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: May 2, 1999
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 15, 1999
Common Stock, $.01 Par Value 17,168,595 shares
1
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GARDEN RIDGE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
JANUARY 31, MAY 2,
ASSETS 1999 1999
--------- ---------
CURRENT ASSETS: (Unaudited)
<S> <C> <C>
Cash and cash equivalents ................................. $ 35,882 $ 25,177
Accounts receivable ....................................... 2,783 4,414
Inventories ............................................... 68,009 77,583
Deferred income taxes ..................................... 1,329 1,329
Prepaid expenses .......................................... 3,756 4,497
Deposits .................................................. 72 72
--------- ---------
Total current assets ................................. 111,831 113,072
PROPERTY AND EQUIPMENT, at cost:
Leasehold improvements .................................... 23,770 24,855
Furniture and fixtures .................................... 18,760 19,553
Equipment ................................................. 34,731 37,158
--------- ---------
Total property and equipment ........................ 77,261 81,566
Less - Accumulated depreciation and amortization .......... (27,423) (30,314)
--------- ---------
Net property and equipment .......................... 49,838 51,252
OTHER ASSETS:
Intangible assets, net .................................... 8,855 8,706
========= =========
Total assets ........................................ $ 170,524 $ 173,030
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable .......................................... $ 18,731 $ 26,708
Accrued liabilities ....................................... 7,149 11,609
Federal income taxes payable .............................. 6,470 2,009
--------- ---------
Total current liabilities ........................... 32,350 40,326
DEFERRED INCOME TAXES .......................................... 977 977
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, 18,159,508 and 17,168,595 shares outstanding 183 183
Paid-in capital ........................................... 94,026 94,078
Retained earnings ......................................... 43,008 43,156
Less - Treasury stock, 182,442 and 1,182,442 shares at cost (20) (5,690)
--------- ---------
Total stockholders' equity ......................... 137,197 131,727
--------- ---------
Total liabilities and stockholders' equity ......... $ 170,524 $ 173,030
========= =========
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
2
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GARDEN RIDGE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
THIRTEEN WEEKS ENDED
---------------------------
APRIL 26, MAY 2,
1998 1999
------------ ------------
SALES ........................................... $ 68,683 $ 84,535
COST OF SALES ................................... 44,392 53,929
------------ ------------
Gross profit .............................. 24,291 30,606
OPERATING EXPENSES:
Store operating ............................. 20,518 25,472
General and administrative .................. 2,599 4,289
Amortization of intangible assets ........... 144 149
Preopening costs ............................ -- 795
------------ ------------
Total operating expenses ................. 23,261 30,705
------------ ------------
Income (loss) from operations ............ 1,030 (99)
INTEREST INCOME ................................. 604 329
------------ ------------
Income before income taxes ............... 1,634 230
INCOME TAXES .................................... 589 82
============ ============
Net income ............................... $ 1,045 $ 148
============ ============
INCOME PER COMMON AND COMMON EQUIVALENT SHARE:
Net income, basic ........................ $ .06 $ .01
Net income, diluted ...................... $ .06 $ .01
WEIGHTED AVERAGE SHARES OUTSTANDING, BASIC ...... 17,995,156 17,639,929
============ ============
WEIGHTED AVERAGE SHARES OUTSANDING, DILUTED ..... 18,625,411 17,973,707
============ ============
The accompanying notes are an integral part
of these consolidated financial statements.
