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Texas | 74-2261048 |
---|---|
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
4121 International Parkway Carrollton, Texas (Address of principal executive offices) |
75007 (Zip Code) |
Securities Registered Pursuant to Section 12(b) of the Act:
Title of Each Class |
Name of Each Exchange on Which Registered |
---|---|
Common Stock, $0.01 par value | Nasdaq National Market |
Securities Registered Pursuant to Section 12(g) of the Act: NONE
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 by check mark if disclosure of delinquent filers pursuant to
item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
The aggregate market value of Common Stock held by non-affiliates of
the registrant on April 11, 1997 was approximately $279,829,872. All outstanding
shares of voting stock, except for shares held by executive officers and members
of the Board of Directors and their affiliates, are deemed to be held by
non-affiliates.
On April 11, 1997, the registrant had 8,598,697 shares of Common Stock
outstanding.
Part II incorporates information by reference from the registrant's
Annual Report to Shareholders for the fiscal year ended February 1, 1997, filed
herewith as Exhibit 13.
Part III incorporates information by reference from the definitive
Proxy Statement for the 1997 Annual Meeting of Shareholders, to be filed with
the Commission no later than 120 days after the end of the registrant's fiscal
year covered by this Form 10-K.
Gadzooks, Inc. (the "Company" or "Gadzooks") is a rapidly growing
specialty retailer of casual apparel and related accessories for young men and
women principally between the ages of 13 and 19. The Company currently operates
196 stores in both metropolitan and middle markets in 25 states throughout the
Mid-Atlantic, Midwest, Southeast and Southwest regions of the United States. The
Company opened 57 new stores during fiscal 1996. In addition, the Company plans
to open approximately 60 to 65 new stores in fiscal 1997, 13 of which have been
opened as of April 1997.
Management believes that current demographic trends provide the Company
with the opportunity to continue its rapid store expansion program. According to
the U.S. Census Bureau, there are approximately 25 million teenagers in the
United States today and the number is expected to grow to approximately 31
million by the year 2010. Management believes that teenagers represent both a
growing part of the U.S. population and an increasing source of purchasing
power.
The Company was incorporated in Texas in 1982, its executive offices
are located at 4121 International Parkway, Carrollton, Texas 75007, and its
telephone number is (972) 307-5555.
Business Strategy
The Company's goal is to become a leading retailer of brand name casual
apparel and related accessories to teenagers in each of the markets it serves.
The principal elements of the Company's business strategy to accomplish this
goal are as follows:
Store Locations
The Company currently operates 196 stores in 25 states. The Company's
existing stores are located in metropolitan markets such as Dallas, Atlanta,
Kansas City, Chicago and Cincinnati, as well as middle markets such as Amarillo,
Texas; Tupelo, Mississippi; and Roanoke, Virginia. The following store list
shows the number of stores that Gadzooks operates in each state and the cities
in which Gadzooks stores are located.
Alabama-3 Indiana-7 Maryland-1 Oklahoma-6 Virginia-7 Huntsville Evansville Frederick Lawton Charlottesville Mobile Fort Wayne Norman Chesapeake Montgomery Indianapolis Minnesota-3 Oklahoma City(3) Harrisonburg Lafayette Minneapolis/St. Paul Tulsa Newport News Arkansas-5 Merrillville St. Cloud Roanoke Fayetteville Muncie South Carolina-6 Springfield Fort Smith Terre Haute Mississippi-3 Charleston(2) (Washington, D.C.) Jonesboro Hattiesburg Columbia(2) Virginia Beach Little Rock(2) Iowa-8 Jackson Greenville Cedar Rapids Tupelo Spartanburg West Virginia-3 Florida-4 Council Bluffs Charleston Jacksonville Davenport Missouri-9 Tennessee-10 Huntington Orlando Des Moines(3) Columbia Chattanooga Parkersburg Pensacola Dubuque Joplin Kingsport Tallahassee Sioux City Kansas City(3) Knoxville(2) Wisconsin-8 Springfield Memphis(3) Appleton Georgia-6 Kansas-6 St. Louis(3) Nashville(3) Eau Claire Athens Hays Green Bay Atlanta(4) Manhattan Nebraska-4 Texas-53 Madison(2) Macon Salina Grand Island Abilene Milwaukee(3) Topeka Lincoln Amarillo Illinois-15 Wichita(2) Omaha(2) Austin(2) Bloomington Beaumont Carbondale Kentucky-4 New Mexico-3 College Station Chicago(8) Ashland Albuquerque(2) Corpus Christi Fairview Heights Florence/Cincinnati Las Cruces Dallas/Ft. Worth(10) (St. Louis) Lexington Denton Moline Paducah North Carolina-5 El Paso(2) Peoria Charlotte Harlingen Rockford Louisiana-10 Durham Houston(12) Springfield Alexandria Greensboro Killeen Baton Rouge Hickory Laredo Bossier City High Point Longview Houma Lubbock Lafayette Ohio-7 McAllen Lake Charles Cincinnati(2) Midland Monroe Cleveland(4) Odessa New Orleans(2) Dayton Port Arthur Shreveport San Angelo San Antonio(4) Sherman Temple Texarkana Tyler Victoria Waco Wichita FallsExpansion Strategy
The following table provides a history of the Company's store expansion
program over the past five fiscal years.
