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: April 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 JUNE 5, 1998
- ---------------------------- ---------------------------
Common Stock, $.01 Par Value 18,056,357 shares
1
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GARDEN RIDGE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
(Unaudited)
<TABLE>
<CAPTION>
January 25, April 26,
ASSETS 1998 1998
----------- ---------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents ................................ $ 44,586 $ 44,610
Marketable securities .................................... 3,150 --
Accounts receivable ...................................... 1,785 2,434
Inventories .............................................. 57,773 60,948
Deferred income taxes .................................... 1,225 1,225
Prepaid expenses ......................................... 2,492 3,281
Deposits and other ....................................... 80 76
--------- ---------
Total current assets ................................ 111,091 112,574
PROPERTY AND EQUIPMENT, at cost:
Land held for sale/leaseback ............................. 241 241
Leasehold improvements ................................... 18,830 18,968
Furniture and fixtures ................................... 13,832 13,890
Equipment ................................................ 24,741 26,451
--------- ---------
Total property and equipment ....................... 57,644 59,550
Less - Accumulated depreciation and amortization ......... (17,977) (19,858)
--------- ---------
Net property and equipment ......................... 39,667 39,692
OTHER ASSETS:
Intangibles and deferred charges, net .................... 9,454 9,305
--------- ---------
Total assets ....................................... $ 160,212 $ 161,571
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable ......................................... $ 17,448 $ 23,003
Accrued liabilities ...................................... 8,529 8,078
Federal income taxes payable ............................. 7,587 2,692
--------- ---------
Total current liabilities .......................... 33,564 33,773
LONG-TERM DEBT, net ........................................... 100 100
DEFERRED INCOME TAXES ......................................... 595 595
COMMITMENTS AND CONTINGENCIES
COMMON STOCKHOLDERS' EQUITY:
Common stock, 17,991,890 and 18,001,355 shares outstanding 183 183
Paid-in capital .......................................... 93,293 93,396
Retained earnings ........................................ 32,512 33,559
Less - Treasury stock, 322,226 and 317,610 shares, at cost (35) (35)
--------- ---------
Total common stockholders' equity ................. 125,953 127,103
--------- ---------
Total liabilities and stockholders' equity ........ $ 160,212 $ 161,571
========= =========
</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 Share Data)
(Unaudited)
<TABLE>
<CAPTION>
Thirteen Weeks Ended
-------------------------
April 27, April 26,
1997 1998
----------- -----------
<S> <C> <C>
SALES .............................................. $ 59,493 $ 68,683
COST OF SALES ...................................... 38,893 44,392
----------- -----------
Gross profit ................................. 20,600 24,291
OPERATING EXPENSES:
Store operating ................................ 17,222 20,518
General and administrative ..................... 2,062 2,599
Amortization of intangibles and deferred charges 188 144
Preopening costs ............................... 773 --
----------- -----------
Total operating expenses .................... 20,245 23,261
----------- -----------
Income from operations ...................... 355 1,030
INTEREST INCOME .................................... 391 604
----------- -----------
Income before income taxes .................. 746 1,634
INCOME TAXES ....................................... 276 589
----------- -----------
Net income ................................. $ 470 $ 1,045
=========== ===========
INCOME PER COMMON AND COMMON EQUIVALENT
SHARE:
Net income, basic ........................... $ .03 $ .06
Net income, diluted ......................... $ .03 $ .06
WEIGHTED AVERAGE SHARES OUTSTANDING, BASIC ......... 17,831,374 17,995,156
=========== ===========
WEIGHTED AVERAGE SHARES OUTSANDING, DILUTED ........ 18,354,712 18,625,411
=========== ===========
</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>
Thirteen Weeks Ended
-----------------------
April 27, April 26,
1997 1998
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ............................................... $ 470 $ 1,045
-------- --------
Adjustments to reconcile net income to net cash used in
operating activities ----
Depreciation and amortization of property and equipment 1,523 1,888
Amortization of intangibles and deferred charges ...... 188 144
(Increase) decrease in assets -
Accounts receivable ................................ (113) (649)
Inventories ........................................ (14,937) (3,175)
Prepaid expenses ................................... (306) (789)
Deposits and other ................................. -- 4
Intangibles and deferred charges ................... 327 --
Increase (decrease) in liabilities -
Accounts payable ................................... 4,980 5,555
Accrued liabilities ................................ 1,348 (451)
Federal income taxes payable ....................... (1,843) (4,895)
-------- --------
Total adjustments .................................. (8,833) (2,368)
-------- --------
Net cash (used in) operating activities ............ (8,363) (1,323)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Marketable securities ................................... 3,182 3,150
Capital expenditures .................................... (4,948) (1,906)
Sale of land held for sale/leaseback .................... 3,710 --
-------- --------
Net cash provided by investing activities .......... 1,944 1,244
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from sale of common stock ................... 16 89
Proceeds from exercise of stock option and warrants ...... -- 14
-------- --------
Net cash provided by financing activities .......... 16 103
-------- --------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS ............................................. (6,403) 24
CASH AND CASH EQUIVALENTS AT BEGINNING OF
PERIOD .................................................. 32,494 44,586
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD .................... $ 26,091 $ 44,610
======== ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid during the period for --
Interest ............................................ $ 17 $ 14
Income taxes ........................................ 2,051 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.