3
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GARDEN RIDGE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
THIRTEEN WEEKS ENDED
----------------------------
APRIL 26, MAY 2,
1998 1999
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ........................................................... $ 1,045 $ 148
------------ ------------
Adjustments to reconcile net income to net cash provided by (used in)
operating activities --
Depreciation and amortization of property and equipment .......... 1,888 2,891
Amortization of intangible assets ................................. 144 149
(Increase) decrease in assets -
Accounts receivable ............................................ (649) (1,631)
Inventories .................................................... (3,175) (9,574)
Prepaid expenses ............................................... (789) (741)
Deposits ....................................................... 4 --
Increase (decrease) in liabilities -
Accounts payable ............................................... 5,555 7,977
Accrued liabilities ............................................ (451) 4,460
Federal income taxes payable ................................... (4,895) (4,461)
------------ ------------
Total adjustments ......................................... (2,368) (930)
------------ ------------
Net cash used in operating activities .................... (1,323) (782)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Marketable securities ................................................ 3,150 --
Capital expenditures ................................................. (1,906) (4,305)
------------ ------------
Net cash provided by (used in) investing activities ........... 1,244 (4,305)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from sale of common stock ............................... 89 52
Proceeds from exercise of stock options and warrants ................ 14 --
Net payments for repurchase of common stock .......................... -- (5,670)
------------ ------------
Net cash provided by (used in) financing activities ........... 103 (5,618)
------------ ------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ...................... 24 (10,705)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD .......................... 44,586 35,882
------------ ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD ................................ $ 44,610 $ 25,177
============ ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid during the period for --
Interest ........................................................ $ 14 $ 9
Income taxes .................................................... 5,400 4,455
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
4
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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 31, 1999.
In April 1998, the AICPA issued Statement of Position 98-5 (SOP 98-5),
Reporting the Costs of Start-Up Activities, which requires that costs related to
start-up activities be expensed as incurred. Prior to fiscal 2000, preopening
costs were deferred and expensed in the month the store opened. The Company
adopted the provisions of SOP 98-5 in its financial statements for the first
quarter of fiscal 2000, and as a result began expensing preopening costs as
incurred. Management believes the implementation of SOP 98-5 will not have a
material effect on the Company's financial position, results of operations or
cash flows for fiscal 2000.
5
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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 a 53-week year. References to fiscal years by date
refer to the fiscal year ending in that calendar year; for example, "fiscal
2000" refers to the fiscal year ending January 30, 2000.
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 26, MAY 2,
1998 1999
--------- ---------
Sales .............................................. 100.0% 100.0%
Cost of sales ...................................... 64.6 63.8
--------- ---------
Gross profit .................................. 35.4 36.2
Operating expenses:
Store operating ............................... 29.9 30.1
General and administrative .................... 3.8 5.1
Amortization of intangible assets ............. 0.2 0.2
Preopening costs .............................. -- 0.9
--------- ---------
Income (loss) from
operations ......................................... 1.5 (0.1)
Interest income .................................... 0.9 0.4
Income taxes ....................................... (0.9) (0.1)
========= =========
Net income ...................... 1.5% 0.2%
========= =========
FIRST QUARTER ENDED MAY 2, 1999 COMPARED TO FIRST QUARTER ENDED APRIL 26, 1998
Sales in the first quarter of fiscal 2000 increased $15.8 million, or
23.1%, to $84.5 million from $68.7 million in the first quarter of fiscal 1999.
The increase was primarily attributable to (i) the opening of two stores during
February and April of fiscal 2000 and (ii) the results from six stores opened
during the second and third quarters of fiscal 1999. This increase was partially
offset by a comparable store sales decline of 2%.
Gross profit as a percentage of sales increased to 36.2% in the first
quarter of fiscal 2000 as compared to 35.4% for the comparable period in fiscal
1999. This increase in gross profit as a percentage of sales resulted from
higher product selling margins for the first quarter of fiscal 2000 compared to
the first quarter of fiscal 1999.
6
<PAGE>
Store operating expenses increased $5.0 million, or 24.1%, in the first
quarter of fiscal 2000 primarily as a result of the opening of new stores and
increased distribution expenses related to the opening of a new distribution
center in Charlotte, North Carolina. Store operating costs as a percentage of
sales increased to 30.1% from 29.9% in the comparable period of fiscal 1999.