Fiscal Year |
|||||
---|---|---|---|---|---|
1992 |
1993 |
1994 |
1995 |
1996 |
|
Number of stores open at beginning of period | 33 | 43 | 65 | 90 | 126 |
Number of new stores opened | 10 | 23 | 26 | 39 | 57 |
Number of stores closed | -- |
1 |
1 |
3 |
-- |
Number of stores open at end of period |
43 |
65 |
90 |
126 |
183 |
The Company's expansion strategy is to continue to open stores in
enclosed shopping malls in both metropolitan markets and middle markets
primarily in the Mid-Atlantic, Midwest, Southeast and Southwest, and the Company
is considering expansion into other regions. The Company opened 57 new stores
during fiscal 1996. The Company expects to open approximately 60 to 65 new
stores during fiscal 1997, 13 of which have been opened as of April 1997. The
Company believes that the broad appeal of the Gadzooks concept enables it to
operate successfully in diverse geographic and demographic markets, thereby
increasing the number of potential sites available to the Company.
The Company selects locations for new store openings to achieve a
balance between (i) test markets where the Company has had no previous operating
experience, (ii) new markets where the Company has tested a Gadzooks store and
believes that the Company can successfully expand, and (iii) mature markets
where the Company desires to add new stores at attractive locations as they
become available. In general, the Company will open the highest number of stores
in new markets where the Company's concept has recently been introduced and
where the Company believes that it can capitalize on the potential of these
markets. The Company typically expands from existing markets into contiguous new
markets and attempts to cluster its stores within a market area in order to
achieve management and operating efficiencies and to enhance its name
recognition. In addition, from time to time the Company analyzes stores for
potential closing.
The Company has from time to time analyzed potential acquisitions of
small chains of stores that serve its target customer in order to provide the
Company with more rapid access to desirable locations and new markets and may
consider such acquisitions again in the future. Except for a limited number of
stores acquired from former franchisees, the Company has never made any such
acquisitions and does not currently have any agreements for any in the
future.
Store-Level Economics
The Company's 183 stores averaged $814,838 in net sales and produced
net sales per square foot of approximately $356. Stores which were opened during
all of fiscal 1996, a total of 126 stores, generated average store-level
operating cash flow (defined as store operating income before depreciation and
excluding changes in working capital) of approximately $158,000, or 19.5% of
average net sales. In general, the Company's newer stores typically generate
lower sales volumes and operating cash flow than its more mature stores. Given
the Company's plan to significantly expand its store base in new geographic
markets, the Company believes that its store-level averages will decline
slightly in the near term. Capital expenditures, including leasehold
improvements and furniture and fixtures, for the 57 new stores opened during
fiscal 1996 averaged approximately $167,000 (approximately $100,000 net of all
landlord allowances), and initial gross
inventory requirements (which were partially financed by trade credit) averaged
approximately $60,000 per store. Pre-opening costs range from $8,000 to $10,000
for travel, hiring and training, and other miscellaneous costs associated with
the set-up of a new store prior to its opening for business. Inventory
requirements vary at new stores depending on the season and current fashion
trends. There can be no assurance that in the future, the average store-level
sales and operating cash flow will not vary from historical results or that the
total estimated capital expenditures for new stores will not increase.
Merchandising
The Company's merchandising strategy is to provide a wide range of
brand name casual apparel and related accessories that reflect the fashion
preferences of young men and women principally between the ages of 13 and 19.
Each store typically carries an inventory of approximately 2,000 SKUs, with most
merchandise selling at prices ranging between $15 and $50.
The Company's merchandise includes high visibility names such as
Mossimo, JNCO, BC Ethic, 26 Red, Wu-Wear, Tag Rag and Lip Service and other
popular fashions and brand name merchandise. The Company concentrates on
merchandise that appeals to the mainstream teenager rather than relying on
"cutting edge" products. The Company believes that this strategy is consistent
with its philosophy of responding to its customers' fashion preferences as
opposed to attempting to establish fashion trends.
