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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
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(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MAY 3, 1997
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
SECURITIES EXCHANGE ACTION OF 1934
COMMISSION FILE NUMBER 0-26732
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GADZOOKS, INC.
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(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
TEXAS 74-2261048
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(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION
INCORPORATION OR ORGANIZATION) NUMBER)
4121 INTERNATIONAL PARKWAY
CARROLLTON, TX 75007
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(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: 972-307-5555
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(FORMER NAME, FORMER ADDRESS AND 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 ( )
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As of June 6, 1997, the number of shares outstanding of the
registrant's common stock is 8,665,694.
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GADZOOKS, INC.
FORM 10-Q
For the Quarter Ended May 3, 1997
INDEX
<TABLE>
<CAPTION>
PAGE
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<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Balance Sheets as of May 3, 1997 3
and February 1, 1997
Condensed Statements of Income for the 4
First Quarter Ended May 3, 1997 and
April 27, 1996
Condensed Statements of Cash Flows for the 5
First Quarter Ended May 3, 1997 and
April 27, 1996
Notes to Financial Statements 6
Item 2. Management's Discussion and Analysis 7 - 9
of Financial Condition and Results
of Operations
PART II OTHER INFORMATION 9
SIGNATURE PAGE 10
</TABLE>
2
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PART I - FINANCIAL INFORMATION
GADZOOKS, INC.
CONDENSED BALANCE SHEETS
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(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
MAY 3, FEBRUARY 1,
1997 1997
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<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 4,891 $10,348
Short-term investments 13,932 12,420
Accounts receivable 1,768 1,284
Inventory 25,683 23,211
Other current assets 1,456 1,328
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47,730 48,591
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Leaseholds, fixtures and equipment, net 18,640 16,156
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$66,370 $64,747
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 9,532 $ 7,654
Accrued expenses & other current liabilities 3,482 5,490
Income taxes payable 1,420 1,115
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14,434 14,259
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Accrued rent & other long-term obligations 1,488 1,425
Shareholders' equity:
Common stock 86 86
Additional paid-in capital 39,802 39,741
Retained earnings 10,560 9,236
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50,448 49,063
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$66,370 $64,747
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</TABLE>
The accompanying notes are an integral part of these financial statements.
3
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GADZOOKS, INC.
CONDENSED STATEMENTS OF INCOME
(In thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
FIRST QUARTER ENDED
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MAY 3, APRIL 27,
1997 1996
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<S> <C> <C>
Net Sales $34,070 $23,486
Cost of goods sold including buying,
distribution and occupancy costs 23,943 16,539
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Gross Profit 10,127 6,947
Selling, general and administrative expenses 8,234 5,986
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Operating Income 1,893 961
Interest income, net 243 229
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Income before income taxes 2,136 1,190
Provision for income taxes 812 452
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Net income $ 1,324 $ 738
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Net income per common and common
equivalent share $ 0.15 $ 0.08
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Weighted average common and common
equivalent shares outstanding 9,124 9,030
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</TABLE>
The accompanying notes are an integral part of these financial statements.
4
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GADZOOKS, INC.
CONDENSED STATEMENTS OF CASH FLOWS
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(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
FIRST QUARTER ENDED
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MAY 3, APRIL 27,
1997 1996
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES :
Net income $ 1,324 $ 738
Adjustments to reconcile net income to cash
provided by operating activities :
Depreciation 672 479
Changes in operating assets and liabilities (2,846) (3,825)
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NET CASH USED IN OPERATING ACTIVITIES (850) (2,608)
CASH FLOWS FROM INVESTING ACTIVITIES :
Capital expenditures, net (3,156) (2,230)
Purchases of short-term investments, net (1,512) --
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NET CASH USED IN INVESTING ACTIVITIES (4,668) (2,230)
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CASH FLOWS FROM FINANCING ACTIVITIES :
Payments on long-term obligations -- (45)
Issuance of common stock, net 61 8,952
Tax benefit from exercise of stock options -- 125
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NET CASH PROVIDED BY FINANCING ACTIVITIES 61 9,032
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Net increase (decrease) in cash and cash equivalents (5,457) 4,194
Cash and cash equivalents at beginning of period 10,348 13,733
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CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 4,891 $ 17,927
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
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GADZOOKS, INC.
