SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended APRIL 28, 1996
OR
_ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ___________________ to ____________________
Commission File No. 1-13426
THE SPORTS AUTHORITY, INC.
--------------------------
(Exact name of registrant as specified in its charter)
Delaware 36-3511120
- --------------------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3383 N. State Road 7, Ft. Lauderdale, Florida 33319
- -------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(954) 735-1701
----------------------
(Registrant's telephone number, including area code)
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 _____
Number of shares of Common Stock outstanding at May 29, 1996: 20,892,598
1
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THE SPORTS AUTHORITY, INC.
INDEX TO FORM 10-Q
PAGE NUMBER
<S> <C>
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of Income 3
Consolidated Balance Sheets 4
Consolidated Statements of Cash Flows 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 7
Part II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 12
SIGNATURES 13
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Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
THE SPORTS AUTHORITY, INC.
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per-share data)
13 WEEKS ENDED
--------------------------
April 28, April 23,
1996 1995
------------ ---------
(Unaudited)
Sales $ 270,558 $ 221,595
Licensee fees and rental income 578 604
--------- ----------
271,136 222,199
--------- ----------
Cost of merchandise sold, includes
buying and occupancy costs 197,094 163,731
Selling, general and administrative expenses 69,211 54,180
Pre-opening expense 632 651
Goodwill amortization 491 491
--------- ----------
Operating income 3,708 3,146
Interest expense 536 219
--------- ----------
Income before income taxes 3,172 2,927
Income tax expense 1,300 1,250
Minority interest (181) -
--------- ----------
Net income $ 2,053 $ 1,677
========= ==========
Earnings per share $ .10 $ .08
========= ==========
Weighted average shares outstanding 20,865 20,783
========= ==========
See accompanying Notes to Consolidated Financial Statements
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THE SPORTS AUTHORITY, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands)
April 28, January 28,
1996 1996
--------- -----------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 16,358 $ 11,752
Merchandise inventories 289,207 248,307
Accounts receivable and other current assets 28,078 30,442
Property held for resale 21,083 21,063
--------- ----------
Total current assets 354,726 311,564
Net property owned 133,179 134,706
Other assets and deferred charges 24,045 22,950
Goodwill - net of accumulated amortization of
$12,187 and $11,697 respectively 54,218 54,708
--------- ----------
Total Assets $ 566,168 $ 523,928
========= ==========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Accounts payable - trade $ 157,493 $ 136,344
Accrued payrolls and other liabilities 61,293 73,737
Short-term debt 35,105 -
Taxes other than income taxes 9,787 7,438
Income taxes 1,313 10,507
--------- ----------
Total current liabilities 264,991 228,026
Long-term debt - -
Other long-term liabilities 19,198 18,062
--------- ----------
Total liabilities 284,189 246,088
Minority interest 823 312
Stockholder's equity:
Common stock, $.01 par value, 100,000 shares
authorized, 20,893 issued and outstanding 209 209
Additional paid-in-capital 243,017 241,525
Deferred compensation and receivables from officers (590) (553)
Retained earnings 39,081 37,028
Treasury stock, 26 shares (381) (381)
Cumulative translation adjustment (180) (300)
--------- ----------
Total stockholder's equity 281,156 277,528
--------- ----------
Total Liabilities and Stockholder's Equity $ 566,168 $ 523,928
========= ==========
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See accompanying Notes to Consolidated Financial Statements
4
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THE SPORTS AUTHORITY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
13 WEEKS ENDED
----------------------------
April 28, April 23,
1996 1995
------------ ---------
(Unaudited)
<S> <C> <C>
CASH PROVIDED BY (USED FOR):
OPERATIONS
Net income $ 2,053 $ 1,677
Adjustments to reconcile net income to operating cash flows:
Depreciation and amortization 6,498 4,626
Cumulative translation adjustment 120 -
Minority interest in net loss of joint venture (181) -
Loss on disposal of property and equipment 13 -
Increase in long-term liabilities 1,136 694
Cash provided by (used for) current assets and liabilities:
Increase in inventories (40,900) (27,132)
Increase (Decrease) in property held for resale (20) 4,925
Increase in accounts payable 21,149 2,370