The Company classifies all of its merchandise into one of five
categories as follows:
Young Men: | The Company's Young Men category includes casual sportswear separates reflecting current fashion trends, such as woven and knit tops and bottoms made of denim and other fabrics. The key vendors in this category include Mossimo, JNCO, BC Ethic and Reactor. |
Juniors (Young Women): | The Company's Juniors category includes casual sportswear separates designed for the fashion-current young woman, such as knit tops, woven shirts and vests, denim, dresses and swimwear. The key vendors in this category include Generation X, Lip Service, Tag Rag and Jalate. |
Accessories: | The Company offers a variety of male, female and unisex accessories including sunglasses, watches, wallets, key chains, handbags, earrings, necklaces, hats and other accessories. The key vendors in this category include Oakley, Fossil, Mossimo and Zedhead. |
Unisex Apparel: | The Company offers unisex apparel, consisting primarily of t-shirts with logos containing current topics and humorous designs and phrases. This category includes merchandise from various vendors as well as a small selection of Company-designed products. Periodically, the Company will supplement this category with other apparel appropriate for both sexes. |
Footwear: | The Company offers male, female and unisex footwear including sandals and active footwear. The key vendors in this category include Dr. Martens, Airwalk and Vans. |
The following table sets forth the Company's merchandise by category as
an approximate percentage of net sales for fiscal 1996:
Percentage of Net Sales |
|
---|---|
Juniors (Young Women) | 30% |
Young Men | 27 |
Accessories | 20 |
Unisex Apparel | 13 |
Footwear |
10 |
100% |
By offering products in multiple categories, the Company is able to
shift its merchandise emphasis among and within its core categories to respond
to changing customer preferences. For example, in response to increased demand
for junior and young men's apparel in fiscal 1996, the Company increased its
emphasis in
these merchandise categories and decreased its emphasis in the merchandise
categories that the Company identified as having decreased demand. The Company
expects to continue to adjust its emphasis on particular categories in response
to fashion trends and, therefore, its merchandise mix may vary slightly at
different times.
In an effort to keep the stores fresh and exciting, the Company's
merchandising staff provides specific floor sets and merchandising ideas to the
stores and regularly instructs district and store managers on the creative
display of merchandise. The merchandise presentation in the stores is
significantly changed three times each year to highlight specific merchandise
for each of the Company's three peak selling seasons and to maintain a current
look. In addition, the Company maintains a constant flow of new merchandise to
the stores in order to meet changing fashion preferences. To reduce the risk
associated with the introduction of new products, the Company frequently tests
products in selected stores before determining if it will purchase the product
for a broader group of stores.
Purchasing
The Company's purchasing staff consists of a General Merchandising
Manager, five buyers, four associate buyers and five assistants. The General
Merchandising Manager and the buyers analyze current fashion directions by
visiting major fashion markets and maintaining close relationships with the
Company's vendors in order to identify styles and trends. In addition, the
Company's buyers regularly attend concerts and other events attended by
teenagers. The General Merchandising Manager and the buyers constantly monitor
merchandise flow through the stores and strive to maintain the appropriate
merchandise mix to meet customer demand. Several of the buyers were formerly
district managers or store managers of the Company and are familiar with the
Company's customers and their merchandise preferences.
Due to changes in fashion trends and seasonality, the Company purchases
merchandise from numerous vendors throughout the year. During fiscal 1996, the
Company did business with approximately 990 vendors. Of those vendors, Mossimo,
Inc. accounted for approximately 6% of the Company's merchandise purchases, and
no other single vendor accounted for more than 5% of merchandise purchases.
Certain of the Company's vendors have limited financial resources and production
capabilities. The Company believes that its relationships with its vendors are
good.
Allocation and Distribution of Merchandise
The Company continually strives to improve its merchandising,
distribution, planning and allocation methods to manage its inventory more
efficiently. The Company's Director of Planning and Allocation and the six
personnel in the planning and allocation department work closely with
merchandise buyers and store personnel to meet the requirements of individual
stores for appropriate merchandise in sufficient quantities. The Company divides
its stores into different categories based on, among other things, geographic
location, demographics and sales volume. Product allocation and distribution are
based in part on an analysis of the stores by category. Information from the
Company's point-of-sale computer system is regularly reviewed and analyzed to
assist in making merchandise allocation and markdown decisions.
In May 1997, the Company will relocate its headquarters to a larger
site, in the Dallas metropolitan area, which will include a distribution
facility of approximately 110,000 square feet. Merchandise will be delivered by
the vendors to this facility, where it will be inspected, entered into the
Company's computer system, allocated to stores, ticketed (to the extent that it
was not pre-ticketed by the vendor) and boxed for distribution to the Company's
stores. Currently, merchandise is typically shipped to stores daily via United
Parcel Service, providing Gadzooks stores with a steady flow of new merchandise.
For key products, the
Company maintains a backstock at its distribution center that is allocated and
distributed to the stores through an automatic replenishment program.