NOTES TO FINANCIAL STATEMENTS
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(UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying condensed financial statements contain all
adjustments (consisting of only normal recurring accruals) necessary
to present fairly the financial position as of May 3, 1997 and April
27, 1996, and the results of operations and cash flows for the three
months then ended. The results of operations for the first quarters
ended May 3, 1997 and April 27, 1996 are not necessarily indicative of
the results to be expected for the full fiscal year. The condensed
balance sheet as of February 1, 1997 is derived from audited financial
statements. The condensed financial statements should be read in
conjunction with the financial statement disclosures contained in the
Company's Report to Shareholders for the year ended February 1, 1997.
2. STOCK SPLIT
On May 1, 1996, the Board of Directors declared a three-for-two split
of the Company's common stock in the form of a 50 percent stock
dividend. The stock split was payable on May 30, 1996 to holders of
record on May 16, 1996, and has been given retroactive effect in these
financial statements.
3. NEW ACCOUNTING STANDARDS
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128 ("SFAS 128"),
Earnings Per Share, to simplify the calculation of earnings per share
for publicly held companies. SFAS 128 is effective for financial
statements issued for periods ending after December 15, 1997 and
requires the disclosure of basic and diluted earnings per share as
well as the restatement of all prior period earnings per share data
presented. For the first quarters ended May 3, 1997 and April 27,
1996, the amounts reported as net income per common and common
equivalent share are not materially different from that which would
have been reported for basic and diluted earnings per share in
accordance with SFAS 128.
6
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Management's Discussion and Analysis of Financial
Condition and Results of Operations
GENERAL
Gadzooks is a rapidly growing, mall-based specialty retailer of casual apparel
and related accessories for young men and women principally between the ages of
13 and 19. The Company opened its first store in 1983, and had 197 stores in
operation at May 3, 1997, located in 25 states throughout the Mid-Atlantic,
Southwest, Midwest, and Southeast regions of the United States.
The Company accelerated its expansion program in late fiscal 1992 and opened 10
new stores in the second six months of that fiscal year, followed by 23 new
stores in fiscal 1993, 26 new stores in fiscal 1994, 39 new stores in fiscal
1995, and 57 new stores in fiscal 1996. The Company has opened 14 new stores
since the beginning of fiscal 1997.
The Company's business is subject to seasonal influences with slightly higher
sales during the Christmas holiday, back-to-school, and spring break seasons.
Management's discussion and analysis should be read in conjunction with the
Company's financial statements and the notes related thereto.
RESULTS OF OPERATIONS
First Quarter Ended May 3, 1997 Compared to First Quarter Ended April 27,1996
Net sales increased approximately $10.6 million, or 45.1 percent to $34,070,000
during the first quarter of fiscal 1997 from $23,486,000 during the comparable
quarter of fiscal 1996 Comparable store sales increased 4.4 percent for the
first quarter of fiscal 1997. The balance of the sales increase was
attributable to new stores not yet included in the comparable store sales base.
A store becomes comparable after it has been open for 14 full fiscal months.
Gross profit increased approximately $3.2 million to $10,127,000 during the
first quarter of fiscal 1997 from $6,947,000 during the comparable quarter of
fiscal 1996. As a percentage of net sales, gross profit increased slightly to
29.7 percent compared to 29.6 percent in the comparable quarter of last year.
Store occupancy costs, included in cost of goods sold, decreased slightly as a
percentage of sales as a result of lower property and casualty insurance
premiums and lower percentage rents. In addition, buying and distribution costs
decreased as a percentage of sales, as a result of the Company's larger store
base. These decreases were offset by slightly reduced margins resulting from an
increase in sales of young men's apparel, which is a lower margin merchandise
category.
7
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Selling, general and administrative expenses increased approximately $2.2
million to $8,234,000 during the first quarter of 1997 from $5,986,000 during
the comparable quarter of fiscal 1996. As a percentage of net sales, selling,
general and administrative expenses decreased to 24.2 percent of sales during
the first quarter of fiscal 1997 from 25.5 percent of sales during the
comparable quarter of last year. The decrease as a percentage of net sales was
due to leveraging of certain store expenses as a percentage of sales as a
result of the comparable store sales increases achieved during the quarter and
to a significant reduction in corporate overhead as a percentage of sales due
to leverage achieved through the Company's larger store base.
Operating income increased approximately $0.9 million to $1,893,000 during the
first quarter of fiscal 1997 from $961,000 during the comparable quarter of
last year. As a percentage of net sales, operating income increased to 5.6
percent of sales from 4.1 percent of sales during the comparable quarter of
last year.
Net interest income increased $14,000 to $243,000 during the first quarter of
fiscal 1997 from $229,000 net interest income in the comparable period of last
year. The Company's interest income increased due to temporary investments of
cash generated from operations.