Other - net (16,918) (5,608)
--------- ----------
Net cash used for operations (27,050) (18,448)
--------- ----------
INVESTING
Capital expenditures - owned property (4,153) (12,905)
Other assets and deferred charges (1,339) (29)
--------- ----------
Net cash used for investing (5,492) (12,934)
--------- ----------
FINANCING
Net borrowings under Revolving Credit Facility 35,105 -
Net borrowings under Cash Management Agreement - 6,328
Proceeds from sale of stock 1,351 1,118
Purchase of treasury stock - (124)
Minority interest in equity of Joint Venture 692 -
--------- ---------
Net cash provided by financing 37,148 7,322
--------- ----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 4,606 (24,060)
Cash and cash equivalents at beginning of year 11,752 37,115
--------- ----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 16,358 $ 13,055
========= ==========
</TABLE>
See accompanying Notes to Consolidated Financial Statements
5
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THE SPORTS AUTHORITY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements do not include
all information and footnotes necessary for the annual presentation of financial
position, results of operations and cash flows in conformity with generally
accepted accounting principles.
Certain amounts in the prior year's financial statements have been
reclassified to conform to the current year's presentation.
In the opinion of The Sports Authority, Inc. management, all adjustments
necessary for a fair presentation of the results for the interim periods have
been included. All adjustments were of a normal and recurring nature.
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Item 2.
THE SPORTS AUTHORITY, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The following table sets forth the Company's income statement data as a percent
of sales for the periods indicated.
13 WEEKS ENDED
-----------------------------
April 28, April 23,
1996 1995
------------ -------------
Sales 100.0% 100.0%
Licensee fees and rental income 0.2 0.3
----------- ------------
100.2 100.3
Cost of merchandise sold, includes
buying and occupancy costs 72.8 73.9
----------- ------------
Gross margin 27.4 26.4
Selling, general and administrative expenses 25.6 24.5
Pre-opening expense 0.2 0.3
Goodwill amortization 0.2 0.2
----------- ------------
Operating income 1.4 1.4
Interest expense 0.2 0.1
----------- ------------
Income before income taxes 1.2 1.3
Income tax expense 0.5 0.5
Minority interest (0.1) -
----------- ------------
Net income 0.8% 0.8%
=========== ============
The following table sets forth the Company's store openings for the periods
indicated. No stores were closed during these periods.
13 WEEKS ENDED
--------------------------
April 28, April 23,
1996 1995
------------ -----------
Beginning number of stores 136 107
Openings 2 2
----------- -----------
Ending number of stores 138 109
=========== ===========
7
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THE SPORTS AUTHORITY, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS - CONTINUED
13 WEEKS ENDED APRIL 28, 1996 AND APRIL 23, 1995
Sales for the 13 weeks ended April 28, 1996 were $270.6 million, a $49.0
million, or 22.1%, increase over sales of $221.6 million for the same period in
the prior year. Of the 22.1% increase in sales, 20.4%, or $45.3 million, was
attributable to the inclusion of a full 13 weeks sales for the stores opened in
1995 which had no comparable store sales in the prior year; 0.9%, or $2.0
million, was attributable to the 2 new stores opened in the first quarter of
1996; and 0.8%, or $1.7 million, was attributable to comparable store sales
growth. Comparable store sales increased 0.8% and 1.2%, respectively, in the
first quarter of 1996 and 1995. Comparable store sales increases primarily
resulted from apparel, due to strong sales of licensed products, as well as
fitness equipment and footwear. However, comparable store sales increased at a
lower rate in 1996 versus 1995 primarily due to sluggish sales in hardlines,
particularly outdoor sports products. Excluding all or a portion of the first
quarter of 1996 sales from 4 stores considered to be cannibalized by new store
openings, comparable store sales increased 1.3% in the first quarter of 1996, as
compared to 3.6% in the same period of last year after excluding all or a
portion of the first quarter of 1995 sales from 11 stores considered to be
cannibalized. The Company considers an existing store to be cannibalized for a
period of one year from the date on which a new store overlaps its primary trade
area. In calculating comparable store sales excluding cannibalized stores, sales
from a cannibalized store are excluded from the calculation of total comparable
sales for such months.