Store Operations
Gadzooks stores are open seven days a week during normal mall hours.
The Company's store operations are managed by a Vice President of Store
Operations, four regional managers and 26 district managers who
generally have responsibility for 8 to 10 stores within a geographic district.
Individual stores are managed by a store manager and two assistant store
managers. A typical store has three full time and 6 to 12 part time sales
associates, depending on the season. Gadzooks compensates its district and store
managers with a base salary, a performance bonus based on store sales, expense
control and loss prevention, and, in the case of district managers, stock
options. Sales associates are compensated on an hourly basis.
The Company believes that its continued success is dependent in part on
its ability to attract, retain and motivate quality employees. In particular,
the success of the Company's expansion program will be dependent on its ability
to promote and/or recruit qualified district and store managers. To date, the
vast majority of the Company's district managers were previously Gadzooks store
managers. The Company has recently established a training program for future
district managers. In addition, store managers, many of whom are selected from
among the Company's sales associates, currently complete a two-week training
program either at the Company's headquarters or a designated training store
before taking responsibility for a store. The hiring and training of new sales
associates are the responsibility of store managers, and the Company has
established training and operations manuals to assist them in this process. The
Company is developing enhanced training programs for its store managers,
assistant managers and sales associates.
Management considers its employees' knowledge of the Company's
customers and merchandise to be significant to its marketing approach and
customer satisfaction. While all Gadzooks store employees are responsible for
the general appearance of the store, restocking of shelves and merchandise
presentation, the Company's major emphasis in training its store employees is to
give priority to customer service and assistance. Sales associates regularly act
as greeters, meeting customers as they enter the store, handing out promotional
materials and offering assistance. The Company trains its sales associates to
inform the customer about new fashion trends and to suggest merchandise that
suits the customer's wardrobe and lifestyle needs. The Company monitors the
customer service level at each store through various programs, including its "I
Spy" program of unannounced visits to the stores by shoppers who are unknown by
the store employees and by regularly reviewing and responding to comment cards
received from its customers.
Store Environment
The Company believes that its stores are visually appealing and provide
a fun and enjoyable shopping experience for its customers. Gadzooks stores are
designed to create a high energy, fun environment using neon lighting,
television monitors featuring popular music videos, playful mannequins and
creative, eye-catching signage. Store entrances are typically decorated with a
brightly colored checkerboard floor, and a Volkswagen Beetle, decorated with
merchandise, is a feature attraction in the stores. The Company displays a
significant amount of merchandise on the walls of the store, with male
merchandise along one side, female merchandise along the other and t-shirts
along part of the back wall. In the center of the store, lower fixtures are used
to display merchandise in order to maintain an open feeling. Stores typically
feature large windows along the mall which provide an open view of the entire
store to mall traffic and are merchandised to draw customers into the store.
While Gadzooks stores are designed to appeal primarily to the teenage customer,
the Company also strives to create a shopping environment that is comfortable
for adults.
Site Selection
Based on its results to date in both metropolitan and middle markets,
the Company believes that it can operate successfully in markets with a broad
range of geographic and demographic profiles. The Company takes into account
certain demographic factors such as population density, concentration of
teenagers, income levels, lifestyle characteristics and the performance of other
retailers to identify attractive new markets, evaluate specific shopping malls
and project individual store sales volumes. All new store locations are approved
by the Board of Directors.
Within each shopping mall, the Company typically seeks a highly visible
location and often locates its stores near major fashion-oriented department
stores, food courts and other specialty stores catering to teenage customers.
The Company's existing stores average approximately 2,300 square feet. The
Company typically seeks a location of approximately 2,000 to 2,500 square feet
with significant store frontage. However, the
Company's flexible store design enables it to take advantage of well-situated
sites with more unique layouts. Once a site is approved, the Company, with the
assistance of an outside architect, designs the store to meet the specific site
characteristics. The Company's construction department seeks competitive bids
from outside contractors for the build-out of each store and oversees the
construction process. The Company typically requires six to eight weeks to open
a new store after the beginning of build-out.
Management Information Systems
Each Gadzooks store is linked to the Company's headquarters through a
point-of-sale system that interfaces with an IBM RS6000 computer equipped with
an integrated merchandising, distribution and accounting software package. The
Company's point-of-sale computer system has several features, including
merchandise scanning, "price look-up," the ability to compile preferred customer
lists and on-line credit card approval. These features improve transaction
accuracy, speed and checkout time, increase overall store efficiency, and enable
the Company to track the productivity of individual sales associates.
The Company's management information and control systems enable the
Company's corporate headquarters to promptly identify sales trends, replenish
depleted store inventories, reprice merchandise and monitor merchandise mix and
inventory shrinkage at individual stores and throughout the Company's store
network. Management believes that these systems provide a number of benefits,
including improved store inventory management, better in-stock availability,
higher operating efficiency and fewer markdowns.
