Server: Netscape-Enterprise/2.01 Date: Fri, 19 Dec 1997 13:37:56 GMT Accept-ranges: bytes Last-modified: Wed, 05 Mar 1997 14:39:27 GMT Content-length: 24740 Content-type: text/html 1996 First Quarter 10-Q

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549


10-Q/A
AMENDMENT NO.1


[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED APRIL 27, 1996

OR

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF
SECURITIES EXCHANGE ACTION OF 1934

COMMISSION FILE NUMBER 0-26732

GADZOOKS, INC.

(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

TEXAS 74-2261048
(STATE OR OTHER JURISDICTION OF
INCORPORATION OR ORGANIZATION)
(I.R.S. EMPLOYER IDENTIFICATION NUMBER)
   
4801 SPRING VALLEY ROAD
SUITE 108B
DALLAS, TX
75244
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)

REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: 214-991-5500

(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 [ ]

The number of shares outstanding of the registrant's common stock is 8,510,547 (as of June 6, 1996, including shares issued on May 30, 1996 in connection with the 3 for 2 stock split in the form of a stock dividend to holders of record on May 16, 1996).



GADZOOKS, INC.
FORM 10-Q/A

For the Quarter Ended April 27, 1996

 


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PART I - FINANCIAL INFORMATION

GADZOOKS, INC.
CONDENSED BALANCE SHEETS

(In thousands)
(Unaudited)

  APRIL 27,
1996
JANUARY 27,
1996
ASSETS
Current assets:    
  Cash and cash equivalents $17,927 $13,733
  Accounts receivable 1,831 491
  Inventory 20,311 18,707
Other current assets 734
1,161
  40,803
34,092
Leaseholds, fixtures and equipment, net 13,270
11,519
  $54,073

$45,611

     
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:    
  Accounts payable $8,279 $8,495
  Accrued expenses & other current liabilities 3,428 3,775
  Income taxes payable 630 1,321
  Current portion of long-term obligations -- 
133
  12,337
13,724
Accrued rent & other long-term obligation 1,156 1,122
Shareholders' equity:    
  Common stock 85 78
  Additional paid-in capital 38,512 29,442
  Retained earnings 1,983
1,245
  40,580
30,765
  $54,073

$45,611

The accompanying notes are an integral part of these financial statements.

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GADZOOKS, INC.
CONDENSED STATEMENTS OF OPERATIONS

(In thousands, except per share data)
(Unaudited)

  FIRST QUARTER ENDED
  APRIL 27,
1996
APRIL 29,
1996
Net Sales $23,486 $15,999
Cost of goods sold including buying, distribution and occupancy costs 16,539
11,436
  Gross Profit 6,947 4,563
Selling, general and administrative expenses 5,986
4,108
  Operating Income 61 455
Interest income (expense), net 229
(81)
  Income before income taxes 1,190 374
Provision for income taxes 452
143
  Net income $738
$231
Net income per common and common equivalent share $0.08

$0.04

Weighted average common and common equivalent shares outstanding 9,030

6,075

The accompanying notes are an integral part of these financial statements.

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GADZOOKS, INC.
CONDENSED STATEMENTS OF CASH FLOWS

(IN THOUSANDS)
(UNAUDITED)

  FIRST QUARTER ENDED
  APRIL 27,
1996
APRIL 29,
1996
CASH FLOWS FROM OPERATING ACTIVITIES:    
Net income $738 $231
Adjustments to reconcile net income to cash provided by operating activities:    
  Depreciation 479 309
  Changes to operating assets and liabilities (3,825)
(1,340)
NET CASH USED IN OPERATING ACTIVITIES (2,608)
(800)
CASH FLOWS FROM INVESTING ACTIVITIES:    
  Capital expenditures, net (2,230)
(1,423)
NET CASH USED IN INVESTING ACTIVITIES (2,230)
(1,423)
CASH FLOWS FROM FINANCING ACTIVITIES:    
  Proceeds from line of credit, net --  2,585
  Payments on long-term obligations (45) (247)
  Issuance of common stock, net 8,952 -- 
  Tax benefit from exercise of stock options 125
-- 
NET CASH PROVIDED BY FINANCING ACTIVITIES 9,032
2,338
  Net increase in cash and cash equivalents 4,194 115
  Cash and cash equivalents at beginning of period 13,733
321
CASH AND CASH EQUIVALENTS AT END OF PERIOD $17,927

$436

The accompanying notes are an integral part of these financial statements.