Cost of merchandise sold, including buying and occupancy costs, for the 13
weeks ended April 28, 1996 was $197.1 million, or 72.8% of sales, as compared to
$163.7 million, or 73.9% of sales, for the same period in the prior year. As a
percent of sales, gross margin was 27.4% for 1996 and 26.4% for 1995. The major
components of cost of goods sold are merchandise costs and, to a lesser extent,
occupancy costs. For the 1996 period, merchandise costs decreased primarily due
to an increase in the purchase markon as the Company is purchasing more higher
margin products such as footwear and apparel. Occupancy costs as a percent of
sales increased slightly due to an increase in fixed minimum rentals, which is
primarily the result of a 4.6% reduction in average store sales volume per store
in the first quarter of 1996 versus the same period in the prior year.
Selling, general and administrative (SG&A) expenses for the 13 weeks ended
April 28, 1996 were $69.2 million, or 25.6% of sales, as compared to $54.2
million, or 24.5% of sales, for the same period in the prior year. The 1.1% of
sales increase in SG&A expenses was attributable to an increase in payroll
expenses partly due to increased payroll related to the Company's TSA 2000
project, which was implemented in the second half of 1995.
8
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THE SPORTS AUTHORITY, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS - CONTINUED
Pre-opening expense for the 13 weeks ended April 28, 1996 was $0.6 million,
or 0.2% of sales, as compared to $0.7 million, or 0.3% of sales, for the same
period in the prior year. The decrease of 0.1% of sales is attributable to
higher sales volume. Pre-opening expenses consist principally of store payroll
expense for associate training and store preparation prior to the store opening
as well as grand-opening advertising expenditures. The Company opened 2 stores
in both the 1996 and 1995 periods.
Operating income for the 13 weeks ended April 28, 1996 was $3.7 million, or
1.4% of sales, as compared to operating income of $3.1 million, or 1.4% of
sales, for the same period in the prior year. Operating income before
pre-opening expense and goodwill amortization was $4.8 million, or 1.8% of
sales, for the 13 weeks ended April 28, 1996, as compared to $4.3 million, or
1.9% of sales, for the same period in the prior year.
Interest expense for the 13 weeks ended April 28, 1996 was $0.5 million, or
0.2% of sales, as compared to interest expense of $0.2 million, or 0.1% of
sales, for the same period in the prior year. The increase of 0.1% of sales was
attributable to higher average borrowings during the first quarter of 1996
versus the same period in the prior year.
Income tax expense for the 13 weeks ended April 28, 1996 was $1.3 million
with an effective tax rate of 41.0%, as compared to income tax expense of $1.3
million with an effective tax rate of 42.7% for the same period of 1995. The 1.7
percentage point decrease in the effective tax rate resulted from several
factors including a tax rate differential related to the Company's Canadian
subsidiary and non-deductible goodwill expense, which represented a smaller
proportion of income before income taxes in the first quarter of 1996 versus
1995.
As a result of the foregoing factors, net income for the 13 weeks ended
April 28, 1996 was $2.1 million, or 0.8% of sales, as compared to net income of
$1.7 million, or 0.8% of sales, for the same period in the prior year.
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal capital requirements are to fund working capital
needs and to open new stores in connection with its expansion strategy. For the
13 weeks ended April 28, 1996 these capital requirements have generally been
satisfied by cash and cash equivalents at the beginning of the year, by
borrowings under the Revolving Credit Facility and by cash flows from
operations.