The Company's merchandising, distribution and accounting software
system was installed in late 1993, and the point-of-sale software system was
installed during the second quarter of fiscal 1995. The Company estimates that
its current management information and control systems are adequate to support
the Company's planned expansion, but may upgrade and enhance its computer
systems for certain distribution functions in the last half of fiscal 1997.
Advertising and Promotion
The Company relies primarily on the enthusiasm of its sales associates
and existing customers, highly visible store locations and eye-catching signage
to attract new customers to the stores. The Company has generally found this
approach to be more cost effective than more traditional media advertising. The
Company plans the opening of new stores to coincide with peak shopping seasons
and mall grand openings when customer traffic is greater. The Company also uses
promotions to generate repeat visits to its stores, such as a "preferred
customer program" that entitles high volume customers to attend private sale
events held twice each year. The Company advertises to a limited extent in
national magazines, such as Seventeen and YM in cooperation with certain of its
vendors. The Company also benefits from advertising by its vendors, especially
where Gadzooks is listed as a retailer of their products.
Trademarks
The Company has registered on the Principal Register of the United
States Patent and Trademark Office its mark "Gadzooks" and the distinctive
design of its service mark and has currently pending registration for "Gaditude"
and "Cool Stuff for Teens." Each federal registration is renewable indefinitely
if the mark is in use at the time of the renewal. The Company is not aware of
any claims of infringement or other challenges to the Company's right to use its
marks in the United States.
Competition
The teenage retail apparel and accessories industry is highly
competitive. The Company competes with other retailers for customers, suitable
retail locations and qualified management personnel. Gadzooks currently competes
with traditional department stores such as Foley's and Dillard's, with national
specialty chains such as The Gap and certain divisions of The Limited, with
numerous regional chains such as The Buckle, Wet Seal and Pacific Sunwear, with
smaller chains and local specialty stores and, to a lesser extent, with mass
merchandisers. Many of the Company's competitors are larger and have
substantially greater financial, marketing and other resources than the Company. The principal factors
of competition in the Company's business are fashion, merchandise selection,
customer service, store location and price.
Employees
At April 11, 1997, the Company had 775 full-time employees and 1,605
part-time employees. Of the Company's 2,380 employees, 122 were corporate
personnel, 62 were distribution center employees and 2,196 were store employees.
The number of part-time employees fluctuates with seasonal needs. None of the
Company's employees is covered by a collective bargaining agreement. The Company
seeks to create a casual and supportive working environment and considers its
employee relations to be excellent.
This Report contains certain forward looking statements about the
business, operations and financial condition of the Company. The actual results
of the Company could differ materially from those forward looking statements.
The following information sets forth certain factors that could cause the actual
results of the Company to differ materially from those contained in the forward
looking statements.
Aggressive Growth Strategy; Future Operating Results
The Company's net sales and net income have grown significantly during
the past several years, primarily as a result of the opening of new stores and,
to a lesser extent, increases in comparable store sales. The Company intends to
continue to pursue an aggressive growth strategy for the foreseeable future, and
its future operating results will depend largely upon its ability to open and
operate new stores successfully and to manage a larger business profitably. The
Company anticipates opening approximately 60 to 65 new stores during fiscal
1997, which will result in a significant increase in the number of stores
operated by the Company. The Company also plans to enter several new markets in
various regions of the United States. Expansion into new markets may present
competitive and merchandising challenges that are different from those currently
encountered by the Company in its existing markets. As an additional part of its
growth strategy, the Company has occasionally analyzed the acquisition of other
retailers that serve the Company's target customer and may consider such
acquisitions again in the future. Except for a limited number of stores acquired
from former franchisees, the Company has never made any such acquisitions and
does not currently have any agreements for any in the future. There can be no
assurance that the operations of any acquired entities could be successfully
integrated with the Company's existing operations or that the combined business
would be profitable.
The Company is subject to a variety of business risks generally
associated with rapidly growing companies. The Company's ability to open new
stores will depend upon many factors, including, among others, the ability to
identify and enter new markets, locate suitable store sites, negotiate
acceptable lease terms, hire and train store managers and sales associates and
obtain adequate capital resources on acceptable terms. There can be no assurance
that the Company will be able to integrate successfully new stores into its
operations or that new stores will achieve sales and profitability levels
comparable to the Company's existing stores. In addition, there can be no
assurance that the Company's expansion within its existing markets will not
adversely affect the individual financial performance of the Company's existing
stores or its overall results of operations. Furthermore, the Company will need
to continually evaluate the adequacy of its store management and management
information and distribution systems to manage its planned expansion. There can
be no assurance that the Company will anticipate all of the changing demands
that its expanding operations will impose on such systems and facilities, and
the failure to adapt its systems, facilities and procedures could have a
material adverse effect on the Company's business. There can be no assurance
that the Company will successfully achieve its planned expansion or, if
achieved, that the expansion will result in profitable operations. See
"Business — Store Locations" and "— Expansion Strategy."