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GADZOOKS, INC.
NOTES TO FINANCIAL STATEMENTS

(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 April 27, 1996 and April 29, 1995, and the results of operations and cash flows for the three months then ended. The results of operations for the first quarter ended April 27, 1996 and April 29, 1995 are not necessarily indicative of the results to be expected for the full fiscal year. The condensed balance sheet as of January 27, 1996 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 January 27,1996.

2. COMMON STOCK OFFERING

On January 31, 1996, the Company completed a secondary offering of 600,000 shares of its common stock, while an additional 1,987,500 shares were sold by other selling shareholders (after giving effect to the stock split described in Note 3). The Company's portion of the net proceeds after deducting expenses associated with the offering of $9.0 million will be used to finance new store openings, store remodelings, and for other general corporate purposes.

3. 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.

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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 146 stores in operation at April 27, 1996, located in 22 states throughout the Southwestern, Midwestern, and Southeastern 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, and 39 new stores in fiscal 1995. The Company has opened 20 new stores since the beginning of fiscal 1996.

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 April 27, 1996 Compared to First Quarter Ended April 29,1995

Net sales increased approximately $7.5 million, or 46.8 percent to $23,486,000 during the first quarter of fiscal 1996 from $15,999,000 during the comparable quarter of fiscal 1995. Comparable store sales increased 7.3 percent for the first quarter of fiscal 1996. 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 $2.4 million to $6,947,000 during the first quarter of fiscal 1996 from $4,563,000 during the comparable quarter of fiscal 1995. As a percentage of net sales, gross profit increased to 29.6 percent compared to 28.5 percent in the comparable quarter of last year. The Company's merchandise margin was substantially higher than in the prior year's quarter due to fewer price-based promotional activities during the first quarter of fiscal 1996. The Company entered the first quarter of 1996 with less fall and winter markdown merchandise to clear from its store system than in the prior year primarily due to strong sales during the 1995 Christmas holiday season. Store occupancy costs, included in cost of goods sold, increased slightly as a percentage of sales as a result of the large number of new stores opened in recent periods, but was offset by a reduction in buying and distribution costs as a percentage of sales, as a result of the Company's larger store base.

Selling, general and administrative expenses increased approximately $1.9 million to $5,986,000 during the first quarter of 1996 from $4,108,000 during the comparable quarter of fiscal 1995. As a percentage of net sales, selling, general and administrative expenses decreased to 25.5 percent of sales during the first quarter of fiscal 1996 from 25.7 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 slight reduction in corporate overhead as a percentage of sales due to leverage achieved through the Company's larger store base.

Operating income increased approximately $0.5 million to $961,000 during the first quarter of fiscal 1996 from $455,000 during the comparable quarter of last year. As a percentage of net sales, operating income increased to 4.1 percent of sales from 2.8 percent of sales during the comparable quarter of last year.

Net interest income increased approximately $0.3 million to $229,000 during the first quarter of fiscal 1996 from $81,000 net interest expense in the comparable period of last year. The Company's interest income increased due to temporary investments of cash available from the two public stock offerings completed in October, 1995 and January, 1996.

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 April 27, 1996, cash and cash equivalents were $17.9 million, an increase of $4.2 million since January 27, 1996. Sources of cash for the first quarter of fiscal 1996 were primarily proceeds from the issuance of common stock of $9.0 million and net cash from operations of $1.2 million. The primary uses of cash were increased inventory levels of $1.6 million, reductions in liabilities of $1.4 million, increases in other assets of $0.8 million, and capital expenditures of $2.2 million. The Company opened 20 new stores during the first quarter of 1996 as compared with 11 new stores in the sames period of the prior year.

Credit Facility. The Company currently has a loan agreement with First Interstate Bank of Texas, N.A., Dallas, Texas, which provides for a revolving line of credit of $7.0 million. Amounts borrowed under the Revolving Line bear interest at the bank's prime rate minus 0.65 percent. The Company must also pay a commitment fee of 0.35 percent per annum on the unused portion of the revolving line. As of April 27, 1996, 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 10, 1996, letters of credit in the amount of $1.4 million were issued and outstanding.

Capital Expenditures. The Company anticipates opening approximately 30 new stores during the remaining quarters of fiscal 1996. The Company estimates that its average capital expenditures to open a new store, including leasehold improvements and furniture and fixtures, will be approximately $155,000 (approximately $100,000 net of all landlord 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 $8,000 to $10,000 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 of which the store opens.

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PART II - OTHER INFORMATION

Items 1-6 are not applicable.

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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 10, 1996 By:           /s/ MONTY R. STANDIFER
  Monty R. Standifer
Senior Vice President and
Chief Financial Officer
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