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THE SPORTS AUTHORITY, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS - CONTINUED
Cash flows generated by operating, investing and financing activities
as reported in the Consolidated Statements of Cash Flows for the 13 weeks ended
April 28, 1996 are summarized below. The net increase in cash and cash
equivalents for the 13 weeks ended April 28, 1996 was $4.6 million as compared
to a decrease of $24.1 million for the same period in the prior year.
Net cash used for operations was $27.1 million for the 13 weeks ended April
28, 1996 as compared to net cash used for operations of $18.4 million for the
same period in the prior year. Inventory net of accounts payable increased $19.8
million due to a seasonal increase in inventory levels. In the other-net
category, accrued payroll and other liabilities decreased, resulting from a
reduction in seasonally high year-end accruals, and income taxes payable
decreased due to an estimated 1995 tax payment made in March, 1996. These uses
of cash were offset by income before depreciation and amortization of $8.6
million. Depreciation and amortization expense resulted primarily from leasehold
improvements, store fixtures and goodwill. Depreciation expense is expected to
continue to increase in the future due to continued expansion and new store
openings such as those discussed below. In addition, accounts receivable and
other current assets decreased due to collection of Christmas holiday co-op
advertising.
Net cash used for investing was $5.5 million for the 13 weeks ended April
28, 1996, as compared to $12.9 million for the same period in the prior year.
Capital expenditures in the first 13 weeks of 1996 included $2.3 million of
expenditures associated with opening stores, of which $1.2 million was used for
the development of the two stores opened in the first quarter, and $1.1 million
was used for stores to be opened subsequent to the first quarter. The remaining
$1.9 million was used to refurbish certain existing stores and purchase computer
hardware and software for the corporate office. Other assets and deferred
charges increased by $1.3 million due primarily to a $0.8 million advance an a
promissory note made to a developer. The toal note receivable is $7.2 million
and will be repaid over 20 years, beginning in May 1996.
Net cash provided by financing for the 13 weeks ended April 28, 1996 was
$37.1 million, as compared to $7.3 million for the same period in the prior
year. The increase for the first quarter of 1996 was comprised principally of
borrowings under the Company's Revolving Credit Facility and, to a lesser
extent, proceeds from the sale of stock through the Management Stock Purchase
Plan and the Employee Stock Purchase Plan.
Pursuant to the Company's rapid expansion program, the Company currently
plans to open between 55 and 60 stores during the 1996-1997 period. Total
capital expenditures in 1996 are projected to be approximately $46 million,
including approximately $5 million to be expended by the Company's joint venture
in Japan. In addition, the joint venture expects to pay approximately $6 million
in long-term store lease deposits in 1996. The Company intends to continue to
finance new stores with operating leases, assuming availability and appropriate
terms. To the extent stores are not financed with operating leases, capital
expenditures will be higher by approximately $3 million to $7 million per
location.
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THE SPORTS AUTHORITY, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS - CONTINUED
The Company believes that anticipated cash flows from operations, borrowings
under the Revolving Credit Facility, operating leases from developers and
operating leases under the Operating Lease Facility will be sufficient to
satisfy its currently anticipated working capital and capital expenditure
requirements through the end of 1996. The Company's Revolving Credit Facility
currently provides for borrowings in a principal amount of $110 million at any
one time. As of June 5, 1996, the Company had borrowings of approximately $45
million under the Revolving Credit Facility. The Operating Lease Facility
provides for funding of up to $50 million of property and improvements at any
one time. As of June 5, 1996, approximately $39 million was available under the
Operating Lease Facility.
The Company's working capital at April 28, 1996 was $89.7 million compared
with $102.3 million at April 23, 1995, a decrease of $12.6 million. This
decrease was primarily due to an increase in net borrowings of $28.8 million, as
the Company held $25.4 million less cash at the beginning of fiscal year 1996 as
compared to the beginning of fiscal year 1995. This was partially offset by an
increase in inventory net of trade payables of $14.8 million, caused by the
Company's opening of 29 stores since April 23, 1995.