The Company anticipates that it will spend approximately $7.0 million
for capital expenditures and approximately $4.0 million for initial inventories
to open approximately 60 to 65 new stores and to remodel 6 to 7 existing stores
in fiscal 1997. The actual costs that the Company will incur in connection with
opening new stores cannot be predicted with precision because such costs will
vary based upon, among other things, geographic location, the size of the store
and the extent of the build-out required at the selected site. The Company
believes that its existing cash balances, cash generated from operations, net
proceeds received by the Company from its public offerings and funds available
under the Company's revolving line of credit will be
sufficient to fund its expansion requirements through at least 1997. There can
be no assurance that the Company may not be required to seek additional sources
of funds for such expansion.
Fluctuations in Comparable Store Sales Results
A variety of factors affect the Company's comparable store sales
results including, among others, economic conditions, fashion trends, the retail
sales environment, sourcing and distribution of products and the
Company's ability to execute its business strategy efficiently. The Company's
quarterly comparable store sales results have fluctuated significantly in the
past. The Company's comparable store sales results were 24.2%, 10.5%, 10.9% and
15.6% in the first, second, third and fourth quarters of fiscal 1995,
respectively, and 7.3%, 8.6%, 5.9% and 3.9% in the first, second, third and
fourth quarters of fiscal 1996, respectively. The Company has recorded
comparable store sales decreases in past quarters, and there can be no assurance
that comparable store sales for any particular quarter or fiscal year will not
decrease in the future. The Company's comparable store sales results could cause
the price of the Common Stock to fluctuate substantially.
Changes in Fashion Trends
The Company's profitability is largely dependent upon its ability to
anticipate the fashion tastes of its customers and to provide merchandise that
appeals to their preferences in a timely manner. The fashion tastes of the
Company's customers may change frequently, and the Company's failure to
anticipate, identify or react appropriately to changes in styles, trends or
brand preferences could lead to, among other things, excess inventories and
higher markdowns, which could have a material adverse effect on the Company's
business. In addition, fashion misjudgments could materially and adversely
affect the Company's operating results, comparable store sales results and image
with its customers. See "Business — Merchandising."
Impact of Economic Conditions
Certain economic conditions affect the level of consumer spending on
merchandise offered by the Company, including, among others, business
conditions, interest rates, taxation and consumer confidence in future economic
conditions. If the demand for apparel and related merchandise by teenagers were
to decline, the Company's business, comparable store sales results and results
of operations would be materially and adversely affected. Although the Company
advertises in national magazines to a limited extent through cooperative
agreements with certain of its vendors, its stores rely principally on mall
traffic for customers. Therefore, the Company is dependent upon the continued
popularity of malls as a shopping destination and the ability of mall anchor
tenants and other attractions to generate customer traffic for its stores. A
decrease in mall traffic or a decline in economic conditions in the markets in
which the Company's stores are located would adversely affect the Company's
growth, net sales, comparable store sales results and profitability. See
"Business."
Quarterly Results and Seasonality
The Company's quarterly results of operations may fluctuate materially
depending on, among other things, the timing of new store openings and related
pre-opening expenses, net sales contributed by new stores, increases or
decreases in comparable store sales, shifts in timing of certain holidays and
changes in the Company's merchandise mix. The Company's business is also subject
to seasonal influences, with heavier concentrations of sales during the
Christmas holiday, back-to-school and spring break seasons. As is the case with
many apparel retailers, the Company's net sales and net income are typically
lower in the first quarter. The Company has experienced first quarter losses in
the past and may experience such losses in the future. Because of these
fluctuations in net sales and net income, the results of operations of any
quarter are not necessarily indicative of the results that may be achieved for a
full fiscal year or any future quarter.
Dependence on Key Vendors
The Company's business depends on its ability to purchase current
season, brand name apparel in sufficient quantities at competitive prices.
During the Company's 1996 fiscal year, Mossimo, Inc. accounted for approximately
6% of the Company's merchandise purchases. Of the Company's other vendors, no
single
vendor accounted for more than 5% of the Company's merchandise purchases. The
inability or failure of key vendors to supply the Company with adequate
quantities of desired merchandise, the loss of one or more key vendors or a
material change in the Company's current purchase terms could have a material
adverse effect on the Company's business. Many of the Company's smaller vendors
have limited resources, production capacities and operating histories, and many
have limited the distribution of their merchandise in the past. The Company has
no long-term purchase contracts or other contractual assurances of continued
supply,
pricing or access to new products. There can be no assurance that the Company
will be able to acquire desired merchandise in sufficient quantities on terms
acceptable to the Company in the future. See "Business — Merchandising" and
"— Purchasing."