LIQUIDITY AND CAPITAL RESOURCES
General. The Company's primary uses of cash are financing new store openings
and purchasing merchandise inventories. The Company is currently meeting its
cash requirements through cash flow from operations and proceeds of its initial
public offering completed in October, 1995, and a secondary public offering
completed in January, 1996.
Cash Flows. At May 3, 1997, cash and cash equivalents were $4.9 million, a
decrease of $5.5 million since February 1, 1997. The primary uses of cash were
increased inventory levels of $2.5 million, increases in short-term investments
of $1.5 million, and capital expenditures of $3.2 million. The source of cash
for the first quarter of fiscal 1997 was primarily net income before
depreciation of $2.0 million. The Company opened 14 new stores during the first
quarter of 1997 as compared with 20 new stores in the same period of the prior
year.
As of May 3, 1997, the Company had $13.9 million in short-term investments
consisting of highly liquid investments with original maturities between three
and twelve months. These funds are available for the Company's cash
requirements.
Credit Facility. The Company currently has a loan agreement with Wells Fargo
Bank, Dallas, Texas, which provides for an unsecured revolving line of credit
of $10 million. Amounts borrowed under the revolving line bear interest at the
lesser of either Prime Rate or 1.95 percent above LIBOR. The Company must also
pay a commitment fee of 0.50 percent per annum on the unused portion of the
8
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revolving line. As of May 3, 1997, no amounts were outstanding under the
revolving line. The revolving line also provides for the issuance of letters of
credit that are generally used in certain circumstances in connection with
merchandise purchases. As of June 6, 1997, letters of credit in the amount of
$0.7 million were issued and outstanding.
Capital Expenditures. The Company anticipates opening approximately 50 new
stores during the remaining quarters of fiscal 1997. The Company estimates that
its average capital expenditures to open a new store, including leasehold
improvements and furniture and fixtures, will be approximately $167,000
(approximately $100,000 net of all landlord construction allowances). The cost
of initial inventory for a new store is approximately $100,000; however, the
immediate cash requirement for inventory is partially financed through the
Company's payment terms with its vendors. Pre-opening costs range from $9,000
to $13,000 for travel, hiring and training, and other miscellaneous costs
associated with the setup of a new store prior to its opening for business.
Pre-opening costs are expensed in the period when the store opens.
STATEMENT REGARDING FORWARD-LOOKING DISCLOSURE
Certain sections of this Quarterly Report on Form 10Q, including the preceding
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," contain various forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended (the "Securities Act"),
and Section 21E of the Exchange Act, which represent the Company's expectations
or beliefs concerning future events. These forward-looking statements involve
risks and uncertainties, and the Company cautions that these statements are
further qualified by important factors that could cause actual results to
differ materially from those in the forward-looking statements, including,
without limitation, those set forth in the "Risk Factors" section of the
Company's Annual Report on Form 10-K for the fiscal year ended February 1,
1997.
PART II - OTHER INFORMATION
Items 1-6 are not applicable.
9
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SIGNATURES
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.
GADZOOKS, INC.
(Registrant)
DATE: June 12, 1997 By: /s/ MONTY R. STANDIFER
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Monty R. Standifer
Senior Vice President and
Chief Financial Officer
<PAGE> 11
Index to Exhibits
<TABLE>
<CAPTION>
Exhibit
Number Description
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<S> <C>
27 Financial Data Schedule
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-31-1998
<PERIOD-START> FEB-02-1997
<PERIOD-END> MAY-03-1997
<CASH> 4,891,196
<SECURITIES> 13,931,798
<RECEIVABLES> 1,767,529
<ALLOWANCES> 0
<INVENTORY> 25,682,703
<CURRENT-ASSETS> 1,456,564
<PP&E> 25,286,825
<DEPRECIATION> 6,646,411
<TOTAL-ASSETS> 66,370,204
<CURRENT-LIABILITIES> 14,432,803
<BONDS> 0
0
0
<COMMON> 85,993
<OTHER-SE> 50,362,937
<TOTAL-LIABILITY-AND-EQUITY> 66,370,204
<SALES> 34,070,267
<TOTAL-REVENUES> 0
<CGS> 23,942,950
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 8,233,968
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (242,469)
<INCOME-PRETAX> 2,135,818
<INCOME-TAX> 811,600
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,324,218
<EPS-PRIMARY> .15
<EPS-DILUTED> 0
</TABLE>