SEASONALITY AND INFLATION
The Company's business is highly seasonal, with its highest sales and
operating profitability occurring in the fourth quarter, which includes the
holiday selling season. In fiscal 1995, 30.8% of the Company's sales and 57.0%
of its operating income occurred in the fourth quarter. The Company's expansion
program generally is weighted with store openings in the second half of the
fiscal year. In the future, changes in the number and timing of store openings
may change seasonality trends.
Management does not believe inflation had a material adverse effect on the
financial statements for the periods presented.
11
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THE SPORTS AUTHORITY, INC.
Part II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
See Exhibit index on Page 14
(b) Reports on Form 8-K:
None
12
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THE SPORTS AUTHORITY, INC.
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.
THE SPORTS AUTHORITY, INC.
Date: June 5, 1996 By: /S/ RICHARD J. LYNCH, JR.
-------------------------
Richard J. Lynch, Jr.
President, Chief Operating Officer
and Director
Date: June 5, 1996 By: /S/ ANTHONY F. CRUDELE
----------------------
Anthony F. Crudele
Senior Vice President and
Chief Financial Officer
(Principal Financial and
Accounting Officer)
13
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INDEX TO EXHIBITS
SEQUENTIAL
EXHIBITS PAGE NUMBER
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10.13 1996 Stock Option and Restricted Stock Plan, incorporated
herein by reference to Exhibit A of the Company's Proxy Statment dated
April 25, 1996.
11.1 Computation of earnings per share 15
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<CAPTION>
Exhibit 11.1
THE SPORTS AUTHORITY, INC.
COMPUTATION OF EARNINGS PER SHARE
(In thousands, except per share data)
13 WEEKS ENDED
------------------------------
April 28, April 23,
1996 1995
------------ ---------
(Unaudited)
<S> <C> <C>
Financial statement computations:
Income before income taxes $ 3,172 $ 2,927
Income tax expense 1,300 1,250
Minority interest (181) -
-------- ---------
Net income $ 2,053 $ 1,677
========= ==========
Earnings per share:
Shares used in primary earnings per share computation:
Weighted average common shares outstanding 20,865 20,783
Net additional shares assuming options exercised
and proceeds used to purchase treasury shares
at average market price 231 27
--------- ----------
Common and common equivalent shares 21,096 20,810
========= ==========
Earnings per share assuming primary dilution $ 0.10 $ 0.08
========= ==========
Shares used in fully diluted earnings per share computation:
Weighted average common shares outstanding 20,865 20,783
Net additional shares assuming options exercised
and proceeds used to purchase treasury shares
at higher of average market price and period-
end market price. 358 27
--------- ----------
Common and common equivalent shares 21,223 20,810
========= ==========
Earnings per share assuming full dilution $ 0.10 $ 0.08
========= ==========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-26-1997
<PERIOD-START> JAN-29-1996
<PERIOD-END> APR-28-1996
<CASH> 16,358
<SECURITIES> 0
<RECEIVABLES> 11,385
<ALLOWANCES> (466)
<INVENTORY> 289,207
<CURRENT-ASSETS> 354,726
<PP&E> 183,701
<DEPRECIATION> (50,522)
<TOTAL-ASSETS> 566,168
<CURRENT-LIABILITIES> 264,991
<BONDS> 0
0
0
<COMMON> 209
<OTHER-SE> 280,947
<TOTAL-LIABILITY-AND-EQUITY> 566,168
<SALES> 270,558
<TOTAL-REVENUES> 271,136
<CGS> 197,094
<TOTAL-COSTS> 197,094
<OTHER-EXPENSES> 70,334
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 536
<INCOME-PRETAX> 3,172
<INCOME-TAX> 1,300
<INCOME-CONTINUING> 3,708
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,053
<EPS-PRIMARY> .10
<EPS-DILUTED> .10
</TABLE>
