higher than the same period
last year.
Gross profit as a percentage of sales increased to 34.1% in the second
quarter of fiscal 1999 as compared to 33.3% for the comparable period in fiscal
1998. This increase in gross profit as a percentage of sales resulted from
higher product margins offset by buying costs for the second quarter of fiscal
1999 being higher than the second quarter of fiscal 1998.
Store operating expenses increased $2.1 million, or 11.6%, in the second
quarter of fiscal 1999 primarily as a result of operating 22 stores in the
second quarter of fiscal 1999 compared to operating 20 stores in the second
quarter of fiscal 1998.
6
<PAGE>
General and administrative expenses increased $1.1 million, or 57.4%, to
$3.1 million in the second quarter of fiscal 1999 as compared to $2.0 million in
the second quarter of fiscal 1998. This increase generally relates to corporate
personnel additions and increased depreciation expense related to the Company's
new management information systems. General and administrative expenses as a
percentage of sales increased in the second quarter of fiscal 1999 to 4.4% from
3.0% in the comparable period of fiscal 1998.
Preopening costs of $369,000 in the second quarter of fiscal 1999 relate
to the opening of the O'Fallon, Illinois store (St. Louis market) during the
quarter. The Company's policy is to expense preopening costs in the month a
store commences operations.
Interest income was $502,000, or 0.7% of sales in the second quarter of
fiscal 1999, as compared to $284,000, or 0.4% of sales in the comparable period
of fiscal 1998. This increase primarily resulted from the investment of the
Company's excess cash.
Income taxes were $94,000, representing an effective tax rate of 35.9% for
the second quarter of fiscal 1999, as compared to $401,000, or 37.0%, in the
comparable period of fiscal 1998. The Company's lower effective tax rate is
attributable to the Company's geographic expansion resulting in a lower
effective state tax rate.
TWENTY SIX WEEKS ENDED JULY 26, 1998 COMPARED TO TWENTY SIX WEEKS ENDED
JULY 27, 1997
Sales in the first half of fiscal 1999 increased $15.1 million, or 12.3%,
to $138.3 million from $123.1 million in the first half of fiscal 1998. The
increase was primarily attributable to (i) sales from one store opened in the
second quarter of fiscal 1999 and (ii) one store opened in the third quarter of
fiscal 1998. Comparable store sales increased 5% over the same period last year.
Gross profit as a percentage of sales was 34.7% in the first half of
fiscal 1999, as compared to 34.0% for the comparable period in fiscal 1998. The
increase in gross profit as a percentage of sales was primarily due to higher
product margins.
Store operating expenses increased $5.4 million, or 15.3%, in the first
half of fiscal 1999 due to the opening of new stores.
General and administrative expenses increased $1.7 million, or 41.3%, to
$5.7 million in the first half of fiscal 1999 as compared to $4.0 million in the
same period last year. This increase principally relates to corporate personnel
additions. As a percentage of sales, general and administrative expenses
increased to 4.1% for the first half of fiscal 1999 compared to 3.3% for the
same period last year.
Interest income increased $431,000, or 63.9% to $1.1 million in the first
half of fiscal 1999 as compared to interest income of $675,000 in the same
period last year.
Income taxes were $683,000, an effective tax rate of 36.0% for the first
half of fiscal 1999 compared to 37.0% 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.
7
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
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 $73.6 million at July 26, 1998. 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.
The Company is currently assessing the impact of "Year 2000" related
issues on its operational and financial computer systems, and intends to
complete its assessment and testing phases by April 1999. In connection with a
management information systems upgrade that the Company has undertaken over the
last several years, the Company has recently installed new computer systems that
are Year 2000 compliant and will include these new systems in its testing phase.
Since the Company has not completed its assessment, the Company has not yet
determined the operational impact of Year 2000 issues, if any, which may result
in the future. Therefore, the Company is unable to determine the potential
impact, if any, on its results of operations or financial condition.
8
<PAGE>
PART II - OTHER INFORMATION
Items 1, 2, 3 and 5 are not applicable and have been omitted.
ITEMS 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company held its Annual Meeting of Shareholders on June 25, 1998. At such
meeting, seven directors were elected to serve as directors of the Company for
one year. In addition, shareholders approved an amendment to the Amended and
Restated 1994 Stock Option Plan, approved an amendment to the 1996 Non-Employee
Director Stock Option Plan and ratified the appointment of Arthur Andersen LLP
as the Company's independent public accountants for the fiscal year ending
January 30, 1999.
<TABLE>
<CAPTION>
VOTES AGAINST
OR WITHHELD VOTES BROKER
PROPOSAL VOTES FOR AUTHORITY ABSTAINED NON- VOTES
-------- --------- --------- --------- ----------
<S> <C> <C> <C> <C>
1. Election of Directors:
Armand Shapiro 15,006,155 9,050 0 0
Terry S. Boyce 15,002,345 12,860 0 0
Alyson Henning 15,002,745 12,460 0 0
Ira Neimark 15,000,478 14,727 0 0
Sam J. Susser 15,002,345 12,860 0 0
Barbara S. Tapp 15,001,497 13,708 0 0
H. Whitney Wagner 15,005,451 9,734 0 0
2. Approval, adoption and
ratification of the
amendment to the Amended
and Restated 1994 Stock
Option Plan to increase
the number of shares by
250,000 13,154,207 1,855,446 5,552 0
3. Approval, adoption and
ratification of the 1996
Non- Employee Director
Stock Option Plan to
increase the number of
shares by 50,000 14,797,414 209,233 8,558 0
4. Approval and ratification
of the appointment of
Arthur Andersen LLP as
the Company's independent
public accountants for
the fiscal year ending
January 30, 1999 15,003,672 9,058 2,475 0
</TABLE>
9
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
The following exhibits are filed with this report.
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.
10
<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: September 4, 1998 GARDEN RIDGE CORPORATION
(Registrant)
By: Jane L. Arbuthnot
------------------------------
Jane L. Arbuthnot
Chief Financial Officer
11
<PAGE>
EXHIBIT INDEX
Sequential
EXHIBIT NUMBER DESCRIPTION PAGE NUMBER
- -------------- ----------- -----------
27 Financial Data Schedule 12
12
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
GARDEN RIDGE CORPORATION AND SUBSIDIARIES
FINANCIAL DATA SCHEDULE
EXHIBIT 27
<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>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JAN-31-1999
<PERIOD-END> JUL-26-1998
<CASH> $24,131
<SECURITIES> 0
<RECEIVABLES> 2,506
<ALLOWANCES> 0
<INVENTORY> 76,439
<CURRENT-ASSETS> 107,892
<PP&E> 67,493
<DEPRECIATION> (22,055)
<TOTAL-ASSETS> 162,486
<CURRENT-LIABILITIES> 34,253
<BONDS> 0
0
0
<COMMON> 183
<OTHER-SE> 127,355
<TOTAL-LIABILITY-AND-EQUITY> 162,486
<SALES> 69,585
<TOTAL-REVENUES> 69,585
<CGS> 45,851
<TOTAL-COSTS> 20,399
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 502
<INCOME-PRETAX> 262
<INCOME-TAX> 94
<INCOME-CONTINUING> 168
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 168
<EPS-PRIMARY> .01
<EPS-DILUTED> .01
</TABLE>