General and administrative expenses increased $1.7 million, or 65.0%, to
$4.3 million in the first quarter of fiscal 2000 as compared to $2.6 million in
the first quarter of fiscal 1999. This increase generally related to corporate
personnel additions, management information systems consulting and increased
depreciation costs. General and administrative expenses as a percentage of sales
increased in the first quarter of fiscal 2000 to 5.1% from 3.8% in the
comparable period of fiscal 1999.
Preopening expenses were $795,000 for the first quarter of fiscal 2000, as
compared to none for the first quarter of fiscal 1999, resulting from two stores
being opened during the quarter and the adoption of Statement of Position 98-5
(SOP 98-5), "Reporting on Costs of Start Up Activities". No stores were opened
during the first quarter of fiscal 1999.
Interest income was $329,000, or 0.4% of sales in the first quarter of
fiscal 2000, as compared to $604,000, or 0.9% of sales in the comparable period
of fiscal 1999. This decrease related to the Company's lower investable cash
balance.
Income taxes were $82,000, an effective tax rate of 36.0% for the first
quarter of fiscal 2000, compared to $589,000, or 36.0% in the comparable period
of 1999.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary sources of working capital are cash flow from
operations and borrowings under its line of credit. The Company had working
capital of $72.7 million at May 2, 1999. The Company currently has a $15 million
line of credit, which had no outstanding borrowings under it at May 2, 1999.
Management believes the Company has sufficient working capital, cash flow from
operating activities and available unused credit capacity to sustain current
growth plans.
During the first quarter of fiscal 2000, the Company's board of directors
authorized the repurchase of up to one million shares of the Company's common
stock. In March 1999, the Company repurchased one million shares at a cost of
approximately $5.67 million. These shares will be held in treasury for future
use.
YEAR 2000 ISSUES
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 August 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 accelerate approximately $2 million in capital
costs in fiscal 2000 to replace or upgrade certain management information
systems that are not Year 2000 compliant.
7
<PAGE>
The amount charged to expense in fiscal year 1999, as well as the amounts
expected to be charged to expense related to Year 2000 testing and modifications
in fiscal 2000, have not been and are not expected to be material to the
Company's financial position, results of operations or cash flow.
In evaluating the risks to the Company, the most serious risk would be
interruption in the ability to communicate and interface with suppliers.
Management is in the process of surveying the Company's suppliers and believes
that in most cases suppliers will be in compliance or have plans to be
compliant. The Company believes that in an emergency it could revert to the use
of manual systems that do not rely on computers and could perform the minimum
functions required to provide information reporting to maintain satisfactory
control of business. Should the Company have to utilize manual systems it is
uncertain that it could maintain the same level of operations, and this could
have a material adverse impact on the business. The Company intends to maintain
constant surveillance of this situation and will develop such contingency plans
as required by the changing environment.
8
<PAGE>
PART II - OTHER INFORMATION
Items 1, 2, 3, 4 and 5 are not applicable and have been omitted.
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.
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: June 15, 1999 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
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> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-31-1999
<PERIOD-END> MAY-02-1999
<CASH> 25,177
<SECURITIES> 0
<RECEIVABLES> 4,414
<ALLOWANCES> 0
<INVENTORY> 77,583
<CURRENT-ASSETS> 113,072
<PP&E> 81,566
<DEPRECIATION> (30,314)
<TOTAL-ASSETS> 173,030
<CURRENT-LIABILITIES> 40,326
<BONDS> 0
0
0
<COMMON> 183
<OTHER-SE> 131,544
<TOTAL-LIABILITY-AND-EQUITY> 173,030
<SALES> 84,535
<TOTAL-REVENUES> 84,535
<CGS> 53,929
<TOTAL-COSTS> 30,705
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (329)
<INCOME-PRETAX> 230
<INCOME-TAX> 82
<INCOME-CONTINUING> 148
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 148
<EPS-BASIC> .01
<EPS-DILUTED> .01
</TABLE>