The Company is currently assessing the impact of "Year 2000" related
issues on its operational and financial computer systems. The Company has not
yet determined the operational impact, 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.
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.
Thirteen Weeks Ended
-----------------------
April 27, April 26,
1997 1998
----------- -----------
Sales ................................................... 100.0% 100.0%
Cost of sales ........................................... 65.4 64.6
----- -----
Gross profit ....................................... 34.6 35.4
Operating expenses:
Store operating .................................... 28.9 29.9
General and administrative ......................... 3.5 3.8
Amortization of intangibles and deferred charges ... 0.3 0.2
Preopening costs ................................... 1.3 --
----- -----
Income from operations ........................ 0.6 1.5
Interest income ......................................... 0.7 0.9
Income taxes ............................................ (0.5) (0.9)
===== =====
Net income ............................... 0.8% 1.5%
===== =====
FIRST QUARTER ENDED APRIL 26, 1998 COMPARED TO FIRST QUARTER ENDED APRIL 27,
1997
Sales in the first quarter of fiscal 1999 increased $9.2 million, or
15.4%, to $68.7 million from $59.5 million in the first quarter of fiscal 1998.
The increase was primarily attributable to (i) sales from one store opened in
the third quarter of fiscal 1998 and (ii) the results of a full quarter's sales
volume from two stores in the Atlanta area which opened in the first quarter of
fiscal 1998. In addition, comparable store sales were 6% higher than the same
period last year.
Gross profit as a percentage of sales increased to 35.4% in the first
quarter of fiscal 1999 as compared to 34.6% for the comparable period in fiscal
1998. This increase in gross profit was primarily a result of increased product
margins.
6
<PAGE>
Store operating expenses increased $3.3 million, or 19.1%, in the first
quarter of fiscal 1999 primarily as a result of the opening of new stores,
increased store labor to reallocate square footage for certain product
categories in a majority of the stores, and increased delivery expense from the
Company's distribution center to its stores.
General and administrative expenses increased $537,000, or 26.0%, to $2.6
million in the first quarter of fiscal 1999 as compared to $2.1 million in the
first quarter of fiscal 1998. This increase generally related to corporate
personnel additions. General and administrative expenses as a percentage of
sales increased in the first quarter of fiscal 1999 to 3.8% from 3.5% in the
comparable period of 1998.
The Company did not record any preopening expenses in the first quarter of
fiscal 1999 because no new stores were opened. The Company plans to open one
store in the second quarter and five stores in the third quarter of fiscal 1999.
Interest income was $604,000, or 0.9% of sales in the first quarter of
fiscal 1999, as compared to $391,000, or 0.7% of sales in the comparable period
of 1998. This increase primarily resulted from the investment of the Company's
excess cash.
Income taxes were $589,000, representing an effective tax rate of 36.0%
for the first quarter of fiscal 1999, as compared to $276,000, 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.
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 $78.8 million at April 26, 1998. The Company currently has a $15
million line of credit, with 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.
7
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GARDEN RIDGE CORPORATION
PART II - OTHER INFORMATION
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.
8
<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: June 5, 1998 GARDEN RIDGE CORPORATION
(Registrant)
By: /s/ JANE L. ARBUTHNOT
Jane. L. Arbuthnot
Chief Financial Officer
9
<PAGE>
EXHIBIT INDEX
SEQUENTIAL
EXHIBIT NUMBER DESCRIPTION PAGE NUMBER
27 Financial Data Schedule
10
<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> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-25-1998
<PERIOD-END> APR-26-1998
<CASH> 44,610
<SECURITIES> 0
<RECEIVABLES> 2,434
<ALLOWANCES> 0
<INVENTORY> 60,948
<CURRENT-ASSETS> 112,574
<PP&E> 59,550
<DEPRECIATION> (19,858)
<TOTAL-ASSETS> 161,571
<CURRENT-LIABILITIES> 33,773
<BONDS> 0
0
0
<COMMON> 183
<OTHER-SE> 126,920
<TOTAL-LIABILITY-AND-EQUITY> 161,571
<SALES> 68,683
<TOTAL-REVENUES> 68,683
<CGS> 44,392
<TOTAL-COSTS> 24,291
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (604)
<INCOME-PRETAX> 1,634
<INCOME-TAX> 589
<INCOME-CONTINUING> 1,045
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,045
<EPS-PRIMARY> .06
<EPS-DILUTED> .06
</TABLE>