Dependence on Key Personnel
The Company's success will depend largely on the efforts and abilities
of senior management, particularly Gerald R. Szczepanski, the Chairman of the
Board and Chief Executive Officer and a founder of the Company. The loss of his
services or the services of other members of senior management could have a
material adverse effect on the Company's business. The Company has a $1,000,000
key-man life insurance policy on Mr. Szczepanski. There can be no assurance that
the Company's existing management team will be able to manage the Company or its
growth or that the Company will be able to attract and retain additional
qualified personnel as needed in the future.
Competition
The Company operates in a highly competitive environment. The Company
currently competes with traditional retail department stores such as Foley's and
Dillard's, with national specialty chains such as The Gap and certain divisions
of The Limited, with numerous regional chains such as The Buckle, Wet Seal and
Pacific Sunwear, with smaller chains and local specialty stores and, to a lesser
extent, with mass merchandisers. Many of these competitors are larger and have
substantially greater resources than the Company. Direct competition with these
and other retailers may increase significantly in the future, which could
require the Company, among other things, to lower its prices and/or increase its
advertising expenses. Increased competition could have a material adverse effect
on the Company's operations and comparable store sales results. See
"Business — Competition."
Stock Price Volatility
The market price of the Company's Common Stock has risen substantially
since the Company's initial public offering in October 1995. The Company's
Common Stock is quoted on the Nasdaq National Market, which has experienced and
is likely to experience in the future significant price and volume fluctuations
which could adversely affect the market price of the Common Stock without regard
to the operating performance of the Company. In addition, the Company believes
that factors such as quarterly fluctuations in the financial results of the
Company, the Company's comparable store sales results, announcements by other
apparel retailers, the overall economy and the condition of the financial
markets could cause the price of the Common Stock to fluctuate
substantially.
Anti-takeover Matters
The Company's Restated Articles and its Bylaws contain provisions that
may have the effect of delaying, deterring or preventing a takeover of the
Company that shareholders may consider to be in their best interests. The
Company's Restated Articles and Bylaws provide for a classified Board of
Directors serving staggered terms of three years, the prohibition of shareholder
action by written consent in certain circumstances and certain "fair price
provisions." Additionally, the Board of Directors has the authority to issue up
to 1,000,000 shares of preferred stock having such rights, preferences and
privileges as designated by the Board of Directors without shareholder
approval.
All of the existing stores are leased by the Company, with lease terms
(excluding renewal option periods exercisable by the Company at escalating
rents) expiring between February 1997 and February 2007. The leases for most of
the existing stores are for terms of 10 years and provide for contingent rent
based upon a percent of sales in excess of specified minimums.
In May 1997, the Company will relocate its office and distribution
center to a larger site in the Dallas metropolitan area in order to accommodate
its expanding operations. The Company's new office and
distribution center will be located in Carrollton, Texas and will be occupied
under a lease covering approximately 150,000 square feet, which is scheduled to
expire on May 1, 2007.
In the ordinary course of its business, the Company is periodically a
party to lawsuits. The Company believes that any resulting liability from
existing legal proceedings, individually or in the aggregate, will not have a
material adverse effect on its operations or financial condition.
No matters were submitted to a vote of the Company's shareholders
during the fourth quarter of the fiscal year covered by this report.
The Common Stock is traded on the Nasdaq National Market under the
symbol "GADZ." The Company consummated its initial public offering in October
1995 at a price of $14.00 per share ($9.33, as adjusted to give effect to the
stock split described below). The following table sets forth, for the Company's
fiscal periods indicated and is adjusted to give retroactive effect to the
Company's three-for-two Common Stock split paid on May 30, 1996, the high and
low sale prices per share for the Common Stock, as reported on the Nasdaq
National Market.
High |
Low |
|
---|---|---|
1995 | ||
Third Quarter (from October 5, 1995) | $14 | $ 9 1/3 |
Fourth Quarter | 18 5/6 | 11 1/3 |
1996 | ||
First Quarter | 30 5/8 | 15 13/16 |
Second Quarter | 41 | 23 1/4 |
Third Quarter | 39 3/4 | 22 |
Fourth Quarter | 34 1/4 | 17 1/2 |
The Company intends to retain its earnings, if any, to finance the
growth and development of its business and does not anticipate paying cash
dividends on its Common Stock in the foreseeable future. The payment of any
future dividends will be at the discretion of the Company's Board of Directors
and will depend upon, among other things, the future earnings, operations,
capital requirements and financial condition of the
Company. In addition, the Company's current revolving line of credit ("Revolving
Line") contains various financial covenants, including covenants relating to net
worth, which may have the effect of restricting the Company's ability to pay
dividends.
The selected financial and operating data in response to Item 6 is
contained in the section entitled "Selected Financial Data," located on page 15
of the registrant's 1996 Annual Report to Shareholders, filed as Exhibit 13 to
this Report. Such Exhibit is incorporated herein by reference.
The information in response to item 7 is contained in the section
entitled "Management's Discussion and Analysis of Financial Condition and
Results of Operations," located on pages 16 to 19 of the registrant's 1996
Annual Report to Shareholders, filed as Exhibit 13 to this Report. Such Exhibit
is incorporated herein by reference.
The registrant's exposures to market risk associated with activities in
derivative financial instruments, other financial instruments, and derivative
commodity instruments are not material with respect to its operations or
financial condition.
The information in response to item 8 is contained in the registrant's
1996 Annual Report to Shareholders, filed as Exhibit 13 to this Report. Such
Exhibit is incorporated herein by reference. A cross-reference for location of
the requested information is below.
Financial Statements and Supplementary Data |
Page Number(s) in Annual Report* |
---|---|
Unaudited Quarterly Financial Data | 18 |
Balance Sheets at February 1, 1997 and January 27, 1996 | 20 |
Statements of Income for the Years Ended February 1, 1997, January 27, 1996 and January 28, 1995 |
21 |
Statements of Stockholders' Equity for the Years Ended February 1, 1997, January 27, 1996 and January 28, 1995 |
22 |
Statements of Cash Flows for the Years Ended February 1, 1997, January 27, 1996 and January 28, 1995 |
23 |
Notes to Financial Statements | 24-30 |
Report of Independent Accountants | 31 |
* The indicated pages of the Company's 1996 Annual Report to Shareholders
are filed as Exhibit 13 to this Report. Such Exhibit is incorporated
herein by reference.
None.
Information with respect to this item is incorporated by reference from
the registrant's definitive Proxy Statement to be filed with the Commission not
later than 120 days after the end of the registrant's fiscal year.
Information with respect to this item is incorporated by reference from
the registrant's definitive Proxy Statement to be filed with the Commission not
later than 120 days after the end of the registrant's fiscal year.
Information with respect to this item is incorporated by reference from
the registrant's definitive Proxy Statement to be filed with the Commission not
later than 120 days after the end of the registrant's fiscal year.
Information with respect to this item is incorporated by reference from
the registrant's definitive Proxy Statement to be filed with the Commission not
later than 120 days after the end of the registrant's fiscal year.
(a) 1. The financial statements as cross-referenced in Item 8 of this
Report, together with the report thereon of Price Waterhouse LLP
dated March 12, 1997, appearing in the accompanying 1996 Annual
Report to Shareholders are incorporated by referenced in this
Report. With the exception of the aforementioned information and
information incorporated in Items 6 and 7, the 1996 Annual
Report to Shareholders is not deemed filed as part of this
Report.
2. Financial statement schedules are omitted because they are not
applicable or the required information is shown in the financial
statements or notes thereto.
3. Exhibits included or incorporated herein:
See Exhibit Index.
(b) Reports on Form 8-K
There were no reports on Form 8-K filed during the last quarter
of the fiscal year covered by this report.
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
April 22, 1997 on its behalf by the undersigned, thereunto duly authorized.
GADZOOKS, INC. | |
By /s/ GERALD R. SZCZEPANSKI |
|
Gerald R. Szczepanski Chairman of the Board, President and Chief Executive Officer |
Each person whose signature appears below hereby authorizes Gerald R.
Szczepanski and Monty R. Standifer or either of them, as attorneys-in-fact to
sign on his behalf, individually, and in each capacity stated below and to file
all amendments and/or supplements to the Annual Report on Form 10-K.
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Signature |
Title |
Date |
---|---|---|
/s/ GERALD R. SZCZEPANSKI | Chairman of the Board, President | April 22, 1997 |
and Chief Executive Officer | Gerald R. Szczepanski | (Principal Executive Officer) |
/s/ MONTY R. STANDIFER | Senior Vice President, Chief | April 22, 1997 |
Financial Officer, Treasurer | ||
Monty R. Standifer | and Secretary (Principal | |
Financial and Accounting Officer) | ||
/s/ ALAN W. CRITES | Director | April 22, 1997 |
Alan W. Crites |
||
/s/ G. MICHAEL MACHENS | Director | April 22, 1997 |
G. Michael Machens |
||
/s/ ROBERT E.M. NOURSE | Director | April 22, 1997 |
Robert E.M. Nourse |
||
/s/ LAWRENCE H. TITUS, JR. | Director | April 21, 1997 |
Lawrence H. Titus, Jr. |